The risks behind the generative AI craze: Why caution is growing

In the near future, Silicon Valley might look back at recent events as the point where the generative AI craze went too far.

This past summer, investors questioned whether top AI stocks could sustain their sky-high valuations, given the lack of returns on massive AI spending. As Autumn approaches, major AI sectors—such as chips, LLMs, and AI devices—received renewed confidence. Nonetheless, there are an increasing number of reasons to be cautious.

Cerebras: A chip contender with a major risk

Chip startup Cerebras is challenging Nvidia’s dominance by developing processors designed to power smarter LLMs. Nvidia, a major player in the AI boom, has seen its market cap skyrocket from $364 billion at the start of 2023 to over $3 trillion.

Cerebras, however, relies heavily on a single customer: the Abu Dhabi-based AI firm G42. In 2023, G42 accounted for 83% of Cerebras’ revenue, and in the first half of 2024, that figure increased to 87%. While G42 is backed by major players like Microsoft and Silver Lake, its dependency poses a risk. Even though Cerebras has signed a deal with Saudi Aramco, its reliance on one client may cause concerns as it seeks a $7-8 billion valuation for its IPO.

OpenAI’s record-breaking funding – but with strings attached

OpenAI made the news when it raised $6.6 billion at a $157 billion valuation, becoming the largest investment round in Silicon Valley history. However, the company has urged its investors not to back competitors such as Anthropic and Elon Musk’s xAI—an unusual request in the world of venture capital, where spread betting is common. Critics, including Gary Marcus, have described this approach as “running scared.”

OpenAI’s backers also include “bubble chasers” such as SoftBank and Tiger Global, firms known for investing in companies at their peak, which frequently results in huge losses. With top executives such as CTO Mira Murati departing and predicted losses of $5 billion this year despite rising revenues, OpenAI faces significant challenges.

Meta’s big bet on AI wearables

Meta entered the AI race by unveiling Orion, its augmented reality glasses. The wearables promise to integrate AI into daily life, with Nvidia’s CEO Jensen Huang endorsing the product. However, at a production cost of $10,000 per unit, the price is a major obstacle.

Meta will need to reduce costs and overcome consumer hesitation, as previous attempts at AI-powered wearables—such as Snapchat’s glasses, Google Glass, and the Humane AI pin—have struggled to gain traction.

The road ahead

What’s next for AI? OpenAI must prove it can justify a $157 billion valuation while operating at a loss. Cerebras needs to reassure investors that relying on one client isn’t a dealbreaker. And Meta must convince consumers to adopt a completely new way of interacting with AI.

If these companies succeed, this moment could mark a turning point in the AI revolution. However, as tech history shows, high-stakes markets are rarely easy to win.

(Photo by Growtika)

See also: Ethical, trust and skill barriers hold back generative AI progress in EMEA

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Tags: artificial intelligence, llm, meta, microsoft, Nvidia, openai