AI coding startups are struggling with massive losses due to high costs of using large language models, making it challenging to generate sustainable margins.
Key Takeaways:
- The high costs of using LLMs, particularly for AI coding assistants, can lead to 'very negative' gross margins, making the business unsustainable.
- Building in-house models to eliminate supplier costs is a crucial path to improving margins, but it comes with significant risks and investments.
- The LLM market is becoming increasingly competitive, with model makers like Anthropic and OpenAI directly competing, making it difficult for startups to retain market share and profitability.
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