Are AI Investments Paying Off?
Economists warn that AI profits are funded by investors, not customers.
1Where Do AI Profits Come From?
Apollo Chief Economist Torsten Slok highlights that companies with the highest profit margins in the AI value chain actually have the lowest profitability levels. This contrasts with traditional business models. For example, model and application companies like OpenAI and Anthropic operate with a -59% operating margin.
2Imbalance in the Value Chain
Slok categorizes AI companies into four groups: models and applications, cloud and compute, energy and grid, silicon and equipment. Data shows that silicon and equipment companies like Nvidia and AMD lead with a 41% profit margin. However, these profits stem from investor funding, not customer demand.
3The Role of Investors
Slok emphasizes that AI boom profits are funded by investors, not customers. This poses a sustainability risk for the industry. Specifically, upstream profits are financed by capital raised from loss-making layers, not from customer-generated cash flow.
4Trillion-Dollar Investments
Goldman Sachs predicts AI investments will surpass $1 trillion by 2026. However, the technology has yet to show significant impacts on economic productivity or profit margin growth. This could threaten the industry's stability if investments slow down.
5International Warnings
The Bank of International Settlements noted that AI investments are outpacing earnings and free cash flow, leading companies to issue debt for additional financing. For instance, five major hyperscalers issued $121 billion in debt in 2025, four times their average annual debt levels.
6Oracle's Big Bet
Oracle faces $260 billion in lease commitments and $130 billion in debt for AI infrastructure projects. Its $300 billion deal with OpenAI underpins this massive gamble. However, these projects have yet to begin, and the risks are substantial.
7Impact of Tech Giants
High spending by companies like Microsoft, Google, Amazon, and Meta on GPUs, RAM, storage, and data center construction supports the AI industry. However, a slowdown in their spending could create a significant gap in the sector.
8Sustainability Risk
The most profitable part of the AI value chain relies on the least profitable part increasing revenue or raising capital. While capital can bridge the gap temporarily, it cannot do so indefinitely. This poses a major risk for investors.
Original article: Fortune | FORTUNE — Yapay Zeka Yatırımları Gerçek Getiriyor mu?