Jack Selby is sounding the alarm on a wave of capital rushing into artificial intelligence ventures, warning the AI frenzy is breathing life into an unprecedented bubble that could wipe out vast sums of investor money.
In a Bloomberg interview, the former PayPal executive and current venture capitalist says euphoria in Silicon Valley is pushing valuations to extremes rarely seen in private markets.
Selby, who is a managing partner at venture capital firm AC-VZ, compares the current frenzy to earlier speculative booms that ended with massive losses.
“The euphoria that’s going on in coastal VC, especially around AI, I think may be the biggest bubble that we’ve ever seen in private tech investing in modern times. OpenAI had to revise their cost estimates for the next four and a half years upwards by 250%. So a rounding error, so to speak, of only $80 billion.
And it just seems insane to me, because if this had been a publicly traded company, The stock would have sold off by 90%. But instead, they’re just these breathless storytelling narratives around how all the trees are going to the sky. And I think when the dust settles whenever this bubble pops there’s going to be tens if not hundreds of billions of dollars that will literally be incinerated.”
Pressed on the timing of the bubble burst, Selby says a reasonable marker is when OpenAI’s revised cost estimates play out. According to Selby, people are using AI services at a fraction of its true price, and that tech companies will eventually be forced to charge more for their offerings.
“So I don’t think anyone has a crystal ball, but let’s say arbitrarily it’s five years out because that’s when OpenAI had to revise their cost estimates between now and the end of this decade.
So if we use that as an arbitrary line in the sand, maybe that’s a good time measurement because I think right now, the AI companies are great for all of us as consumers of their products because it’s very deflationary.
These products are very efficient. So we all get to use them, whether we’re consumers playing with ChatGPT or as a venture capitalist. These AI companies are creating ingredients that we all get to use in the menus of the companies that we create.
So we’re getting these ingredients at pennies on the dollar of what they actually cost. So it’s kind of
like, five years ago during the last market cycle top, when every company seemed to be
the Uber for this side or the other. So you can get a shirt dry cleaned for $0.10, when in reality it
probably costs $10…
But at some point, it’s going to have to be priced at cost and probably with some margin. And while that time isn’t here yet, it will be here soon enough.”