Meir's Monthly Learning Article

This month I want to highlight an article, FTC vs. AI, by Matt Levine. Matt’s newsletter, Money Stuff, covers a plethora of topics from the financial industry point of view (free to subscribe, highly recommend, not a paid endorsement). In this article, Matt notes the FTC recently opened an inquiry into the multibillion-dollar investments by large tech companies in artificial intelligence startups. The FTC is interested in exploring the influence large tech companies have over the burgeoning AI domain due to their structural advantages (such as cloud computing businesses), which enables deep investing where other investors may be priced out.

Matt does a terrific job describing how AI startups are not operating under the same constraints as normal tech startups, notably because the infrastructure costs are orders of magnitude higher, which can limit innovation, or at least see initial innovations heavily guided by incumbent large companies. I think Matt’s intuition here is particularly insightful; although other businesses carry similar constraints (voice assistants come to mind), we collectively view AI startups as similar to existing tech startups, however the AI infrastructure cost constraints are meaningfully different, which may create a large innovation gap over time.

https://www.bloomberg.com/opinion/articles/2024-01-29/financial-engineering-for-green-energy (scroll down to the middle of the newsletter)

“If I asked you in the abstract ‘I have a potentially lucrative and important business idea, but it requires like $10 billion of startup capital and does not scale cheaply like software, how should I finance it,’ your first answer might not be ‘venture capital.’ You might say something like ‘well this sounds like a big industrial project, what you should do is go get a job at a big industrial company with a ton of money, and start a division there that will do this project.’”