Is There an AI Bubble?

Hat Tip to this week’s creators: @PeterJ_Walker, @mgsiegler, @jglasner, @lennysan, @AndreRetterath, @alex, @pmarca, @nklsrh, @dmehro, @timmarchman, @adamclarkestes, @Kyle_L_Wiggers, @MTemkiContentsEditorial: Essays of the WeekIs there an AI Bubble?Robotics Startups On The Rise In 2024Behold: the HackquisitionThe Entrapment of AppleThe social radar: Y Combinator’s secret weapon | Jessica LivingstonCan We Fully Automate Startup Investing?The 2024 IPO I’m Most Excited AboutVideo of the WeekThe true story -- as best I can remember -- of the origin of Mosaic and Netscape.AI of the WeekI Will F*****g Piledrive You If You Mention AI AgainPerplexity Is a B******t MachineWhat, if anything, is AI search good for?Andrew Ng plans to raise $120M for next AI FundNo MacBook Air Killer, All MacBook Air FillerHebbia raises nearly $100M Series B for AI-powered document search led by Andreessen HorowitzNews Of the WeekNo, a $100m + Series A Round isn’t NormalIt takes ten years to succeed as a StartupElon Musk has won $56bn pay package despite judge ruling it void, Tesla arguesKleiner Perkins announces $2 billion in fresh capital, showing that established firms can still raise large sumsStartup of the WeekWebtoon Rises Modestly In IPO DebutX of the WeekAI Poetry Camera? Seriously?EditorialIt’s Sunday, two days later than I usually send this out. Two excuses. I was in recovery from PTSD after the “debate.” And then I almost had a relapse watching England in the Euro last 16 game against Slovakia.I’m unsure of my mental state now (we won 2-1 in extra time). But the other, more important “game” is still undecided.But in AI, it seems everybody is getting PTSD from wild allegations that AI might kill the human race to now new suggestions that there may be a bubble in valuations for early-stage companies.The items in this week’s newsletter are really good. MG Seigler, Alex Wilhelm and Peter Walker dominate. The first two are former TechCrunch writers (hats off to Mike Arrington for his talent-spotting). Peter is the leading contributor to VC data; he has access to Carta data and uses it super effectively.MG and Alex have relatively new newsletter sites - SpyGlass and Cautious Optimism, respectively). They are great observers and even better writers - subscribe. Links in their articles are below.Big tech seems to be running scared of AI regulation. This from MG Seigler’s : No MacBook Air Killer, All MacBook Air FillerMicrosoft really s**t the bed here both from a security and PR perspective. And what's left sounds very 'meh'. It's almost like Microsoft forget the 'Copilot' part of 'Copilot+ PCs'. And certainly they forgot the '+' part.MG also wrote about the EU and Apple, claiming that the EU is seeking to entrap Apple by refusing to state what Apple can and cannot do with its AI intentions. Apple, in response, is saying it will not launch AI in Europe until the EU says what product flexibility it has.You have to smile. Apple plays this game super well.Finally, he has ‘Behold the Hackquisition’, which shows how big tech avoids M&A blocks by buying teams instead of companies.Alex Wilhelm’s anticipation of the Circle (USDC) IPO is a great example of his regular style and substance.Peter Walker heads up data storytelling at Carta (great title). This week, he also has three pieces, all originally posted on his LinkedIn profile.‘Is there an AI bubble’ (my title) examines the spread of Series A venture funding valuations. He separates the percentiles and measures the spread between them, noting that the gap between the 50th percentile and the 95th is the widest ever - even wider than 2021 and 2022. This is for SaaS rounds that include much AI.In H1 2019, the 50th percentile for pre-money valuations was $26M (Series A SaaS companies only, primary rounds). The 95th pct at that time was $96M.Now that's a pretty large gap. We're talking a 3.7x jump from the middle to the top end.But today things are even more skewed.𝗦𝗲𝗿𝗶𝗲𝘀 𝗔 𝗦𝗮𝗮𝘀 𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻𝘀 𝗶𝗻 𝗛𝟭 𝟮𝟬𝟮𝟰• 50th pct: $44M• 95th pct: $203M• Gap: ~4.6xThat 4.6x gap is the largest of the past 5 years and likely the past 10, though I don't have full data to prove it.Regular readers will know my point of view. Yes, there is a bubble in that smart money wants to be in the best AI companies and will compete on price to secure equity. And no, there is no bubble because this chase for future-winning companies is entirely rational. At a time when the entire planet is about to become AI users - even without being aware of it - enormous value will be created. The price of current participation is far below the actual value that will ultimately be created. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.thatwastheweek.com/subscribe