Last week I hosted a Town Hall Event…
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And on it, we covered a LOT of ground…
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From the Single Source of Truth + Strategic Content Ecosystem we’ve developed that enables us to transform a single email newsletter (like this one here) into 37+ different forms of content each and every week…
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…To the “Category of One” framework I’m using with virtually all of my private clients to help them become the “clear and obvious choice” in the market they serve.
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I also delivered an “AI State of the Union” segment addressing some of the most notable developments in the intersection between AI + financial markets + what I believe will reshape the future of digital marketing in the coming year…
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(Not to mention a few photos of the Vermont Mastermind experience Tylene and I hosted in our home a few weeks ago where I first shared some of this with those who were in the room.)
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BUT…
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There was ONE thing I wanted to bring up on the town hall that I didn’t have time to share…
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And because it’s SO important (and worth discussing), I’ve decided to make it the focus of this week’s issue of The Digital Contrarian…
1 | Why OpenAI's $500B Valuation Should Terrify You...
Several weeks ago, I published a piece titled [#062] AI Bubble Bursting – arguing that we’re witnessing classic bubble dynamics in the AI sector.
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My reading of the video essay has now had over 134K+ views and counting on YouTube…
And this week brought even more evidence I don’t think any of us should ignore:
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OpenAI just became the world’s most valuable private company at a $500 billion valuation despite economics that should make you nervous.
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Let me explain why this is a big deal – and why it could be a major wrinkle in your business plan going into next year…
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But first, let’s put that $500 billion number in context with some actual OpenAI financials:
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2024 Performance:
- Revenue: $3.7 billion
- Loss: $5 billion
- i.e. They literally lost $1.35 for every dollar of revenue
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2025 Trajectory:
- Projected revenue: $13 billion
- Projected loss: $8.5 billion
- i.e. Still losing money on every transaction
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The Path Forward:
- Won’t be profitable until 2029 (their own projections)
- Will lose a cumulative $44 billion getting there
- Requires sustaining 67% annual growth for four straight years
- Needs to hit $100 billion in revenue just to break even
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At a $500 billion valuation, OpenAI is worth more than Coca-Cola, Netflix, and Adobe – combined. Those companies make billions in profit. OpenAI loses billions.
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Here’s the math problem:
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To justify even a generous 10x revenue multiple (typical for profitable tech), OpenAI needs $50 billion in annual revenue. That’s 285% growth from current levels while burning through tens of billions in losses.
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For perspective, virtually no company in history has sustained 60%+ growth at $10+ billion scale. None while losing billions quarterly.
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But it gets worse when you zoom out.
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2 | What Happens When the AI Subsidy Ends??
This isn’t just about OpenAI. The entire AI sector is exhibiting textbook bubble behavior:
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- In 2025 alone, $193 billion poured into AI startups – more than half of ALL global venture capital…
- In addition to OpenAI – Anthropic (the company behind Claude) is projected to lose $3 billion in 2025 despite rapid revenue growth…
- Companies building products on top of these AI models are also unprofitable – spending more on compute than they charge customers…
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When more than half of all venture capital flows to a single sector, and that sector’s leading companies lose billions despite massive revenue growth, that’s not “innovation funding” as it’s been called.
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That’s a bubble.
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The fundamental problem is this:
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AI has negative unit economics. More customers means more losses, not less. Unlike SaaS which enjoys gross margins of 80-90%, because computing costs are fixed and high, OpenAI’s gross margin is closer to 40% (meaning it’s not nearly as profitable).
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Customers now expect low prices.
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Competition drives margins down even further.
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The industry’s answer? “Scale will fix it.”
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But scale doesn’t fix a backward economic model – it amplifies it.
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I don’t know when this bubble pops. I don’t know what the catalyst will be. But I know what happens when investors pour nearly $700 billion into companies with no proven path to profitability, justified by growth rates that have no historical precedent.
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(We saw this play out with the DotCom Bubble 25 years ago.)
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It doesn’t end well.
3 | The Coming AI Price Shock...
Here’s what this all means for you and me:
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If you’re building a business that depends on AI tools pricing staying artificially low (subsidized by venture capital), build contingency plans. When these companies need to actually charge what their services cost, your economics could change overnight.
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Sure we can get a ChatGPT subscription for $20/month today… But what happens when plans start at $500/month?Â
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After all, remember when Netflix was $7.99/month for their top level plan – and it was the only streaming service you needed?
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Today, Netflix’s top plan is priced at $24.99/month – and between Amazon Prime, Disney+, Max, Hulu, AppleTV, YouTubeTV, Peacock, Paramount+, etc. etc. etc. it’s not that hard to spend well over $200+/month for streaming services that replace the cable bill you were paying just a few years ago.
So a 25x increase in the cost of AI is very much not out of the question.
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And what happens when it’s not just ChatGPT – but EVERY generative AI platform – from Claude to Grok to Gemini to Perplexity – that delivers a 25x price increase – just to cover their hard costs?
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At $500/month x 5 services, that’s now $2,500/month.
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(And BTW – Right now, that’s basically what’s required to make each of these AI business models work.)
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The “grab market share with subsidized prices and once you’ve locked people in, raise prices exponentially” is a move that’s as old as time.
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And if someone tells you “this time is different” – remember that’s exactly what is said during bubbles…
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Right before they pop.
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Okay, I’ll leave you with that for now.
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Have a great rest of your weekend…
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Remember to hug the ones you love.
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And until next week,
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Ryan :-)
