They've got, ballpark, $5t to $10t to make back in the next 5 years, or the hardware buildouts will start getting written down.
This means we're going to need $1t+ per year in spending, per year, on tokens. 200m knowledge workers in the world, 30m developers. We're talking about a world where you need 5% of every knowledge workers salary to go into tokens. 20% if you're a developer.
That's a _huge_ shift. Most people I know cite +20%-40% velocity with these tools, against the actual work their company cares about doing. +20% speed for +20% spend isn't going to motivate a trillion dollars a year in spending.
We're not there yet. This is still the upswing of the hype cycle, and unless we figure out how to make developers 2x, 5x, 10x as productive on stuff that matters, this isn't going to play out well.
- The publicly available information about how inference costs compare to training costs is conflicted. EEs involved in datacenters talk about power usage spikes during training runs as if they were a major factor in the designs, but academic papers discussing cost-optimal scaling confidently treat inference-time compute as a major factor.
- On the side of the balance indicating that training is more compute-intensive after amortization than inference is that Chinese providers, constrained primarily by access to compute, have nearly unlimited token availability at a lower price than US providers (inference), but poorer model capabilities (training). That would make sense only if US providers are inflating inference costs by 20-30x due to amortized training costs that overseas providers were not able to take on.
- If training >> inference, they're in a prisoner's dilemma that far exceeds the ordinary zero-marginals model of competition between firms (due to its huge discrete stepwise nature). On the other hand, if inference>>training, the high-level analysis popularized by certain thought leaders, that it's like a utility, would be true. You'd tend to count this as a vote for inference>>training, but the CEOs saying it at least have a huge incentive to agree because the alternative, the prisoner's dilemma, would stop investment very fast.
- The only voice in the story that I just told you to have anything to do with fact (as opposed to high-level analysis and ivory tower armchair management of a secretive business) were the rumors from facilities engineers. That shows you the state of our understanding...
- If we don't even know the ratio between amortized capital expenses and operational costs, outside investor analysis is impossible. It doesn't matter how finely they divide the accounting buckets for office ferns and indoor ferns if the single biggest part of their business is obscured for trade secret reasons.
I'm about to leave a shallow comment, but I am a bit skeptical of the supposed drop in inference costs. If AI labs saw a lot of potential there, they'd surely be bragging about it non-stop? So the fact that publicly available information is conflicted is probably a sign that at the very least, the numbers aren't amazing.
Yes I know there's no evidence and this is lazy reasoning. But there's probably a bit of truth to this line of thought.
Why on earth would AI labs be bragging about how little the product they sell actually costs them to make? You don't want to do anything that reduces it's perceived value to the user, that might make them less willing to pay for it.
Also, inference costs are bound to go way down with more optimized architectures. GPUs are fundamentally not great at inference. No platform where the weights are streamed from a large pool of memory is. If the models ever quiet down, there will be massive step changes in cost/token, energy/token and tokens/second, as models are etched into silicon ala https://chatjimmy.ai/
Inference has traditionally been far less expensive than training. One public example is the fact that hobbyists can run StableDiffusion ($600k training costs[1]) on their personal computers.
Speaking to your point, inference being dramatically less costly than training would not be seen as a delta from the norm. The things that thought leaders are saying, that they are providing inference for anything near the operational costs (like a utility would), is the delta from the norm.
I work for a tiny little company ($150MM annual rev with 9% net) and we are already looking at dropping $100k on hardware to run local models because, for us, they're "good enough."
Our estimated spend for AIaaS would exceed that cost in less than a year.
In a few years, there will be hardware capable of running frontier models good enough for most things at accessible prices for even tiny companies.
I’m curious: are you spending on beefy developer machines, or some kind of shared local inference server? Would be interested to know more if it’s the latter.
> ...we are already looking at dropping $100k on hardware to run local models...
Just think how much further that $100K would have gone if the hardware market wasn't so screwed-up.
Anecdote: I priced-out adding 1TB of RAM to a four node cluster a couple months ago. The cluster was purchased in fall of 2024 w/ 4 nodes, each with 256GB RAM. The nodes cost just over $14K apiece back in 2024 (entire box, not just the RAM).
Dell wanted >$90K a couple months ago to add 256GB to each node.
The bottleneck has moved from producing a thing that works to knowing that the thing was the right thing to build. The more of the latter they can take on, the fewer knowledge workers are needed at all. So rather than 5% of every knowledge worker's salary going into tokens, 100% of the knowledge worker's total employment cost goes into tokens and you get a 20x productivity boost as a theoretical minimum across those tasks.
That's the game. There's a view you could take of this that this is just a growing of the pie: with those cost dynamics a lot more "small businesses" get a vast amount of leverage, so the overall economy grows without replacing the knowledge workers. I'm not sure I trust the MBA class to have that view.
>The bottleneck has moved from producing a thing that works to knowing that the thing was the right thing to build
I would argue that that's been the case for quite some time before AI. As an example, what innovative amazing world-changing products have Google or Meta launched in the past decade with their very high numbers of very talented and highly-compensated engineers? The issue with most big tech companies are leadership, strategy, and product direction. I'm not saying that they don't make any profits, just that they probably aren't "building [the right thing]".
AI for product development and management would be far more impactful than automating rote coding tasks / building React UIs that mirror API structures IMO.
I don't know, if you've ever tried to build something at companies of that scale you run into incredibly boring problems "what data table do I need for X" and "who is the right person to reach out to for Y" and "they aren't answering me I guess I'll have to escalate"
I don't think there is any shortage of great ideas at these companies, they are just extremely bloated. And I don't think its something like indecision or bad PMs, it's "we have a finite amount of time and resources so we need to be conservative but also not too conservative"
If you have AI systems that can simply build out POCs in days, backtest on real data, show reliable results and numbers, you get a suite of product options you were never able to get before. If you have coding agents that can speed up implementation, you can build more stuff and choose the things that stick.
It changes the cost/benefit calculus of the entire business. I think you are exactly right in that: PMs/leadership are by their nature orchestration machines. Other roles are as well, but I think PM's are at a particular advantage here in that it will be quite awhile I would expect before core product decisions and creativity can be delegated to an AI, but not quite awhile until virtually everything that they're blocked on (legal approvals, POCs, wire frames, etc etc etc) will become less and less of a blocker
>If you have AI systems that can simply build out POCs in days, backtest on real data, show reliable results and numbers, you get a suite of product options you were never able to get before. If you have coding agents that can speed up implementation, you can build more stuff and choose the things that stick.
I'll also add this: within a large organization, you often need to interact with many different codebases owned by many different teams. Agents have made it much easier to wrangle by having the ability to deploy one to scope out your web of dependencies to learn about what would be needed for feature X, and how that integration can happen.
We've been doing far more away team work simply because it makes things move faster. It's easier to convince a team to sign off/review something than it is to get them to commit to the planning and eventual work.
It genuinely is helping things move faster inside large organizations. Or at least, it is for us, particularly since we're getting organizational prioritization to actually build the scaffolding to make those agents more effective at search.
> It's easier to convince a team to sign off/review something than it is to get them to commit to the planning and eventual work.
1000x yes: you have touched on what I think is the single biggest factor here, that is the humongous value of POCs. they are gnarly to build without agents, and so we used to have to get everyone on board so we didn't get screwed in performance reviews, which was monumental task because that means convincing very busy PMs who have a lot on their plate and dont want to take risks on things they don't understand, and now it's like "can we scale this out" and you have a very nicely formatted proposal and POC. It de-risks things very quickly
Pieces of concept and other prototypes have always been cheap (see hackatons). The main issue is that as soon as you’re touching customer data or modifying process they’ve paid you for, you have to be really careful. No one wants to be responsible for an outage that cost the company its biggest customer.
> AI for product development and management would be far more impactful than automating rote coding tasks [...]
Yeah, if this stuff actually worked that well already, OpenAI et al. would just run AI CEOs and engineers. Why get some other company to pay you at all when you can automate every other company out of existence and take all the money they make?
The fact of the matter is that while the tech has some uses, it sure as hell isn't a full scale replacement and you almost always actually have to massage the input into LLMs to get anything decent back out in practice. Some CEOs and managers can learn to do this, of course, and some already are... but that quickly turns into a second full time job. A "programmer" is still needed. The job might change from mostly hand-writing C++/JS/Python to prompt engineering + some manual coding to fix all the stupid fuck-ups that the bots can't solve themselves, but you still need someone to actually prompt the bot.
When that changes, it won't just be engineers losing work; there will be no reason to even have a human CEO any more.
This is the same argument that has been historically made for outsourcing developers. Get 20 more devs for the cost of 1 dev in the US.
I suspect that AI will fail to pan out to the same extent for the same reason why outsourcing hasn't fully panned out (even though every company tries it after getting big enough).
The problems that will come up will be and always have been ongoing maintenance. AI is great at writing new code without a brain behind it, but once you get to the point where you need to refactor code, you start really needing someone with coding experience to guide the AI or veto it's mistakes.
I don't think that's really fixable even with a lot better AI. It's not something that ultimately comes out of the likes of github data.
I'm not saying that AI isn't going to make things better, btw, I just don't think we'll see a 20x improvement. Probably more like 1.5 or 2x.
Outsourcing of knowledge workers didn't work out because at large enough scales, the geographic arbitrage disappeared. Companies mostly always got what they paid for.
The determinant of success was only whether the task needed American-tier labor or could make do with sub-American quality labor.
That's certainly part of it. But the other part that I've heard time and time again is that in order for outsourcing to be successful you basically needed an american engineer in the mix hand holding everything, clarifying requirements, and vetoing bad code.
That part of dev work, the requirements gathering, attention to details, clarifying requirements, is something AI also struggles with. A lot of companies basically waste time and money on outsourced devs because without a clear path forward they effectively will sit and do nothing, waiting for a prompt.
Back then people were mostly farmers, but we already automated that job away.
Not completely, but compared to the middle ages we 50x'd their output. Which is a great illustration what it means to make a job 50 times more productive. We went from 80-90% of the population being required to make enough food so everyone can survive, to 4% of the population producing such an abundance that consuming too much food has become a systemic health issue
There definitely were what could be considered knowledge workers in the (high) middle ages, it just wasn't the majority of work like today. The knowledge workers then were just a tiny, elite faction, mostly employed by the church or directly by nobility. Kindgoms were still big bureaucracies and needed scribes, theologians, academics, lawyers.
Relatively few anyway. Monks (who wrote and edited books and managed libraries, and also taught), artists and musicians, bookkeepers/treasury/exchequer, scribes/chancery (who were the administrators of the kingdoms), and bankers all existed in European "middle ages". But a significantly smaller part of economy/society compared to "western world" now, yes.
Are you sure? Any functional organization requires keepers to oil the machine. First the government. The best examples were the chinese empire, the catholic church, and the various kingdoms. Or do you think that everyone was either fighting or farming? Stewardship is knowledge work. Bookkeeping is another.
> Who pays for that value, and from what, if all knowledge workers lose their jobs?
They do not care unless these companies can get a bailout.
UBI only exists for companies that are too big to fail. Case in point, 2008 and SVB when there was too much money on the line.
One of the AI companies attempted to guarantee themselves a way for the government to bail them out if they were close to defaulting on the debt from the data center build out.
SVB didn't get bailed out, their investors and creditors were wiped out. You could argue depositors were bailed out -- as they took the undue risk of keeping more than $250k in a single bank (though as part of a requirement for getting a loan from SVB, you had to have your operating accounts with them. So lots of companies had no choice, as SVB was one of the few banks that would lend to them).
Arguably, the main impact of securing SVB depositors above the $250k limit is that it prevented thousands of people from being laid off that week, as their employers wouldn't have had the money to make payroll the following Wednesday.
Producing a thing has always been cheap since personal computers existed. From mail-order software companies' times to SaaS times, producing a sellable MVP was an initial cost that is relatively small compared to the later cost of expansion and maintenance. Marketing and selling was and still is the hardest part.
Why do you think of knowledge workers as a fungible commodity?
What makes you think the people who used to build (or would have built) software will switch into the industry of "knowing that the thing was the right thing to build", as opposed to something cooler like surgery, city planning or experimental physics? The roles within a tech company are not the only jobs in the world.
> The bottleneck has moved from producing a thing that works to knowing that the thing was the right thing to build
“There’s more capital than good ideas to fund” has been a complaint from the likes of A16z & other VCs for a long time now. It’s why we ended up with stuff like NFTs getting funded.
You are making the assumption that the models are only used / paid for by 2.5% of the population (your knowledge workers value). There will be new value created by these models which people are happy to pay for which simply did not exist at all before. It is also naive to say that the hyperscalers are going to be expecting a return on this in 5 years, it will be entirely propped up by investments / IPOs as has been the case with any tech company for decades now to reach scale. The hyperscalers are currently spending ~650b combined annually, which they have the cash for and can sell in future compute instantly.
I'm sorry, what the feck does "value creation" mean here? I live in a place where people are so, insanely squeezed from every angle. Wages are stagnant, prices rocketing. Where is the money to pay for this value going to come from?
No one I know feels richer than they did a decade back. I've not been able to meaningfully put up my prices for a decade. People are tired and stressed and scared, particularly scared of a technology everyone keeps telling them will make them redundant.
There is no rising tide lifting all boats, just most of us drowning whilst a few whizz past in their yachts.
I honestly hope these guys faceplant ASAP. Couldn't happen to a nicer bunch of people.
Sounds like internet sentiment and not research data.
It's kind of become socially taboo to not be suffering "in this economy", but on paper it's hard to see weakness in places that there isn't always weakness. As long as the 65-95% are doing well, there isn't going to be a collapse.
Feelings aren’t fact. A lot of data shows the doomerism is not reflected in the actual numbers and much of it has to do with rapid inflation and continued vibes.
Consumption has risen, inflation adjusted wages have risen for blue collar and white collar alike. Most social mobility has been the middle class moving into the upper middle class, not moving to the lower class.
The main thing holding people back is the housing crisis. This is orthogonal to the value creation of businesses.
Value creation is growth. If it didn’t exist the S&P would still be 42.55$.
A literal example is that I can use AI to file my taxes instead of spending a weekend and hundreds of dollars to have an accountant do it for me. It costs me like $5. that 245$ delta is the value of that output to me, as long as I am confident it is correct.
Thats the thing; the "increase in productivity" isn't being felt by the general public, the end user. If your "increase in productivity" just means more money being shifted around at the corporate level then it is meaningless.
> There will be new value created by these models which people are happy to pay for which simply did not exist at all before.
True, but I think the GP's point was that what consumers will pay won't be nearly as profitable as what enterprises will pay to increase the output of their developers and knowledge workers. ChatGPT is currently the overwhelming leader in consumer AI usage but only ~5% pay $20/mo.
As a recently retired serial tech founder, I'm now one of those consumers. I use AI webchat daily for general search, Q&A and even to write little automation scripts for myself, yet I haven't paid anyone anything for AI yet. Even after being heavily restricted and performance nerfed to hell in recent months, free webchat AI is still fine for everything I do, and I'm not remotely price sensitive.
Even as AI compute costs fall over time, I doubt serving ads against AI webchat to consumers will generate the kind of high-margin, sustainable growth VCs get excited about. It's so undifferentiated I bounce around between all four leading providers because there's virtually no moat locking casual consumers to any chatbot beyond a single question thread. I guess if it had a nearly infinite context window seamlessly integrated across all sessions, that might be somewhat sticky for some consumers but it could also get creepy for some others - and it consumes gobs of the scarcest resource in AI.
I mean this case with AI-productivity fires itself back when we talk about GDP.
The more AI causes productivity increases, the less and less number of workers will be needed. This will heat up the job market even more and bring salaries down.
Net effect of this productivity increase: less consumption by the masses, even though you may be producing more good and much more efficiently.
A third effect also comes into play that once all this starts to happen, common people, who are generally living paycheck to paycheck, will now start to hesitate towards making any long term investment, housing included. And that indirectly will end up impacting financial and banking sector, which will then impact existing savings, bonds yields and retirement funds, and the recession-like cycle starts.
This productivity increase only makes sense if it is capped to a very small number.. like 20% max. Beyond that, who these companies will even be selling to?
>The more AI causes productivity increases, the less and less number of workers will be needed. This will heat up the job market even more and bring salaries down.
>Net effect of this productivity increase: less consumption by the masses, even though you may be producing more good and much more efficiently.
Big tech companies can't even create login flows and account recovery flows that work for everyone yet. There are countless stories of folks losing access to business Instagram accounts that get hacked, Google support from a human to fix a problem that is outside of their help articles is non-existent, etc etc. There's still so much "low-hanging fruit" IMO that isn't particularly fun or exciting to fix, but ask your average non-tech friend or family member what they think of the Facebook + Instagram security settings pages / sites / desktop-only settings.
Who is going to pay for all of these subscriptions that will power this GDP increase when average purchasing power of those outside of the top ~10% of earners is decreasing YoY? We're headed toward food and water shortages next to sprawling datacenters, not shared societal prosperity and a healthy middle class.
> The more AI causes productivity increases, the less and less number of workers will be needed.
That only holds if companies have a fixed need for "productivity" which is met by their current employees, such that their employees becoming more productive means they need less of them.
Every company I've ever worked for has wanted to achieve way more than they are able to get done with current resources.
But generally yes, the biggest open question about all of this is how the impact will play out on the economy, job opportunities etc. I've not seen anyone come close to a confident prediction about how this will play out.
It's hard to imagine how making insurance sales cheaper for the brokers, churning out astrology apps faster, AI boyfriend bots or running ad campaigns with fewer and lower paid designers is going to drive 10% GDP growth in developed and middle income countries, that's the sort of figures you see when very poor countries finish roll out electrification, sanitation and transportation.
First of all, common people are not living paycheck to paycheck in the sense that they're at risk of not having money[0]. This is corporate content marketing that has entered the collective memory of people, not anything close to reality.
Secondarily, reducing the cost of making a thing doesn't always mean you get less of a thing. For me, certainly, what happened is that I write way more software than I originally did. When we built compilers, the amount of human engineering effort required to do things plunged, but the amount of software engineering jobs didn't go down.
This is as bad as models will ever be. That part is true. And it's entirely possible we go foom. But it's also possible we don't, and then it depends on where the asymptote lands.
And yet the job everyone loves to hate, the humble "burger flipper", continues to resist automation yet command minimum wage labor rates. This future of either being a CEO of a company consisting primarily of AI agents building some monthly subscription-based solution to some trivial digital chores OR manual labor that isn't [yet] fiscally viable to automate seems quite bleak. We'd also need a ton of robot technicians and manufacturing that the US has neither the educational and training institutions to support nor the will of the population to fill. Given the ongoing war on immigration, visas, and foreign-made hardware, if this continues, good luck.
This is never going to materialise. It’s dead in under 2 years.
The market is shrinking and saturated already and it’s not because of AI gains but geopolitical instability and supply chain issues, some of which are caused by AI spending and stupid ass PE firms refocusing on AI supply chains.
The company’s gone but the assets just got sold to other commercial real estate firms.
Uber was basically only ever software to help people use their own cars so a very small part of their valuation was physical stuff to upkeep, it was just deals and obligations they had.
Not sure how it shakes out for Anthropic and OpenAI. There’s a lot of physical capacity that needs to be built out and can depreciate. But there’s also a lot of network effects and dependencies being built in with enterprise users.
I don’t know how swappable the tooling is either. I think over the long term the UI, model training and documentation, and infrastructure are going to end up being run by different parties and I’m not sure which leg of that chain ends up in a position to skim most of the profit off. My guess is that Apple and Google end up raking in all the money since they control the OS and app stores while the rest of the stack gets driven down to being generic commodities. At least where mass market consumer adoption is concerned.
The difference is that they had room to charge more of their customers and pay less to their workers. The AI industry doesn't have both sides to play at this point. Training and inference are getting more expensive and if you take on the high prices now you're just floating yourself further downstream from profitability long term (which does not look viable for any of them currently).
> But then you sometimes go and talk to your senior engineering leaders and you’re saying, OK, how many projects that were on the cutting room floor got moved above the line because of the productivity gains because 25% of our code commits were via Claude Code last quarter?
> That link is not there yet, right? I think maybe implicitly there’s more that is getting shipped. But it’s very hard to draw a line between one of those stats and, OK, now we’re actually producing like 25% more useful consumer features, right? And that line is hard to draw.
That's pretty weak sauce. I don't think that justifies the headlines that came out of it, personally.
? What are you talking about mate? The man all but says "this shit does not work for us".
It iss layered in that careful, sanitised corporate shit-sandwich communication approach, where you take a nice piece of shit and layer it in between two slices of avocado so its sweeter to swallow for the "consumer" of your message.
He also said in that article that what prompted the discussion was the public statement by the Uber CTO that he had already burnt through his organisations yearly AI-budget in April. Please stop this shilling mate, and trying to hide the overall perspective between this or that word.
> The most discussed has been Uber, based on this report where CTO Praveen Neppalli Naga indicated that Uber had “maxed out its full year AI budget just a few months into 2026”, mostly thanks to Claude Code.
> Given that Claude Code only got really good in November it’s entirely unsurprising to me that a budget set in 2025 may have failed to predict demand for that tool in 2026!
> +20% speed for +20% spend isn't going to motivate a trillion dollars a year in spending.
Except that if your company go 20% faster than the others companies, you win market shares. But then, everyone will use the same tools and companies will be at even speed, but the tool will stay.
Now...if the market is saturated, it's useless to try to do things faster. Cheaper yes, but not faster.
Pretty much all major tech companies today are horribly bloated and mostly metastasizing instead of innovating. I'm not sure how 20% increased productivity will help in any way with that. If anything, it might accelerate enshittification and turn potential customers off even more.
Bigger than that, they have to contend with open weight local inference. Open weight models right now haven't caught up to the frontier models of right now, but they're as good as the frontier models of not too long ago. If open weight models reach a certain point, then frontier model providers are going to struggle to make anything selling tokens, because eventually people will realize they don't need Mythos for everything.
There is also the EV (expected value) of developing AGI. Even if you personally believe the probability is low within the lifetime of either of these companies, the value would still be extraordinarily high, enough to forgive a $5T or so miscalculation here or there.
The high-risk side of that bet would need to win more like a lifetime supply of Twix. But in a post-scarcity nirvana, everyone already has that. So sure, you're on at even money. See you in two years.
Theres no reason to believe, based on recent trends, that AI would lead us to a post-scarcity world, even if it could do all of our jobs better and cheaper.
I asked claude to generate a frontend and it made the same template. Same san serif and serif fonts together. Same colors. Same typography. Same layout and animations even. It’s wild how similar it is. No not similar it’s the same damn thing.
It produces the "most average" web design unless you really prompt your way out, isn't it? If you don't care enough to prompt, Claude does not care to be individual.
YEPPP... and I'm kind of shocked at how many people can't do simple math.
Let's put it context. Google's annual revenue seems to be north of $400B. So if OpenAI suddenly had Google's revenue, it would still be insufficient to recover their investment.
and it's a ticking time bomb because $1T in servers, CPUs, GPUs and memory is going to be worth $200B in 5 years. You can say they can keep using what they've got. Sure. But they're also not going to stop spending on new hardware. And the competitor that comes along in 5 years and spends $1T doing the exact same thing is going to have a huge advantage.
OpenAI at this point reminds me very much of the Russ Henneman pre-money hype cycle.
This should be the top comment. Also, I think its not that many people, including our Simon here, are not good at math. Its more like, some of them seem to be incentivised to not be cough, cough, "good at math". How else will the hype sell?
At a certain point, I genuinely feel like the best way this hype is being sold is by making people genuinely believe in it.
and in that sense, if Anthropic and OpenAI are able to create the projection that they can-be profitable despite finances seeming bubbly at best, I think that what happens is that these companies spew so much amount of content that people like Simon get into it too.
There is a deeper problem of people falling into AI psychosis too, in general, I am not sure if Simon has fallen into it or not
I think that the greatest point which can be made here is to not offload your thinking to others and to think about the situation yourself. Sounds familiar (looks like we are all off-loading our thinking itself to machines)
Side-note: As humans, we have a tendency to quickly judge or make quick decisions which stems from our times foraging and scavenging in jungles.
Another Side-note: at a certain point, I am unsure of how much to think about AI or not, certainly discussions about it that were happening 2 years ago weren't helpful in contexts that they are used now (well not in any way or form that a person discussing and getting into the weeds of AI 2 years ago is better than a person just getting into it say 2-3 months ago)
With the industry moving so fast, It is basically unsure to me of any FOMO or anything if you aren't using AI already, I find this notion naive.
People might be making strong opinions (AI psychosis) and skills on the tools available at the moment the same done 2 years ago. We don't quite know about the tech as these are still black-boxes and how they progress and what these "AI skills" might survive or not in future. Heck, we aren't even sure if these tools might survive or not or wouldn't be made magnitudes more expensive simply to break even as they are given to us for the first time at percentages of the price.
I don't know if I should form strong opinions yet and also a question of its worth so much thinking efforts in the first place, probably just gonna do my own thing (the way I want to) which includes learning C at the moment. because learning is fun.
> Gartner forecasts that large AI companies would need to earn cumulatively close to $7 trillion in AI-driven revenue through 2029, which is close to $2 trillion per year by the end of the period. In order to achieve “historic returns,” the providers would need to earn nearly $8.2 trillion in the same period.
The numbers are made up political correctness anyway.
Everyone's agency is 100% captured by belief in Wall Street. Too few <50 have any meaningful labor skills to blink.
We'll continue to have consent manufactured via media platforms and in 3 years no one will bat an eye at these companies being worth $12 trillion as Altman and Musk climb two ladders holding a "mission accomplished" banner.
Source on 200 million knowledge workers worldwide? My understanding is that it's just above 1 billion. I dont think a billion subscriptions at $1000/yr is out of the question but it might take a decade to get roiling
You're suggesting that 1 in 8 people worldwide, including every one from infants and the elderly, are knowledge workers. Are you sure that's what you mean?
I'm not even sure that 1 in 8 people I know would qualify as a knowledge worker, let alone a knowledge worker that might profoundly benefit from on-the-horizon AI. And I'm in a highly skewed population.
85% of the world population lives outside of developed nations.
27% of the world's workforce is in agriculture (contrast to the US where it is 1-2%). 15% in manufacturing.
A lot of people work in "services" (especially in high income nations, where it's roughly three quarters) and some of those are knowledge workers... but a huge number of them are nail technicians or hairdressers or bartenders (etc etc).
A lot of those ‘edge cases’ in the definition of “knowledge worker” are probably the stuff that’s most likely to have significant parts of the work augmented or replaced by AI agents. Like, call-centers are almost certainly going to get turned over in a big way. It’s not like the median tier-1 support operator just reading off a script is much better than an LLM anyway.
To add an actual source to this thread, a brief paper by researchers at the International Labour Organization (ILO) states that for knowledge workers globally "... there
are between 644 and 997 million jobs, which represents
between 19.6 per cent and 30.4 per cent of global
employment respectively." [1]
[1]: Berg, Janine and Gmyrek, Pawel, Automation Hits the Knowledge Worker: ChatGPT and the Future of Work (April 21, 2023). UN Multi-Stakeholder Forum on Science, Technology and Innovation for the SDGs (STI Forum) 2023, Available at SSRN: https://ssrn.com/abstract=4458221
Globally, sure. The assumption here is all users are on the same economic footing, they are not. Only about a 1/3rd (at most) of that count can afford $1000+ monthly, and even then that is wildly out of line with what most will.
Here's a source from 2019 that says: "By 2023, the number of knowledge workers in the world will increase to 1.14 billion, with more than four-fifths of that growth coming from the emerging world."
I googled "number of knowledge workers worldwide" and read the top results. If you read it as I was confident in a billion I apologize, Im just trying to get an accurate count. What numbers do you have now and where did you find them?
That's not the TAM of 1B knowledge workers globally. If that were the case many industries would have a 2-3x target market.
To simplify break that 1B up into 3 levels of purchasing:
1) High-tier (US, Western EU, ANZ, Japan, South Korea, Singapore, UAE, etc) - 200-250M knowledge workers.
2) Mid-tier (Eastern EU, Latin America, urban China, India tech sector, etc) - 300-400M
3) Low-tier (Rest of the world) - 300-400M
Low-tier users are mostly free tier or heavily subsidized pricing.
Mid-tier are going to account for USD sub-$100 tiers. Probably averaging less than $50/seat.
High-tier are who you are assuming is the 1B. Users are not equal in that knowledge worker count, so there aren't 1B knowledge workers to charge money.
And when you consider Low-tier users a majority of those are free users which need to be subsidized by the High-tier users. So either free tiers get much more restrictive or the providers lose additional training data. A bulk of Low-tier users cost money and provide little to no revenue.
Edit:
And think about Mid-tier and Low-tier for 5 seconds. Why would they pay Anthropic or OAI when they get get 100x+ inference from DeepSeek or Xiaomi? Mid-tier may be the only area that is willing to spend money on a US provider, but I would wager significantly on the fact that users in the Low-tier almost universally do not care.
> 20% if you're a developer.
That's a _huge_ shift. Most people I know cite +20%-40% velocity with these tools, against the actual work their company cares about doing. +20% speed for +20% spend isn't going to motivate a trillion dollars a year in spending.
Of course it will. The value of an employee is a multiple of what they get paid.
If you pay an employee $500k and they make $2M for your company (like Meta), then of course a 20% increase for the salary is justified if the velocity is increased 20% as well.
The difference between what the employer makes per employee and what they spend in compensation doesn't matter. If the increase in productivity isn't greater than the increase in cost, there isn't a reason to pay for AI over hiring more developers.
Imagine an employer with 10 employees paying $500k per employee and making $2M per employee in revenue (to use your numbers). They could hire two more employees and spend an extra $1M (+20%), but make an extra $4M in revenue (+20%). Alternatively, they could buy all ten employees a $100k AI subscription, for a total of $1M extra spending (+20%) but an extra $4M in revenue (+20%). You'll notice both scenarios are identical, so an employer optimizing for profit would have no reason to prefer one over the other.
> Anthropic are strongly rumored to be about to have their first profitable quarter
No, its more like their own leak to WSJ and according to Ed Zitron -> seems to be heavily engineered via non-GAAP practices such as counting potential, but not realised revenue as actual revenue - the stuff for which I would be arrested if I did it at my company.
Also it appears according to Ed's analysis - strangely they seem to be projecting only that one quarter as profitable - potentially to calm the investors ahead of the IPO. Investor fraud anyone?
Their CEO claims a lot of wild shit. He claimed in January this year, that in about 2-3 weeks from this moment, i.e. "in 6 months" that AI will be doing all of SWE work. Lets hold these people accountable for a change!
I find this analysis confusing. PMF for coding was likely reached some time last year. Profitability, which is different, we don’t know. The article kind of confuses both without making a strong economic case or using numbers in a compelling way. I don’t understand what the Uber case has to do with this either. The Uber COO clearly said that at least in terms of ROI he’s not seeing the results either.
My take is the product has been very useful for coding (PMF) for months. But it’s certainly not useful at any cost…
What I also find confusing though is that folks seem to ignore trajectory which is maybe the biggest lede to bury. As Simon says, we have had "good enough" coding agents for 6 months, that is a blink of an eye, and at my company my job has now completely changed. It's almost like a dream.
And that's just one inflection point. We've had several and there are many more on the horizon. So while I could be convinced that ROI is maybe not even positive today despite the ridiculous enterprise spend, it's perfectly rational to pave the way today for what's coming over the next few months let alone years down the line.
Pmf is this weirdly defined thing where "if you're not sure you have it then you don't".
I think it was clearly useful for months to people who had tried it and taken the time to understand it, but now that knowledge has spread to the point where wallet holders are convinced it's not just passing fad or hype so now pmf can be "claimed".
I agree it's weird to say "those people have pmf" though, usually it's something you define for yourself
It’s not supposed to be logical, it’s an LLM evangelism blog that rarely, if ever, has any critical analysis that isn’t pro-industry. Read any/all of the other posts and you won’t find much skepticism but you will find a lot of shilling how great it all is.
I like his other posts. He's bullish on AI, which is fine. I'd like to read a mix of bearish and bullish level-headed takes from people who are subject matter experts. His technical credentials are well past discussion - I love Django, and he comes across as pretty level-headed guy. Certainly beats radical takes either way from people who have no clue what they're talking about. It's just this article that I find rather confusing.
If you want an "LLM evangelism blog that rarely, if ever, has any critical analysis that isn’t pro-industry" there are plenty out there. I'm not one of them.
The real timing is that we don't have strong enough new business needs for now and we have accumulated enough tech assets, so our work has been increasingly incremental. That means we can build reliable features on top of vast amount of past work - where AI really shines. So, with or without AI, company would hire fewer software engineers if majority of our work is incremental: add a feature here, fix a bug there, tweak a configuration and etc, then we wouldn't need as many software engineers anyway. AI just accelerated such squeeze.
In contrast, imagine if we had the same AI 20 years or so ago. Could AI really write Jersey? I guess not as people were still trying to understand JAX-RS. Could AI really answer all the questions about React? I guess not as React was just invented. Would we use 10x fewer people to build out infra on the public cloud or the entire so-called Big Data platforms? I guess not, as they were still rapidly evolving and we'd need so many engineers to explore so many different possibilities? Could we use AI to build our ML ecosystem with 10X fewer people? I highly doubt so. Heck, 20 years ago R was all the rage and Python's ecosystem was not mature at all. Oh, and mobile computing, could AI lead to 10X fewer people to build all the mobile apps and the underlying infra?
“Tokens” don’t have an intrisic cost or value. Saying that I used $2,180.16 worth of tokens is like relying on the salesperson to convince me I’m getting a billion dollars worth of pots and pans for $19.99.
I think it’s funny how we are throwing critical thinking out the window when it comes to evaluating biased sources of info.
I'm not sure what you're pushing back against here.
I spent $200. If I had been paying API pricing it would have been $2,180.16. The article is about how enterprise customers get charged API pricing, which means if I had been employed by one of those companies I would have cost them $2,180.16.
Just because API pricing would've been $2180.16 doesn't mean that's the value of those tokens. For starters, you personally probably wouldn't have paid that. But also, sales price isn't value. This is like saying, oh, I saw this bar of gold somewhere for $10000 but got it here for $1000! So I got $10000 worth of gold for $1000! - no, the value of that gold is determined by its weight, which wasn't even mentioned.
We have no market convergence on tokens yet (and it'll differ between LLMs), so it's impossible to say what value you got for your $200.
He's saying he's getting a great deal...a token from Opus on Claude code is the same as a token from Opus on the API. I remain as confused as Simon. He's not talking about "here's the ROI I got from my $100 subscription" it's "here's how much I saved from getting the monthly subscription instead of sending things through an API".
> Just because API pricing would've been $2180.16 doesn't mean that's the value of those tokens.
You seem to be suggesting the price of tokens is entirely disconnected to the cost of providing the service? I don't see much basis for that assumption.
> If I had been paying API pricing it would have been $2,180.16
The point being made above is that API pricing is calculated... somehow... seemingly arbitrarily. Possibly untethered to the infrastructure costs entirely: which would be the basis of any 'value', however that holds the labor theory of value, which isn't accurate either. So how do you accurately price these tokens at all (other than through price-discovery: which is slow, messy and fuzzy)?
I love HackerNews. God its fantastic. Only on HackerNews can you find these deranged personalities who think the pricing model of a near-trillion dollar company is determined "seemingly arbitrarily".
Fun fact: the $20/month subscription fee for ChatGPT Pro - which set the standard for at least a couple of years - really was an arbitrary decision made based on a Google form: https://simonwillison.net/2025/Aug/12/nick-turley/
Hi Simon, nice article. The parent there may be making the same assumption I am, that large enterprise _never_ pays sticker price.
Also, to just color in the picture here, as I haven't seen it mentioned elsewhere, there is a very large Saas company at the moment who has given everyone unlimited tokens on Claude. And they have a dashboard showing who spends the most. So the "budget" went from about USD500 per per person (split between Claude and cursor) in Jan to... Well a soft limit of USD100k... Per month... Per person.
People can still see the top line sticker price on their spend, but honestly I can't believe that the Saas is paying that full price when the invoice comes in.
That said, there are some finance reports which are probably dropping soon where we will find out!
> The parent there may be making the same assumption I am, that large enterprise _never_ pays sticker price.
I shared that assumption until yesterday, when I found out that it wasn't holding for LLM pricing from OpenAI and Anthropic. That's what inspired me to write this piece.
I think those token leaderboards are an obviously terrible idea and will go extinct very quickly now that people are paying attention to costs.
But the feature list at https://claude.com/pricing#team-&-enterprise literally list "tiered incentives on committed spend" and "non-standard terms" as perks of the sales-assisted Enterprise plan. Maybe "non-standard terms" could mean "we dance for you if you pay", but what would "tiered incentives on committed spend" mean besides "we can negotiate on price if you bring the volume"
I do know of moderate-size companies deploying OSS LLMs on their own GPU clusters, for ownership/security/maybe cost reasons. I'm somewhat surprised F500 companies are apparently just handing over all their data to the model providers.
Could be fantastic for small shops while it lasts. The big guys have to pay 10x for precious tokens.
And "large" just means that AWS will assign an account manager to talk with you. I was at a start-up who spent $300k/year on AWS and that was enough to get special attention and discounts. Enterprise pricing is confusing.
Claude is so in demand at the moment that there aren't really volume discounts. Anthropic sets the terms and you either accept them or get lost they have that much of a lead (mindshare/desirability wise).
API pricing drops DRAMATICALLY in enterprise agreements.
As with pretty much anything priced on volume/usage.
Enterprise deals are negotiated ad-hoc, the listed pricing is simply a jumping off point for the final negotiated discount.
If you’re going to give 20,000 employees Claude code you are not going to be spending $1B per year on Anthropic tokens as if you gave everyone an individual API key. Just as Anthropic isn’t paying AWS SES $10,000,000 to send 1 email update to their massive user base when the next Claude version drops.
This isn't true at the moment, though. So far there hasn't been the negotiating power. What happens is you end up capping usage for employees at a fixed amount. I think eventually, prices will come down and there will be discounts, but for enterprise accounts at least of our size (<5000), we're paying almost 100% retail, which kind of sucks, because it's expensive, and pretty easy to burn $50 to $100+ in a day, if you're not careful. In fact we got pushed off the former plan to the token-utility one at the last contract negotiation.
Going to be interesting to determing the metrics we give to engineers for determining whether the spend on this is worth it. Measuring PRs, lines of code committed, commits fully generated by agentic workflows, etc.....
edit: I missed the "enterprise" feature matrix with the usual audit/compliance stuff to force the biggest enterprise customers onto enterprise plans. Otherwise the "teams" plan is much better value for any business.
Teams premium is "Everything in standard, plus more usage*"
And from my experience, it's a very generous usage, I've only hit the limits once or twice, and both times required multi-boxing agents.
I could single-window agentic development all day on opus-4.7 auto-mode without hitting limits.
If you're a business using claude, then that seems like the right plan, the enteprise/API plan seems more suited to where your product is built on top of the agent themselves, so seats/limits aren't really meaningful?
Claude Teams and Claude Enterprise are 2 distinct plans. Simon is right that Enterprise seats have no included usage (and so all usage is charged at API billing rates), whereas Teams seats do.
Tokens do have a clearly calculable intrinsic cost. There's the marginal cost of production (i.e. the inference cost) and the amortized R&D cost that goes into the model producing them.
Yes, value is hard to calculate, but luckily market pricing mechanisms exist exactly for this purpose. There isn't a better number to use than what people are willing to pay for them.
So he's saying that on an enterprise plan, he'd be spending $2,180.16. He's not paying that much, but enterprises are.
His point is more he was surprised enterprises weren't getting the discount. And so indeed maybe it is not a giant ponzi after all! (Could be a bubble)
Lol. They obviously have intrinsic cost, the floor being the cost of electricity. It’s hilarious how we are throwing critical thinking out the window when it comes to evaluating biased sources of info.
Is PMF enough. It is such a dynamic self-disrupting wave that it is like predicting physical chaos. These aren't early Googles in a blue ocean. Maybe a blue ocean full of pirates and dragons!
This isn't me being a doomer I just don't know. Can we look at Q2 profits and draw hockey sticks yet?
Remember people are boasting how much their expenses are. That is where we are in the bubble/new paradigm.
Winch Design [0], which have built some of the world's largest superyachts [1], seem to be using AutoCad. [2] Afaik it's also the same with Lürssen (but don't quote me on that)
As someone completely outside the 3D design world who always thought of AutoCAD as the gold standard - really? What program would be used instead? Please enlighten me.
Except LLM's even with Vision are still useless at AutoCAD let alone Revit (please dont quote SCAD LLM's at me, useless). Knowledge based approaches still win.
I might agree "AutoCAD" is the current level LLM's are at, but wait until your design departments discovers "Revit", its another ballpark (in wasted cots, engineers on site still get "clashes").
Revit costs are high, and the end results are marginally better - but local LLM's tokens are cheaper 24/7 at "AutoCAD" level - "Revit" level tokens will make Ubers CTO/COO weep harder than they already do. While producing results no better than "Revit" does (engineers still face "clashes").
Cadence and Ansys have entered the chat. A bunch of other highly-specialized engineering software has entered the chat. Licenses are on the order of 10-100k/seat.
Yeah, it’s nothing, and it’s also not the cost that enterprises are paying. As the article states, the price is $20 per seat per month, PLUS per-token API usage. Enterprises are paying consumption billing, not fixed rate oversubscribed “all you can eat per seat.”
So how do openai and anthropic plan to keep customers when GLM-5.1 is just as good and open source and a lot cheaper?
I don't see the business model working. My closest friend actually does automation software for large companies.
He does not use Claude or openai at all. He primarily uses gpt 120b on cerebras and glm-5.1 for heavy thinking work.
And some other small models for various tasks. All open source.
And these systems are extremely useful for the businesses and are able to run fully automated pipelines that are very stable and fast.
We discuss this a lot, and we both think any business doing heavy agentic work on Claude and openai just aren't aware of exactly how good and cheap open source has gotten on the last year.
So... once the legacy businesses and developers catch up, won't Claude and openai be unable to recoup their costs?
Same. It's a nightmare from a Porter's Five Forces perspective.
There will be a ton of businesses competing in this space, and there will be something of a moat due to how capital intensive the business can be, but there will still basically be infinite competitors.
For coding assistance, I have tried OpenCode with several large open models through OpenRouter. All were fairly bad compared to Claude Opus.
Could you provide some hints on how I should be holding these open models so that I might get more value out of them?
I agree with the common trope that open models lag behind by about a year, but something magical happened just around a year ago when the state of the art models became extremely useful. By this reasoning we're about to see open models perform well, but I'm afraid there is more to it than just waiting for another revolution around the sun.
Note, my application is coding assistance. Open models can be great for other purposes.
Do more planning yourself, be smart about the context, break down tasks into smaller components, give it more guidance. You can't just lazily prompt it to complete large features autonomously and expect good results.
For coding you always want to go with the best model in the category, not something that would be the best model if we went 1 year back which GLM 5.1 is, and I'm saying that as a big fan of GLM cause I run a translation site where GLM is good enough for the price.
Most of the money right now is in coding. Openai and Anthropic just have to be 6 months ahead of SOTA open source models and they'll capture most of the enterprise and dev market
> For coding you always want to go with the best model in the category
Will this always be true? There will never be an event horizon/point of diminishing returns where something not-bleeding-edge is "good enough" for 51%+ of users?
Yes I'm an engineer (20 years most in games/graphics industry) and only use it for code. I've been using glm 5.1 this week a lot. I went in expecting another "decent" but not really "up to standard" open source model.
I highly doubt I'll ever use Claude again.
I think you are wrong about Claude being any significant level better
I've been mostly coding with GLM-5.1 as well and I agree with you. DeepSeek V4 Flash is another very good surprise. Incredibly cheap, fast and effective.
Cost for the value delivered. Like if you offered the current SOTA open source models at $0.1/M, I still think I'd be using Opus or 5.5 at $30/M. Or say GPT 5 which was released Aug 25, I don't think I'd use it for coding for even $0.1. I'd def find other uses for it(translations, agentic workflows, prompt guards etc), but for coding I don't think I'd ever completely switch to a SOTA open model
Unless ofc there was an actual speed difference, only reason I'd be willing to go with a worse model couple of percent worse than current best model is if the speed was at least 5x higher. Looking forward to kimi k2.6 offered publicly by Cerebras
This is a silly take. There is a line of "good enough" for most coding (most CRUD apps and APIs are nothing special), and once we are past that, nobody will care about having the "newest, best" model except extreme outliers. And this base "good enough" model will become an ultra cheap commodity as we already see with GLM, deepseek, etc.
Oh, hey, I recognize you. Thank you for the very forward and thorough orbital sander recommendation at Home Depot. That's exactly what I wanted to deal with on my holiday weekend. You just know so much about this and the rest of us are simple passersbys.
I think RAG is a mostly outdated concept now, it's been subsumed by the idea of a "agent harness" which is exactly what Claude Code and Claude Cowork and OpenAI Codex and Claude.ai and ChatGPT themselves have now become.
An agent harness with access to a good search tool is a much more interesting thing than 2024-era RAG systems.
The costs are exorbitant and most software is not produced by companies with such a huge moat. Anthropic made a profit through their recent bait amd switch pricing. There is zero useful insights online to indicate whether this might die due to commoditisation with good enough open models or fail the race to get more people subsidising unsustainable growth with other people’s money. Who knows? In any case they dont seem to be able to drop usage costs so the business model seems based on wishes
> Stories are circulating of companies surprised at how expensive their LLM bills are becoming from usage by their staff
> Enterprise customers are now paying API prices
How long before enterprise customers start to question the bill? Anthropic goes from not making money to doing pricing shakeup, and now they are making money and the biggest spenders are shocked at prices.
Algorithms are also improving. I believe it's very unlikely for these two improvements together to not result in one to two orders of magnitude cheaper cost per "intelligence". Of course, that might just make use cases that are too expensive today viable and thereby increase usage further.
They certainly have, but it relies entirely on the assistant frame, which is a problem in and of itself for the trillion-dollar economics.
Anthropic and OpenAI have shown people want a tool for task offloading, driving predictable token consumption and justifying the math, so long as users stay in that dynamic.
However, knowledge workers using these tools daily are getting exhausted with them. Outputs come out polished but hollow. Talking to a frictionless, frame-completing model all day drains you.
If user behavior drifts away from assistant usage because of that, per-token math implodes. The valuations we're hearing about all the time rely on usage compounding daily. The fatigue is a timer running against that compound.
Anthropic's Constitution is the closest hedge out there, I think. Installing an identity structure into the model through training. But it's still assistant-first, so the fix there is only partial.
I've spent the last year running a product that flips the architecture so identity is primary and the assistant role is secondary. Same frontier models, completely different conversational quality. The fatigue property doesn't really show up.
Whichever labs figure out how to install real identity natively in the weights are going to be the ones with PMF in the next phase.
How is the lack of bad news declaring a victory for AI? I am yet to see any company concretely publish analysis about the ROI from AI. Most companies as far as I know are still treating AI investment as sunk cost with no expectation of returns at the moment. We could very well see a world where companies heavily scale back investment.
With deepseek and xiaomi mimo models slashing their prices 99%, I don't see a great future for openai / antrhopic with regards to their 1T valuations. Maybe 1T valuation will be the whole market, West + East.
They'll still have their dedicated enterprise customers. I think the Chinese providers will pull more of the single users who're paying their own way, than those backed by company budget. And it's a pretty good split as the demand becomes better distributed, resulting in better service (I'll never forgot must how bad access to Claude became until they got access to Colossus) and less potential for lock-in (we really don't want there to be a duopoly, etc on good AI).
Does this analysis factor in potential caching of tokens on the server side? It seems that if they organize things well (as a model provider), they can save quite a lot on that. Looking at my Cursor statistics makes it clear that the token calculations are not at all trivial.
> but I suspect there’s a more important factor here: I think they’ve finally found product-market fit
Ahhh the classic startup term that's definition is nebulous. But also, since when does any definition of product/market fit mean a product is profitable? And profitable in what sense? Unit economics? Overall company?
Oh I'm absolutely taking advantage of the fact that "product-market fit" has a bit of a nebulous meaning here.
It's a great hook to build an article around. My core point is more that April 2026 was the point when Anthropic and OpenAI finally appeared to have figured out a credible business model.
Ai has become indispensable but maybe not at all cost. My company just had a company-wide meeting to talk about how they're restricting who can use which models and instructing us the "be more responsible with company's tokens". And it's not an small company by any means.
Love how everyone boasted about replacing all the software with ChatGPT and then we end up with coding agents meaning the software engineer are STILL important. The sell is the development tool. It's classic cloud. Where did all the ops people go, many got subsumed by the cloud companies YET every company still has DevOps people to manage cloud infrastructure. The layer of abstraction went up but we still need the people to write the glue code and understand the business. OK great there's a new cash printer in the room. There's a new tool. Let's just start to ground the tooling in its new found gravity, profitability and IPO market dynamics... Reality has set in. The hype cycle is about to explode... Do you remember ride hailing and just how much cash was burned on credits pre Uber IPO. Then remember the IPO itself? These companies are not the new Google. They are a layer on top. Google was still the most efficient cash printing machine in history beyond the the US government and might still be. Will be interesting to see what the trillion dollar IPOs turn into. I'm going to say we see those prices get cut to a third in less than 5 years and scale back up over the next 15-20 years.
I've been calling that out for a couple years now. LLMs best and most viable use case is still just as a dev tool. Even for non-programming tasks, I still get better results from the LLM if I instruct it to write code to do the task...look at Claude Cowork for example, it's everything I used to do with python myself. It's not really a novel capability, it's just using python & bash for automations that any sysadmin has been doing for decades. Yeah, that's valuable for a non-techincal audience but is it $1T valuable? I don't think so.
When has an IDE or other dev tool ever commanded a $1T valuation?
These things get lost in discussions because people conflate "overvalued" with "not useful." LLMs are useful, particularly as dev tool, but Anthropic & OpenAI are definitely way overvalued.
> I currently subscribe to the $100/month Max plan from Anthropic and the $100/month Pro plan from OpenAI. If you are a heavy user of coding agents these plans are a fantastic deal.
Agreed. But its only a great deal because it is heavily subsidized, as you said yourself. Enjoy while it lasts, but in my book, product-market fit means something along the lines of "product which enjoys a loyal customer base, sold at a price perceived fair by the customers, and generating profit. How many of these does your definition of product-market fit hit here?
I think it's fair to say they had achieved product-market fit when their revenues were growing deep triple digits month over month. What we're seeing now is that perhaps they have a achieved profitability or at the least a more sustainable balance sheet.
Mentioned in the article, but it cracks me up that both openai and anthropic are utilizing fairly traditional enterprise GTM plans segmented by verticals.
So many startups trying to automate sales, but somehow the two biggest frontier labs have decided that the best GTM strategy is firmly human-in-the-loop.
I'm a huge fan of agent coding but kinda dislike this "llm evangelism".
There are still several open points (eg.: code churn, maintainability, subtle bugs human will never do) that everyone with a minimal programming knowledge that seriously used a LLM agent knows about but somehow none of these "big influencers" never mention (or just saying "it's your fault").
"[would have spent] $1,199 with Anthropic, $980 with OpenAI"
How many tokens is that, input/output-wise?
(a) I'm curious if you feel like you got $2000 worth of value out of them in the last month?
(b) I'm also curious if you would have gotten similar quality out of a slightly lower-cost provider of an open-weight model? (e.g. Kimi K2.6 and DeepSeek v4 Pro) and what the spend would have been for that.
I myself have managed to spend not quite $4 on OpenRouter and have felt it was very worth it; I just have much smaller, or more targeted requests I guess. (Lately, adding features to a static site generator in Python, or setting up log forwarding via a docker compose file)
Input tokens: 52,545,485
Output tokens: 5,767,253
Cache create tokens: 5,112,029
Cache read tokens: 1,475,069,465
Total tokens: 1,538,494,232
Total cost: $1,199.79
OpenAI Codex:
Input tokens: 52,598,013
Output tokens: 4,681,867
Reasoning output: 2,091,063
Cached input tokens: 1,153,844,864
Total tokens: 1,211,124,744
Total cost: $980.37
I'm confident I got value out of OpenAI - I've been mainly on Codex for the last few weeks.
Not so sure I got that value from Claude, just because I've been using it a lot less and somehow the price came to about the same as OpenAI.
Given the code I've been able to build in the past month I genuinely do think I got value for the API price version, and (don't tell OpenAI or Anthropic) I think I'd have paid full price.
I've not spent nearly enough time with GLM-5.1 and co to compare, but I do know that the prompts I'm using with the agents are not prompts I would have expected to work just three months ago.
If it were me I'd be asking "How long would it have taken me to do that, and what's the rate I'd have been charging for the work I would have been doing otherwise?"
Personally, I've probably spent $60 or so on OpenRouter in the last month or so and got a working project out of it that it would probably have taken me a fortnight to knock together (which is inevitably an under-estimate because it covered things I'd have to learn but K2.5/6 already knew). There's an orders-of-magnitude gap there.
Operating profit is both post depreciation and fees paid to third parties for hire. So aside from shenanigans like RSUs and financing interest that's already somewhat close to actual economics.
Meanwhile we've got commenters here talking of 5-10 trillion with a T revenue shortfall.
I think the reasons for them going with API pricing will become abundantly clear when the S-1s become available. If they don't have a story covering how they can get revenue closer to expenses, then they're relying on the market to believe the pixie dust version of their profitability story, which I think people increasingly don't.
If nothing else this blog did give me the idea that I should split my $200 claude max plan into two $100 CC max and $100 codex plan, esp because Claude is now offering 1.5x weekly limits so its the 5x usage is now more like 7.5x usage.
So it largely sounds like many more people will be able to write software - and will use AI to do it. Existing software engineers will continue to automate their tasks away like they always did, but perhaps at a faster rate.
The impact of AI in other fields seems to be muted.
I think it is applicable to a much wider range of knowledge work, but it's also harder to apply there.
Software development has the huge advantage that mistakes and hallucinations are very easy to spot: the software works or it doesn't.
Spotting errors in a research report or legal brief is a whole lot harder!
But... non-software professionals spend a huge amount of their time on tasks that can be safely automated - reformatting documents, extracting numbers from PDFs, all kinds of flavor of data entry.
Learning how to use a tool like Claude Cowork can take a big dent out of those.
> Software development has the huge advantage that mistakes and hallucinations are very easy to spot: the software works or it doesn't.
Do we not care about code quality, maintainability, performance, extensibility, or understandability anymore? Honest question, not a gotcha, it's just previously getting software to pass all the tests was a small part of what we would consider "working" or perhaps "good" software. Maybe that's different now with LLMs, idk.
If the AI can write code for robots the impact in other fields may be pretty large. Seems to me a lot of jobs can be automated with software and robots combined. The limit in the past was writing the software to get the robots to work. But if AI can remove that limit...
I wonder how a focus on per-token API profits will impact the incentives to improve token efficiency and drive down costs through optimized compute. I suppose as long as a few leading labs are competing, we'll see progress in this regard, but it's certainly less in their interest than it is with a flat subscription pricing model.
> If you are a heavy user of coding agents these plans are a fantastic deal. I just ran the ccusage tool on my laptop to get an estimate of how much I would have spent if I were to pay for API tokens in the past 30 days and got
You think this is fantastic deal only because they use similar like tricks where they inflate the price and tell you something supposed to cost $1000 but they have this today promo for $100.
I was there too and paying for a while. Few weeks ago I tried DeepSeek V4 Pro - expected its gonna be shit but its actually pretty good.
The deal is I pay daily ~$1 for DSV4-pro for ~100M API token usage. And they probably not getting broke because >90% of those token in practice is cache read and they very well optimized for that.
With respect to Simon, whose writing I've usually agreed with in the past and whose insights I've liked: this is a bad take that overlooks the extent to which corporations are imposing the use of AI on employees, and in particular ICs, who make up a majority of the AI-using workforce by headcount.
Many of us are either openly having our performance reviews tied to AI use, especially at larger enterprises. Whether that's measured by sheer token count or just "how many of your tasks are you using AI for these days" (combined with the implication that question carries at many orgs which are heavily invested in AI).
Are you saying that Anthropic's huge leaps in revenue are caused by stupid company policies and token leaderboards, and the moment companies stop imposing AI on their employees revenue will drop to a point where Anthropic are unlikely to be profitable?
I don't think that's the case. I think the token leaderboard thing (which is clearly ridiculous) affects a tiny portion of companies and is already going out of fashion.
I'm saying that the truth lies somewhere in between, and that Anthropic's current revenue is being, in part, propped up artificially.
We're also in a place where a lot of the usage guidance around these tools is still nascent. People are cowboying a lot of stuff, even as larger companies start to organize AI policy/safety/responsible use working groups to try and policy around the shortfalls of the technology.
IMO: if this technology persists, and if we figure out a way to use it in a broadly safe way, the value proposition will probably trend down rather than up, at least on the code generation front.
As a research tool, it shows some promise, though I still find the ethics of the technology disgusting.
Great article I know this upsets a lot of people who are used to thinking Anthropic/OpenAI are just lighting cash on fire but they've cornered the market on enterprise who cannot walk away from these $200/month plans
However the valuations are still far far away from actual sanity
It's good enough for personal stuff. It doesn't compare to the latest Opus I use at work. You can certainly argue I don't need Opus for work, but there is clearly a difference.
Also, at least with z.ai, GLM-5.1 is s l o w! After using Claude at work, I get really impatient with GLM-5.1 at home. When doing "true" vibe coding (i.e. not really examining the code), Opus is a ton faster (easily 5x).
But yeah, I'm not willing to personally pay for the frontier models. I won't even renew my annual Z.ai plan - it's become too expensive.
Hmm, I use opencode subscription, and glm seems just as fast from the tests I've tried to compare between the two. Tbh it mostly took Claude longer (mostly significantly longer) for the same tests.
Also, and I know you may not want to answer. But could you give me an idea of the type of thing you found glm to be worse with?
I think I've been fairly unbiased in testing a bunch of different development tasks. But am curious if maybe it performs well for some stuff and not others. So if you could share what you feel it's worse at.
Also are you an experienced developer or less experience?
I'll repeat something I wrote on an entirely separate HN submission.
When DeepSeek V4 Pro came out, I had been mostly coding with GLM-5.1 on a Z.ai coding plan.
I had a large analysis task on a relatively complex codebase. I decided to try the models out.
GLM-5.1 did acceptably but got a few things wrong (easily corrected) and took quite a while to get there.
Opus 4.6 burnt through the US$10 budget I had given it in about 10-15 min, without ever returning from the first prompt.
DeepSeek V4 returned a full analysis within 2-3 min, and I carried on all the way to implementing the feature I was after. Total cost less than US$1.00.
I now mostly alternate between GLM-5.1 and DeepSeek V4 Flash, with an occasional dip into V4 Pro for more complex analyses.
task i am working on right now at work is comparing two verisions of apis and documenting responses in their outputs. i suspect a vast majority of work at entrprise is of similar complexity.
right now everyone is using latest and greatest to do dumb stuff like that. that would change fast if companies start caring about costs.
> enterprise who cannot walk away from these $200/month plans
Any org with more than 150 users aren't on $200/month plans, they are forced into API pricing + $20/month/user
For individuals and orgs small enough to get to use the subscription plans, that's all well and good until usage limits keep going down, or cost goes up. If you compare the usage you get on $200/month maxed out vs. what that would cost at API pricing, the $200/mont plan is an absolute steal. I doubt it will last long.
Not to mention the API plans are also still in their "lose money, just get the suckers hooked like addicts" phase. Once the reality-based pricing comes into play, it's a coin flip of whether the bulk of the companies fail, or they get to live off government subsidies for a few decades.
On the plus side, I'm happy I'll have a nice hay barn when the local half-built AI data center is abandoned.
Who's to say those enterprises won't churn after XYZ comes out with a decent enough model that costs 10x less to use?
There's a whole bag of clever tricks you can play to juice short term results leading to an IPO that may not work longer term.
I'll believe they've found product-market fit when they have a product. Right now they're selling the infrastructure, in a highly subsidized and undifferentiated way (at least over a sufficient long period of time of, say, a couple of years).
>Somehow this fragment turned into headlines like Uber’s COO says it’s getting harder to justify the money spent on AI tokenmaxxing, because the market for stories about AI failures remains enormous.
I notice this all over the place. Many people hate AI and want it to fail, and they're willing to invent misinformation if it supports that idea.
Companies are kool-aid drinking now due to hype, but given how much they're spending, if they don't see REAL, BIG wins from it soon, they're going to scale it back quickly and switch to Chinese models. Claude isn't worth the API cost for a lot of development work, and once companies have had time to collect and crunch data they'll see this.
The big assumption with all of these sorts of analyses is that things will continue as they are for the foreseeable future.
In hype-driven markets, you cannot be certain of that.
Let's take a view that the author is right: coding agents and their associated harnesses were the inflection point for some degree of profitability and widespread consumption, and that these tools are now yet another SaaS subscription or API bucket expense to bake into every single developer (or developer-adjacent) in the organization alongside your collab suite, HR seat, CRM seat, design seat, etc. To be fair I honestly think that's a safe assumption to make for highly technical firms whose image is derived from remaining on the cutting edge of things.
That begs the following questions, which we won't know until IPOs start happening:
* Are subscriptions profitable, or just API consumption?
* What's the run rate when we just consider subscription-based usage like Claude Code and Codex? What about API calls?
* Is there any profitable pathway forward at which enterprises can get unlimited usage but at fixed rates via subscription?
* What does customer churn look like for subscription users versus API users?
We also have a number of questions for customers that I suspect we'll start seeing receipts for in the coming months, at least from the early adopters:
* What was the net gain (loss) from leveraging coding agents?
* What's the cost of a developer with or without access to a coding agent + harness? Is it cheaper to hire an outsourced worker with a coding agent subscription, or a domestic worker without one?
* At what point does further AI spend result in diminishing returns, i.e. where's the 'sweet spot' for spend?
* Did AI boost actual revenue and outcomes, or did it just gamify KPIs?
* What roles or work did AI actually replace, versus merely displace during the hype cycle?
Not to mention the questions regarding the technology itself:
* Will we develop the means to run foundational/frontier models at edge using less resources through some existing (e.g. distillation) or new technology, thus cutting off the profit centers of these firms?
* When the market mismatch between supply and demand is resolved, won't it be more affordable for consumers and companies to operate their own AI infrastructure rather than support further centralized buildouts?
* Will coding agents improve to the point of being able to bootstrap and self-orchestrate on edge/consumer hardware without substantial technical expertise, or at least improve to the point that traditional IT teams can securely operate them internally without an expensive subscription or API token bucket?
All of these will influence the long tail of this bubble, because it is a bubble at this point. Even if these companies are indeed profitable thanks to the coding agent inflection point, there's still so many unanswered questions about utility beyond coding that it's impossible to extrapolate a future. If coding agents are indeed the extent of utility for profitability, then there's no possible way these entities will recoup the investment already sunk into their infrastructure buildouts. Even if more profitable uses are discovered, does this offset or replace the firms disappearing due to AI speculation and their associated contributions to the economy as a whole (RE: the consumer compute industry at present, higher energy costs due to datacenter builds, opportunity cost from harms to local infrastructure from haphazard builds, etc)? Should these firms indeed be runaway successes and immensely profitable to the point of paying off their investors and growing the larger economy, does this end up stifling innovation in a world where most new ideas are fed into LLMs for R&D that are then controlled by only a handful of companies and immensely wealthy people, via systems that are easily surveilled and stolen from without recourse?
So many, many questions yet to be answered. Betting the farm because of coding agents is one hell of a gamble.
They've got, ballpark, $5t to $10t to make back in the next 5 years, or the hardware buildouts will start getting written down.
This means we're going to need $1t+ per year in spending, per year, on tokens. 200m knowledge workers in the world, 30m developers. We're talking about a world where you need 5% of every knowledge workers salary to go into tokens. 20% if you're a developer.
That's a _huge_ shift. Most people I know cite +20%-40% velocity with these tools, against the actual work their company cares about doing. +20% speed for +20% spend isn't going to motivate a trillion dollars a year in spending.
We're not there yet. This is still the upswing of the hype cycle, and unless we figure out how to make developers 2x, 5x, 10x as productive on stuff that matters, this isn't going to play out well.
Here are a few thoughts:
- The publicly available information about how inference costs compare to training costs is conflicted. EEs involved in datacenters talk about power usage spikes during training runs as if they were a major factor in the designs, but academic papers discussing cost-optimal scaling confidently treat inference-time compute as a major factor.
- On the side of the balance indicating that training is more compute-intensive after amortization than inference is that Chinese providers, constrained primarily by access to compute, have nearly unlimited token availability at a lower price than US providers (inference), but poorer model capabilities (training). That would make sense only if US providers are inflating inference costs by 20-30x due to amortized training costs that overseas providers were not able to take on.
- If training >> inference, they're in a prisoner's dilemma that far exceeds the ordinary zero-marginals model of competition between firms (due to its huge discrete stepwise nature). On the other hand, if inference>>training, the high-level analysis popularized by certain thought leaders, that it's like a utility, would be true. You'd tend to count this as a vote for inference>>training, but the CEOs saying it at least have a huge incentive to agree because the alternative, the prisoner's dilemma, would stop investment very fast.
- The only voice in the story that I just told you to have anything to do with fact (as opposed to high-level analysis and ivory tower armchair management of a secretive business) were the rumors from facilities engineers. That shows you the state of our understanding...
- If we don't even know the ratio between amortized capital expenses and operational costs, outside investor analysis is impossible. It doesn't matter how finely they divide the accounting buckets for office ferns and indoor ferns if the single biggest part of their business is obscured for trade secret reasons.
I'm about to leave a shallow comment, but I am a bit skeptical of the supposed drop in inference costs. If AI labs saw a lot of potential there, they'd surely be bragging about it non-stop? So the fact that publicly available information is conflicted is probably a sign that at the very least, the numbers aren't amazing.
Yes I know there's no evidence and this is lazy reasoning. But there's probably a bit of truth to this line of thought.
Why on earth would AI labs be bragging about how little the product they sell actually costs them to make? You don't want to do anything that reduces it's perceived value to the user, that might make them less willing to pay for it.
Also, inference costs are bound to go way down with more optimized architectures. GPUs are fundamentally not great at inference. No platform where the weights are streamed from a large pool of memory is. If the models ever quiet down, there will be massive step changes in cost/token, energy/token and tokens/second, as models are etched into silicon ala https://chatjimmy.ai/
Inference has traditionally been far less expensive than training. One public example is the fact that hobbyists can run StableDiffusion ($600k training costs[1]) on their personal computers.
Speaking to your point, inference being dramatically less costly than training would not be seen as a delta from the norm. The things that thought leaders are saying, that they are providing inference for anything near the operational costs (like a utility would), is the delta from the norm.
[1] https://x.com/emostaque/status/1563870674111832066
I work for a tiny little company ($150MM annual rev with 9% net) and we are already looking at dropping $100k on hardware to run local models because, for us, they're "good enough."
Our estimated spend for AIaaS would exceed that cost in less than a year.
In a few years, there will be hardware capable of running frontier models good enough for most things at accessible prices for even tiny companies.
I’m curious: are you spending on beefy developer machines, or some kind of shared local inference server? Would be interested to know more if it’s the latter.
> ...we are already looking at dropping $100k on hardware to run local models...
Just think how much further that $100K would have gone if the hardware market wasn't so screwed-up.
Anecdote: I priced-out adding 1TB of RAM to a four node cluster a couple months ago. The cluster was purchased in fall of 2024 w/ 4 nodes, each with 256GB RAM. The nodes cost just over $14K apiece back in 2024 (entire box, not just the RAM).
Dell wanted >$90K a couple months ago to add 256GB to each node.
The bottleneck has moved from producing a thing that works to knowing that the thing was the right thing to build. The more of the latter they can take on, the fewer knowledge workers are needed at all. So rather than 5% of every knowledge worker's salary going into tokens, 100% of the knowledge worker's total employment cost goes into tokens and you get a 20x productivity boost as a theoretical minimum across those tasks.
That's the game. There's a view you could take of this that this is just a growing of the pie: with those cost dynamics a lot more "small businesses" get a vast amount of leverage, so the overall economy grows without replacing the knowledge workers. I'm not sure I trust the MBA class to have that view.
>The bottleneck has moved from producing a thing that works to knowing that the thing was the right thing to build
I would argue that that's been the case for quite some time before AI. As an example, what innovative amazing world-changing products have Google or Meta launched in the past decade with their very high numbers of very talented and highly-compensated engineers? The issue with most big tech companies are leadership, strategy, and product direction. I'm not saying that they don't make any profits, just that they probably aren't "building [the right thing]".
AI for product development and management would be far more impactful than automating rote coding tasks / building React UIs that mirror API structures IMO.
I don't know, if you've ever tried to build something at companies of that scale you run into incredibly boring problems "what data table do I need for X" and "who is the right person to reach out to for Y" and "they aren't answering me I guess I'll have to escalate"
I don't think there is any shortage of great ideas at these companies, they are just extremely bloated. And I don't think its something like indecision or bad PMs, it's "we have a finite amount of time and resources so we need to be conservative but also not too conservative"
If you have AI systems that can simply build out POCs in days, backtest on real data, show reliable results and numbers, you get a suite of product options you were never able to get before. If you have coding agents that can speed up implementation, you can build more stuff and choose the things that stick.
It changes the cost/benefit calculus of the entire business. I think you are exactly right in that: PMs/leadership are by their nature orchestration machines. Other roles are as well, but I think PM's are at a particular advantage here in that it will be quite awhile I would expect before core product decisions and creativity can be delegated to an AI, but not quite awhile until virtually everything that they're blocked on (legal approvals, POCs, wire frames, etc etc etc) will become less and less of a blocker
>If you have AI systems that can simply build out POCs in days, backtest on real data, show reliable results and numbers, you get a suite of product options you were never able to get before. If you have coding agents that can speed up implementation, you can build more stuff and choose the things that stick.
I'll also add this: within a large organization, you often need to interact with many different codebases owned by many different teams. Agents have made it much easier to wrangle by having the ability to deploy one to scope out your web of dependencies to learn about what would be needed for feature X, and how that integration can happen.
We've been doing far more away team work simply because it makes things move faster. It's easier to convince a team to sign off/review something than it is to get them to commit to the planning and eventual work.
It genuinely is helping things move faster inside large organizations. Or at least, it is for us, particularly since we're getting organizational prioritization to actually build the scaffolding to make those agents more effective at search.
> It's easier to convince a team to sign off/review something than it is to get them to commit to the planning and eventual work.
1000x yes: you have touched on what I think is the single biggest factor here, that is the humongous value of POCs. they are gnarly to build without agents, and so we used to have to get everyone on board so we didn't get screwed in performance reviews, which was monumental task because that means convincing very busy PMs who have a lot on their plate and dont want to take risks on things they don't understand, and now it's like "can we scale this out" and you have a very nicely formatted proposal and POC. It de-risks things very quickly
Pieces of concept and other prototypes have always been cheap (see hackatons). The main issue is that as soon as you’re touching customer data or modifying process they’ve paid you for, you have to be really careful. No one wants to be responsible for an outage that cost the company its biggest customer.
> AI for product development and management would be far more impactful than automating rote coding tasks [...]
Yeah, if this stuff actually worked that well already, OpenAI et al. would just run AI CEOs and engineers. Why get some other company to pay you at all when you can automate every other company out of existence and take all the money they make?
The fact of the matter is that while the tech has some uses, it sure as hell isn't a full scale replacement and you almost always actually have to massage the input into LLMs to get anything decent back out in practice. Some CEOs and managers can learn to do this, of course, and some already are... but that quickly turns into a second full time job. A "programmer" is still needed. The job might change from mostly hand-writing C++/JS/Python to prompt engineering + some manual coding to fix all the stupid fuck-ups that the bots can't solve themselves, but you still need someone to actually prompt the bot.
When that changes, it won't just be engineers losing work; there will be no reason to even have a human CEO any more.
This is the same argument that has been historically made for outsourcing developers. Get 20 more devs for the cost of 1 dev in the US.
I suspect that AI will fail to pan out to the same extent for the same reason why outsourcing hasn't fully panned out (even though every company tries it after getting big enough).
The problems that will come up will be and always have been ongoing maintenance. AI is great at writing new code without a brain behind it, but once you get to the point where you need to refactor code, you start really needing someone with coding experience to guide the AI or veto it's mistakes.
I don't think that's really fixable even with a lot better AI. It's not something that ultimately comes out of the likes of github data.
I'm not saying that AI isn't going to make things better, btw, I just don't think we'll see a 20x improvement. Probably more like 1.5 or 2x.
Outsourcing of knowledge workers didn't work out because at large enough scales, the geographic arbitrage disappeared. Companies mostly always got what they paid for.
The determinant of success was only whether the task needed American-tier labor or could make do with sub-American quality labor.
That's certainly part of it. But the other part that I've heard time and time again is that in order for outsourcing to be successful you basically needed an american engineer in the mix hand holding everything, clarifying requirements, and vetoing bad code.
That part of dev work, the requirements gathering, attention to details, clarifying requirements, is something AI also struggles with. A lot of companies basically waste time and money on outsourced devs because without a clear path forward they effectively will sit and do nothing, waiting for a prompt.
Who pays for that value, and from what, if all knowledge workers lose their jobs?
It sounds like the economy would largely reduce to the small minority class of independently wealthy people.
The more time I spend using agent tools the less I worry about knowledge worker job loss.
It takes a skilled knowledge worker to use these things.
We'll get around to training job specific models or the equivalent. Thats just lower on the value chain for now.
Sure. I was challenging the parent on how the “game” they are positing would play out.
There were no knowledge workers in the middle ages.
Back then people were mostly farmers, but we already automated that job away.
Not completely, but compared to the middle ages we 50x'd their output. Which is a great illustration what it means to make a job 50 times more productive. We went from 80-90% of the population being required to make enough food so everyone can survive, to 4% of the population producing such an abundance that consuming too much food has become a systemic health issue
There definitely were what could be considered knowledge workers in the (high) middle ages, it just wasn't the majority of work like today. The knowledge workers then were just a tiny, elite faction, mostly employed by the church or directly by nobility. Kindgoms were still big bureaucracies and needed scribes, theologians, academics, lawyers.
Relatively few anyway. Monks (who wrote and edited books and managed libraries, and also taught), artists and musicians, bookkeepers/treasury/exchequer, scribes/chancery (who were the administrators of the kingdoms), and bankers all existed in European "middle ages". But a significantly smaller part of economy/society compared to "western world" now, yes.
There wasn’t 20x value to pay for in the middle ages either.
Are you sure? Any functional organization requires keepers to oil the machine. First the government. The best examples were the chinese empire, the catholic church, and the various kingdoms. Or do you think that everyone was either fighting or farming? Stewardship is knowledge work. Bookkeeping is another.
> Who pays for that value, and from what, if all knowledge workers lose their jobs?
They do not care unless these companies can get a bailout.
UBI only exists for companies that are too big to fail. Case in point, 2008 and SVB when there was too much money on the line.
One of the AI companies attempted to guarantee themselves a way for the government to bail them out if they were close to defaulting on the debt from the data center build out.
SVB didn't get bailed out, their investors and creditors were wiped out. You could argue depositors were bailed out -- as they took the undue risk of keeping more than $250k in a single bank (though as part of a requirement for getting a loan from SVB, you had to have your operating accounts with them. So lots of companies had no choice, as SVB was one of the few banks that would lend to them).
Arguably, the main impact of securing SVB depositors above the $250k limit is that it prevented thousands of people from being laid off that week, as their employers wouldn't have had the money to make payroll the following Wednesday.
Producing a thing has always been cheap since personal computers existed. From mail-order software companies' times to SaaS times, producing a sellable MVP was an initial cost that is relatively small compared to the later cost of expansion and maintenance. Marketing and selling was and still is the hardest part.
Why do you think of knowledge workers as a fungible commodity?
What makes you think the people who used to build (or would have built) software will switch into the industry of "knowing that the thing was the right thing to build", as opposed to something cooler like surgery, city planning or experimental physics? The roles within a tech company are not the only jobs in the world.
> The bottleneck has moved from producing a thing that works to knowing that the thing was the right thing to build
“There’s more capital than good ideas to fund” has been a complaint from the likes of A16z & other VCs for a long time now. It’s why we ended up with stuff like NFTs getting funded.
If knowledge workers get laid off in mass, you can expect political curbs on AI adoption.
You are making the assumption that the models are only used / paid for by 2.5% of the population (your knowledge workers value). There will be new value created by these models which people are happy to pay for which simply did not exist at all before. It is also naive to say that the hyperscalers are going to be expecting a return on this in 5 years, it will be entirely propped up by investments / IPOs as has been the case with any tech company for decades now to reach scale. The hyperscalers are currently spending ~650b combined annually, which they have the cash for and can sell in future compute instantly.
I'm sorry, what the feck does "value creation" mean here? I live in a place where people are so, insanely squeezed from every angle. Wages are stagnant, prices rocketing. Where is the money to pay for this value going to come from?
No one I know feels richer than they did a decade back. I've not been able to meaningfully put up my prices for a decade. People are tired and stressed and scared, particularly scared of a technology everyone keeps telling them will make them redundant.
There is no rising tide lifting all boats, just most of us drowning whilst a few whizz past in their yachts.
I honestly hope these guys faceplant ASAP. Couldn't happen to a nicer bunch of people.
Sounds like internet sentiment and not research data.
It's kind of become socially taboo to not be suffering "in this economy", but on paper it's hard to see weakness in places that there isn't always weakness. As long as the 65-95% are doing well, there isn't going to be a collapse.
Feelings aren’t fact. A lot of data shows the doomerism is not reflected in the actual numbers and much of it has to do with rapid inflation and continued vibes.
Consumption has risen, inflation adjusted wages have risen for blue collar and white collar alike. Most social mobility has been the middle class moving into the upper middle class, not moving to the lower class.
The main thing holding people back is the housing crisis. This is orthogonal to the value creation of businesses.
Value creation is growth. If it didn’t exist the S&P would still be 42.55$.
A literal example is that I can use AI to file my taxes instead of spending a weekend and hundreds of dollars to have an accountant do it for me. It costs me like $5. that 245$ delta is the value of that output to me, as long as I am confident it is correct.
I did my taxes this year too with 5.5 and 3.1
Otherwise normally costs around $800 to do, because I have a small business too.
> as long as I am confident it is correct
Are you? Does it cost you extra (time or money) to be?
Yes, and they were accepted. A year or two ago I would have been less confident but now almost UX is happy to cite sources.
Thats the thing; the "increase in productivity" isn't being felt by the general public, the end user. If your "increase in productivity" just means more money being shifted around at the corporate level then it is meaningless.
> There will be new value created by these models which people are happy to pay for which simply did not exist at all before.
True, but I think the GP's point was that what consumers will pay won't be nearly as profitable as what enterprises will pay to increase the output of their developers and knowledge workers. ChatGPT is currently the overwhelming leader in consumer AI usage but only ~5% pay $20/mo.
As a recently retired serial tech founder, I'm now one of those consumers. I use AI webchat daily for general search, Q&A and even to write little automation scripts for myself, yet I haven't paid anyone anything for AI yet. Even after being heavily restricted and performance nerfed to hell in recent months, free webchat AI is still fine for everything I do, and I'm not remotely price sensitive.
Even as AI compute costs fall over time, I doubt serving ads against AI webchat to consumers will generate the kind of high-margin, sustainable growth VCs get excited about. It's so undifferentiated I bounce around between all four leading providers because there's virtually no moat locking casual consumers to any chatbot beyond a single question thread. I guess if it had a nearly infinite context window seamlessly integrated across all sessions, that might be somewhat sticky for some consumers but it could also get creepy for some others - and it consumes gobs of the scarcest resource in AI.
> There will be new value created by these models which people are happy to pay for which simply did not exist at all before
What sort of new value, and why will people pay for it from someone else rather than prompting for it themselves?
> We're talking about a world where you need 5% of every knowledge workers salary to go into tokens.
They are assuming ~10% global GDP growth instead of ~3%. You probably don't need the same %s if the pie grows a ton.
I'm highly skeptical we get that growth, but if you aren't, it makes it easier to digest.
I mean this case with AI-productivity fires itself back when we talk about GDP.
The more AI causes productivity increases, the less and less number of workers will be needed. This will heat up the job market even more and bring salaries down.
Net effect of this productivity increase: less consumption by the masses, even though you may be producing more good and much more efficiently.
A third effect also comes into play that once all this starts to happen, common people, who are generally living paycheck to paycheck, will now start to hesitate towards making any long term investment, housing included. And that indirectly will end up impacting financial and banking sector, which will then impact existing savings, bonds yields and retirement funds, and the recession-like cycle starts.
This productivity increase only makes sense if it is capped to a very small number.. like 20% max. Beyond that, who these companies will even be selling to?
Am I overthinking all this?
>The more AI causes productivity increases, the less and less number of workers will be needed. This will heat up the job market even more and bring salaries down.
>Net effect of this productivity increase: less consumption by the masses, even though you may be producing more good and much more efficiently.
Big tech companies can't even create login flows and account recovery flows that work for everyone yet. There are countless stories of folks losing access to business Instagram accounts that get hacked, Google support from a human to fix a problem that is outside of their help articles is non-existent, etc etc. There's still so much "low-hanging fruit" IMO that isn't particularly fun or exciting to fix, but ask your average non-tech friend or family member what they think of the Facebook + Instagram security settings pages / sites / desktop-only settings.
Who is going to pay for all of these subscriptions that will power this GDP increase when average purchasing power of those outside of the top ~10% of earners is decreasing YoY? We're headed toward food and water shortages next to sprawling datacenters, not shared societal prosperity and a healthy middle class.
> The more AI causes productivity increases, the less and less number of workers will be needed.
That only holds if companies have a fixed need for "productivity" which is met by their current employees, such that their employees becoming more productive means they need less of them.
Every company I've ever worked for has wanted to achieve way more than they are able to get done with current resources.
But generally yes, the biggest open question about all of this is how the impact will play out on the economy, job opportunities etc. I've not seen anyone come close to a confident prediction about how this will play out.
> Every company I've ever worked for has wanted to achieve way more than they are able to get done with current resources.
I mean sure. Every company wants an infinite addressable market. But that doesn't mean it exists.
It might not be possible to sell 10x the software we sell today. It might not even be possible to sell 2x
It's hard to imagine how making insurance sales cheaper for the brokers, churning out astrology apps faster, AI boyfriend bots or running ad campaigns with fewer and lower paid designers is going to drive 10% GDP growth in developed and middle income countries, that's the sort of figures you see when very poor countries finish roll out electrification, sanitation and transportation.
First of all, common people are not living paycheck to paycheck in the sense that they're at risk of not having money[0]. This is corporate content marketing that has entered the collective memory of people, not anything close to reality.
Secondarily, reducing the cost of making a thing doesn't always mean you get less of a thing. For me, certainly, what happened is that I write way more software than I originally did. When we built compilers, the amount of human engineering effort required to do things plunged, but the amount of software engineering jobs didn't go down.
This is as bad as models will ever be. That part is true. And it's entirely possible we go foom. But it's also possible we don't, and then it depends on where the asymptote lands.
0: https://www.slowboring.com/p/this-economic-myth-needs-to-go-...
And yet the job everyone loves to hate, the humble "burger flipper", continues to resist automation yet command minimum wage labor rates. This future of either being a CEO of a company consisting primarily of AI agents building some monthly subscription-based solution to some trivial digital chores OR manual labor that isn't [yet] fiscally viable to automate seems quite bleak. We'd also need a ton of robot technicians and manufacturing that the US has neither the educational and training institutions to support nor the will of the population to fill. Given the ongoing war on immigration, visas, and foreign-made hardware, if this continues, good luck.
This would be a Bladerunner future Pope Leo XIV warned against (https://news.ycombinator.com/item?id=48265206), though in different words.
Automation isn't real it can't hurt you
This is never going to materialise. It’s dead in under 2 years.
The market is shrinking and saturated already and it’s not because of AI gains but geopolitical instability and supply chain issues, some of which are caused by AI spending and stupid ass PE firms refocusing on AI supply chains.
Only our pensions and futures burning.
What do you mean by the market is shrinking?
Somehow Uber and WeWork survived the same kind of grand projections that they never met.
uber sure....but how did wework survive? they are a smoldering husk of a failed company looted by its founder
I'm sitting in one right now and don't see any smoldering...
lmao. I'm sitting in Hiroshima and nothing is burning
The company’s gone but the assets just got sold to other commercial real estate firms.
Uber was basically only ever software to help people use their own cars so a very small part of their valuation was physical stuff to upkeep, it was just deals and obligations they had.
Not sure how it shakes out for Anthropic and OpenAI. There’s a lot of physical capacity that needs to be built out and can depreciate. But there’s also a lot of network effects and dependencies being built in with enterprise users.
I don’t know how swappable the tooling is either. I think over the long term the UI, model training and documentation, and infrastructure are going to end up being run by different parties and I’m not sure which leg of that chain ends up in a position to skim most of the profit off. My guess is that Apple and Google end up raking in all the money since they control the OS and app stores while the rest of the stack gets driven down to being generic commodities. At least where mass market consumer adoption is concerned.
The difference is that they had room to charge more of their customers and pay less to their workers. The AI industry doesn't have both sides to play at this point. Training and inference are getting more expensive and if you take on the high prices now you're just floating yourself further downstream from profitability long term (which does not look viable for any of them currently).
WeWork absolutely did not survive
I don't think Uber was doing $1 trillion in infrastructure spend.
Funny you should mention Uber. What was it their COO said recently about the AI costs?
I quoted exactly what they said in my piece, under the heading "The AI-failure stories around this are pretty thin": https://simonwillison.net/2026/May/27/product-market-fit/#th...
> But then you sometimes go and talk to your senior engineering leaders and you’re saying, OK, how many projects that were on the cutting room floor got moved above the line because of the productivity gains because 25% of our code commits were via Claude Code last quarter?
> That link is not there yet, right? I think maybe implicitly there’s more that is getting shipped. But it’s very hard to draw a line between one of those stats and, OK, now we’re actually producing like 25% more useful consumer features, right? And that line is hard to draw.
That's pretty weak sauce. I don't think that justifies the headlines that came out of it, personally.
? What are you talking about mate? The man all but says "this shit does not work for us". It iss layered in that careful, sanitised corporate shit-sandwich communication approach, where you take a nice piece of shit and layer it in between two slices of avocado so its sweeter to swallow for the "consumer" of your message.
He also said in that article that what prompted the discussion was the public statement by the Uber CTO that he had already burnt through his organisations yearly AI-budget in April. Please stop this shilling mate, and trying to hide the overall perspective between this or that word.
Did you read my piece? I covered the Uber CTO thing too: https://simonwillison.net/2026/May/27/product-market-fit/#th...
> The most discussed has been Uber, based on this report where CTO Praveen Neppalli Naga indicated that Uber had “maxed out its full year AI budget just a few months into 2026”, mostly thanks to Claude Code.
> Given that Claude Code only got really good in November it’s entirely unsurprising to me that a budget set in 2025 may have failed to predict demand for that tool in 2026!
somehow the invisible hand of the market is also blind af
Makes sense if you think about it: if all photons pass through you (invisible) then you can't capture them to get info (blind).
I thought Anthropic and OpenAI's combined CapEx has been <100B?
source: https://isaiprofitable.com/
Maybe so far, but they've committed to well over a trillion in future capex.
That site needs Apple on the list. ;-)
> +20% speed for +20% spend isn't going to motivate a trillion dollars a year in spending.
Except that if your company go 20% faster than the others companies, you win market shares. But then, everyone will use the same tools and companies will be at even speed, but the tool will stay.
Now...if the market is saturated, it's useless to try to do things faster. Cheaper yes, but not faster.
Pretty much all major tech companies today are horribly bloated and mostly metastasizing instead of innovating. I'm not sure how 20% increased productivity will help in any way with that. If anything, it might accelerate enshittification and turn potential customers off even more.
"Next 5y" doesn't apply to AI factories
Bigger than that, they have to contend with open weight local inference. Open weight models right now haven't caught up to the frontier models of right now, but they're as good as the frontier models of not too long ago. If open weight models reach a certain point, then frontier model providers are going to struggle to make anything selling tokens, because eventually people will realize they don't need Mythos for everything.
There is also the EV (expected value) of developing AGI. Even if you personally believe the probability is low within the lifetime of either of these companies, the value would still be extraordinarily high, enough to forgive a $5T or so miscalculation here or there.
I don't think AGI was ever a serious endeavour, just something the labs talked up to grab attention.
I am willing to bet a Twix we'll look back on that stuff in 2 years with a lot of embarrassment
The high-risk side of that bet would need to win more like a lifetime supply of Twix. But in a post-scarcity nirvana, everyone already has that. So sure, you're on at even money. See you in two years.
Theres no reason to believe, based on recent trends, that AI would lead us to a post-scarcity world, even if it could do all of our jobs better and cheaper.
Here is a serious question.. Can we sell into the hype cycle and on the way down with this: https://safebots.ai/costs.html
I asked claude to generate a frontend and it made the same template. Same san serif and serif fonts together. Same colors. Same typography. Same layout and animations even. It’s wild how similar it is. No not similar it’s the same damn thing.
It produces the "most average" web design unless you really prompt your way out, isn't it? If you don't care enough to prompt, Claude does not care to be individual.
Technically from claude's POV, it's one individual copied millions of times. All claudes are clones.
I’ve seen the same dashboard for a dozen custom web applications now, including a couple I had it make for me.
It really does have a particular lane for each chore, and it’s reproducible.
Yep and when you see it in the wild it stands out like a sore thumb, absolutely no thought into a bit of a unique design or branding.
I have a few live websites built using LLMs and they will just go for default generic templates and colours if there's no vision.
YEPPP... and I'm kind of shocked at how many people can't do simple math.
Let's put it context. Google's annual revenue seems to be north of $400B. So if OpenAI suddenly had Google's revenue, it would still be insufficient to recover their investment.
and it's a ticking time bomb because $1T in servers, CPUs, GPUs and memory is going to be worth $200B in 5 years. You can say they can keep using what they've got. Sure. But they're also not going to stop spending on new hardware. And the competitor that comes along in 5 years and spends $1T doing the exact same thing is going to have a huge advantage.
OpenAI at this point reminds me very much of the Russ Henneman pre-money hype cycle.
This should be the top comment. Also, I think its not that many people, including our Simon here, are not good at math. Its more like, some of them seem to be incentivised to not be cough, cough, "good at math". How else will the hype sell?
I thought my post was pretty free of hype. I said that this new revenue "Maybe even enough to start covering their costs!"
Well, your title certainly was not, in any case!
At a certain point, I genuinely feel like the best way this hype is being sold is by making people genuinely believe in it.
and in that sense, if Anthropic and OpenAI are able to create the projection that they can-be profitable despite finances seeming bubbly at best, I think that what happens is that these companies spew so much amount of content that people like Simon get into it too.
There is a deeper problem of people falling into AI psychosis too, in general, I am not sure if Simon has fallen into it or not
I think that the greatest point which can be made here is to not offload your thinking to others and to think about the situation yourself. Sounds familiar (looks like we are all off-loading our thinking itself to machines)
Side-note: As humans, we have a tendency to quickly judge or make quick decisions which stems from our times foraging and scavenging in jungles.
Another Side-note: at a certain point, I am unsure of how much to think about AI or not, certainly discussions about it that were happening 2 years ago weren't helpful in contexts that they are used now (well not in any way or form that a person discussing and getting into the weeds of AI 2 years ago is better than a person just getting into it say 2-3 months ago)
With the industry moving so fast, It is basically unsure to me of any FOMO or anything if you aren't using AI already, I find this notion naive.
People might be making strong opinions (AI psychosis) and skills on the tools available at the moment the same done 2 years ago. We don't quite know about the tech as these are still black-boxes and how they progress and what these "AI skills" might survive or not in future. Heck, we aren't even sure if these tools might survive or not or wouldn't be made magnitudes more expensive simply to break even as they are given to us for the first time at percentages of the price.
I don't know if I should form strong opinions yet and also a question of its worth so much thinking efforts in the first place, probably just gonna do my own thing (the way I want to) which includes learning C at the moment. because learning is fun.
How could extremely capable artificial brains ever pay for themselves?
> $5t to $10t to make back in the next 5 years
Wait what? They spent 2 order of magnitude less on hardware.
From the verge: https://archive.is/kU4Zg
> Gartner forecasts that large AI companies would need to earn cumulatively close to $7 trillion in AI-driven revenue through 2029, which is close to $2 trillion per year by the end of the period. In order to achieve “historic returns,” the providers would need to earn nearly $8.2 trillion in the same period.
Those numbers don't even track even in the same sentence. If it is $2T/year by the end of 2029, it would be something < $6T cumulative in 3 years.
“Through” 2029 is a bit more than three and a half years. The $2T are likely the yearly average of the $7T in that period.
The numbers are made up political correctness anyway.
Everyone's agency is 100% captured by belief in Wall Street. Too few <50 have any meaningful labor skills to blink.
We'll continue to have consent manufactured via media platforms and in 3 years no one will bat an eye at these companies being worth $12 trillion as Altman and Musk climb two ladders holding a "mission accomplished" banner.
Source on 200 million knowledge workers worldwide? My understanding is that it's just above 1 billion. I dont think a billion subscriptions at $1000/yr is out of the question but it might take a decade to get roiling
You're suggesting that 1 in 8 people worldwide, including every one from infants and the elderly, are knowledge workers. Are you sure that's what you mean?
I'm not even sure that 1 in 8 people I know would qualify as a knowledge worker, let alone a knowledge worker that might profoundly benefit from on-the-horizon AI. And I'm in a highly skewed population.
Well around 40% of people work. I dont think its crazy to say around a third of jobs are knowledge jobs, but what do I know
85% of the world population lives outside of developed nations.
27% of the world's workforce is in agriculture (contrast to the US where it is 1-2%). 15% in manufacturing.
A lot of people work in "services" (especially in high income nations, where it's roughly three quarters) and some of those are knowledge workers... but a huge number of them are nail technicians or hairdressers or bartenders (etc etc).
A billion? Really? At 200M you’re already including a lot of people that stretch the definition of knowledge worker.
A lot of those ‘edge cases’ in the definition of “knowledge worker” are probably the stuff that’s most likely to have significant parts of the work augmented or replaced by AI agents. Like, call-centers are almost certainly going to get turned over in a big way. It’s not like the median tier-1 support operator just reading off a script is much better than an LLM anyway.
Yeah, just looked into this. Knowledge workers is a big group and probably much larger than you think it is.
Basically if you're not doing manual labor, it's probably knowledge work.
Roughly 1/3rd of the working population.
Some data tucked in here: https://gist.github.com/danielmiessler/2dc039762a202b083753b...
> At 200M you’re already including a lot of people that stretch the definition of knowledge worker.
How do you know this? Im certainly open to recalibrating my numbers which is why I asked for the source
What's your source, because it looks wildly out of proportion compared to numbers we have now.
To add an actual source to this thread, a brief paper by researchers at the International Labour Organization (ILO) states that for knowledge workers globally "... there are between 644 and 997 million jobs, which represents between 19.6 per cent and 30.4 per cent of global employment respectively." [1]
[1]: Berg, Janine and Gmyrek, Pawel, Automation Hits the Knowledge Worker: ChatGPT and the Future of Work (April 21, 2023). UN Multi-Stakeholder Forum on Science, Technology and Innovation for the SDGs (STI Forum) 2023, Available at SSRN: https://ssrn.com/abstract=4458221
Globally, sure. The assumption here is all users are on the same economic footing, they are not. Only about a 1/3rd (at most) of that count can afford $1000+ monthly, and even then that is wildly out of line with what most will.
Here's a source from 2019 that says: "By 2023, the number of knowledge workers in the world will increase to 1.14 billion, with more than four-fifths of that growth coming from the emerging world."
https://www.gartner.com/en/newsroom/press-releases/09-24-201...
Thank you for validating my point.
> "...with more than four-fifths of that growth coming from the emerging world."
If anyone thinks this is a part of the global TAM that's got $1000 a month to blow, well then I've got a stable of flying unicorns to sell you.
I googled "number of knowledge workers worldwide" and read the top results. If you read it as I was confident in a billion I apologize, Im just trying to get an accurate count. What numbers do you have now and where did you find them?
That's not the TAM of 1B knowledge workers globally. If that were the case many industries would have a 2-3x target market.
To simplify break that 1B up into 3 levels of purchasing:
1) High-tier (US, Western EU, ANZ, Japan, South Korea, Singapore, UAE, etc) - 200-250M knowledge workers.
2) Mid-tier (Eastern EU, Latin America, urban China, India tech sector, etc) - 300-400M
3) Low-tier (Rest of the world) - 300-400M
Low-tier users are mostly free tier or heavily subsidized pricing.
Mid-tier are going to account for USD sub-$100 tiers. Probably averaging less than $50/seat.
High-tier are who you are assuming is the 1B. Users are not equal in that knowledge worker count, so there aren't 1B knowledge workers to charge money.
And when you consider Low-tier users a majority of those are free users which need to be subsidized by the High-tier users. So either free tiers get much more restrictive or the providers lose additional training data. A bulk of Low-tier users cost money and provide little to no revenue.
Edit: And think about Mid-tier and Low-tier for 5 seconds. Why would they pay Anthropic or OAI when they get get 100x+ inference from DeepSeek or Xiaomi? Mid-tier may be the only area that is willing to spend money on a US provider, but I would wager significantly on the fact that users in the Low-tier almost universally do not care.
> unless we figure out how to make developers 2x, 5x, 10x as productive on stuff that matters, this isn't going to play out well.
Simple - you make them work 2x, 5x, or 10x more hours.
There are not enough hours to do that
> 20% if you're a developer. That's a _huge_ shift. Most people I know cite +20%-40% velocity with these tools, against the actual work their company cares about doing. +20% speed for +20% spend isn't going to motivate a trillion dollars a year in spending.
Of course it will. The value of an employee is a multiple of what they get paid.
If you pay an employee $500k and they make $2M for your company (like Meta), then of course a 20% increase for the salary is justified if the velocity is increased 20% as well.
The difference between what the employer makes per employee and what they spend in compensation doesn't matter. If the increase in productivity isn't greater than the increase in cost, there isn't a reason to pay for AI over hiring more developers.
Imagine an employer with 10 employees paying $500k per employee and making $2M per employee in revenue (to use your numbers). They could hire two more employees and spend an extra $1M (+20%), but make an extra $4M in revenue (+20%). Alternatively, they could buy all ten employees a $100k AI subscription, for a total of $1M extra spending (+20%) but an extra $4M in revenue (+20%). You'll notice both scenarios are identical, so an employer optimizing for profit would have no reason to prefer one over the other.
> Anthropic are strongly rumored to be about to have their first profitable quarter
No, its more like their own leak to WSJ and according to Ed Zitron -> seems to be heavily engineered via non-GAAP practices such as counting potential, but not realised revenue as actual revenue - the stuff for which I would be arrested if I did it at my company.
Also it appears according to Ed's analysis - strangely they seem to be projecting only that one quarter as profitable - potentially to calm the investors ahead of the IPO. Investor fraud anyone?
Yeah I'll believe it when I see it. Revenue is increasing but so are their costs.
Back in 2024 their CEO claimed training costs would rise to $10-100B in the next years.
https://www.tomshardware.com/tech-industry/artificial-intell...
Their CEO claims a lot of wild shit. He claimed in January this year, that in about 2-3 weeks from this moment, i.e. "in 6 months" that AI will be doing all of SWE work. Lets hold these people accountable for a change!
Also, if I understand correctly, they are rumored to have a profitable EBITDA.
It's a funny metric considering Depreciation is a huge cost for them.
"We are profitable when we don't count our expenses"
AI companies/users are filled with liars and grifters, so any numbers/outlook they report should be highly suspect.
There's a saying "the fish stinks from the head".
I find this analysis confusing. PMF for coding was likely reached some time last year. Profitability, which is different, we don’t know. The article kind of confuses both without making a strong economic case or using numbers in a compelling way. I don’t understand what the Uber case has to do with this either. The Uber COO clearly said that at least in terms of ROI he’s not seeing the results either.
My take is the product has been very useful for coding (PMF) for months. But it’s certainly not useful at any cost…
What I also find confusing though is that folks seem to ignore trajectory which is maybe the biggest lede to bury. As Simon says, we have had "good enough" coding agents for 6 months, that is a blink of an eye, and at my company my job has now completely changed. It's almost like a dream.
And that's just one inflection point. We've had several and there are many more on the horizon. So while I could be convinced that ROI is maybe not even positive today despite the ridiculous enterprise spend, it's perfectly rational to pave the way today for what's coming over the next few months let alone years down the line.
Pmf is this weirdly defined thing where "if you're not sure you have it then you don't".
I think it was clearly useful for months to people who had tried it and taken the time to understand it, but now that knowledge has spread to the point where wallet holders are convinced it's not just passing fad or hype so now pmf can be "claimed".
I agree it's weird to say "those people have pmf" though, usually it's something you define for yourself
It’s not supposed to be logical, it’s an LLM evangelism blog that rarely, if ever, has any critical analysis that isn’t pro-industry. Read any/all of the other posts and you won’t find much skepticism but you will find a lot of shilling how great it all is.
I like his other posts. He's bullish on AI, which is fine. I'd like to read a mix of bearish and bullish level-headed takes from people who are subject matter experts. His technical credentials are well past discussion - I love Django, and he comes across as pretty level-headed guy. Certainly beats radical takes either way from people who have no clue what they're talking about. It's just this article that I find rather confusing.
308 posts on AI ethics: https://simonwillison.net/tags/ai-ethics/
52 on AI misuse: https://simonwillison.net/tags/ai-misuse/
149 on the unsolved challenge of prompt injection: https://simonwillison.net/tags/prompt-injection/
40 on slop: https://simonwillison.net/tags/slop/
If you want an "LLM evangelism blog that rarely, if ever, has any critical analysis that isn’t pro-industry" there are plenty out there. I'm not one of them.
I think you should highlight your exemplary pre-AI writing too.
The real timing is that we don't have strong enough new business needs for now and we have accumulated enough tech assets, so our work has been increasingly incremental. That means we can build reliable features on top of vast amount of past work - where AI really shines. So, with or without AI, company would hire fewer software engineers if majority of our work is incremental: add a feature here, fix a bug there, tweak a configuration and etc, then we wouldn't need as many software engineers anyway. AI just accelerated such squeeze.
In contrast, imagine if we had the same AI 20 years or so ago. Could AI really write Jersey? I guess not as people were still trying to understand JAX-RS. Could AI really answer all the questions about React? I guess not as React was just invented. Would we use 10x fewer people to build out infra on the public cloud or the entire so-called Big Data platforms? I guess not, as they were still rapidly evolving and we'd need so many engineers to explore so many different possibilities? Could we use AI to build our ML ecosystem with 10X fewer people? I highly doubt so. Heck, 20 years ago R was all the rage and Python's ecosystem was not mature at all. Oh, and mobile computing, could AI lead to 10X fewer people to build all the mobile apps and the underlying infra?
> $2,180.16 worth of tokens for $200
“Tokens” don’t have an intrisic cost or value. Saying that I used $2,180.16 worth of tokens is like relying on the salesperson to convince me I’m getting a billion dollars worth of pots and pans for $19.99.
I think it’s funny how we are throwing critical thinking out the window when it comes to evaluating biased sources of info.
I'm not sure what you're pushing back against here.
I spent $200. If I had been paying API pricing it would have been $2,180.16. The article is about how enterprise customers get charged API pricing, which means if I had been employed by one of those companies I would have cost them $2,180.16.
What am I missing?
Just because API pricing would've been $2180.16 doesn't mean that's the value of those tokens. For starters, you personally probably wouldn't have paid that. But also, sales price isn't value. This is like saying, oh, I saw this bar of gold somewhere for $10000 but got it here for $1000! So I got $10000 worth of gold for $1000! - no, the value of that gold is determined by its weight, which wasn't even mentioned.
We have no market convergence on tokens yet (and it'll differ between LLMs), so it's impossible to say what value you got for your $200.
He's saying he's getting a great deal...a token from Opus on Claude code is the same as a token from Opus on the API. I remain as confused as Simon. He's not talking about "here's the ROI I got from my $100 subscription" it's "here's how much I saved from getting the monthly subscription instead of sending things through an API".
> Just because API pricing would've been $2180.16 doesn't mean that's the value of those tokens.
You seem to be suggesting the price of tokens is entirely disconnected to the cost of providing the service? I don't see much basis for that assumption.
> If I had been paying API pricing it would have been $2,180.16
The point being made above is that API pricing is calculated... somehow... seemingly arbitrarily. Possibly untethered to the infrastructure costs entirely: which would be the basis of any 'value', however that holds the labor theory of value, which isn't accurate either. So how do you accurately price these tokens at all (other than through price-discovery: which is slow, messy and fuzzy)?
> So how do you accurately price these tokens at all
Like anything else in the economy: at the point where enough customers can pay you, and not enough will go to the cheaper competition.
I love HackerNews. God its fantastic. Only on HackerNews can you find these deranged personalities who think the pricing model of a near-trillion dollar company is determined "seemingly arbitrarily".
Fun fact: the $20/month subscription fee for ChatGPT Pro - which set the standard for at least a couple of years - really was an arbitrary decision made based on a Google form: https://simonwillison.net/2025/Aug/12/nick-turley/
Large enterprises make deals and won’t be paying 2,180.16$ either. Just like with AWS
That doesn't seem to be the case. From what I've seen enterprise deals get API pricing now. Have you seen evidence that's not true?
Hi Simon, nice article. The parent there may be making the same assumption I am, that large enterprise _never_ pays sticker price.
Also, to just color in the picture here, as I haven't seen it mentioned elsewhere, there is a very large Saas company at the moment who has given everyone unlimited tokens on Claude. And they have a dashboard showing who spends the most. So the "budget" went from about USD500 per per person (split between Claude and cursor) in Jan to... Well a soft limit of USD100k... Per month... Per person.
People can still see the top line sticker price on their spend, but honestly I can't believe that the Saas is paying that full price when the invoice comes in.
That said, there are some finance reports which are probably dropping soon where we will find out!
> The parent there may be making the same assumption I am, that large enterprise _never_ pays sticker price.
I shared that assumption until yesterday, when I found out that it wasn't holding for LLM pricing from OpenAI and Anthropic. That's what inspired me to write this piece.
I think those token leaderboards are an obviously terrible idea and will go extinct very quickly now that people are paying attention to costs.
But the feature list at https://claude.com/pricing#team-&-enterprise literally list "tiered incentives on committed spend" and "non-standard terms" as perks of the sales-assisted Enterprise plan. Maybe "non-standard terms" could mean "we dance for you if you pay", but what would "tiered incentives on committed spend" mean besides "we can negotiate on price if you bring the volume"
large enterprises dont pay openai or anthropic, they get this thing called copilot and get a nice price there. At least on this side of the pond (eu)
I do know of moderate-size companies deploying OSS LLMs on their own GPU clusters, for ownership/security/maybe cost reasons. I'm somewhat surprised F500 companies are apparently just handing over all their data to the model providers.
Could be fantastic for small shops while it lasts. The big guys have to pay 10x for precious tokens.
And "large" just means that AWS will assign an account manager to talk with you. I was at a start-up who spent $300k/year on AWS and that was enough to get special attention and discounts. Enterprise pricing is confusing.
The point is that those a real prices real people are paying for real API usage. it's not made up.
your point is large players won't pay those prices at massive volume. ok
Claude is so in demand at the moment that there aren't really volume discounts. Anthropic sets the terms and you either accept them or get lost they have that much of a lead (mindshare/desirability wise).
API pricing drops DRAMATICALLY in enterprise agreements.
As with pretty much anything priced on volume/usage.
Enterprise deals are negotiated ad-hoc, the listed pricing is simply a jumping off point for the final negotiated discount.
If you’re going to give 20,000 employees Claude code you are not going to be spending $1B per year on Anthropic tokens as if you gave everyone an individual API key. Just as Anthropic isn’t paying AWS SES $10,000,000 to send 1 email update to their massive user base when the next Claude version drops.
This isn't true at the moment, though. So far there hasn't been the negotiating power. What happens is you end up capping usage for employees at a fixed amount. I think eventually, prices will come down and there will be discounts, but for enterprise accounts at least of our size (<5000), we're paying almost 100% retail, which kind of sucks, because it's expensive, and pretty easy to burn $50 to $100+ in a day, if you're not careful. In fact we got pushed off the former plan to the token-utility one at the last contract negotiation.
Going to be interesting to determing the metrics we give to engineers for determining whether the spend on this is worth it. Measuring PRs, lines of code committed, commits fully generated by agentic workflows, etc.....
> API pricing drops DRAMATICALLY in enterprise agreements
Do you have any numbers or reports to back that up?
Have you or I misunderstood the "teams" plan?
edit: I missed the "enterprise" feature matrix with the usual audit/compliance stuff to force the biggest enterprise customers onto enterprise plans. Otherwise the "teams" plan is much better value for any business.
orig-continued:
https://claude.com/pricing/team
Teams premium is "Everything in standard, plus more usage*"
And from my experience, it's a very generous usage, I've only hit the limits once or twice, and both times required multi-boxing agents.
I could single-window agentic development all day on opus-4.7 auto-mode without hitting limits.
If you're a business using claude, then that seems like the right plan, the enteprise/API plan seems more suited to where your product is built on top of the agent themselves, so seats/limits aren't really meaningful?
Claude Teams and Claude Enterprise are 2 distinct plans. Simon is right that Enterprise seats have no included usage (and so all usage is charged at API billing rates), whereas Teams seats do.
Tokens do have a clearly calculable intrinsic cost. There's the marginal cost of production (i.e. the inference cost) and the amortized R&D cost that goes into the model producing them.
Yes, value is hard to calculate, but luckily market pricing mechanisms exist exactly for this purpose. There isn't a better number to use than what people are willing to pay for them.
So he's saying that on an enterprise plan, he'd be spending $2,180.16. He's not paying that much, but enterprises are.
His point is more he was surprised enterprises weren't getting the discount. And so indeed maybe it is not a giant ponzi after all! (Could be a bubble)
a little critical thinking led me to read that sentence as $2180 worth of tokens [at current api pricing]
Lol. They obviously have intrinsic cost, the floor being the cost of electricity. It’s hilarious how we are throwing critical thinking out the window when it comes to evaluating biased sources of info.
I think it's funnier that you can believe some things have an intrinsic cost and others don't
Is PMF enough. It is such a dynamic self-disrupting wave that it is like predicting physical chaos. These aren't early Googles in a blue ocean. Maybe a blue ocean full of pirates and dragons!
This isn't me being a doomer I just don't know. Can we look at Q2 profits and draw hockey sticks yet?
Remember people are boasting how much their expenses are. That is where we are in the bubble/new paradigm.
200$ per month per seat is nothing .
A single 3D CAD license pack for the guys in our R&D group costs multiple thousands of dollars per seat, per month.
It's about time software seats get some love too.
AutoCAD is $175 per user per month [1].
[1] https://www.autodesk.com/products/autocad/buy
AutoCAD is still the budget-friendly CAD program it has always been. You don't build big boats in AutoCAD.
Winch Design [0], which have built some of the world's largest superyachts [1], seem to be using AutoCad. [2] Afaik it's also the same with Lürssen (but don't quote me on that)
[0] https://winchdesign.com/ [1] https://www.superyachts.com/directory/1516/winch-design/flee... [2] https://www.autodesk.com/design-make/articles/naval-architec...
As someone completely outside the 3D design world who always thought of AutoCAD as the gold standard - really? What program would be used instead? Please enlighten me.
Except LLM's even with Vision are still useless at AutoCAD let alone Revit (please dont quote SCAD LLM's at me, useless). Knowledge based approaches still win.
I might agree "AutoCAD" is the current level LLM's are at, but wait until your design departments discovers "Revit", its another ballpark (in wasted cots, engineers on site still get "clashes").
Revit costs are high, and the end results are marginally better - but local LLM's tokens are cheaper 24/7 at "AutoCAD" level - "Revit" level tokens will make Ubers CTO/COO weep harder than they already do. While producing results no better than "Revit" does (engineers still face "clashes").
Cadence and Ansys have entered the chat. A bunch of other highly-specialized engineering software has entered the chat. Licenses are on the order of 10-100k/seat.
For a pretty funny commend about pricing.
https://www.reddit.com/r/chipdesign/comments/1ajrli2/cadence...
Yeah, it’s nothing, and it’s also not the cost that enterprises are paying. As the article states, the price is $20 per seat per month, PLUS per-token API usage. Enterprises are paying consumption billing, not fixed rate oversubscribed “all you can eat per seat.”
Sure. Is CAD going to be used by every working human?
CATIA licenses which are the most expensive I've seen are roughly $600/month per user. Where are you seeing "thousands of dollars per seat"?
CATIA with plugins can go up to 100k a year. That’s what we currently pay
CFD might reasonably be considered part of CAD and something like ansys costs about as much as catia. Still only doubles it though.
But when previously your software developer tools were free, that's a huge increase
How many guys is that? Every single white collar worker is in the AI ICP (customer profile).
edit: typo
white collar*, not color
What does ICP mean?
Insane Clown Posse, though given the context here probably Ideal Customer Profile.
The similarities are quite stunning, though, as I'm sure both sets of ICPs have no idea how LLMs work.
Now hold on there, let's not cast doubt on ICP. I'm sure they'll surprise us, as they always have.
So how do openai and anthropic plan to keep customers when GLM-5.1 is just as good and open source and a lot cheaper?
I don't see the business model working. My closest friend actually does automation software for large companies.
He does not use Claude or openai at all. He primarily uses gpt 120b on cerebras and glm-5.1 for heavy thinking work. And some other small models for various tasks. All open source.
And these systems are extremely useful for the businesses and are able to run fully automated pipelines that are very stable and fast.
We discuss this a lot, and we both think any business doing heavy agentic work on Claude and openai just aren't aware of exactly how good and cheap open source has gotten on the last year.
So... once the legacy businesses and developers catch up, won't Claude and openai be unable to recoup their costs?
> I don't see the business model working.
Same. It's a nightmare from a Porter's Five Forces perspective.
There will be a ton of businesses competing in this space, and there will be something of a moat due to how capital intensive the business can be, but there will still basically be infinite competitors.
Great for consumers.
For coding assistance, I have tried OpenCode with several large open models through OpenRouter. All were fairly bad compared to Claude Opus. Could you provide some hints on how I should be holding these open models so that I might get more value out of them?
I agree with the common trope that open models lag behind by about a year, but something magical happened just around a year ago when the state of the art models became extremely useful. By this reasoning we're about to see open models perform well, but I'm afraid there is more to it than just waiting for another revolution around the sun.
Note, my application is coding assistance. Open models can be great for other purposes.
I tried almost all OS models on opencode, none of them is on levels as opus 4.7.
In latest experiment I used opus for implementation plan then used cursor composer 2.5 for execution.
I must say that combo is really good. Main drawback of claude code is that is super slow. So when paired with composer that is super fast it flies.
Do more planning yourself, be smart about the context, break down tasks into smaller components, give it more guidance. You can't just lazily prompt it to complete large features autonomously and expect good results.
For coding you always want to go with the best model in the category, not something that would be the best model if we went 1 year back which GLM 5.1 is, and I'm saying that as a big fan of GLM cause I run a translation site where GLM is good enough for the price.
Most of the money right now is in coding. Openai and Anthropic just have to be 6 months ahead of SOTA open source models and they'll capture most of the enterprise and dev market
> For coding you always want to go with the best model in the category
Will this always be true? There will never be an event horizon/point of diminishing returns where something not-bleeding-edge is "good enough" for 51%+ of users?
Yes I'm an engineer (20 years most in games/graphics industry) and only use it for code. I've been using glm 5.1 this week a lot. I went in expecting another "decent" but not really "up to standard" open source model.
I highly doubt I'll ever use Claude again.
I think you are wrong about Claude being any significant level better
I've been mostly coding with GLM-5.1 as well and I agree with you. DeepSeek V4 Flash is another very good surprise. Incredibly cheap, fast and effective.
For coding like for everything else in life cost is a factor.
Cost for the value delivered. Like if you offered the current SOTA open source models at $0.1/M, I still think I'd be using Opus or 5.5 at $30/M. Or say GPT 5 which was released Aug 25, I don't think I'd use it for coding for even $0.1. I'd def find other uses for it(translations, agentic workflows, prompt guards etc), but for coding I don't think I'd ever completely switch to a SOTA open model
Unless ofc there was an actual speed difference, only reason I'd be willing to go with a worse model couple of percent worse than current best model is if the speed was at least 5x higher. Looking forward to kimi k2.6 offered publicly by Cerebras
> I still think I'd be using
That's fine. Other people may not want to pay 300 more and will rather make do with last year's SOTA.
> For coding you always want to go with the best model
Maybe you meant "For coding I always want to go with the best model"?
This is a silly take. There is a line of "good enough" for most coding (most CRUD apps and APIs are nothing special), and once we are past that, nobody will care about having the "newest, best" model except extreme outliers. And this base "good enough" model will become an ultra cheap commodity as we already see with GLM, deepseek, etc.
> For XXX you always want to go with XXX, not XXX
Oh, hey, I recognize you. Thank you for the very forward and thorough orbital sander recommendation at Home Depot. That's exactly what I wanted to deal with on my holiday weekend. You just know so much about this and the rest of us are simple passersbys.
Most work is not coding.
And also, people have it wrong… their models are not the main problem anymore. It’s the RAG
Would love to hear more about your thought about the RAG.
I think RAG is a mostly outdated concept now, it's been subsumed by the idea of a "agent harness" which is exactly what Claude Code and Claude Cowork and OpenAI Codex and Claude.ai and ChatGPT themselves have now become.
An agent harness with access to a good search tool is a much more interesting thing than 2024-era RAG systems.
Depending on RAG is a workflow problem, not an AI problem
> That’s $2,180.16 worth of tokens for $200—not bad at all!
Just imagine how funny it will be if it comes out that big labs were doing some fancy maths to count the 2k$/month in their forecasts ...
The costs are exorbitant and most software is not produced by companies with such a huge moat. Anthropic made a profit through their recent bait amd switch pricing. There is zero useful insights online to indicate whether this might die due to commoditisation with good enough open models or fail the race to get more people subsidising unsustainable growth with other people’s money. Who knows? In any case they dont seem to be able to drop usage costs so the business model seems based on wishes
Continuing with your skepticism:
> Stories are circulating of companies surprised at how expensive their LLM bills are becoming from usage by their staff
> Enterprise customers are now paying API prices
How long before enterprise customers start to question the bill? Anthropic goes from not making money to doing pricing shakeup, and now they are making money and the biggest spenders are shocked at prices.
Seems like things are still very uncertain.
Usage costs will come down with better hardware. Hardware is improving rapidly each generation.
That trend held true for the past three years, but it doesn't feel as safe to me now.
But memory costs are going way up. And both OpenAI and Anthropic bumped up the price of their frontier models in April.
Algorithms are also improving. I believe it's very unlikely for these two improvements together to not result in one to two orders of magnitude cheaper cost per "intelligence". Of course, that might just make use cases that are too expensive today viable and thereby increase usage further.
> Coding agents really did change everything. These are tools which burn vastly more tokens
The assumption here is that this is a positive thing.
But this very well could end up being a major negative long term by increasing the cost per user, reducing margins.
More usage = more cost = less profit.
It's not obvious that more usage is good. It's only good if revenue per user increases more than cost does. I'm skeptical about that.
> It's only good if revenue per user increases more than cost does.
That's why it's so important for these labs that they're selling API tokens for more than the compute+energy costs needed to generate them.
Every indicator I've seen is that they do have a positive margin on that. If they don't, they're screwed.
They certainly have, but it relies entirely on the assistant frame, which is a problem in and of itself for the trillion-dollar economics.
Anthropic and OpenAI have shown people want a tool for task offloading, driving predictable token consumption and justifying the math, so long as users stay in that dynamic.
However, knowledge workers using these tools daily are getting exhausted with them. Outputs come out polished but hollow. Talking to a frictionless, frame-completing model all day drains you.
If user behavior drifts away from assistant usage because of that, per-token math implodes. The valuations we're hearing about all the time rely on usage compounding daily. The fatigue is a timer running against that compound.
Anthropic's Constitution is the closest hedge out there, I think. Installing an identity structure into the model through training. But it's still assistant-first, so the fix there is only partial.
I've spent the last year running a product that flips the architecture so identity is primary and the assistant role is secondary. Same frontier models, completely different conversational quality. The fatigue property doesn't really show up.
Whichever labs figure out how to install real identity natively in the weights are going to be the ones with PMF in the next phase.
How is the lack of bad news declaring a victory for AI? I am yet to see any company concretely publish analysis about the ROI from AI. Most companies as far as I know are still treating AI investment as sunk cost with no expectation of returns at the moment. We could very well see a world where companies heavily scale back investment.
With deepseek and xiaomi mimo models slashing their prices 99%, I don't see a great future for openai / antrhopic with regards to their 1T valuations. Maybe 1T valuation will be the whole market, West + East.
They'll still have their dedicated enterprise customers. I think the Chinese providers will pull more of the single users who're paying their own way, than those backed by company budget. And it's a pretty good split as the demand becomes better distributed, resulting in better service (I'll never forgot must how bad access to Claude became until they got access to Colossus) and less potential for lock-in (we really don't want there to be a duopoly, etc on good AI).
Does this analysis factor in potential caching of tokens on the server side? It seems that if they organize things well (as a model provider), they can save quite a lot on that. Looking at my Cursor statistics makes it clear that the token calculations are not at all trivial.
I believe the ccusage tool I used takes cached token pricing into account.
> but I suspect there’s a more important factor here: I think they’ve finally found product-market fit
Ahhh the classic startup term that's definition is nebulous. But also, since when does any definition of product/market fit mean a product is profitable? And profitable in what sense? Unit economics? Overall company?
Oh I'm absolutely taking advantage of the fact that "product-market fit" has a bit of a nebulous meaning here.
It's a great hook to build an article around. My core point is more that April 2026 was the point when Anthropic and OpenAI finally appeared to have figured out a credible business model.
Ai has become indispensable but maybe not at all cost. My company just had a company-wide meeting to talk about how they're restricting who can use which models and instructing us the "be more responsible with company's tokens". And it's not an small company by any means.
Love how everyone boasted about replacing all the software with ChatGPT and then we end up with coding agents meaning the software engineer are STILL important. The sell is the development tool. It's classic cloud. Where did all the ops people go, many got subsumed by the cloud companies YET every company still has DevOps people to manage cloud infrastructure. The layer of abstraction went up but we still need the people to write the glue code and understand the business. OK great there's a new cash printer in the room. There's a new tool. Let's just start to ground the tooling in its new found gravity, profitability and IPO market dynamics... Reality has set in. The hype cycle is about to explode... Do you remember ride hailing and just how much cash was burned on credits pre Uber IPO. Then remember the IPO itself? These companies are not the new Google. They are a layer on top. Google was still the most efficient cash printing machine in history beyond the the US government and might still be. Will be interesting to see what the trillion dollar IPOs turn into. I'm going to say we see those prices get cut to a third in less than 5 years and scale back up over the next 15-20 years.
> The sell is the development tool.
I've been calling that out for a couple years now. LLMs best and most viable use case is still just as a dev tool. Even for non-programming tasks, I still get better results from the LLM if I instruct it to write code to do the task...look at Claude Cowork for example, it's everything I used to do with python myself. It's not really a novel capability, it's just using python & bash for automations that any sysadmin has been doing for decades. Yeah, that's valuable for a non-techincal audience but is it $1T valuable? I don't think so.
When has an IDE or other dev tool ever commanded a $1T valuation?
These things get lost in discussions because people conflate "overvalued" with "not useful." LLMs are useful, particularly as dev tool, but Anthropic & OpenAI are definitely way overvalued.
> I currently subscribe to the $100/month Max plan from Anthropic and the $100/month Pro plan from OpenAI. If you are a heavy user of coding agents these plans are a fantastic deal.
Agreed. But its only a great deal because it is heavily subsidized, as you said yourself. Enjoy while it lasts, but in my book, product-market fit means something along the lines of "product which enjoys a loyal customer base, sold at a price perceived fair by the customers, and generating profit. How many of these does your definition of product-market fit hit here?
I think it's fair to say they had achieved product-market fit when their revenues were growing deep triple digits month over month. What we're seeing now is that perhaps they have a achieved profitability or at the least a more sustainable balance sheet.
Anyone actually making money paying all of these monthly fees? Or just hobbyists? I have yet to see any real ROI posted anywhere.
Mentioned in the article, but it cracks me up that both openai and anthropic are utilizing fairly traditional enterprise GTM plans segmented by verticals.
So many startups trying to automate sales, but somehow the two biggest frontier labs have decided that the best GTM strategy is firmly human-in-the-loop.
I'm a huge fan of agent coding but kinda dislike this "llm evangelism".
There are still several open points (eg.: code churn, maintainability, subtle bugs human will never do) that everyone with a minimal programming knowledge that seriously used a LLM agent knows about but somehow none of these "big influencers" never mention (or just saying "it's your fault").
"[would have spent] $1,199 with Anthropic, $980 with OpenAI"
How many tokens is that, input/output-wise?
(a) I'm curious if you feel like you got $2000 worth of value out of them in the last month?
(b) I'm also curious if you would have gotten similar quality out of a slightly lower-cost provider of an open-weight model? (e.g. Kimi K2.6 and DeepSeek v4 Pro) and what the spend would have been for that.
I myself have managed to spend not quite $4 on OpenRouter and have felt it was very worth it; I just have much smaller, or more targeted requests I guess. (Lately, adding features to a static site generator in Python, or setting up log forwarding via a docker compose file)
Claude Code:
OpenAI Codex: I'm confident I got value out of OpenAI - I've been mainly on Codex for the last few weeks.Not so sure I got that value from Claude, just because I've been using it a lot less and somehow the price came to about the same as OpenAI.
Given the code I've been able to build in the past month I genuinely do think I got value for the API price version, and (don't tell OpenAI or Anthropic) I think I'd have paid full price.
I've not spent nearly enough time with GLM-5.1 and co to compare, but I do know that the prompts I'm using with the agents are not prompts I would have expected to work just three months ago.
Are you saying that the software you wrote using those tools generated enough revenue to cover the $2000?
Not yet, but that's because it was almost all open source and I'm really bad at generating revenue from that.
When I account for the amount of time it saved me there's no question $2,000 was worth it.
Cool! Thanks for the details, and your blog posts are usually interesting food for thought, so thank you for them too!
If it were me I'd be asking "How long would it have taken me to do that, and what's the rate I'd have been charging for the work I would have been doing otherwise?"
Personally, I've probably spent $60 or so on OpenRouter in the last month or so and got a working project out of it that it would probably have taken me a fortnight to knock together (which is inevitably an under-estimate because it covered things I'd have to learn but K2.5/6 already knew). There's an orders-of-magnitude gap there.
What baffles me is the range of estimates.
Operating profit is both post depreciation and fees paid to third parties for hire. So aside from shenanigans like RSUs and financing interest that's already somewhat close to actual economics.
Meanwhile we've got commenters here talking of 5-10 trillion with a T revenue shortfall.
Those are very different takes on reality
I think the reasons for them going with API pricing will become abundantly clear when the S-1s become available. If they don't have a story covering how they can get revenue closer to expenses, then they're relying on the market to believe the pixie dust version of their profitability story, which I think people increasingly don't.
If nothing else this blog did give me the idea that I should split my $200 claude max plan into two $100 CC max and $100 codex plan, esp because Claude is now offering 1.5x weekly limits so its the 5x usage is now more like 7.5x usage.
>I should split my $200 claude max plan into two $100 CC max and $100 codex plan
You may want to get one of them to check the math on that :p
So it largely sounds like many more people will be able to write software - and will use AI to do it. Existing software engineers will continue to automate their tasks away like they always did, but perhaps at a faster rate.
The impact of AI in other fields seems to be muted.
I think it is applicable to a much wider range of knowledge work, but it's also harder to apply there.
Software development has the huge advantage that mistakes and hallucinations are very easy to spot: the software works or it doesn't.
Spotting errors in a research report or legal brief is a whole lot harder!
But... non-software professionals spend a huge amount of their time on tasks that can be safely automated - reformatting documents, extracting numbers from PDFs, all kinds of flavor of data entry.
Learning how to use a tool like Claude Cowork can take a big dent out of those.
> Software development has the huge advantage that mistakes and hallucinations are very easy to spot: the software works or it doesn't.
Do we not care about code quality, maintainability, performance, extensibility, or understandability anymore? Honest question, not a gotcha, it's just previously getting software to pass all the tests was a small part of what we would consider "working" or perhaps "good" software. Maybe that's different now with LLMs, idk.
If the AI can write code for robots the impact in other fields may be pretty large. Seems to me a lot of jobs can be automated with software and robots combined. The limit in the past was writing the software to get the robots to work. But if AI can remove that limit...
Realistically, OpenAI found product market fit with the OpenAI API playground in 2021. People were using that as ChatGPT at the time.
I wonder how a focus on per-token API profits will impact the incentives to improve token efficiency and drive down costs through optimized compute. I suppose as long as a few leading labs are competing, we'll see progress in this regard, but it's certainly less in their interest than it is with a flat subscription pricing model.
> If you are a heavy user of coding agents these plans are a fantastic deal. I just ran the ccusage tool on my laptop to get an estimate of how much I would have spent if I were to pay for API tokens in the past 30 days and got
You think this is fantastic deal only because they use similar like tricks where they inflate the price and tell you something supposed to cost $1000 but they have this today promo for $100.
I was there too and paying for a while. Few weeks ago I tried DeepSeek V4 Pro - expected its gonna be shit but its actually pretty good.
The deal is I pay daily ~$1 for DSV4-pro for ~100M API token usage. And they probably not getting broke because >90% of those token in practice is cache read and they very well optimized for that.
With respect to Simon, whose writing I've usually agreed with in the past and whose insights I've liked: this is a bad take that overlooks the extent to which corporations are imposing the use of AI on employees, and in particular ICs, who make up a majority of the AI-using workforce by headcount.
Many of us are either openly having our performance reviews tied to AI use, especially at larger enterprises. Whether that's measured by sheer token count or just "how many of your tasks are you using AI for these days" (combined with the implication that question carries at many orgs which are heavily invested in AI).
Are you saying that Anthropic's huge leaps in revenue are caused by stupid company policies and token leaderboards, and the moment companies stop imposing AI on their employees revenue will drop to a point where Anthropic are unlikely to be profitable?
I don't think that's the case. I think the token leaderboard thing (which is clearly ridiculous) affects a tiny portion of companies and is already going out of fashion.
I'm saying that the truth lies somewhere in between, and that Anthropic's current revenue is being, in part, propped up artificially.
We're also in a place where a lot of the usage guidance around these tools is still nascent. People are cowboying a lot of stuff, even as larger companies start to organize AI policy/safety/responsible use working groups to try and policy around the shortfalls of the technology.
IMO: if this technology persists, and if we figure out a way to use it in a broadly safe way, the value proposition will probably trend down rather than up, at least on the code generation front.
As a research tool, it shows some promise, though I still find the ethics of the technology disgusting.
Great article I know this upsets a lot of people who are used to thinking Anthropic/OpenAI are just lighting cash on fire but they've cornered the market on enterprise who cannot walk away from these $200/month plans
However the valuations are still far far away from actual sanity
Have you tried the large open source code models?
I use glm-5.1 and occasionally deep seek v4.
They are as good or better than Claude's latest models.
And significantly cheaper. I've converted 3 of my engineer friends as well. All three have dropped their $200 month plans they had with anthropic.
We've all been a bit shocked at just how good these models are now.
If you "have" tried GLM (I specifically find it shockingly good for code). Did you not think it's not competitive to Claude, and why?
I use GLM-5.1.
It's good enough for personal stuff. It doesn't compare to the latest Opus I use at work. You can certainly argue I don't need Opus for work, but there is clearly a difference.
Also, at least with z.ai, GLM-5.1 is s l o w! After using Claude at work, I get really impatient with GLM-5.1 at home. When doing "true" vibe coding (i.e. not really examining the code), Opus is a ton faster (easily 5x).
But yeah, I'm not willing to personally pay for the frontier models. I won't even renew my annual Z.ai plan - it's become too expensive.
Hmm, I use opencode subscription, and glm seems just as fast from the tests I've tried to compare between the two. Tbh it mostly took Claude longer (mostly significantly longer) for the same tests.
Also, and I know you may not want to answer. But could you give me an idea of the type of thing you found glm to be worse with?
I think I've been fairly unbiased in testing a bunch of different development tasks. But am curious if maybe it performs well for some stuff and not others. So if you could share what you feel it's worse at.
Also are you an experienced developer or less experience?
Perhaps opencode zen isn't using z.ai as a provider?
I'll repeat something I wrote on an entirely separate HN submission.
When DeepSeek V4 Pro came out, I had been mostly coding with GLM-5.1 on a Z.ai coding plan.
I had a large analysis task on a relatively complex codebase. I decided to try the models out.
GLM-5.1 did acceptably but got a few things wrong (easily corrected) and took quite a while to get there.
Opus 4.6 burnt through the US$10 budget I had given it in about 10-15 min, without ever returning from the first prompt.
DeepSeek V4 returned a full analysis within 2-3 min, and I carried on all the way to implementing the feature I was after. Total cost less than US$1.00.
I now mostly alternate between GLM-5.1 and DeepSeek V4 Flash, with an occasional dip into V4 Pro for more complex analyses.
task i am working on right now at work is comparing two verisions of apis and documenting responses in their outputs. i suspect a vast majority of work at entrprise is of similar complexity.
right now everyone is using latest and greatest to do dumb stuff like that. that would change fast if companies start caring about costs.
What is the best IDE UI to use them? I don’t like CLIs.
> enterprise who cannot walk away from these $200/month plans
Any org with more than 150 users aren't on $200/month plans, they are forced into API pricing + $20/month/user
For individuals and orgs small enough to get to use the subscription plans, that's all well and good until usage limits keep going down, or cost goes up. If you compare the usage you get on $200/month maxed out vs. what that would cost at API pricing, the $200/mont plan is an absolute steal. I doubt it will last long.
Not to mention the API plans are also still in their "lose money, just get the suckers hooked like addicts" phase. Once the reality-based pricing comes into play, it's a coin flip of whether the bulk of the companies fail, or they get to live off government subsidies for a few decades.
On the plus side, I'm happy I'll have a nice hay barn when the local half-built AI data center is abandoned.
I believe that API pricing runs at a healthy margin, at least compared to the server and energy costs used to serve the tokens.
Recent conversation here on that topic: https://news.ycombinator.com/item?id=47062534#47063134
> enterprise who cannot walk away from these $200/month plans
But that's the point of the article. Enterprise plans are starting to get API pricing, not the subsidized subscription pricing.
Who's to say those enterprises won't churn after XYZ comes out with a decent enough model that costs 10x less to use?
There's a whole bag of clever tricks you can play to juice short term results leading to an IPO that may not work longer term.
I'll believe they've found product-market fit when they have a product. Right now they're selling the infrastructure, in a highly subsidized and undifferentiated way (at least over a sufficient long period of time of, say, a couple of years).
>Somehow this fragment turned into headlines like Uber’s COO says it’s getting harder to justify the money spent on AI tokenmaxxing, because the market for stories about AI failures remains enormous.
I notice this all over the place. Many people hate AI and want it to fail, and they're willing to invent misinformation if it supports that idea.
Well, it is a big news when the COO of Uber says it no? Not quite some small consultancy shop here.
But the COO did not say that. The headline was deliberately misrepresenting what he said.
No, he said exactly that, if you remove the corporate sanitised language designed to not offend the Uber CTO.
I think you're putting way too much weight into what one person said in unprepared remarks at the 27 minute mark in a 32 minute podcast conversation.
Companies are kool-aid drinking now due to hype, but given how much they're spending, if they don't see REAL, BIG wins from it soon, they're going to scale it back quickly and switch to Chinese models. Claude isn't worth the API cost for a lot of development work, and once companies have had time to collect and crunch data they'll see this.
> Anthropic are strongly rumored to be about to have their first profitable quarter.
Is that quarter same as any other quarter in terms of infrastructure costs (e.g. are there any temporary discounts happening coincidentally)?
Didn't xAI basically donate the compute for that quarter so Anthropic could get to say they turned a profit?
The SpaceX S-1 says they're charging Anthropic $1.25b a month.
It also states that the first few months (this current quarter where Anthropic are reporting profit) are discounted.
Hey man, that discounted rate on Colossus 1 inference is purely coincidental...
yep, and the issue is, they took investment
The big assumption with all of these sorts of analyses is that things will continue as they are for the foreseeable future.
In hype-driven markets, you cannot be certain of that.
Let's take a view that the author is right: coding agents and their associated harnesses were the inflection point for some degree of profitability and widespread consumption, and that these tools are now yet another SaaS subscription or API bucket expense to bake into every single developer (or developer-adjacent) in the organization alongside your collab suite, HR seat, CRM seat, design seat, etc. To be fair I honestly think that's a safe assumption to make for highly technical firms whose image is derived from remaining on the cutting edge of things.
That begs the following questions, which we won't know until IPOs start happening:
* Are subscriptions profitable, or just API consumption?
* What's the run rate when we just consider subscription-based usage like Claude Code and Codex? What about API calls?
* Is there any profitable pathway forward at which enterprises can get unlimited usage but at fixed rates via subscription?
* What does customer churn look like for subscription users versus API users?
We also have a number of questions for customers that I suspect we'll start seeing receipts for in the coming months, at least from the early adopters:
* What was the net gain (loss) from leveraging coding agents?
* What's the cost of a developer with or without access to a coding agent + harness? Is it cheaper to hire an outsourced worker with a coding agent subscription, or a domestic worker without one?
* At what point does further AI spend result in diminishing returns, i.e. where's the 'sweet spot' for spend?
* Did AI boost actual revenue and outcomes, or did it just gamify KPIs?
* What roles or work did AI actually replace, versus merely displace during the hype cycle?
Not to mention the questions regarding the technology itself:
* Will we develop the means to run foundational/frontier models at edge using less resources through some existing (e.g. distillation) or new technology, thus cutting off the profit centers of these firms?
* When the market mismatch between supply and demand is resolved, won't it be more affordable for consumers and companies to operate their own AI infrastructure rather than support further centralized buildouts?
* Will coding agents improve to the point of being able to bootstrap and self-orchestrate on edge/consumer hardware without substantial technical expertise, or at least improve to the point that traditional IT teams can securely operate them internally without an expensive subscription or API token bucket?
All of these will influence the long tail of this bubble, because it is a bubble at this point. Even if these companies are indeed profitable thanks to the coding agent inflection point, there's still so many unanswered questions about utility beyond coding that it's impossible to extrapolate a future. If coding agents are indeed the extent of utility for profitability, then there's no possible way these entities will recoup the investment already sunk into their infrastructure buildouts. Even if more profitable uses are discovered, does this offset or replace the firms disappearing due to AI speculation and their associated contributions to the economy as a whole (RE: the consumer compute industry at present, higher energy costs due to datacenter builds, opportunity cost from harms to local infrastructure from haphazard builds, etc)? Should these firms indeed be runaway successes and immensely profitable to the point of paying off their investors and growing the larger economy, does this end up stifling innovation in a world where most new ideas are fed into LLMs for R&D that are then controlled by only a handful of companies and immensely wealthy people, via systems that are easily surveilled and stolen from without recourse?
So many, many questions yet to be answered. Betting the farm because of coding agents is one hell of a gamble.
How will they stay profitable if every business lays off engineers because of AI and there are no engineers to use it? /s
I wonder how Ed Zitron will shift goal posts this time, and how long it will take for that article, when published, to reach HN front page.