Broadcom CEO Hock Tan linked the strategy of many investors investing in the AI and chip theme to those of gamblers in a casino, adding that some of them have little understanding of what they are betting on. Tan, the CEO of one of the largest data center infra supplier companies globally, also criticized whether business were wasting money on AI initiatives and questioned the long-term economics of money-losing AI labs."A lot of investors have no clue what they are investing in," Tan said, adding that they set very extreme expectations, only to find out that it is almost like they are in a casino.
Tan also said that OpenAI reaching annualized revenue of $50 billion in September points to a viable business model but offers little guarantee on long-term profitability."For now it is still losing money because they are spending a lot on training," Tan said.
"So frankly, it doesn't tell anything at this point except that there is a lot of potential revenue growth out of providing frontier generative AI models," the Broadcom CEO added. Tan went on to further warn that insufficient capital could become the next constraint on the industry's growth.
The skepticism is evident from the recent turn of events. An Australian Data Center firm, Firmus Grid Ltd., who had the backing of Nvidia Corp., withdrew its planned $5.5 billion initial public offering last week. The Broadcom CEO also said that AI model developers need to find customers that can generate returns from deploying the technology, rather than on users who are now wasting money on tokens as they experiment with AI."When you are a kid you go to a video arcade, you play.
Your parents give you $10 of tokens, you finish it in 10 minutes and you haven’t learned anything,” he said. “That’s what happening in enterprises today," Tan said. Hock Tan's remarks are partly responsible for the pressure on the Nasdaq futures and the sell-off seen across the Asian chip giants Korea and Japanese markets.
The Korean KOSPI is down over 6% on Tuesday, while the Nikkei 225 is down nearly 3% in Japan. The other key reason behind the sell-off is fears of increased competition from Chinese chipmaker CXMT, who announced progress in a chip that is also being worked upon by the Korean giants SK Hynix and Micron.