Article for SiliconANGLE by Jason Bloomberg
As potentially the largest IPO in history, Anthropic PBC is breaking new ground. Its prospectus lists 88 risk factors covering 93 pages alone. From artificial intelligence posing an existential threat to humanity to the possibility AI will blackmail people, the company lists a litany of risks that should make any potential Anthropic investor wary.
One potentially company-sinking risk factor, however, does not explicitly appear in the prospectus: diseconomies of scale.
Diseconomies of scale occur when a company’s average cost of producing each unit of output increases as the company grows.
You would think that given the time and effort that Anthropic devoted to ensuring its list of risk factors was complete that they would have included this one. There is a reason, however, that they missed it, despite the fact that diseconomies of scale is the elephant in the room.
We’ve been down this road before with cloud computing. The fundamental economic driver of the hyperscaler clouds was economies of scale: the larger they became, the lower their cost of each unit of output, leading to massive growth and profitability over time.
Since the AI boom requires massive data center buildouts just as cloud computing does, it might be reasonable to assume that AI will experience the same economic benefits of massive growth that cloud computing enjoyed.
This assumption, however, is likely to be false. To understand why, we must take a look at how the software and cloud businesses scale – and why AI is so different.
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