The article also highlights the importance of revenue quality, which is partially based on gross margins. While high gross margins can yield significant gross profit, this valuation model may not be applicable to companies with high operational costs, such as those selling groceries. The article notes that the issue of AI gross margins has been a topic of discussion since at least 2020, when venture firm a16z argued that AI startups would have lower gross margins due to heavy cloud infrastructure usage and ongoing human support.
Key takeaways:
- The expectation for AI technology to be integrated into every aspect of our lives is widespread, leading to a surge in startups and investors focusing on AI tech.
- Despite the enthusiasm, AI startups often have worse economics than most software startups due to the high costs of building and running modern AI models.
- Anthropic, a leading AI startup, had gross margins of 50% to 55% last December, indicating the high costs associated with AI.
- Back in 2020, venture firm a16z argued that AI startups would have lower gross margins due to heavy cloud infrastructure usage and ongoing human support.