Gurley suspects some AI companies are reselling tokens below cost, creating unsustainable growth.
“I suspect there are companies that are selling, reselling tokens from Amazon or Anthropic or whoever at a price lower than they're paying for them. And which looks like growth, but it is unsustainable.”
Gurley argues AI productivity gains won't lead to 70% margins because competition will lower prices instead.
“I don't think there's any scenario where you just do more for less and all of a sudden everyone has 70% operating margins.”
Gurley warns AI companies trading equity for server capacity don't recognize true COGS and get warped decision-making.
“They're trading equity for server capacity. And so those companies are running on a day to day basis with a high COGS, but they don't know it because they're not paying cash for it.”
Gurley calls foundational model companies' hundred-million-dollar annual burn rates poor capital allocation but possibly unavoidable competitive traps.
“200,000,000 a year? There's no way that's high quality capital allocation from my point of view. There's no chance. But maybe they don't have the alternative.”