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You've probably read the headlines. OpenAI released Sora 2, the newest, most advanced video generator, but in just 30 days, user retention dropped to just 1%. But that's just the start. Something strange is happening in the world of AI.
After Microsoft announced big AI spending, their market cap fell by $360 billion in one day. CEOs are pleading with people to stop being negative. People aren't using AI tools like they used to. What is happening? Is this giant experiment finally, finally about to come crashing down?
In January 2026, Satya Nadella, CEO of Microsoft, said, "For this not to be a bubble, by definition, it requires that the benefits of this are much more evenly spread. A telltale sign of if it's a bubble would be if only tech groups were benefiting from the rise of AI, rather than companies in other sectors." He also asked people to stop calling AI "slop." Pretty weird things to say, if you've spent $200 billion since 2024.
Jensen Huang is also doing something similar. "I think we've done a lot of damage with very well-respected people who have painted a doomer narrative, end of the world narrative, science fiction narrative." "It's not helpful to people. It's not helpful to the industry. It's not helpful to society. It's not helpful to the governments." So why are the faces of AI suddenly so… insecure about AI?
Well, it gets much weirder. If you've been tracking big tech lately, you've probably noticed this. Nvidia, for the past several months, has actually just gone sideways. And some AI plays have been tumbling hard, like Oracle. After they peaked with their big OpenAI deal, their stock has fallen over 50% in the last 5 months.
But the worst might be in Microsoft's most recent earnings report. This was a great earnings report. Azure Cloud grew 39%, and revenue was up 17% to $81 billion this quarter alone. Both of these were higher than expectations. But after they announced this, Microsoft's market cap fell $360 billion… in one day. Even though revenue was higher than expected. After a week, their market cap had fallen by over $500 billion.
What happened? Their capital spend was up 66%. $37.5B spent in just one quarter. Two thirds of it was on chips. GPUs and CPUs. Spending for AI. It turns out that investors aren't actually happy about the AI money pit.
[Eric Clark, Portfolio Manager]: "One big obvious issue is that revenues are up 17% and the cost of revenues are up 19%. So if that is a new long-term trend, that is one of my concerns."
And the results from Microsoft's big AI projects are even more confusing. Right after, Oracle announced a plan to spend $50 billion on AI in 2026. Then their stock fell. "Investors have grown wary of the rising costs for Oracle's AI push and the time needed to see payback."
But something that makes all this worse is NVIDIA. Their original plan last year was to invest up to $100 billion in OpenAI. But just recently, Huang is walking that back, and said, "No, no, nothing like that," and that the agreement was "nonbinding and not finalized."
OpenAI is the biggest customer, which is why all these companies pour billions into it. But OpenAI doesn't have any money. According to the Wall Street Journal, privately, Huang has "criticized what he has described as a lack of discipline in OpenAI's business approach and expressed concern about the competition it faces from the likes of Google and Anthropic." Revenue passed $20 billion in 2025, up $6 billion from 2024. But its total cash flow projection is, wait for it, negative $143 billion. They don't expect to be profitable until 2030, and they might run out of money by 2027.
These are essentially OpenAI's suppliers, who are funneling money into their biggest customer, who will send it back to them… for Cloud, GPUs, and other things to keep ChatGPT alive. Amazon, Nvidia, and Microsoft are talking about investing $60 billion into OpenAI. But this is barely enough to feed this monster with an endless hunger.
This whole system is beginning to wobble, and it's not just investors who are worried. Senator Elizabeth Warren wrote that "[OpenAI] has committed to more than a trillion dollars in spending despite not yet turning a profit, [and] appears to be seeking government assistance should it prove unable to pay its bills." Ironically, it's something both the Democrats and Republicans seem to agree on. The government does not want to bail out this startup that needs unlimited money.
OpenAI denied this, though confidence wasn't helped by their CFO "suggesting taxpayers should 'backstop' the company's hefty infrastructure investments," even if she quickly walked it back. But OpenAI, Microsoft, and NVIDIA have another, bigger problem which is making investors question this entire gamble.
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Take a look at this data. Searches for AI have peaked and have fallen a lot. Does this mean AI is dying? Not quite. It tells us something more interesting.
Tension. When a new technology arrives, interest grows, then it peaks, then it falls to a new "normal." This isn't anything new. It's called the "Gartner Hype Cycle." At the end of last year, The Value Philosopher wrote a fantastic article called "The End of AI Tourism." And I think it explains why Sora saw 99% of users vanish.
Suno, the AI music company, "scraped millions of copyrighted tracks," for an AI music generator which had "10 million users." But, most of them left. Now, the company is parading as a "tool for real artists" to try to get them back. A similar thing happened to Sora. In the first 3 days, it outpaced the growth of even ChatGPT. But user retention dropped to 2% by Day 7, 1% by Day 30, and close to 0% by Day 60. The most valuable private company's new biggest product has no one using it.
This is the "tourism." "An AI tourist arrives, generates fifty images of a cat in a spacesuit, and gets their dopamine hit. After a week, they realize the hundredth image brings no joy. The result holds no value because there is no effort or story behind it. And what does a user do when an app stops being fun? They cancel the subscription."
AI videos and photos used to wow people, but now they're… kind of boring? This is the problem with so many AI "products." "Viewing this through an investment lens, we must stop asking 'Who has the better AI?' and start asking 'Who has the better product?'" AI is a great "feature" to elevate another profession, tool, or platform. Coding, science, radiology, administration, image editing.
Adobe, for example, after their giant AI drama, has had a lot of success. Not with AI on its own. But with added generative AI functions into the existing product, not to replace the tool, but to supplement it. This is why, at least right now, ChatGPT is struggling, while Google Gemini is exploding. "Google holds our emails, docs, spreadsheets, calendars, YouTube, and Drive. The moment Gemini interconnects this ecosystem, the game changes."
And Microsoft is realizing this too. Microsoft shared they have 15 million paid Microsoft 365 Copilot seats. And, that sounds big! But, that's out of 450 million 365 seats. So… only about 3% of the Microsoft 365 base. 3% for tens of billions spent a quarter. And Microsoft secretly knows this is a problem. That's why they pushed customers towards the "Copilot" version of 365, while hiding the cheaper "Classic" plan. This is after they rebranded 365 as "Copilot 365," after no one was using Copilot.
It's not just regular consumers either. More than half of CEOs surveyed by PwC last month reported no revenue or cost gains from AI. But as we move down into the trough of disillusionment, we still have the massive cost of generative AI. With so much spend, AI can't just be a niche product for a handful of users.
[Joe Wilkins, Futurism]: "With so much money riding on AI, anything less than a complete upheaval of the world as we know it will look like a failure. A typical financial analysis indicates that the top seven big tech companies should be seeing an extra $600 billion in yearly revenue." For context, Walmart, which makes the most revenue on the planet, is around $600 billion.
Again, Nadella's quote: "For this not to be a bubble, it requires that the benefits of this are much more evenly spread." AI is so expensive, and these companies have spent so much money, it can't be a niche case. But that brings us to what I think is the real survival case for AI.
If you’re tired of the AI bubble like I am, subscribe, and we can follow what happens together. Is there a world where the bubble bursts and AI disappears? I don't think so. But there is something Jensen Huang said that I do agree with. More than changing the entire world, AI has brought quantum leaps to small, individual worlds.
AI has produced breakthroughs in predicting protein structures, which dramatically increases how fast we can discover new medicine. It's helping us detect breast cancer earlier. It's allowing us to forecast weather, floods, and storms faster. AI is being used to understand the alphabet and language of whales. Anthropic was even used to help NASA with the Martian Rover. Where AI can help professionals do their job better, I think is a great use for AI.
Unfortunately, many CEOs saw AI as a way to reduce cost, and thus, reduce workers. And for this to make a real return for these companies, I think they need the hype curve to look like this. We seem to have two different approaches with AI: That these are going to flip the world upside down, produce some kind of post-work utopia, and every industry will change. And the other, more sober view, that these products will simply help us achieve more, but can't replace work altogether.
"As an investor, I am now avoiding companies that bet on AI tourists, users seeking dopamine and entertainment." This is something I actually like about Anthropic. They're focused on helping programmers and the boring stuff. I believe the boring incumbent players will fare the best. Companies that are already established, possess a strong brand, and most importantly, a massive user base that is locked into their ecosystem by their work.
For Adobe or Google, AI is not the product, but "just" another feature that makes their existing product indispensable. I actually think a bubble bursting is good for the future of AI. And it seems people are starting to come to their senses.
Now, could all of this be a small trough, and these companies convince investors of a big new return, and somehow the market caps climb back up even higher? Maybe. But I think we're moving into a more sober, realistic AI world. Ironically, the ones who might bring all this lunacy to an end, might be the shareholders. CEOs who laid off huge amounts of their workforce are quietly regretting it. Check out this video to learn more.