The largest tech firms are spending hundreds of billions on AI data centers. This massive, privately-funded buildout means startups can leverage this foundation without bearing the capital cost or risk of overbuild, unlike the dot-com era's broadband glut.
A single feature advantage is insufficient for an AI startup to displace a software giant like Salesforce. True disruption requires a fundamental shift across user interface (proactive agents vs. forms), data utilization (unstructured data), and business model (monetizing tasks vs. seats).
While chip production typically scales to meet demand, the energy required to power massive AI data centers is a more fundamental constraint. This bottleneck is creating a strategic push towards nuclear power, with tech giants building data centers near nuclear plants.
When evaluating AI companies, focus on customer love (gross retention) and efficient acquisition over gross margins. High margins are less critical initially, as the 99%+ decline in model input costs suggests a clear path to future profitability if the core product is sticky.
Counterintuitively, consumer AI apps like ChatGPT show more durable user loyalty than B2B developer tools. Developers can easily swap models via API calls, but consumers build habits and workflows that are harder to change, creating a more stable user base.
Investing in the world's top AI research teams carries a unique risk profile. While the business outcome has high variance, the capital risk is asymmetric. The founders are so valuable that an acqui-hire is a highly probable outcome, creating a floor on the investment's value.
The competitive AI landscape has forced founders from pure research backgrounds to adopt a strong focus on financial returns. This shift from idealistic AGI pursuits to "hard capitalism" means they make rational R&D spending decisions, de-risking investor concerns.
Unlike the dot-com era's speculative buildout, AI's massive infrastructure investment is met with immediate, global demand. AI leverages existing internet and mobile distribution, reaching billions of users 5.5 times faster than Google Search did, justifying the capital expenditure.
Unlike traditional software, AI enables nuanced price discrimination. By offering varied subscription tiers based on geography ($3 in India vs. $200 in the US) and usage intensity, AI companies can capture more value and serve a wider range of customers effectively.
The market for hyper-growth tech companies now exists almost exclusively in private markets, with only 5% of public software firms growing over 25%. With companies staying private for 14+ years, public markets are now for mature, slower-growing businesses.