Laying the Groundwork for the Next Defense Fiasco

Short of Customers and Profits, AI Turns to Uncle Sam

Signs are everywhere that the AI frenzy may be cresting.  As Ed Zitron notes in an acerbic essay on the shaky financial underpinnings of ChatGPT pioneer OpenAI and the associated inability of Microsoft  to make money out of this technology, “the literal leader in productivity and business software cannot seem to find a product that people will pay for, in part because the results are so mediocre, and in part because the costs are so burdensome that it’s hard to justify them.”

Little Profit Down the Road, But Hallucinations Aplenty

Microsoft customers, for example, are skirting the firm’s ballyhooed and costly AI “Copilot” feature in droves because they “don’t find it that useful.” This raises awkward questions for the data-center industry currently paving over large portions of Northern Virginia and elsewhere, powered by $150 billion and more from Microsoft, Amazon, Google and Oracle - money that they might never get back if or when the expected bonanza from products such as Copilot fails to materialize. At a basic level, billions pumped into AI development have failed to crack the problem of “hallucinations,” the tendency of AI to make things up, or come up with the wrong answer.

As example, consider this recent exchange I had with Google Gemini:

How Many People Will Want a “Ferrari” Chip?

Much of the AI investment from the major tech companies has been in hugely expensive GPU chips endowed with massive computing power from the Nvidia corporation . Nate Koppikar, co-founder of the San Francisco investment firm Orso Partners, who takes a dim view of the whole AI phenomenon, compares those chips with enormously powerful  Ferraris - as much as 1000 horsepower - which are not only very expensive but essentially useless for the purposes of everyday living, so the vast majority of car-buyers opt for comparatively modestly-powered machines, yet the big tech companies, he says, are proceeding on the assumption that there is a mass consumer market that will justify these vastly costly supercharged chips. “There’s not an obvious consumer use for AI yet, and we’re most of the way through 2024,” two years into the bubble launched by OpenAI’s ChatGPT in November 2022,” Koppikar told me. “No one at the big tech companies  knows what they’re doing with these chips, but it looks like they’ll turn to Uncle Sam” as the one customer who will loyally pay up, however disappointing the returns. 

Uncle Sam to the Rescue!

Uncle Sam, in the form of the Pentagon, is ready and waiting, with legs akimbo, in a process dubbed by former Pentagon analyst Chuck Spnney “the Silicon Valley Defense Bubble” These days no utterance from the Defense Department is complete without deferential reference to the essential role that artificial intelligence will play in any and all aspects of our defense apparatus. “New operational concepts must also incorporate emerging technology, such as artificial intelligence (AI) and autonomous systems, as these technologies are fundamentally changing modern warfare” exhorts The Commission on the National Defense Strategy, a bipartisan body set up by Congress in its recently released final report. The Senate version of the 2025 defense authorization bill directs the Pentagon to set up an “Artificial Intelligence-Enabled Weapons Systems Center of Excellence.” Ask Sage, one of the innumerable tech startups getting in on the action, touts all the tasks its AI system could automate, ranging from software development to delegating to machines the burdensome business of buying weapons, including tasks such as “scope of work, defining requirements, down-selecting bidders and much more.”

Plan? What Plan?