TDC 068: Your $20/month AI tool is about to cost $500: The Coming AI Price Shock...

TDC 068: Your $20/month AI tool is about to cost $500: The Coming AI Price Shock...

The coming AI price shock that could destroy your business model overnight.

Episode Summary

In this episode of The Digital Contrarian, host Ryan Levesque exposes the broken economics behind OpenAI's $500 billion valuation and the entire AI sector.

You'll learn why venture-capital subsidized AI pricing is unsustainable, discover the shocking financials that reveal AI companies lose money on every transaction, and understand why a 25x price increase is inevitable when the subsidy ends.

Question of the Day 🗣️

How dependent is your business on artificially cheap AI tools? What's your contingency plan if prices increase 25x?

Key Take-aways

• OpenAI loses $1.35 for every dollar of revenue despite its $500 billion valuation
• The AI sector exhibits textbook bubble behavior with negative unit economics
• Current AI pricing is artificially low, subsidized by venture capital funding
• A 25x price increase (like Netflix's evolution) is inevitable when subsidies end
• Build contingency plans now before your AI-dependent business model breaks

Timestamped Outline ⏱️

00:00 – The $500 AI price shock is coming
01:04 – Inside the town hall: What we covered
01:58 – OpenAI's terrifying financials revealed
03:13 – The math problem that makes no sense
03:58 – When the AI subsidy ends
05:30 – What this means for your business
06:03 – The Netflix playbook: $8 to $200/month
07:22 – Build your contingency plans now

Links & Resources 🔗

• Issue #062 of The Digital Contrarian – "Is the AI Bubble Bursting??" → https://ryanlevesque.net/is-the-ai-bubble-bursting/
• Subscribe to The Digital Contrarian newsletter → https://thedigitalcontrarian.com

Connect & CTA 🎯

👉 Enjoyed this? Subscribe & leave a review on Apple Podcasts.

🎁 Join 100 000+ digital entrepreneurs who get Ryan's "Strategic Insights for Digital Entrepreneurs Who Think Differently" every weekend: https://ryanlevesque.net/join-the-digital-contrarian/

Credits

Host: Ryan Levesque
© 2025 RL & Associates LLC. All rights reserved.

Transcript

Your $20 a month AI tool is about to cost $500. The coming AI price shock. Last week I hosted a town hall event and on it we covered a lot of ground.

From the single source of truth and strategic content ecosystem that we've developed that enables us to transform a single email newsletter, like the one that I'm speaking to right here, into 37 different pieces of content each and every week. To the category of one framework that I'm using with virtually all my private clients to help them become the clear and obvious choice in the market that they serve. I also delivered an AI State of the Union segment addressing some of the most notable developments in the intersection between AI and financial markets and what I believe will reshape the future of digital marketing in the coming year.

Not to mention a few photos of the Vermont Mastermind Experience that Tylene and I hosted in our home a few weeks ago when I first shared some of this with those who were in the room. But there's one thing that I wanted to bring up on the town hall that I didn't have time to share, and because it's so important and worth discussing, I've decided to make it the focus of this week's episode of The Digital Contrarian. Which brings us to why open AI's $500 billion valuation should terrify you.

Several weeks ago, I published a piece titled Issue Number 62, AI bubble bursting, arguing that we're witnessing classic bubble dynamics in the AI sector. Now my reading of this video essay has now had over 134,000 views and counting on YouTube alone. And this week brought even more evidence that I don't think any of us should ignore.

Open AI just became the world's most valuable private company at $500 billion in terms of its valuation, despite economics that should make you nervous. Let me explain why this is such a big deal, and why it could be a major wrinkle in your business plan going into next year. But first, let's put that $500 billion number in some context with some actual open AI financials.

Now, open AI's 2024 performance, in terms of revenue, they generated $3.7 billion. They lost $5 billion on that 3.7 billion in revenue. IE, they literally lost $1.35 for every dollar they generated in revenue.

Now 2025, the trajectory, the projected revenue for this year is $13 billion, with a projected loss of $8.5 billion. IE, still losing money on every single transaction. And here's a path forward.

It won't be profitable until 2029, this is open AI's own projections. It will lose a cumulative $44 billion getting there. And require sustaining a 67% annual growth rate for four straight years, and needs to hit $100 billion in revenue just to break even.

Now, just for some context, at a $500 billion valuation, open AI is worth more than Coca-Cola, Netflix, and Adobe combined. Now these companies make billions in profit, open AI loses billions in profit. But here's the math problem.

To justify even a generous 10x revenue multiple, typical for profitable tech, open AI needs $50 billion in annual revenue. That's 285% growth from current levels, while burning through tens of billions of dollars in losses. For perspective, virtually no company in history has sustained 60% growth at a 10 plus billion dollar scale, none while losing billions quarterly.

But it gets worse when you actually zoom out. Which shakes us to, what happens when the AI subsidy ends? Now this conversation today is not just about open AI. The entire AI sector is exhibiting textbook bubble behavior.

In 2025 alone, $193 billion is already poured into AI startups, which is more than half of all global venture capital. In addition to open AI, Anthropic, the company behind Claude, is projected to lose $3 billion in 2025 despite rapid revenue growth. Companies building products on top of these AI models are also unprofitable, spending more on compute than they are charging customers.

And when more than half of all venture capital flows into a single sector, and that sector's leading companies lose billions of dollars despite massive revenue growth, that's not innovation funding as it's been called. Those are conditions consistent with a bubble. And the fundamental problem is this, AI has negative unit economics.

More customers means more losses, not less. Unlike SaaS, which enjoys gross margins of 80 to 90%, because computing costs are fixed and high, open AI's gross margin is closer to just 40%, meaning it's not nearly as profitable. And now customers expect low prices with generative AI technology.

Competition drives margins down even further, and the industry's answer is, well, scale will fix it. But scale doesn't fix a backward economic model, it just amplifies it. So now, I have no idea when this bubble pops.

I don't know what the catalyst will be, but I know what happens when investors pour nearly $700 billion into companies with no proven path to profitability, justified by growth rates that have no historical precedent. We saw this play out, of course, with the dot-com bubble 25 years ago. It doesn't end well, which takes us to the coming AI price shock.

So here's what this all means for you and me. If you're building a business right now that depends on AI tools, pricing staying artificially low, subsidized by venture capital like we're seeing right now, build contingency plans. Because when these companies need to actually charge what their services cost, your economics could change overnight.

Sure, we can get a chat GPT subscription for $20 a month today, but what happens when plans start at $500 a month? After all, remember when Netflix was $7.99 a month for their top level plan, and it was the only streaming service that you needed? Well, today, Netflix's top plan is priced at $24.99 a month, and between Amazon Prime, Disney+, Max, Hulu, Apple TV, YouTube TV, Peacock, Paramount, etc., etc., etc., it's not that hard to spend well over $200 a month for streaming services that replace the cable bill that you were paying just a few short years ago. So a 25x increase, what we've seen with streaming services, in the cost of AI, is very much not out of the question. And what happens when it's not just chat GPT, but every generative AI platform, from Claude to Grok to Gemini to Perplexity, that delivers a 25x price increase just to cover their hard costs? Well, at $500 a month times five services, that's now $2,500 a month.

And by the way, right now, that's basically what's required to make each of these AI business models work. So the whole grab market share with subsidized prices, once you've locked people in, raise those prices exponentially, is a business move that's as old as time. And if someone tries to tell you that, no, no, no, no, no, this time is different.

Remember, that's exactly what is said during bubbles, right before they pop. All right, I'll leave you with that for now. Have a great rest of your week.

Remember to hug the ones that you love. And I look forward to seeing you on the next episode. Take care and talk soon.