The Big 5️⃣ - May 25, 2025
1️⃣ AI Startups Are Hoarding All the Cash
Capital is flowing into AI. Is that a good thing?
According to the State of the Markets report put out by Silicon Valley Bank (yes THAT bank):
The top 10% of [venture capital] funds accounted for 64% of venture fundraising in 2024, and half of funds closed reported a focus in AI.
Companies with an AI focus are getting the lion’s share of capital doled out by VC firms. Silicon Valley Bank compares this to the flood of venture capital into mobile app companies after the creation of the iPhone and App Store in the late 2000s.
Within AI, two sectors are the primary focus: enterprise software (LLMs) and frontier tech (autonomous machines). Investment is flooding into companies because of their potential to produce revolutionary products that will lead to a handsome windfall for investors.
This shows a high concentration of capital within the economy. While it’s good for companies like Anthropic and OpenAI, it’s kind of bad for everyone else.
To start a business you need capital. Some founders raise from friends and family first while others might go the traditional route seeking a business loan from a bank. But with people running out of money and interest rates substantially higher than they were just a few years ago, those options aren’t really viable anymore.
If you want to start a business with the goal of scaling it, you need venture capital. But venture capital isn’t really interested in boring businesses that provide low returns. They want a shot at striking it rich with AI.
That’s leading to a high concentration of capital in non-revenue-revenue generating AI companies signaling a bubble. Here’s what one CEO had to say on LinkedIn:
👉 Capital flows signals where jobs will (or won’t) be created
Money creates jobs. For normal, boring businesses, that’s revenue. You hire based on how much money your business brings in.
Startups don’t operate like traditional businesses. Instead of selling a product or service to consumers, startups raise money from investors.
Investor-based businesses have driven the tech boom of the last two decades. Companies like Netflix, Uber, DoorDash, Meta, and Airbnb, were all businesses that were built off of investor capital before they started generating revenue.
This creates an illusion of success that obfuscates economic reality. If your business isn’t generating revenue you don’t really have a business. And if your business isn’t generating revenue that might be because there isn’t a market or demand for the product or service.
Put another way: a lot of tech companies are trying to create a market they can fit into rather than solving a legitimate problem for consumers, meeting existing demand.
That’s why a lot of startups coming out of Silicon Valley have become conduits for advertising. Capturing attention and serving it up to advertisers is the only real business model they’ve been able to come up with. Even Netflix isn’t immune to this.
That means the good paying tech jobs everyone thinks exist don’t really. Or at least, they don’t exist outside of serving the purpose of harvesting user data to sell to advertisers.
Concentration of capital in top-tier AI companies could be a windfall for investors but it could also signal a bubble. A lot of cash-starved startups that aren’t generating revenue are about to go under. And because we’re talking about AI here, the companies that VCs are dumping money into aren’t going to be hiring human workers for much longer…
At some point the party will be over and the artificial economy VC’s created won’t exist anymore.
2️⃣ An Update On the AI Timeline
Last month, the AI Futures Project released a scenario called AI 2027. While this isn’t the only group to offer predictions of what the future of AI will look like, this is the most comprehensive one I’ve seen about how AI will advance in the next few years.
According to the report, we can expect to see massive job losses in the next 18 months. Here are a couple of fairly significant updates you should be aware of:
🔵OpenAI announced the release of Codex. Codex is a “cloud-based software engineering agent.” In theory, this will allow product teams to use Codex instead of hiring software engineers to be on call all the time.
AI 2027 predicts that in mid 2025:
The world sees its first glimpse of AI agents…out of public focus, more specialized coding and research agents are beginning to transform their professions.
We’re right on track. OpenAI has already released two other agents: Operator and DeepResearch. And Anthropic announced this week the release of Claude Opus 4, its own coding model.
AI companies are now creating products designed to support specific jobs – like software engineers – rather than performing general tasks. At the moment, Codex is only available on the ChatGPT Pro Plan ($200 per month) and ChatGPT Team Plan ($30/user/month). More on that in a bit.
🔵OpenAI announced the acquisition of io, an artificial intelligence device firm headed by Jony Ive. I didn’t know this before drafting today’s newsletter but now I do. Jony Ive is a big deal in the tech hardware world – he designed the iPhone and MacBook Pro for Apple. Now he’s coming under OpenAI’s fold.
According to an announcement on X, the goal of the merger is to create a “family of devices” and AI products that will revolutionize how you and I experience the digital world. After Humane’s AI pin flop and Apple Vision Pro’s failure to launch, it might be hard to imagine AI-powered hardware.
But hardware is an inevitable part of the AI revolution. Meta already has a wearable product and both Apple and Google are following its lead, betting on AI-powered glasses. According to The Wall Street Journal, Johny Ive has been working on a completely different device that you won’t have to wear:
Altman and Ive offered a few hints at the secret project they have been working on. The product will be capable of being fully aware of a user’s surroundings and life, will be unobtrusive, able to rest in one’s pocket or on one’s desk, and will be a third core device a person would put on a desk after a MacBook Pro and an iPhone.
AI 2027 doesn’t talk about the integration of AI with the physical world. This is a separate, but related, frontier in the AI revolution that is underreported. Wearables and AI-devices are going to play an equally significant role in job displacement.
At this point, all major AI companies are developing hardware for their products. Notably, Tesla is working on deploying AI within its vehicles and Optimus, Tesla’s human robot, which is set to be released in 2026.
The people who know how to use these products – and the software that operates on them – will be in high demand in the coming months.
👉 Learning AI is quickly becoming inaccessible – take action now
I want to draw your attention to the pricing scheme of OpenAI. Notice the price jump between Plus and Pro. The newest features are reserved for the higher paying membership tiers. Now this is no big deal if you get a ChatGPT Team license through your company or if you run a business and can write-off a Pro plan.
But for the average person who wants to learn how to use AI on their own? $200 a month is a pretty steep jump from the $10-$20 licensing fees most of us are used to.
There’s a couple implications to this:
Other companies will try to compete on price to take market share. This is why DeepSeek’s release back in January was such a big deal. China could try to capture market share from price conscious consumers.
AI tools are increasingly only accessible to those who can pay for them. This will make it hard for you to learn new skills to stay competitive. If you can’t afford the plan that gives you access to Codex, you’re not going to be able to use it or practice with it.
There isn’t a good solution to this and I don’t really have an answer for what you should do. What I can offer is to make you aware that this is happening. Those who have discretionary income to afford new products and tools will be in a far better position than those who don’t.
If you have a W2 job, I would strongly recommend asking your boss to get you a license for whatever AI tool you want to use. Use your down time to play with these tools and learn how to use them.
And if you don’t have a W2 job, find someone who is willing to pay you to learn how to use them. I do this with writing but there’s a lot of different ways to do this. Figure out what you’re really good at, look for a way to integrate AI with it, and look for clients who are willing to pay for what you have to offer.
📚From the Archives
3️⃣ Bitcoin is Going to the Moon
Our world is becoming increasingly digital – including the economy. Most of your financial transactions are happening in giant spreadsheet-like databases on the web. And because many people don’t have cash to actually spend, many of these transactions use credit – a made up number that doesn’t actually exist – instead of real money.
Because of this, I think our conception of money is about to change. Crypto is going to become the money of the future, specifically bitcoin.
I see bitcoin like digital gold. In the same way you won’t take a gold bar into McDonald’s and shave off a few grams to buy a Big Mac, bitcoin isn’t something to be used in day-to-day transactions. I think other cryptocurrencies (like Ethereum) will support those transactions. But bitcoin will be the foundation of the digital economy in the same way gold is for the physical economy.
One of the main signals I’m looking at to see if this prediction will actually come true is institutional buy in. Major asset management firms like BlackRock are now offering bitcoin-backed investment products. Publicly traded companies like Tesla and MicroStrategy have bitcoin reserves on their balance sheets. And now the big banks are getting involved.
JP Morgan CEO Jamie Dimon, a bitcoin skeptic, announced the bank will begin allowing investors to purchase bitcoin. This is a significant move that signals greater adoption of bitcoin within established mainstream financial institutions.
At the same time, bitcoin hit a record high this week, reaching $111,980. This isn’t a surprise. Last year, bitcoin went through a halving cycle, reducing the supply of new bitcoin entering the market. While halving cycles don’t cause bitcoin’s price to go up, there’s a correlation between the two which means you can reasonably expect bitcoin to continue going up in the future.
Cathie Wood of Ark Invest is one of the strongest and most vocal proponents of bitcoin. She predicts that bitcoin will be conservatively valued at $700,000 to $750,000 by 2030 but it could go as high as $1.5 million. If that’s true, the bitcoin rally is just getting started.
👉 Start paying attention to bitcoin if you’re not already
I’m not going to give you investment advice but if you believe in a future that is increasingly digital and increasingly powered by AI, I think it’s worth paying attention to bitcoin. While it is certainly volatile, it hasn’t completely bottomed out yet.
There are a lot of scams and reasons to be wary of crypto, but I believe bitcoin is fundamentally different. I highly recommend reading Saifedean Ammous’s book The Bitcoin Standard. Coming from the Austrian School of economic thought, he makes the case for why bitcoin could become more widely adopted.
P.S. Let me know in the comments if 1) you would like to read a review of The Bitcoin Standard and 2) if you’d be interested in more information about bitcoin. I don’t have a lot but I have some. I use Coinbase, Metamask, and a cold wallet to store bitcoin and would be happy to share my own experience dabbling in crypto.
4️⃣ Prices Are Going Up – But Not Everywhere
Walmart – America’s largest retailer and largest beneficiary of SNAP spending – announced it will be raising prices. During its latest earnings call, CEO Doug McMillon announced the company could no longer absorb the cost of higher tariffs.
This isn’t just a Walmart problem, this could signal a new precedent for retailers across the economy. X reports:
As the largest importer of container goods in the United States, Walmart’s response could set a precedent for other retailers, potentially driving inflation and squeezing household budgets. The announcement comes amid ongoing debates over tariffs, with supporters arguing they protect American jobs and critics warning of higher consumer costs.
Some companies are more exposed to tariffs than others. Not all companies are raising prices. In its earnings call, Home Depot announced it would not be raising prices. While the company acknowledged that product availability could be an issue, more than half of Home Depot’s products come from suppliers in the United States.
👉 Pay attention to who’s exposed to tariffs – and who’s not
A lot of businesses are built on low-cost business models that rely on selling cheap Chinese-made products to American consumers. While this may be a loss for business owners, these types of businesses aren’t really a good thing for the American economy.
In 2021, I got an ad on Instagram for a BlendJet portable blender. I bought one, used it, and immediately returned it. It couldn’t blend fresh produce. It wasn’t a blender, it was an electrified BlenderBottle designed for powdered drinks.
Their social media marketing campaign worked though because now you can go onto Amazon and there’s hundreds of portable blenders designed after BlendJet. How many versions of mediocre USB-powered blenders do American consumers really need?
While I think pruning subpar businesses from the economy is a good thing, there are also consequences to tariffs. A Walmart price hike will be bad for low-income shoppers with fixed budgets and could affect communities where Walmart is the largest employer.
At the same time, maybe this will push Walmart to start carrying – and thus distributing – better products made by American producers. I think that could be a good thing in the long term.
5️⃣ Say Goodbye to Pinching Pennies
This has been a long time coming but now it’s official: the Treasury Department is phasing out the penny. The Wall Street Journal reports:
The Treasury Department will stop putting new pennies into circulation by early next year. Afterward, there won’t be enough pennies to use in everyday cash transactions, and businesses will need to start rounding up or down to the nearest 5 cents, the Treasury said in a statement.
The move isn’t political by any means. It currently takes about four pennies to make one. And given what I said above about the digitization of the economy, most people aren’t even using pennies anymore anyways. If anything, pennies wind up getting lost or sitting idly inside piggy banks. The Journal notes:
Some 60% of actively circulating coins, or as much as $14 billion, sit in coin jars, according to the Federal Reserve.
This seems like a logical move. If you ever wanted to start a penny pressing hobby, there’s no better time than the present to do so.
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This is really interesting. Although, its curious the way VC seems to defy the market forces of supply and demand.
The business "make money" despite no human really wanting to download an app that regulate your mattress temperature (or whatever). We want washing machines and air conditioners that work.
I am being a bit glib, but to me, that's the big question.