Pulse News

**Vinod Khosla: Most AI Investments Will Lose Money as Market Enters ‘Greed’ Cycle**

By Sri Muppidi

Feb 27, 2025, 4:57pm PST

Early OpenAI investor Vinod Khosla warned that most investments in artificial intelligence will lose money, particularly as more investors jump into the market, funding more startups. But he said some companies would grow to be worth hundreds of billions and eventually trillions of dollars and make up for the failures.

"More money will be made than lost because a few outliers will give disproportionate returns," said Khosla, founder of Khosla Ventures, at The Information's AI Agenda Live conference in San Francisco Thursday. "Right now we're in the greed cycle of investing because people see the momentum that's been established in the market caps."

The OpenAI investor also said he's not worried if OpenAI doesn't complete its conversion to a benefit corporation, and he respects the "conviction" of SoftBank founder Masayoshi Son.

Khosla's Menlo Park, Calif., early-stage firm was the first venture investor in the for-profit subsidiary of the OpenAI nonprofit in 2019. The maker of ChatGPT is now attempting to convert from its current structure to a public benefit corporation, which prioritizes social goals alongside profits.

Elon Musk, one of the original backers of the OpenAI nonprofit and a founder of rival startup XAI, has sued to block the conversion, claiming OpenAI and its co-founder Sam Altman duped Musk and engaged in anticompetitive behavior when they formed the for-profit unit. Investors in OpenAI's last round, which valued the company at $157 billion last fall, have the ability to get their money back, plus interest, if OpenAI doesn't complete the conversion within two years from that round. Khosla Ventures invested in the round.

Khosla said he expects that conversion to take place. Either way, it won't change his optimistic outlook on the company. "Nothing changes for me," he said. "My expectation is it will happen. It's all upside if it happens."

OpenAI is now raising $40 billion at a $300 billion valuation, with SoftBank in talks to lead the investment. Khosla acknowledged that some of SoftBank CEO Masayoshi Son's earlier venture investments had flopped because he was "overfunding" companies, but Khosla said Son was fundamentally right that AI would transform society.

"He learned what he did wrong in the first technology wave he invested in," Khosla said. "You have to respect a guy who bets on his conviction."

Khosla said he believes there will ultimately be many AI models tackling different tasks. Khosla Ventures has invested in foundation model developer Symbolica, which uses a different architecture from the popular transformer model used by companies such as OpenAI and Anthropic.

But Khosla said a model must have a fundamentally different approach to pique his interest as an investor. Asked about former OpenAI Chief Technology Officer Mira Murati's new startup, Thinking Machines Lab, which is in the process of raising $1 billion, Khosla said, "We'll probably not invest if somebody's trying to replicate the same model of transformer models... We are looking for more innovation."

China's DeepSeek roiled the U.S. AI industry earlier this year when it released an open-source model that performed as well as some competing models but was far cheaper to create. DeepSeek changed the "mindset in AI development," Khosla said, adding that the Chinese startup showed developers no longer needed to have a big cash pile to train and run models.

"Model innovation is not restricted to three or four companies with billion dollar data centers," he said. AI model makers such as OpenAI also are competing with other well-funded upstarts like XAI. Khosla and Musk, who also owns X, sparred on the social media site last fall over a range of topics including OpenAI, land use rights, and immigration.

Sri Muppidi covers startups and venture capital for The Information. She can be reached at sri@theinformation.com, @srimuppidi on Twitter, and 510-449-9251 via cell, WhatsApp, and Signal.