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Corporate America thankful to the Covid pandemic

Profits and margins have never been higher

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Hello and happy Sunday! Today’s Brunch dives into the rising costs of AI, surprising startup success stories, and some big moves in the corporate world. Here’s what we’re covering:

  • The soaring cost of AI: Training models like ChatGPT-4 and Google Gemini is getting more expensive by the day.

  • San Francisco’s startup dominance: SF remains the king of venture funding, leaving rivals far behind.

  • Rightmove vs. Zillow: How the UK’s property portal is crushing it with profits.

  • Canva’s rise: From humble beginnings to a $26 billion powerhouse, taking on Adobe.

  • Post-COVID profits: Corporate America’s earnings surged even higher than expected.

Training AI Models Is… A Bit Expensive

The cost of training AI models has skyrocketed over the past year, highlighting just how complex these systems have become. According to Epoch AI, models like OpenAI's ChatGPT-4 and Google's Gemini have cost hundreds of millions of dollars to develop. ChatGPT-4 alone racked up a technical creation bill between $41 million and $78 million, not including salaries, with CEO Sam Altman confirming it cost over $100 million. Meanwhile, training Google's Gemini, a more advanced multimodal model, reportedly cost anywhere from $30 million to $191 million, not including salaries. 🤯

For comparison, earlier models were far cheaper—ChatGPT-3 cost just $2 million to $4 million to make in 2020. This leap in costs shows the challenge of staying at the cutting edge of AI, especially for institutions outside the tech giants. Gemini’s app focus and multimodal capabilities, like handling voice and images, likely contributed to its higher price tag, whereas ChatGPT-4 started primarily as a text-based system.

SF Still The Undisputed Leader

San Francisco is still the undisputed king of the startup world, and it’s not even close. Despite all the talk of Austin, Miami, and other cities stealing the spotlight during the pandemic, SF remains the heart of the startup universe. According to PitchBook’s latest rankings, SF startups pulled in a massive $430 billion in venture funding over the past six years — more than double what New York raised and way ahead of global rivals like Beijing.

With the U.S. leading global venture capital deals at $1.2 trillion, San Francisco continues to be the go-to spot for the next generation of unicorns, especially in AI. And with $300 billion in "dry powder" ready to be invested, don’t expect SF to lose its crown anytime soon.

Rightmove, the British equivalent of Zillow, is wildly profitable

Rightmove, the UK’s biggest online property portal, has now turned down three acquisition offers from REA Group (owned by Rupert Murdoch) and just received a fourth, valuing the company at £6.2 billion ($8.7 billion). While it may not be as familiar to Americans as Zillow, it functions in much the same way, letting buyers browse real estate listings. But financially, the two companies are miles apart.

Rightmove is a profit powerhouse, reporting a 55% net profit margin last year, while Zillow, despite raking in $15 billion over 15 years, continues to struggle with losses. 🔥💸 Rightmove dominates the UK with 80% market share and only 800 employees, while Zillow faces stiff competition in the more fragmented US market and had a costly misstep with its failed home-flipping venture.

Far From Silicon Valley, This Startup Is Taking The Creative Software Market By Storm

Melanie Perkins and her husband, Cliff Obrecht, started Canva with a down-to-earth vibe—Cliff even used to cook lunch for the team back in the early days. Fast forward, and Canva is now a $26 billion company, but the couple still keeps the company’s quirky, close-knit culture alive (though Cliff’s no longer in the kitchen).

Canva's been a hit with teachers, influencers, and small businesses thanks to its easy-to-use design tools, but now it’s gearing up to compete with Adobe by targeting bigger corporate clients and bringing in AI features. They've been making moves, like acquiring AI startup Leonardo.Ai and signing deals with companies like Airbnb and Coca-Cola.

As they gear up for a potential IPO 🔔, they’ve got a few challenges—like replacing their CFO and fending off stiff competition from Adobe—but they're doubling down on their playful, standout culture. Case in point: their viral (and kinda cringy) rap performance at a company event. Their motto? “Haters gonna hate," and they’re not taking themselves too seriously. 🤪

COVID ended up being a massive windfall for Corporate America

Post-pandemic profits for Corporate America are even bigger than we thought, thanks to inflation and consumers flush with cash 💰💰. The U.S. Bureau of Economic Analysis just revised last year's corporate profits up by a jaw-dropping $288.5 billion—nearly 9% more than expected—based on data straight from the IRS.

But it’s not just inflation doing the heavy lifting. Companies flexed their pricing power as consumers, bolstered by stimulus cash, kept spending. Corporate profit margins have been sky-high, and that’s part of why the S&P 500 is trading at a hefty 22 times expected earnings. Investors are loving those fat margins, but whether that bet keeps paying off? Only time will tell.

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