Welcome to a special edition of Decoder. This is Alex Heath, deputy editor at The Verge. I’m guest hosting for a couple episodes this month as we head into the holidays, and I’m very excited for what we have coming. 

I’ll be back later this month with an exclusive interview with the CEO of chipmaker Arm, so stay tuned for that. And if you want a sneak peek, be sure to check out Command Line, my weekly newsletter about the tech industry’s inside conversation.

But today, we’re talking about a topic I’ve been focusing on a lot lately. It’s at the heart of the most ambitious and costly gamble the tech industry has arguably ever made. That is, of course, artificial intelligence and, specifically, the idea that one day soon big companies across all kinds of industries will be spending hundreds of billions of dollars on AI products. 

Today, though, that’s just… not happening. AI companies have taken in tens of billions in investment this year alone. OpenAI raised a staggering $6.6 billion in October, surpassing xAI’s $6 billion fundraise five months earlier. Anthropic just raised another $4 billion from Amazon; the list goes on and on. We’ve heard endless hype from CEOs here on Decoder about what this technology is supposed to do and why this investment is justified. 

But so far, the actual spending on AI products nowhere near matches the level of investment being made in the models themselves. According to a recent report from VC firm Menlo Ventures, AI spending is growing fast but hit only $13.8 billion in 2024 — barely covering the year’s two largest AI fundraising rounds from OpenAI and xAI. 

So, how is this money actually being spent on AI? What are companies actually buying, and what are they doing with it? And why do investors think the return on investment here will one day be worth it? 

To find out, I caught up with two AI investors: Tim Tully, a partner at Menlo Ventures who co-authored that report on enterprise AI spending, and Nathan Benaich, author of the “State of AI Report” and founder of Air Street Capital.

We dove into the data, the big trends they’re seeing with AI in the enterprise, and where we think this is all going next — including when these AI companies are going to start generating the kinds of profits they’ll need to justify the money they’re already spending.

If you’d like to read more about the AI industry and dive into the data behind some of the reports we talked about in this episode, check out the links below:

• 2024: The State of Generative AI in the Enterprise | Menlo Ventures
• State of AI Report | Nathan Benaich
• AI Index Report 2024 | Stanford HAI
• How companies are spending on AI right now | Tech Brew
• OpenAI is growing fast and burning through piles of money | NYT
• Amazon to invest another $4 billion in OpenAI rival Anthropic | The Verge
• Agents are the future AI companies promise — and desperately need | The Verge
• Anthropic’s latest AI update can use a computer on its own | The Verge
• OpenAI reportedly plans to launch an AI agent early next year | The Verge
• Is AI hitting a wall? | Command Line