2025 AI reality check: Are we in a bubble?

At the start of the year, I made seven predictions about how 2025 would unfold. Six months in, it's time to mark my own work. From AI capability breakthroughs to autonomous vehicles, climate extremes to workforce transformation, I examine what I got right, what I missed, and why the 2027-2028 period will be when vertical AI hits the real economy in force.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Azeem Azhar?

  So let's get started, though, with marking my work for this year. So the first prediction was that there would be no AI wall. There was this battle between whether scaling AI models was still a strategy that would work, that would deliver results, whether they could be actually even built to that size or not. My second prediction was about the speed of deployment, making certain predictions about how fast things would spread and what would happen to the price of tokens. I made a prediction that bots would outtalk humans this year in the production of natural language. I also predicted that Waymo would overtake Uber in San Francisco.

• 0:44Azeem Azhar?

  I noted that I expected climate extremes to intensify significantly. And that alongside this, and despite the change in the political environment, renewable deployment, particularly of solar, would continue to surprise to the upside. And alongside that, that, again, despite changes to the political environment, electric vehicles would significantly shift up a gear in their in their market. So there were seven predictions and I had some watchlist themes around geopolitical volatility, demographic decline and climate and capital, which I didn't have, you know, strong tests against. But let's start with the first one, which was that there would be no AI wall. And I said, look, research is accelerating, not plateauing.

• 1:29Azeem Azhar?

  And we would likely see a 10 million token context model and reasoning breakthroughs across some of these reasoning benchmarks. Now, both of those matter because the context window of a model is a little bit like its working memory. It's a bit shonky as a working memory, but it's the the bit that you put into your L L M and it can manipulate back and forth. And when you get to the end of the context window, it tends to hallucinate much, much more. And and the reasoning model, the reasoning tests like Frontier and R K G I are very useful tests for whether a model is capable not just of producing text, but also reasoning through problems.

• 2:09Azeem Azhar?

  Now, in both cases, I asked Chat G P T O three to mark my work. And it said, you are accurate. There's been no slowdown in AI progress, that ultra-long context models have emerged and AI models are shattering reasoning benchmarks. And that's true. I mean, there is this 10 million token. Context window with Meta's Llama for Scout model. But I want to say that even though that model was released, Meta has all had had all sorts of issues with its Llama models and there were problems at the time. So while ChatGPT has very gracefully given me that as the evidence point that I was right. I don't think that's a best evidence point. There are a couple of other models out there, Mega Dev and I believe Gemini has one in testing,

• 2:53Azeem Azhar?

  which are up at that 10 million level. And at the same time, O3 itself has really, really pushed its benchmark scores. So on the frontier math test, which GPT-4 used to score 2% on, O3 got 25%. And I think that this is, you know, clearly what we are seeing. And if you're using the tools, you have noticed that they've got better. Although, as people also know, they're really, really quite unstable. Something that happened with our team was that we had standardized on Gemini Flash 2.0 for some of our internal workflows. It was quick, it was fast, it was bright enough. I messed around and I moved to 2.5 Flash in one case and 2.5 Pro, which is a more thinky model.

• 3:38Azeem Azhar?

  And in fact, the system started to break because those models overthought the problem they were given. And we had designed, I had designed, you know, the bits of the process on either side for that kind of output you get from Flash 2.0. So hidden in this idea of kind of consistent progress is also this idea of instability and change costs. The second thing was the idea of warp speed deployment. And I said that AI use would skyrocket and token prices would collapse, that AI agents would become more common, that Gen AI startups would exceed $100 million in revenue. And I explicitly said outside of the main foundation models. And this has clearly, clearly been the case, the warp speed deployment.

• 4:21Azeem Azhar?

  Sundar Pichai went off and said that Google saw a 50-fold increase in demand for tokens across its various product surfaces in the year. Microsoft, which had a head start, was reporting a five-fold increase. We did modeling on the Chinese market and was seeing a 30 to 40-fold increase in a 12-month period. So. The use has absolutely expanded and we know that ChatGPT has approached a billion users from a hundred million or so a year ago. And on that revenue number, cursor, the AI coding app has exceeded a hundred million dollars in recurring revenues and a number of other firms are following hard.

• 5:04Azeem Azhar?

  So, you know, score very, very highly there. Of course, markets can't always grow at that speed, but I don't really see the speed materially slowing down. The third of my predictions was that bots would outlive humans. So I'd made the point that about more than half of web traffic was bot based on the pre LLM internet, bots outnumber humans. In fact, Matthew Prince, the CEO of Cloudflare, made a point that LLM bots are incredibly hungry web surfers. So they they surf the web about ninety times more each page than Google does for every human they send to to the page. So that that bot traffic is quite greedy. But the test I was really thinking about was the point at which

• 5:50Azeem Azhar?

  LLMs generate more natural language text, whether it's in English or French or Farsi or Mandarin, than humans do. I can't remember if I've published this in the newsletter yet. I've certainly spoken about it in a number of my speeches. But by our internal models, we reckon that at some point this summer, LLM generated natural human text by volume of words or tokens will exceed that of humans. So we will get to that that crossover point, which I think is going to be pretty significant. So I think I was right with that prediction as well. Waymo would overtake Uber in San Francisco by the end of the year. They'd seen tenfold growth in two thousand and twenty four and they're bigger than than Lyft.

• 6:33Azeem Azhar?

  We're only halfway through the year, so they obviously haven't overtaken Uber at this point, but I do think that by market share, there is still a pretty decent chance that by December, there will be more rides on Waymo by revenue than on Ubers. And the other thing that we've seen in the market has been Waymo cascading out to other cities. Of course, it was in Atlanta and Austin, but now we've seen announcements in New York and a bunch of others. So they've got their operational design right, they've got their standard operating processes, and they're able to expand very, very quickly. I didn't

• 7:12Azeem Azhar?

  at the time talk about Tesla's robot taxis, which have just started operation in Austin. Just a note on that, because the Tesla approach, the Tesla modality is different to the Waymo modality. The Waymo requires lots of sensors, most famously LiDAR. They have a very, very strong safety culture in Waymo from the time I've spent with them. Within the Tesla, what you have is just the use of cameras, but you do have tons of data. And so you have these two competing approaches. Tesla is end-to-end deep learning, use of cameras. Waymo has a different architecture, uses many, many more sensors. Tesla has driven fewer miles autonomously,

• 7:57Azeem Azhar?

  but has more data from miles driven. And it's going to be very interesting to see how those two models play out over time and how they end up converging. You know, I expect Waymo is feeling a little bit of competitive heat here and will go aim to go faster as a result of that Tesla announcement. So I got that one right as well, or so far I've got it right. In fact, what ChatGPT says is not yet, because.

• 8:26Azeem Azhar?

  They haven't yet surpassed lift, but we're only halfway through the year. So then the next one was on climate extremes and seeing climate extremes absolutely in intensify through storms and wildfires. And this year, we have seen record breaking climate disasters. Last year was Canada's most expensive. And if you look at some of the temperature anomaly data that you can still find on X, you see some quite frightening numbers in different parts of the world where there are really high, high anomalies. In honesty, this was a pretty easy bet because this is baked in, right? It's baked into the system. We are at that point of climate acceleration. My sixth prediction was about, about renewables.

• 9:10Azeem Azhar?

  And I said, look, solar is going to continue to keep breaking records, getting better and cheaper, and batteries will do the same. You know, even in the light of the change in the political environment in the U S and in certain parts of Europe. And absolutely, this is a slam dunk. Solar PV output has jumped thirty percent. Incredible numbers coming out of China for the amount of solar that was put on last month. I mean, that was driven by some changes in the market where feed in tariffs were going to change at the end of June. So there was a rush to get them out. But we're starting to see that solar story play out in other parts of the world, you know, from places like Vietnam and Pakistan, because solar is a cheap and reliable way relative to where the grid is.

• 9:52Azeem Azhar?

  And, and that's being followed up by what's happening with, with batteries. So solar will have another record year as to whether any of the solar manufacturers are making money, given the price competition, that's another question. And the final thing really was about what would happen with, with EV markets, electric vehicle markets. And I just said they would step up a gear. In the British press, particularly the right wing press, there had been some noises saying, oh, people aren't buying these things anymore, mostly by innumerate journalists. There has been incredibly rapid growth, of course, amongst with EVs in many, many different markets. I think the record one is that Indonesia has got, gone from twenty percent to eighty percent of all vehicles sold being electric vehicles in a two year period.

• 10:35Azeem Azhar?

  Which is the the fastest period ever. And we've had this hiccup with Tesla because Musk took his Washington detour. And what that's done, I think it's created breathing room for the European marks to bring some products out and for the Chinese to start to make themselves available. And we've seen in the UK, the BYD brand at the higher end with the seal and the lower end with the dolphin start to become more and more visible. Incidentally, I don't think that helps the European brands at all. I think I talked about this last week. I think they're in deep, deep trouble because they don't have have cost leadership. So when I go off and rate myself, I did pretty well with my predictions.

• 11:17Azeem Azhar?

  I hope some of you acted on them. That would have been fun for you if you had. But I think that's there's a two things I should say about that, right? The first is we build models of market penetration, transition, cost curves, and we use those models to inform what we think is going to happen over the next year or two years. So it's actually reasonably easy to look at those models and say, okay, where do we think things are are going to go? And but there is also a problem with coming out with predictions that you get seven out of seven right. It means you didn't try hard enough. It means I didn't push the boundaries enough. Was I really just, you know, sandbagging a little bit and giving myself an easy job? I mean, I'd love your your views on that.

• 12:01Azeem Azhar?

  There were also things that I think in reflection, on reflection, I didn't talk about that I that I could have done. I think the the biggest one, which is implicit in the first two predictions was just how the capex boom for AI data centers, AI chips, and the electricity that powers them was going to really, really dominate the headlines. We talked about this quite a lot last year, but I didn't put it in one of my predictions. So that was an oversight and I apologize about that. But, you know, it's so remarkable what we have, what we have seen in the change in the discussion about what AI is. Back in December, I wrote an op ed for the New York Times saying the US

• 12:46Azeem Azhar?

  has all this amazing AI research, but it's going to need power. And its inability to deliver lots of power to data centers is going to leave it with some tough choices, might even Cause it to fall behind deployment of this technology relative to China. And and I think that's been a really important part of the narrative. I think one of the things that has really surprised me, although it makes sense in hindsight, was the deal that was done in the Gulf, both with the UAE and Saudi by American firms to build data centers and to build AI capability out there. You know, from the perspective of the UAE, what I think of that as is a way of creating a third pole. China, the US, who's number three?

• 13:31Azeem Azhar?

  Europe can't get its act together. India is thinking about other things. So the UAE, the Gulf has stepped in saying the 21st century infrastructure is going to be AI and we're going to power it. So I I missed out on on making that explicit. In honesty, I don't think I would have said in January that we'd see this breakthrough in the UAE. I think the other couple of things I didn't talk about in my predictions, one was about humanoid robots. So, you know, I don't think we're at the chat GPT moment for humanoid robots yet, but there's definitely been a lot of news coverage with it, you know, figure expanding their use of humanoid robots in BMW factories. So did I miss out on that as a trend?

• 14:13Azeem Azhar?

  I'm not sure, but I do know we need to share some of our modeling around it, share some of our cost curves and why we think from those data that humanoid robots will be a big thing. So that's something that you should look out for in exponential view. And I think the final thing that I didn't I didn't really talk about, and I think I should have done, is made some kind of prediction of what would happen with with the workforce, with productivity in companies, with jobs, a range of associated questions, right? Will companies be able to use this well? Will they see productivity benefits? Will they start to grow more quickly because of that? Or will they start to shrink their workforce? And, you know, I think that was an oversight. Just think about some of the things you've heard in the last couple of weeks.

• 14:57Azeem Azhar?

  So Benioff, the CEO of Salesforce, saying that AI performs 50% of all the work at Salesforce. I mean, chortle, chortle around Twitter, what does Salesforce actually do? And that that AI agents were succeeding in 93% of the tasks they were given. That sounds very high, but that's what he claimed. Satin Adela saying that Microsoft's code assistants write 20 to 30% of all code and Microsoft going through a range of of headcount cuts. I'm always careful. About how to interpret headcount cuts in these large tech companies. They hugely, hugely over hired in and around Covid. And of course, naturally, as the market changes, as you see growth in different areas,

• 15:42Azeem Azhar?

  they end up trimming their sales. So it's hard to interpret at this point what's going on. But it wasn't just Satya Sundar pitch high from Google, saying about a third of all code is AI generated. Andy Jassy from the CEO of Amazon, saying that AI is going to need lead to fewer jobs overall. And just in the last couple of weeks, Amazon passing a million humanoid robots. And I think there was that significance that it's as many humanoid robots or robots, not all humanoid, pardon me, as there are people. It's not, of course, just the tech companies. So Jim Farley, who is the CEO of Ford, he's a guy I really like, he's a very good straight talker, been very, very authentic about the capability of Chinese electric vehicles.

• 16:22Azeem Azhar?

  Has recently said, look, he thinks AI could eliminate up to 50% of current white collar jobs. And Jamie Dimon from JP Morgan has anticipated this 10% reduction in headcount due to AI tools. So that that area was not something I put in a prediction about, and that's remiss of me. So to my readers and to listeners, I apologize for forgetting for missing that out. The the thing that I would I would I would say on that particular question is, of course, we're going to talk about it over the summer. We've got a couple of really good essays coming out on that topic. But the the other thing to to to note is, so I ran a I've run a run a model.

• 17:03Azeem Azhar?

  I haven't had a chance to write it up yet, where I looked at the automation of of several classes of white collar desk work from invoice processing to payroll, accounts receivable, HR, basic legal drafting. And I looked at the volume of work that was done in, you know, 1945 in those areas and 1975, 2000, 2025.

• 17:29Azeem Azhar?

  You know, you can say one thing coming out of this, and I'm rather preempting what I will write when I finally get around to writing this, which is that the amount of work that is done in those categories by automations today exceeds the amount of work done in those categories by humans in 1945. So in some sense, we've already replaced all of that by a factor, right, a multiple. Of course, we're doing much more of it because work, there gets more work, the global economy is bigger and more connected, we're more demanding. But there is, there is some data there that we can look at and we can say, actually, we have already seen some part of this, this play out.

• 18:08Azeem Azhar?

  And so this is not to downplay the, the risk of, of job cuts on a company, high company basis that aggregate up to quite a lot. But it is to say that interpreting what's going on is more, is more complex. So I will pull that essay together in the next couple of weeks and, and send it out. So that's my mid-year assessment. I was pretty accurate, which I think is therefore a flaw in what I predicted, and I will do try to address that the next time we get on with this. But I do want to talk a little bit about the next couple of years for, for a couple of minutes and then just leave you hanging with a question right at the end.

• 18:49Azeem Azhar?

  So by the time we get to 2027, 2028, I think a few things will happen. If you look at technologies like this, they go through a phase where all the excitement is in the infrastructure. And that's where the internet was in, you know, early nineties to, to mid nineties. And then when the infrastructure is in place, people understand how to build with it, the excitement happens in the vertical apps. Now, that's not a clean separation, of course, but it is, it's a helpful heuristic. We're still in that infrastructure phase with AI and the vertical apps that are emerging are still young, but within two years, they, they won't be young. I mean, the speed of growth of these businesses is pretty insane.

• 19:32Azeem Azhar?

  And Anthropic is now at a $4 billion run rate entering July 2025. In January 2025, it was at $1 billion. So it's quadrupled, which is really in a six month period, which is really unheard of in a company of that size. I expect the period of fireworks to be start to hit in twenty twenty seven, twenty twenty eight. So why is that? That's the point at which startups that started a year or two ago will be

• 20:08Azeem Azhar?

  four, five years old in this accelerated timeframe. And they will start to be big enough to eat meaningfully in aggregate into incumbent companies, forcing those companies into either defensive postures, cost cutting, or just having to spend more money to maintain market share. It's also the sort of time by which companies who started early and seem to have a grip of this technology, incumbents, I mean, like Moderna or JP Morgan, should have gone through proof of concept, pilot, scale, multi-scale, deepening, and should start to see the deeper, wider results of having the technology across their companies.

• 20:53Azeem Azhar?

  So you're going to get this effect in the economy where the startups are now big enough to be challenging, to be difficult, to have some control of distribution of how customers get to incumbents, or perhaps they've got competitive products that incumbents can't compete against. And at the same time, incumbents who got their act together will be getting the results they expect and having that impact in their sectors as well. So that will be quite a hairy time, I suspect, twenty seven, twenty eight. And I think that's predicated really on, you know, this, this technology continuing to improve. As you know, I don't really like the phrase AGI, and I'm not predating any of this on some sort of miraculous technology that crawls out of a data center.

• 21:39Azeem Azhar?

  But the other reason twenty seven, twenty eight would be, will be really interesting is that, you know, if this is actually a speculative bubble with way too much irrational exuberance, that might be the period, point at which There would be a significant, a significant pop, right? Why, why do I think that? Okay, super unscientific. Line is still going up. There is still strong incentive buy signals. Balance sheets of the big tech companies are not strained at this point. There's a lot of capital in the world. You just saw Meta do a debt deal, even though it's got tons of cash on its balance sheet, a debt deal to fund some data center expansions. So there's still enough vertical momentum, I think, to, for this to run for a little while.

• 22:21Azeem Azhar?

  And then when bubbles do burst, if they burst, they don't happen immediately, right? So the popping of the dot com in April 2000 took a while to get to its, you know, its bottom. And so that's why I think, you know, 27, 28, if that scenario happens. I really don't think that that will happen, at least not in that time period. Of course, there's going to be over excitement in investment and over exuberance. But because of the scale of customer demand from consumers and enterprises, and because enterprises, when they get this right, and many of them are getting it right, want more and more and more, suggests that we've got something that's actually driven by fundamental business value rather than by speculative hype.

• 23:02Azeem Azhar?

  That is really everything that I have to say right now on Friday with Azim on the 4th of July, and a happy Independence Day to those of you who are celebrating. I said I'd leave you with one question. I mentioned that we are halfway between the year 2000 and the year 2050, and we're also halfway between 1950 and 2100. But just looking at that first period between 2000 and 2050, the question I'm going to ask you is what different way will you look at the world with the recognition as of today that we're closer to the year 2050 than we are to the year 2000? So what different way will you look at the world with the recognition that we are closer

• 23:44Azeem Azhar?

  to the year 2050 than to the year 2000? And with that, I will sign off. All of you have a wonderful day, 4th of July. Enjoy yourselves and everyone, please have a great weekend.