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Is AI a Bubble? | Gavin Baker on Data Centers, GPUs, and the AI Economy
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The SaaS Disruption Debate: From Zero to Nuanced
At 16:43 · chapter starts 14:50
In early 2024, Baker publicly predicted all application SaaS might be worth zero. He's moderating that view — some application SaaS companies, especially those serving fragmented SMB markets, could be big winners. But the competitive threat remains acute and the window is narrowing. He draws an analogy to retailers who saw Amazon's thin margins and decided they didn't want to compete — a mistake that took 25 years to fully reveal itself. For SaaS companies today, the equivalent mistake is protecting existing gross margin structures to preserve stock prices [2] — Gavin Baker "It is definitionally impossible, given what we just discussed, to succeed in AI without gross margin pressure. And I do not know why they h…" 15:35 . Baker is direct: it's definitionally impossible to succeed in AI without gross margin pressure, and Microsoft and Adobe both prove that a software company can navigate a margin-compressing transition and still produce a decade of strong returns. The most urgent example is Cursor, which has accumulated 1 trillion coding tokens — a data flywheel that incumbent public coding companies have inexplicably failed to challenge [1] — Gavin Baker "Baker once predicted all application SaaS could go to zero. He's walked that back, but the urgency remains: Cursor has accumulated 1 trilli…" 14:43 . The window to compete, he warns, is closing.
AI coding tool Cursor has accumulated 1 trillion coding tokens, creating a data moat that makes it increasingly difficult for incumbent software companies to catch up.
AI companies launching browsers may come to regret it. Chrome has 5 billion users, and Google — restrained by antitrust litigation — has been deliberately letting competitors run first. Baker's warning: Google can do this better, and they've been watching and waiting.
