AI has moved from hype to a business validation phase, where investors now demand actual revenues and profits rather than potential.

When ChatGPT launched in 2022, an AI frenzy swept the world, sending Nvidia and others sky-high. Four years on, the hype is cooling, and AI is facing its bar mitzvah: moving from fundraising on stories to proving itself through performance.

1. After the frenzy, comes the business-building phase

The hype cycle is over; now it is time to build businesses. Investors are no longer satisfied with 'huge future markets' but want to see actual revenue, profit and competitive advantage.

Like a teenager coming of age, AI companies must prove they can make money, not just spend it.

2. Crunching the numbers on AI as a business

To judge whether AI can be a good business, look at three things:

Market size: AI product revenue is around $250 billion today, dwarfed by over a trillion in investment.

Industry economics: AI's marginal costs are not trivial, especially for frontier models, making profitability elusive.

Moats: Who can build a defensible edge through cost, technology or data will ultimately win.

3. Investors should look at numbers, not stories

Reverse-engineered from current valuations, AI firms need trillions in revenue to justify their prices — a tall order. Investors should focus on unit economics and moats, not be swayed by grand narratives.

AI's future is uncertain, but business basics hold: only businesses that truly make money will survive long-term.