The significant GPU clusters required to train Stability AI’s popular text-to-image generation model, Stable Diffusion, played a role in the downfall of former CEO Emad Mostaque, who struggled to finance them.
An in-depth investigation, referencing company records and numerous sources familiar with the situation, reveals that the high infrastructure costs drained the company’s finances, leaving only $4 million in reserves by October of last year.
Stability leased its infrastructure from Amazon Web Services, Google Cloud Platform, and GPU-focused cloud provider CoreWeave, amounting to approximately \(99 million annually. This expenditure was in addition to the \)54 million allocated for salaries and operational expenses to sustain the AI startup.
Moreover, a considerable portion of the cloud resources paid for by Stability AI was reportedly shared with external parties interested in experimenting with the company’s models. One researcher mentioned in the report estimated that a terminated project received compute resources worth at least $2.5 million over four months.
Despite the substantial infrastructure investments, Stability AI failed to generate sufficient revenue or secure new funding. The projected sales for the 2023 calendar year were a mere $11 million.
Financial challenges led to instances of overdue payments to cloud service providers. Stability AI allegedly fell behind by \(1 million in its July 2023 bills to AWS and planned to skip the \)7 million August payment. Debts to Google Cloud and CoreWeave amounted to $1.6 million by October.
The company’s financial woes were exacerbated by Mostaque’s failure to develop and implement a viable business strategy. Additionally, Stability AI struggled to secure partnerships with clients such as Canva, NightCafe, Tome, and the Singaporean government.
Investor confidence dwindled as Stability’s financial situation deteriorated, hindering its ability to raise additional capital. Mostaque’s efforts to secure a \(95 million investment only yielded \)50 million from Intel, with a mere $20 million disbursed.
Subsequent fundraising attempts also fell short, including a plan to raise \(500 million in cash and \)750 million in computing resources from companies like Nvidia, Google, and Intel. These initiatives collapsed, with reports suggesting a failed meeting between Mostaque and Nvidia CEO Jensen Huang.
By late 2023, Lightspeed, a venture capital firm, raised concerns about Stability’s cash flow, prompting discussions about selling the struggling business. Despite exploring potential buyers, no sale materialized.
In December, Stability shifted to a subscription model for commercial use of Stable Diffusion, priced at \(20 per month. Concurrently, the company considered reselling its compute resources as a managed service to bolster revenues, potentially generating \)139 million in 2024.
Internal challenges further plagued Stability, including disputes over fair use of copyrighted material and the departure of key personnel involved in model development. Mostaque eventually stepped down, citing concerns about the concentration of power in AI.
Presently, Stability AI operates under new leadership, with COO Shan Shan Wong and CTO Christian Laforte serving as interim co-CEOs. The company’s future remains uncertain, compounded by ongoing copyright infringement lawsuits and the need to address financial instability.
