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TSiege 5 hours ago [-]
> And Google is a major shareholder in SpaceX, so they certainly have incentive to juice the valuation of the IPO.
Google own 5-6% of the shares of SpaceX. SpaceX is seeking a valuation of $1.77T which means Google's shares would be worth $88.5B-$106.2B. I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops?
bko 4 hours ago [-]
Or, hear me out, maybe there's a compute shortage and xAI has compute and manages that well.
There are no dark GPUs. Compute translates directly to money for these frontier labs.
I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.
adjejmxbdjdn 57 minutes ago [-]
Compute is also a rapidly depreciating asset.
I want to make a comparison with a car rental business and say that it would be like valuing Hertz entirely on the basis of the number of cars they own, as opposed to how many they rent out, but cars have a much longer depreciation period, if there are no customers they’re not costing you more money, unlike your computer which you are using for training and sucking up massive amounts of energy, and those cars do maintain decent value even after they’re of little use to the car rental company, unlike the compute here.
shdh 3 minutes ago [-]
It is depreciating, but demand has been very high.
There's a reason old 3090's went from $600 in 2022 o to over $1K in 2026.
BoorishBears 13 minutes ago [-]
Compute is about to come an appreciating asset in the near-term, and it some ways it already is.
The frontier labs are shifting from pricing grounded in the price of compute, to pricing grounded in the intelligence provided, or more specifically the economic value of that intelligence downstream.
The margins on that allow them to pay a hefty premium on compute and still come out ahead.
As they buy more compute at high prices, they're also pricing out competition from cheaper models. It's already become materially more difficult to get compute to run open weight models at competitive prices as a result of frontier labs in the last year.
jklinger410 3 hours ago [-]
> I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.
Let us pin this comment and see how it ages
jhallenworld 1 hours ago [-]
>There are no dark GPUs
This might not be true. Someone was comparing Nvidia's production rate with known data center capacity, and they do not match. Their conclusion was that people (possibly even Nvidia) were hoarding GPUs- in the very short term this might be a good strategy, but GPUs go EOL fast. There are other stories about paused datacenter builds that match with this.
TSMC is definitely fully allocated, based on current 40 wk lead times for FPGAs..
Dig1t 16 minutes ago [-]
All that means is that there's a bottleneck at the data center layer. When he says "dark GPUs" he's saying that there are no dark DEPLOYED GPUs.
This is a reference to the 1990's dot com bubble where internet infrastructure companies overbuilt network capacity, leading to the term "dark fiber". That was an indicator of a bubble because it showed that capacity was larger than demand. OP is saying that this is specifically NOT happening in the case of GPUs yet, indicating that demand still outstrips supply of compute.
>GPUs go EOL fast
We are seeing the opposite of what was expected, GPUs are actually getting more valuable because demand is so great, something that basically never happens. Even older chips have become more valuable.
>paused datacenter builds
It doesn't seem that datacenters have been paused because of lack of demand for AI, it seems mostly that there is a lot of pushback by cities to build these things and also there is a shortage of power to run them.
IMO none of these things point to a AI being a bubble (over-hyped, demand does not match the stated value). It mostly points to the opposite, there is massive demand for AI and every layer of the supply chain is struggling to keep up with that demand.
Spooky23 18 minutes ago [-]
xAI lets companies like Google move fast and hurt people at arms length.
Google itself has a good reputation as a facilities operator. SpaceXAI is operating gas turbines emitting exhaust at ground level.
b112 2 hours ago [-]
Indeed, that hardware was bought on old RAM, SSD, etc pricing. These are now 5x the price.
To reap massive profits before depreciation is just plain smart. LLM space, model generation is just plain crowded now too. And everyone thinks a crash is coming.
They could also build out their own end-user infra, but letting someone else which already sells direct to the public do so, is sensible.
I know of the desire to show profit for the IPO, but my point is, this is a good move on its own.
tootie 2 hours ago [-]
Compute is presently in shortage but generally it's a commodity. It also depreciates.
JumpCrisscross 2 hours ago [-]
> generally it's a commodity
The NVIDIA GPUs, HBM, land-use permits and power-supply agreements xAI nailed down are absolutely not commodities.
I think xAI is a mess. But let’s call a spade a spade, they speculated on AI compute and they are currently right.
grogers 4 minutes ago [-]
My read is that xAI built a lot of compute for their own use, but they didn't get any adoption so they are reselling the unused capacity to recoup at least some of the costs. So calling it a good bet is kind of misleading
fc417fc802 1 hours ago [-]
> and power-supply agreements
Don't you mean gas turbine purchases and questionably legal operation? But yeah I feel exactly the same way. The AI part of xAI looks like a mess but it seems that they still managed to score a massive win.
JumpCrisscross 1 hours ago [-]
> Don't you mean gas turbine purchases and questionably legal operation?
The point is it’s running. They built fast before the backlash got organized. Now everyone has to deal with delays and thoughtful permitting processes.
XorNot 4 minutes ago [-]
The point is they're in a business no one would claim is particularly profitable but claiming a valuation like they're in a totally different business - one where they're not even top 3.
Its not that there isn't value in that business, but it's not the AI business either. Its the one where Oracle is laying off staff to try and avoid a revenue crash on future commitments.
Both Google and Anthropic would be trying to can this sort of rental arrangement as fast as possible since it's a mind bogglingly expensive way to get something you already do in house.
BoorishBears 9 minutes ago [-]
This feels highly revisionist: they bet on becoming a frontier lab and were aiming for AGI.
If they were speculating on compute, it seems highly unlikely they'd have spent the operating costs for the last 3 years of model development and deployment instead of just getting even more compute.
oblio 3 hours ago [-]
> I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.
Alphabet/Google profits:
Q1 2025: $34.54 billion
Q2 2025: $28.20 billion
Q3 2025: $34.98 billion
Q4 2025: $34.46 billion
<<Q1 2026: $62.58 billion>>
Amazon profits:
Q1 2025: $17.1 billion
Q2 2025: $18.16 billion
Q3 2025: $21.2 billion
Q4 2025: $21.19 billion
<<Q1 2026: $30.3 billion>>
Both Alphabet/Google and Amazon have invested recently into Anthropic and are doing all sorts of financial chicanery.
Nah, man, it's all fine, they're just going to take down the entire global financial system doing this crap, and by global, I mean <<everyone's>> pensions are going to take a hit, even "fully funded" pension systems.
JumpCrisscross 3 hours ago [-]
> Both Alphabet/Google and Amazon have invested recently into Anthropic and are doing all sorts of financial chicanery
bko didn’t say there isn’t circular financing going on. They’re just saying this isn’t an example of it. They’re right.
It’s a potential conflict of interest. And if the agreement is fake—if Google cancels without paying the cash—it could be market manipulation. But the influencer space likes to latch onto jargon, and the one it’s overapplying right now is circular financing.
oblio 2 hours ago [-]
Did I say it was circular financing? I said "financial chicanery". I even included a link to a video explaining said financial chicanery.
What are you even going on about?
JumpCrisscross 2 hours ago [-]
The comment you’re responding to and the comment above it are about circular financing. It’s reasonably to assume that’s the same chicanery you’re talking about; expecting everyone to watch a random video to understand your comment is unreasonable.
oblio 2 hours ago [-]
I listed a bunch of data points that make no sense (profits spiking 50% in a non-Christmas quarter for companies) and weren't directly tied[1] to the circular financing.
[1] They're indirectly tied to it.
JumpCrisscross 1 hours ago [-]
> that make no sense (profits spiking 50%
They were unrealized gains on non-marketable equities. It’s clearly disclosed and done according to GAAP. It’s put under other income precisely so analysts can strip it out when modelling long-term trends.
Like, yes, if SpaceX goes to zero Google would have to realize losses and probably lose a quarter or two of GAAP profits. (But not cash flows. Cash-flow wise, it may wind up being positive due to tax effects.) It’s a risk factor, of course, but far from making no sense.
None of which is particularly relevant to the deal at hand other than in raising a potential conflict of interest among related parties.
oblio 42 minutes ago [-]
> but far from making no sense.
When I said "it makes no sense", I didn't mean "the accounting math doesn't work out". I meant "raising a potential conflict of interest among related parties".
This whole AI financing this is the motherlode of "potential conflict of interest among related parties".
And people who are obtuse enough to ignore this because it's not illegal right now will discover 5-10 years from now that laws are written in blood (or massive bankruptcies).
atleastoptimal 4 hours ago [-]
The music would have a risk of "stopping" if these deals were backed by a speculative entity. However AI actually has real value/revenue, and is not a speculative product (i.e. people aren't buying tokens to resell them, a token is "consumed" at moment of inference)
Terr_ 4 hours ago [-]
That's like saying "nobody is speculating in Enron stock" simply because there was electrical power that was sold for real revenue and consumed.
atleastoptimal 4 hours ago [-]
Enron collapsed due to legitimate fraud. To imply Enron is an apt comparison requires assertion that AI companies are actually cooking the books. Is that what you are saying?
minraws 3 hours ago [-]
The ARR were fine but showing skewed quarterly profitability numbers by slowing down research due to hitting compute capacity suggests otherwise.
I am certain Anthropic spent less on building the next model this quarter if they make it to profitability due to the shear fact that they don't have enough compute.
Which solves the profitability problem with relative ease momentarily.
Also just to confirm, AI subscriptions are definitely being sold at a loss how big I don't know but these models are much harder to run.
API is definitely being sold at a decent profit.
So if you rate limit users and do usage billing + lower research costs which is a money pit temporarily.
(Proof is the fact that we don't have a new pre training run since 4.5 yet, they used to do one every 2 releases)
4.9 will probably be the same.
Next model Mythos doesn't seem to have a successor yet and was trained previous quarter most likely, they don't seem to have pre trained another one just improved Mythos if at all.
As much as I am into AI these attempts to show that there can be a profitable quarter seem like cooking the books, even if we assume no shady dealings otherwise.
Unless one of the Labs can say for certain training is going to stop they can't be profitable and I don't think training can stop because marginal gains is all they have.
8-12 months behind narrative for Chinese labs literally is going to kill the company that stops training first.
If we assume only a 3-6 month gap once China has more compute, then well then even if they keep training the lack of ability to arbitarily scale data centers in US, will kill them first.
DeepSeek V5 might actually just end the AI race for good.
Also given Mythos is atleast a 10x model compared to Opus, then it's pricing is likely going to be 10x as well so well token prices are likely never coming down, especially if these companies want to IPO.
supern0va 1 hours ago [-]
>The ARR were fine but showing skewed quarterly profitability numbers by slowing down research due to hitting compute capacity suggests otherwise.
I have to say, I find this really puzzling. We know for a fact that Anthropic are making bank on metered inference. That's their biggest source of profitability, we are seeing software companies start to majorly adopt coding agents over just the last few months.
Right as the biggest driver of enterprise adoption is accelerating, and it's tied to their biggest profit vector, you find it suspect that their profits are increasing significantly?
Also, can you clarify what you mean by "slowing down research" exactly? Do you mean they're not doing big pretraining runs? Less compute available for researchers? Scaled back RL?
>Also just to confirm, AI subscriptions are definitely being sold at a loss how big I don't know but these models are much harder to run.
Maximum usage of AI subscriptions is a loss, but do we actually know how that nets out? Has anyone done any research to try to figure that out?
atleastoptimal 3 hours ago [-]
Why would V5 kill the AI race? Do you believe that there are diminishing returns on model intelligence when applied to real-world tasks?
I think there are accelerating returns: i.e. a models are still not good enough to be “drop in” remote workers, but once that threshold is passed, the value of each token of inference has a far higher multiplier.
This justifies the buildup. However not everyone agrees that model intelligence will continue scaling thus they assert that eventually the economics will hit a wall.
>Also given Mythos is atleast a 10x model compared to Opus, then it's pricing is likely going to be 10x as well so well token prices are likely never coming down, especially if these companies want to IPO.
I don't know why people say this when cost per unit of intelligence has been going down continuously over the past few years. When Opus 3 was first released, its API cost was $15.00 per million input tokens and $75.00 per million output tokens. Opus 4.8. which is significantly better, is $5.00 per 1 million input tokens and $25.00 per 1 million output tokens
Terr_ 4 hours ago [-]
Please address the primary point first: Selling some product does not disprove speculation.
In the case of Enron, people were obviously speculating in its stock, and that remains true regardless of why it collapsed later, or even whether it collapsed at all.
I say "first" because if you still can't agree that speculation in AI stocks even exists, then it's pointless to discuss what people might be doing to exploit or encourage it.
atleastoptimal 3 hours ago [-]
Speculation exists for every security. However wrt revenue numbers, Anthropic/OpenAI’s revenues are largely made of companies/individuals purchasing tokens. Enron’s was accounting which stated future potential revenue as current earnings. They are not the same. Enron pulled off a lot of shady schemes to hide their accounting practices. All of the “circular deals” AI labs are doing are publicly known and clear to see, so its not like anyone who knows what a circular deal simply knows something everyone doesn’t.
Also to be more specific about our point of disagreement, I think we are referring to speculation in different domains. When I brought it up, I am referring to the fact that any companies whose revenue is driven by a speculative bubble (like what precipitated the 2008 crisis) would be at risk of massive losses "if the music stops". Anthropic/OpenAI aren't flipping assets. It is true that VC funding is based on speculation, but their core business model is producing massive revenue growth on selling tokens.
fc417fc802 1 hours ago [-]
It's an interesting point that the token revenue will presumably survive a crash in stock prices. But (IIUC) much of the new infrastructure is funded using stock is it not? So it seems like token revenue theoretically surviving doesn't address the risk to the rest of the economy here. And if the economy takes a large enough hit then presumably so will token spend because someone has to pay for that after all.
Sure their actual immediate revenue is driven by concrete numbers but when the rest of the economy is reorganizing itself based on their projected future revenue is the former observation still relevant?
atleastoptimal 27 minutes ago [-]
That is true, if all the new data centers don’t produce revenue then there will be a crash. However you’d have to bet that the models won’t stop getting better, or if they still keep getting better, that somehow better models does not translate to increased productivity. Would it be wise to look at how AI has progressed over the last 5 years and make that bet?
bigbuppo 14 minutes ago [-]
Remember when nvidia asked us to stop calling them enron because unlike enron they actually admit to doing all the things enron did so it's not illegal?
suggala 4 hours ago [-]
Circular dealing or round tripping is a form of cooking books and sometimes results in accounting fraud. Especially when circular revenue is booked without cash flow growth. Do you see cash flow growth on any side of these transactions.
redox99 3 hours ago [-]
You seem to imply that with this deal their shares are worth 88B but without it they're worthless.
It's very hard to know how much the deal actually increases SpaceX market cap, but unless Google exits their SpaceX position soon it doesn't even make much sense as a circular deal.
Retric 2 hours ago [-]
Executive compensation is often based around share prices, so this can be worth quite a lot to the people making these decisions without any long term upside for the company.
If you want to understand how companies behave you really need to look at things from the perspective of people making the decisions.
redox99 1 hours ago [-]
I don't see Alphabet share price changing much just because of SpaceX being valued 2T instead of lets say 1T (being extremely generous). In fact this deal will hurt their profits, which is more likely to hurt Alphabet stock price than the valuation of an asset that they hold.
AznHisoka 5 hours ago [-]
Someone gets bailed out and the cycle starts again. Isnt this how it works?
timacles 3 hours ago [-]
We are basically dealing with the fallout of the 2008 GFC bailout to this day.
The fiat economic system is irreparably broken, and we are circling the drain. Another bailout is _probably_ inevitable. But the cycle sure as hell isnt resetting and we are speeding towards something... what it is is unclear though, and when is also unclear.
The part people cant wrap around is the scale of it and the time it takes to go through the super cycle. Theoretically, it all started with the Dot com bubble, which indirectly cause the housing bubble, which caused the GFC. Which caused whatever happened in 2019, which caused QE in 2022 under the guise of COVID, which is causing whatever the hell is happening now.
Capitalism has become uncorked, and money is irreversibly flowing to the top at an increasing rate. The logical next stage is that like 75% of the world's population is literally not even part of any economy. And that doesnt really make any sense
azan_ 3 hours ago [-]
You've made lots of (wild) claims, but provided zero support for them. Also didn't bottom income quartile see the largest growth in last few years?
philipallstar 3 hours ago [-]
Sigh, no. Money is not flowing; company valuation might be, but that's temporary and only works if the company keeps delivering insane amounts of value.
fc417fc802 56 minutes ago [-]
So the founders sell plenty of stock while the price is high and then when their valuation crashes sure they "lost" half their net worth but the other half is still there.
I'm not saying that's what's happening, just making it clear that company valuation not being permanent is not a valid argument against money flowing to the top.
mannanj 3 hours ago [-]
yeah I intuitively have felt something like this has been happening, too. And finding the evidence is such an immense task, and feels way out of my current energy level.
When COVID was ongoing there was a term floating around I liked, "Psychosis" was it. The spell is like that of, denial? Terror & shock?
Trauma might be better?
Looking at trauma responses and how to detect it in humans is an interesting perspective to look at all this with. Personally, if I look at it from "people are afraid, traumatized, defending themselves" and use that to extrapolate how most people (the masses, the non-rich) would act and also the rich - that points me to why theres such a sudden hastening of action and pace of wealth up towards the top in the name of AI & war.
shmel 3 hours ago [-]
or, hear me out, we can try the Irish way? Just let them fail ffs
vitally3643 2 hours ago [-]
Unfortunately, the entire US economy is being propped up on AI stocks. If they are allowed to crash, the consequences would be extreme all across the board. See the recent worming into index and pension funds. If they collapse now, a lot of regular people are going to get wiped out.
Should the government bail them out or somehow stop the collapse? Arguable. Will they anyway? Almost certainly. These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage to the national (and global) economy precisely so that the taxpayer will be left holding the bag if and when it all comes crashing down.
Capitalism is rotten to the core and there's no fix for it.
fc417fc802 42 minutes ago [-]
> These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage
Where is this assumption of malicious intent coming from? This has all been fueled by a global AI hype that might or might not prove to be justified in the end. The overall economic situation looks (IMO) quite similar to that of the railroads in the US and those did ultimately fail and were nationalized(ish).
The current situation is hardly limited to the US and capitalism. China also appears to be actively reorganizing their economy around AI.
downrightmike 5 hours ago [-]
Hyperinflation to make the needed bailout money
staplers 4 hours ago [-]
That's done quietly behind the scenes so leaders can blame something else for inflation.
See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live.
gruez 4 hours ago [-]
>See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live.
And you would have been massively wrong. People have been complaining about quantitative easing since post GFC, and if you took the figures at face value, those would imply inflation was nearly 100% between the end of GFC and before the pandemic. Whatever you thought about the post-pandemic inflation, the period between GFC and pre-pandemic definitely did not see the level of inflation implied by those figures.
disgruntledphd2 3 hours ago [-]
I mean, it sortof did in assets, just not in the changes tracked by CPI.
barrenko 4 hours ago [-]
Banks not needing people's money is quite a bad thing. EDIT: M1 looks like a damn sigmoid.
drivebyhooting 4 hours ago [-]
I don’t understand how to read those charts.
smallmancontrov 4 hours ago [-]
Any time you see a price denominated in $, divide by that chart.
stymaar 3 hours ago [-]
The idea that inflation and the money supply are linked is one of the most dumb one in folk economics.
Just look at these charts: they were declining when inflation was raging on in 2022-23 …
ryan_j_naughton 3 hours ago [-]
> "The idea that inflation and the money supply are linked is one of the most dumb one in folk economics"
"folk economics" implies it is by untrained people.
Milton Friedman's famous quote of "inflation is always and everywhere a monetary phenomenon" shows that he deeply believed the relationship between inflation and money supply, and one certainly cannot call Friedman a "folk economist" considering he won the Nobel prize in economics and was a professor at the University of Chicago.
Note: I am not saying he is right or supporting his belief. I am merely stating that such a belief is not a "folk economics" belief. This belief is still very prevalent in the freshwater schools of economics. [1]
As a personal anecdote, at Ronald Coase's 100th birthday party, I personally got Gary Becker and Richard Posner debating a very related topic (whether and by what degree the velocity of money of fluctuates and whether helicopter drops of cash would have been better during the early days of the money supply collapse in 2008/2009 than just giving money to the banks). In a room full of Nobel Prize winning economists in 2010, there was a very rigorous debate on the topic.
> "folk economics" implies it is by untrained people.
The problem is mostly its appropriation by untrained people though.
> Milton Friedman's famous quote of "inflation is always and everywhere a monetary phenomenon" shows that he deeply believed the relationship between inflation and money supply
Creationists theoreticians believe in creationism too. The problem arise when their theory reach the mainstream… (Influential people inside the Swedish Central bank making a fake Nobel prize to promote these ideas didn't help of course…)
smallmancontrov 3 hours ago [-]
Lagged processes are one of the most fundamental concepts in economics. If merely recognizing the possibility that one could be at play here is throwing you for a loop, you need the simplified monetary model more than most.
stymaar 3 hours ago [-]
Where's the hell is the lag on these graphs though!? The money supply grows both before, and after the inflationary spike. (And the fact that it stops increasing when inflation is high is not surprising at all, by the way, high inflation make the central bank raise interest rates, which reduce credit, which is where money comes from).
smallmancontrov 2 hours ago [-]
The lag is where you were complaining it was.
stymaar 2 hours ago [-]
Do you know what “lag” means?
mikeryan 3 hours ago [-]
Google also just announced a new equity raise of $80B. I have no idea if doing this via equity vs debt is trying to suck some of the wind out of the IPO Market for Anthropic and OpenAI but it’s going to be interesting to see how the markets deal with all the new equity being floated. Someone isn’t going to hit their raise targets and the later IPOs may be the ones holding the bag.
kccqzy 3 hours ago [-]
The $80B of equity raise is nothing compared to its previous share buyback programs.
3 hours ago [-]
treis 5 hours ago [-]
There's no realistic way for the music to stop. The demand for LLMs is staggering and the big providers are charging full freight for inference. They might not make back the money from training but these data centers are definitely going to be fully utilized for at least the next 5 years.
SlinkyOnStairs 5 hours ago [-]
> the big providers are charging full freight for inference.
Except they're not. Anthropic's claims of temporary profitability line up exactly with when SpaceX is giving them discounted compute, OpenAI's such a shitfest they threw the CFO off the glass cliff for daring to push back against the IPO. "Profitable on inference" is an unsubstantiated rumour.
Just look at the copilot changes. Demand switching to other providers immediately when prices rise, and there's not even certainty that the new copilot prices cover costs.
> They might not make back the money from training
This is an understatement. With all the datacenter buildout, they need trillions. For the investors get their money back and the bubble to not implode, they functionally need to unemploy everyone in the US.
If the AI dream is real, society just breaks.
icepush 4 hours ago [-]
Unemploying everyone was what openai described as their success condition when it was founded a decade ago. There was a q&a on their website that said "How will you know when you have reached AGI? When the system performs most or all economically valuable work." Lots of people thought they were joking, or it was marketing, but they were 100% serious from the first.
treis 5 hours ago [-]
The pricing on Open router is clear. Anthropic, OpenAI, and Google all garner a massive premium over deepseek and qwen. There's no other realistic explanation except that they're making bank.
bootsmann 4 hours ago [-]
I can sell the tomatoes in my garden for twice the price of those in the supermarket and still make massive loses.
SlinkyOnStairs 4 hours ago [-]
> There's no other realistic explanation except that they're making bank.
If they were, they'd never shut up about it. Yet they keep quiet about the financials.
treis 3 hours ago [-]
They don't shut up about it. Profitable on inference has been the story for years.
johnsmith1840 3 hours ago [-]
Why do you think Chinese companies can do that? It's government subsidising price they do it with literally every ibdustry.
Home grow a bunch discount them federally, let them wipe the foreign markets.
If AI is threatened by china why would US NOT do the same? If they did they're in a much stronger position to do so than china. Cheaper energy, more cash, stronger industries.
Infrastrucure is thr kind of thing that only a foolish US admin would let fall apart to their advesary.
treis 2 hours ago [-]
It's not all Chinese companies. It's some western companies running Chinese models.
boarsofcanada 4 hours ago [-]
And yet they are not profitable on an ongoing basis, and aren’t even claiming to be.
The supply is currently constrained because 50+% of data center plans were cancelled as a result of the impossibility of the buildouts happening in a timely fashion, and subscriptions are charging a small fraction of the actual cost of inference, leading them to all bleed money, hence the rush to IPO to get one last infusion, since many of the past investors have publicly stated they aren’t putting any more money in until they see an ROI.
treis 3 hours ago [-]
They've stopped subscriptions for the most part. Companies are paying API rates for their employees.
boarsofcanada 2 hours ago [-]
Companies are hitting their budgeted limits for AI tokens less than half way through the year and reporting that they aren’t seeing enough benefit to substantially increase that budget, and so they are scaling back use and asking people to be prudent rather than token maxxing.
In the meantime subscriptions still exist in the form of chatbots and it’s easy to exceed the inference cost of the provider by simply using your daily, weekly, and monthly limits.
The reality is that we just don’t seem to be at a point now where people are willing to pay full price for the perceived value. Perhaps we’ll get there within another generation or two of hardware and software improvements.
simonw 5 hours ago [-]
> "Profitable on inference" is an unsubstantiated rumour.
So is "unprofitable on inference".
Thankfully we should find out for real as soon as those S-1 documents arrive.
WarmWash 3 hours ago [-]
>For the investors get their money back and the bubble to not implode, they functionally need to unemploy everyone in the US.
More like $75/mo per user for the next 5-10 years if they can get 5% of the global population to pay that.
alfalfasprout 5 hours ago [-]
> the big providers are charging full freight for inference
They're not and it's not clear why you seem to believe that. The immense capex for buildouts, training costs, etc. are not rolled into inference costs. Moreover, companies are already rapidly starting to re-evaluate token spend.
stefan_ 5 hours ago [-]
Data center operators are in the business of selling electricity. They do not command large PE multiples. This is an even worse business, because xAI decided to also be the bagholder for the NVIDIA graphic cards. Not to mention they finance an unreasonable number of 20-somethings on way too large salaries with shitty opinions and no AGI delivered.
_alternator_ 4 hours ago [-]
This take clearly has a bone to pick. But ignoring that, the first sentence is just not reflective of the reality here—xAI is making a killing on renting out its GPUs, way more than "just power". The dynamics that normally make infrastructure providers have slim margins don't apply when demand far outstrips supply; the situation right now is closer to monopoly pricing power.
It will likely take a few years for supply to fully catch up, which means xAI will eat well for a while.
I can see a world where a few data centers come on line this year and reduce margins a bit, but it's crazy to think the margins will go to "cost of electricity plus a few percent" anytime soon.
alpha_squared 2 hours ago [-]
> xAI is making a killing on renting out its GPUs, way more than "just power"
What's your evidence for this? Because from the S-1, SpaceX is largely an internet service provider that happens to launch rockets and own xAI.
PixyMisa 1 hours ago [-]
In the article, it states that the two deals will cover the entire cost of SpaceX's AI buildout in 18 months. OpenAI and Anthropic would kill for that kind of cashflow.
chatmasta 5 hours ago [-]
Datacenter operators who rent space are selling electricity. SpaceX is selling a fully built datacenter with compute designed for a specific purpose. They’re operating at a higher level of the value chain and can charge accordingly.
SecretDreams 5 hours ago [-]
What's their novelty or moat to maintain the value chain? And why do we only see google, who already owns it, raising their hand to rent at these prices?
chatmasta 4 hours ago [-]
I’m not sure they need novelty or moat. AI compute resources are so scarce that inference providers will buy whatever is available. SpaceX sells inference hardware in bulk, with a proven track record of running inference and training workloads at scale.
mlyle 3 hours ago [-]
Without a moat, P settles to MC. No one makes significant profit.
chatmasta 2 hours ago [-]
xAI covers their cost of N-1 datacenter while running their own models in N and building out N+1.
SecretDreams 2 hours ago [-]
And they make all of their money from the N-1 data center they are renting which is sand moat.
What point are you making?
chatmasta 32 minutes ago [-]
What? They make money from their own inference and models too, which they can train effectively for free by funding their operations with rental income from their last gen datacenter.
Brybry 4 hours ago [-]
Anthropic is also paying $1.25 billion a month for xAI datacenter compute (though Google does own ~14%? of Anthropic too).
I'm not a big fan of this level of circular financing and ownership. The transparency is severely obscured.
treis 5 hours ago [-]
They're not any sort of bag holder. They're going to make back what they spent on these data centers in a year.
It's a fairly sweet deal for everyone involved. Anthropic/Google get to sell more tokens and xAI gets a war chest for another bite at the apple. I don't have much confidence that they'll do anything with it but that doesn't mean these deals don't make sense for them.
jtbayly 5 hours ago [-]
There is a footnote in the article does the math. It concludes, "power is no more than about 1% of revenue."
skybrian 5 hours ago [-]
I thought it was mostly capital costs (chips), not operating costs (electricity).
SecretDreams 5 hours ago [-]
Look, there's two things:
* LLMs are useful
* Company valuations around LLMs are not realistic
Both can be true, much like they were during the Dotcom bubble. The internet turned out to be a pretty real thing. A couple examples below might feel familiar in the next couple months/years.
> Blucora (then InfoSpace): Founded by Naveen Jain, at its peak its market cap was $31 billion and was the largest Internet business in the American Northwest. In March 2000, its stock price reached $1,305 per share, but by 2002 the price had declined to $2.
> Broadcast.com: A streaming media website that was acquired by Yahoo! for $5.9 billion in stock, making Mark Cuban and Todd Wagner multi-billionaires. The site is now defunct.
> eToys.com: An online toy retailer whose stock price hit a high of $84.35 per share in October 1999. In February 2001, it filed for bankruptcy with $247 million in debt. It was acquired by KB Toys, which later also filed for bankruptcy.
> GeoCities: Founded by David Bohnett, it was acquired by Yahoo! for $3.57 billion in January 1999[20] and was shut down in 2009.
> MicroStrategy: After rising from $7 to as high as $333 in a year, its shares lost $140, or 62%, on March 20, 2000, following the announcement of a financial restatement for the previous two years by founder Michael J. Saylor.
Btw how much is MicroStrategy down since the year 2000?
SecretDreams 4 hours ago [-]
I was expecting this comment. You know the answer. A scam will keep scamming.
There are also legitimate companies from the dotcom bubble era like amazon, microsoft, and intel. They all were vastly overpriced during the dotcom era. Probably also now lol.
dluxem 4 hours ago [-]
I am of the same mindset as you, but you also have to look at PE multiples of Cisco in 1999 and Nvidia today. One being the "ammunition" supplier in the battle for the Internet, and the other supplier in the battle for AI.
Cisco was over 400 at one point and Nvidia is around 30. Not quite the same.
Other players today:
- Digital Realty 48x
- Equinix 75x
- CoreWeave (still losing money)
There is likely a bubble of some type here, but I don't think this is the same as the Dotcom bubble.
SecretDreams 4 hours ago [-]
The circular financing aspects in the current era are really obscuring some of the financials. There are also very legitimate companies offering very real products. The big issue today is that things feel a lot more obscured and interconnected, which makes it hard to discern shit from gold. Does not help when the gold and shit are swimming in the same circles and shaking hands with all the same people.
bluegatty 1 hours ago [-]
It's very healthy to be skeptical but there's nothing weird specifically about this.
It gets weird when people stop looking at the books and ignore the circularity.
It also increase risk by reducing resiliency.
It's also 'cleaner' then the Nvidia style deals with OAI who are customers.
'Google Finance' is investing in a company.
Just so happens that company leases something to Google. Not so bad.
Nvidia invests in OAI so that money comes right back as sales <- much more conspicuous, looks like 'vendor financing'.
Qhemlomo 5 hours ago [-]
At least Alphabet, Microsoft and Amazon can afford it.
Nvidia is not losing anything if their stock falls.
So whats left? The typical candidates of course: We poor people. 401k, ETF, etc. we pay the bill.
skybrian 4 hours ago [-]
If the S&P 500 dropped 20%, that's about a year's growth. Long-term investors who bought before that would be poorer than they thought they were, but they're not worse off than they started and there wouldn't be any particular bill to pay. If they're a long term investor then they can wait for it to come back. (A similar argument could be made for larger drops.)
The real suffering comes from whatever effect there is on the rest of the economy due to a recession, more layoffs, etc.
Qhemlomo 4 hours ago [-]
They can sit it out but that doesn't mean no one paid the bill.
And some others might need to pull out when its down.
Money doesn't appear out of thin air.
Why would it lead to recession if a handful of big companies lose money they have?
It will show that the USA is in a recession for sure, but otherwise
skybrian 2 hours ago [-]
No, asset values are not like energy. There's no conservation rule.
When stocks get bid up, market valuation goes up far more than the amount of money that changed hands. Most of the market cap appears "out of thin air." It's just what people think it's worth.
And when the stock goes down again, it goes back where it came from.
The investors who bought stock at too high a price lose some of the money they put in, but there are others who never paid that price.
somewhereoutth 2 hours ago [-]
> Money doesn't appear out of thin air.
In fact [fiat] money does appear out of thin air (well, created by banks when they originate loans) - and has to to support a growing economy. Unfortunately, for various reasons, rather too much has been appearing, and has been funneled to the already wealthy.
xiaoyu2006 4 hours ago [-]
I always think 401k is not fair at all. It kinda forces one to invest and pump the stock prices.
bluGill 4 hours ago [-]
Until someone can come up with a better option though...
Note that a pension plan that invests for you blindly is no better - either the returns are so bad that they are a scam, or they are investing in stocks anyway and so you get the same results but less control. Similar for things like social security, they are either worse options or you need to pump stocks.
granra 3 hours ago [-]
> Until someone can come up with a better option though...
A welfare state maybe?
SubmarineClub 2 hours ago [-]
And the money to pay for all those retirees comes from…where?
Ray20 3 hours ago [-]
Eh? Like in North Korea?
nick__m 1 hours ago [-]
Something like the CDPQ in Québec ?
granra 1 hours ago [-]
More like most European countries.
brokencode 4 hours ago [-]
With most 401k plans, you can choose what you invest in to an extent. You can put it in bonds or other investments if you want.
idiotsecant 3 hours ago [-]
This doesnt fix the systemic issue. Most people put their money in a target fund and leave it alone. Those target funds are at risk of being forced to buy these over-inflated assets. The incentive to do this is there because those target funds and naive investors exist.
JumpCrisscross 3 hours ago [-]
> Those target funds are at risk of being forced to buy these over-inflated assets
Target funds are diversely managed. This isn’t a real concern.
hdndjsbbs 4 hours ago [-]
This is what financial capitalism and "democratizing finance" has meant in practice. Rich people have access to different types of investments, and by the time those trickle down to common investors the juice has all been squeezed out. Whatever the trend is, by the time you hear about it the market has already been arbitraged by faster investors with more resources.
We are not going to come up with a market-based solution to fix income inequality. The solution, as much as people in the dwindling middle class resist it, is a strong social safety net coupled with a hard reset on taxation and housing policies. Nobody should be homeless, nobody should be allowed to starve, but you might have to accept that your 401K goes down in exchange for a government guarantee of housing and food.
This is hard for people to accept because they currently have equity in their home or a 401K to save them from starving. But those are transient, individualistic solutions. You can lose your house. You can lose your 401K. Society should be taking care of each other in a broader way than letting everyone accumulate a little, private pile of money.
WarmWash 3 hours ago [-]
>Rich people have access to different types of investments,
You mean hedge funds and private equity/private credit that all under perform S&P500?
hdndjsbbs 2 hours ago [-]
The people who have private investments in SpaceX pre-IPO definitely have access to investments I don't have access to.
WarmWash 2 hours ago [-]
I didn't even mention venture capital because the win rate is so low. When you have billions already, then maybe you can buy $10M lotto tickets that get pitched to you. If you're a regular guy and want risk exposure like that, you can buy penny stocks.
Everyone is so fixated on the winners, that they completely forget (or aren't even aware) that there a many many times more losers.
Eisenstein 57 minutes ago [-]
I think people understand that there are losers. What they are complaining about is that the losers can dump $10M on a lotto ticket and not feel any pain when it disappears. If all those with money are are placing huge long-shot bets and cashing out when they win then what does that say about the state of the system, and markets in general? I don't know exactly, but I don't think it's good.
throw-the-towel 3 hours ago [-]
The middle class resists it because we know who will be taxed through the nose to fund this safety net. Hint: it's not the ultra rich.
hdndjsbbs 2 hours ago [-]
Why the fuck not? This is such a stupid perspective, "we shouldn't make things better because I imagined a way it could be bad".
throw-the-towel 55 minutes ago [-]
It's you who is imagining things here, I'm speaking from my actual experience in an EU country.
SubmarineClub 2 hours ago [-]
You do realize that basically all those fancy ‘exotic asset’ classes underperform the S&P 500, right?
hdndjsbbs 2 hours ago [-]
Why does anyone participate in VC funds or PE at all then?
jdale27 4 hours ago [-]
You don’t have to invest your 401k in stocks.
TSiege 5 hours ago [-]
If Alphabet can afford it why are they issuing $80B in new shares for fresh capital?
matwood 3 hours ago [-]
When money is cheap you take it. Google sees all the capital waiting to pour into these AI IPOs, and correctly assumed they could tap into that with little dilution.
skybrian 4 hours ago [-]
It makes good financial sense for a company to sell shares when the price is high and do stock buybacks when it's low. I guess they think the price is on the high side?
Also, selling shares puts them in a better position to survive a downturn (more cash, less debt).
jorvi 2 hours ago [-]
In a real competitive market it would never make financial sense to do stock buybacks because competition is so fierce you need to invest it all in R&D and sharp prices for your customers. See the Chinese EV market.
Stock buybacks are also a tax trick.
They're just holistically evil and should have never been made legal.
Analemma_ 4 hours ago [-]
Google is also issuing a bunch of debt this year. It sounds like they need a lot of capital and want to keep a particular debt/equity ratio, rather than having a strong opinion on their share price.
Qhemlomo 4 hours ago [-]
Just look at the net income of alphabet.
Whatever financial games they play in the background, doesn't matter when you make that much per 2 quarters alone.
tcp_handshaker 5 hours ago [-]
The awkward silence at this critical point of this interview...
The sci-fi SpaceX S1 talks about asteroid mining and other imaginary chimeric stuff like space data centers... while 80 to 90 of the case is about AI. But their AI case is like BMW bragging about their thriving auto business...while renting all their car factories to Toyota.
appplication 4 hours ago [-]
It’s funny because that is a guy with enough sense to both see what is going on and also not short it, because he knows that none of this actually matters with regard to stock performance for a properly frothy investor class.
mohamedkoubaa 4 hours ago [-]
I have a riddle for you:
If it looks like a bubble and waddles like a bubble and quacks like a bubble what is it?
crystal_revenge 3 hours ago [-]
It's not interesting to say "this is a bubble!" I've heard that about virtually everything (and in many cases it's likely true). What is interesting is pointing out the mechanics that make the bubble pop.
This is precisely what makes the movie the Big Short interesting: we see that people did identify, within a reasonable time frame, when people would start defaulting and how that would cascade into a true crisis.
It's pretty clear that while the fruits of AI are quite useful, the entire thing is rife with very questionable financial engineering... but I still don't know what it is that makes all of this break. For example, it's obvious that the SpaceX IPO is a massive wealth transfer program, but it's not obvious that it will immediately end in a crash. Given how irrational the stock market has been, I don't see a reason it can't continue to be irrational for long after the bag has been handed over to the retail investors and retirement funds.
PixyMisa 1 hours ago [-]
Also, SpaceX is a rocket and communications company with a secondary AI play, where Anthropic and OpenAI are pure AI companies.
And it is far and away the world leader in satellite launch capacity and satellite internet.
Does that justify the massive valuation? Probably not. But it's a factor.
noncoml 59 minutes ago [-]
If you sum the valuations of the company from its individual parts, no one sane would value it more than half a billion. But look at TSLA a P/E still at 370.
Who is the smart and who is the idiot?
The one who invested in it $40 or the one who was saying that even at $40 it was already too expensive?
sedawkgrep 3 hours ago [-]
Elon?
rvz 3 hours ago [-]
A bubble waiting to burst.
elorant 4 hours ago [-]
When the music stops we could start buying hardware again at rational prices.
NetOpWibby 4 hours ago [-]
This is what I’m looking forward to
ryandrake 4 hours ago [-]
I can't wait until these datacenters go bust and bulk DDR5 RAM and GPUs are sold on pallets by the kilogram rather than by the gigabyte.
undersuit 27 minutes ago [-]
So little of that is going to happen.
The DDR5 will be registered DIMMs. The GPUs will be 600W paperweights with a custom form factor. Similarly the NICs and other PCI-E accelerators. The motherboards also adopt custom form factors to fit in racks. The hard drives will be using SAS connectors. The flash will be in E1.S form factors.
The server CPUs that you want for a home desktop or small server, high clock SKUs, will be in high demand.
Any savings for someone willing to build a system from second-hand server hardware will be eaten by using adapters or sourcing a rack.
I'm not saying you won't be able to make a slightly outdated frankenserver with more compute than you need, I'm saying that's not going to bring down prices for Grandma's machine that she needs working to check on her retirement account.
idiotsecant 3 hours ago [-]
I dont think so. These entities and the hardware they own would be bought for legitimate AI use long before they'd hit the open market. AI is very useful, and even profitable at the inference level. It's just an open question whether this monumental amount of spend for research is worth it.
xiaoyu2006 4 hours ago [-]
These companies are too big to fail. I'm afraid the tax payers will be the ultimate consequences bearer.
EA-3167 3 hours ago [-]
Retail investors are currently being set up to hold that bag, and presumably the companies themselves will get government bailouts, so the taxpayer gets hit coming and going.
It's not even subtle at this point, what with the attempt at S&P rules changes, the insane valuation, the attempt to change the trade-through rule, and more.
nonethewiser 4 hours ago [-]
What's circular?
nemomarx 4 hours ago [-]
Google rents from SpaceX enough to show profitability, so that SpaceX can IPO and make googles early shares worth more than enough to pay for the renting they're doing.
Great deal for Google but they end up basically just paying spacex to pay them back, right?
irishcoffee 4 hours ago [-]
I believe you've described "investing with a hope for a profitable return" which is usually the point of investing.
Circular investing is a thing that is happening with all of these companies related to language models. Google hoping for a ROI isn't a great example of that.
olyjohn 4 hours ago [-]
Since when is leasing capacity in a datacenter considered investing?
irishcoffee 3 hours ago [-]
Why does one lease something? To provide value equal or better to the cost, no?
nemomarx 4 hours ago [-]
Buying the 5 percent stake is investing, but is paying them to be sure they can IPO normal? It reminds me more of Microsoft paying apple or Google paying Firefox or something.
alfalfasprout 4 hours ago [-]
It's not just that there's a circular deal it's that they're prevalent. And worse, with frontier labs IPOing seeking astronomical valuations that means a lot of the public is now exposed too (even if they don't all get fast-tracked into eg; the SP500).
The problem is the valuations assume astronomical growth... that is likely impossible for all of them to simultaneously achieve. Which means something's got to give.
gowld 5 hours ago [-]
Answering that question requires determining how much of the valuation is predicated on growth in AI spending from Google->xAI, but not counted as a forecasted expense for Google, and similar for other deals.
Circular deals aren't bad; what's potentially bad is if those deals are misinterpreted by active investores.
mannanj 3 hours ago [-]
Someone told me this isn't "fraud". (Was in another one of these hacker news thread where a guy called all this Brilliant Financial Engineering). How is this not unethical at least, it befuddles me.
Maybe we've come to celebrate unethical behavior and its become so normalized that we forget to ask ourselves what should be allowed.
xyst 3 hours ago [-]
> What happens when the music stops?
Government hands Wall Street another bailout to the tune of trillions of dollars. Wall Street executives and hedge funds use funds to enrich themselves as usual. Main Street and tax payer get fisted again. These massive data centers go bust. Get gutted during bankruptcy and foreclosure proceedings Public deals with the fallout with no help from government.
SecretDreams 5 hours ago [-]
> What happens when the music stops?
That's a problem for your kids to figure out ~ those currently getting enriched from these schemes.
colechristensen 5 hours ago [-]
>What happens when the music stops?
Bubble bursts, somewhere between 2008 housing crisis and the dotcom bust.
Really dependent on if there are any OTHER structural problems to compound a fast re-valuation of tech stocks. There's plenty of noise about banks holding large amounts of bad private credit debt. There could be a lot or only a little collapse. There's so much uncertainty and the combination of war, high oil prices, and uncertainty about tarriffs that the market struggles to value anything as international fear drives investment into the US and high prices confusing whether growth is growth or just inflation.
Definitive peace in Iran combined with some sort of sobering AI news signaling the end to the infinite growth party could crush the markets.
ethagnawl 4 hours ago [-]
> There's plenty of noise about banks holding large amounts of bad private credit debt.
This and auto loans. I have NO IDEA how people are affording $770 per month car payments _on top of_ $4.50+ per gallon gasoline.
malfist 2 hours ago [-]
Some of us are paying $770 on a car, but it's an EV.
ozgrakkurt 4 hours ago [-]
I don't think current AI is anywhere near the value of internet and it will probably not be for decades.
Also the current president of US is Trump and they are in a war that is pumping the energy prices.
Why not bigger than dotcom burst?
ToucanLoucan 5 hours ago [-]
The post-information age has never felt so well-named as it does lately. Investors dumping billions into completely unproven and, largely, undesired tech. Why? Because the Valley doesn't have anything else to sell, seemingly.
Either way, as always, we'll do it the American Way: Privatize the profits, socialize the losses.
colechristensen 4 hours ago [-]
>The post-information age has never felt so well-named as it does lately. Investors dumping billions into completely unproven and, largely, undesired tech. Why?
Eh. There's too much money. Covid response involved printing a lot of money and it all ended up somewhere. The chaos of the current administration has made everything considerably harder to price and the coincidental rise of the LLM has put us in strange situation that is legitimately difficult to price things correctly.
SlinkyOnStairs 5 hours ago [-]
> There's plenty of noise about banks holding large amounts of bad private credit debt.
This is still only big enough to cause funny banking collapses not actual 2008 scale financial disasters. Banks hold a lot of bad debt, but it's isolated from consumer accounts. Might not want to hold equity in SoftBank though.
> There's so much uncertainty and the combination of war, high oil prices, and uncertainty about tarriffs that the market struggles to value anything as international fear drives investment into the US and high prices confusing whether growth is growth or just inflation.
The big concern lies in what the Trump admin will do. Things could end up merely a bad recession, like the Dotcom and Telecom bubble.
Or they can attempt to keep the bubble going once it collapses, crashing interest rates, and doom the US economy.
Ekaros 3 hours ago [-]
On other hand private corporate credit freezing might take down lot of business that need credit lines to operate regularly. Even the not so bad zombie companies. Tightening up and not being able to revolve credit anymore could lead to bankruptcies.
colechristensen 46 minutes ago [-]
>This is still only big enough to cause funny banking collapses not actual 2008 scale financial disasters. Banks hold a lot of bad debt, but it's isolated from consumer accounts. Might not want to hold equity in SoftBank though.
Banks are lending to these private funds that are packaging questionable loans into securities (as opposed to banks giving loans or companies issuing bonds). This is the post-2008 place for people to get highly leveraged loans and they probably need to be better regulated.
But yes it doesn't seem like private credit alone will cause problems, the concern I'm trying to outline is a few of these things happening at the same time causing a kind of collapse.
TACO uncertainty is strangely propping up asset values as there's always a credible thought that whatever is happening is pretend or going to be reversed soon. And the expectation that the fed isn't independent any more and will make decisions to prolong the bubble resulting in a bigger crash ambiguously far into the future. Few want to start shorting because they have no concept of how long the market can stay irrational or if 20% inflation might be around the corner instead of a popped bubble.
cyanydeez 2 hours ago [-]
we should all be asking where the downstream ROI suppose to come from, because it sure as shit isnt in any of these AI endevours.
tsunamifury 4 hours ago [-]
The question you should be asking is who prints the money that materializes those valuations.
And who gets stuck with the bonds.
5 hours ago [-]
mschuster91 5 hours ago [-]
> I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops?
A financial crash that will make the 2007ff crisis look tame in comparison. That is why Anthropic, OpenAI and SpaceX (which xAI belongs to) are all going public soon and why NASDAQ bent the rules to include them... the current owners all want to raid pension savings worldwide [1] to get their payday before the bubble inevitably bursts.
And when it bursts, you can bet that the vultures will use their fresh cash to buy up assets at fire-sale prices. For the truly rich, a boom-bust cycle is only one thing, an opportunity to achieve extraordinary profit.
It's hard for me to see this being bigger than the great recession unless there's some vulnerabilities in the banking system we're not aware of. However, the amount of money that's being spent is going to demand a large return that I'm not sure will be made whole given the scale of investment in a time frame they want
mschuster91 4 hours ago [-]
> It's hard for me to see this being bigger than the great recession unless there's some vulnerabilities in the banking system we're not aware of.
The scenario I see is write-offs. At the moment there are hundreds of billions in IOUs being passed around, much more in liabilities than Lehman had back then in 2007. Compounding that is the frankly insane valuation - it's as clear as day that at least one of the major AI shops will go bust, they all run at a (huge) loss and sooner or later, one of them will run out of cash before achieving market dominance.
Unfortunately, OpenAI and Anthropic are valued at almost 1 trillion $ - backed by nothing but the hope on the winner surviving and achieving the classic VC-backed near-monopoly. The staff can be poached, they don't hold much in IP like patents, the servers and GPUs are mostly owned by third parties like AWS, Microsoft, Google or Oracle - once the cash runs out, they can't sell any assets for even some runway extension because there are no assets. Even the model weights and training data aren't worth much - all competitors already have training data sets of their own, it does not make sense to acquire further data, and model weights are being rendered obsolete by the constant churn of open-weight models particularly from China.
SpaceX is valued even higher, but unlike the other two candidates, they still at least got a viable business even if the entire AI BS bubble collapses, Starlink is a money printer and there's no alternative in sight that matches SpaceX and their reusable rockets.
Now, if either of the three even experiences a large drop in valuation for whatever reason, it's not just experienced VCs that can readily afford (and expect) investments to fail, but this time a lot of "everyday" investment vehicles (such as pension funds) will have to issue write-off losses, and now that they are publicly traded, that may also trigger stop-loss cascade orders further dropping prices, and retail investors will probably join in on the mass panic. That's the #1 risk IMHO.
The #2 risk is that after a collapse, the service providers (i.e. the ones owning the servers) will be sitting on a ton of hardware that has nowhere near recouped its cost. AWS, MS and Google can probably repurpose most of the hardware for their own use and rent out what remains, but they will have to eat significant accounting losses, provoking again a drop in their stock price, but this time with even more blast radius as all three of them are established stock index (and thus ETF) members that a looooot of people have exposure to. But someone like Oracle? They might actually get fried for good.
And the #3 risk is further downstream, particularly relating to NVDA. They have enjoyed years of insane profits because they are the only ones making high-performance AI chips. When demand for new chips collapses due to the event(s) I just described, they can easily shift their TSMC production slots back to GPU wafers and sell these to gamers - but at a far lower profit than before, which again can trigger stock price drops and write-offs.
I won't go further downstream - TSMC and their suppliers are IMHO pretty safe because there is just so much pent up demand from everything not AI, and the construction companies building datacenters don't have too much of a blast radius when the big guns stop expansion projects.
The concrete scenario I'm really, really afraid of: all three succeed with their IPOs, maybe they all survive a year and get included even in S&P 500. The existing shareholders and insiders all slowly dump a lot of their vested stock onto the public market, which in cleartext means into the dozens of billions of $ of retirement contributions. One day, the bubble bursts for whatever reason. The stock markets drop in a panic sell-off, either triggered by stop-loss orders or because retail investors are a herd of sheeple (just like in the 1st covid lockdown). Eventually, circuit breakers on the stock markets will trigger (just like they did in the GME post-apes collapse) and trading will pause, but it will resume until the markets have adjusted to the new valuation... and once the dust clears up, there will be a lot of blood on the floor. Possibly even riots, depending just how much retirement assets just got wiped out.
bpodgursky 5 hours ago [-]
A lot of people are emotionally unprepared for a world where the music doesn't stop.
gopher_space 5 hours ago [-]
Unprepared for a world that’s replaced French peasantry with strapping an Xbox to your face.
raducu 5 hours ago [-]
> A lot of people are emotionally unprepared for a world where the music doesn't stop.
I've been wrong before. However, when was the last time this business model made sense -- that facebook, SpaceX and others, all just pivot from their market niche to general purpose AI datacenter providers.
How on Earth does this make sense?
What happens in a few years when DeepSeek runs on the chinese chips like the Huawei Ascend at a fraction of the cost ?
These are all very high value added companies going into comodity AI hosting and they're all going to make a killing?
treis 5 hours ago [-]
>What happens in a few years when DeepSeek runs on the chinese chips like the Huawei Ascend at a fraction of the cost ?
Nvidia goes back to being a 100 billion dollar business and everyone else reaps the benefits of cheap tokens.
doctorwho42 3 hours ago [-]
So Nvidia will lose 94.5% of their market cap, and you think that will not effect anything beyond AI?
trollbridge 2 hours ago [-]
There's an assumption here that Nvidia will stop innovating.
mlnj 2 hours ago [-]
The only assumption I am making is that NVIDIA and others dig thier claws into western governments and make decade long contracts for even greater surveillance. Trillions of dollars worth.
treis 2 hours ago [-]
Not any more than when one company beats out another.
johnsmith1840 3 hours ago [-]
Energy and datacenter scale.
US is a near monopoly of this pairing. A crash will result in the removal of the fluff and ocerpricing of it all but the stance is beyond strong.
Unless China outcompetes Nvidea AND TSMC AND magically gets 4x cheaper energy they are in a much weaker stance for the long haul.
cgh 5 hours ago [-]
“It’s different this time”
3 hours ago [-]
tsunamifury 5 hours ago [-]
Lines very rarely go straight for forever, but still often longer than expected.
reducesuffering 5 hours ago [-]
The level of denialism when faced to confront hard realities of the world around us never ceases to surprise me. Alas AI capabilities continue to rip through expectations and the next goalposts are moved.
4 hours ago [-]
nonethewiser 4 hours ago [-]
Weren't we just talking about how SpaceX is valued based on some profits from starlink + tons of speculation?
Yet when we learn of this new $26B in yearly revenue (2.2B/month from Google and Anthropic)the conversation does not return to that discussion. It transforms into:
"xAI's tech sucks"
"Google/SpaceX is Structurally Bad for the Economy"
etc
This is called motivated reasoning. We get new information and instead of the obvious thing, updating prior conclusions, we just find a different way to react negatively. The negative reaction will be achieved. The narrative here is completely polluted by people who dislike Elon/SpaceX.
chris_money202 4 hours ago [-]
Think two things can be true at once. They should be using their capital to achieve their speculative price. Instead, they are using their capital to achieve a modest ROI, thus invalidating the speculation AND proving they have tech issues in what the speculation is around.
wmf 2 hours ago [-]
Elon says Grok models are being trained right now. (Unless I missed an update.) For whatever reason these training runs are not using xAI's full GPU capacity. Short of a miracle or time machine it sounds like there is nothing more they can do to advance their mission.
bpodgursky 4 hours ago [-]
They are making $24B/yr on datacenters they built in < 2 years for $2-3B. To call that a "modest ROI" is... quite a statement.
qaq 3 hours ago [-]
Where did you get 2-3B from?
Colosus 2 GPU's alone were 18B
Total cost including construction, power and water treatment facility might be close to 25-30B.
chris_money202 3 hours ago [-]
Operating these datacenters is a pretty big cost that isn't factored here
adammarples 44 minutes ago [-]
It's right in the article, there were 40bn of disclosed costs. It's still a good return, it pays for itself in 18 months, but if you build and rent data centres, then that's your business, and you're not likely to 100x in 3 years, which is the wild projection behind their valuation.
3 hours ago [-]
throwaway5752 4 hours ago [-]
There is a shortage, they are short lived assets. It's a blip and unrelated to their long term profitability and valuation. They can't make a long lived business of building and renting out compute at those margins.
It was definitely a smart business move. It should be troubling to any shareholder than xAI is unable to utilize this infrastructure as renting it out to competitors.
gunapologist99 3 hours ago [-]
Better not mention your theory to all the other Tier 1 data centers. Or maybe you're saying that it's only AI that's short-lived.
chris_money202 2 hours ago [-]
T1 companies have longer depreciation cycles, they have customers that will use the dated hw for non-frontier work. They can make the capex more justifiable and have flexibility to be more creative about its use. A frontier lab really needs the best hw available at full capacity.
throwaway5752 1 hours ago [-]
Respectfully, I tend to think of tier 1 data centers as someone I'm paying for colocation services and the value they provide is power infrastructure and redundancy, network infrastructure and redundancy, cooling, and physical security.
The shortage I referred to is in GPUs, that's what really being rented here.
Even if GPUs lasted forever, they're are a depreciating asset because they become obsolete with improvements over generations.
GPUs do not last forever, either. I've read here, and heard from others, that they aren't even living up to their 5 year depreciation schedules under production load, closer to 2-3 years.
I use AI all the time. I hope AI isn't short lived. It might be if they can't figure this shit out, or if IPOs like spacex poison public opinion against them first.
pseudosavant 42 minutes ago [-]
I think the point is, that although at least xAI is monetizing their GPUs/datacenters, they are doing so at a REIT/rental multiplier instead of a frontier lab multiplier.
Clearly, xAI thinks this is the best way for them to extract value out of their assets.
Also, it is clear that Google and Anthropic both think they can extract more value out of those assets than they will pay in rent to SpaceX.
emodendroket 2 hours ago [-]
Well, perhaps, but those concerns seem different enough that it seems fairly plausible different people have them. It seems hard to argue the basic point that Grok is not as good as its competition if you spend time using both. That may or may not matter from a business perspective.
jmye 3 hours ago [-]
> he narrative here is completely polluted by people who dislike Elon/SpaceX.
Hard disagree. It's polluted by Elon in general (pro and con), just like Tesla's idiotic valuation.
But in this case, a pivoted business model fundamentally changes the value proposition, and I'm not clear why "this space company making money on space things is now pretending to be a compute reseller and that's a good thing" is the narrative you think is preferable.
It's also beyond lame to essentially subtweet a "narrative" instead of responding to it directly. Who is "we", aside from a transparently dishonest way to pretend consensus exists?
9cb14c1ec0 5 hours ago [-]
So we know what they are renting these GPUs for. I'm really curious about the input costs of their power generation. Is there actually enough margin in these deals for xAI to cover their depreciation cost?
Edit: from the footnotes:
> Colossus actually runs largely on its own on-site gas turbines, which comes out even cheaper: at a simple-cycle heat rate of ~10,000 Btu/kWh and Henry Hub gas at ~$3.50/MMBtu, the fuel bill is only around $90mn a year.
OK, that's crazy. How can I get into renting GPUs to hyperscalers?
eqmvii 4 hours ago [-]
I think the hard part is acquiring the GPUs, first at all, then at any reasonable price.
trenchgun 4 hours ago [-]
Yes, and then you need to have the datacenter. Do you get a permit? How long does it take to build it?
wongarsu 2 hours ago [-]
Getting somebody who actually knows how to design and build a data center also seems to be a bit of an issue right now
2 hours ago [-]
hawkice 5 hours ago [-]
They have developed an LLM, so they are an AI lab, but the quality of that model suggests they're not a frontier anything.
leetharris 5 hours ago [-]
I have the pro account for ChatGPT, Claude, Gemini, and Grok.
They all have various strengths and weaknesses. My favorite is still ChatGPT, then Gemini/Claude, then Grok.
Grok often feels 1-2 generations behind the competition in general use, but it has three things that I love:
1. It seems to be the best at understanding current events. Maybe due to X integration, or some other tool call optimization in the backend? I don't know, but I often ask about things going on, and the other models have outdated info, give unhelpful answers, etc.
2. It is generally the least sycophantic for personal things. Anthropic is getting here too. ChatGPT and Gemini are working on this, but previous models in those families would almost never say anything negative about what I am doing. Sometimes I need career advice, personal advice, etc and I like the tone of how it responds. I think Claude will be caught up soon.
3. For professional work, there are certain topics that other models would refuse to engage with. At my last company we had an enormous amount of legal users. When a deposition would need a summary on certain topics, most models would refuse. Grok would not. I understand the need for safety and I don't blame the other model providers, but for some professional use cases you NEED a model that is capable of handling sensitive subjects.
e9 5 hours ago [-]
I recently worked with NRC dataset, specifically about nuclear reactor events and status reports(example: https://www.nrc.gov/reading-rm/doc-collections/event-status/...). Public data that just needed some cleaning. Several time Claude API would refuse to engage. Because of that I can't trust Claude to clean production data sets.
emodendroket 2 hours ago [-]
> 1. It seems to be the best at understanding current events. Maybe due to X integration, or some other tool call optimization in the backend? I don't know, but I often ask about things going on, and the other models have outdated info, give unhelpful answers, etc.
That makes sense, but occasionally you ask about an issue where it's clearly received political instruction from the commissar and it acts totally lobotomized. But it's true that Gemini will often blithely state that something could never happen and you'll say "what do you mean, that just happened" and then it comes back apologizing after running a Web search.
square_usual 5 hours ago [-]
Opus 4.8 has made huge jumps in being less sycophantic. I see it pushing back on ideas a lot, and that's very helpful when you're evaluating options.
lachlan_gray 4 hours ago [-]
Almost too much so, it often feels like opus is pushing back for the sake of pushing back. The way old models used to add disclaimers to every message regardless of content
NewJazz 4 hours ago [-]
That's because it can't literally reason, it has just been manually steered into those reasoning speech cycles.
emodendroket 2 hours ago [-]
Yes, yes. Does everyone still find it interesting to go over this point every time about how it's not literally a person with human reasoning?
NewJazz 58 minutes ago [-]
Uh, only when people don't seem to understand it, or try to personify it. Which is quite often.
deaton 5 hours ago [-]
All 4 of these still regularly insist that I am a genius and everything I say is brilliant. Grok definitely pushes back more than the others, but I don't like how sycophantic they all still are.
pell 3 hours ago [-]
I don’t want to open up that whole can of worms but Grok on any vaguely philosophical or political topic is a scaredy cat and has a very hard time staying factual if it could make Musk or the conservative movement appear negatively.
nonethewiser 4 hours ago [-]
What are you using it for? Im pretty surprised ChatGPT is your top model but maybe you arent using it for code.
Azantys 5 hours ago [-]
Career and personal advice from LLMs, not sure if thats your best bet
cactusplant7374 4 hours ago [-]
But in terms of agentic coding? Dead last.
htx80nerd 4 hours ago [-]
My favorite was ChatGPT, and I still use it often, but it becomes way too 'hair splitting' argumentative too often over very minor non controversial topics. Like it's always going out of its way to "well actually..."
Grok used to be really really bad ~8 months ago or so, but it's gotten better.
ChatGPT team needs to turn down the 'disagree just because' factor by a lot.
epolanski 5 hours ago [-]
My SO works in audit/compliance and business Gemini definitely does not refuse to answer.
selicos 3 hours ago [-]
1. It seeks to manipulate the information you see and your lens to the world. This is already partially true from independent and major publications.
As soon as we hand over searching out information to social media algorithms and LLM tools, we abandon our ability to see reality outside our direct vision.
Grok's ownership has already demonstrated capacity to influence major world elections and other events. You cannot trust it with this sort of information gathering and reporting.
fooker 5 hours ago [-]
> the quality of that model
I guess the benchmarks disagree, but whenever I need to find specific information that does not easily show up with a web search, I try chatgpt, gemini and grok. Grok surfaces what I was looking for more often than the others.
Things like "find the github repo from 2017 that does $vague_thing".
chatmasta 5 hours ago [-]
Grok does seem to have the best searching capabilities, and not just for twitter. I wonder what search engine they’re using on the backend.
PixyMisa 1 hours ago [-]
Good question. You can actually see the searches it runs (momentarily) so testing could determine if it's using public search engines or a private system.
PixyMisa 1 hours ago [-]
I find that too. I use Claude for coding but when I need to dig out something based on limited data I turn to Grok and it delivers.
Azantys 5 hours ago [-]
Isnt that more Perplexitys thing anyways?
gowld 5 hours ago [-]
Can you give a specific example (that doesn't violate any privacy you want to protect)?
beepbopboopp 5 hours ago [-]
Or the model was a marketing expense to capitalize the data center model. Im not saying it was intentionally that, but its been an effective "that."
bpodgursky 5 hours ago [-]
Eh. It was a leading model for a few weeks, it was a real effort, but they never built a real revenue model around it. It wasn't SaaS, it wasn't for governments, it couldn't get B2C payments. Made it hard to justify the training cost to stay at the frontier.
dsgn93 5 hours ago [-]
[flagged]
Qhemlomo 5 hours ago [-]
So like the 4D Chess Trump is playing with us?
Come on, the most logical thing is that Musk overestimated the compute he needs and got lucky with the secondary usage of it.
As soon as the IPO is done and if it didn't fail, he will buy curser and try to push again if he hasn't given up on it.
He also needs some compute for the robotics stuff and for Tesla in-car entertainment and for training FSD.
mbesto 5 hours ago [-]
And they are planning (well "planning" if you believe Elon) to start building their LLM over from scratch, which means they need a HUGE ass training data center, i.e. not a data center for inference to do so.
bottlepalm 5 hours ago [-]
Grok isn't at the front of the frontier, but they are there for sure.
harrall 4 hours ago [-]
But supposedly they’re the cheapest for certain workloads, especially ones that have high tokens and can make use of caching.
So they’re cutting edge in that way.
gowld 5 hours ago [-]
I am also an "AI lab", but I look more like a corporate cog, because that's where most of my revenue comes from and how I spend the most my time.
throwaway67678 5 hours ago [-]
Pretty funny how making it anti-woke made it suck, whereas Claude's ultrawoke sensibilities and "constitution" didn't prevent it from being the de facto leader of the pack the moment it came out
plaidthunder 5 hours ago [-]
It's a general problem of defining yourself in negative terms. Being "un-{thing I don't like}" doesn't say what you are. It only excludes one possibility while leaving behind an infinitude of mostly crappy alternatives to try to choose from.
Having a positive set of beliefs annoys people and and can make them feel judged, but at least it provides a vector that points somewhere definite in possibility space.
karl_gluck 1 hours ago [-]
Is this HN user runako’s comment[1] from 2 days ago turned into an article?
I guess it’s very possible multiple people are coming up with the same idea at the same time but given this was submitted by the author it seems kinda rude not to mention it.
for people, like me, who aren't familiar with the acronym: REIT = real estate investment trust
maxdo 50 minutes ago [-]
It’s a vertical company they did compute very good , their top model bounce between top tier and -1 -2 gen. They were top tier only once though on paper briefly . If tomorrow thy will hit top tier , that do have know how to expand . They can even buy back from Google or anthropic if they agree.
Nuzzerino 2 hours ago [-]
Elon is brilliant when it comes to hardware. But unfortunately with xAI, he went on a firing spree, PayPal Mafia style, just like with Twitter when he bought it, shortly before doing another hiring drive, and failing to hire software engineers at scale.
The datacenter deals came after. But now, the man who promised the world an AI system that defends free speech and is “pro-human”, is instead selling to his competitors and lowering the daily app usage limits of his own Grok by an order of magnitude (really).
If you’re dealing with the world’s richest man, you can predict that money will come before other concerns despite other rhetoric. Interesting strategy though!
Edit: To be fair, they did decide that hardware was "the bottleneck" according to an interview I saw last year. But I firmly believe they underestimated the software problem (and their app was/is riddled with them).
Makes sense. Very difficult to catch OpenAI and Anthropic now since their flywheel of generate revenue, use revenue to buy more compute, train a smarter model with more compute, made it hard to compete.
Being able to supply compute makes more sense for SpaceXAI if you can't compete in SOTA LLMs anymore.
xnx 3 hours ago [-]
How long until Meta figures this out?
aurareturn 3 hours ago [-]
I don't think Meta has to. They have far bigger distribution than X.com. I think they'll be able to make use of their data centers better than xAI.
trothamel 4 hours ago [-]
I suspect that this is the start of a play for SpaceX's orbital datacenter project - if they're really planning on launching as many satellites as they've said (and Starship is going to massively lower the cost of launch), they won't be able to fill them with Grok. So perhaps it's best to become the infrastructure provider to the other AI Labs.
542458 2 hours ago [-]
Is there anything to read on how the economics of an orbital datacenter make any sense? Because I don't really see how blasting a server into space solves any of the typical issues associated with datacentres beyond easier access to solar.
HoldOnAMinute 5 hours ago [-]
Technology has a very short life. The difference is that a REIT might contain an office buildings that can be used for any business, but a data center is filled with carcasses that start rotting and stinking from the day of installation.
megaman821 4 hours ago [-]
The idea that the AI data centers would depreciate in just a few years is plain wrong. The argument was that new chips would be so much more powerful and efficient that it would be cheaper to buy and operate the new chips than to just operate the old chips. Except that demand is significantly outpacing new chip manufacturing, and until it catches up years and years from now, the efficiency argument doesn't matter at all.
skybrian 4 hours ago [-]
No, that's silly. Chips don't rot like produce. Some components will go bad and will need to be replaced. The owner can choose how fast to replace them depending on how prices look in a few years. The rest of the building (including things like power) will still be useful.
chasd00 4 hours ago [-]
i think what op meant is they're instantly out of date. You're not going to be able replace every GPU in your datacenter on every new release from Nvidia and customers are going to go to whoever has the highest performing gear.
joefourier 1 minutes ago [-]
Demand is so high and supply so low customers will go to anyone that has any gear, period. Anthropic is paying xAI for GPUs from 2022, not the latest Nvidia release.
JumpCrisscross 3 hours ago [-]
> customers are going to go to whoever has the highest performing gear
This is where we lack data. I’m skeptical of the claim. If anything will force retirement of old chips, it will be power efficiency, not customers being picky amidst a chip shortage.
qaq 3 hours ago [-]
Basically xAI is pulling a Palantir.
They try to reposition datacenter capacity lease revenue to have a multiplier of fast growing frontier lab.
bluegatty 1 hours ago [-]
Space X is a bet on AI, which is not 'data centre leasing' - it's a short term profitability bump and foregoing the entire AI dream.
Not a good look.
But the short term numbers may oddly provide the emotive juice necessary to fuel the gig "hey, look at their massive revenues!"
mandeepj 5 hours ago [-]
or, could be they pivoted to cover the expenses?
outside1234 59 minutes ago [-]
EDIT: A data center REIT where 1/5th of the datacenter falls apart each year and needs to be rebuilt. (aka "not a good REIT investment") Because the GPUs go out of date.
joefourier 14 minutes ago [-]
And yet Anthropic is paying xAI over a billion dollars a month for those out of date GPUs in their first datacentre (H100s being nearly 4 years old at this point).
Even A100s are still barely available on the major clouds despite being 6 years old.
deaton 5 hours ago [-]
It makes sense. They've long since fallen behind the big 3 in quality of their models. There's no good reason at this point to keep burning money on Grok rather than making back some of that money renting out their Colossus data center.
hmontazeri 5 hours ago [-]
> While this doesn't include opex[2] and depreciation, if the deals continue for 18 months, xAI recoups all the capex they spent and still has many hundreds of MW of GPUs available. With the giant compute shortages likely to persist into the medium term, even older H100s are likely to be extremely useful even 18 months out.
if the bubble doesn't burst until then...
throwaway5752 4 hours ago [-]
xAI is more than half of SpaceX revenue with the Google sublease. SpaceX is looking like a datacenter REIT.
Moreover they're leasing compute - the actual infra around it is much less important - and how long does anyone expect heavily utilized GPUs to run? How likely is SpaceX to be able to re-lease this compute capacity? It will be broken down or out of date in 2-3 years.
This should be essentially ignored in the long term for SpaceX business prospects, and is low margin business that barely justifies a 10x earnings multiple let along a 100 revenue multiple for the xAI unit.
ath3nd 4 hours ago [-]
[dead]
zoogeny 4 hours ago [-]
If xAI is a datacenter REIT, it is a special kind that has a promise that no other datacenter provider could dream of: LEO datacenters. As far-fetched as that may sound, the biggest profit center for SpaceX in my understanding was Starlink. xAI already has extremely high-bandwidth connections from Earth to LEO available. Connecting that to solar powered orbital datacenters seems doable in realistic timeframes, especially once Starship comes online and gives them a significant boost in launch capacity.
If that ends up being viable and profitable, there is no realistic competition for decades. In this view, xAI earning a reputation as a reliable AI hyperscaler is just another tactic in that strategy.
martinky24 3 hours ago [-]
You're hand waving the whole "data center" part away. Comms is one thing. That's probably 1% of the challenge.
zoogeny 2 hours ago [-]
Sure, but considering the size of the challenge it makes sense to figure out the parts that can be studied on the surface first. Challenges like procuring, challenges like setting up relationships with potential customers. You probably want to figure out everything you can so that when you move on to the hard part you aren't distracted by the rest.
Consider the alternative. SpaceX figures out how to build the datacenter in space thing but fails at the rest. That would be an expensive mistake.
Google own 5-6% of the shares of SpaceX. SpaceX is seeking a valuation of $1.77T which means Google's shares would be worth $88.5B-$106.2B. I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops?
There are no dark GPUs. Compute translates directly to money for these frontier labs.
I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.
I want to make a comparison with a car rental business and say that it would be like valuing Hertz entirely on the basis of the number of cars they own, as opposed to how many they rent out, but cars have a much longer depreciation period, if there are no customers they’re not costing you more money, unlike your computer which you are using for training and sucking up massive amounts of energy, and those cars do maintain decent value even after they’re of little use to the car rental company, unlike the compute here.
There's a reason old 3090's went from $600 in 2022 o to over $1K in 2026.
The frontier labs are shifting from pricing grounded in the price of compute, to pricing grounded in the intelligence provided, or more specifically the economic value of that intelligence downstream.
The margins on that allow them to pay a hefty premium on compute and still come out ahead.
As they buy more compute at high prices, they're also pricing out competition from cheaper models. It's already become materially more difficult to get compute to run open weight models at competitive prices as a result of frontier labs in the last year.
Let us pin this comment and see how it ages
This might not be true. Someone was comparing Nvidia's production rate with known data center capacity, and they do not match. Their conclusion was that people (possibly even Nvidia) were hoarding GPUs- in the very short term this might be a good strategy, but GPUs go EOL fast. There are other stories about paused datacenter builds that match with this.
TSMC is definitely fully allocated, based on current 40 wk lead times for FPGAs..
This is a reference to the 1990's dot com bubble where internet infrastructure companies overbuilt network capacity, leading to the term "dark fiber". That was an indicator of a bubble because it showed that capacity was larger than demand. OP is saying that this is specifically NOT happening in the case of GPUs yet, indicating that demand still outstrips supply of compute.
>GPUs go EOL fast
We are seeing the opposite of what was expected, GPUs are actually getting more valuable because demand is so great, something that basically never happens. Even older chips have become more valuable.
>paused datacenter builds
It doesn't seem that datacenters have been paused because of lack of demand for AI, it seems mostly that there is a lot of pushback by cities to build these things and also there is a shortage of power to run them.
IMO none of these things point to a AI being a bubble (over-hyped, demand does not match the stated value). It mostly points to the opposite, there is massive demand for AI and every layer of the supply chain is struggling to keep up with that demand.
Google itself has a good reputation as a facilities operator. SpaceXAI is operating gas turbines emitting exhaust at ground level.
To reap massive profits before depreciation is just plain smart. LLM space, model generation is just plain crowded now too. And everyone thinks a crash is coming.
They could also build out their own end-user infra, but letting someone else which already sells direct to the public do so, is sensible.
I know of the desire to show profit for the IPO, but my point is, this is a good move on its own.
The NVIDIA GPUs, HBM, land-use permits and power-supply agreements xAI nailed down are absolutely not commodities.
I think xAI is a mess. But let’s call a spade a spade, they speculated on AI compute and they are currently right.
Don't you mean gas turbine purchases and questionably legal operation? But yeah I feel exactly the same way. The AI part of xAI looks like a mess but it seems that they still managed to score a massive win.
The point is it’s running. They built fast before the backlash got organized. Now everyone has to deal with delays and thoughtful permitting processes.
Its not that there isn't value in that business, but it's not the AI business either. Its the one where Oracle is laying off staff to try and avoid a revenue crash on future commitments.
Both Google and Anthropic would be trying to can this sort of rental arrangement as fast as possible since it's a mind bogglingly expensive way to get something you already do in house.
If they were speculating on compute, it seems highly unlikely they'd have spent the operating costs for the last 3 years of model development and deployment instead of just getting even more compute.
Alphabet/Google profits:
Q1 2025: $34.54 billion
Q2 2025: $28.20 billion
Q3 2025: $34.98 billion
Q4 2025: $34.46 billion
<<Q1 2026: $62.58 billion>>
Amazon profits:
Q1 2025: $17.1 billion
Q2 2025: $18.16 billion
Q3 2025: $21.2 billion
Q4 2025: $21.19 billion
<<Q1 2026: $30.3 billion>>
Both Alphabet/Google and Amazon have invested recently into Anthropic and are doing all sorts of financial chicanery.
https://www.youtube.com/watch?v=-bjNrGFiAI4
Nah, man, it's all fine, they're just going to take down the entire global financial system doing this crap, and by global, I mean <<everyone's>> pensions are going to take a hit, even "fully funded" pension systems.
bko didn’t say there isn’t circular financing going on. They’re just saying this isn’t an example of it. They’re right.
It’s a potential conflict of interest. And if the agreement is fake—if Google cancels without paying the cash—it could be market manipulation. But the influencer space likes to latch onto jargon, and the one it’s overapplying right now is circular financing.
What are you even going on about?
[1] They're indirectly tied to it.
They were unrealized gains on non-marketable equities. It’s clearly disclosed and done according to GAAP. It’s put under other income precisely so analysts can strip it out when modelling long-term trends.
Like, yes, if SpaceX goes to zero Google would have to realize losses and probably lose a quarter or two of GAAP profits. (But not cash flows. Cash-flow wise, it may wind up being positive due to tax effects.) It’s a risk factor, of course, but far from making no sense.
None of which is particularly relevant to the deal at hand other than in raising a potential conflict of interest among related parties.
When I said "it makes no sense", I didn't mean "the accounting math doesn't work out". I meant "raising a potential conflict of interest among related parties".
This whole AI financing this is the motherlode of "potential conflict of interest among related parties".
And people who are obtuse enough to ignore this because it's not illegal right now will discover 5-10 years from now that laws are written in blood (or massive bankruptcies).
I am certain Anthropic spent less on building the next model this quarter if they make it to profitability due to the shear fact that they don't have enough compute.
Which solves the profitability problem with relative ease momentarily.
Also just to confirm, AI subscriptions are definitely being sold at a loss how big I don't know but these models are much harder to run.
API is definitely being sold at a decent profit.
So if you rate limit users and do usage billing + lower research costs which is a money pit temporarily.
(Proof is the fact that we don't have a new pre training run since 4.5 yet, they used to do one every 2 releases)
4.9 will probably be the same.
Next model Mythos doesn't seem to have a successor yet and was trained previous quarter most likely, they don't seem to have pre trained another one just improved Mythos if at all.
As much as I am into AI these attempts to show that there can be a profitable quarter seem like cooking the books, even if we assume no shady dealings otherwise.
Unless one of the Labs can say for certain training is going to stop they can't be profitable and I don't think training can stop because marginal gains is all they have.
8-12 months behind narrative for Chinese labs literally is going to kill the company that stops training first.
If we assume only a 3-6 month gap once China has more compute, then well then even if they keep training the lack of ability to arbitarily scale data centers in US, will kill them first.
DeepSeek V5 might actually just end the AI race for good.
Also given Mythos is atleast a 10x model compared to Opus, then it's pricing is likely going to be 10x as well so well token prices are likely never coming down, especially if these companies want to IPO.
I have to say, I find this really puzzling. We know for a fact that Anthropic are making bank on metered inference. That's their biggest source of profitability, we are seeing software companies start to majorly adopt coding agents over just the last few months.
Right as the biggest driver of enterprise adoption is accelerating, and it's tied to their biggest profit vector, you find it suspect that their profits are increasing significantly?
Also, can you clarify what you mean by "slowing down research" exactly? Do you mean they're not doing big pretraining runs? Less compute available for researchers? Scaled back RL?
>Also just to confirm, AI subscriptions are definitely being sold at a loss how big I don't know but these models are much harder to run.
Maximum usage of AI subscriptions is a loss, but do we actually know how that nets out? Has anyone done any research to try to figure that out?
I think there are accelerating returns: i.e. a models are still not good enough to be “drop in” remote workers, but once that threshold is passed, the value of each token of inference has a far higher multiplier.
This justifies the buildup. However not everyone agrees that model intelligence will continue scaling thus they assert that eventually the economics will hit a wall.
>Also given Mythos is atleast a 10x model compared to Opus, then it's pricing is likely going to be 10x as well so well token prices are likely never coming down, especially if these companies want to IPO.
I don't know why people say this when cost per unit of intelligence has been going down continuously over the past few years. When Opus 3 was first released, its API cost was $15.00 per million input tokens and $75.00 per million output tokens. Opus 4.8. which is significantly better, is $5.00 per 1 million input tokens and $25.00 per 1 million output tokens
In the case of Enron, people were obviously speculating in its stock, and that remains true regardless of why it collapsed later, or even whether it collapsed at all.
I say "first" because if you still can't agree that speculation in AI stocks even exists, then it's pointless to discuss what people might be doing to exploit or encourage it.
Also to be more specific about our point of disagreement, I think we are referring to speculation in different domains. When I brought it up, I am referring to the fact that any companies whose revenue is driven by a speculative bubble (like what precipitated the 2008 crisis) would be at risk of massive losses "if the music stops". Anthropic/OpenAI aren't flipping assets. It is true that VC funding is based on speculation, but their core business model is producing massive revenue growth on selling tokens.
Sure their actual immediate revenue is driven by concrete numbers but when the rest of the economy is reorganizing itself based on their projected future revenue is the former observation still relevant?
It's very hard to know how much the deal actually increases SpaceX market cap, but unless Google exits their SpaceX position soon it doesn't even make much sense as a circular deal.
If you want to understand how companies behave you really need to look at things from the perspective of people making the decisions.
The fiat economic system is irreparably broken, and we are circling the drain. Another bailout is _probably_ inevitable. But the cycle sure as hell isnt resetting and we are speeding towards something... what it is is unclear though, and when is also unclear.
The part people cant wrap around is the scale of it and the time it takes to go through the super cycle. Theoretically, it all started with the Dot com bubble, which indirectly cause the housing bubble, which caused the GFC. Which caused whatever happened in 2019, which caused QE in 2022 under the guise of COVID, which is causing whatever the hell is happening now.
Capitalism has become uncorked, and money is irreversibly flowing to the top at an increasing rate. The logical next stage is that like 75% of the world's population is literally not even part of any economy. And that doesnt really make any sense
I'm not saying that's what's happening, just making it clear that company valuation not being permanent is not a valid argument against money flowing to the top.
When COVID was ongoing there was a term floating around I liked, "Psychosis" was it. The spell is like that of, denial? Terror & shock?
Trauma might be better?
Looking at trauma responses and how to detect it in humans is an interesting perspective to look at all this with. Personally, if I look at it from "people are afraid, traumatized, defending themselves" and use that to extrapolate how most people (the masses, the non-rich) would act and also the rich - that points me to why theres such a sudden hastening of action and pace of wealth up towards the top in the name of AI & war.
Should the government bail them out or somehow stop the collapse? Arguable. Will they anyway? Almost certainly. These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage to the national (and global) economy precisely so that the taxpayer will be left holding the bag if and when it all comes crashing down.
Capitalism is rotten to the core and there's no fix for it.
Where is this assumption of malicious intent coming from? This has all been fueled by a global AI hype that might or might not prove to be justified in the end. The overall economic situation looks (IMO) quite similar to that of the railroads in the US and those did ultimately fail and were nationalized(ish).
The current situation is hardly limited to the US and capitalism. China also appears to be actively reorganizing their economy around AI.
See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live.
https://fred.stlouisfed.org/series/M2SL
https://fred.stlouisfed.org/series/TOTBKCR
And you would have been massively wrong. People have been complaining about quantitative easing since post GFC, and if you took the figures at face value, those would imply inflation was nearly 100% between the end of GFC and before the pandemic. Whatever you thought about the post-pandemic inflation, the period between GFC and pre-pandemic definitely did not see the level of inflation implied by those figures.
Just look at these charts: they were declining when inflation was raging on in 2022-23 …
"folk economics" implies it is by untrained people.
Milton Friedman's famous quote of "inflation is always and everywhere a monetary phenomenon" shows that he deeply believed the relationship between inflation and money supply, and one certainly cannot call Friedman a "folk economist" considering he won the Nobel prize in economics and was a professor at the University of Chicago.
Note: I am not saying he is right or supporting his belief. I am merely stating that such a belief is not a "folk economics" belief. This belief is still very prevalent in the freshwater schools of economics. [1]
As a personal anecdote, at Ronald Coase's 100th birthday party, I personally got Gary Becker and Richard Posner debating a very related topic (whether and by what degree the velocity of money of fluctuates and whether helicopter drops of cash would have been better during the early days of the money supply collapse in 2008/2009 than just giving money to the banks). In a room full of Nobel Prize winning economists in 2010, there was a very rigorous debate on the topic.
[1] https://en.wikipedia.org/wiki/Saltwater_and_freshwater_econo...
The problem is mostly its appropriation by untrained people though.
> Milton Friedman's famous quote of "inflation is always and everywhere a monetary phenomenon" shows that he deeply believed the relationship between inflation and money supply
Creationists theoreticians believe in creationism too. The problem arise when their theory reach the mainstream… (Influential people inside the Swedish Central bank making a fake Nobel prize to promote these ideas didn't help of course…)
Except they're not. Anthropic's claims of temporary profitability line up exactly with when SpaceX is giving them discounted compute, OpenAI's such a shitfest they threw the CFO off the glass cliff for daring to push back against the IPO. "Profitable on inference" is an unsubstantiated rumour.
Just look at the copilot changes. Demand switching to other providers immediately when prices rise, and there's not even certainty that the new copilot prices cover costs.
> They might not make back the money from training
This is an understatement. With all the datacenter buildout, they need trillions. For the investors get their money back and the bubble to not implode, they functionally need to unemploy everyone in the US.
If the AI dream is real, society just breaks.
If they were, they'd never shut up about it. Yet they keep quiet about the financials.
Home grow a bunch discount them federally, let them wipe the foreign markets.
If AI is threatened by china why would US NOT do the same? If they did they're in a much stronger position to do so than china. Cheaper energy, more cash, stronger industries.
Infrastrucure is thr kind of thing that only a foolish US admin would let fall apart to their advesary.
The supply is currently constrained because 50+% of data center plans were cancelled as a result of the impossibility of the buildouts happening in a timely fashion, and subscriptions are charging a small fraction of the actual cost of inference, leading them to all bleed money, hence the rush to IPO to get one last infusion, since many of the past investors have publicly stated they aren’t putting any more money in until they see an ROI.
In the meantime subscriptions still exist in the form of chatbots and it’s easy to exceed the inference cost of the provider by simply using your daily, weekly, and monthly limits.
The reality is that we just don’t seem to be at a point now where people are willing to pay full price for the perceived value. Perhaps we’ll get there within another generation or two of hardware and software improvements.
So is "unprofitable on inference".
Thankfully we should find out for real as soon as those S-1 documents arrive.
More like $75/mo per user for the next 5-10 years if they can get 5% of the global population to pay that.
They're not and it's not clear why you seem to believe that. The immense capex for buildouts, training costs, etc. are not rolled into inference costs. Moreover, companies are already rapidly starting to re-evaluate token spend.
It will likely take a few years for supply to fully catch up, which means xAI will eat well for a while.
I can see a world where a few data centers come on line this year and reduce margins a bit, but it's crazy to think the margins will go to "cost of electricity plus a few percent" anytime soon.
What's your evidence for this? Because from the S-1, SpaceX is largely an internet service provider that happens to launch rockets and own xAI.
What point are you making?
[1] https://www.businessinsider.com/spacex-ipo-anthropic-paying-...
[2] https://www.nytimes.com/2025/03/11/technology/google-investm...
It's a fairly sweet deal for everyone involved. Anthropic/Google get to sell more tokens and xAI gets a war chest for another bite at the apple. I don't have much confidence that they'll do anything with it but that doesn't mean these deals don't make sense for them.
* LLMs are useful
* Company valuations around LLMs are not realistic
Both can be true, much like they were during the Dotcom bubble. The internet turned out to be a pretty real thing. A couple examples below might feel familiar in the next couple months/years.
> Blucora (then InfoSpace): Founded by Naveen Jain, at its peak its market cap was $31 billion and was the largest Internet business in the American Northwest. In March 2000, its stock price reached $1,305 per share, but by 2002 the price had declined to $2.
> Broadcast.com: A streaming media website that was acquired by Yahoo! for $5.9 billion in stock, making Mark Cuban and Todd Wagner multi-billionaires. The site is now defunct.
> eToys.com: An online toy retailer whose stock price hit a high of $84.35 per share in October 1999. In February 2001, it filed for bankruptcy with $247 million in debt. It was acquired by KB Toys, which later also filed for bankruptcy.
> GeoCities: Founded by David Bohnett, it was acquired by Yahoo! for $3.57 billion in January 1999[20] and was shut down in 2009.
> MicroStrategy: After rising from $7 to as high as $333 in a year, its shares lost $140, or 62%, on March 20, 2000, following the announcement of a financial restatement for the previous two years by founder Michael J. Saylor.
** Some scams transcend time **
Great link: https://en.wikipedia.org/wiki/List_of_companies_affected_by_...
There are also legitimate companies from the dotcom bubble era like amazon, microsoft, and intel. They all were vastly overpriced during the dotcom era. Probably also now lol.
Cisco was over 400 at one point and Nvidia is around 30. Not quite the same.
Other players today: - Digital Realty 48x - Equinix 75x - CoreWeave (still losing money)
There is likely a bubble of some type here, but I don't think this is the same as the Dotcom bubble.
It gets weird when people stop looking at the books and ignore the circularity.
It also increase risk by reducing resiliency.
It's also 'cleaner' then the Nvidia style deals with OAI who are customers.
'Google Finance' is investing in a company.
Just so happens that company leases something to Google. Not so bad.
Nvidia invests in OAI so that money comes right back as sales <- much more conspicuous, looks like 'vendor financing'.
Nvidia is not losing anything if their stock falls.
So whats left? The typical candidates of course: We poor people. 401k, ETF, etc. we pay the bill.
The real suffering comes from whatever effect there is on the rest of the economy due to a recession, more layoffs, etc.
And some others might need to pull out when its down.
Money doesn't appear out of thin air.
Why would it lead to recession if a handful of big companies lose money they have?
It will show that the USA is in a recession for sure, but otherwise
When stocks get bid up, market valuation goes up far more than the amount of money that changed hands. Most of the market cap appears "out of thin air." It's just what people think it's worth.
And when the stock goes down again, it goes back where it came from.
The investors who bought stock at too high a price lose some of the money they put in, but there are others who never paid that price.
In fact [fiat] money does appear out of thin air (well, created by banks when they originate loans) - and has to to support a growing economy. Unfortunately, for various reasons, rather too much has been appearing, and has been funneled to the already wealthy.
Note that a pension plan that invests for you blindly is no better - either the returns are so bad that they are a scam, or they are investing in stocks anyway and so you get the same results but less control. Similar for things like social security, they are either worse options or you need to pump stocks.
A welfare state maybe?
Target funds are diversely managed. This isn’t a real concern.
We are not going to come up with a market-based solution to fix income inequality. The solution, as much as people in the dwindling middle class resist it, is a strong social safety net coupled with a hard reset on taxation and housing policies. Nobody should be homeless, nobody should be allowed to starve, but you might have to accept that your 401K goes down in exchange for a government guarantee of housing and food.
This is hard for people to accept because they currently have equity in their home or a 401K to save them from starving. But those are transient, individualistic solutions. You can lose your house. You can lose your 401K. Society should be taking care of each other in a broader way than letting everyone accumulate a little, private pile of money.
You mean hedge funds and private equity/private credit that all under perform S&P500?
Everyone is so fixated on the winners, that they completely forget (or aren't even aware) that there a many many times more losers.
Also, selling shares puts them in a better position to survive a downturn (more cash, less debt).
Stock buybacks are also a tax trick.
They're just holistically evil and should have never been made legal.
Whatever financial games they play in the background, doesn't matter when you make that much per 2 quarters alone.
https://youtu.be/sL9hq7Qj1qc?t=252
shows why the boat is about to go down.
The sci-fi SpaceX S1 talks about asteroid mining and other imaginary chimeric stuff like space data centers... while 80 to 90 of the case is about AI. But their AI case is like BMW bragging about their thriving auto business...while renting all their car factories to Toyota.
If it looks like a bubble and waddles like a bubble and quacks like a bubble what is it?
This is precisely what makes the movie the Big Short interesting: we see that people did identify, within a reasonable time frame, when people would start defaulting and how that would cascade into a true crisis.
It's pretty clear that while the fruits of AI are quite useful, the entire thing is rife with very questionable financial engineering... but I still don't know what it is that makes all of this break. For example, it's obvious that the SpaceX IPO is a massive wealth transfer program, but it's not obvious that it will immediately end in a crash. Given how irrational the stock market has been, I don't see a reason it can't continue to be irrational for long after the bag has been handed over to the retail investors and retirement funds.
And it is far and away the world leader in satellite launch capacity and satellite internet.
Does that justify the massive valuation? Probably not. But it's a factor.
Who is the smart and who is the idiot?
The one who invested in it $40 or the one who was saying that even at $40 it was already too expensive?
The DDR5 will be registered DIMMs. The GPUs will be 600W paperweights with a custom form factor. Similarly the NICs and other PCI-E accelerators. The motherboards also adopt custom form factors to fit in racks. The hard drives will be using SAS connectors. The flash will be in E1.S form factors.
The server CPUs that you want for a home desktop or small server, high clock SKUs, will be in high demand.
Any savings for someone willing to build a system from second-hand server hardware will be eaten by using adapters or sourcing a rack.
I'm not saying you won't be able to make a slightly outdated frankenserver with more compute than you need, I'm saying that's not going to bring down prices for Grandma's machine that she needs working to check on her retirement account.
It's not even subtle at this point, what with the attempt at S&P rules changes, the insane valuation, the attempt to change the trade-through rule, and more.
Great deal for Google but they end up basically just paying spacex to pay them back, right?
Circular investing is a thing that is happening with all of these companies related to language models. Google hoping for a ROI isn't a great example of that.
The problem is the valuations assume astronomical growth... that is likely impossible for all of them to simultaneously achieve. Which means something's got to give.
Circular deals aren't bad; what's potentially bad is if those deals are misinterpreted by active investores.
Maybe we've come to celebrate unethical behavior and its become so normalized that we forget to ask ourselves what should be allowed.
Government hands Wall Street another bailout to the tune of trillions of dollars. Wall Street executives and hedge funds use funds to enrich themselves as usual. Main Street and tax payer get fisted again. These massive data centers go bust. Get gutted during bankruptcy and foreclosure proceedings Public deals with the fallout with no help from government.
That's a problem for your kids to figure out ~ those currently getting enriched from these schemes.
Bubble bursts, somewhere between 2008 housing crisis and the dotcom bust.
Really dependent on if there are any OTHER structural problems to compound a fast re-valuation of tech stocks. There's plenty of noise about banks holding large amounts of bad private credit debt. There could be a lot or only a little collapse. There's so much uncertainty and the combination of war, high oil prices, and uncertainty about tarriffs that the market struggles to value anything as international fear drives investment into the US and high prices confusing whether growth is growth or just inflation.
Definitive peace in Iran combined with some sort of sobering AI news signaling the end to the infinite growth party could crush the markets.
This and auto loans. I have NO IDEA how people are affording $770 per month car payments _on top of_ $4.50+ per gallon gasoline.
Also the current president of US is Trump and they are in a war that is pumping the energy prices.
Why not bigger than dotcom burst?
Either way, as always, we'll do it the American Way: Privatize the profits, socialize the losses.
Eh. There's too much money. Covid response involved printing a lot of money and it all ended up somewhere. The chaos of the current administration has made everything considerably harder to price and the coincidental rise of the LLM has put us in strange situation that is legitimately difficult to price things correctly.
This is still only big enough to cause funny banking collapses not actual 2008 scale financial disasters. Banks hold a lot of bad debt, but it's isolated from consumer accounts. Might not want to hold equity in SoftBank though.
> There's so much uncertainty and the combination of war, high oil prices, and uncertainty about tarriffs that the market struggles to value anything as international fear drives investment into the US and high prices confusing whether growth is growth or just inflation.
The big concern lies in what the Trump admin will do. Things could end up merely a bad recession, like the Dotcom and Telecom bubble.
Or they can attempt to keep the bubble going once it collapses, crashing interest rates, and doom the US economy.
Banks are lending to these private funds that are packaging questionable loans into securities (as opposed to banks giving loans or companies issuing bonds). This is the post-2008 place for people to get highly leveraged loans and they probably need to be better regulated.
But yes it doesn't seem like private credit alone will cause problems, the concern I'm trying to outline is a few of these things happening at the same time causing a kind of collapse.
TACO uncertainty is strangely propping up asset values as there's always a credible thought that whatever is happening is pretend or going to be reversed soon. And the expectation that the fed isn't independent any more and will make decisions to prolong the bubble resulting in a bigger crash ambiguously far into the future. Few want to start shorting because they have no concept of how long the market can stay irrational or if 20% inflation might be around the corner instead of a popped bubble.
And who gets stuck with the bonds.
A financial crash that will make the 2007ff crisis look tame in comparison. That is why Anthropic, OpenAI and SpaceX (which xAI belongs to) are all going public soon and why NASDAQ bent the rules to include them... the current owners all want to raid pension savings worldwide [1] to get their payday before the bubble inevitably bursts.
And when it bursts, you can bet that the vultures will use their fresh cash to buy up assets at fire-sale prices. For the truly rich, a boom-bust cycle is only one thing, an opportunity to achieve extraordinary profit.
[1] https://news.ycombinator.com/item?id=48369391
The scenario I see is write-offs. At the moment there are hundreds of billions in IOUs being passed around, much more in liabilities than Lehman had back then in 2007. Compounding that is the frankly insane valuation - it's as clear as day that at least one of the major AI shops will go bust, they all run at a (huge) loss and sooner or later, one of them will run out of cash before achieving market dominance.
Unfortunately, OpenAI and Anthropic are valued at almost 1 trillion $ - backed by nothing but the hope on the winner surviving and achieving the classic VC-backed near-monopoly. The staff can be poached, they don't hold much in IP like patents, the servers and GPUs are mostly owned by third parties like AWS, Microsoft, Google or Oracle - once the cash runs out, they can't sell any assets for even some runway extension because there are no assets. Even the model weights and training data aren't worth much - all competitors already have training data sets of their own, it does not make sense to acquire further data, and model weights are being rendered obsolete by the constant churn of open-weight models particularly from China.
SpaceX is valued even higher, but unlike the other two candidates, they still at least got a viable business even if the entire AI BS bubble collapses, Starlink is a money printer and there's no alternative in sight that matches SpaceX and their reusable rockets.
Now, if either of the three even experiences a large drop in valuation for whatever reason, it's not just experienced VCs that can readily afford (and expect) investments to fail, but this time a lot of "everyday" investment vehicles (such as pension funds) will have to issue write-off losses, and now that they are publicly traded, that may also trigger stop-loss cascade orders further dropping prices, and retail investors will probably join in on the mass panic. That's the #1 risk IMHO.
The #2 risk is that after a collapse, the service providers (i.e. the ones owning the servers) will be sitting on a ton of hardware that has nowhere near recouped its cost. AWS, MS and Google can probably repurpose most of the hardware for their own use and rent out what remains, but they will have to eat significant accounting losses, provoking again a drop in their stock price, but this time with even more blast radius as all three of them are established stock index (and thus ETF) members that a looooot of people have exposure to. But someone like Oracle? They might actually get fried for good.
And the #3 risk is further downstream, particularly relating to NVDA. They have enjoyed years of insane profits because they are the only ones making high-performance AI chips. When demand for new chips collapses due to the event(s) I just described, they can easily shift their TSMC production slots back to GPU wafers and sell these to gamers - but at a far lower profit than before, which again can trigger stock price drops and write-offs.
I won't go further downstream - TSMC and their suppliers are IMHO pretty safe because there is just so much pent up demand from everything not AI, and the construction companies building datacenters don't have too much of a blast radius when the big guns stop expansion projects.
The concrete scenario I'm really, really afraid of: all three succeed with their IPOs, maybe they all survive a year and get included even in S&P 500. The existing shareholders and insiders all slowly dump a lot of their vested stock onto the public market, which in cleartext means into the dozens of billions of $ of retirement contributions. One day, the bubble bursts for whatever reason. The stock markets drop in a panic sell-off, either triggered by stop-loss orders or because retail investors are a herd of sheeple (just like in the 1st covid lockdown). Eventually, circuit breakers on the stock markets will trigger (just like they did in the GME post-apes collapse) and trading will pause, but it will resume until the markets have adjusted to the new valuation... and once the dust clears up, there will be a lot of blood on the floor. Possibly even riots, depending just how much retirement assets just got wiped out.
I've been wrong before. However, when was the last time this business model made sense -- that facebook, SpaceX and others, all just pivot from their market niche to general purpose AI datacenter providers.
How on Earth does this make sense?
What happens in a few years when DeepSeek runs on the chinese chips like the Huawei Ascend at a fraction of the cost ?
These are all very high value added companies going into comodity AI hosting and they're all going to make a killing?
Nvidia goes back to being a 100 billion dollar business and everyone else reaps the benefits of cheap tokens.
US is a near monopoly of this pairing. A crash will result in the removal of the fluff and ocerpricing of it all but the stance is beyond strong.
Unless China outcompetes Nvidea AND TSMC AND magically gets 4x cheaper energy they are in a much weaker stance for the long haul.
Yet when we learn of this new $26B in yearly revenue (2.2B/month from Google and Anthropic)the conversation does not return to that discussion. It transforms into:
"xAI's tech sucks"
"Google/SpaceX is Structurally Bad for the Economy"
etc
This is called motivated reasoning. We get new information and instead of the obvious thing, updating prior conclusions, we just find a different way to react negatively. The negative reaction will be achieved. The narrative here is completely polluted by people who dislike Elon/SpaceX.
It was definitely a smart business move. It should be troubling to any shareholder than xAI is unable to utilize this infrastructure as renting it out to competitors.
The shortage I referred to is in GPUs, that's what really being rented here.
Even if GPUs lasted forever, they're are a depreciating asset because they become obsolete with improvements over generations.
GPUs do not last forever, either. I've read here, and heard from others, that they aren't even living up to their 5 year depreciation schedules under production load, closer to 2-3 years.
I use AI all the time. I hope AI isn't short lived. It might be if they can't figure this shit out, or if IPOs like spacex poison public opinion against them first.
Clearly, xAI thinks this is the best way for them to extract value out of their assets.
Also, it is clear that Google and Anthropic both think they can extract more value out of those assets than they will pay in rent to SpaceX.
Hard disagree. It's polluted by Elon in general (pro and con), just like Tesla's idiotic valuation.
But in this case, a pivoted business model fundamentally changes the value proposition, and I'm not clear why "this space company making money on space things is now pretending to be a compute reseller and that's a good thing" is the narrative you think is preferable.
It's also beyond lame to essentially subtweet a "narrative" instead of responding to it directly. Who is "we", aside from a transparently dishonest way to pretend consensus exists?
Edit: from the footnotes: > Colossus actually runs largely on its own on-site gas turbines, which comes out even cheaper: at a simple-cycle heat rate of ~10,000 Btu/kWh and Henry Hub gas at ~$3.50/MMBtu, the fuel bill is only around $90mn a year.
OK, that's crazy. How can I get into renting GPUs to hyperscalers?
They all have various strengths and weaknesses. My favorite is still ChatGPT, then Gemini/Claude, then Grok.
Grok often feels 1-2 generations behind the competition in general use, but it has three things that I love:
1. It seems to be the best at understanding current events. Maybe due to X integration, or some other tool call optimization in the backend? I don't know, but I often ask about things going on, and the other models have outdated info, give unhelpful answers, etc.
2. It is generally the least sycophantic for personal things. Anthropic is getting here too. ChatGPT and Gemini are working on this, but previous models in those families would almost never say anything negative about what I am doing. Sometimes I need career advice, personal advice, etc and I like the tone of how it responds. I think Claude will be caught up soon.
3. For professional work, there are certain topics that other models would refuse to engage with. At my last company we had an enormous amount of legal users. When a deposition would need a summary on certain topics, most models would refuse. Grok would not. I understand the need for safety and I don't blame the other model providers, but for some professional use cases you NEED a model that is capable of handling sensitive subjects.
That makes sense, but occasionally you ask about an issue where it's clearly received political instruction from the commissar and it acts totally lobotomized. But it's true that Gemini will often blithely state that something could never happen and you'll say "what do you mean, that just happened" and then it comes back apologizing after running a Web search.
Grok used to be really really bad ~8 months ago or so, but it's gotten better.
ChatGPT team needs to turn down the 'disagree just because' factor by a lot.
As soon as we hand over searching out information to social media algorithms and LLM tools, we abandon our ability to see reality outside our direct vision.
Grok's ownership has already demonstrated capacity to influence major world elections and other events. You cannot trust it with this sort of information gathering and reporting.
I guess the benchmarks disagree, but whenever I need to find specific information that does not easily show up with a web search, I try chatgpt, gemini and grok. Grok surfaces what I was looking for more often than the others.
Things like "find the github repo from 2017 that does $vague_thing".
Come on, the most logical thing is that Musk overestimated the compute he needs and got lucky with the secondary usage of it.
As soon as the IPO is done and if it didn't fail, he will buy curser and try to push again if he hasn't given up on it.
He also needs some compute for the robotics stuff and for Tesla in-car entertainment and for training FSD.
So they’re cutting edge in that way.
Having a positive set of beliefs annoys people and and can make them feel judged, but at least it provides a vector that points somewhere definite in possibility space.
I guess it’s very possible multiple people are coming up with the same idea at the same time but given this was submitted by the author it seems kinda rude not to mention it.
[1] https://news.ycombinator.com/threads?id=runako#48426082
The datacenter deals came after. But now, the man who promised the world an AI system that defends free speech and is “pro-human”, is instead selling to his competitors and lowering the daily app usage limits of his own Grok by an order of magnitude (really).
If you’re dealing with the world’s richest man, you can predict that money will come before other concerns despite other rhetoric. Interesting strategy though!
Edit: To be fair, they did decide that hardware was "the bottleneck" according to an interview I saw last year. But I firmly believe they underestimated the software problem (and their app was/is riddled with them).
What shall that even mean?
Makes sense. Very difficult to catch OpenAI and Anthropic now since their flywheel of generate revenue, use revenue to buy more compute, train a smarter model with more compute, made it hard to compete.
Being able to supply compute makes more sense for SpaceXAI if you can't compete in SOTA LLMs anymore.
This is where we lack data. I’m skeptical of the claim. If anything will force retirement of old chips, it will be power efficiency, not customers being picky amidst a chip shortage.
Not a good look.
But the short term numbers may oddly provide the emotive juice necessary to fuel the gig "hey, look at their massive revenues!"
Even A100s are still barely available on the major clouds despite being 6 years old.
if the bubble doesn't burst until then...
Moreover they're leasing compute - the actual infra around it is much less important - and how long does anyone expect heavily utilized GPUs to run? How likely is SpaceX to be able to re-lease this compute capacity? It will be broken down or out of date in 2-3 years.
This should be essentially ignored in the long term for SpaceX business prospects, and is low margin business that barely justifies a 10x earnings multiple let along a 100 revenue multiple for the xAI unit.
If that ends up being viable and profitable, there is no realistic competition for decades. In this view, xAI earning a reputation as a reliable AI hyperscaler is just another tactic in that strategy.
Consider the alternative. SpaceX figures out how to build the datacenter in space thing but fails at the rest. That would be an expensive mistake.