Ouch, investment in GPU isn't a one off, you also need to invest newer generations (that naturally comes with a bigger price tag) to attract customers long term. How will this business ever become profitable before the bubble bursts?
Before Tuesday the plan was to get a bailout from their buddies in the White House on "national security" grounds. That became much less viable now that Trump is a lame duck and anti-datacenter ballot measures passed everywhere, which is probably why e.g. CoreWeave is down 20% since the election.
Of course there's still a big demand as there are massive plans on building AI DC all over the planet, but at the same time this are supposedly not an anomaly - wouldn't most customers eventually want newer gear (or reduction in cost)?
We have some idea about the demand. As a data point, the cloud hyperscalers have in aggregate 2.3T in backlogs or “Remaining Performance Obligations” — i.e. payments committed by customers for remaining services provided over the next few years — of which about ~1T is from OpenAI and Anthropic. That still leaves 1.3T from other customers.
As another data point, these backlogs were at ~0.5T in 2022, before the AI boom started. Google for instance registered a 390% growth YoY in backlogs.
That’s not too far from the trillions being invested in the buildout.
I would say the irrationality of this buildout is exaggerated. It makes more sense to look at it as these companies making an existential bet on their futures.
There is a big question on the ROI of those customers. It's clear that the frontier labs are delivering something people care about, but how much do the tier 2 labs deliver that people are paying for now?
Ouch, investment in GPU isn't a one off, you also need to invest newer generations (that naturally comes with a bigger price tag) to attract customers long term. How will this business ever become profitable before the bubble bursts?
Before Tuesday the plan was to get a bailout from their buddies in the White House on "national security" grounds. That became much less viable now that Trump is a lame duck and anti-datacenter ballot measures passed everywhere, which is probably why e.g. CoreWeave is down 20% since the election.
Given the average bubble-prediction accuracy, there might as well be a few centuries before it bursts. Which would give some time.
You're somewhat assuming there aren't customers lined up wanting capacity.
Of course there's still a big demand as there are massive plans on building AI DC all over the planet, but at the same time this are supposedly not an anomaly - wouldn't most customers eventually want newer gear (or reduction in cost)?
To what extent is that demand from frontier labs? Purportedly, Anthropic is a significant chunk of GCP rev.
How much runway will the creditors give those labs until they expect a ROI?
The financial underpinning the AI build out make zero sense, but we've seen the market remain irrational for long periods of time.
We have some idea about the demand. As a data point, the cloud hyperscalers have in aggregate 2.3T in backlogs or “Remaining Performance Obligations” — i.e. payments committed by customers for remaining services provided over the next few years — of which about ~1T is from OpenAI and Anthropic. That still leaves 1.3T from other customers.
As another data point, these backlogs were at ~0.5T in 2022, before the AI boom started. Google for instance registered a 390% growth YoY in backlogs.
That’s not too far from the trillions being invested in the buildout.
I would say the irrationality of this buildout is exaggerated. It makes more sense to look at it as these companies making an existential bet on their futures.
You don't address circular financing at all.
At what price? I would have unlimited customers lined up selling dollars for 50ct.
There is a big question on the ROI of those customers. It's clear that the frontier labs are delivering something people care about, but how much do the tier 2 labs deliver that people are paying for now?
"UUUAAAAHHHH!!!"
That was the sound of Ed Zitron ghost....
This is a nothingburger. Microsoft declining to renew a deal for 2023 A100s that power Bing because they want newer chips in house.
Oracle can re-rent them at spot at a higher price anyway.
Apparently a lot of market participants are too scared to be able to read today.