That and the 3-way "OpenAI pays Oracle $300B in cloud computing on their $15B of revenue", "Oracle buys $40B of NVidia chips for their new datacenter", "NVidia invests $100B in OpenAI". The money's just moving around and around, propping up revenue numbers for Wall Street, but the consumer benefits are dubious.
And how much of the money even exists. I remember earlier in the year Altman saying they were spending $500bn on the Stargate project and Must saying he had less than $10bn in actual funds.
It wouldn't surprise me if much of the $1tn most doesn't turn up and the bubble bursts before 1/10th or that becomes real.
Sure - but nothing driving up revenue value is actually being created[1]. What's missing in that system is a way that money is entering the system. These deals are (in my cynical opinion at least) being inked to create the appearance of large continued investment and market excitement to pump or sustain valuations. Oracle actually spotlit the arrangement as future sales in their recent earnings and that seemed to be what mostly drove their valuation up.
Performative actions to drive up valuation and try and attract more investors absolutely feels bubbly to me.
1. Discounting products that are not only currently operating at a loss but are priced well below actual resourcing required to produce.
Customers pay for the compute. There are tons of CSPs selling the capacity to small and large consuming entities alike (both OpenAI/Anthropic + other small outfits we've not heard of).
The fair criticism of the infra $ is where the non-VC non-bank-loan cash stream is, but there could be a lot of B2B deals and e.g. Meta, TikTok and other behemoths do tend to make plenty of money and pay their bills, and have extreme thirst for more AI capacity.
Take Oracle for example (as a whole, not just OCI) - tons of customers who are paying for AI-enhanced enterprise products.
It's still the early days, as the cost of creating software continues to approach zero the rules will change in ways which are hard to predict. The effect this will have on other white collar industries is even more challenging to reason about.
That line of reasoning conveniently left out the explosive datacenter revenue growth that generates huge free cash flows. Even disregarding AI, it's double-digit compounding growth.
NVIDIA's stock may eventually get decimated (but the company itself will be fine, they have a relatively low employee account and insane margins), the Coreweaves of the world are definitely leveraged plays on compute and may indeed end up being DotCom style busts, but a key difference is that the driving forces at the very top - the Microsofts and Amazons of the world - have huge free cash flows, real compute demand growth beyond the AI space, and fortress balance sheets.
I think that's a fair point and sort of speaks to one of the indicators that say this possible bubble may be different than the dotcom bubble. I think that end-user revenue for AI is a pipe-dream - but the companies interested in compute have a whole lot of resources and so long as they are willing to divert those resources to prop up AI it can keep going for quite a while (at a smaller scale though).
There is a commonly held belief that there is a level of compute (vaguely referred to as AGI) that would be extremely valuable and those companies may continue to rationally fund AI research as R&D though if the VC and loan funding dries up there will probably be serious fights with the accounting departments. It is good to point out that companies with huge war chests do seem poised to continue investing in this even if VC/etc dries up due to the lack of end-user profitability - it'll be an interesting shift but probably not as disastrous as the dot-com bubble burst was.
>What's missing in that system is a way that money is entering the system.
Or maybe not enough money soon enough, and at this scale that could be more of a disaster than it had to be.
So far it's not looking like a business boom much at all compared to the massive investment boom which is undeniable, and that's where a good amount of remaining prosperity is emanating from.
If you were a financial person wouldn't you figure there were a lot bigger bonuses by getting involved with the amount of cash flow being invested rather than the amount resulting from profits being made in AI right now?
We do, because they've already done that stuff. You're talking about whether any of the 3 people will be able to get more money in afterwards, which seems like a separate issue to this.
It's more like you offering to invest $1bn in Fred's company in return for a promise to spend $1bn for sink fixing services. You could question if there is a demand or $1bn of sink fixing in the same way that you could wonder about the demand for $100bn of AI slop.
Investing is just an equivalent value exchange. My point is that while you could say in my example that money just moved around in a circle, it turns out that money moving around in a circle is actually fine.
I agree money in a circle is fine. But in your example there is a straightforward situation of an end customer paying money for a service, eg. getting a sink fixed. The worry with the data centers is will there be enough end customers willing to pay what the data centers cost.
There's nVidia that we know (primarily graphics cards) and more like an investment firm "nVidia" these days. The stocks have grown so much that they are trying to turn their fortunes around (to sustain growth) by investing everywhere.
nVidia has invested in so many companies in the ecosystem and beyond.
What about the NVidia/OpenAI deal? Such a giant investment in a huge customer looks a heck of a lot like "circular dealing". That is, invest $100 million so your biggest customer can spend a ton of that on your own chips. You get to report skyrocketing revenue but that revenue was bought with your own money.
If the AMD/OpenAI deal means that OpenAI will put serious work into making AMD GPUs finally be more amenable to general purpose computing, it's actually a huge win for AMD. None of the major numerical computing frameworks (PyTorch, TensorFlow, JAX, etc.) work as well on AMD GPUs versus NVIDIA GPUs, and that's really holding AMD back from making inroads into the machine learning space.
If this means that compute is considerably cheaper for OpenAI, it's a win for them too. But that remains to be seen.
That and the 3-way "OpenAI pays Oracle $300B in cloud computing on their $15B of revenue", "Oracle buys $40B of NVidia chips for their new datacenter", "NVidia invests $100B in OpenAI". The money's just moving around and around, propping up revenue numbers for Wall Street, but the consumer benefits are dubious.
https://www.nbcnews.com/business/economy/openai-nvidia-amd-d...
Just now on NPR - Open AI has inked $1T over this year. Remember the times when $1B were a serious money?
Remember a year and a half ago when we all scoffed at the prospect of multi-trillion dollar global AI infrastructure build out? Now it's happening.
How much is dumb money, though? That's the real question which remains highly relevant post dotcom bust.
And how much of the money even exists. I remember earlier in the year Altman saying they were spending $500bn on the Stargate project and Must saying he had less than $10bn in actual funds.
It wouldn't surprise me if much of the $1tn most doesn't turn up and the bubble bursts before 1/10th or that becomes real.
Does that matter anymore? The stock market no longer serves as a tool to help allocate resources, it operates more like a Casino now.
If the money is leaving the system slow enough (via Employee wages and materials for chip manufacturing) I suppose it can go on for quite some time.
Sure - but nothing driving up revenue value is actually being created[1]. What's missing in that system is a way that money is entering the system. These deals are (in my cynical opinion at least) being inked to create the appearance of large continued investment and market excitement to pump or sustain valuations. Oracle actually spotlit the arrangement as future sales in their recent earnings and that seemed to be what mostly drove their valuation up.
Performative actions to drive up valuation and try and attract more investors absolutely feels bubbly to me.
1. Discounting products that are not only currently operating at a loss but are priced well below actual resourcing required to produce.
Customers pay for the compute. There are tons of CSPs selling the capacity to small and large consuming entities alike (both OpenAI/Anthropic + other small outfits we've not heard of).
The fair criticism of the infra $ is where the non-VC non-bank-loan cash stream is, but there could be a lot of B2B deals and e.g. Meta, TikTok and other behemoths do tend to make plenty of money and pay their bills, and have extreme thirst for more AI capacity.
Take Oracle for example (as a whole, not just OCI) - tons of customers who are paying for AI-enhanced enterprise products.
It's still the early days, as the cost of creating software continues to approach zero the rules will change in ways which are hard to predict. The effect this will have on other white collar industries is even more challenging to reason about.
That line of reasoning conveniently left out the explosive datacenter revenue growth that generates huge free cash flows. Even disregarding AI, it's double-digit compounding growth.
NVIDIA's stock may eventually get decimated (but the company itself will be fine, they have a relatively low employee account and insane margins), the Coreweaves of the world are definitely leveraged plays on compute and may indeed end up being DotCom style busts, but a key difference is that the driving forces at the very top - the Microsofts and Amazons of the world - have huge free cash flows, real compute demand growth beyond the AI space, and fortress balance sheets.
I think that's a fair point and sort of speaks to one of the indicators that say this possible bubble may be different than the dotcom bubble. I think that end-user revenue for AI is a pipe-dream - but the companies interested in compute have a whole lot of resources and so long as they are willing to divert those resources to prop up AI it can keep going for quite a while (at a smaller scale though).
There is a commonly held belief that there is a level of compute (vaguely referred to as AGI) that would be extremely valuable and those companies may continue to rationally fund AI research as R&D though if the VC and loan funding dries up there will probably be serious fights with the accounting departments. It is good to point out that companies with huge war chests do seem poised to continue investing in this even if VC/etc dries up due to the lack of end-user profitability - it'll be an interesting shift but probably not as disastrous as the dot-com bubble burst was.
> as the cost of creating software continues to approach zero
"continues " is inaccurate. The cost of creating software is nowhere near approaching zero
In Sam's dreams, perhaps.
>What's missing in that system is a way that money is entering the system.
Or maybe not enough money soon enough, and at this scale that could be more of a disaster than it had to be.
So far it's not looking like a business boom much at all compared to the massive investment boom which is undeniable, and that's where a good amount of remaining prosperity is emanating from.
If you were a financial person wouldn't you figure there were a lot bigger bonuses by getting involved with the amount of cash flow being invested rather than the amount resulting from profits being made in AI right now?
Money leaves the system rather fast in energy costs if nothing else.
It's like you paying me to fix your sink, me paying Fred to build me a shed, and Fred paying you to fix his wifi.
No, the problem here would be we don't know if anybody actually need wifi, a shed or his sink to be repaired.
We do, because they've already done that stuff. You're talking about whether any of the 3 people will be able to get more money in afterwards, which seems like a separate issue to this.
It's more like you offering to invest $1bn in Fred's company in return for a promise to spend $1bn for sink fixing services. You could question if there is a demand or $1bn of sink fixing in the same way that you could wonder about the demand for $100bn of AI slop.
Investing is just an equivalent value exchange. My point is that while you could say in my example that money just moved around in a circle, it turns out that money moving around in a circle is actually fine.
I agree money in a circle is fine. But in your example there is a straightforward situation of an end customer paying money for a service, eg. getting a sink fixed. The worry with the data centers is will there be enough end customers willing to pay what the data centers cost.
> The money's just moving around and around
There's nVidia that we know (primarily graphics cards) and more like an investment firm "nVidia" these days. The stocks have grown so much that they are trying to turn their fortunes around (to sustain growth) by investing everywhere.
nVidia has invested in so many companies in the ecosystem and beyond.
Do they diversify? Is Nvidia buying VXUS?
What about the NVidia/OpenAI deal? Such a giant investment in a huge customer looks a heck of a lot like "circular dealing". That is, invest $100 million so your biggest customer can spend a ton of that on your own chips. You get to report skyrocketing revenue but that revenue was bought with your own money.
If the AMD/OpenAI deal means that OpenAI will put serious work into making AMD GPUs finally be more amenable to general purpose computing, it's actually a huge win for AMD. None of the major numerical computing frameworks (PyTorch, TensorFlow, JAX, etc.) work as well on AMD GPUs versus NVIDIA GPUs, and that's really holding AMD back from making inroads into the machine learning space.
If this means that compute is considerably cheaper for OpenAI, it's a win for them too. But that remains to be seen.
The pivot all the companies made to TikTok style video shitpost apps felt like that too. The ideas are running out and they need a money maker now.
This also has gigantic impact potential. Imagine if Lehman Brothers only had one competitor, and they were also at risk to be seriously impacted.