I hope the AI strategy of companies like Amazon and Apple is beginning to make more sense. Staying out of trouble sometimes requires a bit more discipline than seems rational to the tech enthusiast community at first glance.
These companies cannot turn on a dime. I would be very surprised if Microsoft isnt secretly developing a doomsday recovery plan right now. They got very deep into Narnia this time. I have a feeling this particular game of musical chairs will end much more abruptly than the prior ones.
It makes perfect sense for Nvidia to own shares of Open AI if one remembers that Open AI is still private.
While I wouldn't invest in Nvidia (not now with the AI bubble liable to pop at any moment) the reason many people have is because they couldn't invest in Open AI (aside from via MSFT which is a less pure AI stock).
So Nvidia investors now get what they wanted all along: exposure to Open AI.
> For OpenAI to actually receive its $100 billion in funding from NVIDIA will require them to spend roughly $325 billion — consisting of $125 billion in data center infrastructure costs and $200 billion in GPUs.
Sounds about right to me. Jensen Huang is playing well not as a business but as a global actor.
In the 2008 housing bust, there were NINJA loans (no income, no job, no assets).
This time around, each GW ai-datacenter costs 40B of which say 20B is debt. The only profits coming out of these data centers are through the ad business models for meta and google, and the cloud business models for the hyperscalers. The rest is funded by equity or debt or capex. It seems likely that the tax-payer will be on the hook for the debt down the road given how ai datacenters are being projected as critical infrastructure - because - the profitability of the new investments are yet unproven and speculative.
AI investment is more like an infrastructure investment. The telecom boom was the same, and so was the cloud boom, and to some extent, the dotcom boom too.
> Intertwined
And that is the _point_, this same pattern existed in all those previous instances too. OpenAI/Stargate and so on are just "fronts" for a team effort investment into building wildly unprofitable infrastructure costing upwards of 1T. e.g Saudi does not give a hoot about LLM technology itself, its just that there is infra being built, and once it is done, it will lock in energy demand in a massive way, and so it makes sense to help build this infra. Similarly for nvidia/gpus, which is why they invest in openai and such.
All the money people are dumping into this now, will be made back on the millions of small million dollar companies that will build products on top of this infrastructure, once it is built (which causes the money to move out of this and onto those smaller product companies - this is the market crashing/bubble bursting). I don't need to point you at the various SaaS/whatever companies making a killing on top of the extremely unprofitable cloud investments of the past, or the absolutely insane economic reach telecom has enabled today.
During this push to build the infrastructure, there will be a lot of short-term investors trying to make easy cash by greater-fool investing -- they have no intention of staying and building product companies after the crash. A portion of these that don't anticipate the crash's timing will lose lots of money.
Unfortunately, if Wall St. and such package this debt along with other debt that is bought by institutional investors/bonds/pensions, or if these guys and other wide-reaching funds buy the volatile debt themselves, then everyone who is connected to that (including grandma, including aunt's house) is exposed to that risk. This is what will decide whether it's going to be a tech bubble problem or a financial crisis.
And almost surely, the job market will dive for a while [1], since jobs depend on cash flow, and cash flow will dry up in the time period between the "infra building" state, and the "now we have high-margin products on this infra" state.
[1] The key thing is, and this is the primary problem, what "a while" is, is dependent on broader factors. The ability to pick up pace again after a bubble bursts will be dependent on the general economic health of involved countries as a whole. This is because job market diving leads to consumer/real estate/etc etc falling i.e wide reaching negative feedback loop = "macro slowdown"
12 comments
[ 3.8 ms ] story [ 35.8 ms ] threadEverybody's valuation depends on everybody else's valuation and a bad revelation takes everything down.
These companies cannot turn on a dime. I would be very surprised if Microsoft isnt secretly developing a doomsday recovery plan right now. They got very deep into Narnia this time. I have a feeling this particular game of musical chairs will end much more abruptly than the prior ones.
While I wouldn't invest in Nvidia (not now with the AI bubble liable to pop at any moment) the reason many people have is because they couldn't invest in Open AI (aside from via MSFT which is a less pure AI stock).
So Nvidia investors now get what they wanted all along: exposure to Open AI.
Sounds about right to me. Jensen Huang is playing well not as a business but as a global actor.
In the 2008 housing bust, there were NINJA loans (no income, no job, no assets). This time around, each GW ai-datacenter costs 40B of which say 20B is debt. The only profits coming out of these data centers are through the ad business models for meta and google, and the cloud business models for the hyperscalers. The rest is funded by equity or debt or capex. It seems likely that the tax-payer will be on the hook for the debt down the road given how ai datacenters are being projected as critical infrastructure - because - the profitability of the new investments are yet unproven and speculative.
> Intertwined
And that is the _point_, this same pattern existed in all those previous instances too. OpenAI/Stargate and so on are just "fronts" for a team effort investment into building wildly unprofitable infrastructure costing upwards of 1T. e.g Saudi does not give a hoot about LLM technology itself, its just that there is infra being built, and once it is done, it will lock in energy demand in a massive way, and so it makes sense to help build this infra. Similarly for nvidia/gpus, which is why they invest in openai and such.
All the money people are dumping into this now, will be made back on the millions of small million dollar companies that will build products on top of this infrastructure, once it is built (which causes the money to move out of this and onto those smaller product companies - this is the market crashing/bubble bursting). I don't need to point you at the various SaaS/whatever companies making a killing on top of the extremely unprofitable cloud investments of the past, or the absolutely insane economic reach telecom has enabled today.
During this push to build the infrastructure, there will be a lot of short-term investors trying to make easy cash by greater-fool investing -- they have no intention of staying and building product companies after the crash. A portion of these that don't anticipate the crash's timing will lose lots of money.
Unfortunately, if Wall St. and such package this debt along with other debt that is bought by institutional investors/bonds/pensions, or if these guys and other wide-reaching funds buy the volatile debt themselves, then everyone who is connected to that (including grandma, including aunt's house) is exposed to that risk. This is what will decide whether it's going to be a tech bubble problem or a financial crisis.
And almost surely, the job market will dive for a while [1], since jobs depend on cash flow, and cash flow will dry up in the time period between the "infra building" state, and the "now we have high-margin products on this infra" state.
[1] The key thing is, and this is the primary problem, what "a while" is, is dependent on broader factors. The ability to pick up pace again after a bubble bursts will be dependent on the general economic health of involved countries as a whole. This is because job market diving leads to consumer/real estate/etc etc falling i.e wide reaching negative feedback loop = "macro slowdown"