> 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?
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.
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.
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.
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.
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).
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.
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?
> 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?
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.
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.
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.
> 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.
> 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
> 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.
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.
> 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.
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.
> 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.
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.
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.
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?
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.
* 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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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".
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.
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.
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
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.
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?
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.
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.
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.
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.
> 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.
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.
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.
> 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?
Someone gets bailed out and the cycle starts again. Isnt this how it works?
Hyperinflation to make the needed bailout money
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.
When the music stops we could start buying hardware again at rational prices.
The awkward silence at this critical point of this interview...
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.
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.
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.
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.
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.
If Alphabet can afford it why are they issuing $80B in new shares for fresh capital?
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).
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.
What's circular?
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?
A lot of people are emotionally unprepared for a world where the music doesn't stop.
> 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?
>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.
Unprepared for a world that’s replaced French peasantry with strapping an Xbox to your face.
Lines very rarely go straight for forever, but still often longer than expected.
“It’s different this time”
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.
> What happens when the music stops?
That's a problem for your kids to figure out ~ those currently getting enriched from these schemes.
>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.
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?
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.
> 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.
> 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.
[1] https://news.ycombinator.com/item?id=48369391
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
> 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.
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.
> 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.
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.
I can sell the tomatoes in my garden for twice the price of those in the supermarket and still make massive loses.
> "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.
> 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.
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.
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.
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?
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.
I thought it was mostly capital costs (chips), not operating costs (electricity).
There is a footnote in the article does the math. It concludes, "power is no more than about 1% of revenue."
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.
** Some scams transcend time **
Great link: https://en.wikipedia.org/wiki/List_of_companies_affected_by_...
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.
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.
Btw how much is MicroStrategy down since the year 2000?
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.
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.
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.
They have developed an LLM, so they are an AI lab, but the quality of that model suggests they're not a frontier anything.
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.
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.
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.
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
[delayed]
What are you using it for? Im pretty surprised ChatGPT is your top model but maybe you arent using it for code.
But in terms of agentic coding? Dead last.
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.
My SO works in audit/compliance and business Gemini definitely does not refuse to answer.
Career and personal advice from LLMs, not sure if thats your best bet
> 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".
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.
Can you give a specific example (that doesn't violate any privacy you want to protect)?
Isnt that more Perplexitys thing anyways?
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.
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."
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.
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.
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.
Grok isn't at the front of the frontier, but they are there for sure.
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.
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
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.
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?
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.
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.
Same idea expressed by a commenter here 2 days ago: https://news.ycombinator.com/item?id=48426082
for people, like me, who aren't familiar with the acronym: REIT = real estate investment trust
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.
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.
> 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...
or, could be they pivoted to cover the expenses?
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.
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.