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How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

nytimes.com

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Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#61

Post by Arkhaine_kupo »

zemvpferreira wrote: post #44
jacquesm wrote: post #17

These kinds of deals were very much a la mode just prior to the .com crash. Companies would buy advertising, then the websites and ad agencies would buy their services and they'd spend it again on advertising. The end result is immense revenues without profits.

There’s one key difference in my opinion: pre-.com deals were buying revenue with equity and nothing else. It was growth for growth’s sake. All that scale delivered mostly nothing. OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go anot…

> they’re using their equity to buy compute that is critical to improving their core technology

But we know that growth in the models is not exponential, its much closer to logarithmic. So they spend =equity to get >results.

The ad spend was a merry go round, this is a flywheel where the turning grinds its gears until its a smooth burr. The math of the rising stock prices only begins to make sense if there is a possible breakthrough that changes the flywheel into a rocket, but as it stands its running a lemonade stand where you reinvest profits into lemons that give out less juice

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#62

Post by crazygringo »

jpollock wrote: post #51
crazygringo wrote: post #39

This is such a strange article -- there's nothing particularly unusual going on here. The first example basically stands in for all of them -- Microsoft invests $13B in OpenAI, and OpenAI spends $13B on Azure. This is literally just OpenAI purchasing Microsoft cloud usage with OpenAI's stock rather than its cash . There is nothing unusual, illicit, or deceptive about this. This is entirely normal. You can finance you…

The last time this hit the news, it was the dotcom bubble, and Nortel was in a similar position with startups, taking equity for equipment.

No, that's not the last time this hit the news. This happens literally all the time. Again, this is just business as usual. It's not specific to AI, it's not specific to tech, and it's nothing to do with bubbles.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#63

Post by ignoramous »

zemvpferreira wrote: post #44
jacquesm wrote: post #17

These kinds of deals were very much a la mode just prior to the .com crash. Companies would buy advertising, then the websites and ad agencies would buy their services and they'd spend it again on advertising. The end result is immense revenues without profits.

There’s one key difference in my opinion: pre-.com deals were buying revenue with equity and nothing else. It was growth for growth’s sake. All that scale delivered mostly nothing. OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go anot…

> There’s one key difference in my opinion

The other difference (besides Sam's deal making ability) is, willing investors: Nvidia's stock rally leaves it with a LOT of room to fund big bets right now. While in Oracle's case, they probably see GenAI as a way to go big in the Enterprise Cloud business.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#64

Post by tehjoker »

bob1029 wrote: post #55
embedding-shape wrote: post #34

Earlier quoted context omitted.

Why is ML knowledge "in the engineers" while chip manufacturing apparently sits in the company/hardware/something else than the engineers/humans?

One person can implement a transformer model from scratch in a weekend. Hardware is not the valuable part of machine learning. Data and how it is used are. The "magic of AI" doesn't live inside an Nvidia GPU. There are billions of dollars of marketing being deployed to convince you it does. As soon as the market realizes that nvidia != magic AI box, the music should stop pretty quickly.

That's true, but without the kind of horsepower provided by modern hardware, even though I'm skeptical that it's all needed, especially given DeepSeek's amazing results, AI would be nearly impossible.

There are some important innovations on the algorithm / network structure side, but all these ideas are only able to be tried because the hardware supports it. This stuff has been around for decades.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#65

Post by pols45 »

vmg12 wrote: post #37

Here is a charitable perspective on what's happening: - Nvidia has too much cash because of massive profits and has nowhere to reinvest them internally. - Nvidia instead invests in other companies that use their gpus by providing them deals that must be spent on nvidia products. - This accelerates the growth of these companies, drives further lock in to nvidia's platform, and gives nvidia an equity stake in these com…

Yup. Not just Nvidia. Just look at the quarterly results reported by Amazon, Google, Meta, Microsoft and Apple. Each one is reporting revenues never before seen in history. If you make 100 Billion a quarter you have to spend it on something.

These guys are running hyper optimized cash extraction mega machines. There is no comparison to previous bubbles, cause so no such companies ever existed in the past.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#67

Post by embedding-shape »

tonyarkles wrote: post #53
embedding-shape wrote: post #34

Earlier quoted context omitted.

Why is ML knowledge "in the engineers" while chip manufacturing apparently sits in the company/hardware/something else than the engineers/humans?

First-order: because of the capex and lead times. If you grab a bunch of world-class ML folks and put them in a room together, they're going to be able to start producing world-class work together. If you grab a bunch of world-class chip designers in the same scenario but don't have world-class fabs for them to use, they're not going to be able to ship competitive designs.

> If you grab a bunch of world-class chip designers in the same scenario but don't have world-class fabs for them to use, they're not going to be able to ship competitive designs.

But why such an unfair comparison?

Instead of comparing "skilled people with hardware VS skilled people without hardware", why not compare it to "a bunch of world-class ML folks" without any computers to do the work, how could they produce world-class work then?

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#68

Post by vmg12 »

Eisenstein wrote: post #54
vmg12 wrote: post #37

Here is a charitable perspective on what's happening: - Nvidia has too much cash because of massive profits and has nowhere to reinvest them internally. - Nvidia instead invests in other companies that use their gpus by providing them deals that must be spent on nvidia products. - This accelerates the growth of these companies, drives further lock in to nvidia's platform, and gives nvidia an equity stake in these com…

Your conclusion about training being the cost factor that will eventually align with profitability in the inference phases relies on training new models not being an endless arms race.

If the inference is profitable and training new models is actually an endless arms race that's actually the best outcome for nvidia specifically.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#69

Post by afavour »

ignoramous wrote: post #63
zemvpferreira wrote: post #44

Earlier quoted context omitted.

There’s one key difference in my opinion: pre-.com deals were buying revenue with equity and nothing else. It was growth for growth’s sake. All that scale delivered mostly nothing. OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go anot…

> There’s one key difference in my opinion The other difference (besides Sam's deal making ability) is, willing investors: Nvidia's stock rally leaves it with a LOT of room to fund big bets right now . While in Oracle's case, they probably see GenAI as a way to go big in the Enterprise Cloud business.

> Nvidia's stock rally leaves it with a LOT of room to fund big bets right now

And then what happens if the stock collapses?

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#70

Post by orochimaaru »

jacquesm wrote: post #17

These kinds of deals were very much a la mode just prior to the .com crash. Companies would buy advertising, then the websites and ad agencies would buy their services and they'd spend it again on advertising. The end result is immense revenues without profits.

Gita Gopinath (imf’s economist) sounded the alarm on the scale of this - https://www.afr.com/wealth/investing/the-crash-that-could-to...
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