Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

nytimes.com

Post reply on HN
Print view View original

161–170 of 428 posts

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

#161

Post by bwfan123 »

crazygringo wrote: post #134
bwfan123 wrote: post #118

Earlier quoted context omitted.

These deals happen all the time. The case for a bubble is the following. When Microsoft offers cloud-credits in exchange for openai equity, what it has effectively done is to purchase its own azure revenues. ie, a company uses its own cash to purchase its own revenues. This produces an illusion of revenue growth which is not economically sustainable. This is happening for all clouds right now wherein their revenues a…

But nobody is falling for the "illusion of revenue growth". This is out in the open. This isn't a scam. Investors know this and are pricing accordingly. They see the revenue growth but also see the decrease in cash. What Microsoft is actually doing is taking the large profits it would have otherwise made on its cloud compute with retail customers, losing much/all of those profits as it sells the compute more cheaply…

There will be increased transparency since microsoft will now have to report on the performance of its openai equity [1]. The concern is that while chatgpt is a great app, the economic benefits of the current investments are being questioned. There is starting to be skepticism of ai as the public starts to get jaded. This happens in all fads. That explains why the media is buzzing with articles like these which are becoming increasingly critical while earlier they were all aboard the ai-train.

[1] https://news.ycombinator.com/item?id=45719669

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

#162

Post by otherjason »

DenisM wrote: post #152
Arkhaine_kupo wrote: post #61

Earlier quoted context omitted.

> 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 possi…

OpenAI invests heavily into integration with other products. If model development stalls they just need to be not worse than other stalled models while taking advantage of brand recognition and momentum to stay ahead in other areas. In that sense it makes sense to keep spending billions even f model development is nearing diminishing return - it forces competition to do the same and in that game victory belongs to th…

But, if model development stalls, and everyone else is stalled as well, then what happens to turn the current wildly-unprofitable industry into something that "it makes sense to keep spending billions" on?

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

#163

Post by gilleain »

powerhouse007 wrote: post #114
J_McQuade wrote: post #96

Earlier quoted context omitted.

There is something about an argument made almost entirely out of metaphors that amuses me to the point of not being able to take it seriously, even if I actually agree with it.

As much as I dislike metaphors, this sounded reasonable to me. Just don't go poking holes in the metaphor instead of the real argument.

Indeed, poking holes in the metaphor is like putting a pin in a balloon, rather than knocking it out of the park by addressing the real argument.

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

#164

Post by schnitzelstoat »

anonymousiam wrote: post #153
randomNumber7 wrote: post #145

Earlier quoted context omitted.

The winner takes it all, so it is reasonable to bet big to be the one.

The one what? What is the secret sauce that will distinguish one LLM from another? Is it patentable? What's going to prevent all of the free LLMs from winning the prize? An AI crash seems inevitable.

It could end up like Search did, at first you had Lycos, AskJeeves, Altavista etc. and then Google became absolutely dominant.

They want to be the Google in this scenario.

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

#165

Post by 0xbadcafebee »

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…

Eventually when ChatGPT replaces Google Search, they will run ads, and so have that whole revenue stream. Still isn't enough money to buy the trillions worth of infrastructure they want, but it might be enough to keep the lights on.

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

#166

Post by SecretDreams »

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…

> I have some faith it could go another way.

I wonder how they felt during the .com era.

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

#167

Post by bgwalter »

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…

Dotcom scams included "vendor financing", where telecom equipment providers invested in their customers who built infrastructure:

https://time.com/archive/6931645/how-the-once-luminous-lucen...

The customers bought real equipment that was claimed to be required for the "exponential growth" of the Internet. It is very much like building data centers.

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

#168

Post by runarberg »

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…

Wasn’t there also a bunch of telecom infrastructure created in the dot-com bubble, tangible products created, etc? Things like servers, telephone wires, underwater internet cables, tech-storefronts, internet satellites, etc.

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

#169

Post by OtherShrezzing »

guywithahat wrote: post #140
nova22033 wrote: post #117

Related https://www.theregister.com/2025/10/29/microsoft_earnings_q1... Microsoft seemingly just revealed that OpenAI lost $11.5B last quarter

It's incredible how Tesla used to lose a few hundred million a year and analysis shows would freak out claiming they'd never be profitable. Now Rivian can lose 5 billion a year and I don't hear anything about it, and OpenAI can lose 11 billion in a quarter and Microsoft still backs them. I do think this is going to be a deeply profitable industry, but this feels a little like the WeWork CEO flying couches to offices…

>and OpenAI can lose 11 billion in a quarter and Microsoft still backs them.

For Microsoft, and the other hyperscalers supporting OpenAI, they're all absolutely dependent on OpenAI's success. They can realistically survive through the difficult times, if the bubble bursts because of a minor player - for example if Coreweave or Mistral shuts down. But if the bubble bursts because the most visible symbol of AI's future collapses, the value-destruction for Microsoft's shareholders will be 100x larger than OpenAI's quarterly losses. The question for Microsoft is literally as fundamental as "do we want to wipe $1tn off our market cap, or eat $11bn losses per quarter for a few years?" and the answer is pretty straightforward.

Altman has played an absolute blinder by making the success of his company a near-existential issue for several of the largest companies to have ever existed.

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

#170

Post by suddenlybananas »

parineum wrote: post #132
gitremote wrote: post #74

Earlier quoted context omitted.

> Reality lies in the middle The argument to moderation/middle ground fallacy is a fallacy. https://en.wikipedia.org/wiki/Argument_to_moderation

Not really. The idea that reality lies _in_ the middle is fairly coherent. It's not, on it's face, absolutely true but there are and infinite number of options between two outcomes so the odds are overwhelmingly in the favor that the truth lies somewhere in between. Is either side totally right about every single point of contention between them? Probably not, so the answer is likely in the middle. The fallacy is a l…

>infinite number of options between two outcomes so the odds are overwhelmingly in the favor that the truth lies somewhere in between

This is totally fallacious.

Post reply on HN