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xAI is looking more like a datacentre REIT than a frontier lab

martinalderson.com

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Re: xAI is looking more like a datacentre REIT than a frontier lab

#41

Post by treis »

raducu wrote: post #23
bpodgursky wrote: post #9

Earlier quoted context omitted.

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…

>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.

Re: xAI is looking more like a datacentre REIT than a frontier lab

#44

Post by skybrian »

stefan_ wrote: post #17
treis wrote: post #14

Earlier quoted context omitted.

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.

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.

I thought it was mostly capital costs (chips), not operating costs (electricity).

Re: xAI is looking more like a datacentre REIT than a frontier lab

#45

Post by SlinkyOnStairs »

treis wrote: post #14
TSiege wrote: post #6

> 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?

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.

Re: xAI is looking more like a datacentre REIT than a frontier lab

#46

Post by hmontazeri »

> 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...

Re: xAI is looking more like a datacentre REIT than a frontier lab

#47

Post by SlinkyOnStairs »

colechristensen wrote: post #34
TSiege wrote: post #6

> 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?

>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…

> 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.

Re: xAI is looking more like a datacentre REIT than a frontier lab

#48

Post by deaton »

leetharris wrote: post #15
hawkice wrote: post #2

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?…

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.

Re: xAI is looking more like a datacentre REIT than a frontier lab

#49

Post by TSiege »

mschuster91 wrote: post #12
TSiege wrote: post #6

> 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?

> 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…

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

Re: xAI is looking more like a datacentre REIT than a frontier lab

#50

Post by jtbayly »

stefan_ wrote: post #17
treis wrote: post #14

Earlier quoted context omitted.

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.

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.

There is a footnote in the article does the math. It concludes, "power is no more than about 1% of revenue."
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