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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

#61

Post by tcp_handshaker »

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?

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.

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

#62

Post by dluxem »

SecretDreams wrote: post #38
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.

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…

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.

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

#63

Post by alfalfasprout »

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?

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.

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

#64

Post by ozgrakkurt »

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…

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?

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

#65

Post by skybrian »

Qhemlomo wrote: post #10
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?

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 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.

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

#66

Post by joxdosba »

SecretDreams wrote: post #38
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.

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…

Btw how much is MicroStrategy down since the year 2000?

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

#67

Post by skybrian »

TSiege wrote: post #51
Qhemlomo wrote: post #10

Earlier quoted context omitted.

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).

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

#68

Post by throwaway5752 »

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.

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

#69

Post by trothamel »

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.

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

#70

Post by nonethewiser »

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's circular?
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