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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

#121

Post by atleastoptimal »

Terr_ wrote: post #114
atleastoptimal wrote: post #113

Earlier quoted context omitted.

The music would have a risk of "stopping" if these deals were backed by a speculative entity. However AI actually has real value/revenue, and is not a speculative product (i.e. people aren't buying tokens to resell them, a token is "consumed" at moment of inference)

That's like saying "nobody is speculating in Enron stock" simply because there was electrical power that was sold for real revenue and consumed.

Enron collapsed due to legitimate fraud. To imply Enron is an apt comparison requires assertion that AI companies are actually cooking the books. Is that what you are saying?

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

#122

Post by _alternator_ »

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.

This take clearly has a bone to pick. But ignoring that, the first sentence is just not reflective of the reality here—xAI is making a killing on renting out its GPUs, way more than "just power". The dynamics that normally make infrastructure providers have slim margins don't apply when demand far outstrips supply; the situation right now is closer to monopoly pricing power.

It will likely take a few years for supply to fully catch up, which means xAI will eat well for a while.

I can see a world where a few data centers come on line this year and reduce margins a bit, but it's crazy to think the margins will go to "cost of electricity plus a few percent" anytime soon.

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

#123

Post by gruez »

staplers wrote: post #86
downrightmike wrote: post #33

Earlier quoted context omitted.

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.

>See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live.

https://fred.stlouisfed.org/series/M2SL

https://fred.stlouisfed.org/series/TOTBKCR

And you would have been massively wrong. People have been complaining about quantitative easing since post GFC, and if you took the figures at face value, those would imply inflation was nearly 100% between the end of GFC and before the pandemic. Whatever you thought about the post-pandemic inflation, the period between GFC and pre-pandemic definitely did not see the level of inflation implied by those figures.

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

#124

Post by hdndjsbbs »

xiaoyu2006 wrote: post #102
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.

I always think 401k is not fair at all. It kinda forces one to invest and pump the stock prices.

This is what financial capitalism and "democratizing finance" has meant in practice. Rich people have access to different types of investments, and by the time those trickle down to common investors the juice has all been squeezed out. Whatever the trend is, by the time you hear about it the market has already been arbitraged by faster investors with more resources.

We are not going to come up with a market-based solution to fix income inequality. The solution, as much as people in the dwindling middle class resist it, is a strong social safety net coupled with a hard reset on taxation and housing policies. Nobody should be homeless, nobody should be allowed to starve, but you might have to accept that your 401K goes down in exchange for a government guarantee of housing and food.

This is hard for people to accept because they currently have equity in their home or a 401K to save them from starving. But those are transient, individualistic solutions. You can lose your house. You can lose your 401K. Society should be taking care of each other in a broader way than letting everyone accumulate a little, private pile of money.

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

#125

Post by icepush »

SlinkyOnStairs wrote: post #45
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.

> 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 prov…

Unemploying everyone was what openai described as their success condition when it was founded a decade ago. There was a q&a on their website that said "How will you know when you have reached AGI? When the system performs most or all economically valuable work." Lots of people thought they were joking, or it was marketing, but they were 100% serious from the first.

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

#126

Post by boarsofcanada »

treis wrote: post #59
SlinkyOnStairs wrote: post #45

Earlier quoted context omitted.

> 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 prov…

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.

And yet they are not profitable on an ongoing basis, and aren’t even claiming to be.

The supply is currently constrained because 50+% of data center plans were cancelled as a result of the impossibility of the buildouts happening in a timely fashion, and subscriptions are charging a small fraction of the actual cost of inference, leading them to all bleed money, hence the rush to IPO to get one last infusion, since many of the past investors have publicly stated they aren’t putting any more money in until they see an ROI.

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

#127

Post by trenchgun »

eqmvii wrote: post #108
9cb14c1ec0 wrote: post #25

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 b…

I think the hard part is acquiring the GPUs, first at all, then at any reasonable price.

Yes, and then you need to have the datacenter. Do you get a permit? How long does it take to build it?

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

#128

Post by bko »

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?

Or, hear me out, maybe there's a compute shortage and xAI has compute and manages that well.

There are no dark GPUs. Compute translates directly to money for these frontier labs.

I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.

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

#129

Post by chatmasta »

SecretDreams wrote: post #40
chatmasta wrote: post #26

Earlier quoted context omitted.

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?

I’m not sure they need novelty or moat. AI compute resources are so scarce that inference providers will buy whatever is available. SpaceX sells inference hardware in bulk, with a proven track record of running inference and training workloads at scale.

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

#130

Post by suggala »

atleastoptimal wrote: post #121
Terr_ wrote: post #114

Earlier quoted context omitted.

That's like saying "nobody is speculating in Enron stock" simply because there was electrical power that was sold for real revenue and consumed.

Enron collapsed due to legitimate fraud. To imply Enron is an apt comparison requires assertion that AI companies are actually cooking the books. Is that what you are saying?

Circular dealing or round tripping is a form of cooking books and sometimes results in accounting fraud. Especially when circular revenue is booked without cash flow growth. Do you see cash flow growth on any side of these transactions.
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