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

martinalderson.com

431–440 of 580 posts

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

#431

Writing this: > In comparison, SpaceX/xAI are incredible at building datacentres on time. The original Colossus 1 datacentre was built in 122 days. Musk's empire does have a huge advantage in really understanding how to plan, build and execute enormous infrastructure projects quickly Without even mentioning that it was done illegally and the air pollution they are creating with gas turbines is wildly irresponsible

Interesting that Anthropic doesn't feel that leasing an illegally powered data center is a risk to their business operations or brand.

Just goes to show how desperate they are for compute. It's definitely a brand risk for them, but failing to keep the treadmill going is an existential risk.

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

#432

Earlier quoted context omitted.

They can sit it out but that doesn't mean no one paid the bill. And some others might need to pull out when its down. Money doesn't appear out of thin air. Why would it lead to recession if a handful of big companies lose money they have? It will show that the USA is in a recession for sure, but otherwise

No, asset values are not like energy. There's no conservation rule. When stocks get bid up, market valuation goes up far more than the amount of money that changed hands. Most of the market cap appears "out of thin air." It's just what people think it's worth. And when the stock goes down again, it goes back where it came from. The investors who bought stock at too high a price lose some of the money they put in, but…

But thats the point. Your last sentence is the problem:

Investors proping up stuff by 20%, 401k and etf etc. regularly invest, investor drop out.

Who loses? 401k and etf.

Money was transfered.

Same shit happen to my company share: Price jumps 40%, company has to buy them because of employer benefits, I auto buy them, price falls back by 40%, what happened?

Investors extracted money out of the company and me.

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

#433
post #128

Earlier quoted context omitted.

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.

> I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it. Let us pin this comment and see how it ages

Let's say it does all collapse. How would we know it's the 5-6% stake (which in my mind doesn't make them a "major shareholder") that was a circular deal that was the fall of the house of cards vs some other segment?

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

#434

Earlier quoted context omitted.

What I don't understand is if nobody has jobs, who's paying the machines to do anything? So okay cool you don't need people to design and build cars. Who's going to buy the cars and where exactly are they finding money? But see also the "radiologists driving to work" meme for why I think tech in general is currently getting high off their own farts.

The overwhelming majority of the labor force remains service, manual labor, and other such stuff that LLMs will have no real effect on. So the economy will be fine, but I do agree with you from a different angle. The entire goal of LLMs seems self destructive. If they're successful then the endgame is completely removing the barriers to entry to producing software and other digital tech. But if we do reach that endga…

Llms either reach the point where they can quickly design and build physical robots to take on that service industry or they stop exponential growth.

Both of those are devastating for their valuation. Stopping growth means open modes catch up in a year or so. Continuing means end of the current economy.

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

#435
post #418

Earlier quoted context omitted.

Why bother saving opex and capex? Just waste more money! It's easy.

Why do you think it’s a waste? If you’re buying GPUs to rent them you’re almost buying a bond. If you’re leasing them, it’s even more obvious that you’re collecting the spread. The GPUs have a financial lifetime after which the business doesn’t pencil and they get sold for peanuts so you can put a better bond in your volume-power.

Consumer GPUs/CPUs tend to be operated at higher clock rates and voltages, because they need to win benchmarks. If you ever bothered to pay attention to how data centers operate their hardware you would notice that they have always gladly sacrificed 10% of performance if the total cost of ownership is reduced.

Since this entire sub-thread is in the context of used 3090s or consumer GPUs in general, you've failed to bring up anything relevant yet again.

Here is your strategy:

1. Increase power consumption by 50%: This costs you more energy to run the GPU, it also costs you more energy to cool the GPU, it ruins the GPU and since you hit power limits of your infrastructure earlier, you will have fewer GPUs in total.

2. Increase maximum performance by 10%: This is hardly noticeable, since the standard inference use case primarily involves taking advantage of the high memory bandwidth of a GPU. This means prompt processing will be 10% faster, or maybe your segmentation model that ingests video runs at 33 fps instead of 30 fps. You're optimizing for winning a benchmark with what will be used hardware in the future, that's asinine.

3. Throw away old GPUs or sell them for peanuts when they still sell for $1000 on the used market if they are in good condition and for $400 if they are damaged. I think the mistake here is obvious. If your GPUs are sold for peanuts, it's because you didn't take care of them.

Your business strategy is obsolete and based around the idea of pre COVID excess hardware capacity before there was massive AI demand where throwing out hardware made sense, because Moores' law was in full swing. Even Google is still offering their v2 TPUs from 2017 even though they've been long since obsoleted. Now in 2026, there isn't enough memory for consumers and people are snatching up all the hardware they can get their hands on. There were some big initial energy efficiency wins from implementing smaller data types that are no longer possible now that fp4 is the smallest possible floating point type that still makes sense and even if you go smaller, you can go down to two bits at best. The parameters are starting to become so small that 2:4 sparsity is becoming unattractive, because it adds one bit to the parameters.

2:4 sparsity for fp4 means 4+4 bits are compressed to 4+1 bits, but 2 bit parameters mean 2+2 bits are compressed down to 2+1 bits.

If you understand even a little bit about hardware, you notice that the tensor core hardware has already been optimized to the extremes and that there isn't much more you can pull out of it. Unlike CPUs there is hardly any control flow in matrix multiplication. The tensor cores implemented in Nvidia GPUs might be a little bit less efficient than an NPU/TPU based implementation (think Google), but there are no more obvious micro architectural improvements here. With CPUs the micro architecture has become so complex, that there may be ways to increase performance further, but for GPUs and NPUs, there is not much left other than process scaling. Further gains require better manufacturing processes from TSMC. TSMC introduced 3nm in 2022 and only started producing 2nm in 2025. That's a three year gap where barely anything happened and all the gains came from going from bf16 or half precision floating point, to fp8 and fp4.

Burning through hardware at high power consumption and mediocre performance increases is clearly not the way to go.

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

#436

Earlier quoted context omitted.

I also feel that the GPU/NPU value does not lose money as fast anymore. What I am wondering though is how long can you run such a system at basically full load without interruption before it starts to just physically degrade. If I have a H100 and I let it run for 4 years at full throttle does it still have the same theoretical value as it had at the start or are the chips just burning out. I think I remember that bac…

Quite the opposite, GPUs running at a stable rate degrade less than GPU that continuously hit highs and lows (like it would happen on a gaming rig).

Normal use means loading data into the GPU for each batch. The load is not even, though training might be worse than "production".

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

#437

Earlier quoted context omitted.

The ARR were fine but showing skewed quarterly profitability numbers by slowing down research due to hitting compute capacity suggests otherwise. I am certain Anthropic spent less on building the next model this quarter if they make it to profitability due to the shear fact that they don't have enough compute. Which solves the profitability problem with relative ease momentarily. Also just to confirm, AI subscription…

> API is definitely being sold at a decent profit. Where do you get this from? Enterprise plans are being cancelled or limited all over the place (Uber, Microsoft). I doubt Anthropic would be leveraging a loss leader with their consumer plans, while catastrophically hemorrhaging customers on the enterprise. They are either operating at a loss (possibly a minor one), or a minor profit (which is chasing customers away)…

It would be insane, if they can't serve the models at a profit sure at current GPU prices the profit might be 10% or lower. But at realistic gpu prices it would have been close to 30-60% based on how big the models actually are and how much they have optimized the stack to serve them.

1T parameter models like Kimi K2.6 can be served for 1/10 to 1/5 of the price of opus 4.8 for perspective.

Sure opus is 2x the size and hosting might be non linearly scaling so still it should be around 50% margin at regular gpu prices.

If it isn't I would be very surprised.

Also for enterprises we joke but Google is not paying same rates as us there are big massive enterprise discounts. I have heard upto 20-30%... OpenAI is supposedly even more generous.

I don't think API is being sold at a loss at the end of the day even if the API profits are marginal 10-20% because of insane GPU prices now.

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

#438
post #401

Earlier quoted context omitted.

What I don't understand is if nobody has jobs, who's paying the machines to do anything? So okay cool you don't need people to design and build cars. Who's going to buy the cars and where exactly are they finding money? But see also the "radiologists driving to work" meme for why I think tech in general is currently getting high off their own farts.

Rich people become the only consumers.

Yes, the plan seems to be anti human in the extreme. Why do you need the plebs if they can be entirely replaced by AI? But the question then becomes why does the AI (and before that their security detail in a post money world) need billionaires?

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

#439
post #309

Earlier quoted context omitted.

Compute is also a rapidly depreciating asset. I want to make a comparison with a car rental business and say that it would be like valuing Hertz entirely on the basis of the number of cars they own, as opposed to how many they rent out, but cars have a much longer depreciation period, if there are no customers they’re not costing you more money, unlike your computer which you are using for training and sucking up mas…

> Compute is also a rapidly depreciating asset. That's the default assumption but in the new GPU+Memory constrained age isn't true. Time on 4 year old H100 servers costs more now than when they were new (!!)

Depreciating doesn't just mean it could depreciate in value relative to the performance of newer GPUs, but also that its lifespan is limited by reliability issues and failures.

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

#440

Earlier quoted context omitted.

The ARR were fine but showing skewed quarterly profitability numbers by slowing down research due to hitting compute capacity suggests otherwise. I am certain Anthropic spent less on building the next model this quarter if they make it to profitability due to the shear fact that they don't have enough compute. Which solves the profitability problem with relative ease momentarily. Also just to confirm, AI subscription…

Why would V5 kill the AI race? Do you believe that there are diminishing returns on model intelligence when applied to real-world tasks? I think there are accelerating returns: i.e. a models are still not good enough to be “drop in” remote workers, but once that threshold is passed, the value of each token of inference has a far higher multiplier. This justifies the buildup. However not everyone agrees that model int…

Assuming 2-3 years from now when V5 is out China would have mostly caught up in compute, and honestly that's it China can scale up compute a lot faster than US maybe a few countries can match it, or help match it but won't happen while US Iran thing is going on.

Further the human costs in the loop for AI training are insanely low or atleast substantially lower outside of US, so sure without the Nvidia upcharge I think everyone else who can use Compute from China is at an advantage.

If the assumption is AI is scaling issue then China will win because they can do infrastructure. Maybe if US wasn't in a trade war with rest of the planet there was some hope but I don't think so.

Once Deepseek figures out the new compute and can get it on par with Nvidia's clusters even if by using 4x the energy(cause they can). I don't think OpenAI or Anthropic can maintain a lead, if they don't have a lead the pricing difference will kill the AI race.

The best case scenario is OpenAI and Anthropic are dead in 2-5 years once China is caught up.

The worst case scenario where AI is not a productive boost is that well the thing pops.

Either way I don't see how this works out. Sure US govt could bomb China that's always an option.

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