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Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

reuters.com

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Re: Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

#111

Post by zdragnar »

lenerdenator wrote: post #62
toomuchtodo wrote: post #27

Earlier quoted context omitted.

This assumes they do not have to increase prices to be profitable, and that they will continue to have customers when customers can switch to open models at similar performance. As an analogy, Uber could crank up rates after the VC growth play was over to stoke revenue and profits because they have a duopoly with Lyft. LLM consumers can switch to Kimi models fairly trivially today, and whatever the frontier open mode…

The question will be whether customers can switch. Can you install a near-SOTA model on a cluster in a data center? Of course. Compliance and operations are the sticking points. I work in healthcare IT, and it's amazing how tight the data compliance requirements are. I can't have someone in Canada look at prod data. If we told hospitals that we were handing off PHI/PII to Chinese models, they'd end our relationship d…

How long will a SOTA model be necessary? If day to day work can be achieved on an open weight model, the most evaporates overnight.

Look at any computer in a big company. It isn't the fastest on the market, nor will it have the most RAM or largest monitor or fanciest keyboard. It is good enough at a good enough price point. Once it becomes possible and cheaper to host your own good enough open weight models, with all the benefits of keeping data internal to the company, then the big providers are cooked, so to speak.

Re: Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

#113

Post by tedggh »

The current commitment by hyperscalers is around 1.7T USD, reported liabilities 1.3T and this year global debt related to AI is 570B. So that’s around 3T total. For this to make sense AI must generate 2T in new revenue per year by the end of the decade. And that would be only a 10% ROIC. For context ROIC for big tech is around 35% so at 10% they will be barely breaking even. The SP500 gives 10-12%. With 10% ROIC from AI the only thing investors will be celebrating is that the whole thing didn’t trigger a financial crisis. Data centers are NOT real estate. Buildings and power lines usually last 30-50 years. GPUs become obsolete in 5 years. If hyperscalers need to refinance and their interest rate goes up there’s zero margin for error.

Re: Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

#114

Post by giantg2 »

gavin_gee wrote: post #108

i dont understand the concern. they are putting up great financials. you have to invest ahead of the outcome. this is just classic quarterly public company earnings BS, where public markets dont reward innovation investment. they just want crank the handle financials. The bigger issue is on the model front, can Google compete; Gemini doesnt seem to be able to compete on the heavy expert end; they are doing well on li…

Their bigger positive in my opinion is that they have massive amounts of data and are working to vertically integrate with stuff like TPUs.

Re: Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

#115

Post by benoau »

minraws wrote: post #96
Aurornis wrote: post #52

Earlier quoted context omitted.

The alarms in this case are that the profits and margins won’t be as high as we’ve come to expect from cloud companies. Other than Oracle’s questionable spending spree, these big tech companies are still in very good financial positions. The enormous R&D and infrastructure spends are just feeling unusual to investors who got comparable with the unusually high margins and low costs for SaaS companies. Now they have to…

If the margins aren't as high then there will be a repricing for all the massive cloud companies, which means several trillions worth of valuations to be cut from the companies. AWS/Azure/GCP/Oracle/SpaceX/etc neoclouds... are worth a combined 10+Trillion. That going down by 50-70% is going to be insane.

That would only happen if they need to invest like this forever, otherwise it's just a short-term dent in their margins while they re-calibrate.

Re: Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

#116

Post by Foobar8568 »

toomuchtodo wrote: post #69
lenerdenator wrote: post #62

Earlier quoted context omitted.

The question will be whether customers can switch. Can you install a near-SOTA model on a cluster in a data center? Of course. Compliance and operations are the sticking points. I work in healthcare IT, and it's amazing how tight the data compliance requirements are. I can't have someone in Canada look at prod data. If we told hospitals that we were handing off PHI/PII to Chinese models, they'd end our relationship d…

My primary role is cybersecurity in a regulated entity in a regulated industry, I am highly confident it is straightforward to do so based on work accomplished in only a couple of weeks. Stand up a router, stand up a Kubernetes cluster if you don't have one, stand up the necessary VMs and compute for serving inference. Two pizza team, in my experience. Customers can switch (although we can argue the speed and pain of…

Meanwhile, in real companies, you have to wait 2 months or more to access an API endpoint in preprod.

To setup a cross business kubernetes cluster will take 2 years with unknown results.

On Cloud, in Switzerland, you need to call Microsoft when you need new resources, so much for agility and minute infrastructure provisioning, and I heard the same for AWS.

Re: Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

#117

Post by zdragnar »

manarth wrote: post #94
inigyou wrote: post #47

Earlier quoted context omitted.

Why do people choose the cloud with a history of randomly deleting billion-dollar accounts?

UniSuper? (The claim felt so wild I wanted to check, and indeed, the private Google Cloud for the $125bn Australian pension fund was accidentally deleted by a provisioning misconfiguration. Any others?)

IIRC, the files for Toy Story 2 were accidentally deleted during production, and the film was only saved because someone on maternity leave had a backup at home.

Turns out you can fuck up self hosting too.

Re: Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

#118

Post by sodapopcan »

jerf wrote: post #74
budsniffer952 wrote: post #28

Earlier quoted context omitted.

> not translating to a dramatic increase in revenue. Completely false. AI and AI related revenues are growing exponentially .

I know it's easy to forget, and InsideOutSanta kind of anchored the conversation on "revenue", but profit is ultimately what matters. Back when Silicon Valley was merely insane rather than bat-guano crazy insane, it was commonly observed that it's not hard to build a business around selling a dollar for 95 cents. The point being that it doesn't necessarily mean much when you have a business doing that, because of cou…

> we are the field getting the most out of AI, and it's not even close.

Just emphasizing that as, due to spending far too much time online the past week, I've been seeing a fair bit of this. "AI is definitely gaining popularity because all the software companies I know are going all in on it."

Re: Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

#119

Post by LunaSea »

benoau wrote: post #115
minraws wrote: post #96

Earlier quoted context omitted.

If the margins aren't as high then there will be a repricing for all the massive cloud companies, which means several trillions worth of valuations to be cut from the companies. AWS/Azure/GCP/Oracle/SpaceX/etc neoclouds... are worth a combined 10+Trillion. That going down by 50-70% is going to be insane.

That would only happen if they need to invest like this forever, otherwise it's just a short-term dent in their margins while they re-calibrate.

Why? GPUs are replaced every 3 to 5 years. This is going to be an ongoing operational cost forever. It will probably increase more if larger models require bigger VRAM sizes.

Re: Alphabet's cash burn raises alarm for Big Tech as AI spending climbs

#120

Post by Ekaros »

erwald wrote: post #24
InsideOutSanta wrote: post #10

Earlier quoted context omitted.

The problem is that the dramatic improvement in capabilities is not translating to a dramatic increase in revenue.

"Anthropic and OpenAI generate a lot of revenue with relatively few employees – an estimated $9M and $5.5M in revenue per employee (RPE), respectively. If either company were to go public, it would have a higher RPE than any public tech company on Forbes’ Global 2000 list." https://epoch.ai/data-insights/revenue-per-employee-ai-compa...

So they can add employees endlessly? And still make same revenue? Increasing employees only scale so far at those numbers.
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