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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

#151

Post by lezojeda »

saberience wrote: post #64
paxys wrote: post #2

These alarms have been going off for a long time now. Everyone is already in too deep to admit that there’s a problem.

What problem? What alarms? I see everyone around me doing way more work, of way more depth, than they ever did before using AI models. I see my company and friends of mine all paying large sums of money to Anthropic, Google, OpenAI to use AI models, and do more work than we did before. So Google is investing in infrastructure which is HIGHLY in demand, there is much more demand than supply, and then they are making m…

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

#152

Post by snowchaser »

Zigurd wrote: post #84

Looking at cash burn is looking at the wrong end of the horse. Some companies, like Meta, have burned huge piles of cash in pursuit of, for example, the Metaverse and they've got nothing to show for it, not even a slight increment in ad tech, and yet they earned enough to shrug it off. There's a big difference between Google spending tens of billions on AI infrastructure and what Oracle is doing. Oracle is spending t…

If AI flops, they’re be left holding large pools of useful datacenter/compute capacity and “revert” to one of the most profitable businesses of all time.

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

#153

Post by dirkc »

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...

Isn't that just saying CapEx is a bigger part of their costs as if that is a positive thing?

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

#154

Post by mywittyname »

johndough wrote: post #149
tedggh wrote: post #113

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…

> GPUs become obsolete in 5 years The GPUs are far from worthless after 5 years. E.g. the A100 80GB PCIe version cost around $15k when it was introduced in 2021 and now sells for $10k used. Things might be slightly worse for the data center servers, but I am sure they will find find buyers.

How much of that is due to inflated RAM prices though? I wouldn't assume the current trend is going to continue.

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

#155

Post by raincole »

InsideOutSanta wrote: post #10
mynameisjonny_ wrote: post #6

Earlier quoted context omitted.

> Everyone is in too deep to now admit that there’s a problem I'm not sure how to square this with the dramatic improvement in LLM capabilities in the last 8-9 months. If anything, it makes the earlier investments look prescient?

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

Except it did get translated to a dramatic increase in revenue. "Dramatic increase" is a ridiculous understatement here, by the way.

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

#156

Post by Centigonal »

khurs wrote: post #143
Centigonal wrote: post #91

They just raised $85 billion and they're sitting on a mountain of cash - if their spending didn't increase in this context, it'd be bad management. The real story here is that they have decided to spend that mountain of cash on AI CapEx.

That $85 billion was bonds, and requires ongoing repayments of billions every year in interest payments And then the $85bn to be repaid too.

I'm referring to the equity offering that started in June and has a second component that starts in 2026Q3. Most of this raise came from the sale of Class A and Class C stock. A fraction came from the sale of convertible stock. To my knowledge, none of this raise came from the sale of bonds.

Also, looks like I got it wrong and they've only raised $45B to date. The rest will come as part of the ATM offering program that begins in Q3.

more details here: https://www.sec.gov/Archives/edgar/data/1652044/000119312526...

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

#157

Post by postflopclarity »

tedggh wrote: post #113

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…

> The SP500 gives 10-12%

the historical average is closer to 7%. sustained 12% would be excellent growth for any mature firm

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

#158

Post by fooker »

tedggh wrote: post #113

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…

H100 is nearing five years and costs more to buy a used one now than a new one when it was released :)

You are completely missing the bet these companies are making.

They think can outlast their competitors and capture a larger portion of the pie while the cost of inference keeps going down dramatically.

If you haven't been paying attention, the cost is about 1/100th of what it was in 2024. This is the trajectory pretty much every technology has followed.

Of course there will be market crashes and corrections and things like that and most companies won't survive, but the bet is that whoever survives ends up doing pretty well.

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

#159

Post by flyinglizard »

johndough wrote: post #149
tedggh wrote: post #113

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…

> GPUs become obsolete in 5 years The GPUs are far from worthless after 5 years. E.g. the A100 80GB PCIe version cost around $15k when it was introduced in 2021 and now sells for $10k used. Things might be slightly worse for the data center servers, but I am sure they will find find buyers.

They hold value as there is insane demand. The same reason a consumer RTX4090 costs more today than bew in 2021. Once the tide drops enough for hardware lead times to shorten to weeks, they will go the way of other used DC hardware - written off after 5 years.

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

#160

Post by chrisweekly »

ody4242 wrote: post #136
benoau wrote: post #115

Earlier quoted context omitted.

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.

This is a good chart that shows historical CAPEX spending. Hyperscalers have been through a couple CAPEX cycles like this, they all know what they are doing. https://eco3min.fr/en/big-tech-capex-revenue-ratio-quarterly...

Thanks for sharing. Agreed it's a good chart. But I draw a different conclusion. M$ looks pretty iffy: capex/revenue 10% -> 37% in the last 5y, scary trajectory.
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