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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

#171

Post by roryirvine »

CodingJeebus wrote: post #132
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. Not only that, but they're typically amortized over 5 years, where the actual lifespan usually falls far shorter (1-3 years), adding to the artificial subsidy conditions we see today. So they're gaming the lenders into deferring interest payments as much as possible today so that new competitors don't have the same cheap financing advantage.[0] 0: https://blog.citp.princeton.edu/202…

If they're deliberately inflating the likely useful economic life of their assets to get a lower interest rate, it's hard to see how that wouldn't be classed as fraud.

It's the sort of behaviour that really does end up with people going to prison.

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

#172

Post by khurs »

Centigonal wrote: post #156
khurs wrote: post #143

Earlier quoted context omitted.

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 th…

sorry, my error. Bonds was $31.5 billion

https://www.reuters.com/business/alphabet-sells-bonds-worth-...

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

#173

Post by toast0 »

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…

> Data centers are NOT real estate. Buildings and power lines usually last 30-50 years. GPUs become obsolete in 5 years.

Data centers are real estate. One of the big players in carrier neutral data centers even calls themselves Digitial Realty.

The contents of the DC is not real estate. But neither is the an office or a house or a warehouse.

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

#174

Post by gowld »

drumhead wrote: post #110
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…

And then they'll be valued like more normal companies as well. Which will mean a drastic re-rating.

Google's P/E is 25, which normal for "tech", and comparable to S&P overall current, average, which is 50-100% of historical average.

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

#175

Post by fooker »

boesboes wrote: post #167
fooker wrote: post #158

Earlier quoted context omitted.

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 pre…

What costs are 1/100th?

Of serving a (approximately) gpt4 sized model.

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

#176

Post by gowld »

WarmWash wrote: post #124
throwaway27448 wrote: post #22

Earlier quoted context omitted.

Presumably at some point you need a measurable productivity return yea? Maybe organizations are not built around skill and aptitude so much as liability, which LLMs cannot provide barring (very welcome and also very unlikely) legislation in the US.

The infamous 2025 MIT study that found almost all AI pilots in companies were failing, also found that virtually every worker was using AI many times a week if not daily. Turns out people just use their personal AI accounts rather than company ones. Which would make sense if you want to claim the work the AI does as your own.

AI was garbage quality or OK but unimportant (Grammarly-esque) in early 2025.

A new study is needed.

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

#177

Post by lokar »

ody4242 wrote: post #162
LunaSea wrote: post #119

Earlier quoted context omitted.

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.

They are building new datacenters for the AI demand, so around half of this CAPEX is not for the GPU-s, and those will not be replaced every 3-5 years. Also, TPUv2 was introduced in 2018, and still not completely retired in all regions, from accounting pov, it has been written down to 0, but they are still working.

The cost of the land, building, mechanical equipment, etc is a very small fraction of the total cost of a DC.

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

#178

Post by khurs »

fooker wrote: post #158
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 pre…

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

Because everyone is buying as they want to run their own models and not pay for a cloud service?

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

#179

Post by alanfranz »

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…

What's the risk of NOT doing this?

That's the problem. That's the risk that few (if any) hyperscalers want to take.

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

#180

Post by dgellow »

budsniffer952 wrote: post #60
dgellow wrote: post #44

Earlier quoted context omitted.

Not for the companies using the LLMs…

Are you denying that AI revenues are growing? Or are you just adding nonsense about "yeah but yeah but no value"?

I’m saying there is no proof that companies _paying for AI_ are seeing a positive effect to their ROI. If you have such a proof, please share, that would be a massive news
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