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Zitron: The Subprime Datacenter Crisis

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Re: Zitron: The Subprime Datacenter Crisis

#31

Post by [deleted] »

simianwords wrote: post #24
camillomiller wrote: post #11

Earlier quoted context omitted.

Nobody with a minimum of credibility says that. Everyone says this is clearly a bubble and yet it could go on another couple of years. Nobody is timing it. But if you want to deny the obvious by numbers go ahead

Ed has timed it. https://x.com/edzitron/status/1817955630784917548 > Newsletter: Based on estimates of their burn rate and historic analyses, I hypothesize that OpenAI will collapse in the next 12-24 months unless it raises more funding than in the history of the valley and creates an entirely new form of AI. He posted this in 2024 June btw. He certainly doesn’t believe that OpenAI has a new form of AI. So where’s th…

[deleted]

Re: Zitron: The Subprime Datacenter Crisis

#32

Post by ElProlactin »

discodave wrote: post #21
ElProlactin wrote: post #13

Zitron is literally the worst person to raise alarms about the financials of the AI ecosystem because he's so hyberbolic and pollutes his own arguments with nonsense. Take: > When somebody decides to build an AI data center, they form a special purpose vehicle (much like a CDO), which then raises debt, in some cases slices it into tranches and, in most cases, sells them to institutional investors, asset managers or b…

CDOs and SPVs have two things in common: They're acronyms and they are financial engineering. Maybe this time it will be different?

A gun and a bomb are both weapons. It doesn't mean they do the same damage.

Re: Zitron: The Subprime Datacenter Crisis

#33

Post by camillomiller »

simianwords wrote: post #24
camillomiller wrote: post #11

Earlier quoted context omitted.

Nobody with a minimum of credibility says that. Everyone says this is clearly a bubble and yet it could go on another couple of years. Nobody is timing it. But if you want to deny the obvious by numbers go ahead

Ed has timed it. https://x.com/edzitron/status/1817955630784917548 > Newsletter: Based on estimates of their burn rate and historic analyses, I hypothesize that OpenAI will collapse in the next 12-24 months unless it raises more funding than in the history of the valley and creates an entirely new form of AI. He posted this in 2024 June btw. He certainly doesn’t believe that OpenAI has a new form of AI. So where’s th…

I like Ed in general but he’s acting as an influencer, therefore I wouldn’t place him under the broader credibility umbrella.

Re: Zitron: The Subprime Datacenter Crisis

#34

Post by watwut »

simianwords wrote: post #30
watwut wrote: post #29

Earlier quoted context omitted.

That is the quote of famous financial advisor made in 1986. It keeps being repeated, because bubbles and their pops and irrational markets are frequent enough. There is nothing controversial about claim that markets are irrational, bubbles pop impossible to predict while bubble being visible. Previous bubbles were the same.

The problem with this type of thinking is that it deliberately ignores the times that bubbles were predicted incorrectly. Imagine there was a guy. He kept predicting that a war may happen in 1 year. Keeps getting it wrong. In 59 a years a war does happen. He then retroactively justifies his wrong predictions by claiming “but people are irrational and it’s hard to predict”.

Past bubbles I read about were recognized correctly for years before they popped. The pop was hard to predict, the bubble was routinelly recognized. These were not wrong prections, these were correct assesments of the situation. Bubble exists before it pops.

Markets being irrational is again, nothing controversial.

That is history. Your war predicting guy is a made up analogy. And he may just be correct about his assesment of the situation - war is being actively planned and prepared, actors want it and we are all waiting till Trump or Hitler or whoever decides that "now".

Re: Zitron: The Subprime Datacenter Crisis

#35

Post by ElProlactin »

alnxdrawr wrote: post #18
ElProlactin wrote: post #13

Zitron is literally the worst person to raise alarms about the financials of the AI ecosystem because he's so hyberbolic and pollutes his own arguments with nonsense. Take: > When somebody decides to build an AI data center, they form a special purpose vehicle (much like a CDO), which then raises debt, in some cases slices it into tranches and, in most cases, sells them to institutional investors, asset managers or b…

A warning: I'm very naive in anything financial. What happens if the assets collected drop in value as they get repoed? Wouldn't the lender now also be in harms way and in turn have issues financing themselves? Thanks

> Wouldn't the lender now also be in harms way and in turn have issues financing themselves?

Yes, they could be. There are potential multipliers here, and one failed project could cause other projects to be marked down, even if they're not failing.

But the mechanisms by which $1 trillion in data center debt could become multi-trillion dollar write downs just doesn't exist the same way it did with subprime mortgages.

In the mortgage market, credit default swaps let the same collateral be referenced without limit, CDO-squared structures re-tranched the losses into concentrated wipeouts, and the paper was on the balance sheets of firms funding 30 year assets with overnight repo.

A derivative market for individual SPVs where there's a mismatch between the debt term and the asset just doesn't exist in the data center market.

Pensions funds that are involved have 30 year liabilities and no redemption pressure. Insurers don't have run risk. Banks hold the debt against capital buffers and they have access to the discount window. The riskiest debt holders are levered private credit and semi-liquid retail vehicles, but even in these cases, you're looking at leverage around 2:1, not 30:1.

None of this is to say that an AI bust couldn't cause widespread pain. Just look at how much of US equities are dominated by AI-linked companies. But the issue is that Zitron is just wrong about the mechanisms and magnitudes. He's trying to paint a 2008-like scenario because it's much scarier.

Re: Zitron: The Subprime Datacenter Crisis

#36

Post by aurareturn »

simianwords wrote: post #22
camillomiller wrote: post #10

Earlier quoted context omitted.

Because he‘s not?

There are in fact very few things he got right. I can’t point to 2 things he predicted and came out true. He once said CoreWeave is going bust. Since then the stock tripled lol. He said ChatGPT will no longer get more users in 2024. He said that models haven’t improved significantly since. GPT 4. He predicted in 2024 that OpenAI will collapse in few months to two years unless it creates a totally new form of AI. Fran…

He's a grifter who uses his followers to make money. He tells his followers stuff that he likely doesn't believe in himself but his followers want those things to be true.

Re: Zitron: The Subprime Datacenter Crisis

#37

Post by xnx »

babelfish wrote: post #4

I don't think Zitron will ever admit he's been wrong about LLMs

"It is difficult to get a man to understand something, when his salary depends on his not understanding it."

Hard to know of Zitron actually believes what he writes, is trapped in some type of mania, or keeps doing the same bit to pay the bills. Probably a mix of all 3.

Re: Zitron: The Subprime Datacenter Crisis

#38

Post by watwut »

simianwords wrote: post #26
uriahlight wrote: post #16

Ed Zitron is right about the need for a market correction, but he's fundamentally wrong on AI itself. He'll get his 15 minutes of "see I told you so" when the market corrects, but over the long term he'll be proven wrong. Ed's primary gripe is that he thinks the business models aren't viable for profitability. But Google's AI infrastructure buildout is already spending less then the depreciation value of the hardware…

You seem wildly confident about the market, so I ask. What market correction are you expecting and by when? Can you make a falsifiable prediction without moving goal posts and ambiguous timelines?

> Can you make a falsifiable prediction without moving goal posts and ambiguous timelines?

I find this demand dishonest. The inherent nature of bubbles is that you cant predict when they pop. The more they grow, the more damage they cause, but it is impossible to guess what exactly triggers the pop.

So yes, ambiguous timeline is actually correct way to phrase things. Anything else is pure gambling.

Re: Zitron: The Subprime Datacenter Crisis

#39

Post by uriahlight »

simianwords wrote: post #26
uriahlight wrote: post #16

Ed Zitron is right about the need for a market correction, but he's fundamentally wrong on AI itself. He'll get his 15 minutes of "see I told you so" when the market corrects, but over the long term he'll be proven wrong. Ed's primary gripe is that he thinks the business models aren't viable for profitability. But Google's AI infrastructure buildout is already spending less then the depreciation value of the hardware…

You seem wildly confident about the market, so I ask. What market correction are you expecting and by when? Can you make a falsifiable prediction without moving goal posts and ambiguous timelines?

I'm a SWE and use AI all day every day. I also acknowledged the very real rollout of AI in other facets of the economy besides SWE. But a market correction is inevitable.

We are in the wild west of AI. No one truly has agentic workflows "down pat" yet. We have no idea which AI workflows, pipelines, architectures, and platforms are going to stick around long term. For all we know a kid in high school can be the one who comes up with a SWE workflow that FAANGs and the rest of the tech sector ends up adopting.

Recent numbers from Google suggest that Ed Zitron might very well be wrong about the data center build-out, which is the single biggest crux of his argument. But even if he's wrong on that, he'll still get his 15 minutes of "see I told you so" (while still being wrong) because even if the data center rollout doesn't implode from assets depreciating too quickly, a correction will still need to happen on the dirt end of the shovels. Even if you don't have too many shovels (which Ed thinks we do), you still need to be digging in the correct patch of ground to strike a gold vein. There's going to be winners and losers in this thing, and the market correction will happen once the biggest investors and hedge funds have correctly identified who the losers are.

What I can't do is provide a timeline. I don't claim to be a prophet. However, if Ed is correct on the hardware buildout, the sheeit will hit the fan once amortization schedules hit critical mass. Otherwise it will be whenever the big money learns who the winners and losers are on the implementation rollout. That can happen at any time. It's perfectly normal and is not a doomsday clock. That's why it's called a market *correction*.

Re: Zitron: The Subprime Datacenter Crisis

#40

Post by Ekaros »

agile-gift0262 wrote: post #19
SwellJoe wrote: post #12

Earlier quoted context omitted.

Two things can be true: 1. LLMs are remarkable and they've uncapped a supply/demand loop for software that has previously been much more tightly constrained than anyone realized. It turns out that if software is much cheaper and faster to make, people find ways to use a lot more software, so much so that the world is temporarily completely out of all the parts you need to make the machines that turn electricity into…

He (and I) might have been wrong on how useful the LLMs could get, but time isn't proving him wrong on his claims that the usefulness doesn't justify the investments around LLMs

It is the fundamental question of is there enough willing buyers. And I am doubting that very much. Next step is to question if there is enough willing buyers and they are replacing white collar workers. Do these customers then have enough willing buyers? Is building data centres and infra to service them a viable way to replace most of the economy?

My answer is burn it all down...

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