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The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

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Re: The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

#21

Post by PaulHoule »

compiler-guy wrote: post #14
awongh wrote: post #8

I get the structural comparison they are trying to make. But mortgages are not a frontier AI lab. They try to draw a comparison to the valuation of the real estate and the valuation of the hyper scalers in the markets. I would argue that the demand and valuation of a house is less elastic than AI. While a house’s value may continue to appreciate in the market there is an upper bound for the price of a house set by pe…

"The underlying product, the model keeps improving and therefore increases its value." That's not exactly true. Yes, the fundamental capabilities of the models do seem to be growing dramatically, but the economic value of any particular model may be steady, or even falling, because of commoditization, or other issues external to the model itself. Without a moat, improvement in model capability does not necessarily tr…

The economic value may be real but the profits may not be.

One thing that's clear is that there is no leading vendor in this space and there may never be one. To some extent premium models can charge a premium price but it's going to be a competitive market and the likes of Anthropic and OpenAI will not be able to sustain monopoly pricing.

Re: The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

#22

Post by ameliaquining »

jumanji493 wrote: post #2

wow excellent piece. Gary Marcus had a long post about this article on his substack. scary stuff "And look at what this implies about OpenAI’s valuation as it moves toward an IPO: OpenAI’s equity - valued north of $850 billion - is functionally the junior tranche of a capital structure whose senior claims, the take-or-pay compute obligations, exceed any revenue path management itself has articulated. On those numbers…

Marcus believes that the underlying technology doesn't work. If that's true, then of course the whole thing will crash as soon as everyone realizes this.

This article is mostly making a different argument (though it contradicts itself in some places), which is that even if the underlying technology does work, and is ultimately going to create quadrillions of dollars of value and transform society, if it takes more than another 1–2 years for that to happen, then there'll still be a crash, because that's when the data center construction bills come due and the labs (especially OpenAI) don't yet have the money to pay them.

It argues primarily against a hypothetical optimist who believes that everything is fine because the cash flow numbers currently work out, on the grounds that this hypothetical optimist hasn't realized that the labs' recurring expenses are scheduled to spike in 1–2 years when the data centers come online and the labs have to start paying for them. It also spends a lot of words comparing the situation to the 2008 financial crisis, because that's everyone's favorite morality tale.

I am not sure that anyone is actually making this mistake (i.e., trying to predict the future by looking at labs' present cash flows). The better counterargument is what Matt Levine used to call "Netflix Theory": if the large capital investors who own stakes in the labs still believe in their valuations (which they should, if the technology works and the quadrillions are coming, which we're assuming here for the sake of argument), then they will be very highly motivated not to let their investment be seized by the labs' creditors. So the labs will not have too much difficulty raising or borrowing enough money to pay the bills.

Re: The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

#24

Post by tschellenbach »

This post is just AI slop. The details of these contracts aren't disclosed as far as I know.

You need to understand the contracts, the acceleration of demand, how the various inputs into supply scale (energy, chips, data centers) etc to say something sensible about this.

Re: The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

#25

Post by johnfn »

Espressosaurus wrote: post #13

Interesting piece, I just wish the author had presented the data and their thesis instead of making Claude vomit out 20 pages of trash around it.

I really want to get in the mindset of people who are like "AI is totally going to fail! Haha! Now let me just use AI to write a piece about it..."

Re: The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

#26

Post by ameliaquining »

harshaw wrote: post #15

Some other commentators said this was AI slop. I don't have enough expertise to say if it really is, but it sure has the "claudish" cadence of AI generated text that makes it hard to take it seriously. The authoritative and strong statements, the use of phrasing with colons and dashes, the use of bold, etc.

Pangram confirms: https://www.pangram.com/history/9ccdf6ed-5016-4325-b1ac-b3b0...

I find it amusing that even the AI skeptic articles are written with AI these days.

Re: The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

#27

Post by krona »

awongh wrote: post #8

I get the structural comparison they are trying to make. But mortgages are not a frontier AI lab. They try to draw a comparison to the valuation of the real estate and the valuation of the hyper scalers in the markets. I would argue that the demand and valuation of a house is less elastic than AI. While a house’s value may continue to appreciate in the market there is an upper bound for the price of a house set by pe…

GPUs depreciate at a far, far faster rate than houses do. And then they need to be replaced. Who's paying for that? OpenAI and Anthropic don't even have positive free cash flow.

Re: The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

#28

Post by Espressosaurus »

johnfn wrote: post #25
Espressosaurus wrote: post #13

Interesting piece, I just wish the author had presented the data and their thesis instead of making Claude vomit out 20 pages of trash around it.

I really want to get in the mindset of people who are like "AI is totally going to fail! Haha! Now let me just use AI to write a piece about it..."

It's not inconsistent if you think of it as the finances falling apart regardless of how useful the tool is.

Re: The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

#29

Post by georgemcbay »

harshaw wrote: post #15

Some other commentators said this was AI slop. I don't have enough expertise to say if it really is, but it sure has the "claudish" cadence of AI generated text that makes it hard to take it seriously. The authoritative and strong statements, the use of phrasing with colons and dashes, the use of bold, etc.

> Some other commentators said this was AI slop.

To me it read like a combination of human written and AI slop, as if the author had Claude write it and then rewrote portions of it, or the author wrote an initial version and told Claude to "punch it up, without rewriting the whole thing entirely".

Regardless of who or what actually wrote it the piece was much longer than it needed to be (though I do think it highlights a very real problem).

Re: The Teaser Period: Why the AI Boom Is Hitting a Reset Wall

#30

Post by lesuorac »

NDlurker wrote: post #3

So, start selling risky assets for bonds and wait for the crash to buy back in to stocks?

Who are you going to sell the bonds to?

People only want cash during the crash so the value of everything goes down. It doesn't matter if you bond has a known 8% yield when held to maturity; the market can't hold it to maturity so its current value drops.

Like go find 2008 in the graph of BND (Vanguard Bond ETF) vs SPY (SNP500) [1]. Let me know how you'd know when to sell your bonds for stocks.

[1]: https://www.google.com/finance/beta/quote/SPY:NYSEARCA?keymo...

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