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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

#71

Post by hungryhobbit »

alwa wrote: post #45

This feels like Claude thought to me—assertions and comparisons that look impressive on the surface, but kind of make me scratch my head the more I think about them. I think what made me throw in the towel was “Figure 2 — Two Instruments, One Shape” [0]. That chart comparing when contracts reset. Weirdly consistent norms! [looks at the sourcing] Oh… it’s… not from data at all… it’s just notional… Is there anything he…

Yeah it's funny: I'm pretty sure (based on what he writes about) that the author didn't use AI to write it.

Still ... he's more verbose than Claude itself .. and Claude is very, very verbose!

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

#72

Post by jumanji493 »

whack wrote: post #52
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…

Funny how you're echoing exactly what the author said in the article > This is not precisely 2008. GPUs are not houses; take-or-pay contracts are not mortgage-backed securities; OpenAI is not a subprime borrower in Stockton, and artificial intelligence may well be the most consequential technology of the century, which is more than anyone could ever say for a McMansion in the Inland Empire. > The bear case in this pi…

thanks this is a helpful way of summarizing it

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

#73

Post by jcgl »

josh-sematic wrote: post #62
olalonde wrote: post #55

Earlier quoted context omitted.

That is much less of a systemic issue though. It could kill OpenAI or Anthropic, but it wouldn't render these large GPU data centers obsolete since whatever replaces them, be it open models or cheaper closed models, would probably still require a lot of GPU compute.

Less bad, yes. But still bad. There will definitely be demand for the compute, the question is whether it will be enough to keep the value of it at the levels you’d expect if the tenants were in a monopoly/duopoly world. Competition puts downward pressure on margins and that’d translate into pressure on data center leases.

Could put pressure on data center margins, but not revenue, and not necessarily gross profit.

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

#74

Post by analognoise »

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…

You pointed out correctly that house prices are bounded by incomes, then immediately made the same mistake with AI - someone has to want to pay for this stuff. It also has to compete against free models, which are not only almost as good, but they pull ahead sometimes.

Saying “the product increased in value” is only true if someone buys it!

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

#75

Post by gedy »

PaulHoule wrote: post #53
gedy wrote: post #47

Earlier quoted context omitted.

Yes exactly the same as during the Dot com bubble.

Notably a lot of those companies went down, a lot of investors lost money, but the internet and e-commerce proved to be just as big as people expected back then, maybe even bigger.

Yes I that was in reply to OP making similar point about AI

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

#76

Post by rkangel »

josh-sematic wrote: post #59
PaulHoule wrote: post #21

Earlier quoted context omitted.

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.

100%. I have sometimes wondered if China is playing the long game with the open weight models trying to tank the margins of the US labs so these profits don’t materialize and the US economy (currently predicated on the net that they will) suffers. I think this is a coherent strategy beyond just “don’t let the US control AI as a strategic asset.”

It's the domestic policy version of "commoditise your complement".

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

#77

Post by rkangel »

rootusrootus wrote: post #12
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 value is going up, but the pricing is going down, right? At least at the token level. So the usage would have to go up dramatically to compensate for that. > there is an upper bound for the price of a house set by people’s income Isn't that essentially true here too? The money to pay these expected future AI prices is coming from someone 's income. Sure, the pie will be growing at the same time, but enough?

The performance of the recent open weight models is making it harder for the bug players to justify their pricing.

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

#78

Post by w10-1 »

ameliaquining wrote: post #22
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 th…

> large capital investors [...] will be very highly motivated not to let their investment be seized [...] So the labs will not have too much difficulty raising or borrowing enough money to pay the bills

So: sunk costs of large investors mean they'd be willing to pay high interest costs? Thus small investors can rely on this dynamic, shielded by big ones?

Remember, the large investors got large in a near-zero interest rate environment (where exact timing doesn't matter as much), but those days are not coming back. Soon margins will matter most, and while NVDA and Apple have the internal discipline for that, OpenAI et al do not.

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

#79

Post by mizzao »

yoggies_bro wrote: post #69

Became obvious it was AI authored as I read, classic AI overstatement of parallels, lots of jargony words, its not X it is Y.

If someone takes a bunch of good ideas and turns them into an essay with the help of AI, does that make the ideas inherently untrue?

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

#80

Post by spwa4 »

TLDR: what determines if we'll have an AI crash is whether the Anthropic and OpenAI IPOs provide enough money to cover compute for these companies. Without IPOs, these companies cannot survive 2026 and this will have drastic consequences for the hyperscalers, datacenter companies, energy companies, ... ie. the "AI crash".

Anthropic: $100B, OpenAI: $150B (that's not market cap, that's what they have to raise with the shares they issue in their IPO). If they make this money, the AI crash is delayed, at least to 2029.

To give a point of comparison: SpaceX got about 85B in cash to spend from its IPO.

(This is assuming the datacenters ordered actually get built between now and 2030 or so. If not crash is guaranteed)

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