Are we ignoring the 15 billion/yr deal with SpaceX/"Xai" and Anthropic?[1] Or is that not booked revenue yet?
[1] https://www.wired.com/story/spacex-ipo-anthropic-compute-fin...
Is AI Profitable Yet?
161–170 of 229 posts
Re: Is AI Profitable Yet?
#162AMD, Alibaba should be on there too. AMD is making good money on AI, with R&D at less than half the AI revenue. Whereas Alibaba's weird financials show it's kinda-sorta-protifable? I just wanna know how the OpenAI/Anthropic shell game works long-term. So both companies made equity deals with infrastructure providers; OpenAI on Azure, Anthropic on AWS, GCloud, and Colossus. They get a loan of compute credits and then…
Household names like Uber, Amazon, Blue Bottle Coffee and Fedex used the same playbook of burning investors’ cash for years and look where they’re now. Everyone’s long term plan is hoping that they build out and survive long enough that, in the end, the market accepts them. Even your local still-unprofitable restaurant is burning their grandparents’ inheritance money hoping that it works out. But on the other hand, t…
The old model works at tens of millions, not hundreds of billions. All the private capital is pretty tapped out, and banks aren't loaning (thank god). So they don't have investor money to burn (and when they do, they immediately burn it on new datacenters, which usually take years to build and aren't a certainty). That's why they made equity deals with hardware companies... it was the only way they could "afford" hardware. But someone has to pay for that hardware. And the person paying is... the hardware companies. They have a lot of cash, but not hundreds of billions of cash. Hence why Oracle pulled out, Nvidia scaled back its investment. Claude only doesn't suck right now because SpaceX literally loaned them a datacenter. So I'm saying... these companies will run out of cash, if they can't get paid back, sooner than later.
When OpenAI goes public it will initially get a tsunami of cash, but it'll also be open to new risk due to the different operating model and transparency. Anthropic might not make it to an S-1 (this year). Even if they got a $30B infusion of cash each, based on their current spending projections, it doesn't cover half of what they need just to break even. In the meantime the PaaS's are holding the bag (and shedding cash).
So where's it going to end? To me, all of this (combined with inflation, degrading of reserve currency, war in middle east) is spookily similar to the railroad panic of 1873. Over-investment in new technologies leveraging too much from the largest financial institutions resulting in prolonged economic crisis. Our only saving grace now are laws ensuring banks have to cover their end; if your money's FDIC/SIPC insured you're safe. But all the businesses and individuals who aren't safe are gonna take a bath, which'll have systemic ripples. Afaict, Google is the only player who can survive all that and come out with profitable AI. (But I'm sure I've missed something because it seems too obvious)
Re: Is AI Profitable Yet?
#163AMD, Alibaba should be on there too. AMD is making good money on AI, with R&D at less than half the AI revenue. Whereas Alibaba's weird financials show it's kinda-sorta-protifable? I just wanna know how the OpenAI/Anthropic shell game works long-term. So both companies made equity deals with infrastructure providers; OpenAI on Azure, Anthropic on AWS, GCloud, and Colossus. They get a loan of compute credits and then…
There's a lot of revenue and outside investment coming in but the haters pretend it's all circular financing.
[deleted]
Re: Is AI Profitable Yet?
#164For a rapidly growing new line of business, this isn't bad at all.
Oh really? A 195% cost to revenue ratio isn't bad at all? I'm not a biz expert, but I spent a few minutes looking this up (e.g., what are usual cost-to-revenue ratios for new lines of business), and this sounds like BS to me.
If "cost" is mostly capital investments, absolutely. Normally you'd use operating cost (which for capital equipment would be depreciation and interest), and here they are using the capital cost as full cost.
No one really knows how quickly AI hardware investments will become obsolete and thus how long it should be amortized, but 2-3 years would be extremely conservative, and in fact used H100 (discontinued/2 generations old) prices are higher today than they were when the equipment was new several years ago.
Re: Is AI Profitable Yet?
#165AMD, Alibaba should be on there too. AMD is making good money on AI, with R&D at less than half the AI revenue. Whereas Alibaba's weird financials show it's kinda-sorta-protifable? I just wanna know how the OpenAI/Anthropic shell game works long-term. So both companies made equity deals with infrastructure providers; OpenAI on Azure, Anthropic on AWS, GCloud, and Colossus. They get a loan of compute credits and then…
With this line of thinking, nobody would have ever built refineries, or fabs, or clouds. The frontier labs have fantastic margin on inference. You do not understand how fantastic. And they have license to change inputs at will based on profitability. They are not only innovating on models and tooling, they are innovating on cogs (I wrote this btw, and I’m not going to stop writing this way because Claude discovered i…
> The frontier labs have fantastic margin on inference. You do not understand how fantastic. And they have license to change inputs at will based on profitability.
This. The gross margin on inference is at least 95% if not higher - several open weight models on my tiny consumer DGX Spark easily replace the 15 dollars a day I was paying in tokens for Claw usage with a dollar a day electricity. You add data centre overhead and depreciation, the theoretical net margin will trend lower but depreciation is always far more aggressive than actual product degradation. The old NVIDIA GPU on a 9 year old second hand gaming PC I bought still serves up a small Gemma 4 variant quite reasonably.
Re: Is AI Profitable Yet?
#166Earlier quoted context omitted.
We go through this with every startup cycle. Startups are not expected to be profitable because they’re spending so much money on growth and R&D. The concept of running a business in an intentionally unprofitable state is confusing to those who don’t understand startup funding. The weird thing is that so many people believe that inference is unprofitable. There are large open weights models that companies run at a pr…
> There are large open weights models that companies run at a profit while charging far less than what OpenAI and Anthropic charge. You have no idea whether those companies are making a profit. 1. All it takes is one of them operating a loss to gain market share to force the other ones to lower prices to compete. 2. There’s not reason to expect that these relatively small companies are correctly pricing GPU depreciat…
GPU depreciation cycles are slowing down a lot. A big chunk of frontier model inference is still being run on Hopper-era GPUs because anything more recent is heavily bottlenecked and it makes more sense to use the newer stuff for training,
Re: Is AI Profitable Yet?
#167Earlier quoted context omitted.
That’s an overly simplified model. AI companies spending results in infrastructure beyond the company such as manufacturing capacity, power lines, software systems, and even individual expertise. If they fail then the negative impact ripples through the economy due to misallocation of resources.
> infrastructure beyond the company consider all the companies in a market and those that feed that market to be one virtual mega company, add up all the valuations and revenue streams, costs, etc and aggregate all the investors into one. Nothing changes about the picture I drew. We simplify models to make the real world understandable. > negative impact ripples through the economy due to misallocation of resources f…
Keep peddling that capitalist realism. “There is no alternative!” The market may not misallocate capital, by definition, but it very clearly and routinely misallocates resources. Let me guess: you’re doing relatively well for yourself?
Re: Is AI Profitable Yet?
#168AMD, Alibaba should be on there too. AMD is making good money on AI, with R&D at less than half the AI revenue. Whereas Alibaba's weird financials show it's kinda-sorta-protifable? I just wanna know how the OpenAI/Anthropic shell game works long-term. So both companies made equity deals with infrastructure providers; OpenAI on Azure, Anthropic on AWS, GCloud, and Colossus. They get a loan of compute credits and then…
With this line of thinking, nobody would have ever built refineries, or fabs, or clouds. The frontier labs have fantastic margin on inference. You do not understand how fantastic. And they have license to change inputs at will based on profitability. They are not only innovating on models and tooling, they are innovating on cogs (I wrote this btw, and I’m not going to stop writing this way because Claude discovered i…
> The frontier labs have fantastic margin on inference.
Source?
The OpenAi filing will be very interesting indeed.
("trust me bro" statements from sama et al does not count, since I don't trust them)
Edit:
The best argument I have seen look at the price of inference from smaller companies running open models. And assuming they are profitable-ish. Their prices are lower than the OpenAi and Anthropics best models, so maybe they do make money on inference (ignoring all other costs)
Re: Is AI Profitable Yet?
#169Earlier quoted context omitted.
This is what people said about the banks in 2007. Just because the big players’ balance sheets can take the hit doesn’t mean the wider economy is insulated.
And all these banks were bailed out by big brother. So the people were right.
Yeah and a lot of far less powerful people got fucked over from the crash. Is that what a successful, functioning economy looks like to you?
Re: Is AI Profitable Yet?
#170Earlier quoted context omitted.
Household names like Uber, Amazon, Blue Bottle Coffee and Fedex used the same playbook of burning investors’ cash for years and look where they’re now. Everyone’s long term plan is hoping that they build out and survive long enough that, in the end, the market accepts them. Even your local still-unprofitable restaurant is burning their grandparents’ inheritance money hoping that it works out. But on the other hand, t…
The old model works at tens of millions, not hundreds of billions. All the private capital is pretty tapped out, and banks aren't loaning (thank god). So they don't have investor money to burn (and when they do, they immediately burn it on new datacenters, which usually take years to build and aren't a certainty). That's why they made equity deals with hardware companies... it was the only way they could "afford" har…
They just have to incrementally raise the price of inference tokens and limit subscriptions to curtail existing demand (with much of it likely moving to slower and cheaper local models). Which, come to think of it, is exactly what seems to be happening right now.
> So they don't have investor money to burn (and when they do, they immediately burn it on new datacenters, which usually take years to build and aren't a certainty).
If AI models can get smarter and more practically useful via some combination of increased scale and more fine-tuned post-training on specific workloads (which is compute-heavy, even more than the usual kind of pre-training) these new datacenters are a fantastic investment.