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How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

nytimes.com

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Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#251

Post by FloorEgg »

nova22033 wrote: post #117

Related https://www.theregister.com/2025/10/29/microsoft_earnings_q1... Microsoft seemingly just revealed that OpenAI lost $11.5B last quarter

Edit: the following is incorrect. I didn't know that the change to IRC § 174 was cancelled this summer.

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What's crazy is that with the 2021 changes to IRC § 174 most software r&d spending is considered capital investment and can't be immediately expensed. Has to be amortized over 5 years.

I don't know how that 11.5B number was derived, but I would wager that the net loss on income statement is a lot lower than the net negative cash flow on cash flow statement.

If that 11.5B is net profit/loss, then whatever the portion of the expense part of the calculation that's software R&D could be 5x larger if it weren't for the new amortization rule.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#252

Post by marcyb5st »

embedding-shape wrote: post #204
NBJack wrote: post #47

Earlier quoted context omitted.

Read up a bit on the effort needed to get a fab going, and the yield rates. While engineers are crucial in the setup, the fab itself is not as 'fungible' as the employees involved. I can spin up a strong ML team through hiring in probably 6-12 months with the right funding. Building a chip fab and getting it to a sensible yield would take 3-5 years, significantly more funding, strong supply lines, etc.

> I can spin up a strong ML team through hiring in probably 6-12 months with the right funding Not sure what to call this except "HN hubris" or something. There are hundreds of companies who thought (and still think) the exact same thing, and even after 24 months or more of "the right funding" they still haven't delivered the results. I think you're misunderstanding how difficult all of this is, if you think it's mer…

Fully agree. I also think we are deep into the diminishing returns territory.

If I have to guess OAI and others pay top dollars for talent that has a higher probability of discovering the next "attention" mechanism and investors are betting this is coming soon (hence the hige capitalizations and willing to loive with 11B losses/quarter). If they lose patience in throwing money at the problem I see only few players remaining in the race because they have other revenue streams

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#253

Post by TYPE_FASTER »

OtherShrezzing wrote: post #169
guywithahat wrote: post #140

Earlier quoted context omitted.

It's incredible how Tesla used to lose a few hundred million a year and analysis shows would freak out claiming they'd never be profitable. Now Rivian can lose 5 billion a year and I don't hear anything about it, and OpenAI can lose 11 billion in a quarter and Microsoft still backs them. I do think this is going to be a deeply profitable industry, but this feels a little like the WeWork CEO flying couches to offices…

>and OpenAI can lose 11 billion in a quarter and Microsoft still backs them. For Microsoft, and the other hyperscalers supporting OpenAI, they're all absolutely dependent on OpenAI's success. They can realistically survive through the difficult times, if the bubble bursts because of a minor player - for example if Coreweave or Mistral shuts down. But if the bubble bursts because the most visible symbol of AI's future…

> Altman has played an absolute blinder by making the success of his company a near-existential issue for several of the largest companies to have ever existed.

Yeah true, the whole pivot from non-profit to Too Big to Fail is pretty amazing tbh.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#254

Post by alfalfasprout »

guywithahat wrote: post #140
nova22033 wrote: post #117

Related https://www.theregister.com/2025/10/29/microsoft_earnings_q1... Microsoft seemingly just revealed that OpenAI lost $11.5B last quarter

It's incredible how Tesla used to lose a few hundred million a year and analysis shows would freak out claiming they'd never be profitable. Now Rivian can lose 5 billion a year and I don't hear anything about it, and OpenAI can lose 11 billion in a quarter and Microsoft still backs them. I do think this is going to be a deeply profitable industry, but this feels a little like the WeWork CEO flying couches to offices…

Investors are trying to bet on OpenAI being the first to replace all human skilled labor. Of course, this is foolish for a few reasons:

1. Performance of AI tools improving but marginally so in practice 2. If human labor was replaced, it's the start of global societal collapse so any winnings would be moot.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#255

Post by brokencode »

Arkhaine_kupo wrote: post #61
zemvpferreira wrote: post #44

Earlier quoted context omitted.

There’s one key difference in my opinion: pre-.com deals were buying revenue with equity and nothing else. It was growth for growth’s sake. All that scale delivered mostly nothing. OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go anot…

> they’re using their equity to buy compute that is critical to improving their core technology But we know that growth in the models is not exponential, its much closer to logarithmic. So they spend =equity to get >results. The ad spend was a merry go round, this is a flywheel where the turning grinds its gears until its a smooth burr. The math of the rising stock prices only begins to make sense if there is a possi…

Yeah, except you can keep on squeezing these lemons for a long time before they run out of juice.

Even if the model training part becomes less worthwhile, you can still use the data centers for serving API calls from customers.

The models are already useful for many applications, and they are being integrated into more business and consumer products every day.

Adoption is what will turn the flywheel into a rocket.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#256

Post by tonyarkles »

embedding-shape wrote: post #196
jimbokun wrote: post #130

Earlier quoted context omitted.

Much easier and cheaper to source computers than a fab.

Right, but to source a fab you need experience as well, nothing you can just hire a random person to do exactly.

To simplify it down even more:

- For the ML team, you need money. Money to pay them and money to get access to GPUs. You might buy the GPUs and make your own server farm (which also takes time) or you might just burn all that money with AWS and use their GPUs. You can trade off money vs. time.

- For the chip design team, you need money and time. There's no workaround for the time aspect of it. You can't spend more money and get a fab quicker.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#257

Post by slashdev »

_heimdall wrote: post #248
slashdev wrote: post #235

Earlier quoted context omitted.

Nvidia has a trailing PE of 50. Cisco was 200 At the height of the dotcom bubble. Nowhere near that level. There’s real demand and real revenue this time. It won’t grow as fast as investors expect, which makes it a bubble if I’m right about that. But not comparable to the dotcom bubble. Not yet anyway.

We shouldn't judge whether an indicator is stable or okay only by looking to see if its the highest historical value. PE ratios of 50 make no sense, there is no justification for such a ratio. At best we can ignore the ratio and say PE ratios are only useful in certain situations and this isn't one of them. Imagine if we applied similar logic to other potential concerns. Is a genocide of 500,000 people okay because o…

I’m not asking if it makes sense, I’m simply pointing out that by that measure this is much less extreme than 2000. As I stated, I think we’re in a bubble, so valuations won’t make much sense.

If you have a better measure, share it. I trust data more than your or my feelings on the matter.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#258

Post by nocoolnametom »

seydor wrote: post #81

They are fueling rich family office money into the bank accounts of their personell. Not bad not bad.

The fact that it is private equity that is going to evaporate when the bubble bursts is the only silver lining I can see. However, my natual cynicism makes me bet they'll spend whatever they've got left over on their pet politicians to use government (ie, public funding) to bail themselves back out.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#259

Post by camdenreslink »

schnitzelstoat wrote: post #164
anonymousiam wrote: post #153

Earlier quoted context omitted.

The one what? What is the secret sauce that will distinguish one LLM from another? Is it patentable? What's going to prevent all of the free LLMs from winning the prize? An AI crash seems inevitable.

It could end up like Search did, at first you had Lycos, AskJeeves, Altavista etc. and then Google became absolutely dominant. They want to be the Google in this scenario.

Google was by far the best product. Maybe an LLM provider will emerge in that way, but it seems they are all very similar in capability right now.

Re: How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

#260

Post by embedding-shape »

tonyarkles wrote: post #256
embedding-shape wrote: post #196

Earlier quoted context omitted.

Right, but to source a fab you need experience as well, nothing you can just hire a random person to do exactly.

To simplify it down even more: - For the ML team, you need money. Money to pay them and money to get access to GPUs. You might buy the GPUs and make your own server farm (which also takes time) or you might just burn all that money with AWS and use their GPUs. You can trade off money vs. time. - For the chip design team, you need money and time. There's no workaround for the time aspect of it. You can't spend more mo…

> - For the ML team, you need money. Money to pay them and money to get access to GPUs. You might buy the GPUs and make your own server farm (which also takes time) or you might just burn all that money with AWS and use their GPUs. You can trade off money vs. time.

Even if you do those things though, it doesn't guarantee success or you'll be able to train something bigger. For that you need knowledge, hard work and expertise, regardless of how much money you have. It's not a problem you can solve by throwing money at it, although many are trying. You can increase the chances of hopefully discovering something novel that helps you build something SOTA, but as current history tells us, it isn't as easy as "ML Team + Money == SOTA model in a few months".

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