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AI revenues are growing fast, but not fast enough

economist.com

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Re: AI revenues are growing fast, but not fast enough

#71

Post by yurish »

api wrote: post #66
jordanb wrote: post #61

Earlier quoted context omitted.

> it can make skilled people more productive by acting like a “mech suit for your brain.” If mech suits existed and people actually lived in them they would either get super fat or super skinny. In either case they'd lose all muscle mass.

All technologies are a double edged sword like this, simultaneously strengthening and weakening. https://newlearningonline.com/literacies/chapter-1/socrates-... Humans are tool makers and this is what happens when you make tools.

Problem is AI weakening our brain, arguably the only thing that distinguish us from animals. As if decreasing brain size of modern humans was not enough.

Re: AI revenues are growing fast, but not fast enough

#72

Post by thrw045 »

yurish wrote: post #70
thrw045 wrote: post #67

Earlier quoted context omitted.

This is a rewriting of history that I don't really like. Back before LLMs and before that again, it was very hard to write code. That's why so many people asked questions and figuring out how to write a piece of code was a big part of the value add of a programmer. It separated the ones who knew their stuff from the ones who didn't. Yeah sure software design was also important but it was less important than the actua…

> Back before LLMs and before that again, it was very hard to write code. That's why so many people asked questions and figuring out how to write a piece of code was a big part of the value add This may be true if you work in unfamiliar area or on frontier of programming. But this is not were most of programmer jobs are. That writing code itself is hard is a view of non-programmer. Programmers know that past some thr…

Sure it may be that way now. But if you go back 20 years to for example video game programming, the hard part was figuring out how to solve the problem, not spend weeks or months trying to figure out the abstract design of the code itself. 10-20 years ago a lot of the value of programming was figuring out how to do something, which is by its nature about writing the code, I would argue.

Edit: Also, even outside of video games, I don't remember people being obsessed about software design 10-20 years ago the way they are now. You had some design principles of course and there were obviously bad or redundant ways of doing things, but it's on a whole other level the past 5 years at least from what I remember.

Re: AI revenues are growing fast, but not fast enough

#73

Post by tim333 »

pu_pe wrote: post #35

> Exponential View, a consultancy, counts $175bn of generative-AI revenue, on an annualised basis, in June. In a recent paper Anton Korinek of Anthropic and Patrick McKelvey of the Bank of Canada estimate total “AI services” revenue. Adapting their methodology, we reckon this was $220bn (again annualised) in the first quarter of this year. Ramp’s data imply that 2-3% of business spending now goes on AI, pointing to $…

And the total capex spend to date is roughly $1tr so revenues are ~20% of capex. It doesn't seem ridiculously out of whack.

They don't have to do the future spending unless revenues are coming in appropriately.

(source on the capex to date https://valueaddvc.com/ai-spending)

Re: AI revenues are growing fast, but not fast enough

#74

Post by tim333 »

thisisthenewme wrote: post #12

I kind of think the AI boom is the worst for (non-inference-providing) companies. If all companies are using the same "frontier" LLMs, and if they are competitive, what gives one an edge over the other? I think, just the people. Which was the same as before, but now with the additional AI spend that they can't cut, or they become less competitive.

Domain expertise in whatever niche they are in. Like Palantir is not competing against dozens of similar startups in the shady military data space.

Re: AI revenues are growing fast, but not fast enough

#75

Post by jsnell »

> A back-of-the-envelope calculation finds that covering AI capex through identifiable AI income requires revenue on the order of $2.5trn per year,

Ok, so what is the botec? They don't say, but it's probably something like "next year's $1.5T/year in capex * 50% return on invested capital + a little bit extra for opex".

Obviously a given year's capex doesn't need to return its investment immediately the following year, but over it's ~5-7 year depreciation period. So in making this botec, they're not just taking next year's capex, but extrapolating it to a steady state of $1.5T/year in capex.

But why would that level of spending be steady? It's exceedingly unlikely to be. Future capex is not locked in. It's contingent on revenue and revenue growth. AI revenue has been growing faster this year than even the most optimistic projections suggested. It's hardly a surprise that capex projections were dialed up. If revenue growth lagged instead, it would go the other way.

(You need only look at Google Cloud growth and margins to get an idea of how good an investment last year's AI capex was. But at the time, the arguments for it being crazy were identical to those made today, except with the numbers substituted.)

There's a separate issue, which is that you can't really think about this on a sector-wide basis. In most businesses there will be winners and losers, demanding everyone be a winner is unrealistic. E.g. right now anyone with the business model of renting out the compute is being showered in money, people with a business model of building non-frontier models are losing money. The latter group's bad strategy doesn't invalidate the former group's good business.

Re: AI revenues are growing fast, but not fast enough

#76

Post by apercu »

an0malous wrote: post #6

> A back-of-the-envelope calculation finds that covering aicapex through identifiable ai income requires revenue on the order of $2.5trn per year, more than tech’s entire combined revenue today. … > All these complex calculations roughly tally with a much simpler one: adding up the ai revenue of the firms selling most of the ai. Anthropic pulls in perhaps $75bn, annualised; Openai makes tens of billions; Google, via…

$150bn a year? Awesome. But the investment obligations are in the trillions already so where is all this new revenue coming from? I think that is what the article is saying and what many of us have been asking for a year.

Re: AI revenues are growing fast, but not fast enough

#77

Post by trollbridge »

philipwhiuk wrote: post #19
trollbridge wrote: post #11

Earlier quoted context omitted.

$2.5tn is about 8% of U.S. GDP. So a handful of AI firms really expect that they will become larger than the entire U.S. sectors of manufacturing, government, or healthcare?

The share price is based on them eliminating entire sectors yes.

A rather big assumption everyone will keep paying API prices to OAI and Anthropic, though.

$3.2tn a year on inference is going to attract a lot of competition.

Re: AI revenues are growing fast, but not fast enough

#78

Post by keeda »

There are numbers in TFA that explain the current CapEx craze, but they're not called out. (Also it's a big selective in which numbers it reports, see below.)

> The Bundesbank finds that about half of German firms using AI do so for 5% of working hours or less.

That seems to be from [1] and matches what the St Louis Fed reports here [2]: 50%+ of American use AI weekly, but only 6% of working hours. Google's report [3] finds similar "broad but shallow use" where many people use AI for a small subset of tasks.

Now consider that all the hyperscalers are already extremely crunched for compute capacity. They are drowning in demand, and have been reporting this for the past several quarters. Nothing illustrates this better than the fact that Google of all companies -- whose massive infra footprint has always been considered a killer advantage in the AI race -- had to go rent capacity from SpaceX!

And this is at only ~6% usage at work; imagine what it will take to get to even 30%, let alone 100%! This is why these companies are feverishly scrambling to build more data centers even as Wall St punishes them for their insane CapEx spend.

The trillion $$$ question, of course, is whether this will all be profitable. There are many sources we could consider, but let's use one from TFA itself [4] which it selectively quotes as:

> According to Mr Yotzov’s study, nine in ten executives report no impact of AI on their firm’s productivity over the past three years.

The same source also says:

> ...these same executives predict sizable effects over the next 3 years, predicting that AI will boost productivity at their firms by an average of 1.4%, raise output 0.8%, and cut employment 0.7%.

So these executives clearly plan to spend more on AI. If the 1.4% seems small, consider that labor compensation is ~50% of global GDP, or $55 trillion. In a simplistic "what the market will bear" sense, even a 1% efficiency boost is "worth" 0.5T annually.

Now if 1.4% seems high, look through [5] (and also similar numbers from Germany in [1] BTW.)

These are the numbers AI companies have dancing in their eyes. Their challenge, of course, is to capture all that value, but to do so you first need to capture AI usage, and for that you need compute capacity, and hence the current CapEx splurge.

I do agree with TFA that the biggest impact will come from organizations "reworking their processes." However I fear what this really means is significant job losses.

[1] https://cepr.org/voxeu/columns/generative-ai-german-firms-di...

[2] https://www.genaiadoptiontracker.com/

[3] https://blog.google/innovation-and-ai/technology/research/un... (discussion: https://news.ycombinator.com/item?id=49020335)

[4] https://www.nber.org/system/files/working_papers/w34836/w348...

[5] https://aleximas.substack.com/p/what-is-the-impact-of-ai-on-...

Re: AI revenues are growing fast, but not fast enough

#79

Post by keeda »

iammjm wrote: post #3

“ According to Mr Yotzov’s study, nine in ten executives report no impact of ai on their firm’s productivity over the past three years.” Brutal stuff.

The same source (https://www.nber.org/papers/w34836) also says:

> ...these same executives predict sizable effects over the next 3 years, predicting that AI will boost productivity at their firms by an average of 1.4%, raise output 0.8%, and cut employment 0.7%.

So clearly they're going to spend more on AI.

More concerningly:

> In contrast, employees anticipate that AI will raise employment 0.5% at their firms in the next 3 years, highlighting an expectations gap between employers and employees.

Re: AI revenues are growing fast, but not fast enough

#80

Post by ryathal »

bigmadshoe wrote: post #42
p-e-w wrote: post #13

Earlier quoted context omitted.

Why would capex need to be covered by income during a time of investment and infrastructure buildup? Did income from the Apollo program cover its expenses?

The Apollo program wasn’t for profit and if it was it never would have yielded a return on investment.

The Apollo program successfully beat the USSR after having been noticeably behind. As a proxy for conflict it was a great deal.
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