Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Financing the AI boom: from cash flows to debt [pdf]

bis.org

Post reply on HN
Print view View original

91–100 of 113 posts

Re: Financing the AI boom: from cash flows to debt [pdf]

#91

Post by watwut »

nativeit wrote: post #25
senectus1 wrote: post #15

Earlier quoted context omitted.

pre-echos of "too big to fail"

I’m not sure I understand these references. The banks were too big to fail specifically because they were banks involved with the finances of every major industry and government, not simply because their (arguably specious) valuations, or even market caps, had a ton of zeroes on them. What’s the argument for OpenAI being so inherently critical and interweaved with the rest of the economy that it can’t be allowed to f…

> The banks that got bailed out continued lending and immediately resumed

Pushing against regulation supposed to prevent this happening again. They also resumed taking a lot of risks, just like before. Their managers got rich while doing the same decisions as before, because other people paid the price.

> What’s the argument for OpenAI being so inherently critical and interweaved with the rest of the economy

It does not need to be inherently critical and interweaved with the rest of the economy. It has to pay the bribe to the right president. The "military necessity" excuse will be used then.

Re: Financing the AI boom: from cash flows to debt [pdf]

#92

Post by watwut »

andsoitis wrote: post #67
yndoendo wrote: post #61

Earlier quoted context omitted.

Too big to fail is an oxymorononic statement. Bailing out bad businesses retains those that poorly managed them. Those organizations should of been sold off to remove the bad actors. AI is currently a sunk cost to the US stock industry that is repeating the bad actor scenario. Not a single AI company is profitable and none of them produce deterministic nor cost effective solutions Microsoft's statment of using AI to…

> Both industries heavy use legal bribes, donations. Politicians will gladly bail them out to take ℅ of the cut in bribes. Are you saying that it is likely that at some point in the not too distant future, OpenAI and Anthropic will need bailout-size cash infusions from the US Government to continue existence and that the US government will do it and not face severe political consequences? I just don't think that chai…

> The current administration pays very close attention voter sentiment.

In which alternative universe? The amount of bribery and self-enrichment is staggering. The treatment of the war is mind boggling. The actual political moves seem to be designed to punish disloyal republicans rather then win more votes.

Re: Financing the AI boom: from cash flows to debt [pdf]

#93

Post by watwut »

amazingamazing wrote: post #20

Usefulness aside, I see little evidence AI is making money (profit, not revenue) for any firm whose profit doesn't come from the AI itself or the infrastructure, including supply chain. I'd love to hear a counterexample. One such example would be of a hypothetical company that does translations for payment, and with AI they now are making more profit because they use AI to do the translation rather than pay a transla…

I don't know why you would expect Duolingo profits be helped a lot by AI. Their profits going up and down are more about how much then enshittify for free users - basically tradeoff between long term success and temporary profits. AI does not change that balance. You can enshittify and profit quickly or not enshittify and keep long term engagement.

AI announcement annoyed some people, the slop translate courses were, well, slop. That is the extend of the change.

Re: Financing the AI boom: from cash flows to debt [pdf]

#94

Post by misja111 »

nativeit wrote: post #25
senectus1 wrote: post #15

Earlier quoted context omitted.

pre-echos of "too big to fail"

I’m not sure I understand these references. The banks were too big to fail specifically because they were banks involved with the finances of every major industry and government, not simply because their (arguably specious) valuations, or even market caps, had a ton of zeroes on them. What’s the argument for OpenAI being so inherently critical and interweaved with the rest of the economy that it can’t be allowed to f…

> What’s the argument for OpenAI being so inherently critical and interweaved with the rest of the economy that it can’t be allowed to fail?

AI companies are more and more interweaved with the economy because half the world is owning their stocks or has lent them money. Or, they have invested in companies that in turn have invested in AI. It is very similar to the situation before the credit crisis.

Re: Financing the AI boom: from cash flows to debt [pdf]

#95

Post by oblio »

fragmede wrote: post #89
oblio wrote: post #55

Earlier quoted context omitted.

> OpenRouter Do we have the balance sheet for OpenRouter & co? Especially in this age where if you put AI in your company's mission statement you're drowned in money. Let's hold off on calling something "cheap" until the external financing money runs out and the actual numbers are revealed AND audited. > yes it's cheap. When running toy models that do basically 0 of what regular people expect from state of the art LL…

OpenRouter is the router. We don't care about their financials, the point is that you can buy inference via them for $x/token on a variety of models for a variety of providers. Those are businesses not propped up by SV VC dreams, just hosting plus compute and their costs. Running a local LLM isn't a mainstream normal thing to do, sure but saying it's "basically 0 of what regular people expect from state of the art LL…

> Those are businesses not propped up by SV VC dreams, just hosting plus compute and their costs.

Again, you have no way of knowing this. During a bubble a myriad small companies nobody hears about get funded for millions and billions.

Also, plenty of startups max out the founder credit cards and then they go bankrupt.

Let's revisit this discussion and see if 10% of all the companies in OpenRouter are around in 2030.

> is lazily dismissing evidence because it contradicts your beliefs

No, it contradicts my experience. The models you can run on 128GB of VRAM/unified RAM (which is realistically the maximum a regular person can buy) are basically bad compared to Anthropic/OpenAI.

More than that hardware prices spike like crazy (and even if consumers could afford them, the hardware itself is basically a huge DYI project).

Let alone the fact that regular users need to run other things on their system so can't dedicate absolutely everything to the LLM.

Again, the financials of these businesses are at best unproven and at worst critically unsound.

Re: Financing the AI boom: from cash flows to debt [pdf]

#96

Post by disgruntledphd2 »

misja111 wrote: post #94
nativeit wrote: post #25

Earlier quoted context omitted.

I’m not sure I understand these references. The banks were too big to fail specifically because they were banks involved with the finances of every major industry and government, not simply because their (arguably specious) valuations, or even market caps, had a ton of zeroes on them. What’s the argument for OpenAI being so inherently critical and interweaved with the rest of the economy that it can’t be allowed to f…

> What’s the argument for OpenAI being so inherently critical and interweaved with the rest of the economy that it can’t be allowed to fail? AI companies are more and more interweaved with the economy because half the world is owning their stocks or has lent them money. Or, they have invested in companies that in turn have invested in AI. It is very similar to the situation before the credit crisis.

Sortof, much of the financing up to now has been from equity, rather than debt (with the exception of Oracle).

As the funding profile moves more towards debt, there's a bigger chance for problems as leverage tends to amplify the bad outcomes.

If Big AI (basically Mag 7) continue to issue debt, then there may be financial stability risks if it all blows up. The numbers are fine now, but the trend line is concerning (hence the BIS paper).

Re: Financing the AI boom: from cash flows to debt [pdf]

#97

Post by amazingamazing »

ironSkillet wrote: post #54
amazingamazing wrote: post #20

Usefulness aside, I see little evidence AI is making money (profit, not revenue) for any firm whose profit doesn't come from the AI itself or the infrastructure, including supply chain. I'd love to hear a counterexample. One such example would be of a hypothetical company that does translations for payment, and with AI they now are making more profit because they use AI to do the translation rather than pay a transla…

I'm not an MBA over here, but this math seems wrong. If they are spending $240 in increased costs, then they only have to make about $247 in additional revenue from that spend to preserve a 3% margin. That seems much more reasonable if it increases the probability that customers find the product they are looking for and have a good experience.

No, because costco has a 3% margin. A cart of stuff at costco costing 247 will yield 240 to various operating costs, and roughly $7 actually to costco.

If you have a lemonade stand you might sell a cup for $1, but overall after paying yourself and for the cups, lemons, etc you might only get 3 cents each cup.

For costco revenue equals sales and membership.

Re: Financing the AI boom: from cash flows to debt [pdf]

#98

Post by ironSkillet »

amazingamazing wrote: post #97
ironSkillet wrote: post #54

Earlier quoted context omitted.

I'm not an MBA over here, but this math seems wrong. If they are spending $240 in increased costs, then they only have to make about $247 in additional revenue from that spend to preserve a 3% margin. That seems much more reasonable if it increases the probability that customers find the product they are looking for and have a good experience.

No, because costco has a 3% margin. A cart of stuff at costco costing 247 will yield 240 to various operating costs, and roughly $7 actually to costco. If you have a lemonade stand you might sell a cup for $1, but overall after paying yourself and for the cups, lemons, etc you might only get 3 cents each cup. For costco revenue equals sales and membership.

I understand that. The AI software is meant to be a productivity enhancer for the employees using it. Other than the licenses, some training etc, there are no operating costs associated with it. Just by using the software, I don't suddenly have to pay more for salaries, retirement plans, etc, which are things that in aggregate produce the 3% margin. Maybe I have to pay more in logistics because I'm moving more product now, but I think the point stands.

Re: Financing the AI boom: from cash flows to debt [pdf]

#99

Post by redwood »

webnrrd2k wrote: post #78
redwood wrote: post #11

I've seen other reports that suggest the level of investment for eclipses the internet buid out in 2000 and the railroad boom more than a century earlier. I wonder if they use different ways of landing on these wildly different assessments

Manhattan Project: $36B, 5 years ▫ Apollo Program: $257B, 14 years ▫ Interstate Highway System: $620B, 37 years ▫ AI data centers: $930B, 6 years and still accelerating From: https://substack.com/@rubendominguez/note/c-244929068

Amazing if inflation adjusted as the chart claims and if the other article is true... it suggests that GDP growth has eclipsed inflation. EDIT that GDP Road is reported was inflation baked in other words 0% GDP growth would include inflation so as long as the GDP is growing this phenomenon exists

Re: Financing the AI boom: from cash flows to debt [pdf]

#100

Post by amazingamazing »

ironSkillet wrote: post #98
amazingamazing wrote: post #97

Earlier quoted context omitted.

No, because costco has a 3% margin. A cart of stuff at costco costing 247 will yield 240 to various operating costs, and roughly $7 actually to costco. If you have a lemonade stand you might sell a cup for $1, but overall after paying yourself and for the cups, lemons, etc you might only get 3 cents each cup. For costco revenue equals sales and membership.

I understand that. The AI software is meant to be a productivity enhancer for the employees using it. Other than the licenses, some training etc, there are no operating costs associated with it. Just by using the software, I don't suddenly have to pay more for salaries, retirement plans, etc, which are things that in aggregate produce the 3% margin. Maybe I have to pay more in logistics because I'm moving more produc…

The point is if you are paying for software but not increasing your revenue by your margin you are lowering it even if you are increasing profit in absolute terms.

What you are mentioning with salaries is not relevant.

Post reply on HN