xAI is looking more like a datacentre REIT than a frontier lab

That's the default assumption but in the new GPU+Memory constrained age isn't true.

Time on 4 year old H100 servers costs more now than when they were new (!!)

Same with GPUs. There is also a huge market for used GPUs from 1-2 generations ago. The A100 is a six year old chip at this point and is still running strong, especially for inference. Like cars, chips can be refurbished and repaired. A hyperscaler or even mid level player here isn't going to hold onto chips for their entire usable lifespan.

There's a reason old 3090's went from $600 in 2022 o to over $1K in 2026.

So are you using the computers or not? I'd argue that if you're using them for training, then it's not wasted capacity. And if you're not using them, then you can turn them off, so you're not sucking up energy.

I don’t know but this dude at my son’s school has a 32GB RTX 5090 and it’s worth more than what he paid for; and he did the same trick with the RTX 4090 before that.

Until shortages are the rule, these assets are appreciating

the comment you replied to is word-by-word what people hyping canadian telecoms were saying before the dotcom crash!

There is depreciation, which is taking the purchase price and dividing it across N number of years (typically 5). That's the D in EBITDA and is mostly used as a profitability calculation.

The depreciation of a GPU also gets mucked up in the current GPU financed market as well. DDTL loans. The people running the GPUs often don't even own the GPU, they lease it, so there is nothing for them to depreciate (D).

The analogy that a GPU is like a used car makes zero sense. There is no oil or tires to change on a GPU. They don't wear out in the same way that a rental car would. They are housed in climate controlled locations with clean power. They just don't fail the way that is portrayed in the press.

Useful life of a GPU is based on profitability. When does opex cost more than profitability?

Some companies, like mine, also have support contracts. Anything goes wrong with the GPU (or any part of the system), Dell comes and fixes it at no extra charge. We just migrate customers and workloads to hot spares while the parts are replaced.

As for compute going down in value... the 122TB of enterprise nvme and 2GB of ram in each server that I bought 2 years ago is now worth vastly more than I paid for it. I'm also renting my GPUs out for more money now due to supply being so tight and demand being so high.

The frontier labs are shifting from pricing grounded in the price of compute, to pricing grounded in the intelligence provided, or more specifically the economic value of that intelligence downstream.

The margins on that allow them to pay a hefty premium on compute and still come out ahead.

As they buy more compute at high prices, they're also pricing out competition from cheaper models. It's already become materially more difficult to get compute to run open weight models at competitive prices as a result of frontier labs in the last year.

This is a reference to the 1990's dot com bubble where internet infrastructure companies overbuilt network capacity, leading to the term "dark fiber". That was an indicator of a bubble because it showed that capacity was larger than demand. OP is saying that this is specifically NOT happening in the case of GPUs yet, indicating that demand still outstrips supply of compute.

>GPUs go EOL fast

We are seeing the opposite of what was expected, GPUs are actually getting more valuable because demand is so great, something that basically never happens. Even older chips have become more valuable.

>paused datacenter builds

It doesn't seem that datacenters have been paused because of lack of demand for AI, it seems mostly that there is a lot of pushback by cities to build these things and also there is a shortage of power to run them.

IMO none of these things point to a AI being a bubble (over-hyped, demand does not match the stated value). It mostly points to the opposite, there is massive demand for AI and every layer of the supply chain is struggling to keep up with that demand.

The NVIDIA GPUs, HBM, land-use permits and power-supply agreements xAI nailed down are absolutely not commodities.

I think xAI is a mess. But let’s call a spade a spade, they speculated on AI compute and they are currently right.

It's sheer brute force, tons of waste, seems like very little thought going in to fitting the implementation to the problem.

The value of compute can drop significantly in the event of users figuring out how to optimise for their particular need. And yep, there are wasteful applications that can burn whatever compute is available, but how much demand for that is there when it's properly priced?

Extreme example. Generating novel 4K VR video on demand. I'm certain there's a market for it, at $10/hour probably quite a healthy one, at $100/hour not so much.

- https://cloud.sustainability.watch/explore-issues/example-go...

- https://www.sfgate.com/national-parks/article/mount-hood-wat...

They also seemingly dropped their net-zero climate goal:

https://www.tomshardware.com/tech-industry/google-quietly-re...

bko didn’t say there isn’t circular financing going on. They’re just saying this isn’t an example of it. They’re right.

It’s a potential conflict of interest. And if the agreement is fake—if Google cancels without paying the cash—it could be market manipulation. But the influencer space likes to latch onto jargon, and the one it’s overapplying right now is circular financing.

See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live.

(note: Allied Irish Banks and Anglo Irish Bank are different organizations with the same initials; the latter is the massively fraudulent one run by Sean Quinn who did eventually see a small amount of jail time)

Should the government bail them out or somehow stop the collapse? Arguable. Will they anyway? Almost certainly. These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage to the national (and global) economy precisely so that the taxpayer will be left holding the bag if and when it all comes crashing down.

Capitalism is rotten to the core and there's no fix for it.

When COVID was ongoing there was a term floating around I liked, "Psychosis" was it. The spell is like that of, denial? Terror & shock?

Trauma might be better?

Looking at trauma responses and how to detect it in humans is an interesting perspective to look at all this with. Personally, if I look at it from "people are afraid, traumatized, defending themselves" and use that to extrapolate how most people (the masses, the non-rich) would act and also the rich - that points me to why theres such a sudden hastening of action and pace of wealth up towards the top in the name of AI & war.

So is "unprofitable on inference".

Thankfully we should find out for real as soon as those S-1 documents arrive.

More like $75/mo per user for the next 5-10 years if they can get 5% of the global population to pay that.

These companies are going all in and growing rapidly, because they want to dominate the market and since it is difficult to differentiate between competitors, even being third place is a terrible place to be in the consumer facing AI space.

It will likely take a few years for supply to fully catch up, which means xAI will eat well for a while.

I can see a world where a few data centers come on line this year and reduce margins a bit, but it's crazy to think the margins will go to "cost of electricity plus a few percent" anytime soon.

It's a fairly sweet deal for everyone involved. Anthropic/Google get to sell more tokens and xAI gets a war chest for another bite at the apple. I don't have much confidence that they'll do anything with it but that doesn't mean these deals don't make sense for them.

Cisco was over 400 at one point and Nvidia is around 30. Not quite the same.

Other players today: - Digital Realty 48x - Equinix 75x - CoreWeave (still losing money)

There is likely a bubble of some type here, but I don't think this is the same as the Dotcom bubble.

What caused the crash was Yahoo! being unable to do anything with their acquisitions and Google coming out with a better search engine, undermining Yahoo!'s core product. Google basically pulled the rug from under the dot com bubble.

The situation we're in now with LLMs is different, if I'm right we're actually pre-bubble, the bubble hasn't even started yet.

But the S&P 500 is currently trading at over 2x its average long-term CAPE: https://www.multpl.com/shiller-pe

So it can reasonably be expected to drop more than 50% to return to average long-term valuation levels.

And the "nonfinancial market cap to gross-value-added" ratio is even more insane, I have a site tracking this number: https://sharperatios.com/market-cap-gva.html

And some others might need to pull out when its down.

Money doesn't appear out of thin air.

Why would it lead to recession if a handful of big companies lose money they have?

It will show that the USA is in a recession for sure, but otherwise

Note that a pension plan that invests for you blindly is no better - either the returns are so bad that they are a scam, or they are investing in stocks anyway and so you get the same results but less control. Similar for things like social security, they are either worse options or you need to pump stocks.

We are not going to come up with a market-based solution to fix income inequality. The solution, as much as people in the dwindling middle class resist it, is a strong social safety net coupled with a hard reset on taxation and housing policies. Nobody should be homeless, nobody should be allowed to starve, but you might have to accept that your 401K goes down in exchange for a government guarantee of housing and food.

This is hard for people to accept because they currently have equity in their home or a 401K to save them from starving. But those are transient, individualistic solutions. You can lose your house. You can lose your 401K. Society should be taking care of each other in a broader way than letting everyone accumulate a little, private pile of money.

Also, selling shares puts them in a better position to survive a downturn (more cash, less debt).

Whatever financial games they play in the background, doesn't matter when you make that much per 2 quarters alone.

And it is far and away the world leader in satellite launch capacity and satellite internet.

Does that justify the massive valuation? Probably not. But it's a factor.

Circular investing is a thing that is happening with all of these companies related to language models. Google hoping for a ROI isn't a great example of that.

Eh. There's too much money. Covid response involved printing a lot of money and it all ended up somewhere. The chaos of the current administration has made everything considerably harder to price and the coincidental rise of the LLM has put us in strange situation that is legitimately difficult to price things correctly.

Banks are lending to these private funds that are packaging questionable loans into securities (as opposed to banks giving loans or companies issuing bonds). This is the post-2008 place for people to get highly leveraged loans and they probably need to be better regulated.

But yes it doesn't seem like private credit alone will cause problems, the concern I'm trying to outline is a few of these things happening at the same time causing a kind of collapse.

TACO uncertainty is strangely propping up asset values as there's always a credible thought that whatever is happening is pretend or going to be reversed soon. And the expectation that the fed isn't independent any more and will make decisions to prolong the bubble resulting in a bigger crash ambiguously far into the future. Few want to start shorting because they have no concept of how long the market can stay irrational or if 20% inflation might be around the corner instead of a popped bubble.

The scenario I see is write-offs. At the moment there are hundreds of billions in IOUs being passed around, much more in liabilities than Lehman had back then in 2007. Compounding that is the frankly insane valuation - it's as clear as day that at least one of the major AI shops will go bust, they all run at a (huge) loss and sooner or later, one of them will run out of cash before achieving market dominance.

Unfortunately, OpenAI and Anthropic are valued at almost 1 trillion $ - backed by nothing but the hope on the winner surviving and achieving the classic VC-backed near-monopoly. The staff can be poached, they don't hold much in IP like patents, the servers and GPUs are mostly owned by third parties like AWS, Microsoft, Google or Oracle - once the cash runs out, they can't sell any assets for even some runway extension because there are no assets. Even the model weights and training data aren't worth much - all competitors already have training data sets of their own, it does not make sense to acquire further data, and model weights are being rendered obsolete by the constant churn of open-weight models particularly from China.

SpaceX is valued even higher, but unlike the other two candidates, they still at least got a viable business even if the entire AI BS bubble collapses, Starlink is a money printer and there's no alternative in sight that matches SpaceX and their reusable rockets.

Now, if either of the three even experiences a large drop in valuation for whatever reason, it's not just experienced VCs that can readily afford (and expect) investments to fail, but this time a lot of "everyday" investment vehicles (such as pension funds) will have to issue write-off losses, and now that they are publicly traded, that may also trigger stop-loss cascade orders further dropping prices, and retail investors will probably join in on the mass panic. That's the #1 risk IMHO.

The #2 risk is that after a collapse, the service providers (i.e. the ones owning the servers) will be sitting on a ton of hardware that has nowhere near recouped its cost. AWS, MS and Google can probably repurpose most of the hardware for their own use and rent out what remains, but they will have to eat significant accounting losses, provoking again a drop in their stock price, but this time with even more blast radius as all three of them are established stock index (and thus ETF) members that a looooot of people have exposure to. But someone like Oracle? They might actually get fried for good.

And the #3 risk is further downstream, particularly relating to NVDA. They have enjoyed years of insane profits because they are the only ones making high-performance AI chips. When demand for new chips collapses due to the event(s) I just described, they can easily shift their TSMC production slots back to GPU wafers and sell these to gamers - but at a far lower profit than before, which again can trigger stock price drops and write-offs.

I won't go further downstream - TSMC and their suppliers are IMHO pretty safe because there is just so much pent up demand from everything not AI, and the construction companies building datacenters don't have too much of a blast radius when the big guns stop expansion projects.

The concrete scenario I'm really, really afraid of: all three succeed with their IPOs, maybe they all survive a year and get included even in S&P 500. The existing shareholders and insiders all slowly dump a lot of their vested stock onto the public market, which in cleartext means into the dozens of billions of $ of retirement contributions. One day, the bubble bursts for whatever reason. The stock markets drop in a panic sell-off, either triggered by stop-loss orders or because retail investors are a herd of sheeple (just like in the 1st covid lockdown). Eventually, circuit breakers on the stock markets will trigger (just like they did in the GME post-apes collapse) and trading will pause, but it will resume until the markets have adjusted to the new valuation... and once the dust clears up, there will be a lot of blood on the floor. Possibly even riots, depending just how much retirement assets just got wiped out.

Nvidia goes back to being a 100 billion dollar business and everyone else reaps the benefits of cheap tokens.

US is a near monopoly of this pairing. A crash will result in the removal of the fluff and ocerpricing of it all but the stance is beyond strong.

Unless China outcompetes Nvidea AND TSMC AND magically gets 4x cheaper energy they are in a much weaker stance for the long haul.

The submarine option in the caves? Expensive, not there on time, didn't work. His push for the screens

Hyperloop was apparently his baby. Fails on all 3 counts.

Tesla self driving. Ineffective, overdue and I can imagine the lawsuits aren't cheap.

It looks like we have an idiot in charge where his only advantage is in pressuring his underlings into reckless behaviour and offloading the responsibility and the negative externalities

"Well, you didn't want a data centre in the field near your town, so instead we'll rain astrocentere debris across the western hemisphere and set off a Kessler syndrome cascade. Thank god we didn't have to wait for a permit."

> permitting delays for terrestrial datacentres

going down any time soon, or even being possible.

It was definitely a smart business move. It should be troubling to any shareholder than xAI is unable to utilize this infrastructure as renting it out to competitors.

FSD unsupervised seems pretty close to me.

This is where we lack data. I’m skeptical of the claim. If anything will force retirement of old chips, it will be power efficiency, not customers being picky amidst a chip shortage.

I don't understand why people don't call that out more, when Musk rambles endlessly about how he's going to reinvent data centers and semiconductor fabs.