8 ms·
You have to keep in mind Microsoft is planning on spending almost 100B in datacenter capex this year and they're not alone. This is basically OpenAI matching th
by serjester 2y ago
You have to keep in mind Microsoft is planning on spending almost 100B in datacenter capex this year and they're not alone. This is basically OpenAI matching the major cloud provider's spending.
This could also be (at least partly) a reaction to Microsoft threatening to pull OpenAI's cloud credits last year. OpenAI wants to maintain independence and with compute accounting for 25–50% of their expenses (currently) [2], this strategy may actually be prudent.
[1] https://www.cnbc.com/2025/01/03/microsoft-expects-to-spend-80-billion-on-ai-data-centers-in-fy-2025.html https://www.cnbc.com/2025/01/03/microsoft-expects-to-spend-8...
[2] https://youtu.be/7EH0VjM3dTk?si=hZe0Og6BjqLxbVav&t=1077 https://youtu.be/7EH0VjM3dTk?si=hZe0Og6BjqLxbVav&t=1077
- throitallaway 2y agoMicrosoft has lots of revenue streams tied to that capex outlay. Does OpenAI have similar revenue numbers to Microsoft?
- tuvang 2y agoOpenAI has a very healthy revenue stream in the form of other companies throwing money at them. But to answer your question, no they aren’t even profitable by themselves.
- manquer 2y ago> they aren’t even profitable Depends on your definition of profitability, They are not recovering R&D and training costs, but they (and MS) are recouping inference costs from user subscription and API revenue with a healthy operating margin. Today they will not survive if they stop investing in R&D, but they do have to slow down at some point. It looks like they and other big players are betting on a moat they hope to build with the $100B DCs and ASICs that open weight models or others cannot compete with. This will be either because training will be too expensive (few entities have the budget for $10B+ on training and no need to monetize it) and even those kind of models where available may be impossible to run inference with off the shelf GPUs, i.e. these models can only run on ASICS, which only large players will have access to[1]. In this scenario corporations will have to pay them the money for the best models, when that happens OpenAI can slow down R&D and become profitable with capex considered. [1] This is natural progression in a compute bottle-necked sector, we saw a similar evolution from CPU to ASICS and GPU in the crypto few years ago. It is slightly distorted comparison due to the switch from PoW to PoS and intentional design for GPU for some coins, even then you needed DC scale operations in a cheap power location to be profitable.
- tuvang 2y agoThanks for the detailed breakdown. This is an important nuance to my short reply.
- Fade_Dance 2y agoThey will have an endless wave of commoditization chasing behind them. NVIDIA will continue to market chips to anyone who will buy... Well anyone who is allowed to buy, considering the recent export restrictions. On that note, if OpenAI is in bed with the US government with this to some degree, I would expect tariffs, expert restrictions, and all of that to continue to conveniently align with their business objectives. If the frontier models generate huge revenue from big government and intelligence and corporate contracts, then I can see a dynamo kicking off with the business model. The missing link is probably that there need to be continual breakthroughs that massively increase the power of AI rather than it tapering off with diminishing returns for bigger training/inference capital outlay. Obviously, openAI is leveraging against that view as well. Maybe the most important part is that all of these huge names are involved in the project to some degree. Well, they're all cross-linked in the entire AI enterprise, really, like OpenAI Microsoft, so once all the players give preference to each other, it sort of creates a moat in and of itself, unless foreign sovereign wealth funds start spinning up massive stargate initiatives as well. We'll see. Europe has been behind the ball in tech developments like this historically, and China, although this might be a bit of a stretch to claim, does seem to be held back by their need for control and censorship when it comes to what these models can do. They want them to be focused tools that help society, but the American companies want much more, and they want power in their own hands and power in their user's hands. So much like the first round where American big tech took over the world, maybe it's prime to happen again as the AI industry continues to scale.
- fragmede 2y agoWhy would China censoring Tiananmen Square/whatever out of their LLMs be anymore harmful to the training process when the US controlled LLMs also censor certain topics, eg "how do I make meth?" or "how do I make a nuclear bomb?".
- deleted 2y ago[deleted]
- tantalor 2y agoThat's like saying I have a healthy revenue stream from my credit card.
- vlovich123 2y agoNot quite. In 2 years their revenue has ~20x from 200M ARR to 3.7B ARR. The inference costs I believe pay for themselves (in fact are quite profitable). So what they're putting on their investor's credit cards are the costs of employees & model training. Given it's projected to be a multi-trillion dollar industry and they're seen as a market leader, investors are more than happy to throw in interest free cash flow now in exchange for variable future interest in the form of stocks. That's not quite the same thing at all as your credit card's revenue stream as you have a ~18%+ monthly interest rate on that revenue stream. If you recall AMZN (& all startups really) have this mode early in their business where they're over-spending on R&D to grow more quickly than their free cash flow otherwise allows to stay ahead of competition and dominate the market. Indeed if investors agree and your business is actually strong, this is a strong play because you're leveraging some future value into today's growth.
- vFunct 2y agoHave they built their own ASICs for inference like Google and Microsoft have? Or are they using NVIDIA chips exclusively for inference as well?
- monocasa 2y agoThe rumors I've heard are that they have a hardware team targeting a 2026 release, but no productions ASICs at the moment.
- hfcbb 2y agoPlatform economics "works" in theory only upto a point. Its super inefficient if you zoom out and look not at system level but ecosystem level. It hasn't lasted long enough to hit failure cases. Just wait a few years. As to openai, given deepseek and the fact lot of use cases dont even need real time inference its not obvious this story will end well.
- MR4D 2y agoGiven the release of the new DeepSeek R1 model [0], OpenAI’s future revenue stream is probably more at risk than it was a week ago. [0] - https://arstechnica.com/ai/2025/01/china-is-catching-up-with-americas-best-reasoning-ai-models/ https://arstechnica.com/ai/2025/01/china-is-catching-up-with...
- misiti3780 2y agoOpenAI will not exist in 5 years, I'm calling it now. First movers to market dont always win, and they will surely lose.
- ipaddr 2y agoGoogle was first mover.
- MadnessASAP 2y agoIn what way? They weren't the first search engine, or advertising on the web?
- ipaddr 2y agoIn terms of ai and OpenAI leapfrogged them
- AlexCoventry 2y agoThe question is what's going to be OpenAI's Adwords.
- paul7986 2y agoYahoo, AOL, Alta Vista (others too) all were search engines on the web before Google's Sept 1998 existence.
- locusofself 2y agoLycos, Metacrawler, Dogpile. The list goes on
- Cthulhu_ 2y agoThey do get a lot of customers buying their stuff, but on top of that, a company with unique IP and mindshare can get investors to open their wallet easily enough; I keep thinking of AMD that was not or barely profitable for like 15 years in a row.
- PittleyDunkin 2y ago.
- oldpersonintx 2y agoWho is "we"? This isn't your money
- kdmtctl 2y agoIt is not. But this kind of money does have impact for society in any field. So, this a proper concern.
- idiotsecant 2y agoI'm not sure that's how capitalism works.
- deleted 2y ago[deleted]
- SecretDreams 2y agoSerious question - why Texas???
- wilson090 2y agoIt's where the energy is for this project. This is unfortunately paywalled but a good writeup on how the datacenter came to be: https://www.theinformation.com/articles/why-openai-and-oracles-ai-data-center-plan-hinges-on-a-little-known-startup https://www.theinformation.com/articles/why-openai-and-oracl...
- vancroft 2y agoI'm not a subscriber so I can't read it, which startup are they referring to in the headline?
- wilson090 2y agoThey're referring to Crusoe (crusoe.ai)
- SecretDreams 2y agoA company that will surely still exist in 4 years time.
- tempusalaria 2y agoTexas is a world leader in renewable energy. Easy permitting, lots of space, lots of existing grid infrastructure from the o&g industry.
- doctorpangloss 2y agoWhy do you think datacenters have actually been built in Oregon?
- deleted 2y ago
- jiggawatts 2y agoMeanwhile, Azure has failed to keep up with the last 2-3 generations of both Intel and AMD server processors. They’re available only in “preview” or in a very limited number of regions. I wonder if this is a sign of the global economic downturn pausing cloud migrations or AI sucking the oxygen out of the room.
- whimsicalism 2y agoglobal economic downturn? what? it’s absolutely the second one, this is a commonality across many orgs i’ve talked to who cannot get their CPU request met bc of GPU spend
- bboygravity 2y agoIsn't it more likely a reaction to xAI now having the most training compute?
- throwaway48476 2y agoHow is compute only 50% of their expenses?
- Jarwain 2y agoI'd guess salaries and such for all the devs and researchers make up a significant portion of the other half
- throwaway48476 2y agoThat seems almost impossible.