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Its worse for some other "ai" related companies. Coreweave for instance, now has its CDS trade around 600bp, which is a 1/3 rise in 2 months, which implies tha
by chollida1 11mo ago
Its worse for some other "ai" related companies.
Coreweave for instance, now has its CDS trade around 600bp, which is a 1/3 rise in 2 months, which implies that the probability of a default in 5 years is 40% at a 40 cent recovery rate.
That makes Coreweave's credit rating the equivalent of CCC-, which aint good.
- neom 11mo agoYeah, and then the Canadian government handed hundreds of millions to the kids at Cohere who have now gone spent it on Coreweave. When it was all announced I was very very vocal that using an inexperienced startup for the sovereign compute capabilities seemed a very poor choice. I'm so curious to see how this all plays out.
- reactordev 11mo agoI think we know how it plays out. In a couple of years, someone is going to have to swoop in and save CoreWeave’s customers and consultants will be lined up for that “transformation”.
- hackernewds 11mo agoare you suggesting bailouts for the AI data centers are the new too big to fail
- lokar 11mo agoCoreweave can default and be liquidated and the data centers will keep running just fine.
- unyttigfjelltol 11mo agoBut imagine all the data, tech and data center companies simultaneously go into receivership. Farfetched, but indulge the fantasy. At that moment what choice would the government have but to conduct a rescue that at least keeps the lights on, and probably more? What’s the alternative? Extensive data losses, business interruptions— if just a couple of those key companies spontaneously stopped operating, chaos.
- lokar 11mo agoIf the companies run cash flow positive absent debt service (I assume this is the case), the creditors will be in charge, they can put up more $, or get a loan while they re-structure the company. Either they end up owning it, or they sell it. This can happen to a bunch of companies at the same time. There would not really be a huge rush if they are cashflow positive, they can take their time.
- fakedang 11mo agoPrivate equity: Y'all got some of that excess data center capacity for cheap? Source, we basically explored this at my previous job, and that was 7 years back.
- reactordev 11mo agoCurious what your 10 year projection is…
- MangoToupe 11mo agoI don't think anyone is worried about the data centers but rather that the pretense of demand for them was fabricated to begin with. Of course, we can always find ways to use compute in non-productive ways—mining crypto, for instance.
- lokar 11mo agoDemand is at least partly a function of price.
- helloooooooo 11mo agoCohere is doing a lot of enterprise AI business, and a lot of business directly with the federal government. They are also not juiced up in these financial games that OpenAI or Oracle are playing. Additionally, Cohere is no less “kids” than Anthropic or OpenAI. Aidan was literally one of the co-authors of “Attention is all you need”.
- neom 11mo agoNo doubt some amazing engineer's work there, but there are little to no adults in the room at that business as far as I can see, and sure they like to tweet about how well they are doing, and I keep hearing this line that they're selling to enterprise, uh, who, Canadian tire? If they actually have more than $150mm in revenue I'd be amazed, and $150mm revenue is still, not at all impressive. https://www. theinformation.com/articles/openai-challenger- cohere-fell-85-short-early-revenue- forecast
- wbl 11mo ago$150 mm with a gross margin of 80% and low capital is great. $150 mm when you spent a few billion not so much.
- ryandv 11mo agoI thought they were still hiring bootcamp graduates.
- htrp 11mo agoaidan was an intern on AIAYN >While an intern at Google Brain, Aidan Gomez co-authored the paper "Attention Is All You Need" with other researchers.
- maximilianburke 11mo agohttps://en.wikipedia.org/wiki/Attention_Is_All_You_Need#Authors https://en.wikipedia.org/wiki/Attention_Is_All_You_Need#Auth... >The authors of the paper are: Ashish Vaswani, Noam Shazeer, Niki Parmar, Jakob Uszkoreit, Llion Jones, Aidan Gomez, Łukasz Kaiser, and Illia Polosukhin. All eight authors were "equal contributors" to the paper; the listed order was randomized. Intern or not, it still sounds like he contributed substantially.
- re-thc 11mo ago> When it was all announced I was very very vocal that using an inexperienced startup for the sovereign compute capabilities seemed a very poor choice. Cohere raised from Nvidia. Cohere spends on Coreweave. Coreweave raised from Nvidia and buys Nvidia chips. This is why they buy from Coreweave.
- daveguy 11mo agoYou're not implying there is corruption in the form of circular deal making in the AI/Tech industry, are you?
- re-thc 11mo agoNo, it's not "corruption". It's that very little real money changes hands. The smaller investors and debt providers get sucked into funding it but that's about it. You get GPU rentals. Not the actual billions raised they claim. So it's just creative accounting to count the same money 2-4x.
- daveguy 11mo agoHah. Well, back in ~2004 we had a different name for "creative accounting" to generate "revenue" while very little money chnages hands. Back then we called it fraud. But I guess terminology changes.
- leopoldj 11mo agoThis kind of circular deals are very common and doesn't violate any laws. It's the magnitude and prevalence of it in the AI sector that flashes a warning sign.
- oblio 11mo agoA lot of stuff doesn't violate any laws until it does. Laws are created after the crimes have already happened. That's why we have the letter of law vs the spirit of the law.
- cowpig 11mo agoWhat should they have done instead? I have a lot of opinions on this but curious about yours :)
- Scene_Cast2 11mo agoI would love to hear your (and others) opinions. I don't have a good idea of what happened inside or what they could have done differently, but I do remember them going from a world-leading LLM AI lab to selling embeddings to enterprise.
- neom 11mo agoI'm Canadian and I built DigitalOcean, there is a data center in Toronto because I decided. I am one of many Canadians who have built scaled infrastructure and think this is a nightmare. Many competent people at telus and bell behind the scenes believe it or not. They should have, and still should, form a crown corp and get a bunch of us older infrastructure people to help put it together. We have crown corps for this very purpose, from my understanding the people in the rooms calling the shots had little to no experience architecting large scale physical data center build outs. Cohere, or any startups should be stakeholders, but the infra should have been home grown.
- caminante 11mo agoI'm not opposed to CrownCorps and regulated energy markets. The most recent rumblings in the US clamor for govt. infra stepin to compete with China on power/permitting intervention. Makes sense. That said, Cohere only got a couple hundred million from CA and the DC is being built "domestic" in CA. That's not enough? Sounds like you're knowledgeable about the skills gap of do-ers in CA govt, but I'd be concerned about wasting even more time/$ through incompetence. And a politician would be staked on its outcome. That's too much political risk.
- neom 11mo agoWhat crown corps do you currently think are being run incompetently??
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- FL33TW00D 11mo agoVery interesting data point
- JCM9 11mo agoYes, the price of Coreweave default swaps has jumped 53% since October. In the eyes of the bond markets they’re basically toast… a ticking debt bomb waiting to implode.
- jesuslop 11mo agoI like the logic you use, let me borrow that.
- SilverElfin 11mo agoSorry if this is basic, but do you mind explaining the logic here for those who aren’t familiar? Also where are you getting this data? Thanks in advance.
- JCM9 11mo agoCoreweave has taken on a ton of debt to pay for everything they’re building. Investors can make money by lending Coreweave money and charging interest (aka a bond). Separately, investors can buy a derivative product that is a bet that Coreweave won’t be able to pay this money back. This is a called a “credit default swap.” If Coreweave starts missing payments or can’t pay back the loan this instrument pays out. The price of the instrument is linked to the likelihood that Coreweave won’t be able to repay the money. Given growing questions around their financial business model the price of these derivatives has been rocketing up over the last few months. In plain speak this means the market increasingly thinks Coreweave won’t be able to repay these loans. Thats mirroring broader Wall Street sentiment these last few months that the math isn’t adding up on AI and all the spend committed isn’t mapping out against money likely to be available to pay for all that. Investors are increasingly making plays for the AI bubble popping and the price of these credit default swaps shooting up is one metric indicative of that downturn positioning. The data on this is available in various financial data platforms and has been written about by financial news outlets.
- quickthrowman 11mo agoYou can buy insurance on a bond defaulting, it’s called a credit default swap. One party sells a credit default swap and another party buys the credit default swap. The price of a credit default swap is essentially the probability that the borrower defaults on its bonds (misses an interest payment) which would mean the person who sold the credit default swap would owe money to the holder of the credit default swap. The price of a credit default swap increasing means the market is pricing in a higher probability of Coreweave defaulting on a bond. Oracle credit default swaps have also increased in price lately.
- chollida1 11mo agoSure, the math isn't that complicated but i'll give the caveat that I don't manage money in this space so its a bit outside my area of expertise. THe annual premium is approx the premium paid to cover the expected loss, so: spread = (prob_of_default_annual * (1-recovery_rate) We have a spread of 0.06 and a recovery_rate of 0.4 so the annual probability of default is about 0.10 Now converting that to 5 year we have prob_of_default5y = 1 - (1-pd_annual)^5 Which gives about 40%. And if you look at the cds spreads across various bond ratings you'll see they look like Rating || 5y CDS Spread || 5 yr default prob BBB 60-120bps 1-3% BB 150-250bps 5-15% B 400-700bps 25-34% CCC 700-1200bps 35-60%
- BiraIgnacio 11mo agoFascinating. I don't follow nor really understand this space. Is this type of fluctuation unusual?
- JCM9 11mo agoIt’s not good, and is a sign the market is getting increasingly bearish on the future of AI from a business standpoint. That doesn’t mean the tech is bad, but these are signs Wall Street is saying the math doesn’t add up here and thus there’s storms building on the horizon.
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