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The market is pricing in significant counterparty risk. It's possible Oracle does the buying, unpacking, and cooling of Nvidia servers and doesn't get paid.

by mgh95 11mo ago

mschuster91 11mo ago
> It's possible Oracle does the buying, unpacking, and cooling of Nvidia servers and doesn't get paid. The beauty of being a cloud infra provider is you're selling shovels. OpenAI going bust? Doesn't matter too much for Oracle, there will always be someone willing to pay them for GPU compute capacity. Even if the hype behind AI dies down, which I hope it does rather sooner than later, the fundamental aspects aren't vaporware like with the cryptocurrency craze - AI, even the relatively lackluster state we have today, has a ton of very useful usage cases that are actually working in the field.
- lumost 11mo ago
  We’re talking about building 10x existing datacenter capacity to support you based ai workloads. There will be no other buyer if OpenAI goes bust.
- mgh95 11mo ago
  > AI, even the relatively lackluster state we have today, has a ton of very useful usage cases that are actually working in the field. Useful use cases at what price? It's totally possible that after VC money dries up the price increases far beyond what customers (both business and consumer) have been paying, resulting in demand destruction rendering the investment a net negative for Oracle.
  - gunalx 11mo ago
    Not nessesarily. We have providers of hosted oss models (even large sota ones), with competitive API pricing. They have no reason to subsidice their services, outside og initial market grab. But there is so many of them that it dosent look to bad. Also buisnisses have invested to host things locally themselves as well.
    - mgh95 11mo ago
      > Not nessesarily. We have providers of hosted oss models (even large sota ones), with competitive API pricing. They have no reason to subsidice their services, outside og initial market grab. But there is so many of them that it dosent look to bad. That price is holding at the current demand ratio of GPU availability/consumption. If the large companies such as OpenAI and Anthropic cease training new models and accepting loss-leader lines of business such as free consumer inference there is a reasonable chance of a GPU glut. This GPU glut may drive down prices Oracle can command for their cloud services. The fundamental problem is not the market as it stands today. The problem is where will the market equilibrium shift from increased capacity and reduced demand due to VC subsidy reduction.
  - kvam 11mo ago
    That might be precisely why OpenAI is pushing an over investment in infrastructure. When VCs are no longer willing to substitute compute, having more compute available than natural demand will drive the prices down.
- mike_d 11mo ago
  > there will always be someone willing to pay them for GPU compute capacity. There is an hourglass shape to emerging technologies. Everyone uses commodity hardware and duct tape to try to win the race to the bottleneck, where everyone save 2 companies goes bankrupt. As it narrows companies have learned enough about the problem to start developing purpose built solutions. Once you pass the bottleneck enough of your engineers go to other companies that the custom solution becomes mainstream and competition grows again. Google was working on custom chips for AI before we knew it was AI. They are going to survive either as the dominant player in AI or as the underlying platform everyone else builds on. That leaves one other spot for everyone else racing to the eye of the needle. Anyone betting on Oracle to win on technology is silly, betting on Oracle with a bunch of generic GPUs that anyone can get is down right dumb.
- vel0city 11mo ago
  What happens if you've got $300B worth of shovels but can only realistically rent them out for $5B/yr? Nortel was a shovel maker selling shovels to ISPs.
  - Incipient 11mo ago
    Nortel was a bit different - I think the Chinese hack really killed them. Investors got the jitters then jumped ship or something? But the inadequate sale value of shovels holds.
    - vel0city 11mo ago
      Their customer base rapidly disappeared and they tried to paper over the losses with accounting fraud where they had fake sales of equipment because their actual customers disappeared. They had tons of equipment to sell with few customers left to buy them.
- DiabloD3 11mo ago
  Problem is, those Nvidia servers are useless to anyone who needs servers already racked in a datacenter. They're purposely made purely to run LLMs, and anything else would be a waste of time. Nvidia is also fucking over anyone who buy these: datacenters depend on used hardware sales to recoup cost, sometimes getting up to half of what they originally paid for the hardware.... this hardware has no resale value. It's literally garbage the moment it leaves the factory.
  - eska 11mo ago
    2026 is the year of Google Stadia /s
  - donavanm 11mo ago
    > datacenters depend on used hardware sales to recoup cost Who? Ive worked for few big infra companies with millions to billions of DC assets. After depreciation and then some, say 3-5 years, theyre effectively scrap. Its more cost effective to buy new, denser, racks than continue to MRC on the stranded space and power. The reseller is cheaper/easier effectively paid to scrap the parts as e-waste and recover what they can.
    - DiabloD3 11mo ago
      You answered your own question. Datacenters hire companies to do this on their behalf, as they don't have the internal know-how to do this. Even the big cloud companies do this. They're on 3-5 year cycles, yet the hardware life has a good 8 years in it. The reseller sifts through what comes out, sees what is still alive, scraps what isn't, and resells the rest. What you don't understand is this isn't a one way relationship. If you're a major cloud company, your hardware probably already is worthless. Meta (and other companies) use a non-standard case and rack "standard" called Open Compute (OCP)... there is no resale market for these, as normal datacenters use normal racks with normal cases. Meta has to pay a company to dispose of these and lose 100% of their investment. But lets say we go to someone else that does use standard hardware, and the rest of the industry buys this stuff up (to maintain existing fleets that don't need upgraded yet, not everybody is on some ridiculous 3-5 year churn), the company you partnered with to deal with your e-waste is likely to either give you a much better rate or even pay you for your hardware (if it is in high demand). These enterprise inference machines have zero resale value. Even the OCP stuff I mentioned above has a small market (theres a few smaller datacenters out there toying with OCP due to it having better density, but aren't willing to buy new to test it out), but there is no market for these inference SBCs. See my sibling comment to this for more information on why the SBCs are uniquely weird.
- conartist6 11mo ago
  Yeah, but pay them how much? There's about to be a huge glut of GPU capacity and we still haven't figured out anything to actually do with all those GPUs that creates value at the scale of society. Everything they do now steals value. Takes it from artists and bloggers and puts their money in the hands of CEOs and investors. Super efficient idea theft isn't creating new value for society because the value gained is always offset by the destruction of value we already had...

The market is pricing in significant counterparty risk. It's possible Oracle does the buying, unpacking, and cooling of Nvidia servers and doesn't get paid.

by mgh95 11mo ago

The market is pricing in significant counterparty risk. It's possible Oracle does the buying, unpacking, and cooling of Nvidia servers and doesn't get paid.

mschuster91 11mo ago

> It's possible Oracle does the buying, unpacking, and cooling of Nvidia servers and doesn't get paid. The beauty of being a cloud infra provider is you're selling shovels. OpenAI going bust? Doesn't matter too much for Oracle, there will always be someone willing to pay them for GPU compute capacity. Even if the hype behind AI dies down, which I hope it does rather sooner than later, the fundamental aspects aren't vaporware like with the cryptocurrency craze - AI, even the relatively lackluster state we have today, has a ton of very useful usage cases that are actually working in the field.

lumost 11mo ago
We’re talking about building 10x existing datacenter capacity to support you based ai workloads. There will be no other buyer if OpenAI goes bust.
mgh95 11mo ago
> AI, even the relatively lackluster state we have today, has a ton of very useful usage cases that are actually working in the field. Useful use cases at what price? It's totally possible that after VC money dries up the price increases far beyond what customers (both business and consumer) have been paying, resulting in demand destruction rendering the investment a net negative for Oracle.
- gunalx 11mo ago
  Not nessesarily. We have providers of hosted oss models (even large sota ones), with competitive API pricing. They have no reason to subsidice their services, outside og initial market grab. But there is so many of them that it dosent look to bad. Also buisnisses have invested to host things locally themselves as well.
  - mgh95 11mo ago
    > Not nessesarily. We have providers of hosted oss models (even large sota ones), with competitive API pricing. They have no reason to subsidice their services, outside og initial market grab. But there is so many of them that it dosent look to bad. That price is holding at the current demand ratio of GPU availability/consumption. If the large companies such as OpenAI and Anthropic cease training new models and accepting loss-leader lines of business such as free consumer inference there is a reasonable chance of a GPU glut. This GPU glut may drive down prices Oracle can command for their cloud services. The fundamental problem is not the market as it stands today. The problem is where will the market equilibrium shift from increased capacity and reduced demand due to VC subsidy reduction.
- kvam 11mo ago
  That might be precisely why OpenAI is pushing an over investment in infrastructure. When VCs are no longer willing to substitute compute, having more compute available than natural demand will drive the prices down.
mike_d 11mo ago
> there will always be someone willing to pay them for GPU compute capacity. There is an hourglass shape to emerging technologies. Everyone uses commodity hardware and duct tape to try to win the race to the bottleneck, where everyone save 2 companies goes bankrupt. As it narrows companies have learned enough about the problem to start developing purpose built solutions. Once you pass the bottleneck enough of your engineers go to other companies that the custom solution becomes mainstream and competition grows again. Google was working on custom chips for AI before we knew it was AI. They are going to survive either as the dominant player in AI or as the underlying platform everyone else builds on. That leaves one other spot for everyone else racing to the eye of the needle. Anyone betting on Oracle to win on technology is silly, betting on Oracle with a bunch of generic GPUs that anyone can get is down right dumb.
vel0city 11mo ago
What happens if you've got $300B worth of shovels but can only realistically rent them out for $5B/yr? Nortel was a shovel maker selling shovels to ISPs.
- Incipient 11mo ago
  Nortel was a bit different - I think the Chinese hack really killed them. Investors got the jitters then jumped ship or something? But the inadequate sale value of shovels holds.
  - vel0city 11mo ago
    Their customer base rapidly disappeared and they tried to paper over the losses with accounting fraud where they had fake sales of equipment because their actual customers disappeared. They had tons of equipment to sell with few customers left to buy them.
DiabloD3 11mo ago
Problem is, those Nvidia servers are useless to anyone who needs servers already racked in a datacenter. They're purposely made purely to run LLMs, and anything else would be a waste of time. Nvidia is also fucking over anyone who buy these: datacenters depend on used hardware sales to recoup cost, sometimes getting up to half of what they originally paid for the hardware.... this hardware has no resale value. It's literally garbage the moment it leaves the factory.
- eska 11mo ago
  2026 is the year of Google Stadia /s
- donavanm 11mo ago
  > datacenters depend on used hardware sales to recoup cost Who? Ive worked for few big infra companies with millions to billions of DC assets. After depreciation and then some, say 3-5 years, theyre effectively scrap. Its more cost effective to buy new, denser, racks than continue to MRC on the stranded space and power. The reseller is cheaper/easier effectively paid to scrap the parts as e-waste and recover what they can.
  - DiabloD3 11mo ago
    You answered your own question. Datacenters hire companies to do this on their behalf, as they don't have the internal know-how to do this. Even the big cloud companies do this. They're on 3-5 year cycles, yet the hardware life has a good 8 years in it. The reseller sifts through what comes out, sees what is still alive, scraps what isn't, and resells the rest. What you don't understand is this isn't a one way relationship. If you're a major cloud company, your hardware probably already is worthless. Meta (and other companies) use a non-standard case and rack "standard" called Open Compute (OCP)... there is no resale market for these, as normal datacenters use normal racks with normal cases. Meta has to pay a company to dispose of these and lose 100% of their investment. But lets say we go to someone else that does use standard hardware, and the rest of the industry buys this stuff up (to maintain existing fleets that don't need upgraded yet, not everybody is on some ridiculous 3-5 year churn), the company you partnered with to deal with your e-waste is likely to either give you a much better rate or even pay you for your hardware (if it is in high demand). These enterprise inference machines have zero resale value. Even the OCP stuff I mentioned above has a small market (theres a few smaller datacenters out there toying with OCP due to it having better density, but aren't willing to buy new to test it out), but there is no market for these inference SBCs. See my sibling comment to this for more information on why the SBCs are uniquely weird.
conartist6 11mo ago
Yeah, but pay them how much? There's about to be a huge glut of GPU capacity and we still haven't figured out anything to actually do with all those GPUs that creates value at the scale of society. Everything they do now steals value. Takes it from artists and bloggers and puts their money in the hands of CEOs and investors. Super efficient idea theft isn't creating new value for society because the value gained is always offset by the destruction of value we already had...