4 ms·

So yes, but that doesn't negate the circular investment aspect, for most intents and purposes. The risk is from this structure is mostly to do with how this af

• robjeiter 5mo ago
  I feel like the whole market at this point is just AI since big tech other than Apple are all massively invested into that. Everyone owns either the S&P or the total world ETF which are both heavily skewed towards big tech and this trade - so literally everybody is in it. It might go well for a few more quarters/years but once something breaks or gets exponentially cheaper this will take down the whole market with it.
  • netcan 5mo ago
    It's just hard to tell the difference between "real" demand and "circular." That's the concern. PG had an essay about this during the dotcom, when he worked at yahoo. Iirc...Yahoo's share price and other big successes in the space attracted investment into startups. Startups used that money to advertise on yahoo. Yahoo bought some of these the startups. So... a lot of the revenue used to analyze companies for investment was actually a 2nd order side effect of these investments. Here the risk is that we have Ai investments servicing Ai investments for other Ai investments. Google buys Nvidia chips to sell anthropic compute. Anthropic sells coding assist to Ai companies (including Google and Nvidia). They buy anthropic services with investor money that is flowing because of all this hype. Imo the general risk factor is trying to get ahead of actual worldly use. The Ai optimists have a sense that Ai produces things that are valuable (like software) at massive scale...that is output. But... even if true, it will take a lot of time, and lot of software for the Econony to discover this, go through the path dependencies and actually produce value. The most valuable, known software has already afy been written. The stuff that you could do, but haven't yet is stuff that hasn't made the cut. Value isn't linear.
    • datavirtue 5mo ago
      I'm starting to transition how we build software at our company due to the power of AI. No more: five code monkey contractors under a lead. Two top-notch devs are all that is needed now, unrestrained by sprints and mindless ceremonies. There is going to be a giant sucking sound in India. I can't continue the current model. The dev that gets AI is done in five hours, the ones that don't are thrashing for the next two weeks. I have to unleash the good AI dev. I have the Product team handing us markdown files now with an overview of the project and all the details and stories built into them. I'm literally transforming how a billion dollar company works right now because of this. I have Codex, Claude and GitHub Copilot enterprise accounts on top of Office 365. Everyone is being trained right now as most devs are behind, even.
      • liendolucas 5mo ago
        And the day you don't have that drug what do you do? If anything you are training people to become dependent on one or more subscription services.
        • bethekidyouwant 5mo ago
          Like the drug of electricity and Internet, running water grocery stores?
          • nocman 5mo ago
            I don't think the likelyhood of "electricity and Internet, running water grocery stores" being pulled out from underneath you (either by long term failure or prohibitive cost changes) is anywhere near as high as it is for subscription-based AI tools (at least not in the US).
            • TeMPOraL 5mo ago
              That was a factor with electricity early on as it was first put to use. The flip side of the infamous "does it make the beer taste better?" adage/nonsense is that, per the story, back then you had breweries build their own power plants, because electricity was just that useful. It took a while for the market to start feeling comfortable with reliability of electricity supply and price point.
  • dvfjsdhgfv 5mo ago
    > literally everybody I personally make sure I really diversify, so that when I buy funds, I buy those with stocks of EU companies which pay dividends. AFAICT there are 0 European AI companies that pay dividends.
    • twic 5mo ago
      There are zero US pure-play AI companies which pay dividends, right? You have to go pretty far down the list of holdings (under "Holding details") to find any big bets on AI: https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-high-dividend-yield-ucits-etf-usd-distributing/portfolio-data https://www.vanguardinvestor.co.uk/investments/vanguard-ftse...
    • bluGill 5mo ago
      For tax reasons most companies are avoiding paying dividends. It still happens but it's not nearly as common and companies are trying to get away from it because for many investors it is better not to have dividends paid.
• fauigerzigerk 5mo ago
  >Companies using the value of their shares to fund demand for their services. That's not what's happening here though. Google isn't using the value of its shares to fund demand. Google is using its own cash flow to fund this demand from Anthropic. The question is whether Anthropic has demand from end users for the capacity they are buying from Google (that's a yes I guess) and whether that demand is profitable for Anthropic (that's a question mark).
  • netcan 5mo ago
    True. Regardless, (a) it's ability/desire to make such investments is still driven by stock-driven optimism and (b) these transactions' "signal" can have a similar, warping effect. In this case the transaction creates demand for Google's services and also funds anthropic's growth... which represents demands for google's services. "Loop" is an approximation of an analogy. The risk is that enough of such transactions create a dynamic that distorts feedbacks.
    • fauigerzigerk 5mo ago
      >(a) it's ability/desire to make such investments is still driven by stock-driven optimism I don't think it has much to do with the stock price at all. Current platform oligopolists fear the rise of new platforms. They want a foot in the door for strategic reasons. What could happen is that frontier labs like Anthropic and OpenAI never become platforms and turn out to be providers of a largely commoditised, low margin service. In that event, current valuations are too high. But Anthropic's valuation doesn't seem extreme to me. Their $30bn annual run rate is valued at $380bn. Given this price and Anthropic's strategic value, Google's investment seems reasonable.
      • mattmanser 5mo ago
        But OpenAI/Anthropic are not selling the compute as they're buying that from Google/Amazon/etc. So they're selling the transformation, or the model. Or the ability to make a model. And their brand and their harness. And it seems like the model is definitely not worth 380 billion. Models depreciate incredibly fast. There are lots of models and the other models aren't that far behind. And it seems like the harness is not worth much as there's already open source alternatives that people claim are better. And all these companies are paying lots of money for these AI training experts. But I suspect that any regular Hacker News reader of 10 years dev experience could become a training expert in months if allowed to play with a load of compute and a lot of data for a bit. Just like any of us could have become a data scientist, this stuff is not particularly hard. Random horny dudes on the internet are putting out loras and quantized models in days against the open source image models. So what's worth 380 billion exactly? The brand? These valuations just look really off. Not by one order of magnitude, but more like by 4 orders of magnitude. Like 380 million might be a reasonable valuation, but not billion. What I also don't get is that it's pretty obvious to me that the Europeans should all be spinning up their own, not necessarily massive, data centers and throwing a few billion at some guys in Cambridge or Stockholm or London or Berlin to make their own AI models. Only the French have done it. But instead the rest seem to be trying to court Anthropic or OpenAI to build data centers. Which is just stupid politics given what's happening in the world right now.
• grafmax 5mo ago
  The tech industry goes through investment phases to produce oligopolies it turns around and enshittifies, parasitizing income off what it has built. Venture capital, acquisitions, acquihires, circular investments - It’s been incestuous for years. The question is whether competition from China’s sophisticated tech sector, which already surpasses the US in many areas, will put a pin in these plans this time round.
  • netcan 5mo ago
    I don't agree with the "full cynicism" POV, but I do agree that TechnoChina's existence is a potential paradigm shifter. But generally speaking, AI is currently pretty competitive and robust. Straightforward business model where users pay money and select the best deal are central. Market power is relatively dispersed. So... Idk. Nvidia doesn't have competition. But Intel didn't have much competition either, and they drive the Moore's law bus for a long time. Hardware has been less prone to enshitification. Maybe it's because the demand curve for compute doesn't have natural limits. Drive down price, and demand grows by enough that the total market grows.
    • mike_hearn 5mo ago
      Nvidia clearly has competition, that's what this deal with Google is about (TPUs).
    • grafmax 5mo ago
      There is a giant capital outlay required to produce a competitive model. Joe Schmo can’t jump into this market. Best he could do would be to ingratiate himself to an existing funding cartel. The moat surrounding a handful of market participants is billions of dollars wide. There’s competition now among the American companies (who have a head start in this space) as always happens as the professional oligopolists try to manufacture their footholds in the new market. Nor is it cynical to objectively appraise the interests and economics at play. People aren’t playing circular financing games out of the goodness of their hearts.
• theptip 5mo ago
  Can you share more on this market cap risk? I see legit stability / correlation risks but can’t work out the market cap risk mechanics. The cash was just sitting on their balance sheet not increasing Google’s valuation, turning it into revenue is value creation. The equity transfer is a bit murkier, Google I guess gets to mark this on their books according to Anthropic’s latest valuation, but isn’t this more of a volatility swap than conjuring market cap? Analysts are not going to apply $30b of future spend at current PE, they will additionally discount this by the P(Anthropic demand crashes). So it’s not like this just boosts their market cap for free. Of course Google’s balance sheet now has higher vol equity instead of cash for their products.
• groundzeros2015 5mo ago
  Economics is circular. The baker buys shoes from the cobbler, and the cobbler buys food from the baker.
  • padjo 5mo ago
    Yes but the baker doesn't just give the cobbler money to buy bread and take a share in the shoe shop in return.
    • philipallstar 5mo ago
      But there's nothing wrong with that. It's not a circle; it's an exchange. Like any transaction.
    • eagerpace 5mo ago
      I like this abstraction. If the baker says “I could sell 10x more if only I had shoes that allowed me to bake faster” then the cobbler says, “split the growth with me and I’ll craft you all the shoes you want.”
    • groundzeros2015 5mo ago
      The claim was circularity is evidence the business activity is fake.
  • rhizome 5mo ago
    Those are tangible items. Here, the baker is buying shoes from someone who says they're going to be a cobbler some day.
    • groundzeros2015 5mo ago
      It’s no different with services. Making deals with potential cobblers seems like a fine market activity.