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These companies are unprofitable (as all companies at this stage and ambition should be) but I increasingly don't see any justification for the idea that it is

These companies are unprofitable (as all companies at this stage and ambition should be) but I increasingly don't see any justification for the idea that it is fundamentally unprofitable. Inference alone is certainly profitable. I'm running models at home that are comparable to performance of paid models a year or so ago for free. Even for much larger models the cost around inference serving are clearly manageable. Training is where the costs are, but I'm increasingly convinced those too could have costs dramatically reduced if necessary. Chinese companies like Moonshot.ai are doing fantastic work training frontier models for a fraction of the cost we're seeing from Anthropic/OpenAI. This isn't like Uber or Doordash where the economics fundamentally don't make sense (referring to the early days of these services where rates were very cheap). It's a compelling story that "current AI is unsustainable", but it doesn't pan out in practice for a multitude of reasons (not the least of which is that we can always fall back to what models did last year for basically free).

ReliantGuyZ 5mo ago
And if you can run those strong models at home for free, why would hosting them be a successful business for any of these providers? Profitable maybe, in terms of having low costs, but why pay Google or whoever when you can do it yourself for cheaper/"free"?
- HDThoreaun 5mo ago
  If you can run your server at home for free why would hosting it be a successful business for any of these propviders?
- baq 5mo ago
  For free == with a huge upfront cost of getting a good enough box and running costs of maintaining it and just keeping it powered. By the time it pays off the frontier labs are three generations ahead at least. Compare with on-demand billing per token and it just doesn’t make sense to own the hardware if you aren’t using it productively or renting it out for 95% of the time.
LetsGetTechnicl 5mo ago
If it's profitable, why haven't they reported any profits? People like Ed Zitron have done the math and it just doesn't add up. I mean he just published this piece today: https://www.wheresyoured.at/ai-is-too-expensive/ https://www.wheresyoured.at/ai-is-too-expensive/
- anthonypasq 5mo ago
  Amazon was unprofitable for over a decade, and they were public. Theres no incentive to be profitable as a private company if you can continue to raise money. Ed Zitron and Gary Marcus are... confused.
  - timmytokyo 5mo ago
    But I've been told here -- over and over again -- that the cost of inference was going to go down as the technology matured. The trend lines are going in the opposite direction.
    - anthonypasq 5mo ago
      prices are only marginally determined by the cost to produce the product. Just because they are raising prices doesnt mean its actually getting more expensive for them to serve the models, it just means we are willing to pay for the intelligence.
  - mynameisash 5mo ago
    > Amazon was unprofitable for over a decade, and they were public. Amazon was unprofitable because they poured their revenue into growth. On paper, they were in the red, but everyone - especially investors - saw what was going to happen, given their trajectory. Is it the case that any of these AI companies are actually making a ton of money and growing accordingly? AFAICT, we've just got [a] big players like Google that can subsidize AI in the hopes of waiting everyone else out and [b] private companies raising capital in the hopes that when the market returns to rationality, they may be solvent.
booty 5mo ago
Yeah, at this point I think the worst-case scenario for OpenAI/Anthropic/etc is to slow down frontier model development and focus on tooling and services, as opposed to imploding completely and bursting the economic bubble. I hope?
overrun11 5mo ago
Arguably nothing even has to change with training for this to be sustainable. Dario has claimed that Anthropic is profitable on a per training run basis. They aren't profitable because they choose to keep investing in increasingly large training runs.
- dsdsfaa 5mo ago
  Cut the crap. The value of the firm's operating assets = EBIT(1-t) - Reinvestment You (Anthropic) want that sky-high valuation? Accept reinvestment is part of the equation. If they decide to stop reinvesting, then they are as good as dead. Moreover, they clearly are not re-investing cash flows from operations. Why do you think they are continually raising money? Lmao.
  - tskj 5mo ago
    I'm not sure I understand your argument. If you want an exponentially more expensive training run for each iteration, obviously you need to raise investments even if each training run is profitable. Now I'm not saying that's a good idea, or makes sense, but I am saying that "raising money" doesn't disprove neither that each training run makes money, nor that they're re-investing all that money in the next run. To give a simple example: if each run simply makes a 10% ROI, but you want to spend 2x as much money on the next run, you still need to raise 90% of the previous run's expenses to have enough capital.

ReliantGuyZ 5mo ago

And if you can run those strong models at home for free, why would hosting them be a successful business for any of these providers? Profitable maybe, in terms of having low costs, but why pay Google or whoever when you can do it yourself for cheaper/"free"?

HDThoreaun 5mo ago
If you can run your server at home for free why would hosting it be a successful business for any of these propviders?
baq 5mo ago
For free == with a huge upfront cost of getting a good enough box and running costs of maintaining it and just keeping it powered. By the time it pays off the frontier labs are three generations ahead at least. Compare with on-demand billing per token and it just doesn’t make sense to own the hardware if you aren’t using it productively or renting it out for 95% of the time.

LetsGetTechnicl 5mo ago

If it's profitable, why haven't they reported any profits? People like Ed Zitron have done the math and it just doesn't add up. I mean he just published this piece today: https://www.wheresyoured.at/ai-is-too-expensive/ https://www.wheresyoured.at/ai-is-too-expensive/

anthonypasq 5mo ago
Amazon was unprofitable for over a decade, and they were public. Theres no incentive to be profitable as a private company if you can continue to raise money. Ed Zitron and Gary Marcus are... confused.
- timmytokyo 5mo ago
  But I've been told here -- over and over again -- that the cost of inference was going to go down as the technology matured. The trend lines are going in the opposite direction.
  - anthonypasq 5mo ago
    prices are only marginally determined by the cost to produce the product. Just because they are raising prices doesnt mean its actually getting more expensive for them to serve the models, it just means we are willing to pay for the intelligence.
- mynameisash 5mo ago
  > Amazon was unprofitable for over a decade, and they were public. Amazon was unprofitable because they poured their revenue into growth. On paper, they were in the red, but everyone - especially investors - saw what was going to happen, given their trajectory. Is it the case that any of these AI companies are actually making a ton of money and growing accordingly? AFAICT, we've just got [a] big players like Google that can subsidize AI in the hopes of waiting everyone else out and [b] private companies raising capital in the hopes that when the market returns to rationality, they may be solvent.

booty 5mo ago

Yeah, at this point I think the worst-case scenario for OpenAI/Anthropic/etc is to slow down frontier model development and focus on tooling and services, as opposed to imploding completely and bursting the economic bubble. I hope?

overrun11 5mo ago

Arguably nothing even has to change with training for this to be sustainable. Dario has claimed that Anthropic is profitable on a per training run basis. They aren't profitable because they choose to keep investing in increasingly large training runs.

dsdsfaa 5mo ago
Cut the crap. The value of the firm's operating assets = EBIT(1-t) - Reinvestment You (Anthropic) want that sky-high valuation? Accept reinvestment is part of the equation. If they decide to stop reinvesting, then they are as good as dead. Moreover, they clearly are not re-investing cash flows from operations. Why do you think they are continually raising money? Lmao.
- tskj 5mo ago
  I'm not sure I understand your argument. If you want an exponentially more expensive training run for each iteration, obviously you need to raise investments even if each training run is profitable. Now I'm not saying that's a good idea, or makes sense, but I am saying that "raising money" doesn't disprove neither that each training run makes money, nor that they're re-investing all that money in the next run. To give a simple example: if each run simply makes a 10% ROI, but you want to spend 2x as much money on the next run, you still need to raise 90% of the previous run's expenses to have enough capital.