4 ms·

I wonder why the hyperscalers aren't vertically integrating more and building their own fabs. Sure, a fab costs a billion dollars, but they're currently spendin

I wonder why the hyperscalers aren't vertically integrating more and building their own fabs. Sure, a fab costs a billion dollars, but they're currently spending hundreds of billions of dollars purchasing chips from NVidia and others.

epistasis 5mo ago
I'm not sure if they should vertically integrate, it would probably be a better idea to directly fund the expansion of capacity, much like Apple does when they scale up a new technology for iPhones. However, that the hyperscalers and AI companies aren't doing this says a lot about their true beliefs about how much future demand AI will have. AI companies claim they will need a ton of massive expansion, but are unwilling to take on the risk of the capital needed for that expansion. I'm hearing a lot of sad whining from AI folks about how these chip makers are holding them back, but who actually has the money to finance the expansion easily? Chip makers have been through this game far longer, when Sam Altman went around claiming it was time for $7T of fabs the AI companies made it clear that they were willing to make ridiculous claims, eliminating credibility. What's needed now is for them to funnel a tiny amount of their massive piles of cash into financing fabs directly.
- energy123 5mo ago
  Oracle is getting sold because of how much capex they're spending on new data centers in the middle of a high rates environment. It's not like they're stockpiling cash due to doubting AI.
  - epistasis 5mo ago
    Oracle had not entered into my thoughts at all; I know they do some cloud stuff but they are in a very different position than OpenAI or Anthropic or Google.
- alecco 5mo ago
  > [...] better idea to directly fund the expansion of capacity [...] > > However, that the hyperscalers and AI companies aren't doing this says a lot about their true beliefs about how much future demand AI will have. With what money? They have to spend the money they get on hardware ASAP else they are left behind.
jacekm 5mo ago
A fab takes years to build even when you have the necessary know-how. If you don't it'll take some additional experimenting before you can compete with the established manufacturers. By the time you can produce a usable chip the shortage might be over.
nicoburns 5mo ago
Because fabs are about the most complex cutting edge technology out there: the "rocket science" of our day (or one of them). And merely having the money is not sufficient. It would be very easy to blow several billion dollars and end up with nothing to show for it. Just look at how Intel has struggled to compete in recent years, and they have been in the business for decades.
- tjwebbnorfolk 5mo ago
  Intel struggled because they bet the company that Moore's law was over back in ~2014, and instead of upgrading their fabs to EUV they sent the money back to shareholders. They forgot Moore's main lesson: only the paranoid survive. They thought they could coast, and it nearly killed them.
  - aleph_minus_one 5mo ago
    > They forgot Moore's main lesson: only the paranoid survive. "Only the Paranoid Survive" is rather a quote and book title by Andrew S. Grove.
    - tjwebbnorfolk 5mo ago
      Yes you're right, my mistake. Andy Grove, former CEO of Intel as opposed to Moore.
  - xadhominemx 5mo ago
    That is not even close to correct.
    - tjwebbnorfolk 5mo ago
      I'm very interested to hear what exactly I said was incorrect.
      - xadhominemx 5mo ago
treis 5mo ago
A fab costs a billion dollars (really a lot more) and 5 years. It doesn't do anything for anyone today.
elorant 5mo ago
A fab costs $15-20bn and it takes at least five years to build. Plus it requires expertise that none of these companies have.
rcxdude 5mo ago
Fab margins are on average super thin compared to the margins of big tech companies, and come with a lot of risk because of that. It's not something they are likely to be keen to integrate.
redanddead 5mo ago
Another guy answered it ITT. Intel did that, it’s not great because fabs are expensive and risky and it’s less risky to amortize the cost across multiple customers instead of just yourself

epistasis 5mo ago

I'm not sure if they should vertically integrate, it would probably be a better idea to directly fund the expansion of capacity, much like Apple does when they scale up a new technology for iPhones. However, that the hyperscalers and AI companies aren't doing this says a lot about their true beliefs about how much future demand AI will have. AI companies claim they will need a ton of massive expansion, but are unwilling to take on the risk of the capital needed for that expansion. I'm hearing a lot of sad whining from AI folks about how these chip makers are holding them back, but who actually has the money to finance the expansion easily? Chip makers have been through this game far longer, when Sam Altman went around claiming it was time for $7T of fabs the AI companies made it clear that they were willing to make ridiculous claims, eliminating credibility. What's needed now is for them to funnel a tiny amount of their massive piles of cash into financing fabs directly.

energy123 5mo ago
Oracle is getting sold because of how much capex they're spending on new data centers in the middle of a high rates environment. It's not like they're stockpiling cash due to doubting AI.
- epistasis 5mo ago
  Oracle had not entered into my thoughts at all; I know they do some cloud stuff but they are in a very different position than OpenAI or Anthropic or Google.
alecco 5mo ago
> [...] better idea to directly fund the expansion of capacity [...] > > However, that the hyperscalers and AI companies aren't doing this says a lot about their true beliefs about how much future demand AI will have. With what money? They have to spend the money they get on hardware ASAP else they are left behind.

jacekm 5mo ago

A fab takes years to build even when you have the necessary know-how. If you don't it'll take some additional experimenting before you can compete with the established manufacturers. By the time you can produce a usable chip the shortage might be over.

nicoburns 5mo ago

Because fabs are about the most complex cutting edge technology out there: the "rocket science" of our day (or one of them). And merely having the money is not sufficient. It would be very easy to blow several billion dollars and end up with nothing to show for it. Just look at how Intel has struggled to compete in recent years, and they have been in the business for decades.

tjwebbnorfolk 5mo ago
Intel struggled because they bet the company that Moore's law was over back in ~2014, and instead of upgrading their fabs to EUV they sent the money back to shareholders. They forgot Moore's main lesson: only the paranoid survive. They thought they could coast, and it nearly killed them.
- aleph_minus_one 5mo ago
  > They forgot Moore's main lesson: only the paranoid survive. "Only the Paranoid Survive" is rather a quote and book title by Andrew S. Grove.
  - tjwebbnorfolk 5mo ago
    Yes you're right, my mistake. Andy Grove, former CEO of Intel as opposed to Moore.
- xadhominemx 5mo ago
  That is not even close to correct.
  - tjwebbnorfolk 5mo ago
    I'm very interested to hear what exactly I said was incorrect.
    - xadhominemx 5mo ago

treis 5mo ago

A fab costs a billion dollars (really a lot more) and 5 years. It doesn't do anything for anyone today.

elorant 5mo ago

A fab costs $15-20bn and it takes at least five years to build. Plus it requires expertise that none of these companies have.

rcxdude 5mo ago

Fab margins are on average super thin compared to the margins of big tech companies, and come with a lot of risk because of that. It's not something they are likely to be keen to integrate.

redanddead 5mo ago

Another guy answered it ITT. Intel did that, it’s not great because fabs are expensive and risky and it’s less risky to amortize the cost across multiple customers instead of just yourself