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There's no realistic way for the music to stop. The demand for LLMs is staggering and the big providers are charging full freight for inference. They might no
by treis 4mo ago
There's no realistic way for the music to stop. The demand for LLMs is staggering and the big providers are charging full freight for inference. They might not make back the money from training but these data centers are definitely going to be fully utilized for at least the next 5 years.
- stefan_ 4mo agoData center operators are in the business of selling electricity. They do not command large PE multiples. This is an even worse business, because xAI decided to also be the bagholder for the NVIDIA graphic cards. Not to mention they finance an unreasonable number of 20-somethings on way too large salaries with shitty opinions and no AGI delivered.
- chatmasta 4mo agoDatacenter operators who rent space are selling electricity. SpaceX is selling a fully built datacenter with compute designed for a specific purpose. They’re operating at a higher level of the value chain and can charge accordingly.
- SecretDreams 4mo agoWhat's their novelty or moat to maintain the value chain? And why do we only see google, who already owns it, raising their hand to rent at these prices?
- Brybry 4mo agoAnthropic is also paying $1.25 billion a month for xAI datacenter compute (though Google does own ~14%? of Anthropic too). [1] https://www.businessinsider.com/spacex-ipo-anthropic-paying-ai-compute-2026-5 https://www.businessinsider.com/spacex-ipo-anthropic-paying-... [2] https://www.nytimes.com/2025/03/11/technology/google-investment-anthropic.html https://www.nytimes.com/2025/03/11/technology/google-investm...
- SecretDreams 4mo agoI'm not a big fan of this level of circular financing and ownership. The transparency is severely obscured.
- chatmasta 4mo agoI’m not sure they need novelty or moat. AI compute resources are so scarce that inference providers will buy whatever is available. SpaceX sells inference hardware in bulk, with a proven track record of running inference and training workloads at scale.
- mlyle 4mo agoWithout a moat, P settles to MC. No one makes significant profit.
- chatmasta 4mo agoxAI covers their cost of N-1 datacenter while running their own models in N and building out N+1.
- SecretDreams 4mo agoAnd they make all of their money from the N-1 data center they are renting which is sand moat. What point are you making?
- chatmasta 4mo agoWhat? They make money from their own inference and models too, which they can train effectively for free by funding their operations with rental income from their last gen datacenter.
- ralph84 4mo agoSpaceX and Tesla used aggressive vertical integration, manufacturing simplification, and reuse to radically lower the cost of building rockets and EVs. It's not unreasonable to speculate they might be able to do the same for hyperscale compute.
- treis 4mo agoThey're not any sort of bag holder. They're going to make back what they spent on these data centers in a year. It's a fairly sweet deal for everyone involved. Anthropic/Google get to sell more tokens and xAI gets a war chest for another bite at the apple. I don't have much confidence that they'll do anything with it but that doesn't mean these deals don't make sense for them.
- skybrian 4mo agoI thought it was mostly capital costs (chips), not operating costs (electricity).
- jtbayly 4mo agoThere is a footnote in the article does the math. It concludes, "power is no more than about 1% of revenue."
- _alternator_ 4mo agoThis take clearly has a bone to pick. But ignoring that, the first sentence is just not reflective of the reality here—xAI is making a killing on renting out its GPUs, way more than "just power". The dynamics that normally make infrastructure providers have slim margins don't apply when demand far outstrips supply; the situation right now is closer to monopoly pricing power. It will likely take a few years for supply to fully catch up, which means xAI will eat well for a while. I can see a world where a few data centers come on line this year and reduce margins a bit, but it's crazy to think the margins will go to "cost of electricity plus a few percent" anytime soon.
- alpha_squared 4mo ago> xAI is making a killing on renting out its GPUs, way more than "just power" What's your evidence for this? Because from the S-1, SpaceX is largely an internet service provider that happens to launch rockets and own xAI.
- PixyMisa 4mo agoIn the article, it states that the two deals will cover the entire cost of SpaceX's AI buildout in 18 months. OpenAI and Anthropic would kill for that kind of cashflow.
- imtringued 4mo agoxAI is a failure of an AI company from a consumer perspective. They invested a large amount of money into owning their own infrastructure, while driving away consumers with their right-wing or "alt right"-ish branding and having a reputation of X users abusing the AI services. Turns out there was another company with a much better reputation for which the compute is a better fit. Now that the data centers are being put to use, they actually make them a little bit of money instead of losing money.
- _alternator_ 4mo agoThat story roughly tracks the one I hold. One piece that's missing is that grok's / X's image also made it radioactive to the best researchers. 'Aligned AGI' is an easier sell to the best engineers than 'abusive neo-Nazi chatbot with a porn problem'.
- SecretDreams 4mo agoLook, there's two things: * LLMs are useful * Company valuations around LLMs are not realistic Both can be true, much like they were during the Dotcom bubble. The internet turned out to be a pretty real thing. A couple examples below might feel familiar in the next couple months/years. > Blucora (then InfoSpace): Founded by Naveen Jain, at its peak its market cap was $31 billion and was the largest Internet business in the American Northwest. In March 2000, its stock price reached $1,305 per share, but by 2002 the price had declined to $2. > Broadcast.com: A streaming media website that was acquired by Yahoo! for $5.9 billion in stock, making Mark Cuban and Todd Wagner multi-billionaires. The site is now defunct. > eToys.com: An online toy retailer whose stock price hit a high of $84.35 per share in October 1999. In February 2001, it filed for bankruptcy with $247 million in debt. It was acquired by KB Toys, which later also filed for bankruptcy. > GeoCities: Founded by David Bohnett, it was acquired by Yahoo! for $3.57 billion in January 1999[20] and was shut down in 2009. > MicroStrategy: After rising from $7 to as high as $333 in a year, its shares lost $140, or 62%, on March 20, 2000, following the announcement of a financial restatement for the previous two years by founder Michael J. Saylor. ** Some scams transcend time ** Great link: https://en.wikipedia.org/wiki/List_of_companies_affected_by_the_dot-com_bubble https://en.wikipedia.org/wiki/List_of_companies_affected_by_...
- dluxem 4mo agoI am of the same mindset as you, but you also have to look at PE multiples of Cisco in 1999 and Nvidia today. One being the "ammunition" supplier in the battle for the Internet, and the other supplier in the battle for AI. Cisco was over 400 at one point and Nvidia is around 30. Not quite the same. Other players today: - Digital Realty 48x - Equinix 75x - CoreWeave (still losing money) There is likely a bubble of some type here, but I don't think this is the same as the Dotcom bubble.
- SecretDreams 4mo agoThe circular financing aspects in the current era are really obscuring some of the financials. There are also very legitimate companies offering very real products. The big issue today is that things feel a lot more obscured and interconnected, which makes it hard to discern shit from gold. Does not help when the gold and shit are swimming in the same circles and shaking hands with all the same people.
- SlinkyOnStairs 4mo ago> the big providers are charging full freight for inference. Except they're not. Anthropic's claims of temporary profitability line up exactly with when SpaceX is giving them discounted compute, OpenAI's such a shitfest they threw the CFO off the glass cliff for daring to push back against the IPO. "Profitable on inference" is an unsubstantiated rumour. Just look at the copilot changes. Demand switching to other providers immediately when prices rise, and there's not even certainty that the new copilot prices cover costs. > They might not make back the money from training This is an understatement. With all the datacenter buildout, they need trillions. For the investors get their money back and the bubble to not implode, they functionally need to unemploy everyone in the US. If the AI dream is real, society just breaks.
- simonw 4mo ago> "Profitable on inference" is an unsubstantiated rumour. So is "unprofitable on inference". Thankfully we should find out for real as soon as those S-1 documents arrive.
- davedx 4mo agoDon't count on it. They might not break out inference from training.
- treis 4mo agoThe pricing on Open router is clear. Anthropic, OpenAI, and Google all garner a massive premium over deepseek and qwen. There's no other realistic explanation except that they're making bank.
- bootsmann 4mo agoI can sell the tomatoes in my garden for twice the price of those in the supermarket and still make massive loses.
- senordevnyc 4mo ago
- alfalfasprout 4mo ago> the big providers are charging full freight for inference They're not and it's not clear why you seem to believe that. The immense capex for buildouts, training costs, etc. are not rolled into inference costs. Moreover, companies are already rapidly starting to re-evaluate token spend.
- zmmmmm 4mo ago[dead]
- topspin 4mo ago> The demand for LLMs is staggering The demand is finite. There is clear evidence that it has limits. When costs become great, the consumers set limits, create budgets and seek alternatives. Consumers are still figuring out where the cost/benefit lines are, and we can all see that the lines at least exist.