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Data 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
by stefan_ 4mo ago
Data 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'.