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Market signals on an impending AI bust are broader than just Oracle’s woes. For example, Amazon just had a challenging bond offering where the market is clearl

by cmiles8 3mo ago

Market signals on an impending AI bust are broader than just Oracle’s woes. For example, Amazon just had a challenging bond offering where the market is clearly starting to seriously question the ROI on all this money being pumped into AI buildout. That does not bode well at all for AI-only companies without broader cash flow from other businesses. And when the cash dries up this whole thing comes crashing down like a house of cards.

Ancalagon 3mo ago
And none of the major model makers (not counting SpaceX) have IPO'd yet
- xnx 3mo ago
  Google (and to a much lesser degree, Facebook)
  - Ancalagon 3mo ago
    Google's "IPO" is an extra raising round Is Meta even in this race anymore?
- Maxatar 3mo ago
  Is Gemini really that unpopular?
  - Avicebron 3mo ago
    If you don't count the autosummary/gen answer at the top of googling an answer I would say so. Outside of the more technically inclined crowd I think the sentiment is if you aren't at the forefront (opus/fable/chatgpt) then your last or at least indistinguishable from all the rest of the lesser models. If you're selling deterministic output, just use traditional code. If you product is inference, it has to be the best inference. This becomes more apparent when you bounce between powerful models and smaller cheaper ones, the cheaper ones _feel_ worse to use.
  - axus 3mo ago
    They get all of the ad revenue, but really don't sell as many money-losing monthly subscriptions as the other guys.
    - cozzyd 3mo ago
      But Gemini is bundled with various plans, like the ones that give you more storage for photos.
- dragonwriter 3mo ago
  Pretty sure Google fits any definition of major model maker that SpaceX does, and had their IPO long before SpaceX. Meta and Microsoft both are also significant makers of GenAI models that are public, though neither has a big tentpole LLM line that they sell access.to commercially like OpenAI, Anthropic. Google, SpaceX, which I infer might be what you mean by major model maker.
  - KerrAvon 3mo ago
    Meta had Llama, which set a lot of things on fire in a good way, and then disappeared from the scene as tech advanced. What does Microsoft have? Not sure SpaceX counts. Nobody sane uses Grok. It's untrustable due to reality-distorting political bias training, and it's strongly associated with CSAM production. Not what you want in a reliable corporate utility.
- deleted 3mo ago
  [deleted]
pocksuppet 3mo ago
IMHO these signals have more to do with the market than AI. They aren't finding AI to be have less ROI than before - they are requiring higher ROI than before, because there is less money remaining to be invested. Managing the total amount of money so that investment bubbles peter out before they get excessively big is supposed to be the central bank's job.
- cmiles8 3mo ago
  The bond market is measuring the risk of repayment though not the success ROI of the dollars invested by the company (that impacts the stock price but not so much the bond price). The bond markets are hiccuping on AI because there’s growing concern that these loans simply won’t get repaid.
- toomuchtodo 3mo ago
  Kinda cool to be at a point in the hype cycle where the capital markets are almost exhausted due a to a speculative bubble, pushing up yield demand. Move over tulip mania. https://en.wikipedia.org/wiki/Tulip_mania https://en.wikipedia.org/wiki/Tulip_mania > No of course there isn't enough capital for all of this. Having said that, there is enough capital to do this for a at least a little while longer. -- Gil Luria (Managing Director and Analyst at D.A. Davidson)
- lelanthran 3mo ago
  > They aren't finding AI to be have less ROI than before - they are requiring higher ROI than before, because there is less money remaining. What ROI? There was no return, and there currently isn't any return on investment, because those companies did not exit yet! The exit plan is to offload overpriced shares, that they paid billions for, onto the public market. If they don't IPO, those investors get nothing.
  - ericmay 3mo ago
    > The exit plan is to offload overpriced shares, that they paid billions for, onto the public market. If they don't IPO, those investors get nothing. I keep seeing these unsubstantiated claims. They’re out to get us and just pump and dump on public markets! Yet, before they IPO they have to go around and do what? Who sets the IPO price? Who buys the shares? If the shares tank, the valuation of the company goes down and locked up shares lose value. It’s not really in anyone’s interest for IPOs or investments to fail and while pump-and-dump schemes certainly exist they are not the norm. The conspiracy theory level of distrust and cynicism is not healthy and makes one a very poor investor. If individual investors are buying shares and getting blown up, that’s their problem. Invest and due your own research. Broad market funds exist and have so for decades. Most financial advisors even will put you in to those funds and corporate 401k plans while increasingly allowing for more investment flexibility (freedom is good) default and educate employees by default on target date funds and index funds. There is a wealth of information out there.
jagged-chisel 3mo ago
I was at the ophthalmologist for the second time in two weeks - my new prescription wasn't quite right, new lenses should be here this week. All that to say: I had to move my focus around a bit and re-read "...pumped into AI buildout." several times, because I thought I was reading Ed Zitron :D
richwater 3mo ago
Hi there, how do you know Amazon's bond offering was "challenging"? Curious to learn more. Thank you.
- cmiles8 3mo ago
  A bunch of press on this today you can look up. Demand on the offering was much lower than expected and what materialized in prior rounds. Amazon had to sweeten the deal to get the money loaned.
- ifwinterco 3mo ago
  Low bid to cover ratio - it's rare for bond auctions to out and out fail (that would be fairly disastrous), but you can have an auction where they successfully sell all the bonds they were trying to sell but with much less demand than they were hoping for. That's not a good sign and it's a blatant red flag for the market
lelanthran 3mo ago
> Market signals on an impending AI bust are broader than just Oracle’s woes. It's worse than that - I believe that Oracle is one of the (many) companies right now that, if their AI experimentation fails, will stop the music, and everyone will be running for a chair. Oracle is one of a few foundational components in the circular-investing group of AI companies. If they fail to make their commitments they're the first domino to fall.
- someuser54541 3mo ago
  What's the best way to hedge against this, considering many of us have significant savings in the market? A few puts on SPY dated a year or two out?
  - lelanthran 3mo ago
    What's the best way to hedge against this, considering many of us have significant savings in the market? I dunno. "The market can remain irrational longer than you can remain solvent"
  - gruez 3mo ago
    >A few puts on SPY dated a year or two out? You think the hedge funds selling SPY options don't have this priced in already? Of course, you can still make money on this bet, just like you can win money at a roulette table, but unless you think have some special insight that hedge/quant funds don't have, buying options should be negative EV.
    - sitzkrieg 3mo ago
      agree, mostly true. always better to find a credit spread for your desired exposure
    - someuser54541 3mo ago
      > but unless you think have some special insight that hedge/quant funds don't have Of course not, but it is a hedge, is it not? What would be your preferred hedge in this scenario?
semiquaver 3mo ago
Nothing says “full of shit” like someone saying “market is signaling an impending X”. Why not make a huge levered bet and get wildly rich if you think so?
- xienze 3mo ago
  Knowing "what" will happen is different from knowing "when" it will happen.
  - cmiles8 3mo ago
    Bingo
  - dragonwriter 3mo ago
    Also, even knowing both what will happen and when is a separate thing from having access to capital. You can't really tell that someone posting that hasn't already also taken the biggest leveraged position they can (unless that person is so rich that doing so would itself visibly move the market, which most people who might post comments are not.)
  - s1artibartfast 3mo ago
    Then you don't know it's impending
tptacek 3mo ago
This is a pretty Oracle-specific situation, isn't it? They bet the company on an AI infrastructure buildout and levered hard to do it. Google, Amazon, and Microsoft aren't in comparable situations. Oracle is transforming itself into a value-added CoreWeave (not just in terms of product packaging but also the financial structure of the company), in a way the other hyperscalers aren't. This story has been playing out for years now, and reads to me like the market simply recognizing that Oracle is not in the same business as it once was. It could succeed, wildly, at this new thing, but its risk isn't going to be valued based on the business it was 10 years ago.
- echelon 3mo ago
  Fable and Seedance are wildly good products, and they're creating lots of opportunity for disruption. Oracle is in a weird shape.
Aurornis 3mo ago
> And when the cash dries up this whole thing comes crashing down like a house of cards. The problem in this market is that too many players are trying to play a winner-takes-all angle. For the companies that pull it off, it could be very lucrative. In a real market we’ll get a couple of big winners rather than one, but there isn’t enough room for all of these moonshot efforts to land. I don’t see the whole thing coming crashing down, but I do see a consolidation coming that leaves some companies in a very bad state.
duxup 3mo ago
Can the existing AI leaders sort of turtle up / cut research and … be profitable with what they have?
AbstractH24 3mo ago
Its easy to identify the problem its hard to time it or optimize for it.

by cmiles8 3mo ago

Ancalagon 3mo ago

And none of the major model makers (not counting SpaceX) have IPO'd yet

xnx 3mo ago
Google (and to a much lesser degree, Facebook)
- Ancalagon 3mo ago
  Google's "IPO" is an extra raising round Is Meta even in this race anymore?
Maxatar 3mo ago
Is Gemini really that unpopular?
- Avicebron 3mo ago
  If you don't count the autosummary/gen answer at the top of googling an answer I would say so. Outside of the more technically inclined crowd I think the sentiment is if you aren't at the forefront (opus/fable/chatgpt) then your last or at least indistinguishable from all the rest of the lesser models. If you're selling deterministic output, just use traditional code. If you product is inference, it has to be the best inference. This becomes more apparent when you bounce between powerful models and smaller cheaper ones, the cheaper ones _feel_ worse to use.
- axus 3mo ago
  They get all of the ad revenue, but really don't sell as many money-losing monthly subscriptions as the other guys.
  - cozzyd 3mo ago
    But Gemini is bundled with various plans, like the ones that give you more storage for photos.
dragonwriter 3mo ago
Pretty sure Google fits any definition of major model maker that SpaceX does, and had their IPO long before SpaceX. Meta and Microsoft both are also significant makers of GenAI models that are public, though neither has a big tentpole LLM line that they sell access.to commercially like OpenAI, Anthropic. Google, SpaceX, which I infer might be what you mean by major model maker.
- KerrAvon 3mo ago
  Meta had Llama, which set a lot of things on fire in a good way, and then disappeared from the scene as tech advanced. What does Microsoft have? Not sure SpaceX counts. Nobody sane uses Grok. It's untrustable due to reality-distorting political bias training, and it's strongly associated with CSAM production. Not what you want in a reliable corporate utility.
deleted 3mo ago
[deleted]

pocksuppet 3mo ago

IMHO these signals have more to do with the market than AI. They aren't finding AI to be have less ROI than before - they are requiring higher ROI than before, because there is less money remaining to be invested. Managing the total amount of money so that investment bubbles peter out before they get excessively big is supposed to be the central bank's job.

cmiles8 3mo ago
The bond market is measuring the risk of repayment though not the success ROI of the dollars invested by the company (that impacts the stock price but not so much the bond price). The bond markets are hiccuping on AI because there’s growing concern that these loans simply won’t get repaid.
toomuchtodo 3mo ago
Kinda cool to be at a point in the hype cycle where the capital markets are almost exhausted due a to a speculative bubble, pushing up yield demand. Move over tulip mania. https://en.wikipedia.org/wiki/Tulip_mania https://en.wikipedia.org/wiki/Tulip_mania > No of course there isn't enough capital for all of this. Having said that, there is enough capital to do this for a at least a little while longer. -- Gil Luria (Managing Director and Analyst at D.A. Davidson)
lelanthran 3mo ago
> They aren't finding AI to be have less ROI than before - they are requiring higher ROI than before, because there is less money remaining. What ROI? There was no return, and there currently isn't any return on investment, because those companies did not exit yet! The exit plan is to offload overpriced shares, that they paid billions for, onto the public market. If they don't IPO, those investors get nothing.
- ericmay 3mo ago
  > The exit plan is to offload overpriced shares, that they paid billions for, onto the public market. If they don't IPO, those investors get nothing. I keep seeing these unsubstantiated claims. They’re out to get us and just pump and dump on public markets! Yet, before they IPO they have to go around and do what? Who sets the IPO price? Who buys the shares? If the shares tank, the valuation of the company goes down and locked up shares lose value. It’s not really in anyone’s interest for IPOs or investments to fail and while pump-and-dump schemes certainly exist they are not the norm. The conspiracy theory level of distrust and cynicism is not healthy and makes one a very poor investor. If individual investors are buying shares and getting blown up, that’s their problem. Invest and due your own research. Broad market funds exist and have so for decades. Most financial advisors even will put you in to those funds and corporate 401k plans while increasingly allowing for more investment flexibility (freedom is good) default and educate employees by default on target date funds and index funds. There is a wealth of information out there.

jagged-chisel 3mo ago

I was at the ophthalmologist for the second time in two weeks - my new prescription wasn't quite right, new lenses should be here this week. All that to say: I had to move my focus around a bit and re-read "...pumped into AI buildout." several times, because I thought I was reading Ed Zitron :D

richwater 3mo ago

Hi there, how do you know Amazon's bond offering was "challenging"? Curious to learn more. Thank you.

cmiles8 3mo ago
A bunch of press on this today you can look up. Demand on the offering was much lower than expected and what materialized in prior rounds. Amazon had to sweeten the deal to get the money loaned.
ifwinterco 3mo ago
Low bid to cover ratio - it's rare for bond auctions to out and out fail (that would be fairly disastrous), but you can have an auction where they successfully sell all the bonds they were trying to sell but with much less demand than they were hoping for. That's not a good sign and it's a blatant red flag for the market

lelanthran 3mo ago

> Market signals on an impending AI bust are broader than just Oracle’s woes. It's worse than that - I believe that Oracle is one of the (many) companies right now that, if their AI experimentation fails, will stop the music, and everyone will be running for a chair. Oracle is one of a few foundational components in the circular-investing group of AI companies. If they fail to make their commitments they're the first domino to fall.

someuser54541 3mo ago
What's the best way to hedge against this, considering many of us have significant savings in the market? A few puts on SPY dated a year or two out?
- lelanthran 3mo ago
  What's the best way to hedge against this, considering many of us have significant savings in the market? I dunno. "The market can remain irrational longer than you can remain solvent"
- gruez 3mo ago
  >A few puts on SPY dated a year or two out? You think the hedge funds selling SPY options don't have this priced in already? Of course, you can still make money on this bet, just like you can win money at a roulette table, but unless you think have some special insight that hedge/quant funds don't have, buying options should be negative EV.
  - sitzkrieg 3mo ago
    agree, mostly true. always better to find a credit spread for your desired exposure
  - someuser54541 3mo ago
    > but unless you think have some special insight that hedge/quant funds don't have Of course not, but it is a hedge, is it not? What would be your preferred hedge in this scenario?

semiquaver 3mo ago

Nothing says “full of shit” like someone saying “market is signaling an impending X”. Why not make a huge levered bet and get wildly rich if you think so?

xienze 3mo ago
Knowing "what" will happen is different from knowing "when" it will happen.
- cmiles8 3mo ago
  Bingo
- dragonwriter 3mo ago
  Also, even knowing both what will happen and when is a separate thing from having access to capital. You can't really tell that someone posting that hasn't already also taken the biggest leveraged position they can (unless that person is so rich that doing so would itself visibly move the market, which most people who might post comments are not.)
- s1artibartfast 3mo ago
  Then you don't know it's impending

tptacek 3mo ago

This is a pretty Oracle-specific situation, isn't it? They bet the company on an AI infrastructure buildout and levered hard to do it. Google, Amazon, and Microsoft aren't in comparable situations. Oracle is transforming itself into a value-added CoreWeave (not just in terms of product packaging but also the financial structure of the company), in a way the other hyperscalers aren't. This story has been playing out for years now, and reads to me like the market simply recognizing that Oracle is not in the same business as it once was. It could succeed, wildly, at this new thing, but its risk isn't going to be valued based on the business it was 10 years ago.

echelon 3mo ago
Fable and Seedance are wildly good products, and they're creating lots of opportunity for disruption. Oracle is in a weird shape.

Aurornis 3mo ago

> And when the cash dries up this whole thing comes crashing down like a house of cards. The problem in this market is that too many players are trying to play a winner-takes-all angle. For the companies that pull it off, it could be very lucrative. In a real market we’ll get a couple of big winners rather than one, but there isn’t enough room for all of these moonshot efforts to land. I don’t see the whole thing coming crashing down, but I do see a consolidation coming that leaves some companies in a very bad state.

duxup 3mo ago

Can the existing AI leaders sort of turtle up / cut research and … be profitable with what they have?

AbstractH24 3mo ago

Its easy to identify the problem its hard to time it or optimize for it.