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The current commitment by hyperscalers is around 1.7T USD, reported liabilities 1.3T and this year global debt related to AI is 570B. So that’s around 3T total.
by tedggh 3mo ago
The current commitment by hyperscalers is around 1.7T USD, reported liabilities 1.3T and this year global debt related to AI is 570B. So that’s around 3T total. For this to make sense AI must generate 2T in new revenue per year by the end of the decade. And that would be only a 10% ROIC. For context ROIC for big tech is around 35% so at 10% they will be barely breaking even. The SP500 gives 10-12%. With 10% ROIC from AI the only thing investors will be celebrating is that the whole thing didn’t trigger a financial crisis. Data centers are NOT real estate. Buildings and power lines usually last 30-50 years. GPUs become obsolete in 5 years. If hyperscalers need to refinance and their interest rate goes up there’s zero margin for error.
- CodingJeebus 3mo ago> GPUs become obsolete in 5 years. Not only that, but they're typically amortized over 5 years, where the actual lifespan usually falls far shorter (1-3 years), adding to the artificial subsidy conditions we see today. So they're gaming the lenders into deferring interest payments as much as possible today so that new competitors don't have the same cheap financing advantage.[0] 0: https://blog.citp.princeton.edu/2025/10/15/lifespan-of-ai-chips-the-300-billion-question/ https://blog.citp.princeton.edu/2025/10/15/lifespan-of-ai-ch...
- roryirvine 3mo agoIf they're deliberately inflating the likely useful economic life of their assets to get a lower interest rate, it's hard to see how that wouldn't be classed as fraud. It's the sort of behaviour that really does end up with people going to prison.
- hluska 3mo agoYou’re all getting some concepts mixed up here. That five year amortization rate is the IRS’ usual amortization rate for computers. GPUs are classed as computers for asset depreciation purposes. But GPUs are part of 168(k) so they’re eligible for a 100% bonus depreciation the year of purchase. There’s nothing fraudulent at all here just people using terms they really aren’t comfortable with.
- kurthr 3mo agoThat sounds reasonable, it's "just" $1k/yr for 2B workers (there are about 1.2B total "knowledge workers" in the world including gig drivers), or $10k/yr for 200M workers (there are 70M office and technical workers in the US). /s https://www.dpeaflcio.org/factsheets/the-professional-and-technical-workforce-by-the-numbers https://www.dpeaflcio.org/factsheets/the-professional-and-te... In 4 years it better be 10x more important to have than a cell phone is today, or 10x more important than having internet/monitor/pc/printer is for an office worker today. It's super-intelligence or bust.
- tedggh 3mo agoThe math looks good on paper, but in reality enterprise AI is hard, most companies are realizing they are actually not seeing ROI from AI. One of my customers took about 8 months to rollout an AI initiative that by the time it launched and people got trained on it, it was already legacy. Also if you are 10x more productive with AI that doesn’t necessarily increases your billable output. There could be some super models like Mythos aimed at very specific hard tasks like drug development, but we have not seen any of that yet, and the clock is ticking.
- kurthr 3mo agoYes, I'm agreeing with you. There need to be 200 companies willing to pay $10B/yr for this. What is the ROI? That's the pay roll of ~half the work force of the largest 200 companies. Unless you can fire %50 your employees, everything else is a sunk cost you already own.
- johndough 3mo ago> GPUs become obsolete in 5 years The GPUs are far from worthless after 5 years. E.g. the A100 80GB PCIe version cost around $15k when it was introduced in 2021 and now sells for $10k used. Things might be slightly worse for the data center servers, but I am sure they will find find buyers.
- mywittyname 3mo agoHow much of that is due to inflated RAM prices though? I wouldn't assume the current trend is going to continue.
- hnfong 3mo agoIt really depends on how you view the future demand for compute, which really is the crux of the question of whether the capex is rational or not...
- flyinglizard 3mo agoThey hold value as there is insane demand. The same reason a consumer RTX4090 costs more today than bew in 2021. Once the tide drops enough for hardware lead times to shorten to weeks, they will go the way of other used DC hardware - written off after 5 years.
- johndough 3mo ago> Once the tide drops enough for hardware lead times to shorten to weeks Which will not be any time soon according to SK Hynix CEO: > We still forecast that customer demand will remain higher than our supply capacity even beyond 2030 https://www.reuters.com/world/asia-pacific/sk-hynix-ceo-sees-worst-ever-memory-supply-shortage-2027-says-demand-outstrip-2026-07-10/ https://www.reuters.com/world/asia-pacific/sk-hynix-ceo-sees...
- flyinglizard 3mo agoNo one knows. There's a known bullwhip effect in supply chain [0], and DRAM makers are pretty far out along the supply chain. Just like it ramped up wildly it will stop even faster. [0] https://en.wikipedia.org/wiki/Bullwhip_effect https://en.wikipedia.org/wiki/Bullwhip_effect
- deleted 3mo ago[deleted]
- postflopclarity 3mo ago> The SP500 gives 10-12% the historical average is closer to 7%. sustained 12% would be excellent growth for any mature firm
- lokar 3mo agoIn real or nominal dollars?
- postflopclarity 3mo agoreal
- kingleopold 3mo agohistorical did not have free money printer this big
- postflopclarity 3mo agothere's always something. technology has come a long way. AI is disruptive, but so were railways, electricity, the transistor, etc...
- fooker 3mo agoH100 is nearing five years and costs more to buy a used one now than a new one when it was released :) You are completely missing the bet these companies are making. They think can outlast their competitors and capture a larger portion of the pie while the cost of inference keeps going down dramatically. If you haven't been paying attention, the cost is about 1/100th of what it was in 2024. This is the trajectory pretty much every technology has followed. Of course there will be market crashes and corrections and things like that and most companies won't survive, but the bet is that whoever survives ends up doing pretty well.
- boesboes 3mo agoWhat costs are 1/100th?
- fooker 3mo agoOf serving a (approximately) gpt4 sized model.
- alangibson 3mo agoSo the number is irrelevant. No one wants yesterdays newspaper. The only relevant number is the price to serve a frontier or near-frontier model.
- barumrho 3mo agoIs this true? Hardware costs have only gone up during this time. Are you referring to electricity cost to serve these models? (i.e. compute got more efficient?)
- usrusr 3mo agoWhat made the cost go down? Can't be cheaper used H100, can't be cheaper RAM. A revolutionary breakthrough in hardware use per query?
- underlipton 3mo agoDoes that include the capital costs of spinning up to the current models/scale or is it just running costs? Also, lost revenue from other services being degraded by shifting resources to supporting training/serving models (Google Search...)?
- toast0 3mo ago> Data centers are NOT real estate. Buildings and power lines usually last 30-50 years. GPUs become obsolete in 5 years. Data centers are real estate. One of the big players in carrier neutral data centers even calls themselves Digitial Realty. The contents of the DC is not real estate. But neither is the an office or a house or a warehouse.
- skywhopper 3mo agoThe “contents” represent the majority of the cost and meaningful functionality of what we call a “datacenter”. Those contents will not last for “real estate” debt timelines.
- underlipton 3mo agoChances they're planning on replacing personal, local compute with time-sharing on data center hardware that's too outmoded for AI...? You know, since they sunk the consumer component market for the next half-decade.
- chaos_emergent 3mo agoRight but their payback period is insanely short - a $5M GB200 NVL72 cluster is expected to generate $75M in revenue over 3 years for inference providers. That's a 3 month payback period. AND - they're operating well past their estimated service lifetime.
- alanfranz 3mo agoWhat's the risk of NOT doing this? That's the problem. That's the risk that few (if any) hyperscalers want to take.
- prash20026 3mo agoApple might be a good counter example of what happens if you don't focus entirely on AI. Right now it seems to be doing ok.
- summerlight 3mo agoApple can enjoy because it controls a significant fraction of consumer computing platform so they can simply collect tax from everyone else. This is not true for the rest of big tech. Only Google has Android but it cannot sit and enjoy because they still don't control hardware and AI is an existential problem for their search business.
- tsoukase 3mo agoEveryone that has invested even a dollar to AI believes the revenue will easily surpass the most optimistic predictions. Ask them.
- Laurel1234 3mo agoWonder if you can pay margin calls with belief.
- ethbr1 3mo agoNo, but the rest of the market can cause you to avoid a margin call with its belief.
- mxzesley 3mo ago[dead]
- itkovian_ 3mo agoI just don’t understand this view. This is the most significant technology ever developed. The uncertainty currently is whether it 1) has massive impact, completely altering society and the making world significantly significantly better or 2) if we go into a fast takeoff/rsi loop. Personally I’ve always been highly skeptical of the later, but that seems like a genuine possibility now. It’s not ‘are we going to be able to generate 10% roic on compute’ the answer to that is yes.
- Laurel1234 3mo ago> It’s not ‘are we going to be able to generate 10% roic on compute’ the answer to that is yes. Based on what? No AI company has ever made a cent in profit (exept for Nvidia lmao).
- piguin 3mo agoIt will obviously be a large part of the economy like online shopping is today. The companies that built up a lot of debt to be brand names in online shopping primarily went bankrupt because new companies had no debt (and perhaps no negative sentiment from early customer experiences.)
- itkovian_ 3mo agothe difference is all the current capex is going to durable, hard to get physical assets + things like PPAs. In your online shopping analogy, the hyperscalars are acting like Amazon in 1998
- 3mo ago
- levocardia 3mo agoSo you're short the market, right?
- etempleton 3mo agoShorting the market always has a greater risk even if you are fairly confident something is true. You also have to be fairly confident of the timing.
- summerlight 3mo agoI would be more careful before assuming 5 years depreciation schedule. Currently price tags are attached to computing power, not the production cost. Computing is not getting meaningfully cheaper with newer GPUs but it only allows better scaling, which makes older hardware more relevant for many use cases. This is why A100 is still selling like hotcakes. I don't think this trend will change soon.