This is how the AI bubble bursts: https://www.theverge.com/ai-artificial-intelligence/917380/ai-monetization-anthropic-openai-token-economics-revenue
There is no conceivable way to break even for the AI industry—let alone to repay an investment that requires $2Tn a year from now to the end of the decade. That's about 3% of the entire planetary GNP. Just to break even.
I'm guessing that the bubble will pop in 12 to 18 months.
I can see them generating this level revenue.
I wonder whatbthats going to look like for the rest of the economy? 🥺
@simonzerafa No, it'll burst sooner than that. Once SpaceX, Anthropic, and OpenAI have IPO'd the big hypemongers will take their loot and run away, very fast, leaving the shareholders holding the bag.
Back in '99-00, the dot com bust followed a wave of IPOs as founders cashed out …
I honestly thought the bubble would pop January or February this year.
Last December there was finally reporting in the financial rags digging into AI corp financials and revenues. Anyone with half a brain and a spreadsheet (for example, me) would very quickly come to the conclusion the capex *would never pay off* because they couldn't charge enough for the services.
And some did! Michael Burry and Ed Zitron, for example. But the rest of them just kept investing…
I'm reminded of the "It takes three owners to start a ski resort." Owner #1 builds it and goes out of business. Owner #2 buys it out of Bankruptcy for pennies on the dollar, but nobody knows it exists so goes out of business trying to ramp visitors. Owner #3 buys it out of bankruptcy for pennies and enough people know about it that it makes just enough to cover costs. With care it grows to be "successful." 😃
@ChuckMcManis @cstross @simonzerafa
Yeah, but in this case the financials are impossible and the challenge isn't getting customers, it's keeping them once you stop subsidizing them.
If you charge enough to recoup the capex (plus interest, because they are building the data centers with borrowed money) you need to increase the price of each LLM interaction by hundreds of times. Currently the subsidization to the users is something like 85% or more of the cost of providing the service.
@ChuckMcManis @cstross @simonzerafa
The issue is prompt-processing costs continue to go up with each new model. The Chinese have done some hacks with their latest models which reduce those costs a bit and there are probably more savings there, but there's only so much you can shave off.
This is why they need all the data centers: the current models are not complete enough other than for things like software code, where the existing corpus is restricted and smaller models work.
@jackwilliambell The financials of ski resorts are impossible too, for much the same reason, the capex and the interest on it, makes the cost of a lift ticket you would have to buy too high. The first bankruptcy eliminates the Capex debt, and acquires the existing capex at a fraction of the cost. That leaves you with a company that is only recouping OpEx. The product number of users and cost per user, is gross revenue. 1/2
The second bankruptcy occurs because you can't cover OpEx with not enough skiers at a competitive lift ticket price. Its only by the third owner that you have enough customers to make the business work to cover its own Opex.
@ChuckMcManis @cstross @simonzerafa
Except:
1. Most of the data centers will never be built, filled with computers, or staffed
2. The hardware for those data centers is being booked with 10 and 15 year amortizations, when even a 7 year is too long
3. Much of the hardware is neither built nor paid for yet; see Ed Zitron's work on circular payments between the vendors
IOW? The capex will be spent, but there won't be a there there when the banks repossess.
@jackwilliambell @ChuckMcManis @cstross @simonzerafa
If there is anything it would long ago have been obsoleted by some cell phone app or $1000 laptop.
Most people don't even know what a data centre does.
@jackwilliambell @ChuckMcManis @cstross @simonzerafa
Not unlike this famous project.
@cstross @Wgere @jackwilliambell @ChuckMcManis
If this site is still abandoned then someone has a failure of imagination.
Underground storage should be a valuable resource, once ready for occupancy.
@simonzerafa @cstross @jackwilliambell @ChuckMcManis
Maginot Line was, maybe still is, used to grow mushrooms in.
But yes, covering up someone's screw up and don't want it advertised probably why it remains empty.
@cstross @jackwilliambell @ChuckMcManis @simonzerafa
Don't give em none more idears.
They're already working on abandoned Walmarts and shopping malls I'll bet.
Charlie Stross
Simon Zerafa
Jack William Bell
Chuck
Wilhelm Gere