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you won't get debt if you don't have assets that can be repossessed, so having debt means these AI companies have assets: that's a strong thing, not a weak thin
by fsckboy 2mo ago
you won't get debt if you don't have assets that can be repossessed, so having debt means these AI companies have assets: that's a strong thing, not a weak thing. interest rates are what they are, and they go up and down for reasons exogenous to your industry; debt regardless of interest is always "cheaper" than equity, and the shareholders expect to make their money from equity, paying interest on debt as a type of impedance matching and cost of keeping more equity.
so everything is going according to plan, and nobody knows the future, and predicting collpses has never been a profitable business.
I didn't have to read past the first few confusing contorted and convoluted paragraps of this article to decide to come over here and explain it, this is all straightforward corporate finance 102 and the article is fluff
- ragebol 2mo agoYes, they have assets: GPUs sitting in datacenters, and data. Question is: is that worth enough to cover the debt after the market crashed?
- sssilver 2mo agoDon’t they all have mostly the same data, with a small / negligible delta between each other?
- stnikolauswagne 2mo agoI'd argue that data in this case is more like the actual models they use, their codebase and their engineering talent. Not deep enough in the sauce to say one way or another how big the realistic delta between companies is though.
- ragebol 2mo agoMaybe so. That leaves just the hardware. Deprecates badly. Maybe gamers will take it off their hands gladly?
- AlexCoventry 2mo agoI would be delighted to see a glut of compute. I'm not optimistic, though.
- fsckboy 2mo agocontracted revenue streams and subscriptions are also assets. Having first claim on those has tangible value.
- deleted 2mo ago[deleted]
- gymbeaux 2mo agoI would imagine Anthropic et al. are largely leasing land/buildings, so as the other commenter said… must be the server racks that are acting as collateral (if anything). Generally enterprise hardware depreciates very harshly. I’m used to paying $10 for Intel Xeons that once retailed for over $5,000. I expect to pick up some NVIDIA Blackwell 6000s for $100 each someday.
- jamesfinlayson 2mo agoYep, a friend recently told me that he remembers working somewhere that gave away old empty server racks - they were unnecessary, and expensive to store, so why keep them?
- blitzar 2mo agoWe are in odd times however - I for one am sitting on paper profits on the consumer gpu I bought 2 years ago. If anyone goes down before the supply side is fixed - the first to fall will probably be able to liquidate their gpus at a profit.
- matwood 2mo ago> the first to fall will probably be able to liquidate their gpus at a profit Meta and xAI announcing they are leasing out capacity is a version of this already happening.
- gymbeaux 2mo agoI just sold an RTX 3090 (released in 2020) for $1000. It should have been more like $200. I don’t see a point in running local LLMs with it but plenty of other people disagree, or want to “play around”. It’s so old that I can’t imagine a scenario where I’d be glad to have it- even if local LLMs ultimately catch up to the cloud frontier models (Opus, et al.). In a world where I can run Claude Opus 4.8 on an RTX 3090 at reasonable speeds, Anthropic doesn’t need even 1/20th the GPUs it has and it will dump them on the secondary market.
- stnikolauswagne 2mo agoI agree with the general sentiment, but I feel like it is also a bit reductive. Assets in this space are near impossible to evaluate and can fluctuate in value greatly based on other actors. In a hypothetical scenario where, say, google releases a new frontier model that somehow leapfrogs the competition by 5 months all of a sudden the value of the Asset of Fable 5 and GPT 5.6 might completely crater.
- fsckboy 2mo agobankers do not engage in "impossible to evaluate", they simply don't. bankers are reductive. the rest of your post says "there's risk". equity and debt investors understand risk, and either engage or don't. If they do a poor job of understanding risk, they either get lucky or run out of funds to participate.
- sndgndgndgndy 2mo agoGPUs have a five year lifespan before they become obsolete and start experiencing reliability issues. We're already 1-2 years into that five year lifespan.
- missedthecue 2mo agoThe payback time for a GPU running 24/7 inference is ridiculously short though. As little as 6 months according to some calculations. Most of that 5 year lifespan it will be earning well in excess of its replacement cost.
- fsckboy 2mo agobean counters are better at establishing asset value than you are, and as I mentioned elsewhere, income streams are assets also
- Kon5ole 2mo ago>you won't get debt if you don't have assets that can be repossessed, so having debt means these AI companies have assets That's the ideal scenario, but you can also have immense debt because someone once thought you had assets.