5 ms·

There is just no way all these data center investments in the trillions pay off. That has to be paid out of cashflow, like, real profit. The price to do useful

There is just no way all these data center investments in the trillions pay off. That has to be paid out of cashflow, like, real profit. The price to do useful things keeps falling, the payroll economy will crash long before there's actual trillions of dollars of cashflow for tokens.

rvz 1mo ago
It is the entire scam and many of those funding the data center build-out know this. Otherwise why are they hiding the trillions of debt under the rug? There's a reason why a company like Stripe can stay private far longer than Anthropic or OpenAI can. These AI companies have taken in all the capital from private investors and are still losing hundreds of billions and have no choice but to hype up the IPO and dump some of the stock at a purposefully inflated valuation to retail investors.
- mlnj 1mo ago
  They are worth (on paper) so much that there are not enough retail money to buy them anymore. All these companies can do is put Uncle Sam on the hook to print money for them. There is no other way.
WarmWash 1mo ago
They just need 5% of the worlds population to get $50-100 value per month out of them. Even in my non-SWE job, paying $100/mo for my current $20/mo plan would still be a no-brainer. I don't think there is much concern about open models either. Compute is constrained for the foreseeable future, and money is what will determine who gets it. Nevermind that the US will likely block Chinese model imports or China will block exports at some point. The cold war has already begun here.
- mlnj 1mo ago
  I highly doubt 415 million people will find enough reason to purchase $100 worth of Anthropic, especially when the price of intelligence keeps going down and smaller models become more and more capable to meet the average person's needs like drafting emails, customer support, basic RAG.
  - eddq 1mo ago
    Also that bozo is not bringing to the surface the implicit assumption of going-concern in perpituity. Most people shouldn't open their mouths / write anything re. valuation TBH.
  - deleted 1mo ago
    [deleted]
  - WarmWash 1mo ago
    The cost of intelligence doesn't matter, it will just make margins wider. Just look at software over the last 20 years. People pay based on the value they receive, not the cost the produce or serve it. That fact is literally is the backbone of tech, and why it has been an absolute money machine. I think the worst case scenario for the labs is current (or next gen) SoTA models reaching a point where cheap consumer hardware can fully run them. But the labs practically have a monopsony on compute, and getting the kind of long context current models thrive on out of 16GB GDDR6 is gonna be a trick.
    - 3dd3 1mo ago
      "But the labs practically have a monopsony on compute..." Another bozo who read a intro microeconomics textbook, learned a fancy word, and doesn't know how to apply it! LOL. Wow you people on here are really funny.
    - gizmo686 1mo ago
      Tech has been a money machine because it has a marginal cost if approximately 0, so tech companies could literally give there products away and live off of the pennies they get from serving adds. Software is one of the hardest product classes to get people to pay for because the cost is anchored at 0.
- Lerc 1mo ago
  Why that many people per month? What timeframe were you considering for them to pay off their expenditure? For that matter what are you estimating their total expenditure to be?
- alasdair_ 1mo ago
  Enterprises will pay tens of millions a month, millions of individuals will pay $100 a month and there will be a long tail as they offer cheaper pricing and perhaps ad-supported pricing. The average American family won’t be willing to pay more than a Netflix subscription. I think in five years, it will only be power users that use a model in its raw form - everyone else will mostly consume using wrapper apps.
  - derwiki 1mo ago
    But will the wrapper apps cover token cost, or will tokens act more like electricity?
    - lumost 1mo ago
      Token cost is falling rapidly for a given quality. We don't think about this too much as newer models have made legacy apps obsolete - but its an interesting question what the cheapest text to sql or similar model would be. I still go by 10x cost decrease per 6 months for any given model quality.
- bitmasher9 1mo ago
  “Only 5%” We still have 2billion+ people offline. Looking at global population is the wrong reference frame for selling a $100/mo service.
  - sottol 1mo ago
    There's 5B working age people world wide and only 50% of those make more than $500/mo where it's even conceivable to spend $50/mo. I did the napkin math, it can still sorta kinda work out. I think more realistically we'll have something like the Google/social media US-vs-world profit split of 40-50% US vs rest of world combined. Even those numbers can work out but then I don't see tremendous growth. But the sector valuation is already priced for wholesale workforce replacement or massively expanded productivity and AI platform providers taking a lot of that pie for themselves. With corporate profits already near all-time highs with respect to GDP, who is going to buy all those new products (from expanded productivity ) if all the gains only go to OIA and Anthropic employees? It's an interesting time.
- Bender 1mo ago
  I would be curious to see if they ever publish detailed statistics on this. I'm sure as others have said the average family will not be paying much if anything for AI. Just within the HN bubble I have been paying a bit for it just for my hobbies and it's been fun, enlightening, incredibly useful for rewriting other peoples code and asking it all the dumb questions that I would get entirely roasted for here. Curious to know how many others are using it that way for hobbies, silly questions, rewriting other peoples code, finding and fixing vulnerabilities, debugging performance bottlenecks, etc... rather than strictly professional use cases.
  - alasdair_ 1mo ago
    The average family will be paying plenty for ai, just not directly in the form of tokens.
- lumost 1mo ago
  betting on a compute bottleneck sounds like a recipe to get thrashed when the bottleneck relieves itself. At the investment scales being discussed, CUDA/architecture and other advantages do not matter - you could spend 1 billion on building a new chip architecture. The ram/fab inputs have been a commodity market for years. Heck, even the model bottleneck doesn't seem real when it's only 1-4 billion or less to get a state of the art model. At some point the compute bottleneck will be relieved, you can see NVidia hedging their strategy with both open models and on-device chips targeted for local inference. The 200 dollar a month plan will absolutely be taken over by local hardware in the future.
- HarHarVeryFunny 1mo ago
  Dario Amodei has apparently recently suggested that Anthropic might become only only private AI company in the entire world, which obviously it won't. There is competition everywhere, and it is intensifying and catching up, not fading away. Open weight models are becoming more common, both within the US as well as elsewhere. Treasury secretary Scott Bessent just praised Meta's open weight models. There is demand for AI at all different price points, and as all models at all price points become more capable, it seems that increasingly developers are seeing the most expensive ones as specialized tools, not daily drivers. Compute/memory may be constrained for a few years until production capacity catches up, but this does not mean that demand for cheaper and open weight models will go away, else it would already be happening. Anthropic would like to sell an expensive Ferrari to everyone on the planet, but 99.99% of those people have no need for anything more than a Yugo.
  - WarmWash 1mo ago
    Demand for cheap stuff doesn't manifest cheap stuff. Look at housing, we've been waiting 20 years for "production capacity to catch up".
    - HarHarVeryFunny 1mo ago
      No - but we already have cheap LLMs priced way below frontier models. This is not the housing market. There will always be someone willing to take a lower profit margin for a slice of the pie, and of course smaller models are cheaper to serve so can afford to be cheaper. DeepSeek recently said that their super-low pricing let's them recoup the cost of the hardware it runs on in 10 months, so there is evidentially plenty of profit to be had over a projected 3+ year lifespan of a "GPU". Some in the AI industry, or breathing the same air (Dwarkesh) project that limited GPUs will only be used to serve the most expensive models with the highest profit margins, but it is just not what we are seeing. If the only LLMs available were ones at Opus/Fable price points then the GPU scarcity would disappear since the demand at that price is just not there. It's remarkably like trying to fill all the seats on a plane - you can fill a few at 1st class prices, but most of the plane better be coach if you want to sell all the seats. For a GPU, "selling all the seats", keeping it busy 24x7, is critical to profitability since the primary cost to serving is the GPU which has a limited lifespan.
- delecti 1mo ago
  Sure, they "just" need to exceed Netflix's global subscriber count, at a significant multiple of the monthly cost of Netflix in their most expensive markets, all in time for an IPO that is rumored to be happening later this year. No problem.
- kurthr 1mo ago
  So thinking this through to come up with your numbers, total investment through 2027 is ~$2T and interest on debt is over 7%, which makes servicing this ~$140B/yr. However, failure rates on H100-B300 installed HW have been over 12%/yr even as the power and cost efficiency per token of the later builds has risen ~5x. So depreciation on the data centers is conservatively $240B/yr ignoring power costs (likely only $30B/yr at $0.05/kWh). Conveniently, this is $20B/month and if 5% of the population uses it, that's only 400million people so it's $50/mo or $600/yr, only if the AI-vendors make zero profit and $100/mo if they make 50% margins. Realistically, the OpenAI and Anthropic go to zero or it's $600/year. I don't know where the 5% of world population came from, because that's clearly not just professionals or people making a lot of money. That's Uber drivers, and retirees in the developed world or tech workers in Asia making <$10000/year. Those don't look like great markets. This needs to be 2x higher value than their cell phone and internet that they might spend $300/year on today (that's a new iPhone every 3 years on an ATT plan). It's not like it can replace their plan, because they need that connectivity to use it! Who's getting this value other than SWEs? There aren't 40 million SWEs and I don't see them spending over $6000/year. If their business does, it still has to pass on the cost to consumers and/or fire SWEs.
  - alasdair_ 1mo ago
    Every llm-wrapper business needs an llm behind it. There are a sizeable number of firms paying 10mm+ a month to offset the people paying $50/month
    - kurthr 1mo ago
      They must each have 20mm customers paying $10 a month to have 50% margins in profit. Or are they just VC funded? Are there 100 of them? That would be 2 billion customers.
lokar 1mo ago
They are valued as if one company will win and get almost the entire market. And that the market will be massive and profitable.
- GolfPopper 1mo ago
  That's because the implicit sales pitch is: "We will create a tame AI overlord and rule the world with it!"
budsniffer952 1mo ago
Sounds like you don't know what cashflow, profit, revenue and investment are. Why on earth do data centres need to be built from cashflow???
keeda 1mo ago
I did some napkin math in a comment a little while ago, that if the whole shebang comes to a screeching hard stop where all these investments are written down to 0 and all AI revenue disappears completely, these trillions of debt could be repaid, with interest, by the hyperscalers with their pre-AI firehoses of cash flow in 6 - 8 years. It’s never going to be that simplistic, of course, but that doesn’t seem like a very dire situation.
tim333 1mo ago
The optimistic view is AI improves and generates significant value. You probably need it to generate of the order of 1% of world GDP for the investments to make sense.
- alasdair_ 1mo ago
  That honestly seems reasonable. AI is more relevant than oil.
  - tim333 1mo ago
    Also there's a recent ramp up in spending suggesting things are on the up. https://x.com/a16z/status/2088658228959953052/photo/1 https://x.com/a16z/status/2088658228959953052/photo/1 Up like 3x in half a year or something. I think current investment to date is ~$1tn and revenues are ~$100bn so you'd only need the growth to keep up a short while longer for the current lot to pan out.

rvz 1mo ago

It is the entire scam and many of those funding the data center build-out know this. Otherwise why are they hiding the trillions of debt under the rug? There's a reason why a company like Stripe can stay private far longer than Anthropic or OpenAI can. These AI companies have taken in all the capital from private investors and are still losing hundreds of billions and have no choice but to hype up the IPO and dump some of the stock at a purposefully inflated valuation to retail investors.

mlnj 1mo ago
They are worth (on paper) so much that there are not enough retail money to buy them anymore. All these companies can do is put Uncle Sam on the hook to print money for them. There is no other way.

WarmWash 1mo ago

They just need 5% of the worlds population to get $50-100 value per month out of them. Even in my non-SWE job, paying $100/mo for my current $20/mo plan would still be a no-brainer. I don't think there is much concern about open models either. Compute is constrained for the foreseeable future, and money is what will determine who gets it. Nevermind that the US will likely block Chinese model imports or China will block exports at some point. The cold war has already begun here.

mlnj 1mo ago
I highly doubt 415 million people will find enough reason to purchase $100 worth of Anthropic, especially when the price of intelligence keeps going down and smaller models become more and more capable to meet the average person's needs like drafting emails, customer support, basic RAG.
- eddq 1mo ago
  Also that bozo is not bringing to the surface the implicit assumption of going-concern in perpituity. Most people shouldn't open their mouths / write anything re. valuation TBH.
- deleted 1mo ago
  [deleted]
- WarmWash 1mo ago
  The cost of intelligence doesn't matter, it will just make margins wider. Just look at software over the last 20 years. People pay based on the value they receive, not the cost the produce or serve it. That fact is literally is the backbone of tech, and why it has been an absolute money machine. I think the worst case scenario for the labs is current (or next gen) SoTA models reaching a point where cheap consumer hardware can fully run them. But the labs practically have a monopsony on compute, and getting the kind of long context current models thrive on out of 16GB GDDR6 is gonna be a trick.
  - 3dd3 1mo ago
    "But the labs practically have a monopsony on compute..." Another bozo who read a intro microeconomics textbook, learned a fancy word, and doesn't know how to apply it! LOL. Wow you people on here are really funny.
  - gizmo686 1mo ago
    Tech has been a money machine because it has a marginal cost if approximately 0, so tech companies could literally give there products away and live off of the pennies they get from serving adds. Software is one of the hardest product classes to get people to pay for because the cost is anchored at 0.
Lerc 1mo ago
Why that many people per month? What timeframe were you considering for them to pay off their expenditure? For that matter what are you estimating their total expenditure to be?
alasdair_ 1mo ago
Enterprises will pay tens of millions a month, millions of individuals will pay $100 a month and there will be a long tail as they offer cheaper pricing and perhaps ad-supported pricing. The average American family won’t be willing to pay more than a Netflix subscription. I think in five years, it will only be power users that use a model in its raw form - everyone else will mostly consume using wrapper apps.
- derwiki 1mo ago
  But will the wrapper apps cover token cost, or will tokens act more like electricity?
  - lumost 1mo ago
    Token cost is falling rapidly for a given quality. We don't think about this too much as newer models have made legacy apps obsolete - but its an interesting question what the cheapest text to sql or similar model would be. I still go by 10x cost decrease per 6 months for any given model quality.
bitmasher9 1mo ago
“Only 5%” We still have 2billion+ people offline. Looking at global population is the wrong reference frame for selling a $100/mo service.
- sottol 1mo ago
  There's 5B working age people world wide and only 50% of those make more than $500/mo where it's even conceivable to spend $50/mo. I did the napkin math, it can still sorta kinda work out. I think more realistically we'll have something like the Google/social media US-vs-world profit split of 40-50% US vs rest of world combined. Even those numbers can work out but then I don't see tremendous growth. But the sector valuation is already priced for wholesale workforce replacement or massively expanded productivity and AI platform providers taking a lot of that pie for themselves. With corporate profits already near all-time highs with respect to GDP, who is going to buy all those new products (from expanded productivity ) if all the gains only go to OIA and Anthropic employees? It's an interesting time.
Bender 1mo ago
I would be curious to see if they ever publish detailed statistics on this. I'm sure as others have said the average family will not be paying much if anything for AI. Just within the HN bubble I have been paying a bit for it just for my hobbies and it's been fun, enlightening, incredibly useful for rewriting other peoples code and asking it all the dumb questions that I would get entirely roasted for here. Curious to know how many others are using it that way for hobbies, silly questions, rewriting other peoples code, finding and fixing vulnerabilities, debugging performance bottlenecks, etc... rather than strictly professional use cases.
- alasdair_ 1mo ago
  The average family will be paying plenty for ai, just not directly in the form of tokens.
lumost 1mo ago
betting on a compute bottleneck sounds like a recipe to get thrashed when the bottleneck relieves itself. At the investment scales being discussed, CUDA/architecture and other advantages do not matter - you could spend 1 billion on building a new chip architecture. The ram/fab inputs have been a commodity market for years. Heck, even the model bottleneck doesn't seem real when it's only 1-4 billion or less to get a state of the art model. At some point the compute bottleneck will be relieved, you can see NVidia hedging their strategy with both open models and on-device chips targeted for local inference. The 200 dollar a month plan will absolutely be taken over by local hardware in the future.
HarHarVeryFunny 1mo ago
Dario Amodei has apparently recently suggested that Anthropic might become only only private AI company in the entire world, which obviously it won't. There is competition everywhere, and it is intensifying and catching up, not fading away. Open weight models are becoming more common, both within the US as well as elsewhere. Treasury secretary Scott Bessent just praised Meta's open weight models. There is demand for AI at all different price points, and as all models at all price points become more capable, it seems that increasingly developers are seeing the most expensive ones as specialized tools, not daily drivers. Compute/memory may be constrained for a few years until production capacity catches up, but this does not mean that demand for cheaper and open weight models will go away, else it would already be happening. Anthropic would like to sell an expensive Ferrari to everyone on the planet, but 99.99% of those people have no need for anything more than a Yugo.
- WarmWash 1mo ago
  Demand for cheap stuff doesn't manifest cheap stuff. Look at housing, we've been waiting 20 years for "production capacity to catch up".
  - HarHarVeryFunny 1mo ago
    No - but we already have cheap LLMs priced way below frontier models. This is not the housing market. There will always be someone willing to take a lower profit margin for a slice of the pie, and of course smaller models are cheaper to serve so can afford to be cheaper. DeepSeek recently said that their super-low pricing let's them recoup the cost of the hardware it runs on in 10 months, so there is evidentially plenty of profit to be had over a projected 3+ year lifespan of a "GPU". Some in the AI industry, or breathing the same air (Dwarkesh) project that limited GPUs will only be used to serve the most expensive models with the highest profit margins, but it is just not what we are seeing. If the only LLMs available were ones at Opus/Fable price points then the GPU scarcity would disappear since the demand at that price is just not there. It's remarkably like trying to fill all the seats on a plane - you can fill a few at 1st class prices, but most of the plane better be coach if you want to sell all the seats. For a GPU, "selling all the seats", keeping it busy 24x7, is critical to profitability since the primary cost to serving is the GPU which has a limited lifespan.
delecti 1mo ago
Sure, they "just" need to exceed Netflix's global subscriber count, at a significant multiple of the monthly cost of Netflix in their most expensive markets, all in time for an IPO that is rumored to be happening later this year. No problem.
kurthr 1mo ago
So thinking this through to come up with your numbers, total investment through 2027 is ~$2T and interest on debt is over 7%, which makes servicing this ~$140B/yr. However, failure rates on H100-B300 installed HW have been over 12%/yr even as the power and cost efficiency per token of the later builds has risen ~5x. So depreciation on the data centers is conservatively $240B/yr ignoring power costs (likely only $30B/yr at $0.05/kWh). Conveniently, this is $20B/month and if 5% of the population uses it, that's only 400million people so it's $50/mo or $600/yr, only if the AI-vendors make zero profit and $100/mo if they make 50% margins. Realistically, the OpenAI and Anthropic go to zero or it's $600/year. I don't know where the 5% of world population came from, because that's clearly not just professionals or people making a lot of money. That's Uber drivers, and retirees in the developed world or tech workers in Asia making <$10000/year. Those don't look like great markets. This needs to be 2x higher value than their cell phone and internet that they might spend $300/year on today (that's a new iPhone every 3 years on an ATT plan). It's not like it can replace their plan, because they need that connectivity to use it! Who's getting this value other than SWEs? There aren't 40 million SWEs and I don't see them spending over $6000/year. If their business does, it still has to pass on the cost to consumers and/or fire SWEs.
- alasdair_ 1mo ago
  Every llm-wrapper business needs an llm behind it. There are a sizeable number of firms paying 10mm+ a month to offset the people paying $50/month
  - kurthr 1mo ago
    They must each have 20mm customers paying $10 a month to have 50% margins in profit. Or are they just VC funded? Are there 100 of them? That would be 2 billion customers.

lokar 1mo ago

They are valued as if one company will win and get almost the entire market. And that the market will be massive and profitable.

GolfPopper 1mo ago
That's because the implicit sales pitch is: "We will create a tame AI overlord and rule the world with it!"

budsniffer952 1mo ago

Sounds like you don't know what cashflow, profit, revenue and investment are. Why on earth do data centres need to be built from cashflow???

keeda 1mo ago

I did some napkin math in a comment a little while ago, that if the whole shebang comes to a screeching hard stop where all these investments are written down to 0 and all AI revenue disappears completely, these trillions of debt could be repaid, with interest, by the hyperscalers with their pre-AI firehoses of cash flow in 6 - 8 years. It’s never going to be that simplistic, of course, but that doesn’t seem like a very dire situation.

tim333 1mo ago

The optimistic view is AI improves and generates significant value. You probably need it to generate of the order of 1% of world GDP for the investments to make sense.

alasdair_ 1mo ago
That honestly seems reasonable. AI is more relevant than oil.
- tim333 1mo ago
  Also there's a recent ramp up in spending suggesting things are on the up. https://x.com/a16z/status/2088658228959953052/photo/1 https://x.com/a16z/status/2088658228959953052/photo/1 Up like 3x in half a year or something. I think current investment to date is ~$1tn and revenues are ~$100bn so you'd only need the growth to keep up a short while longer for the current lot to pan out.