Times running out? No, it’s out.
I’m excited to see the PE Ratios after these IPOs. We’re already well into dot.com absurdity, but throw in some multi-trillion market caps with negative earnings?
Even the street corner hustler knows you give the first rock out for free.
They also know not to spend trillions making the product.
Hey, cocaine and baking soda ain’t cheap you know. Plus you got to have a microwave and shit. Overhead is crazy like that.
/s
Really? Has anyone mentioned that to Tesla? Or to whoever is in the government that keeps giving him billion dollar contracts?
Oh you mean the Tesla with a PE Ratio of 382 (20 times the industry average), a PEG of 16, P/B to 18, massive insider stock dumps, and is still down YTD? Tesla still has power because of their stranglehold on charging. AI companies have insane costs and people souring on them as they either lose their jobs or see their companies’ costs go up as a result, all without solid ROIs and strong buyers remorse.
And Trump/Hegseth keep giving them contracts because they’re idiots
Is the real hope that AI will be a subscription service? Those subscription billionaires ain’t got a clue. Let’s change “At some point you’ve got to make money” to “At some point you’ve got to add value”.
I think those IPOs are meant to bring in enough money to give the founders and managers golden parachutes before the whole system folds.
They don’t make any money - on the contrary - and they won’t miraculously start making it just because the IPO happened.
You’re thinking too long term. IPOs are the C suite cashing out.
Here’s the problem… He says AI was adopted beyond his expectations. Great.
But if somebody is using it at the current price point of super cheap or free, are they going to keep using it when it gets expensive?
You can make a basic chatbot run on a desktop PC, but nobody wants to pay for that. Once you get into things with useful generation and large context windows, or things like video generation, suddenly you need one or more $10,000+ pieces of hardware to run it. So the $10 a month you charge the user is basically an introductory price that doesn’t cover your hardware fees let alone the software engineers to build your AI.
Eventually, the bill comes due. Eventually, you have to look at your customers and how much machine time they use each month and how much your r&d costs and figure out what the actual cost to the customer has to be. And then the customer rethinks how useful the AI is or isn’t.
People will pay $10 a month for chat GPT to write their emails. Will they pay $100 a month?
What about the company that replaced all their software developers with AI. Suddenly the AI cost as much or more as the software developers. Only now the developers who understood the code base work for other companies.
There will be a fun correction when this happens.
Once you get into things with useful generation and large context windows, or things like video generation, suddenly you need one or more $10,000+ pieces of hardware to run it.
A Blackwell server with 72 GPUs costs about $3 million, plus requires 130 kW of power (about 3 residential homes’ max rated power through a residential 200A circuit box, for about $600-$1000/day in electricity cost).
You’re gonna need to sell a lot of $20/month subscriptions to get that paid for, assuming that the server is good for 5 years. If it’s only good for 3 years, the economics are basically impossible.
… assuming that the server is good for 5 years. If it’s only good for 3 years, the economics are basically impossible.
And surely the big AI companies wouldn’t decide that hardware rated for ~3 years should be amortized over 5-6 years in order to massively inflate their value on paper.
I am no AI fan, but I do not see this going away. I think if you can get enough people addicted, they will pay costs if the costs seem nominal at first.
If someone can’t write well and has an upcoming deadline for an essay or needs to write an important document, they might use a one-time fee. If someone uses it for day-to-day decision making, they will certainly do a subscription if it seems cheap at first. And once you have those people expecting to pay, the price keeps increasing every couple of years.
Example a - Facebook. Rolled out as an entirely free service and enrolled billions of members. Now enough people pay for extras in things as stupid as Candy Crush that they can tack millions onto their revenue for nearly no benefit provider. If enough people pay $1 for something stupid, it pays off
Example b - Prime streaming services. It was a free tack-on to people with Prime memberships. So people bought Fire sticks and use it as a home base. And now they are so cemented into the system and don’t know how to use an alternative so they will pay for 1) extra apps that will show the program they want, which will pay Amazon a fee and 2) pay extra for no ads now that they are addicted
I also have no doubt that advertising can be baked into AI. Just wait until it writes a pathology report and recommends a certain brand name medication, or gives someone a to-do list for hosting a Christmas party with specific brands and desired trends listed.
As for video generation, I think you have a small enough pool that does this anyway, and this will increasingly be consolidated by price towards a handful of powerful individuals who want to sway public influence.
You and I may not pay for it, but have no doubt you can get similar adoption to streaming services and you can get people to pay for anything if it feels cheap enough to be nothing money. I’ve become a cynical old fart and I’ve watched this song and dance too many times.
I think the price point is where your theory falls apart. The AI companies are spending far more than Netflix and they will need to charge more than the average family can afford in order to turn a profit. (Especially in the US where people are struggling to pay for gas and groceries right now.)
Take a look at the new token-based business services. People are blowing through their monthly allotment in a couple of days doing the same things they had been doing previously. Businesses won’t be able to afford increasing their AI spending by 10x to keep up.
I think it will have to consolidate down to a few players - I certainly don’t expect that there is a market for 100 different systems. And I think the personal market is a supplement to the executive suite market, so getting a few people addicted for cheap both brings in a small revenue stream and dumbs a population down enough that they have no choice but to function without it (imagine telling someone in 2001 that they would one day pay $1700 for a cell phone - now it’s just considered the cost of living)
The businesses who overdid it on tokens have a choice to make: hire back workers or switch to a different AI company. Maybe one day they will look at humans (although salary may have to increase due to negative reputation), but I think there are a good number that will just shop around to another AI company for a better deal.
What happens when its chatgpt, Claude and Gemini $$$$ vs Deepseek $. The Chinese will absolutely flood the market with free AI so long as it burns the American companies.
There’s just no way to pay for the cost of these services, though.
When someone constructs a 100 MW data center (now considered a smaller one for new construction), that’s about $2 billion in total costs to outfit the whole operation. And then once it’s on, we’re talking something like $10-20 million/month in electricity alone, and a few million in other costs. How many $20 subscriptions do you need to sell just to break even with your operating expenses? How many $100/month subscriptions do you need to sell to make a dent on your interest payments on the construction? Will there be a market for $1000/month subscriptions from millions of customers? If not, how’s this all going to be paid for?
They certainly cant make their money back writing personal emails and doing kids homework, but I dont think thats where they are aiming in the long run. We may end up with big business and military paying big money for the real frontier models and everyone else using lightweight local models on their own hardware, cheap models integrated into existing applications, and watered down frontier models on subscription.
You may be right (I hope you are). Do you think government funding would offset this?
I don’t think government funding can actually offset the crash in consumer and business demand being insufficient to cover the cost of the most expensive models on the most expensive GPUs. But if you look through my comment history I’ve made the comparison to supersonic flight, because I genuinely believe there’s a possibility that governments fund the expensive branch of this technology for their own military or surveillance or law enforcement purposes without the benefits necessarily actually spilling out into normal commercial applications.
We’ve hit the point where training a model (both pre training and post training) isn’t the expensive part, and the expensive part is actual inference, which makes it hard to scale the most expensive models to where it’s useful for a lot of people. So it might be that the companies and governments that can afford to operate an expensive model might be the only ones to do it. And they’ll be able to, without necessarily the public being able to have access to the same tech.
They would raid pensions before asking congress
On the code development front it’s even worse as now you have an unpredictable cost based on token consumption rather than the predictable cost of a salary and have no leverage to negotiate the cost.
People will pay $10 a month for chat GPT to write their emails.
They won’t even pay that in many cases but instead rely on the free offerings. Expect those to go away altogether, to be heavily hamstring, or to become absolutely riddled with advertisements.
If run locally you get none of those problems.
Right, but then we are back to the question of how these companies are supposed to make money. I suppose hardware manufacturers will be okay with this outcome but I’m not sure how these heavily inflated software companies will profit under a local first world. So we are back to the bubble deflating or bursting.
wow these guys seem to hate it all of a sudden, what changed…
They road the wave up, now they are wanting to exit before it crashes
Come on now, Nvidia is making money. Nvidia then just gives it back to them to make more money is all.
Yeah, Nvidia invests in Open AI, Open AI uses that money to buy Nvidia chips. More people invest in Nvidia because it’s revenue keeps growing.
Charles Ponzi would be proud.
Alan and Beth, two economists are walking through some woods. They come across s pile of shit and Alan says to Beth “if you eat that shot I’ll give you a tenner”
“Okay,” says Beth. She eats the shit and Alan hands her a £10 note
They walk on for a bit and find another pile of shit. Beth says to Alan “now I’ll give you a tenner of you eat that pile of shit”
“Okay,” says Alan. He eats the shit and Beth hands the £10 note back to him
They walk on a bit further and Beth says “you know, it seems to me like we both just ate a pile of shit and nobody gained anything”
“Ah, that’s where you’re wrong,” says Alan “we’ve increased the GDP by £20”
Isn’t this just the broken window fallacy but with a poop fetish?
Wasn’t his full name Charles Ponzi-Scheme?
ERROR: Capitalism has no idea how to deal with this situation.
I’m actually kinda fascinated with how this will shake out. This isn’t like one or two companies making a bet. The entire S&P500 is pushing Ai.
Well, here’s hoping a few investors do a flip before they hit the pavement.
ERROR: Capitalism has no idea how to deal with this situation.
Actually it does. Bad decisions can be made only until money runs out
This is capitalism working exactly as intended. People with capital are using it to guide businesses to make them more money.
The mistake is thinking that capitalism is motivated by a healthy economy, when the theory is that if everyone is aggressively selfish then the economy will naturally become healthy and efficient.
The people making money are counting on making their money as investors keep pumping more in. The investors are all aiming to be the last one to sell before the crash. Russian roulette venture capitalism. (In some cases they think the economy will tolerate 1-2 companies and they’re aiming to buy a controlling interest in a company worth 2% current value after the correction, and in others they just have so much money that a few billion is a minor bet - BlackRock comes to mind, with more than $10 trillion to invest)
If you look at 2008, we had a similar-ish situation with a major portion of the economy being invested in mortgage based investments.
People only saw the percentage returns and not the human cost. We haven’t learned our lessons and are doomed to repeat the same scenarios.
That’s not nice. Think of the people who clean that pavement.
Wat? Capitalism knows exactly how to deal with this situation. People who still have faith in the companies will keep loaning them money or buying their stock or investing in them in other ways, and people who don’t have that faith will stop doing those things. Eventually each company will either succeed or run out of believers and die. It’s a very common scenario.
edit: answering the people who mentioned bailouts and government loans, as if to invalidate what I’m saying here.
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Bailouts are infrequent special cases where governments intercede when there’s fear that corporate failures might cause widespread unemployment or other economic consequences. The entire AI industry isn’t even in that leage - it currently employs around 25-30,000 people. The largest one (OpenAI) only has about 8000. The largest of them could fail without disrupting their industry. This is nothing like a situation that would spur an industry-wide bailout.
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Same goes for large government loans or loan guarantees. These aren’t handed out like candy whenever anyone asks. The scale of the consequences from company failures simply wouldn’t justify it.
The overwhelmingly likely scenario if AI companies fail is mergers and acquisitions. There’s even a class of investors known as “corporate raiders” who specialize in buying desperate companies and selling off the assets. None of this is new, it’s normal business activity that happens all the time, just part of the ecosystem. Believing AI companies are bulletproof because the government will simply hand them money simply isn’t supported by history. For a counterexample read up on the dotcom bubble of the late 90s, when tens of thousands of web startups went under without getting bailed out.
Yeah, that would be true if there never was a public bailout, or a cheap government loan.
Are you seriously suggesting companies live and die by the free market?? Those poor failing companies need taxpayer bailouts.
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They ARE going to make money. They own all the stocks now. An inflated IPO means they cash out. It’s not about long-term strategy
The arc of technology progress since the crash in the early 2000s has been pump and dump scams perpetrated on the entire market.
‘At some point you’ve got to make money’
Hey hey hey, now, that’s loser talk. Here, c’mon, let’s snort a ton of coke.
That sounds like something The Wolf of Wall Street would say
A lot of people working in finance were not alive when that movie was taking place and like the movie Wall Street the ones who watched it learned all the wrong lessons.
Don’t you worry about Wall Street, let ME worry about blank!
Blank? BLANK??! You’re not looking at the big picture!
I want to see everyone hop on the IPOs and ride them all the way down to the floor!
Fuck AI
If I wasn’t convinced the entire financial system was fraudulent I would be shorting the fuck out of all of them
“The market can remain irrational longer than you can remain solvent”
We’ll burn more and more coal to power air conditioners to deal with unbearable global warming until that’s no longer possible.
The financial markets are the same. No reasonable person believes any of this is sane or sustainable. But what happens when the music stops? Very few chairs.
Especially since Nvidia has reached the “too big to fail” level; guess who’s gonna pay again for the upcoming crisis?
I think investments, 401Ks and retirement funds will hop on SpaceX and AI and the mass will complain for a bit until the next news cycle.
It’s all a scam. If you can max out now, you can rob the index fund investors.
