alt Hacker News> The reason why AI companies are spending so much money is to rollout data centres to run the AI in the first place. These expenses are one-off purchases, not regular operating expenses. Once all the data centres are built, AI spending is going to plummet.
Fatal misunderstanding.
Datacenters are not warehouses. Amazon.com being borderline-profitable owing to massive ongoing capex on warehouse expansion is not at all like AWS becoming borderline-profitable owing to massive ongoing capex on LLM datacenter build-out and SOTA model training (it's CAPEX, but carries OPEX affect because of GPU depreciation schedules and competitive hardware upgrade cycles), and opex of delivering LLM inference services, and being able to price it all competitively.
(edit: expand explanation of why it's a misunderstanding)
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Thanks for pointing that out. That has been my concern as well. Sure the post says "they make $2.08 for every $1 of compute" but that seems to only be accounting for OPEX. If we start accounting for CAPEX and variations with interest rates things look a lot less rosy. I mean a lot of folks are suspecting Anthropic will get a junk bond rating when it rolls out to public markets.
You seem to be wrong about this
> A typical one-gigawatt AI data center requires $38 billion in up-front capital expenditure (CapEx) and $0.9 billion in annual operating expenses (OpEx). If CapEx is annualized over each asset’s lifespan, the total cost of ownership equates to $8.5 billion per year. Servers dominate this cost at $5 billion per year, or 60% of the total. Operating costs are small by comparison: even energy, the largest OpEx category, costs only $0.6 billion per year.
The main problem is that once training is complete, you only need inference which needs far less compute.
Even if we allow for the strange “it’s only a one-time cost” hypothesis, the author’s next paragraph outlines another actual bubble, just 5-10 years from now:
> Once all the data centres are built, AI spending is going to plummet.
Yeah and what happens if none of those data centers translate into more clients? Its not a one off, its a gamble too.
this also misunderstands the data center rollout itself. openai and anthropic etc aren't building any data centers. they're promising to buy billions of compute and 3rd party companies are taking those promises and using them to fund the construction of data centers which will then lease out that compute back to them. so it's not actually a capital construction project at all. CoreWeave or whoever is making the capital investment. OpenAI is just promising to make that a good investment.
Zero cash flow is not the same as zero earnings. They may end up with negative earnings sometime in the future depending on how much additional capex they spend, how long they take to depreciate the capex, how fast revenue grows, etc
GPU seem to last lot longer than expected.. And have good resale value for other use cases. The $2 for every $1 inference cost quote from Anthropic I presume includes all opex.
because of GPU depreciation schedules and competitive hardware upgrade cycles), and opex of delivering LLM inference services, and being able to price it all competitively.
Hacker News increasingly feels like being a horse in 1916, reading in the Horse Bulletin that Ford is a scam and a bubble because the mass-market automobile will soon be commoditized.
There's an object-level claim to consider, but behind it the more baffling implication that this would be good for horses.
There's also a failure to misunderstand the arms race nature of it all and the need to be in the lead since everyone is assuming it's a winner take all market. That's probably close to correct.
A data center is a warehouse for sure but the building is only a few percent of the cost. The GPUs are probably 80% of the total cost or more. And they probably only have a 3-5 year primary lifecycle.
Pay the building off over 20 years? Sure but 80% of your capex problems remain. 2 trillion already spent? Just those GPUs need to generate 500 billion a year over the next 5 years.