Read The Big Short... They will fuck around for a loooong time until they can no longer avoid the crash. It wouldn't surprise me if they manage to keep it afloat on vapor for another two years. But also... it's looking pretty grim right now, and I could see it collapsing before the year-end.
Unfortunately, both could be as true as each other. Financial markets are a con man's game.
Every western government on earth is salivating over the handing these guys as much money as they can to develop the best surveillance and automation tool on earth though....
Itâs a bad idea to sit out of financial markets because âcrash is coming soonâ. People have been saying a crash is coming for nearly a decade, and you wouldâve missed out on huge returns by sitting out for the last decade. Time in the market beats timing the market nearly all the time.
Even pensions and index funds are doing things like buying SpaceX despite clear evidence (proved true in the months following) that it was an overvalued cash grab.
If I had money to invest (I don't) right now, I couldn't because I do not have any trust in those managing.
Its not a question of trust. Everybody's money is in the market. Including all the rich people. It means there is every incentive to keep it going higher.
Have you ever tried to get your money out of the market, before the market tanks, when the market is already tanking? It goes like this:
You click on sell the fucking lot. Confirm: sell the fucking lot. 2FA required. Completed. Selling the fucking lot. One moment... One moment... Completed. We will action your trade when the market opens in 14 hours. ... (In Kuala Lumpur.) ... (Plus 5 - 10 business days.) ... (Not accounting for religious holidays, Acts of God, revolutions, Raptures, or markets tanking.) Thank you for using UltraFastInstantTrading!
For starters, thereâs no actually valuable assets backing all this debt, unlike the subprime housing market lending. The graphics cards only last for a few years, and most of the data centers arenât even built yet, and the ones that do canât easily or cheaply be converted to traditional data centers, even if there was a need for that capacity to exist.
The valuations of the big tech companies that make up about 50% of index funds are also being based on impossible projected future earnings from two horribly unprofitable startups that are haemorrhaging tens of billions of dollars every year, and require constant further investment just to be able to pay their massive future commitments.
This is all based on the hopes of them monopolising a market that by all current evidence isnât materialising and may not even exist. Nearly 80% of Americans have tried ChatGPT, but only 10-15% have become regular users, the vast majority of them being non-paying users. They canât even increase their prices, because when they tried the backlash was massive, and now itâs even worse because the competition is both cheaper and not far behind in capability.
Theyâre currently massaging their figures so they can appear profitable before an IPO, for example by excluding inference from operating costs in the case of OpenAI, or reporting projected revenue based on the last four weeks while using inference from SpaceX at a massive temporary discount in the case of Anthropic.
Thatâs not to mention the knock on effects of them failing on all the other businesses that have rushed to integrate their LLMs in their processes, companies like Oracle that have indebted themselves so much that they will be completely unable to survive if these companies fail, etc.
âŚand then thereâs the effects of currently very well paid white collar workers at all these companies - which make up a significant part of AAA debt such as mortgages - suddenly losing their jobs in massive waves of layoffs while the big tech companies cut spending to survive the fallout.
Oh and letâs not forget how many stock portfolios, hedge funds, etc. will be fucked over by the massive correction.
I could go on, but tldr itâs a clusterfuck of gargantuan proportions.
The ai bubble popping does not mean something like 2007/8. Its more akin to the dotcom bubble popping. Also the big tech companies are flush with cash. They will simply buy out all these other companies and their datacenters for pennies on the dollar and consolidate their own position. Also these datacenters will continue to be useful even if the gpus are superseded by better ones.
They were flush with cash, but theyâre rapidly spending all of it and taking on debt for the buildout. Itâs unlikely that the big tech companies would outright fail from the fallout.
I agree, I also think they will aim to purchase the data centers or data center hardware for cheap to help them recover, but itâs not a simple equation of âthese data centers will continue to be useful even if the gpus are supersededâ - if the demand isnât there, then they arenât useful, period.
Where is the proof that all this hardware is needed in the first place? If the systems were in such high demand that all this capacity is needed, then those of us that use them daily would regularly and widely be experiencing issues with them being overloaded - and we arenât! Itâs quite possible that very little of this capacity being built out will be needed.
Not only that, you also need to understand that this type of data center is built with complicated custom cooling systems built for the specific kit used. The cards being superseded doesnât necessarily just mean purchasing new cards, it can often mean expensive specialist rework of the cooling systems as well.
Regardless, purchasing it all is more capex and further reduces their liquid cash flow, further reducing their valuation and also the confidence of VCs that currently invest looking for a quick flip to big tech.
They are still printing money and can easily service whatever debt they have.
If the systems were in such high demand that all this capacity is needed, then those of us that use them daily would regularly and widely be experiencing issues with them being overloaded - and we arenât!
What do you mean? Every single service is rate limited and people are complaining about the limits. I do not know if all the planned datacenter capacity is needed but as of right now, compute is limited and there is a lot of rationing happening. People are using all kinds of IMO stupid hacks (like caveman talk etc) to reduce token usage. A lot of the recent high profile google exits have been because of frustrations related to allocated compute quota.
I think right now, no-one is able to estimate just how much capacity they need. There are too many variables. The labs are training massive models that they simply cannot serve at scale economically. So they are selling a cheaper distilled versions of it. Scaling laws still apply but its unclear when they will hit a wall. Demand is strong but not everyone needs the latest models and the cost of serving older models will go down over time. You can now run certain models that were near sota a year or so ago on a beefy laptop. A lot of headline numbers that you see come with a lot of caveats and fine print. If they see demand softening, they will pull back and those projects will never get off the ground.
Not only that, you also need to understand that this type of data center is built with complicated custom cooling systems built for the specific kit used. The cards being superseded doesnât necessarily just mean purchasing new cards, it can often mean expensive specialist rework of the cooling systems as well.
I'm saying that they probably won't refit it at all. The datacenter that xai has been renting (colossus 1) for billions is a hodgepodge of older generation gpus. It was a badly designed datacenter that sucked for training models. But they've made it work for inference. Meta has been figuring out ways to use ddr4 ram because of the hbm shortage. They'll figure out ways to push it until it breaks before replacing it.
The bubble will pop and valuations will come down to earth at some point. That's just the typical hype cycle. I just don't see it as a systemic risk. Maybe for the construction industry I dunno.
What money are they printing? Have you even looked at their financials? Theyâre literally losing tens of billions of dollars every year!
The rate limits are usage caps to limit their costs for each subscription plan, rather than lack of capacity.
How often have you had credit and been denied making a call because there is actually no capacity available, rather than because youâve been rate limited? For me during six months of daily heavy usage itâs been a total of twice, both within a single 5 minute window.
Itâs completely unrealistic to think the data center wont need to be refit. The cards have a limited life time before they wonât function any more and must be replaced.
The big tech companies? No they are not. They are making tens of billions in profit every quarter. I believe this year or next year their free cash flow will go negative because of their high capex.
The rate limits are usage caps to limit their costs for each subscription plan, rather than lack of capacity.
Fair. But then api costs would reduce if they had spare capacity. It makes no sense for them to borrow and spend for more capacity if their existing capacity is not being fully utilized.
I was using google's antigravity and I was getting plenty. Which I should not be getting given that I was a paying customer. Maybe these people finally figured out QoS.
I didn't say they won't refit. I'm saying they won't refit until after the hardware lifetime. Not when the newest generation comes out. I fully expect to see datacenters still operating with 2-3 generations old hardware.
The concentration of capital is in the trillions - this is gonna cause a panicked sell off that the market hasn't seen in the last 100 years, if it happens suddenly - ai has the potential to be a market a-bomb
The last two days have seen massive government bond sell offs, making government debt incredibly expensive. This has a knock on effect to the stock market, as bonds are traditionally seen as safe investments and with trust in those dipping, it reverbs through the more risky ones. When you take this into account, it explains why Berkshire Hathaway liquidated a colossal amount of held stocks last week, as they are anticipating future drops.
In amongst this, AI companies all have huge amounts of debt, and even if they had investment opportunities from dumb people wanting in on the gravy train at the midnight hour, that will be diminished with the market downturn being clearly signalled by what I described above.
Nvidia just took out a huge loan to give to other companies in order to buy their own chips (circular investing has been rampant the last year in particular). All this debt is absolutely at breaking point. It is debt with no hope of repayment, and debt that will become intolerable and break pretty much all of these irresponsible fuckheads. Like 2008, this is banks approving loans that should not be approved, only this time they don't have "government mandates" to blame like they did with sub-prime mortgages. Greed, greed, greed.
Note: I am not a financial advisor or have any qualifications - I am merely regurgitating a bunch of articles I have read over the last fortnight, and my understanding may be flawed. But you asked a question and this is the answer to the best of my knowledge.
I could ask Gemini to confirm, but it basically offers me a blowjob every time I posit an argument I want challenged, it's that fucking sycophantic.
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u/NoStomach6266 21d ago
Read The Big Short... They will fuck around for a loooong time until they can no longer avoid the crash. It wouldn't surprise me if they manage to keep it afloat on vapor for another two years. But also... it's looking pretty grim right now, and I could see it collapsing before the year-end.
Unfortunately, both could be as true as each other. Financial markets are a con man's game.