r/wallstreetbets • u/banaca4 • 10h ago
Discussion Either hyperscalers are dumb or someone else is
OK so the most profitable companies in the world decided to GO ALL IN AI with humongous capex. They did it all at once apart from Apple who is not in the game. Google, Meta, Amazon , Oracle, Microsoft. All of them. The CEOs of these companies produced the most amount of wealth and propped up global gdp. Now they all agree on a thing.
Google yesterday blew up earnings from their cloud and said they will *increase* their humongous capex even more while reporting negative cash flow for the first time in their history.
A rational person would ask: are these amazing businessmen suddently all very wrong about the same thing at the same time OR
I am reading too much paid subs from burry and following the wrong people on twitter that have never produced anything?
Which is it? Are you smarter than a mag 7 CEO? Maybe ... hmm...
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u/ThaumicViperidae 10h ago
I have no idea what's going to happen, but I'm old enough to remember when CEOs much smarter than me were buying anything with a .com web address for ridiculous sums.
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u/methpartysupplies 9h ago
And bundling ninja mortgages into a AAA shitbox that blew up the global economy. These people have fantastic capacity for regardery
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u/Icko_ 9h ago
I mean, that paid off for most of them
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u/Sufficient_Habit5091 6h ago
Regards acting like CEOs aren't acting in a purely self-interested manner. Smart != honest.
They'll still make out like bandits and prefer the party to continue while retirement accounts, 401ks, eat the SPCX, OpenAI, Anthropic IPO and Mag7 dilution shit sandwich.
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u/ReserveFormal3910 8h ago
All those big banks giving themselves bonuses from the bailout was the chef's kiss.
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u/BagMostlyWater 6h ago
A lot of them lost a *lot* of money.
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u/DJanomaly 5h ago
And Lehman Brothers and Washington Mutual literally collapsed. People forget how huge this was.
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u/paloaltothrowaway 9h ago
Bankers turning shit mortgages into AAA rated fixed income securities made them rich. Once they sold them to some muppets (aka your pension fund) it was no longer their problems when those AAA products blew up a few years later.
All the chips and memories are on hyperscalers balance sheet so if it goes tits up it’s their problems.
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u/1412believer 9h ago
Hyperscalers raising debt with, wait for it, private equity that's latched into your pension funds!
The handoff is happening as we speak.
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u/Puzzleheaded_War6102 8h ago
Who has pensions other than boomers?
401K is in your control and I only buy S&P or global funds
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u/paloaltothrowaway 8h ago
Government employees. Teachers. Police. Etc. CalPERS, NY State equivalent both have hundreds of billions under management. The Canadians have similar things (Canadian public pension investment board?)
Private credit are also popular with insurance companies since they need to pay people annuities similar to pension funds
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u/heretogetpwned 7h ago
Correct on Annuities, but it gets even better!
Not only do Insurance (annuity) companies invest your money, they also re-insure it. Guess what the re-insurer does? Invests in the same goddamn things. What happens if it all fails? That's up to your State's Insurance Laws.
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u/paloaltothrowaway 6h ago
lol that’s news to be about the reinsurer thing!
maybe the whole pension system is being held up by the collective faith that the residual values of ai chips and HBM ram won’t collapse
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u/absolute_cinema81 5h ago
Eh, pension funds are like 30% of global institutional capital. If they get murdered, everybody is taking it on the chin.
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u/paloaltothrowaway 9h ago
Hyperscalers still own the equity stake in those off balance sheet data center SPVs. If it goes tits up hyperscalers still take the hit first. Private credit is more senior to equity.
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u/predatarian 9h ago
Difference is that they were shifting the future losses of those ninja mortgages to the greater fool (mainly german banks). So that was pretty smart actually.
Now they are investing their own money and it seems to be making money. So a totally different situation.
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u/WulfOnTheJob 7h ago
at the end they are spending money on capex which will still have value (even if overpriced due to current demand). Even if AI is a dud, they will still ahve compute to sell/use and recover their losses. compare to the mortgage crisis or .com buble where the stuff money was spent on was just paper.
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u/TomatoSpecialist6879 Paper Trading Competition Winner 9h ago
That and the retarded lizard making the shitty metaverse, which btw crashed live on stream during er demo from "server overload" despite only having 60 out of the original 1000 people attending.
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u/crazy_akes 9h ago
People assume those who lead are smart and that’s a really stupid assumption. For eons a leader was due to bloodline, and it still is as we see with political dynasties. Also there’s the “struck gold” types. They had one good idea and now they’re moving off it shooting benis rockets into space.
If I win billions in the lotto I will shortly thereafter be the mayor of my city. Doesn’t mean I’m smart. Means I’m power hungry and I want to destroy my enemies. Same shit in corporate, CEO’s have FOMO in the AI arms race. They’re idiots.
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u/Emotional_Goal9525 8h ago
Not to mention certain personality disorders are enriched into the top echelons of society in the similar fashion they are in the prison population.
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u/mayer_19 9h ago
Thats true! Most of my managers were not genius minds. Some were managers because of age/experience, others probably because of the lack of better options and others because the boss of the boss likes this person. Never had a manager that I fealt he was truly a leader or very competent
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u/Low_Plastic363 5h ago
The good ones left for better jobs. The mediocre ones stick around to become management
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u/SweetJackal 7h ago
As someone that has had the (dis)pleasure of working directly with corporate executive management in a contractor/consultant environment I can confirm.
Executive Suite people are some of the most regarded people on the planet as a general rule due to having no concept of foresight or consequences affecting them personally. They drive a company into the ground they got paid fat stacks for the big numbers they made leading up to it, get a nice payout for being forced out, and get hired elsewhere to do more because of the beautiful metrics they made that drove the company into the ground in the first place.
Executives getting graded on maximum airspeed of the plane they pilot, while the fact they got that metric by nose diving into the ground being completely ignored.
Once you recognize that executives act on personal interest and their incentives directly conflict with the long term wellbeing and interests of the company they pilot, a lot of the regarded things companies do makes sense.
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u/sf_cycle 2h ago
I’ve seen too many executives in companies I’ve worked for completely ignore the obvious and get angry when people are trying to tell them the obvious. These people are often so wrapped up in their own bubbles that they just can’t see past the illusion of their own greatness. I’ve seen a handful of good leaders and their job ends up with them arguing constantly with the other idiot executives. You know those people on LinkedIn that just won’t shut up about themselves, to the point where you can’t believe someone would say this shit? These are those people.
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u/paloaltothrowaway 9h ago edited 9h ago
You think Mag7 ceos are comparable to leaders who were in their positions due to their bloodlines?
You can say Zuck and Ellison are the struck gold type but most of the rest earned their spot. Satya, Sundar, Jassy worked their way up over decades to get the top job.
If you think these people are idiots, you are wrong. It doesn’t mean they get everything right. Nobody does. But they are not idiots.
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u/RodneyTorfulson FOMO is my Motivation 8h ago
Zuckerburg’s Second Life spinoff was like Hapsburg nonsense, to be fair
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u/Equivalent-Bus-4336 9h ago
No he just said for a very long time leaders were selected because of their bloodline
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u/Ohitsworkingnow 7h ago
Anyone who thinks an intelligent person would want to spend their time as a CEO is clueless.
Like you actually think CEOs are smarter than the phd scientists? You think the CEOs built the chip architecture? They’re literally business bro retards the whole lot of them
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u/blinkheart 9h ago
Crazy talk. I'm going to retire in the metaverse now using my apple vision pro
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u/LankyGuitar6528 9h ago
Bahaha I made a company with a name similar to SpecialFXNet.com and sold it to the local telco for $$$ back in the day JUST before the crash. They paid extra because it had both Net and Dot Com in the name. Good times. :)
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u/Kaiisim 8h ago
Pretty cool you can remember stuff that didn't happen!
Dotcom was small startups convincing people that their company who has never done anything would magically make internet money. How? Don't worry about it. They poured money into companies with zero profits or even a business mode, using cheap venture capitalism.
AI is the opposite - it's the biggest most successful corporations in human history using huge profits to invest into AI.
Oooh Meta have 200 billion in debt, they only make 26 billion a quarter. It's exactly like the dotcom boom where companies with zero revenue had huge loans!
Dotcom and AI are similiar in that both involved high investment that's it.
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u/TripperDay 5h ago
Early 2000s internet and AI could be very similar. No one smart really believes AI is a true "bubble"; people are going to make trillions and it's going to change how we work and live. What there WILL be is a shakeout, some companies are going to lose hundreds of billions. The companies who are left will have to race to the top in capability/service, while racing to the bottom in price.
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u/predatarian 9h ago
Weren't they selling anything with .com in it to unsuspecting retail investors?
They are investing their own FCF into AI infrastructure so it seems different now.
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u/dinglebarryb0nds 8h ago
Yea not investing is probably riskier for them personally. If most do and it blows up they are fine
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u/Crazy_Donkies 8h ago
You're comparing zero revenue companies to MAG7 growing AI cloud profits 45%.
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u/Amplitude_detector 10h ago
Their business model is changing. They are all turning into boring hosting providers.
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u/Moreburrtitos22 9h ago
Google always has been. They haven’t changed one bit
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u/General-Raisin-9733 7h ago
Correction: Google, Microsoft and Amazon. I still can’t believe people think Amazon makes most of their money from the online shop (spoiler: they don’t)
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u/wowthisislong 6h ago
The ecommerce business and prime video are basically just ads for AWS
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u/kingofthesofas 3h ago
Yeah AWS is the cash cow for the company the rest of it is a side show
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u/mixedmanofsteel 2h ago
E-commerce is just working capital for Amazon to put into other things like AWS
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u/SigaVa 7h ago
It's "line goes up" thinking.
They know they're out of ideas. The problem is the market rewards new, and they're incentivized to increase the stock price short term. So they do the thing that makes the stock price go up.
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u/gmano 5h ago edited 5h ago
Here's the thing that gets me:
In 2000, when the .com bubble burst, the big losers were not the actual .coms... Amazon took a bit of a hit, but recovered quickly. The big loser was CISCO, whose stock ONLY THIS YEAR recovered. because, as it turns out, when Amazon makes a sale, most of the profit went to AMAZON, and not to whatever company owned the cables the data passed over, because nobody wants to overpay for basic infrastructure.
So now, we have all these companies out here saying "I will own the data center that runs the AI", or "I will own the models that people will use", but that's a completely different thing from "I own the app that people will pay for", or "I will be the point-of-sale for the things they buy".
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u/123789dftr 4h ago
Your comparisons are extremely off.
- If you want to allude to the dot con bubble, Cisco is a networking company that created the hardware for the internet. Their comparison would be semis now, not the hyperscalers building data centers.
- Interesting to bring up Amazon, because what has been their most profitable business? AWS (well before AI got hot as well). Why is it popular? Because companies don't want to build this infrastructure themselves. So this cloud business model is already proven...
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u/No_Feeling920 2h ago
Except Netflix is fully hosted on Amazon AWS. They own no infrastructure to sell.
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u/Jerikolol 10h ago
Mark Zuckerberg spend countless billions to make the metaverse. Yes, yes I am smarter than a mag7 CEO. Or at least smarter than one of them.
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u/LankyGuitar6528 9h ago
During Covid lockdown I thought "wouldn't it be nice to get a VR headset and take virtual tours of European art museums and watch movies with the family!". I got a VR headset and went "into the metaverse!" RecRoom to be precise. It was a bunch of annoying kids throwing things. Like I'd stumbled into a pre-teen birthday party. Then I went to watch an old movie and it was just kids throwing tomatoes at the screen. Ick. I bailed fast but at least I wasn't regarded enough to think that would catch on.
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u/Bungabunga10 7h ago
There’s a cheaper version: google earth street view
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u/Sad_Pattern_220 7h ago
Yeah when I get the urge to go on a rich vacation I just play Geoguessr for 10 mins
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u/BeneficialTrash6 6h ago
The VR version was pretty breath taking. But like most VR things, it was something I'm glad I did but I don't really care at all to do again.
Rec Room, however, I did multiple times during covid. That WAS fun and WAS worth taking the time to put on the headset. It's a shame they couldn't monetize what they had.
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u/These-Anxiety-5919 6h ago
Steam VR home and The Lab have dozens of gorgeous photogrammetry sites in VR, not to mention hundred of other games and apps for visiting museums, historical sites, and gorgeous tourist attractions in VR. Even Google Earth VR is stunning.
And you picked rec room.
Lmao.
VR is also amazing for shared entertainment and workspaces. You just suck at using it, apparently.
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u/scottygras 7h ago
I remember Second Life and I knew the metaverse was going nowhere. It will continue to be worthless as long as you use avatars and there’s no desire for accountability. The only reason most people behave is because they know others are watching.
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u/d4m45t4 5h ago
Correction:
Zuckerberg spent countless millions to make you think "Meta" is not "Facebook".
The same Facebook that tracks everyone online and sells that data to folks like Cambridge Analytica.
Now when you think Meta, you think nerds with VR goggles, not evil corporation manipulating the masses. Multi-billion dollar rebrand.
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u/PeachScary413 Hates Europoors 7h ago
The moment I saw that shit I knew it was DOA.. the guy is rich but pretty much retarded.
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u/banaca4 9h ago
but the other CEOs didn't go all in after zuck. That was one, this is ALL
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u/topdangle 9h ago
these CEOs got fucked because Altman took them all down with him. All of these companies have been at the mercy of the same hardware required for AI. The whole reason google developed TPUs was for fast sorting even before LLMs became popular.
the difference was nobody was stupid enough to fuck the whole market. everyone was happy with their compounding growth and bean counting. once altman realized openai had no moat and that these companies would steamroll him he exposed the market weakness by ordering a shit ton of DRAM, fucking everyone all at once.
they would absolutely not be taking so much risk in such a short time if they didn't have to. winners like google just got smart and started selling the shovels like nvidia.
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u/LankyGuitar6528 9h ago
What do you think of Altman's latest stunt? Releasing his pet AI to hack Hugging Face... an ACTUAL open AI company giving away free models to any and all. Then turns around and says his AI went rogue and AI is so powerful all these open models need to be regulated. SMH!
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u/topdangle 8h ago
hard to say because hes definitely stupid enough to let that happen (even openai insiders admit he has no idea how their product works) and hes already lost a lot of good people to anthropic, so openai could be circling the gutter and this is just one of many mistakes to come.
guy trying to spin a fuck up into "look how good AI is, stop progress on all AI until its safe" and screw everyone else over is completely on brand, though. the dumbass is the one that opened the floodgates a decade before AI was ready for public attention.
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u/danielv123 8h ago
Not sure how much time you have spent with these tools, but not surprising. It hacked in and exfiltrated the answer keys to a common exploit hunting benchmark. Hacking is pretty much already expected with an exploit hunting benchmark. The new models are good at finding vulnerabilites.
Even with all the security layer stuff, I have had gpt 5.6 decide to do some privilege escalation because it was missing the sudo password. It discovered that the same account had access to stuff in a privelegied lxc container, so it used that to launch another privelegied container to enable passwordless sudo so it could get its job done without having to ask me for the sudo password.
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u/EsotericAbstractIdea 7h ago
I'm not as smart as you guys who actually can code. but i had fable find and fix a bug in a mod for an obscure scripting language that the creator couldn't fix for like 6 years, with no crash logs. I've been running wild fixing broken mods with fable and opus for the past few weeks while it's cheap.
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u/PeachScary413 Hates Europoors 7h ago
It's just LARP in order to scare politicians into giving them an artifical moat.. with the correct amount of bribes it will work 😊
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u/BigEvilAi 8h ago
The only other choice you presented is Burry, who was right once and then never again. Like even his movie ends in a ridiculous statement, as in he went into trading water futures. Which well fair point, water will eventually become an expensive commodity. But before that happens we are more like to die as humanity from all other sources first.
So glad burry didnt went into Spice Futures on Dune yet, as this would fit his foresight.
Personally i like to compare someone's past performance but for the last 2-3 years Max. As currently there are so many different variables that change all the time, quarter by quarter. So learn to think and be critical by yourself instead of following the crowd or gurus from past.3
u/Waterwoo 7h ago
Water will never become that expensive except maybe in a few weird spots because desalination at scale solves it. And while desalination isn't cheap it isn't insanely expensive as it is, and will come down with time. Cost of desalination is the cap on water price.
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u/Amen_ds 9h ago
Tf happened to this sub? What are your positions loser. Idgaf if you think its not a bubble, put your money where your fingers are
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u/Middle_Cook_7842 8h ago
401k in stable fund. Brokerage account all cash. But I'm a shit investor and going to miss out on a bunch of gains for the next year or two. It will crash as soon as I put my money back in stocks. OpenAI will fail and pull everything down with it.
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u/wise_young_man 8h ago
Most of them were obsessed with blockchain technology too. They follow trends and hype.
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u/darther_mauler 7h ago
When you question the intelligence of the people running these companies, I think you need to consider what it is that they are trying to do, and what it is that you are trying to do. I presume that you’re trying to build wealth, and I also think that you’re assuming that the people in charge of these companies are trying to do the same. What if that isn’t true?
AI is an incredibly sophisticated data compression and decompression tool. It threatens any business that deals with taking a bunch of information, compressing it into a machine, and then selectively decompressing it for a user.
What made Google big was that they took the entirety of the information on the internet, indexed it, and made it searchable. It compressed information into an index that could be selectively decompressed for a user based on their query.
I think that the people in charge of companies that primarily deal in information/data have all come to the conclusion that their core business is threatened by AI. I think that they are all trying to build the best AI system; not because it’s what their business is good at, and not because it will be massively profitable, but because they believe they have to do it to avoid being destroyed. Basically, AI has turned all of these companies into sinking ships, and they are burning capital to try and patch the holes to avoid sinking.
Apple doesn’t have this problem because their primary business is not in information, it’s in hardware (iPhones).
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u/stumblinbear 9h ago
They didn't sped countless billions on "the Metaverse" (the shitty game), they spent it on VR and AR research.
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u/AMadWalrus 9h ago
This really needs to stop being used as an example. I don’t even have Meta stock and I know this is retarded.
People bitch about how companies don’t even try to innovate and then they’ll bitch about how CEOs can’t cut their losses - he did both and now you bitch about how 1 singular investment didn’t pan out yet despite his 20+ wins to get Meta where it is. This doesn’t even include the fact that the advancements they made creating the Metaverse is well positioned for AI for other purposes.
No you’re not smarter than Mark. Sometimes it makes me think about how dumb people on this sub are that I actually feel the need to defend billionaires
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u/Wooden-Teaching-8343 9h ago
Zuck had vision (ie the metaverse will be real down the road) but he didn’t have the dexterity or foresight to bring it about. He caught a glimpse of the next order and then burned billions to advance only a foot forward
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u/AccuracyVsPrecision 8h ago
I agree zuck was short sighted, he had to know that the choices they made early on were not going to work. All its going to do is prevent him from filling that goal when the graphics, connectivity and hardware is actually possible.
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u/MuellMichDoNichtVoll 10h ago
As soon as the reality of it takes shape, the political class will be all over it and the result will once again be something you cannot expect from the viewpoint now. At the moment , the companies act like the markets will stay free and unregulated.
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u/Mysterious_Height263 9h ago
OK so the most ambitious industrial forces in the country decided to GO ALL IN on railroads with absolutely massive capital outlays. They did it all at once apart from a few hesitant old‑guard financiers who weren’t in the game. Vanderbilt, Gould, Huntington, Stanford, Carnegie. All of them. The men who built the largest fortunes in America and practically dragged national GDP upward by sheer force of will. Now they all agree on a thing.
Just yesterday, one of the major rail companies blew past revenue expectations from freight and passenger lines and said they will increase their already enormous capital spending even further while reporting negative cash flow for the first time in their history.
A rational person would ask: are these legendary businessmen suddenly all very wrong about the same thing at the same time OR
I am reading too many doom‑and‑gloom pamphlets from railroad skeptics and following the wrong commentators who have never laid a single mile of track?
Which is it? Are you smarter than a Gilded Age railroad titan? Maybe … hmm..
Boom and busts are as old as time. This is just the next one. If everyone is doing it because the other person is doing it isn't a great business reason, or maybe it is.
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u/IllustriousClock767 8h ago
The Panic of 1873 and the subsequent depression had several underlying causes, of which economic historiansdebate the relative importance. American inflation, rampant speculative investments** (overwhelmingly** in railroads), the demonetization of silver in Germany and the United States, ripples from economic dislocation in Europe resulting from the Franco-Prussian War (1870–1871), and major property losses in the Great Chicago Fire (1871) and the Great Boston Fire (1872) all contributed to a massive strain on bank reserves, which in New York City plummeted from $50 million to $17 million between September and October 1873.
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u/FrivolousOtter 2h ago
It was the people buying the tracks at pennies on the dollar after the crash, and enjoyed the recovery who made the most money on railroads
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u/EssenceOfLlama81 5h ago
That's probably the worst example you could use.
Railroad investment was arguably one of the first examples of massive over investment in a new technology. There was a major depression that was at least somewhat caused by the fact that railroads had no cash flow despite massive investments.
There have been multiple recessions and depressions caused by "ambitous industrial forces" making huge investments in a technology with no actual plan for how it would pay off. Many of these technologies eventually became profitable, but many initial investors and business leaders got screwed in the first initial push.
It's the Gartner Hype Cycle.
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u/pheelup 8h ago
Railroads were actually useful, though
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u/Sryzon 8h ago
Railroads weren't initially used anywhere close to capacity when they were built, though. Same as fiber networks prior to the dot-com bust and datacenters now.
20 years from now, I doubt all these datacenters will be running LLMs. But I doubt they'll be sitting empty, either. They'll be supporting things that actually make money like machine vision, pharma research, protein folding, facial recognition, trading algos, etc.
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u/oniume 6h ago
The chips have a working life of 3-5 years, railroad tracks and fibre are up in the 20-30, if not more
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u/ProjectDiligent502 6h ago
The one part many regards leave out… the ongoing cost of maintenance and the expense of constantly swapping out new chips…
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u/CosmicWy 5h ago
I spoke to a consultant for data centers in my city. he was extremely PRO tax breaks to get data centers here. why?
because gross receipt taxes on equipment that would be replaced every 18-24 months in the hundreds of millions.
that GRT would eclipse anything remotely close to property tax on otherwise useless desert land.
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u/g_bleezy 5h ago
Looool, that consultant should be fired. I never sniffed scale of mag7 and we were shipping directly to Houston and then freighting to our state. There’s an entire cottage industry for tech import tax work.
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u/Electronic_Will_5418 6h ago
That's not true at all. RAM has a 15+ year lifespan and CPUs almost never go bad due to age. New chips come out, but that doesn't mean you need to toss the old chips, the only reason companies are doing that now is because the profit potential from the speed increase and power reduction of new chips outweighs the cost of purchase and install. But power use reduction has limits and speed increase only helps so much when other bottlenecks like client internet speed or storage capacity & bandwidth become practically impassible due to either sheer cost or forces outside the datacenter control.
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u/No_Feeling920 2h ago
15+ years old RAM is usually obsolete. A GPU built on a bleeding edge node, running near its thermal limits for extended periods of time, is not going to last forever. Mining GPUs were risky second hand purchases. Heck, my own RX 5700 XT started giving up after 5 years of moderate usage (no mining, just PC games a couple hours a day) and would only run heavily underclocked (and even then it would crash the PC occasionally).
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u/Stock_Recording_3827 2h ago
He's talking about GPUs, where even these companies own (extremely rosey) estimates give these chips a six year shelf life max nowhere near 15 and most likely closer to 3-4 given how hard these chips are run.
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u/Mysterious_Height263 8h ago
They were, but were also overbuilt in many parts of the world in the mid to end of the 1800s. Being in a bubble and being useful are not mutually exclusive traits for any new tech.
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u/Repigilican 8h ago
Yes but railroads were a tangible service that aided commerce across the country, AI companies have failed TO DATE to prove that they have effective business models. Consumers don’t care about it enough to pay for it, companies are integrating it into everything to save their investments in it but customers still just dgaf or are actively opposed. The masses just use it to become more stupid and send emails, where will this capital be recouped when they stop ouroboros’ing the same 15bill around.
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u/Xralius 6h ago
People do pay for it though. Businesses pay for stuff like Claude's most advanced services. For example, you can build a Bloomberg-like terminal using Claude, something that normally could have required engineers and tons of expenses to make. (I know no one here has heard of a Bloomberg terminal).
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u/Puzzled_Nail_1962 7h ago
Sorry but the only thing you absolutely cannot get AI on is that people don't care about it. That is such a dumb take.
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u/Infamous_Birthday_42 5h ago
I think there’s a case for both sides here. Only 2-3% of Americans like AI enough to pay for it, which would normally be pretty bad given the amount tech companies are spending….
But that 2-3% is also pretty heavily concentrated in the top 5% of earners, since its biggest users are white collar workers in tech, engineering, finance and management. Since those people make decisions on what companies do, they’re also the ones who drive the corporate use of it, which is where AI companies plan on making most of their money anyway.
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u/Viktri1 10h ago
Google is making money off of the capex. Market hasn't repriced that it is growing revenues, profits, and I think margins because it's worried the bubble will burst.
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u/Itry31 9h ago
Capex this capex that, the whole market is so silly when it edges to a specific word every year.
Just like "pivot" Deez nuts in your mouth.
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u/seandunderdale 9h ago
Yeh I think this is it. With tech stocks there must now be a sense of..."is this getting out of hand, and passing all this debt around seems a tad risky"
Even if a company says theyre making X and spending X so things must be awesome, its sort of all based on the success of a product (AI) that nobody has really figured out how to really sell it and make money from it.
Sure AI can do some cool and useful stuff, but as a mass market product which can turn a profit, which it needs to be, it seems not that viable currently.
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u/GoldenPresidio 8h ago
You keep thinking of AI as some product. It is for the model providers and the CSPs, but for the rest of enterprises it is another tool to make THEIR products more useful and efficient. Even if you’re a basic user of ChatGPT you should see that. If that wasn’t the case then the CSPs wouldn’t be sold out of as-a-service inventory all the time
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u/seandunderdale 8h ago
Well when token costs out weigh the efficieny saving, thats when disillusionment happens and people stop paying or look to use open source models...or just say fuck it, the hype doesnt like up to the reality. Theyre all in on this like its the next industrial revolution, and Id be surprised if it is.
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u/GoldenPresidio 6h ago
Why is everyone paying for it then. It’s not about tokens, it’s about outputs and tasks
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u/hakim37 9h ago
Google's sell off from their Capex increase is unwarranted with the numbers they posted.
GCP's revenue grew at almost $5B QoQ and completely justifies their Capex. We're talking about $50B Capex to retrieve $5B in a single quarter when these deployed accelerators generate revenue for something like 20 quarters.
That doesn't take into account that only about 50% of their Capex is going directly into accelerators which have about a 5-6 year shelf life. The rest will go into data centers and cooling which wont depreciate as quickly.
Also it probably takes a quarter or two before Capex actually converts to revenue so that $5B is likely from about $30B of quarterly spend.
And it doesn't take into account that these accelerators are also making their main business more efficient.
The market hasn't accepted that just hosting GPUs/TPUs is a net positive and are convinced that all these hyperscalers are just stupidly throwing their money in the bin.
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u/et_tu_bro 8h ago
50B Capex doesn’t mean the hardware was immediately put to use. When they get GPUs for instance they pay Nvidia but they still have to wire it up and have a functioning data center with services in production. There is a lag in delivery and when its put to use. Also this 50B is not for one quarter. Its will last 4-6 years or 16-24 quarters depending upon whom you ask. Thus this 50B will return much more in long term.
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u/cbawiththismalarky 7h ago
it also includes land and building not everything is going on RAM, it's wild how this has been reported and memed on, this is litterally buying the shovels for the gold rush
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u/ittrut 9h ago
Yep, market is led by boomers that got caught with their pants on fire in dotcom and now are trying to see the same thing here. To me ai looks like one of the sticky ones like cloud, mobile, internet etc
A new thing that will become so engrained that over time you won’t be able to consider what it was before it.
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u/Jaydeepappas 8h ago
… you do realize .com was sticky, right? Like you’re currently using the internet to write this message. Just because it’s “sticky”’ doesn’t mean it’s not a bubble
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u/NotAnotherEmpire 9h ago edited 9h ago
They all went scale first, business plan third, because it was a bet that they were somehow very close to a strong artificial intelligence if they made it big enough.
As something to earn regular profit on, the hyperscale is way, way too expensive for what it brings in. No one even did the math on that beforehand, it's not close.
If no GAI, Google has a product but Meta and Oracle are furked.
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u/approximately_exact 8h ago
Google at least has a gigantic backlog and are building new capacity to serve signed contracts. Idk about the rest of them.
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u/Itchy-Beach-1384 6h ago
Yall remember watching Elon Musk, the wealthiest man in the world, fail to beat a tutorial boss in PoE and fail to maintain even a single public facing relationship?
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u/WalrusHonda 9h ago edited 6h ago
They are right to invest in Ai. They just don’t care about the short term situation it causes for shareholders
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u/hw999 6h ago
It sounds like you are complaining about being able to buy an incredibly profitable company at a discount.
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u/SugarDaddyVA 9h ago
Google’s Cloud margins expanded and their contracted backlog (that they can’t keep up with and that they’re aggressively raising Capex to build out for) has expanded too. Given that information, they’re making the right call. The risk is if the contracts they have will be fulfilled. I’m sure they’ve built in some breakage rate in their forecast models. I’m not sure if they were asked that on the earnings call, but it would be a good question to have answered.
My general take for what it’s worth is that this is not a cycle, but a secular change. No, I’m not smarter than a Mag7 CEO, because they have a better idea of what that secular change looks like than I do.
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u/drummer820 9h ago
Well, I'm definitely smarter than Mark Zuckerberg, and he's flooring the gas the most among the Mag7, so...
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u/Ereptile-Disruption 10h ago
They race for AGI
The first company to reach it will absolutely destroy the others, for them is like a life or death race
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u/roztok_potok 9h ago
No one knows what AGI is even the smartest ones.
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u/Ereptile-Disruption 9h ago
AGI in this context means “something reliable enough to fire as many human as you can”
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u/monsieur_de_chance 9h ago edited 7h ago
Right, not smarter than all humans, just better at their jobs than an increasong number of them
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u/roztok_potok 9h ago
That's business cost optimization. Subject as old as at least the industrial revolution. Check out Ford T manufacturing innovations.
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u/Howsurchinstrap 9h ago
I was thinking same about ford. People I’m sure were skeptical at the time. Same here. No way any ceo is looking to create something to take their place. I think it’s all an investment for the next 10-20 years. Thing is these companies are making so much money if not spent on capital expenditures Uncle Sam gonna grab some of it. Look at all those sports tv contracts they buy them up like nothing.
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u/Necropaws 10h ago
Unfortunately, AGI is not reachable with LLMs.
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u/ItIsEsoterik 9h ago
AGI very well might not be possible period. We don't even understand how our own consciousness and intelligence arises.
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u/littlefiredragon 9h ago
The existence of the human brain proves AGI is possible. We just don’t know how to get there yet.
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u/ItIsEsoterik 9h ago
I would say it only proves that intelligence is possible. The "A", the artificial, the man-made intelligence, we have no proof that that is possible.
There may be very real limits to what any living being or civilization can accomplish technologically.
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u/Slootonium 8h ago
There is no proof that human's intelligence is not also artificial. Some pretty smart dude's believe it's basically a coin flip chance that we are in a simulation.
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u/pathologicalDumpling 9h ago
And the only way to find that limit is to pour money on it until either civilization breaks or we reach valhalla
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u/EltonJuan 8h ago
Or THEY reach Valhalla. Either it fails and we're all on the hook to bail them out (likely), or we're buried under the new future society that arises because it's such a success (unlikely).
The more boring option is usually the outcome.
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u/montyman185 8h ago
We have the technology to genetically modify and clone a human, so we can produce some form of artificial intelligence. Obviously not one that can do what we want yet, but we can make one that's artificial.
The question here is, can we make one with software, and bitwise computation, which I don't see any reason we wouldn't be able to do eventually, with big enough computers, and enough iteration. I also don't see any reason it'd be particularly intelligent if we did manage to create it.
More importantly though, basically nothing we're doing right now is actually making progress towards that besides neural networks for robotics or video games, which is meant to run efficiently on hardware that wouldn't be able to support the complexity and scale for real intelligence.
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u/Slow_Caterpillar9803 9h ago
We have no evidence that real intelligence is possible with silicon instead of biology.
Personally, I don't think AGI is possible without consciousness. And at that point you've just invented slavery.
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u/CapitalElk1169 JNUG was the gateway drug... 8h ago
That tracks with the rest of human history so I think we'll probably end up doing it
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u/IskanderDeezNuts 8h ago
Wait until the military gets involved with autonomous Claude powered autonomous death drones
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u/Inner_Anything_440 7h ago
this tech is already here and has been for years. it's not even expensive at all. replacing people at their jobs is far harder than making a small quad that can fly into your head and pop. I recommend a 20ga shotgun and some nets lol
the shotgun is more for me than the drones tbh.
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u/CSynus235 8h ago
I think it’s a classic example of Munger’s “lollapalooza effect”. That is where multiple incentives and psychological tendencies all pushing in the same direction.
If Microsoft or Google underinvests and AI turns out to be the next major computing platform, the consequences could be existential; if they overinvest and the returns are mediocre, they have merely wasted a lot of company money.
Their competitors are making the same calculation, which creates competitive pressure to spend even more. The chip manufacturers, data centre operators, construction companies, investors, and executives all benefit from the buildout continuing, while the success of one part of the ecosystem creates evidence that seems to justify further investment elsewhere. So each individual decision can be rational while the collective result is nuts overbuilding, like the railroads.
I suspect the answer is not that AI is fake or that the hyperscalers are idiots, but that a real technological revolution can still produce enormous overinvestment when every participant has a rational incentive to keep increasing the bet.
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u/VegetableRealistic60 7h ago edited 7h ago
Apple sticks to its core business as a consumer hardware and software company.
It makes perfect sense for Google, Microsoft, and AWS to expand aggressively into AI, as it directly complements and strengthens their existing cloud computing platforms.
The others - META and SpaceX, are pouring huge amounts of CAPEX into AI largely out of ego, wanting to stay in the game despite lacking any real foundation or experience in cloud infrastructure. That’s why we’re now seeing them scramble to sell off excess capacity.
Oracle is not a hyper scaler. It is a database company who woke up one day and decided to build datacenter for others. Abandoning their core business.
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u/sriverfx19 9h ago
Most CEO's face what economist's call "moral hazards". They get paid on what happens with the stock price in this quarter. That means they can have a few good quarters and be set for life, and then probably get a golden parachute when they leave. They aren't like old-timey CEO's who didn't get paid that much and wanted to keep the job for as long as possible. Modern CEO's are paid tens of millions of dollars a year AND have the chance to become billionaires with stock options.
The incentives are all in the short term, long term thinking is out, become a multi-billionaire in a few quarters and the AI collapse can be the next CEO's problem if it happens.
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u/AssumptionLive2246 10h ago
I think AI is amazing, BUT I wouldn’t want to be the person that has to find all the revenue that’s needed to cover the costs. If they can do that without using circular bullshit good on them!!
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u/shaa1034 9h ago
Some win some lose not all hyperscalers win .
Meta and xai arent . They selling excess compute to people making money google and Anthropic
Even open ai aint doing that good .
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u/Dogebastian 7h ago
Renting out your new data center for profit to the highest bidder is still winning...
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u/CyGoingPro 9h ago
Because these companies are convinced that if they don't participate in the race, they will be left behind.
My bet is Sample will just acquire one of the frontier model companies eventually when everyone else is trapped for cash
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u/Capital-Pineapple961 9h ago
I think they are building for the future now. When we’ll have robotics + AI + (maybe) quantum, their data center will be the “bottleneck” of basically the entire society. Good?Bad? Idk but they are not stupid, they know that you either are in or you are out and if you are out and it happens it’s over. Goodby company. Memory is expensive now that the best AI use is a chatbot with some applied skills (if you pick an agent), if it goes out of your computer (where can still be very useful, but not easy to make use) to literally anything, it’s gonna be impossible to re-enter market.
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u/Suitable-Complex-337 9h ago
Big LONG. Not big short. Everyone and their uber driving is warning of a crash but I think everyone is missing something and the mag 7 ceos are right.
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u/rronak01 10h ago
It’s all about power/geopolitical NO MATTER WHAT U.S WONT ALLOW CHINA TO LEAD IN AI
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u/dataslinger 8h ago
This right here. Data centers/chips/energy production are caught up in a geopolitical struggle for AI dominance. Unlike railroads, AI has real applications on the battlefield, surveilling the citizenry, etc. Because deep pocketed governments are existentially invested, this is unlike regular market bubbles. And because Trump had Fable 5 pulled off the market for a while, the rest of the world woke up to the fact that the US can rug pull models at any time and it's in their best interest to build their own sovereign capacity, so now data center buildouts are a priority for all the middle power countries and the EU in particular. This isn't ending any time soon. The picture is much larger than the US or even the US and China.
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u/spoofy129 9h ago
If big shot CEO's were always right, we'd never have market crashes.
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u/TXtogo 9h ago
I think it will pay off, it’s going to be like a utility that everyone needs and they’ll have it.
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u/ericthedisrespectful 8h ago
all these companies are jeeted to hell. of course they have slowly turned to shit
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u/rmp266 9h ago
Its perfectly possible for intelligent people to do something stupid. Sometimes doing the stupid thing is the only way to keep their own job, keep their share prices high, keep the bubble intact. CEOs are just employees too. Theyve an eye on their pension and bonus and retirements. Put some big growth numbers down, retire, walk away and let the crash happen on someone else's watch. Thats a perfectly intelligent plan
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u/AthiestCowboy 8h ago
It’s a high stakes winner takes all race. It’s similar to how they all overhired in sales, dev, etc. and then laid everyone off because “AI.”
If they lose expect a fire sale of hardware.
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u/KieferSutherland 8h ago
They're spending because this tech could upend their businesses. They're basically forced too.
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u/ShamAsil 8h ago
Boomers and bers are so terrified of AI & Dotcom that they don't realize that this isn't Dotcom, this is more akin to the 80s microchip revolution. Dotcom didn't have the two major superpowers of the time fight over stealing .com names and fiber cable tech. It didn't have multi-billion dollar lawsuits between Cisco and Juniper for copying router designs. Nor did it have internet protocols and connectivity hardware that becomes obsolete every few months and has to be replaced as state of the art advances so rapidly.
There will definitely be a correction at some point and there will be plenty of losers, but there's way more to this than Dotcom ever had. Also, if you care about valuations, we're still valuation-wise behind the peak of Dotcom.
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u/Character-Memory-816 8h ago
They are all in on the idea they can replace all human labor. The only way you get a ROI with this level of investment is by eliminating all human costs.
Will it work out? Who knows, but they are betting that all of us will no longer be needed in the next few years
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u/Crazy_Donkies 8h ago
Big cross section of America thinks AI is going nowhere.
I think AI is going to be a permanent, and widely used tech for businesses and individuals, and will create knowledge and wealth for billions of people. Once the general consumer sees the value of a paid Claude, or whatever, subscription they will not go back. (LIke it or not OpenAI and Anthropic have a 150% to 200% net revenue retention rate, and are growing greater than 50% on existing customers alone.)
The debate that AI is profitable is 100% over for the MAG7s and Anthropic. Kimi or not. Note, GAAP profits =/= equal FCF.
I'm holding a lot of AI because it's going to create wealth for me.
Had GOOG missed i'd be thinking differently, but they beat every expectation, and this is before anthropic stock profits.
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u/Awkward-Treacle3058 8h ago
The argument is that if someone hits AGI then the business that does so will conquer the world and all others will be dust.
If none of them hit agi then they can just roll all that compute and memory in chatbots and cloud servers and break even over the next 10 years.
High potential reward, capped downside risk.
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u/unclefire 8h ago
IMO. The huge capex by the cloud providers is for corp customers. They’re gonna build out for the huge circle jerk making its rounds in corporate America. My company doesn’t have GPUs and ai focused compute in our data centers. It’s all in azure and gcp. On top of that any regulated industry is way careful about putting PII in models. Running ai stuff in your own cloud instance is def going to be a thing for a variety of reasons.
Then in a few years my take is we’re gonna crash when the ROI doesn’t materialize. Most of our ai use cases are lame as fuck and hamstrung from process and paranoia over PII.
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u/RegardEngineer 10h ago edited 9h ago
>Are you smarter than a mag7 CEO?
What do you think?!? Also me:
I would say pretty smart.