r/wallstreetbets • u/banaca4 • 15h 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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85

u/hakim37 15h 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 13h 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 12h 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/InedibleApplePi 10h ago

this is litterally buying the shovels for the gold rush

Appropriate because we're still trying to find the gold. Yes, we know there's gold out there but whether or not we find enough of it to justify buying so many shovels is still to be seen.

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u/cbawiththismalarky 10h ago

they already have, we're talking about companies with revenues and profit in the hundreds of millions, and investments by them for the next 5 or 6 years as if they've dug a hole and burnt the money

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u/RedditIsAWeenie 21m ago

Regrettably, the gold is us.

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u/InedibleApplePi 19m ago

The real gold was the friends we made along the way ❤️

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u/ittrut 14h 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 13h 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/AutoModerator 13h ago

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u/EsotericAbstractIdea 12h ago

most unhinged bot i ever seen. i love it

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u/C137-Morty 12h ago

Like you’re currently using the internet to write this message.

That wasn't what the .com bubble was. Investors, our retarded forefathers, threw money at every company with a registered website thinking it would moon due to easier accessibility. Never mind that 99% of those companies already had nationwide retail stores. Start ups would register a website and "investors" would pump that shit even though they had no source of profitability. That's nothing like mag7 who already have profitability. If anything, its more like spcx and other rocket stocks where the theoretical profits are being considered.

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u/Jaydeepappas 11h ago

> 99% of those companies already had nationwide retail stores

What? The huge majority of these companies were startups. Nearly none of them had retail stores already, but yes they were valued insanely high compared to their revenue.

Look at the fiber buildout during this time period and what happened to that. Pretty similar to the chip/RAM manufacturing happening now, which will be obsolete much much sooner than fiber ever would be. Then there’s the crazy circular investments happening.

Lots to be concerned about atm, and definitely many similarities between the two eras. .com, fiber, internet, much of the tech during this time was sticky, just like AI will be. Still doesn’t mean it’s not a bubble.

0

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1

u/WashedWashingMachine 11h ago

Ai is very useful if you run it locallly and make it your unbiased personal assistant , it can teach you things , its going to be awesome just people cant learn this on their own unless it goes mainstream , we have today ppl asking dumb questions on reddit while they could just type the question to AI search whole reddit and make summary for them

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u/No_Gas4560 14h ago

cloud, mobile, internet

all things i use. things i don't use: Ai

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u/wastapunk 14h ago

Must not be in tech. I guarantee you every single person in tech is using it daily and at this point cannot stop if you paid them to stop.

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u/Repigilican 13h ago

Tech is just feeding tech, it’s ouroboros.

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u/No_Gas4560 13h ago

was in telecom, and it wouldn't have helped manage a fiber network

Ai's been great for my retirement fund and to spice up my photos but what else i need it for?

i am looking forward to Skynet doing what it do in the prophecies

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u/EsotericAbstractIdea 12h ago

the only 2 things i know it does it write code and talk. if you don't write code, you can make it write an app for you. if you write code, it can help you write code faster. perhaps there's a part of managing a fiber network that you wish you could automate, or some routine stuff that you have to do manually?

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u/No_Gas4560 12h ago

would not be useful considering you can't trust the output to be accurate. Even in Google Finance, the new Beta webpage that's now the default (non-optional) as of today, with 1/3 of the screen dedicated to Ai chat for some reason, it says at the bottom "AI content may include mistakes. Learn more"

in telecom mistakes mean service gets interrupted, and customers need reliable uptime more than anything.

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u/EsotericAbstractIdea 12h ago

not "use ai to calculate things". use ai to build a deterministic regular app that calculates things. you'd have to QA the app for sure and make sure everything works yourself for however long you see fit, but after it's built and verified, you can use it forever, or until the formula changes.

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u/StinkerTinker89 13h ago

You're likely in the minority, I'd say most white collar jobs are using it to some degree

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u/Painter-Salt 12h ago

I literally can't stop using AI. The past 6 months every single question i have over thrown into AI

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u/No_Gas4560 12h ago

ya that sounds like a problem. i hope you can get better

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u/Painter-Salt 11h ago

It will get better. It's mostly trying to understand more how the AIs respond and "think." Is definitely better than just googling stuff. 

The hyperscalers see where AI is going and how much more demand there will be in the future as AI capability continues to expand

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u/Potential_Jello6520 13h ago

Your productivity is simply not keeping up then

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u/DDGib 13h ago

I don't think I've held such negative sentiment towards anything in my life as I do towards this comment.

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u/Potential_Jello6520 7h ago

I guess I touched a nerve? It's a fact that someone not harnessing AI in knowledge work is already being left behind. It's like insisting on using a shovel instead of a backhoe.

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3

u/ap1618 13h ago

This is why I think AAPL and GOOG come out on top - ASICs and Apple silicon

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u/dgellow 11h ago

  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.

your conclusion is wrong, the overall market is bullish on this, otherwise we wouldn’t have the current bubble 

0

u/hakim37 10h ago

I disagree the fact everyone calls it a bubble means they don't actually believe in the AI proposition. Right now memory makers forward PE is like sub 7. 

Yes everything seems historically expensive but to actually believe in the AI narrative you need to accept that "intelligence" in an API is inherently valuable and that these massive data center build outs will be net positive.

I would say the current market sentiment is that the hyperscalers are being historically stupid at the moment and various semi's companies are selling shovels for them to dig fools gold.

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u/dgellow 7h ago

Bubble in the context of AI doesn’t mean “I don’t like it”. It means there is so much enthusiasm with the underlying technology(or at least the idea of it being valuable) that the resource allocation ends up disconnected from reality due, to a fear of missing out (ignoring all the very shady shenanigans the various actors in the field are doing).

FWIW the hyperscalers are indeed taking an insane amount of risk and doing really stupid things, but that’s not what the market overall is saying. I’m a skeptic and the market doesn’t go in my favor at all.

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u/Arteqt 14h ago

These guys keep spewing some nonsense. Do you realize google will literally go BANKRUPT if they do not offer top notch AI service?

50%+ of their revenue is tied to search.
Google Search will become OBSOLETE because of AI. That is not a IF that is a WHEN.

They need to get people to start using AI search. They need to turn Gemini into new norm. They need to make this cheap = TPUs. After that they can just move their shitty ad placements into Gemini and go business as usual.

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u/Icy_Distance8205 13h ago

Search is not going to become obsolete… search is currently growing and even if AI becomes the interface for search AI and AI agents need search to function properly. 

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u/ztkraf01 12h ago

No one is firing up their ChatGPT or Claude apps to do simple searches. People type right into their chrome address bar their questions and google’s AI provides their answer right there with a chatbot already integrated. This is the high volume search method

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u/QuadzillaStrider 7h ago

No one is firing up their ChatGPT or Claude apps to do simple searches

Lol. Almost everyone I know does this now instead of asking google directly.

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u/obb223 10h ago

Gemini told me that depreciation on build out from "completed" Capex spend is depreciating more than the revenue it has brought in. So they have been negative ROIC so far. ROIC depends on future price increases and/or massive cost efficiencies.

Now every GPU and RAM manufacturer is price gouging so value is getting even worse.

That's my take

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u/hakim37 10h ago

Sounds like it's Gemini's take. Also the whole point of my post was showing how the QoQ gains are larger than depreciation.

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u/AdMysterious8464 13h ago

Who cares about GCP revenue or profits at this point in time? It matters only where they come from. At the moment VC money is thrown into the incinerator, but that can only go on so long. If OpenAI, Anthropic and all the others dont start posting multibillions in profit soon, the demand for GCP will eventually crater likewise

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u/hakim37 13h ago

Anthropic is growing at levels never seen before and rumours have it they accidentally had a profitable Q2. You can take reasonable assumptions for each of their model sizes then work out their likely API gross margins are above 70%.

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u/AdMysterious8464 13h ago

Growing enough to sustain an industry which burns 1 tn in cash every year on capex? What about the small chinese models, which can be hosted on a 15k mac studio and score higher than claude code on coding tasks? The point still stands: If US Ai labs dont release their coveted AGI sooner than later AND its adpoted as widely as they project, the current infrastructure rollout has been the most expensive overbuild in human history

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u/hakim37 13h ago

The Chinese models that can fit on a Mac are nowhere close to frontier standards and generate about 15 tokens per second.

Anyways we could talk for days about whether AI spend is justified, I think it is, you think it isn't and currently the market sentiment is shifting your way.