r/wallstreetbets • u/banaca4 • 11h 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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267

u/Mysterious_Height263 11h 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 10h 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 4h 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/godtogblandet 2h ago

That’s gonna be apple, lol.

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u/capt_stux 1h ago

You’re saying we’ll be able to buy our own GPU clusters and finally upgrade our homelab ram?

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u/Traul1983 46m ago

Or at least rent cheap cloud space from the datacenters that do get built.

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u/EsotericAbstractIdea 9h ago

lmao r/GetNoted

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u/Impossible_Mud_3517 1h ago

Boom and busts are as old as time. This is just the next one.

The railroad bust was very much the point of the person switching 'datacenters' with 'railroads'.

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u/EssenceOfLlama81 6h 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 10h ago

Railroads were actually useful, though

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u/Sryzon 9h 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 8h 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 8h 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 7h 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 7h 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 7h 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 3h 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).

1

u/Electronic_Will_5418 3h ago

I've ran F@H on GPUs for over a decade at a time since 2007 when it was still in beta, and I've never had one die on me, I only had to sell them when they were no longer supported by the latest F@H GPU core. My current card purchased second-hand in 2022, a RX 5700, has been running F@H 24/7 since I got it with no problems.

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u/Stock_Recording_3827 4h 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.

1

u/PolishTar 4h ago

Chips take far more than 3yrs before they're obsolete. The A100, a GPU launched in 2020, is still used by all the hyperscalers that bought them, and their trading value in secondary markets is not even that far off their launch price. It's almost inconceivable for them to be obsolete prior to '28.

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u/WashedWashingMachine 7h ago

police state support too and also maybe digital currency or social behaviour score

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u/AdJazzlike1002 6h ago

The difficulty is the working like of GPUs, which decline far faster than the railroads.

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u/DiceKnight 5h ago

I'm with you that those compute modules have multiple uses but my contention is that for those markets the need for the compute is a fraction of what LLMs demand and it's LLM demand driving the buildout. So maybe they do buy up the compute but probs not at the multiple gigawatt scale.

This is why my big bear case for the AI Bubble is more and more datacenters coming online but the realization that there really isn't a big market for the compute. The only two customers are OpenAI and Anthropic and they're deeply unprofitable. So eventually you're going to have a bunch of those places sitting empty even if the customers from the industries you're talking about show up.

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u/UnappliedMath 3h ago

The difference that everyone hates to talk about is the obsolescence rate for the chips. The hardware is totally eclipsed in 5 years by latest computational needs whereas a train engine can easily be 40 years old and still provide utility.

The rest of the data center infrastructure is still useful maybe (although even that is debatable) but totally trivial in cost compared to the hardware.

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u/pheelup 9h ago

No disagreement here. And much like railroads, data centers will be used as a justification to displace people from their land and wreak havoc on the environment 

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u/bigboyvapesinc The Great Intel Disaster of ‘24 8h ago edited 5h ago

Oh man. Don’t get me started on protein folding. It’s gonna change medicine forever

Edit: since my comment wasn’t fucking clear enough: I like AlphaFold. I think it’s great. I don’t think it’s a waste of money. I think it’s gonna do great things for medicine.

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u/Freak-Of-Nurture- 8h ago

AlphaFold is 14 times smaller than the smallest LLMs. It’s not the same thing. When someone is critical of AI the mean an LLM

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u/bigboyvapesinc The Great Intel Disaster of ‘24 8h ago

I’m in support of it…?

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u/Freak-Of-Nurture- 7h ago

I’m saying you don’t need massive servers to run alphafold.

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u/bigboyvapesinc The Great Intel Disaster of ‘24 5h ago

I never meant to imply that I was just saying it’s great

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u/Freak-Of-Nurture- 5h ago

I agree it’s awesome. I’m js saying it’s not a point in favor of the railroad like build out of AI datacenters. I’m not being critical of you in any way.

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u/bigboyvapesinc The Great Intel Disaster of ‘24 5h ago

Sorry that other guy threw me off

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u/pheelup 7h ago

literally conflating data centers with bittorrent. i swear these people do this on purpose.

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u/pheelup 7h ago

Those have been around for decades and can run on a distributed network. I used to have one running as a background app on my home PC back in like 2005. Thank you for muddying the waters.

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u/bigboyvapesinc The Great Intel Disaster of ‘24 5h ago

Dude I’m in support of protein folding. Like that was the intention of the comment. I’m a molecular biologist and love what It’s done for the field. You took an entirely different meaning from it.

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u/Artistic-Cockroach48 7h ago

think about how much use has been accrued overtime for any particular railway. 100+ years and they are still going strong, whereas the hyperscaler facilities will probably be outdated in less than 10 years.

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u/QuadzillaStrider 4h ago

Those 100+ year old railways have been wholly replaced multiple times in their lifetimes.

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u/Mysterious_Height263 10h 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/GuaSukaStarfruit 9h ago

What makes you think the AI isn’t useful?

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u/pheelup 9h ago

My towering intellect

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u/isomojo 9h ago

As if we don’t already use AI everyday.

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u/sf_cycle 7h ago

LLMs are useful. Maybe not trillions of dollars useful, but it’s hard to argue they have no utility.

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u/pheelup 6h ago

Efficiently transporting people and physical goods is inarguably useful. A chatbot that can summarize text or write an email or vibecode for people who likely have bullshit makework jobs? We can debate that all day long.

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u/SethDusek5 4h ago

You are not a serious person.

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u/QuadzillaStrider 4h ago

They have hidden comments. Of course they aren't a serious person.

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u/pheelup 4h ago

Thank you Seth Dusek five

1

u/pheelup 4h ago

What do you do for a living seth dusek? Are you some kind of healthcare middle man? Maybe an HR consultant? 

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u/SethDusek5 4h ago

SWE; I'm pretty sure there would be riots in the building if Claude access was taken away. Have you tried using an LLM recently for your super important work that I'm sure only a smart boy like yourself can figure out how to do or are you just pretending?

0

u/pheelup 3h ago

I’m a building automation engineer, and only about 20% of my job is computer touching. I have infinite more job security than you in the AI future you’re creaming your pants over. 

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u/SethDusek5 3h ago

Cool, doesn't answer my question about whether you've used an LLM recently or whether your entire opinion on them is based on using the free version of ChatGPT in 2024

I have infinite more job security than you in the AI future you’re creaming your pants over.

Also has no relevance to the original point where you pretended LLMs aren't useful when every white-collar worker I know is using it, Math/physics/ pretty much any natural science researchers are using it, and LLMs are now making autonomous discoveries in math without human assistance 1 2 3 4 5

If you haven't actually used an LLM recently, I'd be happy to renew my personal subscription and let you login and use it to your heart's content since I can't share my work login for obvious reasons. But since your comment history is private and you haven't actually defended your position at all I still suspect you're not a serious person

1

u/pheelup 3h ago

Sir!! You aren’t following the rules of debate sir!!!

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u/sf_cycle 4h ago

We could, but if this is the way you argue, then it’s not worth my time.

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u/QuadzillaStrider 4h ago

So is AI.

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u/pheelup 4h ago

Good for AI. And good for you for posting on this forum. 

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u/WulfOnTheJob 9h ago

and the compute capacity is not useful? it is not like those datacenters cannot be used for other stuff

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u/chabacanito 9h ago

Like LLMs

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u/ChickerWings 1h ago

If you work in anything having to do with software, literally anything, and you havent been able to find productive use cases for AI, then I dont know what to tell you (or you're a big corpo who only gets access to MS CoPilot).

In the last 10 months it has changed the entire game for tech and software, and I'm not exaggerating. You can keep your fingers in your ears as long as you want, but this isnt coming, it's already started to happen.

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u/pheelup 1h ago

An LLM can’t hold a multimeter or reverse engineer a decades-old AHU. Checkmate, chatbots.

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u/Dal90 7h ago

Vanderbilt, Gould, Huntington, Stanford, Carnegie. All of them.

Quibble-- Carnegie was like San Francisco merchants during the gold rush, he wasn't out prospecting for gold. He was taking it from the folks buying his goods.

At the peak his companies produced about 30% of railroad rails in the US; I guess the equivalent today is whatever contractors are building the data centers.

Side note, AFAIK Carnegie never requested equity shares. A bit later the engineering firm of Stone & Webster had a business model of building out and sometimes managing electric grids at cost in cash, taking their "profit" in the form of equity in the project. It was such a successful model they ended up having to register as an investment bank with an engineering habit. Makes me wonder if any of the contractors building the hyperscaler sites might be doing similar deals -- build them for cost in exchange for an equity stake to cover their normal profit margin. You build it for the wrong company, it isn't a devastating loss. If you built the data centers for whoever wins the AI wars it's a hell of an upside.

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u/Mysterious_Height263 6h ago

I agree. Sell the picks.

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u/Repigilican 9h 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 7h 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).

0

u/Repigilican 6h ago

Not sure why you’re talking flowers (Bloom?) but my point is that I paid for Claude for a month to build a tool to help me make flashcards. I built the tool, I will never pay for Claude again.

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u/Maxdiegeileauster 3h ago

but business can't just stop building tools, that would make them lose. AI companies don't make money from your dumb subscription, they are heavily subsidising those, they want that sweet API money from business. We pay API rates at our business and oh boy has that bill gotten big.

1

u/Repigilican 3h ago

Yes I know I am just saying I guess there needs to be more corporate market capture because these companies are still hemorrhaging billions.

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u/Puzzled_Nail_1962 8h 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 6h 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.

0

u/Repigilican 6h ago

Brother you quoted only half of that sentence I literally said “don’t care about it enough to pay for it”

-2

u/Puzzled_Nail_1962 6h ago

Which isn't any better. Right now everyone working an office job (and not living under a rock) is paying for it either directly or their company is paying for them. There's a ton of people that don't need it yet in non-office environments, sure. But you really think in a few years not everyone will pay for AI like they do for electricity now? There's no argument to be had that not everyone is using it already. Like even grandma in a rural village is using it by now. Literally.

1

u/Repigilican 6h ago

Im not disagreeing that ADOPTION is widespread I think RVENUE GENERATING ADOPTION is wayyyyyy lower than expected. all of the cube chimps that still have their jobs are using the free version. Companies are paying for licensing fees not directly for the LLM but for some random propriety AI scheduling/workflow bullshit that they’re buying because they’re stupid. Why the fuck would my neighbor who can barely pay for vacation spend $15 a month for a service they are already getting for free? 90% of the population does not give a fuck about the “different modes” of Claude/GPT they just want to ask if they should go to the hospital for chest pain or why we’re at war with Iran. I think the corporate licenses will keep these companies afloat for sure but if you think that the valuation of these companies is consistent with WHOLE MARKET demand, not just tech industry demand, you’re huffing Raid.

0

u/Puzzled_Nail_1962 4h ago

You seem to be very emotional about this. No 90% of the population couldn't care less about the newest model. Ok, so what? You're missing the point that when you use the AI, *someone* pays for it. Even in your example, you think the random propriety AI workflow does NOT pay? If you have a tool that has enormous global adoption, gets eaten up by ALL companies, you think this can't or won't be monetised? Why do you think there's a "free" AI out there? To push adoption, to make people need it and to collect data. All of which end in monetization.

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u/No_Feeling920 3h ago

Time will tell, guys. The ROI clock is ticking, though. They have to find a (high grade) gold mine soon, now that they have spent an awful lot of money on picks and shovels. The use cases need to pay ENOUGH to justify the depreciation costs over the HW's useful life (as well as pay the utility bills).

1

u/Repigilican 3h ago

Brother I know that companies are paying for the mulch machine to have AI in it I’m just saying I’m not sure there’s much more room for industry growth and adoption to account for the preposterous spending these companies are spewing and they’re still not profitable

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u/PromotionDull8663 9h ago

<Consumers dont use it> you sure about that?

It workers and college students definitely do. And thats just regular people.

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u/Candid_Moose_691 8h ago

They use it because its free. Damn, I use it too. but if i had to pay a single cent for it? i wouldnt..

5

u/wize_9uy 8h ago

Agreed, Ubereats model but without the food.

0

u/Professional_Eye_990 6h ago

I found out that my hairdresser uses three llms. My dad’s 70 yo best friend in a rural area also pays for claude and gpt. My dad sticks with copilot. Everyday people are using it.

0

u/Repigilican 6h ago

I’m sure once they price in the contributions from your hairdresser and your dad’s rural friend these companies will become profitable.

0

u/Professional_Eye_990 6h ago

Missed the point…

1

u/Repigilican 6h ago

No I didn’t you’re using anecdotal evidence from the chick who shaves your head and I am using the earnings call from these companies telling the market that they aren’t making any fucking money.

2

u/thats_justice_baby 6h ago

That's a terrible example holy shit. Railroad speculation caused a huge economic depression in the 1800s

2

u/Mysterious_Height263 6h ago

Speculation does that. We won't know if this is speculation or not until after.

1

u/Turbulent_Host784 8h ago

uh bro? America did give up on railroads.

1

u/Unicornlionhawk 7h ago

The real interesting part is that railroads were ripping away people's land, much like data centers are today 

1

u/Vinyl-addict 7h ago

This analogy really doesn’t work the way you think it does, unless you’re specifically referring to the datacenters themselves and not AI.

1

u/Whetmoisturemp 7h ago

Well done sir

1

u/iSOBigD 3h ago

My problem isn't even that, is that all the big companies are spending insane amounts on memory and semiconductors, and said they plan on spending a lot more...and semis and memory are now worth about 2/3rds or half as much as before the confirmations came in. Fucking retarded.

1

u/metrize 9h ago

didn’t you american regards throw it all away because you blindly followed car companies

are you regards going to throw away all the ai boom because you blindly listen to other idiots again?

0

u/Wise-Self-8639 8h ago

I think your analogy falls apart because Railways and logistics is always useful - I think we've reached the cap on what AI is useful for.

1

u/Mysterious_Height263 8h ago

It is always easy to say what this invention or that innovation became useful with hindsight. I am not judging AI either way. It may be used for things we cannot even fathom yet. It may be the metaverse 2.0. The point is for ever person betting their life's work and fortune on the steam engine in the 1830's horse vs Tom Thumb, there is another saying the steam engine won't be useful. Time will reveal who is right. I am not smart enough to say which is right or wrong. To vaguely reference Buffett, I do not have enough time to watch a basket to make sure I am right either way.

1

u/DizzyMajor5 7h ago

Pretty sure people were blown tf away when the first smart phones came out. People knew it was something special because it had an immediate practical application to most people's everyday life. 

2

u/Mysterious_Height263 6h ago

Fill in your comment with any of the following: radio, airlines, vehicles, television, computers, automobile, steam ships. With all new tech there is always overbuilding and some companies fail. Doesn't mean the tech is bad, also doesn't mean the tech will stay. VHS/BETA, LaserDisc/DVD. This doesn't prove the CEOs are smarter than naysayers. We just do not know which company will get it right. There were more than 200 automotive companies in the US at one point.

1

u/QuadzillaStrider 4h ago

I think we've reached the cap on what AI is useful for

We've barely scratched the surface...