I dream of a world where I can just read a prompt behind some slopicle and cut the middleman entirely.
> The bulls and I do not disagree about AI. We disagree about which derivative the structure is written on. They are watching the level. I am watching its acceleration. That is not a difference about technology. It is a difference about arithmetic - and arithmetic, eventually, does not take opinions.
Regardless, 2nd order (and higher) derivatives are nothing new in finance and are a part of any decent university’s curriculum. Corporate debt is not an options contract. Using Gamma risk to explain AI bubble mechanics is a poor fit.
It's hard to read this because it's AI written, and at least three times as long as it needs to be.
TL;DR: A lot of credit crises happen because of a decrease in acceleration (the second derivative) rather than a decrease in point in time slope (first derivative), or absolute value. The author (or at least the person who prompted AI for the article) says they think AI capex has to continue to accelerate in order for the frontier model companies (and associated) to continue to pay their debts.
I think the theory is sound, but I'm also bullish on LLM/LBM market size being very undervalued today.
jdlshore 1 days ago [-]
Agreed. The article is very sloppy, but that doesn’t mean the central thesis is wrong. I’m not conversant enough with financial theory to say one way or another. Anybody care to critique this?
Schiendelman 1 days ago [-]
I don't agree it's going to break these companies; they are all capable of paying their debt service. The reason this was an issue in mortgages was that the mortgages were adjustable rate - the borrowers were defaulting when the rates adjusted because they weren't able to pay the new rates. I'm not aware of any financial instruments for these AI companies that would balloon like this.
combilabs 24 hours ago [-]
The article addresses the mechanism in the "How It Breaks" section. The problem lies in the interconnected contracts, not debt financing. If OpenAI cannot get new financing, it will have to cut costs, and one of its big costs are forward compute commitments it will have to break. Those commitments are a significant share of revenue for other companies like CoreWeave and Oracle, so if OpenAI has to cut significantly, it will be crippling to those companies. They in turn have commitments to suppliers like Nvidia, and on down the line the losses propagate, with corresponding drops in equity values in the sector which are extremely growth sensitive. Just as the same dollar showed up in the correlated revenue on the way up, so will the same dollar show up in the correlated losses on the way down. That's the balloon effect here.
Schiendelman 17 hours ago [-]
I'm extremely unconvinced. The article didn't at all address what OpenAI would really do if they couldn't get new financing. They'd sell the contracts for some of that compute to the fifty other companies desperate for it. With supply constrained, they'd likely make money on those sales, and there'd be little or zero downstream impact.
aka-rider 15 hours ago [-]
What will be the price?
GPUs costs are x3, memory and SSD x5.
When OpenAI will be looking to sell and everyone knows it, the price would be x0,7 for depreciated used hardware or go bankrupt yourself.
Schiendelman 8 hours ago [-]
The scenario we're discussing is "if OpenAI can't find sufficient additional financing."
It looks like you want to discuss "if prices and demand drop", which would be a different scenario, which I do not believe is likely in the same timeframe barring some separate economic meltdown.
In today's world, the selling price would likely be an increase over what OpenAI paid. This isn't selling hardware, it's selling contracts for future hardware. It's basically futures trading.
nothercastle 22 hours ago [-]
Why do you think it’s ai written. I do not get that sense except that it’s overly wrong but perhaps you found some key ai areas?
nojvek 9 hours ago [-]
It has tell-tale signs. Not X, Y. Two X, One Y.
The way it does it headings and each paragraph neatly chunked. Fancy words, lengthy explanations that don’t add any meaning.
Someone wanted to write a long lesser and feel good.
A shorter human written one would be better.
d4ng 24 hours ago [-]
In light of the article, why are you bullish?
nothercastle 22 hours ago [-]
If you were bullish on housing in 08 you would have been right long term but the timeline would have been way off.
d4ng 15 hours ago [-]
It would have been a while until you could sell at profit and move, though.
Schiendelman 20 hours ago [-]
See my reply to the other person who replied to me :)
ilovecake1984 23 hours ago [-]
I think in the long term AI will be a massive market. I just don’t think it will be massively profitable. The hardware will get better, the models will be even more commoditised. It’s useful and it will get even more useful.. it’s just not going be a licence to print money.
Schiendelman 7 hours ago [-]
In the last year we've gone from "this is annoying but sometimes useful" to "I don't need to hire junior engineers". There are some 25 million software engineers worldwide today, and do not ignore Jevon's Paradox - there are far more people who would hire software engineers if the price of engineering was slashed 90% (which is likely an understatement).
If you don't think this will be profitable, you're saying you don't think software, the most profitable enterprise in human history, will be profitable. Looking at it that way, does it make sense why those of us on the business side of software disagree? I've produced more software (and quite good software) in the last six months than I did in the first ten years of my engineering career.
d4ng 2 hours ago [-]
How much value in present terms was created by n hours of your time before LLMs, and how much value is created now by n hours of your time? If everyone is using LLMs, has that value calculation result changed?
People used to go to work by foot. The best runners would get to work first. Then the bicycle came along. The person who was the best runner before is now still getting to work first on the bicycle.
Schiendelman 2 hours ago [-]
Yes, that value calculation result has changed. The gap between building software and financial value is knowing which software to build and how to break into a market, not how much code you can write. There are not very many good product managers. Not that I'm necessarily good! But I try to be. :)
d4ng 1 hours ago [-]
Please see the bicycle analogy. Resources available at a given time are finite. If everyone is now churning out software at a higher rate with LLMs, what changes in terms of the value gained?
Schiendelman 21 minutes ago [-]
You're making a bit of a category error there - the "everyone" is different after LLMs. You aren't comparing the same market.
d4ng 23 hours ago [-]
I think I agree. The question is what happens before then. The S&P 500 went down about 40% following 2000 and 2008. The FTSE 100 showed similar losses.
My questions are: Will we still have jobs if there’s a crash? How can we start researching what the optimal hedge is against such a crash?
tangenter 16 hours ago [-]
Don’t like the article? Too much AI slop? Just flag it. Simple as.
Rendered at 21:00:31 GMT+0000 (Coordinated Universal Time) with Vercel.
> The bulls and I do not disagree about AI. We disagree about which derivative the structure is written on. They are watching the level. I am watching its acceleration. That is not a difference about technology. It is a difference about arithmetic - and arithmetic, eventually, does not take opinions.
Regardless, 2nd order (and higher) derivatives are nothing new in finance and are a part of any decent university’s curriculum. Corporate debt is not an options contract. Using Gamma risk to explain AI bubble mechanics is a poor fit.
https://en.wikipedia.org/wiki/Greeks_(finance)
TL;DR: A lot of credit crises happen because of a decrease in acceleration (the second derivative) rather than a decrease in point in time slope (first derivative), or absolute value. The author (or at least the person who prompted AI for the article) says they think AI capex has to continue to accelerate in order for the frontier model companies (and associated) to continue to pay their debts.
I think the theory is sound, but I'm also bullish on LLM/LBM market size being very undervalued today.
When OpenAI will be looking to sell and everyone knows it, the price would be x0,7 for depreciated used hardware or go bankrupt yourself.
It looks like you want to discuss "if prices and demand drop", which would be a different scenario, which I do not believe is likely in the same timeframe barring some separate economic meltdown.
In today's world, the selling price would likely be an increase over what OpenAI paid. This isn't selling hardware, it's selling contracts for future hardware. It's basically futures trading.
The way it does it headings and each paragraph neatly chunked. Fancy words, lengthy explanations that don’t add any meaning.
Someone wanted to write a long lesser and feel good.
A shorter human written one would be better.
If you don't think this will be profitable, you're saying you don't think software, the most profitable enterprise in human history, will be profitable. Looking at it that way, does it make sense why those of us on the business side of software disagree? I've produced more software (and quite good software) in the last six months than I did in the first ten years of my engineering career.
People used to go to work by foot. The best runners would get to work first. Then the bicycle came along. The person who was the best runner before is now still getting to work first on the bicycle.
My questions are: Will we still have jobs if there’s a crash? How can we start researching what the optimal hedge is against such a crash?