Hacker News Reader

Comment by YetAnotherNick | Hacker News Reader

> If they go down so does everyone else

What does that even mean?

Let's say OpenAI signed a commitment contract that they agreed to spend XXX USD in your company over N years. You invest in infrastructure, your contractors sometimes take loans, the construction companies take loans. Countries / Funds lend money to such companies (example: Saudi Arabia fund), these funds themselves raised debt, it can quickly spiral down.

If OpenAI fails, wouldn't their customers just move to other AI providers? So the total hardware demand by AI companies wouldn't dramatically change over a reasonable time frame?

If OpenAI fails, the assumed case is overcapitalisation relative to demand. In such a world, if the reason OpenAI has no liquidity is because there's insufficient demand, there's no customers to move across.

What happens if the OpenAI failure is because of lack of demand from their customers and the market in general? None of the AI providers or hardware providers will survive, no?

Similar to certain banks in 2007/2008, the idea would be “so much investment is tied to one company that if that company went bankrupt, it could have consequences for the broader economy”

The thing is, it is not 2007/2008 any more. The US government is holding record amounts of debt and countries around the world are now trying to become independent of it. This includes its bond markets on which the dollar relies upon to give it its reserve currency status, which in turn is what gives it its power to print money and bail industries out. If something happens that requires Big Tech to be bailed out and international bond holders decide the US is no longer reliable, it could very well end up triggering the collapse of the US dollar as the world's reserve currency and the downfall of the US as we know it.

Not to mention, there’s also that tariffs thing going on.

In terms of the stock market since without AI thw US would be in a recession.

The stock market will lose faith in AI companies, which will crash the stock price of Google, Microsoft, Oracle, Nvidia and CoreWeave. Investors will lose billions, many of those investors are pension funds. Any AI projects that aren't already profitable will shutdown.

And, because AI is currently what prevents the US economy from being in a recession (at least that what some people speculate), the US economy will stumble, which means that everyone else will to.

Yeah. Look at how the S&P 493 are doing! :/

Is it unclear? Compared to other times a "too big to fail" industry failed?

If OpenAI crashes, for example funding stops, they go broke, fall behind, nobody buys anything, then all the money they invested for data centers or demand they created for NVIDIA chips and compute collapses. That creates surplus of hardware, causes lots of construction/buildout / stockup orders to get cancelled, and the whole thing ripples as suppliers and construction and data center providers etc etc suddenly lose a ton of anticipated profits.

Share prices drop as people dump to protect their portfolios, anticipating dips in the prices because share prices will drop as people dump to protect their portfolios (I'm not kidding).

Given that the big 7 AI companies are basically _all_ of the market growth lately, it doesn't even take a serious panic / paranoia episode to see the market itself stagnate or significantly regress, as people pull from anything AI related, and then pull from the market itself anticipating the market will fall.

It's a fairly standard playbook at this point.

That's different from saying that boeing is too big to fail for example. The US can't accept to lose its only major commercial aircraft manufacturer. Or Intel for similar reasons.

But what you're describing is about keeping the AI bubble from popping. Can a bubble really be too big too fail?

What I'm describing is the scare-quotes too-big-to-fail. Some actually are. But we use that term to mean anything that might cause significant economic trouble nowadays.

Reply on news.ycombinator.com