To those who haven't heard how colossal the size of OpenAIs contracts are.
900,000 wafers monthly. Tom's hardware estimates that is equal to 40% of global dram production capacity.
https://www.tomshardware.com/pc-components/dram/openais-star...
900,000 wafers monthly. Tom's hardware estimates that is equal to 40% of global dram production capacity.
https://www.tomshardware.com/pc-components/dram/openais-star...
They would want to expand capacity if they believed this increase in demand is long lasting - the implication is therefore that they don't believe it, or not enough to risk major capital expenditures.
You saw the same with GPU makers not wanting to expand capacity during the Cryptocurrency boom. They don't want to be left holding the bag when the bubble pops.
https://www.cbsnews.com/news/oil-production-prices-us-compan...
Which sucks extra bad because if you shut the project down but start it back up you can't just flip a switch. Gotta put together a whole new team and possibly retrain them.
Hopefully the Chinese manufacturers ram(p) up rapidly and spike Hynix and Samsung with heavily undercut prices.
No it’s not. Memory business has been cyclical for years. Over expansion is a real risk because new manufacturing capacity is very expensive and takes a long time to come online.
If they could make new manufacturing come online quickly they would do it and capture the additional profit of more sales.
The risk of overexpansion is real but I really doubt they want to expand much in the next couple years. They don't have to worry about being undercut by small competitors so they can enjoy the moment.
Look at the standard Econ 101 supply-demand curve.
If they could make and sell twice as many chips, it would not cut there margins anywhere near half. They would be making much more.
When demand spikes up and down there will be pain. Because booms are not predictable, in timing, size or duration. And accelerating supply expansion is very expensive, slow, and risky.
Many boom prompted RAM supply expansions have ended in years of unprofitable over capacity.
You really think that? I would expect their margins to drop down to a small percentage if they doubled production. Maybe even less.
Any price increase reduces purchases by many customers. This tends to keep prices stable. With only small changes in price relative to regular changes in demand.
Yet prices have gone way up.
Which means that many people and businesses are cancelling, delaying, or scaling back their RAM purchases. And yet new demand is incredibly high.
To get prices down, supply would have to grow tremendously. Enough to soak up even more purchases from the very motivated, and to cover all the purchasers that have currently pulled back.
Especially because the demand curve that's skyrocketing right now is the RAM that isn't in long-term contracts. Doubling all production would much more than double the RAM available for normal purchases.
> To get prices down, supply would have to grow tremendously. Enough to soak up even more purchases from the very motivated, and to cover all the purchasers that have currently pulled back.
Is "down" here back to normal levels?
But normal levels are like a tenth of the profit margin. They'd make significantly less money doing that.
Actually, let me eat my words, you are right. As I typed this I saw some news from an hour ago[0] about SK Hynix planning to invest about $500 billion into 4 more fabs. I imagine [hope] Samsung will follow, and together with Chinese memory fabs ramping up both in capacity and technology, prices will return to earth in 2027, maybe 2028.
Guess I am just a little too bitter because GPU prices finally seemed to normalize after half a decade of craziness. Topped with corporations in the West usually forgoing investment and using profits like these to do massive stock buybacks and dividends, souring my expectations.
[0]https://www.pcgamer.com/hardware/memory/hot-on-the-heels-of-...
If the demand holds I’m sure they’ll expand. Until then, I think they see it as a short term supply spike.
Honestly having problems remembering the other AI companies without googling it. I recall MS, Facebook, Amazon, Google, and Anthropic.
That farm land is dead and gone, best we can do is urban/rural decay.
Capitalism has never been about the survival of the fittest. That's just weird Nietzschean-Libertarian fantasy where someone ends up blaming the lack of truly free markets for their inability to get a date.
Any large building in a rural area will be used as a barn if it has no other useful purpose. It's kind of hilarious when I pass by the old AT&T long lines facility being used as a hay barn.
Las time I bought something at Sears was the spring of 2008; a new set of tires for my car, and they were bad so I never went back. Also, there aren't a lot of Sears in Mexico.
So demand from other sources has to be suppressed through being priced out in order to meet those supply promises made to OAI in ignorance of their true scale.
This is OAI doing suppliers dirty by making economy distorting moves without transparency, intentionally distorting the market in an effort to hurt competitors.
Yet another example of the “free market” creating destruction for the general public.
As a thought experiment, replace “dram” with “rice” or another essential food stock. Market manipulation such as this is wildly irresponsible, anti-humanity and antithetical to public good. Wars are started over less.
This is an excellent example of the actual alignment of OpenAI as an organization. Yet we are to trust them with leading the way in the alignment of our manque oracles of truth and power?
Except they are
> SK hynix to boost DRAM production by a huge 8x in 2026, still won't be enough for RAM shortages
> It's also not just SK hynix that is boosting DRAM production capacity, with both Samsung and Micron rapidly increasing their respective DRAM production numbers.
https://www.tweaktown.com/news/109011/sk-hynix-to-boost-dram...
That's such an impossibly big number for that timeline. The actual news is they're ramping up their newest node, which they were doing anyway, and which was a small percent of their total production.
At the speed OpenAI is growing, it's far more likely they're trying to protect themselves first, not harm competitors. The market only exists because it's free / semi free. Were it controlled by statist bureaucrats - which is the sole alternative back in reality - the situation would be drastically worse. Just ask Soviet Russia. You'd get your meager once every ten year DRAM ration and you'd like it.
The general public isn't the standard of morality or good. Invoking it is meaningless.
In a reasonably well regulated market, deception at that scale (that utterly destroys competitive buildouts by externalizing the costs that normally would be borne by a customer needing an exceptional order) would be a clear violation of market laws. The fact that deceptive, aggressively anticompetitive behavior such as this , blatantly harmful to other innovation passes as “free market” is a laughable assertion… this is merely the will of the stronger, not any reasonable definition of a free market. A free market implies transparency in pricing and demand, alongside fair competition practices.
Anyone else planning to innovate in the ML space just took a huge hit thanks to OAI, including scientists, pharmaceutical companies, and other things that arguably operate mostly in the realm of clear public good.
Their inherent assumption that might = right is a very powerful indication of their inability to be trusted in the control of a tool / weapon that has more potential to steer the future of humanity than nuclear power/weapons ever did. It’s clear that A: they don’t see AI as any big deal, or B: they don’t care how their actions affect humanity in any nuanced sense of the concept.
If this price goes on for a longer period though, I assume that won't be the case.
Exactly. This is why they’re not scrambling to invest in additional capacity. If these memory manufacturers went all in on new capacity it would take years to build out. If the bubble bursts, or even if it doesn’t burst and just tapers off back to normal demand, they would be in a bad position with excess manufacturing capacity that isn’t paying off.
Financial trouble at OpenAI - even minor stuff where they slow purchases by 25% - could have a big impact on global prices.
What is the instrinsic value of one of millions of GPUs, if the world only needs 15-20% of them?
That's the meaning of intrinsic calor - the device can do what it can do, regardless of market conditions. Today it has the value of fifty teraflops, and tomorrow it still does, unless it breaks. However, intrinsic value cannot be measured in dollars.
I'm sure that farmers during the Great Depression were also consoling themselves with the "intrisinsic caloric value" of their corn.
GPUs would have taken the world by storm already in the roughly 30 years since they've been around.
Even for GenAI it's likely ASICs take over at some point if we really care about performance.
If you put a 75% discount on these powerful GPUs there will be a long line of non-AI-company purchasers.
Yes, lots of companies will buy them for cheap, but these AI beasts also have OpEx costs. Not every alternative use is worth the money and there are 0 guarantees that the alternative costs cover the gap. NVIDIA sell 80% of GPUs for AI now.
I think people don't realize just how big this bubble is.
There are also intrinsic costs, mostly power consumption.