If I am a grocery store that pays $1 for oranges and sells them for $0.50, I can't say, "I don't have enough oranges."
'If I am a grocery store that pays $1 for oranges and sells them for $0.50, I can't say, "I don't have enough oranges."'
How about 'if I'm a grocery store and I see no limit on demand for oranges at $.50 but they are currently $1, I can say 'if oranges were cheaper I could sell orders of magnitude more of them'.
Buying oranges for $1 and selling for $0.5 is an investment into acquiring market share and customer relationships and a gamble on the price of oranges falling in the future.
The whole setup rests on this, and it seems mythical to me. These guys have basically equivalent products at this point.
It's a delusion that customers are going to remain with the behemoths when a Qwen model run by an independent is $10/m, unlimited usage.
This is not a market that can be locked-in with network effects, and the current highly-invested players have no moat.
But labs arent buying oranges — theyre buying the only orchard on the island, hoping it yields a fruit no ones grown yet. Burning $1B to net $500M isnt "I have too few oranges." Its "Im betting the farm Ill find a new one."
Both can be irrational. Theyre irrational in different ways.
"I built a ship to go to the Indies and bring back tea."
"Bro, the ship cost 100,000 pounds sterling and only brought back 50,000 pounds of tea. I don't care if you paid 12,500 pounds for the tea itself, you're losing money."
There is a very rational reason labs are spending everything they can get for more compute right now. The tea (inference) pays 60%+ margins. And that is rising. And that number is AFTER hyper scalars make their margins. There is an immense amount of profit floating around this system, and strategics at the edge believing they can build and control the demand through combined spend on training and inference in the proper ratios.
Could they be accurate? Sure, I think people who claim this is impossible are overconfident. But I would encourage anyone who assumes they must be right to read a history of the Worldcom scandal. It's really quite easy for a person who wants to be making money (or an LLM who's been instructed to "run the accounts make no mistakes"!) to incorrectly categorize costs as capital investments when nobody's watching carefully.