This could end similar to the stay-at-home COVID stocks (Peloton, Zoom, etc.) where demand was pulled forward massively and the unwind when demand slowed wasn’t pretty.
I love the visual with the Big Four entitled Big Tech Price to Earnings Multiples etc. -- I expect Meta to make big changes pending recent news and up, up, up the game! The goal of ever user should be to monetize accounts, and the policies are favorable now ...
The capex orgy is not going to slow down until something serious happens. Once the hyperscalers started down this path, there’s no offramp for this money pit of epic proportions. FOMO is the driving factor here. The payoff has such huge potential that these companies jumped on the wave without having a plan. It was all in immediately rather than a ramp up. Whether they realized the scale of the money furnace they’ve invested in is debatable, but what is not debatable is that it is a MASSIVE money furnace. What is telling from all of the circular financing and lack of breakout of AI revenue in quarterly reports, is that the money pit is getting larger and larger with no payoff in sight.
Anthropic's the Apple of model providers - highest quality and highest cost. There will always be a market for that, so as long as they can maintain their position at the front of the frontier (NOT a given but they're doing a good job so far), they'll get profitable eventually and figure it out.
OpenAI tried to be everything to everyone and because of that fell behind the much more focused Anthropic. But they're figuring it out and getting focused - pre-IPO discipline, even if belatedly imposed, will be good for them. They're also TBTF and their investors won't let that happen. They'll eventually have a soft landing - get ready for the SpaceX bid - Elon will almost certainly try - getcha popcorn for that one.
The open weight models absolutely have their place and that place will expand dramatically. But they'll be Android to Anthropic's Apple - the cheaper, good-enough - but not premium - offerings, that also get embedded invisibly everywhere. I wrote a piece about that recently - https://differentialfactor.substack.com/p/you-have-one-job
As for Big Tech, Microsoft, Amazon and Alphabet have the financial strength to make these bets, and their shareholders are allowing them to. So why not? The rise of open weight alternatives is fantastic for them over the long run. Their execs are no doubt spending a LOT of time in China right now - they're just not saying much about it for political reasons. Like the broadband buildout of the late '90's there will be a shakeout eventually, and the capacity will get devalued, but we won't see "dark data centers". From their perspective, beats paying dividends...
This may not be a message Mark Zuckerberg is ready to hear...
This could end similar to the stay-at-home COVID stocks (Peloton, Zoom, etc.) where demand was pulled forward massively and the unwind when demand slowed wasn’t pretty.
I love the visual with the Big Four entitled Big Tech Price to Earnings Multiples etc. -- I expect Meta to make big changes pending recent news and up, up, up the game! The goal of ever user should be to monetize accounts, and the policies are favorable now ...
The capex orgy is not going to slow down until something serious happens. Once the hyperscalers started down this path, there’s no offramp for this money pit of epic proportions. FOMO is the driving factor here. The payoff has such huge potential that these companies jumped on the wave without having a plan. It was all in immediately rather than a ramp up. Whether they realized the scale of the money furnace they’ve invested in is debatable, but what is not debatable is that it is a MASSIVE money furnace. What is telling from all of the circular financing and lack of breakout of AI revenue in quarterly reports, is that the money pit is getting larger and larger with no payoff in sight.
Great piece Ed, keep going with the authentic voice.
Anthropic's the Apple of model providers - highest quality and highest cost. There will always be a market for that, so as long as they can maintain their position at the front of the frontier (NOT a given but they're doing a good job so far), they'll get profitable eventually and figure it out.
OpenAI tried to be everything to everyone and because of that fell behind the much more focused Anthropic. But they're figuring it out and getting focused - pre-IPO discipline, even if belatedly imposed, will be good for them. They're also TBTF and their investors won't let that happen. They'll eventually have a soft landing - get ready for the SpaceX bid - Elon will almost certainly try - getcha popcorn for that one.
The open weight models absolutely have their place and that place will expand dramatically. But they'll be Android to Anthropic's Apple - the cheaper, good-enough - but not premium - offerings, that also get embedded invisibly everywhere. I wrote a piece about that recently - https://differentialfactor.substack.com/p/you-have-one-job
As for Big Tech, Microsoft, Amazon and Alphabet have the financial strength to make these bets, and their shareholders are allowing them to. So why not? The rise of open weight alternatives is fantastic for them over the long run. Their execs are no doubt spending a LOT of time in China right now - they're just not saying much about it for political reasons. Like the broadband buildout of the late '90's there will be a shakeout eventually, and the capacity will get devalued, but we won't see "dark data centers". From their perspective, beats paying dividends...