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PaperclipPerfector  4d ago (text post)   18883 thread views

Culture War Roundup for the week of September 29, 2025

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https://x.com/kimmonismus/status/1973120175470944615

Says it right here, source is paywalled article.

Revenue: $4.3B in H1 2025 Cost of Revenue: $2.5B in H1 2025. Do the maths, margins are 42%.

I never see a source for these claims that inference costs are higher than what is charged to customers but people keep saying it, in spite of the fact that it violates basic rules of economics.

If research and model development costs more than your inference margins

Companies are allowed to make losses investing in R&D for new products. This profit-brained beancounter mindset is why the West has been declining, in a nutshell. If you don't invest aggressively, how are you going to innovate? R&D and capital deepening is the source of prosperity.

It's very reasonable to expect there will be all kinds of lucrative offshoots from LLM research, just like how deep learning is staggeringly, ludicrously profitable, that's why these big companies are investing so much. The technology is fundamentally very promising and is worth investing in.

From your own link:

•Losses: Operating loss $7.8B, net loss $13.5B (over half from remeasurement of convertible equity).

And

•Cash burn: $2.5B in H1 2025; projected $8.5B for full year.

I think the 42% margin you're talking about is the Server rental cost which that twitter post calls "cost of revenue" but ... that's not how operating margin works.

I'm not talking about operating margin, I'm talking about inference margin, where the server rental is the cost of production.

The operating loss is due to research. Research is the basis of all modern technology and companies should be doing more of it. It's inappropriate to compare it to casino spending like in your above comment.

The operating loss is due to research.

No.

Here's some recent accounting guidance

"Inference margin" is not, and has never been, an accounting term. Server rental being "cost of production" is also completely misguided. Cost of production can be traced back to salaries for intellectual property. You could maybe shoehorn server costs into COGS, but that's usually mostly made up of SG&A. The original AWS value prop quite literally stated "turn CAPEX into OPEX." Hosting (servers) is 100% an operating expense, not a "production" cost that's amortized. Then again, there are some corporate accounting teams in silicon valley that want to look at it this way so they can defraud lenders and investors create financial engineering solutions.

I am not interested in obscurantist accounting jargon, I'm interested in what's actually happening in the real world. The important details, not trivia. In the real world, inference/production is profitable, while research is expensive. That is what causes the losses of these companies. They have barely began to monetize, focusing on developing a brand and a userbase because they have long time horizons.

Has your thesis been making you good returns in the real world? You're so wise and clued in about the real value of OpenAI, this failing business with 700 million weekly users, (up over 100% this year). Why haven't your Nvidia shorts been paying off? You do have skin in the game, right? There are surely so many opportunities for this key alpha to pay off for you given the huge infrastructure buildout. Or maybe it's a bit more complicated than you think, growing a userbase first and then monetizing is a thing. Maybe all these hyperscalers aren't just randomly squandering hundreds of billions 'gambling' on R&D. I have skin in the game, my money is where my mouth is, I'm enjoying my Nvidia gains.

Would you call Zuckerberg a fool for buying Instagram for $1 billion when it had no revenue? This beancounter logic doesn't work in the real world.

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