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Software giant Oracle corporation is laying off thousands of workers and killing their Texas data center plans, per Reuters and Bloomberg. It appears that their capital expenditures have gotten ahead of their ability to pay for them and now they face the regrettable need to say it out loud shortly before markets close on a Friday afternoon.
This may be indirectly tied to the Iran conflict as Mid East sovereign wealth funds have begun pulling back from investment.
I'm interested to see the fallout of this one. My understanding is that the Ellison clan is fairly tight with the Trump admin.
Beyond that, I have concerns that this may be the match that lit the fuse on AI spending. I have spent the last six months trying to figure out why these valuations made any sense whatsoever. The expense profile of companies like Anthropic and OpenAI looked a lot more like Caterpillar to me than Salesforce. When it came to Oracle, I couldn't make sense of it at all.
In terms of explanations, I only had three explanations I had were that I was:
I still don't know which one it is.
Some of you here are clearly smarter and more educated than me. What do you think I'm missing here? My gut prediction is that this spirals into an even bigger flight from capital in the next six months, which causes holy hell on the retail market because the average investor is more leveraged now than they have been at any point in my lifetime. I'm also assuming it'll kill quite a lot of "LLM Wrapper" companies, like the one run by fear porn expert Matt Shumer.
I assume Google will be OK.
Beyond that, I don't have any idea.
Any predictions?
This is the best analysis that I've seen with regards to OpenAI's business model. OpenAI in particular seems pretty hosed unless they can crack AGI or at least some sort of currently non-existent network, data or technological moat, or else their only option seems to be to angle their way into a bail-out.
Anthropic at least is a true believer in AGI and is well aware of the risks of over-capitalizing even if AI does end up making huge breakthroughs. They're better positioned with having made less spending commitments and having pivoted into enterprise, but they still ultimately need AGI or some sort of moat to make it in the mid-long term.
I mean, it is, but selling tokens by themselves is inevitably going to be a commoditized business. The price of inference is going to be a race to the bottom with compute buildouts and efficiency improvements, and selling tokens, for as long as Chinese models can get 90% as good within 6-9 months for a fraction of the price, is not going to make a trillion dollar business.
Still, at the end of the day the finances don't really matter in my view; if they do crack AGI then the finances start rapidly fixing themselves and/or stop being relevant very quickly, and even if they don't and go bust all the researchers will still exist, and there still will be cheap distilled open-weights Chinese models served at commodity prices, the genie isn't going back into the bottle.
OpenAI's model is the base for Copilot, yes? Are they just hoping to eventually be bought out?
While Microsoft certainly has a history of paying big bucks for companies whose products it will then run into the ground (e.g. Skype), at 840G$ OpenAI might be a bit large for them to just swallow outright.
If OpenAI was years ahead of the competition, Microsoft might still shell out that kind of money to gain a monopoly on coding assistants, but that is thankfully not the case.
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