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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?
How many important actors in the AI space need to be religious fanatics for it to start to alter the spending patterns?
There's some subset of people you run into who genuinely believe in the Singularity, that the moment AGI is cracked nothing else matters. The whole concept of worrying about debt load after your company cracks AGI is silly, if another company cracks AGI first then having good profit margins won't save you. If it ushers in the end times, or Gay Luxury Space Communism, worrying about whether you lied to shareholders? Stupid.
The religious fanatics will say whatever they need to in order to push ahead.
Believing that AGI is possible doesn't really require any kind of religion. Certainly it's speculative, but so is a belief that modular nuclear can reduce cost down to make starting a modular nuclear startup reasonable. really by this standard any startup is a religion. Really I think you're just sneering because you don't have any actual arguments. The argument in favor of AGI is reasonable and fits well into our general shared understanding of material reality. Maybe we'll find out that LLM architecture doesn't scale up to human level general intelligence and we can update our model, but that update requires information not in evidence.
Believing that after AGI is cracked nothing else matters is the religion.
Much like fanatical Jehovah's Witnesses my father grew up with didn't save money because they thought the world was going to end in 1975.
In the same way you can't really examine the financial strategies of someone who thinks the world will end in 1975; you can't examine a company making decisions about investment and debt load based on immanentizing the eschaton.
Believing that if we can automate all labor for pennies on the dollar then there will be a major economic step change doesn't require faith. It all follows from some pretty simple reasoning. Calling it religion proves too much.
I think where the faith part comes in is "and that won't change the economy so radically that money won't work the same way".
If I'm producing houses (for example) that only cost $500 to build, I'm hoping to sell or rent them at market prices, which means I make a profit of X000%. But that relies on "then I sell that house to Joe and Mary who work jobs that mean they can get the mortgage for $200,000 to buy that house". If Joe and Mary aren't working any more because the same AI has taken their jobs, then there may still be a market for housing, but the price has to come down to $500 or $600, that is, be within the range of income they now have.
I think people are still stuck on the idea of "costs down, but sales prices stay the same" because they haven't really incorporated it into their world view that consumer demand may remain the same, but ability of consumers to pay those prices will drastically decline because much fewer people are in the jobs generating high enough income levels because AGI has replaced those jobs.
So if UBI is the way forward, then the owners of the AGI industries are going to pay for that via taxation, which means they are going to (1) have to sell their $500 house for as close to $500 as they can get, not the current house prices and (2) they're just transferring the money from one hand to the other, since the money to buy the house comes from the UBI they are being taxed to pay.
I honestly don't think we're managing to imagine the world of employment altered so drastically by the 'AGI means pennies on the dollar labour costs' dream, and the subsequent effect this will have on the economy. Nobody is selling superyachts to the dwellers of favelas, and you can't (currently) run an economy on superyacht sales to billionaires alone.
And seemingly now we're talking megayachts versus superyachts. Up to gigayachts? But even there, the superyacht global market is estimated to reach $45 billion by 2032, while current USA economy is valued at $30 trillion. So how are we going to replace all that consumption when fewer people have real disposable income from work anymore?
You can accuse AI industry people of many things, but not having thought about this kind of thing really isn't one of them. There are lots of interviews of them musing about how this could all work out. There's a wide variety of takes but few of them are "the economy is going to just be normal after the singularity except we'll be very rich".
And I really don't think this is the reasoning @FiveHourMarathon is using to call the AI bulls religious, precisely the opposite really.
If you're taking a very small piece of every financial transaction in an economy run by AIs you'll be fabulously wealthy, but thinking about this as the steady state missing a lot of the value proposition. Even ignoring that in the transitionary period where you can offer the house for $5000 in a market that lags behind the new reality, when houses can be had for a fraction of the cost then society is able to just have a lot more houses. If you take a step back and just look at what a fully automated economy actually is then if you own the backbone AIs then you can just print a giga yachts for anyone with the raw materials and the government can decide it has a monopoly on the raw materials and redistribute the proceed from selling them. Raw materials here being land, natural resources, electricity ect. When you grow the pie this much the details of how you distribute pie slices, while important, is definitely able to be overcome. The amount of abundance in such an economy would be staggering.
That is where the sticking point is. How do I get the raw materials? Joe the guy with no job (AGI and robots automated it away) and no stocks (because he didn't get in to buying stock in the AI firms/never had the upbringing where you buy stocks) and no backup fortune is dependent on UBI (if all goes well) to live. Where does Joe, out of his UBI, get the gold, steel, energy and so forth to print a gigayacht?
When I read the handwaving about post-scarcity and AGI can just pull all this out of thin air, it does sound more akin to the miraculous multiplication of loaves and fishes than reality as we currently have it set up. Maybe AGI will change the world so that the guy living on a rubbish tip in a Third World slum can now access the same private beaches, luxury mansions, and gigayachts as Jeff Bezos - or maybe not.
I do think there's an unconscious bias there where the thinking is predicated on "people like us, guys I know who work with me, my social bubble" and not "the guy who drives the bin lorry" because they don't understand what it's like to live in that socio-economic class.
Joe might be broke, but he still has antibiotics, vaccines, a smartphone, out of season fruits, climate control, and budget airline tickets; none of these could be had for any price 100 years ago.
Now, I don't actually think this level of AGI goes well at all, but at the limit it's everyone (or 99.99% of people) die or there's some level of redistribution that allows people to survive. In such a redistributive world it's not really implausible that even a pittance of UBI buys enormous amounts of material goods, much like a relative pittance today buys goods that a billionaire couldn't have had 100 years ago.
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Still if there's a societal wide gamble and a small sector of people think the potential payoff for slamming as much investment as possible into AI is 'infinity wellbeing' for humanity. That then distorts a ton of decision making especially if it turns out they're some combination of wrong and/or don't actually have sufficient resources to get to the promised land
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