Posted by zlatkov 7 hours ago
Wrote about both the per-model math and the scaling question:
(1) https://philippdubach.com/posts/ai-models-as-standalone-pls/
(2) https://philippdubach.com/posts/the-most-expensive-assumptio...
EDIT: Removed the dot after et; bc apparently it's an entire word (the more you know..)
This is a decent argument, but it's not the death knell you think.
Models are getting 99% more efficient every 3 years - to get the same amount of output, combined with hardware and (mostly) software upgrades - you can use 99% less power.
The number of applications where AI is already "good enough" keeps growing every day. If the cost goes down 99% every three years, it doesn't take long until you can make a ton of money on those applications.
If AI stopped progressing today, it would take probably a decade or longer for us to take full advantage of it. So there is tons of forward looking revenue that isn't counted yet.
For the foreseeable future, there are MANY MANY uses of models where a company would not want to host its own models and would be GLAD to pay an 4-5x cost for someone else to host the model and hardware for them.
I'm as bullish on OpenAI being "worth" $730B as I was on Snap being worth what it IPO'd for - which it's still down about 80% (AFTER inflation, or about ~95% adjusting for gold inflation).
But guess what - these are MINIMUM valuations based on 50-80% margins - i.e. they're really getting about ~$30B - the rest is market value of hardware and hosting. OpenAI could be worth 80% less, and they could still make a metric fuck-ton of money selling at IPO with a $1T+ market cap to speculative morons easily...
Realistically, very rich people with high risk tolerance are saying that they think OpenAI has a MINIMUM value of ~$100B. That seems very reasonable given the risk tolerance and wealth.
Even if true, this still doesn't bend the curve when paying for the next model.
> If AI stopped progressing today, it would take probably a decade or longer for us to take full advantage of it. So there is tons of forward looking revenue that isn't counted yet.
If this is true, it's true for the technology overall, and not necessarily OpenAI since inference would get commoditized quickly at that point. OpenAI could continue to have a capital advantage as a public stock, but I don't think it would if the music stopped.
It's 2x efficiency. Then I'd take 50% less power instead of ridiculous 99% less power.
AI stopped progressing, or LLMs? I really dislike people throwing the term AI around.
The LLM industry has only be around for like 4 years. Extrapolating trends from that is pretty naive.
From my perspective, I hope that OpenAI survives and can pull of their IPO but I just have that nagging feeling in my gut that their IPO will be rejected in much the same way that the WeWork IPO was rejected.
On the one hand you can look at these companies investing and take it as a signal that there is something there (in OpenAI) that's worth investing in. On the other hand all these companies that are investing are basically getting that investment back through spending commitments and such and are just using OpenAI as a proxy for what is essentially buying more revenue for themselves.
When their IPO hits later this year I hope that it's the former case and there's actually some good underlying fundamentals to invest in. But based on everything I've read, my gut is telling me they will eventually implode under the weight of their business model and spending commitments.
It’s like Toys R Us not having enough money to pay Mattel for Barbie dolls and telling Mattel they can have partial ownership of the company if they just supply them with some more toys.
But the problem is that Toys R Us is spending $15, 20, or maybe even $50 (who knows?) to sell a $10 toy.
Toys R Us continues selling toys faster and faster despite a lack of profit, making Mattel even more dependent on Toys R Us as a customer. It blows up the bubble where a more natural course of action would be for Toys R Us to go bankrupt or scale back ambitions earlier.
Because it’s circular like this, it lends toward bigger crashing and burning. If OpenAI fails, all these investors that are deeply integrated into their supply chains lose both their investment and customer.
Obviously, there’s a scenario of super power AI and then it’s a matter of continuing course. Electricity and silicon.
What if you are right, and the scaling doesn’t work. It is too much power, time, hardware to improve… does openAI fold?
Do they just actual use the models they have?
Does everyone just decide that AI didn’t work and go back 5 years like it didn’t happen?
Does the price change so that they have to be profitable making AI services expensive and rare instead of today where they are everywhere pointlessly?
Or does this insane valuation only make sense with information you don’t have like insider scaling or efficiency news?
Does China’s strategy of undercutting US value of models pay off bigly?
It is not like we threw away the dotcom advances, they were just put on hold for a while..
Nvidia is investing assets into OAI - it has to. Because OAI needs to become successful for Nvidia's story in the long-term to play out, to justify its current stock price.
Doubt Jensen sees himself as a “dealer” but considering the vendor lock-in and margins, he pretty much is the Tony Montana of Ai Chips.
It’s nuts that this type of financing is legal.
How someone can compare the above situation to a person getting a payday loan to put a roof over their head or food on their plate is beyond me.
The “it’s like <insert wild and inappropriate analogy to stoke emotion>” is a tired trope.
I don't understand how this is some kind of cheat code. Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80? I don't see at all how that's me "basically getting that investment back".
NVIDIA gross margins lately are like 75%, so it's more like you give me $100 to buy something from me that cost me $25 to produce, hence I end up with $100 worth of stock in your company and it only cost me $25.
You also lost out on $75 worth of cash revenue (opportunity cost from selling the same thing to a different customer), so really you just took stock in lieu of cash.
It'd be different if Nvidia (TSMC) had excess production capacity, but afaik they're capped out.
So it's really just whether they'd be selling them to OpenAI and getting equity in return or selling to customers and getting cash in return.
If OpenAI thinks their own stock is valued above fundamentals, it's a no brainer to try and buy Nvidia hardware with stock.
Sure, but how's that a cheat code? If you normally sell something for $100 that costs $80 to make, and then use that $100 revenue to buy $100 of stock, this is an identical outcome for you.
Again, this is not a cheat code: if you sell $80 of cost for $100 of stock, the stock you now own can go up or down, and if you overvalued it then down is the more likely direction.
> Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80?
Why limit myself to $100 for a product that costs $80? I could just as well give you $1 000 000 to buy this same product from me. That way, I have a $1 000 000 share of your company, and I have $1 000 000 in revenue, and it only cost me $80.
This distorts the market for the product we're trading, and distorts the share price for both my company and yours.
In your accounting, you can claim that you have an investment worth $100 and book $100 worth of revenue. You're juicing your sales numbers to impress shareholders - presumably, without your $100, the investee wouldn't have bought $100 worth of your product. The last thing your shareholders want to see are your sales numbers stop growing, or heaven forbid, start shrinking.
Nvidia is not the first company to "buy" sales of its own product via simple or convoluted incentive schemes. The scheme will work for a while until it doesn't.
And inflate your revenue by $80.
Laws on competition make this kind of arrangements illegal, so you would have to exerce influence and have the invested in company pretends you happen to have been picked among competitors.
In any case the SEC will be focused on whether the filings aren't made up to fraud investors, so they could reject the IPO, of the invested in company. Your own entity also is at risk.
We all know MS gets away with it, they have good legal goons who find way to make all of it appears fair with regards to the law.
Also Nvidia margins are waaay higher than 20%
The issue is that there's no organic force behind those changes and it makes everything hollow. You could create a market inside a deserted area and make it appear like a metropolis.
What if the product only costs you $20 to produce?
WeWork was a short-term/long-term lease arbitrage business. The two are nothing alike.
It used to be revolutionary, but now there is a huge difference: plenty of competition, and a growing number of high-quality models that can run offline (for free!) or cheaper (Gemini-Flash for example).
They are in some way the Nokia of AI, "we have the distribution, product will sell", but this is not enough if innovation is weak.
They are even lagging behind (GPT-5 is a weaker coder than Claude, Sora is a toy compared to Seedance 2.0, etc).
One Apple releases the AIPhone, running offline models, with 32 GB of unified memory, with optional cloud requests, then it's going to be super though for OpenAI.
OpenAI have made this claim and maybe it is with API pay-per-use (there's also good evidence eveb that is not if you dive into how much a rack of B200s cost to operate), but I'd be very sceptical that the free, $20 or $200 a month plans are profitable.
Then the questions are if the market will bear the real cost and if so how competitive OpenAI are with Google when Google can do what Microsoft did to Netscape and subsidize inference for far longer than OpenAI can.
This valuation puts their P/E around 40.
Anthropic $380B valuation on $13B ARR. P/E around 30.
5 years ago Uber was in similar territory. Tesla... Well we won't mention Tesla.
They are in the business of selling compute / datacenter rack spaces. A server where you pay per GBs transferred in/out.
If it’s Gemini or GPT behind, for most use cases users wouldn’t care.
I think the even better analogy than browsers is search engines. There aren't any network effects or platform lock-in, but there is potential for a data flywheel, building a brand, and just getting users in the habit of using you. The results won't necessarily turn out the same - I think OpenAI's edge on results quality is a lot less than early Google over its competitors - but the shape of the competition is similar.
There is no moat
On iOS with the Apple agreement, and on Android (though the question of hardware remains when considering beyond Pixel phones).
About 5% according to a news article a few months ago.
Will the other 95% stick around once ads or payments are required?
Google worked as a free service because their backend was cheap. AI models lack that same benefit. The business model seems to be missing a step 2.
If it’s not the quality of their answers ?
Then it can be something along the lines of "subscribe to Google XXX or Apple +++ and have 'unlimited' cloud requests"
> This plan may include ads. Learn more
> When will ads be available in ChatGPT?
We’re beginning in the US on February 9, 2026
> Starting in February, if ads personalization is turned on, ads will be personalized based on your chats and any context ChatGPT uses to respond to you. If memory is on, ChatGPT may save and use memories and reference recent chats when selecting an ad.
ChatGPT has 800 millions monthly active users currently, out of 8 billions humans.
Those conditions are an IPO or reaching AGI [1].
Nvidia and SofBank will pay in installments.
Also very interesting that Microsoft decided to not invest in this round. A PR statement was made though [2].
[1] https://americanbazaaronline.com/2026/02/26/amazon-to-invest...
[2] https://openai.com/index/continuing-microsoft-partnership/
A year ago I would have said that was crazy. In the last month, I've been using Claude Code to write 20kloc of Rust code every day (and I review all of it).
A week is now a day. If that figure doubles, I have no idea what will happen to us. And I think it's coming.
Only one of this can be true. It's not a shame to say you don't bother reviewing it, in the future that may well be the norm.
I can't get Augment / Opus 4.5 to edit a few C++ files from within VSCode without going off on a wild goose chase or getting stuck in an infinite loop after I tell that it should be doing this: "oh, you're right, I need to do X", "To do X, I must understand how to do Y", "I see now that to do Y, I should look at at Z". "Let me look at Z", followed by: "oh, you're right, I need to do X"..
Building things at a mature company with a market is a lot different than hacking together your own tools. There are a lot more people you can let down at scale.
Reviewing 1k lines of code an hour is a breakneck pace, are you spending 20 hours a day reviewing code?
I think you've crossed the line from being an AI maxi to just rage baiting. This comment is a pointless anecdote at best, please take your ridiculous FOMO takes elsewhere.
The actual quote is this though:
> hitting an AGI milestone or pursuing an IPO
So it seems softer than actually achieving AGI or finalising an IPO.
Fortunately, OpenAI already wrote theirs down. Well, Microsoft[0] says they did, anyway. Some people claimed it was a secret only a few years ago, and since then LLMs have made it so much harder to tell the difference between leaks and hallucinated news saying this, but I can say there's at least a claim of a leak[1].
[0] https://blogs.microsoft.com/blog/2026/02/27/microsoft-and-op...
[1] It talks about it, but links to a paywalled site, so I still don't know what it is: https://techcrunch.com/2024/12/26/microsoft-and-openai-have-...
Incredible, how an entire religion has sprung up around AGI.
Are they going to get stock for it or is it a PIPE?
Personally, I don’t think I want to get in on this at retail prices.
It can both be true at the same time that AI going to disrupt our world and that being an AI lab is a terrible business.
Such a waste of burnt money that could be used for more useful projects.
I'm ready to embrace change, however in this case no one cares. The cheese hasn't just been moved, it has been taken to another planet where us mice are not allowed to go.
Very interesting, I will follow it closely, mostly to see how you ROI 110 Billions in a couple of years.
$30B at $380B post-money for Anthropic announced two weeks ago
This does not increase my confidence in OpenAI's future
> Sam Altman says OpenAI shares Anthropic's red lines in Pentagon fight
90% chance it's all PR but who knows
200 USD at Claude, versus 3000 USD (literally) at Gemini. Well, then it will be Claude.
If tomorrow Claude is 5000 USD, well, then it will be Gemini.
Use these freebies/relatively cheap tools up 'whilst stocks last'.
I personally managed to create a very high quality marketing promo vid using grok. After spending weeks of enduring a lot of pain. But I saved myself tens of thousands.
I took advantage of 30 Grok premium subscriptions that were given to me via a free trial. There's no doubt the cost of services I took advantage of is in the tens of thousands.
But what do I care? I get what I want and then I get out before the freebies disappear.
LOL at the cry babys down-voting. Get mad bruh, get mad.
Might save you €20 next month.
> Today we’re announcing $110B in new investment at a $730B pre-money valuation. This includes $30B from SoftBank, $30B from NVIDIA, and $50B from Amazon.
We try to avoid having corporate press releases as the top-level link, though of course there are exceptions sometimes.
e.g. it talks about running NVIDIA's systems (?) on AWS
> NVIDIA has long been one of our most important partners, and their chips are the foundation of AI computing. We are grateful for their continued trust in us, and excited to run their systems in AWS. Their upcoming generations should be great.