[hackernews_7364]

There's many questions about the overall economics of AI, its value, is it overvalued, is it not, etc. but this is a very poor article I suspect made by someone with little to no financial or accounting knowledge with a strong "uh big tech bad" bias.

> When companies buy expensive stuff, for accounting purposes they pretend they haven’t spent the money; instead they “depreciate” it over a few years.

There's no pretending. It's accounting. When you buy an asset, you own it, it is now part of your balance sheet. You incur a cost when the value of the asset falls, i.e. it depreciates. If you spend 20k on a car you are not pretending to not having spent 20k by considering it an asset, you spent money but now you have something of similar value as an asset. Your cost is the depreciation as years go by and the car becomes less valuable. That's a very misleading way to put it.

> Management gets to pick your depreciation period, (...)

They don't. GAAP, IFRS, or whatever other accounting rules that apply to the company do. There's some degree of freedom in certain situations but it's not "management wants". And it's funny that the author thinks that companies in general are interested in defining longer useful lives when in most cases (this depends on other tax considerations) it's the opposite because while depreciation is a non-cash expense you can get real cash by reducing your taxable income and the sooner you get that money the better. There's some more nuance to this, tax vs accounting, how much freedom management has vs what is industry practice and auditors will allow you to do... my point is, again, "management gets to pick" is not an accurate representation of what goes on.

> It’s like this. The Big-Tech giants are insanely profitable but they don’t have enough money lying around to build the hundreds of billions of dollars worth of data centers the AI prophets say we’re going to need.

Actually they do, Meta is the one that has the least but it could still easily raise that money. Meta in this case just thinks it's a better deal to share risk with investors that at the moment have a very strong appetite to own these assets. Meta is actually paying a higher rate through these SPVs compared to funding them outright. Now, personally I don't know how I would feel about that deal in particular if I was an investor just because you need to dig a little deeper in their balance sheet to have a good snapshot of what is going on but it's not any trick, arguably it can make economic sense.

[evanelias]

> I suspect made by someone with little to no financial or accounting knowledge with a strong "uh big tech bad" bias.

Actually the author has worked for Google, Amazon (VP-level), Sun, and DEC; and was a co-creator of XML.

[keeda]

1. Being a VP in these companies does not imply they have an understanding of financing, accounting or data-center economics unless their purview covered or was very close to the teams procuring and running the infrastructure.

2. That level of seniority does, on the other hand, expose them to a lot of the shenanigans going on in those companies, which could credibly lead them to develop a "big tech bad" mindset.

[evanelias]

So on the one side, we have a famous widely-respected 70-year-old software engineer with a lengthy wikipedia bio and history of industry-impactful accomplishments. His statements on depreciation here are aligned with things that have been discussed on HN numerous times from my recollection; here are a couple discussions that I found quickly: https://news.ycombinator.com/item?id=29005669 (search "depreciation"), https://news.ycombinator.com/item?id=45310858

On the other side, we have the sole comment ever by a pseudonymous HN user with single-digit karma.

Personally I'll trust the former over the latter.

[keeda]

How do his accomplishments (numerous as they may be) matter if they are only tangentially related to the topic he's discussing? The fact that his take aligns with many others' does not help if they are all outsiders ruminating on hearsay and innuendo about tightly guarded, non-public numbers. He may well simply be echoing the talking points he has heard.

I mean, per the top comment in this thread, he cites an article -- the only source with official, concrete numbers -- that seems to contradict his thesis about depreciation: https://news.ycombinator.com/item?id=46208221

I'm no expert on hardware depreciation, but the more I've dug into this, the more I'm convinced people are just echoing a narrative that they don't really understand. Somewhat like stochastic parrots, you could say ;-)

My only goal here is to get a real sense of the depreciation story. Partially out of financial interest, but more because I'm really curious about how this will impact the adoption of AI.

[evanelias]

From what I've seen, folks at that level have massive amounts of insider knowledge, a huge network of well-informed connections at every big tech company, and a stock portfolio in the 8 to 9 figure range. Personally I would strongly doubt he's simply aligning with "outsiders ruminating on hearsay and innuendo", but I guess believe what you'd like!

[brazukadev]

> My only goal here is to get a real sense of the depreciation story

It doesn't look like your goal is to get a real sense or at least your strategy is really poor as you have an opinion already and wants to confirm it

[keeda]

It won't be great for my financial interests, even though partial, if my decisions were based on presupposed notions rather than evidence ¯\_(ツ)_/¯

[hackernews_7364]

There are many legitimate concerns about the financial implications of these huge investments in AI. In fact the podcast that he references is great at providing _informed_ and _nuanced_ observations about all of this - Paul Kedrosky is great.

BUT (my point)

Is that the article is terrible at reflecting all of that and makes wrong and misleading comments about it.

The idea that companies depreciating assets is them "pretending they haven't spent the money" or that "management gets to pick your depreciation period" is simply wrong.

Do you think any of those two statements are accurate?

P.S. Maybe you make a good point, I said that I suspected based on those statements that he had little financial knowledge. tbh I didn't know the author, hence the "suspect". But now that you say that it might be that he is so biased in this particular topic that he can't make a fair representation of his point. Irrespective of that, I will say it again: statements like the ones I've commented are absurd.

[evanelias]

Those statements are quite clearly simplifications, provided for readers who lack accounting experience (e.g. the majority of readers, since it is an engineering-focused blog). That's entirely reasonable in context. I don't know why you're laser-focusing on these two phrases as some kind of smoking gun that discredits the entire piece.

On the "management gets to pick your depreciation period" one in particular, despite being a massive over-simplification, there is substantial underlying truth to the statement. The author's comment about "I can remember one of the big cloud vendors announcing they were going to change their fleet depreciation from three to four years and that having an impact on their share price" is specifically referring to Alphabet's 2021 Q3 earnings statement. See the HN discussion I linked in reply to the sibling comment.

[hackernews_7364]

I don't think they are simplifications, I think they are misleading.

Notice that I never disagreed with his underlying take. Everyone should have concerns about investments in the magnitude of 1 or 2 pp of GDP that serve novel and unproven business models. He even cites a few people that I love to read - Matt Levine. I just think that the way he is representing things is grossly misleading.

If I had little financial knowledge my take away from reading his article would be (and _this_ is a simplification for comedic purposes): all of these big tech companies are all "cooking the books", and they all know that these investments are all bad and they just don't care (for some reason)... and they just hide all of these costs because they don't have money... And this is not a fair representation.

I think we are too forgiving of these type of "simplifications", if you think they are reasonable, ok. I just shared my take, probably I should have stuck with just the observations on the content and left out the subtle ad hominem, so that's a fair point.