[_fat_santa]

IMO this looks largely like another circular investment. Amazon's investment is tied to OpenAI using AWS for their Frontier product and I assume Nvidia's conditions are that OpenAI continue buying hardware from them. Then there's SoftBank though given that those are the same guys that invested heavily in WeWork, I assume this is just very brash bullishness on their part.

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.

[mizzao]

This piece that was on HN yesterday corroborates your gut: https://www.ben-evans.com/benedictevans/2026/2/19/how-will-o...

[max51]

The "circular investment" is mostly start up companies using their stocks instead of cash to pay for server hardware and cloud computing. There is a few extra steps in between that make things look weird and convoluted, but the end results is really just big companies giving hardware and getting shares of ai companies in exchange for it.

[dangus]

I think you’re just describing how it’s circular.

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.

[est31]

> But the problem is that Toys R Us is spending $15, 20, or maybe even $50 (who knows?) to sell a $10 toy.

It's like how Uber and Airbnb in the early days were burning loads of cash to build market share. People went to these services because they were cheaper. Then they would increase prices once they had a comfortable position.

OpenAI is also in a rapidly transforming field where there are a lot of cost reductions happening, efficiency gains etc. Compared to say Uber which didn't provide a lot of efficiency gains.

[chemmail]

A little bit, but the scale is another magnitude higher. I just saw a chart yesterday that shows Uber burning $18B, Tesla burning $9B, and Netflix burning 11B before reaching profitability. Open AI so far spent $218 Billion.

[fauigerzigerk]

The opportunity is disproportionately greater as well though.

Unfortunately that doesn't change the fact even a small miscalculation could have an enormous impact. We are approaching levels of risk comparable in size to the subprime crisis of 2008.

[SR2Z]

Is it? AI isn't going to be a winner take all market. Competition between American AI labs and even Chinese ones have seen to that.

The winners for AI will be the product companies, because soon enough the top-tier models are all going to have good enough performance that companies can just pick the cheapest. It'll be a race to the bottom for inference and OpenAI is very poorly placed to compete in that kind of thing.

[chrisandchris]

> It's like how Uber and Airbnb [...]

I disagree. It's like Uber and Airbnb in how they try to gain market share. Big difference: For Uber (and when it got big, basically everybody I know has used it once in a while) and Airbnb, you oaid for each transaction. With OpenAI, most peopme are on the free tier. And if there is something incredibly hard, it's converting free users to paid users. That will, IMHO, be the thong that blows (many) of the AI companies up. They won't ever reach a profit/loss-equality.

[RyanOD]

I agree with this. For the casual user, I feel AI is only a "nice to have".

[oblio]

> OpenAI is also in a rapidly transforming field where there are a lot of cost reductions happening, efficiency gains etc.

But also ever increasing quality requirements. So we can't possibly know at this point if this is a market with high margins or not.

[dangus]

And unlike Uber and Airbnb, OpenAI has no way to maintain marketshare. It’s a domain name with no moat.

Google has to pay Apple billions of dollars to make Google.com the default search engine. I just looked it up, over 15% of search revenue goes to pay to be the default search engine.

Every Android device defaults to Gemini.

Every Microsoft device defaults to Copilot.

I’d love to see where these cost reductions are. If costs are going to decrease rapidly why does OpenAI’s spending plan look so insane?

[abustamam]

> Every Android device defaults to Gemini.

> Every Microsoft device defaults to Copilot.

I don't think it's right to say that these devices "default" to their vendors' AI software when it's impossible to replace it with something else. Yes I can install Claude as a standalone app but I don't have the OS-wide integration that Gemini does for Android for example.

[tovej]

Where are the cost reductions exactly? Except for using AI hype as an excuse for layoffs. Can you showe a reference? Genuinely interested.

[tarsinge]

Uber and Airbnb have network effects. You cant increase price when there is no cost in switching.

[cylemons]

I dont see how network effects applies to Uber/Airbnb because nothing stops drivers/hosts from listing their property in multiple such apps

[matusp]

People continue using Airbnb because that's where the properties are listed. And owners keep listing properties because that's where the users are.

[enos_feedler]

Do you understand network effects? It’s not hand cuffs. I can also sell my rare baseball cards outside of ebay. But…

[Aditya_Garg]

This is a common misconception

OpenAI and others are already profitable on inference (inference is really really cheap)

They are just heavily investing into the latest frontier

The biggest risk is whether they can stay cutting edge, or if open source or others will catch up quickly.

[lelanthran]

> OpenAI and others are already profitable on inference (inference is really really cheap)

If it's that cheap I'll soon be doing it self-hosted, or switching to a local provider.

It's a race to the bottom for tokens-providers.

[jychang]

It is that cheap. Look at Deepseek or GLM pricing.

[lelanthran]

> It is that cheap. Look at Deepseek or GLM pricing.

Then it's a race to the bottom.

[vasco]

If you need to do the latter to be able to make money on the former, then you're not making money. Because if the latter requirement would disappear, inference margins would also drop.

[parineum]

At the end of the day, they're still burning cash. Even if inference is cheap, it's also not hard to compete on. They aren't going to be a trillion dollar inference company.

Eventually there will be a race to the bottom on inference price to the customer by companies that aren't trying to subsidize their GPU investments.

OpenAI is spending money because they think they need to for their business to survive. They're hoping that the next big breakthrough just requires more compute and, somehow, that'll build them a moat.

[zaphar]

OpenAI and quite honestly the others think they are in a race to AGI not the bottom. That's why they aren't concerning themselves with moats or cost. This is quite simply a massive bet that we've already cracked AGI and the rest is just funding the engineering to make it happen.

I personally think we haven't cracked AGI yet but it doesn't change their calculus.

[rasz]

>inference is really really cheap

cough Sora cough

[SV_BubbleTime]

OK, so absolutely good faith here what is the end game?

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?

[Flatterer3544]

Why so extreme, most likely just AI winter for a while, then when tech and societies has caught up, the advancements begins again.

It is not like we threw away the dotcom advances, they were just put on hold for a while..

[underlipton]

The people running these companies have a perverse incentive to keep the ball rolling as long as possible so that they can extricate as much personal wealth and influence as possible. Maybe AGI makes all the problems go away. But, failing that, they get out relatively scot-free when it all collapses. And they don't owe anything to the public. And no one is going to bring them up on fraud charges or any other kind of criminal charges. So, while the world is burning around them (including their former companies), they have the money and connections to acquire property and businesses that are actually productive. It's the Russian oligarch playbook. They're the kings of a struggling society on the brink of failure, but they heard "kings" and said, "Let's go."

[Muromec]

I generally agree with the sentiment, but it's not the russian oligarch playbook. The playbook is some kind of a variation of buying out a productive asset in a legacy industry under it's market price (because everything is on fire already), then using political or monopoly power to funnel (tax) money through it and into your pockets (the asset has to function, but doesn't have to provide a good quality of service due to not allocating proper maintenance). Sovereign AI fund and Microsoft are very close to that setup. If NYC subway would be sold to certain Elon and he will then jack up the prices and have the city hall to subsidize it still, but keep the quality of service the same, that would be more or less it.

The other variation goes in reverse -- using the legacy asset and it's capture labor force to output some kind of a commodity that is sold below market price to a controlled company in a different jurisdiction, where it's resold at small discount of a market price. The company still has to function here too.

Bonus points for not even owning the asset in question, but having effective control over it through the corrupt management, this way the government still pays the bills to keep it running at loss.

What you are describing is actually very western thing, because it assumes you can exchange the asset into cash directly and then buy something with that liquidity, which assumes solid property rights. I'm not even talking about OpenAI being an actual tech company that just wasn't there before. It's not how oligarchy works in the places.

Since the US is slowly moving in a direction of oligarchy, I think the actual reference will be helpful.

[underlipton]

Please read Sarah Kendzior. What's happening under Trump is different from what's happened under other admins precisely because he's drawing from the Russian quasi-state/mob playbook, and not from the normal "socially-caustic Capitalism" one. The difference is that one seeks to maintain a state, and one seeks to dismantle it and replace it with a quasi-state, which exists mainly to interface with other the entities that are still playing in the nation-state system, but which internally functions almost completely as a projection of the power of the elites.

You're conflating the assets the elites own before the state collapse with the ones they seek to acquire afterwards. The don't care if the ones from before function, because their only purpose is to be maximally extractive. Afterwards, there's no need to funnel tax money through the functional businesses they acquire; they are the company and state and the company is the service or product, so anyone interfacing with the product or service within the state is handing them their money. No laundering games necessary.

[RyanOD]

"so that they can extricate as much personal wealth and influence as possible"

I've always thought this. If you're running something like OpenAI, it really doesn't matter to you if the company fails because you're already comfortably wealthy. But, it sure would be nice to be worth another 10x billion - though I'm not totally sure why.

So these individuals perceive a large upside and no downside. It's more of a hobby than a job. Like learning to play piano. It would be amazing to be a badass pianist...but not a big deal if that never happens.

[arthurcolle]

Growth decoupled from labor costs

[lysace]

Cisco did this in 1999. That's how my smallish apartment building in Sweden ended up with a kick-ass Cisco 10 Gbps switch in its basement a year later - when these cost real money.

I think the HOA still only pays like $10/month/apartment for an entry level that's now defined as 250/250 Mbit/s. Someone must have been unusually savvy with the contracts.

https://newsroom.cisco.com/c/r/newsroom/en/us/a/y1999/m11/ci...

Cisco survived but it took them until late last year to recover their 1999 stock value (that's 26 years).

[dfp33]

Nope wrong framing.

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.

[malfist]

You say calling it circular is wrong framing and the immediately proceeded to describe a circle.

[trvz]

Nvidia just needs the winner to be an Nvidia customer. OpenAI is replacable.

[moregrist]

If OpenAI folded, you’d have the one LLM company that consumers know suddenly gone. Which seems like the opposite of an AI success story.

People will start looking at valuations more carefully. Investors will get jittery. Spending on GPUs will drop, as will NVidia’s stock price.

I’m not sure that NVidia views OpenAI as replaceable.

[rfrey]

If OAI folded, there would also be a sudden tsunami of recent Nvidia hardware on the used market.

[nehal3m]

Specifically built for training and inference and not much else, and also they age like milk. I don’t see how that helps anyone.

[7speter]

Customers comparable to openai are trending towards designing and/or using their own silicon, though.

[bandrami]

It's not "continue" buying as much as this is NVIDIA fronting the money for (most of) the hardware OpenAI has already ordered from them. It's like borrowing rent money from your drug dealer.

[nelsonic]

Great analogy. ;-)

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.

[coliveira]

It's like credit cards loaning money to people who are unemployed and will default on payments. It's a risky business that is legal and can be very profitable, but may also be disastrous in the future.

[torben-friis]

>It’s nuts that this type of financing is legal.

You need people to burn in house fires for regulation to require extinguishers.

We're going to be the next generation’s cautionary tale.

[nradov]

I don't see the problem as long as materially significant transactions by publicly traded companies are properly disclosed to investors. If someone loses money by buying NVDA then they have only themselves to blame.

[bandrami]

This is Jeremy Irons' argument in "Margin Call" too. But most people were unhappy with the secular result.

[nradov]

Tuld wasn't wrong. There will always be financial bubbles and misallocation of capital. It can't be prevented, and even trying to prevent it would involve intrusive government overreach that would make most people even more unhappy. Investors who want safety are free to buy Treasuries.

[Aperocky]

It is legal because Jensen isn't selling drugs, payday loans are legal too!

[lotsofpulp]

It’s legal because both sides have armies of lawyers and are voluntarily entering into contracts where each party gets consideration.

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.

[bandrami]

Come on, calling a round of vendor financing (which is what the NVIDIA money is) "funding" is eggregiously misleading. The only new money entering the sector from this is SoftBank's stake.

[lotsofpulp]

They might have dressed up the wording, but the details are all there for anyone who wants to objectively look at the deal. It is a group of two executives making a non coerced deal and disclosing the required information to investors.

Might be a stupid gamble, but it's not akin to a loan shark shaking down a hungry, cold person for life's essentials.

[kristjansson]

Conversely it’s equity for an in-kind investment. Dave Choe taking the Facebook shares writ large.

[ChadNauseam]

> 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.

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".

[bradfa]

I give you $100 cash and you give me $100 worth of stock in return. Now you give me $100 cash to buy something from me that cost me $80 to produce. I end up with $100 worth of stock in your company which cost me only $80. No?

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.

[ethbr1]

> 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.

[nsvd2]

Sure, but OpenAI doesn't have cash. It does have stock.

Even if Nvidia has capped production for now, increased demand still allows them to sell chips at a greater margin. Or, to put another way, presumably Nvidia is charging OpenAI a premium for the privilege of paying with stock.

[Rury]

In that case, you spent $80 to produce an item and exchanged it for $100 worth of their stock.

Now if you check, these companies selling their stock like this tend to have large amounts of debt. If their stock becomes worthless, you just wasted $80 producing an item that their creditors have first dibs on. And liquidating your shares immediately to ensure your gain, would weigh on their stock's value, potentially to the point where their stock would be only $80 worth, and you wouldn't be gaining anything anymore. Your earnings would then tank, alongside them.

[ben_w]

> I give you $100 cash and you give me $100 worth of stock in return. Now you give me $100 cash to buy something from me that cost me $80 to produce. I end up with $100 worth of stock in your company which cost me only $80. No?

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.

[danielheath]

They wouldn’t have bought $100 worth of product if the deal weren’t offered, because they didn’t have $100 to spend.

[ben_w]

If they couldn't borrow $100, or get $100 from any other investor, that just puts you in the position of being an investor, and even then the difference between bradfa's version and mine is simply when you became an investor, not that you became one.

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.

[ethbr1]

The primary cheat code here would actually seem to be (a) getting preferential access to Nvidia's production through these deals and (b) creating a paper story of increasing OpenAI private valuation.

[Sleaker]

Aaaannd get to claim the 100 as revenue to show investors that the company is performing better than if I had not made the deal, which also means that demand for the product stays inflated which also means I can keep my margins higher by not needing to discount my product.

[rvnx]

Urgently need an IPO so losers can chip in. If the sandcastle plummets before, funds and other AI companies lose a lot, so better bet again and again, even if this is nonsensical.

[overfeed]

> Isn't that basically the same as me giving you $80?

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.

[tsimionescu]

The problem is here:

> 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.

[hirako2000]

That's like giving them* $20.

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.

[GolfPopper]

>they have good legal goons who find way to make all of it appears fair with regards to the law

I thought it was more that the legal goons delay the final judgement until Microsoft can eventually find someone they can (technically legally) bribe to drop the case?

[hirako2000]

Swallowing a few millions dollars fine will do. The DOJ needs to fund the whole department. By then MS will have moved onto other things, rinse and repeat.

[ibeckermayer]

> 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".

It's a good question, what I think you're missing is that if the market is valuing me (NVIDIA) at 25x revenue then it's more like I traded you (OpenAI) a GPU it cost me $80 to make for $100 worth of OpenAI stock, and I got a bonus $2500 in market cap of my own stock (which existing shareholders like).

IOW for every incremental "$100" in revenue (circular or otherwise), existing shareholders get paid "$2500" in equity (NVIDIA appreciation + OpenAI shares).

This "works" for NVIDIA and its shareholders as long as they/the market keeps thinking $100 of OpenAI stock is a good price for a GPU. If OpenAI tangibly fails to deliver on this valuation then NVIDIA may wind up in the red on these deals.

Caveat: it's a bit more complicated than that as OpenAI doesn't typically buy/operate GPUs directly afaict, rather they team up with the big cloud providers like AMZN (also part of the deal). But it's an useful way to wrap your head around the economics, I think (open to correction, not a domain of professional expertise).

I don't see anything _inherently_ unethical about this as some comments seem to imply. It's definitely riskier than accepting cash, in which case you're free not to play, but it's a calculated risk based on future expectations of growth by OpenAI. Granted there are some sketchy incentives qua existing shareholders that could materialize in pump and dump dynamics.

[skydhash]

I'm not a finance expert, but it may be because investment and purchase are are taxed differently (I don't know). You gave $100 away as investments, got $100 back as revenue. Meanwhile you establish that your product are worth $100 (while costing $80) and you have $100 worth of shares. Without considering side effects, you gave away $80 worth of product for $100 (supposed) worth of shares. But shares are subject to side effects and those side effects can be quite nice (making the news, establishing price,...).

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.

[SecretDreams]

> 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".

What if the product only costs you $20 to produce?

[a_victorp]

Or if the stock is not actually worth $100

[rafaelmn]

In exchange for 100$ of your stock AND making your revenue numbers look insane for the next cycle ?

Also Nvidia margins are waaay higher than 20%

[_fat_santa]

How I see it is the companies want to jack their revenue and in turn jack the price of their stock and please shareholders. Those are the two main goals which this accomplishes, regardless of the underlying fundamentals.

[coliveira]

The reason this doesn't make sense is that this is the math of monopoly creation! The government should be making sure companies don't go around throwing money at circular deals that will make them and their friends a fortune while cornering the market, but it seems that capitalism rules don't exist anymore in the US.

[Alex3917]

For both Amazon and Nvidia, their marginal costs are probably much lower than their fixed costs.

[johnbarron]

Nvidia sells the picks, AWS rents the mine, OpenAI digs, and the money just loops around the table...

[loeber]

Comparing OpenAI and WeWork is a nonsensical perspective. OpenAI is shipping the most revolutionary product in a generation, with 800 million monthly active users. It's the fastest revenue ramp ever, at incredible scale -- $20B+ ARR. These are real fundamentals. They matter. And the cost of inference is coming down all the time.

WeWork was a short-term/long-term lease arbitrage business. The two are nothing alike.

[rvnx]

They had a first-mover advantage for sure.

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.

[7speter]

Local ai is cool and all but the models that run on typical consumer hardware doesn’t really compare to the breadth of information available by the likes of chatGPT, lets be real.

[DauntingPear7]

How will they make money on their product exactly? To the tune of being worth nearly a trillion dollars? There is no guarantee that inference will go down, we’ve seen some improvement with cheap models, but they aren’t what people want, and otherwise models stay expensive to run and use

[babelfish]

Inference is already profitable (training is not)

[nradov]

So what. In a highly competitive industry they can't keep selling inference unless they continually train better models. It's like saying my airline is profitable if you don't count the cost of buying new airplanes.

[stingraycharles]

This is a completely new market and players are currently burning money in order to capture market share. The money will stop flowing in at some point, but until then, you can’t compare it to an industry like aviation which is extremely mature and heavily optimized.

[nradov]

Nah. The software industry never really becomes mature. Microsoft is still spending a fortune churning on new versions of Windows and Office. The moment that OpenAI cuts spending on training they'll start to slide into irrelevance. Training costs are no longer just for compute resources and engineers: now they need to pay for proprietary training data to differentiate from competitors.

[zippothrowaway]

[citation needed]

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.

[Kubuxu]

Just try using Claude with API for an hour and you will see that the subscriptions are definitely not profitable (unless they percent off “partying but dormant” is very high).

[surajrmal]

They aren't making money on the vast majority of those 800 million monthly actives. I wonder how many will stick around once they roll out ads. If they keep those users with ads, they definitely will be worth their valuation.

[engineer_22]

Will they maintain an edge over other AI companies long term? With so many market participants will it become a race to the bottom?

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.

[putlake]

That's not P/E. That's Price to Sales. P/E is price to earnings ratio. Earnings is profit. Since neither of these companies is profitable, they don't have a P/E ratio today.

[engineer_22]

Nice, thank you for the correction

[dfp33]

The only reason to draw this comparison is to show SoftBank are not as competent as they'd like to appear to be - so putting their name in relation to investors of OAI does not strengthen the prospects we should share re. OAI.

[mountainriver]

It’s one of the worst takes I’ve heard. OpenAI creates the fastest growing app ever, spawns a revolution bigger than the internet, and this guys take is they are like WeWork…

[yibg]

Both can be true. Just because you've created a revolutionary product doesn't mean it's a viable business, let alone one worth $700+ billion. There is a lot of history of the first movers that created revolutionary products that eventually faded away into nothing, while others capitalized on the innovation.

[runlaszlorun]

> There is a lot of history of the first movers that created revolutionary products that eventually faded away into nothing, while others capitalized on the innovation.

I'd say most first movers fade away. Microsoft wasn't the first OS, Google wasn't the first search engine, Facebook wasn't the first social network... etc... etc... etc...

[hk__2]

Being the first doesn’t mean you’ll win. They have no product, only a commodity that you can find at other companies or even for free (DeepSeek).

[rvnx]

They have a product but it’s a commodity now.

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.

[Nevermark]

Circular investing can be a smoke screen.

But it can also simply be the financial framing for direct bartering. Which is even more direct than regular financial transactions.

"I will provide these resources you need, in exchange for part ownership", and/or "a limited license to your tech", "right to provide access to our customers on these terms", Etc."

Amazon doesn't need any frothy fake revenue. But they do want to offer their customers the most in demand models, with the best financial terms for Amazon.

Nvidia wants customers, but not at the expense of throwing money away. Their market cap may be volatile, but their books are beyond solid.

I would be a lot more concerned if OpenAI was getting "funding" from a quantum computer startup, and vice versa.

[system2]

I am expecting OpenAI stock to be the most volatile in history. The first 3-6 months will be fun.

[leonflexo]

How far the volatility ripples out will give us a real look into just how self-reinforced the financials truly are.