[JumpCrisscross]

> like the SpaceX/Anthropic deal

I understand the scepticism around Google's deal with SpaceX, given the former holds a stake in the latter. But Anthropic buying SpaceX's compute doesn't have any related-party smell to it. That genuinely looks like SpaceX having cornered some valuable compute.

[krona]

I'm actually talking about both. WSJ publishes Anthropic artificial profitability. Days later the reason for the profitability appears in SpaceX S-1; it's compute costs were artificially suppressed. Both are going public. It's a quid pro quo.

[JumpCrisscross]

> It's a quid pro quo

This is a reasonable accusation! It doesn't make a lot of sense–the Journal article is worth a hell of lot more than SpaceX referencing Anthropic's profitability. And we have zero evidence for it–one could raise this accusation against any compute partner Anthropic were to buy from.

[LearnYouALisp]

Reasonable or *un*reasonable?

[JumpCrisscross]

> Reasonable or unreasonable?

Reasonable. The influencers who just learned the term circular financing are mostly idiots. The ones pointing out the conflict of interest with Google are technically correct, but the conspiracy takes so many moving parts to yield such little gain that it would have to be particularly stupid in vision yet competent in execution to pull off.

But asking if there is a quid pro quo between Anthropic and SpaceX? Like, there could be. We have no evidence of it. The S-1 mention doesn't make any sense. But they're both going public and if I were a journalist I'd look into it.

The base case, that there is commercial value to xAI's datacenters that folks in the frontier-model space are competing to get access to, does seem to be one folks here are actively rejecting.

[PunchyHamster]

> That genuinely looks like SpaceX having cornered some valuable compute.

That's nice way to say "invested in AI that turned out to be flop nobody wants to pay for so they are selling spare capacity"

[JumpCrisscross]

> That's nice way to say "invested in AI that turned out to be flop nobody wants to pay for so they are selling spare capacity"

Both takes are true. xAI invested in capacity that was supposed to yield frontier-model-maker margins. Grok failed to generate enough interest. So now they're selling it.

That's absolutely a good business, in a way that's more certain than the frontier-model one. But it's also lower margin, which doesn't support the sort of valuation SpaceX is going for.

[bleepblap]

What I don't understand is how it's even a good low-margin business. Maybe I'm missing something but:

Data centers (before recently) are low margin businesses because all the inputs are commodities: you buy power (joules), power (PDU), cooling hardware, physical racks, etc.. from the same vendors as everyone else. Worse, your biggest potential clients have the scale to just build it on their own and cut you out because of their scale and because you don't bring anything unique (outside of maybe physical proximity to an interesting market)

xAI has all the same commodity inputs plus another huge upfront capital expense (GPU/storage/networking), and their customer base is exclusively the well-funded companies who would normally just build it on their own.

I assume that they can't get better deals from nvidia than (e.g.) Microsoft because of their scale, so the unit cost of their inputs is the same or worse than their clients.

So the whole game is hoping that they hope to charge more now because people can't build fast enough and try to recoup their upfront costs before either a) other capacity comes online and b) the installed hardware becomes obsolete.

I'm being earnest -- it seems like they're trading one tiny margin service (datacenter) for another tiny margin service, with the added difficulty that there's an additional 10 figures of upfront expenditures and their viability depends solely on paying everything off before the price floor drops. Maybe it's staunching the bleeding, but it seems like not a great move

[redox99]

It's like buying a ticket for a concert, realizing you can't go and that you can resell it for more than what you paid.

You're right that long term it should stabilize into a low margin business.

Elon is also much less risk averse than others, which helps to build stuff fast, possibly cheaper, pushing legality to the limit. Colossus was definitely built much faster than anything else. I think building datacenters suits him better than a pure software play, where "move fast break things" is already the norm.

[bleepblap]

The concert analogy makes sense (I analogized it as "staunching the bleeding").

WRT SpaceX building data centers: I think there's a natural tension between a "low margin business" and "being risk adverse". SpaceX (the rocket business) did well because it was high risk and high reward. Building a 10b datacenter to hope to get a slice of a low-margin industry is high risk and low reward and just seems fundamentally like a losing strategy.

[redox99]

It's not like Elon is a stranger to low margin. Making cars is low margin, and it's not like SpaceX has crazy margins now that we know the financials.

Also I think stuff like Hetzner is a commodity. But are gigawatt scale data centers a commodity? You need those for AI training.

Anyways their goal is datacenters in space, not traditional data centers. Although I think that's only viable for inference.

[JumpCrisscross]

> because all the inputs are commodities

AI compute hardware is not a commodity. And in a shortage, commodities can command high margins.

xAI has lots of NVIDIA GPUs and HBM. It also has permits and power hook-ups, both things that are getting harder to come by day by day in the U.S. Natural gas is a commodity. Doesn't make having lots of right now bad business.

> the whole game is hoping that they hope to charge more now because people can't build fast enough and try to recoup their upfront costs before either a) other capacity comes online and b) the installed hardware becomes obsolete

Correct. But charging people now generates incumbency advantages that make beating (a) and (b) easier. (From what I can tell, (b) isn't an existential issue, at least for xAI, because they've basically already recouped their investment with commited contracts they'd have to fuck up on to lose.)

[bleepblap]

> AI compute hardware is not a commodity. And in a shortage, commodities can command high margins.

I don't see the distinction you're drawing about "commodity", but I'm happy to be wrong on that. My point was that spaceX's ai division is buying all their inputs from external vendors and can't meaningfully differentiate themselves from person Y who buys all the same hardware except for the fact they bought them first. Which...

> Correct. But charging people now generates incumbency advantages

I don't see now this is an "incumbency advantage". There's nothing that sticks their clients to stay there and sign up for the next data center.

[JumpCrisscross]

> don't see the distinction you're drawing about "commodity"

People pay markedly more for NVIDIA GPUs than they do for others. That opposes the fungibility requirement of a commodity.

[cco]

You're not wrong in the long term, either in general or for SpaceX.

In the long term, hopefully the market stabilizes, new entrants can challenge Nvidia etc. But of course maybe not!

However for SpaceX, this is a dead end move. They made a good decision on buying this compute when they did but they failed to use it to create a compelling model.

So they're selling access to recoup some of their investment (maybe a profit?). But what's the plan as these chips age out over the next three to five years? Become a compute company? They claim they want to... in space!

Regardless, they bought some valuable chips, failed to use them, but can now sell access and recoup over the next few years before they become outdated.

[bee_rider]

I wonder if they do have non-commodity AI capabilities, just, ones that don’t translate into a world-class frontier model.

Like they might have hired really good AI infra folks, gotten really good uptimes on their nodes, gotten folks who really know how to configure Infiniband (or whatever). But then, didn’t find the folks who knew what to run on that infrastructure. Or maybe Grok just had too much political drama around it.

[bleepblap]

Maybe they have something else im the books, I truly have no idea. But once you get down from the top rung of full-bandwidth cross section networking at the 100k node networking scale "AI" infra, theres no shortage of people who can do that. Most importantly, labor isn't the big chunk of the outlay. Even if they have 50 engineers clearing $1m/yr, that's pocket change for everything else

EDIT: said 50 engineers at $50m/yr originally and meant 50 @ $1m/yr

[HarHarVeryFunny]

Datacenter is an ok business, but as you say it shouldn't be getting the same growth multiple (P/E) as a high margin rapidly growing software business.

There is also a question of how sustainable this datacenter rental demand is. It would seem unexpected if Anthropic and Google continue renting from SpaceX for more than a few years, and both contracts can be cancelled with 90 days notice.

[lumost]

Why do we think frontier model vendors are high margin?

[bandrami]

I think the reference was to Elon giving Dario a two-month discount on compute as part of the deal and Dario immediately announcing a profitable quarter based entirely on that discount.

[mceoin]

Google owns 14% of Anthropic.

[SecretDreams]

Google owns 14% Anthropic and 6% xAI.

When Anthropic spends on xAI, it benefits Google. When google spends on xAI, it benefits Google. When xAI spends on Google, believe it or not, that benefits Google.

This is how a Ponzi -style circular financing scheme typically works.

[JumpCrisscross]

> When Anthropic spends on xAI, it benefits Google

Unless Google is directing these transactions, this is not a novel issue. (We see a similar effect with mutual funds owning most companies [1]. It's a weak effect.)

> This is how a Ponzi -style circular financing scheme typically works

No. It's potential conflicts of interest. It's not circular financing. Circular financing follows the cash. When NVIDIA invests in OpenAI so OpenAI can buy NVIDIA chips, that is circular financing.

[1] https://insights.som.yale.edu/insights/the-rise-of-the-mutua...

[SecretDreams]

I think it depends on how you view the payout google will get when these companies IPO and give Google exist liquidity and a nicer looking balance sheet, if needed, either or.

[JumpCrisscross]

> it depends on how you view the payout google will get when these companies IPO and give Google exist liquidity and a nicer looking balance sheet

Google has a fantastic balance sheet with or without these investments. None of the recent deals have uniquely enabled an IPO. So they'd be playing to increase their stakes' value by a few points ahead of a dump, a dump that would almost certainly wipe out much more than they'd stand to gain by trying to make someone else a dollar so they get nickels and dimes out of it.

[thundergolfer]

No a Ponzi scheme involves not output, but here there is very much output in the inference being sold by Anthropic. Pretty big difference.

[dualvariable]

If you were to treat all the hyperscalars as one company with one 10-K then Anthropic buying compute from SpaceX/xAI is an internal bookkeeping transfer between two departments. It isn't the same as top-line revenue into the AI companies. It is still mostly just financing money that Anthropic raised being transferred to SpaceX.

[JumpCrisscross]

> If you were to treat all the hyperscalars as one company with one 10-K then Anthropic buying compute from SpaceX/xAI is an internal bookkeeping transfer between two departments

This is literally true for any revenue. Treat the buyer and seller as a single company and their transaction is internal.

[dualvariable]

Because it is hiding the fact that there's very little external revenue coming into the AI sector compared to the costs. AI companies doing business with each other isn't net revenue into the sector. Treating the whole sector as a single entity isn't arbitrary.

[JumpCrisscross]

> it is hiding the fact that there's very little external revenue coming into the AI sector compared to the costs

There is a lot of revenue dumping into this sector. If there weren’t, you’d have a point about manufactured numbers. But I don’t think anyone seriously doubts Anthropic and Google are hauling in serious dough.

The question, as you point out, is how much they are keeping. But xAI selling compute doesn’t really hide any of that. If anything, given the prices Musk is getting, it adds to the cost line. (And xAI isn’t masking compute revenue as Grok’s.)

[dualvariable]

Hyperscalar capital spending for 2026 is going to be in the close neighborhood of $700B, which is over 2% of US GDP. That is about 3x the GDP spend of peak Apollo program in the 1960s, and about the same as the telecom/fiber buildout of the late 90s and the railroad buildout of the 19th century (both followed by a collapse). And there just isn't that much revenue coming into the system, and there aren't the productivity gains coming out of it. When 95% of corporate AI initiatives are still failing, the value proposition isn't there. And if you try to look at something like Microsoft's reported $37B in AI revenue a lot of that is really internal spend from leasing compute to OpenAI, which it partially owns. The real revenue coming into the AI industry is likely well under $100B this year, and the productivity gains to end consumers is likely much less. So if you think a few $10B/yr here or there is "serious dough", it just isn't enough to fill the gap. And OpenAI should burn through $14B this year, up by a factor of 3x over last year. Anthropic has a projected revenue for 2026 of $26B and is running around cash flow neutral, but that doesn't approach the $700B spending gap. And that is with accounting that depreciates GPUs on 5-6 year schedule instead of the more realistic 2-3 year schedule--so Anthropic may kick the can down the road a bit, but in 2-3 years they'll still be depreciating GPUs that they're throwing away and having to replace (of course this may be WHY Anthropic is leasing compute from xAI since then that accounting hit falls on xAI instead of Anthropic).

In 10 years, we probably will have $700B/yr in productivity gains and revenue from LLMs, but we're not going to be able to sustain $700B/yr in capital spending until we get there. And the problem is much worse than the fiber buildout of the late 90s. Fiber built out in 1998 was still usable 10 years later. The GPUs that are being built out today are going to be obsolete trash in 3 years.