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by Schiendelman 20 days ago
I don't agree it's going to break these companies; they are all capable of paying their debt service. The reason this was an issue in mortgages was that the mortgages were adjustable rate - the borrowers were defaulting when the rates adjusted because they weren't able to pay the new rates. I'm not aware of any financial instruments for these AI companies that would balloon like this.
1 comments
combilabs 20 days ago
The article addresses the mechanism in the "How It Breaks" section. The problem lies in the interconnected contracts, not debt financing. If OpenAI cannot get new financing, it will have to cut costs, and one of its big costs are forward compute commitments it will have to break. Those commitments are a significant share of revenue for other companies like CoreWeave and Oracle, so if OpenAI has to cut significantly, it will be crippling to those companies. They in turn have commitments to suppliers like Nvidia, and on down the line the losses propagate, with corresponding drops in equity values in the sector which are extremely growth sensitive. Just as the same dollar showed up in the correlated revenue on the way up, so will the same dollar show up in the correlated losses on the way down. That's the balloon effect here.
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Schiendelman 20 days ago
I'm extremely unconvinced. The article didn't at all address what OpenAI would really do if they couldn't get new financing. They'd sell the contracts for some of that compute to the fifty other companies desperate for it. With supply constrained, they'd likely make money on those sales, and there'd be little or zero downstream impact.
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combilabs 19 days ago
>They'd sell the contracts for some of that compute to the fifty other companies desperate for it.

And if OpenAI were an isolated case, that might be all there is to it. But the whole point of the article is that it isn't isolated. So if OpenAI can't raise the money to execute on those contracts, it's unlikely that another AI company will have the spare cash to buy them at anything like full value. Remember, everyone in that market is riding the same second derivative. OpenAI is just a bellwether.

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aka-rider 20 days ago
What will be the price? GPUs costs are x3, memory and SSD x5.

When OpenAI will be looking to sell and everyone knows it, the price would be x0,7 for depreciated used hardware or go bankrupt yourself.

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Schiendelman 19 days ago
The scenario we're discussing is "if OpenAI can't find sufficient additional financing."

It looks like you want to discuss "if prices and demand drop", which would be a different scenario, which I do not believe is likely in the same timeframe barring some separate economic meltdown.

In today's world, the selling price would likely be an increase over what OpenAI paid. This isn't selling hardware, it's selling contracts for future hardware. It's basically futures trading.

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