Comment by rapsey
2 days ago
The most interesting point about OpenAI I have heard lately is they are literally trying to make themselves too big to fail. If they go down so does everyone else, which explains all those strange deals with everybody and the comment from their (cfo?) about being backstopped by the gov.
> trying to make themselves too big to fail
this is super overblown. what their executive said was that eventually the scale of compute required is so large, that it requires not only investing in new DCs, but new fabs, power plants, etc, which can only happen if there is implicit government support to guarantee 10+ year investment horizons required for the lower level of capital investment. that is not controversial at all and has nothing to do with OpenAI specifically being too big to fail.
If OpenAI fails, they could potentially bring in their downfall the major cloud providers who invested in hardware for them, expecting that it would pay-off over time.
Only Oracle went into debt to fund this expansion, and may well die. The rest of the cloud oriented mag7 used cash, can afford to write it off, and will continue being monopolies unimpeded.
'Potentially' but we are nowhere close to this. Hyperscalers print a _lot_ of money they can afford to lose. Even Nvidia wouldn't be in too much trouble yet. (The pure LLM companies are already toast, IMHO).
I don't see a world where there is such a catastrophic failure, unless someone comes up with a significantly more efficient architecture.
We're barely scratching the surface of the utility of LLMs with today's models. They aren't more pervasive because of their costs today, but what happens if they drop another order of magnitude with the current capabilities?
Oh no not the Cloud!
This seems accurate, and plausibly the only way out. The biggest issue I see here is that in this case... the greed might topple a government
Hot take: a flagship silicon valley startup built on hype and overzealous ambition crashing and burning in 2026 is exactly what the industry needs right now.
> If they go down so does everyone else
What does that even mean?
Let's say OpenAI signed a commitment contract that they agreed to spend XXX USD in your company over N years. You invest in infrastructure, your contractors sometimes take loans, the construction companies take loans. Countries / Funds lend money to such companies (example: Saudi Arabia fund), these funds themselves raised debt, it can quickly spiral down.
If OpenAI fails, wouldn't their customers just move to other AI providers? So the total hardware demand by AI companies wouldn't dramatically change over a reasonable time frame?
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Similar to certain banks in 2007/2008, the idea would be “so much investment is tied to one company that if that company went bankrupt, it could have consequences for the broader economy”
The thing is, it is not 2007/2008 any more. The US government is holding record amounts of debt and countries around the world are now trying to become independent of it. This includes its bond markets on which the dollar relies upon to give it its reserve currency status, which in turn is what gives it its power to print money and bail industries out. If something happens that requires Big Tech to be bailed out and international bond holders decide the US is no longer reliable, it could very well end up triggering the collapse of the US dollar as the world's reserve currency and the downfall of the US as we know it.
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In terms of the stock market since without AI thw US would be in a recession.
The stock market will lose faith in AI companies, which will crash the stock price of Google, Microsoft, Oracle, Nvidia and CoreWeave. Investors will lose billions, many of those investors are pension funds. Any AI projects that aren't already profitable will shutdown.
And, because AI is currently what prevents the US economy from being in a recession (at least that what some people speculate), the US economy will stumble, which means that everyone else will to.
Yeah. Look at how the S&P 493 are doing! :/
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Is it unclear? Compared to other times a "too big to fail" industry failed?
If OpenAI crashes, for example funding stops, they go broke, fall behind, nobody buys anything, then all the money they invested for data centers or demand they created for NVIDIA chips and compute collapses. That creates surplus of hardware, causes lots of construction/buildout / stockup orders to get cancelled, and the whole thing ripples as suppliers and construction and data center providers etc etc suddenly lose a ton of anticipated profits.
Share prices drop as people dump to protect their portfolios, anticipating dips in the prices because share prices will drop as people dump to protect their portfolios (I'm not kidding).
Given that the big 7 AI companies are basically _all_ of the market growth lately, it doesn't even take a serious panic / paranoia episode to see the market itself stagnate or significantly regress, as people pull from anything AI related, and then pull from the market itself anticipating the market will fall.
It's a fairly standard playbook at this point.
That's different from saying that boeing is too big to fail for example. The US can't accept to lose its only major commercial aircraft manufacturer. Or Intel for similar reasons.
But what you're describing is about keeping the AI bubble from popping. Can a bubble really be too big too fail?
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