Comment by glimshe
9 days ago
There's clearly easy/irrational money distorting the markets here. Normally this wouldn't be a problem: prices would go up, supply would eventually increase and everybody would be okay. But with AI being massively subsidized by nation-states and investors, there's no price that is too high for these supplies.
Eventually the music will stop when the easy money runs out and we'll see how much people are truly willing to pay for AI.
Regardless where demand comes from, it takes time to spin up a hard drive factory, and prices would have to rise enough that, as a producer, you would feel confident that a new hard drive factory will actually pay off. Conversely, if you feel that boom is irrational and temporary, as a producer you’d be quite wary of investing money in a new factory if there was a risk it would be producing into a glut in a few years.
I'll add that the GPU, CPU, storage, and RAM industries crashed in 2022 after a Covid-induced boom.[0]
Everything was cheap. Samsung sold SSDs at a loss that year.
TSMC and other suppliers did not invest as much in cap ex in 2022 and 2023 because of the crash.
Parts of the shortage today can be blamed by those years. Of course ChatGPT also launched in late 2022 and the rest is history.
[0]www.trendforce.com/presscenter/news/20221123-11467.html
I bet the same thing happens when the AI bubble pops.
"but this time is different, it's not a bubble, there's real value there"
Economists use the term “bubble” to describe an asset price that has risen above the level justified by economic fundamentals, as measured by the discounted stream of expected future cash flows that will accrue to the owner of the asset.
I think there's little argument that is happening, the question is more about to what extent is it a bubble.
The entire global software industry is worth less than $1 trillion dollars. Or in other words smaller than the current valuation of just OpenAI + Anthropic.
Planned capital investment this year by the Magnificent 7 alone is $600B. More than 2/3 of the total global software industry. In one year. Good luck buying any computer hardware this year, there will be a shortage of everything, including electricity.
It's a bubble. But when does the music stop?
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https://www.trendforce.com/presscenter/news/20221123-11467.h...
You act like this wasn't just the same as it has always been.
It's always been cycles of cheap production and then human created demand or catastrophes to reduce supply and increase prices back up again.
If I remember during a previous GPU shortage (crypto?), Nvidia (and/or TSMC?) basically knew the music would stop and didn't want to be caught with its pants down after making the significant investments necessary to increase production
Not to mention that without enough competition, you can just raise prices, which, uh (gestures at Nvidia GPU price trends...)
Similar thing happened with mask manufacturers during COVID.
They didn't spin up additional mask production b/c they knew the pandemic would eventually pass. They learned this lesson from SARS.
Not maxing out production during spikes (or seasonality) in demand is a key tenet of being a "rational economic actor".
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I believe the TSMC CEO said that in a recent interview. They're aware that their now biggest customer Nvidia has a less broad product portfolio than Apple and the high volumes they buy propably won't last. It's too much of a risk to plan more Fabs based on that.
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Somewhat ironically the AI boom means Nvidia would've easily made their money back on that investment though and probably even more thoroughly owned the GPGPU space.
But as it is it's not like they made any bad decisions either.
You're talking about how higher prices can motivate higher supply. The parent commenter was talking about how higher prices shift the current point on the demand curve to the right. If hard drives sold for $1 billion per gigabyte, we wouldn't see even AI companies buying as many as they are, and current production would go idle. Even assuming supply is locally inelastic (as it is given no time or space to scale, or given a lack of confidence that scaling is wise), you should be able to find a price point that avoids supply shortages by manipulating demand.
Thus far, we've not found that point.
> it takes time to spin up a hard drive factory
Very good.
The problem with this expectation of usual market behavior is that demand from AI will still be unsatisfied even after buying out the current providers' whole supply, so any new manufacturer entering the market will also prioritize high-paying AI companies above consumers.
Sure - the question is how long they can remain high-paying.
Looks like all the money reserves big companies have been sitting on are gone. Circular money deals are in full swing & now it looks like some companies are now looking for loans.
Not sure how much longer this can go on until it comes crashing down.
Are these factories already running 24/7 that labor can't be added to make more without adding capital infra?
And if they were running 24/7, maybe setting up another factory or line will avoid some of the 24/7 scheduling.
As far as I know, the lithography machines are indeed running 24/7 (barring servicing).
https://www.asml.com/en/products/customer-support
No it’s not an easy fix. Manufacturers don’t have a good pulse on long term demand. The he capex to spin up a new manufacturing plant is significant. Especially with the recency of Covid where some folks did get caught with their pants down and over invested during the huge demand boom.
I don’t quite follow the narrative like yours about nation states and investors. There is certainly an industrial bubble going on and lots of startups getting massive amounts of capital but I here is a strong signal that a good part of this demand is here to stay.
This will be one of those scenarios where some companies will look brilliant and others foolish.
Smart manufacturers will sell 'hard drive futures'. Ie. "Give us $100/drive now for 100k drives for delivery in march 2028".
These contracts are then transferrable. The manufacturer can start work on a factory knowing they'll get paid to produce the drives.
If the AI boom comes to an end, the manufacturer is still going to get paid for their factory, and if the AI company wants to recoup costs they could try to sell those contracts back to the manufacturer for pennies on the dollar, who might then decide (if it is more profitable) to halt work on the factory - and either way they make money.
That only works out if there are enough investors willing to pay for those futures. If the new factory can make a billion drives but they only have 2 of those futures contracts sold (that is 200k drives) they don't build the factory. Remember too if they sell those contacts they are on the hook to deliver - if it is just investors they will accept the street value of 100k drives in 2028 but some of the people might be buyers demanding physical goods.
Every year a few farmers realize they are contracted to deliver more grain than they have in their bins and so have to buy some grain from someone else (often at a loss) just to deliver it. This isn't a common problem but it happens (most often the farmer is using their insurance payout to buy the grain - snip a very large essay on the complexities of this)
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Can you provide some solid examples of companies doing this in an industry with high capex? Yes futures exist but largely in commodity businesses. Because what you described sounds more like pre-purchase agreements which already exist. To have a futures market you would need investors and a product that is more of a commodity and not something highly engineered.
You are also forgetting that the payback period on a plant is not a single year, it will be over many years and most likely no buyer is wanting to arrange purchasing that far out.
I don’t see how what you described sounds is set in reality even for “smart manufacturers”.
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> Normally this wouldn't be a problem: prices would go up, supply would eventually increase and everybody would be okay.
This sounds like economic dogma based on pointing at some future equilibrium.
I like the saying that goes something like "life is what is happens when you are waiting for the future". In the same way, it seems to me that equilibrium is increasingly less common for many of us.
Markets are dynamic systems, and there are sub-fields of economics that recognize this. The message doesn't always get out unfortunately.
> But with AI being massively subsidized by nation-states and investors, there's no price that is too high for these supplies.
This feels like more dogma: find a convenient scape-goat: governments.
Time to wake up to what history has shown us! Markets naturally reflect boom and bust cycles, irrationality of people, and various other market failures. None of these are news to competent economists, by the way. Be careful from whence you get your economic "analysis".
Yes, this is why the prices of housing has dropped dramatically. The market stepped up and filled the demand needed and now everyone can afford a place to live
.....
The housing market is a textbook example of the opposite of a free market. In most markets, anything that does not "improve the character of the neighbourhood" is impossible to build by design.
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I can't tell if the comment is above is sarcastic or serious: it could go either way.
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> Eventually the music will stop when the easy money runs out and we'll see how much people are truly willing to pay for AI.
Cheap hard drives and ram, yay! Perhaps GPUs too!
You wish. More likely all that data center capacity will be used to sell something as nefarious, like VDI for the masses. You won't need RAM, disk and GPUs when you can rent those from OpenVDI.
It's hard to increase long-run production capacity for what seems to be clearly a short-term spike in datacenter buildout. Even if AI itself is not much of a bubble, at some point spending on new AI facilities has to subside.
This is what a business cycle looks like.
Seeing the first mover succeed, every Tom, Dick and Harry wants to emulate. It distorts the price because people would pay premium for everything. Then there is surplus supply and no takers. People are caught with their pants down and things go for cheap.
This repeats ad nauseum. Whether it was building ISPs during early 2000s or the abundance of streaming service where every media company wanted one. Just because the corporate overlord doesn't want to look foolish for not following a trend.
AI is going to be what fiber was to the dotcom bubble. Someone spend a lot of money on a lot of infrastructure, some of which is going to be incredibly useful, but sold for much less than it cost to build. Hardware just depreciates much much faster than fiber networks.
I'm not saying that data center buildouts can't overshoot demand but AI and compute is different than fiber buildout. The more compute you have, the smarter the AI. You can use the compute to let the AI think longer (maybe hours/days/weeks) on a solution. You can run multiple AI agents simultaneously and have them work together or check each other's work. You can train and inference better models with more compute.
So there is always use for more compute to solve problems.
Fiber installations can overshoot relatively easily. No matter how much fiber you have installed, that 4k movie isn't going to change. The 3 hours of watch time for consumers isn't going to change.
Did you pay attention in computer science classes? There are problems you can't simply brute-force. You can throw all the computing power you want at them, but they won't terminate before the heat-death of the universe. An LLM can only output a convolution of its data set. That's its plateau. It can't solve problems, it can only output an existing solution. Compute power can make it faster to narrow down to that existing solution, but it can't make the LLM smarter.
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You can't really use compute more because power is already the bottleneck. Datacenter buildouts are now being measured in GW which tells you everything you need to know. Newer hardware will be a lot more power-efficient but also highly scarce for that reason.
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current shortages are exactly the result of fabs not wanting to commit extra capex due to overbuild risk and inference demand seems to be growing 10x yoy; you've famously got 8 year old TPUs at google at 100% load.
The manfucaturing capacity expanded to meet the demand for new hardware doesn't (as much)
But if the demand drops for six months, the manufacturers are going to scale back production.
If it drops for a year, they're likely to start shedding capacity, one way or another.
This is not an equivalent situation. The vast, vast majority of what's being produced for this bubble is going to be waste once it pops.
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This goes beyond profits. It will be important for national security.
No, I think it is real demand.
AI will cause shortages in everything from GPUs to CPUs, RAM, storage, networking, fiber, etc because of real demand. The physical world can't keep up with AI progress. Hence, shortages.
AI simply increases computer use by magnitudes. Now you can suddenly use Seedance 2.0 to make CGI that would have cost tens of millions 5 years ago for $5.[0] Everyone is going to need more disk space to store all those video files. Someone in their basement can make a full length movie limited only by imagination. The output quality keeps getting better quicker.
AI agents also drastically increase storage demands. Imagine financial companies using AI agents to search, scrape, organize data on stocks that they wouldn't have been able to do prior. Suddenly, disk storage and CPUs are in high demand for tasks like these.
I think the demand for computer hardware and networking gear is real and is only the beginning.
As someone who is into AI, hardware, and investing, I've been investing in physical businesses based on the above hypothesis. The only durable moats will be compute, energy, and data.
[0]https://seed.bytedance.com/en/seedance2_0
> The only durable moats will be compute, energy, and data
"Compute" is capital investment; normal and comprehensible, but on a huge scale.
"Data" is .. stolen? That feels like a problem which has been dodged but will not remain solved forever, as everyone goes shields-up against the scrapers.
"Energy" was a serious global problem before AI. All economic growth is traded off against future global temperature increases to some extent, but this is even more acute in this electricity-intensive industry. How many degrees of temperature increase is worth one .. whatever the unit of AI gain-of-function is?
> All economic growth is traded off against future global temperature increases to some extent, but this is even more acute in this electricity-intensive industry. How many degrees of temperature increase is worth one .. whatever the unit of AI gain-of-function is?
The premise here is that if we use more electricity then we burn more carbon. And the media hates AI, so if anybody restarts any coal-fired power plant to run a data center anywhere, that's the story. But then there's this:
https://electrek.co/2026/01/28/eia-99-of-new-us-capacity-in-...
Nobody actually wants coal because solar is cheaper.
And data centers are a pretty good combination for this because the biggest problem with solar and wind is what to do during multi-day periods of low generation, but data centers have backup generators and would be willing to turn them on whenever the cost of grid power is higher than the cost of operating them. Running some gas turbines for a week every two years in exchange for stabilizing the grid and being able to run on renewable power for the other 103 weeks is a pretty good outcome for everybody, not least because that amount of grid stabilization would exceed their consumption, i.e. allow more renewables to be added to the grid than they're using. If they can shed 1GW of load when a 2GW (long-term average) solar farm is generating at 50% of typical capacity for a week, you can add that 2GW of solar to the grid and remove 1GW of fossil fuels even while the data center is increasing consumption by 1GW.
> How many degrees of temperature increase is worth one .. whatever the unit of AI gain-of-function is?
Billionaire. And they are definitely willing to make the trade.
one.. fully autonomous, self improving, replicating, general intelligence.
The question isn’t if the demand is real or not (supplies are low, so demand must exist). The question is if the demand curve has permanently shifted, or is this a short-term issue. No one builds new capacity in response to short term changes, because you’ll have difficulty recouping the capital expense.
If AI will permanently cause an increase in hard drives over the current growth curve, then WD, et al will build new capacity, increasing supply (and reducing costs). But this really isn’t something that is known at this point.
My post argues that the demand has permanently shifted.
By the way, plenty of people on HN and Reddit ask if the demand is real or not. They all think there's some collusion to keep the AI bubble going by all the companies. They don't believe AI is that useful today.
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I wonder if I'm alone in being optimistic about this. I believe that the gigantic inflow of money into hardware will lead to large increase in production capabilities, accelerated progress and perhaps even new, better architectures.
I actually agree: a spike in prices due to bumping against capacity limits is way better than a downturn in the market. But this is only really true if AI hyperscalers are incented to space out their big buildouts over time (while raising their prices enough to ration current demand) so that suppliers can have some guarantee that their expanded capacity will be used.
This fact never ceases to amaze me. It's so cool how relentlessly AI is pushing the horizons of our current hardware!
Maybe now we will start to see the "optical" CPUs start to be a thing. Or the 3D disk storage,;or other ground breaking technology.
Optical interconnect in the rack is a thing already. It's just a matter of time until it moves to single-PCB scale. And most persistent memories (competing with DDR memory for speed, and with far lower wearout than NAND) are of the "3D storage" type.
> AI will cause shortages in everything from GPUs to CPUs, RAM, storage, networking, fiber, etc because of real demand.
Real demand, sure, I agree, but maybe not retail or business demand; at the moment the "demand" is entirely VC demand.
It's a really distorted market which is to be expected in any bubble/hype phase. The current retail/business demand doesn't appear to exist at the price point these investments require - even at the low low cost of "free, gratis and for nothing", not enough consumers and businesses are signing up.
The ones really going all-in on AI are the slop-producers. I dunno if slop is enough to pay back the investment into AI - I mean, even the slop producers are going to realise that paying $200/m to produce something in 1/10th of the time is a race to the bottom because someone else on the same plan is going to do the same, but cheaper.
> The physical world can't keep up with AI progress. Hence, shortages.
I think the word "progress" is inaccurate there - the physical world supply product at the demand maintained by VC's money.
It's not "cannot keep up with progress", it's "cannot keep up with demand from VCs".
> The only durable moats will be compute, energy, and data.
That'll be a first :-) Physical commodities have never been moats on their own before.
AI's output is not reproducible. It's a disaster.
If we want reproducible output we already have conventional software. Stop using a hammer on screws.
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So it's like humans then
This is wrong for all LLMs which have a temperature setting.
And even if there were guaranteed to be non-deterministic, there is still lots of value in many aspects of content generation.
> Normally this wouldn't be a problem: prices would go up, supply would eventually increase
Sounds right
> there's no price that is too high for these supplies.
Are you saying even higher prices won't increase supply? I don't understand.
A comment above yours clearly explains why:
https://news.ycombinator.com/item?id=47034480
Earlier gamers got punished by crypto and now they are being punished by AI.
"Punished" implies a moral valence to the whole thing which isn't there. It's not like the AI companies were aware of gamers and set out to do this. You simply got run over, like everyone else in front of the trillion dollar bulldozer.
"Don't make the mistake of anthropomorphizing Sam Altman. The lawnmower doesn't hate you"?
So what?
Why gamers must be the most important group?
Gamers are important because they are consistent customers. Crypto buying of GPUs is done (anyone still in this area is buying ASICs). Meanwhile gamers are still buying GPUs - they do sometimes hold off when the economy doesn't allow, but you can trust that gamers will continue to buy GPUs to play their games and thus they are a safe investment. It is rational to sell CPUs to a gamer for much less than someone in crypto because the gamer will be back (even if the gamer "grows up" there are more replacing them). Thus gamer is an important group while crypto is not.
The above was their prediction during the crypto boom and it turns out correct. I'm not sure how AI will turn out, but it isn't unreasonable to predict that AI will also move to dedicated chips (or die?) in a few years thus making gamers more important because gamers will be buying GPUs when this fad is over. Though of course if AI turns out to be a constant demand for more/better GPUs long term they are more important.
Gamers are not the only important GPU market. CAD comes to mind as another group that is a consistent demand for GPUs over the years. I know there are others, they are all important.
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I think they're just a proxy/alias for 'state-of-the-art personal computing'.
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I’d rather prefer that the average Joe has a good entertainment system than our corporate overlords has a good surveillance system.
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GPUs before crypto had a lot less amount of VRAM. Crypto investment funded a lot of stupid experiments, of which some did stick to the wall. I don't think gamers had lives completely ruined by crypto in the end.
Crypto didn't need vram did it? It was just about hash rate no?
Besides, a 1080 had 8GB, a 5080 has 16GB. Double in 10 years isn't ground breaking. The industry put VRAM into industrial chips. It didn't make it to consumer hardware.
What games have had to deal with instead is inference based up-scaling solutions. IE using AI to sharpen a lower rest image in real time. It seems to be the only trick being worked on at the moment.
I can't think of anything useful crypto did.
Higher price encourages more supply. Typically when you see a acute shortage, its quickly followed by a glut as supply starts coming online in an over correction.
These factories take years to make and massive amounts of money. That and there are so few manufacturers now they are far more likely to collude
The quote was from the screenwriter he never said it.
Loved the reference. Probably from Margin Call[0]
0. https://youtu.be/fij_ixfjiZE
I like to imagine the reference in the movie margin call is that of a merry go round or a game of Musical chair. Like we are all on a ride, none of us are the operator, and all we can do is guess when the music will stop (and the ride ends).
The problem with this AI stuff is we don't know how much we will be willing to pay for it, as individuals, as businesses, as nations. I guess we just don't know how far this stuff will be useful. The reasons for the high valuation is, in my guess, that there is more value here than what we have tapped so far, right?
The revenues that nVidia has reported is based on what we hope we will achieve in the future so I guess the whole thing is speculation?
TBF, all financial market is speculation these days, what only change is the figure/percentage of how much a share is actually the value it's priced.
> The problem with this AI stuff is we don't know how much we will be willing to pay for it, as individuals, as businesses, as nations. I guess we just don't know how far this stuff will be useful. The reasons for the high valuation is, in my guess, that there is more value here than what we have tapped so far, right?
I think the value now comes on how we make a product of it, for example, like OpenClaw. Whether we like or not, AI is really expensive to train, not only in monetary value but also in resources, and the gains have been diminishing with each “generation”. Let's not forget we heard promises that have not been fulfilled, for example AGI or “AI could potentially cure cancer, with enough power”.
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I think AI companies are involving these other industries so when the money runs out they will claim the whole thing is too big too fail.
By buying flash and thus shifting demand to HDD? How does that work?
The article doesn't mention flash or HDD. It seems that all storage by WD is already sold.
My point is that directly or indirectly all hardware companies depend on memory and storage. If AI companies fall this could have repercussions to the whole industry.