Comment by MAXPOOL

6 hours ago

Things you are not supposed to talk about:

- There is no "moat" (lasting, easy-to-defend technological edge) in AI model businesses. There are just short-term advantages.

- An AI business is a capital-intensive business, just like old factories. Data centers are expensive, models are energy-hungry, and the hardware inside must be replaced every 3–4 years.

- Smaller, specialized models eat margins from below. Transcription, voice, or image detection do not need large models.

There is no reason to expect high margins like you can in traditional software business. Benefits of AI go mostly to consumers.

edit: There is potential for economies of scale. Few megacorps can strive for cost advantage when they achieve scale (Microsoft, Google, Amazon and Meta)

3 comments

MAXPOOL

Reply
twoodfin  5 hours ago

All true.

It does seem like the structural characteristics we’ve observed so far suggest there is a kind of flywheel from short-term to long-term advantage due to the capital requirements at various levels.

If you’re Nvidia, making the best GPUs today, the expanding wavefront of demand is consuming them with volume and margins to give you a huge edge in building out the best next generation of GPUs. Similar to how the mobile wave gave TSMC sustained advantage for about a decade now.

I’m guessing this is also what we’re seeing as Anthropic and OpenAI swap spots in the token-vendor market.

  • DrScientist  1 hour ago

    I can see the fly wheel in action for Nvidia[1], but in terms of model building - I think the companies that have the advantage here are not Anthropic or OpenAI, but rather companies with substantial revenues from other sources - Google is the obvious player here - reported to be planning on spending 185 billion this year without having a raise a dime from the markets, but there are plenty of other companies - like Meta or Alibaba who can easily fund the longer game from existing revenues.