"JPMorgan calculated last fall that the tech industry must collect an extra $650 billion in revenue every year — three times the annual revenue of AI chip giant Nvidia — to earn a reasonable investment return. That marker is probably even higher now because AI spending has increased."
That pretty much tells you how this will end, right there.
Nvidia invests $100bn in OpenAI, who buy $100bn of Nvidia chips, who invest the $100bn revenue in OpenAI, who buy $100bn in Nvidia chips, and round it goes. That's an easy $600bn increase in tech industry revenue right there.
Total US GDP is ~31 trillion, so that's only like 5%. I think it's conceivable that AI could result in ~5% of GDP in additional revenue. Not saying it's guaranteed, but it's hardly an implausible figure. And of course it's even less considering global GDP.
Yup. If you follow the links to the original JP Morgan quote, it's not crazy:
> Big picture, to drive a 10% return on our modeled AI investments through 2030 would require ~$650 billion of annual revenue into perpetuity, which is an astonishingly large number. But for context, that equates to 58bp of global GDP, or $34.72/month from every current iPhone user...
It's conceivable to us working in white collar knowledge jobs where our input and output is language. Will it also make 5% more homes built by a carpenter?
It is not a hardly implausible figure given the wide range of human economic activity, that's a common flaw in economic thinking when small percentages of huge numbers seem realistic ("my business plan is modest and will achieve a tiny 0.01% of the global market to become one of the biggest companies in the world, very plausible")
I’m sorry, but 5% of GDP is an absurd figure. You’re saying $1 out of every $20 that does anything in our economy should be on AI? That seems insane to me.
The tech industry going through a boom and settling back down at a higher place than before isn't the end of the world. They all start merging together soon.
I don't know how you can write down those numbers and come to the conclusion they sound reasonable at all. Corporations literally can't give this trash away for free without consumers being unhappy about it (eg. the Copilot malware infesting every aspect of Windows). ChatGPT had 800m MAU at one report, but that's a chat interface and free. Do you really believe over half of those users are going to convert from "free" to paying $60/mo for access to the chat interface, when all potential applications for actually improving their lives are failing badly? I think you are out of touch with the finances of non-tech-indsutry workers if you think they will.
No, they won't be. Inference costs will continue to drop, and subscription prices will follow as AI is increasingly commoditized. There are 6 different providers in the top 10 models on openrouter. In a commoditized market, there will be no $60/month subscriptions.
If I understood you correctly and my math is correct, your suggestions only cover 6% of 650 billion, the news is suggesting AI companies need more than 10x more. So either it's 5 billion people paying 60-80, or 500 million people paying 600-800/month, or something in between + a little extra.
> "must collect an extra $650 billion in revenue every year"
paired with the idea that automating knowledge work can cause a short-term disruption in the economy doesn't seem logical to me.
I find it funny that Microsoft is scaling compute like crazy and their own products like Copilot are being dwarfed by the very models they wish to serve on that compute.
If 1 or 2 of the 5 big spenders starts having big losses, things will be interesting. Their market caps will be a fraction of the current overinflated values.
Meanwhile Apple is only spending 1 billion a year to use Google's models.
That's not unreasonable, but if you can't do it without losing money then there's going be a problem.
The problem isn't that AI/LLMs can't be useful or generate revenue, the problem is still the cost. We're no where near production ready AI, it can sort of do coding and some medical stuff, but we're not at a level of technology where the potential is fully realized. How much are investors willing to pour into more research?
We looking at OpenAI contemplating ads and erotic chatbots. That's not a successful business who have those ideas for profit generation.
But who's going to be buying any of these products if everyone is out of a job? Other rich people?
Sure I assume there's a good market there, luxury yachts exist after all, but what is a company like Netflix going to do when people are too poor to even afford the streaming services that cost 10 bucks a month?
Not to get conspiratorial, but the only logical thing for me here is that They want as many of the plebs dead as possible so that the remainder of us are beholden to them and their money, once they own all the AI factories.
It's crazy to me how many flags are being thrown in this investment spree. Repeating the same mistakes as before (2000). Big companies will be hit hard when they can't show for what they spent shareholders money on. The run will be large and impactful.
If you analyze what's happening right now in the tech industry, you can't help but to think of something deeper than what's being talked about in plain sight. There is a clear panic amongst the large tech firms. the root cause of the panic is still unclear, simply saying these companies want to be the first in this new revolution isn't enough to draw conclusion. Amongst the top tech firms there still sits the original founders whom as we all know changed the way we live life today. Saying they are misunderstanding what's happening right now and they're are foolish, is to simple of an understatement. They of all people in the world would know it's a bad idea to go all in, in this manner. The underlying competing nature of this whether it has to do with China or other competing markets are not being talked about, and not just that " what exactly is the strategy here?"
The issue is that every company in a position to do so is trying to stake a claim in a new market. Not every company will win. No-one has a surefire way of identifying "mistakes" ahead of time.
What alternative do you think would work better, short of central planning?
I read "Devil Take the Hindmost: A History of Financial Speculation" last year, and the current AI bubble is like getting a front row seat to the next edition being written.
The really stupid bubbles end up getting themselves metastasized into the public retirement system, I'm just waiting for that to start any day now.
The question is not "is it a bubble". Bubbles are a desirable feature of the American experiment. The question is "will this bubble lay the foundation for growth and destroy some value when it pops, or will it only destroy value"
I run the numbers on hyperscaler AI capex and the math is not
going to work out.
With these assumptions:
– Big 4 keep spending at current pace for 3 more years
– Returns only start showing after aprox 2 years
– Heavy competition with around 20% operating margin on AI and Cloud
– Use of 9% cost of capital
This is the current reality:
AWS aprox $142B/yr
Azure aprox $132B/yr
Google Cloud around $71B/yr
Combined its about $330B to $340B annual cloud revenue today
And lets says Global public cloud market of $700B total today.
To justify the current capex trajectory under those assumptions, by year 3
the big hyperscalers would need roughly $800B to $900B in new annual revenue
just to earn a normal return on the capital being deployed.
That implies combined hyperscaler cloud and AI revenue going from:
$330B today to $1.2T within 3 years :-))
In other words...Cloud would need to roughly do 4× in a very short window,
and the incremental revenue alone would exceed the entire current global cloud market.
So for the investment wave to make financial sense, at least one of these must be true:
1 Cloud/AI spending globally explodes far beyond all prior forecasts
2 AI massively increases revenue/profit in ads, software, commerce and not just cloud
3 A winner takes all outcome where only 1 or 2 players earn real returns
4 Or a large share of this capex never earns an economic return and is defensive
People keep modeling this like normal cloud growth. But what we have is insanity
Azure revenue is growing at 39% year over year. If Microsoft can sustain this growth, in four years Azure will be ~3.73x its current size. This is of course very difficult, but you really don’t need a deus ex machina to hit 4x growth under your assumptions.
onion2k|22 days ago
DavidPiper|21 days ago
wiseowise|22 days ago
dickersnoodle|22 days ago
nosuchthing|22 days ago
https://www.teenvogue.com/story/rfk-wellness-farms-us-disabi...
rogerthis|22 days ago
scotty79|22 days ago
suhputt|22 days ago
zeroonetwothree|22 days ago
crazygringo|22 days ago
> Big picture, to drive a 10% return on our modeled AI investments through 2030 would require ~$650 billion of annual revenue into perpetuity, which is an astonishingly large number. But for context, that equates to 58bp of global GDP, or $34.72/month from every current iPhone user...
direwolf20|22 days ago
mykowebhn|22 days ago
eviks|21 days ago
blks|22 days ago
pier25|22 days ago
lowbloodsugar|22 days ago
nativeit|21 days ago
turtlesdown11|22 days ago
robotnikman|22 days ago
I only have a meme to describe what we are facing https://imgur.com/a/xYbhzTj
weavie|22 days ago
dmix|22 days ago
The tech industry going through a boom and settling back down at a higher place than before isn't the end of the world. They all start merging together soon.
butterlettuce|22 days ago
palmotea|22 days ago
I don't recognize that cartoon and there's no audio. I'm going to need help with that one.
the-wouter|22 days ago
[deleted]
WarmWash|22 days ago
The numbers actually work really well, (un)fortunately.
anonymous908213|22 days ago
9cb14c1ec0|21 days ago
ranguna|21 days ago
If I understood you correctly and my math is correct, your suggestions only cover 6% of 650 billion, the news is suggesting AI companies need more than 10x more. So either it's 5 billion people paying 60-80, or 500 million people paying 600-800/month, or something in between + a little extra.
jgalt212|22 days ago
wasmainiac|21 days ago
> Something they find as indispensable as a cell phone or internet bill.
Source?
rishabhaiover|22 days ago
I find it funny that Microsoft is scaling compute like crazy and their own products like Copilot are being dwarfed by the very models they wish to serve on that compute.
kristianp|22 days ago
Meanwhile Apple is only spending 1 billion a year to use Google's models.
raincole|22 days ago
mrweasel|21 days ago
The problem isn't that AI/LLMs can't be useful or generate revenue, the problem is still the cost. We're no where near production ready AI, it can sort of do coding and some medical stuff, but we're not at a level of technology where the potential is fully realized. How much are investors willing to pour into more research?
We looking at OpenAI contemplating ads and erotic chatbots. That's not a successful business who have those ideas for profit generation.
Revenue is pointless without eventual profit.
echelon|21 days ago
If you take half the software engineers in the US and replace them with AI, you're halfway there. And why stop with software?
There's a reason for the fervor and excitement of these companies.
The positive outlook is that you don't fire folks - they have even more work to do. But we'll see how it pans out in practice.
sensanaty|21 days ago
Sure I assume there's a good market there, luxury yachts exist after all, but what is a company like Netflix going to do when people are too poor to even afford the streaming services that cost 10 bucks a month?
Not to get conspiratorial, but the only logical thing for me here is that They want as many of the plebs dead as possible so that the remainder of us are beholden to them and their money, once they own all the AI factories.
throw_llm|22 days ago
glouwbug|21 days ago
mahirsaid|22 days ago
mahirsaid|22 days ago
antonvs|22 days ago
The issue is that every company in a position to do so is trying to stake a claim in a new market. Not every company will win. No-one has a surefire way of identifying "mistakes" ahead of time.
What alternative do you think would work better, short of central planning?
tototrains|21 days ago
The economics are not all in profit.
mullingitover|22 days ago
The really stupid bubbles end up getting themselves metastasized into the public retirement system, I'm just waiting for that to start any day now.
chasd00|22 days ago
Not sure what you mean exactly but every single 401k is tied into this.
tempodox|21 days ago
It seems so blatantly obvious, yet nobody wants to listen, and practically everyone knows better. We live in interesting times.
kryogen1c|22 days ago
https://www.oaktreecapital.com/insights/memo/is-it-a-bubble
rubenflamshep|22 days ago
toomuchtodo|22 days ago
eli_gottlieb|22 days ago
No they're not. You don't get to decide what other people desire.
themafia|22 days ago
Wild speculation detached from reality which destroys personal fortunes are not "a desirable feature."
It's only a "desirable feature" to the nihilistic maniacs that run the markets as it's only beneficial to them.
belter|22 days ago
With these assumptions:
– Big 4 keep spending at current pace for 3 more years
– Returns only start showing after aprox 2 years
– Heavy competition with around 20% operating margin on AI and Cloud
– Use of 9% cost of capital
This is the current reality:
AWS aprox $142B/yr
Azure aprox $132B/yr
Google Cloud around $71B/yr
Combined its about $330B to $340B annual cloud revenue today
And lets says Global public cloud market of $700B total today.
To justify the current capex trajectory under those assumptions, by year 3 the big hyperscalers would need roughly $800B to $900B in new annual revenue just to earn a normal return on the capital being deployed.
That implies combined hyperscaler cloud and AI revenue going from: $330B today to $1.2T within 3 years :-))
In other words...Cloud would need to roughly do 4× in a very short window, and the incremental revenue alone would exceed the entire current global cloud market.
So for the investment wave to make financial sense, at least one of these must be true:
1 Cloud/AI spending globally explodes far beyond all prior forecasts
2 AI massively increases revenue/profit in ads, software, commerce and not just cloud
3 A winner takes all outcome where only 1 or 2 players earn real returns
4 Or a large share of this capex never earns an economic return and is defensive
People keep modeling this like normal cloud growth. But what we have is insanity
coffeemug|22 days ago
johnvanommen|22 days ago
You’re ignoring the fact that gaming is going to the cloud.
That industry is bigger than Hollywood.
Desktop computers will invariably follow.
The RAM shortage will drive the transition.
For instance, my wife uses her personal laptop about four days a year.
People like that won’t be buying personal desktops or laptops, five years from now. The RAM shortage will drive a transition into thin clients.
I already see it with our kids. They use an iPhone, unless they need to type. Then they use an iPad with a BT keyboard.