- anthropic IPO repricing
- pareto frontier gap decreasing by the month between open and closed models
- SpaceX disappoinment
- enterprise buyers as main consumers of closed tokens are being displaced by OS competition for pennies
- job loss and entry level hiring collapse
- massive discounts of current data center contract debt
- consumer open weights model efficiency improving constantly
- the Chinese arms race
- a possible rapid downward spiral that may force governments to step in and subsidize
Am I missing anything?
- margins shrinking at Anthropic
- Google getting thwacked by missed earnings
- OpenAI missing funding target
- price war
- Microsoft revising capex projections down
- Plateauing of model capability improvement
What's weird to me is that you don't see a lot of people making deals that seem way too good to be true but yet the total numbers are absolutely gigantic. Throw on the fact that the stranded assets will have a shelf life, it really seems terrifying. Yet everything is being priced as pretty darn risky. I think maybe there can be a big slowdown without a dramatic pop. A sort of grind down. But there's not a lot of room for error to prevent a pop so I guess it will happen? I don't know its very weird.
Also of course this is all predicated on models not making another dramatic leap. The signals out of the cutting edge labs don't really suggest they have a model that would be as dramatic of a leap as Mythos was when it came out in the hopper. Their code quality seems about as mediocre as what the publicly available models can do. The OpenAI math results are very impressive but that's ripe picking for AI. Also they keep talking about a coordinated training slowdown which is textbook antitrust so they seem to want the government to force their hands off the "spend money on R&D" button.
So I don't really know. I guess I would say purely on vibes that this doesn't feel like a bubble but the size of the build out is just so massive that there really isn't a big window for a success case.
In that context I don’t think I’d describe 10% as “high risk.”
So maybe it's not high risk enough for you, but it is definitely high risk enough for the market.
But the best approach is just comparing rates. Go to https://archive.epa.gov/epawaste/nonhaz/municipal/web/pdf/bo... , and you will see a huge list of companies whose bonds are classified by armies of analysts as "less risky" than these 10% Anthropic bonds. Is Anthropic less risky than AT&T, or BP, or Firestone Tire & Rubber Co? The market says "no".
currently US long term bonds have very low yield and are being issued less as usual buyers move to gold/stock -- trust in US gov. has eroded especially in fiscal matters. The budget keeps growing, interest rates are still too low to combat inflation and debt is ever-expanding, without drastic measures taken to stabilize the situation: thus, high bond yield - we pay you premium to have at least someone buy it due to trustworthiness not being the sole attractor anymore
This is what keeps me up at night. That fiber that got overbuilt in 1999 is still there spitting photons. That Vera Rubin gathering dust on a shelf will be a paperweight in 5 years.
Why is this? Competing on price, or compute somehow getting more expensive?
Anthropic has no value proposition - just being 3-6months ahead in frontier models vs. open-weight doesn't justify trilion dollar valuation.
My company buys Claude because it’s a trusted name with a user-friendly interface and integrations with a lot of business apps.
This “open weight models will take over based on price” is analogous saying that Linux and LibreOfficr will displace Windows and Microsoft Office in the workplace because they’re drastically cheaper.
Another analogy is that people talk a lot about the resurgence of audio CDs, but if you look at sales numbers it’s about 4% of peak audio CD sales from the year 2000. Sometimes in society a trend is more that people keep saying that a trend is happening rather than a trend is really happening.
> I'm not convinced the AI bubble exists
You're arguing against the bubble popping. So you agree the bubble exists?
On what are you possibly basing this? The fact that there hasn't been a new model release in 6 weeks?
Opus 5.5 is capable of completing very long running tasks and managing many threads of work with subagents without getting confused in a way that simply wasn't possible before.
Opus 5 vs. 5.5 is a clear stepup.
Problem is, you need to do a diverse set of experiments to recognize it. Blender support got relevant better,t he amount of corrections got less etc.
You can now have a model work on a task non-stop for a day or more. This was unthinkable 12 months ago, and unstable 6 months ago.
If you are searching for evidence of capability, just look at the amount of projects, blog posts and videos on game remixes, hardware reverse engineering, new compilers and runtimes that has started coming out in the last 6 months. Slop? Sure, but this kind of slop didn't exist at this level 6 or 12 months ago.
https://dealroom.co/news/169124-revolut-moves-2-000-engineer...
Two things:
1) it requires a massive money pit to make that compute worth anything
2) it requires charging a premium price
To compare to two previous bubbles; railways in the UK and USA.
running trains was really quite cheap and engines weren't expensive per passenger served. Compared to stage coaches, the number of staff needed was < 50%. the Massive fucking problem was that it needed GDPs worth of money to make the railway in the first place. Moreover as more railways were put in it significantly altered profitably of railways near them. Lines that were there for produce moving suddenly lost profitably because the produce they were moving fell out of fashion
That was true a quarter ago, when Elon still wasn't charging them. Now that he is they're making about $0.96 for ever $1 of compute.
It looks like the end goal of replacing labor by capital is working.
> pareto frontier gap decreasing by the month between open and closed models
We need a temporary moratorium on the words "pareto frontier". Every new model is the pareto frontier by some combination of metrics. Like "Bayesian Priors", people love saying / tweeting it because it sounds Smart.
It's like watching car commercials where every single vehicle has won something from JD Power and Associates. Which, (a), who the hell are they? and (b) you can only pass out so many awards until the gluttony of awards proves the award is worthless.
This isn't targeted to you! It's a pet peeve.
There is no such thing as a moratorium on words. It's another phrase that people like to repeat (a meme) until the excitement or prestige of using it has waned.
That said, i agree with you that word-salad investobabble is a sign that the bubble has put many people in a raving fever. This current bubble manifests like the cryptocurrency mania.
Also the sadder slice is all the X people token maxxing with no hope of distribution. Cool things are cool, but getting buyers is getting harder.
The reason that is important is it will fuel the competitiveness of on premises and local open weight models.
Though maybe it's less useful in the "bubble" conversation since over four more years you could fit in various booms and busts before the supply side significantly starts changing.
The big issue will be access (Re: BYD)
so I think that's one big miss from this blog, or I don't understand datacenters as well as I think I do (which is always a possibility! hopefully someone will inform me if I am wrong)
This made sense in the past when they were not prohibitively expensive, but other than them breaking down why replace them on the 5 year schedule now? Yes, the newer stuff is better but the jumps from this point forward seem more incremental than revolutionary hardware wise. And even then, a company can simply swap out racks as parts fail.
As always, reality is likely a muddled mix: there is real utility and there is wasted investment that will never pay itself back.
So, if you have massive unemployment because AI really is cheaper than labor, you'll get a massive reduction in revenue for virtually every industry, collapsing all of these valuations. Even for B2B companies, Google isn't going to be making much money selling ads to unemployed people who can't afford to buy anything.