xAI is looking more like a datacentre REIT than a frontier lab
78 points by martinald 4 hours ago | 35 comments

TSiege 35 minutes ago
> And Google is a major shareholder in SpaceX, so they certainly have incentive to juice the valuation of the IPO.

Google own 5-6% of the shares of SpaceX. SpaceX is seeking a valuation of $1.77T which means Google's shares would be worth $88.5B-$106.2B. I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops?

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treis 28 minutes ago
There's no realistic way for the music to stop. The demand for LLMs is staggering and the big providers are charging full freight for inference. They might not make back the money from training but these data centers are definitely going to be fully utilized for at least the next 5 years.
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stefan_ 24 minutes ago
Data center operators are in the business of selling electricity. They do not command large PE multiples. This is an even worse business, because xAI decided to also be the bagholder for the NVIDIA graphic cards. Not to mention they finance an unreasonable number of 20-somethings on way too large salaries with shitty opinions and no AGI delivered.
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chatmasta 11 minutes ago
Datacenter operators who rent space are selling electricity. SpaceX is selling a fully built datacenter with compute designed for a specific purpose. They’re operating at a higher level of the value chain and can charge accordingly.
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treis 9 minutes ago
They're not any sort of bag holder. They're going to make back what they spent on these data centers in a year.

It's a fairly sweet deal for everyone involved. Anthropic/Google get to sell more tokens and xAI gets a war chest for another bite at the apple. I don't have much confidence that they'll do anything with it but that doesn't mean these deals don't make sense for them.

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SecretDreams 56 seconds ago
Look, there's two things:

LLMs are useful

Company valuations around LLMs are not realistic

Both can be true, much like they were during the Dotcom bubble. The internet turned out to be a pretty real thing. A couple examples below might feel familiar in the next couple months/years.

> Blucora (then InfoSpace): Founded by Naveen Jain, at its peak its market cap was $31 billion and was the largest Internet business in the American Northwest. In March 2000, its stock price reached $1,305 per share, but by 2002 the price had declined to $2.

> Broadcast.com: A streaming media website that was acquired by Yahoo! for $5.9 billion in stock, making Mark Cuban and Todd Wagner multi-billionaires. The site is now defunct.

> eToys.com: An online toy retailer whose stock price hit a high of $84.35 per share in October 1999. In February 2001, it filed for bankruptcy with $247 million in debt. It was acquired by KB Toys, which later also filed for bankruptcy.

> GeoCities: Founded by David Bohnett, it was acquired by Yahoo! for $3.57 billion in January 1999[20] and was shut down in 2009.

> MicroStrategy: After rising from $7 to as high as $333 in a year, its shares lost $140, or 62%, on March 20, 2000, following the announcement of a financial restatement for the previous two years by founder Michael J. Saylor.

** Some scams transcend time **

Great link: https://en.wikipedia.org/wiki/List_of_companies_affected_by_...

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AznHisoka 34 minutes ago
Someone gets bailed out and the cycle starts again. Isnt this how it works?
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downrightmike 6 minutes ago
Hyperinflation to make the needed bailout money
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SecretDreams 8 minutes ago
> What happens when the music stops?

That's a problem for your kids to figure out ~ those currently getting enriched from these schemes.

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Qhemlomo 33 minutes ago
At least Alphabet, Microsoft and Amazon can afford it.

Nvidia is not losing anything if their stock falls.

So whats left? The typical candidates of course: We poor people. 401k, ETF, etc. we pay the bill.

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colechristensen 5 minutes ago
>What happens when the music stops?

Bubble bursts, somewhere between 2008 housing crisis and the dotcom bust.

Really dependent on if there are any OTHER structural problems to compound a fast re-valuation of tech stocks. There's plenty of noise about banks holding large amounts of bad private credit debt. There could be a lot or only a little collapse. There's so much uncertainty and the combination of war, high oil prices, and uncertainty about tarriffs that the market struggles to value anything as international fear drives investment into the US and high prices confusing whether growth is growth or just inflation.

Definitive peace in Iran combined with some sort of sobering AI news signaling the end to the infinite growth party could crush the markets.

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bpodgursky 34 minutes ago
A lot of people are emotionally unprepared for a world where the music doesn't stop.
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gopher_space 2 minutes ago
Unprepared for a world that’s replaced French peasantry with strapping an Xbox to your face.
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raducu 15 minutes ago
> A lot of people are emotionally unprepared for a world where the music doesn't stop.

I've been wrong before. However, when was the last time this business model made sense -- that facebook, SpaceX and others, all just pivot from their market niche to general purpose AI datacenter providers.

How on Earth does this make sense?

What happens in a few years when DeepSeek runs on the chinese chips like the Huawei Ascend at a fraction of the cost ?

These are all very high value added companies going into comodity AI hosting and they're all going to make a killing?

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reducesuffering 5 minutes ago
The level of denialism when faced to confront hard realities of the world around us never ceases to surprise me. Alas AI capabilities continue to rip through expectations and the next goalposts are moved.
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tsunamifury 6 minutes ago
Lines very rarely go straight for forever, but still often longer than expected.
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mschuster91 29 minutes ago
> I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops?

A financial crash that will make the 2007ff crisis look tame in comparison. That is why Anthropic, OpenAI and SpaceX (which xAI belongs to) are all going public soon and why NASDAQ bent the rules to include them... the current owners all want to raid pension savings worldwide [1] to get their payday before the bubble inevitably bursts.

And when it bursts, you can bet that the vultures will use their fresh cash to buy up assets at fire-sale prices. For the truly rich, a boom-bust cycle is only one thing, an opportunity to achieve extraordinary profit.

[1] https://news.ycombinator.com/item?id=48369391

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hawkice 42 minutes ago
They have developed an LLM, so they are an AI lab, but the quality of that model suggests they're not a frontier anything.
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leetharris 26 minutes ago
I have the pro account for ChatGPT, Claude, Gemini, and Grok.

They all have various strengths and weaknesses. My favorite is still ChatGPT, then Gemini/Claude, then Grok.

Grok often feels 1-2 generations behind the competition in general use, but it has three things that I love:

1. It seems to be the best at understanding current events. Maybe due to X integration, or some other tool call optimization in the backend? I don't know, but I often ask about things going on, and the other models have outdated info, give unhelpful answers, etc.

2. It is generally the least sycophantic for personal things. Anthropic is getting here too. ChatGPT and Gemini are working on this, but previous models in those families would almost never say anything negative about what I am doing. Sometimes I need career advice, personal advice, etc and I like the tone of how it responds. I think Claude will be caught up soon.

3. For professional work, there are certain topics that other models would refuse to engage with. At my last company we had an enormous amount of legal users. When a deposition would need a summary on certain topics, most models would refuse. Grok would not. I understand the need for safety and I don't blame the other model providers, but for some professional use cases you NEED a model that is capable of handling sensitive subjects.

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e9 15 minutes ago
I recently worked with NRC dataset, specifically about nuclear reactor events and status reports(example: https://www.nrc.gov/reading-rm/doc-collections/event-status/...). Public data that just needed some cleaning. Several time Claude API would refuse to engage. Because of that I can't trust Claude to clean production data sets.
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Azantys 6 minutes ago
Career and personal advice from LLMs, not sure if thats your best bet
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epolanski 20 minutes ago
My SO works in audit/compliance and business Gemini definitely does not refuse to answer.
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fooker 22 minutes ago
> the quality of that model

I guess the benchmarks disagree, but whenever I need to find specific information that does not easily show up with a web search, I try chatgpt, gemini and grok. Grok surfaces what I was looking for more often than the others.

Things like "find the github repo from 2017 that does $vague_thing".

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chatmasta 9 minutes ago
Grok does seem to have the best searching capabilities, and not just for twitter. I wonder what search engine they’re using on the backend.
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Azantys 5 minutes ago
Isnt that more Perplexitys thing anyways?
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mbesto 22 minutes ago
And they are planning (well "planning" if you believe Elon) to start building their LLM over from scratch, which means they need a HUGE ass training data center, i.e. not a data center for inference to do so.
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beepbopboopp 39 minutes ago
Or the model was a marketing expense to capitalize the data center model. Im not saying it was intentionally that, but its been an effective "that."
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bpodgursky 36 minutes ago
Eh. It was a leading model for a few weeks, it was a real effort, but they never built a real revenue model around it. It wasn't SaaS, it wasn't for governments, it couldn't get B2C payments. Made it hard to justify the training cost to stay at the frontier.
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dsgn93 8 minutes ago
[flagged]
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Qhemlomo 34 minutes ago
So like the 4D Chess Trump is playing with us?

Come on, the most logical thing is that Musk overestimated the compute he needs and got lucky with the secondary usage of it.

As soon as the IPO is done and if it didn't fail, he will buy curser and try to push again if he hasn't given up on it.

He also needs some compute for the robotics stuff and for Tesla in-car entertainment and for training FSD.

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bottlepalm 31 minutes ago
Grok isn't at the front of the frontier, but they are there for sure.
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throwaway67678 25 minutes ago
Pretty funny how making it anti-woke made it suck, whereas Claude's ultrawoke sensibilities and "constitution" didn't prevent it from being the de facto leader of the pack the moment it came out
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plaidthunder 16 minutes ago
It's a general problem of defining yourself in negative terms. Being "un-{thing I don't like}" doesn't say what you are. It only excludes one possibility while leaving behind an infinitude of mostly crappy alternatives to try to choose from.

Having a positive set of beliefs annoys people and and can make them feel judged, but at least it provides a vector that points somewhere definite in possibility space.

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9cb14c1ec0 11 minutes ago
So we know what they are renting these GPUs for. I'm really curious about the input costs of their power generation. Is there actually enough margin in these deals for xAI to cover their depreciation cost?

Edit: from the footnotes: > Colossus actually runs largely on its own on-site gas turbines, which comes out even cheaper: at a simple-cycle heat rate of ~10,000 Btu/kWh and Henry Hub gas at ~$3.50/MMBtu, the fuel bill is only around $90mn a year.

OK, that's crazy. How can I get into renting GPUs to hyperscalers?

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HoldOnAMinute 14 minutes ago
Technology has a very short life. The difference is that a REIT might contain an office buildings that can be used for any business, but a data center is filled with carcasses that start rotting and stinking from the day of installation.
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mandeepj 37 minutes ago
or, could be they pivoted to cover the expenses?
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