This is surprising to me. Judging by what appears to be the common sentiment here on HN - which is that AI inference is already profitable, and OpenAI is fairly valued by private markets.

Given that Oracle and Microsoft are major counterparties of OpenAI, it seems odd that their stocks have been performing so poorly recently. Can anyone square this circle for me?

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cmiles8 3 hours ago | parent | next [-]

The general fallacy of the “but inference is profitable” argument is that it tends to ignore all the costs of building and training the model. Given the fact that 1) that’s not trivial, and 2) the arms race underway means one can’t stop training, then it ruins the financial picture.

It’s like saying a new apartment building is “profitable” because the monthly income covers the monthly running costs, but ignoring the giant mortgage that covers the cost of building the building. That thinking is a good way to go bankrupt in real estate and a good way to go bankrupt in AI.

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an0malous 3 hours ago | parent | next [-]

> The general fallacy of the “but inference is profitable” argument is that it tends to ignore all the costs of building and training the model. Given the fact that 1) that’s not trivial, and 2) the arms race underway means one can’t stop training, then it ruins the financial picture.

Or that it’s all hearsay and no one has released financials yet?

	▲	marcosdumay 33 minutes ago \| parent \| next [-]
		xAI financials are public, and OpenAI financials leaked a short while ago. That's the best possible interpretation of them. The other possible interpretation is that they are manipulating the numbers (that they have to show to investors) and inference isn't actually profitable either. If they are not manipulating the numbers right now, both companies have a serious case of uncontrolled operational costs that they have to solve too.
	▲	cmiles8 3 hours ago \| parent \| prev [-]
		Well there is clearly also a lot of non-GAAP style “trust us bro” things going on too which generally boil down to “if you ignore all the reasons why we’re not profitable then we’re profitable.” It’s WeWork’s “community adjusted EBITDA” messaging repackaged.

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CamperBob2 3 hours ago | parent | prev [-]

If the company who holds the mortgage wanted to own the building, they would have just bought it themselves. They don't, for whatever reason, so to some extent they have an incentive to help their customer succeed.

That's why it's so hard to get a residential mortgage, for example. It's more of a partnership, with more mutual vulnerability, than most people think. Same thing seems to be true here.

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chasd00 14 minutes ago | parent | prev | next [-]

it is isn't enough for inference to be profitable, the whole organization has to be profitable enough to keep investors from looking elsewhere for a return.

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twoodfin 3 hours ago | parent | prev | next [-]

Good question.

Given what happened with xAI’s excess capacity lease to Anthropic, and Meta’s noises about doing the same, seems likely that the demand for inference will continue to slope upwards for a while. If I’m Oracle, I’m not worried about being able to utilize the data centers I’ve built for some price, almost certainly a profitable one.

I’m guessing, though, that Oracle made their capital investments on assumptions of a higher price & return. Possibly because it wasn’t clear when these decisions were made how much competition OpenAI would have at the frontier.

I don’t think this math is all that hard. Capital markets have everything they need to start to figure it out, most especially a year or two of history to project forward.

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jimbokun 3 hours ago | parent | prev | next [-]

HN has been split on this question, with both pro and con strongly and vigorously argued.

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darkwi11ow 3 hours ago | parent | prev | next [-]

Inference might be profitable, but it does not mean the profits of AI datacenters will rise in future. Open weight models and local AI already put the pressure on the AI datacenter profit margins, and local AI is set to become much more efficient in the future.

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3 hours ago | parent | prev | next [-]

[deleted]

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lbrito 3 hours ago | parent | prev | next [-]

I think those are just the loud minority. I wouldn't be surprised if they're like 20-30% if a poll were made here

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3848484894 2 hours ago | parent | prev [-]

That sentiment only seems to pop up in Anthropic / OAI threads, wonder why