Wheels of Fortune
Yoni Rechtman, evaluating the "exuberance for AI the financial asset":
The Bull CaseWorld-changing technology. They wind up with infinite surface area, and everyone pays them for everything. Intelligence is the most valuable market in the world (all white-collar work), and they become both an accelerant for and a tax on global GDP. LLMs either scale in other domains like they’ve done in coding or it turns out that every task is actually a coding problem after all.
And this is not even accounting for true AGI and a post-scarcity / post-economic world.
The Bear Case
Foundation models are obviously incredible products but turn out to be terrible businesses.
Training is a cost of revenue, not an R&D cost. Stop training, everyone churns and moves on to your competitor or a distilled Chinese version. The labs are perpetually investing unbelievable sums in building these fast depreciating assets (capex and training).
Every model is bigger and more expensive to run and also gets distilled faster, so these companies have to make huge up-front investments that depreciate extremely quickly. They are competing against one another and with the in-house labs of huge companies that throw off huge amounts of cash. They’ll never be able to charge enough because of competitive pressures. They will just run out of money and places to get it.
So what?
On balance, it’s almost certainly better to bet on the bull case, despite how much upside has already been sucked out / pulled forward at these prices.
If there’s any chance the bull case is right, and you have either a low enough cost of capital or are otherwise short the proliferation of intelligence, you have to get exposure here.
The bull case and the bear case are closer than they look.
Both depend on training.
The bull case says training compounds advantage.
The bear case says training is the price of staying relevant.
That's where it gets interesting. If training is a cost of revenue, not R&D, then the labs may not be building moats so much as continuously renewing "fast depreciating assets".
Everyone assumes foundation models are flywheels.
What if they are hamster wheels?