> Given how fast these companies are growing (in terms of revenue and profit), it doesn't seem that AI is, as Zitron implied, some kind of desperation move they're reaching for because "they don't know how to grow" and are all out of ideas
Growth isn't a valid rebuttal, unless we can also sus out how much of that growth is tied up in circular financing of AI projects. We have a pretty good idea how much of Nvidia's valuation is tied up in the AI craze, it's a bit harder to tell with the megascalers....
The predictions were predictions of revenue. Circular financing of AI projects does not create revenue for OpenAI, Anthropic, Meta, or Google. Only Nvidia benefits from it.
Predicting revenue growth will stall and it does not was wrong.
A startup raises $50 million from OpenAI and Anthropic to finance API calls to OpenAI and Anthropic that they are using at a loss who in turn spend that money on compute with Microsoft and Google who in turn invest in Anthropic and OpenAI who then invest the startup using the startup’s revenue to value it… the cycle repeats.
There are multi-billion dollar valued startups invested in by OpenAI and Anthropic with hundreds of millions in ARR that are spending 90% of their revenue with Anthropic and OpenAI.
Situational Awareness, the fund that recently imploded, invested tens of billions into AI companies using their holdings in Anthropic to help finance the investments…
This could all work out fine in the long term, we’re all just speculating at this point, but the circular financing is absolutely making it to revenue because capital invested into startups is used to fund growth which is achieved by subsidizing costs incurred with OpenAI and Anthropic.
The vast majority of startups are not funded by OpenAI or Anthropic. They are not a significant source of venture capital. Meanwhile, OpenAI is pulling in $40B+ per year and Anthropic $65B+ per year.
You are mixing up valuations with liquid cash and you're also making sweeping statements about how those startups are spending their cash. A majority of a raise is not spent on AI compute.
Situational Awareness blew up because they used leverage to invest, and leverage is a great way to blow up any fund even if they were directionally correct about AI.
You’re applying pre-AI investing to a post-AI world. Yes, a decade ago, a startup raised money and spent 90% of it on people. The people built software which had incredible margins. Build it and then print money for ever more. That’s not the case any more, these startups no longer have incredible margins, they’re not collecting $100/m per user and banking $99 of it. They’re collecting $1000 and sending $999 of it to Anthropic and OpenAI.
Revenue numbers are vastly inflated compared to pre-AI but these startups aren’t keeping the money. Profits are worse than ever before. Startups with 30 employees that reach $100m ARR in 6 months are not banking $90m or $80m or… they’re just passing that money straight through to OpenAI and Anthropic.
If startups aren’t just funnelling all their funds raised straight through to OpenAI and Anthropic, where is this combined $100bn in revenue coming from? Who is paying for it? My spend on software certainly hasn’t gone up in a post-AI world. My company is spending less on software now.
OpenAI have stopped being so reckless with their cash investments which is why they appear to have slowed down but they’re still investing millions in huge numbers of startups through token allowances. They invest $2 million in every YC startup (or did a few months ago). There’s an entire market of reselling these tokens!
$800M a year is less than 1% of their quoted revenues at $100B+ / year. Claiming credits as revenue would be tax fraud. Credits to clients for services are counted as debits against
There are zero serious companies collecting $1000 on revenue and sending $999 as a cost of goods sold to Anthropic/AI. It would be unprofitable to even run a proxy to Anthropic on such thin margins. But I digress.
No company was banking $100 and keeping $99 in the "before times" either. These are fantasy numbers not even the most highly optimized software company produced. As an example, Slack famously went public in 2019 and it had revenue of $401M with a gross margin of ~79%, meaning they were pulling in $316M in gross profit. That is the figure before labor, administration, R&D, sales & marketing, etc. They actually operated on a net loss after factoring for those expenses, despite their high gross margin, which is common in high growth startups (Amazon famously ran losses or marginal profits until decades after their founding because they continuously reinvested in expansion).
Credits reduce revenue by all basic accounting standards. You can accuse these companies of fraud, it is within the realm of possibility, but it would also be <1% of their total quoted revenue, so not really worth the heat at the same time.
You are making conflicting arguments at the same time. There exist startups that are able to generate gross profit with some consumption of AI services, they are also able to invest nearly 100% of their capital into AI to generate those profits without needing to spend on traditional labor, and yet AI is not sustainable. By your own circular logic it is of course sustainable, but by grounded logic, you have to understand any business that goes from zero 4 years ago to $100B+ in annual revenue today with double digit growth rates is offering the world something of value. Anyone who has tried AI sees some value in it. There is some revenue and profit to be made here. Betting against that in the long term will just lose you money and sanity.
> No company was banking $100 and keeping $99 in the "before times" either.
Yes they were and are. The marginal cost of software as a service or data as a service is near zero. Slack is a good example. A new Slack customer costs Slack nothing. Free money! Slack had a high valuation because of the margins. Slack and other traditional high-growth technology companies were valued highly despite being loss making because there was an understanding that paying for growth early returns a lot more later on. Slack (pre-acquisition) could turn off their expensive growth engine and start making money hand over fist.
(Look at what Bending Spoons are doing now, they're picking up "zombie" technology companies that have incredible margins but no growth. Bending Spoons are cutting these companies to the bone, giving up on growth, running on a skeleton staff, and making money hand over fist, cashing out on the incredible margins of software.)
Someone shared up thread an example of Harvey, a legal AI company, who regularly post about their token consumption. They're consuming trillions of tokens per month for their product. Harvey's investors include OpenAI. Harvey has raised more than $1bn and is currently valued at $11bn (and raising again at $15bn apparently). As of last month, Harvey's revenue was reported to be $30m/month on 13 trillion tokens per month.
Let's be conservative and assume their average spend per million tokens with OpenAI is $2. That's $26 million in token spend per month, on $30 million per month revenue. $2 is lowballing it of course, they're surely using one of the frontier models. That's pretty close to every dollar coming in going straight out to OpenAI. Considering the capital they're raising and burning (seems like $50m a month) while relatively small (<1k employees) I would guess they're spending at least double their revenue with OpenAI.
Of course, long term, this is fine for Harvey, as model costs come down and businesses mature they are going to be spending a lot less. Maybe they'll start running their own hardware, offloading certain workloads to cheap models, using scripts for routine tasks where AI is overkill. Great for Harvey and Harvey's investors, an absolute disaster for OpenAI.
> By your own circular logic it is of course sustainable, but by grounded logic, you have to understand any business that goes from zero 4 years ago to $100B+ in annual revenue today with double digit growth rates is offering the world something of value. Anyone who has tried AI sees some value in it. There is some revenue and profit to be made here. Betting against that in the long term will just lose you money and sanity.
You're making a leap from "useful" to "profitable". Yes, there is absolutely revenue and profit to be made for companies building products, for the companies providing technology, not for the companies providing inference. There are not software margins in inference, it's a commodity, the only reason OpenAI and Anthropic went "from zero 4 years ago to $100B+ in annual revenue" is because nobody cares about the money today.
Right now, we're in a gold rush, we're in the growth-engine phase, we're in the "spend a billion to make a million as long as you're growing" phase. Right now, people at Harvey aren't worried that every dollar in is at least a dollar out to OpenAI, who cares, investors are funding it, they're growing, they're taking over the legal world, that's all that matters, they can balance the books later... and when they do start to balance the books, when they convert that growth-at-all-costs into profit (as every company eventually does) OpenAI are going to get absolutely eviscerated.
The circular financing problem doesn't mean that startups building on AI aren't generating revenue from normal companies, it means that the money going into Anthropic and OpenAI is coming from investment (whether OpenAI directly or indirectly (see: funds like Situational Awareness raising money off the back of their Anthropic investment)) and being immediately spent on inference. If the economic environment changes, OpenAI don't have a growth engine they can turn off to turn their revenue into profit... because it is their customers who are going to be collecting the profit.
We can see this already with OpenAI starting to try and bill based on solutions through ChatGPT (because they realise selling tokens is a god awful business to be in) and their partnerships like The OpenAI Deployment Company. OpenAI and Anthropic are triple screwed no matter whether AI is a wild success beyond your imagination or a disaster.
This is so completely wrong and deluded I’m not sure where to start.
I work with AI startups and scale ups on a regular basis as well as plenty of more old school companies, all of whom are spending money on AI models, because they are getting insane value from them.
This idea of the revenue for OAI and Anthropic coming from “circular financing” is just bizarre wishful thinking coming from AI doomers with zero financial literacy.
The revenue numbers reported by AI companies (not just OAI and Anthropic) isn’t being driven by Nvidia at all, in fact, the numbers wouldn’t add up if you thought that was the case. The revenue being brought in by AI companies is far, far higher than the sum of any investments from Nvidia.
The AI doomers just can’t handle the idea that AI is actually incredibly valuable and every company is using it and increasing their use of it every month.
And yes, I see this every day in my job and with every company I work with.
I also contract in the startup space, and many of these startups have pretty much their entire infra bill covered by AWS/Azure/GCP credits, and all of their AI spend covered by Anthropic/OpenAI credits.
Theoretically they'll spend real money on those things down the line, assuming they find product-market fit, but who knows how many of the current crop of startups will reach that point
Wow, thanks for your perspective, it’s lucky to find someone on Hacker News who works with technology every day!
You presume to know my position but you do not. AI is an innovative new technology that is radically changing how we build and use technology and will continue to do so. That doesn’t mean that trillions of dollars is going to be spent on it. Despite the penetration all technology has in our lives, most companies are barely using technology from 20 years ago because implementation is a nightmare. Businesses are risk and cost averse, better the line item you know. And so, most companies could be radically improved not by human-level intelligence, or even dog level intelligence, most companies just need macros that are easy to implement. Most companies could 10x their productivity without AI! After all that’s what startups have been doing for the 20 years pre-AI, that’s been the YC investment thesis (which has worked very well).
My position is that AI is a radical step forward in technology that pragmatic businesses will benefit from handsomely by using cost effective models. A middle of the road local model that can trigger tools is more than most companies need. The frontier models by the frontier labs are a complete waste of money outside of the most extreme edge cases.
Conflating “the technology is incredible” with “companies will spend trillions per year on the technology” is ridiculous. Your argument about usage says absolutely nothing about the financials yet you’re dismissing the AI “doomers” (people who are pessimistic about the financials, not the technology) on that basis.
If you look at what we know of the financials of OpenAI and Anthropic it is impossible to come up with a financial case to justify the trillions of dollars in revenue needed for the AI booster’s vision of the future.
How much money does The JavaScript Company make? How much money did Docker make? It’s like the AI boosters who argue for the financial case have forgotten the last 20 years. The world of technology is built on open source, it’s built on companies that made a huge impact and failed financially. Docker led the way with containerization, one of the most influential technologies of the last 20 years, and the company almost went under multiple times. We constantly gripe about how unsustainable open source is. Why is all this suddenly different? Why is making an innovative new technology suddenly guaranteeing trillions in revenue? How many trillions of dollars were invested in data centres to build Docker containers?
If you think I lack financial literacy, please explain where the money is going to come from. Please make the financial case for trillions of dollars being spent on AI over the next few years. Keep in mind that the reason technology has been so profitable over the last 20 years is because of the margins, software is basically free money. AI is not free money. AI is very expensive money. Also keep in mind that the current (rumored) revenue of Anthropic is primarily made up of the most expensive use case (generating millions of lines of code) being paid for by rich tech companies which does not represent the wider economy. A factory could revolutionize their operations with a middle of the road model they could run on local hardware. Hell, they could revolutionise their operations by hiring a single competent software engineer who understood their business. AI is so compelling because we, technologists, have failed to deliver for most businesses, not because businesses need frontier AI.
Bets are meaningless but feel free to stake a claim here to how you think things will be 4 years from now and we can return to review. I’ll stake my claim: AI will be more impactful than ever while Anthropic + OpenAI will have less revenue than today. And we will all be thinking “wtf were we thinking building all these data centres?”
It's coming from regular companies spending their own money on using AI. I.e. Profitable companies deciding they want to use AI for various reasons and spending their own revenue on said AI, whether it be Claude Cowork, OpenAI ChatGPT Work, OpenRouter, Nebius Tokenfactory, models hosted on BaseTen, Fireworks, etc, tools like Lovable. Or every piece of cyber software which are ALL using AI heavily these days.
It's really not as complicated as AI-doomers like to make out, they seem so confused somehow that existing profitable, successful companies are spending larger and larger amounts of their revenue on AI. It's not circular by any definition.
So anyway, this whole worry about "where the money comes from", is kind of funny. Where does the money come from to hire employees? Where does the money come from to pay for Cloud bills? The money for AI will come from the same place, it's not some big mystery. Total cloud/compute spend in the world is well over 5T per year, including all cloud and colo spend.
AI is basically both taking up software spend, dev salary spend, white collar officer worker spend, hardware spend, general IT spend, etc. And if you sum up all the budget associated with all company software, personnel, white collar workers, etc, you end up with a much bigger number (probably 10-20T or more most likely).
So the idea of total AI revenue being in the trillions, it's pretty simple, and will happen over the next couple of years, just like happened with regular servers and cloud.
People like yourself downplaying AI reminds me of people both downplaying the internet ("it will never make money") and also the original launch of cloud providers (AWS originally), "no one will ever trust the cloud not to lose your data, why would any pay for AWS" etc etc).
Both sets of folk were radically wrong, and the AI-doomers will be wrong this time too. Capabilities will increase across the board, amazing applications will be built (already happening), and people will want to pay for these products. People are ALREADY paying huge amounts of money for these products.
Who do you think is paying for Lovable? They are probably the fastest growing startup ever from 0 to 1B valuation because less technical people LOVE using it and have zero issue paying for it. But AI doomers will somehow dismiss Lovable as somehow getting "circular financing", when loads of small business owners I know love the product and spend 100s of dollars a month on it!
It's going to be funny watching the doomers over the next two years when none of the big AI companies goes bankrupt and keep growing in revenue. But but but the circular revenue!
> existing profitable, successful companies are spending larger and larger amounts of their revenue on AI
Apart from the brief "tokenmaxxing" craze among the big tech firms a while back, is there any evidence that profitable companies are cutting their own margins in order to spend on AI?
Lovable's success is the perfect example. Lovable has a large number of users who do not pay for the platform who have been subsidized by investors while inference costs were high. Lovable know that long term, sending all their revenue to Anthropic and OpenAI and Google is very bad for business, especially if that revenue is subsidized by investors, which is why they have trained their own model. Lovable's long term success is in conflict with OpenAI and Anthropic! Lovable succeeds when it stops sending $0.50 of every $1.00 to OpenAI and Anthropic and Google, Lovable succeeds when it drives down the costs of inference to as little as possible.
Regarding the cloud infrastructure comparison, it is not at all comparable. During the time I spend writing this comment, my device will make thousands of requests and connections to different servers for all sorts of reasons. During the time I spend writing this comment, my device has interacted with an LLM exactly zero times. The throughput of internet infrastructure is not even in the same universe as the throughput of LLMs at their most wildly successful. How many times does Lovable's AI run per month for their average customer? A few times? The repeated, continued value Lovable delivers to their customers is in the interactions that occur between their customer's customers and their customer's apps. A Lovable customer can love Lovable and have huge success with their Lovable app while using zero tokens per month.
You should be comparing AI to a product that eventually became commoditized, not comparing it to an entire category, e.g: shared website hosting. Shared website hosting was very expensive to set up 30 years ago. Over time, it got cheaper and cheaper, now today it is commoditized, the major brands have all consolidated, companies have gone under, and technological innovations have completely reshaped how websites are hosted. Who still uses shared website hosting today? Websites are bigger than ever, web servers underpin the economy, Stripe alone has web servers that process trillions of dollars... how much money is there in web servers?
> Capabilities will increase across the board, amazing applications will be built (already happening), and people will want to pay for these products. People are ALREADY paying huge amounts of money for these products.
You're so caught up in the technology that you're oblivious to the economic reality. The capabilities, the amazingness, the excitement, that isn't how money is made. The most cheap and boring technology (like web servers) are fundamental to our economy. AI can be all of these things, it can have incredible capabilities and be amazing and have so much excitement and radically reshape our economy and be fundamental to every business... and make no money.
You, like so many nerds, cannot seem to separate technology from business. Business is boring and simple and based on principles that have stood the test of time. Business doesn't run on excitement, it runs on numbers. Shopify powers most ecommerce, Shopify is one of the most important companies in ecommerce, Shopify is wildly successful, Shopify's revenue... $12bn. Stripe's revenue, on trillions of dollars in payments... less than $10bn. Shopify and Stripe are wildly successful and very important companies that are involved in trillions of dollars flowing through the economy and you're suggesting that AI is going to do 100x more revenue than them?
Tailwind CSS is used on probably half of all major websites today. The creators of Tailwind recently announced they had to lay off everyone because the company was struggling to make any money despite usage growing every single day. WordPress, which (supposedly) powers half of all websites is operated by a company that is struggling too. Google and Meta, some of the most profitable companies in the world, almost all of their revenue is still from advertising that has barely changed in 25 years. Google make hundreds of billions of dollars from... showing videos, technology that existed 25 years ago.
And so, that brings us back to the circular revenue argument. Right now, Anthropic and OpenAI have ~$50bn revenue each because of circular revenue, because of investors subsidizing, because in this experimental period, everyone is throwing shit at the wall to see what sticks, nobody wants to be left behind, they're digging for gold.
If you want to make a compelling argument for why AI will impact the economy, that's one thing, but to argue that Anthropic and OpenAI are going to generate trillions of dollars in revenue from it is an entirely different argument altogether. They're completely independent. One of them is a reasonable argument (of which people can debate the extent) but the other is absolutely batshit and indefensible.
> It's going to be funny watching the doomers over the next two years when none of the big AI companies goes bankrupt and keep growing in revenue. But but but the circular revenue!
I bet that Anthropic and OpenAI's revenue will be less than $100bn each in September 2028. At their current rate of growth based on the ai boomer takes, it should be well over $250bn each by the end of 2027.
Can you provide any examples of any of the megascalers publishing any detailed financials that touch on their AI spend or revenue or profit? The only one I’m aware of that comes close is Microsoft and they have still buried it in barely related line items which still leave us making assumptions.
There’s speculation on both sides and certainly Zitron is on the extreme end of the anti-AI side with the most cynical speculation but it is indisputable that none of the megascalers are open about their AI financials. Hence, we are all speculating endlessly. If only there were published financials then the speculation could end!
The obfuscation of financials doesn’t necessarily mean something bad is happening, it could be a competitive advantage for Google to be secretive about how cost effective their TPUs are or for Microsoft to hide how much revenue uplift they’ve experienced by adding AI to 365.
They don't publish their AI spending, revenue, and profit - but they do tend to break out other non-AI segments of their companies which can demonstrate that at least part of their growth isn't relevant to AI.
> They don't publish their AI spending, revenue, and profit - but they do tend to break out other non-AI segments of their companies which can demonstrate that at least part of their growth isn't relevant to AI.
So the previous statement that "As public companies, the megascalers publish pretty detailed financial reports" is incorrect and irrelevant to the question that was asked.
I'll expand the section of the article that it quotes:
> Although this wouldn't be in the spirit of Zitron's statement, one could argue that Meta is actually dying, it just hasn't died yet. However, the reasoning in Zitron's argument is incorrect here—the Meta, Google, and Microsoft ecosystems are not dying. Given how fast these companies are growing (in terms of revenue and profit), it doesn't seem that AI is, as Zitron implied, some kind of desperation move they're reaching for because "they don't know how to grow" and are all out of ideas.
So the argument here is that Ed says those companies are dying, but Dan Luu points out that their economic figures show that they are not.
The counter-argument is "Growth isn't a valid rebuttal, unless we can also sus out how much of that growth is tied up in circular financing of AI projects"
My point is that the public reports of these companies, while not helping us unwind the circular financing, do at least show us that their non-AI businesses are growing at a healthy pace. Which supports Dan's argument that these companies are not dying.
Because of accounting tricks, quarterly financials don't accurately reflect the size of this fiery money pit.
The datacenter build-outs are all majority (>50% ownership) financed by other companies, with a shell company owned by the hyperscaler as a minority owner. The data center then grants the hyperscaler an exclusive leasing agreement, and because the shell company is a minority owner, legally, it's not their debt.
The only reason this has worked is because there's such a long delay taking delivery on GPUs. When these capital allocators start paying for GPUs in data centers which haven't yet broken ground, then we'll see a very visceral market reaction. Some of that has already happened, but there's enough momentum that it can be absorbed and dismissed as an anomaly. But with governments unexpectedly passing moratoriums on data centers everywhere, it's only a matter of time before there's no data center to offload those GPUs to. That's when the music stops.
I believe that was Zitron's central thesis and why he started reporting on this. It mirrors the mortgage-backed securities situation that led to the 2008 GFC, except with even fewer guard rails to prevent financial calamity.
Investors are very savvy and keenly aware of what's going to happen. There's just zero incentive to pull the fire alarm and risk being blamed for crashing the market. If you're wondering why everyone's running toward the exits instead of treating these tech companies as 10+ year investments, you have your answer.
Financial reports alone don’t paint the whole picture when it comes to valuations. For example, theoretically amazon has committed to invest 25 billion in anthropic, and anthropic has committed to spend 100 billion on aws compute. As far as we can tell, no real money has actually changed hands in either direction, but both valuations are being buoyed by their prospective investments…
The thing about $1.65T being "hidden from the balance sheets" is overblown. How do we know about that money if it's hidden? Because it isn't - it's in other public SEC documents, which the $1.65T claim also slightly misinterprets.
Growth isn't a valid rebuttal, unless we can also sus out how much of that growth is tied up in circular financing of AI projects. We have a pretty good idea how much of Nvidia's valuation is tied up in the AI craze, it's a bit harder to tell with the megascalers....