OpenAI signs $38B cloud computing deal with Amazon

> Someone has to come up with $1.4 trillion in actual cash, fast, or this whole thing comes crashing down.

These deals aren't for 100% payment up front. The deals also include stock, not just cash. So, no, they do not need to come up with $1.4 trillion in cash quickly.

This AWS deal is spread over 7 years. That's $5.4 billion per year, though I assume it's ramping up over time.

> At the end of all this circular financing and deals are folks that actually want real cash (eg electricity utilities that aren’t going to accept OpenAI shares for payment).

Amazon's cash on hand is on the order of $100 billion. They also have constant revenue coming in. They will not have any problem accepting OpenAI shares and then paying electricity bills with cash.

These deals are also being done in the open with publicly traded companies. Investors can see the balance sheets and react accordingly in the stock price.

“OpenAI CEO Sam Altman sounded exasperated when Altimeter Capital founder—and OpenAI shareholder—Brad Gerstner asked him the question that Gerstner said was ‘hanging over the market’: how a company generating $13 billion in revenue this year would pay for the $1.4 trillion in computing capacity that Altman has said the company is on the hook for.

‘Brad, if you want to sell shares, I’ll find you a buyer…I just—enough,’ Altman said on Gerstner’s podcast.”

https://www.theinformation.com/articles/ilya-saw-mira-murati...

If OpenAI continues on their current revenue growth trajectory, they should be larger than AWS by 2027. Burning 2x revenue to grow that fast is not really a concern beyond your continued ability to attract financing. Given the trajectory of inference cost, it unlikely that they would fail to reach profitability.

The big question would be how much of this revenue is unjustifiably circular, and how much of it is extractable - but those are questions for when the growth slows. Im certain every supplier has ways to back out of these commitments if the finances look shaky.

It doesn't freak me out and it's actually completely rational. If both OpenAI and AMZN expect real rates to keep rising while inflation spirals out of control, this deal makes a lot of sense for both of them. They're just duration hedging.

The obvious answer is that they are going to IPO

This circular game is wholly dependent on OpenAI's ability to access public funds via IPO.

The proportion of the utilities involved are a fraction of 1.4T.

Let's actually be generous and assume that all parties involved did the math and some due diligence and are not just idiots. If we try that approach, what could that plausibly tell us about a situation where OpenAI has struck deals with not one, but basically all the major chip/infra providers?

This does all smell a bit like when WeWork was buying up seemingly every available office for rent. When it came time to actually pay for said offices… oops.

It's actually more like 100x their current revenue; they stated last week[0] that they have spending commitments for $1.4T of compute.

Or, well, they stated that the TCO of the compute they have commitments for is $1.4T, which is a somewhat strange phrasing. I assume it's due to it being a mix of self-owned vs. rental compute, and what they mean is the TCO to OpenAI rather than the TCO to the owner of the compute.

[0] https://x.com/sama/status/1983584366547829073

I lived through the first dot com bubble and bust and it was pretty nasty. I was working for a telecom company at the time. The building we were in were chocked full of bright eyed, bushy tailed startups who were pushing the edge on all kinds of things. Less than a year later, they were all gone.

We used to have lunch at the bar across the street and just about once or twice a week for several months, we'd walk in and there would be a table with about 15-20 people sitting around drinking and reminiscing about how they were going to change the world.

A lot of developers I know just completely left the industry and never came back.

If this crash exceeds that one? We're in for some seriously tough times.

I can't see a prediction like this as anything other than a description of what would be maximally emotionally satisfying for you personally.

I really don't know with this. By that I mean all logic says that, yes this is absolutely a bubble. But the markets have been irrational for a very long time now, just look at Tesla stock and it wild valuations for years now as an example. This could go on for a lot longer than anyone would think reasonable.

Those cheques absolutely are going to bounce at some point and will bring the entire tech industry down. At least on the stock market.

No, they don’t have the money at the bottom of their burning pit of other peoples cash.

oAI is growing rapidly at over $1bn a month in revenues, maybe as much as $2bn if you read between the lines from Sam's interviews. Over 7 years will they see $38bn of revenue demand against inference? ABSOLUTELY. Is it an incredibly good trick to get access to that much infrastructure without having to run a datacenter while you pilot the fastest growth ever consumer tech company? I'd say it is. Others might disagree

>"hey guys, us too!"

In what context? This isn't fashion, being the 2nd mover has benefits which often outweigh the costs.

i think this shows Amazon filling a need Microsoft couldn't. They probably tried, but decided to use Amazon cloud services after reviewing infrastructure needs.