Originally Posted by jyl
Interested in what you guys think about “world models” as an alternative or better approach to AI.
The question of what AI can and can’t do may end up being critical to our economic futures.
Per a JP Morgan report I read, and various other reports reach the same conclusion, the “AI industry” is on track to invest $5TR to $7TR on datacenters, hardware, power, and models in the next several years. This sum is far greater than the cashflow of the industry, over 100% of which comes from the hyperscaler companies (GOOG, MSFT, etc). To fund this sum, practically all financing markets will have to participate to nearly the limit of their capacity - meaning equity markets, public debt markets (bonds), private debt, securization, etc. In other words, the financial system will have a giant leveraged bet on AI, to a much greater extent than it had on housing in the 2000s. Government financing or guarantees are also being thought about. Regardless of explicit government (taxpayer) backstop, at some point this become “too big to fail”. We remember that from the GFC.
Which means, obviously, that if the bet fails we will experience a financial crisis larger than any in our lifetimes.
Success/failure in this context is not whether AI changes the world or takes over etc, but will be determined by whether there is enough AI revenue and profit to pay all the debt and justify the investment.
Simplistically, you borrow $5TR at 7% to start a business, how much annual profit do you need to service the debt and make the business worthwhile, and what revenue do you need to make that profit?
Some reports I’ve read say AI needs to generate $2TR of revenue within the medium term (like in five years or so).
Staying simplistic, if cost of capital is 7% a decent business needs a return on capital of say 12%. 12% x $5TR = $600BN earnings. If the business’ net margin is 15% (it’s a more than decent business) then $600BN / 25% = $4TR revenue.
The total revenue of the entire S&P 500 is about $18TR.
Right now, the total revenue and profit (annual run rate) being made in AI is roughly $50BN and more or less zero.
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