The Economics’ of Datacenters??
And the chip makers, is problematic, when life expectancy of a new generation chip is expected at seven or eight years – meaning the likelihood of the entire datacenter could have to be stripped out and replaced in that time – at a cost of tens of $Billions per datacentre, which begs the question as to whether or not revenue can ever possibly catch up with cost… A recent Bain & Company analysis notes that current consumer subscriptions and enterprise AI revenue across the board will only reach $1.2 trillion to $1.8 trillion over the coming years. This leaves a multitrillion-dollar shortfall required to fully justify the current hardware pipeline.
Currently, AI revenue to the Frontier Models is roughly $150Bn. Capital spend is approaching $1.5Tn.
Analysts have been speaking about NVIDIA’s top chips being “4 + 2” better than the emerging Chinese competition. Meaning, that it takes four Chinese chips to equate to one current NVIDIA chip, plus an additional two years of development… So the technological lead in chip manufacturing is likely to be there for a while. Don’t confuse this with the six to nine month lag in open weight AI models, compared to the leading frontier models of Open AI and Anthropic.
As the leading (but no longer only) chip manufacturer, NVIDIA have created a particular type of leveraged financing for the hyperscalers, whereby the datacenter companies “advance purchase” chips at pre-agreed prices – simultaneously securing future revenue stream for NVIDIA, and reliance on their chips by the datacenters… We believe it’s both fairly ingenious and yet vulnerable to a seismic shift to competitors, when their own chips get up to speed… It is also entirely at the mercy of future revenue gained from both domestic and business customers rising to such an extent to cover these astonishing outlays, and that this revenue increases and doesn’t dry up… And it simply doesn’t address the expenditure shortfall on hardware.
When the equations don’t add up? We have been in this space for a long time, so do get in touch if you want to make sense of the world across all aspects of the Economics of Geopolitics, Geoeconomics and Geostrategy…
#NVIDIA #Datacentre #AI #Hyperscalers
