Does it matter if they can't ever stop training though? Like, this argument usually seems to imply that training is a one-off, not an ongoing process. I could save a lot of money if I stopped eating, but it'd be a short lived experiment.

I'll be convinced they're actually making money when they stop asking for $30 billion funding rounds. None of that money is free! Whoever is giving them that money wants a return on their investment, somehow.

At some point the players will need to reach profitability. Even if they're subsidising it with other revenue - they'll only be willing to do that as long as it drives rising inference revenue.

Once that happens, whomever is left standing can dial back the training investment to whatever their share of inference can bear.

> Once that happens, whomever is left standing can dial back the training investment to whatever their share of inference can bear.

Or, if there's two people left standing, they may compete with each other on price rather than performance and each end up with cloud compute's margins.

Sure, but they will still need to dial it back to a point where they can fund it out of inference at some point. The point is that the fact they can't do that now is irrelevant - it's a game of chicken at the moment, and that might kill some of them, but the game won't last forever.

It matters because as long as they are selling inference for less than it costs to serve they have a potential path to profitability.

Training costs are fixed at whatever billions of dollars per year.

If inference is profitable they might conceivably make a profit if they can build a model that's good enough to sign up vast numbers of paying customers.

If they lose even more money on each new customer they don't have any path to profitability at all.

But only if you ignore all the other market participants, right? How can we ever reach a point where all the i.e. smaller Chinese competitors perpetually trailing behind SOTA with a ~9 month lag but at a tiny fraction of the cost stop existing?

I mean we just have to look at old discussions about Uber for the exact same arguments. Uber, after all these years, still is at a negative 10 % lifetime ROI , and that company doesn't even have to meaningfully invest in hardware.

IMO this will probably develop like the railroad boom in the first half of the 19th century: All the AI-only first movers like OpenAI and Anthropic will go bust, just like most railroad companies who laid the tracks, because they can't escape the training treadmill. But the tech itself will stay, and even become a meaningful productivity booster over the next decades.

I am also thinking long term where is the moat if it will inevitably lead to price competition? Like it's not a Microsoft product suite that your whole company is tied in multiple ways. LLMs can be quite easily swapped to another.

> If they lose even more money on each new customer they don't have any path to profitability at all.

In theory they can increase prices once the customers will be hocked up. That's how many startups works.

I'm curious just because you're well known in this space -- have you read Ed Zitron's work on the bubble, and if so what did you think of it? I'm somewhat in agreement with him that the financials of this just can't be reconciled, at least for OpenAI and Anthropic. But I also know that's not my field. I find his arguments a lot more convincing than the people just saying "ahh it'll work itself out" though.

My problem with Ed is that he's established a very firm position that LLMs are mostly useless and the business is a big scam, which makes it difficult to evaluate his reporting.

He often gathers good information but his analysis of that information appears to be heavily influenced by the conclusions he's already trying to reach.

I do pay attention to him but I'd like to see similar conclusions from other analysts against the same data before I treat them as robust.

I don't personally have the knowledge or experience of company finance to be able to confidently evaluate his findings myself!

There's an argument to be made that a "return on investment by way of eliminating all workers" is a reasonable result for the capitalists.

At least until they are running out of customers. And/or societies with mass-unemployment destabilize to a degree that is not conducive for capitalists' operations.

That's a problem above most CEOs' pay grade.

Models are fixed. They do not learn post training.

Which means that training needs to be ongoing. So the revenue covers the inference? So what? All that means is that it doesn't cover your costs and you're operating at a loss. Because it doesn't cover the training that you can't stop doing either.

Training costs are fixed. Inference costs are variable. The difference matters.

No they are not. They are exponentially increasing. Due to the exponential scaling needed for linear gain. Otherwise they'd fall behind their competition.

Fixed cost here means that the training costs stay the same no matter how many customers you have - unlike serving costs which have to increase to serve more people.

Yet somewhere above you said:

>Training costs are fixed at whatever billions of dollars per year.

Which I think is the part people disagree with.

I used the word "fixed" there to indicate that the cost of training is unaffected by how many users you have, unlike the cost of serving the model which increases as your usage increases.