Data center demand right now has much more to do with private credit's demand for new deals, since the binge they went on around the pandemic led to the accumulation of a lot of bad debt and depreciating assets. Data centers are a tool for extracting money from insurance trusts and pension funds to prop up private credit and create debt-driven artificial "revenue" for the hyperscalers and Nvidia.
AI compute is the new oil–and needs a new market (economist.com)
53 pointsby ijidak3 days ago62 comments
vannevar 3 days ago
AI compute is not the new oil. Demand for oil is very inelastic: it's very difficult to increase the thermodynamic efficiency of the physical processes that convert oil into energy. AI compute efficiency, on the other hand, is improving exponentially. AI will end up being just slightly more expensive than the raw electricity required to produce it.
vatsachak 3 days ago
Yeah AI is electricity, not oil. It's boring but it's already true.
I'm building a side business and decided to go with open router because that's what AI is going to look like in the future. Just intelligence/$ everything else kind of not important.
Unless, they solve the issue of model output diversity and Claude becomes very different from ChatGPT
AgentMasterRace 2 days ago
you're getting robbed on the fee's
vatsachak 2 days ago
I mean I route everything to Luna so it's really cheap. Plus if Luna isn't doing too hot I can go to Haiku easily
aleqs 2 days ago
If you 'route everything to luna' via OpenRouter then you're literally paying 10-20x the subscription rate
aleqs 2 days ago
pretty much any sub is far better usage/intelligence per $ than openrouter, opencode go is the best one I know of at the moment
vatsachak 2 days ago
OpenRouter is great because it's super easy to add keys and track spend. Plus it comes with a good API for tracking user token spend.
I mean the average Luna cost is so low that it would be eaten up by a dollar per month in my low intensity use case.
aleqs 2 days ago
Is your purpose to market OpenRouter and OpenAI/Anthropic?
what you're suggesting is like 10x the cost of other options.
vatsachak 2 days ago
Nah it's to have an easy agents/tool call API to every mainstream model.
Average user is probably gonna use like 0.2 c of tokens a month.
solyin 2 days ago
AI is a broader field than ChatGPT and Claude. Waymo is AI. Suno is AI. TikTok's recommendation algorithm is AI, Protein folding, Weather predictions. I can keep going.
Sure, Claude and ChatGPT are electricity, but oil is not just gasoline and diesel. It's also responsible for the colors all over our world. Plastic comes from oil. So chatbots might be electricity but the broader field of AI seems more like oil to me.
simoncion 3 days ago
> AI will end up being just slightly more expensive than the raw electricity required to produce it.
AFAICT, this hasn't happened for any "cloud" compute company that has been in business for -say- at least five years. Unless your prediction is that roughly no one will use "cloud" "AI", I'm rating this prediction as "totally bogus". And if that is your prediction, then what you're saying is
Assuming that you're not doing anything that needs exotic system administrators, nearly all of the cost of computing when you own your own hardware is the power for that hardware.
240V * 10A = 2.4kW
2.4kW * 24H * 30 * 12 = 20,736 kWh
20,736kWh * 0.22 EUR/kWh = 4562 EUR/year
Note that I'm using roughly decade-old hardware prices and allegedly-current electricity prices. If we used hardware prices from two years ago -or worse, from today- the hardware would cost far more per year.
[0] <https://www.hetzner.com/colocation/>
[1] ...which I think is between two and three times longer than is standard to expect in the business world...
[2] ...it's very likely that I have! Corrections are definitely welcome.
[3] ...it's also possible that USians get gouged for server hardware and that it's like a quarter of the cost if you buy it in Finland. I expect that there's definitely a price difference, but I doubt that it's very large.
vatsachak 3 days ago
What? You're saying that Hetzner is losing money?
168 * 12 < 4562
simoncion 3 days ago
168 * 12 < 4562
If we assume that Hetzner's spending cap *doesn't* apply...
If I were saying that, I would have said it. Unless "XXX max/mo." doesn't mean what it means in plain English, I _very_ strongly expect that it's very rare for colo customers to suck down all available power 24/7 and that Hetzner has a Stern Talk with customers who do but didn't disclose their intent to do so up front. I mean, you tell me... if you've ever lived in an apartment where your power and water was included in the rent and was metered with a whole-building meter (rather than per-unit meters), did you consume every amp and gallon that could be delivered to you, or did you use just a bit more than what was useful to you in the course of everyday life? [0]
I worked the math the way I did (even doubling or tripling the expected lifetime of the server hardware) to make the numbers as favorable for the "electricity is almost 100% of the cost of computing" side of the argument as they could reasonably be.
Are you saying that I fucked up my math?
[0] And if you're never lived in such an arrangement, ponder instead how you would behave if you did find yourself in one.
vatsachak 2 days ago
Fair. Your argument is that the price of the hardware dominates the price of electricity in cloud computing
simoncion 2 days ago
> Your argument is that the price of the hardware dominates the price of electricity in cloud computing.
No. The numbers indicate that the price of all "full-sized" computing is mostly the cost of hardware, [0] regardless of whether that's "cloud" computing, "on prem" computing, or -er- "colocated" computing.
And by "full-sized" I mean "computing with regular PC or server-type hardware". I'm sure someone could build some absurdly cheap exotic stuff that invalidates all this math, but I don't expect anything that will be found in a datacenter, server room, or on someone's desk at work and whose primary job is doing compute that customers are paying for to be that stuff.
[0] Unless that hardware is acquired at a _deep_ discount... which usually isn't possible if you're buying new hardware. And if you're buying used hardware at a deep discount, that usually means that someone paid a normal price for that hardware at some point.
Tanjreeve 2 days ago
Even if that scenario did happen (I agree I don't think most of the major providers would survive on a commodity utility model). Most of the advances in AI are driven by huge amounts of funding for research. If everyone goes to open source models/utility based pricing etc then it'll be cheaper but the current rate of improvements are being overwhelmingly driven by the frontier labs (for better or worse) and they're being driven by vast amounts of VC funding predicated on making vast amounts of money.
I'm very dubious we can have our cake and eat it of constant magnitude order improvements and also commodified utility pricing.
vannevar 2 days ago
>AFAICT, this hasn't happened for any "cloud" compute company that has been in business for -say- at least five years.
Most cloud software has had moats. AI does not. And AI is eating software, which means those historical margins are going away for a lot of cloud software,too. That's what the SAAS-pocalypse is about.
>Assuming that you're not doing anything that needs exotic system administrators
Remember, these are also going to be AI.
>Assuming I haven't fucked up my math, [2][3] the cost of the hardware here is more than three times the cost of power.
This is a fair point, but it just means the COGS is higher, not that the margin is any better. I stand by the prediction that AI margins will be very slim.
simoncion 2 days ago
> I stand by the prediction that AI margins will be very slim.
This I don't disagree with... but you and I probably believe this for very different reasons. However, the rest of what you've said -in this comment and the first one I replied to- is just bonkers word salad.
vannevar 2 days ago
> is just bonkers word salad.
I think you're placing much too much emphasis on the "electricity" comment, which I admit was an overstatement. But the description of the economics driving data center deals is quite parseable for someone familiar with the financial structure of the AI industry.
As for the rest, if you point out the parts that you don't understand, I'd be happy to elaborate.
simoncion 18 hours ago
> I think you're placing much too much emphasis on the "electricity" comment...
No. I addressed your electricity assertion here. [0] I'm calling nearly all of your commentary word salad because it reads like the "conversation" in the picture behind the "...cognitotoxic" cut on this Mastodon post [1], just with the "spiritual woo" vocabulary module pulled out and the "finance bro" and "LLM Tech Exuberance" vocabulary modules loaded in.
vannevar 17 hours ago
Ha, now that's a word salad.^^^^^ Well done, I appreciate a well-crafted ironic troll as much as the next man.
vinyl7 3 days ago
History has proven that businesses will relentlessly and needlessly raise prices to increase revenue quarter over quarter.
zekrioca 2 days ago
They probably meant that AI = fossil fuels, because gas is the energy source from where majority of electricity for AI datacenters will (proportionally) come from.
redanddead 2 days ago
does jevon's paradox negate this, i think yes, demand is growing and scaling is the only real path forward
>create debt-driven artificial "revenue" for the hyperscalers and Nvidia.
what for? Cui bono?
tadfisher 2 days ago
Nvidia locks the hyperscalars into long-term contracts to buy GPUs and servers. These purchases then fill up warehouses because the data centers and power success cannot be built fast enough to bring the hardware online. The demand only exists because the scalers are in a Mexican standoff, and canceling the Nvidia contract is basically handing the model-training race to the competition.
piva00 2 days ago
The new oil is data, and has been steadily growing into this position for the past 20 years.
LLM are just now consuming data, ad networks have been gobbling on it for many years.
nashashmi 3 days ago
More reasons for regulation.
AI companies, LLM makers, AI solution providers, and AI users should be inexcusably responsible for any and all harms caused by their misaligned automations across the chain. This alone will encourage self regulation and fix a broken industry that has too long prospered on fail fast and break things to be more considerate of their actions.
The second form of regulation should be on excessive energy consumption. The US Department of Energy needs to declare energy to be a vital human resource, and exorbitant uses for computing to be curtailed. Bidding on energy prices should be restricted to the excess markets where free market dictates price. And supply will reduce availability.
Long term, this will put the right kind of pressures and halting of demand. It will slow down investment in infrastructure and increase investment in research and development. It will prioritize efficient AI uses over low quality trial and error.
kamban 2 days ago
Fair point. I guess very few have the incentive to do this voluntarily.
visarga 2 days ago
> The second form of regulation should be on excessive energy consumption. The US Department of Energy needs to declare energy to be a vital human resource, and exorbitant uses for computing to be curtailed.
If you allow AI to use as much as it needs we get much higher capacity and cheaper energy down the line. Growing pains.
I see AI like the coming of a baby in the family - suddenly you need to get a larger house, baby room, ensure babysitting and education, an effort for the whole family. This is the initial cost, which is high for both a baby and AI.
nashashmi 2 days ago
Yes there is a real possibility that AI will reduce energy consumption. But you can have both: curtailed AI usage + Energy-focused AI usage. Otherwise we are risking “short term pains” for future promises.
pseudosaid 2 days ago
yeah this is so shirtless. Why is the industry trying act babies dont take time to incubate. side stepping these will lead to a still born. This is not the initial cost and it's entirely self-directed. This is entirely avoidable, in fact they need to do this as quickly as possible to push an accelerationist agenda.
jordemort 3 days ago
the new oil as in we’re going to make a bunch of products that are needlessly packaged with derivatives of it, leaving behind a toxic
mess that will take generations to clean up?
DeluluDon 3 days ago
It's already happening with development smartwatches.
Avicebron 3 days ago
AI has to take us where We want to go before its compute can be considered on par with oil.
userbinator 3 days ago
I think that's starting to happen. There's a new vibecoded project shown off here almost every day. YouTube has gotten a lot more entertainment rising above the slop. People are beginning to realise what AI can do for them.
creata 3 days ago
> There's a new vibecoded project shown off here almost every day.
Every other post on the News.YC frontpage has been about AI for the past few years. That means very little.
> YouTube has gotten a lot more entertainment rising above the slop.
Examples would be great. I'm looking on YouTube's "hot" playlists and haven't yet seen anything marked AI, although that of course doesn't rule out the use of AI.
userbinator 2 days ago
People are vibecoding and vibemodding software like never before. https://news.ycombinator.com/item?id=50196718 is on the front page as I write this, and there have been many others sharing their story of how AI fixed bugs in software they didn't have the source to, by patching the binary.
The thing about AI entertainment is that it's far more targeted and niche, so you're unlikely to find huge central gatherings around one popular thing, but instead it's spread out over many smaller channels.
creata 2 days ago
Sorry, when you said "People are beginning to realise what AI can do for them.", I got the impression you were referring to the general public lessening their visceral hatred of anything AI-generated, not niche groups of people doing very impressive things.
byzantinegene 3 days ago
i would argue that youtube has gotten alot worse this year, and every vibecoded project shown off here has been pretty soulless and pointless.
creata 3 days ago
It's hard to say that all the (to varying degrees) vibecoded security vulnerabilities posted to the frontpage are pointless.
DenisM 3 days ago
This caught my eye:
> Architect Financial Technologies, founded in 2023, offers futures in compute linked to the value of chips in America. The firm has also recently launched a platform where model-makers bid to provide “inference”—the useful output produced by an AI model in response to a prompt—rather than the underlying compute capacity.
I think the idea of selling inference is solid, but I’m not convinced Wall Street is going to be doing that. Superscalers are better positioned.
Inference will likely be priced by evals, specific for each workload.
raziel2701 3 days ago
I remember in the 2010s when people were saying Big Data is the new oil
kylehotchkiss 3 days ago
Remember when people thought crypto and NFTs were the new oil... lol. LLMs will have staying power, there's just a day where this seems like it's all going to run on our laptops. OpenAI's fear of that and tanking the RAM market was just a temporary setback.
Tanjreeve 2 days ago
Oils probably a poor metaphor but between the ubiquity of companies deriving significant value from data + analytics on larger than memory datasets and the recent mad rush for training data I don't think that is the wildest tech prediction ever.
I think LLMs are more likely to end up as something boring we don't think about like cloud computing but I don't think comparisons with crypto etc are fair as it's a much more generalisable technology.
metalspot 2 days ago
But they were right? For good or ill data and digital services are more valuable and just as ubiquitous as oil.
j16sdiz 3 days ago
infrastructure project big enough to affect qol in neighborhood: checked
corruption: checked
regulatory capture: in progress
Ya, the new oil.
anigbrowl 3 days ago
recued 3 days ago
the concern is real because the current market is treating AI as "hand off and controlling all" agent, which is not efficient and not desirable because AI is still not smart enough to take on this initiative yet, and most of the work (especially repeatable ones don't need full AI. I would guess 5-10% of our current spending is actually usefully achieving some positive outcomes, the rest are just wasted. But the global resources pouring into AI field is the real trend.
daft_pink 2 days ago
Moore's law is going to eventually eviscerate the compute needs and allow us to run compute locally and cheaply.
Good4boothee 2 days ago
It depends on exact wording but in general Moore's law has been dead for few years. Compute (CPU/GPU) continues to squeeze more performance with better architecture, but RAM and NAND(SSDs) are already as simple as possible and only improvements in density come from stacking multiple layers.
pier25 3 days ago
We’re trying to get rid of fossil fuels…
latchkey 2 days ago
oil can be stored and used later. ai compute can't.
danielmarkbruce 3 days ago
This seems silly. It's analogous to an electricity market where every megawatt is a different voltage, in a different city with no transmission lines... might stop working halfway through the job, and only works properly if you buy another 500 megawatts from the same supplier... good luck getting this market off the ground.
metalman a day ago
Ha!, no way that ai is anything more than bit greasy, hydrocarbons have been profitable for millenia, and have driven the modern machine age almost excusivly, the comparison is wacked, it's like the 'economist.com' was part of phys.org or something equaly desperate for clicks.
mikhailfranco 2 days ago
Can't read the article behind a paywall.
But checkout https://thegrid.ai/
94b45eb4 2 days ago
I find it difficult to take this seriously when the article has an em dash right in the title
vdfs 3 days ago
"We need a market for the largest capex in history"
teeray 3 days ago
"Why will nobody buy my Tulips?"
ares623 3 days ago
Tulips can be used to decorate a home, or make an important person in your life feel desired.
BatchJob 3 days ago
AI news is the new IDGAF and needs a new website.
milkshakes 2 days ago
> created: 54 days ago
chanux 2 days ago