Frontier AI labs didn't expect demand to explode so fast they had to pay premium prices for GPUs. Nvidia keeps fat margins while cloud providers rent GPUs at higher rates. Server makers get stuck in price wars with thin margins.
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Now the question or what gets confusing to me here in some cases, and maybe you have an answer for this, is how nobody forecast this. Like we did our best, we understood, right? And I think even the Frontier Labs who really deeply understand how these models work did not expect themselves to be this profitable and to be able to serve this many users and to grow this fast. And so even they were caught by surprise and had to do crazy things and sign big contracts at very high premiums Just to get access to GPUs tomorrow to serve their users and to go for the bigger research jobs. I don't view this as like an AI fast takeoff, but it seems to be like a revenue and profitability fast takeoff for a lot of these labs.
Yeah. Yeah. And, and, and I think, you know, we've, we've kind of in our discussion, we've really hit on what, what is the debate going forward and it's the willingness and the ability. And I think the ability is the profitability. Like a lot of people who are new to this don't realize just how profitable it is. And that's one of the things that will determine whether we, we, we overcome this obstacle, this kind of, um, you know, funding wall.
Well, I think it, yeah, it's also confusing which layers of the cake are profitable, which is to say, right?
Yeah. Yeah.
Nvidia clearly had durable profit margins for a long, long time, but your, yeah, your layer cake chart is great to explain, like clearly there has been an increase in the profitability of the Neo Clouds. Because the amount that they can rent the GPUs for to people has increased recently when the GPU has not, there's nothing changed on the operational costs or anything, right? The people are selling tokens with more efficient models or higher prices. And so therefore their profitability is increasing. And then my personal experience, and I think a lot of other people's experiences, the value or utility that you're able to derive from using these AI applications is also increasing over time as they get higher quality. And so I don't look at this and say, you know, we're taking from one to give to another. It seems like every layer of the stack in some ways is increasing profitability, except for like the server OEMs where it's still a pricing war and they can't get 9% margins.
