The FIRE community and my own personal situation prove you very, very wrong. It's absolutely possible for a upper middle class family to retire in their 50s, even in their 40s, if they live frugally.
FIRE doesn't depend on having a tech job. Its all about income to expense ratio. Planning for medical events is something that gets talked to death in these communities.
Good insurance is one aspect including long term disability coverage if you haven’t retired.
That’s the thing medical expenses when young are unlikely enough insurance is a viable strategy. Long term it’s worthwhile to move to a country with a less expensive medical system. You can move basically anywhere in retirement and be better off.
Again like I have been saying, good insurance is predicated on the open market and ACA being around and not being killed by Republicans. Even if they don’t outright kill it, they are trying to put in a “death spiral” where only sick people use it and insurance companies don’t want to participate.
LTC not discriminating against pre-existing conditions is also post ACA.
In a hypothetical universe with different laws people would make different decisions, like abandoning the US. But you’re asking about medical conditions which rarely apply and laws that don’t exist. That’s not a failing of FIRE for the vast majority of people.
Further FIRE doesn’t mean crap if you get something serious and die at 23, that’s just the reality of human existence.
People didn’t abandoned the US before the ACA was the law in 2011-2012. And if there were an influx of US citizens to foreign countries, I can guarantee you other countries wouldn’t be as welcoming.
There are plenty of conditions where the difference between life and death is being able to get health care
Some did. The US expat community has been quite large for decades.
Most people didn’t do FIRE style early retirement while dealing with pre existing medical conditions. There however was plenty of expats pre ACA who very much left the country for early retirement.
US healthcare is ruinously expensive but on average it’s not particularly good if you’re in the income bracket where 1/4 million over a few years is a serious issue.
There is absolutely no significant number of Americans who left without ties to other countries. I find it rich that Americans who leave the US call themselves “ex-pats” instead of “immigrants”
There’s over 1/2 million former Americans living in Canada or the UK which doesn’t require learning a foreign language. You really can’t make those kinds of sweeping statements about populations that large. Many Americans without any prior connections fled to Canada to avoid the Vietnam war for example and then made a home there.
I know several people with normie jobs (not tech related or government) and normie lifestyles that saved up enough money to never need to work again by 50 while still maintaining their lifestyle. Most still work because they have no idea what to do with their time even though they don’t need to work anymore.
You can easily derive that this is possible from the median household finance statistics published by BLS, never mind the upper class. It isn’t that hard if you care to do it.
I absolutely have health insurance, the most expensive available on my state. That doesn't protect me 100%, but what health insurance (including the ones available at most companies) does?
People who have poor money management skills believe that FIRE=Ramen and no health insurance... In fact, it's about getting a 30K car (the one I bought new 3 years ago) instead a 70K car despite having the money.
And what happens when the Republican Party gut the ACA and you have a pre-existing condition. Do you know what life was like trying to get insurance with a pre-existing condition before 2012?
That plan works until it suddenly doesn't. When it doesn't it's catastrophic for your finances and your health.
If you have an extra couple million dollars above and beyond your regular retirement fund you could self-insure your medical costs. But then you could just buy the health insurance.
Medical expenses are less expensive when you don't have insurance. Insurance is just for catastrophic events, if you do some regular risk analysis you can come to a balance that works for you. If you know a major medical expense is imminent then get the insurance. Most procedures don't happen immediately anyway.
That’s not how insurance works even with the ACA. You have open enrollment is the only time you can get insurance on the open market. Good luck if you find you have a major medical issue right after open enrollment ends - which the Republican administration has shortened and you have to wait 9-10 months.
Obviously said by someone who is young and never had or knew anyone that had an expensive medical procedure like a friend who is 45 who I have known since 2003 and is a cancer survivor and now has to have open heart surgery
So, in your 30s? My parents both had cancer in their late 50s/early 60s (including surgery / chemo) - and paid like $15 for some pain meds in Canada.
Even on a pretty good Kaiser plan, we're paying $200+ per day in the hospital, etc. On a high-deductible, more. They say they have a $1M annual limit, but that they've never enforced it. I hope we never have to find out.
But do you want to take the chance that you will never have major medical expenses between the time you retire early and you are 65 and eligible for Medicare? How many of your friends are over 50?
i think you can get a pretty decent prius from 5k to 10k and a fantastic nearly brand new tesla model 3 for 17K. That's what i did. it was 8 years old, practically brand new, FSD prepaid included! it drives me to work and i only paid 17K for it!
you don't need to eat ramen. there are many cost effective options out there: oatmeal, beans, rice, you could grow your own fruits and vegetables, etc.
and as for the medical disaster: heart attack and stroke are actually preventable with a plant based diet (keep your LDL under 80 and you'll vastly decrease your chance of a heart attack). i know a lot of people will hate on that, but those are the facts and any evidence based nutritionist can tell you this.
The thing is... no one has anything that I want to buy. I don't mean this in an elitist way, but more of a monk way. Like, I don't understand status and keeping up with people.
And health insurance as soon as the ACA is gutted and you have a pre existing condition? Sure I could retire to Costa Rica or Panama. One of those are a plan B and we will be in CR for six weeks and we are both learning Spanish - I am. decent at it.
I bet you also your idea of upper middle class is not statistically valid.
Costa Rica is on my retirement shortlist. I really like it there and have taken the family for vacation a couple times. I've driven the whole country pretty much North to South. Puerto Jimenez is one of my favorite places but it's very rural. There's some nice areas an hour or two North of San Jose as well. I've met a handful of US families that, when the pandemic hit, just sold everything they owned and moved to Costa Rica. As far as central america goes Costa Rica is a bright spot of stability and like a functioning government. I live in Dallas so pretty much have to know a little Spanish but there isn't much of a language barrier at all. You could do a lot worse than Costa Rica.
Were you around and trying to get health insurance before 2012? I was. The startup I worked for shut down and while I had a well paying contract lined up literally the next week, I couldn’t get health insurance at any price because of a pre-existing condition even though at the time, I was a part time fitness instructor and I had just gotten through running my first (and last) two half marathons.
If you are betting on the stability of the US health care system outside of employer funded health care, that is a monumentally stupid bet with one party actively trying to kill the ACA.
So what did you do? Clearly you didn't die. Did you just have no insurance for the week before the new job started, or what?
This also happened to you while you were working and slightly between jobs. So it's not really a FIRE concern if the concern is the US messing up the health care system even more in that it would effect everyone whether working or not. Generally speaking, an answer to mitigating a lot of types of risk with a FIRE model is: you just go back to work for a while. This is easier the younger you are.
Edit: Also I thought COBRA would have been a more recent thing but it was Regan era. So did you not have employer-sponsored coverage with the startup?
No, my then fiance/now wife and I canceled our wedding we had planned, and went to the courthouse and got married six months earlier so I could get on her insurance.
Also, just so happen I did end up in the hospital three weeks later because something happened that affected my breathing for an entire year.
And how do you “go back to work” if the entire reason you need to go back to work is that you have a health condition?
If you haven’t checked, jobs aren’t that easy to come by quickly in 2026 in tech like they use to be. Sure I could find someone to give me a contract if not hire me full time - but we are still back to not having insurance .
The US messing up insurance on the open market is the concern and it being back like it was pre ACA. That only affects the unemployed under 65.
As far as being between jobs - usually you can get COBRA for a limited amount of time - not an option for FIRE.
Oh yeah, that brings up another point, I did pay for COBRA for two months back then. The contract I had paid more than enough to afford it. Then the acquiring company shut down their insurance plan and COBRA wasn’t even an option
Nope, it's just mindful capital allocation. There are plenty of ways to spend money wisely on a wedding. It's just a big party, and maybe a traditional ceremony. It's whatever you want it to be.
Statistics! Can a person below the median income afford to retire early? The answer is a resounding no. Can a person the top 10th percentile (upper middle class) afford to retire early? Yes.
So the top 10% is a household income of $250K and most of those couples didn’t reach that until their 40s. They aren’t making $225K as an L5 at 25 years old like a former intern/new grad I mentored when I was at BigTech
Most software developers won’t even see above $160K inflation adjusted during their career. Most work in second tier cities in the “enterprise”z.
I pay cash for everything right now since ACA plans are terrible... BUT, I am also one of those nut jobs that only eats meat and it is amazing. But, most people can't even begin to imagine giving up carbs as they are junkies.
there are still tribes in the amazon that have very little money, like the hazda. they may not call it retirement but they don't need to go to the office everyday.
Serious question, what makes us so addicted and dependent to money that we can't imagine any way of life without a lot of it?
Here is the crazy thing, I went carnivore after I retired because one thread that worried me about shitty insurance is the risk. Now, I'm pretty sure if I only eat meat and work-out, then I might not even need insurance. Like, my labs are phenomenal.
By taking away the fear and the addiction, I've got a level of calm and control of my life that makes me realize the "modern world" is deeply sick.
Even though things go better than before, we discuss history with my life a lot, there are things going worse than before. The spectrum is widening and better is better than before and worse is worse than before.
"People love hearing negative things" is something in our nature, that's correct. However, putting them aside and chalking this as "business as usual" is not the correct thing to do.
There's clearly easy/irrational money distorting the markets here. Normally this wouldn't be a problem: prices would go up, supply would eventually increase and everybody would be okay. But with AI being massively subsidized by nation-states and investors, there's no price that is too high for these supplies.
Eventually the music will stop when the easy money runs out and we'll see how much people are truly willing to pay for AI.
Regardless where demand comes from, it takes time to spin up a hard drive factory, and prices would have to rise enough that, as a producer, you would feel confident that a new hard drive factory will actually pay off. Conversely, if you feel that boom is irrational and temporary, as a producer you’d be quite wary of investing money in a new factory if there was a risk it would be producing into a glut in a few years.
I bet the same thing happens when the AI bubble pops.
"but this time is different, it's not a bubble, there's real value there"
Economists use the term “bubble” to describe an asset price that has risen above the level justified by economic fundamentals, as measured by the discounted stream of expected future cash flows that will accrue to the owner of the asset.
I think there's little argument that is happening, the question is more about to what extent is it a bubble.
The entire global software industry is worth less than $1 trillion dollars. Or in other words smaller than the current valuation of just OpenAI + Anthropic.
Planned capital investment this year by the Magnificent 7 alone is $600B. More than 2/3 of the total global software industry. In one year. Good luck buying any computer hardware this year, there will be a shortage of everything, including electricity.
That's not how you should measure "worth". In that world, you'd have a P/E ratio of 1. Comparing to a bond, it would be like expecting to get paid the face amount in a single year. Many people are quite happy with 5-10% interest as a risky benchmark, so 10-20 P/E isn't wild. That puts the market cap for tech itself at 10-20T as a reasonable baseline.
The entire global software industry is worth less than $1 trillion dollars. Or in other words smaller than the current valuation of just OpenAI + Anthropic.
Apple, Microsoft, Google are all worth 3-4x the global software industry just for some context.
Is Microsoft 3x more important than OpenAI and Anthropic combined? Personally no. I think the value generated by OpenAI and Anthropic will surpass Microsoft.
Going off what I could find easily from Google + ChatGPT [1]:
But arguing about the details is kind of missing the point. Microsoft's value is also inflated by the AI bubble and can't be used as a point of reference.
I don't think MS value has been inflated by AI, if anything it's value has decreased from it's AI investments. MS has mostly been on it's same growth path for the last decade.
I think you haven’t been paying attention to the market then over the last couple years. Despite getting hammered recently, it is still up 100% from 2023 lows.
Am I crazy? MSFT has was up about 100% in the prior three years before 2023 as well, and again for the three years before that.
AI has had very little to do with MSFT growth. Pretty sure the 2023 lows were a response to the massive AI spending, and the recovery mostly due to continued Azure services growth.
Two years. Basically the period when people were stuck at home during COVID restrictions and were willing to spend extra money to make that experience more comfortable. Prices fell precipitously after restrictions were lifted and people had desires outside of the home again.
1) the only reason any part of the economy is growing at all
2) the only reason US banks aren't bankrupt due to the commercial real estate debacle they got themselves into
In other words, if this is a bubble, if this pops, we're back in the 2008 situation. Where banks will go bankrupt one after the other like dominoes (in the sense that this amount is large enough that large banks will fail their financial obligations). And you can argue as much as you want based on "real" valuation metrics but none of your investments, not even cash dollars or even gold, will come out of that one intact.
Fortunately, there's the counterargument: you know what else is higher than ever? The revenue produced by the software industry. To the point that at the moment you can say, as crazy as it sounds: if revenue of the big software firms keeps growing the way it IS currently growing, this is not enough investment.
In case you're wondering what exactly that means, not enough investment. Think of it like this: you're selling shoes. If you invest too little in new shoes (or whatever resources you need to sell shoes), then you will have to tell customers coming in "sorry, all out of shoes, take your money elsewhere". Currently it's not enough investment. If this growth rate keeps up for 1.5 years, Amazon will have to close the store to anyone who wants more machines, in fact they are turning away large customers right now at Amazon, Google and Microsoft. That's where the "spend more now" madness is coming from. Is it unjustified?
The problem is "markets can stay irrational longer than you can stay solvent". It doesn't matter when the bubble pops if the governments (especially the US') bail those companies out.
The damage is already being done, whether you are a 401k/IRA holder with a position on the S&P 500 way too overweighted by the Mag7&co and their circular dealings, or just needing to buy computer parts way over their market value because some companies are over-leveraging to outcompete you for that hardware (or electricity), or even at a smaller scale by increasing software costs because everything is "AI-powered" now and of course you wouldn't want only "deterministic" software that just works and doesn't have a slop machine integrated.
If I remember during a previous GPU shortage (crypto?), Nvidia (and/or TSMC?) basically knew the music would stop and didn't want to be caught with its pants down after making the significant investments necessary to increase production
Not to mention that without enough competition, you can just raise prices, which, uh (gestures at Nvidia GPU price trends...)
too bad the bicycle industry didn't learn this. They acted like COVID was the new-normal, and it has resulted in many companies disappearing when they learned the hard way that demand for bikes in a pandemic is neither sutainable nor normal.
I believe the TSMC CEO said that in a recent interview. They're aware that their now biggest customer Nvidia has a less broad product portfolio than Apple and the high volumes they buy propably won't last. It's too much of a risk to plan more Fabs based on that.
Silicon Valley is arguing that TSMC isn't investing enough. They should be investing hundreds of billions to build fabs, like how big tech is investing in the AI buildout.
$45 billion for new fabs is peanuts compared to Amazon's $200b and Google's $180b investment in 2026.
Can't really blame TSMC though. It takes years for fabs to go from plan to first wafer. By the time new fabs go online, demand might not be there. Who knows?
According to Elon during his recent Dwarkesh podcast appearance[1], TSMC is limited by resource constraints (fab components, contractors, etc). His claim is that TSMC is building as fast as they can and they are unable to meet industry demand.
Seems legit to me. Nonetheless, I think it's a solvable problem.
If this is actually true, I think you can find a more reliable source than Elon Musk.
I'm not saying you should never listen to a word he says. His actions shape the world after all, so it's important to understand how his words precede his behavior. But I'm baffled why anyone would take Elon at his word, or even slightly hedge their perception of reality based on Elon's claims of fact.
I was leaving an HN comment, not writing an essay. I'm not fond of Elon's personality, but I listened to the context of the conversation and believe him.
Did you listen to the conversation? There was a great amount of detail. Which parts of the conversation seemed unbelievable to you?
Regardless, it's also been reported in the press over the past quarter, and TSMC's previously largest customer, Apple, notably has had to make fab adjustments and form new partnerships with Intel.
No, and I'm sorry for derailing your point. Thank you for the additional links. I skimmed them all but didn't see anyone corroborate the claim that TSMC is limited by its upstream component suppliers, rather than its own factory underinvestment in prior years. Am I misunderstanding, and those two things are the same?
"Silicon Valley" doesn't get to make the decision unless they are willing to send some of those hundreds of billions to TSMC up front. (TSMC isn't going to want future promises of business either since those are worth very little.)
And if the Big Tech companies think it is so important to get all those compute and/or memory chips sooner and in larger supply, it should be no problem at all for those Big Tech companies to pay for the costs and then have priority access to all (or their portion of) the output for the future years.
OTOH, if they are insisting on not investing their funds or stock, and it is simply pressure on TSMC to take on the risk, TSMC should be very wary of taking on risk for those players (unless TSMC sees another advantage of producing into a likely glut or supply canyon shortly after the new fabs come online).
if what Elon recently said is true (if - but he might not be... inaccurate... on this particular thing) they already have and bought the forward production capacity of those new fabs and it still isn't enough.
it all takes years. it takes years for permitting to open up the power plant to run the chips. at the scale the Big 3/4 (google, amazon, microsoft, and meta-ish) are going, we don't actually have the capacity to BUILD the capacity, despite a forecast of just 1% national electricity consumption growth this year, partly because we were expecting electricity demand to slow down and for an orderly shutdown of our fossil fuel plants. we couldn't even fill >100GW of gas/coal turbine orders over the next 5 years if we had to, and we might have to, because some of our grids (notably PJM's) are forecast to be under their safety margin of over-production in the following years.
meanwhile, regional grid operators are faced with Big Tech driving tens of % of total power into private contracts where there's only one customer; they are making the decisions normally reserved for nation-states, right? reopening Three Mile Island sounded like a pipe dream a few years ago. I hear They have something like 50 more experimental, small-scale NPPs they want to fire up across the country in the next few years, too (but despite sounding like a big boon for energy, they're ~meaningless short-term in the face of how much demand we're looking at). -so this power (uh, literally) gets wrested away from the grid authorities and from what was largely the domain of government, to now be managed by techbros and a select few partners who will be reliant on their money; I'm sure that will work out fine.
anyway, part of the reason it does make some sense in the US for the government to push for more coal/LNG turbines, is because they're already there and we need them now; the permitting to un-mothball, prevent mothballing, or expand facilities, is far less arduous than what a company'd have to go through for a new facility (tho again, we don't have capacity to build all the turbines we require inside 5 years anyway). I'm not saying it's a good idea to start sending up more GHGs, but it's maybe better than pricing out electricity for residences and "real" industry. hey, who knows? maybe they'll simply build natural gas pipelines that don't leak this time.
-oh, and then there's the problem with these new datacenters disrupting the traditional power demand curve, because they don't really do as much peak draw anymore; their peak draw is approaching base load, as LLM batching (when a company has a bunch of stuff they want processed and can wait a day for it to run in "off-hours") is sold, and if unsold, that time can be used as training time; so the modern datacenter is a 24/7/365 organ; the heart, powering our society, Moltbook. the importance of this is it makes solar less financially attractive, because now we need to be able to bank more energy since more demand's shifting to overnight. we might also want to consider just getting the moon really, really hot? then we can get a truly substantial haul of lunar light for our panels. you know, we decided against nuking hurricanes again recently; maybe we could build some new ones and nuke the moon, a lot.
> because they don't really do as much peak draw anymore
This is the same for more or less all major industrial users of electricity. Typically it's a boon for a power grid and overall lowers prices due to the stable consumer that helps you achieve very high capacity factors on your generation side. Large industrial users typically pay for a "max usage rate" (e.g. they commit to 200MW and will always pay for 200MW even if they only use 180MW average that billing period) due to the infrastructure needed to serve them - so it's as close to guaranteed money a power grid operator is likely to ever get.
If we want to re-industrialize the nation to any meaningful degree, we are going to need more baseload. AI datacenters may be a bubble, but if we can't somehow leverage the unlimited free money being poured into this space to augment our electric grid and build generation capacity for the first time since the Greatest Generation, we will have entirely failed as a society. The fact we have made it more compelling for folks to work out private deals with nuclear power plant operators to go behind-the-meter vs. just taking it from the grid is utterly absurd and shows how absolutely impossible it is to get anything done these days. These were last-ditch options after operators got frustrated trying to do things the usual way with years to decades of delays.
What is really happening at a very high level zoomed out: As a nation we decided to stop investing in energy infrastructure for over 50 years, and we are now reaping what we have sown. Eventually you run out of the previous generation's infrastructure investments, and also run out of cheap parlour tricks like sending industry overseas and focusing on energy efficiency vs. actually building stuff.
We get to figure out how to build things again or die trying. The AI bubble has only brought the demand forward a few years - anyone paying attention to this sector knew grid instability was effectively written in stone without major changes. Take our electric grid out of the hands of politicians and put it back in the hands of engineers and planners that actually can do things. You can't even build a transmission line of any length or size these days without a decade or more of legal battles and NIMBY. Good luck with the actual size of investment we need today.
tldr; We deserve all the pain we collectively get. You can only ignore problems for so long to take short term gains. Chickens coming home to roost in this arena, among many others. Once you stop investing in the future, the future eventually comes for you.
Somewhat ironically the AI boom means Nvidia would've easily made their money back on that investment though and probably even more thoroughly owned the GPGPU space.
But as it is it's not like they made any bad decisions either.
You're talking about how higher prices can motivate higher supply. The parent commenter was talking about how higher prices shift the current point on the demand curve to the right. If hard drives sold for $1 billion per gigabyte, we wouldn't see even AI companies buying as many as they are, and current production would go idle. Even assuming supply is locally inelastic (as it is given no time or space to scale, or given a lack of confidence that scaling is wise), you should be able to find a price point that avoids supply shortages by manipulating demand.
The problem with this expectation of usual market behavior is that demand from AI will still be unsatisfied even after buying out the current providers' whole supply, so any new manufacturer entering the market will also prioritize high-paying AI companies above consumers.
Sure - the question is how long they can remain high-paying.
Looks like all the money reserves big companies have been sitting on are gone. Circular money deals are in full swing & now it looks like some companies are now looking for loans.
Not sure how much longer this can go on until it comes crashing down.
No it’s not an easy fix. Manufacturers don’t have a good pulse on long term demand. The he capex to spin up a new manufacturing plant is significant. Especially with the recency of Covid where some folks did get caught with their pants down and over invested during the huge demand boom.
I don’t quite follow the narrative like yours about nation states and investors. There is certainly an industrial bubble going on and lots of startups getting massive amounts of capital but I here is a strong signal that a good part of this demand is here to stay.
This will be one of those scenarios where some companies will look brilliant and others foolish.
Smart manufacturers will sell 'hard drive futures'. Ie. "Give us $100/drive now for 100k drives for delivery in march 2028".
These contracts are then transferrable. The manufacturer can start work on a factory knowing they'll get paid to produce the drives.
If the AI boom comes to an end, the manufacturer is still going to get paid for their factory, and if the AI company wants to recoup costs they could try to sell those contracts back to the manufacturer for pennies on the dollar, who might then decide (if it is more profitable) to halt work on the factory - and either way they make money.
That only works out if there are enough investors willing to pay for those futures. If the new factory can make a billion drives but they only have 2 of those futures contracts sold (that is 200k drives) they don't build the factory. Remember too if they sell those contacts they are on the hook to deliver - if it is just investors they will accept the street value of 100k drives in 2028 but some of the people might be buyers demanding physical goods.
Every year a few farmers realize they are contracted to deliver more grain than they have in their bins and so have to buy some grain from someone else (often at a loss) just to deliver it. This isn't a common problem but it happens (most often the farmer is using their insurance payout to buy the grain - snip a very large essay on the complexities of this)
> If the new factory can make a billion drives but they only have 2 of those futures contracts sold (that is 200k drives) they don't build the factory.
But the AI companies are flush with cash and trying to buy everything, right? Why wouldn't they buy up as many futures contracts as the fab company needs to justify more fabs?
> Every year a few farmers realize they are contracted to deliver more grain than they have in their bins and so have to buy some grain from someone else (often at a loss) just to deliver it.
This is most commonly because they sold a futures contract for X bushels expecting to grow 2X but 75% of the crop failed and they only have 0.5X.
Semiconductor fab yields aren't as susceptible to how much it will rain next year and the companies generally have a pretty good idea of what their yields are for a given process node.
That is the question - will those ai companies buy the contracts
edit: actually it is worse - who else isn't buying contracts - if they build new capactity on contracts and ai collapses the existing users will take up the contracts but the old capacticy is unused.
If they build the new fabs and AI collapses then they still got all the AI companies' money because they prepaid. The current market price of chips is then going to crash, but that's what happens when AI collapses regardless. Might as well sell them five years worth of chips rather than two years worth of chips before the cash cow dries up.
Meanwhile, the fab companies want to think about what happens if AI collapses, but the AI companies don't. What do they care if they get screwed on a contract the day after they go bankrupt regardless? So offer them a contract where they get screwed if they go bankrupt, e.g. prohibit them from using any of the hardware for anything but AI for five years. Then the hardware is locked into AI stuff regardless of whether AI dries up and you can still go sell the rest of the chips that aren't to PC OEMs etc.
I don’t think the math maths. The pay back for a new plant is minimum 7 years and that is not accounting for the time to build it. I suspect nobody is buying a 10 year forward purchase agreement.
The bankruptcy courst are likely to see that as an unreasonable contract terms and call it void. See a lawyer for what they really can do of course but contract terms have to be reasonable.
Can you provide some solid examples of companies doing this in an industry with high capex? Yes futures exist but largely in commodity businesses. Because what you described sounds more like pre-purchase agreements which already exist. To have a futures market you would need investors and a product that is more of a commodity and not something highly engineered.
You are also forgetting that the payback period on a plant is not a single year, it will be over many years and most likely no buyer is wanting to arrange purchasing that far out.
I don’t see how what you described sounds is set in reality even for “smart manufacturers”.
> Normally this wouldn't be a problem: prices would go up, supply would eventually increase and everybody would be okay.
This sounds like economic dogma based on pointing at some future equilibrium.
I like the saying that goes something like "life is what is happens when you are waiting for the future". In the same way, it seems to me that equilibrium is increasingly less common for many of us.
Markets are dynamic systems, and there are sub-fields of economics that recognize this. The message doesn't always get out unfortunately.
> But with AI being massively subsidized by nation-states and investors, there's no price that is too high for these supplies.
This feels like more dogma: find a convenient scape-goat: governments.
Time to wake up to what history has shown us! Markets naturally reflect boom and bust cycles, irrationality of people, and various other market failures. None of these are news to competent economists, by the way. Be careful from whence you get your economic "analysis".
Yes, this is why the prices of housing has dropped dramatically. The market stepped up and filled the demand needed and now everyone can afford a place to live
The housing market is a textbook example of the opposite of a free market. In most markets, anything that does not "improve the character of the neighbourhood" is impossible to build by design.
Most chunks of the computing market should be thought of as a text book example of a 'free' market that operates with collusion with the few well monied "competitors" ensuring they don't put each other out of business.
Lets say you wanted to jump into the hard drive producing market. It's going to take you a few years to get there and a lot of billions of dollars. By the time you're close to producing units the existing players will suddenly drop the prices to the point where you cannot produce profits for as long as they need to. Aka, your competitors can collude longer than you can remain solvent. And yes, in two decades you will win the court case against them. And other than a fine nothing will happen because they're are so few manufactures that they are too big to fail.
The better way of putting it is that collusion is ultimately limited by the ease of entry into and exit from the market. The existing players don't need to "suddenly" drop the prices when a new entrant appears, because they've been doing that already.
It's only when supply bumps into short-term capacity constraints and price must rise enough to fully ration demand that this assumption fails. But then even if a new entrant appears that's no reason to drop prices unsustainably, because why would you? They're not taking any share of the market away from you, they're serving new demand.
This is 100% serious as it has not gone this way in the US. Housing prices keep going up in general and NIMBYism has stopped a massive amount of density growth.
You wish. More likely all that data center capacity will be used to sell something as nefarious, like VDI for the masses. You won't need RAM, disk and GPUs when you can rent those from OpenVDI.
It's hard to increase long-run production capacity for what seems to be clearly a short-term spike in datacenter buildout. Even if AI itself is not much of a bubble, at some point spending on new AI facilities has to subside.
Seeing the first mover succeed, every Tom, Dick and Harry wants to emulate. It distorts the price because people would pay premium for everything. Then there is surplus supply and no takers. People are caught with their pants down and things go for cheap.
This repeats ad nauseum. Whether it was building ISPs during early 2000s or the abundance of streaming service where every media company wanted one. Just because the corporate overlord doesn't want to look foolish for not following a trend.
AI is going to be what fiber was to the dotcom bubble. Someone spend a lot of money on a lot of infrastructure, some of which is going to be incredibly useful, but sold for much less than it cost to build. Hardware just depreciates much much faster than fiber networks.
I'm not saying that data center buildouts can't overshoot demand but AI and compute is different than fiber buildout. The more compute you have, the smarter the AI. You can use the compute to let the AI think longer (maybe hours/days/weeks) on a solution. You can run multiple AI agents simultaneously and have them work together or check each other's work. You can train and inference better models with more compute.
So there is always use for more compute to solve problems.
Fiber installations can overshoot relatively easily. No matter how much fiber you have installed, that 4k movie isn't going to change. The 3 hours of watch time for consumers isn't going to change.
Did you pay attention in computer science classes? There are problems you can't simply brute-force. You can throw all the computing power you want at them, but they won't terminate before the heat-death of the universe. An LLM can only output a convolution of its data set. That's its plateau. It can't solve problems, it can only output an existing solution. Compute power can make it faster to narrow down to that existing solution, but it can't make the LLM smarter.
Maybe LLMs can solve novel problems, maybe not. We don't know for sure. It's trending like it can.
There are still plenty of problems that having more tokens would allow them to be solved, and solved faster, better. There is no absolutely no way we've already met AI compute demands for the problems that LLMs can solve today.
There is zero evidence that LLMs can do anything novel without a human in the loop. At most LLM is a hammer. Not exactly useless by any stretch of the imagination, but yes you need a human to swing it.
Not really. You can leverage randomness (and LLMs absolutely do) to generate bespoke solutions and then use known methods to verify them. I'm not saying LLMs are great at this, they are gimped by their inability to "save" what they learn, but we know that any kind of "new idea" is a function of random and deterministic processes mixed together in varying amounts.
Everything is either random, deterministic, or some shade of the two. Human brain "magic" included.
You can't really use compute more because power is already the bottleneck. Datacenter buildouts are now being measured in GW which tells you everything you need to know. Newer hardware will be a lot more power-efficient but also highly scarce for that reason.
current shortages are exactly the result of fabs not wanting to commit extra capex due to overbuild risk and inference demand seems to be growing 10x yoy; you've famously got 8 year old TPUs at google at 100% load.
I guess you could at least mine the boards from defunct AI companies for memory chips ? Latest videos from Gamers Nexus showed it is apparently not that hard to transfer memory chips from board to board.
Then you can leach precious metals from the PCB itself.
Yes, but if they weren't overproduced and then either run into the ground or left waiting for demand that would never come, then wouldn't those memory chips and precious metals all still be more available than otherwise...?
I mean, sure, yes, we can try to recycle waste products—but it's still less wasteful not to produce them unnecessarily in the first place.
Agreed, but basic things like sanity seem to have left this hype cycle long ago.
Thankfully real world and physics has the final word, so we can at least plan what to do once the whole thing runs into a wall of reality & make the best of the wreckage.
There's clearly easy/irrational money distorting the markets here.
No, I think it is real demand.
AI will cause shortages in everything from GPUs to CPUs, RAM, storage, networking, fiber, etc because of real demand. The physical world can't keep up with AI progress. Hence, shortages.
AI simply increases computer use by magnitudes. Now you can suddenly use Seedance 2.0 to make CGI that would have cost tens of millions 5 years ago for $5.[0] Everyone is going to need more disk space to store all those video files. Someone in their basement can make a full length movie limited only by imagination. The output quality keeps getting better quicker.
AI agents also drastically increase storage demands. Imagine financial companies using AI agents to search, scrape, organize data on stocks that they wouldn't have been able to do prior. Suddenly, disk storage and CPUs are in high demand for tasks like these.
I think the demand for computer hardware and networking gear is real and is only the beginning.
As someone who is into AI, hardware, and investing, I've been investing in physical businesses based on the above hypothesis. The only durable moats will be compute, energy, and data.
> The only durable moats will be compute, energy, and data
"Compute" is capital investment; normal and comprehensible, but on a huge scale.
"Data" is .. stolen? That feels like a problem which has been dodged but will not remain solved forever, as everyone goes shields-up against the scrapers.
"Energy" was a serious global problem before AI. All economic growth is traded off against future global temperature increases to some extent, but this is even more acute in this electricity-intensive industry. How many degrees of temperature increase is worth one .. whatever the unit of AI gain-of-function is?
> All economic growth is traded off against future global temperature increases to some extent, but this is even more acute in this electricity-intensive industry. How many degrees of temperature increase is worth one .. whatever the unit of AI gain-of-function is?
The premise here is that if we use more electricity then we burn more carbon. And the media hates AI, so if anybody restarts any coal-fired power plant to run a data center anywhere, that's the story. But then there's this:
Nobody actually wants coal because solar is cheaper.
And data centers are a pretty good combination for this because the biggest problem with solar and wind is what to do during multi-day periods of low generation, but data centers have backup generators and would be willing to turn them on whenever the cost of grid power is higher than the cost of operating them. Running some gas turbines for a week every two years in exchange for stabilizing the grid and being able to run on renewable power for the other 103 weeks is a pretty good outcome for everybody, not least because that amount of grid stabilization would exceed their consumption, i.e. allow more renewables to be added to the grid than they're using. If they can shed 1GW of load when a 2GW (long-term average) solar farm is generating at 50% of typical capacity for a week, you can add that 2GW of solar to the grid and remove 1GW of fossil fuels even while the data center is increasing consumption by 1GW.
The question isn’t if the demand is real or not (supplies are low, so demand must exist). The question is if the demand curve has permanently shifted, or is this a short-term issue. No one builds new capacity in response to short term changes, because you’ll have difficulty recouping the capital expense.
If AI will permanently cause an increase in hard drives over the current growth curve, then WD, et al will build new capacity, increasing supply (and reducing costs). But this really isn’t something that is known at this point.
My post argues that the demand has permanently shifted.
By the way, plenty of people on HN and Reddit ask if the demand is real or not. They all think there's some collusion to keep the AI bubble going by all the companies. They don't believe AI is that useful today.
Usefulness and overvaluation are not mutually exclusive. AI is useful, but it is not a fraction as useful as these companies spending rates would have one believe.
If it is, then the world is going to lose pretty much all white collar jobs. That's not really the bright future they're selling either.
> My post argues that the demand has permanently shifted
The time horizon for this is murky at best. This is something you think, but can’t know. But, you’re putting money behind it, so if you’re right, you’ll make a good profit!
But for the larger companies (like WD), over building capacity can be a big problem. They can’t plan factory expansion based on what might be a short term bubble. That’s how companies go out of business. There is plenty to suggest that you’re right, that AI will cause permanently increased demand for computing/storage resources. Because it is useful and does consume and produce a lot of new data and media.
But I’m still skeptical.
The massive increase in spending can’t be sustainable. We can’t continue to see the AI beast at this rate and still have other devices. Silicon wafer fabs can’t be built on demand and take time. SSD/HD factories take time. I think we are seeing an expansion to see who the big players will be in the next 3-5 years. Once that order has been established, then I think we will fall back to more sustainable rates of demand. This isn’t collusion, it’s just market dynamics at play in a common market. Sadly, we are all part of the same pool and so everything is expensive for all of us. At some point though, the AI money will dry up or get more expensive. Then I think we’ll see a reversion back to “normal” demand, maybe slightly elevated, but not the crazy jump we’ve seen for the past two years.
Us being in the same pool as AI is one of the potential risks pointed out by AI safety experts.
To use an analogy, imagine you're a small fluffy mammal that lives in fertile soils in open plains. Suddenly a bunch of humans show up with plows and till you and your environment under to grow crops.
Maybe the humans suddenly won't need crops any longer and you'll get your territory back. But if that doesn't happen and a paradigm change occurred you're in trouble.
The most important question is are we in 1994 or 2000 of the bubble for investors and suppliers like Samsung, WD, SK Hynix, TSMC.
What about 10 years from now? 15 years? Will AI provide more value in 2040 than in 2026? The internet ultimately provided far more value than even peak dotcom bubble thought.
> The internet ultimately provided far more value than even peak dotcom bubble thought.
Yeah, but not to the early investors. The early investors lost their shirts. The internet provided a lot of value after the bubble popped and everyone lost money.
I wonder if I'm alone in being optimistic about this. I believe that the gigantic inflow of money into hardware will lead to large increase in production capabilities, accelerated progress and perhaps even new, better architectures.
I actually agree: a spike in prices due to bumping against capacity limits is way better than a downturn in the market. But this is only really true if AI hyperscalers are incented to space out their big buildouts over time (while raising their prices enough to ration current demand) so that suppliers can have some guarantee that their expanded capacity will be used.
Optical interconnect in the rack is a thing already. It's just a matter of time until it moves to single-PCB scale. And most persistent memories (competing with DDR memory for speed, and with far lower wearout than NAND) are of the "3D storage" type.
> AI will cause shortages in everything from GPUs to CPUs, RAM, storage, networking, fiber, etc because of real demand.
Real demand, sure, I agree, but maybe not retail or business demand; at the moment the "demand" is entirely VC demand.
It's a really distorted market which is to be expected in any bubble/hype phase. The current retail/business demand doesn't appear to exist at the price point these investments require - even at the low low cost of "free, gratis and for nothing", not enough consumers and businesses are signing up.
The ones really going all-in on AI are the slop-producers. I dunno if slop is enough to pay back the investment into AI - I mean, even the slop producers are going to realise that paying $200/m to produce something in 1/10th of the time is a race to the bottom because someone else on the same plan is going to do the same, but cheaper.
> The physical world can't keep up with AI progress. Hence, shortages.
I think the word "progress" is inaccurate there - the physical world supply product at the demand maintained by VC's money.
It's not "cannot keep up with progress", it's "cannot keep up with demand from VCs".
> The only durable moats will be compute, energy, and data.
That'll be a first :-) Physical commodities have never been moats on their own before.
"Punished" implies a moral valence to the whole thing which isn't there. It's not like the AI companies were aware of gamers and set out to do this. You simply got run over, like everyone else in front of the trillion dollar bulldozer.
Gamers are important because they are consistent customers. Crypto buying of GPUs is done (anyone still in this area is buying ASICs). Meanwhile gamers are still buying GPUs - they do sometimes hold off when the economy doesn't allow, but you can trust that gamers will continue to buy GPUs to play their games and thus they are a safe investment. It is rational to sell CPUs to a gamer for much less than someone in crypto because the gamer will be back (even if the gamer "grows up" there are more replacing them). Thus gamer is an important group while crypto is not.
The above was their prediction during the crypto boom and it turns out correct. I'm not sure how AI will turn out, but it isn't unreasonable to predict that AI will also move to dedicated chips (or die?) in a few years thus making gamers more important because gamers will be buying GPUs when this fad is over. Though of course if AI turns out to be a constant demand for more/better GPUs long term they are more important.
Gamers are not the only important GPU market. CAD comes to mind as another group that is a consistent demand for GPUs over the years. I know there are others, they are all important.
I mean back in the cold war we started losing privacy to foreign governments. A parade of overhead satellites is capturing everything you do all the time.
As much as we expound about the rule of law, might makes right if the population isn't vigilant. Simply put technology gives capability. In 1900 we didn't have the capability to monitor everything that everybody did all the time and keep those records their entire life. Now we have technology that can do just that.
This has nothing to do with the law. Zip, zilch, nada. Switzerland is one dark day away from having all their behaviors recorded by businesses/governments.
At the end of the day legality is a theoretical construct, and technological capability is reality.
GPUs before crypto had a lot less amount of VRAM. Crypto investment funded a lot of stupid experiments, of which some did stick to the wall. I don't think gamers had lives completely ruined by crypto in the end.
Crypto didn't need vram did it? It was just about hash rate no?
Besides, a 1080 had 8GB, a 5080 has 16GB. Double in 10 years isn't ground breaking. The industry put VRAM into industrial chips. It didn't make it to consumer hardware.
What games have had to deal with instead is inference based up-scaling solutions. IE using AI to sharpen a lower rest image in real time. It seems to be the only trick being worked on at the moment.
Higher price encourages more supply. Typically when you see a acute shortage, its quickly followed by a glut as supply starts coming online in an over correction.
I like to imagine the reference in the movie margin call is that of a merry go round or a game of Musical chair. Like we are all on a ride, none of us are the operator, and all we can do is guess when the music will stop (and the ride ends).
The problem with this AI stuff is we don't know how much we will be willing to pay for it, as individuals, as businesses, as nations. I guess we just don't know how far this stuff will be useful. The reasons for the high valuation is, in my guess, that there is more value here than what we have tapped so far, right?
The revenues that nVidia has reported is based on what we hope we will achieve in the future so I guess the whole thing is speculation?
TBF, all financial market is speculation these days, what only change is the figure/percentage of how much a share is actually the value it's priced.
> The problem with this AI stuff is we don't know how much we will be willing to pay for it, as individuals, as businesses, as nations. I guess we just don't know how far this stuff will be useful. The reasons for the high valuation is, in my guess, that there is more value here than what we have tapped so far, right?
I think the value now comes on how we make a product of it, for example, like OpenClaw. Whether we like or not, AI is really expensive to train, not only in monetary value but also in resources, and the gains have been diminishing with each “generation”. Let's not forget we heard promises that have not been fulfilled, for example AGI or “AI could potentially cure cancer, with enough power”.
And if you've been watching Deepmind AI has been making advances in medical sciences at a pretty damned fast rate. So not fulfilled is a pretty weak statement. The pipeline in medical is very long.
And that's not even talking about the head spinning rate robotics is advancing. The hardware we use for LLMs is also being used in robot simulation for hardware training that gives results in hours that took weeks or months in the past.
The article doesn't mention flash or HDD. It seems that all storage by WD is already sold.
My point is that directly or indirectly all hardware companies depend on memory and storage. If AI companies fall this could have repercussions to the whole industry.
I play lots of old games, but the thing I have the hardest time with is playing in 4:3 on a 16:9 monitor. I didn't6 know why... Maybe I need to try an actual 4:3 monitor and see how I feel.
> Job's level of success. We never hear about them.
Success != hearing about it.
You don't hear or know about most people success, or failure, for that matter; even huge ones. You know about a very small subset of these. That's fame.
And I'm just not sure that "being a found of a billion+ dollar company" was what Jobs considered his own success; but a consequence or aside part of it. Actually, no one knows but him.
What you're saying makes sense, I just think GP wanted to say something else entirely and borrowed the word "success" for that.
You do hear about people making it big and creating profitable companies (one possible definition of "success")... But how many of these founders nowadays are hippie-like figures with a multidisciplinary education? Not that many, if any.
I gotta say that I'm leaning towards your argument but the quote you provided made me think... Would a prompt able to generate CSAM on an AI be considered itself CSAM?
reply