VALUE: After Hours (S07 E40): AI As An Existential Crisis

During their recent episode, Taylor, Carlisle, and Seth Cogswell discussed AI As An Existential Crisis. Here’s an excerpt from the episode:

Seth: There’re some financial shenanigans going on. What really backs that up, exactly what you just mentioned, Tobias, although I’d say it’s actually a little crazier, where these chips are improving in capability so rapidly. At least what I’ve read the life expectancy is probably a year and a half to two years. Now, what you mentioned, as far as the heat, that’s a whole another thing. It’ll be fine. I’m sure that–

One other thing to think about is how many towns are going to be perfectly fine with waking up one morning to turn on their water and there’s no water, because a datacenter is sucking it up. I find it hard to believe that that’s going to be perfectly fine for everybody. Regardless, there’re so many things that seem very unsustainable about all of this.

Again, it seems like especially according to what Burry said, he clearly knows more about this than I do. What companies are doing seems– I guess, unethical is probably not the right word, but there’s definitely some tweaking of the numbers. I had someone the other day ask me how this all ends? It’s really just a realization at some point, or it’s slowly and then suddenly all at once, right?

It’s the realization by many that this isn’t sustainable, that there are shenanigans going on, which it appears there very much are. Again, the life expectancy according to their income statements has doubled even though we know that it’s actually shrinking. And that by saying it doubles, it has a very significant positive impact on earnings when we know there’s actually a negative impact on earnings. It’s crazy. So, I think you’re right on. I think that it’ll be really interesting to see how this all plays out.

Tobias: It’s entirely possible we go through a dotcom style. We’re just too far ahead of ourselves and we crash. But the next 25 years, clearly, the dotcom businesses have gone in directions that nobody– We’ve done so much more than people, I think even could have conceived in 2000 to get to this point. I’m sure that AI will be the same. We’ll be using it for things that we cannot even conceive of now in 25 years. But that doesn’t mean that in the interim that there’s not a lot of volatility or that it all accrues to the companies. Like, consumer surpluses are a thing. It’s entirely possible it’s a huge consumer surplus.

But I will say that if the AI is going to consume all of that energy and fresh water, then we need nuclear, because there’s just no other way to generate enough power and enough fresh water. Although Amazon has come out with a– Andy Jassy had a tweet today where he showed– They’ve had some innovation in the backend of the datacenters where they figured out a way to cool the chips a little bit beyond, but they’re getting cold directly on the chip and that separating the water away from it, so it circulates. It’s quite water efficient. Sounds like a really impressive thing.

Seth: That’ll be good. But keep in mind how much money has already been dumped into datacenters. So, now, we have to redo all of them to potentially provide that. It’s constantly evolving, which again goes to your point that the life expectancy is getting shorter, not longer, because of innovation. We’re not at a point where there’s a steady state. We’re not at a point where we’re not improving efficiency. Efficiency and innovation brings the current life expectancy down because of that trend.

I was at a conference a few weeks ago, and a gentleman was speaking that is very much in the know. Like, he’s in the AI, in the very thick of it. He made a comment that I haven’t heard anybody else really focus on, but it really stuck with me, which was these– Let’s say, the biggest companies, the Mag 7 companies, in particular, see AI as an existential crisis, that’s what he said, which means life or death.

If you are backed in a corner and you feel you’re in life or death, is there anything you’re considering other than just purely survival? You will do anything to survive. And that if you actually take that perspective into account, then that begins to actually justify or help these silly numbers make sense. Because if these companies believe that, it’s we either are all in or we lose and we’re done, they’re going to be all in, and profitability and all these other factors don’t matter. The only thing that matters is survival.

And so, I just don’t think any of these numbers, for the most part, make sense in the short term. And the problem is valuations are crazy. Valuations mean higher risk or more downside, further to fall. And so, it’s a confluence of a number of factors that I wish people were paying more attention to, because it seems almost inevitable how this ends, but maybe I’m wrong.

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VALUE: After Hours (S07 E40): AI As An Existential Crisis

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