this post was submitted on 22 Dec 2024
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This is entirely true but also completely normal for a hyperscaler in its first years. At this stage demonstrating a huge demand and your capacity to capture a lot of it is much more important than profitability. You don't exactly bootstrap a company at this level of CapEx.
Their revenue is still growing at a staggering rate, showing no signs of slowing down, and enterprise sales are pretty respectable. I don't know that i'd call 3/4 of a billion in enterprise sales abysmal for a startup in its 2nd year. YMMV i guess.
Sure there is some uncertainty about their model but that's what VC backing is for, right ? They're not building tin can factories with known and predictable business trends, and being valued at 40x your yearly revenue (not profit !) is pretty banal for a successful early stage Deep Tech. We may personally think it's bullshit and choose not to invest in it but it's still far from outrageous and very far from the definition of a bubble.
For the level of investment in and hype around this company? Yes, those enterprise sales are abysmal. When there are major news articles about their product every single week, they should be doing a lot better than that.
They have demonstrated zero ability at actually "hyperscale". They have no path to getting those costs down. Their conversion rate from free to paid users is atrocious, and they're already raising prices on their plans which is only going to worsen those conversion rates. Their costs to build future models are ballooning exponentially, and theres a decent chance that at some point Microsoft will get sick of subsidizing their compute costs.
Is it possible that they could be successful? Yes. But a lottery ticket would probably be a sounder investment.
For the record, OpenAI themselves are telling those VCs that they should think of their investment more as a "donation" with no expectation of future profit. Absolutely oozing confidence there.
Hypergrowth cult is always "interesting". Because it happened with X, apparently it will happen with Y. Then, unavoidably, it goes through the boom and bust cycle. I am sick of it.
I don't see the connection. How are enterprise sales specifically relevant here ? Are enterprise customers known for jumping on top of early stage products where you're from ? Cause where i'm from they're known for being the last ones to board.
How would you define hyperscale ? They have one of the biggest GPU fleets around and are likely serving trillions of tokens monthly. That falls well within the range of my personal definition.
That's just stuff you say. Atrocious (in your opinion), no path to getting those costs down (in your opinion). Alright, we get it, that's not a company you'd invest in, but then again your investment thesis seems pretty conservative. If a company has to make billions of enterprise sales in its 2nd year, and have double digits conversion early on, then there's not that many successful companies you would have invested in. You certainly wouldn't have put a dime in Uber at 48B valuation 7 years ago - well those who did made a nice return on their investment.
Isn't that the definition of VC-backed startups ? The alternative would be to build a time machine, travel back to the 18th century, and invest in the British textile industry. Sadly they don't make this kind of predictible, risk-free and quickly profitable enterprises nowadays.
Oh i won't be the one to contradict you here. Sama is one sleazy motherfucker, that's just written on his face. Sadly it doesn't preclude him from building a historical hyperscaler with OpenAI.