OTTAWA — OTTAWA - The Bank of Canada raised its policy interest rate by 25 basis points to 2.5 per cent. It’s the first hike since July 2023. The central bank wants to control inflation by reducing the risk that high fuel prices could spill over and seep into the overall economy.
No. No, they won’t. They’re all losing money hand-over-fist. And they’re all circularly invested with each other. Microsoft owns OpenAI, and OpenAI uses Microsoft compute which they pay for with ownership. Microsoft valuation is inflated because of OpenAI, and when the bubble bursts, they’re going to lose a lot of money.
If you’re interested in economics/finance, I suggest reading about the circular cashflows and investment in the AI space.
To make it even worse, they’re effectively lying in their accounting, claiming the compute they’re giving away as a “marketing expense” instead of operating costs, while booking the value as revenue. The profit : cost ratio is even worse than headline numbers suggest. They are burning through multiples of all of their revenue on operating costs, before they even start to pay for expansion.
In other words, it’s fucked.
Sure, AI is here to stay—small to midsize models are already trained and cheap to run. But it’s also not going to make significant profit for anyone.
Like I said. I admire your optimism. But I think you need to fact-check yourself. Microsoft owns at most 27% of OpenAI. And Microsoft is currently working on its own internal AI (MAI). Even in the unlikely event that OpenAI goes bankrupt, Microsoft and its own AI products will be just fine.
I know that, yes. But it’s relevant to my point: AI costs more to train and run than its value. That Microsoft, Google, Meta, OpenAI, Anthropic, SpaceX and hundreds of smaller players are all losing money at the same game just makes the problem worse.
There is no path to profitability for AI.
The cashflows needed to pay back investment to date is already impossible, and it’s scheduled to accelerate.
And Microsoft being tied to OpenAI is largely about continuing their “growth story” to justify their valuation. The “value” of their ownership stake, even as huge as it is, is largely irrelevant; once the house comes tumbling down, it’s going to be a very long path to recovery for anyone involved in AI. They will write off many billions and be responsible for many times that in evaluated paper wealth.
Google, Meta, and Microsoft will all be fine, eventually. They have enough stable revenue streams outside of AI to weather the storm, most likely (I’m not sure how leveraged they are, but with string cashflows, I imagine they’ll survive.)
Musk’s pile of companies are dicey. OpenAI and Anthropic won’t meaningfully exist in 5 years.
So, I’m pretty confident that a variable rate mortgage is the right choice right now. But even if you aren’t as doom and gloom, it seems pretty clear that signing a 5-year fixed right now is unlikely to be a good idea.
Like I said, I admire your optimism.
And signing a 5-year fixed is almost always a good idea. Remember when Tif said rates would be low for a long time? I’d have absolutely signed fixed then. The odds are greater my financial situation improves in 5 years than in 1. I like knowing what I’ll be paying in October of next year. Variable means I don’t even know what I’m paying in January of next year.