"While the tech industry has likened data centers - or more specifically, the expensive semiconductor chips that power them - as the "shovels" of the AI gold rush, Kupperman's napkin math found that AI data centers have an impossibly short runway to achieve profitability."
"In short, this is because data center components age rapidly, either made obsolete through rapid advances in technology, or broken down over years of constant, high-powered usage."
""I clearly hit a nerve in the industry, when judging by the number of individuals who reached out to chat," he wrote in a followup blog post. "In total, I've spoken with over two-dozen rather senior people in the datacenter universe, and there was an interesting and overriding theme to our conversations; no one understands how the financial math is supposed to work. They are as baffled as I am, and they do this for a living.""
AI data center components become obsolete quickly due to rapid technological advances and wear from continuous high-powered operation. Shorter usable lifespans force frequent, costly replacements of expensive semiconductor chips and related infrastructure. Conventional depreciation assumptions, such as a ten-year curve, significantly overstate useful life and mask the true economics. Conversations with senior data center professionals reveal widespread confusion about how the financial math can work given these dynamics. The resulting combination of fast obsolescence and heavy capital intensity creates an extremely tight runway for profitability and challenges return expectations.
Read at Futurism
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