Speaker unverified: uncertainty

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…would work in cloud providers for CPUs. It works for CPUs, but it doesn't really work for GPUs. And I don't think people were trying this because they were thinking about the risk associated with it. I think a lot of people are just come from a software background, have not really thought about like cogs or margins or inventory risk or things that you have to worry about in the physical world. And I think they were just like copy pasting the same business model onto CPUs. And also, I remember fundraising like a few years ago. And I know based on. Like what we knew other people were saying who were in a very similar business to us versus what we were saying. And we know that our pitch was way worse at the time, because in the beginning of SF Compute, we looked very similar to pretty much every other GPU cloud, not on purpose, but sort of accidentally. And I know that the correct pitch to give to an investor was we will look like a traditional CPU cloud with high margins and we'll sell to everyone. And that is a bad business model because your customers are price sensitive. And so what happens is if you. Sell at high prices, which is the price that you would need to sell it in order to de-risk your loss on the depreciation curve, and specifically what I mean by that is like, let's say you're selling it like $5 an hour and you're paying $1.50 an hour for the GPU under the hood. It's a little bit different than that, but you know, nice numbers, $5 an hour, $1.50 an hour. Great. Excellent. Well, you're charging a really high price per GPU hour because over time the price will go down and you'll get competed out. And what you need is to make sure that you never go under, or if you do go under your underlying cost. You've made so much money in the first part of it that the later end of it, like doesn't matter because from the whole structure of the deal, you've made money. The problem is that just, you think that you're going to be able to retain your customers with software. And actually what happens is your customers are super price sensitive and push you down and push you down and push you down and push you down, um, that they don't care about your software at all. And then the other problem that you have is you have, um, really big players like the hyperscalers who are looking to win the market and they have way more money than you, and they can push down on margin. Much better than you can. And so if they have to, and they don't, they don't necessarily all the time, um, I think they actually keep pride of higher margin, but if they needed to, they could totally just like wreck your margin at any point, um, and push you down, which meant that that quadrant over there where you're charging a high price, um, and just to make up for the risk completely got destroyed, like did not work at all for many places because of the price sensitivity, because people could just shove you down instead that pushed everybody up to the top right-hand corner of that, which is selling short-term. rk at all for many places because of the price sensitivity, because people could just shove you down instead that pushed everybody up to the top right-hand corner of that, which is selling short-term. Contracts for low prices paid over time, which is the worst place to be in, um, the worst financial place to be in because it has the highest interest rate, um, which means that your, um, your costs go up at the same time, your, uh, your incoming cash goes down and squeezes your margins and squeezes your margins. The nice thing for like a core weave is that most of their business is over on the, on the other sides of those quadrants that the ones that survive. The only remaining question I have with core weave, and I promise I get to ask if I can compute, and I promise this is relevant to SOF Compute in general, because the framework is important, right? Sure. To understand the company. So why didn't NVIDIA or Microsoft, both of which have more money than core weave, do core weave, right? Why didn't they do core weave? Why have this middleman when either NVIDIA or Microsoft have more money than God, and they could have done an internal core weave, which is effectively like a self-funding vehicle, like a financial instrument. Why does there have to be a third party? Your question is like... Why didn't Microsoft, or why didn't NVIDIA just do core weave? Why didn't they just set up their own cloud provider? I think, and I don't know, and so correct me if I'm wrong, and lots of people will have different opinions here, or I mean, not opinions, they'll have actual facts that differ from my facts. Those aren't opinions. Those are actually indeed differences of reality, is that NVIDIA doesn't want to compete with their customers. They make a large amount of money by selling to existing clouds. If they launched their own core weave, then it would be a lot more money. It'd make it much harder for them to sell to the hyperscalers, and so they have a complex relationship with there. So not great for them. Second is that, at least for a while, I think they were dealing with antitrust concerns or fears that if they're going through, if they own too much layers of the stack, I could imagine that could be a problem for them. I don't know if that's actually true, but that's where my mind would go, I guess. Mostly, I think it's the first one. It's that they would be competing directly with their primary customers. Then Microsoft could have done it, right? That's the other question. Yeah, so Microsoft didn't do it. And my guess is that... NVIDIA doesn't want Microsoft to do it, and so they would limit the capacity because from NVIDIA's perspective, both they don't want to necessarily launch their own cloud provider because it's competing with their customers, but also they don't want only one customer or only a few customers. It's really bad for NVIDIA if you have customer concentration, and Microsoft and Google and Amazon, like Oracle, to buy up your entire supply, and then you have four or five customers or so who pretty much get to set prices. Monopsony. Yeah, monopsony. entration, and Microsoft and Google and Amazon, like Oracle, to buy up your entire supply, and then you have four or five customers or so who pretty much get to set prices. Monopsony. Yeah, monopsony. And so the optimal thing for you is a diverse set of customers who all are willing to pay at whatever price, because if you don't, somebody else will. And so it's really optimal for NVIDIA to have lots of other customers who are all competing against each other. Great. Just wanted to establish that. It's unintuitive for people who have never thought about it, and you think about it all day long. Yeah.…

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