This article agrees with a lot of what I think about AI (investment-wise) so it must be really good ! }:-)

[eppur_se_muova]

(short version: market demand will never repay investments already made)

Global Crossing Is Reborn…

*** caveat: note date: 2025/08/20 ***

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What’s a datacenter made of?? There are three main components; the building and land at roughly a quarter of the cost, all the power systems, wiring, cooling, racking, etc. at about 40% of the cost, and then the GPUs themselves at about 35% of the cost. I am sure I’m off by a few percent in these categories, but I’m relying on AI and we all know it’s still imperfect. I’m assuming that the building depreciates over 30 years, the chips are obsolete in 3 to 5 years, and then the other stuff lasts about 10 years on average. Call it a 10-year depreciation curve on average for an AI datacenter. Which leads you to the first shocking revelation; the AI datacenters to be built in 2025 will suffer $40 billion of annual depreciation, while generating somewhere between $15 and $20 billion of revenue. The depreciation is literally twice what the revenue is.

Now, here is where it gets complicated as there is no gross margin in the AI game. They’re literally giving away the technology and occasionally getting a nickel back for every dollar they give away. Calculated as a gross margin, it would be -1900%. This is the nature of trying to drive adoption and get customers attached to a product. VC has a long history of funding this sort of thing, as long as the ROIC eventually flips positive. With nothing to go on, I’m going to take an optimistic guess here, and say that ultimately, the margins get to positive, and then gradually creep up towards 25%. Why 25%?? I have no idea. It just sounds right because electricity is really expensive and you need a lot of expensive tech nerds to manage the equipment. Honestly, no one really knows where gross margins eventually land, so let’s just run with it, so that we can do some simple math. The question is, how much revenue do you need to cover the depreciation cost of the datacenter??
***
By my math, you need $160 billion of revenue at that 25% gross margin, which gives you $40 billion of gross margin against $40 billion of depreciation. Now, remember, revenue today is running at $15 to $20 billion. You need revenue to grow roughly ten-fold, just to cover the depreciation. Except, no one does anything to break even in business. For a new technology like this, with huge obsolescence risk, what unlevered ROIC would you demand?? Would you want a 20% ROIC?? That’s still dilutive to the ROIC for most of the largest capex spenders. Even at that dilutive ROIC, you’d need $480 billion of AI revenue to hit your target return.

Now, I think AI grows. I think the use-cases grow. I think the revenue grows. I think they eventually charge more for products that I didn’t even know could exist. However, $480 billion is a LOT of revenue for guys like me who don’t even pay a monthly fee today for the product. To put this into perspective, Netflix had $39 billion in revenue in 2024 on roughly 300 million subscribers, or less than 10% of the required revenue, yet having rather fully tapped out the TAM of users who will pay a subscription for a product like this. Microsoft Office 365 got to $ 95 billion in commercial and consumer spending in 2024, and then even Microsoft ran out of people to sell the product to. $480 billion is just an astronomical number.
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more: https://pracap.com/global-crossing-reborn/

scroll down for the disclaimer, or click the link at bottom for the FULL disclaimer.

[BadgerKid]

1. Biotechs are cash-hungry and fade

After repeatedly raising capital to keep the lights on and paying the C-suite salaries before ultimately selling off the intellectual property to one of the established mega-biotech firms.