The A.I. Crash Around The Corner
Revenue shortfalls always sober up the market - A.I. is next!
Manias have a predictable set of activities - when they happen, or fail to happen, the mania comes crashing to earth.
The DotCom debacle crashed and exploded - taking the NASDAQ with it for years - at the moment the world realized the Emperor Has No Revenue.
The hype curve for A.I. is so far over the top there is now a 100% chance of a total collapse - the only bet is when.
We on the Fractal team are right in the middle of the A.I. thing, and our vantage point is one about which we feel pretty confident. Let’s share our point of view.
We agree with many of the Sequoia comments below - and you should examine such thoughts - that the A.I. Bust is on the way - in part, mostly the big part, because there is no way the revenue can hit the expectations driving the underlying investment - in the short run.
https://www.sequoiacap.com/article/ais-600b-question/
For example, Microsoft and Google are investing billions in A.I.
You use both companies’ products.
When you write a letter, in Microsoft Word, you may notice the application finishing your sentences for you. Are you willing to pay 2x or 4x for Word to have this feature?
When you use Google, your searches are often driven by A.I. - but they are pretty much free - there is no Google license to find the best 5 restaurants in Omaha.
That’s the monetization problem.
Every company needs A.I. to compete with everyone else, but the costs are incredibly high and customers are not going to start paying for formerly free stuff because their vendor built a new data center.
Customers are not going to pay a lot more for licenses - so the vendor eats the cost.
The problem is the stock of that vendor - take your pick - may well be pretty nicely inflated now because they are writing big checks - and everyone assumes there must be a big payoff. But there isn’t a big financial payoff anytime soon.
Writing big checks for A.I. is a whole lot different than receiving big checks from A.I.
The big money is in applications that do not yet exist.
We are going to tell you about one at the end of the post and the entire next post is on it so hang on.
The A.I. Bust is coming because nobody can monetize their current portfolio of solutions 2x or 4x because they add some cool A.I. feature. A ton of the current A.I. stuff is free anyway - so how do you monetize that in the short term?
Welcome to the inevitable bust.
But, the bust is a hiccup, not an irretrievable crash and burn.
The payoff of A.I. is in entirely new applications, some of which create foundational steps for entirely new types of applications.
The Fractal guys are in the middle of some of this so let’s look at some applications we are currently demonstrating - and doing so with partners you know and trust.
You know our core message in A.I. is the elimination of the data center - not some time, not often, but we can show there is no Large Language Model (LLM) that needs a big honkin’ data center - ever.
We demonstrate this to partners today.
One of the first applications that came to us is - you aren’t going to believe this - a Fractal data center!
A California company - funded by the largest capital funder on earth we are told - is committed to building “green data centers.” They do cool stuff with batteries and power management to reduce their carbon whatevers to the lowest possible level. Think like 20% or so.
They heard about Fractal from one of the U.S. Government labs and we had several calls with them. Their question was “can we run Fractal applications in a data center?”
Well, you can, but since Fractal is entirely distributed, no central point of control, that is never how we implement it.
Their problem is they have a data center - or will have in about 8 months - and they want to run literally 1,000 times the A.I. of a traditional data center, in their data center, thus delivering “green data centers.”
Our marketing team choked on this because we tell everyone you do not need a data center and we prove it about every week. But, if you already have one, OK, run Fractal in it. Thus, you can host 1,000 times more compute for the same energy usage - and our marketing types are working on that long division right now.
But, that’s a new application type - not one we would have thought of, but nonetheless, they will make a ton of dough because their cost of compute will be over 50% less than any other non-Fractal data center. Look for that.
A.I. plays into that particular equation because the investment cost for LLMs in that Fractal data center are a fraction of their cost of a traditional one. It does screw with our marketing message but we follow the customer.
The next application is very cool and we are in advanced discussions with a company every one of you uses today - and I’ll bet this is the first you ever heard of this baby.
What is the largest super computer on the planet?
As our engineers ask the question, what is the largest super computer on the planet, by a factor of 1,000 or a million - that can be demonstrated today?
This one is going to really hassle the conventional tech guys - I know I am going to get a ton of nasties in email saying this is BS - so before you read further, or farther, we can demonstrate this today - at scale - if you are a qualified prospect - so if you dig it, call us.
The world’s largest super computer is the aggregation of cell phones in people’s pockets - with a Fractal running on each one - which can compute the largest problem, simultaneously, in less than a second. 7/10th of a second - which is pretty fast.
I know. You think we have gone over the hill here but please, if you are a qualified prospect - if you have the need for this capability, let us show it to you - today.
Obviously we aren’t going to run on all the phones in the world, but we can do on all the phones in YOUR world, so give us a shout.
Here’s what we are currently demonstrating to several companies you use every day:
We install a single Fractal on every one of their devices - within a corporation or other entity.
Those Fractals each know about every other Fractal.
When needed, if the company needs a super computer for a problem - or if they might want to skip building a new data center - they can run their corporate application, or a bunch of them on this Fractal Mesh.
The customer and tech analysts call these “agents” but we call them Fractals - and it’s our software - and we are the only ones who can demo this - so we get to name the little guys doing the work.
Welcome to Fractals.
We developed this idea 5 years ago when talking to the world’s largest billing company.
The company has 150,000,000 (150 million if you are confused by zeroes) customers.
They run a group of data centers to do their billing for a host of different digital services. Their costs are $1.2 billion a year. It takes them 24 days, fully consuming their data centers - to generate one bill for each customer.
We showed them how they could eliminate those data centers and replace all of them with $250,000 worth of hardware.
That includes backup, triplicate simultaneous processing - we know production systems so skip the emails that they would still need a data center, - they wouldn’t.
Their costs would fall from $1.2 billion a year to less than $25 million - which is a pretty big savings. Their CTO agreed we could do it, his comment was he could never get such a proposal by those who would be laid off. We get that.
Since we were not going to get the deal, several of our engineers suggested something far more exciting.
Every one of their customers has a cell phone or computer.
We could put a Fractal on every one of those devices and eliminate ALL hardware and the billing system would move to real time - just click your phone at any second and your bill would be visible.
At month end, the Fractals aggregate, send out the monthly bills, integrate with the back end systems and your work is done.
$1.2 billion is saved - other than the dough we are going to charge them.
Obviously that went nowhere - until this month.
This month some hardware companies who have large installed bases woke up to the possibility that rather than waiting for a new data center to be built at their customer - they could put a Fractal on every device in their installed base at the customer site and overnight it would be a data center - running the biggest LLMs.
So their cost of goods is zero - because they are already installed.
They get to deliver A.I. data center power - without a data center at all - to a current customer and reap the revenue with zero R&D - we did it for them.
We are doing a long post on this type of super compute later because we have some real world use cases we and some partners are developing. None of this has ever been done before - thus the margins are comfortable.
We see a big shake out in the A.I. world and the losers are going to be those who invested in data centers.
Front of the line are Virginia politicos who sold their constituents that their bucolic neighborhood would be better off with a data center consuming 400,000 gallons of water a day and the energy of a town of 25,000.
We became sure of that when some of our Wall Street new friends, who are connected, called us and said they wanted to collaborate on when the first national story comes out on eliminating a data center and running A.I. without one.
They wanted to know because they are buying puts on Oracle, Palantir, NVIDIA and some obsolete data center companies - because they recognize an idea whose time has come.
We are checking with our lawyers to see if this is legal, and if it is, we are having one heck of a Christmas Party.
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