Warbucks

Don, there is a missing term in your equation. The crunch spread is not: Token Price - GPU rental price. Rather it is: (Token Price * Token Volume) - GPU rental price. More simply: Revenue per GPU - GPU rental price. Continuous throughput improvements for the same exact token mean that volume growth can more than offset token price declines for the exact same model/token i.e. Kimi K3 token throughput per GPU has recently been improving at a 37% annualized rate driven by inference engine optimizations. GPU prices are vertical because: 1) Mix is shifting from higher margin frontier tokens to lower margin open-weight tokens. $10 in Claude revenue requires $1 of inference compute. $10 of of open-weight revenue requires $3 to $7 of inference compute given competition between inference providers leads to lower margins. Open-weight tokens taking share is positive for AI infrastructure demand given lower margins at the model layer. The reverse is also true in that frontier tokens taking share is negative for AI infrastructure demand. Open-weight models have been taking share since early summer. 2) Throughput is steadily improving for each individual token type such that GPU compute becomes more valuable even as true like for like token prices decline.

TLDR; we will probably never get another ARR number from Anthropic, which is healthy. Should force the market to move away from extreme focus on Anthropic/OpenAI ARR numbers to hyperscale growth rates, which are a much better metric for AI at this point given they capture Muse, Grok, Gemini and Open-Source. Anthropic FCF positive in Q3 and reaccelerating in October on Opus 5.5 per third party data. Roadshow in several weeks will happen after this has been widely confirmed. Unit economics much better than expected given positive FCF with 75% of their compute going to training. All per public reporting.   OpenAI continuing to grow at the same pace per Sarah Friar interview after they took share vs. Anthropic in Q3. Means the sum of Anthropic/OpenAI growth is accelerating from the Q3 pace. OpenAI probably hits FCF positive in the next few months.   Open-source growing much faster than either Anthropic or OpenAI. Modal tripled since May and is 15x YoY per yesterday’s announcement. Open-source tokens generate more revenue and profit for the hyperscalers/neoclouds than frontier tokens. *Every* open source inference cloud I am aware of is growing faster both sequentially and YoY than either Anthropic or OpenAI. And their combined compute spend is becoming material.   Third party data pointing to hyperscalers continuing to accelerate in Q3. All report in the next two weeks. Acceleration should continue in Q4 and Q1 as installed base of compute slowly reprices higher closer to spot and new capacity comes online at higher prices. Continued acceleration in hyperscalers should help address external funding concerns.   10 year yield down in a straight line over the last 24 hours.   Some risk of escalation in Iran next few days, but earnings and mid-terms probably outweigh taking an ultra long-term view and looking out 30 days.   Biggest risk imo remains cyber and OpenAI/Anthropic dominating the model layer. Fragmentation, competition and lower margins at the model layer are good for everyone else in the ecosystem and for America. Slower for longer is much better than an overbuild and an actual bubble.

Open models continue taking share. Not just tokens, more $ now spent on open models than OpenAI. Positive for the AI infra trade. Open models taking share shift $ margin from the model layer to the infra and app layers.