The Second Derivative: Why No One Understands the AI Boom

https://www.groundbrkr.com/p/the-second-derivative-why-no-one

by ericwaller • 15 days ago

42 23 15 days ago

It's hard to read this because it's AI written, and at least three times as long as it needs to be.

TL;DR: A lot of credit crises happen because of a decrease in acceleration (the second derivative) rather than a decrease in point in time slope (first derivative), or absolute value. The author (or at least the person who prompted AI for the article) says they think AI capex has to continue to accelerate in order for the frontier model companies (and associated) to continue to pay their debts.

I think the theory is sound, but I'm also bullish on LLM/LBM market size being very undervalued today.

jdlshore• 14 days ago

Agreed. The article is very sloppy, but that doesn’t mean the central thesis is wrong. I’m not conversant enough with financial theory to say one way or another. Anybody care to critique this?

Schiendelman8• 14 days ago

I don't agree it's going to break these companies; they are all capable of paying their debt service. The reason this was an issue in mortgages was that the mortgages were adjustable rate - the borrowers were defaulting when the rates adjusted because they weren't able to pay the new rates. I'm not aware of any financial instruments for these AI companies that would balloon like this.

d4ng5• 14 days ago

In light of the article, why are you bullish?

ilovecake19842• 14 days ago

I think in the long term AI will be a massive market. I just don’t think it will be massively profitable. The hardware will get better, the models will be even more commoditised. It’s useful and it will get even more useful.. it’s just not going be a licence to print money.

nothercastle2• 14 days ago

If you were bullish on housing in 08 you would have been right long term but the timeline would have been way off.

Schiendelman8• 14 days ago

See my reply to the other person who replied to me :)

nothercastle2• 14 days ago

Why do you think it’s ai written. I do not get that sense except that it’s overly wrong but perhaps you found some key ai areas?

nojvek• 14 days ago

It has tell-tale signs. Not X, Y. Two X, One Y.

The way it does it headings and each paragraph neatly chunked. Fancy words, lengthy explanations that don’t add any meaning.

Someone wanted to write a long lesser and feel good.

A shorter human written one would be better.

antondd• 14 days ago

I dream of a world where I can just read a prompt behind some slopicle and cut the middleman entirely.

The bulls and I do not disagree about AI. We disagree about which derivative the structure is written on. They are watching the level. I am watching its acceleration. That is not a difference about technology. It is a difference about arithmetic - and arithmetic, eventually, does not take opinions.

Regardless, 2nd order (and higher) derivatives are nothing new in finance and are a part of any decent university’s curriculum. Corporate debt is not an options contract. Using Gamma risk to explain AI bubble mechanics is a poor fit.

https://en.wikipedia.org/wiki/Greeks_(finance)

The Second Derivative: Why No One Understands the AI Boom

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