Chapotraphouse

a bit of a tangent but bear with me. 'traditional' data centers were either for content delivery networks (mainly storage) or web servers (general computing, CPUs). their focus was usually to optimize networking as they were built for the internet. they were and still are extremely profitable. their electricity demand was elastic (did not use 100% of their full capacity all the time) and generally low compared to their service, extremely lean crew (a massive data center can run with 25-100 people), low maintenance cost (most of the spending is in capital expenditures), and always in demand. Amazon is basically a data center business (AWS) with a retail component on the side. because of this over the past three decades politicians created multiple incentive programs in order to attract the data centers. granted these data centers really didn't contribute that much to the local economy and cooling them was still an issue, but it was basically seen as a free money glitch through taxes.

then crypto happened. after the first mainstream bitcoin rally around 2017, crypto farms became a thing. bitcoin has a 'proof-of-work' scheme where in order to validate a bunch of transactions you have to find a random value that combined with the transaction data, produces a hash with specific restrictions, and if you do you'll get rewarded with bitcoin. what that means in practice is that you need to have a bunch of GPUs running 24/7 guessing random numbers and checking if they work or not. extremely demanding and wasteful with most of its work being useless, generating shitcoins for gamblers that insisted this was the future of money.

basically up until the AI boom, these fuckers both ruined grid stability and GPU prices as well as the second hand GPU market. they went everywhere where there was cheap electricity and set up shop, ruining the local grid, buying out and scalping GPUs, and finally dumping the worn out ones as "basically brand new" on the second hand market for their "after scheme scam". even with their industrial scale use of electricity their impact was limited worldwide because it was just shitcoins. illegal crypto farms were partially responsible for the iranian (and following that iraqi) grid failures for multiple years because iran had (and has) one of if not the cheapest electricity anywhere in the world (which will change this summer as the government is planning to use the war as cover to 'liberalize' most of the electricity sales through energy exchanges).

getting to the point, most of these 'GPU as a service' companies started from crypto, and pivoted to AI once NFTs crashed and permanently turned most people away from crypto. so you have these companies starved for cash which already have some experience in the field, silicon valley flush with cash looking for the next big thing after crypto and metaverse flopped, and a business model that has traditionally been very profitable with massive incentives behind it. so you get these new data centers popping all over the place.

without explaining how current AI training methods work, these new data centers have extremely inelastic (basically 100% usage all the time) and insanely high power demands. every negative consequence of data centers comes from the fact that there is an ungodly amount of electricity being turned into heat and sound due to resistance in semiconductors, in order to crunch numbers. this kind of use is absolutely killing the local grids which were not designed to handle this much and this kind of load, not to mention the sound pollution, the heat pollution and the water used for cooling.

another thing that i barely mentioned was CAPEX or capital expenditure. CAPEX is basically how much you spend on building long term infrastructure, which is not recorded as a loss until there is depreciation or asset impairment. how this should be calculated is a subject of debate but from what i see most of these calculations for data centers are bullshit. they are using 5 to 6 year constant depreciation for GPUs with basically no asset impairment. first the number itself is bullshit, most GPUs will probably not last beyond 1 or 2 years. besides that this number used to be 3 to 4 years which magically got bumped into 5 to 6 years while the load has become increasingly more destructive. second the workload is massive but it is not stable, the GPU is not wearing out evenly and after you are done with it it's completely worthless, and every new generation of GPUs and AI models tanks the value of existing GPUs. what i am saying is that GPU spending is extremely front-loaded while companies are pretending it's not, and are spreading the massive losses over multiple years. even with that the numbers do not look good at all.

will these data centers be profitable? not all of them but some will. despite all the jokes and insults (which i also do don't get me wrong it's fun to shit on venture capital dudes), the investors are not dumb. if we can see AI is getting more efficient, that this amount of capacity is not needed and most of these will go bankrupt, they do so as well even if they don't admit it publicly. they just think that after the dust has settled their business will be the one left standing. but in order for that to happen, you need to spend a lot right now otherwise the competition will eat your lunch. competition (as much as it is worshiped in the civil capitalist religion) is inherently wasteful and excessive. this bubble has still not reached the levels of train mania of the 19th century britain, and the logic is that "sure a lot of people were miserable for a decade or two following the bubble, but after that UK was left with state of the art infrastructure which allowed it to become the biggest economy in the world, and our current economy is much more dynamic so if it worked out well before in a worse situation, it should work now".

TL;DR: why do we need so many fucking data centers? we don't need this many, but we'll need some, and the ruling class have nothing "better" to spend their insane amount of wealth on. they think that based on past trends this will work out for them no matter how it turns out, so they are just doing it, the rest of us be damned.