saved
Who Captures the Value Created by AI? - Dylan Patel
gist
Dylan Patel tells Dwarkesh that most of the value frontier models create still lands with users like Jane Street and Meta, not OpenAI or Anthropic. Capture has already rotated from chips and fabs to model-layer gross margins heading toward $100 million per megawatt. He does not expect labs to take the whole stack: most financed compute still transacts below $20 a gigawatt, while Meta and SpaceX can build without a customer and then rent leftover watts at 25, 50, or more.
ideas
- Users still take most of the surplus. Jane Street and Meta extract more from the tokens they buy than Anthropic or OpenAI keep as profit.
- Value capture has already rotated. Hardware took the margin when labs sold below cost; model-layer gross margins are now large and heading toward $100 million per megawatt.
- A software markup is not a law. Dwarkesh is puzzled that labs turn $10 of compute into $100; Dylan treats that gap as historically unstable.
- Financed compute stays cheap. He expects most transactions still below $20 a gigawatt because new clouds must pre-sell capacity to raise capital.
- Balance-sheet builders get optionality. Meta and SpaceX can build without an end customer, then keep the watts or rent them at 25, 50, or more.
quotes
“most of the value that these models generate does not get given to OpenAI and Anthropic.”
“it's really weird that there is a 4x or more difference between what compute sells for”
“I think most compute will still continue to transact at sub $20 a gigawatt.”
“I can sell my compute for $25 million a megawatt or $40 a megawatt”
transcript
What if the AI models were literally as good as a fully automated software engineer? They're not currently there yet, right? Like I think they're far from just being able to fully automate the job of like a full white-collar worker. But white-collar workers earn, you know, six figures or north of that a year. Um and if you have a gigawatt that can sustain a population of like, say, a million uh white-collar workers. It just Let's Let's say roughly, right? Um that's like You could then off the back of that That would be 100 billion. That's actually surprisingly low.
[laughter]
Yeah, 100k per person, million population, yeah.
Yeah, yeah, yeah.
Um
I don't know. But it'd be many hundreds of billions of dollars if you get like full AGI uh per per gigawatt.
other aspect of this is, and we've continued to see this, that most of the value capture is not happening, right? Like most of the value that these models generate does not get given to OpenAI and Anthropic. Um thankfully so far, it is mostly just being given to the users.
Yeah, yeah.
Right? Jane Street with their exclusive contract with OpenAI for GPT-5.6 ultra-fast mode, or Jane Street where they're like one of Anthropic's biggest customers is generating way, way, way, way more value out of the [snorts] tokens they're paying for than Anthropic is uh generating in terms of profit, right? Cuz they get to, you know, make money off of the market. Um or Meta, who at one point was, you know, rumored to be, you know, as much as 10% of Anthropic's business, um you know, they're generating way more efficiencies by optimizing their ad algorithms or what have you, and and getting engagement time 5% longer, and you know, all these things. They're They're making way more money off of using these models than than Anthropic. And so, the ultimately, you know, and that's that's what's required. So, sure, if you had a million new software engineers, the cost for software engineer would also fall.
One thing I'm confused about is Does the market come into equilibrium? And if it comes into equilibrium, would you just expect the price of compute to equal whatever Anthropic and OpenAI can generate from it or be very close to it with like a small amount of markup for Anthropic and OpenAI. Like right now it's really weird that there is a 4x or more difference between what compute sells for and how much money Anthropic can make from it. And in the world where the revenue per gigawatt continues to increase, if Anthropic's ability to monetize a gigawatt doubles or triples or something, it'd be weird if then the gap continued to increase. And so Anthropic just by like having some software, having some weights, can take something that cost them $10 and then turn it turn into $100.
Yeah, so there's there's a bit of um this is always a fun question, right? Which is where does the value go in AI? AI is generating all this value. You've got, you know, the end user which we I think we all agree is generating more value than anyone else, hence they're paying a lot for these models. But then you have, you know, the app layer. Well, so far the app layer has generated very little value. Um then you've got the model layer, which again up until up until a year ago was generating negative gross margins and is now generating massive positive gross margins. Um and looks like it's on the path to generating, you know, $100 million per megawatt. Um so turning, you know, $10 $15 into $100 as you said. Um but if we go back again a year ago, the hardware supply chain was generating all this gross margin while literally everyone else was losing money on it. Um OpenAI and Anthropic were just plowing VC money in. Um and and as were many other startups and and many of these hyperscalers are building infrastructure without knowing if there was going to be a payoff. Um so ultimately you had this like, you know, negative value being created on the model layer almost if you will um because they were selling the tokens for less than it cost them on the infra side. And all the value's being created used at the chip, the fab. Initially in 2023, the memory guys were making no money off of, you know, HBM or memory for AI even though theoretically their value they were delivering was humongous. Now you've got Well, actually TSMC makes way less value than the memory guys. Um is that actually how much you know, they're capturing less value even though So, so the the value capture has shifted around a lot, which is very fun for um, people tracking the market or participating in the market like like Jane Street as an example.
[laughter]
There's no need
There's no need to plug them that hard. Um, [laughter] so, you know, what happens you know, going forward? Does Anthropic and OpenAI, you know, they've they've they've slowly started to balloon in value capture. Do they balloon and take all the value capture? Well, that was a thought and then and then Elon showed actually no, I can sell my compute for $25 million a megawatt or $40 a megawatt to Anthropic and Google. Even if it's a short-term thing, I've sold it for this price and I'll recoup my entire capex in a year.
So, what's your prediction of how much the relevant Toronto compute, like B300s or whatever, that sold for 40 B a gigawatt, that SpaceX sold for 40 B a gigawatt to Google. What does that sell for at the end of next year?
I think most compute will still continue to transact at sub $20 a gigawatt.
Even at the end of next year?
Because all of it has to be financed. For compute that you can build without financing, right? If if Meta can build compute, Microsoft, Amazon, SpaceX can build compute without finding a customer just saying [ __ ] it, I'm going to build this compute and then turn around and wait till it's already built, they now control what's going on. So, so most compute is contracted well before it's built.
Yeah, yeah.
And so this is sort of what Elon took advantage of in the market is he actually had all this compute and he was like, "Hey Anthropic, I know you're making like 60 plus billion dollars per gigawatt. Why don't you just buy my stuff for a crazy amount of money?" And obviously, you know, it's not like Elon decided this or Anthropic decided this. It's sort of market figured itself out. Other people, you know, you go to a random cloud, they're like, "Okay, I'm going to build a gigawatt of compute or 100 megawatts of compute. I'm going to spend the capex. I need to turn around and find a customer. If I want to find a customer, I need to find the capital. Who's going to give me the capital and the customer? The customer has to sign a deal, and then I take the customer's commitment to the credit markets, and I raise the capital. And so, there's this sort of like completely different power structure where Meta, who is effectively hoarding compute, them and SpaceX are plausibly the like number three. And the only plausible number three is because they're hoarding all this compute. They're using their balance sheets and capabilities to build compute to build compute without end customer that's monetizing at a huge degree. And they have an actual balance sheet, so they can go to the credit market and being like, "Hey guys, I have, you know, you you build a megawatt, you can make, you know, your margin, not a crazy margin, but you can make a good margin, and I now have all this compute." And now Meta and SpaceX have this optionality of looking around and being like, "Is my internal use case going to make me more money, or should I go out there and sell it to Anthropic OpenAI at crazy margins?" Yeah. So, now we've sort of entered a regime where um SpaceX and Meta are saying, "Actually, I'm going to build the compute, and I can start to rent it out for not 13, I can sell it for 25, 50, and more." If you enjoyed this clip, you can watch the full episode here and subscribe for more clips. Thanks.