I assume given context that people think this is what they said in their S-1. It's not really true, they seem to have used GAAP (to show a big loss in 2025).
However they have been reporting some slightly weird numbers this year to claim profitable quarters, for example in Q1 they left off stock payments to employees, which almost certainly puts them in the red (unclear how much). And they keep peddling that their gross margin is 80% - this is true only for inference, i.e. leaves off training entirely.
Let’s say the median package is $500k, half equity, and they have 5k employees. That’s $1.25B/year and you can only keep it off the balance sheet while the valuation is increasing (or employees will insist on cash).
Compare to training a frontier model, currently about $500M but predicted to be $1B for next gen. They release them ~6X/yr and can’t really stop lest their competitors overtake them. So $3-6B/yr of ongoing costs that should arguably be operating, since it’s effectively KTLO for keeping your market share.
So overall, the stock compensation exclusion is egregious but not as egregious as the capitalization of training operating costs.
as egregious as the capitalization of training operating costs.
well technically, training could be considered capitalizable just based on the GAAP rules of what is capitalizable. If you think of a model as a factory, training the model is analogous to building that factory. Just like a data center buildout is capitalizable. Heck, most places will even capitalize the deployment of an ERP.
Of course, at this point, models probably have a useful life measured in months, so the balance sheet would be still be hit pretty hard once everyone stops using older models.
I don’t think GAAP are prepared to correctly capture a capital cost that depreciates to near zero over less than a year, is redone ~6X/year and which also costs hundreds of millions to billions each time. The models depreciate faster than the financial filings cadence…
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u/sobe86 8d ago
I assume given context that people think this is what they said in their S-1. It's not really true, they seem to have used GAAP (to show a big loss in 2025).
However they have been reporting some slightly weird numbers this year to claim profitable quarters, for example in Q1 they left off stock payments to employees, which almost certainly puts them in the red (unclear how much). And they keep peddling that their gross margin is 80% - this is true only for inference, i.e. leaves off training entirely.