The market is overreacting to hyperscaler credit concerns because spot GPU rental prices exceed contracted rates and operating cash flow growth is underappreciated as AI funding.
“Market is overreacting to hyperscale credit spreads widening from my perspective. TL;DR Spot pricing for renting GPU compute materially above contracted rates implies hyperscalers are underearning while operating cash flow acceleration is an underestimated source of funds for AI”
Hyperscalers are earning below market rates because spot GPU rental prices exceed their contracted rates, while their cash flow growth is being underestimated.
“Market is overreacting to hyperscale credit spreads widening from my perspective. TL;DR Spot pricing for renting GPU compute materially above contracted rates implies hyperscalers are underearning while operating cash flow acceleration is an underestimated source of funds for AI”
Baker explains nobody predicted old GPU prices would rise vertically, leading to contracted compute trading at massive discounts.
“I don't think anyone in '24 or '25 thought that the prices of old GPUs would be going vertical. Everybody thought, hey. We're gonna be smart.”
Baker reports inference cloud expects to pay 100% more for Blackwells when contracts expire, showing hyperscalers are underearning.
“They went on a podcast, and they essentially said, we are planning to pay 100% more for Blackwell's when our contract expires. And that just means that essentially all the hyperscalers are under earning.”
Baker notes seven-month GPU rental price increase from mid-$2 to nearly $4 per hour is surprising.
“And they're hoping seven months later to pay just under $4. Like, you know, just you hear this today. And that's, like, that's pretty crazy”
Baker notes the startup is renting an identical B200 cluster seven months later at nearly double the price.
“They're renting the exact same cluster, exact same size cluster, essentially identical in every way, b two hundreds, no no differences.”
Baker reports a top startup rented several thousand Blackwells at mid-$2 per GPU hour recently.
“And they had rented a cluster of several thousand black wells, And we'll just call it, you know, somewhere in the mid $2 per GPU hour.”