I've been critical in the past of AI compute indexes and the willingness to price compute based on the spot rental price, but now that the AI reset is sinking into the repricing of AI buildout debt its time to realize that the cost of capital is what determines the price of compute. The most important number in GPU pricing right now isn't $/GPU-hour. It's the gap between what a hyperscaler pays to borrow (~90bp over Treasuries) and what a neocloud pays (~1,100bp). The cost of compute is now set by the cost of capital, and the spot rental rate no longer tells you much. The price of an H100 isn't one number. The same chip in the same rack costs a different amount depending on whose balance sheet it sits on. A ~1,000bp funding gap is a structural cost advantage that no amount of operating skill closes. For example, take one GPU-hour apart. Most of it isn't power or space. It's paying back the chip, the interest on the loan that bought it, and the return the equity expects. A $40–55k all-in GPU, 75% debt-funded, at ~7,000 utilized hours a year is a financing instrument that happens to do matrix multiplication. As the +500bp on neocloud debt (10%→15%) adds $0.20–0.30 to the break-even cost of every GPU-hour, which is then added on to the rental price. That's 8–10% of the H100 index, from a credit spread alone, driven almost entirely by the cost of capital. That means that the compute spot index is a derivative of the AI infra debt credit curve and the squeeze on neocloud margins.

a few thoughts: 1. pretraining science is kind of like how people built quite good steam engines before they understood thermodynamics. “Science owes more to the steam engine than the steam engine owes to science.”-(L.J. Henderson). if nick is right, which i am pretty sure he is, progress points in the direction of more interpretability, and pretraining was "slouching towards monosemanticity". my guess would be that major breakthroughs in interp also advance capabilities 2. nick is a good friend of mine, safe to say my origin story at openai wouldn't have happened if i hadn't met him, and it's fascinating watching him operate and seeing the early drafts evolve into this. he's the most profoundly happy guy I know- not driven by guilt, activism, or religious terror, but by fascination. he of course understands the stakes of understanding neural networks, but it doesn't seem like the core reason he does it: he just loves the neural nets. afaict he's posting this from some beautiful hideaway in tokyo. there's a lesson in there for all the +EV maxers. i feel very grateful to have met him 3. i do think it's crazy how few people across the world were staring at neural nets growing: most have moved to a different level of behaviorist analysis, thinking about reward functions and test scores and whatnot. it does not bode that well for the major model companies, oai included, that fundamental breakthroughs like this are coming from outside. we've become too much of a pressure cooker focusing on local incentives, studying narrow tracks under old paradigms, mostly doing engineering, rather than fundamental research, and implicitly hoping the next model will figure it out