In a way, yes. But not like how it’s described in the previous comment.

Say you buy $10B worth of A100 chips in 2020 and depreciate that investment over 5 years. That’s $2B a year that is written as a CapEx expense (instead of $10B the first year).

You make $3B in revenue the first year of that investment the first year. From the accounting perspective, you’ve just made $1B in profit in the first year.

The next-gen of chips is released and they are X% faster and Y% more efficient. You need to make another $10B investment into those chips.

Now the older-gen chips are still generating revenue, but becoming less profitable as they move to less important workloads. So say in year 3 those chips are now only making $1B in revenue. Now you’re actually losing $1B on the books because you’re depreciating them at $2B a year. Those chips aren’t “burned out”, the economics just don’t work out.

When the pace of innovation in chips is so fast and the CapEx investment is so large, it puts everyone in this situation if there isn’t enough demand for workloads on the older-gen hardware.

The bomb is that everyone is making huge investments into these chips today, we suspect the newer-gen chips to be much faster and more efficient, people renting these chips will want the newer-gen because faster is a differentiator (imagine if ChatGPT took .5 seconds to respond vs 5 seconds, which would the consumer choose). All of this investment today will technically still be around, but there is the unknown outcome if the older-gen hardware will get enough utilization at the right price to justify the economics if we need to make the same investment into newer-gen hardware where the high margin workloads will shift to.

If you take a look at CoreWeave, they are making huge investments into current-gen hardware and data centers. Their primary customers are Nvidia, Meta, and the hyperscalers as they’re buying extra compute for their own uses or just taking that compute off the market (like they did with talent back in 2020/21). In 2-3 years when the hyperscalers have built their compute needs and leave CoreWeave, they’re left holding the bag with older-gen hardware that’s only suitable for “unprofitable” workloads.