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0 pointslondons_explore1mo ago0 comments

Smart manufacturers will sell 'hard drive futures'. Ie. "Give us $100/drive now for 100k drives for delivery in march 2028".

These contracts are then transferrable. The manufacturer can start work on a factory knowing they'll get paid to produce the drives.

If the AI boom comes to an end, the manufacturer is still going to get paid for their factory, and if the AI company wants to recoup costs they could try to sell those contracts back to the manufacturer for pennies on the dollar, who might then decide (if it is more profitable) to halt work on the factory - and either way they make money.

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bluGill1mo ago

That only works out if there are enough investors willing to pay for those futures. If the new factory can make a billion drives but they only have 2 of those futures contracts sold (that is 200k drives) they don't build the factory. Remember too if they sell those contacts they are on the hook to deliver - if it is just investors they will accept the street value of 100k drives in 2028 but some of the people might be buyers demanding physical goods.

Every year a few farmers realize they are contracted to deliver more grain than they have in their bins and so have to buy some grain from someone else (often at a loss) just to deliver it. This isn't a common problem but it happens (most often the farmer is using their insurance payout to buy the grain - snip a very large essay on the complexities of this)

AnthonyMouse1mo ago

> If the new factory can make a billion drives but they only have 2 of those futures contracts sold (that is 200k drives) they don't build the factory.

But the AI companies are flush with cash and trying to buy everything, right? Why wouldn't they buy up as many futures contracts as the fab company needs to justify more fabs?

> Every year a few farmers realize they are contracted to deliver more grain than they have in their bins and so have to buy some grain from someone else (often at a loss) just to deliver it.

This is most commonly because they sold a futures contract for X bushels expecting to grow 2X but 75% of the crop failed and they only have 0.5X.

Semiconductor fab yields aren't as susceptible to how much it will rain next year and the companies generally have a pretty good idea of what their yields are for a given process node.

bluGill1mo ago

That is the question - will those ai companies buy the contracts

edit: actually it is worse - who else isn't buying contracts - if they build new capactity on contracts and ai collapses the existing users will take up the contracts but the old capacticy is unused.

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infecto1mo ago

Can you provide some solid examples of companies doing this in an industry with high capex? Yes futures exist but largely in commodity businesses. Because what you described sounds more like pre-purchase agreements which already exist. To have a futures market you would need investors and a product that is more of a commodity and not something highly engineered.

You are also forgetting that the payback period on a plant is not a single year, it will be over many years and most likely no buyer is wanting to arrange purchasing that far out.

I don’t see how what you described sounds is set in reality even for “smart manufacturers”.

zozbot2341mo ago

There are futures markets for DRAM. Somewhat secretive (hard to find reliable price quotes) but they exist.

j / k navigate · click thread line to collapse

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bluGill1mo ago

AnthonyMouse1mo ago

> If the new factory can make a billion drives but they only have 2 of those futures contracts sold (that is 200k drives) they don't build the factory.

But the AI companies are flush with cash and trying to buy everything, right? Why wouldn't they buy up as many futures contracts as the fab company needs to justify more fabs?

> Every year a few farmers realize they are contracted to deliver more grain than they have in their bins and so have to buy some grain from someone else (often at a loss) just to deliver it.

This is most commonly because they sold a futures contract for X bushels expecting to grow 2X but 75% of the crop failed and they only have 0.5X.

Semiconductor fab yields aren't as susceptible to how much it will rain next year and the companies generally have a pretty good idea of what their yields are for a given process node.

bluGill1mo ago

That is the question - will those ai companies buy the contracts

edit: actually it is worse - who else isn't buying contracts - if they build new capactity on contracts and ai collapses the existing users will take up the contracts but the old capacticy is unused.

1 more reply

infecto1mo ago

You are also forgetting that the payback period on a plant is not a single year, it will be over many years and most likely no buyer is wanting to arrange purchasing that far out.

I don’t see how what you described sounds is set in reality even for “smart manufacturers”.

zozbot2341mo ago

There are futures markets for DRAM. Somewhat secretive (hard to find reliable price quotes) but they exist.

j / k navigate · click thread line to collapse