“I call it earnings before bad things. So if I cut out all of the things that are costing me a lot of money and then I calculate EBBT — not EBIT, but EBBT, earnings before bad things — my cash flow is tremendous.”
Better Offline · Tech Strategy & Big Tech · September 2026
Kedrosky and Ed Zitron were arguing about whether AI inference is actually profitable for the hyperscalers, against claims that pure inference margins are very high. His point is that those margins only look good once you strip out frontier-model training spend. His test for the argument: show him a hyperscaler that has stopped spending on frontier models.
Transcript
rise, but on that order of things. That's right.
And that's what I'm saying. Which people will say is, oh,
that's really straightforward. You know, Gavin Baker's out there telling you that, right? That the margins on these things in terms of pure inference are so high. But of course, the problem is that this is the classic phenomenon of I call it like earnings before bad things. So if I cut out all of the things that are costing me a lot of money and then I calculate EBBT, not EBIT, but EBBT, earnings before bad things, my cash flow is tremendous. Well, then fine. Show me the hyperscalers that have stopped spending on frontier models and I'll buy the argument that the economics now make sense purely in terms of commodity inference. But if you go to the world of saying, okay, fine, industrial inference is actually a relatively high cash flow business. Let's just grant them that. Then the question becomes, well, who's going to win that? Well, if it's just industrial inference, so then meaning that I'm just doing token completion sequences as low cost as possible and at the highest scale possible…
So, but that's the thing. Even with standing up inference, because is inference profitable? It's like the Wario is a libertarian conversation online when it comes to this stuff. It's like, and no one can really, I think it's unprofitable. But the reason I do is because inference isn't just, oh, I…
Oh, absolutely. Which a classic scale problem, right? That either I'm, it's kind of like running an airline, right? Either I'm a very, very high fixed cost business. So either I'm fantastically profitable or I'm aft, right? And And if you and very few people are able to run it at a scale requisite…
Yeah. It just, it feels so inherently doomed. But now, you know what? You said Anthropic. And before we got on, you were mentioning you'd heard some strange things. And I am now curious about how strange those are.
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