Model labs rent compute from clouds at premium prices. Clouds take margin → NVIDIA takes margin → Labs squeezed.
The Training Cost Reality
- GPT-4 Training: $100M+
- GPT-5 Class: $500M-1B
- Frontier Models (2027+): $1B-10B per training run
Only 3-5 organizations globally can afford frontier model training.
The Dependency Chain
Model Labs → Cloud GPUs → NVIDIA
Problem: Model labs rent compute at premium prices → Clouds take margin → NVIDIA takes margin → Labs squeezed
The Solution: Vertical Integration
- Build Own Data Centers — Eliminate cloud middleman margins
- Secure Long-Term GPU Supply — Multi-year NVIDIA/AMD commitments
- Own Power Infrastructure — Energy as competitive advantage
- Partner with Hyperscalers — Joint ventures for infrastructure access
How Labs Are Responding
OpenAI — Stargate Project
- Investment: $500B
- Power Target: 6 GW+
- Partners: Microsoft, SoftBank
- Timeline: Texas campus 2025-2029
xAI — Memphis Colossus
- GPU Count: 200K
- Build Time: 122 Days
- Strategy: Speed over cost, Grok 3 training
Anthropic — Strategic Partnerships
- Amazon Investment: $8B+
- Google Investment: $2B+
- Strategy: AWS/GCP infrastructure access, multi-cloud partnership model
Meta — Already Vertically Integrated
- Llama 4: 100% AMD MI300X clusters
- Own Data Centers: No cloud dependency
- 2025 CapEx: $60-70B
Cascade Effect
Model labs building own infrastructure → Direct NVIDIA relationships → Bypassing cloud middlemen → Reshaping competitive dynamics
This is part of a comprehensive analysis. Read the full analysis on The Business Engineer.
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