> Our cloud business is at any given moment in time forgoing short-term revenues because we are making compute trade-offs to support frontier AI development

Sundar Pichai just this week.

https://finance.yahoo.com/technology/ai/articles/google-ceo-...

Infra might very well be the right play. Over the past year, it seems like the evidence is on the side that there's no "secret sauce" in AI, and models will all converge towards similar capabilities. Not much margin to be had for having the best model for a month or less until another lab leapfrogs you by 3%.

What does “capital allocators” mean here? If your implication is that the Gemini org is resource starved and a few extra dollars will put their model in the lead that is 100% incorrect. If anything it’s the bloat and bureaucracy keeping it behind.

Signing partnerships and hosting third party models costs Google nothing, and in fact brings in a ton of revenue that will eventually go back into Gemini.

Google uses Gemini for its AI Overview on Google Search results, though. And it seems to me that this is an area where they really have a big incentive to run their own AI that they completely control. AI Overview sits at the top of the Google Search results first page, so when it comes to marketing it's sitting in the most coveted place on the entire Internet.

The tragic truth is that we live in a world where open models are perpetually only a few months behind frontier models.

Opus 4.6 was "good enough." Having a frontier model is no longer a requirement to print cash with a GPU.

Google are now offering Claude models in the Gemini "app". https://cloud.google.com/blog/products/ai-machine-learning/w...

I think it makes sense for them to separate the application/productivity layer from the model layer. And offer models from many model providers, including OpenAI.

To stay competitive with Microsoft and other productivity suites.

AI hosting currently generates revenue, so the choice is trivial. Building an LLM model is company PR, while hosting another’s model provides immediate income.

There's always a silver lining!

I could only hope...

No. It means customers can turn booked revenues into billed revenue by consuming OAI models on GCP (pass-through contracting). OAI will get their money, too, but Google will charge the customer for actual platform consumption. This was previously missing and GCP customers who wanted ChatGPT or Codex were limited to just making API calls from their GCP projects .

“Reported to shareholders” doesn’t really mean anything. There are thousands of such line items on financial reports. The ones that matter, such as recognized revenue, don’t count future bookings. It is understood that customers renege on these commitments all the time.

Google is simply telling customers - there’s a new Google Cloud service, and you can use it under your existing account.

Let's not quite right... you don't recognize revenue in a consumption business until the usage actually happened

That’s not the way it works. Google still recognizes the revenue. The cost of goods sold and gross profit are what get hit here but it’s no different than any other partner than can sell their product through the Google marketplace and take advantage of committed spend.

We have asked them about this, openai spend only counts as partnership and only up to 25% of your commitment can be spent on partners

Things that you only say because you are contractually forced to say them.

OpenAI buys from Azure because of the Microsoft investment deal.

OpenAI sells and reaches enterprise customers via GCP.

Enterprises want zero data retention guarantees and they're already on AWS or GCP, so this is how OpenAI reaches those customers and makes more money.

Isn't Google renting cloud compute from XAI?

Would have been more accurate to write “We are contractually obliged to say that ‘Microsoft remains our primary cloud provider,’ whatever that means.”

and 49% of OpenAI profits

Google Search is still a large fraction of Alphabet's revenue, and Alphabet needs to be able to deliver AI results for people's searches if it wants to stay relevant in the search game.

I imagine it's much easier to have fine grained control over AI search results if you develop and own the AI yourself.

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This is speculation, but funnily enough Gemini models show the least evidence of being distilled from OAI or Anthropic compared to everything else in the market.

At a org like Google Cloud barring rogue L5/6/7s acting on their own any sniffing of distillation will get leaked. Too many chaos exist at a org size of Google to systematically do it given the contract at hand. This is a company where every spicy memo or mild gossip will risk leaks.

Probably a very strict contract, and letting OpenAI read all the session logs like they do for their own customers.

GCP already hosts Anthropic models so probably trusts and lawyers.

Nvidia GPUs let you load encrypted weights onto them and to decrypt on chip so Google would need to have some sort of Nvidia management firmware attack to read from HBM while the GPU is live

Contracts and lawyers are more powerful than any technical tool.

First answer this: How are they trusting OpenRouter not to distill them?

I'd bet the distillation balance-of-trade goes the other way on that one

Google Cloud couldn't give a shit about Google Deepmind, and backdooring Clouds customers only stands to hurt Cloud.

America is a high-trust society.

Google is also the second largest shareholder of SpaceX.

Add Anthropic and you get MANGO. MSFT, Anthropic, NVIDIA, Google, OpenAI.

Giant companies working together isn’t an AI-age phenomenon. Go back 10, 20, 30 years and you’ll see that despite the public perception of competitiveness all the largest tech companies (Apple, Microsoft, Google, Samsung, Amazon) buy/sell to each other, sign partnerships and have tight economic interdependencies.

This is like that SNL skit with Tim Meadows where Will Ferrell has the F on his shirt on the kids TV show and keeps getting in the inappropriate order

Add in Meta (Muse app is a winner)

MOM-NG GNOMM NGMOM MGNOM MGMNO MGMON ONMGM NOMGM NOMMG

GCP has been hosting Anthropic models for a while.

Why would it? The point of Gemini is provide user facing services cheaper than if they were paying OpenAI, make some money on the side with API credits and position themselves as a leader when investors want to see AI everywhere.

Google Cloud is competing with AWS. Amazon has Bedrock so Google needs to keep up with them by serving both Claude and GPT, along with Gemini and open models.

No? Why would you think that’s the case? Gemini fills its own niche

New to Google?

>Kind of like how xAI started hosting anthropic workloads with colossus cluster.

Google has been hosting part of Anthropic's load long before that deal. They had a big degradation due to compiler bug for TPUs in an optimization they made to work around TPUs not being able sample from the logits efficiently.

A company is allowed to do two things

But x.ai also hosts Grok? Why would google stop developing their own models? I think you're right that Google will try to make money from their infrastructure (that's basically what Google Cloud is too).

Is that a long term prediction? Are you saying that physical infra will always lag demand from here on?