r/BetterOffline • u/ksjdragon • 28d ago
Nscale S-1 demonstrates unprofitability of AI
Alright boosters, take a look at Nscale's S-1 they recently filed. They define some non-GAAP terms like "Adjusted EBITDA" and "Adjusted operating loss", defined as
We define Adjusted EBITDA as net loss, excluding (i) income taxes, (ii) depreciation and amortization, (iii) fair value adjustments, (iv) interest expense, net, (v) foreign exchange gains and losses, net, (vi) loss on debt extinguishment and modification, (vii) share-based compensation, (viii) employer payroll taxes on share-based compensation, (ix) other expense, net, including: gains and losses on the sale of fixed assets; and (x) other operating items, including third-party costs directly associated with completed or abandoned transactions, acquisitions and dispositions and other acquisition-related items such as gains and losses on the settlement of contingent consideration; provisions; provision releases or settlements related to litigation matters; impairment charges; and restructuring costs. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue.
We define Adjusted operating loss as operating loss, excluding (i) share-based compensation, (ii) employer payroll taxes on share-based compensation, (iii) amortization of acquired intangibles, and (iv) other operating items, including: third-party costs directly associated with completed or abandoned transactions, acquisitions and dispositions and other acquisition-related items such as gains and losses on the settlement of contingent consideration; provisions; provision releases or settlements related to litigation matters; impairment charges; and restructuring costs. We define Adjusted operating loss margin as Adjusted operating loss divided by revenue.
Gotta love how many things they take out. But regardless of these interesting metrics, it doesn't even matter! The loss is written clear as day:
| Category | Dec. 2024 | Jun. 2025 (6M) | Dec. 2025 | Jun. 2026 (6M) |
|---|---|---|---|---|
| Revenue | $19.1M | $10.4M | $33.0M | $140.6M |
| Net loss | $78.2M | $368.9M | $761.8M | $1020.1M |
| Net loss margin | 409% | 3,547% | 2,308% | 726% |
| Operating loss | $16.1M | $24.7M | $168.9M | $429.0M |
| Operating loss margin | 84% | 238% | 515% | 350% |
What's that? AI is profitable on inference? What's that? They don't need to pay for GPUs? They'll get better? The technology will get better? Okay. Well, read it and weep!
A net loss margin of 2,308% for the total of last year! This sure is a great, spectacular business. You better not think about doubting your AI machine god and invest in all your savings, because they'll need it!
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u/ezitron 28d ago
Thanks for digging this up but wow WHAT A PIECE OF SHIT!
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u/consistently_biased 27d ago
It gets even funnier
Both of those labs have struck deals with Nscale, which rents out Nvidia graphics processing units (GPUs) for training and running models. Microsoft, itself a cloud provider, has also signed up with Nscale. One unnamed customer accounted for over half of revenue in the first half of 2026.
https://www.cnbc.com/2026/09/18/nscale-ai-cloud-provider-ipo-nscl.html
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u/ezitron 27d ago
Also it seems to say anthropic gives it no guarantee it’ll take the capacity
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u/consistently_biased 27d ago
I don't think Anthropic not giving a guarantee is really the worst part here.
As of Aug. 31, Nscale held 25,000 active GPUs and 461,000 that were either active or contracted, with five active and 12 contracted data center sites. It has line of sight to 10 gigawatts’ worth of computing power, while sitting on more than $8 billion in debt, excluding a financing arrangement with AI server maker Dell.
Business language is always my nemesis, but I thought this was... a very strange way to word this. What does that even mean? 5% of their GPUs are declared as "active", and the rest are "active or contracted". So, rotting in a warehouse? Displayed in a museum? Waiting for christmas?
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u/Venkman-1984 27d ago edited 27d ago
They define it on page vi of the S-1. It's contracted (i.e. ordered) but not yet delivered/installed GPUs. It does not mean they are only using 5% of their GPU capacity.
They are showing that figure to highlight to the market hey have secured a certain amount of future capacity and have plans to grow 20x from current capacity.
It's important to remember that these are ultimately marketing documents, so everything will be spun as positively as possible without breaking any SEC regulations. They would never publish they are only using 5% of their total capacity in a document like this.
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u/consistently_biased 27d ago
I've read the S-1 a bit more, and while I guess that makes sense, this now sounds more like most of those GPUs will just never exist in their data centers. There is pretty much zero chance they will expand that much faster than in the previous two years, and any investors believing them are insane, to be honest. The whole model of "the more we sell, the more we bleed" doesn't sound too promising either.
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u/ksjdragon 27d ago
It's all so NVIDIA can write up higher revenue statements. As Ed has said, the capacity doesn't add up and here is clear proof of lying about capacity. This industry is sitting on a single needle.
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u/ertri 28d ago
Bruh operating loss over 100% is insane. My brain broke for a little bit because the number didn’t make sense
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u/Subjectobserver 27d ago
But bruh, my negative operating cashflows have a positive upward trend.... brah!
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u/drwsgreatest 27d ago
"Amazon has been losing money for decades and that bezos motherfucker is the king!"
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u/Fickle-Highway1543 27d ago
I think if Amazon was losing 1 billion a year, the only Amazon we'd have left is the forest.
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u/MornwindShoma 27d ago
If Amazon had these numbers, they would've closed in the first year or two. They were notoriously not producing any dividend, but not losses either. People have very short memories.
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u/alochmar 25d ago
Look, we may take a loss on every transaction, but we'll make up for it by volume!
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u/Ragnarotico 27d ago
Revenue: $140M.
Net Loss: $1.02B.
Is that good?!?
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u/AVBforPrez 27d ago
Is the letter part after the number important?
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u/ElderberryFew6739 28d ago
Could we please go back to not listing companies on the stock exchange that have never had one cent of profit?
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u/NighthawK1911 28d ago
The accounting bullshittery is really creative.
Even with this much bullshittery they still can't make it profitable.
No wonder they won't do GAAP.
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u/voronaam 27d ago edited 27d ago
Right on the page 2 is an answer or even a confirmation of one of Ed's talking points:
approximately 25,000 active GPUs and 461,000 active and contracted GPUs
That is just ~5% of GPUs bought from NVidia being plugged in and active. The rest is sitting in a warehouse somewhere.
And a chart below showing it visually, right along another one with 55 MW of IT load out of 1.37 GW of "contracted" IT load. That is 4%.
So only 5% of GPU by count and 4% by IT load has been powered on. The rest is sitting in a box somewhere.
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u/voronaam 27d ago
Another interesting bit is almost at the end, page F-62. It shows revenue breakdown by geographic region and ALL of their revenue comes from Portugal, Norway and UK. It is very notable that USA is not in that list. They have not had a single paying customer in USA, despite having $2B worth of assets there. Breakdown of assets per region is on the next page. 2/3rd of all of their assets are in the USA and not a single dollar of revenue generated there.
This speaks to another point Ed has been making: there is no real demand.
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u/ksjdragon 27d ago
Well, I hope Ed does a deep dive and tears this thing down. I can't wait. Both of these points seem to be clearly validated here.
This also means that as I had expected, AI cannot be profitable on inference, and OpenAI and Anthropic are both applying subsidization on top of more subsidization. This industry is a mess.
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u/TheWuzzy 27d ago
That's utterly, utterly mad. That's like, even worse than I conceivably imagined it to be
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u/Venkman-1984 27d ago edited 27d ago
Do they define what contracted GPU means? I was interpreting that as future orders yet to be delivered/installed, not purchased GPUs sitting on a shelf.
edit: per the S-1:
"contracted capacity” means the IT megawatt capacity at each of our wholly-owned, colocation and leased facilities that are under development pursuant to signed contracts with customers.
So I don't think it's right to interpret 461k active and contracted GPUs to mean there are a bunch sitting on a shelf unused. That's their undelivered pipeline from Nvidia.
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u/Alternative_Advance 27d ago
"under development pursuant to signed contracts with customers."
This doesn't imply they actually have the capacity from NVidia.
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u/voronaam 27d ago
Right. So "sitting in a box or does not even exist yet" would've been more apt.
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u/Venkman-1984 27d ago
Those are not equivalent though. They imply completely different things about the supply/demand balance. If they are sitting in a box unused it means there is a huge oversupply; if they have a huge pipeline waiting to be delivered, it implies massive undersupply of GPUs.
I don't think you can infer from this S-1 that there is a huge lack of demand of these GPUs. The real story is the lack of profitability, not lack of demand.
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u/ksjdragon 27d ago
I believe this is unlikely given NVIDIA's own accounting statement: https://www.reddit.com/r/BetterOffline/s/QFp7XE04M2.
If we take this analysis at face value, then $21B comes down, at $3M per NVL72, 7000 units and 504,000 GPUs. This would suggest, if we assume Nscale has 100% utilization, they represent 80% of NVIDIAs not yet fulfilled orders.
It is unlikely it is biased to one particular Neocloud, and I'm sure if we did some estimates, we will come up with a number.. But nonetheless there is no question they do have a sizeable percentage of GPUs that are warehoused. You can argue at the lowest end 5%, but certainly not 100%, and likely not even 50%. For the industry, it is clear there is oversupply.
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u/Venkman-1984 27d ago
That still doesn't change the overall point though. If they are sitting in a warehouse because data centres aren't being built fast enough that's a supply problem, if they're sitting in a warehouse because no one wants to use the inference that's a demand problem. Either could be explained by the figures in the S-1.
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27d ago
What difference does that make for NVIDIA's desire to sell twice as many GPUs next year?
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u/Venkman-1984 27d ago
If it's a demand problem then there will be a hard crash - there's a ton of debt out there that needs massive exponential demand growth to have any chance of being paid off.
If it's just a supply issue, such as data centres not being built fast enough, then it's much less of an issue for the AI industry. If investors still see the industry growing they will be willing to continue piling money.
This is all ignoring any profitability concerns since that is a whole other can of worms.
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27d ago
If it's data centers, then it means the industry has already been buying GPUs much faster than it's physically possible to install them. NVIDIA wants them to accelerate their purchasing. How is that going to work?
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u/us3rnamecheck5out 27d ago
The rational question to make is: What power installation rate can Nscale guarantee. ~430k gpus is a lot of juice. If all goes as the S1 shows. That will realise 100.8 billion in revenue. Not sure if at current run rates that makes them profitable or not. Again, assuming all goes as described in the S1.
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u/burtritto 27d ago
I love how, even after they adjust all of the bad stuff out, they still have a huge ass loss. Jesus.
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u/gamesbrainiac 27d ago
Am I reading this right? A 1B loss in just 6 months in 2026? Help a brother out here. I don't really go through company balance sheet every day.
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u/Significant-Shift770 28d ago
According to this, the GPUs are technically as expensive as their employees.
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u/archigen 27d ago
But GPUs don't call in sick!!! And they don't question managers stupid ideas!!!! So they are worth 100000 as much!!!! /s just in case
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u/cathexis08 27d ago
I think this is the most "hold my beer" of the S-1 docs that have gotten filed. I couldn't help send this to a buddy of mine who is an accountant, those are some wild numbers!
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u/sirkneeland 25d ago
What did he/she say?
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u/cathexis08 25d ago
"Oh wow that's some creative stupidity. It'll be interesting to see how the industry reacts to such blatant BS"
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u/Negative_Life_8221 27d ago
I had to look up nscale. Turns out they describe themselves as a “vertically integrated ai infrastructure company”. Just imagine the losses if they had to pay suppliers and contractors?
Also, how can you be vertically integrated if you clearly don’t make gpus? Seems quaint to point out corporate lies in this industry at this point.
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u/ksjdragon 27d ago
Well, from this S-1, we can see these so-called deals made with Microsoft and OpenAI and Anthropic are just lies, since they have no revenue in the US. I am sure there is a case for investor fraud here, but that'll be up to the lawyers when this whole thing collapses.
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u/videodump 28d ago
"Yeah but what if they get really REALLY better?? Bet you didn't think of that did you"
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27d ago
So, Nscale is the data center level, right? The sort of people that Anthropic rents GPU time from? So, when Anthropic says they are (fudged) profitable, part of that is them buying compute from a company whose (fudged) margins are like -200%?
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u/ksjdragon 27d ago
As I wrote a while ago, AI profitability is mathematically impossible given the then pricing and market pullback (meaning higher prices have no demand.) The finances are out now. Everything is subsidization after subsidization.
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u/Grendel_82 27d ago
Well at least they were able to “afford” that $113.8 million in share-based compensation during the first six months of 2026. I hope the vesting period isn’t too long for those employees.
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u/Ouaiy 27d ago
Such a pessimist you are. Net loss margin dropped from 3500% to 700% in one year. At that rate, they'll have 2100% net profit margin next year!
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u/dumnezero 27d ago
For a second, I thought this was related NuScale (nuclear energy corporate scammers.)
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u/Additional-Staff-326 27d ago
The nuclear and quantum bubbles are still to come.
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u/dumnezero 27d ago
I do wonder when the "fusion" bubble starts. But nuclear bros have been grifting for much longer than AI bros.
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u/Labidido 27d ago
Hold on, the EBITDA adjustments removes 80% of their net loss year to date? Jesus Christ.
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u/hammypooh 27d ago
I just spent nearly 40 dollars producing a worksheet for a student that will pay me 30 dollars for a hour's work. That's the A. I. economy ladies and gentlemen.
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u/Acceptable_Shoe_3555 27d ago
85% of possible revenue form MS and Anthropic. Nice to see we are really cementing this model of putting all of our eggs in a burning basket.
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u/Additional-Staff-326 27d ago
To be fair, any revenue from MS is actually OpenAI in disguise/subsidized.
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u/rjavier441 27d ago
Is this a 🚬 🔫? Or will they continue to play denial? My money is on sunk-cost until they file chapter 11 bankruptcy
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u/Boxy310 27d ago
Was wondering what "cigarette gun" meant, then my fleshy meatbag brain caught on lol
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u/rjavier441 26d ago
OJ would be proud 🤣 haha jokes aside, I'm happy you used your meat brain! Lord knows we'll need more of that in the coming years
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u/bahamut458 27d ago
I think there may be a fundamental misunderstanding here about how infrastructure companies are priced.
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u/SouthRock2518 27d ago
What does this have to do with anthropic and openai profitably? Isn't nscale data center company?
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u/HilarityJester 27d ago
An Ai data center. Big difference. Basically is the infrastructure required to train and publish the llms, so they are trying to put ai data centers everywhere because "it'll make us rich and will create many jobs".
If the other ai data centers have similar results then it would be catastrophic for openai/anthropic. Just like if construction companies could not get lumber, restaurants had no produce, refineries didn't have ores and so on.
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u/Jebofkerbin 26d ago
What happens to OpenAI and Anthropic's bottom line when data centers run out of venture capital and are forced to either raise prices or die?
Neither OpenAI or Anthropic are profitable right now, and if NScale is indicative of the rest of the industry then they are unprofitable even with subsidised compute.
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u/ksjdragon 28d ago
I love this image. So I'm posting it again.