Speaker 1: Zone Media.
Speaker 2: Hello and welcome to Better Offline. I'm your host ed
Speaker 2: zechron That's right, folks, I am back. It's well. We've
Speaker 2: gone past the Yes, you've had your Steve Burke episodes,
Speaker 2: as ever by the merchandise, subscribe to the newsletter. It's
Speaker 2: all in the notes, and you are here for the
Speaker 2: first of a multi part series about the final and
Speaker 2: terminal stage of in shitification, when the companies that turned
Speaker 2: on their individual users, then turned on their business customers
Speaker 2: finally turned on the markets and investors themselves. Now, it's
Speaker 2: important to start this with a point, and that's a
Speaker 2: good friend of mine once told me that the more
Speaker 2: I learned about finance, the more pissed off I'd get.
Speaker 2: And I cannot think of anyone who has made a
Speaker 2: more egregious understatement in my life. I've spent the last
Speaker 2: two years basically teaching myself economics and all of this
Speaker 2: good stuff that I find genuinely really interesting. It's enriched
Speaker 2: my life, and it's also driven me a little insane.
Speaker 2: As I'm sure any of you are well aware, the
Speaker 2: more I learn, the more frustrated I get. Because I'm
Speaker 2: not a genius by any extension. I don't even know
Speaker 2: if I think I'm that smart, but like this stuff
Speaker 2: is just sitting there, you can see it. There are
Speaker 2: many other people writing, like Edward grayso Junior Molly what
Speaker 2: of course, I'm Brian Merchant as well. Like these people
Speaker 2: have dug into these types of things, but nevertheless the
Speaker 2: mainstream they're kind of missing something. And this four part
Speaker 2: is about that. And it has of course a companion
Speaker 2: newsletter where I will have most of the links that
Speaker 2: you'd usually see in the link document. I feel like
Speaker 2: nobody likes that document anyway, so I'm going to find
Speaker 2: a better way of doing things. But let's get to it,
Speaker 2: because there's this echoing melancholy to this entire era. And
Speaker 2: we're watching the end of Silicon Valley's hypergrowth epoch, and
Speaker 2: I'd say it's a horrifying result of fifteen plus years
Speaker 2: of steering the tech industry away from solving actual problems
Speaker 2: and only really looking for eternal growth. Everything's more expensive
Speaker 2: and every tech product has gotten worse. Also that every
Speaker 2: company can I quote do AI whatever the fuck that means.
Speaker 2: We're watching one of the greatest wastes of money in history.
Speaker 2: All this people are told that there just isn't the
Speaker 2: money to build things like housing, or provide Americans with
Speaker 2: universal health care or better schools, or create the means
Speaker 2: for the average person to accumulate wealth in any way,
Speaker 2: shape or form. The money does exist. It just exists
Speaker 2: for those that want to gamble. Private equity firms, business
Speaker 2: development companies that exist to give money to other companies
Speaker 2: that are risky. Yet regular people are too risky. Venture
Speaker 2: capitalists and banks that are getting desperate and need an
Speaker 2: overnight shot of capital from the federal reserves, overnight repurchase
Speaker 2: facility or discount window do worrying indicators a bank stress
Speaker 2: I need to get into in the future. No, no, no,
Speaker 2: The money does not exist for you, or me or
Speaker 2: a person. Even money is for entities that could potentially
Speaker 2: funnel more money into the economy, even if the ways
Speaker 2: that these entities use the money are reckless and foolhardy,
Speaker 2: because the system's intent on keeping entities alive incentivizes it.
Speaker 2: We are in an era where the average person is
Speaker 2: told to pull up their bootstraps, to work harder, to
Speaker 2: struggle more, because, as Martin Luther King Junior once said,
Speaker 2: it's socialism for the rich and rugged free market capitalism
Speaker 2: for the poor. The free market is a fucking con
Speaker 2: When you or I run out of money, our things
Speaker 2: are taken from us. We receive increasingly panicked letters with
Speaker 2: bigger fonts. We get phone calls and texts and emails
Speaker 2: and demands. We are told that all will be lost
Speaker 2: if we don't work it out somehow, because the financial
Speaker 2: system is not about an exchange of value, but whether
Speaker 2: or not you can enter into the currently agreed upon
Speaker 2: con By letting neoliberalism and the scourge of the free
Speaker 2: market's rule, modern society has created the conditions what I
Speaker 2: call the Hitter financial crisis, the place at which my
Speaker 2: friend Cory doctor owned Star of CS twenty twenty six
Speaker 2: and history and shittavation meets my own rot economy thesis
Speaker 2: in a fourth stage of in shitification. Now, I'm going
Speaker 2: to quote an explanation of what in shittification is from
Speaker 2: The New Yorker and Shertification unfoults in three phases. First,
Speaker 2: the company is and I quote good to users, drawing
Speaker 2: people in droves as funnel traps through Japanese beetles with
Speaker 2: the promise of connection or convenience. Second, with that mass
Speaker 2: audience consolidated, the company is and I quote good to
Speaker 2: business customers, compromising some of its features so that the
Speaker 2: most lucrative clients, usually advertisers, can thrive on the platform.
Speaker 2: This second phase is the point at which say, our
Speaker 2: Facebook feeds filled with ads and posts from brands. Third,
Speaker 2: the company turns the experience into and I quote again
Speaker 2: a giant pile of shit, making the platform worse for
Speaker 2: users and businesses alike, in order to further enrich the
Speaker 2: company's owners and executives. Now, I'm going to give you
Speaker 2: a more direct example and kind of bridge on some
Speaker 2: of the things said there. Facebook was at one point
Speaker 2: a huge, free platform much like Instagram, that offered fast
Speaker 2: and easy access to basically everybody you knew. It acquired Instagram,
Speaker 2: of course, in twenty twelve to kill off a likely competitor,
Speaker 2: and overtime would start making both products worse. Clickbait notifications
Speaker 2: a mandatory algorithmic feed that deliberately emotionally manipulated hundreds of
Speaker 2: thousands of people and stoked massive political division, eventually becoming
Speaker 2: full of aislop and videos. Also that Meta could continued
Speaker 2: to sell billions of dollars of ads a quarter Burkyle
Speaker 2: Chaker of The New Yorker. The Facebook's feed, now choked
Speaker 2: with AI generated garbage and short form videos, is well
Speaker 2: into the third act of in shitification. The third stage
Speaker 2: is critical in it's when the company also turns on
Speaker 2: its business customers. A Marketing Brews story from September of
Speaker 2: twenty twenty four told the tale of multiple advertisers who
Speaker 2: found their campaign switching to different audiences, wasting their money
Speaker 2: and getting questionable results. A New York Times story from
Speaker 2: twenty twenty one described companies losing up with some seventy
Speaker 2: percent of their revenue during a Facebook ants outage. Another
Speaker 2: from twenty eighteen described her meta then Facebook deliberately hit
Speaker 2: issues with its measurement of engagement on videos from advertisers
Speaker 2: for over a year. That's their pivot video, and more recently,
Speaker 2: metas ads tools started switching out top performing ads with
Speaker 2: AI generated ones. In one case, Targeting managed thirty to
Speaker 2: forty five with an AI generated Grandma, all without warning.
Speaker 2: The advertiser Meta doesn't give a shit because investors and
Speaker 2: analysts don't give a shit either. I could say cell
Speaker 2: side analysts here too, and those are the ones that
Speaker 2: they are trying to get eat to buy a stock.
Speaker 2: By the way, but based on every analyst report I've
Speaker 2: read from a major bank or hedge round about a
Speaker 2: tech company, I truly think everybody is complicent. In November
Speaker 2: twenty twenty five, Reuters revealed that Meta projected in late
Speaker 2: twenty twenty four the ten percent of its annual revenue,
Speaker 2: which was sixteen billion dollars at the time, would come
Speaker 2: from advertisements for scams or band goods. Mere weeks after,
Speaker 2: Meta announced the ridiculous twenty seven billion dollar datacent A
Speaker 2: debt package, one that used deep accountancy magic to keep
Speaker 2: it off of its balance sheet despite Meta guaranteeing the
Speaker 2: entirety of the loans. It's completely insane and what would
Speaker 2: think this would horrify investors For two reasons. One, metas
Speaker 2: business is both supporting and profiting from organized crime, and
Speaker 2: at ten percent of its revenue, it's also kind of
Speaker 2: dependent on it. And also number two, Meta is using
Speaker 2: deliberate and in citious accounting tricks to act like a
Speaker 2: dead decenter that is paying to build and will be
Speaker 2: the sole tenant of is somehow an off balance sheet operation.
Speaker 2: One will be wrong. Morgan Stanley said in mid December
Speaker 2: that is one of the handful of companies that can
Speaker 2: leverage its leading data distribution and investments in AI and
Speaker 2: raised Morgan Stanley's target seven hundred and fifty dollars with
Speaker 2: a one thousand dollars a share bull case, meaning like
Speaker 2: they think, if things go well, it will be a
Speaker 2: one thousand dollars a share. Web Bush raised Metas priced
Speaker 2: nine hundred and twenty dollars in Bank of America staunchly
Speaker 2: held firm at eight hundred and ten dollars, which is
Speaker 2: one hundred dollars more than where we are today. I
Speaker 2: can find no analyst commentary on Meta making sixteen billion
Speaker 2: dollars on fucking fraud because it doesn't matter to them,
Speaker 2: because this is the rot economy and all that matters
Speaker 2: is number go up. This is this is going to
Speaker 2: be It's going to be a tough four part of folks.
Speaker 2: I'm on my blood pressure is going to go through
Speaker 2: the fucking reality such as whether there's any revenue in
Speaker 2: AI or whether it's a good idea that Metas spending
Speaker 2: seventy billion dollars this year on capex even though the
Speaker 2: product generates no revenue. And by the way, if you
Speaker 2: say to me metas ai ads play that whole story
Speaker 2: is nonsense, and I love for it for but they
Speaker 2: got it wrong to They are using bullshit metrics. They're
Speaker 2: not proving anything anyway. None of this matters to analysts
Speaker 2: because stocks are thoroughly inextricably inshitified, and analysts don't even
Speaker 2: realize that it's happening, or if they do, they're just
Speaker 2: really craven and horrible fucking people that deserve to not
Speaker 2: have a job, let alone the job they currently have. Now,
Speaker 2: let's go back to the whole in shitivigation thing. The
Speaker 2: stages of inshitification usually involve some kind of Devil's deal,
Speaker 2: which I actually think handalysts are in them. But let's
Speaker 2: get going. In stage one, things are good for the users.
Speaker 2: The platform is three. Things are easy to use, and
Speaker 2: thus it's really simple for you and your friends to
Speaker 2: have become dependent on it. You don't really trade anything
Speaker 2: quite yeah, than the fact that you're going to use
Speaker 2: this easy, good platform that people like and all your
Speaker 2: friends are on. In stage two, things become bad for
Speaker 2: customers but good for business customers. The platform begins forcing
Speaker 2: users to do profitable things like show them advertisements by
Speaker 2: making search results worse, such as with Google, or while
Speaker 2: making it difficult to migrate to another one, either through
Speaker 2: locking in your data or the tacit knowledge that moving
Speaker 2: platforms is hard and your friends are usually in one place.
Speaker 2: Take Instagram, for example. No one's leaving Instagram right now
Speaker 2: because there is no other competitor. Kind of by design,
Speaker 2: Businesses sink tons of money into the platform, knowing that
Speaker 2: users are unlikely to leave and make good money buying
Speaker 2: ads against the populace that increasingly stays because it has
Speaker 2: to as there are no other options. In stage three,
Speaker 2: things become bad for consumers and businesses, but good for shareholders.
Speaker 2: The platforms begin to deteriorate to the point that usability
Speaker 2: is pushed to the brink, and businesses who are now
Speaker 2: dependent on the platform because monopolies have pushed out every
Speaker 2: alternative platform to advertise or reach customers on, begin to
Speaker 2: see their product crumble, all in favor of shareholder capital,
Speaker 2: which only cares about stock value of net income and diebacks.
Speaker 2: You've probably seen where we go in, folks. We're now
Speaker 2: entering in certifications stage four, where businesses turn on shareholders
Speaker 2: and listen. Investors have become trapped in the same kind
Speaker 2: of loathsome platform players, consumers and businesses and face exactly
Speaker 2: the same kind of punishments through the devaluation of the
Speaker 2: stock itself. Where platforms have prioritize profits over the health
Speaker 2: and happiness of users or business customers, they're now prioritizing
Speaker 2: stock value over literally anything, and have, through the remarkable
Speaker 2: growth of techtogs in particular, created applicated and thoroughly whipped
Speaker 2: investor and analyzed sect that never ask questions and always
Speaker 2: celebrates whatever the next big thing is meant to be.
Speaker 2: And I hate to dunk on one guy, but go
Speaker 2: look up Daniel Newman on Twitter if you want to
Speaker 2: see what I mean. Someone just winky and every fucking
Speaker 2: thing that a company says like what in videos going up?
Speaker 2: These people are very popular and people make stock decisions
Speaker 2: based on what they say. They're a problem and the
Speaker 2: value of a stock is not based on whether the
Speaker 2: business is healthy or its future even certain, but on
Speaker 2: its potential price to grow, and analysts have, thanks to
Speaker 2: an incredible run of tech stocks going on over a decade,
Speaker 2: being able to say I bet software will be big
Speaker 2: for most of the time going on CNBC or Bloomberg
Speaker 2: and gladly repeating whatever it is that a tech CEO
Speaker 2: just said, all without any worries about responsibility or the truth.
Speaker 2: And I just want to say, any analyst who might
Speaker 2: hear this, I'm taking a lot of screenshots. I've been
Speaker 2: taking screenshots for several years. And this is because big
Speaker 2: tech stocks and many other big stocks, if I'm honest,
Speaker 2: have made their lives easy as long as they don't
Speaker 2: ask questions. Number always seems to be going up for
Speaker 2: software companies, and all you need to do is provide
Speaker 2: a vociferous defense of the next big thing and come
Speaker 2: up with a smart sounding model that justifies eternal growth.
Speaker 2: This is entirely disconnected from the products themselves, which don't
Speaker 2: matter as long as, like I've said, number go up.
Speaker 2: If net income is high, meaning profit, and the company
Speaker 2: estimates it will continue to grow, then the company could
Speaker 2: do whatever the fuck it wants with the product it
Speaker 2: sells or the things that it buys. Software has eaten
Speaker 2: the world in the sense that Andresen Mark Andresen who
Speaker 2: wrote it. Of course, God is wish with investors now
Speaker 2: caring more about the intrinsic value of software companies rather
Speaker 2: than the businesses or the products themselves, and because that's happening,
Speaker 2: investors aren't bothering to think too hard about the tech
Speaker 2: itself or the deteriorating products underlying these tech companies. Because
Speaker 2: these guys have always worked it out, and these companies
Speaker 2: have always managed to keep growing. As a result, nobody
Speaker 2: really looks too deep. Minute changes to accounting in earnings
Speaker 2: filings are ignored, Egregious amounts of debt are waved off,
Speaker 2: and hundreds of billions of dollars of capital expenditures are
Speaker 2: seen as the new AI revolution versus a big, huge
Speaker 2: waste of money. By incentivizing the rot economy, may stocks
Speaker 2: disconnected from the value of the company beyond net income
Speaker 2: and future earnings guidance. Companies have found ways to enshitviy
Speaker 2: their own stocks, and shareholders will be the ones to suffer,
Speaker 2: all thanks to the very downstream pressure that they've chosen
Speaker 2: to ignore for decades. You see, while one might correctly
Speaker 2: say that the deterioration of products like Facebook and Google
Speaker 2: Search was a sign of desperation, it's important to also
Speaker 2: see it as the companies themselves orienting around what they
Speaker 2: believe analyst and investors want to see you can also
Speaker 2: interpret this is a weakness, but I see it another way.
Speaker 2: Stock manipulation and a deliberate attempt to reshape what value
Speaker 2: means in the eyes of customers and investors. If the
Speaker 2: true value of a stock is meant to be based
Speaker 2: on the value of its business cash flow and earnings
Speaker 2: and of course future growth, a company deliberately changing its
Speaker 2: products is an intentional interference with value itself, as are
Speaker 2: any and all deceptive accounting practices used to boost valuations.
Speaker 2: But the real problem, well one of them, is that
Speaker 2: analysts don't well, they don't seem to analyze, not at
Speaker 2: least if it goes against market consensus. That's why Goldman
Speaker 2: Sachs and JP Morgan and Futureroom Group and Gartner and
Speaker 2: Forester and McKinsey and Morgan Stanley all said that the
Speaker 2: metaverse was inevitable because they do not actually care about
Speaker 2: the underlying businesses themselves, just their ability to grow. On paper. Now,
Speaker 2: I'm just going to click through to the FUTUREO Groups thing.
Speaker 2: Let's see contemplating market criticism of Zuckerberg's metaphors focus. Now,
Speaker 2: this is a really funny piece because you read it,
Speaker 2: analysts take in some parallel universe, Zuckerberg will be credited
Speaker 2: as an entrepreneurial hero and an executive willing to invest
Speaker 2: in something big in order to create something bigger. Unfortunately
Speaker 2: for Zuckerberg, he lives here with us, in this universe,
Speaker 2: where fifteen billion dollars in investment so far has created
Speaker 2: a nerdy, cyber wasteland that few people seem interested in visiting.
Speaker 2: The numbers are undeniably ugly blah blah blah blah blah,
Speaker 2: and of course we would have hoped for more progress
Speaker 2: blah blah blah. Meta's most deadly sin in managing the
Speaker 2: Metaverse initiative is nothing to do with adoption metrics of
Speaker 2: the money that has been allocated to these efforts, Rather
Speaker 2: metas failure stems from its inability to commutne his vision properly.
Speaker 2: It's an ironic twist, giving the company's heritage and creating
Speaker 2: social media platforms designed to help billions of people communicate. Well,
Speaker 2: why this was written to defend the Meta Us, and
Speaker 2: I just want to be clear. The defense appears to
Speaker 2: be give zuck a chance. Now. The met of us
Speaker 2: is quite fucking dead, I should be clear. And many
Speaker 2: of you have emailed me about this, and I'm kind
Speaker 2: of calling one person out because I see these cell
Speaker 2: side analysts as genuinely harmful to society. I think people
Speaker 2: going out there and misleading well in articles. Actually, let
Speaker 2: me take in a side here. You're going to love this.
Speaker 2: This is not in the script, Matt, I apologize. But
Speaker 2: analysts have two customers. They have investors, and then they
Speaker 2: have you cell side analysts. They've burpen fart on CNBC
Speaker 2: or Bloomberg and they say, hey, I will be big.
Speaker 2: Then behind the scenes they have a completely set different
Speaker 2: set of institutional investors they give the real info to.
Speaker 2: That should bother you. You ever read an analyst and an
Speaker 2: article and be a little bit suspicious. I like Guiluria
Speaker 2: of D A. Davidson, except even gil just raised the
Speaker 2: target for core Weave. Nothing has changed. Things have actually
Speaker 2: got worse with the economics. But because the bullshit of
Speaker 2: the markets exist, analysts are tweaking things in public in private.
Speaker 2: I don't know what they're saying because you need to
Speaker 2: pay well, I think tens of thousands, if not more,
Speaker 2: to get those reports. Anyway, that all aside, regular retail
Speaker 2: investors are the first to get in shitifed in stage four.
Speaker 2: And by the way, if you ever need proof that
Speaker 2: none of these people actually give a fuck about value,
Speaker 2: it really was the metaverse and the seventy seven billion
Speaker 2: dollars that Mark Zuckerberg burned on it, and they create
Speaker 2: little revenue or shareholder value and burned all that money
Speaker 2: without any real explanation as to where it went. No, really,
Speaker 2: does anyone know where the money went. Seventy seven billion
Speaker 2: dollars went Nowhere? You think it went into fucking glasses?
Speaker 2: Are you crazy? Even if they made hundreds of thousands
Speaker 2: of those glasses and they took ohn't no five billion
Speaker 2: dollars for Oryan and the meta rabads that I'm still
Speaker 2: having trouble working out where this cat. When I think
Speaker 2: one day we're going to find out, I think we're
Speaker 2: going to find out something dodgy happened there. But nevertheless,
Speaker 2: the street didn't give a shit about the metal us
Speaker 2: because metas existent ads business continued to grow, same as
Speaker 2: it didn't give a shit that Mark Zuckerberg burn those
Speaker 2: seventy billion dollars on Capex, even though we also don't
Speaker 2: really know where that's going either. In fact, that really
Speaker 2: is the story of the GPU era. We don't know
Speaker 2: where the money is going. These companies don't tell us anything.
Speaker 2: They don't tell us how many GPUs they have, or
Speaker 2: where those GPUs are, or how many of them were installed,
Speaker 2: or what their IT load capacity is, or how much
Speaker 2: money they cost to run, or how much money they
Speaker 2: even make. Why would we Why would we know that?
Speaker 2: Analysts don't even look at earnings beyond making sure they
Speaker 2: beat on estimates. They've been whipped trained for twenty years
Speaker 2: to take a puddle deep look at the numbers, to
Speaker 2: make sure things vaguely look okay, look around at their
Speaker 2: peers and make sure nobody else is saying something bad,
Speaker 2: and go on and collect fees, and go on fucking CNBC.
Speaker 2: And the same goes for hedge funds and banks propping
Speaker 2: up these stocks rather than ask meaningful questions and demanding
Speaker 2: even more meaningful answers. In the last two years, every
Speaker 2: major hyperscaler has extended the useful life of its servers
Speaker 2: from three years to either five and a half or
Speaker 2: six years, and in simple terms, this allowed them to
Speaker 2: incur a smaller depreciation expense each quarter as a result,
Speaker 2: boosting their income. To explain, really simply, when you'd depreciate something,
Speaker 2: you say, Okay, the useful life for this is six years,
Speaker 2: and I'll spread the cost of that across six years.
Speaker 2: Or in this case, you'd probably say three years for
Speaker 2: a GPU, but no, they've just said, due to the
Speaker 2: magic of math, it's six So they get to spread
Speaker 2: it out for longer and claim it's more useful for longest.
Speaker 2: They don't have to do an impairment, which is when
Speaker 2: you admit the real cost of something anytime soon, it's wank.
Speaker 2: Nobody seems to cares. Nobody seems to cares. I'm keeping
Speaker 2: that anyway, Those who were meant to be critical and
Speaker 2: listen and investors sinking money into these stocks had effectively
Speaker 2: no reaction, despite the fact that meta used by the
Speaker 2: Wall Street Journal this adjustment to reduce this expense is
Speaker 2: by two point three billion dollars in the first three
Speaker 2: quarters of five. This is quite literally disconnected from reality
Speaker 2: and done based on internal accounting that we are not
Speaker 2: party two. Every single tech firm buying GPUs did this
Speaker 2: and benefited to the tune of billions of dollars in
Speaker 2: decreased expenses, which bump their revenues, and analysts thought it
Speaker 2: was fine and dandy because number went up and they
Speaker 2: don't fucking care. Shareholders are now subordinate to the shares themselves,
Speaker 2: reacting in the way that the shares demand they do,
Speaker 2: being happy for what the companies behind the shares give them,
Speaker 2: and analysts, investors, and even the media spend far more
Speaker 2: energy fighting the doubts than they do showing these companies screwtiny.
Speaker 2: Much like the user of vineshitivied platform, investors and analysts
Speaker 2: are frogs in a pot, the experience of owning a
Speaker 2: stock deteriorating. Since Jack Welch and General Electric talk corporations
Speaker 2: that the markets are run with the kind of simplistic
Speaker 2: mindset built for grifter exploitation, and much like those platforms,
Speaker 2: corporations have found as many ways as possible to abuse shareholders,
Speaker 2: seeing what they can get away with, seeing how far
Speaker 2: they can put things as long as the numbers look right.
Speaker 2: Because analysts are no longer working in any sort of
Speaker 2: rational headspace, nor are they looking for sensible ideas. Let
Speaker 2: me give you an example I've used before. Back in
Speaker 2: November nineteen ninety eight, Windstar Communication signed and I quote,
Speaker 2: a two billion dollar equipment and finance agreement with Lucent
Speaker 2: technologies where Windstar would borrow money from Lucent to buy
Speaker 2: stuff from Lucent or to create and I shit you
Speaker 2: not one hundred million dollars in revenue over five years. Now,
Speaker 2: We're going to go even further back in time now
Speaker 2: to December nineteen ninety nine, to a piece in Barns
Speaker 2: called in nineteen ninety nine tech ruled. Allow me to
Speaker 2: quote a few paragraphs from itm ha, Okay, here we go.
Speaker 2: George Gilbert, who manages the Northern Technology Fund, predicts the
Speaker 2: web centric worlds of consumer services and software will fare
Speaker 2: well next year two. A lot of people are increasing
Speaker 2: their access to the Internet, says Gilbert, and e commerce
Speaker 2: and business networking are very hi high priorities for the
Speaker 2: Fortune one hundred. Lawrence Yorke, leading portfolio manager of the
Speaker 2: Www Internet Fund, is bullish on semiconductors, telecommunications, and business
Speaker 2: to business or B two B e commerce software, but
Speaker 2: he's wary of online retailers that model won't work long term.
Speaker 2: He asserts his top B to B picks AREBA and
Speaker 2: official payments in wireless. He likes Windstar, CNA and Anet Communications,
Speaker 2: which went public earlier this month. So what do you
Speaker 2: think Larry's scoreboard is do you think Larry did well?
Speaker 2: Did he do badly? Let's find out anet bankrupt. Windstar
Speaker 2: horribly bankrupt, had to sue loosened while Sienna survived. It
Speaker 2: had spent over a billion dollars to acquire other companies,
Speaker 2: all in stock, of course, only to see its revenue
Speaker 2: dwindle basically overnight from one point six billion dollars to
Speaker 2: three hundred million dollars as the optical cable industry collapsed.
Speaker 2: Now one would have been able to work out that
Speaker 2: Windstar was a dog, or that all of these companies
Speaker 2: were dogs, if you were to look at the numbers,
Speaker 2: such as how much they made versus how much they
Speaker 2: are spending and the demand for their services. I mean,
Speaker 2: I just put out a premium piece about the dot
Speaker 2: com bubble that I'll inevitably turn into a long one
Speaker 2: like this. But basically the signs were all blatant and obvious.
Speaker 2: But instead analysts, the media and banks chose to pump
Speaker 2: up these stocks because the numbers kept getting bigger, and
Speaker 2: when the collapse happened, rationalizations were immediately created. There were
Speaker 2: a few bad apples Enron, windsty WelCom. The fiber was
Speaker 2: useful and thus laying it was worthwhile and otherwise everything
Speaker 2: was fine. And just to be clear, some of those
Speaker 2: statements were true. It doesn't mean that any of these
Speaker 2: companies should have existed or that this growth should have
Speaker 2: happened at that speed. The problem in everybody else's mind
Speaker 2: at the time was that everybody had got a bit
Speaker 2: distracted and some companies that weren't good would die. All
Speaker 2: of that loss money was only a problem because it
Speaker 2: didn't pay off. This was a misplaced gambler. It taught
Speaker 2: tech executives one powerful lesson earnings must be good without
Speaker 2: fail by any means necessary. Otherwise nothing else matters to
Speaker 2: war Stream. I mean companies, look, Lucent did this, WinStar
Speaker 2: did this, Global Crossing did this. Outright frauds like Enron
Speaker 2: did this. They proved it again and again and again.
Speaker 2: It's all about incentives. A sel side analyst that tells
Speaker 2: you not to buy something is a problem. A journalist
Speaker 2: that is skeptical or critical of an industry in the
Speaker 2: midst of a growth or hype cycle is considered a hater.
Speaker 2: And god don't I fucking know that analysts that do
Speaker 2: not sing the same tune as everybody else are marginalized, mocked,
Speaker 2: and aggressively policed, and I don't fucking care. Stop being
Speaker 2: fucking cowards. If you're an analyst listening to this, stop
Speaker 2: being a fucking coward. Go read the fucking numbers, man,
Speaker 2: I've been doing it. I'm reading the numbers. I'm reading
Speaker 2: them to you on this episode. Go read the numbers
Speaker 2: as a reason that people want to fucking talk to me,
Speaker 2: as a reason that only the same fucking people want
Speaker 2: to talk to you. You're useless. You're fucking useless. If
Speaker 2: you're still saying this is a big My frustration I'm
Speaker 2: going off topic again, is that people are going to
Speaker 2: get hurt here. Retail investors who believe what they read
Speaker 2: in CNBC and Bloomberg about the AI bubble are going
Speaker 2: to get hurt. And the cowardice is what's going to
Speaker 2: hurt them. Now, the dot com bubble was actually a
Speaker 2: great time to start reevaluating how and why we value
Speaker 2: stocks the way that we do. To say, hey, wait,
Speaker 2: that two billion dollar deal will only make one hundred
Speaker 2: million dollars in revenue. That's a pretty big minus frieto
Speaker 2: or this company spends five dollars for every dollar it
Speaker 2: makes that's not good. But nobody, it appears, remained particularly
Speaker 2: suspicious of the tech industry or a stock market that
Speaker 2: was increasingly orienting itself around conning shareholders. And because shareholders, analysts,
Speaker 2: and the media are refused to retain a single shred
Speaker 2: of suspicion. Leaving the dot com era, the media never
Speaker 2: actually subsided. Financial publications still found themselves dedicated to explaining
Speaker 2: why the latest type cycle. Journalists still found themselves told
Speaker 2: by editors that they had to cover the latest fad,
Speaker 2: even if it was nonsensical or clearly rotten. Analysts still
Speaker 2: grabbed their swords and rush to protect the very companies
Speaker 2: that had spent decades misleading them and would continue to
Speaker 2: do so for decades more. Much like we spent years
Speaker 2: saying that Facebook was a good deal because it was free,
Speaker 2: analysts and investors say tech stocks are great to hold
Speaker 2: because they keep growing, even if the reason they keep
Speaker 2: growing was a series of interlocking monopolies, difficult to leave,
Speaker 2: platforms and impossible to fight traction and pricing, all of
Speaker 2: which have an eventual cell by date. Now get emails
Speaker 2: over this, I realize and pearl clutching over the amoral
Speaker 2: status of capitalism the stock market. But hear me out,
Speaker 2: what if we're actually in a fifteen to twenty year
Speaker 2: long knife catching competition. What if all anybody has done
Speaker 2: is look at cash flow, net income, future growth guidance
Speaker 2: and called it a day. A lack of scrutiny is
Speaker 2: these companies to do effectively anything they want, but ref
Speaker 2: to warrisome questions like will this ever make it profit?
Speaker 2: Or where's that money going? What if we basically don't
Speaker 2: know what the fuck is going on? What if all
Speaker 2: of this is utterly senseless? And then we get to AI,
Speaker 2: which has accelerated the incentification of the stock market. Now,
Speaker 2: as I wrote back in twenty twenty four, the tech
Speaker 2: industry is run out of hypergrowth ideas, facing something I
Speaker 2: called the rock coom bubble. In simple terms, they're only
Speaker 2: doing AI because they do not appear to have any
Speaker 2: other viable ideas to continue the rock economy's eternal growth
Speaker 2: at all costs. Fandango, I think I'm just going to
Speaker 2: go with fan Dango there yet, because growth hasn't slowed yet. Analysts,
Speaker 2: the media, and other investors are quick to claim that
Speaker 2: AI is paying off, even if nobody has ever said
Speaker 2: how much AI revenue is being generated, or in some cases,
Speaker 2: such as Salesforce, they can say nearly one point four
Speaker 2: billion dollars of annualized recurring revenue, which sounds really big
Speaker 2: until you realize a company with ten point nine billion
Speaker 2: dollars in revenue or quarter is boasting about making less
Speaker 2: than one hundred and sixty million dollars in revenue in
Speaker 2: a month on something that has likely cost them billions
Speaker 2: to spin up. Nevertheless, because Salesforce set a new revenue
Speaker 2: target of sixty billion dollars by twenty thirty, which may
Speaker 2: as well be in one thousand years at this point,
Speaker 2: that stopped. It jumped four percent. It doesn't matter that
Speaker 2: most agent forced customers don't pay for the service, or
Speaker 2: that AI isn't really making them any money, let alone profit,
Speaker 2: or really anything but number go up. Look ed, Number
Speaker 2: go up. I'm an ape, I'm a buffoon. Number higher, yay.
Speaker 2: The era we live in is one of abject desperation,
Speaker 2: to the point that analysts and investors and shareholders by extension,
Speaker 2: will take any abuse from management. They will allow companies
Speaker 2: to spend as much money as they want in whatever
Speaker 2: ways they want, as long as it continues The charade
Speaker 2: of number go up, or charade for my British users.
Speaker 2: Let me spell it out a little more though, using
Speaker 2: the earnings of various hyperscalers as an example. According to
Speaker 2: its latest quarterly filings, Microsoft spent thirty four point nine
Speaker 2: billion dollars on capital expenditures, the most of any of
Speaker 2: the big four hyperscalers, followed by Amazon with thirty four
Speaker 2: point two billion, Googled with twenty four billion, and Met
Speaker 2: with nineteen point three seven billion dollars. The common mantra
Speaker 2: is that these companies are spending all this money on GPUs,
Speaker 2: but that doesn't really match up with invidious revenues. In
Speaker 2: Video's last quarterly earning, said that four direct customers made
Speaker 2: up more than ten percent of revenue, twenty two percent,
Speaker 2: fifteen percent, thirteen percent, and eleven percent, representing no more
Speaker 2: than twelve point five four billion dollars out of fifty
Speaker 2: seven billion dollars of revenue. And as you look back
Speaker 2: through earlier quarters, you see the discrepancies grow. Where exactly
Speaker 2: is this money going? In Microsoft's latest earnings first quarter
Speaker 2: fiscal year twenty twenty six, it said that nineteen point
Speaker 2: three nine billion dollars went to additions to property and equipment,
Speaker 2: with roughly half of its total kapek spent on short
Speaker 2: lived assets, primarily GPUs and CPUs. A quarterback additions to
Speaker 2: property and equipment were sixteen point seven four billion dollars,
Speaker 2: with roughly half of that spent on long lived assets
Speaker 2: that will sport monetization over the next fifteen years or beyond.
Speaker 2: What does that mean? Who fucking knows? I looked, I
Speaker 2: went and I looked. I read every fucking analyst report
Speaker 2: I could about that sorry souder bitch company, Microsoft, and
Speaker 2: I could not find one person who went in what
Speaker 2: Q three was? H Q four f y twenty twenty five?
Speaker 2: Can find a single one of them that even found
Speaker 2: that weird? Like, I don't know those of you got kids.
Speaker 2: If they're like I did my homework, you probably want
Speaker 2: to check, right, Yeah, But if they're a company with
Speaker 2: like a four trillion dollar market cap, no problem, mate,
Speaker 2: were all good? Oh you're public. I know I could
Speaker 2: probably ask more, but I'm not gonna. But let's assume
Speaker 2: that Microsoft is in Vidia's biggest customer every quarter. Those
Speaker 2: pseudonymous customer a from Nvidia's earnings that it mentions in
Speaker 2: its mandatory sec filings spent twelve point five billion dollars
Speaker 2: within video at thirty four point nine billion dollars in
Speaker 2: total cap ex spending from Microsoft, and before that ten
Speaker 2: point seven billion dollars out of twenty one point four
Speaker 2: billion dollars and in the court before that seven billion
Speaker 2: out of twenty two point six billion. If we guessed
Speaker 2: them up based on a split of various models of
Speaker 2: nvidious Blackwell GPU systems and in earlier quarters older models,
Speaker 2: that works to like four hundred and fifty seven megawats
Speaker 2: of by t load for the first quarter, three hundred
Speaker 2: and ninety one mega what's for the fourth quarter of
Speaker 2: twenty twenty five, and two hundred and sixty three megawats
Speaker 2: for the third quarter of twenty twenty five. So has
Speaker 2: Microsoft built that many data centers one point one one
Speaker 2: gigawats of data centers? Apparently? It claims it added two
Speaker 2: gigawads of data centers in the last year, but such
Speaker 2: an Adella claimed in November that Microsoft had chips an
Speaker 2: inventory it couldn't installed, you to a lack of power.
Speaker 2: In any case, where did those tens of billions of
Speaker 2: dollars of where they go? We know there are finance leases,
Speaker 2: which are basically just loans. What are they form more GPUs?
Speaker 2: What's the actual output of the expenditures? Now, I previously
Speaker 2: wrote in this script that we have no idea, but
Speaker 2: I actually found out to an extent. So this will
Speaker 2: be a future episode because it's a whole separate thing.
Speaker 2: But the way that these these big companies, the hyperscalers
Speaker 2: are doing it is they're actually threading their GPUs through Taiwan.
Speaker 2: There are companies like on High Precision Corporation Limited, which
Speaker 2: is better known as fox Conn, Quanta Computing, Wistron, we
Speaker 2: wi In. There are others too. Nevertheless, these are big
Speaker 2: Taiwanese server companies that buy the GPUs from Nvidia and
Speaker 2: then then they ship them to Microsoft or Meta or
Speaker 2: Google or Oracle. Nevertheless, why am I the person who
Speaker 2: went and find that out? Why am I the guy?
Speaker 2: I'm a I'm just a fella, I'm just one dip
Speaker 2: shit with Google. What the fuck am I the guy? Well?
Speaker 2: The answer might be because well, I have a theory,
Speaker 2: and it's the analysts and investors are in an abusive
Speaker 2: relationship with tech stocs. It is fundamentally insane that Microsoft meta,
Speaker 2: Amazon and Google have spent seven hundred and seventy six
Speaker 2: billion dollars in capital expenditures in the space of three
Speaker 2: years and more so that analysts and investors, when faced
Speaker 2: with such egregious numbers, sit back and say, ooh yeah, baby,
Speaker 2: ooh yeah, they're building the infrastructure of the future. Baby,
Speaker 2: we love this. Analysts and traders and investors and reporters
Speaker 2: do not think hard about the underlying numbers, because doing
Speaker 2: so immediately makes you run headfirst into a number of
Speaker 2: worrying questions such as where did all the money go,
Speaker 2: will this payoff? And how many fucking dupus do they
Speaker 2: actually own. Analysts have, on some level become the fractional
Speaker 2: marketing team for the stocks they're investing in. When Oracle
Speaker 2: announced this three hundred billion dollar deal with open Ai
Speaker 2: in September, when that open Ai does not have the
Speaker 2: money to pay and Oracle doesn't have the capacity to fill,
Speaker 2: analysts heaved and stammered like horny teenagers seeing their first boob.
Speaker 2: Now I'm gonna quote see MBC here and do some artistic,
Speaker 2: some editorializing. John Defuki, Sorry, John Defucci, I guess I'm
Speaker 2: not fixing that From Googenhem Security said he was blown away.
Speaker 2: T d Cohen's Derek would called it a momentous quarter,
Speaker 2: and Brad Zelnig of Deutsche Bank said, who kind of, Oh,
Speaker 2: we're in shock in a very good way. There's no
Speaker 2: better evidence of a seismic shift happening and computing than
Speaker 2: these results that you just put up. Selnic said on
Speaker 2: the earnings call, adjusting his trousers, that trouser thing was
Speaker 2: an addition. That's a parody anyway. These are the same
Speaker 2: people that retail and institutional investors rely upon for advice
Speaker 2: on what stocks to buy, all acting with the disregard
Speaker 2: for the truth that comes from years of never facing
Speaker 2: a single fucking consequence. Three months later, an oracle has
Speaker 2: lost basically all of the stock bumpets sought from the
Speaker 2: open aideal, meaning that any regular person, any retail investor
Speaker 2: that yoloed into that trade because say, I don't know,
Speaker 2: Analysts from major institutions in the media said it was
Speaker 2: a good idea, and news outlets didn't ask questions. Well,
Speaker 2: they got their asses kicked. They lost everything, and please
Speaker 2: spare me, Oh they shouldn't trade off of analysts. Bullshit.
Speaker 2: That's the kind of victim blaming that allows these revered
Speaker 2: fuck wits to continue fighting out these meaningless calls and
Speaker 2: making money doing so. In reality, we're in an era
Speaker 2: of naked, blatant, shameless stock manipulation, both privately and publicly,
Speaker 2: because a stock no longer refers to a unit of
Speaker 2: ownership in a company so much as it is a
Speaker 2: chip at a casino where a house constantly changes the rules.
Speaker 2: Perhaps you're able to occasionally catch the house showing its hand,
Speaker 2: and perhaps the house meant for you to see it.
Speaker 2: Either way, you are always behind because the people responsible
Speaker 2: for buying and selling stocks at scale, under the auspices
Speaker 2: of knowing what's going on, don't seem to know what
Speaker 2: they're talking about, or don't care to find out. You
Speaker 2: want examples, I'll give you some fucking examples. June in tomorrow.
Speaker 2: I love doing this show. I love doing these episodes.
Speaker 2: Catch you then, thank you for listening to Better Offline.
Speaker 1: The editor and composer of the Better Offline theme song
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