Speaker 1: All Zone Media. Hail traveler, Welcome to this week's Better
Speaker 1: offline monologue. I'm your host ed ZITRN, so I'm breeding
Speaker 1: this the day after In Video put out there August
Speaker 1: twenty seventh turnings, and I'm not sure anybody really knows
Speaker 1: how to react. While in Video be estimates in general,
Speaker 1: they for the second quarter running mist analyst estimates on
Speaker 1: data center revenue, which is eighty eight percent of their revenue,
Speaker 1: where all the GPUs are coming in at forty one
Speaker 1: point one billion dollars on an estimated forty one point
Speaker 1: three billion dollars. The market also has a very unhealthy
Speaker 1: relationship with this company. In Video grew like fifty percent
Speaker 1: or something year over year, but because they didn't grow
Speaker 1: one hundred and twelve percent or whatever year over year,
Speaker 1: people are the babies and the markets are soiling their diapers,
Speaker 1: And honestly, it's because really it's unhealthy. The unrealistic valuations
Speaker 1: that in Video has been given are finally causing problems.
Speaker 1: And as a reminder, in Video is the company that
Speaker 1: may the specialized GPUs used in effectively all generative AI
Speaker 1: and has seen unprecedented stock growth as a result of
Speaker 1: this hype. Cycle. The magnificent seven stocks Microsoft, Google, Meta, Amazon, Apple, Tesla,
Speaker 1: and of course Nvidia make up thirty five percent of
Speaker 1: the value of the US stock market, and as I
Speaker 1: mentioned on the AI money Trap, they are sent a
Speaker 1: capital expenditures, of which Nvidia makes up a large chunk.
Speaker 1: By well, their GPUs do at least accounted for more
Speaker 1: growth than all consumer spending combined. So on so many levels,
Speaker 1: and Video really is the AI bubble. They're the only
Speaker 1: company making a profit in AI, and forty two percent
Speaker 1: of their revenue is from the magnificent seven companies buying
Speaker 1: their GPUs, and their financial health and continued growth is
Speaker 1: a barometer for the future growth of this nonsense, bullshit
Speaker 1: bubble that I'm tired of talking about kind of, but
Speaker 1: you know, there's always something to chat about yet. Luke
Speaker 1: Carwo of Sherwood News discovered one particularly weird part of
Speaker 1: Nvidia's earnings this week two point two billion dollars of
Speaker 1: their revenue under net other income, which turned out to
Speaker 1: be from the mark to market value of their investment
Speaker 1: in unprofitable AI compute company cor Weve and by the way,
Speaker 1: in Video invested in core Weave has a one point
Speaker 1: three billion dollar GPU compute deal with them called Project Osprey.
Speaker 1: They give them preferential rights their GPUs and core Weave.
Speaker 1: When they raised debt, they raise by using the GPUs
Speaker 1: they bought from a Videos as collateral in the loan,
Speaker 1: and then they use that money from the from the
Speaker 1: loan to buy more GPUs. Every time I think about
Speaker 1: core Weave, I feel a little crazy. And in simple terms,
Speaker 1: in Video book the increased value of their investment in
Speaker 1: core Weave as revenue in a quarter where they barely
Speaker 1: hit estimates. Hmmm. The reason I'm telling you this is
Speaker 1: that I believe, as I've always said, that all of
Speaker 1: this ends poorly in Video isn't doing anything dodgy per
Speaker 1: se by including core Weave's stock. It's just that the
Speaker 1: value of that stock and core Weave is covering up
Speaker 1: in video is slow in growth. If Core weaves value
Speaker 1: craters in the next few months, and Video will have
Speaker 1: to book a massive loss in the same category. And
Speaker 1: I know some of you are going to email me
Speaker 1: and say, hey, where to hear mark to market before
Speaker 1: And the answer is Enron. And I don't think this
Speaker 1: is like Enron, because Enron was doing something somewhat different
Speaker 1: they were valuing contracts in bizarre ways. This is not
Speaker 1: exactly the same thing. Nevertheless, it's extremely weird to say, yeah,
Speaker 1: the value of this stocker got over here went up.
Speaker 1: Isn't that good? Yeah, that's revenue now. It's dangerous. It's
Speaker 1: dangerous stuff. And it means that on some level, In
Speaker 1: Video's financial health and future earnings are somewhat dependent on
Speaker 1: core weave. It's all so good. I like it. It's very good.
Speaker 1: It's normal. Everything's so good. It's great, everybody's doing well.
Speaker 1: And what's even more better is that in Video is
Speaker 1: effectively the only success story in AI, opening eye and
Speaker 1: anthropic but billions of dollars each year and have no
Speaker 1: path any kind of sustainability. And as I've argued again
Speaker 1: and again, these products lack any kind of large scale
Speaker 1: use cases other than the fact that every single media
Speaker 1: outlet has been screaming chat GPT for the last three years,
Speaker 1: and seemingly everyone just sees code generation goes, oh my god,
Speaker 1: this is literally god. But I think after three years
Speaker 1: of breathless hype, the worm is kind of turning on AI.
Speaker 1: In the last week, I've been on national TV twice,
Speaker 1: once on CNN and once on the BBC. And while
Speaker 1: I'm still introduced as somebody that does not believed the hype,
Speaker 1: the fact is that more people are beginning to wonder
Speaker 1: what if Ed's right? So from here on now, I'm
Speaker 1: going to extrapolate a little bit. I don't know the future.
Speaker 1: I'm not saying, oh, this will definitely happen, but here
Speaker 1: are some things that on my mind if I'm right. Well,
Speaker 1: let's start with something simple. Open ai is toast. The
Speaker 1: Financial Times reported that open AI's corporate restructuring is and
Speaker 1: I quote likely to slip into next year as Microsoft
Speaker 1: refuses to budge on the terms that of open ai
Speaker 1: converting from a nonprofit to a for profit. Now. This
Speaker 1: is because open ai went to Microsoft and said, okay, guys,
Speaker 1: we need to convert to a for profit or we
Speaker 1: will die. Microsoft said, okay, great, let's go ahead and
Speaker 1: do that. We don't mind. Open Ai said, well, what
Speaker 1: we're going to need is, we're going to need you
Speaker 1: to end your exclusivity deal over our models. We're going
Speaker 1: to need to cut your revenue share, We're going to
Speaker 1: need to not share our IP and our research from
Speaker 1: with you. What do you think? And Microsoft said, go
Speaker 1: fuck yourself. Microsoft back in I think May said that
Speaker 1: they were willing to walk away from the table. I
Speaker 1: don't fucking blame them. Now people will say, well, Microsoft
Speaker 1: wants open ai to go public, they'll get a bunch
Speaker 1: of money. Kind of luck. Cool, we've different video, right,
Speaker 1: Except Microsoft already owns all their IP and already runs
Speaker 1: all their infrastructure. Remember open ai doesn't own any of
Speaker 1: their info at all. They're trying to build that bullshit
Speaker 1: out in Abilene, Texas, of course, but I mean that's
Speaker 1: not going to be built this year or even next
Speaker 1: at this point. So you know, Microsoft is not understandably
Speaker 1: jazz to take this deal and could let open ai
Speaker 1: die on the vie. And if open ai fails to
Speaker 1: convert by the end of the year, soft Bank cups
Speaker 1: they're funding round in half, meaning that by my calculations,
Speaker 1: soft Bank's part of the remaining thirty billion dollars, which
Speaker 1: would at this point become ten billion dollars, would drop
Speaker 1: two seven hundred billion dollars thanks to open ai already
Speaker 1: raising eight point three billion dollars from other investors. Some
Speaker 1: people are saying it's ten billion dollars just from soft Bank.
Speaker 1: I don't think people are good at math. I swear
Speaker 1: to God, I've been looking at this ship for years,
Speaker 1: and nevertheless things don't look good there. And again, soft
Speaker 1: Bank has been very clear that if by the end
Speaker 1: of the year open ai is not converted, they're cutting
Speaker 1: that round in half. Even if open Ai and Microsoft
Speaker 1: work this out today, I don't think it's possible that
Speaker 1: they convert by the end of the year, if it's
Speaker 1: even possible at all. Nonprofits are very specific things, and
Speaker 1: no one has ever done what open ai is trying
Speaker 1: to do. And if open ai cannot convert, they aren't
Speaker 1: dead because they can never IPO and they're too big
Speaker 1: to sell to anyone else. And thus investors would have
Speaker 1: little reason to put further capital in other than believing
Speaker 1: that open ai will so somehow stop burning billions of dollars,
Speaker 1: something they have never proven is possible and nobody has
Speaker 1: in fact, and fucking I hear the cost of inference
Speaker 1: is going down again, and going to screen, it's going up.
Speaker 1: I'm getting to it later and in a future episode.
Speaker 1: And if the conversion fails, open Ai can probably cobble
Speaker 1: together another fifteen billion dollars of funding before they shit
Speaker 1: their pants and die. And as an aside, Open Ai
Speaker 1: is currently doing an insider share sale at a five
Speaker 1: hundred billion dollar valuation, with current and former employees selling
Speaker 1: eight billion dollars worth of stock. This is not something
Speaker 1: you do if you think you're going to go public
Speaker 1: anytime soon. If ever, I need to be clear about this,
Speaker 1: it looks bad and outside of Nvidia, AI is failing
Speaker 1: to produce any kind of profit. And once venture capital
Speaker 1: realizes this, they'll stop investing in these giant, loss ridden monstrosities.
Speaker 1: This will naturally bring things to a headed Anthropic, another
Speaker 1: company that burns billions of dollars, who will inevitably raise
Speaker 1: maybe another ten to fifteen themselves, and perhaps another roundup after
Speaker 1: that with nouffittability, though there is no reason, really no
Speaker 1: reason to keep throwing cash in the furnace. And I
Speaker 1: believe that Anthropic eventually gets absorbed into Amazon, like at
Speaker 1: the end of that horrible game inside, and maybe it
Speaker 1: will also flop around like a big blob in a field.
Speaker 1: And if I spoiled inside of you, it's an old game,
Speaker 1: you should have beaten it by now. Then when the
Speaker 1: public markets, eventually the AI trade will fail. Despite what
Speaker 1: the headlines may say, outside of Nvidia, the Magnificent seven
Speaker 1: has not been making money on AI and has instead
Speaker 1: been growing there already existing businesses, which is something that
Speaker 1: reporters should know better. Yet they're claiming that any kind
Speaker 1: of growth proves that AI bets are paying off. I'm
Speaker 1: not singling you out yet, but you've gotta fucking stop.
Speaker 1: Once other revenue sources stop papering over the flimsy or
Speaker 1: unexistent revenue and I mean revenue, not profit from AI,
Speaker 1: the street will realize and they will panic. But let's
Speaker 1: get serious. If I'm right, we're all bearing witness to
Speaker 1: one of the most catastrophic failures in the history of
Speaker 1: the markets, journalism, and society itself. Generative AI was sold
Speaker 1: as a myth. It's been blatantly obvious from the very
Speaker 1: beginning that large language models do not have mass market
Speaker 1: use cases and no coding llms do not goddamn count
Speaker 1: they don't. They don't produce the kind of revenues. And
Speaker 1: guess what. The coding lms are so expensive to run
Speaker 1: that if you took away the subsidies, they would be
Speaker 1: economically impossible. Stop arguing with me on this point. I
Speaker 1: will crush you. Yet many many, many, many, many journalists
Speaker 1: choose to blindly repeat the open AI and other companies
Speaker 1: are building powerful AI that will replace human workers, choosing
Speaker 1: to deliberately ignore the pisspoor outcomes from using these products
Speaker 1: and I don't know, failing to define what powerful means
Speaker 1: because powerful does not seem to mean goddamn anything. Journalists
Speaker 1: had an opportunity to tell the truth, to look at
Speaker 1: the products and say, hey, I don't really get why
Speaker 1: this is so amazing or powerful, exactly, question the valuations
Speaker 1: of companies that make little or no revenue, while burning
Speaker 1: hundreds of millions or billions of dollars to interrogate the
Speaker 1: outright lies of Sam Moultman and WARRYO Darryo ama Day. Instead,
Speaker 1: they choose to fuel the fantastical fire, repeating the promises
Speaker 1: of people like Sam Moultman in the hopes they'll be
Speaker 1: the first to be able to parrot his next lie
Speaker 1: or talk to his clammiass about nothing for three hours.
Speaker 1: I worry that things are so much worse than we know.
Speaker 1: I have an inkling that the price of serving GPU compute,
Speaker 1: the underlying infrastructure of all generative AI, is horribly unprofitable.
Speaker 1: And if you're a person who's going to say, oh,
Speaker 1: it's only a few dollars an hour. Hey, what if
Speaker 1: they're selling that few dollars an hour at a loss.
Speaker 1: We know now that the cost of inference is increasing,
Speaker 1: and that's coming up in future episodes, but it was
Speaker 1: in the GPT five one, and thus the costs of
Speaker 1: providing AI services, which were already unprofitable, is increasing too. Yet,
Speaker 1: by constantly accepting a myth that AI would get more powerful,
Speaker 1: that these companies would somehow work out how to stop
Speaker 1: burning way more money than they may, the big tech
Speaker 1: would not simply lie about what was possible. Journalism pedaled
Speaker 1: outright lies and help sustain a hype cycle based on
Speaker 1: little more than believing the last smart sounding guy you
Speaker 1: ran into, or what that guy told someone you kind
Speaker 1: of respect. You can dress this up by being an optimist.
Speaker 1: You can dress this up by pretending that you thought
Speaker 1: they would extrapolate from here, that these companies would just
Speaker 1: work it out, that they were just like Uber, that
Speaker 1: they were just like Amazon Web services, that they would
Speaker 1: innovate and contribute you so much the economy based on
Speaker 1: the things that they told you that they wanted you
Speaker 1: to repeat, so their investors would give them more money.
Speaker 1: You can pretend that all of this made sense at
Speaker 1: any goddamn time, but you know you either half asked
Speaker 1: it or you're lying to yourself at this point. And
Speaker 1: I understand also that there are some people writing about
Speaker 1: this who maybe don't want to write such fantastical things.
Speaker 1: They feel pressured or they're scared, And I actually understand
Speaker 1: the fear. Then, when everyone around you is pissed down
Speaker 1: pants and they're saying, why haven't you pissed your pants?
Speaker 1: Perhaps you wouldn't want to do it. But if everyone's
Speaker 1: screaming at you, what are you meant to do? If
Speaker 1: your editors are saying write a positive AI story, if
Speaker 1: your editors are saying that thirteen percent of people in
Speaker 1: the Stanford there was this. Sorry, I'm actually going to
Speaker 1: reframe this point and not retake it, because this is important.
Speaker 1: There was a study that went out that said that
Speaker 1: thirteen percent I think there's a thirteen percent drop in
Speaker 1: jobs that were affected by AI, and that this was
Speaker 1: proof that AI was taking these jobs. When you look
Speaker 1: at this goddamn study, you can see that it doesn't
Speaker 1: actually prove that AI was involved and says that yeah,
Speaker 1: thirteen percent of come of career paths and jobs that
Speaker 1: were somehow being replaced by AI were dropping, and as
Speaker 1: the result, AI was involved. It seems like a fumbled point,
Speaker 1: but what it actually just said was that there was
Speaker 1: a thirteen percent drop in certain employment and we'd like
Speaker 1: AI to be involved. So it's on some level, I
Speaker 1: realize i'm ranting. I realize I'm going a little bit offscript.
Speaker 1: I'm just fucking tired of this. I'm tired because even now,
Speaker 1: even today, even as you look at these companies burning
Speaker 1: all this money, even as you look at the fact
Speaker 1: that there are no real returns here, and when you
Speaker 1: look at the products, you can see they don't really
Speaker 1: do anything super futuristic. Even now, there are people who
Speaker 1: still talk to me and repeatedly say shit like, well,
Speaker 1: what if you're wrong, What if you're wrong about this? Well? Ed?
Speaker 1: What if you turn around? And then the computer wakes
Speaker 1: up and says, I love you, Ed, I love you.
Speaker 1: Nothing happens because that won't happen, And we're living a lie.
Speaker 1: And we built our economy on a lie. And it's scary.
Speaker 1: It's scary because the economy is built on data center
Speaker 1: growth and It's scary because so much of journalism just
Speaker 1: missed this. They just missed it. And I myself have
Speaker 1: done very well as a result of this, because I've
Speaker 1: been elucidating hundreds of thousands words at a time, hours
Speaker 1: a podcast a time. So I'm doing fine. I guess.
Speaker 1: I don't have any stock positions in this crap. I'm
Speaker 1: not investing. I'm not fiscally profiting off of this, but
Speaker 1: my career is doing well, I guess. But on some level,
Speaker 1: we've seen that at the highest levels of journalism there
Speaker 1: are people who are willing to peddle bullshit. And as
Speaker 1: this falls apart, as this collapses, there must be a
Speaker 1: point at which people are held accountable for lying because
Speaker 1: it is lying. And I believe the majority of journalists
Speaker 1: are not trying to lie. I don't think that they
Speaker 1: are deliberately doing this. I think they are weasel wording
Speaker 1: around stuff so that they don't stand out from their
Speaker 1: peers and get in trouble and face peer pressure for
Speaker 1: not falling behind the AI bubble cycle. Except everyone's gonna
Speaker 1: look fucking stupid if this collapses. If I'm right, everyone's
Speaker 1: gonna look really silly, and you can feel however you
Speaker 1: feel about me. This isn't about anyone specific other than
Speaker 1: the very obvious hard forky folks. But if you're a
Speaker 1: journous listening, this probably isn't abalue. What it is about, however,
Speaker 1: is the truth, and it is about the fact that
Speaker 1: everyone can say something that's wrong. And we as people
Speaker 1: that report the truth, ostensibly must look at this when
Speaker 1: it collapses, and I really do think it will, and
Speaker 1: we must take an account of what has been said
Speaker 1: and how it has been said, of how many affordances
Speaker 1: were given to people like Sam Altman and Wario Ama Day,
Speaker 1: of how many people said, wow, AI is going to
Speaker 1: get more powerful. We must take an account of why
Speaker 1: it was said it would get more powerful, and if
Speaker 1: there was no reason to other than I think it
Speaker 1: is number is going up that these people keep telling
Speaker 1: me they have met smart people in the valley with
Speaker 1: tears in their eyes, big strong men that told them
Speaker 1: that AGI was coming. If that is the flimsy, fucking
Speaker 1: reasoning we have used to send our economy into the toilet,
Speaker 1: which is what I fear, we should all be goddamn
Speaker 1: ashamed of ourselves. I'm not. I'm not ashamed because I've
Speaker 1: admitted what I am from the very goddamn beginning, which
Speaker 1: is just a guy with a microphone and a fucking blog,
Speaker 1: and I'm doing my best out here to tell the truth.
Speaker 1: If I am wrong, if I am truly wrong, if
Speaker 1: I got all of this wrong, and AGI comes and
Speaker 1: the computer eats me whole and shits me out like Kirby,
Speaker 1: then I will eat crow and I will tell you
Speaker 1: why I'm wrong in detail. Do you think other people
Speaker 1: will do the same when the bubble bursts? Do you
Speaker 1: think that these people will hold themselves accountable or do
Speaker 1: you think they will sweep this under the fucking rug.
Speaker 1: I think they will, and I don't believe listeners should
Speaker 1: let them, and I will not be letting them either.
Speaker 1: This isn't going to be an industry takedown, nor will
Speaker 1: one be coming in the future, but I think journalism
Speaker 1: needs to do a great deal better. And my frustration
Speaker 1: is that in the end of all of this, the
Speaker 1: people that will get hurt will be regular people. The
Speaker 1: environmental destruction cannot be unwritten, the theft cannot be undone.
Speaker 1: No class action suit can make up for the art directors,
Speaker 1: the translators, the transcribers who are losing their jobs to
Speaker 1: this right now, and who will even if these things
Speaker 1: become too expensive to actually run at scale from here
Speaker 1: on it, which is very possible. At some point, the
Speaker 1: price pressure on these careers as they come back will
Speaker 1: match the price of the AI, not the price of
Speaker 1: the jobs that they had before. The labor destruction has
Speaker 1: already happened on a much smaller level than they want
Speaker 1: you to believe it, but it has happened. But fundamentally,
Speaker 1: the AI bubble has damaged the concept of the truth
Speaker 1: and has damaged the concept of what reporting is meant
Speaker 1: to do, because an alarming amount of reporting has been
Speaker 1: there to prove the AI bubble was real, rather than
Speaker 1: prove what was actually real, to actually hold the accountable powerful,
Speaker 1: to actually make sure that the truth was being said,
Speaker 1: even if the truth was ikey, even if the truth
Speaker 1: was wow. Tens of billions of dollars each quarter are
Speaker 1: going into GPUs for products that only lose money, for
Speaker 1: products that don't really resemble actual labor, and thus can
Speaker 1: never do any of the things that people are promising.
Speaker 1: And I like to believe that most people here mean well,
Speaker 1: that they've just been going on with the market consensus
Speaker 1: and I can understand that when everyone's honking in the
Speaker 1: same way, do you want to oink? Do you want
Speaker 1: to stand out? At a time when journalists have a
Speaker 1: tough time keeping their jobs as it is, I blame
Speaker 1: the people on the top. I blame the people with
Speaker 1: the largest megaphones. I blame the people who are constantly
Speaker 1: talking about this as the future and the people that
Speaker 1: have derision for those who wouldare critique the powerful. And
Speaker 1: if I'm right, really, if I'm right, there must be
Speaker 1: some degree of accountability within journalism. There has to be
Speaker 1: an apology to readers and listeners and viewers. There won't
Speaker 1: be there, never will be there, never is, but something
Speaker 1: has to change once the bubble bursts. And if i'm again,
Speaker 1: if I'm wrong, I'll explain why I don't do this
Speaker 1: to be right, I do it because I enjoy it,
Speaker 1: and I'm very grateful you've give me your time. This
Speaker 1: is meant to be a regular five to ten minute
Speaker 1: monologue and it's going to go over twenty minutes. But
Speaker 1: I'm frustrated, as you can tell, I'm furious. I'm furious
Speaker 1: because the markets will take a nasty shit after this,
Speaker 1: and once the markets realize that big tech doesn't have
Speaker 1: any other ideas, and the one idea they had that
Speaker 1: they've been wanking off about for years was nothing. Was
Speaker 1: a myth that burned millions or billions of dollars. The
Speaker 1: markets are not going to trust the tech industry anymore.
Speaker 1: They're not going to trust them as the ultimate growth vehicles.
Speaker 1: What do you think that does the startup funding? What
Speaker 1: do you think that does two jobs in tech? Nothing good?
Speaker 1: Nothing good at all. I want a better world, and
Speaker 1: I think you do too. I'm very grateful for your time.
Speaker 1: It's been a little different. I realized this week. Next
Speaker 1: week we'll have Steve from Gamers Nextus, who will be
Speaker 1: talking about the GPU black market in China and of
Speaker 1: course the things that Bloomberg has done to pull down
Speaker 1: that video. And then after that, I'm gonna have a
Speaker 1: three part episode about how to argue with AI boosters
Speaker 1: because it's about time we take the walter to these
Speaker 1: fucking people. Thank you for listening.