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Speaker 1: Zone Media. Finally someone let me out of my cage.

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Speaker 1: Welcome to this week's Better Offline Monologue, and I'm your

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Speaker 1: host ed ze Tron. We're approaching high noon for generative

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Speaker 1: AI and it's the true test of whether this industry

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Speaker 1: has that dog in it, and I believe it does.

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Speaker 1: But the dog in question is sick, covered in fleas,

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Speaker 1: and the swallowed a live grenade. Let me set the scene.

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Speaker 1: A few weeks ago, I reported that Microsoft had pulled

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Speaker 1: at least a gigawatt of planned compute capacity, according to

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Speaker 1: a report by analyst TD Cohen, equivalent to the entire

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Speaker 1: capacity of London or Tokyo. To be clear, the actual

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Speaker 1: figure was much much more than a gigawa but that

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Speaker 1: figure was the only one we had solid confirmation for

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Speaker 1: despite the press sitting on their hands not really covering

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Speaker 1: this number, they should have. A follow up report published

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Speaker 1: on March twenty sixth shed more light on the situation

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Speaker 1: and revealed that Microsoft has actually pulled over two gigawatts

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Speaker 1: of capacity across the US and Europe. That's the equivalent

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Speaker 1: capacity of London and Tokyo combined. Were still t Cohenawson said,

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Speaker 1: and I quote the pullback on new capacity leasing by

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Speaker 1: Microsoft was largely driven by the decision not to support

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Speaker 1: incremental open ai training workloads. In other words, this is

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Speaker 1: as I have predicted, Microsoft not only pulling back from

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Speaker 1: generative AI, but walking away from supporting open AI's future

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Speaker 1: expansion efforts. These efforts, i add, were a major driver

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Speaker 1: behind Microsoft's massive multi billion dollar CAPEX spend, which was

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Speaker 1: forecast to surpass fifty billion dollars to eighty billion dollars

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Speaker 1: this year alone. For open ai to continue training their

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Speaker 1: future large language models, they'll have to rely on a

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Speaker 1: combination of whatever support Microsoft is still willing to provide,

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Speaker 1: their relationships with Oracle and other cloud providers, and of

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Speaker 1: course the Stargate Data Center project, which is contingent on

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Speaker 1: money coming through from SoftBank, who need to fund open

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Speaker 1: AI's forty billion dollar funding round, and their own eighteen

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Speaker 1: billion dollar contribution to Stargay and Gorway. If the subject

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Speaker 1: of my love this monologue, I mean open aiy is

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Speaker 1: dependent on them. As a reminder, core Weave is a

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Speaker 1: company that sells access to compute for training and running

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Speaker 1: generative AI models, and they're going public on March twenty eighth,

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Speaker 1: which is the data this monologue runs annoyingly. I can't

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Speaker 1: speak to how the stock will do. I'm not a

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Speaker 1: stock analyst. I will, however, say that Corewave is a

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Speaker 1: company burdened by multiple times its revenue and debt. And

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Speaker 1: they're a company that lost eight hundred and sixty three

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Speaker 1: million dollars in twenty twenty four, and according to the

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Speaker 1: Financial Times, they're also facing nearly seven point five billion

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Speaker 1: dollars in debt repayments by the end of twenty twenty six.

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Speaker 1: And they also don't appear to have any path to profitability.

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Speaker 1: And this IPO, it's it's not looking so good. As

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Speaker 1: of the morning of March twenty seventh, twenty twenty five,

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Speaker 1: which is when I wrote the script, corwe've planned to

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Speaker 1: cut the size of their initial public offering to around

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Speaker 1: one point five billion dollars according to Bloomberg, which is

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Speaker 1: down from the two point seven billion dollars or so

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Speaker 1: they plan to raise.

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Speaker 2: When a company goes public.

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Speaker 1: They usually are selling a bunch of stock to get

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Speaker 1: money into the company. Sometimes they do it just because

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Speaker 1: they want to make more money. Sometimes they want to

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Speaker 1: be a public company and take the fame of that,

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Speaker 1: or in this case, I believe because they're desperate and

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Speaker 1: they need whatever they can get. Now, this is problematic

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Speaker 1: for a number of reasons, chief being that the information

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Speaker 1: reports the Corweave's cash burn will be fifteen billion dollars

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Speaker 1: in twenty twenty five, which is up from six billion

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Speaker 1: dollars in twenty twenty four. None of these fucking companies

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Speaker 1: make any They just burn money. It's insane. Now, Corwave

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Speaker 1: has just over six billion dollars in available liquidity between

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Speaker 1: loans and the one point three billion dollars or so

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Speaker 1: in cash they have lying around, while they could borrow more.

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Speaker 1: Their largest seven point six billion dollar loan includes a

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Speaker 1: covenant that states that if the company takes on more debt,

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Speaker 1: it can only be used to pay that loan back,

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Speaker 1: which means that in order to meet Corwev's future capex

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Speaker 1: spending goals, they need to raise vastly more than fifteen

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Speaker 1: billion dollars, either through new debt or through selling new

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Speaker 1: equity to new investors, or as they're doing Viru's IPO.

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Speaker 1: One point five billion dollars is a drop in the bucket.

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Speaker 2: Not for me.

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Speaker 1: If you have one point five billion dollars and want

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Speaker 1: to give it to me, please email me at easy

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Speaker 1: at better offline dot com. I would love that money.

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Speaker 1: Please give me ten dollars. I don't fucking anyway. I'll

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Speaker 1: put this really simply, a good stable company going public

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Speaker 1: does not reduce the size of their initial public offering,

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Speaker 1: nor do they have multiple stories from the Financial Times

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Speaker 1: comparing to Enron or we Work.

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Speaker 2: Remember, an IPO is.

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Speaker 1: An opportunity to buy equity in a company before it

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Speaker 1: hits the public market. The price will, at least in theory,

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Speaker 1: continue to rise. It's the next best thing to being

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Speaker 1: an investor in the company. Facebook and IPO price of

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Speaker 1: thirty eight dollars and now at the time of writing,

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Speaker 1: there are over six hundred bucks. Pretty good, right, not

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Speaker 1: for core with Furthermore, if generative AI was this massive

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Speaker 1: growth industry that would usher in a golden age of

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Speaker 1: tech valuations, the company selling the literal fuel access to

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Speaker 1: the data centers to run generalyvai models would not be

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Speaker 1: the financial equivalent of an hr Geiger painting. It wouldn't

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Speaker 1: be buried in debt with obscene interest rates and restrictive comminance.

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Speaker 1: It won't be burning many times more than its revenue,

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Speaker 1: nor would it be beholden to a very small number

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Speaker 1: of companies for the majority of their revenue who can

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Speaker 1: and do walk away at any time, as Microsoft has

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Speaker 1: Corweave is not a healthy company. But wait, wait, wait ah,

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Speaker 1: I'm not a smart guy, all right, I mean, let

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Speaker 1: me just let me just tell you a story though,

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Speaker 1: because I learned about this thing. Do you ever hear

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Speaker 1: of a hedge fund called Magnetar Capital, I'll tell you

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Speaker 1: about them. In two thousand and six, Magnetar Capital got

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Speaker 1: involved in something called a collateralized debt obligation, which is

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Speaker 1: a way of packaging up a bunch of debts that

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Speaker 1: you could sell it like a financial asset, or even

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Speaker 1: gamble on whether it would succeed. A hedge fund wouldn't

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Speaker 1: buy a single mortgage, for example, but they may buy

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Speaker 1: something with hundreds or thousands of mortgages, maybe subprime ones,

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Speaker 1: I don't know. And it turns out that these things

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Speaker 1: were real bad because it made it hard to see

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Speaker 1: the actual risk of the loans that made up the bonds,

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Speaker 1: and because they were easy to sell. They encourage mortgage

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Speaker 1: companies to give mortgages to people who couldn't pay them

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Speaker 1: because they knew they could sell them onto investors and

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Speaker 1: wouldn't have to carry on the risk themselves. This in

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Speaker 1: turn created something called a let me just look at

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Speaker 1: a great financial crisis, which apparently was.

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Speaker 2: Bad for the economy.

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Speaker 1: Hey, what happened to magnetagh Wait what they're one of

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Speaker 1: the two companies providing loans to core Weave.

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Speaker 2: What the fuck? And they're the largest institutional investor.

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Speaker 1: That doesn't sound that doesn't sound good at what?

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Speaker 2: What? Just this fucking industry?

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Speaker 1: Every time I think this industry can't getting fucking stupid?

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Speaker 2: Pardon me, pardon me.

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Speaker 1: Well, at least they're not involved in any other major

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Speaker 1: deal in general of AI. Right right, wrong, wrong, so

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Speaker 1: fucking wrong. Over in Silicon Valley, Open ai is for

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Speaker 1: the third time close to finalizing a forty billion dollar

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Speaker 1: funding round led by soft Bank, And wouldn't you know it,

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Speaker 1: MAGNETARH Capital is in there too, according to Bloomberg, for

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Speaker 1: as much as one billion dollar, valuing the company at

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Speaker 1: an astonishing three hundred billion dollars. And I recently got

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Speaker 1: told about a term suicide round, and that term refers

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Speaker 1: to a time when a company gets such a high

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Speaker 1: valuation that any future investment is effectively impossible, because when

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Speaker 1: you're investing out a company three hundred billion dollars. You

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Speaker 1: need to see liquidity at some point. You need to

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Speaker 1: see a chance to sell it. And guess what, who's

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Speaker 1: going to buy this dog shit merchant company that burns

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Speaker 1: billions that the open a eye as a complete dog.

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Speaker 2: Yeah? What's weird about this deal?

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Speaker 1: I mean, other than the fact did so isn't actually

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Speaker 1: finalized and it's taken months and involves man capital and

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Speaker 1: it involves seemingly every side of the deal taking on debt,

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Speaker 1: is that it also isn't exactly forty billion dollars yet.

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Speaker 1: Bloomberg reports that SoftBank will actually invest seven point five

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Speaker 1: billion dollars into open Ai and provide another two point

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Speaker 1: five billion dollars from a syndicative investors, which is just

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Speaker 1: it sounds far fancy than this. It's just a group

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Speaker 1: of investors who invest together. The remainder twenty two point

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Speaker 1: five billion dollars soft Bank and the seven point five

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Speaker 1: billion dollars from a syndicate will come up some sort

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Speaker 1: of indeterminate time later this year, which is weird, Right,

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Speaker 1: It's okay, it's not that weird. What the funding rounds,

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Speaker 1: especially big ones, they're meet it out in tranches based

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Speaker 1: on performance. I've talked to a few vcs before I

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Speaker 1: did this, and they say that's that's normal. But it

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Speaker 1: is extremely weird that this is considered a forty billion

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Speaker 1: dollar round despite the fact that only ten billion dollars

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Speaker 1: appears to exist at this time. And I'm not being

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Speaker 1: facetious or joking here. SoftBank literally does not have the money.

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Speaker 2: To give open ai right now.

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Speaker 1: They have like thirty billion dollars in hash, which is

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Speaker 1: why they're not sending that much, and they're having to

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Speaker 1: take on loans as well. I'll get to that in

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Speaker 1: a minute. But nevertheless, it's also not obvious how any

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Speaker 1: of this works long term, because the entirety of the

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Speaker 1: generative AI boom appears to rest on open AI's ability

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Speaker 1: to continue raising capital. Let me explain. Microsoft neglected to

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Speaker 1: exercise twelve billion dollars of future capacity with core Weave,

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Speaker 1: which was quickly picked up by open Ai. According to

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Speaker 1: se around the same time, the company canceled plans for

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Speaker 1: future data center expansion referring to Microsoft here that would

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Speaker 1: have undoubtedly cost tens of billions of dollars. This heavily

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Speaker 1: suggests that Microsoft is pulling back from Generative Ai writ

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Speaker 1: large and that a large degree of their spend with

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Speaker 1: Coreweed was to support open ai services, which open aim

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Speaker 1: well now for the bill.

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Speaker 2: For for open.

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Speaker 1: Ai to pay that bill, they'll need SoftBank to give

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Speaker 1: them the forty billion dollars of fundank, which SoftBank is

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Speaker 1: on the hook for at least thirty billion dollars of

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Speaker 1: according to the information, which includes open AI's eighteen billion

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Speaker 1: dollar contribution to the Stargate Data Center project, to which

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Speaker 1: soft Bank also owes eighteen billion dollars for SoftBank to

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Speaker 1: give them this money. The information also reports that SoftBank

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Speaker 1: will borrow sixteen billion dollars in twenty twenty five and

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Speaker 1: eight billion dollars in twenty twenty six, which still does

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Speaker 1: not add up to the forty six billion dollars or

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Speaker 1: so they promised open Ai and I haven't even mentioned

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Speaker 1: the fact that SoftBank has also committed three billion dollars

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Speaker 1: a year in revenue to the Bullsheit agent product. Without

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Speaker 1: that money or further funding, open Ai will not be

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Speaker 1: able to pay core Wave. So now everything rests on

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Speaker 1: soft Bank, a company with a checkered reputation, to put

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Speaker 1: it mildly, and if they buckle, everything else fails, core Wave,

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Speaker 1: open Ai, all of it. I don't know how any

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Speaker 1: of this ends, but I'll tell you this, absolutely nothing

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Speaker 1: I'm reading suggests that there is any long term viability

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Speaker 1: in generative AI. Open Ai loses billions of dollars a

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Speaker 1: year and will have to pay core Wave, which also

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Speaker 1: loses billions of dollars a year and has obligations that

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Speaker 1: are many times in excess of its actual assets or revenue,

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Speaker 1: or at least what it will make from the public market.

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Speaker 1: To be, that's not gonna help that much. If any

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Speaker 1: of this made sense, Corewave would be the biggest IPO

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Speaker 1: of the last decade. And while I doubt that would

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Speaker 1: be the case, I promise to you that, regardless of

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Speaker 1: what happens, you're about to witness something historic. And I

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Speaker 1: want to say something. Some of you have given me

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Speaker 1: feedback said, like, this stuff's really like it's a little

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Speaker 1: much like there's a lot of numbers. It's not, it's

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Speaker 1: just very it's very ominous. When you see all these numbers.

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Speaker 1: I didn't get in. I'm not a financial journalist, or

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Speaker 1: I guess I am now, and I'm pretending to be one,

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Speaker 1: and it all seems like a lot, but it really

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Speaker 1: does come down to addition of subtractions sometimes with the

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Speaker 1: occasional multiplication. I failed a lot of mathematics in my time,

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Speaker 1: and British libel also stopped me really elaborating further at school.

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Speaker 1: But the point is I was never trained to do

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Speaker 1: any of this stuff. This stuff seems very monolithic, but

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Speaker 1: it really is much simpler. And the way you stop

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Speaker 1: these companies being able to fuck around is learning this stuff.

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Speaker 1: If you ever have any questions, go to the Better

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Speaker 1: Offline Reddit. I will happily help walk you through any

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Speaker 1: of this. It seems dense, but if we want to

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Speaker 1: change things, it starts with stopping this feeling like magic.

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Speaker 1: Stop it isn't black magic. They want you to believe

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Speaker 1: that they'll work this out, because if you think about

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Speaker 1: any of these numbers for even two seconds, it kind

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Speaker 1: of seems fucking stupid because it is just because they

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Speaker 1: say it's going to work out, it doesn't mean it well.

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Speaker 1: And I think that we are potentially about to see

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Speaker 1: something really shocking. I think we're about to see the

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Speaker 1: greatest mask Off Dunce moment in the economy. If AI bursts,

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Speaker 1: if the bubble bursts, you're going to see all these

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Speaker 1: people that said AI was the future, kind of walk

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Speaker 1: it back, kind of stop talking about it anytime they try.

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Speaker 2: Scream at them, scream at them, say what are you

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Speaker 2: talking about AI?

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Speaker 1: Like it was the biggest thing in the world, like

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Speaker 1: two minutes ago, Well are you talking about that?

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Speaker 2: Hey? Where's Ai? Didn't you say I was a I

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Speaker 2: was a big deal?

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Speaker 1: Hey Bob Iger, Hey what's happening with the AI ship?

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Speaker 2: And they're going to really try and aggressively walk this back.

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Speaker 1: Never ever let them forget what they've done here, Never

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Speaker 1: ever forget the terrible people holding up this spurious, spacious, destructive,

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Speaker 1: disgusting bubble. It's horrible. It will be horrible to watch

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Speaker 1: it collapse. I feel bad for our economy, but this

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Speaker 1: is tremendous content