Speaker 1: Media. What's up? It's better offline and I'm your host
Speaker 1: ed Zetron It's your better offline monologue for the week, folks.
Speaker 1: Has been a long few months, and I've taken the
Speaker 1: vast majority of this week after recovery, after writing about
Speaker 1: h two hundred thousand words in the last few months,
Speaker 1: not even including my upcoming book, The Hater's Guide to
Speaker 1: Silicon Valley, coming out in twenty twenty seven. If you
Speaker 1: want to support my work, I'm currently doing a week
Speaker 1: long sale for the premium newsletter ten bucks off the
Speaker 1: annual rate for life. That'll be in the notes. Please do.
Speaker 1: If you feel like supporting me, do that. New's learned.
Speaker 1: The podcast are now my by principal source of income.
Speaker 1: It's happened. The era of smiles has begun. Join me
Speaker 1: and receive the bounties of words every week except this one,
Speaker 1: and I take it the week off. So let's begin,
Speaker 1: And I wanted to start by saying how you the
Speaker 1: listener might help me. First of all, my signal is
Speaker 1: Ezitron dot seventy six. The things I'm looking for right
Speaker 1: now that would help me are anthropics S one or
Speaker 1: any and all documentation of its cloud spend and financial condition.
Speaker 1: Especially if you can get me something from Amazon Web
Speaker 1: Services or Google Cloud that shows me how much this
Speaker 1: company is spending. That'd be very very helpful to me,
Speaker 1: as would any and all information about the AI revenues
Speaker 1: of any major tech company that aren't public knowledge, and
Speaker 1: any and all information about the cloud spend of open Ai,
Speaker 1: Anthropic Perplexity, or any other major AI startup, and of
Speaker 1: course any of the financials of any AI startup. You
Speaker 1: can get me the same ghosts with token spend at
Speaker 1: any corporation. Please use signal, Please take photos of any documents.
Speaker 1: Do not send me PDFs. Do not send me documents
Speaker 1: for your safety, m for mine, and please please please
Speaker 1: do not send me stuff that's already public. This isn't
Speaker 1: because I'm chiding you. I'm just saying people get excited
Speaker 1: that they want to help and they send me stuff
Speaker 1: that's already out there. I've probably already seen it. I'm
Speaker 1: a freak. I'm looking at this stuff all day. All right, folks,
Speaker 1: let's roll to the actar monologue. So earlier in the week,
Speaker 1: I put out a fifteen thousand word piece called the
Speaker 1: Open Ai Bubble, a massive guide to how open ai
Speaker 1: is the cause, enabler, and justification for the entire AI bubble.
Speaker 1: Writ large and how everything kind of collapses when it dies.
Speaker 1: I wrote it because I've heard a lot of people
Speaker 1: say it's an open ai bubble, not an AI bubble
Speaker 1: over the last year, as a way of waving off
Speaker 1: potential detractors suggesting that open ai could collapse and everything
Speaker 1: else would be left behind him. Fine, you're living at
Speaker 1: a bubble yourself if you think this way, that's a
Speaker 1: crazy way to live one's life. And please, please please
Speaker 1: stop emailing me about the bailout. I already I've gone
Speaker 1: over the summits anyway. In truth, open ai is the
Speaker 1: largest consumer of AI compute accounts for over eight hundred
Speaker 1: billion dollars of remaining performance obligations across hyperscalars and neo clouds.
Speaker 1: The people that rent how ai GPUs and basically just
Speaker 1: exist a funnel Nvidia money, and likely over one hundred
Speaker 1: billion dollars the future revenues of Broadcom and Nvidia themselves.
Speaker 1: I go into detail about it in the piece, but
Speaker 1: I kind of wanted to go over it a little
Speaker 1: today in today's monologue two. Open ai is also a
Speaker 1: material risk to both soft Bank and Oracle. If open
Speaker 1: Ai can't go public, soft Bank is going to face
Speaker 1: a massive liquidity crisis. It has forty five point nine
Speaker 1: billion dollars in debt and matures within the next twelve months,
Speaker 1: and they'll either have to refinance it or pay it.
Speaker 1: Except that's going to be much more difficult because they've
Speaker 1: jettisoned most of its valuable stocks in t mobile and
Speaker 1: in video, all while pushing up against the limits of
Speaker 1: what it can borrow against its holdings in the chip
Speaker 1: maker arm which it bought I think think twenty twenty
Speaker 1: three for thirty two billion dollars. It went public at
Speaker 1: fifty billion dollars, but the holdings are worth one hundreds
Speaker 1: of billions of dollars. Except that's kind of a problem,
Speaker 1: which I'll get to in a minute. But soft Bank
Speaker 1: will never truly go bankrupt. That doesn't mean it's not
Speaker 1: a problem if open ai fails, because it will be
Speaker 1: put in a historic crisis, one worse than the dot
Speaker 1: com bubble, if where Masayoshi's done to bet everything like GeoCities,
Speaker 1: and even the horrors of twenty twenty two and twenty
Speaker 1: twenty three when the Vision Funds had lost is of
Speaker 1: what thirty two billion dollars. Back then, soft Bank had
Speaker 1: plenty of other valuable stock and ways to raise debt.
Speaker 1: They had the Ala Barber stock, They had their holdings
Speaker 1: in Betfair and other things like that, except most of
Speaker 1: that is gone now. And now S and P Global
Speaker 1: is downgraded its outlook to negative, which means they think
Speaker 1: they might actually downgrade its credit in the future. And
Speaker 1: just to be clear, they specify that the reason that
Speaker 1: S and P did that was open ai. They said
Speaker 1: the words, they literally said it was the case. Except now,
Speaker 1: what the hell is soft Bank meant to do? It
Speaker 1: doesn't have anything else to flog really, other than it's
Speaker 1: arm stock. And the problem there is that soft Bank
Speaker 1: is the largest holder of armstock in the world, which
Speaker 1: makes it difficult for it to liquidate too much without
Speaker 1: spooking the market. Think of it like this. If the
Speaker 1: largest holder of a stock says, oh, I'm just going
Speaker 1: to start selling it off for liquidity, it officially stops
Speaker 1: being about the stock in question, but the company's selling it.
Speaker 1: The value of arm will turn into a bet on
Speaker 1: whether soft Bank can afford to pay its own bills.
Speaker 1: It's already taking out a bunch of margin loans on
Speaker 1: the stock and further lands will be difficult to raise
Speaker 1: for the very same reason. While it would be likely
Speaker 1: rescued by the Bank of Japan and other local financial institutions,
Speaker 1: there has never been a more dangerous time for Masayoshi's son.
Speaker 1: Check out my hater's guide to SoftBank. I know it's
Speaker 1: a premium thing, but there's a deal going on. It's
Speaker 1: a beautiful deal. I stopped doing the Trump impression now
Speaker 1: and get onto one of his friends, Oracle Now. In
Speaker 1: Oracles case, its entire future rides and open AI's ability
Speaker 1: to pay it about seventy billion dollars a year in
Speaker 1: annual revenue, and that rides on Oracle's ability to build
Speaker 1: about seven point one gigawats or so of data sene
Speaker 1: capacity in the next two or three years. I'm not kidding,
Speaker 1: it's genuinely that's that's what they need to do. Oracle
Speaker 1: and open Ai have a three hundred billion dollar contract
Speaker 1: that's meant to have started on June first, twenty twenty six,
Speaker 1: which said revenue coming from the Stargate data sentence, the
Speaker 1: Oracle is building for Clammy Sammy. That's right, mister Ortmand Clamuel.
Speaker 1: We don't like him. The problem, of course, is the
Speaker 1: seven point one gigawats of capacity needs to be built,
Speaker 1: and barely four hundred megawats of it actually exist. And
Speaker 1: that's in stockg Abilene, a project that broke ground in
Speaker 1: the middle of twenty twenty four and was meant to
Speaker 1: be done either the end of last year or a
Speaker 1: couple of weeks ago. And everything I hear from the
Speaker 1: people inside Oracle is that they keep firing all the
Speaker 1: people who know other fucking business works. It's a terrible
Speaker 1: thing for them. Oh and another thing is that Oracle
Speaker 1: literally warned in its anal report that it may or
Speaker 1: may not get paid by open AI, and that said
Speaker 1: nonpayment would potentially also mean that it couldn't leasse the
Speaker 1: GPU capacity to anyone else, as in no one else
Speaker 1: really exists. They could buy it, and if they did
Speaker 1: manage to sell it to them be a massive loss.
Speaker 1: Is that good? Also? Tell me is it good that
Speaker 1: S and P Global also downgraded Oracle just one step
Speaker 1: above junk grade? They're barely investment grade credit wise for
Speaker 1: now for all, an angel status aren't incoming. Maybe on
Speaker 1: that means another monologue you don't really care. Let's get
Speaker 1: to the funny stuff though. Larry Ellison, CEO of sorry
Speaker 1: Chairman of Oracle CEO is currently two different mister Bean
Speaker 1: type characters. He's also used three hundred and forty six
Speaker 1: million of his one point one six billion Oracle shares
Speaker 1: for an estimated twenty one billion dollars of margin loans
Speaker 1: personal ones, just to be clear. Otherwise, he has about
Speaker 1: ten billion dollars in cash and fifteen billion dollars in
Speaker 1: Tesla shares. Why do you care about that? Well, this
Speaker 1: is material because he also has to contra up about
Speaker 1: twenty billion dollars in cash actual cash to push through
Speaker 1: the paramount Warner Brothers deal by September thirtieth. Otherwise, he
Speaker 1: gets find about five hundred and six hundred million dollars
Speaker 1: a quarter, and to do so, regardless of whether it happens,
Speaker 1: whether it's stopped by then, or whether it's meant to
Speaker 1: go through, he's likely going to have to take out
Speaker 1: further margin loans on his Oracle stock, And depending on
Speaker 1: how said stock is doing, getting that loan might be
Speaker 1: quite problematic. I think had just said problematic, but I'm
Speaker 1: just going to keep on going. So to explain A
Speaker 1: margin loan works by offering up a certain amount of
Speaker 1: shares is collateral a little like a mortgage. So if
Speaker 1: you are taken out a twenty five percent loan to
Speaker 1: value loan for one billion dollars, you'd offer up about
Speaker 1: two hundred and fifty million dollars in stock, maybe a
Speaker 1: little more depending on how volatile it is. When the
Speaker 1: value of said stock drops below a certain amount, you
Speaker 1: get forced to do something called a margin core, while
Speaker 1: a margin call happens to our main, where you're forced
Speaker 1: to either proffer up more cash to cover the shortfall, or,
Speaker 1: far more likely, in Ellison's case, give up more Oracle stock.
Speaker 1: The problem that Ellison faces is the very same one
Speaker 1: that SoftBank has with Arm. He owns forty percent of
Speaker 1: Oracle shares, which means that liquidating them would be very difficult.
Speaker 1: If he started selling them off, the market would say, oh, Christ,
Speaker 1: is he going to sell his forty percent holdings in Oracle? Sell?
Speaker 1: Sell it all? The Piss index is crashing. And to
Speaker 1: make that as worse, he's collateralized over fifty billion dollars
Speaker 1: worth of Oracle shares the ones I mentioned earlier, which
Speaker 1: means that if Oracle stock drops below, say I don't
Speaker 1: know sixty dollars a share, He'll be put in a
Speaker 1: vicious cycle where he'll either have to hand over more
Speaker 1: and more shares to cover the shortfall, or worse, still
Speaker 1: have to sell them to keep up. Hey, hey, stop laughing,
Speaker 1: stop it, stop laughing. Mister Ellison is in real trouble.
Speaker 1: Larry Ellison could be in a real pickle. Stop it.
Speaker 1: I just kid and fuck Larry Ellison anyway. The worst
Speaker 1: part is that open ai doesn't even have to collapse
Speaker 1: for this to happen. The AI bubble isn't based on
Speaker 1: anyone's actual revenues, productivity or ROI. No Hyperscala actually reports
Speaker 1: their AI revenues, Oracle kind of bundles them within OCI
Speaker 1: their infrastructure bucket, and outside of open Ai and Anthropic
Speaker 1: the industry is actually incredibly small revenue wise, very loud
Speaker 1: and annoying, though the markets have conflated akapex bubble as
Speaker 1: in GPUs and the surrounding gear for data centers with
Speaker 1: a thriving AI industry, which is a nice way of
Speaker 1: saying that the current slate of prices for Microsoft, Google, Amazon,
Speaker 1: Meta and Oracle and their current AI focused bumps are
Speaker 1: based on vibes, and mania vibes can break mania subsides.
Speaker 1: All it takes for things to go pair shaped is
Speaker 1: for the market to believe, to become convinced that Oracle
Speaker 1: won't get paid by open Ai for them to start
Speaker 1: dumping the stock. All they have to believe is that
Speaker 1: all of that capex, all of that negative cash flow
Speaker 1: is just for nothing, is for a company that either
Speaker 1: won't exist or won't be able to actually afford all
Speaker 1: of that data center capacity. Every time I say this
Speaker 1: out loud, I feel crazy. The biggest myth though about
Speaker 1: Oracle is that it's this healthy, profitable business and that
Speaker 1: this AI thing is just yet more good stuff that
Speaker 1: they've added on top, when in fact, every other business
Speaker 1: segment other than renting out aigpus is either plat code
Speaker 1: or in active decline, meaning that Oracle's entire future rides
Speaker 1: and whether it can monetize its fin doom relationship with
Speaker 1: Nvidia and Jensen Wong and really Oracle's story is fundamentally insane.
Speaker 1: Right now, It's spending three hundred and forty billion dollars
Speaker 1: or more on AI data center capacity for one client
Speaker 1: Open AI in the hopes that open Ai can bring
Speaker 1: it seventy billion dollars a year in revenue for a
Speaker 1: contract that began a month ago, except most of the
Speaker 1: capacity is barely under construction, and because data centers take
Speaker 1: eighteen to thirty six months to build, it's unlikely that
Speaker 1: more than a single gigawatt will be ready before the
Speaker 1: beginning of twenty twenty eight, if at all, building this
Speaker 1: capacity is costly. An Oracle's cash flow has been negative
Speaker 1: twenty billion dollars or worse for the last two quarters,
Speaker 1: with plans to spend another ninety billion dollars in the
Speaker 1: next fiscal year, which just begun in June. The twenty
Speaker 1: two thousand people that it laid off in the past
Speaker 1: six months were based on discussions with many sources load
Speaker 1: bearing parts of it's infrastructure, throwing parts of the business
Speaker 1: into active chaos and genuinely causing problems with renewals for
Speaker 1: its Oracle database products that are the cornerstone of how
Speaker 1: Larry Ellison's heart beats. I don't know what to say.
Speaker 1: I don't know. I am just a guy. Why am
Speaker 1: I the one that found this? It's sitting in broad daylight.
Speaker 1: Maybe people just don't do mathematics. I don't know, but
Speaker 1: this is this is quite bad. And the point I'm making, though,
Speaker 1: just to simplify, is that for me to be wrong,
Speaker 1: open ai will have to bring in hundreds of billions
Speaker 1: of dollars a year in revenue for themselves by twenty three,
Speaker 1: which will require it to become either profitable massively profitable
Speaker 1: too like not just like a little bit of a
Speaker 1: bit the profitability I mean twenty thirty forty billion dollars
Speaker 1: a year plus or just continually raise money. I'm talking
Speaker 1: hundreds of billions of dollars a year, and no, no
Speaker 1: government bailout will cover the shortfall. The government's talking about
Speaker 1: five percent share be forty two billion dollars. That won't
Speaker 1: even cover their fucking influence costs if they lasted twenty
Speaker 1: twenty seven. It's a joke. Oh and by the way,
Speaker 1: even if open ai does that, Oracle will have to
Speaker 1: complete the single most ambitious construction project of all time,
Speaker 1: building enough power to power multiple cities, erecting giant data
Speaker 1: centers in multiple states, make them fully operational with far
Speaker 1: less people than the shortage of both talent and the
Speaker 1: core materials like electrical grade steel and also do so
Speaker 1: on a timeline that doesn't put it in breach of
Speaker 1: contract with open AI. Would it shock you if I
Speaker 1: told you that this is considered radical thinking? Would you
Speaker 1: be surprised if I told you that many journalists simply
Speaker 1: shrug when you tell them this, and they go, they'll
Speaker 1: work it out, they'll work it out, It'll all work out,
Speaker 1: it'll work out. Don't worry about it. Ed, you're crazy
Speaker 1: head Ed. Why are you outside my office? Why are
Speaker 1: you dressed as a dug? Why do you keep saying
Speaker 1: I'm the deterioration dug. Quack quack quack, the market's going
Speaker 1: to hell? And the answer is that's a bit I'm
Speaker 1: working on that I'll go to later. In any case,
Speaker 1: I am kidding, and I do need to say. The
Speaker 1: future really is one strewn with chaos and carcasses, and
Speaker 1: I'm not sure the world is actually ready for it,
Speaker 1: thanks to a captured media industry that refuses to do
Speaker 1: the messy work of reconciling with the projections that range
Speaker 1: from unrealistic to fantastical. When the time comes, people are
Speaker 1: going to be asking why we didn't see this coming?
Speaker 1: And as I've said before, it's because nobody wanted to
Speaker 1: fucking look anyway, Thanks as ever for listening. Things are
Speaker 1: going to get real interesting over the next few months.
Speaker 1: I just got me a Bloomberg terminal, and it's a
Speaker 1: source of unfathomable power that I believe will take my
Speaker 1: coverage to the next level. If you're on there, shoot
Speaker 1: me a message, shoot me a goot on Ploop. That's
Speaker 1: another social network I'm on. And I really do, genuinely,
Speaker 1: deeply and meaningfully appreciate the many wonderful messages and emails
Speaker 1: I receive every day, and I'm so grateful to have
Speaker 1: such incredible fans and followers. You're all amazing, like I
Speaker 1: hear from so many of you, and you're very thoughtful
Speaker 1: and smart, and you pick this stuff up very quickly.
Speaker 1: I love you all, and I assume your bellow we
Speaker 1: love you chef in response, See you next week.