Speaker 1: Zone Media hell On, Welcome to this week's Better Offline Monologue.
Speaker 1: I'm your host ed Zi Trump. It's earning season and
Speaker 1: then the quarterly drawn through the psychosis of financial analysts
Speaker 1: that have worked for years to prop up an AI
Speaker 1: industry with questionable returns, spending now over seven hundred and
Speaker 1: fifty billion dollars in this year. I believe on capex
Speaker 1: for well, no real return on investment. In fact, all
Speaker 1: of them seemed to be losing money. I know, I know,
Speaker 1: though some of you are going to say, but these
Speaker 1: businesses had great quarters. But you'll nose is that said
Speaker 1: quarterly growth does not actually seem to be coming from
Speaker 1: AI when you read their results where they actually share
Speaker 1: the AI roic return on investing capital. So, while Meta
Speaker 1: and Google refused to actually explain their AI returns because
Speaker 1: that would require admitting how bad they were, Microsoft revealed
Speaker 1: that he had thirty seven billion dollars in AI revenue
Speaker 1: run rate about three point oh eight billion dollars a
Speaker 1: month or so, and Amazon have fifteen billion dollars annualized
Speaker 1: or around one point two five billion dollars a month.
Speaker 1: Do not be fooled. These are bad numbers based on
Speaker 1: my own reporting, Open ai spent three point six four
Speaker 1: eight billion dollars on inference in the third quarter of
Speaker 1: twenty twenty five on Microsoft Azure, or around fourteen point
Speaker 1: four billion dollars on an annualized basis. While I only
Speaker 1: add half of the fourth quarter numbers, I estimate based
Speaker 1: on them that open AI's annualized spent hit over eighteen
Speaker 1: point five billion dollars or around four point six billion
Speaker 1: dollars a quarter by the end of twenty twenty five,
Speaker 1: and that's not accounting for things like Sorra two or
Speaker 1: a launch of its code ex coding platform. In total,
Speaker 1: this puts open ai and estimated thirteen billion dollars of
Speaker 1: spend on Azure just on inference in twenty twenty five,
Speaker 1: with billions of dollars more on training models. Now, Microsoft
Speaker 1: also accounted for sixty seven percent of core we's five
Speaker 1: point one five billion dollars in twenty twenty five revenue,
Speaker 1: or around three point four five billion dollars, and as
Speaker 1: all of that is used by open Ai, I really
Speaker 1: think you need to think very deeply about well, how
Speaker 1: much AI demand there really is outside of two very
Speaker 1: large fail suns. I'm also confident that Corewave's computer is
Speaker 1: used for training open AI's models, as Corewave's announcement related
Speaker 1: to its direct deal with open ai specifically said it
Speaker 1: was contracted and I quote to power the training of
Speaker 1: open AI's most advanced next generation models, and said capacity
Speaker 1: per semaphore was only available because Microsoft declined to extend
Speaker 1: its current agreement with core Weave to use that compute
Speaker 1: for open Ai altogether. That puts open ai spend on
Speaker 1: Microsoft services at over eighteen billion dollars in twenty twenty five,
Speaker 1: and it's easy to see how that could grow to
Speaker 1: over twenty four billion dollars on an analyzed basis in
Speaker 1: the last quarter, or around two billion dollars a month.
Speaker 1: Microsoft is open AI's primary cloud provider, and I estimate
Speaker 1: the open Ai represents around seventy percent of its AI
Speaker 1: revenue if not more, while taking up the majority of
Speaker 1: its AI infrastructure. Otherwise, Microsoft's twenty million Copilot three sixty
Speaker 1: five subscribers likely pay no more than seven billion dollars
Speaker 1: a year. I'll get to my feelings about that in
Speaker 1: a bit now. As far as Amazon goes, things get
Speaker 1: a lot grimmar. In early April, per Reuter's Andy Jesse,
Speaker 1: their CEO admitted that its cloud business's AI revenue run
Speaker 1: rate was more than fifteen billion dollars in the first
Speaker 1: quart of twenty twenty six, which translates to about one
Speaker 1: point twenty five billion dollars in monthly revenue, or roughly
Speaker 1: zero point four to one nine percent of the two
Speaker 1: hundred and ninety eight point three billion dollars in capex
Speaker 1: Amazon spent so far on the AI bubble, or around
Speaker 1: twenty five percent of the five billion dollars Amazon just
Speaker 1: invested in Anthropic last week. I think it's also reasonable
Speaker 1: to assume that a large part, if not a majority,
Speaker 1: of that revenue comes from Anthropic. Per my reporting last year,
Speaker 1: Anthropic spent five hundred and eighteen point nine million dollars
Speaker 1: on Amazon Web services in September twenty twenty five, at
Speaker 1: a time when it had around seven billion dollars in
Speaker 1: annualized revenue, a figure that increased by five hundred percent
Speaker 1: if you believe Anthropic, which I don't know if I do,
Speaker 1: to thirty billion dollars in annualized revenue since as of April,
Speaker 1: five hundred and eighteen point nine million dollars is about
Speaker 1: six point two billion dollars in annualized spend, and I
Speaker 1: think it's fair to assume that its spend will have
Speaker 1: at least doubled to twelve billion dollars in annualized AI
Speaker 1: revenue for Amazon, or around eighty percent of the AI revenue.
Speaker 1: I also want to address this continual claim that capacity
Speaker 1: constraints in AI are proof of some incredible demand. In reality,
Speaker 1: the reason that there's so little available compute is that
Speaker 1: the majority of it is taken up by either open
Speaker 1: ai Andthropic or hyperscalers running their own services with the
Speaker 1: dregs of what's left behind. Think of it like seeing
Speaker 1: a very very large man on the bus taking up
Speaker 1: four seats. There are absolutely capacity issues on this bus,
Speaker 1: but they're not a result of everybody wanting to ride it. Now. Epokai,
Speaker 1: who I have had my differences with, estimate and I'm
Speaker 1: using these numbers because there's fuck all out there as
Speaker 1: far as compute capacity goes. They estimate the Microsoft had
Speaker 1: around two point oh two gigawatts of compute capacity available
Speaker 1: at the end of twenty twenty five, a time when
Speaker 1: open ai said it had access to around one point
Speaker 1: nine gigawats of compute. As Microsoft is open AI's primary
Speaker 1: cloud provider, and Oracle had yet to stand up more
Speaker 1: than one hundred megawatts of stargate abeline. I think it's
Speaker 1: safe to assume that open Ai takes up eighty to
Speaker 1: ninety percent of Microsoft's available capacity. Similarly, Epoch estimates that
Speaker 1: by end of twenty twenty five, Amazon had access to
Speaker 1: an estimated one point sixty seven gigawatts of capacity, and
Speaker 1: I estimate over seventy five percent it's taken up by anthropic.
Speaker 1: Amazon's anthropic dedicated project Rainier Data Center accounted for five
Speaker 1: hundred megawats by the end of that year, around a
Speaker 1: third of that capacity, and considering anthropic spend, I think
Speaker 1: it's reasonable to believe it's taking up the vast majority
Speaker 1: of what's available. Of course, there are capacity issues. You're
Speaker 1: selling all the capacity to one fucking company. EPOC also
Speaker 1: estimates the Google had around two point ninety five gigawats
Speaker 1: uh remark figure that also realized on literally doubling its
Speaker 1: capacity since the beginning of twenty twenty five. Nevertheless, it
Speaker 1: likely uses a lot of its GPUs for anthropic too,
Speaker 1: but it's hard to estimate how much as we have
Speaker 1: very little insight into anthropic spent on Google Cloud outside
Speaker 1: of its promise to use and I quote after one
Speaker 1: million TPUs with over a gigawad of capacity coming online
Speaker 1: in twenty twenty six, from the end of last year
Speaker 1: and a month ago when it said it would use
Speaker 1: and I quote multiple gigawats at next generation TPU capacity
Speaker 1: starting in twenty twenty seven. I also think it's fair
Speaker 1: to assume that large swards of Google's compute infrastructure is
Speaker 1: taken up by Google Gemini being shoved into literally every
Speaker 1: single part of Google's products. It's everywhere. It's like a
Speaker 1: fucking weed. It's horrible. Google also refuses to break out
Speaker 1: its AI revenues, but considering it owns around thirteen percent
Speaker 1: of anthropic I also think it's fair to assume a
Speaker 1: large capacity amount goes to them. All Right, you know what,
Speaker 1: I tried to be nice. I tried to keep my cool,
Speaker 1: but this whole situation is beginning to piss me off.
Speaker 1: I'm tired out of hearing people online may do this
Speaker 1: victory lap thing about how AI demand is there when
Speaker 1: it isn't. And when I started these monologues, I was
Speaker 1: told I'd be allowed to rent, and I haven't really
Speaker 1: let myself off the chain, so I think it's time
Speaker 1: to do so. The story of massive AI demand is
Speaker 1: a lie and nearly a trillion dollars, if not more, annihilated.
Speaker 1: To create the largest circle joke of all time. Venture
Speaker 1: capitalists and hyperscalers feed money to open ai and Anthropic
Speaker 1: so that vengre capitalists can feed money to startups to
Speaker 1: feed money back to open Ai and Anthropic to feed
Speaker 1: back into hyperscalers for GPU compute, at which point they
Speaker 1: turn to Jensen, Hogovinvidia and buy more GPUs. While it
Speaker 1: might seem tempting to credit these men as geniuses for
Speaker 1: creating companies specifically to feed themselves revenue, well, but to
Speaker 1: keep up with this k fabe of doing AI to
Speaker 1: substantiate the build out means that they've had to massively
Speaker 1: over commit to the bit even though the only two
Speaker 1: meaningful businesses in AI appear to be Anthropic and Open Ai,
Speaker 1: and that's only because they're effectively intellectual honeypots for the
Speaker 1: entire industry. Outside of those two, the only other competitive
Speaker 1: AI businesses are those of Amazon, Microsoft, and Google, two
Speaker 1: of which have an annualized revenue of around six percent
Speaker 1: of their capital expenditures. So far, Google's AI business is
Speaker 1: so booming that it refuses to break it out. And
Speaker 1: while it nebulously claims that AI is creating growth, it's
Speaker 1: not really clear how, and they're vague about it because
Speaker 1: analysts and the media are ready to swallow the narrative
Speaker 1: as long as number go up. That's why Google doesn't
Speaker 1: break out their AI revenues by the fucking way. Amazon
Speaker 1: and Microsoft had their hands forced by the markets after
Speaker 1: their stocks tumbled and fucked up by sharing their AI revenues.
Speaker 1: Amazon's two hundred and ninety eight point three billion dollars
Speaker 1: in capex has successfully created an AI business that and
Speaker 1: more than a quarter of a way to a trillion dollars,
Speaker 1: has successfully managed to make one point two five billion
Speaker 1: dollars a month. That's fucking pathetic. If we had investors
Speaker 1: with IQs above room temperature, they'd run Anty Jassey out
Speaker 1: of Arlington like fucking But this is the AI bubble
Speaker 1: where everybody is wrong, because once everybody admits what's actually happening,
Speaker 1: they're gonna have to admit they all sounded insane for years.
Speaker 1: One point two five billion dollars a month after nearly
Speaker 1: three hundred billion dollars of Capex. Unbelievable, what a joke.
Speaker 1: And like I said, more than seventy five percent, if
Speaker 1: not eighty percent or more of that revenue is from
Speaker 1: fucking anthropic who Amazon just agreed to fund up to
Speaker 1: another twenty five billion dollars. At some point, it's just Microsoft, Google,
Speaker 1: and Amazon handing themselves money or handing it to Nvidia
Speaker 1: to justify what they've burned over eight hundred billion fucking
Speaker 1: dollars creating some of the most wretched businesses of all time.
Speaker 1: I'm sorry, Wow, Satcha. You managed to get up to
Speaker 1: twenty million paying Microsoft three sixty five copilot subscriptions six
Speaker 1: hundred million dollars a month in revenue, not profit, and
Speaker 1: all it took was you investing more than thirteen billion
Speaker 1: dollars in open forcing large language models into every one
Speaker 1: of your products in a way that brought us on
Speaker 1: harassment and about what two hundred and forty something billion
Speaker 1: dollars in Capex, as well as laying off tens of
Speaker 1: thousands of people and savaging the Xbox brand. What the
Speaker 1: fucking shit, man, You should be ashamed of yourself. Open
Speaker 1: AI is in and of itself a kind of psychosis generator.
Speaker 1: It was the first thing in a long time that
Speaker 1: felt like a new thing since the iPhone for the
Speaker 1: people that entirely obsess over growth. It was the panacea
Speaker 1: for the entire tech industry, creating a new way for
Speaker 1: business idiots to spend money on infrastructure, a new thing
Speaker 1: for consultants to scam people, with a new series of
Speaker 1: things to be an expert in as a journalist, the blogger,
Speaker 1: or just a scam artist, all wrapped up in something
Speaker 1: that could also be a consumer product and enterprise software products,
Speaker 1: and a new kind of API to attach to other
Speaker 1: enterprise software products and then arch more money. In theory,
Speaker 1: open AI's success would lift everything at once, hardware, software
Speaker 1: and even adjacent fields. It promised to both democratize access
Speaker 1: to creating software while also heavily reinforcing existing power structures
Speaker 1: to the point that every dollar inevitably ended up in
Speaker 1: the Magnificent seven's pocket or asshole. The problem is that
Speaker 1: the system needed to actually work one day. It needed
Speaker 1: to eventually make more money than it cost. Every single
Speaker 1: one of these companies is talking about AI NonStop, and
Speaker 1: not one of them can show you a profit. The
Speaker 1: only thing they can do is tell Liz of omission
Speaker 1: by saying AI helped boost everything, and when you ask
Speaker 1: for specifics, well, the results are either tepid or so
Speaker 1: secretive you'd think they were hiding a dead body. The
Speaker 1: only reason Google, Amazon and Microsoft are being tolerated that
Speaker 1: their current excess is because their non AI segments continue
Speaker 1: to grow through endless price increases and in Sitification and
Speaker 1: its other business units, by which I mean Open AI
Speaker 1: and Anthropic are yet to run out of money to
Speaker 1: feed them. Sorry, By the way, I just I don't
Speaker 1: know what Meta's doing. I haven't talked about very much
Speaker 1: because I don't think Meta knows what Meta is doing.
Speaker 1: Every so often they bury effect in one of their
Speaker 1: blogs about they saw a three percent increase in something
Speaker 1: related to AI. Then they promised to burn another one
Speaker 1: hundred and seventy billion dollars in a year, and again
Speaker 1: we can't really tell why. They also lost another four
Speaker 1: billion dollars on reality labs in the quarter. By the way,
Speaker 1: there should be a legitimate criminal inquiry into where this
Speaker 1: money is going. This is very strange. I think they're
Speaker 1: at like eighty eighty six billion dollars and all we
Speaker 1: have to show for it is the metaverse and pervert glasses. Meanwhile,
Speaker 1: SpaceX and mister Musk is rushing to have the strangest
Speaker 1: and largest IPO of all time. All those daily stories
Speaker 1: leak about billions of dollars of losses and whatever the
Speaker 1: fuck that deal with Cursor is. Apparently SpaceX will buy
Speaker 1: it for sixty billion dollars or pay it ten billion
Speaker 1: dollars to fuck off. I think what actually happens is
Speaker 1: a secret third thing. SpaceX five it for a bit,
Speaker 1: then there's a falling out between Musk and Michael Truell
Speaker 1: of Cursor, and then the company either rushes another acquisition
Speaker 1: or just dies. Remember Elon Musk killed Curs's funding round
Speaker 1: that was in place by doing this acquisition, and he
Speaker 1: can't buy this company before SpaceX goes public. Elon Musk
Speaker 1: took fucking open Ai to court. Do you think he'll
Speaker 1: care about killing Cursor? Who's gonna sue them the remains?
Speaker 1: It's just a fucking rapper company. I'm so fucking tired
Speaker 1: of it. Anyway, that lawsuit with open Ai. It's a
Speaker 1: real alien versus predator situation, And if I'm honest, I
Speaker 1: found the whole thing a little boring a duo of
Speaker 1: Dullard's shoulder, budging each other to see who can run
Speaker 1: a company that neither of them can really describe because
Speaker 1: neither of them do anything other than pontificate and take
Speaker 1: credit for other people's work. Two dumb bitches going exactly
Speaker 1: if this breaks open AI, I'll be surprised. But if
Speaker 1: it does, it would be extremely fitting that fucking Elon
Speaker 1: Musk would accidentally destroy the AI industry, like mister Bean
Speaker 1: sitting down on a button that launches a nuke here
Speaker 1: would be very funny. I'm just not giving it much hope. Nevertheless,
Speaker 1: this entire industry is only made possible by the global
Speaker 1: kfabe circular economy of taking every single sign is good
Speaker 1: for AI and ignoring every single possible glaring warning sign
Speaker 1: and the hopes they'll go away. That is the entire strategy.
Speaker 1: That's all it is. It's just people being like, well,
Speaker 1: the bad things don't matter. They do matter. Last week,
Speaker 1: Microsoft said it's shifting gehub copilot to token based billing,
Speaker 1: meaning that people will have to pay the actual cost
Speaker 1: of their models. This is effectively killing the product as
Speaker 1: people know it and invalidates every single story about its growth,
Speaker 1: revenue or otherwise ever written. I don't see anyone on
Speaker 1: writing those. By the way, no one gives a fuck.
Speaker 1: And to give you some context about the scale of
Speaker 1: how big GitHub copilot was or is until they stop
Speaker 1: subsidizing people's compute because right now when you use GitHub Copilot,
Speaker 1: Microsoft's just paying the models for you with them anyway,
Speaker 1: gehub Copilot is the second largest customer Ofanthropics models and
Speaker 1: was only that large because it was subsidized in the
Speaker 1: compute spend of its customers. A lot of that money
Speaker 1: spend Onlanthropic. This is bad, and really that's the only
Speaker 1: way to build any kind of AI business. Google and
Speaker 1: Amazon realize that AI revenues are contingent on the continued
Speaker 1: survival of Anthropic, and Amazon and Microsoft's revenues are contingent
Speaker 1: on open AI and Anthropic. They know that if these
Speaker 1: companies die, they're going to lose billions of dollars in revenue.
Speaker 1: But also they have to compete with them for fear
Speaker 1: that they'll be seen as falling behind their horrible progeny.
Speaker 1: And thus they're incinerating their brands and endlessly pontificating about
Speaker 1: the power of AI or spending nearly a trillion dollars
Speaker 1: on Capex, almost entirely to make sure their competition, which
Speaker 1: is also their customer, which is also the welfare recipient,
Speaker 1: doesn't die because if they die, they lose a bunch
Speaker 1: of revenue. But they need to spend way more money
Speaker 1: than they'll ever make to justify that. Yeah, it's a
Speaker 1: mess and a mistake, and eventually one of these companies
Speaker 1: is going to grow tired of it. Microsoft was already
Speaker 1: billions under the analyst estimates for Capex. They're moving to
Speaker 1: token based billing on GitHub Copilot. They claim to invest
Speaker 1: an Anthropic in February, but didn't mention it in their
Speaker 1: ten Q their earnings in any way, shape or form,
Speaker 1: which means Nomani was sent. At some point, these fuck
Speaker 1: nuts are going to be forced to reckon with what
Speaker 1: they're doing. Until then we'll have increasingly more frenzied and
Speaker 1: ejaculatory statements about AI demand that fail to match with reality.
Speaker 1: I truly think that it's going to be like this,
Speaker 1: if not crazier, until one day when the music suddenly stops.
Speaker 1: Somebody's going to blink. Somebody is going to take a
Speaker 1: step back and give everybody else permission to stop too.
Speaker 1: Maybe a perplexity lovable rip or cognition dies. Maybe Microsoft
Speaker 1: shifting GitHub copilots to token based billing on June first
Speaker 1: inspires others like Anthropic to follow suit. Maybe AI tooken
Speaker 1: austerity begins at Microsoft, Meta or any other large company
Speaker 1: burning ten plus percent of their head count on AI tokens.
Speaker 1: Maybe in video fails to inspire the markets in just
Speaker 1: the right way, Or the fact that the data centers
Speaker 1: are not opening fast enough to have fully digested twenty
Speaker 1: twenty five's GPUs finally catches up with the economic mismatch.
Speaker 1: The Jensen wog always beats and raises expectations, and that
Speaker 1: really is the strangest thing. At the current rate of sales,
Speaker 1: it's taking more than six months to install the single
Speaker 1: quarter's worth of GPU sales. At this point, it's obvious
Speaker 1: that there are warehouses of these fucking things. It just
Speaker 1: isn't obvious whether they're in ones owned by Hyperscalers or
Speaker 1: the Taiwanese odm's original design manufacturers like Quantum Computing and
Speaker 1: fox con that build their servers, and last quarter it
Speaker 1: looked like Quantu Computing inventories were growing by billions of dollars.
Speaker 1: Is that good anyway? None of this makes sense. It
Speaker 1: hasn't from the beginning. It's the largest bubble in history
Speaker 1: and has reached such an intellectual and financial scale that
Speaker 1: many have taken signs on it in a way that
Speaker 1: will be completely impossible to walk back if they're wrong.
Speaker 1: As things deteriorate, expect them to cling to their mythologies
Speaker 1: tighter and become more and more agitated and make vulgar
Speaker 1: threats and weird comments that don't really make sense but
Speaker 1: are nevertheless quite verbose. And really, we've never seen anything
Speaker 1: like this in our lives. You realize that Open Eye
Speaker 1: doesn't make any sense right. It can't survive without eternal subsidies.
Speaker 1: None of these businesses can. Every single AI business you
Speaker 1: see is unprofitable, and none of them have a path
Speaker 1: to break even, let alone sustainability. And to make matters worse,
Speaker 1: it is the only way to create demand was to
Speaker 1: literally fund it yourself. These men believe they've created perpetual energy.
Speaker 1: What they've actually done is shit their pants and set
Speaker 1: their houses on fire. Anyway, catch you next week.