Speaker 1: Zone Media. Okaybia, these fuckers are right for containment. This
Speaker 1: is your better offline monologue for the week, and I'm
Speaker 1: your host ed Ze truck. Now today, I'm going to
Speaker 1: go over a question I get asked a lot. What
Speaker 1: actually bursts a bubble? As I'm writing recording this, I'm
Speaker 1: watching in video's stock wobble up and down. After analyst
Speaker 1: TD Cohen revealed that Microsoft has canceled agreements for multiple
Speaker 1: data centers. Cohen also mentioned that Microsoft had and I
Speaker 1: quote Bloomberg pulled back on converting so called statements of qualifications,
Speaker 1: which are the precursor to agreements that include things like
Speaker 1: financing deals and payment structures, meaning that Microsoft does not
Speaker 1: just canceled agreements, but made it clear they don't intend
Speaker 1: to carry on building more. Microsoft responded to this by
Speaker 1: saying that they were still sticking to their egregious, stupid
Speaker 1: plan to spend more than eighty billion dollars on capital
Speaker 1: expenditures in twenty twenty, with one note that they and
Speaker 1: I quote may strategically pace or adjust their infrastructure in
Speaker 1: some areas. It was one of those things that ostensibly
Speaker 1: looks like an obvious statement of intent, but if you
Speaker 1: read between the lines, you see plenty of wiggle room
Speaker 1: for Microsoft to backtrack. This comes off the back of
Speaker 1: last week's interview with Microsoft CEO sach And Adela with
Speaker 1: Dwarkesh Dwarkesh podcast Pretty good, kind of bland stuff, where
Speaker 1: he said that there will be overbuild of data centers
Speaker 1: pursuing AI and this is the shit you want to
Speaker 1: hear as an investor in the AI revolution. You want
Speaker 1: to hear a guy being like, yeah, maybe people built
Speaker 1: too much. Now, this caused both Microsoft and in videos
Speaker 1: stocks to wobble. But as I sit here and write
Speaker 1: this on Wednesday morning, the day of Nvidia's earnings, by
Speaker 1: the way, both stocks appear to have recovered a tiny
Speaker 1: bit and they're actually going off, though not by much,
Speaker 1: and no doubt by the time I'm finished writing the
Speaker 1: script things will have changed again, which is why I
Speaker 1: tend not to do a lot of stock related stuff.
Speaker 1: That and I'm not a financial analyst. Different kind of analyst,
Speaker 1: I guess. But anyway, the magnificent seven stocks Apple, Microsoft, Amazon, Alphabet, Meta, Invidia,
Speaker 1: and Tesla make up about thirty percent of the value
Speaker 1: of the S and P five hundred, an index of
Speaker 1: the five hundred largest companies in the American stock market,
Speaker 1: with Nvidia being the golden goose, growing over nine hundred
Speaker 1: percent since twenty twenty three thanks to being the one
Speaker 1: company that sells the specialized GPUs needed to make generative
Speaker 1: AI work, making up just under twenty percent of the
Speaker 1: value of the Magnificent seven itself. As a result, the
Speaker 1: markets are deeply dependent on the success of Invidio, which
Speaker 1: in turn is dependent on the continued hyperscalar investment in
Speaker 1: generative AI. One other worrying fact for you, in Vidia's
Speaker 1: top customers like Microsoft, Google, and Meta make up more
Speaker 1: than sixty percent of its revenues. Right now, the vibes
Speaker 1: are rancid Tuesday and Wednesday's headlines, and this episode will
Speaker 1: come out after in Vidia's earnings. So forgive me Echo
Speaker 1: a deep market anxiety saying things like Invidia's earnings could
Speaker 1: be bad, how to protect your portfolio, and why in
Speaker 1: Video's earnings are so important to the entire stock market now. Admittedly,
Speaker 1: a lot of these headlines were plucked from the popular
Speaker 1: financial press, which, to put it mildly, can be kind
Speaker 1: of dog shit. The content farms that churn out articles
Speaker 1: where underneath the sensational clip bait title. You have a
Speaker 1: thinly written body of texts that tries to persuade you
Speaker 1: that a particular stock will pop or bomb. You can't
Speaker 1: really read too much into them, but it's telling that
Speaker 1: the same sentiments have appeared in more prestigious publications, where
Speaker 1: standards are measurably higher than say, Seeking Alpha or The
Speaker 1: Motley Fool. Even if earnings are good for Invidia, it's
Speaker 1: hard to see how they'll be good enough to please
Speaker 1: a market. They will have a tantrum if they can't
Speaker 1: perpetually make the number go up. Invidia has beaten analyst
Speaker 1: expectations eight straight quarters, and the continual expectation that they'll
Speaker 1: do so is terrifying, especially when you consider that Invidia
Speaker 1: has long held a reputation as a boom or bus
Speaker 1: stock and osolits between peaks and valleys based on whatever
Speaker 1: the latest tech trend is. There's no logical reason to
Speaker 1: believe that Invidia can continue to grow at this ridiculous rate.
Speaker 1: Right now, its market cap is over eleven percent of
Speaker 1: America's gross domestic product. But because the market's like giant,
Speaker 1: petulant trillion dollar babies, these are the demands put upon
Speaker 1: in video and Jensen Wang. But even if in Vidia
Speaker 1: shits the bed mightily tonight, it isn't obvious whether that
Speaker 1: will burst the bubble, because so much of the stock's
Speaker 1: value and the economy in general, if I'm honest, is
Speaker 1: based on a mishmash of people pretending they understand numbers
Speaker 1: and well vibes. In short, the bubble will not burst
Speaker 1: in the sense that one big event will bring everything
Speaker 1: to an abrupt end now, and Vidia is not going
Speaker 1: to drop thirty percent in one day normal open MLA overnight.
Speaker 1: That's just not how this works. What will happen if
Speaker 1: the bubble bursts, which I genuinely believe it will, will
Speaker 1: be a series of smaller calamities that chain together to
Speaker 1: bring an end to this hype cycle. It'll be like
Speaker 1: the Domino scene from viv and Vendetta, where Detective Finch
Speaker 1: threads the needle between the disparate events that will eventually
Speaker 1: lead to the ulster of Chancellor Sutler. I've referred in
Speaker 1: the past in an episode called burst damage to the
Speaker 1: pale horses of the AI Apocalypse, and one of them
Speaker 1: was the reduction of capital expenditures by a major hyperscaler
Speaker 1: because in doing so, the hyperscalers such as Microsoft would
Speaker 1: be admitting that it's time to slow down investment in
Speaker 1: revolutionary products that they allegedly claim in revolutionary and that
Speaker 1: they're selling tons of right wrong. And by extension, by
Speaker 1: the way, they're tacitly admitting that perhaps these revolutionary products
Speaker 1: weren't actually that revolutionary. Kind of an obvious point. Now,
Speaker 1: one argument against this being a pale horse is that
Speaker 1: open ai has partnered with soft Bank and Oracle to
Speaker 1: build out up to and that is what it's called,
Speaker 1: up to five hundred billion dollars in data centers. And
Speaker 1: the answer there is that this is right now pretty
Speaker 1: much theoretical, and it's dependent on open ai raising another
Speaker 1: nineteen billion dollars because they've committed that much to this project.
Speaker 1: Another thing about this stargate thing, I get a lot
Speaker 1: of emails about Donald Trump US government. They're not putting
Speaker 1: any money into this. This is all private partnerships, and
Speaker 1: soft Bank and open ai have given nineteen billion while
Speaker 1: they're claiming they're going to give nineteen billion dollars each.
Speaker 1: And open ai is now raising up to forty billion
Speaker 1: dollars with twenty five billion or up to twenty five
Speaker 1: billion dollars, of that coming from software, So it's like,
Speaker 1: what actually is happening here? Anyway? If Microsoft was so
Speaker 1: invested in the generative AI revolution, why would they reduce
Speaker 1: their investments in it? Surely this supposedly incredible demand and
Speaker 1: the incredible opportunities of generative AI would mean that they
Speaker 1: needed more data centers, right right, So strange. Nevertheless, if
Speaker 1: you see Google or Metal or Amazon pulled back on
Speaker 1: capital expenditures, that is the bell ringing. But here are
Speaker 1: some other pale horses to watch out for. If open
Speaker 1: ai and Anthropic raise their prices, it means that they're
Speaker 1: finally having to cover their ruinous, horrible, unprofitable and unsustainable expenses.
Speaker 1: Open Ai spent nine billion dollars to lose five billion
Speaker 1: dollars in twenty twenty four, and an Anthropic lost five
Speaker 1: point six billion dollars and only made just over nine
Speaker 1: hundred million dollars in the same period. All of their
Speaker 1: products are deeply unprofitable, and thus any price increases are
Speaker 1: assigned that they need money. They need money now, money
Speaker 1: mean money. Now. Conversely, if you see any dramatic price decreases,
Speaker 1: this isn't the necessarily a sign of improvements in efficiency.
Speaker 1: Sooned Up, a shy of Google, just announced that Google's
Speaker 1: Gemini codesyst is now free for up to one hundred
Speaker 1: and eighty thousand code completions a month. This puts a
Speaker 1: direct price pressure on both open Ai and Anthropic, who
Speaker 1: just launched a new version of their Claude model, and Microsoft,
Speaker 1: which owns GitHub and by extension, GitHub Copiler, which costs
Speaker 1: twenty dollars per month and reportedly still loses twenty to
Speaker 1: eighty dollars a month they use. It's insane, But if
Speaker 1: prices are forced to drop, this is a bad sign.
Speaker 1: These are very unprofitable businesses. Now, if you see anything
Speaker 1: about any prominent AI companies Anthropic, Open Ai, Scale, Coheer, Perplexity,
Speaker 1: so on, and so forth. If you see they're having
Speaker 1: trouble raising money, that means venture capitalists are scared, which
Speaker 1: means everybody should be scared. Similarly, if you hear any
Speaker 1: discord within these companies, people living on mass layoffs, senior
Speaker 1: executives fleeing, that is also a bad sign. It means
Speaker 1: that they no longer have faith in these companies. And
Speaker 1: now if they jump to another generator of AI company
Speaker 1: that is also not a good sign. It's kind of
Speaker 1: like jumping from the Titanic to the Ola Gay. And
Speaker 1: we've already had a lot of this with open Ai,
Speaker 1: with the department, the departures of chief researcher barretts Off
Speaker 1: and Chief technology officer Mirror Murati. When that trickle becomes
Speaker 1: a flood, you know that a calamity won't be far behind.
Speaker 1: We've already had a few of these. But bullshit companies
Speaker 1: raising bullshit money are one of the biggest tells that
Speaker 1: we're in a bubble. Open ai co founder Iliosuitscaper is
Speaker 1: currently raising a billion dollars at a fucking stupid valuation
Speaker 1: of thirty billion dollars for his company's safe superintelligence. Now
Speaker 1: you'd think with all that cash there'd be something to
Speaker 1: show wrong. Oh, you imbecile, you dip shit, you more on,
Speaker 1: you pig. He doesn't have a product at all, there's
Speaker 1: no product, they're pre product, but they're worth thirty billion dollars.
Speaker 1: What are we doing here? Similarly, former open AIICTO Mirror Maurati,
Speaker 1: she has a new company called Thinking Machines, And you'd
Speaker 1: think with the Wired headline saying they're finally ready to
Speaker 1: announce what they're working on. They would announce I don't
Speaker 1: know what they're working on, you'd be fucking wrong. Stephen
Speaker 1: Levy should be absolutely bloody ashamed of himself. Steven's done
Speaker 1: some good journalists me in the past, and he's also
Speaker 1: done some projeneritive AI stuff that I wouldn't wipe my
Speaker 1: ass whole with fucking disgusting, both the thing I just
Speaker 1: said and the thing happening now. Anyway, if you're wondering, uh,
Speaker 1: what this company does, they and I quote develop top
Speaker 1: notch AI with an eye towards making it useful and accessible.
Speaker 1: I wish I could get away with just saying nothing
Speaker 1: and getting a big pile of money. Wait, is that
Speaker 1: what a podcast is? Anyway? There are, of course other
Speaker 1: pale horses, but the core problem with bubbles is that
Speaker 1: they're based less on tangible events and more on everybody
Speaker 1: sharing the same delusion, which in this case is that
Speaker 1: large language models will turn into something magical somehow, and
Speaker 1: the only way to make them do so is to
Speaker 1: plow billions of dollars into a fucking furnace. One pale
Speaker 1: horse would be a vibe shift where people stop talking
Speaker 1: about open AI and generative AI and this breathless wank tone,
Speaker 1: but rather with an air of disdain and skepticism that
Speaker 1: in and of itself is pretty hard to measure. What
Speaker 1: breaks narratives and pops bubbles is when the consensus shifts
Speaker 1: from dreaming to cold, harsh reality. As investors realize there's
Speaker 1: no growth to be had from generative AI, they'll turn
Speaker 1: their backs on both the generative AI revolution and the
Speaker 1: companies that pushed it, and if they ever turn on video,
Speaker 1: that will accelerate the AI apocalypse. Because in Vidia, despite
Speaker 1: the real overblown valuations, actually makes a profit and sells
Speaker 1: real physical things, though their consumer graphics cards are currently
Speaker 1: melting at the fifteen ninety not great but really though,
Speaker 1: in Video is really the only company to make serious
Speaker 1: money from generative AI, and if that narrative changes, if
Speaker 1: people turn on video, it's not going to be great
Speaker 1: either way. I'll be here to walk you through it.