WEBVTT - Monologue: What Bursts A Bubble?

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<v Speaker 1>Zone Media. Okaybia, these fuckers are right for containment. This

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<v Speaker 1>is your better offline monologue for the week, and I'm

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<v Speaker 1>your host ed Ze truck. Now today, I'm going to

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<v Speaker 1>go over a question I get asked a lot. What

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<v Speaker 1>actually bursts a bubble? As I'm writing recording this, I'm

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<v Speaker 1>watching in video's stock wobble up and down. After analyst

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<v Speaker 1>TD Cohen revealed that Microsoft has canceled agreements for multiple

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<v Speaker 1>data centers. Cohen also mentioned that Microsoft had and I

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<v Speaker 1>quote Bloomberg pulled back on converting so called statements of qualifications,

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<v Speaker 1>which are the precursor to agreements that include things like

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<v Speaker 1>financing deals and payment structures, meaning that Microsoft does not

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<v Speaker 1>just canceled agreements, but made it clear they don't intend

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<v Speaker 1>to carry on building more. Microsoft responded to this by

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<v Speaker 1>saying that they were still sticking to their egregious, stupid

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<v Speaker 1>plan to spend more than eighty billion dollars on capital

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<v Speaker 1>expenditures in twenty twenty, with one note that they and

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<v Speaker 1>I quote may strategically pace or adjust their infrastructure in

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<v Speaker 1>some areas. It was one of those things that ostensibly

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<v Speaker 1>looks like an obvious statement of intent, but if you

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<v Speaker 1>read between the lines, you see plenty of wiggle room

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<v Speaker 1>for Microsoft to backtrack. This comes off the back of

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<v Speaker 1>last week's interview with Microsoft CEO sach And Adela with

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<v Speaker 1>Dwarkesh Dwarkesh podcast Pretty good, kind of bland stuff, where

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<v Speaker 1>he said that there will be overbuild of data centers

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<v Speaker 1>pursuing AI and this is the shit you want to

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<v Speaker 1>hear as an investor in the AI revolution. You want

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<v Speaker 1>to hear a guy being like, yeah, maybe people built

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<v Speaker 1>too much. Now, this caused both Microsoft and in videos

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<v Speaker 1>stocks to wobble. But as I sit here and write

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<v Speaker 1>this on Wednesday morning, the day of Nvidia's earnings, by

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<v Speaker 1>the way, both stocks appear to have recovered a tiny

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<v Speaker 1>bit and they're actually going off, though not by much,

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<v Speaker 1>and no doubt by the time I'm finished writing the

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<v Speaker 1>script things will have changed again, which is why I

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<v Speaker 1>tend not to do a lot of stock related stuff.

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<v Speaker 1>That and I'm not a financial analyst. Different kind of analyst,

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<v Speaker 1>I guess. But anyway, the magnificent seven stocks Apple, Microsoft, Amazon, Alphabet, Meta, Invidia,

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<v Speaker 1>and Tesla make up about thirty percent of the value

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<v Speaker 1>of the S and P five hundred, an index of

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<v Speaker 1>the five hundred largest companies in the American stock market,

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<v Speaker 1>with Nvidia being the golden goose, growing over nine hundred

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<v Speaker 1>percent since twenty twenty three thanks to being the one

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<v Speaker 1>company that sells the specialized GPUs needed to make generative

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<v Speaker 1>AI work, making up just under twenty percent of the

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<v Speaker 1>value of the Magnificent seven itself. As a result, the

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<v Speaker 1>markets are deeply dependent on the success of Invidio, which

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<v Speaker 1>in turn is dependent on the continued hyperscalar investment in

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<v Speaker 1>generative AI. One other worrying fact for you, in Vidia's

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<v Speaker 1>top customers like Microsoft, Google, and Meta make up more

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<v Speaker 1>than sixty percent of its revenues. Right now, the vibes

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<v Speaker 1>are rancid Tuesday and Wednesday's headlines, and this episode will

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<v Speaker 1>come out after in Vidia's earnings. So forgive me Echo

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<v Speaker 1>a deep market anxiety saying things like Invidia's earnings could

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<v Speaker 1>be bad, how to protect your portfolio, and why in

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<v Speaker 1>Video's earnings are so important to the entire stock market now. Admittedly,

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<v Speaker 1>a lot of these headlines were plucked from the popular

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<v Speaker 1>financial press, which, to put it mildly, can be kind

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<v Speaker 1>of dog shit. The content farms that churn out articles

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<v Speaker 1>where underneath the sensational clip bait title. You have a

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<v Speaker 1>thinly written body of texts that tries to persuade you

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<v Speaker 1>that a particular stock will pop or bomb. You can't

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<v Speaker 1>really read too much into them, but it's telling that

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<v Speaker 1>the same sentiments have appeared in more prestigious publications, where

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<v Speaker 1>standards are measurably higher than say, Seeking Alpha or The

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<v Speaker 1>Motley Fool. Even if earnings are good for Invidia, it's

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<v Speaker 1>hard to see how they'll be good enough to please

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<v Speaker 1>a market. They will have a tantrum if they can't

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<v Speaker 1>perpetually make the number go up. Invidia has beaten analyst

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<v Speaker 1>expectations eight straight quarters, and the continual expectation that they'll

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<v Speaker 1>do so is terrifying, especially when you consider that Invidia

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<v Speaker 1>has long held a reputation as a boom or bus

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<v Speaker 1>stock and osolits between peaks and valleys based on whatever

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<v Speaker 1>the latest tech trend is. There's no logical reason to

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<v Speaker 1>believe that Invidia can continue to grow at this ridiculous rate.

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<v Speaker 1>Right now, its market cap is over eleven percent of

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<v Speaker 1>America's gross domestic product. But because the market's like giant,

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<v Speaker 1>petulant trillion dollar babies, these are the demands put upon

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<v Speaker 1>in video and Jensen Wang. But even if in Vidia

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<v Speaker 1>shits the bed mightily tonight, it isn't obvious whether that

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<v Speaker 1>will burst the bubble, because so much of the stock's

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<v Speaker 1>value and the economy in general, if I'm honest, is

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<v Speaker 1>based on a mishmash of people pretending they understand numbers

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<v Speaker 1>and well vibes. In short, the bubble will not burst

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<v Speaker 1>in the sense that one big event will bring everything

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<v Speaker 1>to an abrupt end now, and Vidia is not going

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<v Speaker 1>to drop thirty percent in one day normal open MLA overnight.

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<v Speaker 1>That's just not how this works. What will happen if

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<v Speaker 1>the bubble bursts, which I genuinely believe it will, will

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<v Speaker 1>be a series of smaller calamities that chain together to

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<v Speaker 1>bring an end to this hype cycle. It'll be like

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<v Speaker 1>the Domino scene from viv and Vendetta, where Detective Finch

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<v Speaker 1>threads the needle between the disparate events that will eventually

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<v Speaker 1>lead to the ulster of Chancellor Sutler. I've referred in

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<v Speaker 1>the past in an episode called burst damage to the

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<v Speaker 1>pale horses of the AI Apocalypse, and one of them

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<v Speaker 1>was the reduction of capital expenditures by a major hyperscaler

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<v Speaker 1>because in doing so, the hyperscalers such as Microsoft would

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<v Speaker 1>be admitting that it's time to slow down investment in

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<v Speaker 1>revolutionary products that they allegedly claim in revolutionary and that

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<v Speaker 1>they're selling tons of right wrong. And by extension, by

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<v Speaker 1>the way, they're tacitly admitting that perhaps these revolutionary products

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<v Speaker 1>weren't actually that revolutionary. Kind of an obvious point. Now,

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<v Speaker 1>one argument against this being a pale horse is that

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<v Speaker 1>open ai has partnered with soft Bank and Oracle to

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<v Speaker 1>build out up to and that is what it's called,

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<v Speaker 1>up to five hundred billion dollars in data centers. And

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<v Speaker 1>the answer there is that this is right now pretty

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<v Speaker 1>much theoretical, and it's dependent on open ai raising another

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<v Speaker 1>nineteen billion dollars because they've committed that much to this project.

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<v Speaker 1>Another thing about this stargate thing, I get a lot

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<v Speaker 1>of emails about Donald Trump US government. They're not putting

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<v Speaker 1>any money into this. This is all private partnerships, and

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<v Speaker 1>soft Bank and open ai have given nineteen billion while

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<v Speaker 1>they're claiming they're going to give nineteen billion dollars each.

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<v Speaker 1>And open ai is now raising up to forty billion

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<v Speaker 1>dollars with twenty five billion or up to twenty five

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<v Speaker 1>billion dollars, of that coming from software, So it's like,

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<v Speaker 1>what actually is happening here? Anyway? If Microsoft was so

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<v Speaker 1>invested in the generative AI revolution, why would they reduce

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<v Speaker 1>their investments in it? Surely this supposedly incredible demand and

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<v Speaker 1>the incredible opportunities of generative AI would mean that they

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<v Speaker 1>needed more data centers, right right, So strange. Nevertheless, if

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<v Speaker 1>you see Google or Metal or Amazon pulled back on

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<v Speaker 1>capital expenditures, that is the bell ringing. But here are

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<v Speaker 1>some other pale horses to watch out for. If open

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<v Speaker 1>ai and Anthropic raise their prices, it means that they're

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<v Speaker 1>finally having to cover their ruinous, horrible, unprofitable and unsustainable expenses.

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<v Speaker 1>Open Ai spent nine billion dollars to lose five billion

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<v Speaker 1>dollars in twenty twenty four, and an Anthropic lost five

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<v Speaker 1>point six billion dollars and only made just over nine

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<v Speaker 1>hundred million dollars in the same period. All of their

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<v Speaker 1>products are deeply unprofitable, and thus any price increases are

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<v Speaker 1>assigned that they need money. They need money now, money

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<v Speaker 1>mean money. Now. Conversely, if you see any dramatic price decreases,

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<v Speaker 1>this isn't the necessarily a sign of improvements in efficiency.

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<v Speaker 1>Sooned Up, a shy of Google, just announced that Google's

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<v Speaker 1>Gemini codesyst is now free for up to one hundred

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<v Speaker 1>and eighty thousand code completions a month. This puts a

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<v Speaker 1>direct price pressure on both open Ai and Anthropic, who

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<v Speaker 1>just launched a new version of their Claude model, and Microsoft,

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<v Speaker 1>which owns GitHub and by extension, GitHub Copiler, which costs

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<v Speaker 1>twenty dollars per month and reportedly still loses twenty to

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<v Speaker 1>eighty dollars a month they use. It's insane, But if

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<v Speaker 1>prices are forced to drop, this is a bad sign.

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<v Speaker 1>These are very unprofitable businesses. Now, if you see anything

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<v Speaker 1>about any prominent AI companies Anthropic, Open Ai, Scale, Coheer, Perplexity,

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<v Speaker 1>so on, and so forth. If you see they're having

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<v Speaker 1>trouble raising money, that means venture capitalists are scared, which

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<v Speaker 1>means everybody should be scared. Similarly, if you hear any

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<v Speaker 1>discord within these companies, people living on mass layoffs, senior

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<v Speaker 1>executives fleeing, that is also a bad sign. It means

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<v Speaker 1>that they no longer have faith in these companies. And

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<v Speaker 1>now if they jump to another generator of AI company

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<v Speaker 1>that is also not a good sign. It's kind of

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<v Speaker 1>like jumping from the Titanic to the Ola Gay. And

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<v Speaker 1>we've already had a lot of this with open Ai,

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<v Speaker 1>with the department, the departures of chief researcher barretts Off

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<v Speaker 1>and Chief technology officer Mirror Murati. When that trickle becomes

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<v Speaker 1>a flood, you know that a calamity won't be far behind.

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<v Speaker 1>We've already had a few of these. But bullshit companies

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<v Speaker 1>raising bullshit money are one of the biggest tells that

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<v Speaker 1>we're in a bubble. Open ai co founder Iliosuitscaper is

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<v Speaker 1>currently raising a billion dollars at a fucking stupid valuation

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<v Speaker 1>of thirty billion dollars for his company's safe superintelligence. Now

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<v Speaker 1>you'd think with all that cash there'd be something to

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<v Speaker 1>show wrong. Oh, you imbecile, you dip shit, you more on,

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<v Speaker 1>you pig. He doesn't have a product at all, there's

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<v Speaker 1>no product, they're pre product, but they're worth thirty billion dollars.

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<v Speaker 1>What are we doing here? Similarly, former open AIICTO Mirror Maurati,

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<v Speaker 1>she has a new company called Thinking Machines, And you'd

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<v Speaker 1>think with the Wired headline saying they're finally ready to

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<v Speaker 1>announce what they're working on. They would announce I don't

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<v Speaker 1>know what they're working on, you'd be fucking wrong. Stephen

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<v Speaker 1>Levy should be absolutely bloody ashamed of himself. Steven's done

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<v Speaker 1>some good journalists me in the past, and he's also

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<v Speaker 1>done some projeneritive AI stuff that I wouldn't wipe my

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<v Speaker 1>ass whole with fucking disgusting, both the thing I just

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<v Speaker 1>said and the thing happening now. Anyway, if you're wondering, uh,

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<v Speaker 1>what this company does, they and I quote develop top

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<v Speaker 1>notch AI with an eye towards making it useful and accessible.

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<v Speaker 1>I wish I could get away with just saying nothing

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<v Speaker 1>and getting a big pile of money. Wait, is that

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<v Speaker 1>what a podcast is? Anyway? There are, of course other

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<v Speaker 1>pale horses, but the core problem with bubbles is that

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<v Speaker 1>they're based less on tangible events and more on everybody

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<v Speaker 1>sharing the same delusion, which in this case is that

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<v Speaker 1>large language models will turn into something magical somehow, and

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<v Speaker 1>the only way to make them do so is to

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<v Speaker 1>plow billions of dollars into a fucking furnace. One pale

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<v Speaker 1>horse would be a vibe shift where people stop talking

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<v Speaker 1>about open AI and generative AI and this breathless wank tone,

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<v Speaker 1>but rather with an air of disdain and skepticism that

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<v Speaker 1>in and of itself is pretty hard to measure. What

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<v Speaker 1>breaks narratives and pops bubbles is when the consensus shifts

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<v Speaker 1>from dreaming to cold, harsh reality. As investors realize there's

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<v Speaker 1>no growth to be had from generative AI, they'll turn

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<v Speaker 1>their backs on both the generative AI revolution and the

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<v Speaker 1>companies that pushed it, and if they ever turn on video,

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<v Speaker 1>that will accelerate the AI apocalypse. Because in Vidia, despite

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<v Speaker 1>the real overblown valuations, actually makes a profit and sells

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<v Speaker 1>real physical things, though their consumer graphics cards are currently

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<v Speaker 1>melting at the fifteen ninety not great but really though,

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<v Speaker 1>in Video is really the only company to make serious

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<v Speaker 1>money from generative AI, and if that narrative changes, if

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<v Speaker 1>people turn on video, it's not going to be great

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<v Speaker 1>either way. I'll be here to walk you through it.