WEBVTT - The AI Demand Bubble with Ed Elson 0:00:02.400 --> 0:00:03.880 A zone media. 0:00:05.680 --> 0:00:20.600 Greetoms and salutations. It's me ed Zetron and it's better offline. 0:00:21.520 --> 0:00:24.880 That's right. We are back with Prof. G. Markets ed Elson, 0:00:24.960 --> 0:00:27.760 and we're here to talk about the naughty little buggers 0:00:27.760 --> 0:00:30.920 and the magnificent seven, primarily the Big four, but really 0:00:30.960 --> 0:00:33.840 the big three, the Amazons, the Googles, and the Microsofts 0:00:33.840 --> 0:00:35.920 of the world. Ed thank you for joining me again. 0:00:36.560 --> 0:00:38.360 Thank you so much for having me. I'm very, very 0:00:38.360 --> 0:00:39.159 excited to be here. 0:00:39.600 --> 0:00:43.599 Yeah, so tell me. They just reported earnings, and as 0:00:43.640 --> 0:00:45.800 you well know from the conversation we just said, I 0:00:45.880 --> 0:00:47.800 got some points to make about it. But when you 0:00:47.840 --> 0:00:49.000 brought me through how they did. 0:00:48.880 --> 0:00:53.559 On their earnings, absolutely, So let's just run through what 0:00:53.680 --> 0:00:59.520 we learned on Microsoft Microsoft, and we saw pretty good growth. 0:01:00.040 --> 0:01:04.280 Billion dollars in revenue up eighteen percent. Amazon similar story, 0:01:04.319 --> 0:01:08.360 two hundred billion dollars in revenue up twenty percent. Meta's 0:01:08.480 --> 0:01:11.760 revenue increased twenty eight percent. I mean, on its surface, 0:01:12.600 --> 0:01:16.160 this was pretty good. Yeah, you just look at the numbers, 0:01:16.200 --> 0:01:20.000 even the net income which exploded for many of these companies. 0:01:20.600 --> 0:01:24.399 But of course that's not really what matters here. What 0:01:24.560 --> 0:01:28.640 really matters is how is the AI trade actually working out. 0:01:28.640 --> 0:01:30.880 There are two main questions that we really want to 0:01:30.959 --> 0:01:33.600 understand when we look at these big tech companies. The 0:01:33.640 --> 0:01:37.319 first question is how much revenue did you generate from 0:01:37.640 --> 0:01:41.360 your AI business? Specifically, that's what we really want to 0:01:41.360 --> 0:01:43.120 know the answer to. And then the second question is 0:01:43.480 --> 0:01:48.680 how much of that revenue came from two relatively unstable 0:01:48.760 --> 0:01:52.520 companies financially specifically open ai and Anthropic. Those are the 0:01:52.520 --> 0:01:54.880 two questions I want to know the answer to. I 0:01:54.920 --> 0:01:57.520 know you want to know the answer to. We didn't 0:01:57.520 --> 0:02:01.520 get those answers. They didn't really tell us, and what 0:02:01.560 --> 0:02:04.840 they did tell us was not very helpful, kind of 0:02:04.920 --> 0:02:08.280 papering over the reality, which makes you think maybe the 0:02:08.320 --> 0:02:10.800 reality is something that they don't really want us to see. 0:02:11.639 --> 0:02:15.280 So that's the funny thing as well, Like before we 0:02:15.320 --> 0:02:16.919 get to the meat of what you and I both 0:02:16.960 --> 0:02:19.760 know we're going to discuss, there was also these weird 0:02:19.880 --> 0:02:24.160 massive equity gains, So the net income part of earnings 0:02:24.280 --> 0:02:28.040 is now not super useful because in all three cases 0:02:28.040 --> 0:02:32.079 of Amazon, Google, and Microsoft, they all posted massive equity 0:02:32.120 --> 0:02:34.680 returns based on the increasing value of open ai and 0:02:35.040 --> 0:02:39.120 their shares of either or both open ai and and Anthropic. 0:02:39.240 --> 0:02:42.880 Right, Yes, yeah, a wrinkle in there that I'll address, 0:02:43.000 --> 0:02:45.639 But we'll start with Amazon and Google. The answer to 0:02:45.639 --> 0:02:48.840 that question is yes, Amazon's net income so their earnings 0:02:48.880 --> 0:02:53.520 exploded two hundred and forty five percent. That's crazy growth, 0:02:53.800 --> 0:02:58.160 more than tripled. Google's exploded two hundred and ninety eight percent. Again, 0:02:58.360 --> 0:03:01.239 crazy growth. How did that happen? What's going so right? 0:03:01.360 --> 0:03:05.720 What could we dig into it? Exactly? The answer in 0:03:05.800 --> 0:03:09.680 Amazon's case is that eighty five percent of their net 0:03:09.720 --> 0:03:13.279 income came from unrealized gains in their stakes in Anthropic 0:03:13.680 --> 0:03:17.120 and Open AI. So essentially, they basically looked at that company, 0:03:17.120 --> 0:03:19.600 they said, Okay, I guess it's worth this amount of money. 0:03:19.639 --> 0:03:22.000 I guess it's worth a trillion dollars, and they marked 0:03:22.000 --> 0:03:24.120 that up and then that was reflected in their earnings. 0:03:24.160 --> 0:03:27.160 And then in Google's case, eighty seven percent of their 0:03:27.160 --> 0:03:30.200 earnings came from their unrealized gains in their stakes in 0:03:30.280 --> 0:03:35.640 Anthropic and SpaceX. So those earnings of those companies you 0:03:36.080 --> 0:03:40.080 can't really take seriously because they're not reflecting the fundamental 0:03:40.200 --> 0:03:45.760 underlying health of the business. They're reflecting the optimism associated 0:03:46.120 --> 0:03:50.720 with the valuations of these AI startups and these frontier labs. 0:03:50.800 --> 0:03:54.800 So that's the first problem is the earnings themselves are 0:03:54.840 --> 0:03:57.480 not really reliable in Amazon and Google's case. We'll get 0:03:57.520 --> 0:04:00.680 to Microsoft in a second. The other problem is that 0:04:00.680 --> 0:04:04.880 that then funnels down into how we value companies. Specifically, 0:04:05.040 --> 0:04:09.280 one of the most important valuation metrics in investing is 0:04:09.320 --> 0:04:12.520 the price to earnings multiple. That is how we figure 0:04:12.520 --> 0:04:15.520 out how expensive or cheap a company really is. We 0:04:15.560 --> 0:04:17.159 look at their earnings, and we look at the price 0:04:17.160 --> 0:04:20.200 of the stock, and we compare of the two match up. Now, 0:04:20.920 --> 0:04:22.600 as of the end of last week, which is when 0:04:22.600 --> 0:04:26.760 I did this analysis, Amazon was training at nineteen times earnings. 0:04:26.960 --> 0:04:29.880 Google was trading at seventeen times earnings. The S and 0:04:29.920 --> 0:04:32.320 P the overall market currently trades it around twenty five 0:04:32.360 --> 0:04:34.520 times earnings. So if you were to look at those 0:04:34.600 --> 0:04:38.080 multiples on Amazon and Google, you'd say, oh my gosh, 0:04:38.480 --> 0:04:41.920 these companies are crazy cheap. It is time to buy. 0:04:42.360 --> 0:04:45.800 But of course we know that actually, no, those multiples 0:04:45.800 --> 0:04:50.479 have been massively skewed and compromised again by those unrealized 0:04:50.520 --> 0:04:52.360 gains by those paper games. 0:04:52.040 --> 0:04:54.000 And just to be in this state earning like that. 0:04:54.040 --> 0:04:56.239 Comparison is always based on net income. 0:04:56.800 --> 0:04:59.840 Yes, it's based on net income is equivalent to earnings, 0:05:00.200 --> 0:05:03.280 so we look at their pe multiple and their way down. 0:05:03.279 --> 0:05:05.560 I mean, you look at last year. Amazon was trading 0:05:05.600 --> 0:05:07.679 throughout the year at around thirty two times earnings. Google 0:05:07.720 --> 0:05:09.840 was trading around thirty one times earnings. So you look 0:05:09.880 --> 0:05:13.200 at nineteen and seventeen, you go, oh, my gosh, what's happened. 0:05:13.200 --> 0:05:16.440 They're so cheap. They're really cheap right now. That's not 0:05:16.560 --> 0:05:18.919 the case. So what we have to do if you 0:05:18.960 --> 0:05:21.000 want to actually get an understanding of how to value 0:05:21.040 --> 0:05:26.239 these companies is you need to subtract out the gains 0:05:26.279 --> 0:05:30.120 that they have registered in open ai, anthropic and SpaceX. 0:05:30.160 --> 0:05:32.800 You need to create basically a new metric. And we 0:05:32.960 --> 0:05:35.800 did that and we found that the true multiple for 0:05:35.960 --> 0:05:39.040 Amazon when you're just for that is actually thirty times earnings, 0:05:39.279 --> 0:05:41.800 and for Google it's thirty one times earning. So no, 0:05:41.960 --> 0:05:44.480 these stocks are not cheap right now. Now a lot 0:05:44.520 --> 0:05:47.960 of people will say, well, are you factoring in the 0:05:48.000 --> 0:05:50.799 fact that maybe there is some value in those companies 0:05:50.800 --> 0:05:53.440 and did you put that in the numerator? Blah blah blah. 0:05:53.440 --> 0:05:55.640 There are a lot of nitty gritty things that we 0:05:55.680 --> 0:05:58.560 need to do, And the answer is no, we didn't. 0:05:58.600 --> 0:06:00.480 But that's the kind of a now is that Wall 0:06:00.520 --> 0:06:02.920 Street needs to be employing right now. And the trouble 0:06:03.000 --> 0:06:05.440 is the more that we see these stakes in these 0:06:05.480 --> 0:06:08.279 little AI startups and these businesses, and the more that 0:06:08.279 --> 0:06:11.360 it starts to skew the actual earnings of the companies, 0:06:11.640 --> 0:06:14.320 it makes it a lot more difficult for us to 0:06:14.440 --> 0:06:18.560 actually value which companies are cheap, which companies are expensive. 0:06:18.600 --> 0:06:22.000 And of course it is in that complexification and in 0:06:22.080 --> 0:06:26.400 that obscurity that bubbles arise. This is the problem that 0:06:26.400 --> 0:06:28.680 we saw in the financial crisis. It's the problem that 0:06:28.720 --> 0:06:30.800 you and I have addressed when it comes to the 0:06:30.880 --> 0:06:36.919 data center SPVs. It's not necessarily that the SPVs are illegal. 0:06:37.360 --> 0:06:40.880 The problem is that they are hard to track, they're opaque, 0:06:41.240 --> 0:06:44.240 They're not reflected on the balance sheets of these companies, 0:06:44.400 --> 0:06:46.880 which means that Wall Street and the underwriters and the 0:06:46.880 --> 0:06:49.239 investors when they look at the data, they're not looking 0:06:49.240 --> 0:06:51.560 at data that really tells them the reality of what 0:06:51.720 --> 0:06:54.200 is going on. So that is the problem with the earnings. 0:06:54.480 --> 0:06:57.280 That's the problem with the pe multiple. I will pause 0:06:57.320 --> 0:07:00.240 there and we will get to Microsoft, which actually didn't 0:07:01.080 --> 0:07:04.680 have to report an increase in their in their earnings due. 0:07:04.560 --> 0:07:07.560 To their I thought they had an anthropic bit that 0:07:07.640 --> 0:07:09.679 did that three point two billion dollar game there. 0:07:09.880 --> 0:07:12.680 Sorry, yes they did do anthropic, but when you look 0:07:12.720 --> 0:07:16.040 at I mean, anthropic is a smaller investment for Microsoft. 0:07:16.040 --> 0:07:19.000 Their big investment is, of course, open Ai, which did 0:07:19.040 --> 0:07:22.480 not show up in their net income. Their net income 0:07:23.040 --> 0:07:25.960 rose by about thirty percent. If we were to look 0:07:25.960 --> 0:07:28.440 at the open Ai steake, you would think that it 0:07:28.440 --> 0:07:33.360 would explode by around three hundred percent, like Google's earnings exploded. 0:07:33.440 --> 0:07:38.160 That didn't happen due to an interesting gap accounting principle 0:07:38.200 --> 0:07:41.640 which I can get into in a moment if you'd 0:07:41.720 --> 0:07:42.960 like me to do it now, why not? 0:07:43.440 --> 0:07:44.440 Why not go into it? 0:07:44.560 --> 0:07:51.600 All? Right? So why didn't Microsoft's net income explode? Why 0:07:51.840 --> 0:07:56.480 wasn't their stake in open Ai reflected in their earnings? 0:07:56.920 --> 0:07:59.880 And the answer is that their investment in open Ai 0:08:00.120 --> 0:08:03.720 is so significant that because of stupid accounting laws and 0:08:03.720 --> 0:08:08.080 gap principles, they are required to report that that stake differently. 0:08:08.800 --> 0:08:13.040 So instead of reporting the alleged value of open Ai 0:08:13.160 --> 0:08:16.040 in their earnings, instead, what they have to do because 0:08:16.080 --> 0:08:18.880 their stake is so large, and so I guess the 0:08:18.960 --> 0:08:21.200 law says you need to report this differently. Instead, what 0:08:21.240 --> 0:08:22.560 they have to do is they have to report their 0:08:22.600 --> 0:08:26.800 share in open AI's profits. But of course open ai 0:08:27.240 --> 0:08:30.640 has no profits. So that's actually why Microsoft had to 0:08:30.680 --> 0:08:34.040 take a six hundred million dollar hit on their earnings 0:08:34.480 --> 0:08:38.120 to reflect their share of Open Eyed losses in the 0:08:38.160 --> 0:08:41.400 second quarter. In the second quarter, so in a funny way, 0:08:42.280 --> 0:08:46.840 when accounting laws require you to report your AI investments correctly, 0:08:47.840 --> 0:08:50.920 it actually reveals that these big tech companies are actually 0:08:51.320 --> 0:08:54.720 losing money from AI. But when the accounting laws have 0:08:54.800 --> 0:08:57.439 loos and they're flimsy, it allows them to say, oh, 0:08:57.480 --> 0:09:00.240 I made money on this stuff. So it's an interesting 0:09:00.280 --> 0:09:03.200 wrinkle there. And yes, their anthropics stake, they were able 0:09:03.240 --> 0:09:05.920 to kind of bs that in their earnings, but they 0:09:05.920 --> 0:09:08.160 weren't able to do it with Opening Hour, which is 0:09:08.200 --> 0:09:10.600 why they took that six hundred million dollar hit. If 0:09:10.600 --> 0:09:12.360 we just play this out over the next quarter, in 0:09:12.360 --> 0:09:14.360 the following quarter, what we can start to see is 0:09:14.400 --> 0:09:18.680 that actually these investments are not as sexy as the 0:09:18.880 --> 0:09:22.240 as the net incomes on Amazon and Google would make 0:09:22.280 --> 0:09:22.640 them see. 0:09:23.160 --> 0:09:25.319 And the other thing with Microsoft that I found interesting, 0:09:25.320 --> 0:09:27.720 and I mean I'm a curious little criticism went and looked. 0:09:28.000 --> 0:09:31.800 They mentioned they had annualized revenue, sorry, annualized run rate 0:09:31.840 --> 0:09:35.400 for AI and Q three fiscal twenty six, which was 0:09:35.480 --> 0:09:38.360 last quarter. Just for the listeners, their fiscal year begins 0:09:38.360 --> 0:09:41.720 on July first of the year beforehand, so their fiscal 0:09:41.800 --> 0:09:45.319 year twenty six begun July first, twenty twenty five. It's annoying. 0:09:45.320 --> 0:09:47.559 But their last quarter they said, oh, we're here, thirty 0:09:47.559 --> 0:09:51.280 seven billion run rate for AI, and in this quarter 0:09:51.400 --> 0:09:55.320 they didn't, right, they just didn't mention it. And I 0:09:55.360 --> 0:09:58.760 think what it is is the I don't know, Ben 0:09:59.240 --> 0:10:00.920 from the Ben and on Me show once said the space 0:10:00.920 --> 0:10:03.079 it's like the way to understand the stock market is 0:10:03.120 --> 0:10:05.199 imagine the thing that would piss you off the most happening. 0:10:05.679 --> 0:10:10.200 So there you go, because it's so frustrating seeing everyone 0:10:10.280 --> 0:10:13.240 saying the AI bet paid off, the AI bet paid off. 0:10:13.280 --> 0:10:16.880 Look number go up so big even though they gave 0:10:16.960 --> 0:10:21.880 us less information this time, they are obfuscating the information. 0:10:22.800 --> 0:10:26.040 Yes, exactly. If AI were going as well as a 0:10:26.040 --> 0:10:28.240 lot of people say it's going, then you would expect 0:10:28.240 --> 0:10:31.040 these companies to simply report their AI revenues and brag 0:10:31.080 --> 0:10:33.920 about it. But instead they don't do that. Instead, what 0:10:33.960 --> 0:10:37.840 they do is they report their compute revenue, which, to 0:10:37.880 --> 0:10:40.480 be fair, is growing, but that was a business's business 0:10:40.520 --> 0:10:44.559 that existed long before AI. That's not their AI revenue. 0:10:44.880 --> 0:10:47.680 And when they do report their AI revenues, they usually 0:10:47.679 --> 0:10:52.080 report it in arr their annual revenue run rates. 0:10:51.800 --> 0:10:55.400 And Amazon actually did that in this quarter. Instead it's 0:10:55.400 --> 0:10:58.679 a twenty five billion dollar run rate, which is two 0:10:58.679 --> 0:11:01.199 point oh eight billion dollars. But he's the other thing 0:11:01.240 --> 0:11:03.280 that people seem to miss as well. You know what 0:11:03.320 --> 0:11:07.440 also happened in this quarter anthropics compute spend accelerated because 0:11:07.440 --> 0:11:11.199 it's revenue. It's revenue accelerated, like it's a very obvious 0:11:11.480 --> 0:11:15.160 like between. So this quarter would refer to what's it's June, 0:11:15.200 --> 0:11:20.520 May April, right, Yeah, that is that's when Anthropic, I think, 0:11:20.640 --> 0:11:23.760 claim they hit thirty billion annualized run rate, like they 0:11:23.800 --> 0:11:27.120 are spending so much more in compute than their actual revenue. 0:11:27.400 --> 0:11:29.360 I wouldn't be surprised. And this we'll get into if 0:11:29.400 --> 0:11:33.120 most of this run rate came from Anthropic and Open 0:11:33.160 --> 0:11:37.160 Ayes spend. But again, jingle jingle, the keys are here. 0:11:37.480 --> 0:11:40.120 Look at the run rate, look at it. 0:11:40.160 --> 0:11:42.200 Back to it. I think just for just for your 0:11:42.280 --> 0:11:45.840 orders to understand why run rate is a bullshit metric. 0:11:45.920 --> 0:11:47.800 I mean this is sort of like this is the 0:11:47.840 --> 0:11:53.000 classic metric that is reported by startups where their their 0:11:53.040 --> 0:11:55.120 revenue is very choppy, and so what they'll do is 0:11:55.120 --> 0:11:58.079 they'll pick their best month and then they'll just times 0:11:58.120 --> 0:12:00.520 it by twelve and say, this is how much we 0:12:00.559 --> 0:12:02.400 are expected to make over the course of the year. 0:12:02.559 --> 0:12:04.760 I'll just like point out with my business. You know, 0:12:05.080 --> 0:12:09.040 my podcast generated double the revenue in June that it 0:12:09.160 --> 0:12:12.800 generated in May. We had a really good jem Now 0:12:12.840 --> 0:12:14.920 I could just annualize that number. I could just times 0:12:14.920 --> 0:12:17.200 it by twelve and say, oh, that's how much money 0:12:17.240 --> 0:12:18.880 we're going to make this year. But of course that 0:12:18.920 --> 0:12:20.840 would be bs and I'm not going to do that 0:12:20.840 --> 0:12:22.400 to you. I'm not going to lie to you. But 0:12:22.679 --> 0:12:25.280 this is what they are resorting to instead of just 0:12:25.320 --> 0:12:28.280 reporting how much money they actually made off of AI. Instead, 0:12:28.280 --> 0:12:30.640 what they do is they pick a random month and 0:12:30.679 --> 0:12:33.160 then they say, oh, if we times it by twelve, 0:12:33.240 --> 0:12:35.560 then that will be a good number. And that's what 0:12:35.600 --> 0:12:39.360 they are starting to report. It's very but that was 0:12:39.440 --> 0:12:41.120 very yesie, yeah it is. 0:12:41.160 --> 0:12:43.800 And that's the one that Microsoft declined to report this month, 0:12:44.200 --> 0:12:48.080 which means likely that. So the thing is, I'm guessing 0:12:48.120 --> 0:12:50.200 that they're referring to a month within the quarter, but 0:12:50.200 --> 0:12:52.720 we actually don't know. We don't know if it's thirty days, 0:12:52.720 --> 0:12:55.520 twenty eight days, we don't know if it's four weeks 0:12:56.000 --> 0:12:59.240 times fifty. We truly don't know what it'd be like 0:12:59.280 --> 0:13:02.560 four weeks time thirteen. It's just they never disclosed this. 0:13:02.760 --> 0:13:05.720 But I think it's just a failure of the media 0:13:06.280 --> 0:13:09.800 and analysts on this one, because I feel like if 0:13:09.800 --> 0:13:12.720 these companies felt any pressure to actually be honest with 0:13:12.760 --> 0:13:16.640 their investors, they I don't know, would do anything other 0:13:16.679 --> 0:13:16.920 than this. 0:13:17.679 --> 0:13:21.360 Yes, well, I think it's actually interesting. Meta is an 0:13:21.440 --> 0:13:25.080 interesting example of this. Meta is one of the few 0:13:25.160 --> 0:13:29.120 companies where the analysts are actually trying to ask management 0:13:29.200 --> 0:13:32.800 the tough questions because it is so obvious what the 0:13:32.840 --> 0:13:37.559 problem is. The problem is that their free cash flow 0:13:37.600 --> 0:13:39.840 is declining. It's down ninety one percent, and the reason 0:13:39.840 --> 0:13:43.440 that it's declining is because they're spending just godgantuan amounts 0:13:43.480 --> 0:13:46.280 of money on this AI infrastructure. Now, for the other 0:13:46.320 --> 0:13:49.480 companies who are doing that, they already have these cloud 0:13:49.520 --> 0:13:53.960 businesses like Google Cloud like aws like Microsoft Azure, and 0:13:54.000 --> 0:13:57.640 so Wall Street kind of understands generally how they are 0:13:57.679 --> 0:14:00.760 expected to generate a return on building all of those 0:14:00.840 --> 0:14:04.200 data centers. Wall Street can stomach that with Meta, it 0:14:04.240 --> 0:14:07.760 hasn't been outlined whatsoever. You and I talked about this. 0:14:08.120 --> 0:14:11.840 They later kind of folded and admitted that they were 0:14:11.880 --> 0:14:14.040 just going to build their own cloud business. That was 0:14:14.080 --> 0:14:16.320 what we thought was going to happen. But when the 0:14:16.440 --> 0:14:21.520 analysts asked Mark Zuckerberg point blank what the actual plan 0:14:21.760 --> 0:14:24.520 was in terms of ROI, how are you actually going 0:14:24.520 --> 0:14:26.600 to generate a return on all of this AI data 0:14:26.600 --> 0:14:29.720 center spending? He didn't give them an answer. He didn't 0:14:29.760 --> 0:14:32.600 distress the cloud plans. He didn't address any of the 0:14:32.640 --> 0:14:34.560 reports about how Meta was in early talk to cell 0:14:34.600 --> 0:14:38.440 compute to Anthropic, which I know you have covered at length. 0:14:38.640 --> 0:14:42.560 He basically just avoided the question. And I think that 0:14:42.720 --> 0:14:46.000 tells you something about Mark Zuckerberg and the extent to 0:14:46.040 --> 0:14:50.160 which he gives a shit. He doesn't really, he doesn't. 0:14:49.920 --> 0:14:52.400 Can't believe he literally cannot be fired. 0:14:52.560 --> 0:14:55.840 That's right, which is back to the governments exactly. 0:14:56.240 --> 0:14:59.280 I mean, it feels like we're in the golden age 0:14:59.280 --> 0:15:01.600 of grift like it feels like we're just in an 0:15:01.680 --> 0:15:04.840 era where the only reason this is happening is because 0:15:04.840 --> 0:15:06.560 they know they can get away with it. There's no 0:15:07.280 --> 0:15:10.960 it's not like. I've read multiple I would say, like 0:15:11.040 --> 0:15:14.880 five different articles on Meta, Google, Microsoft, Amazon and their 0:15:14.920 --> 0:15:19.000 earnings and the only reason anyone is slightly critical of 0:15:19.080 --> 0:15:22.080 Meta is because their revenue growth wasn't as good as 0:15:22.120 --> 0:15:24.360 it is it was expected to be. That's the only 0:15:24.400 --> 0:15:27.840 reason it's not. It's not like analysts are point blank saying, hey, 0:15:28.600 --> 0:15:32.200 you haven't told us what your AI strategy is, you 0:15:32.320 --> 0:15:35.720 may have wasted that. They're not being blunt with them. 0:15:35.720 --> 0:15:39.160 They're just like, hey, hey, Mark, when you get around 0:15:39.200 --> 0:15:43.760 to it, would you mind telling me why you spend 0:15:43.960 --> 0:15:46.440 like like two hundred three hundred billion dollars and you 0:15:46.440 --> 0:15:48.160 want to spend one hundred and forty five billion dollars 0:15:48.200 --> 0:15:50.360 this year? When you when you got a minute, don't worry. 0:15:50.400 --> 0:15:51.120 I know you're busy. 0:15:52.480 --> 0:15:56.160 I actually disagree with you on that. Meta keep pushing them. 0:15:56.480 --> 0:15:59.200 I think I think that this has been recognized by 0:15:59.280 --> 0:16:02.160 the market by Wall Street. Took them a while, I'll 0:16:02.200 --> 0:16:04.440 give you that, but I think that in the case 0:16:04.480 --> 0:16:08.200 of Meta, they actually are starting to ask those questions. 0:16:08.680 --> 0:16:11.160 And I think the problem is that the other companies, 0:16:11.240 --> 0:16:14.760 because they have those cloud businesses, they're kind of refusing 0:16:14.760 --> 0:16:17.840 to ask the tough question, or not even the tough question, 0:16:17.920 --> 0:16:20.960 the obvious question of to what extent are you dependent 0:16:21.480 --> 0:16:25.640 on Open and Anthropic two companies which are losing gargantuan 0:16:25.680 --> 0:16:28.280 amounts of money, two of the most unprofitable companies in 0:16:28.320 --> 0:16:31.360 the history of companies. And that's literally a fact. You 0:16:31.360 --> 0:16:33.840 can look up the list of the most unprofitable companies 0:16:34.120 --> 0:16:36.360 ever and you'll notice if you do the math, Open, 0:16:36.400 --> 0:16:38.920 Aye and Anthropics should be in that list. So I 0:16:39.000 --> 0:16:42.600 think that they are not doing that homework, that hard 0:16:43.000 --> 0:16:46.040 work of digging into the numbers and asking that difficult 0:16:46.080 --> 0:16:49.200 question when it comes to especially when it comes to Google, 0:16:49.240 --> 0:16:51.960 and especially when it comes to Amazon. But I do 0:16:52.040 --> 0:16:56.120 think that they are worried about Meta's total lack of 0:16:56.160 --> 0:17:00.440 interest in laying out how they plan to generate any 0:17:00.480 --> 0:17:02.080 returns on this whatsoever. 0:17:13.520 --> 0:17:15.920 Well, that's the thing though, I will push back again 0:17:15.960 --> 0:17:20.400 a Meta. Sure they are asking the questions, but they're 0:17:20.400 --> 0:17:24.600 not point blank saying, hey, you've not shown it. They're not. 0:17:25.160 --> 0:17:28.639 And even the media, the media is absolutely not like 0:17:28.680 --> 0:17:32.120 they're saying, oh, there's concerns over AI spend a few 0:17:32.280 --> 0:17:38.080 higher than usual. That's strange. It's this kind of like plodding. Ah, 0:17:38.160 --> 0:17:40.600 I guess maybe we should find something out. And the 0:17:40.640 --> 0:17:44.639 analysts are pushing these questions now. But as we speak, 0:17:44.680 --> 0:17:46.639 and in two days this will come out, so we 0:17:46.680 --> 0:17:50.040 know it's down again. But MAT has already recovered six percent. Today, 0:17:50.040 --> 0:17:54.040 it recovered a couple percent. It's already on course to 0:17:54.800 --> 0:17:58.720 recover all of the losses. So it's not like anything changed. 0:17:59.320 --> 0:18:02.400 But as we discussed before we got on here, there 0:18:02.440 --> 0:18:06.480 are some analysts who have tried to work out or 0:18:06.720 --> 0:18:11.919 have estimated the actual concentration of revenue for Amazon, Google 0:18:11.960 --> 0:18:15.520 and Microsoft for open AI and anthropic spend. And as 0:18:15.520 --> 0:18:18.639 we were just discussing, so Ross Sandler over at Berkleys 0:18:18.680 --> 0:18:21.560 he estimates that seventy three percent of all Amazon's AI 0:18:21.600 --> 0:18:23.840 revenues in both twenty twenty six and twenty twenty seven 0:18:24.440 --> 0:18:27.320 will be anthropic and open AI's compute spend ChRI. 0:18:27.320 --> 0:18:29.080 It is completely an openly number. 0:18:29.400 --> 0:18:32.920 Insane. It is insane. So I found this a couple 0:18:32.960 --> 0:18:35.640 of days ago. I'd been working on it and I thought, well, 0:18:35.680 --> 0:18:38.399 it can't be that bad elsewhere except the look at 0:18:39.040 --> 0:18:41.399 ubs of Stephen Jews As he said this back in 0:18:42.080 --> 0:18:46.359 so barcleays Is back in March. Stevens was in June 0:18:46.400 --> 0:18:49.159 and he said that forty sorry, it's twenty seven percent 0:18:49.200 --> 0:18:52.240 of all Google Cloud revenues, so not AI revenues. All 0:18:52.280 --> 0:18:55.600 Google Cloud revenues for twenty twenty six are estimated to 0:18:55.600 --> 0:18:59.440 be open AI and anthropic, and then forty four percent 0:18:59.480 --> 0:19:04.080 in twenty two twenty seven. That is completely fucking insane, 0:19:04.560 --> 0:19:06.960 Like that is just this is this is to me 0:19:07.720 --> 0:19:10.280 such a huge scandal, And I mean I could also 0:19:10.400 --> 0:19:13.719 mention that well that there's also a Wells Fargo report 0:19:13.760 --> 0:19:16.320 that says that Microsoft's same deal seventy three percent is 0:19:16.359 --> 0:19:19.480 anthropic and open AI have their AI revenues Michael Churan 0:19:19.560 --> 0:19:23.280 over there. And it's like, I feel like I'm going 0:19:23.280 --> 0:19:25.880 a little insane because when you read these numbers, you're like, oh, 0:19:25.880 --> 0:19:29.280 these are from major investment analysts. How are they not 0:19:29.440 --> 0:19:34.119 calling like, hey, mister Fargo, mister Fargo, I read these numbers, 0:19:34.119 --> 0:19:36.680 and you should really check these out because we might 0:19:36.680 --> 0:19:39.720 be in trouble. And I think and friend of the 0:19:39.760 --> 0:19:42.960 showcase goa really helped me nail this down. I think 0:19:43.000 --> 0:19:46.760 it's these people are only capable of thinking two quarters 0:19:46.800 --> 0:19:50.280 in the future. Like they they can think of twenty 0:19:50.280 --> 0:19:53.320 twenty eight. They can think of twenty twenty seven, but 0:19:53.359 --> 0:19:55.840 they can only do so in terms of the last 0:19:55.840 --> 0:19:59.640 two quarters. Number has gone up. Open Ai and Anthropic 0:19:59.680 --> 0:20:03.840 are still solvent, so number will keep going up. It 0:20:03.920 --> 0:20:07.399 isn't a problem that the revenue is centralized because number 0:20:07.520 --> 0:20:11.320 keep going up. But to me, this is potentially one 0:20:11.320 --> 0:20:14.720 of the largest corporate scandals in tech history. Maybe I'm 0:20:14.720 --> 0:20:18.080 being dramatic, but this is We're talking over nine hundred 0:20:18.119 --> 0:20:21.320 and ninety billion dollars of capex now, and most of 0:20:21.359 --> 0:20:24.240 it is for these two companies that can quite literally 0:20:24.320 --> 0:20:27.360 not afford to pay unless one of those three companies 0:20:27.359 --> 0:20:28.200 gives them the money. 0:20:28.600 --> 0:20:32.080 Yes, this is a huge, huge problem. And you were 0:20:32.320 --> 0:20:34.920 saying that the analysts weren't and the media weren't doing 0:20:34.960 --> 0:20:38.680 their job in terms of asking meta questions about having 0:20:38.680 --> 0:20:41.040 going to generate a return. I sort of pushed back 0:20:41.040 --> 0:20:46.280 on you on this one. The silence is deafening from 0:20:46.320 --> 0:20:49.600 the analysts and from the media. There is a very 0:20:49.800 --> 0:20:53.480 very obvious concern when it comes to the businesses of 0:20:53.560 --> 0:20:57.000 the largest and most systemic companies in the world, the 0:20:57.000 --> 0:21:02.000 companies on which the portfolios of every America are entirely predicated, 0:21:02.040 --> 0:21:05.480 on on which the entire stock market relies on. And 0:21:05.520 --> 0:21:10.600 that is how much of your business depends on two companies, 0:21:11.000 --> 0:21:13.919 Open AI and Anthropic. And you are one of the 0:21:13.920 --> 0:21:18.280 few people who has been doing significant work into uncovering 0:21:18.320 --> 0:21:21.240 that answer. And you have looked into some of the 0:21:21.280 --> 0:21:25.920 research that has come out of Wells Fargo, Barclay's ubs. 0:21:25.920 --> 0:21:28.520 And we should give those analysts credit for crunching those 0:21:28.600 --> 0:21:31.240 numbers and doing the work of figuring it out. But 0:21:31.320 --> 0:21:36.720 the numbers are insane. Open and Anthropics seventy four percent 0:21:37.280 --> 0:21:41.600 of Microsoft's AI revenue. That is very, very unsustainable. We 0:21:41.720 --> 0:21:45.320 talked about diversification in markets, the importance of having a 0:21:45.320 --> 0:21:48.960 diversified portfolio. The same thing goes for business. You want 0:21:48.960 --> 0:21:54.200 to have a diversified revenue streams that indicates strong, healthy, 0:21:54.359 --> 0:21:58.960 sustainable growth. None of these big tech companies have anything 0:21:59.080 --> 0:22:02.720 close to diversified revenue streams when it comes to AI, 0:22:03.080 --> 0:22:05.119 and so you have to ask the very obvious question, 0:22:05.640 --> 0:22:09.119 what would happen if one of those two companies Open 0:22:09.160 --> 0:22:12.119 A and Anthropic went under. And you also have to 0:22:12.160 --> 0:22:15.399 ask the question, what is the likelihood that one of 0:22:15.440 --> 0:22:19.240 those two companies, open Ai and Anthropic could go under. 0:22:19.440 --> 0:22:21.800 What is the likelihood that they would not be able 0:22:21.880 --> 0:22:24.800 to make good on those payments that are propping up 0:22:25.040 --> 0:22:27.760