WEBVTT - The Hater's Guide To The AI Bubble, Pt. 1

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<v Speaker 1>Zone Media.

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<v Speaker 2>Hello and welcome to Better Offline. I'm your host ed

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<v Speaker 2>zip tron. Check out the episode notes. Got a wonderful

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<v Speaker 2>merchandise and completely separate to the podcast, got a wonderful

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<v Speaker 2>newsletter Where's your Head dot at with the premium section

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<v Speaker 2>that I would love you to subscribe to. But I

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<v Speaker 2>also got some good news. You've got another three part episode,

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<v Speaker 2>the second of the year, and this week we're going

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<v Speaker 2>to be talking about how the cracks and the generative

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<v Speaker 2>AI market are becoming harder to ignore, and how recent

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<v Speaker 2>events are making a collapse seem all the more inevitable.

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<v Speaker 2>What that means for the wider economy, really the markets

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<v Speaker 2>and you and I want to make that case because

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<v Speaker 2>as a journalist, I believe I have the duty to

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<v Speaker 2>give you the information you need to make sense of

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<v Speaker 2>a world increasingly feeling incomprehensible and of course detachment reality,

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<v Speaker 2>and where everything is consequent to everyone, where it's impossible

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<v Speaker 2>for ordinary people to shroud themselves from the consequences of

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<v Speaker 2>decisions made by the executive and shareholder class. Good journalism

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<v Speaker 2>is making sure that history is actively captured and appropriately

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<v Speaker 2>described in the cest, and it's the accurate to describe

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<v Speaker 2>things as they currently are as alarming, and boy howdy

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<v Speaker 2>am I alarmed?

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<v Speaker 3>Now?

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<v Speaker 2>Alarm is not a state of weakness or belligerence in myopia,

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<v Speaker 2>My concern does not dull my vision, even though it's

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<v Speaker 2>a convenient to frame me as somehow alarmist like I

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<v Speaker 2>have some hidden agenda or bias toward doom. I profoundly

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<v Speaker 2>dislike the financial waste, the environmental destruction, and fundamentally I

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<v Speaker 2>dislike the attempt to gaslight people into swearing fealty to

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<v Speaker 2>a sickly in frail pseudo industry where everybody but in

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<v Speaker 2>Nvidia and consultancies lose money. And I also dislike the

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<v Speaker 2>fact that I and others like me are held to

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<v Speaker 2>a remarkably different standard to those that paint themselves as optimists,

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<v Speaker 2>which typically means people that agree with what the market

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<v Speaker 2>wishes were true. Critics are continually badgered, prodded, poked, mocked,

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<v Speaker 2>and jeered out for not all the metrically aligning with

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<v Speaker 2>the idea that generative AI will be this massive industry,

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<v Speaker 2>constantly having to prove themselves as if somehow there's something

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<v Speaker 2>malevolent or craving about criticism. The critics do this for clicks,

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<v Speaker 2>or to be contrarian. I don't do anything for clicks

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<v Speaker 2>or downloads or prestige. I don't have any stocks or

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<v Speaker 2>short positions. My gender is simple. I like talking about

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<v Speaker 2>this crap and it comes to me naturally. I have

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<v Speaker 2>a podcast and it is on some level my job

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<v Speaker 2>to try and understand what the tech industry is doing

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<v Speaker 2>day to day.

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<v Speaker 3>And I get it.

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<v Speaker 2>I get It's easy to try and dismiss what I

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<v Speaker 2>say is going against the green because AI is big,

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<v Speaker 2>and AI is something we should all be impressed by,

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<v Speaker 2>and the AI is the thing that's going to start everything,

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<v Speaker 2>and all this fucking money is tied up in it.

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<v Speaker 2>But look, this isn't a fad for me. This isn't

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<v Speaker 2>something I'm doing because I feel like it because I'm

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<v Speaker 2>jumping to the next trend. No. I've been roiling against

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<v Speaker 2>bullshit bubble since twenty twenty one, the anti remote work

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<v Speaker 2>push and the people behind it, the clubhouse and audio

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<v Speaker 2>social networks bubble, the NFT bubble that made up quiet,

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<v Speaker 2>quitting panic, and even even and this one I got

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<v Speaker 2>no credit for.

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<v Speaker 3>I called that.

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<v Speaker 2>Something was up with the FTX several months before it imploded.

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<v Speaker 2>Did I do much more than that. No, I found

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<v Speaker 2>one thing. Nevertheless, this is in contrarianism, not at all.

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<v Speaker 2>It's the kind of skepticism of power and capital that's

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<v Speaker 2>necessary to meet these moments. And if it's necessary to

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<v Speaker 2>dismiss my work because it makes you feel icky inside,

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<v Speaker 2>get a therapist or see a priest. Nevertheless, I'm alarmed.

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<v Speaker 2>And while I have said some of these things separately,

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<v Speaker 2>based on recent developments, I think it's necessary to say why.

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<v Speaker 2>In short, I believe the AI bubble is deeply unstable,

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<v Speaker 2>built on vibes and blind faith. And when I say

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<v Speaker 2>the AI bubble, I mean the entirety of the AI trade.

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<v Speaker 2>And it's alarmingly simple too, he says, before doing three

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<v Speaker 2>episodes on it. But this isn't going to be some saccerin,

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<v Speaker 2>whiny or simply worrisome podcast. I think at this point

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<v Speaker 2>it's become a little ridiculous to not see we're in

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<v Speaker 2>a bubble. We are in a goddamn bubble. By the way,

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<v Speaker 2>it's so obvious we're in a bubble. It's been so

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<v Speaker 2>obvious we're in a bubble. It's been obvious for months,

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<v Speaker 2>if not years, A bubble that seems so strong, but

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<v Speaker 2>it's very weak with a central point of failure. I

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<v Speaker 2>may not be a contrarian, but I am a hater.

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<v Speaker 2>I hate the waste, the loss, the destruction, the theft,

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<v Speaker 2>the damage to our planet, and the sheer excitement. And

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<v Speaker 2>some executives and yes, some writers have that workers may

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<v Speaker 2>be replaced by AI and the bold faced fucking lie

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<v Speaker 2>that it's actually happening. And what Generative AI is doing

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<v Speaker 2>is somehow proof that it will. And so I present

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<v Speaker 2>to you the Hater's Guide to the AI Bubble, a

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<v Speaker 2>comprehensive rundown of the arguments I have against the current

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<v Speaker 2>AI booms existence. Send this podcast to your friends you

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<v Speaker 2>love ones or I don't know, blare it in their

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<v Speaker 2>ears like you're torturing them. But no, this isn't going

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<v Speaker 2>to be a traditional guy but something you can listen

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<v Speaker 2>to and say, oh, that's why the AI bubble is

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<v Speaker 2>so bad. And at this point, I know, I'm tired

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<v Speaker 2>of being gas lit by guys in Gingham shirts who

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<v Speaker 2>desperately want to curry favor with other guys in Gingham

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<v Speaker 2>shirts but who also have PhDs. I'm tired of hearing

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<v Speaker 2>people talk about how we're in the era of agents

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<v Speaker 2>that don't fucking work and will never fucking work. I'm

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<v Speaker 2>tired of hearing about powerful AI that's actually crap, and

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<v Speaker 2>I'm tired of being told the future is here while

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<v Speaker 2>having the world's least useful, most expensive cloud software shoved

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<v Speaker 2>down my throat and up my asshole. Look, the general

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<v Speaker 2>FAI boom is a mirage. It hasn't got the revenue

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<v Speaker 2>or the returns of the product efficacy for it to matter.

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<v Speaker 2>Everything you're seeing is ridiculous and wasteful when it all

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<v Speaker 2>goes tits up. And want you to remember that I

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<v Speaker 2>said this. I tried to say something. I've been trying

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<v Speaker 2>to say something for a while. But let's start with

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<v Speaker 2>something real obvious. Let's start by talking about the so

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<v Speaker 2>called Magnificent Seven's week point and it's not the one

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<v Speaker 2>you think because it's in video. As I write the

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<v Speaker 2>script for this podcast, in Vidia's sitting around one hundred

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<v Speaker 2>and seventy bucks a share, a dramatic reversal of faith

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<v Speaker 2>after the pummeling it took from the deep Seek situation

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<v Speaker 2>in January, which sent it tumbling to a brief late

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<v Speaker 2>April trip below one hundred dollars. Four things turned around

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<v Speaker 2>the mag seven stocks and Video, Microsoft, Alphabet, which is Google, Apple, Meta, Tesla,

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<v Speaker 2>and Amazon make up around thirty five percent of the

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<v Speaker 2>value of the US stock market, and of that and

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<v Speaker 2>Video's market value takes up about nineteen percent of the

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<v Speaker 2>Magnificent seven, eight to nine percent of the entire US

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<v Speaker 2>stock market. It's not brilliant. This dominance is also why

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<v Speaker 2>ordinary people ought to be deeply concerned about the AI bubble.

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<v Speaker 2>The Magnificent seven is almost certainly a big part of

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<v Speaker 2>their retirement plans, even if they're not directly invested. Back

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<v Speaker 2>in May, the Wonderful Laura Branton from Yahoo Finance reported

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<v Speaker 2>the Microsoft, Amazon, Meta, Alphabet, and Tesla alone make up

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<v Speaker 2>forty two point four percent of Invidia's revenue. The breakdown

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<v Speaker 2>doesn't make things better. Meta spends twenty five percent, and

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<v Speaker 2>Microsoft on alarming forty seven percent of their capital expenditures

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<v Speaker 2>and on Nvidia chips and as Branton notes, Microsoft also

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<v Speaker 2>spends money renting service from core Weave, which analyst Guild

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<v Speaker 2>Luria of DA Davidson estimates accounted for eight billion dollars

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<v Speaker 2>more than six percent of Invidia's revenue in twenty twenty four.

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<v Speaker 2>Laurier also estimates that neo cloud companies like Coreweav and

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<v Speaker 2>Crusoe that exist only to provide AI compute services account

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<v Speaker 2>for as much as ten percent of Nvidia's revenue, or

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<v Speaker 2>at least did so in twenty twenty four. In vidious

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<v Speaker 2>climbing stock value comes from one thing. It's continued revenue

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<v Speaker 2>growth in the past four quarters. And video has seen

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<v Speaker 2>year of a year growth of one hundred and one percent,

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<v Speaker 2>ninety four percent, seventy eight percent, and sixty nine percent.

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<v Speaker 2>And in the last quarter a little statistic was carefully

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<v Speaker 2>brushed under the rug in Video missed though narrowly, on

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<v Speaker 2>data center revenue. And data center revenue is, by the way,

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<v Speaker 2>where the GPUs go, and all the associated hardware and

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<v Speaker 2>so kind of server architecture switches and the like, and yeah,

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<v Speaker 2>this is exactly what it sounds like. GPUs that are

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<v Speaker 2>used in servers rather than gaming consoles and PCs. I

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<v Speaker 2>get a lot of emails saying, oh, will it be

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<v Speaker 2>easier for me to buy consumer graphics cards? I don't

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<v Speaker 2>fucking know, mate, I'm just did to talk about enterprise bullshit. Okay,

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<v Speaker 2>not really enterprise, but enterprise scale GPUs were getting off track.

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<v Speaker 2>Analyst estimated it would make. It would make thirty nine

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<v Speaker 2>point four billion dollars from the data center category, and

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<v Speaker 2>then video only only. I no pathetic amount brought in

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<v Speaker 2>thirty nine point one billion dollars. Then again, this could

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<v Speaker 2>be attributed to their problems in China, especially as the

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<v Speaker 2>H twenty ban they were banned from selling uspace chip

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<v Speaker 2>in China has only just been lifted. In any case,

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<v Speaker 2>this was a miss, and I'm not sure why no

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<v Speaker 2>one wanted to talk about them.

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<v Speaker 3>But there's another problems.

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<v Speaker 2>There's so many little problems here, like in videos. Quarter

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<v Speaker 2>over quarter growth has also become aggressively normal. It went

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<v Speaker 2>from sixty nine percent to fifty nine percent to twelve

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<v Speaker 2>percent to twelve percent again a quarter of quita, which

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<v Speaker 2>again isn't bad, it's pretty great in fact, But when

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<v Speaker 2>eighty eight percent of your revenue is based on one

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<v Speaker 2>particular line in your earnings, it's a pretty big concern,

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<v Speaker 2>at least for me. Look, I'm no stock analysts do

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<v Speaker 2>not take stock advice from me. I don't know about stocks.

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<v Speaker 2>I don't know what will go up and down, but

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<v Speaker 2>I'll tell you, I'll tell you something's not right here.

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<v Speaker 2>But I'm going to keep this simple in Video relies

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<v Speaker 2>on not only selling lots of GPUs each quarter, but

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<v Speaker 2>it must always sell more of them the following quarter.

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<v Speaker 2>More than forty two percent of revenue, and Video's revenue

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<v Speaker 2>comes from Microsoft, Amazon, Meta Alphabet, and Tesla continuing to

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<v Speaker 2>buy more GPUs. Remember, it's not about buying the same amount.

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<v Speaker 2>Number must go up. In Vidia's continued value and continued

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<v Speaker 2>growth is heavily reliant on hyperscalar purchases and continued interest

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<v Speaker 2>in generative AI. But really just the buying part the

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<v Speaker 2>GPUs are what matter. And the US stock markets continued

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<v Speaker 2>health relies on some level of five or six companies,

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<v Speaker 2>and it's unclear how many GPUs Apple buys, spending billions

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<v Speaker 2>of dollars on GPUs from Nvidia and more every quarter.

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<v Speaker 2>In fact, I found an analysis from portfolio manager Don

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<v Speaker 2>ke Wang from January twenty twenty five. The found that

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<v Speaker 2>the Magnificent seven stocks accounted for forty seven point eighty

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<v Speaker 2>seven percent of the Russell one thousand indexes returns in

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<v Speaker 2>twenty twenty four. And that's an index fund of the

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<v Speaker 2>thousand highest ranked stocks on the foot Sea Russell's Index,

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<v Speaker 2>which in simpler terms means thirty five percent of the

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<v Speaker 2>US stock market is held up by five or six

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<v Speaker 2>companies buying GPUs. If a video's growth story stumbles, it

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<v Speaker 2>will reverberate through the rest of the mag seven to two,

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<v Speaker 2>making them rely on their own AI trade stories. And

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<v Speaker 2>you know it when you know it, when you look

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<v Speaker 2>at the stories. There is no AI trade because Generative

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<v Speaker 2>AI is not making anybody any goddamn money. But I

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<v Speaker 2>have to make money, which is why you need to

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<v Speaker 2>listen to the following advertisement. It's the only one of

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<v Speaker 2>these bloody things you're gonna get. Here's an ad and

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<v Speaker 2>we're back. And I am so tired of people telling

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<v Speaker 2>me that companies are making tons of money on AI.

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<v Speaker 2>They are not. Anyone saying this to you is lying

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<v Speaker 2>or ignorant or both. The Magnificent Seven spent an insane

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<v Speaker 2>five hundred and sixty billion dollars between twenty twenty four

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<v Speaker 2>and twenty twenty five on Capex, with the overwhelming majority

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<v Speaker 2>going towards Generative AI and their effort for this wonderful effort.

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<v Speaker 2>For that more than half a trillion dollars, these companies

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<v Speaker 2>have made about thirty five billion dollars in revenue and

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<v Speaker 2>no profit. And I must say, and this is a

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<v Speaker 2>technical term, this is egregiously fucking stud But let's break

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<v Speaker 2>it down. Start with starting out in Redmond with our

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<v Speaker 2>friends at Microsoft, and they plan to spend eighty billion

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<v Speaker 2>dollars on CAPEX in twenty twenty five. Now, mustn't. January

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<v Speaker 2>twenty twenty five, Microsoft's annualized revenue meaning best month times

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<v Speaker 2>twelve from our official intelligence, was thirteen billion dollars, a

0:11:18.080 --> 0:11:21.720
<v Speaker 2>number that it's chosen, not what they since slightly because

0:11:21.760 --> 0:11:24.400
<v Speaker 2>said number is either flat or not growing, though it

0:11:24.480 --> 0:11:26.280
<v Speaker 2>could in its upcoming I think at the end of

0:11:26.320 --> 0:11:29.360
<v Speaker 2>this week or next one, it's got cut earnings coming up.

0:11:29.400 --> 0:11:31.200
<v Speaker 3>Maybe they'd be good news. Yeah.

0:11:31.200 --> 0:11:33.080
<v Speaker 2>The problem with this revenue is that ten billion dollars

0:11:33.120 --> 0:11:35.440
<v Speaker 2>of that revenue, according to the information, comes from open

0:11:35.480 --> 0:11:38.760
<v Speaker 2>AIS spend on a Microsoft' as or cloud, and Microsoft

0:11:38.800 --> 0:11:42.280
<v Speaker 2>offers preferential pricing. I'm quoting the information here at a

0:11:42.280 --> 0:11:45.560
<v Speaker 2>heavily discounted rental rate that essentially only covers Microsoft's costs

0:11:45.559 --> 0:11:51.320
<v Speaker 2>for operating the servers. That's not good, right, like it's

0:11:51.360 --> 0:11:54.319
<v Speaker 2>not good. It's not good that seventy six point nine

0:11:54.360 --> 0:11:57.520
<v Speaker 2>percent of Microsoft's AI revenue comes from open AI, and

0:11:57.920 --> 0:12:00.920
<v Speaker 2>that revenue is made at cost or just above it,

0:12:01.160 --> 0:12:04.280
<v Speaker 2>which makes Microsoft's real AI revenue about three billion dollars

0:12:04.400 --> 0:12:06.800
<v Speaker 2>or about three point seven five percent of this year's

0:12:06.800 --> 0:12:10.199
<v Speaker 2>capital expenditures, or sixteen point two five percent if you

0:12:10.240 --> 0:12:13.200
<v Speaker 2>count open AIS revenue, which costs Microsoft likely more money

0:12:13.240 --> 0:12:16.640
<v Speaker 2>than it earns. The information also reports that Microsoft made

0:12:16.720 --> 0:12:19.800
<v Speaker 2>four point seven billion dollars in AI revenue in twenty

0:12:19.840 --> 0:12:22.640
<v Speaker 2>twenty four, of which open AI accounted for two billion dollars,

0:12:22.880 --> 0:12:25.199
<v Speaker 2>meaning that for the one hundred and thirty five point

0:12:25.240 --> 0:12:27.720
<v Speaker 2>seven billion dollars that Microsoft are spent in two years

0:12:27.760 --> 0:12:32.840
<v Speaker 2>in AI infrastructure, it's made seventeen point seven billion dollars,

0:12:32.840 --> 0:12:36.679
<v Speaker 2>of which open AI was twelve point seven billion dollars.

0:12:37.200 --> 0:12:39.880
<v Speaker 2>It's kind of crap, isn't it. It's not very good

0:12:39.920 --> 0:12:42.080
<v Speaker 2>at all, and things do not improve when we get

0:12:42.120 --> 0:12:45.640
<v Speaker 2>to Amazon. An analyst estimates that Amazon, which plans to

0:12:45.679 --> 0:12:48.120
<v Speaker 2>spend one hundred and five billion dollars in capital expenditures

0:12:48.120 --> 0:12:50.680
<v Speaker 2>this year, will make five billion dollars in AI in

0:12:50.720 --> 0:12:53.040
<v Speaker 2>twenty twenty five, rising and I quote as much as

0:12:53.040 --> 0:12:55.880
<v Speaker 2>eighty percent, suggesting that Amazon might have made a measly

0:12:55.880 --> 0:12:58.319
<v Speaker 2>two point seven seven billion dollars in twenty twenty four

0:12:58.360 --> 0:13:00.559
<v Speaker 2>on AI in a year when it's spent eighty three

0:13:00.640 --> 0:13:04.400
<v Speaker 2>billion dollars in capital expenditures, and last year, Amazon CEO

0:13:04.480 --> 0:13:07.360
<v Speaker 2>Andy Jesse said that and I quote, AI represents for

0:13:07.400 --> 0:13:09.800
<v Speaker 2>sure the biggest opportunity since cloud and probably the biggest

0:13:09.840 --> 0:13:13.320
<v Speaker 2>technologies shift an opportunity in business since the Internet. I

0:13:13.360 --> 0:13:16.280
<v Speaker 2>personally think he is full of shit. And it's a

0:13:16.320 --> 0:13:19.000
<v Speaker 2>similar story over with Google, which plans to spend seventy

0:13:19.040 --> 0:13:22.920
<v Speaker 2>five billion dollars in capex twenty twenty five. Bank of

0:13:22.960 --> 0:13:25.720
<v Speaker 2>America analysts justin Post estimated a few weeks ago that

0:13:25.760 --> 0:13:27.840
<v Speaker 2>Google's AI revenue would be in the region of seven

0:13:27.840 --> 0:13:30.880
<v Speaker 2>point seven billion dollars, though his math, if I'm honest,

0:13:31.000 --> 0:13:33.520
<v Speaker 2>is a little generous because it includes subscribers to packages

0:13:33.559 --> 0:13:35.080
<v Speaker 2>that include a lot of non AI staff.

0:13:35.120 --> 0:13:35.280
<v Speaker 3>Two.

0:13:36.000 --> 0:13:40.320
<v Speaker 2>Google's one subscription includes increased cloud storage across Google Drive, Gmail,

0:13:40.320 --> 0:13:42.800
<v Speaker 2>and Google Photos, and added a twenty dollars a month

0:13:42.840 --> 0:13:46.760
<v Speaker 2>premium plan in February twenty twenty four that included access

0:13:46.800 --> 0:13:50.440
<v Speaker 2>to Google's various AI models. Google's claim that the premium

0:13:50.480 --> 0:13:52.520
<v Speaker 2>AI tier accounts some millions of the one hundred and

0:13:52.559 --> 0:13:55.679
<v Speaker 2>fifty million subscribers to Google one, though how many millions

0:13:55.720 --> 0:13:58.640
<v Speaker 2>is impossible to estimate That one would stop me trying, though,

0:13:58.840 --> 0:14:01.200
<v Speaker 2>Assuming the three point one billion dollars in twenty twenty

0:14:01.240 --> 0:14:03.520
<v Speaker 2>five revenue would work out to two hundred and fifty

0:14:03.520 --> 0:14:05.240
<v Speaker 2>eight million dollars a month, that would mean there were

0:14:05.320 --> 0:14:08.560
<v Speaker 2>twelve point nine million Google one subscribers also paying for

0:14:08.600 --> 0:14:11.800
<v Speaker 2>the premium Ai tier. This isn't out of the realm

0:14:11.880 --> 0:14:15.000
<v Speaker 2>of possibility, after all, Open ai has like fifteen point

0:14:15.080 --> 0:14:17.960
<v Speaker 2>five million paying subscribers, but post is making in a

0:14:18.320 --> 0:14:21.520
<v Speaker 2>kind of a generous assumption here. Nevertheless, well accept the

0:14:21.600 --> 0:14:25.080
<v Speaker 2>numbers as they are, because they fucking stink. Google's one

0:14:25.080 --> 0:14:28.760
<v Speaker 2>point one billion dollar in workspace revenue came from a

0:14:28.800 --> 0:14:31.640
<v Speaker 2>forced price hike on those who use Google services to

0:14:31.680 --> 0:14:34.760
<v Speaker 2>run their businesses. My ass included meaning that it's not

0:14:34.920 --> 0:14:37.200
<v Speaker 2>likely a number that they can significantly increase in the

0:14:37.200 --> 0:14:39.680
<v Speaker 2>future because it was just raising the rent on everyone.

0:14:40.000 --> 0:14:42.840
<v Speaker 2>And that's seven point seven billion dollars of revenue, not

0:14:42.960 --> 0:14:47.360
<v Speaker 2>profit on seventy five billion dollars of capital expenditures. Very nasty.

0:14:48.080 --> 0:14:50.680
<v Speaker 2>But let's move on to one of my faves, Meta,

0:14:50.760 --> 0:14:53.560
<v Speaker 2>which plans to spend seventy two billion dollars in twenty

0:14:53.600 --> 0:14:56.160
<v Speaker 2>twenty five. Someone's going to get mad at me for

0:14:56.240 --> 0:14:58.640
<v Speaker 2>saying this, But I believe that Meta is simply burning

0:14:58.720 --> 0:15:02.240
<v Speaker 2>cash on generative. There is no product the Meta sells

0:15:02.280 --> 0:15:05.560
<v Speaker 2>that monetizes large language buddles that I can tell at least,

0:15:05.560 --> 0:15:08.520
<v Speaker 2>But every Meta product now has them kind of shoved

0:15:08.520 --> 0:15:11.680
<v Speaker 2>in there. Year Instagram dms oinking at you to generate

0:15:11.800 --> 0:15:17.120
<v Speaker 2>artwork based in your conversation. Nevertheless, they do make some money, allegedly,

0:15:17.160 --> 0:15:19.120
<v Speaker 2>and we do have some sort of knowledge of what

0:15:19.280 --> 0:15:22.520
<v Speaker 2>Meta is saying they make due to a copyright infringement

0:15:22.600 --> 0:15:26.520
<v Speaker 2>case cardre versus Meta on sealed judgment briefs revealed in

0:15:26.560 --> 0:15:29.280
<v Speaker 2>April that Meta is claiming that Jenai driven revenue will

0:15:29.320 --> 0:15:31.160
<v Speaker 2>be more than two billion dollars in this year, with

0:15:31.320 --> 0:15:34.600
<v Speaker 2>estimates as high as three billion dollars. The same document

0:15:34.640 --> 0:15:36.840
<v Speaker 2>also claims that Meta expects to make four hundred and

0:15:36.920 --> 0:15:39.520
<v Speaker 2>sixty billion to one point four trillion dollars in total

0:15:39.560 --> 0:15:43.040
<v Speaker 2>revenue through twenty thirty five. And this is from Ai,

0:15:43.120 --> 0:15:45.040
<v Speaker 2>by the way, And this is the kind of thing

0:15:45.120 --> 0:15:47.120
<v Speaker 2>that should have you wrenched out of them. But you

0:15:47.120 --> 0:15:49.520
<v Speaker 2>should your key God should stop working when the words

0:15:49.600 --> 0:15:52.480
<v Speaker 2>leave your mouth because Meta makes ninety nine percent of

0:15:52.480 --> 0:15:55.200
<v Speaker 2>its revenue from advertising, and the unsealed documents state that

0:15:55.280 --> 0:15:58.240
<v Speaker 2>it generates from its Larmer models and will continue earning

0:15:58.280 --> 0:16:01.120
<v Speaker 2>revenue from each iteration and share percentage of the revenue

0:16:01.120 --> 0:16:03.520
<v Speaker 2>it generates from users of the Lama models hosted by

0:16:03.600 --> 0:16:07.160
<v Speaker 2>those companies. But the companies in question redacted. Mister Max

0:16:07.240 --> 0:16:10.800
<v Speaker 2>Zeph of tech runchads that metaalist host partners like Amazon

0:16:10.840 --> 0:16:15.000
<v Speaker 2>Web Services and Video Data Breaks, Grock Dell, Microsoft, as Yure,

0:16:15.080 --> 0:16:17.880
<v Speaker 2>Google Cloud, and Snowflake, so it's possible that Meta makes

0:16:18.040 --> 0:16:22.520
<v Speaker 2>money licensing to those companies. Sadly, the exhibits further discussing

0:16:22.560 --> 0:16:25.440
<v Speaker 2>these numbers are filed on the seal and also their

0:16:25.520 --> 0:16:29.680
<v Speaker 2>large language model is open source. What service is Meta providing?

0:16:29.960 --> 0:16:32.560
<v Speaker 2>Are these companies so goddamn lazy that they need Meta

0:16:32.600 --> 0:16:36.640
<v Speaker 2>to come in and set up the fruit? And Jesus Christ,

0:16:36.880 --> 0:16:39.120
<v Speaker 2>Jesus Christ, when I read these numbers, I just when

0:16:39.160 --> 0:16:42.400
<v Speaker 2>I read about these people who drive me a little insane.

0:16:42.800 --> 0:16:44.880
<v Speaker 2>Either way, we are now at three hundred and thirty

0:16:44.880 --> 0:16:47.560
<v Speaker 2>two billion dollars of capital expenditures in twenty twenty five.

0:16:47.600 --> 0:16:49.800
<v Speaker 2>For twenty eight point seven billion dollars of revenue, off

0:16:49.800 --> 0:16:51.880
<v Speaker 2>which ten billion dollars of it is open AI is

0:16:51.920 --> 0:16:55.360
<v Speaker 2>at cost or just above cost. Revenue not great. Then

0:16:55.400 --> 0:16:58.320
<v Speaker 2>there's Tesla, which doesn't appear to make money from generative

0:16:58.360 --> 0:17:00.760
<v Speaker 2>AI and plans to spend eleven billion dollars on capex

0:17:00.760 --> 0:17:04.399
<v Speaker 2>in twenty twenty five. Despite its media prominence in the

0:17:04.440 --> 0:17:06.720
<v Speaker 2>Magnificent seven. At least, Tesla is one of the least

0:17:06.760 --> 0:17:09.600
<v Speaker 2>exposed companies of mag seven to the AI trade, as

0:17:09.600 --> 0:17:12.080
<v Speaker 2>Elon Musk has turned it into a memestock company where

0:17:12.119 --> 0:17:14.920
<v Speaker 2>what they do doesn't really matter. That doesn't mean, of course,

0:17:14.960 --> 0:17:17.760
<v Speaker 2>that Musk isn't touching AI. The XAI, the company that

0:17:17.840 --> 0:17:20.760
<v Speaker 2>develops racist large language model grok and owns what remains

0:17:20.760 --> 0:17:23.439
<v Speaker 2>of Twitter, apparently burns a billion dollars a month, and

0:17:23.480 --> 0:17:25.960
<v Speaker 2>The Information reports that it makes a whopping hundred million

0:17:26.000 --> 0:17:28.800
<v Speaker 2>dollars of annualized revenue, so about eight point three three

0:17:28.880 --> 0:17:32.159
<v Speaker 2>million dollars a month. Now there's a shareholder vote for

0:17:32.200 --> 0:17:35.280
<v Speaker 2>Tesla to potentially invest in Xai, which will probably happen,

0:17:35.320 --> 0:17:37.560
<v Speaker 2>allowing Musk to continue to pull leverage from his Tesla

0:17:37.600 --> 0:17:41.560
<v Speaker 2>stock until the company's decaying sales and brand eventually swallow

0:17:41.640 --> 0:17:45.080
<v Speaker 2>him whole. But we're not talking about Elon Musk today.

0:17:45.840 --> 0:17:48.880
<v Speaker 2>We are not. We have to talk about Apple now,

0:17:48.920 --> 0:17:51.880
<v Speaker 2>and honestly, they're the least interesting part of this story.

0:17:52.080 --> 0:17:54.800
<v Speaker 2>Their capital expensures in twenty twenty five are expected to

0:17:54.840 --> 0:17:57.399
<v Speaker 2>also be around eleven billion dollars, and they arguably have

0:17:57.480 --> 0:18:00.760
<v Speaker 2>the weirdest AI story in the mag of Since seven,

0:18:01.480 --> 0:18:04.800
<v Speaker 2>Apple intelligence radicalized millions of people against AI, mostly because

0:18:04.840 --> 0:18:08.040
<v Speaker 2>it fucking sucks. Apple clearly got into AI reluctantly and

0:18:08.080 --> 0:18:11.159
<v Speaker 2>now faces stories about how they feel left behind in

0:18:11.200 --> 0:18:14.280
<v Speaker 2>the AI race, which mostly means that Apple aggressively introduce

0:18:14.359 --> 0:18:17.640
<v Speaker 2>people to the actual features of generative AI by force,

0:18:17.720 --> 0:18:19.200
<v Speaker 2>and it turns out that people don't really want to

0:18:19.200 --> 0:18:22.800
<v Speaker 2>summarize documents, or write emails or make custom emoji, and

0:18:22.840 --> 0:18:25.600
<v Speaker 2>anyone who thinks they would is a fucking alien. In

0:18:25.640 --> 0:18:27.560
<v Speaker 2>any case, Apple hasn't bet the farm on AI in

0:18:27.640 --> 0:18:30.080
<v Speaker 2>so much sit It hasn't spent two hundred billion dollars

0:18:30.119 --> 0:18:32.119
<v Speaker 2>in infrastructure for a product of the limited market that

0:18:32.200 --> 0:18:34.920
<v Speaker 2>only loses money. And again, if you want to give

0:18:34.920 --> 0:18:36.760
<v Speaker 2>me some money, I'm gonna put an ad break here.

0:18:37.200 --> 0:18:41.400
<v Speaker 2>So after this, whatever comes next buy it or don't

0:18:41.440 --> 0:18:43.320
<v Speaker 2>if you don't want to, but really you should. If

0:18:43.359 --> 0:18:46.000
<v Speaker 2>I'm speaking, if you hear my voice in the ad,

0:18:46.920 --> 0:18:49.239
<v Speaker 2>then you should buy it unless you don't want it.

0:19:05.000 --> 0:19:06.679
<v Speaker 2>And we're back now. I'm going to use a new

0:19:06.760 --> 0:19:09.520
<v Speaker 2>term I came up with that's really really bad. But

0:19:09.880 --> 0:19:13.240
<v Speaker 2>the fragile five I call them Amazon, Google, Microsoft, Meta,

0:19:13.280 --> 0:19:15.840
<v Speaker 2>and Tesla, the ones investing all the money in the GPUs,

0:19:16.000 --> 0:19:18.000
<v Speaker 2>are holding up the US stock market by funding in

0:19:18.080 --> 0:19:21.399
<v Speaker 2>Vidia's future growth story. And this is really the first

0:19:21.400 --> 0:19:23.960
<v Speaker 2>big takeaway I want you to take from this three parter.

0:19:24.480 --> 0:19:25.920
<v Speaker 2>To be clear, I'm not saying that any of the

0:19:25.960 --> 0:19:28.159
<v Speaker 2>mag seven are going to die, just that five companies

0:19:28.160 --> 0:19:30.680
<v Speaker 2>spend on in Vidio GPUs largely dictate our state of

0:19:30.720 --> 0:19:33.720
<v Speaker 2>the US stock market will be If any of these companies,

0:19:33.760 --> 0:19:35.800
<v Speaker 2>but especially in Vidia, sneeze, you four O one K

0:19:35.920 --> 0:19:38.160
<v Speaker 2>and your kid's college fund will probably catch a cold.

0:19:39.359 --> 0:19:42.640
<v Speaker 2>I realized this sounds a little simplistic, but by my calculations,

0:19:42.840 --> 0:19:45.240
<v Speaker 2>in Vidia's value underpins about eight percent of the value

0:19:45.280 --> 0:19:47.520
<v Speaker 2>of the US stock market. At the time of writing,

0:19:47.680 --> 0:19:49.760
<v Speaker 2>it accounts for roughly seven point five percent of the

0:19:49.800 --> 0:19:51.840
<v Speaker 2>S and P five hundred an index of the five

0:19:51.920 --> 0:19:56.080
<v Speaker 2>hundred largest US publicly traded companies are disturbing eighty eight percent.

0:19:56.119 --> 0:19:58.560
<v Speaker 2>As I mentioned, of in Vidia's revenue comes from enterprise

0:19:58.600 --> 0:20:01.960
<v Speaker 2>scale GPUs, primarily US for Generative AI, of which five

0:20:02.000 --> 0:20:05.400
<v Speaker 2>companies spend, makes up over forty two percent of its revenue.

0:20:05.520 --> 0:20:07.560
<v Speaker 2>In the event that any one of these companies makes

0:20:07.560 --> 0:20:10.639
<v Speaker 2>significant changes to their investments and in video chips, it

0:20:10.640 --> 0:20:13.320
<v Speaker 2>will likely have a direct and meaningful negative impact on

0:20:13.359 --> 0:20:17.240
<v Speaker 2>the wider economy and markets. In Vidia's earnings are effectively

0:20:17.280 --> 0:20:20.480
<v Speaker 2>the US stock market's confidence and everything rides on five companies.

0:20:20.720 --> 0:20:23.280
<v Speaker 2>And if we're honest, here really four companies. This tesla

0:20:23.359 --> 0:20:26.960
<v Speaker 2>is point nine percent of the investment in GPUs of

0:20:27.000 --> 0:20:30.880
<v Speaker 2>those five companies buying GPUs for Generative AI to train

0:20:30.960 --> 0:20:34.480
<v Speaker 2>at generative AI models were still these services while losing.

0:20:34.520 --> 0:20:38.480
<v Speaker 2>These companies' massive amounts of money don't really produce much revenue,

0:20:38.520 --> 0:20:40.920
<v Speaker 2>meaning that the AI trade is not driven by any

0:20:40.960 --> 0:20:42.639
<v Speaker 2>real meaningful revenue growth.

0:20:43.080 --> 0:20:46.240
<v Speaker 3>But d it hid they said?

0:20:46.480 --> 0:20:51.080
<v Speaker 2>They said, points of growth? Silence, quiet, nothing more out

0:20:51.160 --> 0:20:54.120
<v Speaker 2>of you any of these companies talking about growth from

0:20:54.119 --> 0:20:56.200
<v Speaker 2>AI or the jobs that AI will replace, or how

0:20:56.280 --> 0:20:59.639
<v Speaker 2>AI has changed their organization are handwaiving to avoid telling

0:20:59.680 --> 0:21:02.440
<v Speaker 2>you how how much money these services are actually making them.

0:21:02.680 --> 0:21:05.040
<v Speaker 2>If they were making good money and experiencing real growth

0:21:05.040 --> 0:21:07.200
<v Speaker 2>as a result of AI, they wouldn't shut the fuck

0:21:07.280 --> 0:21:08.879
<v Speaker 2>up about it. They'd be in your ear and up

0:21:08.880 --> 0:21:10.879
<v Speaker 2>your ass, hooting and hollering about how much cash they

0:21:10.920 --> 0:21:13.359
<v Speaker 2>were rolling in. And they're not because they're not rolling

0:21:13.359 --> 0:21:15.320
<v Speaker 2>in cash and are in fact blowing nearly one hundred

0:21:15.320 --> 0:21:17.960
<v Speaker 2>billion dollars each to build massive, power hungry, costly data

0:21:18.000 --> 0:21:21.720
<v Speaker 2>centers for no real reason. Don't watch the mouth, watch

0:21:21.840 --> 0:21:24.600
<v Speaker 2>the hands. These companies are going to say they're seeing

0:21:24.600 --> 0:21:26.760
<v Speaker 2>growth from AI, but unless they actually show you the

0:21:26.760 --> 0:21:30.240
<v Speaker 2>growth and enumerate it, they are kind of lying. They're

0:21:30.280 --> 0:21:31.600
<v Speaker 2>lying in the way that you're allowed to.

0:21:32.000 --> 0:21:35.360
<v Speaker 3>But it Hey, Amazon Web Services took years to become profitable.

0:21:35.359 --> 0:21:38.159
<v Speaker 3>People said Amazon would fail. So this is one of

0:21:38.160 --> 0:21:41.280
<v Speaker 3>the most annoying and consistent responses to my work, and

0:21:41.320 --> 0:21:43.800
<v Speaker 3>it's when people say that either Amazon or Amazon Web

0:21:43.800 --> 0:21:46.280
<v Speaker 3>Services ran at a loss. In the Amazon Web Services,

0:21:46.320 --> 0:21:49.159
<v Speaker 3>which pretty much was the invention of modern mass market

0:21:49.200 --> 0:21:53.240
<v Speaker 3>cloud compute infrastructure for running stuff on the cloud, lost money.

0:21:52.960 --> 0:21:56.560
<v Speaker 2>And then didn't. Here's the thing, this statement is one

0:21:56.560 --> 0:21:58.880
<v Speaker 2>of the things that people say because it sounds rational.

0:21:58.960 --> 0:22:02.680
<v Speaker 2>Amazon did lose mone and Amazon Web Services was expensive.

0:22:02.720 --> 0:22:05.880
<v Speaker 2>That's right, right, it's obvious. Right. The thing is, I've

0:22:05.880 --> 0:22:07.840
<v Speaker 2>never really had anyone explain this point to me, so

0:22:07.960 --> 0:22:10.240
<v Speaker 2>I finally sat down. I'm going to deal with this

0:22:10.320 --> 0:22:12.919
<v Speaker 2>criticism because every fucking person who manages it thinks they

0:22:13.000 --> 0:22:15.560
<v Speaker 2>just bulled Excaliper from the stone and can now decapitate me.

0:22:16.320 --> 0:22:19.000
<v Speaker 2>They claim that because people in the past doubted Amazon

0:22:19.040 --> 0:22:20.760
<v Speaker 2>because are in addition to the burn rate of the

0:22:20.760 --> 0:22:24.639
<v Speaker 2>AWS systems as the company built out its infrastructure, that

0:22:24.760 --> 0:22:27.719
<v Speaker 2>I too, am wrong because the analysts were wrong about that.

0:22:28.000 --> 0:22:31.320
<v Speaker 2>This isn't Camelot, You're a rube. You are not King Arthur.

0:22:32.160 --> 0:22:34.399
<v Speaker 2>And now I will address both the argument itself and

0:22:34.440 --> 0:22:36.560
<v Speaker 2>the day part of it too, because if the argument

0:22:36.600 --> 0:22:38.880
<v Speaker 2>is that the people who got Amazon Web Services wrong

0:22:38.880 --> 0:22:41.000
<v Speaker 2>should not be trusted and we should no longer trust them,

0:22:41.240 --> 0:22:45.600
<v Speaker 2>the people who actively propagate and dies something wrong, we

0:22:45.640 --> 0:22:50.320
<v Speaker 2>shouldn't trust them, right right, Well, you'll never guess who's

0:22:50.520 --> 0:22:53.240
<v Speaker 2>now saying AI is good. Oh, I'm going to get there,

0:22:53.280 --> 0:22:56.640
<v Speaker 2>don't you flip and worry? Well, if I'm honest, I'm

0:22:56.640 --> 0:22:59.159
<v Speaker 2>not sure where this argument came from, because there is,

0:22:59.200 --> 0:23:01.720
<v Speaker 2>to my knowledge, no story about Amazon Web Services where

0:23:01.760 --> 0:23:05.640
<v Speaker 2>somebody suggests its burn rate would kill Amazon. But I'm

0:23:05.680 --> 0:23:09.360
<v Speaker 2>a curious little creator, so let's start with an obvious one,

0:23:09.400 --> 0:23:11.119
<v Speaker 2>the obvious point. I want to give a shout out

0:23:11.160 --> 0:23:13.000
<v Speaker 2>to Harry mccrack and a fast company for bringing this

0:23:13.000 --> 0:23:15.880
<v Speaker 2>one up to me. It May May thirty first, ninety

0:23:15.960 --> 0:23:17.960
<v Speaker 2>ninety nine, there was a piece that everybody is thinking

0:23:18.000 --> 0:23:21.280
<v Speaker 2>of called Amazon dot bom and the writer Jacqueline Doherty

0:23:21.400 --> 0:23:23.960
<v Speaker 2>was mocked soundly for being wrong about Amazon, which has

0:23:24.040 --> 0:23:26.400
<v Speaker 2>now become quite profitable. The article, along with the other

0:23:26.480 --> 0:23:28.679
<v Speaker 2>sources that form the basis of this episode, are going

0:23:28.680 --> 0:23:31.560
<v Speaker 2>to be linked in the spreadsheet, and as a as

0:23:31.600 --> 0:23:34.159
<v Speaker 2>a surprise, I'll actually up later. I also want to

0:23:34.200 --> 0:23:36.480
<v Speaker 2>be clear that Amazon Web Services did not launch until

0:23:36.480 --> 0:23:39.360
<v Speaker 2>two thousand and six, and Amazon itself would become reliably

0:23:39.359 --> 0:23:43.280
<v Speaker 2>profitable in two thousand and three. Technically, Amazon had opened

0:23:43.359 --> 0:23:46.600
<v Speaker 2>up Amazon dot COM's web services for developers to incorporate

0:23:46.600 --> 0:23:49.200
<v Speaker 2>Amazon content into their applications in two thousand and two,

0:23:49.240 --> 0:23:52.520
<v Speaker 2>but what we consider Amazon web Services today, cloud storage

0:23:52.560 --> 0:23:55.680
<v Speaker 2>and compute, launched in two thousand and six. But okay,

0:23:56.160 --> 0:23:58.960
<v Speaker 2>fancy pans, what did she actually say? We quote Doherty.

0:23:59.480 --> 0:24:02.040
<v Speaker 2>Unfortunately for Bezos, Amazon is now entering a stage in

0:24:02.040 --> 0:24:04.040
<v Speaker 2>which investors will be less willing to rely on its

0:24:04.080 --> 0:24:06.760
<v Speaker 2>charisma and more demand advances to tough questions like when

0:24:06.800 --> 0:24:09.080
<v Speaker 2>will this company actually turn a profit? And how will

0:24:09.119 --> 0:24:11.200
<v Speaker 2>Amazon triumph over a slew of new competitors who have

0:24:11.280 --> 0:24:14.000
<v Speaker 2>deep pockets and new technologies. Who tried to ask Bezerz,

0:24:14.040 --> 0:24:16.120
<v Speaker 2>but he declined to make himself for any other executives

0:24:16.160 --> 0:24:18.840
<v Speaker 2>of the company available. He could ignore barons, but he

0:24:18.840 --> 0:24:21.840
<v Speaker 2>can't ignore the questions. Bang a line, by the way,

0:24:22.200 --> 0:24:24.600
<v Speaker 2>Amazon last year posted a loss of one hundred and

0:24:24.600 --> 0:24:26.560
<v Speaker 2>twenty five million dollars, which is about two hundred and

0:24:26.600 --> 0:24:29.520
<v Speaker 2>forty two point six million today's money on revenues of

0:24:29.560 --> 0:24:31.560
<v Speaker 2>six hundred and ten millions to about one point one

0:24:31.640 --> 0:24:34.359
<v Speaker 2>eight three billion dollars in today's money, and then this

0:24:34.760 --> 0:24:37.760
<v Speaker 2>year's first quarter referring of course, to nineteen ninety nine,

0:24:37.880 --> 0:24:39.760
<v Speaker 2>as the company posted a loss of sixty one point

0:24:39.800 --> 0:24:41.720
<v Speaker 2>seven million, which is one hundred and nineteen point seventy

0:24:41.720 --> 0:24:44.000
<v Speaker 2>five million today's money on revenues of two hundred and

0:24:44.040 --> 0:24:46.240
<v Speaker 2>ninety three point six million, five hundred and sixty nine

0:24:46.240 --> 0:24:48.919
<v Speaker 2>point eight two million dollars in today's money. I realized

0:24:48.920 --> 0:24:51.720
<v Speaker 2>that was a real motherfucker of a quote, but it's necessary.

0:24:52.000 --> 0:24:54.040
<v Speaker 2>Her argument, for the most part is that Amazon was

0:24:54.160 --> 0:24:56.239
<v Speaker 2>burning cash and had a ton of competition from other

0:24:56.240 --> 0:24:58.679
<v Speaker 2>people doing similar things, and that analysts backed her up,

0:24:58.680 --> 0:25:01.440
<v Speaker 2>and they really did. By the way, again, I quote

0:25:01.680 --> 0:25:03.960
<v Speaker 2>the first mover does not always win the importance of

0:25:04.000 --> 0:25:05.840
<v Speaker 2>being first as a mantra in the internet world, but

0:25:05.880 --> 0:25:08.520
<v Speaker 2>it's wrong. The ones that the most efficient will be successful,

0:25:08.560 --> 0:25:11.800
<v Speaker 2>says one retail analyst. In retailing, anyone can build a

0:25:11.800 --> 0:25:13.880
<v Speaker 2>great looking store. The hard part is building a great

0:25:13.920 --> 0:25:16.840
<v Speaker 2>looking store that makes money, which is a good point

0:25:18.000 --> 0:25:21.280
<v Speaker 2>fair arguments for the time, though perhaps a little narrow minded.

0:25:21.320 --> 0:25:23.560
<v Speaker 2>The assumption wasn't what Amazon was building, and we are,

0:25:23.600 --> 0:25:25.760
<v Speaker 2>by the way, are referring to Amazon dot com. The

0:25:25.920 --> 0:25:28.800
<v Speaker 2>store was a bad idea, but the Amazon wouldn't be

0:25:28.840 --> 0:25:31.680
<v Speaker 2>the ones to build it. And again we quote. Once

0:25:31.720 --> 0:25:34.200
<v Speaker 2>Walmart decides to go after Amazon, there's no contest. The

0:25:34.800 --> 0:25:38.960
<v Speaker 2>Barnard President Bernard's Retail Trend report. Walmart has the resources

0:25:38.960 --> 0:25:42.640
<v Speaker 2>that Amazon can't even dream about, which is true at

0:25:42.640 --> 0:25:46.399
<v Speaker 2>the time, but in simpler terms, Amazon's business model was

0:25:46.440 --> 0:25:48.920
<v Speaker 2>not in question. People were buying shit online. In fact,

0:25:49.000 --> 0:25:51.080
<v Speaker 2>this was just before the dot com bubble burst, when

0:25:51.080 --> 0:25:53.440
<v Speaker 2>people had insane optimism about the future of the web.

0:25:53.760 --> 0:25:56.720
<v Speaker 2>Yet the comparison stops there. People obviously like buying shit online.

0:25:56.760 --> 0:25:58.480
<v Speaker 2>It was the business models of many of these web

0:25:58.560 --> 0:26:01.879
<v Speaker 2>pioneers that sucked at Year WEBVAM. But we're going to

0:26:01.880 --> 0:26:04.679
<v Speaker 2>talk about Amazon Web Services and the less technical of you.

0:26:05.000 --> 0:26:08.439
<v Speaker 2>I want to explain something. AWS is a really important company.

0:26:08.440 --> 0:26:10.720
<v Speaker 2>I'll kind of get into those details. But people like

0:26:10.800 --> 0:26:13.040
<v Speaker 2>to argue about it and say, well, it lost a

0:26:13.040 --> 0:26:16.440
<v Speaker 2>bunch of money, so you know that means that generative

0:26:16.480 --> 0:26:17.840
<v Speaker 2>a I should lose a bunch of money to and

0:26:17.880 --> 0:26:21.080
<v Speaker 2>that's how it works. I'm going to substantively and repeatedly

0:26:21.119 --> 0:26:24.480
<v Speaker 2>explain why that is so goddamn stupid. I'm sick of

0:26:24.480 --> 0:26:29.359
<v Speaker 2>the argument. I'm sick of it. Breathe Edward, breathe. They

0:26:29.400 --> 0:26:34.439
<v Speaker 2>can't get you behind the microphone, okay. Amazon Web Services

0:26:34.600 --> 0:26:37.119
<v Speaker 2>was an outgrowth of Amazon's own infrastructure, which had to

0:26:37.160 --> 0:26:39.439
<v Speaker 2>expand rapidly to deal with the influx of web traffic

0:26:39.440 --> 0:26:41.399
<v Speaker 2>from Amazon Dot Com, which had become one of the

0:26:41.400 --> 0:26:44.320
<v Speaker 2>world's most popular websites and was becoming increasingly more complex

0:26:44.359 --> 0:26:47.240
<v Speaker 2>as it sold things other than books to multiple international

0:26:47.280 --> 0:26:50.680
<v Speaker 2>locations as well. Other companies had created their own infrastructure,

0:26:50.680 --> 0:26:52.719
<v Speaker 2>but if a smaller company wanted to scale, they basically

0:26:52.800 --> 0:26:54.960
<v Speaker 2>needed to build their own thing. It was a massive

0:26:55.040 --> 0:26:58.760
<v Speaker 2>barrier between companies and building web services. And it's actually

0:26:58.920 --> 0:27:01.360
<v Speaker 2>kind of cool what Amazon did. I hate to look

0:27:01.440 --> 0:27:04.359
<v Speaker 2>Rosie I bind rose colored lenses. I don't know the

0:27:04.400 --> 0:27:08.080
<v Speaker 2>phrase that Jeff Bezos, but oh no, I remember this

0:27:08.160 --> 0:27:10.719
<v Speaker 2>was early two thousands, before Facebook, Twitter, and a lot

0:27:10.760 --> 0:27:14.000
<v Speaker 2>of modern internet we know that runs on services like

0:27:14.040 --> 0:27:17.359
<v Speaker 2>Amazon Web Services or Microsoft Zero or Google Cloud. They

0:27:17.400 --> 0:27:19.879
<v Speaker 2>basically invented the modern concept of cloud compume.

0:27:20.359 --> 0:27:21.280
<v Speaker 3>But we're bit to.

0:27:21.240 --> 0:27:24.639
<v Speaker 2>Talk about Amazon Web Services being dangerous for Amazon and

0:27:24.680 --> 0:27:28.000
<v Speaker 2>people hating on it the thing that allegedly happened, right.

0:27:28.920 --> 0:27:30.760
<v Speaker 2>I do hope all the people that said this to

0:27:30.800 --> 0:27:33.240
<v Speaker 2>me didn't just make it up. Oh my god, they did.

0:27:33.600 --> 0:27:36.040
<v Speaker 2>A November two thousand and six story from Bloomberg talked

0:27:36.040 --> 0:27:39.080
<v Speaker 2>about Jeff Bezos is risky bet to run your business

0:27:39.080 --> 0:27:41.880
<v Speaker 2>with the technology behind his website, saying that that wall

0:27:41.920 --> 0:27:44.840
<v Speaker 2>Street wanted him to mind the store. Bezos referred to

0:27:44.880 --> 0:27:46.879
<v Speaker 2>as a one time Internet poster boy that became a

0:27:46.960 --> 0:27:50.280
<v Speaker 2>post dot com pinata. Fuck, they were so good, but

0:27:50.600 --> 0:27:54.000
<v Speaker 2>where is this pisson vinegar? By the way, this is fun. Nevertheless,

0:27:54.080 --> 0:27:56.359
<v Speaker 2>this article, which again is linked in the spreadsheet for

0:27:56.359 --> 0:27:59.480
<v Speaker 2>the episode notes, has what I think my hater's crave

0:28:00.080 --> 0:28:02.840
<v Speaker 2>hmm and I quote. But if techies are wowed by

0:28:02.880 --> 0:28:05.679
<v Speaker 2>Bezoz's grand plan, it's not likely to win many converts

0:28:05.680 --> 0:28:08.399
<v Speaker 2>on Wall Street. To many observers, it conjures up the

0:28:08.400 --> 0:28:11.240
<v Speaker 2>ghost of Amazon past. During the dot com boom, Bezez

0:28:11.240 --> 0:28:13.720
<v Speaker 2>spent hundreds of millions of dollars to build distribution centers

0:28:13.720 --> 0:28:15.680
<v Speaker 2>and computer systems in the promise that they would eventually

0:28:15.720 --> 0:28:18.160
<v Speaker 2>pay off with outsize returns. That helps set the stage

0:28:18.160 --> 0:28:20.760
<v Speaker 2>of the world's biggest web retail operation, with expected sales

0:28:20.800 --> 0:28:24.880
<v Speaker 2>at ten point five billion dollars this year. All that

0:28:24.960 --> 0:28:27.840
<v Speaker 2>has investors, wrestlers, and many analysts throwing up their hands

0:28:27.880 --> 0:28:30.520
<v Speaker 2>wondering if Bezos is merely flailing around from an alternative

0:28:30.560 --> 0:28:33.639
<v Speaker 2>to his retail operation. Eleven of twenty seven analysts who

0:28:33.640 --> 0:28:36.320
<v Speaker 2>followed the company of under perform or sell ratings on

0:28:36.359 --> 0:28:39.680
<v Speaker 2>the stock a stunning vote of no confidence. That number

0:28:39.680 --> 0:28:43.000
<v Speaker 2>of cell recommendations is matched among large companies only by

0:28:43.080 --> 0:28:47.400
<v Speaker 2>Quest Communications International, Inc. According to investment consultants Starmind Corp.

0:28:47.880 --> 0:28:49.920
<v Speaker 2>It's more than even the eight cell options on the

0:28:49.960 --> 0:28:54.320
<v Speaker 2>struggling Ford Motor Company. Pretty bad, right, pretty bad. My

0:28:54.360 --> 0:28:57.400
<v Speaker 2>goose is cooked, all those analysts seem pretty bad, except

0:28:57.480 --> 0:28:59.880
<v Speaker 2>it's not. My goose is raw. Yours, however, has been

0:28:59.920 --> 0:29:01.880
<v Speaker 2>in the oven for over a year. As one on

0:29:02.040 --> 0:29:05.000
<v Speaker 2>as Scott W. Duvitt noted at the time, the direct

0:29:05.000 --> 0:29:09.840
<v Speaker 2>costs of providing Amazon Web services at first were miniscule

0:29:10.360 --> 0:29:13.600
<v Speaker 2>because much of the startup infrastructure already existed. It was

0:29:13.640 --> 0:29:18.040
<v Speaker 2>sur plus capacity, Amazon already owned, software Amazon already used,

0:29:18.040 --> 0:29:20.160
<v Speaker 2>and Amazon was in it for the long haul. It

0:29:20.240 --> 0:29:22.360
<v Speaker 2>knew that this would take some time before it became

0:29:22.400 --> 0:29:24.920
<v Speaker 2>a profitable business unit, as the company was basically scaling

0:29:24.960 --> 0:29:28.720
<v Speaker 2>up the infrastructure of the Internet. And by the way,

0:29:28.960 --> 0:29:31.600
<v Speaker 2>let's just go back to that quote here. The quote

0:29:31.680 --> 0:29:35.760
<v Speaker 2>says the costs were miniscule. The costs weren't the problem.

0:29:35.800 --> 0:29:39.360
<v Speaker 2>Hey wait a second, that's a name, Scott W. Duvit.

0:29:39.680 --> 0:29:41.440
<v Speaker 2>I can look him up. I wonder what he's up

0:29:41.480 --> 0:29:44.360
<v Speaker 2>to right now? Oh oh, looks like he's working at

0:29:44.400 --> 0:29:47.640
<v Speaker 2>web Bush as it's managing director of equity. Researcher has

0:29:47.720 --> 0:29:50.040
<v Speaker 2>said that AI companies would enter a new stage and

0:29:50.440 --> 0:29:53.720
<v Speaker 2>early twenty five he said, Oh oh God, just listen

0:29:53.760 --> 0:29:56.960
<v Speaker 2>to this. The second stage is the application phase of

0:29:57.000 --> 0:29:59.360
<v Speaker 2>the cycle, which would benefit software companies as well as

0:29:59.360 --> 0:30:01.640
<v Speaker 2>the cloud of I. And then phase three of this

0:30:01.760 --> 0:30:04.440
<v Speaker 2>will ultimately be the consumer facing companies figuring out how

0:30:04.440 --> 0:30:06.520
<v Speaker 2>to use the technology in ways that can actually drive

0:30:06.720 --> 0:30:10.040
<v Speaker 2>increased interactions with customers. The analyst says the market will

0:30:10.120 --> 0:30:12.640
<v Speaker 2>enter phase two in twenty twenty five, with software companies

0:30:12.640 --> 0:30:15.400
<v Speaker 2>and collaborvider stocks expected to see gains. He adds that

0:30:15.440 --> 0:30:20.640
<v Speaker 2>cybersecurity companies could also benefits the technology evolves. I know

0:30:20.720 --> 0:30:24.040
<v Speaker 2>I'm meant to be more mature, but it also calls

0:30:24.040 --> 0:30:27.840
<v Speaker 2>out Palenteer, Snowflake, and salesforces those who would gain. In

0:30:27.840 --> 0:30:29.440
<v Speaker 2>none of these cases am I able to see any

0:30:29.480 --> 0:30:32.720
<v Speaker 2>actual revenue from AI. Salesforce themselves cerid according to the

0:30:32.720 --> 0:30:35.080
<v Speaker 2>information that they'd see no revenue growth from AI in

0:30:35.120 --> 0:30:39.080
<v Speaker 2>twenty twenty five. Palenteer also has discovered by the Autonomy

0:30:39.080 --> 0:30:42.520
<v Speaker 2>Institute's recent study recently added the following to its public disclosures.

0:30:43.600 --> 0:30:46.200
<v Speaker 2>There are significant risks involved in deploying AI, and there

0:30:46.200 --> 0:30:48.400
<v Speaker 2>could be no assurance that using AI in our platforms

0:30:48.400 --> 0:30:51.320
<v Speaker 2>and products will enhance be beneficial to our business, including

0:30:51.320 --> 0:30:54.200
<v Speaker 2>our profitability. What I'm trying to say here is that

0:30:54.200 --> 0:30:56.240
<v Speaker 2>analysts can be wrong, and they could be wrong at scale.

0:30:56.280 --> 0:30:59.240
<v Speaker 2>There is no analyst consensus that agrees with me. In fact,

0:30:59.240 --> 0:31:02.040
<v Speaker 2>most analysts to be bullish and AI despite the significantly

0:31:02.080 --> 0:31:04.920
<v Speaker 2>worse costs and lack total lack of growth, but ed

0:31:05.240 --> 0:31:08.320
<v Speaker 2>ed Amazon Web Services cost money ahead. Now you should

0:31:08.320 --> 0:31:11.160
<v Speaker 2>meet your awn nice S tried chuckles. In twenty fifteen,

0:31:11.200 --> 0:31:14.200
<v Speaker 2>the year that Amazon Web Services became profitable, Morgan Stanley

0:31:14.240 --> 0:31:17.000
<v Speaker 2>analyst Catty Huberty believed that it was running and a

0:31:17.040 --> 0:31:19.960
<v Speaker 2>material loss, suggesting that the five point five billion dollars

0:31:20.000 --> 0:31:24.400
<v Speaker 2>of Amazon's technology and content expenses was actually AWS expenses

0:31:24.600 --> 0:31:27.040
<v Speaker 2>with a negative contribution of one point three billion dollars.

0:31:27.680 --> 0:31:30.080
<v Speaker 2>And by the way, want to know what she's up

0:31:30.080 --> 0:31:33.960
<v Speaker 2>to nowadays? I wanted to know because six months ago

0:31:34.080 --> 0:31:36.160
<v Speaker 2>she declared that twenty twenty five would be the year

0:31:36.200 --> 0:31:40.120
<v Speaker 2>of AGENTICAI robust they enterprise adoption and broadening AI winners.

0:31:40.800 --> 0:31:43.960
<v Speaker 2>So yes, analysts really got AWS wrong. But putting that aside,

0:31:43.960 --> 0:31:47.000
<v Speaker 2>there might actually be a comparison here. Amazon Web Services

0:31:47.080 --> 0:31:51.000
<v Speaker 2>absolutely created the capital expenditures drain on Amazon from Forbes's

0:31:51.040 --> 0:31:54.440
<v Speaker 2>Chuck Jones. In twenty fourteen, Amazon at four point nine

0:31:54.480 --> 0:31:57.000
<v Speaker 2>billion dollars in capital expenditures, up forty two percent from

0:31:57.000 --> 0:31:59.760
<v Speaker 2>twenty thirteen to three point four billion dollars. The company

0:31:59.800 --> 0:32:01.520
<v Speaker 2>is a wide range of items that it buys the

0:32:01.520 --> 0:32:04.480
<v Speaker 2>support and grow its businesses, ranging from warehouses, robots, and

0:32:04.480 --> 0:32:08.000
<v Speaker 2>computer systems for its core retail business and AAWS. Well,

0:32:08.000 --> 0:32:11.520
<v Speaker 2>I don't expect Amazon to detail how much goes to AWS.

0:32:11.560 --> 0:32:14.240
<v Speaker 2>I suspect it is a decent percentage, which means Amazon

0:32:14.880 --> 0:32:18.960
<v Speaker 2>needs to generate appropriate returns on the capitol deployed from AWS.

0:32:19.400 --> 0:32:21.720
<v Speaker 2>In today's money, this means that Amazon spent six point

0:32:21.760 --> 0:32:25.440
<v Speaker 2>seven billion dollars in capital expenditures in twenty fourteen, likely

0:32:25.480 --> 0:32:28.920
<v Speaker 2>on AWS, assuming it was this much every year. It wasn't,

0:32:28.960 --> 0:32:30.640
<v Speaker 2>but I want to make an example of every person

0:32:30.680 --> 0:32:33.000
<v Speaker 2>claiming that this is a gotcha. It took sixty seven

0:32:33.080 --> 0:32:35.880
<v Speaker 2>point six billion dollars, and that's in today's money, and

0:32:36.080 --> 0:32:39.520
<v Speaker 2>about nine or ten years of pure capital expenditures, even

0:32:39.560 --> 0:32:42.800
<v Speaker 2>though all that capex wasn't just AWS to turn Amazon

0:32:42.840 --> 0:32:45.360
<v Speaker 2>Web Services into a business that now makes billions of

0:32:45.440 --> 0:32:49.320
<v Speaker 2>dollars a quarter in profit. And that's fifteen point four

0:32:49.400 --> 0:32:52.840
<v Speaker 2>billion dollars less than Amazon's capex for twenty twenty four,

0:32:53.720 --> 0:32:56.680
<v Speaker 2>and even less than one hundred and five billion dollars

0:32:56.720 --> 0:32:59.360
<v Speaker 2>they spent this year. It's a fucking joke. And to

0:32:59.400 --> 0:33:02.400
<v Speaker 2>be clear, the actual capital expension numbers are like the

0:33:02.520 --> 0:33:06.720
<v Speaker 2>AWS cost in totality, we're likely much lower. I just

0:33:06.760 --> 0:33:09.160
<v Speaker 2>want to make it clear that even when factoring in inflation,

0:33:09.280 --> 0:33:12.320
<v Speaker 2>AWS was a a bargain and b a fraction of

0:33:12.360 --> 0:33:14.560
<v Speaker 2>the cost of what Amazon is spent in twenty twenty

0:33:14.560 --> 0:33:18.320
<v Speaker 2>four or twenty twenty five. Here's a funny little thing.

0:33:18.440 --> 0:33:21.480
<v Speaker 2>On March thirtieth, twenty fifteen, New York Magazine published a

0:33:21.480 --> 0:33:24.160
<v Speaker 2>piece from none other than mister Kevin Ruse about the

0:33:24.160 --> 0:33:27.000
<v Speaker 2>cloud compute wars, in which he claimed that, and I quote,

0:33:27.640 --> 0:33:29.640
<v Speaker 2>there's no reason to suspect that Amazon would ever need

0:33:29.680 --> 0:33:32.120
<v Speaker 2>to raise prices in AWS or turn the fabled profits

0:33:32.120 --> 0:33:35.080
<v Speaker 2>which the pundits have been speculating about for years less

0:33:35.080 --> 0:33:37.760
<v Speaker 2>than a month later, Amazon revealed that Amazon Web Services

0:33:37.800 --> 0:33:40.280
<v Speaker 2>was profitable. They don't call him the most right man

0:33:40.320 --> 0:33:42.840
<v Speaker 2>in tech journalism for nothing. I think it's so funny

0:33:42.880 --> 0:33:45.000
<v Speaker 2>when you go back and read all of Kevin Rus's stuff,

0:33:45.160 --> 0:33:47.880
<v Speaker 2>how many just like rates he steps on, and how

0:33:48.440 --> 0:33:50.560
<v Speaker 2>quickly they whammy him in the face, and how no

0:33:51.520 --> 0:33:55.800
<v Speaker 2>body says anything. I'm saying something. But here's the good news.

0:33:55.840 --> 0:33:58.200
<v Speaker 2>We're at the end of this first part. Next episode,

0:33:58.200 --> 0:34:00.880
<v Speaker 2>we're going to continue exploring the comparison in AWS and

0:34:00.920 --> 0:34:03.719
<v Speaker 2>general of AI and talk about why that comparison fundamentally

0:34:03.720 --> 0:34:07.080
<v Speaker 2>doesn't work and why everything's cry the bripple. I'll catch

0:34:07.120 --> 0:34:08.200
<v Speaker 2>you on the flip side.

0:34:08.239 --> 0:34:19.200
<v Speaker 1>Thanks for listening, Thank you for listening to Better Offline.

0:34:19.320 --> 0:34:21.719
<v Speaker 4>The editor and composer of the Better Offline theme song

0:34:21.800 --> 0:34:24.439
<v Speaker 4>is Metasowski. You can check out more of his music

0:34:24.480 --> 0:34:28.120
<v Speaker 4>and audio projects at Matasowski dot com, M A T

0:34:28.120 --> 0:34:32.600
<v Speaker 4>T O, S O W s ki dot com. You

0:34:32.600 --> 0:34:35.120
<v Speaker 4>can email me at easy at Better Offline dot com,

0:34:35.239 --> 0:34:37.560
<v Speaker 4>or visit Better Offline dot com to find more podcast

0:34:37.600 --> 0:34:40.920
<v Speaker 4>links and of course, my newsletter. I also really recommend

0:34:40.960 --> 0:34:42.880
<v Speaker 4>you go to chat dot Where's Youreed dot at to

0:34:42.960 --> 0:34:45.560
<v Speaker 4>visit the discord and go to our slash Better.

0:34:45.280 --> 0:34:48.480
<v Speaker 1>Offline to check out our reddit. Thank you so much

0:34:48.480 --> 0:34:52.320
<v Speaker 1>for listening. Better Offline is a production of cool Zone Media.

0:34:52.480 --> 0:34:55.319
<v Speaker 2>For more from cool Zone Media, visit our website cool

0:34:55.360 --> 0:34:58.719
<v Speaker 2>zonemedia dot com, or check us out on the iHeartRadio app,

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<v Speaker 2>Apple Podcasts, whever you get your podcasts.