Speaker 1: Al Zone Media, give me that total next shirt, a
Speaker 1: tim pan apple, a German shepherd, a wristbandstand, and a
Speaker 1: lurching red bird and more brave than the Turning Network.
Speaker 1: This is your weekly Better Offline monologue, and I'm your
Speaker 1: host ed zetron. Now, before we go any further, I
Speaker 1: need your help. I look Better Offline is up for
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Speaker 1: realize it's a huge pain in the ass to sign
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Speaker 1: award in my life and I'd really appreciate it. Link
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Speaker 1: you're there, also vote for the wonderful Mollyconger's Weird Little Guys,
Speaker 1: which I'll also have a link to. I know signing
Speaker 1: up to stuff is annoying. I'm asking a lot from you,
Speaker 1: but there you go. I'm doing it anyway. To the monologue,
Speaker 1: I feel like we're approaching a choke point in the
Speaker 1: whole General v Ai bubble, the culmination of over a
Speaker 1: year of different narratives and pressures that I believe will
Speaker 1: lead to an ultimate collapse. Last week, open Ai released
Speaker 1: an image generator with GPT four to zero, which quickly
Speaker 1: gained massive attention for its ability to create images in
Speaker 1: the style of famed Japanese animation company Studio Ghibli. And
Speaker 1: to be clear, I think these images are an abomination
Speaker 1: and everyone involved in launching this tool has committed a
Speaker 1: mortal sin anyway. Nevertheless, creating these disgusting, disgraceful images comes
Speaker 1: at in incredibly high cost, and for the last week,
Speaker 1: open Ai CEO Sam Ortman has been complaining about their
Speaker 1: GPUs melting, leading to open ai having to limit free
Speaker 1: users to only three image generations a day, along with
Speaker 1: longer wait times than capacity issues with video generator Sora.
Speaker 1: To make matters worse, Ortman also announced that and I
Speaker 1: quote by the way, that users should expect new releases
Speaker 1: from open Ai to be delayed, stuff to break, and
Speaker 1: for services to sometimes be slow as we deal with
Speaker 1: capacity challenges. This led me to ask a very simple question.
Speaker 1: I think everybody in the tech media really should be asking,
Speaker 1: why can't Sam Waltman ask Microsoft for more GPUs. The
Speaker 1: answer is, as you may have guessed from my last
Speaker 1: monologue is that there may not actually be capacity for
Speaker 1: them to do so. Open AI's relationship with Redmond has
Speaker 1: grown kind of chilly over the past year. I'd speculate
Speaker 1: that Microsoft has refused to provide additional immediate capacity or
Speaker 1: has refused to provide capacity on the chummy terms that
Speaker 1: open Ai previously enjoyed, receiving a significant discount on the
Speaker 1: usual ticket prices in the past. We know that Microsoft
Speaker 1: has both walked away from two gigawats of future compute
Speaker 1: capacity and declined the option to spend another twelve billion
Speaker 1: dollars on core Weave's compute and core Weave if you
Speaker 1: don't remember there that the publicly traded data centered AI
Speaker 1: company a whole dog's dinner onto itself, and analyst house
Speaker 1: TD Cohen suggested in that this is a sign that
Speaker 1: Microsoft is no longer willing to shoulder the immense financial
Speaker 1: burden of supporting open Ai, even though open ai picked
Speaker 1: that option up, which by which I mean they took
Speaker 1: the twelve billion dollars of compute. It isn't clear if
Speaker 1: Corwave can actually build the capacity they need, and definitely
Speaker 1: don't think they're going to be able to do it
Speaker 1: in the time they need it. Microsoft allegedly walked away
Speaker 1: from Corewave due to its failure to deliver and that
Speaker 1: deliver the services they asked for, and indeed probably the
Speaker 1: compute as well. If that's true, it's unclear what has
Speaker 1: changed to make core Weave magically able to support open Ai,
Speaker 1: or even how a company that's drowning in high interest
Speaker 1: debt can finance the creation of several billion dollars worth
Speaker 1: of new data centers. Also, it's not quite as simple
Speaker 1: as open ai calling up a data center company with
Speaker 1: a bunch of GPUs and running chat, GPT, dot ex.
Speaker 1: Open Ai likely has reams of different requirements, and the
Speaker 1: amount of GPUs they will need will likely vary based
Speaker 1: on demand, putting them in a problematic situation where they
Speaker 1: could be commuting to a bunch of compute that they
Speaker 1: don't need if demand slows down. I've heard that companies
Speaker 1: generally want a six to twelve month commitment for GPUs
Speaker 1: two the cost is fixed no matter how much they
Speaker 1: get used, or at least there's a minimum commitment. But
Speaker 1: let's assume for a second that demand for chat GPT
Speaker 1: continues to rise. How does OpenAI actually get that compute
Speaker 1: if Microsoft isn't handing it over, and the Information reports
Speaker 1: that open ai still projects to spend about thirteen billion
Speaker 1: dollars on as your Cloud in twenty twenty five, there
Speaker 1: aren't really a ton of other options, especially for a
Speaker 1: company with such gigantic requirements, meaning that whatever infrastructure open
Speaker 1: ai is building is a patchwork between smaller players, and
Speaker 1: using so many smaller providers likely creates unavoidable inefficiencies and overhead.
Speaker 1: I'm naming another pale horse of the AI apocalypse by
Speaker 1: the way limits to service and service degradation across chat GPT.
Speaker 1: Open ai is running out of compute capacity. They've talked
Speaker 1: about it since October of last year, and chat GPT's
Speaker 1: new image generation is a significant drain on their resources,
Speaker 1: meaning that to continue providing their services, they're going to
Speaker 1: need to expand capacity or reduce access to services otherwise.
Speaker 1: The problem is that expanding is extremely different. Data centers
Speaker 1: take three to six years to build, and open ai
Speaker 1: has planned Stargate data Center won't have anything ready before
Speaker 1: twenty twenty six at the earliest, which means we're approaching
Speaker 1: a point where there simply might not be enough data
Speaker 1: centers or GPUs to burn, while open ai could theoretically
Speaker 1: go to Google or Amazon. Both of those companies are
Speaker 1: invested in anthropic and have little incentive to align with
Speaker 1: open Ai. Meta is building their own chet GPT competitor,
Speaker 1: and Elon must despises Sam Mortman real shithead versus fuckwad
Speaker 1: situation there. While I can't say for certain, I can't
Speaker 1: work out where open ai will get the capacity to continue,
Speaker 1: And I just don't know how they're going to expand
Speaker 1: their services if Microsoft isn't providing capacity. Yes, there's a
Speaker 1: Oracle which open ai has a partnership with, but they're
Speaker 1: relatively small in this space. Chat GPT's immage generation has
Speaker 1: become this massive burden on the company right at the
Speaker 1: point where it's introducing some of its most expensive models ever,
Speaker 1: and the products themselves are extremely expensive to run. Deep
Speaker 1: research is perhaps the best example using O open ai
Speaker 1: is extremely expensive O three model, which can cost in
Speaker 1: some cases as much as one thousand dollars per query.
Speaker 1: Deeper search is probably cheaper, but not that much cheaper, probably,
Speaker 1: I would. I've heard rumors, and this is a rumor.
Speaker 1: It's a rumor. I've heard like a dollar or two
Speaker 1: per query. If that's the case, that's fucking insane. Anyway.
Speaker 1: While open Ai could absorb the remaining capacity at say Crusoe,
Speaker 1: Lambda and core Wave, this creates a systemic risk where
Speaker 1: every GPU provider is reliant on open AI's money, and
Speaker 1: this assumes that they'll actually have enough to begin with.
Speaker 1: Open Ai also just close the largest private funding round
Speaker 1: in history, forty billion theoretical dollars, valuing the company at
Speaker 1: a ridiculous three hundred billion dollars raised from he gets
Speaker 1: the soft Bank and other investors. That's good news, right,
Speaker 1: Not really? In truth, open Ai really only raised ten
Speaker 1: billion dollars, with seven and a half billion of those
Speaker 1: dollars coming from soft Bank and another two point five
Speaker 1: billion dollars coming from other investors, including Thrive Capital and Microsoft.
Speaker 1: The remaining thirty billion dollars off, where which soft Bank
Speaker 1: is on the hook for twenty billion dollars off, will
Speaker 1: arrive at the end of the year. That's all we've gone.
Speaker 1: But open Ai will only get ten billion dollars from
Speaker 1: soft Bank, so bringing it down to a thirty billion
Speaker 1: dollar round total. If open ai fails to convert from
Speaker 1: a nonprofit to a for profit company by the end
Speaker 1: of twenty twenty five, a massive acceleration there. As a reminder,
Speaker 1: open ai is a weirdly structured nonprofit with a for
Speaker 1: profit arm, and their last round of funding from October
Speaker 1: twenty twenty four had another caveat that if open ai
Speaker 1: failed to become a for profit company by October twenty
Speaker 1: twenty six, all investment dollars would convert into debt. I've
Speaker 1: also read that they would have to hand the money back.
Speaker 1: I'm not sure whether that's the case. Debt is the
Speaker 1: one that's been reported the most. Furthermore, open Ai loses
Speaker 1: money on every single prompt on Chat GPT, even from
Speaker 1: their two hundred dollars a month chet GPT Pro subscribers.
Speaker 1: The burdens some interest payments would make it even harder
Speaker 1: for open ai to reach break even, which right now
Speaker 1: it doesn't even seem like they can do anyway. As
Speaker 1: an another reminder, soft Bank is a company that has
Speaker 1: now invested in two different fraudulent schemes, Wirecard and Green
Speaker 1: Silk Capital, the latter of which helped put the nail
Speaker 1: in the coffin of credit sweee back in twenty twenty
Speaker 1: three and put sixteen billion dollars into we work. It
Speaker 1: will be incredibly some might say impossibly difficult, and I'll
Speaker 1: cover this in the future episode to convert open ai
Speaker 1: into a for profit company, and the fact that soft
Speaker 1: Bank is putting this caveat on their investment heavily suggests
Speaker 1: that they have doubts it will happen. And I must
Speaker 1: be clear. When the monopoly man is getting nervous, you
Speaker 1: should get nervous too. The fact OpenAI accepted these terms
Speaker 1: also suggest they're desper and I don't blame them. They've
Speaker 1: committed eighteen billion dollars to the Stargate Data Center project,
Speaker 1: will spend thirteen billion dollars on Microsoft Computer alone in
Speaker 1: twenty twenty five, according to the information, and they've now
Speaker 1: created an incredibly popular product that will guarantee people come
Speaker 1: and use it like twice and then never use it again.
Speaker 1: Now keep a keen eye on any restrictions that open
Speaker 1: ai makes on chat GPT in the coming month. I
Speaker 1: do not see how this company survives, nor do I
Speaker 1: see how they expand their capacity much further. Price increases,
Speaker 1: rate limits and other ways of slowing down the pressure
Speaker 1: on their servers will likely suggest that open eye is
Speaker 1: up against the wall, both in their ability to support
Speaker 1: the services they provide and the costs they must bear
Speaker 1: to provide them. We are entering the hysterical era of
Speaker 1: the bubble, time when the craziest stuff will happen as
Speaker 1: the money does everything it can to keep the dream alive.
Speaker 1: I look forward to telling you what happens next.