Speaker 1: Media. Hi, I'm ed Zetran and welcome to Better Offline.
Speaker 2: That's right, folks, were back for the third part of
Speaker 2: our four part series about the terminal stage of the
Speaker 2: incitification process, the in shitification of the financial markets. So far,
Speaker 2: we've talked about the incertification of the stock market, the
Speaker 2: complicity of the analysts and the media, and how venture
Speaker 2: capital will be the Canarian the coal mine for any
Speaker 2: eventual collapse. Venture capital is both the perpetrator and the
Speaker 2: victim of the air bubble, and it's worth exploring how
Speaker 2: it came to this point. Now, hang on the gentle voice, folks.
Speaker 2: We haven't seen values this big and alone time. These
Speaker 2: the biggest numbers we've ever seen. They're simply tremendous open
Speaker 2: airs maybe with eight hundred and thirty billion. Can you
Speaker 2: believe that they lose so much money? But folks, we
Speaker 2: don't mind. Clamisam Morbourn. They call him Klamiel because everybody
Speaker 2: he's going to give them one billion dollars and where
Speaker 2: we love him dead. Centers are going to have the
Speaker 2: biggest deals we've ever seen, even even if we have
Speaker 2: to work with Dario. Sorry to those of you who
Speaker 2: don't like that voice. It was only about thirty seconds,
Speaker 2: you see right Now, AI startups are big exciting news
Speaker 2: for the limited partners funding large language model companies. Things
Speaker 2: feel exciting because the value of the assets under management
Speaker 2: aum are going up, which is nothing dodgy, per se,
Speaker 2: but it's just how vcs value things. And if they're
Speaker 2: valuing AI stocks, well that's how their fees are getting paid,
Speaker 2: because the thing is they've invested in are worth more money,
Speaker 2: and now limited partners are paying them a percentage so
Speaker 2: that they can sit in an apartment that costs too
Speaker 2: much not see friends because they just sit online posting
Speaker 2: for eleven hours a day. Yeah, and then they can
Speaker 2: lose all the money in the future. I guess investing
Speaker 2: early in open Ai allows a bench capitalist or even
Speaker 2: an asset manager like Blackstone, which invested in twenty twenty
Speaker 2: four to say it as a big holding and a
Speaker 2: big increase in its aum AI stocks, make venture capitalists
Speaker 2: who bet on them two years ago, Like genius is
Speaker 2: on paper, you got in early on open Ai, Athropic, Cursor, Cognition, Perplexity,
Speaker 2: or any other company that loves to burn several dollars
Speaker 2: per dollar of revenue. You have a big, beautiful number,
Speaker 2: the biggest you've ever seen, and your limited partners to
Speaker 2: pay you a feed just to manage it. Venture capital
Speaker 2: has not seen valuations like this in a long time,
Speaker 2: and on paper it feels a lot like a lot
Speaker 2: of vcs got in on companies worth billions of dollars
Speaker 2: right on paper, that is, on paper, Cognition is worth
Speaker 2: ten point two billion, Perplexit eighteen billion, Cursor twenty nine
Speaker 2: point three billion, Lovable six point six billion, Coher six
Speaker 2: point eight billion, Repic three billion, Glean seven point two billion.
Speaker 2: Massive valuations to companies that all basically do products that
Speaker 2: open AI or Anthropic or Amazon or Google or any
Speaker 2: number of Chinese companies are already working to clone. They're
Speaker 2: all losing lots of money too, and have no path
Speaker 2: the profitability of any kind. But right now the numbers
Speaker 2: are simply tremendous. Folks. I've heard venture capitalists tell me
Speaker 2: that there are times when they have to agree to
Speaker 2: invest with little to no information or know that they'll
Speaker 2: lose the opportunity to another sucker, I mean, investor. I've
Speaker 2: heard venture capitalists say they don't have any insight into finances,
Speaker 2: but we love the numbers. Folks, they're simply tremendous. We
Speaker 2: love it. Let me tell you how not tremendous they are.
Speaker 2: I had a source recently suggests that nobody who invested
Speaker 2: pasted open AI's one hundred billion dollar valuation have any
Speaker 2: information rates. And what that means is they literally do
Speaker 2: not know anything about the company. They don't know anything
Speaker 2: other than what the company will tell them. That the
Speaker 2: company doesn't have to tell them shit, which means they
Speaker 2: don't know the revenues, they don't know the costs. They
Speaker 2: only know what new start new ridiculous stat Sarah Friar,
Speaker 2: CFO of open ais, farted out. They posted recently that
Speaker 2: twenty billion dollars annualized revenue. Yeah. I think that's complete nonsense,
Speaker 2: But they want to do that so that you go
Speaker 2: open ai made twenty billion dollars in twenty twenty five.
Speaker 2: Fuck that, I don't even think they made ten. Now,
Speaker 2: venture capitalists would argue, of course that they'd say I'm insane.
Speaker 2: They would say they would think me mad, and they
Speaker 2: would say that the growth is obviously there, while pointing
Speaker 2: to whatever startup has made one hundred million dollars in
Speaker 2: annualized recurring revenue, which is eight point three million dollars
Speaker 2: a month, by the way, all while not discussing the
Speaker 2: underlying operating expenses. The idea I believe is that the
Speaker 2: current state of AI spending is only set to increase
Speaker 2: the next year, and that will somehow lead to fixing
Speaker 2: the margins. I think venture capitalists staunchly refuse to learn
Speaker 2: anything other than investing growth and then profit from growth,
Speaker 2: even if profiting from growth doesn't appear to be happening anymore.
Speaker 2: In reality, venture capital shouldn't have touched LMS with a
Speaker 2: shitty stick because the margins were obviously blatantly bad from
Speaker 2: the very beginning. We knew open ai would lose five
Speaker 2: million dollars in the middle of twenty twenty four. The
Speaker 2: same venture capital climate would have fucking panicked, but instead
Speaker 2: chose to double dribble and kadruple down. I believe that
Speaker 2: massive valuation drawdowns are a certainty for AI companies, and
Speaker 2: by that I mean these companies will end up being
Speaker 2: revalued and the number will be smaller than the big
Speaker 2: number everybody fell in love with. Look, venture capitalists, I
Speaker 2: gotta ask you a question, what happens if open AI dies?
Speaker 2: Do you think this will make investors interested in funding
Speaker 2: or acquiring other AI startups. How much longer are we
Speaker 2: going to do this? When will Venture Capital realize it's
Speaker 2: setting itself up for a disaster And what exactly is
Speaker 2: the plan? Open AI and anthropic will cuck the lake's
Speaker 2: dry like an Nvidia GPU named after Nancy Reagan? How
Speaker 2: is this meant to continue and what will be left
Speaker 2: when it does? The answer is simple, there won't be
Speaker 2: any money for venture capital for a while. Those AI
Speaker 2: holdings are going to be worth at best fifty percent
Speaker 2: if they retain any value at all. Once one of
Speaker 2: these startups die, Once there's a major casualty, a panic
Speaker 2: will ensue, sending venture capitalists scrambling to get their holdings
Speaker 2: acquired by which I mean sold to someone else, until
Speaker 2: there's little or no investor interest left. Why would limited
Speaker 2: partners ever trust venture capital after this? Why would anybody?
Speaker 2: Because based on the past four years, it doesn't appear
Speaker 2: that venture capital is actually good at investing money. It
Speaker 2: just got lucky year after year until there were a
Speaker 2: few ideas that they could sell for one hundreds of
Speaker 2: billions or billions of dollars, And now we're out of them,
Speaker 2: we're out. I think we're out. I think there's probably
Speaker 2: still some, but I think the era of the unicorn
Speaker 2: might be dead. For a while, venture capital believed it
Speaker 2: knew better as it turned its back on basic business fundamentals,
Speaker 2: starting with Clubhouse, Crypto, the Metaverse, and now Generative AI.
Speaker 2: Yet they're far from the only fuck wits on the
Speaker 2: Dickhead Express. Because yes, I am going to talk about
Speaker 2: data centers. Per Bloomberg, there were at least one hundred
Speaker 2: and seventy eight point five billion dollars in data center
Speaker 2: credit deals and in the US in twenty twenty five,
Speaker 2: rivaling the two hundred and fifteen point four billion dollars
Speaker 2: invested in US venture capital in twenty twenty four and
Speaker 2: the one hundred and ninety seven point two billion dollars
Speaker 2: invested in US venture capital through August seventh to twenty
Speaker 2: twenty five, and over one hundred billion dollars more than
Speaker 2: the sixty point sixty nine billion dollars of data center
Speaker 2: deals done in twenty twenty four. That's that's really worrying.
Speaker 2: It's like more than more than more than one hundred
Speaker 2: percent more. I'm very worried, and I'm going to tell
Speaker 2: you why, using a company called core Weave, core Weave
Speaker 2: that I've been actively warning about, warning people about since March.
Speaker 2: And I get a little crazy around corwaf because I
Speaker 2: have had the core Weave conversation a lot, and I've
Speaker 2: seen people straight up just steal the title of my
Speaker 2: articles as they come to this realization six to seven
Speaker 2: months later. But cor Weave is a mess, and corwy
Speaker 2: was obviously always a mess. And everyone has been saying
Speaker 2: Corwave's fine because they went public. Core Weave is not fine.
Speaker 2: All right, Let's talk about core Weave. Corwave is something
Speaker 2: called a neocloud. It's a company that builds data centers
Speaker 2: by renting out, and they build data centers they film
Speaker 2: full of GPUs and they rent them to people. They're
Speaker 2: in something called AI Compume, And as I explained a
Speaker 2: few months ago, they do so by building data centers
Speaker 2: backed by endless debt. And I quote myself saying, up
Speaker 2: a neocloud is expensive. Even if the company in question
Speaker 2: already has data centers, as core We've did with its
Speaker 2: scryptocurrency mining operation, AI requires completely new data center infrastructure
Speaker 2: to house and call the GPUs, and those GPUs also
Speaker 2: need paying for, and then there's the other stuff like power, water,
Speaker 2: and the other bits of the computer, the CPU, the motherboard,
Speaker 2: the memory of the storage, and the housing and the
Speaker 2: power supplying all that good stuff. As a result, these
Speaker 2: neoclouds are forced to raise billions of dollars in debt,
Speaker 2: which they collateralize using the GPUs they already have, along
Speaker 2: with contracts from customers which they use to buy more GPUs. Corwei,
Speaker 2: for example, has twenty five billion dollars in debt on
Speaker 2: an estimated five point three five billion dollars in revenue,
Speaker 2: losing hundreds of billions of dollars in a quarter. You
Speaker 2: know who also invests in these neoclouds in Video, the
Speaker 2: people who make the GPUs in VideA is also one
Speaker 2: of Corwey's largest customers, accounting for fifty percent of its
Speaker 2: revenue in twenty twenty four, and just signed a deal
Speaker 2: to buy six point three billion dollars of any capacity
Speaker 2: the care we can't otherwise sell to someone else through
Speaker 2: twenty thirty two, an extension of a one point three
Speaker 2: billion dollar deal from twenty twenty three reported by The
Speaker 2: Information oh And in Video was the anchor investor of
Speaker 2: Corweav's IPO, putting in two hundred and fifty million dollars.
Speaker 2: Corwave is also one of the largest providers AI compute
Speaker 2: in the world, and its business model is indicative of
Speaker 2: how most data center companies make money. In fact, i'd
Speaker 2: argue that they are probably doing better because they have
Speaker 2: the backing of everyone. Now you may think that's a
Speaker 2: too big to fail thing. Not really, It just means
Speaker 2: that they're kind of the village bicycle of AI compute grossness. Aside,
Speaker 2: let me explain how this works. First, core we've signed
Speaker 2: contracts such as it's fourteen billion dollar deal with Meto
Speaker 2: or it's twenty two point five billion dollar deal with
Speaker 2: open Ai before it has the physical infrastructure to actually
Speaker 2: service them. It then raises debt using this contract as
Speaker 2: collateral orders GPUs from VideA. Those take three months to
Speaker 2: arrive and then another three months to install, at which
Speaker 2: point monthly client payments begin. And I should also add
Speaker 2: that that's kind of taken out of deferred revenue that
Speaker 2: the customers already put down. To really simplify this, data
Speaker 2: center developers are raising money months up to a year
Speaker 2: before they ever expect to make a penny of revenue,
Speaker 2: not profit. In fact, I can find no consistent answer
Speaker 2: to how long a data center takes to build, and
Speaker 2: the answer here is pretty important because that's how the
Speaker 2: money is going to get made from the data center's
Speaker 2: for building fucking everywhere. You may also notice that monthly
Speaker 2: payments in the chart that I linked, which I should
Speaker 2: have mentioned, begin at six to thirty months, a curious
Speaker 2: and broad blob of time. You see, data centers are
Speaker 2: extremely difficult to build, and the concept of an AI
Speaker 2: data center is barely a few years old, with the
Speaker 2: concepts of hundreds of megawats in one data center campus
Speaker 2: entirely made up of aigpus barely two years old jpus,
Speaker 2: which means basically everybody building one is doing so for
Speaker 2: the first time, and even experienced developers are running into problems.
Speaker 2: For example, core Scientific, Corweave's weird partner organization it tried
Speaker 2: and failed to buy that is truly different despite the
Speaker 2: similar name, has been trying to convert it's Denton, Texas
Speaker 2: scriptocurrency mining data center into an AI data center since
Speaker 2: November twenty twenty four, specifically so that Corewave can rent
Speaker 2: it to Microsoft for Open AI. This hasn't gone well,
Speaker 2: and this is when things get weird. The Wall Street
Speaker 2: Journal reported a few weeks ago that Denton had been
Speaker 2: racked with several months of delays thanks to rainstorms preventing
Speaker 2: contractors and pooring contry contrete. I'm going with it. It's contrete.
Speaker 2: Now we're calling it contry concrete. I originally, within this
Speaker 2: script wrote down that this was a possible thing. I
Speaker 2: thought that this was normal. However, I should add something,
Speaker 2: this is this may actually be bollocks. So I'm a psycho,
Speaker 2: and I went and I looked up whether. I looked
Speaker 2: up weather in Abilene, Texas, and it turns out that
Speaker 2: there were like eleven days with rain total, and there
Speaker 2: was only I think on June third and September twenty second,
Speaker 2: there were rainstorms or thunderstorms of any kind. I think
Speaker 2: that there are only two days where rain was over
Speaker 2: point one inches. The people I've talked to about this
Speaker 2: deal are saying it wouldn't be weather, it would actually
Speaker 2: just be money. Nevertheless, those are things that are stopping
Speaker 2: them building a two hundred and sixty megawat data center,
Speaker 2: and that's fucking nothing compared to the Giga. What's the
Speaker 2: open Ai claims to want to build. And what this means,
Speaker 2: by the way, is that call we've can't actually get
Speaker 2: paid by open Ai because per its contract, customers don't
Speaker 2: have to stop paying until the computer is actually available.
Speaker 2: This is a very important deal to know for literally
Speaker 2: any data center development you've ever heard of or seen.
Speaker 2: As of cour we've SQ three twenty twenty five earnings,
Speaker 2: they're sitting on one point one billion dollars into thirst
Speaker 2: revenue that's income for service is not yet rendered are
Speaker 2: from nine hundred and fifty one million in Q two
Speaker 2: and four hundred and thirty six million in Q one
Speaker 2: twenty twenty five. This means deposits have been made, but
Speaker 2: the contract is yet to be serviced. Now, I'm also
Speaker 2: a curious little critter, so I went and found the
Speaker 2: nine hundred and twenty one page two point six billion
Speaker 2: dollar DDTL delayed draw Term Loan three point zero loan
Speaker 2: agreement between core Weave and banks including Morgan Stanley, Mitsubishi,
Speaker 2: UFG and Gold and Sachs, and in doing so I
Speaker 2: learned something well. First of all, open ai appears to
Speaker 2: have net three sixty payment terms from Corwave, meaning that
Speaker 2: it can literally pay a year from invoice. Second, Corweve
Speaker 2: is required to maintain something called a contract realization ratio
Speaker 2: of point eighty five times, meaning that core Weave has
Speaker 2: to make at least eighty five cents of every expected
Speaker 2: dollar or it is in default of its loan. This
Speaker 2: is important to note because it means that if say
Speaker 2: open Ai decides not to pay up in a year,
Speaker 2: corwave will be up shit creek without a paddle. Now,
Speaker 2: I apolog that suggests that core Weave is an already
Speaker 2: up shit creek, or that it might have a paddle
Speaker 2: of some sort buried inside in Vidia's latest earnings on
Speaker 2: page seventeen, there's a little clue at home, and I
Speaker 2: quote in the third quarter of fiscal year twenty twenty six,
Speaker 2: we entered into an agreement to guarantee of partner's facility
Speaker 2: lease obligations in the event of their default. The agreement
Speaker 2: allows our partner to secure a limited availability facility lease
Speaker 2: backed by our credit profile in exchange for issuing US warrants.
Speaker 2: The maximum gross exposure is eight hundred and sixty million,
Speaker 2: which is reduced as the partner makes payments to the
Speaker 2: leaser of a five years. The partner has placed four
Speaker 2: hundred and seventy million dollars in escrow and executed an
Speaker 2: agreement to sell the data center cloud capacity, mitigating our
Speaker 2: default risk credit where credit is due. Eaglide analysts Just
Speaker 2: Dario caught this in November, but in core weaves condensed
Speaker 2: to consolidated balance sheets, there sits a four hundred and
Speaker 2: seventy seven point five million dollars line item under restricted
Speaker 2: cash and cash equivalence non current, though this might not
Speaker 2: be in Vidia's escrow. This number shifted from six hundred
Speaker 2: and seventeen in Q one to three hundred and forty
Speaker 2: million in Q two. It lines up all too precisely,
Speaker 2: and who else would in video be guaranteeing In any case,
Speaker 2: corweav is likely to get the best deals in data
Speaker 2: centered debt outside of Oracle. It has top tier financiers
Speaker 2: who I'll get to in a little bit, the fallbacking
Speaker 2: in Video who is both an investor customer and apparent
Speaker 2: financial backstop, and also Core with as a customer of
Speaker 2: theirs and the ability to raise debt quickly. Corweb's deals
Speaker 2: are likely indicative of how data center financing takes place,
Speaker 2: and those top tier financiers it's they may basically been
Speaker 2: in every single deal. It's actually it's actually really worrying
Speaker 2: when you, I mean, you lay it all out, which
Speaker 2: is exactly what I'm going to do. So who's actually
Speaker 2: paying for this shit? I went and dug through a
Speaker 2: pile of twenty six prominent data center loan deals, including
Speaker 2: the proposed thirty eight billion dollar debt package that Oracle
Speaker 2: Advantage data Center partners are raising for Stargate Shackelford and Wisconsin,
Speaker 2: Stargate Ablene, New Mexico, and of course soft Banks fifty
Speaker 2: billion dollar bridge loan, which I included for a reason
Speaker 2: that will become obvious shortly, and multiple core wave loans.
Speaker 2: I've found a few commonalities, and forgive me, I'm about
Speaker 2: to say a lot of names and numbers. You might
Speaker 2: want to pull up the newsletter to read along with
Speaker 2: it like a sing along. Now, Blue Owl, Blue ol,
Speaker 2: We love blue ol folks. They were present in every
Speaker 2: single Stargate deal other than the thirty eight billion dollar
Speaker 2: deal that's being raised by Advantage that is yet to close.
Speaker 2: Blue Hour was also involved in a one point three
Speaker 2: billion dollar Australian data set and a debt package by
Speaker 2: Virtue of owning Stack infrastructure. Remember that name MUFG MUG
Speaker 2: also Mitsubishi UFJ Financial Group is their full name, but
Speaker 2: I like saying. MUG was present in seventeen out of
Speaker 2: twenty six of the deals, including three separate core weafinancing,
Speaker 2: Stargate New Mexico an eighteen billion dollar deal, the alleged
Speaker 2: Stargate thirty eight billion dollar deal, SoftBank's bridge loan which
Speaker 2: they had to raise by the way, to fund open AI,
Speaker 2: and a five billion dollar green loan package for Vantage
Speaker 2: Data Centers, who you might have just heard me say. JP.
Speaker 2: Morgan Chase was involved in eight deals, and they were
Speaker 2: involved in some of the largest. Two cory was October
Speaker 2: twenty twenty four financing their third delayed draw Tone loan
Speaker 2: and November financing as well the funding behind Stargate, Apple
Speaker 2: in the thirty eight billion dollar Oracle deal, and Blue
Speaker 2: Owl's acquisition of IPI Partners in twenty twenty four. And yes,
Speaker 2: they were also part of soft banks bridge loan. Now,
Speaker 2: let's not forget Deutsche Bank, who've never done anything dodgy. Ever,
Speaker 2: do not google what Deutsche Bank has done with banks
Speaker 2: or particular fellas Deutsche Bank, they were involved in soft
Speaker 2: Bank's Bridge loan and three smaller deals data center in Seoul,
Speaker 2: Cory's twenty twenty four debt couise, November financing, and a
Speaker 2: data center deal in Latin America, as well as a
Speaker 2: six hundred and ten million dollar data center project in
Speaker 2: Virginia and a billion euro of data center project in
Speaker 2: Germany that was invested in within Video BNP Perribus seven deals.
Speaker 2: Cory was delayed draw Tone loan three Stargate New Mexico,
Speaker 2: Stargate Wisconsin and Texas IPI partners of Blue Owl, that
Speaker 2: data center deal in Seoul, and another data center in Chile.
Speaker 2: Morgan Stanley. You remember Morgan Stanley, don't you? While they
Speaker 2: were in eight of these fucking things. Core's October twenty
Speaker 2: twenty four loan loan, three November loans stargeting New Mexico
Speaker 2: Stargate with Advantage. They're thirty eight billion dollar one I
Speaker 2: just talked about, and one with EQT Edge Connects where
Speaker 2: they I don't I don't need to go into detO.
Speaker 2: It's another fucking data center. Oh and they were also
Speaker 2: in SoftBank's Bridge loan, which they needed to to find
Speaker 2: open AI. Now here's another name that you're going to
Speaker 2: hear in the future, SNBC, Sumi Tomo, Mitsui Banking Corporation,
Speaker 2: and I must say the Japanese nyler name of fucking company. Anyway,
Speaker 2: they were in seven deals, all notable cor Weeve's DDTL
Speaker 2: three point zero and November Financing loans, Stargate, New Mexico,
Speaker 2: Stargate Texas, Wisconsin. That's that thirty eight billion dollar one
Speaker 2: A data center in Rowan, Maryland, also involving mug TD
Speaker 2: Securities and HSBC, as well as data center deals in
Speaker 2: Chile and Latin America you've already heard about. Oh and
Speaker 2: guess what Soft Banks Bridge loan which they used to
Speaker 2: invest in open Ai. There are a lot more data
Speaker 2: centered deals than these, but I wanted to tell you
Speaker 2: exactly how centralized they are. I also really need you
Speaker 2: to know how worrying that is, because literally every part
Speaker 2: of this pie is being funded by like eight to
Speaker 2: nine banks. If open ai is raising money for a date, well,
Speaker 2: they wouldn't raise it would be Oracle or core Weave
Speaker 2: or have you raising for a data center. One of
Speaker 2: these people is in it or companies. They're not people.
Speaker 2: It's really worrying. It's worrying how centralized this is, and
Speaker 2: the largest deals, such as the thirty eight billion Stargate Texas,
Speaker 2: Wisconsin deal or the eighteen billion dollar Stargate New Mexico
Speaker 2: deal both involved Gold and Sachs b and Peter Ribas,
Speaker 2: SMBC and fuf MUFG, and all four of those companies
Speaker 2: have at some point funded core Weave. In fact, everybody
Speaker 2: appears to a funded core Weave at some point. City Bank, Credit, Agricole, Society, General,
Speaker 2: Wells Fargo, Carlile, Blackstone, black Rock, Barkley's, Magnatar, and Jeffrey
Speaker 2: is the name of few, and if you've been watching
Speaker 2: the news recently, I have heard that term term word
Speaker 2: jeffries to refer to the company that invested in first
Speaker 2: brands and their exposure anyway. Of the forty banks and
Speaker 2: financial institutions I research twenty four have at some point
Speaker 2: loan to or organized dead for Corwave. Of those institutions, Blackstone,
Speaker 2: Deutsche Bank, JP, Morgan Chase, Morgan, Stanley, MUFG, and Wells
Speaker 2: Fargo have done so multiple times. Core Weave is a
Speaker 2: deeply unprofitable company, saddled with incredible debt and deteriorating margins.
Speaker 2: With one of the largest clients paying net three sixty
Speaker 2: and as I've said, it is arguably the best financed
Speaker 2: data center company in the world with the best chances
Speaker 2: of survival. What I'm getting at is that most data
Speaker 2: centered deals are likely much worse than the terms that
Speaker 2: corwav faces and are likely financed in a similar way
Speaker 2: whereas where a client is signed for data center capacity
Speaker 2: that doesn't exist, such as when nebuists raised four point
Speaker 2: three billion dollars through a share sale and convertible notes
Speaker 2: read loans to handle its seventeen point four billion dollar
Speaker 2: data center contract with Microsoft and yees what Dobin Sachs
Speaker 2: acted as the lead underwriter on the deal, with assistance
Speaker 2: from Bank of America, City Group, Morgan Stanley, all three
Speaker 2: of which have invested in core Weave. AI. Data centers
Speaker 2: are expensive, required debt due to the massive cost of
Speaker 2: construction in the cost of GPUs, and all take at
Speaker 2: least a year, if not two, to start generating a
Speaker 2: single dollar of revenue, at which point they also begin
Speaker 2: losing money because it seems that renting out GPUs is
Speaker 2: really unprofitable. Didn't think, no, no one, no one fucking
Speaker 2: think to check that one Every single major bank and
Speaker 2: financial institution has piled hundreds of millions, if not billions
Speaker 2: of dollars into building data centers that take forever to
Speaker 2: even start generating money, at which point they only seem
Speaker 2: to lose it. Were still in Video sells GPUs and
Speaker 2: a one near upgrade cycle, meaning that all of those
Speaker 2: data centers being built right now are being filled with
Speaker 2: Blackwell chips, and by the time they turn on and
Speaker 2: Video will be selling its next generation via Ruben chips,
Speaker 2: baking them obsolete. Now now now, now, no, no, no.
Speaker 2: You've probably heard that Verra Ruben, the next GPU from
Speaker 2: in Video, will use the same ranks called Oberon as Blackwell,
Speaker 2: which is true to an extent, but won't be true
Speaker 2: for long as in Video intends to shift to their
Speaker 2: Kuiper racks in twenty twenty seven, hoping to build one
Speaker 2: megawat it rax, which involve entire racks full of power supplies,
Speaker 2: meaning that all of those data centers you see today,
Speaker 2: whenever it is they get built, if they get built,
Speaker 2: will be full of racks incompatible with the next generation
Speaker 2: of GPUs. This will also decrease the value of the
Speaker 2: assets inside the data centers, which will in turn decrease
Speaker 2: the value of the assets held by the firms investing
Speaker 2: Stargate Aplin, the one invested in by JP Morgan, Blue
Speaker 2: Oul and Primary Digital Infrastructure and Society General, the one
Speaker 2: that's been heavily delayed and won't be ready until the
Speaker 2: end of twenty twenty six of the earliest fall to
Speaker 2: the brim to the gills with two year old GB
Speaker 2: two hundred Blackwell racks. Hell yeah, baby woo by the
Speaker 2: beginning of twenty twenty seven, when this shithole eventually opens,
Speaker 2: I should really say potentially opens, because let's be honest,
Speaker 2: I'm not confident Stargate Apolene will be obsolete, as will
Speaker 2: any and all data centers filled with Blackwell GPUs, as
Speaker 2: will any and all data centers being built today. Every
Speaker 2: single one takes one to three years and hundreds of
Speaker 2: millions or billions of dollars to build, but probably raised
Speaker 2: in damp, and every single one faces the same kinds
Speaker 2: of construction delays and better yeah, almost all of them
Speaker 2: will turn on in roughly the same timeframe. All right, Look, folks,
Speaker 2: I gotta admit I don't really get our money works.
Speaker 2: I'm not economist, but I do know that supply and
Speaker 2: demand has an effect on pricing. What do you believe
Speaker 2: happens to the price of renting at Blackwell GPU when
Speaker 2: all of these data centers come on? Do you think
Speaker 2: it will it will mean that the price goes up
Speaker 2: or down. Also, while we're on the subject, what do
Speaker 2: you think happens if there isn't sufficient demand? And demand
Speaker 2: is a real question, by the way. Right now, open
Speaker 2: ai makes up a large chunk of the global sale
Speaker 2: of compute, at least eight point six seven billion dollars
Speaker 2: of a zero revenue which is Microsoft's cloud platform through
Speaker 2: September twenty twenty five, and they're part of about twenty
Speaker 2: two point five billion dollars of Corway's backlog, thirty eight
Speaker 2: billion dollars of Amazon's backlog, and so on and so forth,
Speaker 2: and made based on my reporting from last year, just
Speaker 2: over four point five billion dollars through the end of
Speaker 2: September twenty twenty five. Open ai can't afford to pay anyone,
Speaker 2: and nowhere is that more obvious than when it negotiated
Speaker 2: year long payment terms of core with Otherwise, when you
Speaker 2: remove the contracts signed by Hyperscale as an open Ai,
Speaker 2: which I do not believe has the money to pay anybody.
Speaker 2: Based on my analysis, there was less than a billion
Speaker 2: dollars of AI compute revenue in twenty twenty five, or
Speaker 2: zero point five eighty three percent of the money spent
Speaker 2: on day center credit deals in the US. Is that good?
Speaker 2: Hyperscalar revenue is also immediately questionable with Microsoft's steel with
Speaker 2: Nebeus per their six K filing set to default in
Speaker 2: the event that Nebius cannot provide the capacity it's sold
Speaker 2: of its unfinished Fineland, New Jersey data center, which is
Speaker 2: being built by Data One, a company that's never built
Speaker 2: an AI data center, with a CEO that had his
Speaker 2: LinkedIn location set to United Arab Emirates as a very
Speaker 2: recently and indeed was in Arabic until very recently as well,
Speaker 2: and they have funding from a concrete firm that is
Speaker 2: also a vendor on the project. I also believe that
Speaker 2: Microsoft is setting Nebeus up to fail based on discussions
Speaker 2: with sources direct with direct knowledge of plans for the
Speaker 2: violent New Jersey data center. Nebius has agreed to timelines
Speaker 2: that involve having eighteen thousand video B two hundred and
Speaker 2: B three hundred GPUs up and running by the end
Speaker 2: of January for a total of fifty megawats, with another
Speaker 2: eighteen thousand, b three hundreds due by the end of May.
Speaker 2: On speaking with experts in the field about how viable
Speaker 2: he is, the plans are two laugh and one to
Speaker 2: me to fuck off. If Nebius fails to build the capacity,
Speaker 2: Microsoft can walk away, much like open Ai can walk
Speaker 2: away from Stargate in the event that Oracle fails to
Speaker 2: build it on time, as reported by Anissa Gardisi of
Speaker 2: The Information in April twenty twenty five, and I believe
Speaker 2: that this is the case for literally any data center
Speaker 2: provider that's building a data center for any signed up tenant.
Speaker 2: This is another layer of risk to data center developers
Speaker 2: that nobody bothers to fucking discuss, because everybody loves seeing
Speaker 2: these big, beautiful numbers, Except the numbers might have become
Speaker 2: a little too beautiful for sun. On December seventeenth, the
Speaker 2: Financial Times report that the Blue Ou Capitol had pulled
Speaker 2: out of the ten billion dollar Stargate Michigan data center project,
Speaker 2: citing and I quote concerns about its rising debt and
Speaker 2: artificial intelligence spending to quote the ft again. Blue Oul
Speaker 2: had been discussions with Lender's and Oracle about investing in
Speaker 2: the planned one gig what data center being built to
Speaker 2: serve open AI in Saline Township, Michigan. What debt, you
Speaker 2: may ask? While Blue Owl, formerly the loosest legs in
Speaker 2: data center financing, was in always six hundred million dollar deal,
Speaker 2: the seven hundred and fifty million dollar deal as well
Speaker 2: for its planned Virginia data center with Teresa Technology Parks,
Speaker 2: a four billion dollar corps with have data center project
Speaker 2: in Pennsylvania, Stargate Abilene, Stargate Mexico, met As thirty billion
Speaker 2: dollar hyperiod data centered deal, and a one point three
Speaker 2: billion dollar data centered deal in Australia through Stack Infrastructure.
Speaker 2: You remember I mentioned those like ten minutes ago if
Speaker 2: you if you email me for a fish biscuit, I
Speaker 2: haven't gotten. I'm sorry. Anyway, they owned that company and
Speaker 2: may I mentioned it earlier. Anyways, Let's keep going to
Speaker 2: be clear. Blue Owl pulling out is not the same
Speaker 2: as a regular deal. It's a BBC business development company.
Speaker 2: Then invest both this money and rallies together various banks
Speaker 2: in this case SMBCBMP, Peribus, MUFG, and Gold and Sachs
Speaker 2: all part of Stargate, New Mexico, which makes me wonder
Speaker 2: why it didn't happen. In fact, it makes me very
Speaker 2: much worry about that. Per the Financial time, and I quote,
Speaker 2: the private Capitol group had been has been the primary
Speaker 2: backer for Oracle's largest data center projects in the US,
Speaker 2: investing its own money and raising billions more in debt
Speaker 2: to build the facilities. Blue Ol typically sets up a
Speaker 2: special purpose vehicle which owns the data center and leases
Speaker 2: it to Oracle. Blue Owl is incredibly well connected and
Speaker 2: experienced in putting together these kinds of deals and very
Speaker 2: likely went to many banks, many banks. It's worked with
Speaker 2: banks that have been basically giving them blank checks who
Speaker 2: apparently had and I quote concerns about Blue Owl's rising debt,
Speaker 2: much of which it had issued them. While rumor suggests
Speaker 2: that Blackstone may step in, I need to be clear,
Speaker 2: and I've spoken to numerous people in private equity about this.
Speaker 2: This is not a consumer mortgage. This is not a
Speaker 2: young couple buying a start at home. This is a
Speaker 2: giant deal. If it's ten billion dollars, Blue Owl probably
Speaker 2: would put in two billion themselves. That'd be like, I
Speaker 2: don't know, maybe eight billion dollars of credit. I mean,
Speaker 2: pipping in would require billions of dollars in legal logistics
Speaker 2: and likely Blackstone talking to the very same banks it
Speaker 2: already said no, why are they not doing this? And indeed,
Speaker 2: why are things looking shaky? Well remember that thing about
Speaker 2: how this data cent would be least to Oracle. Well,
Speaker 2: Oracle had a free cash flow of negative thirteen billion
Speaker 2: dollars on revenues of sixteen billion dollars, with its most
Speaker 2: recent earnings only beating as analyst estimates thanks to the
Speaker 2: sale of its two point sixty eight billion dollar steak
Speaker 2: in Ampare. And you remember that soft bank Bridge loan.
Speaker 2: I mentioned that fifteen billion dollar one Yeah, half of
Speaker 2: that went to open AI, half of that went to
Speaker 2: buying Ampare, So that's a one off of them. Oracle's
Speaker 2: date is exploding, with over a billion dollars in interest
Speaker 2: payments in its last quarter alone. It's GPU gross margins
Speaker 2: of fourteen percent, which does not mean profitable. Its latest
Speaker 2: Nvidio GB two hundred GPUs have a negative one hundred
Speaker 2: percent gross margin, and it has two hundred and forty
Speaker 2: eight billion dollars in upcoming data center leases is yet
Speaker 2: to begin, and thus all for the most part to
Speaker 2: handle compute for one customer open Ai, which needs to
Speaker 2: raise one hundred billion dollars and then probably much more
Speaker 2: to survive. Is that good anyway, that's a good point
Speaker 2: to jump off from. Next episode, we're gonna wrap all
Speaker 2: this up. It's been a great time reading this for you,
Speaker 2: and we're gonna talk about how the data center of
Speaker 2: Apocalypse will start and what might come next. Thank you
Speaker 2: for listening to Better Offline. The editor and composer of
Speaker 2: the Better Offline theme song is Matasowski. You can check
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