February 27, 2025 • 10 mins
In this week's monologue, Ed Zitron walks you through what's making everybody worried about the bubble bursting - and what other signs might tell you that the party's over for AI.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Zone Media. Okaybia, these fuckers are right for containment. This
is your better offline monologue for the week, and I'm
your host ed Ze truck. Now today, I'm going to
(00:22):
go over a question I get asked a lot. What
actually bursts a bubble? As I'm writing recording this, I'm
watching in video's stock wobble up and down. After analyst
TD Cohen revealed that Microsoft has canceled agreements for multiple
data centers. Cohen also mentioned that Microsoft had and I
quote Bloomberg pulled back on converting so called statements of qualifications,
which are the precursor to agreements that include things like
(00:44):
financing deals and payment structures, meaning that Microsoft does not
just canceled agreements, but made it clear they don't intend
to carry on building more. Microsoft responded to this by
saying that they were still sticking to their egregious, stupid
plan to spend more than eighty billion dollars on capital
expenditures in twenty twenty, with one note that they and
I quote may strategically pace or adjust their infrastructure in
(01:06):
some areas. It was one of those things that ostensibly
looks like an obvious statement of intent, but if you
read between the lines, you see plenty of wiggle room
for Microsoft to backtrack. This comes off the back of
last week's interview with Microsoft CEO sach And Adela with
Dwarkesh Dwarkesh podcast Pretty good, kind of bland stuff, where
he said that there will be overbuild of data centers
(01:26):
pursuing AI and this is the shit you want to
hear as an investor in the AI revolution. You want
to hear a guy being like, yeah, maybe people built
too much. Now, this caused both Microsoft and in videos
stocks to wobble. But as I sit here and write
this on Wednesday morning, the day of Nvidia's earnings, by
the way, both stocks appear to have recovered a tiny
bit and they're actually going off, though not by much,
and no doubt by the time I'm finished writing the
(01:48):
script things will have changed again, which is why I
tend not to do a lot of stock related stuff.
That and I'm not a financial analyst. Different kind of analyst,
I guess. But anyway, the magnificent seven stocks Apple, Microsoft, Amazon, Alphabet, Meta, Invidia,
and Tesla make up about thirty percent of the value
of the S and P five hundred, an index of
the five hundred largest companies in the American stock market,
(02:09):
with Nvidia being the golden goose, growing over nine hundred
percent since twenty twenty three thanks to being the one
company that sells the specialized GPUs needed to make generative
AI work, making up just under twenty percent of the
value of the Magnificent seven itself. As a result, the
markets are deeply dependent on the success of Invidio, which
in turn is dependent on the continued hyperscalar investment in
(02:31):
generative AI. One other worrying fact for you, in Vidia's
top customers like Microsoft, Google, and Meta make up more
than sixty percent of its revenues. Right now, the vibes
are rancid Tuesday and Wednesday's headlines, and this episode will
come out after in Vidia's earnings. So forgive me Echo
a deep market anxiety saying things like Invidia's earnings could
(02:53):
be bad, how to protect your portfolio, and why in
Video's earnings are so important to the entire stock market now. Admittedly,
a lot of these headlines were plucked from the popular
financial press, which, to put it mildly, can be kind
of dog shit. The content farms that churn out articles
where underneath the sensational clip bait title. You have a
thinly written body of texts that tries to persuade you
that a particular stock will pop or bomb. You can't
(03:15):
really read too much into them, but it's telling that
the same sentiments have appeared in more prestigious publications, where
standards are measurably higher than say, Seeking Alpha or The
Motley Fool. Even if earnings are good for Invidia, it's
hard to see how they'll be good enough to please
a market. They will have a tantrum if they can't
perpetually make the number go up. Invidia has beaten analyst
expectations eight straight quarters, and the continual expectation that they'll
(03:37):
do so is terrifying, especially when you consider that Invidia
has long held a reputation as a boom or bus
stock and osolits between peaks and valleys based on whatever
the latest tech trend is. There's no logical reason to
believe that Invidia can continue to grow at this ridiculous rate.
Right now, its market cap is over eleven percent of
America's gross domestic product. But because the market's like giant,
(04:00):
petulant trillion dollar babies, these are the demands put upon
in video and Jensen Wang. But even if in Vidia
shits the bed mightily tonight, it isn't obvious whether that
will burst the bubble, because so much of the stock's
value and the economy in general, if I'm honest, is
based on a mishmash of people pretending they understand numbers
and well vibes. In short, the bubble will not burst
(04:21):
in the sense that one big event will bring everything
to an abrupt end now, and Vidia is not going
to drop thirty percent in one day normal open MLA overnight.
That's just not how this works. What will happen if
the bubble bursts, which I genuinely believe it will, will
be a series of smaller calamities that chain together to
bring an end to this hype cycle. It'll be like
the Domino scene from viv and Vendetta, where Detective Finch
(04:43):
threads the needle between the disparate events that will eventually
lead to the ulster of Chancellor Sutler. I've referred in
the past in an episode called burst damage to the
pale horses of the AI Apocalypse, and one of them
was the reduction of capital expenditures by a major hyperscaler
because in doing so, the hyperscalers such as Microsoft would
be admitting that it's time to slow down investment in
(05:03):
revolutionary products that they allegedly claim in revolutionary and that
they're selling tons of right wrong. And by extension, by
the way, they're tacitly admitting that perhaps these revolutionary products
weren't actually that revolutionary. Kind of an obvious point. Now,
one argument against this being a pale horse is that
open ai has partnered with soft Bank and Oracle to
build out up to and that is what it's called,
(05:25):
up to five hundred billion dollars in data centers. And
the answer there is that this is right now pretty
much theoretical, and it's dependent on open ai raising another
nineteen billion dollars because they've committed that much to this project.
Another thing about this stargate thing, I get a lot
of emails about Donald Trump US government. They're not putting
any money into this. This is all private partnerships, and
(05:48):
soft Bank and open ai have given nineteen billion while
they're claiming they're going to give nineteen billion dollars each.
And open ai is now raising up to forty billion
dollars with twenty five billion or up to twenty five
billion dollars, of that coming from software, So it's like,
what actually is happening here? Anyway? If Microsoft was so
invested in the generative AI revolution, why would they reduce
their investments in it? Surely this supposedly incredible demand and
(06:11):
the incredible opportunities of generative AI would mean that they
needed more data centers, right right, So strange. Nevertheless, if
you see Google or Metal or Amazon pulled back on
capital expenditures, that is the bell ringing. But here are
some other pale horses to watch out for. If open
ai and Anthropic raise their prices, it means that they're
finally having to cover their ruinous, horrible, unprofitable and unsustainable expenses.
(06:35):
Open Ai spent nine billion dollars to lose five billion
dollars in twenty twenty four, and an Anthropic lost five
point six billion dollars and only made just over nine
hundred million dollars in the same period. All of their
products are deeply unprofitable, and thus any price increases are
assigned that they need money. They need money now, money
mean money. Now. Conversely, if you see any dramatic price decreases,
(06:59):
this isn't the necessarily a sign of improvements in efficiency.
Sooned Up, a shy of Google, just announced that Google's
Gemini codesyst is now free for up to one hundred
and eighty thousand code completions a month. This puts a
direct price pressure on both open Ai and Anthropic, who
just launched a new version of their Claude model, and Microsoft,
which owns GitHub and by extension, GitHub Copiler, which costs
(07:20):
twenty dollars per month and reportedly still loses twenty to
eighty dollars a month they use. It's insane, But if
prices are forced to drop, this is a bad sign.
These are very unprofitable businesses. Now, if you see anything
about any prominent AI companies Anthropic, Open Ai, Scale, Coheer, Perplexity,
so on, and so forth. If you see they're having
trouble raising money, that means venture capitalists are scared, which
(07:42):
means everybody should be scared. Similarly, if you hear any
discord within these companies, people living on mass layoffs, senior
executives fleeing, that is also a bad sign. It means
that they no longer have faith in these companies. And
now if they jump to another generator of AI company
that is also not a good sign. It's kind of
like jumping from the Titanic to the Ola Gay. And
we've already had a lot of this with open Ai,
(08:03):
with the department, the departures of chief researcher barretts Off
and Chief technology officer Mirror Murati. When that trickle becomes
a flood, you know that a calamity won't be far behind.
We've already had a few of these. But bullshit companies
raising bullshit money are one of the biggest tells that
we're in a bubble. Open ai co founder Iliosuitscaper is
currently raising a billion dollars at a fucking stupid valuation
(08:24):
of thirty billion dollars for his company's safe superintelligence. Now
you'd think with all that cash there'd be something to
show wrong. Oh, you imbecile, you dip shit, you more on,
you pig. He doesn't have a product at all, there's
no product, they're pre product, but they're worth thirty billion dollars.
What are we doing here? Similarly, former open AIICTO Mirror Maurati,
(08:45):
she has a new company called Thinking Machines, And you'd
think with the Wired headline saying they're finally ready to
announce what they're working on. They would announce I don't
know what they're working on, you'd be fucking wrong. Stephen
Levy should be absolutely bloody ashamed of himself. Steven's done
some good journalists me in the past, and he's also
done some projeneritive AI stuff that I wouldn't wipe my
ass whole with fucking disgusting, both the thing I just
(09:07):
said and the thing happening now. Anyway, if you're wondering, uh,
what this company does, they and I quote develop top
notch AI with an eye towards making it useful and accessible.
I wish I could get away with just saying nothing
and getting a big pile of money. Wait, is that
what a podcast is? Anyway? There are, of course other
pale horses, but the core problem with bubbles is that
(09:29):
they're based less on tangible events and more on everybody
sharing the same delusion, which in this case is that
large language models will turn into something magical somehow, and
the only way to make them do so is to
plow billions of dollars into a fucking furnace. One pale
horse would be a vibe shift where people stop talking
about open AI and generative AI and this breathless wank tone,
but rather with an air of disdain and skepticism that
(09:51):
in and of itself is pretty hard to measure. What
breaks narratives and pops bubbles is when the consensus shifts
from dreaming to cold, harsh reality. As investors realize there's
no growth to be had from generative AI, they'll turn
their backs on both the generative AI revolution and the
companies that pushed it, and if they ever turn on video,
that will accelerate the AI apocalypse. Because in Vidia, despite
(10:12):
the real overblown valuations, actually makes a profit and sells
real physical things, though their consumer graphics cards are currently
melting at the fifteen ninety not great but really though,
in Video is really the only company to make serious
money from generative AI, and if that narrative changes, if
people turn on video, it's not going to be great
(10:34):
either way. I'll be here to walk you through it.
Zone Media. Okaybia, these fuckers are right for containment. This
is your better offline monologue for the week, and I'm
your host ed Ze truck. Now today, I'm going to
(00:22):
go over a question I get asked a lot. What
actually bursts a bubble? As I'm writing recording this, I'm
watching in video's stock wobble up and down. After analyst
TD Cohen revealed that Microsoft has canceled agreements for multiple
data centers. Cohen also mentioned that Microsoft had and I
quote Bloomberg pulled back on converting so called statements of qualifications,
which are the precursor to agreements that include things like
(00:44):
financing deals and payment structures, meaning that Microsoft does not
just canceled agreements, but made it clear they don't intend
to carry on building more. Microsoft responded to this by
saying that they were still sticking to their egregious, stupid
plan to spend more than eighty billion dollars on capital
expenditures in twenty twenty, with one note that they and
I quote may strategically pace or adjust their infrastructure in
(01:06):
some areas. It was one of those things that ostensibly
looks like an obvious statement of intent, but if you
read between the lines, you see plenty of wiggle room
for Microsoft to backtrack. This comes off the back of
last week's interview with Microsoft CEO sach And Adela with
Dwarkesh Dwarkesh podcast Pretty good, kind of bland stuff, where
he said that there will be overbuild of data centers
(01:26):
pursuing AI and this is the shit you want to
hear as an investor in the AI revolution. You want
to hear a guy being like, yeah, maybe people built
too much. Now, this caused both Microsoft and in videos
stocks to wobble. But as I sit here and write
this on Wednesday morning, the day of Nvidia's earnings, by
the way, both stocks appear to have recovered a tiny
bit and they're actually going off, though not by much,
and no doubt by the time I'm finished writing the
(01:48):
script things will have changed again, which is why I
tend not to do a lot of stock related stuff.
That and I'm not a financial analyst. Different kind of analyst,
I guess. But anyway, the magnificent seven stocks Apple, Microsoft, Amazon, Alphabet, Meta, Invidia,
and Tesla make up about thirty percent of the value
of the S and P five hundred, an index of
the five hundred largest companies in the American stock market,
(02:09):
with Nvidia being the golden goose, growing over nine hundred
percent since twenty twenty three thanks to being the one
company that sells the specialized GPUs needed to make generative
AI work, making up just under twenty percent of the
value of the Magnificent seven itself. As a result, the
markets are deeply dependent on the success of Invidio, which
in turn is dependent on the continued hyperscalar investment in
(02:31):
generative AI. One other worrying fact for you, in Vidia's
top customers like Microsoft, Google, and Meta make up more
than sixty percent of its revenues. Right now, the vibes
are rancid Tuesday and Wednesday's headlines, and this episode will
come out after in Vidia's earnings. So forgive me Echo
a deep market anxiety saying things like Invidia's earnings could
(02:53):
be bad, how to protect your portfolio, and why in
Video's earnings are so important to the entire stock market now. Admittedly,
a lot of these headlines were plucked from the popular
financial press, which, to put it mildly, can be kind
of dog shit. The content farms that churn out articles
where underneath the sensational clip bait title. You have a
thinly written body of texts that tries to persuade you
that a particular stock will pop or bomb. You can't
(03:15):
really read too much into them, but it's telling that
the same sentiments have appeared in more prestigious publications, where
standards are measurably higher than say, Seeking Alpha or The
Motley Fool. Even if earnings are good for Invidia, it's
hard to see how they'll be good enough to please
a market. They will have a tantrum if they can't
perpetually make the number go up. Invidia has beaten analyst
expectations eight straight quarters, and the continual expectation that they'll
(03:37):
do so is terrifying, especially when you consider that Invidia
has long held a reputation as a boom or bus
stock and osolits between peaks and valleys based on whatever
the latest tech trend is. There's no logical reason to
believe that Invidia can continue to grow at this ridiculous rate.
Right now, its market cap is over eleven percent of
America's gross domestic product. But because the market's like giant,
(04:00):
petulant trillion dollar babies, these are the demands put upon
in video and Jensen Wang. But even if in Vidia
shits the bed mightily tonight, it isn't obvious whether that
will burst the bubble, because so much of the stock's
value and the economy in general, if I'm honest, is
based on a mishmash of people pretending they understand numbers
and well vibes. In short, the bubble will not burst
(04:21):
in the sense that one big event will bring everything
to an abrupt end now, and Vidia is not going
to drop thirty percent in one day normal open MLA overnight.
That's just not how this works. What will happen if
the bubble bursts, which I genuinely believe it will, will
be a series of smaller calamities that chain together to
bring an end to this hype cycle. It'll be like
the Domino scene from viv and Vendetta, where Detective Finch
(04:43):
threads the needle between the disparate events that will eventually
lead to the ulster of Chancellor Sutler. I've referred in
the past in an episode called burst damage to the
pale horses of the AI Apocalypse, and one of them
was the reduction of capital expenditures by a major hyperscaler
because in doing so, the hyperscalers such as Microsoft would
be admitting that it's time to slow down investment in
(05:03):
revolutionary products that they allegedly claim in revolutionary and that
they're selling tons of right wrong. And by extension, by
the way, they're tacitly admitting that perhaps these revolutionary products
weren't actually that revolutionary. Kind of an obvious point. Now,
one argument against this being a pale horse is that
open ai has partnered with soft Bank and Oracle to
build out up to and that is what it's called,
(05:25):
up to five hundred billion dollars in data centers. And
the answer there is that this is right now pretty
much theoretical, and it's dependent on open ai raising another
nineteen billion dollars because they've committed that much to this project.
Another thing about this stargate thing, I get a lot
of emails about Donald Trump US government. They're not putting
any money into this. This is all private partnerships, and
(05:48):
soft Bank and open ai have given nineteen billion while
they're claiming they're going to give nineteen billion dollars each.
And open ai is now raising up to forty billion
dollars with twenty five billion or up to twenty five
billion dollars, of that coming from software, So it's like,
what actually is happening here? Anyway? If Microsoft was so
invested in the generative AI revolution, why would they reduce
their investments in it? Surely this supposedly incredible demand and
(06:11):
the incredible opportunities of generative AI would mean that they
needed more data centers, right right, So strange. Nevertheless, if
you see Google or Metal or Amazon pulled back on
capital expenditures, that is the bell ringing. But here are
some other pale horses to watch out for. If open
ai and Anthropic raise their prices, it means that they're
finally having to cover their ruinous, horrible, unprofitable and unsustainable expenses.
(06:35):
Open Ai spent nine billion dollars to lose five billion
dollars in twenty twenty four, and an Anthropic lost five
point six billion dollars and only made just over nine
hundred million dollars in the same period. All of their
products are deeply unprofitable, and thus any price increases are
assigned that they need money. They need money now, money
mean money. Now. Conversely, if you see any dramatic price decreases,
(06:59):
this isn't the necessarily a sign of improvements in efficiency.
Sooned Up, a shy of Google, just announced that Google's
Gemini codesyst is now free for up to one hundred
and eighty thousand code completions a month. This puts a
direct price pressure on both open Ai and Anthropic, who
just launched a new version of their Claude model, and Microsoft,
which owns GitHub and by extension, GitHub Copiler, which costs
(07:20):
twenty dollars per month and reportedly still loses twenty to
eighty dollars a month they use. It's insane, But if
prices are forced to drop, this is a bad sign.
These are very unprofitable businesses. Now, if you see anything
about any prominent AI companies Anthropic, Open Ai, Scale, Coheer, Perplexity,
so on, and so forth. If you see they're having
trouble raising money, that means venture capitalists are scared, which
(07:42):
means everybody should be scared. Similarly, if you hear any
discord within these companies, people living on mass layoffs, senior
executives fleeing, that is also a bad sign. It means
that they no longer have faith in these companies. And
now if they jump to another generator of AI company
that is also not a good sign. It's kind of
like jumping from the Titanic to the Ola Gay. And
we've already had a lot of this with open Ai,
(08:03):
with the department, the departures of chief researcher barretts Off
and Chief technology officer Mirror Murati. When that trickle becomes
a flood, you know that a calamity won't be far behind.
We've already had a few of these. But bullshit companies
raising bullshit money are one of the biggest tells that
we're in a bubble. Open ai co founder Iliosuitscaper is
currently raising a billion dollars at a fucking stupid valuation
(08:24):
of thirty billion dollars for his company's safe superintelligence. Now
you'd think with all that cash there'd be something to
show wrong. Oh, you imbecile, you dip shit, you more on,
you pig. He doesn't have a product at all, there's
no product, they're pre product, but they're worth thirty billion dollars.
What are we doing here? Similarly, former open AIICTO Mirror Maurati,
(08:45):
she has a new company called Thinking Machines, And you'd
think with the Wired headline saying they're finally ready to
announce what they're working on. They would announce I don't
know what they're working on, you'd be fucking wrong. Stephen
Levy should be absolutely bloody ashamed of himself. Steven's done
some good journalists me in the past, and he's also
done some projeneritive AI stuff that I wouldn't wipe my
ass whole with fucking disgusting, both the thing I just
(09:07):
said and the thing happening now. Anyway, if you're wondering, uh,
what this company does, they and I quote develop top
notch AI with an eye towards making it useful and accessible.
I wish I could get away with just saying nothing
and getting a big pile of money. Wait, is that
what a podcast is? Anyway? There are, of course other
pale horses, but the core problem with bubbles is that
(09:29):
they're based less on tangible events and more on everybody
sharing the same delusion, which in this case is that
large language models will turn into something magical somehow, and
the only way to make them do so is to
plow billions of dollars into a fucking furnace. One pale
horse would be a vibe shift where people stop talking
about open AI and generative AI and this breathless wank tone,
but rather with an air of disdain and skepticism that
(09:51):
in and of itself is pretty hard to measure. What
breaks narratives and pops bubbles is when the consensus shifts
from dreaming to cold, harsh reality. As investors realize there's
no growth to be had from generative AI, they'll turn
their backs on both the generative AI revolution and the
companies that pushed it, and if they ever turn on video,
that will accelerate the AI apocalypse. Because in Vidia, despite
(10:12):
the real overblown valuations, actually makes a profit and sells
real physical things, though their consumer graphics cards are currently
melting at the fifteen ninety not great but really though,
in Video is really the only company to make serious
money from generative AI, and if that narrative changes, if
people turn on video, it's not going to be great
(10:34):
either way. I'll be here to walk you through it.
Host
Ed Zitron
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