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2:36

I'm Ed Zitron and

2:38

this is better

2:41

offline. In my

2:43

last episode I

2:45

started by telling

2:47

you about a

2:50

report from the

2:52

analyst wing of a major

2:54

bank. T.D. Cohen that revealed

2:56

how Microsoft had drastically pulled

2:58

back on its plans to

3:00

build new data center capacity.

3:02

At a bare minimum, Microsoft

3:04

had cancelled the equivalent of

3:06

every data center in London

3:08

or Tokyo. At least, the

3:10

real figure is actually probably

3:12

much, much higher. And as I pointed out,

3:14

this is a real pale horse, a harbinger

3:17

of bad times, of generative AI and open

3:19

AI especially, and an indicator that the bubble

3:21

is imploding or popping, I really don't want

3:23

to say it's... if it's necessary to say

3:26

when it does, it's never going to be

3:28

one thing. I also mentioned that some may

3:30

interpret this move as a response to Open

3:32

AI Stargate Project, which aims to build hundreds

3:35

of billions of dollars of data centers and

3:37

power generation facilities in the US, all to

3:39

Power General of AI apps and tools that

3:41

I'm not sure, actually, there's really the

3:43

demand for. But this begs the question,

3:46

how feasible is the Stargate Project? Let's

3:48

start with a bit of background. The

3:50

Stargate project was officially announced at the

3:52

very beginning of the Trump presidency. So

3:54

Open AI tried to court favor from

3:56

the notoriously transactional and praise-hungry person of

3:58

the United States of America. Despite that,

4:00

the project has been in the works

4:02

for some time in opening I had

4:05

previously courted the Biden administration. Sam Orman's

4:07

previous pitch to that administration late last

4:09

year was that it was necessary to

4:11

build a 5 gigawatt data center. We

4:13

don't know how big Stargate will be,

4:16

just that it will initially involve spending

4:18

$100 billion to, and I quote, develop

4:20

data centers for artificial intelligence in the

4:22

US according to the information, with the

4:24

project potentially scaling $500 billion, a truly

4:27

fucking astoundingly stupid number. Stargate's first and

4:29

only data center deal currently signed is

4:31

in Abilene, Texas, and it's expected to

4:33

be operational in mid-2020-6, though these centers

4:35

usually become operational in phases. This is

4:38

especially likely to be the case here,

4:40

considering that, according to the information, open

4:42

AI plans, to have access to a

4:44

gigawatt of power on hundreds of thousands

4:46

of GPUs. As part of this, the

4:49

Stargate project will construct a 360.5 megawatt

4:51

natural gas power station, and as I

4:53

said last episode, that one's about power.

4:55

This power station is, as far as

4:58

I can tell, still in the permitting

5:00

phase. It'll be some time before Stargate

5:02

breaks ground on the facility, let alone

5:04

starts to actually generate power. Now as

5:06

for funding, things have got a little

5:09

weird. Both Open AI and Soft Bank

5:11

have committed to putting in either $18

5:13

or $90 million each into the project.

5:15

I've seen both numbers reported by the

5:17

way. Regardless, it's not a bigger difference

5:20

to worry about, especially with... well... The

5:22

fact that Open AI does not really

5:24

have the money either way. What's a

5:26

billion dollars when you don't have anything?

5:28

The company is currently trying to raise

5:31

$40 billion at a $260 billion valuation

5:33

with the quote CNBC part of the

5:35

funding expected to be used for Open

5:37

AI's commitment to Stargate. Now, I'm old

5:39

enough to remember when this RAM was

5:42

previously rumored to be valuing Open AI

5:44

at $340 billion and... Also at $300

5:46

billion and Softbank appears to be taking

5:48

full responsibility for raising the round including

5:51

syndicating as much as $10 billion of

5:53

the amount Which means that it would

5:55

include a group of other investors Nevertheless,

5:57

it certainly seems Softbank will provide the

5:59

majority the capital, $30 billion, with CNBC

6:01

reporting that it will be paid out

6:03

over the next 12 to 24 months,

6:06

with the first payment coming as soon

6:08

as spring. Softbank also has another problem.

6:10

This one, I think, even the least

6:12

technical view can understand. They also appear

6:14

to not have the money. They don't

6:16

have the money. They not the money

6:19

to give open AI, not the money

6:21

for Stargate. It's a little bit of

6:23

worrying math. issues with this. According to

6:25

the information, Soft Bank CEO Masayoshi's son

6:27

is planning to borrow $16 billion to

6:29

invest in AI and may borrow another

6:31

$8 billion next year. The following points,

6:34

by the way, are drawn from the

6:36

information's reporting and I give serious props

6:38

to Duro Osawa and Corey Weinberg for

6:40

their hard work here. I attacked the

6:42

information sometimes with some of the framing,

6:44

but they actually do some of the

6:46

best reporting in tech journalism. Now, let's

6:49

do some maths. Softbank currently only has

6:51

31 billion dollars in cash on its

6:53

balance sheet as of December 2024. Its

6:55

net debt, which, despite what you think,

6:57

does not measure total debt but rather

6:59

represents its cash minus any debt liabilities,

7:01

stands at $29 billion. They plan to

7:04

use the loan in question to finance

7:06

part of their investment in open AI

7:08

and their acquisition of chip design firm

7:10

and pair. According to Softbanks reported assets,

7:12

its holdings are worth about $219 are

7:14

worth about $219 million dollars, so 33.

7:16

6 trillion yen for those of you

7:19

who deal with yen, including stock in

7:21

companies like Alababa and arm. On a

7:23

side note, not every company in Softbanks

7:25

portfolio is an arm or an Alababa,

7:27

like a good one. There are some

7:29

real stinkers too, and I'm not just

7:31

talking about the Moribun carcass of Wii

7:34

work. I recommend you look at, and

7:36

I'll link to this in the episode

7:38

notes, Softbanks recent group report, which is

7:40

linked in the spreadsheet, like I just

7:42

said, which I just said. in the

7:44

report which lists the 10 largest publicly

7:47

traded companies in Softbanks Vision Fund portfolio.

7:49

Now how all of them, without exception,

7:51

trade at a significant fraction of their

7:53

peak market cap. In simpler terms, the

7:55

10 biggest companies in Softbanks Flagship Tech

7:57

Fund are with far far less than

7:59

their all-time high and in some cases

8:02

with less than one fifth of their

8:04

all-time high. Is Soft Bank liquidated its

8:06

assets and I admit this is a

8:08

big ear from most likely a worst-case

8:10

scenario situation? How big would their losses

8:12

be? Separately, Soft Bank has committed to

8:14

a joint venture called SB Open AI

8:17

Japan and to spend $3 billion a

8:19

year on Open AI as tech for

8:21

the various companies across its group. We'll

8:23

talk about that later. But there's a

8:25

napkin mass. It's what soft banks agree

8:27

to. $18 billion, or $19 billion, really

8:29

do not know in funding for the

8:32

Stargate Data Center project. $3 billion a

8:34

year in spend on open AI software.

8:36

and as much as $30 billion in

8:38

funding for Open AI paid over 12

8:40

to 24 months according to the information.

8:42

And by the way, $25 billion has

8:44

also been reported, but the information reports

8:47

that Open AI has told investors that

8:49

Softbank will provide it at least $30

8:51

billion of the $40 billion they need.

8:53

Jesus fucking Christ, can you imagine if

8:55

this went it's something useful? Anyway, what

8:57

I'm getting at is that Softbank has

8:59

effectively agreed to bankroll the entirety of

9:02

Open AI's future, signing up for over

9:04

$46 billion dollars of investments over the

9:06

next few years of investments over the

9:08

next few years of investments over the

9:10

next few years. and does not appear

9:12

to be able to do so without

9:15

selling its current holdings in valuable companies

9:17

like Arm or taking at least $16

9:19

billion of debt this year, representing a

9:21

55% increase of its current liabilities. Worse

9:23

still, thanks to this agreement, Open AI's

9:25

future, both in its ability to expand

9:27

its infrastructure, which appears to be entirely

9:30

contingent on the construction of Stargate with

9:32

Microsoft pulling out, and its ability to

9:34

raise funding, which is also entirely dependent

9:36

on soft bank, And Softbank in this

9:38

case where Open AI is entirely dependent

9:40

on Softbank to live must borrow money

9:42

to give to Open AI, a company

9:45

that only loses money. On top of

9:47

that, Open AI also on the money

9:49

losing front anticipates it will burn as

9:51

much as $40 billion a year by

9:53

2028 and projects to only turn a

9:55

profit by the end of the decade

9:57

after the build-out of Stargate, which I

10:00

add is like I said... Almost entirely

10:02

depend on us. softbank which has to

10:04

take on debt to fund both open

10:06

AI and the project required to theoretically

10:08

make open AI. Profitable, how the fuck

10:10

does this work? How does this work?

10:12

How does this work? How does this

10:15

work? How the fuck does this work?

10:17

Open AI! A company that spent $9

10:19

billion to lose $5 billion in 2024

10:21

requires so much money to be its

10:23

obligations, both to cover its stupid, ruinous,

10:25

unprofitable, unsustainable operations, and the $18 billion

10:27

to $19 billion that committed to keep

10:30

growing, that it has to raise more

10:32

money than any startup has ever raised

10:34

in history. $40 billion, fucking dollars, with

10:36

the cast iron guarantee that it will

10:38

need even more money within a year.

10:40

and has to go to someone and

10:43

say, my huge beautiful company is so

10:45

powerful, but it's weak and sick and

10:47

frail, I need more money than you

10:49

have today, and I'll need more money

10:51

than you'll have tomorrow. My company is

10:53

so sick and weak, but it's the

10:55

most powerful company of all time. Sam

10:58

flipping off... Pisses me off. Imagine if

11:00

this money went literally anywhere else. You

11:02

could set it on fire, or at

11:04

least be fucking warm? Soft bank. On

11:06

top of the $30 billion of funding

11:08

and $3 billion a year of revenue

11:10

it's committed to open AI itself, also

11:13

has to cough up $18 billion for

11:15

Stargate, the data center project that Open

11:17

AI will run and get this. Soft

11:19

Bank will take financial responsibility for $48

11:21

billion in cash, $3 billion in revenue,

11:23

the latter of which, like all Open

11:25

AI's offerings, will lose the company money.

11:28

Open AI has no path to profitability,

11:30

guaranteeing it will need more cash, and

11:32

right now, at the time, and it

11:34

needs it, more than it's ever needed

11:36

it, Soft Bank, the only company willing

11:38

to provide it, and possibly the only

11:40

company with the money to do so,

11:43

has proven that it will have to

11:45

go to greet, possibly ruinous lengths to

11:47

do so do so. If Open AI

11:49

needs $40 billion in 2025, how much

11:51

will it need in 2026? $50 billion?

11:53

$100 billion? Where is that money going

11:55

to come from? While Soft Bank might

11:58

be able to do this once, what

12:00

happens when Open AI needs money in

12:02

6 to 12 months? Soft Bank made

12:04

about $15 billion of profit. the last

12:06

year on about 46 billion dollars of

12:08

revenue. Three billion dollars is an absolutely

12:11

obscene amount to commit to buying Open

12:13

AI software annually, especially when some of

12:15

it is allegedly for access to Open

12:17

AI's barely functional operator and mediocre deep

12:19

research products. As per my previous podcast

12:21

and pieces, I do not see how

12:23

Open AI survives, and Soft Bank's involvement

12:26

only gives me further concern. While Soft

12:28

Bank could theoretically burn its current holdings

12:30

to fund Open AI and perpetuity, its

12:32

ability to do so is cast into

12:34

doubt by them having to borrow money

12:36

from other banks to get both into

12:38

this fund. and to get Stargate done.

12:41

Open AI burned $5 billion in 2024,

12:43

a number it will likely double in

12:45

2025, and remember, the information reported that

12:47

Open AI was projected to spend $13

12:49

billion on computer alone with Microsoft in

12:51

2025, and has no path to profitability.

12:53

Softbank has already had to borrow to

12:56

fund this round, and the fact they

12:58

had to do so suggests its inability

13:00

to continue supporting Open AI without accruing

13:02

further debt. Open AI as a result

13:04

of Microsoft's cuts to data center capacity

13:06

now only has one path to expansion.

13:08

Once it runs through whatever remaining build-out

13:11

Microsoft has planned that is, and that's

13:13

Stargate, a project funded by Open AI's

13:15

contribution, which it's receiving from Softbank and

13:17

Softbank, which is also having to take

13:19

out loans to meet its share. How

13:21

does this work exactly? How does this

13:23

continue? Do you see anyone else stepping

13:26

up to fund this? Who else has

13:28

got 30 to 40 billion dollars to

13:30

shit out every year? While the answer

13:32

is Saudi Arabia, Softbank's CEO Masiyoshi son

13:34

recently said that he had had, and

13:36

I quote, not given Saudi ruler Muhammad

13:39

bin Salman enough return, adding that he

13:41

still owed him. That's... Really not the

13:43

ideal thing you want to say after

13:45

naming MBS. Nothing about this suggests that

13:47

Saudi money will follow soft banks in

13:49

anywhere near the volume necessary. As for

13:51

the emeraldies, they're already involved through the

13:54

MJX fund and it's unclear how much

13:56

more they'd be willing to commit. Really,

13:58

really though. Really? My buddy fellow. How

14:00

does this work? How's this work? In

14:02

my opinion, this open AI softbank deal

14:04

is wildly unsustainable, dependent on softbank continuing

14:06

to raise both debt and to funnel

14:09

money directly into a company that burns

14:11

it. Burns it by the billions every

14:13

year, and it's set to only burn

14:15

more thanks to the arrival of its

14:17

latest bullshit model. And if it had

14:19

a huge breakthrough that would change everything,

14:21

wouldn't Microsoft want to make sure they

14:24

were building the data center capacity to

14:26

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17:09

Whether you're a startup founder

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17:17

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been more critical or more

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complex. Arsthenica

20:22

also reported that GPT 4.5 was terrible

20:24

for coding, relatively speaking, and other tests

20:26

showed that the model's performance was either

20:29

slightly better or slightly worse across the

20:31

board, with, according to Arsthenica, one success

20:33

metric being the open AI found open

20:35

human evaluators preferred GPT 4.5's responses of

20:38

a GPT-40 in about 57% of interactions.

20:40

Wow! That's... Very underwhelming. So just to

20:42

be crystal clear, the biggest AI company's

20:44

latest model appears to be even more

20:47

ruinously expensive than its last one while

20:49

providing modest at best improvements and performing

20:51

worse on several benchmarks than competing models.

20:53

Very good. Despite these piss-poor results, Sam

20:56

Altman's reaction was to bring in hundreds

20:58

of thousands of GPUs as a means

21:00

of exposing as many as people as

21:03

possible to his mediocre, ultra-expensive model. And

21:05

the best that Altman has to offer

21:07

is that this is the first time

21:09

people have been emailing with such passion,

21:12

asking open AI to promise to never

21:14

stop offering a specific model. I am

21:16

just going to say this. That is

21:18

a tweet and it never happened. Or

21:21

it never happened. Or it happened like

21:23

once. This is some girlfriend in Canada

21:25

share. Sam Altman is washed. When all

21:27

of this falls apart, remember I said

21:30

he was washed. Now remember how I

21:32

talked about open AI's lack of meaningful

21:34

improvement. As a reminder GPT 4.5 was

21:36

meant to be GPT5, but according to

21:39

the Wall Street Journal, continually failed to

21:41

make a model that advanced enough to

21:43

justify the enormous cost. with a six-month

21:45

training run costing $500 million and GPT

21:48

4.5 requiring multiple runs of different sizes.

21:50

So yeah, Open AI spent hundreds of

21:52

billions of dollars to make this. Great

21:54

stuff! And I haven't even mentioned the

21:57

companies purported... and no I'm not talking

21:59

about operator which is also dogship by

22:01

the way. Open AI wants to create

22:04

tears of AI agents with the cheapest

22:06

costing $2,000 a month and capable of

22:08

handling administrative tasks and the most expensive

22:10

costing $20,000 in having PhD level. Look

22:13

I wrote this script and I'm going

22:15

to be honest I can't even read

22:17

that sentence with a straight face. operator

22:19

cannot even search trip advisor properly. It

22:22

can't even do a thing that let

22:24

me Google that for you does. And

22:26

these chunder fucks want to charge $2,000

22:28

a month for an agent that does

22:31

what? Does some sort of, what's it

22:33

do? Oh, $20,000 for something with PhD

22:35

level capabilities. I think all the people

22:37

with PhDs listen to this have just

22:40

stood up and gone, I have an

22:42

idea. And this is insane on many

22:44

levels, not simply because the base product

22:46

is undercut by actual human workers in

22:49

many parts of the world, and even

22:51

PhD students are typically only paid 20,000

22:53

to 30,000 a year on average. And

22:55

even people with actual doctorates in industries

22:58

rarely earn $20,000 a month unless they're

23:00

working in Silicon Valley or occupying a

23:02

C-sweet job. But forget all about that,

23:05

what does it mean to have a

23:07

PhD level agent? Remember, LLLams are guessing

23:09

machines. They don't know anything, or even

23:11

understand the concepts behind the words they

23:14

spit onto a page. No, seriously, Sammy,

23:16

what does it mean? I'm fucking waiting.

23:18

You damp goblin. You pissant. And maybe

23:20

I shouldn't just sit here insulting him.

23:23

Wanker. Anyway, this by the way is

23:25

the company that is about to raise

23:27

40 billion dollars led by a Japanese

23:29

bank that has to go into debt

23:32

to fund both their operations and the

23:34

infrastructure necessary for them to grow any

23:36

further. Again, as we started with, Microsoft

23:38

is cancelling plans to massively expand its

23:41

data-centered capacity right at a time when

23:43

Open AI just released its most computationally

23:45

demanding model ever. How do you reconcile

23:47

those two things without concluding either that

23:50

Microsoft expects GPT-4? 4.5 to be a

23:52

flop, although it's simply unwilling to continue

23:54

bankrupt doubts about the future of generative

23:56

AI in general. Hmm. Maybe. Now I

23:59

have been and remain hesitant to call

24:01

the bubble bursting, because bubbles do not

24:03

burst really. They certainly don't burst in

24:06

neat little events. Nevertheless, my pale horses

24:08

I predicted in the past were led

24:10

by one specific call that reduction in

24:12

capital expenditures by a hyperscaler was a

24:15

sign that things were collapsing. Microsoft walking

24:17

away from over a gigawatt of data

24:19

center plans, equivalent to as much as

24:21

14% of its current data center capacity,

24:24

is a direct sign that it does

24:26

not believe that growth is there in

24:28

generative AI, and thus they are not

24:30

building the infrastructure to support it, and

24:33

indeed may have overbuilt something that, as

24:35

I've mentioned, that Microsoft CEO Sachinadella has

24:37

directly foreshadowed in his interview with Duarkesh

24:39

and otherwise extremely boring and waste of

24:42

an hour of your life. The entirety

24:44

of the tech industry and the AI

24:46

bubble has been... built on the assumption

24:48

that generative AI was the next big

24:51

growth vehicle for tech. And if Microsoft,

24:53

the largest purchaser of invidia, GPU is

24:55

in the most aggressive builder of AI

24:57

infrastructure, is reducing capacity, it heavily suggests

25:00

that the growth is not there. Microsoft

25:02

has by the looks of things effectively

25:04

given up on further data center expansion.

25:07

At least at the breakneck pace it

25:09

runs promised and that even suggests that

25:11

generative AI will be a thing in

25:13

a few years. Definitely not the scale

25:16

it is right now. AI boosters will

25:18

email me and they'll say there's something

25:20

that I don't know that in fact

25:22

Microsoft has some greatest strategy and some

25:25

efficiency play. But answer me this, why

25:27

is Microsoft cancelling over a gigawatt of

25:29

data expansion? And again, this is the

25:31

most conservative estimate. The realistic number is

25:34

much higher. Do you think it's because

25:36

it expects there to be this dramatic

25:38

demand for the AI services? Do you

25:40

think it's reducing supply because of all

25:43

the demand? Now, you might think that

25:45

this is an efficiency play. They're playing

25:47

with Deep Seek, right? No. Sorry, that

25:49

doesn't matter. Even if Deep Seek was

25:52

this magical efficiency. which it may or

25:54

might not be. I actually think it

25:56

is more efficient, like that's true, but

25:58

we actually don't know if it's profitable.

26:01

Even then, they've been talking about not

26:03

having the capacity to deal with demand,

26:05

they've been talking about how incredible this

26:08

is, they've been talking about how big

26:10

this is going to be. This sounds

26:12

like they don't think it's going to

26:14

be big, even, it's going to get

26:17

my ass in the comments on that

26:19

one. Now, one might argue that Microsoft's

26:21

reduction in capacity build-out is just the

26:23

sign that OpenAI is moving its compute

26:26

elsewhere. Maybe that's true. And if Stargate

26:28

ever gets built, which I question anyway,

26:30

here are some questions to ask. Microsoft

26:32

still sells access to OpenAI's API through

26:35

Azure. Does it not see the growth

26:37

in that product? Do they not see

26:39

it? Are they not expanding? Is the

26:41

growth not there? And Microsoft still, one

26:44

would assume, makes money off of open

26:46

AI's compute expenses, right? Or is that

26:48

not the case? Due to the vast

26:50

75% discount that Open AI gets on

26:53

using its services. I have been told

26:55

that it's very close to the wire

26:57

by sources, but I can't say it.

26:59

But you'd have to just look at

27:02

the fact that they do actually do

27:04

that that that was reported by the

27:06

information. Microsoft making such a

27:08

material pullback on data center expansion suggests

27:11

that the growth in generative AI products,

27:13

both those run on Microsoft's service and

27:15

those sold as part of Microsoft's products,

27:17

do not have the revolutionary growth trajectory

27:20

that both CFO Amy Hood and CEO

27:22

Satchina Della have been claiming, and this

27:24

is all deeply concerning, while also calling

27:26

into consideration the viability of generative AI

27:29

as a growth vehicle for any hyperscalor.

27:31

If I am correct, Microsoft is walking

27:33

away not just from expansion of its

27:35

current data center operations, but from generative

27:38

AI writ large. I actually believe it

27:40

will continue selling this unprofitable unsustainable software,

27:42

because the capacity it has right now

27:44

is more than sufficient to deal with

27:47

the incredible lack of demand. It's time

27:49

for investors in the general public to

27:51

begin demanding tangible direct numbers on the

27:53

revenue and profits related to generative AI,

27:56

as it is becoming increasingly obvious that

27:58

the revenues are... and the profits are

28:00

non-existent. A gigawatt of capacity is huge,

28:02

and walking away from that much capacity

28:05

is a direct signal that Microsoft's long-term

28:07

plans do not include needing a great

28:09

deal of compute. One counter could be

28:11

that it's waiting for more of the

28:14

specialized and video GPUs to arrive, to

28:16

which the response is Microsoft still wants

28:18

to build the capacity so it has

28:20

somewhere to fucking put them. Again, these

28:23

facilities take anywhere between three and six

28:25

years to build. Do you really think

28:27

Black will be so delayed that they

28:29

won't arrive until 2028? for my even

28:32

life then. Anyway, one counter could be

28:34

that there isn't the power necessary to

28:36

power these data centers and if that's

28:38

the case, it isn't, but let me

28:41

hear the idea. Then the suggestion is

28:43

that Microsoft is currently changing its entire

28:45

data sentence strategy so significantly in the

28:47

hour has to issue over a gigawatts

28:50

of intent across the country to different

28:52

places because of more power. There's more

28:54

power in those places less than did

28:56

they make a gigawatt worth of mistakes?

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29:40

friends to the Playful Scratch from the

29:42

California Lottery. We've got a special guest

29:44

today, The Scratcher Scratch Master himself, Juan.

29:46

Juan, you've mastered, Playful Ways to Scratch,

29:49

impressive. How'd you do it? Well, I

29:51

began with a coin, then tried a

29:53

guitar pick. I even used a cactus

29:55

once. I can scratch with anything. Even

29:57

this mic right here. Hi,

31:10

this is Debbie your blinds.com design

31:12

consultant. Oh wow a real person.

31:14

Yep, I'm here to help you

31:17

with everything from selecting the perfect

31:19

window treatment to... I've got a

31:21

complicated project. No. Ultimately

34:00

Microsoft has positioned itself at the heart

34:02

of generative AI both through its own

34:04

strategic product decisions and its partnership with

34:06

open AI. And the fact that it's

34:08

now scaling back on the investment required

34:10

to maintain that momentum is I believe

34:13

pretty significant. I also recognise that all

34:15

of this is a big juicy steak

34:17

for someone, some people call a pig

34:19

or an animal or a monster or

34:21

an AI cynic. Look. I've poured over

34:23

this data repeatedly and done all that

34:25

I can to find less convenient or

34:27

satisfying conclusions. Let us, if intent, are

34:30

likely the weakest part of my argument.

34:32

These are serious documents, by the way,

34:34

but they're not always legally binding. Neither

34:36

are those statements of qualifications, but as

34:38

Teddy Cohen pointed out, SQUs are generally

34:40

treated as the green lights stop working

34:42

on construction, even though a formal lease

34:45

agreement hasn't yet been signed. And to

34:47

be clear, Microsoft let an indeterminate an

34:49

indeterminate amount of SQ amount of SQQ

34:51

amount of SQQues go. Nevertheless, it's incredibly

34:53

significant that Microsoft is letting so many,

34:55

the equivalent of as much as 14%

34:57

of its current data-centered capacity, a bare

34:59

minimum, on top of the couple hundred,

35:02

so at least 200 megawatts of data-sentences,

35:04

become canceled. I do not know why

35:06

nobody else has done this analysis. I've

35:08

now read every single piece about the

35:10

TD Cohen report from every single outlet

35:12

the cover down. I've read some weird

35:14

SEO stuff. It's not good. And I'm

35:16

under... I'm just kind of astounded! astounded!

35:19

by the lack of curiosity as to

35:21

what 1GW Plus means in a report

35:23

that meaningfully moved markets, as I'm equally

35:25

astonished by the lack of curiosity to

35:27

contextualize most tech news. It's as if

35:29

nobody wants to think about this too

35:31

hard, like nobody wants to stop the

35:33

pie, nobody wants to accept what's been

35:36

staring us in the face since last

35:38

year, if not earlier, and when given

35:40

the most egregious, glaring evidence, people still

35:42

must find ways to dismiss it or

35:44

ignore it rather than give it the

35:46

energy it deserves. Far more resources were

35:48

dedicated to finding ways to gussy up

35:51

the releases of Anthropics Claude Sonnet 3.7,

35:53

or open AI as GPT 4.5, that

35:55

were given the report from an investment

35:57

bank's research wings, that the largest spender

35:59

in generative AI, the largest backer for

36:01

now. of Open AI at least is

36:03

massively reducing its expenditures in data centers

36:05

required for the industry and for Open

36:08

AI, a company is ostensibly worth $157

36:10

billion to expand. Microsoft's stake in Open

36:12

AI is a bit fuzzy, as Open

36:14

AI doesn't issue traditional equity, and there's

36:16

a likelihood it may be diluted as

36:19

more money comes in. It reportedly owns...

36:21

49% in 2020-23 though. Assuming that's still

36:23

the case, are we to believe that

36:25

Microsoft is willing to strangle an asset

36:27

worth at least $75 billion, several times

36:30

more than its investment today, by cancelling

36:32

a few leases? How many more alarms

36:34

do we need to go off before

36:36

people recognize that something bad is happening?

36:38

Why is that tangible, meaningful evidence that

36:40

we're in a bubble, and possibly a

36:42

sign that it might be popping, less

36:44

interesting than the fact that Claud's on

36:46

it 3.7 can think longer, and if

36:48

you're listening to this and you think

36:50

I'm talking about you, I fucking am.

36:52

I am sick of this shit. I

36:54

am absolutely sick of this shit. I'm

36:56

sick of reading articles like that when far

36:59

more important and scary and damning things are

37:01

happening. Things that actually matter. I don't care

37:03

if Warrio Amade is allowed you to

37:05

make it compute for longer. It doesn't matter

37:07

compared to this. It does not matter

37:09

compared to a gigawatt or more of capacity

37:12

going. And I'm sick of this. I'm sick

37:14

of me having to be the guy

37:16

sometimes. I do not say these things to

37:18

be right. I don't want to be

37:20

a cynic or a cynic or a hater.

37:23

If I do not, I will actually go

37:25

insane. Every time I sit down to write

37:27

my newsletter or record this podcast, I'm doing

37:29

it because I'm trying to understand what's happening

37:32

and how I feel about it. And these

37:34

are the only terms that dictate my creativity.

37:36

It just happens that I've stayed at the

37:38

tech industry for too long and now I

37:41

can't look away. Perhaps it's driving me mad,

37:43

or maybe I'm getting smarter, or maybe it's

37:45

an Arnold Palmer of the Two, but what

37:47

comes out of my work is not driven

37:49

by wanting to go viral, or having a

37:52

hot take, or be a renowned skeptic, or

37:54

being right, or being anything, because such things

37:56

suggest that I would do this differently, if

37:58

three people listened versus... I actually

38:00

can't say the amount of people that

38:03

do, I have rules, but 57,000 people

38:05

subscribe to my newsletter, extrapolate from there.

38:07

I would do the same god damn thing,

38:09

and in fact, if you look back in my

38:11

work, I've done the same thing from the beginning.

38:13

Now I'm not saying that Microsoft is dying

38:15

or making any grandiose claims about what

38:18

happens next. What I am describing, however,

38:20

is the material contraction of the largest

38:22

investor in data centers according to TD

38:24

Cohen, potentially at a scale that suggests

38:26

that Microsoft has meaningfully reduced its interest

38:28

in further expansion of data centers writ

38:31

large. This is a deeply concerning

38:33

move, one that suggests that Microsoft

38:35

does not see demand to sustain

38:37

the current expansions, which has greater

38:40

ramifications beyond generative AI, because it

38:42

suggests that there isn't any other

38:44

reason for it to expand the means

38:46

of delivering software. What has Saginadella

38:48

seen? What is Microsoft, CFO, Amy

38:51

Hood, doing? What is the plan

38:53

here? And really, what's the plan with

38:55

Open AI? Softbankers committed over $40 billion

38:57

of costs that it currently cannot afford,

38:59

taking on as much as $24 billion

39:01

in debt in the next year to

39:03

help sustain one more funding round and

39:05

the construction of data centers for open

39:07

AI, a company that loses money on

39:09

literally every single customer. To survive, Open

39:11

AI must continue raising more money than

39:13

any startup has ever raised before, and

39:15

they are only able to do so

39:17

from Soft Bank, which in turn must

39:19

take on debt. Open AI burned $5

39:21

billion in 2020, and will likely burn

39:23

$11 billion or more in 2025, and

39:25

will continue burning money in perpetuity, and

39:27

to scale further will require funding for

39:29

a data center project funded partially by

39:31

a funding from a company that's taking

39:33

on debt to fund them. And when

39:35

you put this all together, all I can

39:38

see is calamity. Generative AI does not

39:40

have meaningful mass market use cases and

39:42

while chatGPT may have 400 million weekly

39:45

active users, there doesn't appear to be

39:47

meaningful consumer adoption outside of chat GPT,

39:49

mostly because almost all AI media coverage

39:52

inevitably ends up marketing one company, Open

39:54

AI. Argue with me all you want

39:56

about your personal experiences with chat GPT

39:58

or how you... found it useful. I

40:01

don't care. I stopped listening a while

40:03

ago. Your points never prove anything. That

40:05

doesn't make it a product with mass

40:07

market utility or enterprise utility or worth

40:09

the vast sums of money being plowed

40:11

into it. Worse still, it doesn't appear

40:13

to be any meaningful revenue. As discussed

40:16

in my last episode... Microsoft

40:18

claims $13 billion in annual recurring

40:20

revenue, not profit, on all AI

40:22

products combined on over $200 billion

40:25

of capital expenditures since 2023, and

40:27

no other hyperscaler is willing to

40:29

break out any AI revenue at

40:31

all. Not Amazon, not matter, not

40:33

Google, nobody. Does that not worry anyone?

40:36

Is anyone listening to this who actually

40:38

deals with the economy? Can you please

40:40

listen to me so we don't...

40:42

Actually, I don't know what we do. I

40:44

actually don't know. I have no idea. Where's the

40:46

growth? Where's the money? Where's the money,

40:49

Sammy? Where is it? Where's my money, honey?

40:51

Give me the money, Sam Mormon? Where's

40:53

my money, Solomon? Where's my money? Why

40:55

is Microsoft cancelling a gigawatt of data

40:57

center capacity while telling everybody that it

41:00

didn't have enough data centers to handle

41:02

demands for its AI products? Hmm. Well,

41:04

I suppose there's one way of looking

41:06

at looking at it. Microsoft may

41:08

currently have a capacity issue, but

41:10

soon won't, meaning that further expansion

41:13

is unnecessary. That's the case, it'll be

41:15

interesting to see whether their peers follow

41:17

suit. Either way... Look, I see nothing that suggests

41:19

that there's future growth in general of

41:22

AI. In fact, I think it's time

41:24

for everybody to seriously consider that big

41:26

tech burn billions of dollars on something

41:28

that nobody ever wanted or would pay for.

41:30

If you listen to this

41:32

and scoff... I don't know,

41:34

what should I have talked

41:37

about? Anthropic adding a sliding

41:39

thinking bar to a model

41:41

GPT-4.5, who gives a shit?

41:43

Can you even tell me

41:45

what it does differently to

41:47

GPT-40? Can you explain to

41:49

me why it matters? Or

41:51

are you more interested in

41:53

nakedly captured imbeciles like Ethan

41:55

Mollick's swettly oinking about how

41:57

the infrastructure and how things

42:00

actually get built. Wake the fuck

42:02

up, everybody! Things are on

42:04

fire! Thank

42:13

you for listening to Better Offline.

42:15

The editor and composer of the

42:17

Better Offline theme song is Matosowski.

42:19

You can check out more of

42:22

his music and audio projects at

42:24

Matosowski.com, M -A -T -T -O -S -O -W -S -K

42:26

-I.com. You can email me at

42:28

easy at betteroffline.com or visit betteroffline.com

42:30

to find more podcast links and

42:32

of course my newsletter. I also

42:35

really recommend you go to chat .wizyoured

42:37

.at to visit the Discord and

42:39

go to r/Better Offline to check

42:41

out our Reddit. Thank

42:43

you so much for listening. Better

42:45

Offline is a production of CoolZone

42:47

Media. For more from CoolZone Media,

42:49

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