Monologue: What If I'm Right?

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Call Zone Media.

Heil, traveler, welcome to this week's Better Offline monologue.

I'm your host, Ed Zitron.

So, I'm reading this the day after Nvidia put out their August 27th earnings, and I'm not sure anybody really knows how to react.

Well, NVIDIA beat estimates in general, they, for the second quarter running, missed analyst estimates on data center revenue, which is 88% of their revenue where all the GPUs are, coming in at $41.1 billion on an estimated $41.3 billion.

The market also has a very unhealthy relationship with this company.

NVIDIA grew like 50% or something year over year, but because they didn't grow 112% or whatever year over year, people are the babies in the markets are soiling their diapers.

And honestly, it's because, really, it's unhealthy.

The unrealistic valuations that NVIDIA has been given are finally causing problems.

And as a reminder, NVIDIA is the company that makes the specialized GPUs used in effectively all generative AI and has seen unprecedented stock growth as a result of this hype cycle.

The Magnificent 7 stocks, Microsoft, Google, Meta, Amazon, Apple, Tesla, and of course NVIDIA make up 35% of the value of the US stock market and as I mentioned on the AI money trap data center capital expenditures of which NVIDIA makes up a large chunk by well their GPUs do at least accounted for more growth than all consumer spending combined.

So on so many levels, NVIDIA really is the AI bubble.

They're the only company making a profit on AI and 42% of their revenue is from the Magnificent 7 companies buying their GPUs and their financial health and continued growth is a barometer for the future growth of this nonsense bullshit bubble that I'm tired of talking about.

Kind of, but you know, there's always something to chat about.

Yet, Luke Carwa of Sherwood News discovered one particularly weird part of NVIDIA's earnings this week: $2.2 billion of their revenue under net other income, which turned out to be from the mark-to-market value of their investment in unprofitable AI compute company Coreweave.

And by the way, NVIDIA invested in Coreweave has a $1.3 billion GPU compute deal with them called Project Osprey.

They give them preferential rights to their GPUs and Coreweave, when they raise debt, they raise by using the GPUs they bought from NVIDIA as as collateral in the loan and then they use that money from the from the loan to buy more GPUs.

Every time I think about Coreweave, I've I feel a little crazy.

And in simple terms, NVIDIA booked the increased value of their investment in Core Weave as revenue in a quarter where they barely hit estimates.

Hmm.

The reason I'm telling you this is that I believe, as I have always said, that all of this ends poorly.

NVIDIA isn't doing anything dodgy per se by including Core Weave's stock.

It's just that the value of that stock in Core Weave is covering up NVIDIA's slowing growth.

If Core Weaves value craters in the next few months, NVIDIA will have to book a massive loss in the same category.

And I know some of you are going to email me and say, hey, where'd I hear Mark to market before?

And the answer is Enron.

And I don't think this is like Enron because Enron was doing something somewhat different.

They were valuing contracts in bizarre ways.

This is not exactly the same thing.

Nevertheless, it's extremely weird to say, yeah, the value of this stock I got over here went up.

Isn't that good?

Yeah, that's revenue now.

It's dangerous.

It's dangerous stuff.

And it means that on some level, Nvidia's financial health and future earnings are somewhat dependent on Coreweave.

It's all so good.

I like it.

It's very good.

It's normal.

Everything's so good.

It's great.

Everybody's doing well.

And what's even more better is that NVIDIA is effectively the only success story in AI.

OpenAI and Anthropic burn billions of dollars each year and have no path to any kind of sustainability.

And as I've argued again and again, these products lack any kind of large-scale use cases other than the fact that every single media outlet has been screaming chat GPT for the last three years and seemingly everyone just sees code generation goes oh my god this is literally God

but I think after three years of breathless hype the worm is kind of turning on AI in the last week I've been on national TV twice once on CNN and once on the BBC and while I'm still introduced as somebody that does not believe the hype the fact is that more people are beginning to wonder what if Ed's right

so

From here on out, I'm going to extrapolate a little bit.

I don't know the future.

I'm not saying, oh, this will definitely happen, but here are some things that are on my mind.

If I'm right, well, let's start with something simple.

OpenAI is toast.

The Financial Times reported that OpenAI's corporate restructuring is, and I quote, likely to slip into next year, as Microsoft refuses to budge on the terms of OpenAI converting from a non-profit to a for-profit.

Now, this is because OpenAI went to Microsoft and said, okay, guys, we need to convert to a for-profit or we will die.

Microsoft said, okay, great.

Go ahead and do that.

We don't mind.

Open AI said, well, what we're going to need is we're going to need you to end your exclusivity deal over our models.

We're going to need to cut your revenue share.

We're going to need to not share our IP and our research with you.

What do you think?

And Microsoft said, go fuck yourself.

Microsoft back in, I think, May, said that they were willing to walk away from the table.

I don't fucking blame them.

Now people will say, well, Microsoft wants OpenAI to go public.

They'll get a bunch of money, kind of like Core Weave did for Nvidia, right?

Except Microsoft already owns all their IP and already runs all their infrastructure.

Remember, OpenAI doesn't own any of their infra at all.

They're trying to build that bullshit out in Abilene, Texas, of course.

But I mean, that's not going to be built this year or even next at this point.

So, you know, Microsoft is not understandably jazzed to take this deal and could let OpenAI die on the vine.

And if OpenAI fails to convert by the end of the year, SoftBank cuts their funding round in half, meaning that, by my calculations, SoftBank's part of the remaining $30 billion, which would at this point become $10 billion, would drop to $700 billion, thanks to OpenAI already raising $8.3 billion from other investors.

Some people are saying it's $10 billion just from SoftBank.

I don't think people are good at math.

I swear to God, I've been looking at this shit for years.

And nevertheless, things don't look good there.

And again, SoftBank has been very clear that if by the end of the year OpenAI is not converted, they're cutting that round in half.

Even if OpenAI and Microsoft work this out today, I don't think it's possible that they convert by the end of the year, if it's even possible at all.

Non-profits are very specific things, and no one has ever done what OpenAI is trying to do.

And if OpenAI cannot convert, they are dead because they can never IPO and they're too big to sell to anyone else.

And thus investors would have little reason to put further capital in other than believing that OpenAI will somehow stop burning billions of dollars, something they have never proven is possible and nobody has, in fact.

And fucking, I hear the cost of inference is going down again.

I'm going to screen and it's going up.

I'm getting to it later and in a future episode.

And if the conversion fails, OpenAI can probably cobble together another $15 billion of funding before they shit their pants and die.

And as an aside, OpenAI is currently doing an insider share sale at a $500 billion valuation, with current and former employees selling $8 billion worth of stock.

This is not something you do if you think you're going to go public anytime soon, if ever.

I need to be clear about this.

It looks bad.

And outside of NVIDIA, AI is failing to produce any kind of profit.

And once venture capital realizes this, they'll stop investing in these giant loss-ridden monstrosities.

This will naturally bring things to a head at Anthropic, another company that burns billions of dollars, who will inevitably raise maybe another 10, 15 themselves and perhaps another roundup after that.

With no profitability, though, there is no reason.

Really, no reason to keep throwing cash in the furnace.

And I believe that Anthropic eventually gets absorbed into Amazon, like at the end of that horrible game inside.

And maybe it will also flop around like a big blob in a field.

And if I spoiled Inside View, it's an old game.

You should have beaten it by now.

Though in the public markets, eventually the AI trade will fail.

Despite what the headlines may say, outside of NVIDIA, the Magnificent 7 has not been making money on AI and has instead been growing their already existing businesses.

Which is something that reporters should know better.

Yet they're claiming that...

Any kind of growth proves that AI bets are paying off.

I'm not singling you out yet, but you gotta fucking stop.

Once other revenue sources stop papering over the flimsy or non-existent revenue, and I mean revenue not profit from AI, the street will realize and they will panic.

But let's get serious.

If I'm right, we're all bearing witness to one of the most catastrophic failures in the history of the markets, journalism, and society itself.

Generative AI was sold as a myth.

It's been blatantly obvious from the very beginning that large language models do not have mass market use cases.

And no, coding LLMs do not goddamn count.

They don't.

They don't produce the kind of revenues.

And guess what?

The coding LLMs are so expensive to run that if you took away the subsidies, they would be economically impossible.

Stop arguing with me on this point.

I will crush you.

Yet, many, many, many, many, many journalists choose to blindly repeat that OpenAI and other companies are building powerful AI that would replace human workers, choosing to deliberately ignore the piss-poor outcomes from using these products.

And I don't know, failing to define what powerful means, because powerful does not seem to mean goddamn anything.

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Journalists had an opportunity to tell the truth, to look at the products and say, hey, I don't really get why this is so amazing or powerful exactly.

To question the valuations of companies that make little or no revenue while burning hundreds of millions or billions of dollars, to interrogate the outright lies of Sam Altman and Wario Dario Amade.

Instead, they choose to fuel a fantastical fire, repeating the promises of people like Sam Altman in the hopes they'll be the first to be able to parrot his next lie or talk to his clammy ass about nothing for three hours.

I worry that things are so much worse than we know.

I have an inkling that the price of serving GPU compute, the underlying infrastructure of all generative AI, is horribly unprofitable.

And if if you're a person who's going to say, oh, it's only a few dollars an hour, hey, what if they're selling that few dollars an hour at a loss?

We know now that the cost of inference is increasing, and that's coming up in future episodes, but it was in the GPT-5 one.

And thus, the costs of providing AI services, which were already unprofitable, is increasing too.

Yet by constantly accepting a myth that AI would get more powerful, that these companies would somehow work out how to stop burning way more money than they make, the big tech would not simply lie about what was possible, Journalism peddled outright lies and helped sustain a hype cycle based on little more than believing the last smart-sounding guy you ran into or what that guy told someone you kind of respect.

You can dress this up by being an optimist.

You can dress this up by pretending that you thought they would extrapolate from here, that these companies would just work it out, that they were just like Uber, that they were just like Amazon Web Services, that they would innovate and contribute so much the economy based on the things that they told you that they wanted you to repeat so their investors would give them more money.

You can pretend that all of this made sense at any goddamn time, but you know you either half-assed it or you're lying to yourself at this point.

And I understand also that there are some people writing about this who maybe don't want to write such fantastical things.

They feel pressured or they're scared and I actually understand the fear then.

When everyone around you has pissed their pants and they're saying, why haven't you pissed your pants?

Perhaps you wouldn't want to do it.

But if everyone's screaming at you, what are you meant to do?

If your editors are saying, write a positive AI story, if your editors are saying that 13% of people in the Stanford,

there was this, sorry, I'm actually going to reframe this point and not retake it because this is important.

There was a study that went out that said that 13%, I think, there's a 13% drop in jobs that were affected by AI and that this was proof that AI was taking these jobs.

When you look at this goddamn study, you you can see that it doesn't actually prove that AI was involved and says that, yeah, 13% of

career paths and jobs that were somehow being replaced by AI were dropping and as a result, AI was involved.

It seems like a fumbled point, but what it actually just said was that there was a 13% drop in certain employment and we'd like AI to be involved.

So

on some level.

I realize I'm ranting.

I realize I'm going a little bit off script.

I'm just fucking tired of this.

I'm tired because even now,

even today,

even as you look at these companies burning all this money, even as you look at the fact that there are no real returns here, and when you look at the products, you can see they don't really do anything super futuristic.

Even now, there are people who still talk to me and repeatedly say shit like, well, what if you're wrong?

What if you're wrong about this?

Well, Ed, what if you turn around and then the computer wakes up and says, I love you, Ed.

I love you.

Nothing happens because that won't happen.

And we're living a lie.

And we built our economy on a lie.

And it's scary.

It's scary because the economy is built on data center growth.

And it's scary because so much of journalism just missed this.

It just missed it.

And I myself have done very well as a result of this because I've been elucidating.

hundreds of thousands of words at a time, hours of podcasts at a time.

So I'm doing fine, I guess.

I don't have any stock positions in this crap.

I'm not investing.

I'm not fiscally profiting off of this, but my career's doing well, I guess.

But on some level, we've seen that at the highest levels of journalism, there are people who are willing to peddle bullshit.

And as this falls apart, as this collapses, There must be a point at which people are held accountable for lying because it is lying.

And I believe the majority of journalists are not trying to lie.

I don't think that they are deliberately doing this.

I think they are weaselwarding around stuff so that they don't stand out from their peers and get in trouble and face peer pressure for not falling behind the AI bubble cycle.

Except everyone's going to look fucking stupid if this collapses.

If I'm right, everyone's going to look really silly.

And you can feel however you feel about me.

This isn't about anyone specific other than the very obvious, hard forky folks.

But if you're a journalist listening, this probably isn't about you.

What it is about, however, is the truth.

And it is about the fact that everyone can say something that's wrong.

And we, as people that report the truth ostensibly, must look at this when it collapses, and I really do think it will.

And we must take an account of what has been said and how it has been said.

Of how many affordances were given to people like Sam Altman and Wario Amade.

Of how many people said, wow, AI is going to get more powerful.

We must take an account of why it was said it would get more powerful.

And if there was no reason to, other than I think it is, number is going up, that these people keep telling me they have met smart people in the valley with tears in their eyes, big, strong men that told them that AGI was coming.

If that is the flimsy fucking reasoning we have used to send our economy into the toilet, which is what I fear, we should all be goddamn ashamed of ourselves.

I'm not.

I'm not ashamed because I've admitted what I am from the very goddamn beginning, which is just a guy with a microphone and a fucking blog.

And I'm doing my best out here to tell the truth.

If I am wrong, if I am truly wrong, if I got all of this wrong, and AGI comes and the computer eats me whole and shits me out like Kirby, then I will eat Crow and I will tell you why I'm wrong in detail.

Do you think other people will do the same when the bubble bursts?

Do you think that these people will hold themselves accountable?

Or do you think they will sweep this under the fucking rug?

I think they will.

And I don't believe listeners should let them, and I will not be letting them either.

This isn't going to be an industry takedown, nor will one be coming in the future.

But I think journalism needs to do a

great deal better.

And my frustration is that in the end of all of this, the people that will get hurt will be regular people.

The environmental environmental destruction cannot be unwritten.

The theft cannot be undone.

No class action suit can make up for the art directors, the translators, the transcribers who are losing their jobs to this right now and who will, even if these things become too expensive to actually run at scale from here on in, which is very possible at some point.

The price pressure on these careers as they come back will match the price of the AI, not the price of the jobs that they had before.

The labor destruction has already happened on a much smaller level than they want you to believe it, but it has happened.

But fundamentally, the AI bubble has damaged the concept of the truth and has damaged the concept of what reporting is meant to do.

Because an alarming amount of reporting has been there to prove the AI bubble was real rather than prove what was actually real.

To actually hold the accountable powerful, to actually make sure that the truth was being said, even if the truth was icky, even if the truth was, wow, tens of billions of dollars each quarter are going into GPUs for products that only lose money, for products that don't really resemble actual labor and thus can never do any of the things that people are promising.

And I like to believe that most people here mean well.

That they've just been going on with the market consensus.

And I can understand that when everyone's honking in the same way, do you want to oink?

Do you want to stand out at a time when journalists have a tough time keeping their jobs

as it is?

I blame the people on the top.

I blame the people with the largest megaphones.

I blame the people who are constantly talking about this as the future.

And the people that have derision for those who would dare critique the powerful.

And if I'm right...

Really, if I'm right,

there must be some degree of accountability within journalism.

There has to be an apology to readers, listeners, and viewers.

There won't be.

There never will be.

There never is.

But something has to change once the bubble bursts.

And if I'm again, if I'm wrong, I'll explain why.

I don't do this to be right.

I do it because I enjoy it.

And I'm very grateful you've given me your time.

This is meant to be a regular five to ten minute monologue and it's going to go over 20 minutes.

But I'm frustrated, as you can tell.

I'm furious.

I'm furious because the markets will take a nasty shit after this.

And once the markets realize that big tech doesn't have any other ideas, and the one idea they had that they've been wanking off about for years, was nothing, was a myth that burned millions or billions of dollars, the markets are not going to trust the tech industry anymore.

They're not going to trust them as the ultimate growth vehicles.

What do you think that does to startup funding?

What do you think that does to jobs in tech?

Nothing good.

Nothing good at all.

I want a better world and I think you do too.

I'm very grateful for your time.

It's been a little different, I realize, this week.

Next week, we'll have Steve from Gamers Nexus.

He will be talking about the GPU, black market in China, and of course the things that Bloomberg has done to pull down that video.

And then after that, I'm going to have a three-part episode about how to argue with AI boosters.

Because it's about time we take the war to these fucking people.

Thank you for listening.

Hi, I'm Morgan Sung, host of Close All Tabs from KQED, where every week we reveal how the online world collides with everyday life.

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