Better Offline - Monologue: What The Hell Are The Hyperscalers Doing?

Episode Date: July 24, 2026

In this week's Better Offline monologue, Ed Zitron runs through how hyperscalers have wasted $1.1 trillion in capex on AI in a desperate attempt to sustain hypergrowth, and report on how without OpenAI’s claud spend, Microsoft Azure would’ve only grown 8% year-over-year in 2025.The Subprime Data Center Crisis: https://www.wheresyoured.at/the-subprime-data-center-crisis/Nik Suresh: AI Is Eviscerating Global Decisionmaking https://ludic.mataroa.blog/blog/ai-mania-is-eviscerating-global-decision-making/ To celebrate the one year anniversary of the premium newsletter, I’m offering a sale on one-year subscriptions. Between now and midnight July 26, you can get a permanent annual rate of just $60— a $10 discount on the usual price of $70 - for life - https://edzitronswheresyouredatghostio.outpost.pub/public/promo-subscription/N9bqSLKBoS?ref=wheresyoured.at YOU CAN NOW BUY BETTER OFFLINE MERCH! Go to https://cottonbureau.com/people/better-offline and use code FREE99 for free shipping on orders of $99 or more. --- LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/  Discord: chat.wheresyoured.at Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitron https://bsky.app/profile/edzitron.com https://www.threads.net/@edzitron Email Me: [e-mail] omnystudio.com/listener for privacy information.

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Also, media. Superstition, Fear and Jealousy. Welcome to this week's Better Offline monologue. I'm your host, Ed Zittron. As ever, please subscribe to the newsletter. We're running a one-year anniversary deal right now. Their link will be in the episode notes. And we're giving you $10 off the annual rate for life.

And even if you die and come back to life, I'll give it to you anyway. The deal runs through midnight on Sunday, but if you happen to hear this after this point, email me at easy at betteroffline.com or EZ at betteroffline.com for the British and Canadians in the audience, and I'll sort you out. I'm generous like that. And I love my premium. It's really some of the best analysts work out there. It's very deep. I've got the terminal going now and put all sorts of data. The many numbers I read every week are driving me truly insane. And with that in mind, today's monologue starts with a simple question. What the fuck are hypers doing? Now, I realize I've asked this question maybe 100,000 times in the last two years, but it's begun to get so incredibly stupid that I'm actually a little exasperated. McKinsey Sporn and Google CEO Sundar Pashai announced in Wednesday's earnings that Google would raise its year-end capital expenditures to somewhere between $195 billion and $205 billion, after burning $80.6 billion in the first half of the year. And this suggests that Google will spend another $114 billion by the end of $205,000.

26, they're going to be doing like $55, $60 billion a quarter. It's fucking insane. It's fucking stupid. I'm sorry for swearing, but it's absolutely deranged. What are you doing, Sundar? You've already spent $288 billion in CAPEX since 2022, and all you've got to show for it is several also ran LLMs and one indeterminately large customer in Anthropic, who you've also invested $13 billion in. Now, one answer might be that Anthropic helped juice Google. cloud's growth by 82% year-over-year in this quarter. But considering that Google doesn't actually break out how much of that is from AI or from Anthropic or really from anything, it's difficult to say what exactly this money is doing other than turning its free cash flow negative for the first

time since Google went public. While I can't say for sure how much Anthropic is spending, I do believe it's taking up the vast majority of Google's AI infrastructure and representing most of its cloud growth. Google Cloud was up until fairly recently last year or so a much smaller business than Microsoft Azure or Amazon Web Services, and had been growing somewhere between 22% and 30% year-over-year, hitting 33.9% year-over-year growth in the third quarter of 2025. That very same quarter, Google and Anthropic announced a deal to expand its use of TPUs, which is Google's special GPUs, in a contract worth, and I quote, tens of billions of dollars. Mysteriously, can't imagine how.

Google's next three-quarters of cloud revenue growth showed 47.7%, 63.4%, and 4%. an 82.1% year-over-year growth. Whatever could that be? Where did that come from? I can't work it out. Can you, dear listener? What could it possibly... It's anthropic. It's obviously anthropic.

Except in those same quarters, Google's capital expenditures went up 95%, 107% and 100% year-over-year, absorbing every dollar of cloud revenue and then some. In fact, outside of the fourth quarter of 2024, Google's capital expenditures have outpaced cloud growth, by at least 12% year-over-year for two goddamn years. And if your pushback is, well, Google's spending that capex on something else?

No, they're not. They're not. Maybe they've got a couple of billy coming in from Google workspace and cucking their various subscribers with annoying things. It's coming from Anthropic. Google is not making that money from Gemini. Your ass must be crazy if you think that's the point. But all of this begs the question.

When exactly does all of this pay up? off. How does it pay off? What does the payoff even look like? And why am I one of the few people asking these questions? Hyperscalers have now spent, I estimate, about $1.1 trillion, I haven't seen Amazon and Microsoft's quarters yet, but I'm going to guess they spend a good amount on CAPEX. They now spent $1.1 trillion bloody dollars on capital expenditures. And when you ask them to tell you how much revenue they made from said expenditures, they look at you like that meme of Brendan Frazier from the whale. Anyway, here's a fun fact for you.

Thanks to my own reporting on OpenAI's auditive financials, we know that it spent $17.2 billion on Microsoft's Yore in calendar year 2025, a year when Microsoft's Intelligent Cloud segment made $120.4 billion in revenue. The segment grew as a result, 26% year-over-year. Yeah, I'm a curious little Chris, I ran the numbers, and Open AI's revenue represented 14.3% of all Microsoft's cloud revenues for that. period. And to be clear, it's calendar year 2025. They have a fiscal quarter thing, but I went and worked out. But this means the OpenAI's money represented 18% of the year-year growth of Microsoft's

cloud. Without it, their cloud revenue growth was a mere 8% year-over-year. That's pathetic. That's abominable. That's barely keeping up with inflation. That's dog shit, Satya. Satya, you should be ashamed of yourself. Satya, come on my show so I can ask you very reasonable questions. I'll be nice. swear. You won't. You're scared, just like the rest of them. Just like clammy salmon one, clamule. Your public relations people said you're too scared to speak to me. Well, they said you wouldn't speak to me and I know you're scared. Same with weird Dario. Where are you, boys? You're too scared better offline. Anyway, enough of the Trump voice, though. There is actually a reason that hypers are still spending all that CAPEX. Open AI and Anthropic allow hypers to boost

growth by feeding their own money back into their businesses, a short-term, sort of to the long-term problem of the end of the era of hypergrowth. One of the reasons they're so shy about AI revenues is that they know it'll become obvious where those revenues are coming from. Two unprofitable and unsustainable AI labs and a little trickle, little spurt from AI services they dump on their enterprise customers through confusing subscriptions, upsells and just adding AI to random things and being like, look folks, don't we love this? Don't you all love this? You little shits. And hyperscalers also know that the second they cut their CAPEX spend, the AI trade unwinds. If Microsoft, Google, Amazon, and Meta aren't buying hundreds of billions of dollars of GPUs a year, that means Taiwanese server manufacturers like Quanta and Hon Hai won't sell as many servers,

and thus won't need as many GPUs. Broadcom and Nvidia won't need as much high bandwidth memory for those TPUs and GPUs, and data center speculators across the world will suddenly realize that they conflated hypercalers being stupid with their money with the existence of massive amounts of demand for AI compute. But another way, hypers are doing K-fabe to keep the crowd rattled up. Everybody's slowly working out that the wrestlers aren't really hitting each other and everything is scripted. I also should add, I can just anticipate I'm going to get an email from someone being like, well, actually this is good.

The capital expenditures are good because it showed growth even though it's short term. That's a silly, silly perspective to take, considering they're feeding all the revenues back into the business in the capex. for stuff that won't be useful in the future. Mathematics, my friend. Try it sometime. And anyway, it is a funny old time for me right now because I feel like I'm on three or four podcasts or TV shows or interviews a week, as the system appears to be trying to cover its ass by having me on to explain stuff I said two years ago, but a little more insistently and clearly than before.

While the mainstream media seems hesitant to fully commit to the graveyard smash of the AI bubble, it feels as if there's a conscious attempt to represent my workers more than just the other side or a hater or a skeptic or a cynic, which is both edifying and enraging because we are now so far past the point of no return. I mean, yeah, we really can't avoid what's coming. As I wrote in my newsletter this week, I think there's a subprime data center crisis brewing right now, with over $500 billion in data center SPVs that can only ever make investors whole if there's hundreds of billions of dollars of AI compute demand in the next two years, and to be clear, when I say hundreds of billions of dollars demand, I mean a year.

I mean literally a year. I ran the numbers, and for the, what, I think it's 190 gigawatts of supposedly planned data centers, you'd need $1.6 trillion a year in annual compute revenue to make it worthwhile. And by the way, the global software market is under $800 billion a year. So don't know where that fucking money's coming from. and no one else seems to really want to think about it. And I deeply worry about what happens when the demand doesn't arrive, as these data center debt deals are often funded by private credit funds,

which are in turn funded by both public and private pensions and insurance funds. Anyway, do read the free newsletter to learn more. It is free this one. I have a premium one coming out today that will be about, well, the fact that Oracle's dying, which I mean, hey, you in the back, stop laughing. Stop it. Poor Larry Ellison. Port, who gives a fuck.

In all seriousness, though, it's going to be a banger. The free one's a banger. There's bangers everywhere. And I'll be back next week with my good friend, Nick Suresh, to talk about how AI mania is eviscerating global decision-making, creating a cult-like environment where one's participation in AI is almost a religious act. And if you talk badly about AI, it's considered a carnal sin or a cardinal sin. One of those two.

Sure, one of you will correct me on this one. Nevertheless, it's a really, it's based on this incredible piece, he wrote. I can't wait for you to read it. I can't wait for you to me. Talk to him. I don't know. Can't wait for you to consume my content. What a peculiar thing to say.

Anyway, I'll catch you next week. Zitron out. On Raiders of the Lost podcast, we explore cinema like no one else, including huge interviews with stars like Ryan Gosling on Project Hail Mary. It was like the Jaws shark. Didn't always work. came with its own problems. That's what made it great.

The cast of obsession. On set, there was so much magic happening with each scene we were putting together. Deep dives into classics like 2001 of Space Odyssey or Fight Club, plus weekly episodes on all industry news. Listen to Raiders of the Lost Podcast on the Iheart radio app, Apple Podcasts, or wherever you get your podcasts. And for more, follow at Raiders of the Lost podcast and at TikTok Podcast Network on TikTok. Hey Portlandia fans.

Carrie Brownstein and Fred Armisen here. The Dream of the 90s is alive in podcast form. We're launching Podlandia AEO rewatch, our brand new podcast where we revisit every episode of Portlandia together, breaking down sketches, going deep on our iconic characters, and pulling back the curtain on how it all got made. And we'll also be joined by the people who helped bring it all to life. Guest stars, collaborators, and friends, including director Jonathan Chrysler, the mayor himself, Kyle McLaughlin, legendary musician Amy M.

man and many more. Kyle is going for it here. You fully improvised, not just words, but a song about it. Well, I thought you were all going to write a song. I remember you thinking that. Listen to Podlandia. A.A.O. Rewatch on the IHeart Radio app, Apple Podcasts, or wherever you get your podcast. What's up, fam? I'm sports journalist Ari Chambers.

Hey, what's up, y'all? It's your girl, Sam J. And we're the host of everyone watches women's sports, a new podcast from Together and Iheart women's sports. We're breaking down the biggest headlines. Naomi Osaka, showing out. Shout out to you, Naomi. The viral moments. I've been obsessed with Kashan Rock's boxing journey. She looks good.

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