Better Offline - The AI Money Trap, Part Two

Episode Date: August 21, 2025

In part two of this week's two-part Better Offline, Ed Zitron walks you through how America’s economic growth has become dependent on Amazon, Google, Microsoft and Meta’s AI capital expenditures - and how this inevitably harms both the economy and our markets. Better Offline listener deal: Get $15 Off Where's Your Ed At Premium! Deal goes until the end of August.https://edzitronswheresyouredatghostio.outpost.pub/public/promo-subscription/better-offline-discount 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. BUY A LIMITED EDITION BETTER OFFLINE CHALLENGE COIN! https://cottonbureau.com/p/XSH74N/challenge-coin/better-offline-challenge-coin#/29269226/gold-metal-1.75in --- 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/edzitronSee omnystudio.com/listener for privacy information.

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Listen to the psychology of your 20s on the IHeartRadio app, Apple Podcasts, or wherever you get your podcasts. AllZone Media. Hi, I'm Ed Zittron, and this is the second part of this week's Better Offline. Better Offline. As ever go to the episode, notes, buy some merch, get the challenge coin, subscribe to my newsletter. If you like, it go premium.

Either way, you've got this episode for free if you can stand the ads, which many of you can. Anyway, the thrust of this two part are. that the AI trade is going to, as you probably guess by now, end badly. And as I'll also explain, I believe we're now set up for potentially economic and market-wrecking consequences of this hysterical investment bubble. Today we're going to go beyond just startups and into how the poison of the bubble has crept into our economy and how dangerous things are getting as a result. In the first installment, we talked about cursor, the AI coding startup that despite having no

moat and zero sustainability, has somehow earned a valuation of $10 billion. And then, then asked why none of these generative AI companies are being acquired, at least not in the traditional sense. And no, I'm not including the acquisitions where a big company snags the talent and leaves barely breathing bodies of startups in their wake. This matters because if these AI companies can't get an exit, go public or get bought, it raises serious questions about how any of this ends. Cursor is the best example, and the fact that Anthropic is hopelessly dependent on Cursor for revenue, despite doing everything they can to kill it, makes the entire situation feel a little bit weird. Cursor's paths to viability seem, frankly, to be non-existent, and the collapse of Cursar will inevitably result in a vast chunk of Anthropics revenues going up in smoke, which again will also make its collapse seem inevitable, as how can it fundraise an evaluation over its previous one when its biggest customer just died?

So much of what I'm describing is structural, and few companies have bigger structural obstacles to survival than OpenAI. As a reminder, Open AI appears to have burned at least $10 billion in the last two months. It has just raised another $8.3 billion after raising $10 billion in June, according to the New York Times, and intends to receive around $22.5 billion by the end of the year from SoftBank, and that is assuming it becomes a for-profit entity by the end of the year. And if that doesn't happen, the round gets cut to $20 billion total, meaning that SoftBank would only be on the hook for a further $1.7 billion. I am repeating myself, and I need you to really get this. OpenAI just got $10 billion in June, just in June, and had to raise another $8.3 billion.

in August, and that is an unbelievable cashburn, one dwarfing any startup in history, rivaled only by XAI, makers of Grok, the races to LLM, which loses over a billion dollars a month. I should also be clear that if OpenAI does not convert to a for-profit, there is no path forward. To continue raising capital, OpenAI must have the promise of an IPO. It must go public, because at a valuation of $300 billion or more, Open AI can no longer be acquired, because nobody has that much money, and if, let's be real, nobody actually believes over AI is worth that much. The only way to prove that anybody does is to take open AI public and that will be impossible if it cannot convert. And ironically, softbanks large and late stage participation

makes exits actually harder, as early investors will see their holdings diluted as a percentage of total equity, or whatever the hell we're calling it, because these aren't real equity shares, their profit participation units. They're a non-profit, you can't do stock in them. While a normal company could just issue equity and deal with the dilution that way, open AI structured necessitates in negotiation where companies can obstruct the entire process if they see fit. Speaking of companies doing that, let's talk about Microsoft. As I asked in my premium newsletter a few weeks ago, what if Microsoft does not want Open AI to convert? They own all the IP, they own all the access to Open AI's research and already run most of their infrastructure. While assuming a best-case

scenario that it would end up owning a massive chunk of the biggest tech startup of all time, and I'm talking about equity, not OpenAI's current profit-sharing units, Microsoft might also believe that it stands to gain more by letting Open AI die and assuming its role in the AI ecosystem. But let's assume that Open AI converts and now has to continue raising money at a rate that will require it allegedly to only need to raise $17 billion in 2027. That number doesn't make any sense, considering that Open AI already had to bring forward its $8.3 billion fundraise by at least three months. But let's stick with that idea. Open AI believes it will be profitable somehow by 2030, and even if we assume that, that means it intends to burn over $100 billion total to get there.

Is the plan to take OpenAI public and then dump a toxic axe onto the public markets? Then it will just flounder and convuls and die for everybody to seek. It kind of sucks. Can you imagine OpenAI's S1? How old do you think this company would do when they had a true financial audit from a major accounting firm? And you can claim they already have one. I simply don't believe you. This burn does not seem like an accountancy firm would be good with them. And if you want to know what all that looks like, Google WeWork,

which went from tech industry darling to joke in a matter of days, in part because it was forced to disclose how bad things actually were when they filed to go public. No, really, I'll link to an article I've linked in the spreadsheet called the strangest and most alarming things in WeWork's IPO filing. It's a bad sign if your IPO filing is described as strange and alarming. Those are not even terms of art. They're just worrisome. With that in mind, I feel the same way about Anthropic. Nobody is buying this company at $170 billion, which is how much it's raising it right now, and thus the only way to access liquidity would be to take

Anthropic public and show the world how a company that made $72 million in January and more than $400 million in July 2025 and also plans to lose $3 billion or more. And then you show them that and let the market decide on a fair price, especially if the S-1 includes a bunch of strange and alarming stuff that raises questions about whether anthropic's value is actually justified. I'm, I'm stuttering here because everyone's acting like these are rational things. Like, yeah, our open AI, which burns $5 billion in 2024, probably 10 or more in 2025, if not 15 or 20. Like, that's fine. Like, this is all good. They'll just go public one day. Will they? Really? Will they? No, really. What's the plan? What's the plan here? Because the arguments against my...

work always come down to, costs will go down and these products will become essential. Outside of chat GPT, there's no real proof that these products are anything remotely essential. And I'd argue there's very little about chat GPT that Microsoft couldn't provide with rate limits via copilot. I'd also argue that essential is a very subjective term. Essentially in the sense that some people use it as search doesn't mean it's useful for enterprises, or the majority of people, or could not be replaced by anything else. And I guess chat GPT somehow makes $1 billion a month in revenue selling access to premium versions of chat GPT, though I'm not 100% sure how. Assuming it has 20 million customers paying $20 a month, that's $400 million a month,

then 5 million business customers paying an average of $100 a month each, that's $900 million. And is that really indicative, is the average really that good? Are there that many people paying 35 or 50 or 200 bucks a month? How many of those versus $100? I mean, most don't pay $100, it's either $35. 50 or 200. Open AI doesn't break out the actual revenues behind these numbers for a reason. I believe that reason is they don't look as good. I also, by the way, when I was fucking around trying to play with GPD5, I got offered a team subscription for a dollar for one month. How many people, how many of

those business customers got a month for a dollar? How long does Open AI count a customer? What is OpenAI's churn like? And does it, really, as I wrote in my news that, how much money do OpenAI and Anthropic make, in the year making more than Spotify at $1.5 billion a month. We don't know. An open AI much like Anthropic has never shared actual revenues, other than in June when they said 10 billion annualized revenue, choosing instead to leak to the media and hope to obfuscate the actual amounts of money being spent on its services. Anyway, long story short, these companies are unprofitable with no end in sight, don't even make that much money in most cases, and are valued more than anybody would ever buy them for. And they don't even have that much

the way of valuable IP. And on top of that, the two biggest players burn billions of dollars more than they make serving these companies that also burn billions of dollars. I wish someone would make this make sense because it doesn't. But Ed, the government will give them more money forever.

They'll bail them out. I'm tired of this fucking point. I'm so tired of hearing about bailouts. I'm so tired of people saying they'll bail them out. I get that you're scared. I get that things are grim. Things are absolutely fucking grim. But engage with reality here,

You can't bail this out. You can't bail it out. Even if this were going to happen, and it will not, who would they give the money to and for how long would they give it to all AI startups? Is every startup going to get a paycheck protection program for generative AI? How would that play out in rural red districts where big tech has never been popular, which are being hit with both massive cuts to welfare, as well as the shockwaves of a trade war that has made American agricultural exports like feedstocks, which previously went to China by shiploads, less appealing worldwide? So they, just in this scenario, by the way, bail out Open AI, then stuff it full of government contracts to the tune of, what, $15 billion a year, right? Just to be clear, that's the low end of what this would take to do, and they'll have to keep doing it forever until Sam Hortman can build enough data centers to what?

Keep earning billions of dollars? There's no plan to make this profitable. Say this happens. It won't, but say it. Now what? America has a bullshit generative AI company attached to it. attached to the state that doesn't really innovate and doesn't really matter in any meaningful way, except that it owns a bunch of data centers.

Which it doesn't yet, by the way, Microsoft owns all their infrastructure. The core week stuff is barely happening. Fucking hell. I just don't think this happens. I think it's a silly idea and the most likely situation would be that Microsoft would unhinge its jaw and swallow open AI in its customers' whole. Hey, hey, hey, did you know, by the way, the Microsoft's data center construction is down year over year

and it's basically signed no new data center leases? I wonder why it isn't building these new data centers for open AI? could be anything. By the way, Stargate isn't saving them either. As I've written recently, Stargate doesn't actually exist beyond the media hype. It generated. And every single person who wrote big articles about Stargate being real and Stargate being connected to Abilene, Texas, should be fucking ashamed of themselves. It's deeply unprofessional. Anyway, that also counts the hint of the involvement. There are several articles that hint, without directly saying that Abilene, Texas was part of the Softbank Stargate thing, you can't wriggle out of this one.

When the time comes, all will be at. By which I mean, I'm going to be pointing at the articles aggressively. But we have other stuff to do. Anyway, by the way, does the government do this for everybody? This is very important question. Is everyone getting bail out? Is it just anthropic and an open AI? What about Google and Microsoft?

They're going to be burning income on a bunch of money. Why do they get the money and no one else? Why other industries are going to turn around and go, wait, wait, wait, wait, wait, why do I have to fucking make money? why do I have to fucking make money? What's the point of this? Because AI's important. You're going to get a bunch of fraud if this happens. It's not going to, just to be clear.

And what is the limit, by the way? Do they subsidize or compute for companies like cursor? To what end? Where's the limit? How does it end? What is the bailout? What are you bailing out? Where does the bailout go?

These are all questions that would get answered. You can sit there and say, oh, the government's corrupt. Oh, I feel this way and that way. here's the thing. TARP, which is the thing that was used to bail out banks and such and hedge runs and during that whole situation, at least made more sense because if a bank fails, people lose actual money. If this stuff fails, what do people lose? What is the service that people lose access to? Chat GPT? That's it. I don't even think that Donald Trump could explain what chat GPT is. And even then, he really has people to give him money. Like, these people don't have

anything to offer other than just this vague sense of AI is important. I just don't buy it. And I think that people, if you're worried to get hopeful, I don't know. I'm hopeful that something's going to explode within this terrible fucking industry. And I'm kind of hopeful because I think it's time to ask a basic question, which is, what if generative AI just is not profitable? And I think this is a question that we have to seriously consider at this point because its ramifications are significant. If I'm honest, I think the few people are you. I think the few future of large language models will be largely client-side on egregiously expensive personal setups for enthusiasts and in a handful of niche enterprise roles. Large language models do not

scale profitably and their functionality is not significant enough to justify the costs of running them. By immediately applying old economics, the idea that you would pay a monthly fee to have relatively unlimited access, companies like OpenAI and Anthropic immediately trained users to use their products in a way that was antithetical to their costs. Then again, had these models been served in that way, had they been mindful of the costs and charged what they actually were, there would likely have been no way to get this far. If Open AI is making billions of dollars a month, or a billion dollars a month, or whatever the fuck it is, it's possibly losing that much or more after revenue, and that's the money it can get selling the product in a form that can

never turn profitable itself. If Open AI charged in line with its actual costs, would it even be able to justify a free version of ChatGPT, outside of a few requests a month? The revenue you see today is what people are willing to pay for a product that loses money, and I cannot imagine they would pay as much if companies in question charge their costs. If I'm wrong, Curser will be just fine, and that's assuming that Curser's current hobbled form is even profitable, which it has not said it is. So you've got an entire industry of companies that struggle to do anything other than lose a lot of money. Great. And now we have a massive expansion of data centers, the likes of which we've never seen, all to capture demand for a product that nobody makes much money selling. This naturally leads to an important

question. How do these people building data centers actually make money? Another podcast from some SNL late night comedy guy, not quite. Unhumor me with Robert Smygel and friends, me and hilarious guests from Jim Gaffigan to Bob Odenkirk to David Letterman, help make you funnier. This week, my guest, SNL's Mikey Day and head writer Streeter Seidel, help an Acapella band with their between songs banter. The worst singer in the group. The worst? Yeah. Me. Is there any to the idea that because you're from Harvard, you only got in because your parents made a huge donation. The group.

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Listen to Just Here with Dr. Jade on the IHeart Radio app. Apple Podcasts or wherever you get your podcast. At the start of August, the Wall Street Journal published one of the most worrying facts I've seen in the last two years. The journal quoted investor Paul Kodroski is saying that, and I quote, as a percentage of gross domestic products, spending on AI infrastructure has already exceeded spending on telecom and internet infrastructure from the dot-com boom, and it's still growing. Kodoski described this insane KAPEX spending as a sort of private sector stimulus program. The journal also quotes analyst Neil Dutha as saying that KAPEX spending for AI contributed more to growth in the US economy in the past two quarters than all consumer spending.

The massive build-out of data centres and the associated physical gear like chips, service and raw materials for building them, has become a massive dominant economic force, building capacity for an industry that is yet to prove it can make real money. And no, Microsoft talking about its zero revenue, its last quarterly earnings for the first time is not the same thing, as it stopped explicitly stating its AI revenue in general. January when it was $13 billion annualized, so about a billion a month. And by the way, that's revenue, not profit. Just to remind you, I need to every time, remind anyone who ever mentions AI revenue that that's not profit. Anyway, AI CAPEX allegedly, though I've heard some questions about this figure, accounts for 1.2% of the US GDP in the first half of the year, and it accounted for more than half of the, to quote, the Wall Street Journal, already sluggish 1.2% growth of the U.S. economy in the first half of the year. Another Wall Street Journal piece published a few days later discussed

how data center development is souring the free cash flow for big tech, turning them from the kind of asset-light businesses that the markets love into entities burdened by physical real estate and their associated costs. And I quote, for years, investors loved those companies because they were asset-light. They earn their profits or intangible assets such as intellectual property, software and digital platforms with network effects. This can be seen as a metric called free cash flow, roughly defined as cash flow from operations minus capital expenditures. This is arguably the purest measure of businesses' underlying cash generating potential. From 2016 through 2023, free cash flow and net earnings of Alphabet, Amazon, Meta, and Microsoft grew roughly in tandem. But since 2023, the two have

diverged. The four companies combined net income is up 73% to 91 billion in the second quarter from two years earlier, while free cash flow is down 30% to 40 billion, according to fact sheet data. Apple, a relative PICA on capital spending, has also seen free cash flow lag behind. These numbers are all very scary, and I mean that sincerely, but they also fail to explain why. How much was actually spent on AI CAPEX in the US? One would think two different articles in the subject would include that number versus a single quarter's worth, but from my estimates, I expect capital expenditures from the Magnificent Seven alone to crest $200 billion in the first. first half of 2025, with Axiosus estimating they'd spend around 400 billion total this year.

Most articles are drafting off of a blog from Paul Kudroski, who estimates that total AI CAPEX would be somewhere in the region of $520 billion for the total in the year, which felt conservative for me, so I did the smart thing and asked him. Kudruski noted that these numbers focused entirely on the four big spenders, Microsoft, Google, Mehta, and Amazon, and his own estimated $312 billion capx, and their 1.2% number came from the assumption that the US GDP in 2025 will be around $28 trillion, which is lower than other forecasts, which put it around 30 billion, 30 trillion even. Kudroski, in his own words, was trying to be conservative, using public data and then building his analysis from there. I personally believe

his estimate is too conservative, because it does factor in the capital expenditures from Morocco, which, along with Kruso is building the vast Abilene, Texas data center for open AI, or any other private data center developers sinking cash into AI CAPEX. When I asked him to elaborate, he estimated that AI spending all in was around half of 3% Q2 real GDP growth. He added that it could be half of US GDP full year GDP growth if certain conditions are met. That's so cool. Half of the US economy's growth came from building data centers for generative AI, which has the combined revenue of a little more than the fucking smartwatch industry did in 2024.

Another troubling point is that big tech doesn't just buy data centers and uses them, but in many cases pays for a construction company to build them. Fills them full of GPUs, then leases them from a company that runs them, meaning that they themselves don't have to personally staff up and maintain them. This creates an economic boom for construction companies in the short term, as well as lucrative contracts for ongoing support, as long as the company in question still wants them. While Microsoft or Amazon might use a data center,

and indeed act as if they own it, ultimately somebody else is holding the bag in the ultimate responsibility for said data center. One such company is QTS, a data center developer that leases to both Amazon and META, according to the New York Times, which was acquired by Blackstone in 2021 for $10 billion. Since then, Blackstone has used commercially mortgage-backed securities. I know it's so great to raise over $8.7 billion since then to sink into QTS's expansion, and as of mid-July said it would be investing $25 billion in AI data centers and energy.

Blackstone, according to the New York Times, sees strong demand from tech companies who apparently are willing to sign what they describe as airtight leases for 15 to 20 years to rent out data center space. As a reminder, that Microsoft has over 1,000 lawyers in the company. Anyway, yet the Times also names another problem, the unanswered question of how these private equity firms actually exit these situations. Blackstone, KKR and other asset management firms do not buy companies with the intention of siphoning off revenue, but to pump them and sell them to another company, or dump them onto the public markets, of course.

Much like AI startups, it isn't obvious who would be. buy QTS at what I imagine would be a $25 or $30 billion valuation, mean that Blackstone would, as I'd mentioned, have to take them public. Similarly, KKR's supposed $15 billion partnership with investment firm energy capital partners to build data centers and their associated utilities does not appear to have much of an exit plan either. And let's not forget Oracle Open AI and Crusoe's abominable mess in Abilene, Texas, where Oracle is paying for $40 billion worth of GPUs. And Crusoe is spending $15 billion raised from Blue Owl Capital and Pruso.

primary digital infrastructure, though I think JPMorgan is involved too, to build data centers for open AI, a company that loses billion dollars of... Yeah, why would they do that, right? Why? Why would they do that? Well, it's simple, you rube, you moron, you buffoon. It's so that open AI can allegedly starting in 2028 pay Oracle $30 billion a year for compute. And I'm being fully serious. To be clear, Open AI, by my estimates, has made only $5.26 billion this year and will have trouble meeting their $12.7 billion revenue projection for 2025 and will likely lose more than $10 billion doing so. Oracle will, according to the information, oh Crusoe, $1 billion in payments across a 15-year span of a lease. How does Crusoe afford to pay back its $15 billion in loans? Beats me! The information says that Crusoe is raising a billion dollars to take on the cloud giants by earning construction management fees and rent, and it can sell its stake in the project upon reaching certain completion milestones, while also building its own

AI compute, making the assumption that the demand is there outside of hyperscalers. Then there's Coralieve, my least favorite company in the world. As I discussed a few months ago, Corwave is burned by obscene debt and a horrifying cash burn and has seen its stock spiked to a high of 183 on June 20th, 2025, which has led to an all-stock attempt to acquire, develop a core scientific for $9 billion. And they're doing that with all-stock, and now that's full. falling apart because Corweave has my last check and who knows where it will be by the time this episode runs is below 100 bucks because the IPO lockout has gone. All the people that invested seem to be getting out. We'll see where they go from here. Corweave, by the way, has since gone public and had to borrow billions of dollars to fund their obscene capital expenditures. And they are also, by the way, going to have to handle in October the beginning of their DDTL 2.0, their biggest loan. And that's also when OpenAI is allegedly going to start paying.

them for their compute. And by the way, they lose hundreds of millions of thought. They lose so much money every quarter. They have no part to profitability. Every time I think about Corweave, I feel crazy. And to be honest, I'm going to be honest when I put out that

blog and people sent me some very unfair emails about that. They said there's no way that Cool Weave can run out of money. If Corweave runs out of money, by the way and they collapse, which I think is very possible, I'm taking some fucking names on this one. A lot of people are very unfair to Mr. Zittron. Corwave, I add, is also pretty much reliant on Microsoft as one of its primary customers.

While this relationship has been fairly smooth, so far, as far as we know, this dependence also presents an existential threat to Corwave and is part of the reason why I'm so pessimistic about their survival. Microsoft has its own infrastructure and has every incentive to cut out middlemen when it's able to meet supply with the demand itself owns, or this is rather than subcontracts out, simply because middlemen add costs and shrink margins. If Microsoft walks what's left, how does it service its ongoing obligations and the debt? In all of these cases, data center developers seem to have very few options as to making actual money. We have companies spending billions of dollars to vastly expand their data center footprint, but very little evidence that doing so results in revenue, let alone some sort of payoff event. And similarly, the actual capital expenditures they're making are much smaller than those of big tech. Digital Realty Trust, one of the largest developers with over 300 data centers worldwide and

5.5 billion dollars in revenue in 2024 only spent 3.5 billion dollars in CAPEX last quarter. And Equinix, 8.7 billion dollars of revenue in 2024 total, which has 270 data centers, but CAPEX at $3.5 billion for the quarter to. NTT Global Data Centers, which has over 160 of the fuckers, has dedicated $10 billion in CAPEX through 2027 to build out more of them. Yet in many of these cases, it's because these companies are, to quote, a source of mine, functionally obsolete for this cycle because legacy data centers are not plug and play ready for GPUs to slot into. And remember, GPUs and the way they work with generative AI is just atypical. They burn them.

They run them hot constantly. They're running full fucking tail the whole fucking time. It's absolutely ridiculous leading to a bunch of replacements. But it, just to be specific, requires a bunch of specialized cooling, much more energy. And yeah, there's just, it's not a thing where you just take out one computer and you put in another. And also, any investment in CAPEX but these companies would have to be booked for both GPUs and said retrofitting, by the way. Massive amounts of money. And this means that the money flowing into AI data centers is predominantly going to Neo clouds like Corweave and Crusoe, and all seems to flow back to private equity firms that never thought about where the cash out might be. Blackstone led Corby's $7.5 billion loan with Magdal Capital, who, by the way, was involved with a bunch of subprime mortgages.

and Crusoe signed a deal a week ago with infrastructure firm, and they're also owned by Blackstone called Tallgrass and they're building a data center in Wyoming, all of which seems very good for Blackstone unless you think how does it actually make money here, as private equity firms do generally not like to hold assets longer than five years, and the timer is running. Even if it did, its capital expenditures are a drop in the bucket in the grand scheme of things. Assuming Crusoe burns, as the information suggests it will, as much as $4 billion in 2025, Corweep spends as much as $20, billion. Digital Realty Trust spends as much as $14 billion. Global data centers 3.33 billion. That's 10 billion over three years. Equinists spends 14 billion. That's about 55.3.3 billion dollars in AI Cappex spent in 2025 from the largest developers of data centers in the world. For some context, $102 billion was spent by Meta, Alphabet, Microsoft and Amazon in the last quarter. Private equity may face the same problem as AI startups in the end, though. There is no real exit strategy for any of these investments. Furthermore, the supposed AI Cappex boom that's driving the U.S. economy is not, as reported, driven by the massive interest in driving AI infrastructure up for a

variety of customers. The reality is simple. The majority of AI Cappex is from big tech, which is a massive systemic weakness for our economy. Another podcast from some SNL late-night comedy guy, not quite. Unhumor me with Robert Smygle and friends, me and hilarious guests from Jim Gaffigan to Bob Odenkirk to David Letterman, help make you funnier. This week, my guest, SNL's Mikey Day and headwriter, Streeter Seidel, help an a cappella band with their between songs

banter. There's that worst singer in the group? The worst? Yeah. Me. Is there anything to the idea that because you're from Harvard, you only got in because your parents made a huge donation. The group. The yard birds, right?

That's the name. The Harvard Yard. They're open. Do you have a name suggestion? We're open. Since you guys are middle aged. One erection. Listen to humor me with Robert Smigel and Friends on the IHeart Radio app, Apple Podcasts, or wherever you get your podcast. Humor me. I need some jokes to make me seem funny. Run a business and not thinking about podcasting, think again.

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That's iHeartadvertising.com. Agency, the ability to know that we're the experts in our own body. On the podcast, cultivating her space, Dr. Dom and Terry Lomax create a space where black women can show up fully and be heard. I wholeheartedly think, you know, you hit 30. You shouldn't have to share one with anybody. Mm-hmm. From navigating friendships and healing to setting boundaries

and prioritizing your mental health. These are real, honest conversations. We don't always get to have out loud. Totally unreasonable with different parts of life, right? Like, oh, have all three meals and make sure you're mindful during all of them? Absolutely not. During one meal, I'm standing. I'm standing and handing my chest.

I'm standing and handing my chest. children food. Because healing, empowerment, and resilience aren't just ideas. They're practices. And this Mental Health Awareness Month, there's no better time to pour back into yourself.

Listen to cultivating her space on the IHeartRadio app, Apple Podcasts, or wherever you get your podcast. It's your responsibility to not just seek help, but to identify that you need help. This is Mental Health Awareness Month. Tune in to the podcast, Just Healed with Dr. Jay. and take real steps toward healing, growth, and becoming your best self.

When you hear the word healing, what does that mean for you? What came right back to mine are the three P's that I live by. I'll go through the process of healing so that patience, that perseverance, and that prayer equals healing to me. From understanding your mental health to doing the work, we break down practical tools, real conversations, and the mindset shifts you need to move forward and thrive. You matter too. your mental health is your responsibility not your wife not your partner not your children not the church

not the pastor not the council is your responsibility it's time to stop putting your healing on hold and start doing something about it listen to just here with dr jade on the iHeart radio app apple podcasts or wherever you get your podcast now while some might say that ai capex has swallowed the u.s economy i think it's more appropriate to say that big tech capex is swallowed the u. EOS economy. I also want to be clear that the economy, which is the overall state of a country's production and consumption of stuff and the flow of money between participants in said economy and the markets, as in the stock market, well, those are two very different things. But the calculations from Paul Kodroski and others have now allowed us to see where one might hit the other.

You see, the markets do not actually represent reality. While Microsoft, Amazon, Google, and meta might want you to think there's a ton of money in AI, their growth is mostly from selling further iterations and contracts of their existing stuff, or in the case of META, further increasing its ad revenue. The economy is where things are actually bought and sold, representing the economic effects of both the things that happen to build out the AI boom or whatever you call it, and selling access to the services and the models themselves. I recognize this is simplistic, but I'm laying it out for a reason. As I discussed in the three-part haters guide to the AI bubble, Invidia is the weak point in the US stock market, representing 90% of the value of the Magnificent 7,

which in turn makes up about 35% of the value of the US stock market. The associated Magnificent 7 stocks have seen a huge boom through their own growth, which has been mistakenly and incorrectly attributed to revenue from AI, which I've laid out previously, is about $40 billion of revenue, what, in the last year or two? Maybe a little bit more. Nevertheless, the markets can continue to be irrational because all they care about is number going up, as the value of a stock is oftentimes disconnected from the value of the company itself, instead associated with its kind of propensity for growth. It's fishy, it sucks, and it's going to

end badly. GDP and other measurements of the economy aren't really something you can fudge quite as easily. Nor can you say a bunch of fancy words to make people feel better in the event that growth stalls of the clients. This leads me to my principal worry, that AI CAPEX is actually a term for the expenditures of four companies, namely Microsoft, Amazon, Google and Meta, with Nvidia's, is GPU sales being part of that CAPEX2. What we include, you can if you want, include others like Oracle, X-AI and various neoclouds like Corweave and Crusoe, who according to DA Davidson's Gil Luria will account for about 10% of GPU sales from Nvidia in 2025, the reality is that whatever economic force is being driven by AI investment is really just for companies building and

leasing data centers to burn on generative AI, a product that makes a relatively small amount of money before losing a great deal more. Also want to be clear, Anthropic runs on Amazon and Google, Open AI runs on Microsoft. These companies don't really own their own infrastructure. That's what Open AI is allegedly building with Oracle. Now, 42% of Nvidia's revenue comes from Magnificent 7,

per Laura Brand at Yahoo! Finance, big up to Laura, one of the best out there, which naturally means that big tech is the linchpin of investment in data centers. I'll put it far more simply. If AI CAPX represents such a large part of our GDP and economic growth, our economy does on some level rest on the back of Microsoft, Google, Meta, and Amazon, and their continued investment in AI. What should worry everybody is that Microsoft, which makes up 18.9% of Nvidia's revenue,

has signed basically no leases in the last 12 months, and its committed data center construction and land purchases are down year over year. Also, their data center CAPEX is not all going to be AI, and all of these data centers won't necessarily be used for that. In fact, nothing they're doing suggests that they're super into it. it's not good. And while its CAPEX may not have dipped yet, in part because the chip-heavy nature of generative AI means that CAP-X isn't exclusively dominated by property or construction, it's now obvious that if it does, there will be direct effects on both the US economy and the stock market,

as Microsoft is part of what amounts to a stimulus package propping up America's economic growth. And not to repeat the point too much, but big tech is yet to actually turn anything resembling a profit on these data centers and isn't making much revenue at all out of generative AI. How exactly does this end? What is the plan here? Is Big Tech going to spend hundreds of billions of dollars a year in CAPEX on generative AI in perpetuity? Will they continue to buy more and more? MVIDIA chips as they do so? Because it's always got to be more. It can't be the same. They must get more. Otherwise, Nvidia doesn't grow. At some point, surely these companies have built enough data centers. Surely, at some point, they will run out of space to put these GPUs in. Is the plan to, by then, make so much money from AI that it won't matter? What does it? is Nvidia do at that point? How does the US economy rebound from the loss of activity that follows? I don't fucking know and it's worrying me. As I've said again and again, the generative AI bubble is and always has been fundamentally irrational and inherently Gothic, playing in the ruins, patterns, and pathways of previous tech booms despite this one having little or no resemblance to them.

Though the tech industry loves to talk about building a glorious future, its presence is one steeped in rituals of death and decay, where the virtues of value creation and productivity take a backseat to burning billions of dollars and lying to the public again and again and again. The way in which the media has participated in these lies is disgusting. Venture Capital, still drunk off the fumes of 2021, keeps running the same old plane book. Shove as much money into a company as possible in the hopes you can dump it onto an acquirer of the public markets, only to get high on their own supply, pushing valuations to the point that there's no possible liquidity event for the majority of big private AI

companies as a result of their overstuffed valuations, burdensome business models, and a lack of any real intellectual property. And like the rest of the AI bubble, Silicon Valley's only liquidity path out of the bubble is big tech itself. Without Google, character.a.I. And Winshavs founders would likely have been left for dead. And the same goes for inflection. And I'd even argue scale AI, whose $14.3 billion investment, doing air quotes there for meta, effectively decapitated the company, removing its CEO Alexander Wang, leaving the rest of the company to die. laying off 14% of its staff on 500 contractors mere weeks after its CEO and investors cashed in. In fact, generative AI is turning out to be a fever dream, entirely made up big tech.

Open AI would be dead if it wasn't for the massive infrastructure provided by Microsoft at cost in returns for its rights to its IP, research and the ability to sell its models on top of tens of billions of dollars of venture capital, thrown into its billion-dollar cash incinerator. Anthropic would be dead if both Google and Amazon, the latter of which provides most of its infrastructure, hadn't invested billions in keeping it alive so that it can burn $3 billion or more in 2025 while fucking over its enterprise customers and rate limiting the rest. The generative AI industry is at its core unnatural. It does not make significant revenue compared to its unbelievable costs, nor does it have much revenue potential itself. It requires,

unlike just about every other software revolution, an unbelievable amount of physical infrastructure to run. And because nobody but big tech can afford to build the infrastructure necessary, creates very little opportunity for competition or efficiency. As the markets are in the throes of the growth at all-cost rot economy, they failed to keep big tech in line, conflating big tech's ability to grow with growth-driven as a result of the capital expenditures. Sensible, reasonable markets would notice the decay of free cash flow or the ridiculousness of Big Tech's CapEx Bonanza,

but instead they clap and squeal and oink whenever Sachinadella jingles his keys. And I got told the other day by someone that Satchinadella is not a business idiot, that he's secretly this big tech guy, And here's what I'd like to say to them. It's fucking stupid. It's fucking dumb. If this guy's actually technical, he's just a craven liar. I actually think he's a bozo. Anyway, put in that side, what's missing is any real value generation? Again, I tell you, put aside any feelings you may have about generative AI itself and focus on the actual economic results of this bubble. How much revenue is there? Why is there no profit? Why are there no exits? Why does big tech, which has sunk hundreds of billions of dollars into generative AI, not talk about the money they're making from it. Why, for three straight years, have we been asked just wait and see? And for how long are we going to have to wait, and when are we going to see it? What's incredible is that the inherently compute intensive nature of generative AI basically requires the construction of these facilities, without actually representing whether they are

contributing to the revenues of the companies that operate the models, like Anthropic or OpenAI or any other business that builds on top of them. As the models get more complex and hungry, more data centers get built, which hypers book is long-term revenue, even though it's subsidized by hypers or funded by VC money. This in turn stimulates even more CAPEX spending, and without having to answer any basic questions about longevity or market fit. Longivity? Longivity? I don't know. Yet the worst part of this financial far is that we've now got a built-in economic breaking point in the form of CAPEX from AI. At some point, CAPEX has the slow, if not because the lack of revenues on massive costs associated, but because we live in a world with finite space. And when said

Kappex slow happens, so will the purchase of Nvidia GPUs, which in turn, has proven by Kodroski and others, slow America's economic growth. And that growth is pretty much based on the whims of four companies, which is an incredibly risky and scary proposition. I haven't even dug into the wealth of private credit deals that underpin buildouts from private AI neoclads like CoreWave Crusoe, Nebius, and Lambda, in part because their economic significance is so much smaller and the big tech's ugly mean, and because I don't like saying their names very much. To quote Paul Kudroski, we live in a historically anomalous moment. Regardless of what one thinks about the merits of AI or explosive data center expansion, the scale and pace of capital deployment into a rapidly

depreciating technology is remarkable. These are not railroads. We aren't building century-long infrastructure. AI data centers are short-lived, asset-intensive facilities, writing declining cost technology curves, requiring frequent hardware replacement to preserve margins. To which I say what margins poor, but nevertheless, you can't bail this out because there is nothing to bail out. Microsoft, Metro, Amazon and Google have plenty of money and have proven they can spend it. Invidio is already doing everything it can to justify people spending more on their GPUs. There's little more it can do here other than soak up the growth before the party ends. That Kappex reduction will bring with it a reduction in expenditures on those GPUs, which will take

chunk out of the U.S. stock market. Although the stock market isn't the economy, the two things are inherently linked, and the popping of the AI bubble will have downstream ramifications, just like the dot-com bubble did with the wider economy. Expect to see an acceleration in layoffs and offshoring in part, driven by a need for tech companies to show, for the first time in living memory, fiscal restraint. For cities where tech is a major sector of the economy, think Seattle and San Francisco, there'll be knock-on effects to those companies and individuals that support the tech sector, like restaurants, construction companies building apartments, Uber drivers, and so on. We'll see a drying up of VC funding, which is kind of already starting.

Pension funds will take a hit, which will affect how much people have to spend in retirement. It'll be grim. Worse than that is the fact that these companies will be, by definition, non-performing assets, and ones that inflicted an opportunity cost that will be impossible to calculate. While a house, once built and sold, technically falls into that category, it doesn't add to any economic productivity, obviously, people at least need somewhere to live, Shelter is an essential component of life. You can live without a data center the size of Manhattan. What would happen if companies like Microsoft and Meta instead spent the money on things that

actually drove productivity or created a valuable competitive business that drove economic activity, for example? Hell, even if they just gave everyone a 10% raise, it would likely be better for the economy than this if we're factoring in things like consumer spending. Instead, it's just waste. Ugly, pointless waste. In summary, we're already facing the prospect of a recession, and though I'm not an economist I can imagine it being a particularly nasty one, given that the Magnificent 7 accounted for 47.87% of the Russell 1000 indexes returns in 2024. Even if big tech somehow makes this crap profitable, they won't. It's hard to imagine that they'll be able to counterbalance any cap-ex reduction with revenue because there doesn't seem to be that much revenue in generative

AI to begin with. This is what happens when you allow the rot economy to run wild, building the stock market and tech industry on growth over everything else. This is what happens when the tech media repeatedly fails to hold the powerful to account, catering to their narratives and making excuses for an abominable, billion-dollar losses and mediocre, questionably useful products. Waffle all you want about the so-called agentic era or annualized revenues that make you hot under the collar. I see no reason for celebration about an industry with no exit plans and needless capital expenditures that appear to be one of the few things keeping the American economy growing for effectively no reason. I've been writing about the tech industry's obsession with

generative AI for two years and I've really never felt more grim. Before this was an economic uncertainty, a way that our markets might contract, the big tech might take a big haircut, a bunch of money might have been wasted, but otherwise the world could keep turning, right? It felt before Kodroski said that thing and it came, this was all sitting in public as well. I don't know how I missed it. It felt until then that it was like, oh, this will really fuck up big tech, it'll hit their stocks, it'll be bad for them. Now, because the economy is slowed so much otherwise, this data center capex and these four companies is holding everything up and it won't last forever. There's just no way it can last forever and there's not really

anything to bulk it up or, and Microsoft's already pulling back. How does this end? I keep asking that. The original title of this was called How Does This End? And I really don't know how this ends. It feels as if everything is the lining for disaster. And I really fear there's nothing that can be done to avert it. I will be here to tell you. what's happening as it happens. And your third part for this week is going to be about GPT-5, which I'm going to be honest, doesn't really feel me full of hope or promise either.

Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Mattosowski. You can check out more of his music and audio projects at Mattosowski.com. You can email me at E-Z at Better Offline.com or visit Better Offline.com. dot com to find more podcast links and of course my newsletter. I also really recommend you go to chat. Where's Your Ed.at to visit the Discord and go to our slash Better Offline to check out our Reddit. Thank you so much for listening. Better Offline is a production of Cool Zone Media. For more from Coolzone Media. Visit our website, Coolzonemedia.com or check us out on the IHeartRadio app, Apple

podcasts or wherever you get your podcast. Another podcast from some SNL late night comedy guy, not quite on Humor Me with Robert Smygel and Friends, me and hilarious guests from Bob Odenkirk to David Letterman help make you funnier. This week, my guest, S&L's Mikey Day and head writer, Streeter Seidel, help an a cappella band with their Between Songs banter. Where does your group perform? We do some retirement homes.

Those people are starving for banter. Listen to Humor Me with Robert Smigel and Friends on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. Life is full of hurdles. So how do you keep going? On Hurtle with Emily Abadi, we're talking with the most inspiring women in sports and wellness, from professional athletes, coaches, and Olympic champions about the challenges that shape them

and the mindset that keeps them moving forward. At our level, at this scale, being able to fail in front of the entire world, like, I can do anything. I can do anything. Listen to Hurtle with Emily Abadi on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. Presented by Capital One, founding partner of IHeart Women's Sports. Your 20s can be so exciting, but they can also be really overwhelming, confusing, and honestly, just kind of lonely. May is Mental Health Awareness Month, and the psychology of your 20s is breaking down the science behind the biggest roadblocks we face.

I was six years into my career, the 80-hour weeks, and just the first one in, the last one out, and I ended up burning out. There was a large chunk of my 20s that I was just so wanting to, like, be out of that phase out of my skin. and I just like really regret not living in the present more. You don't need to have everything figured out right now. You just need to understand yourself a little bit better. Listen to the psychology of your 20s on the IHeart Radio app, Apple Podcasts, or wherever you get your podcasts. Why are we all so obsessed with romance?

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Apple Podcasts, or wherever you get your podcasts. This is an IHeart podcast. Guaranteed human.