Big Technology Podcast - What Happens If AI Fails?, Subprime Data Center Crisis, How Bad Can SpaceX Get?

Episode Date: July 24, 2026

Ranjan Roy from Margins is back for our weekly discussion of the latest tech news. We cover: 1) Could trouble for AI stocks lead to a recession or worse? 2) How the wealth effect might slow consumer spending if AI causes a stock market pullback 3) One scenario that might lead to a collapse 4) Google stock falls on spending concerns 5) Could the switch flip very quickly on big tech capex 6) Subprime data center crisis 7) How much does the data center buildout resemble the financial crisis? 8) What type of revenue is needed to prevent a collapse 9) SpaceX stock tanks 10) Will SpaceX acquire Tesla? 11) Will SpaceX acquire OpenAI? --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. Want a discount for Big Technology on Substack + Discord? Here’s 25% off for the first year: https://www.bigtechnology.com/subscribe?coupon=0843016b Learn more about your ad choices. Visit megaphone.fm/adchoices

If the AI buildout stumbles, does the rest of the economy go with it? Is the data center build out a ticking time bomb? And will SpaceX and Tesla merge? We'll cover it all on a Big Technology podcast Friday edition right after this. In the face of ongoing disruption and opportunity, TMT leaders need to deliver tangible results, not just ideas. When pace and performance matter most, PWC combines market insights and deep sector experience with AI, cloud, and emerging tech. accelerate your transformation and drive measurable ROI from strategy to execution. PWC can help you anticipate what's next, outpace disruption, and compete.

For more information, visit pwc.com. Welcome to Big Technology Podcast Friday edition where we break down the news in our traditional cool-headed and nuanced format. We have a great show for you today. We're going to talk all about what would happen if AI fails, if even one leg on the AI stool, starts to crumble what the implications will be. We're going to talk about whether we're heading towards a subprime data center crisis and how bad SpaceX can get and whether it's planned to merge with Tesla

are currently even feasible. Joining us, as always, on Friday to do it is Ron John Roy of Margins. Ron John, good to see you. Welcome back. Good to see you, Alex. This week, I have to say, as I was putting together the show, I definitely felt a little bit more downtrodden than usual. And I can't tell whether that's my mood, influencing the way the show's being put together or the world events, influencing how we're going to talk about AI this week. I think probably the second.

Everything else is going well. It's beautiful outside. We're full swing in summer. You and I are both about to take some vacation. And right now, you know, things couldn't be better on the outside, but on the inside an AI, things look kind of rough or potentially rough. Because I think with this AI story, we always go back and forth between the technology being very promising, which it is, and the economic story being somewhat in question. And that's always been in the back of our minds, and I'm sure of our listeners' minds. And this week, seemingly everywhere, there were certainly signs for caution and concern.

So let me, to begin with, just cite this New York Times story that asks what will happen to the economy if the AI boom starts to tamp down. The story says if investor confidence in AI falters, the economy actively built atop it could come crashing down. AI-related stocks account for roughly half of the rise in the S&P 500 this year. Declines in stock prices, even drastic ones, don't necessarily have much impact beyond the world of finance. But what could make this time different is the sheer scale of the stock market. Economic research has found that for every $100 investor gain in their stock portfolios, they spend about $3,000, $3 more on goods and services, a phenomenon known as the wealth effect. But the wealth effect also operates in reverse.

When stock prices fall, investors become less willing to spend, and at present valuation, a 30% decline in the stock market could lead to a nearly 700 billion pullback in consumer spending. That could be enough to set off a recession on its own. So basically, you know, obviously none of this has begun yet, but the story argues that if we were to see a pullback on the AI stock bonanza, that could lead to real world problems, potentially even a recession, because people are spending so much because they see their portfolios rise, and a large part of the reason why their portfolios are rising are AI stocks one way or another.

Legitimate area of concern, Ron John, or what do you think about the potential negative effects of an AI bust here? Well, I think when we examine it in terms of the wealth effect, I think it's always a little difficult of what you can actually directly attribute. I will say maybe we're all feeling a bit down because the World Cup is over. But I would also say anyone who tried to get tickets during that could feel the wealth effect just front and center when people, normal people you're talking to are spending two grand, three grand on a ticket and it just seemed normal. So I think like in all kinds of especially luxury spending, we've seen the wealth effect, you know, like live and very present. So I think how much of that can actually be attributed to people's paper gains is it's interesting. It's always difficult to actually do like, you know, a direct correlation there. But I do think like, I mean, some kind of pullback, especially in the last few days, Mag 7, I think yesterday we're recording.

on Friday here. On Thursday, it was the largest aggregate decline in Mag 7 in five years, I believe I saw it was. So this stuff, and that's not counting, SpaceX, which we're going to talk about later. So I think it's going to be real. To me, it's always like it was going to happen at some point. The only question is, is this going to be like a dramatic negative effect on the economy overall? or does it just mean if the World Cup was today, you could get tickets for like a grand instead of two grand? Right. Some of the spending is so outrageous that, you know, even a small pullback will sort of bring it back to normalcy, right? Like things have gone crazy to the extreme. But you could also see some of the spending, you know, as the article indicates, in non-extreme luxury purchases, right? If people are going out to dinner more often, they're going on trips more often, likely because their portfolio,

are doing really well, right? We're basically on the back of two, 20% plus, you know, gains in the S&P years in a row. And then this year we're, you know, a little bit more than halfway through and the S&P is up about 8%. So the increases in people's portfolios are leading to more spending. And the concentration in the market is in AI, right? So 25% is in the Mag 7. And then there's now these additional memory companies that are also pushing up the value of people's portfolios. So this is how the article argues that, you know, one scenario for how things might end up unraveling. And you let me know if you think this is feasible.

They say if companies find that their AI investments aren't paying off as quickly as they hope, as they hope they might pull back their spending, forcing the AI labs and their suppliers to trim their growth projections. Such a disappointment could incite a market sell-off, which would make it more difficult or more expensive for companies to raise. the capital they need to fund the AI buildout. That in turn could lead companies to delay or cancel plans to build data centers, power plants, and related infrastructure, giving way to layoffs in the construction industry. And at the same time, the drop in the market would push wealthy consumers to pair their spending, their spending leading to wider job losses and ultimately a recession. What do you think? Possible? I think certainly plausible. I mean, it's like any downturn.

It's not the initial downturn that's going to kill you. It's the second and third order effects of it. But I don't know. I still feel what we've seen in the market, especially this week, and whether that's just kind of like a slight correction or whether it actually signifies something much deeper. And we're going to get into Google spending and free cash flow, which I think is actually really notable.

To me, time frame, with the whole AI, discussion. I've said this regularly, like, the time frame is the most interesting part of the entire thing because, you know, if Google is investing now for two to three years down the road and you're really not going to see anything or maybe even a year down the road, but in the near term, it causes more issues. How much of that affects spending in the near, like tomorrow and next month? I think it's definitely going to be there. But whether people continue to believe in that medium-term story, I think could be the difference whether or not we're actually seeing something much more systemic and worse. Yeah, there's a great line that ends this story, which is a quote,

right now the burden of proof is on the skeptics, but once you have the slow trickle of disappointing information, then the burden starts to be on the optimists. Oh, that's beautiful. Yeah, it is beautiful. Yeah. Right. Because ultimately, like, everyone has gone along, you know, with the story of more spending will inevitably be worth it, because AGI, right? Like, that's basically been the logic. And this could really unravel very quickly if the big tech companies, like a Google, like Microsoft, like meta, determine, hey, maybe we don't need to, you know, make these massive

infrastructure spends. And we can have some of the benefits of AI from, you know, other sources. Do you think this is, we're seeing the Kimmy K3 effect here on Mag 7? Do you think people have already kind of directly connected the two and suddenly more efficient spend? Maybe Jevin's paradox will take a little longer for us to get to. So everyone's like, actually, you will be able to do things more efficiently and cheaply now. So that whole KPEC story doesn't quite make as much sense? Or do you think this is just a little bit of it's gone up a lot and it's not going up as much?

Yeah, I don't think Kimmy K3, I think, I don't think that. is a direct lead into people saying you can do it more cheaply. Again, we spoke about this a little bit last week, but Kimmy K3 actually is not very token efficient. So even if the prices are cheaper, you still need the data centers,

you still need the cloud hosting, and you're going to run a very token-hungry model and not necessarily get the savings that you expected. But I do think that this is a cumulative situation of the models getting cheaper, people showing that models outside of Open AI ananthropic can work, opening eye ananthropic not really being close, you know, at least in their projections to long-term profitability, more and more models like meta and grok, you know, being cheaper

and, you know, effectively the gains not really being found outside of opening eye ananthropic, right? So those two companies, which you've talked about as the sort of dual points of failure in this whole thing. You know, I think that that is starting to, you know, be a cause of concern if you're not one of them in terms of, well, how are you going to make money off of this? And then I think, by the way, you mentioned the Google earnings, right? That leads right into this big problem with Google. So Google this week is down like 8%, and it dropped immediately after its earnings after its CAPEX went from, went up to 205, more than 200 billion in terms of its AI infrastructure spent, right? So this is from the Wall Street Journal after the $4 trillion company raised its estimated capital

expenditures to a new range that extends the past figures while reporting on its second quarter earnings, investors punished the stock, which fell more than 4%. And after hours trading before recovering slightly. So basically what's going on is, you know, the analysts are saying this $200 billion in a year was a do not crossline. Previously it was supposed to be $180, $190 billion, right? And now it's going to be $195 to $205 billion. And, you know, going back to that New York Times scenario, people are asking, hey, where's the payoff here? Right? Like, where is the associated growth that we were supposed to see? And Google became this linchpin, I think, because it's not having the model success as open eye and anthropic. It's not having, you know, the growth that we're seeing in something like Cloud Code.

And these questions are finally the market saying, listen, you can't just spend based off of this optimistic scenario if you don't show us the results. Now, cloud is growing for Google, but it's, it is, we're beginning to see the pushback. And this, like I said, this could unravel very quickly, don't you think? if the market does not allow for it. Yeah, but it's still, I don't love this idea that, like, looking at it as unraveling, I guess going back to the idea that the burden starts to be on the optimist rather than the skeptics, like, it was crazy to me, September 2025, where you were rewarded by the market for saying you're going to spend a lot more money

on a technology that has not had the economics of it actually worked out yet. again, Oracle is down 65% from the peak up back in September. That was when, like any market environment where you are rewarded for saying I'm going to spend a ton more money on something that's unproven is already a bit crazy to me. So I'm still going to look at all of this as rational, like the rationalization of the markets rather than the unraveling of the markets. So far, I mean, let's wait a week. Yeah, but this, okay, so can't rationalization. lead to unraveling. Like, there's going to be a point, don't you think, where investors are going to look at

this, you know, this emerging technology. And so far they've been willing to bet on it. And again, like going back to the story at the top here, the reason why people's portfolios are up is because there's been this collective belief in AI in the AI story. First is a technology story, but then in like traditional typical, you know, Silicon Valley mode of spurting to the whole economy, there's also been this belief that they'll figure out the business model. I think what we're seeing with the market right now is, hey, maybe they won't figure out the business model. Just where four years past ChachypT, the spending continues seemingly unimpeded.

The business models maybe are emerging. I don't know, right? The best business model is just providing the infrastructure for these things. And the products are obviously improving. but not across the board. And the only ones that seem to have the product momentum are open AI and anthropic, and I'll go to a tweet from Mr. Ranjan Roy this week about the Google product. Gemini is quickly achieving co-pilot status, no idea what's going on over there. So basically my point is maybe this blank check from the market goes from, you know, hey, we're going to, you know, it doesn't seem like there's going to be this middle ground

between blank check and you can't spend on AI anymore. I just don't see them saying you can spend $50 billion, right? I feel like it's either, you know, you go all in and you're going to build AGI and that'll be worth a ton of money or you don't. I don't see the middle ground. You see the middle ground? Alex, I like my market's healthy. I don't know about you, but I like my market's healthy. And I think this is just a little bit of a, again, you use the word correctly blank check.

And that's what it's been for so long. And, like, again, in the last, call it 12 months more than anything, there have just been so many of these little moments where, again, back in February, like, senior executives bragging about their Claude Code spend, those are the moments that you always look back on and you're like, something was a little bit off. The market rewarding Oracle for taking on a bunch of debt to, and all these crazy commits from opening on these deals being structured around, like, these very optimistic, if not crazy, scenarios and being rewarded for it. So I still think this is good for the market and this had to happen. And like it's better that this happens in a kind of controlled way where people start. And again, as regular listeners know, I'm very optimistic about at least the medium term and the world of agentic AI. And I think like it's better that this happens in some way rather than it's just a straight line up forever until it's not. So what is the healthy market story that investors tell

themselves to be like we're we are going to spend like we're going to give these big tech companies that leave it to spend let's say 100 billion a year and you know instead of flushing in their entire all their free cash flow maybe use half of it on AI. Yes yes that's exactly it like again the reason this raised alarm bells is I think this was Google's first quarter of projected negative free cash flow ever. So, I mean, ever. Like, that's crazy. So, like, maybe just don't make it negative. Like, maybe just say, we're going in, we're going in, you know, $100 billion is a lot of money. Like, we seem to, I feel, forget that now when private companies are valued at a trillion. But going in where we're not

going to fundamentally put our entire cash cow that has made all of us so much money at risk for this. And we're going to do it in a slightly more measured but aggressive way. To me, that's a healthier story versus meta and Google and everyone just looking at each other. And again, Microsoft is not doing this. Like all of them looking each other in the eye and being like, all right, you're going for it. I'm going for it. We're all going to like sink or swim on this and just shovel money in and see what happens. That's my healthy market. Right.

But I'm asking, like, what is the narrative about AI? Like, what does the market believe about, let me just get the question out. Yeah, yeah, yeah, yeah. Like, right now, like, basically the market is investing blank check. There's going to be AGI. You know, if there's a complete pullback, basically it means, like, this is not an economically feasible technology. So does the market thesis then sort of become, you know, AI might not,

be like the next, I don't know, iPhone or the next internet, but it will be this sort of helpful new mode of computing. And we will, actually, this might make sense. And we will just keep investing in it to grow incrementally and sort of make our bets that way. You know, have big tech make their bets that way versus, let's say, and we're going to talk about it with Paul Kodrowski in a couple weeks, but a call option on AGI. That's what, to me, I love it. That's all I want. That's what I've wanted the market to actually think for a long time. And I love that call option on AGI that you just put all your money in and either it works or it doesn't. That's not healthy to me.

That's like the economy trading on Robin Hood as like a D-Gen versus let's make this work. Let's scale it out. And maybe it's not even incremental in the traditional sense. It's still aggressive. But it's not that kind of like the economy is a call option right now. Okay, but then just for the sake of argument, an AI bull might say this is the best thing that I,

like let's say I'm one company and I'm a believer in this. You might say this is the best thing that I want. Let's say you're open AI because open AI is the most likely candidate. I want Google, Microsoft, meta, Amazon to believe this is an incremental technology. I'm going to make the bet that it is an exponential technology. and isn't this the way that big tech companies lose is that they don't bet big enough on the thing

that will effectively disrupt them and an upstart comes in right and so so I'm just to just to take it one level deeper if you're Sundar you already sort of started late isn't this you just seeding the battle to open AI if you listen to the market and spend less because if this does be become this ultra-powerful technology, you are effectively losing it. It's almost like,

can you rightfully, with your CEO brain, take your foot off the gas pedal if you believe there's even a 10% chance that this becomes the technology that opening I believes it will be. But that's the way they have been thinking, at least Zuckerberg, Sunar, and others. I mean, I think Zuckerberg made lots of comments around that, around like, even whatever billions of dollars is not enough given the potential. To me, again, I like this theme of healthy competition and economy because that's kind of normal for time in a memoriam like large incumbent, not just large, four trillion dollar incumbent giant of the entire economy does not approach things the same way as upstart company does. And incumbents have done very, very well for a long time. And like, but I guess it all comes back to that question of if one company reaches AGI before others, does everyone else lose and only they win?

And actually, maybe that's the biggest shift right now. To me, that mentality, I have not, I've never had that. I feel more and more people with the Kimmy K3 conversation and everything else and model routing. I don't know if you saw a stripe might buy like open router for 10 billion. like everyone and I've been thinking saying this this is what I work on for a long time model interoperability it's about the harness and the product like the more it feels like that is a giant vibe shift right now and that idea that aGI or bust whoever wins owns the entire thing do you think anyone other than open aI and anthropics still believe that as of Friday

July 24th today no but I think that's because the game has been played a certain way up until this point. Just hear me out here, right? Which is that open eye and Anthropic have been sellers of intelligence, not products effectively. I mean, yes, they have the chat GPT and the cloud code, but that's like they've always had this API business on the side that's been very important to them. I will posit that there's a chance that these companies think the API business is going to be a liability to them. Because the The only way, okay, the only way you reach AGI and still lose is if you make that AGI available to others.

And the way that you reach AGI and win is if you hoard it and basically say, I've been making all these models available. I'll still make less powerful models available to people that want to build things. I just made open and I just made GPT10 and GPD10 is the big one. And actually, you know, GPT 8 and 9 and 10, I'm not going to make available to people. I'm going to make that only available for use in my proprietary products. And I'm going to go upstream and make, you know, OpenAI CRM, OpenAI design, open AI customer service. You want the access?

You want the power of AGI. You use it on my products. And by the way, that also prevents some distillation as well. And that is how you turn what you've done into something that you can reap economic benefit from while keeping everybody else at bay. So I love that actually. And I think if you believe it that the AGI or bus story, that actually is the right strategy. So why aren't they doing it if they really believe it? Because they didn't listen to Alex Cantorowitz.

I don't have any information to suggest that they're going to shut off their API. I'm just saying we might have seen the beginning of the beginning of it as well. With the mythos thing, with the slow rollout of GPT5.6, just wait because they may have no choice, but to shut those APIs off. I mean, going back to what is healthy competition, I kind of like this. If you have very distinct strategies for the frontier labs, our strategy is it's always been about AGI or Bust, owning the intelligence, turning that into products, this is going to be our entire business, they should go for it

and then let everyone else take the other route, which is what a lot of the world has been talking about over the last week of model interoperability, infrastructure, harnesses, all these kind of other things. And you have two,

then it's like a cleaner competition who's going to win. Yeah, they should do it. Listen to you. And by the way, yeah, the other, or you could even make API sort of accessible only in your like trusted forward deployed engineer version like if you're for instance if

you're jp morgan and want to build with our you know gpt 10 we'll send some consultants over make sure you don't get to touch the code and we'll build products for you but if your sales force i think that you know maybe we're going to compete with you so sorry you can't you can't have access to anything beyond gpt6 but that's where i mean there was how long ago was Claude design only like three months ago, right? Like, you know, there's that moment of giving anthropic access to your systems and they're just going to copy your products, which I do feel is still there. Like, I mean, that's still, which is kind of the model you're talking about here, which is

if you own intelligence, you can just do these kind of things. But I don't know. How do you actually see this playing out over the next few months? Yeah, like that. Like that. I think, okay. Look, just, just, you know, we've seen so, it sounds crazy. The way I'm saying it, it sounds crazy.

But we've seen some crazy stuff happen in AI so far. I don't think we're done seeing crazy things. So I think that, you know, just, just, I don't know, prepare for the API to go away. Well, to that's my thought. To Sam and Dario, I say, I think if you are AGI or bus, follow Alex's advice. I mean, I think that's...

I don't want them to do this. I mean, I think it would be better to have more AI for everybody. But it seems like they want to have a choice. But that's the only... I agree. That is the only actual logical approach rather than the current

kind of piecemeal one that doesn't really say like... And we're seeing them. We're seeing you come out with mythos and Kimmy comes out and like we're seeing in real time and then you're complaining about distillation, et cetera, et cetera.

like if you're if you're close to aGI own it and yeah that's the end and then you got a story too for the IPO that is a story okay so what what happened let's keep going with our you know sort of what could go wrong theme uh this episode um i want to point you to a piece from ed zedron uh this week he calls it the subprime data center crisis now as somebody yourself who was on the floor of a trading desk during the financial crisis. I'd like to run this scenario by you, and you can tell us whether you think it has any parallels, and we can go from there. So this is kind of, Ed, outlying what happens when someone wants to build an AI data center and sort of the financial mechanations around that. He says, when somebody decides to build an AI data center,

they form a special purpose vehicle, which then raises debt, in some case, slices it into trunches, and in most cases sells them to institutional investors, asset managers, or banks. Think of a SPV as its own little company, and when somebody signs a contract with an AI data center company, let's say OpenAI, they are actually signing a deal with the SPV. When the SPV receives funds from the debt it raises, it makes payments to contractors and suppliers like Nvidia for GPUs and receives the revenue from the customer contract,

assuming said customer is paying or has anything to pay for. During construction, interest payments are taken out of the SPV from a pre-funded interest reserve account when a customer pays. The SPV uses those funds to pay for operating expenses of the data centers and then creditors based on their seniority and debt. Then, if anything, is left the holding company. All this money counts as revenue. So basically what I just saying is, you know, this is a risky buildout. It's being put together by these SPVs that you would hope you would get the money back if you invest, but you're not sure. And there's got to be revenue from these AI Dennis data centers to pay it back.

What do you think about this setup? We've talked about it a little bit. But let me just give the bottom line from Ed. Put simply every time somebody builds a data center, they form a completely separate entity that owns the chips, owns the debt, and in many cases owns most of the risk. What do you think about this in terms of a riskiness quotient? I think it's interesting. And again, like, I actually really like how we're starting to get much more granular

about how this compares to the financial crisis and mortgage-backed securities. Because, again, the story is actually very similar in that you have the underlying asset, whether in the past it was real estate, now it's digital infrastructure, data center infrastructure. You have, in the past, the value, the kind of marked value of real estate was how it was measured and it kept going up. Now you have both kind of the marked value of companies, but also you have this kind of circular financing, and we've talked about this for a long time, that is inflating the price

before it was the mark of a house or entire housing market. Now it's like how that revenue is being recognized. But then the risk has already been passed off and sliced up. And then any kind of downturn going back to where we started this conversation, who owns what, who pays what is very murky. And then actually trying to get your money back, even a piece of your money back, becomes very difficult. So all of those parallels are,

I mean, very similar, I think, like, not to, not to bring us down even further after no more soccer in the World Cup. But it definitely, it's a logically consistent argument. I'll give it that to start for now. Okay. So now let's let's keep going with what Ed is arguing here, right? So basically, what he's saying is a lot of this debt is you can't really see it because it's in these special purpose vehicles as opposed to held by the companies. and then it's in these opaque SPVs and chopped up and farmed out through the economy. So how much debt is there actually?

Well, this is from Ed Story. Bloomberg estimates there's over $500 billion in outstanding AI Data Center debt, at least $200 billion of it held by private credit, making up roughly 8% of outstanding private credit loans. That being said, the number is likely much higher. NKA. Asia reported this one. week that Metagoole, Amazon, Microsoft, and Oracle have accrued around $1.65 trillion in outstanding debt over the last five years with an additional hundreds of billions of

dollars worth of off-balance sheet debt, meaning that the corporate structure allows the company to not include it as part of its liabilities. What do you think about this? That's pretty, pretty bad. No, no, I mean, now that we're, and then, I mean, also I want to know the piece continues around that the money that goes into these SPVs doesn't count as a capital expenditures so meta recorded 88.6 billion in capital expenditures but that doesn't include the hyperion SPV which had its own 46 billion dollars of exposure and this process is very similar i mean sorry i'm like trying to see how many parallels i can draw to 2007 2008 but like it's already too many man it's already no no but but in what kind of

counts as well. This needs to be a little bit more of a research story here. But I think, I mean, at the simplest level, the risk is being pushed off of like the initial asset the same way the actual house. Risk was so far away from the initial asset. Now, even Google meta stock, when you have $46 billion of exposure, a bunch of circular financing and revenue recognition that none of us have any really clear idea on. And like that level of risk and, and Ed does continue about how he's estimating 70% of this capacity from Microsoft, Amazon, Google is Open AI and Anthropic.

So that's the other big part of this is those two companies have committed, like all of the other side of the trade are Open AI and Anthropic actually being able to meet these commitments and give them that money to, fund this SPV to actually make the whole thing work. And as I'm saying all of this, like, my God, how, it, the dual points of failure. It's a problem. Is it, is it only those? Is there a world, actually, is there a world where everyone else fails in Open AI and Anthropic come out, okay? They're not the points of failure. Oh, I guess the EGI. AI and hoarding. Yeah, yeah, yeah. Yeah. It all comes back. I thought Sam said AGI is not a thing anymore.

remember? I don't recall him saying that. No, remember after GPT5, I think? He was like, it's not as important. I'm going to let it. Oh, yeah. He basically talked about how we should probably agree that we've like kind of breeze past AGI and are on our way to super intelligence. But either way, the concept remains. So let's go back to Ed. He's, Ed says to be abundantly clear, the vast majority of AI data center compute revenue is contingent on the continued ability of two unprofitable, unsustainable, AI companies to raise tens or hundreds of billions of dollars a year. This is not an overstatement.

This is not hyperbole. This is quite literally the situation we're stuck in. So let me see if I can outline Ed's argument by taking the latter, you know, one by one. We have these SPVs that have created a lot of debt throughout the economy and a lot of that debt is being held by private equity and banks. The size of the debt that they are holding is massive. You know, potentially essentially trillions of dollars or more than a trillion dollars. The only way that this doesn't end up in a disaster is if basically OpenAI and Anthropic have the exponential increases in revenue continue in a way that, you know, we'll have to be massive to pay this money back.

And if Open AI and Anthropics revenues do not continue to accelerate, accelerate, exponentially, effectively the entire economy is going to be like the bagholders here. And they are going to, there will be a cascading financial crisis because of the amount of debt that will not be able to be paid back because of the way that this is all structured and the dependencies. What do you think about that argument? No, but the entire economy as the bagholder, I mean, I think in that now system, But Open AI and Anthropics certainly are holding some bags there because that's basically saying that they're not going to be like going entities at a certain point.

I think, I don't know. I guess it all, again, it comes back to time frame. And this is where, like, how fast the data centers need to generate cash immediately and how fast can they generate cash. And that's kind of been what has been hammering Oracle is that very quickly, especially because, because that was actually, to their credit, straightforward debt fuel. And everyone's very quickly realizing, actually, this might take a little longer. So I think, again, the question of does it happen and then how severe, I think those are the two very important ones, and does it happen?

There's no way this all demanded perfect execution from everyone in the industry. like perfect execution. Again, I feel like the expectation set open AI, like post-chatGTPT for a while, was in perfect execution mode. Anthropic from the release of Claude for like six, seven months was in perfect execution mode. But as we already see, that is not a thing in infinite, like in an infinite timeline. So something has to give is just, yeah. How much, but I don't know. I still always wonder, too, like, shouldn't there be more information about this?

And like Ed Zitron, to his credit, has been talking about this for months now, maybe even years. Like, I'm actually more surprised this isn't a more deeply reported thing by every major publication or every analyst itself. Well, Ed basically makes that point in his piece, saying that like there should be more coverage of this. and it's surprising that it isn't. I don't know. I think there should be, I honestly think publication should be running with this stuff.

And, you know, to go back to our prior quote that the burden of proof is on the skeptics right now. And, you know, if it flips, it will be on the optimists. Well, I think that part of this discussion,

and by the way, you and I were very optimistic about this technology, but we've always kept in mind that the business could be a big problem because of the magnitude and the dependencies here. And I think that the narrative should be more balanced in a way that we try to do here.

Right. Like, you know, there might be some people out there who are like, why are you spending, you know, 15 minutes on Ed Zitron, you know? And I'm like, like, we got to tackle these. It matters. Yeah. It matters. So I don't know. I think you have a good point here.

Yeah, let me read Ed's last, last bit here. He writes, he writes, for me to be wrong, there will have to be dramatic amounts of AI compute demand, hundreds of billions of worth, within the next three years at a time when there's a little more than $120 billion, with 80% of more of that coming from two companies that can only afford it because they have near infinite sums of venture capital behind them. And for some context, the entire global software market is estimated to be around $779 billion in 2020. Just my attempt to add some nuance here, I don't think anybody would have predicted open eye and anthropic getting to $120 billion as quickly as they have.

So I'm not saying they'll necessarily bring all that demand online, but it's not an impossibility. Well, that's the thing, too, that I mean, that's the frustrating part. And this is why I'm like the burden of proof being on the optimists is a good thing. It's like their growth has been spectacular, unprecedented. I mean, choose your, choose like how you want to describe it. but it's still not enough currently to make all this work. And I think that that is, that's like, again, why I do not consider this healthy. Like you have unprecedented growth, earth-shattering growth, and it's still not enough.

I know it's unfair to ask you to predict this, Ranjan, but what do you think the chances are for us to have like an, you know, sort of unraveling of our economy? maybe not to the tune of the financial crisis, but one that is, you know, let's say 30% of it because of these AI investments. See, I still, again, having sat there on a trading floor during the entire crisis, like the big difference here is it's still like at a minimum, this is going to only affect a class of capital holders

that like it's not everyone who has a house, that's everyone. And so the like knock on effects, the actual like acceleration of housing prices declining leading to like instant wealth effect issues versus anyone who has been able to invest in a Hyperion SPV, you're going to be doing okay. Like you're, you're going to be doing okay. If you are a retail shareholder of Micron or like SpaceX or whatever else, you might get hit more quickly, but I still think a difference and like what are the, so I think the systemic effects are potentially to the market as a whole. And then you could have your second and third order effects on what that could do to other companies and retail shareholders. But the big, big difference

here is everyone, or I mean, lots of people own houses, not everyone is able to invest in the Hyperion SPV. You know, an interesting thought experiment here is what does this? due to the open AIs and anthropics of the world, who are basically triple levered on reaching AGI, so to speak. And it's an outcome that we could potentially see is everything that Ed anticipates comes to fruition and that they can't pay back these contracts, leads to debt, they can't raise any more money.

Do we end up seeing them be acquired by big tech companies? Imagine, you know, Amazon and Microsoft. Satya on stage with a smile on his face or John Turnus, as per our Turnus fanfic from last week, on stage acquired Open AI for far less than the value of even there like three rounds ago, saying Siri is finally going to get actually good. I mean, I don't think that's not an unreasonable outcome to any of this. Like, which is again back to normal economies, like normal healthy economies. like normal healthy economies

that fast-growing startup has massive acceleration valuation increases something doesn't pan out larger company with a strategic interest buys it it's not crazy I was going to say

if we hadn't seen the past month play out the way that it has for SpaceX does Elon go full circle and acquire open AI it actually could happen in the combined Tesla and SpaceX entity. I mean, that would be something.

That would be, I mean, it is crazy. When we talk vibe shifts, though, like, this is what's going to be really interesting to see. On this show, I don't think we have ever discussed the acquisition of either of those two companies. This might be the first time we've ever started hypothesizing around what does that look like, which is crazy because we hypothesize about everything. including John Turnus and what his personality behind that veneer of calmness might be. But like if we're doing that, if other people are doing that, that's, I mean, that's a big shift. And I think it's already happened. I think that's already here.

And we've seen plenty of pieces of it. I guess I'm curious like, did, I saw this one tweet around like Open AI. And we had brought this up on the show last week about how them not being able to invest in AGI by having like normal business pressures is effectively negative for the economy and humanity. Like then I there's one tweet around that like all the responses from like very tech VC types was basically like they can't fail. We should not allow them to fail.

They're too big to fail. Like it's bad just for everybody. And you could just feel the level of kind of like over. overinvestment into them, I don't know, across at least large percentages of the population. Yeah, no, I've seen that too. And I think it would be bad for them to fail, right? If you think about all the energy in AI, a lot of it has been sparked by open AI, right? Like Google, Google missed, you know, the chatbot moment and only entered because of, you know, chat GPT and sort of you think about the enterprise side of things.

Open AI has sparked that. I don't know. I think it would be, the energy of a company like Open AI is overall good, despite its shortcomings and it has plenty. I think it's overall good. And sort of you would, you'd likely lose a lot of that if they sort of went in a house at Microsoft.

I'm going to push. I'm going to push back heavily on that. Mainly because actually that energy, again, working in enterprise AI, for a company that is only focused on enterprise AI since its founding, you see how that energy distorts the proper conversation very quickly when Open AI comes in. Like suddenly the way people approach it, the scale with which you need to actually approach and try to solve problems and build things out,

which is what I think has happened to a lot of AI across on the consumer side as well. It's like that it has to be thought of and done as a certain way, rather than this is technology. It's great technology. Let's figure out what to do with it. Just have a normal path to actually doing something with it rather than that manic energy. And I think that's what the promise of AGI

and the conversation around it is created. I'm really liking this returning to a healthy economy and going back to actually, I believe the burden of proof should be on the optimists, not the skeptics. Do you agree? I am going to say, and this won't be a surprise to our listeners, the burden of proof should be on anybody saying anything. Like, we shouldn't give any side of free pass.

Well, no, no, but I guess it's more like if you are selling something, yeah, you should, I agree. If you are heavily skeptical, if you're the Ed Zittron in this case, you should also be sharing your burden of proof. But I think what happened is like the assumption was that. Yeah, like optimism is a default inherent good. And actually, this is kind of like a bigger philosophical thing. I feel in the valley where you hear all these people saying like even to just question something is bad and you have to have unfettered optimism. And that's what's powered the valley since it's kind of incarnation. But like, I don't like it.

Right. Just ask some questions. Just pro questions. Yeah. Yeah. Well, that's what we do here. Yeah. That's why we pod.

All right. Let's go to break. Before we go to break, I just want to give folks a heads up on what scheduling is going to look like over the next couple weeks. So Ron John and I are going to be on break for a bit, but the show will continue. So we're going to have our typical Wednesday episodes as usual. The Friday episode will look a little different until we both come back. So I'll give you a heads up as to who we have coming on. It looks like Dick. Dick Costello, ex-Twitter CEO, will be on our Friday show next week. The following week, M.G. Siegler will step in on the Friday show. The week after that, we're actually going to do a replay of an old interview that I did with Johann Hari about the impact of Ozempic on our economy and health. I really liked that interview, and it happened before many of you were joined the show as listeners. So that's coming on Friday the 14th of August, and then Ranjan and I will be back on the 21st of August. So we're going to do as best as we can to get through these summer weeks,

but don't worry, show hasn't changed. Just slight break for both of us, and we look forward to seeing you then. And yes, two episodes a week on the show, at least coming at you. So with that, we're going to take a quick break and come back right after this. This episode is brought to you by Deepel. When I sat down with Deepel's founder Yarak Kutliovsky on YouTube recently, we got into the case for specialized AI. Deepel Voice is what it looks like when the stakes are real-time conversation, and honestly it's something I wish I'd had for my own cross-border interviews, turning a language barrier into a non-issue.

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We really only have time for one more, though. So maybe Ranjan, you and I, when we come back and talk a little bit more about distillation and whether open source AI should exist, although the consensus is now going towards, yes, everybody's coming out and saying we should have open source AI. So we'll keep covering that story. but you have brought up that you want to talk about whether SpaceX and Tesla might merge and how steep the fall of SpaceX could be. And I think it just fits thematically with our episode this week.

So Ranjan, take it away in terms of what you think is going to happen with these two companies. I think those are two separate questions around, you know, will SpaceX and Tesla merge? And then the other is what is actually happening with SpaceX? As we're recording, SpaceX is at a hundred round of 114, which is still one and a half trillion dollars in market cap. This is a company that has $18.7 billion in revenue less. So one thing to note that's interesting is like already it's down significantly from when it had crossed 200. And Elon Musk, everyone was not just became a trillionaire, but a multi-trillionaire. No, no, no.

He was worth more than, more than two, he was worth two trillion, no way. No, no, he was closing in on it. Like, there's a one day, I think, when it went to like 220 or so in the intraday, basically after crossing one trillion, he very, very quickly started, it started skyrocketing. And then everyone was like, oh, we might, we might hit the second trillion quickly. He did not actually. He never hit the two trillion valuation. Yes. I love that this is even an actual conversation because that's for a company with $18.7 billion in revenue. To me, what's interesting is already we've seen this drop. But it's still, like a lot of people have said, like, you know, it's already happened. This is crazy. But there's still, again, given its revenue, plenty of room to go. The other big thing is on August 6th, there's another wave of shares that will be unloaded into the market. And it's two days after they report their earning. So suddenly, this is, remember, they brilliantly went out to the market saying it is worth this ungodly valuation and kind of anchoring things there, only releasing less than 5% of actual available shares to the market

to actually create that kind of artificial restricted demand and played it all perfectly. But basically, I think we're going to see, and I guess a big question is, is it a leading indicator for AI or is it just kind of a referendum on what you think about Elon? I mean, I think the next month and a half are going to be really, really interesting for SpaceX. itself before we get into the merger. Do you think it's in danger or do you think this is just kind of a healthy rationalization going back to the question of the day? You know, I will recall before SpaceX went public, I think this was in one of our conversations.

I told you that I got angry at the S-1 that they had filed with the SEC because it was detached from reality and said that I. expected a pop, but, you know, eventually it would come back down to Earth. And that is obviously what's happened. It's going to fall more, I think. I mean, this is obviously not investment advice, right? It's just talking my personal opinion here. But as you mentioned, there are going to be not just one pocket, but many pockets of

employee shares that are going to come on and be available to be sold. Yeah, the August 6th is actually going to be, the August 6th is going to be a bigger allocation than the initial IPO of what's actually available to be sold. So what we're not expecting? I mean, it's simple supply and demand, right? When you have more sellers than buyers, number go down. Total. Yeah.

Now you just, yeah. Diamond bands. I haven't said that like three years. Yeah, it didn't really work out well for all those people. Okay. More interesting, are they going to merge with Tesla? Because I put down the market caps before we started talking and Tesla's at a 970 the market cap, a billion market cap, and again, SpaceX 1.5 trillion. So do they merge? Can they merge?

What happens there? Well, I think, I mean, Elon being Elon and what he does so well, already just starting to hint and seed this. And I think whether it's a good or bad idea is going to be interesting, but he had already on Tesla's Arnings call, you know, said, as you can tell from the many collaborations on so many fronts with SpaceX, there's more and more overlap. We can't talk. We can't talk. about, you know, combining companies and that kind of thing on an earnings call. It's got to be done with the appropriate process. Just brilliant and just giving that little nugget to the world, starting to seed that idea. And I think it's almost, it has to happen because these two companies, again, Tesla has a car business. SpaceX kind of has a space business still,

has an internet satellite business, but they are kind of bets on Elon. Musk and he's been a very good bet for a long time. But like, splitting them out is actually very difficult. Like, if you're an Elon fanboy, which one do you put your money in? When do you put your money in? Because you're betting on the same thing, basically. And a lot of, remember, Tesla had an AI story to it that's kind of gone away, which is not good for a car company, because it can never be valued as a car company. So to me, they have to merge. Yeah. Actually, I'm going back to this SpaceX IPO because, you know, we reacted that week and we called it SpaceX, or I called it SpaceX, his IPO triumph. And we both commented on how well they executed the IPO.

And sure, they made a lot of money for the people on the inside, you know, on IPO day. But do we still think it was flawless execution? Well, this is where, and apologies to listeners in terms of sometimes it's hard for me. where I'm like, I will, like, differentiating between what is good and right versus what actually just given a flawed system works. And to me, the flawless execution was manipulating the system in a way to enrich yourself and a few others. And that's a very cynical use of the word flawless execution.

But in that game, I still think it was flawless. for having $18.7 billion in revenue and losing $4 billion on that revenue to get that valuation, how could you, can you argue that that's not just in terms of like the game itself pretty freaking good? Yeah, I'm watching, ever watch Alice in Borderland? Wait, no, what is that? It's a great show on Netflix. It's this Japanese show where basically like all these contestants end up in these games, but if you lose the game, you die.

it's so good it's like one of the best shows isn't that squid game it's it's a different it is that is squid game has a version of that but it's a different take on it it's so so good and um and and yeah and it's all just like well I'm just playing the game and you know you end up leading to other people's deaths so I don't know I'm thinking about cynical

you know game playing the game the best way is uh I have different thoughts about it now and after watching this. Wait, sorry, what's the plot again? I'm very curious now. They are, there's just these series of games that you go into. And you will, you will, you will, you will. Uh, well, so maybe, maybe not.

Okay. Probably not. We don't want to give it away. We don't want to give, I still want to watch myself now, but, uh, I'm not saying it's the exact parallel, just making the point that like, I can't, you know, too often I think we're like, oh, you know, you know, I think we're like, oh, you know, played it well, you know, even if people get hurt. And I think that that's, that is, I'm not, there's not a criticism on you.

No, no, no. I would like to add a recurring disclaimer. When discussing Elon Musk, I will, I mean, we can get into what it actually means for the overall economy and society versus he executed the SpaceX IPO to benefit existing shareholders of SpaceX. Very well. Yeah. And only some of them are that good so. Okay. We'll take it.

Do you think, all right, we're, we recon, you and I, we'll still have the Friday show going, but you and I reconvene, uh, 21st of August. Has that move, has that move been announced? Oh. The merge. Okay. Oh, let, let's get into predictions for 21st of August. And I think that's a good way to walk out of here.

No, I think it's too soon. Elon told us it would still require the appropriate processes. But I think we're going to get a lot of, even though I don't even know what that would mean in the world of Elon in terms of like his ownership and control over both companies. I think he could just say it. I think he's going to be hinting a lot more aggressively over the next few weeks. Does that benefit SpaceX or Tesla more? I think equally it benefits them both and. I think I'm neutral on that.

I don't think it necessarily benefits one more than the other. They're both incredibly overvalued companies that are, no, no, but that are betting on a much larger promise of a robotic economy that Tesla and Optimus robots everywhere or space data centers in space. So neither of those are rational things in the near term. So they're the same bet. So why not combine them? You know who makes that even more attractive? Combining with Open AI. by okay hold on where is the state of AI optimism and skepticism and what are the optimists proving and

within their burden of proof by August 21st by the time we're back well we're about to we're like basically at the face of all this big tech earnings so I think that like the Google thing might have just been the beginning let's see what amazon says on capex let's see what Microsoft says on Apex. Let's see what Apple says about AI. Let's see what meta says about AI. I think we're heading towards a, you know, I don't, I asked at the beginning, why am I feeling down about things? I would argue that there's, we're probably about to go into a period where the questioning of AI's economics. And I don't think that's like, I don't think that that is like a bad thing, just to be clear. I just think that like the clouds, the dark clouds are illumines.

and it's about to get rainy. I think the Murphy's law of the moment you go on vacation is when the most news happens. I think we're already going to be having to message each other and risk our marriages and families to as we're like, do we look what's happening? Must be odd. I shouldn't even, I mean, I'm open to it. I shouldn't even admit this. I'm doing a solo vacation because my wife recently started a new job and does not have enough off days. And I'm just going to hit the road on my own.

All right. All right. Sitting. Where are you going again? I'm going to go to Indonesia. Ah, okay. How about you? I'll be in London and Spain.

Oh, very nice. As long as we, let's see what happens. But August 21st feels a long time away. That's a long time away. Yeah, I was going to say I beseech the gods of AI news to leave us alone for a couple weeks, but it won't have to. Just slow down, slow down. You know it. You know it.

Nothing. No more model releases. No more competition. No more. Just leave it alone for a few weeks. Let everyone rest. We'll be back. Op.

Five out today. Whatever. The latest and greatest. All right. Should we break? Let's do it. All right. Ron, John, I'm going to miss you, man.

I will. I'm going to miss you. I'll see you in a few weeks. We'll see you each other in a few weeks or before. TPD. All right. Thanks again for coming on. Great to see you.

All right. And great to be with you all. Once again, thank you for listening and watching. And we will see you next time on Big Technology Podcast. Recently, our company's softball team lost the big game by one run. Then Dale tried to console us with the quote, winning isn't everything. Well, Dale and I are very.

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