AI Is Worse Than The Dot Com Bubble: Part One

It's been some of the most challenging work I've ever done. I've been forced to learn accountancy, economics and the names of at least ten different guys i'd gladly see under a with a I'm not on accountant, forensic, or otherwise. I'm not a banker or a financial analyst. I've never worked as a venture capitalist or a hedge fund, or at a hedge fund. I guess that would be I'm

just a guy with a laptop and a microphone. But I think I've picked up a great deal of knowledge in the last few years, and the clarity of starting from a position of oh God, what does that mean actually allowed me to see things in the way that many haven't, which is why I am so utterly horrified when I hear people flippantly say that the AI bubble will work out fine because it's just like the dot

com bubble. While there are similarities, I need to be clear that I think the AI bubble is far, far worse, and the calamity that follow us would be far more destructive.

to take them public. The idea of ordering pet food or groceries online was one that would have made a lot more sense if more people were connected to the Internet or had faster connections in the year two thousand, only about fifty two percent of Americans were online, and well, both web van and pets dot Com were losing two dollars for every dollar of revenue.

the economic sourceer didn't make sense. Now the AI bubble differs in so far as that what we would have once considered stable sensible tech companies are acting irrationally, having doubled or in the case of Microsoft, tripled the amount of hardware known as PP and E that they operate in just a couple of years, with no signs of

slowing down. These companies are racking up entering into multi decade long lease agreements, and it accumulated so much hardware that the depreciation will erode any profitability for the short term medium term future. For example, Microsoft went from having around eighty eight billion dollars in PP and E that's property, plants of equipment which is where the GPUs are, by the way, in the beginning of twenty twenty three, to a remarkable two hundred and thirty billion dollars in pp

and E as of its last quarter. And depreciation, by the way, is not it's not a cash expense. They've already bought the GPUs and the service and the like. What it does, however, is sit there because they spread it out over five to six years. I think it's five and a half from Microsoft. They spread it out, so it eats into that net income side. So instead of they'd taken the immediate upfront hit, they spread it out.

So this means that each quarter from here until fucking eternity, at this point, Microsoft is going to be taking billions of dollars of appreciation charges. Now, while the dot com bubble was wasteful, it didn't involve the largest and most well respected tech firms in the world accruing hundreds of billions of dollars of GPUs that are absolutely a year or so after being installed. It also didn't involve billions in operational expenses or acres of data centers. In fact,

there's really no comparison. Fiber doesn't compare at all the scale of the fiber will get to it. But I just want to be clear that fiber is also something that you can use on many things. Fiber is something that another company could come up and run with. Aigpus are extremely limited in their outcomes. I've been over this before. Not going to repeat myself. Perhaps I'll do it more in depth episode on that in the future. But look, in many ways, I fear the AI bubble is going

to be worse than the dot com bubble. It's going to make it look small, and we are already seeing some worrying signs. Now, let's start somewhere simple though.

engineers whose jobs were offshore to India. That gives you a grand total of two hundred and thirty three people. For comparison, Microsoft laid off six thousand people in May of last year, or three percent of its global workforce. Now that's not to say that people at other companies were equally fortunate. In two thousand and one, some Microsystems called ninety percent of its workforce or thirty nine hundred jobs. That was the first of many at that particular company.

In two thousand and one, the telecommunications sector cut and I am not shitting you here three hundred and seventeen thousand, seven hundred and seventy seven rolls, with the computer industry second rank for that year, shedding one hundred and fifty

three thousand and nine hundred and fifty two positions. Similarly, Amazon saw it stocked tumble in January two thousand when it was discovered that it laid off one hundred and fifty people, two percent of its workforce at the time, and would lay off another thirteen hundred a year later, or fifteen percent of its workforce. Now, that, by the way, sounds like a lot. And also I think it's adorable. Back when the stock market cared, when companies did layoffs,

they don't today. And Amazon indeed is a very different company today, going from a fledgling digital book seller to one of the largest retailers and cloud storage providers in the world, and a very profitable one. And that Yet this week Amazon laid off another fourteen thousand people, ten percent of its corporate workforce, around three months after laying off fourteen thousand more people in October twenty twenty five.

using a company called Annapurna Labs. It's a whole thing saying it doesn't really mean much. They're not as good as vidious GPUs, but nevertheless they keep fucking that chicken. And this is a massive burden on its earnings. These chips have their costs spread out, like I mentioned as a depreciation charge, dragging down the profits that Amazon can report on its earnings in the process. Well, this isn't the problem when you buy one or two or ten GPUs.

It becomes one when you have hundreds of thousands of the fuckers. Amazon had sixteen point seven billion dollars of depreciation charges and its last earnings. That's a great deal. I think their net revenue is like twenty two to twenty four billion dollars, not great. In similar terms, today's layoffs are happening not because the companies are in trouble, but because they want to boost their profits at a time when AI services aren't providing a profit and I

don't think they ever will. Nevertheless, these layoffs are a sign of something that these companies know that revenue growth isn't keeping pace with their ruinous expenditures. The only jobs that AI is taking are those that the hyperscaler cuts to keep paying for its existence.

slightly more. Then there's the stock marketing. If you held stocks in the company like pets dot Com were at its highest relatively modest four hundred million dollars, or Webvam with a peak market cap of eight billion dollars, you were completely fucking screwed. Those companies went to zero or near enough. Even those who invested in established firms like Microsoft and Sun faced their own haircuts, with Microsoft's share price dropping from a high of one hundred and twenty

dollars to as little as forty dollars. Adjusted for the two stock splits that happened in nineteen ninety nine and two thousand and three, it would take around seventeen years for Microsoft to reach its original dot com bubble highs. The fact is, the dot com bubble fucked a lot of people. The tech sector's share of employment wouldn't surpass

the levels of the bubble era until twenty fifteen. In practice, this meant that newly graduated software engineers couldn't find much work, and what work they could find offered stagnant wages that didn't keep pace with inflation. That's the thing about the dot com bubble. We like to think if it as something that happened around the turn of the millennium, but in practice it took until two thousand and four for the contraction and the tech jobs market to finally bottom out.

Existing workers face threats not simply from economic related cutbacks making the company do the same with the resources they already have, but also from outsourcing, which grew exponentially in popularity in the early two thousands. This incidentally, was around the time that China entered the World Trade Organization, meaning that in addition to cuts in the service related the sector the economy, a lot of high tech manufacturing jobs

went out the door too. The point I'm making is that the dot com bubble was bad, and that the second order effects, the things that didn't get as many headlines or as much pop culture weight, were really truly gruesome. Now there's a great line from The Big Shot. I

always find myself returning to. It's when Ben rick At, the retired finance guy who came back in from the cold in order to help Brownfield Capital short the mortgage market, castigates the two young founders for celebrating what would be the trade of the century.

would be okay. I need to be clear that anybody who traded into the dot com bubble got washed out, and similarly, anybody who believed story after story about the eternal growth and telecommunications or web startups lost almost everything, if not everything they put in. Anybody who worked for Enron, the people that didn't know about the illegal bullshit happening,

lost every cent of their stock based pension. Unemployment swelled to a peak of six point three percent in June two thousand and three, and the NASDAK lost nearly eight percent of its value from its peak in the year two thousand. Anyone saying that this is just like the dot com bubble as some sort of defense of the reckless, monstrous expenditures of the AI bubble is trying to find

rationalizations for irrational, reckless actions. These are likely privileged people who define at the time were of found ways to look back at a time of incredible suffering and believe that because things are better today, that.