Monologue: What Bursts A Bubble?

data centers. Cohen also mentioned that Microsoft had and I quote Bloomberg pulled back on converting so called statements of qualifications, which are the precursor to agreements that include things like financing deals and payment structures, meaning that Microsoft does not just canceled agreements, but made it clear they don't intend

to carry on building more. Microsoft responded to this by saying that they were still sticking to their egregious, stupid plan to spend more than eighty billion dollars on capital expenditures in twenty twenty, with one note that they and I quote may strategically pace or adjust their infrastructure in some areas. It was one of those things that ostensibly looks like an obvious statement of intent, but if you read between the lines, you see plenty of wiggle room

for Microsoft to backtrack. This comes off the back of last week's interview with Microsoft CEO sach And Adela with Dwarkesh Dwarkesh podcast Pretty good, kind of bland stuff, where he said that there will be overbuild of data centers pursuing AI and this is the shit you want to hear as an investor in the AI revolution. You want to hear a guy being like, yeah, maybe people built too much. Now, this caused both Microsoft and in videos

stocks to wobble. But as I sit here and write this on Wednesday morning, the day of Nvidia's earnings, by the way, both stocks appear to have recovered a tiny bit and they're actually going off, though not by much, and no doubt by the time I'm finished writing the script things will have changed again, which is why I tend not to do a lot of stock related stuff. That and I'm not a financial analyst. Different kind of analyst,

I guess. But anyway, the magnificent seven stocks Apple, Microsoft, Amazon, Alphabet, Meta, Invidia, and Tesla make up about thirty percent of the value of the S and P five hundred, an index of the five hundred largest companies in the American stock market, with Nvidia being the golden goose, growing over nine hundred percent since twenty twenty three thanks to being the one company that sells the specialized GPUs needed to make generative AI work, making up just under twenty percent of the

value of the Magnificent seven itself. As a result, the markets are deeply dependent on the success of Invidio, which in turn is dependent on the continued hyperscalar investment in generative AI. One other worrying fact for you, in Vidia's top customers like Microsoft, Google, and Meta make up more than sixty percent of its revenues. Right now, the vibes are rancid Tuesday and Wednesday's headlines, and this episode will

come out after in Vidia's earnings. So forgive me Echo a deep market anxiety saying things like Invidia's earnings could be bad, how to protect your portfolio, and why in Video's earnings are so important to the entire stock market now. Admittedly, a lot of these headlines were plucked from the popular financial press, which, to put it mildly, can be kind of dog shit. The content farms that churn out articles

where underneath the sensational clip bait title. You have a thinly written body of texts that tries to persuade you that a particular stock will pop or bomb. You can't really read too much into them, but it's telling that the same sentiments have appeared in more prestigious publications, where standards are measurably higher than say, Seeking Alpha or The Motley Fool. Even if earnings are good for Invidia, it's hard to see how they'll be good enough to please

a market. They will have a tantrum if they can't perpetually make the number go up. Invidia has beaten analyst expectations eight straight quarters, and the continual expectation that they'll do so is terrifying, especially when you consider that Invidia has long held a reputation as a boom or bus stock and osolits between peaks and valleys based on whatever the latest tech trend is. There's no logical reason to believe that Invidia can continue to grow at this ridiculous rate.

Right now, its market cap is over eleven percent of America's gross domestic product. But because the market's like giant, petulant trillion dollar babies, these are the demands put upon in video and Jensen Wang. But even if in Vidia shits the bed mightily tonight, it isn't obvious whether that will burst the bubble, because so much of the stock's value and the economy in general, if I'm honest, is based on a mishmash of people pretending they understand numbers

and well vibes. In short, the bubble will not burst in the sense that one big event will bring everything to an abrupt end now, and Vidia is not going to drop thirty percent in one day normal open MLA overnight. That's just not how this works. What will happen if the bubble bursts, which I genuinely believe it will, will be a series of smaller calamities that chain together to

bring an end to this hype cycle. It'll be like the Domino scene from viv and Vendetta, where Detective Finch threads the needle between the disparate events that will eventually

lead to the ulster of Chancellor Sutler. I've referred in the past in an episode called burst damage to the pale horses of the AI Apocalypse, and one of them was the reduction of capital expenditures by a major hyperscaler because in doing so, the hyperscalers such as Microsoft would be admitting that it's time to slow down investment in revolutionary products that they allegedly claim in revolutionary and that

they're selling tons of right wrong. And by extension, by the way, they're tacitly admitting that perhaps these revolutionary products weren't actually that revolutionary. Kind of an obvious point. Now, one argument against this being a pale horse is that open ai has partnered with soft Bank and Oracle to build out up to and that is what it's called,

up to five hundred billion dollars in data centers. And the answer there is that this is right now pretty much theoretical, and it's dependent on open ai raising another nineteen billion dollars because they've committed that much to this project. Another thing about this stargate thing, I get a lot of emails about Donald Trump US government. They're not putting

any money into this. This is all private partnerships, and soft Bank and open ai have given nineteen billion while they're claiming they're going to give nineteen billion dollars each. And open ai is now raising up to forty billion dollars with twenty five billion or up to twenty five billion dollars, of that coming from software, So it's like, what actually is happening here? Anyway? If Microsoft was so invested in the generative AI revolution, why would they reduce

their investments in it? Surely this supposedly incredible demand and the incredible opportunities of generative AI would mean that they needed more data centers, right right, So strange. Nevertheless, if you see Google or Metal or Amazon pulled back on capital expenditures, that is the bell ringing. But here are

some other pale horses to watch out for. If open ai and Anthropic raise their prices, it means that they're finally having to cover their ruinous, horrible, unprofitable and unsustainable expenses. Open Ai spent nine billion dollars to lose five billion dollars in twenty twenty four, and an Anthropic lost five point six billion dollars and only made just over nine hundred million dollars in the same period. All of their products are deeply unprofitable, and thus any price increases are

assigned that they need money. They need money now, money mean money. Now. Conversely, if you see any dramatic price decreases, this isn't the necessarily a sign of improvements in efficiency. Sooned Up, a shy of Google, just announced that Google's Gemini codesyst is now free for up to one hundred

and eighty thousand code completions a month. This puts a direct price pressure on both open Ai and Anthropic, who just launched a new version of their Claude model, and Microsoft, which owns GitHub and by extension, GitHub Copiler, which costs twenty dollars per month and reportedly still loses twenty to eighty dollars a month they use. It's insane, But if prices are forced to drop, this is a bad sign.

These are very unprofitable businesses. Now, if you see anything about any prominent AI companies Anthropic, Open Ai, Scale, Coheer, Perplexity, so on, and so forth. If you see they're having trouble raising money, that means venture capitalists are scared, which means everybody should be scared. Similarly, if you hear any discord within these companies, people living on mass layoffs, senior executives fleeing, that is also a bad sign. It means

that they no longer have faith in these companies. And now if they jump to another generator of AI company that is also not a good sign. It's kind of like jumping from the Titanic to the Ola Gay. And we've already had a lot of this with open Ai, with the department, the departures of chief researcher barretts Off and Chief technology officer Mirror Murati. When that trickle becomes a flood, you know that a calamity won't be far behind.

We've already had a few of these. But bullshit companies raising bullshit money are one of the biggest tells that we're in a bubble. Open ai co founder Iliosuitscaper is currently raising a billion dollars at a fucking stupid valuation of thirty billion dollars for his company's safe superintelligence. Now you'd think with all that cash there'd be something to show wrong. Oh, you imbecile, you dip shit, you more on,

you pig. He doesn't have a product at all, there's no product, they're pre product, but they're worth thirty billion dollars. What are we doing here? Similarly, former open AIICTO Mirror Maurati, she has a new company called Thinking Machines, And you'd think with the Wired headline saying they're finally ready to announce what they're working on. They would announce I don't know what they're working on, you'd be fucking wrong. Stephen

Levy should be absolutely bloody ashamed of himself. Steven's done some good journalists me in the past, and he's also done some projeneritive AI stuff that I wouldn't wipe my ass whole with fucking disgusting, both the thing I just said and the thing happening now. Anyway, if you're wondering, uh, what this company does, they and I quote develop top notch AI with an eye towards making it useful and accessible. I wish I could get away with just saying nothing

and getting a big pile of money. Wait, is that what a podcast is? Anyway? There are, of course other pale horses, but the core problem with bubbles is that they're based less on tangible events and more on everybody sharing the same delusion, which in this case is that large language models will turn into something magical somehow, and the only way to make them do so is to

plow billions of dollars into a fucking furnace. One pale horse would be a vibe shift where people stop talking about open AI and generative AI and this breathless wank tone, but rather with an air of disdain and skepticism that in and of itself is pretty hard to measure. What breaks narratives and pops bubbles is when the consensus shifts

from dreaming to cold, harsh reality. As investors realize there's no growth to be had from generative AI, they'll turn their backs on both the generative AI revolution and the companies that pushed it, and if they ever turn on video,

that will accelerate the AI apocalypse. Because in Vidia, despite the real overblown valuations, actually makes a profit and sells real physical things, though their consumer graphics cards are currently melting at the fifteen ninety not great but really though, in Video is really the only company to make serious money from generative AI, and if that narrative changes, if people turn on video, it's not going to be great either way. I'll be here to walk you through it.