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Ed Zitron (2:05)
Call Zone Media all right, we're back. I'm Ed Zitron and this is Better Offline. Better Offline this is the fourth and final episode of this four part series where I dissect an excruciating Comprehensive detail the AI bubble and tell you why I think its implosion is inevitable. We're at the end, which is fitting, because in this episode, we're going to talk about why and how this entire sham dies. Again, if you jumping in now, start from the beginning. We talk about a lot of things and it all kind of threads together. I know, I know. You want to hear my explanation of how OpenAI is fucked with a capital fuck, but we've got to lay the groundwork to get there. Okay. Caught up. Good. Good. We're good. We're good. You ready? Okay. You good? Meep, meep. Okay, we'll begin. One of the comfortable lies that people tell themselves is that the AI bubble is similar to the fiber boom, or the dot com boom, or Uber, or that we're in the growth stage, or that this is what software companies do. They spend a bunch of money, then pull the profit lever. The thing is, this is nothing like anything you've ever seen before because this is the dumbest shit the tech industry has ever, ever done. AI data centers are nothing like fiber because there are very few actual use cases for these GPUs outside of AI, and none of them are remotely hyperscale revenue drivers. As I discussed a month or so ago, data center development accounted for more of America's GDP growth than all consumer spending combined in the first half of 2025. And there really isn't any demand for AI in general, let alone at the scale that these hundreds of billions of dollars are being sunk into. The conservative estimate of capital expenditures related to data Centers is around $400 billion. But given the $50 billion in a quarter in private equity invested, I'm going to guess it breaks half a trillion. All to build capacity for an industry yet to prove itself. And this whole Nvidia OpenAI $100 billion funding news should only fill you full of dread. But also, it isn't fucking finalized. Stop reporting as if it's done. I swear fucking anyway. Good. According to CNBC, and I quote, the initial $10 billion tranche is locked in at a $500 billion valuation and expected to close within a month or so once the transaction has been finalized, with successive $10 billion rounds planned, each to be priced at the company's then current valuation as new capacity comes online. What a horrible deal. They can just raise whatever. Let me just go back to Nvidia, but let me just be clear. OpenAI has written a lot of checks that neither it nor anyone else can cash. And for it to survive, it needs to raise more than honestly about $500 billion and maybe another $400 billion in other people paying for stuff. It's astonishing really. At no point is anyone asking how exactly OpenAI builds the data centers to fill full of the GPUs to get the rest of Nvidia's funding. In fact, I'm genuinely shocked and a little disgusted by how poorly this story has been told. Let's go point by point. $10 billion is not enough for OpenAI to build a data center. The 1.1 1.2 gigawatt Gabalene, Texas data center being built by Oracle and Crusoe for OpenAI required $15 billion in debt, and that's not including the $40 billion of chips needed to power it. Though I question whether all of those are going into Abilene or somewhere else we'll get to later. OpenAI can also not afford to pay for everything it's promised. OpenAI will burn, they say $115 billion in the next four years according to the information, but I believe leaked those numbers before the announcement of their $300 billion deal with Oracle. It's when you take into account the numbers shared with the information which involved them burning $47 billion in 2028 a year when it OpenAI is meant to make $70 billion in payments to compute to Oracle, another $28 billion to Microsoft or any other cost. There's no space for the $300 billion to go and there's actually another hundred billion dollars they're promising for backup compute as well. On top of all of this, OpenAI is still yet to convert to a for profit entity and must do so by the end of 2025 or they'll lose $20 billion in funding from SoftBank. A few weeks ago, Microsoft and OpenAI Co published an announcement that said they'd signed a non binding memorandum of understanding for the next phase of their partnership, which the media quickly took to mean the deal was done. No deal has been done. This is an announcement of nothing. On top of all of this, venture capital might run out of the current rate of investment in around six quarters and OpenAI needs more investment. The information recently published some worrying data from venture capitalist John Sakoda that at today's clip the industry would run out of money in six quarters, adding that the money wouldn't run out until the end of 2028 if it wasn't for OpenAI and Anthropic. In a very real sense, OpenAI threatens the future of available capital for the tech industry well, the good news is that they're going to make lots of money, right? I mean, OpenAI leaked that they'll make $200 billion in four years time. I mean, if you're concussed, I can see how you believe that. Let's go. I'm going to read you a bunch of numbers. I know it's kind of going to be annoying to hear this for the next 30 seconds. I'm going to just throw figures at you, but pay attention because it's important to realize how insane this is. So, in 2025, OpenAI projects to make $13 billion and have free cash flow of negative $9 billion. In 2026, OpenAI will make $29 billion or $30 billion, but have free cash flow of negative 17 billion. In 2027, OpenAI will make $60 billion but have negative cash flow of negative $35 billion. And in 2028, OpenAI will make $100 billion but have free cash flow of negative $47 billion. In 2029, OpenAI will make $145 billion, but a free cash flow of negative $8 billion. Somehow, I just want to reiterate there. OpenAI's projections. See it reduce its negative cash flow by $39 billion, or 1 1/2 times 3M's revenue from the last financial year. Revenue by a similar amount, give or take a few billion. Who's counting? Certainly not Sarah Fryer, the CFO of OpenAI. It's also fucking stupid. But don't worry. I know, I know some of you have been worried. You see big, strong men with tears in their eyes saying, sir, sir, OpenAI, they're not gonna have enough money. They're gonna die. But don't worry. In 2030, OpenAI will make $200 billion and somehow have positive free cash flow of $38 billion. It's just that easy. I don't teach you this in business school. It's just that easy.
