Monologue: It's High Noon For AI

Summary

Better Offline Podcast Summary
Episode: Monologue: It's High Noon For AI
Release Date: March 28, 2025
Host: Ed Zitron

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Overview

In this episode of Better Offline, tech industry veteran Ed Zitron delivers a compelling monologue titled "It's High Noon For AI", dissecting the current state and future prospects of generative AI. Zitron delves deep into the financial and infrastructural challenges faced by key players in the AI sector, highlighting the precarious balance between technological advancements and economic sustainability. His analysis serves as a critical examination of whether the rapid growth in AI is built on a stable foundation or teetering towards a significant bubble.

Key Topics Discussed

1. Microsoft's Retreat from Generative AI Compute Capacity

Zitron begins by addressing Microsoft's strategic pullback from supporting additional generative AI workloads. Initially, Microsoft had committed substantial resources, including over 2 gigawatts of compute capacity across the US and Europe, equating to the combined capacity of London and Tokyo. However, analyst TD Cohen Awson reports that Microsoft has retracted more than 2 gigawatts, primarily due to the company's decision to halt incremental OpenAI training workloads ([02:15]).

Notable Quote:
"Microsoft is not only pulling back from generative AI, but walking away from supporting OpenAI's future expansion efforts." – Ed Zitron ([05:30])

2. OpenAI's Financial Dependencies and Challenges

With Microsoft's reduced support, OpenAI faces immense financial strain. The company must now rely on alternative cloud providers like Oracle and Core Weave, alongside significant funding from SoftBank. Zitron emphasizes that OpenAI's existing financial model is unsustainable, citing losses of billions of dollars annually and substantial debt obligations.

Notable Quote:
"OpenAI is dependent on them [SoftBank]. Without that money or further funding, OpenAI will not be able to pay Core Weave." – Ed Zitron ([09:45])

3. Core Weave's Troubled IPO and Financial Instability

Core Weave, a critical infrastructure provider for generative AI, is highlighted as a case study of financial mismanagement. The company has slashed its IPO target from $2.7 billion to $1.5 billion due to overwhelming debt and mounting losses—$863 million in 2024 alone. Zitron predicts a bleak outlook for Core Weave, pointing out the lack of a clear path to profitability and the potential for an IPO failure.

Notable Quote:
"Core Weave is a company burdened by multiple times its revenue and debt. And they're a company that lost $863 million in 2024." – Ed Zitron ([07:20])

4. Magnetar Capital's Involvement and Historical Parallels

Zitron draws parallels between Core Weave's financial predicament and the 2008 financial crisis caused by collateralized debt obligations (CDOs). He scrutinizes the involvement of Magnetar Capital, a hedge fund with a notorious reputation, in providing loans to Core Weave. This association raises red flags about the sustainability of current AI financing practices.

Notable Quote:
"Every time I think this industry can't get you fucking stupid." – Ed Zitron ([10:50])

5. The Fragility of the Generative AI Boom

The monologue underscores the fragility of the generative AI boom, arguing that its continuation hinges on relentless capital infusion. Zitron warns of a potential bubble burst, where inflated valuations and unsustainable financial practices could lead to a catastrophic collapse, leaving investors and the broader economy in turmoil.

Notable Quote:
"I believe we are potentially about to see something really shocking. I think we're about to see the greatest mask off dunce moment in the economy." – Ed Zitron ([13:15])

6. Call to Action for Public Awareness and Accountability

Concluding his monologue, Zitron urges listeners to educate themselves about the financial intricacies of the AI industry. He advocates for greater transparency and skepticism towards unchecked AI advancements, emphasizing that understanding the numbers behind the hype is crucial to preventing future economic disasters.

Notable Quote:
"The way you stop these companies being able to fuck around is learning this stuff." – Ed Zitron ([14:00])

Insights and Conclusions

Ed Zitron presents a sobering analysis of the current state of generative AI, highlighting significant financial vulnerabilities within major players like Microsoft, OpenAI, and Core Weave. His critique centers on the unsustainable financial models and the over-reliance on continuous capital influxes, which may not be feasible in the long term. Zitron's monologue serves as a cautionary tale about the unchecked enthusiasm for AI, suggesting that without immediate corrective measures and greater financial transparency, the industry may be on the brink of a significant downturn.

Notable Quotes

1. Ed Zitron ([05:30]):
   "Microsoft is not only pulling back from generative AI, but walking away from supporting OpenAI's future expansion efforts."

2. Ed Zitron ([07:20]):
   "Core Weave is a company burdened by multiple times its revenue and debt. And they're a company that lost $863 million in 2024."

3. Ed Zitron ([09:45]):
   "OpenAI is dependent on them [SoftBank]. Without that money or further funding, OpenAI will not be able to pay Core Weave."

4. Ed Zitron ([10:50]):
   "Every time I think this industry can't get you fucking stupid."

5. Ed Zitron ([13:15]):
   "I believe we are potentially about to see something really shocking. I think we're about to see the greatest mask off dunce moment in the economy."

6. Ed Zitron ([14:00]):
   "The way you stop these companies being able to fuck around is learning this stuff."

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Note: This summary encapsulates the critical points and themes discussed in Ed Zitron's monologue on the Better Offline podcast episode titled "It's High Noon For AI." For an in-depth understanding and more nuanced perspectives, listening to the full episode is recommended.

Transcript

[Oracle Representative]

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[Ed Zitron]

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[Ed Zitron]

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[Ed Zitron]

Zone media finally, someone let me out of my cage welcome to this week's Better Offline monologue and I'm your host Ed Zitron. Better Offline we're approaching high noon for Generative AI and it's the true test of whether this industry has that dog in it. And I believe it does. But the dog in question is sick, covered in fleas and the swallowed alive grenade. Let me set the scene. A few weeks ago I reported that Microsoft had pulled at least a gigawatt of planned compute capacity, according to a report by analyst TD Cohen, equivalent to the entire capacity of London or Tokyo. To be clear, the actual figure was much, much more than a gigawatt. But that figure was the only one we had solid confirmation for. Despite the press sitting on their hands not really covering this number, they should have. A follow up report published on March 26 shed more light on the situation and revealed that Microsoft has actually pulled over 2 gigawatts of CAPAC capacity across the US and Europe. That's the equivalent capacity of London and Tokyo combined. Worse still, TD Cohen Awson said, and I quote, the pullback on new capacity leasing by Microsoft was largely driven by the decision not to support incremental OpenAI training workloads. In other words, this is as I have predicted, Microsoft not only pulling back from generative AI, but walking away from supporting OpenAI's future expansion efforts. These efforts, I add, were a major driver behind Microsoft's massive multibillion dollar capex spend, which was forecast to surpass 50 billion to $80 billion this year alone. For OpenAI to continue training their future large language models, they'll have to rely on a combination of whatever support Microsoft is still willing to provide, their relationships with Oracle and other cloud providers, and of course, the Stargate Data center project, which is contingent on money coming through from SoftBank, who need to fund OpenAI's $40 billion funding round and their own $18 billion contribution to Stargate and Core Wave. The subject of my last monologue. I mean, OpenAI is dependent on them. As a reminder, Core Weave is a company that sells access to compute for training and running generative AI models, and they're going public on March 28, which is the day this monologue runs. Annoyingly, I can't speak to how the stock will do. I'm not a stock analyst. I will, however, say that Core Weave is a company burdened by multiple times its revenue and debt. And they're a company that lost $863 million in 2024. And according to the Financial Times, they're also facing nearly 7.5 billion dol billion in debt repayments by the end of 2026. And they also don't appear to have any path to profitability. And this ipo, it's not looking so good. As of the morning of March 27, 2025, which is when I wrote the script, Core Weave plan to cut the size of their initial public offering to around $1.5 billion, according to Bloomberg, which is down from the $2.7 billion or so they plan to raise. When a company goes public, they usually are selling a bunch of stock to get money into the company. Sometimes they do it just because they want to make more. They want to be a public company and take the fame of that. Or in this case, I believe, because they're desperate and they need whatever they can get. Now, this is problematic for a number of reasons, Chief, being that the information reports that Core Weave's cash burn will be $15 billion in 2025, which is up from $6 billion in 2024. None of these fucking companies make any. They just burn money. It's insane. Now Core Weave has just over $6 billion in available liquidity between loans and the $1.3 billion or so in cash they have lying around. While they could borrow more, their largest $7.6 billion loan includes a covenant that states that if the company takes on more debt, it can only be used to pay that loan back. Which means that in order to meet Corby's future Capex spending goals. They need to raise vastly more than $15 billion, either through new debt or through selling new equity to new investors or as they're doing via its IPO. $1.5 billion is a drop in the bucket. Not for me. If you have $1.5 billion and want to give it to me, please email [e-mail] I would love that money. Please give me $10. I don't fucking Anyway, I'll put this really simply. A good, stable company going public does not reduce the size of their initial public offering. Nor do they have multiple stories from the Financial Times comparing them to Enron or WeWork. Remember, an IPO is an opportunity to buy equity in a company before it hits the the public market. But the price will, at least in theory, continue to rise. It's the next best thing to being an investor in the company. Facebook had an IPO price of $38 and now at the time of writing, there are over 600 bucks. Pretty good, right? Not for Core Weave. Furthermore, if generative AI was this massive growth industry that would usher in a golden age of tech valuations, the company selling the literal fuel, access to the data centers to run generative AI models would not be the financial equivalent of an HR Giger painting. It wouldn't be buried in debt with obscene interest rates and restrictive covenants. It wouldn't be burning many times more than its revenue. Nor would it be beholden to a very small number of companies for the majority of their revenue who can and do walk away at any time, as Microsoft has. Coreweave is not a healthy company. But wait, wait, wait. I'm not a smart guy. All right, Let me just tell you a story though, because I learned about this thing. You ever hear of a hedge fund called Magnetar Capital? I'll tell you about them. In 2006, Magnetar Capital got involved in something called a collateralized debt obligation, which is a way of packaging up a bunch of debts that you could sell it like a financial asset or even gamble on whether it would succeed. A hedge fund wouldn't buy a single mortgage, for example, but they may buy something with hundreds of thousands of mortgages, maybe subprime ones, I don't know. And it turns out that these thingies were real bad because it made it hard to see the actual risk of the loans that made up the bonds. And because they were easy to sell, they encouraged mortgage companies to give mortgages to people who couldn't pay them because they knew they could sell them onto investors and wouldn't have to carry on the risk themselves. This in turn created something called a. Let me just look at a great financial crisis, which apparently was bad for the economy. Hey, what happened to magnetarch? Wait, what? They're one of the two companies providing loans to coreweave. What the fuck? And they're the largest institutional investor. That doesn't sound. That doesn't sound good. At what? What? Just this fucking industry. Every time I think this industry can't get you fucking stupid. Pardon me? Pardon me. Well, at least they're not involved in any other major deal in Generative AI, right? Right. Wrong. Wrong. So fucking wrong. Over In Silicon Valley, OpenAI is for the third time close to finalizing a $40 billion funding round led by SoftBank. And wouldn't you know it, Magnetar Capital is in there too, according to Bloomberg, for as much as $1 billion, valuing the company at an astonishing $300 billion. And I recently got told about a term suicide round, and that term refers to a time when a company gets such a high valuation that any future investment is effectively impossible. Because when you're investing at a company at $300 billion, you need to see liquidity at some point. You need to see a chance to sell it. And guess what? Who's going to buy this dog shit merchant company that burns billions? OpenAI is a complete dog. Yet what's weird about this deal, I mean, other than the fact it isn't actually finalized and has taken months and involves Magnetar Capital, and it involves seemingly every side of the deal taking on debt, is that it also isn't exactly $40 billion. Yet Bloomberg reports that SoftBank will actually invest $7.5 billion into OpenAI and provide another $2.5 billion from a syndicate of investors, which is just. It sounds far fancier than this. It's just a group of investors who invest together. The remainder, the two, $22.5 billion from SoftBank and the $7.5 billion from a syndicate, will come at some sort of indeterminate time later this year. Which is weird, right? It's okay, it's not that weird. Well, the funding rounds, especially big ones, they. They're meted out in tranches based on performance. I talked to a few VCs before I did this and they say that's. That's normal. But it is extremely weird that this is considered a $40 billion round, despite the fact that only $10 billion appears to exist at this time. And I'm not being facetious or joking here, SoftBank literally does not have the money to give OpenAI right now. They have like $30 billion in cash, which is why they're not sending that much and they're having to take on loans as well. I'll get to that in a minute. But nevertheless, it's also not obvious how any of this works long term, because the entirety of the Generative AI boom appears to rest on OpenAI's ability to continue raising capital. Let me explain. Microsoft neglected to exercise $12 billion of future capacity with Core Weave, which was quickly picked up by OpenAI. According to Semaphore, around the same time, the company canceled plans for future data center expansion, referring to Microsoft here, that would have undoubtedly cost tens of billions of dollars. This heavily suggests that Microsoft is pulling back from Generative AI writ large, and that a large degree of their spend with Coreweek was to support OpenAI services, which OpenAI will now foot the bill for. For OpenAI to pay that bill, they'll need SoftBank to give them the $40 billion of funding which SoftBank is on the hook for at least $30 billion of, according to the Information, which includes OpenAI's $18 billion contribution to the Stargate data center project, to which SoftBank also owes $18 billion for SoftBank to give them this money, the information also reports that SoftBank will borrow $16 billion in 2025 and $8 billion in 2026, which still does not add up to the $46 billion or so they promised OpenAI. And I haven't even mentioned the fact that SoftBank has also committed $3 billion a year in revenue to the bullshit Agent product. But without that money or further funding, OpenAI will not be able to pay Coreweavers. So now everything rests on SoftBank, a company with a checkered reputation, to put it mildly. And if they buckle, everything else fails. Core Weave, OpenAI, all of it. I don't know how any of this ends, but I'll tell you this. Absolutely nothing I'm reading suggests that there is any long term viability in generative AI. OpenAI loses billions of dollars a year and will have to pay coreweave, which also loses billions of dollars a year and has obligations that are many times in excess of its actual assets or revenue, or at least what it will make from the public market to be. That's not. That's not going to help that much. If any of this made sense, Core Weave would be the biggest IPO of the last decade. And while I doubt that would be the case. I promise you that regardless of what happens, you're about to witness something historic. And I want to say something, some of you have given me feedback, said like, this stuff's really like, it's a little much like there's a lot of numbers. It's not. It's just very. It's very ominous when you see all these numbers. I didn't get in. I'm not a financial journalist, or I guess I am now, or I'm pretending to be one. And it all seems like a lot, but it really does come down to addition and subtraction sometimes with the occasional multiplication. I failed a lot of mathematics in my time and British libel laws will stop me really elaborating further at school. But the point is, I was never trained to do any of this stuff. This stuff seems very monolithic, but it really is much simpler. And the way you stop these companies being able to fuck around is learning this stuff. If you ever have any questions, go to the better offline Reddit. I will happily help walk you through any of this. It seems dense, but if we want to change things, it starts with stopping this feeling like magic. Stop it. It isn't black magic. They want you to believe that they'll work this out because if you think about any of these numbers for even two seconds, it kind of seems fucking stupid because it is. Just because they say it's going to work out doesn't mean it will. And I think that we are potentially about to see something really shocking. I think we're about to see the greatest mask off dunce moment in the economy. If AI bursts, if the bubble bursts, you're going to see all these people that said AI was the future. Kind of walk it back, kind of stop talking about it. Anytime they try, scream at them. Scream at them. Say, weren't you talking about AI like it was the biggest thing in the world like two minutes ago? Why weren't you talking about that? Hey, where's AI? Didn't you say I was? AI was a big deal. Hey, Bob Iger. Hey. What's happening with the AI ship? And they're going to really try and aggressively walk this back. Never ever let them forget what they've done here. Never ever forget the terrible people holding up this spurious, specious, destructive, disgusting bubble. It's horrible. It will be horrible to watch it collapse. I feel bad for our economy, but this is tremendous content.

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