Monologue: The Updated Pale Horses of the AIpocalypse

Summary

Better Offline Podcast Summary

Episode: Monologue: The Updated Pale Horses of the AIpocalypse
Host: Ed Zitron
Release Date: July 18, 2025
Podcast: Better Offline by Cool Zone Media and iHeartPodcasts

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Overview

In this episode of Better Offline, host Ed Zitron delivers a critical monologue titled "The Updated Pale Horses of the AIpocalypse," where he examines the precarious state of the artificial intelligence (AI) industry. Zitron argues that the current AI boom is largely a "vibes-based" economy lacking substantial financial returns, pointing out systemic weaknesses that could lead to an inevitable bubble burst. He delves into the dependencies of major tech companies on AI advancements and scrutinizes the profitability and sustainability of AI startups.

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Key Arguments

1. The Nature of the AI Bubble

   Zitron contends that unlike the financial crisis triggered by tangible assets like mortgages, the AI bubble is rooted in intangible "vibes" rather than concrete financial fundamentals. This disconnect suggests a fragile foundation susceptible to sudden deflation.

   "The AI bubble is unlikely to have one specific moment where things explode... this bubble is different because it's so thoroughly based on vibes." ([02:30])

2. Dependency on Nvidia and the MAG7

   Central to Zitron's argument is Nvidia's pivotal role in the AI ecosystem. Nvidia's success hinges on the continued demand for its Graphics Processing Units (GPUs) by the Magnificent Seven (MAG7) tech giants: Microsoft, Google, Meta, Tesla, Apple, and Amazon. Zitron warns that Nvidia's overreliance on these companies' insatiable appetite for GPUs is a critical vulnerability.

   "More than 40% of their GPU revenue comes from the other six companies in the Magnificent Seven... Nvidia deeply depends on their continued and growing hunger for GPUs." ([05:15])

3. Questionable Growth Narratives

   The host challenges the purported growth stories of the MAG7, asserting that much of their valuation is predicated on the optimistic belief in AI's potential rather than actual financial performance. He highlights that despite significant investments, AI contributions to revenue streams are minimal and often unprofitable.

   "Their growth stories are not really based on numbers, but vibes... they're based on feelings and the general warm fuzzy feeling that dipshits get when they claim that AI is the future." ([06:45])

4. Underwhelming Revenue from AI Ventures

   Zitron presents stark figures illustrating the underperformance of AI startups and major companies' AI initiatives. He notes that many AI-driven projects generate negligible revenue, undermining claims of AI being a lucrative frontier.

   "Amazon may only make $5 billion in revenue this year on AI... Google maybe 3 to 7 billion... These are pathetic numbers." ([09:20])

5. Flawed Metrics and Profitability Issues

   The reliance on Annual Recurring Revenue (ARR) is criticized as a misleading metric that doesn't accurately reflect the financial health of AI companies, many of which struggle with profitability and high customer churn rates.

   "Customers churn. Customers churn. So your ARR may go down... it's just a very bad statistic to use." ([11:10])

6. Operational Challenges and Infrastructure Strain

   Zitron points out that AI companies like OpenAI and Anthropic are grappling with infrastructural bottlenecks, such as data center capacity issues, which impede their ability to scale and sustain operations.

   "Any delays to Stargate or Amazon and Anthropic's new Carlisle, Indiana build out? Both Anthropic and OpenAI are running into capacity issues." ([13:45])

7. Financial Instability and Funding Concerns

   The episode highlights the precarious financial positions of AI firms, emphasizing that without sustainable revenue models, these companies may face severe funding shortages, leading to widespread industry repercussions.

   "If you can't build software on generative AI and sell it for a profit, there is no industry here." ([14:30])

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Signs of the AI Bubble Bursting

Zitron outlines several "pale horses" or warning signs indicating the potential collapse of the AI bubble:

1. Pricing Fluctuations

   • Price Increases or Decreases: Adjustments in pricing models by key players like OpenAI and Anthropic signal attempts to manage unsustainable costs. For instance, OpenAI's 80% price cut on its O3 reasoning model reflects intense competition and desperation to retain market share.

     "OpenAI cut the price of their O3 reasoning model by 80% in June in an attempt to undercut Anthropic's Claude for opus." ([07:50])

2. Shift Away from Simple Subscription Models

   • Complex Pricing Structures: Moving away from straightforward subscription fees complicates user cost assessments and suggests companies are struggling to maintain profitability.

     "Anthropic added service tiers and OpenAI priority processing for enterprise customers to give them uninterrupted service in June." ([08:30])

3. Operational Cost Containment Measures

   • Rate Limits: Imposing usage restrictions indicates companies are attempting to control exorbitant operational expenses, particularly related to infrastructure and power consumption.

     "Any and all rate limits at any AI startup are a huge pale horse because these companies are spending a shit ton of money." ([10:05])

4. Funding and Revenue Shortfalls

   • Financial Struggles of AI Startups: Evident through declining revenues and unsustainable business models, signaling that the influx of investment may be drying up.

     "These companies are symbolic of whether generative AI will work... every single major cloud computing revolution has started because there was profit and fucking hell, it's nothing like Amazon Web Services when it grew." ([12:20])

5. Infrastructure Delays

   • Data Center Expansion Issues: Prolonged timelines in building necessary infrastructure like data centers hinder the scalability required to support AI advancements.

     "Data centers don't grow like weeds. They take forever to build. I don't even know when the Carlisle Indiana data center is going to get built." ([14:10])

6. Financial Backing Challenges

   • SoftBank's Role: As a critical financier for major AI projects, SoftBank's ability (or inability) to continue funding could have cascading effects on the entire AI landscape.

     "SoftBank is the money behind OpenAI. SoftBank is the money behind Stargate. If OpenAI doesn't move in to Stargate, and indeed if Stargate never happens, Oracle gets left with $40 billion of chips unused." ([14:50])

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Insights and Conclusions

Ed Zitron concludes that the AI industry's foundation is exceptionally fragile, built more on optimistic projections and speculative investments than on proven financial success or innovative breakthroughs. The reliance on a handful of tech giants and pivotal hardware suppliers like Nvidia further exacerbates this vulnerability. Zitron anticipates a gradual and tumultuous unraveling of the AI bubble, marked by multiple small-scale failures rather than a singular catastrophic event. He urges listeners to remain vigilant and informed about these developments, as the repercussions will significantly impact both the tech landscape and broader society.

"The pale horses of its apocalypse will be vibe shifters rather than defined events that would logically change things." ([14:00])

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Notable Quotes with Timestamps

• On the AI Bubble's Fragility:

  "The AI bubble is unlikely to have one specific moment where things explode... this bubble is different because it's so thoroughly based on vibes." ([02:30])

• On Nvidia's Dependency:

  "More than 40% of their GPU revenue comes from the other six companies in the Magnificent Seven... Nvidia deeply depends on their continued and growing hunger for GPUs." ([05:15])

• On Misleading Growth Narratives:

  "Their growth stories are not really based on numbers, but vibes... they're based on feelings and the general warm fuzzy feeling that dipshits get when they claim that AI is the future." ([06:45])

• On Underwhelming AI Revenues:

  "Amazon may only make $5 billion in revenue this year on AI... These are pathetic numbers." ([09:20])

• On Flawed Metrics:

  "Customers churn. Customers churn. So your ARR may go down... it's just a very bad statistic to use." ([11:10])

• On Infrastructure Challenges:

  "Data centers don't grow like weeds. They take forever to build... what a mess." ([14:10])

• On Financial Dependencies:

  "SoftBank is the money behind OpenAI. SoftBank is the money behind Stargate... what a mess." ([14:50])

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Conclusion

Ed Zitron's monologue on Better Offline serves as a wake-up call regarding the unsustainable trajectory of the AI industry. By dissecting the financial dependencies, operational challenges, and misleading narratives propelling the current AI frenzy, Zitron paints a cautionary picture of an impending bubble burst. His analysis underscores the necessity for more transparent, profitable, and resilient business models within the AI sector to avert potential economic fallout.

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Note: For further insights and updates on the evolving AI landscape, listeners are encouraged to stay tuned to Better Offline.

Transcript

[Ed Zitron]

This is an iHeart podcast. Say you've always wanted to take a spontaneous trip around the Caribbean. Here's the thing, if you get smart with your money, you can do things like that. With Empower, you can start making the most of your money so you can go out and live a little. Isn't that why we work so hard, right? To have some fun with our money, like treating yourself to something special or spontaneously doing something extra for a loved one. So use Empower and get good at your money so you can be a little bad. Join their 19 million customers [e-mail] not an Empower client, paid or sponsored Call Zone Media. Hello and welcome to this week's Better Offline Monologue. I'm your host, Ed Zitron. Better Offline In August of last year I put out a podcast called called how the AI Bubble Bursts, where I ran down what I thought would be the signs that things were collapsing. My pale horses of the AI pocalypse, if you will, which is something that reads really well, but when you say it out loud, not so good. The reason I put these together is that the bubble is unlikely to have one specific moment where things explode. Things like Bear Stearns collapse during the great financial crisis were such significant moments, in part because that was a public company. Mortgages were a massive part and are a massive part of the economy. And indeed there was billions and indeed I think trillions of dollars resting on them. And I don't really think there's a situation like that, nor is there one where a public company collapses as a result of the AI bubble bursting. This bubble is different because it's so thoroughly based on vibes. I'll end up at some point doing a longer episode about this, but the long and short of it is that the actual core of the system, the real weak point, is actually Nvidia. Nvidia's continued success comes from the reliable quarter over quarter or year over year growth from selling GPUs, the graphics processing units that power generative AI, and that people take and put inside of servers so that they can immediately start losing money. More than 40% of their GPU revenue comes from the other six companies in the Magnificent Seven Microsoft, Google, Meta, Tesla, Apple and Amazon. And Nvidia deeply depends on their continued and growing hunger for GPUs. It isn't just enough that they buy the same amounts, they must buy more. The rest of the MAG7's valuations are dependent on continued growth too, which is what AI is meant to provide them. But it's not really providing growth at all. Indeed, their growth stories are not really based on numbers, but vibes. They're based on feelings and the general warm fuzzy feeling that dipshits get when they claim that AI is the future. Let me give you an example. Meta's stock jump, because they've announced a theoretical data center the size of Manhattan. Now, important detail here as well. Meta is making exactly minus dollars on generative AI. They're just putting generative AI everywhere and yeah, giving people a little bit of psychosis, I imagine. Filling feeds full of slop. It's very bad. And you know what? It also isn't making them money. And right now, this is really good for the Magnificent Seven because they're not actually having to prove that AI is a big deal. People are basically believing it is because the AI trade, which means the value of these stocks remains positive. And honestly, it is currently a positive trade, even though it's based on effectively nothing like, seriously. Amazon may only make $5 billion in revenue this year on AI. And I mean revenue, not profit. Google maybe 3 to 7 billion. Microsoft, $13 billion. And $10 billion of that is OpenAI's compute. These are pathetic numbers. But these companies are let off because the AI trade still works. The possibilities are still there. Profits that don't exist today and don't appear to have any path to them either. They're coming, we swear. We if we say agents enough time, maybe it'll work. The long and short of it is that everything about the AI industry is based on some level on lies, on lies both subtle and overt. And the general sense that generative AI is both the future and the future of the economy. There are a few real, tangible things to point at, other than ChatGPT's 500 million weekly users and the tens of billions of dollars invested in AI startups. Or maybe the weird acquisition deals like the $2.4 billion that Google just gave kind of AI code editor windsurf. Except Google took the staff, some of the staff, the C suite, the R and D team for the 2.4 billion, and then Cognition, who makes the dev encoding bot, took the rest for an undisclosed sum. It's all really, really fucking weird. It's all very strange. And yet when you look beneath the surface, there really are few returns. Windsurf's monthly revenue was $6.8 trillion $3 million a month, a ridiculously small amount, working out to about $82 million of annualized revenue. Yet based on the Information's generative AI database, Windsurf was actually one of the highest earning AI startups out there. Now, really, Based on annualized revenue, meaning month, multiplied by 12, most AI companies make about $100 million annualized or less. Not really. That's about $8.3 million a month. With Synthesia, Weka, Xai together abridge glean perplexity, and they're all making about $100 million annualized. And I must be clear about how weird this status. Annualized just means the month of revenue times 12. Customers churn. Customers churn. So your ARR may go down when you have a few people drop out, it may spike arbitrarily because you increased prices. And it's just, it's a very bad statistic to use yet people are not really looking at the other thing, which is that's not a lot of money. $8.3 million a month. You have ad agencies that make several times that. Ad agencies buying ads on Facebook and Google. These are terrible fucking companies. I mean, outside of the 100 million ARR side, you've got midjourney who are inexplicably profitable. We'll look into that. And Neo4J and they make $200 million a month. Sorry, $200 million annualized, so about $16.6 million, which is again, not amazing. None of these are amazing. These aren't great. These would be okay startups if they were profitable, and they're absolutely not. But right on the T Behind Anthropic and OpenAI is any sphere who makes cursor. And they make $500 million annualized, or about $41.6 million a month, which is bad because in June all of their prices got increased by Anthropic and on top of that they had to change the pricing and now Cursor kind of sucks. Go on their subreddit, check it out. Anyway, this is why you don't like annualize this as stat, by the way, because I reckon their July revenue might be a little bit lower than $41.6 million, but we'll never know because, well, unless someone reports there. If you've got any numbers on any of these companies, my Signal is Ezitron Easy R O N76 on signal. Please send me anything you have. I love numbers. Anyway, past that point, it's only Anthropic and OpenAI. And I've left out a few companies like Turing and Scale. They don't make AI products, they're consultancies. But the long and short of it is this industry doesn't make much Fucking money. The actual returns from it aren't that very good. It's not very good at all. But the reason I'm telling you all these numbers is that I need you to know that this industry is not held up by the actual businesses or their revenues. None of these companies are profitable and it certainly isn't held up by the actual products themselves. And I'm sure you've got an AI friend who's come to you and said, oh, I use it for this. See how far you get them in the conversation before they just say they're using it like a search engine. We had this whole thing with Brian on the, on the podcast this week. It's like, yeah, really emphatically talking about the fact that you got a slightly sexier search engine that may or may not get things right. That can fool you into believing you're correct about something which isn't a fucking product. No, if it was, people would be making money. It's ridiculous. But even in areas like coding, coding the one place where people can point and go, look, look. Users like this. Look, Edward, look at them. A study from nonprofit group Model Evaluation and Threat Research found that despite developers belie believing AI coding tools sped them up by 24%, coding tools actually increase the completion time of their tasks by 19%. It actually, it slowed them down. Oh my God. Every week with this industry, I feel like I'm going insane. It's like every week there's this goddamn story like this and I still have people who tell me it's the future. I feel like I'm going insane. But as a result of AI being a nearly entirely vibes based economy, the pale horses of its apocalypse will be vibe shifters rather than defined events that would logically change things. Remember Deep Seek? That was a clunky story. So you had a Chinese model developer that may be cheaper. It was cheaper to train. Much cheaper to train, but still cheaper to train. And their model might be cheaper and it is comparable. I mean, I certainly made my hay with the episodes and interviews I did around it, but I'm surprised that shocked the market. There are bigger nastiest stories, but if that can do it, well, basically anything could. One thing that really spreads like information poison into the heads of business idiots everywhere who are saying AI now please. Without really understanding what it does, it's unlikely to be one big pop, but several little doots from the bubble deflating. So let's get to it. Here are the signs to look out for. Freshly updated. And if you have any ideas, please do reach out. I'd love to hear from you. We'll start with an obvious one. Any price increases or decreases are OpenAI and Anthropic. Now I called these increases in August and I had decreases because as I've mentioned in the subprime AI crisis, there is now a race to the bottom for model developers. OpenAI cut the price of their O3 reasoning model by 80% in June in an attempt to undercut Anthropic's Claude for opus, which launched May 22, I believe. And we've already begun to see price increases too. Anthropic added service tiers and OpenAI priority processing for enterprise customers to give them uninterrupted service in June. And I must be clear, when I say enterprise I mean any AI company that has at scale. So any sphere cursor glean and the like, they are enterprise customers and they are very likely having to pay these prices. Now here's another one. Anthropic and OpenAI may move away from monthly subscriptions and indeed any AI company may do this. This is a huge pale horse when companies start moving away from simple business models. So 20 bucks, 100 bucks a month or they start changing those so the returns aren't so the returns, the actual usership isn't obvious, isn't obvious how much you can or can't use. That's a sign that the company is trying to contain costs and indeed fuck with their customers a bit. And we've already seen a little bit of this with how Cursor changed their pricing or Claude Max the $100 or $200 a month subscription from Anthropic, which has now changed things to say you get more usage at the higher tiers than the $20 a month pro subscription. How much more? It isn't clear. Go to Claude's subreddit. You'll see a lot of people who are constantly saying I don't know what the rate limits are. And that's working as intended by the way. Anthropic is tweaking things very clearly on the back end. We do not know what they are. There are rumors that they are quantizing models, so making them smaller, dumber, cheaper to run, but still doing comparable things or just not having as much access within peak hours. These are unsubstantiated rumors, but I've seen enough claims of them that they're worth mentioning. These are signs that things are getting bad or that they need to make things more profitable. And really any and all cost increases on consumers by Any AI service are a pale horse, as they suggest the company in question is trying to deal with these ruinous costs. Remember, there are no profitable AI companies. It's fucking crazy. We are three years into this dog shit and there's none of them. Okay. Surge AI. They are an AI data training company that does not matter. It does not matter if you've got a car that has a horrible fuel economy. You don't point at how well oil is selling to say that the car's good. The different things anyway, any and all rate limits at any AI startup are a huge pale horse because these companies are spending a shit ton of money and they're having to run these massive infrastructural operations to keep things going. Those things are expensive. Power in particular is expensive. So any mediating those costs is necessary. If you see it with other companies, it's even worse because it means that OpenAI and Anthropic are turning the screws on them. Now, another obvious one of course, is any funding or revenue problems from the remaining AI software companies. Glean, Harvey, AlphaSense, anySphere who makes cursor, as I mentioned, or Replit, for example. It suggests that the funding required to keep these companies going is running out and their business models aren't working. And I want to make one real clear point here. I'm kind of repeating myself, but it's necessary. These companies are symbolic of whether generative AI will work. I realize ChatGPT is the big sexy one, but if you can't build software on generative AI and sell it for a profit, there is no industry here. Every single major cloud computing revolution has started because there was profit and fucking hell, it's nothing like Amazon Web Services when it grew. I'm tired of hearing this point. I think I have to do a thing about it because I'm fucking sick of it. It's nothing to do with it. Nothing. It's not remotely similar. The only similar thing is they're goddamn data centers. God calming down. But on the subject of data centers, any delays to Stargate or Amazon and Anthropic's new Carlisle, Indiana build out? Both Anthropic and OpenAI are running into capacity issues. This is documented well both by the companies and reporting from outlets like the Information. And they need these projects to happen because right now it's very obvious Microsoft is not going to expand their infrastructure for OpenAI and Anthropic. Well, they need Amazon to do it. But data centers don't grow like weeds. They take forever to build. I don't even know when the Carlisle Indiana data center is going to get built. Fucking hell. What a mess. Every time I think about this, such a mess. All right, one final pale horse, and this is my favorite one. Anything that happens with SoftBank and their ability to raise money is a big pale horse. The palest of them all actually, because SoftBank is critical to everything. SoftBank is the money behind OpenAI. SoftBank is the money behind Stargate. SoftBank is financially responsible for Stargate, by the way. And if OpenAI doesn't move in to Stargate, and indeed if Stargate never happens, Oracle gets left with $40 billion of chips unused and Crusoe who they have to pay $1 billion I think have a 15 year lease with them. What a mess. But as I've said, the actual purple bursting will be slow, annoying and unsatisfying at times. But these power horses are the signs that things are falling apart. I I will, as ever, keep you up to date on when these signs are happening, what they mean, why you should care, and I'll probably say fucking shit a few times when I do so really appreciate you. Love you all. Thanks for listening.

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