A (0:00)

This is an iHeart podcast. Guaranteed Human with Venmo Stache A taco in one hand and ordering a ride in the other means you're stacking cash back. Nice. Get up to 5% cash back with Venmo Stash on your favorite brands when you pay with your Venmo debit card. From takeout to ride shares, entertainment and more, pick a bundle with your go tos and start earning cash back at those brands. Earn more cash when you do more with Stash. Venmo Stash terms and exclusions apply. Max $100 cash back per month. See terms at Venmo Me Terms. Hey I'm Lindsey hydradinitis suppurativa HS caused bumps and abscesses that made me feel embarrassed. I talked to my dermatologist and started a treatment that works for me, Cosentyx. I found relief. Cosentix Secukinumab is prescribed for adults with moderate to severe Hidradenitis Suppurativa and hs. Don't use if allergic to Cosentyx. Get checked for TB before starting. Increased risk of infections and lowered ability to fight them may occur like TB or other serious bacterial, fungal or viral infections. Some were fatal. Tell your doctor if you have an infection or symptoms like fevers, sweats, chills, muscle aches or cough had a vaccine or plan to or if IBD symptoms develop or worsen serious allergic reactions and severe eczema like skin reactions may occur. Learn more at 1-844-cosentyx or cosentyx dot. You're stronger than HS. Ask your dermatologist about Cosentyx. Amazon has everything for everyone on your list. Like your sister who refuses to accept that she does not have a face for bangs. Get her a lovely hat and with Amazon last minute deals, you'll save big. Maybe grab her some barrettes too. Hey, I'm Steffi. I go big for the holidays, so I'm going to Famous footwear. With over 800 stores, you're never far from the perfect gift. So. So make your list and make it famous. Buy one pair, get one half off@famous footwear or famous.com Some exclusions apply. Hello and welcome to better offline. I'm ed zitron and I'm nothing like enron. That's a whole sign. Now this is the second episode in the Nvidia Enron series and to give you a recap, a few weeks ago a document from Nvidia leaked where the company denied that it was anything like Enron at all. But what was Enron. Now, some of you might know this, some of you might not, but I think it's time to remind everyone what Enron was and what Enron did and why Enron was so I don't know if we should say special, but it sure was Enron. Now, the collapse of Enron wasn't just, in retrospect, a large business that ultimately failed. If that's all it was, it wouldn't command the same space in our heads as other failures like WorldCom or Nortel, which I'll actually get to later. I talked about WorldCom last episode, both of whom were similarly considered giants in their fields, by the way. It's also not just about the fact that Enron failed because of proven business and accounting fraud. WorldCom entered bankruptcy due to similar circumstances though, rather than being liquidated, and this is kind of a mindfuck, so forgive me, it was acquired as part of Verizon's acquisition of mci, the name of a company that had previously merged with WorldCom that WorldCom renamed itself to after bankruptcy. This era sucked, and unlike Enron, WorldCom isn't the subject of multiple films and even a Broadway production. And my editor saw the UK tour of that and apparently it was pretty good. You ask Matt Hughes if you want to know more. And it's also not the size of Enron that made its downfall so intriguing. Nor for that matter, is it the fact that Enron did a lot of legally and ethically dubious stuff to bring about its downfall. No, what makes Enron special is the sheer gravity of its fuckery, the rotten culture at the heart of the company that encouraged said Malfeas and the creative ways Enron's leaders crafted an image of success around what was, at its heart, a big fat dog of a company. Enron was born in 1985 out on the foundations of two older, much less interesting businesses. The first, Houston Natural Gas, started life as a utility provider, pumping natural gas from the oil fields of Texas to customers throughout the region, before later exiting the industry to focus on other opportunities. The other, InterNorth, was based in Omaha, Nebraska and was in the same business, but pipelines. In the mid-1980s, HNG was the subject of a hostile takeover from Coastal Corporation, which until 2001 operated a chain of refineries and gas stations throughout much of the US mainland. Unable to fend it off by itself, HNG merged with InterNorth, with the combined corporation renamed Enron. The CEO of this new entity was called Ken Lay, an economist by trade who spent most of his career in the energy sector who also enjoyed deep political connections with the Bush family. He co chaired George H.W. bush's failed 1992 reelection campaign and allowed Enron's corporate jet to ferry Bush senior and Barbara Bush back and forth to Washington. Center for Public Integrity Director Charles Lewis said that there was, and I quote, no company in America closer to George W. Bush than Enron. George W. Bush, and I mean the second one, even had a nickname for Kenny boy. Anyway, in 1987, Enron hired McKinsey, the world's most evil management consultancy firm, to help the company create a futures market for Natur Gas. What that means isn't particularly important to the story, but essentially a futures contract is where a company agrees to buy or sell an asset in the future at a fixed price. It's a way of hedging against risk, whether that be from something like price or currency fluctuations or from default. If you're buying oil in dollars, for example, buying a futures contract for oil to be delivered in six months time at a predetermined price means that if your currency weakens against the dollar, your costs won't spiral. That bit isn't terribly important. What does matter is While working with McKinsey, Lay met someone named Jeff Skilling, a young engineer turned consultant who impressed the company's CEO deeply. So much so that Lay decided to poach him from McKinsey in 1990 and give him the role of Chairman and CEO of Enron Finance Group. Oh, by the way, Enron had a bunch of subsidiaries and some had their own CEOs and boards. I mention this because you may be a bit confused, as Lei was CEO of Enron and Skilling was CEO of Enron Finance Group. In essence, it's a bit like how Sam Altman is CEO of OpenAI and Fiji Simo is the CEO of Applications. That bit isn't important, but I just want to be as explicit as possible. I don't think OpenAI is Enron either. At least I hope anyway. Skilling continued to impress Lay, who gave him greater and greater responsibility, eventually crowning him Chief Operating Officer of Enron itself. With Skilling in a key leadership position, he was able to shape the organization's culture. He appreciated those who took risks, even if those risks, when viewed with impartial eyes, were deemed reckless or even criminal. He introduced the practice of stack ranking, also known as rank and yank, to Enron, which had previously been pioneered by Jack Welch, General Electric. And you should listen to the shareholder supremacy from last year. If you want to hear what I think about that guy here. Employees were graded on a scale and those at the bottom of the scale were terminated. Managers had to place at least 10%. Other reports say closer to 15% of employees in the lowest bracket which created an almost Darwinian culture and a drive to succeed that matched him. Staffers worked brutal hours. They cut corners. They did some really, really dodgy shit. None of this bothered Skilling in the slightest. Now, you might be asking how dodgy, ed. Well, in 2000 and 2001, California suffered a series of electricity blackouts. This shouldn't have happened. California's total energy demand at the time was 28 gigawatts and its production capacity was 45 gigawatts. California also shares a transmission grid with other states and for what it's worth, the Canadian provinces of Alberta and British Columbia as well as part of Baja California and Mexico. Meaning that in the event of shortage, it could simply draw capacity from elsewhere. There's plenty to go around. So how did that happen? Well, remember, Enron traded electricity like a commodity and as a result, it was incentivized to get the highest possible price for that commodity. So it took power plants offline during peak hours and exported power to other states where there was real domestic demand. But how does a company like Enron shut down a power station? Simple. It just asked. In one taped phone conversation released after the company's collapse, an Enron employee called Bill called an official at Las Vegas Power Co. California shares the same grid with Nevada and asked him to, and I quote, get a little creative and come up with a reason to go down. Anything you want to do over there? Any cleaning, anything like that? Very cool. The power crisis had dramatic consequences for the people of California who faced power outages and price hikes. For Governor Gray Davis, who was recalled by voters and later replaced by arnold Schwarzenegger. For PGE, which enter Chapter 11 bankruptcy that year. And for Southern California Edison, which was pushed to the brink of bankruptcy as a result. This kind of stuff could only happen in an organization whose culture actively rewarded being a fucking asshole. In fact, Skilling was seemingly determined to elevate the dodgiest of characters to the highest positions within the company and few more ethically dubious than Andy Fastow, who Skilling mentored like a protege who would later become Enron's chief financial officer. And you gotta wonder, how did the CFO hired by Jeff Skilling do well? Even before vaulting to the top of Enron's nasty little empire Fasta was able to shape its accounting practices with the company adopting Mark To Market accounting practices in 1991. Now, mark to market sounds complicated, but it's actually real simple. When listing assets on a balance sheet, you don't use the acquisition cost, like how you paid for it, but rather the fair market value of an asset. So if I buy a baseball card for a dollar and I see that it's currently selling for 10 bucks on eBay, I'd say that asset is worth 10 bucks, not the dollar I paid for it, even though I haven't actually sold it yet, nor do I know if anyone's interested. Now this sounds simple, maybe even reasonable, but the problem is that the way you determine the value of an asset matters. And mark to Market accounting allows companies and individuals to exercise some. What's the word? Creativity. Sure, for publicly traded companies where the price of a share is verifiable and open knowledge, it's not too bad. But for assets with limited liquidity, limited buyers, or where the price has to be engineered somehow, you have a lot of latitude for fraud. Now let's go back to that baseball card example. How do you know it's actually worth 10 bucks and not $1? What is the fair value of something you can't check on ebay, but what somebody told me in person it's worth, what's to stop me from lying and saying that the card is worth $100 or 1000 dol other than the fact that I'd be committing fraud? Now what if I have 10 $1 baseball cards and I give my friend $10 and I tell him buy one of my baseball cards using that $10 bill that I just handed him and this allows me to say that I've now realized a $9 profit on one of my $1 baseball cards. And my other cards are now because I just did that, worth $90 and not $9. Now what if I use that valuation, that phony valuation of my remaining cards to get a $50 loan using those cards as collateral, even though the collateral itself isn't worth even one fifth of the value of the loan? You get the idea. It's cold and wet out. But the good news is that I bought a bunch of cashmere sweaters from Quince, which fit really nicely and are both warm and go with just about anything, especially the leather racer jacket I got recently too. I love their T shirts and I'm currently eyeing one of their leather messenger bags, their gloves as well, and they got some fetching boots. I really like quints and everything I've bought so far has felt high quality, like I'd get from a high end department store. Despite being much cheaper. I've genuinely been really impressed and Quint is able to do this by partnering directly with trusted factories with high standards of craftsmanship and ethical practices, cutting out the middleman and selling stuff at half the cost of high end brands. I'm really impressed by everything I've got and I'm gonna get more. Get your wardrobe sorted and your gift lists handled with Quints. Don't wait. Go to quints.com beta for free shipping on your order and 365 day returns. Now available in Canada too. That's Q-U-I-N-C-E.com better free shipping and 365 day returns. Quince.com beta running a business is hard enough, so why make it harder? With a dozen different apps that don't talk to each other. One for sales, another for inventory, a separate one for accounting. Before you know it, you are drowning in software. Instead of growing your business, this is where Odoo comes in. Odoo is the only business software you'll ever need. It's an all in one fully integrated platform that handles everything CRM, accounting, inventory, E commerce, HR and more. No more app overload, no more juggling logins, just one seamless system that makes work easier. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost. It's built to grow with your business whether you are just starting out or already scaling up. Plus, it's easy to use, customizable and designed to streamline every process so you can focus on what really matters running your business. Thousands of businesses have made the switch, so why not you try Odoo for free@odoo.com that's o d o o.com and now superhuman Shack. I keep telling them not to say that. I'm no superhuman. Believe it or not, I struggle with moderate obstructive sleep apnea or OSA in adults with obesity. Moderate to severe OSA is a condition where breathing is interrupted during sleep with loud snoring, choking, gasping for air and even daytime fatigue. Let's just say it can sound a lot like this. Sound familiar? Learn more@don'tsleeponosa.com this information is provided by Lilly. A medicine company noticed unwanted facial volume loss after GLP1 weight loss. The weight came off, but volume loss and dull sagging skin are making you look older. Now you can reclaim your youthful looking appearance. Learn more@faceafterweightloss.com that's face after weight loss.com. While a lot of things people can do to alter the mark to market value of an asset are illegal and would be covered under generic fraud laws, it doesn't change the fact that mark to market accounting allows for some shenanigans to take place. Another trait of mark to market accounting as employed by Enron is that it would count all the long term potential revenue from a deal as quarterly revenue, even if that revenue would be delivered over the course of a decades long contract or if the contract would be terminated before its intended expiration date. It would also realize potential revenue as actual revenue even before money changed hands and when the conclusion of the deal wasn't a certainty. For example, in 1999, Enron sold a stake in four different electricity generating barges in Nigeria. They're basically floating power stations, so and sold it to Merrill lynch, which allowed the company to register $12 million in profit. One little problem. That sale didn't actually happen though that didn't stop Enron from selling pieces to Merrill lynch, which, I'm not kidding, Merrill lynch then sold to a special purpose vehicle called LJM2. You'll never guess who owned that. That's controlled by Andrew Fastow. Yep, remember that guy? You're going to hear that name again. Although the Merrill lynch bankers who participated in the deal were eventually convicted of fraud and cons long after the collapse of Enron, of course their convictions were later quashed on appeal. Thank you government. But still, for a moment, it gave a jolt to Enron's quarterly earnings. Anyway, Enron was incredibly creative when it came to how it valued assets. Take for example, fiber optic cables. As the dot com bubble swelled, Enron saw an opportunity and wanted to be able to trade and control the supply of bandwidth just like it did with other more conventional commodities like oil and gas. It built, bought and leased fiber optic cables throughout the country and then using exaggerated estimates of their value and potential long term revenue, released glowing financial reports that made the company look a lot more healthy and successful than it actually was or ever would be. Quick digression here. One of the funniest ironies of Enron is that it was in many ways ahead of its time when most people were still connecting to the Internet through screeching 56K dial up modems. It saw a future in edge and cloud computing, even if said terms didn't exist at the time. And streaming video? Here's a funny one. In 2000 it entered into a 20 year deal with Blockbuster Video to allow customers to stream films and TV shows through Enron's fiber network, something that would take Netflix another decade to realise it's a product now. There wasn't really much of a market for it at the time because broadband was pretty rare back then, nor was it necessarily technologically possible. But it was such a fun idea. People really liked it. It was a good idea. Everyone wanted it to happen. Not really, though. Anyway, the deal collapsed after a year. But that didn't stop Enron's creative accountants from booking the deal based on its projected future revenue as a profitable venture. Mark to market accounting, baby. You gotta love it. We love it, don't we folks? All right, I'll stop doing the impression. Still, it's hilarious to think about a future world in which Blockbuster and Enron stuck it out and the former didn't collapse around the time of the global financial crisis. Enron also loved making special purpose vehicles that existed either to generate revenue that didn't exist or to hold toxic assets that would otherwise need to be disclosed. With Enron then using its holdings in said entities to boost its balance sheet, one white wing was created and capitalized by Enron and an outside investor and pretty much exclusively bought assets from Enron, which allowed the company to recognize sales and profits on its balance sheets even when they were fundamentally contrived. Another set of entities known as ljm, named after the first initial of Andy Fastow's wife and two children, which I mentioned earlier, did the same thing, allowing the company to hide risky or failing investments, to limit its perceived debt and to generate artificial profits and revenues. LJM too was creatively the second version of this idea. Even though the assets that LJM held were ultimately dogshit. The distance that LJM provided, combined with Enron's use of mark to market accounting, allowed the company to turn a multi billion collective failure into a resounding and on paper profitable triumph. So how did this happen and how did it go on for so long? Well, first, Enron was at its peak worth $70 billion. Its fail would be a failure for its investors and shareholders. And nobody besides the that is wanted to ask tough questions. Remember when they did that? Anyway, it had auditors, but they were paid handsomely, turning a blind eye to the criminal malfeasance at the heart of Enron. Auditor Arthur Anderson surrendered its license in 2002, bringing an end to the company and resulting in 85,000 employees losing their jobs. Well, look, it's not so much it only turned a blind eye as much as it turned on a big paper shredder, shredding tons. I'M actually being literal. That's a measure of weight and not figuratively of documents. As Enron started to implode a crime for which it was later convicted of obstruction of justice. But I've already talked about Enron's culture, but I'd be remiss if I didn't mention that Enron's highest performers and its leadership received hefty bonuses in company equity, motivating them to keep the charade going. Enron's pension scheme, I add, was basically entirely Enron stock and employees were regularly encouraged to buy more, with Kenneth Lay telling employees weeks before the company's collapse that and I quote, the company is fundamentally sound and that they should hang on to their stock. Nvidia did use the word fundamentally. They, they use that, but it's not. Nvidia is not Enron. It's not, it's, it's really different. They're not doing this. I, I swear to God, I just don't love the, the language anyway. Additionally, per the terms of the Enron pension plan, employees were prevented from shifting their holdings into other pension funds or other investments until they turned 50 when the company collapsed. Those people lost everything, even those who didn't know about Enron's criminality. George Maddox, a retired former Enron employee, had his entire retirement tied up in 14,000 Enron shares worth at the time more than $1.3 million. He was forced to spend his golden years making ends meet by mowing pastures and living in a run down East Texas farmhouse. The US government brought criminal charges against Enron's top leadership. Ken Lay was convicted of four counts of fraud and making false statements, but died on a skiing vacation to Aspen before sent. May he burn in hell. Maybe Ronald Reagan and him could get in the hot tub together. The hot tub's got lava in him. Not feeling particularly creative on that one anyway. Jeff Skilling was convicted of 24 counts of fraud and conspiracy and sentenced to 24 years in jail. This was of course reduced in 2013 on appeal to 14 years and he was released to a Halfway House in 2018 and then freed in 2019. He's since then tried to reenter the energy sector with one venture combining energy trading and, I kid you not, blockchain technology, although nothing really came of it. Him. I want to take this moment to give a big shout out to Quartz, which when covering Skilling's attempted comeback had this opening line, and I quote, Jeffrey Skilling knows a thing or two about blocks and chains. Woo. Get his ass Andy Fastow. Pled guilty to two counts, one of manipulation of financial statements and one of self dealing, and received 10 years in prison. This was, as ever later, reduced to six years, including two years of probation, in part because he cooperated with the investigations against other Enron executives. He's now a public speaker and a tech investor in a company, an AI company called Keencorp. His wife Leah, who also worked at Enron, received 12 months for conspiracy to commit wire fraud and money laundering and for submitting false tax returns. She was released from custody in 2005. Enron's implosion was entirely self inflicted and horrifyingly, painfully criminal. Yet it had plenty of collateral damage to the US economy, to those companies that lend in money, to its employees who lost their jobs and their life savings and their retirements, and to those employees at the companies most entangled with Enron, like those at auditing firm Arthur Andersen. This isn't unique among corporate failures. WorldCom had some dodgy accounting practices. Nortel too. Both companies failed. Both companies wrecked the lives of their employees and these failures had systemic economic consequences, especially in Canada, where Nortel at its peak accounted for one third of the market cap of all companies on the Toronto Stock Exchange. The reason why Enron remains captured in our imagination and why Nvidia is so vociferously opposed to being compared to it, is the extent to which Enron manipulated reaction reality to appear stronger and more successful than it was and how long it was able to get away with it. While we may have forgotten the memory of Enron, it happened over two decades ago. After all, we haven't forgotten the instincts that it gave us. It's why our noses twitch when we see special purpose vehicles being used to buy GPUs. And while we gag when we see mark to market accounting, it's entirely possible, I genuinely believe this, that everything Nvidia is doing is above board. Really, it's great. That doesn't do anything to help the deep pit of dread in my stomach though. Running a business is hard enough, so why make it harder? With a dozen different apps that don't talk to each other. One for sales, another for inventory, a separate one for accounting. Before you know it, you are drowning in software instead of growing your business. This is where Odoo comes in. Odoo is the only business software you'll ever need. It's an all in one fully integrated platform that handles everything. CRM, accounting, inventory, E commerce, HR and more. No more app overload, no more juggling logins, just one seamless system that makes work easier. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost. It's built to grow with your business, whether you are just starting out or already scaling up. Plus, it's easy to use, customizable and designed to streamline every process so you can focus on what really matters running your business. Thousands of businesses have made the switch, so why not you try Odoo for free@odoo.com that's o d o o.com and now superhuman Shack I keep telling them not to say that. I'm no superhuman. Believe it or not, I struggle with moderate obstructive sleep apnea or OSA in adults with obesity. Moderate to severe OSA is a condition where breathing is interrupted during sleep with loud snoring, choking, gasping for air and even daytime fatigue. Let's just say it can sound a lot like this. Sound familiar? Learn more@don'tsleeponosa.com this information is provided by Lilly a medicine company noticed unwanted facial volume loss after GLP1 weight loss. The weight came off, but volume loss and dull sagging skin are making you look older. Now you can reclaim your youthful looking appearance. Learn more@faceafterweightloss.com that's faceafterweightloss.com Stay cozy, stay home and save big online during Lowe's December deal drops because honestly, why go anywhere when the deals come to you? Check this out. Lowe's is going to give you two free select tools from dewalt, Craftsman or Cobalt when you buy a select battery or combo kit. Yep, two tools free. It's basically a holiday miracle. Plus rewards members get free standard shipping all month long. Yet another reason not to leave your couch. Kick back, click around. Let the savings roll in. Shop new December deal drops on Lowe's.com every week this month. Fresh deals, cozy vibes, zero effort. Now let's remind ourselves of what Nvidia is. It's a company that previously focused on gaming oriented GPUs, graphics processing units, but thanks to a stroke of forethought, managed to be the company that sells the shovel for the current AI bubble. Its data center GPUs are expensive. They all rely on a technology that Nvidia created two decades ago called Cuda, which no other competitor has an alternative to, or at least one with the maturity in depth and functionality. And no other company shares its focus on this arena, at least not one with its history. These GPUs are expensive and thanks to Nvidia's near monopoly status, it's seen its share price grow by over 1,350% at the time of writing in the past five years. It's now the most valuable company in the world by market capitalization, and it's insanely, insanely profitable. If you're looking at this through the cold, unthinking lens of late stage capitalism, this all sounds really good. I've basically described a company that has an essential monopoly and the one thing required for a high growth if we're talking exclusively about capex spending industry to ever exist. Moreover, that monopoly is all but assured thanks to Nvidia's Cuda moat, its first mover advantage and its actual capacity and capabilities of the products itself, on top of the massive shipping and hardware operation it built, thereby allowing the company to charge a pretty penny to its customers and those customers. Well, if we temporarily forget about the likes of Nebius and coreweave and how I wish I could forget about coreweave permanently. We're talking about the biggest companies on the planet, ones that surely will have no problems paying their bills. But my worry is a little simpler and more direct, because I'm worried about the certainty that these purchases are being made for the right or most prudent of reasons. Back in February 2023 I put out the rot economy and how everything in tech has become oriented around growth at all cost, even if it meant making products harder to use as a means of increasing user engagement or funneling them towards more profitable parts of an app. Back in June 2024 I wrote and did an episode about the Rotcom bubble and my greater theory that the tech industry has run out of hypergrowth ideas. In simple terms, big tech Amazon, Google, Microsoft and Meta, but also a number of other companies no longer have a Next Big Thing and jumped on AI out of an abundance of desperation shit. Look at Oracle. This company started off by selling databases and ERP systems to big companies and then trapping said companies by making it really, really difficult to migrate to cheaper and better solutions, and then bleeding said companies with onerous licensing terms, including some where you pay by the number of CPU cores that you use in the application. Fucking Oracle. But it doesn't do anything new or exciting or impressive. Even when presented with the opportunity to do things that are useful or innovative, like when it bought some microsystems, it turns away. I imagine that deep down Oracle recognizes that its current model just isn't viable long term, and so it needed something else. When you haven't thought about innovation ever, it's kind of hard to start and thus generative AI probably seemed like a godsend to Larry Ellison, who founded Oracle and despite not being CEO, still creeps around the building like the Grinch. I'll get to Oracle in a bit. But we also live in an era where nobody knows what big tech CEOs actually do other than make nearly $100 million a year. Meaning that somebody like Satya Nadella can get called a thoughtful leader with striking humility for pushing co pilot AI up every asshole in Microsoft's product experience, even Notepad, a place that no human being would want it, an accelerating capital expenditures and $28 billion across the entirety of fiscal year 2023 to $34 point dollars in its last quarter. In simpler terms, spending money makes a CEO look busy. And at a time when there were no other potential growth avenues left, AI was a convenient way to make everybody look busy. Every department can have an AI strategy and every useless manager and executive can yell, as ServiceNow CEO Bill McDermott did back in 2022. Let me make it clear to everybody here, everything you do AI, AI, AI, AI, AI. That's a real goddamn quote. I should also add that Chat GPT was the first real meaningful hit that the American tech industry has produced in a long, long time. The last being, if I'm honest, Uber. And that's if we allow successful yet not particularly good businesses into the pile. I guess you could say Instagram stories, but that was ripped off from TikTok. No, sorry, Snapchat. Christ, they they nicked reels from TikTok. I hate this fucking industry. Now, now look, if we're assholes about it and we insist on things like profitability and sustainability, US Tech hasn't done so great. Snowflake runs at a loss, Snap runs at a loss. And while Uber has turned things around somewhat, it hardly created the next cloud computing or smartphone industry. Putting aside finances, the last major hit was probably Venmo or Zelle. And maybe if I'm feeling generous, smart speakers like Amazon echo or Apple HomePod. But those, I think Echo and Alexa has lost Amazon billions, much like Uber. None of these with the next big thing. Which would be fine, except big tech needs more growth forever right now, you pig. To be clear, I'm not saying there's been no innovation, just nothing at the scale of smartphones and cloud computing. This is why Google, Amazon and meta all do 20 different things, although rarely for any length of time, with these things often having a shelf life shorter than strawberries left on your counter. Because the rot economy's growth at all cost mindset exists Only to please the markets and the market's demand growing growth. ChatGPT was different. Not only did it do something new, it also did it in a way that was relatively easy to get people to try and see the potential of. It was also really easy to convince people it would become something bigger and better, because that's what tech does. To quote Bender and Hannah, AI is a marketing term, a squishy way of evoking futuristic visions of autonomous computers that can do anything and everything for us. And because both customers and analysts have been primed to believe and trust the tech industry, everybody believed that whatever ChatGPT was would be the next Big thing. Said Next Big Thing was powered by large language models which required GPUs sold by one goddamn company. Nvidia AI became a very useful thing to do. If a company wanted to seem futuristic and attract investors, it could now integrate AI. If a hyperscaler wanted to seem enterprising and like it was building the future, it could buy a bunch of GPUs or invest in its own silicon, as Google, Microsoft, Amazon and Meta have done, though Meta to only some extent, and of course shove AI in every imaginable crevice of an app. App investors could invest in AI companies. Retail investors, regular people could invest in AI stocks. Tech reporters could write about something new and do access journalism even harder. LinkedIn perverts could write long screens about AI. The markets could become obsessed with AI. And yeah, you can kind of see how things got out of control. Everybody now had something to do, an excuse to do an AI thing, regardless of whether it made sense because everybody else was doing it. You didn't need to justify it anymore anymore. Everybody was doing AI chat. GPT quickly became one of the most popular websites on the Internet, all while OpenAI burned billions of dollars. And because the media effectively published every single thought that Sam Altman had, such as that GPT4 would automate away some jobs and create others, and that he was a little bit scared of it. AI as a technology and an idea and a symbolic stock trope and a marketing tool. And a myth became so powerful that it could do anything, replace anyone, be worth anything, even the future of your company. Company. Amongst the hype, there was an assumption related to scaling laws, summarized well by Charlie Meyer, who was on the podcast a few months ago. You should go listen to his episode. In 2020, one of the most important papers in the development of AI was published, Scaling Laws for Neural Language Models, which came from a group at OpenAI. The paper showed with just a few charts Incredibly compelling evidence that increasing the size of large language models would increase their performance. This paper was a large driver in the creation of GPT3 and today's LLM Revolution solution and caused the movements of trillions of dollars in the stock market. In simple terms, the paper suggested that shoving more training data and using more compute power would exponentially increase the ability of a model to do stuff. And to make a model that did more stuff, you needed more GPUs and more data centers. Did it matter that there was compelling evidence in 2022? And gotta say it, Gary Marcus was right that there were limits to scaling laws and that they would hit the point of diminishing returns? Nah. Amidst all of this, Nvidia has sold over $200 billion of GPUs since the beginning of 2023, becoming the largest company on the stock market and trading at over $170 as of writing this sentence, only a few years after being worth less than $20 a share. You see, Meta, Google, Amazon, Microsoft all wanted to be part of the future, so they sunk a lot of money into Nvidia, making up 42% of its revenue in its fiscal year 2025. Though there are some arguments about how much exactly, Big Tech's billowing capital expenditures are spent on GPUs, some estimate somewhere between 41% to more than 50% of a data center's CapEx is spent on GPUs. If you're wondering what the payoff is, well, you're in good company. I estimate that there's only around $61 billion in total generative AI revenue, and that includes every hyperscaler and NEO cloud. Large language models are limited, A AI agents are a pipe drain and simply do not work. AI powered products are unreliable and coding LLMs make developers slower, and the cost of inference the way in which a model produces its output keeps going up. The thing is, what comes up tends to have a habit of coming down, and I'm increasingly of the opinion that a return to a terra firma is coming sooner rather than later. But that's for the next episode. Join me then. Foreign. Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Mattasowski. You can check out more of his music and audio projects@matasalski.com m a t t o s o w s k-I.com you can email me at ezetteroffline.com or visit betteroffline.com to find more podcast links and of course my newsletter. I also really recommend you go to chat wheresyoured at to visit the Discord and go to R betteroffline to check out our Reddit. Thank you so much for listening. Better Offline is a production of Cool Zone Media. For more from Cool Zone Media, Visit our website coolzonemedia.com or check us out on the iHeartRadio app, Apple Podcasts or wherever you get your podcast. This is Sophie Cunningham from Show Me Something. Do you know the symptoms of moderate to severe obstructive sleep apnea, or OSA in adults with obesity? They may be happening to you without you knowing. If anyone has ever said you snored loudly or if you spend your days fighting off excessive tired and tiredness, irritability and concentration issues, it may be due to osa. OSA is a serious condition where your airway partially or completely collapses during sleep, which may cause breathing interruptions and oxygen deprivation. Learn more at don'tsleep on OSA.com this information is provided by Lilly, a medicine company at cvs. It matters that we're not just in your community, but that we're part of part of it. It matters that we're here for you when you need us, day or night, and we want everyone to feel welcomed and rewarded. It matters that CVS is here to fill your prescriptions and here to fill your craving for a tasty and yeah, healthy snack. At cvs, we're proud to serve your community because we believe where you get your medicine matters. So Visit us@cvs.com or just come by our store. We can't wait to meet you. Store hours vary by location. This is Julian Edelman from Dudes on Dudes with Gronk and Jewels. Sunday mornings I've got my game day ritual, coffee, Lucky socks and now New Morning Uncrustable Sandwiches. It's all about that 12 gram protein boost with the new uncrustables. Bright Eyed Berry or Up and Apple flavors. Bright Eye Berries got of feisty receiver energy up an apple. Your classic do it all tight end, soft, pillowy, packed with protein and easy enough for Gronk to grab from the freezer. Whether you're on the couch, driving to the tailgate or heading to the locker room, New Morning Uncrustable Sandwiches are the MVP of snacks. Your new Sunday kickoff ritual starts here. Here with New Morning Uncrustable sandwiches packed with 12 grams of protein. The Colgate Total Active Prevention System is for you. In just six weeks starting from week one. Compared to a non antibacterial fluoride toothpaste and flat trimmed toothbrush, helping you prevent oral health problems like cavities and gingivitis before they start. Colgate Punto com Diagonal and be dentist ready. This is an iHeart podcast. Guaranteed Human.