The AI Money Trap, Part One

Summary

Better Offline: "The AI Money Trap, Part One"

Podcast: Better Offline (Cool Zone Media & iHeartPodcasts)
Host: Ed Zitron
Date: August 20, 2025

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Episode Overview

In this incisive, energetic episode, Ed Zitron launches the two-part "AI Money Trap" series—a sprawling, deeply skeptical look at the economics underpinning the generative AI industry. Through extended, unfiltered monologues, he dissects how a handful of influential startups have attracted mind-boggling venture capital and ballooned to massive valuations—despite a dearth of profits, unclear business models, and a conspicuous lack of meaningful acquisitions or exits.

Zitron positions the current "AI bubble" as Silicon Valley’s own subprime crisis: overvalued, dependent on capital inflows, and—critically—failing to answer the fundamental question, "where is the money going?" He zeroes in on case studies like OpenAI, Anthropic, and Cursor to expose paradoxical economics and systemic fragility, asking whether any of these companies can survive, let alone thrive, without endless investor largess.

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Key Discussion Points & Insights

The Looming End of the AI Bubble

Timestamp: 01:54–04:00

• Ed frames the AI bubble as structurally unsound, predicting that it will not deflate gracefully. Instead, collapse will occur through "burps and farts," with both people and innovation as collateral damage.
  • Quote: "The only way the AI bubble ends is, well, badly… there are going to be abrupt little farts, little burps as the bubble begins letting out air…" (Ed Zitron, 02:09)
• Unlike the 2008 financial crisis, AI firms are non-essential businesses with no government safety net.

Data Center Mania & Questionable Funding

Timestamp: 04:02–06:40

• Reputable financial outlets (WSJ, FT) have begun questioning whether the explosion in data centers is itself a bubble.
• OpenAI’s rumored $500 billion valuation, despite "secured" funding that is not fully deployed, is called "fucking stupid."
  • Quote: "That's around the price of Netflix. This is fucking stupid. It's so stupid and every time I read about it I feel a little insane." (Ed Zitron, 05:30)
• Huge sums are allegedly being incinerated on compute and data centers; actual destinations remain murky.

Artificially Inflated Revenues & ARR Trickery

Timestamp: 06:41–10:40

• OpenAI and Anthropic leak "annualized recurring revenue” (ARR) numbers—based on non-standard calculations, using trailing 30-day windows rather than calendar months, creating confusion.
  • Ed’s Searing Analysis: "It's very clear OpenAI is not talking in actual calendar months, at which point we can assume they're using like a trailing 30 day window... They wouldn't have given two vastly different goddamn numbers in the same two day period." (08:15)
• These figures are reported in ways that line up conveniently with fundraising cycles, triggering skepticism over their reality and reliability.

Cursor and Structural Fragility in Generative AI

Timestamp: 13:15–22:40

• Cursor, an AI-powered coding environment, is presented as a microcosm of the whole sector's instability.

  • Cursor brings in substantial revenue, yet it is entirely dependent on Anthropic and OpenAI’s models—and is hit hard by abrupt price increases for access.
  • "Cursor is the weak point of the entire bubble," says Ed (13:28).

• Upfront contracts and escalating compute costs have rendered Cursor’s business model unprofitable and fragile.

• If Cursor fails, upstream providers like Anthropic and OpenAI lose a material chunk of revenue—unveiling systemic risks and circular dependencies.

  • Quote: "If Cursor is allowed to die, it will be unable to pay a chunk of Anthropic and OpenAI's revenue and yes, the revenue of people like Xiai and Google as well... It also brings into question whether it's possible to build… a business of any kind offering services built on top of generative AI models…" (19:17)

The AI Exit Crisis—No Buyers, No Profits, No IPOs

Timestamp: 28:26–41:40

• Examines the near-total lack of significant acquisitions or public offerings in generative AI.
  • Only major "real" acquisition: AMD buying SiloAI ($665M, 2024).
  • Most headline-grabbing deals are crafty licensing and talent buyouts (Inflection->Microsoft, Windsurf->Google/Cognition) that leave staff and IP in limbo.
  • Quote: "There just doesn't seem to be an investor with the hunger to buy a company like Cursor valued at $9.9 billion or more if they raise another round. And you have to ask why?" (29:00)
• Dissects insider deals in which company founders and VCs profit while employees get left behind.
  • E.g., Windsurf’s $2.4B "acquisition" hugely benefited founders/investors, while "a large portion of approximately 250 employees not benefiting from the deal." (31:55)
• Highlights the farcical revenue numbers of highly touted AI startups—often making less than regional sports franchises.
  • Quote on Perplexity AI: "A company with 15 million users and around 550 million annualized revenue is still making less than half of the revenue… of the Cincinnati Reds baseball team. They're going to go public." (42:34)

Why Generative AI Startups Can’t Be Acquired

Timestamp: 44:30–49:10

• Products built on LLM providers have very little unique IP and are entirely at the mercy of upstream providers (pricing, capabilities, competing products).
  • Therefore, there’s no sustainable basis for exit or profit—only talent/licensing arbitrage.
  • Quote: "Generative AI company owns very few unique things beyond their talent and will forever be at the mercy of any and all decisions that their model provider makes…" (45:36)
• Compares AI start-up valuations to the subprime mortgage crisis: overleveraged, inflated, and with no rational exit.
  • "These startups are their VC firm, subprime mortgages, overstuffed valuations with no exit route and no clear example of how to sell them or who to sell them to." (46:57)
• We are years in—and there isn’t a single generative AI company with consistent profits or a conventional exit.

Broader Economic and Social Implications

Timestamp: 49:00–51:00

• The "AI money trap" may crowd out innovation elsewhere, with vast pools of capital sucked into fundamentally unsustainable business models, choking off support for more viable startups.
• Zitron asks pointedly: "How long should we give them? Three years? Four years? An eternity?... If any of these were good businesses, they would be either profitable or be acquired in actual deals, and they would also be good businesses by now." (48:01)

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Notable Quotes / Memorable Moments

• On OpenAI’s valuation:

  "That's around the price of Netflix. This is fucking stupid. It's so stupid and every time I read about it I feel a little insane."
  (Ed Zitron, 05:30)

• On ARR manipulation:

  "It's very clear OpenAI is not talking in actual calendar months, at which point we can assume they're using like a trailing 30-day window... They wouldn't have given two vastly different goddamn numbers in the same two-day period. It doesn't make any sense."
  (Ed Zitron, 08:15)

• On structural risk:

  "If Cursor is allowed to die, it will be unable to pay a chunk of Anthropic and OpenAI's revenue... It also brings into question whether it's possible to build… a business of any kind offering services built on top of generative AI models…"
  (Ed Zitron, 19:17)

• On talent/takeover deals:

  "A large portion of Windsurf's approximately 250 employees [were] not benefiting from the deal. I... I'll have links to all of this in the notes. This whole deal is real sickly... the investors got paid out, the founders got paid out, the employees got fucked."
  (Ed Zitron, 31:55)

• On pseudo-exits:

  "The literal only liquidity mechanism outside of Cognige that generative AI has had so far is selling AI talent to big tech at a premium. Nobody has gone or is going public, and if they're not going public, the only route for these companies is to either become profitable, which they haven't, or sell to somebody, which they're not."
  (Ed Zitron, 47:10)

• On existential dependency:

  "Generative AI company owns very few unique things beyond their talent and will forever be at the mercy of any and all decisions that their model provider makes, such as increasing prices or creating competing products."
  (Ed Zitron, 45:36)

• On time horizon for profitability:

  "If any of these were good businesses, they would be either profitable or be acquired in actual deals, and they would also be good businesses by now. It is not early. That argument is stupid."
  (Ed Zitron, 48:01)

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Segment Timestamps

• Opening/Theme Setting: 01:54–04:00
• Data Center Bubble & Funding: 04:00–06:40
• Revenue Reporting Shenanigans: 06:41–10:40
• Cursor and Generative AI Economics: 13:15–22:40
• Acquisitions & The AI Exit Crisis: 28:26–41:40
• Why Generative AI Can’t Be Acquired: 44:30–49:10
• Broader Implications & Host Closing: 49:00–51:00

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Language, Tone, and Style

The episode is shot through with Ed Zitron’s signature irreverence, profanity, and cutting analogies. He is unimpressed, at times furious, and unwaveringly skeptical—blending technical acumen with brash humor. Analyses are exhaustive but presented with relentless clarity, brutal asides, and emphatic repetition. Structurally, Zitron’s tone is alarmed, exasperated, and at times mocking—especially when comparing generative AIs’ finances to those of Ohio’s baseball teams ("The Reds should be interviewed by Bloomberg."). The approach is unfiltered and combative but deeply sourced.

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Summary Takeaway

Ed Zitron’s "The AI Money Trap, Part One" is a rigorous, unflinching demolition of the prevailing narratives around generative AI startups' financial viability. Instead of inevitable golden futures, he sees a valley of overfunded, underperforming companies, propped up by creative accounting and misplaced investor faith, headed for a reckoning. As he looks ahead to how the AI bubble might burst, Ed challenges listeners to scrutinize tech’s future not through hype, but through numbers and exit reality—raising the urgent question: when the music stops, who will be left holding the bag?

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Listen for Part Two, where Zitron promises to focus directly on OpenAI and Anthropic.

Transcript

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Hello and welcome to Better Offline. I'm of course your host, Ed Zitro. As ever, go to the Episode Notes and buy some merchandise. We have the beautiful Challenge coin available until August 24th. I want to say subscribe to my newsletter or send me a threatening email. I love hearing from you all and I also love to see that our subreddit has gone over 12,000 vagabonds and scallywags. I'm so proud of our community. Anyway, this week's gonna be a Fun 1. A two parter plus a special report on GPT5 and it's kind of a culmination of the last year and a half of that I've done covering the AI bubble. Now, the reason I return to this subject so often is because each week I become more and more convinced that the only way the AI bubble ends is, well, badly. Every week I see more and more evidence that this is structured in a way that is doomed to end not even abruptly. But there are going to be abrupt little farts, little burps as the bubble begins letting out air, and in a way where I see people and innovation as the collateral damage. In the global financial crisis, the Federal Reserve and the US Government, as well as other equivalents around the world, worked to ensure that when a bank or hedge fund went under or a big insurance company became insolvent, the collapse was managed in a way that didn't implode the entire financial system. The difference with AI is first, that it's nowhere near as essential as financial services to the global economy and thus unlikely to be saved, as aig was in 2008, but also that there's no real way for this to end gracefully. This just due to the way all of this is happening, how it's built. I'll get into it, and all the signs are now there. And I have been hesitant to make this call the whole time, by the way, where, well, there's a contagion here where one precarious company falls, the rest eventually tumble, sparking a chain of events that will be, well, pretty bad. But how does this end? Okay, at the start of August, we saw no less than three different pieces, two in the Wall Street Journal and one in the Financial Financial Times. Financial Nanchal Times. Eh, who cares? Published within the span of one week, all asking the same question whether the massive proliferation of data centers is a massive bubble. And honestly, since then there have been several more. Although these publications at times seem to have taken the default position of AI's inevitable value, they've begun to sour on the idea that it's going to happen anytime soon. To be clear, these are sensible, well respected business newspapers, hardly partisan voices from the AI wars. Separately, CNBC reported that Quirked Up 300 Core on OpenAI is either raised or is about to raise another $8.3 billion in cash less than two months since it raised $10 billion from SoftBank and a selection of other venture capital firms. While this sounds ambiguous, this reporting only claims that it has secured that funding, not that it's received it, which is an important distinction I pointed out in the past, as secured funding often comes with its own conditions attached. On top of this, I should add that there is currently a rumor that OpenAI providers so the people working at the company are selling $6 billion of stock at a $500 billion valuation. That's around the price of Netflix. This is fucking stupid. It's so stupid and every time I read about it I feel a little insane. But it's also weird that you've got people like SoftBank and Dragonair who invested in the $8.3 billion round who are also buying the stock. All this sounds stinky and I hate to be crude, I hate to be too crude here, but where the fuck is all this money going? Is OpenAI just incinerating capital? Is it compute? Is it salaries? Is it more compute? Is it data centers? Because SoftBank isn't actually building anything anything for soft for Stargate, it's all okay, I'll calm down a little bit, but it's all getting a little bit silly now. The information which has some of the best sourcing in any publication covering the AI bubble I'd argue, though I've taken issues with their reporting in the past suggested that OpenAI intends to use this money to build data centers, possibly the only worse investment it can make other than generative AI. And it's the one that OpenAI can't really avoid because they're also somehow running out of compute too. And amongst this already ridiculous situation sits the issue of OpenAI and Anthropic's actual revenues, which I wrote about in my Premium newsletter on the 1st of August please give me money and have roughly estimated to be $5.26 billion in the case of OpenAI and $1.5 billion in anthropic as of July. Now to be clear, there are very different numbers going around I'll get to in a second. In any case, these estimates were made based on both companies predilection for leaking their annualized revenue or month times 12. Now this extremely annoying term annualized recurring revenue is one that I keep bringing up because it's become the de facto way for generative AI companies to express their revenue. And both OpenAI and Anthropic are leaking them intentionally and doing so in a way that suggests that they're not even using the traditional ways of calculating them, because ARR isn't in and of itself an evil thing. It's fairly standard within software as a service companies, except they run completely different to OpenAI and Anthropic anyway, OpenAI leaked on July 30, 2025 that it was at $12 billion of annualized revenue. So it earned around $833 million in some sort of 30 day period. And then two days later, on August 1, 2025, the New York Times reported it was at $13 billion annualized, or $1.08 billion of monthly revenue. It's taken the p. It's very clear OpenAI is not talking in actual calendar months, at which point we can assume they're using like a trailing 30 day window, as in the month is just 30 days rather than a calendar month like May or June or July. We can, however, declaratively say that it's not saying the month of June or the month of July was 12 or $13 billion annualized, because if it was, they wouldn't have given two vastly different goddamn numbers in the same two day period. It doesn't make any sense. And to be clear, while I can't say for certain I believe these leaks are deliberate, OpenAI's matches exactly with fundraising. Similarly, on Anthropic side, these revenues are beginning to get really, really weird. Anthropic went from making around $72 million annualized in January to $433 million in monthly revenue in July. Or at least it leaked on July 1, 2025 that it was at 4 billion annualized to the information, which is $333 million, and then claimed it had reached 5 billion annualized 416 million to Bloomberg on July 29, 2025. I'm so tired of this. Something stinky is happening. The people who will not admit something stinky is happening. I'm beginning to question their sanity or whether they're just inherently corrupt in some way. And you can be corrupt without money. You can just do it for your mates. Anyway, how did Anthropic get there? I'm guessing it was from cranking up prices on Cursor, a product made by a company called AnySphere that lets developers generate code using Anthrop, Anthropic's models and other models. And we've had the confirmation that's the case thanks to the information reporting that $1.4 billion of the annualized revenue from Anthropic is from its two top customers. So around $116 million in a month, and the biggest of which is Cursor. Confusingly, the information also says that Anthropic's clawed code is generating nearly $400 million in annualized revenue, roughly doubling from just a few weeks ago, per their report, so around $33 million of monthly revenue. They really jacked that product up. I need to do a whole thing on Claude Code, if I'm honest, because that whole thing has become a complete nightmare. They've had to completely the weekly rate limits are coming. What a fucking mess. Every time I think about this company I get upset. In any case, I think Cursor is a huge indicator of the current fragility of the bubble and the fact that for most AI startups there's simply no way out because being acquired or going public does not appear to be a viable route. But before I explain, please listen to one of the many stable normal advertisers that gives money to the show. Not to me though. I don't get the money from the ads, so I don't like shopping in general, I really don't like shopping for clothes, but nevertheless, my recent fitness journey made it necessary to start dressing like an adult. I've shopped a few times at Quints, at first for some cashmere sweaters and then for some summer clothing. As part of these ads they sent me some more clothes. Two really nice linen shirts that fit well and feel nice despite how hot I run, and an overshirt, a kind of jacket shirt hybrid that has become effectively my uniform as even during the summer I crave layers. I really like their stuff. 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Isn't that why we work so hard to splurge on certain moments getting that new laptop with more speed and storage than you ever imagined, or spontaneously splurging on a bigger TV because the 65 inch one just isn't quite big enough. With Empower, you can get the help you need with your money and investments to feel confident about not only taking care of yourself, but treating yourself too. Empower can help simplify your money decisions through education, financial tools and guidance that help make saving and investing just a little easier. So use Empower to help get good at money so you can be a little bad. Join their 19 million customers [e-mail] not an empower client, paid or sponsored.

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Columbia and we're back. So how exactly is one AI powered coding environment such a load bearing part of the AI trade? We're going to be focusing now on both the fact that cursor is a systemic risk to the AI industry, one where if it fails, could make every other player that bit less secure, and the fact that cursor is emblematic of what makes generative AI companies so paradoxical. Where you can have bonkers valuations on one hand, but also no way for these companies to go public or sell to someone else and justify the actual valuation itself. I know it sounds a little insane, but I believe that Cursor is the weak point of the entire bubble and I'm going to explain why and how this could go. This is by no means inevitable, but I cannot work out what Cursor does other than this. Cursor makes before at least the massive changes to its service, though Tom De Tan over at Newcomer suggests that the revenue is still going up for now they make about $500 million in annualized revenue, so around $42 million a month. This makes it the single highest earning generative AI company that isn't called Open AI or Anthropic, and the highest earning company built on top of primarily Anthropic's models. Its success is symbolic to the greater AI movement and just as it hit its peak, Anthropic and OpenAI to a lesser extent, though they seem more interconnected. During GPT5 launch, decided to add priority processing and priority service tiers, demanding more money upfront and causing Cursor to have to massively decline grade its service to keep up. I also have a premium piece that explains this from a few weeks ago. I did a monologue too, and it's over at where's your Ed app? Pleasegivememoney to explain. In short, Cursor's AI powered coding editor used to have fairly unrestrained access to the various models provided by companies like OpenAI and Anthropic. In mid June, a few weeks after Anthropic introduced priority tiers that required enterprise companies to pay upfront and guarantee a certain throughput of tokens and increase costs on prompt caching, which is a big part of AI coding, Cursor massively changed the amount its users could use its product and introduced a $200 a month subscription. As an aside to this, Anthropic also competes with Cursor's AI coding product with Claude Code, its own service. I've talked about it in the past and I'll talk about it some more in this series too. Cursor as Anthropic's largest client, the second being GitHub Copilot, represents a material part of its revenue, and its surging popularity meant that it was sending more and more revenue to to Anthropic. Anthropic used this opportunity to raise prices on accessing its models to continue providing service at an acceptable level to Cursor's customers by introducing priority Tier access on May 30, 2025. This has allowed Anthropic to juice its revenues and due to the upfront nature of these contracts, Cursor is locked in regardless of how well it does. The net result of these cost increases means that Cursor's product is less attractive to its customers and will thus eventually make it less money. At this point, one has to ask how does Cursor survive? Its product isn't profitable and the means it used to make the company so successful have become untenable. It has guaranteed a certain throughput of tokens per second to the major model developers Chief of the Manthropic But Cursor itself said in the whole cursor ultra$200 a month thingy that it signed multi year deals with multiple cloud providers like OpenAI XAI and Google. Cursor's product is now worse. By the way, they also have made it so the auto model that used to be unlimited will now, as of September 15th, charge a fee. It's so fucking funny. I love this shit. It's so funny watching this happen. But really, people are going to cancel their subscriptions, their annualized revenue will drop, and their ability to raise capital will suffer as a direct result. Cursor will, regardless of this drop in revenue, have to pay the cloud companies what it owes them as if it had the business it used to because it was a guaranteed throughput. Or I've spoken to a few different people, including a company with an enterprise contract, that are either planning to cancel or trying to find a way out of their agreements with Cursor, and they were planning to do so as recently as April. Sorry, recently as April. I mean, they were planning to do back in April before this shit happened. I'm not editing it, you understand. Anyway, if Cursor is allowed to die, it will be unable to pay a chunk of Anthropic and OpenAI's revenue and yes, the revenue of people like Xiai and Google as well. It also brings into question whether it's possible to build, putting aside any questions of profitability, a business of any kind offering services built on top of generative AI models and in turn bring into doubt the veracity of investing in this sector writ large. It will also call into question whether any other generative AI company is a real business. This will naturally lead to the question of why we're building all these goddamn data centers. Cursor at this point faces two die or get acquired. This is not an attack on anyone who works at the company, nor anything personal. The unit economics of this business do not make sense. And yet on some level, its existence is deeply important to the Valley's future. And a large chunk of Anthropic's revenue, I should add. And Tom De Tan over at Newcomer added something like 10% of Anthropic's revenue comes from Cursor. This is so bad. But I'm going to humor this. I'm going to humor this big time. Who would actually acquire cursor? Maybe OpenAI. But they couldn't acquire Windsurf, another AI company, because they were too worried that Microsoft was gonna get the somehow essential IP of what appears to be one of a hundred different AI powered coding environments. They also already tried and failed to buy Cursor. And if I'm honest, I would not be surprised if Cursor would sell. Now, I don't know if OpenAI has the money, but you know, they probably would sell. Honestly, Cursor fucked up bad not selling to OpenAI. They could have got $10 billion and Sam Altman would have had to accelerate the funding clause. It would have been so goddamn sick. But now the only sick here is Kershaw's fragile plagued business model. But how about Anthropic? I don't know about that one either. They've already got their own extremely expensive coding environment, which I estimate in my premium newsletter loses the company 100% to 10,000% of a subscript subscription per customer. That's like a monthly subscription just from one user, and I did that a few weeks ago. And now anthropic, as of August 28th is adding weekly limits on accounts, which I believe creates some of the most gnarly churn in SaaS history. It's going to be quite nice. Also, does Anthropic really want to acquire its largest customer also? With what money? They're not raising $5 billion to bail out Cursor. Anthropic needs that to feed directly into Andy Jassy's asshole pocket to keep offering increasingly more complex models that never quite seem good enough to make any money. But how about Google? They no, they just sort of bought Windsurf. But I'll get. It's a complete mess and they can't do that again. They've already given out the participation trophy, multiple billions of dollars to investors and founders, so nobody has to get embarrassed about this. And then allowed cognition to pick up the scraps of a business that made $6.83 million a month after burning 143 million of investor capital. And TechCrunch reports that Windsurf was left with about $100 million in cash post acquisition. TechCrunch also reports that Cognition paid about $250 million for what remained of the company. Google paid like 2 point something billion dollars to just take the founders and Cognition picked up the rest. And this deal, by the way, didn't actually pay out the majority of Winsurf's employees. I. I'll have the links to the links to all of this in the notes. This whole deal is real sickly though, that the investors got paid out, the founders got paid out, the employees got fucked. It really sucks. I'll get into it in a bit, but let's go with Meta. Here's the thing. If I'm Michael Trull, the CEO of Cursor of any sphere even, I am calling Mark Zuckerberg and I'm pretending that I think the only person in the world who can usher in superintelligence is the guy who burned more than $45 billion on the metaverse and believes that not wearing AI glasses in the future will be a disaster disadvantage. I would say all manner of about the future and that the only way to do this was to buy my AI powered coding startup that literally cannot afford to exist. I would, I would tell Zuckerberg anything. I would be like, mate, I just watched the actual Stargate. I think you're the people from Stargate. He's never going to watch Stargate. He's just going to be like, well, yeah, I've heard that's a TV show. Wow, great. And then you get however much money you need. Just $20 billion. He'll just pull that out of his pocket. He has it. He has 20 billion. He'll just hand it to you. He's probably got it in his, like in his safe. Just go and ask Mark. How much money do you think Mark Zuckerberg's got in his safe? Email me, email me with the guess. Anyway, this whole can't afford to exist thing, that really is the problem. These companies are all going through the same motions that every company before them did. Raise as much money as possible, get as big as possible, and eventually scale to the point that you're fat with enterprise cash. Except the real problem is that just like the big tech's new gluttony of physical real estate, it's taken on generative AI. Companies are burdened with a constant and aggressive form of cloud dam. The endless punishment of the costs for accessing the API for generative AI models that always seem to get a little bit better, but never in such a way that anything really changes other than how much Anthropic and OpenAI are going to need at the end of the month or they break your startup's legs. I'm not even trying to be funny. Anthropic raised its prices on Cursor so severely it broke its already unprofitable business model. These products, while also for the most part not producing that much revenue, need to be sold with users being aware of and or sensitive to the cost of providing them. The cursor's original product was a $20 a month service for 500 fast requests of different models in the same way that accessing CLAUDE code on any subscription is either $20, $100 or $200 a month rather than paying per API Core. Because these companies all sell products that shield the customer from the actual costs of running the services. And those costs could be vast. One article which I'll link to in the spreadsheet argues that given the trajectory of the development of AI models, it's not unreasonable to imagine a full time engineer spending $100,000 in tokens each year per engineer. Just really think about that for a second. I'll have the link in there. It's fucking stupid. It's so fucking stupid I want to scream. And the irony is that despite being willing to kill these companies by fundamentally changing the terms and in which they access their models, Anthropic is also in some way dependent on Cursor Reply and other similar firms continuing to buy tokens at the same rate as before, as that consumption is baked into their own ARR figures, as well as the forward looking revenue projections they've given to investors to convince them to give them $5 billion. It is in some sense a Kobayashi Maru. Anthropic has an existential need to screw over its customers by hiking rates and imposing long term commitments. But its existence is also in some way predicated on these companies continuing to exist. If Cursor and Replit both die, that's a significant chunk of Anthropic's API business gone. And may I remind you, that significantly overshadows its subscription business, making it almost like an inverse of OpenAI where subscriptions drive the bulk of revenue. Also a shitty business model. Anthropic's future is wedded to Cursor, and I just don't see how Cursor survives, let alone exists or gets subsumed by another company in a way that mirrors how acquisitions have worked since ever. If Cursor does not sell for a healthy amount, I'm talking 10 to 20 billion dollars. And I mean actually sell, not. The founders are hired in a strange contractual agreement that pays out investors and its assets are sold to Rick from Porn Stars. By the way, it will prove that no generative AI company to this date has actually been successful. In reality, I expect a Chumley esque deal that helps CEO Michael Truro buy a Porsche while his staff makes nothing. Is cursor worth $10 billion or more? No. No matter how good its product may or may not be, it is not good enough to be sold at a price that doesn't require Cursor to incinerate hundreds of millions of dollars with no end in sight. And this ultimately gives us a real conundrum. Why aren't generative AI startups selling? I'll tell you what though. Other people are selling stuff and it's time for you to buy it. Listen to these ads and let me know what you think at my email address, which is Robervans say you've always wanted to get that new 85 inch 8K TV. Here's the thing. If you invest well, you could get things like that. With Empower, you can get your money working for you so you can go out and live a little. Isn't that why we work so hard to splurge on certain moments? Getting that new laptop with more speed and storage than you ever imagined, or spontaneously splurging on a bigger TV because the 65 inch one just isn't quite big enough? With Empower, you can get the help you need with your money and investments to feel confident about not only taking care of yourself, but treating yourself too. Empower can help simplify your money decisions through education, financial tools and guidance that help make saving and investing just a little easier. 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[John Lithgow (Narrator for One Small Step podcast)]

Hello, I'm John Lithgow.

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We choose to go to the moon.

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I want to tell you about my new fiction podcast.

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It's one One Small Step for Man.

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It's about Buzz Aldrin, one of the true pioneers of space.

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You're a great pilot, Buzz. As far as I'm concerned, the best I've seen.

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That's the story you think you know. This is the story you don't predisposition.

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To depression, alcohol abuse and suicide.

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We'll see Buzz try to overcome demons.

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What do you say, Buzz? Another beer.

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And triumph over addiction.

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Good luck to you and become a true hero.

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Buzz and I will proceed into the.

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Lunar module, not because he conquers space, but because he conquers himself. Buzz. We intercepted a Soviet radio transmission starring me, John Lithgow.

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Can you put it through?

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Columbia.

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Your entire identity has been fabricated. Your beloved brother goes missing without a trace. You discover the depths of your mother's illness, the way it has echoed and reverberated throughout your life, impacting your very legacy. Hi, I'm Dani Shapiro, and these are just a few of the profound and powerful stories I'll be mining on our 12th season of Family Secrets. With over 37 million downloads, we continue to be moved and inspired by our guests and their courageously told stories. I can't wait to share 10 powerful new episodes with you. Stories of tangled up identities, concealed truths, and the way in which family secrets almost always need to be told. I hope you'll join me and my extraordinary guests for this new season of Family Secrets. Listen to Family Secrets, Season 12 on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

[Ed Zitron (Host of Better Offline)]

And we're back. So, really, though, why are there so few generative AI acquisitions? I know you're probably gonna assume that there have been a ton of them, right? If you've not been obsessively reading every single story about that for over a year, you might have missed it. But before we go any further, there have been some, but they've been sparse and they often have a weird structure that's typically the exception, not the rule in tech. So here's a real one. AMD bought Siloai, the largest private AI lab in Europe, in August 2024 for $665 million, which appears to be the only real acquisition in generative AI history and appears to be partially based on Silo's use of AMD's GPUs Elsewhere, Nvidia bought Octo AI for an estimated $250 million in September 2024 after buying brev.dev in July 2024 for an undisclosed sum and then Gretel in March 2025. Gretel brev.dev octoai Jesus fucking Christ. These names Be normal. Be normal for one minute. Yeah, in all three cases these products are used to deploy generative AI and not products built on top of generative AI or AI models. Canva bought generative AI content and research company Leonardo AI in July 2024 for undisclosed sum. But that's small fry really. The only significant one I've seen was on July 29, 2025 publicly trained did customer service platform nice buying AI powered customer service company Cognige in a $955 million deal I hate these names so much. According to CX Today, Cognige expects about 8. $85 million in revenue this year, though nobody appears to be talking about how much it costs to make that revenue. However, according to some sources, they charged tens of thousands or hundreds of thousands of dollars per contract for their AI voice agents that can understand and respond to user input in a natural way. Great. Great. We've got one real deal company built on models acquisition, and it's a company that most people haven't heard of making around $7 million a month. But let's take a look at the others. So you probably remember Inflection AI to Microsoft, which was not an acquisition but a 650 million do licensing deal that, according to Fast Company, may be more like a billion dollars when you include things like how much it paid to inflection CEO and former DeepMind co founder Mustafa Suleiman, who is most famous for just being an abusive and horrible guy to work with here. He's pushing a horrifying 996 culture at Microsoft too. To do what, Mustafa? You fucking prick. Anyway, according to Fast Company, the deal involves a license to sell Inflection's model as a waiver against any employment claims against Inflection or Microsoft paying off investors in some sort of unnamed compensation for employees. Sounds stinky to me, but let's look at Windsurf to Google and of course Cognition, which was also not an acquisition. Windsurf's C Suite went to Google for $2.4 billion, which paid them off along with their investors and then the rest of the staff and the product got acquired by Cognition for $250 million. According to TechCrunch, investors made $1.2 billion on the deal, with Windsurf co founders Varanmark Mahan and Douglas chen making another $1.2 billion and its staff getting to start a new job at a different company building something else with, according to TechCrunch, a large portion of Windsurf's approximately 250 employees not benefiting from the deal. As an aside, Mahan and Chen fucking suck. I fucking hate these guys. Absolute loser psychopaths. You make $1.2 billion and you couldn't break off a little bit from that? You fucking. Ugh. Disgusting. You can't crack that 200 billion. The point two. You couldn't take $200 million. Share it with the class, you fucking losers. Assholes. Pieces of shit. Come on the show if you want to hear more words like that. You Anyway, let's talk about IO products going to OpenAI in an all stock acquisition. This deal is a fast and it's unclear if OpenAI actually bought anything. $6.4 billion in stock for what? Jony I've's weird face staring at you lovingly as he says things like I think we should make it look like a circle while making a $5 million a salary. Get out of here. It's not real money. And then of course there's character AI to Google. This was also not an acquisition. Google, to quote the Wall street journal, paid $2.7 billion to bring back an AI genius who quit in frustration. I would not use the term genius. Well, I don't like that term. Just to be clear. Shazir was one of the authors of the original attention is all you need paper that began the transformer based large language model era. Nevertheless, much like inflection, Google paid a licensing fee to character AI for its models and hired according to to the information, its co founders and many of its engineers creating a fund that would pay out vesting shares as in the shares you're given when you join a company that you accrue over time as you work there until July 2026. Anything after that, you're fucked. And now outside of one very industry specific acquisition, there just doesn't seem to be an investor with the hunger to buy a company like Cursor valued at $9.9 billion or more if they raise another round. And you have to ask why? If AI is as promised, the thing that will radically change our economy and these companies are building the tools that will bring about that change, why does nobody want to buy them? And in broader terms, what does it mean when these companies, those with $10 billion, or in the case of OpenAI, 300 or even 500 billion dollar valuations, what does it mean when they can't be bought and can't go public? Where do you. Where does all this go? What happens next? What's the plan here? How will venture firms that plow billions of dollars into these businesses bring a return for their LPs? That's the limited partners who invest in the venture capitalists if There are no IPOs and no real buyouts. Sure, investors got paid in these deals, but these deals were like pulling teeth. These are like, if they do enough of these, there will even in this administration, be an antitrust thing. Nevertheless, the economic implications of these questions are, quite frankly, terrifying, especially when you consider the importance that VC has historically held in building the US tech ecosystem. And they raise further questions about the impact of an AI bubble on companies that are promising and do have a viable business model and a product with natural fit, but won't be able to raise any cash because everyone's putting it into fucking AI. But Ed, great, Ed, what if Cursor turns profitable now? Great. Awesome. I would believe if it was possible, if it ever, ever happened. Which it's not. I'm not even being sarcastic or rude. It's just not happened. No company that actually stakes their entire product on Generative AI appears to be able to make a profit of any kind. Glean a company that makes at best $8.3 million a month, said that it had $550 million in cash in December of last year, then raised $150 million in June of this year. Where'd the money go? Why does a Generative Search product with revenues that are less than a third of the Cincinnati Reds baseball team need a half billion dollars to make $8.3 million a month even? I'm not even saying these companies are unnecessary so much as they may very well be impossible to run as real businesses. This isn't even a qualitative judgment of any one generative AI company. I'm just saying if any of these were good businesses, they would be either profitable or be acquired in actual deals, and they would also be good businesses by now. It is not early. That argument is stupid. The amount of cash that these businesses are burning does not suggest that they're rapidly approaching any kind of sane burn rate or we would have heard. Putting aside any kind of skepticism I have, anything you may hold against me for what I say or the way I say it I ask you this, where are the profitable companies? Why isn't there one outside of the companies creating training data or Nvidia? We're three years in and we haven't had one one one of them. One one. We've also had no real exits and no IPOs. There's been no cause for celebration, no validation of a business model through another company deciding it was necessary to continue its dominance by raising funds on the public market or allowing actual investors, flawed though they may be, to act as a determiner of their value. I also will say that that very few if not all of these companies, they would all just turn into a pillar of salt if you made them fill out an S1, which is the document to go public. It's also unclear what the addition of Windsurf's intellectual property actually adds to cognition, much like it's a little unclear what differentiates cognition's so called AI powered software engineer Devin from anything else on the market. I hear Goldman Sachs is paying for it and said the stupidest shit I've ever heard to cnbc. That nevertheless shows how little it's actually paying for. This is an actual quote from an actual human being. We're going to start augmenting our workforce with Devin, which is going to be like our new employee who's going to start doing stuff on behalf of our developers, argenti told cnbc. Initially we will have hundreds of dev ins and that might go into the thousands depending on the use cases. Hundreds of Devins could mean hundreds of seats at a very optimistic 500 users at the highest end possible, $500 a month, and more than likely it's $20 a month, if not less. Let's assume that it does discount an enterprise scale too, because that always happens. That's about $250,000 a month. Wow. Wow. $3 million a year in revenue on a trial basis. Amazing. To be clear, it's probably far fewer seats and far fewer dollars a month. I'm nothing if not generous with my adversaries. In fact, I can't find a shred of evidence that cognition actually makes money despite currently raising $300 million at a $10 billion valuation. I can find no information about their revenues beyond one comment from the Information from July 2024 when Cognition raised at a $2 billion valuation. Cognition's fundraisers the latest example of AI startups raising capital at sky high valuations despite having little or no revenue. Cool. In a further move, per the information, that is both a pale horse and a deeply scummy thing to do. Cognition has now laid off 30 people from the the Windsurf team and is now offering the remaining 200 buyouts equal to nine months of salary and I assume the end of any chance to accrue further stock in Cognition. CEO Scott Wu said the following in an email, telling Windsurf employees about the layoffs and buyouts we don't believe in work life balance. Building the future of software engineering is a mission we all care so deeply about that we couldn't possibly separate the two. We know that not everyone who joined Windsurf has signed up to join Cognition, where we spent six days at the office and clocked 80% us our weeks. Fuck you man. Fuck you. I'm sorry, you shouldn't be proud of them. And all that piss, vinegar and burning of the midnight oil does not appear to have created a product that actually matters. I realize that's a little cold, but if you're braying and smacking your chest about your hard charging six days a week office culture, you should be able to do better than we have one publicly known customer and nobody knows our revenue. Maybe it's a little simpler. Cognition maybe paid $250 million to acquire windsurf so that you could, after the transaction, say that they had $82 million in annualized revenue. If that's the case, this is one of the dodgiest weirdest acquisitions I've seen in my life. Two founders getting what, like a few hundred million dollars between them and their investors, and a few of their colleagues moving with them to Google, leaving the rest of the staff effectively jobless or in hell with little payoff for their time working at Windsurf. I can only imagine how it must have felt to go from being supposedly acquired by OpenAI to this farcical rich get richer bullshit. It also suggests that the actual underlying value of Windsurf's IP was around $250 million. So I ask, why exactly is Cognition worth $10 billion? And why did it have to raise $300 million after raising hundreds of millions of dollars, according to Bloomberg in March? Where is the money going? It also doesn't seem to have revenue in general, and Carl Brown of the Internet Bugs revealed that Cognition faked the demo of Devin, the AI powered software engineer, last year. Devin doesn't even rank on SWE benchmark, the industry standard for model efficacy at coding tasks. Nevertheless, what I hear is based entirely on one coding language. We'll get to that another time. At best, Cognition has now acquired their own unprofitable coding environment And a smidgen of revenue associated with them. How would Cognition go public? What is the actual exit path for Cognition or any other generative AI startup? Because really, it comes down to three things. Get acquired, go public or die. And that right there is Silicon Valley's own crisis, their own housing crisis. Except instead of condo houses they can't afford with subprime adjustable rate mortgages, venture capitalists have invested in unprofitable low revenue startups with valuations that they can never sell at. And like homeowners in the dismal years of 2008 and 2009, they're almost certainly underwater. They just haven't realized it yet. Where customers were unable to refinance their mortgages to bring their monthly payments down, generative AI startups face pressure to continually raise at higher and higher valuations to keep up with their costs, with each one making it less likely that their company will sell to someone else, by which I mean survive. The other difference is that in the case of the housing crisis, those who were able to hold onto their properties eventually saw their equity recover to pre crash levels. In part because housing is essential and because its price is influenced just as much by supply and demand as it is the ability for people to finance the purchase of properties. And when the population increases, so too does the demand for housing. A house is a useful thing that you could live in with walls and stuff. None of that is true with AI. There is a finite amount of investors, a finite number of companies, and a finite amount of capital. And those companies are only as valuable as the expectations their investors have for them. And that as the broader sentiment towards AI goes as well. Also, I should add, there is only. There don't appear to be that many business models or different ones. There's so many different AI coding environments, including ones made by these companies. Amazon has their own one now. OpenAI has codex. I mean, at some point can all of these things last? And who is going to buy Cognition? Because the only other opportunity for the investors who put money into this company to make money here, let alone recoup their initial investment, is for them to go public. Do you think Cognition will go public? How about cursor? It's worth $9.9 billion. There was a rumor that was also raising at 18 billion to $20 billion back in June. Do you think that Cursor goes public or gets sold? I mean, maybe, maybe one of these sells. Do you see? Perplexity, Fucking perplexity. At a valuation of 18 plus billion dollars, selling to another company or Going public. The alternative, as discussed, is the Perplexity. A company with 15 million users and around 550 million annualized revenue is still making less than half of the revenue, by the way, of the Cincinnati Reds baseball team. They're going to go public. They're going to go public. Just to be clear, The Reds make $325 million in a year. They're profitable, real money. How is Perplexity, which is an inferior business to the Reds, how are they meant to do that? They've at this point raised over a billion dollars and they lost $68 million in 2024 on $34 million of revenue. By comparison, by the way, the Reds are a great business with a net income of $29 million, all to provide a service that upsets and humiliates millions of people from Ohio every year for the pleasure of America. That's a great business. We should respect the Reds. The Reds should be interviewed by Bloomberg. We should have Ellie De La Cruz talking every time we hear from Sam Altman. Just put Ellie in there. He'd be way more interesting and also works harder and provides greater value as a business leader. Anyway, putting aside the Reds, what exactly is it that Perplexity could offer to the public markets as a stock or to an acquirer? Apple considered acquiring them back in June, but Apple tends to acquire companies it wants to integrate into their core business, as was the case with Siri, which makes me think that Perplexity leaked that information about a deal that was never really serious. Hell, Meta also talked about acquiring them too. And again, I would assume that Perplexity leaked that. Isn't it weird, by the way, that two different companies talked about buying Perplexity, but neither of them did so. CEO Aravind Srivonas said in July that he wanted to remain independent, which is a weird thing to say after talking to two giant multitrillion dollar market cap tech firms about selling them to them. Like you seem to not want to stay independent. Why would you have the conversation if you're just getting intel bullshit. It's almost as if nobody wants to buy Perplexity or that really they want to buy any of these sham companies, which I know sounds mean, but if you're worth tens of billions or a billion dollars or anything over like $500 million, and you can't make more than a bottom tier baseball team in fucking Ohio, you're neither innovative nor deserving of said valuation. But really, my pissiness and baseball comparisons aside, what exactly is the plan for these goddamn companies? They don't make enough money to survive without a continuous flow of venture capital. And they don't seem to make impressive sums of money, even when allowed to burn as much as they'd like. These companies are not being forced to live frugally, or at least have yet to be made to. Perhaps because they have all actively engaged at spending as much money as possible in pursuit of finding an idea that makes more more money than it loses. This is not a rational nor reasonable way to proceed. Yes, there are startups that can justify burning capital. Yes, there are companies that have burned hundreds of millions of dollars to find their business models, or billions in the case of Uber. But none of these companies are like those companies in the generative AI space. Generative AI businesses don't have the same economics, nor do they have the same total addressable markets. Now, if you're going to say Amazon Web Services, there's a three part episode, the Haters Guide to the AI Bubble, that explains that in detail. I do voices. I have sources. You need to go and listen to that. I'm fucking tired of hearing people about this one. What about Uber? Oh, what about aws? You ain't got shit. That's all you've got. You certainly don't have a company to point to. These startups are their VC firm, subprime mortgages, overstuffed valuations with no exit route and no clear example of how to sell them or who to sell them to. The closest they've got is using generative AI startups as beauty pageants for guys wearing Patagonia, finding ways to pretend that the guy who runs an AI startup, sorry, AI lab, is some sort of mysterious genius versus just another founder and just another bubble with just another overstuffed valuation. The literal only liquidity mechanism outside of Cognique that generative AI has had so far is selling AI talent to big tech at a premium. Nobody has gone or is going public, and if they're not going public, the only route for these companies is to either become profitable, profitable, which they haven't, or sell to somebody, which they're not. But I'd be dancing around the real reason they won't sell. Because fundamentally generative AI does not let companies build something new. Anyone that builds a generative AI product is ultimately just prompting the model, albeit in increasingly more complex ways, at the scale of something like Claude Code or though anthropic, has the advantage of being one of the main veins of their infrastructure. Or of course cursor. This means that a generative AI company owns very few unique things beyond their talent and will forever be at the mercy of any and all decisions that their model provider makes, such as increasing prices or creating competing products. I know it sounds ludicrous, but this is the reality of these companies. While there are some companies that have some unique training and models and such, none of them seem to be building interesting or unique products as a result. If your argument is that these things take some time, how long? No, really, so many of you have said this is what happens. They burn a lot of money, they grow and then. And then what? You stop? Sure, because the next thing you say is turn profitable by getting enterprise customers. Nobody can do the first part and few can do the second part in anything approaching a consistent fashion. But really, how long should we give them? Three years? Perplexity said three years and a billion dollars. It doesn't seem to be close to profitable. How long does Perplexity deserve exactly? Four years? Five years? An eternity? Every single example of a company that's burned a lot of money and then not done so in the end is been a company with a physical thing or connections to the real world. With the exception of Facebook, which has never had the kind of cash burning monstrosity that generative AI is or Meta has now created for no reason, there has never been a software company that has just chewed through hundreds of millions or billions of dollars and then suddenly become profitable magically. Mostly because the magical valuations of software have been in their ability to transcend infrastructure. Once unit economics in the sales of software like Microsoft Office or providing access to Instagram do not require the most powerful graphics processing units run full tilt at all times. And those are products that people like and want to use every day, even though both of them seem to be getting worse every minute. I get people saying that these companies are in the growth stage, but when all of them are unprofitable, and even the unprofitable ones outside of OpenAI and Anthropic aren't really making much money. Come on, this isn't anything like any boom that leads to something good or useful or profitable. And it's because the economics do not make sense. And that's before we get into OpenAI and anthropic in the next episode. Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Matt Osawski. You can check out more of his music and audio [e-mail] m a t t o s o w s k-I.com you can email me at ezeteroffline.com or visit betteroffline.com to find more podcast links and of course my newsletter. I also really recommend you go to chat. Where's your ED 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 podcasts. Say you've always wanted to get those new audiophile grade speakers. Here's the thing, if you invest well, you could get things like that. With Empower, you can get money working for you so you can go out and live a little. Isn't that why we work so hard to splurge sometimes, like on a massive high res TV because the 65 inch one just isn't quite big enough? So use Empower to help get good at money so you can be a little bad. 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Hey guys, it's Janae AKA Cheekies from Cheekies and Chill Podcast and I'm bringing you an all new mini podcast series called Sincerely Janae. Sure, I'm a singer, author, businesswoman and podcaster, but at the end of the day I am human and that's why I'm sharing my ups and downs with you in real time and on the go. Listen to Cheekies and chill on the iHeartRadio app, Apple, Apple Podcasts or wherever you get your podcasts.

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It's Black Business Month and Black Tech green money is tapping in. I'm Will Lucas spotlighting black founders, investors and innovators building the future one idea at a time. Let's talk legacy tech and generational wealth.

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I had the skill and I had the talent. I didn't have the opportunity. Yeah, we all know, right? Genius is evenly distributed. Opportunity is not to hear this and.

[Will Lucas (Host of Black Tech Green Money)]

More on the power of Black innovation and ownership, listen to Black Tech Green money from the Black Effect Podcast Network on the iHeartRadio app, Apple Podcasts or wherever you get your podcasts in sitcoms.

[Ed Zitron (Host of Better Offline)]

When someone has a problem, they just blurt it out and move on. Well, I lost my job and my parakeet is missing. How was your day? But the real world is different. Managing life's challenges can be over. So what do we do? We get support. The Huntsman Mental Health Institute and the Ad Council have mental health resources available for you at loveyourmindtoday.org that's loveyourmindtoday.org See how much further you can go when you take care of your mental health.

[Janae (Cheekies from Cheekies and Chill Podcast)]

This is an I Heart podcast.