Zone Media. Finally someone let me out of my cage. Welcome to this week's Better Offline Monologue, and I'm your host ed ze Tron. We're approaching high noon for generative AI and it's the true test of whether this industry has that dog in it, and I believe it does. But the dog in question is sick, covered in fleas, and the swallowed a live grenade. Let me set the scene. A few weeks ago, I reported that Microsoft had pulled at least a gigawatt of planned compute capacity, according to a report by analyst TD Cohen, equivalent to the entire capacity of London or Tokyo. To be clear, the actual figure was much much more than a gigawa but that figure was the only one we had solid confirmation for despite the press sitting on their hands not really covering this number, they should have. A follow up report published on March twenty sixth shed more light on the situation and revealed that Microsoft has actually pulled over two gigawatts of capacity across the US and Europe. That's the equivalent capacity of London and Tokyo combined. Were still t Cohenawson said, and I quote the pullback on new capacity leasing by Microsoft was largely driven by the decision not to support incremental open ai training workloads. In other words, this is as I have predicted, Microsoft not only pulling back from generative AI, but walking away from supporting open AI's future expansion efforts. These efforts, i add, were a major driver behind Microsoft's massive multi billion dollar CAPEX spend, which was forecast to surpass fifty billion dollars to eighty billion dollars this year alone. For open ai to continue training their future large language models, they'll have to rely on a combination of whatever support Microsoft is still willing to provide, their relationships with Oracle and other cloud providers, and of course the Stargate Data Center project, which is contingent on money coming through from SoftBank, who need to fund open AI's forty billion dollar funding round, and their own eighteen billion dollar contribution to Stargay and Gorway. If the subject of my love this monologue, I mean open aiy is dependent on them. As a reminder, core Weave is a company that sells access to compute for training and running generative AI models, and they're going public on March twenty eighth, which is the data this monologue runs annoyingly. I can't speak to how the stock will do. I'm not a stock analyst. I will, however, say that Corewave is a company burdened by multiple times its revenue and debt. And they're a company that lost eight hundred and sixty three million dollars in twenty twenty four, and according to the Financial Times, they're also facing nearly seven point five billion dollars in debt repayments by the end of twenty twenty six. And they also don't appear to have any path to profitability. And this IPO, it's it's not looking so good. As of the morning of March twenty seventh, twenty twenty five, which is when I wrote the script, corwe've planned to cut the size of their initial public offering to around one point five billion dollars according to Bloomberg, which is down from the two point seven billion dollars or so they plan to raise.

Zone Media. Finally someone let me out of my cage. Welcome to this week's Better Offline Monologue, and I'm your host ed ze Tron. We're approaching high noon for generative AI and it's the true test of whether this industry has that dog in it, and I believe it does. But the dog in question is sick, covered in fleas, and the swallowed a live grenade. Let me set the scene. A few weeks ago, I reported that Microsoft had pulled at least a gigawatt of planned compute capacity, according to a report by analyst TD Cohen, equivalent to the entire capacity of London or Tokyo. To be clear, the actual figure was much much more than a gigawa but that figure was the only one we had solid confirmation for despite the press sitting on their hands not really covering this number, they should have. A follow up report published on March twenty sixth shed more light on the situation and revealed that Microsoft has actually pulled over two gigawatts of capacity across the US and Europe. That's the equivalent capacity of London and Tokyo combined. Were still t Cohenawson said, and I quote the pullback on new capacity leasing by Microsoft was largely driven by the decision not to support incremental open ai training workloads. In other words, this is as I have predicted, Microsoft not only pulling back from generative AI, but walking away from supporting open AI's future expansion efforts. These efforts, i add, were a major driver behind Microsoft's massive multi billion dollar CAPEX spend, which was forecast to surpass fifty billion dollars to eighty billion dollars this year alone. For open ai to continue training their future large language models, they'll have to rely on a combination of whatever support Microsoft is still willing to provide, their relationships with Oracle and other cloud providers, and of course the Stargate Data Center project, which is contingent on money coming through from SoftBank, who need to fund open AI's forty billion dollar funding round, and their own eighteen billion dollar contribution to Stargay and Gorway. If the subject of my love this monologue, I mean open aiy is dependent on them. As a reminder, core Weave is a company that sells access to compute for training and running generative AI models, and they're going public on March twenty eighth, which is the data this monologue runs annoyingly. I can't speak to how the stock will do. I'm not a stock analyst. I will, however, say that Corewave is a company burdened by multiple times its revenue and debt. And they're a company that lost eight hundred and sixty three million dollars in twenty twenty four, and according to the Financial Times, they're also facing nearly seven point five billion dollars in debt repayments by the end of twenty twenty six. And they also don't appear to have any path to profitability. And this IPO, it's it's not looking so good. As of the morning of March twenty seventh, twenty twenty five, which is when I wrote the script, corwe've planned to cut the size of their initial public offering to around one point five billion dollars according to Bloomberg, which is down from the two point seven billion dollars or so they plan to raise.

When a company goes public.

When a company goes public.

They usually are selling a bunch of stock to get money into the company. Sometimes they do it just because they want to make more money. Sometimes they want to be a public company and take the fame of that, or in this case, I believe because they're desperate and they need whatever they can get. Now, this is problematic for a number of reasons, chief being that the information reports the Corweave's cash burn will be fifteen billion dollars in twenty twenty five, which is up from six billion dollars in twenty twenty four. None of these fucking companies make any They just burn money. It's insane. Now, Corwave has just over six billion dollars in available liquidity between loans and the one point three billion dollars or so in cash they have lying around, while they could borrow more. Their largest seven point six billion dollar loan includes a covenant that states that if the company takes on more debt, it can only be used to pay that loan back, which means that in order to meet Corwev's future capex spending goals, they need to raise vastly more than fifteen billion dollars, either through new debt or through selling new equity to new investors, or as they're doing Viru's IPO. One point five billion dollars is a drop in the bucket.

They usually are selling a bunch of stock to get money into the company. Sometimes they do it just because they want to make more money. Sometimes they want to be a public company and take the fame of that, or in this case, I believe because they're desperate and they need whatever they can get. Now, this is problematic for a number of reasons, chief being that the information reports the Corweave's cash burn will be fifteen billion dollars in twenty twenty five, which is up from six billion dollars in twenty twenty four. None of these fucking companies make any They just burn money. It's insane. Now, Corwave has just over six billion dollars in available liquidity between loans and the one point three billion dollars or so in cash they have lying around, while they could borrow more. Their largest seven point six billion dollar loan includes a covenant that states that if the company takes on more debt, it can only be used to pay that loan back, which means that in order to meet Corwev's future capex spending goals, they need to raise vastly more than fifteen billion dollars, either through new debt or through selling new equity to new investors, or as they're doing Viru's IPO. One point five billion dollars is a drop in the bucket.

Not for me.

Not for me.

If you have one point five billion dollars and want to give it to me, please email me at easy at better offline dot com. I would love that money. Please give me ten dollars. I don't fucking anyway. I'll put this really simply, a good stable company going public does not reduce the size of their initial public offering, nor do they have multiple stories from the Financial Times comparing to Enron or we Work.

If you have one point five billion dollars and want to give it to me, please email me at easy at better offline dot com. I would love that money. Please give me ten dollars. I don't fucking anyway. I'll put this really simply, a good stable company going public does not reduce the size of their initial public offering, nor do they have multiple stories from the Financial Times comparing to Enron or we Work.

Remember, an IPO is.

Remember, an IPO is.

An opportunity to buy equity in a company before it hits the public market. The price will, at least in theory, continue to rise. It's the next best thing to being an investor in the company. Facebook and IPO price of thirty eight dollars and now at the time of writing, there are over six hundred bucks. Pretty good, right, not for core with Furthermore, if generative AI was this massive growth industry that would usher in a golden age of tech valuations, the company selling the literal fuel access to the data centers to run generalyvai models would not be the financial equivalent of an hr Geiger painting. It wouldn't be buried in debt with obscene interest rates and restrictive comminance. It won't be burning many times more than its revenue, nor would it be beholden to a very small number of companies for the majority of their revenue who can and do walk away at any time, as Microsoft has Corweave is not a healthy company. But wait, wait, wait ah, I'm not a smart guy, all right, I mean, let me just let me just tell you a story though, because I learned about this thing. Do you ever hear of a hedge fund called Magnetar Capital, I'll tell you about them. In two thousand and six, Magnetar Capital got involved in something called a collateralized debt obligation, which is a way of packaging up a bunch of debts that you could sell it like a financial asset, or even gamble on whether it would succeed. A hedge fund wouldn't buy a single mortgage, for example, but they may buy something with hundreds or thousands of mortgages, maybe subprime ones, I don't know. And it turns out that these things were real bad because it made it hard to see the actual risk of the loans that made up the bonds, and because they were easy to sell. They encourage mortgage companies to give mortgages to people who couldn't pay them because they knew they could sell them onto investors and wouldn't have to carry on the risk themselves. This in turn created something called a let me just look at a great financial crisis, which apparently was.

An opportunity to buy equity in a company before it hits the public market. The price will, at least in theory, continue to rise. It's the next best thing to being an investor in the company. Facebook and IPO price of thirty eight dollars and now at the time of writing, there are over six hundred bucks. Pretty good, right, not for core with Furthermore, if generative AI was this massive growth industry that would usher in a golden age of tech valuations, the company selling the literal fuel access to the data centers to run generalyvai models would not be the financial equivalent of an hr Geiger painting. It wouldn't be buried in debt with obscene interest rates and restrictive comminance. It won't be burning many times more than its revenue, nor would it be beholden to a very small number of companies for the majority of their revenue who can and do walk away at any time, as Microsoft has Corweave is not a healthy company. But wait, wait, wait ah, I'm not a smart guy, all right, I mean, let me just let me just tell you a story though, because I learned about this thing. Do you ever hear of a hedge fund called Magnetar Capital, I'll tell you about them. In two thousand and six, Magnetar Capital got involved in something called a collateralized debt obligation, which is a way of packaging up a bunch of debts that you could sell it like a financial asset, or even gamble on whether it would succeed. A hedge fund wouldn't buy a single mortgage, for example, but they may buy something with hundreds or thousands of mortgages, maybe subprime ones, I don't know. And it turns out that these things were real bad because it made it hard to see the actual risk of the loans that made up the bonds, and because they were easy to sell. They encourage mortgage companies to give mortgages to people who couldn't pay them because they knew they could sell them onto investors and wouldn't have to carry on the risk themselves. This in turn created something called a let me just look at a great financial crisis, which apparently was.

Bad for the economy.

Bad for the economy.

Hey, what happened to magnetagh Wait what they're one of the two companies providing loans to core Weave.

Hey, what happened to magnetagh Wait what they're one of the two companies providing loans to core Weave.

What the fuck? And they're the largest institutional investor.

What the fuck? And they're the largest institutional investor.

That doesn't sound that doesn't sound good at what?

That doesn't sound that doesn't sound good at what?

What? Just this fucking industry?

What? Just this fucking industry?

Every time I think this industry can't getting fucking stupid?

Every time I think this industry can't getting fucking stupid?

Pardon me, pardon me.

Pardon me, pardon me.

Well, at least they're not involved in any other major deal in general of AI. Right right, wrong, wrong, so fucking wrong. Over in Silicon Valley, Open ai is for the third time close to finalizing a forty billion dollar funding round led by soft Bank, And wouldn't you know it, MAGNETARH Capital is in there too, according to Bloomberg, for as much as one billion dollar, valuing the company at an astonishing three hundred billion dollars. And I recently got told about a term suicide round, and that term refers to a time when a company gets such a high valuation that any future investment is effectively impossible, because when you're investing out a company three hundred billion dollars. You need to see liquidity at some point. You need to see a chance to sell it. And guess what, who's going to buy this dog shit merchant company that burns billions that the open a eye as a complete dog.

Well, at least they're not involved in any other major deal in general of AI. Right right, wrong, wrong, so fucking wrong. Over in Silicon Valley, Open ai is for the third time close to finalizing a forty billion dollar funding round led by soft Bank, And wouldn't you know it, MAGNETARH Capital is in there too, according to Bloomberg, for as much as one billion dollar, valuing the company at an astonishing three hundred billion dollars. And I recently got told about a term suicide round, and that term refers to a time when a company gets such a high valuation that any future investment is effectively impossible, because when you're investing out a company three hundred billion dollars. You need to see liquidity at some point. You need to see a chance to sell it. And guess what, who's going to buy this dog shit merchant company that burns billions that the open a eye as a complete dog.

Yeah? What's weird about this deal?

Yeah? What's weird about this deal?

I mean, other than the fact did so isn't actually finalized and it's taken months and involves man capital and it involves seemingly every side of the deal taking on debt, is that it also isn't exactly forty billion dollars yet. Bloomberg reports that SoftBank will actually invest seven point five billion dollars into open Ai and provide another two point five billion dollars from a syndicative investors, which is just it sounds far fancy than this. It's just a group of investors who invest together. The remainder twenty two point five billion dollars soft Bank and the seven point five billion dollars from a syndicate will come up some sort of indeterminate time later this year, which is weird, Right, It's okay, it's not that weird. What the funding rounds, especially big ones, they're meet it out in tranches based on performance. I've talked to a few vcs before I did this, and they say that's that's normal. But it is extremely weird that this is considered a forty billion dollar round despite the fact that only ten billion dollars appears to exist at this time. And I'm not being facetious or joking here. SoftBank literally does not have the money.

I mean, other than the fact did so isn't actually finalized and it's taken months and involves man capital and it involves seemingly every side of the deal taking on debt, is that it also isn't exactly forty billion dollars yet. Bloomberg reports that SoftBank will actually invest seven point five billion dollars into open Ai and provide another two point five billion dollars from a syndicative investors, which is just it sounds far fancy than this. It's just a group of investors who invest together. The remainder twenty two point five billion dollars soft Bank and the seven point five billion dollars from a syndicate will come up some sort of indeterminate time later this year, which is weird, Right, It's okay, it's not that weird. What the funding rounds, especially big ones, they're meet it out in tranches based on performance. I've talked to a few vcs before I did this, and they say that's that's normal. But it is extremely weird that this is considered a forty billion dollar round despite the fact that only ten billion dollars appears to exist at this time. And I'm not being facetious or joking here. SoftBank literally does not have the money.

To give open ai right now.

To give open ai right now.

They have like thirty billion dollars in hash, which is why they're not sending that much, and they're having to take on loans as well. I'll get to that in a minute. But nevertheless, it's also not obvious how any of this works long term, because the entirety of the generative AI boom appears to rest on open AI's ability to continue raising capital. Let me explain. Microsoft neglected to exercise twelve billion dollars of future capacity with core Weave, which was quickly picked up by open Ai. According to se around the same time, the company canceled plans for future data center expansion referring to Microsoft here that would have undoubtedly cost tens of billions of dollars. This heavily suggests that Microsoft is pulling back from Generative Ai writ large and that a large degree of their spend with Coreweed was to support open ai services, which open aim well now for the bill.

They have like thirty billion dollars in hash, which is why they're not sending that much, and they're having to take on loans as well. I'll get to that in a minute. But nevertheless, it's also not obvious how any of this works long term, because the entirety of the generative AI boom appears to rest on open AI's ability to continue raising capital. Let me explain. Microsoft neglected to exercise twelve billion dollars of future capacity with core Weave, which was quickly picked up by open Ai. According to se around the same time, the company canceled plans for future data center expansion referring to Microsoft here that would have undoubtedly cost tens of billions of dollars. This heavily suggests that Microsoft is pulling back from Generative Ai writ large and that a large degree of their spend with Coreweed was to support open ai services, which open aim well now for the bill.

For for open.

For for open.

Ai to pay that bill, they'll need SoftBank to give them the forty billion dollars of fundank, which SoftBank is on the hook for at least thirty billion dollars of according to the information, which includes open AI's eighteen billion dollar contribution to the Stargate Data Center project, to which soft Bank also owes eighteen billion dollars for SoftBank to give them this money. The information also reports that SoftBank will borrow sixteen billion dollars in twenty twenty five and eight billion dollars in twenty twenty six, which still does not add up to the forty six billion dollars or so they promised open Ai and I haven't even mentioned the fact that SoftBank has also committed three billion dollars a year in revenue to the Bullsheit agent product. Without that money or further funding, open Ai will not be able to pay core Wave. So now everything rests on soft Bank, a company with a checkered reputation, to put it mildly, and if they buckle, everything else fails, core Wave, open Ai, all of it. I don't know how any of this ends, but I'll tell you this, absolutely nothing I'm reading suggests that there is any long term viability in generative AI. Open Ai loses billions of dollars a year and will have to pay core Wave, which also loses billions of dollars a year and has obligations that are many times in excess of its actual assets or revenue, or at least what it will make from the public market. To be, that's not gonna help that much. If any of this made sense, Corewave would be the biggest IPO of the last decade. And while I doubt that would be the case, I promise to you that, regardless of what happens, you're about to witness something historic. And I want to say something. Some of you have given me feedback said, like, this stuff's really like it's a little much like there's a lot of numbers. It's not, it's just very it's very ominous. When you see all these numbers. I didn't get in. I'm not a financial journalist, or I guess I am now, and I'm pretending to be one, and it all seems like a lot, but it really does come down to addition of subtractions sometimes with the occasional multiplication. I failed a lot of mathematics in my time, and British libel also stopped me really elaborating further at school. But the point is I was never trained to do any of this stuff. This stuff seems very monolithic, but it really is much simpler. And the way you stop these companies being able to fuck around is learning this stuff. If you ever have any questions, go to the Better Offline Reddit. I will happily help walk you through any of this. It seems dense, but if we want to change things, it starts with stopping this feeling like magic. Stop it isn't black magic. They want you to believe that they'll work this out, because if you think about any of these numbers for even two seconds, it kind of seems fucking stupid because it is just because they say it's going to work out, it doesn't mean it well. And I think that we are potentially about to see something really shocking. I think we're about to see the greatest mask Off Dunce moment in the economy. If AI bursts, if the bubble bursts, you're going to see all these people that said AI was the future, kind of walk it back, kind of stop talking about it anytime they try.

Ai to pay that bill, they'll need SoftBank to give them the forty billion dollars of fundank, which SoftBank is on the hook for at least thirty billion dollars of according to the information, which includes open AI's eighteen billion dollar contribution to the Stargate Data Center project, to which soft Bank also owes eighteen billion dollars for SoftBank to give them this money. The information also reports that SoftBank will borrow sixteen billion dollars in twenty twenty five and eight billion dollars in twenty twenty six, which still does not add up to the forty six billion dollars or so they promised open Ai and I haven't even mentioned the fact that SoftBank has also committed three billion dollars a year in revenue to the Bullsheit agent product. Without that money or further funding, open Ai will not be able to pay core Wave. So now everything rests on soft Bank, a company with a checkered reputation, to put it mildly, and if they buckle, everything else fails, core Wave, open Ai, all of it. I don't know how any of this ends, but I'll tell you this, absolutely nothing I'm reading suggests that there is any long term viability in generative AI. Open Ai loses billions of dollars a year and will have to pay core Wave, which also loses billions of dollars a year and has obligations that are many times in excess of its actual assets or revenue, or at least what it will make from the public market. To be, that's not gonna help that much. If any of this made sense, Corewave would be the biggest IPO of the last decade. And while I doubt that would be the case, I promise to you that, regardless of what happens, you're about to witness something historic. And I want to say something. Some of you have given me feedback said, like, this stuff's really like it's a little much like there's a lot of numbers. It's not, it's just very it's very ominous. When you see all these numbers. I didn't get in. I'm not a financial journalist, or I guess I am now, and I'm pretending to be one, and it all seems like a lot, but it really does come down to addition of subtractions sometimes with the occasional multiplication. I failed a lot of mathematics in my time, and British libel also stopped me really elaborating further at school. But the point is I was never trained to do any of this stuff. This stuff seems very monolithic, but it really is much simpler. And the way you stop these companies being able to fuck around is learning this stuff. If you ever have any questions, go to the Better Offline Reddit. I will happily help walk you through any of this. It seems dense, but if we want to change things, it starts with stopping this feeling like magic. Stop it isn't black magic. They want you to believe that they'll work this out, because if you think about any of these numbers for even two seconds, it kind of seems fucking stupid because it is just because they say it's going to work out, it doesn't mean it well. And I think that we are potentially about to see something really shocking. I think we're about to see the greatest mask Off Dunce moment in the economy. If AI bursts, if the bubble bursts, you're going to see all these people that said AI was the future, kind of walk it back, kind of stop talking about it anytime they try.

Scream at them, scream at them, say what are you talking about AI?

Scream at them, scream at them, say what are you talking about AI?

Like it was the biggest thing in the world, like two minutes ago, Well are you talking about that?

Like it was the biggest thing in the world, like two minutes ago, Well are you talking about that?

Hey? Where's Ai? Didn't you say I was a I was a big deal?

Hey? Where's Ai? Didn't you say I was a I was a big deal?

Hey Bob Iger, Hey what's happening with the AI ship?

Hey Bob Iger, Hey what's happening with the AI ship?

And they're going to really try and aggressively walk this back.

And they're going to really try and aggressively walk this back.

Never ever let them forget what they've done here, Never ever forget the terrible people holding up this spurious, spacious, destructive, disgusting bubble. It's horrible. It will be horrible to watch it collapse. I feel bad for our economy, but this is tremendous content

Never ever let them forget what they've done here, Never ever forget the terrible people holding up this spurious, spacious, destructive, disgusting bubble. It's horrible. It will be horrible to watch it collapse. I feel bad for our economy, but this is tremendous content