Media greetums. I'm at xytron and this is better offline. In my last episode, I started by telling you about a report from the analyst wing of a major bank, TD Cohen that revealed how Microsoft had drastically pulled back on its plans to build new data center capacity. At a bare minimum, Microsoft had canceled the equivalent of every data center in London or Tokyo at least, that the real figure is actually probably much much higher, and as I pointed out, that this is a real pale horse, a harbinger of bad times through generative AI and open AI especially, and an indicator that the bubble is imploding or popping or I really don't want to say it's popped, and I actually don't know if it's necessary to say when it does, it's never going to be one thing. I also mentioned that some may interpret this movie as a sponds to open AI's Stargate project, which aims to build hundreds of billions of dollars of data centers and power generation facilities in the US, all to power generator FAI apps and tools that I'm not sure actually there's really the demand for. But this begs the question how feasible is the Stargate project. Let's start with a bit of background. The Stargate project was officially announced that the very beginning of the Trump presidency. Is open AI tried to court favor from the notoriously transactional and praise hungry person of the United States of America, despite that the project has been in the works for some time and open AI had previously courted the Biden administration. Sam Allman's previous pitch to that administration late last year was that it was necessary to build a five gigaw what data center. We don't know how big Stargate will be, just that it will initially involve spending one hundred billion dollars due and I quote developed data centers for artificial intelligence in the US according to the information, with the project potentially scaling to five hundred billion dollars, a truly fucking, astoundingly stupid number. Stargate's first and only data center deal currently signed is in Abilene, Texas, and it's expected to be operational in mid twenty twenty six. Though these centers usually become operational in phases, this is especially likely to be the case here considering that, according to the information. Open Ai plans to have access to a gigawat of power on hundreds of thousands of GPUs. As part of this, the Stargate project will construct a three hundred and sixty point five megawatt natural gas power station. And as I said last episode, that one's about power. This power station is, as far as I can tell, still in the permitting phase. It'll be some time before Stargate breaks ground on the facility, let alone starts to actually generate power. Now, as for funding, things have got a little weird. Both open ai and soft Bank have committed to putting in either eighteen billion or nineteen million dollars each into the project. I've seen both numbers reported, by the way. Regardless, it's not that big a difference to worry about, especially with well the fact that open ai does not really have the money either way. What's a billion dollars when you don't have anything. The company is currently trying to raise forty billion dollars at a two hundred sixty billion dollar valuation, with the quote CNBC part of the funding expected to be used for open AI's commitment to Stargate. Now, I'm old enough to remember when this round was previously rumored to be valuing open Ai at three hundred and forty billion dollars and also at three hundred billion dollars, and soft Bank appears to be taking full responsibility for raising the round, including syndicating as much as ten billion dollars of the amount, which means that it would include a group of other investors. Nevertheless, it certainly seems SoftBank will provide the majority of the capital thirty billion dollars, with CNBC reporting that it will be paid out over the next twelve to twenty four months, with the first payment coming as soon as spring. Soft Bank also has another problem, and this one's this one. I think even the least technical of you can understand. They also appear to not have the money. They don't have the money. They not the money to give open Ai, not the money for Stargate. It's a little bit of worrying math issues with this. According to the Information, SoftBank CEO Masayoshi's Sun is planning to borrow sixteen billion dollars to invest in Ai, and may borrow another eight billion dollars next year. The following points, by the way, are drawn from the Information's reporting, and I give serious props to Duro Osawa and Corey Weinberg for their hard work here. I attack the information sometimes with some of the framing, but they actually do some of the best reporting in tech journalism. Now let's do some maths. Soft Bank currently only has thirty one billion dollars in cash and its balance sheet as of December twenty twenty four. It's net debt, which despite what you think, does not measure total debt, but rather represents its cash minus any debt liabilities, sounds at twenty nine billion dollars. They plan to use the loaning question to finance part of their investment in open Ai, and there are acquisition of chip design firm Ampere. According to SoftBank's reported assets, its holdings are worth about two hundred and nineteen billion dollars, so thirty three point sixty six trillion yen for those of you who deal with yen, including stock in companies like Alibaba and ARM. On a side note, not every company in soft Bank's portfolio is an arm or an Alibaba or like a good one. There are some real stinkers too, and I'm not just talking about the Morrobon carcass of we work. I recommend you look at and I'll link to the list in the episode of notes SoftBank's recent group report, which is linked in the spreadsheet. Like I just said, which is me reading a script out a little behind the curtain for you there. In particular, got to twenty nine in the report, which lists the ten largest publicly traded companies in soft Bank's Vision Fund portfolio. Now how all of them, without exception trade at a significant fraction of their peak market cap. In simpler terms, the ten biggest companies in soft Bank's flagship tech fund are worth far far less than their all time high, and in some cases with less than one fifth of their all time high. If soft Bank liquidated its assets, and I admit this is a big ear for most likely a worst case scenario situation, how big would their losses be? Separately, SoftBank has committed to a joint venture called SBO open Ai Japan and to spend three billion dollars a year on open Ai. Is take for the various companies across its group. We'll talk about that later, but there's some napkin mass. It is what soft Banks agreed to sixteen billion dollars sorry, eighteen billion dollars or nineteen billion dollars really do not know in funding for the Stargate Data Center project, three billion dollars a year in spend on open ai software, and as much as thirty billion dollars in funding for open Ai paid over twelve to twenty four months, according to the Information, and by the way, twenty five billion has also been reported. But the Information reports that open Ai has told investors that soft Bank will provide it at least thirty billion dollars of the forty billion dollars they need. Jesus fucking Christ. Can you imagine if this went It's something useful anyway, What I'm getting at is that soft Bank has effectively agreed to bankroll the entirety of open AI's future, signing up for over forty six billion dollars of investments over the next few years, and does not appear to be able to do so without selling its current holdings in valuable companies like arm or taking at least sixteen billion dollars of debt this year, representing a fifty five percent increase of its current liabilities. Work still, thanks to disagreement, open AI's future both in its ability to expand its infrastructure, which appears to be entirely contingent on the construction of Stargate with Microsoft pulling out, and its ability to raise funding, which is also entirely dependent on soft bank and soft Bank in this case, where open ai is entirely dependent on soft Bank to live, must borrow money to give to open Ai, a company that only only loses money. On top of that, open Ai also on the money losing front, anticipates it will burn as much as forty billion dollars a year by twenty twenty eight, and projects to only turn a profit by the end of the decade after the build out of Stargate, which I add is, like I said, almost entirely dependent on soft bank, which has to take on debt to fund both open Ai and the project required to theoretically make open ai profitable. How the fuck does this work? How does this work? How does this work? How does this work? How the fuck does this work? Open Ai, a company that spent nine billion dollars to lose five billion dollars in twenty twenty four, requires so much money to be its obligations, both to cover its stupid, ruinous, unprofitable, unsustainable operations and the eighteen billion to nineteen billion dollars. A committed to keep growing that it has to raise more money than any startup ever raised in history, forty billion fucking dollars, with the cast iron guarantee that it will need even more money within a year. Every goddamn month, Sam Wilton has to go to someone and say, my huge, beautiful company is so powerful, but it's weak and sick and frail. I need more money than you have today, and I'll need more money than you'll have tomorrow. My company is so sick and weak, but it's the most powerful company of all time. Sam flipping off pisces me off. Imagine if this money went literally anywhere else, you could set it on fire at least be fucking warm. Soft Bank. On top of the thirty billion dollars of funding and three billion dollars a year of revenue it's committed to, open ai itself also has to cough up eighteen billion dollars for Stargate, the data center project that open ai will run and get this. Soft Bank will take financial responsibility for forty eight billion dollars in cash three billion dollars in revenue. You the latter of which, like all open AI's offerings, will lose the company money. Open Ai has no path to profitability guaranteeing it will need more cash and right now at the time time, and it needs it more than it's ever needed it. Soft Bank, the only company willing to provide it and possibly the only company with the money to do so, has proven that it will have to go to greet possibly ruinous lengths to do so. If open ai needs forty billion dollars in twenty twenty five, how much will it need in twenty twenty six fifty billion, one hundred billion dollars. Where is that money going to come from? While soft Bank might be able to do this once, what happens when open ai needs money in six to twelve months. Soft Bank made about fifteen billion dollars a profit in the last year on about forty six billion dollars of revenue. Three billion dollars is an absolutely obscene amount to commit to buying open ai software annually, especially when some of it is allegedly for access to open AI's barely functional operator and mediocre deep research products. As per my previous podcasts and pieces, I do not see how open ai survives, and soft Bank's involvement only gives me further concern. While soft banker theoretically burn its current holdings to fund open Ai in perpetuity, its ability to do so is cast into doubt by them having to borrow money from other banks to get into this funding ground and to get Stargate done. Open Ai burned five billion dollars in twenty twenty four, a number it will likely double in twenty twenty five. And remember the information reported that open ai was projected to spend thirteen billion dollars on compute alone with Microsoft in twenty twenty five, and has no path to profitability. SoftBank has already had to borrow to fund this round, and the fact that it had to do so suggests its inability to continue supporting open Ai without accruing further debt. Open Ai. As a result of Microsoft's cuts, the data center capacity now only has one path expansion once it runs through whatever remaining buildout Microsoft has planned. That is, and that's Stargate, a project funded by open AI's contribution, which it's receiving from SoftBank and SoftBank which is also having to take out loans to meet its share. How does this work exactly? How does this continue? Do you see anyone else stepping up to fund this. Who else has got thirty to forty billion dollars to shit out every year? While the answer is Saudi Arabia. SoftBank's CEO Massioshi Son recently said that he had had and I quote not given Saudi ruler Muhammed bin Salmon in our return, adding that he still owed him. That's really not the ideal thing you want to say after naming MBS. Nothing about this suggests that Saudi money will follow soft banks in anywhere near the volume necessary. As to the m ratis. They're already involved through the MGX fund, and it's unclear how much more they'd be willing to commit. Really, really, are really, mate, buddy fellow? How does this? How does this work? In my opinion, this open Ai soft Bank deal is wildly unsustainable, dependent on soft Bank continuing to raise both debt and funnel money directly into a company that burns it burns it by the billions every year, and it's said to only burn more thanks to the arrival of its latest bullshit model. And if it had a huge breakthrough that would change everything. Wouldn't Microsoft want to make sure they were building the data center capacity to support him? Hey, maybe they're not. Now. Perhaps this crazy level of spending would be necessary if open ai was still the leader in generator of AI and it was still meaningfully improving its capabilities year after year or two year after two years. And I think we all know that that isn't the case. A few weeks ago, open ai launched GPT four point five, it's latest model that well, this isn't brilliant, sam Alman says, and I quote, is the first model that feels like talking to a thoughtful person, which, by the way, is really funny. It's really funny to say it, to be like, yeah, I have spent billions of dollars telling you that this bullshit is like a person, but this one really is. The other one's not so much. I did not think that in the past. And it's not obvious what GPT four point five does better, or even really what it does, other than Altman saying it is a different kind of intelligence and there's a magic to it that he has not felt before. Wow, wow, really really inspirational stuff. Sammy fucking idiot. This was, by the way, in Altman's words, the good news. The bad news was that and I quote GPT four point five is a giant expensive model, adding the open Ai was out of GPUs, but proudly declaring that it had added tens of thousands of GPUs in the week following and would roll out to open aiyes, twenty dollars a month plus here and that they would be adding hundreds of thousands of GPUs soon. Excited. Well, you shouldn't be on top of a vague product set and interterminately high compute cost. GPT four point five costs developers an incredible seventy five dollars put million input tokens in those are the prompts and data pushed into the model, and of absolutely astounding one hundred and fifty dollars per million output tokens. That's the output it creates. And that's roughly three thousand percent more for input tokens and fifteen hundred percent more expensive for output tokens than GPT four to zero For results that open Aiyes, andre J. Caapathy described as a little bit better and awesome, but also not exactly that are trivial to point to, and one developer described GPT four point five to our technica as a lemon when comparing its reported performance to its price. Arstentnaca also reported the GPT four point five was terrible for coding relatively speaking, and other tests showed that the model's performance was either slightly better or slightly worse across the board. With that according to Ours Technica, one success metric being the open ai found open human evaluators preferred GPT four point five's responses of a GPT four to zero in about fifty seven percent of interactions. Wow, that's very underwhelming. So, just to be crystal clear, the biggest AI company's latest model appears to be even more ruinously expensive than its last one, while providing modest at best improvements and performing worse than several benchmarks done competing models very good. Despite these piss poor results, Sam Wultman's reaction was to bring in hundreds of thousands of GPUs as a means of exposing as many as people as possible to his mediocre, ultra expensive model. And the best that Altman has to offer is that this is the first time people have been emailing with such passion asking open ai to promise to never stop offering a specific model. I am just going to say this. That is a tweet, and it never happened, or it happened like once. This is some girlfriend in Canada share Sam Altman is washed when all of this falls apart, Remember I said he was washed? Now, Remember how I talked about open AI's lack of meaningful improvement as a reminder, GPT four point five was meant to be GPT five, but, according to the Wall Street Journal, continually failed to make a model that advanced enough to justify the enormous cost, with a six month training run costing five hundred million dollars and GPT four point five requiring multiple runs of different sizes. So yeah, open ai spent hundreds of millions of dollars to make this great stuff. And I haven't even mentioned the company's supported agent products. And no, I'm not talking about Operator, which is also dogshit. By the way, open ai wants to create tiers of AI agents, with the cheapest costing two thousand dollars a month and capable of handling it administrative tasks, and the most expensive costing twenty thousand dollars in having PhD level, Look, I wrote the script right, and I'm gonna be honest. I can't even read that sentence with a straight face. Operator cannot even search trip Advisor properly. It can't even do a thing that let me google that for you does. And these chunder fucks want to charge two thousand dollars a month for an agent that does what does some sort of what's it dou?

Media greetums. I'm at xytron and this is better offline. In my last episode, I started by telling you about a report from the analyst wing of a major bank, TD Cohen that revealed how Microsoft had drastically pulled back on its plans to build new data center capacity. At a bare minimum, Microsoft had canceled the equivalent of every data center in London or Tokyo at least, that the real figure is actually probably much much higher, and as I pointed out, that this is a real pale horse, a harbinger of bad times through generative AI and open AI especially, and an indicator that the bubble is imploding or popping or I really don't want to say it's popped, and I actually don't know if it's necessary to say when it does, it's never going to be one thing. I also mentioned that some may interpret this movie as a sponds to open AI's Stargate project, which aims to build hundreds of billions of dollars of data centers and power generation facilities in the US, all to power generator FAI apps and tools that I'm not sure actually there's really the demand for. But this begs the question how feasible is the Stargate project. Let's start with a bit of background. The Stargate project was officially announced that the very beginning of the Trump presidency. Is open AI tried to court favor from the notoriously transactional and praise hungry person of the United States of America, despite that the project has been in the works for some time and open AI had previously courted the Biden administration. Sam Allman's previous pitch to that administration late last year was that it was necessary to build a five gigaw what data center. We don't know how big Stargate will be, just that it will initially involve spending one hundred billion dollars due and I quote developed data centers for artificial intelligence in the US according to the information, with the project potentially scaling to five hundred billion dollars, a truly fucking, astoundingly stupid number. Stargate's first and only data center deal currently signed is in Abilene, Texas, and it's expected to be operational in mid twenty twenty six. Though these centers usually become operational in phases, this is especially likely to be the case here considering that, according to the information. Open Ai plans to have access to a gigawat of power on hundreds of thousands of GPUs. As part of this, the Stargate project will construct a three hundred and sixty point five megawatt natural gas power station. And as I said last episode, that one's about power. This power station is, as far as I can tell, still in the permitting phase. It'll be some time before Stargate breaks ground on the facility, let alone starts to actually generate power. Now, as for funding, things have got a little weird. Both open ai and soft Bank have committed to putting in either eighteen billion or nineteen million dollars each into the project. I've seen both numbers reported, by the way. Regardless, it's not that big a difference to worry about, especially with well the fact that open ai does not really have the money either way. What's a billion dollars when you don't have anything. The company is currently trying to raise forty billion dollars at a two hundred sixty billion dollar valuation, with the quote CNBC part of the funding expected to be used for open AI's commitment to Stargate. Now, I'm old enough to remember when this round was previously rumored to be valuing open Ai at three hundred and forty billion dollars and also at three hundred billion dollars, and soft Bank appears to be taking full responsibility for raising the round, including syndicating as much as ten billion dollars of the amount, which means that it would include a group of other investors. Nevertheless, it certainly seems SoftBank will provide the majority of the capital thirty billion dollars, with CNBC reporting that it will be paid out over the next twelve to twenty four months, with the first payment coming as soon as spring. Soft Bank also has another problem, and this one's this one. I think even the least technical of you can understand. They also appear to not have the money. They don't have the money. They not the money to give open Ai, not the money for Stargate. It's a little bit of worrying math issues with this. According to the Information, SoftBank CEO Masayoshi's Sun is planning to borrow sixteen billion dollars to invest in Ai, and may borrow another eight billion dollars next year. The following points, by the way, are drawn from the Information's reporting, and I give serious props to Duro Osawa and Corey Weinberg for their hard work here. I attack the information sometimes with some of the framing, but they actually do some of the best reporting in tech journalism. Now let's do some maths. Soft Bank currently only has thirty one billion dollars in cash and its balance sheet as of December twenty twenty four. It's net debt, which despite what you think, does not measure total debt, but rather represents its cash minus any debt liabilities, sounds at twenty nine billion dollars. They plan to use the loaning question to finance part of their investment in open Ai, and there are acquisition of chip design firm Ampere. According to SoftBank's reported assets, its holdings are worth about two hundred and nineteen billion dollars, so thirty three point sixty six trillion yen for those of you who deal with yen, including stock in companies like Alibaba and ARM. On a side note, not every company in soft Bank's portfolio is an arm or an Alibaba or like a good one. There are some real stinkers too, and I'm not just talking about the Morrobon carcass of we work. I recommend you look at and I'll link to the list in the episode of notes SoftBank's recent group report, which is linked in the spreadsheet. Like I just said, which is me reading a script out a little behind the curtain for you there. In particular, got to twenty nine in the report, which lists the ten largest publicly traded companies in soft Bank's Vision Fund portfolio. Now how all of them, without exception trade at a significant fraction of their peak market cap. In simpler terms, the ten biggest companies in soft Bank's flagship tech fund are worth far far less than their all time high, and in some cases with less than one fifth of their all time high. If soft Bank liquidated its assets, and I admit this is a big ear for most likely a worst case scenario situation, how big would their losses be? Separately, SoftBank has committed to a joint venture called SBO open Ai Japan and to spend three billion dollars a year on open Ai. Is take for the various companies across its group. We'll talk about that later, but there's some napkin mass. It is what soft Banks agreed to sixteen billion dollars sorry, eighteen billion dollars or nineteen billion dollars really do not know in funding for the Stargate Data Center project, three billion dollars a year in spend on open ai software, and as much as thirty billion dollars in funding for open Ai paid over twelve to twenty four months, according to the Information, and by the way, twenty five billion has also been reported. But the Information reports that open Ai has told investors that soft Bank will provide it at least thirty billion dollars of the forty billion dollars they need. Jesus fucking Christ. Can you imagine if this went It's something useful anyway, What I'm getting at is that soft Bank has effectively agreed to bankroll the entirety of open AI's future, signing up for over forty six billion dollars of investments over the next few years, and does not appear to be able to do so without selling its current holdings in valuable companies like arm or taking at least sixteen billion dollars of debt this year, representing a fifty five percent increase of its current liabilities. Work still, thanks to disagreement, open AI's future both in its ability to expand its infrastructure, which appears to be entirely contingent on the construction of Stargate with Microsoft pulling out, and its ability to raise funding, which is also entirely dependent on soft bank and soft Bank in this case, where open ai is entirely dependent on soft Bank to live, must borrow money to give to open Ai, a company that only only loses money. On top of that, open Ai also on the money losing front, anticipates it will burn as much as forty billion dollars a year by twenty twenty eight, and projects to only turn a profit by the end of the decade after the build out of Stargate, which I add is, like I said, almost entirely dependent on soft bank, which has to take on debt to fund both open Ai and the project required to theoretically make open ai profitable. How the fuck does this work? How does this work? How does this work? How does this work? How the fuck does this work? Open Ai, a company that spent nine billion dollars to lose five billion dollars in twenty twenty four, requires so much money to be its obligations, both to cover its stupid, ruinous, unprofitable, unsustainable operations and the eighteen billion to nineteen billion dollars. A committed to keep growing that it has to raise more money than any startup ever raised in history, forty billion fucking dollars, with the cast iron guarantee that it will need even more money within a year. Every goddamn month, Sam Wilton has to go to someone and say, my huge, beautiful company is so powerful, but it's weak and sick and frail. I need more money than you have today, and I'll need more money than you'll have tomorrow. My company is so sick and weak, but it's the most powerful company of all time. Sam flipping off pisces me off. Imagine if this money went literally anywhere else, you could set it on fire at least be fucking warm. Soft Bank. On top of the thirty billion dollars of funding and three billion dollars a year of revenue it's committed to, open ai itself also has to cough up eighteen billion dollars for Stargate, the data center project that open ai will run and get this. Soft Bank will take financial responsibility for forty eight billion dollars in cash three billion dollars in revenue. You the latter of which, like all open AI's offerings, will lose the company money. Open Ai has no path to profitability guaranteeing it will need more cash and right now at the time time, and it needs it more than it's ever needed it. Soft Bank, the only company willing to provide it and possibly the only company with the money to do so, has proven that it will have to go to greet possibly ruinous lengths to do so. If open ai needs forty billion dollars in twenty twenty five, how much will it need in twenty twenty six fifty billion, one hundred billion dollars. Where is that money going to come from? While soft Bank might be able to do this once, what happens when open ai needs money in six to twelve months. Soft Bank made about fifteen billion dollars a profit in the last year on about forty six billion dollars of revenue. Three billion dollars is an absolutely obscene amount to commit to buying open ai software annually, especially when some of it is allegedly for access to open AI's barely functional operator and mediocre deep research products. As per my previous podcasts and pieces, I do not see how open ai survives, and soft Bank's involvement only gives me further concern. While soft banker theoretically burn its current holdings to fund open Ai in perpetuity, its ability to do so is cast into doubt by them having to borrow money from other banks to get into this funding ground and to get Stargate done. Open Ai burned five billion dollars in twenty twenty four, a number it will likely double in twenty twenty five. And remember the information reported that open ai was projected to spend thirteen billion dollars on compute alone with Microsoft in twenty twenty five, and has no path to profitability. SoftBank has already had to borrow to fund this round, and the fact that it had to do so suggests its inability to continue supporting open Ai without accruing further debt. Open Ai. As a result of Microsoft's cuts, the data center capacity now only has one path expansion once it runs through whatever remaining buildout Microsoft has planned. That is, and that's Stargate, a project funded by open AI's contribution, which it's receiving from SoftBank and SoftBank which is also having to take out loans to meet its share. How does this work exactly? How does this continue? Do you see anyone else stepping up to fund this. Who else has got thirty to forty billion dollars to shit out every year? While the answer is Saudi Arabia. SoftBank's CEO Massioshi Son recently said that he had had and I quote not given Saudi ruler Muhammed bin Salmon in our return, adding that he still owed him. That's really not the ideal thing you want to say after naming MBS. Nothing about this suggests that Saudi money will follow soft banks in anywhere near the volume necessary. As to the m ratis. They're already involved through the MGX fund, and it's unclear how much more they'd be willing to commit. Really, really, are really, mate, buddy fellow? How does this? How does this work? In my opinion, this open Ai soft Bank deal is wildly unsustainable, dependent on soft Bank continuing to raise both debt and funnel money directly into a company that burns it burns it by the billions every year, and it's said to only burn more thanks to the arrival of its latest bullshit model. And if it had a huge breakthrough that would change everything. Wouldn't Microsoft want to make sure they were building the data center capacity to support him? Hey, maybe they're not. Now. Perhaps this crazy level of spending would be necessary if open ai was still the leader in generator of AI and it was still meaningfully improving its capabilities year after year or two year after two years. And I think we all know that that isn't the case. A few weeks ago, open ai launched GPT four point five, it's latest model that well, this isn't brilliant, sam Alman says, and I quote, is the first model that feels like talking to a thoughtful person, which, by the way, is really funny. It's really funny to say it, to be like, yeah, I have spent billions of dollars telling you that this bullshit is like a person, but this one really is. The other one's not so much. I did not think that in the past. And it's not obvious what GPT four point five does better, or even really what it does, other than Altman saying it is a different kind of intelligence and there's a magic to it that he has not felt before. Wow, wow, really really inspirational stuff. Sammy fucking idiot. This was, by the way, in Altman's words, the good news. The bad news was that and I quote GPT four point five is a giant expensive model, adding the open Ai was out of GPUs, but proudly declaring that it had added tens of thousands of GPUs in the week following and would roll out to open aiyes, twenty dollars a month plus here and that they would be adding hundreds of thousands of GPUs soon. Excited. Well, you shouldn't be on top of a vague product set and interterminately high compute cost. GPT four point five costs developers an incredible seventy five dollars put million input tokens in those are the prompts and data pushed into the model, and of absolutely astounding one hundred and fifty dollars per million output tokens. That's the output it creates. And that's roughly three thousand percent more for input tokens and fifteen hundred percent more expensive for output tokens than GPT four to zero For results that open Aiyes, andre J. Caapathy described as a little bit better and awesome, but also not exactly that are trivial to point to, and one developer described GPT four point five to our technica as a lemon when comparing its reported performance to its price. Arstentnaca also reported the GPT four point five was terrible for coding relatively speaking, and other tests showed that the model's performance was either slightly better or slightly worse across the board. With that according to Ours Technica, one success metric being the open ai found open human evaluators preferred GPT four point five's responses of a GPT four to zero in about fifty seven percent of interactions. Wow, that's very underwhelming. So, just to be crystal clear, the biggest AI company's latest model appears to be even more ruinously expensive than its last one, while providing modest at best improvements and performing worse than several benchmarks done competing models very good. Despite these piss poor results, Sam Wultman's reaction was to bring in hundreds of thousands of GPUs as a means of exposing as many as people as possible to his mediocre, ultra expensive model. And the best that Altman has to offer is that this is the first time people have been emailing with such passion asking open ai to promise to never stop offering a specific model. I am just going to say this. That is a tweet, and it never happened, or it happened like once. This is some girlfriend in Canada share Sam Altman is washed when all of this falls apart, Remember I said he was washed? Now, Remember how I talked about open AI's lack of meaningful improvement as a reminder, GPT four point five was meant to be GPT five, but, according to the Wall Street Journal, continually failed to make a model that advanced enough to justify the enormous cost, with a six month training run costing five hundred million dollars and GPT four point five requiring multiple runs of different sizes. So yeah, open ai spent hundreds of millions of dollars to make this great stuff. And I haven't even mentioned the company's supported agent products. And no, I'm not talking about Operator, which is also dogshit. By the way, open ai wants to create tiers of AI agents, with the cheapest costing two thousand dollars a month and capable of handling it administrative tasks, and the most expensive costing twenty thousand dollars in having PhD level, Look, I wrote the script right, and I'm gonna be honest. I can't even read that sentence with a straight face. Operator cannot even search trip Advisor properly. It can't even do a thing that let me google that for you does. And these chunder fucks want to charge two thousand dollars a month for an agent that does what does some sort of what's it dou?

Oh?

Oh?

Twenty thousand dollars for something with PhD level capabilities. I think all the people with PhDs listen to this have just stood up and gone, I have an idea. And this is insane on many levels, not simply because the base product is undercut by actual human workers in many parts of the world, and even PhD students are typically I only paid twenty thousand to thirty thousand a year on average, and even people with actual doctorates in industries really earn twenty thousand dollars a month unless they're working in Silicon Valley occupying a C suite job. But forget all about that. What does it mean to have a PhD level agent? Remember? Other lambs are guessing machines. They don't know anything or even understand the concepts behind the words they spit onto a page. No, seriously, Sammy, what does it mean? I'm fucking waiting you damp Goblin you pissant. Ah, maybe I shouldn't just site here instarting him wanker. Anyway, This, by the way, is the company that is about to raise forty billion dollars led by a Japanese bank that has to go into debt to fund both their operations and the infrastructure necessary for them to grow any further. Again, as we started with, Microsoft is canceling plans to massively expand its data center capacity right at the time when open ai just released its most computationally demanding model. Ever, how do you reconcile those two things without concluding either that Microsoft expects GBT four point five to be a flop although it's simply unwilling to continue bankrolling open AI's continued growth, or perhaps it's having doubts about the future of generative AI in general. Hmm. Maybe now I have been and remain hesitant to call the bubble bursting, because bubbles do not burst, really, they certainly don't burst in neat little events. Nevertheless, my pale horses I've predicted in the past were led by one specific call that reduction and capital expenditures by a hyperscaler was a sign that things were collapsing. Microsoft walking away from over a gigawatt of data center plans equivalent to as much as fourteen percent of its current data center capacity, is a direct sign that it does not believe that growth is there in generative AI, and thus they are not building the infrastructure to support it, and indeed may have overbuilt something, as I've mentioned that Microsoft CEO Sachinidella has directly foreshadowed in his interview with Dwarkesh and otherwise extremely boring waste of an hour of your life. The entirety of the tech industry and the AI bubble has been built on the assumption that generative AI was the next big growth vehicle for tech, and if Microsoft, the largest purchaser of Nvidia GPUs in the most aggressive builder of AI infrastructure, is reducing capacity, it heavily suggests that the growth is not there. Microsoft has, by the looks of things, effectively given up on further data center expansion, at least at the breakneck pay suit runs promised, and that even suggests that generator if AI will be a thing in a few years, definitely not the scale it is right now. AI boosters will email me and they'll say there's something that I don't know that in fact, Microsoft has some greater strategy and some efficiency play. But answer me this, Why is Microsoft canceling over a giga? What of data set expansion? And again this is the most conservative estimate. The realistic number is much much higher. Do you think it's because it expects there to be this dramatic demand for the AI services? Do you think it's reducing supply because of all the demand? Now you might think that this is an efficiency play they're playing with deep SIG right, No, sorry, that doesn't matter. Even if deep CG was this magical efficiency play, which it may or may not be. I actually think it is more efficient, Like that's true, but we actually don't know if it's profitable. Even then, they've been talking about not having the capacity to deal with demand. They've been talking about how incredible this is. They've been talking about how big this is gonna be. This sounds like they don't think it's gonna big, gonna be big. Even it's gonna big, they're gonna get my ass in the comments on that one. Now, one might argue that Microsoft's reduction and capacity build out it's just the sign that open AI is moving its compute elsewhere. Maybe that's true. And if starguate ever gets built, which I question anyway, here are some questions to ask. Microsoft still sells access to open AI's API through asure. Does it not see the growth in that product? Do they not see it? They're not expanding? Is the growth not there? And Microsoft still, one would assume, makes money off of open AI's compute expenses, right or is that not the case due to the vast seventy five percent discount the open ai gets on using its services. I have been told that it's very close to the wire by sources, but I can't say it. But you'd have to just look at the fact that they do actually do that was reported by the information. Look look what that Microsoft making. So which a material pullback on data center expansions suggests that the growth in generative AI products, both those run on Microsoft servers and those sold as part of Microsoft's products, do not have the revolutionary growth trajectory that both CFO Amhood and CEO of sach Inadella have been claiming. And this is all deeply concerning, while also calling into consideration the viability of generative AI as a growth vehicle for any hyperscaler. If I am correct, Microsoft is walking away not just from expansion of its current data center operations, but from generative AI, writ large. I actually believe it will continue selling this unprofitable, unsustainable software because the capacity it has right now is more than sufficient to deal with the incredible lack of demand. It's time for investors in the general public to begin demanding tangible, direct numbers on the revenue and profits related to GENERATIVEAI, as it is becoming increasingly obvious that the revenues are small and the profits are non existent. A gigawatt of capacity is huge, and walking away from that much capacity is a direct signal that Microsoft's long term plans do not include needing a great deal of compute. One counter could be that it's waiting for more of the specialized nvideo GPUs to arrive, to which the response is Microsoft still wants to build the capacity, so it has somewhere to fucking put them again, These facilities take anywhere between three and six years to build. Do you really think black will be so delayed that they won't arrive until what twenty twenty eight? Ways, what are you talking about? From even alive then? Anyway, One counter could be that there isn't the power necessary to power these data centers, and if that's the case, it isn't but let me human the idea.

Twenty thousand dollars for something with PhD level capabilities. I think all the people with PhDs listen to this have just stood up and gone, I have an idea. And this is insane on many levels, not simply because the base product is undercut by actual human workers in many parts of the world, and even PhD students are typically I only paid twenty thousand to thirty thousand a year on average, and even people with actual doctorates in industries really earn twenty thousand dollars a month unless they're working in Silicon Valley occupying a C suite job. But forget all about that. What does it mean to have a PhD level agent? Remember? Other lambs are guessing machines. They don't know anything or even understand the concepts behind the words they spit onto a page. No, seriously, Sammy, what does it mean? I'm fucking waiting you damp Goblin you pissant. Ah, maybe I shouldn't just site here instarting him wanker. Anyway, This, by the way, is the company that is about to raise forty billion dollars led by a Japanese bank that has to go into debt to fund both their operations and the infrastructure necessary for them to grow any further. Again, as we started with, Microsoft is canceling plans to massively expand its data center capacity right at the time when open ai just released its most computationally demanding model. Ever, how do you reconcile those two things without concluding either that Microsoft expects GBT four point five to be a flop although it's simply unwilling to continue bankrolling open AI's continued growth, or perhaps it's having doubts about the future of generative AI in general. Hmm. Maybe now I have been and remain hesitant to call the bubble bursting, because bubbles do not burst, really, they certainly don't burst in neat little events. Nevertheless, my pale horses I've predicted in the past were led by one specific call that reduction and capital expenditures by a hyperscaler was a sign that things were collapsing. Microsoft walking away from over a gigawatt of data center plans equivalent to as much as fourteen percent of its current data center capacity, is a direct sign that it does not believe that growth is there in generative AI, and thus they are not building the infrastructure to support it, and indeed may have overbuilt something, as I've mentioned that Microsoft CEO Sachinidella has directly foreshadowed in his interview with Dwarkesh and otherwise extremely boring waste of an hour of your life. The entirety of the tech industry and the AI bubble has been built on the assumption that generative AI was the next big growth vehicle for tech, and if Microsoft, the largest purchaser of Nvidia GPUs in the most aggressive builder of AI infrastructure, is reducing capacity, it heavily suggests that the growth is not there. Microsoft has, by the looks of things, effectively given up on further data center expansion, at least at the breakneck pay suit runs promised, and that even suggests that generator if AI will be a thing in a few years, definitely not the scale it is right now. AI boosters will email me and they'll say there's something that I don't know that in fact, Microsoft has some greater strategy and some efficiency play. But answer me this, Why is Microsoft canceling over a giga? What of data set expansion? And again this is the most conservative estimate. The realistic number is much much higher. Do you think it's because it expects there to be this dramatic demand for the AI services? Do you think it's reducing supply because of all the demand? Now you might think that this is an efficiency play they're playing with deep SIG right, No, sorry, that doesn't matter. Even if deep CG was this magical efficiency play, which it may or may not be. I actually think it is more efficient, Like that's true, but we actually don't know if it's profitable. Even then, they've been talking about not having the capacity to deal with demand. They've been talking about how incredible this is. They've been talking about how big this is gonna be. This sounds like they don't think it's gonna big, gonna be big. Even it's gonna big, they're gonna get my ass in the comments on that one. Now, one might argue that Microsoft's reduction and capacity build out it's just the sign that open AI is moving its compute elsewhere. Maybe that's true. And if starguate ever gets built, which I question anyway, here are some questions to ask. Microsoft still sells access to open AI's API through asure. Does it not see the growth in that product? Do they not see it? They're not expanding? Is the growth not there? And Microsoft still, one would assume, makes money off of open AI's compute expenses, right or is that not the case due to the vast seventy five percent discount the open ai gets on using its services. I have been told that it's very close to the wire by sources, but I can't say it. But you'd have to just look at the fact that they do actually do that was reported by the information. Look look what that Microsoft making. So which a material pullback on data center expansions suggests that the growth in generative AI products, both those run on Microsoft servers and those sold as part of Microsoft's products, do not have the revolutionary growth trajectory that both CFO Amhood and CEO of sach Inadella have been claiming. And this is all deeply concerning, while also calling into consideration the viability of generative AI as a growth vehicle for any hyperscaler. If I am correct, Microsoft is walking away not just from expansion of its current data center operations, but from generative AI, writ large. I actually believe it will continue selling this unprofitable, unsustainable software because the capacity it has right now is more than sufficient to deal with the incredible lack of demand. It's time for investors in the general public to begin demanding tangible, direct numbers on the revenue and profits related to GENERATIVEAI, as it is becoming increasingly obvious that the revenues are small and the profits are non existent. A gigawatt of capacity is huge, and walking away from that much capacity is a direct signal that Microsoft's long term plans do not include needing a great deal of compute. One counter could be that it's waiting for more of the specialized nvideo GPUs to arrive, to which the response is Microsoft still wants to build the capacity, so it has somewhere to fucking put them again, These facilities take anywhere between three and six years to build. Do you really think black will be so delayed that they won't arrive until what twenty twenty eight? Ways, what are you talking about? From even alive then? Anyway, One counter could be that there isn't the power necessary to power these data centers, and if that's the case, it isn't but let me human the idea.

Then.

Then.

The suggestion is that Microsoft is currently changing its entire data center's strategy so significantly they now has to issue over a giga what's worth of statements of intent across the country to different places because of more power. There's more power in those places, less than did they make like a giga what worth of mistakes? Now? Okay. Another counter is that I'm only talking about leases and not purchases. In that case, I'll refer you to this article from CBRE, which is linked in the spreadsheet for this episode, and which includes a looser dating read on how hyperscalers actually invest in data center infrastructure. Leases tend to account for the majority of spending simply because it's less risky. A specialist takes care of the tough stuff location buying, land handling, construction, and the hyperscaler isn't left trying to figure out what to do with the facility when it reaches the end of it's the useful life cycle. I also expect someone to chime in and say well, that's this Microsoft, What about Google and Amazon? Get out of my house. I'd counter and say that these companies are comparatively less exposed to general IFAI. Amazon has invested eight billion dollars in Anthropic, which is a bit less than half of what Microsoft is reportedly invested in open Ai, which amounted to about fourteen billion dollars as of December. When you consider the discounted asure rates Microsoft offers to open ai too, the real number is probably my much much higher. Google also has three billion dollars in Anthropic, in addition to its own AI services like Gemini. Open Ai, as I noted in my last newsletter, is pretty much the only real generative AI company with market share and significant revenue, although I once again remind you that revenue is not the same thing as profim and this is true across mobile web and likely it's APIs two. Similarly, nobody has quite pushed generative AI as aggressively as Microsoft, which has introduced it to an overwhelming number of its paid products, hiking prices for customers as it goes. I suppose you could say that Google has pushed GENII into its workspace products as well as its sarch products, but the scale and aggression of Microsoft's push feels different that, and as I've mentioned repeatedly, they are the largest purchaser of Nvidia GPUs by nearly twice as many four hundred and eighty five thousand as its nearest competitor to Meta, which brought two hundred and twenty four thousand in twenty twenty four. Ultimately, Microsoft has positioned itself at the heart of generative AI, both through its own strategic product decisions and its partnership with open AI. And the fact that it's now scaling back on the investment required to maintain that momentum is I believe pretty significant. I also recognize that all of this is a big juicy steake for someone some people call a pig or an animal or a monster or an AI cynic. Look, I've pulled over this data repeatedly and done all that I can to find less convenient or satisfying conclusions. Let us off intent and likely the weakest part of my argument. These are serious documents, by the way, but they're not always legally binding. Neither are those statements of qualifications. But as Tdcoen pointed out, sqqs are generally treated as the green lights stop working on construction even though a formal lease agreement hasn't yet been signed, and to be clear, Microsoft let an interminate amount of sqqs go. Nevertheless, it's incredibly significant that Microsoft is letting so many the equivalent of as much as fourteen percent of its current data set of capacity at a bare minimum. On top of the couple hundred so at least two hundred megabats of data center leases become canceled. I do not know why nobody else has done this analysis. I've now read every single piece about the td co and report from every single outlet the covenant. I've read some weird seo stuff. It's it's not good, and I'm under I'm just kind of astounded by the lack of curiosity as to what one GW plus means and the report the meaningfully moved markets, as I'm equally astonished by the lack of curiosity to contextualize most tech news. It's as if nobody wants to think about this too hard, like nobody wants to stop the pie. Nobody wants to accept what's being staring us in the face since last year, if not earlier, and we're given the most egregious, glaring evidence. People still must find ways to dismiss it or ignore it rather than give it the energy it deserves. Far more resources were dedicated to finding ways to gussy up the releases of anthropics claudes on at three point seven or open ais GPT four point five. And we're given the report from an Investment Banks research wings that the largest spender and generityve Ai, the largest backer for now of open ai at least, is massively reducing its expenditures in data centers required for the industry and for open Ai, a company of stems worth one hundred and fifty seven billion dollars to expand. Microsoft's stake in open Ai is a bit fuzzy, is open Ai doesn't issue traditional equity, and there's a likelihood it may be diluted as more money comes in. It reportedly owned forty nine percent in twenty twenty three, though assuming that's still the case, are we to believe that Microsoft is willing to strangle and that's it worth at least seventy five billion dollars several times more than its investment today by canceling a few leases. How many more alarms do we need to go off before people recognize that something bad is happening. Why is that tangible, meaningful evidence that we're in a bubble and possibly a sign that it might be popping less interesting than the fact that Claudes on it three point seven can think longer. And if you're listening to this and you think I'm talking about you, I fucking am. I am sick of this shit. I am absolutely sick of this shit. I'm sick of reading articles like that when far more important and scary and damning things are happening, things that actually matter. I don't care if Warrio Ama Day has allowed you to make it compute for longer. It doesn't are compared to this. It does not matter compared to a gig or what or more of capacity going. And I'm sick of this. I'm sick of me having to be the guy. Sometimes. I do not say these things to be right. I don't want to be a cynic or a hater. I say this all because I am trying to understand what's going on, and if I do not, I will actually go insane. Every time I sit down to write my newsletter or record this podcast, I'm doing it because I'm trying to understand what's happening and how I feel about it, And these are the only terms to dictate my creativity. It just happens that I've stared at the tech industry for too long and now I can't look away. Perhaps it's driving me mad, or maybe I'm getting smarter, or maybe it's an arm or palmer of the two. But what comes out of my work is not driven by wanting to go viral or having a hot take, or be a renowned skeptic, or being right or being anything, because such things suggest that I would do this differently if three people listened versus actually can't say the amount of people that do. I have rules, but fifty seven thousand people subscribe to my newsletter extra. From there, I would do the same goddamn thing. And in fact, if you look back in my work, I've done the same thing from the beginning. Now, I'm not saying that Microsoft is dying or making any grandiose claims about what happens next. What I am describing, however, is the material contraction of the largest investor in data centers, according to TD Cohen, potentially at a scale that suggests the Microsoft has meaningfully reduced its interest in further expansion of data centers. Writ large, this is a deeply concerning move, one that suggests that Microsoft does not see demands sustain the current expansions, which has greater ramifications beyond generative AI, because it suggests that there isn't any other reason for it to expand the means of delivering software. What has sat in Adella scene? What is Microsoft cfo amy Hood doing? What is the plan here? And really what's the plan with open Ai? SoftBank has committed over forty billion dollars of cost that it currently cannot afford, taking on as much as twenty four billion dollars in debt in the next year to help sustain one more funding round and the construction of data centers. Open Ai, a company that loses money on literally every single customer. To survive, open Ai must continue raising more money than any startup has ever raised before, and they are only able to do so from SoftBank, which in turn must take on debt. Open Ai burned five billion dollars in twenty twenty four and more likely burn eleven billion dollars or more in twenty twenty five, and will continue burning money in perpetuity and to scale further will require funding for a data center project funded partially by a funding from a company that's taken on debt to fund them. And when you put this all together, all I can see is calamity. Generative AI does not have meaningful mass market use cases, and while chat GPT may have four hundred million weekly active users, there doesn't appear to be meaningful consumer adoption outside of chat GPT, mostly because almost all AI media coverage inevitably ends up marketing one company Open AI. Argue with me all you want about your personal experiences with chat GPT or how you personally found it useful. I don't care. I stopped listening a while ago. Your points never prove anything that doesn't make it a product with mass market utility or enterprise utility, or worth the vast sums of money being plowed into it. Worse still, that doesn't appear to be any meaningful revenue. As discussed in my last episode, Microsoft claims thirteen billion dollars in annual recurring revenue not profit on all AI products combined on over two hundred billion dollars of capital expenditures since twenty twenty three, and no other hyperscaler is willing to break out any AI revenue at all. Not Amazon, no matter, not Google, Nobody does that. Not worry anyone. Is anyone listening to this who actually deals with the economy? Can you please listen to me? So we don't Actually I don't know what we do. I actually don't know. I have no idea. Where's the growth? Where's the money? Where's the money? Sammy? Where is it? Where's my money? Honey, give me the money, Sam Mormon? Where's my money? Why is Microsoft canceling a gigawat of data center capacity while telling everybody that it didn't have enough data centers to handle demands for its AI products. I suppose this is one way of looking at it. Microsoft may currently have a capacity issue, but soon one, meaning that further expansion is unnecessary. And that's the case, It'll be interesting to see whether their peers follow suit either way. Look, I see nothing that suggests that there's future growth in general of AI. In fact, I think it's time for everybody to seriously consider the big tech burn billions of dollars on something that nobody ever wanted or would pay for. If you listen to this and scoff, I don't know what should I have talked about anthropic adding a sliding thinking bar to a model GPT four point five. Who gives a shit? Can you even tell me what it does differently to GPT four to zero? Can you explain to me why it matters? Or are you more interested in nakedly captured imbeciles like Ethan Mollock sweatly oinking about how powerful the latest ask and shit. It's like no one's interested in the things happening in the real world. It's like nobody's thinking about the silicon and the infrastructure and how things actually get built. Wake the fuck up, everybody. Things are on fire. Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Matasowski. You can check out more of his music and audio projects at Matasowski dot com, M A T T O S O W s ki dot com. You can email me at easy at better offline dot com, or visit better Offline dot com to find more podcast links and of course, my newsletter. I also really recommend you go to chat dot Where's youreaed dot at to visit the discord and go to our slash Better Offline to check out our reddit. Thank you so much for listening.

The suggestion is that Microsoft is currently changing its entire data center's strategy so significantly they now has to issue over a giga what's worth of statements of intent across the country to different places because of more power. There's more power in those places, less than did they make like a giga what worth of mistakes? Now? Okay. Another counter is that I'm only talking about leases and not purchases. In that case, I'll refer you to this article from CBRE, which is linked in the spreadsheet for this episode, and which includes a looser dating read on how hyperscalers actually invest in data center infrastructure. Leases tend to account for the majority of spending simply because it's less risky. A specialist takes care of the tough stuff location buying, land handling, construction, and the hyperscaler isn't left trying to figure out what to do with the facility when it reaches the end of it's the useful life cycle. I also expect someone to chime in and say well, that's this Microsoft, What about Google and Amazon? Get out of my house. I'd counter and say that these companies are comparatively less exposed to general IFAI. Amazon has invested eight billion dollars in Anthropic, which is a bit less than half of what Microsoft is reportedly invested in open Ai, which amounted to about fourteen billion dollars as of December. When you consider the discounted asure rates Microsoft offers to open ai too, the real number is probably my much much higher. Google also has three billion dollars in Anthropic, in addition to its own AI services like Gemini. Open Ai, as I noted in my last newsletter, is pretty much the only real generative AI company with market share and significant revenue, although I once again remind you that revenue is not the same thing as profim and this is true across mobile web and likely it's APIs two. Similarly, nobody has quite pushed generative AI as aggressively as Microsoft, which has introduced it to an overwhelming number of its paid products, hiking prices for customers as it goes. I suppose you could say that Google has pushed GENII into its workspace products as well as its sarch products, but the scale and aggression of Microsoft's push feels different that, and as I've mentioned repeatedly, they are the largest purchaser of Nvidia GPUs by nearly twice as many four hundred and eighty five thousand as its nearest competitor to Meta, which brought two hundred and twenty four thousand in twenty twenty four. Ultimately, Microsoft has positioned itself at the heart of generative AI, both through its own strategic product decisions and its partnership with open AI. And the fact that it's now scaling back on the investment required to maintain that momentum is I believe pretty significant. I also recognize that all of this is a big juicy steake for someone some people call a pig or an animal or a monster or an AI cynic. Look, I've pulled over this data repeatedly and done all that I can to find less convenient or satisfying conclusions. Let us off intent and likely the weakest part of my argument. These are serious documents, by the way, but they're not always legally binding. Neither are those statements of qualifications. But as Tdcoen pointed out, sqqs are generally treated as the green lights stop working on construction even though a formal lease agreement hasn't yet been signed, and to be clear, Microsoft let an interminate amount of sqqs go. Nevertheless, it's incredibly significant that Microsoft is letting so many the equivalent of as much as fourteen percent of its current data set of capacity at a bare minimum. On top of the couple hundred so at least two hundred megabats of data center leases become canceled. I do not know why nobody else has done this analysis. I've now read every single piece about the td co and report from every single outlet the covenant. I've read some weird seo stuff. It's it's not good, and I'm under I'm just kind of astounded by the lack of curiosity as to what one GW plus means and the report the meaningfully moved markets, as I'm equally astonished by the lack of curiosity to contextualize most tech news. It's as if nobody wants to think about this too hard, like nobody wants to stop the pie. Nobody wants to accept what's being staring us in the face since last year, if not earlier, and we're given the most egregious, glaring evidence. People still must find ways to dismiss it or ignore it rather than give it the energy it deserves. Far more resources were dedicated to finding ways to gussy up the releases of anthropics claudes on at three point seven or open ais GPT four point five. And we're given the report from an Investment Banks research wings that the largest spender and generityve Ai, the largest backer for now of open ai at least, is massively reducing its expenditures in data centers required for the industry and for open Ai, a company of stems worth one hundred and fifty seven billion dollars to expand. Microsoft's stake in open Ai is a bit fuzzy, is open Ai doesn't issue traditional equity, and there's a likelihood it may be diluted as more money comes in. It reportedly owned forty nine percent in twenty twenty three, though assuming that's still the case, are we to believe that Microsoft is willing to strangle and that's it worth at least seventy five billion dollars several times more than its investment today by canceling a few leases. How many more alarms do we need to go off before people recognize that something bad is happening. Why is that tangible, meaningful evidence that we're in a bubble and possibly a sign that it might be popping less interesting than the fact that Claudes on it three point seven can think longer. And if you're listening to this and you think I'm talking about you, I fucking am. I am sick of this shit. I am absolutely sick of this shit. I'm sick of reading articles like that when far more important and scary and damning things are happening, things that actually matter. I don't care if Warrio Ama Day has allowed you to make it compute for longer. It doesn't are compared to this. It does not matter compared to a gig or what or more of capacity going. And I'm sick of this. I'm sick of me having to be the guy. Sometimes. I do not say these things to be right. I don't want to be a cynic or a hater. I say this all because I am trying to understand what's going on, and if I do not, I will actually go insane. Every time I sit down to write my newsletter or record this podcast, I'm doing it because I'm trying to understand what's happening and how I feel about it, And these are the only terms to dictate my creativity. It just happens that I've stared at the tech industry for too long and now I can't look away. Perhaps it's driving me mad, or maybe I'm getting smarter, or maybe it's an arm or palmer of the two. But what comes out of my work is not driven by wanting to go viral or having a hot take, or be a renowned skeptic, or being right or being anything, because such things suggest that I would do this differently if three people listened versus actually can't say the amount of people that do. I have rules, but fifty seven thousand people subscribe to my newsletter extra. From there, I would do the same goddamn thing. And in fact, if you look back in my work, I've done the same thing from the beginning. Now, I'm not saying that Microsoft is dying or making any grandiose claims about what happens next. What I am describing, however, is the material contraction of the largest investor in data centers, according to TD Cohen, potentially at a scale that suggests the Microsoft has meaningfully reduced its interest in further expansion of data centers. Writ large, this is a deeply concerning move, one that suggests that Microsoft does not see demands sustain the current expansions, which has greater ramifications beyond generative AI, because it suggests that there isn't any other reason for it to expand the means of delivering software. What has sat in Adella scene? What is Microsoft cfo amy Hood doing? What is the plan here? And really what's the plan with open Ai? SoftBank has committed over forty billion dollars of cost that it currently cannot afford, taking on as much as twenty four billion dollars in debt in the next year to help sustain one more funding round and the construction of data centers. Open Ai, a company that loses money on literally every single customer. To survive, open Ai must continue raising more money than any startup has ever raised before, and they are only able to do so from SoftBank, which in turn must take on debt. Open Ai burned five billion dollars in twenty twenty four and more likely burn eleven billion dollars or more in twenty twenty five, and will continue burning money in perpetuity and to scale further will require funding for a data center project funded partially by a funding from a company that's taken on debt to fund them. And when you put this all together, all I can see is calamity. Generative AI does not have meaningful mass market use cases, and while chat GPT may have four hundred million weekly active users, there doesn't appear to be meaningful consumer adoption outside of chat GPT, mostly because almost all AI media coverage inevitably ends up marketing one company Open AI. Argue with me all you want about your personal experiences with chat GPT or how you personally found it useful. I don't care. I stopped listening a while ago. Your points never prove anything that doesn't make it a product with mass market utility or enterprise utility, or worth the vast sums of money being plowed into it. Worse still, that doesn't appear to be any meaningful revenue. As discussed in my last episode, Microsoft claims thirteen billion dollars in annual recurring revenue not profit on all AI products combined on over two hundred billion dollars of capital expenditures since twenty twenty three, and no other hyperscaler is willing to break out any AI revenue at all. Not Amazon, no matter, not Google, Nobody does that. Not worry anyone. Is anyone listening to this who actually deals with the economy? Can you please listen to me? So we don't Actually I don't know what we do. I actually don't know. I have no idea. Where's the growth? Where's the money? Where's the money? Sammy? Where is it? Where's my money? Honey, give me the money, Sam Mormon? Where's my money? Why is Microsoft canceling a gigawat of data center capacity while telling everybody that it didn't have enough data centers to handle demands for its AI products. I suppose this is one way of looking at it. Microsoft may currently have a capacity issue, but soon one, meaning that further expansion is unnecessary. And that's the case, It'll be interesting to see whether their peers follow suit either way. Look, I see nothing that suggests that there's future growth in general of AI. In fact, I think it's time for everybody to seriously consider the big tech burn billions of dollars on something that nobody ever wanted or would pay for. If you listen to this and scoff, I don't know what should I have talked about anthropic adding a sliding thinking bar to a model GPT four point five. Who gives a shit? Can you even tell me what it does differently to GPT four to zero? Can you explain to me why it matters? Or are you more interested in nakedly captured imbeciles like Ethan Mollock sweatly oinking about how powerful the latest ask and shit. It's like no one's interested in the things happening in the real world. It's like nobody's thinking about the silicon and the infrastructure and how things actually get built. Wake the fuck up, everybody. Things are on fire. Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Matasowski. You can check out more of his music and audio projects at Matasowski dot com, M A T T O S O W s ki dot com. You can email me at easy at better offline dot com, or visit better Offline dot com to find more podcast links and of course, my newsletter. I also really recommend you go to chat dot Where's youreaed dot at to visit the discord and go to our slash Better Offline 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 cool zonemedia dot com, or check us out on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

Better Offline is a production of cool Zone Media. For more from cool Zone Media, visit our website cool zonemedia dot com, or check us out on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

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