Monologue: Concentration Risk

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2:30CallZone Media Today in sentences that are not in the Bible, YouTuber Mark Plyer bought a major stake in camera maker GoPro, and then GoPro turned into an AI data center neocloud. I'm sick and tired of the goddamn AI bubble, I swear to Christ.

2:50Better all fine. Bird up, this is Better Offline and I'm your host Ed Zitron. So today we're going to talk through a term you may or may not have heard before, concentration risk. It's a term that refers to having all your eggs in one or a few baskets, becoming overly reliant on a few investments, customers or particular business lines to the point that without them, your business or portfolio would suffer massive harms or just explode. In banking specifically, to quote the National Credit Union Administration, it refers to any single exposure or group of exposures with the potential to produce losses large enough relative to capital, total assets, or overall risk level to threaten a financial institution's health or ability to maintain its core operations.

3:35I bring this all up because you're going to hear this term or variations of this term a lot in the next few months and years as the AI bubble unravels, because just about every part of the industry involves its own flavor of concentration risk. Let's start at the top. Per data from fintech firm Ramp, 80 % of open AI and Anthropics enterprise revenues come from 1 % of their customers, a number that hasn't improved over the last three years. Ramp's lead economist Ara Karazian notes that the top 1 % skews heavily towards the tech sector and AI products and services, and that this was a level of concentration risk unseen in any other software category they tracked.

4:14The dataset, which includes big companies like Visa and Cursor, as well as a great deal of startups and regular-sized companies, is very indicative of the overall spend of the AI industry, with the caveat that it doesn't include massive players like Microsoft or major banks. To be clear, I'm guessing about Visa and Cursor. Any customer on Ramp can opt out of research. I have no idea, but I'm going to assume that there are big companies in there. I also want to be specific that when Ramp says AI products and services, that includes AI startups that sell subscriptions with subsidized token spend, meaning that users can burn far more than their subscription price in tokens, so on a 20 buck a month subscription, you can burn 30, 40, 100.

4:53This means that the money made by Anthropica OpenAI from an AI startup in that 1 % spend is contingent on their continued ability to raise venture capital dollars. To simmer all this down, it means that the vast majority of enterprises, which is where the real money is in software and the real growth is, just don't spend that much money on AI. Those that do spend the most on it are heavily concentrated in either AI companies that either use a lot of tokens internally because they're bankrolled by venture capital, AI companies that allow their users to blow unsustainable amounts of money on tokens, bankrolled by venture capital, tech companies that are currently under heavy pressure to spend money on AI tokens, and I assume a few whale customers of some sort.

5:32This means that 80 % of OpenAI and Anthropics Enterprise revenues, which make up the vast majority of their total revenues, are dependent on what are likely hundreds of customers spending outsized amounts of money on AI tokens, with an indeterminately large chunk of them being AI startups that can only do so as long as venture capital allows them to. I also, and this is a gut feeling, wouldn't be surprised if the AI startups spend way more on tokens for writing LLM code internally, considering how every time I see somebody going nuts on AI and Twitter, it's usually a VC-backed startup. It also means, as I've hinted, that outside of the tech and AI world, very few companies are willing to pay very much for AI, which is catastrophic on just about every level, with no clear sign as to how you reverse that trend.

6:17AI has been in every media outlet and discussed in every boardroom and company for the last three years. Every single company has on some level dabbled in using AI. Most businesses have been given the green light to spend a bunch of money on AI, and in the end it seems that the only people the tech industry can get to spend money on AI is the tech industry itself. This is OpenAI and Anthropik's underlying exposure, because these customers are also prime targets to move to either cheaper models that they train themselves, because they're open source, or eventually on-device models. Even if these customers choose to stay with Anthropik and OpenAI, a chunk of this spend is contingent on venture capital funding, like I've said, and the rest is contingent on whether tech firms continue to be willing to spend money at scale.

6:5880 % of the revenue concentration depends on spending and capital that varies from unreliable to actively unstable. Meanwhile, these two AI labs represent a massive concentration risk for Microsoft, Google, Amazon, Oracle, CoreWeave, and anyone else that sells compute to them, with Anthropoc and OpenAI signing over$1.1 trillion worth of compute commitments based on demand that's mostly coming from a very small subset of customers. These are, from what I can tell, take-or-pay agreements where they agree to buy that compute capacity, regardless of how much capacity they actually end up using and how much revenue they actually bring in.

7:33As a reminder, both Anthropic and OpenAI are woefully unprofitable to lose tens of billions of dollars a year. To give you an idea of the concentration risk, OpenAI's compute spend and revenue share represent about 70 % of Microsoft's AI revenues in fiscal year 26, which just ended in June, or a little over 70 % of Microsoft's entire fiscal year revenue that year. And UBS estimates that OpenAI and Anthropics compute spend will account for 48 % of Google Cloud's entire revenues next year, or somewhere between$84 billion and$100 billion in 2027. That's on top of, per Barclays, OpenAI and Anthropics estimated$40 billion spend on Amazon Web Services and at least$50 billion that both of them will spend on Microsoft Azure in calendar year 2027, which I know because of Microsoft's old fiscal year system.

8:24On the low end, that means that Anthropic and OpenAI account for over$174 billion worth of expected revenues from Microsoft, Google, and Amazon in 2027, which is contingent on their ability to raise venture capital or debt, which is contingent on the continued growth of their businesses, which is contingent on growing AI spend from a small subset of customers, many of whom are funded by venture capital. The reason this hasn't been a problem yet is that when you sign these contracts you tend to pay a little upfront fee and the capacity in question is yet to come online. That's going to start happening next year and get dramatically worse month after month as capacity starts powering up and they start actually having to pay for it.

9:02A really shittily written piece from an outlet called Groundbreaker that people keep emailing me did make a good point about this. Comparing it to when the rates on millions of mortgages exploded as they hit a reset wall in 2027, where the low teaser interest rates ended, so when you signed a mortgage you would get like 1-3 % very low, exploding the monthly mortgage payments to unsustainable highs, with customers assuming when they signed it, incorrectly, that their houses would keep appreciating, they'd be able to refinance, or they could simply sell the bloody thing, which they obviously could not do when everyone was trying to do the same thing.

9:34In other words, OpenAI and Anthropik's massive compute commitments are the subprime mortgages of the AI bubble. They signed big, beautiful deals that helped hyperscalers and neoclouds post massive revenue backlogs under the belief that nothing bad would ever happen. That growth would happen unabated, and of course the money would always be available for everyone involved. Finally, at the top of the pile sits NVIDIA, whose concentration risk lies with the hyperscalers and neoclouds themselves, who justify buying further GPUs based on demand, and I put that in air quotes, from OpenAI and Anthropic with said demand for services contingent on whether they can continue to raise money.

10:11Even those buying GPUs to build AI data centers for other customers are doing so because they believe there's some sort of crazy demand for AI compute, with their reference point being the massive revenue backlogs for CoreWeave, Iron, Nebius, and other NeoClouds, who primarily sell compute to either OpenAI, Anthropic, or one of the hyperscalers backing them. Oh, and NVIDIA's customers are no longer able to buy its GPUs through cash flow alone. So all of those purchases are contingent on the constantly availability of debt. None of this is very good at all. I should also add that Broadcom added on the latest earnings that Anthropic and OpenAI are going to be their top two customers.

10:51It's all very good. It's all very normal, very good. Everything's fine here, okay? Nobody freak out. Even when you put it all in a line, it all sounds really fucking bad. I'm sorry, I'm not trying to be alarmist but even at the end of my own monologue i'm kind of like anyone else fucking think about this anyone else worried no the answer is no if you ask most sell-side analysts or financial journalists they'll tell you that all of this is totally fine it's nothing to worry about they will assure you that these are the smartest people in the world the most powerful companies that they wouldn't spend all this money for no reason that the demand for both ai compute and AI itself is real and that the AI skeptics are cherry picking data well we're going to fucking find out aren't we and when we find out I think it's going to be the thing I've been warning about and when that happens I've been keeping really detailed notes about all the people that tried to hand wave this away because I think this is a catastrophic misallocation of capital but also just the largest miss in journalism history just unbelievable to me that when this eventually falls apart and i am literally looking at my fucking bloomberg terminal and what just popped up says crusoe signs roughly 13 billion dollar jane street deal for cloud computing now you may think wow that's a different customer jane street a hedge fund how could they possibly be involved in this well you never guess what jane street's a major customer of core weave and an investor in core weave i bet they fucking invest in anthropic at some point jesus fucking did they invest in anthropic all right no i gotta i gotta end this i gotta end this goddamn monologue look i'll be back next week i still have yet to come up with what i'm gonna do but it's gonna be great my cat just knocked over an empty diet coke can and that's very annoying but nevertheless i I will be back.

12:41I love you all. I appreciate you listening. I'm Ed Zitron, and this has been Better Offline.

13:14We'll see you next time. we believe the only question should be, what if you could? Pitt advertisement, Anna Kendrick, is not a client of LPL Financial LLC and receives compensation to promote LPL. Investing involves risk, including potential loss of principal LPL Financial LLC member FINRA, SIPC. You already know how AI is changing how everyday work gets done, how much ground you can cover, and how fast a team can scale. To stay ahead, you need the tools that give you a competitive advantage built for this new era. Welcome to Agentic Revenue. Adio is the CRM for this world. It meets you where you work, compounds every customer signal into context, Then ax on it across your pipeline to let you move it on match speed and scale.

13:50With agents and automations for every job in revenue, Adio orchestrates your work around the clock. Built to handle the scale of your workloads, extensible with API and MCP. And with the infrastructure to keep up with your most ambitious agents. Loved by high-growth startups like Granola, Modal, and Etched, Adio runs the work behind every win. That's Adio, the agentic CRM, the intelligent system that never sleeps. Picks up leads at 2 a.m. Catches renewals before they slip. Hands you the answer before you ask. Try Adio free at adio.com slash iHeart. That's adio.com slash iHeart.

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