Monologue: OpenAI and NVIDIA's Deal Is BS

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2:25It's low after 35 gigabytes if network's busy. Taxes and fees extra. See MintMobile.com. CallZone Media. Hello and welcome to this week's Better Offline monologue. I'm your host, Ed Zitroner. As I wrote while drafting this, I'm Yow's house. A line I'm leaving in as I'm being accountable to you, the customer.

2:52Better Offline. Anyway, you've heard about the NVIDIA OpenAI deal by now, that NVIDIA will, and I put this in air quotes, invest$100 billion in OpenAI. And I want to start out by being explicit that NVIDIA has not wired OpenAI a single goddamn dollar. All right, so the deal is that NVIDIA is investing$10 billion upfront, according to CNBC, despite the fact that the day before it said that they would be investing$10 billion with the first giga. But anyway, they're investing$10 billion in a month allegedly, and I quote here, once the deal is finalized, which means in simpler terms that nothing's actually been signed, NVIDIA will then invest$10 billion in tranches for each gigawatt of capacity that OpenAI builds.

3:35That's right. That's right, everyone. Most of this funding is gated behind OpenAI, a company that burns billions of dollars, building huge amounts of data centers, something they have never done. And that also costs billions of dollars. And just as an aside open ai really has built nothing themselves everyone else is building it for them these fucking silicon valley libertarians they love themselves and welfare don't they anyway how does open ai afford to build these data centers i don't know nobody else seems to know where are they being built who knows it's unclear has the land been purchased also unclear there's some sort of crap announcement about oh stargate we've got a list of different fucking new places.

4:15And I had someone on the Reddit suggest I was wrong. I just want to be clear, of the list of the five new Stargate locations, one of them is in Shackleford, Texas, which was already chosen to be one of Oracle's data centers. This was already announced. They're re-announcing stuff. As a PR professional, when you're re-announcing shit, it's because you run out of stuff to announce that's real. But look, let's be explicit about one thing. Data centers take a long, long time to build. Right now, Crusoe is building a data center in Abilene, Texas, made up of eight buildings, which will amount to about 1.2 gigawatts of compute capacity.

4:51This is the one for Oracle and OpenAI. And at the current rate of development, it's taken about two and a half years per gigawatt. Look, I realize it's easy to get drowned in big numbers and ridiculous promises and media headlines where the writers don't seem to bother to learn even the simplest fucking things, but data centers are expensive and take forever, and this entire plan hinges upon OpenAI building data centers. In fact, look, I've seen lots of people suggest that the$10 billion that OpenAI is getting from NVIDIA will let them build data centers. And again, can somebody please actually learn the basics here?

5:26The Abilene data center venture required Crusoe, Blue Owl, and primary digital infrastructure to raise$15 billion in debt just for the data center itself, the construction, the people, the water, the power, and all that good stuff, with Oracle footing the bill for the hundreds of thousands of GPUs to go inside at a price of, I think, about$24 billion, it works out to. By my calculations, OpenAI will need$125 billion just to build the data centers to get the funding from NVIDIA, which will require another$200 billion in GPUs, by the way. The information also reports that NVIDIA is going to be potentially leasing GPUs to OpenAI, setting up a special purpose entity to buy the gpus from themselves that they would then lease to open ai i've really hesitated to bring up any enron comparisons i've kind of flirted with one with core weave and them that's that's straight enron shit like man they haven't conferred they're going to do it it's an information report i'll put a link in there you'll complain that you have to pay for it i recommend the information i just every every day every day these new pieces of news where everyone kind of like trumpets them like jesus just woke up from behind that big fucking rock when in fact i think something far worse is happening but i really want to break something down for you and you'll likely hear this again in a future episode i want to get into the actual economics here crusoe's 1.2 gigawatts of compute for open ai is a 15 billion dollar joint venture which means a gigawatt of compute runs about 12.5 billion dollars abilene's eight buildings are meant to hold about 50 000 and NVIDIA GB200 GPUs and their associated networking infrastructure.

7:08So let's say a gigawatt is about 303 ,333 Blackwell GPUs. Yeah, this math is a little bit funky due to NVIDIA promising to install their new Rubin GPUs in these theoretical data centers. But I really do think that they'll require about just a little under$200 billion worth of GPUs. And this is on top of the$400 billion that OpenAI has promised to spend with Oracle over the next five years, when OpenAI had already leaked that they'd be burning$115 billion over the next four years. This math does not make any sense. It's complete nonsense. For OpenAI to survive, they're going to need around$600 billion in the next five years.

7:49It's ridiculous, astonishing and insulting to the general public that the media keeps acting as if these deals are signed or promoted in good faith, and I'm shocked that more people aren't doing the very simple maths. That, and I've seen a disgraceful amount of people talking about OpenAI's revenue projections, which involve them making$100 billion in 2028 and$145 billion in 2029, and that's revenue, not profit. They're losing tens of billions of dollars both those years, and they're acting as if these are serious, meaningful statements rather than egregious lies from a gaggle of charlatans. It's a fucking joke.

8:23It's sickening. Oh, by the way, OpenAI is projected to make$13 billion this year. From my calculations, they made about$6.26 billion. It's wank. And that's the technical term. They use it, their financial analysts put it, when you pay JP Morgan to see their private shit, it's all, yes, it's all wank. This is wank. Okay, I'll keep going. Now, for the next three-part episode I'm going to put out next week, I've done a lot of digging into how much actual money exists to invest in general, and we're genuinely running up against the limits of private and public capital. By my calculations, there's only about$477 billion of available capital across the top 10 private equity funds, and I'm deadly serious, I will be publishing the links, and maybe$164 billion of US venture capital left, and maybe, let's call it another$150 billion in other funds sloshing around.

9:14Are we really going to carve out half to two-thirds of available global capital for one fucking company that burns a billion fucking dollars every two fucking seconds. I know it's slower than that. Shut up. I'm just, I'm a little bit ornery. I'm not going to lie. You can hear it in my voice and I'm even more ornery than ever. More ornery than ornery, as Rob Zombie once sung. I'm just pissed off because when you look at these numbers, they do not make sense. There's no parallel in history for any company or any industry that's ever spent this much money. There's never been one company that has been the focus like this.

9:53And honestly, I've never seen a company less deserving of any investment than OpenAI. They burn billions of dollars. Their product is questionably useful. It's incredibly commoditized. They have yet to create anything really exciting or new since. And if I'm being kind reasoning, but let's be honest, GPT-40, they are washed. And yet everybody's sitting around them clapping like they're a gifted child. An insult to children and startup founders. And that really is something that pisses me off as well. Because AI took 33 % of US venture capital last year, and I think they're probably taking more this year.

10:29And what's insane is nothing has been proven. None of these companies are profit generating. None of these products are popular. Every single day it feels like a study comes out saying, yeah, no one really likes this stuff. No one wants to pay for it. and by my calculations i think the whole industry's revenue if include core weave and all those shits maybe 55 billion dollars in 2025 that's on 400 billion plus capex is anyone having fun does this feel like the future or does this feel like the future of how we're going to blow hundreds of billions of dollars on nothing and the longer it takes for people to walk away from open ai and the longer it takes for this company to die, the more damage there's going to be caused.

11:16Because right now, NVIDIA is putting everything on OpenAI. If we had functioning regulatory boards, we'd actually have something done about this. But instead, what's going to happen is they're going to inflate this bubble just a little further. And then when it bursts, it's going to fuck retail investors and a ton of venture capitalists too, a ton of private equity people as well, which will be kind of funny. But the financial apocalypse will hit everyone. and it'll be grisly but i'll be here to talk about it i'm having the time of my life doing this show next week's three part is completely insane i wrote it in kind of a two-day 15 000 word kind of like ejection i was going to say i was going to say another word which wouldn't have sounded quite as good but nevertheless that's the fun ranty part of these monologues but i'm really excited for you to hear it because i pulled together a lot of numbers that show how farcical this industry has become.

12:08And I think as the bubble approaches its eventual burst, a lot of you are going to feel really good about how right you are. Maybe some of you still disagree with me, and I will work to compel you. And even if I don't, I hope you have a good time listening. Got great episodes coming up in the future as well. Gonna be going to see Stephen Burke of Gamers Nexus do a long interview with him, some fun Radio Better Offline, and then I'm already working on some big guests. It's going to be a really fun few months. I don't know for anyone else, but I'm definitely enjoying doing this podcast. Thank you as ever for listening.

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14:29This is an iHeart Podcast.