Monologue: What The Hell Are The Hyperscalers Doing?

0:00This is an iHeart podcast. Guaranteed human. Run a business and not thinking about podcasting? Think again. More Americans listen to podcasts, then add supported streaming music from Spotify and Pandora. And as the number one podcaster, iHeart's twice as large as the next two combined. Learn how podcasting can help your business. Call 844-844-iHeart. Hey, everybody. I'm Tarika Foster-Brasby. What's up, y 'all? I'm your girl, Cheryl Swoops. When you tune in to a new episode of our podcast Levels to This, you're definitely going to get some spicy WNBA analysis. But we're more than just hoops. And the real conversation is what we actually bring.

0:41It's been really, really cool seeing kind of these women just really step into their power off the court and understand that they aren't basketball, right? And they're not asking for permission. Listen to Levels to This with Shroes Hoops and Tarika Foster-Brasby. on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. I'm Emily Oster. I'm an economist and data expert. And I'm Perry Wilson. I'm a medical doctor. And this is our new podcast, Wellness Actually. You're getting a staggering amount of health and wellness information, and some of it is awesome. And some of it is, well, actually, bulls**t.

1:20Fortunately, we're both people who know how to read studies and can tell you what's worth trying out and what you can safely ignore. Listen to Wellness Actually on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Bill, why is my eye twitching? Does this mean I'm in perimenopause? Where's my phone? Juliana, maybe we can ask an actual human. Yes, because I have questions, and I bet you do too. Like, is it normal to sleep in separate bedrooms? We do that, and I still need to know why my poop's been green. We've got actual people answering these exact questions. Listen to Bill and Juliana, the podcast, on the iHeartRadio app, Apple Podcasts, or wherever you listen to your podcasts.

2:08Superstition, fear, and jealousy. Welcome to this week's Better Offline monologue. I'm your host, Ed Zitron.

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2:55I've got the terminal going now and all sorts of data. The many numbers I read every week are driving me truly insane. And with that in mind, today's monologue starts with a simple question. What the fuck are hyperscalers doing? Now, I realize I've asked this question maybe 100 ,000 times in the last two years, but it's begun to get so incredibly stupid that I'm actually a little exasperated. mckinsey spawn and google ceo sundar peshai announced in wednesday's earnings that google would raise its year-end capital expenditures to somewhere between 195 billion dollars and 205 billion dollars after burning 80.6 billion dollars in the first half of the year and this suggests that google will spend another 114 billion dollars by the end of 2026 they're going to be doing like 55 60 billion dollars a quarter it's fucking insane it's fucking stupid i'm sorry for swearing but it's absolutely deranged.

3:47What are you doing, Sundar? You've already spent$288 billion in CAPEX since 2022, and all you've got to show for it is several also-ran LLMs and one indeterminately large customer in Anthropic, who you've also invested$13 billion in. Now, one answer might be that Anthropic helped juice Google Cloud's growth by 82 % year-over-year in this quarter, but considering that Google doesn't actually break out how much of that is from AI or from Anthropic, or really from anything, it's difficult to say what exactly this money is doing other than turning its free cash flow negative for the first time since Google went public.

4:24While I can't say for sure how much Anthropic is spending, I do believe it's taking up the vast majority of Google's AI infrastructure and representing most of its cloud growth. Google Cloud was, up until fairly recently, the last year or so, a much smaller business than Microsoft Azure or Amazon Web Services, and it's been growing somewhere between 22 % and 30 % year-over-year, hitting 33.9 % year-over-year growth in the third quarter of 2025. That very same quarter, Google and Anthropic announced a deal to expand its use of TPUs, which is Google's special GPUs, in a contract worth, and I quote, tens of billions of dollars.

5:00Mysteriously, can't imagine how, Google's next three quarters of cloud revenue growth showed 47.7%, 63.4%, and 82.1 % year-over-year growth. whatever could that be where did that come from i can't work it out can you dear listener what could it possibly it's anthropic it's anthra it's obviously anthropic except in those same quarters google's capital expenditures went up 95 107 and 100 year over year absorbing every dollar of cloud revenue and then some in fact outside of the fourth quarter of 2024 google's capital expenditures of outpaced cloud growth by at least 12 % year over year for two goddamn years.

5:41And if your pushback is, well, Google's spending that capex on something else. No, they're not. They're not. Maybe they got a couple barely coming in from Google workspace and cucking their various subscribers with annoying things. It's coming from Anthropic. Google is not making that money from Gemini. Your ass must be crazy if you think that's the point. But all of this begs the question, When exactly does all of this pay off? How does it pay off? What does the payoff even look like? And why am I one of the few people asking these questions? Hyperscalers have now spent, I estimate, about$1.1 trillion.

6:20I haven't seen Amazon and Microsoft's quarters yet, but I'm going to guess they spent a good amount on CapEx. They now spent$1.1 trillion bloody dollars on capital expenditures. And when you ask them to tell you how much revenue they made from said expenditures, as they look at you like that meme of Brendan Fraser from The Whale. Anyway, here's a fun fact for you. Thanks to my own reporting on OpenAI's auditive financials, we know that it spent$17.2 billion on Microsoft Azure in calendar year 2025, a year when Microsoft's Intelligent Cloud segment made$120.4 billion in revenue. The segment grew as a result 26 % year over year.

6:57Yeah, I'm a curious little critic, so I ran the numbers, and OpenAI's revenue represented 14.3 % of all Microsoft's cloud revenues for that period. And to be clear, it's calendar year 2025. They have a fiscal quarter thing, but I went and worked it out. But this means that OpenAI's money represented 18 % of the year-over-year growth of Microsoft's cloud. Without it, their cloud revenue growth was a mere 8 % year-over-year. That's pathetic. That's abominable. That's barely keeping up with inflation. That's dogshit, Satya. yeah satia you should be ashamed of yourself satia come on my show so i can ask you very reasonable questions i'll be nice i swear you won't you're scared just let the rest of them just like clammy sam on one glamuel your your public relations people said you're too scared to speak to me well they said you wouldn't speak to me and i know you're scared same with weird dario where are you boys you're too scared of better offline anyway enough of the trump voice though, there is actually a reason that hyperscalers are still spending all that capex.

7:59OpenAI and Anthropic allow hyperscalers to boost growth by feeding their own money back into their businesses, a short-term solution to the long-term problem of the end of the era of hypergrowth. One of the reasons they're so shy about AI revenues is that they know it'll become obvious where those revenues are coming from. Two unprofitable and unsustainable AI labs, and a little trickle, a little spurt from AI services they dump on their enterprise customers through confusing subscriptions, upsells, and just adding AI to random things and being like, look folks, don't we love this? Don't you all love this, you little shits?

8:37And hyperscalers also know that the second they cut their capex spend, the AI trade unwinds. If Microsoft, Google, Amazon, and Meta aren't buying hundreds of billions of dollars of GPUs a year, that means Taiwanese server manufacturers like Quanta and Hon Hai won't sell as many servers, and thus won't need as many GPUs. Broadcom and NVIDIA won't need as much high bandwidth memory for those TPUs and GPUs, and data center speculators across the world will suddenly realize that they conflated hyperscalers being stupid with their money with the existence of massive amounts of demand for AI compute.

9:11But another way, hyperscalers are doing kayfabe to keep the crowd riled up. Everybody's slowly working out that the wrestlers aren't really hitting each other and everything is scripted i also should add i can just anticipate i'm going to get an email from someone being like well actually this is good the capital expenditures are good because it showed growth even though it's short term that's a silly silly perspective to take considering they're feeding all the revenues back into the business in the capex for stuff that won't be useful in the future mathematics my friend try it sometime but anyway it is a funny old time for me right now because i feel like i'm on three or four podcasts or tv shows or interviews a week as the system appears to be trying to cover its arse by having me on to explain stuff i said two years ago but a little more insistently and clearly than before while the mainstream media seems hesitant to fully commit to the graveyard smash of the ai bubble it feels as if there's a conscious attempt to represent my work as more than just the other side or a hater or a skeptic or a cynic which is both edifying and enraging because we are now so far past past the point of no return i mean yeah we really can't avoid what's coming as i wrote in my newsletter this week i think there's a subprime data center crisis brewing right now with over 500 billion dollars in data center spvs that can only ever make investors whole if there's hundreds of billions of dollars of ai compute demand in the next two years and to be clear when i say hundreds of billions of dollars demand i mean a year i mean literally a year i ran the numbers and for the what i think it's 190 gigawatts of supposedly planned data centers you'd need 1.6 trillion dollars a year in annual compute revenue to make it worth worthwhile and by the way the global software market is under 800 billion dollars a year so don't know where that fucking money's coming from and no one else seems to really want to think about it and i deeply worry about what happens when the demand doesn't arrive as these data center debt deals are often funded by private credit funds which are in turn funded by both public and private pensions and insurance funds anyway do read the free newsletter to learn more it is free this one i have a premium one coming out today that will be about well the fact that oracle's dying which i mean hey you in the back stop laughing stop it poor larry ellison poor who gives a fuck in all seriousness though it's gonna be a banger the free ones a banger there's bangers everywhere and i'll be back next week with my good friend nick suresh to talk about how ai mania is eviscerating global decision making creating a cult-like environment where one's participation in ai is almost a religious act and if you talk badly about ai it's considered a carnal sin or a cardinal sin one of those two sure one of you will correct me on this one nevertheless it's a really he it's based on this incredible piece he wrote i can't wait for you to read it i can't wait for you to let me talk to him i don't know can't wait for you to consume my content what a peculiar thing to say anyway i'll catch you next week zitron out

12:19from taco night into room to sushi in tokyo make every bite rewarding with gold from mx Wherever you dine, four times the membership rewards points at restaurants worldwide are piling up. Learn more at AmericanExpress.com slash Explore-Gold. Terms and points cap apply. Hey, everybody. I'm Tarika Foster-Brasby. What's up, y 'all? I'm your girl, Cheryl Swoops. When you tune in to a new episode of our podcast, Levels to This, you're definitely going to get some spicy WNBA analysis. But we're more than just hoops. And the real conversation is what we actually bring. It's been really, really cool seeing kind of these women just really step into their power off the court and understand that they aren't basketball, right?

13:05And they're not asking for permission. Listen to Levels to This with Stroh's Hoops and Tariqa Foster-Brasby on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Bill, why is my eye twitching? Does this mean I'm in perimenopause? Where's my phone? Juliana, maybe we can ask an actual human. Yes, because I have questions and I bet you do too. Like, is it normal to sleep in separate bedrooms? We do that. And I still need to know why my poop's been green. We've got actual people answering these exact questions. Listen to Bill and Juliana. The podcast. On the iHeartRadio app, Apple Podcasts, or wherever you listen to your podcasts.

13:49I'm Emily Oster. I'm an economist and data expert. And I'm Perry Wilson. I'm a medical doctor. And this is our new podcast, Wellness Actually. You're getting a staggering amount of health and wellness information, and some of it is awesome. And some of it is, well, actually, bulls**t. Fortunately, we're both people who know how to read studies and can tell you what's worth trying out and what you can safely ignore. Listen to Wellness Actually on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. This is an iHeart Podcast. Guaranteed human.