OpenAI Is A Systemic Risk To The Tech Industry

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3:14That's awesome. I'm Ed Zitron. This is Better Offline. And this is the second episode of my two-part series where I explain how open AI has become a systemic risk to the tech industry, even with its massive$40 billion funding round and bird-brained benefactor in the form of SoftBank, the world's foremost authority in losing money. Now, before I continue, shameless request, Better Offline has been nominated for a Webby, and I want to win this thing. I've linked to it in my Twitter and my Blue Sky, and if you could vote for me, well, it'll be in the episode notes too. Moving on. Back at it. Okay, all right.

3:48OpenAI now has$40 billion somehow. Right? Great, right? Well, hold your horses. As part of its deal with SoftBank, OpenAI must also convert its bizarre non-profit structure into a for-profit entity by December 2025, or it will lose$10 billion from that$40 billion round of funding. And just to be clear, by the way, they've only really got$10 billion of that so far. The rest is at the end of the year. Furthermore, in the event that OpenAI fails to convert into a for-profit company by October 2026, investors in its previous$6.6 billion funding round can claw back their investment, with it converting into a loan with an attached interest rate.

4:25Naturally, this represents a nightmare scenario for the company, as it will increase both its costs and its outgoings. This is a complex situation that almost warrants its own podcast, but the long and short of it is that OpenAI would have to effectively dissolve itself, start in the process of reforming an entirely new entity, and distribute its assets to other non-profits or sell or license them to a for-profit company at fair market rates, which they would not set. It would also require valuing OpenAI's assets, which in and of itself would be a difficult task, as well as getting past the necessary state regulators, the IRS, state revenue agencies, and the upcoming trial with Elon Musk.

5:02Well, that only adds further problems. I've simplified things here, and that's because, as I've said, this stuff is a little complex and pretty boring. Suffice to say, this isn't as simple as liquidating a company and starting afresh or submitting a couple of legal filings. It's a long, fraught process and one that will be, as has been, subject to legal challenges, both from OpenAI's business rivals as well as from civil society organizations in California. You may have heard the last monologue. Based on discussions with experts in the field of my own research, I simply do not know how OpenAI pulls off this by October 2026, and honestly, I'm not sure how they do it by the end of this year.

5:38It's insane. It's a really i just every time i read this stuff and i write i'm like how is nobody else reading this and going what the fuck is going on you see this is a big problem this non-profit thing because open ai really has become a systemic risk to the tech industry and anything that increases that risk is bad news for everybody open ai they've become a kind of load-bearing company for this industry both as a narrative as i've discussed multiple times as chat gpt is the only large language model company with any meaningful use base, and also as a financial entity. Its ability to meet its obligations and its future expansion plans are critical to the future health or, in some cases, survival of multiple large companies, and that's before the after-effects that will affect its customers as a result of any kind of financial collapse.

6:26The parallels to the 2007 and 2008 financial crisis are starting to become a little worrying. Lehman Brothers wasn't the largest investment bank in the world, although it was pretty big. Just like OpenAI isn't the largest tech company, though again, it's certainly large in terms of alleged valuation expenditures. Lehman Brothers' collapse sparked a contagion that would later spread throughout the entire global financial services industry and consequently the global economy. Now, I can see OpenAI's failure not having as big an effect, but I can imagine a systemic effect still. You have to realize that the whole AI trade, the narrative, the bubble, it's holding up the economy.

7:06I think like 30-35 % of the US stock market is in the Magnificent Seven and all of their bullshit numbers right now are held up by this nonsense. And like the financial crisis, the impact in this case won't be limited to just bankers and insurers. It will bleed into everything else. This episode is going to be a bit grim. I'm not going to lie. I want to lay out the direct result of any kind of financial crisis at OpenAI because I don't think anybody is taking this seriously. Let's start with Oracle, who will lose at least a billion dollars if OpenAI doesn't fulfill its obligations. Per the information, Oracle, which has taken responsibility for organizing the construction of the Stargate data centers with unproven data center builder Crusoe, and I quote the information here, may need to raise more capital to fund its data center ambitions.

7:51Oracle has signed a 15-year lease with Crusoe, and to quote the information, is on the hook for$1 billion in payments to that firm. To further quote the information, While that's the standard deal length, the unprecedented size of the facility Oracle is building for just one customer makes it riskier than a standard cloud data center used by lots of interchangeable customers with much more predictable needs, according to half a dozen people familiar with these types of deals. In simpler terms, Oracle is building a giant data center for one customer, OpenAI, and has taken on the financial burden associated with it.

8:20If OpenAI fails to expand or lacks the capital to actually pay for its share of the Stargate data center project, Oracle is on the hook for at least a billion dollars. and based on the information it's reporting, it's also unhooked by the GPUs for the site. This is me quoting them again. Even before the Stargate announcement, Oracle and OpenAI had agreed to expand their Abilene deal from two to eight data center buildings which can hold 400 ,000 NVIDIA Blackwell GPUs, adding tens of billions of dollars to the cost of the facility. In reality, this development will likely cost tens of billions of dollars, $19 billion of which is due from OpenAI, which does not have the money until it receives its second tranche of funding in December 2025 from SoftBank, and this is contingent partially on their ability to convert into a for-profit entity, which, as mentioned, is extremely difficult and extremely unlikely.

9:06It's unclear how many of the Blackwell GPUs that Oracle has had to purchase in advance, but in the event of any kind of financial collapse at OpenAI, Oracle would likely have to toss at least a billion dollars, if not several billion dollars. And then we get to Core, Corweave, a company whose expansion is likely driven entirely by open AI now and cannot survive without open AI fulfilling its obligations, if it doesn't die anyway. Now, I've written and spoken a lot about publicly traded AI compute firm, Corweave, and it would give me the greatest pleasure in my life to never think or talk about them ever again.

9:38Nevertheless, I have to. This is my curse. This is my curse. Corweave has become my curse every time I think about this. Fuck. Okay. The Financial Times revealed a few weeks ago that CoreWeave's debt payments could balloon to over$2.4 billion a year by the end of 2025, far outstripping its cash reserves, and the information reported that its cash burn would increase to$15 billion in 2025. As per its IPO, filing 62 % of CoreWeave's 2024 revenue, a little under$2 billion with losses amounting to$863 million, was Microsoft Compute. Based on the conversations I've had with sources, a good amount of this was Microsoft running Compute for OpenAI.

10:17Starting October 2025, OpenAI will start paying CoreWeave as part of its five-year-long$12 billion contract, picking up the option that Microsoft declined. This is not great timing, or maybe it's perfect timing, because this is also when CoreWeave will have to start making payments on their massive, stupid, multi-billion-dollar DDTL 2.0 loan mentioned in previous episodes. But really, there's a newsletter. If you want to hear me go mad, you want to read me go mad, you read my CoreWeave piece, because it really drove me insane. nevertheless these core weave payments the ones from open ai to core weave that october they're pretty much critical to core weave's future this deal also suggests that open ai will become core weave's largest customer microsoft had previously committed to spending 10 billion dollars on core weave services by the end of the decade but ceo satire nadella added a few months later on a podcast that its relationship with core weave was a one-time thing man man i really like really fucking around there.

11:14Satchit, don't love CoreWeave. Assuming Microsoft keeps spending at its previous rate, so about 1.66 % of$2 billion, whatever that is, something that isn't guaranteed, by the way, it would still only be half of OpenAI's potential revenue to CoreWeave. CoreWeave's expansion at this point is entirely driven by OpenAI. 77 % of its 2024 revenue came from two customers, Microsoft being the largest, and yes, I just fucked up a number, at 62%, and using CoreWeaver's auxiliary compute for OpenAI. As a result, the future expansion efforts, the theoretical 1.3 gigawatts have contracted, and by the way, that means it doesn't exist, compute, at CoreWeaver largely, if not entirely, for the benefit of OpenAI.

11:54In the event that OpenAI cannot fulfill its obligations, CoreWeaver will collapse. It's that fucking simple. And then the shockwaves will ripple further. NVIDIA relies on CoreWeaver for more than 6 % of its revenue, and CoreWeaver's future credit worthiness to continue receiving said revenue, you? Well, much of that is dependent on OpenAI continuing to buy services from CoreWeave. Now, I'm basing this on a comment I received from the legendary Gil Luria, Managing Director and Head of Technology Research at Analyst DA Davison & Co. I quote him, Since CoreWeave bought 200 ,000 GPUs last year and those systems are around$40 ,000, we believe CoreWeave spent$8 billion on NVIDIA last year.

12:31That represents more than 6 % of NVIDIA's revenue in 2024. He said last year, but I just wanted to make it sound better. CoreWeave receives preferential access to NVIDIA's GPUs, though NVIDIA kind of denies that and makes up billions of dollars of NVIDIA's revenue. CoreWeave then takes those GPUs and then they raise debt using the GPUs as collateral, as well as customer contracts. Then they use the money they've raised to buy more GPUs from NVIDIA. You may think, that doesn't sound right. I am being complete, like, this is factual information at this point. NVIDIA was the anchor for CoreWeave's IPO, and CEO Michael Entraitor said that the IPO would not have closed without NVIDIA buying $250 million worth of their shares.

13:13NVIDIA also invested$100 million in the early days of Core Weave's, and for reasons I cannot understand, also agreed to spend$1.3 billion over four years too when I quote the information, rent its own chips from Core Weave. Fun fact, I can't find a single fucking mention of Core Weave in any of NVIDIA's filings. Now buried in Core Weave's S1, the document every company publishes before going public, was a warning about counterparty credit risk, which is when one party provides services or goods to another with specific repayment terms and the other party doesn't meet their side of the deal. While this was written as a theoretical, as it could, theoretically speaking, come from any company to which CoreWeave acts as a creditor, it only named one, OpenAI.

13:57Now, as discussed previously, CoreWeave is saying that should a customer, any customer, but really they mean OpenAI, fail to pay its bills for infrastructure built on their behalf or services rendered, it can have a material risk to the company. Now, as an aside, the information reported that Google, and someone's going to email me this, so I just want to get ahead of it, that CoreWeave is apparently in advanced talks with Google to rent GPUs. It also added another thing in this story, just so I don't have to hear from any of you. That Google's potential deal with CoreWeave is significantly smaller than their commitments with Microsoft, according to one of the people briefed on it, but could potentially expand in future years.

14:33Do not come to me and claim that Google is going to save CoreWeave. I'll be so mad. Anyway, even with Google and OpenAI's money, CoreWeave's continued ability to do business hinges heavily on its ability to raise further debt, which I have previously called into question in a newsletter that gave me madness. And its ability to raise future debt is, to quote the Financial Times, secured against its more than 250 ,000 NVIDIA GPUs and its contracts with customers such as Microsoft. Now, any future debt that CoreWeave raises will be based off of its contract with OpenAI, you know, the counterparty credit risk threat that represents a disproportionate share of its revenue that I just mentioned, and also whatever GPUs they still have left that they can get debt on.

15:14As a result, a chunk of NVIDIA's future revenue is dependent on OpenAI's ability to fulfill its obligations to CoreWeave, both in its ability to pay them and their timeliness in doing so. If OpenAI fails, then CoreWeave fails, then that hurts NVIDIA. Jensen's going to have to go to a cheaper leather jacketarium. And it gets worse. OpenAI's expansion is dependent on two unproven startups, one of them I just mentioned, who are also dependent on OpenAI to live. With Microsoft's data center pullback and OpenAI's intent to become independent from Redmond, future data center expansion is based on two partners supporting CoreWeave, I know, we'll get there, and Oracle.

15:50Now I'm referring, of course, to Core Scientific, which is the data center developer for core weave and of course crusoe who's the data center developer for oracle now if you were wondering i kind of hinted about this earlier how many data center i mean ai dentists do you think crusoe's ever built and the answer is is none and uh core scientific how many do you think they've built and the answer is also none these are the fucking companies underpending the ai boom i also really must explain how difficult it is to build a data center and how said difficulty increases when you're building an AI-focused one.

16:24For example, NVIDIA had to delay the launch of its Blackwell GPUs because of how finicky the associated infrastructure, so the servers and the cooling and such, is. For customers, this was for customers that had already been using GPUs and therefore likely knew how to manage the temperatures created by them. Also, as another reminder, OpenAI is on the hook for$19 billion of funding behind Stargate, and neither of them have that money. I just want to remind you of that because it costs so much money to build a fucking data center. And imagine if you didn't have any experience and effectively had to learn from scratch, how do you think it would be building these data centers?

17:01Let's find out. So let's start in Abilene, Texas with Crusoe and the Stargate data center project. Now, Crusoe is a former cryptocurrency mining company that has now raised hundreds of millions of dollars to build data centers for AI companies, starting with a$3.4 billion data center financing deal with asset manager blue owl capital this yet-to-pea completed data center has now been leased by oracle which will allegedly fill it full of gpus for open ai despite calling itself and i quote the industry's first vertically integrated ai infrastructure provider with the company using flared gas as a waste byproduct of oil production to power it infrastructure crusoe does not appear to have built a single ai data center and is now being tasked with building 1.2 gigawatts at a data center capacity of capacity for open ai it's just so fucking crusoe is the sole developer and operator of the abilene site meaning according to the information that it is in charge of contracting with construction contractors and data center customers as well as running the data center after it is built oracle it seems will be responsible for filling said data center with gpus as mentioned nevertheless the project also appears to be behind schedule.

18:06The information reported in October 2024 that Abilene was meant to have 50 ,000 of NVIDIA's Blackwell AI chips in the first quarter of 2025, and also suggested that the site was projected to have a whopping 100 ,000 of them by the end of 2025. Now, you can join me back here in reality, because a report from Bloomberg in March 2025 said that OpenAI and Oracle were expected to have 16 ,000 available by the summer of 2025, with, and I quote, OpenAI and Oracle expecting to deploy 64 ,000 NVIDIA GB200s at the Stargate data center by the end of 2026. That's very delayed. That's really delayed. Again, how I run a PR firm in the iRecorder podcast.

18:49I write a newsletter. I have a book I'm writing. I got all this shit on and I'm the asshole who notices this. Anyway, as discussed previously, OpenAI needs this capacity very badly. According to the information, OpenAI expects Stargate to handle three quarters of its compute by 2030, and these delays call into question at the very least whether this schedule is reasonable or logical or even possible. And I actually really question whether Stargate itself is possible at this point. But it can get dumber, because we're about to talk about Core Scientific, and they are CoreWeave's friends. They're the people building data centers for CoreWeave in Denton, Texas.

19:56We'll be right back. I first found out about my cancer on my birthday at the age of 45. Found out my cancer has spread to my pelvic bone. And from there, life just changed. About one in eight men will be diagnosed with prostate cancer during their lifetime. And the risk increases with age. Anything with cancer, you just think death sentence. And the only thing I could think about was, who's going to take care of my family? You have to go out there and build your support system. You got to build your team. In this episode, we'll explore the science behind detection, along with the practical steps men can take to protect their health.

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22:30Now, as you can probably tell, I've written a great deal about CoreWeave in the past. I've got a monologue, I've got a newsletter, and I've got a therapy bill for it. And specifically, I've written about their build-out partner, Core Scientific, a cryptocurrency mining company yes another one that has exactly one customer for its AI data centers and you'll never guess who it is it's CoreWeave now here's a few fun facts about Core Scientific Core Scientific was bankrupt last year Core Scientific has never built an AI data center and its cryptocurrency mining operations were built around ASICS specialist computers for mining Bitcoin which led to an analyst to tell CNBC that said data centers would and I quote need to be bulldozed and built from the ground up to accommodate AI compute.

23:11That's the stuff. Core Scientific also does not appear to have any meaningful AI compute of any kind. It's AI slash HPC, which is high performance computing. Revenue represents a teeny tiny teeny little percentage of overall revenue, which mostly comes from mining crypto both for itself and other parties. Now, hearing all of this, would you give this company your compute? Would you think these are the people that I am going to call to build my data centers. If you said no, you are smarter than CoreWeave, who has given their entire 1.3 gigawatt build out to Core Scientific. Core Scientific also, it seems, they seem to be taking on like$1.14 billion of capital expenditures to build these data centers, which by the way is not enough money.

23:58But nevertheless, CoreWeave has promised to reimburse them 899.3 million of these costs. This is all from public filings, by the way, it's also unclear how Core Scientific actually intends to do any of this shit. While they've taken on a good amount of debt in the past,$550 million in the convertible note towards the end of last year, this would be more debt than they've ever taken on. It also, as with Crusoe, does not appear to have any experience building AI data centers, a point I keep repeating because it's very important these are the companies behind the growth for OpenAI, except unlike Crusoe, Core Scientific is a barely functioning, recently bankrupted Bitcoin miner pretending to be a data center company.

24:35Crusoe, on the other hand, is possibly also doing the same thing, but they're less egregious about it. Now, how important do you think CoreWeave is to OpenAI exactly? Well, that's our semaphore. CoreWeave has been one of our earliest and largest compute partners, OpenAI chief Sam Altman said in CoreWeave's roadshow video, adding that CoreWeave's compute power led to the creation of some of the models that we're best known for. CoreWeave figured out how to innovate on hardware, to innovate on data center construction, and to deliver results very, very quickly. Did it? But even if it did, will it survive long term?

25:08Going back to the point of the contagion, if OpenAI fails and CoreWeave fails, so too does Core Scientific, and I don't really fancy Crusoe's chances either. But let's take a step back for a moment. We've been going so hard, haven't we? I've got a genuine question, just for the fact-finders out there. Does Microsoft book OpenAI's computers' revenue? Now, up until fairly recently, Microsoft has been the entire infrastructure backing OpenAI, but recently, to free OpenAI up to work with Oracle and see other people, released it from its exclusive cloud compute deal. Nevertheless, per the information, OpenAI still intends to spend$13 billion on compute on Microsoft Azure this year.

25:46What's confusing, however, is whether any of this is booked as revenue for Microsoft. Microsoft claimed earlier in the year that it surpassed$13 billion in annual recurring revenue, by which it means it's last month, multiplied by 12, by the way, and they said it was from AI. OpenAI's compute costs in 2024 were$5 billion, and that's at a discounted Azure rate, which on an annualized basis would be about$416 million in revenue a month for Microsoft. It isn't, however, clear whether Microsoft counts OpenAI's compute as money, which is really fucking weird. You'd think with all this money they're making from this company, they'd be saying there was money coming in.