The AI Money Trap, Part Two

24:03When I asked him to elaborate, he estimated that AI spending all in was around half of 3 % Q2 real GDP growth. He added that it could be half of US GDP full year GDP growth if certain conditions amount. That's so cool. Half of the US economy's growth came from building data centers for generative AI, which is the combined revenue of a little more than the fucking smartwatch industry did in 2024. Another troubling point is that big tech doesn't just buy data centers and uses them, but in many cases pays for a construction company to build them, fills them full of GPUs, then leases them from a company that runs them, meaning that they themselves don't have to personally staff up and maintain them.

24:42This creates an economic boom for construction companies in the short term, as well as lucrative contracts for ongoing support, as long as the company in question still wants them. While Microsoft or Amazon might use a data center, and indeed act as if they own it, ultimately somebody else is holding the bag in the ultimate responsibility for said data center. One such company is QTS, a data center developer that leases to both Amazon and Meta, according to the New York Times, which was acquired by Blackstone in 2021 for$10 billion. Since then, Blackstone has used commercially mortgage-backed securities, I know, it's so great, to raise over$8.7 billion since then to sink into QTS's expansion, and as of mid-July, said it'd be investing$25 billion in AI data centers and energy.

25:27Blackstone, according to the New York Times, sees strong demand from tech companies who apparently are willing to sign what they describe as airtight leases for 15 to 20 years to rent out data center space. As a reminder, Microsoft has over a thousand lawyers in the company. Anyway, yet the Times also names another problem, the unanswered question of how these private equity firms actually exit these situations. Blackstone, KKR, and other asset management firms do not buy companies with the intention of siphoning off revenue, but to pump them and sell them to another company, or dump them onto the public markets, of course.

25:58Much like AI startups, it isn't obvious who would buy QTS at what I imagine would be a$25 or$30 billion valuation, meaning that Blackstone would, as I've mentioned, have to take them public. Similarly, KKR's supposed$15 billion partnership with investment firm Energy Capital Partners to build data centers and their associated utilities does not appear to have much of an exit plan either. And let's not forget Oracle, OpenAI, and Crusoe's abominable mess in Abilene, Texas, where Oracle is paying for$40 billion worth of GPUs, and Crusoe is spending$15 billion raised from Blue Owl Capital and primary digital infrastructure, though I think JP Morgan is involved too, to build data centers for OpenAI, a company that loses billion dollars.

26:38Yeah, why would they do that, right? Why? Why would they do that? Well, it's simple, you rube, you moron, you buffoon. It's so that OpenAI can allegedly, starting in 2028, pay Oracle $30 billion a year for compute. And I'm being fully serious. To be clear, OpenAI, by my estimates, has made only$5.26 billion this year and will have trouble meeting their$12.7 billion revenue projection for 2025 and will likely lose more than$10 billion doing so. Oracle will, according to the information, owe Crusoe$1 billion in payments across a 15-year span of a lease. How does Crusoe afford to pay back its$15 billion in loans?

27:16Beats me! The information says that Crusoe is raising$1 billion to take on the cloud giants by earning construction, management fees and rent, and it can sell its stake in the project upon reaching certain completion milestones while also building its own AI compute, making the assumption that the demand is there outside of hyperscalers. Then there's CoralWeave, my least favorite company in the world. As I discussed a few months ago, CoralWeave is burdened by obscene debt and a horrifying cash burn and has seen its stock spike to a high of 183 on June 20, 2025, which has led to an all-stock attempt to acquire developer Core Scientific for$9 billion.

27:51And they're doing that with all-stock. And now that's falling apart because CoreWeave, as in my last check, and who knows where it will be by the time this episode runs, is below$100 because the IPO lockout has gone. All the people that invested seem to be getting out. We'll see where they go from here. CoreWeave, by the way, has since gone public and had to borrow billions of dollars to fund their obscene capital expenditures. And they are also, by the way, going to have to handle in October, the beginning of their DDTL 2.0, their biggest loan. And that's also when OpenAI is allegedly going to start paying them for their compute.

28:26And by the way, they lose hundreds of millions. They lose so much money every quarter. They have no path to profitability. Every time I think about CoreWeave, I feel crazy. And to be honest, I'm going to be honest when I put out that blog and people sent me some very unfair emails about that. They said there's no way that CallWeave can run out of money. If CallWeave runs out of money, by the way, and they collapse, which I think is very possible, I'm taking some fucking names on this one. A lot of people are very unfair to Mr. Zitron. CallWeave, I add, is also pretty much reliant on Microsoft as one of its primary customers.

28:59While this relationship has been fairly smooth, so far, as far as we know, this dependence also presents an existential threat to CallWeave and is part of the reason why I'm so pessimistic about their survival. Microsoft has its own infrastructure and has every incentive to cut out middlemen when it's able to meet supply with the demand itself owns, or at least it's rather than subcontracts out, simply because middlemen add costs and shrink margins. If Microsoft walks what's left, how does it service its ongoing obligations and the debt? In all of these cases, data center developers seem to have very few options as to making actual money.

29:33We have companies spending billions of dollars to vastly expand their data center footprint, but very little evidence that doing so results in revenue, let alone some sort of payoff event. And similarly, the actual capital expenditures they're making are much smaller than those of big tech. Digital Realty Trust, one of the largest developers with over 300 data centers worldwide and$5.5 billion in revenue in 2024, only spent$3.5 billion in CapEx last quarter. And Equinix,$8.7 billion of revenue in 2024 total, which has 270 data centers, put CapEx at$3.5 billion for the quarter too. NTT Global Data Centers, which has over 160 of the fuckers, has dedicated$10 billion in CapEx through 2027 to build out more of them.

30:14Yet in many of these cases, it's because these companies are, to quote a source of mine, functionally obsolete for this cycle because legacy data centers are not plug-and-play ready for GPUs to slot into. And remember, GPUs and the way they work with generative AI is just atypical. They burn them, they run them hot constantly. They're running full fucking till the whole fucking time. It's absolutely ridiculous leading to a bunch of replacements, but it, just to be specific, requires a bunch of specialized cooling and much more energy. And yeah, there's just, it's not a thing where you just take out one computer and you put in another.

30:48And also any investment in CapEx by these companies would have to be for both GPUs and said retrofitting, by the way. Massive amounts of money. And this means that the money flowing into AI data centers is predominantly going to neoclouds like Corweave and Crusoe, and all seems to flow back to private equity firms that never thought about where the cash out might be. Blackstone led Corby's$7.5 billion loan with Magnadar Capital, who, by the way, was involved with a bunch of subprime mortgages. And Crusoe signed a deal a week ago with an infrastructure firm, and they're also owned by Blackstone, called Tallgrass, and they're building a data center in Wyoming, all of which seems very good for Blackstone unless you think, how does it actually make money here, as private equity firms do generally not like to hold assets longer than five years, and the timer is running.

31:31Even if it did, its capital expenditures are a drop in the bucket in the grand scheme of things. Assuming Crusoe burns, as the information suggests it will, as much as$4 billion in 2025, CoreWeep spends as much as$20 billion, Digital Realty Trust spends as much as$14 billion. Global data center is$3.33 billion. That's$10 billion over three years. Equinist spends$14 billion. That's about$55.33 billion in AI capex spent in 2025 from the largest developers of data centers in the world. For some context,$102 billion was spent by Meta, Alphabet, Microsoft, and Amazon in the last quarter. Private equity may face the same problem as AI startups in the end, though.

32:10There is no real exit strategy for any of these investments. Furthermore, the supposed AI capex boom that's driving the US economy is not, as reported, driven by the massive interest in driving AI infrastructure up for a variety of customers. The reality is simple. The majority of AI capex is from big tech, which is a massive systemic weakness for our economy.

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35:05Now, while some might say that AI CapEx has swallowed the U.S. economy, I think it's more appropriate to say that big tech CapEx has swallowed the U.S. economy. I also want to be clear that the economy, which is the overall state of a country's production and consumption of stuff, and the flow of money between participants in said economy, and the markets as in the stock market, well those are two very different things. But the calculations from Paul Kudrowski and others have now allowed us to see where one might hit the other. You see, the markets do not actually represent reality. While Microsoft, Amazon, Google and Meta might want you to think there's a ton of money in AI, their growth is mostly from selling further iterations and contracts of their existing stuff.

35:42or in the case of Meta, further increasing its ad revenue. The economy is where things are actually bought and sold, representing the economic effects of both the things that happen to build out the AI boom, or whatever you call it, and selling access to the services and the models themselves. I recognize this is simplistic, but I'm laying it out for a reason. As I discussed in the three-part haters guide to the AI bubble, NVIDIA is the weak point in the US stock market, representing 90 % of the value of the Magnificent Seven, which in turn makes up about 35 % of the value of the US stock market.

36:13The associated Magnificent Seven stocks have seen a huge boom through their own growth, which has been mistakenly and incorrectly attributed to revenue from AI, which I've laid out previously is about$40 billion of revenue in the last year or two, maybe a little bit more. Nevertheless, the markets can continue to be irrational because all they care about is number going up, as the value of a stock is oftentimes disconnected from the value of the company itself, instead associated with its kind of propensity for growth. It's fishy, it sucks, and it's going to end badly. GDP and other measurements of the economy aren't really something you can fudge quite as easily.

36:47Nor can you say a bunch of fancy words to make people feel better in the event that growth stalls at the clients. This leads me to my principal worry, that AI CapEx is actually a term for the expenditures of four companies, namely Microsoft, Amazon, Google, and Meta, with NVIDIA's GPU sales being part of that CapEx too. While we include, you can, if you want, include others like Oracle, XAI, and various NeoClouds like CoreWeave and Crusoe, who, according to D.A. Davidson's Gil Luria, will account for about 10 % of GPU sales from NVIDIA in 2025, the reality is that whatever economic force is being driven by AI investment is really just four companies building and leasing data centers to burn on generative AI, a product that makes a relatively small amount of money before losing a great deal more.

37:29I also want to be clear, Anthropic runs on Amazon and Google. OpenAI runs on Microsoft. These companies don't really own their own infrastructure. That's what OpenAI is allegedly building with Oracle. Now, 42 % of NVIDIA's revenue comes from the Magnificent Seven per Laura Bratton at Yahoo Finance. Big up to Laura, one of the best out there, which naturally means that big tech is the linchpin of investment in data centers. I'll put it far more simply. If AI CapEx represents such a large part of our GDP and economic growth, our economy does on some level rest on the back of Microsoft, Google, Meta, and Amazon and their continued investment in AI.

38:04What should worry everybody is that Microsoft, which makes up 18.9 % of NVIDIA's revenue, has signed basically no leases in the last 12 months and its committed data center construction and land purchases are down year over year. Also, their data center CapEx is not all going to be AI and all of these data centers won't necessarily be used for that. In fact, Nothing they're doing suggests that they're super into it. It's not good. And while its CapEx may not have dipped yet, in part because the chip-heavy nature of generative AI means that CapEx isn't exclusively dominated by property or construction, it's now obvious that if it does, there will be direct effects on both the US economy and the stock market, as Microsoft is part of what amounts to a stimulus package propping up America's economic growth.

38:48And not to repeat the point too much, but big tech has yet to actually turn anything resembling a profit on these data centers and isn't making much revenue at all out of generative AI. How exactly does this end? What is the plan here? Is big tech going to spend hundreds of billions of dollars a year in capex on generative AI in perpetuity? Will they continue to buy more and more NVIDIA chips as they do so? Because it's always got to be more. It can't be the same. They must get more. Otherwise, NVIDIA doesn't grow. At some point, surely these companies have built enough data centers. Surely, at some point they will run out of space to put these GPUs in?

39:22Is the plan to, by then, make so much money from AI that it won't matter? What does NVIDIA do at that point? How does the US economy rebound from the loss of activity that follows? I don't fucking know, and it's worrying me. As I've said again and again, the generative AI bubble is, and always has been, fundamentally irrational and inherently gothic, playing in the ruins, patterns, and pathways of previous tech booms despite this one having little or no resemblance to them. Though the tech industry loves to talk about building a glorious future, its presence is one steeped in rituals of death and decay, where the virtues of value creation and productivity take a backseat to burning billions of dollars and lying to the public again and again and again.

40:01The way in which the media has participated in these lies is disgusting. Venture capital, still drunk off the fumes of 2021, keeps running the same old plane book. Shove as much money into a company as possible in the hopes you can dump it onto an acquirer of the public markets, only to get high on their own supply, pushing valuations to the point that there's no possible liquidity event for the majority of big private AI companies as a result of their overstuffed valuations, burdensome business models, and a lack of any real intellectual property. And, like the rest of the AI bubble, Silicon Valley's only liquidity path out of the bubble is big tech itself.

40:36Without Google, Character.ai and Winsurf's founders would likely have been left for dead, and the same goes for inflection. And I'd even argue Scale.ai, whose$14.3 billion investment, doing air quotes there for Meta, effectively decapitated the company, removing its CEO, Alexander Wang, leaving the rest of the company to die, laying off 14 % of its staff and 500 contractors mere weeks after its CEO and investors cashed in. In fact, Generative AI is turning out to be a fever dream, entirely made up by big tech. OpenAI would be dead if it wasn't for the massive infrastructure provided by Microsoft at cost in returns for its rights to its IP, research, and the ability to sell its models on top of tens of billions of dollars of venture capital thrown into its billion-dollar cash incinerator.

41:19Anthropic would be dead if both Google and Amazon, the latter of which provides most of its infrastructure, hadn't invested billions in keeping it alive so that it can burn$3 billion or more in 2025 while fucking over its enterprise customers and rate-limiting the rest. The generative AI industry is at its core unnatural. It does not make significant revenue compared to its unbelievable costs, nor does it have much revenue potential itself. It requires, unlike just about every other software revolution, an unbelievable amount of physical infrastructure to run. And because nobody but big tech can afford to build the infrastructure necessary, creates very little opportunity for competition or efficiency.

41:55As the markets are in the throes of the growth at all cost rot economy, they fail to keep big tech in line, conflating big tech's ability to grow with growth driven as a result of the capital expenditures. Sensible, reasonable markets would noticed the decay of free cash flow or the ridiculousness of big tech's capex bonanza, but instead they clap and squeal and oink whenever Sachin Adela jingles his keys. And I got told the other day by someone that Sachin Adela is not a business idiot, that he's secretly this big tech guy. And here's what I'd like to say to them. It's fucking stupid. It's fucking dumb.

42:26If this guy's actually technical, he's just a craven liar. I actually think he's a bozo. But anyway, putting that aside, what's missing is any real value generation. Again, I tell you, put aside any feelings you may have about generative AI itself and focus on the actual economic results of this bubble. How much revenue is there? Why is there no profit? Why are there no exits? Why does big tech, which has sunk hundreds of billions of dollars into generative AI, not talk about the money they're making from it? Why, for three years, have we been asked just wait and see? And for how long are we going to have to wait?

43:00And when are we going to see it? What's incredible is that the inherently compute-intensive nature of generative AI basically requires the construction of these facilities, without actually representing whether they are contributing to the revenues of the companies that operate the models, like Anthropic, or OpenAI, or any other business that builds on top of them. As the models get more complex and hungry, more data centers get built, which hyperscalers book as long-term revenue, even though it's subsidized by hyperscalers or funded by VC money. This, in turn, stimulates even more capex spending.

43:28and without having to answer any basic questions about longevity or market fit. Longevity? Longevity? I don't know. Yet the worst part of this financial farce is that we've now got a built-in economic breaking point in the form of CapEx from AI. At some point, CapEx has the slow, if not because of the lack of revenues or massive costs associated, but because we live in a world with finite space. And when said CapEx slow happens, so will the purchase of NVIDIA GPUs, which in turn, as proven by Kudrowski and others, slow America's economic growth. And that growth is pretty much based on the whims of four companies, which is an incredibly risky and scary proposition.

44:06I haven't even dug into the wealth of private credit deals that underpin build-outs from private AI neoclouds like CoreWeave, Crusoe, Nebius, and Lambda, in part because their economic significance is so much smaller than the big tech's ugly meatlandless sprawl, and because I don't like saying their names very much. To quote Paul Kudrowski, We live in a historically anomalous moment. Regardless of what one thinks about the merits of AI or explosive data center expansion, the scale and pace of capital deployment into a rapidly depreciating technology is remarkable. These are not railroads. We aren't building century-long infrastructure.

44:40AI data centers are short-lived, asset-intensive facilities, riding declining cost technology curves, requiring frequent hardware replacement to preserve margins. To which I say, what margins, Paul? But nevertheless, you can't bail this out because there is nothing to bail out. Microsoft, Metra, Amazon, and Google have plenty of money and have proven they can spend it. NVIDIA is already doing everything it can to justify people spending more on their GPUs. There's little more it can do here other than soak up the growth before the party ends. That CapEx reduction will bring with it a reduction in expenditures on those GPUs, which will take a chunk out of the US stock market.

45:16Although the stock market isn't the economy, the two things are inherently linked, and the popping of the AI bubble will have downstream ramifications, just like the dot-com bubble did with the wider economy. Expect to see an acceleration in layoffs and offshoring, in part driven by a need for tech companies to show, for the first time in living memory, fiscal restraint. For cities where tech is a major sector of the economy, think Seattle and San Francisco, there'll be knock-on effects to those companies and individuals that support the tech sector, like restaurants, construction companies, building apartments, Uber drivers, and so on.

45:48We'll see a drying up of VC funding, which is kind of already starting. Pension funds will take a hit, which will affect how much people have to spend in retirement. It'll be grim. Worse than that is the fact that these companies will be, by definition, non-performing assets, and ones that inflicted an opportunity cost that will be impossible to calculate. While a house, once built and sold, technically falls into that category, it doesn't add to any economic productivity, obviously. People at least need somewhere to live. Shelter is an essential component of life. You can live without a data center the size of Manhattan.

46:19What would happen if companies like Microsoft and Meta instead spent the money on things that actually drove productivity or created a valuable competitive business that drove economic activity, for example? Hell, even if they just gave everyone a 10 % raise, it would likely be better for the economy than this if we're factoring in things like consumer spending. Instead, it's just waste. ugly, pointless waste. In summary, we're already facing the prospect of a recession, and though I'm not an economist, I can imagine it being a particularly nasty one, given that the Magnificent Seven accounted for 47.87 % of the Russell 1000 index's returns in 2024.

46:54Even if big tech somehow makes this crap profitable, they won't, it's hard to imagine that they'll be able to counterbalance any capex reduction with revenue, because there doesn't seem to be that much revenue in generative AI to begin with. This is what happens when you allow the rot economy to run wild, building the stock market and tech industry on growth over everything else. This is what happens when the tech media repeatedly fails to hold the powerful to account, catering to their narratives and making excuses for their abominable, billion-dollar losses and mediocre, questionably useful products.

47:23Waffle all you want about the so-called agentic era or annualized revenues that make you hot under the collar. I see no reason for celebration about an industry with no exit plans and needless capital expenditures that appear to be one of the few things keeping the American economy growing for effectively no reason. I'd been writing about the tech industry's obsession with generative AI for two years, and I've really never felt more grim. Before, this was an economic uncertainty, a way that our markets might contract, that big tech might take a big haircut, that a bunch of money might have been wasted but otherwise the world could keep turning right it felt before kudrosky said that thing and it came this was all sitting in public as well i don't know how i missed it it felt until then that it was like oh this will really fuck up big tech it'll hit their stocks it'll be bad for them now because the economy has slowed so much otherwise this data center capex and these four companies is holding everything up and it won't last forever there's there's just no way it can last forever and there's not really anything to bulk it up or and microsoft's already pulling back how does this end i keep asking that the original title of this was called how does this end and i really don't know how this ends it feels as if everything is aligning for disaster and i i really fear there's nothing that can be done to avert it i will be here to tell you what's happening as it happens and your third part for this week is going to be about gpt5 which I'm going to be honest, doesn't really fill me full of hope or promise either.

49:18BetterOffline.com or visit BetterOffline.com to find more podcast links and of course my newsletter. I also really recommend you go to chat.wheresyoured.at to visit the discord and go to r slash BetterOffline 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, coolzonemedia.com. Or check us out on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

50:06We'll see you next time.

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