The Four Horsemen of the AI Apocalypse with Ed Zitron

19:40So without that, you can't, like the demand isn't there. The market isn't seeing that because it hasn't happened yet. The quarter, two quarters thing they're doing where they're like, well, the money's still coming in because what, I kind of said this already, but the amount that Anthropoc and OpenAI has to spend has to increase by like 10x. Well, their revenues are increasing and those are real revenue dollars.

20:04Downtown Josh Brown:And they're both going public in the next, call it six months.

20:08Michael Batnick:Well, you just made a face. is Anthropics doing 60 billion? Is that not real? No, they're not.

20:12Downtown Josh Brown:Run rate. Go, go, go. Run rate. Okay. This is the biggest scam of them all. What? ARR run rate as opposed to last quarter. That's the first part of the scam. So ARR used to mean annual recurring revenue, referring to if I have 10, 100 million contracts, I've got like a billion dollars a year. Easy peasy. That's annual recurring revenue. Wow. How amazing. That's SaaS. SaaS. I probably f***ed up the math there, I realize, but whatever. Moving on. And how they're booking their revenue you probably don't like. Well, now they're calling it run rate. And run rate can have... Anthropic has never defined this.

20:43Even Bloomberg in the 65 billion story didn't define it. It can mean four weeks times 12 or four weeks times 13. The problem is, is Anthropic and OpenAI are both annualizing token spend, which is not a... It's not a software subscription. It's not recurring. A customer could spend 1 ,000 this month and then spend 50 next month, especially if they're moving to open source models.

21:05Downtown Josh Brown:Sorry, that's 100 % true. but every publicly traded corporation that says anything to wall street about its spend the only thing you ever hear is we already ran out of our compute spend and need to spend more yeah that's because anthropic and open air are taking up most of the compute infrastructure so there's not enough there is more demand than there is right now the question is how much more because I don't think that, I mean, I kind of estimated in a newsletter a week ago, I think there's about$22 billion of compute demand. Sightline Climate said back in February that it was 190 gigawatts in planning.

21:45That's about$1.5 to$3 trillion a year in compute demand they'd need. There is a complete economic mismatch, and it's stark.

21:55Downtown Josh Brown:But you don't like ARR run rate because it's just an extrapolation? of a it's a snapshot of a period in time and then they plug it out to like a year yes so it's we also don't know what the period we don't even know what it means they never define it anthropic has used it several times in their own announcements they never define it it could refer to hey we just released a model and everyone's trying it hey we just did a new feature and everyone's buying a new subscription oh on this day we lost a bunch of subscriptions so we'll pull the period over here so we look bigger. It is not a trustworthy measure of a business.

22:29And the fact it gets accepted is an insult to investors' intelligence.

22:33Michael Batnick:So who's the idiot here? Is it the CEOs and the boards for all of this CapEx? Is it the equity investors? Is it the people loaning the money to build these data centers? Like who is not seeing past their nose right now? Lenders. All of the investment in AI data centers terrifies me to my core. It's so bad. These things are like miniature cities. They condense city of Bristol in England, using this in the carpool, about 1.25 billion square feet. Takes about 800 megawatts of power. Stargate Abilene, OpenAI data center, 1.2 gigawatts of power in 998 ,000 square feet. So they're condensing a city's power into a thousandth of the space.

23:12And that thing is way behind schedule. Each one of these, even the smaller ones, are like... Is that the Oracle one in Texas? Yeah, it's one of the ones in Texas. and all of these data centers are very ambitious and the bigger they are, the more ridiculous they are. Gigawatt data centers are a new idea. Also, a gigawatt data center is a campus of smaller buildings, just to be clear, but they're new. They're brand new and they're trying to build so many of them in a power grid kind of put together with like staples and tape and such, which is, I mean, and the thing they always say is, oh, it's helping us upgrade the power grid.

23:43No, it's not. It's strategically placing power in a place that you can maybe rent it to someone. And the problem is, is that for everything to be...

23:51Downtown Josh Brown:But is it nefarious or do they just not understand the demand as well as you do? Little, little, here's the thing. Because it seems like they're the ones taking the risk. It's nefariously ignorant. I think that their ignorance is so harmful. Stargate Abilene, the information had a report about this. The Blue Owl agreed to invest in 10 minutes. That's how, that's how the due diligence is going, boys. We're just 10 f***ing minutes. Come on. It's just like, and that is for a project that will cost tens of billions of dollars. And it's just, why is no one putting the time in? Wait, hold on. There's no way that's true.

24:25It's, I would, I would glad. Maybe it was 15 minutes. But it was 10, maybe it was 15. No, no, I can get, I can get you the article right now if you'd like.

24:33Michael Batnick:I believe that the article is real, but I just don't believe that that is actually true. Have you read anything about Blue Owl? I don't believe it in two seconds, man. I'm sorry. Like having seen what Blue Owl does, I, yeah, I, I would believe that. And also this is a mania and number go up. Hey, the biggest, the justification makes sense. If you don't think for a second, the biggest companies in the world wouldn't spend a trillion dollars for no reason. I got to build one of these things. I will make so much money. It's, it's gambler logic.

25:03Downtown Josh Brown:Let's go through, let's go through some of these numbers. Uh, Daniel, you want to do chart one? So back on Nvidia, just because this is like, well, I call Jensen Wang the chairman of the AI Federal Reserve. Basically, he's the person that comes out and makes everybody feel better pretty much every quarter. We get the hyperscaler earnings, and then there's a three-week lag, and then NVIDIA comes out at the end of the earnings season and ratifies everything that we – Okay. So just like on its face,$96 billion in revenue. We know that the cost of a data center is approximately 50 % on chips. Yeah, more now, thanks to memory, but yeah.

25:45Downtown Josh Brown:Okay, that's 106 % revenue growth at 75 % gross margins. Yeah. NVIDIA right now, I mean, this is real money. Yeah. So your issue is not whether or not the spending is real. Your issue is the source of where the capital is coming from to buy from NVIDIA is really what's in question. Yes. And just to be clear, the source of the revenue and the money into all this stuff, real. The money going into AI software, which this is meant to prop up, very small when you remove the subsidized stuff. Every AI startup is subsidized. Every single one loses money. Up until fairly recently, OpenAI and Anthropic let you burn thousands of dollars of tokens for 200 bucks a month.

26:28I think you still can, but not as much. These companies, when their customers are exposed to the real costs, they shrink away. And just very simply, if they thought they could charge the real cost of their services, they charge the real cost of their services. They wouldn't do this weird dance. So the problem isn't finding, well, I mean, actually it is becoming one now. This, a lot of this was, I think that that, the, um, the one big customer, the 16 % one, I think it was SpaceX. So remember, SpaceX, bunch of debt. All of this, bunch of debt. Other than Microsoft at this point, they're all having to take on debt.

27:01And this is the thing. everything, it's not actually about real demand because they can't pay this out of cash flow. They're clearly not making enough money to pay this out of cash flow. And they would say, oh, it's the new industrial revolution or some such wank. Well, it's clearly not going very well. Oh, we'll work out in the future. When? Where's the real demand? Where is it? And so they're increasing, and because everything's getting more expensive, both the debt and the things the debt's buying, they're going to need more and more and more money at a time when the system's kind of straining itself.

27:30But the only thing the system wants to invest in is the dumbest thing possible. It's actually, Mori, spell out the worrying, it gets me.

27:37Michael Batnick:When did Anthropoc first run their revenue? I think it was March 2023. What? When did they want? When did they first book their dollar, first dollar of revenue for Anthropoc? It was sometime in 2023. Yeah, maybe. They found it in 2021, but I can't remember when they actually… But you say that you're sick and tired of saying where, when it's going to come. You don't have any open minds in this to the fact that it genuinely is early. How much of the demand that we're going to see are we seeing now? Because I think it's a tiny, tiny fraction.

28:07Downtown Josh Brown:Well, will people all of a sudden stop spending on this? Customers. So there's a guy called Nick Suresh who has a really good blog called AI is Eviscerating Global Decision Making. And he's talked to, he's a tech consultant, gifted software engineer, talks to a lot of CEOs. A lot of this is, you ever see the death of Stalin? Okay, so a lot of people doing make, what on Netflix? No. Well, maybe actually. But nevertheless, there's a bit at the beginning where they're sitting around Stalin's corpse and going, he's so, he looks great. He looks very healthy. Oh, yes. A lot of this is people saying, oh, AI is making me 100x more productive or whatever.

28:41It's not true. Most AI integrations fail.

28:43Downtown Josh Brown:All right. So I want to give you a counter to that though, because I listen to, I'm going to say 20 calls every earnings season. And usually the stocks I own, but sometimes just stocks that make a big move. And I just want to learn like why all of a sudden are people really bullish or really bearish? So one of the stocks, and I happen to have been talking about this today, so it's fresh in my mind, is Airbnb. And Chesky comes out and says AI is the best thing that ever happened to us. And then proceeds to cite specific examples, one of which is that last quarter, 45 % of all their customer support calls were closed by AI with no human involvement whatsoever.

29:23Downtown Josh Brown:Okay. It boosted cash flows. It reduced expenses. Did they say by how much? They gave the numbers, yeah. That's good. So, it's good. They also moved to open source. They very… Chesky very specifically moved to… Not paying the open on. He was actually one of the early ones. So, for me, that's the thing that I'm most bearish about. And we'll get into that in a second. So, here's where I don't agree with you. Yeah. I really don't think this is going to stop on a dime as an AI user… It's going to slow down. At a company, every week we're finding new things that we can plug into AI and do better than we did the week before.

30:01Downtown Josh Brown:I'm curious. We have to manage 90-some-odd employees, 4 ,000 client households. There's a constant orchestration of operations activity that has to take place between Salesforce and our portfolio accounting software and the trading that we're doing. and the general idea from our standpoint is the customers don't give a shit about our AI use. This is operations. How do we run the firm better? How do we do things faster, more efficiently? And that's what I think every company in America right now is trying to do. And we are increasingly hearing from them one by one on Q &As with analysts saying, why did we have an upside surprise?

30:45Downtown Josh Brown:Well, glad you asked. We invested in AI. probably in 23 or 24. And now all of a sudden, we're able to tell you specific things that we're doing with AI that are improving our earnings. I don't think that part's going to stop. So I think it will stop happening as much because I think a lot of it is make-believe. AT &T being the worst one. Well, if they're lying, then... With AT &T, here's the clever thing. So they had this article in the journal saying 80%, 90 % savings on using open source. Then you go down the article. because it says 80 to 90 % savings in some functions. And then the next paragraph is, AT &T uses, has thousands of things it has plugged into AI.

31:26So it's like, oh, so some things in some things may have saved you some money. This is the problem. A lot of this, the reason I brought up Nick Suresh's article is because he makes a point where a lot of people are doing this because they're afraid of how it will look if they don't, or indeed the management is so cooked that they must see AI because it's the thing they're fascinated with. I agree with that. I definitely agree that there's a lot of that going on. And here's the thing. There is a point we can come to, which is, even with that being the case, is that going to be the revenue sufficient to keep OpenAI and Anthropik alive, who are both unprofitable?

31:57Or is that going to move on to, I don't know, a hosted GPU system with an open source model? There are so many ways. Like, Anthropik and OpenAI must keep growing, and they must keep growing so much faster. This is not even close to where they need to be. They need to be able to afford$440 billion in the next three and a half years.

32:16Downtown Josh Brown:So a lot of your bear case rests on that idea that the two most well-known foundation models are being relied upon by the S &P 10 to deliver their… Okay, I don't dispute that. But what about Gemini then? What do you do with the Alphabet Gemini situation where they do not require OpenAI or Anthropic to spend with them? I think Sundar Pichai is asking that question based on all the press I've seen around Gemini. Gemini is just another LLM company. The problem is that as much as people love to pretend, oh, OpenAI, Anthropic is special, maybe they like Sol, whatever, for the most part, people don't really give a shit which model they use.

32:58And each model, the differentiation between them is kind of, why do I need this? And then there's a new better one, you try this. and every time you move it, there's a bunch of harness changes and prompt changes. The actual functionality of this stuff is so malleable and volatile that I think it's exhausting to engage with on the regular. And actually talking to pro AI people, the few that I talk to, they experience this. There's an exhaustion around it. You constantly have to keep up and they kind of rationalize it like any bad relationship.

33:24Downtown Josh Brown:Like you're saying, OpenAI releases the newest model. I must integrate this now. Yeah, yeah. And I must, and especially if they run a company that has models facing the customer. They've got to have that immediately, which bumps up the cost. Because the thing is, the cost of the tokens may stay around the same, but the amount of tokens being burned changes arbitrarily between models. So if a model's the same price, but it's burning more tokens, it's like having a car, the miles per gallon is the same, but you're driving 200 extra miles. So my thing is, I could see a world where there are LLMs in the future, but I don't know how profitable it is to, well, I don't know if it's possible to make these things profitable, even with custom silicon.

34:03I don't know if there's a future for these companies at all, or indeed whether hyperscalers will still offer these services at the current prices. They may offer them as a really expensive thing for certain businesses. They may get that. That might happen. I think that's realistic. Gemini, for example, could become that.

34:18Michael Batnick:This might make you more bearish. Okay. There is too much. These things are too big to fail. There is too much riding on the success of maybe not just these two companies, but this whole idea not imploding. and bearish investors have learned over and over and over again, the system is rigged to work out and to go up. Now, that might make you more bearish, but I'm curious to hear what your take would be on that. So the problem with this is people talk about a bailout and I actually think private credit is the warning sign there. Mr. Walter to the operating room, like it just like, a lot of bad things happening with private credit.

34:54With AI and data centers, you've got multiple problems. You have open AI and Anthropic. You bail these out, okay, but that doesn't fix the fact that they won't be able to afford to pay$440 billion in three and a half years. It doesn't fix the fact that it's very clear that Microsoft, Google, Meta, and Amazon, their overall growth is slowing. Otherwise, they would have never done this. They are slowing down, and 7 % of Microsoft's fiscal year 26 revenue was from OpenAI. I have to challenge that.

35:19Downtown Josh Brown:Their cloud revenues are accelerating this quarter. Based on Anthropic and OpenAI's spend. But you're saying they're slowing, but they materially are not. when you remove the open AI and Anthropics. But why would you remove them? No, I'm saying you have them. Sorry, you're right. Okay. In the future, you can't count on it. I should have put it like that. You can't count on it in the future. When I say that 440 number, that is exponentially larger. Because yeah, they are growing right now because open AI and Anthropics, their checks are clearing. Well, all of the hyperscalers, all of them, reported way better than expected growth numbers for cloud in the quarter.

35:54Downtown Josh Brown:They just reported second quarter numbers. Other than meta. So meta is a whole other basket case. I want to ask you that. This is actually a point though. Okay. But it is true that AWS and Azure and Google Cloud are seeing accelerating growth. You're not questioning that. You're saying there's a big asterisk. It's two companies that are ramping up all that spend. So what also happened in Q2, the massive token maxing, the massive spend on cloud compute, it times directly with them. Their numbers went up when Anthropik and OpenAI. And that money is real. Some of that money came directly from the hyperscalers themselves.

36:31The reason they brought up Meta was not to be argumentative. You'll notice that Meta didn't grow like gangbusters. Oracle did. Microsoft did. Meta's not in that business. But that's the point I'm making. You'll notice that AI is not making Meta grow massively. It's just the ones who get the money from Anthropik and OpenAI. And this is the problem. The problem is that, for now, everything— You'd look a quarter, two quarters in the future. Wow, money good, money here.

36:56Downtown Josh Brown:Well, the meta bulls, and I'm not one of them, but the meta bulls would argue they're not renting compute. They think they want to prioritize it to improve reels. They could at any time do an about face and say, oh, yeah, by the way, now we're a data center and we're going to rent compute. If they do that, I think you would agree with me. That day, at least, the stock goes up. Yeah. Okay, they haven't done it yet. They rumored, though. They haven't done it yet. But their core business, which is serving ads, is in better shape than it's ever been. That's not… They had their first decline in users.

37:32Downtown Josh Brown:No, no, no, no, no. The core ad business. Like the profitability of their ad business. Right, but… I'm saying if the users… X all the spending. The users are declining though, that will decline too. I understand what you're saying. I'm saying for now, it looks good. And this is the eternal problem I've had. It's like… At some point, this goes wrong. And the reason I'm no longer giving timelines… Because I was wrong. I don't believe it.

37:54Michael Batnick:At some point, everything goes wrong. But this is the way this goes wrong is astronomically bad because it's not just, getting back to the bailout thing. It's not just, oh, OpenAI and Anthropoc have to survive. They have to become tender. They basically have to become the size of Google or Microsoft and spend more than they make every year just on those two or three companies. So you can't bail that out. On top of that, if we build, let's say they cut back the process and they only build a quarter of the data centers. We're still talking$600,$700 billion dollars of data center demand that needs to exist that won't?

38:25Because most AI startups are on, well, I mean, all AI startups are unprofitable. So where's the money going to come from? Do you bail out the data centers? Do you bail out all of them? What happens to them afterwards? How do you bail out the fact that the point I'm making around cloud growth, which is most of the growth for Amazon, Google, and Microsoft, though Amazon has a surprisingly good ad business, comes from cloud. And most of that growth comes from Anthropic and OpenAI. Without that, their growth story ends. And they, I actually think will eventually - Do you think they'll be able to come public?

38:57I think Anthropic will. I think OpenAI is going to have the problem of Anthropic going public and having, I think their economics are going to be bad. I've seen OpenAI. I've seen their actual numbers.

39:09Downtown Josh Brown:They're bad, bad. Bad meaning, yes, there's a lot of revenue growth, but the expenses are ramping up even faster. Yep,$13.07 billion of revenue, loss of$20.9 billion. If it does, okay, SpaceX losing a lot of money too. Yeah. If it does manage to go public and get a reasonably warm reception on Wall Street, either or both of those companies, and they do raise what will probably be record-setting IPO of, you know, share sales, they do raise that kind of money. Does that alleviate some of your concern on the sources of all the data center demand going forward? I mean, in the short term, because$100 billion is not - It does push it out, though.

39:49It pushes it out. Because they raise capital and they can keep spending. But the thing is, with these cloud compute agreements, you have to do prepayments. So that money's going out the door. Anthropic is rushing this IPO because they had this first two-quarter window where token maxing was happening. Everyone was saying, burn as many tokens as possible. And they'd moved all of their enterprise customers, so businesses over 150 people, from paying 200 bucks a month or 150 a month to paying per token. So the revenue exploded. It was great. And this was at a time when the CEOs had all got concussions.

40:20So they're like, spend as much as possible. So Anthropic needs to go public, ideally before they have to really have the books for Q3, but they can still show the growth there, even though most companies are now cutting back. They're talking about open source.

40:33Downtown Josh Brown:So you think the data center's customers, the Fortune 500, will actively pull back on their AI spend now that the pricing has changed? And they'll look at it and say, whoa, whoa, whoa, whoa, whoa. we need to have more of a handle of the budget on what we're letting our people do on AI. Yeah, and I think that they've hit a ceiling. I think there are some that will - You think it's now? I think they've already hit a ceiling. I mean, Sam Altman said on stage, he was saying, yeah, it's a huge issue for our customers. He's so good at this. The price and Anthropics Fable - Oh, he said it's an issue for our customers, not for us.

41:06Downtown Josh Brown:It's a huge issue for our customers. It's just like when you need a guy to reassure you, just going out there. But the thing is, Fable, So the expensive and the most expensive Anthropic model, the one that was so, that had the marketing of being banned by the US government for being too powerful, not true, but still they had it, has kind of petered out according to RAM 11 % of market share. And that's bad because that's the only way you really grow revenue now, because it's clear that business, there are some businesses that will spend a lot of money. Matt has talked about spending 10 billion.

41:37If they're spending 10 billion a year on Anthropic, the story came out today. That's also really bad because Mark Zuckerberg changed the name of his company to Meta mere years ago and then just dumped that shit in 2023. Like this man does not care. He has complete control. He will stop doing something on a whim. That's a really bad situation.

41:57Downtown Josh Brown:Can we do a little bit of Meta stuff? Yeah, sure. Okay. So I know this is, let me, let me ask this question. My understanding of your story is that you started out representing technology companies, helping them with PR, helping them with messaging. And while you're doing that, you start to become disillusioned with their intentions, the way they think about their users, the rapacity with which they are willing to monetize their user base. So that's like a lot of your origin story. You're almost like the guy who saw too much. Yeah. And I would say I was lucky in a lot of my clients because I've been saying since like 2013, like journalists don't like profitable companies.

42:42And I've tried to work with profitable companies, just a really easy start. Or if I work with unprofitable ones, I need to hear a very convincing, tangible story as to why. Don't do any more, but still, that was the thing. But yeah, when I would see the companies that got press and they were just these big pieces of shit, like clinkle, clinkle, you ever hear clinkle? I'm still bullish on clinkle. I'm a clinkle head. No, but that was one where it was like, oh, it's going to use sonic waves to send payments. Died within a year. It's a big loss. Color, an app where you could share photos with the people you're closest to.

43:10I remember that one. Dead. All these things kept dying. They kept raising a bunch of money, dying. They didn't have a business model. And everyone just went, ah, poverty's nerf, moving on. And I saw this again and again and again. And really looking, what actually really got me was Clubhouse. So I don't know if -

43:26Michael Batnick:Oh, I remember that one. Yeah, because everyone was gooning out over Clubhouse. They were like, oh, this is - We were all stuck in our houses and looking to talk to people. A16Z was big in that, right? Yeah, and A16Z did the classic con. If they got all the people they knew, I think that's Samuel L. Jackson or something. It was so strange. Everyone was at home and they were like, this is going to replace radio. I'm like, holy crap. You don't respect your radio hosts. Because these people… Yeah, so… Yeah, I'm here. From the startup. But everyone's like, this is the biggest thing. Everyone needs to have a clubhouse strategy.

43:58I'm like, you people…

44:00Michael Batnick:That was weird.

44:01Downtown Josh Brown:Do you know that that era coincided with the SPAC boom? And so clubhouse and selling SPACs to people. it became synonymous all of the financial conversations on Clubhouse were like you know a 28 year old who just managed to launch a SPAC who's never experienced the cycle or anything there was actually a show called What the SPAC and they invited me on it and it was a huge mistake for them to have done that because in a prior career as a retail stockbroker I sold 100 SPACs so I knew they were all going to zero and I told everybody in Clubhouse Senate, I was never invited back to What the SPAC. All of the people involved in What the SPAC all went to zero.

44:43Michael Batnick:Not to alleviate everybody from their responsibility, but that was very bizarre. I think all of our brains were a little bit broken. Sure, but I think it was more the media that really got jokified because I just saw people being like, Clubhouse is going to be the new thing. Everyone's just going to listen to Clubhouse. Everyone's going to do Clubhouse. It's going to do all cool. And I was like, are you people? And then the metaverse happened.

45:03Downtown Josh Brown:They thought it was like Snap or Instagram where it was just going to take off. Then the metaverse happened. I'm like, Holy f***ing s***, you're either describing something that doesn't exist or video games. What do you mean? This looks like—this VR thing looks like s***. What are you doing? And people were like— We were laughing at that in real time. And that's the thing. Oh, yeah, of course, 2021. They were selling virtual land. I said, I can't. Virtual real estate. I saw that. Virtual real estate. I can't have this. And I saw it being written about like it was real. I'm like, oh my god. What is it like having the glass system they live?

45:31Jesus f***ing crap. And so every week I would see a new outcome like, Jesus. And then crypto happened. And then NFTs happened. And I would read things in the newspaper telling me about crypto and NFT. And I went, there's a reason people keep being, there's a reason now why bubbles keep happening. And it is the media. It's a mixture of other things. They're not the only problem. There was bubbles before the media. Yes, but the media still helped them. Social media. The Fed. Let me finish. VCs. The point is. Everybody's in. But everything is a social contagion ultimately. And social media, partly from being at home to your point, allowed it to exacerbate these bubbles and speed them up.

46:07And AI was special because of that 2022, 2023 depression. Plus, it gave everyone something to do. You could become an AI consultant. You could have an AI business. You could put AI in your software. You could sell AI infrastructure. Everyone, the bankers had something to sell. We had new things.

46:22Downtown Josh Brown:Are you not at all impressed with the products? Not for the amount of cost. Okay, so if they were, so an open weight model that you pay almost nothing for and it gets close enough? I mean the cost to get here. So a trillion dollars. The infrastructure cost. Infrastructure and the environmental cost and the social, the horrifying things the media has done scaring people about jobs. Disgusting. I agree with that. But the thing is, you can't divorce the technology from that. You cannot. What it does today is unremarkable compared to its cost. And it's about what I would expect. And remember, this just, even if you take out the infrastructure, this still costs tens of billions of dollars.

46:59The Kimi K3s of the world, they still distilled from, They used the same training data. They still used a bunch of compute. They still used innovation from other people. And I don't care about anyone copying anyone in AI. That's kind of the point. But the thing is, there is this massive cost to make this thing that, great, it's kind of helpful, I guess, somewhere in a specific thing. But you can't really rely on it. You can't really trust it. You have to look at everything it does. Or you have to double check it didn't muff something up. Which doesn't sound particularly intelligent.

47:25Downtown Josh Brown:But so back to meta. So the reason I went into your backstory is because I want to ask you, do you hate these people? Sounds like it. I absolutely hate them. You personally, I think Mark Zuckerberg is a scumbag. I think he's a piece of shit. He is, he cares. He does not give a rat about his customers. He has turned Facebook and Instagram into a hellhole. He has deliberately, I've seen documents, I've published them where Mark Zuckerberg requested 12 % perpetual growth of all the numbers. They at one point for years were growing, I think, time spent on app, not realizing that engagement was dropping because they were measuring the wrong thing.

48:01They have made that product, like all of these companies, worse to increase growth. Google search. Google search worse because Prabhupada Raghavan, the VP of ads at the time, did a coup to take over from Ben Gomes, who in emails with the Department of Justice published these as part of the antitrust trial, said like, hey, this is going to make the user experience worse because you just want to increase queries, which just means people searching more times to keep them, to show them more ads. This is why Google sucks now.

48:27Downtown Josh Brown:And Microsoft - You've called this the rot economy. Exactly. So you wrote this big piece in 2023. Corey Doctorow talked about it in Shittification. Yeah. Your version of that, it seems like, is like this idea where all of these products start out good with like the right intentions. Let's create a searchable index of the entire internet. Yep. Let's connect everybody's family members with photos. Like it's a great idea. And also probably if we get enough people using it, there's some money. and then your point about the rot economy is like five years goes by the numbers aren't numbering yeah how now all right we have to shear the sheep now the sheep have gotten fat they're all on the platform we charge them nothing we we subsidize this now we're at now we're at this like critical mass of people let's turn them upside down and dump their pockets and what's crazy is for a few but that's how you see that's how you see it okay because they had ads on google search they had ads on Facebook and Instagram.

49:26That's the whole first page. And now it's everything. And you can't have a default chronological feed. And everything is like an Escher painting, trying to find stuff. They move the buttons around because they're experimenting on their users. There was a Guardian article, eight years about it, where they took 700 ,000 people and they just started emotionally abusing them with the notifications they gave them, the stories they fed them to see what would happen. That should be illegal. But these companies, it's not just they want to grow. It's that they have to grow perpetually and they will do anything.

49:54It's why, honestly, they've run out of ways to squeeze other than price increases at this point. And that's why Microsoft has done multiple price increases the last few years. Same with Google, Meta. I think it was Google and Meta changed how ads work around how the first bid thing. I think that they basically have a way of juicing more money out of it and raising the bid. The point is...

50:14Downtown Josh Brown:It's sort of capitalism, though, also. It is, but at some point, it eventually goes completely haywire and explodes. Like, that is the ultimate thing. you eventually get to a point where you've chased out anyone at the top who cares about product or good stuff or happy customers. And all they're there is for growth. Andy Jesse, MBA. Satya Nadella, MBA. Sundar Pichai, McKinsey, and MBA. Mark Zuckerberg, not MBA. Sheryl Sandberg, MBA. And the original growth team I know had another one. They had Shemart. They had Naomi Gleit. They had Javier Olivan, who's now the CEO. So, but like philosophically, these companies have shareholders.

50:49Downtown Josh Brown:The shareholders are there because they expect the cash flows to grow, some portion of that to be returned to them in the form of dividends, buybacks, or both. They want to see the earnings growth. That's like sort of the job of the people running these things. It's not to – it's not necessarily to be caretakers for the population of users. You mean provide a good service at a fair price? Yeah. So that's the thing. Well, Instagram would – so Meta would say, well, here's Instagram. How much do you pay for it? Zero dollars. They make 55 bucks a user. You pay for an attention. That's what they do.

51:25Sure, but there is a way of doing that without making it horrible, which they have. The point I'm making is, however you feel about this ethically, it has a natural endpoint where you change the company from making a product that you sell and you turn it into a growth engine. You turn it into something that's only about expressing growth. You hire people with that explicit intent. You direct them with that explicit intent.

51:48Downtown Josh Brown:Okay, so what's stopping the users of Google, Amazon, and Meta from saying, I no longer like this and will not use it? It's addictive. Monopolies.

51:57Michael Batnick:No, I'm with Ed. I'm with you. I think what you're describing is how a lot of us feel. I hate Instagram. I love it so much. I'm addicted. I have to use a physical brick device to stop myself from using it. I think we all feel that these places are toxic and disgusting and horrible.

52:14Downtown Josh Brown:I don't like the way that children were onboarded. I, uh, that's, so that's where I probably, you and I are probably agree the most. There's just, to me, there's something different about a 12 year old than a 42 year old. I'm not worried about a 42 year old. Yeah. I want to sit there and scroll your phone for nine hours. It's not my problem, but I don't like the addiction of the, and there was a settlement this week. Um, yeah, but over 10 years, how much money was it? 12 billion and then maybe 17 billion. So is that 1 % of Meta's market cap? Yeah. I thought it was going to be an upfront payment and the settlement people are always such a...

52:4928 states all settled at once. Yeah, apparently.

52:52Michael Batnick:Yeah, but what will this do? So Metta will enforce... Metta will enforce a two-hour daily limit on Instagram and Facebook for children as part of a record claim. That's great news. That's awesome. Now, I love those changes, but they should have made them pay upfront because that would have been most of their net income from the last quarter. But there is a point to this as well. Taking away the ethical concerns, you eventually engineer your company around growth and you stop learning how to build new things that customers like. You find ways to twist customers' arms, but you don't really find ways to win them over.

53:20You eventually get into a mindset where you're like, what if I could just spend money and get money back without really thinking about it? AI is the perfect vehicle for that, in theory. If you are a company that hasn't really thought about user experience, you've got this magic box you can ask questions to. You could detach that to anything and you could answer any question. Shit, you don't even need to come up with a product. it will come up with a product, right? This is the theory they had. It didn't work. But when you're not really thinking user-friendly, anyone who's thinking, wow, I want to make a user-friendly experience.

53:51LLMs are a f***ing insanely questionable product. Some people get value out of them. Some people get no value. Sometimes it just goes wrong. Sometimes it makes stuff up. That's a crazy f***ing product. I'm sorry. That's insane. The fact that people are so defensive and they say hallucinations have been solved when they haven't is insane. But all of these companies have become engineered around growth. And so So they went, wow, I can just buy these GPUs and I'll keep growing. Right? Meta was horribly wrong, of course. Wait, you think the products suck? I love using Claude.

54:21Michael Batnick:I mean, why?

54:22Downtown Josh Brown:I find it to be miraculous. I don't…

54:25Michael Batnick:I use it all day. And I'm not the only one. But this is the thing. Like, the fact we have such divergent experiences is so interesting to me. Because this is meant to be the new big thing. I, to be clear, love technology. I really…

54:38Downtown Josh Brown:So here's the what for. I'm a writer like you. Yeah. I will never have AI write my words because I think the only reason people read me is because I have a very specific way of talking and a very specific point of view. However, I don't necessarily want to use the blue links on Google's front page to go hunt down information. When I'm in the flow of writing, I'd much prefer to have, whether it's Gemini or Claude, have a co-pilot where I say, while I'm busy writing this, go double check these numbers for me and cite the sources before I actually press publish. I use it as research. You use it. That's describing search and research.

55:20Downtown Josh Brown:And now what Gemini has done or what Google has done, I should say, Google saw this a year and a half ago was an extinction level event if they didn't cannibalize their own search and put the AI result up top. I don't. I know they thought that way. I don't know how I agree. Well, I don't know. I don't know what else they could have done if people's searches started to move to ChatGPT, they couldn't just sit there. But the thing is, you're describing search. But do you not find that? You're a great writer. You must find that valuable. Here's the thing. I use my terminal, for example. BQL, not having to write BQL is f***ing great.

55:53I can't do that. I don't know what that is. So with the Bloomberg terminal, they have this thing called Ask B. So if you need to look something up, it would run basically Python, their coding language. There's BQL. And instead of doing that, you can go look up this and it will generate the code and run it. So you can actually try it, take it, test it yourself. The thing is... That doesn't impress you? It doesn't impress me for the cost. For like a trillion dollars and tens of billions of dollars to get to a better search. But you think this is the end state? You don't think that... Yeah. I think that we're going to get iterations from here.

56:23There's a reason they moved to cybersecurity. They're going to iteratively get better at code, which doesn't necessarily replace anyone or even necessarily help software engineers past a certain point, because it gets more multiplicatively, I can say the word correctly, more complex and more hard to manage. And I think the big problem with LLMs I have is the distinction between when you are outsourcing work, like searching for something, and thinking.

56:47Downtown Josh Brown:Oh, I totally agree. And that's, the thing is, I'm with you on that. Tons of people are doing the thinking one, which is a problem. And no, I'm not that impressed because I used it to fix a thing with my kid's Minecraft game recently. Because I think ethically I should try and use this. And I have. And it's like it took half an hour of chasing its tail. It eventually got it done. I probably couldn't have done that, or maybe it would have taken. But it's just kind of like, okay, how many mistakes did it make? If I was paying on a per million token basis, I'd be pissed because I'd have probably spent$15.

57:18Downtown Josh Brown:Are there workflows that you've been able to automate utilizing AI where you've said, okay, I still hate these people, but this is literally saving me time from some of my repetitive tasks? Outside of the Bloomberg terminal, no. Okay, so we're in the other boat. There are skills that I've been able to create on Claude, where I used to have to go to these five websites, copy, paste, do this whole thing. And now I can say to it, all right, it's Friday morning. You know what I need? Go get it. I find that to be like, so I'm not a tech person. I'm a finance person. But for me, it's like miraculous.

57:55I also want to be clear about something. LLM's in a vacuum when you remove the social cost, the environmental cost, the fiscal cost, all this. Interesting technology. I think if they'd have called them like library models, No one would be getting rock hard about it. But it's just like, they are… Clouds, they're automation. Like, fine. Great. I don't know why we have to talk about it. I don't mean here, but it's like… I don't know why everyone's sinking a trillion dollars into this. That's crazy. Because…

58:20Downtown Josh Brown:Well, there is… Also, wait. There is a thing where if they think if they don't… You've probably heard this a million times. Like, the existential threat to their own companies. Like, if we miss this wave, our existing data center business is worthless. If we don't rip out all these CPUs and replace them with GPUs and be able to do these calculations for these models, then AWS will go to zero and Google Cloud will win. They feel that way. I get that. And I think what's happened is maybe they've realized, but they now realize they have to double down because everyone else is doubling down. And I think when one of them pulls back.

58:55Sunk cost. And they already spent too much. And that's the thing. Yeah. When they stop spending on AI CapEx, everyone's going to go, great, you're done with this. Why did you do it? Like, that's the thing. The moment they do it, it's just like everyone's going, brilliant. What were you doing the last few years? Have you got enough AI now?

59:12Downtown Josh Brown:And the spending literally can't stop because the chips burn out. Yeah, well, that one, it's like, again, they obfuscate all this data. But I actually had a question around your workflows. Do you pay on a per million token basis? No, right now, everything that I'm able to do is very cheap because I'm not GeneStreet and I'm not running a billion calculations a day. we are working on Gemini we're working on Claude we're working on Hazel yeah we're paying SaaS like we're paying a SaaS like fee at this point yes but you're not and I know it could change that's and that's kind of the point I'm getting to it's like also this is an insane way to run a business GitHub Copilot had 2 million customers and on June 1st of this year Microsoft just went pulled the rug out from under them that is an insane thing to do to customers that kind of it's the most rot economy why did they do that?

1:00:01because they were allowing them to burn$5 ,000 of tokens for$40. But the thing is, why did you do that? And they would argue, oh, we thought it would get cheaper. Where'd you get that? Because it's never got, nothing has got cheaper. The cost of intelligence has come down, but the models spend more tokens and the models may be able to do more stuff. They should have to considering the tens of billions.

1:00:23Downtown Josh Brown:Like I'm not saying they haven't improved, but it's like, what would be the first sign? Do you think if you had to guess, and I know you're not timing it and I know you're not telling people to trade on this. What would be the first sign of the apocalypse for all of the spending and like the comeuppance or like when everyone goes, uh-oh. Because here's why I ask you that question. I genuinely know enough to know that I will never be the person that spots it. But this is the new parlor game. People say, one of these days, Meta is going to throw in the towel. and say that CapEx projection we gave you last quarter, don't rely on that.

1:01:04Downtown Josh Brown:It's actually going to be lower. And then that will set off a chain reaction where the semiconductor stocks instantly lose 30 % of their value. The utilities fall like penny stocks. And all of a sudden like multiples compress, other companies pull back, that creates a panic. Okay, so that would be like my guess is it has to come from one of the hyperscalers. None of them is showing any signs that they have any intention of pulling back yet. But is that the thing that you're looking for? That's an obvious one. I agree. Like it would be a CapEx pullback. Been saying that for years. Who knows when they eventually cry on call?

1:01:40I actually think there are a few different pale horses. One of them is if CoreWeave cannot raise debt. CoreWeave is a NeoCloud, so the rent AI GPU compute, and their customers are OpenAI, Microsoft for OpenAI, Google for OpenAI, Anthropic and Meta. And they buy a lot of GPUs. And they are horribly unprofitable. And they need, I think they've raised billions of dollars three times this year. They need to do that last time they paid over like 9.2 or something, like some ridiculous rate on it. And hey, I don't think things are getting cheaper in that realm. And also the chips are more expensive. So CallWeave needs to perpetually raise debt.

1:02:12In fact, everyone does. Iron, Nebius, N-Scale, who are maybe IPO-ing. Or the NeoClouds. They all need to raise debt. And so - Because they don't have a Google search like business to fund this. They don't have a business at all. They don't, they just have, like the Findom that calls them and asks them for$3 billion every quarter. So one of those companies doesn't raise money. It's going to be they try and they fail. I could also see a hyperscaler bond sale that gets even interest or like just above even. We just had an Amazon one that only got 1.6x oversubscribed. If that comes to like 1.1, 1.2, if it gets like real thin,

1:02:47Downtown Josh Brown:people will write articles like the enthusiasm for data center bonds are drying up. And I thought that was happening because the Amazon one happened, then Google did one that was four or five X oversubscribed. So I'm like, okay. But the thing is, those are the kind of signs because the big naivety I had was like that some sort of ethical or social concern would change things or the companies wouldn't keep doing something because they all knew that they had to. And if one of them stops, all of them can stop, but the first one has to first. No, it comes down to money. Will the money be available?

1:03:16And that's the thing. Because NVIDIA's GPUs are so expensive and they just got more expensive and the cost of RAM and construction are going up, you necessitate being able to raise billions of dollars. That's actually a fairly small amount of companies that can do so. Most of them are bankrolled by Jensen Huang or dependent on OpenAI or Anthropic. So it's the reason you ever, do you look at Oracle's Twitter account? I know this is weird. I'm going somewhere. So every time something goes wrong with OpenAI. So I haven't seen it. So Oracle, when that story came out, because NVIDIA was going to invest$100 billion in OpenAI, it didn't happen.

1:03:54When that came out, Oracle did a tweet that was saying something along the lines of, we have no concerns over our financial situation with OpenAI. Oracle will just randomly post stuff, be like, Stargate Abilene's going great. And you can basically just take the opposite of whatever it's saying. That's because… What do you think runs that?

1:04:11Downtown Josh Brown:It's not Safra Katz sitting there. God, no. Safra Katz, funniest thing I've ever seen. Oracle signs this massive deal with OpenAI. like a week later, she's like, see ya. You're going to have two CEOs now. Let these guys deal with this. I'm going to go sit back here. And so Oracle also has to keep raising money. Oracle is still, I think, in the process of doing their mass share sale. But you must be heartened by the fact that the stock market is treating Oracle differently than it's treating Alphabet. Yeah. And the bond ratings agencies are certainly looking at Oracle differently. Yeah, but they don't have the stones to downgrade.

1:04:47that they don't have the stones to...

1:04:48Downtown Josh Brown:It's that junk. It's a notch above junk. No, they're notch above junk. They don't... Will they have the balls to make them fall in angel? Hell no. Let the f***ing ratings agencies rated Core Weave debt investment grade because it was connected to a hyperscaler. Unbelievable. But that's the thing. It comes down to when the money runs out. If OpenAI fails to raise, if a major AI startup goes insolvent. So, have you heard about complexity? What's going on? I haven't heard much about them in a while, actually. They seem to have faded away. That's actually really good to know because NVIDIA is considering investing billions at a$30 billion valuation.

1:05:20Why? Because Perplexity is one of the few companies that actually spends any real money on GPU compute. Perplexity's death worth its hundreds of millions, but still, in this industry, that's a lot when no one else is spending much more than millions or tens of millions. So NVIDIA is keeping them alive because if they fail, well, everyone will know it.

1:05:38Downtown Josh Brown:So the pale horse could either be a major hyperscaler decides it wants out of the race. a major hyperscaler has its debt downgraded, a la Oracle. Yes. Probably the most likely. More than certain. A major startup runs out of money that like everyone associates with the AI trade, like a perplexity. Okay. Or what was the fourth one? If CoreWeave can't roll its debt. Basically, anyone who can't race more money. Oh, also, softball. Or an IPO bombing. IPO bombing, of course. That would be a big one. If an IPO did not go well. If SoftBank can't take a company public, SoftBank's liquidity situation is really bad.

1:06:23They are having to raise$20 billion in bonds because they raised$40 billion. Dude, that guy's crazy. I love him. I love his goose mouth. His goose mouth f***ing rocks.

1:06:31Michael Batnick:Ed, where's the mania, though? Because I feel like, at least in the equity market, a lot of investors are not treating these companies as if they're Teflon because NVIDIA's 70 % profit margins, stash trading 18 times forward earnings, Meta 16 times, Like, where's the mania? The mania is in the data center construction

1:06:48Downtown Josh Brown:and the companies themselves. And it's an activity bubble as much as it is a financial bubble. Like, the amount of these deals. Yeah, there is momentum that still exists that keeps everyone thinking this is normal. Oracle shouldn't trade at whatever. If it's anything above$40, it should. Oracle's revenue has been flat for 15 years when you adjust for inflation. Like, this dog of a company. I'm surprised. They are the only one of them I'm certain would get bailed out. Stock's down like 65%. It should go lower. It sucked. Oracle is a horrible company. They also fired a bunch of people. And I know there's some sources that deal with contract renewals, which is like the number one most important thing at Oracle.

1:07:23And if they're firing those people, they're just kind of disorganized.

1:07:26Downtown Josh Brown:The data center thing that makes me the most bearish, I made the huge mistake of rereading a book called 1873. Oh. About the build out, the boom and bust of the railroads. I don't think that this looks like.com. And I don't think that this looks like the great financial crisis. I think that is the best analog because of how physical the demand is. The build of the railroads was like extraordinarily physical in the way that whatever megawatt data center you just described, like it's that type of a infrastructure build out bubble to me. And I should not have reread that book because maybe you want to sell everything.

1:08:08GE Capital is the other comparison I'd make with NVIDIA. NVIDIA is acting a lot like Welch. They're doing some - Vendor financing. Vendor financing, but also with the GCAS, the airline side over there.

1:08:20Downtown Josh Brown:Yeah. They kept airlines alive constantly. They were a massive leaser. They were America's largest equipment leaser at one point to their customers. There were airlines that could only survive as long as GE could lease them stuff. But another thing is as well is this is a bit of everything because the difference and the problem with data centers is these things are not really useful for other things. GPU compute is not really that useful outside of this. And it's very clear that the only people that will pay a lot for it are unprofitable startups. If real businesses are not buying it at the scale they need to, and there doesn't seem to be a reason.

1:08:53In fact, there seems to be more reasons to buy less open source models.

1:08:57Downtown Josh Brown:But you've got NVIDIA - Sorry, self-driving cars, automation in general, humanoid robots. None of these - We're saying that non-linear processing is not useful for those things.

1:09:07Michael Batnick:I gotta go to the bathroom. Carry on. Not at the scale they've built them. If they were building$30 billion worth of these things, very different. But they're building what will require $700 to a trillion dollars a year in income for something that doesn't need that. Look, we've had Tesla and Volvo and all sorts of other companies that have self-driving Zooks and, what is it, Waymo. You have all of these things, and they didn't need all these GPUs. And indeed, having more of these GPUs has not changed. There hasn't seemed to be a breakthrough in them. they're getting better. I f***ing love autonomous cars.

1:09:41I think they're fascinating. I love getting in the Waymo. I think that there are social problems we're going to have as a result of taxi drivers. I think that there's going to be real problems there. I wish we actually f***ing do some socialism and actually help people.

1:09:52Downtown Josh Brown:I'm not exactly sure what all those drivers are going to do. But I also think - The only get-out-of-jail-free card is this could take place over 30 years, not over three years. I think it's decades and decades and decades because the problem with autonomous cars is not the 99%, it's the 1 % issue. And that means you have to expand slowly. But the point is, all those GPUs might be useful for that, but we've built so much of this. We're building so very much of this. And per NVIDIA's own earnings, we're at a point where there are like three to five companies that can afford this at any kind of scale.

1:10:22And NVIDIA has to make so much more money. Like so, everyone is in this situation. OpenAI and Anthropic have to grow like crazy. NVIDIA has to grow like crazy. I think NVIDIA may have said the 70 % thing because they're desperate. And I know that sounds crazy because they're doing mad numbers. But remember, they've been down. People have been a little bit worried about NVIDIA. They needed something exciting. Also, they got some concerning shit in that 10Q. There's some really weird stuff. That statement they made about investment-grade partners that can pay between three months and one year,

1:10:52Downtown Josh Brown:it's really weird. So you don't like seeing them become investors and in some cases creditors of their own customers. It seems like it's the classic sign of illusory demand or artificial demand, I should say. All right, so to close this out, this is the question. At this point, my entire audience would be screaming this at us. This is the thing they would most want to hear from you in closing. Is there any chance that you're wrong about how this turns out? And if so, what would have to happen for you to change your mind and say, I probably got a lot right, but I missed the thing that actually mattered and I was wrong?

1:11:34Downtown Josh Brown:What are those concrete things? Because it's not just sentiment shift. Just promise me the next time you have an AI bull, you ask them the same question. It'll be like next week. Please do. Please ask them the exact same question. What if you're wrong? But so I don't have to be 100 % right for things to be really bad. Oh, I agree with you. Really like OpenAI and Anthropic could become much smaller businesses that hang in there through some messy accounting and some wing of Microsoft or Amazon and Google, some consortium, and the LLM industry could be much smaller but not disappear. Those are feasible.

1:12:04there is no breakthrough coming that's going to magically change this. The AGI story is dead. Even they are trying to move away from it. Even though Jensen Huang - Nobody can even define it. Exactly. Jensen Huang said it was here. It's just like, shut up, Jensen. Come on, mate. But the thing is, the hyperscale growth story is so difficult for them to meet. It's so great. Like, even what Jensen - If anyone can pull it off, it's Jensen. But to do$670,$690 billion next year, probably from the same customers, means that Amazon, Google, maybe Microsoft, definitely Meta, are going to have to take out a bunch of debt.

1:12:39SpaceX, 100%. Amazon says they're buying 2 million GPUs. Really? How? How much money are you going to have to raise? Your cash flow negative. All these companies are going to see their economics. And I think Meta and Amazon both guided lower than expected in Q3. So we're already seeing some slowdown. How interesting. But the point is, they are going to have to spend more and more and more and more money. and more. Even if they're buying the same amount of GPs they planned to six months ago, they're going to have to spend more because they're more expensive now. So there's no chance you're wrong is what I'm hearing.

1:13:12I don't see how this goes on as long as they expect to be making hundreds of billions of dollars in compute revenue just from Anthropic and OpenAI. I don't, even in the dumbest, craziest world, I don't see how the money exists to do that because that requires them to likely spend half a trillion to a trillion dollars in CapEx and have those data centers actually open.

1:13:32Downtown Josh Brown:to that question. Which part? How would you know for sure that Ed ends up being wrong? What would it be like? Would it be the profitability of Anthropic and OpenAI happens in 28? Even then, are they profitable enough to be able to afford all the compute they've committed to? 1.1? So even that wouldn't be enough to change your mind. 1.2 trillion is so…

1:13:56Michael Batnick:What would you say? I don't know. I don't know how you could disprove that or prove that he's wrong. Are you betting against any of these companies? Do you have any money on the line? Nope. I don't, here's the thing. I don't have cash in the market. People go, oh, he doesn't have skin in the game. I have emotional skin in the game. I don't know what to say.

1:14:10Downtown Josh Brown:Oh, no, I agree. You have made, you have become the face of AI skepticism. You have as much in reputational risk as other people have in dollar risk. But the other thing is, is the market is not, you don't invest in the market now based on good sense and reading about companies. You invest based on reading the smoke signals. And last year in September, but there were like three or four open AI announcements that manipulated SK Hynix, Samsung, AMD, and Nvidia. Four announcements where nothing happened and the stocks popped. I can't play in a market like that. I can't play in a market where companies do fake announcements.

1:14:47Downtown Josh Brown:Do you talk to hedge fund managers that are making active bets against these companies or they're long, but they want to hear like your views? I occasionally do. Without like naming people, like what kinds of conversations are you having? Similar to this? Yes, but I never get near the actual trades. No one ever talks what they're actually investing, which is great. But no, but they might want to hear your train of thought. Like, why shouldn't I have a billion dollars in f***ing semiconductor stocks right now? Yes, and that's the thing. When it comes to just equities, I'm kind of like, if you are willing to ride the crazy train, go ahead.

1:15:18Like, if you want to read the smoke signals, if you're capable of seeing where the market will go and what will influence the market, bully for you. This is not my expertise. But if it comes to a long-term thing, especially if it involves investing in like the debt underlying a data center, I will just explain how the demand is illusory. There's not no demand, but it's a teeny tiny amount compared to how much we're building.

1:15:38Downtown Josh Brown:It's definitely a hype cycle. Even the bulls would have to admit, there's a lot of hype. There's nothing after this. Nothing. There's no dot-com bubble style fixer here. AI GPUs are not useful for other stuff. And also, if a data center is left incomplete, unbuilt, it's going to cost just as much in three years to finish. Data-centered AI GPUs are going to cost just as much to run in electricity, if not more. And if the power isn't finished, if the power never made it, or if you were running it using gas turbines, so nothing permanent, it's going to be even more expensive, depending on the cost of gas at the time.

1:16:11And there's just not a… With a dot-com bubble, there's a bunch of server hardware that went out that was useful for building the future with Amazon Web Services, for example. Amazon Web Services…

1:16:19Downtown Josh Brown:The dark fiber was useful later. But energizing that fiber, using that fiber, wasn't anywhere near as expensive. Amazon Web Services, by the way, between 2003 when it was created and 2015 when it became profitable, Amazon's total capex was$29.7 billion adjusted for inflation. And that's the thing that I try and tell people because, oh, Amazon Web Services cost a lot of money. Yeah, this cost way more. And that was all of Amazon's capex, not just AWS. This is nothing. People, and I do the same thing. People want to compare things. People want a schemat so they can look at and say this looks like this and that and the other.

1:16:55I just challenge people to say, stop relying on that. If you don't agree with me, then at least don't rely on there being a happy ending here and prepare accordingly. Because I think the people may expect OpenAI to die. They may not be surprised when it dies. I think some will, but they won't be. Like there'll be some people went, yeah, I kind of saw that coming. The data centers not being used and the data center debt not being paid, that is going to be what shocks people. Because people, because we're talking hundreds of billions, trillions of dollars, regular people can't think of that. Like that's an unknowable amount of money.

1:17:33It's almost to the point that it stops meaning anything. And you come to this logic of, these are the smartest people in the world. Why do you think they're smart?

1:17:40Downtown Josh Brown:So the, all right. So the implications though of what you're saying, you realize we're not talking about a dot-com meltdown where the NASDAQ declines 80%. but the rest of the economy is fairly unscathed, which is actually what happened. Yeah. What you're describing, because the numbers are so much bigger and because the private credit people are all in and they are not NASDAQ stocks, these are banks and insurance companies. And all right, so what you're describing does have the ability to literally take down the economy in the way the dot-com CapEx blow off top could not have. And the problem is, it's hard to quantify how bad it will be because of the private part, private credit.

1:18:23We don't -

1:18:24Downtown Josh Brown:There's also stuff we don't even know that people are doing. And that's the thing. There are these kind of like guys just like, yeah, 10 billion, whatever. I don't give a shit. Blackstone pissing money up the wall. And they're funding it with insurance money, private credit money. Everyone's talking about this Mark Ward situation. Cool. I wrote about this three months ago with the private credit situation. Like I think a sixth of insurance annuities are private credit funded. We've got public pension funds. We've got private pension funds. We've got private pension funds. Everybody's in. Everyone's in.

1:18:52Downtown Josh Brown:Yes. I don't know how widespread the damage is. I truly don't. I don't want to be like, it's going to… But it seems really bad and people are alarmed about it now. And I mean, Pablo Torre's done a great job and Nick Nemeth has done an amazing job pulling out the private… Yeah, we know Nick. Yeah, Nick's f***ing wrong. Oh, it's Pablo this world. Nick's really great. Have done a good job really illuminating this and Sam Koppelman over at Hunterbrook. Legend. We know Sam. And they've done a really good of elevating this. still people don't connect that to data centers like they should. And they don't connect it to the fact that OpenAI and Anthropic don't even need to die.

1:19:27They don't even need to stop growing. Like they could grow, they won't, but like they could grow like five times as big and they still won't have the demand for these things. And what happens if the thing doesn't get built or runs over budget? When have you heard of a building project that didn't run over budget? And these are the most ambitious infrastructure projects of all time. And so you've got private credit with their wonderful underwriting quality, where most just people winking at each other. And you've got them funding these big, unstable, difficult, complex projects that can get locals getting in the way.

1:20:00They're cutting the tax breaks in Arizona, Illinois, and somewhere else. I can't remember. Texas, Pennsylvania, both showing opposition to them. And they need these things to finish and the customer to exist to make any money on the debt. and with all the weird senior tranches and all that, who knows where they'll actually be at the end of it. And they don't know because they're investing in a Blackstone or what have you, Blackstone infrastructure fund. And it's just very dangerous in a way that makes me really angry because it could have been avoided. It could have, but everyone got a mic bit too greedy.

1:20:32And Jensen as well has done so well on this. But here's my real NVIDIA question. I've been waiting to bring this up. It feels like the right time. How and when does NVIDIA realize revenue? That is a very interesting question when you actually look at their earnings. Those accounts receivable have grown. Nobody special found this. 55 % sequentially. Like, what's going on there? Why are your accounts receivable? Why are your daily sales standing growing? We like to think of them as backlog. But that's the thing, though. Why is this extending as you're making more money? Is that because you're reaching the edge of when you can get money quickly?

1:21:08or at all. When does that? How much more affordance are you going to have to make your customers to grow to$690 billion? Also, technically on an accounting level, you can ship something and you can count the revenue and no money can pass. I don't know, maybe you're feeling generous with CallWeave. You really have to disclose that. You might eventually, but ColletCrest might just not send it out as quickly. They're going to push, because we don't have an SEC right now, They're going to push the absolute limits of accounting shenanigans here. It's already looking really weird. Inventory is growing as well.

1:21:42NVIDIA has$30 billion of cloud compute agreements, as in to rent back their GPUs. They have$25 billion of data center lease agreements. Why are they? You sell to the data center, Jensen. Why are you also renting the data? Are you just building a data center to feed yourself money? And this is the ultimate point of the raw economy. Eventually, they wanted to create something where the only thing was just handing yourself money, but the money increased by draining debt. And there are limits. And I don't know when we hit them, but we will. And I worry that when we do, it's just going to be so abrupt and horrifying.

1:22:17And the era afterwards, because… Do you want to be wrong?

1:22:21Downtown Josh Brown:Do you hope you're wrong? Yeah, because you do seem to, I don't want to say enjoy wheeling off all of these problems that you have with it, but it does seem like you're enthusiastic to see this thing

1:22:33Michael Batnick:I feel like you're gonna be cackling if this all comes down no I so there's that was the bit in the big short where it's like unemployment drops 1 % 30 ,000 people die right I'm not gonna I might be satisfied I'm not gonna be happy like I don't know

1:22:44Downtown Josh Brown:if it's come across you're not gonna take personal pleasure in seeing but you will get some intellectual satisfaction yeah I mean because out of having put all your personal capital on the line so to speak yeah and been right but the thing is is like regular people are going to suffer on this one. Retail investors, though, are barreling into this, what we're at the highest point of retail leverage in history. We're seeing a lot of people, look at what's happening with the Cosby. It's going to be like that in America. There's something very scary about that. That chills me. And I don't know. I know I sound enthusiastic, but I am like, this comes from a place of worry.

1:23:20Because we could have stopped this. We can't now. And now it's just how big is the system going to let itself grow before the system itself runs out of cash. Because there's enough cash. There's enough. But there are limits to how quickly you can mobilize it and where you can put it. And everyone's asking for more. Everyone is asking for more. And more and more and more. On that uplifting note,

1:23:42Downtown Josh Brown:did you at least have fun on the show today? I would love to come back. This is where most of them are at. Listen, we feel that these conversations need to be had. And there will be people that are fans of our show that will listen to this and say, don't ever have him on don't ever have that guy on again but what if not you're right and the world comes to an end but what if there is a minor catastrophe and people listening to the show were able to kind of understand why it's happening in real time because they listened to it so we do put bear we've had Sam Koppelman on the show I wouldn't call him a bear but he is skeptical he did the bloom energy piece back then and I've had Nick on the YouTube live stream so I think these conversations are important to have I don't have to agree with everything you say, but I am learning from you and I hope you've learned from us.

1:24:29Downtown Josh Brown:I have. Okay. All right. You learned how to do a proper podcast. There we are. At a minimum. All right. Dude, this has been fun. Such a pleasure. Fun might be the wrong. This has been intellectually stimulating. There we are. Yeah. Is that cool? Nice euphemism. Guys, thank you so much for watching. Thank you for listening. Where can people go to learn more from you, Ed? Tell people the URL. WheresyourEd.at for the newsletter. Subscribe to the premium. And of course, betteroffline.com for links to the podcast. Dude, you are a virtuoso at this. You crushed it, so thank you. I love podcasting. All right, thank you.

1:25:00Downtown Josh Brown:Thank you guys, we'll see you soon.

1:25:23Downtown Josh Brown:Athletic Brewing Company crafts award-winning non-alcoholic beers for those who want to be part of every round. With over 185 flavor awards, they're exceptional NA beers that fit your lifestyle and any social occasion. Summer's full of good times, and athletic fits right in. Go to athleticbrewing.com to have brews delivered to your door, or find them at a bar, restaurant, or store near you. Near Beer. Athletic Brewing Company. Fit for all times.