How The AI Bubble Bursts
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directly to you, my darlings stener. So i'll get right to him. And as a reminder, i'll be including links to everything i'm talking about in the episode notes.

And if you just catching up, all you really need to know here is that OpenAI makes large language models like GPT. And of course, the product judge B. T.

I thought IT makes cloud a similar product. And the genera AI products have yet to really prove a use case that justifies them losing money on every single transaction. Let's begin.

August second. Twenty twenty four was black friday for the A I boom. As a week of rough earnings from big tech letter. What felt like the entire media industry asking one question is the A I bubble popping? And that's the question i'm gna try and ask for you today. And in the next episode too, the guardian sought to answer why the big seven tech companies have been hit with a doun.

CNN asked, has the A I bubble burst? And the atlantics suggested several months too late that the generate of A I revolution may indeed be a bubble, the financial times reported hedged fund elliot management told investors the invidia was a bubble, and blooming burg reported that big tech had failed to convince wall street the A I was paying off. It's all part of a growing trend where people are suddenly realizing what i've been saying for months, that this unprofitable, energy hungry technology that creates mediocre outputs is not actually the future.

It's just another cloud. Do hiker I not a great way of putting IT, I realized, but this is my nice way of saying generative A, I isn't completely useless, but the large language models, the kind of war based on the costs. These things were, for the most part, talking about the sudden and violent declines in the share Prices of companies like microsoft, amazon and google, which for the most part haven't really recovered.

And as of about August tenth, down significantly over the past month. Although these articles didn't say anything particularly new or reveal any individual missteps or scandals that might have prompted the slide, they hinted to a broader awareness among wall street. The A I ambitions of these companies, and by which I really mean generate A I, we require these massive buck front investments and the payoff s might non actually be there.

And at least if IT is, it's not gonna be there for a while. We're talking years, if not a decade. And once in there, if gets settle is very, very, very hard to move them. While the stock market isn't always rational, check out tesla for more the one day sell off of these stocks.

And the comments from analysts and industry figures that followed suggest that wall street is growing increasingly uncomfortable with the vast amount as the money required to build and grog era vi and whatever the fuck that's meant to be, these companies, while still making over ten billion dollars in profit, of course, referring to make of google lamon in the last quarter alone, have also spent an absolute shit ton of money on infrastructure to capture the so called demand for cloud services from generate AI. However, one little problem, none of them seem to actually be making that much money from the thing they're investing. In the last fiscal year, microsoft capex, the capital expenditure was about fifty five point seven billion dollars, which is up seventy five percent year over a year, with more than one third nineteen billion dollars spent in the last quarter and june thirty, twenty twenty four.

This is reportedly split fifty fifty between infrastructure and technology, which suggests an aggressive data set build out with tree financial officer of mysore t. Amy hood saying that the company expects capital expenditures to increase on a sequential basis given cloud and the and I quote A, I demand that, as i've repeatedly said, is not really there. And what what exactly does increasing on a sequential basis mean in dollar terms? I have absolutely no idea it's vagon.

I have bad enough to rattles the markets, particularly when microsoft will be starting from an already quite high valuation was still hold added. And I quote microsoft earnings scores, the A I related spend represented nearly all of our total capital expenditure with roughly half for infrastructure needs that will support monitise ation of over the next fifteen years and beyond. Uh, in essence, microsoft spent nineteen billion dollars in the last quarter on cloud and AI expenses and is made IT clear that it's not done spending more money than it's ever spent before on a technology that neither makes microscope the people paying them that much money, it's very stupid.

And for context, microsoft may twenty two point o four billion dollars in profits in q two twenty twenty four. Is this really worth thinking in entire court as worth of profits into? Let me give another way to look at him.

Microsoft 点 net profit margin has dropped from thirty nine point four four percent in q three twenty twenty three to thirty four point nine four percent in q two twenty twenty four， meaning it's taking on less money that is usually would because they'll really investing in this thing that only lose this money. It's very good. It's very good that this is happening.

This is what you d love to see. The other cloud providers aren't really very much Better. Google capital expenditure, a forecasts to be fifty billion dollars in twenty twenty four and IT spent eleven billion dollars in q four twenty twenty three, driven by and I quote mostly by technical infrastructure, mining service and data centres.

And twelve billion dollars was what they spent in q one twenty twenty four. The reason I am not breaking things out much with the google is because IT hasn't been extremely guarded about its A I expenses probably because they're really high and they're not making any money from him. Amazon similarly guarded with its capex last year hanging somewhere around forty eight point four billion dollars.

IT spent thirty point five billion dollars, so foreign twenty twenty four, an absolutely ridiculous amount considering its profit for you two twenty twenty four, thirteen point four eight billion. They're just thinking their profits into these things and there's really no sign that anything changes. Every hyper scale has said that they intend to keep spending all of this money on A I and I haven't even mentioned companies like oracle, which expects to spend ten billion dollars on cloud infrastructure this year with much of that new capacity going to support microsoft and google cloud.

I don't know what happens if they don't need them anymore. Anyone think about anyway, anyway, but the black friday, he was a collective realization of the scale in the cost of A I. And the first signs of the markets are stuck into us.

Those annoying little questions about whether it's actually worth in. Yet the real chaos, and one, the comparatively speaking, slipped under the radar, came in the form of one of my pale horses. Last month, I put out an episode, pop culture, where I suggested that the first signs of air bubbles collapse would be in the failure of a major AI company, though, when not Operating the scale of sea OpenAI.

And I specifically picked one out character to AI, which raised one hundred and fifty million, those in funding, and the information already hinted might sell itself to one of the big tech companies. Now the reason I pick them is that their APP, which allows you to talk to A I chat box of eat on musk, the go to from judge zukin, the ana mango, which we all know i'm tired of waiting for. That's not a business, by the way, and they never really had a sustainable business model or really a meaning product.

And there, one hundred and fifty million dollar race was the first big stupid capital race in the generate AI boom early twenty twenty three, when nobody else could raise at all. In my opinion, that continued existence, other than being a disgusting insult to company building in startups everywhere, was proof that the bubble existed and their death. Whatever form this really is, is a sign that the tolerance of bullshit is leaving the market, as my blunt force for shadowing suggests on friday or the second, and yes, most of this stuff happened on that friday, google said that he would license character A S technology and hide the company's leaders know chasidy and Daniel defrees, along with their research team of thirty people, to work at google s deep mind eye division.

The fates of the other one hundred forty employees remain uncertain. I assume there alive, but I imagine some will remain on a staff as the character of A I APP remains Operational. It's a strange, sad end for a company that ever really had any business existing and in many ways feels like a con happening in broad daylight sheron.

The free does are both former google employees having left the company in twenty twenty one to create character or A I. It's unclear weather given their previous employment theyll be required to weather new group pell hat that you get if you are new to google. I actually don't know if they still do that.

Email is easy, a Better offline doc comments. The letter even let us see or said for my british and canadian fans, if you know about this propeller, or indeed can get me one, I would very much like one anyway. While this is being framed as a typical licensing employee poaching deal where nothing acquisition and Jason is happen, IT is actually an acquisition.

Google is paying two point five billion dollars to investors. Employee stock options will vest. And that means when you get stock in a company, IT usually takes time you to actually earn IT so that you can't just take IT to leave immediately, as I would.

And that will keep versing until july twenty twenty six at the acquisition rate of eighty eight doors share paid for by the money from the licensing deal. That is not an acquisition from google. But after that point, you shut out of luck. It's no longer guaranteed this is a terrible situation or around for everyone other than the earliest investors. It's another great situation where the bad guys win.

In essence, anyone who has options that aren't fully vested by july twenty twenty six maybe should out of luck and character a is original funding valued them a billion dollars, making this a situation where and recent horror dds one point five ex return on their investment in the company that never really did anything, employees kind of got screwed. Maybe they didn't. It's unclear.

But what is clear is that as of now, character AI is effectively dead. The company will shift from using their own models. They literally only thing they did to publicly available, open source, large language models like metas lama.

And the original engineering team is effectively gone. The company will likely shamble a long life and slay until IT goes up in the corn and look an old cat, except old cat, as more purpose and meaning in the universe and bullshit chatbot company. So why does this matter? On one level, the death of character.

AI is an indicator of the unsustainably of many of these generate AI applications and companies, even with one hundred and fifty million dollars in funding, which is a decent amount of money for a Normal company. Character likely couldn't keep the lights on for very long, which kind of made IT necessary for them to be absorbed or required before they shut down and embarrassed everyone involved. It's also just like a charleton olympics.

It's this company sucked. IT never made money. IT didn't really do anything that different, but they just get bailed out.

These fucking start up people, they always go on about the meritocracy. They're was going on about always. It's about working hard is not about your circumstances.

These jack holes, they fuck in ideas. They got to sell their bulls shit company to google, a company they left the, it's just so annoying. And this agreement also strongly resembles an earlier one between inflection A I and microsoft, where microsoft board inflections technology and team without actually acquiring its equity.

So they actually stuck in the company founded by deep mind co founder, mr. Of asylum and linked in code read holmen twenty twenty two inflection was, in layman's terms, intended to be a more emotionally aware version of ChatGPT. Just one year after its creation, they raised one point three billion dollars at evaluation of four billion.

As a note previously, I believe that microsoft acquisition of inflection was in the attempt to avoid regulatory scrutiny by structuring an acquisition as a trsa of tech and talent rather than buying the company where the taken the talent is. And yet i'm also convinced that inflection would struggle the last out on its own, even with a smaller user based on with a one point three billion dollar war chest, and eventually IT would have had to get acquired or just die. Regardless, i'm beginning to see a patent A S point of failure is shifting or more accurately, centralizing.

At one point, the burden of this entire generate A A I fast was shelved by a large and desperate group of stops and investors. And it's now moving to a few shoulders. Those of giants like microsoft, google, amazon, meta, to a much lesser extent, apple, the two most prevalent large language models outside, of course, I submit, as lama OpenAI GPT in anthropic plod are effectively big takes.

Welfare recipients receiving billions of dollars in cloud credits to run their extremely expensive models without having to build their own infrastructure, is also kind of a con because that's not real money. That's jackie cheese tokens. And how those value ten billion dollars goes to OpenAI, mostly in cloud credits, and they get equity in return.

That doesn't makes I can't invest in companies and miles, why can microsoft do IT anyway? Microsoft sted billions of dollars in OpenAI and google amazon a proper A P anthropic too, with the latter completing its four billion dollar investment in the A. I company earlier this year.

I need to be clear, the OpenAIron an thropic a ho ly re liant on th e me rcy of a ha ndful of tr illion do llar co mpanies wh o ar e th emselves at th e me rcy of th e ro ck ec onomy in th e pu blic ma rkets. And especially in the case of open a eyes relationship with microsoft, they're not just dependent on big tech firms financial support, but also on their ability to procure and build the actual infrastructure of these products. OpenAI does not have their own service, neither does zanetto pic.

Perhaps they have some, a few, but the majority of their actual processing is done by a big tech firms that paid them in chucky j tokens in cloud credits to services. Who knows how you even a more tize that it's completely insane. IT drives me insane.

They're able to do this every time they find a horrible little thing to do. But me, I meet the mercy of one of the fine products that you hear after this sad break. One that will know out echo my exact thoughts, feelings and desires, buy their things or done. That's up to you.

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I'm back, as I was previously saying friday, all the second twenty twenty four was a rough day for A I and IT somehow got worse that same day.

The information reported that in video, a has reportedly told microsoft, another own name, cloud customer, that its next generation black world chips, which are designed primarily for a cell or in A I compute tasks, will be delayed by three months due to an unspecified design floor identified by its contract foundry, tc. It's entirely possible that this flaw takes a little more than three months to resolve. Semi conductor manufacturing is really, really, really, really hot, and issues that initially seem minor can rapidly spiral out of control.

On top of that, you can't rush them in the same way you can with software. You can't just throw a bunch more money. T, S, M, C has plenty. But on top of that, this isn't a money problem.

This is one of those scientific ones that you can't just skip over and with black while and a major leap forward and capabilities, both in the terms of power efficiency and sheer compute power. This is a huge blow to OpenAI, and it's many, many competitors, by which I mean, it's other competitor, which is also bank role by a big tech sugar dad. It's also likely to delay some of OpenAI grander ambitions for an indeterminate amount of time, which in turn kind of dampen its appeal to potential investors.

And to be clear, OpenAI basically has to raise in the next six months. As the information reported, the open eye could lose as much as five billion dollars this year alone. I will get to that later.

But just to be clear, that's not five billion in losses plus revenue. That is after you take the money out that they made, it's really bad. It's really, really bad though.

It's also very bad. I'm not sure why more people aren't freaking out. I'm mostly chilling just because they don't really care if they live or die. I feel bad for the people with the jobs, but i'm rampling will get back to him. And this is a problem that expands the google, microsoft to and videos.

Black world chips was supposed to be a major technological leap for generational, designed with both inference, the way that large language models generate answers in training in mind, and thus providing vastly more compute part and energy efficiency necessary to make this shit move. But as of now, these chips have been delayed with their availability not expected into the first quarter of twenty twenty five at the earliest. And the information reports that OpenAI probably won't get access to them til march twenty and twenty four, an NVIDIA might be forced to do new test runs with its boundary partner before scaling up to mass production.

One particularly worrying quote, and I kind of just tended IT IT there, was that microsoft managers had planned to make black world power service is available to open aye by january, but like I said, may need to plan for much early spring. And that was said by a person with knowledge of the situation. Beautiful name.

The reason that bad well is not really just one first. OpenAI desperately need something new. They need something that will show both investors in the media the OpenAI is building something meaningful. And while it's possibly IT will be able to deliver GPT five, which is the next model in the near term future, even potential customers don't believe the jump will be significant enough from GPT four. Second, for reasons evaluated to at the start of this episode, investors are getting a touch H G with A A I hyborian and more specifically, with the giant tech companies are bankrolling IT.

The street needs to see results, the very least applause usial case for the future profitability and marketability of generate AI, a thing that is genuinely bad at in videos s black world chips could help OpenAI models run faster and in gest, training data faster as well as even if it's not possible, bulling investors into believing the OpenAI had the lakes tech and thus could build the average general intelligence that sam was been lying about and allow him to continue his con regardless. The article from the information put IT very plainly, OpenAI only gets access to the latest technology as far as microsoft mits or as fast as microsoft is able to provide on their own. Even one of these events will be a deeply worrying sign of the bubble popping.

And together they'd be threatened to begin to collapse that i've been predicting since march. Well, I said the AI companies had about three quarters to prove themselves, and I quote, savaging the revenues of the biggest companies in tech when things don't work out. But i've realized now that IT isn't really super useful to attach things to time, though, I stamp up a prediction, and I think it's more illustrative to suggest what the terms of the bubble popping actually are.

So let's define them. What do I mean when I talk about the bubble popping? For the sake of clarity, i'm defining IT as the major cloud companies reducing capital expendable related to generate A A I in a public and significant manner as in an actual statement from such in a delerm, microsoft and google or one of the major large language model companies anthropic OpenAI collapsing in some way.

No cheap thrills, no half measures. We're not calling this fucking thing until IT actually pops and I will not pop into one or both of these companies go tits up. To be clear, when I talk about anthropic and OpenAIr c ollapsing, I don't actually mean in the in run style away, these companies are probably not going to fall apart, shut down, close their doors suddenly IT could be that they absorbed into another company on unfavorable terms.

You like character ai inflection, like the things that just happened. And in that case, I think investors are going to take a massive loss OpenAI r anthropic. Might be forced to radically limit their Operations, either by shutting down their free chat board or limiting access to enterprise customers or by slowing down development massively, which, by the way, will be depth embrace IT will be over.

We could see massive layoff s, we could see these companies pivot to with less capital intensive business models such as licensing their patterns and I P to other technologies or companies, but not really offering a natural tangible product to consumers or business customers as supposed to what they're doing today, which is offering a tangible thing that doesn't really do that. My giant rampling again, yeah. I can imagine all sorts of term lending for generate V A is big to, and some of them aren't even legally actionable.

But I believe that the collapse of absorption of these companies is the one critical scientists look for. OpenAI began this hyped cycle, and sam altman is definitely the pt bottom of the large language model circus, and open a eyes, absorb more money in attention than any other start up of the last few years. And outside of uber, I think they might be getting the most all time.

Got to hate IT. It's symbolic of the excess in the waste of the generative A I boom and its death, or as I mention some alternative collapse is the same that we're done here in the same way that F T X signal the end of the cypher o currency boom. And if open a eyes, collapse Marks the apocalypto generate A I, I believe that would be accompanying one or several of the following pale horses.

Real, tangible signs that things are falling upon, things you can send to your friends and family and laugh at. Let's take a look, shall we? Number one, any significant Price changes by any large language model company or a bad sign. Desperate times require desperate measures, and any isolation in pricing is a bad sign.

We can see a race to the bottom, which is kind of already happening with model developers releasing increasingly cheap er auctions to grow a revenue and build a customer basis, which is an idea that only makes sense of the other pending technology is profitable, which generate vi is not and it's already kind of begun with OpenAI reduced Price GPT for a mini and google google flash one point five, I believe it's cold and they just reduce that pricing to compete with GPT for a many cheap adoption. This is totally unsustainable, which means that fits right in with the rest of the hype cycle. Conversely, a Prices start increased ying.

This is a sign that the companies is getting really, really desperate and have to find a way to start recouping the massive costs of the unsustainable shit show theyve been participating. Now this, I think, is probably one of the later ones. If they do this, if they even get to IT, it's just the sign that things are falling apart.

I also think we're gone to see stories about general discord in A I investment. Any other course you see about investors fleeing private AI ideals, as they did with the meet of us, are a sign that things are falling upon. And the things i'm hearing, by the way, is that this is already begun.

But that's I type my work for you. Just watch the media. We might also see stories about OpenAI having trouble raising money. Up until now, there haven't been any rumors about them having trouble despite the fact that they're expected to lose like a and in five billion dollars in two thousand and twenty four, they need to raise billions of dollars, and they have to do IT soon. And if they can't raise, nobody can.

But moving on, there's another harbin jet to look out for, and that would be evidence that google, microsoft is in the capex as discussed because it's really important to realize the venture capital and silicon valley really I know they're not the ones propping the sub. They might be the change as they might be the ones talking about. Her point is, but google and microsoft are the ones holding this up.

And amazon as well, there are the ones who are bankrolling anthropic and OpenAI mysore t as I will get to, basically owns OpenAI. If those companies decide they don't want this to continue, IT will stop. Venture capital cannot afford to keep open eye alive. But moving on, you should keep out and beauty little life at any disco. Ut within any of the major players in generate AI.

I'm not talking about OpenAI and anthropic, talking about companies like scale AI who are training data companies raised over one of our billion dollars and go here, another large language model company that recently raised to another four hundred and fifty million dollars from in video and sales force and sales force. They've been talking about doing A I for like a decade. I don't know what product i'd watched those too very carefully.

There's seen a stable revenue generating yet, as discussed, unprofitable and silly firms that will likely need to raise again in the next twelve months. If we hear about problems such as employees be unhappy or troubles fund raising or making money, this means that people on the inside of making nasty little noises because they know things are falling apart. And the same, by the way, goes for any discord in OpenAIr a nthropic.

This once obvious, if we hear there are problems, they are worried. Or if they are getting worried, if they, if they can't raise money, if they are losing people, which is kind of already happening, if they can't seem to make a deal work, if they are having trouble progressing in their software, anything about these companies is probably a bad time. If I were you at, keep an eye on the washington post and archi, who s done great work there as the people, are you a very day? And Geoffrey follow, but nitta has done some great work out on mister altman.

The information has got some great people don't work on this reiter technical four four media that ones are keeping out for. We've already seen a little bit this happening already. A few days ago, OpenAI lost two of its cofounder, ers.

John shuman left a competitor, anthropic, and chief Operating officer, greg brockman. N has gone on something he's calling extended leave. As an aside, this is objectively one of the funnest thing if anyone has ever done in tech.

Yeah, and nothing big going on. Enjoy a vacation mate. Not like the entire industry is falling apart, not like the bubble might be popping. Enjoy carbo. Anyway, if things get especially bad, I think we gonna see discussions of layoffs, ed, on people i've talked to.

Generate A I companies are paying these massive salaries in stock, in cash, and they're not run particularly efficiently because they are really driven by dreams, by which, I mean, can artist, if A I jobs are no longer these cushy little highty holes for the most expensive engineers in the valley, things are onna. Sew are fast because they need the best, do this mediocre rap that you see everyday. But i'd argue the biggest, the most desperate of these pale horses would be some sort of big, stupid magic trick.

Not really. As these companies get desperate, expect someone, especially OpenAI, to try and show something new and crazy as a means of trying to turn this narrative around when or if this happens, look very carefully at what they say about the products availability, what IT can actually do or who they show IT to is available publicly, other limitations on IT. And are there any weird terms and conditions to look out for if OpenAI gets desperate, IT may move up the public launch of, sorry, it's generate a video product doing so.

Really only onna cause more problems. There is an a chance in hell that this thing is profitable. And I am one hundred percent confident that is much, much, much, much more expensive than the video and the text base generation towards they already have.

And I imagine its visual inconsistencies and hu ca. Nations would make for some entertaining content for youtube is in tech reporters, which will mean that they just have hundreds, thousands, hundreds of thousands, perhaps, of people requesting city videos of this thing, burning servers, quite literally, in this case, losing the money. And for what? How much can they charge for this thing? Because it's not gonna enough.

The common thread between all of these events that there all expressions of desperation, fear and a total lack of confidence in the underlying company so far. And this is napkin math. I'd estimate that a total of two hundred billion dollars has been spent to get general aai to this point.

And infrastructure and funding and energy in so many different meaningless ways, all to get to to the point that we have a tool that's really good at generating things that honors good as what a human could make and only sometimes that they good enough to actually use. To be clear, with not quite the bubble popping yet, the reason I chose the collapse of OpenAI as the event is because IT will mean that microsoft decided to cut tom off and that there wasn't enough banker of venture capital interest to problem up further open. A ice collapse would be both financial and symbolic.

The sign that the valley would let the company die and that this idea was not good enough for everybody to stick their future on IT. In any case, things could change, the bubble could stay inflated. But what are you thinking about how why you take a breeze that to hear from someone, one of our wonderful, beautiful, precisely chosen advertisers, that you simply must pay money to?

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And we're back now. I don't want to give you any homework. And now you're currently holding up a convenience store, maybe trying to get a hub cap off of a car wheel. You hear me speak enough. But a few weeks ago, I wrote a news letter called how does open a ee survive and eight thousand or so word analysis, how difficult it's gonna bey to keep that company going. Its current burn right to similar IT down as quickly as possible.

OpenAI costs about eight point five billion dollars a year to run and only makes about three and half billion to four and hf billion a year in revenue, a number, by the way, that I, that does not sound right, but it's what's being reported. Open a eyes. Costs are increasingly early.

A generate A I, as i've said a few times, is deeply unprofitable and unsustainable, making open a models Better, which doesn't necessarily mean the more valuable, more useful, also cost hundreds of millions, if not billions of dollars. As a result, OpenAI needs to raise more money than anybody has ever raised in the history of the valley in the next twelve to twenty four months, or launcher products so significant that IT blows ChatGPT out of the water and actually is profitable. And these things are unlikely, but possible.

I guess microsoft, google and amazon could somehow change the narrow. But doing so, too, would require some sort of technological breakthrough or product, a very obvious product that would make people money, more money than is being spent on the thing. And the markets are also good, precious. And thus, I really wouldn't count on there being a narrative of turnaround, especially with the shifting signs of vestas sentiment.

As i've mentioned previously, on August second, alliant management, the hedge fund without over seven billion dollars in assets under management, said in the next to clients that A, I is over hyped and the n video is a bubble, adding the A, I had not delivered value commensurate with the height well as possible. There are others that dissent against the rapidly forming consensus against generative A I to prop things up, which I do think is possible, especially you deeper in the whole with microsoft and video. It's worth putting elliot management note in a broader context.

It's only the latest voice in a loud, or at least increasingly loud, a course of critics members include a steam danny's houses in some of the largest investment banks in the world. Golbin sex put out a important july that you've heard in the pop cultural episode. They said, generate A, I was too expensive. I didn't solve the complex problems that would need to justify their expenses.

At the end of july, gonna put out a report predicting the thirty percent of generate vi products would be abandoned entirely after the approve of concept by end of twenty twenty five, and the washington post reports, the barley bank thinks that, and I quote wall street analysts are expecting big tech companies to spend around sixty billion dollars a year on developing A I models by twenty twenty six p. Only twenty billion dollars a year in revenue from A I. By that point, the last is gone there year.

That does say revenue, that doesn't say profit. And by the way, that's only a billion dollars more than microsoft. Entire capital expands ges in the last quarter alone. Microsoft also has a story's history of pumping and dumping ideas for microsoft. Augmented reality was, and I quote, an absolute breakthrough in twenty nineteen, before IT was quietly shoved in a corner with mass layoffs, a business line closures.

A few years later, in twenty one, such an adella, the CEO couldn't overstate how much of a breakthrough the of us was yet two years later, and big props, depressed and grader of computer, for saying this in february twenty twenty three, he laid off most of the people involved and bet everything on art, official intelligence that that everything thing that's a headline from wired magazine. Very good. Also important to remember that microsoft effectively owns OpenAI as part of the twenty nineteen funding around which I believe is a billion dollars.

Microsoft is full access to all of OpenAI intellectual property research, which makes thonet little question why at this point with microsoft gave OpenAI any more money other than to save face. That was a very real possibility that such in the delhi is surrounded by yes man who don't know what they talking about. Microsoft also has access to sell OpenAIce an d I co de 2 agi pr oducts， which is all of their products right now, and full access to all of their research as well as, and I quote, certain rights to OpenAIntellectual pr operty un less Op enAI is ca pable of de livering so mething me aningfully di fferent, something the delicate wave in front of analyst faces and show them that they can automate all of these jobs away.

Its existence is just another cost center and one that could get a IT in a tough quarter. To be clear, setting and delay has been extremely Frank about his leverage over OpenAI and its effective ownership of their tech all be a buffer ty with the usual bullshit platter tues and nico that you'd expect from a shape shifting tex o monster in a late twenty twenty interview with P, R person carissa, such an adeler said if OpenAI dispute tomorrow, I don't want any customer of us to be worried about IT quite honestly, because we have all the rights to continue the innovation, not just to serve the product, but we can go and just do what we were doing in partners ourselves. We have the people, we have the computer, we have the data, we have everything.

mr. Nadella, that is an in same thing to say and the kind of thing you'd only say to someone like caris wisher swish, I should have made that the headline that microsoft effectively owns OpenAI. I miss this at the time I found out about this quote like a week or two ago.

It's crazy to me. It's crazy to me that this was said and it's not front page news. Microsoft owns OpenAI who gives a sheet about the non profit structure.

But IT actually gets Better because he followed up that quote with this microsoft investment of thirteen billion dollars in OpenAI gives a significant rights, as I said, and also this thing, it's not hands off, right? We are in there. We are below them.

We are above them. We are around them. We do the turn and optimization. Very funny, if you consider the crowd strike thing, by the way, we build tools, we build the infrastructure.

So that's why I think a lot of the industrial analysis saying, oh, wow, it's really a joint project between mx soft OpenAI. The reality is we are, as I said, very so sufficient in all of this. But i'm not saying it's for certain microsoft can very clearly if they so please simply drop OpenAI on keep of this stuff.

Nevertheless, as the markets genera, I I think it's time for big take to prove something. It's time for them to prove that this wasn't all a huge, big, stupid fucking waste of time and money to continue with their current parts, sound up the shy of google and section in a delay of microsoft as the loudest of the public. We try to generate A A I hype men.

We will have to show everybody something remarkable. But even then they will have to show how we actually makes money. And if they can't, at least in the case such an adella, they can still walk away as well as in the best case in ario, these companies, without that, have to dramatically reduce their costs, something they've really shown they are not capable of doing an effective, that they will do the opposite of or show ways to make generative A I.

So the efficient that is somehow finally baLances itself out. What we really waiting for now is for somebody to blame if none of the major cloud companies change course over the next few months, we could potentially see this boom continue for another quarter. And just to be clear, there are usually in lock step.

They love holding up each other as OA, opaline and up. They love being a weird cartel that sells data. To continue, though, the'd have to commit billions of dollars, in the very least, cloud credits for open and anthropic, as neither of those companies can survive without further cash infusions.

Theyll also have to find some way to make any of this useful and profitable. Two chAllenges, the generate V. I has never really been able to deal with, not even once.

And I just as in the side, i've had people email as well. I use IT for this. I was on to show the other days that uses IT for show notes.

These are all fine, whatever. These are like little use cases. These people need this to make a trillion dollars.

Show no is not gonna do IT C. T. Translations not gonna do IT a picture of gold field with a gun is not going to do in.

And big tech is gonna have to figure out a way to support these companies in the face of rising descrie among shareholders, who in the most recent round of AI companies lost them about two point six trillion dollars in market capitalization. As a point in out in the shareholder supremacy, investors I T really care about the future or innovation. They just want profits and their portfolio OS to get bigger, and they want to see the number for profit go larger and the cost go lower.

And absolutely nothing else matters at all, which is why they love genre of A I at first. Because if this actually made a bunch money, this is a way that microsoft could just route cloud costs from themselves to themselves. I'll get to that in a future episode about mono police though.

And I think they if generate vi becomes now batch ss around the next of google micro soft on amazon, which I really believe that will these companies are going to face really nasty pressure to curtail their investments in their capex. Investors will ask why these companies are spending a collective hundred, two hundred billion dollars by the end of two thousand twenty five on a technology that likely won't drive much revenue growth when IT could be used for things like stock dividend ds and stock buybacks. And I don't know thrones for the demon lords that live underneath the offices.

I don't know how much truly makes money. That's a joke. Don't email me about him, but I believe in any case, the next month, this could be critical to the future of the by iphone.

And I believe this is a time for industry wide introspection and to really consider everyone's roles and why this bubble existed in the first place. In the next episode, i'm going to take a closer look into open a eyes, likely demise, what IT looks like and why the company's view avenues for salvation, in fact, looked like dead ends. And i'll get into how fucking ridiculous this whole bubble is and what is potential collapse spells for the future of the tech industry.

Thank you for listening to Better offline. The editorial um composer of the Better offline theme song is matter south y. You can check out more of his music and audio projects a meta sale sky dot com M A T T O S O W S K I dot com, you can email me are easy at Better or off line dot com or visit Better off line docotor, find more podcast links.

And of course, my newsletter, I also really recommend you go to chat that where is your ed or ant to visit the discord, and go to ask lash betroth lies to check out or read IT. Thank you so much for listening. Better off line is a production of cool zone media. For more from cool zone media, this is our website, cool zone media dot com, or check us out on the I heart radio up apple podcast forever. You get your podcast.

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