The Compound and Friends: The Four Horsemen of the AI Apocalypse with Ed Zitron

Sourced by podcast-ingest on 2026-08-31. Auto-transcribed via AssemblyAI (universal-2, en). Speakers identified by AssemblyAI Speaker Identification using the per-podcast host/regulars hints; the resulting label→name mapping is in the frontmatter. Duration: 1h26m. Episode page: (not provided). Audio: https://pdst.fm/e/pscrb.fm/rss/p/traffic.megaphone.fm/TCP7611305535.mp3.

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On episode 257 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and Michael Batnick are joined Ed Zitron to discuss: the ultra-bear case for AI, Nvidia’s explosive growth, the economics of OpenAI and Anthropic, whether AI demand can justify the massive hyperscaler CapEx boom, the data center buildout, CoreWeave and the neoclouds, Oracle’s AI bet, private credit and debt financing, the warning signs that could finally break the AI spending cycle, the “rot economy,” whether AI is actually improving corporate productivity, and much more!

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Transcript

Ed Zitron: Like, I ran a PR firm until, like, last year, and I was, like, doing that as kind of contract labor thing. And then I started writing this in 2020, and I just kept going and going and going and going. And then initially I was writing about, like, management theory stuff now much. I liked remote work and how evil the articles were about it. And I wrote about crypto, and I wrote about Elon. And by the end of those two things, I was so thoroughly depressed with both. I was just like, what am I going to write about?

B: Well, with the topics or with writing with the topics.

Ed Zitron: The topics were so depressed, like, every week following what Elon Musk does. And. And then the metaverse happened. That was kind of fun to write about. But that was before that. But then OpenAI got like, sorry, Sam Altman got fired from OpenAI. And I saw on Twitter that there were journalists who were like, oh, my God, I hope they bring him back. They were like, talking about him like a rock star. It was like, oh, then everyone's. There was someone like, oh, I'm crying because how beautiful it is that Sam Altman. That everyone's showing support for Sam Altman.

B: Josh cried.

Josh Brown: Journalists.

Ed Zitron: Yeah, journalists. Crazy. So I saw this, and I just. I didn't even judge them for it. I was like, fine, whatever, feel. But I was like, this is weird.

Josh Brown: Yeah.

Ed Zitron: Why are you acting like. I was like, what does this mean? Why are you acting this way? And so I kept looking really intently, and I just immediately saw this thing where everyone was saying, AI is the biggest, most hugest, best thing ever. It's inevitable, blah, blah, blah. But I couldn't find any revenues like, I couldn't find. And every time I was like, okay, great, but how much does it make? And everyone was like, I couldn't possibly say. How much does Microsoft. They're spending billions of dollars on capex. How much does this make? Can't. Couldn't tell you. No one wants to tell you.

Josh Brown: Right.

Ed Zitron: But you kept having these articles every earnings season saying, Microsoft's AI bet pays off. Google's AI bet pays off. Even though they never mentioned the AI revenue. And I just kind of taught myself economics from there. Like, a lot of this. Like, everything's self taught. Which, to the chagrin of my many haters, is just, like, stuff I learned. Yeah, but you can learn a lot by reading books and such.

Josh Brown: Okay, so you. All right. So you're. I guess it's a substack or ghost. Okay, so what you're doing is being read everywhere. People are sharing it, and Bulls on AI are reading it because I think. So my view of the market is most professional investors are intelligent enough to listen to both sides.

Ed Zitron: Yeah.

Josh Brown: And they don't have to agree with everything they read in order to want to keep reading it.

B: Right.

Josh Brown: I don't think that's the same is true for retail investors, but we're not going to concern ourselves with that. I think professionals do like to hear both sides, especially if they have a lot of money on the line.

Ed Zitron: That's actually beat my experience talking to, like, some of the banks and institutions, like, they. They want to. Even the ones who are very pro.

Josh Brown: I agree with that.

Ed Zitron: Yeah.

Josh Brown: All right. We're the same way. So we. We've been doing this show we tape every Thursday going back to the summer of 2021 for five years. The majority of our guests are bullish, and so far, so good. For the most part.

Ed Zitron: Yeah.

Josh Brown: Okay. We have had people who are bearish, but they are non specifically bearish. So we've had people like Jeremy Grantham, who's become famous for. He. He takes issue with the perma bear label, but he's almost always bearish. So we've had people like that on the show. And I always find that fascinating. But we haven't really had specifically an AI Bear somebody that, like, specific, you know, most of the people that come on portfolio managers or their analysts covering the space and, you know, all the incentives to see the brighter side. So this will be an interesting test of all of the things that we've done on the show.

Ed Zitron: Yeah.

Josh Brown: To hear the other side. So we're really excited about it.

Ed Zitron: I'm pumped.

Josh Brown: Okay.

B: Do bulls think you're an idiot or do they generally like. Like what you're saying to them?

Ed Zitron: So it's got to a weird point. So if we're mixing in every kind of bull here. So I imagine a lot of them are retail bags. They are driven, like, because I used to be in pr. They're like, he's just a PR boy. He's just a PR guy. He shouldn't talk about. Stop talking to him. He could say something. As if financial experts have never got anything wrong before. There are some of, like, what's weird is, like, there are some of them who are quite bullish on semi critics, like, who follow me on Twitter. Like, bubble boy, who's really great and very, very smart and semis. I. I'm not sure he agrees with me on everything, but very kind and friendly and like, there are lots of them who are. Some of them are vile and Horrible, but so say many such cases. And so the thing is with the bulls is the ones who are like, I love this tech. I have some crazy dream what it'll be, but there's a bubble. I respect those. If you can like love. I still think there are massive environmental and social problems that they're not thinking of. But at the very least you're living in reality. I think the ones who are like Anthropic and OpenAI are going to grow to $284 billion in revenue. That's what OpenAI is projecting in 2030. The people who read that and they're like, yeah, sounds good to me. Those people are not living in reality and I don't need it to be a number or OpenAI is going to become, going to become bigger than Meta in three and a half years, if you believe their projections. And they're going to do that while spending more than twice of Meta's opex. I think, I think Microsoft's opex is like 150 billion and OpenAI is going to spend 200 something billion or more on compute in 2030 to get to

Josh Brown: $380 billion in revenue.

Ed Zitron: 284.

Josh Brown: 280 billion.

B: So are you outright bearish or you think the balls are smoking crack, or am I saying the same thing?

Ed Zitron: Possibly the same thing. I think the after 2022 when everything got really grim in tech, I don't know if you remember, like Nvidia had a flat year, fiscal 23, of course, really rough time and everyone was kind of blowing hard. Microsoft, Google, Amazon, Meta cranked up prices, changed ad auction stuff. Amazon actually made a surprisingly healthy ad business. They had to find ways to grow revenue. And also ChatGPT happened. So they went, oh, we'll buy a bunch of GPUs. And the market immediately was like, all of this revenue growth is coming from AI. And because the companies never disclose their AI revenues and journalists don't have the teeth to bother them, or analysts especially, people were like, oh, it's AI. Every time they spend this money, it's AI. And this was really good. It helped their stocks pop crazy style. Like they. One fair criticism of my work is if you traded off of my work, which I've never said to do, I do not give financial advice.

Josh Brown: Yeah, you probably well, but if you end up being right about this, they're going to put a gun to your head and say, start a hedge fund.

Ed Zitron: I mean, oh Christ, I don't even know how to do that. But I'm just telling you that sounds fine, but the point is I like writing a lot. I really enjoy actually getting into it. It's genuinely intellectually fascinating. But the point I'm making is up until about 2025 it was mostly just buying GPUs and hoping OpenAI and Anthropic grew into it and also hoping they become profitable. But then what happened is the hyperscalers have now become financially dependent on the growth from OpenAI and Anthropic. Analyst expectations from like UBS, Barclays and Wells Fargo have $440 billion of cloud revenue across Google, Amazon and Microsoft coming just from OpenAI, anthropic to unprofitable startups who need to constantly raise money. And also the big companies need to build the datasense to make the money. So there's all of these very improbable, if not impossible things that need to occur. And also OpenAI and anthropic need to have 10 times the demand they have right now. It's not even however you may feel about these companies, they are not big enough. They are not generating enough cash right now to even get close to covering their $1.1 or more trillion in commitments. And on top of that they're taking up 90% of AI infrastructure. This is creating an illusory demand signal because right now it's difficult to get GPUs. People are saying, oh, oh, it's because there's so much demand for AI. There's a big Barry Bonds asterisk at the top of that. There's so much demand from AI, from two companies, pretty much Meta as well. But they're not doing anything. They just, they're just rolling in their filth. But so what's happening is everyone's going, oh, there's tons of demand for AI. I'm going to build a bunch of data centers. Even though when you. So in fiscal year 26, Microsoft, they made, according to Bloomberg, about $34.33 billion on AI. $24.1 billion of that is OpenAI, which means that OpenAI, Microsoft software and GPU rental services are single digit billion dollar businesses and they have 260 plus billion dollars in capex in this. It's a disaster and it's not something that gets easily. I don't think it gets fixed at all. And on top of it, AI GPUs are pretty specialist. They're useful for like AI and data analytics and 3D modeling, which is a very small business. There's no dot com bubble thing after this. The electricity will be Just as expensive, if not more.

Josh Brown: Oh, wait, you're on a roll. I want to give people the chance to close out their long positions and we're going to introduce the show properly and then we're going to dive right back in. Who's. Who's doing my countdown? Ms. Nicole. All right,

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Josh Brown: Fidelity Brokerage Services, llc. Member nyses I PC all right, ladies and gentlemen, welcome to the world's greatest investment podcast. I say that without a trace of irony. I really mean it. Today you're in for a very special treat. We are having a conversation that we have not really had here before. What is the ultra bear case on AI? Why are people clapping? It's crazy. It's your retirement on the line. What's going on? Guys, calm down.

Ed Zitron: All right.

Josh Brown: Joining us today, Ed Zitron. Ed is the founder and CEO of EZPR, a research and media analysis firm he launched in 2013. He also hosts the Webby Award winning Better offline podcast with iHeartRadio and Coolzone Media. Ed writes a newsletter called where's your Ed at? That he launched in 2020 where his 2023 Rot Economy essay I'm gonna get into that, arguing tech firms have chased growth at the expense of innovation end users has gone viral. Today, he's one of the loudest and most cited AI skeptics focused on the unit economics of OpenAI anthropic and the hyperscaler capex build out. Ed, thank you for being here. We appreciate it.

Ed Zitron: Thanks for having me.

B: All right.

Josh Brown: All right, so we have to start with Nvidia.

Ed Zitron: Yeah.

Josh Brown: I feel like they're. They're proving everything that you've said to be not correct. I know, but just.

Ed Zitron: No, no, no, no.

Josh Brown: Hear me out. They just came out here's what they did last night, and Michael will jump into the numbers, and then we're going to give you a chance to comment on it. But they just said for the first time ever, we're actually going to give a full year's worth of guidance. They were going quarter by quarter. They actually gave guidance through 2028. Fiscal 2028, which is not calendar 28, but February.

Ed Zitron: February 2027, off in woods.

Josh Brown: So they're saying, like, we're going to grow revenue by about 70%. We've got the sales locked in for GPUs and Vera CPUs and et cetera, et cetera. We know that, like 90% of their business is selling to data centers. A huge chunk of that is selling to the same four or five customers. Hyperscalers. They are talking about broadening that out. They're talking more about now, automation, robotics. But the data center business is the business. Okay, so is he going to be completely wrong in his own forecast, or will they make their number? But that's part of the problem because of who the buyers are and what their motivations are. Like what? Let's give people the nuanced take on exactly what you're saying, because Nvidia really is at the heart of the entirety of the AI story.

Ed Zitron: I just want to be clear as well. Nvidia made a bunch of money. Like, that's. I'm not questioning that. That'd be crazy, of course. However, 16% of their latest quarter revenue was one customer. 44% if they look, first half of fiscal 2027 was three customers. Five customers make up 70% of their accounts.

Josh Brown: Can I jump in right there?

B: Good customers.

Josh Brown: Whoa. Can I jump in right there?

Ed Zitron: Because they don't name them.

Josh Brown: Well, we know who they are.

Ed Zitron: Do we?

Josh Brown: Well, we might not know who's 16 and who's 12, but we know if

Ed Zitron: one of them is Oracle.

Josh Brown: But hear me out. That's their immediate customer. Those customers have millions of customers. And that's what this. In other words, you don't have a hyperscaler spending on Nvidia chips to serve itself, except in case of meta. Right. They're serving Fortune 500 businesses, governments, sovereigns, et cetera. Those are their customers.

Ed Zitron: But I just. The point I made about Microsoft's AI revenue is where this comes in. So fiscal 26, which just ended 34.33 billion of AI revenue. 24.1 billion of that is OpenAI. That means that selling GPUs to anyone else other than their large fail son is A single digit billion business. It's Microsoft is the apex predator of software sales. They have hundreds of thousands of resellers, they have tens of thousands of salespeop and they can't scrape together more than single digit billion dollars of sales for Copilot and all the stuff. And this is on top of the fact that GitHub Copilot, one of their only successful AI products has now gone token based billing which means people were before able to spend 40 bucks a month, spend $5,000 of tokens. Now the token based billing usage gone, that business is dead. And on top of all of that, wow, $260 billion in capex and all of that Fortune 500 demand drawn like whatever it may be is single is what $10 billion a year.

Josh Brown: Della would say give us a couple of years.

Ed Zitron: Why do I have to give? Sorry. But the point is is like we've given him a few years and this is the best he's got for us. We have a light. OpenAI is a liability now like that's they are material enough that Microsoft actually has I think what's like 27% they own of them. It's actually a deeply load bearing.

Josh Brown: They have to consolidate their finances, their

Ed Zitron: their own income statement. The other thing is is Microsoft's only getting paid if OpenAI can. And OpenAI it has a shrinking amount of people to raise it from their last round. 122 billion. Only $12 billion of that came from venture capital and the very same asset managers who were funding data centers 110 billion was in video 30 softbank 30 which put them into financial dire straits and they're still there. And Amazon 50 billion. That's not going to happen multiple times. Or if it, if Nvidia invests again. They said they wouldn't. They literally said the words if they invest again. It's bad times ahead. So Microsoft's growth is dependent on OpenAI and now anthropic spending. Outside of that they don't have significant demand. This isn't even an opinion. This is a Bloomberg article that spelled this out and if you go and

B: look at Bloomberg opinion.

Ed Zitron: No it was, it was Brody Ford I think but it was and it was also based on the actual actual earnings documents.

Josh Brown: Microsoft doesn't have the demand for its own AI native products from its own

Ed Zitron: customers at the scale that they would need to justify. Like I'm not saying there's zero demand they have found but this is also after them harassing their customers and the massive sale. I must be clear, Microsoft sales Teams are. There's only one level higher of more annoying and that's Oracle. And Oracle is a whole other problem. But the point is, is if this was a case where 30% of their revenue was open AI, I would be like, all right, maybe my was kind of falling apart. 70% of their AI revenue being OpenAI is existentially bad. They have $250 billion of Azure spend committed to. That's so much. That's. Microsoft was 331 billion I think last fiscal year.

Josh Brown: But now they've divorced themselves from the exclusivity agreement with OpenAI.

Ed Zitron: Which only makes it worse because now OpenAI needs to spend 138 billion over eight years with Amazon, 20 billion with Cerebras, 22.4 billion with Core Weave, 300 billion plus with Oracle. They're spending. This is the crazy thing. Steven Zhu from UBS had an analyst note they're spending like 12 and a half billion a year at Google. I didn't know this until very recently. Weird. That's not being reported very well. But the thing is, is OpenAI. Sam Altman has one real talent and that's signing his name. My man loves signing contracts. And the thing is, when the problem that everyone has right now is you can only rethink a quarter, two quarters in the future. You can't because even like, oh, it's going to happen in 2028, Nvidia will get to set to 600 and something. 674 billion. I guess it would be based on consensus for fiscal 28. So Nvidia will get there because right now Nvidia makes lots of money. It's not a problem. Now to get there, Nvidia is going to have to basically take three to five customers. They're going to have to find way more debt, like way more because the price of debt is increasing. But also Nvidia just bumped up prices 17%. The cost of memory skyrocketing and on top of that you have a shortage of talent, shortage of electrical grade steel. There are all sorts of things stacked against Nvidia here. They could pull it off, but I don't know how they're going. The actual money that needs to get raised is astronomical.

B: So Daniel Chart 5 ed, if, if somebody said to you two years ago that this is going to happen, you would be saying the same things that you are right now about how implausible it would be. So what we're looking at for people that are listening is the trailing twelve month net income for Nvidia just Screamed past Apple.

Ed Zitron: Uh huh. But how much of that is equity gains though?

B: What does that mean?

Ed Zitron: As in their anthropic OpenAI, they've invested in like core weave Nebius iron. They have a bunch of equity investments that help bumping up. To be clear, I was wrong back in 2024. And why? Because I was naive. I was like, the market's a sensible place. Microsoft and Google, Amazon met wouldn't spend hundreds of billions of dollars for no goddamn reason.

B: Wait, so you were wrong because the market's stupid?

Ed Zitron: I was wrong because I was stupid. I was wrong because I was naive about how the world works. And I've had to take a hard.

Josh Brown: You didn't think they would take it as far as they.

Ed Zitron: Exactly. And I didn't think that the debt system would support it. So yeah, I, So, so what do

B: you think the market is getting wrong right now? Because I think, I think everyone knows that OpenAI is a potential problem.

Ed Zitron: Yeah.

B: Look at Oracle stock, it's down 70% still on the mat. Even as, as software stocks are bouncing.

Ed Zitron: Yeah.

B: Oracle has caught no bounce. So what do you think the market has misunderstanding that, that you're seeing the

Ed Zitron: thing I said about the centralization of data center demand. OpenAI I think is like 60% of all AI data center demand. Without OpenAI there is not another OpenAI sized spender. And the only reason there is an anthropic or OpenAI size spender on AI compute is, is because of the availability of venture capital dollars. So 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 think 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 anthropic and OpenAI has to spend has to increase by like 10x.

Josh Brown: Well their revenues are increasing and those are real revenue dollars. And they're both going public in the Next call it six months.

B: Well, you just made a face. Anthropic's doing 60 billion, is that not.

Ed Zitron: No, they don't. Run rate.

B: Go, go, go.

Ed Zitron: Run rate.

Josh Brown: Okay.

Ed Zitron: This is the biggest scam of them all.

Josh Brown: What ARR run rate as opposed to less quarter.

Ed Zitron: That's the first part of the scam. So ARR used to mean annual recurring revenue, referring to if I have 10, 100 million contacts, I've got like a billion dollars a year. Easy peasy. That's annual recurring revenue. Wow, how amazing.

Josh Brown: That's SaaS.

Ed Zitron: SaaS. I probably up the math there, I realized, but whatever, moving on.

B: And how they're booking their revenue, well

Ed Zitron: now they're calling it run rate and run rate kind of. Anthropic has never defined this. Even Bloomberg in the 65 billion story didn't define it. It can mean 4 weeks times 12 or 4 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 a thousand this month and then not spend and then spend 50 next month. Especially if they're moving to open source models.

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.

Ed Zitron: Yeah, that's because Anthropic and Open Air are taking up most of the compute infrastructure. So there's not enough. Right. 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. That's about 1.5 to $3 trillion a year in compute demand they'd need. There is a complete economic mismatch and it's stock.

Josh Brown: You don't, but you don't like ARR run rate because it's just a extrapolation

Ed Zitron: of a, it's a snapshot of a period in time and then pulling it

Josh Brown: out to like a year.

Ed Zitron: So 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 and the fact it gets accepted is an insult to investors intelligence.

B: 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

Ed Zitron: 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 as an example, 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 the space. And that thing is way behind schedule. Each one of these, even the smaller ones are like.

Josh Brown: Is that the Oracle one in Texas?

Ed Zitron: One of the. Is 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 then you. 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. No, 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 open.

Josh Brown: But is it nefarious or do they just not understand the demand as well as you do?

Ed Zitron: Little, little. Here's the thing.

Josh Brown: Because it seems like they're the ones taking the risk, it's nefariously ignorant.

Ed Zitron: 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 the due diligence is going, boys. We're just. 10 minutes.

B: Come on.

Ed Zitron: 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?

B: But hold on, there's no way that's true.

Ed Zitron: It's. I will glad. 10, 15 minutes. But it was 10.

Josh Brown: Maybe it was 15.

Ed Zitron: No, no, I can get, I can get you the article right now if you'd like.

B: I believe that the article is real, but I just don't believe that that is actually real.

Ed Zitron: Have you read anything about Blue Owl? I don't believe it in two seconds, man. Like, I'm sorry, like having seen what Blue Owl does, I, Yeah, I, I would believe that. And also, this is a mania A 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.

Josh Brown: Let's go through, let's go through some of these numbers. 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, 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. Yeah. 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.

Ed Zitron: Yeah. More now thanks to memory. But yeah.

Josh Brown: Okay, that's a hundred. And that's 106% revenue growth at 75% gross margins.

Ed Zitron: Yeah.

Josh Brown: Nvidia right now, I mean this is real money.

B: Yeah.

Josh Brown: 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.

Ed Zitron: 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. I think you still can, but not as much. These companies, when their customers are exposed to the real costs, they shrink all away. And just very simply, if they thought they could charge the real cost of their services, they charged 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, the one big customer, the 16% one, I think it was SpaceX. So remember SpaceX, bunch of them, all of this bunch of debt. Other than Microsoft at this point, they're all having to take on debt. And 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. It'll work out in the future. When. Where's the real demand? Where is it? And so they are 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. But the only thing the system wants to invest in is the dumbest thing possible. It's actually more. I spell out the worry it gets.

B: When did Anthropic first turn their revenue? I think was March 2023.

Ed Zitron: What? When was. When did they. What.

B: When did they first book their dollar. First dollar of revenue for anthropic? It was sometime in 2020.

Ed Zitron: Yeah, maybe. I, they, they found it in 2021, but I can't remember when they.

B: All right, so let's. But you, you say that like you're sick and tired of, of saying where, when it's going to come. You don't, 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.

Josh Brown: Well, will people all of a sudden stop spending on this? Customers?

Ed Zitron: 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 makeup.

B: Is that on Netflix?

Ed Zitron: 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.

Josh Brown: Oh, yeah.

Ed Zitron: A lot of this is people saying, oh, AI is making me 100x more productive or whatever. It's not true. Most AI integrations fail.

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 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.

Ed Zitron: Okay.

Josh Brown: It boosted cash flows, it reduced expenses. Did they say by how much they gave the numbers? Yeah.

Ed Zitron: That's good. So they also moved to open source.

Josh Brown: Cesky very specifically moved to not paying the open eye.

Ed Zitron: That was actually one of the early ones.

Josh Brown: So for me, that's the thing that I'm most bearish about.

B: But.

Josh Brown: And we'll get into that in a second. I'm not. So here's what I. Here's where I don't agree with you.

Ed Zitron: Yeah.

Josh Brown: 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.

Ed Zitron: I'm curious.

Josh Brown: We have to. 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? Right. 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. 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.

Ed Zitron: 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.

Josh Brown: I'm lying then with AT and T,

Ed Zitron: if 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 ARC, it says 80 to 90% savings in some feat, some functions. And then the next paragraph is at&t uses. Has thousands of things it has plugged into AI. So it's like, oh, so some things and 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 facing.

Josh Brown: I agree with that. I definitely agree that there's a lot of that going on.

Ed Zitron: 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 Anthropic alive, who are both unprofitable, or is that going to move onto, I don't know, a hosted GPU system with an open source model. There are so many ways like Anthropic 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.

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&P10 to deliver their no, 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?

Ed Zitron: 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. And 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.

Josh Brown: Like any bad relationship, like you're saying I need to OpenAI releases the newest model, I must integrate this there.

Ed Zitron: Yeah, yeah, and I must. And especially if they run a company that has models facing the customer, they gotta 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 is 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 is to. Well, I don't know if it's possible to make these things profitable even with custom silicon. I 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.

B: 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.

Ed Zitron: 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 with AI and data centers, you've got multiple problems. You have OpenAI 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.

Josh Brown: I have to challenge that. Their cloud. Their cloud revenues are accelerating this quarter

Ed Zitron: based on Anthropic and OpenAI spend.

Josh Brown: But you're saying they're slowing, but they materially are not.

Ed Zitron: When you remove the OpenAI and anthropic.

Josh Brown: But why do you remove.

Ed Zitron: Why would you remove them saying you. Sorry, you're right.

Josh Brown: Okay.

Ed Zitron: 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 numbers, that is exponentially larger because, yeah, they are growing right now because OpenAI and Anthropic, their checks are clearing

Josh Brown: well, all of the hyperscalers, all of them reported way better than expected growth numbers for cloud in the quarter. They just reported second quarter numbers, some of them better. So meta is a whole other basket. Yeah, but.

Ed Zitron: No, but this is actually a point though.

Josh Brown: Okay, all right. But it is true that AWB and Azure and Google Cloud are seeing accelerating growth. You're not questioning that. You're saying there's a big *. It's two companies that are ramping up all that spend.

Ed Zitron: 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 Anthropic and OpenAI. And that money is real. Some of that money came directly from the hyperscalers themselves. The reason they brought up Meta was not. Not to be argumentative, you'll notice that meta didn't grow like gangbusters. Oracle did OpenAI, Microsoft did.

Josh Brown: Meta's not in that business.

Ed Zitron: 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 Anthropic and OpenAI. And this is the problem. The problem is, is that for now, everything you look a quarter, two quarters in the future. Wow. Money. Not money. Good money here or Meadow.

Josh Brown: Meadow is 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. Yeah. 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.

Ed Zitron: They rumored though they haven't done it yet.

Josh Brown: But. But their core business which is serving ads, is in better shape than it's ever been.

Ed Zitron: That's not. They had their first decline in users.

Josh Brown: No, no, no, no, no. The core ad business, like the profitability of their ad business. Right. But if the users, all the spending,

Ed Zitron: the users are declining though, that will decline too. Again, it's. 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 is cause I was wrong.

B: I don't blame you at some point everything goes wrong.

Ed Zitron: But this goes wrong is astronomically bad because it's not just getting back to the bailout thing. It's not just, oh, OpenAI and Anthropic have to survive, they have to become 10. They basically have to become the size of Google or Microsoft and spend more than they make every year just on those two, 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 of data center demand that needs to exist. That won't because most AI startups are, 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.

Josh Brown: You think, do you think they'll be able to come public?

Ed Zitron: I 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. They're bad. Bad and bad.

Josh Brown: Meaning yes, there's a lot of revenue growth, but the expenses are ramping up even faster.

Ed Zitron: Yep, $13.7 billion of revenue, loss of 20.9 billion.

Josh Brown: If it does. Okay, SpaceX losing a lot of money too.

Ed Zitron: Yeah.

Josh Brown: 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, 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?

Ed Zitron: I mean in the short term because $100 billion.

Josh Brown: So it does push it out though. It pushes out because they raise capital and they can keep spending.

Ed Zitron: 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 150amonth to paying per token. So the revenue exploded. It was great. And this was at a time when the CEOs had all got concussions. So 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.

Josh Brown: They're talking about, you think the data center's customers, the Fortune 500 will actively pull back on. On their AI spend now that the pricing has changed. And they'll look at it and say,

Ed Zitron: whoa, whoa, whoa, whoa, whoa.

Josh Brown: We need to have a more of a handle of the budget on what we're letting our people do on AI.

Ed Zitron: Yeah. And I think that they've hit a ceiling. I think there are some that now. I think they've already hit a. 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, the price and Anthropic's fable.

Josh Brown: It's an issue for our customers.

Ed Zitron: 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's talk about spending 10 billion. If 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.

Josh Brown: Could we do a little bit of Meta stuff?

Ed Zitron: Yeah, sure.

Josh Brown: Ok. So I know this is. 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 bit. So that's like a lot of your origin story. You're almost like the guy who saw too much.

Ed Zitron: Yeah, and I would say I was lucky in a lot of my clients because I would. I've been saying this since like 2013. Like journalists don't like profitable companies. And I've tried to work with profitable companies. Just a really easy start where 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 Clinkel, Clinkle. You ever hear Clinkle?

Josh Brown: I'm still bullish on Clinkle.

Ed Zitron: 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 close to. 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, Pobidi's nerfic. 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.

B: I remember that one.

Ed Zitron: Yeah. Because everyone was gooning out over Clubhouse. They were like, oh, we were all

Josh Brown: stuck in our houses and looking at talk people.

B: A16Z was big in that, right? Yeah.

Ed Zitron: And the A16Z did the classic con. If they got all the people they knew, didn't it Samuel L. Jackson or something. It was so strange. But everyone was at home and they were like, this is gonna replace radio. I'm like, holy crap. Do you not. You don't respect your radio hosts. Cause these people, yeah. So yeah, I'm here for the startup. But everyone's like, this is the biggest thing. Everyone needs to have a clubhouse strategy. I'm like, you people.

B: That was weird.

Josh Brown: You know that, that. Do you know that that era coincided with the SPAC boom and clubhouse and selling spacs to people.

Ed Zitron: Oh yeah.

Josh Brown: 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.

Ed Zitron: So cool.

Josh Brown: 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 a hundred SPACs. So I knew they were all going to zero.

Ed Zitron: Oh, God.

Josh Brown: And I told everybody in Clubhouse and I was never invited back to what the spac. All of the people involved in what the SPAC all went to zero. Everyone.

B: Not to alleviate everybody from their responsibility. But that was a very bizarre. I think all of our brains were a little bit broken.

Ed Zitron: I should. Sure. But I think it was more the media that really got joke ified 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 is going to do our court. And I was like, are you people. And then the metaverse thought it was Instagram.

Josh Brown: They thought it was like Snap or Instagram or it was just going to take off.

Ed Zitron: Then the metaverse happened. I'm like, holy shit. You're either describing something that doesn't exist or video games. What are you. What do you mean? This looks like this VR thing looks like shit. What are you doing?

Josh Brown: And people were like, we were laughing at that in real time.

Ed Zitron: And that's the thing. Oh, yeah, of course.

Josh Brown: 2020, they were selling virtual land. I said, I, no, but I can't. Virtual real estate.

Ed Zitron: Yeah, I saw it.

Josh Brown: Virtual real estate. I can't have this.

Ed Zitron: And I saw it being written about like it was real. I'm like, oh, my God. What it is like having the glasses and they live. Jesus Christ. And so every week I would see a new outcome like Jesus. And then crypto happened and then fts happen. 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.

B: There was bubbles before the media.

Ed Zitron: Yes, but the media still help them. Social media, the Fed. Let me finish this.

Josh Brown: The point is everybody's in, but everything

Ed Zitron: 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. And AI was special because of that. 2022, 2023, depression. Plus it gave everyone something to do with. 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.

Josh Brown: Are you not at all impressed with

Ed Zitron: the products, not for the amount of cost.

Josh Brown: Okay, so if they were so an open weight model that you pay almost nothing and it gets close enough, I

Ed Zitron: mean the cost to get here, it's like a trillion dollars.

Josh Brown: The infrastructure cost.

Ed Zitron: Infrastructure and the environmental cost and the social, the horrifying things the media has done, scaring people about jobs, Disgusting.

Josh Brown: I agree with that.

Ed Zitron: 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. The Kimmy 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 look 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.

Josh Brown: So back to meta. So the reason I went into your backstory is because I want to ask you, do you hate these people?

B: Sounds like it.

Ed Zitron: I absolutely hate 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, they published them where he, 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. They have made that product, like all of these companies worse to increase growth. Google search, Google Search worse because Prabhakar 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.

Josh Brown: And Microsoft, you've called this the rot economy.

Ed Zitron: Exactly.

Josh Brown: So you wrote this big piece in 2023. Cory Doctorow talked about inshitification.

Ed Zitron: Yeah.

Josh Brown: 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. 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.

Ed Zitron: Yeah.

Josh Brown: All right. We have to shear the sheep now. The sheep have gotten fat. They're all on the platform. We charged them nothing. We subsidized this. Now we're at this, like, critical mass of people. Let's turn them upside down and dump their pockets out.

Ed Zitron: And what's crazy is for a few years.

Josh Brown: But that's how you see it.

Ed Zitron: That's how you see it because they had ads on Google Search. They had ads on Facebook and Instagram.

Josh Brown: That's the whole first page.

Ed Zitron: And now it's everything. And you can't have a default chronological feed. And everything is like Ganesha painting, trying to find stuff. They move the buttons around because they're experimenting on their users. There was a. 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. Anything. It's why the. 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 Matter. I think it was Google and 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.

Josh Brown: The point is, it's sort of capitalism, though, is.

Ed Zitron: But at some point it eventually goes completely haywire and explodes. Like that is what 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, NBA. Satya Nadella, NBA. Sundar Pichai McKinsey and NBA. Mark Zuckerberg, not NBA. Sheryl Sandberg, NBA. And the original growth team I know had another one that Chamath. They had Naomi Gleich they had Javier Olivan, who's now the CEO.

Josh Brown: So, but like philosophically, these companies have shareholders. The shareholders are there because they accept, 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.

Ed Zitron: You mean provide a good service at a fair price?

Josh Brown: Yeah.

Ed Zitron: So that's the thing.

Josh Brown: Well, Instagram would tell. So Meta would say, well here's Instagram. How much do you pay for it? They will, they make 55. You pay for an attention. That's the, that's what they do.

Ed Zitron: 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, 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.

Josh Brown: What's. Okay, so what's stopping the users of Google, Amazon and Meta from saying I no longer like this and will not use it.

B: It's addictive.

Ed Zitron: So I Monopolies.

B: No, I'm with Ed. I'm with you. I think, 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.

Josh Brown: I don't like the way, I don't like the way that children were onboard. I. 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 and a 42 year old. I'm not worried about a 42 year old. Yeah, you 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.

Ed Zitron: Yeah, but over 10 years, how much money was it? 12 billion. And then maybe 17 billion.

Josh Brown: So is that like 1% of Meta's market cap?

Ed Zitron: I thought it was going to be an upfront billion payment. And the, the settlement people are always such.

Josh Brown: All settled at once.

Ed Zitron: Yeah, apparently.

B: Yeah. But what will this do? So Meta Will enforce. Meta will enforce a two hour daily limit on Instagram and Facebook for children as part of a record claim. That's great news.

Ed Zitron: 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 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. You 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 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 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. LLMs are f cking 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 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.

Josh Brown: So.

Ed Zitron: But all of these companies have become engineered around growth and so they went, wow, I can just buy these GPUs and I'll keep growing.

Josh Brown: Right?

Ed Zitron: Meta was horribly wrong, of course.

B: Well, you think the products suck. I love, I love using Claude.

Ed Zitron: I mean, why?

Josh Brown: I find it, I find it to be miraculous.

B: I don't, I use it all day and I'm not, I'm not, I'm not the only one.

Ed Zitron: 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.

Josh Brown: So here's the what for. I'm a writer like you.

Ed Zitron: Yeah.

Josh Brown: 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 copilot 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.

Ed Zitron: You use it, that's describing search, Search and research.

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 extinction level event if they didn't cannibalize their own search and put the AI result up top.

Ed Zitron: I don't. Yeah, I know they thought that way. I don't know how I agree with it.

Josh Brown: 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.

Ed Zitron: But the thing is, you're describing search,

Josh Brown: but do you not find that you're a great writer? You must find that valuable.

Ed Zitron: Here's the thing I use on my terminal, for example, BQL not having to write BQL is great. I can't do that.

B: I don't know what that is.

Ed Zitron: So with the Bloomberg terminal they have this thing called Ask Baby. So if you need to look something up, it would run basically Python, their coding language, this 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.

B: The thing is that doesn't impress you.

Ed Zitron: 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.

B: But you think this is the end state. You don't think that. Yeah, you do.

Ed Zitron: I think that we're going to get iterations from here. There's a reason they moved to cybersecurity. They've kind of. 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 that 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 oh, I totally agree. And that's.

Josh Brown: And that the thing is, I'm with you on that.

Ed Zitron: 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 kids Minecraft game recently. I. Because I think ethically I should try and use this. I should and I have. And it's like it took half an hour of chasing its tail. It eventually got it done and 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 would have probably spent $15.

Josh Brown: Are there workflows that you've been able to automate utilizing AI where you've said, okay, still hate these people, but this is literally saving me time from some of my repetitive tasks outside of the Bloomberg terminal?

Ed Zitron: No.

Josh Brown: Okay, so we're in the other boat. Like, 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 should say, 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.

Ed Zitron: I also want to be clear about something. LLMs 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 and 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.

Josh Brown: That's crazy, because, well, there is. And 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.

Ed Zitron: 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

Josh Brown: pulls back some cost and they already

Ed Zitron: spent too much, and that's the thing, when they stop spending on AI Capex, everyone's going to go, great, you're done with this. Why did you do it? That's the thing. The moment they do it, it's just like everyone's going to. Brilliant. What were you doing the last few years? Have you got enough AI now? What are you.

Josh Brown: How are you. The spending literally can't stop because the chips burn out.

Ed Zitron: Yeah, well, that, 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?

Josh Brown: No. Right now everything that I'm able to do is very cheap because I'm not Jane street and I'm not running a billion calculations a day. We are working on Gemini, we're working on code.

Ed Zitron: Are you paying them on SaaS?

Josh Brown: Working on Hazel? Yeah, we're paying, but we're paying SaaS like, we're paying a SaaS like fee at this point?

Ed Zitron: Yes, but you're not paying.

Josh Brown: And I know it could change.

Ed Zitron: 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.

Josh Brown: Why did they, why did they do that?

Ed Zitron: Because 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. Like, I'm not saying they haven't improved, but it's like, what will be the

Josh Brown: 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, 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.

Ed Zitron: Yeah.

Josh Brown: And say, that CapEx projection we gave you last quarter, don't rely on that. 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. So 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?

Ed Zitron: 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 uncle. I actually think there are a few different pale horses. One of them is if Core weave cannot raise that Core Weave as a Neo cloud. So they're an AI GPU compute and their customers are OpenAI, Microsoft for OpenAI, Google for OpenAI, Anthropic and Meta.

Josh Brown: And they buy a lot of GPUs

Ed Zitron: 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 Core Weave needs to perpetually raise debt. In fact, everyone does. Iron Nebius n scale maybe.

Josh Brown: I mean all the Neo clouds, they

Ed Zitron: all need to raise debt.

Josh Brown: And so they don't have a Google search like business to fund this.

Ed Zitron: They don't have a business at all. They just have the fin dom 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.

Josh Brown: Interesting.

Ed Zitron: 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, people

Josh Brown: will write articles like the enthusiasm for data center bonds are drying up.

Ed Zitron: And I thought that was happening because the Amazon one happened, then Google did one that was 4 or 5x 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 that 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? And 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 look at Oracle's Twitter account. I know, this is weird. I'm going somewhere.

Josh Brown: No.

Ed Zitron: So every time something goes wrong with

Josh Brown: AI, I haven't seen it.

Ed Zitron: So Oracle, when that story came out because Nvidia was going to invest 100 billion in OpenAI, it didn't happen. When that came out, Oracle did a tweet that was. That was saying something along the lines of, we have no concerns over our financial situation with OpenAI. Oracle will just randomly post up be like Stargate, Abilene is going great. And you can basically just take the opposite of whatever it's saying.

Josh Brown: That's because you think runs out of. It's not Safra Cats anymore.

Ed Zitron: God, no. Safra suffer cats. Funniest thing I've ever seen. Oracle signs this massive deal with OpenAI. Like a week later, she's like, see ya. Yeah, 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.

Josh Brown: But you must. So. But you must be heartened by the fact that the stock market is treating Oracle differently than it's treating Alphabet.

Ed Zitron: Yeah.

Josh Brown: And the bond ratings agencies are certainly

Ed Zitron: looking at where they don't have the stones to downgrade. They don't have the stones to talk.

B: It's that chunk.

Josh Brown: It's a notch above junk.

Ed Zitron: No, they're not above. They don't. Will they have the balls to make them fallen angel? Hell no. That 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 and solvent. So have you heard about Perplexity?

B: What's going on?

Ed Zitron: So I haven't heard much about them

B: in a while, actually.

Ed Zitron: Yeah, that's. That's actually really good to know because Nvidia is considering investing billions at a $30 billion valuation. Why? Because perplexity is one of the few companies that actually spends any real money on GPU compute. Perplexity's death would. It's 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.

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.

Ed Zitron: More than certain, they obviously have credit.

Josh Brown: A major startup runs out of money that, like everyone associates with the AI trade. Like a perplexity.

Ed Zitron: Okay.

Josh Brown: Or what was the fourth one?

Ed Zitron: If coreweave Core Weave can't roll its debt, basically anyone who can't raise morely. Oh, also.

B: Or an IPO bombing.

Ed Zitron: IPO bombing, of course.

Josh Brown: So that would be a big one if an IPO did not go well.

Ed Zitron: If softbank can't take a company public, a softbank's liquidity situation is really bad. They are having to raise 20 billion in bonds because they raised 40 billion.

Josh Brown: That guy's.

Ed Zitron: I love him.

Josh Brown: I love his.

Ed Zitron: His goose. Math rocks.

B: And 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, 70% profit margins, stocks trading 18 times forward, earnings meta 16 times. Like, where's the mania?

Ed Zitron: And the mania is in the data center construction and the companies themselves.

Josh Brown: And it's an activity bubble as much as it is a financial bubble. I mean, the amount of these deals.

Ed Zitron: 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, remember, inflation. Like what? Like this dog of a company. I'm surprised they are the only one of them I'm certain would get bailed out.

B: Stock's down like 65%.

Ed Zitron: I mean, should go lower. It sucked. Oracle is a horrible company. They also fired a bunch of people. And I know this from sources that deal with contract renewals, which is like the number one most important thing at Oracle. And if they're firing those people, they're just kind of disorganized.

Josh Brown: The data center thing, that makes me the most bearish. I made the huge mistake of rereading a book called 1873 about 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 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. Yeah. And I should not have reread that book because maybe want to sell everything.

Ed Zitron: GE capital is the other comparison I'd make with Nvidia. Nvidia is acting a lot like Welch.

Josh Brown: They're doing some vendor financing.

Ed Zitron: Vendor financing. But also with the gcas, the airline site over there. 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 data, the difference and the problem with data centers, 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. In fact there seems to be more reasons to buy less open source models.

Josh Brown: But you've got Nvidia, sorry self driving cars, automation in general, humanoid robots, none of these things. We're saying that nonlinear processing is not useful for those things.

B: I gotta go to the bathroom. Carry on.

Ed Zitron: Not at the scale they built them. If they were building $30 billion worth of these things very different. Okay, 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 sor. Other companies that have self driving. Zoox 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. Like there hasn't seemed to be a breakthrough in them. They're getting better. I love autonomous cars. I think they're fascinating. I love getting in a 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. Yeah, I wish we actually do some socialism and actually help people.

Josh Brown: Not exactly sure what all those drivers are going to do.

Ed Zitron: But I also think the only get

Josh Brown: out of jail free card is this could take place over 30 years.

Ed Zitron: Not, 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. And 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. 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, it's really weird.

Josh Brown: So you don't like seeing them become investors and in some cases creditors of their own customers.

Ed Zitron: It seems like it's the classic sign of illusory demand or artificial demand, I should say.

Josh Brown: All right, so to close, so to close this out, this is the question my. At this point, my entire audience would be screaming this at us. Yeah, 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. What are those concrete things or. Cause it's not just sentiment shift.

Ed Zitron: Just promise me the next time you have an AI bull, you ask them the same question.

Josh Brown: It'll be like next week, please do,

Ed Zitron: 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. There 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.

Josh Brown: Nobody can even define it exactly.

Ed Zitron: Jensen Huang said it was here and it's just like Shut up. Shut up. Jens. Come on mate. But the thing is the hyperscale growth story is so difficult for them. To me it's so great. Like even what Jensen. Jens. If anyone could 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 Matter are going to have to take out a bunch of debt. SpaceX 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 or 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 GP as they planned to six months ago, they're going to have to spend more because they're more expensive now.

Josh Brown: So there's no chance you're wrong is what I'm hearing.

Ed Zitron: I don't see how this goes on as long as they they expect to be making hundreds of billions of dollars in compute revenue. Just man, Tropic 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 answer that question.

B: Which part?

Josh Brown: How would you be, how would you know for sure that ED ends up being wrong? What would be like, would it be the profitability of anthropic and OpenAI happens in 28?

Ed Zitron: Even then, are they profitable enough to be able to afford all the compute? They've committed to 1.1.

Josh Brown: So even that wouldn't be enough to change your mind.

Ed Zitron: 1.2 trillion is so 100.

Josh Brown: What would you say?

B: 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?

Ed Zitron: 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.

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 $.

Ed Zitron: 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, There were like three or four OpenAI 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.

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. Your views. I occasionally do without like naming people like what kinds of conversations are you having? Similar to this?

Ed Zitron: Yes, but I never get near the actual trades. No one ever talks what they're actually investing, which is great, but.

Josh Brown: No, but they might want to hear your train of thought. Like why? Why shouldn't I have a billion dollars ing semiconductor stocks right now?

Ed Zitron: 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. Like if you want to. 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.

Josh Brown: It's definitely a hype cycle. Even the bulls would have to admit there's a lot of hype.

Ed Zitron: There's nothing after this.

Josh Brown: Nothing.

Ed Zitron: There's no doctor 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 Center GPU 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. And 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

Josh Brown: Web Services dark, the dark fiber was useful later.

Ed Zitron: 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, in 2015 when it became profitable, Amazon's total capex was $29.7 billion adjusted for inflation point. And that's the thing that I try and tell people because oh, Amazon web services cost a lot of money. Yeah, this costs 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 smarter they can look at and say this, this looks like this and that and the other. I 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 will 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. It'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?

Josh Brown: 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 what you're describing because the numbers are so much bigger and because the private credit people are all in.

Ed Zitron: Yeah.

Josh Brown: And they are not NASDAQ stocks. These are banks and insurance companies. All right, so what you are describing does have the ability to literally take down the economy in the way the.com capex blow off top could not have.

Ed Zitron: And the problem is it's hard to quantify how bad it will be because of the private part. Private credit, we don't so stuff we

Josh Brown: don't even know exactly people are doing.

Ed Zitron: 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 Walter 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 pensions.

Josh Brown: Everybody's in.

Ed Zitron: Everyone's in. 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 Nicknameth has done an amazing job pulling out the problem. Yeah, Nick's. Oh, it's public as well. Nick's really great. Have done a good job, really illuminating this. And Sam Koppelman over at Hunter Brook Legend, 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. They 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? 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. They'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 might bit too greedy and Jensen as well has done so well on this. But here's my real Nvidia question, and 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 fund this 55% sequentially. Like, what's going on there? Why your accounts receivable? Why are your daily sales outstanding growing? Like, why is it.

Josh Brown: We like to think of them as backlog.

Ed Zitron: 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 or 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 Core Wave. You really have to disclose that you might eventually, but Coletcress 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. It's gonna. It's already looking really weird. Inventory's growing as well. Nvidia 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? You just, are you just building a data center to feed yourself money? And this is the ultimate point of the rot economy. This is. 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 and the era afterwards because.

B: Do you want to be wrong? Do you hope you're wrong?

Josh Brown: Yeah. Because you do. See, like you do seem to, I don't want to say enjoy reeling off all of these problems that you have with it, but it does seem like you're enthusiastic to see this thing.

B: I feel like you're going to be cackling if this all comes down.

Ed Zitron: No. So there's that. Was it a bit in the Big Short where it's like unemployment drops 1%, 30,000 people die.

B: Right.

Ed Zitron: I'M not gonna. I might be satisfied. I'm not gonna be happy. Like, I. I don't know if it's come across.

Josh Brown: You're not gonna take personal pleasure in seeing you, but you will get some intellectual satisfaction.

B: Yeah.

Josh Brown: I mean, because out of having put all your personal capital on the line, so to speak.

Ed Zitron: Yeah.

Josh Brown: And. And been Right.

Ed Zitron: But the thing is, is, like, regular people are gonna suffer on this one.

Josh Brown: Well, never. That'll never change.

Ed Zitron: Retail investors, though, are barreling into this. What we're at the highest point of retail leverage in history. Like, we're seeing a lot of people look at what's happening with the Cosby. It's going to be like that in America. Like, it's. 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, like, worry, because 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.

Josh Brown: On that uplifting note, did you at least have fun on the show today?

Ed Zitron: I would love to come back.

B: This is.

Josh Brown: All right.

Ed Zitron: So most of them are.

Josh Brown: Adam. Podcast. Listen.

B: We.

Josh Brown: 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 that guy on again. But what if not? You're right. In 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 listen to it.

Ed Zitron: Yeah.

Josh Brown: So we do put Bear. We've had Sam Koppelman on the show. I wouldn't call him a bear, but he is.

Ed Zitron: He did the. He did the blue energy piece, and

Josh Brown: I've had Nick on. On. On the YouTube livestream. So I. I think these conversations are important to have. I don't know if agree with everything you say, but I am learning from you, and I hope you've learned from us.

Ed Zitron: I have.

Josh Brown: Okay. All right. You learned how to do a proper podcast.

Ed Zitron: There we are.

Josh Brown: All right, dude, this has been. This has been fun.

Ed Zitron: Such a pleasure.

Josh Brown: Fun might be the wrong. This has been intellectually stimulating.

Ed Zitron: There we go. Yeah. Nice you for me.

Josh Brown: Guys, thank you so much for watching. Thank you for listening. Where can people go to learn more from you? Ed tell tell people the URL where's

Ed Zitron: your air that for the newsletter, subscribe to the premium and of course betteroffline.com for links to the podcast.

Josh Brown: Dude, you are a virtuoso at this. You. You crushed it. So thank you.

Ed Zitron: I love po.

Josh Brown: All right. Thank you.

B: Thank you guys.

Josh Brown: We'll see you soon. This episode is brought to you by ChatGPT. Hey, it's Bill Simmons from the Bill Simmons podcast. Have you guys heard about ChatGPT work? It's the new way to use ChatGPT for bigger multi step projects and when you need more than just answers. Give Chat GPT work access to your apps and files and it can create real work documents like spreadsheets, slides and structured reports. Get started@chatgpt.com by selecting work mode available on plus and Pro plans.