Is AI Trending Up or Down in 2026? | AI Reality Check

Cal Newport takes a critical look at recent AI News. Video from today’s episode: youtube.com/calnewportmedia 0:00 What has *Actually* Happened in AI in 2026? 3:07 Open Claw 27:53 Anthropic and the Department of War 49:06 Data Centers Links: Buy Cal’s latest book, “Slow Productivity” at www.calnewport.com/slow https://www.axios.com/2026/01/31/ai-moltbook-human-need-tech https://www.macstories.net/stories/clawdbot-showed-me-what-the-future-of-personal-ai-assistants-looks-like/ https://www.anthropic.com/news/statement-department-of-war https://futurism.com/science-energy/data-centers-construction-supply Thanks to Jesse Miller for production and mastering and Nate Mechler for research and newsletter. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Cal Newport?

  AI news comes at you fast. Each article feels more breathless and more terrifying than the last, but before you have a chance to see how any particular story turns out, there's 10 more in its place. I think this speed and lack of accountability can create a sense of overwhelming disruption and change that can really be pretty disquieting. Well, it's Thursday, which means it's time for an AI reality check episode. So I thought this would be a great opportunity to try to slow down this news onslaught and get a better sense of what has actually been happening in the AI space recently. All right, here's my plan. I've invited the AI commentator, Ed Zitron, to join me and we're going to

• 0:43Cal Newport?

  look at three of the biggest stories about AI to land in 2026 so far, including one in which Ed is actually very much involved. And what we're going to do is for each of these stories, we're going to take a closer look on what actually happened and how things have since turned out. Our goal by the end of the episode is to answer a simple but critical question. Has 2026 been a good or bad year for AI so far? And we have a lot to cover, so let's get right into it. As always, I'm Cal Newport and this is Deep Questions, the show for people seeking depth in a distracted world. And we'll get started right after the music.

• 1:33Cal Newport?

  All right, Ed. Well, it's been three or four months since you were last on the show and there's been some big AI news since then. So I wanted to have you on to go through some of the big stories that have happened since January. And because you're a commentator who is, maybe I should say this, less impressible than the average AI commentator, I figured your point of view is good for my reality check. Audience, we're going to try to end this this discussion by voting whether or not 2026 has been good or bad for AI so far. But what's your pre vote? Where do you think, based on what you know, you're going to end up here?

• 2:09Speaker 01

  Probably not a good time for them. It's just every time we talk, it's like there's very big news and everyone's like, oh, look at the we've got a new number. It's even higher than usual. But the actual underlying economics and infrastructural layer, or even just the service performance is worse. And it's very strange.

• 2:27Cal Newport?

  Well, this is part of the reason why I like doing these reviews with you is often these the story will be big. Everyone will get worried about it. People will call people like you and I for quotes, and then everything moves on and there's no follow up. And I think it's useful for calibrating how to react to the news story you're hearing now to occasionally go back and say, hey, what happened with that story that had me worked up a couple of months ago? Which brings us to a great place to start, because what was the first big story of 2026? I think arguably, it would be OpenClaw, which I believe became generally available to the public later in January. Now, I've broken this up into two sub stories. I want to start with like, the easily dismissible one, just because it's fun, and then get to

• 3:10Cal Newport?

  the more serious one. I'm going to read you a quote, then we'll get into it. So the easily dismissible but fun aspect of this story is when someone opened MultBook, a social network that was configured so that it is easy if you're writing an OpenClaw agent to post on it. So they add hooks into it. So it was easy for your OpenClaw agents to post and read things from this social network. For about four days, everybody went crazy about MultBook. I'm just going to read you a quick quote from your favorite publication, Axios, from the end of January. Imagine waking up to discover that the AI agent you built has acquired a voice and is calling you to chat while comparing notes about you with

• 3:50Cal Newport?

  other agents on their own private social network. It's not science fiction. It's happening right now. And it's freaking out some of the smartest names in AI. Well, you're a smart name in AI, as Ed. So are you still freaked out about MultBook?

• 4:03Speaker 01

  No, the moment I saw it, I'm like, A, this is just LLMs. This is just LLMs doing what they think a social network looks like. As in, when I shouldn't even said the word think, spitting out what the model would say is likely to be a social network post. And then the second thought I had was, this is fake. This is what well, 100% there are regular people just using their open claws to post on here. These don't read that they didn't read like L L Ms in some cases, some, some cases they did, but some of them were just like, I saw someone post a slur within one hour. I'm like, okay, this is just a regular person using that regular is probably the wrong word. A person is using this as a means of posting.

• 4:44Speaker 01

  And it's funny when you say like the smartest people as well, because I think that that term no longer has any value. Because that's like Andre Karpathy, who is, it's just the term smart at this point. Just, does that just mean they got good grades at school? Because if that's the case, we are completely screwed. Like if we think only the people who got good grades are smart, then I don't know what to say for the world. Because the people that fell for malt book was, that was insane. They were like, oh, it's A G I. It's as if they forgot how large language models worked. We'll never learn in the first place.

• 5:21Cal Newport?

  Well, I don't think they understood what open claw was or what malt book was or what any of this was other than it involved lobsters.

• 5:28Speaker 01

  And yeah, and they heard agent, agent, it's autonomous, brought it back mini.

• 5:33Cal Newport?

  I did a little digging here. Axios is original. They moderated the headline, but I thought it was worth just to, oh, because I think we memory hold a lot of this coverage, but the original headline was, we're in the singularity, colon, new A I platform skips to humans entirely. But it did the trick where you put the quotation marks around the first part. So technically you are not declaring that to be the case. You are quoting someone. This one got fully memory hold, right? No one talks about malt book. I mean, I think I covered on my show at the time. I said, yes, people are just telling their L L Ms to post L L Ms write stories. They finish the stories you tell them to write. There's actually good research.

• 6:14Cal Newport?

  I was, this came up in my doctoral seminar I'm teaching on superintelligence, which is great because it's like 10 doctoral students who just do A I research. I'm learning a ton from them and they know the literature even better than I do. And they're saying there's really good research out there that whenever you do any prompting of an L L M. If anything in your prompt in any way indicates that you're prompting an A I.

• 6:35Cal Newport?

  Almost always it goes in the sci fi mode, right? So the L L M will if you so you can ask the same question. And if you say you are a whatever you are a journalist, you know, please answer this question. It'll give one answer. And if you say, well, you're an A I. So how do you think blah, blah, blah? It always will go towards dystopian themes of A I coming alive. And like that's it's so it's it's very easy to prime. And I think a lot of that was going with open cloud. People would say, please go post on this social network and they just, you know, wrote A I type stories.

• 7:07Speaker 01

  Right.

• 7:08Cal Newport?

  But was covered very credulously, I would say.

• 7:12Speaker 01

  Which is pretty much par for the course. I mean, I still, I don't know if we want to wait until the second part of this, but it isn't. The open claw thing is one of the most insane things I've seen in the tech industry. May even be crazier than the overall L L M boom.

• 7:26Cal Newport?

  Well, go on with it because that's let's let's get into the second part. I have some quotes, but let's, well, let me read you the quote and then let's get into it.

• 7:32Speaker 01

  Yeah, read the quote.

• 7:33Cal Newport?

  This is a like a representative person talking about open claw earlier, like early February, late January for the past weekers. And this tone, this is called A I enthusiast. This is like such a known tone. This can sound very familiar. For the past week or so, I've been working with a digital assistant that knows my name, my preferences for my morning routine, how I like to use Notion and Todoist, but which also knows how to control Spotify and my Sono speaker, my Philips Hue lights, as well as my Gmail. It runs on Anthropic Claude Opus four point five model, but I can chat with it using Telegram. I called the assistant Navi, inspired by the fairy companion of Arcania of Time, not the

• 8:13Speaker 01

  The Ocarina of Time, the game, yeah.

• 8:16Cal Newport?

  All right, nerd.

• 8:16Speaker 01

  Zelda.

• 8:17Cal Newport?

  Oh, okay, I get you.

• 8:19Speaker 01

  No, no, no, it's just like, it's like a really weird choice.

• 8:22Cal Newport?

  Well, he makes a point. It's not the James Cameron movie based. There we go.

• 8:27Speaker 01

  Okay.

• 8:28Cal Newport?

  And Navi can even receive audio messages from me and respond with other audio messages generated with the latest eleven labs text to speech model. Oh, did I mention that Navi can improve itself with new features? And then it's running on my own M four Mac mini server. And also I just got fired because I just spent 100 hours setting up Navi instead of doing my job. Well, I added myself.

• 8:45Speaker 01

  And I now can't pay my rent because I spent $4,000 a month on A P I calls.

• 8:50Cal Newport?

  Yeah.

• 8:52Cal Newport?

  Oh, that that's the other problem. Okay, so that's OpenClaw, right? So you could. My understanding is it's a library. It's a Python library.

• 9:00Speaker 01

  Yeah.

• 9:00Cal Newport?

  Which makes it easy to write your own agent. An agent being code that calls an L L M and then uses the response from the L L M to help drive its movements. You could say, hey, L L M, what should I do? And then it does it. OpenClaw made it easy for people to write their own. So people all around the world began destroying their computers and leaking all this information.

• 9:22Speaker 01

  But the thing is, but here's the thing. Even that term gives it too much credit. It just does what L L M's do. Like, it's just, oh, I had it. I read this thing on one of the Mac websites where it was like, oh, yeah, I had it build a website, and it's just the most generic looking vibe code slop ever. Oh, I had it transcribe my my voice notes. Like, yes, so, okay, it's doing what L L M's do. Oh, and it's able to write stories. So L L M's? And that's, this is the weirdest thing. The thing that really confused me is, on top of the credulous media coverage, and pretty much everyone who covered this should be ashamed of themselves. I think most people did the worst job possible, in the sense that I read most OpenClaw

• 10:05Speaker 01

  coverage, because I was trying to work out what it did. God's on, God's on this truth. I was like, what is this? But you read, like, The Atlantic, and it was like, was it The Atlantic or CNBC? They were like, this is another Chat G P T moment, quoting Jensen Huang.

• 10:19Cal Newport?

  Because of the fast adoption. A lot of people tried it. And then they looked at that chart and said, well, this is a big deal.

• 10:25Speaker 01

  But the thing is, it's like, fast adoption, it's like, slop, it's slop commits on GitHub, and also Mac Mini's selling out in the Greater Bay Area. But the thing that was crazier to me, other than all the credulous coverage, was Nvidia's G T C twenty twenty six, four trillion dollar or so market cap company, right?

• 10:44Cal Newport?

  That's their conference. G T C is their big conference.

• 10:46Speaker 01

  Yeah, yeah, yeah. And you got a three D A I generated picture of Jensen Huang, the C E O of Nvidia, with lobster claws. And they'd release this thing called Nemo Claw, and they're like, oh, this is the Chat G P T moment. This is the agentic future. And it's like, what are you talking about, mate? Did you just get in a car accident? Do you have a concussion? You just steered your company like a year ago. GTC was like Jensen, Jensen going out with full swagger being like, yeah, we've got Vera Rubin. We're gonna do this 10x more efficient. Woo, shooting guns in the air signing, he signed a woman's boob last year. This year he's like, yeah, we've got Nemo Claw. Got Nemo Claw, you want to try Nemo Claw?

• 11:31Speaker 01

  Ah, you like that? Did you jingling the keys again? Do you like Nemo Claw? What, but please spend $125,000 on a GPU. You need to buy Vera Rubin, even though we don't have anywhere to put it, as we'll get to. But it's, it's just so weird because when you actually get down to it, it's the classic LLM story. It's like, okay, what are you talking about? It's a new agentic interface for managing programs. It's an LLM, it's an LLM, is it a chatbot connected to an API? Yeah, it's like the Donnie Darko meme.

• 12:04Cal Newport?

  What's the Donnie Darko meme?

• 12:06Speaker 01

  Donnie Darko meme, it's like, I, I forget what the line is in the movie, but it's like, oh, I've start, I've managed to create a new agentic workflow. Is it just an LLM connected to an API? Yeah.

• 12:16Cal Newport?

  Yeah.

• 12:17Speaker 01

  Because that's every story, every story I've read. It's just, do you have two LLMs bonking each other's heads? Is that what's happening? Great, okay, I'm very impressed. We need to have the largest company on the stock market do something about this pronto. It's hysterical.

• 12:34Cal Newport?

  I, I think that that's an important point because I, I do think when the average person hears about things like OpenClaw or different agents, they're often thinking this is a, there's a new artificial intelligence technology. Right?

• 12:48Speaker 01

  Right.

• 12:48Cal Newport?

  That there's a new, we built, OpenClaw is a new digital brain that can improve itself. And it's learned how to do things that prior models have it. And I think what people don't understand is that OpenClaw is a Python library. It's a, it's a Python library that makes it easier to write a Python program. That can make calls to L L Ms and you can aim it at whatever L L M you want. That's the L M is somehow like that is the brain, but there's nothing new. There's no new L L M for open claw. It's a library that makes it easy for the average person to say, I'm going to write my own agent. It turns out agents are hard to write.

• 13:21Speaker 01

  Yes.

• 13:21Cal Newport?

  Because L L Ms, they write plausible stories, but as we've learned, they're not often really good, carefully checked plans for doing things. And so it causes a lot of problems. If you say, hey, L L M, give me a plan for doing stuff with my personal data. And then you have a program that just automatically implements that, you know, turns out sometimes, sometimes bad things happen, but there were two. Here's my two useful things. I'm going to say there's two useful things about.

• 13:46Speaker 01

  Okay.

• 13:47Cal Newport?

  Two useful things about open claw. One, because a lot of people began experimenting with building their own open claw agents. One of the quick things they discovered is, oh, the big frontier L L Ms are expensive. And they were racking up thousands of dollars of token cost, the A P I calls to Claude or to to G P T. And so it got a lot of the real booster tech enthusiast types to start looking at much smaller, much cheaper models because they just literally couldn't afford it. This is why I think OpenAI bought. Open Claw, they tried.

• 14:18Speaker 01

  Well, there's an important detail, though.

• 14:20Cal Newport?

  Okay, please.

• 14:21Speaker 01

  So it's an important, important to know where this was in history. So open claw came out January ish.

• 14:27Cal Newport?

  Yes.

• 14:28Speaker 01

  Now, you used to be able to, during this period, connect your anthropic Claude max account, a 200 buck a month account. You used to be able to connect it to open claw. So you weren't paying A P I calls, you were just using anthropic services.

• 14:42Cal Newport?

  That's unlimited, you pay 200 and it was supposed to be unlimited.

• 14:45Speaker 01

  You have a rate limit, but there's, you can use it as much up to that rate limit. And you can spend like thousands of dollars of A P I calls. And that's been proven, there's a code called Shellack who did a study on it.

• 14:56Cal Newport?

  This is where you get the number, you quote a number often about how much it's actually costing per token versus what they're charging. This is where partially that number is coming from?

• 15:03Speaker 01

  Yes, yes. So it was, it works out to like somewhere between eight and 13 and 1350 dollars. Weird way of saying that per dollar of subscription. So you're able to burn like 2,700 dollars. On the Anthropic subscription.

• 15:16Cal Newport?

  For $200, you're paying 200, it's costing them 2,700.

• 15:20Speaker 01

  Yes, exactly. Sorry. Kind of kludgy explanation. So Anthropic let this happen. So the reason that Claude, uh, the open claw got so big, Anthropic sued them because they were called like Claude Bot at first. Claw, C L A W. But nevertheless, Anthropic allowed this to happen. Then February 12th, they raised the $30 billion round. Couple of weeks later, open claws cut off. The aristocrats. It's just it that Anthropic is such an unethical company. They should have never let it happen to begin with. But one of the reasons that open claw got so big was both using those cheaper models, but also using those Mac subscriptions. And so OpenAI buying open claw was so funny.

• 16:02Speaker 01

  Just like OpenAI is just meta. It's meta plus Enron. And it's so funny watching them. Why would you buy this? What possible reason? But oh, we can build agents with it. What do you mean?

• 16:16Cal Newport?

  No.

• 16:16Speaker 01

  Why? Why?

• 16:18Cal Newport?

  They have much better frameworks for, well, I have two explanations. Let's get back to you. Tell me which one you think is more likely. So the, this is maybe giving too much savviness credit to them. The savviness is, I think it was a real problem for a lot of enthusiasts to discover, oh, wait a second. If we use really cheap open weight models, open source models, or even just really like 3 billion parameter models, we can run on our own machine, we get pretty similar results. Like actually, we don't need one, the 10 trillion parameter super frontier model to read my emails and to add appointments on to my calendar. I think that's really terrifying. If you're a company like Anthropic, just take it on 60 billion in investment,

• 17:00Cal Newport?

  or your OpenAI is like, we need people to think that these are the big brains and nothing else matters. So the conspiratorial slash business savvy interpretation would be OpenAI needs to sort of slow the role on that, or make that tool much more native to its models, because they really do not want a generation of AI enthusiasts to say, oh, wait a second, I can, Kimi is like a fraction of the cost that it does just as well. The other way of thinking about it, it's like them buying the, the, uh, that podcast show recently.

• 17:28Speaker 01

  TPPN?

• 17:29Cal Newport?

  Yeah, that's just like, uh, we're just buying things left and right because we have money and we're not quite sure what to do. The, the sort of.

• 17:35Speaker 01

  Yeah.

• 17:35Cal Newport?

  So I don't know which ones, it's probably number two.

• 17:37Speaker 01

  Because, because they're gonna keep running open claw. They've said that already. They're gonna keep running it and people are still using open source models. So it's kind of like, I just think that they were buying stuff because they thought crap, we've got to do, we don't have an open claw. What if we just bought it? It's rich kid syndrome. Like, that's the thing, like, both OpenAI and Anthropic act like rich kids. Because I went to a private school. I'm not proud to say it. I was the dumbest kid in the private school. I did not do well. Bottom of my class every single year, failed multiple languages, like genuinely, legendarily terrible. I barely scraped through.

• 18:13Speaker 01

  But I've met a lot of these kids and my parents scraped by to get me there as well. It was good on them. But I met a lot of these kids and what they do is when they don't want to learn something, when they don't want to build knowledge, when they don't want to put something together of their own, they just acquire. It's like, dad, go and buy me that. Daddy, go and go and buy me, buy me a boat, buy me whatever. And it's, OpenAI doesn't know what they're doing other than they have a lot of money so they can spend it. And I think they bought it thinking, wow, this will be a backdoor into Anthropic a little bit. We'll be able to see what Anthropic does more because lots of people use this and we can, we can somehow see how Claude is running agentially, or they bought it to kill it.

• 18:57Cal Newport?

  That's what I think.

• 18:58Speaker 01

  But the other thing is, is Peter Steinbrenner or whatever he's called, he's still farting around. That guy, I don't know if you've ever read his posts, but he is constantly working.

• 19:09Cal Newport?

  Yeah.

• 19:09Speaker 01

  And I would, I don't give him a ton of credit for that because it's like, feels like a depressed person. But also I've heard he got hundreds of millions of dollars for it as well. So it's like, if I had that much money, you wouldn't hear from me again. I would disappear. Why? No, I'd keep posting. But it, it's strange because it's like, what are you actually working on? And I think he vibe coded a lot of it as well, which is even more terrifying. And there are massive security issues as a result. It's just one, it is like a psychosis unto itself. And what I think, I know we talk a lot about the media stuff. What I think it is, is the media and the AI community is so desperate for a hero.

• 19:50Speaker 01

  They're so, they, they know, they know in their, deep down in their soul, that something is wrong, that none of this makes sense. So the moment anything, even directionally feels like it proves that they're not wrong, they grab it and they shake it vigorously. Like they just go like, this has to be it. This is gonna be the thing. And if, if we love this enough, it can be a real boy. And it never is. Like, open claw is gone. Like, just no one's talking about it anymore. No one, no one cares. Searches on Google have gone down.

• 20:22Cal Newport?

  Yeah, I just looked for it. It's minimal. I, I checked this morning. Uh, it's minimal coverage. It's been minimal coverage. I mean, it's kind of around, but it's, it's become a, a niche topic. Well, let me tell you my second thing that I think is good about open claw, right? The second thing is, um, I think it actually points towards what I think is the healthy, sustainable future of AI, which is smaller task-specific and much more modular architectures, right? So not, not built around a single AI entity like an LLM, uh, bespoke AI systems that do specific things. There's a great, if I want to play poker with AI, there is a great AI system to play poker with. If I want to,

• 21:02Cal Newport?

  um, you know, if I want to do certain types of digital VFX work, like there's really good AI systems that's like made to do that. I think that's

• 21:10Speaker 01

  But are those LLMs?

• 21:11Cal Newport?

  Um, no. Well, uh, no, they're not, right? Or, or they have LLMs in them. That's why I say modular architecture. I think the future is you have multiple different things, most of which are just hand-coded by a person. And maybe you have an LLM in there if there's language involved, because it's pretty good at, if it needs to speak to someone or interpret it. I, I, I point towards the Cicero model is the, the great example of this. Noam Brown's AI system that plays the board game diplomacy, and it has an LLM in there, small one, for chatting with the other players and then converting what they say into a sort of more technical language that the rest of the system understands. And then it has a planning engine and it has a policy network that can evaluate, uh, different boards. Uh, it has, uh, multiple other systems that all hook together.

• 21:55Speaker 01

  Classic AI shit. Like, this is, this is real AI stuff. Like, when it's just like Like, yeah, I made diplomacy, but this actually just reminded me of something.

• 22:03Cal Newport?

  But just, I want to get to that, but just to bring it close to the point is I think this gave people a taste of that. If you're building, they're like, oh, I want to build my own system to do one thing. I want to build a system to answer my emails that come into, you know, request for my show to answer those emails and to put things into a spreadsheet and like, oh, I can write a program to do that and I'll use an LLM to help me. And it can be a small one because that's, this is not, that's kind of not the core of it. And suddenly you're exposing people to this idea. I mean, I call this vision distributed AGI. We're like, one day you would look around and be like, there's 10,000 bespoke, small systems that each do something well. And if you add it all up, oh, that's a lot of things now that computers do as well as people.

• 22:44Cal Newport?

  And it's a very different vision than OPUS 5.9 is.

• 22:50Speaker 01

  Grok 7.

• 22:52Cal Newport?

  Or whatever it is, Grok 7. Yeah, it's embodied in a robot with predator machine guns and it can just do everything. Anyways, all right, back to your point.

• 23:00Speaker 01

  So now this just reminded me, so Jack Clark of Anthropic, fascinating character, one of the co-founders. He used to write at The Register, one of the single most critical tech publications in the world. His public, his blogs were extremely critical. I've seen him twice peddle out this example, which he refers to as like a, an evolution simulator, a predator prey simulator. And he brings it up all the time and he writes, he uses these highfalutin terms. I went and looked this up. It is like a 50 year old idea. He's like, yeah, I used Claude code to build it. Yeah, because there are hundreds of them online, hundreds of them that it was trained on.

• 23:36Cal Newport?

  It's just a simulation program.

• 23:38Speaker 01

  It's a little simulation that says, okay, we've got bees and the bees get killed by the bee, the bee eating bears. I'm just making up animals already. That's why I can't make one myself. But it's like all of the different creatures and how they interact. He's like, yeah, and I'm able to change things here and here and there. And it's like, yeah, there is a web version of this. It is 20 years old.

• 23:56Cal Newport?

  Yeah.

• 23:56Speaker 01

  But the way they frame all of these things is like, oh, simulation, like the singularity. It's like, no. And it just, I feel like the AI era is a mass exploitation of ignorance. It's just, they found something where the media just, they knew the media, maybe they didn't know this in advance, but the media won't check anything. The media would just think, yeah, it's got social network. This is AGI now.

• 24:26Speaker 01

  Every time a three gigawatt announcement is made, they go to three gigawatt data center. That's like three nuclear power plant big wow. Even though it's not getting built, which I know we're going to get to, it's just AI as a term, as you well know, is it means so little and so much at the same time that they can basically do anything. And I think combined with the hysteria, they are in a situation where literally, I think we could have another Sam Bankman Freed situation that we don't know about yet. Then AI company could come out and just go, yeah, we've done this. And it's the, I mean, kind of mythos is almost that. I know we're not going to get into that, but it's, I feel like we are, maybe there's already a scammer out there, but this is the environment, the exact environment.

• 25:10Cal Newport?

  Yeah, you could gather a billion dollars easy.

• 25:13Speaker 01

  Well, I mean, I just saw another one the other day where it's like a company that claims it's doing recursive self learning and they raised half a billion dollars. And one of the co-founders runs another company called you.com. And you know what's crazy? That is not mentioned in the Financial Times's piece. It's just, we are like grifters have found their meat. This is so much worse than crypto and NFTs. It's so, so much worse because the fuzziness of AI allows them to have infinite time and infinite money to say, well, we still haven't worked out. That recursive self learning company, by the way, of course, they are still theoretical, like all of them.

• 25:54Cal Newport?

  Yeah.

• 25:55Speaker 01

  Like world models.

• 25:56Cal Newport?

  Uh, but no, the 50% job loss, it's, it's next month now.

• 26:00Speaker 01

  Yeah.

• 26:01Cal Newport?

  That's what that's, I, I said the wrong month. It wasn't this.

• 26:04Speaker 01

  It's in there like eight to 12 months, baby, with a margin of error of maybe a hundred percent.

• 26:10Cal Newport?

  Banner headline.

• 26:12Speaker 01

  Yeah, but like just read the top thing. Yeah.

• 26:15Cal Newport?

  That reminds me a little bit about my, my oldest plays, I coaches, help coaches, uh, little league team, baseball team or whatever. And the pitchers are getting better. They're at the 13U, they play on the, the full size fields now or whatever. And like the pitchers are better now. So what they learn is if I throw the high fastball into batter swings, I'm going to throw some more high fastballs. Like this is clearly. Kind of feel like this is Dario Hamaday saying 50% of jobs. He's rolled this out three years in a row now. He's like, it gets covered every time. Uh, I'm going to keep throwing those high fastballs as long as the, the media swinging the proverbial bat.

• 26:47Speaker 01

  Yeah, but high fastballs are proven to be difficult to hits as opposed to L L Ms, which have never been proven to take and take jobs.

• 26:54Cal Newport?

  Ah, there we go. I like it.

• 26:56Speaker 01

  Baseball's way more fun than A I. Just if only we'd have put this money into baseball.

• 27:02Cal Newport?

  I agree with you there. Yeah. Baseball has less constant waves of existential dread being poured upon the entire populace.

• 27:10Speaker 01

  No, they just reserve it for like Cincinnati and Pittsburgh and Mets fans.

• 27:16Cal Newport?

  That's right. You're right. Mets fans are like, Mets fans look to A I for a little bit of psychic relief. They're like, oh, this is not, it's not quite as dark as what we're dealing with.

• 27:24Speaker 01

  Yeah, this isn't punishing.

• 27:25Cal Newport?

  Only half the jobs are going away. Oh, that's not so bad as an 11 game losing.

• 27:28Speaker 01

  Yeah, no, and most Mets fans are like, yeah, I would fire half of them.

• 27:32Cal Newport?

  Yeah, they should be fired.

• 27:34Speaker 01

  Maybe we should do all of them.

• 27:35Cal Newport?

  Yeah. I hope Juan Soto is the first one on that list. All right. Story number two. I actually, for whatever reason, I didn't cover this one as much. I talked to some sources.

• 27:46Cal Newport?

  In the sort of surrounding D C tech industry, but I, I want to get your take on this. This is the anthropic and department of war story that picked up in February. I'm just going to read a little bit from Dario Hamaday's statement that kind of kicked off this whole thing. So he said anthropic understands the department of war, not private companies makes military decisions. We have never raised objections to particular military operations nor attempted to limit use of technology in an ad hoc manner. However, in a narrow set of cases, we believe A I can undermine rather than defend democratic values. Some uses are also simply outside of the bounds of what today's technology can safely reliably do. Two such cases have never been included in our contracts with the department of war and believe they should not be included. And then he lists mass domestic surveillance

• 28:30Cal Newport?

  and fully autonomous weapons. So can you first bring us up to speed on what, what unfolded and has unfolded there? And then what is actually happening? Because I find this story, because I haven't looked at it as closely, kind of confusing.

• 28:42Speaker 01

  Alright, so just before the war in Iran. I think Dario is a savvy con artist and I think he, I call him, but you don't, it's not you saying it's me saying, he's a con artist. So just for some background, Anthropic has been installed with classified access in the US military since June 2024. That's a very important detail. They were used in Venezuela incursion, whatever you call that. They were used throughout and are still used in the war in Iran. So what happened was Amadei said, I forget what the conversation was, I, maybe he instigated it, it's kind of hard to tell, but some

• 29:20Speaker 01

  conversation between him and the US military was, we're not gonna let you use this for mass surveillance of Americans. Nor are we gonna let you use it to control autonomous weapons. Now, the second one really pissed me off because you cannot control anything with L L M's. You can't control, if you controlled a robot with L L M's, it would barely move because the processing time, even. People say, oh, what about on-device? But shut the fuck, you don't know how these work. That's not how this.

• 29:47Cal Newport?

  It's not an L L M. That threw me off as well. I know enough about A I. It's like, why are you talking about L L M's?

• 29:53Speaker 01

  Why was the meeting?

• 29:55Cal Newport?

  I think they mean A I in general, I suppose.

• 29:57Speaker 01

  They meant autonomous weapons. They 100% meant that. I know because I read every single article and every single statement about this. Every single time like autonomous weapons. And to be clear, Anthropic in their own statement said L L M's are not consistent enough to run autonomous weapons. Correct. Thank you, Dario. Your first fact.

• 30:17Cal Newport?

  Would make no sense to run a model based on language parsing and generation to steer a missile?

• 30:23Speaker 01

  So.

• 30:24Cal Newport?

  I don't understand that. Okay. So the first one you say was happening though. As far as you can tell, using these tools as part of intelligence gathering, sure, they probably were involved in the chain somewhere.

• 30:34Speaker 01

  I mean, were they? But the thing is, I can't confirm. Whether it is, no one can, because Anthropic is already, was already embedded and they attempted to basically renegotiate their contract post hoc. And I'm not siding with the US military here, but they tried to say, we're adding these things and they did it mysteriously, somehow, just before the war in Iran. So what I think, this is my personal belief, I think the, like, it was a few days beforehand, I think what Anthropic did-

• 31:03Cal Newport?

  Just to clarify what you're about to say, I'm just looking at this now. They're saying mass domestic surveillance of fully autonomous weapons in that February statement, they're saying, oh, have never been included in our contracts. So I had been given the impression that they were specifically called out in the contracts as we will not do this. But actually, what I'm seeing here is, it's not like they weren't, that wasn't discussed at all in the contracts. And Amadea is saying, hey, we never mentioned in the contracts these two things you might use it for, and we want this in the contract. So, okay, go on. But that's a, I'm only seeing this now, that when I'm rereading the statement-

• 31:40Speaker 01

  So remember-

• 31:40Cal Newport?

  Yeah, it's a little tricky.

• 31:41Speaker 01

  Anthropic, 100% had visibility into what the US military is doing. So I would not be surprised, I cannot confirm this, whether they timed this specifically to time of the war in Iran. Because suddenly, there was this insidious, awful, every single person who spoke like this should be fucking ashamed of themselves, I'm disgusted by it. There was this insidious thing of people being like, Anthropic is the ethical company. I saw hashtag just we Claude, death penalty. I saw Katy goddamn Perry being like, I just bought Claude. And it's like, you just paid a company that was actually part of this war. And people are like, well, OpenAI is now, and then Sam Altman slid in and was

• 32:25Speaker 01

  like, well, we can do whatever that is. Then Sam Altman claimed that they had actually negotiated something that didn't allow the things that Anthropic wanted. Then it turned out that Emile Michael, from what's his, but from Emile Michael from the US military said, actually, we've agreed to all legal means. To be clear, there's, I don't believe either of these- Companies give a rat shit about any of this. I don't think they care about it at all. But Anthropic had this swell of good press because people thought that they were opposed to the war in Iran. When in fact, they were directly part of it. Claude was used during it. Now, how complex was the use? It was probably like, here's a bunch of images. Where should we blow up?

• 33:08Speaker 01

  But it went, here's a school. And they went, oh, just great. And that actually happened. And then there were weird articles that came out saying like, actually Claude didn't do that? Yeah, you can't prove that, mate. What I can prove is that Claude was used in the war in Iran. So whatever.

• 33:24Cal Newport?

  But your conjecture, your conjecture is the reason why Amade brought this up was its press.

• 33:30Speaker 01

  Yes.

• 33:30Cal Newport?

  The size of that contract is worth jeopardizing when you're looking at like an IPO six months from now.

• 33:36Speaker 01

  What? Sorry, size of that contract? Their military contract is up to $200 million. And the up to is an important operative word. $200 million? They lose that money on inference like two weeks.

• 33:49Cal Newport?

  And they're looking to raise, I mean, their valuation is what in the hundreds of billions?

• 33:53Speaker 01

  Three, eight, three something hundred billion. They'll probably IPO at 750 if they even make it. But that's the thing. No, they did it for press.

• 34:01Cal Newport?

  That could be a hundred billion dollar move there in theory.

• 34:05Speaker 01

  Yes. Well, also, the thing is as well is like, then the Department of War said, oh, we're going to, we're going to, um, we're gonna put you as a supply chain risk. Nothing happened. Then they were like, it's a supply chain risk, but we're gonna keep using you for six months. Then there was a lawsuit, the department, then Anthropic sued the Department of Defense and said, if we don't have this removed, we might die. And then admitted, by the way, and this is one of my biggest, this was like my full joker moment. During that, during that, um, motion that they filed, Krishna Rao, the CFO of Anthropic filed an affidavit, sworn affidavit, where he said that Anthropic had only made $5 billion in its entire lifetime.

• 34:52Cal Newport?

  Yeah.

• 34:52Speaker 01

  Now, when you go and add up all of the reports of revenue, such as the information saying $4.5 billion in revenue in 2025, such as Anthropic themselves saying annualized revenue that would mean they'd made one and a half billion dollars in the space of a month in 2026, it adds up to way more than five billion. I have tried to talk to pretty much every major reporter that covers Anthropic's revenues, and they will not discuss this. It's the most conspiratorial I've felt this entire time. It is like, it is like everyone is trying to ignore a fire in a room. And the crazy thing is, is that happened, nothing changed, and then a judge said, actually, Anthropic's right, we're not going to allow the supply chain risk designation. And now, apparently, the US

• 35:35Speaker 01

  government is using Claude mythos. So, in the end, nothing happened. Anthropic, Anthropic got a bunch of completely spurious press around them being ethical, despite the fact that they are already part of the military. They revealed their actual revenues. I mean, it was great. It's, it's all good.

• 35:55Cal Newport?

  That revenue story, that is an amazing one. Outside of you, I covered it, I learned about it in part from you. I found only one article. There was, maybe a Reuters or an AP article that talked about this quote unquote like shaky revenue math that's popular in Silicon Valley. So there's one piece I found where a financial reporter actually was covering like, hey, when you hear these numbers, there's a lot of multiplying by 12 or multiplying by 24 going on, and you, you multiply at the right times. But that was a big story. So for the listeners to understand it, Anthropic had to, under oath, assigned affidavit, right, for the penalty of perjury, or whatever you would say in a corporate setting, had to release their revenues. And it was $5

• 36:36Cal Newport?

  billion to date on $60 billion of investment in debt, I think, to date. So.

• 36:42Speaker 01

  Yep. And they spent $15 billion on compute so far.

• 36:45Cal Newport?

  Yeah, $15 billion on compute so far. The other part of that, the part of the story I did cover that I thought was interesting was the undersecretary of defense, whoever that was.

• 36:53Speaker 01

  Emil Michael.

• 36:54Cal Newport?

  That was Emil Michael, right. And he went on, and it was, it was funny. It shows something about how the online commentary space works. He went. On and said, hey, here's why we don't want to work with this product. This is if you watch him, he's basically be like, this is a product that'll that'll say it has a soul or that like their company is saying that there's like a chance that it's alive. And what he was saying was like, this is a wonky product, right? Like, this doesn't seem like the type of thing you want in a a military setting where you have the CEO saying there's a chance it's alive and it'll say it has a soul. This doesn't seem like a reliable piece of hardware. And what was the online commentator report was Pentagon convinced that Claude has a soul. So it completely they flipped the veil.

• 37:39Speaker 01

  I'm so sick of this. I'm so sick of the goddamn AI bubble. I'm so tired of this.

• 37:46Cal Newport?

  Yeah.

• 37:47Speaker 01

  I wish I got this. I wish anything I did was I wish you've not read One Punch Man, have you?

• 37:54Cal Newport?

  No.

• 37:55Speaker 01

  Okay, so this is a complex thing, but one of your listeners is going to hear this and love this. There is a character in One Punch Man called King. Everyone thinks that he's the most powerful man in the world because of the King engine, which is his so-called power. It's actually because his heart, he is so anxious and scared at all times that his heart is going so fast that you can hear it. He has no powers. He's a regular guy. But because Saitama, the main guy comes along and destroys anything near him, everyone thinks he's amazing. And there are multiple times during the story where a bunch of stuff happens around him and people go, wow, they must have all just died when they saw King. Wow, King must have destroyed them with the King engine. This is Anthropic. Anthropic is just this wasteful crap pile of a company with

• 38:40Speaker 01

  services that break half the time, less than two nines now of service availability. And they have models that degrade at random. They gaslight the users. They rug pull them on rate limits. But everyone's like, Anthropic's capacity is so they're hitting capacity because they're so popular and their models are so good. It's like, I'm going crazy, man. I just at some point, what I'm saying will Feed into the mass consciousness, I guess. And at that point, I'm going to be insufferable. But it's like, every time I hear a story like this, I feel like I'm I'm going insane.

• 39:17Cal Newport?

  What are the main revenue sources? If we're being realistic about it. So if you're these AI companies, well, my understanding is OpenAI is ChatGPT subscriptions.

• 39:27Speaker 01

  Yes.

• 39:27Cal Newport?

  Anthropic is like Claude Code.

• 39:31Speaker 01

  API.

• 39:31Cal Newport?

  API.

• 39:32Speaker 01

  Apparently it's API.

• 39:33Cal Newport?

  Yeah.

• 39:33Speaker 01

  But here's the thing, I'm not accusing anyone of fraud, but I, there was a Eric Newcomer had a piece where he said the Anthropic, they had the Cocheo Venture Capitalist and he shared the deck that Anthropic had shown them. And there was a bit where it was like, yeah, eighty five percent of their revenue is API calls and fifteen percent is subscriptions. Going to be honest, I don't believe it. I just don't believe it. I don't believe that there is what four odd billion dollars of API calls. And OpenAI apparently is the other way around, where it's like eighty five percent subscription, fifteen percent API.

• 40:11Cal Newport?

  What would an API call be? So for the listener?

• 40:13Speaker 01

  So if you are. So it would be an AI startup. It would be a business that's running their own models for some reason. That is running their own systems that built on top of the API. But that's the thing, even that question kind of gets at what I'm saying, which is, what the hell are you doing with this? Like, what it, what it, like, I get AI startups that just sell things that have L L Ms plugged into them, but it's like, they're claiming they have all this enterprise use. And what I think it might be is that Anthropic is slowly, because the information reported this recently. I think it's been going on for a lot longer. Anthropic has started to push enterprise users on to the API, even when they're using Claude or Claude Code. I think that's fairly recent, the last few months.

• 40:57Cal Newport?

  Right.

• 40:57Speaker 01

  But I also just think that these companies are making up what they're saying in decks, because no one can prove otherwise. I think I want them to go public so bad. I want them to go public so bad. Never in a million years have I wanted a company to fall in this one more. I want to see inside their laundry. I want to go look around.

• 41:18Cal Newport?

  I don't, I don't doubt you'll be the first to read those S1s.

• 41:22Speaker 01

  I will be, I will be smoking a big cigar. It's going to be delightful.

• 41:27Cal Newport?

  Here, before we get to the third story, let me tell you my new term I coined about AI coverage. All right. I'm thinking, I just came with this on the spot, but I, something else is going on right now that I want to call out is what I call dread laundering. And what you do is you will launder a sense of like despair, dread about one thing related to AI to help amplify a less supported feeling of dread or despair about another. And so here's where I, I've been seeing this recently. Is I think the technology business case for LLM somehow being at the core of automating a bunch of jobs or destroying the economy is very weak. And I think there hasn't been a lot of good support for that because again, these are just LLMs that we're building better apps on top of, and it's slow going.

• 42:12Cal Newport?

  But there's a lot more focus recently. It's like we have to, there's a dread quota. So how do we fill it if that is losing some traction right now? So there's a lot of other coverage going on about destruction of the arts. Writing, the writing is going to disappear, movie making is going to disappear, education is falling apart. And you put that next to Dario Amade talking about jobs or this or that, and you're laundering the dread from, oh, we have a text generator. And people might, are going to be lazy and try to not write text, which is a real story and annoying and just one as a writer I don't like. And you launder that dread over to like, well, all these other bad things. This is all kind of the, if, if we're worried about that, that kind of just justifies the dread in general. So like also like maybe my job's going away, maybe the terminators are coming.

• 42:56Cal Newport?

  And I really wish these were really separated and that you could have an argument about. We have automatic text generators, brings up a lot of problems for parts that, you know, people who produce text for a living, let's talk about it. Then we have over here, this claim that an LLM is going to take over an executive job. Or is going to, you know, and that's like, those are, those. Fall under scrutiny, it's really hard to get a compelling case over there. But if you throw enough darts at enough things, you create a miasma of unrest in which like it's hard to make out what the actual signals are not. So just everything, it's like a pox in all the houses. Everything is terrible. So that's my.

• 43:37Speaker 01

  No, I, I fully agree. And I also think the doom porn clearly gets clicks. It's just that I think that when this is all over and the bubble bursts, I think every single person who engaged in it should lose their job across the board. I know it sounds aggressive, but I think everybody who, I think everybody who engaged in the doom porn. And yeah, there were some people who try and tried to do it in good faith, but the ones who like the Axioses of the world, who genuinely sat there and fermented dread.

• 44:09Speaker 01

  They shouldn't be allowed to work in journalism for a minute. They should take a knee. They should, they should step aside for people who actually live in the real world.

• 44:15Cal Newport?

  It is a problem that we have to address. And I, maybe I talked about this on your show, uh, earlier this week, but I'm hearing from listeners and readers that again, they use terms like I'm stuck in a cage having wave after wave of despair or dread crash on me with no option, hope or of escape from it. And I just am taking wave after wave. There's a responsibility aspect to it, right? Like it is difficult for the normal person to be hit again and again, from all different angles. Well, what if this is terrible? What if this is terrible? What if this is terrible? And there's a, if there's smoke, there's fire mindset that we're wired for. And it's really, I think, been very unsettling. Again, I get unsettled by it and I actually know the technology and know that 98% of this

• 45:00Cal Newport?

  is really not well supported, but it's just emotionally difficult not to be having to just immerse yourself in wave after wave of everyone putting their full attention on what angle can I find it makes this seem the worst? Like, that's always the angle that things are coming from. It's never from the, well, this doesn't make sense. What happened to that? Well, where's all this revenue? Hey, what about this story from three months ago? Nothing happened of it. I mean, there was a guy who posted a video that I, I made fun of, and then he attacked me. When open claw first came out where he said, literally the singularity is here, like in the next few days, this is it. Look at this graph, line goes up, next few days, singularity is here. And I kind of made fun of him. And then he, he recorded a whole video attacking me about how crazy my takes are. And I just want to say, okay, it's been four months.

• 45:44Cal Newport?

  I don't see the robot army that was supposed to be there in a couple of days.

• 45:47Speaker 01

  Where you at?

• 45:49Cal Newport?

  Yeah.

• 45:49Speaker 01

  Where's, where's Ultra Claw? Where's the clawed bot that's gonna chop my goddamn head off? But that's the thing, it's like, I think that there is an actual theme above all of this. That is actually outside of the AI bubble as well, which is short-term memory and long-term memory. That just, people say stuff, things happen, and then they forget about them entirely. Like, remember the Claude Code marketing push at the beginning of this year? Like, it was The Atlantic that said, uh, this is the ChatGPT moment, and it had all sorts of people building useless apps. There was that whole surge of support for that. And now Anthropic is actively throttling their services. They are making their models worse, they are cutting off open claw.

• 46:34Speaker 01

  Nothing.

• 46:36Cal Newport?

  Yeah.

• 46:36Speaker 01

  No coverage, none of the, none of the people. Because you think, here's the thing that I have with AI boosters. Even if they fundamentally disagree with me about the economics and all, they don't even seem to engage with the problems. I don't even mean this in an antagonistic way. I mean, if I was a pro-AI person, if I was like, I don't know, I'd be, I have a big piece of metal in my head or something. I would, I saw some dickhead British guy being like, hey, they're losing billions of dollars. I would at the very least be like, I should probably look into this.

• 47:06Cal Newport?

  Yeah.

• 47:07Speaker 01

  I should probably make sure. And if I really like this stuff, then I saw the companies screwing over their customers. I'd be like, wow, doesn't that change the story a bit? Nope. Mainstream media, honestly, a lot of independent media just goes, eh, you know, it'll, something will happen. It's like, when it comes to the doom, they will extrapolate as far as they need to. When it comes to the capabilities, they'll go, yes, it's gonna be this powerful, that. When it comes to the things happening in real life, they're like, eh.

• 47:38Cal Newport?

  Complicated, yeah.

• 47:39Speaker 01

  You know, things happen, you know, it'll be all right, though. And when I say all right, I can't really tell you what that means, but it will be. When I say all right, I mean, everyone's going to make money. But not me, but the companies who I love for some reason. It's so weird.

• 47:53Cal Newport?

  That's hard.

• 47:53Speaker 01

  It's so weird.

• 47:54Cal Newport?

  That part confuses me. The the media class I'm a part of hates all billionaires, except for like these three.

• 48:01Speaker 01

  Yes, exactly.

• 48:02Cal Newport?

  I don't get that part. All right, story number three, this is in your wheelhouse. It has to do with the reality of the data center boom. I'll read you a quote from a futurism article that includes you in it, so be prepared.

• 48:13Speaker 01

  Nice.

• 48:13Cal Newport?

  The data centers powering your favorite AI chatbot are running low on helium, cash, and neighbors who don't hate them. And that's not even the worst of it. According to reporting by Bloomberg, about half of the data centers slated to open in the U.S. in 2026 will either face delays or outright cancellations. The publication interviewed analysts at market intelligence company Sightline Climate, which in research first flagged by Ed Zitron last week, noted that 12 gigawatts worth of power-consuming data centers are set to open in the U.S. this year. But here's the catch, they say only a third of those are actually under construction right now, with the rest in a liminal pre-production stage, in which they could and likely will be canceled. There's a huge story going on here that's not being covered outside of it's covered in Bloomberg in places where people really need to monitor like the private credit markets

• 48:57Cal Newport?

  and other things that could affect their investment portfolios. But it's not broadly broadly known beyond it. What's going on with this illusory data center boom?

• 49:05Speaker 01

  So every time you hear someone say, we're building a two gigawatt data center, real simple, just say, no, you're not. No, you're not. We don't know how long it takes to build a one gigawatt data center because no one has built one. I know that sounds crazy. No one has built one. But once again, and CNBC, I'm going to say, Mackenzie Singlos at CNBC, I'm specifically saying she has laundered the reputations of these companies because what happens is Stargate Abilene, OpenAI's 1.2 gigawatt, 1.2. They opened a single data center in September 2025. And then what was published was the Stargate Abilene was operational.

• 49:47Speaker 01

  Project Rainier, a 2.2 gigawatt data center in Indiana for Amazon.

• 49:54Speaker 01

  Fully operational, that's a quote from Amazon. No, it's not. 2.2 gigawatts is what they're saying. They claim to have half a million Tranium 2 GPUs, 500 watts apiece. That's about 250 megawatts. They claim they're up to a million now. That's 500, that's a lot less than 2.2 gigawatts. Because data centers take forever to build. We do not have the power. And people are saying, well, the power's getting built. That proves they're going online. Nah, the problem isn't that the power doesn't exist at all. It means the power doesn't exist at the point of need. So Sightline Climate, I actually caught up with them on a recent newsletter. Where they said that of the 115 gigawatts of data centers that are meant to come online

• 50:38Speaker 01

  by the end of 2028, only 15.2 gigawatts of them are actually under construction. Now, this is really weird because I did the math. This is napkin math, forgive me.

• 50:51Speaker 01

  When you look at these and you say, okay, they have a PUE, so the efficiency, so 1.35 efficiency, we'll call it. When you use that and you take that 15.2 gigawatt thing, you divide it by 1.35, it's about 10 gigawatts of pure GPUs. That's about $285 billion worth of Nvidia GPUs. Why am I saying this? Well, Nvidia claims that they have visibility into half a trillion in GPU sales by the end of 2026 and a full trillion by the end of 2027.

• 51:25Speaker 01

  Where are they going, Jensen? Where are the GPUs going, Jensen? Where are they? Where are they as well? Because Nvidia has sold-

• 51:35Cal Newport?

  It's just a billion people are building custom video gaming rigs at home. Come on, it's easy.

• 51:41Speaker 01

  I, well, actually, I think I know where they are. I think they're in Taiwan. Because, so, it's just very weird because what this means is that Nvidia has already sold too many GPUs. It has already sold more GPUs than are actually having data centers built for them. It's crazy. And this is the thing, I bring this up with journalists, I bring this up with economists, I bring this up with tons of people and they're like, nah, nah, it's fine. They're being built, what are you talking about? I'm like, look at the data, and they go, ah. It's always like a weird wave off, but this is like, this is the largest company on the stock market. And I think that their total revenue from the last few years is over $300 billion.

• 52:24Speaker 01

  And they're claiming that they'll hit half a trillion by the end of the year. They have half a trillion. I think that's just for the year. They keep saying these numbers as well that don't match up, but let's say they're true. And if Nvidia beats and raises, so they beat their earnings estimates from analysts again. I think we need to start asking a real question about what Nvidia is doing with these GPUs because talking to some hyperscaler accountants I know, there is a way that they could be doing this where they're able to book the revenue without sending anything. It's called a transfer of ownership. It's when you just sign a contract saying, yeah, you own these GPUs, they're sitting in my warehouse, but these are yours. And that counts legally. That's perfectly legal. It's very strange. And if they're not saying it, they should be filing an 8K.

• 53:10Speaker 01

  But Nvidia's inventories are growing on their earnings as well. So like it's a sign that something's been warehoused. But I spoke with a few sources and what it is, is when a hyperscaler, say Microsoft, they don't buy a GPU from Nvidia. They don't go, send me a GPU, I'll put it in a server. What they do is they work with someone called an ODM, an original

• 53:32Cal Newport?

  Equipment

• 53:33Speaker 01

  Manufacturer. No, it's original device manufacturer or design manufacturer. I think it's design manufacturer. They build the servers and they put the GPUs in there. Quanta, Foxconn, also known as Honhai Precision Corporation Limited. Hell yeah. I wish we had more normal names. Wistran, Wuyin, all sorts of companies out there. What they do is they, they, their revenues, all of these ODMs are going up crazy style because what they do is they pass the cost of the GPU through as revenue. They buy the GPUs from Nvidia, they put them in a server, they sell them to a Microsoft or an Oracle or a Meta or an Amazon. And then they say, yeah, it costs this much with the cost of the GPU in there. This allows Nvidia to hide a great deal of GPUs.

• 54:17Speaker 01

  Cause they're sitting in Taiwan. Uh, Quanta's inventories went up last quarter. I don't know if it's categorically because nobody's buying them and they're not being shipped, but For the most part, I think the Nvidia is just pre-selling years of GPUs and I don't know how this is not scary to people. Michael Burry brought it up briefly, weeks after I did, just to be clear, and no one seems concerned about this, when in fact, if there's only 15.2 gigawatts of actual capacity being built and 10 gigawatts of that are GPUs, Nvidia can't sell more GPUs unless it wants to put them in a warehouse.

• 54:57Cal Newport?

  Right.

• 54:57Speaker 01

  But to the larger abstraction of data centers not getting built as well, it's like, we're dealing with fraud then. If we've got 100 and something gigawatts of data centers being, being built, announced, but only 15 of those are actually under construction, and under construction can mean anything. It can mean a scaffolding yard, which is the case with N-Scales data center in Louton, England.

• 55:24Speaker 01

  Then that means fraud. That means that someone is doing fraud. That means that people are not actually building things, that people are likely buying land and speculating that a data center might get built there. Perhaps they'll file some planning paperwork, paying their CEO six figures the whole time. Fermi is a great example, Rick Scott's Fermi, building an 11 gigawatt data center out in, I forget, it's Project Matador. Don't worry though, they're not building anything. Have a patch of land, the CEO just left. They apparently didn't pay their contractors. Fraud.

• 55:56Cal Newport?

  So this-

• 55:56Speaker 01

  And, and this is the thing, everyone's talking about the AI boom with all this certainty, but the actual proof that things are happening isn't really there. In fact, and I, I did the maths and it turned out that over 50% of the data centers under construction through the end of 2028 are for OpenAI or Anthropic. Every time Anthropic announces, they just announced a 3.5 gigawatt deal of Broadcom chips. Where are they going? Where are they going? No one asks, no one thinks, no one tries. And the answer is they're not going anywhere. These chips probably will never get bought.

• 56:37Cal Newport?

  So, okay, so let's walk through this a little bit, right? So, so it sounds like, I mean, Nvidia is selling that they're selling them to these ODMs, right? So the ODMs are basically saying, we will, we're getting contracts and we'll keep buying chips because there's a lot of money in this market.

• 56:53Speaker 01

  I just want to be clear. This is how it's always worked. This is not a weird thing. This is how they build data centers. Continue, sorry.

• 57:01Cal Newport?

  Because there's a lot of interest in AI. There's a lot of money that's raisable in AI. So you have a lot of entities saying, I want to raise money for AI projects. This is leading to a lot of, we will now spend money on these ODMs to, hey, we want to buy X number of chips and set up in servers, but then there's nowhere to put them.

• 57:21Speaker 01

  I think I've muddied it up a bit.

• 57:23Cal Newport?

  Okay.

• 57:23Speaker 01

  So you've got two stories. The ODMs are, so when a hyperscale at Microsoft, they said $37.5 billion of CapEx last quarter. When they buy servers, they buy from the ODMs.

• 57:34Cal Newport?

  Yeah.

• 57:34Speaker 01

  ODMs then put them in a warehouse in Taiwan and they say, okay, when you're ready for the data center, let me know.

• 57:41Cal Newport?

  Yeah, and these data centers are taking longer than, or are harder to build than people realize. They've raised the money, they've made the orders, there's nowhere to put them, so the warehouses are piling up. Nvidia is like, hey, put them wherever you want. Like, we're getting our paychecks. Like, you can put them on a hot air balloon, we don't care.

• 57:56Speaker 01

  The dodgy thing with Nvidia, though, is that it's unclear because we're talking 100 billion plus GPUs that have nowhere to go, that have been sold, which begs the question of whether they're leaving Nvidia's warehouses at all.

• 58:12Cal Newport?

  Yeah.

• 58:12Speaker 01

  Because Nvidia could do accounting treatment that just goes, yep, this is yours now. And it's here. And so, but completely separate to that, because Microsoft, Amazon, Google, their data centers are being built, though they're taking forever. But even then, there's not enough not of capacity to install these GPUs. Then completely separate to that, over 100 gigawatts of data centers have been announced that are just not being built.

• 58:36Cal Newport?

  Yeah.

• 58:36Speaker 01

  And those are more than likely not hyperscaler ones. They are more than likely random fly by night operations. There are companies like Nebius, Nscale, Iron, these former crypto companies that have moved into AI.

• 58:49Cal Newport?

  Are they, I know they're, they're raising money. Are they spending money to the ODMs? Like there are chips somewhere in a warehouse, either the ODMs or the Nvidia's that they paid for, they just have nowhere to put them? Or are they just raising money and paying salaries until it fizzles out?

• 59:05Speaker 01

  Little column A, little column B. Hard to tell. I wouldn't be surprised if it's both. I think that there is, and when like a CoreWe, for example, they buy from ODMs like Core, uh, from like Dell and Super Micro, who recently had a co-founder arrested for selling chips to the Chinese. So that's cool. Um, but yeah, I think that there is a lot of, yeah, we're building a data center. Ah, you know, business is rough. We just got to find the land. Ah, we got to find the power now. That's going to take another three months. I'm going to need to make $650,000 a year. In fact, that's probably a fun thing to go and look at the companies in question and

• 59:47Speaker 01

  seeing what executive compensation is. But then there's also just the problem of data centers are hard to build.

• 59:53Cal Newport?

  Yeah. Well, this sounds like, this at least rhymes with the housing crisis, that the magnitude is a little bit smaller. And tell me if I have this right. Like my understanding of the, the, the financial crisis of the earlier 2000s is, okay, we have these.

• 1:00:09Cal Newport?

  In that case, financial product, these mortgage-backed securities. And people want in on those, right? Because they're making a lot of money selling these. They're making a lot of money reselling these. But you kind of ran out of mortgages. But everyone still wanted to get into this. But there's no more mortgages to put into mortgage-backed securities. So we say, well, we'll make, you know, these, these credit default options and these swaps. And we'll, we'll build derivative products on top of these. We just need things that we can keep selling because there was more money that wanted to be spent here than there was things to actually spend it on. And of course, once you had built out this giant house of cards built on leverage and bets on bets on bets, when the middle of the house couldn't support, the whole thing fell down. This feels like a simpler version of that. There's a lot of money out there that's like, we wanted to get into AI too.

• 1:00:51Cal Newport?

  Because every 16 seconds, we're getting an article about how it's the most powerful technology ever and is about to take over and take all of our jobs. So there's a huge amount of money that wants to go into AI. But there's not actually enough places to put it. And that seems like a summary of what's going on now. And literally, there's not enough land and buildings that can take the chips to put the chips in. So we have all this money being spent and Nvidia seems to be collecting a lot of it. But there's nowhere to put these chips. It seems to be what you're saying. It's just this way more money that wants to go into this market than there is actual investable assets to put the money into. And so shenanigans follow and you get a very fragile system. And this is why we're worried about the private debt market is beginning to teeter a little bit

• 1:01:35Cal Newport?

  because these, these investments aren't returning. Nvidia has so much of this money coming in with nowhere to put it. This feels like that's the core of instability. So what happens when some of these contracts fall apart and Nvidia has a fall and it's, you know, X percent of the stock market? Is that the right way of seeing it? It's like, it's, it kind of rhymes with the financial crisis in that sense.

• 1:01:54Speaker 01

  So here's the thing, I don't think it will be as bad.

• 1:01:57Cal Newport?

  It's not as much money at stake by far. And it's not derivatives. It's not bets on bets on bets. So it's simpler.

• 1:02:02Speaker 01

  Not yet. Yeah, with, that's the big thing. It's not derivatives. Private credit, the big scary thing there is like 30 to 40 is, is related to the software industry and software debt, which is a whole separate subject. You are right in that there is a massive amount of speculation happening here. To quote Gordon Gekko, I think from one of the Wall Street movies. Speculation is the root of all evil. Someone correct me whether it's Wall Street 2, Money Never Sleeps, but it's.

• 1:02:34Speaker 01

  It's weirder than that. This is unlike anything because it's a very centralized thing of Nvidia and Nvidia's continued value. And Nvidia's kind of load bearing eight percent, seven percent of the stock market. It's also very weird that it's one company effectively doing it, but the, there are hundreds of billions of dollars of data centers that are allegedly getting built and probably a maybe half of that, maybe seventy five percent of that is funded by debt. The private credit industry that's thing that's scary is that much of private credit is funded by retirement and insurance. So right now, I don't think data centers make up a ton of private debt. That's awesome. Like at least not a load bearing part. Yeah.

• 1:03:15Speaker 01

  I will say the actual housing crisis comparison I'd make is venture capital. And it's not related to, um, it's actually not related to data centers at all. So what it is, is AI venture capitalists get paid sometimes as a percentage of the fund's value, the assets under management, like any kind of asset manager. So AI companies right now are awesome for them because they get them and they're constantly got number go up so fast, so big, so huge. Because AI companies are fluffy right now and everyone has these AI companies. And in the subprime mortgage crisis, the way that people waved away the thing about, well, your interest rate's going to change in a year or six months was they said, well, I'll just refinance. Yeah.

• 1:03:57Speaker 01

  In the case of AI startups, Elad Gil, famous venture capitalist, yes, they said all AI startups should look to exit in the next twelve to eighteen months.

• 1:04:07Speaker 01

  And it's like, okay, well, why would you buy them? Because most AI startups are just wrappers for models. And you can't take them public because they lose a bunch of money. The subprime AI crisis I talk about is partially with companies not being able to run because the costs go up. It's also, you've got. What, like two hundred billion, three hundred billion dollars worth of venture capital tied up in AI startups that can't be sold?

• 1:04:32Cal Newport?

  Right.

• 1:04:32Speaker 01

  And how does that connect to data centers exactly? Well, data center customers, predominantly AI startups, predominantly two of them, Anthropic and OpenAI, but others as well. Curse has just signed a deal with XAI to rent GPUs, for example. What happens when all of those die? Who's going to pay your data center bills? Also, all the data centers are deeply unprofitable because of the horrible debt they require. It's just, it's not, it, it, like you kind of said, it rhymes, but it's not like for like. And again, I say, it's like, more people should be thinking about this. Even the people who are AI boosters should be thinking about this because this is an existential threat.

• 1:05:12Speaker 01

  This is not just a Ed's being a hater or Ed hates, it's like, the maths doesn't make sense. There's not enough space for the GPUs to get installed. There's not even things being built for half of them. If they manage to sell, if Nvidia sells like half a trillion dollars worth of GPUs in the next year, they're not going anywhere.

• 1:05:34Cal Newport?

  Yeah.

• 1:05:34Speaker 01

  In fact, I worked out mathematically based on their last quarter, it takes six months to install a single quarter's worth of GPUs. And I actually think it takes longer now.

• 1:05:45Speaker 01

  I, at some point, this falls apart and everyone's gonna act as if it was a big surprise and they shouldn't. The warning signs were there from the beginning.

• 1:05:53Cal Newport?

  Right, right. They literally, they cannot keep selling that many GPUs because you're, you're, you're where, there's nowhere to put them. And you're, you're building up such a supply, right? So then the two, I mean, it looks like what's inevitable is going to be two things, financially speaking. There's going to be a, a stock market hit and private, you know, retirement fund insurance hit. When the this game musical chair stops, which is going to probably lead to much more financial scrutiny, probably regulation on accounting within these companies. And then the venture capital firms, when they take the hit of like, oh, we couldn't exit these companies, which we're not otherwise going to be able to get an exit out of, if we don't get them sold right away, because again, it's hard to build a useful, profitable AI product.

• 1:06:38Cal Newport?

  You're going to get an AI winter. So they're going to be like, well, forget this. You're going to have a few years where it's going to be very difficult to get AI and investment. So I.

• 1:06:46Speaker 01

  I would actually reframe that slightly. I think what happens is, I think you're right about the stock market stuff. When it comes to the AI startup, I think what's going to happen is a fire sale moment. It's going to be a panic. You're going to hear about an AI startup, maybe perplexity, maybe lovable, that needs to sell. They're like, we need to, we need to get this out the door. And an equity, a funding round will fall through, then an acquisition path will fall through. The moment it becomes obvious that AI startups are trying to sell, everything will start collapsing. VCs will have to start telling their investments to sell. Sell right now. Get out of there. Except, when you look historically, AI startups do not get acquired.

• 1:07:31Speaker 01

  Windsurf, AI coding company, acquired by Google. Nope. They paid $2 billion for three people. The rest of them got sold to Cognition for a couple hundred million dollars, and most of them got laid off. What was it? Inflection AI to Microsoft, billion or so dollars. Mostly went to investors, mostly went to Mustafa Suleyman. What was the other one? Character.ai, bought by Google, several billion dollars, except that mostly went to the founders and some of the team, and of course, the investors. But the actual products are not getting acquired. The actual IP doesn't exist. So, when these things come to exit, I don't think it's going to be pretty at all. In fact, it's really easy to clone most of these companies because

• 1:08:16Speaker 01

  they're just wrappers for LLM models.

• 1:08:18Cal Newport?

  Right. And the top, the top minds, which is what is actually being acquired, they've all pretty much now, there's not that many left of truly innovative, you know, researchers in this space who are doing startups to get a, all the big companies have snapped them up for the most part. That's the issue. They're, you know, Dennis Asabi got snapped up by

• 1:08:38Cal Newport?

  Google, you know, the Hinton's company got snapped up. I mean, these companies have, there's only so many of these big, like, academic research minds, and they've all, for the most part, been, and sometimes it's very expensive to do. You had to buy and shut down their company to get them. But I, I hear your point. The problem is, yeah, you cannot, if you're a VC, assume, well, anything we fund will also get bought for a billion dollars because our founders are so brilliant. It's like, actually, the brilliant founders are all ready for the most part. Probably under contract, there's only so many of them and they're under contract with these companies. And if what you really have is the product yet, which is a point, and then we'll wrap it up after this, but I do think it's an important point is that like it is, we don't really know how to build very useful profitable products. That's the odd thing about this space. We

• 1:09:21Speaker 01

  Well, I mean, you can't.

• 1:09:22Cal Newport?

  There's a couple of popular products. The various coding harnesses like Claude Code etc. are popular among programmers, not a particularly profitable product space though, because they're expensive to run. The chatbots are popular in the sense that they have lots of monthly active users, but it's unclear that I don't imagine those are particularly profitable either, just because of the compute cost of people using them. And that's kind of it, I think is the problem. It's, it's, it's very difficult to have your wrapper company actually be a large concern. So that's interesting. Yeah. Yeah. So that could be, that's the story that underlies all these other stories. And I think it's

• 1:10:04Cal Newport?

  going to, if it's true, I think it'll surprise a lot of people because it's going to be biggest technology ever about to conquer everything, best technology ever about to conquer everything. AI went to stock market collapse, never mind.

• 1:10:14Speaker 01

  Yeah.

• 1:10:15Cal Newport?

  That will happen quick. If that happens, that's going to be, that will be an interesting moment. I think there's going to be a lot of frustration among the American populace of like, well, wait a second. If that happens, you spent two years trying to scare me. You spent two years of forget COVID. COVID is cold and flu season in terms of disruption. This is like World War II level impacts on our country. Like it's just, this is it. If it does fizzle into, not only fizzle, but basically the conclusion of it is that everyone's, you know, in retirement portfolio halves, and then that's that, that's not going to go well. I mean, that would have like political ramifications here in the US. I think you're going to see, you know, political parties rebuilding around how they think about these technologies. And maybe it won't happen, but

• 1:11:01Speaker 01

  I I am confident on my AI startup thing because every single AI startup is a wrapper of a model owned by someone else and every because the the core thing and then we can wrap up I apologize is that you cannot control the cost of a user with an L M. You can't do it.

• 1:11:16Cal Newport?

  Yeah.

• 1:11:17Speaker 01

  Uh, your mo- and also your most excited customers are the most expensive, which is antithetical to how a business works. And also, all of them are unprofitable.

• 1:11:27Cal Newport?

  Yeah, this is very different than even though the SaaS model is now falling apart for other reasons. It's a very different situation where at least what made that tech sector so desirable, for example, was this idea of you can just scale up profits infinitely. Everyone who pays $20 a month for this is $18 a profit and we can handle an unlimited number of users. And and that, of course, got a lot of private equity eyes bigger than their stomachs. Like, oh, great. We'll just build giant sales teams. And look, if line goes up like this with ten salesmen, what if we have 100? And, you know, but at least under the underlying profit mechanics made sense of it costs us negligently negligibly more to have 100,000 users versus 1,000 and it's massively more income.

• 1:12:09Speaker 01

  Hmm.

• 1:12:10Cal Newport?

  This is very different, you're saying, than L L M based AI. It's actually very expensive to service the users. And the more they use it, the more expensive it becomes. And that's a hard dynamic.

• 1:12:19Speaker 01

  Yes.

• 1:12:19Cal Newport?

  And more users doesn't make it cheaper.

• 1:12:22Speaker 01

  No, more expensive, in fact.

• 1:12:24Cal Newport?

  Yeah, it's unlike a gym or something like, great, more the merrier because very few people actually use it. It's actually the the opposite.

• 1:12:30Speaker 01

  Hmm.

• 1:12:30Cal Newport?

  All right, Ed. Well, a pleasure as always. Uh,

• 1:12:33Speaker 01

  Thanks for having me. Yeah.

• 1:12:34Cal Newport?

  Yeah, you always you always bring out the the radical in me, but I think it's it's it's we got to balance out. I think if people are hearing all day long, the strongest of boosterism. So it's good to check back in on some of these stories and give a less impressible take. So we'll have to do this again soon because there will be unfortunately no shortage of new stories coming out that we're going to have to react to.

• 1:12:55Speaker 01

  Thanks for having me, man.

• 1:12:56Cal Newport?

  All right. Talk soon.