Monologue: What The Hell Are The Hyperscalers Doing?

In this week's Better Offline monologue, Ed Zitron runs through how hyperscalers have wasted $1.1 trillion in capex on AI in a desperate attempt to sustain hypergrowth, and report on how without OpenAI’s claud spend, Microsoft Azure would’ve only grown 8% year-over-year in 2025. The Subprime Data Center Crisis: https://www.wheresyoured.at/the-subprime-data-center-crisis/ Nik Suresh: AI Is Eviscerating Global Decisionmaking https://ludic.mataroa.blog/blog/ai-mania-is-eviscerating-global-decision-making/ To celebrate the one year anniversary of the premium newsletter, I’m offering a sale on one-year subscriptions. Between now and midnight July 26, you can get a permanent annual rate of just $60— a $10 discount on the usual price of $70 - for life - https://edzitronswheresyouredatghostio.outpost.pub/public/promo-subscription/N9bqSLKBoS?ref=wheresyoured.at YOU CAN NOW BUY BETTER OFFLINE MERCH! Go to https://cottonbureau.com/people/better-offline and use code FREE99 for free shipping on orders of $99 or more. --- LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/ Discord: chat.wheresyoured.at https://discord.com/invite/QUUQUP9szv Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitron https://bsky.app/profile/edzitron.com https://www.threads.net/@edzitron Email Me: [email protected] mailto:[email protected] See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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• 2:04Speaker 04

  Superposition, fear, and jealousy. Welcome to this week's Better Offline Monologue. I'm your host, Ed Zitron.

• 2:22Speaker 04

  As ever, please subscribe to the newsletter. We're running a one-year anniversary deal right now. The link will be in the episode notes. And we're giving you 10 bucks off the annual rate for life. And even if you die and come back to life, I'll give it to you anyway. The deal runs through midnight on Sunday, but if you happen to hear this after this point, email me at [email protected] or [email protected] for the British and Canadians in the audience, and I'll sort you out. I'm generous like that. And I love my premium mates. Really, some of the best analysts work out there. It's very deep. I've got the terminal going now and pulling all sorts of data. The many numbers I read every week are driving me truly insane. And with that in mind, today's monologue starts with a simple question. What the fuck are hyperscalers doing?

• 3:05Speaker 04

  Now, I realize I've asked this question maybe 100,000 times in the last two years, but it's begun to get so incredibly stupid that I'm actually a little exasperated. McKinsey Sporn and Google CEO Sundar Pichai announced in Wednesday's earnings that Google would raise its year-end capital expenditures to somewhere between $195 billion and $205 billion after burning $80.6 billion in the first half of the year. And this suggests that Google will spend another $114 billion by the end of 2026. They're going to be doing like $55, $60 billion a quarter. It's fucking insane. It's fucking stupid. I'm sorry for swearing, but it's absolutely deranged. What are you doing, Sundar?

• 3:46Speaker 04

  You've already spent $288 billion in capex since 2022, and all you've got to show for it is several also ran LLMs and one indeterminately large customer in Anthropic, who you've also invested $13 billion in. Now, one answer might be that Anthropic helped juice Google Cloud's growth by 82% year-over-year in this quarter. But considering that Google doesn't actually break out how much of that is from AI or from Anthropic, or really from anything, it's difficult to say what exactly this money is doing other than turning its free cash flow negative for the first time since Google went public. While I can't say for sure how much Anthropic is spending, I do believe it's taking up the vast majority of Google's AI infrastructure and representing most of its cloud growth.

• 4:30Speaker 04

  Google Cloud was, up until fairly recently, last year or so, a much smaller business than Microsoft Azure or Amazon Web Services, and had been growing somewhere between 22% and 30% year-over-year, hitting 33.9% year-over-year growth in the third quarter of 2025. That very same quarter, Google and Anthropic announced a deal to expand its use of TPUs, which is Google's special GPUs, in a contract worth, and I quote, "tens of billions of dollars." Mysteriously, can't imagine how, Google's next three quarters of cloud revenue growth showed 47.7%, 63.4%, and 82.1% year-over-year growth. Whatever could that be? Where did that come from? I can't work it out, can you, dear listener? What could it possibly? It's Anthropic.

• 5:15Speaker 04

  It's Anthro-- it's obviously Anthropic. Except, in those same quarters, Google's capital expenditures went up 95%, 107%, and 100% year-over-year, absorbing every dollar of cloud revenue and then some. In fact, outside of the fourth quarter of 2024, Google's capital expenditures have outpaced cloud growth by at least 12% year-over-year for two goddamn years. And if your pushback is, well, Google's spending that capex on something else? No, they're not. They're not. Maybe they got a couple Billy coming in from Google Workspace and cucking their various subscribers with annoying things. It's coming from Anthropic. Google is not making that money from Gemini. Your arse must be crazy if you think that's the point.

• 6:00Speaker 04

  But all of this begs the question, when exactly does all of this pay off? How does it pay off? What does the payoff even look like? And why am I one of the few people asking these questions? Hyperscalers have now spent, I estimate, about $1.1 trillion. I haven't seen Amazon and Microsoft's quarters yet, but I'm going to guess they spent a good amount on capex. They now spent $1.1 trillion bloody dollars on capital expenditures. And when you ask them to tell you how much revenue they made from said expenditures, they look at you like that meme of Brendan Fraser from The Whale. Anyway, here's a fun fact for you. Thanks to my own reporting on OpenAI's auditive financials, we know that it spent $17.2 billion

• 6:41Speaker 04

  on Microsoft Azure in calendar year 2025, a year when Microsoft's Intelligent Cloud segment made $120.4 billion in revenue. The segment grew as a result 26% year-over-year. Yeah, I'm a curious little Chris, so I ran the numbers, and OpenAI's revenue represented 14.3% of all Microsoft's cloud revenues for that period. And to be clear, it's calendar year 2025. They have a fiscal quarter thing, but I went and worked it out. But this means that OpenAI's money represented 18% of the year-over-year growth of Microsoft's cloud. Without it, their cloud revenue growth was a mere 8% year-over-year. That's pathetic. That's abominable. That's barely keeping up with inflation. That's dogshit, Satya.

• 7:25Speaker 04

  Satya, you should be ashamed of yourself. Satya, come on my show so I can ask you very reasonable questions. I'll be nice, I swear. You won't. You're scared, just like the rest of them, just like Clammy Sam or one-- Clamuel. Your public relations people said you're too scared to speak to me. Well, they said you wouldn't speak to me, and I know you're scared. Same with Weird Dario. Where are you, boys? You're too scared of Better Offline. Anyway, enough of the Trump voice, though. There is actually a reason that hyperscalers are still spending all that capex. OpenAI and Anthropic allow hyperscalers to boost growth by feeding their own money back into their businesses, a short-term solution to the long-term problem of the end of the era of hypergrowth. One of the reasons they're so shy about AI revenues is that they know it'll become

• 8:10Speaker 04

  obvious where those revenues are coming from. Two unprofitable and unsustainable AI labs, and a little trickle, little spurt from AI services they dump on their enterprise customers through confusing subscriptions, upsells, and just adding AI to random things and being like, "Look, folks, don't we love this? Don't you all love this, you little shits?" And hyperscalers also know that the second they cut their capex spend, the AI trade unwinds. If Microsoft, Google, Amazon, and Meta aren't buying hundreds of billions of dollars of GPUs a year, that means Taiwanese server manufacturers like Quanta and Hon Hai won't sell as many servers and thus won't need as many GPUs.

• 8:52Speaker 04

  Broadcom and Nvidia won't need as much high-bandwidth memory for those TPUs and GPUs, and data center speculators across the world will suddenly realize that they conflated hyperscalers being stupid with their money with the existence of massive amounts of demand for AI compute. But another way, hyperscalers are doing kayfabe to keep the crowd riled up. Everybody's slowly working out that the wrestlers aren't really hitting each other and everything is scripted. I also should add, I can just anticipate I'm going to get an email from someone being like, "Well, actually, this is good. The capital expenditures are good because it showed growth, even though it's short-term." That's a silly, silly perspective to take, considering they're feeding all the revenues back into the business in the capex for stuff that won't be useful in the future. Mathematics, my friend. Try it sometime.

• 9:38Speaker 04

  Anyway, it is a funny old time for me right now because I feel like I'm on three or four podcasts or TV shows or interviews a week as the system appears to be trying to cover its ass by having me on to explain stuff I said two years ago, but a little more insistently and clearly than before. While the mainstream media seems hesitant to fully commit to the graveyard smash of the AI bubble, it feels as if there's a conscious attempt to represent my work as more than just the other side, or a hater, or a skeptic, or a cynic, which is both edifying and enraging because we are now so far past the point of no return. I mean, yeah, we really can't avoid what's coming. As I wrote in my newsletter this week, I think there's a subprime data center

• 10:22Speaker 04

  crisis brewing right now with over $500 billion in data center SPVs that can only ever make investors whole if there's hundreds of billions of dollars of AI compute demand in the next two years. And to be clear, when I say hundreds of billions of dollars demand, I mean a year. I mean literally a year. I ran the numbers and for the, what I think is 190 gigawatts of supposedly planned data centers, you'd need 1.6 trillion dollars a year in annual compute revenue to make it worth worthwhile. And by the way, the global software market is under $800 billion a year. So don't know where that fucking money's coming from. And no one else seems to really want to think about it. And I deeply worry about what happens when the demand doesn't arrive as these

• 11:03Speaker 04

  data center debt deals are often funded by private credit funds, which are in turn funded by both public and private pensions and insurance funds. Anyway, do read the free newsletter to learn more. It is free, this one. I have a premium one coming out today that will be about, well, the fact that Oracle's dying, which I mean, hey, you in the back, stop laughing. Stop it. Poor Larry Ellison. Poor, who gives a fuck. In all seriousness, though, it's going to be a banger. The free one's a banger. There's bangers everywhere. And I'll be back next week with my good friend Nik Suresh to talk about how AI mania is eviscerating global decision making, creating a cult-like environment where one's participation in AI is almost a religious act. And if you talk badly

• 11:45Speaker 04

  about AI, it's considered a carnal sin, or a cardinal sin, one of those two. Sure, one of you will correct me on this one. Nevertheless, it's a really, it's based on this incredible piece he wrote. I can't wait for you to read it. I can't wait for you to me talk to him. Oh, no, can't wait for you to consume my content. What a peculiar thing to say. Anyway, I'll catch you next week. Zitron out.

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