SoftBank and OpenAI's Dangerous Game

In the second of this week's two-part series, Ed Zitron walks you through how SoftBank is mortgaging its future to keep OpenAI alive - and the dangerous consequences of over-funding an unprofitable, unsustainable company. --- 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 See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

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• 1:07Speaker 03

  Call Zone Media.

• 1:10Ed Zitron?

  Greetums, I'm Ed Zitron and this is Better Offline.

• 1:25Ed Zitron?

  In my last episode, I started by telling you about a report from the analyst wing of a major bank, TD Cohen, that revealed how Microsoft had drastically pulled back on its plans to build new data center capacity. At a bare minimum, Microsoft had canceled the equivalent of every data center in London or Tokyo. At least, the real figure is actually probably much, much higher. And as I pointed out, this is a real pale horse, a harbinger of bad times through generative AI and OpenAI especially, and an indicator that the bubble is imploding or popping. I really don't want to say it's popped, and I actually don't know if it's necessary to say when it does. It's never going to be one thing. I also mentioned that some may interpret this move as a response to OpenAI's Stargate project, which aims to build hundreds of billions of dollars of data centers and

• 2:10Ed Zitron?

  power generation facilities in the US, all to power generative AI apps and tools that I'm not sure actually there's really the demand for. But this begs the question, how feasible is the Stargate project? Let's start with a bit of background. The Stargate project was officially announced at the very beginning of the Trump presidency as OpenAI tried to court favor from the notoriously transactional and praise-hungry person of the United States of America. Despite that, the project has been in the works for some time and OpenAI had previously courted the Biden administration. Sam Altman's previous pitch to that administration late last year was that it was necessary to build a five-gigawatt data center. We don't know how big Stargate will be, just that it will initially involve spending $100 billion to, and I quote, "develop data centers for artificial intelligence in the US," according

• 2:54Ed Zitron?

  to the information, with the project potentially scaling to $500 billion, a truly fucking astoundingly stupid number. Stargate's first and only data center deal currently signed is in Abilene, Texas, and it's expected to be operational in mid-2026, though these centers usually become operational in phases. This is especially likely to be the case here, considering that, according to the information, OpenAI plans to have access to a gigawatt of power and hundreds of thousands of GPUs. As part of this, the Stargate project will construct a 360.5-megawatt natural gas power station, and as I said last episode, that one's about power. This power station is, as far as I can tell, still in the permitting phase. It'll be some time before Stargate breaks ground on the facility, let alone

• 3:37Ed Zitron?

  starts to actually generate power. Now, as for funding, things have got a little weird. Both OpenAI and SoftBank have committed to putting in either $18 billion or $19 billion each into the project. I've seen both numbers reported, by the way. Regardless, it's not that big a difference to worry about, especially with, well... The fact that OpenAI does not really have the money either way. What's a billion dollars when you don't have anything? The company is currently trying to raise $40 billion at a $260 billion valuation, with, to quote CNBC, "part of the funding expected to be used for OpenAI's commitment to Stargate." Now, I'm old enough to remember when this round was previously rumored to be valuing OpenAI at $340 billion and also at $300 billion.

• 4:20Ed Zitron?

  And SoftBank appears to be taking full responsibility for raising the round, including syndicating as much as $10 billion of the amount, which means they would include a group of other investors. Nevertheless, it certainly seems SoftBank will provide the majority of the capital, $30 billion, with CNBC reporting that it will be paid out over the next 12 to 24 months, with the first payment coming as soon as spring. SoftBank also has another problem. This one's, this one, I think even the least technical of you can understand. They also appear to not have the money. They don't have the money. They, not the money to give OpenAI, not the money for Stargate. It's a little bit of worrying math issues with this. According to the information, SoftBank CEO Masayoshi Son is planning to borrow $16 billion to invest in AI and may borrow another $8 billion next year.

• 5:06Ed Zitron?

  The following points, by the way, are drawn from the information's reporting, and I give serious props to Juro Osawa and Corey Weinberg for their hard work here. I attack the information sometimes with some of the framing, but they actually do some of the best reporting in tech journalism. Now, let's do some maths. SoftBank currently only has $31 billion in cash on its balance sheet as of December 2024. Its net debt, which despite what you think does not measure total debt, but rather represents its cash minus any debt liabilities, stands at $29 billion. They plan to use the loan in question to finance part of their investment in OpenAI and their acquisition of chip design firm Ampere. According to SoftBank's reported assets, its holdings are worth about $219 billion, so 33.66 trillion yen, for those of you who deal with yen, including stock in companies like Alibaba and ARM.

• 5:51Ed Zitron?

  On a side note, not every company in SoftBank's portfolio is an ARM or an Alibaba, like a good one. There are some real stinkers too, and I'm not just talking about the moribund carcass of WeWork. I recommend you look at, and I'll link to this in the episode notes, SoftBank's recent group report, which is linked in the spreadsheet like I just said, which is me reading a script out, little behind the curtain for you there. In particular, go to 29 in the report, which lists the 10 largest publicly traded companies in SoftBank's Vision Fund portfolio. Now how all of them, without exception, trade at a significant fraction of their peak market cap. In simpler terms, the 10 biggest companies in SoftBank's flagship tech fund are worth far, far less than their all-time high, and in some cases, worth less

• 6:32Ed Zitron?

  than one-fifth of their all-time high. If SoftBank liquidated its assets, and I admit this is a big if, and most likely a worst-case scenario situation, how big would their losses be? Separately, SoftBank has committed to a joint venture called SB OpenAI Japan and to spend $3 billion a year on OpenAI's tech for the various companies across its group. We'll talk about that later. But there's a napkin, Matt. Here's what SoftBank's agreed to. $18 billion or $19 billion really do not know in funding for the Stargate data center project, $3 billion a year in spend on OpenAI's software, and as much as $30 billion in funding for OpenAI paid over 12 to 24 months, according to the information. And by the way, $25 billion has also been reported, but the information reports that OpenAI has

• 7:17Ed Zitron?

  told investors that SoftBank will provide it at least $30 billion of the $40 billion they need. Jesus fucking Christ, can you imagine if this went into something useful? Anyway, what I'm getting at is that SoftBank has effectively agreed to bankroll the entirety of OpenAI's future, signing up for over $46 billion of investments over the next few years, and does not appear to be able to do so without selling its current holdings in valuable companies like ARM, or taking at least $16 billion of debt this year, representing a 55% increase of its current liabilities. Worse still, thanks to this agreement, OpenAI's future, both in its ability to expand its infrastructure, which appears to be entirely contingent on the construction of Stargate with Microsoft pulling out, and its ability to raise funding, which is also entirely dependent on SoftBank,

• 8:02Ed Zitron?

  And SoftBank, in this case where OpenAI is entirely dependent on SoftBank to live, must borrow money to give to OpenAI, a company that that only only loses money. On top of that, OpenAI also, on the money-losing front, anticipates it will burn as much as $40 billion a year by 2028, and projects to only turn a profit by the end of the decade after the build-out of Stargate, which I add is, like I said, almost entirely dependent on SoftBank, which has to take on debt to fund both OpenAI and the project required to theoretically make OpenAI profitable. How the fuck does this work? How does this work? How does this work? How does this work? How the fuck does this work?

• 8:47Ed Zitron?

  OpenAI, a company that spent $9 billion to lose $5 billion in 2024, requires so much money to meet its obligations, both to cover its stupid, ruinous, unprofitable, unsustainable operations, and the $18 billion to $19 billion that it committed to keep growing, that it has to raise more money than any startup has ever raised in history. $40 billion fucking dollars with the cast iron guarantee that it will need even more money within a year. Every goddamn month, Sam Walton has to go to someone and say, "My huge, beautiful company is so powerful, but it's weak and sick and frail. I need more money than you have today, and I'll need more money than you'll have tomorrow. My company is so sick and weak, but it's the most powerful company of all time." Sam flipping off... pisses me off. Imagine if this money went literally anywhere else.

• 9:32Ed Zitron?

  It could set it on fire, at least be fucking warm. SoftBank, on top of the $30 billion of funding and $3 billion a year of revenue it's committed to OpenAI itself, also has to cough up $18 billion for Stargate, the data center project that OpenAI will run, and get this, SoftBank will take financial responsibility for. $48 billion in cash, $3 billion in revenue, the latter of which, like all OpenAI's offerings, will lose the company money. OpenAI has no path to profitability, guaranteeing it will need more cash, and right now, at the time when it needs it more than it's ever needed it, SoftBank, the only company willing to provide it, and possibly the only company with the money to do so, has proven that it will have to go to great, possibly ruinous lengths to do so.

• 10:16Ed Zitron?

  If OpenAI needs $40 billion in 2025, how much will it need in 2026? $50 billion? $100 billion? Where is that money going to come from? While SoftBank might be able to do this once, what happens when OpenAI needs money in six to 12 months? SoftBank made about $15 billion of profit in the last year on about $46 billion of revenue. $3 billion is an absolutely obscene amount to commit to buying OpenAI's software annually, especially when some of it is allegedly for access to OpenAI's barely functional operator and mediocre deep research products. As per my previous podcasts and pieces, I do not see how OpenAI survives, and SoftBank's involvement only gives me further concern. While SoftBank could theoretically burn its current holdings to fund OpenAI in perpetuity,

• 11:00Ed Zitron?

  its ability to do so is cast into doubt by them having to borrow money from other banks to get both into this funding round and to get Stargate done. OpenAI burned $5 billion in 2024, a number it will likely double in 2025. And remember, the information reported that OpenAI was projected to spend $13 billion on compute alone with Microsoft in 2025, and has no path to profitability. SoftBank has already had to borrow to fund this round, and the fact they had to do so suggests its inability to continue supporting OpenAI without accruing further debt. OpenAI, as a result of Microsoft's cuts to data center capacity, now only has one path to expansion. Once it runs through whatever remaining build-out Microsoft has planned, that is, and that's

• 11:44Ed Zitron?

  Stargate, a project funded by OpenAI's contribution, which it's receiving from SoftBank, and SoftBank, which is also having to take out loans to meet its share. How does this work exactly? How does this continue? Do you see anyone else stepping up to fund this? Who else has got $30 to $40 billion to shit out every year? While the answer is Saudi Arabia, SoftBank's CEO Masayoshi Son recently said that he had "had, and I quote, not given Saudi ruler Mohammed bin Salman enough return," adding that he still owed him. That's really not the ideal thing you want to say after naming MBS. Nothing about this suggests that Saudi money will follow SoftBank's in anywhere near the volume necessary. As for the Emiratis, they're already involved through the MGX fund, and it's unclear how much more they'd be willing to commit.

• 12:31Ed Zitron?

  Really, really love, really, mate, buddy, fellow, how does this, how's this work? In my opinion, this OpenAI SoftBank deal is wildly unsustainable, dependent on SoftBank continuing to raise both debt and funnel money directly into a company that burns it, burns it by the billions every year, and is set to only burn more thanks to the arrival of its latest bullshit model. And if it had a huge breakthrough that would change everything, wouldn't Microsoft want to make sure they were building the data center capacity to support it? Hey, maybe they're not.

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• 14:14Ed Zitron?

  Now, perhaps this crazy level of spending would be necessary if OpenAI was still the leader in generative AI, and it was still meaningfully improving its capabilities year after year, or two year after two years. And I think we all know that that isn't the case. A few weeks ago, OpenAI launched GPT-4.5, its latest model that, well...

• 14:34Ed Zitron?

  This isn't brilliant. Sam Altman says, and I quote, "is the first model that feels like talking to a thoughtful person," which by the way is really funny. It's really funny to say it to be like, "Yeah, I have spent billions of dollars telling you that this bullshit is like a person, but this one really is. The other ones, not so much. I did not think that in the past." And it's not obvious what GPT-4.5 does better, or even really what it does, other than Altman saying it is a different kind of intelligence, and there's a magic to it that he has not felt before. Wow, wow, really, really inspirational stuff, Sammy. Fucking idiot. This was, by the way, in Altman's words, "the good news." The bad news was that, and I quote, "GPT-4.5 is a

• 15:19Ed Zitron?

  giant expensive model, adding that OpenAI was out of GPUs, but proudly declaring that it had had tens of thousands of GPUs in the week following, and would roll out to OpenAI's $20 a month plus tier, and that they would be adding hundreds of thousands of GPUs soon." Excited? Well, you shouldn't be. On top of a vague product set and indeterminately high compute cost, GPT-4.5 costs developers an incredible $75 per million input tokens, and those are the prompts and data pushed into the model, and a absolutely astounding $150 per million output tokens, and that's the output it creates. And that's roughly 3,000% more for input tokens and 1,500% more expensive for output tokens than GPT-4.0, for results that

• 16:00Ed Zitron?

  OpenAI's Andrew Capathie described as "a little bit better and awesome, but also not exactly in ways that are trivial to point to." And one developer described GPT-4.5 to Ars Technica as "a lemon," when comparing its reported performance to its price.

• 16:17Ed Zitron?

  Ars Technica also reported that GPT-4.5 was "terrible for coding," relatively speaking, and other tests showed that the model's performance was either slightly better or slightly worse across the board, with, according to Ars Technica, one success metric being that OpenAI found human evaluators preferred GPT-4.5's responses of a GPT-4.0 in about 57% of interactions. Wow, that's very underwhelming. So, just to be crystal clear, the biggest AI company's latest model appears to be even more ruinously expensive than its last one, while providing modest at best improvements and performing worse on several benchmarks than competing models.

• 16:55Ed Zitron?

  Very good. Despite these piss poor results, Sam Altman's reaction was to bring in hundreds of thousands of GPUs as a means of exposing as many as people as possible to his mediocre, ultra-expensive model. And the best that Altman has to offer is that this is the first time people have been emailing with such passion, asking OpenAI to promise to never stop offering a specific model. I am just gonna say this, that is a tweet and it never happened. Or it happened like, once. This is some girlfriend in Canada share. Sam Altman is washed. When all of this falls apart, remember, I said he was washed. Now, remember how I talked about OpenAI's lack of meaningful improvement? As a reminder, GPT-4.5 was meant to be GPT-5, but according to the Wall Street Journal, continually failed to make a model that advanced enough to justify the enormous cost.

• 17:40Ed Zitron?

  With a six-month training run costing $500 million, and GPT-4.5 requiring multiple runs of different sizes. So yeah, OpenAI spent hundreds of billions of dollars to make this. Great stuff! And I haven't even mentioned the company's purported agent products, and no, I'm not talking about Operator, which is also dogshit, by the way. OpenAI wants to create tiers of AI agents, with the cheapest costing $2,000 a month, and capable of handling administrative tasks, and the most expensive costing $20,000 and having PhD level. Look, I wrote this script, alright? And I'm gonna be honest, I can't even read that sentence with a straight face. Operator cannot even search TripAdvisor properly.

• 18:24Ed Zitron?

  It can't even do a thing that LetMeGoogleThatForYou does. And these chunderfuck's wanna charge $2,000 a month for an agent that does what? Does some sort of, what's it do? Oh, $20,000 for something with PhD-level capabilities? I think all the people with PhDs listening to this have just stood up and gone, "I have an idea." And this is insane on many levels, not simply because the base product is undercut by actual human workers in many parts of the world, and even PhD students are typically only paid $20,000, $30,000 a year on average. And even people with actual doctorates in industries rarely earn $20,000 a month unless they're working in Silicon Valley or occupying a C-suite job. But forget all about that, what does it mean to have a PhD-level agent?

• 19:06Ed Zitron?

  Remember, LLMs are guessing machines, they don't know anything, or even understand the concepts behind the words they spit onto a page. No, seriously, Sammy, what does it mean? I'm fucking waiting. You damp goblin. You piss ant. Ah, maybe I shouldn't just sit here insulting him. Wanker. Anyway, this, by the way, is the company that is about to raise $40 billion led by a Japanese bank that has to go into debt to fund both their operations and the infrastructure necessary for them to grow any further.

• 19:38Ed Zitron?

  Again, as we started with, Microsoft is cancelling plans to massively expand its data center capacity right at a time when OpenAI just released its most computationally demanding model ever. How do you reconcile those two things without concluding either that Microsoft expects GPT-4.5 to be a flop, although it's simply unwilling to continue bankrolling OpenAI's continued growth? Or perhaps it's having doubts about the future of generative AI in general? Hmm. Maybe?

• 20:08Ed Zitron?

  Now, I have been and remain hesitant to call the bubble bursting, because bubbles do not burst, really. They certainly don't burst in neat little events. Nevertheless, my pale horses I predicted in the past were led by one specific call, that reduction in capital expenditures by a hyperscaler was a sign that things were collapsing. Microsoft walking away from over a gigawatt of data center plans, equivalent to as much as 14% of its current data center capacity, is a direct sign that it does not believe that growth is there in generative AI, and thus they are not building the infrastructure to support it, and indeed may have overbuilt, something that, as I've mentioned, that Microsoft CEO Satya Nadella has directly foreshadowed in his interview with Dwarkesh, an otherwise extremely boring and waste of an hour of your life. The entirety of the tech industry

• 20:53Ed Zitron?

  and the AI bubble has been built on the assumption that generative AI was the next big growth vehicle for tech, and if Microsoft, the largest purchaser of Nvidia GPUs and the most aggressive builder of AI infrastructure, is reducing capacity, it heavily suggests that the growth is not there. Microsoft has, by the looks of things, effectively given up on further data center expansion, at least at the breakneck pace it once promised, and that even suggests that generative AI will be a thing in a few years. Definitely not at the scale it is right now. AI boosters will email me and they'll say, there's something that I don't know, that in fact Microsoft has some great strategy and some efficiency play. But answer me this, why is Microsoft cancelling over a gigawatt of data expansion? And again, this is the most conservative estimate. The realistic number is much, much

• 21:38Ed Zitron?

  higher. Do you think it's because it expects there to be this dramatic demand for their AI services? Do you think it's reducing supply because of all the demand? Now, you might think that this is an efficiency play. They're playing with DeepSeek, right? No, sorry, that doesn't matter. Even if DeepSeek was this magical efficiency play, which it may or may not be, I actually think it is more efficient. Like, that's true, but we actually don't know if it's profitable. Even then, they've been talking about not having the capacity to deal with demand. They've been talking about how incredible this is. They've been talking about how big this is gonna be. This sounds like they don't think it's gonna be big, gonna be big even. It's gonna be big. They're gonna get my ass in the comments on that one.

• 22:20Ed Zitron?

  Now, one might argue that Microsoft's reduction in capacity build-out is just a sign that OpenAI is moving its compute elsewhere. Um, maybe that's true. And if Stargate ever gets built, which I question anyway. Here are some questions to ask. Microsoft still sells access to OpenAI's API through Azure. Does it not see the growth in that product? Do they not see it? They're not expanding? Is the growth not there? And Microsoft still, one would assume, makes money off of OpenAI's compute expenses, right? Or is that not the case, due to the vast 75% discount that OpenAI gets on using its services? I have been told that it's very close to the wire by sources, but I can't say it. But you'd have to just look at the fact that they do actually do that. That was reported by the information. Look, look, look, look.

• 23:06Ed Zitron?

  "Microsoft making such a material pullback on data center expansion suggests that the growth in generative AI products, both those run on Microsoft servers and those sold as part of Microsoft's products, do not have the revolutionary growth trajectory that both CFO Amy Hood and CEO Satya Nadella have been claiming. And this is all deeply concerning, while also calling into consideration the viability of generative AI as a growth vehicle for any hyperscaler. If I am correct, Microsoft is walking away not just from expansion of its current data center operations, but from generative AI writ large. I actually believe it will continue selling this unprofitable, unsustainable software, because the capacity it has right now is more than sufficient to deal with this incredible lack of demand. It's time for investors and the general public to begin demanding tangible,

• 23:52Ed Zitron?

  direct numbers on the revenue and profits related to generative AI, as it is becoming increasingly obvious that the revenues are small and the profits are non-existent. A gigawatt of capacity is huge, and walking away from that much capacity is a direct signal that Microsoft's long-term plans do not include needing a great deal of compute." One counter could be that it's waiting for more of the specialized Nvidia GPUs to arrive, to which the response is, "Microsoft still wants to build the capacity, so it has somewhere to fucking put them." Again, these facilities take anywhere between three and six years to build. Do you really think Blackwell will be so delayed that they won't arrive until, what, 2028? What are you talking about? If I'm even alive, then. Anyway. One counter could be that there isn't the power necessary to power these data centers,

• 24:33Ed Zitron?

  and if that's the case, it isn't, but let me hear the, hear me the idea, then the suggestion is that Microsoft is currently changing its entire data center's strategy so significantly, and they now has to issue over a gigawatts worth of statements of intent across the country to different places because of more power? There's, there's more power in those places, less than? Did they make a, like a gigawatt worth of mistakes?

• 25:08Speaker 05

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• 25:36Speaker 02

  Empower is all about helping you invest well, so you can go out and live a little. And their free Empower Personal Dashboard shows you your full financial life in one place. You'll be able to see your net worth, monitor budgets, analyze your portfolio, set retirement goals, and more. Whether you're saving for something big, want to treat yourself, friends, or family, or meet long-term goals, Empower helps you see where you stand. You've worked hard for your money, and Empower can help you make the most of it. Download the Empower Personal Dashboard or visit empower.com. Not an Empower client paid or sponsored.

• 26:12Ed Zitron?

  Now, okay. Another counter is that I'm only talking about leases and not purchases. In that case, I'll refer you to this article from CBRE, which is linked in the spreadsheet for this episode, which includes an elucidating read on how hyperscalers actually invest in data center infrastructure. Leases tend to account for the majority of spending simply because it's less risky. A specialist takes care of the tough stuff: location, buying land, handling construction. And the hyperscaler isn't left trying to figure out what to do with the facility when it reaches the end of its useful life cycle. I also expect someone to chime in and say, "Well, that's just Microsoft. What about Google and Amazon?" Get out of my house! I'd counter and say that these companies are comparatively less exposed to generative AI. Amazon has invested $8 billion in Anthropic,

• 26:54Ed Zitron?

  which is a bit less than half of what Microsoft has reportedly invested in OpenAI, which amounted to about $14 billion as of December. When you consider the discounted Azure rates Microsoft offers to OpenAI too, the real number is probably much, much higher. Google also has $3 billion in Anthropic in addition to its own AI services like Gemini. OpenAI, as I noted in my last newsletter, is pretty much the only real generative AI company with market share and significant revenue, although I once again remind you that revenue is not the same thing as profit. And this is true across mobile, web, and likely its APIs too. Similarly, nobody has quite pushed generative AI as aggressively as Microsoft, which has introduced it to an overwhelming number of its paid products, hiking prices for customers as it goes.

• 27:37Ed Zitron?

  I suppose you could say that Google has pushed GenAI into its workspace products as well as its search products, but the scale and aggression of Microsoft's push feels different. That, and as I've mentioned repeatedly, they are the largest purchaser of Nvidia GPUs by nearly twice as many, 485,000, as its nearest competitor Meta, which bought 224,000 in 2024.

• 27:59Ed Zitron?

  Ultimately, Microsoft has positioned itself at the heart of generative AI, both through its own strategic product decisions and its partnership with OpenAI. And the fact that it's now scaling back on the investment required to maintain that momentum is, I believe, pretty significant. I also recognise that all of this is a big juicy steak for someone. Some people call a pig or an animal or a monster or an AI cynic. Look, I've pored over this data repeatedly and done all that I can to find less convenient or satisfying conclusions. Letters of intent are likely the weakest part of my argument. These are serious documents, by the way, but they're not always legally binding. Neither are those statements of qualifications, but as TD Cohen pointed out, SQQs are generally treated as the green light to stop working on construction, even though a formal lease agreement hasn't yet been signed.

• 28:43Ed Zitron?

  And to be clear, Microsoft let an indeterminate amount of SQQs go. Nevertheless, it's incredibly significant that Microsoft is letting so many, the equivalent of as much as 14% of its current data center capacity at a bare minimum, on top of the couple hundred, so at least 200 megawatts of data center leases, become cancelled. I do not know why nobody else has done this analysis. I've now read every single piece about the TD Cohen report from every single outlet that covered it. I've read some weird SEO stuff. It's not good. And I'm just kind of astounded by the lack of curiosity as to what 1GW plus means in a report that meaningfully moved markets, as I'm equally astonished by the lack of curiosity to contextualize most tech news.

• 29:27Ed Zitron?

  It's as if nobody wants to think about this too hard, like nobody wants to stop the pie. Nobody wants to accept what's been staring us in the face since last year, if not earlier. And when given the most egregious glaring evidence, people still must find ways to dismiss it or ignore it rather than give it the energy it deserves. Far more resources were dedicated to finding ways to gussy up the releases of Anthropic's Claude Sonnet 3.7 or OpenAI's GPT-4.5 than were given the report from an investment bank's research wings that the largest spender in generative AI, the largest backer for now of OpenAI at least, is massively reducing its expenditures and data centers required for the industry and for OpenAI, a company ostensibly worth $157 billion, to expand.

• 30:11Ed Zitron?

  Microsoft's stake in OpenAI is a bit fuzzy as OpenAI doesn't issue traditional equity and there's a likelihood it may be diluted as more money comes in. It reportedly owned 49% in 2023 though. Assuming that's still the case, are we to believe that Microsoft is willing to strangle an asset worth at least $75 billion, several times more than its investment to date, by cancelling a few leases? How many more alarms do we need to go off before people recognise that something bad is happening? Why is that tangible, meaningful evidence that we're in a bubble and possibly a sign that it might be popping less interesting than the fact that Claude Sonnet 3.7 can think longer? And if you're listening to this and you think I'm talking about you, I fucking am. I am sick of this shit. I am absolutely sick of this shit.

• 30:56Ed Zitron?

  I'm sick of reading articles like that when far more important and scary and damning things are happening, things that actually matter. I don't care if Wario Amadei has allowed you to make it compute for longer. It doesn't matter compared to this. It does not matter compared to a gigawatt or more of capacity going. And I'm sick of this. I'm sick of me having to be the guy sometimes. I do not say these things to be right. I don't want to be a cynic or a hater. I say this all because I am trying to understand what's going on and if I do not, I will actually go insane. Every time I sit down to write my newsletter or record this podcast, I'm doing it because I'm trying to understand what's happening and how I feel about it. And these are the only terms that dictate my creativity. It just happens that I've stayed at the tech industry for too long and now I can't look away.

• 31:41Ed Zitron?

  Perhaps it's driving me mad or maybe I'm getting smarter or maybe it's an Arnold Palmer of the two. But what comes out of my work is not driven by wanting to go viral or having a hot take or be a renowned skeptic or being right or being anything, because such things suggest that I would do this differently if three people listened versus, I actually can't say the amount of people that do, I have rules, but 57,000 people subscribe to my newsletter, extrapolate from there. I would do the same goddamn thing. And in fact, if you look back in my work, I've done the same thing from the beginning. Now, I'm not saying that Microsoft is dying or making any grandiose claims about what happens next. What I am describing, however, is the material contraction of the largest investor in data centers, according to T D Cohen, potentially at a scale that suggests

• 32:26Ed Zitron?

  that Microsoft has meaningfully reduced its interest in further expansion of data centers writ large. This is a deeply concerning move, one that suggests that Microsoft does not see demand sustain the current expansions, which has greater ramifications beyond generative AI, because it suggests that there isn't any other reason for it to expand the means of delivering software. What has Satya Nadella seen? What is Microsoft CFO Amy Hood doing? What is the plan here? And really, what's the plan with OpenAI? SoftBank has committed over $40 billion of costs that it currently cannot afford, taking on as much as $24 billion in debt in the next year to help sustain one more funding round and the construction of data centers for OpenAI, a company that loses money on literally every single customer.

• 33:11Ed Zitron?

  To survive, OpenAI must continue raising more money than any startup has ever raised before, and they are only able to do so from SoftBank, which in turn must take on debt. OpenAI burned $5 billion in 2024 and will likely burn $11 billion or more in 2025, and will continue burning money in perpetuity, and to scale further will require funding for a data center project funded partially by a funding from a company that's taking on debt to fund them. And when you put this all together, all I can see is calamity. Generative AI does not have meaningful mass-market use cases, and while ChatGPT may have 400 million weekly active users, there doesn't appear to be meaningful consumer adoption outside of ChatGPT, mostly because almost all AI media coverage inevitably ends up

• 33:52Ed Zitron?

  marketing one company, OpenAI. Argue with me all you want about your personal experiences with ChatGPT or how you personally found it useful. I don't care. I stopped listening a while ago. Your points never prove anything. That doesn't make it a product with mass-market utility or enterprise utility or worth the vast sums of money being plowed into it. Worse still, there doesn't appear to be any meaningful revenue. As discussed in my last episode, Microsoft claims $13 billion in annual recurring revenue, not profit, on all AI products combined on over $200 billion of capital expenditures since 2023, and no other hyperscaler is willing to break out any AI revenue at all. Not Amazon, not Meta,

• 34:31Ed Zitron?

  not Google, nobody. Does that not worry anyone? Is anyone listening to this who actually, like, deals with the economy? Can you please listen to me so we don't... Actually, I don't know what we do. I actually don't know. I have no idea.

• 34:48Ed Zitron?

  Where's the growth? Where's the money? Where's the money, Sammy? Where is it? Where's my money, honey? Give me the money, Sam Altman. Where's my money? Why is Microsoft cancelling a gigawatt of data center capacity while telling everybody that it didn't have enough data centers to handle demands for its AI products? Hmm, I suppose there's one way of looking at it. Microsoft may currently have a capacity issue, but soon won't, meaning that further expansion is unnecessary. If that's the case, it'll be interesting to see whether their peers follow suit. Either way, look, I see nothing that suggests that there's future growth in generative AI. In fact, I think it's time for everybody to seriously consider that big tech burned billions of dollars on something that nobody ever wanted or would pay for.

• 35:30Ed Zitron?

  If you listen to this and scoff, I don't know, what should I have talked about? Anthropic adding a sliding thinking bar to a model GPT-4.5? Who gives a shit? Can you even tell me what it does differently to GPT-4O? Can you explain to me why it matters? Or are you more interested in nakedly captured imbeciles like Ethan Mollick sweatily oinking about how powerful the latest ask and shit?

• 35:52Ed Zitron?

  It's like no one's interested in the things happening in the real world. It's like nobody's thinking about the silicon and the infrastructure and how things actually get built. Wake the fuck up, everybody. Things are on fire.

• 36:12Ed Zitron?

  Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Matt Osowski. You can check out more of his music and audio projects at mattosowski.com. M A T T O S O W S K I dot com. You can email me at [email protected] or visit betteroffline.com to find more podcast links and of course my newsletter. I also really recommend you go to chat dot where's your ed dot at to visit the Discord and go to r slash better offline to check out our Reddit. Thank you so much for listening.

• 36:44Speaker 03

  Better Offline is a production of Cool Zone Media. For more from Cool Zone Media, visit our website, coolzonemedia.com, or check us out on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

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• 38:21Speaker 00

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