The Enshittifinancial Crisis: Part Three

In part three of this week’s four-part Better Offline Enshittifinancial Crisis special, Ed Zitron walks you through how the imaginary demand for AI compute is setting up every single data center developer for disaster - and how many major banks will be caught in the contagion. This series was a ton of work, so please support me by subscribing to my premium newsletter - here’s $10 off your first year of annual https://edzitronswheresyouredatghostio.outpost.pub/public/promo-subscription/84rt762qen Read along with the newsletter version for links! https://www.wheresyoured.at/the-enshittifinancial-crisis/ 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.

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

• 0:00Speaker 00

  This is an iHeart Podcast. Guaranteed Human.

• 0:04Speaker 01

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• 0:36Speaker 02

  Call Zone Media.

• 0:39Ed Zitron?

  Hi, I'm Ed Zitron and welcome to Better Offline.

• 0:51Speaker 04

  Better Offline.

• 0:54Ed Zitron?

  That's right, folks. We're back for the third part of our four-part series about the terminal stage of the insurification process, the insurification of the financial markets. So far, we've talked about the insurification of the stock market, the complicity of the analysts and the media, and how venture capital will be the canary in the coalmine for any eventual collapse. Venture capital is both the perpetrator and the victim of the air bubble, and it's worth exploring how it came to this point. Now, hang on, I need a channel voice. Folks, we haven't seen values this big in a long time. It's the biggest numbers we've ever seen. They're simply tremendous. Open Air is maybe worth 830 billion. Can you believe that? They lose so much money, but folks, we don't mind. Clammy Sam open. They call him Clammy or tells everybody he's gonna give them $1 billion a month. We love him. Deadlifts are gonna have the biggest deals we've

• 1:39Ed Zitron?

  ever seen, even, even if we have to work with Dario. Sorry to those of you who don't like that voice. It was only about 30 seconds. You see, right now, AI startups are big, exciting news for the limited partners funding large language model companies. Things feel exciting because the value of the assets under management, AUM, are going up, which is nothing dodgy, per se, but it's just how VCs value things. And if they're valuing AI stocks, well, that's how their fees are getting paid because the thingies they've invested in are worth more money and now limited partners are paying them a percentage so they can sit in an apartment that costs too much, not see friends, because they just sit online posting for 11 hours a day. Yeah, and then they can lose all the money in the future, I guess.

• 2:21Ed Zitron?

  Investing early in OpenAI allows a venture capitalist or even an asset manager like Blackstone, which invested in 2024, to say it as a big holding and a big increase in its AUM. AI stocks make venture capitalists who bet on them two years ago look like geniuses on paper. You got in early on OpenAI, Anthropic, Cursor, Cognition, Perplexity, or any other company that loves to burn several dollars per dollar of revenue. You have a big, beautiful number, the biggest you've ever seen, and your limited partners need to pay you a fee just to manage it. Venture capital has not seen valuations like this in a long time. And on paper, it feels a lot like a lot of VCs got in on companies worth billions of dollars, right? On paper, that is. On paper, Cognition is worth 10.2 billion, Perplexity 18 billion,

• 3:05Ed Zitron?

  Cursor 29.3 billion, Loveable 6.6 billion, Cohere 6.8 billion, Repli 3 billion, Glean 7.2 billion. Massive valuations to companies that all basically do products that OpenAI, or Anthropic, or Amazon, or Google, or any number of Chinese companies are already working to clone. They're all losing lots of money too and have no path to profitability of any kind.

• 3:28Ed Zitron?

  But right now, the numbers are simply tremendous, folks. I've heard venture capitalists tell me that there are times when they have to agree to invest with little to no information, or know that they'll lose the opportunity to another sucker, I mean investor. I've heard venture capitalists say they don't have any insight into finances. But we love the numbers, folks, they're simply tremendous, we love it. Let me tell you how not tremendous they are. I had a source recently suggest that nobody who invested past OpenAI's $100 billion valuation have any information rights. And what that means is they literally do not know anything about the company. They don't know anything other than what the company will tell them, and the company doesn't have to tell them shit. Which means they don't know the revenues, they don't know the costs.

• 4:12Ed Zitron?

  They only know what new start, new ridiculous stat Sarah Frye, CFO of OpenAI, has farted out. They posted recently that $20 billion annualized revenue. Yeah, I think that's complete nonsense, but they want to do that so that you go, OpenAI made $20 billion in 2025. Fuck that, I don't even think they made 10. Now, venture capitalists would argue, of course, that they'd say I'm insane. They would say, they would think me mad. And they would say that the growth is obviously there, while pointing to whatever startup has made $100 million in annualized recurring revenue, which is 8.3 million dollars a month, by the way. All while not discussing the underlying operating expenses. The idea, I believe, is that the current spate of AI spending is only set to increase the next

• 4:57Ed Zitron?

  year, and that will somehow lead to fixing the margins, I think. Venture capitalists staunchly refuse to learn anything other than invest in growth and then profit from growth, even if profiting from growth doesn't appear to be happening anymore. In reality, venture capital shouldn't have touched L L Ms with a shitty stick because the margins were obviously blatantly bad from the very beginning. We knew OpenAI would lose $5 billion in the middle of 2024. The same venture capital climate would have fucking panicked, but instead chose to double, triple and quadruple down. I believe that massive valuation drawdowns are a certainty for AI companies, and by that I mean, these companies will end up being revalued and the number will be smaller than the big number everybody fell in love with.

• 5:43Ed Zitron?

  Look, venture capitalists, I gotta ask you a question. What happens if OpenAI dies? Do you think this will make investors interested in funding or acquiring other AI startups? How much longer are we going to do this? When will venture capital realise it's setting itself up for a disaster? And what exactly is the plan? OpenAI and Anthropic will suck the lakes dry like an Nvidia GPU named after Nancy Reagan. How is this meant to continue and what will be left when it does? The answer is simple. There won't be any money for venture capital for a while. Those AI holdings are going to be worth at best 50% if they retain any value at all. Once one of these startups die, once there's a major casualty, a panic will ensue, sending

• 6:26Ed Zitron?

  venture capitalists scrambling to get their holdings acquired, by which I mean sold to someone else, until there's little or no investor interest left. Why would limited partners ever trust venture capital after this? Why would anybody? Because based on the past four years, it doesn't appear that venture capital is actually good at investing money. It just got lucky year after year until there were a few ideas that they could sell for hundreds of billions or billions of dollars. And now we're out of them. We're out. I think we're out. I think there's probably still some, but I think the era of the unicorn might be dead for a while. Venture capital believed it knew better as it turned its back on basic business fundamentals, starting with Clubhouse, crypto, the metaverse, and now generative AI.

• 7:09Ed Zitron?

  Yet they're far from the only fuckwits on the dickhead express. Because yes, I am going to talk about data centers. Per Bloomberg, there were at least $178.5 billion in data center credit deals in the US in 2025, rivaling the $215.4 billion invested in US venture capital in 2024, and the $197.2 billion invested in US venture capital through August 7, 2025, and over $100 billion more than the $60.69 billion of data center deals done in 2024. That's, that's really worrying. It's like more than, more than, more than 100% more. I'm very worried and I'm going to tell you why. Using a company called CoreWave,

• 7:52Ed Zitron?

  CoreWave, that I've been actively warning about, warning people about since March. And I, I get a little crazy around CoreWave because I have had the CoreWave conversation a lot and I've seen people straight up just steal the title of my articles as they come to this realization six to seven months later. But CoreWave is a mess and CoreWave was obviously always a mess. And everyone has been saying CoreWave is fine because they went public. CoreWave is not fine. All right? Let's talk about CoreWave. CoreWave is something called a neo-cloud. It's a company that builds data centers by renting out and they build data centers, they fill them full of GPUs and they rent them to people.

• 8:35Ed Zitron?

  They rent something called AI compute. And as I explained a few months ago, they do so by building data centers backed by endless debt. And I quote myself. "Saying up a neo-cloud is expensive. Even if the company in question already has data centers, as CoreWave did with its cryptocurrency mining operation, AI requires completely new data center infrastructure to house and cool the GPUs, and those GPUs also need paying for. And then there's the other stuff, like power, water and the other bits of the computer, the CPU, the motherboard, the memory, the storage and the housing and the power supply and all that good stuff. As a result, these neo-clouds are forced to raise billions of dollars in debt, which they collateralize using the GPUs they already have, along with contracts from customers which they use to buy more GPUs."

• 9:18Ed Zitron?

  CoreWeave, for example, has $25 billion in debt on an estimated $5.35 billion in revenue, losing hundreds of billions of dollars in a quarter. You know who also invests in these NeoClouds? Nvidia, the people who make the GPUs. Nvidia is also one of CoreWeave's largest customers, accounting for 50% of its revenue in 2024, and just signed a deal to buy $6.3 billion of any capacity that CoreWeave can't otherwise sell to someone else through 2032, an extension of a $1.3 billion deal from 2023, reported by The Information. Oh, and Nvidia was the anchor investor of CoreWeave's IPO, putting in $250 million. CoreWeave is also one of the largest providers of AI compute in the world,

• 10:00Ed Zitron?

  and its business model is indicative of how most data center companies make money. In fact, I'd argue that they are probably doing better because they have the backing of everyone. Now, you may think that's a too-big-to-fail thing, not really, it just means that they're kind of the village bicycle of AI compute. Grossness aside, let me explain how this works. First, CoreWeave signs contracts, such as its $14 billion deal with Meta, or its $22.5 billion deal with OpenAI, before it has the physical infrastructure to actually service them. It then raises debt using this contract as collateral, orders GPUs from Nvidia, those take three months to arrive, and then another three months to install, at which point monthly client payments begin.

• 10:41Ed Zitron?

  And I should also add that that's kind of taken out of deferred revenue that the customer has already put down. To really simplify this, data center developers are raising money months up to a year before they ever expect to make a penny of revenue, not profit. In fact, I can find no consistent answer to how long a data center takes to build, and the answer here is pretty important because that's how the money is going to get made from the data centers building fucking everywhere. You may also notice that monthly payments in the chart I linked, which I should have mentioned, begin at six to 30 months, a curious and broad blob of time. You see, data centers are extremely difficult to build, and the concept of an AI data center is barely a few years old. With the concept of hundreds of megawatts in one data center campus entirely made up of AI GPUs,

• 11:26Ed Zitron?

  barely two years old, JPU's? Which means basically everybody building one is doing so for the first time, and even experienced developers are running into problems. For example, Core Scientific, CoreWeave's weird partner organisation it tried and failed to buy, that is truly different despite a similar name, has been trying to convert its Denton, Texas cryptocurrency mining data centre into an AI data centre since November 2024, specifically so that CoreWeave can rent it to Microsoft for OpenAI. This hasn't gone well, and this is when things get weird. The Wall Street Journal reported a few weeks ago that Denton had been racked with several months of delays, thanks to rainstorms preventing contractors from pouring concrete. Concrete? I'm going with it, it's concrete now, we're calling it concrete. Concrete.

• 12:11Ed Zitron?

  I originally, within this script, wrote down that this was a plausible thing, I thought that this was normal. However, I should add something, this is, this may actually be bollocks. So, I'm a, I'm a psycho, and I went and I, I looked up weather, I looked up weather in Abilene, Texas, and it turns out that there were like 11 days with rain, total, and there was only, I think on June 3rd and September 22nd, there were rainstorms or thunderstorms of any kind, I think that there are only two days where rain was over 0.1 inches. The people I've talked to about this deal are saying it wouldn't be weather, it would actually just be money.

• 12:51Ed Zitron?

  Nevertheless, those are things that are stopping them building a 260-megawatt data centre, and that's fucking nothing compared to the gigawatts that OpenAI claims to want to build. And what this means, by the way, is that CoreWeave can't actually get paid by OpenAI because per its contract, customers don't have to stop paying until the computer's actually available. This is a very important deal to know for literally any data centre development you've ever heard of or seen.

• 13:18Speaker 00

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• 14:30Ed Zitron?

  As of CallWeave's Q3 2025 earnings, they're sitting on $1.1 billion in deferred revenue, that's income for services not yet rendered, up from $951 million in Q2 and $436 million in Q1 2025. This means deposits have been made, but the contract is yet to be serviced. Now, I'm also a curious little critter, so I went and found the 921-page $2.6 billion DDTL, Delay Draw Term Loan 3.0 Loan Agreement, between CallWeave and banks including Morgan Stanley, Mitsubishi UFG, and Goldman Sachs. And in doing so, I learned something. Well, first of all, OpenAI appears to have net 360 payment terms from CallWeave, meaning that it can literally pay a year from invoice.

• 15:15Ed Zitron?

  Second, CallWeave is required to maintain something called a contract realization ratio of 0.85 times, meaning that CallWeave has to make at least 85 cents of every expected dollar, or it is in default of its loan. This is important to note because it means that if, say, OpenAI decides not to pay up in a year, CallWeave will be up shit creek without a paddle. Now, I apologize, that suggests that CallWeave isn't already up shit creek, or that it might have a paddle of some sort. Buried inside Nvidia's latest earnings on page 17, there's a little clue. Ahem, and I quote. In the third quarter of fiscal year 2026, we entered into an agreement to guarantee a partner's facility lease obligations in the event of their default.

• 15:55Ed Zitron?

  The agreement allows our partner to secure a limited availability facility lease backed by our credit profile. In exchange for issuing us warrants, the maximum gross exposure is 860 million, which is reduced as the partner makes payments to the leaser over five years. The partner has placed 470 million dollars in escrow and executed an agreement to sell the data center cloud capacity, mitigating our default risk. Credit where credit is due, Eagle Eye analyst Just Dario caught this in November, but in CoreWeave's condensed consolidated balance sheets, there sits a 477.5 million dollar line item under restricted cash and cash equivalents non-current. Though this might not be Nvidia's escrow, this number shifted from 617 in Q1 to 340 million in Q2.

• 16:39Ed Zitron?

  It lines up all two precisely, and who else would Nvidia be guaranteeing? In any case, CoreWeave is likely to get the best deals in data center debt outside of Oracle. It has top-tier financiers, who I'll get to in a little bit, the full backing of Nvidia, who is both an investor, customer, and apparent financial backstop, and also CoreWeave is a customer of theirs, and the ability to raise debt quickly. CoreWeave's deals are likely indicative of how data center financing takes place, and those top-tier financiers, it's, they've basically beaten every single deal. It's actually, it's actually really boring when you, when you lay it all out, which is exactly what I'm gonna do. So, who's actually paying for this shit?

• 17:19Ed Zitron?

  I went and dug through a pile of 26 prominent data center loan deals, including the proposed 38 billion dollar debt package that Oracle and Vantage data center partners are raising for Stargate Shackleton in Wisconsin, Stargate Abilene, New Mexico, and of course SoftBank's 15 billion dollar bridge loan, which I included for a reason that will become obvious shortly. And multiple CoreWeave loans. I found a few commonalities, and forgive me, I'm about to say a lot of names and numbers, so you might want to pull up the newsletter to read along with it like a sing-along. Now, Blue Owl, Blue Owl, we love Blue Owl, folks. They were present in every single Stargate deal, other than the 38 billion dollar deal that's being raised by Vantage that has yet to close. Blue Owl was also involved in the $1.3 billion Australian data center and debt

• 18:03Ed Zitron?

  package by virtue of owning Stack Infrastructure. Remember that name. MUFG, MUFG, also Mitsubishi UFJ Financial Group is their full name, but I like the same. MUFG was present in 17 out of 26 of the deals, including three separate Callaway financing, Stargate New Mexico, an $18 billion deal, the alleged Stargate $38 billion deal, SoftBank's bridge loan, which they had to raise, by the way, to fund OpenAI, and a $5 billion green loan package for Vantage Data Centers, who you might have just heard me say. JP Morgan Chase was involved in eight deals, and they were involved in some of the largest two. Callaway's October 2024 financing, their third delayed draw term loan, and November financing as well, the funding behind Stargate

• 18:47Ed Zitron?

  Abilene, the $38 billion Oracle deal, and Blue Owl's acquisition of IPI Partners in 2024. And yes, they were also part of SoftBank's bridge loan. Now, let's not forget Deutsche Bank, who have never done anything dodgy ever. Do not Google what Deutsche Bank has done with banks or particular fellas. Deutsche Bank, they're involved in SoftBank's bridge loan, and three smaller deals. Data Center in Seoul, Callaway's 2024 debt, Callaway's November financing, and a data center deal in Latin America, as well as a $610 million data center project in Virginia, and a billion euro data center project in Germany that was invested in with Nvidia. BMP Peribus, seven deals. Callaway's delayed draw term loan three, Stargate New Mexico,

• 19:28Ed Zitron?

  Stargate Wisconsin and Texas, IPI Partners of Blue Owl, that data center deal in Seoul, and another data center in Chile. Morgan Stanley, you remember Morgan Stanley, don't you? Well, they were in eight of these fucking things. Callaway's October 2024 loan, loan three, November loan, Stargate New Mexico, Stargate with Vantage, the $38 billion one I just talked about, and one with EQT Edge Connects, where they, I don't, I don't need to go into detail, it's another fucking data center. Oh, and they were also in SoftBank's bridge loan, which they needed to, to fund OpenAI. Now, here's another name that you're gonna hear in the future. SMBC, Sumitomo Mitsui Banking Corporation. I must say the He's not gonna name a fucking company. Anyway, they're in seven deals, all notable.

• 20:13Ed Zitron?

  CoreWeave's DDTL 3.0 in November financing loan, Stargate New Mexico, Stargate Texas, Wisconsin, that's that $38 billion one, a data center in Rowan, Maryland, also involving MUVK, TD Securities and HSBC, as well as data center deals in Chile and Latin America that you've already heard about. Oh, and guess what? SoftBank's bridge loan, which they use to invest in OpenAI. There are a lot more data center deals than these, but I wanted to tell you exactly how centralized they are. I also really need you to know how worrying that is because literally every part of this pie is being funded by like eight to nine banks. If OpenAI is raising money for a data, well, they wouldn't raise it. It would be Oracle or CoreWeave or have you raising for a

• 20:57Ed Zitron?

  data center. One of these people is in it, or companies, they're not people. It's really worrying. It's worrying how centralized this is. And the largest deals, such as the $38 billion Stargate Texas, Wisconsin deal, or the $18 billion Stargate New Mexico deal, both involved Goldman Sachs, BNP Paribas, SMBC and MUFG, and all four of those companies have at some point funded CoreWeave. In fact, everybody appears to have funded CoreWeave at some point. Citibank, Credit Agricole, Societe Generale, Wells Fargo, Carlisle, Blackstone, Blackrock, Barclays, Magnita and Jeffries, to name a few. And if you've been watching the news recently, you may have heard that term,

• 21:36Ed Zitron?

  well, term, word Jeffries to refer to the company that invested in first brands and their exposure. Anyway.

• 21:55Speaker 00

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• 22:26Speaker 05

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• 23:01Ed Zitron?

  Of the forty banks and financial institutions I researched, twenty-four have, at some point, loaned to or organized debt for CoreWeave. Of those institutions, Blackstone, Deutsche Bank, JP Morgan Chase, Morgan Stanley, MUFG, and Wells Fargo have done so multiple times. CoreWeave is a deeply unprofitable company saddled with incredible debt and deteriorating margins, with one of the largest clients paying net 360. And as I've said, it is arguably the best financed data center company in the world with the best chances of survival.

• 23:32Ed Zitron?

  What I'm getting at is that most data center deals are likely much worse than the terms that CoreWeave faces, and are likely financed in a similar way, where a client is signed for data center capacity that doesn't exist, such as when Nebius raised $4.3 billion through a share sale and convertible notes (loans) to handle its $17.4 billion data center contract with Microsoft. And guess what? Goldman Sachs acted as the lead underwriter on the deal with assistance from Bank of America, Citigroup, Morgan Stanley, all three of which have invested in CoreWeave. AI data centers are expensive, require debt due to the massive cost of construction and the cost of GPUs, and all take at least a year, if not two, to start generating a single dollar of revenue, at which point they also begin losing money, because it

• 24:16Ed Zitron?

  seems that renting out GPUs is really unprofitable. Didn't think, no one fucking think to check that one. Every single major bank and financial institution has piled hundreds of millions, if not billions of dollars, into building data centers that take forever to even start generating money, at which point they only seem to lose it. Worse still, Nvidia sells GPUs in a one-year upgrade cycle, meaning that all of those data centers being built right now are being filled with Blackwell chips, and by the time they turn on, Nvidia will be selling its next-generation Vera Rubin chips, making them obsolete. Now, now, now, now, no, no, no. You've probably heard that Vera Rubin, the next GPU from Nvidia, will use the same racks called Oberon as Blackwell, which is true to an extent, but won't be true for long,

• 25:01Ed Zitron?

  as Nvidia intends to shift to their Kyber racks in 2027, hoping to build one-megawatt IT racks, which involve entire racks full of power supplies, meaning that all of those data centers you see today, whenever it is they get built, if they get built, will be full of racks incompatible with the next generation of GPUs. This will also decrease the value of the assets inside the data centers, which will in turn decrease the value of the assets held by the firms investing. Stargate Abilim, the one invested in by JP Morgan, Blue Owl, and Primary Digital Infrastructure and Societe Generale, the one that's been heavily delayed and won't be ready until the end of 2026 at the earliest, full to the brim, to the gills, with two-year-old GB200 Blackwell racks. Hell yeah, baby, woo!

• 25:45Ed Zitron?

  By the beginning of 2027, when this shithole eventually opens, I should really say "potentially opens", because, let's be honest, I'm not confident. Stargate Abilim will be obsolete, as will any and all data centers filled with Blackwell GPUs, as will any and all data centers being built today. Every single one takes one to three years, and hundreds of millions or billions of dollars to build, but probably raised in debt, and every single one faces the same kinds of construction delays, and better yet, almost all of them will turn on in roughly the same timeframe.

• 26:19Ed Zitron?

  Alright, look, alright, folks, I gotta admit, I don't really get how money works. I'm no economist, but I do know that supply and demand has an effect on pricing. What do you believe happens to the price of renting a Blackwell GPU when all of these data centers come on? Do you think that it will, it will mean that the price goes up or down?

• 26:42Ed Zitron?

  Also, while we're on the subject, what do you think happens if there isn't sufficient demand? And demand is a real question, by the way. Right now, OpenAI makes up a large chunk of the global sale of compute, at least $8.67 billion of Azure revenue, which is Microsoft's cloud platform through September 2025. And they're part of, they're about $22.5 billion of CoreWeave's backlog, $38 billion of Amazon's backlog, and so on and so forth, and made, based on my reporting from last year, just over $4.5 billion through the end of September 2025. OpenAI can't afford to pay anyone, and nowhere is that more obvious than when it negotiated year-long payment terms of CoreWeave. Otherwise, when you remove the contracts signed by hyperscalers and OpenAI, which I

• 27:26Ed Zitron?

  do not believe has the money to pay anybody, based on my analysis, there was less than a billion dollars of AI compute revenue in 2025, or 0.583% of the money spent on data center credit deals in the US. Is that good? Hyperscaler revenue is also immediately questionable, with Microsoft's deal with Nebius, per their 6K filing, set to default in the event that Nebius cannot provide the capacity it sold of its unfinished Vineland New Jersey data center, which is being built by DataOne, a company that's never built an AI data center, with a CEO that had his LinkedIn location set to United Arab Emirates as a, like, very recently, and indeed was in Arabic until very recently as well.

• 28:09Ed Zitron?

  And they have funding from a concrete firm that is also a vendor on the project. I also believe that Microsoft is setting Nebius up to fail. Based on discussions with sources with direct knowledge of plans for the Vineland New Jersey data center, Nebius has agreed to timelines that involve having 18,000 Nvidia B200 and B300 GPUs up and running by the end of January for a total of 50 megawatts, with another 18,000 B300s due by the end of May. On speaking with experts in the field about how viable these plans are, two laughed and one told me to fuck off. If Nebius fails to build the capacity, Microsoft can walk away, much like OpenAI can walk away from Stargate in the event that Oracle fails to build it on time, as reported by Anissa Gardesi of The Information in April 2025.

• 28:52Ed Zitron?

  And I believe that this is the case for literally any data center provider that's building a data center for any signed-up tenant. This is another layer of risk to data center developers that nobody bothers to fucking discuss because everybody loves seeing these big, beautiful numbers, except the numbers might have become a little too beautiful for sung. On December 17th, the Financial Times reported that Blue Owl Capital had pulled out of the $10 billion Stargate Michigan data center project citing, and I quote, "concerns about its rising debt and artificial intelligence spending." To quote the FT again, "Blue Owl had been in discussions with lenders in Oracle about investing in the planned 1 gigawatt data center being built to serve OpenAI in Saline Township, Michigan." "What debt?" you may ask. Well, Blue Owl, formerly the loosest legs in data center financing,

• 29:36Ed Zitron?

  was in Callweave's $600 million deal, the $750 million deal as well for its planned Virginia data centering with Teresa Technology Parks, a $4 billion Callweave data center project in Pennsylvania, Stargate Abilene, Stargate Mexico, Metis $30 billion high-period data center deal, and a $1.3 billion data center deal in Australia through stack infrastructure. You remember I mentioned those like 10 minutes ago? If you email me for a fish biscuit, I haven't gotten any, I'm sorry. Anyway, they own that company and I mentioned it earlier. Anyway, let's keep going. To be clear, Blue Owl pulling out is not the same as a regular deal. It's a BDC, a business development company, that invests both its money and rallies together various

• 30:19Ed Zitron?

  banks, in this case, SMBC, BNP Paribas, MUFG, and Goldman Sachs, all part of Stargate New Mexico, which makes me wonder why it didn't happen. In fact, it makes me very much worry about that. Per the Financial Times, and I quote, "The private capital group has been the primary backer for Oracle's largest data center projects in the US, investing its own money and raising billions more in debt to build the facilities. Blue Owl typically sets up a special purpose vehicle which owns the data center and leases it to Oracle." Blue Owl is incredibly well-connected and experienced in putting together these kinds of deals, and very likely went to many banks, many banks it's worked with, banks that have

• 31:02Ed Zitron?

  been basically giving them blank checks, who apparently had, and I quote, "concerns about Blue Owl's rising debt," much of which it had issued them. While rumors suggest that Blackstone may step in, I need to be clear, and I've spoken to numerous people in private equity about this, this is not a consumer mortgage. This is not a young couple buying a starter home. This is a giant deal. If it's $10 billion, Blue Owl probably would put in $2 billion themselves, there'd be like, I don't know, maybe $8 billion of credit. I mean, stepping in would require billions of dollars in legal logistics and likely Blackstone talking to the very same banks that already said no.

• 31:45Ed Zitron?

  Why are they not doing this? And indeed, why are things looking shaky? Well, remember that thing about how this data center would be leased to Oracle? Well, Oracle had a free cash flow of negative $13 billion on revenues of $16 billion, with its most recent earnings only beating analyst estimates, thanks to the sale of its $2.68 billion stake in Ampere. And you remember that SoftBank bridge loan I mentioned, that $15 billion one? Yeah, half of that went to OpenAI, half of that went to buying Ampere. So that's a one-off event. Oracle's debt is exploding with over $1 billion in interest payments in its last quarter alone. Its GPU gross margins are 14%, which does not mean profitable.

• 32:26Ed Zitron?

  Its latest Nvidia GB200 GPUs have a negative 100% gross margin, and it has $248 billion in upcoming data center leases is yet to begin and thus pay for. All, for the most part, to handle compute for one customer, OpenAI, which needs to raise $100 billion and then probably much more to survive?

• 32:50Ed Zitron?

  Is that good?

• 32:53Ed Zitron?

  Anyway, that's a good point to jump off from. Next episode, we're going to wrap all this up. It's been a great time reading this for you, and we're going to talk about how the data center apocalypse will start and what might come next.

• 33:12Ed 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 app to visit the Discord and go to r slash better offline to check out our Reddit. Thank you so much for listening.

• 33:45Speaker 02

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