Wall Street Analysts Are Comparing This To Enron — We Had To React

AI right now, if you have a 401k, is something you have to understand. The debt obligations, the way that it's being hidden, whether it's legal or illegal, we're going to talk about that. Buckle up. We're going to be uh looking at Ed Zitron. So, this guy's a researcher. From where I'm sitting, he's sort of come out of nowhere uh as very much an AI bear. And uh let's hear what he has to say about the places that this debt is hiding. >> Where are we in terms of the AI narrative in your view? What's the reality? >> Well, I think investors have to ask the question right now. What am I getting into when I invest in Microsoft, Google, and Amazon? So, UBS estimates that 27% of Google Cloud's revenue this year will be OpenAI and Anthropic, increasing to over 48% next year. That is a remarkable amount of money. That's going to be over $124 billion next year. Everyone is buying into these stocks because they believe all of that capex is going towards diverse and spread out AI demand when in fact what it's actually doing is helping create infrastructure for two unprofitable unsustainable companies. >> It is very possible that he's right about them that he's certainly right about them being unprofitable. He might even be right about the fact that um they are essentially doomed and these aren't going to be the players that are going to stick around. We've seen this thing repeat throughout history. Um, but where this is going to get more interesting is we get into something that he just alluded to, which is these companies have all this circular financing. Um, later in this he's going to talk about this being like Enron. And um, there's other people out there that are saying that this is like Enron. Now, he he is very gentle when he brings this up, but one of the things I want to talk about today as we go through this is that the things that are being done aren't illegal, but they are extraordinarily risky. So keep that in mind. Not illegal but whoa is this risky. >> Other one would be anthropic. Yes. Is you argue. So give us more data because you have the micro you're citing Microsoft but what about AWS? >> Well that was what I was saying. So Barclays actually says that this year 13% of AWS revenue will be both open air and anthropic and next year will be 18%. AWS much bigger business than Google cloud. Now just to be clear when I was saying that 27% this year and uh 48% next year for Google cloud I meant both anthropic and open AI most people don't know that openai is a large customer of Google cloud >> it's not a well it's not a well-known fact but this was this was actually mentioned by UBS's Steven J. >> So where would those companies be right now without Anthropic and without open AI? >> Well I have serious questions about that. So in calendar year 2025, according to my own reporting about OpenAI's numbers, 69% of the yearover-year growth of Microsoft intelligent cloud segment was actually from OpenAI. Without that, it would have only grown 8% year-over-year, which is barely beating inflation. And so everyone is being sold what I consider kind of a lie. It's honestly kind of a scandal. >> This is where it gets interesting. So calling this a scandal is um it's one of those things that as a society we're going to have to decide. Is this a scandal or is it not? Because this is how companies run. If you think about the way that even a used car salesman moves units, what they do is they say, "Oh, you can't afford the car? No worries. I'm going to give you seller financing. So, you're actually going to borrow the money from me to buy the asset." And this is something that Nvidia has done like crazy. Um, a lot of these companies are doing that kind of thing where it's like, I'm going to invest in your company, but I know that you're going to use the investment that I just made to buy my product. So whether that is you're um investing in the data center that they're building, knowing that they're going to be doing something on your behalf or that the data center is actually going to be built on your cloud service or whatever that kind of stuff is, it's very typical. So this is where people look at the map of all the circular financing and they feel like hold on a second like is this actually above board or not? And the question becomes entirely is it being disclosed? And the reality is that as you push on this stuff, it is all being disclosed. Now, it might be put on page 88 of their um reporting, but they are disclosing this. I haven't seen anybody that's saying that these guys aren't disclosing it. So, the real question isn't is this a scandal? The real question is who is this putting at risk? And that's where all of this uh stuff really starts to get crazy. And so there are we'll get into more detail as we go, but for right now just anchor around this. There are three basically risky ways that debt is pushed away from banks and into the broad system. So all of us are probably looking at the way that these companies are getting their financing and saying, "Well, this is either cash on hand or they're raising this money from the banks." Keep in mind, even Google has gone cash flow negative for the first time. That is wild. They haven't been negative since they went public. So, none of these guys are doing it all through cash flow. The capex buildout of AI is so massive that they're they're having to scoop up money from the banks now. Okay, cool. The banks are taking the risk, right? Well, not really. The banks are pushing that um risk out into the public. I'm not going to get into how yet. We're going to get to that in a minute. But right now, as just a reminder to everybody, AI right now basically is the US stock market. The US stock market is a gigantic portion of the global stock market. When money is looking for a place where it can get a return, it comes disproportionately to the US, which means that that money is coming disproportionately to AI. So basically the world is making a bet on AI. The world is making a bet on AI for growth, right? So there's this underlying idea that the real um idea that we'll have perpetual growth ended back in like 2011, 2012, somewhere around in there. And now this idea that tech companies are just going to grow forever. They they've run out of ideas. It's just become an advertising play on the major social media platforms and that's it. And so, um, it looked like for a second web 3 was going to be the thing that petered out, went nowhere. And so, now because they just need something to give that growth story because remember real wages are not growing. So, people that are looking for the answer to how the [ __ ] do I beat inflation, they're all turning to there's got to be some growth story in assets. Okay, cool. So, I'm going to put all my money into and then this amazing story comes along about AI. Now, I think the right way to map this is AI is real. It's going to become the absolute big massive juggernaut that everybody thinks it's going to become, but it is going to take much longer for the revenue to come in than the debt will hold out. If that ends up being true, and keep in mind it's been true of every major technological revolution, so I have no reason to believe that the one that's happening now that has the much bigger capex requirements to build out is going to be any less true. And we saw revenues coming in way slower than people expected. And that was before China started launching things like Kimmy K3 where now we're seeing companies go, "Oh, well, this is a lot cheaper, so I'm going to move over to that." Okay. So, that's the the big ball of yarn of stuff that we're worrying about. And the punchline, and again, we're going to get into the the separate mechanisms in a minute, but the punchline becomes the banks aren't dumb. And so, they're taking that debt, that high-risk debt, and they're pushing the risk partly down onto basically your 401k. That that's an oversimplification, but this is why people need to understand what's going on. We'll we'll get more into the mechanism in a minute. >> So this goes back to I feel like we have companies the circular financing the circularity of it all and kind of creating demand for their products. So when does it start when does the I asked this earlier with a guest when does the party end in your view and how Yeah. >> So with OpenAI's IPO I think that could be one of the flash points. Remember this company was meant to go public this year. They failed about a month or two ago and now the New York Times has reported that they're considering they are delaying until 2027. That's lethal for a number of people. But OpenAI and Anthropic need continual flows of capital. They do not pay their bills out of existent cash flow. So when anything happens to that cash, I think that's the first thing kind of domino to fall. But then again, there's also the overall problem of data centers just not getting built very fast, taking about 12 to 36 months, depending on how small or large a data center is actually being built at. And the problem is is that everyone believes that AI is coming out of cash flow, that AI is coming out of just this diverse revenue base when it's really not. It's extremely narrow. The information reported a few months ago that 89% of the largest AI companies, well, their revenue comes just from OpenAI and Anthropic. It's heavily centralized. I I'm gonna get a little bit nerdy and you guys are going to teach me whether we should do this again or not in the future. Um, so you have to understand part of the reason that the accounting trick that they're playing works is the way that they're running the math. So there's something called EBIT DAW. So it's earnings before interest, uh, depreciation. Um, [ __ ] I need to pull it pull it up in front. I think we have it here. Uh I always forget uh all I need to see are the letters. Uh earnings before interest, taxes, depreciation, and amortization. Thank you. Uh so that is when you're running an IBIDA calculation, what you're saying is basically I'm going to run my math sort of detached from the real world. And the reason I'm going to do that is because, you know, once I buy it, um it it's like the I have to take a lot of the money up front, but then I can only take the expense slowly over time. And so it just it creates a complication and that would be great if um your equipment was going to last forever, but it's not. And so you're going to have to replace it. And so it becomes a critically important part of the way that you do um your the actual health of your business will be determined by how frequently you actually have to uh replace that. And so one of the big accusations about AI is that they're not being honest about how often they're going to have to replace those chips. And so if you're saying you're going to replace them every five or six years and that's how you're running your EBID schedule, then it's like, okay, this is going to be um basically [ __ ] that you're much farther underwater than you would have people believe. And the reality is that um I think it was Warren Buffett that called Ebidaw, either Warren Buffett or Charlie Mer, they called it a reverse float. Um meaning that you have massive costs upfront, but then you can only take the um actual like tax deduction or expense deduction slowly over time. And so it becomes a way where people can really hide a lot of things. And then there's another type of accounting that you can also use where you're actually changing the um the uh it's called like adjusted revenue or adjusted IBIDA adjusted earnings, excuse me. Um adjusted earnings or adjusted IBIDA and that becomes something that's basically completely made up. So now every corporation can say well the way that we do things this is actually going to be different and so we're going to carve out a lot of things. So, um, maybe we're not even going to, uh, count the fact that we compensate our employees with stock options. Okay, this is a big one. So, if you want to know why people get pissed off about corporations buying their stock back, part of the reason is they're buying their stock back so that they can pay their employees in stock, but because it's corporate stock that they're then going to give as stock, they actually don't count it as a financial expense. And so people are like, "What the [ __ ] you talking about? you just bought that stock back. So now it like gets into this thing where they're not even reporting that as an actual cash expense. And so they make their business look better and better. Now, if you're a financial analyst, you know where all this stuff hides. And so you can do the due diligence. You can actually find out what's going in these companies. You can see precisely where debt is being offloaded, where there are expenses that they're not saying. And this was the thing that Michael Bur was trying to get everyone to see. He's like, "Their um amortization schedule is not honest." And because it's not honest, they're hiding, I think it was like 72 or 76 billion in losses already that they had suffered, but they were able to hide by saying, "No, no, no. What do you mean three years? These last for five or six years, the chips." So, Michael Bur's like, "Yo, their numbers are not what they say." Now that matters because remember the entire AI game, the entire bet that the world is making right now is predicated on will the revenue come in before the debt comes due. Now if they're saying that oh [ __ ] we're expecting this to last five or six years, but really we have to refinance again to replace these chips in three years. Now you just keep pushing that profitability out and out and out and out and out and you run the risk that finally they succumb to the weight of their debt. And so what Ed Zitron is pointing out here is that hey these guys are basically selling a big lie. Now, that I don't think will meet legal scrutiny of a lie. But are they trying to uh propagandize to let people's imagination sort of run away with them to give you a simple number on the front, the headline? That's actually uh basically they're just adjusted earnings, which I'm going to call fake. I I and I think it was EBIT EBITDA, which is better than adjusted earnings. Charlie Munger called [ __ ] literally just outright. He's like, "That's just bullshit." And so, um, we'll get right back to the show in a second, but first I want to talk about the customers you're losing without ever knowing it. And why today's episode is brought to you by Quo, the business phone system built so you never miss an opportunity. 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When this stuff is going to be profitable, when they are likely to have to raise money, when that trajectory of increasing revenues is actually going to cross over uh with the ability for it to be the self-sustaining economic engine and without that, you put yourself in a very precarious situation. All right, let's back to Ed here. this is expensive to do or no in terms of data center buildout and so on and so forth and what's going to make um AI generative AI the ability for it to be really really good is having access to lots of information so doesn't it have to be to some extent Ed concentrated >> well when I say concentration I mean concentration of revenue in these two companies >> no I understand but to make it good so doesn't it make sense that those who are exposed the most it's going to be concentrated to some extent >> well I mean when we're talking about so sighteline client climate said that they saw back in February about 190 gawatt worth of data center capacity being built in the next few years. It was is built or under planning. Now if you work that out with a pee, so just the efficiency rating of 1.3, you're coming out to 12 million a megawatt over $1.6 trillion of annual revenue needed to satiate those data centers. Having two customers is not going to do that. Even their most spendy anthropic and open AAI, well, they can't afford anything. They need venture capital, but they're only going to spend 400 billion a year. And that's if they get that far, which I don't believe they will. >> And they need 1.6 trillion. >> Dude, these numbers are so wild. They are pulling forward god knows how many years of revenue to say, hey, our stock is worth this, which by the way, something we haven't even talked about. I can't remember if he touches on it, but uh SpaceX is still, please verify, but I'm pretty sure it's still trading below where it uh opened at when it did its IPO. It's It's back on a green candle, but it's still below where it was when it IPO'ed. So, yesh, red candles red candles down 9% today. >> Ah, God. Okay. So, now Jesus. Uh, imagine it goes like even worse as we're sitting here watching it. So, imagine that you've got this big bet everybody's making. uh you've got these revenue demands that so far outstrip the revenue that you're actually earning and you have this looming potential question about whether or not your um chips last as long as you say which may mean that you're even more underwater than people think and then on top of that you've got all these risk mechanisms pushing this down. So what I want to do now is uh what minute are we at on this just so I know roughly. Okay. So, um I want to go through the the three risky ways that debt is actually being pushed away. So, um it is critically important to understand as he said, these companies cannot cash flow what they're doing. So, they've got to find a way to bring in money and given that even Google is now turning uh cash flow negative for the first time since they went public, everybody's having to rely on the banks. But the banks really can't touch this because it's it's so speculative. AI is a huge question mark. AI is incredible. Nobody believes in more than me. But if you're a regulated bank and you start like taking huge positions in these very speculative companies, the regulators are going to be like, "Bro, come on. Don't be ridiculous." Okay? So the banks are like, "We've got to find ways to offload some of this risk." Okay. Here are the three key ways that risk is being pushed out into a place where you have to worry about it where it becomes systemic risk for um the average investor. So one is something called wholesale funding. So this is lending to the lenders. Now in many cases the banks really are still loaning the money to to these banks to the companies but they they do it through an intermediator intermediary shadow bank. Okay. What is a shadow bank? It's basically a private bank that is not beholden to the same types of regulations that then lend to these companies that are doing the deal. So, it could be a VC that goes to a shadow bank or private equity, whatever goes to a shadow banker gets this money. It could be the VC or the the private equity firm themselves that are raising the capital. They could be going out to um the pension funds is a place where these guys get a ton of that money, but they've got to get the money somewhere. And so those guys are like basically we're going to go get the money from the bank. The bank now has the plausible deniability because they didn't loan to the AI guys. They loan to us and then we go and make the loan to the AI okay to uh companies. So that's the first way. The second one is something called credit risk transfer. Okay. So sometimes banks uh make the loans to the corporate borrowers but they use like financial engineering to push the risk off of their own books. And they do it through this mechanism known as credit risk transfer. And in doing that you're basically trying to push the risk. You you package things up. Okay? So you say, "All right, we just took on this debt. We're going to create a financial instrument and then we're going to sell that debt to people." So they're going to buy that debt. And if this reminds you of 2008 with the uh mortgage back securities, that is exactly correct. But for AI, so you're trying to get the credit risk off of your books so that again, if the regulators look at this, it's like you're not left holding the bag. So that's sold into places like pension funds. Again, why people need to worry about this. Uh so that it it gets out there, you're able to make the loan, but you're not having to hold it on your books. And then the third is the originate to distribute. You can think of this like a conveyor belt. So, uh in this method, the bank acts purely as a middleman. So, they're gathering a bunch of corporate um like software AI infrastructure loans, things like that. They bundle them together into complex financial uh a a very specific, excuse me, complex financial product. It's called a CLLO, a collaterized collateralized loan obligation. And then they immediately sell um pieces of that off to people in institutions that are really trying to get a yield. So this will be life insurance companies, pension funds, but it creates a trap of a kind. So the bank is able to pocket like the big fees for arranging the deal, but then they're able to walk away essentially with zero risk on their balance sheets. Now, the reason that the other guys take it is one, they're not going to be able to um find the different loans and loan products and things. So, they want somebody to package them up, but they also just want to take a piece of the deal. So, they're like, "Okay, th this gets super nerdy and it gets into something called mezzanine debt where you're looking at like think of it as uh if I'm uh loaning you money, I've got sort of three ways to look at this. The bottom layer is the equity. I'm just taking an equity stake. I get the biggest upside, but if I get wiped out, I'm the first to get wiped out. So, if your company's in trouble, we're going to burn through everything that I mode first. That just goes away. Then we get into the middle layer, this mezzanine layer, and that is something where I'm sort of hedging myself. I'm protected from the people that get eaten by the equity first, but I get eaten before the senior debt holder. And so I take um I get a bit bit of protection, but I'm going to get less upside, but I am going to get wiped out still before the senior guy. So if I can't be the senior guy, I want to be in the middle. Cool. So they're going to package that up, sell it off for people who are like, I need sort of a mid-tier risk thing. It's going to be like it's not certainly not going to be AAA. Might be a BBB rating kind of thing. So I'm going to be somewhere in the middle, but I've got potential bigger upside because I've got a class of people that are going to get eaten before I get eaten. And then you've got the top of this three layers which is like the AAA you just owe me the [ __ ] money and everybody gets obliterated before I lose a single dollar of my principal. Okay. So again I'm going to learn here whether people like this nerdy [ __ ] numbers are doing well. Uh so yay. But that is um what they're doing. So they they take that middle slice and they sell it off. Now that frees up a bunch of money on the bank's sort of pretend balance sheet. Remember, they're still exposed because they've only sold part of this, but on their balance sheet, they look much better. So, a regulator looks at that and goes, "Oh, you just freed up $26 million, whatever." Making that number up. Uh, you just freed that money up. Great work, man. You're looking good. But if if everything goes to hell in a hand basket, they're still exposed to that debt. They look good on paper, but they're exposure is still there. So, as people go through this, everybody's asking the questions like, "Is this legal? Is this a scandal?" Instead, we should just be talking about how much risk is getting pushed out into the marketplaces, how is it getting pushed out? And the the terrible thing is that it's complicated enough that the average person just doesn't want to look. They they don't want to try to figure out what's hiding where, what do I have in my portfolio. And so that's why at a minimum never lose sight of that there is tremendous capital being raised. The risk is being diversified out into the broadest market possible. It's all going to look relatively clean on paper 2008, but in reality there's like all of this risk floating around. Now will this ever end up like 200? I don't know. Nobody knows because this is private credit. It is very difficult if not outright impossible to figure out the scale of this. But if you guys watch the deep dive that I did on the private credit market, the private credit markets are showing signs of distress. Let's let's tie some of these things together. The whole world's making a bet on AI. AI is not able to fund itself. AI is having to raise so much capital that even companies like Google are now cash flow negative as they bring on all this debt. They may be lying to themselves or just outright lying about the um depreciation schedule for the asset, the chips. And that is hugely consequential in terms of how much capex they are going to need which is directly related to how much debt they will have to raise. And then that debt is being provided largely by shadow banking known as private banking which is not regulated in the same way that the normal banks are regulated. But the normal banks are using that as a way to still do it but hide it huh light on the hide because it's still there. It's visible. Everybody knows what's going on. But the math makes them qualify for their regulations. So the banks that we think are being protected or were protected from that systemic risk that we succumb to in 2008, we think we have the protections from it because these banks are regulated. But those banks are actually loaning money to the largely unregulated shadow banking sector. And then the risk that they do carry, they're diversifying even further out into the normal markets through pension funds, life insurance, etc. Okay, so all of that's looming as we ask the question, are we actually going to um get revenues in fast enough to deal with this? As China is saying, hey, those revenues are never coming because we're going to make this cheap. As the yen is wobbling and the US Treasury is telling the Fed to make more dollars available to try to stabilize them so we can stabilize our own bond market. And it all just starts to feel very unnerving. I didn't even get to Iran. I didn't even get to China. I didn't even talk about the dollars that may never come from the Middle East that we are certainly counting on. Lot of instability. Now, when I hear people talk about this, they don't just keep bringing it back to the risk profile. What's going on? What touches what? So, as you hear this kind of stuff, very important that you bring it back. What's the risk profile? How much of this stuff is being distributed? What's my likely exposure? How do I diversify so that I'm not uh if we had a 2008 style moment where private credit collapses and then is those dollars get sucked out of the economy? How does my life look? If um AI outright has that gap in the way that the internet had that gap and it ends up being exactly what we think it's going to be, but it's 10 years delayed. What does that look like for me? How do I make sure that I survive that? Okay, those are the things as we're we're going to listen to a little bit more of this. But as as we think through this, that's what we want to be holding in our minds. >> Balance sheets. Really? Really? >> Well, I from personal from personal experience a great deal about Open AI because I reported their auditive financials with the Financial Times, >> right? >> And it's a company just burning cash. They lost $20.9 billion in 2025 and things are only getting worse. And what's crazy as well was over $800 million of Open Eyes revenue came from SoftBank for their Crystal Intelligence. And yes, that's really what it's called. Their Crystal Intelligence program, which I can find no evidence of actually anything happening. And SoftBank, a large shareholder of Open AI with no board seats. >> So, so, oh, go ahead, Carol. >> One more question though. Like you talk about for Google Cloud, um, the exposure, right? Mhm. >> And you said 48% next year in terms of these two customers. I have to say that there are smart people running these companies and normally you would say your exposure to just a handful of customers is not a great thing. Do you say that these companies that aren't doing their due diligence be it Alphabet or you know pick your hyperscaler? I think they did their due diligence in the sense that they said we are going to create our largest customers and we're going to own large parts of them and on top of that we're going to own all of their infrastructure. Google has a nice they have a nice thing going here. They buy TPUs from well sorry Broadcom sells TPUs >> to Google. They are then sold to Anthropic and then rented back to Anthropic through Google. Google gets to double up on revenue. This sounds really good right up until you realize that anthropic and open AI are unsustainable. So what they may be and the problem is with saying these are smart people is it immediately makes me think of Enron the smartest guys in the room. >> Not saying anything like that's happening >> but I'm just saying you have a fiduciary responsibility and you're right you go back to Enron or World >> and I think the point I'm making is >> with Google they probably thought there would be more customers. I imagine with Azour and with AWS they thought would be more large players but the problem with Anthropic and Open AAI is they've raised 2003 $3300 billion of funding but they've actually raised more because OpenAI and Anthropic got all of their infrastructure built for them by Microsoft, Google and Amazon. They didn't have to pay I think in the Samman Elon Musk trial one of the Microsoft executives said that they cost hundred billion so call it like 70 80 billion of infrastructure. So the problem is is that nobody else can get as big as them. No one else can get that much compute. No one else could afford that compute and have the chance to do the pre-training runs necessary. Except now China's coming up behind them, right? >> And it's unclear how anyone really deals with any of the problems I've been listing for years, which is unsustainable, unprofitable, and also not really finding the ROI in AI. A >> a big part that I don't think um Ed certainly isn't talking about it. it's not coming up in this conversation but you have to understand the psychology of the people that are investing in this the psychology of uh the the companies that when he says like I think they thought there would be a lot bigger um a lot more big players I think they have a different mentality when they're looking at what's happening here so the initial narrative was one thing and it's now shifting to something else I think the initial narrative before people understood just the magnitude of the capex that you were going to have to keep scaling these brains the data centers for these things to keep getting smarter. Before people realized there weren't just going to be, you know, 300 open AIs, the narrative was different. Now the narrative is shifting to, okay, we're basically building out the electrical g grid, but instead of electricity, what we're getting is intelligence. So, yes, we're going to have to put a ton of money up front, but this is just like laying the pipe in the internet. Um, by doing that, we're going to be creating our own customers. So right now there aren't a lot of people taking advantage of this yet because people haven't figured out what AI is going to be in the same way that they had not figured out what the internet was going to be. But keep in mind these people are looking at it and saying, "Oh, I know how this played out." So the last time what ended up happening was everybody uh they got in over their heads. There ended up being this delay and so the people still ended up winning making just ungodly amounts of money. remember all of the mega wealthy people today sort of with the exception of Elon Musk who who really made his bones um in cars but he was able to do that because of his success on the internet anyway uh you've got the vast majority of the hyperw wealthy people today they all got wealthy in that second wave of the internet so post crash people go thank god that this pipe exists and we're going to now build on the back of that so all of these guys are sort of forgetting the pain of that gap the fact that there was such a big gap they realize there's no hyperrowth story left. If they're going to make a return, they've got to find the next big thing. AI proves to be actually the next big thing. They are tricking themselves about the fact that there's likely to be this lull in the middle that we almost certainly will wipe out a spate of investors that are out over their skis with debt before we get to the inheritance generation that will come along and actually be the Jeff Bezos's of the world and will build the, you know, the next mega things on the back of this. And so where I think they're making a mistake is they're still taking on all that insane amount of debt. I don't think they're making a mistake about we've got to be here. we've got to be an AI, we've got to be building on this. I think they just have to be more thoughtful about remembering that if you want to be one of the the people that supply the commodity of intelligence, then yes, you've got to make a move now. You've got to be one of the people in the data centers. Okay, fine, fair enough. But you better figure out who your customers are going to be. Because if right now you don't have a path to waiting 5 10 years to get all of the revenue that you need to make that data center pay itself back and knowing that you're going to have to keep buying new chips and all of that, you're going to end up in trouble. So that's the part that worries me. If you think, okay, cool. I'm going to wait. I'm going to let that first generation of people discover if there's a problem or not. Because really this is about the companies that end up using the intelligence, not the core intelligence itself. And yes, I am hyper aware of the idea that you want to be the pickaxes, but remember you want to be the inheritance generation of the pickaxes when you're talking about incredibly expensive infrastructure. So the like typical like imagine you actually had to build the gold mines for people to go mine. You can't be the pickaxe until the gold mines exist. Those are the data centers. So if you think about this as commodified intelligence supplying electricity and now we're waiting for all the things that use electricity to be built and you want to be part of either um you know whatever those things are going to have in common chips or whatever uh so that you can be agnostic to who wins. That's the pickaxes. Or you want to be part of the companies that are going to be built on the back in the same way that Facebook was built on the back of the internet, Amazon was built on the back of the internet, so on and so forth. And so that's where this becomes important to understand where are we on the timeline. Okay, the future is not guaranteed. So nobody knows for sure if this gap I'm talking about is actually going to play out. It's played out every time, but that hey, it's no guarantee it's going to happen now. But where are we at on the timeline? How confident am I that this is going to play out this way? And then am I better off trying to scramble, get in now, be sort of on the ground floor of what I think are the pickaxes? And am I right about that? Because I think if you think the data center is a pickaxe, you're going to be in trouble. But am I right about that? What investing generation am I? Am I the one that's going to get obliterated if I'm right about that timeline? Or am I one that's going to be part of the inheritance generation? And then obviously we have what we've been talking about before, which is all the systemic risk and how do I protect myself against that if that dip actually happens. and all the companies that are big now, all the companies that are making the data centers worth building go out of business and then now we've got some downtime before we're able to bring that inheritance generation to bear actually building this stuff out. All right, >> really really quick. It seems like we're getting toward too big to fail territory where although we should let them be the railroad, the nonprofitable failure companies. It seems like we're too they're so ingrained in all the other mag seven companies that it's now going like if OpenAI and Anthropic fail, it's going to impact Google and Microsoft. It's going to impact the internet. And I'm starting to see like they're getting in the bed with all these other people. So that way it's like if we go down, everybody goes down. >> It's even more terrifying than that. [laughter] Remember my mental model of Iran is Iran was AI is too important to fail. I've got to go make sure that those $2 trillion in investments come my way. U so part of what I'm doing here is those guys promised investments and now I've got to take care of Iran to make sure they don't become a problem. Obviously a mistake, but nonetheless I think that that was part of his calculation. Um the banks really are too big to fail right now. If AI tanks, your economy will blow up so hard that >> I can't even fathom like what kind of money printing you would have to do, what that would look like. It would be it would be barbaric, man. That would just be a nightmare of untold proportions. Uh especially because you're doing it at the time where the yen carry trade has already created instability and problems there and may create problems for you in your uh debt market. And so if all of a sudden you have to put out the world's largest amount of debt uh in order to like stabilize the economy because AI tanks, who buddy, right? As your biggest buyer of debt is like, I I'm trying to sell right now. Dude, that would be wild. That would not be a good time. Uh so that's where it's like this is not a time to panic. Everybody should be just super thoughtful about, okay, what is the risk? Like I'm not going to nothing in the stock market or anything like that. Um I think you have to be way more careful than that. I think you have to have way more humility to say okay there's a lot of risk here. Doesn't mean it's going to happen. You just need to be aware of what the risks are. So I think that the banks would get bailed out if they get into trouble. I think that this is the reason that the AI companies are desperately trying to get the government to basically take a stake in them. So the government would be like well >> we we can't let this fail. They're trying to get it seen as a national security thing again so that if they don't have the money, they're like, "Well, bro, do you really want China to slap us around? Like, we've got to be absolutely cutting edge." Uh, so the fact that we don't have the dollars and cents to make this a profitable business, that doesn't matter. Why would that matter? We need to just make sure that the government is funding this because this is a weapon system. So, it it is like this AI has become so behemoth. And the terrible thing is it's really real as we just saw with um Claude's latest version like jailbreaking or open AI open AI jailbreaking and getting out and then being like oh [ __ ] like we got to clamp this thing down and then before that you had uh Fable breaking out and then being like oh [ __ ] this is finding uh hacks and like everything we we can't release this to the public. So it it is it is a weapon system and it is a matter of national security. Uh the risk is now wildly systemic and the current crop of companies are not bringing in revenue fast enough to be um mapped as anything other than as Ed said uh unsustainable as of now. um the revenue may start flowing and and maybe that picture changes, but it's a question of will it change fast enough to deal with this debt burden at a time where interest rates are rising here and in Japan where so much of this capital is actually originating. Jesus, dude. Yeah. The more uh I research this stuff, the more the hairs on the back of my neck stand up. >> Is there like a a time bomb or is there a time crunch to this or can they kick the can? circular finance, IPO, double down, get some private equity money, and kind of keep kicking the can until somebody creates an actual trillion dollar LLM company. >> I don't know. >> Nobody knows. >> Um, I think we've got a lot of pressure from the stability of the US economy, but any real number prognostication isn't real. And so it's more that um if you were watching a guy do push-ups >> and you said how many push-ups do I think that guy can realistically do? Like I can buy that he can do a hundred. Do I buy that he can do 500 without stopping? By the way, do I buy that he can do 500? Yeah. Do I think he can really do a thousand? That starts to get hard to believe. Do I think he can do 5,000? Absolutely not. The record for push-ups is 10,000 or more. It might be more. Look at Ryan. Do you mind looking it up? >> Yeah. What is the world record for most continuous push-ups? I think the number is 10,000 or more. >> And that number is so fake. I never would have believed it. >> 10,57 from October 1980. >> Without stopping. >> Indian in the 80s. >> Yeah. 1980. >> That was all Coke. That was that was that was Coke push-ups. No way. >> So perfect. [laughter] I love that. So now it's like I don't know what the coke is going to be in the markets that could like drag this out. So I'm going to look at all this and be like, "Bro, there's no way. We can't go past insert ins uh absurd number here." But if my like there's no way he's doing more than a thousand. That's ridiculous. And it's actually 10 times more coke that the system can actually ingest and keep going. It it's it's one of those unfortunately for all of us that have to invest having the right hypothesis but getting the timing wrong is the same as being wrong and getting the timing right is almost impossible which means all of us are almost guaranteed to be wrong which is why I build my strategy trying to say I know I'm going to be wrong so like how do I diversify enough that given I won't know what I'm going to be wrong about but not everything if I'm diversified well enough not everything will be able to mechanistically be wrong at the same time because things move in different directions. Then it's like, okay, can I actually pull that off? And that becomes the magic of all this. Can you actually put yourself in a situation where you are wrong, but you're prepared, literally prepared mechanistically, to be wrong, and you come out the other side doing just fine. Because being up 3% in a time where everybody else is down 30 is like you're laughing all the way to the bank. And as a reminder, Ray Delio for one in the 2008 crash still returned 9%. They were up 9% when the rest of the world was melting down. So there is a way to be diversified smartly enough that you don't get caught with your pants down. And so that's more or less how I'm thinking about this. So I had a major win on one of my stocks. like ridiculous when I told my wife how ridiculous. Um that got some praise and be real honest with you. And I was like sell immediately because I don't need to be greedy. Like it could double again from here and I'll be like yep I'm fine. Uh I am perfectly happy to take my wins now. But most people do not. Most people are like, "Well, it's doing well. I've got to just keep riding. Let's keep going. Keep going. Keep going." You've got to have a number in your head where you're like, "If I hit that, I'm going to diversify out into something else." Otherwise, you get caught. You get caught. Last time you were on with us, we got an really incredible response to be honest. And it a lot of people who weren't typical viewers or or listeners of our show saw what you did and listened to what you did and it really seemed like there's this uh what you're saying is resonating with a lot of people. Like there's a >> it was almost like there's this anti- AI fervor >> that that's out there and I'm just curious why you think that is. So, I'm not sure it's it is anti-AII, don't get me wrong, but I think it's also anti-inancial shenanigans. I think everyone sees the circular financing. I think they see that Microsoft, Google, and Amazon gets basically all of their AI revenues either through products they're pushing on their customers or indeed compute spend from anthropic and open AI. And the average person's existence right now is so expensive, so hard, so difficult. Getting a mortgage as a regular person is so difficult. But if you're standing up a theoretical data center in 36 months full of Nvidia GPUs, the banks fall over themselves to give you the money. Core, we've just raised what, a 9% bond. I mean, you can raise anything if you have a data center. And I think regular people can see that AI does not deliver what people promise. They can see the opulence of the people at the top of the AI industry. They can also see that they're being lied to and being deliberately scared on top of all of this egregious circular financing. So, this is the thing that worries me. We're creating all this systemic risk. Uh, and it that risk really is real. And if this goes wrong, you want to talk about pitchforks. People are going to lose their minds. There is already massive anti-AII sentiment. Uh if you put on top of that, you just broke the economy with your um high-risk uh endeavors into AI because you wanted to grow at all costs and you guys were already wealthy and it was already hard for the average person to make ends meet and now you guys wanted to get [ __ ] richer. You wanted what an even bigger bunker. Uh people are going to lose their ever loving minds. And so this is one of those times where boy do I hope that uh prudence begins to win out. that at a minimum the average person begins to protect themselves from some of the systemic risk that's being put out there so that if it hits that it doesn't hit you. Uh I have long believed you're you may not be able to save society but you can always save yourself. And so think about like where does this go because boy if this breaks we're really going to have a problem. And so it's very interesting. Ed I think is becoming um as big as he is precisely because he's a bear. He's talking about listen guys, this is not going as well as you think it is. These are the things that people need to be paying attention to and he's coming with the receipts of actually mapping this stuff out. Um so this is certainly a voice that you can expect us to be bringing on more in the future. Um, but as if you're trying to figure out like why I cover the things that I cover, all of this stuff is tied into why we have uh directionality in the culture in the US for sure, more broadly in the west that is getting more and more distorted by the day. Uh, and so understanding how all of these pieces connect to each other, how a lot of what we're living through right now is actually an echo of 2008 still that we never got back on our feet. It's an echo of the um things that happened in terms of making life uh more expensive for the average person during COVID. Uh it's an echo of the wild way that humans get optimistic uh and then are intentionally blinding themselves to debt. It's the fact that um the world is far more interconnected than we want to think. from Iran and GCC investments into the US market to Japan and the way that they've provided global liquidity to the general malaise of a nation of people that are prone to be radicalized because you've spent so much time financializing the world that there aren't the sort of good mid-tier jobs that people used to be able to count on that created a thriving middle class. also all happening at the same time where you've got um Islam as a culture just having way more energy, way more drive to push out and get people on board all just like happening at the same time. It is this crazy time where the world order culturally, the world order economically, the world order militarily is all changing right now in real time. And I'm trying to make sure that I'm paying attention to all of those different threads that are reinforcing in each other and sharing energy in that same circular fashion that these companies are investing in a circular way. And until next time, my friends, be legendary. Take care. Peace. If you like this conversation, check out this episode to learn more. Everyone right now is comparing today's AI stock boom to the dot bubble of 99. But the sharpest minds on Wall Street have a different vision. One of those people is Warren Buffett. Warren Buffett is uh I know that he's known