Zitron goes feral on AI
If only to arm you with arguments you might not be apprised of, it’s worth repeating artificial intelligence (AI) critic and author, Ed Zitron’s most recent warnings about the AI bubble, starting with a reference to the potential insolvency of OpenAI and Anthropic:
“While a few people have danced with the edges of the potential insolvency of OpenAI and Anthropic, nobody seems to want to talk about the actual consequences, choosing always to take one shot of hopium before getting into the grisly details, with the assumption being that something will go alright – so I’m going to rain on everyone’s parade and go through each point one by one.
- NVIDIA will still have customers after the AI bubble! Sure it will – for its gaming segment that is now so small that it’s blended into “Edge computing” on its earnings. As I’ve discussed previously, 50 per cent to 60 per cent of NVIDIA’s revenues are coming from hyperscalers that are actively participating in the AI boom, and without that boom (and the debt necessary to keep buying chips), nobody else is buying them at anything close to today’s scale.
- If Anthropic and OpenAI die, all that data centre compute will be used by someone else one day! OpenAI and Anthropic represent 80 per cent + of all compute demand, and their customers — unprofitable venture-backed AI startups — make up 80 per cent of their enterprise revenues, which means they’re likely to die before OpenAI and Anthropic.
- Someone else will pay for the capacity if they don’t! Who? Who is actually spending money on AI compute? I’ve looked everywhere and I’ve found at the very, very best $22 billion of non-OpenAI/Anthropic compute purchases!
- All of this capacity will be useful after the bubble bursts! No it won’t! Any AI data centre that’s yet to be completed will cost just as much (if not more so) to finish in a few years as it will today, much like the electricity costs are going to be.
- In addition, the vast majority of customers for AI compute are unprofitable AI startups that want to compete with OpenAI and Anthropic, meaning that once the venture spigot turns off, nobody will want it.
- AI services are like airlines – you stand up inference based on the amount of customers you might have, and need to guess correctly about your demand, because if you’re off in either direction, you lose a ton of money. With most of the demand for AI driven by endless media and peer pressure, once the AI bubble bursts, the “demand” for AI services will be entirely driven by utility…and considering most services lose money even during the hype cycle, it’s hard to see what post-bubble economy even exists.
- This means that it’s unlikely that we’ll have a “booming open source AI market” in the end, and at best we’ll have some sort of handicapped Google monstrosity, though even that seems less likely based on the fallout I fear.
- Anthropic and OpenAI can just cut their costs! With hundreds of billions of dollars in non-cancellable commitments, neither of these companies can “cut their costs.”
- OpenAI and Anthropic are the fastest growing companies of all time! Based on annualized run rates that are pegged to non-specific periods of time, all as their costs explode and they sign non-cancelable agreements.
- If Anthropic and OpenAI die, there will be other winners! Who? There are no other AI companies that are growing anywhere near as fast or have customer bases that come close to Anthropic and OpenAI, and those customers are mostly other AI startups. If Anthropic and OpenAI die, it’s because their customers died, which means their customers won’t be the “winners.”
The reason that so many of these misunderstandings exist is that people do not, on the whole, are surprisingly optimistic about basically any consensus opinion. Everybody has been saying that AI data centers are the next industrial revolution, NVIDIA’s stock has gone parabolic, every media outlet has constantly discussed Anthropic and OpenAI, and every hyperscaler has sunk hundreds of billions of dollars over the last few years into AI, which in turn makes you believe that everyone must be right and that everything will be alright by extension.
This immediately makes people turn off the parts of their brain that feature critical thinking, because the alternatives are so utterly opposed to what’s been promised by this industry and the media. The assumption is always that this much money can’t be wrong, or that these are the smartest people in the world, or that these are the largest and most-successful companies in the world, even though none of these statements actually answers a single question about “how…does all of this actually work?”
Even if you think AI is the most wonderful, beautiful software tool ever imagined, there is no rational basis under which you can look at the current economic picture and say that everything will be fine.”
– Ed Zitron
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
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