Why Zitron says AI labs’ compute commitments require huge growth

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 23:06

   Their compute is owned by SpaceX? Some of it. Is this all just a circle jerk? Yes. I don't understand. So they're all building, everybody's building data centers. Yes. And they're all renting space at each other's data centers and charging each other different rates. So just to be clear, the AI labs, the Anthropics and OpenAI, they rent compute. They rent compute from space. Well, OpenAI doesn't, but Anthropic pays.

2. 23:38

   They're going to be, as of December, they're going to be paying $3.1 billion a month, a month to Elon Musk. So when did Elon Musk build all the compute? I had no idea that he was even in this. And why wouldn't Anthropic or OpenAI be building their own compute? Well, that's the problem. These companies lose billions of dollars, which makes banks really uneasy when it comes to lending you money. So what they do is they have their hyperscale pay picks.

3. 24:05

   So Oracle, Larry Ellison, everyone's favorite. Larry Ellison is building about $400 billion worth of AI data centers for one customer, Sam Altman. Clammy Sammy himself is going to apparently pay him $300 billion over five years. Now, does OpenAI have the money? No. Does Oracle have the capacity? No. But don't worry. According to TD Cohen, NVIDIA is going to be helping Oracle out by leasing space and then subleasing it to them.

4. 24:34

   NVIDIA, by the way, is the GE capital of this all. They invest in all the companies. They invested in OpenAI, SpaceX, Anthropic, CoreWeave, which is a NeoCloud, so a company that just builds data centers and sells AI compute. And by the way, takes out debt using the chips as collateral and then buys more chips using that. It's magical. So they take out with money they don't have, they're leveraging.

5. 25:03

   So they're highly leveraged. That's CoreWeave, yes. on their own build out. And yet they are fighting not to pay taxes on this value that they are saying they have, but don't have. Is that the magic trick? There's so many magic tricks. That's the thing because the AI labs, it's funny. People are always talking about the open AIs and Anthropics as in, oh, well, they're building their own stuff. No, they're not. Anthropic has, this is serious, $430 billion worth of non-cancellable commitments with Amazon, Google, Microsoft, and Broadcom. Broadcom, that AI chip company.

6. 25:45

   Yes. Uncancellable. Uncancellable. You cannot cancel these commitments. And what are these commitments that they've made? So for Amazon, Google, Microsoft, they've made commitments to rent data center capacity, hundreds of billions of dollars worth. And when I say non-cancellable, it's something called a take or pay arrangement, which means you're going to use this. Pay or play. Yeah, you've got to pay regardless.

7. 26:09

   So Anthropic has, it's funny, the way I would describe the S1 is it's a description of a company that doesn't exist anymore. Because it was before all of these commitments begun. And Anthropic now has these things probably starting next year that are going to cost it $75 to $100 billion a year within the next year or two. And this is regardless of whether its revenue grows. This is a company that only loses money.

8. 26:33

   What are their project? What are their revenue? How are they justifying these commitments? Where are they seeing then the growth in all this? How do they justify putting that much money into a build out and usage? They believe that they will grow to hundreds of billions of dollars of revenue in the next few years, because if they don't, they're not going to be able to pay this. Their operating expenses will be $100 billion plus in short order.

9. 27:02

   Microsoft, so a very profitable $330 billion a year company, has operating expenses of like $150 billion. So Anthropic just believes it will be the size of Microsoft soon. You may be wondering where the proof is. It isn't there. I am wondering that. That was one thing I was wondering. Yeah, the S1 doesn't explain that. Anthropic just has these crazy projections. Their entire valuation comes down to them making $200 billion a year in revenue in two years.

10. 27:30

    $200 billion? Mm-hmm. And what is their revenue now? Probably in the region of $30 to $50 billion a year, max. We don't have the fourth quarter. Oh, this is the worst episode of Shark Tank ever. Yeah. But what's crazy is you tell people this, and they will say, well, it's different this time. These are the smartest people, the smartest guys in the room, if you will, Enron. And these people are so smart.

11. 27:54

    AI is the next big thing. But here's the really scary part. So according to a payment and credit card company called Ramp, 80% of OpenAI and Anthropics revenues come from 1% of their customers. And most of those customers are venture-backed AI startups that run their services