Monologue: AI Hits A Wall

0:02 Zoe Media. Hello and welcome to this week's Better Offline Monologue. I'm your host ed Zetron. It's going to be a long week, after a long month, after a long few years, so I'm recording this monologue a little earlier than usual on Tuesday, to be specific, which means I don't have thoughts on in Video's earnings and won't have them unless, of course, things go really haywire. Now I've said that that sounds possible, but I think it's likely the no it loads refused cash dump will continue at least for another quarter there In any case, we have a far more pressing problem, the deterioration of open Ai and the AI industry hitting a wall. Last week, open Ai completed the seven billion dollar employee share sale, but unlike most

0:51 employee share sales, open Ai used its own cashed by its employee stock the previously raised valuation of eight hundred and sixty five billion dollars. A few days later, both chief operating officer and former CFO Brad Lightcap and Chief revenue officer Denise Dresser left the company. Dresser had been at the company less than a year and likely walked away from tens of millions of dollars worth of unvested open Ai shares. In April, she said that she had and I quote CNBC never seen this level of conviction spread so quickly and consistently within the enterprise industry, though it appears that said conviction didn't spread far enough to keep her at a company that definitely plans to go public some time in twenty twenty seven, unless, of course,

1:32 it's not quite so definite anymore. Anthropic has dramatically accelerated its plans to go public, with Bloomberg reporting that is aiming for a September October listing, though we're yet to see any reporting on its actual s. One Now, this is a problem for open ai in many ways, but let's get through all the news first. At the very end of last week, Bloomberg also reported that open ai was on track to hit forty billion dollars in annualized revenue seven billion dollars in annualized run rate, less than Anthropic had claimed it hit in May. And yes, you heard that right, I said on track, which does not mean it hit the number. And no, it did not define run ray because Bloomberg neglected to do so either,

2:10 And well, who needs definitions when you're just talking about bullshit, right, it could mean the last four weeks multiplied by twelve or thirteen, or really anything. We truly don't know. Everyone seems to use a goddamn different definition of run ray anyway. Then on Monday, Bloomberg reported that Anthropic had hit sixty five billion dollars in annualized run ray, which it defined I shit you not as a metric that projects full year revenue from a shorter period with no further explanation.

2:39 Who fucking cares, right, it's only about what's ostensibly meant to be the largest AI company in the world, with three hundred billion dollars worth of commitments. No need to actually know what you're talking about, No need to say anything further about a market moving number, no need to do that. Why fucking bother, right, Just put the story in the bag, the hype in the bag. Check please.

3:01 We wouldn't really say that at grocery store anyway. In other words, Open Ai had taken four months to not quite catch up with Anthropic, only for Anthropic to quickly drop that the race wasn't even close. Regardless, AI boosters immediately got a little anxious because many had been convinced by anonymous sources and questionable data blocks like yipit that annualized run rates were somewhere between seventy billion and one hundred billion. I guess the voices in their heads weren't reliable.

3:26 Did they try sacrificing an animal? I don't know what these fucking people do. Isn't real. It's just listening to the voices that say so, Yes, one hundred billion annualized by end of year. You only the way they will be able to invest in this IPO. Yes anyway said. Anxiety is spread across the AI industry, with even the most mold poisoned boosters now fretting that both Anthropic and open AI's revenues had slowed down, mostly because they have.

3:51 I will also add that these numbers, which come from the end of July are still from the era of tokenmaxing, where companies were encouraging employees to burn as many tokens as possible with no regard for costs, meaning that growth will invariably slow from here as enterprises cap spending, as Walmart and Stripe and multiple others have done. A day after Anthropic crept in its coffee, open Ai made the incredible decision too, and I quote pause some frontier reinforcement learning training to ensure it can meet the appropriate alignment.

4:19 A complex way of saying that open ai will stop training its latest models for at least the next few weeks to increase safety. Connected to the recent incident where an open ai model in an incorrectly configured server was able to hack hugging Face, which is less of a case of it going rogue and more of a case of open ai being bad at its job. If you tell software to do something, it's going to try and do it. Oh, it isn't lined right. You program the software poorly. You're wrong here. This isn't the magic of Ai.

4:44 This is the tragic of open Ai. It's unclear what open ai hope to achieve here, rather than vaguely saying we care about safety. But from everything I'm seeing on social media and in my inbox, everybody is interpreting this as open ai has stopped training new models, which is also the truth. Be only they claim for two weeks.

5:02 Maybe if you believe them. This is a really fucking stupid idea, by the way, or at least was a really fucking stupid idea to announce at a time when everybody has noticed that open Aiy's revenue growth is accelerated. New models and features are effectively the only way for these companies to keep growing, and open ai is far behind Anthropic, which makes the idea of not doing anything new or much new all the more questionable. Open Ai will, of course try and spin this as it's new models having incredible new abilities it must prepare for. Oh god, are you gonna see look at anyone saying that you just you just look at them. You can see the three finger thing from Chlorius bast It's like, Yep, there's

5:39 someone who doesn't give a shit. There's someone who will scarf down the marketing slot when fed to them. Mmm yummy. Anyway, this is all very rumant, but the word on the street is that this is open ai hitting a wall and running out of compute to serve inference and train new models, with one person suggesting that Anthropic could follow suit.

5:58 This does make sense for Anthropic, who got so desperate that it's renting capacity from Elon, Musk, SpaceX and potentially even Meta. But I'm surprised to hear it about open Ai, who boasted earlier in the year about its massive compute advantage over its competitors, and again it's also very possible that compute capacity is just not coming online very fast.

6:16 Sources of Oracle tell me that stargay Abelaine, which was meant to be finished in June or maybe the beginning of the year or maybe the end of the year, it's really unclear at this point, only has three out of eight buildings for the operational with a fourth in some sort of strange limbo where it's sort of ready but not quite isn't clear if it's generating any money, and you need money to pay for goods and services, and it's called revenue. Not sure any of these companies fully understand business, but anyway, this could also be a way for open ai to save money. By the information, open ai spent eight point six billion dollars on research and development so model training in the first quarter of

6:51 twenty twenty six, a number that likely increased in Q two with the launch of its GPT five point six sole, lunar and cyber models. And also for all the compute it was spending accidentally hacking hugging face I swear that's like a felony, right, like, we don't. We don't really have like laws anymore, I realize. But anyway, in any case, if Anthropic and open AI have truly hit the limits of compute, there's very little can accelerate it coming online, as every AI data center is the equivalent of cramming an entire city's power, usually spread over a billion or billions or more square feet into a round a million square feet built in the space of two years, with constantly increasing costs around memory, specialist talent, specialist materials, and

7:37 the oil necessary for the gas, turbines and the trucks to bring all this shit to the plot of land. And all of this is happening as revenue growth deccelerates. If open AI and Anthropic can't or won't train new models, that means they'll effectively become model wrapper companies, building products on top of clawed or GBT models in the hopes that they canduce further revenue growth, which is not going to help very much given them. Basically every company that builds models businesses on top of their models is both unprofitable and can barely reach ninety million a month in revenue, which wouldn't even cover a day's worth of inference if it were profitable, which it would not be. I'll add that if Anthropic beats open Ai to IPO, it's unlikely

8:15 open Ai will be able to float or at least have anything approaching an IPO that anyone would actually want to invest in. While both are unprofitable horribly so, Anthropic has the revenue advantage and slightly better unit economics, which is all it needs to make Sam Mortman's public offering untenable.

8:33 I think it's time to start having a reasonable discussion about the potential collapse of open Ai and the ramifications for counterparties like Google, Microsoft, Amazon, Core Weave, Cerebrus, and of course Oracle and all associated venture capitalists, in particular Thrive, who has billions of dollars tied up in this company, and of course SoftBank, which needs that liquidity otherwise well they're treat will fucked. If you're a journalist listening to this, you need to start seriously thinking about and writing about this because the current stay at this company suggested it has few viable paths to avoid pertition. It can't raise much more money. Ninety percent of its last funding round came from Nvidia, Amazon and SoftBank, none of which are

9:11 really going to do a return trip. Soft Bank literally can't afford it. Venture capitalists have never offered more than twelve billion dollars of any Open Ai round, and even if we are the World Telethon isn't going to be enough to keep this pig inflated. What a disgusting way of referring to a company. Anyway, continuing, there is not really a viable path for open Ai here. I don't know what they do, but it's kind of looking like they're going to die. As I wrote my news there this week, and I'll put a link to that in the notes. Either way, I'm off on a flight tomorrow.

9:41 It's a crazy week. You'll know why soon. It's all good stuff. I love you all, Thank you for listening. I'll be back next week with the wonderful calnw Port. Catch you then,