Bethany McLean

From my friend Mr. X: As Anthropic apparently starts their road show, which I would call “We Work Part Deux.”  Remember, as I said before, We Work cut their valuation 3x, still couldn’t get it done, and then eventually ended up bankrupt.  And in my view, We Work and Adam Neumann had better governance and were a better deal, for a variety of reasons.  And that was before everything started coming undone and prior to policy heading in the wrong direction and prior to the head of the central bank of NVDA, who is also financing them, was caught canoodling with a Chinese spy.   This is why it does not work.  This is not .COM or railroads.  The $ are being spend on an incredibly dis-economic technology that will decay as opposed to sticking around.  This is rapidly depreciating immature broken software and compute that is the equivalent of UNIX, SPARC, and VAX or a Mainframe.    Then, the more they are spending, the less they are getting.  It is sort of like the impact of every incremental dollar of debt on GDP, very diminishing marginal returns.  There is no scaling.  If the underlying technology does the opposite of scaling, the business cannot scale.    Said simply, cost per unit is going way up (Anthropic’s S-1 tells you this too), revenue per unit is plummeting.  See this tweet and subtweet:  [x.com]   More on Jensen the China lobbyist:  garymarcus.substack.com/p/je… [garymarcus.substack.com]   ICYMI re my last:  culperresearch.com/wp-conten…   teapawt.net/ramez/status/211956869… $NVDA @JG_Nuke @DougKass @edzitron @MacrostrategyP @GaryMarcus

Everyone knows about Nvidia’s circular obligations. We wanted to build the first, comprehensive living guide to the Bank of Nvidia.  All the $NVDA commitments and guarantees, presented in one place:

Comprehensive list of hedge funds blowing up this week, getting large redemptions, or shutting down PMs: - Axebrook - Walleye - Engineers Gate - Lone Pine - Millennium internal pods - Verition pods - Samlyn Letter from Walleye closing internal funds below

New episode with John Hempton (@John_Hempton), legendary Australian hedge fund manager and short seller. I wanted to get John’s thoughts on the likelihood of an overbuild / bust in AI compute, and what implications that has for the Australian government’s data centre push. John talks me through why he thinks the global compute build-out is “fibre optics Mark II” - i.e. why AI is “the most amazing technology of your lifetime”, yet compute looks like “the worst business in the world”. John’s recipe for the worst business in the world is: “high capital cost, low marginal cost, competition, and technical improvement”. With these ingredients, new entrants push prices down to marginal cost, businesses can't recover their capital costs, and they go bust. To get an adequate return on the $7 trillion of capex expected to be poured into compute by 2030, John estimates you’d need $2 trillion per year in revenue. That would most likely have to come from businesses replacing workers (or not hiring new ones), as consumers won’t get you there. But companies typically don’t fire people for a 10% saving. So to pay $2 trillion a year, they’d need to save at least twice as much, or $4 trillion in wages. The OECD wage bill is about $40 trillion per year. So you’d need to save, for argument's sake, 10% of the wage bill across the entire OECD. But that kind of saving seems politically and practically implausible in such a short timeframe. So expect excess supply and bankruptcies. (Again, none of that is to say the underlying tech is useless - far from it.) John also shares the thing that shocked him most about Anthropic's S-1: namely, how compute-efficient it is. By his estimates, Anthropic has spent only about $12 billion on training compute over the lifetime of the firm. Which makes the $7 trillion build-out look even worse. There's so much more of interest in this conversation, but let me share one last thing. There's an interesting question as to exactly what the productive infrastructure left over from any overbuild will be. It might not be the GPUs, but the fabs and/or energy generation. John tells a great story about how old chip fabs he thought were worthless ended up finding an application making the tiny sensors in car air conditioners and Tesla batteries. After all this, the policy implication for Aus govt is to happily facilitate the compute build-out, but just don’t subsidise the world’s compute the way China subsidised the world’s solar panels (another example of a bad business). Watch below, or wherever you get your podcasts! 0:00:00 – The most amazing technology of your lifetime 00:03:10 – A short seller discovers jaggedness (from first principles) 00:19:40 – The Situational Awareness blow-up 00:24:46 – The worst business in the world 00:31:02 – Fibre optics, Mark II 00:42:41 – The best model was shockingly cheap to train 01:01:26 – Why the $7 trillion build-out can't earn its return 01:11:13 – What survives a compute bust? 01:22:59 – A data centre is a better neighbour than a prison 01:27:30 – A bad business is not a bubble

Check out the latest Drinks With The Deal #podcast with David Marcus, where Journalist @bethanymac12 discusses the scale of the #AI boom and whether companies will be able to repay the debt they're using to finance it. thedeal.com/podcasts/drinks-…

Business journalist and bestselling author @bethanymac12 has joined our reporting team as chief financial correspondent. She will expand Inc.’s coverage of private equity and venture capital, private and public markets, and the financial forces shaping entrepreneurship today.

Why are so many AI companies run by crooks and financed by Nvidia? I went over one of them that collapsed last week, an AI company called Firmus. It’s not a good sign. Some strong echoes of the late stage subprime crisis. thebignewsletter.com/p/monop…