Elon Musk, Ken Griffin and Chamath Palihapitiya all called the top of the AI trade in the same week, as CoreWeave, Nebius and IREN fell more than 30% in a month. Host Ejaaz Ahamadeen breaks down what's true, who's talking their book, and what investors should actually worry about, from idle GPUs to a closing debt window.
There's no easy way to say this, but the stock markets are getting crushed because 3 of the richest men in the world might have called the top of the AI bubble. One of them is Elon Musk, one of the biggest proponents of AI in the first place. He thinks that there's not enough capital and money in the market to support the expensive buildout of AI, and Ken Griffin, the CEO of Citizen.agrees with them. He says we're almost certainly in a bubble. Tremath thinks that 75% of every single dollar spent and invested in AI is being subsidized by venture capital, and AI stocks are down horrendously, particularly neoclouds who have drawn down on average around 30 to 35% over the last couple of weeks. Absolutely brutal.But what doesn't make sense about me, and where the alarm bells started ringing is each of these three individuals have an incentive to say that thing. Elon Musk most famously recently took SpaceX to a pivot where they weren't just a rocket company or AI company, they also became a neo cloud, so it makes sense for him to talk down on his competitors. And Ken Griffin's Citadel is rumored to be.Short billions of dollars' worth of semiconductor stocks, and Tremath, he says it in his own words, owns a bunch of power and energized land, so he might just be talking his book. Now, the reason why I'm creating this episode is kind of self-serving in a way. I am an investor, I invest in some of these markets, and I'm trying to figure out what's actually truthful from what they're saying and whatActually isn't. I wanna debunk anything and everything and see what actually makes sense, and I figured a bunch of you are also investors or investing oriented as well, or maybe just some of you just wanna know what the hell is going on because it's affecting pretty much anything and everything from an investment perspective out there. It's affecting global macroeconomic indexes. So let's get into all of this and more on today's episode brought to you by Q Qualcomm.So it all started off with this one tweet from Tremmaath where he basically lists out a lot of reasons why neo clouds and investing in compute GPUs, the capex intensive part of AI, is currently in a bit of a precarious situation. Neoclouds are disorganized and very poorly capitalized, Neoclouds being the smaller startups and companies that aim to provide compute for AI labs that want to train and inference their models. He's saying they're poorly capitalized, they can't get access to enough.Money to be able to fund the compute that they're promising these companies, and so it's ending up becoming a bit of a bubble or bottleneck due to power and energy stuff. And Elon Musk decided to pile on here and he said, as of the past few weeks, debt markets have almost entirely shut off access to money for any company that doesn't have substantial revenue independent of AI data centers. He then goes on to say, that means the 200+ neo clouds are going to see guppy level death and consolidation. Some will make it through, but.But not many, and obviously the market's reaction to this was terrible. There was an entire near cloud meltdown, as you're seeing on this tweet, where stocks just cratered and tanked. And it's interesting to see, one, because these guys have such a huge amount of influence on social media to influence these markets in such a great capacity, but two, this was the second time these guys have done it in a week. Last week, I was talking about how the core wea've traded kind of became unwound. It was down.I think now 35% after Chamma and Elon Musk wrote tweets about them being over levied in the debt market, and I made an episode back then basically explaining that this was kind of not exactly true. Yes, they're taken out a lot of debt, but they had a huge amount of revenue backlog to back it up, and Chamath himself even said that it isn't as.Bad as everyone is making out and that the market is actually overreacting. Shamat's point is that 90% of AI spending that we see today, that drive Anthropic's massive ARR that we saw in the S1 yesterday and OpenAI's rumored ARR comes from 1% of companies and 80% of that revenue, of that spending.Comes from VC subsidized dollars, so subsidized from venture capital, AKA coming from startups that don't actually have the revenue or profit to be spending that money, they're just spending the funding that they raised. And so the point that he's making is, if this napkin math is true,Then we are in a heavily inflated bubble that is bound to either pop or recede pretty aggressively over the next year, and he makes the case that it's gonna happen mainly in 2027, we're gonna see some form of consolidation. Now Elon Musk piling on, particularly around neo clouds, I find very interesting because SpaceX's entire MO, the reason why they had blockbuster revenue earnings literally last week.Was because they became the number one neocloud provider. So forgive me if I'm just a little bit skeptical as to why Elon might be talking his book. This is coming from one of the biggest Elon fans out there, and their words have had a pretty gnarly impact. The markets have been wiped of around 1.6 to $2 trillion over the last 14 days, staggering, and it's part of a broader drawdown that we haven't seen for a significant.The last couple of years has been up only, and you could consider this nearing a recession type indicator. But the sector that's suffering the most are neo clouds, and the three main ones, core weave, Nebus, and iron are down around 30 to 35% over the last couple of weeks, absolutely shattering the market caps. Now, the reason why this is a problem in their situation, if you were in their boots, is they need as much capital as they can get. They need asMuch favorable credit financing, AKA money that they can borrow, that they can get to be able to buy the GPUs to set up the data centers, to then do their entire business. So you can see how this could end up in a house of cards or domino style collapse. But at the same time, I see some form of justification behind what Ken Griffin, Elon Musk, and Tremath are saying.The number 1 indicator being that there are currently millions of dollars, or rather billions of dollars worth of GPUs sitting collecting dust in data centers, and if you don't believe me, take Amazon's word for it, where they have openly said that they have millions of dollars' worth of GPUs collecting dust because they can't quite find the power and electricity and access to the grid to be able to switch them on. Now this is OK typically, but eventually it becomes cumbersome where you.End up actually losing money to the tune of 1 to $5 million a day. And I saw something recently which basically indicated that now these companies who have been promised data centers stood up by a certain time, if it gets delayed, they are owed 1 to $5 million per day. And insurance markets are coming out of nowhere saying, OK, we'll back this kind of debt, and these are the same insurance providers that are lending the money in the first place. Now, I'm not trying to get too complex here, but what I'm trying to describe is,This is a very circular loop that is forming, and this is not something that we have been secretive about in previous episodes. I've spoken about it quite blatantly and honestly here, but we're starting to see the actual evidence of these deals, what's being kind of signed on behind the scenes actually forming and what might give this a bit of substance. And even banks and chief economists, I think the chief economist of Apollo Global actually went online over the weekend and posted his thoughts and he basically said that listen.Aside from the top 7 companies in the world who are actually using AI profitably, so per employee they're making actually more money than they did, let's say a year ago.The other 493 companies in the Fortune 500 are not doing this at all. In fact, they're probably losing money. So I'm a bit at odds here. Now let's take Chamath's first claim, which is 75% of every dollar spent in AI is heavily subsidized by venture capital. Now, I'm from the start, going to say I don't necessarily disagree with this take. I definitely do agree that there's a bunch of subsidies being made here, but I don't think it's as extensive as he's making out.And I thought about that immediately yesterday when Anthropic released their S1 file, which is their pre-IPO financials, and I looked into it. And one astounding thing for me was, one, how much cash they had on the balance sheet. It's around $132 billion by the way. And two, how much they've burned on compute over the last year. We're talking about one of the leading AI labs here who have spent the most to train and inference their models to create the number one leading model. Guess how much they spent of that?Only 7 to $9 billion so they're very capital rich at this point. But there was also another important detail in the S1 which said that of all of Anthropic's main enterprise customers who are spending anywhere between $100,000 a year to $10 million a year,This only accounted for 0.1% of their entire annual company budget. 0.1% of the entire company's money that they spend in a year is being spent on clouded models.I don't know about you, but I thought that number would be way, way bigger, and it just highlights that not only is companies or labs generating the revenue that we hypothesize and speak about, but they're also making it in a way where it's not really too damaging to the books, which.Implies that there's probably more to grow here and more money to be spent, and maybe I just can't wrap my head around what that number might look like. Now,