Tech Insider WARNS: "You Are Not Prepared For 2027" transcript

So, you were in an AI bubble. >> Yes. >> And when will when this AI bubble collapses, so much of the economy is resting upon it. >> Yeah. >> It's going to have downstream consequences. So, I got two questions for you. I guess the first question is, are we in an AI bubble? And what happens when the bubble pops? >> Yes, and it's it depends. So, the big thing that people say is, oh, we'll get bailed out. Donald Trump's scared of Donald Trump.

Here's the problem with this. It isn't just an AI bubble, it's the Roku bubble. So, the AI bubble collapsing will probably be this company running out of money. Open AI. And the thing is with Open AI is, they were meant to go public this year. And now it's been pushed to next year. >> A year and a half after they released their audited financials. What a way that was. Um but they've delayed to next year. Sarah Friar, the CFO, has now said, well, they'll do it earlier than 2027 or 2027.

Great answer there. >> For anyone that doesn't understand what going public means, that means joining the stock market. And at such a time when you join the stock market, your investors can finally sell the equity that they got for investing in the company when it was private. So, often times companies will flirt with the idea of we'll go public someday soon because investors will have a moment in their head where they'll get their money back at a return.

So, you kind of need to if you're in these guys' shoes, you kind of need to be flirting with going public or investors won't want to invest. >> Open AI up until this point has been a private company. And their last funding round, they were valued at $865 billion. Now, now, when they tried to go public, New York Times' Mike Isaac reported this, they tried to list at well, they wanted to go at a set a $1 trillion valuation.

Apparently, their advisor said, no, don't do that. That is very bad for a number of reasons. One, Open AI needs perpetual amounts of money. They raised $122 billion this year. Most of it's crossed, there's some left, but they are going to need to raise at least $100 billion a year just to survive. If they can't go public, they will have to raise another funding round. Problem is, it's going to be difficult to raise uh even the same one they raised at.

So, they're probably going to have to take a flat, so the same amount, or down round. >> Exactly. But they need money. They need money so bad. Amazon sent them $35 billion that was meant to be contingent on them going public early. They did that because they needed the money. Now, OpenAI is the kind of catastrophe center here because Anthropic is likely going to beat it to go public, and once Anthropic goes public, it'll be borderline impossible for OpenAI to do so because Anthropic, an unprofitable, unsustainable AI lab, but a better business that's growing faster than OpenAI's.

I believe they have a ceiling. They're eventually going to face perdition, too. I think sometime in 2027, things are going to start running out of steam because, that thing I said earlier, the only way these models get better is if you feed more money, tens of billions of dollars into them. >> So, you think OpenAI runs out of steam in 2027? >> I think they're already running out of steam, yeah, but I think they run out of cash. >> You think they run out of cash? >> Yes. >> And the sequence of events here will be they they go out and try and raise >> And they have trouble raising another round.

I think maybe Nvidia props them up a little, maybe private credit, BlackRock and BlackRock and the like, the ones and the reason that private credit is getting involved, so asset managers, is because they're investing in the data centers, and they know this company's most of the data center demand. >> Okay, so they run out of steam in 2027, according to you. >> Yep, and maybe they try if they bum-rush to go public, they're going to have worse economics than Anthropic.

They're going to get savaged. WeWork was a great example, another SoftBank classic. Now, I think OpenAI collapses. There are many different ways it could happen. There are many different ways it could end. But the crucial thing is is that there are multiple companies that are existentially tied to OpenAI. SoftBank, one of the largest companies in the Japanese stock market, a holding company with lots of investments. They have, on paper, about a hundred billion dollars worth of OpenAI stock.

If they can't go public, they can't do diddly squat with them. And so, SoftBank's future, their ability to continue paying the people around them and existing as a business, relies on their ability to continually liquidate funds to be to take the things they've invested in and have value from them either by selling the stock or taking loans out on the stock. If OpenAI can't go public, SoftBank can't do that. SoftBank probably won't run out of money, but we're going to see one of the largest holding companies in the world become much smaller.

We will also see Amazon, Google, and Microsoft have to restate guidance. They will have to say we don't think we're going to grow as fast. >> And what happens then? >> Well, I think we enter a tech depression because the Roku bubble, the core of my theory, is that they're out of hyper-growth ideas, but the market doesn't think so. The reason they're so maniacally spending is because buying AI GPUs allows them to kick the can further.

It allows them to say, "We're still doing something. We're working on AI. Don't think too hard." And also, the current businesses are still growing. Their current businesses will eventually slow. There's only so many price increases, only so many tweaks to ads, only so many tweaks to Google search, only so only so many ways that Amazon can screw merchants. >> So, in that tech depression, which you think it might be triggered in 2027, is that a cascading downstream economic depression because the stock market is heavily dependent on these companies?

The stock market sees a pullback, investors stop investing, they get panicked. >> Yes. I think that because >> What what sort of downstream consequence, the sort of domino effect? >> There's so much to imagine that it's difficult to capture everything, but there are a few things that worry me. First of all, a ton of American money, just regular people's money, retail investors, are in these companies and they bought into the Magnificent Seven thinking that number go up forever.

Nvidia is the largest company on the Fortune 500 and Nasdaq as well, and like 7 to 8% of the S&P 500. That company, when when the bottom falls out from Nvidia, and we haven't really got into it, but Nvidia is doing the most circular refinancing, feeding companies money so that they can raise debt to buy more GPUs. I think Nvidia's revenue could go 50 to 70% down. I think that Nvidia could put Nvidia back in 2022 was making single digit billion dollars. >> And what happens though?

I'm thinking about like Jenny and Dave that are watching this right now. And they are just normal people. With normal jobs. >> People's retirements are going to contract severely and I don't believe they're going to return to those values. And I think that because so much of the value of the S&P 500 and Russell 1000 index comes from these four companies and the rest of the magnificent seven, so Apple, Tesla, Meta as well.

And the thing is I don't know what happens after that because venture capital has also like more than half of venture capital last year went into AI. I think most venture capital investments in AI going to zero because when it comes to building a company on top of an LLM, all of those are unprofitable, too. And the thing is LLM companies have not really been acquired. The exception being Cursor bought by Elon Musk for the coding side, but you have Cognition, which is just another LLM company raising a $26 billion valuation.

That means that company has to go public cuz who's buying a company at $26 billion other than Elon Musk? There were rumors that Elon Musk was trying to buy them as well. Is Elon Musk just going to pick off every LLM like LLM company like going to TJ Maxx for AI? Like Jesus Christ. >> So is that a recession you're describing? >> It is a recession, but it's also a depression within people's retirements. Like I'm talking about 20, 30, 40% off the top of these companies' stock value. >> Economic contractions or recessions consistently lead to job losses and rising unemployment.

When an economy contracts, the mechanism driving job losses typically follows a predictable sequence. Falling demand, consumers and businesses spend less money causing revenues across most industries to drop. Margin compression, with lower revenue and often fixed overhead costs like rent or debt, corporate profits shrink. And lastly, cost-cutting measures to survive or protect profit margins, businesses freeze hiring, reduce hours, and resort to layoffs. >> Yes, that's that would all happen, but the thing is we're talking about equity values dropping and we're talking about there not really being a home for that value or that money. >> [snorts] >> So much is riding on these companies, but you can't bail it out.

You can theoretically bail out OpenAI. I don't think it happens. You could pump these dogs full of money and keep them alive for a bit, but at some point they're going to have to start They have Between these two companies, Anthropic and OpenAI, you have $1.1 trillion of commitments. Just OpenAI. Oracle is building 7.1 gigawatts of data centers, so over $400 billion worth. Just for OpenAI. There is not a customer on earth and Oracle's revenue has been flat last 15 years when you adjust for inflation.

Without OpenAI, Oracle dies. >> So you think OpenAI is going to crash and run out of money and that's going to cause this domino effect across these other big tech companies, which is going to impact the stock market and in impact the broader economy? >> Yes. And also the tens of thousands of people that will be laid off from the tech sector, but also the venture capital thing is significant because venture capital has been having one of the most historic bad runs in history.

Since 2018, the average return from venture capital at total value put in, so the amount of money you get back for your dollars between 0.8 and 1.21, meaning for every dollar you invest get 80 cents to a dollar 20. >> Paper gains. >> Well, no, that's just actual get like actual returns. Paper gains they'll give you, but even an internal rate of return, which is a whole separate thing, even that's not very happy, but long story short, very simple, venture capital is not making money Venture capital is not actually providing returns. >> They're celebrating paper gains. >> And they're raising off paper gains. >> Uh-huh.

And actually >> By paper gains, I mean just being able to say, "Oh look, the valuation of Anthropic went up." So >> But that's that's what Google and Amazon were doing. Google's last quarter, they boosted their net profits, profits on paper, by $99 billion because of the increased value of their SpaceX holding and their Anthropic holding. And again, the fact that this is happening is insane and the fact it's not a scandal is insane, but we live in this culture, I guess.

But, everyone is really benefiting right now. It's really that It's that great tweet where it's like, "When you're uh reaping, it's like, yeah, yeah, this rocks. Sowing, ah this sucks." Because right now they're all like, "Yeah, all the speculative gains are awesome. The paper gains are awesome. The theoreticals of Anthropic being worth $2 trillion, wow, the articles we can write, the promises we can make." Then when the rubber meets the road, it's going to be pretty rough on them because like the valuation of Amazon, Google, Microsoft, and Meta is based on this idea that they will grow eternally, that they will grow forever.

If that changes, to quote Proji Markets again, it's this they're all doing Botox right now. They're sinking money into it to make themselves feel young again, and the market believes them. When the market doesn't, we're not just talking about a depression, I'm talking about the market valuing them like airlines and saying, "Yeah, you're real big and you make money off your existing products." But guess what? You don't have new You're just going to be doing this forever and we're going to value you as such.

So, if Jenny and Dave, should they do anything differently? Should they be conserving money if there's a recession or depression coming? Should they be a little bit more conservative? Should they I yes. I actually I actually think it's I don't know. I don't have money in the market. I think it's a casino casino pumped up by the media. Should they invest in the S&P 500? Should they invest in open AI on Facebook? I Oh god, no.

I Honestly, I live in cash right now. I >> You like cash? >> Yeah. I don't trust the market, man. Trying to get some gains here. I'm like, I'm not comfortable giving financial >> Sure. >> advice, but it's like if you like it's like you're gambling. >> Okay, be conservative. Things might get volatile. >> Yeah, it really is It's going to be act as you would with volatility. Take the gains when you've got them. Don't sell everything, but be suspicious of tech.

Like that's actually the biggest thing. It's like be suspicious of what they're promising. If you're acting based on their promises, don't trust the promises. Trust that they are going to say what will make the stock run rather than what's actually happening and that they will find every dodgy way to make you think something is happening rather than it's actually happening. Annualized run rate, great example. Microsoft said that they had 38 37 billion dollars of annualized run rate in AI.

You hear that, you go they made 38 37 billion dollars, right? Wow, that's so much Run rate maybe months times 12. They don't even define it, but it's built to manipulate and they do that because we don't have a functional SEC and we don't have a media environment that actually where skepticism is the priority and where protecting the readers is necessary. >> What would they say? They would say uh this technology is going to be so great and so transformative that we are investing a ton of money um in advance of the value and utility showing up.

That's what they would say. >> Right. >> and I've heard your rebuttal, but I just wanted to express like that. I think that's their sentiment. I'm not defending them or anything. I'm just trying to provide enough like balance to see we see if we can dance between these um these two perspectives. And a lot of people would say that there's going to be a bloodbath um because they can't all win big in the way that they're kind of describing.

So someone's going to have to lose and when one of these players starts to lose big, I think it could as you say, there could be some kind of domino effect or contraction. >> Yeah, and I think the thing that people want to believe is they the dot com bubble thing. It's like it worked out afterwards because Amazon, Oracle, they didn't die after the dot com bubble. They're actually fine. This isn't like that. They're bigger companies.

They have bigger promises and even I'm not like Oracle, I actually think could die. I RIP Larry. Well, it couldn't happen to a nastier man. They'll probably >> these people, do you? >> No, I actually like >> No, you know, I ask this question purely because I want an answer, not because I agree or disagree. But um why don't you like these these people? >> I don't like being misled, and I don't think regular people are being misled either, and I really don't think that the average person can get away with bullshitting as much as these companies do, and I don't think the average person gets anywhere near the level of affordance for failure and lying as these companies do, and I think there is a real economic and human cost to allowing these companies to run rampant and promise the world and never really get called up on it.

The tepid nature of criticism these days is so frust trating. There are some really great critics out there, but they're really great people, but it's like seeing these ultra-rich, ultra-wealthy, ultra-powerful people lie through their teeth or misstate or whatever people want to call it, it turns my stomach, and I hate seeing people being misled, and I feel like I write at such length cuz I really want people to see why I've come to a conclusion.

Am I right or am I wrong? I think I am. Of course, I do. But I also I just find it loathsome. I find these companies don't make good products anymore. They don't care about the customers. And and they treat their customers with contempt. >> If people want to go read more about your work, um you have a great Substack. >> Ghost, actually. It looks exactly like I'd moved off of Substack in 2024. >> Oh, okay. And you also have a podcast you do? >> Yeah, Better Offline. >> Um I'm going to link both of them below.

So, whoever wants to read more, get more detail, and and follow Ed, I think it's I would highly recommend. It's It is fascinating. And you know what? One of the things people um sometimes struggle with when they listen to podcasts is you get lots of different opinions. And weirdly, I think they think of some people assume podcasts are going to be like one person saying the same thing as the next person and then the next person and the next person.

That's just not the nature of information in the world and opinions and progress and discussion. Uh what what happens is people have different opinions, and I think my job, but also the listeners' job, is to try and pass through it, and over time collect more of these reference points from different people, and and do your own research. >> Yeah. >> Whether it's on your health or whether it's on something like this, is to watch and do your own research and to learn.

And I would say also, never believe one person. Never believe one particular perspective religiously. You know, collect a body of evidence and follow follow the evidence yourself. But I love watching your YouTube because it provides a different opinion. And that challenges me to think beyond my current opinion about what might be possible. So when I've heard you talking about how this is an economic bubble and I've heard you talk about the cap expend with these big sort of frontier AI labs, it really did make me pause for a second.

And it really did make me consider that that there could be a bit of fugazi going on here. >> Yeah. >> And then it made me reflect on history and go, you know, through history there's always a bit of fugazi in these moments and oh, that's an interesting take. And what's going to happen in 2027, 2028 when there's a bit of a market pullback and so I highly recommend people go watch because you do, you challenge me to think differently. >> Yeah. >> And we need some of those current voices to >> [snorts] >> to have honest discussions.

So thank you for doing what you do. Really appreciate it and I find you to be a very compelling, captivating communicator. And I've I feel like I've learned a lot today. So I appreciate that. We have a closing tradition. >> Yeah. >> Where the last guest leaves a question for the next guest not knowing who they're leaving it for. And the question I have for you is given that high-quality relationships are important for health and longevity, what should we be doing to improve our relationships and social connection? >> So this is actually connected to the AI bubble.

So I'm a critic. I'm a skeptic, we'll call I have found that showing and appreciating and loving the people around you and uplifting them and and raising them up as you succeed is the way we do that. Your success should be everyone around you. It's not economic, it's talking about Matt Hughes for a while made me really happy. This whole thing has been at times quite grueling and quite negative and quite brutal. But the love I've found and the joy I found from community and the people I because even in the in the small groups of haters, even like Gary Marcus and so the people I talked to Edward on Graystone Jr., Molly White, Brian Merchant.

There are so many people who have been loving and caring and I think within especially these very critical moments when you're like very much dialing in on how negative things are and how bad things are. Finding the people who maybe find it repulsive too. Finding the people Finding your people who can be the people who will talk to you about it. Even like Trewin and Jake, my my trainers who are so excited about this.

Um Even talk to them about the as normal people. Knowing that there are people there going through their own struggles but also to just give you the perspective and also remind you that you are human too and focus. I know this is kind of a all over the place point but it's just it's really easy to get hard locked in everything in life and to kind of get away from why you do things and focus too much on the work. When the most important thing at times is just to know there are other people feeling the way you do and when I hear from my listeners, my readers a lot, the most common thing I feel is they feel like they have a voice and they feel like someone is there for you. >> Yeah. >> And I don't think it can be understated how much it means when you just reach out to someone you love and tell them you love them.

Tell them their rocks. Say that their bangs. Tell everyone you when you like an artist or a writer or they have a podcast like this, tell them you love it. We don't do this enough and we need to do it more. >> Well, that's a good closing message. So if you do have you have enjoyed the conversation today with Ed, please do let Ed know that you love it down below. If you love the Diary of a CEO brand and you watch this channel, please do me a huge favor.

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