Monologue: The Pale Horsemen Arrive

The AI Demand Bubble

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2:36Call Zone Media And I looked, and behold, a pale horse. And the writer's name was The Smiling Man. This is your weekly Better Offline monologue, and I'm your host, Ed Zitron.

2:58Better Offline. This week, I put out one of my most consequential newsletters of all time, called the AI Demand Bubble, pulling together multiple distinct financial analyst notes from Wells Fargo, Barclays, and UBS that directly estimated that 70% or more of the AI revenues of Microsoft, Google, and Amazon were from either OpenAI or Anthropic. To be clear, UBS estimated that next year, Anthropic and OpenAI's compute spend will be 48% of all Google Cloud revenues, which means that they will likely account for even more

3:29than 70%, but I wanted to be fair. This was both a colossal pain in the arse and a story that I knew would piss off a lot of people because of its huge ramifications. As a result, I've had a ton of pushback from people that either outright deny that this is the case or say, actually, it's good the two unsustainable companies are the majority of AI revenues for companies that spent over a trillion dollars. Actually, that's great. Anyway, 24 hours later, Bloomberg ran a story estimating based on OpenAI's $24.1 billion contribution to Microsoft's fiscal year 2026 revenues and previous statements that OpenAI

4:02alone contributed to 70% or more of Microsoft's AI revenues for the year. For some context, Microsoft has spent $26.13 billion in capital expenditures since the beginning of 2022. And other than getting to have the swagger of someone who just laid out a 7,000-word thesis founded in deep research and hard numbers, only to get their work validated in less than a day, this story also confirms my greatest fears about the state of the AI industry and the actual demand for AI compute. Microsoft has spent over $200 billion, and that's not including the $13 billion

4:37invested in OpenAI or the losses it's incurred running their services at cost, at least in 2024 but potentially beyond, to create a customer that is now worth 7% of its annual revenue that cannot sustain its existence without near-constant flows of venture capital funding. Microsoft's year-over-year growth for fiscal year 2026 was about 17.7%, but when you remove OpenAI's $24.1 billion in revenue, which comes from OpenAI's compute spend and revenue share, Microsoft's year-over-year growth was more like 9.24%, the lowest it would be since fiscal

5:10year 2023 when it only grew by 7%. But there is one big difference, and that's, well, capital expenditures in the entire fiscal year 2023 were $31.8 billion. And Microsoft spent $35.8 billion in the fourth quarter of the fiscal year of 2026, a year when it spent $115 billion goddamn dollars, and it wants to spend another $175 billion in CapEx in fiscal year 2027, which begins July 1st, 2026. It's annoying, but we're moving on.

5:41Oh, and OpenAI, arguably Microsoft's largest customer and responsible for nearly half of its growth in the last fiscal year is going to run out of money, and by nature of it being 70% of Microsoft's AI revenues, it's very obvious that there are no other large customers that exist that could possibly take up all of this infrastructure, other than, of course, weird Wario Amadeus Anthropic, who is in exactly the same position as OpenAI, but with a slightly more annoying voice, because we're near the exponential. This also means that any future revenue guidance and analyst expectations are now set under the

6:14explicit assumption that Anthropic and OpenAI will both have the need for and be able to pay for increasingly larger levels of compute at increasingly higher prices. Based on the analyst notes I reported on, which are in the newsletter, or at least quotes, UBS, Wells Fargo, and Barclays all have the expectation that much of Google, Amazon, and Microsoft's revenues are going to come from OpenAI and Anthropic for the next few years, and they don't seem to be diverging from that point in any way. Everyone just thinks that this is where it's going to come from. Any failure for these revenues to appear, out of insolvency, lack of

6:47demand, or unbuilt data center capacity, meaning they can't get paid, will piss off a Wall Street that's been brainwashed into believing that these three companies are growing because of diverse demand for AI services, rather than having pissed a trillion dollars up the wall to mostly to just feed themselves money. I am not confident that the market will actually understand what Bloomberg has said, as I'm looking now Microsoft is up 2%, Jesus fucking Christ, so let me spell it out for you. 70% of Microsoft's AI revenues are from either its revenue share of OpenAI's money, or OpenAI spending

7:18money to rent out compute from Azure. This means that Microsoft is now dependent on OpenAI for future revenue growth, as the company now represents more than 7% of its annual revenues, and there does not appear to be significant contribution from anything outside of single-digit billions of annual revenue from Microsoft 365 Copilot, a product mostly sold by tricking people into signing contracts like Dr. Facilier in the beginning of Princess and the Frog. Microsoft believed it would create an independent ultra-growth engine from its investments in OpenAI. Instead, it has created a

7:50parasite. At 70% of AI revenues, OpenAI represents the failure of Satya Nadella's empire. Microsoft has spent $260 billion on infrastructure for demand that does not exist outside of two different companies that burn tens of billions of dollars a year. And to make matters worse, OpenAI and Anthropic must grow their compute spend aggressively every single year to keep up with the expectations of analysts, which will mean it will need more and more money, which means anyone investing in Microsoft is effectively gambling on how long OpenAI and Anthropic can continue to raise money before they

8:24simply exhaust every available form of capital. This also means that there's not really real demand for AI, at least not remotely commensurate with the capital expenditures, or all of the endless blathering on about how much the world is changing because of AI. Microsoft has tens of thousands of Azure and software salespeople, the single most expertise in building large-scale infrastructure outside of AWS, and the single most ruthless CFO outside of Oracle. If there were actual demand, actual margins, actual customers, they would sell to literally anybody else. They would sell that

8:59compute to literally anyone else other than OpenAI. They would sell it to Gargamel. Microsoft would happily help Gargamel kill every single smurf, rather than talk to Sam fucking Altman or Dario Amadei ever again. If there were meaningful demand for AI compute or AI software, Microsoft would be representative of it as the largest vendor in the world of both. 70% of its AI revenues and 7% of its entire annual revenues come from a company that just had to raise $122 billion in March and then delay its IPO

9:31because its advisors didn't think it would get a trillion dollar valuation. The demand is not there for the over 300 gigawatts of data center capacity and planning, outside of course of OpenAI and Anthropic, who still to this day have yet to prove any possible way of becoming profitable, and have had to raise over a combined $200 billion in the last seven months just to keep the lights on. To be clear, Sam Altman has also signed up for over $750 billion worth of commitments, which means that Google, Amazon, Microsoft, Coreweave,

10:02Cerebrus, Iron, Nebius, Lambda, and any other associated counterparty's future revenue growth is dependent on clammy Sam Altman's ability to raise more than the combined sum of global venture capital in the last year in the next three years. On top of that, Dario Amadei's Anthropic has made over $300 billion worth of commitments on top of a $35 billion Apollo-backed private credit deal where Google will sell its TPUs to an SPV that would then install them in Google data centers for Anthropic to then

10:33rent from Google. It's so stupid. It's an insane monument to the desperate, manic, capitalistic innovations that crown this wretched era of dog shit.

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Lack of Real Demand

13:25FINRA SIPC. The demand isn't there. And some of you might, I know I'm going to get an email saying, well, demand is real from Anthropic and OpenAI. Yeah, they're selling $20 or $40 for a dollar. I imagine there's some demand. Everyone's screaming at you to use AI everywhere. Wow. That's demand that comes from social pressure, not actual value or utility. And really, that demand isn't there. If Microsoft isn't seeing it, nobody is seeing it. The only reason that any NeoCloud is still alive is NVIDIA's

14:00circular financing rituals, a failure of ratings agencies, OpenAI and Anthropic, and whatever weirdo bullshit it is that Mark Zuckerberg is up to. There's a reason that the first and only story about a customer for Meta's compute capacity was Anthropic. There's nobody else. Nobody else other than Anthropic, of course, OpenAI, or the hyperscalers that are siphoning off what remains of the AI Labs venture capital funding to sustain their own growth rates, every time raising a little bit more and a little bit higher at a higher valuation, each time demanding more and more money, hoping to

14:33be able to dump it onto the public markets in the hope that they can perpetually con investors into backing their deals. The reason that Microsoft and Google and Amazon have been so squirrelly about their AI revenues is that they know that they're pathetic compared to their capex and near entirely dependent on two companies that hyperscalers must keep alive so that they can pay them. They can get paid by them with the money that the hyperscalers handed to them. It's not good. And in 2026 alone, Google and Amazon have invested a combined $15 billion in Anthropic, and Amazon's

15:04invested a combined $50 billion in OpenAI. What's crazy about that was $35 billion of that was contingent on the IPO or AGI. Neither of those happened, which heavily suggests that Amazon kind of knew that they needed to pay OpenAI so that OpenAI could pay them. And by the way, this is what you do when you have no other options, no other viable customers, and your core business is not growing at the rate necessary to appease Wall Street. It's been sitting in plain sight for years. Hyperscalers' overbuilt capacity, funded their largest customers, incubating them actually, and believed that both the opportunity of owning their

15:37models and the underlying compute capacity would be some sort of infinite money glitch, with each hyperscaler owning the equivalent of both the next big cloud infrastructure and cloud software plays, while also owning, controlling stakes, and creating dependency from the two largest players in both. Pretty easy, right? Anyone else building AI data centers believed that Microsoft, Google, and Amazon would never be as foolish as to do all of this without a cast-iron guarantee that it would turn into everything they'd promised, and that the capital expenditures would be for certain worth it,

16:07and have the demand to back them, and that they would not continue spending without that certainty. The reality is that hyperscalers made a huge mistake, both in what AI could do, how fast open AI and Anthropic could grow, and in underestimating how bad these businesses would get as they grew. It was also obvious in retrospect. From day one, hyperscalers, and most companies in fact, refused to share their AI revenues, and when they did so, they used deceptive run rates based on non-specific periods. I've said this for years. If these companies had diverse and meaningful AI

16:40revenues, they would be screaming about them from the rooftops with clarity and vigor. They would tell you segment by segment AI's specific contribution to revenue. They'd break out the costs. They would have them in big font on investor presentations. Instead, Google is telling us it processed 3.2 quadrillion tokens a month. Who gives a fuck, Sundar? You're planning to spend $180 billion this year, and we both know that if you had the revenues that would remotely justify spending that much, you'd include them. Did you make a big mistake, Sundar? You can tell me,

17:12buddy. I won't be mad at you. Investors will be, though. They're going to be furious. But look at the bright side. At least you won't have to hear from that boring oath, Demis Hassabis, and hearing him prattle on and on about, like, oh, what if the computer had the most brilliant mind? What if he had AGI in 21 minutes? Now he's going to go off and, I assume, spend more time with his money. Anyway, one day everybody is going to act super surprised and say there was no way to see this coming. Know that the signs were there for years. They've stayed the same. The only thing that's

17:44changed is the inflated value of OpenAI and Anthropic and the ever-escalating CapEx fueling a semiconductor bubble that erupted because nobody thought hyperscalers would ever waste $1 trillion. At some point, the money runs out to fund these two companies, at which point hyperscalers will have no way to further feed themselves money. As I've said before, the AI bubble is a psyop, a melodrama, a financial crisis, and a mask-off moment for the business idiots that run the vast majority of the economy. It is one of the strangest moments in history, and it will only get stranger

18:17as things get more desperate. We are seeing what happens when the rot economy demands that we push the world's resources to their very limits, both physically and fiscally, in pursuit of eternal growth, and what happens when we discover what those limits actually are. None of this was ever about technology, or good business, or anything other than creating the next growth engine for capital. Instead, AI has become a parasitic presence, culturally, financially, and ecologically, and it will exhaust as much as it can in its collapse. Nothing about this can be bailed out,

18:50because the problem isn't that the money doesn't exist, just that it doesn't exist naturally. A bailout cannot make growth restart for Google, Microsoft, Meta, Amazon, or Oracle once it fully slows. And based on the fact they've sunk more than a trillion dollars of capex into AI, I think they must clearly see that growth is already or will die very soon without, and I quote, doing AI. Which mostly means hoping Anthropic and OpenAI pay them ever-increasing amounts of money every quarter forever. The US government cannot prop up a stock market that accepts that AI's growth

19:21is finite, and, outside of semiconductor companies and two subsidized AI labs, is tens of billions of dollars of demand in the best-case scenario. I realize how easy it is to fall into the mindset that everything gets bailed out, that the evil people always win, because we're so used to seeing these evil, corrupt people escape accountability. In this case, while I don't think anyone's going to prison, I think these companies simply exhaust their resources at some point and drop off. I think the era of hyperscale growth is ending, and the only reason they're so desperately joining the no-IT loads

19:53refused AI compute cum dump is because they know that the only way to keep growth going is to hope they can drain the venture capital and debt markets infinitely by proxy. Don't know if people are going to like that I just said that. I'll keep going, though. Anyway, there are no other hypergrowth markets left. That's all this is about. So many numbers are going up, so much higher in the next few months, then at some point they'll stop going higher, and then they'll start going lower, and then some of them will go to zero or even become negative numbers, because the only thing that grows forever

20:25is cancer. This all may seem unthinkable right now because Microsoft, Google, and Amazon numbers are going up, but that's really only happening because of OpenAI and Anthropic.

20:36Most didn't see this coming because it has involved pushing back against one of the most gratuitous and excessive marketing campaigns in history involving actual reporters that are at real outlets attacking and harassing people for daring to question the powerful. And those people will

Closing Thoughts and Community

20:52be held accountable, mark my words. But let's talk about who actually matters, and that's you. And a lot of you have been here with me for years, hearing me build these arguments, and I appreciate the amount of support I hear from you via Signal, the Terminal, and on the subreddit, and email, of course. You're all awesome, and you keep me going when things are hard, when people are pressing back, when people are genuinely horrible to me. I don't want to complain, I get to do the best job in the world. It fucking rocks to record this podcast and write the newsletter. It's the greatest job I've ever done. I couldn't be happier doing it. It's stressful,

21:26but I keep going because of all of you, and because I really truly enjoy it. I'll be back next week, and to quote drill, I'll be calling out all the bullshit of society the smart way, and against all odds, I'll do it for free. Thank you for listening. What if you could make that stop? With LPL Financial, we remove the things holding you back and provide the services to help push you forward. If you're a financial advisor, what if you could

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