Monologue: What The Hell Are The Hyperscalers Doing?

Hyperscalers and AI spending

0:00This is an iHeart Podcast. Guaranteed human. Amazon Health AI presents Painful Thoughts. I, um, I can't stop scratching my downtown. Yeah, but I'm not itching to go downtown and tell a receptionist I'm here to talk about my downtown. Some things you'd rather type than say out loud. There's no question too embarrassing for Amazon Health AI. Chat your symptoms and get virtual care 24-7.

0:30Healthcare just got less painful.

0:34This is Jacob Goldstein from What's Your Problem? Running a business is hard enough. Don't make it harder with a dozen apps that don't talk to each other. One for sales, another for inventory, a separate one for accounting. That's software overload. Odoo is the all-in-one platform that replaces them all. CRM, accounting, inventory, e-commerce, HR. Fully integrated, easy to use, and built to grow with your business. Thousands have already made the switch. Why not you? Try Odoo for free at odoo.com.

1:08That's odoo.com. Every small business owner has that one moment that could have broken them, but remarkably, it didn't. Hi, I'm Kathleen Griffith, co-host of The Unshakeables, along with Stevie Barron, CEO of Chase for Business. We have more incredible stories of overcoming the impossible still to come in Season 3. Listen to The Unshakeables wherever you get your podcasts and learn more at chase.com slash podcast.

1:42JPMorgan Chase Bank N.A., member FDIC, copyright 2026, JPMorgan Chase & Company.

1:50Hey, Mom. Thanks for watching, Thomas. He's quite the character. He flew a rocket all the way to Mars today. Oh, did he? And then baked cupcakes using his laser vision. Chocolate or banana. Then we bought a zoo and filled it with a hundred giraffes. They are his favorite. Oh, that's when a group of penguins showed up with matching hats. Sounds exciting. And then the party really got started. Anything's possible with Lego Duplo. Larger bricks for small hands and big imaginations. Lego Duplo. Let's start building. Visit lego.com slash preschool.

2:22Call Zone Media. Superstition, fear, and jealousy. Welcome to this week's Better Offline monologue. I'm your host, Ed Zitron.

2:39Better Offline.

2:42As ever, please subscribe to the newsletter. We're running a one-year anniversary deal right now. The link will be in the episode notes. And we're giving you $10 off the annual rate for life. And even if you die and come back to life, I'll give it to you anyway. The deal runs through midnight on Sunday. But if you happen to hear this after this point, email me at easy at betteroffline.com or ez at betteroffline.com for the British and Canadians in the audience. And I'll sort you out. I'm generous like that. And I love my premium. It's really some of the best analyst work out there. It's very deep. I've got the terminal going now.

3:13I'm pulling all sorts of data. The many numbers I read every week are driving me truly insane. And with that in mind, today's monologue starts with a simple question. What the fuck are hyperscalers doing? Now, I realize I've asked this question maybe 100,000 times in the last two years, but it's begun to get so incredibly stupid that I'm actually a little exasperated. McKinsey Spawn and Google CEO Sundar Pashai announced in Wednesday's earnings that Google would raise its year-end capital expenditures to somewhere between $195 billion

3:44and $205 billion after burning $80.6 billion in the first half of the year. And this suggests that Google will spend another $114 billion by the end of 2026. They're going to be doing like $55, $60 billion a quarter. It's fucking insane. It's fucking stupid. I'm sorry for swearing, but it's absolutely deranged. What are you doing, Sundar? You've already spent $288 billion in CAPEX since 2022, and all you've got to show for it is several also-ran LLMs and one indeterminately large customer in Anthropic,

4:17who you've also invested $13 billion in. Now, one answer might be that Anthropic helped juice Google Cloud's growth by 82% year-over-year in this quarter. But considering that Google doesn't actually break out how much of that is from AI or from Anthropic or really from anything, it's difficult to say what exactly this money is doing other than turning its free cash flow negative for the first time since Google went public. While I can't say for sure how much Anthropic is spending, I do believe it's taking up the vast majority of Google's AI infrastructure

4:47and representing most of its cloud growth. Google Cloud was, up until fairly recently, the last year or so, a much smaller business than Microsoft Azure or Amazon Web Services, and had been growing somewhere between 22% and 30% year-over-year, hitting 33.9% year-over-year growth in the third quarter of 2025. That very same quarter, Google and Anthropic announced a deal to expand its use of TPUs, which is Google's special GPUs, in a contract worth, and I quote, tens of billions of dollars.

5:18Mysteriously, can't imagine how, Google's next three quarters of cloud revenue growth showed 47.7%, 63.4%, and 82.1% year-over-year growth. Whatever could that be? Where did that come from? I can't work it out. Can you, dear listener? What could it possibly... It's Anthropic. It's Anthropic. It's obviously Anthropic. Except in those same quarters, Google's capital expenditures went up 95%, 107%, and 100% year-over-year, absorbing every dollar of cloud revenue and then some.

5:49In fact, outside of the fourth quarter of 2024, Google's capital expenditures have outpaced cloud growth by at least 12% year-over-year for two goddamn years. And if your pushback is, well, Google's spending that capex on something else, no, they're not. They're not. Maybe they've got a couple barely coming in from Google Workspace and cucking their various subscribers with annoying things. It's coming from Anthropic. Google is not making that money from Gemini. Your ass must be crazy if you think that's the point.

6:20But all of this begs the question, when exactly does all of this pay off? How does it pay off? What does the payoff even look like? And why am I one of the few people asking these questions? Hyperscalers have now spent, I estimate, about $1.1 trillion. I haven't seen Amazon and Microsoft's quarters yet, but I'm going to guess they spent a good amount on capex. They now spent $1.1 trillion bloody dollars on capital expenditures. And when you ask them to tell you how much revenue they made from said expenditures, they look at you like that meme of Brendan Fraser from The Whale.

6:53Anyway, here's a fun fact for you. Thanks to my own reporting on OpenAI's audited financials, we know that it spent $17.2 billion on Microsoft Azure in calendar year 2025, a year when Microsoft's intelligent cloud segment made $120.4 billion in revenue. The segment grew as a result, 26% year over year. Yeah, I'm a curious little Chris around the numbers, and OpenAI's revenue represented 14.3% of all Microsoft's cloud revenues for that period.

7:23And to be clear, it's calendar year 2025. They have a fiscal quarter thing, but I went and worked it out. But this means that OpenAI's money represented 18% of the year over year growth of Microsoft's cloud. Without it, their cloud revenue growth was a mere 8% year over year. That's pathetic. That's abominable. That's barely keeping up with inflation. That's dogshit, Satya. Yeah? Satya, you should be ashamed of yourself. Satya, come on my show so I can ask you very reasonable questions. I'll be nice, I swear.

7:54You won't. You're scared. Just let the rest of them, just like clammy salmon won. Clamuel! Your public relations people said you're too scared to speak to me. Well, they said you wouldn't speak to me, and I know you're scared. Same with weird Daria. Where are you, boys? You're too scared of better offline. Anyway, enough of the Trump voice, though. There is actually a reason that hyperscalers are still spending all that CapEx. OpenAI and Anthropic allow hyperscalers to boost growth by feeding their own money back into their businesses. A short-term solution to the long-term problem of the end of the era of hypergrowth.

8:27One of the reasons they're so shy about AI revenues is that they know it'll become obvious where those revenues are coming from. Two unprofitable and unsustainable AI labs, and a little trickle, a little spurt from AI services they dump on their enterprise customers through confusing subscriptions, upsells, and just adding AI to random things and being like, Look, folks, don't we love this? Don't you all love this, you little shits?

8:54And hyperscalers also know that the second they cut their CapEx spend, the AI trade unwinds. If Microsoft, Google, Amazon, and Meta aren't buying hundreds of billions of dollars of GPUs a year, that means Taiwanese server manufacturers like Quanta and Honhai won't sell as many servers, and thus won't need as many GPUs. Broadcom and NVIDIA won't need as much high-bandwidth memory for those TPUs and GPUs, and data-center speculators across the world will suddenly realize that they conflated hyperscalers being stupid with their money with the existence of massive amounts of demand for AI compute.

9:28Put another way, hyperscalers are doing kayfabe to keep the crowd riled up, but everybody's slowly working out that the wrestlers aren't really hitting each other and everything is scripted. I also should add, I can just anticipate I'm going to get an email from someone being like, Well, actually, this is good. The capital expenditures are good, because it showed growth, even though it's short-term. That's a silly, silly perspective to take, considering they're feeding all the revenues back into the business in the CapEx for stuff that won't be useful in the future. Mathematics, my friend. Try it sometime.

Subprime data center crisis

9:59But anyway, it is a funny old time for me right now, because I feel like I'm on three or four podcasts or TV shows or interviews a week, as the system appears to be trying to cover its arse by having me on to explain stuff I said two years ago, but a little more insistently and clearly than before. While the mainstream media seems hesitant to fully commit to the graveyard smash of the AI bubble, it feels as if there's a conscious attempt to represent my work as more than just the other side, or a hater, or a sceptic, or a cynic, which is both edifying and enraging, because we are now so far past the point of no return.

10:35I mean, we really can't avoid what's coming. As I wrote in my newsletter this week, I think there's a subprime data center crisis brewing right now, with over $500 billion in data center SPVs that can only ever make investors whole if there's hundreds of billions of dollars of AI compute demand in the next two years. And to be clear, when I say hundreds of billions of dollars demand, I mean a year. I mean literally a year. I ran the numbers, and for the, what, I think it's 190 gigawatts of supposedly planned data centers, you'd need $1.6 trillion a year in annual compute revenue to make it worthwhile.

11:11And by the way, the global software market is under $800 billion a year, so don't know where that fucking money's coming from, and no one else seems to really want to think about it. And I deeply worry about what happens when the demand doesn't arrive, as these data center debt deals are often funded by private credit funds, which are in turn funded by both public and private pensions and insurance funds. Anyway, do read the free newsletter to learn more. It is free, this one. I have a premium one coming out today that will be about, well, the fact that Oracle's dying,

11:42which I mean, hey, you in the back, stop laughing. Stop it. Poor Larry Ellison. Poor, who gives a fuck? In all seriousness, though, it's going to be a banger. The free one's a banger. There's bangers everywhere. And I'll be back next week with my good friend Nick Suresh to talk about how AI mania is eviscerating global decision making, creating a cult-like environment where one's participation in AI is almost a religious act. And if you talk badly about AI, it's considered a carnal sin. Or a cardinal sin. One of those two. I'm sure one of you will correct me on this one.

12:13Nevertheless, it's based on this incredible piece he wrote. I can't wait for you to read it. I can't wait for you to let me talk to him. I don't know. I can't wait for you to consume my content. What a peculiar thing to say. Anyway, I'll catch you next week.

Sponsor ads and outro

12:28Zitron out.

Sponsor ads and outro

12:29Aging is real. And so are the benefits of adding Vital Proteins Collagen Peptides to your daily routine. Because around the age of 30, your body needs backup to keep your collagen up to help support healthy hair, skin, nails, bones, and joints. Available in the classic collagen peptides, collagen and protein shakes, and new Vital Proteins Collagen Sparkling Waters. So you can stay vital, stay you.

12:59Visit VitalProteins.com to learn more and where to buy. These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease. This summer, Prime Video is the place for steamy romances, addictive love stories, and the book-to-screen favorites you've already read twice. The Love Hypothesis. L. The Devil's Mouth. Sterling Point. The Last Sunrise. And Off Campus. The Slow Burns. The Second Chances. Chemistry you can actually feel through the screen.

13:31It's all here. Obsession is in session. Get ready to obsess on Prime. This is Matt Rogers from Las Culturistas with Matt Rogers and Bowen Yang. This is Bowen Yang from Las Culturistas with Matt Rogers and Bowen Yang. Every friend group has that one person who puts their card down for brunch and sends the Venmo requests. If that's you and your Venmo balance is poppin', you need a Venmo debit card so you can spend your balance instantly. No transferring anything. No waiting around. So as soon as you get paid back for brunch, you can pay for those concert tickets you've been eyeing or put it toward your next night out.

14:04Plus, there's no monthly fee or minimum balance. Learn more about the Venmo debit card at Venmo.com forward slash card. The Venmo MasterCard is issued by the Bancorp Bank. N-A-I-D verification required. Your energy is gone, your hunger is loud, and your plans aren't feeding you. So what are you still doing here? Head to 7-Eleven and grab the truly spicy, hottest-fire chicken sandwich. Enjoy some kickin' heat in every flavorful bite that packs a punch. It's available at 7-Eleven and just $4.99. Visit your local Chattanooga 7-Eleven and satisfy that craving today.

14:37Ballad through 825-26. Participating stores while supplies last. Toppings and sauces sold separately. Copyright 7-Eleven. Hink All Rights Reserve.

14:46This is an iHeart Podcast. Guaranteed Human. Ge Lead. Be Realty.

14:57Use You.

15:05Use You. Use You. Use You. Use You. Use You. Use toi. Use You.

15:18Use You.