cmiles8

As many have commented, not really. Shorting is about exact timing as much as knowing the inevitable outcome. Get the timing just a bit wrong and you can be right and broke. The Big Short portrays that quite well.

In the short term things tend to freeze up as those with funds to invest lock down the hatches and weather the storm. But fairly quickly after yes funds start flowing elsewhere as money chases the next big thing.

AI is here to stay, but the market needs a big forest fire to wipe most things out. A few strong plants survive to build a better future.

It’s a cycle that keeps repeating, and we’re overdue for a big forest fire in tech.

With an AI bubble implosion now all but inevitable, the shift of the key players behind the scenes has focused on making this seem too big to fail and thus needing a bailout.

The “it’s dangerous, regulate us please” angle as an out for explaining terrible financial performance doesn’t seem to be working. The final Hail Mary pass is the “if we fail you fail” play.

However all data indicates the risk here is fairly concentrated in private markets. It will be painful but it’s unlikely to take the whole economy out with it. Some VCs are in for a world of hurt and private credit markets will lose their shirts, but the average person would see limited direct impact.

With everything going on in the datacenter space a bailout for AI seems incredibly unlikely. The general sentiment amongst the masses seems to be “let it burn.”

Pure remote roles are very hard to get if you don’t already have an in with the team. Letting someone you know and trust work remotely is very different than just hiring someone cold remotely.

Yes there will be the “but we’re a fully remote company and it works great” posts but for the time being cold applying remote puts one at a significant disadvantage in the market and that’s just the reality. About the only thing worse you could put on a CV currently is that you need visa sponsorship.

Yes, they have the same problem WeWork had on the multiple front. Coworking was a thing long before WeWork was a thing. It’s an important but boring business that trades at low multiples. WeWork tried to IPO on the basis that somehow it was worth vastly more, but the market woke up and realized it’s just subleasing office space.

The same is unfolding with Anthropic. It’s doing important work but everyone is realizing it’s not got a serious edge over anyone else. It’s important but ultimately a boring business. It’s still likely worth a few hundred billion, which is massively impressive for any startup, but trillions is pipe dream.

Except that’s simply not how it works. Companies just have one forklift. Yes it’s too much for most use cases but you don’t have a garage full of different sized forklifts. There’s a big cost to keeping all these extra forklifts on standby.

Models, however, are completely interchangeable on demand. That’s why companies are building these realtime internal marketplaces to route tokens to different models. Anthropic may win the occasional “bleeding edge” use case but the money is in the day to day use cases that get routed to the cheap-but-works options. There’s zero cost to having all the forklift sizes at your disposal and only using the size needed when it’s truly needed.

Anthropic is trying to sell the biggest baddest forklift in a world where companies can swap out cheaper ones easily and on demand. Hence why Anthropic doesn’t appear to have a viable business model in its current form.

The rush towards open weight models defeats this thesis. There’s no prize for being “ahead.” That’s academically interesting but a terrible business plan. 99% of AI use cases don’t need the latest and greatest model, and businesses increasingly understand this.

While I think SpaceX is still horribly over-valued they at least have a diverse line of businesses that are very hard to copy.

Anthropic is a one trick pony and the world is discovering lots of other cheap ponies that do the same trick.

“So, what you're telling me is that the music is about to stop and we're going to be left holding the biggest bag of odorous excrement ever assembled in the history of capitalism.”

A brilliant line from the movie Margin Call (a fictional portrait of the actual events of the 2008 crisis) that appears likely to get reused in upcoming AI bubble burst movies.

I would agree the plugs are well designed, but it’s also a space pen when you needed a pencil. Using that massive plug and 240V to charge a phone or power a light bulb is just comical.

The US system sensibly uses 110-120V for most uses and then 240V where it really matters.

Most enterprises say that while the tools are useful and here to stay in some more limited form, the productivity improvements have been broadly underwhelming. So it’s more the inverse, because the impacts observed have been limited companies are reining in spending. When CEOs were hoping AI was going to result in massive productivity improvements CEOs were handing out blank cheques.

Most large companies are doing similar things, including:

1) Giving tight budgets for AI use after a few years of a total free for all, and

2) creating internal API marketplaces where one can access all the models including open weight and “Chinese” models.

This is increasingly sending tokens to the lowest bidder, which is a terrible setup for the big labs and their hopes of being worth trillions.

The big labs are tying to spin up “enterprise sales teams” like the traditional big SaaS players and trying to secure large contracts, but it’s broadly blowing up in their face and turning into these realtime token marketplace models.

Yes, although similar to what happened in 2008 that path involves wiping out investors and shareholders to zero.

The entire company is based on stealing everyone else’s creative content and then passing it off as their own. So this isn’t a surprise.

Tech will stay, most of the companies currently in the space will cease to exist in their present form a few years from now. Just like all previous tech bubbles.

We’ve seen this movie before. It’s possible for new tech to be both amazing and revolutionary and a business disaster both at the same time.

Every bubble goes through this phase just before it pops. Pre-implosion Twitter had tons of folks doing useless “research” projects, WeWork had folks studying furniture design’s impact on wellbeing, and so on.

When you’re more worried about this sort of stuff vs generating profit then the history books strongly indicate that’s usually not a good omen of what’s coming next.

Delta made a big bet on Amazon Leo and that’s turning out to be a very bad business decision. Leo is way behind and nowhere close to having something competitive with Starlink.

If you’ve ever had Starlink in flight, it is truly amazing. Actual high speed stable internet in flight.

Elon recently joked that if you want to safely train AI models, do it on a Delta flight as it won’t be able to reach the Internet

Yes. This is the bit of the movie where everyone is offloading crap off their balance sheets to limit the blast radius before allowing the market to reprice anything. Once the big players have cleaned up their balance sheet they’ll let the bottom of the market drop out.

Expect earnings calls to become a lot more skeptical about the future of AI once the balance sheet cleanup completes.

To put it bluntly, there’s a lot of dumb money floating around in big funds and family offices trying to meet their mandate to “get me some of that AI in our portfolio.” With public equities limited and many funds not allowed to invest in private equities placements they moved into bonds.

Those folks initially viewed bonds as a safe bet just like folks thought mortgages were a safe bet. However if it turns out they just bought into a mess of “sub-prime” AI bro fantasies and these bonds go bad they’re in for a world of hurt just like 2008 when folks stopped paying their mortgages.

As this all starts to unwind it’s going to be fun watching these same folks run for the exits.

Actually no, the hyperscalers have been saying this themselves. They have bought chips they can’t power on and use because of issues getting enough power and building out data centers. How much of NVidia’s revenue is actually just selling chips that go sit on a shelf somewhere is a closely guarded secret at this point.

AI Bourdain in the AI implosion movie would be quite ironic!

Yes, Amazon is terrified of the balance sheet implications of what’s unfolding. The only reason you’d un-vertically integrate yourself like this is if you viewed these assets as at serious risk of being a smoking hole in the ground in a few years

The WSJ had some great reporting on the SPV games recently and found $3 trillion in liabilities being kept off balance sheets by playing these sorts of things. However this time around it seems like most folks aren’t getting fooled.

It’s starting… buckle up folks.

It’s a shame we won’t have Anthony Bourdain to explain this move to us in the AI implosion docu-flick that comes out in 2029. It’s not stale fish, it’s fish stew! It’s a whole new thing!

Humans have an inherent flaw in that our brains are wired to see intelligence and reasoning where there is none. Our brains fill in data that simply isn’t there.

Folks see Jesus in burnt toast. Monet was a master of exploiting this where what’s really just blotches of color our brains fill into beautifully detailed images.

Our experience with LLMs is no different. Folks believe there is some deeper intelligence there but it’s all still just 1s and 0s on a computer chip. We’re interpreting things happening that simply are not happening.

Based on current reporting the IPO wouldn’t generate anywhere near enough cash to pay for the bills coming due. Just between those two they have over a trillion $ of commitments coming due that need cash payment. Thats actual dollars they need to pay and neither the IPO nor current cash flows appear to be generating that kind of money to pay these bills when they come due.

It’s a big problem which neither big lab has a great answer for right now.

If you follow the money though much of this future “demand” is on fulling orders from the AI labs and at the moment the AI labs don’t have the cash to pay that bill. A rather important detail in this whole mix.

So either the labs need to start printing money, now, or there’s going to be a whole bunch of excess chips hitting the market in 2027-28.

Someone in the middle is going to get left taking delivery of all these chips but unable to collect payment for them. And someone else is going to get left holding the bag on data center loans to house those chips. That’s the storm ahead.

Whenever one sees someone lead with “I’m a LinkedIn top X influencer” or whatever it’s best advised to run in the opposite direction as quickly as possible.

Except businesses are going the opposite direction here. The lack of stickiness makes the “premium” argument hard to play. Oracle won because swapping databases is a giant PITA. Swapping models requires almost no effort for most uses. And because of that enterprises are all building model marketplaces where providers have to compete on price performance.

Most folks I know can choose from any of the big labs or open weight models and they get billed internally for tokens against their budget. There’s little incentive to no switch to the lower cost closers.

This setup is a nightmare scenario for the big labs trying to execute the traditional enterprise sales plays. Those only work if your product is sticky and AI models are one of the least sticky things in the history of tech.

Then Anthropic should stop saying it. So long as they try to play victim here folks are going to call out their BS.