0:02 Hey guys, it's Sasha. This week, OpenAI
0:04 announced that they will pay AMD about
0:08 $100 billion for 5 million graphics
0:10 cards. At the same time, AMD announced
0:13 that they are giving $100 billion back
0:16 to Open AI in the form of stock. A few
0:18 days before that, OpenAI also announced
0:20 that they will be buying $200 billion
0:22 worth of graphics cards from Nvidia. And
0:24 at the same time, Nvidia is going to
0:29 invest $und00 billion back into OpenAI.
0:31 The problem is Nvidia doesn't have a
0:34 hundred billion to give to OpenAI. But
0:36 that's where the third deal comes in
0:39 because OpenAI is going to give Oracle
0:42 $300 billion to use their data centers.
0:45 Oracle is going to take the $300 billion
0:48 and walk it across to Nvidia to buy
0:50 approximately three tons of
0:52 graphics cards to shove into their data
0:55 centers so that those data centers can
0:58 actually be used by OpenAI. And then
1:01 Nvidia is going to take this money that
1:03 they just received from Oracle and use
1:06 that money to invest in Open AI. Did you
1:08 get all that? No? Well, don't worry
1:10 because in this video I am going to
1:14 explain a completely unrelated concept
1:16 called roundtpping. Roundtpping is a
1:18 common type of fraud where companies
1:21 just pass each other the same money in a
1:23 circle to mutually inflate their
1:26 valuations by pretending that they are
1:28 doing more business than they actually
1:30 are. It's like if there were three
1:32 people standing in the room, right? And
1:35 each one of them had a business and all
1:36 of these businesses were brand new.
1:39 They've never made any revenue. Then
1:41 business A goes and gives business B
1:43 $100 and says, "Thank you. It's a
1:45 pleasure doing business with you." Then
1:48 business B takes that same $100 and goes
1:50 and pays it to business C for, I don't
1:52 know, some services. And then business C
1:54 takes that same $100, goes back to
1:58 business A and pays that $100 back. So
2:02 now each business has $100 worth of
2:04 revenue. OpenAI's current valuation is
2:06 50 times their annual revenue. So that
2:08 would make each of these three companies
2:11 that just passed around a $100 bill
2:14 worth $5,000. And you can raise money at
2:17 that $5,000 valuation and collect a
2:19 whole load more than that $100 from
2:21 investors. That means that when they go
2:24 to investors to collect the latest
2:26 funding round, their valuation will be $5,000
2:28 $5,000
2:30 and they can then use all the money
2:33 raised to pay themselves really fat
2:35 salaries, have a pretty good time. Now,
2:37 roundtpping is a practice that is
2:39 generally considered illegal in the
2:40 United States and many other countries
2:43 around the world because it artificially
2:45 manipulates the market. It artificially
2:47 pumps the stock. It's a form of
2:50 securities fraud. So clearly, just so
2:52 there is no misunderstanding, I could
2:55 not possibly insinuate or suggest that
2:57 the tech bros at all of these companies
2:59 would be doing something that is illegal
3:01 to enrich themselves. That is 100%
3:05 definitely not what's happening here.
3:06 But while we are looking at these
3:07 companies, I thought I would walk
3:10 through exactly what has happened in the
3:13 last few weeks and draw it on a handy
3:15 whiteboard so that you can see for
3:18 yourself how this AI bubble is in no way
3:21 whatsoever a really obvious example of
3:23 roundtpping that is happening right in
3:25 front of us in the open because tech
3:28 bros get to pick and choose which laws
3:30 apply to them. you know, laws like
3:32 securities, fraud, copyright protection,
3:34 those only apply to schmucks like you
3:36 and me, not the cool kids wearing
3:38 hoodies in Silicon Valley. So, let's
3:40 start at the beginning. The story really
3:42 starts when a bunch of investors along
3:45 with Microsoft find 58 billion down the
3:47 back of the sofa and give it to OpenAI
3:50 in various funding rounds. Immediately
3:53 after all of that happens, OpenAI takes
3:55 those tens of billions of dollars and
3:58 gives them back to Microsoft to use the
4:00 Microsoft Azure data centers. Microsoft
4:02 takes the 10 billions of dollars that
4:04 they've just received from OpenAI after
4:06 they gave it to OpenAI in the first
4:09 place and goes and gives them to Nvidia
4:11 to buy graphics cards to put in their
4:13 Azou data center so that OpenAI can then
4:15 train their models using those graphics
4:18 cards in the Microsoft data centers. But
4:20 Microsoft are not the only ones buying
4:23 graphics cards from Nvidia. Google,
4:26 Meta, XAI, and Amazon are all standing
4:28 in an orderly queue buying the same
4:30 graphics cards that are now being sold
4:32 for four to six times the price that
4:35 they used to be sold at before ChatGpt
4:38 arrived in November 2022. All of these
4:40 guys, all of these companies also have
4:43 their own AI work. None of it actually
4:45 makes any money, but it sounds really
4:48 cool. It's pretty futuristic, right?
4:50 When you tell girls that you work in AI
4:53 on a Saturday night out. Just kidding.
4:54 Of course, if you are a tech bro working
4:56 in AI, you don't have time to go out on
4:59 a Saturday. You're too busy coding to
5:01 conquer the world. Anyway, then along
5:04 comes Anthropic, another AI startup. And
5:06 they also collect a load of money from
5:08 investors. And the biggest one for them
5:10 is Amazon, who give them billions of
5:13 dollars to Anthropic. And then Enthropic
5:15 takes those billions of dollars and
5:17 gives it right back to Amazon to use the
5:19 Amazon Web Services to train their
5:21 models just like what Microsoft did.
5:23 It's exactly the same but just with a
5:25 different company. XAI is a bit of a
5:26 weird one. They're building their own
5:30 data centers and XAI was originally
5:32 founded by Elon Musk. And to finance
5:35 XAI, Elon Musk sold a load of Tesla
5:38 shares which at the time didn't do
5:40 wonders for Tesla stock. He used a chunk
5:42 of that money from sending the Tesla
5:44 shares to buy Twitter and then a
5:46 separate chunk to start his AI company.
5:49 Of course, XAI should have never existed
5:52 in the first place because Tesla is a
5:54 publicly traded company that also
5:55 operates in AI. In fact, according to
5:59 Tesla, 100% of their valuation should be
6:02 based on AI, not the cars that they're
6:04 making. And there is a clear conflict of
6:05 interest because Elon Musk is the
6:07 executive director of both companies,
6:09 the essential person in charge of both
6:12 companies and he has basically siphoned
6:14 out money, talent and IP to build a
6:16 startup that directly competes with
6:18 Tesla. Now at the time when this
6:20 happened, the official line that was
6:22 pared by all the fanboys of course was
6:24 that this is completely not the case.
6:27 XAI is all about large language models
6:29 and Tesla is all about full self-driving
6:32 and robotics and these are not the same
6:34 thing at all. They attract completely
6:36 different people blah blah blah. So the
6:38 work that Tesla does is apparently
6:41 completely separate in no way related
6:43 would not benefit from having this
6:45 basically the same line of work using
6:47 the same GPUs for the same sort of
6:49 thing. It would not be beneficial to
6:50 have that within Tesla, which is
6:53 precisely why now that XAI has merged
6:55 with Twitter and pretty much run out of
6:56 money because they've been burning so
6:59 much cash. They are trying to get Tesla
7:02 shareholders to invest in XAI. It is
7:04 proposal 7 at the Tesla annual
7:06 shareholder meeting regarding board
7:09 authorization of an investment in XAI
7:11 and a direct investment in XAI would
7:14 strengthen Tesla's access to cuttingedge
7:16 AI technologies, talent, and
7:18 intellectual property. you know, the
7:20 things that Tesla would have access to
7:23 anyway if El Fela Musk did not siphon
7:25 that entire business line out of Tesla.
7:28 But the Tesla fan club on Twitter is
7:30 wildly celebrating this opportunity,
7:32 this proposal to hand over loads of
7:34 money to XAI because they, I think,
7:36 suffer from Stockholm syndrome. But I
7:39 digress, a bit of a tangent. XAI also
7:41 just collected some funding from, drum
7:45 roll, Nvidia. And that lets XAI take the
7:46 money that they just received from
7:50 Nvidia to buy more Nvidia graphics cards
7:51 for their Colossus 2 data center that
7:53 they are building in Memphis. So the
7:55 result of all this activity is that
7:58 every company on this whiteboard has
8:01 seen an absolute explosion in money
8:03 moving in and out of their bank accounts
8:05 and cash flow because you see money
8:08 moving between them in a sort of round
8:10 trip kind of way. And the biggest
8:13 benefactor of this has been Nvidia whose
8:16 share price has gone up over 1,600%
8:18 since Chad GPT arrived less than 3 years
8:21 ago. So now that Nvidia is rich, they
8:24 are printing money. We have got this new
8:26 wave of announcements coming. These ones
8:29 are bigger. Nvidia is going to invest
8:32 $100 billion into Open AI. They don't
8:34 have even remotely close to hundred
8:36 billion they could invest, but that does
8:38 not matter because OpenAI is going to
8:41 apparently take that hundred billion and
8:44 use it to buy $200 billion worth of
8:48 Nvidia's chips. Open AAI recently had to
8:51 raise $6.6 billion because the company
8:53 is currently burning money. They're
8:55 burning over a billion dollars per month
8:57 before accounting for capex. With capex,
8:58 I don't know, but presumably they're
9:00 probably spending a few billion dollars
9:02 a month. I don't know. So, the company
9:05 that is currently absolutely
9:08 incinerating money, losing a ton of
9:09 money every month and keeps doing
9:11 funding rounds for relatively small
9:13 amounts to keep them going, is going to
9:16 buy $200 billion worth of chips from
9:19 Nvidia with the $100 billion worth of
9:20 investment that they're getting from
9:22 Nvidia. You following this? This makes
9:25 complete sense. And not all of the money
9:28 that they are planning to spend is
9:30 coming from Nvidia. There is more.
9:32 Remember, they also said that they will
9:36 pay $300 billion to Oracle to use Oracle
9:39 data centers and Oracle is going to pay
9:40 those hundreds of billion dollars to
9:43 Nvidia. And Nvidia is going to collect
9:44 those hundreds of billion dollars from
9:47 Oracle and use that money to invest more
9:50 into OpenAI. And then remember that we
9:52 also have the AMD deal that just came
9:55 out. Open AAI will buy $100 billion
9:57 worth. It doesn't seem that he can go
9:59 less than hundred billion now. That's
10:00 the minimum. That's the minimum of a
10:02 good AI announcement. They're going to
10:05 buy a hundred billion worth of AMD
10:07 graphics cards alongside the Nvidia
10:08 graphics cards. But because they don't
10:12 have the money to do it, AMD is giving
10:16 OpenAI 10% of the total amount of AMD
10:19 stock because then OpenAI can leverage
10:21 that stock and benefit from the stock
10:23 going to the moon and borrow money
10:24 against it to pay for the graphics
10:26 cards. You know, you're in a very
10:29 special kind of bubble when the biggest
10:31 companies in the space are going heavy
10:34 leverage not just on their own stock,
10:36 which is pretty crazy in itself, but
10:39 also on the stock of other companies
10:41 that they are cooperating with in the
10:43 same space. And it's not just OpenAI.
10:45 This is how these deals are getting
10:48 done. XAI's current funding round
10:50 includes $7.5 billion in equity and up
10:53 to 12.5 billion in debt through a
10:55 specialurpose vehicle. The chips the
10:58 company purchases will be leased to XAI
11:00 for 5 years allowing Wall Street
11:02 financeers to recoup their investment.
11:05 So instead of buying the graphics cards
11:07 using debt, they are letting investors
11:10 buy the graphics cards because that's
11:12 off the books and then lease those cards
11:15 to the company for 5 years from the
11:18 investors, which is probably roughly the
11:19 useful life of these graphics cards
11:22 anyway, running at 100% capacity for the
11:25 entire duration. This is by no means a
11:27 complete picture of what's been
11:29 happening. There are other players like
11:31 Coreweave, a data center company that is
11:33 now doing deals with both Nvidia and
11:35 OpenAI for tens of billions of dollars,
11:37 money moving back and forth. And there
11:39 are dozens and dozens of other players
11:41 in this space. You can keep writing
11:43 stuff on this whiteboard forever. And
11:46 the weird thing is that OpenAI's current
11:49 revenue is running at around $10 billion
11:51 a year. Anthropic is at about half that
11:53 on about $5 billion a year. So that's
11:55 $15 billion per year from the two big
11:58 ones. And the rate of growth is now
12:01 slowing to below 100%. It's on course to
12:03 be below 100% relatively soon. The
12:05 biggest growth at the moment is coming
12:07 from businesses, from companies who are
12:09 paying for those commercial licenses for
12:12 their developers, for staff. They're not
12:14 really checking exactly how many
12:15 licenses. They just like dish them out
12:18 to everybody and staff are all using AI
12:20 to do whatever work they're doing. Those
12:22 are just the revenues though because
12:24 remember there are no profits because
12:27 all of these companies are losing money
12:29 on all of this revenue instead of making
12:32 money. The more revenue that they take,
12:34 the more money that they're going to
12:36 lose. But at the same time, we are
12:39 seeing these endless announcements every
12:40 week about hundreds of billions of
12:43 dollars moving between these companies.
12:45 Dollars that don't actually exist, will
12:49 not actually exist, will never exist.
12:51 All of this movement is just on paper.
12:53 It's fugazi. Fugazi. You know that I
12:56 give you $100 billion. You give it to
12:58 that guy over there. That guy is going
12:59 to give it to that guy over there. That
13:00 guy's going to come back and give it
13:02 back to me. We've all made $und00
13:04 billion. The valuations of these
13:06 companies are now astronomically high
13:09 because there is an expectation that in
13:12 the long run they will figure out how to
13:14 make money. Maybe it will be through
13:16 ads. I know you you're looking forward
13:19 to that. I bet the issue is that the
13:21 moment that ads enter these chat bots,
13:23 you're immediately going to lose a giant
13:25 chunk of the appeal, a giant chunk of
13:27 trust for using LLMs in the first place.
13:30 Imagine the ethical dilemma of
13:32 recommending products or services or
13:35 whatever for which OpenAI gets paid
13:38 from the ad revenue from the company's
13:39 advertising instead of maybe
13:41 recommending other better products that
13:44 do not happen to advertise and chat GBT.
13:46 At the moment, there is no business
13:48 model in this space that can actually
13:51 feasibly run at a profit in any short
13:54 medium term because the physical cost of
13:57 producing the answers is higher than
13:58 what people are currently prepared to
14:02 pay for those answers. And I just don't
14:03 see a world where people are prepared to
14:06 pay 10 times or 100 times what they're
14:08 currently paying. Over time, this cost
14:10 is not decreasing. It is increasing
14:12 because of LLM's becoming more expensive
14:15 to run and because users are increasing
14:18 the usage per dollar that they spend and
14:21 the expectation of how much usage they
14:22 get keeps going up. So tech companies
14:24 have come up with this new solution.
14:26 Just keep passing the money around in
14:28 everinccreasing amounts. First, you
14:30 know, invest 5 billion, you give me back
14:32 the 5 billion. Now it's up to a hundred
14:35 or 200 or even $300 billion per
14:38 announcement. I guess right now we're
14:40 just seeing what happens. If valuations
14:43 keep going up and the SEC keeps keep
14:44 sitting around just holding their
14:45 private parts in their hands doing
14:48 nothing, maybe these companies will
14:50 start literally announcing trillions of
14:51 dollars of investment into each other. I
14:53 don't know why not. We're only three
14:56 eggs from there. Today the world has
14:59 never in history seen an example of
15:02 roundtpping even to a fraction of the
15:03 degree that's happening right now
15:05 between these companies. There is almost
15:07 no precedent for things like companies
15:10 donating 10% of their own publicly
15:13 traded shares worth about $30 billion
15:14 because they know that the moment that
15:16 that happens their share price is going
15:18 to go up so much that they will
15:21 immediately get tens of billions of
15:23 dollars worth of more value in the
15:25 business and in the long run it'll
15:27 probably be 100 billion or more because
15:29 of the hype that is being generated.
15:31 There are only two ways that this can
15:34 unravel. Either these companies figure
15:37 out a way to quickly earn about 20 times
15:39 what they currently earn in revenue and
15:40 at the same time figure out how to turn
15:44 a minus 130% margin into a plus 20 or
15:47 30% margin or the house of cards will
15:48 eventually come crashing down when the
15:50 infinite money glitch finally runs out
15:53 of infinite money. Think I am going to
15:55 send out a newsletter with some more
15:57 thoughts on this. If you haven't signed
15:59 up, the link in the description, it's
16:01 free. go and sign up and I'll send you a newsletter.
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