If the A.I. bubble bursts, will there be a recession? 'This is everyone's problem': Zitron

[00:00:00] Speaker 1: Artificial intelligence and the industries tied to it have become the single biggest drivers of economic growth and capital investment in this country. Just look at the market of 85 in the last in the last 12 minutes. Do you know why? AI, the money is going into building out data centers. One report estimates that those investments will reach 10 trillion bucks by 2032. Major tech giants and AI companies are now in a race over who will control the technology. But could an AI bubble burst before anyone reaches the finish line? Ed Zitron is the host of the Better Offline podcast and writer of the must read newsletter, Where's Your Ed At? And he's a regular critic of AI. I'm so glad you're here because we hear a lot of comparisons about what is happening right now to the tech bubble of 2000. Obviously, the Internet was the future, but not in 1999. It took until 2005 to get there. What do you think of that comparison? [00:00:54] Little Arnold Palmer: So I think that the concentration risk with retail investors, so regular people investing, is so much larger. They hold about over $4.65 trillion worth of AI-related stocks. And that's before you get into the index funds, the ETFs and all that. On top of that, retail investors are about 20% of the stock market's volume. Back in the dot-com bubble, it was 2%. So the big thing here is, as well, is that GPUs, so the NVIDIA chips and the AMD chips and such, those things are not going to be useful like the dark fiber was in the dot-com era. They're good for AI. And a half-built data center in 10 years is going to cost just as much to finish then as it does now. And the electricity is going to be just as expensive then as it is now. [00:01:36] Speaker 1: We've got a viewer question. Natalie in Portland says, if the AI bubble bursts, what happens? Their debt is almost as much as all credit card debt in this country. Will it be like the 2008 recession or more like the 1999 bubble bursting? How would you compare it? [00:01:51] Little Arnold Palmer: Little Arnold Palmer of both, I'm afraid. There is a big question. [00:01:54] Speaker 1: But not delicious. [00:01:55] Little Arnold Palmer: Not delicious at all. Really, though, because you've got this big question mark of private credit, Blackstone and other various gargoyles invested in these companies in ways that we don't know. But they're sinking private and public pension funds into them, insurance funds. A fifth of insurance annuities are in private credit. And that's what's funding the core weeds and the data centers of these worlds. And on top of this, these IPOs are terrible. Anthropix IPO looks awful. And the thing is, there's a reason they keep delaying it. It's because they're losing what I think was $80 billion in the first half of the year, but on a cash basis. [00:02:27] Speaker 1: OK, but this is what's so crazy. You could say $8 billion, $80 billion, $80 gazillion. [00:02:32] Little Arnold Palmer: Yeah. [00:02:33] Speaker 1: And these companies remain the most influential, the most powerful. In your most recent newsletter, you say, AI better work out if it doesn't. Like, what is riding on this? What will it look like if it doesn't? [00:02:45] Little Arnold Palmer: So the stock market is kind of the economy now. More than 33% of household wealth is held in stocks. Most of that is tied to basically seven stocks. The magnificent seven, but especially Microsoft, Google, Meta, Amazon. And increasingly, things like SpaceX, CoreWeave, Nebius, and other NeoClouds. So the AI data center companies. We're all involved in this, whether we like it or not. And this is, at this point, the largest inflow of foreign money into the U.S. stock market in history. So this is now everyone's problem. And here's the thing. People say, oh, they'll bail it out. Because people don't really have an imagination beyond things that have happened. You can't bail this out. [00:03:20] Speaker 1: Explain why. [00:03:21] Little Arnold Palmer: Because this is an equities bubble. The valuation bubble is such that you can't bail that out. Oracle could die. I must be clear. Oracle is in financial dire straits. And the only way they're not going to be is if Clammy Sam Mortman is able to pay them $300 billion over five years. And they complete 7.1 gigawatts of the most ambitious infrastructure of all time. There is no filling these gaps. And I truthfully don't know how bad it could be. And I don't want to alarm people, but it's going to be the markets. But it's also, we don't know how much insurance money is in this. We don't know how much pension money. [00:03:53] Speaker 1: Can the U.S. government bail them out? [00:03:55] Little Arnold Palmer: No. Why? They could bail out the open AIs and anthropics of the world. But all of the value of this is held up in NVIDIA, growing and growing and growing by, what, $670 billion in revenue next year, probably a trillion after that. If they don't do that, it will be because the hyperscalers can't afford to buy the GPUs. Unless the government is going to connect the Federal Reserve to NVIDIA, we can't keep this market alive at its current pace. [00:04:20] Speaker 1: Then how do we square the fact that the market just keeps going up and up? If everything that you're saying is true and I'm buying all of it, why doesn't the market think that? [00:04:28] Little Arnold Palmer: Because the market is deranged and no longer connected to any kind of economic value. These companies, all of these are the Microsofts, Googles, Metas and Amazons. They've spent over a trillion dollars on this. You know what they've never told us? What they're actually making from AI. They say, oh, cloud's gone up. Oh, AI's parabolic. But they never say, here's what we made from it and here's what it cost. And that is suspicious and tells you everything. And the answer is 70% of all their AI revenues come from Anthropik and OpenAI who are venture backed and their customers are also venture backed. There's just a chain. [00:04:58] Speaker 1: It's a twisted, vicious circle. But these people in this vicious circle are now the wealthiest people on planet Earth. That's what I can't square. This isn't like the subprime crisis, right, where, you know, you had individuals getting over their skis, buying houses they couldn't afford. Like the people in the heart of this are truly the most powerful people on Earth right now. [00:05:20] Little Arnold Palmer: Yes. And unrestrained neoliberalistic capitalism does this when they're given unlimited amounts of debt. You and me, we try. [00:05:28] Speaker 1: No regulation. [00:05:28] Little Arnold Palmer: Exactly. No regulation for tech. And also regular people trying to get debt. Terribly difficult. You walk up to Jensen Huang and say, I need to buy a billion dollars worth of GPUs. You'll get debt in two seconds. It's possibly a recession for the rich on top of all of this. It's genuinely a new thing. And it's going to be extremely bad. [00:05:45] Speaker 1: OK, let's just be clear. On Ed's first visit to our show, he called Blackstone a gargoyle. And he referred to Sam Altman as Clammy Sammy. [00:05:54] Speaker 3: I hope you come back soon. [00:05:55] Little Arnold Palmer: Oh, I will. [00:05:57] Speaker 3: Hey, it's Rachel. I am so glad to see you at the end of that clip because this is where I get to tell you about a new way to watch all our clips and all of our shows and everything on MSNOW on your phone or your tablet or your laptop. You can watch things live or recorded. Plus, you can ask me and all the other hosts and reporters questions in our weekly live chats. You can go to ms.now slash membership or just click below. Thanks.