[ElProlactin]

> I don't understand the people who have the patience to listen to Zitron. It's all one-tone takes with no place for nuance...

But that's why some people give him the time of day. A lot of people prefer to see things in black and white because it's easier on the brain.

Basically, Ed is doing the easy part (pointing out the malinvestment) and not addressing the harder part, which is to predict what comes next in realistic terms. Because the idea that LLMs are just a $30-40 billion/year TAM and there's going to be an epic implosion that leaves only rubble is not the likely outcome.

It's a bit like the first .com boom. There was a huge amount of malinvestment and the bubble popping was painful, but there really was a business for people to buy stuff online, to consume paid content online, etc. The malinvestment got sorted and a couple decades on, immense wealth has been created.

[Avicebron]

> and a couple decades on, immense wealth has been created

For whom? "Everyone". Maybe we can quote some "Everyone is better off now/the global standard of living has increased bullshit". Have you tried to get a job that pays enough to buy the average house in your area?

[ElProlactin]

I don't know why you're conflating the issue of income and wealth inequality with the fact that investments in "the internet" (and all the associated hardware and infrastructure) proved to be some of the best investments in history. And not because of monetary policy, financial engineering, and the like, but because the internet proved to be a civilization-changing technology.

[Avicebron]

I'm failing to understand how you are failing to understand. Can you try and explain that again?

[ElProlactin]

> Can you try and explain that again?

Sure. How did the fact that the internet was a revolutionary, civilization-changing technology that produced some of the best investments in history cause housing to become unaffordable?

If you're worried about asset prices and the affordability of housing, you should be far more upset at central banks/monetary policy than you are at the internet, ecommerce, smart phones, etc. You could also be upset at zoning laws, and tax and immigration policy.

[pasquinelli]

> A lot of people prefer to see things in black and white because it's easier on the brain.

people also tend to sheild their sacred cows with gestures toward nuance. maybe i'm misreading you, but it sounds like your criticism of him is he has correctly identified a problem and is reporting on it, but he hasn't taken the next step of predicting the next twenty years of consequences. sounds to me like a reporter doing his job well.

[ElProlactin]

A reporter doing his job well (in this context) would understand that using non-cash accounting events to make hyperbolic posts about cash burn is simply not honest.

I don't have a problem with skepticism around AI investments (I agree with a lot of the skepticism) but if you're going to make public arguments about these investments, you should have a grasp of basic accounting principles.

[pasquinelli]

can you go a little more into that? i myself am not an accountant; what is zitron being dishonest about?

[ElProlactin]

https://www.wheresyoured.at/exclusive-openai-financials/

> Exclusive: OpenAI Losses Increased Nearly 8X in 2025, With Spending Hitting $34 Billion

Start with the headline. He's comparing the net losses between 2024 and 2025, but $41.55 billion of the 2025 loss is a non-cash charge from "changes in fair value of convertible interests and warrant liability" tied to the for-profit conversion. He notes this but doesn't actually seem to understand (or want to explain) what that means.

It's a non-cash charge. This is not money actually going out. It's not an operating loss.

He could have used the increase in operating loss or expenditures to make his point, but he basically chose the biggest number he could find and present it in a way that distorts what it is. The only two possibilities seem to be that he is trying to be bombastic ("8X") or he actually doesn't understand what he's looking at.

> It then marked $3.74 billion of losses as “net loss attributable to noncontrolling members capital,” leaving the net loss attributable to the company as $5.09 billion.

> It’s unclear what this means, nor how OpenAI reconciled the removal of $3.74 billion in costs.

This is so strange because it's basic consolidation accounting: allocating a share of losses to minority equity holders. There's nothing sinister about it, and it's not anything that's being hidden. This is a standard practice for companies and anyone who is positioning himself as having the requisite expertise to comment about the financials of AI companies (or any companies for that matter) should know this basic accounting and an absolute nothingburger.

There are other aspects of his writing that are pretty distorted. Like, he states "I’m not sure how this company finds a way toward any kind of sustainability or profitability" while ignoring that OpenAI actually improved its gross margin from around 28% to 43%. Whether it ever becomes sustainably profitable is still a big question mark but again, someone acting as a financial commentator should know this stuff. So he's either feigning ignorance to sell his narrative (and newsletter subscriptions), or he's really ignorant.

[jaredcwhite]

Ed Zitron already completely defeated the comparison that this is just another dot com boom/bust with eventual payout. You're telling yourself a just-so story.

[ElProlactin]

> Ed Zitron already completely defeated the comparison that this is just another dot com boom/bust with eventual payout

"This time it's different" is a story told by people at both extremes.

"There is unsustainable excess and malinvestment but it's not going to be the end of the world and there will be some really important and successful things that are left standing alongside some carnage" is a narrative that doesn't appeal to the masses for a variety of reasons. And people like Zitron, who profit by selling narratives, often avoid narratives that require nuance and balance because it forces them to produce more complex and detailed, and less bombastic, analyses.

[tim333]

He completely defeated the comparison that it's got an eventual payout? How so?

I don't think I've seen any solid argument there - just pointing out current stuff has limits which is no proof it won't improve.

[ToValueFunfetti]

Yeah, I think Ed's early stuff defeated the idea that the tech was worth big money at its state as of 2024, but it's clear in 2026 that this is something worth money to corporations. Just a question of how much + whether the Chinese open models (RIP Llama) can continue undercutting at a fast follow pace.

[1vuio0pswjnm7]

"The malinvestment got sorted out and couple of decades on, immense wealth has been created."

Only to be re-malinvested in the same garbage hype that created it

Aside from Amazon, who shifted from selling books online to becoming a middleman for sales of others' products, and eventually to selling "cloud" services, is this wealth really derived from "buying and selling stuff online" as envisioned at the time of .com boom

The truth is that no one at that time would have defined "stuff" as advertising services, "cloud" services, etc., and that is where most of this wealth has come from

The so-called "tech industry" is not comprised of the "buying and selling stuff online", it is comprised of offering software for free, e.g., in the form of a "web app", a remote "service", etc. This is used as bait, a Trojan Horse, with the goal of intermediating other peoples' use of the internet, collecting data and performing surveillance

The focus of this "industry" is not on deriving revenue through "buying and selling stuff online", it is on collecting data. The data collection and surveilllance is not only applied to commercial use of the internet, e.g., "buying stuff online", it is applied to all use of the internet

[1vuio0pswjnm7]

-1,0,1

[Driver4732]

You should read his What If We're In a Bubble 3 part series.

[cassianoleal]

> It's a bit like the first .com boom. There was a huge amount of malinvestment and the bubble popping was painful

That's the point though, isn't it? How detached from reality must you be to think this is ok?

"Painful" is carrying a lot of weight in that sentence. Painful means people lost their jobs, families broke up, depression, probably suicide, other forms of violence...

There must be a better way to go about these things.

[rcxdude]

I don't disagree, but there's a big difference between 'this is massively overinvested and valued and that's distorting the market around a useful product' and 'this is all basically a scam with no value to it whatsoever'. For some reason a lot of AI critics seem to be really hard pushing on the latter part despite it being by far the least credible take at this point. It might be overused, it might have some big negative externalities (though these are often overstated), it might have sucked up way more capital than it deserved, but it's also still very useful and valuable for quite a lot of people.

(to me it's a bit like criticising oil companies by claiming that oil doesn't actually produce any useful power after its refined. There's a lot to criticise about them but the fact that their product is very useful is in large part why it's so hard to do something about the rest of the problems they cause)

[cassianoleal]

I agree with you, for what it's worth.

[ElProlactin]

I won't dismiss the human cost but boom and bust cycles have existed for a very long time. This isn't a new thing today, and it wasn't new then either.

You can view these things 100% cynically, or you can also consider the possibility that markets over (and also under) shooting are also a form of discovery in which the value of new business models, technologies, etc. are determined. While I'm not personally a fan of today's financial engineering and have concerns about direct government investments in particular, net-net it's probably better to live in economies where capital is abundant and malinvestment is possible, than to live economies where the opposite is true.

From the .com days, I personally observed four categories of outcome:

1. Total financial ruin. If we're being honest, this was often the result of individuals who got rich very quickly and spent even more quickly.

2. Survival. Lots of people got laid off and eventually found new jobs when the economy recovered. Their experience was valuable. A decent number of these people went on to ride the recovery boom and are comfortable if not "rich" today.

3. Survival with a story to tell. People who survived and came away with a story to tell ("at one point I was worth millions on paper and 6 months later I was laid off").

4. Huge windfall. Some people made a lot of money and through luck and/or smarts, managed to walk away from the implosion wealth intact.

The truth is that nobody can predict with certainty the future. Markets are the place where humans make bets about the future. Expecting entirely orderly markets in which everything moves at a predictable pace in a predictable way, where no participants win or lose too much, just isn't realistic.

[cassianoleal]

> net-net it's probably better to live in economies where capital is abundant and malinvestment is possible, than to live economies where the opposite is true.

This is a false dichotomy. Not everything needs to exist at the extremes.

> boom and bust cycles have existed for a very long time. This isn't a new thing today, and it wasn't new then either.

Murder and domestic violence have existed for a very long time. Racism existed for a long time. Slavery existed for a long time.

Things can be fixed, or at least improved to reduce the human cost associated with what's essentially a governance choice.

[ElProlactin]

> Things can be fixed, or at least improved to reduce the human cost associated with what's essentially a governance choice.

So you think there's a way to outlaw possible malinvestment?

[cassianoleal]

You think there isn't? Or in fact that this is all that's happening, _possible malinvestment_?

Neolibs have the most rigid, binary and least creative minds I've ever encountered...

[ElProlactin]

> Or in fact that this is all that's happening, _possible malinvestment_?

Speaking of rigid and binary thinking: do you think there's absolutely no value to LLMs and that every investment in them is malinvestment?

> Neolibs have the most rigid, binary and least creative minds I've ever encountered...

If it's so simple, why don't you explain how The Government is going to prevent private individuals and enterprises from investing in things that some people (who may or not be right) believe are worthless?

[abirch]

Not sure how you would do things better without a centralized planning committee. Most people believe that bubbles are bad, but what's the alternative? People want to get rich quick.

[cassianoleal]

This is also a false dichotomy. There's a lot in between neolib free markets and centralised planning.