OpenAI, SoftBank, and Nvidia

Following up on yesterday's post, Yesterday's Alarmism is Tomorrow's Consensus

 

Longtime and even casual readers of this blog will know that we are big fans of Talking Points Memo and particularly of Josh Marshall (for my money, the best political commentator of the past 20 years). There have been plenty of times when I have disagreed with Marshall on minor and sometimes major points of analysis, but this recent piece on the AI bubble is a first.

Except for one or two general and largely obvious observations about the absurdity of the current situation, this piece and the Semafor article it's based on managed to get virtually everything wrong about the relationships between OpenAI, Nvidia, and SoftBank.

For lack of a better explanation, Elizabeth Hoffman, who penned the Semafor piece, seems to have seen the title of Ed Zitron's recent post comparing the data center bubble to the subprime crisis but does not seem to have actually read it. Zitron, at great length, laid out the disturbing parallels. It is a highly recommended piece. Hoffman's analysis mainly consists of the analogy AIG:lenders::Nvidia:OpenAI, a comparison so tortured that she abandons it mid-paragraph.

Here's Hoffman:

Nvidia’s $250 billion backstop to OpenAI will let the money-burning AI lab lease space at the largest data center ever built. OpenAI doesn’t have an investment-grade rating, so Nvidia is essentially lending its own. Broadcom did the same thing for Anthropic a few weeks ago; I wrote at the time that it was “like getting your parents to cosign the lease on your first apartment.” Nvidia’s backstop for OpenAI is literally that — OpenAI is trying to sign a lease and its landlord, SoftBank, doesn’t like the tenant risk. So Huang is cosigning.

...

The notion of Nvidia-as-AIG is right in one respect: The company most to blame for the 2007 bubble wasn’t a bank writing bad loans, but the insurer that backstopped them, spreading that risk throughout the financial system. Risky mortgages went into AIG and came out stamped AAA. Risky AI stuff is going into Nvidia, Broadcom, and Google and emerging similarly shined up.

Spreading risk around is sometimes prudent — it’s how mutual insurance works. But it also brings players that might have sat out a crisis into the thick of it. AIG didn’t need to be a part of the mortgage crisis. Nvidia does need to be a part of the AI buildout, but it is testing its balance sheet to finance its customers. (OpenAI will put Nvidia chips inside the Ohio data center.) That has echoes of General Electric and General Motors, which were nearly toppled by their finance arms in 2008.

 

Here's Marshall:

 This is not like getting your parents to cosign the lease on your first apartment. It’s more like getting your top employee to cosign your first lease because you pay that employee huge sums of money despite the fact that your company, which pays his salary, actually makes no money. A bank would likely see the problem with the top employee co-signing the mortgage on the boss’s fancy home. But it doesn’t seem clear to people in this case. Or rather, it seems completely clear. But we seem to have decided this is just how AI works: the technology is so amazing that it requires this kind of mutual leverage with no floor beneath it.  

Not entirely sure what Marshall is going for here.  The employee co-signing the boss's mortgage sounds like a coerced kick-back. The part about the company not making money sounds like like money laundering. Even the employer/employee analogy breaks down under scrutiny. Nvidia sells chips to OpenAI, but most of its sales come from companies like Microsoft, Alphabet, Amazon, Meta, SpaceX, Oracle, CoreWeave, etc. (Various governments are also big customers, particularly until recently, China.) Some of these companies use these chips to OpenAI models, some to run Anthropic models, some to their own, some to run something else like open-weight models. Not sure how you'd get OpenAI employee out of that.

Then how do we make sense of the enormous company giving the much smaller one what amounts to a blank-check credit guarantee? The employer/employee relationship doesn't explain it, at least not the one that Marshall proposes. You'd get closer reversing it and thinking barker and shill. 

[Any excuse to plug Cool and Lam.]

Nvidia indirectly giving OpenAI money, which is then indirectly spent on Nvidia chips, is good business in much the same way that it was good business for a snake oil salesman to give the shill the money to publicly buy a bottle of miracle tonic, but even that doesn't quite capture it.

What would a correct reading look like? Let's start with SoftBank, which appears to be more or less a neutral, independent, and minor figure in both these pieces, a "landlord" merely concerned with the creditworthiness of its business partners.

About that...

From CNBC:

The company participated in OpenAI’s funding round last year at a reported $300 billion valuation and has continued to deepen its involvement. It secured a $40 billion bridge loan in March to help fund additional investments in OpenAI and for general corporate purposes.

As of the end of 2025, SoftBank had about 16.3 trillion yen (about $104 billion) in stand-alone interest-bearing debt, according to its financial statement.

S&P Global in March estimated that OpenAI would account for roughly 30% of SoftBank’s investment portfolio, similar to Arm Holdings’ share, following the group’s additional $30 billion investment in the ChatGPT maker.

S&P Global Ratings revised SoftBank’s credit outlook to negative in March, saying the company’s asset liquidity and quality of its portfolio, as well as its financial capacity are “likely to deteriorate because of its additional huge investment in OpenAI.”

 

There's an essential bit of context that we need to include here. As late as the beginning of this June, the consensus in the financial markets was that OpenAI would have an IPO, probably north of a trillion dollars in 2026. Among other things, that would have made the early investors whole or better and would still have given the company plenty of cash on hand.

By mid-July, those expectations had done a complete 180 for a variety of reasons that we'll get into one of these days. Suddenly, SoftBank had gone from being on the verge of a windfall to facing serious questions about its viability as a company, with its fate tied to an increasingly unreliable Sam Altman. If you ask analysts what companies have the greatest exposure to an OpenAI collapse, the two names you will hear most often are Oracle and SoftBank. Both of these companies would gladly have extended a massive line of credit if it meant keeping the status quo stable, but neither now has the wherewithal.

OpenAI is losing $20 billion a year. Its potential sources of funding are going away. Why should the world's largest company care? 

Since the beginning of 2023, the share price of Nvidia stock has increased by more than 1,200%, overwhelmingly due to the AI bubble. While OpenAI is not the primary customer for Nvidia chips, it is one of the foundational blocks in the Jenga tower that has made Jensen Huang one of the world's richest men. The death of OpenAI might not kill Nvidia or even cost it the majority of its revenue, but if it pops the AI bubble, it could easily shave one or two trillion dollars off the behemoth's market cap. You don't need fancy analogies to see why Huang stepped up.

But while the analyses of Hoffman and Marshall are flawed, they are still informative.

I'm not sure what's going on with Hoffman—I don't normally read Semafor—but I do follow pretty much everything Marshall writes, and I think I have a pretty good handle on where he's coming from.

With respect to this story, I strongly suspect Marshall is a normie. I doubt he spends hours a week poring over the latest massive missives from Ed Zitron or following Cal Newport, Paul Kedrosky, Gary Marcus, Cory Doctorow, et al. I'll bet he doesn't annoy friends and acquaintances with emailed articles from the Financial Times explaining the latest excesses of the AI bubble.

In other words, I suspect he has a life.

When it comes to the AI bubble, Marshall, like The New York Times, represents the well-informed mainstream. And for years that group was heavily under the sway of the techno-optimist/Silicon Valley messiah AI narrative propagated by people like Kevin Roose or Casey Newton, while the skeptics, who were by most standards more grounded, were relegated to the fringe.

Now the mainstream is starting to embrace that fringe, with central bankers echoing the arguments of Zitron and Newport writing op-eds in NYT. Marketplace runs features with names like "What happens if the AI bubble pops?" As the normies start to wrap their heads around the magnitude and absurdity of the current situation, they sometimes get the nuances and key details wrong, but the very fact that they are asking what kind of bubble this is is a huge development.

Yesterday's Alarmism is Tomorrow's Consensus

A couple of years ago, skepticism about the AI boom was something of a fringe position. Today... not so much.

From FT Alphaville [love that last line]: 

Over at Jefferies, head of equity strategy Chris Wood has for some time been offering clients a sum of all fears in one simple, easily ignorable package.

His latest outlines his expectation of “massive capital destruction”, as token parsimony replaces tokenmaxxing, and as Chinese open-source models divert spending away from the US majors. It also covers default risk on hyperscaler debt, a lot of which is sitting off-balance-sheet via data centre lease commitments, and the artificial earnings boom from non-cash unrealised gains in investments, compute sales being recognised upfront, and depreciation costs being kept unrealistically low. On top of all that, Wood cites a viral blog from earlier this month about how commitments from hyperscaler tenants like OpenAI should be viewed as liabilities because all they’ll ever do is refinance, not repay:

There is a potential “2008 real estate” analogy in AI infrastructure. Hyperscalers and neo-clouds have built data centers based on promises of future compute purchases, creating a credit-like structure tied to tenants whose long-term profitability is uncertain.

It might not be a complete surprise to know that Ed Zitron, the hyper-online unofficial voice of big-tech antipathy, was a recent guest speaker at Jefferies’ offices; the biggest difference between his body of work and the above summary is in the profanity count.

 

And more recently:

Fitch Ratings-New York-27 July 2026: The global credit risk environment has evolved heading into 2H26 but continues to be driven by two main sources of short-term risk, according to Fitch Ratings: rising vulnerability to an AI-related market correction and persistent geopolitical uncertainty in the Middle East. This is on top of a broader context of slowing US consumer momentum, high inflation risks stemming from the 2Q energy shock and structural public finance pressures limiting the ability to respond to risk events.

The scale of the AI investment boom and the accelerated global technology cycle has been a significant driver of US equity market valuations and corporate bond issuance over the past year. The effects on real economic indicators are profound. The 18% yoy rise in IT capital investment directly added 1.4pp to 1Q26 GDP growth. The wealth effect from AI-related investor optimism and equity market gains has also been a meaningful support for US consumer spending growth, which has been broadly slowing.

That said, the medium- and long-term potential of the underlying technology is highly uncertain, as with previous tech cycles. The combination of revenue uncertainty and the extent to which capital markets and economies have become intertwined with AI have created a vulnerability for credit in the event of a re-evaluation of long-run returns potential. Very short-term spikes in market volatility for individual equities and tech-heavy stock indices have already occurred, but a larger, more protracted correction could have wider market, macro and credit effects depending on its scale, duration and contagion.  

As always, the important thing is we won't have to cancel HBO Max for at least another month.

Now I can stop lying about not having seen Throne of Blood.

 

 

Status, which has been doing some really good work lately, was unusually generous with their recent newsletter on the Warner/Paramount deal. They convened a panel of antitrust experts and this time didn't leave the good stuff behind the paywall.

Here are some excerpts, preceded by a few framing thoughts.

I'm not sure how this could be seen as anything but a major setback for Paramount and, more importantly, the Ellisons, but there are so many unknowns and murky details that I'd be reluctant to make many definitive statements.

We can say time is not on the Ellisons' side. As best I can tell, the consensus is that Paramount will need to pay at least one quarter's worth of ticking fees, which come in around $650 million every three months.

Perhaps much more importantly, both Oracle and Larry Ellison appear to be in an extremely precarious financial position. Both are buried in debt. The company's bond rating is now one level above junk. The fortunes of both rely heavily on OpenAI turning things around, something I'm highly skeptical of.

I think there's a very good chance that Larry Ellison will no longer be worth $100 billion by June of next year, which would make things... interesting. He is currently committed to put up $43 billion for his son's vanity media empire when the deal goes through. Even for the super-rich, that's a lot of money, and, more to the point, it is a huge amount of cash. What happens if Ellison is not liquid enough to pull it together if and when the time comes?

That June 2027 date also raises loads of questions. Is that an upper bound that no one actually expects to hit, or a realistic estimate of how long this might take? My thoroughly uninformed opinion is that, if this deal doesn't go through considerably before that, it's not going through at all, but who knows?

Don't expect a roomful of law professors to reach a consensus, but it's fair to say Paramount didn't come off that well. 

If you're truly a glutton for this sort of thing...

Naked Capitalism has a deep dive into the ways Oracle's precarious position threatens the deal.

Josh Marshall discusses the Status article in the context of states pushing back against Trump.

 

____________________________________ 

Paramount is between ‘a rock and a hard place’

Every month this case remains unresolved, the economics of the deal become more expensive for Paramount because of ticking fees and other delay costs. At what point, if any, can those mounting costs start to affect a company's litigation strategy or willingness to push forward with a deal?

John Newman, Herff Chair of Excellence, University of Memphis School of Law:

Paramount put itself in a tough spot here. Paramount seems to have been assuming this deal would sail through review, and even if it drew a challenge, Paramount’s lawyers could quickly persuade a judge to dismiss the case. That strategy predictably failed, leaving Paramount stuck between a rock and a hard place. Merging companies often do abandon their deals when facing the prospect of protracted litigation, as Nvidia did with its purchase of ARM a few years back. At some point, Paramount will start to face serious shareholder pressure, and that can create pressure to walk away from a bad deal.

Shubha Ghosh, Crandall Melvin Professor of Law, Director, Syracuse Intellectual Property Law Institute:

Most deals have a “time is of the essence” clause or incentives to accelerate performance. Litigation or other delays may excuse their enforcement. It is unlikely the parties will back out voluntarily. If matters get costly, Paramount and WBD can renegotiate the terms.

William Kovacic, GW Global Competition Professor of Law and Policy; Professor of Law; Director, Competition Law Center:

The longer it takes to wrap up a transaction, the more things that can go wrong often do go wrong. The costs of finishing this deal go up. Your employees get restless and consider leaving. Uncertainty starts to create discord and doubt in your routine commercial relationships.

Fiona Scott Morton, Theodore Nierenberg Professor of Economics at the Yale University School of Management and an Adjunct Professor at Yale Law School:

In general, mergers are time-sensitive because whatever the strategy is for getting the deal done, it depends on technology and demand and what rivals in the marketplace are doing. The longer the merger is delayed, the less good the strategic fit. The lesson we learn is that the government can cause a firm to abandon its merger if the litigation is both forecast to last a long time and creates uncertainty.

George Hay, Charles Frank Reavis Sr. Professor of Law, Cornell:

A combination of the costs and a mounting concern that this may not be such a great deal for Paramount given the high debt they will incur and, of course, a nontrivial risk that the courts will ultimately reject the deal. Don’t be surprised if they pull the plug.

Eleanor Fox, Professor of Law Emerita, New York University School of Law:

The fact that Paramount is willing to pay the ticking fee is some indication of how valuable this deal is to Paramount.

Who really benefits more?

Both California Attorney General Rob Bonta and Paramount have portrayed the standstill agreement as a favorable outcome. Who actually benefited more, what practical advantages does each side gain from this arrangement, and which side would you say improved its position the most?

Newman: Paramount is pretty clearly trying to spin a bad loss as a victory. From the beginning, Paramount has been pressuring the judge to move extremely quickly. Paramount pivoting so drastically away from its own strategy suggests they got burned pretty badly here. Practically, that lets the states focus their time and resources on proving their own case, rather than having to simultaneously disprove Paramount’s argument about cordcutters and streaming being the future.

...

Morton: Paramount must be dissembling here, as their whole strategy—based on what I read in the news—was to move fast while offering money (like legal settlements) and benefits (like changing CNN) to the White House in the hope that it would instruct the regulator to allow what is a controversial transaction. AG Bonta is correct that the standstill agreement favors his side as it prevents the firms from "scrambling the eggs." Closing the transaction would make the merger effectively a done deal regardless of what a court might say later. Now the states have time to put together a case and explain why they think there will be harm to competition.

... Where will the merger be next summer? Looking ahead to this time next year, what do you see as the most likely outcome for this merger? What key developments will determine whether the deal ultimately proceeds, is modified, or is abandoned? Mark Lemley, William H. Neukom Professor, Stanford Law School: In this case, the merger will likely never be approved at all. The government signed off on it only because of political intervention; the Trump White House pushed this merger over Netflix because it would give right-wing billionaires control over still more news sources, including CNN. I'm not sure why Paramount agreed to this deal, except that they were reasonably confident they would lose at the preliminary injunction hearing after the court's ruling on the TRO. Newman: It’s really hard to predict with certainty because there are so many moving parts here. When the initial complaints by states, consumers, and workers got filed, I predicted the case would be tough but winnable. I still think that’s true, but it looks a little easier and more winnable now. If the companies were smart, they would probably just walk away from this deal. But on Paramount’s side, I don’t see a lot of smart, rational behavior. So who knows—Paramount may stick it out until the bitter end. ... Daniel Crane, Richard W. Pogue Professor of Law, University of Michigan Law School: Even apart from the legal questions about what substantive standards govern merger law, I'd rather have Paramount's hand than the states'. The states portray this as a 5-to-4 merger based on the idea that only traditional movie studios that produce movies for theater distribution count. That strikes me as a very 1970s view of the world. When you combine Paramount's likely advantage on the law and its argument that technological, economic, and social change undermines the states' view on movies, I'd give Paramount a decided advantage. Hay: Most likely outcome is that the deal is abandoned unless the states and Paramount can cut a deal soon. Fox: This is hard to predict. The states raise serious questions. But Paramount has some possibly good defenses. One of the most serious problems is the merger's threat to free speech and truthful news independently reported and not compromised by what the White House wants. Media diversity used to be a viable issue in antitrust analysis, but it is not likely to be any more.   ______________________________

It's not a fear of “AI communism”; it's a fear of competitive market capitalism.

From FT Alphaville: 

Still, while we’re doodling, it’s worth pondering once more whether the economics of making frontier models and monetising them before free-to-download open-weight versions catch up will really play out. According to Epoch AI we’re talking around four months of lead time:

 

 

 

 

 

Apologies to regular readers who have been through all this before, but there's some essential context that needs to be kept top of mind for this story.

We have already spent somewhere in the neighborhood of two trillion dollars on capital expenditures associated with the AI bubble. Major players are now a trillion plus dollars in debt. This is only on track to accelerate over the next few years. Capital expenditures are projected to total more than five trillion dollars by the end of 2030. God only knows what the borrowing would look like.

The justification for all of this money assumes not only that the demand for large language model-based AI will be in excess of pretty much any technology to date, but also that at least some of the major players currently spending that money will achieve extraordinary profits with very high margins. That second condition is exceedingly difficult to achieve with a highly competitive market and is even more difficult if that market were to be dominated by new players.

In a world where open-weight models dominate, the proprietary frontier models of Anthropic and OpenAI will find it virtually impossible to charge monopolistic pricing. Anthropic does have something of a reputational moat, particularly with respect to coding, but OpenAI would find itself in truly desperate straits, and as discussed before, in the highly interconnected and circularly financed world of AI, the company would probably drag others down with it.

Oracle would be completely screwed. SoftBank might be as well. Other companies like Nvidia would probably survive but would likely see a major hit to revenue. It is not difficult to imagine all sorts of catastrophic failure scenarios. Keep in mind, the growing consensus in the financial world is that we are looking at an enormous market bubble waiting to pop. Combine that with the precarious state of the private credit market, what may be a multinational debt crisis, and a United States presidential administration that almost certainly will not be able to deal quickly and competently with a massive financial crisis. If I really wanted to pile it on, I would say something about Ed Zitron's analysis noting similarities between the trillions of dollars of financing of data centers and the 2008 real estate bubble, but I'd hate to be that depressing. 

  

 Victor Tangermann writing for Futurism:

A Chinese open-weight AI model called Kimi K3, developed by Beijing-based firm Moonshot AI, has sent a shiver down the spines of AI tech executives. The powerful, 2.8 trillion-parameter model impressed with its competence, igniting a war with far more expensive alternatives being offered by the likes of OpenAI and Anthropic.

Top executives at both companies are sounding alarm, the Wall Street Journal reports, watching as Chinese open-weight models are rapidly catching up to their most powerful proprietary models. As a result, they’re begging the Trump administration to step in and protect them from the influx of cheaper alternatives, which could undermine their increasingly desperate attempts to attract new customers.

Dean Ball, who joined OpenAI as the head of strategic futures after helping shape AI policy for the Trump administration, was seemingly rattled, arguing that allowing Chinese open-weight models to take over would result in “AI communism” in a controversial and widely disputed tweet.

He also suggested the Trump administration would inject enough “fear, uncertainty, and doubt” through “regulatory risk” that would eventually deter hyperscalers from using Chinese AI.

...

The incursion isn’t just coming from China. As the WSJ notes, US-based AI labs are starting to switch to open-weight models. Just last week, former OpenAI exec Mira Murati’s Thinking Machine Lab released its first model, which happens to be open-weight.

The trend could put AI companies in a bind: how can they keep financing their enormous AI data center projects and advanced model development if potential customers start switching to heavily subsidized or free AI models that provide good-enough or even frontier capabilities?

Early signs of an imminent exodus are certainly there. Moonlight AI was forced to pause new subscriptions to its blockbuster model just 48 hours after launch due to overwhelming demand, pushing its servers to capacity.

It’s a particularly precarious moment as frontier labs continue to hike up prices to start covering at least some of their unprecedented spending, despite growing fears over an AI bubble. Put simply, why shell out for Anthropic’s Claude Code or OpenAI’s Codex when there’s a far cheaper and highly customizable option out there?

It's Friday. There's a heatwave. I'm feeling lazy. I'm just going to post some tweets.

Quick thinking having a tablecloth handy. I didn’t even notice the twitching from that dead robot.

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— Rav (@rvbdrm.com) July 21, 2026 at 8:38 PM

Pete Hegseth: "We need our warriors to embrace the Spartan mindset" U.S. Military: *suffers crushing defeat to the Persians*

— Gingerspiced (@gingerspiced.bsky.social) July 18, 2026 at 10:13 AM

Both events, it must be stressed, are a direct result of exactly the kind of stupid-and-cruel warfighting that Pete Hegseth promised to bring to the US military and has delivered. Our army will become, by inches, more and more like the Russian one: cruel, incompetent, impotent, incapable, wicked.

— "Online Rent-a-Sage" Bret Devereaux (@bretdevereaux.bsky.social) July 18, 2026 at 11:26 AM

Yeah, so also, VLCCs ('very large crude carriers') that do the lion's share of global oil shipping are substantially larger than Suezmax, so if the Bab al-Mandab (the strait as the southern end of the Red Sea) is closed, you can't get those VLCCs to Yanbu. 😬

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— "Online Rent-a-Sage" Bret Devereaux (@bretdevereaux.bsky.social) July 20, 2026 at 7:09 AM

Four months ago:

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— Carl Quintanilla (@carlquintanilla.bsky.social) July 22, 2026 at 3:18 PM

Is it me or does this description of “the status quo for decades” bear zero resemblance with reality? www.nytimes.com/2026/07/20/u...

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— Daniel Drezner (@dandrezner.bsky.social) July 20, 2026 at 12:39 PM

“.. At the start of July, prediction markets thought that traffic would probably return to normal by the end of the month. Now that chance is seen — surely correctly — as close to zero. Not only is the situation bad, but it’s deteriorating.” @opinion.bloomberg.com www.bloomberg.com/opinion/news...

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— Carl Quintanilla (@carlquintanilla.bsky.social) July 22, 2026 at 6:02 PM

Small World. Lots of bad people.

👀 El Salvador's AI Agency has named Ginger Luckey Gaetz (Matt Gaetz's wife, Palmer Luckey's sister) as Strategic Advisor. Palmer’s firm Anduril is backed by Peter Thiel & partners w/ Palantir. El Salvador recently joined the Thiel-ally-led “Pax Silica” global initiative. They are moving fast...1/

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— Jenny Cohn (@jennycohn.bsky.social) July 21, 2026 at 11:30 AM

 

I checked. Not a parody account. 

The Odyssey is pulling $260 million this weekend, well on its way to becoming the biggest movie of the year. It has a 95%/97% rating on Rotten Tomatoes. Everyone loves it. Please enjoy this exchange.

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— Brandon Friedman (@brandonfriedman.bsky.social) July 19, 2026 at 8:53 AM

Presumably including a historically accurate cyclops

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— Matt Novak (@paleofuture.bsky.social) July 21, 2026 at 8:07 PM

Matt Walsh complains that Nolan brought his obsession with nonlinear story telling to the Odyssey, undercutting the original's narrative. The defenders of western civilisation, folks.

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— lastpositivist.bsky.social (@lastpositivist.bsky.social) July 21, 2026 at 10:09 PM

the odyssey discourse is a beautiful perfect window into right wing culture war psychosis. they went from hysterial racist mania over a character that’s on screen for 5 minutes to claiming there’s a massive conspiracy to fake ticket sales. this is just what they do for everything now. they’re insane

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— Sal Gentile (@salgentile.bsky.social) July 21, 2026 at 7:19 AM

ah yes, air taxis and supersonic jets, two vital and primed-for-success ideas that are just being held back by reckless bureaucrats

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— e.w. niedermeyer (@niedermeyer.online) July 21, 2026 at 6:42 AM

this comparison leaves out a key point: the Edsel sold roughly twice the Cybertruck's volume at a time when the overall car market was just 6m units/year instead of the current 16m units/year that makes the Cybertruck the much, much bigger flop, hands down

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— e.w. niedermeyer (@niedermeyer.online) July 22, 2026 at 6:28 AM

another key difference: by the time the Edsel came out Ford was not worth more than the rest of the auto industry combined, so in terms of market mispricing relative to performance Tesla and the Cybertruck are also in an entirely different league

— e.w. niedermeyer (@niedermeyer.online) July 22, 2026 at 6:35 AM

Happy fraudiversary!

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— Montana Skeptic (@montanaskeptic.bsky.social) July 21, 2026 at 6:23 AM

Three video recommendations for the weekend (assuming you're taking Friday off).

Cal Newport walks us through the latest from Anthropic, first with an excellent tutorial on how large language models work, then with an explanation of the company's latest research (which is actually pretty good), and finally with why the report built around that research was so bad.

The dean of Musk YouTube critics, The Common Sense Skeptic, gives us much-needed context on SpaceX, as well as a convincing argument that the wave of Mars-any-day-now "proposals" had less to do with extending human civilization and more to do with fundraising, and that the IPO had less to do with funding visions of the future than with giving early VC investors an exit strategy before the bottom fell out.

The clip from the great Mitchell and Webb Sound is best if you're going in blind, but trust me, if you're someone who reads this blog and enjoys our occasional literary discussions, you are the target audience.

Anthropic’s New “Research” Report is Dumb.


 

SPACEX IPO - Post Mortem and Prediction




Room 102

OpenAI needs to capture 1,852% of the total addressable market

The press, for the most part, has done a really poor job conveying just how many unlikely events have to happen in sequence for the current AI boom not to be a bubble. This is especially true when you look at certain companies. If you go through the conditions necessary for OpenAI to meet its present commitments and continue to spend perhaps a trillion dollars over the next three and a half years, the closer you look, the more the bull case feels like a Pick 6 ticket (though, in defense of OpenAI, it still looks more credible than the valuation for SpaceX).

Case in point, OpenAI has assured everyone that it will go from losing somewhere in the neighborhood of $20 billion a year to becoming enormously profitable by the end of 2030. One of the assumptions behind that promise is that ad revenue will be enormously profitable for the company. While that is possible, the actual numbers are not encouraging.

Joe Wilkins writing for Futurism:

Even as the AI bubble becomes a mainstream talking point on Wall Street, tech companies continue to peddle the fantasy that AI is poised to become an almost magical money-maker. Case in point, OpenAI wants you to believe that by 2030, it’ll be raking in $100 billion a year just from ads alone — even though it’s currently struggling to reach just $1 billion.

That massive gulf was observed in a new analysis from marketing consulting firm Emarketer, first flagged by AdWeek, which found OpenAI is on pace to undershoot its own five-year ad revenue projections by a whopping 90 percent. In fact, Emarketer’s take is even more devastating than that: it estimates the entire addressable market for chatbot advertising — the maximum amount of money up for grabs overall — at $5.4 billion.

(Have we mentioned how screwed Oracle and Softbank would be if OpenAI implodes?)

 

Even less of a done deal—back on the Paramount/Warner beat.

See here and here for the rest of the thread.

the thing is all state AGs have to do to deep-six this merger is delay it until OpenAI can't pay Oracle, Oracle's stock dives, Larry's collateral goes poof, etc.

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— Christopher Mims (@mims.bsky.social) July 20, 2026 at 11:09 AM

(Christopher Mims is a longtime tech columnist for The Wall Street Journal, just so you know I'm not quoting some rando here.)

In case you missed it, here's the story from the Los Angeles Times.

[Emphasis added]  

Paramount-Warner Bros. deal on hold after court ruling - Los Angeles Times
Meg James


Hollywood’s biggest deal in decades is on hold.

On Monday, a federal judge temporarily blocked Paramount Skydance’s efforts to complete its purchase of Warner Bros. Discovery, ruling that the proposed $111-billion merger “raises serious questions” about whether the combination violates U.S. antitrust law.

District Judge Araceli Martínez-Olguín, based in Oakland, granted a request for a temporary restraining order from a coalition of 12 state attorneys general, led by California Atty. Gen. Rob Bonta, to freeze the deal while the court delves more closely into its impact on markets.

The order pauses the deal for 14 days. Martínez-Olguín’s ruling sets up a showdown for Aug. 3, when she considers a motion for a preliminary injunction — which, if granted, could tie up the deal for months in advance of a trial.


...

“The judge basically said, ‘Look, let’s not race to the finish line here,’” Eric Talley, a Columbia Law School professor, said in an interview. “At the end of the day, maybe this thing gets signed off on, but I think the AGs are going to be given a fair chance to bring their claims forward.”

...

“Plaintiffs present compelling evidence that the combined firm resulting from the transaction will possess substantial market share in the wide-release theatrical distribution market,” Martínez-Olguín wrote in her 10-page order.

If allowed to merge, Paramount-Warner Bros. would control about 27% of the market of films that are initially released into more than 3,000 theaters.

“On this combined firm market share alone, the Court is persuaded that it can presume the proposed merger is likely to violate antitrust laws,” the judge wrote.

The ruling doesn’t signal that the states will win but, Talley said: “This is an important mark in the road that suggests that, in the eyes of the judge, at least one of their allegations has the seeds of a valid case.”

 

Here are some notes, roughly in order of importance.

No matter how things turn out, I should have at least a few months before I have to cancel HBO Max. I will make it through their Janus Films collection.

As mentioned before, along with SoftBank, Oracle is the major corporation most vulnerable to even a partial collapse of the AI bubble. The company has gone all in on data centers, is drowning in debt, has seen its credit rating slashed, and has an incredibly volatile stock, which is currently down more than 50% from its recent high on June 1.

Larry Ellison is contractually committed to pony up $47 billion when the deal closes.

Even the very rich are seldom liquid enough to easily cough up that kind of cash. The standard solution is to take out a loan with stock as collateral. Unfortunately, Ellison already has considerable debt, probably structured in such a way that another serious downturn in the stock could trigger a round of margin calls, which might force him to sell a large chunk of Oracle stock, which would further depress the price, which could trigger additional margin calls. You see where this is going.

In other words, Ellison's ability to close the deal depends on Oracle holding most of its value.

Then there's the ticking fee. Part of the merger agreement stipulates that if the deal is not closed by September 30, Paramount has to pay $650 million a quarter to Warner stockholders. Admittedly, this doesn't seem like a whole lot compared to the billions we've been talking about, but Paramount is already deeply in debt and, as the saying goes, "A half a billion here, a half a billion there, pretty soon you're talking about real money."

And then there's this:

A longer delay would have huge financial costs for Paramount. Starting Oct. 1, Paramount has to pay Warner shareholders a "ticking consideration" of roughly $650 million for every 90 days the deal is set back. If the deal is not consummated by June 4, 2027, Paramount will have to pay Warner $7 billion.

 

The best-case scenario for the Ellisons is an expensive and painful merger process. The middle case is that the merger does not go through. The worst possible case is that a collapse of Oracle's valuation will force the father-and-son team to start selling off assets like TikTok and Paramount.

I'm not going to assign any kind of probabilities here, but given the tone of the conversation around the merger as recently as a couple of weeks ago, this is a remarkable turn of events.

"The media is important for many, many reasons, but one of the biggest ones is that scrutiny is what keeps capital in check, for the benefit of humanity and at times the companies themselves."

 Ed Zitron has a new epic post out, massive post out at Where's Your Ed at? To be honest, it's probably a bit much unless you've already fallen deep into the AI bubble rabbit hole. New comers may want to start with his Better Offline podcast where he regularly talks with some of the sharpest AI bubble skeptics  Cal Newport, Paul Kedrosky, and Carl Brown. He has also has become a fixture on shows like On the Media (an interview from last year. OTM was characteristically early to the story) and CNBC's Squawk Box looking for a counterweight to the stock pumpers. 

This section in particular caught my attention. 

 

From The OpenAI Bubble: 

The double-edge sword of a mythology-inflated bubble is that it’s much harder to sustain when said mythology dies. The AI bubble was able to grow to such a horrendous size because the markets and the media were willing to accept basically anything that Sam Altman or the greater AI industry said. 

By waving away any economic problems as growing pains and dismiss those who would scrutinize it as haters or cynics, reporters and analysts provided investors with the justification to invest again and again in these companies without them ever having to make a real business, which means that, well…they don’t have real businesses, which is a problem when you need to actually pay somebody money that wasn’t given to you by a venture capitalist.

This will leave the AI industry short-changed in its most-desperate times. 

The media is important for many, many reasons, but one of the biggest ones is that scrutiny is what keeps capital in check, for the benefit of humanity and at times the companies themselves. By choosing to pull their punches, ignore glaring economic problems and accept every projection with blind faith, the media empowers grifting and suffocates good businesses as a result, encouraging bad behavior and helping them raise unbelievable amounts of money at ridiculous valuations without worrying about having to make a good business. In some cases, the media even encourages them to do so, saying that “all startups lose money at first” instead of thinking about things for a fucking second.

When companies know they won’t face that scrutiny, they engineer themselves as such, putting off ever finding a real business model in favor of whatever will make them buzzy enough to get coverage and raise funding as a result. In a vacuum of skepticism, bubbles inflate, monsters get rich, and regular people always get left holding the bag. As a result, if companies ever bother to become a real business, they only do so at the very last minute, endangering anyone who has backed them and every counterparty in the event they’re incorrect.

 

If things get really bad, Ellison can always sell that island back to Hawaii

“.. hard to overstate how critical $ORCL is to the entire AI narrative. No big company has levered itself (figuratively and financially) more .. the stock's horrendous trading performance underscores heightened anxiety about how it can profitably build all the infrastructure ..” - Vital Knowledge

[image or embed]

— Carl Quintanilla (@carlquintanilla.bsky.social) July 16, 2026 at 7:59 AM

 Picking up our Paramount/Warners thread.

 Ed Zitron has an epic length post on the pivotal role and precarious state of OpenAI. Among other things, he points emphatically and in great detail a fact that lots of smart people have been saying quietly, that if that company collapses it is likely to take down one of tech's biggest and most established players* along with one of the world's largest fortunes. 

Oracle is currently spending over $340 billion to build out over 7.1GW of data center capacity for OpenAI, as part of its $300 billion, five-year-long cloud compute contract that began, at least in theory, on June 1, 2026 at the beginning of its Fiscal Year 2027, though much of the capacity is yet to be built. To fund the buildout, Oracle has had to raise over $50 billion via stock sales and debt, spent $55.7 billion in its last fiscal year, and expects to spend at least $90 billion more in FY2027.

As a result of that, S&P Global downgraded Oracle’s credit rating to BBB/A-2, the literal lowest level before it’ll become junk-grade, meaning that one more downgrade (though it would have to be from two ratings agencies) from here would risk Oracle becoming a “fallen angel,” with investment funds (that can’t hold junk grade debt) having to jettison its debt from indexes, as happened to Ford in March 2020, leading to over $35 billion in debt being dumped and its borrowing costs skyrocketing to between 8.5% and 9.625% when it raised in April 2020. For some context, Ford reported an average interest rate of 5.2% on its long term debt in its 2019 annual report.   

You’ll never guess why S&P Global downgraded Oracle! And, once again, the emphasis is theirs:

OpenAI remains a key credit risk. We estimate that OpenAI makes up roughly half of the $638 billion in RPO. OpenAI’s ability to meet its contractual obligations and raise external financing will be contingent upon AI tailwinds continuing and its models being market leaders. If OpenAI were unable to pay Oracle, we believe Oracle could be left with massive data center leases that it might be unable to exit or have to re-lease to new tenants under less-favorable terms. As a proxy for OpenAI’s future prospects, we’re tracking OpenAI’s financial commitments to data center operators and chip makers to gauge its overall financial exposure and its market share among enterprise and consumers.

That’s a load-bearing if, brother! 

...

As a reminder, the only way that OpenAI will be able to afford to pay its $300 billion cloud compute contract with Oracle will be if it continues to hit revenue projections (per The Information) that have it making $113 billion in 2028, $184 billion in 2029, and $284 billion in 2030, a year when it will magically become profitable, and no, I don’t know how that happens:

 ...

Generative AI is the only reason that Wall Street started liking Oracle again as its other business plateaued, even as it burned billions of dollars on capital expenditures and cut its gross margins by a little under 15% since 2022, with the vast majority of that value coming from its revenue from OpenAI and what’s actually active at Stargate Abilene. 

... 

As I said in my piece about how OpenAI Kills Oracle: 

[The collapse of Stargate and OpenAI would be] a very bad thing for Larry Ellison, who holds around 40% of Oracle’s shares and receives a dividend of around $2.3 billion a year as a result, especially as he’s backed the $111 billion Paramount-Warner Brothers Discovery merger deal with $45.7 billion of that as an equity commitment from the Ellison Trust (the Ellison family investment arm which holds his Oracle shares) with Larry himself guaranteeing the amount, with $24 billion of those funds likely coming from the Middle East. 

This leaves the Ellison family with around $12 billion left to fund the deal. Depending on how liquid the trust is, it could foreseeably fund that in cash, but if Ellison is a little light, he might have to take out further margin loans on his Oracle stock. 

Yes, I used the word “further.” Ellison has already pledged 346 million shares of his Oracle stock — or around $61.5 billion — “to secure certain personal indebtedness, including various lines of credit,” meaning “many big, beautiful loans against his Oracle shares.” which IFR estimated back in September (when Oracle’s stock price was much higher) could allow him to secure as much as $21.4 billion in debt at a (they say “conservative”) loan-to-value ratio of 20%, and that’s assuming the banks weren’t particularly generous.

One of the consistent themes of this piece is that much of the “value” of AI is hot air — by which I mean whatever people are willing to pay for a stock that’s continually inflated by specious media-driven hype. 

...

Things could get much darker if Oracle plunges below $50, as at that point the encumbrances of his various enterprises and his own margin loans could become too much to avoid having to liquidate Oracle stock. If that happens, it creates a vicious cycle that will potentially involve selling off Paramount, dumping further Oracle shares, or even trying to engineer a firesale for the company.

Sidenote: While it’s true that Oracle’s software is economically important — its database systems and ERP platforms power a bunch of big businesses and government organizations — I don’t believe that any external intervention (whether that be an external investor chucking it some cash, or some form of bailout) would be able to stop the pain that’s coming to it. 

Simply put, the bets it made are too big — and, economically important Oracle’s software might be, there’s no reason that said software couldn’t continue development under the stead of another company.

All of this was entirely avoidable if he had never met Sam Altman, and never gave in to the temptation of the AI trade.

 

* Caveat. Oracle will survive in some form: "While its many government contracts and national security significance make it unlikely that Oracle would be allowed to die, the collapse of its only growth segment will likely spell dark times for a company that’s already laid off 21,000 people as a means of funding its AI buildout." 

We haven't heard much about oil reserves lately. I'm sure everyting's fine.

Remember a little over three weeks ago when we ran a post about CNN's report on the oil reserves in Cushing, Oklahoma. We used this as an example of how highly important aspects of a major news story like the war in Iran, while not ignored, are covered only sporadically, while relative trivia runs constantly.

The CNN article was very good, but in the weeks that followed, other news organizations largely ignored it. Week after week, non-stories, often involving some unsupported and highly unlikely claim from the White House or yet another analysis of the quagmire, ran constantly at the top of the fold in the New York Times and its competitors.

Unless you were making a concerted effort to dig into the numbers, you could easily get the impression that an uptick in traffic through the Strait of Hormuz and other measures had brought the world's oil supply, if not back to where it had been, then at least well out of the danger zone.

You would be wrong.

From the Financial Times:

The International Energy Agency on Friday said its member countries had released almost three-quarters of the planned 400mn-barrel emergency stock release that was announced in March, meaning there are only a few more weeks to go before those supplies to the market dry up.

“We’ve burned through all of the buffers we had. Everything,” said one trader. “All of that’s now gone.”

...

    During the four-month closure before last month’s US-Iran agreement to reopen the strait, governments in the west and Asia pulled almost every lever available to them to ensure the supply crunch did not undermine the world economy.

Western powers released record volumes of strategic oil reserves, China cut its oil imports in half and made its state-backed companies pull fuel from inventories, while the White House let it be known the US could, in theory at least, intervene in futures markets if prices got out of hand.

The result was that Brent crude peaked at $126 a barrel in April, well below its all-time high, despite the IEA warning that the world was experiencing the worst supply disruption in history.

But traders said that if the renewed closure of the strait lasts for months, with some suspecting Iran wants to keep the pressure on Trump ahead of the November midterm elections, it is not clear this time where the oil to make up the shortfall would come from.

Amrita Sen, director of market intelligence at Energy Aspects, said that going into the war, the oil market had roughly 400mn barrels of excess inventories, not including strategic reserves controlled by governments.

“Now we have close to nothing,” she said. “Market complacency around Hormuz flows is being severely tested.”

 ...

    “Ultimately, the market was pricing an optimistic flow trajectory that now is clearly not on the table, at least . . . not until we get another round of diplomacy,” said Joel Hancock, a senior commodities analyst at Natixis Bank.
 

 

 

As previously mentioned, sometimes it's less about the facts and more about who's saying them.

If you've been following AI boom skeptics like Ed Zitron, you've heard this a dozen times in more detail and in far less dry language.

Over the past year or so, this message has been increasingly making its way into the discourse of mainstream economists and publications like the Financial Times, but it's still notable when a collection of the world's central bankers starts sounding just a bit panicked, albeit in their characteristically stuffy way. 

From the Bank of International Settlements (BIS)  annual report:  

In the near term, the ongoing AI investment boom raises questions about the sustainability of the current economic expansion. The five largest hyperscalers are set to spend over a trillion US dollars on AI-related capital expenditure from 2025 through 2026. These commitments are outpacing earnings and the free cash flow of these firms, leading some to issue debt to raise additional financing.

...

 Disappointment in returns could trigger a sudden pullback in financing and turn the capex boom into a protracted investment bust, with potential knock-on effects on financial conditions…should hyperscalers slow or halt the aggressive pace of capex deployment, many borrowers across the supply chain could struggle to replace lost revenue and service their debt.

The long-term commercial impact of large language models is a topic for another day. It should be noted that the BIS report is cautiously optimistic on this timeframe (I would put myself down in the "big, but not nearly big enough" category), but the concerns about the near-term future of the AI bubble as currently configured are definitely growing more widespread.

A fun little video from science writer and YouTuber Kyle Hill

... going through a recent study from JPL that takes a serious look at the unserious idea of terraforming Mars. At the risk of a spoiler, the conclusion is not encouraging.

While everyone reading this probably already knew how this was going to come out, it's worth walking through the numbers to get some sense of the full absurdity of what Elon Musk and his fellow travelers have been spouting on this.

One particularly silly point that the video doesn't really dig into is Musk's fondness for framing Martian colonization in terms of a Plan B, a place that humanity can go if Earth becomes uninhabitable. The standard hypothetical here would be an asteroid strike or some other disaster. The problem with that idea is that, despite all sorts of cataclysmic events, Earth has been more habitable than current-day Mars for 3 billion or so years, and it's difficult to come up with a scenario that would change that.

Though it's a rather silly exercise, if you were really concerned with humanity surviving the apocalypse, you could find all sorts of safe harbors to hide out in, either deep in the Earth or under the oceans. It would neither be that challenging nor that expensive, though it does have the downside of actually being doable.

Of course, the push for Martian colonies from the techno-optimists, like the enthusiasm for humanoid robots or hyperloops, has nothing to do with engineering, or economics, or any other practical concerns. These things are all inspired by a bizarre fascination with juvenile post-war science fiction combined with generally fascist-leaning libertarianism and the constant need for grifting.

Terraforming Mars is an Industrial Nightmare 

A not-so-done deal

 

Pick up where we left off in June. 

As is so often the case, this story in the New York Times is less of interest for the facts, which have been reported earlier and in greater depth by other news organizations such as NPR, Reuters, CNBC, Variety, The Hollywood Reporter, and others, than it is for what it tells us about the standard narrative.

 States Prepare Lawsuit to Block Paramount’s Merger With Warner Bros.

David McCabe, Benjamin Mullin, Lauren Hirsch

 

July 12, 2026

A group of states are preparing to file a lawsuit to block Paramount’s acquisition of Warner Bros. Discovery as soon as this week, according to four people briefed on the plans, a legal challenge that would create a major obstacle for one of the biggest media mergers in history.

A draft of the lawsuit currently circulating argues that the $111 billion deal would harm competition in the market for so-called tent pole films, the expensive blockbusters that make up a large portion of studio revenues, among other claims, two of the people said.

California has taken the lead on the lawsuit, and states including New York, Washington and Connecticut have said they will join the effort, according to three of the people, as well as another person familiar with the states’ plans. All of them spoke on condition of anonymity to discuss a sensitive legal matter before it was public.

[I don't want to get too sidetracked into bitching about the Gray Lady, but how can it take three credited reporters to write an account so superficial it doesn't even mention the state which has most aggressively pursued this story?] 

Once the lawsuit is finalized, the states could decide to delay filing it or scrap it completely. Reuters earlier reported states could sue as soon as this week.

A spokeswoman for Paramount said in a statement that the company was prepared to address “legitimate antitrust issues,” adding that its merger with Warner Bros. Discovery “raises no such concerns.”

“We are confident the facts and the law support this transaction, and we will continue to defend it vigorously,” she added.

Paramount has said it plans to close the deal in the third quarter of the year. As part of its deal with Warner Bros. Discovery, Paramount has said it would pay the company’s shareholders about $650 million in cash for each quarter the deal doesn’t close, starting in October.

...

 

Internationally, the company has already secured approvals from more than 20 countries and regions, including China and Australia. Some international regulators must still approve the deal, including Britain. In June, a British official said her government was leaning toward examining the acquisition.

...

In filings last month related to a separate brought by streaming subscribers seeking to block the deal, Paramount executives said in sworn declarations that they planned to release at least 30 movies in theaters annually and keep new releases in theaters for at least 45 days before putting them on streaming platforms.

[A bit more bitching. It's true that  Paramount executives said this but literally ten minutes of research would reveal that virtually no one outside of the company believes this is possible. This huge surge in production would have to happen while the company is forced to slash costs to deal with $79 billion in debt just as Fitch has just downgraded the company's credit rating to junk status.] 

Up until recently, the Ellisons and their allies had managed to successfully sell the idea that the merger was a done deal. Resistance was futile. It is time to accept your new overlords. This created a situation where the greatest barrier the opposition faced was the belief that there was nothing the opposition could do. When the NYT runs something like this, you know that narrative is shifting.

Of course, positive thinking only gets you so far. The odds of the merger going through are still quite good, just not the slam dunk that much of the press has credulously repeated up to this point.

There are all sorts of fascinating moving parts here that you would know about if you got your news from the previously mentioned news organizations. This is more than just an antitrust story, with Middle Eastern sovereign wealth fund money making up something like half of the funding, which normally would be considered illegal. There is the previously mentioned Oregon investigation into corruption. Then there are all sorts of interesting aspects to the financing and the timing. The "ticking fee" is still a ways off, but it's not trivial, particularly if Ed Zitron proves to be prescient with respect to the near future of Oracle. Larry Ellison has committed to put up tens of billions of dollars that he might not have at some point.