ALERT: Did Anthropic Just Pop AI Bubble?

0:00This time is different, they said. I can't really say it every time, but this time is different. This is not going to be the dot coms because the dot coms had a bunch of money losing companies all over the marketplace. This time we got these massive businesses that are entirely profitable, which is not going to be like the dot coms. Yeah, right. Honestly, given what we know today, I mean, we kind of had it kind of had an idea, but what we know now today, I really hope that the AI bust happens sooner. I mean, tomorrow, I hope this thing starts tomorrow because the longer this goes, the more devastating it's going to be, it's going to get down the road. Yes, AI is going to be a game changing technology, but the amount of money that's going to take to get there and the fact that not everybody's going to win and not all these numbers are going to make sense means that there's going to be a bust at some point. And the longer this goes, the bigger it gets, the more trouble there will be down the road. So what is this all about? Well, Reuters reported last night at Anthropics, one of these stars of the AI bubble, it's S1 was leaked to Reuters.

1:00So Reuters basically gave us some insight into one of the biggest names in AI, but previously we had no information. I mean, these are private companies and then once they go, once they go public, they undertake an IPO and raise money through the public marketplace, they got to start reporting things and then they start reporting things. They said they tend to leak out. So that's where we are. Anthropics, S1 leaked through Reuters. Reuters gave us a bunch of numbers that allow us to, like I said, start to put some numbers and start to put together a case for where this AI thing is going to go. Look, the numbers are just absolutely staggering. And like I said, I really hope the bust happens sooner rather than later because the longer this goes, it just gets more and more insane all the time. And this time is not different, including the structure of the AI bubble. And we'll get into all the details there. But let's get into what Reuters reported. Was it late yesterday? Just a whole bunch of, you know, just, I mean, like I said, we kind of knew this was taking

2:00place. We knew it wasn't going to be a pretty, but you see the number right there, 518 billion. That was just insane amounts, half a trillion. So Anthropics IPO perspective, the S1, surging costs and also huge losses. What they, oh, let's start from the beginning. Revenue grew 12 fold to nearly 4.6 billion. So that's pretty good. Last year, 4.6 billion, 12 fold increase. That's, you know, fits with the description of AI. However, they're operating losses. And this is just their operating losses were 8 billion. So it took them nearly 5 billion in revenue, but they had to spend 12 billion in expenses. So 12 billion expenses to create 5 billion in revenue. And that wasn't even, that's just a start of it. The real big one, as far as losses are concerned, they overall, when you factor in spending in capital expenditures, $42 billion loss in 2025 on $4.6 billion in revenue. And these aren't even the worst numbers out there.

3:02The worst number is 518 billion that's already been committed, committed as far as spending over the next couple years. That's not next year, it's not this year. It's over the next couple years. Half a trillion. These people have 4.6 billion in revenue last year and they've already committed half a trillion dollars. So you can see why this is a debt story. Anthropic has already raised a pile of money through equity markets. I think it was 80 some billion to the last equity. And that equity, the last time they went into the equity market, they were valued around 950 billion, almost a trillion. It's called a trillion. So they're a trillion dollar valuation. They're going to do another equity raise, which is why we're talking about Anthropic right now, the S1, which they're hoping to get a two trillion market value. A two trillion market value for a company that has 5 billion in revenue, 40 billion in losses, and half a trillion in already committed spending. You see what I'm saying here. It's not that the AI bubble is priced to perfection. It is priced to ultra perfection. There's absolutely nothing can go wrong.

4:02And the more information we get, the more you just have to shake your head. Like I said, hope the AI bust comes sooner rather than later. Then we can clean out the bad stuff, get the numbers back on track, and get the economy out of road where it can actually get to where everybody's trying to take it with this AI stuff. The AI is going to be a game changer. I keep saying that. It's absolutely the case. It's a long run. It's going to be very productive, very positive. However, getting there is going to be very messy. And the more mess it's going to get, it's going to get that way because we didn't stop it soon enough. So let's dig a little bit further into what was reported. There's, you can see, Reuters reporting on the losses. It's not really the losses that we need to worry about. Yes, they do. They did have to put in there that, yes, one of the risks of their technology is that maybe it could end humanity. That's a whole separate topic that we don't need to get into here. Suddenly the scare mongering among AI. Not saying that there aren't tremendous risks there, but there's a political agenda behind all of that. But as far as the IPO goes, they have to throw that in there because the SEC makes them. They have to, they have to talk about every material risk that could potentially harm

5:06the stock, therefore the public needs to be informed. The anthropics technology could end humanity as we know it, at least throwing that in there just out of due caution. But really, the story here is simple. This time is never different. You have a brand new technology that requires a capital expenditure build out, a sustained cat-backed boom or on the other side, sustained cat-backed spending. We know that. So, anthropic gave us a half a trillion figure just for this one company where they want to go. So, we know that their spending is going to be absolutely ridiculous. The reason why they continue to get money and continue to get all this attention and continue to get equity investors salivating at the prospect of investing in their IPO is that this is the other part of it. This is the, again, in every single technology bubble, every single, it doesn't even have to be technology. Every, every asset bubble, you have this open-ended future where spending is a little bit more predictable, but revenue we can extrapolate revenue to whatever we want. And yes, all revenue extrapolations are parabolic. And there's, it's not let the, without legitimate reasons for being parabolic because the winners

6:11in these technology races tend to see parabolic growth. So, what they're basically saying is we need to spend, spend, spend in the initial years. And eventually the parabolic growth and revenue will get to the point where it outpaces spending. And therefore, as the parabolic revenue continues to rise at an extreme rate, spending left behind, suddenly this technology becomes ultra-profitable. They can pay back all those old loans. They can pay back our equity investors. We're making out from enough money to make these extreme valuations worth every penny that people are paying for them. But in order to do that, in order to have any prayer of those two curves crossing or those two lines crossing, they have to invest a ton of, they got to get a ton of debt in some equity, like I said. They already raised some money anthropic to an IPO, but they need a vast majority of debt. So, if they've got half a trillion in commitments already, roughly, roughly $100 billion in equity, the revenue is going to advance, but I mean, not nearly fast enough.

7:12So let's say they get, you know, just to be generous, let's say they get 50 billion in revenue, what did I say, 100 billion in IPO equity, that leaves 350 billion for the debt market just to cover the half a trillion that we know about right now. And then every, you know, there's no reason to believe that half trillion is only going to be a half trillion over the next couple of years. And then we have to have all these other questions. So you can see where these numbers just get absolutely ridiculously insane. And really, the entire issue, again, in every single bubble, this time is not different. It's all about that curve. If the revenue curve, which is still growing parabolicly in the second curve, if it doesn't grow nearly as fast enough, suddenly you've got a bigger problem. You still have parabolic growth, and maybe you get to profitability down the road, but your profitability isn't as profitable as you hope for today. And in between, if your revenue doesn't get as parabolic as you initially extrapolated, that means you're going to need more debt and a ton more debt. Because every little bit of delay on that curve adds a couple hundred billion more to your overall debt pile.

8:12It also leads to higher uncertainty. The further out in time that goes where these two lines cross, the more debt investors are going to say, the probability of being able to pay me back is looking less and less likely, especially before we get into any kind of shocks or volatility. But the further the extrapolation deviates from its intended path, the further deviations, the further deviates from the current projections, the more the debt market is going to say, yeah, no, thank you. And that's not even the only thing. We also have to factor in the factor in. Costs are going to likely go up. The 518 billion is probably the best case scenario here. All of these companies are competing for a limited amount of equipment, which are driving up prices already, which means the 518 billion is the lower bound for what anthropic is really estimated. So cost go up revenue maybe doesn't grow as fast as projected. And suddenly there's a huge amount of uncertainty where the point of profitability comes in, which means the debt market stands back and says, we don't know if we're going to get paid back.

9:16Therefore, we're going to start slowing down what we're doing. It raises a number of potential frictions for a system, the AI bubble system, the capital expenditure, but whatever you want to call it, it raises a number of frictions that makes it more difficult for that to get to where it needs to be in order to make all of this work. And we've heard a number of skeptics from the very beginning. I remember IBM CEO, I think it was last December said, there's no way these numbers work. This is what they're talking about. What they're talking about is these overly optimistic extrapolations where the parabolic growth easily out of paces spending and therefore outpaces predictable spending. That's what they sell you on. Parabolic growth and revenue predictable spending. Eventually, everybody's happy because the green line goes much faster than the red line, profitability for everybody. That is the case, but not likely the near term or not likely in the short run, especially with the credit market, the credit cycle turning in the wrong direction. You could also appreciate with a higher uncertainty exactly why this thing is priced to absolute

10:19perfection. Everything needs to go right. Spending needs to be controlled and predictable has to go on a predictable path. The revenue has to come as projected and extrapolated, which is another problem because nobody has any frigging clue what revenue is going to look like. And there's a number of risks to it for anthropics specifically. What about the lower tier models, a lower cost models, maybe more of the business sector decides we don't need to pay for frontier models. Let's use some lower cost models and control our own budgets. We don't know what happens with a macroeconomic downturn that could push the revenue curve further out into the future, less parabolic growth. There's a whole number of factors, and like I said before, spending is a huge one. 518 billion today could be 618 billion next month, and it could be a trillion dollars by the time we get to the middle of next year. All of these things need to go exactly right in order for all of these numbers to have even a small chance of working. And the more that it seems unlikely, the more credit investors are going to say, sorry,

11:20I don't think so. And the more credit investors pull back, well, we'll get to that. So like I said, the further on we get in the boom, the worse it's going to get down the road because these numbers just get bigger and bigger and bigger, and they get harder and harder and harder to justify. But a lot of this has to do with the specific structure of the AI boom here. And it's not really all that different from the dot com error, at least much of the dot com error. I've said this too. Here, people all the time say, this is a debt story. Well, the dot com was also a debt story to a significant extent as well. And this one is much, much bigger debt, much, much bigger reliance on the credit system is a whole and all parts of the credit system, including the stuff that we used to bring up back in 2006, 2007 and into 2008. Not making the same comparison, not saying we're going to repeat the 2008 crisis. It's just that all of that stuff, the SPVs, the special purpose vehicles are central to this case, just like they were the mortgage bubble generation ago. And Anthropic is no different over the last couple of months.

12:20We've heard these massive private credit deals have been put together with Anthropic at the center of it. And I'll diagram and get through it in just a second here. Another key point here, which shows this time is not different, is everybody's involved. One of the reasons why you have these credit cycles, the upswing and then the downswing. The downswing part of it is because everybody's tangled up with everybody else. It's not like you have discrete parts of it that can be separated and compartmentalized as the cycle turns to the downturn. You can protect yourself over there because everybody over here has nothing to do. No, it is absolutely entangled. Everybody's entangled up with everybody else. There are guarantees everywhere. There are collateral deals. There's distributed debts, which like I said, I'll get to in just a second. And this deal that we're talking about here and a bunch of other deals that are related to this are no different. The SPVs are back. Under the specific one that Anthrop had put together a couple of months ago, I believe it was in early June or July. Broadcom is backstopping some of the payments, what is it called residual supply, residual

13:24value support. Residual value supports the term that everybody's been using because Wall Street's great about putting together slogans. There's basically nothing different than a backstop. Like I said, here, backstopping payments on some of the debts. The debt that was specifically put together through private credit, you can see we've got Broadcom, which is the guarantee. Morgan Stanley arranged it. Apollos involved, black stones involved. Basically, everybody gets involved in these deals because Wall Street loves these types of things on the way up. There it is, residual value support, which means that if Anthropic doesn't make its payments because let's face it, it's a company with $5 billion in revenue and $500 billion in committed expenses. If somehow they fail to make up their payments, the Broadcom is guaranteeing part of the loan, which has the effect of allowing Broadcom to use its reputation and credit profile to cheapen the debt that ultimately benefits Broadcom, yeah. Anthropic is basically the customer care. Let's go through some diagrams.

14:24First, you can really see what I'm talking about. Let's go back to the .com area. You can see why it's really not different. I brought this up about a month ago. We went through Nvidia. It's really the same kind of thing. But back then, it's some of the biggest technology companies that were very profitable. These are firms that had a long business profile. The idea that .coms are all a bunch of small money losing companies. In one sense, that was true. But you had Nortel and Lucent in particular, many, many more who were doing basically the same thing we're talking about here, but in a different way. They provided essentially direct loans to their customers because their customers had no money. They were like, in this scenario, the customers are like Anthropic and Nortel and Lucent are like Broadcom and Nvidia. They've got established businesses, massive growths, they've got profitability, their numbers look good, longstanding profile, Anthropic, just like the .com names of a generation ago. Basically, no track record, no revenue. We hope that their parabolic growth actually comes to fruition, but we don't really know the case. So in order for these smaller .com businesses back then or Anthropic these days, to be

15:27able to buy the equipment from Nortel and Lucent, they're going to need to borrow the money. So Anthropic is borrowing the money from Wall Street, but also borrowing the money in different ways. But back then, we didn't have the SPVs to the same extent. They were there, but they didn't have them to the same extent back in the late 90s and early 2000s that we do to these days. So Nortel and Lucent did the same thing that we just talked about with Broadcom in order to make the loans more economical so that Nortel and Lucent's customers could buy their products. They went into the bond market and borrowed the money themselves and then redirected those loans to their customers who then used those proceeds to buy the company's products. Very simple. In theory, it's very elegant, but you can already see the problems and where this could all certainly fall apart. If the money stops coming into Nortel because the numbers don't look as rosy as Nortel told Wall Street or Bank of New York, which is one of the biggest investors in Nortel or Lucent, the same thing, the House of Cards comes crumbling now, which is essentially what happened. Because all of those extrapolations back in the .com era were way, way, way too optimistic.

16:31The spending was also overly optimistic, but the revenue growth just didn't happen nearly the way that it was projected through Wall Street and through everybody else in the financial media and everybody who invested it. So once the money starts to dry up, customers start to dry up, but Nortel is now on the hook for their customers, all those equipment deals that were done. Now we do the have less revenue coming in because their customers are all bust. They also have the back loans when they were funding their customer purchases, which is why Nortel and Lucent aren't around anymore. They went bankrupt throughout the decade or two thousand. They got kind of messy there. But neither one of those companies survived. That's the basic framework that we see here. When I say this time is not different, this is what I mean. The only real true difference, such as in this case from a macro scopic perspective, isn't a meaningful difference, is that these companies, the modern version of Lucent and Nortel, in this case Nvidia or Broadcom, you can substitute Broadcom in there, they're

17:32not making these loans directly. They're making guarantees, which make it similar, but they're not making the loans directly. We've got the shadow banks, we've got the private credit providers, at least the asset managers. The asset managers, they help set up these special purpose vehicles, the SPVs, that we just talked about. They get funds from equity investors, wealthy individual institutions, they sell bonds into the marketplace, they borrow money, they create leverage. They basically use all of their resources to gather as much debt and equity investments as they possibly can. Then they're the ones that are making the loans to the customers, which are in this case the anthropics of the AI cycle. They're making loans to the AI customers who can then use those proceeds to buy the products from Nvidia or buy the products from Google, all the chips are Broadcom. What is it called? The Google TRU landscape. They have all these fancy term terms for it, but it's basically the same thing. The same thing is we're borrowing money to fund customer sales, customer capital expenditures

18:34so that they can then buy the products from these companies who are providing support because they want to make sure that these deals get done. Again, these small businesses, just like in the .com era, they have no track record, they have no real revenue to speak up. They're tremendous risks. If they wanted the marketplace themselves, they would be charged a huge interest rate. So instead, to cheapen these loans, to make these extrapolations have any prayer of coming true, they have to make the interest rate as low as possible. So Nvidia or Broadcom, they have to get involved with these guarantees because these companies have absolutely track record, they have no collateral. Other than what they can pledge, which is the stuff that they're actually buying, in this case, the chip. So basically, Wall Street came up with a way this residual value support to create collateral out of the products that all of these technology companies are buying from the other companies that are supplying them and supplying in one way the debt. So we have a company like Anthropic that buys a bunch of chips from Broadcom.

19:37They pledge those chips. They actually don't actually, the debt's a little bit, the structure is different, but we don't really need to talk about that there. Talk about that here. The chips that they buy from Broadcom, they post that as collateral to the SPV, so that the SPV makes it cheaper loan. And then Broadcom or Nvidia, whatever the company happens to be, stands by with this residual value support, which is essentially recognizing that the equipment that is posted as collateral has a very uncertain value to it. And a lot of these chips depreciate very quickly. And you don't, it's a lender. The last thing you want is to have an uncertain value of collateral, an uncertain collateral value because it's the whole point of collateral is to be protected. And the whole point of having collateral to be protected is because you're offering a lower rate than you otherwise would for the amount of risks that's actually being undertaken. So basically Broadcom and Nvidia have said, we'll guarantee the value of those chips because they're thinking if the customer doesn't live up to the obligation, they can't pay back to loan, we'll take the equipment back, the chips or whatever else the equipment is servers on a bunch of everything else, but even data centers themselves, we'll take them back and

20:39we'll either sell them in the marketplace or more likely we'll repurpose them with somebody else who can pay. So they're thinking that there's no loss to them because they can just take their equipment and resell it or reuse it. The SPVs made hold because they have the value of the equipment that these companies are buying, the smaller companies are buying. And they also have the residual support, the residual value support from these bigger established firms who say, we're going to make sure that you get made hold. And it all seems to work really, really well. So long as those two lines actually live up to the projections, the green line grows parabolically, the red line grows in a predictable fashion. They cross early enough that it leads to a huge enough profit, really opportunity that it's not completely uncertain and completely discounted down to nothing. And so we have a bunch of debt that's being raised and funding basically the same circular structure that we saw on the dot com. The difference here is the dependence on the credit cycle to make sure that it all continues. It's not strictly about the macroeconomic cycle or the adoption cycle itself.

21:42It's really about the debt markets and their perceptions of those two lines, the red line for spending and the green line for revenue. And any questions about either of those or both the credit markets are which are already in bad shape to begin with start to really, they become a hindrance or hurdle and a friction. Like I said, the private credit in particular, private credit is huge in all of this as we saw with the anthropics deal. But the credit cycle is a whole. The credit cycle of a whole is already shifting. It isn't at the absolute worst part of it. But the credit cycle is becoming more and more rigid, more and more in elastic which makes it more and more difficult for these types of deals, especially knowing now that we know the numbers are to make these deals done in a way that makes these extrapolations at least plausible. So the more we see of the credit cycle downturn, the more difficult it's going to be for the credit markets to supply the amount of money on the terms that these, that the entire AI cycle is built on and predicated on absolutely requires an order to have a prayer of achieving

22:47their long run goal. So the credit cycle gets more and more difficult as we go forward here. And today's disclosure, sure as hell doesn't help. If anything, you've got a lot of people that are just shaking their head. You've got a company with 4.6 billion in revenue, half a trillion in commitments that's looking to launch an IPO at 2 trillion, all in order to make sure that they have some kind of plausible pathway to achieving profitability. They just actually much, much further down the road than I think people were expecting and appreciating before we got the S1 leaked to Reuters. And what really matters about all that too is, like I said at the beginning, the further on we get in the cycle, the more debt that gets piled into this thing, the more that the potential downside that the losses, not just the losses, but the ramifications and consequences for the downside, the bigger they get. If anthropic gets even closer, it's half-troning spending over the next couple of years. If the AI capital expenditure boom extends for a couple more years, and let's say they get

23:48closer and closer and closer, that's hundreds of billions of dollars in debt that are at risk instead of here where we have tens of billions. There's an enormous difference between tens of billions at risk and hundreds of billions at risk, especially when you multiply this across the entire AI landscape. And yes, this time is not different, which means I've done this at our Eurodollar, Eurodollar Talk channel here on YouTube. Every guest that we've had, it come in. Ask them the same question to start with. What do you think of the AI capital expenditure boom? Is it a bubble? Is it a, is it, you know, where are we in the cycle? Everybody says this time is not different. It's going to end up busting where we don't know and it's difficult to have any idea is how far are we from the end of that cycle? But everybody believes that we're in a cycle. Everybody believes that this is going to end the same way. And like I said, the further we get closer, the closer we get to those huge numbers, when the bust actually does come, the bigger the challenge is going to be, the bigger the problem is going to be, the more widespread the damage is going to be.

24:50That's saying it's going to be like a repeat of 2008. The further we go along in this capital expenditure boom, the more difficult and damaging it's going to be, the more difficult it will be to clean up and the more damage that will be done that will need to be cleaned up as we go. So basically as the credit cycle shifts, as these numbers start to come in, we start to get more information on whether or not revenues are growing anywhere close to projections, whether spending is living up to the also projections, is it being predictable? The more we get a more that Wall Street in particular can zero in on where those two pass my cross as a further into the future, is the profitability zone down the road going to be big enough to justify all of these massive numbers and massive risks. That's where everything really starts to get tricky. The more the less it makes sense, the more people start to realize that IBM CEO was correct, that these numbers just don't make any sense and there's no way to make them make sense. Basically, everybody's rolling the dice at anthropics growth is going to live up to

25:53projections or become better because their product will be absolutely astronomical. But like I said, it's priced to not just perfection, but ultra perfection. Everything has to go exactly right at exactly the right time and exactly the right way. And that's just not the kind of thing that Wall Street likes. Broadcom can offer residual value support all that they want for these equipment that's used as collateral or Nvidia or anybody else. They can offer all the guarantee, but like I said, everybody else is entangled into this mess, which means that eventually Broadcom's support becomes less and less solid. So essentially what these companies are doing, just like they did during the .com era, is they're using their reputation and to an extent, their balance sheet in order to cheap in debt, which means that in many ways the debt is mispriced because Wall Street is pricing debt based on Broadcom's guarantees that may not be worth what Broadcom say that they're worth because the projections of the anthropic may not live up to what the anthropic hopes it does in Wall Street is expecting. And what that means is that eventually all of the debt in the AI space has to be downgraded

26:57to better reflect the probabilities, the absolute realistic probabilities that was covered up by these supports and guarantees that essentially it were mispricing debt that doesn't actually pick up the overall risk. And the bigger the bubble gets, the more risks that's involved, the more there's going to have to be in the repricing. And Collateral, once again, is at the center of it because that's the way and on the way up to the capital expenditure boom to make all of this at least seem like it could work. Because if Wall Street and the credit market participants and providers are at least somewhat in the near term, at least somewhat reassured that they're going to be made whole or they can skate away with limited losses, they'll continue to shove them up. The further the challenges get, the more we get information that suggests that these numbers really don't really work. The less likely Wall Street is going to sit there, the less likely private credit will be there. The banking sector, which is getting drawn further and further and think about Oracle's forced measure, how there was an 18 banks syndication bridge loan that's now hanging in the balance

28:01where all these banks are holding debt that's reported $0.80, $0.90 on the dollar. The more these things start to pop up, the more that the credit cycle and the more credit providers have to factor that in as less likely to pay off, more likely to create losses. The greater the uncertainty, the wider the error terms, the more that the thing just going to continue to break down. So Anthropic really did supply. What I hope would be eye opening numbers, even though if Anthropic didn't actually intend to, I mean they had to know it was going to leak eventually. But the idea that this time is different because we have all of these massive firms like meta and alphabet and to an extent, or these previously profitable firms long established truck records and there that the center of the boom, it's not a bunch of these smaller, brand new startups who just lose money forever into the future. We don't have that this time. That was a dot com error. That was just nonsense. And if anything, the biggest takeaway today is that A is that Anthropic should shatter

29:04that notion that this is, you know, somehow different, that this is not like the dot com. We have a bunch of, a bunch of small startups that are going to lose money forever and not forever in the future, but for a long time in the future. And so it really becomes a race against time. Can they pull off the parabolic growth and revenue before the house of cards comes tumbling down because the house of cards is going to come tumbling down? So I think that's, you know, that's one of the reasons why I wanted to do this video. It's just because these numbers and the, what Anthropic, what came out from Anthropic really does start to put some numbers together and start to put some, some hard data on what's really taking place.