Monologue: The Pale Horsemen Arrive
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And I looked, and behold, a pale horse, and the rider's name was the Smiling Man. This is your weekly Better Offline monologue, and I'm your host, Ed Zitron.
This week I put out one of my most consequential newsletters of all time, called the AI Demand Bubble, pulling together multiple distinct financial analyst notes from Wells Fargo, Barclays, and UBS that directly estimated that 70% or more of the AI revenues of Microsoft, Google, and Amazon were from either OpenAI or Anthropic. To be clear, UBS estimated the next year Anthropic and OpenAI's compute spend will be 48% of all Google Cloud revenues, which means that they will likely account for even more than 70%. But I wanted to be fair. This was both a colossal pain in the ass and a story that I knew would piss off a lot of people because of its huge ramifications. As a result, I've had a ton of pushback from people that either outright deny that this is the case or say, actually, it's good the two unsustainable companies are the majority of AI revenues for companies that spent over a trillion dollars.
Actually, that's great. Anyway, 24 hours later, Bloomberg ran a story estimating based on OpenAI's $24.1 billion contribution to Microsoft's fiscal year 2026 revenues and previous statements that OpenAI alone contributed to 70% or more of Microsoft's AI revenues for the year. For some context, Microsoft has spent $26.13 billion in capital expenditures since the beginning of 2022. And other than getting to have the swagger of someone who just laid out a 7,000-word thesis founded in deep research on hard numbers only to get their work validated in less than a day, this story also confirms my greatest fears about the state of the AI industry and the actual demand for AI compute. Microsoft has spent over $200 billion, and that's not including the $13 billion invested in OpenAI or the losses it's incurred running their services at cost, at least in 2024 but potentially beyond, to create a customer that is now worth 7% of its annual revenue that cannot sustain its existence without near-constant flows of venture capital funding.
Microsoft's year-over-year growth for fiscal year 2026 was about 17.7%, but when you remove OpenAI's $24.1 billion in revenue, which comes from OpenAI's compute spend and revenue share, Microsoft's year-over-year growth was more like 9.24%, the lowest it would be since fiscal year 2023 when it only grew by 7%.
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