AI Bubble: ‘Canary in the Coal Mine’ AI Company Imploding?

SPEAKER_1 (0:00)

You know, we're going to write this check for like, I don't know, like $100 billion or $200 billion. I'm like, Alex, you sure this is going to work?

John Johnston (0:08)

The AI boom is repeating the mistake that ended the.com era.

Ed Elson (0:13)

AI cloud company Coreweave might be on its last legs. Do you see a world in which they do figure it out? No.

Steve Eisman (0:22)

You need to focus on Anthropic and OpenAI. If anything bad happens to one of these two companies within the next year, everybody's in trouble.

John Johnston (0:32)

Hi, everyone. JJ here. Welcome back to The Lounge. We'll have an AI bubble update for you because it is progressing. I don't do videos on this all the time. It seems about one every two weeks at the moment, but I am monitoring the situation, just not every day in a video.

But people are talking about this one company that looks like it's going to implode. It does not look good. Is it the canary in the coal mine of the AI bubble? Now, I'm going to start today with this. There's one of the guys from the All In Pod, one of the besties known as the Fifth Bestie, who's a hedge fund manager as well and an investor.

He's on this CNBC segment talking about the AI stocks or AI market, the AI sector, talking it up. But turns out, he has cut back his allocation to AI quite a lot. So there's a contradiction there, but we will talk about the company that's in question, which is Coreweave. You might have heard about this. There are other Neo clouds that don't look good either, but let's get into it. I've got quite a bit to show you today. Let's get into it.

SPEAKER_5 (1:42)

Because the Dow is up big, but AI stocks are not. I want to start with you as we think about semis, what's happening with Coreweave, and we'll get to Coreweave more specifically in a moment.

Is this about AI slowdown concerns? Is this about debt levels and interest rates going up? Is this about choice C, all of the above? What do you think?

Brad Gerstner (2:05)

Yeah, of course it's all of the above. Well, first, great to be back here. We talked about this maybe a month ago, right? The number one question in the market today is do the AI revenues justify the CapEx build out? I mean, frankly, it goes back to the conversation I had with Sam Altman on my podcast last October.

John Johnston (2:20)

Yeah, you might remember that. I did show that in a video where he asked Sam Altman about OpenAI's revenue and Sam got really snippy. He kind of had a meltdown and said, well, somebody else will buy the stocks if you want to sell them, you know, Brad. And so that went viral there. And now we're further down the line here.

Brad Gerstner (2:41)

When I asked him the question, how can you make a trillion dollars of spending commitments when you have 13 billion cap revenue? Well, what happened this year is revenues exploded higher, right? Remember the forecast for Enthropic at the start of this year, $30 billion.

Now a lot of the reports have them doing at least $100 billion. We'll get into that a little bit today. But the fact of the matter is AI revenues exploded higher this year. And now we're in this phase of consolidation. People are starting to worry, is open source commoditizing the frontier labs? Are the revenues sustainable? And at the same time, then they're hearing in the marketplace that things may have slowed down. So that plus higher rates plus some of the political stuff going on in the background has people scared. I will tell you, I'm on the more positive side of this, but I think it's good. We have this churn in the market. It avoids bubbles.

SPEAKER_5 (3:30)

Okay. You're on the more positive side, but your actions suggest that you are getting more cautious.

John Johnston (3:38)

It's good that he asked this question, calling him out here. He can talk the talk, but what's he actually doing?

SPEAKER_5 (3:44)

I mean, you've taken your exposure down.

Brad Gerstner (3:46)

Yes. I mean, I did a presentation at the All In Summit about a month ago. I said I had taken my exposure down to medium small. I think I had shared that with you just the week before then. And the reason for that is I saw a lot of these AI stocks in April and May. We had the biggest move in semis in history.

John Johnston (4:06)