The AI Industry Is Losing
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The AI Industry Is Losing
Ed Zitron<br>Jun 30, 2026<br>36 min read
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If you liked this piece, you should subscribe to my premium newsletter. It’s $70 a year, or $7 a month, and in return you get a weekly newsletter that’s usually anywhere from 5,000 to 18,000 words, including vast, detailed analyses of NVIDIA, Anthropic and OpenAI’s finances, and the AI bubble writ large (updated to version 3.0 a few weeks ago). My Hater's Guides To the SaaSpocalypse, Private Credit and Private Equity are essential to understanding our current financial system, and my guide to how OpenAI Kills Oracle pairs nicely with my Hater's Guide To Oracle.<br>This month, I published a two part series that took a deep-dive into the bubbles-within-a-bubble that make up the AI bubble — from the unsustainable and reckless growth of semiconductor companies, to the cults of personality surrounding Sam Altman and Dario Amodei. On Friday, I’ll publish my long-awaited Hater’s Guide to Softbank. You won’t want to miss it.<br>Subscribing to premium is both great value and makes it possible to write these large, deeply-researched free pieces every week.<br>Soundtrack — Queens of the Stone Age - Hideaway (Baloise Orchestral Arrangement)<br>On Sunday, the Bank of International Settlements (BIS) put out its annual report and said, well, a bunch of things that I’ve been saying:<br>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.<br>As edifying as it is to see the bank for central banks say exactly what I’ve been saying for the last few years, this part is the one that both rocks as far as being right goes and sucks for the world at large:<br>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.<br>No shit. In April of last year, I wrote a piece called “AI is a systemic risk to the tech industry,” where I outlined how the failure of one model lab, OpenAI, would have seismic effects down its supply chain, delivering body blow after body blow to NVIDIA, Oracle, Microsoft, and the various Neoclouds that serve its compute, the most notable of which being CoreWeave.<br>Since then, OpenAI’s slimy tendrils have sunk into even more facets of the tech industry, and it has signed deals with the likes of Google, Amazon, Cerebras, and Broadcom, while also taking on more investments, including mammoth commitments from Softbank, which is only able to meet them by selling off prized stock in companies like ARM and NVIDIA, and by raising debt.<br>The idea of systemic risk has never quite left my work, and I’ve spent a lot of time thinking about it over the past year — and, as a result, my writing has examined the potential consequences of an AI spending pullback on those financing the sector, in particular private credit, as well as the semiconductor industry.<br>The BIS’s concern wasn’t about revenues tanking — which would happen should, as it fears, hyperscalers decide to “slow or halt the aggressive pace of capex development” — but rather revenues tanking and the borrowers within the AI supply chain being unable to service their growing debt burdens.<br>Again, this is something I’ve raised the alarm bells over a bunch of times. CoreWeave has been a favored popinjay of this newsletter, and in March of 2025, I published CoreWeave Is A Time Bomb, where I focused heavily on the company’s overwhelmingly toxic debt pile and its reliance on OpenAI as a customer.<br>On a much grander scale, we have Oracle — which I exhaustively profiled in my Hater’s Guide to Oracle newsletter.<br>Unlike neoclouds like CoreWeave, Oracle’s a much older company, having spent most of its existence selling database and ERP software to some of the world’s largest companies and public sector institutions. Oracle pivoted to serving AI compute at a time when its core business lines had started to stagnate, and thanks to its large scale, it was able to raise insane amounts of debt.<br>And Oracle, as I’ve noted previously, is a company that, even before the AI bubble, was massively indebted. It just so happens that, as a result of its tryst with OpenAI, Larry Ellison saw fit to twist the debt knob to eleven.<br>Oracle’s spending has already pushed its free cash flow into negative territory — minus $23.7bn, as of the end of FY 2026 — and at the end of May, it had $129.5bn in outstanding debt. This doesn’t...