Premium: AI's Circular Psychosis

2026-05-08 · Source: Ed Zitron's Where's Your Ed At · Field: Business & Management — Corporate Strategy & Leadership, Capital Markets & Investment Management, Economic Analysis & Policy · Depth: Intermediate, long

Summary

Ed Zitron's May 8, 2026 analysis, "AI's Circular Psychosis," reveals that the AI economy is largely an unsustainable, circular system driven by two primary entities: Anthropic and OpenAI. These companies consume 70-80% of Amazon's, Google's, and Microsoft's AI revenues and compute capacity, representing 50% of their entire revenue backlog, or \$748 billion. Despite this massive consumption, both Anthropic and OpenAI are deeply unprofitable, relying on continuous venture capital infusions, often from the very hyperscalers they pay. For instance, Anthropic raised \$58 billion in eight months and is taking over xAI's 300MW Colossus-1 data center, costing \$2.5-\$3.5 billion annually. This lack of organic demand is further evidenced by xAI offloading its self-built capacity. Hyperscalers have invested approximately \$300 billion in 5.5GW of data center capacity since 2023, primarily for these two customers, creating an illusion of broad AI demand and inflating stock prices.

Key takeaway

For investors evaluating AI sector opportunities, recognize that the reported growth and infrastructure buildout are largely an illusion. Your investment decisions should account for the extreme concentration of demand in Anthropic and OpenAI, whose operations are sustained by continuous, circular funding from hyperscalers. This fragile dependency suggests significant risk, as the industry lacks broad, organic revenue streams to justify current valuations and massive capital expenditures. Scrutinize underlying profitability and genuine customer diversity beyond the dominant players.

Key insights

The AI economy's perceived growth is an illusion, sustained by circular funding and compute demand from two unprofitable companies.

Principles

• Hyperscalers subsidize AI demand.
• True AI compute demand is highly concentrated.
• Unprofitable AI models drive infrastructure buildout.

Topics

• AI Market Dynamics
• Cloud Compute Demand
• Venture Capital Funding
• Anthropic
• OpenAI
• Data Center Infrastructure

Best for: Investor, Consultant, Tech Journalist

Related on AIssential

• Premium: The AI Compute Demand Story Is A Lie — The "AI compute demand" narrative is largely an illusion created by hyperscaler subsidies to a few key AI companies.
• Challenges on the Horizon: Anthropic's $50B Goal — AI market dynamics are shifting with Anthropic's rapid growth and OpenAI's strategic platform expansion.
• How the AI Industry Runs on Its Own Money — The AI industry's circular funding model relies on unproven real-world utility and reliability, creating significant financial risk.
• Are we tokenmaxxing our way to nowhere? — The AI sector is experiencing rapid, exclusive growth, creating a significant divide between insiders and the public.
• Sam Altman’s OpenAI Empire Cracks — $200B Needed to Survive 2030 — OpenAI faces significant financial strain, requiring vast capital while its ecosystem shoulders substantial debt and profitability remains uncertain.
• Revenge of The Business Idiot — The AI industry's current boom is a financially unsustainable grift driven by executive ignorance and circular financing.

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Editorial summary, takeaway, and curation by AIssential. Original article published by Ed Zitron's Where's Your Ed At.