‘Big Short’ Investor: The AI Narrative is Falling Apart.

So what are these three dominoes that Steve has spotted that are causing the AI narrative to kind of crack at the moment? Well, the first comes right out of the Warren Buffett playbook, but we do need a little bit of context first.

So when Wall Street talks about AI, we're normally referring to one of two different types of businesses.

There's hyperscalers and then there's LLM providers.

Now, hyperscalers are companies like Google or Microsoft or Amazon or Oracle that are building the data center.

So they're essentially building the factories, whereas the LLM providers like OpenAI with ChatGPT or Anthropic with Claude, they're building the AI models that use these hyperscalers data centers to run.

Have a listen to how Steve explains it.

There is a major difference between hyperscalers and LLM providers.

The hyperscalers are the huge tech companies that are building the data centers where the LLM models are being housed.

There is overlap between LLMs and hyperscalers.

Google and Microsoft are hyperscalers but they also created their own LLM models.

So you have Google and Microsoft, Amazon and Oracle, they're predominantly in the hyperscaler column, and then you have OpenAI and Anthropic in the LLM column.

However, as Steve said, a few of the hyperscalers like Google, like Microsoft, are also trying their hand at the LLM side as well.

Now, why does this context matter? Well, it kind of goes back to the gold rush analogy.

During the gold rush, the people that made all the money were those selling the picks and the shovels, not the gold miners themselves.

Now, in an AI context, obviously the ultimate pick and shovel merchant is Nvidia, who are supplying the hardware to the hyperscalers.

But next in line are the hyperscalers that are building the data centres for future AI use.

Then in this example, it's the LLM providers that are the true gold miners.

You know, they could strike gold, but the business is much more risky.

And this is Steve's first potential domino.

The fact that the LLM providers don't really have moats.

In fact, right now they're in fierce competition with one another.

And they're now in competition with drastically cheaper Chinese providers like DeepSeek.

The large LLM providers, Anthropic and OpenAI, and partially Google and Microsoft, are much more problematic.

The debate has really shifted because there just don't seem to be any moats, or at best, the moats are shallow.

Enterprises are switching between models and using cheaper open source Chinese models in order to control costs.