{"id":351,"date":"2025-12-15T07:05:28","date_gmt":"2025-12-15T14:05:28","guid":{"rendered":"https:\/\/www.jsnover.com\/blog\/?p=351"},"modified":"2026-02-05T09:48:24","modified_gmt":"2026-02-05T16:48:24","slug":"the-ai-finance-golem","status":"publish","type":"post","link":"https:\/\/www.jsnover.com\/blog\/2025\/12\/15\/the-ai-finance-golem\/","title":{"rendered":"The AI Finance Golem"},"content":{"rendered":"\n

Bad things happen when you are grounded in the real world.  Ergo, in systems architecture, we constantly look for feedback loops<\/strong>. Negative feedback loops provide stability (like a thermostat). Positive feedback loops provide amplification, but without a governor, they inevitably lead to system runaway and collapse.<\/p>\n\n\n\n

You know the story of the Golem of Prague<\/a>? The Rabbi builds a protector out of clay. It works great until it doesn’t. In engineering terms, the Golem failed because it lacked a governor<\/strong>\u2014a negative feedback loop. In systems architecture, positive feedback loops without governors don’t just grow; they run away and tear themselves apart. That is exactly what it appears we are building with this circular financing of AI where capital flows from Big Tech balance sheets into startups and immediately flows back as revenue.<\/p>\n\n\n\n\n\n\n\n

Let\u2019s break down the Golem legend.<\/p>\n\n\n\n

Clay to Golem: Protecting the Valuation<\/strong><\/h2>\n\n\n\n

In the legend, Rabbi Loew creates the Golem out of river clay to protect the Jewish ghetto from anti-Semitic attacks and expulsion. It was a desperate measure to ensure survival in a hostile environment.<\/p>\n\n\n\n

Today, all the Big Tech players (Microsoft, Google, Amazon, Meta) have convinced themselves that they are in an AI Race.  If you recall from my blog \u201cResource Allocation: Race vs Rate?<\/a>\u201d, when you are in a race, you pull out all the stops to win and then clean up the mess after victory. These companies are spending hundreds of billions of dollars on CAPEX\u2014building data centers and buying GPUs & TPUs \u2014at a pace that boggles the mind.<\/p>\n\n\n\n

To justify this spend, they need to show massive cloud revenue growth now<\/em><\/strong>. But organic market demand (real companies solving real problems for paying customers) isn’t growing fast enough to absorb that capacity.<\/p>\n\n\n\n

So, they are molding the clay.<\/p>\n\n\n\n

The Mechanism:<\/strong><\/h2>\n\n\n\n
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  1. Big Tech invests billions of cash into AI Startups (OpenAI, Anthropic, CoreWeave, etc.).<\/li>\n\n\n\n
  2. These startups are contractually or technically obligated to use that cash to buy Cloud Services and GPUs from the investor.<\/li>\n\n\n\n
  3. Big Tech books this returning cash as Cloud Revenue.<\/li>\n<\/ol>\n\n\n\n

    From an accounting perspective, this looks like growth. From a systems perspective, it is a closed loop<\/strong>. The money is simply making a round trip, minus some friction, allowing the provider to claim that demand for their infrastructure is explosive.<\/p>\n\n\n\n

    AGI Shem<\/strong><\/h2>\n\n\n\n

    A Golem is just a mud statue until you insert the Shem<\/em> (a slip of paper with the magic name of God) into its mouth. The Shem animates the clay.<\/p>\n\n\n\n

    For Big Tech, the Shem is AGI Artificial General Intelligence (AGI)<\/strong>.<\/p>\n\n\n\n

    If you peer through the fog of hype, the current generation of LLMs are just great language processing tools (think parser+++). However, you cannot justify a $3 trillion market cap on better chatbots. You need magic. You need the promise of a god-like intelligence that changes physics and economics. Oh and now it\u2019s also Geopolitics (e.g. race w\/China) to prepare the field for a government bailout.<\/p>\n\n\n\n

    The concept of AGI is the Shem<\/em> that suspends disbelief. It allows investors to ignore the terrible unit economics of the current generation because they believe they are funding the creation of a new species. It turns a bad business model into a civilizational imperative.<\/p>\n\n\n\n

    Golem Works<\/strong><\/h2>\n\n\n\n

    Initially, the Golem works perfectly. In the legend, it protects the community and does the heavy lifting.<\/p>\n\n\n\n

    In the market, the AI Golem is currently serving its masters well:<\/p>\n\n\n\n