Anthropic's $30T Assumption & OpenAI Confirms IPO | Why Customer Service & Robotics are Overinflated Transcript, AI Summary & Key Points

9 billion doesn't clear the bar for seed investing in 2026. >> Let me tell you one thing I guarantee. If you get 15x on your failures and eventually you'll die a rich man. Welcome back to another week with the trio and hell and video are going fast. Then we move to open AI where CFO Sarah Fry says, "Hey, we're definitely going public this year." And then we discuss a really tough week in the public markets for a lot of the biggest AI names.

The VC money ran out on Entropic and Open AAI long ago, which is why no VC owns more than 1 or 2% of either of them. >> I think you have to believe we're less than a third of the way through this cycle. >> It's all about code. That's the only sales that matter. >> Jesus Christ. If 30% of my company leaves to go work for Harvey, I'm dead in the water.

>> Silicon Valley forgets every 3 years that the average American is not trying to be efficient. >> Ready to go. Guys, I am so excited for this. It's so nice to be back. I feel like locked in when I'm in the studio. I have my big table. I have the agenda. And we're going to start with Nvidia. Moving across different layers of the stack. And we're going to start with the model layer where Nvidia is paying $6 billion to license PID's model factory and investing a billion more at a 12 billion pre- money valuation moving

109 engineers over to Neotron to help build it. Pretty big news, especially on the American open model front. So, there's a lot here. I'd love to hear your guys' thoughts, but man, the one that gave me the feels or that hit me was that letter that was um you know, the the investor letter that was published on X. Thanks leak leaking VC or whomever it was.

But basically saying, you know, we we couldn't raise the 2 billion to buy 40,000 GPUs. We couldn't that deal that maybe we talked about half a year ago. It seemed like they were going to build their own um massive data center. They couldn't get the money um and they wouldn't have compute going into next year. So they had no choice but to fail up for 6 billion plus topping off a billion to 12 billion.

But it read it read almost depressing uh and um it's also maybe a reminder that despite Nvidia seemingly funding everyone on planet Earth that you know the the gravy train the VC gravy train can only last so long. There's only so much funding right from big funds. Maybe Rory sees it differently but it seemed like uh uh tough they couldn't they couldn't raise the two billion in in this environment.

not being critical, but it just showed that uh infinite capitalism is infinite as it looks. Even in the age of AI, >> the facts are correct. I thought, first of all, I thought it was an excellent letter. I mean, I read it and I reread it and there was some really good phrases in there. One of them I want to pick up and it said, you know, we have found ourselves on the right side of prediction in a market which has scaled exponentially in terms of capital intensity, which is nicely.

What they're basically saying is we were right 3 years ago that there was a market for a US open- source model and we've built that model. We've done everything we said we'd do and the capital intensity for the next turn of the model crank is just as you said way beyond us, right? So nicely phrased, right? And so so a couple of things here you could look at that and go I mean you could look at that and go oh they they did something that they took on a task they weren't able to do with the capital.

Oh that's a negative. On the other hand, they made money for themselves and all their shareholders. And I think the lesson here is, and we talked about last week, in a market that's exploding. Sometimes bets that on a standalone basis really just can't get to a positive DCF. You know, they just couldn't make the math on a standalone basis still have pretty significant value to the acquirer.

Because from the perspective of Nvidia, they looked at exactly the same facts and said, "Well, you know, we have capital. It turns out we have access to GPU because we make GPU, right? and you've kind of carried the ball down the field this far. We'll take it from here and frankly we'll give you a pretty compelling return. I mean I know you're a small poolside shareholder Harry.

So all those guys made really good money and the company gets to go stand alone and continue on. So I I I thought the lesson here is you're right Jason in one kind of negative way the lesson is it's almost impossible to compete now at the frontier and by the way that has positive implications for open AI and entropic we should talk about in a second.

So the negative lesson for everyone else is it is almost the the next smartest people who were really going for it just hit the capital wall. So probably all the other people behind them are going to hit the same wall. Right? That's the negative implication. And the positive implication is sometimes trying and moving the ball in a hyperrowth market, you can still get a very compelling acquisition, right?

you know, in a different market, if this if you'd run out quote unquote run out of money, if you had reached the next generation where you can no longer finance the company in a time when the capital markets were oppressed or there was some feeling that the overall, you know, overall kind of buoy around equity, sorry, around AI wasn't as strong, you might have had a very different outcome there because your fate was outside your control, right?

But I think in this market, it pays to take risks. It's what we were talking about last week in cursor. And I'm sorry if I'm rambling a little. Even when you have this kind of oh on a DCF MBA basis, it's not quite great. It turns out if you're moving in the right direction and you execute and build a product that's valuable right now, you're getting great exits.

And I think there's going to be a ton more. I think I said last week there's going to be a ton more of these kind of exits and we'll be talking about them. So yeah, I was I was kind of I read that and I thought as an investor if all the time you're saying is sometimes doing things where there is a fair amount of capital raising risk can still pay off in the nut market.

In a very different market it wouldn't have but here it did. >> I mean the additions that I'd have is like unwaveringly common thing that I see across all investors that I engage with, friends, people we have on the show is like Neolab's just going out of favor and next generation model providers and companies going out of favor too. And I'm not surprised that poolside found it challenging to raise as much as they did.

That's universal from everyone that I speak to. Second, founders are gonna make a billion each. It's a lot. And then third is that for me as an investor, I don't know if I'm allowed to say this, but I get in trouble whatever I say these days, so [ __ ] it. You know, it'll be like a 15x for us as a seed investor. It's pretty great. >> Absolutely. Pretty amazing.

I think I was very uncrisp a few minutes ago. Ch when you're in the direction of travel, even when you're wrong, you can make a ton of money because you've moved, you know, because you've created something of value to the acquirer. Different market could have been a very different outcome. >> Does this really move the needle for Nvidia in their ability to make Neatron truly competitive?

>> Well, there's two questions within that. One, and I'm sorry. One is does this is this additive to Neatron? Then the second question is does Neatron even neatron even if it is competitive does it move the needle but if you zoom out a level right now there's a whole bunch of Chinese open source models that are getting a lot of the token volume which means they're doing a lot of the compute even if they're not getting a lot of the margin right and if I'm the maker of compute if I can get an open it's awesome for Nvidia

if there's a viable US open- source model running on Nvidia chips taking market share away from the frontier models at the margin. So, I totally get why they're doing this. This this is Yeah, an open- source model is a compliment in the economic sense of the word for Nvidia cuz the more open-source market share there is, the more money goes to chips relative to the money that goes to uh financial model builders.

So, they're like, "Yay, team." >> I don't think 15x is good enough for a seed investor in poolside. If that's the number I if listen, first of all, let's step back. Seed has a weird definition today. seeds could be at a billion or two billion pre or post, right? Um uh but but not to get off track, but just 20, you know, 15x sounds good for a later stage investor and and I know for scales scale, that's a good outcome, right?

But for a true seed investor, it's not you're not going to get a fund return out of a 15x. Listen, if you're a personal investor, it's fine. But if you've got a seed fund and you and you're investing it, just a reminder, if you're investing at some of these valuations, it it may not be enough. You need your not going to get your 50 or 100x out of out of 9 billion.

>> But but Jason, play it back. I I hear you mathemat but what we're really saying is you made a bet and it didn't work. It was not viable and you still made a 15x, right? My point is >> No, I'm saying 9 billion isn't enough of an exit to proceed investments today. >> But the point I agree, but >> it's not enough. 9 billion doesn't clear the bar for seed investing in 2026.

That's the that's the irony. >> So, there's there's two things in that. I'm going to push on it because I often use this as a way to refine my own thing. One, it is weird that you can have an exit at 9 billion and only make 15 times your money, which by definition would imply 600 million pre money, right? So, yes, it turns out if you do a seed deal at 600, not 60, your return is >> well, so the dilution is epic.

Good point. Effectively, it's what your point. It's expos facto. Expos facto. The price was the effective price was 600 because you took all the dilution. You're exactly right. Jason, I'm going to go back to is 15x a great return on your best deal for a seed fund. No. But if you're doing a series of bets, one of them is a, hey, I build I think I can build an American open-source model and you can raise enough capital to do it.

And it turns out that thesis is not correct. You can't raise capital to meet the capital intensity and you still get a 15x. Let me tell you one thing. I guarantee if you get 15x on your failures in venture, you'll die a rich man. >> Right? And that's what I don't like failure because I know Jason, I think they also I actually love the letter they wrote.

I love the kind of vision they talked about what they want to do in terms of open source. I think they just ran into economic reality of you know the capital intent and remember we say the VCs the VC money went out the VC money ran out on entropic and open AAI long ago which is why no VC owns more than one or 2% of either of them right the big money the only people capable of fin let's put it here the only people capable of financing a state-of-the-art frontier model in the United States of America has been the

hyperscalers themselves the only reason Entropic and OpenAI exist is because Microsoft, Google, and Amazon gave them enough money to play because no one else on the planet has enough money. And the only other person who now has enough money is Nvidia. So they're doing the same thing with an open source model for the obvious reason that open source is good for them, right?

everyone. There are only four or five companies in the world that can finance a financial model and and they are doing it and we the VCs have been along for the ride and to provide an occasional piece of pricing discipline, right? These are financed by the five largest companies on the planet except for Apple who sticks their money in their pocket and just has the stock go up.

>> Look, we don't have to spend much more time on it. It's just I guess obviously if you can get 15x out of your I pull of course was not a failure. It's a big win, right? But if you get 15x out of your failures, you're going to be a wildly successful investor. Just the only point then let's move on is it's just interesting. I do think unless it's a hyper concentrated investment, your best investments still need to do 50x as a seed investor to make the math work.

So just if if poolside returned 15x with further dilution, what exit price would it have to be to be a good seed investment, right, to return 50x? Help me do the math, Rory. I think it's I think it's about 7x. So it would need to exit at about 63 billion with delution. >> If you think about it, Jason, the answer to the question is actually very noble, >> right?

You're playing in the foundation model. Uh you're paying in the frontier model game. The two winners in that game in closed source are both worth a trillion. The two or three kind of ostensible openweight winners in China are each worth 50 to 100 billion. So it was a rational act. The win if you could have done it was in fact large enough to be a you could have had a 100 to one return on a seed investment if you'd been able to be possibly if you'd been able to be equivalent to the Chinese open source players and

definitely if you'd been a winner like OpenAI or Entropic. So my point is this, the potential was there for that bet, which is why ex, you know, at the time it was a rational bet and then the capital markets were such that you couldn't get it and you still got a 15x. That's the movie. So it was a good bet because it had it was one of the few businesses on the world.

I mean there's only going to be one or two trillion dollar outcomes per decade and likely going to be all concentrated for now in you know frontier models and this was a player to Frontier model and basically the aha is if first prize is a trillion dollars turns out fifth prize is still 9 billion. It's like the guys, you know, in golf on the last day when you don't win, you miss a few putts, you don't even come in second in the US Open.

You come in seventh and everyone goes, "Oh, poor you." And then you think to yourself, "Oh, it's 5 million bucks. I'll take it. On to next week." That's what happened here. You basically placed, you know, high but not in the top three in the US Open and you get a bunch of money. >> I land in the bunker and I don't get out. So, >> you land in the bunker and you chipped out.

You got out. You got out. You took two extra shots, but you you you remember this is a win. >> Jason, you said how big does it have to be? Next layer that Nvidia's in talks to be playing heavily into is Mccor's new funding round. Uh I'm an investor in Mccor. I never thought this would be as big as it has got as quickly as it has done. It's crossing out two 2.5 billion AR.

Um they're doing a new round led by General Catalyst at 20 billion. And then there's rumors, suggestions, reports that Nvidia is joining that round in a significant way. How do we think about this next layer of the stack for Nvidia? I think one of the things we saw with Intel back in the the closer you are to having 100% market share, the the more you spend your time trying to move the whole ecosystem along, and clearly that's where Nvidia is now.

It's they're using their capital to, you know, fund the neoclouds, fund open AI, fund, as we just discussed, poolside, and for whatever reason also fund Merkar. I will admit when I think about all the things that Nvidia should be doing with its money, it wasn't obvious to me that funding Mker made as much sense as some of the other bets because the other bets are all about TAM expansion.

If I fund the NeoCloud, they can buy more chips. I'm happy. If I fund poolside, I can sell more open source. I'm happy. I don't get why if I fund Merkar, they can do more training. But my probably my unless there's some kind of strategic deal around needing that training information from a purely financial perspective, it doesn't directly lead to more chips being sold.

So, it wasn't as obvious to me as the others. And maybe it is as simple as we think it's a good business at 20 billion and stop thinking about it, were we? >> There's an investment bank called Croll. I'm embarrassed to say I don't even know them. Do you know them? >> No. Oh, I thought they were detective agency. >> No, different one. They published a bunch of they published their report this week looking at all M&A and big transactions over the last 6 months of the year.

And I guess this is not that just just it's a micro point to your point, but they but the analysis they basically made is gross margins above 30% don't matter anymore. You don't get you don't get any benefit in M&A or other exits like for for an agentic stock. They're not looking that we've like there is a penalty if you look at all deals below 30, but there is no penalty.

So, you know, I if you can value Merur at at eight classic multiples for 80% gross margins and growing, it's uh you know, it's it's not expensive. Um I don't know why Nvidia would do it per se, but it seems like Nvidia's tact they've got a lot they've got massive strategic goals here, right? But the tactical basically kind of seems to me we'll spend all our free cash flow on our ecosystem.

>> Yeah. >> Right. Not that this is our budget. Jensen says there's a budget. Our free I don't know it's going to be 70 billion this year. Maybe I've gotten that wrong, right? And we're going to spend it all on our customers and ecosystem. And the team, the the strat team and the and the top VPs probably get around a room and they decide what's our best ideas.

And there's some guy that that that thinks data labeling is important. And his best idea was Merkur. And so they put a few billion of the 75 billion. And you think I'm kidding, but I'm confident they go around the room and everyone has their best ideas. And the budget's 75 billion. And you know, OpenAI and friends are going to get a big chunk of it and there's going to be offbalance sheet guarantees, but I think they've decided to just spend it all one for one.

And I I would do the same if you can get away with it. You know, adding cash to the balance sheet other than uh being defensive does nothing for you as a CEO of a profitable company, right? If the Wall Street let you get away with spending it, I would spend 100% of my cash, too. >> First of all, I think you're totally right, Jason. It is as simple as that.

It's like you know because and by the way Nvidia will have reported between the time we make this video and the time we distri dist distribute it on Thursday. So there could be a data point that makes us to like total buffoons by Thursday and that's just life right but on the basic assumption that the trend continues a pace which I think it does which is you know strong growing quarters you know 60 or 70% up last quarter and similar quarter last year wildly profitable because the demand signals are still strong from

the hypers scales let's assume on Thursday the hypothesis as of Tuesday continues correct then Jason you're right they're kicking off I mean I just looked at it you know they make huge operating margins um you know it's like it's like 34 I mean one out of 100 billion of gross cash flow and then you have they do a lot of buybacks we'll talk about that in a second so they have yunks of money to invest every year right and you're right they just make a list of what can we do to move the ecosystem along right now I'll make

two negative comments on that you know one two comments on that one is it's worth remembering that only four years ago their cash flow was 10x was onetenth of what it is today right they making you know and I think the free cash flow after capex and everything is something like and I think some of the capex is really investments so it's a little misleading it's kind of gone from 4 billion to 50 billion right um you know the gross profitability is well over 100 it's wildly profitable but you know you say to yourself and

you do you write Jason you get no points for cash on the balance sheet but they only have only 50 billion of cash on the balance sheet right cash and investments there's a little part of me that says I might keep more for a rainy day right than just doing share buybacks. But I agree, you do have to do something with it. And they're clearly the best use for it is to spend the money with people who will inter enhance the ecosystem, which is why, you know, which is why OpenAI gets a big watch for their money all the time.

>> If you invest right, um it's brilliant. You get a customer, you get re, you get not only you get circular revenue, but you but you ensure the success of your ecosystem, the viability, you get a twofur out of it. So you just have to play the game really well. But if you play the game well, it's a lot better than making 3%. >> Yeah, it's interesting.

They're doing such a lot. I mean, thinking in real time here because >> the poolside acquisition is time expansion by buying an adjacent product. The merk acquisition is I think as you say Jason straight in. It's kind of just hey, it's a related space. We know some here's some money. And then something like perplexity investment or open AI investment is literally especially the open AI is vendor financing where you as the vendor of the chips are choosing to give your customer money right and you're right that's it's

not like that's a nefarious because a lot of oh my god it's circular it's not like that's nefarious it's just exactly what you said Jason you got to get it right if you overextend credit and underwrite projections that aren't realistic that stuff comes back to you and you look like an idiot in two years and we all remember the telecom crash in 2000.

Well, we don't all remember, but some of us remember the telecom's crash in O2 where all those 99 deals unwound and and the bet that Nvidia is taking here is it's not going to happen this time. You know, you're not going to find that the open AIS and the entropics don't sudden, you know, if they don't suddenly need hundred billion worth of compute. You might regret some of this vendor financing, but right now it looks smart.

>> I think it's a good investment. I consistently regret not putting more money in overtime. I think your largest data providers will be $200 billion companies. If you think about Open AI and Anthropic being two to five trillion dollar businesses, is it crazy to think that the data provider that provides them their core data assets will be a a 10% of their market cap?

I don't think so. >> I don't know. I don't know. I mean, I think you have to think about it in terms of revenue rather than market cap. And then you start saying to yourself, you know, what's the training budget for the frontier models at scale? if they're doing you know like I mean what's this and I let me give you the negative math we know that um you know open AI is running at a 18 billion H1s call it 25 billion 30 billion years a tropics at 60 billion year together let's call it 100 billion round up right you know

most of that spend goes on half of that spend goes on compute and inference what's the training budget is it 10% of revenue is it 5% of revenue yeah it's a 5 to10 billion market, right? >> Way more. Way more. You've got Serge. Oh, I know it's way more cuz Serge are doing three, three and a half. Mccora doing two and a half. Handshake are doing one. Micro one are doing half.

>> The question you're right. So my point is so it's predicated on if that 100 billion of spend this year goes to four 500 billion then you're right. Then 5% of that is 25 billion divided four or five ways. I don't think you get 10% of the market cap of the frontier models, but you still get a healthy 20 billion a year revenue spend. Divide that up three ways and then as Jason said, actually turns out the most important question is the one Jason asked, which is what multiple do you attach to that?

Do you attach the AI multiple or do you attach the lower gross margin multiple? That's really what will swing it. >> The AI multiple. >> Yeah. The related thing I was thinking on that crawl data, you know, if you go back to cursor, right, uh 60 billion we talked about last week, this was one of the classic ones where the VCI VCSisms were right. It worked itself out.

You started off with something with negative gross margins. You started off with something that radically subsidized its cost. I forget what cursor cost initially, 200 bucks a month for unlimited use, right? But it didn't have but it didn't it had no way to defend that, right? And so then it had to cap it for and then it had to stop doing it and then it had to develop its own models and then it had to do it had to do and but the VCSM is these are these are some of the smartest kids ever.

They have a strong market position. The wind is at their sales. They'll the kids will figure it out. the negative gross margins and more or less they did and they got to the 60 billion and so it's kind of freeing for models like Mercur that we maybe we made fun of right okay this is a a commodity low margin business um but the kids will the kids are figuring it out man the kids are figuring it out so guns are blazing >> yeah no I I I think though there is a bit of survivor first of all I agree with you and I think it

gets to the when as a rental investor you're doing in some you're investing in something that has troubling gross margins it is rational to say for certain bets the gross margins will show up will will come right over time and you add curse as an example of that just in in the interest of completeness I don't know why I'm the Debbie Downer today like not every negative gross margin company makes it and in the end I think you want and strong gross margin companies are the best investments so don't don't just look at the

sample of deals where you started with negative gross margin and it all worked I can think of plenty of deals including some we've done where you started with shitty gross margins and you ended with shitty gross margins and you is wrong. Right. I think Jason to your point the thing is having negative gross margins is not a reason clearly not a reason not to do a deal.

I mean if if every part of the financials were pristine they wouldn't need venture capital because they'd be profitable right it's a question of in which cases is it rational to underwrite massive improvement and it has been for the foundation models themselves. I mean went from 911 to positive 30 in a year. It has been as you say Jason for cursor. It'll be interesting to see what the sustaining long-term margins for something like Murker are.

I don't know if they have the same dynamics in terms of the ability to approve those margins that say Cursor did cuz the training companies only have three to five big customers whereas the cursor has literally hundreds of thousands. So I'm not as convinced those margins go as well as the cursor ones. But you're right, the cursor cursor beat the margin drop.

and Rory and as I tell my partners and and subordinates on Monday meetings, what if it all goes well? What if it all goes better than we expected? What if it all goes? And I challenge my team, what if it all goes right, guys? That's how we think about it. And the the entry price for any of these winners doesn't matter. What if it all goes What if it all goes right, guys?

That's And I've coined that term, and I've noticed many many of my colleagues in the industry have copied it. What if it all goes right? You know what I mean? >> No, I love it. >> That optimists make money and pessimists are right. we often say >> and I and the only reason I say it is because I admit that I can be naturally a pessimist. So I actually I' I'm trying to learn to retrain the model to do that more.

And Jason, I love the sentence and what if it all goes right and >> the first two have said it >> the I know um I know that of course but the ancillary point interesting going back to poolside is it turns out even what if it all doesn't quite go right but you're in a great market it turns out that can be okay too. >> If enough goes right you can all do fine.

There's been a lot of cynicism skepticism around Ara and Trinyas and perplexity. It's a company that actually people like to dislike for whatever reason. We've done shows with him. Uh we're a small investor in the company, so Nvidia is actually propping up most of my portfolio. >> Thank you. >> Our friends at OpenAI, never a dull day at OpenAI. Uh CFO Sarah Fry told employees at OpenAI, we will be a public company in 2027.

Um this is when kind of AI trades cracked. It's um I don't know if it's interesting timing. It's kind of what we expected to be quite honest. They've got pressure on them from Anthropic who obviously are going public in reportedly the next few months. Um, is there anything surprising here about Sarah Fry's statement to the team? I think they had no choice but to make those statements and I'll tell you why.

Because if you look at Q1 and Q2 for them, now I can't remember, it's like 5 something billion to 6 something billion, which was a Q1 Q growth rate of 18%. which would have turned into an annualized growth rate of your slightly under 100 depending on compounding and it would have mean that would they went from 12 a.5 billion last year of gap revenue to roughly probably under 30 this year right and if that was if that Q2 number was sustained it would put them obviously a would put them so far behind on tropic at 60

billion run rate mid year and again we haven't seen gap numbers for tropic but clearly bigger and clearly growing faster, right? That a it would be terribly bad for open AI and kind of how because anyone would run that math and go two more years of this and you're in a relevance your perplexity too, right? And then the second thing that didn't happen but if what would have happened is all those people like Broadcom, Nvidia that were expecting to sell $200 billion worth of chips to open AI might suddenly go hm maybe if

they're not growing quickly they won't need $200 billion worth of chips. So if if all you had was the Q H1 numbers, that was a conclusion you could draw. I'm not saying it'd be correct. So if in fact OpenAI is massively accelerating in early Q3, they had no choice but to share that information with the world because otherwise everyone would assume the worst.

What they're not going to do is sit on their thumbs and say, "Well, I'll give you a Q3 update in 3 months. Meanwhile, you should just sweat it out." Right? So I really detected a very concerted attempt to tell a Q2 is an anomaly. Q3 is exploding story. You could see it in the comments that they made to their internal team. You can see it in the stuff that's coming out.

And there's been a whole, you know, massive reaceleration story. And again, I know nothing except until you see it in gap numbers, it's hard to be sure on it. But to me, the reason for pushing that agenda was you had no choice cuz otherwise you were just going to be left behind. If you're growing 2x, it's amazing. It's a growing 2x at 12 billion is amazing.

But if your competitor is going 10x or 8x at 60 billion, you know, you're staring at, you know, relative market share of 20 or 30% in two years if that continues. So there's simply no way the Q2 trend could stand unchallenged and still leave open AI as a credible close number two, which is where they are now, to entropic. That's why it leaked because it's existential for them.

I mean I was stunned when I saw the 18% gap revenue numbers because I I go back to my comment in one level hugely imp if I had a company growing 18% Q on Q doubling a year at forget it at one that size two and a half I'd be ecstatic but that level of growth relative to expectations would have disappointed massively everyone including all the people planning to sell to them chips at them for a much higher growth rate.

>> What price does it go out at? If Anthropic goes out at two trillion, what price does anthropic uh does OpenAI go out at? >> I have no clue, Harry. But the most important point you have to say is this. It will be lower than the other guys. Now, I mean at the high level in terms of report card, you know, there's a concept in math, I can't remember what it is, where you where you can't do accurate grading, but you can rank things, right?

The rank the most the big picture fact is the ranking has changed and you're now number two. So you will go out later then at a lower price than the other guys unless you change the trajectory massively. What that is I don't know. I just think it'll be interesting the rest of the year by the end of the year to see where open AI is positioned in the platform the enterprise versus enthropic because at the beginning of the year there were two choices right there was enthropic and open AI for the most part and you would

you had a default choice and then uh PE but but but people wanted to be to have multimodels they wanted to have at least two but you'd often use the cheaper version you might use sonnet and opus or whatever it was. Now people, we we definitely want different LLMs. Everyone wants multiple LLMs in their stack one way or the other. But if Anthropic is number one in platform, which it clearly is.

You can't argue with the numbers. Peri's point. Now the number two could be it could be there could be there's five choices. So open eye position in a sense and we'll see. There's so much change guys, but it could be at no matter what the numbers are, it could be getting perpetually weaker because there's so many choices for number two. There's so many choices.

There's so many openweight models where the performance is close. And um obviously we've talked about open router. I've talked about other routers. You can use 78 models if you want. But um it's um you know it's it it's tough when there's seven choices for number two. It's just tougher. It's just tougher, right? Especially if you're a premium product.

You're saying then the material impact on the EV of open AI then is considerably less because of the >> I think there's more pressure on them be I mean for for for merely became number two there's more pressure on you from from open weights and open source competitors than there than there was otherwise you're just battling out for that second spot and and you you can't compete on price and you can compete on brand and security but man you want to just you want to at least be the be plugged into to every workflow right

you want to at least have that would be the nice thing if you had cla and open eye and then then you just get a nice oligopical bake off right um sales team then you hire a bunch of folks from Salesforce that walk in for the oligopical thing and they put up a PowerPoint slide and it's just us versus them they know how to sell that it's anthropic versus us you don't want the the crazy guy who who uh who who uh who uh you want the guy the government trusts that's us um but with 11 competitors or 12 competitors running on

open source running running running inference on on new platforms man it's It's a hyper competitive world for number two. >> Going back to the quest because I I mean I I I think that even if they are number two, I don't think they get pushed into that, you know, compared with all the open sources. I don't think it's quite as dire as that. But I do agree there was a push from underneath from that.

But I think to your question on what quote unquote Roy sorry just interrupt just going on that do you not Vel yeah obviously opened their data 68% open weights increasing I mean it shows the tidal wave moving towards what Jason's saying >> agreed I yes I think that the vast predominance of tokens process will be open weight and obviously as keep reiterating the vast majority of revenue the significant majority of revenue will still frontier state-of-the-art because it can command more value than just the price of

inference, right? So yeah, and so I suppose at some level Jason is correct because if there's five or six and I don't see them as being peers, but I think if there's five or six openweight companies dragging down everyone's gross, you're basically trying to steal gross margin away from the closed um frontier models, especially if one of those o reminder if one of those openweight companies is now funded by Nvidia.

So it gets rid of all the oh they're all Chinese comments, right? Jason is right. In a situation where a lowcost competitor with nearly equivalent functionality is attempting to enter your industry, you would far prefer to be number one than number two. Because number one can say you got to just buy us cuz we're number one. But you're right, Jason, number two has to say please buy us as well and don't buy the cheapo guys.

So I I'm I'm recounting my position and agreeing with Jason, right? It would be okay, bad enough to be number two in an industry you invented, right, which is where they are now. But to be number two with a whole bunch of ankle biters on top that you have to deal with, that's a total pain in the ass, right? Which gets back to your question, Harry. I will answer your question on what price do they go out in 2027.

I actually can answer it. They'll go out whatever price they get in 27 because they can't wait any longer. It's as simple as that, right? If Entropic goes out this year at the scale they're talking about now, then I can't imagine a world organizer says we're going to hunker down and get cash flow, right? And then we'll go out in 2028. They have to go out.

So to some extent, again, it's a destiny outside your control comet, right? If if entropic trades at two, then they might get one and a half. If entropic trades at one, they might get 700. But they'll do what they have to do, right? And I mean, there's a great quote in what was it? Come on. the the book the the the the storm Sebastian Younger's book the storm right super book but when the guys finally realized they're going to die at sea right and it said something like if danger can be described as the absence of

choice they were now in danger right and I think for open AI what you're seeing here is the absence of choice is starting to pile up the other guys are ahead the other guys are profitable you know correctly the CFO says they're not going to write the only narrative But to some extent your narrative is getting written. You've got to get profitable because the other guys are profitable.

You got to get public because the other guys are profitable. So they are less they have less options than they did a year ago by a lot. And that will translate as in 2027 we're going to go public and if the markets are slightly down and this year we'll take our medicine and keep moving. So that's what I think. >> Don't you love that book, The Storm, Jason?

I I loved it. My my favorite. One of the best. super rider kind of sad obviously but wow yeah that's that line always stuck with me absence of choices that's how you know you're in danger >> I think listen we can move on to the next topic I the other thing what I when I'm listening to Rory in the IPO the other thing maybe it's minor we can move on but I I'm getting confused today what open AI's differentiated mission is like why open AI right I mean we can all look at evals and we can read what ramp says and what

rippling's report says and we can view this as just an LLM M right uh paying top of market right paying eight figures per engineer but there there these these were companies on on very specific missions right when we started this pod I don't know what open AI's mission is right uh I I think Dario's is nutso a lot of the time right apparently interviewing folks today asking them if they'd be happy joining anthropic if it all went to zero right uh I mean cool question actually but but nutso um I think Sam is a much more

approachable CEO now he got through all the the the scam altman crap and and he's got the sweaters out and I he's the more likable guy, but I don't know what what is what is the differentiated mission of Open AI today that I would rally around as an employee, as a shareholder, or is it just a piece of just a piece of infrastructure plus some software?

I just don't know what is special about the mission visa vanthropic or now all these strong competitors. I just don't know. Or is it just an eval? Is it just three lines on an eval? I I honestly don't know. And these have been very missionbased organizations from inception, right? The most we've ever seen in our lifetimes, right? These mission, these crazy missions.

>> For me, the the astonishing thing is the consumer brand that chat GPT has and the penetration it has in audiences that no other LLM has. To most of actual the general population in large majorities of the world, AI is chat GPT. I am in awe that Sam is not going, we are the next Google. Our business is going to be advertising and we're going to see Jeans Paradox like never before when we have a consumer hardware device that actually partners with consumers and you see usage.

But that was the plan. He just got outraed. That's it. He just got laughed. It was a good plan. It and Sora was in it and cool videos. It just was not the highest ROI for for limited compute. It just wasn't the best use of it. Up until then it was all babbling stuff yourselves guys but Jason nailed it is it turns out I mean you're right open AI is the name and chat GPT is the name everyone associates with AI right they have massive consumer market share and at some point intuitively say to yourself that turns into a

pretty big business we can circle back on how much but Jason's right it turns out again I repeat it turns out that it wasn't the highest ROI used for compute and I often I believe this is sometimes when you look back at outcomes you realize oh only one sentence matters Right? And if you just internalize that sentence, you've been rich. The example I always use is um if you've been on the board of Yahoo and for 10 years all you've done is screamed it's all about search.

You could have made them hundred billion dollars. Right? Today what entropic is it's all about code. That's the sentence. That's the only sentence that matter because to make it concrete what Jason said coding is the fastest adopting market. It's the highest ROI market. It's the mother lode, right? And you know, it's as simple as open AI was focused here and entropic focus there.

Does that >> and it could but it could end up being even worse. We we'll see in the financials, right? But the problem with the consumer businesses for OpenAI and and um Anthropic is they're you know for power users, they're massively subsidized, right? You can spend $200 on Enthropic or hundred and some odd dollars on OpenAI and get 8 to12,000 worth of tokens and that that's fine for when chat GPD was a proof of concept for a platform.

Like we talk about OpenAI being a consumer company, but it's not where it started. Chat GPD was just a proof of concept app, right? And say and Claude was just the same, but it worked much better for Enthropic, right? Anthropic can lose, you know, a th couple thousand dollars on some consumers and it won't impact them. But, um, it's tougher for OpenAI.

It's tough. It's a crappy business that consumers selling $10,000 worth of tokens for $200 is one of the worst business models of our lifetimes, right? If that was the only business, these guys would be dead in the water. It's a pretty bad business. And you say to yourself, I mean, look, on the other hand, I'm just going to argue Google is one of the best businesses on the planet because the cost to serve is low.

And it may well be in the four just to put it I I because I don't want to kind of veer from you know open I love them hate them to yeah it may well be over the next 5 years that if you can continue to be the dominant consumer brand in AI as the cost to serve goes down as you manage that cost to serve as you build an advertising business I could totally see a business you know plus or minus you know 50% to the same size as the Google consumer business m maybe over the next decade so it's not like it's nothing right it's

just that the scurve in the adoption sense for coding was super high the scurve of adop in adoption for consumers was super high for chat GPT but unfortunately the propensity to pay was almost zero you know relatively zero right whereas on the coding side the propensity to pay is high and you know I'm just going to say it because I just saw the thing um come true as I was as we were talking here you know just to to dump on the other side I just say on topic in the Wall Street Journal they believe their TAM is 30

trillion And I and then I say to myself, "Oh, I remember everyone when they're doing really well gets slightly delusional." Um, your TAM is, you know, the entire US GDP. Thanks. Thanks a bunch, Dario. Good to know. Right. And it's it's it's one of those overreaching statements that you get at this time of the year. >> I mean, he needs he needs it to be a pretty big number.

He's got 2%. So, >> very cute. Um, I mean, yeah, genuine comment here, you know. Yes. If you're claiming a TAM that's the size of the US economy, yeah, that's a high bar. Let's just go with that. We'll dump on that another day. >> Do you want to go up a layer into Publix and actual performance of a lot of the core AI names falling off, worst run since April, uh, erasing 820 billion of value.

Or we can go back down to Hugging Face potentially being bought and what that does in terms of a neutral platform suddenly becoming potentially biased. Let's not do hugging face because I'm not smart enough to understand why anyone would pay 13 billion for it. I I just don't get it. I'm just not smart enough. >> I talk for precisely that reason. I I I agree you >> pays me in the comments, friends, if you're watching because I I am not smart enough to to to understand why it's worth 13 billion.

Um but uh I guess >> I think it it's kind of a muchness with frankly the pool side and the open router thing which is everyone's I mean look I think it all goes together. Everyone's looking at a world where I mean I might think it's delusional but open AI and entropic are claiming TAMs that are larger than the entire US GDP. And if I'm running an an IT company in the US I'm saying let me get this straight.

They're claiming they're going to take everything. [ __ ] I better get me something right and therefore I want to be relevant in models that aren't for closed source frontier models. So you get in this whole trend for enterprise having their own models you starting with um openweight models and then adopting and hugging face is the place where you can access loads of those models.

You know revenue is relatively light at the moment relative toundred and relative to a $15 billion outcome. I think it's roughly 150 million. But if you think of strategic assets that an IT company might want to own if they were trying to build a counterbalance to the closed weight frontier models, this would be a super interesting asset. Now, I don't know if it'll sell at that price.

I can't make head no tail. I'm with you, Jess. I can't make head and tail the price. But if you think about assets, you know, if you were Microsoft, IBM, you'd love to own to be relevant. This would be one. Absolutely one. >> I don't get it. Other than it seems intuitively to me if right now, this is open router 2. Right now is the moment in time to benefit from the lift of open weights, right?

The the the demand is so strong. So just like Eli Gil said, sell if you have an AI asset right now, right? I think even better if you have a if you have a AI product that's benefiting from the transition to open weights there can't be a better time to sell than plus or minus 90 days from today. I agree. >> It's just a phase transition and your numbers are going to look amazing for n like they said open router was growing 15% at 150 million right the information said when stripe bought it and breathtaking if that 15%

accelerates and scales right um but it might not right this is the moment when all of a sudden every you know open weights and and and these models went from experiments to mainstream sell baby right if you can get if you can get north of 10 7 billion 10 billion uh I'd probably sell I I mean, even if I only got 15x, I'd probably sell. >> No, it it just >> it's a moment.

It's not going to last. This moment in time, this transition is going to not going to be a transition anymore. >> I agree. It may well be that. Remember, you have to the founders of Hugging Face have also have mission objectives beyond financial enrichment. So, they may choose not to sell because they may have angst about that. But yes, from a valuation peak perspective, anything to do I mean it started with the Satya comments on every enterprise needs to have its own knowledge and not give it up to the frontier to

which you want to say no [ __ ] Sadia. Well, thanks for funding Open AI for three years. But yes, everyone in it has woken up and realized that these two frontier models could steal a lot of their TAM and everyone is saying we better have a different story and the enterprises are saying it. talent here is saying it and you're right Jason if you are an enabling technology for openw weight models now is peak moment >> on the hugging face thing I don't think it's for what it's worth to Rory's point and the mission thing I

would say one small thing if if someone does buy hugging face for for whatever reason the deal has got to be you don't touch it because if you touch it you break it >> yes >> right if you promote you know it's it's a much bigger version of the TNPN challenge if it becomes an open AAI commercial TBN has no value I know we're probably the only people that are going to compare TBN TBPN to Hugging Face, but if you mess with this marketplace for 10,000 models, um, you know, even if even if you put a little ad at the top for

for for uh you you destroy it. So, I it look fun to get acquired, but I can I'm almost confident if anyone actually spends three billion, let alone 13 billion, they're going to 95% leave it alone for 24 to 36 months, right? They're going to >> why hugging face could suffer like TBPN and then lay it out. It's >> too obscure too obscure because as Jason correctly says no one other than us is tracking that anymore.

>> You know my favorite news from the publics was Ken Griffin's Citadel unwinds 80% of Leopold Ashen brother's for sold book. I'm like man never fight with Ken Griffin man will come out on top. 80% sold already. Again, I don't think it's surprising, but >> No, it wasn't. I mean, they're not in the I mean, yes, they're not in the business of holding those kind of assets long term.

They Yeah, they're a market maker and a short-term trader, and this was a great short-term trade. Exactly. It's funny cuz about a month or two ago, he had kind of did something about starting to add to their kind of stable of investment options, you know, longer term, you know, multimonth holds. And clearly that was a conceptual idea, but it turns out when you buy a bunch of stuff at 10% below market and then that market jumps an extra 5% or 10% just because you've put the assets out of weak hands into strong hands,

then the correct response is to take your money and run. No. I mean, exactly. >> Look, it's great. It's just you can't do that every month. >> No. >> So, to me, it's not that it's impressive. It's incredibly impressive. is just not interesting because you just have to have the balance sheet and the coahones to wait so that every couple years like Warren Buffett used to do you could pounce on one of these special situations, right?

>> Yeah. Every few years someone gets confused about how leverage works in the public markets. They screw up and you're ready to price and buy and yes on top of your nice business which is still earning good money. Every 3 years some idiot gives you three or four billion of free money and you politely take it and put it into real estate in Miami. It's good to be can right.

Exactly right, Jason. That's how we read. There's nothing surprising in there. And you know, by the way, it does get to the it's kind of I'm going to circle back to Nvidia and all their investment and vendor financing because in both ways, both of situational awareness and Nvidia, the the aha here is you when you're dealing with money and leverage, you don't just have to be right in the long term.

You also have to be right every step along the way. Right? If you don't have leverage, all you have to do is be right in the long term and hold. Right? And it's probably a situation where it was right in the long term. But when you put 4 to1 leverage on it, you have to be right every step along the way. And the same is true about vendor financing. You know, if you if you if you just sell people, as long as you're in the business of selling chips, all you have to do is right in the in the end people want to buy chips.

If you choose to lend against those chips, then you're basically saying you got to be right all along. The company's got to grow next year. They got to pay their debt back next year. So leverage does that. It raises the return from being right and raises the importance of being right all the time. And situational awareness just got the other side of that.

Ken takes because remember he doesn't try in his business to be right all the time. He's not trying to make fiveyear bets. He's like stocks are worth 10% more today than yesterday. We should sell. Moving right along. The other thing on the other side of the stocks for what area I know this is Captain Obvious, but if we look at Cosby as sort of like uh AI on steroids, right, with risk or Korean exchange, it's still up 56.46% for the year.

So, I'm not I'm not a day trader. I I pull up my uh my Goldman and Morgan Stanley accounts and look how they're doing. I'm still feeling pretty like I'm some genius in my public market stock because overall plus 46 is pretty good. It's just boy what whatever Leo got just trapped in a dagger when I look at the chart right >> sorry you can laugh at me and tell me I should know what is in Cosby what is >> all Korea >> Korea >> memory >> rounding error now Korea now equals you know two memory providers with a bunch of

other stuff attached >> right >> um yeah so >> and it's on and it's a very volatile market so it's on steroids but it's still just like NASDAQ is tech on steroids Cosby is like 46% all the all the component components of AI on steroids, right? And the peak the peak was um 9 9,000 in um in June and then boom, poor Leo the dagger 5600 in July 29th and the guy had a generational loss that if it were even bigger might have brought down our financial ecosystem, but it's it's you know it's rebounded uh 20some percent since

then is up 56% of the year. Crimea River if it's up 56.46% a year. I mean, uh, you know, you got to be a you got to be a day trader or whatever to to not love up being up 56% a year. It's okay. But all these headlines are like, "Oh, Cosby is down 6% today." And it just it's just hypervatile, right? The growth and margins, we've never seen margins like this in semiconductors.

So, the volatility and expectations um there was an article, I think it was in the Wall Street Journal, where in Korea now the the most eligible bachelors are Samsung and uh H and and engineers. They want they all everyone wants to marry a a memory guy. It's the first time in the history of the nation when more when being being a memory guy was like made you one of the most eligible bachelors in the country.

>> Did you not see though like 50% of Nvidia employees are now worth over $25 million. >> Yeah. Pretty inevitable. >> I see it walking down the block when nothing's for sale. >> Yes. >> Yeah. >> Yeah. Well, I think it's a different I mean, we could talk about I just think overall AI inflation and craziness is uh yeah, it is what it is. >> What happens there?

Is that like a persistent continued new world or is that a temporary moment of inflation? >> Rents in the mediocre apartments just in Dog Patch are $10,000 a month. Now, >> mediocre apartments down the street from from YC, the Avalon. I used to work in dog patch preyc and it was gritty and fun and I remember when they built this Avalon and you know you didn't really want to live there.

It was new and now it's 10 over $10,000 a month and you got to wait. You got to apply and you're not allowed to run your startup out of it. You have to sign a document that you won't run a business out of it two blocks from from YC. So what if it's $10,000 a month to rent a uh you know onebedroom at the Avalon? How much do you have to make to feel rich?

A lot. That's 120 just in a rent to not to just have an apartment at the Avalon in Dog Patch. You need 240K in California pre-tax just to pay to pay the rent. You probably need 480 to feel good about yourself, right? Um >> it's just so interesting for me sitting in London though because the money's not here. Like I hear you and I hear you say that and yes, there are some fortunate people like me in venture who are thrilled to be doing what we're doing, but it's just not here.

That >> dispersion of wealth is just nil. >> Yeah, cuz it's it's tech wealth and it's all con. I mean, look, I saw it. California, it didn't just outperform everywhere else. It got threequarters of the total dollars. Now, that's invention. That's skewed by the fact that Entropic and OpenAI together got probably 60% of the total dollars. I'm doing it math in my head.

And everyone else got 15. But yes, this is a wall of money flowing into a very small area, you know, where you know, reminder, the population of San Francisco 750, probably 780,000 people. It's a teeny tiny town. London's 89 million, right? The whole barrier Bay Bay Area is only 7 million. This is a wall of money falling into a tiny place that's a peninsula with sea on three sides and a little bit of mountains and a tiny valley called Silicon Valley on the fourth side.

property is not plentiful and it's hard to build. What's going to happen is prices are going to go up. Most everyone else is going to get priced out. When they get priced out, they're going to get pissed off. Now, you know, so probably it doesn't last at this level because, you know, I've been around in 99 2000 and 2007. Yeah, there will be some kind of correction and there will be some kind of reset, but it's not going back to where it was because it never does.

It ratchets up. You look you fast forward five years at that point you know the AI boom has been digested it's not as crazy it is now but the base level of prices has gone up and the cost what it means is that the cost for anyone else to live in San Francisco goes up the cost that you pay you know anyone in your organization the cost that you pay anyone that you interact with all has to go up because the cost of living here is going to be higher I genuinely appreciate doing the show with you guys so much because I I

learn from you and it's the first time for me seeing cycle cycles like this. Does the floor fall from our feet in this AI wave or for the next 5 years? Do we just continue to see more money, more up and to the right, more mega exits? I think it's it's just more concentrated. We need fewer people to generate more revenue than ever for for a variety of reasons.

And it's going to concentrate exit size. It's going to concentrate wealth. It's going to allow like you know the salaries at Enthropic and Open AI seemed crazy but some of it's normalizing now because if you can do it with half the people or a third of the people you really can pay them two to three times as much right so uh eventually of course and you know Rory Rory can pick the date like Babe Ruth this this will end but uh you know I I think you have to believe we're less than a third of the way through this cycle.

>> I would say you >> even that little tiny cloud thing lasted nine years. We're just getting going here. >> But will the companies make enough money, Jason, fast enough to keep the cloud cycle going if the revenue train stop? >> Will Nvidia will keep spending a hundred billion a year to keep the ecosystem going that honestly that will help. >> Let me let me try because I'm trying to figure this out too because obviously it is actually the only question that my mental model is this on the supply side.

No one's going to blink. The videos aren't going to blink. The hyperscalers aren't going to blink. Of going to blink, right? Not going to blink. So, no one's going to That's why I think even though we're recording this on Tuesday, Nvidia's reporting on Wednesday, it's going to appear on Thursday. It's possible, but I think highly unlikely that Nvidia gets on tomorrow and says compute demand to slow down.

That sentence is not going to happen. It's going to keep on going on the supply side because it's not likely to blink and no one's going to blink, right? So, the only two things that stop it are, you know, you run out of capital or you run out of demand. when you say capital, you know, my gut is until the public markets get in on the game, you kind of haven't exhausted all the all the money that's there, which is why in many respects, these two big IPOs have to happen.

Typically, uh, you financial crashes go when the margin when you run out of marginal buyers, there's still a whole bunch of untapped demand to play in the AI game because these companies haven't gone public. So you've clearly on the capital side got one more turn of the crank which is when entropic goes out and open AAI goes out that's going to keep it going and then the other thing is demand for the actual end product.

I think that's the real question is go, you know, can corporate America spend the kind of money quickly enough to feed the beast to make these guys revenue numbers for 27? I think it somewhere in 20 I mean open entropic is talking about 200 billion of gap revenue in 2028, right? Interestingly by the way that in itself is a significant slowdown which makes sense from where they are now.

It's not 10xing anymore, but is there two 300 400 billion of demand for this stuff in CO? That to me is the question that will determine, you know, when the train stops. I don't have an opinion yet on when that is because right now the demand is there in coding. But but that's what's going to be the rate limiting factor. It's not going to be, you know, the CEO of Google waking up tomorrow and saying maybe we should be more cautious or the CEO in video saying maybe we should take those risks.

That's not a thing. I do think at a meta level uh that next year will be the year and I think this this is why I think we're in a at least a fiveyear cycle where we we reckon with the fact that we are addicted to tokens. We're addicted. And so we went we started this year on token maxing. Prove yourself that we started this year with performative AI.

Guys, the more tokens you spend, the better an employee you are. Right? Then they did it and we all got whiplashed because we started to get these $20,000 bills per employee. Right? So then we said, "Oh, we've got to manage our budgets. Let's look at open weights. Let's cap it. Let's cap it at $200 for $500 for non-engineers and 10,000. We've gone through this this token balancing thing.

Next year, there's going to be backlash. I can see it in my best portfolio companies where we we can't go back anymore. We can't live. We can't go back in time and I need my 10 sub agents running 24 hours a day to do my job or I quit. I would quit. Take away my agents, I quit. So, so I do believe as a as as businesses and in society, we are token addicted.

And so we we will have to find a way to feed that addiction over the next 5 years. We don't even realize how addicted we are to tokens. I >> agreeing you on the addiction, but disagreeing you on the manage statement. And I'm going to cite some I thought this I read the Stripe letter to and it was really really good and those guys are smart, right? And it's not just cuz they're Irish, but that helps.

But the comment they made was that near the end of the letter they made a comment. We've internalized I'm paraphrasing here for me. We've internalized that intelligent is like capital. It's fungeible. There's demand for and it has to be managed and allocated. In other words, what they're saying is seatbased SAS. I sold five seats to Harry's organization.

I'm done. And Harry's done allocating it to. There's no follow-on work required for you within your organization. You either buy five seats or you don't. But to Jason's point, if you're buying intelligence on an uncapped basis, right, in theory, you could your employees could go on spending that forever and you're going to have to manage it. And and that's why the analogy of saying it's like money, right?

You have spending controls on your money, but you also recognize money is the lifeblood of your business. So you can't say to your employees, don't spend money because that's stupid, right? I think that what they were saying and why they bought open router is people are going to have to control intelligence in a way that's ve that's that's more like how you control money and less like how you think about software licensing and that really resonated with me cuz you can't just cut it off but you can't just let everyone

go and it's going to be the big systemic problem for enter I really 2027 is the year when enterprises are going to have to say WTF do we just let this thing rip and hope the ROI is there. We can't go back to where it was before. How do we manage it? And I think >> can you just can you just drill one layer deeper for a layman like me? What does that mean then?

If we control intelligence as we control money, >> it means you're going to have to price it and allocate it. To Jason's point, Jason is wildly productive. We should get I mean, you know, if you're running an organization, you should give them all you can, right? But you give everyone all they can and they're ill disciplined about it, you could spend a lot of money.

I mean, remember the kind of one of the amazing things right now is the kind of money that we're talking about as revenues for these two companies are an appreciable percentage of total US corporate profits. Right? You can't say as the CFO of pick a mid a US mid-stream bank, hey, we make a billion a year. I'm okay with running up a hund00 million token bill.

I just decreased EPS 10%. That's not a thing. >> I've changed my mind because is the addiction. I think when you're addict when a society is addicted to something even if it's a positive thing right like caffeine we're addicted to caffeine it's not destroying our society is it right we are you cannot go back we cannot go back >> yeah you can't go back but if you're going to allow them to spend $100 million 10% of your budget of your profits on tokens you're going to have to say spend 10% less on something else and this

is what you've been saying you're going to have to say >> yeah we may we may have fewer employees but we can't >> the end the back half of this year is managing the budget right for Sure, it's already happening. It will drill dribble into next year. And next year will be the backlash. Next year will be I need to run >> Oh, I see what >> five to 10 agents 24 hours a day or I quit.

I quit. I won't do my crappy job. I won't edit your goddamn podcast. I won't write your code. I won't fix your endless bugs if I can't have 10 agents running 24/7. I just won't do it, Rory. I won't do the job. >> We're doing a CFO event this evening and I think you're exactly right. and you're my high you're with the high performing employee, right?

But you got to put yourself in the CFO's shoes. He's going to say, "I get it. I don't want to lose Jason. I'm going to give him and by the way, he's productive, but this is why the stripe letter is so smart." Then I got to say to myself, hm, before we had these tokens, we were doing all this stuff and we had 10 people. Now Jason's doing the work of four people.

Who are the other three people we need to let go? Because what you're not going to do, hang on, let me finish. What you're not going to do is say, "We've invented this new automation device that's making us wildly productive, Mr. Wall Street, and the net result of our wild productivity is our EPS is going down 10%." Cuz Wall Street is going to say, "You're a [ __ ] [ __ ] We'd like to hire someone else to run your bank or your industrial company."

You can't introduce automation and say the net result of automation is reduce profits. So, if you're spending more on automation, you have to spend less on something else. and someone's going to have to make that decision. And that's what I think Stripe was saying. It was very clear. It's like, as I say, the analogy of comparing it to capital was really good to me.

It's like, if you're the CFO, where do I invest? Do I invest in Jason's token budget cuz he's a winner? But do I cut off Harry's token budget because all he's doing is asking dumb questions of thoughts. I don't know. Someone's going to >> look, ask your C, I'm I'm glad you're having a CFO dinner. I want you to ask them a second question because this is what I hear.

This is and this is the challenge today. Uh the CFO challenge for the first going into summer was my god these teams spending so much. I I every CFO underbudgeted for tokens. >> Agreed. >> What the hell are they going to do? But but we didn't go out of business. So that was the that was the discussion of the last scale CFO summit going tonight. I bet you're going to hear a second conversation and this is about this is about addiction retention.

The CFOs I talked to talk about nothing but retention. At least the empowered CFOs, they are terrified that our stock price is down and we can't we can't retain employees. They are terrified that the AI leaders have so much stock-based comp, so much other sources of comp that all of their best people are going to be sucked up by the companies we spent the first twothirds of this conversation talking about.

CFOs are terrified about this because they're often they're often responsible for that KPI even if they're not doing it. And so there's this massive tension which is if I don't give these people what they need for AI, I'm going to lose all of them. And it is true. You will lose you'll be just be stuck with the folks that are still AI skeptics. Your organization will be full of the moldy oldies of SAS.

That's who you'll be end up if you don't retain them. And so yeah, the CFOs have to manage your token, but Jesus Christ, if 30% of my company leaves to go work for Harvey, I'm dead in the water. But you're exactly right because but I'm going to edit the statement to to as it were agree with you more precisely. If the wrong 30% of your company leave then you're screwed.

And you're right. Therefore, but you you know I I >> but it's all the best people. It's not even 30%. It's 90% of the ones that matter. >> But I think what you're not we're saying the same thing, but you're not confronting the nasty bit. But you normally are good at confronting the nasty bit. If Jason is the best employee and he needs 3x his spend in tokens and there's five more like Jason and we give them more that then that money's gone there right and my revenue mightn't have gone up by that much if I'm a you know

not if I'm a software company but if I'm a mainstream US corporate I'm probably not going to double my revenue because of this so I've just got to find a way to pay for that and that's and Harry this is going back to your com what does intelligence allocation look like this is what it looks like >> I just think listen we can move on I think the stripe thing is great and I think If before we want to time we want to talk about the reaceleration I think it's super interesting but I do think to use Rory's term they're

talking their book and Stripe wants to think about intelligence as this asset that flows through routers and flows through things like finance and of course it's true but um but the the the both the best and the worst of us are addicted to tokens. The worst of us are just we chatb we think is alive in our therapist and we talk to it like a human. That's what the worst of the air quotes the worst of us do.

You think it's alive. I fall I used to fall victim to that maybe a year ago. And the best of us want to run 20 agents 24 hours a day. And so you have you have to feed them. This is the bull case for everything including Merore and everything is we're addicted. We're addicted. >> I just say I you say we're addicted. We're addicted Jason. I mean I mean this in a nice way.

You are and small numbers of people in Silicon Valley are the majority of the population I don't think are quite as addicted. Just the caveat >> only because they're I'm just I'm just 12 months further along. It's everyone's going to end up doing the same crap that we're doing. What if you can just talk to your agent and say, "I want a fully edited version of 20 VC ready in 1 hour."

Um, Jason talked way too much about this godamn addiction thing. Take that out. Rory rambled about this one a bit of it. Give me more of me. And you don't even need your team and it's magical. In an hour, you're going to be addicted. >> I can't tell you how [ __ ] AI is for media and >> today. And it was a year ago and it still it doesn't even do the most.

>> And a year ago, Hicksfield couldn't work. And today it's at 700 million >> revenue. What what I'm I'm actually agreeing with you cuz I had this conversation with my girlfriend last night who uses Lorraa and she said 6 months ago I was like what a joke. This will never do anything. I'm I'm a law student graduated. I work at one of the best. Now she's like I just verify documents.

>> Yeah. She if if as long as she has options she will never go back. She's addicted. >> Never. Never. >> Never. But but my point is look at how large markets are now. The numbers that we're seeing. This is basically just on coding. Imagine if that translates into your CFOs like FPNA and legal and >> and the question is pace of diffusion, right? And we'll come back to like it's like if if if if it happens everywhere as quick as coding, we're in one world.

If it takes 10 years, we're in a different world. You have to know which what which world you believe you're in impacts almost everything. >> I think it's hit the titting point in legal every >> probably next. It's look, there's no doubt that it's the next who knew adapter. >> Andre had their chart of the day of the week that it was the fastest growing year-over-year segment, which is obvious, but but it but it was verified.

>> Jason, you said it. Let's stick on it. Stripe accelerates to 41%. Accelerating to 41% at Stripe scale is a phenomenal achievement. >> What do you want to unpack there? >> And billing's up 71%. So, it's getting better. The only thing to say is it's it's just it's just becoming a derivative of AI like the others with stripe scale is so massive that it it it is a little bit like a chip manufacturer, right?

It is benefiting so much from every agent, every agentic product using them. Um you know, you you really have you really literally have to argue with an agent to get it not to use Stripe. You have to like argue you have to it'd be like you want you not please I just want to try I just want to try a something else. No, >> as a random comment on that, you know, the interesting stri is I I I kind of half agree with you in the sense of all the differential growth is coming from AI.

And what's attractive about that if you think about owning that stock, which I don't because it's private, is it's lovely because you have a core business that's much more diversified than just AI and then you get in this growth lift from AI. So, it's kind of a if this was a public stock, it would be killing it because it's a safe way to get some kind of AI factor lift on growth while at the same time being able to say to yourself, [ __ ] if it all goes to crap and they slow down to 10% because the AI stuff peters out,

they're still going to kick off cash like crazy. No, it's it's in a wonderfully advantageous position. kind of the best of the old best of the kind of cloud economy with a nice AI acceleration on top which is why they've been able it's noticeable they they've been able to use that stock for their acquisition it sounds like some of the open router stuff was stock so yeah they're in a golden place you know what else I think it does I' be curious to get your guys thought I I don't want to talk too much about the past but

I I think it will be the nail in the coffin for almost every public software company and what I mean is when stripe and data like okay there's open AI there's is anthropic we can put them in a different category right they clearly are on many levels when openai and data bricks go public at at 80% growth and you know stripe accelerating 41% and 71% billings nothing except Palunteer approaches these right even cloudflare isn't this good right um and so you you almost just want to take everything below the line and just

almost erase it as as as just just a a distant memory of the past because uh there these are slightly more traditional companies, but massive AI tailwinds, right, that are have growth rates like almost no public comp. They're just going to re rework the the leaderboard. I think the two documents I most enjoyed reading in prep for this were the poolside letter and the Stripe letter.

And they reiterated at the end at one point in the letter, we're really happy being private was a summary, right? Thank you for sharing, but we're doing what we're doing. But I think Jason's also correct and it must be frustrating to be a public investor. When you if these assets were public, they would be so far up the rankings of good that you're right, everyone else would just get pushed down.

It'd be great to get that over with for what it's worth cuz I think then you could start really figuring out what 300400 million revenue companies can they exist in the public markets. But right now it's got the promise and it's hanging out there kind of the un if you're a public small and midcap investor. These are the unattainables that you just don't have in your portfolio yet which is why so many are doing crossovers.

It's a it's a funny world and no obvious reason to change yet. I mean, the imperative for OpenAI and Entropic to go out is the vast capital needs, but Stripe is I mean, another stunning fact on the Stripe letter, their share count is down on three years ago, four years ago, which means they've been buying back stock. They're like doing everything a public company can do while private.

They're like, "We have so much money that we're just going to buy new fund things. We're going to reinvest in the business and we're going to buy shares back, right? We >> don't email that to some portfolio companies to be a thoughtful board member. I'm going to email them that quote." >> Yeah. No, exactly. Yeah. >> Please get your share count down.

That would help me. >> Okay, >> I don't want no 15x, guys. Get that share count down. But but blow out the number, >> guys. You can choose. We have the GitHub buckling under AI agent commit tsunamis. We have base 44 really saving Wix hitting over 200 million. Our stock up 100%. Um, Fractile reportedly raising new round at 6.5 billion recently following Etch round at 20 billion which we discussed last week.

Schmorg's board of options. >> I like Grockbot and Instinct leaking everybody's information. And >> I knew you would like that. Okay. In Instinct is the kind of it kind of reminded me of um Clubhouse in the early days like seeping out over Twitter through like VC inner circles. And Instinct, for those that don't know, is an AI assistant that many VCs are tweeting about.

Um, and it got a lot of attention because one investor basically shared and one and then another person, Alex Cohen, shared how there were data security problems with giving access to everything. And then the whole kind of >> I mean, the sentence alone is laughable. We rephrase that. There are data security problems about giving it access to anything.

Well, duh. You know, right? Those data security act problems by giving anyone access to anything. You're right. But that's just >> like passwords. I mean, you're right. That was >> open snide. I I'm going to defer to Jason Moore here. Yes. But >> to your I interrupt you, but yes. So, as listeners are listening, think of this as a next generation agent that was kind of stealth launching raising a VC round and rather than focusing on just the negative.

The the idea here is obviously that this is an agent that can look at your email, do your work on your behalf, and if you give it lots of authority. It's kind of like having your own chief of staff and that's the idea. And Jason, what did you think? Because you've lived the open claw spirit. >> I just think it's interesting. It's it's I mean, I don't think this shouldn't be a surprise to anybody working with agents, but this isn't these aren't a set of issues that have been solved in the last year.

They weren't solved with OpenClaw leaking everybody's confident information. Now we have better guard rails. We have better harnesses. It's not solved with Grockbot, which looks like it may be wildly successful, right? Because it's part of Grock wasn't solved with Instinct. So, it's just, you know, it is the the flip side of this addiction, but we we can't we still can't trust agents today.

We can't trust them with any anything. Um, and uh it's just very interesting that the the next gener 2.0 can't be trusted either. It it's not a surprise. We all have we all have these issues. But um uh I would like to invest in the instinct that actually can honestly solve these issues. That that one I I I would do at 600 pre, but it's got to actually solve existential issues that no no one else at the moment can solve, including Grockbot or them or anybody else.

>> Do you not think this is inevitable? Do you guys remember? You guys remember when it was like we'll never put our credit cards online. We'll never put our credit cards online. It was unthinkable. I think it will be very obvious that we will trust agents with credit cards, financial data, passwords. Sure, there's guardrails. This feels inevitable.

Smarter people than me will explain when it's solvable, but it is interesting that it isn't well solved with guardrails today. We've had so many in incidents. I've had multiple incidents. Everyone's had incidents. Um, and we live through the Mac Mini Open Claw drama. and the new entrance can't solve the goal seeking nature of the LLMs they're running on.

Um the the the openweight models have fewer guardrails. You can just figure out how to like build bombs and how to do illegal acts on these models. So they're they're have fewer we're also have a vector that's having fewer guardrails and limitations. Um, and these these these goal-seeking probabilistic LLMs are are the truth is it's not that they they just make mistakes with your data.

Just like a junior engineer, just like people on your team would make just like if you had a personal assistant, he might give out your credit card to the wrong person. You know, when I when I was running the dumb mold book thing, it attempted to buy six AP watches for the team, right, for $360,000. It just didn't work. So, it's just the nature of the beast.

Um, they're going to do what humans do, too, but they could do it a thousand times more. So, it's I listen, uh, is it solvable in theory? Yes. In pra, but what's interesting is that in practice, not as of today. As of today, you can't tr you still can't trust these agents. Um, maybe maybe in a year. I think the direction of travel feels correct. But I think the question is is is an individual's kind of idiosyncratic workload the best place to apply agentic technology versus you know the boring ass corporate jobs like

you know my idiosyncratic calendar management and email replies. Yeah, I would love to automate that. I would love to have people go through it and get it right. But is that the sweet spot to spend money versus on the other hand you know an enterprise automates loan processing where there's much less discretion there's much more expense and you know and there's much more budget around it right so I you know so yes I I think but look we Silicon Valley in particular we all fall in love with personal productivity tools we

love them right because we're all hyper personally product productive right and I think Ben Thompson Mr. has one great comment is Zilicon Valley forgets every 3 years that the average American is not trying to be efficient. No one wakes up in the morning and says I need to grind down my to-do list in the hardland. They're just living life. Yeah, they're doing their job and then they're going home and they're done, right?

Not everyone >> solve my inbox. I have too many founders reaching out to me every day. Solve my inbox. >> My wife doesn't clear my wife I shouldn't say my wife doesn't clear her inbox. She like 30,000 emails and she's over it. She doesn't care. Move on, right? She just checks the stuff and searches the stuff she needs. Right? So, not everyone wants to be productive.

So, it's an interesting market, but you've seen in Evernote, you've seen in a bunch of other things that it's it's real, but it's fairly nichy and it's hard to get right. I mean, you know, we'll see how I mean, remind other companies in the space that and I wildly interesting and I love them, right? You've got superhuman, you know, which is now part of Grammarly, right?

We go on >> Harry and I are proud shareholders there. Yes. >> You've got you've got Ken Lee, right, which is an interesting product, too. a whole bunch of attempts that person obviously um the air table and notion discussed but notion did a good job of getting more corporates right the whole productivity suite and then you say to yourself yeah AI can do something interesting there I mean it's always there but always just a little bit out of reach it's a tricky market I mean look I want to believe in it but the two

things that worry me are one can you get it quite right right you know to this day I find my Google recommendations to be fairly mediocre now obviously that's the lowest of the low and you can do a lot better and then secondly even when you can get it right, what's the market size for this kind of product? It's it's it's it's real, but it's mid. And that doesn't sound negative.

We found that category super interesting, but I'm just saying it's it's very challene. It's inevitable, but it's not as lowhanging a fruit as some of the other areas where you just go, we'll automate this. It's repetitious work. We'll take away 10 back office steps. We'll save a bunch of money. Move on, >> guys. any that I have missed. >> Let me ask you each a related question before we close if you want, Harry.

What What do you think is the dumbest category of investing we're doing in the Ara? Like we're just we're just throwing cash at a category that we'll look back on uh like uh and just say why why the hell were we doing this in the era? >> I think a huge amount of money is going to get burning customer support because it becomes a commodity because support doesn't exist as a unique surface.

Why do you think that? >> Um I think one or two players will win a large portion of the market. I don't think it'll be as distributed as prior generations. Two, I think actually for the majority of the most sophisticated providers, they're building their own systems. Every large technology company I know who's sophisticated in any way has their own systems.

>> I I I you might be correct. Obviously, um we have a number of investments in that space. I think even if I think we'll do fine and I think even if not it won't be the biggest mess. I actually because I'm thinking >> it's a good it's a good answer though. I like I like just to to moderate to me flip it around. I like the answer though. It's a good I'm I'm going to answer it in the negative.

This is a super good question though. I think an area where despite it being amazing for America and important for the world, I think the venture returns of the margin might be tough will be defense. Not because we don't need all these products, but because I think there's an element of that business that you have to have account control. And I think the two or three largest companies like Anderal will end up doing a bunch of scooping up over the next two decades because and because I think the likely unlike tech where

a single product can kill it. I think in um these markets I think it's a portfolio of products that it takes to survive the interaction with the Pentagon and just have enough diversification to make it. So, I think you'll see a bunch of consolidation, not negative, not losses, but I think there'll be two or three companies that get critical mass in public at huge scale and they'll hoover up the rest of us.

>> I'm going to add one more, which is I think robotics. >> Yes, humanoids in particular. >> Yeah, humanoids in particular. I I I think it's one of those ones. >> Why do you think they're so VCs are so excited about it, Harry? Do you think it's the productivity product VC productivity thing? They think robots are cool. >> Well, listen, the the visionary term is exciting.

if we replace X and it's it's super exciting the vision that they sell but I think the vision and the reality and the requirements in dexterity and touch and I'd forgotten because just just for the record >> it's a good candidate it's a good candidate >> no it is cuz look we have a bunch of successful I mean I mention I'm on the board of Locust Robotics we have 15,000 robots in the field but it's a specific purpose robot it's the best example of that and I totally agree now that I think about it Harry there was this

video over the weekend. There's two videos on robots. One of them, the one where the robot blew up, which was kind of funny. He ran and then disintegrated in two. That was cute. But the one that said, you know, here's a robot running faster than you say and bolt, right? And he does the 100 meters really quickly. And I'm looking at going, you know something, if I want a machine to do 100 meters really quickly, I'll get a freaking Tesla.

Like, it's just to your point, Harry, I think the humanoid use case is real, but I don't think it's nearly as big as people think. So, I I kind of agree with you. I think that more focused robotics, there's a ton that's going on as positive in that space, but overreaching on humanness, I think, would be a tough slot. I could be wrong. Um, but that's that's another good.

>> Jason, you'll go final one. You got to you got to join the crew. Great question, but you got to throw your hat in. >> I'll answer mine. Uh, I will say first, I you know, I I didn't think of expression it the way you did, Harry, but I but I agree customer support software is dead, right? And I think even a lot of CX is dead because it's merging into other categories.

Agents agents surface area changes so much. It's not that there won't be dollars in CX, but a classic CS and CX won't even exist in 24 months. There's there's really there'll be commodity cheap products, but we won't even need it. It's it's already dying and merging into marketing, sales, every everything's becoming one agent. Um, and um, but I guess the one one I just listen I you guys have the better ones.

I like the robotic human robotics and and the the CXCS. Um, but uh, I still just don't believe and I guess I'm not a PE guy as I was uh, it was pointed out the last show or made fun of, which is fine. I just don't believe you can throw a bunch of venture money into accounting firms or law firms and and magically turn them into the next Merur hugging face or any of these things.

Uh I I believe that there's there's an element of craziness in the business model where you're creating these sister companies where where some of the folks have ownership in them. It's too convoluted. Uh it makes too much sense on a spreadsheet. And I I'm waiting to see the 20 billion outcome from turning a bunch of um you know Ivy League grouchy grads working 100 hours a week into an AIdriven services.

I'm not saying it's not possible, but this is the one that I think is just going to going to lead to no exits. >> Yeah, it's funny. I'm just going to admit something that makes me feel like an idiot, but I'm just going to say it because going back to something you said earlier, what if it works? Right. All these categories we've angsted about and talked about internally and in every ca and I kind of share some of the opinions articulated but in every case I do find myself looking an individual going maybe this is the

deal that can acknowledge those issues and transcend them and work right and I think it just speaks to the nature of the job and going back to maybe Harry's point is that what if it works right in every one of these categories I kind of have the mental model you guys articulate robotist defense all these are kind of a mental model I have. And as yet I am I'm just saying I'm open in every one of these categories and some of my partners have come in and said you're just goddamn wrong here.

I hear you worry this is the issue but this is how this team is going to get rounded and I think I've learned enough to to to have my biases but to be absolutely overcomeable by you know a combination of facts great entrepreneur and frankly cynical comment and portfolio construction. So you just don't have one of them and nothing else. We are in an area of unbounded creativity like we've never seen in our careers.

It's it's AI created it, you know, defense budgets enhanced it. Elon Musk is part of it. But we've never seen the type of creativity from founders and entre like we've seen today. It is it is two orders of magnitude bigger. So if you are going to rewrite the rules and make things that didn't work uh four years ago work today, now now is the moment, man.

We're just we're just epic creativity. Epic creativity. The the shots you could take at these models were right a few years ago. But we don't know. We don't know today. >> Now is the moment, man. I love it. What a way to finish. >> Agreed.