Speaker 1All right, everybody, welcome back to what is, of course, the number one podcast in the world, tweaking. All the mid-podcasters out there, four or five years running the all-in podcast, it's episode 295, and Sax is back. Sax is back. Sax is back. How are you doing, brother?
Speaker 2Good, good. I saw some fake news that you guys had stopped using the term superintelligence. You're getting some shade for that.
Speaker 1Oh, listen, we're here for this week in superintelligence right now. I mean, the whole doc is superintelligence.
Speaker 2It was kind of ridiculous. Maybe I shouldn't Streisand it, but they were trying to say that we were using the term AI still instead of SI. Who was saying that?
Speaker 1This is literally what the press is spending their time on.
Speaker 2This is why it's such fake news. They have a photo of me. I wasn't even on the October 23rd episode.
Speaker 1You do look very presidential there.
Speaker 2Man, if only you were born here. Look at this fake news. I mean, they're desperate for- The US's most influential tech podcast. Well, that's good. Actually, we're not just a tech podcast. We're the number one podcast in the world. Give us our deal. Has cooled on the use of the term superintelligence. Then they tried to say that I somehow was defying the president's instructions. All right. But I want to clarify, I was not on the October 23rd episode. Gotcha, gotcha. I'll be keeping you guys in line on this from now on.
Speaker 1Absolutely. Well, we will get focused. On superintelligence. With us again this week, your favorite organic farmer, David Freiburg. How's Ohalo doing? You've been pretty busy yourself.
Speaker 3Ohalo in Kenya this week. Lots of excitement. Lines of farmers trying out true potato seed.
Speaker 1Your energy looks pretty good. You look like you got some good energy. And speaking of good energy, man, we had a fun time playing cards last week. That was a blast. A great dinner.
Speaker 4We didn't stop talking for f***ing seven hours. Sort of like the podcast. Yeah, it's like the podcast. It's unbelievable. It's unbelievable. We had a fun time. Come on. That was a lot of laughs. No. Affleck texted me after. I'd never want J. Cal in the game again. You got to get out, Affleck, as a member of the group. It's going to be Ben Affleck or you, and we pick him. So you're out. That's fine with me. You're never getting another one. That's fine with me.
Speaker 1I mean, it's an upgrade.
Speaker 4I mean, you just kept chirping for eight hours straight.
Speaker 1It's unbelievable. He could not stop talking. I haven't been at the game for a long time. I had a lot of material. It was really fun, though.
Speaker 4We had so much fun.
Speaker 1And Chamath Palihapitiya, everybody's favorite enterprise sales executive from the 80-90 corporation. How'd you do this week? Did you hit? Did you ring the gong? Did you hit your quota?
Speaker 4Or are you going to have to work this weekend? Q4 is off to a good start, but I never want to count the chickens.
Speaker 1Okay, that's good, considering you whiffed Q3.
Speaker 4No, no, no. Q3 was okay. We whiffed Q2. Butchered it. Butchered it. That's why when I invested. All my friends. It's my fault, too, because I forced these poor salespeople to just only focus on the gigantic deals.
Speaker 1You're learning. You're learning. I had to learn the hard way.
Speaker 4You want to get those
Speaker 1singles and doubles and the people who pay on time and who start the projects on time.
Speaker 4We'll see an ANTS-S1, but you can build a ginormous business with singles and doubles. Absolutely, you can.
Speaker 1Speaking of gigantic businesses, Anthropic, Ant. They dropped their S1. That's the document that outlines the nature of the business for an IPO, an initial public offering. And I've got to ask the question, this seems to be the greatest business in the history of entrepreneurship. Goldman and Morgan Stanley are going to lead the round, and they are targeting November 16th, right before Thanksgiving, for this IPO. We've been waiting for a long time. It's been delayed. The ticker will be Ant, A-N-T. And they're aiming to raise, wait for it, $100 billion. In other words, like three months of compute. And that would make it the largest IPO ever, surpassing SpaceX. They raised $85 billion back in June, if you remember. And PolyMarket says, our great partners at PolyMarket say, 78% chance Anthropic raises at least $95 billion. The valuation, $1.5 to $2 trillion. Here's your portfolio. PolyMarket, right now it's saying between $1.75 and $2 trillion, market cap 31%. So, yeah, assume it's going to be slightly under $2 trillion. The revenue is, the story sacks, $16.3 billion in the first half of 2026. That is 14x year over year. So, in other words, the first six months of 2025, 1 14th of what they did in the first six months of this year. Q2 is going to be a whopping. $11.6 billion. A 30x jump over the last five quarters and almost as much as they made in the first half of the year. They say the TAM, the total addressable market for their tokens and services is $40 trillion. That's extraordinary. I don't know how they backed into that, but we'll talk about it. And they're projecting $100 billion of ARR by the end of the year. Now, unspecified if that's annual reoccurring revenue or their annual revenue. Revenue run rate, which is ARRR, like a pirate. They've got $112 billion in cash and a very unique ownership structure. Seven founders, yes, they have seven, are going to hold 50.1% of the voting power through a single class F share. Sacks, is this the greatest business in the history of capitalism?
Speaker 2It could very well be. I mean, I think this is probably going to be the biggest venture outcome of all time. Especially given the time in which this was created. I mean, this is only a six year old company. I think the exit here is going to be on par with SpaceX's IPO, but SpaceX has been around for like 20 something years. So this is probably the fastest value creation of any venture backed company in history. And I don't know if you saw, but there was a tweet this morning about the distribution of wealth. This is going to create among the employees, hundreds and hundreds of employees are going to be making hundreds of millions of dollars. And then thousands of employees are going to be making $10 million plus. I mean, this is going to be an enormous wealth creation event like San Francisco and maybe all Silicon Valley has never seen before. Now, there's a few other data points in this S1 that I think reflected the strength here. So number one is that this $80 billion loss number that we've heard so much about, that the media has constantly been pumping and harping on as proof that Anthropic was either a fake business or that it was a fake business. We were in this sort of whole bubble. That narrative basically just got completely refuted because it turns out that that $80 billion loss is a phantom number. It resulted from the fact that Anthropic had issued convertible notes to basically their infrastructure partners like Amazon and so forth. And as Anthropic's valuation increased, those convertible notes got recorded as a loss on the balance sheet and that flowed through into the income statement. But it's not a real loss. It's not a real loss. If they had just issued equity, that loss wouldn't be there. So it was not a cash loss. It's basically a fake number. And in fact, what was revealed in this S1 is that Anthropic has been an extraordinarily capital-efficient business. So they've raised something like – I think it was around $110 billion roughly. And they've only spent about $9 or $10 billion throughout the entire course of this business. And they still have, like you said, J. Cal, about $100 billion left of cash. Or cash equivalents on the balance sheet. So everyone thought, based on the previous reporting, that this was a huge loss-making business. In fact, it ended up being a very capital-efficient business. And then the other thing that you saw was that their margins have been improving. I think their gross margin is now something like 85%. And what you see is that for a given task or capability, they're showing roughly 10x improvement year over year in their ability to deliver. So that's a huge loss-making business. The cost-effectiveness of that task. It gets 10x cheaper year over year. And that allows them to cut the cost of that model or that task by let's call it 50%. And so the consumer recognizes a huge cost savings, but they are able to realize an even greater savings because they're able to capture the rest of that efficiency in their margin. And that's what we basically saw. Is that, again, they're cutting the cost of their tokens significantly, but their margins are going up even faster because they're able to produce these models that are more and more efficient. And they call them compute multipliers. It's very interesting the way that Anthropic sees their business. The framework that Dario has is that there's raw compute, which they're scaling very rapidly as well, as a result of better and better chips and more and more of those chips. And then there's the compute multipliers. Which are things like algorithmic improvements or better curation of the data. Or it can be things like better architectures, more MOE architectures, things that make all these models more efficient. So they're able to give you the same answer for one-tenth the cost. Or they can take those efficiencies and create greater capabilities. So this is what we're seeing is that that business is actually improving. And I think it is a little bit of a refutation to all the people who have been saying over the past year. that they're getting commoditized away, that open models are basically putting them on a hamster wheel where they're basically going to zero on gross margin, or that it's a business that only works because it's heavily subsidized by venture capital. In fact, I think there's a lot of reasons to believe that Anthropic has a pretty big lead. And if you believe that recursive self-improvement has kicked in, as they are claiming it has, then their lead could actually grow.
Speaker 1Your thoughts on the impact of this massive deluge of capital coming in to Silicon Valley, and then this corporate structure, 51% ownership, and what impact this might have on the technology industry, the venture capital industry, and then on democracy here in the United States. We've never seen this much capital flow through to a nonprofit organization, or whatever they're calling this. We're not talking about an anthropic nonprofit entity, but 80% of the seven founder shares are going into this nonprofit entity of some type. Benefit Corporation, who knows what it's going to be structured as. It's optional, but that's another interesting shoe to drop. So take it whichever way you like, in whichever order you like.
Speaker 3Can I just comment on the economic value that's arising from AI? Of course, sure. That's kind of perhaps revealed a little bit in this. So in the S1, and then in the S2, there's a lot of value in the S1. The anthropic shows how many customers they have that are spending 100k or more. If we take a look at the image here, it's a pretty remarkable ramp in customers spending 100k or more, 200 customers in 2024, end of year, 1500, end of 2025, and at the end of September, 11,900 customers spending 100k or more. So I asked the question, you know, how many customers are there for which $100,000 annual spend? And the answer is in the US, it's about 200 to 300,000 businesses. Globally, it's a bit over a million. So, you know, if you just say, hey, look, anthropics customers that could spend 100k or more, and have it be less than 1% of their total spend, the addressable customer base is about a million customers. So they're only at, call it 1% of total customer base. And so, you know, I basically said, like, start with NVIDIA, how much does NVIDIA spend to make the chips? And then how much do they sell the chips for? So for every dollar of COGS, every dollar that NVIDIA spends, that turns into $4 of revenue for NVIDIA, 75% margin. And then that gets sold to SpaceX, and then SpaceX turns around, and they're making, you know, an 83% margin on that chip spend, because they're kind of looking at a five year depreciation. So they spent 10 billion on Colossus. This one, five year life, 2 billion a year depreciation. And so that's kind of the cost per year, but then they're making 1.25 billion a month on Colossus. And then Anthropic is showing in this S1, pretty remarkably, to Sachs's point, that they're making about 85% incremental gross margin on every incremental dollar coming in. It's obviously a baseline of compute spend, but 85% is kind of the incremental gross margin. So at the end of the day, a dollar that NVIDIA spends, turns into $18 that Anthropic is making, selling to customers. And the question is, are customers making money? So we're seeing the customer ramp as it is, and the spend ramp as it is. And the customers are making, call it on the order of two to 10 times the money they're spending, because otherwise, there would be probably a retention issue and a decline in spend. Maybe I'm wrong. Maybe it's early days of exuberance, and people are losing money. And we could debate that point a bit. But generally speaking, if AI is delivering value to the customers, I think this shows that there really is true productivity arising from AI, that across the whole value chain, there is such margin to be had, there's so much value being created, all the way through to the customers. And we're only 1%, or Anthropic is only 1% penetrated on their customer potential, and probably less than 10% of the spend potential per customer. That this really is what I think Eric Schmidt a long time ago, in the early days of Google used to say, Google's total addressable market is global commerce. And I think for the first time ever, we're seeing a business actually potentially starting to realize that theory that if you can create enough productivity gain for your customers, that your TAM is commerce. And it really highlights that maybe, you know, we're almost growing the equivalency of the human working population by 100x or 1000x, or a million x with this technology stack. So I just thought like, to me, it was so striking how early we are, but also how incredibly profitable everyone is, which indicates that there's quite a bit of productivity being produced across the whole value stack. Those are my biggest takeaways kind of from the S1. I don't know if you guys agree with this. But, you know, it all felt pretty remarkable to me. I'd be curious to know if you guys think I'm, I'm, I'm a little loopy on being too exuberant in my reading of this stuff.
Speaker 4I think the thing that that is probably the most important is the last box that you said, where it you wrote a customer value, where you said assumption, right?
Speaker 2Well, how do they measure that? But by the way, I agree with you.
Speaker 3But the last box, I mean, I said, assume two to 10x. So I'm just, I have no idea. But I'm a user of Claude, I think we get a lot of value for Claude, I think our people are able to do more because of Claude than they would otherwise be able to do. So our business grows faster, we can get more done in a shorter period of time. I think I tangibly experienced that pretty regularly. I've talked a lot about moving to open source. And we have our own cluster installed with our own kind of open source now. But I think what Claude is showing is that they have such a high margin, they actually have good elasticity on pricing. So they could push price down. And you could start to see them start to segment the market a little bit, where they could start to be more competitive, perhaps with cheaper tokens for cheaper, easier tasks, and then premium tasks, charge a higher price for intelligence and start to stratify the value of the intelligence that they're providing by changing the price points. And I envision that's where everyone's going to go.
Speaker 4Everybody can have, theoretically with AI, just put that on the screen. This is from Microsoft's earnings. My research team put this together. It's really quite incredible. What this shows you is that Microsoft's revenue went from 198 billion to 332 billion in the last four years, while staff only increased by 2000 people. I mean, isn't that stunning? Like you would have thought in before AI, that if somebody said, great, we're gonna, you know, get close to doubling revenues at this kind of scale, right, you probably would have thought that headcount would have doubled too. And the reality is headcount stayed flat. And we don't know how many people will take this offer that Microsoft just gave for, you know, to leave, because I think they offered it up to 60,000 people, but this number could be under 200,000, depending on how many take it. And so just the scale and the impact on the productivity of the business. To your point, this idea that it creates job loss, I don't think it's true. It's more that you're seeing productivity gains at the same number of human input. And I think that's interesting. I went through the S1, you know, I'm going to give you my little S1 breakdown. This is the most incredible business I've ever seen. I hope that they go public after November 11. Because it will force them to update with Q3. And then we'll get even more insight into this is like some control. Traption that I've never seen before. I've never seen a business like this. It's really, really, really incredible. So let's cross our fingers because post November 11, you'll see Q3 drop what people have been whispering is that the revenue growth kind of moderated to sort of like the 50% range. Q4 is TBD. But let's break this down in a bunch of charts. Because I think it's interesting. Okay, so Nick, start with chart number one, and we'll just go through them one by one. Okay. So the first thing that I always read in an S1 is, you know, what are the risk factors? And what I had my team do is I said, go put together a word cloud. First, tell me, this is really cool. First, tell me, what are they afraid of? Okay, and when you look at it, the share of words in the risk factors that are allocated to different risks are very important. And what this tells you is, the single biggest risk to the ant business is compute. They mentioned it more than anything else. And specifically inside of compute, they talk about data centers, power, chips, grid, electricity, hardware, etc. Then, a close second, but still second is regulation. Okay? They care about government policy, they care about sanctions, they care about export controls. Then it's this idea of zero data retention and privacy and IP. Then it's AI safety. Then it's just, you know, making money. It's then there's their competitors. Then there's governance. What you notice is, what are they not afraid of? They're not afraid of customer traction, because they rarely mentioned, they're not really afraid of employees leaving, because you'd be an idiot to leave if you're inside. And they don't really care about taxes and any of these other things. So this is a business that is very much on the forward foot that understands the binding constraint. So now, if you know that the the compute is their biggest risk factor, then you double click into that. And I had my team run a further analysis, which is to say, Okay, how do they describe these risks? Right? How many times do they mention them? How many words are you spilling talking about this. And what you find is that inside of the the the compute problem, their biggest issue is really data centers. And then further, it's the financing commitments that they have, and it's the power, all of these are really important, because again, it helps us highlight what the binding constraint is to this business. So as goes, data centers, as goes power. And by the way, this is a great setup for the politicians, because it's very obvious, if you're a Democrat, as you read this, and I'll speak about it in a second, what you should be trying to do to win in 28 versus what Republicans have to do in 28. Right? Basically, the takeaway from all of this is, I think, antis emblematic of the entire AI complex, which is to say, it's all about data centers, which means it's all about power. If you're a Democrat, the best thing you want to do is slow all of this down so that there's a risk factor. And if you're a Democrat, the best thing you want to do is slow all of this down so that there's a risk factor. session going into 28. The only thing you need to do is slow down power and slow down data centers. On the other side, if you're a Republican, and you want to have the best chance of winning in 28. This is the one thing that must be done, right? You must get the power, electricity data center
Speaker 1thing, right? Okay, so based on this, your premise is, they need data centers. If they don't get data centers, it can't keep growing. However, sacks, the truth is, these are the liberal of all liberals in Silicon Valley, it is the largest amount of data centers in the world. And if you're a Democrat, that has ever been made by founders outside of Elon Musk, it would make sense to me, perhaps the opposite of what you're not saying, shouldn't the Democrats come in and say, we are pro data center and energy, because this is going to help society because they want to see Dario and his group win, because they are going to be the equivalent on the left of Elon Musk on the right, wouldn't it be better for them to steal the the data center charge and make anthropic even more profitable so that that 51% of all of their or 80% of all their money just flows into democratic super PACs? Maybe, but I don't think
Speaker 2that's the Democratic Party that we have today. I mean, the old Clinton Democrats, I mean, Bill Clinton, Democrats are long gone. I don't think the abundance Democrats are picking up a lot of momentum. I mean, the Democrat Party is as Gavin Newsom said, is becoming DSA dominated. So what is their agenda with respect to superintelligence, either to ban it outright, as Bernie Sanders and Elizabeth Warren and AOC want to do, they basically want 20 year jail sentences for developers of superintelligence, and they want corporate death penalty for companies that build superintelligence. Or they want to have some extremely draconian regulatory regime that would, you know, they're going to have to go to the feature a federal department of AI or federal department of SI, I guess, that would review and approve every single model before its release. Basically, they want to have a DMV for models. Let me challenge you. Look, that is the Democrat agenda on this. Now, could that be shifted through oligarchs like, I don't know, Reid Hoffman or maybe some of these new anthropic oligarchs, maybe a Dustin Moskowitz, something like that? Maybe they can, through their massive influence in Democrat circles, could effectuate a change. But I tend to think that Chamath is right, that Democrats want to do anything they can to sabotage the Trump economy. And this whole SI boom is what is driving the Trump economy right now. So I tend to think that's going to be the partisan impetus.
Speaker 1So you don't need to do much. I think Freeberg, to scuttle the Trump economy since the war, tariffs and all that other stuff have driven inflation and all those problems. Wouldn't it be smarter for the Democrats to- Well, hold on.
Speaker 2I mean, just hold on a second. That's just my opinion, yeah. Jake, I think the latest numbers from like Fed GDP now, I think it was 3.7% in Q3, and it was 2.5% in the first half of the year. And you could also look at all the capex that's being spent. Right now on this buildout, and it's roughly 3% of GDP. So you could say that all of the economic growth in the United States right now is coming from this superintelligence buildout.
Speaker 1Concur with that. We can have fun with numbers, but the Trump economy is a disaster according to Trump's own supporters. So let's just call balls and strikes here. His own voters, the independents who flipped over and voted for him, they are very displeased with the economy. And that can be seen very clearly in him having the worst approval rating of his entire career. And there's been some doozies in that career. Friedberg, what should the Democrats-
Speaker 2I don't think even those critics, first of all, I don't know what Trump supporters you're talking
Speaker 1about. I'm talking about the America First people who feel that he didn't deport the 20 million people that they still have inflation. I'm just talking about that cohort. You could put Tucker in there, you could put Megan in there, you know, all that sphere.
Speaker 2Yes, there are definitely people who don't like, the war, and they recognize that there is some inflation being caused by the war. But I don't think they've said the economy is a disaster. Anyway, whatever. I don't want to quibble with you about words.
Speaker 1If you're not an equity holder, I think you look at this economy and say both parties, Biden and this Trump 2.0, I think the bottom half of the economy believes that both parties don't care about them. That's what all the feedback that you're getting. And we'll confirm it all next Tuesday and see what happens with the actual voting. Chamath, let's continue. So that was section
Speaker 4one, which is you always read the risk factors first, get a sense of what is management concerned about, right? So again, the takeaway is management is concerned really only about compute. This is a compute problem. Okay, the next thing that I always look at is I look at the revenue side of the ledger, and I try to understand what kind of business they have. And this is an incredible, incredible business. Exactly what Freeberg said. Why? Because at the growth that they have, and the revenue that they have, they have barely scratched the surface of the commercial working world. And so this is a little bit more of a nuanced chart, because what it does, it starts to really break down what we think the revenue stratification is by customers inside of Anthropic. So there's about 40 million individuals and small businesses that are spending under 100K, 40 million. Then there's about 10,000 that spend between 100 and a million. And then there's about 10,000 that spend between 100 and a million. And then there's about 1650 that spend between 1 and 10 million, and only 250 customers spend 10 million and more. So to your point, I think what Freeberg said is right. The setup is, is that these folks can negatively churn into these existing customers and grow and attract new customers at an incredible rate, which I think is just crazy. And so this allows me to think about what is the upper bound of revenue. And you know, you don't need to get to 100% of what's possible, you need to get to 25 or 30%. And then you need to have a reasonable distribution of negative churn assumptions. And what you start to see is that this can be a very large revenue business in the hundreds of billions of dollars in sort of this three to seven year timeframe. Now, what slows that down? As far as I can tell, and this is more me putting the 8090 hat on. The reason why you have so much traction in the million dollar business is because you have a lot of revenue. And you have a lot of revenue. And when a company gets large enough, they allocate responsibility and budgets down. And at the director manager VP level, there are millions of humans running around with kind of million dollar budgets. And so there's a lot of experimentation that can happen inside of that bucket, they're willing to sign up for three, four, five, six, seven, eight, nine things. The minute you sort of transition from a million to like multi million dollar deals, and this data sort of confirms it. It's a much more thoughtful pitch. It's much more cross functional inside of a company. And you have to show some form of ROI, or total cost of ownership advantage. Right. So what's interesting about this, Jason is 1900 companies have been able to make the case. That's what I would say. I think there's a ton of experimentation. And I think about 1900 companies can clearly see an ROI where they can now start to rip in big checks. Now of that 1900, a big portion of those are going to be AI natives, right folks that are venture funded. So you have to strip those folks away. And then what's left over is probably a couple of hundred global 2000 type companies. So I think the ROI case is still a little speculative. But the potential is there. And as long as the potential is there, I think the ROI is going to be there. And I think it's going to be there. And so now that's revenue composition. So then the next thing I think about is capitalization. And I said this before, I said, Ant needs to have 200 billion. And I really hope that they actually get close to 250. First of all, let me just say, the CFO of Ant Krishna Rao has done an unbelievable job. The fact he entering June already had $125 billion is unbelievable. And there's a chart I didn't include, but their total net burn to get there has been like $9 billion or $10 billion. It's just infinitesimally low relative to the market cap. So I thought that they had a lot less cash than this. So when I said they need to raise between $200 to $250 and they need to price closer to $1 trillion, I was assuming they had $30, $40, $50 billion on the balance sheet. I was wrong. So these guys need to raise between, I would say, $80 to $120 billion to get to that quarter trillion. And I think in order to do that, the price is probably now going to come in between $1.3 on the low end to $1.7 on the high end. So call $1.5 the midpoint. So if I had to price the IPO just eyeballing this, I kind of think it'll come in around $1.5. If I had to just kind of guess. And the other thing that I noticed is how much cash Alphabet has and also how much cash Meta does not have. I was shocked to see that I had negative $1.2 billion of cash. This must be a mistake, but if you look at the 10Qs as of the end of September, this is what it shows, which- Net cash, you mean?
Speaker 2Net cash. Maybe it doesn't include short-term investments or something like that. I'm going to take a look at Meta's numbers right now. Yeah, it doesn't make sense. Yeah, I'll tell you in one second. Your larger point is right that Anthropic, like you said, over $100 billion of cash they're sitting on, they've burnt very little of the money that they've raised. Again, their company's been a model of capital efficiency. They're about to raise $100 billion in this IPO. I think they've got about a debt facility with another $80 billion. So you add it all up, and this is a company with over $300 billion of dry powder, or it will soon have that. So then you've got all these, you know, Anthropic bears who are saying they've made all these CapEx commitments in the future that they're never going to be able to live up to. Actually, this secures those commitments, because they've got the capital now to basically back up all of those compute orders, all that forecasted CapEx spending till, I don't know, 2030.
Speaker 4You're exactly right. And because they only have to raise $80 billion, right, or $90 billion or $100 billion, that's a lot different than trying to raise $150 billion or $175 billion or $200 billion, which is where I thought they needed to be. And so the demands they're going to put on the capital markets into the IPO are going to be less, which means that they'll have more pricing power. They'll be able to manage the float better. All of these dynamics, I think, give you a constructive read going into the IPO. Okay, now let's move on, because I think here's my biggest takeaway. Meta's net cash is negative, too. It is $80 billion of cash and short turns and $82 billion of debt. Okay, now go back to this. What is my biggest takeaway? It's bigger than Ant. I'm going to build on what Zach said. The entire United States economy is levered to the AI complex. So very narrowly, we're talking about seven or eight companies that sets the tone for the entire country. And whether we like it or not, that is where we are. Why do I say that? One, the most important companies in the world are in a massive spending binge, right? These were highly profitable, highly cash accretive, highly cash flow generative businesses that have said, we're going to put the foot down on spending, because we believe in what's coming into the future. That's what drives GDP, and it's what drives growth. Okay, next chart. Now, as they do that, though, they deplete their cash, and they have to raise debt. Okay, and this is what you see. All but Microsoft, by the way, what an incredible job Satya has done. He's halved his debt, while everybody else has, you know, just gone to an unbelievably crazy high number. So the AI complex now owes $340, $400, billion to the market. And you'd say, Okay, why is that important? The problem is this. These companies are raising so much money, it starts to crowd out the capital markets. And the most important part of the capital market that it starts to crowd out is the appetite for government treasuries. And what you can see here is that when you look at these AI firms, the amount of money that they need to raise through the end of 27, it's 30% of all of what treasury is about to issue in that same period. So there, whether we like it or not, they are going to start competing for demand. Isn't this nuts? It's like you have seven companies that are crowding up the treasury
Speaker 2market. You know, Chamath, a lot of people are looking at that number, and they're trading these stocks down. Based on that, I kind of view it the opposite, which is I don't these are smart companies. I don't think they'd be making those kinds of investments. I don't think they'd be making those kinds of investments unless they thought there was ROI there. And so there obviously
Speaker 1is ROI based on the token usage and the fact that only one or 2% of people in corporate America are even using these tools. We are greatly underestimating the uptick here. Claude hasn't even launched a bot yet, a grok bot. And OpenAI just launched theirs, and it's in like a small use case when 100 million or 200 million white collar workers subscribe to, say, the Office Suite, the similar Office 365. I think we're going to have not enough compute, and everybody's got the build out completely wrong. There won't be enough. And people are going to look back on this moment and say, why didn't you build more compute? Why didn't you spend more on CapEx?
Speaker 4You're absolutely right, Jason. The problem is the regulatory pushback. The amount of approvals and the ability. The ability for utilities to find the staff and the ability to actually turn these things on, and then the ability to get the capital equipment you need, it just isn't there right now. So we, as a country, are sort of clogged up. We can't do it, even if we wanted to do it.
Speaker 1Freeberg, the other issue here is if we are not spending enough building this out, and the country, a large percentage of the country, believes in socialism and is against the oligarchs, both Republican and Democrat. Independent and Democratic oligarchs, this is what they think of us and of the leaders in our industry and other industries. This is really dangerous because we're not going to be able to build out the compute we need. And what does that do to the entire industry in the next three to five years if we can't build out this? And how do we turn that narrative around so people are like, yeah, we should have data centers?
Speaker 3I have a view that humans try to organize. Organize into groups, organizations to try and create power that benefits the members of that group. So, you know, we form tribes, we form communities. And in a sense, governments are a form of an organization. It's an organizational coalition of individuals to achieve an objective for, in the case of a democracy, the majority of the voters. And as a result, organizations in a world of, you know, call it pseudo limited resources, compete with each other for those resources. Nonprofits, for-profits, governments, they're all effectively competing for resources because the individuals that they represent the interests of are going to be served if they get more resources, get more power, get more influence. So to some extent, the power of AI and the influence it enables in terms of media, in terms of capital accumulation, in terms of changing people's minds, in terms of aggregating resources through its competitive capacity, productivity, et cetera, makes it a bit of a threat to government organizations. And so to Chamath's point, if one of the manifestations of that is that AI is now accruing more interest from capital, then governments, governments aren't going to want to let that happen. And the governments, whether they're right or left, are going to fight for the AI to become either part of the government and the government to subsume the AI or control the AI organizations. And this is why I've kind of argued the case. I think that you're going to end up seeing compute get regulated in the future where compute capacity is going to be assigned by government and they're going to pass laws to try and do that post-production, that is. Like, meaning they're not going to control the chips, they're going to control the actual compute layer and they're going to determine who's going to get access to what amount of compute, I think, for governments to compete. And I think one of the ways this is going to play out, to Chamath's point, is in the near term in capital. There's more capital going to the AI organizations and the government, and the governments aren't going to want to let that happen. So they're going to try and stop the data centers because then.
Speaker 4I've never seen something in my adult working life where a complex of a handful of companies are effectively competing with governments now for capital. Because you've never seen companies in an organized manner have one very narrow thing that they need money for that is a one-way bet on something that attracts the same amount of money that would otherwise go to a traditional 2, 3, 4, 5-year, 10-year bond auction. It's kind of nutty, actually.
Speaker 3And by the way, the story you're going to hear from both sides is a story of which side benefits the people more. And that's going to be the narrative argument, which is going to be every side's going to say the other side's lying. Because remember, if one side's lying, and another side's not lying, the side that's not lying says, hey, those guys are lying, and they're correct. The side that is lying de facto says that the other side is lying because they're liars. And so you'll hear both sides screaming, we are the better path for society, we are the better path for humanity, it's either government or private market AI. And that'll be the huge battle that's going to brew over the next half decade. And we'll see which
Speaker 1one politicians are for sale, and Dario, and anthropic should start buying just like the right did. Oh, they already have. I don't see them with champions. Where are their champions? Do they have champions yet?
Speaker 2For sure. Listen, anthropic, even as a startup, prioritize government affairs. They were very active during the Biden administration. All those former Biden officials who were doing AI in the Biden administration immediately joined anthropic. My point, Sax, is
Speaker 1that you don't- At the end of 2024. No, no, I get that. But you don't see them doing what you guys did, hosting a fundraiser for Trump, being out there publicly in front of it. You don't see them out there doing it.
Speaker 2Oh, sure. But they've created PACs and all sorts of entities and nonprofits, NGOs, all that kind of stuff. And they have been massively funding it. They have a huge government affairs operation. Why aren't they doing what you guys
Speaker 1did, like getting out there in front of any champions?
Speaker 2I don't know what you mean by you guys. I did- You went public about your support for Trump.
Speaker 1I've never seen Dario publicly come out for any politician. I'm not a corporation.
Speaker 2Yeah, exactly. Can you let me explain? Sure. Of course. I'm just one person who has views. And yeah, I support certain candidates and I do fundraisers for candidates. I'm not like seeking regulatory capture. I'm just one person expressing my personal views. No, no, I'm saying why hasn't Dario or the other founders done that?
Speaker 1Why haven't they said, we choose this candidate? We choose these candidates. We don't know that they haven't. How do we know that they haven't? We know they haven't done it publicly because we've never heard them do it. That's my- Sure, but-
Speaker 2They have given huge amounts of money to PACs. I agree they've done it publicly. Which is public information and those PACs have supported candidates.
Speaker 1If they're going to make a run at this, they should do it publicly.
Speaker 2Huge revolving door where Anthropic has been snapping up every former official. First, it was the Biden administration. Now, frankly, they're hiring a lot of former Trump administration officials. Oh, really? And yeah, and this is all public information, but they are building a massive government affairs operation. And look, I think you can expect that as they power up through all of this capital, having a $2 trillion market cap- That's my point. They're going to have even more influence in Washington, or they're going to be capable of buying a lot more influence. And I think that is concerning. One thing I will say, though, is that as they go from being a startup to being a public company that's one of the top handful of companies by market cap on earth, it's going to be very obvious that they are a big tech company. And therefore, they should be treated like other big tech companies, which is to say, with suspicion, as opposed to this being some poor little startup that has- Innocuous views or is not the 800-pound gorilla that they actually are. So, I do think it'll be clarifying on that level for them to be seen correctly as what I've been saying is that they are the most powerful monopoly or duopoly ever in human history, which is they're creating AGI, right? I've been saying that for a long time. So, I do think that them going public will actually right-size them in the public consciousness. And one thing you're seeing already, actually, is there's starting to be a Doomer-Anthropic split. There's a very interesting article in Vox, which is this huge Doomer publication over the past week, and it was quoting a bunch of these NGOs, kind of Doomer NGOs, that were basically pointing out that, you know, like, Anthropic, actually, if you separate their rhetoric from what they actually do, they are the ones leading the charge on recursive self-improvement. There's no single company in the world that is doing more to race towards full, full RSI than Anthropic. They are hell-bent for leather on getting to full recursive self-improvement. In fact, a lot of the reason why they are becoming so efficient with their compute, the reason they're able to cut costs, offer the same capability at one-tenth the price, is because they've increasingly been using their own models to generate these algorithmic improvements to create these compute multipliers. If you go back to August, Anthropic published a very interesting blog. Talking about how they were using RSI, and 26%, they had a chart showing that 26% of their tasks that are involved in basically trying to create the next generation of models, they already were using RSI to do that. Now, that was back in August, so who knows what they're at now, being in October. So, look, they are pursuing RSI very, very quickly, and, you know, one way to think about that whole pacing letter that Dario published, a few months ago, is it's almost like they're creating an alibi for themselves, where they are acknowledging that, hey, we are pursuing RSI as quickly as anyone, and it's almost like they're saying to the world, well, we want it to stop, right? Like, we want it to slow down. We tried to get you all to agree to pace, but you guys wouldn't agree to do that, so therefore we kept going, you know? And it's almost like creating an alibi in advance for themselves if this RSI thing goes really bad. All right. But I think that they had to know when they published that pacing letter that they're not going to get the whole world on board with pacing, so the whole thing was sort of an exercise in virtue signaling. But in any event, I think what it shows, again, is I do think that it's possible that an anthropic-doomer split is coming because there's no way for them to maintain their lead as the number one superintelligence company without continuing to advance the frontier very rapidly and to continue to pursue recursive self-improvement. And that is something that the doomers are most afraid of, of all the various risks, right? They are most worried about a breakaway superintelligence. So I do think that this is the beginning, maybe, of a divorce between anthropic and the doomers, but we'll see.
Speaker 1Okay. Let's get back to your breakdown, Chamath. You had the greatest revenue, greatest business ever built, yada, yada. They have a ton of cash. They have the cash for the build-out. They're going to raise some cash in the IPO. And they are, all of this bond activity is crowding out treasuries is where you left off, I believe. So let's continue.
Speaker 4Exactly. So I think you have to go to these risk factors now and think if you're going to price the IPO or if you're going to buy the IPO, how would I decide to buy the IPO? And I think at the one, four, one, five, one, six, it's kind of priced fairly. So there's no deal, but they're giving you an entry price into the future. So then you have to have a view on the future. And I think there are two risks. The first risk was what I showed you on their revenue composition, which is how long does it take for Ant to show those 10,000 customers the ROI math that they will need to move from less than a million to single digit millions to tens of millions? That's one very simple thing that you can check. Quarter after quarter after quarter. As those numbers swell, the reason they will swell is that they'll have defensible use cases and white papers and analyses that make it very straightforward for a corporate infrastructure to sign off a multi-person executive team to sign off on a multi-million dollar spend. So that's an Ant risk. And I think that you can price that risk. The second though, is what I teased here, which is the risk you cannot price, which is this market risk. The AI complex has gotten so big that it now competes with US treasuries. Why is that an important thing to note? And why does that create market risk? Nick, if we just go back to the last chart, please. So when you look at this, what does it mean for treasuries having to compete with Facebook and SpaceX and Anthropic and OpenAI for money? Dollars. Well, it means that. Somebody is going to have to pay more. Now, let's play out one example. If it's the hyperscalers that have to pay more, because people believe the flight to quality and the durational risk of the government is better, then all of the money that the hyperscalers and the AI complex and Anthropic and OpenAI have to raise will have to come in at a higher coupon. If that's true, then we're going to have to pay more. And Friedberg's chart is also true, which is that those rates cascade through the ecosystem. The neoclouds will have to pay more. All these other folks have to pay more. What that means is that you increase and you pull forward the risk of defaults, which we talked about last time. So you have this negative reflexive cycle there. Let's say the opposite is true. Let's say that the AI complex is able to raise money at reasonable rates, and it's the US treasury that has to actually go through an auction and pay more. Now you have the broad-based cost of borrowing goes up because every other part of the United States economy is levered to the twos through fives and 10-year complex. That is a huge market risk that I don't understand because I've never seen before.
Speaker 1What is the market risk? Explain it just crisply here as we wrap.
Speaker 4If interest rates go up because the US treasuries have to pay more for people to buy their bonds, then everything else in the economy has a higher cost of borrowing. has negative implications. If the opposite is true, the AI complex has to pay more. And then there's a bunch of negative repercussions narrowly to the complex. The problem is we're trying to buy an AI stock. So many roads lead to downside risk, more than upside risk. Now, there are versions in which this all works out and everything is off to the races. But I guess my structural takeaway, maybe Jason, is we're entering this very weird phase in the US economy where we've seen this before and we're seeing it now. This complex is too big to fail. And I think when you start to see these guys representing 40, 50% of all capital market equity and debt flows, which then in turn represents 30, 35, 40% of all treasury issuance as well, that this competition happens. These guys are too big to fail, which means that there's a different problem at hand, which is a more systemic problem. So I'm not saying that there is. I understand you're
Speaker 1highlighting this is confusing to you as a market participant who's on the inside. I get it. What I'll say is, you could actually argue the opposite, Shamath. This is the greatest business ever created. It's an American business. The American economy is still the greatest economy in the world. You could argue versus China, etc. But we are running this business. We're running this business. on super intelligence. And if you look at the history of the greatest franchises ever made, I did a little bit of research. And just this is first seven years of revenue to back up what you're saying here. If Anthropic hits the targets they've set out, you know, ballpark here is getting to 100 and then $300 billion in revenue, eventually $600 billion in revenue. They're well on their way. They're at about $100 billion in revenue this year, which is like a third of a quarter of a quarter of an Apple. And you look at the cumulative revenue in the first seven years of the best franchises America has ever made, which would be Amazon, Google search, cost per click search, freebreaker, alma mater and the iPhone franchise. It's going to become clear that the three best franchises in the history of business in my mind, iPhone, Google cost per click search, and Amazon, which will, this doesn't include AWS, this is just books and retailer, you put the books into it. The AWS into it into later years, it gets even more interesting. It's possible Anthropic's business is bigger than the top three franchises in the history of business put together. And that is something we've never seen, which means you have no choice but to buy American debt and this debt. If you're a global participant, where are you gonna put your money in France? You know, in China, you can't put it into China.
Speaker 2I'm confused. Yeah. Haven't you been saying for like the past year that open models are going to eat Anthropic's lunch? Well, have you changed your tune on that?
Speaker 1In the face of new evidence, you would have to say that they are lowering the prices and the opportunity in the enterprise is, is so great that they're not being dramatically impacted by it. You will see anecdotally startups and enterprises exploring it, but it's obviously not enough now that we know their numbers, that it's slowing them down. It's not slowing them down. Yes, I'm not debating revenue
Speaker 4traction at all or business quality. What I'm saying is there are moments where there's systemic risk in markets where everybody goes risk off. And I think that what I am saying very explicitly is I've not seen in the last 15 or 20 years, the last time we came close to this was in the GFC, where you have a narrow part of the economy represent basically all of everything that's happening in the capital markets. And all that means is that everybody has to pay a lot more attention. Doesn't matter what side of the AI trade you're on, whether you're long it, whether you're short it, that's not, I don't think that's important. I'm saying something more structural, which is about 10 companies collectively to fund one thing will be competitive with global governments on borrowing. I don't know what the implications of that is, because I have not seen that.
Speaker 1To the point, Sax, that you made in challenging me, which is great. Their revenue is slowing down dramatically. You know, they're their quarter over quarter revenue is decelerating. So obviously, it's on a big number.
Speaker 2So we don't know Q3 yet. I mean, the scuttlebutt on X, and who knows, we can totally believe this is that things did slow down in Q3 a lot. But some of that may be attributable to the fact that they eliminated 99% of distillation, right? So they voluntarily took a big hit to the revenue
Speaker 1from people stealing from them.
Speaker 2Yeah, to prevent the copycat models from from basically distilling them. So there was that. And then, I think the scuttlebutt is that since they cut their token costs considerably, which was done pretty recently, now the demand is reaccelerated. So yes, in full effect. Yeah, yes, it seems like they're back to resuming their previous growth after a couple of hiccups in Q3. But I think the thing that's really impressive is just that the way they're able to cut their token costs. It's not just because they're giving up pricing power, right? It's not just because they're giving up pricing power. It's not just because they're losing margin, they're actually gaining margin. The reason they're able to do that is because all the algorithmic improvements they're making in order to make their models much more efficient.
Speaker 1Yes. And just to dovetail with that, Sax, what's happening with the models is even more impressive. They're lowering the price of tier two and tier three models, right? Your Sonics, your Opus, those are getting cheaper. But enterprises are saying that's enough for me. So as they make that cheaper, then businesses get more value, they solve more problems out of it, and they don't feel the need to be on the latest, greatest fable. If you're a hollow, maybe you need that to do science. If you're a mathematician, you need it. If they can keep making their second and third run models this much cheaper, 10x cheaper each year, the Jevons paradox is going to get even more pronounced because enterprises will use it more. Token cost matters, right? We're sitting here with the token
Speaker 2maxing cost. Look, what we're seeing is that, I mean, we keep seeing Jevons paradox play out, at every level, which is as you cut the cost of tokens, there are more and more use cases. Enterprises use it more and more. And the net result is that the total demand just keeps going up. And the total revenue and market size keeps growing. Also, just to reiterate a point that you made earlier in the program, the new applications that are coming all consume a lot more tokens than the ones that we started with, right? Like agents use a lot more tokens than prompting, and cyber defense is going to use a lot more tokens than just doing, you know, a pen test once a year, right? You're going to need continuous monitoring of agents, attack surfaces, all that kind of thing. So all the new applications are going to be using exponentially more tokens. 50 to 100 times the number of tokens, yes. Exactly. So the price will keep going down, but the market size keeps increasing. I think the biggest risk factor to Anthropic, I do think it is some version of the open source models, maybe not catching up, but it's going to be a big risk factor to Anthropic. But sort of saturating intelligence at a low price point for certain.
Speaker 1Commoditizing it. Commoditizing it for things like
Speaker 2coding or, you know, where there is a big chunk of the market, that is still a risk. I would say sort of a second order risk is that in order for Anthropic to stay ahead and to keep making their models more and more efficient, they have to keep using more recursive self-improvement, right? You see this in the charts that they publish, that they are using their latest models more and more, to discover these compute multipliers, to discover these new algorithmic efficiencies. So they have to kind of push the limits of what they themselves call risky activity. I don't know if I fully believe in the Doomer story about RSI, but they themselves say that RSI is very risky, but they have to keep pushing RSI in order to keep delivering these algorithmic improvements in order to stay ahead of the open models. And I just wonder how sustainable that is. At some point, do you get a breach with the Doomers that becomes error-concilable? Do the Doomers want to basically shut down RSI or basically slow it down to the point where then the open models truly do catch up? I don't know the answer to that question. It's sort of just a more nuanced take on this idea of open models catching up.
Speaker 1Yeah, and I think this chart is super illustrative, if you can pull it up, Nick. Keeping a survey of who's using AI at work daily versus frequently defined as a few times a week. And the people using it frequently versus daily, we're still talking about 10% and 20% here. It's nascent. A lot of the top enterprises are not letting their employees use this in an unconstrained fashion, and they're certainly not letting them connect their email, their knowledge bases, their notions, their. Big corporations are not letting people actually use the power of AI because they're scared about cyber. So once the cyber threat, Shamath, gets mitigated, this is going to go from 10% of people being daily users to 60%, 70%, 80%. There's so much growth left here when every single employee has an agent. I saw just last week Uber bought OpenAI, ChatGPT, for every employee. That's an employee. Okay. I think we beat that one to death. Congratulations to the Anthropic team and all the investors on. making an incredible business. Extraordinary. And yeah, shout out to Saks, who predicted this would be the greatest business ever on multiple programs. Turns out you got that one correct. And we'll see. We'll see what happens.
Speaker 2But like I said, I said two things. Number one, best business ever creating this AGI monopoly. Second, they're going for regulatory capture, and we should definitely not allow that to happen, especially in light of number one, right? It's just kind of unseemly and gross for them to be seeking red capture when they already have such a good business and they're in such a dominant position. And I think actually that this IPO will be very helpful and clarifying on that because, again, once they're seen as a big tech monopoly or part of a huge duopoly, the arguments for giving them regulatory votes- Any kind of advantage will go away. just go away. In fact, we should do everything we can to make this market more competitive and help it stay competitive. How long before we have the breakup entropic
Speaker 1movement? Break up entropic, separate the lab- It could happen. It could happen. from the tokens, from the subscription. It will. And who said it, Gavin, that they were claiming they were building the last business ever? When you look at the other franchises- Yeah, Dario said that. Well, Gavin said somebody said Dario said it. Oh, sorry. Yeah.
Speaker 2Gavin said that Dario said that. Gavin claims that Dario said it. Gavin, but Dario did not deny it. Remember? He had this lengthy response, but didn't-
Speaker 1Yeah, he said it might have been kind of said. Yeah. So, yeah. Yeah. I mean, I think they obviously believe it. And if you look at that chart I made with the other franchises, they obviously have an incredible franchise that's theirs to lose when we get the OpenAI data. Man, then we're going to have all three of the major players in this space disclosing the key information we need. And that's going to be really interesting when we have all of the hands turned over in this poker game when OpenAI files. All right. Google got smashed on Thursday, 10%, 15% down. We record on Thursdays, obviously. Q3 earnings wiped out about $500 billion in market cap. Why? For two straight quarters, Google missed on search revenue, even though searches are growing massively. The people clicking on the ads is not, which leads to a little bit of shenanigans in trying to get people to click on more ads. They're negative on free cash flow, even though cloud is ripping. Cloud doubled year to year, 30.7%. That's the AWS business they have. It's called Google Cloud. It's quite nice. And overall revenue is still strong. They're growing 25% year over year. The issue is people are looking at that Google cost per click advertising network and saying, well, obviously that goes away at a certain point if you just give people the answer, right? ChatGPT, Anthropic Rock, they just give people the answer. And in some cases, they go solve their problem if it's an agent. So that is pretty disruptive. Search business is what pays for everything. And that grew 12%. And that grew 12% down from 17%. So it's decelerating, but it's still growing nicely. Freiburg, this is your alma mater. You witnessed the cost per click greatest business ever. This was the previous one that we said was the best business ever created, along with the iPhone franchise. What are your thoughts here? Are you worried about that franchise? Or do you think they've done a good enough job with the other businesses? Google Cloud and YouTube come to mind, Android, in terms of diversifying their revenue. You worried about Google as a buy opportunity? Or is this. It's a complicated story.
Speaker 3I think the core services, the core Google ad revenue is a real challenge right now, in terms of can they keep the momentum up? Overall, the business trades at roughly 21 times operating income. And you get that sort of a multiple based on reliability of future cash flows and effectively growth of those cash flows. And you get that sort of a multiple based on reliability of future cash flows. I think the Google Cloud business is looking really tremendous. I mean, I don't know if you guys remember, it wasn't too long ago, and this thing was not making money. Last year, the Google Cloud business for this quarter was generating $3.5 billion of operating income. This quarter, it's over $11 billion of operating income. And this is a lot like the SpaceX AI story, where the value of the compute infrastructure that's been built is just tremendous. The question is, does Google actually have the models that sit on top of it? And in many cases, they do, as they can make a higher margin on that piece of the stack. So when I say it's complicated, I think there's a story you can build in the cloud business that shows the next couple of years of really progressive growth in that business. The core Google services, I think, is when it becomes challenging, where over the last year, it grew from 33 and a half to 39. And as some people have pointed out, this may largely be driven by a change in the pricing algorithm for ads, and how Google is now in some cases, over earning for those, for those clicks. And over time, advertisers will see that they'll experience that they'll reduce spend, they'll attract some dollars, and it won't look as good of a business. So the question then is, do they have a consumer AI business that catches up and accelerates to support that? That's the thing I think everyone needs to be watching is what is the AI replacement look like on the consumer side for Google's core business, the core cost per click
Speaker 1advertising network? And you're talking about the core cost per click advertising network, type of search into Google, that's the core business you're talking to?
Speaker 3That's the core consumer business. So the question is, is there a consumer AI alternative that starts to generate meaningful revenue to replace that revenue? And what does the revenue ramp look like there, relative to the flattening or decline that may arise in core search? And how quickly does that happen? That is a dynamic and challenging question to answer now. Internally, I think there's a bit of turmoil. There's a bit of. What is Google Search? Is it AI? Is it Search? What is Google Cloud? Is it the models? Or is it just the compute, the rental of the compute? And I think we saw this battle play out recently where Jeff Dean and others left Google. And I don't know this for sure. But the theory is that the computer scientists that have been building models at Google, maybe aren't getting the resources that they had hoped to get. Because Google has been building models for a long time. And they're so much more money renting that compute out to others. And so it's a really hard question of what do we want to be at Google right now? And I don't think that they have a great answer. And I don't think it came across well in the earnings report.
Speaker 1It didn't come across well, obviously. And people reacted, Shama. But they did know this was coming. They did plan for it. They renamed the company Alphabet. And they said, they've got this great CFO. Let's make all these other bets, fend for themselves. The Waymos of the world have to make their way in the world, raise outside capital. So they can do that. And they've got this great CFO. They did prepare for this, in fairness to the team over there. YouTube surging, Android surging, you know, Google Cloud surging. And then you have the franchise slowing. Search is up, but revenue growth slightly down. So do you think they can fix this? Or should they just do a bending spoons and get as much money as possible out of the search and put it into other things like consumer AI, corporate AI, and their future models and hosting of other people's models?
Speaker 4What are your thoughts here, Shama? I don't think that's what bending spoons does. And not everything is an analogy to bending spoons. Well, no, no.
Speaker 1I'm saying manage it for revenue. I'm saying manage search. Let me be clear. I'm saying when I say bending spoons, I'm saying manage it for earnings, not for like growing it necessarily. Just get as many dollars out of it as possible.
Speaker 4I think that's what they've been doing in the last quarter. That's why people didn't like that. I mean, there was a very interesting tweet. Maybe you can put it up here. I think a lot of the consternation came from people reacting to what Max Anderson wrote, which got 5 million views, by the way. And he wrote this through the lens of somebody. And these are his claims. So I don't know if they're true or not, but spending half a million dollars or more a month on Google for years. And he itemized all the ways in which things have changed. And the most important thing that I pulled out of here was what Freeberg mentioned, which is the change in the auction model. So typically, in a Vickrey auction, what happens is Freeberg bids, I bid. If I'm the underbidder, what happens is Freeberg gets filled at my price because he was the high bidder. And so it's a really great way of doing price discovery. At Facebook, when we built the first ad system, that's essentially what we copied. We copied Google's feature for feature. But if now what they're doing is they've abandoned the Vickrey auction, Freeberg's right. You're going to smell that out. They're going to start to wonder what's actually happening underneath the hood. So these claims, which are now well syndicated, have been out there since July. And I'm not sure that Google IR has necessarily nipped these in the bud. Because I think what happened was the at least the information war that happened post earnings was recirculating Max's post here and saying this has been going on for a while. And when you look inside the comments, it's a bunch of other people. Second, being his analysis as accurate. So without knowing the details, Jason, because they don't spend money in the Google ecosystem, I think it's really important for Google IR to get in front of this. Because I think if this momentum builds this idea that this franchise is essentially robbing Peter to pay Paul, like pulling money from the future into the present, to kind of smooth out earnings, the market will react badly to it. You're seeing it today. But then the market will react badly to it. But then the market will this other problem starts, which is to your point, point, the composition of ad revenue as a percentage of the overall will fall below a threshold. And then they do look like more of a structured conglomerate, where now you have a YouTube revenue block, a GCP block and other bets block and a search block, none are dominant, which in some ways, I actually think is better, because then you're more diversified, and you're less levered to any one single business. But they'll have to go through this complicated process where a bunch of folks may not want to own that kind of a business. And there's a different buyer pool. So you have to go through transitioning out the folks that wanted to own a single stock bet on search or ads or whatever it was. And now have to move to this other kind of business model. And when you switch buckets like this, a bunch of folks kind of say, Oh, it's too complicated. So problem number one is what I would say is, if you are Google IR, please read this and refute it or try to figure out how to get in front of it. Because every analyst now will will try to figure out whether this is true. The second, though, is very narrow. How do you keep demos at Google? That's it. That's the only task. Okay. There's nothing else, pay Thomas Curian, whatever he wants.
Speaker 1Sacks looking at this business. It's been obviously a journey for the past 10 years to make alphabet have resiliency in revenue streams, diversify the revenue streams, diversify the streams. You think there's some great risk here? And would you be long, short or neutral stock?
Speaker 2Thomas Curian: Well, I'm seeing people post that alphabets Google search revenue drop below 50% of total revenue for the first time and they're making it sound like that's a catastrophic situation. Basically playing into the narrative that the search business is going to be disrupted by SI. And that's what it seems like on the surface. But when I dug into the numbers, it didn't really seem that bad at all. So it's true that Google searches relative share decrease, but it's absolute revenue still increased. So if you look at Google search revenue, year over year, it was still up 12%. It increased from 56 billion to 63 billion. So it's still a roughly $7 billion year over year increase in Google search. So Google search is still thriving, I think, you could say it's not growing that fast relative to other businesses, but you're not seeing it deteriorate yet. And again, the reason why the share fell below 50% is because other alphabet businesses are simply growing much faster. And the main one is Google Cloud, which basically doubled year over year to 30.7 billion. So it's the rise of the Google Cloud business that has made Google search seem like it's on the decline. But I tend to think it's a good thing that alphabet is now finally getting some of these other businesses to really work and to really grow fast and to finally diversify the revenue. Diversifying from search has been something I've wanted to do for a long time that now have all these other segments, you've got YouTube, you've got G Suite subscriptions. So in any event, I tend to think Google is a little bit oversold on this news today. I agree. Although I'm not truly not telling anyone to buy anything since inception, and maybe past 10 years, you're going to be able to buy a lot of things. Since inception, and maybe past 10 years, you're going to be able to buy a lot of things. Since inception, and maybe past 10 years,
Speaker 1you can pull both charts up, we'll go through them real quick here. But this is just this franchise, the number of searches is still going up. The revenue per search. And that issue is obviously the one people are concerned with. But the other side of the coin is absolutely correct, David, the other businesses that they're now only 50% dependent on this business. And that will continue. So for me, I just literally bought some shares. So I'm long, I just bought more shares on Google. And by the way, while doing the show,
Speaker 3just remember alphabet owns 6% of SpaceX and like 15% of
Speaker 1anthropic as well, I think 85% of Waymo as well, right? Like that's the the other piece of this puzzle. Amazon also owns a big piece of anthropic, they're going to be a big winner. All right, listen, that's our time here.
Speaker 3Do you guys want to talk about the election ahead of Tuesday night and predictions or anything like that? You've been shepherding this guy? What are you guys watching on the midterms? Anything you're keeping an eye on him off any big contrarian predictions and what might happen?
Speaker 4on Tuesday? It's so interesting. I'm like really confused. I've started to stop paying attention just because there's so much misinformation that I I thought that we are going to have and I still think what Sachs called a spritz. Those spritz. I think it's more of a democratic spritz. But when you look at some of the the early data, you know, and I don't know if Brett Baer was doing this just to kind of get a feel for it. But you know, I don't know if he was doing this just to kind of hedge his bets or not. But he did a clip which went viral on x where it just looked like it was going to be a bloodbath for the republicans. And they were going to lose both sides, both the Senate and the and the house. I think it's still set up to have the republicans keep the Senate and the democrats to have a narrow majority. And just going back to maybe where we started the mandate from the democrats then becomes obvious. which is, how do you introduce FUD? And there's one way to do that, which is to start subpoenaing everybody, and start to do disclosure, discovery, release document after document after document, and let, you know, the masses start to churn through this stuff going into 28. So number one, create FUD. And then number two is, I think a economic slowdown benefits the Democrats going into the 28 election cycle. And so whatever they can do to kind of like, influence power permitting and data centers, because as we talked about earlier, that's the lever bed. So to me, it almost doesn't matter what happens at the federal level, except for the FUD part. I think we now should be paying a ton of attention to what's happening in these governorships and some of these other races.
Speaker 2Sacks, has your view changed? Look, I think that you can't trust any of these polls. First of all, a couple of these polls are not going to change. They're not going to change. Polling firms have come out and admitted that they are fake. I mean, we literally have a couple of Oh yeah, there was a hoax, right? Fake polls. There was literally a hoax and those fake polls were included in, you know, those averages. So some of the polls are outright fraudulent. And then the rest of them are well known to have a bias. Patrick Graffini did a study of the last three elections and found that three quarters of the polls all, you know, erred in favor of Democrats. So we see this as a recurring pattern. We saw this in 2024. You had Ann Seltzer, who was supposedly the gold standard, say that Trump was going to lose Iowa by like 10 or something like that. And it turned out to be total nonsense. So the pollsters have a history of bias, of fraud, or you could just say, for some reason, oversampling progressives in their polls. So I think that people should shut that out. I think that some of them are a tactic designed to depress and suppress turnout. And Republicans should just go out there and vote. The economy is not a disaster. That is total fake news. We know what the growth rates are. It was two and a half percent in the last quarter, and it's tracking at 3.7% right now. Median household income is almost $90,000. It's at an all-time high. Poverty is at an all-time low. I think the percent of people below the poverty line is like 12%. It's the lowest it's ever been. It's not just a K-shaped recovery. You're seeing real wage growth. In real terms, by the average household, which was not true during the Biden year. So I don't think people should get psyched out by this media operation to make people super depressed about what's going on. J. Cal, any views?
Speaker 1Oh, well, I agree. The polling data has been, you know, a suspect for a long time now across many elections. Wedgwood did this, like, they're claiming performance art, but they were kind of serious. I don't know who they're working for or what the shenanigans are, but I do trust Polymark it. I think when you look at the Polymark it, pretty clear what's going to happen here.
Speaker 2By the way, Polymark it was wrong on Bolsonaro, although I think maybe he got robbed. It was wrong on Netanyahu. So the Polymark it's just a reflection of public sentiment or public sentiment that's willing to place a bet. And they can be totally wrong. So they were totally wrong about those two national elections. By the way, I'm not predicting some sort of miraculous Republican win here. It would be very unusual. I'm not predicting some sort of, you know, miraculous Republican win here. It would be very unusual for the Republicans to win a midterm election when they're in the White House, right? And you remember that Bill Clinton and Barack Obama both suffered horrendous midterm losses. Bill Clinton, remember, lost in 1994, he lost to, you know, Newt Gingrich, the whole contract with America. That was the first time Republicans took control of the House for the first time in 40 years. With Obama, you had one of his midterms was the shellacking. So it's quite customary for the out of power party to do very well in the midterms. I'm just saying that the media is already portraying this as a tsunami, or a bloodbath. And I think it might be a more normal midterm result. That's all I'm saying. So I in any event, I think people should just go out and vote not get depressed or psyched out by whatever the media is telling them, because the media has a long track record of being wrong and biased.
Speaker 3And J. Cal, any view that's different than where we've been in the past?
Speaker 1I think polymarket is going to get it right. I think Democrats are going to win the Senate 68% chance right now on polymarket. I believe that and house obviously everybody believes that 92% chance So when that happens, and the reason I'll back that up is if you look at the net approval rating of Trump, all time low, the country is very upset. And the libs are going to come out in force to vote anti-Trump. The moderates are either not going to show up and they're not going to be Trump curious like they were for the second term. And, you know, Kamala was such a disastrous candidate. They were like, okay, I got to try something else here. And they went for Trump reasonably. If you were going to have a choice between Kamala and Trump, I think Trump's the better choice for most Americans. And then you have the fractured Republican Party where the American first people feel really like they got rug pulled by Trump because of the economy. Inflation didn't get solved. The wars didn't get solved. And he started another war. So that group's kind of pissed off. So when you put all that together, I think it's a very easy sweep for the Democrats. Then I think, you know, if we want to look at what the next two cards are, if you look at impeachment, you know, that process, from what I understand is a house, and then Senate, and it's a legal proceeding. I think we're going to go right back to Trump being impeached. And then both houses are going to do that. It's gonna be absolute chaos. And then the dams are going to start putting legislation in place. They're going to put legislation out there and force the Republicans to vote against it in order to scuttle J.D. Vance's chances. So this is obviously going to be a chaotic two years. Let me finish. So what's going to happen is it's going to be a chaotic two years. And I think what will come out of that ultimately is we're going to need some new candidates on the Republican side. And they're going to put the Trump, they're going to put the Trump era to bed. And then I think that means they put J.D. Vance. And Marco Rubio to bed, and they're going to need a new champion that is more populous and actually executes on the populist agenda, which they feel Trump represented, but didn't execute on. That's my and that's not my personal belief. That's just my analysis. Go ahead, Jamal.
Speaker 4No, I think what I'm saying is you think there's going to be a Democrat FUD campaign, they could control the house, they're just subpoena everybody.
Speaker 1They're going to subpoena everybody, they're going to look into every single accusation of grift. They can think of, and ones that are valid, ones that are not valid, everybody in between. And so, yeah. And then I, you know, we have a really good group, by the way, coming. So join us for the all-in midterm live stream, 8 to 10 p.m., YouTube X and Polymarket. Shane Copeland, Tim Dillon, Rahm Emanuel, Taylor Lorenz. It's going to be chaotic and fun.
Speaker 2Taylor Lorenz, she's on a redemption arc, I have to say. Base Lorenz! She's actually been great on certain topics lately. What is going on?
Speaker 1Full redemption arc.
Speaker 2She's so big. I have to say. I have to say. I have to say.
Speaker 1Wow, Base Lorenz coming on the pod. Love it. I like this new Taylor Lorenz. It's going to be a fun time. I love Tim Dillon. He's coming on.
Speaker 2I'm not going to be there. What? Are you not? Where are you going to be? What do I need to do a midterm live stream for? Because you're going to lose. Your party's going to lose, so you're not coming. If we outperform, I'll pop in and spike the football. Oh, come on, Sax.
Speaker 1That's not cool. Everybody wants to hear you. Come on, we need you. We could drink some tequila. We'll have fun with this, Sax. Come on, you can't cry in the coffee. We should all be drinking, by the way. Cry in the tequila.
Speaker 3Chamath, maybe we should get together at Chamath's house and drink and do it live.
Speaker 2I agree with a lot of your analysis about what will happen if the Democrats win J-Cal, because they have not changed their stripes. Okay, people are just forgetting who the Democrats are and what they were like during COVID. All the lawfare that they perpetrated, all the crazy woke stuff, it's all there, ready to come back. They have not really analyzed. Why they lost in 2024, they have not really changed or adjusted anything. If anything, they've become more extreme, right? The DSA is ascendant in their party, as even Gavin Newsom acknowledged. So I think that if the Democrats do take Congress, you're likely to see how nutty they are, and the American public will be reminded of that, and that will be really interesting to see. So, you know, but that's why there's a pendulum in politics,
Speaker 1right? There is a pendulum. I think we need a, yeah, I mean, I'm wondering who the champions are. If it's not J.D. and Ruby, I wonder who the champion on the right will be. I think it's gonna be somebody we can't even name right now is gonna emerge. And I think the same thing on the left. Anyway, it's gonna be exciting. We're gonna get Saks to show up, and we'll see you all next Thursday night for our live stream. Love you besties.
Speaker 2Bye-bye. Bye-bye. We'll let your winners ride.
Speaker 1Rain Man, David Sacks.
Speaker 2And it said, we open sourced it to the fans, and they've just gone crazy with it. Love you besties. Queen of Kinwa.
Speaker 1Besties are back. That's my dog taking a notice in your driveway. Saks. Oh, man. We should all just get a room and just have one big huge orgy, because they're all just useless. It's like this sexual tension that they just need to release somehow.
Speaker 2Wet your feet. Wet your feet. Wet your feet. We need to get merch. Besties are back. I'm doing all in. I'm doing all in.
PodcastTranscript AI