Ep 191: Agents Gone Wild: Broadcom’s ASICs and the AI Frontier

[MUSIC] >> Hello, everyone. Welcome to another episode of The Circuit. I am Ben Beharen. >> Greetings, programs. I'm Jay Goldberg. >> Well, I wanted to kick this off talking about something pretty cool that we built. And I encourage everybody to check out you. Everybody's known that our firm has gotten more into what we'll just call publishing. As a part of our research, highly encouraged to do more publishing, and so that's what the diligent stack became. And this whole sort of project started where I was like, it'd be really great. If just all of this research we've been doing exists in one spot. So that I could be like, help me look at my data model or help me triangulate these three reports that I read. And so we were like, well, let's just build that online. And then I was like, hey, there'd be other people that might like this. Might using an agent over our full depth of research corpus that's pretty deep and wide. And so we did that. We launched something we call Career Strategies Atlas. People might have seen me promote it on Twitter. It's super cool, but it's also been an opportunity to expand our coverage beyond just deep reports. So earnings notes go there, event notes go there, conversations I'm allowed to publish for management go there. So there's a lot extra that our research is feeding. But the knowledge agent to me is the most cool. And I say that for two things. And the feedback we've gotten is super interesting because people were originally like, there's no way it just runs on your data. Like it's going to still make a crap up where it's going to still infer what your opinion is. And that might not be your opinion because there's still right doubt for AI. And I was like, well, try it. Like we built this harness so that it's purely our research. And it's giving you the conclusions of what we've actually said. And not said it, and it'll tell you. And so I had a few folks in the beta be like, all right, we're going to test this and go and know that I had not written anything about SpaceX, for example, or a handful of non neo clouds. And the corpus comes back and it's like there is no Career Strategies research on this. There is no house view on these things. So anyway, people were like, all right, I'm glad it doesn't make crap up. Like it's really just on, which I think is valuable, especially when you're I'm saying it really is our research. It's our opinions, it's our house views on things that it doesn't make stuff up. And initially I thought that was going to be really hard. It wasn't super easy, but I think just the learnings that we had going through this process of building something on our data, our data only, our models only, our research only was interesting. And I do think there's some compelling takeaways to this also that businesses are going to go through this process in some degree as well, that that we learned and went through. Anyway, all that to say, we launched a new research product called Atlas as a part of our firms publishing. It's pretty sweet and I encourage you to check it out. Cool. We're also watching people burn through tokens and that's been fastening to watch like our token spend, make sure we've kind of control a certain way, check in regular to be like, who's going like, let's make sure that we're not going poor on token spend, but that's been an interesting exercise also, but I want people using it, people are using it. We're getting good feedback, that's what I hope, so token usage means people are using it and that's what I wanted and hopefully finding value, so, but it turns out, Jay, you can just build things, AI models are good enough that even if you have a decent understanding of software, you can build some pretty complex things and that's super interesting and it's brave, brave new world of idea to execution. Yeah, it's amazing what you can build now. All right, let's jump into Broadcom. This was, I mean, you know, there was other earnings, HPE had earnings, Dell had earnings. But Broadcom was kind of the focus. They are, you know, again, still one of the largest players in compute infrastructure. They had a good quarter, we can talk a little bit about kind of why people were slightly disappointed with those earnings, but I'll let you jump into the, to the top line, and then let's talk about kind of the overall narrative of what management said. Custom basic market as a whole, which has gotten a lot more interesting with so many people in it, but let's start with top read on Broadcom. So yeah, Broadcom reported earnings and they came, they basically came just in line with expectations, both for the current quarter and for the future for guidance and big, big numbers overall, I think they, they also talked more about the scope of their basic wins. They noted that, you know, Broadcom has been, has had Google as a big customer for TPU all along, TPU is obviously massive now, but now. Anthropic and open AI are poised to overtake Google as Broadcom's largest AC customers. And so I think management, you know, was pointing to that and say, hey, this is, look at how big this business is going. We have, we've had this massive customer Google, and now we have these two new customers come online. And less than a year, we've gotten even bigger than Google. And the stock is down 4% this week. It was down on the earnings. And I'm, I'm taking that as just the street feeling like this was all sort of expected, and it was, it was, there was no upside surprise. And so people were hoping for more didn't get it and the stock has been down this week. I mean, what, what, what should he, I mean, I look at this two ways, right? I know there was call it a, a bogey number out there. People have for Broadcom custom business in, in physical 27 of around 150 billion, they, I know there was hope that he would say something more than 100 billion. He did, he said 115. Most consensus notes I've seen in conversations on there with Bicep folks has been like, that's probably the floor. So then he's figured out, all right, how much more are they going to do? Is it 150 or is it less than 150? But the, you know, leading into 28 was kind of what I was thinking was, you know, would he kind of give a bigger indication for both, you know, the two years as a total, but also into 28. And I think, you know, 20, them saying 230 billion in 28 is again, right, good growth into a market that's probably as a whole, we'll slice this up in a bit between 430 billion for the total of custom basic, including logic, networking, attach, all those things. It's a good, it's a good chunk of that number. But I think what's interesting is you're, you're exactly right. They've got expanded programs with Anthropic and OpenAI. But it's becoming increasingly competitive. And this was the first time a name came out that was largely known, right? And they referenced media tech as, which, you know, you were not texting about this. You know, I get, I get the, I get the competitive dynamic that they said, right, trying to play it under that, but the reality is media tech is going to be getting a good chunk of additional business. But again, of a growth market, right? I argue share taking everybody's building out more programs, fine. But if you just look at how many gigawatts that, again, in the measure that you have in gigawatts for this, Broadcom still doing the most, they have the largest gigawatts to custom compute program as as anybody given their customer base. Yeah, so the chief critiques I heard about the call aside from just not being not good enough was number one, you know, two, two quarters ago, they were basically denying competition existed within Google. And here they are now saying, yes, there's competition from media tech, but we're delivering faster. We're, you know, we're better. We're getting our chips to market faster. We have better IP. And that's a, that's a big step back. And it sort of raises the question of like, well, you said there was no media tech before and now you're better than media tech. Certainly, media tech is executing better than people expected. Inside of Google, media tech is no slouch in the custom basic business. They're doing pretty well there. So for Broadcom to now say, oh, we're still better than them, maybe, maybe. I guess I, you know, you're right. It's a, it's growing very rapidly. It's a massive market. It's a massive opportunity. But still there's more competition there. And the other critique I heard was gross margins were down. And management's defense of this was not great. But they said was don't worry about gross margin. Worry about operating margin, which is fair. I mean, I make that argument a lot too. But right, it doesn't, it doesn't matter what your percentage gross margin is. It matters how many dollars. Thank you. But it's still, you know, a little, a little better story there would have helped them a lot. I know, but you know, you know what I find super entertaining. And again, we always keep coming back to, like, we enjoy the hawk tan calls, right, as much as anybody, is that there's always something that he said somewhere early on, that he kind of made a big deal about, that then he goes back and says, don't worry about it, right? Remember the whole Sam thing? We think this is a Sam, and then they start asking Sam, and they said, stop worrying about Sam anymore. And I was like, "Hey, gross margins are going up, because we're getting so much. " And this was, this was always the thing, and this is why I think the gross margin point is interesting, right? The whole argument for MediaTek and others was that at some point in time, if you have enough IP to do more of your customer own tooling, why would you continue to pay Broadcom's margins? They have the highest margins of anybody in Custom Silicon. Okay, great. That was a known point. And so he had continually hit, like, our margins are good. You know, we're strong. We're not losing margin. And then to be like, don't worry about margin, which you're right is not the right heck of, I just like my point is, I like the HawkTams talk stuff up, but then like, oh, don't worry about that anymore. You don't need to worry about that anymore, despite what I said earlier, don't worry about that. Yeah. And in his defense, like, you compare him to Jensen, where Jensen will take the question, he just doesn't, like, he doesn't get into those arguments about Sam versus Sam. He just takes the conversation in a whole different direction. And you're like, you're asking about Sam, and he'll start telling you about robots. So I think it's very interesting to compare the two, like, I spent a lot of time thinking about this. He was talking all about operating leverage and I was like, well, Nvidia has a lot of operating leverage too. So I built out this whole spreadsheet comparing the operating leverage, so revenue growth versus operating income growth. And the result was a tie. They're both growing revenue very strongly, much faster than they're growing expenses. So I think that's the challenge in the sector is like, I think it's a sort of challenge overall. There's a tendency to want to, you know, pick a winner and say, oh, this is a battle between Broadcom and Nvidia. And in some sense, it is, but if that's the case, then it's a tie. They're both doing very well, at least for the moment. Yeah, and I think, again, I do want to talk a little bit about how the market's changing in custom. But the reality is, like, these are very big numbers that keep going up both in merchant silicon, GPU-tam, and custom ASIC-tam. What's interesting, though, is, you know, I was sort of going back through because Broadcom actually had to do this, right? We shared some percentages of what their assumptions were between compute tie and networking attached tie. We had this conversation with Marvell, right, who's now fully in the lane of networking attached win two years ago, right? We were talking about Marvell's upside required necessitated them winning the whole custom program, right? Compute tile and other things, right? Even with MediaTek. MediaTek won the compute tiles. I don't know if we know they won IO, right, or full networking that could have been somebody else. So, all my point to say is, it used to be, when you think about custom ASICs, and you just said, it's going to be whatever, right, 200 billion in, in pickier year, or even 80 billion, right? Or 100 billion in pickier year. It was sort of like, you could just go, okay, so-and-so one, TPUs. We think TPUs is this much volume. I mean, you just kind of gave them all, right, all of that. Now, there's so much mix-in and matching happening across, like, sure, you win the compute tile. That's great. Probably the highest margins, but then there's, you might use somebody else for networking. You might use somebody else for IO. You might use somebody else for some degree of your front side or back side. There's more diversity in the programs now. Not alone is there more chips, like, you know, Google those two chips, they'll probably do three or four. All these customers, I think at some point, do more than one program. So you've got a lot of programs, you've got a lot of variation of mixing and matching of the menu. And I just think that's interesting because it's, in my opinion, it makes it a lot harder to model. There could be upside that you might make assumptions on, right, that Broadcom gets more of more of those programs, but that's not as clean as before when you could kind of just go, oh, you've got TPUs, you've probably got all that program. And I can come up with a dollar value for you. It's much harder now, even though it's a bigger market, right, going to 400 North, probably in 2028. It's bigger, but you've got to slice this in a much more complex way than you did before. Yeah. I was thinking about this a lot last week on the Marvel call because Marvel is talking about its opportunities with Amazon, with Google. And it was clear from their language that they're being very precise in how they're talking about how they're framing their opportunity at Google. And it occurred to me in that there was, there was exactly this complexity you're talking about where they don't necessarily have the computer tile. They're winning with networking and some, some other form of attached product that is different than what a lot of people are probably picturing. And it is going to be one, like you said, very difficult to model. The two, I sense that companies are going to get very, very precise in how they word things. And we're going to have to go through the headache of trying to decode what they're talking about to sort of gauge their opportunity. And yeah, it's going to be, it's going to be, people are going to get this wrong. Like, it's just going to get all confused. And we're going to end up with, you know, 150% market share kind of calculations. Right. Yeah. And I mean, even just with Marvel, I agree with you too. And I think this is true of Broadcom, you know, again, to some degree, media tech, when they start to get more into kind of IO and networking as well at, let's call it, bleeding edge tech opportunities, so optical, if your IO, let's just use networking, for example, your Ethernet network attach is not going to be as high a margin as your copper network attach, which is not going to be as high a margin as your optical network attach. And like, how do you even figure out your assumptions of how much they're shipping of attach to one of those programs, when that will actually determine to you, like, a better margin profile for something that's adjacent to the ASIC. You know, it's like, I'll get all of that to just say, this is, this is what happens in an increase of complexity, that will be very hard to model. And again, catch some people off guard, because maybe sometimes it could be even better, right, than they expected, because they're, because their assumptions are wrong. You have to make a wider variety of assumptions now, if you're doing custom ASIC modeling, probably than even merchant for Nvidia and AMD. Yeah. And I think I'm going to, well, I'm not sure I'll ever do this, but somebody should probably go back and reread old Broadcom earnings calls, because I'm sure that they were, they let some of this slip without meaning to. And very likely that a lot of the stuff that we thought was ASIC revenue going into whatever hyper-scaler in the past was probably Tomahawks, because they got asked about that on this call, and it was very, their answer was like, kind of helpful, but also kind of confusing, right? And so everyone's going to start blurring this number. And you know, not for nothing, we're, we're in a world now where Nvidia doesn't break out, networking revenue anymore, and everyone's going to start, it's going to get very blurry. People. Yeah. I, I, I don't want to see people are going to play games, but I will say that the ability to play games has increased. I mean, you can make your, you can mix and match your, your margin profiles, or your, your problem, but you're right, though, right, because the history of their custom business was custom Tomahawks, custom networking for the hyperscalers, which they still do. Like any hyperscaler who does a lot of custom networking does so with Broadcom, and that is nothing to do with XP you attach, that's just their own switch ASICs for their custom built racks, except they're going to report it all as one. Yes. That's what I mean. That's what I mean. Yeah. But that's what I mean is that it's hard to distinguish that because nobody knows exactly the skew mix being built by anyone vendor, yeah, anyway, I'm just going to bake myself more confused trying to think about how, how crazy that is. I actually think this is going to work against Broadcom because Broadcom makes really good networking products. They're better networking products than anyone else out there. Tomahawks is an incredible product, and they have lasers and optical products that are more, that nobody except maybe we meant them can compete with. And so that's going to get lost in the mix is like, they're really good at this. And it's going to just be, oh, that's, that's an ASIC, people are just going to see what's going to be on ASIC, yeah, I don't know, I don't know how it all plays out. It's going to be confusing. Yeah. No, agreed. But I mean, again, like I was just doing, I know our friend Stacy at Bernstein kind of did the same gig of a lot of math, but I think people landed on all, all customers included. You're at 10 gigawatts in fiscal 27, moving to 20 gigawatts in 28 with still good customer diversification across. across those. So again, that's growth. I don't know. Again, if it says clean to just go that they're a beneficiary of XYZ per gigawatt, right? In others, it's the same like we say within video, you can't just assume that when they say it's 40 to 50 billion per gigawatt that you just assume every gigawatt is 40 to 50 billion to NVIDIA. But I do think they will beat those numbers of the 115 in 27 billion and 230 in 20. I do think that's the floor. That's that's my current conviction. I juries out on how much we think they can beat that with some potential surprises. Which again, necessitates more of that program, a higher percentage of the total program to what we were talking about. So two things. One is we have NVIDIA talking about 40 to 50 billion dollars per gigawatt going to 90 to 100 billion dollars per gigawatt. And now you have Broadcom with 10 to 15 billion dollars per gigawatt, sounds like it's now going to 25 to 30 billion dollars per gigawatt. I really would love to see the spreadsheet behind both those math and how much of that is memory. And I think that is that's a that's a big dynamic. I think both of them are lumping a lot of things in there. But yeah, I'm not sure how we're going to model it. I have no idea what Broadcom's going to do in 2028. It's a big number, maybe. But to your point, I don't know if it's big enough. I think people, I think that the street is zeroing in on some numbers. I guess that's what happened this quarter. We had a number and they sort of got it and sort of didn't. And I think that's that's the story for the foreseeable future. And I think there's a bigger theme now, or really there's a lack of theme, right? The first half of the year was very much about finding the bottleneck. There was the bottleneck trade for the first half of the year. Which company has capacity? Which company is going to benefit from the bottleneck and raise prices or has surprise capacity? And I've seen a few people say this recently. It's that that that's trade is fully played out. We've turned over every rock. We searched under every cushion couch. And we know where all the bottlenecks are. So then what what do we do now? And I think we're in a much more tactical individual company analysis. Right? I think, you know, there are a lot of people who could have made you could have made money last year just buying anything. And now I think you're going to have to be a lot pickier and chooseier in what what companies you think are going to do well. Yeah. No, and that's a good it's a good transition. And I think we can weave in a handful of other earnings without going deep into the earnings. You're entirely right. The consistency across at least the range of companies I track this week, Dell HP Broadcom obviously within video last week is pretty much everybody's just like our growth is constrained by supply. So you just baseline growth is constrained by supply. And to your point about the bottleneck trade. And I think we talked about this last week because this was the vast majority of conversations I had with investors at hotchips and still remains is exactly like everybody's basically figured out how much can be made. And to some degree, how many gigawatts come online that can be activated and then installed. And it's basically like I'm pricing it in because I know what you can do right next year. And I and I always keep saying like once we started going down even ourselves this kind of supply chain bottleneck right past substrates into testing because I did a report on testing this week. The industry can only scale as its deepest bottleneck. So like you could get more memory or you could get more GPUs but if you can't get more substrates, it doesn't matter right or if you can't get enough mLCCs or if you can't get enough you can't test your wafer's right you're just you're constrained by whatever your lowest bottleneck is. And that's just the reality of it. And literally everybody in fact Dell's call is my favorite because you know I've known folks in Dell's supply chain for 20 something years and and they are amongst the best one of the best people when it comes to companies when it comes to supply chain management. And Michael was just like rattling off the long list of constraints there was like literally all the way into teaglass like just just just just listing it off like look guys like we could grow a ton was just this industry is severely underbuilt in capacity. But but that got me thinking that relief is going to come but it's not going to come until 2028. And so you're exactly right that I think when people do this constraint trade bottleneck trade look into it. This is largely like 2027. So I did this kind of brief quasi-report yesterday just saying that you know my thesis is 2027 is peak year of constraints because what what was required for your supply chain you're again your substrate manufacturers your you know power and analog like even your foundry customers memory. What was required was them to have the confidence to go build out more capacity for what is as we all know a a highly conservative industry does somebody connect your industry to build out green field capacity. And if you just back out your timelines it's not until really the last call it eight months maybe 12 before being generous but but eight months end of 2025 in early 2026 that your big your big masters of the supply chain. So again once your broad calm your Nvidia your others started doing long enough LTAs with the supply chain that they got their confidence and you heard this overall of their their calls the last couple quarters we now have customer visibility we are starting to increase our cap ex we are going to go build right intel included but none of that none of that comes online in 2027 relief does not come until 2028 and so what I'm intrigued by is if I'm right that 2027 is kind of peak constraint and we're again we're just going to be vastly undersupplied in in that year when that comes on I think there will be some upside surprises because all of a sudden you're going to have a lot more gigawatts come online that year it's been planned it that's how long it takes you're going to have foundry capacity come online you're going to have memory come on like both Samsung SK and micron have been talking about what's going to come on in 2028 I don't think this solves the supply imbalance I think it might bring it closer I think will still be supply constrained but we're going to have a meaningful amount more capacity in 2028 then then the semiconductor industry has ever seen before and so I don't know how to interpret that I'm not going to try to model this I'm just making the observation that the time that's the timeline that lines up from when they started building out capacity to when we might expect some relief and I think that's an interesting exercise based on your assumptions on who might be some of those beneficiaries to the upside if a good pocket of relief starts to come on and 2028 might still be a constrained year per year but it might not be as bad as constrained meaning that you have more upside opportunity because you've got more supply that you're just not going to get in 27 I'm going to take the other side of this I'm not sure this is all exactly what I believe but I'm going to take the other side of it because people don't listen to this for us to sing kumbai out together so I'm just going to be curious and disagree with you so another way to look at this is all right 2028 I think your timing is right but that means that in 2028 we're going to start having a lot of capacity come online and so yes there'll be companies who are like oh we built more data centers because we unlocked the supply chain but you'll also at the same time have companies starting to see pricing negotiations go a different direction than they have been and I keep think yeah down down right I keep I especially think about this in the context of memory yeah where remember we had Jeremy on from from micro who's built the building with seven fabs right and might and that's micron and samsung's building a whole bunch and esquitonix are building open they all have a lot of capacity coming online and if you look at the trends for memory this year memory units haven't increased they've been flat but memory revenues have soared so that means pricing is driven all of this right big big increase in pricing if units start to go up in a sort of this goes to is it a commodity or not but like it would tend to imply that prices might come down and then I think about TSMC do you know how many fabs TSMC currently has under construction I don't let me guess five 20 20 yeah I mean across nodes right so it's across it's across nodes and that probably includes some packaging and but like they're building multiple fabs and Arizona multiple fabs in Japan, multiple flabs in Taiwan. Like, so yeah, the industry is going to have more capacity than it's ever had before. But that maybe that doesn't make a pricing. Yeah, I think that's fair, right? I think you could balance that with a pretty significant increase in volume, right, as a part of that to variate some of that. But I also say, like you and I've said this, like, I'm uncomfortable with the memory price. Like, I think there should be better margin balance. Like, I'm not saying they need to go back to 10%, right, which was their 10 to 15 with their lifetime average. But like 80s is rough. That's the leverage you've got now. But if they could do a lot more volume at steady margins, that still goes to their numbers, right? That's still annual growth in terms of bit rate growth, sales growth. So I'm not opposed to what you're saying. I think there could be some bring back to imbalance. But again, I don't think if I'm right with how much I tried to figure out, comes online, barring the 20 fabs from TSMC, that's hard to model what's what. Let's just go like leading edge-ish, which is a little easier to figure out. I still think we'll be at a supply imbalance, but I think it will be better. I mean, I've tried to run these numbers. I know others have. I think our entire industry average capacity has supplied to demand and balances between 150 and 120%. There are other areas, like South Station, where it's higher than that. But let's just use it as a blended average. So let's just say it could go back to 105%, or 110%. That's going to bring pretty significant volume relief, but I don't think you all of a sudden are even at parity or under. I still think we're underbuilt for the next couple of years. But again, all of that to say, if you buy what I'm saying, and even in your price scenario, which is fair, you make a strong point that the next few years, every year brings a little bit of relief. Like we're expanding capacity. We're just like this year and next year is like a weird transition year, where the demand just ballooned and you just had no timing for relief to come. But then the next few years, into the end of the decade, if our timelines are right and everybody does keep building, every year should get more capacity. And so, but all to say, I don't think this point we're making is really appreciated or modeled or priced in. Because I get, it's an absolute, very difficult variable. I don't even know how to do it. I'm just making the point that if this is right, I don't think people are considering that in their work for what 28, 29 could look like as capacity and relief starts to come to those who have massive demand imbalances. I think that's a fair point. Although I have been thinking about this in sort of broader terms a lot lately because I've been doing a lot of work around the debt side of things. And I've talked to a lot of investors and a lot of clients and a lot of media last two weeks, man. And we keep coming back to this idea of capital, capital intensive economic booms, right? And somebody along the line, I apologize. I don't remember who it was. I talked to many people, said they've done a study and they've looked at every past infrastructure, capital intensive boom, the cell phones, 3G build out, railroads, canals, go back, you know, whatever it was. And there's always, we always overbuilt. We collectively, humans always overbuilt in these times. But what is a little bit different this time is the extent to which we are limited in our ability to build as much as we want. And so in a very sort of backhanded, positive way, the constraints we have in the industry right now are probably a good thing in that they limit some of the excesses, which would be possible. And things probably normalize. But the time to supply chain catches up. Things will probably normalize. I don't know. Then we get into the question of AI, that's a whole-- But no, but you're right. But you're absolutely right. I mean, to the same degree, like I've had this conversation with enterprises, is the costs of tokens are to some degree measuring their deployment. Like if it was super cheap and easy, and they had access to compute, they would run much faster. And to some degree, if token costs were low, they would deploy-- they would start doing more of these productions to work out their kinks so they can move to governed production, which is what they need to be in a steady state. And we did, again, our compute demand would be in vastly imbalanced. So there is a lot of truth to that, that we are sort of measured in our build out. But an impossible scenario is like, what does parity look like? At what point in time do you think you could get to supply to demand balance, where it weighs off from it? But then what does that world look like across the vector? But you're right. At least this is helping measure it. But it feels so-- I don't even know the word I'm looking for. It feels so such a hairy problem. You do the constraint work, and all it does is depressing more. And every layer you get deeper, you're just like, god, this is a real tough one to get out of. You see, on the optimist here, constraints are good. There you go. Constraints. Constraints, good. Constraints equal yay across the board. All right, I know we want to touch on this, but in light of Broadcom, we'll weave into NVIDIA buying, hugging, face, the things. But nothing's really changed, broadly on the NVIDIA front. I think they're still optimism. People still think, unfazed by Broadcom's mentions. I know he took-- he took-- did he take-- he took a ad jab at GPUs, I think, not extensive, but hawk. I think there was a brief subtone-- For hawk, it was fairly restrained. Yeah, yeah, yeah. It's so little less heated between the two. And I don't think he said it. And I think he just said GPUs, which was funny. But yeah, I don't think anything's changed materially in Broadcom versus NVIDIA. But let's talk about the hugging face. That's right, that's right. So NVIDIA is acquiring hugging face for almost $13 billion. Hugging face is the epicenter of AI boom. This is where all the free models are hosted. This is the place that all the model builders go to compare themselves and to share their work. It's very much a central piece of the infrastructure of the software side of the AI industry. I don't know, infrastructure is the right word. It's an important sort of meeting point for AI software. And NVIDIA is buying them. And this is coming at a time when we're once again worried about free Chinese models. We seem to have these every three or four months. We have a panic about Chinese models taking over the world. And NVIDIA buying hugging face in the middle of one of these is noteworthy because hugging faces where we normally access or where we would get these models from. And I think it's an interesting move from NVIDIA's point. Not quite clear to me what benefit it brings to them directly. I mean, I know they have a good case for it. But I think for me, the main point of NVIDIA buying them is it sort of keeps them very much at the center of the AI software conversation. I don't know if they needed to convince anybody of that. I think most people on the software side of things already have a pretty high opinion of NVIDIA. But buying hugging face keeps them is sort of plants to flag very firmly on that side of the ring. Yeah, I don't know how it generates. I don't think it's going to generate huge economic returns for them, but I think it's a pretty important thing to own strategically. Yep. OK. Yeah, and I think there's a couple of things. We got questions like which NVIDIA clarified. But does this mean that they'll try to limit or lock in open models to NVIDIA hugging face said the same like we're nothing changes in our work. I think Nvidia is just incentivized. And you know, to be honest with you, what's interesting is almost all of Nvidia's competition also benefits from open models winning. Like it's not like that's a, oh, open models wins great from video. Okay, it's actually good for everybody. And AMD needs this. Others need this, right? You might argue that they could run them better, which is kind of the perhaps the hat that they want to hang on because maybe you're not going to run a frontier model better when those frontier models get baked into, to custom asics. But you know, AMD has sent the same charge, right? Open benefits them because it creates more parity and it doesn't mean that any, you know, it's really a battle of pure TCO right at that point. But I don't think this gets locked, right? Just like they come away and be like, oh, you can use these models, but they're only for Nvidia, which was a concern, which I think both companies tried to pair down. Yeah, I think that's true. Although that again, I think it's, that goes to the question of, is this actually an economic benefit for Nvidia? And I think that's, if they maintained its value by keeping it open and free, it's hard to see them generating a ton of economic value from it. Right? If they closed it off and tried to monitor, I could see them trying to close it off and monetize it. That's certainly what maybe an oracle would do. I don't see Nvidia going down that path. I think they're going to keep it open. They're willing to spend the money because they see it's an important asset to maintain. It's important for the industry. But I think, can we both agree that, you know, five years from now, we're going to have both closed and open models still. Of course, not a question. You would agree on this, but I'll tell you, it's one of the most common questions I've gotten lately is which one's going to win. And I'm like, they're both, no one's going to win. They're both going to be there. But I, there's certainly a perception in some circles that it has to be one or the other. And I don't think that's quite how it's going to play out. I think we're going to have both and we're going to have the main thing is that the tools we use, the AI software tools we use will route between the two 100% 100% right? That's how it's going to play out. And we're going to have both and you can need both. It certainly raises questions about the future of open AI and then the topic and their ability to differentiate. It puts a lot of pressure on them to keep the newest best models coming out. But so far, they've been doing that, right? Certainly what Fable had a big update this week. People seem pretty happy with it. People have been very happy with Soul at OpenAI and Astra is coming out very soon and that certainly looks very promising. They're going to have to keep that going. But so far, that doesn't seem to be too challenging for them. Yeah. There's, you know, I thought about this too. There's a very strong case to make for the frontier labs in what I would just call your mission critical functions. So cyber security would be one of those. Engineering would be one of those. There will be areas where high value, high margins, right, will accrue to the most valuable, most important mission critical workloads. And I extend that to nation states as well. Because as much as I find this to be and I tweeted this, like literally the most exciting time to be in this industry, like I, the tools have made working so much more exciting every, every idea I have, I can go try and, try and make it. It's also similarly exhausting because you're like, I've got so many stupid ideas and they're not all going to work, but I'm going to try them anyway. And I'm just like, I've sat here for too long. It's also very scary. I think the more you play out the security and the cyber security threats to its logical inclusion, the more freaked out I get. And I can tell you with a fair degree of certainty, OpenModels are not going to be your defenses against rogue agents, rogue nations, and any rogue players. And to be honest with you, I mean, you tell me if you disagree, but like, there is a degree of this that is also like an arms race. If you control AI, the best AI's, you have leverage over other nations and just look at where this place today. There's only two countries making to go with this, us and China. And if you think for any second that the government does not know that and is 100% convinced that frontier needs to be frontier because of our need to maintain some level of sovereignty that these are basically the equivalent to digital nuclear bombs. And we need to have some control over that. And we also don't want it to be a monopoly. We don't want one of them to be the only one who has all of the control. You need there to be diversity there. You can make a very strong case for the frontier. Again, economics aside, how much can they make whatever fine. But the frontier exists and will be valued and invested in for very, very particular strategic reasons that get very scary when you start to think about it. I agree with your broader point. I don't necessarily agree with nuclear bombs, but I do agree. I think it's a very important point is that there will be an incentive to invest in frontier models always because you'll need state-of-the-art to defend against state-of-the-art minus one. And I think that's important and we'll continue and persist. And I'll tell you, this week, I had a pretty unsettling moment where I was -- I had Claude built me an evaluation model. I was just playing around with it was never going to be published. It was just sort of mental exercise thinking through something. And I had given it a target valuation. And it came back to me and it said, I can get to your valuation, but you're not counting this very significant accounting charge that would have meaningfully altered the valuation. What would -- how would you like me to handle it? And one of the options was skip. Just ignore it. And I was like, if I were a company and I just picked skip, don't mention the $140 million accounting charge, that's fraud. Yeah, absolutely. Right? That's what I was like, uh, again, that was never -- that put -- that was just for me. It was never going to see the light of day, but I was like a little freaked out that like, oh, Claude's not suggesting me the morally ambiguous position. That's one of the options. Yes. Yep. You know, and I think too, there's like parts of this, again, the reason the security stuff kind of freaks me out is, you know, one, I've talked to a handful of CSOs and they're like, you know, one of our biggest concerns is that, you know, everybody who tries to take down our company, you know, has access to any open model that they want, and they can just, you know, some, some rando in whatever country can hold our company hostage. Like, they realize how much they have to defend against very good open models, right? Frontier like open models, and they will be incentivized to invest in what is better than that, regularly better than that. In fact, that's the reason why Fable and, and Mythos and, and, uh, Seoul and now Astra and every model goes to enterprises and the government first to make sure that they can defend against that level of a model. And that's not changing. That's, that's going to continue. Um, and again, creates the case for them to keep reinvesting and doubling down and, and turning their profits back into training better models. And, you know, eventually we'll get to, uh, much larger data sets, right, being able to do analog and digital, like video and audio and process all this stuff and, and, and increase your data sets. So I'll have to say, I, I, I firmly believe in the case for the frontier. I'm working on a follow up to my first cybersecurity point, which again, report, which just continues to give me anxiety, but, but, but in it is also the very strong case for the frontier on a base of cybersecurity. Um, and some very actually big budgets coming for that alone in enterprise software, uh, via what, what ITDM tell us. Um, but yeah, like I said, it's, it's, it's, it's an interesting time, but 100% both the way. Like my, my full conviction is, you're just a normal knowledge worker at an enterprise. You aren't gonna, you do not need to go pick what model to run. You just go, look, I need a summary of this. Help me do my balance sheet. It needs to be governed. If it's going to change a child file, it needs your permission so that someone can go back and, and rate that you actually had permission to change a file like, permissed and governed AI is, is we don't have it yet, but we need to. But you don't need to pick the model. The enterprise says these are what's approved. It routes to the right place. You just go to your work. You know, you shouldn't have to worry about all of that. You, you've hit another nerve with me because when I went to bed last night, I tasked Claude with three, three projects, and I said, run them overnight, dangerously allow all permissions. Oh, jeez, that you got, dude. And so I woke up this morning and by like, by 7 a.m., I'd run out of, usage capacity. Yeah, I actually like, yeah, but I like though, like just thinking through it, I do like that they ask you, do I have permission to change this file? Because you and I don't have this, but in an enterprise context, you need, you need that record to be, to be monitored. That that person changed something. Did you have the authority to change something? Like that has to be recorded. So I like that they are at least, again, like I said, there's a big difference between agents running wild in an enterprise, which is what it is today and governed production, which we're barely scratching the surface of in the enterprise. But this is all these hairy problems that just get brought up to second, you are like, holy crap, agents are running wild in my enterprise. It's like, I, what's happening? Agents gone wild. Agents gone wild, everyone. That's the title of this episode, just kidding. Maybe the maybe the second segment. All right, we covered a lot of ground. Next week will be fun. We've got Apple and some special guests that will come to the circuit. And, and we look forward to that and talking to you later. Have a great weekend. Well, you've already had a weekend probably. Yeah, I hope you had a good weekend. Thank you everybody for listening. Tell your friends, tell your agents.