The End of DeepSeek Week: Moneyball for AI, The Future of Compute Demand, Geopolitical Reality Checks, and More

Andrew and Ben reconvene to answer your emails on DeepSeek and its implications. Topics include: DeepSeek as the Oakland A’s and Big Tech as the Red Sox, questions about distillation, video game history and coding to the metal, waiting for Silicon Valley products in AI, the future of compute demand and power consumption, and a variety of follow-up thoughts to Monday’s export control discussion.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Andrew Sharp?

  Hello and welcome back to another episode of Sharp Tech. I'm Andrew Sharp and on the other line, Ben Thompson. Ben, how you doing?

• 0:15Ben Thompson?

  I'm doing well, Andrew. How are you?

• 0:16Andrew Sharp?

  I'm doing all right. Happy year of the snake. It's New Year's over there. Are you a snake guy?

• 0:23Ben Thompson?

  Not a big snake guy, not a big fan. I am very happy I was born in the year of the monkey, great animal. You know, just, you know, you find your blessings in all sorts of little ways and God bless 1980.

• 0:39Andrew Sharp?

  There you have it. You know, that was a test and you passed, not a snake guy. So we can continue the podcast for another 200 episodes here, looking forward to that. And I'm a monkey guy also. I had a stuffed monkey growing up, always had an affinity for monkeys. In any event, as for the show, we recorded our first episode this week on Sunday night in America, about 11 hours before a truly wild Monday morning on Wall Street. And in the intervening days, you've written about DeepSeek on multiple occasions. We've gotten a flood of great DeepSeek emails. So the plan for this episode is to just bounce around and hit as many as we can. Does that sound good with you?

• 1:23Ben Thompson?

  Yes, I'm going to try to keep my comments short and brief so we can get through all of them. You know, it's something I'm very good at.

• 1:30Andrew Sharp?

  It's good to have goals. Billy says, "Is there anything to the analogy that DeepSeek is the Moneyball Oakland A's, having created new, efficient tactics that the rest of the industry will now take as standard? If that's the case, what happens when the American tech companies utilize these tactics with infinitely more resources, like the Red Sox did for the next decade after that Moneyball A's team? Do we yet know if the richer companies can add layers of AI-backed RL that would require more resources but ultimately produce better models?" What do you think, Ben? Grade Billy's analogy here.

• 2:12Ben Thompson?

  I like the analogy. It's a good one. Yeah, I mean, the, the, the part of the reaction that was definitely overwrought is would DeepSeek like to have more computing? Yes. Do they have more computing in some respects? Yes. Uh, like, like the, this idea that now computing is no longer valuable is ridiculous. Um, I think there's, you know, I think there's fair questions. You sort of mentioned the Wall Street angle. Everyone who's like, why are these stocks down? AI is going to take over everything. It's gonna like, computing is gonna fill all available space. Are correct. The, the challenge with stocks is there's can be a timing issue.

• 2:53Ben Thompson?

  So like, you know, at what point does all that computing get absorbed? Does that extend out the timeline? Does that change what matters for inference? Things on those lines. It's always difficult to say what's happening on Wall Street. But there are rational reasons to simultaneously believe this analogy is a good one. That more computing is useful and yet also why some prices might be down and why some might be up. Why particularly the companies that are paying for all of this, right? So, um, yeah, this idea that, yeah, then the Boston Red Sox adopted the A's philosophy and paired it with a huge payroll. Uh, it, it, it's a great analogy. Like, that's why at the end of the day, I, I was emphasizing again and again.

• 3:35Ben Thompson?

  This was a tremendous gift to the US and to the industry sort of generally to uncover these optimizations and, and these ways to be more efficient. Because ultimately it's going to benefit everyone. And frankly, I'm still pretty skeptical on the, this is all, this is, you know, this is all a lie. This is all a thing to just take down big tech. Like, the smart thing to do, quote unquote, smart thing. If your number one concern is geopolitical concerns, it would be to not disclose this at all. Just, you know, keep this knowledge sort of internal. And the fact it was shared, I think, actually buttresses the idea that the details are broadly correct.

• 4:19Ben Thompson?

  And again, when we're talking about the money involved, it was for one training run, not for all the experiments, not for all the data collection, not for all the R and D, like, which again, the paper was very clear about what, what the money was for. And it's gone through this filter, this telephone tag online that has, you know, It's gotten pretty worn.

• 4:41Andrew Sharp?

  I think it's because people want to believe that story like it's a compelling counterpoint to you know a week earlier Sam Altman announcing we need $500 billion for Stargate and so it doesn't surprise me that certain people just took the $6 million number and ran with it and it got out of control and twisted into something that it wasn't.

• 5:01Ben Thompson?

  Right, no, for sure. And you know, the Dario Amade, the CEO of Anthropic, I know we're going to sort of get to it, but but he did mention the, you know, look, this is broadly in line with the cost reductions. We've seen its capability is similar to we did a year ago. Of course, it's in his self-interest to say that and argue that. But I also think that is reasonable. And the whole thing about, you know, that they stole our data or which is referring to distillation, which we've talked about the last couple of podcasts. That's like, yes, that that happened.

• 5:36Andrew Sharp?

  Can I ask, is there any way to prevent distillation going forward? Like, do any of these companies have any sort of defense to that behavior?

• 5:45Ben Thompson?

  Not really. I mean, because it's just like, I mean, there's, they work to stop API access at scale. You can put rate limits on, but they're, you know, at the end of the day, you're trying to like block, it's like trying to block piracy back in the day. Like, you're dealing with digital bits, inputs and outputs. That's, that's, you know, and I've heard rumors of like crazy things that folks in China or elsewhere have done to try to distill these models, even if they're, they are rate limited or their APIs access is blocked or whatever, including, you know, like I mentioned in my, in my article, like, pretty exotic things just with chat clients and like scripting them and trying to, you know, get, get all the answers

• 6:25Ben Thompson?

  out. And it works. It's like, it works, like I said, it works to the benefit internally. Like, no one, OpenAI is not serving up the original first run model for users to access. That wouldn't be economically viable. A huge thing, a huge part of the post chat GPT launch was they were overwhelmed with demand and they were drowning in costs because like. They were just serving up the whole model.

• 6:52Andrew Sharp?

  Right.

• 6:52Ben Thompson?

  And that was actually where a ton of the distillation breakthroughs happened, precisely out of desperation and a need to how can we serve hundreds of millions of people economically? And so distillation, it's just a fact of life. It is not a good thing or a bad thing. But my point here is people are like, oh, they're claiming distillation. That's cope. But well, no, it's true. Like, I think I've been pretty consistent. The US labs are still ahead. Like, to do a GPT four O level model, or a sonnet level model, or an O one model, months after those models were publicly available, by definition, you're not ahead. Like, like, and the efficiency breakthroughs are real,

• 7:37Ben Thompson?

  but they're efficiency breakthroughs. They're not capability breakthroughs. So there's a bit here where everyone on all sides is, you know, arguing their interests. But that doesn't mean they're wrong.

• 7:50Andrew Sharp?

  Yeah, multiple things can be true at once. And I mean, in terms of the meta-conversation, I think that the fact that DeepSeek is a Chinese company kind of broke people's brains and drove the reactions here to an insane place. And I was joking about it with Bill Bishop earlier because we recorded Sharp China a day late this week. It's like anytime there's a big Chinese breakthrough in technology, it goes to this place where you have one contingent of people who are basically, they spend days explaining why the progress doesn't matter. And it was subsidies, it was IP theft, or in this case, it was distillation. It's all not a big deal whatsoever. And then on the other side of the spectrum,

• 8:32Andrew Sharp?

  you have these people who treat the breakthrough as evidence of like imminent US decline and changes to the world order. And so it's just like, the truth is usually in the middle. And I think the truth was in the middle on this one as well. Like, the reality is DeepSeek is very well-funded, not some $6 million side quest. Uh, they were using a ton of American hardware with Nvidia chips. They distilled OpenAI's model to develop V3 and R1. And they introduced some really cool innovations that will force competition to be better and smarter going forward. It's not an end of days situation. And I wonder if like Mr. Strahl had done this, would this have been seen as a really interesting kind of twist and subplot?

• 9:16Andrew Sharp?

  And not one of the biggest stories in the world for the first couple of days of this week?

• 9:20Ben Thompson?

  I think you're exactly right, like, because they're, you know, on the, I don't want to speak too much for the China side. I'm not Chinese. Like, I did sort of, I think this is probably going to be very empowering for the Chinese ecosystem, would be my guess. But from the American side, I do think there's a real tapping into a real underlying angst where

• 9:44Andrew Sharp?

  Yeah, like fear and paranoia.

• 9:45Ben Thompson?

  China is crushing us in all these areas. The one thing we have is technology, and oh my god, we're losing that as well. Which, there's a bit, as an American, I'm okay with that, like.

• 9:56Andrew Sharp?

  A little bit of urgency might be healthy.

• 9:57Ben Thompson?

  That's right. That's right. Exactly it.

• 10:00Andrew Sharp?

  Indeed. All right. Well, one more analogy. Mike says, "The incredible efficiencies that DeepSeek displayed reminds me of another era of impressive outputs on inferior hardware: the gaming scene of the late 90s to early 2010s. Video game consoles like the Xbox, PS2, PS3, etc. were typically launched with hardware roughly similar to a mid-tier gaming PC, but they would stay in market for five to six years, meaning that midway to the end of their lives, the hardware would be very outdated relative to a new gaming PC. That said, games like Uncharted, Gears of War, and Gran Turismo would be released exclusively

• 10:42Andrew Sharp?

  to consoles, with graphics better than anything coming out on much more powerful PCs at the time. That's because console developers were quote "coding to the metal" and eking out every bit of performance from the hardware, including often Nvidia GPUs, maximizing against their static constraints, just like the DeepSeek team. PC developers, on the other hand, had to code to a moving target of a host of different PC configurations, different CPUs, RAM capacity, different GPUs depending on the PC, and it meant they couldn't come close to optimizing to the level of console developers. As they say, "History doesn't repeat itself, but it rhymes." Thanks again for everything. Go Commanders. The future is bright. Stick with it, Andrew."

• 11:26Andrew Sharp?

  Thank you, Mike. I'm not a gamer or a video game historian. I'll defer to you. Grade the analogy part two.

• 11:33Ben Thompson?

  I think it's, I think it is a solid analogy. I mean, it's not perfect, like for lots of reasons we could pick apart, but it was the case that you were getting these incredible, this incredible output on old hardware with consoles and PC gamers would be sort of annoyed at it. One of the things that's-

• 11:50Andrew Sharp?

  Possible, yeah.

• 11:51Ben Thompson?

  Yeah, one of the things that's shifted over the years is consoles have become even more PC-like and there's much more of a standard approach using game engines and less sort of writing to the metal for a specific console. And part of this is just an economic thing. You, you, when the cost of asset creation started to outweigh the cost of engine development, it used to be you spent all your time building the engine. And when you're building the engine, that is like close to the metal. Then it realized, actually, no, if we're gonna make money on this game, it has to run everywhere so we can sell it to the most number of people. That everything sort of got abstracted away. And I think that it's been the case by and large, you're going to get the best graphical experience out of PC for basically every game. And that's been the case for a while.

• 12:35Ben Thompson?

  But that was part of the sort of PS4, Xbox 3s, or whatever, Xbox One, that, that like, that was the generation where it really shifted. And, and we've talked about in the past, Sony was ahead of this. They saw this coming in part because developers were increasingly reticent to write to the metal for the PS3, which was actually, it was hard to develop for. And they started just writing for Xbox and then porting to PS3. And they're like, crap, we, for many years, people would write specifically for the PS2 or in the sort of the PlayStation before that. Now they're doing this new approach.

• 13:14Ben Thompson?

  If we want to have differentiation, we need to buy up all these studios, get exclusives, and then people buy our whole thing. So it's actually tied to this discussion we've had before. Again, it's not a perfect analogy for different reasons, but the idea of constraints driving tremendous innovation in terms of efficiency and, and, and things on those lines is absolutely the case. And by the way, they're like- I didn't expand on this fully, but if you do the calculations of the amount of compute they had, their model efficiency was so high with their mixture of experts approach, particularly in training. One of the big innovations was, it was thought that mixture of experts made training much more complex and difficult and less efficient, but you

• 13:57Ben Thompson?

  got the efficiencies in inference. They came up with a new way, particularly of making sure every expert got trained fully and housing that sort of counting within the experts in sort of a bias factor, instead of trying to calculate it all at the top end, that actually got them more efficiency in training. They still had excess compute, like relative to what they needed. And that included them hand programming some of their compute units to manage communication sort of more efficiently.

• 14:26Andrew Sharp?

  That's crazy.

• 14:28Ben Thompson?

  The nerfing, like the nerfing worked, like it really did. And it's a testament, and this sort of is part of the whole discussion, right? We can talk about distillation, we can talk about the fact they are still, if not years behind, but months behind, that should not at all diminish. This is incredible engineering work. Like, it's, it's, it's really amazing what they, what they did. And again, it's a blessing to everyone that they released it and made it broadly available.

• 14:56Andrew Sharp?

  Indeed. Okay. So, related to engineering work, Adam says, "I've really enjoyed the discussion of the DeepSeek kerfuffle this week. And when discussing it with a buddy in IT, I was reminded that what's happened fits perfectly into established practice and philosophy in the big tech world. Ben has repeatedly mentioned that because of constant advances in compute, the hard work of optimization has almost never been worth it. Why spend valuable time making something run better when next year's chips will run it good enough and the opportunity cost of optimization is more features? My buddy drew a parallel to the bloated operating systems we have now and inefficient applications.

• 15:36Andrew Sharp?

  We have utterly god-tier hardware, but often the subjective user experience is no more responsive than it was for early PCs." I'm starting to wonder if the efficiency chickens are coming home to roost. Have decades of skyrocketing compute capacity resulted in a software development culture where optimization is not given sufficient attention?

• 15:58Ben Thompson?

  Yeah, this is a really good point, and I saw a couple of other people sort of mentioning this and sort of putting it in my face that I've made this optimization point. I think it was made most concretely in an interview I did with Kevin Scott of Microsoft. He was making that point, but I was, you know, in broad sort of agreement with them. Yeah, I think there's two points. Number one, I think there's a bit where it's sort of like the comparative advantage question. Like, you should always choose your comparative advantage, but the problem is there's a time element to that, and there's a learning curve that is abandoned that only comes, you know, we're seeing this with the US and China, like the US can't build stuff, right? That's downstream from rational decisions made at the time that accumulate and lead

• 16:43Ben Thompson?

  to a wide diversion that ends up being a problem. In this case specifically, I think what's coming to roost is it's not that we, it's not that it's not logical to spend $100 million or whatever it is to build the future models if you really believe that AI is going to have this astronomical economic impact. There is a question, though, at what dollar figure did, does it make it feel like we've missed the boat, right? Like, and I think that, you know, I mentioned in an update this week, Google, and Google built up their infrastructure simultaneously to developing their product and completely

• 17:25Ben Thompson?

  revolutionized the whole server area, which used to be these bespoke machines dominated by Sun, and what they did was they basically made it, no, we're going to run on x86, like consumer-grade hardware. Now, over time, Intel responded to that opportunity and made server-grade x86, but still drastically cheaper than sort of what came before. We're going to assume that it's going to break. We're going to build systems that are resilient and handle stuff breaking down all the time. Is going to be actually much cheaper and much more scalable. And that was foundational to their success. And so I think there's probably a bit here where we have probably gone too far.

• 18:08Ben Thompson?

  In the don't worry about optimization, there probably should have been more dual tracks. Where one team isn't worried about optimization and another team, that's all they think about.

• 18:20Andrew Sharp?

  Yeah.

• 18:20Ben Thompson?

  And that's probably been a mistake, but I totally own the. I never said this before this week, sort of critique. And if anything, I've said the opposite. It's a, it's a very good point.

• 18:32Andrew Sharp?

  Well, and as far as the challenge going forward, are you saying that's a muscle group? That needs to be developed over time among today's engineers? Like, can you just flip a switch?

• 18:43Ben Thompson?

  This is the reason why I like, again, I'm all over the place on Google. I can never decide and I usually go the wrong direction. So always take my Google analysis with a grain of salt. But this is, I wrote a piece last year about Gemini 1.5 and Google's nature. I was talking about the million token context window. And there's almost certainly an aspect of how that works that is downstream from Google. Infrastructure and the way they optimize things and organize things and they design their systems from the ground up to work with their software. And they do it in a scalable way and Google is still the best at this. They have the best data centers. They have the best infrastructure. They have their own chips. They, if anything, this is the part of Google that's still the most performant.

• 19:26Andrew Sharp?

  Still working.

• 19:28Ben Thompson?

  Yeah. So, uh, and it's, it's a big reason for if you want to be a Google optimist, I would have this very high on the list. That at the end of the day, when it comes to serving the world. Google is still the best. They can do it the most economically. They can undercut anyone on price, particularly if models are commodities. Again, my concern with Google is if they're really good at it, the chief entity being hurt is Google search. And so, but, but from a, setting that aside, the sort of classic disruption question. From the infrastructure perspective, they're still the best. And to the extent that does matter, that's good for them.

• 20:08Andrew Sharp?

  Okay, well, related to all this, culture wise, Dan asks, Andrew and Ben, at one point in Monday's podcast, Ben discussed what deep seat could mean for the LLM product overhang. In other words, all the products we should eventually see if LLM progress stopped today. It reminded me of a discussion he had with Nat Friedman and Daniel Gross in June 2024. Particularly this tidbit from Daniel, who said, obviously, hopefully there will be better breakthroughs and the models will become easier to use. But you could also take today's models and make awesome stuff out of them. And why that hasn't been happening, by the way, despite the best attempts of this podcast, I think is a very deep and interesting question.

• 20:53Andrew Sharp?

  What is going on with Silicon Valley in general? And is that innovation pipeline from research breakthrough to iPhone waning a little bit? I don't know. So I guess my question is, Dan says, the same as Daniel's. What is going on with Silicon Valley's innovation pipeline? Why aren't we seeing awesome stuff? Is it simply that LLMs are such a massive innovation that it'll take time to productize? As Ben has theorized before? Or is there more to it? Culture, big tech dominance, inertia among potential customers? It seems like the theme has come up several times now. And at some point, we need to ask what's wrong, either with the technology or the people supposedly leveraging it to build stuff. Ben, do you have thoughts?

• 21:37Ben Thompson?

  I mean, I think it's a little bit of all the above, but all the above goes into the fact that historically this stuff takes time, right? The internet, the world wide web was in the early 90s and you had the dot com era, most of a lot of companies of which didn't work. And then suddenly it did. And same thing with the PC. It takes longer than you think. And I Again, why is it because of culture? Is it because of customer inertia? Is it because of all these bits and pieces? Yes, it's because of all those things and and.

• 22:13Andrew Sharp?

  But also, it hasn't been that long, just to be clear.

• 22:16Ben Thompson?

  Exactly. It's only been, it's been, it's been two. Now, Transformers were 2017, so that's been a while. But even that speaks to it. Transformers were invented in 2017. And it took a while for folks to even start utilizing them. And so you had GPT two and you had GPT three, which, which, when we started that, that podcast series with Nat Daniels, when GPT three was out, it was before ChatGPT. And we're like, no one's building products around this. This is actually amazing.

• 22:48Andrew Sharp?

  Yeah.

• 22:48Ben Thompson?

  And then ChatGPT comes out, it's like, oh my, that, that was the wake up call to everyone. But to your point, that was only slightly over two years ago, November 2022. And just the history of technology is that you can have tremendous breakthroughs sitting in plain sight. And they can actually also not just be sitting in plain sight like the Transformer was. They can, like ChatGPT, have everyone awake and scrambling. And yet it still takes time. And if anything, the larger the change and the larger the transformation, the more time it actually ends up taking. And this is a, it's kind of a unsatisfactory sort of excuse, if you want to call it that.

• 23:31Ben Thompson?

  But a lot of things about human nature and humanity are sort of unsatisfactory excuses. And what we can do is just look at historically, it takes time to figure this out. A lot of the initial things are, you just take the old paradigm and slap on AI and see if that works. And actually, again, my favorite analogy, you can put advertisements next to text on the internet like the newspaper. That didn't make any money. You had to come up with a feed. That's what actually made money. And, and Facebook invented the feed in 2006, like 13 years later, after, after the, you know, the sort of web was invented. So this stuff, it, it just takes time.

• 24:11Ben Thompson?

  Now, are there questions about Silicon Valley's ability to innovate and all these bits and pieces? Sure, there, there always are. Uh, but, but I think. That is actually part of the broader critique.

• 24:24Andrew Sharp?

  Yeah, I mean, it's unsatisfactory because it would be so much more satisfying to have a take on like the screwed up culture in Silicon Valley and the complacency that pervades across all these companies. And I think it dovetails with some of what we were talking about earlier with like, when you have just unlimited resources to throw at a problem, then maybe you lack the forcing function to optimize and work on efficiency and really innovate in useful ways. At the same time, though, as alluring as that story is, it's literally been two years. And so I have to sort of take a beat before I hold anyone's feet to the fire on that one.

• 25:07Ben Thompson?

  And the fact of the matter is, just the chat clients are awesome. Like, this is another human nature point. The usability of these chat clients is basically gated by your willingness and capability of thinking of things to do for them.

• 25:25Andrew Sharp?

  Yeah.

• 25:26Ben Thompson?

  Right? Like, I was writing the DeepSeek FAQ article. I initially started putting every question as an H4 header in Markdown, which is four hash marks. And I'm like, no, this is not, this is not going to work out well. I should just make them bold. Do I go through and I could, you know, figure out a way to do it or what? No, I drop into ChatGPT, say, change all these H4 headings to bold. And it does the whole thing for me, right?

• 25:47Andrew Sharp?

  Right.

• 25:47Ben Thompson?

  Like, it's just like...

• 25:48Andrew Sharp?

  And it's not a huge thing, but that saves you, what, probably like 20 minutes, 25 minutes or something?

• 25:52Ben Thompson?

  Yeah, in general irritation or getting someone else to do it for me. I guess someone just lost their job, my text formater. So, I mean, like, even internally to each of us, we all have massively untapped efficiency gains that is downstream from our lack of imagination on how we can use this stuff.

• 26:13Andrew Sharp?

  Yeah.

• 26:13Ben Thompson?

  And so that applies at the micro level and it applies at the macro level.

• 26:18Andrew Sharp?

  I think that's true. I would also say that the people I know in tech love using these on a daily basis, LLMs that is, and I actually have more and more friends in just mainstream society that are using them pretty frequently. But I am waiting for somebody to productize it in a way that makes it more idiot-proof. I mean, that's what I thought Apple was gonna do with Apple Intelligence, frankly, is make this so easy that it becomes like shorthand for everybody. And then Apple Intelligence has just been an absolute disaster. And so at some point, I think there will be even more adoption that we've seen thus far.

• 26:58Ben Thompson?

  Right. There's probably gonna be some situations, you know, maybe we're gonna end up with more sort of classic founder series of someone solving a problem for themselves, and they make a product out of it and ends up being a huge company.

• 27:09Andrew Sharp?

  Right.

• 27:09Ben Thompson?

  You know, like the, there are more myths to be made.

• 27:13Andrew Sharp?

  Yeah. Right now, it depends on your volition, and soon enough, it will be sort of second nature for all of us, but.

• 27:20Ben Thompson?

  Right. But that was the thing with computers, too, and the web, frankly. It depended on your volition, right? Like, the first people using PCs were eager to figure out what to use them for. And, and the first people on the internet were out there finding obscure communities, or we talk about BBSs sort of back in the day.

• 27:39Andrew Sharp?

  Carolina basketball message boards, absolutely.

• 27:42Ben Thompson?

  That's right. That's right.

• 27:43Andrew Sharp?

  So, we'll get there. So, this is a long rant in response to a rant you had on Monday's episode.

• 27:52Ben Thompson?

  Okay. I'm gonna pour myself some coffee here.

• 27:55Andrew Sharp?

  That's right. Get comfortable on your end. William says, "At the end of the latest episode, Ben dropped some absolutely abysmal takes after correctly explaining and discussing R1. The best take on Twitter that I saw was essentially, everyone sees R1 and then doubles down on their pre-existing views. Ben was no exception. When discussing, 'Why are they called OpenAI?' her, her, you have to remember the context in which they were founded." There was not a new AI lab being founded every week at that point. The primary player was Google's DeepMind. Have you read the DeepMind papers? There's barely enough technical substance to do anything with.

• 28:37Andrew Sharp?

  They didn't even allow external researchers to use the models at scale until AlphaFold. OpenAI was open relative to Google. And now, the window for what it means to be open has moved. If you want to say-

• 28:51Ben Thompson?

  Just want to jump in.

• 28:52Andrew Sharp?

  Okay.

• 28:52Ben Thompson?

  Just want to jump in. Great point. Uh, very, very well put. Uh, I'll continue.

• 28:56Andrew Sharp?

  Okay, plus one to William. Uh, we'll see how he does in the second half. If you want to say F Anthropic or OpenAI for slowing down progress, what the hell? Where is the ire for Google? The whole reason we have any of this is because OpenAI was founded. They are the reason this stuff exists. Moreover, the take about holding back GPT-2 is also terrible. They did that to figure out what is the minimum we should do to make sure this can't be misused. They now have a process that they and Anthropic follow when rolling out new models. They produce model cards that rate, that rate CBRN risks. That's good, even if you don't think it's possible for these models to have meaningful CBRN risk.

• 29:38Andrew Sharp?

  And if DeepSeek drops the weights of a model that does have high risk in one of these areas, it's useful for us to have language to discuss it. From a business perspective, from, uh, from a business analyst perspective, the industry leader doesn't benefit from open source or open weights. This is part of why Google didn't open source their infrastructure the same way Facebook did. It was a strategy credit for Facebook. The same is true today. It's a strategy credit for Facebook to release their Llama models. It seems like DeepSeek is interested in open source, not from a business strategy perspective, though. So that's pretty interesting. It may be that as long as Liang Wenfeng is in control, they will release the weights to all, most, in parentheses, of their models. So Ben-

• 30:23Ben Thompson?

  Can I, I, I, you don't need to, you don't need to frame it. This is, like, first off, William- Fantastic email. Like, like, like, I, the rant deserved a rant. Okay. And you delivered. So, very good. I already gave you credit upfront for the OpenAI versus Google. Great point. To jump to the end, the business analyst perspective. Yes, correct. Uh, it is, you see from the distillation bit, what's the easiest way to avoid distillation? Just get the weights, right? And I would also add on, from a deep-seak perspective, it makes perfect business sense to do open weights and open models for the same reason it made sense for Facebook to do open infrastructure. And even from a, the, the counter-argument to they should have kept the secret so the US wouldn't know about the efficiency gains.

• 31:07Ben Thompson?

  The benefit is, they did just spread this knowledge to everyone in China who is dealing with severe chip constraints. So, like, all this bit sort of makes sense. So, I actually grant almost everything in this email. I will just explain the source of my rant. That was not a business analyst rant. That was a, did it confirm some of my takes? Yes. And my takes is, it has deeply, there, there's this tension between using the language. There, there's several things going on. Using this language of safety and the world-ending possibilities of AI.

• 31:51Ben Thompson?

  My frustration is, to the extent that is a real concern for you, and to be clear, I'm not flippant about this. I completely grant the concerns, and that's part of what drives my irritation. It is detrimental to your cause to expand the definition of safety to mean a large number of things which we may find objectionable, but which are not safety sort of oriented. So, when it talks about, like, and that's why I went to, like, the GPT-2 sort of notes, talking about, like, misinformation, or, or biases, or whatever it might be.

• 32:29Ben Thompson?

  Again, those are legitimate things to have a discussion about, but the way it manifests in actual discussion is you push back. Against that and you're accused of not caring about the world ending. Right. And that, you know, that's the mott and Bailey sort of aspect of this argument where you know, this is a, an argument of fallacy where you, you go out to the Bailey and you make sort of a point. Someone objects to that. You retreat to the mott and say, what? You're talking about the world ending? You like, you don't care about this? You don't care about safety? Yeah. And this might be motivated by my own personal position, which is, I promise you every time I write about this, I get a lot of pushback about me not caring about the world ending.

• 33:09Ben Thompson?

  And, and my, and, and, and so there is absolutely personal frustration about this sort of conflation that happens. Number two is the overall structure of OpenAI and I've looked for this for ages. I, I might've been like some conversation. I don't remember. But there is a real element of even this board structure and this idea, if you really believe that AI is going to control the world, implicit in that with this structure is we will control the world. Right. Right? Because the board's going to make the decision and, and, and. And we will decide what. Who voted for them? Yeah.

• 33:53Ben Thompson?

  Right. Exactly. And so, so there, there's just a, if you take these arguments seriously, then I have real concerns, right? And, and now to the extent this, the, the first point William made, double down on their existing views. Yep. Absolutely happened. One of my existing views all along is that this is, number one, if this does become dominant, I'm very worried about Sam Altman deciding the course of the world. This isn't a shot at Sam. It's a shot at any one person having that degree of power. Right? I feel like that's a reasonable stance. Yeah. Number two, I don't think that's going to happen. I think there's going to be multiple models. And the best way to, this is very cliche, I admit, but I believe it.

• 34:36Ben Thompson?

  The best way to fight against this, to defend ourselves against, against this is to have more AI, not less AI. If we could go back and put this all back into Pandora's. Sure, that's fine. My belief is that we crossed that Rubicon a long time ago. It's going to be out there. It's going to be open. And R1 emphasizes that point. This is the whole basis of the chip discussion, right? It's like China's going to get this. They're going to, and they're gonna get enough chips. And they're going to figure out how to build stuff over time. And you're fighting a losing battle that, by the way, is just the entire like wrong mindset of playing defense instead of seeking to innovate.

• 35:16Andrew Sharp?

  Right.

• 35:16Ben Thompson?

  Which again, totally reasonable to disagree. I loved our discussion on that last time. In part because I feel like I could flip around and argue your point just as well. It's a discussion that needs to be, needs to be had. But yeah, this is a prior of mine, which is that actually AIs are going to be broadly available. Given that if you think that this is, if your number one concern is truly safety. Then, and you're saying, we're a nonprofit. We're going to, we do this for the good of the world. Then you should be open sourcing it. Now, to his point, from a business analyst perspective, of course, they should not be open sourcing it. But that means they're being big hypocrites. If they're big hypocrites, I'm gonna, I'm gonna yell at them. So that, that, that, so again, I think William makes all reasonable points.

• 36:01Ben Thompson?

  That segment, again, it's a podcast. We get a little spicier on the podcast than, than necessarily I do on Shrekery. But that's a reaction to what I perceive as the hypocrisy in this position. That if you take a very sharp analytical edge to it, looks like trying to capture power for a very small. Codery, codery?

• 36:22Andrew Sharp?

  Codery. I, I can read that word. I can't pronounce it either. Somebody in the emails let us know.

• 36:29Andrew Sharp?

  But my question is, would open sourcing OpenAI's models and open the weights, that is. That would help because it would disperse the innovation and allow other Americans to innovate on it. Is that right?

• 36:44Ben Thompson?

  It's like, it's, it's like nuclear weapons and mutually assured destruction. Which again, would we be better in a world with zero nuclear weapons? Well, actually, it's an interesting question.

• 36:54Andrew Sharp?

  It is.

• 36:54Ben Thompson?

  I mean, on one hand.

• 36:56Andrew Sharp?

  I was pretty annoyed by the end of Oppenheimer because they made it sound like we unleashed some horrible era on the world when in fact, the nuclear bomb was invented and there's been more relative peace than at any time in human history.

• 37:09Ben Thompson?

  Exactly, exactly. You know, this is like the whole thing about the US-China economies being so intertwined. Like, yeah, this is really a bad thing. And they're like, well, maybe it's a good thing.

• 37:19Andrew Sharp?

  It's the only reason there's not a war right now.

• 37:20Ben Thompson?

  It's gonna actually work out, right? Like, no, with the US-China relationship is mutually assured economic destruction. Like, that, and like, there is, in any, in a conventional world, with conventional weapons, with, and, and sort of non-integrated economies to the level we are now, I think without question, there would have already been a war over Taiwan. Right? Like, so like, like, so there, now, the problem, and the very reasonable pushback is, okay, if you want to take my arguments, put it back in my face, you might be right in the short to medium term, but if you think about the long term, all we're doing is setting us, setting ourselves up for a truly world-ending destructive scenario.

• 38:00Andrew Sharp?

  Yeah.

• 38:00Ben Thompson?

  And my response to that is, you might be right. And, and it's the same thing with AI.

• 38:05Andrew Sharp?

  Knock on wood right here.

• 38:06Ben Thompson?

  We might be right, but the problem is, AI is out there, it's a real thing, it is going to be diffused, in my opinion, and given that, the answer is not to try to put it back in the box. The answer is to run in the exact opposite direction. And again, from a business analyst's perspective, Williams totally right, OpenAI is right to close down, to not be open, just save me the sort of, save me all the self-righteous sort of posturing.

• 38:34Andrew Sharp?

  Yeah, we're doing this for us.

• 38:35Ben Thompson?

  That's what I was responding to. That's, exactly, that's what I was responding to, just to be clear.

• 38:39Andrew Sharp?

  All right, well, one more bit of Sam news. Ollie says, did you guys see the tweet celebrating Sam and Satya's rapprochement? Guess they're open to a soft landing now. We got lots of emails about this specific tweet.

• 38:56Ben Thompson?

  Is this the one where they do, take the selfie together?

• 38:58Andrew Sharp?

  The selfie, yeah. Do you have an official comment on the Sam and Satya selfie?

• 39:02Ben Thompson?

  Yeah. There's a, there was a bunch of funny comments. I think my favorite one was, is something to the effect of, when your parents come to tell you it's time for dinner after they've been arguing in another room for six hours or something like that.

• 39:16Andrew Sharp?

  Feels right.

• 39:18Ben Thompson?

  Great stuff all around. No, look, Microsoft is looking like, is looking amazing in many respects right now. Like, like, they, they have the right of first, they still have full access to all OpenAI's APIs. They have the right of first refusal to the compute, and they're also sort of letting themselves off the hook for pursuing the funding of these leading edge models that get commoditized within months. And so like, that's, it seems like a reasonable place to be. Now, again, the OpenAI bet, which again is reasonable for OpenAI, and the SoftBank bet, which Masayoshi Son is not reasonable, so I guess it makes sense for him and whoever ends up funding him, is no, actually, we're going to get there first and it's going to dominate the world and it's going to, the economic returns to one model is actually going to be a thing.

• 40:03Ben Thompson?

  Now, again, I think the evidence is tilting towards there be, models being a commodity, but it's still reasonable to bet in the other direction.

• 40:12Andrew Sharp?

  Is it, though? Is it reasonable? If you, because like, we just talked about how at the top of the show, like, is there any defense to distillation?

• 40:22Ben Thompson?

  No, it's reasonable if you have a, if you have the, the appetite for the risk that entails, right? Like, maybe there's only a 5% chance, but the upside of that 5% is astronomical. It's a venture capital type of bet, where it's probably not going to be the case, but if it is, the returns are so large that it's worth putting money towards it. Again, this is why the debt part doesn't really make sense to me. This feels like an equity funding sort of situation, but if you're OpenAI, I get why you would go in that direction, and if you're Microsoft, I get why you wouldn't. And again, it's not like they're cut off from OpenAI's models. They still have leverage that they have exercised to make sure they still have access, so.

• 41:02Andrew Sharp?

  Well, they're literally putting on a good face for the world this week, and I enjoyed the selfie and I can't wait for future updates on the Sam and Satya relationship.

• 41:13Ben Thompson?

  Yeah, just glad, just glad the parents aren't arguing anymore.

• 41:15Andrew Sharp?

  Oh, man. I'll tell you what, I am more open to OpenAI than I have been in the past, in part because I use ChatGPT on a daily basis at this point. I will say, if there's one person in tech who is most likely to be the subject of like eight different documentaries that are sold to rival streamers at some point in the next five to 10 years, Sam Altman is like the runaway favorite to be the subject of all those docs about corporate abuse and corporate chaos. It's gonna be great.

• 41:50Ben Thompson?

  I mean, yeah, it's very reasonable to assume and arguably to make the case, it has happened in episodes in the past, that Sam Altman has an Icarus sort of fetish. He will always fly too close to the sun. So we'll see if it happens in this case.

• 42:06Andrew Sharp?

  The adventures will continue. Peter says, DeepSeek said their final training run of V3 was accomplished with a cluster of 2,048 GPUs, a far cry from XAI's apparent 200K cluster. Assuming that compute needs are unchanged but are utilized using smaller clusters than previously assumed, what are the impacts on things like networking, power distribution, liquid cooling, and other areas that have been gating factors to creating large clusters? Ben, do you have thoughts there? I think that could probably be like a 45-minute conversation, but what comes to mind?

• 42:43Ben Thompson?

  Well, I would say with DeepSeek, there's this report, I think Dylan Patel originally said like back in November, they have 50,000 Hopper GPUs. So number one, that was misconstrued to be H100s. H800s are also Hopper GPUs. The difference is the constraint in memory bandwidth. So first off, the 2048 was almost certainly, that's the biggest they could go, given the memory bandwidth constraints, because you have to communicate all these CPUs and keep them in sync. So would they have preferred to do a much larger bit? Yes, they couldn't because of the nerf memory bandwidth. So is bigger going to be better? Almost certainly. Why are, like, I think GPT-4 is like somewhere around 24,000 or something it was trained on, maybe, I can't remember what it was.

• 43:27Ben Thompson?

  Exact number is maybe that that's even high. The constraint isn't that they didn't have more GPUs. It's that the communication overhead becomes overwhelming and the whole thing falls apart. Sort of the larger that you get. And so a huge part of this expansion is increasing that capabilities. It's a big part of Nvidia's sort of moat is they're the they're the best at building these. It's not just the the core AMD chip is faster than the core Nvidia chip. Nvidia is just a gazillion times better, number one, at programming for them because of CUDA. But then number two, they're so much better at tying all these chips together. Connecting them, yeah. That's right. And so DeepSeek would have been better on on more hardware. Number two, again, this was just the final model run.

• 44:12Ben Thompson?

  You get to a final model run that is so cheap and runs so well. Because you've done a gazillion other experiments and runs along the way. So their researchers are using a bunch of GPUs all the time to even get to this bit to do the final run. Number three, they've been serving inference at shocking low, low prices, which is arguably the biggest indicator. Like they've they completely destroyed the the pricing model for inference in China like a year ago. So so that's where most of their GPUs are probably going. People accessing it and needing to use it like a lot of these huge data centers are for people to actually run inference, not just training. Yeah.

• 44:54Ben Thompson?

  The other thing about this, and and I I should have made a bigger point about this, I think in my FAQ. Is one of the big implications of the power of distillation, number one. And number two, these reasoning models and their ability to generate chains of thought that are useful. Is the capacity for AI to train AI is the the big barrier is with around GPT four. We got to the we've surfed the whole internet, right? How do we get more data? The synthetic data question has always been the opportunity and always a question, is it going to work? It looks like it's going to work. And so you think about it, if you want to get, you know, do the question of, we talked about this, the first podcast of the year.

• 45:39Ben Thompson?

  Is aggregation theory dead? Like, is there a marginal cost to using AI that's going to mean that the way we thought about internet economics is going to change? Well. The counter has always been that regular L L Ms are getting way cheaper and they're really good at a lot of stuff. You're not going to use a reasoning L M for everything. But the other thing you can do a reasoning L M for is you can generate that many more answers to that many more questions, a basically infinite number. Because especially with reinforcement learning gets into it and you can and so you just you're generating more and more and more synthetic data, which it's not a direct distillate and you use that to train regular

• 46:22Ben Thompson?

  L Ms, which just poop out the answer. They don't think about it. And suddenly, those are way more capable. And so you think about it from that perspective, the the amount of potential knowledge in the world is infinite. We're talking about bitter lesson brute forcing the creation and acquisition of all possible answers in the world, right? Like they like, and that is basically-

• 46:43Andrew Sharp?

  So there will be infinite inference demand as we go forward here, right?

• 46:46Ben Thompson?

  Well, this is is this training or inference? This is inference for the purpose of training. So the the self-contained need for inference, and this is where the hundred million dollar OpenAI thing makes sense. If they see this is the path, we have a reasoning model that generate chains of thought that can then be used to train regular vanilla L Ms, their potential appetite for compute is actually larger than ever. Because they want to train the reasoning model, then they want to use that reasoning model to generate all this synthetic data to train the base model. By the way, once the base model is better, you get a better reasoning model. So you can generate more synthetic data to make the

• 47:30Ben Thompson?

  base model better. We are we have entered this virtuous cycle, which to the credit of the people worried about real capital S safety, like AI taking over everything, this is what they predicted. The AIs making the AI better. And we are in that era. And that era is going to demand a basically infinite amount of compute. So so the reaction is overwrought. Again, I think there's a legitimate question about timing questions, right? Is the is there a bit where, you know, all this demand, particularly for inference, if we get way more efficient, might not be consumed. But the potential for-

• 48:09Ben Thompson?

  That much more compute needed for training and inference and inference that goes into training is is a huge thing.

• 48:16Andrew Sharp?

  And so, you know, there's going to be a massive demand for power distribution, liquid cool.

• 48:21Ben Thompson?

  Yeah, right. And all this stuff goes into, yeah.

• 48:23Andrew Sharp?

  It's all part of it.

• 48:23Ben Thompson?

  Right? Yeah. And by the way, there's been, you know, such a flood of stuff coming out of the Trump administration. It's hard to keep track, but one thing that that sort of slipped under the radar is there's going to be executive, you know, executive order for creating power that is off the grid. That's basically tied directly to these data centers.

• 48:42Andrew Sharp?

  Ah.

• 48:44Ben Thompson?

  And a dramatic loosening of of this is basically what we called for on this podcast a few months ago. There needs to be the capability for dedicated areas where you can cut through all the red tape and you can create power and the power can be tied one to one to the data center. Like the data center is very predictable how much power it needs and and and it's completely off the grid. You could build these anywhere. You could build it in the middle of the desert, right? Uh, with a huge solar farm, if you wanted to. I thought that's the problem with solar is it's intermittent and at night it goes away. And so you need a lot of batteries because you need continual power. This is why nuclear is a natural fit for these data centers. But you could build that and then just have a fiber optic line that sends the data sort of somewhere else and you don't even need to all the grid stuff you can completely bypass.

• 49:29Ben Thompson?

  So the appetite here is is larger than ever.

• 49:32Andrew Sharp?

  Great.

• 49:33Ben Thompson?

  There's actually an unlock of appetite.

• 49:35Andrew Sharp?

  Okay.

• 49:36Ben Thompson?

  That's why, just sorry, just one more. I know I'm monologuing a little bit, but that's why my initial write up on R1 was about the reinforcement learning, the synthetic data and the distillation aspects. Because that's the unlock. That's the real takeaway from R1. All this other stuff is kind of a distraction.

• 49:54Andrew Sharp?

  No, exactly. And I I came to R1 having read your piece and then seeing the hysteria the last week or so, it was all a little bit befuddling to me. I do think you nailed it with the comp to the Huawei seven nanometer chip, where it was just like a lot of people who didn't follow AI that closely were digesting this news and freaking out about it. But the synthetic data and what that suggests for the Future is a massive deal. So strap in, it's gonna get pretty weird here as we all continue to learn the bitter lesson. Speaking of the Trump administration, though, a couple of follow ups on the export control conversation. Two questions from Thomas. The first is, how

• 50:35Andrew Sharp?

  would no chip controls on China have impacted the supply of GPUs for American companies? It was always said that the restriction on compute was how many GPUs, TSMC, and Nvidia could make. If China had also been in the market, how would that change the amount of GPUs that could be delivered? That, I have no idea. I'm just curious whether you have any take on how that might have shaken out.

• 51:00Ben Thompson?

  Well, the question is, did it shake out at all? China seems to have beginning plenty of GPUs, number one. You had the H800.

• 51:08Andrew Sharp?

  Singapore, a lot of GPUs going to Singapore.

• 51:09Ben Thompson?

  Singapore is buying more GPUs than they have electrical capability to power, right? Like, we know where those are going. And I think this is all a very fair question. And I think one of the more powerful critiques of Nvidia that you can leverage is that Nvidia does not operate like an American company, which, again, that's kind of the standard in tech. You're just sort of global and you sell to whoever you want. But, you know, was there, has there been a situation where Nvidia can basically decide who gets their chips? Yes. Have they leveraged that to maybe not give the big tech hyperscalers as many as they want because Nvidia realizes that's a danger to them in the long run, that they, you know, they don't want to give too

• 51:53Ben Thompson?

  much power to end up in a sort of monopsony situation? Yes. Has a lot of that gone to startups like CoreWeave and things along those lines that Nvidia has also invested in? Yes. Has that entailed selling a lot to China when Amazon or Microsoft would have been happy to buy those chips? Also, yes. Nvidia's hands are not clean in this affair.

• 52:16Andrew Sharp?

  Yeah, and I'm not necessarily worried about Nvidia, but it's pretty funny that Nvidia is the company that has spent the last several years fighting like crazy to be able to sell their products into China. And in the past two months, they became the subject of an antitrust investigation in China, and then had DeepSeek use nerfed Nvidia chips to make a model that somehow wiped out 20% of the stock's value. So, could be a sort of chickens coming home to roost situation. But again, I think Nvidia is going to be fine. All part of the adventure with that company. Thomas, part two. I remember hearing about how SMIC had stolen IP and people from TSMC

• 52:57Andrew Sharp?

  and ultimately had to pay out a settlement to TSMC because of this in 2009. So, the Chinese people and government have had a focus on semiconductor manufacturing capabilities for a long time. Related, and as noted on Monday's episode, a huge blocker on the leading edge has been the lack of EUV machines. So, I'm wondering, does Ben think this is also a bad idea, and that all current machines and chemicals should be sold into China? What do you think? I was curious too, whether that falls into your take?

• 53:30Ben Thompson?

  Well, I don't know what my take is, to be totally honest. Like, the, I've always, like, you go back to ZTE and Trump banning them from chips, and I was immediately very uneasy. And I was uneasy for these questions, which is, you're setting up a long-term, like, there's a card you can only play once. You're setting up a long-term problem for US leadership in this area. The game theoretical consequences for what this means for TSMC in Taiwan is very problematic. Like, it's in, I'm not saying it's going to lead to war, but it increases the potential for it. If you cut off, if TSM, if China's dependent on TSMC, that's a very good reason to not invade Taiwan.

• 54:15Andrew Sharp?

  Right.

• 54:16Ben Thompson?

  If they're cut off from TSMC, their cost-benefit analysis is fundamentally different. And so, again, go back and read what I wrote eight years ago. I've been very uneasy on this point all along. And so, simultaneously, the EUV bit, the reason why

• 54:36Ben Thompson?

  Again, I have so many hats on this, including a deeply self-interested hats. I'm trying to be sort of honest about this is that is a, that's a, a part of passing these laws is can you actually enforce them?

• 54:51Andrew Sharp?

  Mm hmm.

• 54:52Ben Thompson?

  And that was a very clear line and enforceable point of a break in the chain that you could stop EUV machines from going to China. That was a fundamentally different technology. It was hellishly difficult to develop. The, the idea of EUV goes back to the mid or early 2000s, maybe even late 1990s. It took 10, 12, 13 years and multiple rescues of ASML to even bring it to market.

• 55:21Andrew Sharp?

  Right.

• 55:21Ben Thompson?

  And can China reinvent it? Yes, they can eventually, like if you know something's possible, you can do it. But it's like, this is actually a place that you can draw the line. And I have been much more uncomfortable with the, we're gonna like, oh, they made us, they, they used DUV, which we've let them buy for years. Like, what are you actually trying to accomplish here other than handicapping sort of US companies sort of in the long run and increasing the prospects of competition and losing your crown jewel in the very, very long run? This is very valuable leverage. Is this the right place to sort of trade away? And from a China perspective, I said that Huawei 7 nanometer was bad for China because

• 56:05Ben Thompson?

  the longer they stay on the, let's get on the leading edge with what we have, the worse when the best thing they can do is go back to basics and build up from ground zero.

• 56:15Andrew Sharp?

  Right. Your take all along has been that you have to start with the trailing edge and build up node by node in order to develop those.

• 56:23Ben Thompson?

  The pushback is China's doing that. And I just made the case before, companies should dual track. It's all like, I, I fully admit, I, I'm arguing against myself on a lot of this stuff. I, I still don't know if the chip ban's a good idea. And, and the thing that this week has sort of brought back to me, and I was arguing against it with you.

• 56:43Andrew Sharp?

  Yep.

• 56:44Ben Thompson?

  And not full-heartedly because I'm still not totally sure. I am worried from a cultural perspective about the US.

• 56:53Andrew Sharp?

  What signal it sends to ourselves.

• 56:55Ben Thompson?

  Yeah, that we're going to fight through blocking our past innovation instead of filling the incentive and motivation that we have to run forward even more quickly. And, and where do I land? I land in a pile of mud. I freely admit, I think is sort of the ultimate takeaway.

• 57:14Andrew Sharp?

  Well, did you read the, the post from Dario Amade, the Anthropic CEO? Because he wrote pretty articulately about export controls and arguing for enhanced export control enforcement. What did you think of his arguments there?

• 57:31Ben Thompson?

  I mean, it's a very valid argument and I think you've been making the argument and you, and you made it very well. And I, if people agree with you and agree with him, I get it because I might agree with you as well. I'm down here in the mud. Have some mercy on me.

• 57:47Andrew Sharp?

  Yeah, grease pig. I know, I appreciate it. Well, and I, it's interesting to me because in a political context, I have no idea how the Trump administration might handle this because obviously it's an unbelievably sensitive issue to the Chinese.

• 58:02Ben Thompson?

  Let's get the Trump, Trump angle in a second. The, the, the issue and concern I have with Dario articulating this, he's the one that wrote the GPT two posts, right? Like, and there's, there's a, I just, I'm instinctually a little suspicious of these folks that are simultaneously saying AI is the biggest danger. It's a danger to humanity and also devoting their lives to building it.

• 58:25Andrew Sharp?

  Yeah, I was gonna say.

• 58:27Ben Thompson?

  And again, if you want to, if you want to, if you want to like, like, like our email earlier, throw it back in my face and say, you're just arguing your pre-existing priors. Yeah, I am. Um, but that is my pre-existing prior. It makes me concerned and suspicious and it is deeply in their interest and OpenAI's interests to block this sort of thing. But, um, but yeah, that's, that's where I'm at.

• 58:50Andrew Sharp?

  Okay. Yeah. Well, and what I was gonna say about Trump is I, he's managing a much bigger.

• 58:58Andrew Sharp?

  Relationship with Xi Jinping and the Chinese. And so I think there are factions of his security team that would want to enhance and expand the export controls on chips and chip making equipment in particular, and get some of the allies on board, whether it's ASML or South Korea or Japan. And I don't know whether Trump, Mr. Executive, we've talked about the broadening power. I don't know whether he's willing to ruffle Xi's feathers over the next year or two here. And maybe he shouldn't, you know, because I think it is a bulwark against continued tension heightening. So we'll see.

• 59:38Ben Thompson?

  Well, the thing that is worth keeping in mind, and this sort of takes this full circle to why, why it mattered that DeepSeek was Chinese and it's actually the Chinese factor. I think your analogy to Mr. All was a great one. Like if Mr. All did this, everyone would be falling over themselves with delight and glee.

• 59:57Andrew Sharp?

  Yeah, wow, this is cool.

• 59:59Ben Thompson?

  Yeah, it's an excellent, excellent point. And there's a bit where, where I mentioned, maybe this is a good wake up call. I'm not sure that people in the US have fully internalized how precarious our position relative to China is, particularly in a warfighting scenario. And so, so this is just in general, their industrial capacity, the number of ships they can build, the number, like, we can't build stuff, we can't build ships, we can't do XYZ. Like, could we spin that back up? Eventually, we didn't spin up artillery ammo very well. And we're still producing way less than Russia is.

• 1:00:44Ben Thompson?

  Like, the, the, there's, I'm not sure it's fully internalized how bad that is. And also, how much worse it's going to get in a new type of warfare, defined by things like drones and robotics, all of which the components is completely housed in China. Like, all the little actuators and motors and batteries and all these sorts of things are dominated by China. China, if this is the world we end up in where that's what defines a war. We have a big problem. And there is probably an infusion of humility that's necessary. And if it comes in the maybe overstating what DeepSeek did,

• 1:01:28Ben Thompson?

  but puncturing the attitude of presumed technological superiority. When it comes to fighting a war, fighting a war is not aggregating users and capturing demand. Fighting a war is actually expending physical goods and actual people to, in a war of attrition. Like that's, that again, my allegation theory is not worth very much in that scenario. Like, let's be very, in the US, everything about US tech and our economy as a whole is all about consumption. Like, like we rule the world economically through leveraging our willingness to buy lots of crap. Like that, like at a very sort of fundamental level.

• 1:02:10Ben Thompson?

  And in that context, I don't want to give Trump too much credit because who knows what's like, he likes tariffs, he likes throwing out XYZ. What I recognize though, is there's a real arrogance in the way we deal with this sort of stuff. And an assumption that the world as it was 30 years ago is the world that it is today. And it's just not true. And is it actually wise to keep operating with a level of arrogance and that we can dictate to the world what it is or what it isn't, if we increasingly don't have the goods to back up our talk? And so when you think about something like Taiwan, like people are flipping out over this potentially applying tariffs to Taiwanese chips.

• 1:02:54Ben Thompson?

  I already wrote, I wrote about this in Strickery, I mean, I'll get to it again. But I kind of made my point that Trump's critique of the CHIPS Act, that it just subsidizes supply, was fundamentally wrong-headed. You needed to subsidize demand. Tariffs are a way to do that, but I think a less effective way than just straight up making buying guarantees for Intel and buying chips. But it's not insane. And when you think about what is necessary in terms of driving demand, there's also a broader point that our total dependence on Taiwan is a big problem. Like, like the, the, and if the Taiwanese government, you know, they completely, rationally,

• 1:03:35Ben Thompson?

  don't want to allow leading edge TSMC capabilities to go off island because it is their trump card, no pun intended, to make sure the US comes to their defense. But how long is that sustainable if there's very real questions about our capability to fight a war?

• 1:03:50Andrew Sharp?

  Yeah. No, exactly.

• 1:03:51Ben Thompson?

  And I, again, to the, an analogy for Trump has always been a bull in a china shop. And there's real questions to raise about his ability to put stuff back together.

• 1:04:00Andrew Sharp?

  Mm hmm.

• 1:04:01Ben Thompson?

  But sometimes there is value in stuff being broken. And one of those taboos that might be worth being broken is the total self-assuredness amongst most of the US that we can win a war.

• 1:04:11Andrew Sharp?

  Right.

• 1:04:12Ben Thompson?

  And in that world, is there, is this sort of screwing Taiwan? Maybe. Does TSMC benefit from a manipulated currency? Or, or a currency that doesn't seem to quite reach its right level? That gives them a fundamental cost advantage making chips in Taiwan?

• 1:04:29Andrew Sharp?

  Maybe.

• 1:04:30Ben Thompson?

  Maybe. Uh, like, like there's like, the, the, the hands are not clean on all sides here. There, there's a, there's a tendency to put, like, Taiwan is an ally. They're not 100% aligned with US interests.

• 1:04:42Andrew Sharp?

  Yeah.

• 1:04:42Ben Thompson?

  And, uh, and I just think there's a, again, I'm not saying I agree or disagree yet. I'm still really thinking about it. But I do think there's a real paucity of humility and awareness of the situation that we're in right now.

• 1:04:59Andrew Sharp?

  Yeah.

• 1:04:59Ben Thompson?

  And, and there might be an argument, by the way, that we need to lean into it. That we should come to some sort of agreement with China that locks them in as they're gonna make stuff and we're gonna buy stuff. And what does that mean for Taiwan? Well, if we better have our own chip making possibility, because are we gonna, like, like, the, the worry about Taiwan being a part of China is then China now has, can cut off our chips.

• 1:05:25Andrew Sharp?

  Right.

• 1:05:25Ben Thompson?

  Well, then we should figure out how to make our own chips domestically. Because that's the exact same worry of a war scenario, which is that China blows up TSMC. Then we still need to make our chips domestically. Like, it, it's very rational. Again, I love Taiwan. I've lived here for 21 years. I Taiwan's democracy is amazing. You know, the I would love to stay in this gray area where it's functionally an independent country. I do feel truly free here. Well, covid was a little iffy.

• 1:05:59Andrew Sharp?

  Yeah, tested your patience.

• 1:06:02Ben Thompson?

  There's like that the job of if you're concerned about national security, if you're concerned about these long-term things, you have to think about these issues.

• 1:06:10Andrew Sharp?

  Yeah.

• 1:06:10Ben Thompson?

  That's why I wrote the geopolitical chips article years ago. Like, like this is a real problem.

• 1:06:17Andrew Sharp?

  Right. Well, and I don't say it trivially when I reference Trump's executive discretion. I sort of made it sound like a joke about five minutes ago, but I mean it. If we don't go the direction that I imagine a significant portion of his administration wants to in terms of expanding export controls, there may be a reason, and that actually may be a rational decision because it will absolutely infuriate the PRC side. The relationship will devolve further and it's not lost on me that the PRC has been in the midst of a manufacturing build out that is not paralleled in the last hundred years beyond like pre-World War II, Germany and early 20th century, the United States.

• 1:07:00Andrew Sharp?

  Like they're in a much better position to fight a war than the US is, at least from a manufacturing standpoint and shipbuilding.

• 1:07:08Ben Thompson?

  Right. From the US perspective, the like the optimistic take is, well, our AI is going to become so good that we can technologically win. And that's the argument for the chip controls is that we will overcome the manufacturing deficiency by virtue of having superior technology and AI. And that's why, yes, we're throwing away, we're playing our one-time play Trump card now. Again, no pun intended, but.

• 1:07:32Andrew Sharp?

  Well, and maintaining an advantage now will then compound in the years to come.

• 1:07:36Ben Thompson?

  That's right, because the AI is going to make the AI better. Right. And so, so this viewpoint, the funny thing is, is that the chip ban, if you dig down to the fundamental assumptions undergirding it. Is actually the same as the Sam Altman view or the Daria Amadee view, which is we're not going to have commoditized models. We're actually going to have takeoff and we're going to have a sustainable, superior advantage that's going to maintain over time. That's why, that's why the deep seek thing's a big deal. If that's not the case, how many decisions were made with that assumption? That might not be true.

• 1:08:15Andrew Sharp?

  Yeah, well, and would deep seek exist if not for nerfed Nvidia chips that had been sold into China is an open question.

• 1:08:22Ben Thompson?

  Well, I mean, to be clear, ByteDance and Alibaba, they all have pretty decent models. So like, like you can.

• 1:08:28Andrew Sharp?

  But are they working with Nvidia chips? And or are they working with what Huawei has developed? And Huawei has been buying up chip making equipment for years, much to the dismay of people in the security community who think that you should be much tougher on Huawei. I don't know.

• 1:08:43Ben Thompson?

  Well, I, I think most of the training is probably happening in Nvidia chips. I think that's where frankly, a lot of the smuggling is, is going to.

• 1:08:50Andrew Sharp?

  And there's cloud options too.

• 1:08:52Ben Thompson?

  I think Huawei, yeah, I think for inference, it's more plausible. Inference, you need less of that general bandwidth. You're more constrained by memory anyway. But I don't know, it's hard to say for sure. But the other thing is you do have this constraint of power and data centers and which entails the ability to build stuff. And China is better at that than we are. And so there's a bit, you could just sort of brute force scale that operates inefficiently relatively speaking. And it's okay because particularly when you think about it, at the end of the day, the military is going to get all the best chips. Like they, they, so even if you constrain private industry, it's not like, you know, so.

• 1:09:34Andrew Sharp?

  They'll figure it out. Yeah.

• 1:09:36Ben Thompson?

  I can make the argument for the chip band as well.

• 1:09:39Andrew Sharp?

  Can I read one more email on the chip band? And do you have time here?

• 1:09:42Ben Thompson?

  Yep.

• 1:09:43Andrew Sharp?

  All right. Michael says. Part one of Michael's email is first Andrew could not be more wrong with his comment.

• 1:09:50Ben Thompson?

  Oh, finally, someone that takes my side, geez.

• 1:09:52Andrew Sharp?

  That somehow the chip export control.

• 1:09:54Ben Thompson?

  Questions about you, you choosing these emails. I was wondering.

• 1:09:57Andrew Sharp?

  Oh, my God. Listen, I just wanted to give you a chance to respond to a fiery rant. Michael says.

• 1:10:03Ben Thompson?

  No, that was a great rant. That was actually, that was the best emails I've gotten in a long time. I look, I will give credit where credit is due, but you know, Michael's turn.

• 1:10:09Andrew Sharp?

  Terrific energy. Andrew could not be more wrong with his comment that somehow the chip export control regulations were watered down by industry and that's why they don't work. You spent a lot of time talking about cope on the last episode and that's some hardcore cope.

• 1:10:26Ben Thompson?

  The regulations. I just want to, cope is such a great word. It's been a great, great addition to the discourse. I'm glad, I'm glad we're helping.

• 1:10:33Andrew Sharp?

  Oh, my God. My only request, honestly, the only reason I read this email is because I want to make a formal request to all our listeners, to tech Twitter, to you. Can we all just take a two week break from saying the word cope? It's everything, every other tweet I've read is about cope. Doesn't have to be a permanent break. Just give me two weeks. Take a breath, everyone. All right. Michael says, that is some hardcore cope. The regulations were completely dumped on industry without any engagement or opportunity for feedback. That's especially true of the recent AI diffusion and foundry rules. I don't know if they'd be better, worse, or whatever, if industry were more involved,

• 1:11:15Andrew Sharp?

  but industry was absolutely not involved in any meaningful way. This email made me smile because it reminded me how different the audiences are across the various podcasts we host in the bundle. The Sharp China audience, many of whom are in DC and in government, would have a very different take on what happened to the chip controls, but I'm sure there are lots of people in the Sharp Tech audience who feel like the government was dumping all this on them without having any idea what they're trying to regulate. I'll just say, what I recall is that there were efforts to get Greg Allen removed from his post at CSIS because he was too competent at explaining the areas in which

• 1:11:56Andrew Sharp?

  the chip bands were failing to achieve their intended purposes. And in general, the lobbying behind the scenes has been pretty well chronicled. Semi Analysis actually did a great job in October, pointing out all the different ways the chip controls had failed, and why they were strategically important. But to Michael's point, I think the resulting incompetence is ultimately the responsibility of the Biden administration. And I also think he's referring to the AI diffusion and foundry rules. And I know less about that process. That probably was dumped on industry without any meaningful involvement and engagement. And I don't think

• 1:12:37Andrew Sharp?

  those rules were the right way to approach any of this. So on that point, I can agree with Michael. Do you have any thoughts?

• 1:12:45Ben Thompson?

  Yeah, I mean, I think the, you go back even also to the Biden executive order on AI.

• 1:12:51Andrew Sharp?

  Mm hmm.

• 1:12:52Ben Thompson?

  I just want to double down on that bit I made where they became like true believers in this AI takeoff scenario. And it's like, we have to do everything possible to stop this. And that's why this is an important point in the question of model diffusion is a really important point to talk through. It's meaningful. It's obviously super meaningful from a business analyst perspective, right? Where does value accrue in the value chain? But it's actually undergirds these very deep fundamental questions, like, are we going to sacrifice our semiconductor industry in the very long run? Because this is the one time that we have to get it right. Yeah. Right? Like, and so, so that's one point. The other thing, it's not that you and Greg Allen and Semi Analysis are wrong about these chip controls.

• 1:13:34Andrew Sharp?

  Yep.

• 1:13:35Ben Thompson?

  It is worth considering the extent to which the chip controls being leaky is.

• 1:13:42Ben Thompson?

  A pressure valve, right? That, that, that, that prevents us from actually playing these scenarios through to the end. And we do need to think deeply about what happens if we have perfect chip controls.

• 1:13:51Andrew Sharp?

  Right.

• 1:13:52Ben Thompson?

  If China actually did not get any chips. What is the rational response of China in that scenario?

• 1:13:59Andrew Sharp?

  Yeah. I mean,

• 1:14:00Ben Thompson?

  And it's, it's not a pleasant one.

• 1:14:02Andrew Sharp?

  Yeah. And that's what I mean. I think, I wonder whether Trump is considering that as he weighs all this, as, as things go forward.

• 1:14:09Ben Thompson?

  Who knows?

• 1:14:10Andrew Sharp?

  I'm not gonna try to jump into that mind. But, Michael, part two. Ben is correct on ICE engines. I had a fun opportunity earlier in my career to get the red carpet rolled out for me at Daimler and BMW. If you go into the Mercedes-Benz Museum, you go on this long elevator up to the top floor, and when the door opens, you're in a dark room with a spotlight shining on the first ICE engine the company produced. The key technology that they had was the engine. The same was true of BMW. The engine is the key technology. Everything else flowed from that. It's also true of Honda, based on my understanding of the company's history. And I also think it's true of Ford.

• 1:14:54Andrew Sharp?

  He developed an engine first that none of them have adapted particularly well to the EV environment, isn't surprising, given that their key differentiating technology was fundamentally disrupted. Ben, I include that part only to say that I would love to go on a tour of Daimler and BMW, get the red carpet rolled out for us.

• 1:15:14Ben Thompson?

  I feel like we have a SarpTech field trip here. I'm very jealous.

• 1:15:16Andrew Sharp?

  That's right. Let's go to Frankfurt sometime in the next year or two. But thank you for the note, Michael, and thank you to everybody who wrote in. We did, we got like an avalanche of emails, so this is a bit of a longer episode, but we got through as many as we could. You were efficient, you know, taking your cues from DeepSeek on this episode. And here we are. We will be back next week, and it's not gonna be wall-to-wall DeepSeek next week, but Ben...

• 1:15:44Ben Thompson?

  Don't promise things you can't guarantee.

• 1:15:45Andrew Sharp?

  That's true. Enjoy the weekend, and I will talk to you soon.

• 1:15:49Ben Thompson?

  Talk to you later.