China Open-Source, Compute Arms Race, Reordering Global Trade | BG2 w/ Bill Gurley and Brad Gerstner

Open Source bi-weekly convo w/ Bill Gurley and Brad Gerstner on all things tech, markets, investing & capitalism. This week, they discuss open-source models in China and the US, the compute arms race, tariffs and the reordering of global trade, and more. Enjoy another episode of BG2! Timestamps: (00:00) Intro (3:55) Open-Source Models in China (17:54) Future of American Open-Source Models (26:30) Compute Arms Race (47:05) China, Tariffs, and Reordering of Global Trade Show Notes: Artificial Analysis - Intelligence vs. Price https://artificialanalysis.ai/⁠ Mary Meeker Bond Deck https://www.bondcap.com/report/pdf/Trends_Artificial_Intelligence.pdf⁠ Produced by Benny Beausoleil Music by Yung Spielberg Available on Apple, Spotify, www.bg2pod.com http://www.bg2pod.com Follow: Brad Gerstner @altcap https://x.com/altcap Bill Gurley @bgurley https://x.com/bgurley⁠ BG2 Pod @bg2pod https://x.com/BG2Pod⁠

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

• 0:00Brad Gerstner?

  15% on all goods coming from Europe, 0% on US goods going to Europe. So an opening up of Europe markets, paying us 15% and on top of that, getting commitments like $750 billion, almost a trillion dollars of energy purchases from the US. Or look at Japan, which they announced last week, another huge market. Again, similar, they're going to pay tariffs to the United States, no tariffs imposed on the United States, and they're going to invest $550 billion into the US in a way the president gets to direct. So I would, I would, I just think we need to give the president credit where credit is due.

• 0:43Brad Gerstner?

  Everybody said this was going to lead to retaliation, to trade wars, was going to be disastrous for the US. And all we've seen so far is deals, deals, deals, deals. And I have to say, if this was the CEO of one of our companies, right? Let's say we had a board meeting at the start of the year and he outlined these plans and we said, hey, we're really nervous about this. You know, this is a high risk, high reward strategy. It's either going to backfire and we're going to fire you, or it's going to work really well and we give you a bonus. If we're measuring them halfway through the year, I would say that he's in line for a bonus.

• 1:31Brad Gerstner?

  All right, the summer pods back in action. Good to see you guys. We have our good friend, Sunny Madra, the CEO of Grok, joining from, I don't know, Sonny, it looks like some fancy hotel in Saudi Arabia in the middle of the night. Good to see you.

• 1:45Speaker 01

  You picked it up. You have a good, you have a good eye for the Middle East.

• 1:49Brad Gerstner?

  And Bill, Bill, you got off your boat catching bluefin tuna. You're, you look like you're in some office somewhere. So good to see you.

• 1:57Bill Gurley?

  I am borrowing Mitch Lasky's incredible podcast setup in, in our Woodside office with the hi-def SLR camera.

• 2:07Brad Gerstner?

  Nice. You're looking, you're looking good.

• 2:09Bill Gurley?

  Appreciate it.

• 2:09Brad Gerstner?

  Sonny, of course, our good buddy Sonny is the COO of Grok. Um, I don't know, Sonny, probably a few hundred million of revenues, maybe doubling year over year. I just saw something you're rumored to be raising 600 million at a $6 billion valuation. Maybe that has something to do with you being over in Saudi Arabia. Um, and of course, you're hosting all the, uh, open source models in, in your inference clouds around the world. Is that about right?

• 2:35Speaker 01

  Yeah, you got, you got it right. You touched on all the key points. You know, we don't comment on speculation, but you touched on some good points.

• 2:42Brad Gerstner?

  Well, it's great to see you in DC last week. Um, you know, our good friend David Sacks is really on a heater. First it was the crypto summit a couple of weeks ago. Of course, the genius act got passed, which really teed up these stable coins and, and, and now the clarity act around market structures making its way through Congress. And then of course, last week was the AI summit where the president laid out, um, a multi-pronged strategic plan for American AI that both extends the government's investment and, and leadership, um, but also accelerates the distribution of the American AI stack around the world. Both of those things, both the crypto and the AI summit that he put together, I thought are key contributions

• 3:27Brad Gerstner?

  really to the next generation of American technology leadership around the world. It's amazing to see that much progress in six months. Congrats to Sacks.

• 3:36Speaker 01

  And the rest of the team, Kratos, Dean Ball, Sriram, they really all kind of brought it, brought the heat.

• 3:42Brad Gerstner?

  Yeah, for sure. Of course, the AI action plan was focused on maintaining global AI leadership, particularly over China. And I hate to say it, but we have really been our own worst enemy. You know, it seems like excess regulation on everything from energy production to model development to semiconductor chip distribution. It's really been a bit of an unforced error by the US over the course of the last 24 months and handed a lot of momentum to China. And I think really threatened our leadership. So this is kind of a 180 to get America back on track. You know, we've underestimated Huawei and the Chinese AI development,

• 4:23Brad Gerstner?

  model development really at every step of the way. So I want to kick off today talking about recent developments with the base models and reasoning models coming out of China. Because, you know, we had this freak out moment earlier in the year with DeepSeek that we all remember. Remember Nvidia stock plummets, everybody in Washington's talking about it. But since then, you know, people kind of forgot about DeepSeek, but the reality is China's been on a roll. I mean, they're dominating the global landscape for open source models. We've seen six to seven high-quality open source model providers, many of the fastest growing in the world. And this at a time when American open source, right, Llama 4 has been sputtering a bit, really losing

• 5:07Brad Gerstner?

  its mojo around the world. So Quen, the open source model out of Alibaba has passed, I think, 400 million downloads. Of course, that's released like these other models under the Apache 2.0 open source license, so very open, as Bill's talked about. But Sonny, you tweeted, and one of the reasons I wanted to get you on the pod this week is you tweeted, you know, that the, all of these open source models are really coming together in China. They're leveraging one another. They can distill and generate synthetic data on each other's work. And you went so far as to suggest this might allow them to pass the best proprietary models coming

• 5:47Brad Gerstner?

  out of the US yet this year, maybe by Q4 of this year. So why don't we dig in there? What is your theory of the case? Why is China, you know, doing so well in open source? And should US model companies like OpenAI and Anthropic be concerned?

• 6:05Speaker 01

  Yeah, so let's kind of tie it into, I think, three important things that we see happening. The first one being, you know, the Chinese, and the president addressed this at the AI summit, right? He addressed the point around using copyrighted work. And he says, you know, he used a great example. If you read a book and you use it, you're not violating the copyright And so he addressed that concern and that was one of the major things that, you know, a lot of people didn't talk about, but I think it's important for the model makers. And so the Chinese just have been able to work around that because of, you know, their position on IP. And what we're really seeing here, and I think, you know, Bill teed it up even better off of my tweet, which is, um, you know, they're able to compound.

• 6:48Speaker 01

  So what you're seeing very quickly is both the open source nature, the open weights nature, uh, allow them to basically compound on each other. So instead of working in silos and instead of having to create giant training clusters, um, separately, they can basically take each other's work, build on top of it, almost consider it like a remix of someone's model. K two, sort of a well-known remix of what, what DeepSeek had done. And now we're starting to see that happen really fast. And we're seeing two dimensions of it going quickly. One, we're seeing the leading edge models getting quicker. And we're then seeing them distill down smaller, you know, turbo models really, really fast as well. There was a, a release today of a Qwen, you know, 30 billion parameter model, which is performing as good as GPT four O. So think about that, right?

• 7:33Speaker 01

  And GPT four O was, you know, world class not that long ago. So those are the reasons that we're really seeing an acceleration right now.

• 7:41Brad Gerstner?

  You know, it, it, I want to dig into this model development in particular. You know, a year ago, we were talking about these models being these, you know, stochastic parrots, um, you know, and we really had to compress the entire internet. So you go back to GPT four, you know, and, and, and you're compressing, uh, you know, the entire internet. But now we really don't need to do it because we've trained them to use tools like the internet. Right? They, they're true reasoning engines. When I ask a question today, you know, it doesn't just spit out an answer immediately. It goes and uses the tool and it searches the internet. Um, so if you don't have to compress all this Wikipedia information, I don't know, take, take a subject like World War Two, you just need to know how to go out and use the internet, define the information, to summarize it in real time.

• 8:26Brad Gerstner?

  How has that changed the pace of progress and the balance between open and closed?

• 8:32Speaker 01

  Yeah, and so it's spot on, right? Brad, what we see now, and you see it when you use these reasoning models. And what I suggest everyone do is when you're using a reasoning model, you can usually expand out its thought process. So when you ask a question, it'll say, oh, the person is asking a question about this. What should I do? Let me go and maybe search the Internet. Let me go do a few different things. It can have a lot of different tools. And so the push has been towards, you know, really, really strong reasoning models. And, you know, we have to give credit there. OpenAI really started that with O1. That was really the first reasoning model that was put out there. But I think on the back of the research and the back of it, you know, everyone talked about, and you know, the pod's good friend Noam Brown was the leader on that program. Everyone's been able to look at that and say, let's reframe the problem. And this allows us to build stronger reasoning models

• 9:17Speaker 01

  that don't have to compress, like you said, all the Internet's information. And once they're coupled with strong tools, you start getting these really, really incredible results that don't even just show up in benchmarks, because none of the benchmarks really allow you to use a tool to answer the results.

• 9:32Brad Gerstner?

  Right.

• 9:32Speaker 01

  And if they did, we're going to see a whole bunch of new set of results that happen there.

• 9:37Brad Gerstner?

  Hey, Bill, just in many ways, I think this validates what you were arguing over the last six to 12 months. You said this was likely to happen. Everybody knows you're one of the biggest proponents of open source in the world. And you were telling people, don't make, you know, the Chinese are going to use open source to their advantage. And now we're seeing that in a really profound way. Why is China so successful here? And what can we learn from them?

• 10:04Bill Gurley?

  Well, we've talked about it in the past. I won't dwell on it. But China got excited about open source about 20 years ago. It's not a new thing that's happened. And you can imagine when most of the world accuses you of IP theft, that embracing something like Linux and all the other software, open source products seems very appealing, right? And so I think it became kind of a common way of operating within China. And it, you know, it's a country that hasn't prioritized IP protection the way we have, you know, around patents. And I can make An argument that, you know, there's way more prosperity if ideas are shared instead of,

• 10:47Bill Gurley?

  instead of protected. But I don't know. The one thing I don't know is in the, in the current AI situation, you know, was the government promoting open source and encouraging it? Or did it just develop through competitive forces? Right. But, but now you have, you know, a scenario where these companies, you know, are, you know, are, first of all, there's new ones popping up. And so, you know, I could almost be like an idiot when, when Kimmy comes out and moonshot and, and then this week, I guess, I don't even know how to pronounce it, Zippu, or, you know, releases a model. And I go on PitchBook and I look it up and they've already raised 1.4 billion dollars. So shouldn't have been a secret, but I didn't

• 11:31Bill Gurley?

  know about it, you know? And all of a sudden, they're in the leader tables on Open Router and like, oh my God, you know, they're coming out of everywhere. And what it shows you is just that when you have a competitive dynamic where every single player, and I think there may be seven or eight digpocketed players with open models in China, they, they all learn from each other extremely fast. And, and in this case, unlike software, you can use one model to distill the other and make it better. So it's almost like a accelerated, you know, form of that. And you just get massive, quick co-evolution. And I came up with a, a, a little analogy for people. I'll try and do it quickly. But imagine you had two communities, they're both farming communities.

• 12:16Bill Gurley?

  And, and let's say there's 10 to 20 farms in each. And in one community, they come into the farmer's market once a week, and they just compete by selling their products, but then they go back. In the other community, when they come into farmer's market, they also, in addition to competing and selling, they, they, they're forced, I don't know who would force them, but they're forced to share all their best practices from that week with everybody. And everyone does it. And everyone shares their best practices. And then if you ran that exercise over two years or whatever, obviously, the community where the best practices are shared across all farms. Is going to have a higher global output for the community than the one where you've

• 12:58Bill Gurley?

  just got proprietary ideas driving, you know, the individual and just competition without the idea sharing. And that may like even me saying that may cause some people to scream. That's socialism or like, you know, they may not understand open source or how it works or why. But, but I do think you end up with a higher fitness level for a community that's behaving that way. Overall, you may end up with a lot less chance of a breakout monopolist like we've had in many of the, the sectors in, in American technology.

• 13:31Brad Gerstner?

  Well, I mean, let's, let's just assume the Chinese government is in fact encouraging this in whatever ways, right? I mean, if you look at the release of the AI action plan last week, the Trump administration, you know, had a section.

• 13:45Bill Gurley?

  They did.

• 13:45Brad Gerstner?

  Which, which is about encouraging open source and open weight models in the US.

• 13:50Bill Gurley?

  Two paragraphs.

• 13:51Brad Gerstner?

  Saying that these could become standards in some businesses and academic workloads. And it's important they're built on the American AI stack. So, you know, as an aside, the Chinese quickly followed, uh, you know, the, the American AI plan. I think they released theirs a couple of days later where they called for the establishment of a global AI cooperation organization, which I thought again is, is, is, is interesting. So, you know, Bill, how do you feel about, you know, like we, we haven't seen that much traction in the US labs on open source. Obviously Lama has been probably the market leader there, but this is for both

• 14:33Brad Gerstner?

  of you. Uh, you know, handicap for me, if you will, how you think this plays out. First, Sonny, maybe you start. What do you see at Grok? Do you see a lot of demand for these Chinese open source models? And if so, what would it take for an American open source model to catch up?

• 14:53Speaker 01

  Yeah, one of the things that we should pull up is the chart of intelligence to price. And one of the things that you see with the leading open source models now, which are the Chinese, is 90% of the quality in terms of intelligence, but at a 90% price discount. And I think whenever you offer that to anybody, you're going to see people want to use that, whether it's individual developers or enterprises. And so we're seeing that around the world.

• 15:18Brad Gerstner?

  Let me interrupt there real quick. So if you're looking at this chart, right? In the top right of that chart, you'll see a cluster of these Chinese open source companies, right? And the vertical axes here being really intelligence. The horizontal axes from left to right being the cost per million tokens. And so you really want to be in the top right of that model. High intelligence, low cost. And what this model, what this chart shows is that you, you know, to Sunny's point, you can get 90% of the intelligence, right? For 10 or 20% of the cost. And the result, I assume, Sunny, is that you're seeing huge demand at Grok

• 16:02Brad Gerstner?

  and in Saudi Arabia, where you are right now, for these Chinese open source models.

• 16:07Speaker 01

  We are. And then now, just taking that forward, what do people want? They want some accountability. And that's what you'll get. That's what you sort of got out of Linux and say Red Hat, right? As great as Linux was, and Bill was touching on it, the majority of the enterprise was using, you know, distribution, which they could go and, you know, point to someone if they needed something. And so I think the world wants models that they can get from companies that they can go to. And so to answer your question of what happens, I think if we look at Q4 this year or Q1 next year, I'd be willing to say, you know, that a top three worldwide model will be a US-based open source model. And, you know, we've got two big efforts happening there. We know we have the OpenAI open source,

• 16:51Speaker 01

  which, you know, a lot of people have been working on. And OpenAI, and even, you know, Sam and self has commented on that and its release later this summer. And then we have all the efforts by Meta. And if you take, you combine both of those things together, I don't think you end up with something that ends up further down the list in terms of intelligence and or price.

• 17:10Bill Gurley?

  I um, one thing I wanted to highlight about the China situation that I think might inform the US situation. I was, I was having a conversation with this extremely young AI entrepreneur that I know, and he, he, he was poring over the Zipu. I hope I'm pronouncing that right, paper. And he asked me some information. I went on PitchBook and sent it to him who had funded it. And he, he, he asked me, he says, why is Alibaba funding all these things when they've got their own model? And, because they're in several of the other competitive plays. And it reminded me of, you know, a lot of the, the points that I've made about open sources. Like, if you're not, if you, if you're not confident

• 17:55Bill Gurley?

  you're going to win on offense, you want to play defense. And so, for any large tech company, commoditizing a, a potential threat is, is actually quite valuable. You know, you look at what Facebook did with the Open Compute Initiative inside of their data centers. And so, you know, it may just be, very well be that, that Alibaba just wants to make sure there's no ByteDance, you know, that equivalent in the AI space. And that would be pretty rational. And the reason I think that's an interesting data point, when you think about the US, and, you know, there, there are several big tech companies that

• 18:36Bill Gurley?

  seem to be not on the bleeding edge of AI. You know, you got Microsoft, maybe. I mean, they have access to OpenAI right now, but they might lose that or whatever. You've got Amazon, you've got Apple. You know, if I'm at any of those companies, I'd be funding a open source competitor, you know, rather than funding, you know, like Amazon with Anthropic. I think you're in a much better position to encourage open source. And so, I actually think we may-

• 19:05Brad Gerstner?

  But Bill, are there, are there, are there a bunch of open source startup models in the US?

• 19:10Bill Gurley?

  That's where, that's where I was going next. I, I think you're going to see new entrants pop up, that, that, that try to co-evolve-

• 19:20Bill Gurley?

  With the Chinese models, you know, is Linux American, is Linux Chinese like no one thinks of it as having a a domicile, right? And so this is just me predicting, I don't, you know, I just think you're gonna see, just like you saw Kimmy and and Zepu pop up, I wouldn't be shocked if you see other new entrants pop up that are trying to be like sanctioned or or or, you know, cleaned, you know, use Red Hat as an example, Sonny, a version of these things, because I think if you start with access to those Chinese models, it wouldn't take you long to move into a near place and you wouldn't have to spend the kind of money the foundational model companies have.

• 20:06Bill Gurley?

  And and then you may see a big fight around regulatory capture where they someone tries to say that's not allowed or whatnot, but I I do expect to see that. And if I'm the Mr. All team, if you're not distilling on these Chinese models, I don't know what you're doing right now.

• 20:23Bill Gurley?

  But I don't have any data on that front.

• 20:25Brad Gerstner?

  OpenAI is rumored to be launching their open source model any day. Sonny, what would they have to do? So to your point, you predicted, go back to the intelligence and pricing chart, right? So if OpenAI was in the top right of that chart, i.e. if they're able to deliver something at the the intelligence of, let's call it, Quen, and they're also able to deliver it to market at, you know, 20% of the cost. It would seem to me that actors around the world, certainly actor, it would be, you know, part of the American AI Action Plan, we had won everybody in the world to use that model. And do you believe they have a shot at outcompeting, being the upper right, you know, by the end of the year? And and if so, do you think that will be the outcome?

• 21:09Brad Gerstner?

  Like these companies that are using Quen on Grok, do you think they would prefer to use OpenAI so long as it was equally capable and equally price performant?

• 21:20Speaker 01

  So two things that we see is brand and you know, the US domiciled or you know, someone that they can kind of point at that wins. And so if that shows up, it will win. Because if you're a company and you know, at some point, you have to, you know, get your teams to sign off on what is it that you're using? What are the risks associated with it? And like, you know, who is liable if something goes wrong? And so I sort of feel like with OpenAI's release and you know, Meta charges back, or even if some of these startups emerge that, you know, we can point at, I think we'll see a huge shift back towards those models versus, versus the Chinese ones.

• 22:00Bill Gurley?

  Yep. And we really don't know at this point, unless you guys have some inside knowledge, like when, when Meta makes their second push with all these hires that they've made, are they, are they going to remain committed to open source or even be more open? We don't, we really don't know yet at this point.

• 22:19Brad Gerstner?

  Right. You've certainly seen some of those rumors out there. You know, I've seen rumors that on Twitter that they were debating whether or not they should back away from open source. My hunch is that that's a misread. My hunch is that they're going to stay very committed to open source, but they may complement it with a proprietary model. That would be my guess as opposed to scrapping open source altogether.

• 22:45Speaker 01

  And Brad, can I throw one thing out there? I think part of the pitch to get everyone there is that it's open. Because everyone that they're pulling over are coming from closed places. And so if you're really passionate about the work you're doing and you're passionate about where this is going to go, and there's only, there's only one company that can fund that to that scale and do it open is those guys. So I think it's part of the pitch.

• 23:06Bill Gurley?

  Yeah, some of, some of the researchers like have a religious belief in it, which was evident in the, in the interview with the DeepSeek founder. Like it's, it's oddly like higher on their Maslow, you know, hierarchy than the money.

• 23:22Bill Gurley?

  Of course, they're getting the money.

• 23:25Speaker 01

  Of course, yeah.

• 23:26Brad Gerstner?

  On this one, it's both. This is, I think, a really important point I want to come back to, Sonny, is that you're seeing massive demand for these Chinese open source models today, precisely because enterprises around the world can utilize them. They have 90% of their capabilities at 20% of the cost, 10 or 20% of the cost. You know, so it turns out if you deliver something really powerful and really cheap, that's more important to these players than American values aligned. But if you gave them something that was super powerful and super cheap and aligned

• 24:06Brad Gerstner?

  with Western values, right, that you think that would be the winning formula for an American OpenAI model to top the distribution leaderboards around the world. Is that what I'm hearing?

• 24:18Speaker 01

  Yeah, on a place like OpenRouter, you know, where you can see where this is happening, I see we would see it rise to the top in a few days.

• 24:27Brad Gerstner?

  That's music to David Sacks's ears because, you know, clearly in the strategic plan, they're worried about Chinese open source models dominating globally. And if you just watch the pace of releases, the quality of the releases out of China, the cycle time on the innovation in the open source community out of China, it's faster and better at the moment. So, and the only real big development, you know, we may see some of these new startups, Bill, we may see a reboot out of Meta, but the one that has, I think, everybody really holding their breath and hoping that we see something really capable and powerful is

• 25:10Brad Gerstner?

  this open source model that's been promised out of OpenAI. Now, of course, Elon says he's committed to open source as well. Grok 4 is a great model, is impressive what they put out there. Any idea, Sonny, about the open source plans out of X?

• 25:29Speaker 01

  Yeah, so I think like Elon's been, you know, pretty said it on Twitter that they'll always open source one generation back. And so while they're on three, you know, they should have gotten to two and now they're on four. So I think the thinking is that they will get there. You know, my, my only guess would be is that, um, you know, right now, if they were to open source two or even three, it's so far behind that, um, you know, what's, what's the purpose in doing it? It may not even be utilized and you'll maybe end up having to deal with just a bunch of internet or Twitter FUD. Just coming back to OpenAI, I will tell you, it's like one of those things that really you rarely see in the enterprise. It's almost like the demand for like a, you know, like a Tesla Roadster or something,

• 26:13Speaker 01

  or a Model Y before it came out. Everybody asked for it. It's like, that's the model that everybody wants to use right now. And so, you know, we can't wait till it comes live and, and it, you know, one, it's on Grok, one, it's all over the world. I think it's going to be a real big one for everyone.

• 26:28Brad Gerstner?

  While, while we have you, Sonny, um, you know, there's really just been this explosion in the compute arms race, right? Um, there was a big debate. You were on the pod a year ago. We had with Bill, you know, had we topped out on compute demand, you know, were we entering an overbuild à la Cisco 2000? Um, and it's really been remarkable. I think now that's very clear, but just a couple tweets out of Elon and Sam Altman, the last couple of weeks on this compute demand has have really caught my attention. If you look at this one out of Elon talking about the X dot AI goal is 50 million in units of H100 equivalent.

• 27:10Brad Gerstner?

  And Clark Tang on my team tweeted something that broke that down, um, which showed that that reflected something like, you know, 4 million total GPUs and an energy footprint of like 11 gigawatts, right? And then Sam Altman comes out and, and talks about their deal down in Abilene for four and a half gigawatts and the fact that they were going to come in well above the $500 billion estimate that they had promised to the government. So these compute clusters now that are being talked about.

• 27:43Brad Gerstner?

  Being built over the next five years, these are massively bigger than what we were even talking about a year ago. And I think they reflect this move toward inference time reasoning, agent to agent interaction, reasoning engines. You know, Jensen's comment on the pod last year, the inference was going to 1 billion X. And the consequence, you know, what we're going to need in terms of compute power to power all that. Maybe just reflect, you're in the middle of all this, you're building out your own inference clouds around the world. Is this a lot of hyperbole and chest pounding? Or do you actually see the dollars going into the ground in places like Saudi Arabia and around the US?

• 28:26Speaker 01

  Yeah, I'm gonna, I'm gonna just quantify it with, with Google for a second. So, you know, in the, in, in, in the, in the Mary Meeker Bond deck, you know, they have a slide there that shows Google went from five trillion tokens a month to 480 trillion tokens a month. And they had just put some press out that they crossed like, you know, 800 trillion. And I saw something today, they crossed a quadrillion and I had to look that up, that's 1,000 trillion. And so in, in a course of a year, in a few months, they've gone from 5 trillion to 1,000 trillion. So that's 200X right there. I mean, that just shows it to you without having to look at anything else.

• 29:06Brad Gerstner?

  Every single search query on the planet today is now an inference transaction.

• 29:11Speaker 01

  Correct. And so, you know, and you see it, you know, in Anthropic with, you know, their continued fundraises going, you know, through the roof, that's happening because they're, they're seeing the amount of token consumption. And so anywhere we lay infrastructure, we fire up a rack, it becomes fully consumed within a few hours.

• 29:35Brad Gerstner?

  You're talking Grok. So you have demand, far outstripping supply even at Grok?

• 29:40Speaker 01

  Yep, we do.

• 29:42Brad Gerstner?

  So Bill, you see these fundraising announcements that are being discussed. Just CNBC is reporting tonight. I think that iconic is going to lead a $5 billion round into Anthropic at 170 billion. In the case of Anthropic, it's, you know, 170 billion on rumored $5 billion in revenue. X has been rumored to be raising at 150 to 200 billion dollars. So, you know, you've never, in the history of venture, you've never seen fundraises like this. One of the topics that is being hotly debated on, on the Twitter is that there's massive intervening dilution in these rounds, Bill,

• 30:23Brad Gerstner?

  because of the employee option grants or the employee RSUs that are needing to be granted to keep the employees, you know, in these businesses. So just observing this a little bit from afar, I don't think you guys, you're a direct investor in, in any of these major labs. What, what, what do you see? What do you observe? What are your warning signs, you know, about the size and, and the demand that you see in these rounds?

• 30:52Bill Gurley?

  Well, I, yeah, I've never seen anything like it. I mean, I saw, you know, through the Uber and Lyft situation, I saw a precursor to this, but this, these, these dollars are even bigger. And the amount of money that these companies are willing to lose in a year. You know, I still think it's particularly interesting that Google has to compete with OpenAI because OpenAI is going to lose 7 billion this year and Google won't. Like, like they would never allow themselves to do that. And, and this started back in that previous era where, where for the first time ever, you saw private companies have a competitive advantage in that they can be more risk-seeking with capital than the public companies are allowed to be.

• 31:34Brad Gerstner?

  Yeah.

• 31:35Bill Gurley?

  But I think in the past 12 months. We I we've seen OpenAI, Meta, and certainly X, you know, move into this place. I call I call them the cost is no object, the CNO group, where they're they're just putting out press release after press release and opening data center after data center. And, you know, we there there are other people, I think, you know, you look at Microsoft, you know, choosing not to extend their CapEx budget. You look at that Amazon example, when we spoke to the the Lefont brothers at Coteau, where they're they're not keeping up with the the Nvidia purchases relative to their AWS share.

• 32:18Bill Gurley?

  And so there are a few companies that are back on their feet, and there's a few companies that are really pushing the gas pedal. And I can't, there's a few in the middle. I can't tell whether Anthropic has the audacity and the means to raise enough money to to start building data centers themselves. They haven't so far. But it's, you know, it's a sport of kings, you know, it's it's a sport of kings. Like, there's never been this amount of money spent right now, Nvidia and others building in the stack like like Dell that we we spoke to a few weeks ago, like they're the winners in a pick and shovel game that's got this amount of aggressiveness.

• 33:01Bill Gurley?

  It's a and maybe maybe SK Hynix, too. I don't know.

• 33:05Brad Gerstner?

  It's Sunny, Sunny, do you see, you know, going back to the well-worn cliche that every glut or that every shortage ultimately ends in a glut? Do you have any evidence on the horizon where you see supply outstripping demand?

• 33:25Speaker 01

  No, I mean, I I was gonna ask this to Bill, as he was just saying it, Bill, like, on a daily basis, are you consuming more tokens or are you consuming more, you know, just traditional, you know, web lookups, right? And I'd be willing to guess you're consuming more tokens.

• 33:42Bill Gurley?

  Oh, it's insane.

• 33:44Speaker 01

  And and tokens are are increasing. Like when you're using those reasoning models, you don't see all the tokens, right? They don't publish it, but there's

• 33:51Bill Gurley?

  Oh, right. Totally. Yes. 10 to 100x more than your very first AI search. Yeah, for sure. Absolutely. The one thing, the one thing I will, so you're right. I I'm doing Go ahead. Do you finish?

• 34:05Speaker 01

  No, no, no, no. And I just wanted to say, even yesterday Anthropic had to put this, you know, press release plus, you know, product change out saying, hey, we've got to throttle everybody, right? And this is like, because we have all these people using way too much of our our services. So I think, you know, if you have intelligent models, right? And you have the capacity for it. It's one of those things people are consuming, Jibens paradox or whatever. Yeah, sorry. Go ahead, Bill. You're

• 34:32Bill Gurley?

  No, I was just gonna offer one caveat to to this super exciting line of of thought, which is because of the amount of venture capital out there, um, companies are not pricing to cost. Like, no one, no one, none of the model companies, I don't think anyone even in the verticals, like, no one's pricing to cost because they're pricing to take market share. And, you know, you and I, Sonny,

• 35:01Speaker 01

  I agree.

• 35:01Bill Gurley?

  We had a previous discussion about the unlimited pricing and inference has variable costs. So is that even sustainable? Right? And and even when people say to me, oh, well, we're gonna run out of power. You wouldn't run out of power if you just took the price up. Like, like, the thing that throttles demand is price, but no one here is raising price. Like Anthropic doesn't need to throttle, they just raise price. But they're not willing to do that because they're afraid to lose share. And so everyone's pricing to share. That means they're pricing under cost. There's rumors of even some of the best known brands in AI having negative gross margin. And so I don't know when that settles out, but that

• 35:43Bill Gurley?

  there that will create a bump in the supply demand curve if that ever has to be, you know, fixed. But for now, it doesn't. Because, because

• 35:53Speaker 01

  Can I ask a question then?

• 35:55Bill Gurley?

  Yeah.

• 35:56Speaker 01

  Yeah. No, no, which is going back to the point that we made on open source. But if you know in the back of your mind that there's something that's 90% as good, but it's 90% cheaper, how does that factor in? Because we've also never had that that factor as we're going through this growth curve.

• 36:11Bill Gurley?

  I mean, since almost since we started the pod, you know, I've I've routinely highlighted that the steepness of that price curve on, you know, as you as it kind of becomes, you know, less less cutting edge is something I've never seen before. I've never, ever seen it. And I'm sure that a lot of people sit around and say, well, it's okay if I'm losing money here because, you know, six months from now, I'll just use the older model. And we also talked in the past about how in the internet age, all the startups began with Oracle and Sun, and eventually they all moved to Linux and MySQL.

• 36:54Bill Gurley?

  And so there was a there was a we got to win it all cost phase. And then there was a phase where you started worrying about cost and optimization. And so one day, one day will likely, you know, make that make that move. And and and I a few of the companies I've talked to that are running inference at scale, they are already starting to think that way. Like they're looking, they're looking at it, you know, from that from that lens. But I but

• 37:21Brad Gerstner?

  And I think that's why Grok and Cerebrus are doing so well. But Sonny, give us give us an, you know, an example. I would imagine that the windsurfs of the world and the cursors of the world and all these folks who are building these, you know, these coding agents, they've got massive, you know, demand for their applications, right? But they're paying through the nose to Anthropic or to these underlying proprietary model providers to be able to do that. So what's the dynamic that you see there? Do you see them running to implement Quen or some of these cheaper models?

• 37:56Speaker 01

  Yeah, without kind of getting into specifics of any one of them, but like, you know, multiple folks are building their own models based off open source.

• 38:06Brad Gerstner?

  Right, so they can just go distill any one of these models, right? And, you know, given that they're these very lenient Apache licenses, and eliminate the entire cost of Sonnet that sits under it for 70% of use cases.

• 38:24Speaker 01

  Yeah, and like Bill said, turn that into a premium offering, right? Say that's the, you know, the gold and, you know, the silver and the bronze are built off, you know, something that's, like I said, one tenth the price.

• 38:37Brad Gerstner?

  That seems to me, Bill, you know, if I had to forecast, you know, if I'm OpenAI, I'm running a consumer business with really high gross margins, right? Because consumers are less sensitive to what they're paying, their intensity of use is lower, whereas if somebody's writing code, you know, there's, the variable intensity is high. And so, you know, for them, it would make sense to launch an open source model back to where we started the pod and price it really low to, you know, drive share, knowing, you know, it reminds me a little bit of Amazon back in the day.

• 39:20Brad Gerstner?

  Amazon had this monopoly retail business they could use to subsidize AWS, gain share for a decade, and then begin to take price. That would be a rational strategy for OpenAI to follow. So you take the profitable consumer business, you use it to subsidize, you know, the market share in other applications that you hope to build.

• 39:42Bill Gurley?

  That is certainly a reasonable strategy. I, I, I, I'm not inside that company, you have way more knowledge than I do, but, you know, I pay the $200 a month and I do every one of my searches on 45, and I'm probably, probably negative, I would think. And so I do think there'll be some rationalization where these models kind of. Of self pick which one they're running based on what you need. I probably don't need to be using.

• 40:10Brad Gerstner?

  And move to more of a consumption logic.

• 40:12Bill Gurley?

  Yeah.

• 40:13Brad Gerstner?

  Move more to more of a consumption logic. They're already, uh, they're already doing that in, in parts of their enterprise business. Um, and, and you know, as they've transitioned to more of this consumption logic, I think it's led to some real unlocks. Uh, you, you, you know, for the business. I think that makes it harder. If you're in the, the lab game. And you don't have a consumer product and you don't own an application that you can drive high gross margins. I think then gets back to this question, how long can you run the, your business for share? Right? Hoping that someday, because you know, they all exist at the beneficence of the capital markets and the capital markets are willing to provide.

• 40:56Brad Gerstner?

  An incredible amount of capital to these businesses today.

• 40:59Bill Gurley?

  They sure are.

• 41:00Brad Gerstner?

  Um, but, but, but you and I have, we've lived through these periods where that disappears quickly.

• 41:06Speaker 01

  And can I, can I put something there just to kind of hear your feedback on it, guys, which is look at Google and the TPU. And Google is clearly, you know, by these numbers that we're seeing, right? Putting out more tokens than anyone else, right? Do they, do you guys believe they have a strategic advantage because they have their own hardware? They're not having to pay, you know, 80% margin on something that they can generate tokens with. Like, how do you guys look at that business and say? Clearly they look to be sort of the largest, at least openly saying, um, the largest processor of tokens.

• 41:38Bill Gurley?

  I didn't look, the key data point in that case, which I don't have the data, but I'd be glad to repeat it if someone shared it with us is. How many non-Google, uh, applications are running on the TPUs? Like how many third-party customers are using, cause what I've heard or what the, you know, the general perception is, is that, that most of their. Proprietary TPU transactions are their own applications.

• 42:05Speaker 01

  Yep. But that's probably where most of their tokens are being processed anyways at this point, Bill, right? Like transcribing YouTube videos and, you know, all you can Google Meet, you can turn it on and all those searches.

• 42:15Bill Gurley?

  I was just inferring in your question, maybe I shouldn't have been, that they'll have an advantage for Google Cloud. And in order for that to be true, they need to have this crossover moment. One quick thing, Brad, on OpenAI, you know, I've been writing a book, which I've talked about frequently, and I've been quite, although I guess there's some privacy things now you need to be worried about, but I've been quite open with OpenAI about the book and doing research, you know, along the way. It knows a tremendous amount about my book right now. And I can ask follow-up questions without having to put the whole

• 42:57Bill Gurley?

  book back in the prompt again because of that. And so I can, I would, I would continue to believe that OpenAI's most likely chance to long-term success comes from switching cost and lock-in more than it will come from staying on the edge of the, of the model race. Because I think-

• 43:19Brad Gerstner?

  And the pricing, and the pricing power that comes with that brand dominance, right? Because the fact of the matter is, you said you're paying 200 bucks, you're getting more than $200 in value. I don't know what the price is, but I know that if it was variable, you would pay a hell of a lot more money to use that service.

• 43:36Bill Gurley?

  I would, but, but, but, but the lock-in, once one of these systems starts to truly understand you and have all your historic knowledge, I think the switching cost will be very high at that moment in time.

• 43:51Brad Gerstner?

  Sonny, back to your question about the TPU and the advantage of that vertical integration, you know, to, to Google. I think it's, it's, it's too early to know. What I would tell you is that they absolutely made some changes, I think, over the course of the last, you know, three to four months to accelerate the business. You've seen the news about OpenAI- Leveraging TPUs for some of the inference, you know, demand that that they have. Ultimately, what I've said all along about Google is that in many ways, the best positioned company in the world. But a lot of their advantage, right, is no longer much of an advantage, right? And namely that, you know, they were the dominant place where the consumer started every single query.

• 44:36Brad Gerstner?

  And we know today that's just not true. And, you know, when people are looking for answers, Bill's book is not in Google. Bill's book is in, you know, chat GPT.

• 44:45Bill Gurley?

  Actually, think Google Docs. But but you're right, you're right. The the knowledge of it, the knowledge of it.

• 44:52Brad Gerstner?

  The knowledge of it and the interaction and the the token generation. So my only point is this, the battle for the consumer is ultimately where the value accrues, Sonny. Not who runs, you know, what hardware. And so Google's dominance, it's been the greatest business in the history of capitalism for 20 years. Because they owned the consumer, they owned the verb in something that was extraordinarily high margin. And all I would say is the first real threat in 20 years came about because in the chat GPT moment. It's continued to accelerate. I think chat GPT will cross a billion weeklys. Like maybe this year, you know, probably this year, I would guess.

• 45:36Brad Gerstner?

  And so that to me has always been the case, right, for OpenAI. And when you look at the rest of these frontier labs, the case you've made throughout this pod, about seven of these models in in in China, being able to open source, distill off one another, drive up intelligence, drive down costs. What that tells me is the model layers being increasingly commoditized. And that there's not going to be a lot of intrinsic value in in in that intelligence layer, that operating layer. You're going to have to build applications that guys like Bill Gurley and and you and I are using every day. And that's where the battle is on the consumer side. You're going to have the exact same battle when it comes to coding agents and general enterprise applications.

• 46:17Brad Gerstner?

  And I've said there, I think it's going to be more of a, you know, heterogeneous world. I think there are going to be lots of players that compete. I think the margins will be lower in that world. But it may very well be that the tide is going up so much here, right? And the whole world is transforming so much around this that you're still going to have lots of players who do incredibly well. I have to say, I'm surprised if you would have told any of us. A year ago, or 18 months ago, right, that the combined enterprise value of OpenAI and Anthropic together would be over half a trillion dollars and you throw X.ai in there, it'd be a trillion dollars, you know, across the three of them roughly.

• 47:00Brad Gerstner?

  It's bigger and faster and the compute demand is higher than any of us, I think, anticipated. Sonny, hopefully, we can keep you on here for a bit. We're just going to wrap up with a, you know, a topic that I think has dominated really the conversation in the markets over the course of last year, and that's been about tariffs and kind of the reordering of global trade. Bill, I know you had some questions, some thoughts about it, and I'm happy to dig in and talk about it as well.

• 47:27Bill Gurley?

  Well, I mean, I would really just love to hear from you, Brad. The markets got very nervous when the, what was it, Liberation Day? When the kind of unpredictability of how big some of the numbers were and what that might mean, and whether we were walking away from the notion of comparative advantage. And I think the markets got spooked. And, you know, I think you turn around and look at where the markets are today, and we've really gone through an evolution of how the Wall Street is interpreting the, both the initial launch of the tariffs and the reality of where they're landing.

• 48:11Bill Gurley?

  So, how would you, how would you describe that? And why do you think the markets are getting very comfortable with where they're landing?

• 48:21Brad Gerstner?

  I mean, not only comfortable, we're at all time highs. You know, and April 2nd, I was going, you know, on CNBC saying the nuclear Navarro was going to be a disaster, and I'm out, right? And that's, this, the amazing thing about this administration is there's really, you know, it's a team of rivals within the White House. And you had Besse and Lutnik, who were basically outlining this plan for, you know, let's call it 10 to 15 to 20% tariffs across the board. That would amount to about 300 Billion dollars in total tariffs up from seventy five billion in twenty twenty four. But you had Navarro, who was basically saying, we're going to replace the Internal Revenue Service. We're going to get rid of the income tax and we're going to have two trillion of tariffs.

• 49:06Brad Gerstner?

  Okay, and I was very clear, and I think the market was very clear. We all voted with our wallets and we said until the president tells us, whether it's door one or door two, we're out. Yep. The market shot first and asked questions later. And that's where you saw that huge drawdown in the market. The Nasdaq was down twenty one percent, right, at its trough this year. Now the Nasdaq's up over ten. It's a thirty percent move in about sixty or seventy days, which is extraordinary, even by the historical patterns that we've seen over the course of the last five years. But let me back up here for a second.

• 49:44Brad Gerstner?

  I think the consensus view of all economists, right, ninety percent of economists, is that tariffs are going to be bad. They're going to be a tax that gets paid by the US consumer. There was a small group led by, you know, Scott Besant and Kevin Hassett at the National Economic Council that said, no, it's actually going to be different this time. And the reason it's going to be different this time is their theory argued was that the world had become dependent upon exporting to the United States. So that the total trade deficit to the United States of goods and services was about nine hundred and fifteen billion last year. A one point two trillion dollar goods deficit.

• 50:30Brad Gerstner?

  And that basically meant that China was selling a lot more to the United States than than they were buying of US goods. And and so what Besant and Hassett postulated was that these countries have no choice. If we impose a tariff on them, so long as it's not draconian, seventy percent, eighty percent, what Navarro was talking about. If we impose a fifteen percent tariff on them, they have to eat it. The producers have to eat it because otherwise they're going to end up laying off millions of people in Vietnam, in China, in these countries. And politically, they can't afford to lay these folks off. So that was their theory of the case. The consensus economists said, no way is that true. You're going to see massive inflation. But what have you seen?

• 51:15Brad Gerstner?

  You have not seen the inflation percolate through. I will caveat this by saying yet. Okay, so here we are in July. The consensus economists said it would have already happened. And the National Economic Council was out with a paper last week that deconstructed core PC. So that's the what the best proxy the Fed watches for inflation since the start of the year. And it showed, this is really interesting. Import prices have been going up at a slower rate than domestically produced goods. Okay, so this is the exact opposite of what you would have expected from tariffs.

• 51:56Brad Gerstner?

  Of course, you would have expected the imported prices would have been going up more than domestic goods. And so we'll show these charts and we'll, we'll put the link to this paper. People ought to take a look at that. But to me, when I look at the president's, the deals he's landing, the deal he just got announced yesterday with the European Union, 15% on all goods coming from Europe, 0% on US goods going to Europe. So an opening up of Europe markets, paying us 15% and on top of that, getting commitments like $750 billion, almost a trillion dollars of energy purchases from the US. Or look at Japan, which they announced last week, another huge market.

• 52:40Brad Gerstner?

  Again, similar, they're going to pay tariffs to the United States, no tariffs imposed on the United States, and they're going to invest $550 billion into the US in a way the president gets to direct. So I would, I would, I just think we need to give the president credit where credit is due. Everybody said this was going to lead to retaliation, to trade wars, was going to be disastrous for the US. And all we've seen so far is deals, deals, deals, deals. And I have to say, if this was the CEO of one of our companies, right? Let's say we had a board meeting at the start of the year and he outlined these plans and we said, hey, we're really nervous about this. You know, this is a high risk, high reward strategy.

• 53:25Brad Gerstner?

  It's either going to backfire and we're going to fire you, or it's going to work really well and we give you a bonus. If we're measuring them halfway through the year, I would say that he's in line for a bonus based upon the trillions of dollars that are going to be coming into the United States and the fact that we now have a 300 to a $350 billion recurring.

• 53:48Brad Gerstner?

  You know, stream of revenues into treasury in the form of these tariffs which are being paid. And, and, and I think Besen said last week in the month of June, we had our first surplus in the United States, monthly surplus since 2015. Right. Because of the tariff revenues that are coming in. So I will say this, I was on the fence. I knew the nuclear tariffs, the trillion or two trillion, I knew that was a disaster. I said, if we landed the plane where Besen wanted to come in at 300 billion, I thought there was a decent chance that those prices could be passed on in the home countries. And so far it looks like that's the case.

• 54:27Bill Gurley?

  Do you have any concerns? What's the, uh, anything you're watching out for?

• 54:33Brad Gerstner?

  Well, I think that the number one thing is core PC hat did bottom last year and it started to tick up. And so we have to keep our eye on inflation. And of course, I think it's almost impossible to conceive that we would have totally reordered the entire global trading system on the first pass with zero mistakes. So we're going to have some, some goods and some products that, you know, consumers or US consumers are going to end up paying the taxes and we're going to have to go back and fix some of these things. But I will say that it's turning out massively better than consensus criticisms. I mean, remember Larry Summers at the CO2 event? I mean, this was just a few months ago and he was saying, this is the biggest economic

• 55:14Brad Gerstner?

  disaster of, of his career. And I, I don't think you can describe it that way. The markets are, the voting machine is telling you, and these are a lot of sophisticated investors, the voting machine is telling you that no retaliations, no trade wars, all these deals getting done, um, uh, works for the US economy. And I will tell you that the Atlanta now Fed tracker, which tracks real time GDP has now ticked up back to 3%. So after going down a lot in April, it's bounced way back up. So economic activity appears to be going up. And then one final thing here.

• 55:50Brad Gerstner?

  Remember, one of the key reasons for doing this, right? Wasn't just because we were, you know, there was, I mean, the EU conceded in the trade negotiations that they, that our relationship was unfairly balanced in the direction of the EU. I mean, they said, that's the starting point, so we have to rebalance it. But on top of that, a key reason for doing this was to support the domestic production of critical national industries and to make our supply chains more resilient. Chips, data centers, energy production. At Altimeter, we just led the Series A in a company, I don't even know if we've announced it, but I'll announce it here, which is an all-American producer of rare earth magnets. Right?

• 56:30Brad Gerstner?

  So these are now viable investments because of the tariffs and the resolve of the government to re-onshore these critical supply chains. So, I mean, that's a huge benefit that you would be willing to pay something for, but we're getting the benefit and on top of that, we're getting paid.

• 56:46Bill Gurley?

  Yeah.

• 56:46Speaker 01

  Can I add one thing, guys? Like, not on the economic side, but like, you know, running the supply chain, you know, in Brock. And, look, we're fortunate in that, like, the majority of our supply chain is US-centric, including our chips. But, you know, we still have small, discrete components. And Brad, exactly what you were saying is happening, is that the producers, the manufacturers of those things are coming and you're negotiating. And we've had pretty, you know, significant negotiation with those folks. And that was, I think, like, not, like you said, wasn't anticipated. The other thing is, it hasn't been static. The one thing, again, I'll go back to the administration, they moved. Like, we've, we've seen, you know, our tariff schedule move around probably six to eight times since this all has started.

• 57:29Speaker 01

  Because they keep evaluating, they understand, they listen. And I think that's also a function of how this administration operates. And we want to give them credit for that. Like, people can go and share with them, hey, like, these things are not available, we can't replace them right away. And I think that, that's also helping with that last thing you said, with the investment you're making, is companies get established onshore to take advantage of what these tariffs are causing.

• 57:51Bill Gurley?

  Sonny, has your supply chain planning and that, that dynamic nature, has that started to settle down? Do you see this, you know, are we reaching the end of the tariff negotiations such that everything can kind of settle down and operate?

• 58:07Speaker 01

  It's gone from week to week or even day to day when it first started and trying to figure what happened to like now we're looking at it monthly. So it's definitely settling.

• 58:14Bill Gurley?

  And Brad, we still have a big thing looming with a China discussion, correct?

• 58:19Brad Gerstner?

  Yeah, you know, listen, so we landed Europe, we've landed Japan, we're gonna have, you know, the long, the long list is going to be coming up. But when you look at our big trading partners, the EU, we do, I think $900 billion of trade with them a year. With China, it's about 600 billion. But we have about a $300 billion goods trade deficit with both Europe and China. So they were the two big ones. China is the big enchilada because it's not just trade with China, right? It's strategic, it's national security, and it's trade. And it's the AI race. We know that, you know, the rare earth ban on Chinese magnets was devastating to US industry. We know

• 59:04Brad Gerstner?

  the retaliation that, you know, where H20s were cut off in terms of Nvidia's chips back to China. Reading the tea leaves, I'm gonna, I'll go out on a limb and I'll say, the consensus still believes like that the China thing is going to be a problem or that it will be small. I think this president wants to do the biggest deal ever done with China. I don't think he's dogmatic at all. I don't think he's some big China hawk. He said at the AI summit last week, I'm a deal junkie. I like to do deals. You can't be the biggest deal maker in the world without doing a big deal with China. Right? And I, and I, you know, if you just look at today, the Chinese

• 59:47Brad Gerstner?

  reciprocated in a way I think the US government was looking for. They said, hey, we'll postpone all of our retaliatory tariffs. They've invited the president to China. The president has suggested he's going to go to China the first week of September, sometime between September and November. I think there is a very, very big deal that's going to get done with China that's going to reorient the relationship in a big way. And let me just like tease this. The president said earlier this year, something that caught all of our attention. He said, you know, if I could wave a magic wand. I would cut the defense budget in half for the United States, for China and for Russia. We've never heard a US president in history utter anything like that.

• 1:00:30Bill Gurley?

  It'd be amazing.

• 1:00:31Brad Gerstner?

  That is what I would call an extraordinarily flexible mindset. And if you go into this deal negotiation with China with that sort of flexible mindset, I think it could include all of the above, rare earths, chips, maybe even military cooperation, certainly a rebalancing of trades. I think China's, listen, we entered the year with China paying 15% in tariffs. That was pre-Trump. They were paying 15% to the United States in tariffs. So I don't think we're going below 15%. I think they're going to pay.

• 1:01:02Speaker 01

  And Trump did that in Trump 45.

• 1:01:04Brad Gerstner?

  In Trump 1, right. So I think that they will continue to pay at least 15%, but I think it's going to be much more structured, much more nuanced. You know, Besen's been very clear. China has to rebalance to domestic consumption and away from an export economy that's really sticking it to the US in terms of the trade deficit. I think China gets that. I think they want that for their own country. I think they're willing to do that. I think the United States understands that can't happen overnight. It has to happen over a period of years. I think that there's going to be a big Chinese deal done before the year's out.

• 1:01:40Bill Gurley?

  So, so let's close with this, Brad. You've, you've often on the pod been willing to speak about your, your own temperature for the US markets and, and, and whether you're net long or net short. And you, you've on this podcast been more enthusiastic than I've ever seen you, both about, about AI, but, but this, this China theory that you have, I think would, would cause the markets to rip if you're correct. But you also said, we're at all time highs, you know? And so you want to buy low and sell high. So where, where's your head hanging?

• 1:02:18Brad Gerstner?

  We did a pod, I think around May 2. Well, we did the pod in March and I said, we're out of the market.

• 1:02:24Bill Gurley?

  Right, I remember.

• 1:02:24Brad Gerstner?

  Right, and you said you're early and Liberation Day came and we were happy to be out of the market. On May 2, I said, we're all back in because the Bessein consensus has won. It's going to be 300 billion, we're going to land the plane. And I outlined a flight path. I said, you can land the plane, no inflation, you get rate cuts and, you know, and it's kind of off to the races. And we're up 30%, you know, off of that bottom in the NASDAQ since then. So 30% is a huge move, but when you telescope out, we're up 10% for the year. Okay, and if I had told you guys on day one of this year, here's what's going to happen. We're going to rebalance global trade and we're going to land the plane around 300 billion.

• 1:03:05Brad Gerstner?

  We're going to have the economy grow at 3% accelerating. We're going to, you know, have no inflation, heading toward rate cuts by the end of the year. You know, that is the backdrop, you know, that I, and we're going to have all of this AI demand and accelerating demand for AI compute. I would have said the market can be up at least 15% for the year. I think we've captured a lot of the return for the year, Bill. I will tell you this, though, we see tons of opportunities. And so I would say that we're also bullish on what we see happening in AI. Sonny's going to raise a huge new round here. We're happy to be investors with Sonny as well.

• 1:03:46Brad Gerstner?

  And it's extraordinary to watch what Sonny's, no, it's serious.

• 1:03:51Bill Gurley?

  If he wasn't supposed to disclose that, he can edit it out.

• 1:03:53Brad Gerstner?

  Yeah, he has it, but his face is turning all red. Have a good week and.

• 1:03:58Bill Gurley?

  Thank you, Sonny, for coming on with us today. Thank you so much.

• 1:04:01Speaker 01

  Thanks, everybody. Thank, yeah, thanks, guys.

• 1:04:05Bill Gurley?

  Bye bye.

• 1:04:06Brad Gerstner?

  Take care, guys.

• 1:04:16Brad Gerstner?

  As a reminder to everybody, just our opinions, not investment advice.