NVDA GTC, M&A Wiz / Goog $32 B Deal, April 2 Tariff Uncertainty; Huawei Belt & Road; ChatGPT

Open Source bi-weekly convo w/ Bill Gurley and Brad Gerstner on all things tech, markets, investing & capitalism. This week they discuss market uncertainty, globalism and tariffs, M&A, Wiz and GOOG, NVDA GTC, consumer AI demand, AI unit economics, & more. Enjoy another episode of BG2! Timestamps: (00:00) Intro (02:21) Market Uncertainty (07:28) Globalism and Tariff Policies (25:07) $GOOG Acquisition of Wiz + M&A Environment (40:33) $NVDA Market Position (55:37) Government Regulations & Impact on AI (1:04:45) Consumer AI Demand (1:10:33) AI Unit Economics 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?

  If we impose high structural tariffs and if we allow this crazy Biden era diffusion rule to stay in place, which makes it hard for us to export our chips. I literally think it's unilaterally disarming America in the race to AI. I think it's a very bad decision.

• 0:21Bill Gurley?

  And positive for Huawei, right?

• 0:23Brad Gerstner?

  Correct. It's going to lead to, it's going to lead to a Huawei Belt and Road.

• 0:38Brad Gerstner?

  Bill, it's good to see you.

• 0:41Bill Gurley?

  Good to see you, Brad. As you can see, I'm wearing the Florida Gator hat here as we kick off March Madness. My, I'm very fortunate that the, the school that I went to and the team that I rode the bench for is at the top of the heap. We've got, we're, we're, we're the fourth seed according to the NCAA, but in Vegas, we're number one on championship odds. So it's, it's an incredible team, a great young coach, super deep, talented all the way down, four bigs that are all legitimate, incredible guard play, unselfish. I give them a good shot.

• 1:23Brad Gerstner?

  So do you have, do you have them winning at all?

• 1:26Bill Gurley?

  In my, in my bracket, yes. I mean, yes, but that, that there's some bias. I will admit there's some bias in there.

• 1:32Brad Gerstner?

  Can you tell us who else is in the championship game?

• 1:36Bill Gurley?

  I'd have to look at the bracket to make sure.

• 1:41Brad Gerstner?

  Well, I, I have to say, it's good to be reminded that it's March Madness, but it feels like it's global madness, just in terms of like the pace of everything going on in the world, you know? You know, I can't believe I was in Washington last week and. There's a lot of exciting stuff going on with regard to Invest America on Capitol Hill and at the White House.

• 2:01Bill Gurley?

  There, congrats on that.

• 2:02Brad Gerstner?

  That I'm thrilled about. You know, the pace of AI, the pace of these changes coming out of Washington, you know, a lot of which I think is total, is really fantastic. But it's, you know, certainly unsettling the markets. And then the last couple of days, I've been at, down at GTC, the big Nvidia developer event. You know, while there's a lot of uncertainty in the world, um, you know, I'm super bullish on where all of this is headed. And this is one of those moments of times where I just feel like you have to hold these two competing but simultaneous truths, that things really are accelerating, um, and that we're getting ourselves in a position for this period of, you know, the golden age. But, you know, still that some of this caution is warranted in the short run as we try to

• 2:46Brad Gerstner?

  figure out how it all unfolds.

• 2:48Bill Gurley?

  And for those, those that listen to us regularly, they'll know that, that, you know, many months ago, you expressed this concern that some of the changes were going to create disruption in the financial markets and that you were getting more cautious. And that played out, I guess everything moves fast these days, but that played out extremely quickly. And so the markets have corrected the MAG7. I think the cover of Barron's had the list of the MAG7 and how down they all are. And so, yeah, I mean, anytime you get a correction, then people immediately want to know, now what, right? And so did, has the air come out that you expected and, and now it's something different? Or do you remain cautious?

• 3:30Brad Gerstner?

  I think that was like on February 4th or February 6th, we did that pod and I said, you know, while I think the, the golden age will come, that first we have to go through this golden age of uncertainty, right? That we had kind of maximum political uncertainty, maximum economic uncertainty, maximum technological uncertainty, that causes discount rates to go up, you know, causes risk premiums to go up, causes multiples to come down. And the first leg of that, I think the, the NASDAQ's down about 10% um, since that moment. I think a lot of the components of the NASDAQ are down much more, 20, 30% right, since that moment. And I, and I think that's just the gas of uncertainty being let out.

• 4:12Brad Gerstner?

  And just in the last week or so, Bill, we started rolling over to the second potential leg of concern, which is fear of recession and growth. And so what I would tell you-

• 4:24Bill Gurley?

  Which can become a self fulfilling prophecy, right? Like if people fear, yeah.

• 4:28Brad Gerstner?

  Absolutely, absolutely. And so, in fact, what everybody is now wringing their hands about, right? Is where are we today? So I think it's a mixed message. Um, so let me give you a couple of the data points that we're looking at. We're collecting on both sides of the message. You know, first I would say that kind of the negative data points have been gathering steam. What are those? Well, consumer confidence is worsening. So this is consumers worried about their jobs is up to a really, uh, a much higher level than it's been at over the course of the last several years. Business confidence is worsening. So this is a record high share of consumers think business conditions, right? Are worsening.

• 5:09Brad Gerstner?

  Then we hear on CNBC from Delta Airlines at first, and then from United Airlines, and then from Frontier Airlines that consumer demand is really, uh, you know, taking a hit. And remember, you know, the airline stocks is kind of the bleeding edge. You know, am I going to fly to Vegas this weekend to watch the games in Vegas? Uh, I'm a little bit worried about, you know, my savings or this or that. So, you know, I'll, I'll just watch it at home, uh, rather than going to Vegas. And so I, I watch that very closely and we track it. And we, we have this really interesting chart that we'll post on the US, uh, supply and airline supply and demand balance. And we're seeing, you know, a real downtick in terms of consumer, uh, employment.

• 5:53Brad Gerstner?

  So this is TSA passenger growth. So that's a leading indicator again on the negative side. And then we see-

• 5:59Bill Gurley?

  Are you able to, are you able to tell if it's consumer traffic or business? And people have been talking about government traffic maybe way down.

• 6:06Brad Gerstner?

  I think, I think it's all in there, right? Because it's hard to differentiate between a small business, a sole proprietorship and consumer. So I think it's all in there. And then of course, if you look at the Atlanta Fed tracker, the GDP tracker, which is kind of this, they call GDP now. It's turned down pretty significantly. And a lot of people, Kevin Hassett and others have pointed out kind of the one time issues that are impacting this around- Net exports, but let's just suffice it to say that that's going down. And then the Fed just reported today that things in fact are resetting. So literally, but right before we got on here, Bill, the Fed has released their new median dot plot,

• 6:49Brad Gerstner?

  if you will, for what they think about GDP, inflation, et cetera. So what they just told us is the median estimates of all the Fed governors lower GDP. So they took their GDP estimate for the year from 2.1 to 1.7. They took their unemployment rate for the year up, right? From 4.3 to 4.4, and they took their median expectation for inflation up as well, which is slightly concerning, from 2.5 to 2.7. So all three of those things the Fed just told us are kind of moving in the wrong direction. And they're looking at, they're really pointing to the economic conditions. And they're saying the economic conditionings are are worsening.

• 7:34Brad Gerstner?

  Now, let's talk about kind of what we're hearing now, the administration and the other side of that. You know, I think one of the keys that people have to get their head around is this. This administration has a principled view about restructuring globalism. This is that uncertainty, the political uncertainty I was talking about. J D Vance gave this incredible speech yesterday, Bill, at the American Dynamism event that that Andreessen puts on in Washington. And there were two things he pointed out, he called them the two conceits of globalism. Right? And he said, this is the reason we have to have tariffs and we have to restructure the world. The first one was that he that he talked about was that he said, you know,

• 8:19Brad Gerstner?

  there was this view in the United States that we would just whack up the world. We would do all the high value stuff and then places like China would do all the low value stuff. But of course, they start with manufacturing, then it moves to precision manufacturing, and then it moves to design. And before you know it, BYD is designing a better car and CATL is. Designing a better battery and their glow their vertically integrated supply chain around semiconductors no longer is dependent upon Nvidia for inference. Now they're running inference at deep seek on the ascend nine 10 produced by Huawei. And so that was the first thing that he pointed out. And the second thing is he said, cheap labor is fundamentally a crutch to innovation.

• 9:04Brad Gerstner?

  And so that the United States has not innovated and industrialized the way that it should have. So my point here is that when you think about the administrative administrations policies that is partic that is causing some of this uncertainty, right? This is very intentional, right? Besant, Scott Besant, our Treasury Secretary calls it the American detox period, right? That we need to reset the fiscal and monetary balance in the United States, and that there's going to be some short term pain for longer term gain. So I think that we haven't had a clearing event. We're going to have reciprocal and sectoral tariffs announced on April 2. And so the market is in this churning

• 9:47Brad Gerstner?

  back and forth, waiting and seeing, trying to figure out if this tips the economy into a negative light. But I will just say, so what's the positive on here? I would say two big positives, or maybe three big positives. Number one, first, Besant said that he's seeing data points from credit card data and bank data that the consumer is really not slowing down. Moynihan from Bank of America was on CNBC this morning and said that consumer credit growth and and bank expenditures from Bank of America were actually up 6% year over year had not slowed down despite the fact that they're getting a little bit more concerned about the economy. So that the real time data

• 10:27Brad Gerstner?

  does not look that bad to me. Secondly, I think that when I talk to managers, and I've talked to a lot of long only and hedge fund managers over the last couple of weeks, they're all in their bottom quartile of exposures, Bill. So they all kind of heeded the warning of the market, said, I'm going to get out of the way here for a while. But interestingly enough, they all believe that the back half of the year next year is going to be really great. And so there's this, you know, there's this, you know, volume dial where they've all turned down the volume dial a little bit, but they all kind of want to get back in before this plays through. So that's the

• 11:05Brad Gerstner?

  Are we in for another 5 to 10% leg down, right? Can we find a bottom for the market? Or, you know, or are we, you know, are we going to get a clearing event? And I think it's too early to know.

• 11:17Bill Gurley?

  How do you square your airline data with with those other data points?

• 11:23Brad Gerstner?

  Yeah, I, you know, they asked that question to Moynihan this morning on CNBC. They said, how can consumer spending, you know, be good if the airline data is ticking down? And he said, they just shift their spending. So they're spending on local entertainment and, you know, restaurants, et cetera. And they're, you know, the bigger ticket items are turning down, he said. But in the wash, and they're looking at 1.5 trillion of consumer spending per quarter. He said, in the wash, it's up 6% year over year. So again, I think, you know, when you think about the Fed's median forecast, those are forward looking forecasts. So I think what a lot of people are saying is the data at right now is, you know, there's a little bit that's mixed. But most of the data, the consumer's still holding up.

• 12:06Brad Gerstner?

  But I will tell you, talking to CEOs, CEOs are absolutely more on hold today than they were before. They're, they want to see what these April 2nd tariffs bring before they make big decisions.

• 12:19Bill Gurley?

  And do you, and do you have any insight into that or perspective on where that lands?

• 12:25Bill Gurley?

  Cause I mean, obviously everyone's talking about this, but there's a, a big question as to whether Trump's negotiating or not. And so will the, will the, will the bark be worse than the bite? And, and does what lands is simpler and less disruptive than maybe what was broadcast at the beginning?

• 12:43Brad Gerstner?

  Well, so I have two strong points of view on that. One is, this is not a negotiating tactic by Trump. That I think that diminishes the administration's principled approach to restructuring globalism. I mean, you really have to listen to the speech that Vance gave yesterday.

• 13:01Bill Gurley?

  I did, I did.

• 13:02Brad Gerstner?

  Like whether, whether, whether it's Besant, whether it's Howard Lutnick, whether it's like, they have a fundamental view that the middle class was hollowed out. By, you know, effectively sending all of this labor offshore, they want to re-industrialize America. And so like, this is not just a negotiation to try to get a little bit more. In that light, Bill, when you think about the tariffs coming on April 2, they have said there's about 15 countries, they're going to outline country by country, what they, they call them, I think I heard Besen call them the terrible 15. Country by country, the trade and the non-trade barriers, and what that, what that totals,

• 13:45Brad Gerstner?

  right? Is it 1 trillion? Is it 2 trillion? They expect a lot of those countries to come to the table. They said some of them have already come preemptively to try to cut a deal. Some of them will come after the fact to try to cut a deal. I don't see, like, if on April 2, we're going to lay this out, I don't see how that can be the end. It feels like a lot closer to the beginning to me of a negotiation than it feels like the end of a negotiation. But I think, you know, there are going to be a lot of things made clear. Like, one of the things we've talked about, are there going to be tariffs on semiconductors? There's a good argument not to tariff semiconductors because we're in an AI race. Why make it more expensive for US companies? But at the same time, if you just look at, you know, re-onshoring

• 14:30Brad Gerstner?

  American manufacturing, you would probably say we need to put some tariffs on, on, you know, the import of semiconductors to incentivize the domestic building of semiconductor manufacturing supply chain.

• 14:43Bill Gurley?

  Yeah. I will tell you, for what it's worth, and, and, you know, I'm always open to changing my mind later and would love, you know, perhaps to be proven wrong so that I could adopt a different perspective. But I, I remain, based on all the learning I've done to this point in my life, a big believer in comparative advantage. And I also think that there are people around the globe that want to work harder for less money than people in America do, and they have the ability to improve their life. On a percentage basis from a standard of living or that kind of thing, a wellness perspective, more than someone would hear for the same marginal effort.

• 15:26Bill Gurley?

  And I, I think because of that, you know, water runs downhill and that's where those jobs want to go. And pulling up, pulling up the wall, I mean, I've said some of this stuff before, but pulling up the wall, I don't think it's going to work. I don't think there's anybody that wants to build a $40 microwave in America. And I look at the, you know, competition in the auto market where China now has what, 35% of the global market? And they're producing better cars faster. Like, I don't, like, does anyone really expect GM and Ford to reorient themselves overnight? And I don't even think they could because of the presence of the labor unions. So I don't, I don't know.

• 16:06Bill Gurley?

  I'm, and, and, and you and I have talked about Morris Chang's comments about, you know, why he went from Texas Instruments to Taiwan and, and we're, you know, I guess one day maybe we get to full automation and that's a completely different world. But, but even if that's what you're encouraging in the U.S., it doesn't bring the employment back. It just brings automation here, which has some value. But, but that's the part that I think is a little between JD's two main points. One of them like vilified the loss of jobs, but I don't think the approach brings the jobs back. He's talking mostly about innovation and, and, and was a little derogatory towards

• 16:47Bill Gurley?

  cheap labor, which I, I don't think is the appropriate way to look at people that are trying to, you know, hustle their way up the ladder.

• 16:54Brad Gerstner?

  Well, you know, I do think objectively, when you look at, at the facts, there has not been much in the, you know, the, the bottom 40% of the country has not been, you know, kind of keeping up. I think you make a good defense and frankly, a defense that most CEOs I talk to are in agreement with you. And I would say even maybe a majority of Republicans on Capitol Hill, Bill, are in agreement with you. It's basically an argument against higher structural tariffs. I do think that the middle ground for the administration, I think they have a principled,

• 17:34Brad Gerstner?

  a structured and a sound belief that, that unfettered free trade has not been good for America. And they have a view that fair trade, right? Where the US has appropriate incentives for structurally important industries, whether it's advanced manufacturing, whether it's semiconductors, whether it's steel and aluminum, et cetera, to be produced in the United States. So, you know, maybe it's a cop out by me, but I do believe there's a middle ground here. And if we just try to quantify it for a second. Last year, we had about $65 billion in tariff revenues generated by the United States. And the real question is, what are we going to? If I told you, Bill, we're going from $65 billion in tariff revenue

• 18:19Brad Gerstner?

  to $120 billion in tariff revenue. I imagine you would say, ah, that doesn't feel like that big a change. Like, we can absorb that pretty easily. If I told you we're going from $65 billion to a trillion of tariff revenue, right, that we were going to erect a trillion dollars in, in, in kind of barriers, I think you would be more concerned about the impact that would have on the economy, not only globally, but also domestically. I don't mean to put words in your mouth, but would you agree with that?

• 18:47Bill Gurley?

  Well, I mean, I would, I would just continue like to say, like, like, when you talk about the hollowing out of the middle class in America, that happened, if, if, if you believe that happened, that happened simultaneously with bringing 500 million people out of poverty in China. And so from a global perspective, is that trade like, like, is that, the global poverty improved dramatically over that period of time?

• 19:14Brad Gerstner?

  Correct.

• 19:14Bill Gurley?

  So you get into an interesting debate. But I also think whether it's through tariffs or restrictions, like protecting the US, and I would say this applies to cars and AI and, and everything else, protecting the US by trying to somehow injure or, or disable or hinder a competitor that's in a different country, in the long run, will make us weaker. I, I believe that fundamentally.

• 19:44Brad Gerstner?

  You know, listen, I don't think this is about protecting us from global competition, right? If I believe that's where the administration was going, I would give much stronger case for pushback. I think this is about making the playing field more even so that we're not the stooges on the global stage where we're effectively handing over our IP and our high paying jobs to them because, you know, we're going to see on April 2nd, like, there's a firm belief that the Europeans, as an example, are harassing our companies, are imposing standards on our companies, all these non-tariff barriers that probably add up to trillions of dollars would be my guess, and that it fundamentally creates, you know, an unfair

• 20:26Brad Gerstner?

  playing field. You know, you're never going to sell a Cadillac in Berlin, but we got tons of BMWs being, you know, sold in the United States. And so I'm all for making the whole playing field fairer. I don't really have a great sense for the level of these imbalances. I'm looking forward to exploring those. And it does, like, it strikes me as reasonable that over 40 years, where we've basically had one party rule, both Democrats and Republicans, all, you know, promoted free trade and globalism, that there's probably room for optimization. And, you know, and so we'll see if they go, if they overtilt on this. I will tell you this. My belief is that if we're targeting tariff revenues

• 21:08Brad Gerstner?

  going from 65 billion to a trillion, I don't think the US economy is prepared for that. And I think that pushes us into a recession. If I think we're going from 65 billion to something like 150 billion by just making it more fair across the board, and Scott Bass has been very clear. He's like, if they remove the barriers on their side, we remove the barriers on our side, and all tariffs will come down. If that's the objective of the administration, which when I listen to their words, that's what it sounds like, then I think it's a good policy and one the economy will easily absorb.

• 21:42Bill Gurley?

  I, you know, one thing I would say, and then we can move on and, and, and get into the AI stuff. I, if, if reciprocity is the goal, I really think the, the communication could be done better. Like, that can be calmly discussed, if that's the goal. And you can use math and show slides. And, and you don't have to be competitive, combative to get to that goal. And I think you'd be more effective. Not to, not that that's why we're here to guide the administration, but I really think that's a rational argument. And bringing a combative tone to that goal, I think makes it harder to achieve and may create behavior on the

• 22:26Bill Gurley?

  other side that was unwarranted and unneeded.

• 22:30Brad Gerstner?

  Well, listen, I think, I think the reset you've seen in the market, if you said, what is the number one thing that's striking fear into the market, whether they're CEOs, Capitol Hill, consumers, et cetera, it's this fear over tariffs and what it's going to mean for the slowdown in the US economy. I think the Fed median forecast just came down principally because of fear over tariffs and the uncertainty that that creates in the economy. So, we're going to know a hell of a lot more in the next 60 days. And, and that's why I think you're not going to see tremendous flows into the market over the course of the next 60 days, because I think a lot of market participants are going to wait, right? They want to see, is this, you know, is this really just about making it fairer and flatter playing

• 23:11Brad Gerstner?

  field? Or is this about starting a new big trade war, which I don't, again, I don't think is the case.

• 23:18Bill Gurley?

  One more comment on that, and then I will force us to move on. Zanny, who I've met, who's the editor of The Economist, was on Fareed this past week on Jeet Global Square. And she's based in the UK, obviously, but, but covers all, all of the globe. She said the attitude amongst the European leaders is so kind of angry and chafed, that there's a likelihood they may come to trust China more than the US. And I just think that's an important, like, reality to consider, that, that, that may be happening anyway. Like, if you look at BYD sales into Europe and that kind of thing. But, boy, you know, talk about, you know, picking a fight you didn't want, that, that would, that would create the opposite of everything we're talking about.

• 24:02Brad Gerstner?

  I think for every one of those, I see an equal and opposite, you know, around, you know, around the world. But I would say on, you know, when it comes to more investment in the United States, I think the president's announced a trillion and a half a new investment. We saw the hundred billion out of TSMC, you know, including importantly, by the way, Bill, building a new R and D fab, like not just, not just, you know, a three or four nanometer, but advanced R and D fab in the United States. That's critic, that's critical. And so I think, I think we're going to end up in a better place, but we got to get through kind of that fog of war, like we've said. So, you know, don't expect some big snapback in the market until we start seeing these. And remember, all the goodies, the tax cuts, the deregulation, you know, the,

• 24:47Brad Gerstner?

  the better business environment, and this is a good segue to, you know, we're going to talk about WIZ and the M and A market, all of the goodies of a pro-growth administration, right, will come when you get the reconciliation package back, pass. That's a little bit more back half. And so we're taking a little bit of this medicine up front, this uncertainty around tariffs, et cetera. And I think when it's balanced out with the pro-growth deregulation side of this, net, net, I think it's going to be a positive for the economy. But let me, let me shift gears here, Bill, because this is right in your wheelhouse, something we've been talking a lot, which is the M and A environment in the United States, the IPO market environment in the United States. And we get a blockbuster deal announced this week

• 25:29Brad Gerstner?

  that Google has announced to buy WIZ for 32 billion, all cash deal. Of course, most people know what WIZ is. It's in the cloud security area, which is a huge growth area. They basically are monitoring your company's workloads that are occurring in AWS, GCP, Azure, et cetera, and what code can be deployed on those platforms. Rumors are that they're going to do something like a billion dollars in, in ARR in this calendar year.

• 26:00Bill Gurley?

  Yeah.

• 26:00Brad Gerstner?

  And so if you look at it, 32 billion, you know, it looks like they're paying something just over 30 times forward revenue for the business. I think the business is probably close to break even. I don't exactly know where that is. You know, Google's total cloud revenue is about 45 billion. So when you look at this, this is about a billion on 45, or about you're buying basically 2% growth. It certainly is not coming cheap, considering that Google trades at, you know, five times revenue. Versus these guys at 30 times revenue. They clearly think it's strategic to their business. But the more interesting thing, you know, I tweeted this week and said on CNBC last week, the M and A market is back. People, they called them off the beach.

• 26:43Brad Gerstner?

  The corp dev teams are back in the office. They're looking for deals. And this one is going to be a key litmus test for this administration. So talk to me about what you're thinking about from the logic of the deal perspective and what this may or may not tell us about the business environment. Folks are entering into with this new administration.

• 27:02Bill Gurley?

  Yeah, and those are both important topics. And, and clearly the backdrop to remind everyone, it's been really slow going for M and A, particularly with the perspectives that were held during the Biden administration, as well as the IPO market, which we frequently talked about. And so anything that starts to open that up would be seen as a huge, huge positive data point for the, for the venture market. I think, I thought a lot about this with respect to Google. And I think in order to understand it, you have to put yourself in the place Google's in. So huge, huge market cap, top five in the world, clearly has been successful with acquisitions

• 27:44Bill Gurley?

  in the past. YouTube, Android came through an acquisition. So a company that's been successful at acquisition and a huge, you know, if they wanted to buy something with stock, they could easily do that too. But where can they spend it? And there's massive pressure from the EU, as you noted. It's very unlikely they would allow to be, to acquire anything that relates to search, maybe anything that relates to AI, anything that relates to YouTube. So those may be all off the table. So if you, if you put yourself in those shoes and you say you're, you know, you're on the board or you're on the, the M and A team at Google. Which of our businesses would we be allowed to acquire in?

• 28:29Bill Gurley?

  And it, you know, enterprise is one where they don't have dominant market share. AWS did. It's a more competitive environment with Microsoft and others. And you probably could get something done here. And so I can't prove that's how they got to this place. But my guess is that that's how they backed into saying, well, we should acquire something in this space. Within that space, you know, you say, how could we differentiate ourselves? And, you know, AWS was first. I think AWS is considered a little more developer friendly. They kind of started in that place from the very beginning. They've been more flexible and open in what they offer.

• 29:09Bill Gurley?

  You know, Microsoft, I think mostly leverages their corporate customer base and kind of uses that to drive their business. So Google, how can they differentiate? Security, especially in a distributed world, seems like a very reasonable answer to that question. And so I guess, you know, to put it all in perspective, watching all that, it makes a lot of sense that they would come to this place. Now they're still saying it might take until next calendar year to get this done. And I think they put up a $3.2 billion breakup fee that they lose if this doesn't get approved. So it's not like this is easygoing. I remember when they tucked in Waze in 90 days.

• 29:51Bill Gurley?

  Like even this is difficult, but I can, I can very easily see how they got to this place. And I, and you know, I'm not deep in cloud security, but I can, I can also, I have a lot of conviction that that's a good idea for an area of differentiation.

• 30:07Brad Gerstner?

  Well, I mean, I will tell you this. I hear it from every single company I'm talking to. They're going to be watching this one very closely because people want to get back to the M and A game. And basically there's been no M and A over the course of last several years. You know, we certainly, one, one area I want to cover here is, you know, just the pace at which we're building monster companies. Right? Hat tip here to Sherdell Shaw at Index.

• 30:34Brad Gerstner?

  To Doug Leone for another legendary investment. You know, this is a business that was started in 2020. Okay. And they're selling it five years later for $32 billion, 32 billion, one of the largest outcomes in the history of Silicon Valley. You know, and those guys are both repeat offenders at home run power law outcomes. So hat tip to both of them. Green Oaks was in this and listen, Bill, I'll share a little vulnerability here. Yeah. About about altimeter and myself, because I've talked a lot about the search. You know, what can we learn from search as we go to invest in these model companies? And I, I say, you know, think about all the people who got Lycos and AltaVista and all these logos.

• 31:17Brad Gerstner?

  They were right about the internet. They were right about search and, and they didn't make any money. And all the money went to, you know, to Google. Well, this is a case where altimeter was an investor with Sutter Hill in a company called LaceWork. Right. Right. And it was competing in a very, very similar space. This was the thesis of LaceWork. LaceWork raised a lot of money, too much money, I would argue, you know, at the time, and they, we went hard at go to market. But they didn't have the product market fit and execution right relative to Wiz. And I remember when Wiz did that series B and I said, we've got a product issue. They're killing us, you know, in terms of how fast they're growing on product. And so this was a case where we lost money betting in this, the space.

• 32:02Brad Gerstner?

  And some of these great, great friends of ours made a lot of money betting on the competitors. You know, we've, we've had plenty of wins here and, but this was one of those humbling times like, what did we, what did we get wrong? Right. In terms of team and execution and shows how hard this business is, Bill, right? It is a razor's edge between, you know, the promised land and, and, and not making anything. Because the winners tend to, to walk away with, you know, a disproportionate amount of the prize. So any reflections, Bill, just you've been around this for a while. 32 billion of enterprise value created in five years.

• 32:37Bill Gurley?

  Well, definitely. And I would, I would qualify one statement. You, you said they made a lot of money. Sounds like that won't happen until 2026. So let's not count the chickens just yet. Um, yeah, look, one takeaway I have, which my, my partners don't, they, they don't think it's fair, but I'm going to say it anyway. Repeat entrepreneurs in the enterprise space are a golden ticket. Like, like it is so, there are so many learned experiences about go, mostly I think about go to market that are repeatable. That you can line them up and do it again. And I, I always think of the workday example as like picture proof of this, right?

• 33:20Bill Gurley?

  It's the team that built PeopleSaw and, and they just came and did it on the new platform. And the technology stack's always changing. And when it changes, it allows for a new entrant to come along and be disruptive relative to that. And this has happened over and over and over again, from mainframe to many, many's to client server, client server to the internet, internet to the cloud. It just happens over and over again. And so if you have a repeat entrepreneur and you can, you know, establish a relationship where they're going to want to come back to you again. Shout out to my partner, Peter Fenton, working with Brett Taylor again, which is a perfect example of this.

• 34:00Brad Gerstner?

  Frank Slutman.

• 34:02Bill Gurley?

  Yeah, the odds of success are way, way, way higher. And as you said, hat tip to Leonie. He's been around a long time, having to win this big at the, you know, at the, I, I won't put him to pasture, but at the end, end of your career is just super impressive. But I think it's, I think, you know, the, the key takeaway for me is that, that the repeat entrepreneur with a new wave in, in enterprise is probably the best way to increase your probability of success. And even then, you know, you may run into what you did. So it, it, you know, it ain't easy, but it's a great outcome here. Great outcome for all these people. And let's, let's hope it get, it gets approved.

• 34:43Brad Gerstner?

  Yeah. So, so, so let's talk about that a little bit, the approval process, because I've gotten a lot of questions. Because it's not only important to this one, Bill, it's important to the signal, right? Are we going to unleash animal spirits around M and A? Or are we going to quash them before they get out of the gates? So let's talk about the FTC for a second. Right, the Chair of the FTC, Matthew Ferguson, I think there've been a lot of misinformation about where he stands on M&A. And so the headlines that I saw over the course of the last couple of weeks, in particular, there was a quote that I saw Bloomberg and a bunch of other people reporting, where he said, "We're not going to be deferential to the C-suite.

• 35:28Brad Gerstner?

  We are going to be the cop on the beat for big tech." And people combined those two things and said, "Oh, my God, this is a continuation of Lina Khan." Right here, we thought we were moving into a totally different business environment, but that doesn't sound good at all. So I went back and I read the transcript on a couple of his long interviews. And of course, they pulled those two things out of the interview, but I don't think it's reflective of where he stands. So just a couple of data points that I would add to the conversation. One is, when asked specifically as to whether or not he differed with Lina Khan,

• 36:07Brad Gerstner?

  he said, really quickly, "I've written hundreds of pages of dissents with Lina Khan." And he said, "The number one area I differ with the prior administration is that they lingered. They created a regulatory fear state that nobody wanted to do anything, because literally, they would bring an action and then nothing would happen. It would just die over time on the vine, and it was like purgatory for all these companies." And so no deals got done. He said, "I'm going to be a cop on the beat," but he said, "Number one, I'm going to go to court or get out of the way and let business thrive."

• 36:49Brad Gerstner?

  That is a totally different mindset. Go to court because you're clearly in violation of the law, or I'm going to get out of the way and let the business thrive. So that sounds to me like we're going to get pretty quick action here. Like, we're going to know one way or the other what they want to do. And then the second point he made, he said, "I'm not a regulator." Think about that. "I'm not a regulator. I'm a cop on the beat. I'm looking for fraud, monopoly, or collusion."

• 37:21Brad Gerstner?

  And I think those two things may well define a very clear and differentiated approach to the FTC. And I think it's going to be reflected here. I think we have an unbelievable opportunity to unleash an incredible amount of economic growth and capital finding its best home and best place to grow businesses with a lot of pent up M and A. And I will tell you this, when I look in the public market, I see great businesses that are growing, you know, 10, 20, 30% that are trading at six or seven times revenue. This deal just got done at over 30 times revenue. There's ample room for buyers and sellers to meet in the middle. If, uh, if the United States is truly open for business.

• 38:02Bill Gurley?

  Well, and I, and I would, I would argue that, that at least in terms of Google Wiz, the, uh, it, it passes that test. Like it's none of those three things. So hopefully it will move through quickly. Um, and you know, it sounds like, you know, we've got on the, on the flip side on the IPO front, you know, there's talk of CoreWeave, you know, in the chute, uh, rumors about Klarna. I think Cerebrus is in the chute. Uh, it'd be great if we see some IPOs. Do you have any, any perspective or data on what we might see and when?

• 38:36Brad Gerstner?

  Um, my data is, remember, uh, I'm on the buy side. So when Goldman or Morgan Stanley want to sell one of these things, our phone rings. And they want to check market conditions. They want to check what we're thinking, you know, and then eventually, uh, you know, the roadshow occurs, et cetera. And I would say all of that, our phones are ringing. There's a lot of activity, the ones you mentioned and many others. So again, think about this. The NASDAQ's down 10% bill in a month and notwithstanding that, we get a huge M and A deal announced and we have the pipeline full on the IPO front. So this to me is a strong signal that people believe this is much more of a pro-growth.

• 39:19Brad Gerstner?

  You know, uh, administration that's going to be supportive of deal making. And if, if, if that stuff happens, then I will say, whatever you think about tariffs, whatever uncertainty is sitting in your mind about tariffs, there's a lot of upside from this activity percolating through. One thing I would bring up. And that is pertinent to April 2nd, which is you and I just said that that Matthew Ferguson, the FTC may in fact clear the way here. But the question is, what are the Europeans going to say? Remember, they've been the ones who've been the pain in the ass on all this stuff, right? And these companies now have significant presence in Europe. And so if the Europeans continue to bite our ankles, I think this is one of the things the administration is going

• 40:02Brad Gerstner?

  to point out on April 2nd and just say, like, we can't have this, right? You can't effectively thwart business activity between two American companies because you're going to sit there and impose, you know, these harsh standards, right? From an M and A perspective, and that, I think, is going to get kicked into the domain of the trade negotiations and tariff negotiations. This would fall into the bucket, Bill, of a non-tariff trade barrier that we're going to punish American companies, right? With excessive regulation that that that in fact hurts our ability to do business. So this can be interesting to see how that one unfolds.

• 40:40Bill Gurley?

  All right. Now, let's switch gears. I understand you were down in San Jose yesterday. Were you were you at the SAP Center? When I hear there were 18,000 people there. And I saw a photo, his his leather jacket, I think, has more zippers and buttons than the previous version. He's clearly the new Steve Jobs.

• 41:02Brad Gerstner?

  I will tell you, I in fact, I was just down there this morning. I saw our buddy, Will Danoff from Fidelity and Gavin Baker. You know, it's it's, you know, everybody is there. I will tell you this, whatever you think about the upside or downside of the stock, and we're going to get into that, we're going to get into their announcements. What I said to Gavin as I was on my way out is, you know, hands in the air in prayer position to give thanks that this is an American company. There's an extraordinary company that that's that's at the heart of, you know, our competitive advantage when it comes to national security, economic security, all things AI.

• 41:43Brad Gerstner?

  Jensen is in full founder mode. They're executing brilliantly and they're an American company. And so, you know, and by the way, we take that for granted. It's not yet, you know, like, I don't think we should take it for granted because we just got done talking about how competitive the Chinese are with BYD. It could very well turn the tables and we could be dependent upon Huawei for next generation AI chips instead of the United States. And so protecting that level of innovation here in Silicon Valley is important. But let's talk about what we learned.

• 42:13Bill Gurley?

  Just very quickly, while you're on that topic, you know, Jensen was born in Taiwan. And, and as many have highlighted, many of the founders and leaders of all these incredible American tech companies are either, either first generation immigrants or second. And so I do hope, I, I, I hearken back to when President Trump told the all in crowd that he wanted a staple of ISA to every diploma. I hope those activities are underway. I have not seen any visible activities on that front, but I hope those activities are underway.

• 42:48Brad Gerstner?

  No doubt about it. I will tell you, when you think about in particular, the chip companies, Bill, Liputan, the new CEO of Intel, I think born in Malaysia, you know, I think every one of them has a CEO who was born in Southeast Asia, China or Taiwan.

• 43:05Bill Gurley?

  Yep.

• 43:06Brad Gerstner?

  Um, and so I couldn't agree with you more. Immigration, smart immigration, smart immigration, right, is a huge national competitive advantage. And we ought to, you know, we ought to continue to focus on that. So what came out of GTC that's, that's the same or different than what we knew? Let's, let's just start at the top by saying the stock's basically flat, right? The stock peaked last year around 150 bucks a share. It got as low as 105 the other day. It's back to 115. On consensus numbers, Nvidia's trading at about 20 times. Uh, next year's consensus earnings estimates, that's really low relative to the S and P. It's traded about 24 times this year's consensus estimates. That's again, lower than the S and

• 43:50Brad Gerstner?

  P average. So this, like, this is not a demanding multiple. Why is it trading there, Bill? Well, people are worried about the demand. They're like, is AI overhyped? Is the demand going to continue to be there? What about DeepSeek? What about the competition for Asics, et cetera? So there is a big wall of worry about this. And, and, you know, and even among the Mag7, Apple, et cetera, all of those stocks. Costco's trading at 50x earnings. So we have a lot of non-tech companies without a lot of growth that are trading at much higher earnings multiples at this point than Nvidia. Okay, so a few of the key things that came out of this. And then I'll tee up a few of the debates. Number one, we talked a lot a month ago about DeepSeek.

• 44:34Brad Gerstner?

  And he was very clear onstage. He said, there was a profound and deep misunderstanding of DeepSeek R1. Because remember, when it came out, there was a lot of fear that, oh, you can get intelligence on the cheap, you don't need as much compute, you don't need to train these big models. He was vehement that that was untrue. And in fact, he doubled down on that bill. And he said, the amount of compute we now know that we need, right, today, is 100x greater than what we believed to be true a year ago. Okay? So that was one of the things that was buzzing, that just what is happening to the aggregate demand, the aggregate TAM, if you will, for the market?

• 45:19Brad Gerstner?

  And so I want to talk, drill down on that for a second, because he showed an important slide that we'll have here, which was industry estimates on what the TAM is for AI data centers. And he said, remember, we did this podcast on February 22 bill last year, where we laid out the data center rollout. And he said that the amount of compute, he was in Saudi Arabia at the time, the world was thinking it was going to be about $250 billion a year. So a trillion over four years. And he said, no, that's wrong by half. We're going to do $2 trillion of TAM over the next four years. So something closer to $500 billion a year of new AI workloads, right?

• 46:04Brad Gerstner?

  So data centers supporting new AI workloads and then replacement data centers. You know, so these are, you know, X86 architected data centers that are going to move to accelerated compute. Well, he doubled down on again at GTC. And now he's saying that it's going to be a trillion dollars per year by 2028. So we'll include this side, but we reforecasted the slide we did last year. This is a both new AI workloads and all of the existing data centers that he believes will be rebuilt. And when they get rebuilt, they're going to be more accelerated. So that's going to a trillion a year. So the market is growing much faster than people think. Now, why is this happening?

• 46:48Brad Gerstner?

  And I think he used a really great example. He said, as of today, you think about somebody who's writing software and they're basically hand coding the software. And they can do that without accelerated compute, right? And so you're just working in a normal, on a normal database in a normal data center. And he said, but by the end of the year, right? Most code is going to either be refactored or written from the start using machine learning. It's going to be coding agents that are helping to do that. And those all require accelerated compute. And so if we listen to Mark Zuckerberg or Elon Musk or Sam Altman, they're all saying the same thing.

• 47:30Brad Gerstner?

  That coding agents are going to come, they're going to displace a huge amount of the handwritten code that was previously getting done on CPUs. And so that's the type of thing. He showed some queries and the reasoning models and why that's multiplicative and leading to much greater demand. But those were, I would say, at the high level. He really made the case that demand is exploding. Across all of these different workloads, literally from, he said this morning that robotics and autonomous cars was already greater than $5 billion revenue run rate for Nvidia and

• 48:07Brad Gerstner?

  growing very fast, he said. So they have from synthetic biology to robotics, to physics, to, you know, all the stuff we see in consumer to enterprise IT, they have this incredible stack across CUDA, which is multiple layers of software. And then finally, he said, remember, we're not in the business of building chips anymore. That ship sailed a long time ago. We're in the business of building supercomputers. Blackwell is 40 times more capable than Hopper was, and the demand is off the charts. And so, you know, notwithstanding that fact, I think the market's checking them at the gate and they're saying, we'll believe it when we see it. And I think a framework for thinking about Nvidia at this point is, this is probably

• 48:52Brad Gerstner?

  a company at 2.7 trillion that's going to grow at whatever the rate of its earnings growth is, Bill. Right? You've seen all the multiple compression you're likely to see. I think in that regard, you know, they can grind a lot higher.

• 49:06Bill Gurley?

  I'll give you my reflections and feel free to push back. One, as you already said, the market didn't move, which implies, if you believe in the efficient market hypothesis, that there was the full absorption of data, neither positive or negative, right, of what was said, relative to what expectations were. Two, I do think there continues to be, and maybe we should just find a way to put a pin in, but this, this argument about scaling or not scaling, that I think no one's in disagreement on the reality, but a bunch of people like to argue it in funny ways. So I do think.

• 49:48Bill Gurley?

  Most people believe that the pre-training scaling, if it hasn't topped out, it's at least slowed materially. And even Nvidia is talking about inference being 99.1. And so the scaling is more on inference. Everyone seems to agree with that. When they say everyone got it wrong, I think that falls into that category of that, this kind of nuanced discussion where the bulls don't want to admit that anything isn't scaling. And, and the analysts are just saying, well, it shifted a little bit and that might matter. Anyway, we can forget about that. On the token count thing, no one in the previous world, let's call it Intel's heyday, talked about the CPU units of performance. Like, how many, how many

• 50:31Bill Gurley?

  times the CPU transacted? If they had, you would have had crazy exponential numbers also. They didn't, it wasn't discussed that way. And so no one's counted the CPU clocks that have happened over time. So I do find it like, kind of be an ultra promotional way to talk about things, to talk about the token count, just because we haven't done that in the past. On, on Ruben, you know, and I'm biased because Benchmark's an investor in Cerebras, but, and, and I would expect this in a more inference focused world, you know, Ruben, which is their next gen, they started talking about, there's way more on the die and the die's getting a lot bigger, which is the direction of Cerebras. So that,

• 51:15Bill Gurley?

  that one kind of confirms to me that we're moving more towards inference. And then the other thing that I thought was interesting, and I'd really love your view on, he got up on stage and talked about being the chief revenue destroyer. And it was very kind of provocative. And I don't clear, I don't fully understand. I think he may have created a bit of anxiety in his customer base, because he was implying that this next generation is so good, that it makes the previous generation quite invaluable. The problem is, the companies he's selling to. You know, within the past three years moved from a four-year depreciation to a six-year depreciation on these servers. And if he's going to kill them in two years, there's a, there's a, there's a

• 52:00Bill Gurley?

  kind of an economic problem for these customers.

• 52:04Brad Gerstner?

  Yeah, I, I, I don't, you know, I, I was there for that. You know, and it was, I think, an off-the-cuff remark that because of the Blackwell generation, the GBs that they're currently selling, not the future generation, the current GBs are 40 times more capable, right? When you look at TCO than the Hopper generation. And so he said, you know, we're probably not going to sell a lot of new Hoppers for the cutting-edge stuff that people want to do. So in fact, he showed a slide of the CSP demand. So the top four cloud providers in the United States and what the year-over-year order was, you know, Hoppers, 1.3 million Hopper GPUs to the top four CPUs or CSPs and comparing like

• 52:49Brad Gerstner?

  timeframe, he said, we've done, you know, 3.6 million Blackwell GPUs so far this year. And I think his point really there was the, the pace of scale up and scale out, Bill, and how much utility that provides to the end customer. And the point is like, because I, you know, we're investors in Core, we, we talked to Core Weaver, we talked to the CSPs. The reason they're elongating the depreciation cycle is because the way in which they build these is all the software upgrades flow naturally through to Hopper. So Hoppers continue to get better over time, even though, you know, you, you've got the same chip deployed. And remember, for inference, Hopper's great.

• 53:32Brad Gerstner?

  You just wouldn't choose to buy more Hoppers today because the new chip is a better TCO than the old chip was. It's not that the old chip wasn't the right thing to buy at that moment in time. And I would say the same thing's going to be true about Blackwell Ultra. What I think is when you're on the pace that he is, he's got 35,000 employees, they're executing blisteringly fast, they've got the best supply chain in the world, and I think it puts tremendous pressure. I think the gap between him and AMD, you know, Nvidia and Intel, Nvidia and all these custom ASICs. In fact, he made a comment that I think roiled some people. He said about the custom ASICs. He said, don't you know that the vast majority of custom ASICs that get designed and

• 54:16Brad Gerstner?

  and get taped out actually never scale into any commercial production? And we hear that Tranium is now cutting their costs, you know, on AWS is cutting the cost on Tranium chips to try to get a lot more customers. Usually don't cut costs on things, right? When when things are going great and you got a really competitive product. I think Tranium is not even competitive with Hopper, let alone with where Blackwell is today. And I think, you know, Jassy would be the first to admit they're buying as much Nvidia as they can get their hands on. So I don't, I'm not worried about what that comment means for their release cycle. I think this is one of the few companies in the world that paints a, you know, can you imagine if if Apple took the stage

• 54:58Brad Gerstner?

  today and told us what was going to be in the next four iPhones? Right? They'd never do it. They don't know. Right? This guy is planning out where, you know, the next four generations of the product is going to be. And I think he's got an incredible path. He introduced this new improvement around photonics, which I which I think is pretty incredible. If they execute against the plan, it's going to be a lot bigger business. And I don't see many people able to close, you know, to close the gap on them. And I think they'll stay ahead of the rest of the world. So that was that was my my take on things. I, you know, question back to you.

• 55:34Bill Gurley?

  Yeah, go ahead. Go ahead. Go ahead.

• 55:36Brad Gerstner?

  You know, he said this morning that he doesn't think, he said on CNBC, I don't think tariffs will have a near term impact on our business. And there's a lot of talk, Bill. We've talked here about the Biden AI diffusion rule, right? That makes it much harder to sell these chips to like 50 countries, this convoluted system. We've talked about, you know, the fact that Chinese export controls are likely going up. We're going to get this this announcement on sectoral tariffs on April 2. Do you have any points of view or any thoughts about what we should be doing with regard to, you know, those things and Nvidia? If you were if you were the president, would you be imposing higher export controls? You know, would you be getting rid of the diffusion rule or

• 56:19Brad Gerstner?

  keeping the diffusion rule? How would you think about it?

• 56:22Bill Gurley?

  Let me make one brief comment and then I'll answer that question. I do want to to agree with you on one point. I'm looking at a

• 56:30Brad Gerstner?

  Oh my God, you're gonna agree with me on a point.

• 56:32Bill Gurley?

  Well, I don't think our job here is to just agree with each other. It'd be a very uninteresting podcast. So I try and maybe create an alternate viewpoint. But I look at the Mag 7 and I'm looking at them ranked by market cap. And if you ask the question, I think you would agree with this. If you ask the question, which of these companies is executing the fastest right now? And which of these companies is most exposed to global trends? Nvidia would win both of those, correct?

• 57:03Brad Gerstner?

  Correct. Yeah, I mean, listen, it's a smaller position than it was the last couple of years because all of our position sizes are smaller as I took down risk at the start of this year. But again, I don't expect this is going to be one of those flash in the pan. Oh, it's up 3X because multiples expand a lot. I'm assuming multiples stay largely the same and I just get the benefit from the great execution and the top line and the earnings growth of the business. And I will say, you know, this slide that I showed you here, Bill, Wall Street consensus expectations are basically that Nvidia tops out at $250 billion of revenue. Like somehow there's like this this ceiling there. And if you believe that to be true, then their share of the market falls off a cliff

• 57:46Brad Gerstner?

  because the market's growing really fast. I don't think they're going to lose share of market. If anything, I think they probably gain share of market in a fast growing market. But I do think back to, you know, these the diffusion rules. There are a lot of people who were around the rim at GTC and they are very worried about tariffs. They're very worried about the Biden era diffusion, AI diffusion rule. They're really worried about Chinese export controls. And, you know, so I just thought I'd get your

• 58:16Bill Gurley?

  Well, look, I continue, I said it a few weeks ago. I think the number one risk on the stock. Is government action from DC. Um, and you know, a lot of people have been asking questions about the percentage of the revenue that goes to Singapore and then they reply and say that's billing, not shipping. And then people say, well, where is it being shipped to? And there's all these questions about DeepSeek and where they trained. And I certainly think that it's impossible to stop a startup from any country from traveling to Europe or Malaysia and running a model. Like, I don't know how you're going to prevent that. Um, and moving the bits back. And so I, I don't think there's a solvable problem, but I also think there's a lot of angst in DC about China.

• 59:02Bill Gurley?

  I, I think a lot of it's misplaced and overly angry. I think your, your friends at OpenAI added to that last week by putting out an anti-deep seek paper that I thought was quite sad. Like i- if, if a company like GM or Ford were to put out a paper like that about BYD, we would look at them and go, oh, you just want the government's help. You must be uncompetitive. And so I don't know why we would think about that differently, um, from one of our leading AI models. But there, I, you know, I do think that these people have a lot of power. I think it's a bipartisan issue and, and I think it's the number one risk on, on the stock, um, flat out.

• 59:42Brad Gerstner?

  I, you know, my, my view on this is when you come, i- if we impose high structural tariffs and if we allow this crazy Biden era diffusion rule to stay in place, which makes it hard for us to export our chips. I, I literally think it's unilaterally disarming America in the race to AI. Um, I, I think it's a very bad decision.

• 1:00:09Bill Gurley?

  And positive for Huawei, right?

• 1:00:11Brad Gerstner?

  Correct. It's going to lead to, it's going to lead to a Huawei Belt and Road. Listen, I already think this has backfired against us, right? DeepSeek is running inference on Huawei nine, 10s, you know, because they, they may not be as efficient as Nvidia, but they just throw a hell of a lot more power, which they got a lot of in China at these chips and they can do it. And part of the reason China has been forced to build a vertically integrated domestic supply chain, literally from design to fabrication around chips is because the United States made it super hard for them to get their hands on Nvidia chips. And so we really have to ask the question, did we achieve our mission? And there are a bunch of people arguing, well, we need to even be throw higher export

• 1:00:55Brad Gerstner?

  controls on China. You know, listen, I don't, you know, I don't want to do anything to make it easy on China. I'm fine trying to slow China down a little bit. I just think it's a task in futility. There's no denying, they already have frontier models. They're releasing them every day. Their frontier models are smaller, like it's the deep seek moment. Now Baba has one, ByteDance has one, right? So that that horse is is out of the barn, as we've already seen with BYD, as we already with CATL, right? China is going to have frontier capabilities. The bigger issue is this bill, this on the diffusion rule, right? Which the Trump administration ought to ought to throw away and start over. This

• 1:01:38Brad Gerstner?

  diffusion rule will make it hard for us to get chips to Saudi Arabia, to the UAE, to India, to, you know, our friends in Southeast Asia. And it makes it hard through this regulatory capture that some of the US CSPs put in place, you know, all these hoops they have to jump through. And I just see Huawei walking right through that door, you know, and beginning to, you know, run the table globally, like frankly, they've done. Remember, they said this would never occur in telecom equipment bill because of Nortel and all the highly capable telecom equipment of the United States. Huawei ran the table across the globe with Huawei gear because the US did this. Like, we ought not make the same mistake twice.

• 1:02:21Bill Gurley?

  By the way, I think it can go further. Like, every time I've listened to ASML, who's I think a Dutch company, is that correct?

• 1:02:28Brad Gerstner?

  Correct.

• 1:02:29Bill Gurley?

  And and someone that has dominant market share, like 80 or 90%. When you hear them talk about the restrictions that the US government has put on a Dutch company to sell into China, I always hear this kind of reluctance and a bit of of being angered that this, the US thinks they have that authority. And then you take what I said earlier, that that came from Manny at The Economist, you know, I could easily see us provoking Europe to the point where the ASML team just says, well, screw it. We don't care what you say. We're selling to China. And I think that could easily happen. So I, I don't know. I think we got to calm all this down a little bit.

• 1:03:11Brad Gerstner?

  Well, one of the things that, you know, maybe we'll wrap this this little section here. When it comes to, you know, what we ought to, what we ought to be allowing China to participate in here is like, I totally agree, back to the tariffs issue, that it, it, it should be a strategic objective of the United States to re-onshore fabs, right? And you and I have a bit of a disagreement on this, you know, it gets back to this Morris Chang. Morris Chang says, "It's too hard to do. U.S. consumers, U.S. workers don't want to do the work. They don't want to live in dorms. They don't want to do the six days a week." I, I don't think we need to do that. I think with the level of automation that we now have in fabs, and I think given the

• 1:03:53Brad Gerstner?

  strategic national importance of having these fabs, I'm happy that this administration has put the pressure on TSMC to build their next generation R&D lab or fab in Arizona. I think it's achieving the desired results. What I would hope that they would do is maybe announce tariffs, but make them conditional, Bill. They say, "If you don't do these things, TSMC, Nvidia, et cetera, and prove to us that you're building manufacturing capabilities back in the U.S., then we reserve the right to hit you with tariffs, but we're not going to impose them today. We'll have a two-year delay or whatever." While we, you know, we want to provide the incentive, but we don't want to slow down U.S. companies in the race to AI. I think that would be a terrible mistake.

• 1:04:35Brad Gerstner?

  And so hopefully, that's the middle ground the administration, you know, guided by folks like, you know, Scott Bess and David Sacks and others, find their way to. I think that would be a reasonable middle ground, and I think it is a great objective to get this stuff back in the United States. But maybe to wrap here, we can hit on a topic that you and I talked about the other week, and this gets back to this, this couple of questions. One, just thinking about, you know, we had the launch of Grok, you know, Big Bang, the launch of DeepSeek. Maybe we just check in a little bit, Gemini's had some updates, on where we are in the state of consumer AI demand, and importantly, the topic that I, that I've been reading

• 1:05:18Brad Gerstner?

  about around contribution margins, you know, like, even if, even if revenue is growing, are they selling dollars for 50 cents? And are they losing money on each incremental, you know, unit of business? I, I'll kick it off by saying this. When I look in the App Store, you know, DeepSeek jumped up to number two and was there for a couple of days. ChatGPT was at number one at the time in App Store downloads. Now, DeepSeek isn't in, you know, the top hundred the last time I checked. When Grok jumped up to number two for a few days, last time I checked, it's now around 65. Gemini never really jumped up. It's hanging out around 55. The point being, and ChatGPT is still number one in the App Store.

• 1:06:04Brad Gerstner?

  The point being, I've said about consumer markets now for a while, that all my pattern recognition from Google and Meta is that these tend to be winner-take-most markets, that it's almost impossible to dislodge the inertia. You can't get there by being slightly better. At this point, you're going to have to be 10x better than ChatGPT to slow down that inertia. That was the learning from prior, from these prior periods. And now, you know, we've seen the reports, over 400 million weekly average users. And I would tell you, I believe that OpenAI is massively supply constrained. I think they're building these two huge campuses, data centers, one in Abilene, Texas,

• 1:06:45Brad Gerstner?

  the other one in Denton, Texas, one with Oracle, one with CoreWeave. And I think they have to build all that just to actually launch the products that they currently have. That's not even supporting future growth. It's just like supporting the demand they currently have. I think they have four or five products literally sitting on the shelf because they don't have the compute to deliver it to customers. Any thoughts there, Bill? Like, have we seen, do we know the winner already in consumer AI?

• 1:07:15Bill Gurley?

  Well, I mean, I think your argument is very, very solid. Like, I don't think there's any data points that would suggest there's an immediate threat to that. I would think that the powers that be at Google and Grok, you know, and Meta and Amazon must be up at night, all night, trying to solve this problem. And so I guess, you know, Netscape had, Microsoft, OpenAI has.

• 1:07:48Bill Gurley?

  You know, four or five of the most powerful companies in the world aimed at them. And so it's a, you're right, they have a lead. It could be insurmountable. They have, you know, all the king's horses and all the king's men behind them. And so it'll be interesting to watch. You know, we've talked about the thing. I think if someone crushed voice, it might give them an advantage to move fast. That might be particularly compute intensive, which, which we'll get into our next topic. But for now, I don't have any ability to take the other side of your heart.

• 1:08:26Brad Gerstner?

  Well, you know, who, the couple I didn't mention there? I didn't mention Meta, right? And we know those guys are in full beast mode, but they've been unusually quiet. Like, I'm actually shocked how slow we've seen any change there in terms of a standalone consumer app. I know it's coming, but I've heard it's been coming for a long time. And or even the integration within their existing apps. I'm, you know, I'd love to talk with, with Zuckerberg about that. And the other one is Apple, right? And, and we've talked about that again, just not seeing any real change there. And in the meantime, I'm seeing, you know, I think the stuff that we're going to see over the course of the next eight to 10 weeks out of OpenAI, as they get these releases teed up, I think it's going to be pretty profound.

• 1:09:11Brad Gerstner?

  And, you know, continue to add, you know, to add pressure to that lead. But, but let's, let's ask the question.

• 1:09:17Bill Gurley?

  Wait, wait, wait, one, one thing, one thing I have been thinking about. So I do think that DeepSeek by choosing to be more open than Llama. And the key area, they're more open than Llama. They don't have these caps. And so Llama and Mistral and a few others, they claim to be open. But if you get too big, you have to go pay the piper. And so, you know, and there's always been a continuum of open source. Like, it's always, every company chooses their spot on that continuum and tries to see what they can get away with. Because DeepSeek is so prevalent in the enterprise right now, my point of view. And it's been forked like 1,500 times on hugging face.

• 1:10:00Bill Gurley?

  Like, and for all the reasons open source works, that's why that's happening. I do think it's an interesting moment in time for Meta in particular to consider maybe going left and getting even more open with Llama, which I think would be really powerful for them. And this probably won't happen, but even OpenAI could consider doing that. If you're right, the direct consumer product company, there's not much risk in taking that leap. And it would undermine anyone else that's trying to compete based on the quality of their proprietary model. So, anyway, I wanted to bring that up. Where were you headed?

• 1:10:41Brad Gerstner?

  Well, I, listen, you've been appropriately tough in asking questions about the gross and the contribution margins for these businesses, right? And so I saw a report recently on Anthropic suggesting that they had lower contribution margin. So, so let's just first just unpack what that is. So, you know, contribution margin is basically, you know, what, what do I have to pay as a variable cost to, you know, provide the service that I'm providing? So, in the case of Anthropic, most of their enterprise API, I believe, is sold through AWS. And they have to pay a huge customer acquisition fee.

• 1:11:26Brad Gerstner?

  In the world of Google, we would call it TAC, probably to Amazon. And then, of course, you have all the costs that you have to pay to actually serve the model, right? And there's a variable cost associated with serving the model. And when you take those two things into account. Because of the large percentage of their revenue that is indirect, that they have very little or no contribution margin, right? So no net revenue really flowing through the P and L. Now juxtapose that against somebody like OpenAI, where almost all of their business is direct. So they don't have to pay traffic acquisition costs or rev share to anybody, right?

• 1:12:07Brad Gerstner?

  Which obviously you have to, that has to be the business model because the costs of serving these things are expensive. Now, of course, both of those things ignore, Bill, your overhead and your training costs, right? And so that's truly fully loaded. But I'm just looking even at the contribution margin level because if you're not, if you're not meaningfully positive at contribution margin, then you have no chance of covering the cost on a fully burdened P and L.

• 1:12:35Bill Gurley?

  Yeah. So, so, so here's, I've been thinking about this a lot. I will introduce, let's just call this loosely and, and a first draft, an idea that I'll call the girly negative gross margin AI theory. Okay.

• 1:12:51Brad Gerstner?

  Okay, there we go.

• 1:12:53Bill Gurley?

  Because my brain, I can wander in some pretty interesting places all by myself. But a lot of people have been comparing things to the internet revolution. And, you know, I know why they do that. There's so much excitement, you know, for all similar reasons. And so they want metaphors and comparisons. In addition to that, I would say, and you just explained it, the unit economics are messy here. Because you have, you know, you have variable costs that is, especially if you're buying, you know, your compute from someone else, you may have cap X. And then there's a question of, are you depreciating that over how long? And, and do you charge the

• 1:13:38Bill Gurley?

  unit economics against that? Some of these players have credits that they were given by, by the large platforms as investors. Do you, do you really take that into account or not? And in addition, you have tons of VC money. And so if you're going to take, if you're going to raise billions of dollars, you're going to have high burn rates. Like, these things just are part of the, the game. In addition, I think there is a mindset and that, that most.

• 1:14:06Bill Gurley?

  VC markets are winner take all and so you can't lose market share, right? It's just you, you can't lose market share. So if you can't lose market share, how do you price? You know, do you price to market or do you, you know, do you price to cost and value like you would in an economic textbook? Or do you just price to market, meaning I can't lose because of price? And so, you know, it becomes a buyer's market. I'll create a theoretical example because I think there's also an issue of stacking. Let's say you have, and let's not pick on any company. Let's say you have a large model provider that's buying compute from a hyperscaler.

• 1:14:46Bill Gurley?

  And then let's say there's a, you know, startup doing voice for the enterprise on top of that model provider and all these people are buying compute from the one below it. If those second layer and the third layer are both negative gross margin, the consumers buying compute from the hyperscaler at a price that's lower than they would if they bought it directly, because it's being subsidized by two players in the middle. And on top of that, if this is true, you're triple counting revenues, right? Like there's a transaction that a consumer is making against this model, but because it's negative gross margin, you're literally adding it up three times.

• 1:15:30Bill Gurley?

  Same thing would be true if you were, you know, any really what people would consider a shitty business, if you were a just, you know, a global distributor of retail products and you're taking 5%, although here it's negative. And so this theoretically could be happening out there, you know? And you, you pile in the tons of VC money, the fact that everyone believes these markets are winner take all, the fact that, that the founders are likely unsophisticated financially, not, not, not, I'm not like taking shots at them. They probably haven't had a lot of finance classes and you don't have great visibility on unit economics. It's set up, it's set up to be messy and you could, you know, you could have substantial

• 1:16:12Bill Gurley?

  resets as people get in touch with unit economics, when and if they're forced to, and that's a very unpredictable time window of when that, when, when that would happen.

• 1:16:24Brad Gerstner?

  Yeah.

• 1:16:24Bill Gurley?

  This is a, this is a theory. I'm not suggesting it's a hundred percent true. It's possible this is going on.

• 1:16:30Brad Gerstner?

  Well, listen, I think the one place I would absolutely agree with you, Bill, is that the unit economics and the ability to compare across these businesses is messy. That's number one. Number two, what I'd agree with you on is in no way are these business models proven yet to be anywhere close to as good as Google. Remember, Google raised less than fifty, fifty million dollars before they went public. Right? And so Google was able to do what they did with very little upfront capital. And then their unit economics from, from the very start were profitable.

• 1:17:04Bill Gurley?

  Then, and, and this is a really important point. In the internet, the businesses that work, the marginal unit cost to serve a customer were near zero.

• 1:17:13Brad Gerstner?

  We're near zero.

• 1:17:15Bill Gurley?

  For, for Google, which is partially why it was so economically efficient. I think that was true for Meta also.

• 1:17:21Brad Gerstner?

  Right. And I will tell you, I will tell you. So, so here's my, my, my takeaway. For whatever AI companies emerge with a consumer business model or an enterprise business model, where they fully control the top of the funnel, where those people are coming to them at almost no incremental cost because their friend told them about it or whatever. There's no marketing cost. And so your only cost is actually serving the inference to support that customer. I think those will have a unit economics that are exceptional that, that in, at maturity, look a lot like the internet companies. But I will say that right now you hear these top line revenue numbers and the first thing you ought to be asking yourself is, who do they have to pay to get that revenue?

• 1:18:06Brad Gerstner?

  Right? And what are they loading in terms of their variable cost against that revenue? Time will tell, but my sense is there aren't, uh, there aren't very many sustainable business models here today. You know, and I think what I mean by that is that you, you're going to have to, to support this level of capex that these companies are undertaking. You're going to have to have tens of billions of dollars in high margin revenue in order to support the reinvestment that you're making, uh, on the backend of these businesses. Obviously, I think the best position one at this moment, subject to change, in terms of the independent players is OpenAI. But remember, For Meta, they can invest, they have a printing press kicking out billion-dollar bills in the backroom.

• 1:18:51Brad Gerstner?

  So they can invest against this for a long time. Amazon can, Google can, to your earlier point, Bill. Right? You're not going to have a clearing event here where it's winner take most because these guys will continue to throw money at it for a long time. And I would say, among the other independent players, Elon and Grok have a great product, have executed incredibly well, and he has a unique, very, very unique ability to raise global capital for a long time, along with X.ai. So you absolutely can't count him out of the race. But maybe we just wrap it there. I mean, there's, you know, it's a, you know, it's a period of consolidation for sure. You got a lot of uncertainty in the world. You got Nvidia trading at 20x earnings. You got a lot of questions about these companies.

• 1:19:36Brad Gerstner?

  But we're going to turn over a lot of cards, I think, in terms of these products over the course of the next eight, 10, 12 weeks. We're going to turn over a lot of cards on tariffs, on, you know, kind of status of the reconciliation bill and taxes, etc. And, you know, that's what makes it interesting. I mean, we could find ourselves, you know, off to the races come this summer. Or I think we could find ourselves with, you know, in the middle of a trade war and, and, and, you know, and everything's slowing down. So there's a lot at stake here over the next 90 days.

• 1:20:08Bill Gurley?

  Let me, let me, let me make three final thoughts on my, on my

• 1:20:11Brad Gerstner?

  Great.

• 1:20:12Bill Gurley?

  my silly theory. One, I think one of the reasons this can happen also is this steep price decline we've seen on models and older models. And so I think it's very easy for a founder or a team to say, "Well, it's okay that I have negative gross margin or that I'm pricing here because look what happens. Like in six months, the compute for this will be a lot cheaper." And I think that's a very rational decision. Two, I think that also Leads to what everyone seems to be seeing, what is when people go to production, they look for cheaper solutions. And this is why I think open source thrives, why DeepSeek is working on the enterprise. Like, I think everyone, when they go to

• 1:20:55Bill Gurley?

  production, they optimize. And then, and then third, just in terms of this theory, if we're going to compare to the internet area, if there are high variable costs, I think you have to think about e-commerce more than you think about like Google, right?

• 1:21:10Brad Gerstner?

  Right.

• 1:21:11Bill Gurley?

  And, and, and there were a lot of businesses, this gets back to selling dollars for 85 cents, that were growing by, by achieving that. And so I'm, I'm very curious how it all play out. All that said, as you know, I'm a huge believer in AI. It's causing all kinds of disruption. It's going to create all new kings and queens in the venture market. I just like getting under the hood and seeing what's happening on the margin.

• 1:21:37Brad Gerstner?

  Well said. Well said. We're going to see a lot more in the weeks ahead. Good to see you. Good luck to Florida.

• 1:21:43Bill Gurley?

  All right.

• 1:21:44Brad Gerstner?

  We'll talk soon.

• 1:21:44Bill Gurley?

  Appreciate that. Go game.

• 1:21:45Brad Gerstner?

  Take it easy.