Demis Steps Down, Apple’s Memory Problem, Microsoft’s Clever Trick

M. G. Siegler from Spyglass is back for our Montly discussion of the latest tech news. We cover: 1) Demis Hassabis steps down as DeepMind CEO (Alex solo) 2) Apple's memory crunch 3) Should Apple have known better? 4) Will iPhone prices go up? 5) How much can Apple raise prices without losing sales 6) Does that eventually hurt its services business? 7) Microsoft is spending less on AI... but there's an interesting wrinkle 8) How much cloud growth is driven by OpenAI and Anthropic? 9) The divisions within Google's AI division 10) Can Google get it together? --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. Want a discount for Big Technology on Substack + Discord? Here’s 25% off for the first year: https://www.bigtechnology.com/subscribe?coupon=0843016b Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:00Speaker 00

  Hey everyone, I had a feeling that there would be an emergency podcast of some sort on my break this summer as AI news has been progressing so quickly, there seems to be something emergency podcast worthy every week. And so, of course, while I was flying from New York to Indonesia, on the plane, I learned, or actually when we landed, I learned that Demis Hassabis had stepped down as CEO of Google DeepMind, which is some of the most seismic news of the year in AI. And I figured that what I would do would be to share a couple of notes on Demis stepping down and what it means for Google and what it means for AI, and then play the full Friday show that we have recorded. It's going to be with me and MG Siegler. We're going to talk about Apple's memory

• 0:42Speaker 00

  issues. And then we also, at the end, talk about some of the brewing misalignment of incentives within Google, misalignment of interest within Google that a couple of days later seems to have manifested with Demis's departure. So a quick couple of minutes for me here, talking a little bit about what it means, whether it's good for AI and where Google goes from here. And then I'm going to play the full episode from MG, and I'm going to try to do this as quickly as possible. So first from the Wall Street Journal, "Demis Hassabis is stepping down as chief executive of Google DeepMind to become chairman and chief scientist, Google CEO Sundar Pichai said in a post on X. Google DeepMind technology chief Korai Kavacholou is taking on responsibility for all AI model development and Jeff Dean,

• 1:24Speaker 00

  Google's current chief scientist, is leaving with three other company veterans to co-found a new AI startup." Okay, let's talk about why this happened. If you think about what Demis and his perspective has been over the past, let's say, year, year and a half, and he's been on the show a couple of times, it's been very different from some of the others in the AI industry. You speak with Dario Ammadi, you speak with Greg Brockman. Their perspective is that the current LLM technology is potentially unlikely, according to their opinion, a straight shot to AGI. With Demis, it was always, there is a couple more breakthroughs needed in order to get to human-level artificial intelligence. And so, his interests really diverged a little

• 2:07Speaker 00

  bit from where a lot of the industry and a lot of the money is going in AI. And that money part is important, because right now, this is key for business. The companies, companies that have been able to build strong LLMs have been able to make a lot of money off of it. And if you didn't think that progress was going to continue apace, and you think that there are other research areas more promising, it would almost be tough to continue to go along, even if there was, you know, the business interests aligned with, it would be tough to go along even if it made sense for your business interest if you thought the research, you know, more, most promising research is going to be elsewhere. And this is what the Financial Times reports today. It says, "While Hassabis is widely admired

• 2:50Speaker 00

  for his scientific leadership, several people familiar with Google's thinking said senior executives had become frustrated by what they saw as his lesser focus on the commercial demands of the company's AI business." So basically, Demis is like thinking, his goal is to develop super powerful AI, and he seems potential in areas outside of LLMs, where while the whole technology industry is moving towards large language models with these, like the GPT model and Claude. And you actually have seen this kind of manifest with Google, where the breakthroughs have been on the more world model type of, type of applications and the more, and applications of AI that, that resemble and help us understand the physical reality, things like AlphaFold.

• 3:35Speaker 00

  And in fact, when I spoke with Demis in January last year, one of the things he told me is he wanted to make an artificial cell. You just don't do that with a large language model, you do that with other types of, of AI models. Okay, that brings me to my second point. Is this good for AI? Yes, it is. There are trillions of dollars that are going into developing LLM technology right now. And one of the things with AI progress is that if you go all in on one mode of the technology and it doesn't manifest results, you could end up having an AI winter, a drawdown, people believe less in it. And of course, you don't want to invest entirely in one technique. So I actually think it's good for AI, that Demis will be focusing more on the scientific side, probably more on the world model side,

• 4:20Speaker 00

  and not deeply in LLM. So you'll have basically the talented OpenAI, and anthropic and potentially what's left of the AI organization at Google, pushing the LLM methods forward, and Demis going out and looking for the one or two breakthrough, breakthroughs that are needed to push AI to where he wants to go. And look, if one of them succeeds, whether it's the anthropic OpenAI group, or it's the Demis group, ultimately, the technology progresses. So that's something to keep, keep an eye out for. Okay, lastly, where does this leave Google? Look, obviously, this is not what you want in the middle of the most high stakes fight in technology history. You know, things are moving exceptionally fast. Google is clearly behind on the coding agents. They don't really have something that is in a

• 5:05Speaker 00

  league with the latest large language models, but also with the applications, with the Codex and the Claude codes. Google has not made noise on that front. And it is a shame, honestly, for the company that it could not make it work with Demis, because clearly, this guy knows what he's doing with AI. So you don't want this to happen if you're Google. But the other, the other side of it is, if you feel like you need to make a move, you have to make it. If you feel like you're being held back, if you feel like your efforts are not progressing, maybe because of diverging interests or differences of opinion, you can't just stick with it just because, you know, that's the way things have done. So it's a high stakes move. And then, of course, the question is whether Google has the talent

• 5:46Speaker 00

  to continue, to stay, to stay in league with the others. Because of course, you've, you're going to see, and Demis is staying on, he's going to become the Google DeepMind chairman and chief scientist. But there's a tremendous amount of talent that's left the top ranks of Google's AI efforts, including Noam Shazer, who's gone to OpenAI. And also this week, we found out that Jeff Dean is also going to make a new startup called Discovery Loop, which Google's going to be invested in. And so, he's out as well. So lots of tumult on the top ranks of Google's AI division. Ultimately, bottom line for me is, it happened because of a difference of opinion. It's good for AI. And now the real question is

• 6:30Speaker 00

  whether Google can figure this out moving forward, and whether this effectively high-stakes shakeup pays off. So that's it for me. I'm going to turn it over to my conversation with MG, talking all about Apple, and we get into, you know, a deeper discussion of the LLM versus world model, difference of opinion at Google at the end, although, of course, that was just, you know, basically hours before Demis decided to leave as Google DeepMind CEO. Crazy times in AI. As I say, it's always a crazy week in AI, and you think it's the craziest, and then the next week happens. And that's certainly what happened this week. So without further ado, here's the full episode, our full Friday episode with MG Siegler.

• 7:14Speaker 00

  Rising memory cost plague Apple and threaten to cut into the company's margins. Is Microsoft really spending less on AI and what's going on with Google? That's coming up with MG Siegler of Spyglass, right after this. This episode is brought to you by Genesis. What does it actually take to put a Gentic AI to work across an entire enterprise? I recently spoke with Genesis chairman and CEO Tony Bates about why orchestration is emerging as a competitive advantage in customer experience, and what companies need to get right in the AI era. Then, I sat down with Adam Mitchell, head of enterprise business solutions at Voya Financial, to go inside a large-scale agentic CX transformation, including the business decisions, trade-offs,

• 7:56Speaker 00

  and lessons along the way. You can watch both conversations now on my YouTube channel today. It's never been more challenging to get frontier compute. How do you know where to look, who to trust, or how much to pay? Akash is an open cloud that provides easy access, flexibility, and peace of mind. That's how companies like Razer were able to cut their inference cost by 15 times. Visit akash.network/alex for a free consultation. That's akash.network/alex for a free consultation. Welcome to Big Technology Podcast Friday Edition, where we break down the news in our traditional cool-headed and nuanced format. We have a great show for you today, covering

• 8:37Speaker 00

  Apple's memory struggles, and whether the company will be able to sell as many devices if its prices go up. We're also going to talk about some creative accounting that Microsoft is doing to make it look like it's spending less on the AI buildout. And of course, we're going to tackle what's going on with Google, and why that company seems to be falling behind in the AI race. So we're joined, actually, for a special Friday edition this week by MG Siegler of Spyglass. MG typically here on the first Monday of the month, but today we do it Friday style. Welcome to the show.

• 9:11Speaker 01

  Thanks, Alex. As always, great to be here and especially great after sort of big tech earnings season colliding with AI because it shakes out so much, so much more nuance in what these guys are doing.

• 9:22Speaker 00

  Definitely. Yeah, you have some great stuff on Microsoft, which was, which was praised by Wall Street, really, for being more restrained in its spending, but is it really? So we're going to talk about that. All right. First story this week, we're going to talk about Apple. This is coming from Reuters. Apple set to lose nearly 500 billion in value after a weak forecast. This was right after earnings and I think it just goes to show that Apple is going to struggle as these memory costs go up. So let me read a little bit from the story. Apple shares fell after a disappointing forecast showed that the iPhone maker was struggling to secure enough components as the AI-driven data center boom strains global supply chains. Tim Cook, widely hailed as a supply chain genius, called the shortages very significant and said Apple had limited options to address them.

• 10:08Speaker 00

  Big tech has been scooping up advanced chip making capacity and memory chips to power its AI data centers, sparking shortages and price increases that are expected to shrink both the personal computer and the smartphone markets this year. Actually, I'm going to turn it over to you. I mean, it seems like every company is dealing with increased costs as they go to build out their AI infrastructure, but Apple doesn't really have an AI infrastructure play, yet it's getting hit by the increases in memory. We've already seen the increases with MacBooks and the bigger devices, but of course, that could come for the phone. And so Apple gave weaker guidance, 9% to 11%

• 10:50Speaker 00

  growth in the current quarter compared to 12% that they expected. You know, Apple's had a great year, but I wonder if people are underrating how big of a problem this is going to be for the company.

• 11:00Speaker 01

  Yeah, it feels a little bit like just when I thought I was out, they pulled me back in because Apple, you know, had just hit the 5 trillion mark. They, they passed and they were second company ever to do that after Nvidia and they'd actually jumped Nvidia to become number one again and Google to become most valuable after losing it, I think, two years ago. You know, famously Nvidia was pretty far ahead for a while. And again, it feels like Apple sort of zoomed back up for a lot of the stuff that we've been talking about over the past many months, you know, that they could be positioned well, given their lack of capex spend relative to their peer group. And sure enough, it seems like Wall Street started to reward that, especially given sort of the new

• 11:39Speaker 01

  series story with Google and whatnot. But as you're noting, there's other things that come into play with all this and they're all related, right? Because basically the components are now super expensive that they need to, to use for all their devices. And why is that in large part because of the AI boom and because these, yeah, the cycle is now in full swing. And so even if they're not spending all the capex dollars that their, that their peer group is, they're going to get hit now because they need the memory. They just need it for other reasons, you know, again, their devices. And so, so they're sort of in this weird precarious spot. It's almost like, imagine if Apple had sort of done at least some of the capex build out that, that again, their, their peer group was like,

• 12:21Speaker 01

  would they be able to repurpose some of that, you know, some of those components maybe to, to leverage in, in their devices? Would that even make sense to do that? I don't know. These are all like, obviously just hypotheticals, but, but again, that's, it just goes to show you that there's like, this is all sort of interconnected and all related. And even when Apple thought like, oh, wow, maybe we did do the right thing. And maybe Wall Street thought like Apple did do the right thing and not doing these massive capex spends. And they can still sort of take advantage of, of AI as it is right now, at least they still have other things dinging them.

• 12:53Speaker 00

  Yeah. I mean, I think this goes to Apple's mentality around AI, like clearly within the company, they underplayed the importance of AI. And, you know, in the other companies, you have people running around saying that like, AI is on an exponential, invest and buy all the compute you possibly can, because they recognized its potential. And Apple didn't have that. And so I wonder if this is sort of a, a, you know, Apple continuing to sort of fail to anticipate what's going to happen with AI and now paying the price for it. Because you would imagine like, there should have been a meeting within the company to say, well, AI is going to be big or going to create a lot of this demand.

• 13:34Speaker 00

  They've seen the funding numbers. And so even if we're not going to build our own foundational model, let's ramp up our purchases. What happened there? Like, isn't this a big problem for the company?

• 13:43Speaker 01

  It's a great point because again, you noted Tim Cook was, you know, famous as the, as the logistic expert, right? He was COO of Apple before he became CEO under, under Jobs, obvious, under Steve Jobs, obviously. And this is what he was famous for. He built this Chinese supply chain. He basically was considered the master of this, that everyone then tried to emulate and copy over the next several decades. And now shouldn't he have been in position, you know, as CEO of one of the largest companies in the world? To be able to say like, look, even exactly what you're saying, even if we're not going to spend all this money to do the capex build out ourselves, all of our peer group is, and they're the biggest companies in the world alongside of, say, of billions, hundreds of billions of dollars potentially to spend. So what's that going to do to the supply chain?

• 14:25Speaker 01

  It's very strange that they wouldn't have gamed that out. You have to believe that they did to some level. But Cook keeps saying in all the, you know, and this was, this, you know, was famously his last earnings report. With John Turner's now coming in to take over, but he keeps saying it was a hundred year storm and a hundred year flood and all these things. You know, noting that it's just above and beyond what, what they modeled out clearly and what they thought was even feasible. And I mean, obviously this all is unprecedented, the amount of, the amount of money pouring into the, to this build out and just the amount of overall dollars, I think, you know, were past, I think it was reported with this new latest cycle of earnings, I think we're past a trillion dollars combined from all of big tech now pouring into these capex spends on a yearly basis,

• 15:10Speaker 01

  which is wild. And, and in the face of that, also just noting like that Apple is still going down relative, like they're down year on year in capex spend relative to their peer group. So again, going back to your question, like, and I think it's a great point. How did Tim Cook specifically and Apple overall not anticipate this more? And maybe they just, maybe they knew that it would, it would play out a little bit this way, but they didn't anticipate that it would go on for this long. Maybe they thought we'd already reached some sort of equilibrium with the AI build out and that we wouldn't need to keep ramping. But obviously it just hasn't played out that way. And now they're getting, you know, they got themselves in a precarious situation with their devices. Obviously, which is the most important part, the iPhone in particular.

• 15:50Speaker 00

  Let me just at least throw this conspiracy theory out there so we can at least address it and bat it down or give it credence. I don't know one way or the other. If you're Apple, isn't it kind of in your best interest to talk up these memory parts, these, these, you know, memory shortages? Because it gives you the option to raise prices and we knew they, they raised prices quite significantly on MacBook. They're probably going to raise prices on iPhone and it would be much better to do so and increase your margin because of, you know, the AI build out than potentially, you know, you just having a hunger for more margins and more money.

• 16:26Speaker 01

  I think it's worth discussing for sure. Like, I think that there's a few things and there's, there could be more nuance in even what you're suggesting in that. Like, look, there's been a, a talking point for a while. I know Ben Thompson and others have talked this up, like the iPhone relative to sort of other devices and relative just to inflation, everything actually became like a much better deal over time because Apple didn't famously raise prices for so long in lockstep, certainly in their, in our era of inflation. But even just in general, they weren't like raising prices regularly. They raise them every once in a while here and there. They do little things like cutting out the lower RAM models and things like that to sort of, you know, effectively raise prices. But they haven't raised them in a major way until now. And so like, were they looking for a way to do this?

• 17:09Speaker 01

  I mean, I don't know if they were looking for this specific way to do this, but they probably, yeah, were looking for an overall way. Instead, famously what they've done over the past many, many years is raise the average selling price of the device by just releasing more premium devices. And they're about to do that again, it looks like, right? With the iPhone Ultra slash fold, whatever it's going to be called. It looks like that's going to start at least at $2,000. And so that will be by far the highest starting point of an iPhone yet. And again, they've been doing that over time. Starting with iPhone 10 model back in the day and then, you know, up and up and up and these bigger models. And so, but to your question on margins, like, If I'm right, I believe that their margins are still growing, but I do think that a lot of that is still just software dependent versus the hardware.

• 17:52Speaker 01

  But it's going to be fascinating to watch in the next quarter, next two quarters, what actually happens to that margin. Because if your conspiracy theory is at all right, then it would suggest that those margins keep growing, and specifically, the hardware margins even keep growing even in the face of this. If what Tim Cook is saying is correct, you would expect to see them fall at some point, even with the price rises. You think that, at least the way that Apple is portraying it, that they're in a bad enough position that, yeah, it's going to ding the margins, and that's apparently what Wall Street doesn't like too much, and on down. And so we'll see in the next quarter, next two quarters, how that actually plays out. I think the margin, overall margin is over 50% now, so it's like, pretty wild where it's at, given that Apple sells hardware and software, not just software.

• 18:36Speaker 01

  And so, yeah, we'll see how your conspiracy theory plays out over these months.

• 18:40Speaker 00

  Okay. So last week with Reid Albergati, I said if you want to get a new iPhone, the 17 is probably the best one to get because the 18 is going to be much more expensive. I'm just curious, do you think it's all but certain that the 18 price hike is baked in at this point? How much do you think they could raise prices? Because I think they raised prices on some of these Mac computers by 20, 30%. And how much do you think people can tolerate? I mean, this is obviously all calculations that they're doing inside Apple. Like, if we release, if we raise prices by X percent, what will our demand look like in terms of lost sales? So I guess I'm going to ask you just to speculate on what we might see when these next set of devices come out.

• 19:22Speaker 01

  My best guess, and I've written about this, is sort of, I'm sort of angling towards the $100 to $200 price raise for all the devices, obviously depending on what the device is and how much RAM, and if it's a Pro model or whatnot. It could go higher, it could go 250, it could go 300, you know, and I don't think anyone would be shocked at the higher end if they go even higher. But I think 100 to 200 is sort of, you know, the base case, and that's what a lot of the other devices have sort of seen generally. Some devices, like Apple TV famously, have gotten like these weirdly high, you know, percentage-wise price increases. But the iPhone is just vital to Apple, it's too vital to raise it too much to sort of kill demand. But, you know, to the earlier question, they have to maintain some level of fiscal responsibility

• 20:07Speaker 01

  to, you know, maintain where the company has been at, and because the iPhone is so vital to the overall just position of the company, they're going to have to do something. And so, again, 100, 200. I do think that there's, you know, other little things that they will try to do to sort of mitigate some of that. You know, we can talk in a second about what they're potentially doing with a new program in place to help alleviate some of those price rises. But, yeah, 100 to 200, I think, is sort of the minimum that they're going to have to do. And I think that they sort of, in a way, lucked into, and maybe they didn't luck into it, maybe this is the genius of Cook, as we were talking about before, but the fact

• 20:50Speaker 01

  that it now sounds like that they're going to do the Pro model releases in the fall, then do, six months later in the spring, or six-plus months later in the spring, do sort of the quote-unquote "regular" iPhone 18 release. That actually probably helps them overall, right? Because I do think that they're going to, for sure, raise prices. I do think that they've done this sort of tiered approach to it, where, you know, first Cook sort of talked to the Wall Street Journal in a very uncharacteristic interview, and just said that they're going to have to raise prices. And then a few weeks later, sure enough, they raised prices, but they don't do it on the iPhone, which is super interesting. Because, again, most important device, but they do it on their other devices. So this was a way of guiding the market towards where they're heading. And then, of course, we're leading into the new iPhone event, which will happen in a few weeks. First one led by John Turnus, presumably there with the iPhone Pro models, as mentioned,

• 21:35Speaker 01

  and the iPhone Fold slash Ultra. They would up the prices, you know, to this new level. But again, they're not going to necessarily have to launch or up the regular model prices right away, because those new models aren't going to be launched until the spring. So it'll be interesting if they up the price of the iPhone 17, given that the iPhone 18 regular, non-Pro model, won't launch potentially until the spring. We'll see if they move those models at all, but maybe they don't. And maybe, again, it sort of creates a buying opportunity ahead of those prices, just as it has been right now for people who want to get a Pro or Air, because they haven't moved the price on that, leading up to the new event.

• 22:12Speaker 00

  Yeah, and you make a great point here, that the iPhone is just vital to Apple's business. Now, not only do the gross sales matter a lot, and they've been growing those, but the services side of it, right? The more people that own the phones, the more that Apple can make in services revenue, and that revenue is becoming just much more important for the company. And in fact, you know, the thing, you know, slower growth is something that pulled down the company post-earnings last week, but also, something that wasn't really talked about a lot, is they said that services growth is going to be a little softer than usual. So what do you think about that? Like, it's a balance, right? You want to make your money from iPhones, clearly more than 50% of your revenue, most important product. But services is a big portion of your valuation, it's a big part of your growth, and you kind of can't mess with that.

• 22:55Speaker 01

  Yeah, that was surprising, and that obviously surprised Wall Street a bit, because that's been the growth story, you know, in the face of sort of slowing growth overall with the iPhone, just by nature of law of large numbers elements, you know, it's at such a state where it can't grow so massively every quarter anymore. They've been relying on services, you know, because they have this massive install base and up-selling them on different things. And so, it was a bit surprising to see that it didn't grow as fast as they were expecting it to this past quarter, and they're blaming some interesting things, one of which is sort of the regulations around the world that are coming into place to have to change the App Store, which is fascinating, right? Like, because that obviously has not happened so far in the United States, but there's

• 23:40Speaker 01

  obviously a lot of pending lawsuits and pending antitrust, you know, cases going into place that could upend that, and all these various things that are on hold right now with what happened with the Epic, Apple versus Epic trial. And so, Apple seems like they're hinting that there could actually be a real change to the App Store model, and you and I have talked about this a little bit, and I've been writing about this. Like, I wouldn't be shocked if at some point, one of Turnus, John Turnus's first moves is to change the App Store model a bit. It didn't happen at WWC, obviously. Would it happen at an iPhone event? I don't know, that seems sort of like, maybe a distraction from the actual products themselves. But at some point, again, just given the regulatory pressure, and given now that they're

• 24:24Speaker 01

  acknowledging sort of how it's impacting the actual business, I wouldn't be shocked if they do start to move on some of that, changing perhaps, you know, the overall split, you know, tweaking it a little bit of what the cut is. But they also blamed other things, like just to slow down, it sounded like, maybe more secular in the gaming element, because games are such a huge part of the App Store. That's like the main thing that sort of drives a lot of that App Store revenue, is the gaming purchases and in-app stuff. And so, you know, they had a few other things to blame, and, you know, China and everything else. But still, it was surprising that it's not growing as fast, especially because all you hear about and all you see them touting now is Apple TV and all, you know, the big Hollywood

• 25:05Speaker 01

  stuff, and F1 partnership, and MLS partnership, and how well all these things are doing. But obviously, those things aren't doing well enough to sort of buoy what the real part of services is, which is the App Store.

• 25:18Speaker 00

  Yeah. For John Turnus, do you think, it's kind of an interesting sort of strategy here for him, like, if he was to come in and cut some of these fees, or give in to some of these, you know, EU pressures, he'd either be seen as somebody like a conciliatory CEO, or somebody that gets pushed around. And I think that Apple has really worked hard to make sure that no one pushes them around, so, kind of curious how you think Turnus would play that.

• 25:45Speaker 01

  I doubt that Turnus sort of gives in to some of the EU stuff if for no other reason than Donald Trump is still president, and that would look bad upon him, right? And that would make for awkward conversations, potentially with President Trump's buddy, Tim Cook, you know, who's still going to be around, potentially managing that relationship. So I wouldn't expect them to do anything in the short term with the EU, other than continuing to fight and sort of, you know, putting out like, the back-and-forth rhetoric around what side is right. And I also just believe, I do think that they think that the EU is being unreasonable with a lot of their demands to open up the platform in ways that would potentially make it less secure. I think, you know, I think that there's some points that the EU has that are fine, but I overall, I mostly side with Apple on that stuff.

• 26:28Speaker 01

  Maybe that's my American bias kicking in, but I've, you know, I live in Europe, not continental Europe, but the UK, and so I see some stuff of, you know, I just came back from actual continental Europe, and I see some sides of it on arguments on both sides, but I do tend to side with Apple on that stuff. So I don't see them moving on that. But I do think, yeah, the App Store, I think you bring up an interesting notion that, yeah, can Turnus be made to look weak, like he's going to backtrack on all of the things that Cook and everyone else has put in place for so long, dating back to the Steve Jobs days? I think the better framing of it would be, you know, I'm entering in with a blank slate, and I'm going to look, revisit everything, and there's, you know, there's no sacred

• 27:12Speaker 01

  cows, and we will look at everything from first principles and whatnot, and, you know, again, we've likened it in the past to Satya Nadella coming in in those early days in Microsoft and releasing the iPad version of Office, and that sending a signal more than anything else, right? So does Turnus do something to send a signal? Wouldn't expect it really, again, at that iPhone event, but maybe sometime next year, we'll see.

• 27:34Speaker 00

  Okay. You know, conspiracy, whether my conspiracy plays out or not, we're going to probably see this come to a head pretty soon, because in the earnings report last week, Cook did say that Apple did have a stockpile of memory, and they've been drawing it down, and the buffer seems to be dwindling, at least that's what he says. So get ready to pay more for Apple devices, bottom line.

• 27:55Speaker 01

  Yeah, yeah, and, you know, I think one interesting thing that has been talked about a bit, but obviously, Cook has been lobbying hard to try to get Apple to be able to use memory chip suppliers in China, right? And it's super contentious, because obviously, everything going on with AI in China and all the back-and-forth, and trade negotiations and whatnot, but if Apple can actually get an unlock there from, it would have to be from, you know, Trump, presumably, to be able to at least use memory chips for iPhones built in China to use those Chinese memory chips, that would be a massive unlock, because all of a sudden, they could just push all the rest of them to the rest of the world, and most notably, of course, the US, and they don't have to worry about that.

• 28:38Speaker 01

  But can really, either side be viewed to be okay with that at this point, given how contentious the US-China relations are at this moment? I don't know, but obviously, Cook is pushing for that.

• 28:50Speaker 00

  Yeah, I wouldn't be stunned to see that go through, but that being said, I don't know, I kind of, I mean, it's just memory, but do you really want that type of hardware in your iPhone? I don't know. Before we move off of Apple, let's talk about Apple as a service, which you wrote about. Maybe instead of, you know, you buying the iPhone at a higher price tag, you just subscribe to it monthly.

• 29:14Speaker 01

  Yeah, so, and this is what I was alluding to, obviously, and what we were just talking about. This, I think, is strategically very smart of Apple. And, and I feel like this is sort of the perfect strategy to launch with these iPhone price increases potentially coming down the pike. Because again, I laid out, I thought, like Cook did the, gave the quote to Wall Street Journal, raise the prices of other Apple devices, and then the third leg was going to be eventually raising the price of the iPhone itself, obviously the most important thing. But there was a one more thing happened before the iPhone price, which is that, as you're noting, basically, they have this new service called Apple Upgrade, which is effectively a way for you to pay a monthly fee for an iPhone.

• 29:56Speaker 01

  Now, they've had this somewhat before with the iPhone Upgrade Program, which I've used in the past and is okay, but wasn't great because it uses a third-party banking partner rather than Apple itself, sort of to be able to pay for these things. But this thing is a little bit different. It's definitely bigger in scope. It's not just the iPhone, it's also for Mac, it's for iPad, it's for Apple Watch, and maybe other things down the road. It's US-only right now, but given that their partner here is Klarna, which is a European company, you would expect that probably this goes at least to Europe, if not worldwide, you know, eventually, sooner rather than later. And I think it's going to be vital, again, for all the stuff we were talking about with the price increases, because this is the, sort of the most optic, easy way to negate those.

• 30:39Speaker 01

  And you can basically see turnus getting up on stage at the iPhone event, saying, flashing up the screen that they always do, that shows the prices of the iPhone. And when people see them all of a sudden $200 higher than they were previously, you know, you can imagine maybe some oohs and ahs in the crowd of, you know, seeing the little sticker shock, even though they all knew it was coming. Still, it'd be a little bit of a sticker shock. But what if instead now they have, or you can pay, you know, $19.99 a month, or $30 a month for an iPhone Pro model, you know, if you're interested in using our Apple Upgrade Program. So again, I think that this is sort of a little bit of, of a smart, very savvy, certainly marketing move, but also, yeah, just a way to alleviate the potential pain of having to raise these prices.

• 31:24Speaker 01

  And I do think a lot of it is optics, but I also think it will help, right? Like, people have proven that they're okay, sort of, paying a monthly fee if there's nothing, you know, there's no upfront cost. And, and over time, they will potentially pay less, but they won't own the device, but then they can buy it, you know, straight up for the remaining price. And so I think it gives people optionality to be able to opt into sort of getting that expensive device in the iPhone and the Mac and iPad and whatnot. And so I think that'll be especially key, potentially, for this $2,000-plus iPhone Ultra slash Fold.

• 31:57Speaker 00

  Yeah, I love that. I mean, would you pay $30 a month? Like, does that sound better? Or $2,000 right out of your pocket right away for your iPhone to fold? I don't know. I think people will stomach that $30 price much more than the $2,000.

• 32:13Speaker 01

  Yeah, and when you compare it to what, you know, cellphone bills are these days, right? If people are already paying $50 to $100, you know, potentially for that, for this service. Like, this is, this is, this is a whole beautiful device that you get to, to use those services, and arguably the most important device probably in most people's lives. And so, you know, in terms of management and day-to-day stuff. And so I think a lot of people will be into that. And I do think it, like, obviously, it points to, and this is sort of the point of the piece that I wrote, like, I've been long sort of looking for Apple's equivalent of Amazon Prime, you know, basically, the all-encompassing subscription service. Obviously, it would look different, Apple doesn't do deliveries, but, but still, like, you know, they have Apple One, which is, which is sort of the software layer of this. But what if they do rope in the iPhone, and now it's here?

• 32:58Speaker 01

  It's not baked into Apple One right now, but you can see them eventually merging it, and you being like in this whole ecosystem of, of just paying Apple a monthly fee for all of your different services, like Cloud and, and the iPhone itself. And then, you know, from Apple's perspective, that's basically someone who's, who's even more locked into the ecosystem than they have been by blue bubbles or whatnot, right? Like, you have to continually pay Apple in order to keep your device and keep up to date and everything. And so I think that that's pretty compelling, both from a business side and from a, you know, potentially a consumer side.

• 33:33Speaker 00

  Okay. I want to take a break and then come back and talk about this clever accounting trick that Microsoft is using to make it look like it's spending less on the AI build-out. And then we will end with Google and what's going on with its AI efforts. That's coming up right after this. This episode is brought to you by Avpoint. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about. All that AI runs on your data, and most teams have no single way to see it, secure it, and prove it's under control. That's exactly what Avpoint does. For 25 years, they've been the trusted layer beneath the world's most demanding data, now extended across your entire AI estate.

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• 36:31Speaker 00

  Download the Quince app for app-exclusive offers, or go to quince.com/bigtech. Get free shipping on your order and 365-day returns. Now available in Canada and the UK, too. That's Q-U-I-N-C-E.com/bigtech. And we're back here on Big Technology Podcast Friday Edition with MG Siegler of Spyglass. You can sign up to MG's great newsletter at spyglass.org. Highly recommend it. MG, let's talk a little bit about Microsoft. So last year, last week, Wall Street really praised Microsoft for not raising its capex at a time when it seemed like everybody was raising the capex. And then I read your piece on it.

• 37:12Speaker 00

  And it seems like Microsoft's restraint is actually just a creative shuffling of the numbers. Tell us a little bit more.

• 37:20Speaker 01

  Yeah, and, and so I want to, I want to caveat this. Like, I don't think that Microsoft is doing this to be, you know, to deceive the market. I do think, though, that they are happy to benefit from sort of the optic advantage of this. And basically, what you're talking about is, they were able to, in this quarter, they decided that they were going to basically change the way that they account for their data center leases. And so historically, they've actually considered them to be 15 years. And that basically meant that they were, you know, taking on the, the cost of, of a 15-year lease.

• 38:02Speaker 01

  And, and because of different accounting rules, which I don't fully, you know, I'm not an accountant, so take this with a grain of salt. But from my understanding, and for, obviously, from AI's understanding and some of the reporting understanding, it seems like there's accounting rules which allow them to, if they were to change that 15-year cycle, which is what they did for at least some of their data centers, to change it to a 25-year cycle. That basically takes some of their spend off of what has historically been in the capex section of their spend, and put it into OpEx instead. And so basically, this allows them to still say, and they had, they were upfront about this in, in the earnings, they basically said, we're not changing our, you know, our

• 38:45Speaker 01

  outlook, we're not lowering, and we're not, as you noted, we're not raising, but we're keeping it the same. And, and that was weird to people because, at the same time they said that, it looked like they actually had spent about $15 billion less than what they thought they were going to, at least at the top of, of the range that they were guiding to before. It's like, whoa, did, did Microsoft, are they pausing? You know, in the past, it looked like they had been doing that before, when they were sort of shifting and reallocating stuff as they were trying to unwind from their OpenAI partnership. And so was Microsoft taking a pause again? Was this a sign of, you know, the end of the bubble and whatnot? But no, instead, it looks like it was just this accounting change, which basically means, again, they're spending the same amount overall. So it's not like they're spending less.

• 39:28Speaker 01

  It's just that it changes it from going under the capex line to moving it over to the OpEx line. And so, again, optically, I think that they were happy to make it look like, look, we're being more prudent, and we're not sort of upping it like... Like Google is and you know, and potentially like Amazon is and like Meta is right now. And instead, we're gonna yeah, be be more mindful about where the spend is. But it still looks like they're gonna be, you know, spending on par with everyone else. It's just that change. And and it was even more confusing because when you looked into it more, as it turns out, actually, to their credit, Microsoft was actually super conservative in this regard. And the other rest of their peer group had long ago sort of changed from, you know, a shorter time horizon for this data center leases.

• 40:13Speaker 01

  And so they were already taking advantage of that. Now, I do think Microsoft and probably Amy Hood, you know, their CFO, smartly had this timed well. And you always want to do this, it sounds like, at the end of a fiscal year, which is what they're at. So they timed that well, but they also knew that like, look, the single biggest point that Wyatt Street seems to care about right now is capex spend. And we have a way to alleviate the pressure off of that. And and again, they were in a position to be able to do this. And in some ways, you could argue that they were actually probably, you know, reporting above what they were actually doing relative, if you if you compared it to what the the peer group was doing. So yes, it's it's sort of a little bit of a funny accounting thing. But I think it's a savvy move, and I think it gives them a little bit more headway. And again, you saw the stock.

• 40:56Speaker 01

  I think they had the the single best stock day, you know, gain of anyone in history. Yeah, they beat out Nvidia a few years ago. So that's incredible.

• 41:05Speaker 00

  Okay, but MG, when I think about where the AI story can crumble, this is this is definitely one of the places. And I'll explain why. So as we talked about, they said that the useful life of a data center is gonna go from 15 to 25 years. And it gets them this ability to reclassify that expense. Okay, it sounds good, but you and I both knows that both know that GPUs are not gonna last 25 years. Now, there's on the low end, people say they'll last three years, right? So you're not gonna have the H100, you know, potentially go for for a decade. Some people say it lasts three years. Maybe it does go for a decade. But this idea that you're not gonna replace those chips for 25 years is does just doesn't hold up to to any scrutiny at all.

• 41:47Speaker 00

  And of course, the chips are 50% of the data center build out cost. So how do you put that on a 25 year scale? Yeah, 25 year scale just makes zero sense to me.

• 41:57Speaker 01

  So there's there's levels to this. So 25 years, from my understanding, is the actual facility itself. Now, inside, servers are a whole different matter. And this has been a big point of contentious contention across the board, both from big tech and certainly with the Neo clouds, because, as you know, they're all spending tons and tons of capital and all this circular financing is going in. And a lot of it breaks down to, yeah, exactly what you're pointing to, like, how, what is the actual lifespan of these servers? And and their range, yeah, like you noted, from three years, some are six years, some are seven, I think. And and Michael Burry, you know, famously from Big Short, has sort of talked about this as a reason why he's shorting a lot of these companies, because he believes that they're sort of

• 42:40Speaker 01

  doing funny money, funny math on on a lot of these, a lot of these schedules. For Microsoft's thing, I do think that they can get away with, again, this is what the peer groups have long done. Amazon and Google, in some cases, are far longer. I think Google has some that are 40 years. Amazon might too. But again, Amazon is different warehouses, right? They have all their their logistics warehouses and whatnot. So, excuse me, so it's a little bit hard to, you know, to dive into and break down at a granular level what what they're allocating towards each. But I do think that they can make a credible argument, certainly relative to the market, that they should be allowed to do it over this 25 year schedule. They'll just say like, look, yeah, we'll replace the servers within them. But we'll have the, you know, the actual facilities for that long.

• 43:24Speaker 01

  Now, if something changes drastically with AI, maybe they're in a bad place where they just don't need them or something else happens. And they need to be repurposed or something like that. Or they have to sell them off. And and who knows how that can play out? So that's 25 years is a long time, certainly in in tech and even more so in AI. But to your, yeah, to your other point and question of like, how much of it do they have to bake in? You know, because so much of it is is Nvidia cost, basically. And yeah, I mean, all of that is is a little bit of a gray area, I feel like, right now.

• 43:57Speaker 00

  Yeah, now, last week, we saw some crazy numbers with the cloud growth. 82% from Google, 30 something percent from AWS, 43% from Azure. There's a discussion that has been had that like, yes, these companies are seeing pretty significant growth from cloud. But most of that is just OpenAI and Anthropic, which have raised hundreds of billions of dollars, just investing it back into cloud. So if that VC money were to fall away, and some of it, by the way, is coming from these companies themselves, like, you wouldn't see the growth. Like, for instance, Amazon's gonna invest $50 billion in OpenAI. And so like, are we shocked that they're having 36% growth in cloud?

• 44:41Speaker 00

  How much of this is just kind of like growth that we're seeing on the back of AI investment? And how much of it do you think is real?

• 44:49Speaker 01

  It's a good question, and it feels like it's one that Wall Street isn't really answering right now or asking even right now, because, as you saw, like with these numbers. So Google dropped, Meta dropped, and a lot of that is spend related. And with Meta, it's more nuanced. It's it's related to, you know, that they don't have a cloud, you know, whereas the other players do. But Microsoft, as we just talked about, you know, had an all time surge. And Amazon had a massive surge too. And a lot of that seemed to be based off of the fact that it felt like Wall Street feels like that they're starting to get a return on some of this AI investment. And to your exact point, how much of it is actually circular? How much of it is just one or two companies that they're all heavily invested in? The two largest AI companies versus, you know, random, long tail,

• 45:34Speaker 01

  both mom and pop businesses, but even smaller, you know, Fortune, smaller Fortune 500 companies actually using AI. And you don't hear a lot about that right now, but I think it's it is important and key question. Because, as you note, if anything were to happen to slow down Anthropic or OpenAI, that has a cascading effect that that sort of happens across the industry. And it will definitely impact, certainly it impacts Amazon, certainly it impacts Microsoft, Google as well, but you know, they have some of their own, obviously, dependent on Gemini itself too, and TPUs and whatnot. Meta would be in a good position then, I guess, that given that they don't have the cloud right now. And Apple, of course, would be sitting most pretty of all.

• 46:18Speaker 01

  But but yeah, I think that that's a that's a good key question that no one is focused in on right now, because growth has just been crazy. Like, when Wall Street sees those numbers you're talking about in terms of year on year growth at the at the relative size that they're at, it's just incredible. And so why, why, why would you want to question that, Alex?

• 46:38Speaker 00

  Yeah, I mean, I am surprised that there hasn't been a deeper discussion about this because, obviously, like, it's not all the spending. Like, you add up the growth in all these companies, and it's not just entirely OpenAI and Anthropic. But it is a sizable percent of it. And the fact that we're not like, talking about that in terms of like, you know, oh, like, Amazon going from 17 or 18% quarterly growth to 36%. To me, it it just kind of boggles the mind that it's not a bigger discussion topic.

• 47:09Speaker 01

  But and, you know, you bringing that up just jogs my memory. That might be exactly why Satya Nadella is taking the stance that he is right now with Microsoft, where it seems almost like antagonistic about his, you know, big partners. They still own 25% plus or whatever of of OpenAI. And now they own, you know, a few percent of Anthropic too. And yet, Satya Nadella, like, in the press and in his blog posts and stuff, just keeps talking about, you know, the need to be Switzerland and diversify away from just those two big behemoths, again, which he owns massive percentages of. And why? It could be exactly what you're talking about. Like, he knows that if if they're too beholden to those two, if those, if something happens there, and inevitably, even if down the road, like, those two

• 47:51Speaker 01

  actually do make it out and, you know, break out on their own and become two of the new, you know, tech behemoths that are public companies, they will eventually, obviously, just have their own clouds. They're not gonna be, they're not gonna be relying on Microsoft and Google and Amazon indefinitely. Certainly not to the extent that they currently are, you know, and they're obviously working to build out their own data centers right now that they could potentially have their own clouds on. And so maybe, you know, it's as simple as Satya Nadella sort of getting, trying to get ahead of this. And also, you know, reading the tea leaves with how upset everyone is about pricing and and everything like that. And so, yeah, positioning Microsoft to potentially take advantage of of the short term, but really be in better position for the longer term.

• 48:33Speaker 01

  And one more thing, to your exact point on the Amazon $50 billion thing. That's one of the craziest things about all of this, right? Like, there was a report that everyone knew that Amazon had an option to put into up to $50 billion. But the reporting suggested that the option was basically tied to either OpenAI going public and or achieving AGI. Neither of those things has happened, as far as we know, at least with AGI right now. And yet, Amazon apparently closed out that 50 billion, that remaining $35 billion tranche, you know, not such a small tranche, to to close out. Why did they do that? There's no reporting on it yet. Either either they know something that open it, that's going really great at OpenAI.

• 49:16Speaker 01

  And there's some inklings, right, that OpenAI is making a bit of a comeback with Codex against Anthropic and that, you know, some of the new models, 5.6 and what's maybe coming with Atlas, I think they're calling it, as the next model, are actually gonna have a real breakthrough and potentially could vault them back to the top. So maybe it's as simple as they they saw that. But it is fascinating. I mean, they put in $50 billion in 2026 into these, into OpenAI, after they already have the massive investment in Anthropic. And so they are now arguably more levered on these two companies than than anyone else, including Microsoft. You know, when you combine those two things together, they just bought, again, they bought, what, 5% full on of of OpenAI in 2026, sort of wild.

• 50:01Speaker 00

  Yeah, I mean, either they saw something big coming, and maybe they did, or they just made a handshake agreement that that money comes right back into AWS, which is obviously.

• 50:11Speaker 01

  That's a fair point, fair point.

• 50:12Speaker 00

  Yeah, no, maybe a little bit of both, I would imagine. Okay, before we go, let's talk about Google. You know, a couple of months ago, MG, I think we were kind of early on this, talking about, you know, did Google just fall behind? Clearly, they have. And I think you and I are both continually puzzled that they continue to fall further behind. They have their next big model kind of stuck in review phase. They're nowhere to be found on these coding agents. You think that, you've written that this is potentially culture related. So let's just get your thought about what's going on within that company and how it could fix it.

• 50:52Speaker 01

  Yeah, I mean, so with the disclaimer, obviously, that I worked at Google for over a decade, but I've been gone for a couple of years now. So I don't have inside information, you know, current about this situation. But again, just reading about it from afar and sort of knowing what we've talked about and and watching I O this year and seeing, you know, obviously, they promised on stage Sundar Sundar Pichak promised that they would have the 3.5 Pro model, their flagship model out, you know, in June, you know, a month after that conference. And now here we are in August, and it's still not here. And, you know, the reporting now suggests that it's months delayed. And it sort of feels a little bit like the llama situation for Meta back in the day, right? Where it's like, they kept promising their, I think it was called Behemoth model back in the day, and it just

• 51:35Speaker 01

  never came, right? And that's what led to ultimately the reset. Now, I don't think that Google is going to full on reset and buy like a scale like company and, you know, boot out the old team and bring in this new team. But I do wonder what is going on there internally right now. And it does feel like, you know, as you noted, that there's a bit of a culture clash. And there's been reporting on this, right? Like, Google is such a big company, and there's so many smart people. But the downside of that is that they have, you know, fiefdoms within the company, and they have smart people who disagree with one another about how they want to, you know, do something like, say, agentic coding. And so when there's one team over here that wants to do it this way, and another team over here that wants to do it this way, probably a third team over here, like, they butt heads,

• 52:19Speaker 01

  and they they're all but and they're all competing for resources. Because not only does Google have to have internal resources, as we noted, they have their cloud. And so they have to have the external resources for people to use, too. And so there's clearly sort of this internal arms race going on for competing factions. You would have thought that this was was reconciled, you know, when it felt like that DeepMind, basically, and Demis Hassabis took over sort of the group, and they united DeepMind and and Google Brain back in the day. But clearly, there's now splintering factions again, you know, per the reporting on it. And so, so where does this leave them now? You know, they might be, you know, they keep trying to talk up the notion that the Gemini 4, you know,

• 53:01Speaker 01

  is already in training, and so that's going to be great. But again, that just sort of suggests that they really messed up with 3.5 Pro. And are we ever actually even going to see it? Are they going to go right to four? It sort of feels like they're going to go try to jump right to four now. And if they do that, four had better be really good. Otherwise, they're going to have a real narrative problem.

• 53:20Speaker 00

  Yeah, there's a great piece in the Algorithmic Bridge, which is a Substack that says that talks about the actual reason Google fell out, quote unquote, of the AI race. And basically, the piece makes the argument that Google has effectively given up, although I think that might be too strong. But it sets out like, basically, this dynamic where you have startups, and then you have vertically integrated companies like Google, and then you have two different types of AI approaches, like the LLM approach and the world model approach. And so basically, what you have on one side is startups that are committed to LLMs, because they have to make a profit, they think that this is the way to go. And then you have these vertically integrated company that are companies that are less profit sensitive, and they're able to explore other areas. Right? So basically, the point is that Google is less profit sensitive, it doesn't have the urgency, it

• 54:05Speaker 00

  can basically dedicate itself to the field of research that it think that it thinks is going to pay off more. And it seems like Google is just making this bet, like, the world model type approach is going to be the way that's going to get it to what it wants to get to, like AGI level AI. Demis has obviously always talked about like, there's that LLMs may get us there, may get them to AGI, but probably there's going to be another couple breakthroughs needed. So I think the piece argues pretty much that like, they're working on those next few breakthroughs, and have effectively ceded or put much less priority on LLMs. And that's why they are starting to struggle. What do you think about this?

• 54:45Speaker 01

  Yeah, I agree with you, first and foremost. I think it's overstated. But I think it's overstated in a way that's interesting, right? I think like, it's a good thought experiments to think through, like, what, what, why is Google in this place right now, beyond sort of potential for internal conflict? Like, they have to know, because if nothing else, they've already been through the point where, you know, they needed to reorient themselves and and sort of come back in AI. So how did they let themselves fall behind again? You can certainly make a compelling case that it's less that they don't see it, and more just that exactly, you know, what you laid out there, and what the piece lays out, that from Demis Hassabis on down, he just basically views world models as the way forward, as

• 55:26Speaker 01

  the most important thing. And they're willing to sort of take a backseat on LLM development in order to push forward with that. And you sort of saw that with I O, you know, again, where, you know, Demis was out on stage, basically saying, like, talking about the Omni model, which is their version of the world model, and basically talking that up while sort of downplaying every other thing that they were doing that. Now, did he do that because, again, 3.5 Pro wasn't ready, and he wanted to get people excited about what's next? Or did he do that because that's really what he's excited about? And every interview that he's given, you know, and talked to you and talked to others about this, right? He's talked that he's excited about world models. And, and, obviously, he's not alone there with Jan Le Cun and a bunch of others, sort of all now working

• 56:08Speaker 01

  in this space. Now, the one other element of this piece, which I thought was super interesting, is that it's not just that, you know, Google could be going down the the world model path as as they view that as the path potentially to get to AGI or the next phase of AI development. But it's also that if Anthropic and OpenAI are battling, they could be correct, too, in that they could find that where they are in LLMs right now, is actually going to trip over into the recursive self improvement stuff, the RSI. And basically, that would unlock the ability for the LLMs themselves, or whatever, you know, the next version of the models are as they're improving themselves, to basically come up with the world models themselves. So people don't have to do it, right? Like,

• 56:50Speaker 01

  basically, they could, they could trip into RSI, and then all of a sudden, that would just create this, like, you know, potentially exponential growth of AI itself, to the point where world models and God knows what else comes into play. And so that that is an interesting battle, if it is framed that way.

• 57:09Speaker 00

  The website is spiglass.org. M. G. Siegler joins us the first Monday of the month, every month, although this week or this month, we're doing it on Friday. M. G., it's always great to speak with you. Thanks so much for coming on the show.

• 57:20Speaker 01

  Likewise, Alex.

• 57:21Speaker 00

  Talk soon. All right. Thanks, everybody, for listening and watching. And we'll see you next time on Big Technology Podcast.