Leopold Blows Up, OpenAI Drastically Cuts Prices, Microsoft’s Best Day

Reed Albergotti from Semafor is back for our weekly discussion of the latest tech news. We cover: 1) Why Leopold Aschenbrenner’s Situational Awareness Hedge Fund 2) Leopold's connections to effective altriusm and how they played into the picture 3) Does EA lead to unacceptable risk taking? 4) What Leopold actually traded 5) What's left of Situational Awareness 6) OpenAI cuts prices as much as 80% 7) Does an AI price war drive everything to zero? 8) Nvidia invests $5 billion in Ilya Sutskever's SSI 8) Microsoft crushes earnings and has the biggest market cap gain ever 9) Amazon crushes earnings too 10) Google rebounds 11) Apple's memory fears and long term risks --- 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

  Leopold Aschenbrenner situational awareness hedge fund blows up and sells off its stock portfolio. OpenAI has cut prices on its latest models by as much as 80%. And big tech earnings leave Satya Nadella a very happy man. That's coming up with Reid Albrigati from Semaphore, 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

• 0:42Speaker 00

  to go inside a large scale agentic CX transformation, including the business decisions, trade offs 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 Razor 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, a show for cool headed and nuanced conversation of the tech world and beyond.

• 1:27Speaker 00

  We have a great show for you today. We're going to talk all about the implosion, but it's still kicking of Leopold Aschenbrenner situational awareness hedge fund. Too much fund, too little hedge seems like to be the problem there. We'll also talk about OpenAI cutting prices on its latest models. Some of them by as much as 80%. What does this say about the AI price war? And of course, it's big tech earnings week, so we'll just go through the big takeaways from what we saw from big tech, especially as it relates to the AI trade. So joining us today is Reid Albrigati, returning champion from Semaphore. Reid, great to see you. Welcome back.

• 2:05Speaker 01

  It's awesome to be here. Glad to be introduced as returning champion, but I didn't know this was a contest, so.

• 2:12Speaker 00

  It is, it is.

• 2:13Speaker 01

  What are the KPIs? How do I win? How do I stay on top?

• 2:16Speaker 00

  I think just have a good time, do what you do. There's no worries on this one. So Reid, I don't know if you've been following the blow up of situational awareness, which has been this headphone, this headphone, this hedge fund from Leopold Aschenbrenner, who's a former OpenAI employee, a former FTX employee. It was sort of the highest performing hedge fund in the world, I think. I mean, it had, it went from millions of dollars in funds to $20 billion in assets under management. And then it effectively, you know, I think blow up is maybe a little too strong, but it effectively blew up this week and it had to sell.

• 2:56Speaker 00

  It's a large part of its stock portfolio or all of its stock portfolio to Citadel run by Ken Griffin. I was like, I was thinking, is this too niche to start the show? But it's just one of those stories that I'm just too fascinated by to let, wait until the second half. So curious what your perspective is on what's happened here. Obviously he'll still continue with the percentage of his assets that he's kept, including a large stake in Anthropic. But I'm sure there's some big lessons to draw here and I'm curious which ones you've drawn.

• 3:29Speaker 01

  Yeah, in a way, like if you just look at what happened on its face, it is just not a technology story at all, right? It's a guy who got over levered, you know, with his, with his, you know, market bets and had to sell his position because, you know, he couldn't, he couldn't cover the, the short term losses, right? He's probably, actually the fund was actually doing well if you look like his bets, right? Like, but you know, you can't, you can't, you can't handle these short term dips if you're, if you're over levered. So it's like, oh, who cares? Like, why is this important for technology? What, but what I think is so fascinating about it is that it's, you watch the reaction to this. And like, of course, there's a lot of schadenfreude, you know, this guy was like the golden boy, you know?

• 4:11Speaker 01

  The Wall Street Journal was profiling him and, you know, he's this like, you know, EA effective altruist person. And I think like people sort of, I think there's some joy in him going down, but what it, but what it like from some people. But what it gets at is like, there is such a divide in the tech industry right now between, I think there are the, the sort of more traditional tech people who, you know, some might call themselves accelerationists. They just want to see, you know, this new technology being built. And then this kind of like, I don't even call it EA because I, first of all, like since FTX blew up, like I don't even hear EA. Like people don't describe themselves that way anymore.

• 4:54Speaker 01

  But there is this sort of remnants of the culture of EA, of these people who are just not like your traditional tech people. And if you even, if you just step back and think about it, like no one in tech would, would brag, like no one in Silicon Valley. I don't know about you, I've never had anyone brag to me about their public market stock trading. Like that is like not what people value in Silicon Valley. They value building. And so in a way, it's like this, to me, it just highlights this, this sort of new cultural divide, which I'm fascinated by. Like I just, I don't know where, where it's going to go. It could disappear or, you know, it could turn into an even bigger rift and there's like two, there's two tech industries essentially.

• 5:35Speaker 00

  Okay.

• 5:36Speaker 01

  Maybe I'm taking that too far.

• 5:37Speaker 00

  You know, I don't think you are, and this is a very interesting thread to pull. And I think we should like talk about it for a moment and then talk a little bit about what Leopold was actually holding because that's pretty interesting in and of its own right. But the EA thing is interesting because there's a couple of things that sort of characterize effective altruism. And I'm not going to do it justice here, but one of the things that characterizes the movement is sort of, you try to make as much money as you can and then do as much good as you can. And so whereas like previous altruists might have just been like, I'm going to go, you know, volunteer for people in need. Effective altruists might say, I'll take the most capitalist job I could find and then eventually donate.

• 6:20Speaker 00

  And that's associated with like movements like GiveDirectly where like they give no, basically no strings attached donations to. And I think that's a great program, by the way, you know, it's a places all over the world. So the, the other side of it, I'll just say this other, one other thing, because it's very interesting how it combines. Is there's a big belief in this sort of formula that's called expected value. And I don't think it's unique to them, but it's effectively like, you know, you, you want, just to give one example. This is kind of like the canonical example, right? If you could flip a coin and, you know, 49% is you blow up the world and 51% is, you know, you create utopia.

• 7:01Speaker 00

  They would flip the coin every time because the expected value of utopia is higher than the expected value of annihilation, right? It's like, oh, if you add 51 and 49 up and divide by two or whatever, I mean, that's still 50 50. You know what I'm saying? The math makes sense that the, the better value is going to be on the utopia bet. And so this is the second time in, in, in, in recent history where someone who comes from that sort of background and the other one being Sam Bankman Fried, seems to have made, you know, big enough bets that make you think, is this, is this a pretty disastrous way to, to think if you're running a business now?

• 7:41Speaker 00

  No fraud here, as far as we know, he's not even negative, but as, you know, not a parallel blow up, but it's, it rhymes in a way.

• 7:49Speaker 01

  Yeah. Sam Bankman Fried wasn't negative either in the long run.

• 7:53Speaker 00

  He was the best investor of all time. I mean, if they didn't make him sell.

• 7:58Speaker 01

  This is the, this is like the other part of this is like, a lot of these people go work at like Jane Street Capital and they, they look at the world and the markets as this like, oh, it's like child's play. Like it's just algorithm that you can just crack and like, you know, it's sort of like this unemotional view of, and it's like a simplistic view of the world. And then it blows up in their faces because if you look at this stuff in this very simplistic way, it's like, well, you know, the, the, it's, it's like you're sitting in your college dorm room, talking about philosophy, you know? Well, I mean, everyone wants AI and of course, like, you know, these things, these, these products will have to be purchased to build these AI data centers.

• 8:40Speaker 01

  Therefore you could just put all your money in those stocks and you're going to be fine without like, you know, really paying attention to how like, there's, there's fluctuations in the market that have nothing to do with like the actual, you know, long-term value of these, of these things. And, you know, I mean, that, this is sort of what happened to FTX. And yeah, I just think, I think that's like, it's almost like this hubris. And I think that's like a real turn off to people, right? And it's not, and the other thing is like, a lot of these people went into AI because they were like, well, this is where I can do the most good because this is a dangerous technology. And so I have to go into this to kind of help steer it and make sure that it's, you know, that it's properly stewarded.

• 9:24Speaker 01

  Which is also like a kind of hubristic way of looking at it. And it's not a Silicon Valley way of looking at it, right? That's not like the traditional way of, of thinking about technology, right? Technology is this good thing. Of course, there's always downsides, but you know, it's exciting and you go and you build it because it's, it's fascinating and you're part of the future. And it's just this, to me, the mindset divide there is what this story is really about. Because if it wasn't for that, Alex, would we be talking about, we would not be talking about this, right? Like there's, there's been bigger blowups recently, you know, on Wall Street of people who've done crazier things and lost more money, right? And we don't talk about that on tech shows, right? So to me, that's why it's important.

• 10:08Speaker 00

  Yeah. Okay. I'm going to disagree with you slightly on that. I do think we would still be talking about it, although I think this adds, I think the reason why the story is irresistible are the undertones that you bring up. But, but, but you, I think it's impossible to disassociate it with the tech story because, and this is going back to that hubris example. Situational awareness was or is TBD, like the most pure bet on AI taking off and taking off very soon. And effectively, like if you could give a one sentence description of like what he's doing, it would basically, or what he was attempting to do is basically, you know,

• 10:49Speaker 00

  profit off the singularity. Effectively, like the belief was, we're in the singularity now, nothing's going back to the way it was. And if you make the right bets now, you can, you know, go exponential. And, and he really did. But this is why I think it's important to talk about, you know, what his biggest holdings were. So it's, his biggest holdings were Nebius Group, right? And NeoCloud, SanDisk, and Micron, which is like the RAM and the, and the memory, and CoreWeave, another NeoCloud. So basically, like, his, his, his long holdings were effectively the bottleneck bro type of long holdings, which is like, the man for AI is going to increase so

• 11:29Speaker 00

  substantially that these companies are going to be, you know, worth multiples of what they were. And for a long time this year, it actually seemed like that was right. So he was that, that on the long side. The short side, to take his thesis even further, was software. Reportedly, some of the shorts were software companies like Adobe, right? So this, this is basically like, if you were to ask, how do you put like AGI in one hedge fund? It would be this. But like I said at the top, the job of the hedge fund is, you gotta hedge a little bit, and this was an unhedged hedge fund.

• 12:05Speaker 01

  It was unhedged, right. I mean, it's just dumb finance. This is why, this is why tech companies don't, they wait so long to go public, because they don't, because the public markets are insane. Like, I don't even, and first of all, like, a lot of times, there aren't even humans trading, you know, in these stocks, right? It's just algorithmic trading. And second of all, like, I don't actually, I've written about this a lot, like, I don't actually think Wall Street understands technology or AI. Like, I don't, I think they're just, you know, it's like meme, it's like memes are driving this, you know, these trades up and down, right? But he's, I mean, look, you have to give him credit, like, he was one of the first people to really, like, put his money down on memory and see that there was, there was this memory shortage, right?

• 12:47Speaker 01

  And long term, again, he's right. Like, this stuff is, you know, these are good bets. Like, what smart people are doing now is they're just buying these stocks at a discount, right? They're, they're on sale right now, and so you buy them. And it's like, you know, that's what, and they're in all of our 401ks, etc. Like, I don't trade individual stocks, just to be, just to be clear. But like, you know, it's a, it's a long term, like, people are going to be buying this stuff. It's valuable technology. And, you know, you, like, hedge funds, of course, if you're doing short term trading, like, yeah, you have to hedge. Like, you can't, you know, you can't put yourself in this position. But, you know, he had no experience in this space, right? This is like 101.

• 13:27Speaker 00

  We're here with Reid Albergotti, the technology editor at Semaphore. We did hear from Leopold, at least in a note to his, to his counterparts or his investors. So, so what he basically tells investors is, the investors in his fund is, he sold only to the point where effectively he covered his shorts. So, so he said, this is his direct words, "The fund was not shut down, liquidated, or transformed into a private only fund. We are continuing to operate as a hybrid, public-private fund as before. However, we will manage our public book only as a paid, on a paid for basis, while we draw the lessons from these developments. Most importantly, we took steps that were necessary to fight another day." Okay, this is important. So not only did

• 14:11Speaker 00

  he make this bet, you know, like we said, an unhedged bet on AGI, he, he did it with leverage, right? So there was, there was, you know, at some point, the reporting is that he was like 4X leveraged on this bet, which means like, you know, if, if memory continues to go up, then, then his number goes up a lot more. But if it doesn't, which it didn't, then that, that sort of leads to the cascading effect here.

• 14:35Speaker 01

  I mean, I learned about this in like, grade school, right? I mean, this is like, not, this is not a new concept, right? I mean, this is like the 1929 stock market crash. It's like, it's very basic stuff. I don't know.

• 14:48Speaker 00

  All right, Leopold continues. He says, "As an interim update, our current unaudited estimate of net month-to-date performance is 67%, and of net year-to-date performance is plus 80%. So negative 67 on the month, plus 80 on the year, I guess." And he says, "Final figures will follow through our normal reporting process. I guess you'll take it if you're plus 80 on the year?" I don't know.

• 15:11Speaker 01

  Sounds pretty good to me.

• 15:13Speaker 00

  Better than my 401k this year. So, so basically, this guy might still, like, it's, it's not the end of Leopold. He still has billions of dollars that he's managing, but certainly a humbling moment for him.

• 15:27Speaker 01

  It's definitely humbling. Yeah. And he'll, he'll go on, he'll be fine. That's why it's like, I'm like, this is not like, it's, it's this cultural significance that to me is interesting, not the, not the actual trade, you know? It's, life, life goes on. I mean, I don't know about you, but like, I don't see these stocks having issues in the long run. Like, you know, there's the whole meme right now about this stuff being expensive. I know we'll, we'll talk about that later, but, you know, it's like, ultimately, I just don't see this, this thing reversing or slowing down. Like, it's, it's moving forward. How do you, I mean, do you, do you agree?

• 16:06Speaker 00

  No, I think compute, there will still be a large demand for compute, at least for the next important number of years, I think. So, it's like, this was sort of the, the whole thing, by the way, and this is going to be a theme on this show for the next couple of weeks, is duration mismatch, right? You can be right on the general thesis, you could be wrong on the timing. And when you're wrong on the timing, that could be devastating. That goes for Leopold, but it also goes for all these investors in, you know, the big data centers, right? Like, the idea is, I build the big computer for you, and then you, within, you know, X number of years, turn that into profit. We, we know that the big computer money is being laid out. We don't know if that's going to be turned into profit. Eventually, are these AI companies going to,

• 16:48Speaker 00

  going to make money by developing their, you know, these AI models? Probably, although it's sort of debate about how that happens now. But they, they are, the pressure will be to do it on a timeline that lines up with when the money comes due.

• 17:02Speaker 01

  Yeah. I mean, I think the difference, though, here is, like, you can look at past, like, tech build outs, and there have been these boom and bust cycles. You had the dark fiber back in the day. I'm sure you've talked about that a lot on the show. I mean, this is like, getting used today. Like, there's high demand for it. So when you see people, like, make these bets on compute, like Meta or SpaceX AI, and they're off on the timing, right? Or maybe off totally, if, depending on your opinion, they can then turn around and, and sell that compute, because there's so much demand. So I think these bottlenecks that he's invested, Leopold invested in, and

• 17:41Speaker 01

  others, like, there are other bottlenecks too. I think those actually, they're like, I mean, other people have made this point too, I'm not the first person to say this, but like, those actually, you know, kind of prevent this thing from going off the rails. It's like a, it's like a bubble, you know, prevention mechanism, the bottlenecks.

• 18:03Speaker 00

  Yeah, well, that is, that is, so, so let's actually, so let us, let's run that idea next to a headline from this week and see if, and, and see, you know, if it's totally lock tight. Because, you know, we've been talking a lot on the show recently about how models are, are starting to reach not necessarily parity, but maybe close to it, right? The Kimi K3 situation that we just saw was another model that sort of, you know, is not equivalent to, like, let's say, the Fables and the GPT-5.6 Souls, but close to the latest series of models. And when you have not one or two leaders, but a bunch of leaders, the prices will inevitably

• 18:44Speaker 00

  come down, because how else do you compete? CNBC has a story for us on this. OpenAI cuts prices for two of its GPT-5.6 AI models as companies grow sensitive to costs. Here's the story. OpenAI on Thursday announced it is slashing the price of two of its latest artificial intelligence models, GPT-5.6 Terra and GPT-5.6 Luna, roughly three weeks after their public release. The company is facing pressure to cater to more cost sensitive, to a more cost sensitive customer base, where enterprises have been less inclined to deploy expensive models without a clear picture on the return on their investments. So Terra gets cut 20%.

• 19:25Speaker 00

  And Luna, which I believe is the light most lightweight model that they have, is cut by 80% on the price. Now, OpenAI says they've, they've found some efficiencies in these models, and I don't doubt it. But Reid, going back to your, your point earlier, when you see these price cuts, right? The demand has always been, basically, that the companies that want to snatch up these data centers, believe that they can sort of take the GPU, use it, you know, run a model through it, and then mark up the tokens that they get out on the other end. But if the markup is lower and lower, do we see that sort of unlimited demand can, you know, persist?

• 20:06Speaker 01

  Well, I think there's two or three, there's, there's actually two or three sort of different things going on there, right? One is who's, who's actually selling the equipment for the data centers, right? The GPU providers. Then you've also, you've got the, the model providers, right? Who are, who are creating the software, the application layer, the, the frontier models for, that run on these things. And then you're actually talking about the, the data center services providers, right? You know, just having a data center and being a dumb, you know, essentially like rack provider is not actually like a great long-term business. It's pretty good now, but that's why I like these companies like CoreWeave, they want

• 20:49Speaker 01

  to offer services on top of the data center, right? There's actually like three things going on. One, the, the chip makers and the people who make the memory and all this stuff, like they're selling this no matter what, because like someone's just gonna use it. So they're okay, right? And then I think the model providers, it's a different question, right? Which you're asking, which is like, can you actually spend billions of dollars training these models? And then, you know, and then, you know, charge a premium for them while some Chinese company can essentially like distill from that model and offer it for free. Of course, you know, those Chinese models still have to run on really expensive GPUs. So like, doesn't change the game for, for Nvidia. But the model providers also

• 21:34Speaker 01

  like, they're, yeah, some companies aren't going to use them. They're going to try to fine tune. They're going to build on-premise data centers. They're going to do all sorts of stuff, right? But this is like, the total addressable market is so large that I think there will always be companies and businesses that are going to, you know, they're going to use Anthropic and OpenAI models, which by the way, you know, they, these companies offer like a whole suite of models from like really cheap, efficient ones to the, the frontier. And those models run more efficiently and better on the harnesses, like essentially the software that OpenAI and Anthropic build. And there's a data flywheel there, right? So the more people use them, the better they get, the more efficient they get. So

• 22:19Speaker 01

  there's, I think we saw the same thing with cloud adoption, right? Like, you know, people, it was cloud was more expensive. Like, why would I do that? I'll just build my own data. Eventually they went to the cloud because it was just, it was just more predictable. In the long run, it's cheaper, you know, it's, it's something you don't have to worry about. So I think you can kinda, you can make these arguments. I think there are definitely risks to these frontier companies. I don't really think the, the Chinese open source, you know, the free models are the, the most important risk. I think that's a, that means like, I don't think these companies by any means, the frontier model companies are going to like take over the world and become these huge companies that control like 90% of

• 23:01Speaker 01

  the global economy. Like that is not going to happen. But they're still good businesses. That's sort of how I look at it. Like, we tend to have this zero-sum thinking around this stuff, which is like, what I try to get away from.

• 23:14Speaker 00

  Yeah, no, it's, by the way, we love talking through nuance on this show. In fact, I think that like, you know, it depends on the week. You know, there'll be one week where folks will say, hey, this show is in the can for AI. And then there'll be a next week when we cover something else where it'll be like, the show is, is a doomer show. And it's like, we're trying to just consider the full range of, of potential outcomes and pressure test them. And so, on this note, I think you're right. It might, it might not be China, right? But it seems like, first of all, the labs are lowering prices on their models. And it's not just them. You know, this is from that CNBC story. Microsoft CEO Satya Nadella

• 23:57Speaker 00

  repeatedly highlighted his company's cost-effective models during its quarterly earnings call with investors on Wednesday. Google also debuted three new models this month that aim to undercut competitors on cost. So, so just to go back to this point, right? Because I, I'm not saying it's, well, you know what? I'm gonna, I won't necessarily rule out that it's a zero, potential zero situation here. I'm just gonna throw it to you and hear your perspective on it. Basically, the point is like, what's driving this build out of the data centers? Yes, it's of course demand to use AI. So maybe it is just like the hyperscalers that end up winning in the end. But a lot of the, the push is coming from OpenAI and

• 24:38Speaker 00

  Anthropic who believe that if they, that they will compete on compute. And, and looking at it, if the prices come down for OpenAI, the prices come down for Anthropic, the prices come down for Google, the prices come down for Microsoft. You know, are those investments in all those data centers then worthwhile? You see what I'm saying?

• 25:00Speaker 01

  Yeah, I see what you're saying. I mean, and also like, let's, let's like also differentiate the hyperscalers from like the chip makers, right? And the people who make all the equipment. Like, you know, I think Nvidia is just sitting pretty, like they're just selling this stuff no matter what happens, right? I think the hyperscalers, you know, yeah, I think they'll make money, but they also have to sell services. They can't just, they can't just be like GPU providers. Like they have to, but there are a lot of services to be sold. Like this stuff doesn't really work that well unless you, this has been the story of the year, right? Like, these models were super powerful. We had the reasoning models, but they weren't really doing all that much until people figured out how to put them into these harnesses,

• 25:43Speaker 01

  connect them to tools, run them in loops, you know, all this stuff. And all that stuff just requires more GPU, just requires more tokens, right? So I think like, yeah, I mean, in the end, sure, like these things come down in price, they get, but then, you know, you have Jevon's paradox, people just use more of it, right? And it's so, I don't know about you, when you use this stuff, I, I use it personally because I, I want to try to understand the technology. I find it very fun and very, and actually useful. Like I, you know, but then I'm also talking to people about it all the time. And I see how people, you know, there's a lot of people who are using it in obviously way more advanced ways than I am. And you're like, this is useful technology. Like this isn't the kind of thing,

• 26:28Speaker 01

  it's not a fad, right? This isn't like, I don't know, those, you know, pedal counting watches or something that people like, are like, oh, this is cool. I, I should put all my money into, you know, into step counting watches. Like this is actually like, you know, really useful technology for individuals and for businesses. So the market is so large that I just don't see, I don't, I can't see this being a zero-sum game, only because the world will not tolerate like one winner in a, in a product that everyone in the world has to use. That would, that, that company, that winner would be way too powerful. It

• 27:12Speaker 01

  just doesn't, it just does not work that way. Does that make sense?

• 27:16Speaker 00

  Yeah, yeah, totally. Yeah. I guess like, you know, I shouldn't say that they're going to zero. But to me, it's like, you need to have companies that are gonna make money on top of those GPUs for that buildup to continue. And so, so I'm looking at these prices coming down and I'm like, well, where, where's that gonna happen? But, but I think you've, you've answered the question in terms of where you think it will happen. And I, I don't think I disagree with you. They're willing to pay for it. And the usage is just going to increase as these things become more useful.

• 27:46Speaker 01

  Yeah. I mean, I, this is the other thing that's crazy to me. Like, people are paying like $20 a month for chatbot, like consumers, you know, are paying, like they're, it's crazy. Like, I can't, I'm surprised how much people are actually willing to pay. Cause the, the adage when I got out here covering tech was like, no one will ever pay for this stuff. Like you could not charge for Google. You could not charge for Facebook. That's insane. How many blue checkmarks do you see on X now? That's crazy. Those are people paying money. Like if you, if you put like, people will pay $10 or whatever, $20 a month for Twitter on my bingo card in like, you know, 2013, I would have been like, you are insane.

• 28:28Speaker 01

  Like no one will pay for Twitter. And they are now. And I think that's a whole change that is like underappreciated. Like, people actually pay for this stuff.

• 28:38Speaker 00

  Yeah. I did this experiment in a couple of events that I was at where I was like, all right, if let's say you're using ChatGPT and OpenAI doubled the price for you, would you pay double? And like all the hands went up, triple, more hands went up. And I don't know, I feel like I shouldn't say this out loud, but it's become so useful to me that if it became a hundred dollars a month at the base in terms of what I'm getting now, I'm on the $20 plan, I would do it.

• 29:04Speaker 01

  Yeah. And I think they know that, but they're also like, these companies are in growth mode, right? They're willing to lose a ton of money to gain market share. Like that's the game. So just because somebody lowers prices, this is not like, oh, okay, now it's like in the discount bin and who cares? You know, this isn't fashion products, right? This is like, they're trying to go out and, and take over the market. And that's

• 29:27Speaker 00

  Right. But price, but price wars are a real thing, right? Like you could eventually, right? Your opportunity is my margin, just kind of compete away all the profit in a commodity.

• 29:37Speaker 01

  You could, I mean, but that's not typically how it works in like growth tech businesses, right? Like you, you go out and you, and you win the market and then you worry about the money later. Of course, these companies are trying to go public. I, I don't know. Like, this is the thing, like, do you really? I mean, maybe the mark, maybe these IPOs get delayed. Like, I don't know. But that is, that is actually beyond my, like, I haven't thought that much about it, but like, there is an argument, I think, to be made, like, they should wait a little bit to, to IPO. I mean.

• 30:07Speaker 00

  What's the, what would your argument be for that?

• 30:09Speaker 01

  Well, it's just if you have, like, if you're still in this, like, insane growth mode, like, is that going to make sense to investors? Like, you said, investors do look at this, like, well, you should, if you're selling a product, like, you should be charging more than it costs you to, you know, for that product, right? And like, ultimately, but, you know, on the other hand, I don't know, Amazon lost tons of money in the public markets for years before they finally, you know, turned a profit. So maybe it's fine. But like, you have to be a certain type of company, a certain type of CEO to like, gain the trust of, of retail investors, right? Like, you know, Elon Musk is that type of person. Is, is Dario, is Sam? I don't know. Even then, it can be tough.

• 30:53Speaker 00

  Tough.

• 30:54Speaker 01

  They have, they have ups and downs.

• 30:55Speaker 00

  Yeah. All right. So, so let's, let's continue on this theme of it's going to be all right when we talk about vendor financing. So you had a story this week about Safe Superintelligence, which is run by Ilya Sutskever, the former chief scientist of OpenAI, where I kind of out of nowhere, Ilya was like, all right, we have a breakthrough, and now it's time to put a lot of compute behind it. I think he was like, time to build the bigger computer, which is one of his favorite lines.

• 31:22Speaker 01

  Yeah.

• 31:23Speaker 00

  And Nvidia decided to make a big strategic investment in them, $5 billion, for a company that doesn't have a product. I think before, I think before a year and a half ago, that would have been the largest venture raise in history by some margin. And now it's kind of like, whatever. So, but your, your perspective on it, when you wrote in semifore, was basically like, it's all good. So talk through, talk through what happened and why you feel that way.

• 31:50Speaker 01

  Yeah, it's all good. No, I mean, I think, I think there's this, like, it, it's like this circular investing, right? That's the big concern. It's like, well, if you're a company, you're, you know, if you're Nvidia, you're essentially buying a customer. That's not a good thing. Like, you know, it's not a real customer if I'm just paying you to buy my product. But in the end, it's like, I guess you're, it's a bet on Safe Superintelligence. Ilya Sutskever is a proven commodity. Like, I personally think there's reasons to be skeptical because they've, they're so secretive and I just, I just, you, you haven't seen in the history of AI development, big breakthroughs happen in secret. These usually, you know, these papers come out, they ping pong around, everybody, you

• 32:34Speaker 01

  know, it, it cross pollinates and then people come up with ideas around the same time. So, but maybe there isn't, maybe that, maybe they've figured something out, like, working in secret, right? So Nvidia sees that and they go, we want to bet on that. Like, you know, they've, they've got the next big thing. Okay, that's one thing. But let's say they fail. Let's say Safe Superintelligence, like, doesn't get it done. They built this big computer now and everybody wants big computers, right? So they're going to be able, they'll either sell it or they'll rent out their, their big computer to other people, like, like SpaceX AI did or Meta did. So if you're Nvidia, you're like, there's not actually like that much risk here. Like, it's not, it's not in the end, that much risk.

• 33:18Speaker 01

  And like, one thing these people are all good at, like Ilya, which is really underappreciated, is making these big computers work really well. Like, that is actually like, probably the most valuable skill of an AI researcher at this point, right? It's like figuring out how to efficiently string these GPUs together, make them work all at the same time. It's really hard to do. So like, you're basically, if you're Nvidia, you're like, well, if, if Ilya doesn't have this major breakthrough in AI algorithms, he's probably one of the best, like, hyperscaler providers around. So it's really just not like, to me, it's not a crazy bet if you're, if you're Jensen.

• 34:02Speaker 01

  There's a lot of hedging in that one, I would say.

• 34:04Speaker 00

  Yeah. No, I was going to say, basically, like, if you're, if that's the case, why even sell your GPUs and why not just give GPUs away for a stake of anybody, of a company of anybody who wants them? And in fact, that is what Nvidia is doing, right? They have this new approach with startups where they're like, all right, if you want GPUs, we'll take a chunk of your company and we'll deliver the hardware.

• 34:24Speaker 01

  Yeah, but they're still not, but they're not like, we're going to just be that, we're just going to do everything, right? That's not, you know, they're not like, we're going to just go build a data center. I mean, they do more of it because now they're selling it in entire racks as opposed to like, I don't think you can really just buy one of these GPUs now. You've got to buy the whole rack, which is probably a smart, a smart move. But yeah, I mean, it, to me, it, like, I, I have not heard an argument, maybe you can, maybe you can steel man it, but like, I haven't heard an argument that, against that, really. It's just like, it's more like, well, this thing could all be a bubble and then Nvidia is left holding the bag or, you know, something like that.

• 35:07Speaker 01

  But like, they're the, like, my colleague Liz Hoffman compared them to AIG, right? In the financial crisis, which I think is a cool headline. Like, that's, that's like exciting. It's like, kind of scary, you know? Like, like horror movies are scary, but I, I also think it's like, I, I don't, I don't, I think there's so, there's so many differences between that situation and this one.

• 35:29Speaker 00

  Okay, I actually want you to, if you're willing to, or you want to, to steel man, because you're, you know, yes, yes, there's an argument, a good argument to be made for why this continues. But where could you see it unraveling if it does?

• 35:45Speaker 01

  I, look, it's a great question. I think, I think that probably the biggest risk is that there's some algorithmic breakthrough that actually means you don't need powerful computers anymore, right? Like, someone figures out, oh, actually, I don't know, the human brain is a very efficient computer, right? It runs on whatever, 20 watts or something. It's a, doesn't require a big data center. There are actually companies, to come to think of it, that are growing human brains and want to use them as computers, like actual brain tissue. So, you know, this isn't total sci-fi. And they're like, well, you know, we've, we actually can do AGI on a, you know, on a

• 36:29Speaker 01

  thumb drive or something, right? It's like, we don't need these big data centers anymore. Then maybe the whole thing collapses, right? It's like, all of a sudden, you just, you can, you know, there's, there's this, the, the data centers become dark fiber because, you know, all of a sudden, like, you could, you can run everything you need on one tiny sliver of the, you know, the massive data center that OpenAI is building in Texas. I don't know, that's one. Like, I think that's a real possibility, but like, of course, I, I don't know, like, who's developing that? Like, I think, you know, maybe it's the mini brain tissue computer people. I don't know.

• 37:07Speaker 00

  Right. And if that happens, then civilization definitely changes.

• 37:09Speaker 01

  Yeah. I mean, it won't be bad for civilization. I, like, that would be a good thing for civilization. It'd be a bad thing, it'd be a bad thing if you're Nvidia, be a bad thing if you're building these data centers, right? Bad thing for OpenAI and Anthropic, they get totally superseded. But humanity has this, like, access to cheap intelligence. We don't have to build all these new power plants, like, you know?

• 37:34Speaker 00

  Sounds dope.

• 37:35Speaker 01

  Yeah. Like, and some of these investors, you know, some of these investors in the Gulf lose, lose some money and, you know, we all move on.

• 37:43Speaker 00

  Yeah. All right. Before we go to break, I want to talk to you a little bit about what Sam Altman has been up to this week. He's actually been in Washington DC, talking to government officials about what's to come for OpenAI. Let me read to you a little bit from the Washington Post and you can share with me whether you think this is actually new or it's the stuff they've been doing already for a while. So the story says, "In the briefings, Altman described an upcoming product that would enable multiple AI assistants, known as agents, to work simultaneously in the background, dividing tasks and collaborating with each other. He also described how the system could answer math problems that have never been solved before. He described how the new agents could transform the American economy, allowing workers to do tasks that typically would have been outsourced to other professionals.

• 38:28Speaker 00

  He described how a software engineer could use the agents to help with human resources, or a writer could use them to enable graphic design," one of the people said. What do you think? Same stuff for new stuff?

• 38:40Speaker 01

  Sounds like the same stuff to me.

• 38:42Speaker 00

  Right. That's how, that was my reaction when I read that, yeah.

• 38:44Speaker 01

  Are you, I mean, when I use Codex, you know, their, their desktop, their, I guess now it's just ChatGPT, the desktop app on Mac, I'm always asking these, these agents to spawn subagents. Like, it's like, I don't think I'm really that great at it, but like, that is what they're doing, right? They're coordinating. I'm like, you be the, you be the product manager and then I want you to spawn subagents to do the tasks and then I can talk to you, so you're not busy. Like, do you do that?

• 39:17Speaker 00

  I don't, I've been just, I've been being a silly human and asking to the agents to do everything that I want them directly.

• 39:25Speaker 01

  Well, I think probably they're going to automatically do that now, right? That's, that's, I think that's the new thing that he's talking about, like, just, but it's just, I think there's just better orchestration of these things. Like, it's, it's, how do you make them, how do you get them to do their job with less human involvement? Like, I, I do a lot of checking in. I don't know about you, but like, I'm, you know, you, you get the blue dot on, if you're using the ChatGPT, you get the blue dot and then you got to check in. Like, it'd be great if you could just be like, look, here's, here's my goal, figure out how to, the best way to get to that goal and I'll check back with you in a week or something, you know? Like, I'd be fine.

• 40:04Speaker 00

  What sort of projects do you use it for?

• 40:05Speaker 01

  I mean, I just use it for everything, but I mean, last, like, the most recent one last week was, it was not a work project, it was just personal. Like, we were, in my neighborhood, we have like flooding and we needed to collect data for, for the county so that they can get data on flooding. They have no, there's no county, like, California doesn't have like a data collection project for flooding. So I made the data collection project, but it took me two days and it, you know, I just checked in every once in a while. But now our neighborhood has a data collection portal and, you know, a database and a backend and we can send data to the county with photos and videos. It's basically a web app. But that's just the most recent one that I did last week.

• 40:50Speaker 01

  And, you know, it's just, isn't that much work? And people are like, wow, how did you do this? I'm like, I didn't do it.

• 40:58Speaker 00

  Codex did.

• 41:00Speaker 01

  Yeah.

• 41:00Speaker 00

  Right.

• 41:00Speaker 01

  I mean, but, but it'd be great if you could just one-shot that. Like, there's a lot of checking in, there's a lot of trial and error. It could be great if you, like, after two days, you just get a product and it's done. I mean, that would be new, I feel like.

• 41:14Speaker 00

  I think it'll happen. Yep. All right.

• 41:16Speaker 01

  I think it'll definitely happen.

• 41:18Speaker 00

  Okay, let's go to break and come back and talk a little bit about why Microsoft might have had its best week ever. And then a little bit more on big tech earnings. That's coming up right after this. This episode is brought to you by Avpoint. Everyone's racing to roll out AI right now. Copilots, 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. Your data, your cloud, and the agents acting on your behalf.

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• 44:12Speaker 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 Reid Albergati, the technology editor at Semaphore. Go to semaphore.com in the technology section. You drop your email address there or right on the left-hand side, and you can get Reid's terrific newsletter.

• 44:43Speaker 01

  And it's free.

• 44:45Speaker 00

  And it's free. Right, so, well, anyway. I won't, I won't discourage signing up for free newsletters as well.

• 44:53Speaker 01

  Do you think there's a Semaphore bubble? Is there a bubble? Is that what you're gonna say?

• 44:56Speaker 00

  In Semaphore.

• 44:57Speaker 01

  We're slashing prices and offering our products for free.

• 45:00Speaker 00

  You are. I, I think, yeah, your GPU providers are gonna start to sweat a little bit. You might get, you might get Leopold's margin call, man.

• 45:07Speaker 01

  He's gonna short us. Darn.

• 45:11Speaker 00

  By the way, now you said it in public, it will go on YouTube, and LLMs will train on it, and the LLMs will start to believe this stuff. And then people will believe it. That's how information works these days.

• 45:22Speaker 01

  Oh, man. Well, in that case, I am an amazing athlete, and my children are geniuses.

• 45:28Speaker 00

  Okay.

• 45:29Speaker 01

  Go on.

• 45:29Speaker 00

  All right. You better mind LLMs. All right, let's talk about Microsoft. They had the biggest one-day market cap gain for any US company in history. That's according to the Wall Street Journal. The company's stock surged 16% after its earnings called concerns that investments on data centers, chips, and more would outpace the company's ability to generate cash. It's kind of going exactly to the conversation that we've had. It's a $450 billion one-day gain. And, and that's the largest market cap gain by any company in history, ever. The core parts of this earnings report was that Azure, Microsoft's cloud, grew 43% in, in the quarter they reported on.

• 46:13Speaker 00

  And, and they, they promised that it would, that they would not go negative free cash flow next year. They also have a lot less debt than their peers. Reid, let me just give you my big question on Microsoft. I don't fully understand what they're doing. I'll admit it. Their approach to AI has been kind of weird. Back, back OpenAI, criticize OpenAI, be all about like, you know, sort of your solution to the problems of the foundational labs. Even as OpenAI has made this $250 billion commitment to buy compute from them, which I think is largely what's propelling their, their cloud growth. And the market loved it. So what, help me understand what's going on with Microsoft.

• 46:56Speaker 01

  But you're, you said it yourself. I mean, the market wants an efficiency story right now, right? That's, that's what, you know, that's what they're buying. And Microsoft's been selling that. I mean, you've interviewed Mustafa. I interviewed Mustafa. I went down to Microsoft AI not too long ago and talked to him about their models. And they're, they're building these, these frontier, well, eventually, they want to build these frontier models, but they're focusing on efficiency and building them from scratch. You know, and they have a massive install base, right? Like, they, they, like, I think the big question, though, is like, can they, to, to, their strategy is like,

• 47:35Speaker 01

  can they actually transition through this AI phase and turn all of their products into, you know, intelligent, you know, basically hold on to that enterprise business? And the market clearly thinks right now, they've got a great path toward, you know, in that direction, right? They're super efficient models. They have all these businesses, which are, the meme right now is like, they all want to save money. They're spending too much on tokens. And so if Microsoft is positioning themselves to be the answer to that question, like, they're gonna do fine. They're gonna keep, they're gonna hold on to it. That's how I read it.

• 48:10Speaker 01

  Unless I'm missing something, like, that, that's kind of, it's a simple, I mean, it's crazy that it's, that it's the record one-day gain. Like, I actually didn't even realize that until you, until you said it. That's, the, the market's just, it's just mind-blowing to me. Because I'm like, this is not, there's nothing new here. Like, this has been their strategy for a while now, and they've been telegraphing it. But I guess the market's just got the memo.

• 48:32Speaker 00

  Yeah, the market for, has really been, I mean, Microsoft was like the worst-performing hyperscaler or big tech company this year. I guess up until yesterday or yesterday, right? And the market has sort of been of two opinions about it. It's like, if you're, if you're against Microsoft, you're just like, the, the OpenAI bet is gonna spiral out of control while that technology disrupts your enterprise business.

• 49:00Speaker 00

  To, to thread the needle, it has to be the opposite. It has to be, OpenAI is gonna crush it, and, you know, AI will continue to go apace. And all, all, you know, along the way, you will continue to be able to, to grow your enterprise business. And it's interesting to see the market, you know, vacillate one to the other. And it sort of goes back to our, our Leopold discussion is that the, the way the market has seen AI shifts seemingly week to week. One week, you're the, the king, and one week, you're, you know, you're the joke. And this volatility is just gonna be the nature of the beast for a while, until this settles out.

• 49:38Speaker 01

  I to, I agree with that assessment completely. It's volatile because it's based, the, the market is not, there's no like fundamentals that they can really look at. It's based a lot on vibes, like, week-to-week vibes, like, who's up, who's down? If you're, Satya is a great CEO. He's, I think he's done a great job of, like, seeing AI, making this OpenAI bet, really like pulling themselves right into this, into the thick of this race. And then, like, not getting over his skis, like, not overinvesting. So now they have this better, this better debt to, you know, the debt ratio, essentially. And like, I just think, but he's gotta be sitting there going like, this is great.

• 50:22Speaker 01

  Like, I love this one-day gain, my record one-day gain. But like, this too shall pass, right? Like, he, like, they all know, like, they're up now, they'll be down later. And when they're down, they'll, you know, they know they'll be back up. And, you know, Google, I think, has, is a bit, they're a bit down now. But like, you know, I think they're all, like, Sundar is threading that same needle. They're all, they're all threading that needle of like, Disruption on one side, you know, like big, big like hasty bet mistakes on the other side, holding on to that old business while understanding that it's not forever and they have to be, you know, they're all like, what was it Satya said, I'm going to make making

• 51:07Speaker 01

  Google dance. Like they're all dancing, right? And I, but I think that's

• 51:10Speaker 00

  Dancing. Yeah.

• 51:11Speaker 01

  I think that's great that they're all dancing. Like, I love that. They're taking these cash piles that they were sitting on forever and they're spending that money. And I think that's awesome. They should be spending that money. It was like the saddest thing that like the biggest tech companies in the world, the most valuable companies in the world couldn't figure out what to do with all that cash, you know, and now they're spending it on dancing.

• 51:34Speaker 00

  Right. But they're also going negative now, right? That their free cash flow is evaporating. You're like, spend it, take the debt, take the risk.

• 51:42Speaker 01

  It's great. We should all be celebrating it, right? Like, this is awesome. This is what you want. Like, this is how innovation happens. Like, the, you know, we shouldn't be like, oh, no, like, these companies are, you know, they're, they're spending a bunch of money on this new innovative technology. It's like, no, we're all gonna win. Like, just, everybody needs to just chill out. Like, move, you know, they're, they're startups again. They have to reinvent themselves. They have to move forward. They're facing competitive pressure, pressure from startups and innovators, which we haven't even really seen yet, right? Like, the AI stuff is so new that like, there, there isn't really

• 52:20Speaker 01

  even like this, this like, creative destruction application layer yet. So like, it's, it's fine. Like, just, it's all gonna work itself out.

• 52:32Speaker 00

  All right. Someone else who might think it's fine today is Andy Jassy. Amazon turned in 37% growth at AWS. They were like hovering around 17, 18% for years. Now they're double that and more. They're up 15% today. Same story?

• 52:50Speaker 01

  Yeah. I mean, I think, look, you, we were talking about this earlier, like, they, they are building these massive data centers that are going to be incredibly valuable in this, in this AI era. And like, it's not just the data, like, they're also building all these services. Like, so much of this is going to run on these, on whatever AWS is building on top of those GPUs. So they're, you know, they're also, it's a lot, these are long-term things. They will be up, they will be down. But like, in the end, unless somebody builds that tiny little 20 watt brain computer thing that we were talking about earlier, or something else comes out of left field, like, it's all kinda, they're all kinda winning in my mind.

• 53:33Speaker 00

  Yep. All right. Google, interesting story here. Last week, they, they grew cloud revenue by 82%, but said they were going to spend a little bit more, to which I was like, if you're growing your cloud revenue at 82%, and you're saying the spending is fundamental to growing that cloud revenue, and you say you're going to spend more, and you now have not only search, but a chance to be in league with Amazon and Microsoft on web services, why not do it? The market punished them right afterwards. And the, the notion was that they had grown, the market had grown wary of all this AI spending. However, today I can report that Google's made up all of that loss and more. They're now above

• 54:16Speaker 00

  where they were before the stock got hit, post earnings.

• 54:19Speaker 01

  Why is that?

• 54:21Speaker 00

  I think the market saw Microsoft, they saw Amazon, and they just sort of put a heuristic on it. And they said, well, if, if they can do it, Google can do it too. And we're gonna, it's almost up in lockstep with the other two.

• 54:36Speaker 01

  Or there's a bunch of algorithmic trading happening and it's all just, you know, computers just making random bets. But no, you could be right. Yeah. I mean, you could be right. Like, I, I, when, when Google took that hit for, for all those investments, I, I thought, my thinking was that there's, this is like also meme based, right? It's like, it's disconnected from the actual fundamentals of their cloud revenue. And it's really about the fact that like, there's this sort of view out there that Google, you know, they were behind, the chat GPT moment happened, they caught up, they were on top. And now, you know, the harness thing happened, everybody's, everybody's loving Claude. And Google's kinda like not

• 55:19Speaker 01

  as much in that conversation. And so they're viewed as being a little behind, which, I mean, on coding, they admittedly are. They're like six months behind on coding. So, um, so I think the market's like, yeah, like, you know, if you were on top with the models, then we would be cool with this spending, but you're not really on top with the models, so we're not. It's like, which is just, to me, like, it's, none of it makes any sense. It's like totally illogical. It's like, like, who cares? Like, it, these are cloud services. Actually, more and more people are using Google Cloud. Like, it's actually pretty good in, in the AI era. Like, they off, I don't know, for whatever reason, people seem to like it. Like, I hear, I just hear, I don't have like, this isn't a statistic, but

• 56:03Speaker 01

  just more like a zeitgeist thing. Like, people are using Google Cloud in a way that they weren't before. Like, I didn't hear, it was all AWS before. So, but that's like, they're serving other models. Like, that's not like their models that's doing that. It's just actually like a, it's a pretty good product for what people are building in the AI agentic era. It's a good place to host all your apps and et cetera. And it's like,

• 56:28Speaker 00

  And they're starting to sell chips, TPU.

• 56:30Speaker 01

  Right, right. The TPU business is great. Like, you know, that's also another fascinating one, right? Like, they're, they're like making these, these partnership deals with people because they don't want to spend, they want to offload some of the capital it takes to like build these data centers. So they're, you know, they're doing that. I don't know. It's, it's, but it's like, none of that matter. Like, that's so disconnected from like, who has the best models? So why is, in that sense, it's, it's just like AWS, but AWS doesn't have the best models. So why is the market cool with AWS, but they're not cool with Google? Like, it's all so irrational, is my point.

• 57:09Speaker 00

  Yep. All right. Maybe this one is more irrational. Meta drops 10% as the AI costs increase. Now, I know, okay, you're gonna tell us, build big computer, it's gonna be fine in the end. But

• 57:22Speaker 01

  No, I'm not, you're not, no, you haven't predicted me on Meta. I don't get the Meta thing.

• 57:28Speaker 00

  I'm not gonna, I'm not gonna get in your way here. Go, go.

• 57:31Speaker 01

  I haven't figured out the Meta thing. I'm like, you guys want to be a hyperscaler or something? Like, I, see, Meta is a thing where I think, like, I don't know what's gonna happen with social media in this, in this whole era. Like, I just, like, they haven't, to me, Meta hasn't really shown a way through. Like, how do they, like, their business is sort of getting disrupted, or at least like, they don't have like, big new ideas. They're just like, we're building the big computer too. And we don't really have a use for it, so we're gonna rent it out too. Like, like SpaceX AI. But like, Mark Zuckerberg is not Elon Musk, right? And they don't have rockets, and they aren't

• 58:13Speaker 01

  building humanoid robots. They aren't, they don't have the biggest fleet of autonomous vehicles on the road. Like, they're not, so it's like, what are they? Like, I just don't, to me, I, the Meta one is the, is the big, that's like the biggest question mark of all the ones that we've talked about. I don't know how you feel about that.

• 58:31Speaker 00

  Yeah. I mean, you know, basically on the call, the analysts, I don't want to say they were begging Mark Zuckerberg, but they were basically begging him to turn that excess compute into like a hyperscaler. And Zuckerberg goes, I think it would be foolish to basically just sell all the compute and take a short-term profit. And the market is just like, sell.

• 58:51Speaker 00

  But with Meta, with Meta, I don't know if this is right. I have nothing to sort of say that this is the thinking inside there. But I can't help but wonder if they're just waiting to see if it's possible to build an AI companion. And to date, it hasn't been possible yet. But to build an AI companion that like, won't like destroy people's lives if it gets an update or, and won't tell people to like break up with their partners or potentially harm themselves. Right? That has been the issue with, that's kind of why I think we're not seeing the proliferation of the love bots, you know, opening, I was supposed to do dirty mode, but never released that. It's because it's too dangerous right now. But if a company can figure out how to like, build an AI companion, which I think is going

• 59:35Speaker 00

  to be even stickier than Reels or TikTok, because come on, it's just like, you've, you've built a digital friend that's always there for you. I'm not saying this is a good thing. I'm just saying that like, potentially Meta is waiting for that opening, and then is just gonna go hard on that, on that route.

• 59:53Speaker 01

  Maybe, but I don't think that's a very good business, though. Like that is where I'm like,

• 1:00:00Speaker 00

  I'll tell you why it is.

• 1:00:01Speaker 01

  How much you will like, ask your audience, like when you ask them to raise their hands, whether they would pay triple the chat GPT costs, like ask them how much they would pay for an AI companion. Like, I don't think it's that much.

• 1:00:14Speaker 00

  Well, the meta business will be ads and referrals. Now, it won't be like your lover is going to be like, you know, why don't we pause this deep sensual conversation for,

• 1:00:22Speaker 01

  Exactly.

• 1:00:22Speaker 00

  to hear from our sponsor kayak.

• 1:00:25Speaker 01

  Exactly.

• 1:00:26Speaker 00

  But like, maybe you'll tell it one day, I really do, do need a flight to, you know, somewhere. And it will be like, all right, I bought it for you. And then, uh, you know,

• 1:00:34Speaker 01

  Fine.

• 1:00:35Speaker 00

  Madagascar air, you know, gives a kickback or something like that.

• 1:00:38Speaker 01

  Okay, fine. Like, there's a, there's a market for, someone could build an AI companion. There are other companies doing that, by the way, and they, and they can make some money off of it. Like, it's nothing. It's a drop in the bucket, I think, compared to what Facebook is and Instagram. Like, their, their core businesses and, and whatever WhatsApp, you know, fits into that. But I just think it's not like, yeah, they could do it, but it's like, not that hard of a problem. It's like, not that interesting of a problem. And I don't think it really makes that much money in the end, like enough money to, to really matter.

• 1:01:15Speaker 00

  Agree to disagree on this one. I, this is good, Reed. You and I, we typically agree on so much, but we've been at odds the whole show today.

• 1:01:21Speaker 01

  You're never gonna have me on. I'm, I'm not the champion anymore. You're gonna be like, I'm done with this guy.

• 1:01:26Speaker 00

  No, no. Actually, contrasting beliefs is great. Like, that's, I feel like that's the way I learn. So it's nice. Uh, let's do one more. Let's do Apple. Uh, so Apple, like you would imagine, just delivers like crazy earnings. Um, but the overhang is the bottleneck bros. Basically, Apple next, Apple saying, uh, look, uh, we are a supply constraint. We need memory for our stuff to work. And the guys building the big computer are taking all the memory. And they've already raised prices on, uh, on, on, um, you know, MacBooks and, and, um, and I, you know, big, big computers, and soon, soon it's going to be your, your phone. And that will impact sales.

• 1:02:10Speaker 00

  And so Apple, you know, fessed up to the market about that this week and, and they're getting hit.

• 1:02:16Speaker 01

  Yeah. Well, you know, PSA, like you can just buy a super cheap phone instead of an expensive iPhone, download chat GPT, you know, and talk to your, talk to your codex agent and have it recreate all of your iPhone apps. And, you know, just have it do stuff for you. Like, you don't really need, you know, if you want to save some cash, you don't want to buy the really expensive, uh, you know, iPhone. That's how you do it.

• 1:02:42Speaker 01

  I still use an iPhone, just, just for the record.

• 1:02:44Speaker 00

  I know. I just, I mean, this is, I, I, I don't, look, take this for what it's worth, because it's not based on anything. But folks, if you, if you're thinking about upgrading to a new iPhone, this might be the window to do it, where the 17, which is a great phone, I've got it, is sitting there. It's gonna be the cheapest new model that you'll probably ever see. Um, this would be the window, I would say.

• 1:03:08Speaker 01

  The last iPhone. Get a screen protector for it. Get a case. Don't break it.

• 1:03:13Speaker 00

  Drop that shit.

• 1:03:13Speaker 01

  This is your last phone.

• 1:03:17Speaker 01

  No, it's a tough, I think Apple's just in a tough position. I'm not, uh, I'm not a big believer in the long term, in Apple long term, because I, you know, as much as they make great hardware, they make great products. I buy them, I use them, like all this stuff. I just think that, uh, because I see it in my own life already as a bit of like a, like a early adopter on all this stuff. Like, it, your phone becomes less and less important. It's, it's, it just becomes a device that you look at and talk to. And that's not how Apple makes its money. It makes its money because you have customer lock-in.

• 1:03:58Speaker 01

  You have iPhoto sharing with your family. You got your, you don't want to be a green bubble and blow up the, the group chats that you're in and all that stuff. And like, ultimately, that becomes less important. Like, I think walled gardens or like customer lock-in is not as important. Unless, unless like, you know, maybe I get locked in, maybe you end up getting locked into OpenAI or something, right? But it's like, an app, I think Apple has a long way to go before they, they have the AI lock-in. So that's their, that's their finish line for them. Like, they need to get that, like, they need to build the most powerful AI assistant that works across platform.

• 1:04:43Speaker 01

  And they need to do it like now. And I, and I don't think Siri is that. I don't think the new Siri is going to be that. So I'm, I'm, I'm just like, not a believer in Apple long term for that reason.

• 1:04:58Speaker 00

  The website is semaphore.com. Reed Albergotti is the technology editor there. Sign up for his newsletter. Reed, it's really always a pleasure to speak with you. Thanks again for coming on the show.

• 1:05:07Speaker 01

  Super fun to be here. Thanks, Alex.

• 1:05:09Speaker 00

  All right. Thanks, everybody for watching and listening. Uh, on Wednesday, Dave Kahn, partner at Sequoia, will come on to talk about what AI needs to do to make the bet pay off. And then we're going to go company by company and talk about the strategy in terms of resource allocation that each is pursuing. It's one of my favorite conversations of the year. And MG Siegler will be with us next Friday to break down the week's news. Thanks again, and we'll see you next time on Big Technology Podcast.

• 1:05:40Speaker 02

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