Anthropic vs The Pentagon: Who Wins? | The Data Center Arms Race | The Ultimate Stock Picks

1. 0:00 – 1:09

   Intro

   1. RORory O’Driscoll0:00

      The consensus is, in law, Anthropic will probably win a good slug of this case, which is different than saying they're going to win the fight.

   2. HSHarry Stebbings0:07

      The idea that you can just have all this shit for free is at some point going to stop because someone's going to have to cover their nut. This week, Anthropic sues the US government. Oracle and OpenAI end plans to expand flagship data center. Meta moves in to absorb the surplus AI data center capacity. CrowdStrike, they beat expectations but trade down. And then finally, we have our stock picks. What to buy, what to sell, public market predictions coming up.

   3. JLJason Lemkin0:33

      I think getting rid of juniors is where we get budget for these data centers, in part.

   4. RORory O’Driscoll0:36

      This is going to sound really cold. You can have dispossessed urban poor forever and nothing happens. But if you piss off the 20-something-year-old middle class, the over-educated elites, they tend to cause trouble. The truth is, OpenAI and Anthropic have the most amount of surface area to attack of any company in the world right now.

   5. JLJason Lemkin0:54

      The era of gentle deceleration has ended. It's dead. Ready to go?

   6. HSHarry Stebbings0:58

      [rock music]

2. 1:09 – 4:49

   Anthropic vs. the Pentagon: The Billion Dollar Supply Chain War

   1. HSHarry Stebbings1:09

      Boys, we have a big week of news. As always, we're going to start with this week in Anthropic. So we have gone from a couple of hundred million dollars in lost contracts with the Pentagon and with the DoD to potentially billions of dollars at risk. If we start here and the billions of dollars at risk, how did you analyze that? And maybe Rory, the wonderful context giver, if you want to provide some context.

   2. RORory O’Driscoll1:34

      Yeah. I, I, I will. I think that Anthropic, in my view correctly, sued the federal government in both California and subsequently in DC just for procedural reasons. Basically saying that the government's designation of them as a supply chain risk was incorrect, badly done, and, you know, didn't-- would not, should not legally stand up. And the reason they're suing immediately versus talking is they're stating that quite a lot of revenue could be at risk for them because the Department of War and the government, I think, actually I should say the administration, has articulated a very aggressive definition of supply chain risk. If you recollect last week, I was not entirely pro the Anthropic position, and I stand by that. But I think the government is now overreaching as well. So like all good disasters, both sides are doing things wrong. But it's totally rational for the government to say, "You want $200 million of revenue from us, and you want to get in our shorts and tell us what to do, and we're the Department of War, and we ain't going to do that. So you're not getting your $200 million." That's totally fair. But designating a supply chain risk has a series of escalated consequences. At a minimum, it implies no one can use them, no one can use them selling-- no other company selling to the Department of War can use them for those contracts, which is one step more. But again, I see how the Department of Defense might get to that place. But then you're seeing the government articulate these really expansive definition, uh, kind of ask, which is throw them out entirely of every government contract, which seems an overreach. And then even more overreach, and it's actually not happening because the various cloud providers have pushed back on it. There was one version that said, "If you use Anthropic at all, Microsoft or Amazon, then we won't use you at all in the US government." And that's a- a- an element of, frankly, almost ludicrous overreach. So what's happening here is basically Anthropic and Department of War are trying to figure out, you know, where in their spat, how big is the blast radius of consequences from this $200 million contract? And my perspective it-- yet is there should be consequences, but having it be this big a blast radius doesn't really stand up. And I think the consensus is, in law, Anthropic will probably win a good slug of this case, which is different than saying they're going to win the fight.

   3. JLJason Lemkin4:05

      Well, look, I mean, there's, there's something to me that's minorly interesting, um, and then more interesting. The minorly interesting thing is how hard the hammer came down. I mean, they, they're, they're going to lose. Like, the, the, the, the, the ans- Like, it's, it's like tariffs. Even if for some reason, um, Anthropic wins their case, they'll just com- The, the, the, the DoD will just come-- the Department of War will just come back with another issue, j-just like tariffs. They'll find another justification to block Anthropic or even at a, a minimum, I think the real panic, I, I think maybe what they didn't realize at, at-- And then I'll talk about to me what's more interesting. But I think what they didn't realize is what a blocker it would be with their customers.

3. 4:49 – 8:09

   B2B Panic: Why Leading Companies Are Losing Deals to OpenAI

   1. JLJason Lemkin4:49

      It-- This is just a classic B2B sales issue. Uh, you know, you walk into these big deals, and they said it in the complaint, "And we're struggl- deals are being cut in half. We're struggling to close deals because prospects are worried that just some of their business has exposure to the federal government and the Department of War." And then their competition, OpenAI, xAI, said, "We don't have these problems." And you-- And they may steal the deal. Like, they, they literally said in the com- in, in the complaint that they, they're-- this is issue, and this is classic B2B stress. Like, you don't-- It only has to be am- The, the risk only has to be ambiguous in a B2B deal for you to lose and go with another leader [laughs] . It just has to be it's a little bit less secure, or they went down for two days, or the, the database was left open. And so th-there was a classic B2B panic and I don't want to get into politics, but I, I honestly don't-- I mean, the, the government is saying, "Listen, we need you for war." And in fact, it's more than that. The government is saying, "We used Palantir without Anthropic's knowledge to conduct a war in Venezuela and depose a government. We did that without Anthropic's knowledge." So it, it happened, but the government's going to say, "You're either going to agree to this or-We're gonna freeze you out of the US economy. And it doesn't matter what a court says because they'll come up with another justification. There'll be another one. There'll be a, a, a different type of supply chain risk. There'll be... It, it'll be, it'll be endless until they bend to the will, I think.

   2. RORory O’Driscoll6:15

      Yeah. But you may be right in terms of what they, the government will do. But I just, as I say, having been critical last week, I want to say it's wrong to try and drive a wildly successful American tech company out of a good slug of the economy simply because they don't want to serve this one particular need. And it's interesting if you read the complaint, a lot of what Anthropic is talking about is literally their First Amendment rights. This is not a contract. What they're basically saying is, "We, Anthropic, articulated our less than love for some of the things that the Department of War might use this technology for, and you're trying to ruin our business simply because we used those words, and that's our First Amendment right and that's un-American." And so while I think you are entirely correct, it's a really tough position for Anthropic to be in, and I, I, as I said many times, I don't know if they should have picked this fight. I also think it's particularly unfair of the US government to try and be this sweeping in their actions against what is one of the great American success stories. If AI really is all about the leading edge of the economy, right, it's probably a mistake to pound the crap out of one of the two leading companies in that space simply 'cause at the margin you find them slightly sanctimonious, which many people do [laughs] and you don't like their politics. You don't have to buy from them. And, you know, put your $200 million in, in another place. Maybe don't let them in the Department of War at all. But stop trying to cut them off at the knees across the entire B2B infrastructure. I think it's a little bit of an overreach. But I think you're right, Jason. [laughs] Me thinking that is very different than them changing their mind. There's a style in the administration that's prone to overreach, and I'm sure Anthropic deeply regrets getting down in the mud pit wrestling with this particular opponent, 'cause it

4. 8:09 – 15:49

   The Anthropic Endgame: Will Claude Eclipse ChatGPT?

   1. RORory O’Driscoll8:09

      sucks.

   2. HSHarry Stebbings8:09

      What actually happens here? Like realistically, a year's time, does one cower and give up? Play out the realities for me.

   3. RORory O’Driscoll8:18

      I think the interesting th- I, I, I think on the merits of the lawsuit that I think Anthropic will probably prevail and may even prevail quickly on some of the, you know... I think if... I read the lawsuit last night. I, I think they've actually moved for immediate redress, I think, you know, to, to basically get it reversed. I think they might prevail on some of the things. If I was to be logical, just based on prior, I... They might prevail on some of the law. They won't clearly get a $200 million revenue deal [laughs] with the US Department of War. But in a perfect world, if they bend the knee, prevail on the law, what we've seen in multiple other situations is you end up with some kind of, you know, acquiescence to the administration in return for, "Leave us alone to pursue the rest of our daily business, our B2B business." We're not gonna say... The administration's not gonna be saying to Microsoft, "Hey, if you use Anthropic anywhere, you don't get any government business," which is the most overreaching version of this. And in return for that, Anthropic will probably have to bend the knee and be slightly supplicant. That's my gut. They'll win the law, just like many of the other institutions have won some of the cases, but will find that they've picked a fight they regret and just want to settle it.

   4. HSHarry Stebbings9:31

      Does this impact their going public later this year? Polymarket predicts Anthropic no longer does.

   5. RORory O’Driscoll9:39

      And Polymarket and Kalshi know. I mean, Polymarket and Kalshi were able to tell you the date at which we were going to attack Iran. I mean, there's... The amount of... [laughs] Po- Po- Polymarket knows lots.

   6. JLJason Lemkin9:51

      The only thing I... It, it does... They, they are tied, right? The only thing I would say, maybe there's a related point, uh, uh, that's broader than this I'd like to make, but, um, I do think we overstate IPO risks in general. Rory's been through this, right? Um, we all... A- and listen, it totally makes sense that people would react, "Oh my God, uh, you know, uh, Anthropic has to work to perfection to pull off the IPO they want given the amount of capital they want and the valuation of a trillion, and being a supply chain risk would be risk factor number one and freak out the public markets." I think we've all seen every pub- uh, startup we've ever worked with IPO with several of [laughs] several things that, that, that had to be highlighted in their prospectus, and it never seems to be the end of the world. Uh, it's... IPOs are very binary, right? Either folks get super greedy and they're genuinely massively oversubscribed, or they barely [laughs] get done at, at all. So I, I just think that is overstated by the media that there's existential IPO. Until, until it shows up in the numbers, I don't think, uh, I don't think fear overcomes greed.

   7. HSHarry Stebbings10:50

      And so we didn't actually get to that though, which I'm gonna, gonna push you on. Does it show up in the numbers, yes or no?

   8. JLJason Lemkin10:56

      It c- at the level of growth we're seeing, it can't show up in the numbers yet. The beauty to numbers, and this is why I think all, uh, m- all, 80% of public B2B companies are in much worse shape than they look, is they're backwards looking. Every set of financial statements is backwards looking. And it's even worse, un- unless you do a SPAC or something, you can only project so much. So you're stuck in backwards-looking land. As you... The closer you get to the IPO, the less you can say about the future, and the more you, you have the, the, the benefit of hiding in last quarter.

   9. RORory O’Driscoll11:25

      I'll be clear. I don't think it shows up in the numbers, provided what appears to be the consensus legal outcome happens relatively quickly, which is you can't desig- first of all, the, the, the process of designating a supply chain risk has more steps, and if you read the actual legislation, than just deciding at five minutes' notice. There's a review. Like all government actions, there's a review process, there's a con... All, all those kind of steps. And then the second thing is, like I mentioned earlier, the interpretation from the hyperscalers, who remember do a huge amount of distribution for these guys, and the emp- and developers who are clearly flocking to the app right now, clearly is, "I can use thisUm, for non- definitely non-Department of War and possibly non-government use cases without any supply chain risk whatsoever to a rounding error, right? If that version of the world, which appears to be the correct legal interpretation prevails, then yes. If they went to court and they started to lose those cases, then they would be on the back foot, and then they would have to probably settle pretty quickly. But the consensus appears to be that from a legal perspective, in this case, the administration is overreaching. So, so right now, no, it's not showing up because yes, you're d- you're clearly down two hundred million in licensed revenue, and if you're the sales rep for the Depart... If you're the sales rep for the Pentagon at Anthropic, it's going to be a slow week, right? [chuckles] Conversely, if you're the sales rep or the guy running, you know, PLG growth for the Anthropic Claude App or for the Anthropic, um, any Anthropic developer products, you're exploding. Adjacent to it, against that, against that wall of growth, there's nothing showing up if those numbers are correct. Now, let's do the math here. Two hundred million, let's call it eighteen tw- million, uh, actually seventeen million a month. So they're doing one point five billion. Seventeen billion a month is one percent. So this is a company that's ten X-ing, so it's gonna drop one percent. It's lost in the noise. I mean, I'm sure they deeply regret ever taking on that two hundred million dollar contract 'cause it's in the noise compared to the business, and now it's produced this contingent risk.

   10. JLJason Lemkin13:32

       One of the things I reflected on this a little bit was on the one hand it can seem very localized to Anthropic, right? Uh, its principles and, and a DoD, D- a DoD, Department of War deal. But I think a lot of us are gonna have to wrestle with these issues. I'll give you a very small example. Um, uh, I basically w- uh, worked with a ton of next-generation CRM products, okay? That, that everyone's building. We talked about dad VC, right? Everyone's building. One thing that the... Then, and the, and the approaches to next-generation CRM are very different. Some are very agentic-focused, some are redoing the classic core, lead contacts, opportunities. Some are building together with existing folks. Lot of approaches, but there's one thing that all of them seem to have in common. Every single thing that a human does is fully tracked and logged. Everything. Now, uh, if we go back in time when things like Gong blew up, at first we had a pause. We're like, "Oh my God, my business is, is tracking not just a random call, but every single call?" And then every... Like, we had to pause for a moment, is that okay, right? And this became the way we worked, right? Gong, Gong et al. Then, you know, even during this pod, we kinda... Granola, is that okay? You know, is granoling people in meetings okay? Now every app is, this is becoming necessary core CRM functionality to record and manage every keystroke, every interaction, everything you type, everything you do, because otherwise you can't automate a CRM. Like it, the next-generation CRM just does not work if you have any privacy in the workplace at all. And so it's just an example of you wouldn't think that a next-generation CRM would have to deal with the same issues as Anthropic and the Department of War, but I think we're, many of us are gonna have these issues. Are we gonna lower, change our morals? Are we gonna say a 40%, a 50% layoff is no big deal at Block because it's part? And I think we're all go- as we chase these faster and faster growth companies, I think we're gonna, we're gonna discard more and more of our previous moral standards. [chuckles] And maybe it's li- that's the AI life, but, uh, I have a little bit of anxiety here. Just a little, [chuckles] a little bit.

   11. RORory O’Driscoll15:35

       A technology that's so important that it's consuming 50% of the capital investment of the entire United States probably should have a significant number of pretty significant societal changes.

5. 15:49 – 17:19

   The Data Center Arms Race: Is the AI Hype Cycle Finally Dead?

   1. HSHarry Stebbings15:49

      Two signs that, like, maybe we're facing or entering an age of more realism. One is Oracle and OpenAI end their plans to expand their flagship data center. So Stargate's Texas Data Center expansion to two gigawatts potentially being axed, capping in at one point two gigawatts. Is this early signs of the end of the CapEx cycle and hype cycle or not?

   2. RORory O’Driscoll16:13

      More no than yes. Look, and 'cause I'm sitting and going, I think we are over-investing, and I think at some point there's going to be a reckoning, and a bunch of companies are gonna realize they've massively over-invested. But I don't wanna be that kind of guy who's trying to call the turn, you know, three years before it hits, right? 'Cause I think the proof that it was... I, I, look, it speaks to some-

   3. HSHarry Stebbings16:35

      Rory, Rory, how, how can we be over-investing when Jason tells us that this is the year of inference, and we'll have inference running-

   4. RORory O’Driscoll16:41

      Yeah. We c- can, can we come back to that? I, I will come back to that, but I'll answer the question you asked.

   5. JLJason Lemkin16:44

      Well, if we can, we can't possibly be over-investing. [chuckles]

   6. RORory O’Driscoll16:46

      I mean, the point is this, o- on the question you've asked, no, because instantly Meta said, "No, if you guys don't want this data center 'cause you're having some issues, we'll take it." So I, I, I think if you just look at all the comments from the hyperscalers, if you look at Jensen's comments, right now at least, to Jason's point, demand is insatiable. So demand right now, if demand is insatiable, then you can't use this kind of one-off set of dynamics around Oracle as a sign of, oh, it's the CapEx cycle's turning. I think that would be overextrapolation.

6. 17:19 – 33:13

   24/7 Persistent AI: Why You'll Soon Need Data Centers in Space

   1. JLJason Lemkin17:19

      I, I think that, um, Meta is playing a game, Google's playing some of it, Amazon's playing some of it, that it's hard for Oracle and anybody else to play, um, which is that ultimate- And I think Meta's, Meta's the only one that I've known that's explicit, is they're betting on a world where your AI is twenty-four/seven, persistent and infinite. Right now, most of us are using a little bit of ChatGPT, a little bit of Claude. Uh, maybe we're using a couple hours of coding compute, which is quite expensive if it, if it's not bundled, and that's it. But, but none of us are talking... I mean, we, we made fun earlier in this days of the OpenAI Pen with Jony Ive, right? We made fun of it. But I think we missed the point, and I, at least I did. I missed the point when we talked about it, which is I didn't fully understand, 'cause this is a few weeks later, right? This is six months later. I didn't fully understandWhat the world would look like when our AI agents run twenty-four seven. And the amount of compute that we will need to do that is obviously orders of magnitude. Then take multiple agents running in parallel, which is everything Cursor's about, everything Claude Code is about, is multiple agents running in parallel. Replit v4, it's all about running five, 10, 20, 50 agents in parallel 24 hours a day. I mean, I'm not even smart enough to do the math, but we're talking about multiple orders of magnitude of compute that we need today. Um, does it get more efficient? Maybe. Um, on the RAM side it's not. [laughs] We've already run, run out. Um, so I... Anyhow, my, my point is I think one thing that w- M- And maybe 'cause Meta's so consumer and also in some ways so far behind, but I do think they're making this bet of twenty-four seven persistent AI in your life as a consumer. And so they will buy all the compute that is available that they can afford to make this dream happen, 'cause they're, they're, they're well-positioned for it. As silly as it sound, they're probably the well- The... U- Unless Claude, which is playing its own endgame, or ChatGPT can figure out its social side, they're pretty well-positioned to be the AI that lives with you twenty-four seven. Them, them and TikTok. They're pretty well prohibited. And so the world's gonna be so different, right?

   2. RORory O’Driscoll19:29

      But I really just... But I just have a genuine question, Jason. What is that thing that they are shipping that you're talking about? What... I, I don't under- What is my AI that's twenty-four seven that I can get on Facebook or Instagram? I don't see it.

   3. JLJason Lemkin19:41

      It, it watches-

   4. RORory O’Driscoll19:41

      I don't know the-

   5. JLJason Lemkin19:41

      It listens. It actually can see.

   6. RORory O’Driscoll19:43

      But, but what can it really do that?

   7. JLJason Lemkin19:43

      It can see everything you do. It sees everything you do.

   8. RORory O’Driscoll19:47

      What, what tense, uh, what tense are you using? Are you using the present tense or the future tense? So this is-

   9. JLJason Lemkin19:53

      What should happen today, which what is entirely possible today, it's just we don't, we can't afford it-

   10. RORory O’Driscoll19:58

       Ah, future tense

   11. JLJason Lemkin19:58

       ... No. Which will b- Will... Is that as soon as this call ends, this, this Zoom ends, my AI talks to me, "Hey, Jason. Um, that was something pretty dumb you just said with Rory on the call. Let me explain where you got it wrong, and let me explain how this I- ties together." I don't even do anything. My AI is already ahead of me the second this, this Riverside ends. That could be true today in everything you do in life, every partner meeting, every pitch you make. It's just we cannot afford for the moment the level of compute it takes to have that, right?

   12. RORory O’Driscoll20:31

       I'm willing to stipulate, partly in humor, that the amount of compute it would take to correct all the stupidities that I say, you say, and Harry say might well require data centers in space. So you might well be right [laughs] , but I'm not sure we can afford that. I mean, so, so, but going back-

   13. JLJason Lemkin20:50

       What about your AI every minute of your... At least pretty much your personal life, your work life, helping you be better on every single s- thing you've said or thought, every single decision you m- How many micro decisions do you make all day long? Not even the big ones of the $100 million check. How many checks do you make every day, every week? It's, it's impo- And if your AI has full context, full history, has every deal that's ever been done at scale, every deal in the last year, every deal any VC has done, every article, every interview, is it hard to imagine that that AI immediately after every conversation you have won't enrich your work life? Like, of course it will. O- Of course it will. It, it will be instantly better, right? And so that's... But I don't know that... The, the problem is in the short term, I don't- Oracle doesn't have the cash to keep up, going to Harry's point. It just doesn't have the cash.

   14. RORory O’Driscoll21:34

       And that is the question-

   15. JLJason Lemkin21:35

       But Meta does

   16. RORory O’Driscoll21:35

       ... Right. But see, o- one of my bigger hahs on this whole is it all going to go wrong question is the zoom out comment is the people who say it's not talk technology, and the people who say it is talk economics, and we kind of just don't quite overlap, right? And that's the core of the, the challenge in this discussion. There's a million things you could envisage doing with, quote unquote, "AI." The question is, are they worth doing at what price? I mean, I was just doing the math in my head. There's $600 billion, um, dollars being spent on CapEx. There's 150 million people working in the United States of America. 150 million at 600 bill- That's roughly four grand per head, right? I don't know if, um, an employer wants to spend four grand per head on automating with AI. I mean, if you run through all the people, there's a bunch of people, you know, serving coffee. They probably don't need four grand's worth of AI. You start doing that math and you say to yourself, "Is the return there?" So I stand by my comment. I think we probably are overinvesting, right? And at some point, you know, those chickens come home to roost. And I don't think it's a controversial statement, Harry, pushing back, because Zuckerberg, who I think is wildly smart, has even said it. This is pro- And everyone said it. Bezos has said it. This is probably gonna go wrong, but I'd prefer to ante up and be in the game and have a chance of winning than not ante up, like Apple, and know I'm gonna lose, right? By definition, if six or seven people articulate that that's the game they're playing, and only six or seven people matter in this discussion, then it is almost tautological to say we're gonna overinvest, 'cause that's what game theory says. Until such time as someone realizes, oh, I'm in the poker game, but I don't have the right hand, I gotta fold. Until that happens, we're gonna overinvest, and I'm- don't think it's happening in 2026. The only person that's even struggling slightly to cover their nut is Oracle, right? Because they had the weakest balance sheet and the least compelling use case, which is why at some point they're gonna throw 20,000 or 30,000 people over the side to make the P&L work, right? Meta can borrow, Google actually has a business, and Microsoft is quietly stepping back from the table. So, and so this game goes on for another year or two, but I do stand by my comment. There's a level of overinvestment going on.

   17. HSHarry Stebbings23:58

       I thought it was interesting. It was, uh, rumored, and this is rumors, so Rory does not like rumors, uh, but that Alex Wang is pick-That Alex Wang is being sidelined, um, and that his position is no longer as superior as it once was, um, with the creation of a new lab and him not being in charge of it, that lab director reporting directly to Boz, and it appearing like the Scale acquisition was bluntly hastily done and a mistake. And to your point, Jason, on Meta being behind, that is the kind of consensus that's being shared

   18. RORory O’Driscoll24:30

       That would be over-investment. I paid fifteen billion dollars for an asset that twenty-four months later-- uh, twelve months later I put on the bench. That is the very definition of over-investment, so I actually think you made my case for me, right? And the fact that the response of Meta would be, "Oh, well, we'll do something else," shows that we're not yet at the over-investment being terrifying stage. We're simply at the, "I gotta win. Try something. If it doesn't work, try something else."

   19. JLJason Lemkin24:55

       Can I, can I... I wanna com-- I, I, I'll, I'll, I'll add, I think this Molt book is an interesting micro story of Meta's very interesting AI strategy, AI M&A strategy. But before we get there, this over-investment thing, I just wanna bring up one thing that happened this week, which I think people misunderstood and is so important to my point of we're not even-- like, the amount of AI we wanna use when we're running twenty-four-- we're, we're-- we need massively more compute than we have, which is Anthropic launched a true, um, [lip smack] Claude code review, okay? Great, hooray, um, to find bugs, to find issues, and they said it's fifteen to twenty-five dollars, and the internet blew up. "Oh my God, this is so expensive. Like, I only spend two hundred dollars a month for Max. I spend twenty dollars, and now you want twenty bucks to, to, to a code review to check for bugs and issues?" [lip smack] And, um, you know, a-and, and there certainly are folks who are trying to manage their, their, their Claude code costs to the bare minimum, right? They're, they're vibe coding from a, from a cafe in Thailand, and they gotta keep... But, but the response back from the h-head of Claude code, or at least whoever built the feature, was, "My God, we're spooling up ten plus agents in parallel to run for twenty minutes to find every single bug in your product." This-- like, you could do this manually, and I've been doing it manually in Replit for months, but to do this in one click, it's profoundly va-- like, humans can't even do this, find every single bug in twenty minutes. And so the amount of compute, now they need twen-- even Claude, uh, on-- Claude code needs an extra twenty bucks of compute to do this. W-- and you know what you'd really like to do? Run this after every commit. Not episodically, not when-- not getting up your nerve to spend twenty dollars worth of tokens, which is a lot, 'cause this isn't subsidized, right? This is Anthropic's. You'd love to run this ten times a day after every commit you make. This is-- that is orders of magnitude [chuckles] more compute being used for this code review than we used before. And so we're just-- between that, everything running twenty-four seven, we've just scratched the code. Because if you've, if you've built anything in Claude code or Replit or Lovable or whatever, what you realize is it's just the beginning. Like, who's doing all the QA? Who's doing all the code review? Like, we've only scratched the surface. Uh, we need, we, we need, we, we do need data centers in space so that I can keep coding. [chuckles] But I think the point is interesting from the news. I think people miss this point of this code review thinking, "Is twenty dollars a lot to review your entire code base and find all your top bugs? Is that a lot of money?" It's twenty bucks.

   20. RORory O’Driscoll27:37

       And of course it's not. You know, there's a-- you know, we're happy investors in Coderabbit, standalone company doing it across multiple tools. And yes, now we have exciting and interesting competition from Claude, that-- Claude that's bad. On the other hand, validates the space and says, "You need to do this." I think your description of the product, of the need is exactly right. People-- if you're generating infinite amounts of code, right, using all these agents, the idea that you're not going to kinda do code review is absurd. So you've gotta have automated code review. You're exactly right. So a-and, and I think that whole comment about, your comment about spinning up all those agents was exactly the te-- you illustrated my point. From a technology perspective, there's infinite need for large amounts of agents to do a large amount of code review. From an economics perspective, you have people complaining about the fact that they're being asked to pay twenty bucks. And you're exactly right, Jason. The correct answer, which Claude was too nice to give, 'cause we know they're nice people despite what Pete Hegseth thinks, was, "For Jesus's sake, I'm giving you... You're automating an entire developer, and we're giving you automated-- w-we're letting you generate infinite code for two hundred bucks a month, and you won't even pay twenty bucks to check it before you put it into production? For God's sake, man, pony up." That's the correct response, and that's where econo- that's where technology's meeting economics. The idea that you can just have all this shit for free is at some point going to stop 'cause someone's gonna have to cover their nut, right? And then we'll discover the really interesting question is, how many of those users are pay-- prepared to pay twenty bucks per code review or two hundred bucks per big code review or whatever, right? So I do agree with you. The demand is infinite. The number of things you can do is just fricking amazing. The question is, how much-- what are the things that people are prepared to pay full boat for, right?

   21. JLJason Lemkin29:23

       Yeah.

   22. RORory O’Driscoll29:23

       And it was just f-- it was interesting, by the way, and it kinda validated a little something we're thinking. Claude, it's very int-- I would love to be the pricing person for Claude, and you've done pricing, Jason. How do you decide? What things do you kinda... 'Cause they've got some really interesting things going on. The API is expensive and metered. On the other hand, Claude code, the subscription, as you point out, you can get a whole ton more than you should be at two hundred bucks. So they're kinda not metering that. And then they decided, and in my view wisely, "Hey, maybe code review is something that's kinda feels managerial, and maybe there is budget for that." And you know, you and I both did deals where they were, you know, low in SaaS land, which were PLG for individual users, and people were like, "Oh, how are you ever gonna make money on, you know-small low-end signatures. But the more you go to management of signatures in the enterprise, the more there is a propensity to pay, and I think this is the beginning of the same thing. You, Mr. Hacker, you could have all the free code gen you like for 200 bucks. But if you're gonna be rolling this out into, you know, Bank of America's systems, you're gonna want the deluxe, not the $25 code review. You're gonna want the $250 security-proofed code review, and you're gonna see that kind of push to make money here. I don't know if that makes sense or not, but I, I think that's the whole dynamic 'cause the whole shit ton of stuff you can do, and then at some point someone's gonna have to pay for those data centers, and it ain't gonna be Pete at the Department of War. [laughs]

   23. JLJason Lemkin30:49

       I think related to that, the thing that, um, you know... And sorry, Harry, c- you can keep us on track. You're the boss. But I think one of the th- there's, there's certain things we've talked about in the past that were, that are true but were also willed into existence. W- the enterprise is willing, willing its desire for AI to replace humans, so it's going to accelerate because they want it to accelerate. I mean, my God, the one that is being accelerated is hire no junior dev- developers, hire no juniors. This is being willed into existence. No one wants to train anybody. Um, it ties to this code review because listen, if you're going to hire no juniors, of course you can spend 200 bucks or an extra $500 a month to do, to do code review for your senior developers. They're already insanely competit- uh, um, productive, right? And I think the death of the junior, it, it worries me. And, and I, I had dinner last night with my son, who's off the charts smart, but he's at Penn State, which is not a top 10 Ivy League school, and he said there are, there are just zero jobs for anyone in CS or math. There's just zero. There's no one even coming by to hire them for C-tier co- for C-tier... There's just n- he, he has job offers because he's, like, publishing things on Jensen fine-string theory that I don't understand. So great, six people in his class [laughs] at his large state college have tech offers. But it has become not only in our world, but in his world, it has become it's we just don't want juniors. We don't wanna train them for three months or six months. They don't know the tools cold. They don't know it, and, um, it, it... That's where the budget comes from when you hire no juniors, when we're just a world of, of, of, of the middle of the bell curve in terms of experience. We don't, we don't want folks that don't wanna pick up the tools, and we don't want the folks that aren't experts. And, uh, it's gonna ripple. This is my big worry for 2027 is it happens. It, it's gonna be true in sales. It's already true in support. Like, you want humans in support, but you don't want juniors. My God, I don't want a j- like, I, I want a human that knows CodeRabbit cold, that can, that, that can handle the escalations. I don't need junior marketers. I don't need ju- junior nothings. And Harry, not to get us off track, but I, it ties... I think that's... I, I think getting rid of juniors is where we get budget for these data centers in part. We're just getting g- they're just dying faster than we ever thought. It's happening in front of us, the death of the junior.

   24. HSHarry Stebbings33:11

       I think it ties to-

   25. JLJason Lemkin33:11

       It's bad for society, but

7. 33:13 – 43:53

   The Death of the Junior: Why Entry-Level Jobs are Vanishing

   1. JLJason Lemkin33:13

      it's a reality

   2. HSHarry Stebbings33:13

      I think it ties to two fundraisers that we saw. Rory, you may disagree as an investor in one of them. I, I would agree as an investor in another. But we saw Intercom raising $250 million, and we saw Lagora raising $500 million. Um, and I think both tie to your point there of the replacement of juniors, uh, and lower ranking customer support-

   3. JLJason Lemkin33:32

      Death of the juniors

   4. HSHarry Stebbings33:33

      ... and legal.

   5. JLJason Lemkin33:34

      Why would I want, why would I... I mean, God, I mean, I, I know I'm not a Lagora or Harvey expert, but I, I, I do know the sp- the dated space. I mean, who the hell wants to wait for an associate to scale up for two years? Like, that was the classic legal hiring. You hire someone real- from a top school, ideally that was top 10% of their class, they have the IQ, and you basically subsidize them for two years until they cross the line and become senior enough that you can give them a, a, a, a... You know, they can work with a top client or take a case. Who, God, who wants [laughs] to do those two years now? [laughs] Unless you have to. Unless you have to.

   6. RORory O’Driscoll34:07

      This has been one of our long-running discussions, and it's good that I'm evolving my position, Jason. I've said this, I've kind of come more to your perspective that there clearly is something going on here. And even though I don't believe in the catastrophic, you know, mass unemployment scenario, I think you're exactly right. For a couple of very targeted demographics, one of which is entry-level ComSci type jobs, other would be ac- actual customer support jobs, actual lawy- actual legal associate jobs. There is a meaningful impact on unemployment right now, so I just want to acknowledge you. I don't know. Well, let me finish, right? It is interesting 'cause... A- and I think that's true. On the other hand, yeah, part of you says typically when there's new technology, right, the best adopters are young people because they come in with less priors. And there's a part of me that says, "Are these schools doing their job?" Especially now that it's, what, 2026. If you're graduating ComSci graduates who aren't AI first and totally awash in using these tools, you're just not doing your job. And I think there's an element of not providing-

   7. HSHarry Stebbings35:11

      But Rory, Rory, Rory, you're un- you're unable to alter curriculum fast enough to update SynClaude. Uh, curriculums take time to change.

   8. RORory O’Driscoll35:20

      They need... Well, they need to change that because y- at a p- at a p- I mean, 'cause i- if you're looking at investing, you know, 100 grand a year for four years at a four-year college education to get a computer science degree that turns into unemployment and a barista job, you should be pissed, and you will be pissed.

   9. HSHarry Stebbings35:37

      But I'm with you, but when you look at Andrej Karpathy's journey in six months' time from bluntly using it for 20% to 80%, and this is Andrej Karpathy, that, that I think it's unreasonable to expect an educational institution like a university to alter the entire curriculum on Claude's ability to progress throughout the kind of skill journey.

   10. JLJason Lemkin35:57

       It certainly doesn't appear to be happening. [laughs] Whether, whether... Rory's point, should we be expecting it from these institutions? Uh, yeah, they're, they're becoming, you know, they're be- they're be-

   11. HSHarry Stebbings36:06

       They're becoming irrelevant

   12. JLJason Lemkin36:07

       ... they're becoming just babysitting for, expensive babysitting for four years to-

   13. RORory O’Driscoll36:10

       A- and they shouldn't be, and, you know, I thinkGive him credit. I think 15 years ago, Peter Thiel articulated the perspective that the ROI on higher education is going down, and at the time it was still high. And it's worth pointing out, even to this day, unemployment among college graduates is lower than unemployment among high school graduates, which is lower than unemployment among high school dropouts. So you're still, quote unquote, "better off" going to college in terms of employ- But the point is, now you take into account the net present value of that 400 grand, you're not getting your money back on anything other than the best degrees. So i- it's not, you know... These are not the most deserving people on the planet. They still have a lower three-point-something percent versus 4.4 average. But there is still-- But there definitely is a trend here that is, would be troubling if you're a recent graduate. So I, I'm kind of with you on the trend.

   14. HSHarry Stebbings37:03

       Rory, when you say you don't see the mass unemployment case or you don't quite think that or think it's an overreach, when you look at legal, computer science, customer support, bookkeeping, those alone, if it had no impact anywhere else, would be mass unemployment.

   15. RORory O’Driscoll37:21

       I don't know if it would be. Again, look at the numbers. I actually was looking at it today. Entire tech industry, excluding tech people employed in, um, non-tech companies. Technology, NAIC class- classification 51 tech companies, 3.1, 3.2 million people in the United States, of whom roughly 800,000 are software developers, right? If you go down by half, that's 400,000 software developers, right? It's a lot of people. It's-- But it's, you know, it's 0.2% unemployment, right?

   16. HSHarry Stebbings37:51

       And how many, how many are in customer support?

   17. RORory O’Driscoll37:54

       Much bigger number, right? You're exactly right. But also way more fungible in the sense of a lot of the low-end customer support. There are lots, there's lots of other service-type jobs folks can do. I'm just a believer, Harry, that over the me-- Again, I want to be over the medium term, the technology takes longer to diffuse than we in Silicon Valley allow, and people are more adaptable. So over the medium te- I'm not-- I don't see any kind of 10%-plus tech-driven unemployment, which is du- And, and I know you're gonna disagree, and the point is, we don't have to argue about this because in the end we'll know, right? I just think I have 200 years of facts on my side, and you have shit, but maybe you're right. That said, I do believe you are right in the short term. In isolated pockets of very vocal people are really struggling. And look, I've, yeah, three recent college graduates too over the last five or six years, so I'm totally aware of how hard it is to, you know, get a job as a college graduate. And I think it's a real issue, and we better get on top of it. 'Cause one of the other things the French Revolution teaches you, right, and actually history in general says, this is gonna sound really cold, you can have dispossessed urban poor forever and nothing happens. But if you piss off the 20-something-year-old middle class, the over-educated elites, they tend to cause trouble, right? And I actually think the continued production of masses of college graduates, effuse with their sociology and English degrees, facing into, and comp science degrees, where they've done, played it by the rules for 20 years and then giving them, uh, mass unemployment is go- for that cohort is gonna be problematic. So I, I'm kind of in a-- I'm not-- I want to be clear, just 'cause I think the macro trend is not there doesn't mean I don't think the micro trend is a real issue. And that to Jason's point, I don't know if it's a moral issue, it's an economic issue, and I predict in '26 it's gonna be a political issue. I mean, [chuckles] it's so funny to watch the NPS survey, right? The NPS for AI polls really negative, right? It's like... And as someone tweeted, "You've been telling us you're gonna blow up the world and make us all unemployment, and you're surprised to discover we don't like you." I mean, it's almost funny.

   18. JLJason Lemkin40:00

       Yeah, but at the same time, if you look, I'm sure Intercom data says this, everyone's data that works in a heterogeneous human AI agent environment, the CSAT is always top 10% for the agents. It's never number one. N- They never say that the number one most popular person is, is always a human, but the, the agent's always [chuckles] in the top... That is more telling than most people realize because I think the theme that's h- like I've-- It's early but it's accelerating, is we'd just rather work with agents. We'd rather hire agents. We'd rather buy an agent. We don't wanna... I mean, Harry's got 3,000 applicants for his EA position 'cause he needs a human, but I tell you, he'd rather have an agent if it worked. He don't wanna interview 3,000 people. If he could have an agent, he'd pick an agent. And we're all going through that. We're all-- We j- And it, it doesn't even matter if it's cost effective.

   19. RORory O’Driscoll40:53

       I do a- I do agree.

   20. JLJason Lemkin40:54

       We just would rather have an agent. I've been thinking a lot. I know this is Captain Obvious stuff, okay? But my God, w- when the, the-- Why, why do some of the, the AI B2B startups grow so quickly, right? Um, the simple answer is product market fit, product-led growth, agent-led growth. But, um, as you dig deeper and as the year goes on and as we roll into late '26 and '27, and I really-- Like, people just wanna buy an agent. They don't want a human. And it cr- And there is-- And if you can deliver perceived massive ROI, that is so appealing. It is not layoffs. It is not this. It is, "Oh my God, I could get customers. I could run campaigns. I could do support without humans. My God, I want that." And, and that's what our... And so, and when I look at so many of the mediocre products the public B2B companies have launched, they do not service that demand. I don't want humans at Atlassian or HubSpot or other folks we have. I don't want them. I don't want to make my humans 8% more efficient with your AI. I don't want these humans. I want an agent to do this work. And when you do that, w- whether the Lagora, Harvey, whatever, a million on the show, whether they fully can rel- realize that potential, the people will line up at your door when you can give them an AI instead of a human, an agent. They d- they just, they, that's what they want. And these are the companies we wanna build and run. And they will keep shrinking as a r- size of revenue. They will keep shrinking for this reason.

   21. RORory O’Driscoll42:29

       As is so often the case, I agree with the broad direction and might disagree with the sequ- not so much the sequencing as the narrative. I think a lot of the B2B adoption to date with the probably, w- up until, with the exception of customer support and in the last year with the exception of coding, I think folks like Harvey, Lagora, and GCAI, uh, they're all about... They're not actually about human replacement, except very much at the margin. At some vague level, maybe I don't need the 17th associate at Linklaters, right? They've actually... 'Cause so far it hasn't been agentic. So far it's been primarily, "Yeah, let me help you, Mr. Lawyer, be smarter, work more efficiently." Yeah, at some level not ask an intern to do something, but it's, it, it hasn't been a wholesale replacement story. I think you're right. It's been at the task level. I've been able to increase the number of tasks that I can do, and therefore decrease the number of tasks I have to pull in an associate to do, right? I think you're right, Jason. Now with agents, and I think we've seen it first in software, it's stunning what's happened in the last six, nine months in terms of the ability of these things to gener- just code start to finish. And therefore, you know, this is where I think you are right. We might be at the start of some of this agentification, and the next 12 months will be B2B companies saying, "Now I finally can automate this task entirely," and then we'll find out what the demand is.

8. 43:53 – 49:46

   Agent-Led Growth: The Secret Reason Startups are Exploding in 2026

   1. HSHarry Stebbings43:53

      I like to think through a frame of what will my children look at me and how I used to live and go, "God, I can't believe you used to do that." And I think one of the things they will say that to is, "I can't believe you spent years training people and then they left. Like, all those years wasted and then they left. That's so nuts. It's cra-" I think that will seem incredibly archaic. I look at my EA today, we've mentioned it. I've spent years training her. She's amazing, and then she leaves. It's fucking nuts. An agentic world which compounds education and learning and they never leave you. Jason, would I prefer it? Motherfucker, yes. [chuckles] All of that time was wasted. I've got to start again.

   2. JLJason Lemkin44:41

      Yeah, that's... I, I just think if you're founders in B2B, this is what you should be building, is something where folks will line out the door because you're automa- y- because they'd rather work with your agent than a human. Lining the hell out... Like, and most of the public companies are not even thinking this way, but the ones, the startups that do f- blow up, well, they line out the door.

   3. RORory O’Driscoll45:04

      Give me an example-

   4. JLJason Lemkin45:04

      Line out the door

   5. RORory O’Driscoll45:04

      ... of the agentic ones, please, as distinct from the automated task ones. Give me a, what level of agentic are you talking about?

   6. JLJason Lemkin45:13

      I mean, I mean, literally, I mean, listen, there, there's a bunch, but I, I've done so much in these GTM agents, these go-to-market agents, okay? So this last one that we deployed, this Monaco one that Sam Blan did, I mean, they closed seven figures in their first five days, and they have 60 days of people lined up. And why? And, and look, I'm not hyping it. Th- they're all good, but why are they lined up out the door? Okay, this is the more interesting question. Why are they lined up out the door? Because it go, it, it, whether, whether they're fully successful on all their journey or not, it's worked for us as a tool. It, it, it talks to the prospect, it texts them, it, it pitches your product, and it sets up the meeting, and the meeting is fully ready to go and close. If you can deli- if you can deliver that, if you can deliver that, okay? And it's a high bar, and I don't even think it was possible 60 days ago, okay? And all the other tools we use. Just, just b- before you crit- we can all poke holes at it, it's early, but people will line up the fuck, out the fucking door for this stuff. They'll line out the fucking door for this stuff. And, and so that's what you, whatever category you're in, you wanna build this agent that, um, is, is sufficiently better than 90% of humans that everyone will pick it, and the budget magically comes out of nowhere. It literally comes... That's why w- we're just shocked at the tam- like the TAMs for some of these products don't even make sense to us. Like, they, they, they're not consistent with the past, but people will line out, line out the door if you can do this without humans. I mean, we built our own VP of marketing literally yesterday. This week was the first time it led our human staff meeting. Our AI VP of marketing led the team meeting. It led the meeting. It summarized every single metric, every single thing, every single thing the humans on our team had to do, 10K, RA, it led the meeting. I mean, as great as Clay is for enrichment, it's great. If it could do that, I'd g- I will give you $50,000 tomorrow. 50, f- an extra 50 grand tomorrow.

   7. HSHarry Stebbings47:09

      You're doing the Intercom deal. Are you betting that they beat Sierra?

   8. RORory O’Driscoll47:12

      You know, I think that, a- again, I, I prefer to let Eoghan speak for himself on what he wants, 'cause he's a very ambitious man. I'll tell you what I am betting on. I'm betting on that they can carve out a significant space in that market for that product and that they've had explosive growth in it. And coming from the SaaS, I'm betting that, I'm betting that that team coming from the SaaS background but being grounded in what it takes in AI can take a significant portion of market share. They tend on average to be slightly smaller in terms of customer size at the high end of Sierra and they compete more with Decagon. But-

   9. JLJason Lemkin47:47

      One thing that I think in a, a lot of these categories that are, th- that have traction, but if you, if you wanna say, a- a- I'm only a partial expert, but if you wanna say Intercom versus Decagon versus Sierra versus others, right? Zendesk, Salesforce. One thing that people miss a little bit in terms of the winner, which you kind of asked Rory, right? Is, um, FDEs, forward-deployed engineers, for the moment are a limiting factor, and let me explain what I mean. What it means is no one has enough fully trained FDEs that, that can get a, a customer up and running fast enough. No one has enough of these resources, okay? And what it means, and go, the, uh... And what it means is that almost every vendor has to pick lanes. They have to... You can't do e- as much as you'd like to do it if it was all software, you've gotta pick where you're strong, right? And if you're best at digital transformation for enterprises, maybe that's what Brett Taylor is, you gotta pick that, right? And you got... And so, uh, not that these folks, I know at the sales team and, and folks think they're direct competitors, butYou don't-- everyone has more demand than S-tier FDs to service that, so they're all picking lanes today, and that is a frontier we haven't crossed yet. The need... The-- and they're-- and, and so in that sense, they're all services businesses. In a sense, they-th-this VC meme is true. They're not long-term services businesses, but if you need humans to train it, if you need humans to manage it, if you need humans to iterate it, you're-- you are-- you have the same constraints that services businesses have. And, uh, th-this FD thing is a limiter. This-- it's, it's exciting, um, because I think the losers, a lot of the losers out there can't even get, uh, good FDs. They can't even... They can't... If you look at folks that are str- a lot of folks that are struggling in AI B2B, if you, if you peel the layer back, sometimes their agent isn't, isn't competitive, sometimes it's too slow, right? A lot of issues. But if you really dig down, how many, how many great FDs do you have? How many folks do you have that can spool up a customer in 30 days? "Well, I've got three." Well, you're gonna lose. [laughs]

9. 49:46 – 1:01:16

   The Era of Gentle Deceleration Is Dead: Public Markets Turn Brutal

   1. HSHarry Stebbings49:46

      Just staying on venture and private and just covering like the news items so people are up to date. As I said, Lu-Lagora raises 500 at $5.5 billion. Accel lead that round. Obviously Harvey are better funded at, I think, $11 billion in the latest round. Uh, Decagon did a tender at four and a half billion. Intercom raised $250 million at, uh, I don't know the price, Rory. You might know-

   2. JLJason Lemkin50:09

      In debt, right?

   3. HSHarry Stebbings50:10

      But they didn't announce it.

   4. JLJason Lemkin50:11

      No, in debt.

   5. HSHarry Stebbings50:12

      Yeah, they're a large company. Yeah, they're... Yes, it's a debt round. Great. Founders Fund cl- Founders Fund are closing in on $6 billion of new funds. They invested the last 3.3 in 11 months in amazing businesses like SpaceX and Stripe and Anduril. I'd be very happy if I was an LP. Uh, Base44 hit 100 million in ARR. Don't know if you have anything to say about that, Jason, given Replit. Does it save Wix?

   6. JLJason Lemkin50:40

      Well, you know, I was thinking, um, we had on the agenda CrowdStrike crushes the quarter trades down, right?

   7. HSHarry Stebbings50:45

      Yeah, I was gonna move on to that with our predictions.

   8. JLJason Lemkin50:47

      No, but it's related to the Wix thing, and then I was looking at Cloudflare, which is on my top, top four, right? Cloudflare, uh, 27% growth a year ago, 34% growth last quarter. I mean, that's pretty good acceleration, okay? That's pretty damn good acceleration. Um, 40% year-over-year increase in net new customers. Um, I think the public markets, you know, we, we're wondering what's happened this year and just the... And, and you, or you had Iran from Monday on, on a week ago on, on 20VC, and he said it. We've gotta, we've got to accelerate to get back credibility with the public markets. Accelerate, not, not manage a genteel deceleration, which was '22 to late 2025. Not, not manage a gentle deceleration with higher net margins, which everyone thought was the job at scale. Now, uh, it-- the truth is, you've got to be Cloud... It's not just Palantir, you've got to be Cloudflare or better. And so I wouldn't want to be running Wix because 100 million from Base44, it's great and it shows you can cross-sell, right, and it shows a lot of new things. But, uh, but their, their, their larger customer count is flat to down. So they've got the gravity of the q- decline of the core business. Like, they've got to get back to so much growth that 100 million just, it's not enough. It's not enough. And we, we could -- Rory could help trail out the math, but I think W- Base44, and there's some cannibalization there, it's got to be doing five, 600 million to move the needle for Wix with its core growth decelerating. It's just so hard and, you know, for-- and for startups, you know, you got to start wondering this year when you should just give up on your portfolio if they're not accelerating. Wh- at what point do you just give up? Because if the public markets won't tolerate gentle deceleration, right, how will the private markets tolerate it, right? It, it, it's just the era of gentle deceleration has ended. It's dead. We didn't think it was such a great period, '22 to '25, but it was pretty nice that gentle deceleration was tolerable. [laughs]

   9. RORory O’Driscoll52:57

      To be clear, I mean, again, so much to unpick. First of all, to be clear, gentle deacceleration is like entropy. It is the end state of the universe 'cause everything deaccelerates to GDP growth, right? I mean, Anthropic is, as we speak-

   10. JLJason Lemkin53:11

       Well, yeah, but, but like the universe will be dead before some of it happens.

   11. RORory O’Driscoll53:14

       Agree. So I just wanna be precise 'cause you know me, I'm that guy, right?

   12. JLJason Lemkin53:17

       And well, it's the end of it. [laughs]

   13. RORory O’Driscoll53:18

       What you're really saying is at, at, at 10X growth year on year, Anthropic can afford to deaccelerate. At 40% growth, like Figma had it a couple quarters ago, yeah, you deaccelerate to 30, you're gonna take a little hit. But you're exactly right, Jason. What you're really saying is at 10% growth, you're now so close to GDP that you've got to reaccelerate. So that's really what it is. Just being precise, right?

   14. JLJason Lemkin53:41

       I don't know if even know if Fig- I don't even know if the public market think it's okay that Figma might accelerate, right?

   15. RORory O’Driscoll53:46

       But again, stop. I gotta push on that 'cause just take CrowdStrike, right? Slight deacceleration, 27 to guidance of 23. 27% revenue growth, guidance of 23. They'll probably beat that by two. You know, it's okay to grow 25% when you have scale. I mean, you know, Microsoft and Google are all growing at 13, right? So I, yeah, it, like you just have to be objective. When you have enough scale, 25% is enough to matter, right? Not everything's gonna accelerate all the time, Jason, because turns out-

   16. JLJason Lemkin54:14

       No, but the markets have been brutal this year, and I think, uh, y- it's not that you're wrong emp- a- analytically or empirically, but, uh, the markets have given up on folks not accelerating. They've just entirely abandoned it.

   17. RORory O’Driscoll54:25

       Well, the, yes. The, you... But ag- again, agreed, I'm being precise. What they've done is they've said, "For three years, I thought it was temporary, and now I recognize it's permanent, and now I'm going to value based on this growth rate, take a hit off you for technical obsolescence and the terminal value, take another hit off you for free cash flow, and I'm gonna give you eight or nine times reven- um, EBITDA revenues." That was sweet that I said that, wasn't it?

   18. JLJason Lemkin54:48

       Yeah.

   19. RORory O’Driscoll54:48

       Those are the good... No, you're exactly right. I mean, so they've all correct- they've corrected to fundamentallyWhat they're worth with no pixie dust, and, and, and that's just a tough place to be long term. You- I agree. Those guys, the negative spin is they have to re-accelerate. The positive spin is even a small amount of re-acceleration, you know, w- w- will get you some lift from here. But you gotta do it. Anyway, Wix is a good example of that. It's, it's funny. Let's, let's try and take apart Wix. I hadn't prepared on this one, but I can't remember, the overall revenue is what? A couple billion?

   20. JLJason Lemkin55:18

       They're at 2 billion, growing 13%.

   21. RORory O’Driscoll55:21

       Yeah. If that $100 million business grew at the same trajectory as Lovable or Replit, I'm gonna do this in my head, and you guys know the numbers, but let's just play it out. They went from 100 to 300 plus or minus in a year. Fair? And 300 to 600 plus or minus in another year at least. If Base10, which is inside Wix at 2 billion, went from 100 to 300 this year, that would mean it's small today. From 10... The problem is this, from 10 to 100 it gets lost in the noise. From 100 to 300, it's 10% lift to Wix's growth rate. So if it's 10 before, now it's 20. And from 300 to, say, 600, it's 15% lift, right? So y- y- you can't just say it's not big enough, Wix, 'cause the nature of a small thing is it's small, and then it exponentially compounds. What you... So I would push back and say if... But I'm gonna agree with you.

   22. JLJason Lemkin56:18

       I would also just say for proportions also just to say Lovable's at 300, and it projects it will be at a billion by the end of this year.

   23. RORory O’Driscoll56:24

       Agreed. That's where it's gonna go. It's not that 0 to 100 is bad, Jason, but where you are correct is this: you need... If you're, if you're a stale SaaS co- if you're an old-school SaaS company and you have this bright, shiny thing inside you that's growing, you know, from zero to 100 in one year, right? You have to run it in such a way that it can keep up with the Lovable and the Replits, and it has to go 100 to 300, and 300 maybe a billion, maybe 600. And what you're saying, and it is correct, is if it ends up hobbled by the, the wider company or the bureaucracy or the SaaS or the blah, blah, then you're not gonna get the needle moved. 'Cause that's the big-

   24. JLJason Lemkin57:02

       Well, the challenge is their core customer base, their core paid customers declined 1.2% last year. So they're at a terminal state where a lot of B2B companies are, where the, where, where... And it's not just AI, it is life, where they have reached a terminal state for their core customer base, right? And, and what, and what they've done better than most public companies is, hell, with a great acquisition they got 100 million of AI revenue on top of it. That's, like, better than most. But it is not enough yet to... Not only your math, but the core is declining 1 to 2% a year, which doesn't sound like a lot, but man, that's rough, right?

   25. RORory O’Driscoll57:39

       But Jason, just doing... I, I think we're actually ending on saying the same thing. So you're declining $20 million a year, whoop-de-doo, right? The point is this: if Base10-

   26. JLJason Lemkin57:46

       Well, you're not adding new customers is the problem, right?

   27. RORory O’Driscoll57:48

       Yeah, it doesn't matter. Stop.

   28. JLJason Lemkin57:49

       Yeah.

   29. RORory O’Driscoll57:50

       It doesn't matter. If Base10 could grow like Lovable or Replit-

   30. JLJason Lemkin57:54

       Base44, but yes
10. 1:01:16 – 1:06:56

    Figma Make Is Terrible? The Failure of Quarterly Software Releases

    1. HSHarry Stebbings1:01:16

       At least they have something in this market to play with. I, I look at your Webflows of the world and your Squarespaces and I go, "Ouch."

    2. JLJason Lemkin1:01:25

       Yeah. It's, it's a mystery why they're not trying. It, it's... I, you know, I tell you, the one thing that happened to me this week is I tried Figma Make for real for the first time. I know Harry saw it on Twitter. And for my use case, it was terrible. It was much worse than Base44, much worse than any vibe coding product I've ever used, Figma Make. It was terrible. It was undesigned, and even worse, all these products have advanced. It didn't even... I asked... So I do this test, and a lot of people make fun of me. They're like, "Oh, you're an idiot. You don't know how to do a prompt." I've done a few prompts, okay? My, my AI apps have been used a million times, but I, I also know how these tools work. So when I wanna test a new vibe coding site, I do something very simple, which didn't work six months ago and works well today. Go to sastra.ai and make me a better version. People make fun of you. There's not enough context, there's not enough data. Of course there is. I have massive amounts of context and data on my website. Scrape it, use your AI, and come up with a better idea. And I'll tell you, Replit and Lovable and, and even v0 can do a pretty good job of it. They come up with ideas. This is what the AIs are supposed to do. Make didn't even know it was on my website. It didn't even try. It was the worst thing I'd ever seen, nor did it, was it designed. And so if Figma Make can't do that, and, and I, and then I can tell you what folks, how folks criticize me. That's the wrong use case. It's not supposed to do that. But if Figma Make can't even pick up the context from a website to redesign it, what hope is there for Squarespace and, and all the other guys, right? They can't even... Even Figma can't do it. Te- worst vibe coding experience I've had in six months is Figma Make. Um, and I'm not a designer, okay? But I mean-

    3. RORory O’Driscoll1:03:01

       Agreed. 'Cause they would say that, that, that the use case... I mean, I'm sure what the comment said is some version of the use case here is take a design and implement it as, as code, not-

    4. JLJason Lemkin1:03:12

       Yeah

    5. RORory O’Driscoll1:03:12

       ... take an existing website. Yeah.

    6. JLJason Lemkin1:03:13

       That and recipsiloquiter is fine in 2026. Your website doesn't have to say anything coherent because it doesn't matter for design. That was the other feedback.

    7. RORory O’Driscoll1:03:23

       Ah.

    8. JLJason Lemkin1:03:23

       Which I thought was rather dated.

    9. RORory O’Driscoll1:03:25

       'Cause your comment was you were criticizing the work in terms of its ed- written content, not its editorial look. Yeah.

    10. JLJason Lemkin1:03:31

        Well, it was all terrible. First of all, it didn't design the website. It just used dated Claude artifacts from six months ago. So giving me little sparkly icons that are on every, um, every tier three, um, uh, you know, demo days is not impressive for Figma that there's no design. But it didn't pick up... It, they cho- my point is they chose not to pick up any context from the assets.

    11. HSHarry Stebbings1:03:50

        Jason

    12. JLJason Lemkin1:03:50

        They just chose to.

    13. HSHarry Stebbings1:03:51

        Did this, did this change your opinion on your optimism as a shareholder or potential shareholder of Figma moving forwards?

    14. JLJason Lemkin1:03:59

        Yeah. It shows that the team's not... It, I think it's worse than Base44. It's, it's, it's, it's rough. It's rough. You're not gonna win today if you're doing quarterly release best effort releases, and I would say most public software companies are also s- and, and many struggling unicorns, I would say almost all struggling unicorns are doing best efforts quarterly releases. That's death today. That world does not exist any longer. Best efforts quarterly. Let's get around the table and decide what we're gonna ship this quarter, guys. Okay? That's the way I built software. It don't work today.

    15. RORory O’Driscoll1:04:32

        I think what's interesting about this discussion is how generalizable it is to the challenges that, you know, a huge amount of the portfolio faces, right? Is that this challenge of taking an existing business, like, you know, 'cause one thing I think you can stipulate is the people at Figma are extraordinarily talented. I mean, it's not a year or two ago since, oh my God, these are the best people out there that built something enormous and, you know, they clearly have and they clearly did. I think this speaks to the challenge anyone faces in a larger company with an existing product architecture, finding a way to adopt the new technology, the new architecture, and the new way of doing, both the way of building and then what you actually have to build in such a way as you can make a big enough impact to change the trajectory of your existing company. And we've talked about two or three examples. We've talked about Figma. We've talked about Wix. We've talked about Intercom, who seems to have been doing it, and it's just really damn hard. But the funny thing is there are literally two tr- one-point-something trillion dollars worth of public companies and another trillion dollars worth of private companies for whom this is the existential crisis. And it's, you know, it's just really interesting here. We're seeing it across our portfolio. How do you make sure you matter, right? And how do you cut through the internal noise, and how do you staff your teams, and how do you create the urgency, and how do you create a sense of what's possible, right? The odd thing is this is precisely when you should be hiring young people who are coming in replete with the knowledge and unencumbered by priors. So maybe all those unemployed computer science grad, maybe some of them, maybe in some of these SaaS companies, genuine comment here, you do need some young talent to see what you can do and, you know, get, you know, do some Y Combinator acqui-hires of failed teams and say, "How do you turn around your R&D development?" Which takes, as Jason says, three, six, nine months to deliver something when the team down the road are delivering a, a new version every week. 'Cause if you don't figure this out, you're gonna trade at eight times EBITDA, which at best is two or three times revenues, and it's gonna be pretty fricking unsatisfactory for the people who paid 30 times.

    16. HSHarry Stebbings1:06:39

        I don't think there's a lack of desire, by the way, for young people. I think there's a lack of desire for one or two years in a role who've been indoctrinated-

    17. RORory O’Driscoll1:06:45

        Yeah

    18. HSHarry Stebbings1:06:45

        ... who's been indoctrinated enough to think that the world is a certain way with a certain set of tools, and what you actually want is the 18-year-old who's on every subreddit and knows every intro to a TikTok.

11. 1:06:56 – 1:20:54

    The Ultimate Stock Picks: What to Buy and Sell Right Now

    1. HSHarry Stebbings1:06:56

       Totally. Uh, we have to make some public market bets, and I wanted to save some time for this. And soWe have four companies that we need to choose. Jason, would you like to start with your four? And you can give like a minute as an explanation or you can just say them. Up to you.

    2. JLJason Lemkin1:07:14

       Okay, hold on. I, I got a little, uh, confused here. Mine haven't really changed. Mine were Palantir, Cloudflare, Shopify, and CrowdStrike. Okay? A- and I'm-- and the fourth one I'm not sure about. I, I, I, I'm sticking with my three. I'm going with the same. I'm betting on momentum is the only thing that's gonna save us, save us in the age of AI. So I'm betting on Pal- overpriced Palantir, Cloudflare, which is re-accelerating and benefiting from AI, and, and Shopify, uh, which is gaining market share. I actually can't find a fourth from my cohort, but because I made up the bet, I'm gonna go CrowdStrike because I don't think AI is gonna hurt them. But I, I, I would almost go IGV instead of CrowdStrike, but I'm gonna go CrowdStrike. But I can't-- even though I wanna do Atlassian because I think it's above the fold and a good one, it doesn't fit the thesis, so I, I gotta pass. After using Make, I cannot do Figma. I cannot do Figma after Make. This is not a world-class product. So I gotta stick with CrowdStrike.

    3. HSHarry Stebbings1:08:13

       I, I'm sharing you on CrowdStrike, so we have that in common. I'm adding NewBank. I think NewBank's actually dramatically underappreciated. They're gonna enter the US.

    4. JLJason Lemkin1:08:24

       It's a good bet.

    5. HSHarry Stebbings1:08:24

       They've still got, they've still got Davide at the helm. They're growing twenty-eight percent year on year. I think we-- I think NewBank are incredibly solid. Uh, I am going for the incredibly boring Nvidia.

    6. JLJason Lemkin1:08:37

       I think that's a good one.

    7. HSHarry Stebbings1:08:38

       I think, honestly, if we're gonna see inference skyrocket, Nvidia will win. Acquisition of Groq, movement into inference layer. I don't fucking sell Jansen. Great. And then I'm actually gonna go for an out there one of Reddit. It's down forty percent. I think it's a data layer for a lot of the LLMs, and given its pricing, it's a good buy.

    8. JLJason Lemkin1:09:03

       Well, you had a, you had a broader circle than I did.

    9. RORory O’Driscoll1:09:06

       Yeah. A- a- and that's my gripe.

    10. JLJason Lemkin1:09:07

        But that's all good. That's all good.

    11. RORory O’Driscoll1:09:09

        Yeah. And that's my gripe, Harry, because that wasn't the assigned homework.

    12. HSHarry Stebbings1:09:13

        What? What was the assigned homework?

    13. JLJason Lemkin1:09:14

        He's the, he's the, he's the school master.

    14. RORory O’Driscoll1:09:16

        The assigned homework, as I understood it, was a whole bunch of SaaS stocks when software stock-- It was the software is dead, what are you going-- what, which stocks won't be impacted from that or not. That was the te- versus the in the universe of stocks are presumably tech stocks, I don't know. Are we picking anything? Genuine comment here, 'cause I thought the, the intellectual exercise was to say, how do you think-

    15. HSHarry Stebbings1:09:38

        Sorry, what, what, what's the barrier of like what is qualified and what isn't then? Like it has to be a SaaS stock maybe.

    16. RORory O’Driscoll1:09:43

        No, I, totally. I mean, look, if you're saying any tech stock you can do, you probably pile into a bunch of... I mean, yes. Again, there's no-

    17. JLJason Lemkin1:09:50

        I stuck with the narrow homework assignment, but I support Harry's version as well. I don't think it's so far off field.

    18. HSHarry Stebbings1:09:54

        Wait, wait, Jason, what's the narrow homework assignment? Like-

    19. JLJason Lemkin1:09:57

        I thought we were trying to find the gems in, um, beaten down software companies. I think, I think CrowdStrike counts. I think NewBank is not really count, but I'll give you a pass on it, right? Um, I think Nvidia doesn't count, but it's fun. Uh, and I think Reddit probably doesn't count, but it's, it's all good by me.

    20. HSHarry Stebbings1:10:17

        But, but Palantir counts?

    21. JLJason Lemkin1:10:19

        You don't think it's a software company? You're still, you're still-

    22. HSHarry Stebbings1:10:21

        Like I didn't think it's-

    23. JLJason Lemkin1:10:21

        ... debating this pre-IPO company that's a services company?

    24. HSHarry Stebbings1:10:24

        Well, I'm, I'm just like I didn't see why Palantir would count and-

    25. JLJason Lemkin1:10:28

        I'm not saying your choices don't count. I'm just saying most people would put it in the bucket of software stocks, Palantir, and they wouldn't put Nvidia in it. That's all.

    26. RORory O’Driscoll1:10:35

        And there, there's a reason for this. I'm just pushing, look, 'cause I actually think, look, if the question is what should you invest in overall, right? That's a totally legit question and, you know, we, we, we, we can have that discussion sometime, right? I genuinely thought the inter- the exercise here was, yeah, triggered by, you know, software. The, the, the meme was software is dead. Everything went down, and then the question you have to say to yourself is, where do you wanna play betw- you know, like, do you think... Yeah, in the abstract, do you... I think the-- and then that's why Jason's comments were interesting. You had the first question which is in the abstract, which was out- without price, is quote software dead and what's the continuum of software from I don't think it's dead, but I won't grow all the way to I don't think it has a future, to I think it's actually gonna grow just fine. And then second comment is, yeah, you can have your opinions on that, but then you gotta take into account price.

    27. JLJason Lemkin1:11:28

        God, I can't imagine going to the scale partner meetings. We'd be debating this stuff forever. Just get the-- [laughs] Let's just do the thumbs up or thumbs down.

    28. HSHarry Stebbings1:11:36

        Rory, what would yours be?

    29. RORory O’Driscoll1:11:38

        I'll tell you. I think there's-- I think I did the, of the boring ones that have been savaged on a below ten X EBITDA, I think Salesforce at eight or nine X EBITDA and even Team at nine X EBITDA with decent growth is okay, right? I think those are good stocks. For the record, I also bought WorldCloud. I put the full two hundred and fifty K we said we'd bet into WorldCloud the day we bet, and we're about up four percent so far. Nothing major, but nice, right? In a month, in a week. Um, I would also do... So those are company-- And the interesting thing about those are those are squarely in the strike zone of could be replaced by AI, but I don't think they will be. Then the next bucket is I actually think the AI fear is overrate- overdone, and they're kind of in that mid-category of GARP. They're not stupidly priced, and they got decent growth, and I put Toast and Intuit in there because they're software, but with a huge slug of transactions that aren't gonna be replaced by AI, right? And then at the very top, I kinda, and I actually thought Jason raised the most interesting category, which was the high growth companies where I think the AI is gonna kill them story was totally overdone. And the best example of that was CrowdStrike, and the proof that it was totally overdone was by the time we're talking about it two weeks later, it's gotten back almost all the, the, the hit it took on the day, right? So it's been kind of one of those up and then down things, right? So I would in that bucket, however, to, to continue and finalize your thing-I think with more fear, 'cause I'm more afraid of the current high price le- overall than I am of the SaaS apocalypse. I would with fear pick CrowdStrike 'cause you're, you know, you're paying at mid high teens of MTM revenue. I had the re- I think the EBITDA multiple is 50. The growth rate's 23%. That's scary, but it's an enduring company. And, and I wanted to pick two expensive one, the kind of real ex- well, you know, where you're, you're not dealing with... Like, my first two are 8 or 9X EBITDA, boring-ass value. The other two are early teens EBITDA, which is roughly the same as Microsoft and Google, pretty boring, right? And then you've got the high price ones are at 30 and 40 times EBITDA. In other words, they're, they're not cash flow justified, so you're, you're still story-based. And I went CrowdStrike, and then I'd get scared, and then I'd get drawn to Palantir, and I never thought I'd say that 'cause I've been, "No." But the growth rate, they're one more year of growth away from being normalized okay, and yeah, maybe year, a year and a half. In other words, you're forward paying two years, and I think this administration's gonna spend for two years. So I reluctantly, reluctantly put Palantir into that bucket. And so that's kind of where I come out. Two of each.

    30. JLJason Lemkin1:14:27

        Wait, was that seven or four? What were the four?

Episode duration: 1:21:20