Anthropic's $30T Assumption & OpenAI Confirms IPO | Why Customer Service & Robotics are Overinflated

1. 0:00 – 0:57

   Intro

   1. JLJason Lemkin0:00

      9 billion doesn't clear the bar for seed investing in 2026.

   2. RORory O’Driscoll0:03

      Let me tell you one thing I guarantee. If you get 15X on your failures in venture, you'll die a rich man.

   3. HSHarry Stebbings0:09

      Welcome back to another week with the trio. And how NVIDIA are going fast. Then we move to OpenAI, where CFO Sarah Friar says, "Hey, we're definitely going public this year." And then we discuss a really tough week in the public markets for a lot of the biggest AI names.

   4. RORory O’Driscoll0:23

      The VC money ran out on Anthropic and OpenAI long ago, which is why no VC owns more than 1 or 2% of either of them.

   5. JLJason Lemkin0:30

      I think you have to believe we're less than a third of the way through this cycle.

   6. RORory O’Driscoll0:33

      It's all about code. That's the only sentence that matters.

   7. JLJason Lemkin0:36

      Jesus Christ, if 30% of my company leaves to go work for Harvey, I'm dead in the water.

   8. RORory O’Driscoll0:40

      Silicon Valley forgets every three years that the average American is not trying to be efficient.

   9. HSHarry Stebbings0:45

      Ready to go? [upbeat music]

2. 0:57 – 7:30

   NVIDIA’s $6BN Poolside Deal and the Capital Wall in AI

   1. HSHarry Stebbings0:57

      Guys, I am so excited for this. It's so nice to be back. I feel, like, locked in when I'm in the studio. I have my big table, I have the agenda, and we're gonna start with NVIDIA moving across different layers of the stack. And we're gonna start with the model layer, where NVIDIA is paying $6 billion to license Poolside's model factory and investing a billion dollars more at a $12 billion pre-money valuation, moving 109 engineers over to Nemotron to help build it. Pretty big news, especially on the American open model front.

   2. JLJason Lemkin1:31

      So there's a lot here. I'd, I'd love to hear your guys' thoughts. But man, the one that gave me the feels or that hit me was that letter that was, um, you know, the, the investor letter that was published on X. Thanks, Leak- Leaking VC or whomever it was, but basically saying, you know, we, we couldn't raise the 2 billion to buy 40,000 GPUs. We couldn't-- That deal that maybe we talked about half a year ago, it seemed like they were gonna build their own, um, massive data center. They couldn't get the money, um, and they wouldn't have compute going to next year, so they had no choice but to fail up for 6 billion, plus topping off a billion to 12 billion. But it read, it read almost depressing. Uh, and, um, it's also maybe a reminder that despite NVIDIA seemingly funding everyone on planet Earth, that, you know, the, the gravy train, the VC gravy train can only last so long. There's only so much funding, right, from big funds. Maybe Rory sees it differently, but it seemed like, uh, uh, tough. They couldn't ra- they couldn't raise the 2 billion in, in this environment. Not being critical, but it just showed that, uh, infinite capitalism is infinite it looks even in the age of AI.

   3. RORory O’Driscoll2:31

      The facts are correct. I, I thought it-- First of all, I thought it was an excellent letter. I mean, I read it and I reread it, and there were some really good phrases in there. One of them I want to pick up, and it said, "You know, we have found ourselves on the right side of prediction in a market which has scaled exponentially in terms of capital intensity," which is nicely-- What they're basically saying is, "We were right three years ago that there was a market for a new US open source model, and we've built that model. We've done everything we said we'd do, and the capital intensity for the next turn of the model crank is just, as you said, way beyond us," right? So i- nicely phrased, right? And so, so a couple of things here. You could look at that and go, I mean, you could look at that and go, "Oh, they w- they did something that... They took on a task they weren't able to do with the capital. Oh, that's a negative." On the other hand, they made money for themselves and all their shareholders. And I think the lesson here is, and we talked about it last week, in a market that's exploding, sometimes bets that on a standalone basis really just can't get to a positive DCF, you know, they just couldn't make the math work on a standalone basis, still have pretty significant value to the acquirer. 'Cause from the perspective of NVIDIA, they looked at exactly the same facts and said, "Well, you know, we have capital. Turns out we have access to GPU because we make GPU, right? And you've kind of carried the ball down the field this far. We'll take it from here. And frankly, we'll give you a pretty compelling return." I mean, I know you're a small Poolside shareholder, Harry. So all those guys made really good money, and the company gets to go standalone and continue on. So I, I, I thought the lesson here is, you're right, Jason. In one kind of negative way, the lesson is it's almost impossible to compete now at the frontier. And by the way, that has positive implications for OpenAI and Anthropic we should talk about in a second. So the negative lesson for everyone else is it is almost the s- the next smartest people who are really going for it just hit the Capital Wall, so probably all the other people behind them are gonna hit the same wall, right? That's the negative implication. And the positive implication is sometimes trying and moving the ball in a hyper-growth market, you can still get a very compelling acquisition, right? You know, in a different market, if this-- if you'd run out, quote unquote, "run out of money," if you had reached the next generation where you can no longer finance the company in a time when the capital markets were depressed or there was some feeling that the overall, you know, overall kind of buoy around equity, or sorry, around AI wasn't as strong, you might have had a very different outcome there, 'cause your fate was outside your control, right? But I think in this market, it pays to take risks. It's what we were talking about last week in Cursor, and I'm sorry if I'm rambling a little. Even when you have this kind of, oh, on a DCF MBA basis, it's not quite great, it turns out if you're moving in the right direction and you execute and build a product that's valuable, right now you're getting great exits. And I think there's gonna be a ton more-- I think I said last week, there's gonna be a ton more of these kind of exits, and we'll be talking about them. So yeah, I was, I was kind of-- I read that and I thought, hmm, as an investor, if all the time you're saying is you-- sometimes doing things where there is a fair amount of capital raising risk can still pay off in a nut market. In a very different market, it wouldn't have, but here it did.

   4. HSHarry Stebbings5:37

      I mean, the additions that I'd have is, like, unwaveringly a common thing that I see across all investors that I engage with, friends, people we have on the show-

   5. RORory O’Driscoll5:45

      Yeah

   6. HSHarry Stebbings5:45

      ... is, like, Neo Labs just going out of favor, and next generation model providers and companies going out of favor too. And I'm not surprised that Poolside found it challenging to raise as much as they did. That's universal from everyone that I speak to. Second, founders are gonna make a billion each.

   7. JLJason Lemkin6:00

      It's a lot. And then third is that for me as an ambassador, I don't know if I'm allowed to say this, but I get in trouble whatever I say these days, so fuck it. You know, it'll be like a 15x for us as a seed ambassador. It's pretty great

   8. RORory O’Driscoll6:12

      Absolutely. Pretty amazing. I think I was very on crisp a few minutes ago, trying... When you're in the direction of travel, even when you're wrong, you can make a ton of money because you've moved, you know, be- because you've created something of value to the acquirer. Different market could have been a very different outcome.

   9. JLJason Lemkin6:28

      Does this really move the needle for NVIDIA in their ability to make Nemotron truly competitive?

   10. RORory O’Driscoll6:34

       Well, there's two questions within that. One, and I'm sorry for beating about. One is, does this, is, is this additive to Nemotron? And then the second question is, does Nemotron, even Nemotron, even if it is competitive, does it move the needle? But if you zoom out a level, right now there's a whole bunch of Chinese open source models that are getting a lot of the token volume, which means they're doing a lot of the compute, even if they're not getting a lot of the margin, right? And if I'm the maker of compute, if I can get an open... It's awesome for NVIDIA if there's a viable US open source model running on NVIDIA chips, taking market share away from the frontier models at the margin. So I totally get why they're doing this. This, this is, you know... An open source model is a complement in the economic sense of the word for NVIDIA, 'cause the more open source market share there is, the more money goes to chips relative to the money that goes to, uh, foundation model builders. So they're like, "Yay, team."

3. 7:30 – 13:17

   Is a 15x Return Enough for Seed Investors?

   1. JLJason Lemkin7:30

      I don't think 15x is good enough for a seed investor in Poolside, if that's the number. I... If, if... Listen, first of all, let's step back. Seed has a weird definition today. Seeds could be at a billion or two billion pre or post, right? Um, uh, but, but not to get off track, but just go 20... I, I, you know, 15x sounds good for a later stage investor and, and I know for sc- at scales scale, that's a good outcome, right? But for a true seed investor, it's not gonna, you're not gonna get a fund return out of a 15x. Listen, if you're a personal investor, it's fine, but if you've got a seed fund and you, and you're investing, it... Just a reminder, if you're investing at some of these valuations, it, it may not be enough. You need your... You're not gonna get your 50 or 100x out of, out of 9 billion.

   2. RORory O’Driscoll8:11

      But J- but Jason, play it back. I h- I hear your math. But what we're really saying is, you made a bet and it didn't work. It was not viable, and you still made a 15x, right? My point is-

   3. JLJason Lemkin8:23

      No, I'm saying 9 billion isn't enough of an exit for seed investments today

   4. RORory O’Driscoll8:26

      It is enough of an exit, but the point... I, I agree, but-

   5. JLJason Lemkin8:28

      It's not enough [laughs] . 9 billion doesn't clear the bar for seed investing in 2026. That's the ir- that's the irony.

   6. RORory O’Driscoll8:35

      So there's, there's two things in that, I'm gonna push on it, 'cause, 'cause I often use it as a way to refine my own thing. One, it is weird that you can have an exit at 9 billion and only make 15 times your money, which by definition would imply a 600 million pre-money, right? So yes, it turns out if you do a seed deal at 600, not 60, your return is th- on a nine-

   7. JLJason Lemkin8:53

      Well, also the dilution is epic these days too, right?

   8. RORory O’Driscoll8:56

      But my point, um, effectively, it's what your point. It's ex post facto. Ex post facto the price was s- the effective price was 600 because you took all the dilution. You're exactly right. Jason, I'm, I'm gonna go back to, is 15x a great return on your best deal for a seed fund? No. But if you're doing a series of bets, one of them is a, "Hey, I built, I think I can build an American open source model," and you can raise enough capital to do it, and it turns out that thesis is not correct. You can't raise capital to meet the capital intensity, and you still get a 15x. Let me tell you one thing I guarantee. If you get 15x on your failures in venture, you'll die a rich man, right?

   9. JLJason Lemkin9:38

      No, no, no.

   10. RORory O’Driscoll9:38

       And that's what's happening here.

   11. JLJason Lemkin9:39

       Of course.

   12. RORory O’Driscoll9:39

       And I don't like calling it a failure, 'cause I know Jason. I think they're awesome. I actually love the letter they wrote. I love the kind of vision they talked about, what they wanna do in terms of open source. I think they just ran into economic reality of, you know, the capital intent. And remember we say the VCs, the VC money ran out. The VC money ran out on Anthropic and OpenAI long ago, which is why no VC owns more than 1% or 2% of either of them, right? The big mon- the only people capable of fina- let's put it here. The only people capable of financing a state-of-the-art frontier model in the United States of America has been the hyperscalers themselves. The only reason Anthropic and OpenAI exist is 'cause Microsoft, Google, and Amazon gave them enough money to play, 'cause no one else on the planet has enough money. And the only other person who now has enough money is NVIDIA, so they're doing the same thing with an open source model for the obvious reason that open source is good for them, right? [laughs] Everyone, there are only four or five companies in the world that can finance a foundational model and, and they are doing it. And, and V- w- the VCs have been along for the ride and to provide an occasional piece of pricing discipline, right? These are financed by the five largest companies on the planet, except for Apple, who sticks the money in their pocket and just has the stock go up.

   13. JLJason Lemkin10:54

       Look, we don't have to spend much more time on it. It's just, I guess obviously if you can get 15x out of your, uh, Poolside of course was not a failure. It's a big win, right? But if you get 15x out of your failures, you're gonna be a wildly successful investor. Just the only point, and then let's move on, is it's just interesting. I do think un- unless it's a hyper-concentrated investment, your best investments still need to do 50x as a seed investor to make the math work. So just if Pool- if Pool- if Poolside returned 15x with further dilution, what exit price would it have to be to be a good seed investment, right? To return 50x. Help me do the math, Rory. I think it's, [laughs] I think it's about 7x. So it nee- it would need to exit at about 63 billion with dilution-

   14. RORory O’Driscoll11:34

       If you think about it, Jason, the answer to the question is actually very noble, right?

   15. JLJason Lemkin11:38

       Yeah.

   16. RORory O’Driscoll11:38

       You're playing in the foundation model f- uh, you're playing in the frontier model game. The two winners in that game in closed source are both worth a trillion. The two or three kind of ostensible open weight winners in China are each, what, 50 to 100 billion. So it was a rational act. The win, if you could have done it, was in fact large enough to be a... You could have had 100:1 return on a seed investment if you'd been able to be Possibly if you'd been able to be equivalent to the Chinese open source players, and definitely if you'd been a winner like OpenAI or Anthropic. So my point is this, the potential was there for that bet, which is why X... You know, at the time it was a rational bet, and then the capital markets were such that you couldn't get it, and you still got a 15X. That's the movie. So it was a good bet because it had-- it was one of the few businesses on the world. I mean, there's only gonna be one or two trillion dollar outcomes per decade, and they're likely gonna be all concentrated for now in, you know, frontier models, and this was a play at a frontier model. And basically, the aha is if first prize is a trillion dollars, turns out fifth prize is still nine billion. It's like the guys... You know, in golf on the last day when you don't win, you miss a few putts, you don't even come in second in the US Open. You come in seventh, and everyone goes, "Oh, poor you." And then you think to yourself, "Well, it's five million bucks. I'll take it. On to next week." That's what happened here. You basically placed, you know, high, but not in the top three in the US Open, and you get a bunch of money.

   17. JLJason Lemkin13:06

       I land in the bunker and I don't get out, so [laughs] I don't-

   18. RORory O’Driscoll13:10

       No, you landed in the bunker and you chipped out. You got out. You got out. You took two extra shots, but you, you, you... Remember, this is a win.

   19. JLJason Lemkin13:16

       Jo- Jason,

4. 13:17 – 20:10

   Why NVIDIA Is Investing in Mercor at $20BN

   1. JLJason Lemkin13:17

      you said how big does it have to be? Next layer that NVIDIA's in talks to be playing heavily into is Mercor's new funding round. Uh, I'm an investor in Mercor. I never thought this would be as big as it has got, as quickly as h- as it has done. It's crossed now two, two and a half billion ARR. Um, they're doing a new round led by General Catalyst at $20 billion. And then there's rumors, suggestions, reports that NVIDIA is joining that round in a significant way. How do we think about this next layer of the stack for NVIDIA?

   2. RORory O’Driscoll13:51

      I think one of the things we saw with Intel back in the... The closer you are to having 100% market share, the, the more you spend your time trying to move the whole ecosystem along, and clearly that's where NVIDIA is now. It's-- they're using their capital to, you know, fund the neoclouds, fund OpenAI, fund, as we just discussed, Poolside, and for s- whatever reason, also fund Mercor. I will admit, when I think about all the things that NVIDIA should be doing with its money, it wasn't obvious to me that funding Mercor made as much sense as some of the other bets. Because the other bets are all about TAM expansion. If I fund the neocloud, they can buy more chips. I'm happy. If I fund Poolside, I can sell more open source. I'm happy. I don't get why if I fund Mercor they can do more training. But my-- probably my... Un- unless there's some kind of strategic deal around needing that training information, from a purely financial perspective, it doesn't directly lead to more chips being sold. So it wasn't as obvious to me as the others. And maybe it is as simple as we think it's a good business at $20 billion and stop thinking about it, Rory.

   3. JLJason Lemkin14:57

      There's an investment bank called Croll. I'm embarrassed to say I don't even know them. Do you know them?

   4. RORory O’Driscoll15:01

      No, I thought they were a detective agency.

   5. JLJason Lemkin15:03

      No, a different one. They published a bunch of-- They published their report this week looking at all M&A and big transactions over the last, uh, six months of the year, and I guess this is not that, uh, just, just... it's a micro point to your point. But the, but the, the analysis they basically made is gross margins above 30% don't matter anymore. You don't get a, you don't get any benefit in M&A or other exits, like, for, for an agentic stock. They're not looking. The-- We've, we're-- Like, there is a penalty if you look at all deals below 30, but there is no penalty. So, you know, i- if you can value Mercor at, at eight classic multiples for 80% gross margins and growing, it's, uh, you know, it's, it's not expensive. Um, I don't know why NVIDIA would do it per se, but it seems like NVIDIA's tact... They've got a lot-- They've got massive strategic goals here, right? But the tactical basically kind of seems to me, we'll spend all our free cash flow on our ecosystem.

   6. RORory O’Driscoll15:53

      Yeah.

   7. JLJason Lemkin15:53

      Right? Now, with that, this is our budget. Jensen says there's a budget. Our free ca- I don't know what it's gonna be, $70 billion this year. Maybe I've gotten that wrong, right? And we're gonna spend it all on our customers and ecosystem. And the team, the str- the strat team and the, and the top VPs probably get around a room and they decide, "What's our best ideas?" And there's some guy that, that, that, that thinks data labeling [laughs] is important, and his best idea was Mercor. And so they put a few billion of the $75 billion. You think I'm kidding, but I'm confident they go around the room and everyone has their best ideas, and the budget's $75 billion. And, you know, OpenAI and friends are gonna get a big chunk of it, and there's gonna be off-balance-sheet guarantees. But I think they've decided to just spend it all one for one, and it... I, I would do the same. If you can get away with it, you know, adding cash to the balance sheet other than, uh, being defensive does nothing for you as a CEO of a profitable company, right? If Wall Street lets you get away with spending it, I would spend 100% of my cash too.

   8. RORory O’Driscoll16:47

      Uh, uh, first of all, I think you're totally right, Jason. It is as simple as that. It's like, you know, 'cause... And the g- By the way, NVIDIA will have reported between the time we make this video and the time we dispri- distribute it on Thursday. So there could be a data point that makes us to- like, total buffoons by Thursday, and that's just life, right? But on the basic assumption that the trend continues apace, which I think it does, which is, you know, strong growing quarters. You know, it was 60% or 70% up last quarter and similar quarter last year. Widely profitable, 'cause the demand signals are still strong from the hyperscalers. Let's assume on Thursday the hypothesis as of Tuesday continues correct. Then Jason, you're right. They're kicking off. I mean, I just looked at it. You know, they make huge operating margins. Um, you know, it's like, it's like y- 34- I mean, one out of 100 billion of gross cash flow, and then you have... They do a lot of buybacks. We'll talk about that in a second. So they have yongs of money to invest every year, right? And you're right, they just make a list of, what can we do to move the ecosystem along, right? Now, I make two negative comments on that. You know, one-- two comments on that. One is it's worth remembering that only four years ago their cash flow was 10 at-- was 1/10 of what it is today, right? They were making, you know... And I think the free cash flow after CapEx and everything is something like... And I think some of the CapEx is really investments, so it's a little misleading. It's kind of gone from $4 billion to $50 billion, right? Um, you know, the gross profitability is well over 100. It's wildly profitable. But, you know, you say to yourself And you do, you are Jason, you get no points for cash on the balance sheet, but they only have only 50 billion of cash on the balance sheet, right? Cash and investments. There's a little part of me that says, "I might keep more for a rainy day," [laughs] right, than just doing share buybacks. But I agree, you do have to do something with it, and they're clearly... The, the best use for it is to spend the money with people who will in turn enhance the ecosystem, which is why, you know, which is why OpenAI gets a big wad of their money all the time.

   9. JLJason Lemkin18:44

      If you invest right, um, it's brilliant. You get a customer, you get rev- you get... Not only do you get circular revenue, but you, but you ensure the success of your ecosystem, the viability. You get a twofer out of it. So you just have to play the game really well. But if, if you play the game well, it's a lot better than making 3%.

   10. RORory O’Driscoll19:00

       You know, it's interesting, they're doing such a lot. I mean, thinking in real time here, 'cause the Poolside acquisition is TAM expansion via buying an adjacent product. The Mercor acquisition is, I think, as you say, Jason, straight investing.

   11. JLJason Lemkin19:14

       Investing, yeah.

   12. RORory O’Driscoll19:14

       It's kind of just, "Hey, it's a related space. We know something, here's some money." And then something like Perplexity investment or OpenAI investment is literally, especially the OpenAI, is vendor financing, where you as the vendor of the chips are choosing to give your customer money, right? Anyway, that's h- it's not like that's a nefarious... I mean, because a lot of, "Oh, my God, it's circular." It's not like that's nefarious. It's just exactly what you said, Jason, you got to get it right. If you overextend credit and underwrite projections that aren't realistic, that stuff comes back to you, and you look like an idiot in two years. And we all remember the telecom crash in 2000... Well, we don't all remember, but some of us remember the telecom crash in '02, where all those '99 deals unwound. And, and the bet that NVIDIA is taking here is it's not gonna happen this time. You know, you're not gonna find that the OpenAIs and the Anthropics don't sudden- you know, if they don't suddenly need $100 billion worth of compute, you might regret some of this vendor financing, but right now it looks smart.

5. 20:10 – 25:29

   How Big Can AI Data Companies Become?

   1. HSHarry Stebbings20:10

      Think it's a good investment. I consistently regret not putting more money in over time. I think your largest data providers will be $200 billion companies. If you think about OpenAI and Anthropic being $2 to $5 trillion businesses, is it crazy to think that the data provider that provides them their core data assets will be a, a 10% of their market cap? I don't think so.

   2. RORory O’Driscoll20:30

      I don't know. I don't know. I mean, I think you have to think about it in terms of revenue rather than market cap, and then you start saying to yourself, you know, "What's the training budget for the frontier models at scale if they're doing..." You know, like, I mean, watch this. And I, I, I... Let me give you the negative math. We know that, um, you know, OpenAI is running at a 18 billion H1s, call it 25 billion, 30 billion a year. Anthropic's at a 60 billion a year. Together, let's call it 100 billion, round up, right? You know, most of that spend goes on, half of that spend goes on compute and inference. What's the training budget? Is it 10% of revenue? Is it 5% of revenue? It's a... Yeah, it's a $5 to $10 billion market, right?

   3. HSHarry Stebbings21:12

      Way more. Way more. You've got Surge... Oh, I know it's way more, 'cause Surge are doing three, three and a half. Mercor are doing two and a half. Handshake are doing one. Micro, one are doing half. I can-

   4. RORory O’Driscoll21:24

      But the question... You- you're right. So my point is, uh, so it's predicated on con- I- i- if that 100 billion of spend this year goes to 4 or 500 billion, then you're right, then 5% of that is 25 billion, divided four or five ways. I don't think you get 10% of the market cap of the frontier models, but you still get a healthy 20 billion a year revenue spend. Divide that up three ways and then, as Jason said, it actually turns out the most important question is the one Jason asked, which is, what multiple do you attach to that? Do you attach the AI multiple or do you attach the lower gross margin multiple? That's really what will swing it.

   5. HSHarry Stebbings21:58

      The AI multiple piece.

   6. JLJason Lemkin21:59

      Yeah, the, the related thing I was thinking on that Crow data, you know, if you go back to Cursor, right, uh, 60 billion we talked about last week, th- this was one of the classic ones where the VCI- VCisms were right. It worked itself out. You started off with something with negative gross margins. You started off with something that radically subsidized its cost. I forget what Cursor cost initially, 200 bucks a month for unlimited use, right? But it didn't have, but it didn't, it had no way to defend that, right? And so then it had to cap it for, and then it had to stop doing it, and then it had to develop its own o- models, and then it had to do, it had to do... And it-- But the VCism is these are, these are some of the smartest kids ever. They have a strong market position. The wind is at their sails. They'll f- the kids will figure it out, the negative gross margins. And more or less they did, and they got to the 60 billion. And so it's kind of freeing for models like Mercor that we maybe ma- we made fun of, right? Okay, this is a, a commodity low margin business. Um, but the kids will fi- the kids are figuring it out, man. The kids are figuring it out. So guns a-blazing. [laughs]

   7. RORory O’Driscoll22:58

      Yeah, no, I, I, I, I think though there is a bit of survivor... First of all, I agree with you, and I think it gets to the, when there's a venture investor, you're doing in some- you're investing in something that has troubling gross margins, it is rational to say for certain bets, the gross margins will show up, wi- will, will come right over time, and you add Cursor as an example of that. Just in, in the interest of completeness, I don't know why I'm the Debbie Downer today, like, not every negative gross margin company makes it. And in the end, I think you want, um, strong gross margin companies are the best investments. So don't, don't, don't just look at the sample of deals where you started with negative gross margin and it all worked. I can think of plenty of deals, including some we've done, where you started with shitty gross margins, and you ended with shitty gross margins, and you were just wrong, right? I think, Jason, to your point, the thing is, having negative gross margins is not a reason, clearly not a reason not to do a deal. I mean, if, if every part of the financials were pristine, they wouldn't need venture capital because they'd be profitable, right? It's a question of, in which cases is it rational to underwrite massive improvement? And it has been for the foundation models themselves. I mean, Anthropic went from negative 91 to positive 30 in a year. It has been, as you say, Jason, for Cursor. It'd be interesting to see what the sustaining long-term margins for something like Mercor are. I don't know if they have the same dynamics in terms of the ability to approve those margins that, say, Cursor did, 'cause m- the training companies only have three to five big customers Whereas the Cursor has literally hundreds of thousands. So I'm not as convinced those margins go as well as the Cursor ones, but you're right, the Cursor, Cursor beat the margin trap

   8. JLJason Lemkin24:34

      And Rory, and as I tell my partners and, and subordinates on Monday meetings, what if it all goes well? What if it all goes better-

   9. RORory O’Driscoll24:40

      I agree

   10. JLJason Lemkin24:40

       ... than we expected? What if it all goes ri- And I challenge my team, what if it all goes right, guys? That's how we think about it. And the, the entry price for any of these winners doesn't matter. What if it all goes, what if it all goes right, guys? That's, and I've coined that term, and I've noticed many, many of my colleagues in the industry have copied it. What if it all goes right? You know what I mean?

   11. RORory O’Driscoll24:59

       No, I love it.

   12. HSHarry Stebbings25:00

       Goes back to the optimists make money and pessimists are right-

   13. RORory O’Driscoll25:03

       Yeah

   14. HSHarry Stebbings25:03

       ... we often say. [laughs]

   15. RORory O’Driscoll25:04

       And I s- and the only reason I say it is 'cause I admit that I can be naturally a pessimist, so I actually th- I, I'm trying to learn to retrain the model to do that more. And Jason, I love the sentence and what if it all goes right, and [laughs] the interesting thing-

   16. JLJason Lemkin25:15

       I'm the first to have said it. [laughs]

   17. RORory O’Driscoll25:16

       The, I know. Um, I know that of course. But the ancillary point, interesting going back to Poolside, is it turns out even what if it all doesn't quite go right, but you're in a great market, it turns out that can be okay too.

6. 25:29 – 29:20

   OpenAI Confirms Its 2027 IPO

   1. HSHarry Stebbings25:29

      If enough goes right, you can all do fine. There's been a lot of cynicism, skepticism around Arvind Srinivas and Perplexity. It's a company that actually people like to dislike for whatever reason. We've done shows with him. Uh, we're a small investor in the company, [laughs] so NVIDIA's actually propping up most of my portfolios too. [laughs]

   2. RORory O’Driscoll25:47

      Mercor earlier this week. Yeah.

   3. HSHarry Stebbings25:48

      Thank you. Uh, our friends at OpenAI, never a dull day at OpenAI. Uh, CFO Sarah Friar told employees at OpenAI, "We will be a public company in 2027." Um, this is when kind of AI trades cracked. It's, um, I don't know if it's interesting timing. It's kind of what we expected, to be quite honest. They've got pressure on them from Anthropic, who obviously are going public in reportedly the next few months. Um, is there anything surprising here about Sarah Friar's statement to the team?

   4. RORory O’Driscoll26:18

      I think they had no choice but to make those statements, and I'll tell you why. Because if you look at Q1 and Q2 for them, I, I, now I can't remember, it's like five point something billion to six point something billion, which was a Q1Q growth rate of 18%, which would have turned into an annualized growth rate of, yeah, on- slightly under 100 depending on compounding, and it would've mean that would, they went from 12 and a half billion last year of GAAP revenue to roughly, uh, probably under 30 this year, right? And if that was, if that Q2 number was sustained, it would put them, obviously, A, it would put them so far behind Anthropic at 60 billion runway mid-year. And again, we haven't seen GAAP numbers for Anthropic, but clearly bigger and clearly growing faster, right? That, A, it would be terribly bad for OpenAI and kind of how... Because anyone would run that math and go, "Ooh, two more years of this and you're in irrelevance. You're Perplexity too," right? And then the second thing that didn't happen, but if, would happen, is all those people like Broadcom, NVIDIA, that were expecting to sell $200 billion worth of chips to OpenAI might suddenly go, "Hmm, maybe if they're not growing quickly, they won't need $200 billion worth of chips." So if, if all you had was the Q- H1 numbers, that was a conclusion you could draw. I'm not saying it'd be correct. So if in fact OpenAI is massively accelerating in early Q3, they had no choice but to share that information with the world, 'cause otherwise everyone would assume the worst. What they're not gonna do is sit on their thumbs and say, "Well, I'll give you a Q3 update in three months. Meanwhile, you should just sweat it out," right? So I really detected a very concerted attempt to tell a Q2 is an anomaly, Q3 is exploding story. You could see it in the comments that they made to their internal team, you can see it in the stuff that's coming out, and there's been a whole, you know, massive re-acceleration story. And again, I know nothing except w- until you see it in GAAP numbers, it's hard to be sure on it. But to me, the, the reason for pushing that agenda was you had no choice, 'cause otherwise you were just gonna be left behind. If you're growing 2X, it's amazing. It's a, growing 2X at 12 billion is amazing. But if your competitor is growing 10X or 8X at 60 billion, you know, you're staring at s- you know, relative market share of 20 or 30% in two years if that continues. So there was simply no way the Q2 trend could stand unchallenged and still leave OpenAI as a credible close number two, which is where they are now, to Anthropic. That's why it leaked, because it's existential for them. I mean, I was stunned when I saw the 18% GAAP revenue numbers, 'cause I, I go back to my comment. At one level, hugely imp- if I had a company growing [laughs] 18% Q1Q, doubling the year at, forget it, at one tenth that size, two and a half, I'd be ecstatic. But that level of growth relative to expectations would have disappointed massively everyone, including all the people planning to sell to them, chips to them, for a much higher growth rate.

7. 29:20 – 36:00

   Has Anthropic Overtaken OpenAI?

   1. HSHarry Stebbings29:20

      What price does it go out at? If Anthropic goes out at 2 trillion, what price does Anthropic, uh, does OpenAI go out at?

   2. RORory O’Driscoll29:27

      I have no clue, Harry. But the most important point you have to say is this: It will be lower than the other guys now. I mean, at, at the high level in terms of report card, you know, there's a concept in math, I can't remember what it is, where you, where you can't do accurate grading, but you can rank things, right? The rank, the, the most, the, the big picture fact is the ranking has changed, and you're now number two, so you will go out later then at a lower price than the other guys, unless you change the trajectory massively. What that is, I don't know.

   3. JLJason Lemkin29:57

      I just think it'll be interesting the rest of the year, by the end of the year, to see where OpenAI is positioned in the platform, the enterprise versus Anthropic. Because at the beginning of the year, there were two choices, right? There was Anthropic and OpenAI for the most part, and you w- you had a default choice, and then, uh, peop- but, but, but people wanted to be, to have multi-models. They wanted to have at least two, b- but you'd often use the cheaper version. You might use Sonnet and Opus or whatever it was. Now peop- we, we definitely want different LLMs. Everyone wants multiple LLMs in their stack, one way or the other. But i- if Anthropic is number one in platform, which it clearly is, you can't argue with the numbers per Rory's point- Now the number two could be, it could be, there could be, there's five choices. So OpenAI position in a sense, and we'll see. There's so much change, guys. But it could be at, no matter what the numbers are, it could be getting perpetually weaker because there's so many choices for number two. There's so many choices. There's so many open weight models where the performance is close. And, um, obviously we've talked about OpenRouter, we've talked about other routers. You can use 78 models if you want, but, um, it's, um, you know, it's, it's, it's tough when there's seven choices for number two. It's just tougher. It's just tougher, right? Especially if you're a premium product, right?

   4. HSHarry Stebbings31:18

      And you were saying then the material impact on the EV of OpenAI then is considerably less because of the-

   5. JLJason Lemkin31:24

      I think there's more pressure on them be- I mean, s- uh, for, for, for merely bec- by being number two, there's more pressure on you from, from open weights and open source competitors than there, than there was otherwise. You're just battling out for that second spot. And, and you're, you can't compete on price, and you can compete on brand and security, but man, uh, you wanna just, you wanna at least be the d- be plugged into, to every workflow, right? You wanna at least have... But that would be the nice thing if you had Claude and OpenAI, and then, and then you just get a nice oligopical bake-off, right? Um, sales team. Then you hire a bunch of folks from Salesforce that walk in for the oligopical thing, and they put up a PowerPoint slide, and it's just us versus them. They know how to sell that. It's Anthropic versus us. You don't want the, the crazy guy who, who, uh, who, who, who, uh, who, uh, you want the guy the government trusts. That's us. Um, but with 11 competitors or 12 competitors running on open source, running, running, running inference on, on new platforms, man, it's just, it's a hyper-competitive world for number two.

   6. RORory O’Driscoll32:20

      Going back to the ques- 'cause I, I mean, I, I, I think that even if they are number two, I don't think they get pushed into that, you know, compared with all the open source things. I don't think it's quite as dire as that. But I do agree, you're right, there was a push from underneath from that. But I think to your question on what quote, unquote-

   7. HSHarry Stebbings32:36

      Rory, Rory, Rory, Rory, sorry, ju- just to interrupt, just going on that. Do you not, when Vercel, you know, obviously opened their data, 68% open weights increasing, I mean, it shows the tidal wave moving towards what Jason's saying, no?

   8. RORory O’Driscoll32:51

      Agreed. I s- yes, I think that the vast predominance of tokens processed will be open weight, and obviously, as people, we're reiterating, the vast majority of revenue, the significant majority of revenue will still be frontier state-of-the-art, 'cause it can command more value than just the price of inference, right? So, yeah. And so I suppose at some level, Jason is correct, because if there's five or six, and I don't see them as being peers, but I think if there's five or six open weight companies dragging down everyone's gross, you're basically trying to steal gross margin away from the closed, um, frontier models, especially if one of those op- reminder, if one of those open weight companies is now funded by NVIDIA, so it gets rid of all the, "Oh, they're all Chinese" comments, right? Jason is right. In a situation where a low-cost competitor with nearly equivalent functionality is attempting to enter your industry, you would far prefer to be number one than number two. 'Cause number one can say, "You gotta just buy us 'cause we're number one." But you're right, Jason, number two has to say, "Please buy us as well and don't buy the cheaper guys." So I, I'm, I'm recanting my position and agreeing with Jason, right? It, it would be okay, bad enough to be number two in an industry you invented, [laughs] right, which is where they are now. But to be number two with a whole bunch of ankle biters on top that you have to deal with, that's a total pain in the ass, right? Which gets back to your question, Harry. I will answer your question on what price do they go out in 2027. I actually can answer it. They'll go out whatever price they get in '27, 'cause they can't wait any longer. It's as simple as that, right? If Anthropic goes out this year at the scale they're talking about now, then I can't imagine a world where OpenAI says, "We're gonna hunker down and get the cash flow," right? And then we'll go out in 2028. They have to go out. So to some extent, again, it's a destiny outside your control comment, right? If, if Anthropic trades at two, then they might get one and a half. If Anthropic trades at one, they might get 700. But they'll do what they have to do, right? And I mean, there's a great quote in, uh, what was it? Come on. The, the book. The, the, the, The Storm. Sebastian Junger's book, The Storm, right? Super book. But when the guys finally realize they're gonna die at sea, right? And it says something like, "If danger can be described as the absence of choice, they were now in danger," right? And I think for OpenAI, what you're seeing here is the absence of choice is starting to pile up. The other guys are ahead, the other guys are profitable. You know, correctly, the CFO says they're not gonna write the only narrative, but to some extent, your narrative is getting written. You've gotta get profitable 'cause the other guys are profitable. You gotta get public 'cause the other guys are profitable. So they are less... They have less options than they did a year ago by a lot, and that will translate as, in 2027, we're gonna go public, and if the markets are slightly down in this year, we'll take our medicine and keep moving. So that's what I think.

   9. HSHarry Stebbings35:42

      Don't you love that book, The Storm, Jason? I, I loved it. My, my favorite. One of the favorites.

   10. RORory O’Driscoll35:47

       It was a great book. Super writer. Kind of sad, obviously, but wow. Yeah. That's, that line always stuck with me. Absence of choices, that's how you know you're in danger.

   11. JLJason Lemkin35:56

       I think, listen, we can move on to the next topic. I, the other thing, when I, when I'm listening to Rory in the IPO,

8. 36:00 – 38:14

   What Is OpenAI’s Differentiated Mission Today?

   1. JLJason Lemkin36:00

      the other thing, maybe it's minor and we can move on, but I, I'm getting confused today what OpenAI's differentiated mission is. Like, why OpenAI, right? I mean, we can all look at evals and we can read what Ramp says and what Rippling's report says, and we can view this as a, just an LLM, right? Uh, paying top of market, right? Paying eight figures per engineer. But the, there, there, these, these were companies on, on very specific missions, right? When we started this pod. I don't know what OpenAI's mission is, right? Uh, I, I think Dario is, is nutso a lot of the time, right? Now, apparently interviewing folks today, asking them if they'd be happy joining Anthropic if it all went to zero, right? Uh, I mean, cool question actually, but, but nutso. Um, I think Sam is a much more approachable CEO now. He got through all the, the, the Sam Altman crap and, and he's got the sweaters out and, uh, he's the more likable guy. But I don't know what, what is, what is the differentiated mission of OpenAI today that I would rally around as an employee, as a shareholder, or is it just a piece of, just a piece of infrastructure plus some software? Like, I just don't know what is special about the mission vis-à-vis Anthropic or now all these strong competitors. I just don't know. Or is it just an eval? Is it just three lines on an eval? I, I honestly don't know. And these have been very mission-based organizations from inception, right? The most we've ever seen in our lifetimes, right? These mission, these crazy missions.

   2. HSHarry Stebbings37:26

      For me, the, the astonishing thing is the consumer brand that ChatGPT has and the penetration it has in audiences that no other LLM has, to most of actual the general population in large majorities of the world-

   3. JLJason Lemkin37:41

      It is AI

   4. HSHarry Stebbings37:41

      ... AI, AI is ChatGPT. I am in awe that Sam is not going, "We are the next Google. Our business is gonna be advertising," and we're gonna see Jevons paradox like never before when we have a consumer hardware device that actually partners with consumers and you see usage [audio glitches]

   5. JLJason Lemkin38:02

      But that was the plan. He just got outraced. That's it. He just got lapped.

   6. HSHarry Stebbings38:06

      No, no, no.

   7. JLJason Lemkin38:06

      It was a good plan. It w- And Sora was in it and cool videos. It just was not the highest ROI for com- for limited compute. It just wasn't

9. 38:14 – 42:38

   Why Coding Became the Most Important AI Market

   1. JLJason Lemkin38:14

      the, the best use of it.

   2. HSHarry Stebbings38:15

      And, and that's the sentence. Up until then, it was all babbling stuff yourselves, guys, but Jason nailed it. It's, it turns out, I mean, O- you're right, OpenAI is the name and, and Cha- ChatGPT is the name everyone associates with AI, right? They have massive consumer market share. And at some point, intuitively you say to yourself, that turns into a pretty big business. We can circle back on how much. But Jason's right. It turns out, again, I repeat, it turns out that it wasn't the highest ROI use for compute. And I often beli- I believe this is, sometimes when you look back on outcomes, you realize, oh, only one sentence matters, right? And if you just internalize that sentence, you've been rich. The example I always use is, um, if you'd been on the board of Yahoo, and for 10 years all you'd done is screamed, "It's all about search," you could have made them $100 billion, right? Today, what Anthropic wrote is, "It's all about code." That's the sentence. That's the only sentence that matter, because to make it concrete in what Jason said, coding is the fastest adapting market, it's the highest ROI market, it's the mother lode, right? And, you know, it's as simple as OpenAI was focused here, and Anthropic focused there. Does that sound-

   3. JLJason Lemkin39:20

      But, and it could, but it could end up being even worse. We- we'll see in the financials, right? But the problem with the consumer businesses for OpenAI and, and, um, Anthropic is they're, you know, for power users, they're massively subsidized, right? You, you can spend $200 on Anthropic or 100 and some odd dollars on OpenAI and get 8 to $12,000 worth of tokens, and th- that's fine for, for when ChatGPT was a proof of concept for a platform. Like, we talk about OpenAI being a consumer company, but it's not where it started. ChatGPT was just a proof of concept app, right? And Sa- and Claude was just the same, but it worked much better for Anthropic, right? Anthropic can lose, you know, a thou- couple thousand dollars on some consumers and it won't impact them, but, um, it's, it's tougher for OpenAI. It's tough. It's a crappy business, the consumers. Te- selling $10,000 worth of tokens for $200 is one of the worst business models of our lifetimes, right? If that was the only business, [laughs] these guys would be dead in the water. It's a pretty bad business.

   4. HSHarry Stebbings40:15

      And you say to yourse- I mean, look, on the other hand, I'm just gonna argue Google is one of the best businesses on the planet 'cause the cost to serve is low. And it may well be in the fu- just to put it out, I, I kinda, I don't wanna kind of veer from, you know, OpenAI, I love 'em, hate 'em, to, yeah, it may well be over the next five years that if you can continue to be the dominant consumer brand in AI, as the cost to serve goes down, as you manage that cost to serve, as you build an advertising business, I could totally see a business, you know, plus or minus, you know, 50% to the same size as the Google consumer business may- maybe over the next decade. So it's not like it's nothing, right? It's just that the S-curve in the adoption sense for coding was super high. The S-curve of adop- in adoption for consumers was super high for ChatGPT, but unfortunately, the propensity to pay was almost zero. You know, relatively zero, right? Whereas on the coding side, the propensity to pay is high. And, you know, I'm just gonna say it, 'cause I just saw the thing, um, come true as I was, as we were talking here. You know, just to, to dump on the other side, I just see Anthropic in The Wall Street Journal. They believe their TAM is 30 trillion, and I, and then I say to myself, "Oh, I remember everyone when they're doing really well gets slightly delusional. Um, your TAM is, you know, the entire US GDP. Thanks, thanks a bunch, Dario. Good to know," right? And it's, it's, it's one of those overreaching statements that you get at this time of the year. Well, he, he needs, he needs it to be a pretty big number. He's got 2%, so... [laughs]

   5. JLJason Lemkin41:42

      [laughs]

   6. HSHarry Stebbings41:43

      That's very cute. Very cute. Um- Is it?

   7. JLJason Lemkin41:46

      I mean, j- j- yeah, genuine comment here, you know. Yes. If you're claiming a TAM that's the size of the US economy, yeah, that's a high bar. Let's just go with that. We'll dump on that another day.

   8. HSHarry Stebbings41:57

      Do you want to go up a layer into publics and actual performance of a lot of the core AI names falling off, worst run since April, uh, erasing 820 billion of value, or we can go back down to Hugging Face potentially being bought and what that does in terms of a neutral platform suddenly becoming potentially bias?

   9. JLJason Lemkin42:18

      Let's not do Hugging Face because I'm not smart enough to understand why anyone would pay 13 billion for it. I, I just don't get it. I'm just not smart enough to understand it.

   10. HSHarry Stebbings42:25

       No, I, I think we should go in for precisely that reason. I, I, I agree with you, Jason.

   11. JLJason Lemkin42:28

       Taze me in the comments, friends, if you're watching, 'cause I, I am not smart enough to, to, to understand why it's worth 13 billion. Um, but, uh, I, I guess.

10. 42:38 – 47:08

    Why Hugging Face Could Sell for $13BN

    1. HSHarry Stebbings42:38

       I think it, it's kind of a muchness with, frankly, the Poolside a- and the OpenWater thing, which was everyone's... I mean, look, I think it all goes together. Everyone's looking in a world where, I mean, I might think it's delusional, but OpenAI and Anthropic are claiming TAMs that are larger than the entire US GDP. And if I'm running an infor- an IT company

    2. RORory O’Driscoll43:00

       In the US, I'm saying, let me get this straight. They're claiming they're going to take everything. Shit, I better get me something, right? And therefore, I wanna be relevant in models that aren't f- closed-source frontier models. So, you're getting this whole trend for enterprise having their own models, you know, starting with, um, open-weight models and then adapting. And Hugging Face is the place where you can access loads of those models. You know, revenue is relatively light at the moment, relative to 100 and, well, to a $15 billion outcome, I think it's roughly $150 million. But if you think of strategic assets that an IT company might want to own if they were trying to build a counterbalance to the closed-weight frontier models, this would be a super interesting asset. Now, I don't know if it'll sell at that price. I can't make head nor tail. I'm with you, Jason. I can't make head nor tail of the price. But if you think about assets, you know, if you were Microsoft, IBM, and you'd love to own to be relevant, this would be one. Absolutely one.

    3. JLJason Lemkin44:02

       I don't get it other than it seems intuitively to me if r- right now, and this is OpenRouter too, right now is the moment in time to benefit from the lift of open-weights, right? Uh, the, the, the l- the demand is so strong. So just like Elad Gil said, sell if you have an AI asset right now, right? I think even better, if you have a, if you have a AI product that's benefiting from the transition to open-weights, there can't be a better time to sell than plus or minus 90 days from today.

    4. RORory O’Driscoll44:27

       I agree.

    5. JLJason Lemkin44:28

       It's just a phase transition, and your numbers are gonna look amazing for 90. Like, they said OpenRouter was growing 15% at $150 million, right? The information said when Stripe bought it. And, uh, breathtaking if that 15% accelerates and scales, right? Um, but it might not, right? This is the moment it- when all of a sudden every, you know, open-weights and, and, and these models went from experiments to mainstream. Sell, baby, right? If you can get, if you can get north of 10 bi- 7 billion, 10 billion, uh, I'd probably sell. I, I mean, even if I only got 15X, I'd probably sell.

    6. RORory O’Driscoll45:00

       No, it, it just-

    7. JLJason Lemkin45:01

       It's a moment. It's not gonna last, this moment in ti- this transition's gonna, not gonna be a transition anymore.

    8. RORory O’Driscoll45:07

       I agree. It may well be that, remember, you have to, and the founders of Hugging Face have, also have mission objectives beyond financial enrichment, so they may choose not to sell 'cause they may have angst about that. But yes, from a valuation peak perspective, anything to do... I mean, it started with the Satya comments on every enterprise needs to have its own knowledge and not give it up to the frontier, to which you wanna say, "No shit, Satya. Well, thanks for funding OpenAI for three years." But yes, everyone in IT has woken up and realized that these two frontier models could steal a lot of their TAM, and everyone is saying, "We better have a different story," and the enterprises are saying it, Palantir is saying it. And you're right, Jason, if you are an enabling technology for open-weight models, now is peak moment.

    9. JLJason Lemkin45:52

       On the Hugging Face thing, I don't think it's so early. For what it's worth, to Rory's point and the mission thing, I would say one small thing. If, if someone does buy Hugging Face for, for whatever reason, the deal has gotta be you don't touch it. Because if you touch it, you break it.

    10. RORory O’Driscoll46:04

        Yes.

    11. JLJason Lemkin46:05

        Right? If you promote... Y- you know, it's, it's, it's a much bigger version of the TNPN challenge. If it becomes an OpenAI commercial, TBN has no value. I know we're probably the only people that are gonna compare TBN, TBPN to Hugging Face, but it, if you mess with this marketplace for 10,000 models, um, you know, even if, even if you put a little ad f- at the top for, for, for, uh, for... You, you destroy it. So I, it, look, it's never fun to get acquired, but I can... I'm almost confident if anyone actually spends 3 billion, let alone 13 billion, they're gonna 95% leave it alone for 24 to 36 months, right? They're going to.

    12. HSHarry Stebbings46:40

        Why Hugging Face could suffer like TBPN. Doof, doof, doof. And then later on-

    13. RORory O’Driscoll46:45

        No

    14. HSHarry Stebbings46:45

        ... it's back.

    15. RORory O’Driscoll46:45

        I, I, I, it's, it's too obscure. Too obscure.

    16. HSHarry Stebbings46:48

        No.

    17. RORory O’Driscoll46:48

        'Cause tr- as, as Jason correctly says, no one other than us is tracking that anymore.

    18. HSHarry Stebbings46:51

        You know, my favorite news from the public was Ken Griffin's Citadel unwinds 80% of Leopold Aschenbrenner's four sold book. I'm like, man, never fight with Ken Griffin. Man will come out on top. 80% sold already. Again, I don't think it's surprising, but...

11. 47:08 – 51:58

    Citadel Cashes Out of the Leopold AI Trade

    1. RORory O’Driscoll47:08

       No, it, it wasn't. I mean, they're, they're not in the, I mean, yes, they're not in the business of h- holding those kind of assets long term. They, you know, they're a market maker and a short-term trader, and this was a great short-term trade. Exactly. It's funny 'cause about a month or two ago, he had kind of did something about starting to add to their kind of stable of investment options, you know, longer term, you know, multi-month holds. And clearly that was a conceptual idea, but it turns out when you buy a bunch of stuff at 10% below market and then that market jumps an extra 5% or 10% just 'cause you've m- put the assets out of weak hands into strong hands, then the correct response is to take your money and run. No, I mean, exactly. Exactly.

    2. JLJason Lemkin47:49

       Look, it's great, it's just you can't do that every month.

    3. RORory O’Driscoll47:52

       No.

    4. JLJason Lemkin47:52

       So to me, it's not that i- it's impressive. It's im- incredibly impressive. It's just not interesting because you just have to have the balance sheet and the cojones to wait so that every couple years, like Warren Buffett used to do, you could pounce on one of these special situations, right?

    5. RORory O’Driscoll48:05

       Yeah. Every few years, someone gets confused about how leverage works in the public markets. They screw up, and you're ready to price and buy. And yes, on top of your nice business, which is still earning good money, every three years some idiot gives you 3 or 4 billion of free money, and you politely take it and put it into real estate in Miami. It's good to be Ken, right? Exactly right, Jason. That's how I read it. There's nothing surprising in there. And you know, and by the way, it does get to the... It's kind of, I'm gonna circle back to NVIDIA and all their investment and vendor financing, 'cause in both ways, both of... Situational awareness and NVIDIA, the, the aha here is you, when you're dealing with money and leverage, you don't just have to be right in the long term. You also have to be right every step along the way, right? If you don't have leverage, all you have to do is be right in the long term and hold, right? And it's probable that situational awareness was right in the long term. But when you put 4-1 leverage on it, you have to be right every step along the way. And the same is true about vendor financing You know, if you, if you, if you just sell pe- as long as you're in the business of selling chips, all you have to be was right in the, in the end, people wanna buy chips. If you choose to lend against those chips, then you're basically saying you gotta be right all along. The company's gotta grow next year, they gotta pay their debt back next year. So leverage does that. It raises the return from being right [chuckles] and raises the importance of being right all the time. And situational awareness just got the other side of that. Ken takes the... 'Cause remember, he doesn't try in his business to be right all the time. He's not trying to make five-year bets. He's like, "Stocks are worth 10% more today than yesterday, we should sell. Moving right along."

    6. JLJason Lemkin49:38

       The other thing on the other side of the stocks, for what, Harry, I know this is Captain Obvious, but if we look at KOSPI as sort of like, uh, AI on steroids, right, with risk, Korean exchange, it's still up 56.46% for the year. So I'm not, I'm not a day trader. I, I pull up my, uh, my Goldman and Morgan Stanley accounts and look how they're doing. I'm still feeling pretty, like I'm some genius in my public market stock because overall plus 46 is pretty good. It's just, boy, what- whatever- Leo got just trapped in a dagger when I look at the chart, right?

    7. HSHarry Stebbings50:07

       Sorry, you can laugh at me, tell me I should know. What is in KOSPI? What, what is driving it?

    8. RORory O’Driscoll50:13

       Korea.

    9. JLJason Lemkin50:13

       All Korea.

    10. RORory O’Driscoll50:14

        Korea.

    11. JLJason Lemkin50:15

        Memory.

    12. RORory O’Driscoll50:16

        Which, uh, uh, through a rounding error now, Korea now equals, you know, two memory providers with a bunch of other stuff attached. Right?

    13. JLJason Lemkin50:22

        Yeah.

    14. RORory O’Driscoll50:23

        Um, yeah, so Jason Ball.

    15. JLJason Lemkin50:25

        And it's on s- and it's a very volatile market, so it's on steroids, but it's still-

    16. RORory O’Driscoll50:28

        Yeah

    17. JLJason Lemkin50:28

        ... just like NASDAQ is tech on steroids, KOSPI is like, uh-

    18. RORory O’Driscoll50:31

        You're up 46%

    19. JLJason Lemkin50:32

        ... uh, all the, all the components of AI on steroids, right? And the peak, the peak was, um, nine- 9,000 in, um, in June, and then boom, poor Leo, the dagger, 5,600 in July 29th, and the guy [chuckles] had a generational loss that if it were even bigger, might have brought down our financial sy- ecosystem, but it, it's, you know, it's rebounded, uh, 20-something percent since then. It is up 56% of the year. Cry me a river if it's up 56.46% a year. I mean, uh, you know, you gotta be a, you gotta be a day trader or whatever to, to not love up, being up 56% a year. It's okay. But all these headlines are like, "Oh, KOSPI's down 6% today," and it, it just, it's just hyper volatile, right? The growth, the margins, we've never seen margins like this in semiconductors, so the volatility and expectations. Um, there was an article, I, I think it was in The Wall Street Journal, where in Korea now the, the most eligible bachelors are Samsung and, uh, h- and, and engineers. They wanna, they all, everyone wants to marry a, a, a, a, a memory guy. [laughs] It's the first time in the history of the nation when mor- when being a, being a, a memory guy was, like, made you one of the most eligible bachelors in the country. [laughs]

    20. HSHarry Stebbings51:40

        Did you not see, though, like 50% of NVIDIA employees are now worth over $25 million?

    21. RORory O’Driscoll51:45

        Yeah. Pretty inevitable.

    22. JLJason Lemkin51:46

        I see it walking down the block when nothing's for sale.

    23. RORory O’Driscoll51:50

        Yes.

    24. JLJason Lemkin51:50

        Yeah. Yeah. Well, I think it's a dif- I mean, we could talk about, I, I just think overall, AI inflation and craziness is, uh, yeah, it

12. 51:58 – 54:52

    Is AI Permanently Inflating Silicon Valley?

    1. JLJason Lemkin51:58

       is, it is what it is.

    2. HSHarry Stebbings51:58

       What happens there? Uh, d- is that like a persistent continued new world, or is that a temporary moment of inflation?

    3. JLJason Lemkin52:07

       Rents in the mediocre apartments just in Dogpatch are $10,000 a month now.

    4. RORory O’Driscoll52:10

       Phew.

    5. JLJason Lemkin52:12

       Mediocre apartments down the street from, from YC, The Avalon. I used to work in Dogpatch pre-YC, and it was gritty and fun, and I remember when they built this Avalon and, you know, you didn't really wanna live there. It was new, and now it's 10, over $10,000 a month, and you gotta wait. You gotta apply, and you're not allowed to run your startup out of it. You have to sign a document that you won't run a business out of it. Two blocks from, from YC. So e- what, if it's $10,000 a month to rent a, uh, you know, one bedroom at The Avalon, how much do you have to make to feel rich? A lot. [laughs] That's 120 just in a rent to not e- to just have an apartment at The Avalon [laughs] in Dogpatch. You need 240K in California pre-tax just to pay, to pay the rent. You probably need 480 to feel good about yourself, right? Um, it's just-

    6. HSHarry Stebbings52:59

       It's just so interesting for me sitting in London, though, because the money's not here. Like, I hear you, and I hear you say that, and yes, there are some fortunate people like me [chuckles] in venture who are thrilled to be doing what we're doing, but it's just not here.

    7. JLJason Lemkin53:13

       No.

    8. HSHarry Stebbings53:13

       That dispersion of wealth is just nil.

    9. RORory O’Driscoll53:17

       Yeah, 'cause it's, it's tech wealth, and it's all con- I mean, look, I saw it. California didn't just outperform everywhere else. It got three quarters of the total dollars. Now, that's, in venture, that's skewed by the fact that Anthropic and OpenAI together got probably 60% of the total dollars. I'm doing it math in my head, and everyone else got 15. But yes, this is a wall of money flowing into a very small area, you know, where... You know, reminder, the population of San Francisco is 750, probably 780,000 people. It's a teeny, tiny town. London's eight, nine million, right? The whole Bay Area, Bay Area is only seven million. This is a wall of money falling into a tiny place that's a peninsula with sea on three sides and a little bit of mountains on a tiny valley called Silicon Valley on the fourth side. Property is not plentiful, and it's hard to build. What's gonna happen is prices are gonna go up. Most everyone else are gonna get priced out. When they get priced out, they're gonna get pissed off. Now, you know, so probably it doesn't last at this level because, you know, I've been around in '99, 2000, and 2007. You know, there will be some kind of correction, and there will be some kind of reset, but it's not going back to where it was, 'cause it never does. It ratchets up. You look, you know, fast-forward five years. At that point, you know, the AI boom has been digested. It's not as crazy as it is now. But the base level of prices has gone up, and the cost... What it means is that the cost for anyone else to live in San Francisco goes up. The cost that you pay, you know, anyone in your organization, the cost that you pay anyone that you interact with all has to go up because the cost of living here is gonna be higher.

13. 54:52 – 58:07

    How Much Longer Can the AI Boom Last?

    1. HSHarry Stebbings54:52

       I genuinely appreciate doing the show with you guys so much 'cause I, I learn from you, and it's the first time for me seeing cycles like this. Does the floor fall from our feet in this- AI wave or d- for the next five years, do we just continue to see more money, more up and to the right, more mega exits?

    2. JLJason Lemkin55:10

       I, I think it's, it's just more concentrated. We need fewer people to generate more revenue than ever for, for a variety of reasons, and it's going to concentrate exit size, it's gonna concentrate wealth, it's going to allow, like, you know, the salaries at Anthropic and OpenAI seem crazy, but some of it's normalizing now because if you can do it with half the people or a third of the people, you really can pay them two to three times as much, right? So, uh, e- eventually, of course, and, uh, you know, Rory, Rory can pick the date like Babe Ruth, this, this will end, but, uh, you know, I, I think you have to believe we're less than a third of the way through this cycle.

    3. RORory O’Driscoll55:45

       Ooh. I would say, you know, and I can-

    4. JLJason Lemkin55:48

       Even the, even that little tiny cloud thing lasted nine years. We're just getting going here

    5. HSHarry Stebbings55:52

       But will the companies make enough money, Jason, fast enough to keep the cloud cycle going? If the revenue train stops, we're fucked.

    6. JLJason Lemkin55:59

       Well, NVIDIA will keep spending 100 billion a year to keep the ecosystem going. Honestly, that will help.

    7. RORory O’Driscoll56:05

       Let me, let me try, uh, 'cause I'm trying to figure this out too, 'cause obviously it is actually the only question. Kind of my mental model is this. On the supply side, no one's gonna blink. NVIDIA's not gonna blink, the hyperscalers aren't gonna blink, OAI, Anthropic's gonna blink, right? Not gonna blink. So no one's gonna... That's why I think even though we're recording this on Tuesday, NVIDIA's reporting on Wednesday, it's gonna appear on Thursday, it's possible, but I think highly unlikely that NVIDIA gets on tomorrow and says, "Compute demand has slowed down." That sentence is not gonna happen. It's gonna keep on going on the supply side 'cause it's not likely to blink and no one's gonna blink, right? So the only two things that stop it are, you know, you run out of capital or you run out of demand. When you say capital, you know, my gut is until the public markets get in on the game, you kind of haven't exhausted all the, all the money that's there, which is why, in many respects, these two big IPOs have to happen. Typically, uh, you know, financial crashes go, when the marg- when you run out of marginal buyers. There's still a whole bunch of untapped demand to play in the AI game, 'cause these companies haven't gone public. So you've clearly, on the capital side, got one more turn of the crank, which is when Anthropic goes out and OpenAI goes out. That's gonna keep it going. And then the other thing is demand for the actual end product. I think that's the real question, is go- you know, can corporate America spend the kind of money quickly enough to feed the beast, to make these guys' revenue numbers for '27? I think it, somewhere in 20- I mean, Open- Anthropic is talking about 200 billion of GAAP revenue in 2028, right? Interestingly, by the way, that in itself is a significant slowdown, which makes sense from where they are now. It's not 10X-ing anymore. But is there two, 300, 400 billion of demand for this stuff in cor- That, to me, is the question that will determine, you know, when the train stops. I don't have an opinion yet on when that is, 'cause right now the demand is there in coding. But, but that's what's going to be the rate-limiting factor. It's not going to be, you know, the CEO of Google waking up tomorrow and saying, "Maybe we should be more cautious," or the CEO of NVIDIA saying, "Maybe we should take less risk." That's not a thing.

14. 58:07 – 1:02:05

    Are Companies Becoming Addicted to AI Tokens?

    1. JLJason Lemkin58:07

       I do think at a meta level, uh, that next year will be the year, and I think this, this is why I think we're in a f- at least a five-year cycle, where we, we reckon with the fact that we are addicted to tokens. We're addicted. And so we went, we started this year on token maxing, prove yourself. That we started this year with performative AI. Guys, the more tokens you spend, the better an employee you are, right? Then they did it, and we all got whiplash because we started to get these $20,000, uh, bills per employee, right? So then we said, "Oh, we've got to manage our budgets. Let's look at open weights. Let's cap it. Let's cap it at $200 for... $500 for non-engineers, and 10,000..." We're going through this, this token balancing thing. Next year, th- there's gonna be backlash. I can see it in my best portfolio companies, where we, we can't go back anymore. We can't li- we can't go back in time, and I need my 10 sub-agents running 24 hours a day to do my job, or I quit. I would quit. Take away my agents, I quit. So, so I do believe as a s- as, as businesses and in society, we are token addicted, and so we, we will have to find a way to feed that addiction over the next five years. We don't even realize how addicted we are to tokens.

    2. RORory O’Driscoll59:16

       I, I, agree with you on the addiction, but disagreeing you on the managed statement, and I'm gonna cite some... I thought this, I read the Stripe letter to- and I thought it was really, really good, and those guys are smart, right? And it's not just 'cause they're Irish, but that helps. But the comment they made was that, near the end of the letter, they made a comment that, "We've internalized," I'm paraphrasing here from it, "We've internalized that intelligence is like capital. It's fungible, there's demand for it, and it has to be managed and allocated." In other words, what they're saying is seat-based SaaS, I sold five seats to Harry's organization, I'm done, and Harry's done allocating it too. There's no follow-on work required for you within your organization. You either buy five seats or you don't. But to Jason's point, if you're buying intelligence on an uncapped basis, right, in theory, you could, your employees could go on spending that forever, and you're going to have to manage it. And, and that's why the analogy of saying it's like money, right? You have spending controls on your money, but you also recognize money is the lifeblood of your business. So you can't say to your employees, "Don't spend money," 'cause that's stupid, right? I think that what they were saying and why they bought OpenRadar is people are gonna have to control intelligence in a way that's v- that's more like how you control money and less like how you think about software licensing. And that really resonated with me, 'cause you can't just cut it off, but you can't just let everyone go, and it's going to be the big systemic problem for enter- I'd agree with you, Jason. 2027 is the year when enterprises are gonna have to say, "WTF? Do we just let this thing rip and hope the ROI is there? We can't go back to where it was before. How do we manage it?" And I think that's-

    3. HSHarry Stebbings1:00:51

       So, so can you just, can you just drill one layer deeper for a layman like me? What does that mean then? If we control intelligence as we control money-

    4. RORory O’Driscoll1:01:02

       It means you're going to have to- Price it and allocate it. To Jason's point, Jason is widely productive. We should give... I mean, you know, if you're running an organization, you should give him all you can, right? But you give everyone all they can and they're ill-disciplined about it, you could spend a lot of money. I mean, remember, the kind of c- one of the amazing things right now is the kind of money that we're talking about as revenues for these two companies are an appreciable percentage of total US corporate profits, right? You can't say, as the CFO of, take a mid, a US midstream bank, "Hey, we make a billion a year. I'm okay with running up $100 million token bill. I just decreased EPS 10%." That's not a thing.

    5. JLJason Lemkin1:01:40

       I've changed my mind is c- is the addiction. I think when you're a d- when a society is addicted to something, even if it's a positive thing, right, like caffeine, we're addicted to caffeine, it's not destroying our society, is it, right? We are... You cannot go back. We cannot go back.

    6. RORory O’Driscoll1:01:54

       Yeah, you can't go back, but if you're gonna allow them to spend $100 million, 10% of your budget, of your profits on tokens, you're gonna have to say, "Spend 10% less on something else." This is what you've been saying. You're gonna

15. 1:02:05 – 1:08:40

    Will AI Spending Force Companies to Cut Headcount?

    1. RORory O’Driscoll1:02:05

       have to say-

    2. JLJason Lemkin1:02:05

       Yeah, we may, we may have fewer employees, but we can't-

    3. RORory O’Driscoll1:02:08

       Okay

    4. JLJason Lemkin1:02:08

       ... the, the end of, the, the back half of this year is managing the budget, right? For sure. It's already happening. It will dri- dribble into next year, and next year will be the backlash. Next year will be the, I need to run-

    5. RORory O’Driscoll1:02:21

       Oh, I see what you're saying

    6. JLJason Lemkin1:02:22

       ... five to 10 agents 24 hours a day, or I quit. I quit. I won't do my crappy job, I won't edit your goddamn podcast, I won't write your code, I won't fix your endless bugs if I can't have 10 agents running 24/7. I just won't do it, Rory. I won't do the job.

    7. RORory O’Driscoll1:02:39

       We're doing a CFO event this evening, and I think you're exactly right, and you're my high, you're with a high-performing employee, right? But you gotta put yourself in the CFO's shoes. He's gonna say, "I get it. I don't wanna lose Jason. I'm gonna give him this," and by the way, he's productive, but this is why the Stripe letter is so smart. Then I gotta say to myself, "Hmm, before we had these tokens, we were doing all this stuff and we had 10 people. Now Jason's doing the work of four people. Who are the other three people we need to let go?" Because what you're not going to do... Hang on, let me finish. What you're not gonna do is say, "We've invented this new automation device that's making us widely productive, Mr. Wall Street, and the net result of our wild productivity is our EPS is going down 10%." 'Cause Wall Street is going to say, "You're a fucking moron. We'd like to hire someone else to run your bank or your industrial company." You can't introduce automation and say the net result of automation is reduced profits. So if you're spending more on automation, you have to spend less on something else, and someone's gonna have to make that decision, and that's what I think Stripe were saying. It was very clear. It's like, as I say, the analogy of comparing it to capital was really good to me. It's like, if you're the CFO, where do I invest? Do I invest in Jason's token budget 'cause he's a winner, but do I cut off Harry's token budget 'cause all he's doing is asking dumb questions of Claude? I don't know. Someone's gonna do one of them.

    8. JLJason Lemkin1:03:51

       Well, look, ask your C- I, I'm, I'm glad you're having a CFO dinner. I want you to ask them a second question, because this is what I hear. This is, and this is the challenge today. Uh, the CFO challenge for the first, going into summer was, "My God, this team's spending so much." I, I... Every CFO under-budgeted for tokens.

    9. RORory O’Driscoll1:04:06

       Agreed.

    10. JLJason Lemkin1:04:06

        What the hell are they gonna do? But the, but we didn't go out of business, so that was the, that was the discussion of the last Scale CFO Summit going in tonight. I bet you're gonna hear a second conversation, and this is about tw- this is about addiction. Retention. The CFOs I talk to talk about nothing but retention, at least the empowered CFOs. They are ter- terrified that our stock price is down and we can't re- re- we can't retain employees. They are terrified that the AI leaders have so much stock-based comp, so much other sources of comp, that all of their best people are gonna be sucked up by the companies we spent the first two-thirds of this conversation talking about. CFOs are terrified about this because they're often, they're often responsible for that KPI, even if they're not doing it, and so there's this massive tension, which is if I don't give these people what they need for AI, I'm gonna lose all of them, and it is true. You will lose e- you'll be just be stuck with the folks that are still AI skeptics. Your com- organization will be full of the moldy oldies of SaaS. That's who you'll be end up if you don't retain them. And so yeah, the CFOs have to manage your token, but Jesus Christ, if 30% of my company leaves to go work for Harvey, I'm dead in the water.

    11. RORory O’Driscoll1:05:14

        You're exactly right because... But I'm gonna edit the statement to s- to, to, as it were, agree with you more precisely. If the wrong 30% of your company leave, then you're screwed, and you're right. Therefore, but you, you know, I, I-

    12. JLJason Lemkin1:05:26

        But it's all the best people. It's not even 30%.

    13. RORory O’Driscoll1:05:28

        That's my point. I think it's the same thing.

    14. JLJason Lemkin1:05:29

        It's 90% of the ones that matter.

    15. RORory O’Driscoll1:05:30

        But I think what you're not... You, we're saying the same thing, but you're not confronting the nasty bit, but you normally are good at confronting the nasty bit. If Jason is the best employee and he needs 3X his spend in tokens, and there's five more like Jason, and we give them more of that, then that money's gone there, right? And my revenue mightn't have gone up by that much if I'm a, you know, not if I'm a software company, but if I'm a mainstream US corporate, I'm probably not gonna double my revenue 'cause of this. So I've just got to find a way to pay for that. And that's-

    16. JLJason Lemkin1:05:57

        Yeah

    17. RORory O’Driscoll1:05:57

        ... um, and Harry, this is going back to kind of what does intelligence allocation look like? This is what it looks like.

    18. JLJason Lemkin1:06:02

        I just think, listen, we can move on. I think the Stripe thing is great, and I think if, before we want to talk, we want to talk about the re-acceleration, I think it's super interesting. But I do think, to use Rory's term, they're talking their book, and Stripe wants to think about intelligence as this asset that flows through routers and flows through things like finance. And of course it's true, but, um, but the, the, the, both the best and the worst of us are addicted to tokens. The worst of us are just, uh, we, we, w- ChatGPT we think is alive and our therapist, and we talk to it like a human. That's what the worst of us, the air quotes, the worst of us do. We think it's alive. I fall, I used to fall victim to that maybe a year ago. A- and the best of us want to run 20 agents 24 hours a day, and so you have, you have to feed them. This is the bull case for everything, including Mercor and everything, is we're addicted. We're addicted.

    19. HSHarry Stebbings1:06:47

        I just think, I... You, you say we're addicted, we're addicted, Jason. I mean, I, I mean this in a nice way. You are, and small numbers of people in Silicon Valley are. The majority of the population I don't think are quite as addicted, just as a caveat.

    20. JLJason Lemkin1:06:58

        Only because they're d- I'm just, I'm just s- 12 months further along. It's, everyone's gonna end up doing the same crap that we're doing. What if you can just talk to your agent and say, "I want a fully edited version of 20VC ready in one hour"? Um, J- Jason talked way too much about this goddamn addiction thing. Take that out. Rory rambled the w- about this one a bit a bit. Put, g- uh, give me more of me, and you don't even need your team, and it's magical. In an hour, you're gonna be addicted to, to Ink after this

    21. HSHarry Stebbings1:07:23

        Jason, I can't tell you how shit AI is for media and content

    22. JLJason Lemkin1:07:27

        Today. Today

    23. HSHarry Stebbings1:07:28

        ... T- today. And it was a year ago, and it's still. It doesn't even do the most basic-

    24. JLJason Lemkin1:07:31

        And a year ago, Hicksville couldn't work, and today it's at 700 million in revenue

    25. HSHarry Stebbings1:07:35

        And just pause, pause, pause. What, what I'm a- I'm actually agreeing with you 'cause I had this conversation with my girlfriend last night who uses Legora, and she said six months ago I was like, "What a joke. This will never do anything. I'm, I'm a law student, graduated. I work at one of the best." Now she's like, "I just verify documents."

    26. JLJason Lemkin1:07:51

        Yeah, she, if, if, as long as she has options, she will never go back. She's addicted

    27. HSHarry Stebbings1:07:55

        Never. Never.

    28. JLJason Lemkin1:07:56

        Never. Never.

    29. HSHarry Stebbings1:07:56

        Guys, never.

    30. RORory O’Driscoll1:07:57

        Oh, yeah.
16. 1:08:40 – 1:10:17

    Stripe Reaccelerates to 41% Growth

    1. JLJason Lemkin1:08:40

       right? Yeah

    2. HSHarry Stebbings1:08:40

       Jason, you said it. Let's dig on it. Stripe accelerates to 41%. Accelerating to 41% at Stripe scale is a phenomenal achievement. What do you wanna unpack there?

    3. JLJason Lemkin1:08:51

       And billing's up 71%, so it's getting better. The only thing to say is it's, it's, it's just, it's just becoming a derivative of AI like the others. We, Stripe's scale is so massive that it, it, it is a little bit like a chip manufacturer, right? It is benefiting so much from every agent, every agentic product using them. Um, you know, you, you really have to, you really literally have to argue with an agent to get it not to use Stripe. You have to, like, argue. You have to... It'd be like, "You want, you not... Uh, please, I just wanna try s- [laughs] I just wanna try Agent or something else." No. [laughs]

    4. RORory O’Driscoll1:09:23

       As a random comment on that, you know, the interesting thing about Stripe is I, I, I kind of half agree with you in the sense that all the differential growth is coming from AI. And what's attractive about that, if you think about owning that stock, which I don't 'cause it's private, is it's lovely 'cause you have a core business that's much more diversified than just AI, and then you're getting this growth lift from AI. So it's kind of a s- if this was a public stock, it would be killing it because it's a safe way to get some kind of AI factor lift on growth, while at the same time, you're able to say to yourself, "Shit, if it all goes to crap and they slow down to 10% because the AI stuff peters out, they're still gonna kick off cash like crazy." No, it's, it's in a wonderfully advantageous position. You know, kind of the best of the old, best of the kinda cloud economy with a nice AI acceleration on top, which is why they've been able... It's noticeable. They, they've been able to use that stock for their acquisition. It sounds like some of the Open Rider stuff was stock. So yeah, they're in a golden place.

17. 1:10:17 – 1:13:07

    Will AI Kill the Old Public Software Leaderboard?

    1. JLJason Lemkin1:10:17

       You know what else I think it does? I, I, I, I'd be curious to get your guys' thought. I, I don't wanna talk too much about the past, but I, I think it will be the nail in the coffin for almost every public software company. And what I mean is when Stripe and Data- like, okay, there's OpenAI, there's Anthropic. We can put them in a different category, right? They clearly are on many levels. When OpenAI and Databricks go public at, at 80% growth and f- you know, Stripe accelerating 41% and 71% billings, nothing except Palantir approaches these, right? Even Cloudflare isn't this good, right? Um, and so you, you almost just wanna take everything below the line and just almost erase it as, as, as, uh, just, just a, a distant memory of the past because, uh, they're, they're, these are slightly more traditional companies, but massive AI tailwinds, right? That are, have growth rates like almost no public comp. They're just gonna re- re- rework the, the leaderboard

    2. RORory O’Driscoll1:11:10

       I think the two documents I most enjoyed reading in prep for this were the Poolside letter and the Stripe letter, and they reiterated at the end, at one point in the letter, "We're really happy being private," was the summary, [laughs] right? "Thank you for sharing, but we're doing what we're doing." But I think Jason's also correct, and it must be frustrating to be a public investor. When you, if these assets were public, they would be so far up the rankings of good that you're right, everyone else would just get pushed down. It'd be great to get that over with, for what it's worth, 'cause I think then you could start really figuring out what $300, $400 million revenue companies, can they exist in the public markets? But right now it's got the promise and i- it's hanging out there, kind of the un- If you're a public small and midcap investor, these are the unattainables that you just don't have in your portfolio yet, which is why so many of them are doing crossovers. It's a, it's a funny world and no obvious reason to change yet. I mean, the imperative for OpenAI and Anthropic to go out is the vast capital needs. But Stripe is c- I mean, another stunning fact on the Stripe letter, their share count is down on three years ago, four years ago, which means they've been buying back stock. They're, like, doing everything a public company can do while private. They're like, "We have so much money that we're just gonna buy new fun things. We're gonna reinvest in the business, and we're gonna buy shares back," right? "We don't need you anymore."

    3. JLJason Lemkin1:12:22

       I'm gonna email that to some portfolio companies to be a thoughtful board member. I'm gonna e- email them that quote.

    4. RORory O’Driscoll1:12:27

       Yeah, no, exactly, yeah.

    5. JLJason Lemkin1:12:28

       Please get your share count down. That would help me. [laughs]

    6. RORory O’Driscoll1:12:31

       [laughs] Okay.

    7. JLJason Lemkin1:12:33

       I don't want no 15x, guys. Get that share count down. [laughs] But, but blow out the number. [laughs]

    8. HSHarry Stebbings1:12:40

       Guys, you can choose. We have the GitHub buckling under AI agent commit tsunamis. We have Base44 really saving Wix, hitting over 200 million there, our stock up 100%. Um, Fractal reportedly raising new round at six and a half billion, recently following Etch round at 20 billion, which we discussed last week Smorgasbord of options

    9. JLJason Lemkin1:13:03

       I like Grokbot and Instinct leaking everybody's information

18. 1:13:07 – 1:17:02

    Why AI Agents Still Cannot Be Trusted

    1. JLJason Lemkin1:13:07

       and, and, uh-

    2. HSHarry Stebbings1:13:07

       I knew you would like that. Okay

    3. JLJason Lemkin1:13:08

       ... I like that one

    4. HSHarry Stebbings1:13:09

       So Ins- Instinct is the kind of, uh, it kind of reminded me of, um, Clubhouse in the early days, like seeping out over Twitter through like VC inner circles. And Instinct, for those that don't know, is an AI assistant that many VCs are tweeting about. Um, and it got a lot of attention because one investor basically shared, and one, and then, then another person, Alex Cohen, shared how there were data security problems with giving access to everything, and then the whole kind of-

    5. RORory O’Driscoll1:13:38

       I mean, the sentence a- alone is laughable. We, we phrased it that there are data security problems about giving it access to anything. Well, duh. [laughs] You know, like, there's data security ac- problems about giving anyone access to anything. You're right. But that's just being-

    6. HSHarry Stebbings1:13:52

       It is things like passwords, bank accounts

    7. RORory O’Driscoll1:13:55

       I mean, you, you, you're right. That was just being-

    8. JLJason Lemkin1:13:56

       Same as OpenClaw

    9. RORory O’Driscoll1:13:57

       ... snide. I, I, J- I'm gonna defer to Jason more here. Yes, but to your point, I interrupted you, but yes. So as listeners will listen, think of this as a next generation agent that was kind of stealth launching, raising a VC round, and rather than focusing on just the negative, the ma- the idea here is obviously that this is an agent that can look at your email, do your work on your behalf, and if you give it lots of authority, it's kind of like having your own chief of staff, and that's the idea. And Jason, what did you think? Because you've lived the OpenClaw experience.

    10. JLJason Lemkin1:14:26

        I just think it's interesting. It's, it's, I mean, I, I don't think it, it, this shouldn't be a surprise to anybody working with agents, but this isn't, uh, these aren't a set of issues that have been solved in the last year. They weren't solved with OpenClaw leaking everybody's confidential information. Now we have better guardrails, we have better harnesses. It's not solved with Grokbot, which looks like it may be wildly successful, right? Because it's part of Gro- uh, Grok. Wasn't solved with Instinct. So it's just, it, you know, it, it is the, the flip side is addiction, but we, we can't, we still can't trust agents today. We can't trust them with any- anything. Um, and, uh, it's just very interesting that the, the next gener- OpenClaw 2.0 can't be trusted either. It, it's not a surprise. I mean, we all have, we all have these issues, but, um, uh, I would like to invest in the instinct that actually can honestly solve these issues. That, that one I, I, I would do at 600 pre, but it's got to actually solve existential issues that no, no one else at the moment can solve, including Grokbot, uh, or them or anybody else or-

    11. HSHarry Stebbings1:15:22

        Do you not think this is inevitable? Do you guys rem- you guys remember when it was like, "We'll never put our credit cards online. We'll never put our credit cards online"? It was unthinkable. I think it will be very obvious that we will trust agents with credit cards, financial data, passwords. Sure, um, there's guardrails. This feels inevitable.

    12. JLJason Lemkin1:15:40

        Smarter people than me will explain when it's solvable, but it is interesting that it isn't well solved with guardrails today. We've had so many in- incidents. I've had multiple incidents. Everyone's had incidents. Um, and we lived through the Mac Mini OpenClaw drama, and the new entrants can't solve the goal-seeking nature of the LLMs they're running on. Um, the, the, the open weight models have fewer guardrails. You can just figure out how to, like, build bombs and how to do illegal acts on these models. So they're gon- they're gonna have fewer... We're also have a vector that's having fewer guardrails and limitations. Um, and these, these, these goal-seeking probabilistic LLMs are, are... The, the truth is, it's not that they, they just make mistakes with your data, just like a junior engineer, just like people on your team would make. Just like if you had a personal assistant, he might give out your credit card to the wrong person. You know, uh, when I, when I was running the dumb Malt book thing, it attempted to buy six AP watches for the team, right? For $360,000. It just didn't work. So the, [laughs] it's just the nature of the beast. Um, they're gonna do what humans do too, but they could do it 1,000 times more. So it's, I... Listen, uh, is it solvable? In theory, yes. In pra- but what's interest- interesting is that in practice, not as of today. As of today, you can't tru- you still can't trust these agents. Um, may- maybe

19. 1:17:02 – 1:19:51

    Is Personal AI Productivity Overhyped?

    1. JLJason Lemkin1:17:02

       in a year.

    2. RORory O’Driscoll1:17:02

       I think the direction of travel feels correct, but I think the question is, is, is an individual's kind of idiosyncratic workload the best place to apply agentic technology versus, you know, the boring-ass corporate jobs? Like, it, it, you know, my idiosyncratic calendar management and email replies, yeah, I would love to automate that. I would love to have it go through it and get it right. But is that the sweet spot to spend money versus, on the other hand, you know, an enterprise automates loan processing where there's much less discretion, there's much more expense, and, you know, uh, and there's much more budget around it, right? So, uh, I, you know, so yes, I, I think... But look, we, Silicon Valley in particular, we all fall in love with personal productivity tools. We love them, right? Because we're all hyper personally product- productive, right? And I think Ben Thompson historically has one great comment is, Silicon Valley forgets every three years that the average American is not trying to be efficient. No one wakes up in the morning and says, "I need to grind down my to-do list in a hard one." They're just living life. Uh, yeah, they're doing their job, and then they're going home when they're done, right? Not everyone need-

    3. JLJason Lemkin1:18:09

       Solve my inbox. I have too many founders reaching out to me every day. Solve my inbox

    4. RORory O’Driscoll1:18:13

       My wife doesn't clear her, my wife doesn't cl- I shouldn't say, my wife doesn't clear her inbox. It's like 30,000 emails, and she's over it. She doesn't care. It's moved on, right? She just checks the stuff and searches the stuff she needs, right? So not everyone wants to be productive. So it's an interesting market, but you've seen in Evernote, you've seen in a bunch of other things that it's, it's real, but it's fairly niche-y, and it's hard to get right. I mean, you know, we'll see how... I mean, remind me of another companies in this space that are... And I, wildly interesting, and I love them, right? You've got Superhuman, you know, which is now part of Grammarly, right?

    5. JLJason Lemkin1:18:43

       Yep

    6. RORory O’Driscoll1:18:43

       Which is all in the same-

    7. JLJason Lemkin1:18:43

       Harry and I are proud shareholders there.

    8. RORory O’Driscoll1:18:45

       Yes. You've got Ca- you've got Calendly, right? Which is an interesting product too. A whole bunch of attempts at personal... Obviously, um, the Airtable and Notion discussed, but Notion did a good job of getting more corporate, right? The whole productivity suite, and then you say to yourself, "Yeah, AI can do something interesting there." I mean, it's always there, but always just a little bit out of reach. It's a tricky market. I mean, look, I want to believe in it, but the two things that worry me are, one, can you get it quite right? Right? You know, to this day, I find my Google recommendations to be fairly mediocre. Now, obviously that's the lowest of the low, and you can do a lot better. And then secondly, even when you can get it right, what's the market size for this kind of product? It's, it's, it's, it's real, but it's mid. Right? And that doesn't sound negative. We find that category super interesting, but I'm just saying it, it's very challeng- ... I mean, you asked a question, is it inevitable? It's inevitable, but it's not as low-hanging a fruit as some of the other areas where you just go, "We'll automate this. It's repetitious work. We'll take away 10 back office steps. We'll save a bunch of money, move on."

    9. HSHarry Stebbings1:19:48

       Guys, any that I have missed?

20. 1:19:51 – 1:21:43

    Which AI Categories Are the Biggest Bubbles?

    1. JLJason Lemkin1:19:51

       Let me ask you each a related question before we close, if you want, Harry. What, what do you think is the dumbest category of investing we're doing in the AI era? Like, we're just, we're just throwing cash at a category that we'll look back on, uh, like, uh, and, and just say, "Why, why the hell were we doing this in the AI era?"

    2. HSHarry Stebbings1:20:05

       I think a huge amount of money is gonna get burned in customer support.

    3. JLJason Lemkin1:20:10

       Because it becomes a commodity? Because support-

    4. HSHarry Stebbings1:20:12

       Oh

    5. JLJason Lemkin1:20:12

       ... doesn't exist as a unique surface? Why do you think that?

    6. HSHarry Stebbings1:20:15

       Um, I think one or two players will win a large proportion of the market. I don't think it'll be as distributed as prior generations. Two, I think actually for s- the majority of the most sophisticated providers, they're building their own systems. Every large technology company I know who's sophisticated in any way has their own systems.

    7. RORory O’Driscoll1:20:30

       And I, I, I... Y- you might be correct. Obviously, um, we have a number of investments in that space. I think even if it... I, I think we'll do fine, and I think even if not, it won't be the biggest mess. I actually, I'm, 'cause I'm thinking about-

    8. JLJason Lemkin1:20:43

       It's a good, it's a good answer, though. I like, I like, just to, to moder- to maybe flip it around, I like the answer, though.

    9. RORory O’Driscoll1:20:47

       And I incremen-

    10. JLJason Lemkin1:20:48

        It's a good, it's a good one. Yeah

    11. RORory O’Driscoll1:20:49

        ... I'm gonna answer it in the negative. It's a super good question, though. I think an area where despite it being amazing for America and important for the world, I think the venture returns at the margin might be tough will be defense, not because we don't need all these products, but because I think there's an element of that business that you have to have account control. And I think the two or three largest companies, like Anduril, will end up doing a bunch of scooping up over the next two decades because, and 'cause I think the likely... Unlike tech, where a single product can kill it, I think in, um, these markets, I think it's a portfolio of products that it takes to survive the interaction with the Pentagon and just have enough diversification to make it. So I think you'll see a bunch of consolidation, not negative, not losses, but I think there'll be two or three companies that get critical mass in public at huge scale, and they'll Hoover up the rest

21. 1:21:43 – 1:23:15

    Are Humanoid Robots Overhyped?

    1. RORory O’Driscoll1:21:43

       of us.

    2. HSHarry Stebbings1:21:43

       I'm gonna add one more, which is I think robotics.

    3. RORory O’Driscoll1:21:47

       Yes.

    4. HSHarry Stebbings1:21:47

       I'm-

    5. RORory O’Driscoll1:21:47

       Humanoids in particular.

    6. HSHarry Stebbings1:21:48

       Yeah, humanoids in particular. I, I, I think it's one of those ones where you need to burn-

    7. JLJason Lemkin1:21:52

       Why do you think they're so, VCs are so excited about it, Harry? Do you think it's the productivity, product- VC productivity thing? They think robots are cool?

    8. HSHarry Stebbings1:21:59

       Well, listen, the, the visionary TAM is exciting. If we replace X, and I... It's, it's super exciting the vision that they sell, but I think the vision and the reality and the requirements in dexterity and touch and-

    9. RORory O’Driscoll1:22:12

       I'd forgotten because just, just for the record, I have two robots.

    10. JLJason Lemkin1:22:14

        It's a good candidate. It's a good candidate. [laughs]

    11. RORory O’Driscoll1:22:16

        No, it is, 'cause look, we have a bunch of successful law... I mean, I mentioned I'm on the board of Locus Robotics. We have 15,000 robots in the field, but it's a specific purpose robot. It's, uh, the best example of that, and I totally agree now that I think about it, Harry. There was this video over the weekend. It was two videos on robots, one of them the one where the robot blew up, which was kind of funny. He ran and then disintegrated in two. That was cute. But the one that said, you know, here's a robot running faster than Usain Bolt, right? And he does the 100 meters really quickly. And I'm looking at it going, you know something? If I want a machine to do 100 meters really quickly, I'll get a fricking Tesla. Like, it's just, to your point, Harry, I think the humanoid use case is real, but I don't think it's nearly as big as people think. So I, I kind of agree with you. I think that more focused robotics, there's a ton that's going on that's positive in that space, but overreaching on human is, I think, will be a tough slog. I could be wrong. Um, but that's, that's another good one.

    12. HSHarry Stebbings1:23:10

        Jason, you go. Final one. You gotta, you gotta join the crew. Great question, but you gotta throw your hat in.

22. 1:23:15 – 1:26:33

    Why Customer Support Software Could Disappear

    1. JLJason Lemkin1:23:16

       Uh, I'll answer mine. Uh, I will say first, I, I, you know, I, I, I didn't think of expression it the way you did, Harry, but I, but I agree customer support software is dead, right? And I think even-

    2. RORory O’Driscoll1:23:24

       Mm

    3. JLJason Lemkin1:23:24

       ... a lot of CX is dead because it's merging into other categories. It's, a- agents, agents, surface area changes so much. It's not that there won't be dollars in CX, but s- a classic CS and CX won't, won't even exist in 24 months. There's, there's really no... There'll be commodity cheap products, but we won't even need it. It's, it's already dying and merging into marketing, sales, every- everything's becoming one agent. Um, and um, but I guess the one, one I just, I, I... Listen, I, you guys have the better ones. I like the robotic, human robotics and, and the, the CX/CS. Um, but, uh, I still just don't believe, and I guess I'm not a PE guy as I was, uh, it was pointed out the last show or made fun of, which is fine. I just don't believe you can throw a bunch of venture money into accounting firms or law firms and, and magically turn them into the next Mercor or Hugging Face or any of these things. Uh, I, I believe that there's, there's an element of craziness in the business model where you're creating these sister companies where f- where some of the folks have ownership in them. It's too convoluted. Uh, it makes too much sense on a spreadsheet, and I, I'm waiting to see the $20 billion outcome from turning a bunch of, um, you know, Ivy League g- grouchy grads working 100 hours a week into, uh, an AI-driven services. I'm not saying it's not possible, but this is the one that I think is just gonna, gonna lead to no exits.

    4. RORory O’Driscoll1:24:50

       Yeah. It's funny. I'm just gonna admit something that makes me feel like an idiot, but I'm not gonna say it 'cause going back to something you said earlier, what if it works, right?

    5. JLJason Lemkin1:24:58

       What if it works?

    6. RORory O’Driscoll1:24:59

       All these categories we've angsted about and talked about internally, and in every ca- and I kind of share some of the opinions articulated, but in every case, I do find myself looking at an individual going, "Maybe this is the deal that can acknowledge those issues and transcend them and work," right? And I think it just speaks to the nature of the job. And going back to maybe Harry's point is that what if it works, right? In every one of these categories, I kind of have the mental model you guys articulated about, it's defense, all those things are kind of a mental model I have. And as yet, I am, I'm just saying, I'm open in every one of these categories, and some of my partners have come in and said, "You're just goddamn wrong here. I hear you, Rory. This is the issue, but this is how this team is gonna get rounded." And I think I've learned enough to, to, to have my biases, but to be absolutely overcomable by, you know, a combination of facts, great entrepreneur, and frankly, cynical comment and portfolio construction. [laughs] So you just don't have one of them and nothing else.

    7. JLJason Lemkin1:25:57

       We are in an area of unbounded creativity like we've never seen in our careers. It's, it's, AI created it, def- you know, defense budgets enhanced it. Uh, Elon Musk is part of it, but we've never seen the type of creativity from founders and entre- like we've seen today. N- it is, it is two orders of magnitude bigger. So if you are gonna rewrite the rules and make things that didn't work, uh, four years ago work today, now, now is the moment, man. We're just, we're just, it, epic creativity. Epic creativity. The, the shots you could take at these models were right a few years ago. We don't know if, we don't know today.

    8. HSHarry Stebbings1:26:29

       Now is the moment, man. I love it.

    9. RORory O’Driscoll1:26:31

       Now is the moment.

    10. HSHarry Stebbings1:26:31

        What a way to finish.

    11. RORory O’Driscoll1:26:32

        Agreed.

Episode duration: 1:26:43