All-In PodcastAnthropic S-1 Shocker, Greatest Business Ever? Google’s $500B Wipeout, Midterm Predictions
EVERY SPOKEN WORD
80 min read · 15,914 words- 0:00 – 3:22
Bestie Intros
- JCJason Calacanis
All right, everybody. Welcome back to what is, of course, the number one podcast in the world, tweaking all the mid podcasters out there, four or five years running, The All-In Podcast. It's episode 295, and Sacks is back. Sacks is back. Sacks is back. How you doing, brother?
- DSDavid Sacks
Good, good. I saw some fake news that-
- JCJason Calacanis
Oh
- DSDavid Sacks
... you guys had stopped using the term super intelligence. You're getting some shade for that.
- JCJason Calacanis
Oh, I, I... Listen, we're, we're here for this week in super intelligence right now. [laughs] We're co- I mean, the whole doc is-
- DSDavid Sacks
Did you see that article?
- JCJason Calacanis
... super intelligence. I didn't
- DSDavid Sacks
It was kind of ridiculous.
- JCJason Calacanis
Oh, are they-
- DSDavid Sacks
And maybe I shouldn't Streisand it, but they were trying to say that we were using the term AI still instead of SI.
- JCJason Calacanis
Who is saying that?
- DSDavid Sacks
This is a real article.
- JCJason Calacanis
This is literally what the press is spending-
- DSDavid Sacks
I think it was Semafor
- JCJason Calacanis
... their time on? [laughs]
- DSDavid Sacks
Now, he... This is why it's such fake news.
- JCJason Calacanis
Fake news.
- DSDavid Sacks
They have a photo of me. I wasn't even on the October 23rd episode.
- JCJason Calacanis
You do look great, though. You do look very presidential there. Man, if only you were born here.
- DSDavid Sacks
But look at, look at this fake news.
- JCJason Calacanis
I mean, they're desperate for-
- DSDavid Sacks
The US's most influential tech podcast, well, that's good. But actually, we're not just a tech podcast. We're the number one podcast.
- JCJason Calacanis
We're the number one podcast in the world. Give us our due.
- DSDavid Sacks
Has cooled on the use of the term super intelligence, and then they try to say that I somehow was defying-
- JCJason Calacanis
Wait, wait. They made it strong? [laughs]
- DSDavid Sacks
... the president's instructions.
- JCJason Calacanis
All right. All right.
- DSDavid Sacks
But I, but I wanna clarify, I was not on the October 23rd episode, so.
- JCJason Calacanis
Gotcha. Gotcha. But listen-
- DSDavid Sacks
I'll be keeping you guys in line on this from now on.
- 3:22 – 32:47
Anthropic S-1 Breakdown: Greatest Business Ever?
- JCJason Calacanis
Speaking of gigantic businesses, Anthropic Ant dropped their S-1. That's the document, uh, that outlines the nature of the business for an IPO, an initial public offering. And gotta ask the question, this seems to be the greatest business in the history of entrepreneurship. Goldman and Morgan Stanley are gonna lead the round, and they are targeting November 16th, right before Thanksgiving, for this IPO. We've been waiting for a long time. It's been delayed. The ticker will be Ant, A-N-T, and they're aiming to raise, wait for it, $100 billion. In other words, like, three months [laughs] of compute, and that would make it the largest IPO ever, surpassing SpaceX. They raised $85 billion back in June, if you remember. And Polymarket says, our great partners at Polymarket, say 78% chance Anthropic raises at least $95 billion. The valuation, $1.5 to 2 trillion. Here's your Polymarket. Right now, it's saying between $1.75 and 2 trillion, market cap 31%. So yeah, assume it's gonna be slightly under 2 trillion. The revenue is the story, Sacks, $16.3 billion in the first half of 2026. That is 14X year over year. So in other words, the first six months of 2025, 1/14th of what they did in the first six months of this year. Q2 is gonna be a whopping 11.6 billion, a 30X jump over the last five quarters, and almost as much [laughs] as they made in the first half of the year. They say the TAM, the total addressable market, for their tokens and services is $40 trillion. That's extraordinary. I don't know how they backed into that, but we'll talk about it. And they're projecting $100 billion of ARR by the end of the year. Now, unspecified if that's annual reoccurring revenue or their annual revenue run rate, which is ARRR, ARRR, like a pirate. They've got $112 billion in cash and a very unique ownership structure. Seven founders, yes, they have seven, are gonna hold 50.1% of the voting power through a single class F share. Sacks, is this the greatest business in the history of capitalism?
- DSDavid Sacks
[laughs] It could very well be. I mean, I think this is probably gonna be the biggest venture outcome of all time, especially given the time in which this was created. I mean, this is only a six-year-old company. I think the exit here is gonna be on par with SpaceX's IPO, but SpaceX has been around for like 20-something years. So this is probably the fastest value creation of any venture-backed company in history. And I don't know if you saw, but there was a, a tweet this morning about the distribution of wealth this is gonna create among the employees. Hundreds and hundreds of employees are gonna be making hundreds of millions of dollars, and then thousands of employees are gonna be making $10 million plus. I mean, this is gonna be an enormous wealth creation event like San Francisco and maybe all of Silicon Valley has never seen before. Now, there's a few other data points in this S-1 that I think reflected the strength here. So number one is that this $80 billion loss number that we've heard so much about, that the media's constantly been pumping and harping on as proof that Anthropic was either a fake business or that we were in this sort of whole bubble, that narrative basically just got completely refuted because it turns out that that $80 billion loss is a phantom number. It resulted from the fact that Anthropic had issued convertible notes to basically their infrastructure partners like Amazon and so forth. And as Anthropic's valuation increased, those convertible notes got recorded as a loss on the balance sheet, and that flowed through into the income statement, but it's not a real loss. If they had just issued equity, that loss wouldn't be there, so it was not a cash loss. It's basically a fake number. And in fact, what was revealed in this S-1 is that Anthropic has been an extraordinarily capital-efficient business. So they've raised something like, I think it was around 110 billion roughly, and they've only spent about nine or 10 billion, uh, throughout the entire course of this, this business, and they still have, like you said, JCal, about 100 billion left of cash or cash equivalents on the balance sheet. So everyone thought, based on w- the previous reporting, that this was a huge loss-making business. In fact, it ended up being a very capital-efficient business. And then the other thing that you saw was that their margins have been improving. I think their gross margin is now something like 85%. And what you see is that for a given task or capability, they're showing roughly 10X improvement year over year in their ability to deliver that task, the cost effectiveness of that task. It gets 10X cheaper year over year, and that allows them to cut the cost of that model or that task by let's call it 50%.
- JCJason Calacanis
Yes.
- DSDavid Sacks
And so the consumer recognizes a huge cost savings, but they are able to realize an even greater savings because they're, they're able to capture the rest of that efficiency in their margin. And that, that's what we basically saw, is that, again, they're cutting the cost of their tokens significantly, but their margins are going up even faster because they're able to produce these models that are more and more efficient, and they call them compute multipliers. It's very interesting the way that Anthropic sees their business. The framework that Dario has is that there's raw compute, which they're scaling very rapidly as well, as a result of better and better chips and more and more of those chips. And then there's the compute multipliers, which are things like algorithmic improvements or better curation of the data, or it can be things like, uh, better architectures, more, you know, MoE architectures, things that make-
- JCJason Calacanis
Efficiencies
- DSDavid Sacks
... all these models more efficient.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
So they're able to give you the same answer for one-tenth the cost, or they can take those efficiencies and create greater capabilities. So this is what we're seeing, is that that business is actually improving, and I think it is a little bit of a refutation to all the people who've been saying over the past year that they're getting commoditized away, that open models are basically are putting them on a, a hamster wheel, where they're basically going to zero on gross margin, or that it's a business that only works because it's heavily subsidized by venture capital. In fact, I think there's a lot of reasons to believe that Anthropic has a pretty big lead, and if you believe that recursive self-improvement has kicked in, as they are claiming it has, then their lead could actually grow.
- JCJason Calacanis
Friedberg, your thoughts on the impact of this massive deluge of capital coming in to Silicon Valley and then this corporate structure, 51% ownership, and what impact this might have on the technology industry, the venture capital industry, and then on democracy here in the United States. We've never seen this much capital flow through to, uh, a nonprofit organization, um, or whatever they're calling this Anthropic, uh, nonprofit entity, but 80% of the seven founders' shares are going into this nonprofit entity of some type, benefit corporation. Who knows what it's gonna be structured as. It's optional, but that's another [laughs] interesting, uh, shoe to drop. So take it whichever way you like, in whichever order you like.
- DFDavid Friedberg
Can I just comment on the, the economic value that's arising from AI that was kind of-
- JCJason Calacanis
Of course. Sure
- DFDavid Friedberg
... perhaps revealed a little bit in this?
- JCJason Calacanis
Take it wherever you like.
- DFDavid Friedberg
So in the S-1, Anthropic shows how many customers they have that are spending 100K or more. If we take a look at the image here, it's a pretty remarkable ramp in customers spending 100K or more, 200 customers in 2024, end of year, 1,500, end of 2025, and at the end of September, uh, 11,900 customers spending 100K or more. So I ask the question, you know, how many customers are there for which $100,000 annual spend is less than 1% of their total annual spend? And the answer is, in the US, it's about 200 to 300,000 businesses. Globally, it's a bit over a million So, you know, if you just say, "Hey, look, Anthropic's customers that could spend 100K or more and have it be less than 1% of their total spend," the addressable customer base is about a million customers, so they're only at, call it, 1% of total customer penetration potential. Now, the question is, is there real money to be made here? So I took a look at the kind of AI value stack to try and identify who's making money where, and it turns out everyone's making money. So [chuckles] I, and I think we've talked about this quite a bit, and I know Chamath's got some views on this as it relates to the Neo clouds.
- JCJason Calacanis
What is this chart? Is this, like, AI output, or, that, or you made this?
- DFDavid Friedberg
I had, I had, I had Claude make this for me-
- JCJason Calacanis
Oh, got it
- DFDavid Friedberg
... as an image.
- JCJason Calacanis
Cool.
- DFDavid Friedberg
Or I should just say my analyst made this for me in my shop.
- JCJason Calacanis
Your bot.
- DFDavid Friedberg
And so, you know, I basically said, like, start with NVIDIA. How much does NVIDIA spend to make the chips, and then how much do they sell the chips for? So for every dollar of cogs, every dollar that NVIDIA spends, that turns into $4 of revenue for NVIDIA, 75% margin. And then that gets sold to SpaceX, and then SpaceX turns around, and they're making, you know, an 83% margin on that chip spend because they're kind of looking at a five-year depreciation, so they spent $10 billion on Colossus-1, five-year life, $2 billion a year depreciation. And so that's kind of the cost per year, but then they're making $1.25 billion a month on Colossus. And then Anthropic is showing in this S-1, pretty remarkably to Sacks' point, that they're making about 85% incremental gross margin on every incremental dollar coming in. It's obviously a baseline of compute spend, but 85% is kind of the incremental gross margin. So at the end of the day, a dollar that NVIDIA spends turns into $18 that Anthropic is making selling to customers. And the question is, are customers making money? So if we're seeing the customer ramp as it is and the spend ramp as it is, and the customers are making, call it, on the order of two to 10 times the money they're spending, 'cause otherwise there, there would be probably a retention issue and a decline in spend. Maybe I'm wrong. Maybe it's early days of exuberance and people are losing money, and we could debate that point a bit. But generally speaking, if AI is delivering value to the customers, I think this shows that there really is true productivity arising from AI, that across the whole value chain, there is such margin to be had, there's so much value being created all the way through to the customers, and we're only 1%, or Anthropic is only 1% penetrated on their customer potential and probably less than 10% of the spend potential per customer, um, that this really is what, I think, Eric Schmidt a long time ago in the early days of Google used to say, Google's total addressable market is global commerce. And I think for the first time ever, we're seeing a business actually potentially starting to realize that theory that if you can create enough productivity gain for your customers, that your TAM is commerce, and it really highlights that maybe, you know, we're almost growing the equivalency of the human working population by 100X or 1,000X or 1,000,000X with this technology stack. So I, I just thought, like, to me, it was so striking how early we are, but also how incredibly profitable everyone is, which indicates there's quite a bit of productivity being produced across the whole value stack. Um, those were my biggest takeaways kind of from the S-1. I don't know if you guys agree with this, but, you know, it all felt pretty remarkable to me. I'd be curious to know if you guys think I'm, I'm, I'm a little loopy on being too exuberant in my reading of this stuff.
- SPSpeaker
I think the thing that, that is probably the most important is the last box that you said where it, you wrote an assumption-
- DFDavid Friedberg
The customer value
- SPSpeaker
... where you said assumption [laughs] .
- DFDavid Friedberg
Yeah. Right. Yeah, totally.
- JCJason Calacanis
Well, how do they measure that? But by the way, I agree with you, but-
- DFDavid Friedberg
The last box I made up. I said assume-
- JCJason Calacanis
Oh
- DFDavid Friedberg
... two to 10X. So I'm just... I have no idea. But I'm a user of Claude. I think we get a lot of value for Claude. I think our people are able to do more because of Claude than they would otherwise be able to do, so our business grows faster. We can get more done in a shorter period of time. I think I tangibly experience that pretty regularly. I've talked a lot about moving to open source, and we have our own cluster installed with our own kind of open source now. But I think what Claude is showing is that they, they have such a high margin, they actually have good elasticity on pricing. So they could push price down, and you could start to see them start to segment the market a little bit, where they could start to be more competitive perhaps with cheaper tokens for cheaper, easier tasks, and then premium tasks charge a higher price for intelligence and start to stratify the value of the intelligence that they're providing by changing the price points. And I'm, I envision that's where everyone's gonna go.
- 32:47 – 1:01:57
AI's Biggest Problem and Anthropic's Doomer Showdown
- SPSpeaker
go back to this. What is my big takeaway? It's bigger than ant. I'm gonna build on what Sacks said. The entire United States economy is levered to the AI complex. So very narrowly, we're talking about seven or eight companies. That sets the tone for the entire country. And whether we like it or not, that is where we are. Why do I say that? One, the most important companies in the world are in a massive spending binge, right? These were highly profitable, highly cash accretive, highly cash flow generative businesses that have said, "We're gonna put the foot down on spending because we believe in what's coming into the future." That's what drives GDP, and it's what drives growth. Okay, next chart. Now, as they do that, though, they deplete their cash, and they have to raise debt, okay? And this is what you see. All but Microsoft... By the way, what an incredible job Satya's done. He's halved his debt while everybody else has, you know, just gone to an, an unbelievably crazy high number. So the, the AI complex now owes $340, $400 billion to the market. And you'd say, "Okay, why is that important?" The problem is this: These companies are raising so much money, it starts to crowd out the capital markets. And the most important part of the capital market that it starts to crowd out is the appetite for government treasuries. And what you can see here is that when you look at these AI firms, the amount of money that they need to raise through the end of '27, it's 30% of all of what Treasury's about to issue in that same period. So they're, whether we like it or not, they are going to start competing for demand. Isn't this [beep] nuts? It's like you have seven companies that are crowding out the Treasury market.
- DSDavid Sacks
You know, Chamath, a lot of people are looking at that number, and they're trading these stocks down based on that. I kinda view it the opposite, which is I don't... These are smart companies. I don't think they'd be making those kinds of investments unless they thought there was ROI there. And so-
- JCJason Calacanis
Well, there obviously is-
- DSDavid Sacks
... in the future-
- JCJason Calacanis
... ROI based on the token usage and the fact that only 1 or 2% of people in corporate America are even using these tools. We are greatly underestimating the uptick here. Claude hasn't even launched a bot yet, a Groq bot, and OpenAI just launched theirs, and it's in, like, a, a, a small use case. When 100 million or 200 million white collar workers-
- DSDavid Sacks
Right
- JCJason Calacanis
... who subscribe to, say, the Office Suite, right, the similar Office 365 thing happens in corporate America, and everybody's got five agents running, I think the utilization of these things is going 500X. The token usage is-
- DSDavid Sacks
I think that's right
- JCJason Calacanis
... gonna go 500X. That means we're gonna have-
- DSDavid Sacks
Yeah
- JCJason Calacanis
... not enough compute, and everybody's got the build-out i- completely wrong. There won't be enough, and people are gonna look back on this moment and say, "Why didn't you build more compute? Why didn't you spend more on CapEx?"
- SPSpeaker
You're absolutely right, Jason. The problem is the regulatory pushback. The, the amount of approvals and the ability for utilities to find the staff and the ability to actually turn these things on and then the ability to get the capital equipment you need, it just isn't there right now. So we as a country are sort of clogged up. We can't do it even if we wanted to do it.
- JCJason Calacanis
Friedberg, you know, uh, the, the other issue here is if we are not spending enough building this out, and the country, a large percentage of, of, of the country believes in socialism and is against the oligarchs, both Republican [laughs] , independent, and Democratic oligarchs, there's a-
- CPChamath Palihapitiya
This is what they think of us and of the leaders i- in our industry and other industries. This is really dangerous because we're not gonna be able to, to build out the compute we need. A- and what does that do to the entire industry in the next three to five years if we, if we can't build out this? And how do we turn that narrative around so people are like, "Yeah, we should have data centers"?
- DFDavid Friedberg
I have a view that humans try to organize into groups, organizations to try and create power that benefits the members of that group. So, you know, we form tribes, we form communities, and in a, in a sense, governments are a form of an organization. It's an organizational coalition of individuals to achieve an objective for, in the case of a democracy, the majority of the voters. And as a result, organizations in a, in a world of, you know, call it pseudo limited resources, compete with each other for those resources. Non-profits, for-profits, governments, they're all effectively competing for resources because the individuals that they represent the interests of are gonna be served if they get more resources, get more power, get more influence. So to some extent, the power of AI and the influence it enables in terms of media, in terms of capital accumulation, in terms of changing people's minds, in terms of aggregating resources through its competitive capacity, productivity, et cetera, makes it a bit of a threat to government organizations. And so to Chamath's point, if one of the manifestations of that is that AI is now accruing more interest from capital than governments, governments aren't gonna wanna let that happen, and the governments, whether they're right or left, are gonna fight for the AI to become either part of the government and the government to subsume the AI or control the AI organizations. And this is why I've kind of argued the case, I think that you're gonna end up seeing compute get regulated in the future, where compute capacity is going to be assigned by government, and they're gonna pass laws to try and do that. Post-production, that is, like, meaning they're not gonna control the chips, they're gonna control the actual compute layer, and they're gonna determine who's gonna get access to what amount of compute, I think for governments to compete. And I think one of the ways this is gonna play out, to Chamath's point, is in the near term in capital. There's more capital going to the AI organizations than the government, and the governments aren't gonna wanna let that happen. So they're gonna try and stop the data centers because then... Yeah
- CPChamath Palihapitiya
I've never seen something in my adult working life where a complex of a handful of companies are effectively competing with governments now for capital. Because you've never seen companies in an organized manner have one very narrow thing that they need money for that is a one-way bet on something that attracts the same amount of money that would otherwise go to a traditional two, three, four, five-year, 10-year bond auction. It's, it's kinda nutty, actually, and you didn't see it-
- DFDavid Friedberg
And by the way, the story you're gonna hear from both sides is a story of which side benefits the people more, and that's gonna be the narrative argument, which is gonna be every side's gonna say the other side's lying. 'Cause remember, if one side's lying and another side's not lying-
- CPChamath Palihapitiya
Yeah
- DFDavid Friedberg
... the side that's not lying says, "Hey, those guys are lying," and they're correct. The side that is lying de facto says that the other side is lying because they're liars. And so you'll hear both sides screaming, "We are the better path for society. We are the better path for humanity." It's either government or private market AI, and that'll be the huge battle that's gonna brew over the next half decade-
- CPChamath Palihapitiya
Well-
- DFDavid Friedberg
... and we'll see which one, you know-
- CPChamath Palihapitiya
Politicians are for sale, and Dario [laughs] and Anthropic should start buying, just like the right did.
- DSDavid Sacks
Oh, they already have.
- CPChamath Palihapitiya
I don't, I don't see them with champions. Where are their champions? Do they have champions yet?
- DSDavid Sacks
Oh, my gosh. For sure. Listen, Anthropic, even as a startup, prioritized government affairs. They were very active during the Biden administration. All those former Biden officials who were doing AI in the Biden administration immediately joined Anthropic-
- CPChamath Palihapitiya
My point, Sacks, is that you don't s-
- DSDavid Sacks
... at the end of 2024
- CPChamath Palihapitiya
No, no, I get that, but you don't see them doing what you guys did, hosting a fundraiser for Trump, being out there publicly in front of it. You don't see them out there doing it
- DSDavid Sacks
Oh, sure, but they've, they, they have spent... They've created PACs-
- CPChamath Palihapitiya
Sure
- 1:01:57 – 1:14:17
Google Sheds $500B Market Cap in Worst Day Ever: What Went Wrong?
- JCJason Calacanis
All right, Google got smashed on Thursday, ten, fifteen percent down. We, we record on Thursdays, obviously. Q3 earnings wiped out about $500B in market cap. Why? For two straight quarters, Google missed on search revenue. Even though searches are growing massively, the people clicking on the ads is not, which leads to a little bit of shenanigans in trying to get people to click on more ads. They're negative on free cash flow, even though Cloud is ripping. Cloud doubled year to year, thirty point seven billion. That's the AWS business they have. It's called Google Cloud. It's quite nice. And overall revenue is still shrunk. They were only twenty-five percent year over year. The issue is people are looking at that Google cost per click advertising network and saying, "Well, obviously, that goes away at a certain point if you just give people the answer," right? ChatGPT, Anthropic Rock, they just give people the answer, and in some cases, they go solve their problem if it's an agent. So that is pretty disruptive. Search business, uh, is what pays for everything, and that grew twelve percent down from seventeen percent, so it's decelerating, but it's still growing nicely. Friedberg, this is your alma mater. You witnessed the cost per click greatest business ever. This was the previous one that we said was the best business ever created, along with the iPhone franchise. What are your thoughts here? Are you worried about that franchise, or do you think they've done a good enough job with the other businesses? Google Cloud and, uh, YouTube come to mind, Android, in terms of diversifying their revenue. You worried about Google as a buy opportunity, or is this stay away?
- DFDavid Friedberg
It's a complicated story. I think the core services, the core Google ad revenue is, uh, a real challenge right now in terms of can they keep the momentum up? Overall, the business trades at roughly twenty-one times operating income, and you get that sort of a multiple based on reliability of future cash flows and, and effectively growth of those cash flows. I think the Google Cloud business is looking, you know, really tremendous. I mean, I don't know if you guys remember, it wasn't too long ago, and this thing was not making money. Last year, the Google Cloud business for this quarter was, uh, generating three and a half billion of operating income. This quarter, it's over eleven billion of operating income, and this is a lot like the SpaceX AI story, where the value of the compute infrastructure that's been built is just tremendous. The question is, does Google actually have the models that sit on top of it? And in many cases, they do, so they can make a higher margin on that piece of the stack. So when I say it's complicated, I think there's a story you can build in the cloud business that shows the next couple of years of really progressive growth in that business. The core Google services, I think, is when it becomes challenging, where over the last year, it grew from thirty-three and a half to thirty-nine. And as some people have pointed out, this may largely be driven by a change in the pricing algorithm for ads and how Google is now, in some cases, over-earning for those, uh, for those clicks. And over time, advertisers will see that. They'll experience that. They'll reduce spend. They'll at-attrit some dollars, and it won't look as good of a business. So the question then is, do they have a consumer AI business that catches up and accelerates to support that? That's the thing I think everyone needs to be watching is what does the AI replacement look like on the consumer side for Google's core business?
- JCJason Calacanis
The core cost per click advertising network when you type a search into Google. That's the core business you're talking to. Yeah.
- DFDavid Friedberg
That's the core consumer business. So the question is, is there a consumer AI alternative that starts to generate meaningful revenue to replace that revenue? And what does the revenue ramp look like there relative to the flattening or decline that may arise in core search? And how quickly does that happen? That is a dynamic and challenging question to answer now. Internally, I think there's a bit of turmoil. There's a bit of like, "What are we?" Not just overall as a company, but just even within the business segments. What is Google Search? Is it AI? Is it search? What is Google Cloud? Is it the models, or is it just the compute, the rental of the compute? And I think we saw this battle play out recently where Jeff Dean and others left Google, and I don't know this for sure, but the theory is that the computer scientists that have been building models at Google maybe aren't getting the resources that they had hoped to get because Google can make so much more money renting that compute out to others. And so it's a really hard question of what do we wanna be at Google right now? And I don't think that they have a great answer, and I don't think it came across well in the earnings report.
- JCJason Calacanis
Wasn't the-- It didn't come across well, obviously. Uh, and, and people reacted, Chamath. But they did know this was coming. They did plan for it. They renamed the company Alphabet, and they said, they got this great CFO. Let's make all these other bets, fend for themselves. The Waymos of the world have to make their way in the world, raise outside capital. So they, they did prepare for this, in fairness to the team over there YouTube surging, Android surging, you know, g- Google Cloud surging, and then you have the, the franchise slowing. Uh, search is up, but revenue growth slightly down. So do you think they can fix this, or should they just do a Bending Spoons and get as much money as possible out of the search and put it into other things like consumer AI, corporate AI, and their future models and hosting of other people's models? What are your thoughts here, Chamath?
- SPSpeaker
I don't think that's what Bending Spoons does, and not everything is an analogy to Bending Spoons. This is-
- JCJason Calacanis
Well, no, no, I'm saying manage it for rev-
- SPSpeaker
This is the best business-
- JCJason Calacanis
I'm saying manage search... Let me be clear.
- SPSpeaker
This-- Okay.
- JCJason Calacanis
I'm saying... When I say Bending Spoons, I'm saying manage it for earnings, not for, like, growing it necessarily. Just, just get as m- many dollars out of it as possible.
- SPSpeaker
I think that's what they've been doing in the last quarter. That's why pe- but people didn't like that. I mean, there was a very interesting tweet. Nick, maybe you can put it up here. I think a lot of the consternation came from people reacting to what Max Anderson wrote, which got 5 million views, by the way, and he wrote this through the lens of somebody. And this is-- These are his claims, so I don't know if they're, they're true or not, but spending half a million dollars or more a month on Google for, for years. And he itemized all the ways in which things have changed. And the most important thing that I pulled out of here was what Friedberg mentioned, which is the change in the auction model. So typically, i- in a Vickrey auction, what happens is Friedberg bids, I bid. If I'm the underbidder, what happens is Friedberg gets filled at my price because he was the high bidder. And so it's a really great way of doing price discovery. At Facebook, when we built the first ad system, that's es- essentially what we copied. We copied Google's feature for feature. But if now what they're doing is they've abandoned the Vickrey auction, Friedberg's right, you're overearning, and if the market starts to smell that out, they're gonna start to wonder what's actually happening underneath the hood. So these claims, which are now well syndicated, have been out there since July. And I'm not sure that Google IR has necessarily nipped these in the bud because I think what happened was the, at least the information war that happened post-earnings was recirculating Max's post here and saying, "This has been going on for a while." And when you look inside the comments, it's a bunch of other people seconding his analysis as accurate. So without knowing the details, Jason, 'cause I don't spend money in the Google ecosystem-
- JCJason Calacanis
Hmm
- SPSpeaker
... I think it's really important for Google IR to get in front of this, because I think if this momentum builds, this idea that this franchise is essentially robbing Peter to pay Paul, like pulling money from the future into the present to kind of smooth out earnings, the market will react badly to it. You're seeing it today.
- JCJason Calacanis
Hmm.
- SPSpeaker
But then this other problem starts, which is, to your point, the composition of ad revenue as a percentage of the overall will fall below a threshold, and then they do look like more of a structured conglomerate, where now you have a YouTube revenue block, a GCP block, an other bets block, and a search block. None are dominant. Which in some ways I actually think is better because then you're more diversified, and you're less levered to any one single business. But they'll have to go through this complicated process where a bunch of folks may not wanna own that kind of a business, and there's a different buyer pool. So you have to go through transitioning out the folks that wanted to own a single stock bet on search or ads or whatever it was, and now have to move to this other kind of business model. And when you switch buckets like this, a bunch of folks kind of say, "Oh, it's too complicated." So problem number one is what I would say is if you are Google IR, please read this and refute it or try to figure out how to get in front of it, because every analyst now will, will try to figure out whether this is true. The second, though, is, uh, very narrow. How do you keep Demis at Google? That's it. That's the only task.
- JCJason Calacanis
Okay. Uh, Sax-
- SPSpeaker
There's no-- [laughs] There's, there's, there's nothing else. Pay Thomas Kurian whatever he wants. How do you keep Demis at Google?
- JCJason Calacanis
Sax, looking at this, uh, business, it's been obviously a journey for the past ten years to make Alphabet have resiliency in revenue streams, diversify the revenue streams. You think there's, uh, uh, some great risk here, and would you be long, short, or neutral the stock?
- DSDavid Sacks
Well, I'm seeing people post that Alphabet's Google Search revenue dropped below fifty percent of total revenue for the first time, and they're making it sound like that's a catastrophic situation, basically playing into the narrative that the search business is gonna be disrupted by SI. And that's what it seems like on the surface, but when I dug into the numbers, it didn't really seem that bad at all. So it's true that Google Search's relative share decreased, but its absolute revenue still increased. So if you look at Google Search revenue year over year, it was still up twelve percent. It increased from fifty-six billion to sixty-three billion. So it's still a roughly seven billion dollar year-over-year increase in Google Search. So Google Search is still thriving, I think you could say. It's not growing that fast relative to other businesses, but you're not seeing it deteriorate yet. And again, the reason why the share fell below fifty percent is because other Alphabet businesses are simply growing much faster, and the main one is Google Cloud, which basically doubled year over year to thirty point seven billion. So it's the rise of the Google Cloud business that has made Google Search seem like it's on the decline. But I tend to think it's a good thing that Alphabet is now finally getting some of these other businesses to really work and to really grow fast and to finally diversify the revenue. Diversifying from search has been something they've wanted to do for a long time. They now have all these other segments. You've got YouTube, you've got G Suite subscriptions. So in any event, I tend to think Google's a little bit oversold on this news today.
- CPChamath Palihapitiya
I agree.
- DSDavid Sacks
Although I'm not certainly not telling anyone to buy anything.
- CPChamath Palihapitiya
Since inception and, uh, maybe past 10 years, you can pull both charts up. We'll go through them real quick here. But this is just, this franchise, the number of searches is still going up. The revenue per search a- a- and that issue, uh, is obviously, uh, the one people are concerned with. But the other side of the coin i- is absolutely correct, David, the other businesses, th- they're now only 50% dependent on this business, and that will continue. So for me, I just literally bought some shares [laughs] . So I'm long. I just bought more shares in Google-
- DFDavid Friedberg
And by the way-
- CPChamath Palihapitiya
... while doing the show.
- DFDavid Friedberg
Just remember, Alphabet owns-
- CPChamath Palihapitiya
Yeah
- DFDavid Friedberg
... 6% of SpaceX and, like, 15% of Anthropic as well.
- CPChamath Palihapitiya
I think 85% of Waymo as well, right? Like, that's the, um, the other piece of this puzzle. Amazon also owns a big piece of Anthropic. They're gonna be a big winner. All right, listen, uh, that's our time here.
- DFDavid Friedberg
Hey, so do you guys wanna talk about the election ahead of Tuesday night and predictions or anything like that?
- 1:14:17 – 1:25:33
Final Midterms Predictions and Scenarios
- CPChamath Palihapitiya
ahead.
- DFDavid Friedberg
What are you guys watching on the midterms? Anything you're keeping an eye on, Chamath? Any big contrarian predictions on what might happen on Tuesday?
- CPChamath Palihapitiya
It's so interesting. I'm, like, really confused. I've started to s- stop paying attention just because there's so much misinformation. Th- I, I thought that we are going to have, and I still think what Sacks called a spritz. [laughs] You know those spritz? I think it's more of a Democratic spritz. But when you look at some of the, the early data, you know, and I don't know if Brett Baer was doing this just to kind of hedge his bets or not, but he did a clip which went viral on X, where it just looked like it was gonna be a bloodbath for the Republicans, and they were gonna lose both sides, both the Senate and the, and the House. I think it's still set up to have the, um, Republicans keep the Senate and the Democrats to have a narrow majority. And just going back to maybe where we started, the mandate from the Democrats then becomes obvious, which is, how do you introduce FUD? And there's one way to do that, which is to start subpoenaing everybody and start to do disclosure, discovery, release document after document after document, and let, you know, the, the masses start to churn through this stuff going into '28. So number one, create FUD. And then number two is, I think a economic slowdown benefits the Democrats going into the '28 election cycle. And so whatever they can do to kind of like influence power permitting and data centers, because as we talked about earlier, that's the lever bet. So to me, it almost doesn't matter what happens at the federal level except for the FUD part. I think we now should be paying a ton of attention to what's happening in these governorships and some of these, some of these other races.
- DFDavid Friedberg
Sacks, has your view changed?
- DSDavid Sacks
Look, I think that you can't trust any of these polls. First of all, a couple of these polling firms have come out and admitted that they are fake. I mean, we literally have a couple of-
- CPChamath Palihapitiya
Oh yeah, there was a hoax, right?
- DSDavid Sacks
Fake polls. There was literally a hoax and, and-
- CPChamath Palihapitiya
Yeah
- DSDavid Sacks
... those fake polls-
- CPChamath Palihapitiya
And people fell for it
- DSDavid Sacks
... were included in, you know, those averages. So some of the polls are outright fraudulent, and then the rest of them are well known to have a bias. Patrick Ruffini did a study of the last three elections and found that three quarters of the polls all, you know, erred in favor of Democrats. So we see this as a recurring pattern. We saw this in 2024. You had Ann Selzer, who was supposedly the gold standard, say that Trump was gonna lose Iowa by like 10 or something like that, and it turned out to be total nonsense. So the pollsters have a history of bias, of fraud, or you could just say, for some reason, oversampling progressives in their polls. So I think that people should shut that out. I think that some of them are a tactic designed to depress and suppress turnout, and Republicans should just go out there and vote. The, the economy is not a disaster. That is total fake news. We know what the growth rates are. It was two and a half percent in the last quarter, and it's tracking at 3.7% right now. Median household income is almost $90,000. It's at an all-time high. Poverty is at an all-time low. I think the percent of people below the poverty line is like 12%. It's the lowest it's ever been. It's not just a K-shaped recovery. You're seeing real wage growth in real terms by the average household, which was not true during the Biden years. So I don't think people should get psyched out by this media operation to make people super depressed about what's going on.
- DFDavid Friedberg
JKel, any views?
- CPChamath Palihapitiya
Oh, well, I, uh, agree. The polling data has been, you know, a suspect for a long time now across many elections. Wedgewood, uh, did this, like they're claiming performance art, but they were kind of serious. I don- I don't know who they're working for or, or what the shenanigans are, but I do trust Polymarket. I think when you look at the Polymarket, pretty clear what's gonna happen here. Um, I can tell you-
- DSDavid Sacks
Well, by the way, Polymarket was wrong on Bolsonaro, although I think maybe he got robbed. It was wrong on Netanyahu. So the Polymarkets are, are just a reflection of public sentiment or public sentiment that's willing to place a bet.
- DFDavid Friedberg
Yeah, actually, it was that matter, yeah.
- DSDavid Sacks
And they can be totally wrong.
- CPChamath Palihapitiya
And it, it could be wrong-
- DSDavid Sacks
So they were totally wrong about the, about those two national elections. By the way, I'm not, I'm not predicting some sort of, you know, miraculous Republican win here. It would be very unusual for the Republicans to win a midterm election-
- CPChamath Palihapitiya
Yeah
- DSDavid Sacks
... when they're in the White House, right? And you remember that Bill Clinton and Barack Obama both suffered horrendous midterm losses. Bill Clinton, remember, lost-- in 1994, he lost to, you know, Newt Gingrich, the whole Contract with America. That was the first time Republicans took control of the House for the first time in 40 years. With Obama, you had one of his midterms was the shellacking. So it's quite- ... customary for the out-of-power party to do very well in the midterms. I'm just saying that the media is already portraying this as a tsunami or a bloodbath, and I think it might be a more normal midterm result. That's all I'm saying. So I, in any event, I think people should just go out and vote, not get depressed or psyched out by whatever the media's telling them, because the media has a long track record of being wrong and biased.
- DFDavid Friedberg
And JCal, any view, um, that's different than where we've been in the past?
- JCJason Calacanis
I think Polymarket is gonna get it right. I think, uh, Democrats are gonna win the Senate, 68% chance right now on Polymarket. I believe that. And House, obviously everybody believes that, 92% chance. So when that happens, uh, and, and the reason I'll back that up is if you look at the, the net approval rating of Trump, uh, all-time low. The country's very upset, and the libs are gonna come out in force to vote anti-Trump. The, uh, the, the moderates are either not gonna show up, and they're not gonna be Trump-curious like they were for the second term. And, you know, oh, Kamala was such a [laughs] disastrous candidate, they were like, "Okay, gotta try something else here," and, and they went for Trump, reasonably. If you were gonna have a, a choice between Kamala and Trump, I think Trump's the better choice [laughs] for most A- Americans. And then you have the fractured, uh, Republican Party, where the American First people feel really like they got rug pulled by Trump because of the economy, inflation didn't get solved, the wars didn't get solved, and he started another war. So that group's kinda pissed off. So when you put all that together, I think it's a very easy sweep for the Democrats. Then I think, you know, if you wanna look at what the next two cards are, if you look at impeachment, you know, that, that process, from what I understand, is a, a House a- and then Senate, a- and it's a, a legal proceeding. I think we're gonna go right back to Trump being impeached, and then both houses are gonna do that. It's gonna be absolute chaos. And then the Dems are gonna start putting legislation out there and force the Republicans to vote against it in order to scuttle JD Vance's chances. So this is obviously gonna be a chaotic-
- DFDavid Friedberg
Okay
- JCJason Calacanis
... two years, and Republic-
- DFDavid Friedberg
You're, you and I, you-
- JCJason Calacanis
Let me finish
- DFDavid Friedberg
... you and I are alike.
- JCJason Calacanis
Let me finish. Hold on, just let me finish before... [laughs] So what's gonna happen is it's gonna be a chaotic two years, uh, and I think what will come out of that ultimately is we're gonna need some new candidates on the Republican side, and they're gonna put the, the, the Trump, um, they, they're gonna put the, the, the Trump era to bed. And then I think that means they put JD Vance, uh, and, and Marco Rubio to bed, and they're gonna need a new champion that is more populist and actually executes on the populist agenda, which they feel Trump represented but didn't execute on. That's my... And, and that's not my personal belief. That's just my analysis. Go ahead, Chamath.
- DFDavid Friedberg
No, I, I think what I'm saying is you think there's gonna be a Democrat FUD campaign. They could control the House. They'll just subpoena everybody.
- JCJason Calacanis
They're going to subpoena everybody. They're gonna look into-
Episode duration: 1:25:46
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