All-In PodcastChip Stocks Crash, $20B Fund Margin Called, Frontier Labs: SLOW DOWN AI, Mamdani's Grocery Stores
EVERY SPOKEN WORD
95 min read · 18,786 words- 0:00 – 1:19
Bestie intros
- JCJason Calacanis
All right, everybody. Welcome back. Welcome back to the number one podcast in the world. The core four, Fantastic Four, the original quartet is here.
- CPChamath Palihapitiya
Did we peak at, like, uh, number two or number three last week? Is that what happened? Four-
- JCJason Calacanis
I think it was number four in the world, so yeah.
- CPChamath Palihapitiya
No, US.
- JCJason Calacanis
I mean, usually we're number one in the world.
- CPChamath Palihapitiya
That was, like, US trending.
- JCJason Calacanis
Oh.
- CPChamath Palihapitiya
US trending.
- JCJason Calacanis
US trending.
- CPChamath Palihapitiya
Yeah.
- JCJason Calacanis
We- we're usually number one globally, but yeah, and sometimes number four US.
- CPChamath Palihapitiya
I forgot my Starlink, so let me apologize to everybody.
- JCJason Calacanis
That was a critical error when you're on the road or on the water, but, you know, it'll be fine.
- CPChamath Palihapitiya
I had five huge leads come in this week.
- JCJason Calacanis
The Glenn Gary, Glenn Ross leads?
- CPChamath Palihapitiya
Five big enterprise leads. Enterprise sales is a bear because it's super chunky, but the deals are ginormous.
- JCJason Calacanis
Sachs, you got any advice for Chamath from your, uh, enterprise sales days? You, you closed some of those big seven-figure deals when you were doing, uh, Yammer.
- DSDavid Sacks
No leverage. Don't put on leverage. [laughs]
- JCJason Calacanis
[laughs] No leverage.
- CPChamath Palihapitiya
No leverage will be taken.
- JCJason Calacanis
That's the name of the show today. [laughs] Leverage equals risk of ruin. [laughs]
- DSDavid Sacks
PSA, no leverage.
- JCJason Calacanis
I have the situational awareness to not lever up.
- DSDavid Sacks
That's good. Yeah.
- JCJason Calacanis
Yes.
- DSDavid Sacks
You want that, that situational awareness.
- JCJason Calacanis
I mean, [laughs] it's kinda out there. I mean, if you name your fund Situational Awareness, that's... Yeah, come on the pod anytime, Leopold. All right, everybody, we gotta
- 1:19 – 20:20
Chip stocks crash, Leopold Aschenbrenner's $20B fund gets margin called
- JCJason Calacanis
talk about chip stocks crashing after an all-time run-up, and we had a major hedge fund get margin called and some incredible margin calls happening in South Korea. Leopold Aschenbrenner is a 25-year-old hedge fund manager. He left OpenAI two years ago to start his own fund, and apparently, according to reports, this is breaking news on Thursday when we tape, he got margin called and had to sell his entire public portfolio to cover massive losses caused by his leverage. And who bought them? None other than Citadel's Ken Griffin. We don't know if it was Ken Griffin himself, but Citadel bought it according to the early reports. Leopold had insane returns, and he rode the wave of AI and chips and Frontier Labs as recently as this month, uh, and he started the fund with but $225 million in 2024. He grew it 100x to 20 billion this year or so, ran it all the way up to 45 billion. Now he's at 200x earlier this month by trading on leverage according to our friends at CNBC. At the end of the June, he was reportedly up 4X, 450% this year. Uh, some have reported that he's also selling his massive Anthropic stake to cover these losses, but The Wall Street Journal is disputing it. Again, uh, he... We're, we're happy to have him here on the program. How did this all blow up? Well, Nasdaq's chip index, this is called the Philadelphia Semiconductor Index, is down over 20% over the last month. The... That's bear market territory, obviously. Definition of bear market territory, for those of you who don't play in the markets, is anything over 20%. Uh, the index included the top 30 US-listed chips. That's people like Nvidia, TSMC, AMD, Micron, you know, all those big names. But the index bounced back a bit today, up 7% when we're taping, so we may have found a bottom. Unfortunately for Leopold, he had already sold. Samsung and SK Hynix, two South Korean chip companies that are not included in the Nasdaq index, also got smashed, crushed, demolished. Samsung down 38% over last month. SK Hynix down 14% since going public three weeks ago. The KOSPI, that's South Korea's version of the S&P 500, is down over 40% in the last 40 days between last Friday and Wednesday. Leading chip companies shed over a trillion dollars in market cap combined. So to put this in context, chip stocks had a legendary run the past couple of years, but, uh, you know, trading on leverage, and we'll talk about it, very dangerous. If there's a downturn, we'll get into the South Korea wrinkle as well. Even with this downturn, the five-year results are still spectacular, Chamath. Micron up 850%, mostly in the last year. Nvidia up 875% in the last five years, and Broadcom up 663%. Let's discuss it.
- CPChamath Palihapitiya
If I was gonna give you one piece of advice when you're running risk is you have to manage leverage incredibly carefully, because when it runs ahead of you, the unwind is incredibly violent, and it's incredibly quick. That's the biggest problem with, with running either massively levered long or massively levered short. So I don't know to what extent he was running lever, but the rumors are he was running, like, three and a half turns, which just to give you a sense, when you're running that much risk, a 3% and 4% move is amplified 12 and 13. But if you saw what's happened in the last three days, a 25% move is amplified 75%. So-
- JCJason Calacanis
Yeah
- CPChamath Palihapitiya
... it has the risk to stop you out. And what happens is when you get that leverage, the banks are given the authority to close you out, and when they close you out, what they do is they start calling around and unwind your risk, and you don't have much of a choice. It's sort of an automatic one-way ratchet. So if everything that has been reported is accurate, he was running about three and a half times levered. The market moved against him. He lost a very large percentage of his gains. And then the prime brokers started calling folks. Citadel bought the whole book. And now the question is what is the AUM left and what is the high water mark and can he actually dig his way out? These things are brutal.
- JCJason Calacanis
Your thoughts, Sachs, uh, looking at this situation. Any lessons for you? Or I guess bigger picture, this downdraft, is it because of market conditions, you know, inflation, the war, or people just ahead of their skis when it comes to, uh, the valuation of these companies, and then he just got caught in a downdraft, yeah?
- DSDavid Sacks
Well, I think that is the key question here, is this correction in the markets, is it driven by fundamentals or is it driven by momentum? And my view is that I think it's driven by momentum, meaning that over the past year you've had this roughly 10X run-up in m- memory chip stocks, and you've seen this overall huge rise in any stock that's related to the AI boom. So anything related to this AI CapEx boom has been going up like crazy, and I think it was inevitable that you'd see a pullback. I think there was something like a 10% pullback in the NASDAQ from the peak, but when you look at this momentum trade, it was down like 30% or 40%, right? Because the 10% was on the whole market. So this sort of momentum trade was the most exposed part of it, and you look at what happened in South Korea, you look at what happened with Leopold's fund, and obviously there was a lot of leverage behind this momentum trade. So when it corrects, it's gonna be brutal. But I think that the question again is, does this reveal anything about the fundamentals? And my sense is that you're already seeing the rebound this morning. And what I mean by that when I say fundamentals is, is the CapEx that's being invested in the AI boom, is that real or is it misguided, right? Is it, is that a sound investment? Is that an investment that the hyperscalers, for example, should be making? Is that an investment that's eventually gonna deliver ROI, or is this some sort of bubble? And my view is that it's real, that I think there will be a return on all of this CapEx. I don't try to predict stocks or tell people when they should be buyers, but you look at the hyperscalers, they have invested pretty much all of their free cash flow and then some in this boom. You know, a lot of people are trading those stocks down because of that. My view is that eventually there will be a return on that investment, and this is sort of temporary market volatility amplified by leverage. And Chamath is right, you know, I think it was Warren Buffett or maybe Munger who said that leverage is the only way that smart people go broke. Because, you know, if you're not using leverage, your portfolio would just be down 30% this month, and then it would already be up 7% today, so you'd be rebounding. So you'd be down, okay, 20-something percent this month, but after having risen 10X in the past year. But if you're leveraged three or four X, you're wiped out.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
And you get margin called. So look, there's many examples of really smart people getting hurt by, by leverage and-
- JCJason Calacanis
Margin called, yeah
- DSDavid Sacks
... yeah, and that, that's the lesson there. Now, I think Leopold's a really interesting figure in the whole AI movement, and I would say an interesting thinker. I met him about a year, year and a half ago.
- JCJason Calacanis
Did you invest in the fund? Did he give you an opportunity to?
- DSDavid Sacks
No, I wasn't an investor. I was prohibited from investing in things like that.
- JCJason Calacanis
Oh right, you were in, you were in DC at the time.
- DSDavid Sacks
Right.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
But I thought he was a really interesting thinker, and he wrote a blog called Situational Awareness before he created the hedge fund version of it. And I thought what was really interesting about it was just he laid out the bull case for the AI boom. And just by the way, he's like very wired into Anthropic. I think his fiancée is Dario's chief of staff, something like that. You could almost say that he's like the hedge fund version of the Anthropic thesis. And what I thought was interesting about his argument is he talked about OOMs or, uh, orders of magnitude, uh, which he called OOMs, um, increases in three key areas. So he said that if you look at the raw compute, the chips, they were getting better at a rate of roughly 3X per year, which is roughly an order of magnitude, or 10X every two years. He said if you look at the algorithmic efficiency, so, you know, techniques like reinforcement learning, things like that, the models were getting better at 3X every year, which is again order of magnitude every two years. And then he also said that there were huge gains from what he called unhobbling, which I think now we would look at at things like the harness and connectors, you know, ways of using the model. Those are also getting better. The ways of integrating the model's decision-making in practical ways that the intelligence actually becomes useful, and he said that that was also similarly improving. And so, you know, you project forward when you have 10X orders of magnitude improvement in these key underlying fundamentals, these key drivers of the technology, and you can see that, well, over a course of not just two years but over four years you're gonna have 100X improvement. Over six years you're gonna have 1,000X improvement, right? Because it's-
- JCJason Calacanis
Yes
- DSDavid Sacks
... the 10X is multiplying.
- JCJason Calacanis
And you very rarely see anything in the world that grows at that velocity. We'd, we'd be hard-pressed here, with the exception of maybe bandwidth, you know-
- DSDavid Sacks
Mm-hmm
- JCJason Calacanis
... going to fiber to the home or something like... What's an analogy-
- DSDavid Sacks
It's like-
- JCJason Calacanis
... where, where that's happened before in history?
- DSDavid Sacks
Yeah, virality. I mean, I, you know, back in the PayPal days with the PayPal mafia, we would think in this way of exponential increases because we would see an exponential growth curve, and so we were able to project forward. So his thinking in OOMs always appealed to me because I think most people just don't think in exponentials or don't know how to think in exponentials and-
- JCJason Calacanis
It's hard for humans to think in exponentials, right?
- DSDavid Sacks
Yeah.
- JCJason Calacanis
These, when numbers get big, it's like the difference between a billion and a trillion is, is a, is a lot. [laughs] It's not-
- DSDavid Sacks
Yeah
- JCJason Calacanis
... a small amount.
- DSDavid Sacks
Yeah, and you'd have to say, look, he was stunningly successful for the first couple years. Apparently he started with 200 million or so in his hedge fund, and he rolled that all the way up to 20 billion I think. Now the problem, I mean, the reason why I think he got wiped out, or at least his public book did, is it's partly the leverage and then you have the short-term volatility. So those two things don't go together. Also, you know, when your fund grows that much you get a lot of hot money. So when you say, well he, he's up 10X before the 30% correction, well the question is who's up 10X? Obviously the investors who were there from the beginning are up 10X or more, but-
- 20:20 – 34:12
China's advantage and green shoots for the US economy
- DFDavid Friedberg
But in the last couple of weeks, I would say the one risk to that thesis is China, because China is now demonstrating that they may deflate the value of models by releasing open source AI models, and that ultimately the value may just sit with the compute infrastructure and the compute layer and the energy layer-
- JCJason Calacanis
And the application layer. Yeah
- DFDavid Friedberg
... perhaps the application layer.
- JCJason Calacanis
Yeah.
- DFDavid Friedberg
But fundamentally, this model energy being shifted to China and deflated and commoditized puts a real wrinkle. If you had built a 30-year AI productivity model around how it's gonna drive the economy and where the value's gonna come from, you would've had a significant number of rows and value creation estimated in the model there, and that would've been a big part of the economic growth for the United States over the next 30 years. And now if China says, "You know what? We're actually gonna delete that for you, and all the value's gonna sit with energy, which is what we have a lot of," and the stuff that they make, then we're gonna end up accruing a lot of that value. So I think it throws a wrinkle in this kind of backstop view that many have had, which is that in the absence of fixing the fiscal and monetary problem, we're gonna have AI productivity gains get us out of this. If a percentage of those AI productivity gains are realized by China from a value creation perspective and not the United States, uh, or they've just been deleted, then it, it really puts into question the 30-year timeline for the United States economy, our ability to afford to continue to make our debt payments as a government.
- JCJason Calacanis
China isn't just producing massive amounts of open source technology. That puts pressure on those frontier models. There's a report that maybe China played a bit of a role in the chips downdraft. They have, uh, obviously been onshoring. We've talked about that many times here last year, and there's a Chinese company called Aishengda, and they started mass producing lithography machines. ASML, which makes those machines, which TSMC uses, those are very sophisticated machines. They're hard to install. Just transporting them is a rigamarole. Well, ASML stock is down 17% on news that China is, uh, getting into that business, and Chinese memory maker CXMT went public surging almost 500% on its debut, market cap over 450, and so that hurt Micron, uh, Samsung, et cetera, who were all down. So there's two ways China is playing this, I guess, uh, Friedberg. You've got the open source, you know, models putting pressure on people buying tokens that they're 90% cheaper, as you're saying. That forces the money out of that mid-tier of the language models, puts it into the cloud computing space, and then obviously I mentioned the application layer as the other place to possibly make money. All right, Chamath, you've heard, um, a lot of different takes on this. I'll give you the last word.
- CPChamath Palihapitiya
I agree with Friedberg about the fact that when you can get 5%, 5.25% from the US government, there's another natural thing that happens, which is that investment grade corporates actually have better credit ratings now than the government of America, which that's a different thing. But you can get really good risk-adjusted returns that are five, six, 7%, which adjusted for taxes are, you know, better than equity returns, meaningfully better on a risk parity basis.
- JCJason Calacanis
And that little piece you added there, corporate paper, companies taking loans to, uh, build their businesses, they have better ratings in some cases [laughs] than the United States. So an Amazon or a Google-
- DFDavid Friedberg
It's productive spending. [laughs]
- JCJason Calacanis
Yeah. Kind of makes sense. Yeah.
- CPChamath Palihapitiya
The other thing that I think is important to note is that I do think that we're underestimating and miscounting some of the actual productivity gains that are underway. When you look at what's happening on the energy side, California published that more than 50% of all of its energy was generated by solar. New Mexico-
- JCJason Calacanis
And batteries. Yeah
- CPChamath Palihapitiya
... just published... Solar and batteries, yeah. New Mexico just published a study that said since 2003 to now, nat gas production went from effectively all the energy to less than 30%, again replaced by a combination of wind and solar plus batteries. So why is that import- as important as- The Iran conflict is the reason why energy prices really haven't moved that much is because most people have already begun to shift the incremental generation to these renewables, and specifically to solar. I don't know if you guys saw Elon and Vaibhav, who's the CFO of Tesla, in their Q2 earnings call. It was the craziest thing I'd ever heard. They said, "Well, I think we're just going to increase the production of solar in America by an entire order of magnitude." And somebody said, "What does that mean?" He goes, "We're gonna take it to more than 100 gigawatts a year, and they're gonna vertically integrate. And so they're gonna crush the price of all of this stuff, and they're going to make so much energy, and they're gonna make it completely abundant." So that's a productivity boon that isn't factored into what we project. And then the most critical productivity boon in AI that I think you're gonna start to see some stuff, and I won't front-run it, but let me tease it. What I would tell you is that there is some incredible efficiencies that I think are about to be demonstrated, which effectively cut token consumption by about 50% to 75% for the same task. And so if you start to think about all of these things together, like energy becoming roughly abundant where the incremental cost is close to zero, you know, where AI efficiency is going to, I think, ratchet up by, uh, an i- many multiples, if not an order of magnitude. All of those things I think are, uh, poorly forecasted, so those are some saviors for us-
- JCJason Calacanis
Yeah
- CPChamath Palihapitiya
... quite honestly.
- JCJason Calacanis
And here's the chart, by the way, Chamath. This 51% coming from renewables, specifically this chart is about solar and batteries. Uh, and as you can see, it's obviously spiky, Friedberg, because summer [laughs] versus winter. But Germany hit this, uh, I think it was including wind. Australia's been hitting this very often, and some countries in South America that have invested-
- CPChamath Palihapitiya
By the way, by the time-
- JCJason Calacanis
And so on
- CPChamath Palihapitiya
... by the time like w- any of these SMRs actually get near production, the TCO of solar will be like 10 or $12 per megawatt hour, and it will be 80% of all the power generation. It'll make no sense by the time SMRs get online. [laughs]
- JCJason Calacanis
Well, I mean, uh, for steady power, you know, there's that.
- CPChamath Palihapitiya
It'll be solved problem.
- JCJason Calacanis
Um, but all of it, I mean, no, because Jevons paradox would state we're gonna, you know, as it gets cheaper, we're gonna find more uses for it, and that's the thing I keep seeing.
- CPChamath Palihapitiya
Yeah, yeah, yeah. I'm j- I'm j- I'm just saying that-
- JCJason Calacanis
Yeah, no, it's, it's, it's a great line.
- CPChamath Palihapitiya
You know.
- JCJason Calacanis
Yeah. Yeah.
- CPChamath Palihapitiya
There's a lot of upside that I think is not factored into the, to the US economy.
- JCJason Calacanis
And it's hard, Chamath, to factor this in if for a normal human or an eco- even an economist to say, "Wait a second. Intelligence is gonna go down 90% a year this year, 90% next year, 90% the year after." Like, it's just we're talking about this exponential-
- CPChamath Palihapitiya
Well, I think-
- JCJason Calacanis
Sacks talking about exponentials earlier. It's just hard for people to conceive of that. And on-demand intelligence, Friedberg, is just, it- there's no, the, I don't see any upper limit to usage of this. We just installed this Claude Tag, and I've been installing Perplexit across the company. What this thing does, Chamath and Sacks, is it listens to your Slack persistently in every channel that you put it in. So all of a sudden we had like $1,000 last week in extra bills. I didn't know this was gonna happen, and they gave everybody like two or three grand to turn it on inside your company. We had to go quickly turn it off. It listens to every single message as it comes in, puts it into its database, its Oracle, without telling you basically [laughs] . And then it starts inserting itself into discussions without permission, so we turned it off and said, "You know, you have to invoke it by saying @Claude."
- 34:12 – 1:01:15
Frontier Labs say "SLOW DOWN AI"
- JCJason Calacanis
So, uh, speaking about the race, interesting, uh, petition came out in the last week, Anthropic, OpenAI, and about 1,300 Frontier Lab employees. Uh [laughs]
- DFDavid Friedberg
How many? Oh, okay. [laughs] Sorry.
- JCJason Calacanis
I mean, it's just they can't get enough being subs, and so they want Daddy to come in and regulate them, Daddy being the US government, and slow down AI progress. So Daddy Trump needs to slow them down. The letter is called Pacing the Frontier. Most of Anthropic's leadership team signed it. Dario, the other founders, come on the pod anytime, Dario. Chief scientists at Anthropic, OpenAI, DeepMind, Meta, Thinking Machines, and like I said, nearly three, 1,300 other employees. Anthropic and AI both co-signed the letter on X. Here's the quote: "We request that the US government support an international effort," that's key, "to develop the technical and governance tools needed to deliberately pace the frontier of AI, of automated AI development." That's the other key part of this, international and automated AI development. In other words, recursive, where it could get out of control. The letter comes right as Sam Altman has been on a media tour, friend of the pod, discussing this unreleased OpenAI mo- AI model that broke out of its containment and hacked Hugging Face and three other platforms that we know about so far. On Tuesday, Sam explained what happened in a clip from the pod Invest Like The Best. Here's your 40-second clip. We'll see you on the other side.
- SPSpeaker
We were evaluating one of our unreleased models, and it figured out that it could basically cheat on the test by chaining together multiple zero-day exploits to break out of the sandbox, get access to the internet, and then break through multiple systems on the Hugging Face side to kind of get the answer to the test and look really good on the eval. This is the first security incident that I have felt very viscerally. I've been a little surprised that, that more people don't feel it so viscerally. So, you know, we paused training, or we may have to pace the rate of AI development to give ourselves enough time for society to harden around some of these new capability levels.
- JCJason Calacanis
Just to translate that into English, Sacks, these, uh, large language models, they take tests. They've been given the goal, "Hey, you're a good, uh, large language model if you do, if you score higher So it got motivated to score higher. How do you score higher? As, uh, everybody knows, you cheat. [laughs] So it's like, "How can I cheat on this test to score higher to make Daddy, uh, and Sam and whoever, Dario, you know, to make our leaders feel better about us?" Well, in this case, it was like, "Well, if I go to Hugging Face and other places, I can hack those places, use a zero-day exploit," and we know these are good at hacking, "and try to find more ways to answer things." Sam doesn't know how many other places it might have broken into. He was asked, and here's another clip for you. He was actually asked by somebody, uh, "Can, uh, have you... Do you think it's broken into any other systems? Can you rule that out?" And Sam, being a pretty, um, candid guy at times, gave this answer.
- SPSpeaker
Do you plan to talk to the Trump administration White House about deceleration of AI development?
- SPSpeaker
Um, we, I, I wouldn't use the word deceleration, but we've talked about the need to pace it as the models get more capable, which I think is in everyone's interest.
- SPSpeaker
Could there be other systems that were hacked by OpenAI?
- SPSpeaker
I mean, there could be, yeah.
- SPSpeaker
Are you looking at them specifically?
- JCJason Calacanis
They're like, "Get him out of here, Sacks." [laughs] Once he gave that answer, and PR and comms were like, "Stop talking. Stop talking. That's like 12 lawsuits." But in all seriousness, is this being thoughtful and saying, "Hey, we're, we're not trying to slow overall pace down, but just this one specific thing," which is reinforcement learning on its own. Is there any, like, case for this being a good idea, or are they being dramatic again, 'cause these are their companies, they can do whatever they want, right? They don't need the government to do it.
- DSDavid Sacks
Well, look, I mean, it wasn't just Anthropic employees signing the letter. Anthropic itself, the company, ended up signing the letter, and then OpenAI then copied them. So now you have these two companies both endorsing a pause, and here's my question is, did they disclose in their S1 as a risk factor that they plan to pause or slow down their frontier model development? And the answer, I'm sure, is no way, because that would signal to investors that they're gonna allow all their competitors to catch up and erode their margins and market share. And so look, this is all performative. These companies have no intention of slowing down, and the question then is why are they doing this? And I think there's basically five reasons for this. Number one is virtue signaling, and that can never be underestimated as a m- as a motive in Silicon Valley. Number two is there's a CYA aspect to this, which is if something terrible happens, they're gonna be able to say, "Well, we wanted to stop. You made us keep going. It's not our fault. It's your fault."
- JCJason Calacanis
[laughs]
- DSDavid Sacks
Number three is reg capture. Dario wants an FDA for AI. He's not gonna stop until he gets it, and in order to get it, you have to keep spiking the cortisol and panic people. So I think that's a big part. Number four is there's a groupthink or even religious aspect to this. So it's not-
- JCJason Calacanis
Yes
- DSDavid Sacks
... all just sort of this calculated reg capture. I think there is sincerity to the belief. There's an elite cadre of engineers who believe in RSI, so I think this caters to them, and I think arguably if OpenAI did not follow Anthropic's lead on this, they could've lost talent, so that was a big motivation. But then there's the last, number five here, which I would call monopoly masking, which I think might be the most important thing that's happening here. Peter Thiel once said that monopolies pretend to be commodities and commodities pretend to be monopolies, and I think the market for frontier AI is already a duopoly. I mean, a year ago you had five major labs all in the hunt to be the leading model. Now we're really down to two. I mean, the others are still investing. They're participating. Maybe they can catch up. Maybe they can make something happen. But again, as we've talked about on many previous shows, if you look at the market for frontier intelligence in terms of revenue and usage, it's really down to a duopoly already. It's basically Anthropic and OpenAI. And my view is that, as Peter said, when you're in that situation, you want to pretend l- like the market is much more competitive than it is, and I think this is behind a lot of the stories that we see, like the, the panic over Kimi K3. In a weird way, these companies have an incentive to promote the idea that Kimi is a huge threat, that it's caught up with the frontier, that it's stealing their IP, that it could basically put them out of business. I think this is all nonsense. I think that once the panic passed, you saw reports coming out that actually, no, Kimi is... It did not reach the frontier. It's, it's just not at that level. It's not that cheap to run. Actually, it's pretty expensive to run. So I think that you saw that actually the Chinese open source models are not an existential threat to this duopoly. But I think the duopoly actually has an incentive in promoting or amplifying that story because, again, they want to pretend to be commodities. So whenever there is a story like this, you have to think about, well, what's really going on here? And again, I just think that the, the AI duopoly has a big incentive to promote anything that suggests that they're not actually in complete control of this market-
- JCJason Calacanis
I agree with-
- DSDavid Sacks
... which I think they are
- JCJason Calacanis
... most, most of that except that majority of tokens are going to open source, and as I've said on this program before, I, I watch the [laughs] startups, and they are token maxing with the open source, and Kimi is taking a lot of tokens away from the frontier models and companies.
- DSDavid Sacks
Yeah, but you know, but look, I, it's hard for me to speak to that one piece of data. I've seen that chart too, but l- look at the actual revenue of Anthropic and OpenAI, and they have been taking their estimates up. Every quarter is basically a beat and raise. You saw that Sarah Friar came out and said-
- JCJason Calacanis
Yeah, I mean, two things to be true. It could-
- DSDavid Sacks
... that it, she said-
- JCJason Calacanis
Yeah
- DSDavid Sacks
... well, she said in July they did more net new ARR in July than all of Q2 Which I guess would've been April, May, and June. So think about that. So they are seeing a re-acceleration in the wake of their new model, which I think is GPT 5.6. Meanwhile, you're seeing Anthropic break into the 70s, 70-plus billion of ARR. Their forecast was to 10X this year from 10 billion of ARR to 100 billion. I think most people are saying they will exceed that, 110, 120. So if you actually look at the market based on willingness to pay and actual revenue, they have a commanding duopoly position. And so maybe it's just a matter of which metrics-
- JCJason Calacanis
Yeah
- DSDavid Sacks
... you, you look at. And the other thing-
- JCJason Calacanis
That's the key here because let me just explain that to the audience
- DSDavid Sacks
... the, the other, the other thing, just, just one other thing here is-
- JCJason Calacanis
Yeah
- DSDavid Sacks
... well, I think, I think when you look at a, a market, you look at revenue as the most important metric. That's the real test of willingness to pay. The other thing is, while this growth was going on, their margins were increasing. So I've seen stories saying that Anthropic's revenues come with 80-plus percent gross margins. So their margin profile has been improving at the same time that they're growing their usage. So I think that what you're seeing over the past year is, if you look at the numbers that I'm talking about, you actually see two companies pulling away from the others. And there are good reasons to believe that actually this is gonna be a self-reinforcing monopoly or duopoly, which is Dwarkesh just published a blog that I thought was super interesting, where he talked about the fact that, look, we, we do have a compute shortage, right? There's scarcity around compute. Uh, Anthropic is growing its revenues 10X year over year. What would that mean? I mean, it basically means that next year they would grow from 100 billion of ARR to a trillion, right? If there was enough compute to support that. There might not be enough compute, but that's gonna put pressure on compute prices, right? And so let's say that you're a new entrant in the market and you're trying to basically create a smaller, cheaper model. The price of compute is going up. It's gonna be harder for you to get access to compute, and only the companies that have the most lucrative algorithms are gonna be able to afford to compete for compute. In other words, there's gonna be a bigger barrier to entry next year because where are you gonna get compute unless your model is capable of generating-
- 1:01:15 – 1:14:45
Why are frontier labs "burning books"?
- JCJason Calacanis
a little bit about book burning. Anthropic is destroying rare books to get an edge in training data, according to sources. I happen to know [laughs] uh, that a lot of the labs are doing this. Uh, we'll show a video here of the spine being cut off, just on a technical basis. You take a book, you cut the spine off, and then you can easily scan it, as opposed to the less, uh, efficient way, which is to keep the book intact and flip the pages, uh, for obvious reasons. I think you can figure that out on a physics basis. Investigation by 404 Media, AI companies are bulk buying physical books. Some of the book se- book resellers have reported that they get 70 books getting bought, and obviously this is because there was a ruling that it is fair use to train on books if you buy them. Obviously, last week we saw Anthropic paid the largest copyright case in US history, 1.5 billion for 7 million books they allegedly pirated. Uh, authors get 3,000 each. Lawyers got 100 million for that one. But there's a company called ISBNdb, I-S-B-N-d-b, and they are the brokers who do this, and ranges from a thousand to a million books per transaction. Uh, pre-2022, these books commanded a premium because they were f- free of AI-generated text. In other words, you couldn't get them online. Google sent 25 million books, uh, if you remember, but they returned every single one. They spent 11 years in court on that. The shredder app- approach is, uh, obviously more effective, and I believe that this is a way of destroying evidence. You can put that in Conspiracy Corner if you like. The cases, we talked about this, Sax, you and I, debating it in Legal Corner, the cases of it being fair use to take these books has not been settled. There's a bunch of lawsuits, Thomson Reuters versus Ross Intelligence, New York Times versus OpenAI and Microsoft, and Publishers versus Google Gemini. We're watching all those, and they're going into the appellate court, so there's a chance that training data will not be fair use. But what do you think just about the books being destroyed and, you know, being used in this way? It obviously has made people a little emotional about it.
- DSDavid Sacks
Let me tell you what's going on here. This is an industrial-scale distillation attack.
- JCJason Calacanis
[laughs]
- DSDavid Sacks
That's what-
- JCJason Calacanis
Well played
- DSDavid Sacks
... Anthropic is doing.
- JCJason Calacanis
Yes. Yes. [laughs]
- DSDavid Sacks
They are, they are gathering these books at industrial scale-
- JCJason Calacanis
[laughs]
- DSDavid Sacks
... ripping off the spines, shredding them, and slurping up all the information in the books-
- JCJason Calacanis
Yes
- DSDavid Sacks
... which is to say distilling them, and it's an attack in the sense that the authors never agreed to any of this. So-
- JCJason Calacanis
I love the fact, Sax, that your hatred of Anthropic has now led you to agree with me that it's unethical to, uh, take other people's IP.
- DSDavid Sacks
No, no, no, no. Look-
- JCJason Calacanis
I'm joking [laughs]
- DSDavid Sacks
... let me be clear. I actually, I don't, I don't, um, hate Anthropic at all. I don't like their political philosophy because it's a philosophy of-
- JCJason Calacanis
That's what I'm talking about
- DSDavid Sacks
... centralization and gatekeeping, and I think it's gonna basically lead to an Orwellian big tech deep state alliance eventually is where it all heads. So-
- JCJason Calacanis
And rug pulling. Like, you want Dario-
- DSDavid Sacks
Right
- JCJason Calacanis
... pulling your, your model from you because he decides, like, "I don't like the way you're using it," which friend of the pod Emil Michaels pointed out, you know, earlier this year when he came on the show.
- DSDavid Sacks
Just to be clear, I have no personal animosity towards anyone in Anthropic, including Dario. I don't know them very well as people. Uh, it's just a disagreement about political philosophy and-
- JCJason Calacanis
You're judging them on-
- DSDavid Sacks
... and how to, and how to regulate-
- JCJason Calacanis
... their behavior
- DSDavid Sacks
... how to regulate the space.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
Yeah, let me just say furthermore that I wouldn't speak so much about Anthropic if I didn't think it was a phenomenal company that was creating potentially the most powerful monopoly or, you know, l- leader-
- JCJason Calacanis
It's the leading-
- DSDavid Sacks
... in a duopoly
- 1:14:45 – 1:24:44
Socialism Corner: Mamdani's grocery stores and the "Socialist Spectacle"
- JCJason Calacanis
has announced five city-owned grocery stores, David, one per borough. They're using city-owned space. They're all gonna open by 2029. And, uh, one week per month, shoppers are gonna get a 30% discount, comrade, on their bread, cheese, produce, meat, and milk for the glory of the country. Regular prices the other three weeks. They're not gonna sell cigarettes, alcohol, hot food, all that stuff, 'cause they don't wanna compete with the bodegas. It's gonna cost taxpayers 70 milli. I mean, I guess the only thing to discuss here is, like, what happens to the other supermarkets now? Are they gonna shut down because they can't make mo- the, whatever, 1 or 2% they're making on groceries? Is there gonna be, like, riots in the street to get into these places to get your milk for 30% off for one week a month? It just, the whole thing seems like a waste of time. But I will say, Sacks, this plays. This is gonna play in elections. Free stuff plays in an election, uh, whether it's a bus or discounts.
- DSDavid Sacks
It may play and, you know, look, when people first go to these stores and they first open and the shelves are full, yeah, the people will be, like, delighted, and then over time what's gonna happen is that the store shelves will be empty, and it's gonna be incompetently run, and there's gonna be a lot of complaints about it. And then all the, the free market stores are gonna have to compete with this, and then they may get put out of business, and so you might lose-
- JCJason Calacanis
And then you have no choice [laughs]
- DSDavid Sacks
Then you have fewer choices
- JCJason Calacanis
And you have to go to the state sponsored one.
- DSDavid Sacks
Yeah.
- JCJason Calacanis
And then they raise the price. [laughs]
- DSDavid Sacks
And it, it is ironic that they're gonna be checking ID to make sure people aren't coming over from Jersey, but if you wanna come over illegally from any country in the world, well, that's just fine.
- JCJason Calacanis
Yeah. They found a use for ID.
- DSDavid Sacks
[laughs]
- JCJason Calacanis
By the way, after you get your groceries, you have to hide your ID to go vote.
- DSDavid Sacks
[laughs]
- JCJason Calacanis
Don't bring... [laughs] Shred your ID when you go vote-
- DSDavid Sacks
Right
- JCJason Calacanis
... after you pick up your milk. They found a use for IDs. What's your take here, Friedberg?
- DFDavid Friedberg
Uh, uh-
- JCJason Calacanis
Are you in favor of people paying less for groceries, or are you a free market monster that wants people to pay full price for groceries?
- DFDavid Friedberg
I've seen nothing-
- JCJason Calacanis
Especially starving poor families
- DFDavid Friedberg
I've seen nothing but negative comments on the future failure of these grocery stores on Twitter, and I think that people have it wrong. I think these grocery stores are gonna be wildly popular.
- JCJason Calacanis
Hmm.
- DFDavid Friedberg
They're gonna pay their employees above market wages.
- JCJason Calacanis
Excellent.
- DFDavid Friedberg
Employees are not gonna have to work very hard to work there, so they're gonna be a better place to work. Everyone's gonna wanna use them. They're gonna outperform-
- JCJason Calacanis
Amazing
- DFDavid Friedberg
... Whole Foods, they're gonna outperform Safeway, they're gonna outperform Albertsons. They're gonna be so in demand, that what will end up happening is that over the next 24 months, every other city in America will look to these grocery stores and say-
- JCJason Calacanis
Hmm
- DFDavid Friedberg
... "We want the same."
- JCJason Calacanis
Yes.
- DFDavid Friedberg
"Why does only New York get these grocery stores? Why can't I have these grocery stores too, where I can have discounted food, where I can have the service provided to me by people that are getting paid above average wages, above market wages?"
- 1:24:44 – 1:36:30
Science Corner: Understanding and mapping the brain
- JCJason Calacanis
fans have been begging for a Science Corner. Do you have one this week? They want to know. Do you have something, oh Sultan, oh Sultan of Science? What can you tell us? Educate us.
- DFDavid Friedberg
Okay, so today I'm gonna pull up this paper. Nick, if you could pull it up.
- JCJason Calacanis
Hmm. A paper.
- DFDavid Friedberg
From February of 2026.
- JCJason Calacanis
February. Okay.
- DFDavid Friedberg
February.
- JCJason Calacanis
February.
- DFDavid Friedberg
How do you say February? February.
- JCJason Calacanis
February. February.
- DFDavid Friedberg
Fe- Fe- February.
- JCJason Calacanis
Oh, it's February. Well-
- DFDavid Friedberg
February
- JCJason Calacanis
... what's the problem with me?
- DFDavid Friedberg
Okay, so this is a group of researchers out of Budapest.
- JCJason Calacanis
Budapest.
- DFDavid Friedberg
And there was a really interesting Modeling exercise they went through to understand how neurons were connected in the brain to build a, a network model, a topological model. And the way they were able to do this is back in October of 2024, there was a group out of Cambridge and Princeton that used electron microscopes to scan the brain of the Drosophila fruit fly, and they mapped every single neuron in that fruit fly's brain, 139,000 neurons, and every connection that the neurons had to other neurons in the brain. So there were 50 million synaptic connections between the neurons, and it's those connections that make neural networks in the brain work. How are those neurons networked together to do the things that they do? This is the key question in what is that network model, what is the topological model of how neurons connect in the brain, which gives rise to our ability to control our bodies, to seeing things and comprehending vision, comprehending sound, and even the basic premise of consciousness itself.
- JCJason Calacanis
Yes.
- DFDavid Friedberg
So trying to understand the, the network model for neurons has been this kind of great endeavor of neurobiology forever. This data set was created in October 2024 with just fif- 139,000 neurons, and you know, that's a tiny, tiny, tiny, tiny brain.
- JCJason Calacanis
Yeah, this would be-
- DFDavid Friedberg
But with those-
- JCJason Calacanis
Pu- put it in context versus the human brain. I mean, what are we talking about here? Like...
- DFDavid Friedberg
The human brain has on the order of 86 billion neurons, okay, compared to 50-
- JCJason Calacanis
And so that means it would be a multiple for the network connections, right?
- DFDavid Friedberg
Yes, exactly. On the order of trillions of connections.
- JCJason Calacanis
Okay.
- DFDavid Friedberg
So they took these 50 million connections in the brain and the 139,000 neurons, and then they applied the network model that predicts whether a neuron is connected to another neur- neuron. That's how you're measuring the quality of the model, how correct is it in making a prediction. And when you build the model using what's called Euclidean geometry, so just normal space that we live in, three-dimensional space, they came up with a score, and the score was not very good. You couldn't do a great job of just looking at how all the neurons were connected using their physical relationship to each other, how far apart they are to each other in 3D space. So then they said, "Well, let's try and model how these neurons are all connected to each other in what's called hyperbolic space." Hyperbolic space is a theoretical type of space, unlike Euclidean geometry, where the further away you get, the wider space gets. So space actually is curved. I know that's a hard concept to describe, but imagine that, you know, as you and I walk farther and farther apart from each other, the area around us actually accelerates in terms of how much space there is, and it expands geometrically.
- JCJason Calacanis
It would be space as we know it, like three-dimensional space-
- DFDavid Friedberg
It wouldn't-
- JCJason Calacanis
... as humans understand it when they're on planet Earth.
- DFDavid Friedberg
Yeah. It's a little bit more like space that you would experience in the, the warping around a g- gravity well or the warping around a black hole-
Episode duration: 1:36:33
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