All-In PodcastCoreWeave Crash, AI Trade Cracks, Anthropic IPO Red Flags, Bill Gates Doomer
EVERY SPOKEN WORD
90 min read · 18,140 words- 0:00 – 2:18
Ben Horowitz fills in for Friedberg!
- JCJason Calacanis
All right, everybody. Welcome back to the number one podcast in the world, the All-In Podcast.
- CPChamath Palihapitiya
Actually, you, you manifested. We actually were number one. How good was that?
- JCJason Calacanis
We were [laughs] literally number one last week.
- CPChamath Palihapitiya
Pretty amazing.
- JCJason Calacanis
Only took, uh, only took a little bit of time to get there, but yeah.
- CPChamath Palihapitiya
Only took five years.
- JCJason Calacanis
[laughs] Only took five. Uh, yeah, five years went by so quickly. Uh, with us today, David Sacks is back. How are you doing, brother?
- DSDavid Sacks
Good.
- JCJason Calacanis
You good? Yeah?
- DSDavid Sacks
It's good being number one.
- JCJason Calacanis
Yeah.
- CPChamath Palihapitiya
[laughs]
- JCJason Calacanis
It's good to be number one. I agree.
- CPChamath Palihapitiya
Yeah.
- JCJason Calacanis
I agree.
- DSDavid Sacks
I've done an excellent job.
- JCJason Calacanis
You've done a-
- CPChamath Palihapitiya
[laughs] All right
- JCJason Calacanis
... a very good job.
- CPChamath Palihapitiya
[laughs]
- JCJason Calacanis
And now we will-
- DSDavid Sacks
Yeah.
- JCJason Calacanis
Now we'll see who takes the most [laughs] credit for the ascension of the All-In Podcast. Uh-
- DSDavid Sacks
Yeah
- JCJason Calacanis
... over to you, Chamath Palihapitiya. How's your week been?
- CPChamath Palihapitiya
It's great being the best.
- JCJason Calacanis
In the number one position, yeah?
- CPChamath Palihapitiya
It's great being the best.
- JCJason Calacanis
It is. It does feel good.
- CPChamath Palihapitiya
I mean, you know, we could've... I feel like Sacks and I would've gotten here at least 18 months sooner had we not had to drag you on our back. [laughs]
- 2:18 – 31:14
CoreWeave's debt selloff: did the AI bubble just pop?
- JCJason Calacanis
we've had a, an eventful week. We, uh, may have actually had the AI bubble, if there is one, pop or deflate a little bit. The Neo clouds got crushed this week after, uh, CoreWeave's bonds started to sell off. Could be the canary in the coal mine. We'll find out. Uh, CoreWeave, AIREN, Nebius, these are all the biggest Neo clouds. They're all down about 20% as publicly traded companies. Here's your chart. And here's what happened, just a little bit of background. On Tuesday, a bunch of people on X, including @chamath, pointed out that the yield-
- CPChamath Palihapitiya
[laughs]
- JCJason Calacanis
... [laughs] on some of CoreWeave's debt had hit 15%. The yields, uh, are obviously rising because bond traders are worried about CoreWeave's ability to generate enough cash to support its debt. So they want a, a higher rate of return obviously. Adding to Chamath's little tweet was a friend of the pod, Elon Musk, who decided to contribute five letters, one word [laughs]
- CPChamath Palihapitiya
[laughs]
- JCJason Calacanis
... that has since been heard around the world and is at the start of every story. He said, "Yikes," Y-I-K-E-S, and that generated a bunch of headlines. Then everything tanked yesterday, Wednesday. We tape on Thursdays, as many of you know. CoreWeave, AIREN, Nebius down between 10 and 15%. Even Oracle, uh, and Dell took some strays. Nvidia, uh, took stray as well. They were down 3%. CoreWeave is the tip of the spear. They've raised over $35 billion. We had, uh, the founder, we had the founder, Michael Intrator, on the All-In Podcast back in March, in which he explained to me on the All-In Interview Show what he called the box. Let's roll that tape and get Chamath's thoughts. How does all that debt work? That is something that you guys specialize in.
- SPSpeaker
I'm gonna try to explain this in a way people can understand. So we go out, and we find a client. Let's use Microsoft. You brought them up before.
- JCJason Calacanis
Yeah.
- SPSpeaker
Right? And Microsoft comes to us and says, "We'd like to buy some compute from you." And we say, "Okay, great. We're gonna sign a contract." Once I have a contract in hand, then what I do is I create something. It's not a particularly creative name. It's called the box.
- JCJason Calacanis
Yeah.
- SPSpeaker
Right? And what I do with the box is I take my contract with Microsoft, and I put it in the box. I go to Jensen, and I buy the GPUs. I put it in the box. I take my data center contract. I put it in the box. And now the box governs cashflow, and it has a waterfall of cashflow that comes into it and goes out of it. And so the way it works is then I build the compute, and then I deliver the compute to Microsoft, and they pay the box. They don't pay me. It goes into the box, and the first thing it does is it pays the data center. It pays the power bill. It pays the interest and the principal, and then whatever's left flows back to us. What's important to understand is the economics in this box are such that within two and a half years of a five-year deal, we have paid for everything. They don't cross-pollinate. They don't cause contagion across the boxes. They're all independent and discreet. As you do this, and as you show the lenders how this financing tool and how this financing mechanism works, what they do is they continue to lend you money at progressively lower rates.
- JCJason Calacanis
Okay, Chamath, uh, that seemed like a completely reasonable explanation of, uh, how they were running the business and that each of the boxes were isolated, but something has changed in the last six months. What is that, and, uh, w- what's changed here in, in your insights into his financial
- CPChamath Palihapitiya
... innovations, I would say, uh, with CoreWeave. The most important thing that you should always look at is how the sharps, the super smart money, prices risk. And when you're dealing with companies like CoreWeave or Nebius or iRent, et cetera, that have to borrow a lot to fund these boxes, the smart money is trading what's called a credit derivative swap, okay? This is default insurance, and these default swaps are meant to ensure the bondholders against a potential default. That risk spiked this week to about 953 basis points, which it doesn't matter what that number is, but as an imputed risk, it's about a 16% chance of a default in any given year. And over a five-year duration, what that math implies is about a 55% chance of a default. So it's a coin flip whether they default or not. That's not what I'm saying. That's what the insurance market was saying about their debt. And I think that's something to look into because those guys, I think, are the smartest money in, in all of this. So why did they do this? I started to dig into it, and here's a couple of charts that explains the little bit of what I learned. Okay. So the first thing is just a market check. You know, we've talked about this, but we have a problem in the United States, which is that the US is moving the risk-free rate higher and higher. Who is doing that? These are the central bankers. These are the bond vigilantes. These are the people that say because of inflation or other long-term risks that are not getting put out of the system, we need to get paid a lot more money to own the safest riskless asset. As that goes up, basic way to think about that is as the 10-year bond goes up, everything else goes up. And so this black line represents the average price that you have to pay for junk debt. And what you see is that as the 10-year went up and people were like, "Man, the risk-free rate's going up," the junkiest junk bonds need to pay more and more and more. And then the purple line here is what CoreWeave has to pay, and what you see is that it also has started to tick up and has moved up relatively violently. And so the question is why has it done that? Okay, so let's go to the next chart. Michael is right that he is in the business of creating these boxes and then putting in contracts and GPUs, but he also needs to put money in those boxes. And the way that he puts the money in the box is he has to go out and borrow that money. So he goes to a lender and says, "Give me the money, and I will pay you that back plus some interest." What you see here is what is inside of the box effectively. So the gray bar is how much money he's guaranteed to get into the box. These are all the deals he sold to all of his customers.
- JCJason Calacanis
These are contracts. Yeah.
- CPChamath Palihapitiya
These are contracts. Now, and it's important to note 'cause I'll get to this in a second, it turns out that these contracts are fixed price. So meaning if what you could sell in the spot market goes up, you don't really generate that revenue because you've already pre-sold it at a fixed number. So Michael creates the box. He gets a long-term contract, which is great because you have surety around the revenues you're getting, but he sells that. Then he goes and has to finance it, and then some of that financing comes due. He's got some bonds that are due and some loans that are due. What this basically says is at the midpoint, he has to raise another $35 billion of debt to get all of the contracts that he signed financed, right? All the boxes financed and up and running. So he has about 35 billion of debt. He needs to raise another 35 billion of debt. But as you saw in the chart before, that's ticking up. Not- And that has nothing to do with him. It is because the broader market is essentially saying the risk-free rate goes up, everybody has to pay more because your spread above the risk-free rate has to track with it. Okay. So today, across all the different pockets of money in which that they have used to fund those boxes, their average interest rate that they pay is about eight and a half percent. The problem is that in this last little while, the sharps basically said, "Hold on. This is getting too close to the knife's edge. You're gonna have to pay more interest." That's what I tweeted, which was just, you know, one of the sleeves of interest. This is the GPU loan DDTL 1.0 spiked to 15%. The problem is that could theoretically now be the rate that they have to pay for all of the future. And remember, half of it's financed, half of it is still unfinanced. Right now, these guys are at a pretty good place because they have about 78, 80 billion of assets and only 35 of debt, so they're well covered. So I think that, you know, this idea that they're at risk is not on the surface true. But the reality is that they have this problem, which is they have extreme customer concentration, 75% of the revenue comes from three companies. Some of those companies are walking down what their revenue expectations are into the future. So you have this situation now where you have to go out and borrow at a much higher rate. You have a bunch of debt you need to go to fund the boxes, and you have a fixed amount of revenue going into the boxes. So what is the trade or what is the setup? It's basically a coin flip now on the following idea. I think the market is saying that if they are able to finance this stuff at a reasonable rate and the life of the GPUs that they buy from Jensen are longer than what they think, they're gonna be okay. But if the financing goes up And into that, you know, 10, 11, 12, 13, 14, 15% range, these guys are getting very, very, very close to not necessarily being able to cover all the obligations that they have. My team's estimates is that they're plus or minus about 5 billion away from that breakeven point. So I think that's why the CDS spiked, which then caused the bond yields to spike and caused the bonds themselves to lay off. So in order of operations, number one, I think they've created this very novel structure that everybody else has copied with the boxes. Number two, they've sold these fixed contracts. That's super smart. Guaranteed a bunch of revenue into the future. But we have this situation where as the risk-free rate goes up, their cost of borrowing goes up. That erodes the margin that they have. That then brings them close to this breakeven point. That causes the CDS to react, which then causes the bond yields to react. That's the negative reflexive loop that they're in. So they just have to find a way to break out of that. I don't think that they're in real risk, but as we all know, this is sort of a confidence game, and you need to have confidence that the broader market can support another 35 billion just from these guys, and I think that's what's gonna get figured out over the next month.
- JCJason Calacanis
All right, Ben, so you look at this situation. You've been through a couple of bubbles before. [laughs] Maybe have a little PTSD or scar tissue, in fact.
- CPChamath Palihapitiya
Yeah.
- JCJason Calacanis
Um, and we saw CoreWeave bounce today, kinda hit a bottom. Stock's up 1 or 2% right now after going down 10%.
- CPChamath Palihapitiya
Mm-hmm.
- JCJason Calacanis
Is this acute? And then what does it mean for the broader AI trade, the AI bubble? Is there a bubble? And, and we'll get into Anthropic in a minute. Sacks.
- BHBen Horowitz
Yeah. So, so I think that, um, the, the first thing to understand is these, these businesses, like CoreWeave, as, uh, you know, Chamath kind of went through some of it, but they're Rube Goldberg financial machines. They're exceptionally complex. Um, so, you know, we talked about, okay, GPU contracts and this, but he's got data center contracts. How long are those? And, and then there's... h- he's gotta buy memory, like, and there's memory shortage and this and, and that. So, so it is really complex. The other thing, um, or, or the other interesting thing is, yes, GPUs, not only have they been... They've been going up in duration and in price, so that's been, like, a big tailwind for him, uh, as the owner of such things.
- JCJason Calacanis
When you say duration, you mean the lifespan, the-
- BHBen Horowitz
Yeah, the lifespan has been longer
- JCJason Calacanis
... the number of years you get value from that. It was three, four, five. Now it's six, seven, eight.
- BHBen Horowitz
Yeah. And there's a shortage, um, like a real shortage of GPUs with power and cooling, and, and I-
- JCJason Calacanis
Right
- BHBen Horowitz
... kind of caveat that, right? Like, which is what he has.
- JCJason Calacanis
Right.
- BHBen Horowitz
Uh, and, and this, this, this shortage is so bad. You know, I was, uh, speaking with Andy Jassy, who runs Amazon, yesterday, and I said, "Yeah, like, we're out of everything, you know, till 2028." He's like, "Oh, it's beyond 2028, Ben. Like, I don't think we get stuff back, like, end of 2028, maybe." Uh, so everything else is sold out. So he, he has the advantage of that he's got supply in a great shortage, which is extremely different than the internet bubble. The internet bubble, we didn't have enough demand because we had to build the internet. People had to get broadband. You know, you [laughs] needed, uh, all this stuff. People had to buy. You know, originally they had to get their browser at Fry's, all this kind of thing. There weren't enough consumers on the internet to absorb all the bandwidth that had gotten built out, and they had a massive amount of debt, not unlike, uh, we're building today, although not as big. Um, but, but the lack of demand killed it. We don't really have a lack of demand in AI, so I think the dynamics will be different. Uh, I do think, like, the, the... For sure, if you get into a pathological debt situation, that can wreck anybody. Uh, it's why, um, [laughs] by the way, we're not invested in any of these, uh, NeoClouds either for that reason 'cause that, that, that whole thing scares me, having been through it. But, but I, I would just say it's pretty complicated, uh, and it really depends on a huge number of assumptions in this-
- CPChamath Palihapitiya
But can we-
- BHBen Horowitz
... very-
- 31:14 – 45:44
AI's deflationary impact: decompiled software
- JCJason Calacanis
I'll tell you the other big piece here that might be a bigger threat, Sacks, is the deflationary nature of this AI, this super intelligence rather, movement. We talked last week about people decompiling Photoshop going to zero. Now, this week, Hood Warfare came out. It's basically people are making platform level games for five bucks. It's so deflationary. Uh, there's an Eleven Labs competitor that came out that's incredibly cheap, and then every single open source model being hosted and Elon saying, "Hey, we'll just route you with our orchestration level to the best model, open source or not." How, how big of a, h-how big of a headwind do you think that is, Sacks, to our industry, just the commodification and how rapidly things are just having ninety percent of the va-value removed from them? And i-is that gonna stop, or is it gonna accelerate? It feels to me like the deflationary nature of this software AI super intelligence is unique and different than anything we've ever seen. People are just able to rip and ship code so fast, it makes me wonder, like, what is the margin of software in the future?
- DSDavid Sacks
Well, we want everyone to be able to create software, especially bespoke software, which is really this new category, right? That is gonna be a huge driver of productivity throughout the economy. I mean, it's not all just like, uh, zero-sum games or disruption. The value of these coding assistants is that now you can create software for highly bespoke use cases, whereas software used to be created really just for the mass market. I mean, the reason why Photoshop's a successful product is there's a lot of graphic designers who need to use that product, and really, the only software that could ever get created in the past was when there was a large potential customer base for that. Now we're getting all these cases where enterprises can create software just for their particular use cases, and in fact, in a way, that's what agents are, is that they're bespoke software programs to solve a particular task.
- JCJason Calacanis
But if people build those in-house, Sacks, and they're based on open source, you don't need the other piece of software that it's repl-re-replacing, so isn't that extremely deflationary?
- DSDavid Sacks
Maybe there's some substitution away from established software.
- JCJason Calacanis
Yes.
- DSDavid Sacks
But I think the important point is just there's this vast new category of software being created. I mean, the amount of code that's being created now is orders of magnitude already bigger than it was before coding assistants. So again, people just tend to think in terms of these zero-sum games and who's gonna be wiped out or eliminated, but the really important trend here is just that there's gonna be a lot more software created in the world for a lot more of these bespoke use cases. Enterprises are now able to create software for a much broader array of purposes. There's companies that never would have been software companies before that are now creating their own software, and they're hiring coders basically to manage the process. By the way, I think this is a really important point around. Remember with the whole jobs apocalypse, the first job category that predictors of the apocalypse were saying would be eliminated were software coders, obviously.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
Because why do you need them anymore?
- JCJason Calacanis
Then everybody became a developer. Now everybody's shipping code. Yeah. [laughs]
- DSDavid Sacks
Now we're seeing that actually demand for coders is increasing, even though ninety-five percent of the code's written by coding assistants. And the reason for that, again, is, well, first of all, you still have that five percent, and that five percent is of a much bigger pie, and you still need someone who can look under the hood and manage the whole process, and they need to be-
- JCJason Calacanis
And maintain it, right?
- DSDavid Sacks
... somewhat technical.
- JCJason Calacanis
They have to maintain it.
- DSDavid Sacks
And maintain it.
- JCJason Calacanis
Yeah.
- DSDavid Sacks
So the maintenance.
- JCJason Calacanis
That's a big piece. Yeah.
- DSDavid Sacks
So in any event, look, I, I think this whole, you could say, new category of bespoke software created by the proliferation of coding assistants and agents and all of that is just, I think it's gonna be just a huge driver of productivity throughout the economy. And is that broadly deflationary? Probably in a good way because it means that we can do more with less, and we need to bring prices down.
- JCJason Calacanis
Certainly great for the country, right?
- DSDavid Sacks
Yeah.
- JCJason Calacanis
That everybody is gonna be more productive, Ben. But do you worry about our industry, the venture industry? Uh, and we have these great hits, and then the second they become a hit, somebody can decompile it, create a competitor, and ship it very quickly. It feels distinctly different in this, uh, you know, um, boom, uh, to previous ones. So do you think this is gonna be a challenge for us to get DPI for our LPs? Um, is this going to be a challenge f-for the sustainability of great software fran-franchises? Ben? I, I can, yeah. Look, I, I don't, I don't think so. Like, this, this has been the ongoing prediction starting with the SaaSpocalypse.
- DSDavid Sacks
Yes.
- JCJason Calacanis
Um, but I think that David, David's right is that what's happening is prices, software prices will definitely go down. Um, but the amount of software is going way, way up. It's the [laughs] it's the Jevons paradox of software.
- DSDavid Sacks
Sure.
- JCJason Calacanis
Uh, and you know, these companies end up doing other things more than just the software. So w-we had this on the internet, and the internet information's gonna be free. That's it. All these industries are-
- BHBen Horowitz
Dead, but they kind of reemerged in a different way. Um, and I think that th- that's very likely what's gonna happen. So from a startup's point of view, you've got to evolve. Um, and so, you know, E- ElevenLabs does many, many things to make their product better over the years. It's, uh, that example that you brought up, and they've got, like, licensing agreement, like Burt Reynolds will read you a book or this and that and the third. Um, so they're doing more than just software, um, because they can, because the software is easier to write. The model they're training on very, very, very nuanced cases, which is why, you know, movie dubbing is so amazing now, where it sounds like they're just acting in a different language. Um, so th- there's more to it than just, you know, speech to text or this and that. Um, and, you know, those... So I think the products are gonna have to get way better, and the startup's products will have to get way better, which is amazing for everybody, and then that's where the value will be. But yeah, just, like, writing software is not gonna have any more value than, like, publishing a magazine.
- DSDavid Sacks
The moats will change.
- BHBen Horowitz
So it's creating massive competition. Yeah. Yeah. Yeah.
- DSDavid Sacks
The moats will change. You know, you gotta think-
- BHBen Horowitz
Yeah
- 45:44 – 1:03:45
Anthropic's investor day gets mixed reactions
- JCJason Calacanis
off the bat. If CoreWeave wasn't enough, AI sector got double banged on Wednesday [laughs] after Anthropic investor day numbers got a mixed reaction. Anthropic is planning on going public around Thanksgiving. Polymarket says now 74% chance they go public this year, down from 95% in early September when they said everybody was gonna die from their software.
- CPChamath Palihapitiya
[laughs]
- BHBen Horowitz
[laughs]
- JCJason Calacanis
But on Wednesday, the company presented the potential I... I mean, you can't make this stuff up.
- CPChamath Palihapitiya
[laughs]
- BHBen Horowitz
Yeah.
- JCJason Calacanis
Presented, uh, potential IPO investors, uh, at their headquarters in San Francisco. Now, this isn't the bugged headquarters of OpenAI. This is, they swept the room for this, but we still have the data. Q3 revenue, $16.8 billion. Think about that, gentlemen, over $5 billion a month already for Anthropic. Net revenue retention was 900%. That means customers spent nine times more than last year. Pretty good, huh, Sacks, on the SaaS front. They also said they are free cash flow positive, adjusted gross margin 85%, adjusted operating margin 11%. No word on how the adjustments were calculated, but here's the big one. ARR estimates range from 70 billion, which basically would be flat since July, which is a bad sign, to over 100 billion. So there is some hand-wringing about what numbers are correct here. They did not disclose those numbers. These are just secondhand estimates by investors who might be a little leaky. Obviously, Anthropic is targeting a ginormous, unprecedented valuation of two trillion. And that is based-
- CPChamath Palihapitiya
Ben, is it, Ben, is Andreessen-
- JCJason Calacanis
... on them growing violently, not, uh, [laughs] growing slowly. Go ahead, Chamath, you had a question.
- CPChamath Palihapitiya
No, I was just gonna say, Ben, is Andreessen long one of the foundation model companies, like the, one of the two big ones?
- BHBen Horowitz
Well, we, we have a lot more stock in OpenAI. Um, but-
- CPChamath Palihapitiya
OpenAI. Got it
- BHBen Horowitz
... yeah, I, I, I would say, you know, philosophically we're long both of them, I think.
- JCJason Calacanis
You're long both of them.
- BHBen Horowitz
Yeah.
- JCJason Calacanis
Which, which is kind of a strange thing now, Ben. You, you've gotten so big, you consistently have bets on the number one and number two player. Uh, uh, how, how is that working out in the market?
- BHBen Horowitz
Well, now, we, I mean, I, I, I would say that there are w- many investors in both of those things. So I, I think, like, in venture, we call it venture capital, but venture capital has subsumed, um, a huge part of what used to be the public markets, and I would consider, uh, both OpenAI and Anthropic to be in that category. Um, where they're, they're not really venture capital where you're worried about your venture capitalist being invested in, you know, your competitor because they're gigantic. Uh, you know, they're, they're, they're not A round, B round companies anymore. Um, so that, that part of the market, I think people You know, when you're raising by the, you know, tens of billions of dollars, y- you don't care where the money... As long as it's green. Like, they're just taking it.
- DSDavid Sacks
You need everybody.
- BHBen Horowitz
Yeah. Yeah.
- JCJason Calacanis
That, that what used to be mezzanine financing, pre-IPO financing. Yes, there's less hand-wringing about the conflicts there?
- BHBen Horowitz
Yeah. I, I wouldn't even call it mezzanine financing at that level. I think y- you know, with... Th- this is just, like, we did a lot of regulatory moves in the late '90s and early 2000s, which, uh, really made the public markets much less attractive for companies, and the private markets grew to absorb, um, that business, which has been, I think, very bad for America. It's increased the, the wealth gap and so forth, but it is what it is. And so I, I wouldn't consider that. That's very different than, like, investing in two A round companies doing the same thing.
- JCJason Calacanis
Yes.
- BHBen Horowitz
I still think that's a-
- JCJason Calacanis
That would be-
- BHBen Horowitz
I think that's-
- JCJason Calacanis
The Uber list thing is distinctly different than Anthropic OpenAI at 2 trillion.
- BHBen Horowitz
Now, yeah. Yeah.
- JCJason Calacanis
Understood.
- BHBen Horowitz
Exactly.
- JCJason Calacanis
One is a reaction to the other, in fact, right?
- 1:03:45 – 1:22:19
Psyop Corner: Anthropic warns about self-replicating models on IoT devices
- JCJason Calacanis
[laughs] We'll go to Conspiracy Hoax Corner for you, Sacks. Anthropic says small models, you may have heard of, uh, vertical models, small models, small language models, SLMs, could start self-replicating on your smart home devices. Yes, that's right. On Monday, Anthropic published a blog warning that rogue models could start copying themselves, quote, "In just a few months." It's only months away, Sacks. They claimed a worm, which is a software, uh, a, a software package that can propagate itself, would carry model weights to an IoT device. That's an Internet of Things device, IoT, to set up inference and then, uh, move on. This means your smart TV, your doorbell cams, your Ring, your, your drop cams, your robot vacuums, your Roomba, could start having the next set of swarms. These would be physical swarms on IoT devices, apparently. With no central off switch, Anthropic says it would be, quote, "challenging to shut down." They ran some tests. They wanted to see if this would work, I guess. A small model got inference running on eight of nine hardware types tested, so they're testing the takeover. A large model ran across 15 smart TVs at 0.4 tokens per second, which is absurdly slow. But basically what they showed is a small model can in fact install itself on IoT hardware, which is everywhere, and easy to hack, as you probably read. Anthropic says there's no full rogue replicator yet, just, quote, "signs of life." They had to say signs of life, Sacks, to troll you. So here you are, Sacks. You wake up, and you, you get yourself out of the tsar position-
- DSDavid Sacks
[laughs]
- JCJason Calacanis
... and they're still dragging you into this meshugana.
- DSDavid Sacks
Yeah, look, it's... You, you ever see the, the graphic with the cat in the tinfoil hat? You know, "I wake up, there's a new Anthropic psyop."
- JCJason Calacanis
[laughs]
- DSDavid Sacks
That's what's going on here. Look, it's plain as the nose on your face. They're trying to create a panic. This is their latest panic against open source.
- JCJason Calacanis
Mm.
- DSDavid Sacks
Now they're particularly going after small models. By the way, small models are the safest models, because a small model doesn't have the capability to become a new species or all the other X risks that they're always talking about. So these are basically small purpose-built models to work on a particular task, like, you know, a customer support workload or something like that, and they're basically trying to make it sound like these small models are dangerous. They can take over your toaster or your refrigerator or something like that. It's almost comical. You know, we've gone from the Terminator is coming to your toaster's gonna kill you, but it's just more of this, like, fearmongering from them. And I mean, the, the reason I say it's a recurring pattern, there was actually a, a second Anthropic blog post this week as well about distillation. Basically, the other blog post that Anthropic released said that they had eliminated 90 to 99% of distillation. Now, I don't know if you guys remember this, but way back-
- JCJason Calacanis
Yes
- DSDavid Sacks
... in July-
- JCJason Calacanis
Yes
- DSDavid Sacks
... Anthropic was pushing this idea that they were the victims of industrial-scale distillation attacks, which is basically when, you know, Chinese models or other competitor models pay to use their service And then train on that output. And, um, they were basically saying that the government need to get involved and need to stop this, that these open models now were the result of IP theft, is what they claim, even though frankly they've distilled the entire internet.
- JCJason Calacanis
They could have stopped it. Yes, and they could have stopped it themselves. Yeah.
- DSDavid Sacks
Yeah. And by, by the way, this was such a big threat, or perceived as such a big threat back in July. We did a whole episode on it, but 50 major companies, including Nvidia and Dell and Microsoft and many others, and actually a16z, signed a letter, an open letter to the government saying, "Do not overly restrict open weight models. They're tremendously beneficial for our economy." 200 startups signed another, another letter because there really was this big push in Washington to crack down on open models on the basis of this supposed IP theft. Now, my argument at the time was that it should be up to the model companies themselves to stop distillation, because once the distillation happens, the horse is out of the barn. The government can't do anything to put the horse back in. It's up to the companies themselves to know their customers better. Chamath, you made the point, they should just do KYC. Know who your customer is and stop them. And now they have come out with a blog saying that's exactly what they did, which is exactly what I predicted, but that is not what they were advocating for. Instead of, you know, several months ago, they came crying to the government to, "Hey, you gotta solve this problem for us by taking out our competitors." And it would have had the exact opposite effect because it would have done nothing to actually stop distillation. The distillation would have kept going, right? Only the companies themselves could mount the technical defenses to stop it, and it would have just made the market less competitive. So in any event, we basically called them out, and fortunately, the administration rejected the idea of regulating open source in that way at that time. And so as a result, Anthropic had to actually build the technical capabilities to detect when distillation was happening, and they've stopped it. They've basically proven the exact point that we were making three or four months ago, which is-
- JCJason Calacanis
Yeah
- DSDavid Sacks
... they were in the best position to stop it, and they could stop it, and they should stop it, and they should not push this onto the government. Okay? So but again, this is like a r- recurring pattern with them, is, you know, th- they point to some technical issue or technical challenge, and then they go running to the government, they create a scare campaign, and they try to get the government to stifle competition.
- JCJason Calacanis
Instead of just fixing it themselves. Yes.
- DSDavid Sacks
Yeah. And the latest example is, let's go back to this blog post on these supposed AI-powered worms that could infect your IoT devices, okay? I think the first thing to say about this research that they did, this study, is there is no such thing as AI-powered worms right now. It does not exist. They are basically trying to create an experiment. They prove that it could exist. Well, guess what? There already are worms out there that infect IoT devices. They're making it sound like these things don't exist. They're not AI powered, but hackers have written these worms that-
- JCJason Calacanis
Exploits, that exploit-
- DSDavid Sacks
They can write exploits
- JCJason Calacanis
... people's locks or cameras and-
- DSDavid Sacks
Yes. So for example... Okay, I'll give you a couple examples. There was one in 2016 called Mirai. It scanned for default credentials, and it built a massive DDoS botnet based on infecting IoT devices. And more recently, there was one called Kimweef, which infected 2 million of these cheap Android TV boxes by hitting what are known as open ADP ports. So essentially, these devices are very easy to infect because they've got open ports and, um, they-
- JCJason Calacanis
The people didn't change the base password. They just threw up their network. Yeah
- DSDavid Sacks
They come with, like, a default password, like 0000, with it, that don't get changed, and they can't be patched, right? So they are sitting ducks. So these worms already exist, but the, the argument that Anthropic is making is that somehow these worms are gonna get worse because they're gonna be AI powered, so they're gonna be more adaptive, and then once they're on the network, they can scan-
- JCJason Calacanis
I mean, call it what it is, Sacks. They're making up scenarios [laughs] that get a lot of attention. These are fantastical. [laughs]
- DSDavid Sacks
Well, I mean, look, here's the scenario. I'll steal Mano for a second.
- JCJason Calacanis
Sure.
- DSDavid Sacks
What they're saying is that the worm is now gonna contain a small AI model, and then that model is gonna search for vulnerabilities on the network, and then it'll be able to infect things that it couldn't infect before. Okay, that's the scenario. Here's the, the counterargument. What a hacker would really do is that when they're designing the worm, that's when they would want to use AI to basically write, you know, a better, more nefarious worm. What you wouldn't want to do is actually embed a model inside the payload of the worm, because that slows down the worm. And like you saw, the tokens get generated at 0.39 per second. It's very, very slow. So essentially what you're doing is you're actually embedding a weak model in the payload, and that would actually slow down the rate of infection. So there's trade-offs there, right? It's like, okay, maybe the worm is more adaptive, but the reality is it's slower and less efficient. And then finally, you know, the thing that they don't really point out is this is gonna be a relatively easy problem to fix. Where we're headed with IoT is you're gonna have a brain device, you know, on your home network. Apple just announced they're getting into the whole home automation.
- JCJason Calacanis
Yeah, they got HomePod or something. It's a little Mac Mini.
- DSDavid Sacks
Yeah, it's gonna be like...
- 1:22:19 – 1:34:02
Understanding Bill Gates the Doomer
- CPChamath Palihapitiya
weird, there's a weird form of martyrdom, which is if you believe so deeply that this is a, a next and better species, maybe you induce something bad to happen so that then we all have to lock it all down.
- BHBen Horowitz
Hmm.
- CPChamath Palihapitiya
Does that make sense?
- BHBen Horowitz
Bill Gates essentially induced COVID, right? Like, or he led the movement to say, "Oh, we've got to worry about this global pandemic that we don't have, and we've got to really kind of push the world to deal with this potential threat that's not actually a live threat."
- CPChamath Palihapitiya
Right.
- BHBen Horowitz
"And so we'll do gain of function research, and I'll fund it." And then lo and behold, we create the thing. By the way, there has not yet been a nas- a natural pandemic.
- DSDavid Sacks
Exactly.
- BHBen Horowitz
Uh, w- and we create COVID, which is one of the most- ... destructive things
- CPChamath Palihapitiya
We manifested what you're saying, Ben.
- BHBen Horowitz
We manifested it.
- DSDavid Sacks
Well, we did, yeah.
- BHBen Horowitz
I think the Anthropic, the Anthropic team-
- DSDavid Sacks
Well-
- BHBen Horowitz
... is manifesting, uh, a similar thing, saying, "Okay, there's this... Th- it, this is gonna be super-duper intelligence. We're gonna have, you know, these things that we're not on track to have."
- CPChamath Palihapitiya
Hmm.
- BHBen Horowitz
And so then we're gonna tell the model that it's smarter than us and better than us, and guess what? As David was saying, like, that's probably the biggest danger with AI right now is what they themselves are creating.
- CPChamath Palihapitiya
Right.
- DSDavid Sacks
Absolutely. And just, you know, when you use the word manifest, it wasn't just sort of like speculating about it. I mean, somebody had to go deep in those caves to basically find those bat viruses-
- CPChamath Palihapitiya
Yeah
- DSDavid Sacks
... and then they bring them to the lab and do gain of function research on them.
- CPChamath Palihapitiya
Yes.
- DSDavid Sacks
And, you know-
- CPChamath Palihapitiya
Yeah
- DSDavid Sacks
... the, what, what's the argument for this? Well, one day, you know, uh, the, the bat virus-
- BHBen Horowitz
Somebody's gonna eat a bat at a wet market.
- DSDavid Sacks
Yeah.
- BHBen Horowitz
Yeah. [laughs]
- DSDavid Sacks
Yeah, one day the bat virus is gonna get out, and it might mutate into the, like a more nefarious virus. It's like, wait a second. So-
- CPChamath Palihapitiya
And somebody might eat a pangolin
- DSDavid Sacks
... the thing that you say might happen but actually was never gonna happen 'cause no one needed to go in those caves-
Episode duration: 1:34:05
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Transcript of episode _b3LfMflIGs
