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Why Iran's oil shock is really about China's energy needs

Brent crude swings tracked the escalation. Goldman flagged inflation; Chamath argues China's oil exposure to Iran makes Beijing the true off-ramp lever.

Jason CalacanishostBrad GerstnerguestChamath PalihapitiyahostDavid Sackshost
Mar 13, 20261h 20mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 3:48

    The Besties welcome Brad Gerstner!

    1. JC

      All right, everybody. Welcome back to the number one podcast in the world. Freberg's out saving the world, creating new potatoes or, I don't know, quinoa, maybe some Brussels sprouts. I'm not sure what he's working on at this point. In his place, his personal favorite bestie, he always says that, "When I'm not here, I want Brad Gerstner in the seat." Welcome back. We haven't seen you on the pod since your shout-out at the State of the Union. Take us behind the scenes for a brief moment here, Brad, of what it's like [laughing] to get a shout-out from POTUS at the State of... Did you know it was coming? Did you choreograph to this thing? Did you, did you choreograph that, or was that more spontaneous?

    2. BG

      I, I honestly had no idea it was coming. And in fact, I, I found out after the fact that it wasn't in the speech and the president added it to the speech, so I don't even think it was, you know-

    3. JC

      That's so awesome

    4. BG

      ... a few days, few days before going to happen. But we got an invite to the State of the Union and, you know, listen, it's an institution. This has happened every year for 250 years in the country. I've never been. I thought-- I did know he was gonna talk about Trump accounts, so I figured if I'm ever going to go, that's the time to go. And I have to say, you know, I'm just a sucker for democratic institutions and democratic traditions. It w- it was an extraordinary night. Set aside, you know, the headlines about what Democrats did or Republicans did, just the, whether it's a Democrat president or Republican president, that this happens every year. You have to go report on the State of the Union. So it was a, it was a special night. Did dinner ahead of time. We're in the chamber. The chamber, as you all know, is very small. And so, you know, just to your right was the First Family and, and Jared and Ivanka and... And so, you know, we were there as a, to observe like everybody else. And wow, it was, it was quite a moment and-

    5. JC

      I wanna just say, you did a great job because when you sent your heart out [laughing] to all of America-

    6. BG

      I took it. I took it. I took it. I was like, oh [laughing]

    7. JC

      You sent it out, but you kept it at the right angle.

    8. BG

      Right. Right. Yeah. That was it.

    9. JC

      If you had just gone up a little bit extra and out another five degrees-

    10. BG

      It'd been no bueno

    11. JC

      ... you'd be Nazi.

    12. BG

      That'd b- would've been no bueno.

    13. JC

      Those would be some super racist Trump accounts. [laughing] Keep your protractor and your ruler out when you send your heart out. Okay.

    14. BG

      One final thing on it, Jason. You know, we're signing up over 100,000 kids a day to these Trump accounts.

    15. JC

      Fantastic.

    16. BG

      We, we have millions of kids who've already claimed their account. We have nearly 30 million kids in America who are eligible for at least $250 if they just go claim their account. These things are gonna go live on July 4th. And what it really showed, I think, the country, it accelerated after the State of the Union because the president, you know, really believes this is a way to get everybody, Main Street America, into the game of capitalism and get them all directly owning, you know, the great companies in America. So it meant a lot to me in that regard, that it highlights the importance of the program. So I was deeply grateful to the president for not only making sure this happens, but the shout-out was pretty cool.

    17. JC

      Good for you, bro. I have, um, an interesting, uh, idea for you. I'm sure it's come up already, but with this whole discussion of UBI. Somebody said to me, "Oh, you know, I really like these Trump accounts your friends did, the, the Invest America, because it's like the start of UBI." And I was like, "Well, that's not exactly the intention, but I get it." And with wealth disparity going on in the country, that has a lot of people concerned. What if there was a giving pledge around equities? And people could opt into it. They don't have to. But if somebody like, I don't know, Larry and Sergey or Zuckerberg said, "I wanna pledge 5% of my shares to go into kids' accounts over the next twenty years," what an amazing, beautiful thing that could be. And it would be incredibly material to get whatever it is, a tenth of a share, a hundredth of a share, a thousandth of a share of whatever company. Has that come up yet as an idea? I'm sure it's obvious, right?

    18. BG

      It's come up. Stay tuned. But yes, we're going to have some banger announcements as we head towards July

  2. 3:48 – 19:18

    Economic fallout of the Iran War, escalation scenarios, impact on midterms

    1. BG

      4th.

    2. JC

      Love it. All right, let's talk about the war in Iran. Obviously, there are much more important issues than financial ones, life, death, the freedom of the people of Iran. But we're uniquely qualified, I think, to talk about the economic fallout, second order effects, first order effects. And there has been massive volatility over the last five trading days. Just talking about Brent crude oil, w- and we'll, we'll key the discussion off of that type of oil. It spiked to $84 on Friday. That was day seven of the war. 119 on Monday, day 10. Dropped back down to 84, jumped back up to 100 after three commercial ships were hit in the Strait on Wednesday. Those ships, by the way, were not oil tankers. Uh, they were carrying cargo. They were flagged as Thai, Japanese, and Marshall Islands. Brent crude currently at 99 when we're taping this. It'll be at something different by the time you listen to the pod, I'm sure. But it's, uh, quite a spike. And here's a second chart. This shows you the spikes over time. I was old enough to remember the oil shock of 1978. Uh, we had to, like, get in line at the gas station based on your license plate number, and, uh, you had to wait an hour or two to get gas. Gulf War, obviously it hit $100 in 20-- $26. 2008, we hit kind of a peak moment, $216 in today's dollars. That was the peak oil discussion. Demand from China went off the charts. When Russia invaded Ukraine, we hit 115, which would be 133 in today's dollars. So this is, uh, not new, but it is significant. And breaking news today, Iran's new supreme leader, Mojtaba, says he's keeping the strait closed as a tool to pressure the enemy. Wall Street Journal on Thursday quoted a senior fellow at the Middle East Institute saying that reopening the strait will require ground troops. Polymarket, 27% chance that US forces enter Iran by the end of March, and 57% by the end of the year. So the sharps over at Polymarket believe we will have boots on the ground. Let me stop there. Brad, your thoughts on what happens when oil hits this kind of number and we have this uncertainty of, hey, this could last, you know, two more weeks, or it could last six months, it could last a year. Nobody seems to know. And how it resolvesWe just had a really interesting talk with Graham Allison. Um, how it resolves is also a major unknown. Your thoughts?

    3. BG

      Right. The, the-- So first is obviously there are huge direct costs as oil prices go up, right? Oil is a component of a lot of consumer, you know, and enterprise products, and it also hurts consumer confidence, enterprise confidence. Goldman Sachs is out today with some analysis where they updated kind of the economic knock-on effects, right? So they raised their PCE inflation forecast from two point one to two point nine, right, for the year. So that's a huge jump, right, in terms of their expected, you know, PCE inflation. Core PCE, which excludes oil, okay, is they forecast it up, uh, from two point two to two point four. So they're saying even if you excluded the direct price of oil, the knock-on effects is gonna cause a little more inflation. They lowered their GDP forecast by thirty basis points for the year, and they also expect higher unemployment as a result of this for the year. All of that is weighing on the sentiment of the market. Remember, just a few months ago, the S&P peaked at twenty-four times. Now we're at twenty-one times. But I think the market may be getting it a little bit wrong, right? The Trump doctrine, you know, I tweeted about this last week. I think the Trump doctrine is far more pragmatic than the neocon doctrine, right? I think we, uh... I think Trump has a very limited set of goals. He wants to destroy and degrade threats to America's national security interests. He doesn't want to spread democracy. So my suspicion is that these impacts are shorter duration. But right now, the market's having a little bit of post-traumatic stress, flashbacks to Afghanistan and Iraq, and wondering if we might be wandering into a quagmire.

    4. JC

      All right. And just-- He may not, um... In terms of the doctrine, he has said he wants to see, uh, the people rise up there. So m-might be splitting hairs, but I think, uh, he might actually be for [chuckles] regime change. He says he wants the regime to change.

    5. BG

      All else being equal-

    6. JC

      Yeah

    7. BG

      ... I don't think he minds if the people bring it to themselves. The question is whether the US is gonna, you know-

    8. JC

      Sure

    9. BG

      ... put boots on the ground and try to spread Madisonian democracy, like, like the Cheney doctrine was, and I think this is very different.

    10. JC

      Chamath, uh, your take on the economic impact and, you know, and any other, uh, things you'd like to add about the war in Iran.

    11. CP

      I think the most important thing that I saw this week was I think President Trump was asked about the war, and he said the war would be over very soon. What did the market do? The market literally took oil from one twenty a barrel to ninety a barrel almost in, you know, a nanosecond. I think that that sort of tells you what everybody thinks. To the extent that the market really didn't believe it, oil would not have budged, and if anything, it would have faded those comments, and you probably would have seen oil stay at around a hundred and twenty or even go slightly higher. So the fact that there was this reflexive move, I think, is a belief by a lot of the sharps that there is no path to a sustained conflict. There's gonna be a lot of chest bumping from the Iranians, obviously, because they need to save face, and they will want to set up whoever comes next to have the most successful chance of governing. So my perspective is that was a trial balloon. I think it validated what everybody thought, which is that this is gonna be a short-run thing. I agree with that. The downstream impact is, I think, correct what Brad said, which is it could show up in some short-term price spikes. But then on March eleventh, you saw what Chris Wright did, which is the president activated a whole bunch of member countries in the IEA, and I think Chris released a hundred and seventy-two million barrels. I think there's a coordinated release of about four hundred million barrels of petroleum. That's gonna dampen the effect of any price spike. On top of that, I think the estimate is there's probably another billion or so more barrels that one could release out of strategic stockpiles. So I think that both of these two things together kind of paint a picture that probably the worst is behind us, and I think now it's about finding the off-ramp.

    12. JC

      Sacks, your thoughts.

    13. DS

      Well, I agree that we should try to find the off ramp. I mean, I agree with what Brad and Chamath said about that. Look, we've degraded Iranian capabilities massively. Their army, navy, air force, all been destroyed. This is a good time to declare victory and get out, and that is clearly what the markets would like to see. You are seeing, however, a faction of, of people, I'd say largely but not exclusively in the Republican Party, who want to escalate the war and who are calling for things like ground troops or regime change, or they simply want the pounding of Iran to just keep going on and on. I saw an op-ed in The Wall Street Journal to that effect that we shouldn't try and find an off ramp. We should just keep going with this. And I just wanna lay out, I think, some of the risks of what an escalatory approach could entail. So first of all, we're all seeing that the, the Strait of Hormuz are closed right now. We don't want that to persist longer than it has to. But there are actually worse outcomes than that. So if the Iranians get hit, if their oil and gas infrastructure gets hit, they've already said they're gonna engage in tit-for-tat retaliation against the Gulf States. And we saw there was recently, um, the Iranians blew up this giant oil depot in Oman. You saw some of those images. They could continue to target the oil and gas infrastructure across the Gulf States. And if that happens, it won't really matter if the Straits get reopened because you won't be able to restart oil and gas production in the Middle East. So that would be, I think, a much worse outcome that could result from escalation. Furthermore, there's an even worse, I think, scenario from there, which is the region is very dependent on desalination plants.I think something like seventy percent of Riyadh gets their water from desalination. I think it's something like a hundred million people on the Arabian Peninsula that get their water from desal.

    14. CP

      Yeah.

    15. DS

      I mean, it's basically a desert, right? And those desal plants are soft targets. You already saw there was-- I think there was one desal plant in Iran that got hit, and then it caused Iran again, tit for tat, to hit a desal plant. I think it was in Kuwait. I could be off about that. But in any event, if you see that type of destruction continue, you could literally render the Gulf almost uninhabitable. I mean, you're just not gonna have enough water for a hundred million people, and human beings just cannot survive very long without water. So that would be a truly catastrophic scenario, and we're talking about destroying the Gulf States economically, and then also from a humanitarian perspective. So I think we have to take things like this into account when you hear people preaching for or advocating for escalation. You also have to, I think, consider the impacts on, on Israel. I mean, it's hard to know exactly how much damage Israel is taking right now. There's a social media blackout, but what you're starting to hear trickle out is that Israel is getting hit harder than they've ever been hit before in their history, and we're only two weeks into this. If this war continues for weeks or months, then Israel could just be destroyed or very large parts of it. Now, I think Israel is a harder target than the Gulf States. Their infrastructure is more hardened. Also, they're further away. The Gulf States are vulnerable to drones and short-range missiles, whereas Israel is mainly vulnerable to long-range missiles. Nonetheless, at some point, their air defenses could become exhausted if it hasn't happened already, and Israel could get seriously destroyed. And then you have to worry about Israel escalating the war by contemplating using a nuclear weapon, which would truly be catastrophic. So there's a lot of scenarios here, a lot of really frightening scenarios about where escalation could lead. And even though the United States is a much more powerful country than Iran, they essentially have a dead man switch over the economic fate of the Gulf States and even potentially beyond that, you know, the habitability of some of these, these countries. So I do tend to think that this is a good time to declare victory. I think, Brad, you're right that the president has never said that democracy promotion is one of his objectives. Yes, JCal, obviously everyone would welcome if the people rose up and chose a new regime, but that's not something that we've said we have to a-accomplish. And this would be a really good time to take stock of where we are and try, I think, to seek an off ramp. And look, if escalation doesn't lead anywhere good, then you have to think about, well, how do you de-escalate? And de-escalation, I think, involves reaching some sort of ceasefire agreement or some sort of negotiated settlement with Iran, and we can get into more of what that looks like. But I think that's the big picture, is that if escalation could lead in all these horrifying directions, then I think that's not the right approach. You have to look at de-escalation.

    16. CP

      JCal, where, where are you on this?

    17. JC

      Complicated. I have my personal feelings on regime change, and since we don't have the information, uh, the Mossad and the CIA and Trump has, I do think Trump would only do this if he had a very high probability of success and an off ramp. However, it's not looking good with the off ramp right now, and it could be quite chaotic. I think if the neocons get their way and the people on Polymarket are correct, the sharps who say fifty-seven percent chance we'll have boots on the ground, I think this is kind of the end of Trump's second term. And if you were to put together the series of mistakes that he's made, um, and the administration's made, they're really at the heart of why people voted for him. You take starting a war like this, specifically with Iran, that's what we were told was the reason to vote for President Trump. He was not going to take us down this path. He was not going to risk World War III. He was not gonna risk a nuclear possibility as, as Sachs correctly points out. And now you have all the MAGA supporters from, you know, Tucker to MTG to Rogan, Matt Walsh, Megyn Kelly, they are all up in arms about this is the end of MAGA and this is, you know, a massive betrayal. There's the one B betrayal where Trump wouldn't release the Epstein files. We'll put that aside because I don't think that's as important as starting World War III. Um, and then obviously the insane unnecessary cruelty we talked about many times on this podcast of ICE agents, which he has corrected by getting rid of Kristi Noem. So you, you start putting these things together. If this continues for another six months, it's basically going to result in the Democrats doing a c-clean sweep in the midterms. Here's the chart that I think, you know, the Republicans really need to look at, at how misguided, you know, uh, this all is. This is the chart that should be absolutely terrifying. Nobody wanted this war, or very few people wanted it besides the neocons a-and the people of Iran probably, and the Israelis. But the chances of the Democrats sweeping now is up to forty-five percent. This just happened. The Democrats are gonna sweep. Then, then they're gonna win in twenty twenty-eight, and the entire agenda of, uh, MAGA and Trump's two point oh will be gone. And then you look at just absolutely ignoring the working man, inflation going up above three percent, as you pointed out, is a, a likelihood, Brad. Unemployment ticking up, still very low, but it's ticked up ten percent, worth keeping an eye on. These foreign affairs things are the least important to the American people. It's very, very low on the list of priorities. And people are looking at Trump and what they believe is the enriching of his familyAnd all these business deals and then they-

    18. BG

      Man, you're really kitchen sinking it.

    19. CP

      It's literally what I was thinking.

    20. BG

      You're bringing everything.

    21. JC

      I- at one, two, three, four. Number one, doing the war that everybody said he should not do, includ- and that that was why we should vote for him. Number two, the Epstein files. Number three, the ICE cruelty, and number four, not working for the American working man who doesn't own equities. Those are four.

    22. BG

      Mm-hmm.

    23. JC

      One, two, three, four. It's not a kitchen sink. This is not my personal feelings on this. This is my assessment of the situation. If he doesn't find an off ramp quickly-

    24. BG

      Mm

    25. JC

      ... they're going to lose both houses in the midterms. That's, I think, the thing Trump needs to really consider, and I think he will consider it.

    26. BG

      That is, that is, that is-

    27. JC

      I think he's gonna find an off ramp

    28. BG

      ... right. That is the topic. The topic was, are we gonna find an off ramp or not find an off ramp-

    29. JC

      And this is my position

    30. BG

      ... i- in Iran, and I think Sacks made the argument that there's danger, that neocons and others are arguing that we expand-

  3. 19:18 – 27:05

    Off ramp strategies, Gulf state involvement, the China angle

    1. CP

      As much as people wanna talk about Iran, Iran, Iran, I think as I explained last week, I think this is about China, China, China. And you have to remember, at the end of this month, he has a pivotal three days with Xi Jinping in China. This is going to be an absolutely historic convening of the two superpowers that run the world. One, which is us, we are the established, and one which is China, who wants to be re-ascendant. And I would bet dollars to donuts that there is going to be an enormous incentive for Xi to negotiate a grand bargain in those three days and do something historic for himself, and I think that the president will use that if he thinks that it creates leverage.

    2. JC

      I, I think it's, it's a great insight. How does the Strait of Hormuz open? If this war is dragging on and Israel, which seems to be the driving force in this, if Israel keeps it up with, uh, Iran, how do we ever get the strait open again?

    3. BG

      Well, I think the off ramp is that the United States, uh, you know, declares victory, does what Sacks says, and says, "Listen, we degraded and we destroyed. That's what we came here to do. We did not come here for some experiment in, in democracy. We wish the best to the Iranian people to do the things they need to do." And if Iran does not back down, if after that declaration Iran continues to destroy cargo containers moving through the narrow straits, I think you're going to see I- Iran's neighbors and Israel and others get very involved as it pertains to Iran because it's in their interest. Listen. The United States produces 20 million barrels of oil a day, and we consume 20 million barrels a day. This is a, this is a modest problem for the United States. This is a massive problem for China. This is a massive problem for Asia. This is a massive problem for all of our friends in the Gulf who are trying to dodge Iranian missiles right now. So there are a lot of people in the world who will take up arms to deal with the Iranians if the United States isn't there because we can take care of ourselves.

    4. JC

      Your position, Brad, just to confirm it, is we are going to leave the war in the next 30 days, and then if the straits are not open, then China, India, and all the Gulf, uh, countries that are impacted by it, they will protect it. They will fight Iran.

    5. BG

      I think they'll put a lot of pressure on Iran-

    6. JC

      Okay

    7. BG

      ... not to continue firing missiles at their ships, right? At the end of the day, this is not just an American problem, right? And let's be clear. We're always involved in this part of the world. The only question is, are we going to have an active armada that's engaged in active military activities against Iran? And what I'm suggesting, again ... And listen, any time you try to clean up a mess like this, there is risk. This is not a risk-free, you know, initiative by the United States, nor was Venezuela. But let me steel man the alternative. Doing nothing and allowing Iran to procure, you know, the ingredients for a nuclear missile when they are set on the destruction of the United States and US interests, doing nothing in Venezuela while the Monroe Doctrine is totally wrecked and we let our adversaries take up, you know, positions in, in South America, those also have risks, right? Those carry a lot of risks. And so we're, we're weighing these two risks. Again, for me, I don't like the fact that we're engaged in military activities here, but I will tell you, I am very much on the side that if we're going to go protect American national security interests, you go in, you do the da- the degrading of their capability, and you get out. And I think, you know, that's what I hear out of the president.

    8. JC

      Chamath, you had a follow-up.

    9. CP

      All roads lead to China. I think that they're, you're gonna see Xi offer up a grand bargain, and I think it's up to the president to decide whether he wants to take it and see what he wants to add to it to get something done, but I just don't see them meeting and coming out with nothing. I think I see them going in and coming out with something that's historic, and I think that all of this, Venezuela and Iran together, is all about China.

    10. BG

      Let me just say one thing as to that, Chamath, I think, because I think the point is absolutely spot on, right? Probably the single greatest takeaway for us from an investment perspective at the start of this war was that the Chinese, right, didn't take up arms on behalf of Iran, aren't defending Iran, and they didn't cancel the summit with the president, right? The very fact that the sum-

    11. CP

      Because they need him.

    12. BG

      Ri-

    13. CP

      They need the oil. 20% of their entire domestic consumption is oil from Venezuela and Iran. 20%, but it's not 20% because it's literally 100% of anything that's feedstock, anything that's transport, cars, buses, planes. They are in an enormous world of hurt. Now, they have a strategic petroleum reserve as well, and it's quite robust, but it's not robust enough to sustain five or six months of this. It's not that robust.

    14. SP

      So at the end of the day, who is going to be hurting the most? It is China. And so if you play this game theory out, the reason he kept it is because now he needs a summit even more. Could you imagine if the president canceled? That would be a disaster for the Chinese. So the fact that it's still on the books, if I was Xi, I'd be like, "How do I negotiate and help find the off ramp? How do I end up fixing this faster?" All right. Remember, you have twenty-five percent unemployment of young men inside of China, twenty-five percent today. What do you think it goes to in five months with no oil?

    15. DS

      It's in the-- It's in-

    16. SP

      That's the unemployment rate you should be focused on, Jason.

    17. JC

      Oh, uh, the China issue is a separate one, uh, just to call out-

    18. SP

      It's not separate.

    19. JC

      No, no, that was separate from my point is my point. I, I was bringing up a different point, which is-

    20. SP

      Yeah, your kitchen sink didn't include the Chinese. I get that. I'm just adding to your kitchen sink.

    21. JC

      I didn't have a kitchen sink. I have four very salient points.

    22. SP

      All right, Sacks, I'll give you the final word here.

    23. DS

      Well, look, that was a bit of a, a broadside, J Cal, where you kind of did kitchen sink it. But look, here, here's the part I'll agree with you about, which is it doesn't take a political genius to understand that long wars are unpopular. It will hurt the Republicans in the midterms or '28 if this does turn into a long war. Fortunately, I think the president understands that. His political instincts are impeccable, and he's always favored short, decisive, swift actions, military actions, whether it was Midnight Hammer, whether it was the Maduro raid. I think that is his inclination and preference, and I think we are pretty much at or close to a point where the president's gonna have to decide on next steps. I think he's indicated that we have completed our objectives, and I think it's just important that we don't let this neocon wing of the party try to expand the objectives or aims of the war because frankly, they've always been wrong about everything. I mean, these are people who never wanted to get out of Iraq and Afghanistan, would still be there after twenty years if they had their choice. So I think it's just important to not listen to those people. And look, it's not just one op-ed in The Wall Street Journal. The Wall Street Journal is kind of the tip of the spear representing that whole neocon establishment, and I think it's just important that this is the time to frankly ignore those voices and let the president do what I think his political instincts are telling him to do, which is to wrap this thing up.

    24. SP

      I'm in strong agreement, and it is my hope, too, that he wraps it up quickly and that we don't have any more loss of life. All right. We'll keep discussing, uh, this ongoing breaking news story in the coming weeks. But back to our zone of excellence, AI and tech.

  4. 27:05 – 46:11

    Anthropic and OpenAI scaling revenue faster than any company ever

    1. SP

      OpenAI and Anthropic are scaling revenue and costs faster than we've ever seen in the history of, well, business, the world. Revenue at these two companies growing, gosh, like unprecedented levels. Here are the reports, and I believe you're investors in both these companies, Brad. Anthropic hit a fourteen billion dollar run rate last month, February. That means they have grown revenue from one billion, uh, to fourteen billion in fourteen months. They have twelve x year over year. They're valued at a meager three hundred and eighty billion, uh, last month. This feels like a bargain given the growth. OpenAI ended twenty twenty-five at twenty billion annualized run rate, and they've grown revenue from two billion to twenty billion in twenty-four months. They're valued at eight hundred and forty billion last month. Uh, and man, it looks like Sam Altman has Dario in the rearview mirror. He could get lapped any moment. Lots of debate-

    2. JC

      [laughs] Where'd you find this? What the hell is this?

    3. SP

      That one? I made that. [laughs]

    4. JC

      This is Dario closing in. [laughs]

    5. SP

      What is that, a velociraptor? What is it, a T-rex?

    6. JC

      Yeah. It's, it's the famous scene from Jurassic Park. [laughs]

    7. SP

      Oh, my God.

    8. JC

      Uh, but I mean, I don't think anybody expected Dario to be coming around the bend this fast, uh, but he's right behind apparently. A- and they're winning obviously the business to business side of the business. The J curve on these companies is insane. Uh, two hundred fifty, five hundred billion, who knows what's get, gets invested before these companies reach profitability, Brad, but you're invested in these two companies.

    9. SP

      Yeah.

    10. JC

      Unless you sold when, uh, Sam Altman told you he would buy his shares back on the famous BG two episode. [laughs] I don't think you sold in October.

    11. SP

      I bought a lot more since then, Jason. I bought a lot more since then.

    12. JC

      Okay. Fantastic. That's important information for us to have. Quick question for you. Number one, what's a better buy here?

    13. SP

      Yeah.

    14. JC

      Uh, Anthropic at three eighty, OpenAI at eight forty. Uh, and then I think people wanna know if these companies are gonna go public, what you'd-- if you think they should go public, what is the chance of that happening? Take those questions however you like.

    15. SP

      Well, I, I mean, l-listen, you know, love your children equally. They're both incredible companies. Anthropic unquestionably has a lot of financial momentum, you know, and OpenAI is seeing a lot of momentum themselves, right? But the single most imp-important question this year, right, was would AI revenue show up? And just sixty days ago, ninety days ago, there was tremendous skepticism. No way all of these infrastructure investments were going to pay off. There's no incremental revenue coming out of AI, including many of our friends. But in February, we had-- In January and February, we really had kind of a nuclear moment, right? The splitting of the atom moment. I mean, we had a six billion dollar month out of Anthropic in February, right? What-- Widely reported, okay? Let that set in for a second, right? Six billion dollars in a month, and it was only a twenty-eight day month, okay? That's more revenue than the annual revenue of Databricks and Snowflake that are two of the greatest software companies of all time after twelve years, right? They could do in the first four or five months of this year the total revenue of SpaceX this year.

    16. JC

      What is driving that? Just explain to the audience what's driving it. Is it token use? Is it Claude subscriptions?

    17. SP

      We crossed a threshold

    18. BG

      With Opus 4.6, right? And we saw it again with ChatGPT 5.4, where the models and the agents on top of them, whether it's Cloud Code, Codex, ChatGPT, they're no longer competing with IT budgets. They're now augmenting labor. They're competing with labor budgets. You could not possibly have a $6 billion month. It is impossible to do that by displacing IT budgets. Millions of other companies across America say, "Oh my God, let's spin up these agents and have them do things for us, and we're willing to pay for it because the product of that effort is worth the money to us." And the revenue and the usage momentum, I will tell you, in the month of March continues, and it only accelerates from here. As Kevin Weil has said, "The models and the agents are the dumbest today they will ever be." Right? We're in the early innings of compute and algorithmic, uh, capability. And so, you know, like that to me is the observation of this moment. Should they go public? I've said yes, they should go public for several reasons. There's tons of institutional demand. They need cheap access to money to continue to build out, uh, the compute they need to support. They, they-- There is more compute constraint in these businesses this very day than they've had any time in the last three years, so they need access to the capital. And then finally, I think you have to have the retail investor in the game. These are two of the most important companies in the history of capitalism, in the history of America. It's destabilizing not to have them public. You know, Jensen said last week that he expected the forty billion he recently invested in these two companies would be his last money in because they were both going to go, go public.

    19. JC

      When do you think they go public?

    20. BG

      He thought they-

    21. JC

      What was the-

    22. BG

      He said they would both go public this year. I think that, you know, they're, they're preparing and heading down that path. You know, and, and listen, I wanna get some of these shares in the accounts of all these kids that we're opening up because they're really, really important companies to the future of the American economy.

    23. JC

      Chamath, you had some insight into the quality, durability of this revenue?

    24. CP

      There's not a single good example that we can find of sustained positive margin expansion and impact of AI inside of a true corporate enterprise that is not right now a small test. There's not.

    25. BG

      So where does six billion come from?

    26. CP

      Because everybody has to show up to their board and have an AI checkbox, and everybody is thousands and thousands of companies. And when you have tens of thousands of companies as customers paying two hundred dollars plus a month, it's not that hard to show up with that kind of revenue. The real question is the following. If you take-- You use the Databricks and Snowflake example. If you look at the companies that use that software, those companies generate enormous revenues and enormous margins, and these products are in critical production workflows that underlie those revenues and profits. That is just not true with AI today. We have all kinds of claims, but we are still experimenting. Why are we experimenting? Because we know it's important, but we don't yet really know what to do. You can't just slot this into a critical workflow in healthcare and all of a sudden show up where if you make a misdiagnosis or if you make a, a mischaracterization of a procedure, you can get fined and go to jail. The companies that are in healthcare don't do that. If you're in financial services and you make a mistake about somebody's portfolio, or you make a misallocation and you point to a model, you will get sued and you will be in trouble. None of these things have transitioned from it's interesting, it's experimental, to it's the core critical operational workflow.

    27. JC

      Hmm. This is interesting.

    28. CP

      There will be a transition in revenue quality when that happens. A great example of this is Amazon. Why does Amazon issue an edict that says you cannot use this stuff inside of AWS unless a human now reviews and approves it? Because what happened? They had three or four sev one faults from a bunch of code that was written by agents that brought down AWS. Now look, I've told you, I love AWS for one reason, because it's hyper-reliable. I hate AWS for the same reason, that hyper-reliability comes at enormous cost. I pay it, but I pay it to never have a sev one. The reason they have twelve nines of accuracy is because it's humans and deterministic code that never fails. It doesn't mean that two companies can't get to twenty, thirty, forty billion of revenue. What it means is we have to be honest. This is an industry that's early. We are all figuring it out. There's a lot of test budgets that are going at it. It will slowly and methodically emerge into production, but let's not oversell what this moment is.

    29. JC

      Okay, Brad, I wanna give you a well-constructed question here to respond, and then Saxe, we'll go to you if you have some input. Of the twenty billion, how much of it do you think is experimental? What percentage is experimental versus production based on-

    30. CP

      Well, you have to strip out, strip out the cons- the consumer spending for con-- 'cause like, you know, that's half of it, right? Cons-

  5. 46:11 – 1:07:51

    AI's PR disaster, open source's future

    1. CP

      Could I, though, take a step back and give you just a different framing of all of this?

    2. CP

      Please.

    3. CP

      I think the big thing that we're debating is actually something we've seen in every other technology trend when it started to get some really meaningful traction. So in the first generation of the internet when you started to see e-commerce and all these other business models. Then in the second big wave of the internet around the move to mobile and the move to social. And then now we're seeing this big wave around AI. And I think what happens is in step one, entrepreneurs are A/B testing what it takes to raise money. Okay, that's step one. And I think what has happened is that at least some parts of the AI ecosystem have decided that this crazy, scary doomerism is the best way to raise money, where every now and then they come out and they say, "All the jobs will be destroyed." Anthropic, you know, Dario says that. "This thing is sentient." And investors are like, "Okay, here's ten billion. Here's fifty billion. Here's a hundred billion." But then the second step happens. They get the money. They start to do the training. They start selling. And then the investors are like, "Hey, where's the revenue?" And so then they start selling everywhere. And then if you see in the Department of War example, all of a sudden you flip-flop. You become sort of an unserious dilettante, like partner to the American government. They're like, "We're gonna boot you out." That's billions of revenue gone. And what happens? Those same investors that gave billions of dollars are like, "Hey, hold on a second. That's absolutely not allowed. You need to conform and get back on track." And so what does Dario do? He flip-flops. And he's like, "Oh, I'm really sorry. I didn't mean to. Let's sort of make good." All of that, to me, is an industry that's still in its very early phases and still figuring out what its place in society is. So what is the problem? The problem is the following two clips, and I'll just have Nick play these, and I'd love your guys' reaction.

    4. CP

      The one thing, though, that I think even now is underestimated by all actors in industry, and including in Silicon Valley, is

    5. BG

      How disruptive these technologies are. If you are going to disrupt the economic, and therefore political power significantly of one party's base, highly educated, often female voters who vote mostly Democrat, and military and working class people who do not feel supported, and you feel like that's... You believe that that's gonna work out politically, you're in an insane asylum. Like, that you cannot have a... This technology disrupts humanity's trained, largely Democratic voters, uh, and, and makes their economic power less, and increases the power, economic power of vocationally trained, working class, often male, uh, voters. And, and, and so these disruptions are gonna disrupt every aspect of our society. And i- to make this work, we have to come to an agreement of what it is we're going to do with the technology, how are we gonna explain to people who are likely gonna have less good and less interesting jobs f- from their perspective, and how is it that we are going-- And by the way, on the military thing, these technologies are dangerous societally. The only justification you could possibly have would be that if we don't do it, our adversaries and, uh, will do it, and we will be subject to their rule of law. So you, if you decouple this from the support of the military, you're gonna have an enormous problem explaining to the American people why is it that we're absorbing the risk of disrupting the very fabric of our society, including the most powerful parts of our society, uh, if it's not because it's about maintaining our ability to be American in the near term and, and, and long term.

    6. CP

      Now watch Sam's reaction.

    7. SP

      Fundamentally, our business, and I think the business of every other model provider, is gonna look like selling tokens, but we see a future where intelligence is a utility, like electricity or water, and people buy it from us, um, on a meter, and use it for whatever they wanna use it for.

    8. CP

      So if you take those three messaging veins on a spectrum, one is we have a sentient super god, we're the only ones that can protect you from it, but, you know, your days are numbered. That's Dario. Alex, which is, "Hey, hold on a second. You can't have it both ways. You can't both say it on the one hand and then try to run the fabric of society and flip it. You need to be much more circumspect." And then Sam's, which is, "We wanna sell tokens as a service." I think the point is that this industry right now, that revenue traction, if anything else, has distracted people from actually getting on the same page and being much more methodical and much more reliable and trustworthy in explaining all of this and managing the expansion of this. And so what I would say is all of this fundraising gobbledygook has actually created this breathlessness that is not useful and isn't helping. And I would say there needs to be a lot more seriousness by these folks to actually run this business thoughtfully. You can't be a dilettante. You can't flip-flop. You can't pressure test, A/B test this kind of messaging in public, but I understand why you're doing it, because the stakes are so high. You're playing this enormous poker game. But I think we need to do a better job of explaining all this to people, because right now, my end of this is look at this chart. This is now the result of those three messages. Here is where AI is. It is slightly above the Democratic Party and an autocratic state. That's where AI is. ICE is more popular than AI. So some-

    9. JC

      ICE not very popular. [laughs]

    10. CP

      So to me, this is really the crux of this, where we are not really being honest. It would be much better if we said soberly, "There's a lot of experimenting. This revenue is great, but we don't really know what's real. We're gonna try to figure it out. We're gonna work methodically. There's a lot of regulated industries. We're gonna work within those. We're not gonna flout the r- law and the rules. Licensure will still mean something." That's a way better, thoughtful, mature message.

    11. JC

      A- and Brad, what do you think that-

    12. CP

      And rant. And rant. And rant

    13. JC

      Great rant. Uh, Brad, does the industry have a PR problem? Obviously, these recent surveys, and especially comparing them to China, where people see AI as abundance and, like, this incredible new technology they want to embrace. Here, people are scared. People are scared they're gonna lose their job. People are scared about wealth, uh, disparity. The rich get richer, the poor get poorer. There's a lot of fear here in the United States. W- what can our industry do to turn this around in terms of communication from the big companies?

    14. BG

      Yeah.

    15. JC

      They don't seem to be communicating in any coordinated fashion, and, and they obviously are scaring the [beep] out of the, uh, public.

    16. BG

      Yeah, no, listen, I think it's, uh, I think it's a fair rant and a fair point. At the start of the Industrial Revolution, at the start, uh, you know, in the, in the late s- uh, 1800s, we had similar social responses to innovations that were occurring. We i- in fact, had some violent clashes. We had demonstrations in the street. We had the entire Robber Baron movement. You know, so class warfare and worse is, you know, has come with other revol... You know, kind of industrial changes of this magnitude. So it doesn't surprise me that we have a lot of anxiety by people that they may lose their job, and I think there are people out there who are kind of forecasting into the future in ways that are scary to, you know, the average person who's, who's listening to this, and I don't think that's particularly helpful. So could we do a better job messaging? No doubt about it. But if I just rewind to kind of where we started, I actually think the industry is, um, you know, uh, this is going to be a pivotal year for the industry to demonstrate, right, how this is really beneficial for humanity. I think we're going to be able to demonstrate that it's very beneficial from a healthcare perspective, from a drug discovery perspective, from an education perspective, et cetera, but we need to have a coordinated effort, because Chamath's right. It's deeply unpopular in the country. I happen to be on the optimistic side of this. 70% of the jobs that exist in the United States today did not exist 40 years ago

    17. SP

      Right? Right? We've gone through the digital disruption that put a lot of people out of work, but the abundance and the, and, and the recreation of new jobs, right, expanded the pie for, for largely everyone. I think that will be the case here. If you listen to Dario, he says the concern is that the disruption occurs at a faster and, and, and, and bigger rate, and so that we can't keep up with kind of that replacement. I think that's another fine point. But if we just go back to where we started the conversation, which was, are these good investments, right? Do-

    18. CP

      That's not the conversation. No, of course, they're good investments. Of course you're gonna make money.

    19. SP

      No, no, no, no, no, no, no. That's not it.

    20. CP

      That's not what it's about.

    21. SP

      That's not it. He asked the question, you made the argument, Jason asked the question, right? Are these companies simply selling do- tokens at a loss, right? And w- uh, we moved into this-

    22. CP

      No, no, no. They're, they're selling at a profit. I'm buying them and losing money.

    23. SP

      Right.

    24. CP

      In the 1849 Gold Rush-

    25. SP

      Yeah

    26. CP

      ... Anthropic and OpenAI and all of these model makers are selling the pick and shovel in the gold rush. I am buying it, and I'm trying to pan for gold. But as with the Gold Rush, most of these companies will go out of business. And all I'm saying is, if we are really circumspect and honest, there is still way more to figure out than has been figured out. This is not a solved problem, and I think we w- it would behoove everybody to just tell the truth about this. It would be way better to be honest. This is not figured out.

    27. SP

      I would say I think the data, the cards that are being turned on the table move me in the exact opposite direction.

    28. CP

      Okay.

    29. SP

      All right?

    30. CP

      Let me get Sacks involved, and then I'll give my take. Sacks, do you have any thoughts here?

  6. 1:07:51 – 1:20:21

    Washington passes "Millionaire Tax," Howard Schultz bails for Miami

    1. JC

      that went viral. The millionaire tax has hit Washington State. Howard Schultz, CEO, uh, longtime CEO of Starbucks, has bowed, and he's gone to Miami.

    2. CP

      Surfside. He's in Surfside. He, he bought a, he bought a condo in Surfside.

    3. DS

      He, uh, he pulled a J Cal?

    4. CP

      He pulled a J Cal.

    5. JC

      Well, I think you mean a Saxby Pool. [laughs]

    6. DS

      Well, yeah, but I was never, I was never a Starbucks liberal before I left the state of California.

    7. JC

      All right. Listen, I, I don't know how many times I have to make this correction. I am a moderate. I literally voted four elections in a row for Republicans. People have asked me for the receipts. Pataki, Giuliani, um, and, uh, Bloomberg. I literally for almost a decade-

    8. DS

      Okay. Okay

    9. JC

      ... voted exclusively Republican. Washington's millionaire tax passed this week. Here's what the tax is. People making more than one million dollars a year will pay an extra nine point nine percent in tax starting in twenty twenty-nine. The Budget Center estimates the tax will impact thirty thousand households, bring in another four billy, uh, for the state's general fund. Um, the funds are supposed to go towards public schools, higher education, and healthcare. In a huge coincidence, [chuckles] on the same day the new tax was passed, Howard Schultz, the billionaire Starbucks founder, um-

    10. CP

      [laughs] That's a huge coincidence, did you say?

    11. JC

      Yeah, just-

    12. CP

      [laughs]

    13. JC

      ... just unrelated stories, but-

    14. CP

      Unrelated, an unrelated story, yeah.

    15. JC

      Yes.

    16. CP

      An unrelated news.

    17. JC

      He will be leaving Seattle after a forty-four-year run [laughs] because he found out about these incredible Cuban sandwiches in Miami.

    18. CP

      There was a, there was an opportunity, there was an opportunity to buy a forty-four million dollar condo in Surfside. He couldn't pass it up.

    19. JC

      Yeah.

    20. CP

      It just happened to be on the same day that they passed the millionaire tax. [laughs]

    21. JC

      He, he had the, uh, Cuban sandwich at Le, Le Sandwich, and, uh, he, he fell in love. Schultz has been getting crushed-

    22. CP

      Whoa, what a joke

    23. JC

      ... uh, after saying when he ran for president that he would be willing to pay more taxes. Uh, Bezos obviously left back in November of twenty twenty-three, and people speculated maybe the seven percent capital gains tax, um, would, um, have influenced that. Who knows? So I guess, Chamath, what is the end game here? Because for these local politicians, they must have learned the lesson that people of means can move. They have the ability to buy new homes, put their old homes on the market. They're very mobile, and they could even leave the United States and go to Singapore or Dubai or other locations in the world. Why are they still enacting these, and will they continue to still enact these until we get to sixty, seventy percent tax rates and we just lose all of the creators and this becomes Ayn Randian?

    24. CP

      I think that state politicians on the West Coast are very ineffective and not, not very smart. Nick, there's a, there's a tweet that was published, I think maybe it was a infographic, that showed net migration rates of every single state for twenty twenty-five. Washington is a few months behind California in trying to enact these stupid taxes, and the reason they're stupid is these kinds of things don't work at the state level. And we know what it's already done in California because the Hoover Institution just published something this morning, and it's a complete indictment of, of what the billionaire tax was trying to do. And by the way, this billionaire tax is only polling right now at twenty-five percent of the votes it needs. So maybe it'll find a way to get on the ballot, and then even then it'll have an uphill climb to get voted in. But look at the destruction that it has done in California by just announcing it. The Hoover Institution basically ran this Monte Carlo simulation. They ran a hundred thousand runs, and in seventy-one percent of those runs, it comes out with a negative NPV. And if you expected value it out, it's about a twenty-five billion dollar hole. They also found that they over counted the number of billionaires in California, so that number was wrong. They under counted the amount of revenue that they pay, so that was wrong. And they over counted the estimate of how much money that they would make, so that was wrong.

    25. JC

      So they're not good at math. They're not good at math. [laughs]

    26. CP

      So when you add it all up, they thought they were gonna make a hundred. They're actually gonna make forty. The people that left pay, you know, three to five billion dollars a year of taxes. It's gonna create a twenty-five billion dollar hole. You're gonna have the middle class that's now gonna have to foot this because this is net revenue that's not gonna come into the budget. That's about twenty-five hundred per middle-class household. There's about ten million in California. So that's what's happened just by making the threat.

    27. JC

      Right.

    28. CP

      Washington had a twenty-three-hour debate and passed the law. So I suspect when you look back on this in eighteen or twenty-four months, it'll be as bad or worse than California. These things don't make sense. The reason they don't make sense is that you are f- putting good money after bad. We all know that money that goes to the state governments are wasted. We just don't know how much

    29. JC

      And so when you keep asking more, eventually the smart people say, "Enough's enough, I'm out of here."

    30. JC

      We might find out how much. I think, uh, Bari Weiss is [laughs] on the case. I don't know if you saw her do her CBS report this week.

Episode duration: 1:20:22

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