The news this week, Fable 5.1 arrived. Anthropic stressed that it is the exact same model as Mythos 5.1. So, why don't we start there? Why did they stress that Fable and Mythos are the same model? I don't know. I just thought it was kind of funny. Like the very first line they're like, "No, these are really the same model." I think probably the way it was released, I'm guessing there was concern it was like, or just from a branding perspective, I think there's a bit—well, no, I think they did get the payoff from their scaremongering that they wanted to get. They sell Mythos as this unbelievable, scary thing that's going to take over the world and, "Oh US government, please stop us. We did it again."
Look, I've been sitting here for the last three months being like, "Well, I guess Mythos is the internal model. Well, I wonder how powerful that is. Fable is what they're allowed to release to the public." So, yes, it's probably a useful clarification from Anthropic PR.
No, it's like marketing. It's like, no, no, no, we're giving you access to the model that's so dangerous the world's going to end. I mean, this whole release was very funny to me for lots of reasons, but this was one of them. Just first line, like we have to say, no, they're the same model. I can't believe only 11% of our customers are using it, or whatever the number is, because you have access to the model that—
Anthropic drinks Coke just like everybody else. You know what I mean? Well—
No, it's not that. It's like they spun up the Project Glasswing, the US government shut them down. Wouldn't you like that model for your business? Imagine what the software you can do with that. It's like, no, you have the same one. You really do.
Yeah, right. Indeed. Well, the company said that Fable 5.1 is more skilled at carrying out lengthy, complicated computer programming tasks such as software projects or code reviews that require it to work across all the code for an application. The new version is also better at helping with scientific work like coming up with experiment designs, simulating what could happen during an experiment, and reading information in dense diagrams and tables.
By the way, you know who understood my server rack diagram?
Who's that? Oh, Fable, Codex?
Yes, that is great. You would write it there and they'd say, "Oh, you have a missing connection here," or, "There's an inconsistency there," or things like that. This was so beautiful, by the way. It was very satisfying. When the workers here were doing a lot of—it was funny. I knew I had to hire people to help me do this, and so they were working on it. But actually almost every one of those cables I plugged in, in part because this was such a fever dream. I had the mental model in my head of how the whole thing works, different zones and all these different bits and pieces. But it was very gratifying where they would come and ask me questions and I would explain it, and they'd be like, "Oh yeah, you have it right there on the map." Like, "That's right. I do. I've thought about all this." But after like the third time that happened, I'm like, "Okay, I'm just doing it now." And so I went all day long. So we were recording at night because I'm like, "Sorry, Andrew. You're going to have to wait."
Yeah. Eight hours later, here we are. I'm just glad that you're still standing after dealing with that all day long. And I'm glad that your new best friends, Codex and Fable, were fans of the chart and knew exactly what they were. So, I'll finish reading for you.
Anthropic said companies are increasingly trying—I feel bad. No one wants an entire episode about my rack redesign. Companies are increasingly trying to justify and rein in the cost of AI usage at a time when open-weight lower-cost models from China are rapidly improving. Andrew, are you supposed to ask me how is Anthropic responding to that?
How is Anthropic responding to that challenge? Well, I am very curious because I'm aware that they charge massive margins. Lots of people have complained about the token costs over the last several months. People are getting more price-sensitive and the competing models are getting more performant than they've ever been before. So, what's Anthropic's plan to counter moves to try out competitors?
See, this is where whatever I'm frustrated with Fable, and Fable just sort of says stuff, and then I'm like, "Where'd you get that from? Can you explain that?" And then it'll come back and be like, "Yeah, I just kind of said that. I'm not sure why." Okay, here's my question to you. What's the evidence that this is a problem and they need to respond to it? From what I can see, they don't have enough compute. They clearly still don't have enough compute. Their servers are down all the time. They were down a bunch like last week in the face of them charging these very high prices.
Like there is an aspect, and this was kind of something I was thinking about in the context of Nvidia's earnings where it's really interesting to think about the long run of Nvidia. But I kind of wrote in my update, I'm talking about these structural things and I'm kind of bored by it because on one hand it's really interesting who's going to capture value in the long run in a world where supply catches up to demand. In that world, someone's going to get squeezed. And as long as we're not there, it's all just theory, right? Everyone's making high margins. The frontier models are making high margins. The cost of serving is making crazy margins. The memory guys are making huge margins. TSMC is making big margins. Everyone is making big margins.
It is exciting to be in a world where supply is constrained because of these crazy earnings and all the stuff that happens. It's also kind of frustrating as an analyst because there's no forcing function to see who actually is capturing value because there's just not enough supply. So the interesting questions are abstract and not particularly relevant for the next three or four years. Anthropic's problem is supply. They don't have enough compute. If they had enough compute such that they could—like right now for Anthropic to meaningfully lower their prices, where with Fable 5.1 they lowered the cache prices but not the actual generation of token prices. They're still insanely expensive. And in that world, why should they take compute to serve lower prices?
Right? Especially when they're a company that is spending tons of money. They have these huge R&D budgets. They need the revenue. They need the cash flow. You can make some sort of fanciful, "Oh, for strategic reasons they should charge less than they can to take the market." The reality is no, the market is large enough at their price level to completely saturate their supply. They need money to fund their operations going forward. Given that, the fact that people are lower down in the price curve doesn't tell us anything.
This goes back to my "Who's Afraid of Chinese Models?" piece. If the leading edge providers had infinite capacity, they would serve their models not just at the same price, but I would argue a lower price than these Chinese model providers do because they almost certainly have far more efficiencies in their infrastructure. So this whole thing is imposing business questions on an environment where there just isn't the structure to answer them. The story is pretty simple as far as Anthropic is concerned.
Well, had you asked me, where did I come up with that area of concern? No.
Also, another thing that Fable just—it has its own thing, you know, whatever.
Well, I've seen a couple different charts over the last month or so indicating that Anthropic's growth has leveled off. And leveled off in very relative terms, because Anthropic's growth was completely effing insane for the last 18 months or so. Do you think that's a function of OpenAI entering the market and succeeding, or some other story?
I don't know. I mean, I think that unless we have an understanding of what their capacity issues are—did their growth slow down just because they don't have enough capacity to grow anymore? That's Nvidia's problem. Nvidia grew 100% last year and they forecasted this year we're going to grow 70%. And I think that Jensen Huang was very deliberate on his earnings calls. He has a theme every single time. And I think that the message here was it's the message that I wrote back in 2023 where I basically said, it's funny, I feel compelled to cover Nvidia earnings and I've been saying for now three years they're actually very boring events. Everyone gets so hyped up about them, but the problem is in a world where demand exceeds supply, that means your revenue is based on how much supply you have. You are selling every single chip you can make. And so when Jensen Huang comes out and says we're going to grow 70% next year, what he's saying is we are going to acquire sufficient supply to deliver 70% growth.
Yeah. That's why in your Nvidia coverage, I believe it was a week ago, you said their real moat is their supply chains at this point. And that is true. And as far as Anthropic is concerned, I guess it is sort of a mystery. It's been interesting watching OpenAI succeed as quickly as they have with their coding efforts and their enterprise efforts. But I'm certainly not concern-trolling about Anthropic, which is one of the most successful companies in the world.
Well, I do think this—I don't think this is on the rundown, but OpenAI is going to exercise the clause in their contract to no longer serve Cursor, which I think is understandable. It's a direct competitor, it's flowing through their apps. I get it, at the end of the day you are in a competition. Anthropic comes out right away on top and says, "Oh, we love Cursor. We support our developers." And it's like, what is the number one answer to their capacity problem?
SpaceX selling them capacity. So, yeah, I don't think they're going to sell out Cursor. SpaceX is their great hope when either side can pull the plug with a month's notice.
