It's like rewriting Atlas Shrugged where John Galt goes to Washington and says, 'Why don't you regulate me more? Why don't you take more? Why don't you take us, Mr. Mooch? Grab some of my stuff.' What the hell are these people thinking volunteering for this stuff? It's madness.
So, what are we discussing? Number one, Washington lifts the 19-day Fable 5 ban. What does this mean moving forward? Second, OpenAI floats giving the US government a 5% stake. Wow, Sam, baby, hold up. Number three, DeepSeek is developing its own chip. My word. And then number four, MetaMP Compute launches a cloud business, which caused the stock price to jump 10%. Thank god, we've needed it, Zach. This and so much more in the show today.
No one's worried about making their last round high-priced investors' money anymore. Literally, no one is.
Every technology company either goes bust or lives long enough to become the next generation's IBM.
As an employee today, why would you join something that you don't believe will have secondary options? I really think this is a big issue. Ready to go.
We are back, boys. I am no longer at the beach in the UK. There was one comment, did you see it in the YouTube, which goes, 'Harry is so burnt,' and then it goes, 'He looks like a panda.' And I was like, gosh, this whole holiday vibes thing isn't working for me.
You did look like a panda.
I mean, you had those great big... You look dumb, but that's okay. Sorry.
Took us about 45 seconds, Jason. But don't worry, we're good. Um, listen,
Threat goes to beach. It's a common thing.
Listen, we're going to start with the news of the day, or one of the most pressing topics, which is Washington lifts the 19-day Fable 5 ban. How did we analyze Washington lifting the ban and what it means moving forward for both OpenAI and Anthropic in terms of the permissions they have to get?
It's a quagmire in the sense that you've now, I mean, in a space of, you've now been entrapped in some kind of pre-approval process, and they're talking about some kind of structured pre-approval process, but that hasn't been finalized yet. But the zoom-out comment is, you know, six months ago you could ship software like a free man, and now you have to get permission from Washington before you do it. It's a big change, right? How does it pan out? Who the hell knows? There are some arguments, pardon the cybersecurity, for some process, but it's definitely a big step. And all other things being equal, you'd prefer not to have to get permission from any administration before you can pursue your business. I think part of the reason the US is such a dynamic economy is because we don't have a ton of that. Europe does, and now we do.
We sneered at GDPR, and here we are.
Whether more regulation is better is beyond my scope. I think people have been talking about safety in AI for a long time, which is not the same issue, but a related issue for a long time. And I think it's just, this is the grown-up state of LLM and AI. It's just going to have this level of oversight whether we like it or not. At the end of the day, this particular issue seems minor only because Fable's going to sort of a variable pricing per token pricing in a week or two anyway. So most of us aren't even going to use it because it's too expensive. It's going to be a niche model at least until it percolates into the standard Opus and Sonnet over the coming months. So the world impact will be minor. The world's changed to me. Sam Altman offering 5% of his company to the US government was much more interesting in some ways than whether some suboptimal but inevitable oversight is coming to the LLMs.
I totally agree, and that was going to be my next point, which is like, if you take that one step further in terms of government intrusion or government opinion. Sam saying, 'Hey, take 5%.' How do we think about that?
Well, if you own 100% of it, now you only own 95, you're kind of a little bit pissed.
Or if you own none of it, you're not very pissed because you're not getting diluted at all.
Yeah, exactly. I will happily give you away some of... I'm not... Again, stepping back, what problem is he trying to solve? I mean, I think it's absurd to be clear, but let's try and go from first principles. What problem is he trying to solve? By definition, it's not any of the security issues we just talked about, which at least are vaguely credible, right? It's not cyber. It's some kind of macro, you know, AI is going to destroy everyone's job, so we got to give back, right? And they produced a nine-point plan, OpenAI did, like literally I think about a month ago, that, you know, some kind of we've got to rethink everything because of the economics of AI. And they're talking about maybe we need to... I mean, let's put it out there, the grandiosity. We're talking about restructuring the taxation system of America to tax more on cap gains and less on income because so many people are going to be put out of work because of AI that we want to lower the tax burden on labor and increase it on capital, right? And this is all part of that, and the whole thing is so delusional and so far from where we are now that I just stopped listening. You've got a really great growing company, no discernible impact on employment yet. You've got a bunch of issues you got to sort out because you have been lapped by your direct competitor, and your focus is on telling Congress that they should... Remember for context, if they give 5% of Anthropic, it's $50 billion. Your focus is telling Congress that raises plus or minus 5 trillion a year. So you're 1% of it for one year. Your whole donation gets rid of 1% of a raise for one year, that they should restructure their entire taxation system, right? Sure, we'll get right on to that. The House Ways and Means Committee will call a committee, every lobbyist, and it's like kicking off a process that you won't be able to control. And I predict it is exact... I mean, it does go back to the kind of comment on pre-approval. You start with pre-approval, suddenly you end up with an ownership interest, then you end up with a board member, and what the hell are these people doing? It's like rewriting Atlas Shrugged where John Galt goes to Washington and says, 'Why don't you regulate me more? Why don't you take more? Why don't you take us, Mr. Mooch? Grab some of my stuff.' What the hell are these people thinking volunteering for this stuff?
It's, you know, it's funny. I completely agreed with you at first, right? 100%. I'm like, this is the weirdest kiss in the ring in a weird corrupt administration where our president made $2 billion off crypto and friends last year in profits. And that's cool now. It's cool for a president to actively trade any stock, his own meme coin, and make $2 billion in one year. I mean, the guy's 80. What does he need it for? Right? So, at first I was with Rory, but then I step back for a minute and I'm like, listen, Sam Altman, beyond being the CEO of OpenAI, is one of the most successful investors of our generation, of ever, of all time, right? And he knows everything about how startups and scale-ups are run, and he's seen it all. And I think in some ways he runs OpenAI with that playbook in a way the others don't. Okay, it's like a super startup, how he funds it, how he thinks about it, the relationships, the scaling. And to me, when I step back, after I had the exact same view as Rory, like this is crazy kiss in the ring, crazy stuff. This is not Intel dying. It's like, you know, you give 5% of your company to Shopify, like Klaviyo, like Klaviyo did, so that they don't destroy you. We see this all the time in our portfolio. Like you don't want to give 40% of your company, right, to your partner. And 5% is not immaterial. What I've learned from my portfolio, and I think you guys will agree, is it creates an unexpectedly large amount of alignment. You sell 5% of your company to a hundred-billion-dollar partner, it don't matter. To Rory's point, it just don't matter if they own 5% of your startup. It doesn't matter how big you are. It is immaterial. But I'm constantly shocked how much that brings you into the boardroom. How it brings you. So my only point is, and I could be wrong, giving 5% of your company to the federal government so that you're the good guy now. You get back, you're like Stargate 2.0 when Sam was up there, right, with Larry and everybody. He was the good guy for a little while. I think as an investor, I take the dilution.
No, no, no, no, no. I mean, I understand what you're saying. And so I'm going to paraphrase. Ownership stake with much larger entities aligns the large entity with the smaller entity. And that's what this is. And it's a good thing.
Well, more than I would have expected as a... more than you would have expected to be. So, let's... because it shouldn't, because it's immaterial to the federal government and it's immaterial to Nvidia taking stakes in most companies. It's immaterial to the economics, right?
There's two arguments I'll make against that, right? The first is a business one and then the second is a government one, right? Business one: OpenAI. Microsoft owns 30% of OpenAI. If ownership stake resulted in besties, they'd be besties. They're not besties. They're in a stale marriage looking for a divorce but can't quite pay the tax, right? It hasn't worked, right? And that's with 30% alignment with a profit-maximizing entity like Microsoft who is rational, right? Now apply that to the US government. Do you... I mean, the idea that because they own some of you they'll align with you is just, that's just not the way politics works. Go back, look at the TARP. And now admittedly that was when the banks had screwed up. So, you know, they come in, they own a little bit, they don't have voting control, but they tell you who you can pay and who you can't pay. And the weak banks deserved that. But JP Morgan was like, why am I getting that? That's the TARP. If you think in this case, because not only have you said give me 5%, but you've also produced a document that says the things that we're doing are so catastrophically impacting the economy of this country, Mr. Congressman, that you need to redo your entire taxation system. It's about an hour before Bernie Sanders says, 'You know, you're right. This is really impactful. Maybe we should go for 50.' Because if it really, if you really are impacting a $30 trillion economy, if that's your, in my view, absurd statement, but you've made it and Dario's made it, so you're entitled to own it, right? If you really are destroying labor in a $30 trillion economy, do you think the monster, the political monster, is going to say, 'I'll settle for five, that's grand. Call it 50 billion. You've destroyed 15 trillion of labor value, we'll settle for 50 billion.' They're going to... Bernie's already said he wants 50, right? And you deserve whatever happens to you, right? You deserve being regulated by the government. You deserve, you know, having to be inclusive. I mean, the idea is so palpable. I mean, maybe you get something small and tactical, but it's such a mistake.
Why do they do it then? These are not dumb people, they're really smart people.
Yeah. And because they believe, rightly or wrongly, that the impact of this technology is so important that all these things need to be on the table. And to be fair, that belief is what gave them the self-motivation and the confidence to raise billions of dollars and tell that narrative is what it took. Because if you walked in and said, 'Hey, I need $10 billion to build some stuff and it's going to have a minor impact on, you know, some parts of compute,' I don't think you got your 10 billion. You needed to tell a story like every great CEO. This is the world's greatest fundraising CEOs, right? Telling the biggest story, and they told the biggest story, and that's what allowed them to get the, you know, now $160 billion, right? But once you've told that story, and genuinely once you believe it, and in the case of Anthropic in particular, once all your employees believe it, if you believe this thing is dangerous from a cyber perspective, from a jobs perspective, you just suddenly end up down this road, right? All these things become next-level logical if, in fact, the basic premise is correct. And if on the other hand you believe, as for what you little me does, and I'm not them, I didn't invent this shit, but it's like, it's a really important technology, but it's not going to put 15, it's not going to put 50% of the US labor market unemployed, then you believe these kind of preemptive changes and conversations are a wild overreaction and wildly early. And we'll find out which it is. I mean, look, in five years' time, if Dario is correct and 50% of white-collar jobs have been replaced by AI, which I don't believe for a second, then you damn right there's going to be political controversy. And if you think 5% is going to feed that beast, you're delusional. If half those nice middle-class people in middle-class jobs all across this country lose their jobs to AI, it's going to take a lot more than, I think it works out to what, $140 per head, you know, which is what the 5% of Anthropic would be worth to keep the wolf at the door. So, if you believe these things are going to happen, that's why they do it. I just don't. So I'm like, whatever. This is a mistake.
Is this purely a marketing exercise? Who are you marketing to? Congress?
Senators, that you're willing to align yourself. You're willing to play ball. You're open. You're not this wolf stealing jobs and you're part... you're not the wolf that you said you were. I mean, again, it's like, hi, I'm a wolf, but I'm a good wolf.
Right. I mean, is it trying to clean up the mess you created to some extent? Yes. You spent three years saying everyone's going to be unemployed because of this thing and it's wildly dangerous, and now you're like trying to walk that back while at the same time sucking up.
And if I'm going to ask you to regulate, or as you said Rory last week, I think quite wisely, maybe tax Chinese or open-source models, maybe it'd be helpful if we had alignment beforehand. If I'm about to have a big ask, I think Sam is a very thoughtful communicator and he puts stuff out there early to socialize it, and they seem like little comments and they seem like exposition, but I think they're all very carefully thought through. And I think the issue is less about, and Rory just hit this with Bernie Sanders, the issue is less about whether it's a good idea to give 5%. I say do it like the Klaviyo-Shopify thing if you think it's going to work. It's more so it's not 50 or 20. Sam is just anchoring this idea that, hey, 5% will align us with the American people, with the federal government, with the administration, without getting into politics. And he's anchoring this at five rather than 50. Because not only does he need the alignment, he's sensing the political winds. So I think it's, you know, these things seem to come out of nowhere. But I think he's a very interesting communicator. He's a very good anchor in a way that isn't triggering, generally speaking, the way he does this. Maybe other things are triggering, and he does a pretty good job of telegraphing where we might end up before it happens, right? So I think it's just anchoring. Maybe it really doesn't matter what we think because it's already happened. The decision essentially has already been made that the federal government will be acquiring a stake in OpenAI, and Sam is just anchoring it as the smallest possible stake to get ahead of this discussion.
That hasn't happened yet, to be clear. I mean...
Well, that decision hasn't been made. Now, you are right. I mean, the US government, for the first time in a long time, and definitely absent a bailout, has already taken stakes in a bunch of tech companies like Intel. So who knows, maybe it'll happen again. Decision hasn't been, quote-unquote, taken. I don't think this administration has a decision-making process, but you're right. It's definitely, quote-unquote, on the table. Just being clear.
Does this change anything for Dario?
To be clear, the proposal from OpenAI, just to be grounded in facts, wasn't we give OpenAI 5%. It was like companies should. So the implied statement is everyone should, including Anthropic. It's like a, hey, we, everyone should give away 5% for the US government. So to some extent, you know, he's volunteering other people's capital, right? I mean, it just all gets to the same, and we started with Fable, it all gets to the same thing. The US government is going to get embroiled in this, in AI, in a whole load of different, probably contradictory ways, right? It can range from, you know, as I say, cyber danger to wider regulatory danger to economics to Chinese open-source threats. You're just going to be embroiled in politics. And it's funny because, you know, when you watch the internet take off, the whole emphasis was cut us free. And then if you look at two of the biggest deals at the start of the internet, maybe three big... I'm going to give you three really interesting 1990s regulatory issues that were amazing, amazing for the internet and the exact opposite of today. One, you had the Telecom Deregulation Act that said AT&T, you got to be broken up and everyone's got to give independent access, which allowed broadband to take off. You had Section, I think, 230, the one that said websites are not liable for third-party comments on their website, which effectively is what Facebook, you know, Google, Facebook, and everyone has relied on. So it was a huge amount of free speech. And then the third one was for a long time no sales tax, which you could argue the justice of, but all those things were basically... Silicon Valley managed to have a 20-year run with the internet where the message to Washington was leave us alone and we did great. It's just super, and now many of those have been revisited. It's just super interesting we're going with the exact opposite approach now, which is, hey, don't miss us, regulate us, you know, putting our hand up and saying, pick us, we'd like to be regulated too. I mean, oil and gas must be looking at this going, wow, these people are crazy. Like no one down in Exxon is saying, you know, oil and gas is really important, why don't we give Washington 5% and check in advance before we do drilling, you know.
You know, there's a different... since just because this is 20 VC, not that I disagree with any of that, but maybe this is too micro of a point, but I think in the age of AI, massive dilution has been sort of institutionalized. Founders don't care anymore. Not all founders, not all founders, but even two years ago, before all of this, before these massive rounds, I would say most folks were fairly dilution-sensitive. It certainly VCs always have been to an extent. Now I find founders, you'll look at really hot startups in the news, and if you peel the layers back and you look at the stub rounds and the up rounds and the half rounds, they've done 16, 17, 20 venture rounds often, right? Even if each one is 5% dilution, 20 rounds at 5% dilution, Rory, help me with the math, it's a lot of dilution. And so, and look at Anthropic, you've got Dario at 1 point something percent equity, right? Sam's at nominally zero. So I mean, Anthropic is the most successful startup tech of our lifetimes, but the founder owns 1 point something percent. It's just an example, but I see it across tons, not all, right? But so 5%, it's like nothing, man. It's like, I just, that's like the stub round I did last week. I did a round at 10 and then 14 and then 18 and 22 and 29, and TechCrunch runs it up each time. But those 5%s and 6%s add up. They really add up, right? Every Ramp press release, it's so exciting. But I hope they're not too dilutive because there's just so many of them.
It's an interesting point, and I think fundamentally I don't think either of those CEOs are primarily money-motivated. But you are, it's a great point, Jason. You are right. It is very different. Like normally the two winners in a SPAC, you know, like if you look at Microsoft, you know, Bill and Paul Allen own, you know, a good slug each, and even Ballmer owned enough to buy a basketball team at the end of it as the richest man in the world, one of the richest men in the world. And you're right, it is really odd where one of the two CEOs own 1.7% and the other own zero. You're right. It totally takes the edge off the Lucian conversation because it's someone else's money. I just, it's not that I think as a seed investor I sort of hate it because I've watched myself be diluted to levels I never even thought would ever happen, right, when I started investing, like literally. So as an investor you have to internalize and realize it's basic for me, it's doubling again my entry price, right? As a seed investor I used to think my real entry price was twice what it looked because of dilution, right? Now I'm thinking it's four times. So Harry just talked about doing a seed deal at 60, right? I think you're really doing it at 240, Harry, is the honest math today, right? And founders, not all founders. Look, there is absolutely a vibe of I'm going to go through YC, I'm going to raise six at 60 and never raise again. Amen, right? But so many founders today after that first round are not dilution-sensitive. And maybe it makes sense if it's a huge outcome. It's just different. It's just different.
The only fact-based comment I'll make is you're right though, the data from Carta, which is always excellent, says that dilution per round is going down. So maybe in part founders are willing to raise more because the dilution per dollar is lower. So maybe some, not the founders of Anthropic, OpenAI, but in general, if the pricing goes up, you know, you can do more rounds and end up with the same dilution. I think that's happening in a lot of cases as well.
Yeah. But I think what I'm personally seeing, and I think Dario is an example, I'm seeing both. I'm seeing smaller rounds, but so many rounds.
Yeah. So many rounds that each round you kind of don't mind as an investor or board member, great, do that. That's, wow, that's a great deal at 6% dilution, five, that's not double digits. And then four months later you do another one, and four months later, and it's, I, it sounds like I'm complaining, I'm just learning, but if I'm doing that 5% to hold off any regulatory issues, man, that just do it.
Well, I like the learning comment because you're right. Look, I will admit that one of the areas where I think I may have been too rigid is, you know, you do think about, you know, you don't have hard ownership targets, but you want to have between 5 and 10% of an investment to matter. And, you know, you're seeing now, you know, Spark's going to do amazing and very deservedly. They're going to own 1% plus or minus. SpaceX, I think, Founders Fund did the original check when the rockets were still blowing up, for God's sake, right? Ballsiest check out there, you know, they're sub 5% or 3 or 4% of SpaceX, right? So, you're right, Jason. I think for these huge outcomes, you know, the mental math and the mental model you had gets really turned on its head, which makes sense. If you have, you know, three orders of magnitude larger exit, you can get away with just about anything on the dilution side. Question is,
I mean, Ramp's done 12 announced rounds according to Claude. So I'm going to guess it's more like with stub rounds, like 24 rounds typically, right? I think it's done 24 rounds of funding, right?
And Databricks is down in the second half of the alphabet. It was like a Series M there. I love the way they actually named it, not just like another Series M.
These are honest founders, these are actually old-school founders living in the AI age at Databricks. I have none. It's not performative at Databricks.
You know who I love though, and then we'll get back to normal scheduling. Karri at Linear. The dude is so disciplined and so focused. He's raised two rounds of funding. He never wants to meet VCs. He really like refuses all VC intros. Never meet.
But are you sure that's the right outcome?
Uh, yes. It will return my fund one multiple times over, and I'm incredibly grateful to him and the team for doing so.
No, listen, I'm not being critical. It's a beloved product, right, with real traction, and it'll return your fund one. That's great. Sometimes I, everyone's, to use Rory's term, everyone's talking their book a little bit, right? And so when I sometimes I see him say that, I agree with him as a founder, right? I love it. But sometimes I, you know, I hear a little bit of Brian Armstrong in that. Um, you know, it's because like, listen, maybe I could have done even better. As great as Linear is, maybe I could have done even better, but I chose to be capital efficient. And sometimes like, and sometimes I feel like, but was that the right choice in 2026 when the prize is so large? If the exit's a couple billion, 5 billion, it's good. If the exit's a hundred billion, right, then you just, I'm not, I'm not literally, I just sometimes wonder when I see it. And I'm not saying that I'm right. I'm not remotely saying I'm right.
I think what you're weighing off, to try and kind of step back, what you're weighing off is optionality versus upside, right? Look, there's no doubt if the prize is a trillion dollars, which it has been in at least three cases, it looks like it really doesn't matter what it takes to get there. You just have to get there. And if skimping on it reduces the probability of getting there, even 10%, it's a huge mistake. If on the other hand the prize is, as you say, a billion or 5 billion, then raising too much eliminates the optionality of taking that billion-dollar exit, right? And, you know, to be fair to a founder, 20% of a billion-dollar exit is life-changing, especially with QSBS for now. I think the truth is it's different by opportunity. Not every opportunity is an Anthropic opportunity, and there's going to be, I mean, Linear, a hard one to place in that because you squint one way and you go very bounded, very well executed, will be a great outcome no matter what you do. To your point, Jason, you can see another world where do you have to become something bigger to even matter.
I think there's a related point just for founders today that's changed. This, in some cases, insensitivity to dilution is different. It's just different, right? Because if the outcome's massive, it doesn't matter. And the other one that has changed, to Rory's point, and I think this is a positive, because it certainly terrified me as a founder, but it's not all positive, is no one's worried about making their last round high-priced investors' money anymore. Literally, no one is, because I believe investors have learned to accept 1x when it doesn't work out without drama, without blocking, without threats. I'm not saying weird PE firms and non-standard investors, they play games all the time. I see it. I see, I'm watching a threat through my portfolio from a non-standard VC right now that is blocking round after round after round. But a16z of the world and every, you're not blocking exits, right? And so I think founders, oh, I raised at 4 billion, but maybe I exit at 800 and I get an 80 million carve-out. They're just not worried. I was terrified as a founder out of, for every round I would get blocked by the douchebags. Okay. I just don't see any of that fear exist in founders anymore. And
And that's true, and you're right. And it never made sense to do it because the founder wants to sell. But you're right. I do, across cycles, I have seen the, you know, the hedge fund that you let into the last round suddenly just refuse to sign the docs even though it's totally, you know, they're getting a 1x and you moving on from that. I mean, because yes, and it's appropriate because if you think about the late-stage business, you know, you're only taking one risk, which is valuation, which means your downside is the 1x. You should be prepared to take that and move on. So you're right.
Yeah, without drama, right? It's just changed all. I think this is the age of growth investing, and the fact there's no downside because your investors won't block that billion-dollar round adds velocity on the, not on the investor side, but on the founder side. Like I would have taken another round as a founder for sure if I thought I wasn't going to get blocked. I would have done it in a heartbeat.
And I didn't get it at first, Jason, but now I'm getting it. And you're saying, and that's the argument that says if the high-priced later round is relatively low blocking rights, relatively low dilution, and it gives you upside optionality and doesn't preclude downside optionality, which is my point, then you're saying I would be wrong. And in fact, there are cases where if you as a founder are running a company, you're doing 100 million, there's some chance you can be a billion-dollar revenue company, take the round, take the late-stage round. It might work if it's a 50% chance it works. And if it doesn't, yeah, you'll have the preference stack. Don't waste the money, and you'll still be able to, you know, get out with the exit you would have had otherwise. I don't know if I buy it, but that's the argument.
I think it's a big, but I can't think of a founder I've invested in doing the big round that is worried about the return on that high-priced round. It just, my generation of founders, we were terrified of it. We were terrified of the expectations.
I remember those terms where you had the block unless it's a 2x sale and all that shit. So you were really stuck with that late-stage money. But I agree that's actually a fair point. It's freed up the risk. Now,
Okay, back into scheduled program. One video that was going incredibly viral was Alex Karp on CNBC, where he really said two things that I think were standout comments. One is there's never been more skepticism from large enterprises towards frontier model providers, specifically Anthropic and OpenAI. And then second, that there is real questionability from those enterprises on the ROI of AI within their organizations. Anything to add, any commentary on that?
Yeah, I actually watched it because all the whiny people were saying he looked deranged, and I watched it and really enjoyed it, right? I actually thought he wasn't deranged. I mean, I thought he looked more stable than he normally does. Yeah, it's so funny because some of the examples, it's clear there's a whole lot of personal dynamics there, and his examples about his college and his examples, all that, that's just his baggage to bring to the table. I read a biography recently, super interesting dude, obviously with a lot of angst. So I think there's a lot of noise in the system from that. And then, you know, it was cute, he called Dario a world-historical figure, which is the Hegel concept, you know, the German philosopher, and Alex Karp is, of course, a doctor of German philosophy. So now we're dealing with big brain making big brain references on CNN, which perhaps isn't the right place for it. But when you strip away all that, I think you're right, Harry, the two comments he made were spot on. Corporate America is saying, I'm spending all this money, am I getting anything? Which is the ROI comment. And then the other comment, which I hadn't heard as much, and it's obviously a little right, but he said, and corporate America is saying, am I giving them all this information? Are they training them? Are they learning my business and are then going to be selling my business to everyone else? What's my IP? Right.
And obviously it was a self-serving comment because then they were like, well, Palantir will solve these problems for you, Mr. Corporate America. And worth pointing out, people can bench them, but the stock went up 9% on the day, right? So I didn't realize that. I checked, I kind of checked it just before I came in, so I didn't think it was crazy at all. I think it was... it was, yeah. I mean, stylistically you kind of go, wow, that's a crazy style, but oh my god, the points were spot on. I don't know, Jason. Did you see it?
I only saw the clips. That all, as Harry knows, it's all we watch is clips now, right? We create long-form content to create clips, and that's life. I think, listen, anybody on the application side is going to be sensitive to token model costs and all of that, right? It's a thing that's real and has blown up. And he's talking his game and his dependency. The one that maybe he got slightly wrong, but is the most interesting because it's still a real issue, right, is whether OpenAI and Anthropic are really training and slurping up all of our data, right? And that seems to be slightly exaggerated based on their terms of use and everything today. But I mean, this was the same week that HubSpot had to walk back that it was going to share all your prospecting data with other customers. Okay? And I want to tie them together. Okay? HubSpot's an older-school B2B company, but HubSpot said a week ago, hey, we have a prospecting tool. Prospecting is really important. It's actually become much more important in the agentic world because all these hot AI GTM products are automating prospecting, right? So we're going to do what everyone's tried to do for about a decade and a half, is we're going to pull all your data. We're going to take all of Harry's verified contacts, all of Rory's and Jason's. We'll pull them so that when you do outbound, you'll have a truly validated set of contacts. And their customers erupted that you're sharing my contacts with. They had to roll it back within a week. And it'd be fun to talk about in general, but I think it teases it to the question that I think vendors overall are going to push the limits here. They're going to push the limits on training on your data. OpenAI, Anthropic kind of lied about the books, and they definitely lied about training on YouTube, and they're going to push the envelope here to make their LLMs better. And HubSpot did it, and Salesforce is going to be tempted to do it, and every vendor that is seeing massive competition or slowing growth is going to be tempted more and more to cut corners on training privacy. And HubSpot got caught. At least they walked it back, right? But that's, I think we should all be worried if we care about our data for real. And sometimes we over-worry about this, right? We're not all, you know, anarchists or whatever. But people are going to be tempted to do more and more with our data. I think it's a very valid worry. And if you're Palantir selling to the government and highly regulated industries, I think it's a great play. It's a great play. You can't really trust these guys not to share your data. You can't.
You're right. And I think not really. You're right because the ROI comment was clean and that comment on data wasn't as... You're right, Jason. It wasn't as obvious that they're doing that. But of course, the other thing that Karp mentioned correctly was that, you know, oh, Anthropic in particular had, quote-unquote, opinions about how their AI should be used by the DoD. And he was making the point when people are giving you millions of dollars, they don't want your freaking opinions, they want your technology. And I think he did a very good job of, you know, positioning himself on that side of the table.
I always heard the statement when I was younger, those that can do, those that can't teach. And I always like to remind my teachers of this, which is probably why I was so unpopular at school.
And then you kind of look at the ecosystem we're in today and you say, those that can do, those that can't open a cloud business to sell excess compute. We saw this week Meta launches cloud business to sell access to AI compute and creators. MetaMP compute, a cloud business to sell access to its AI infrastructure, either as hosted or raw GPU rented by the hour like CoreWeave or Nebius. Market reacted well, 10% jump, single-day gain in five months on this announcement. How did we think about this one?
My only thought was why not earlier? Why not? If you've got the capacity, why not lease it? Didn't bother SpaceX. Didn't bother Amazon 20-some-odd years. Harry can do the history for us. Didn't bother Amazon opening up AWS back in the day when it had excess e-commerce capacity. You know, why not, man? Why not? It's one thing if Meta still had massive cash flow it didn't need, right? But it's been such a... I'm not sure exactly what their net cash is from their infrastructure spend. Maybe it's zero. It just makes sense right at this point. It just makes sense. Why not?
It's been interesting. Two companies have done the same thing, which is buy a load of compute to build proprietary assets, failed to build those assets, and then decide instead to sell that compute to others. And both of them have had a very positive market reception from that, right? And one of them is SpaceX, obviously, and then the other, obviously, now is Meta. You ask yourself, what's going on long-term? What is the market actually thinking? Are they thinking there's a Goldilocks scenario, which is we, the market, believe that Meta in the short term has excess compute and therefore we're glad they're selling it, and in the long term we believe they have a wonderful use for this compute that we can't quite figure out yet, and therefore long-term will be this AI-centric play and it'll all be wonderful, right? That's one view of the world. And you know, you have the same kind of view like that of SpaceX, which is, oh, short-term they had to rent this compute, they got an extraordinarily high price for it, for which all congratulations. But does the market really believe over the medium term you're going to be an AI model provider using Cursor being, you know, top-to-bottom, you know, state-of-the-art model, right? That's one view of the world. Or is the market simply saying both of you have failed at your long-term goal, but being a cloud provider is a great business and go team, right? And the thing about the latter is you kind of find yourself saying, hm, two more entrants into a pretty crowded market. It totally made sense for the neoclouds to go down 10% because it's like all other things being equal. Would you prefer to have two competitors or four? You'd prefer two, you know. So at the margin, the entrance of SpaceX and Meta into the neocloud business was worth exactly that 10 to 15% decline for Nebius and Core. The interesting question was, what does it mean over the longer term? There's two ways... I mean, there's two positive scenarios. One positive scenario is they build these standalone models, they take that compute back in and they use it all. That's great. And the other positive scenario is being a hyperscale cloud provider turns out to be a great long-term business. That's great too. Obviously the bad scenario is if a whole load more companies go through the same journey Meta did, which is, oh, we think we need all this compute, but we don't. We can't build something useful enough for it. And then you're only left with a few buyers of compute. OpenAI and Anthropic can clearly use it, and a whole lot of sellers of compute. Maybe it won't be such a good business two years from now. And that's the risk, is that it turns out that, you know, right now the assumption, and Zuckerberg said it, is, hey, we should invest because if we can't use it, we can always sell it. And that, and this is what you're seeing right now. Everything there is true up until the moment that compute demand isn't there at the margin. That's not happening now, to be clear. It's never been tighter. But if that changes, then all these assumptions go out the window. Then the market will say, no, I'm not glad that you bought this and are now selling it to other people. I wish you hadn't bought it at all. Take the hit. But that's not where we are today. Compute demand still appears to be pretty strong.
Well, right now it's working. But it is odd to be able to get away with having a plan A, reverse it, go with plan B, and getting a 10% lift. Do you think Zuck will execute on the strategy? Well, Elon did a masterful stroke with it. We've discussed it before. He got a great price for it. Single customer, amazing job. It's not easy to do. Do you think Zuck will be able to pull it off?
I think you're phrasing the question wrong, with all due respect. You're basically saying, oh, is it Zuckerberg? And they're both wildly talented, let's use the C word, world-historical figures, right? Which I think is true, actually, right? I think the real question is, is there another five gigs of demand out there that wants to be satiated? Does Anthropic have an open-to-buy? If the truth is this, if a customer wants to buy something, as every salesman knows, it doesn't take a freaking genius to sell it if you have it, right? If Meta has a gig of compute lying around and Anthropic, you know, 20 miles up the road wants to buy that compute, I predict that sale will happen, right? If Anthropic doesn't want to buy that compute, then all bets are off. So that's the only thing it boils down to.
Listen, maybe I'm not that bright on this, but Zuck also just paid essentially $900 million to hire a head for WhatsApp, right? By investing $900 million into CRED, right? So it seems to me, I might be wrong, not trying to trigger anybody...
Just to provide context, if Meta invested $900 million into CRED, an Indian company with a CEO called Kunal Shah, I believe, and Kunal is now head of WhatsApp with that $900 million investment in CRED, I believe is...
Probably more, right? Really, because that was a $900 million investment. Let's say they paid well over a billion dollars to get someone to run...
Something too, I agree. It was...
So it seems to me, so what's happening there? Well, clearly, and you can see the numbers, the core Meta apps are working well. WhatsApp, Facebook, Instagram. This is the engine that keeps going, right? I mean, it's not confidential, right? And so, in a way, Zuck's treading water while he figures it out, right? Did he overpay for Scale and Alexandr Wang? Maybe. I mean, probably, right? But he's treading water. And listen, a lot of our founders are in this boat. The main engine's working, right? Something's working. I don't have all the answers today in the age of AI, right? My core business is still doing well. And I can either kind of hide from it or I can go maybe too all-in without having the answers, but at least I'm in the game. And so as crazy as some of the, you know, did Llama really work out? Did Scale work out? I don't know. But when the core is so successful, you stay in the game and then you rent out the compute. It's okay, right? So I give the same advice to founders that are doing reasonably well: stay in the game, man.
I think you're totally right, Jason. I mean, the core business is doing amazingly well. Now, one minor nuance, they say that part of the reason it's doing well is the AI is improving their targeting, and I believe that, but I don't believe it justifies the $70 billion or so they're spending. But you're right, the core business is doing well, which means that there's no fundamental fatal error risk in continuing to invest in this new marketplace in AI, right? So if you were a Meta board member, not that the Meta board members have any power whatsoever because Mark controls all the votes, but I also think as a board member, one of the big-picture jobs you have, and you have very few jobs, but one of them is if the company is doing something that could have fatal error risk, that is when you at least record a no vote and you say, I wouldn't do this. Right? If the CEO came in to me and said, I'm doing this, I'd have to say, you've earned the right. You've got a hundred-billion-dollar cash flow business. I don't understand where you think the $70 billion of investment is going to get, but you've earned the right to continue to play. So even if there was a meaningful board at Facebook with actual votes, if I was a board member, I'd be saying, I might not get it, but you've earned... Jason's exactly right. You've earned the right to play. You've hedged, and worst case, we spend $70 billion, we're wrong, just like VR. So yeah, I agree.
One of my big ahas is people talk a lot about the fact that all the hyperscalers are spending almost all their capex and even starting to tap the debt markets to invest in compute. My big aha is this spending isn't going to stop because the supply side says stop. Facebook isn't going to say stop. Google isn't going to say stop. Microsoft isn't going to say stop. Really, it boils down to the demand side. As long as end enterprise customers, as long as that revenue growth rate, even though it's a seventeenth the size of your capex bill, as long as the revenue growth rate is 2x-ing and 3x-ing, which is what we've seen from OpenAI and Anthropic, even at today's run rate, the spend is going to come. The demand side is going to be what shuts off the spigot, not the supply side. And I think Zuckerberg is just the best example of that. He is going to keep playing as long as there's some hints on the demand side and it's not a fatal error, and neither of them have been triggered. The supply of money and keeping that money machine rolling, Nvidia starts financing its own demand with compute now, pay later. Essentially letting providers access their GPUs through revenue sharing and credit support instead of paying upfront.
I love it. Now that round-trip revenue is like totally cool and not something you go to jail for. Like, let's do it every single place we can find it, right? Let's just do it. And I'm not saying there's anything literally wrong with it, but go for it, right? And capture them early. I'm just shocked with how many folks have screwed this up over our investment histories. How many folks don't just go ultra all-in on startups. And if you want to pick YC because it's the simplest way to go all-in, just do it, right? It is such a talent magnet. But why everybody... and folks have woken up to it to some extent, but every leader should be showering startups with infinite love their first 24 months. It's the best long-term investment you can get. If there's any lock-in or anything at all, shower them with love. And let's talk about what's going on here, because what Nvidia has said, and the details matter, is that for next-generation neoclouds, and one I think, Shaon AI, which is one of the examples, they did two deals recently in early July. They actually did some kind of explanation of what they're doing. They're basically, quote, selling you the chips up front, so they are going to recognize that hardware revenue up front, and then they're giving you, as the buyer, the neocloud, a backstop that if you can't use that compute, you get kind of put-back rights on it, right? So it's basically hedging the risk. And it wasn't clear to me on what I read when the money actually changes hands. But what was clear is they are taking the revenue up front. So it's, you know, as legal as church on Sunday, it's ASC 606. They're separating the revenue up front from the guarantee over time. So it's accounting-legit, but it is pretty aggressive.
I mean, what it's basically saying is their push has been to diversify away from the hyperscalers, and they've achieved that. Even though obviously the bulk of their revenue comes from a small number of hyperscalers, they are starting to expand their customer base, the number of significant customers. And the top three customers, I think, don't quote me on this, in the data center business have gone from the 80s to the 50s or something like that. So they're trying to make all these guys, these new neoclouds, work, right? And they're leaning in backwards. They're effectively... but there's a lot of contingent liability they're taking on. And Jason's right. Yeah, you do that, and it goes back to the same sentence over and over again. As long as the raw demand for compute and intelligence keeps going up and to the right, these deals will look wildly smart because they'll work. And if that slows down and there's excess capacity, these deals will look horrible because you'll not just be not growing quickly if you're Nvidia, you'll be de-booking prior revenue, you'll be taking money back because your customer will have gone bust. So the whole thing is a derivative bet on keeping this thing going. Not crazy, but that's what it lies on. I don't think at this point, when we record this, say, anyone's managing for downside in the... I don't think any... I think that we're so far deep into a bull run like we've never seen before, bubble or not. I don't... you know, you're managing for downside, I think I'll check out of that board meeting, thank you. Here's my junior associate.
You're right, and I funny, I remember thinking a year ago when I realized Nvidia were talking about stock buybacks, I remember saying, actually, I think I said on the pod, I said I wouldn't do that, I wouldn't do buybacks now because buybacks are a concern service. I actually think if you're going to be stupidly aggressive with your cash, this is actually a better way because it keeps the thing going. Now, I do think the time to manage for the downside is when no one is managing for the downside. So there's a little part of me that just goes, oh, we're at that stage of the cycle, right? And you know, we remember that stage of the cycle in '99, 2000. And you know, I want to say again, history doesn't repeat. It does rhyme, but it doesn't repeat. These are different companies, different times. But it is interesting. We've reached the point where the number of good customers who can pay cash and have a big balance sheet is tapping out. So you got to find more customers to keep the growth going. And to do that, you got to subsidize them. Speaking of like dependence on customers, customers having the money. Well, one of the biggest customers for Nvidia is Anthropic. And Anthropic opens talks with Samsung to build its own AI chip. That was on Thursday last week. And then today, DeepSeek has announced that they are starting to build their own chips. Is this the natural progression of an ever-maturing industry? Will everyone build their own chips? How do we think about this?
I last week said I thought it was mad, and I actually saw the comments from Anj Mida, who I think is just super smart. He responded to your thread, and his comment was, you know, you got to own the... there's two arguments in favor of it that I didn't internalize last week when I said I think it's crazy for OpenAI to be building their chips. And the two arguments were, one's comment, which was some version of you got to own the compute. If you don't own the compute, you're screwed, a little like the crypto. If you don't own the keys, you don't own the crypto asset. So he was very much viscerally, you got to extend the whole way down. And I just think he's been so smart about Anthropic in '21. He's been so smart about the need for compute that that made me pause and think, am I wrong? And then the second thing, kind of more technical, is if you build your own silicon, you can optimize the silicon for your model and probably get way, you significantly more efficient than you might do buying a general-purpose computing platform from Nvidia and adapting it to your specific model. So there are two arguments that I didn't have in my head literally a week ago, right, in favor of this thing. But I will admit, I still find myself going, if you're at the app layer and that's where your value is, and then you have the model, and then you have the hosting provider, and then you have the chip, just needing to do that amount of vertical integration just feels weird. But I don't get it, but I may not be understanding the big picture is my more tempered approach than last week.
The only thing that makes zero sense to me is the argument that, hey, OpenAI, we need to build our own chips because we have very specialized needs that Nvidia can't meet. Yes, I have a little bit of experience in the semiconductor industry. If you're driving that much volume to them and you need a special version of a chip, they'll build it for you. Like, this is not true. Like, okay, Frazzle will fry me in the comments or whatever. I admit my experience is a little dated for this amount of dollars in my limited experience in the semiconductor industry. They'll make you, they'll do your own tape-out. They'll build you your own. It's so much money. 80%, 50%, whatever the revenue. If OpenAI needs a different chip and it's really that simple, you're going to get it. This is just responding to believing that the margins are so high. Nvidia, to survive, we have to recapture that margin. I just think the idea that it's customized for us is just soft language because everyone's kind of dancing around being Zuck-aggro here, right? Everyone on either side is maintaining relationships. But it makes no sense in my experience. It just makes no sense.
Kling raises $2.8 billion at an $18 billion valuation. It's the biggest AI video business in the world. It's doing $500 million in Q1 ARR-wise. It's clearly going to go public on the Hong Kong stock exchange soon. Interesting in the context of OpenAI shutting down Sora.
