The most aggressive quarter in capitalism. This is leaning in like you've never seen leaning in before. This is the top of the distribution pulling away this week. It was the Super Bowl of earnings, Mag 7 earnings. So, what happened? Meta lost. Microsoft, Amazon thumbs up, and Google home run. Next, is the SaaS apocalypse over? Atlassian 29% up, Twilio 20% up, 59 23% up. And then in private markets, Sierra raising $950 million at a $15 billion valuation. And then finally, Sam Altman versus Elon Musk. Week one of the trial begins. When the music stops, who has a chair with a trillion dollars on it? Without the AI initiative, Microsoft is flat revenue.
>> Anyone on LinkedIn that talks about their team, fire them. My team this. They're also precious about their team. Lead from the effing front with AI. A CMO today should be able to run their own campaigns. Ready to go.
Boys, there's a lot for us to report on this week. We had a big week of earnings. Mag 7 Super Bowl was the title that I had down. 540 billion in combined revenue, 700 billion in AI capex. I thought we'd start with like the clear winner, which seemingly was Alphabet. Cloud backlog nearly doubled to 462 billion. Now it sees Alphabet's entire 2025 revenue. Do you agree Alphabet was the runaway winner from this mega earnings season?
I mean, Jesus, it's jaw-dropping at that scale, right? I think the meta, like the theme of this episode I think, and then we can tie it into Twilio and Atlassian and Palantir, is just this jaw-dropping acceleration, right? And even since we've been doing this show, it's obvious the capex boom has been happening. Rory's been great on this, right? But to see Google accelerate at this scale, you know, 60 some odd percent, I think it just, it once again makes you wonder why you invest in anything. Why are you invested? And the sheer force of spend. And as a side note, just as a personal note, I mean, everything's clicking at Google. You know, when we started this show, folks were wondering would search die, right? Because everything would go to the LLMs. Clearly, it hasn't happened economically, it hasn't happened in advertising. And honestly, I was checking even our own little SEO at SaaStr, it's up 60% this year, the highest ever, the highest ever. So like Google's cash, you know, everyone, a lot of folks are struggling to protect their cash cow versus investment in the future, right? Should Uber invest in autonomous driving, which it needs to, or should it invest in Uber Eats, which is on fire? There's so many trade-offs here. But Google has no trade-offs. The only trade-off it has is where do I put my chips because I need all the GPUs for myself and for my customers and my partners, and I need it for Replit, who hosts every website on it. They just have to figure out who's getting this massive backlog.
>> So, first of all, agree on the kind of framing. And I actually, I'm going to quote a blogger I read, a subscriber I read, Evan Armstrong, who described this quarter, and I thought it's a great description. He writes something called, I think it's Out of the Leverage or something, the most aggressive quarter in capitalism, right? And I'd actually amend it to saying the most aggressive quarter in American capitalism because it is a uniquely American thing. This was an astonishingly aggressive, and I love the wording because there's two things going on. One, the largest five or six companies on the planet are accelerating at scale and doing plus or minus 20% growth overall, 30, 40% growth in some of their subsectors. So that's wildly aggressive growth. And then even more aggressive capex, right? These same companies are doubling down on capex, letting it grow 50, 60% such that capex is now eating most of their free cash flow. This is leaning in like you've never seen leaning in before. And he wrote a really nice piece that says, you know, normally it's the new guys, the up-and-comers, you know, being aggressive and the incumbents moving a bit slowly and defending their turf. These are five of the seven largest market cap companies on the planet saying, 'Hell no, we're not going to get pushed around.' In fact, six if you include Nvidia, which didn't report this week, we're just going to make the bet too. Right? So that's the first zoom-out comment. This is the top of the distribution pulling away, which is kind of a sobering thing if you start thinking about all sorts of inequality, all sorts of those kind of issues. But just from a wow perspective, these are amazingly great companies doubling down. So that's kind of the first big picture framing here. You just can't take it for granted.
Second comment would probably be, yeah, you're right. Of the companies, Google did quote-unquote the best, right? In that it, you know, its existing, Jason, you found it, right. The existing business where you could have made a disruption story around search hasn't happened. And the cloud business has accelerated. But I'm going to make a point. I actually think, controversial take for all of these companies, I won't say it's disappointing, but this is only the start of it. It's not the main event. All these companies are fundamentally, across all of the companies that have been successful out of here, and it's obviously Google, it's not Meta, which we'll talk to in a second, it is Microsoft, it is Amazon. If you analyze what they're boasting about and if you go one level deeper, it's two things. One, we sold a lot of compute to the LLM companies to make their tokens. And then second thing, they're boasting about, oh, and by the way, we bought some of those tokens and sold them to our customers because we have distribution too, right? And both of those statements are too true. And both of those statements made the revenue line go up. But if you zoom out a million miles, what you say is, oh, let me get this straight. The five largest market cap companies on the planet are effectively working for these two privately held companies and doing their distribution and doing their capex investment while ultimately they own the IP. Just an interesting phenomenon. And that's kind of the second big picture comment here, which is this is a bunch of the largest companies growing quickly by servicing these other companies. It's super interesting. And then the last, which is going back to Google, I thought everything was really good, but it was interesting.
Yeah, let's talk about Gemini. You see all these evals of Gemini and you know it's nearly as good. It's nearly as good for coding, right? And then they cited a number and I wrote it down and I apologize, I couldn't find it in front of me, like the month-on-month token growth. Q1 was pretty good. It was like 60, 70%, 60 billion tokens per second or some vanity metric like that. But the truth is Anthropic probably grew tokens 15x in Q1. Right? So the interesting thing is I go back to think every other business is ancillary to the business of making tokens as an LLM and the only guys who are even in the game there are Google because they actually have their own model and their token growth, their Gemini growth for coding and related things significantly underperformed the other two guys. So where I'm going with this, the last sentence is the most aggressive quarter in American capitalism is an underperforming quarter relative to the privates. Jess disagrees.
>> No, no, no. I actually, I just want to, I don't want to connect it to another section too quickly, but the point is super interesting. Of course, they're at the mercy of these two privately held companies, right? They're the hyperscalers. On the other hand, you know, Palantir blew out the quarter growing, I should have it at hand, 80-something percent at 6 point something billion in revenue. And I watched, I never do this because I just read it, but I watched Alex Karp's analyst discussion. It's great. He's so entertaining. He has a T-shirt just like Harry's today. And he's with his team. Really interesting. And he made the point, and obviously he's talking his book to use Rory's point, but he was really insistent that there is no value at the LLM level to Palantir because at Palantir scale, this is not a simple B2B app, right? This is high-end AI. He's like, there's no difference between the LLMs. So it is interesting where the value is at the three layers, right? From application to LLM to sort of infrastructure or hyperscaler. If nothing else, it's a challenge that it's fluid. It's just going to be fluid the rest, the next, it's hard to predict. I'm not, I know you're not challenging me. I just, when Alex said that, I don't buy it today, but I don't not buy it, right? It's so fluid.
Totally buy what, I agree with that. I think he's living on a different plane. Look, I think, and let's kind of play it back to hyperscalers. And let's compare it to Microsoft who went down after the results. Palantir have an exciting enough enterprise product line that despite the whole LLMs are going to eat everything story, they can make that statement and make it credible. And I believe it's credible for them and we can talk about why later, right? I don't think Microsoft can make that statement, hey, our Copilot is so cool that we don't care which LLM we use and enterprises are just ripping it off the shelves, right? So I agree. I think that you're correct for Palantir that same level of there's an insatiable enterprise demand for Palantir.
The only insatiable enterprise demand that Amazon, Google or Microsoft are experiencing are the insatiable enterprise demand for the LLM products that they now host and can sell using their large distribution channel. And it's a great business, don't get me wrong. It's like they get revenue. I mean, right now they probably get more revenue from the LLMs than the LLMs are getting because they get the revenue going in on the hosting. And in Google's case, they get the revenue going in on the chips, they get the revenue going in on the hosting, and they get the revenue on the distribution side from selling, right? And only a small sliver accrues to the LLM. But my instinct is that over time, that's the attractive sliver vis-a-vis those guys, not vis-a-vis Palantir. To your point, Jason, I think Palantir, because this is all about, there's clearly a wall of money out here and everyone's trying to figure out who gets to keep it when the music stops, who has a chair with a trillion dollars on it, right? And that's what we're all trying to figure out here.
>> The only one thing I might add is, you know, there still remains, probably in that Substack you quoted and others, there still remains a lot of skepticism. That investment is consuming all of their free cash flow. Are they really capturing, yeah, Microsoft's own some of OpenAI's IP, but are they really capturing enough value? And we went from free cash flow engine to no free cash flow, right? The only thing I would say, I know this is Captain Obvious, but it's certainly clear to me when I worked at a Fortune 500 tech company, it's clear today. If there's one thing these companies are good at, it's financial engineering. Day in and day out, now we could challenge them, but they've worked through 27 sensitivity analyses and gone through this and maybe they're making the wrong bet. Maybe they will regret having squandered their free cash flow on a bunch of chips sitting in depreciating servers, but they know exactly what they're doing. They know exactly where they can offload risk to CoreWeave. They know what NBIS should take. They know where do, and they may be making the wrong bets, but it probably doesn't matter because they'll scale them back, right? But I do believe that it is very thoughtful financial. And when that OpenAI blew up and they fired Sam, Satya kept saying that this is not such a huge bet for us back then. Remember he kept saying things like, this is not the end of, like, this is important, but this is a week of, I mean, it's gone up, this is not going to ruin Microsoft. So my only rambly point is I think they may be wrong, but I think they know exactly what they're doing to the last decimal point.
>> I don't know. Well, maybe a better statement is this, and it was a really good phrase because I saw kind of a dialogue on Twitter, this, what, six months back, where, you know, someone said effectively that who are you to second-guess these folks? These are the smartest people on the planet making bets. And the response back, which really struck with me, was, look, no one at the height of the capex boom thinks I'm just doing dumb [__] here because they wouldn't do it, right? Everybody, when you're spending a trillion dollars, thinks this is a great idea, it's going to come back, and then just sometimes you're right and sometimes you're wrong, right? I think, look, they are making informed bets. And right now, I mean, one of the things they're wrestling with is, for example, Microsoft was a little conservative a year ago and now they're wrestling with that. And it turns out that being aggressive is the winning strategy. And, you know, one of the definitions of a bull, of a crazy bull market is when the most, it's typically that's when the most aggressive person makes the most money, right? So we're in that stage now, right? And, but, but, but you are right about one thing, which is that if they overinvest, I mean, the great thing is all, and this is where it is different than '99, is that if they are overinvesting, if they and they throttle back, they still have their existing businesses, is your point.
>> I think it's low risk, lower risk than claimed it is, right?
I agree it is. I agree. That's why I actually, I've come up with this distinction between overinvestment, which may be happening, so far it's not even overinvestment, you can't prove overinvestment, and a bubble. I don't use the bubble words because the bubble words are, to your point, Jason, they're making a financial evaluation statement, right? I don't think you have to make that here. You're just simply saying, you know, right now the compute's all finding a good home. Will it over the next five years? Who knows. But to your point, it's interesting. I want to go back to your comment on Satya that it doesn't matter that much to us. I'm going to say [__]. Right. One of the most interesting statistics about Microsoft is in this quarter, taking out their quote-unquote AI businesses, and to some extent they do this reallocation [__], all the good stuff is reallocated, right? But if you take out, you know, Copilot growth and Azure growth, the rest of the business is flat to slightly down. In other words, if you didn't have an AI business, you'd be another SaaS company trading at three times revenues. Welcome to our world, right? So it does matter. I mean, right now, three years ago, that might have been true. But right now, if the AI bet is wrong, all these valuations are wrong despite the fact that they're not outrageously valued on a PE basis. All the growth is coming from these initiatives. And as I said, it was stunning to me. Let me repeat: without the AI initiative, Microsoft, the corporation, is flat revenue.
>> Yeah. So a good, good bet.
Their AI ARR is 37 billion. Their capex spend will be 190 billion. Does that concern you to hear?
The most aggressive quarter in American capitalism, baby. That's right. You know, I mean, and I, yeah. Look, if they're wrong, they just throttle back the future to live off the cash flows and they, you know, they just have a great big digestion period where the stock looks overvalued and goes down. So it's not as terrifying as, let's just say, you had the same bet and you financed it with 150 billion of debt. That would be beyond terrifying. But yeah, no, it is, it's an aggressive investment well in advance of revenues. So by definition.
>> I have just a slightly different take for what it's worth. It's just, and we know this, but you especially see it when you work on the other side at an extremely profitable public company with massive margins. Your cash is so trapped, you cannot spend it. Your EPS goes down, your dividends might be impacted, but there are moments in time when the public market lets you spend it and don't take a hit for it, right? And some of this is financial engineering where it sits on the balance sheet, etc. That's important, right? But, you know, one of the reasons like Salesforce Ventures and Google, Google owns so much of SpaceX and everybody is you could do something with the cash. You're allowed to make investments. It hurts Shopify this quarter. But when you have these windows and you don't have to be like Jeff Bezos in the day convincing Wall Street to let you spend, when Wall Street lets you spend and doesn't punish your stock, you should spend every dollar on the balance sheet. They'll let you because you'll build it back up, but it's trapped when growth slows. When growth slows, it is, you're literally at the mercy of getting another half cent into your EPS. It's a terrible place to live. Like when you're at the mercy of not being able to spend, it is, oh, we have 6 billion on your balance sheet, but if you can't spend it, who cares? Like literally, who cares? You can't grow if you can't spend it.
I understand what you're saying and you're not incorrect about the wider constraints, but those wider and how Wall Street and perception impacts your ability to invest aggressively. But the result you articulate is it raises the risk of, you know, bad capital allocation because if you're grabbing the moment not because the ROI is there but because the permission is there, right? What you're basically saying is your decision to invest is in some part predicated on the street's willingness to give you that permission and now they're giving you permission. And I think you're correct. Everyone's allowed to lean in right now a little, but it does just heighten the risk of groupthink and the fact that you end up allocating badly. Now, having said that, I just got to say it again. Right now the allocation's been great and the more you allocate the smarter you look. Like six, nine months ago there was this, oh, I don't want to buy from OpenAI because they mightn't have the money. Now, you know, CoreWeave is killing it. OpenAI looks like a good credit and the more compute you have the smarter you look. So I don't want to sound like Debbie Downer here talking about capital misallocation when right now it's working, but, you know.
>> Yeah, but let me just give you one example. Sorry, I was talking with the CEO of a $20 billion plus public software company where growth is modest today, right, but revenues are very impressive. And we were talking about AI and agents, which is what people want to talk to me about. And he was talking about how they were saving like 100 basis points on their LLM costs. And I'm like, you're dead. You're dead because you don't have permission from Wall Street to do the opposite. You don't have permission to spend 10% to decrease your gross margins 5%, 10% so you have the best agent in your category. You're trapped in a death spiral. And he's so focused, I mean, the margins of this company are very impressive, right? But he's so focused on driving them up to keep Wall Street happy and to keep the Carl Icahns happy. The room of maneuver is so effing narrow at a $20 billion market cap. And when these guys, when Satya and Google can spend, if I were running one of these companies, I would be like, I would force you to force rank it, of course, but spend it all if we're allowed to spend it all, boys, because the day will come when we can't spend nothing.
Again, I always recoil from the vehemence of the direction, but I think you're right in the sense that if your number one priority right now is to optimize your LLM spend dollars, you're missing the point. Over the medium term, you probably want to optimize. But if there's positive ROI on LLM spend in terms of agent functionality, yes, you should be doing it. So, as usual with you, Jason, I agree with the broad thrust. You're exactly right. If you think you're going to make money by saving money right now, that's not the case. You do want to, I think, be a little more circumspect than some of the investment you're seeing, but err on the side of aggression. And so maybe it's a good time to talk, by the way, when I did find that number for the Gemini token production, they boasted about the fact that the Gemini token production went from 10 billion per minute in Q4 to 16 billion per minute in Q1. All I'll say is Anthropic 10x'd in that period of time and tokens probably went up by more than that.
>> What's your takeaway from that then?
My takeaway from that is every time you look at the evaluations, it says, you know, you got the big two, obviously Anthropic and OpenAI, and then, oh, close behind, you've got Gemini, you've got Grok, and then you got the open source guys six, 12 months behind. And when you look at what's actually going on, the big two guys are getting all the money. Gemini, for some reason, doesn't appear to be able to do a great job of developing code love and just getting that kind of traction because coding is where it's all happening. It's obviously nowhere until it gets Cursor done. And even the open source, when you, I mean, you do see people using them and you do see the Palantir perspective, which is you can get something done with the open source, but, and this really matters because, you know, there's one view of the world, the Palantir view of the world, five years from now, these are all API calls, they're all commodities. And if you look at the benchmarks, you could convince yourself of that story. But if you look at what's actually happening, you know, there are millions of developers who have that same choice every day and they are choosing over and over again because of the model or because of the harness to go with the big two. Right? So it's, you know, I think Google has outperformed everyone in terms of being AI relevant. They are by far the best of the five people who reported this week. And as yet, in terms of mind share of coding, taking that as the kind of mother lode and the epicenter of the revolution, they're nowhere compared to the other two guys.
>> Help me out. We have Meta crushing earnings, revenue 56 billion, EPS 10.44 versus 6.67 expected, like insane beat there. And they got crushed because of capex raise again from 125 to 145. So why did Meta get crushed on capex increases where Google get plaudits?
Two people are spending 100 to 120 billion dollars and one of them has revenue coming in that's clear and attributable, and that's Google, and one of them doesn't. So let's, and that's Meta, right? So that's the big picture. Let's kind of dive down one level, right? Why is Meta doing this, right? And yeah, you can imagine three scenarios and I think there's only two. One is, are they going to be yet another third-party hyperscaler provider? Doesn't look like that's happening. They're not competing with Google to provide compute to Anthropic. Now, should they? Right? So the two reasons they use, one is the reason they started to use a little bit over the last couple of calls is, oh my gosh, we're optimizing our ad performance a whole ton using these models and it's making the numbers better, right? And, you know, so let's dive into that a little. There's no doubt the numbers are amazing. They are using, and so they are getting, if you do the math, they're saying they're getting 10, 15% lift in the last couple of quarters. The performance is better. But it's super hard unless you see an A/B test, and this is always the case with lift analysis, right? You need to see the A/B test. You need to see half of the ads optimized using, let's call it the Meta Llama 5 or whatever the new model is called. I can't remember, whatever. And then half not. Are you really getting lift? Right? And you probably are getting some lift, right? Is that worth 10 billion a year? Maybe 15. But they're spending 150, right? So my point is they just, they've been using this justification for the LLM spend as being it'll optimize our existing business. And I've always felt that's [__] because if it takes 150 billion in capex to give a 10% lift on a $200 billion business, it's probably a mistake.
Yeah. Especially when some of that technology might be available third party. So it was noticeable in this call there was a little bit more of the we're just going to build next generation experiences kind of qualitative comments on, you know, simply put, if people go from talking to other humans and looking at news to talking to chatbots, Facebook wants to be there when that happens. And I think that's the justification. So the market is looking at it and going, I got it, this is not a business, this is a I want to show up if something happens. So it's a $150 billion bet on the future that's not quite articulated. So you just put a slightly higher discount on that. Right? That's all that's happening here. It's like, don't know why they're spending it. He's going to do it. No one has, he doesn't have to ask any permission. And maybe he'll be right like he was on Instagram or WhatsApp or maybe he'll be wrong like he was on Meta. But it's not like Google where you can go, oh, I get it. They're spending 150, but they're getting 60 billion back and it's growing 80% year-on-year. In two years, it'll be cash flow positive. It's just a different thing. I do think that Wall Street is also, to Rory's point, Wall Street is all building these spreadsheets, GPU depreciation, capex, where it's going. The Meta model doesn't support that.
>> It just, it's indirect, right? And it just doesn't support it and nor does the math tie, but it's too confusing. They're all running spreadsheets and arguing over the inputs and the outputs of these capital investments to the outputs and they just debate it.
I like that, Jason, because effectively what you didn't say, but it's true, is Mark isn't running those spreadsheets and doesn't give a [__] about those spreadsheets. Like, thank you very much, guys. Knock yourselves out. I'm going to spend to be relevant. Their little heads are hurting when they run the spreadsheets because they can't touch it and they can do it for the other guys and they can't do it here. I think you're exactly right. He didn't make $200 billion by running a spreadsheet at Harvard. He just built the product and got the traction. So he ain't going to change now. Of the four, Alphabet, Amazon, Meta, and Microsoft, you can buy one and sell one. What do you buy? What do you sell?
>> You buy Amazon and you sell Microsoft. But these are weakly held. I haven't, you know.
>> I think, why do you buy Amazon? It's the one we didn't touch on. And for everyone listening, Amazon 181 billion revenue, AWS 37 billion, fastest growth in 15 quarters.
You know, I mean, look, it's weakly held in the sense of, look, there's two net sellers, two net buyers. Google and Amazon are doing well. Meta and Microsoft, not so clear. So you obviously pick on one each side. And I picked on Microsoft because I just, that sentence that they're flat excluding AI just made you really pause. With Meta, even though what they're doing is crazy, they can always stop and they'll still be the best ad network business on the planet. So that's on the sell. And on the buy, you know, honestly, it's too boring to buy Google at this point. And it was great a year ago when we were saying it's great. Now it's up, you know, it's the highest, slightly the highest valued on a PE basis of those four. So to some extent it was an on-the-fly contrarian bet in that Amazon just has now access to the Anthropic models and going to get that lift. They have the AWS distribution. They now have the Amazon Anthropic models. So they're more aligned there. One thing, we talk constantly about how AI impacts the top line and to a lesser extent the bottom line. There's a secondary, there's a derivative effect that benefits everyone and does not benefit Meta at all, which is we're not just using AI to make applications better. We are building many, many more applications. There is an application boom. This is the greatest boom in application building in the history of our lives. The amount has exploded. Right now, you make even more money selling tokens than you do selling basic AWS or GCP services, but there's a double boom going on here. So I got to put Meta last because they're not benefiting from the application boom either. They're not benefiting from it. And even there may even be a crossover where the AI gets a little mature, which I do not remotely see happening. Okay. But even if it did, the application boom has just begun. The thousand flowers of applications. And, you know, maybe this was the quarter SaaS bounced back from the SaaS apocalypse, but I think in a couple years we'll look back and we'll laugh at the SaaS apocalypse and say, my God, the explosion of B2B applications were like nothing we've seen before. There were just old guys, old guys that learned a new dance and didn't die. But who cares? We'll look back in a couple years, we won't care because of this app explosion. Everyone's building everything. It's so wonderful. And so that could lead to a renaissance for Amazon beyond what we've seen, right? Because of traditional additional strength. It benefits Microsoft in the enterprise, but not below that, right? And GCP and Gemini are this weird thing where it's very cost effective, it's developer friendly. I can't predict, but I know Meta loses in the app explosion.
Before we move to the SaaS apocalypse, which you mentioned there, Palantir obviously very, very recently, we added it last minute. Home run in terms of performance. RPOs up 134% at 4.45 billion, rule of 40, they're at 145%. Jason, I'm borrowing from your tweet here. Cops latter was blunt, this number has only been matched by AI infra companies, Nvidia, Micron, and SK Hynix. I mean, guys, I don't know what to say other than holy [__], these numbers are really [__] good. He also said, and this didn't quite tie to the forward guidance, but he also said that they were doubling, so they're accelerating from there. He was clear. Now, I couldn't quite get that to tie to the Wall Street guidance. So what happens when you shoot from the hip? But he was very clear that they're doubling. So they are accelerating. I just think he was shooting from the hip in terms of the timing of when the RPO would land. He was clear, and Harry, he was very clear that Europe's just started. It's so far behind, not at the startup level, but at the buying level, that that's just started on the commercial side.
>> The way I was thinking about it is they're just in a very enviable position, right? Because if you're a large corporation, right? You know, I always think that whenever you're selling application software, you want to be one of the top two initiatives for the most senior person you're selling to. That's how you make money, right? And right now they're selling to the CEO and the most senior initiative, the top two initiatives for every CEO in corporate America is do something in AI, right? So, you know, that's what your board is telling you. So what are you going to do? Right? If you think about it, you don't have a large number of choices. Yeah, you can sign up something with Anthropic, OpenAI, and you can buy Copilot or you can buy coworker, you can buy Claude for every one of your employees and that kind of gets individuals using AI but doesn't move the needle, right? What you really want to do is some corporate-wide initiative that's big, right? And all the AI apps companies that we all fund, they tend to be, you know, fairly point solution, right? Because they've come from that, they've been founded in the last two or three years, right? And they're really good at saying, you know, let's take Sierra, we'll deal with your customer support. And that's probably the most call-high company in AI land, in new AI. In other words, Brett Taylor can call higher than anyone else. Most of these 25-year-old founders can. So that's as high as they can call, right? So, you know, you can spend $2 million with Sierra, you can spend 200 grand with whatever, right? And that's initial. If you're running corporate America, if your number one task is to do AI, you don't spend 200 grand because that doesn't solve the problem, right? And then there's this one company that's been selling to the US government for 20 years that can move in 20 and 100 million dollar chunks. They can literally say, 'Yeah, you want to redo your entire go-to-market infrastructure? You want to redo entire your business intelligence with AI? We can do that. We did it for the US government. We did it for the DHS. We've done it for JP Morgan.' They are credibly moving in $10 million chunks. So now this corporate CEO can say, I have two initiatives this year, you know, launch that new product and make this company AI first. I just signed Palantir for $10 million. They're going to bring in people. They're going to make [__] happen. Initiative done. Take it off. Report to the board. It's June 30 and I'm on track for the year, right? And it sounds stupid, but big companies have to spend big money to do big things. And there are very few software companies that are situated. It's why IBM has existed for 30 years longer than it should, right? Because they can do this kind of big deals, big initiatives. It's why EDS made a lot of money as an outsourcer. Palantir right now is the only business that can credibly say, 'Hey, Mr. Corporate America, Fortune 500, you want to move your needle with an AI initiative that has measurable, demonstrable results, that is about enterprise-wide transformation, we can deliver you that.' Right? The alternative to them is Accenture with a bunch of Claude licenses. Whoop-de-doo. Right. I'd go with the guys who are winning the war.
>> Palantir is like general, it's like General Catalyst for AI transformation. You know, you need to move $100 million. You probably won't get fired. Cool.
>> Absolutely. And it has that, and, you know, as more clearly demonstrated value. No. And I know that sounds really simplistic, but you just think of it from, and Jason, you know as well, like you think from the perspective of the CEO, right? You can't have your top three initiative be a $200,000 spend. Like with any of these AI, it's just like, oh, that's a bit of a weeny bet, right? Yeah. We, you know, you come back in and you say, we hired the guys that have been doing this for all corporate America and for the government. We spent $5 million. Here's the three-year plan. You're done.
>> To add on to that, just maybe two things. One, I'm not, the numbers have obviously gone up because I'm dating
myself. When I was a VP at Adobe, there were only two or three big initiatives at a time, to Rory's point. That's it. But they were all $20 million a year and up. So maybe they're 30 today. That's just what it cost at Adobe's scale in the Fortune 500 to have something that was critically important for, you know, five figures of employees, and it was just that's what it was budgeted. I believe back in the day Salesforce was 26 million a year and Workday were 24. Those were the big projects. They took five years to deploy. Now Palantir can deploy it in less than a year, which is magical. But the other thing I would add on, it was funny having been doing B2B for a while, Alex Karp on the earnings call, he talked about the defense business and he talked about how important it is to support our country and that like the only thing more important than our customers is supporting our country and clearly they're deeply embedded in the defense in the Western world. But then he went to the commercial side of the business. What he said to me was super interesting, even though it's obviously he's like, this is different than in my entire year the last year. He said, 'My entire year in the commercial side, I get brought in by a stakeholder, marketing, revenue, someone, and then I got to sell to another, even a founder, I got to sell to another stakeholder and another stakeholder, and it takes a couple years.'
He's like, 'In the last year, every stakeholder shows up to the meeting. Everyone is there.' So, not only are we a top two or three driver, to Harry's point, drive the corporate change, the CEO and the CFO importantly are saying now, everyone come to the table now. And if Palantir is the answer, or at least the bet, we're not going to evaluate for two years. We have to do this now. And Alex was like, you know, he was so aggro in his somewhat charismatic, weird, goofy way on the call, but he was taken aback by the compression of the buying. It was almost, it felt to me like the buying cycle today, because he never saw folks on the commercial side do deals this big like Adobe, but instead everyone's there, like everyone shows up to the damn meeting.
Look, AI sparks the imagination in the way that digital transformation, our databases, our client-server, our SaaS just doesn't. You know, it's just, it's got that spark of, oh my god, is it live? Is it sentient? Corporate America now believes it is the way to transform their company. And you're right, Jason, every board is telling every company to get on top of this. Every, I mean, who's going to be the C-level executive that says, 'No, I don't want to join the meeting on the most important corporate initiative. I don't think it's going to work.' Right?
By the way, what it means now is that literally the naysayer voice has gone to zero. So, you do think there's going to be some pretty interesting misallocation. As I say, if you're selling $5 million solutions right now for the biggest corporate imperative, you're in a golden place, and good for them.
At 349 billion market cap though, is it priced to perfection, or is that...
Of course it's priced to perfection. It's priced to more than perfection. And I will admit I exhaled when I saw this quarter, because when you pushed me, and again a few weeks ago, to name stocks I'm proud that I named Atlassian, and we'll talk about that in a second. But on the expensive side, I said Palantir is the best situated, and yes, it's wildly expensive. You know, you really have to grow for two or three years to get into this valuation. But you know, if the boom has legs, they're the most likely to grow into it. You know, it's still terrifying. Look, it's still terrifying. I woke up the night after I did that podcast. I'm like, 'Ooh, that's a risky one.' Right? Atlassian, you know, it's a value play. It's a no-brainer. But this one, wow, you're leaning in. But this quarter kind of justified that, because you do the math and two years, two years of doubling and it looks cheap.
But Alex predicted basically a year of doubling. So, there's an argument. If you think that's cheap — I haven't fully thought — if you think it's cheap, it's not the craziest place to get to, right? Because 100%, we've already — the CEO's already said, you know, he probably fudged a quarter or two, but he said it's coming. So, yeah.
The thing, just, I know maybe it's Captain Obvious, but just going to Rory's narrative about how corporations work and Palantir, it's just every conversation I have is a reminder that no one has this expertise in-house. No one.
It's the worst gap between in-house and external expertise in our lifetimes. And so for years this is going to benefit Palantir. It's going to mean like, even if we were head-scratching why Anthropic and OpenAI are setting up these consulting entities, which seem goofy, right? They're not, because the dollars are going to go up. The initiative is going to go up, but the inability to have anyone in-house that can remotely execute, not remotely execute — and there'll be folks, some HubSpot agencies will figure this out, some Shopify dev shops.
Well, everyone in these ecosystems thinks the majority of HubSpot and Shopify agencies who actually deploy most of it is not direct at these SMBs. You need an agency to deploy HubSpot. Most of them are gone. They have no AI play. But the ones that do are going to have infinite demand, because whether it's enterprise or SMB, no one has this expertise. No, it's almost embarrassing how few people have this expertise, right? It's just even Coinbase today — 'I'm laying off 15%. I have managers managing managers. I don't need them. I need folks that will actually do the work in AI,' right? If Brian doesn't have the people, what hope is there for the rest of the world?
And I think, you know, and when you say it, in one sense it sounds almost derogatory — no one has the expertise. But the real truth is this. I'm donning my micro-econ hat here, right? Logically, what you want is for someone to take the time, six months, to develop the expertise and then sell it to me, and I only have to pay them for a week of my time and their time. It totally makes sense. It's like, I even think about how I learn AI. A good slug of it is doing it myself. But when I get stuck, I just ring our chief data scientist and say, 'Look, I could spend a whole day or two slogging through this point, but just tell me the freaking answer so I can keep moving here.' Right? That, you know, in a microcosm is what you need in every organization. You know, you're a line manager in marketing. You've been told you want to roll this out. You just got to hire the expert who knows.
Which is why, to your point, Jason, this is a Darwin test for every consultant. And frankly, anyone looking for a job too, which kind of gets to the undergraduate unemployment discussion. If you don't develop the skills you have, you deserve your fate. I truly believe if you develop the skills that people want and focus like a laser on the things they actually want, you know, there's a real demand for that skill in all these companies.
I call it the $250,000 SDR. There is now a market, instead of SDRs being worth 60 grand in the US or 80 grand, there is a market for a small number of $250,000-a-year SDRs, but there's almost no need for a $60,000 SDR with six months of junior college research that can't — they can't spell ElevenLabs. You just don't need that person anymore. You needed them three years ago. You don't need them today. But you can spend 250 for someone that's as productive as 20 human SDRs. Those are the skills you have to have.
Before we — we're going to move on to the SaaS apocalypse next, but it's so funny. We are about to do something incredibly funny. We're about to skip the one-line item in the agenda. Just to point out, Apple beat across the board. Tim punches out on a high. Stunning results. Great quarter. No real AI story yet. Thank you everyone else for getting caught in hysteria. Meanwhile, we're just building one of the two largest companies on the planet and doing really well here, not wasting our money on capex, continuing to do buybacks, just working for the stockholders. I just felt the need to call that out in passing.
I thought the memory chip supply constraints were interesting.
That is interesting. And it's not just for Apple. Just one interesting statistic I saw is, everyone's talking about how the capex budgets have all been raised this quarter, 10 or 20, 30%. A significant slug of that capex raise is for the same physical amount of capex just at a higher price, because the memory portion of anything you're doing has exploded in cost. Right? So I do agree, and I think that you're going to see some impact of that right down to the price of your iPhone next year. It doesn't appear to have impacted demand, but you probably will see that filter through. That would be the iPhone you can't afford, transported to the US on a plane that can't have jet fuel from the Far East. But yeah, there you go. Much, much pain to come. But yes, I think memory prices and obviously thus memory stocks is a factor not just for Apple but across the whole capex story.
Well, I mean, Apple basically increased this week the price of the Mac Mini from 599 to 799 because of memory.
Oh wow. They dropped the 599 because it's sold out because of these damn open boxes, but I believe it's maybe it's the 16 gig versus the eight. I forget what the difference is, but it's not $200 even at current prices. So all this stealth inflation, it's off topic, but you know, it's going to lead to a lot of socioeconomic stress when folks can't afford a Mac Mini and the average individual is hurt. It's like, you know, the rental market in San Francisco is almost unimaginably competitive versus even when we started the show, it was cheap to live in San Francisco. Now, you can't rent anything. They don't even exist. No one's going to leave.
I see bid prices like 3 million higher than the 5 million listed.
Yeah. I just made 30 million on my Anthropic vesting. My partner wants a house. What am I going to do? Argue that it's not worth 5 million? I mean, and it's been six months. I'm just going to buy it. I don't really care.
Last week, we were in a bit of doldrums and we wanted more positive news. The SaaS apocalypse could be over. Atlassian up 29%, Twilio up 20%, Five9 up 23%. Boys, is the sunshine coming out? Is the SaaS apocalypse over? Or is this a case of three good-performing companies pulling away?
Well, look, let me — I think Rory categorized these companies the last few times. Let me just break it up. First of all, Five9, I'm not interested in reaccelerating to 9%. I don't care. Okay? I'm not saying that they're not benefiting, but like I don't think they deserve to be with the friends. I would really distinguish. First of all, it is heartening to see Atlassian and Twilio reaccelerate. These are older companies, right? Atlassian is still founder — Mike was on the show, right? He's great, but everyone was worried about Atlassian, right? Twilio, they, you know, they pushed Jeff out, who was on the show, that we love, and somehow moldy oldie products were able to reaccelerate. So, two great stories. And if nothing else, they support the idea that for folks that are benefiting from AI, we're past the bottom for folks that are benefiting. We're going to see some more quarters come out that maybe aren't as good right before the next show.
But I do just want to — this is my bias and my perspective — that Wall Street, a subtlety that I think you guys will agree with, Wall Street didn't see Atlassian got really good at, and this we've talked about, monetizing its AI product. It's Rovo AI. It sold the f out of it last quarter and people were happy to pay for it. Okay? Its net new customer account is still slowing, its net new customer account. Twilio did the opposite. This company was dead when we started this podcast. Now it's reaccelerated to 20, but accelerated. But they, you know, their disclosure is less clear, but their net new customer count may have grown 40% in the last year because of AI and other startups and other companies. Now the ACV per customer hasn't gone up quite as much, right? But there is an explosion. ElevenLabs uses Twilio. All these AI folks use Twilio. So Twilio won on two points, right? Folks use it sort of for AI and they had net new customer growth. Atlassian monetized its base with AI. Thumbs up, right? Passed the test. But it's not clear it's attracting new customers, and so you might be deferring bad news ultimately if your AI story gets more revenue from your base but does not expand it. Right? To be proven, to be proven.
You're right on the facts. I mean, so going back to — you said, is the SaaS apocalypse over? No. I would say it's not over in the sense of, I didn't think, look, three months ago we said, and we said I think Atlassian's a buy, right? I think, you know, if you just avoid going from guardrail to guardrail, the big picture is when people price these stocks like it's all going to zero, you've got this potential for a 20 or 30% bounce, and you saw that right now, right? Taking it, last, taking Atlassian for example, I don't think it's like it's not going to 10x from here, right? It's not, it's never going to be an AI-first, you know, 5x, 10x growth company. What it is is going to be a really well-run company that, as you say, Jason, if you can't add new customers, maybe your steady-state growth is 20 or 30%. If you can add new customers on top, maybe you can go higher. But it's, you know, these are going to be cash-flow-positive companies growing 30%. They're going to deal with the SBC issue, and then they're going to be, instead of being worth three times, they're going to be worth six times. You're going to move in that — my point is this — you're going to move in that bounded range. And when people's heads start exploding and saying it's all going to hell and they trade at three times, but the company's fundamentals are decent, you can buy and get a 2x. And when people start believing all the hype and they get, they're still pretty lofty, like ServiceNow was before the last announcement, when you're trading at, you know, six, seven times revenues, you're very vulnerable to a correction, right? Because I think you've got a bounded, and you're right, the low end is Five9's, you know, yeah, he grew at 9%. The high end, I mean, Atlassian's growth rate was pretty impressive, 32% in GAAP revenue, you know, right?
And I'm not surprised at the lack of new customers because I always felt these stocks would slow down independent of AI, because these markets are fairly well served. Atlassian has done a great job over 15 years of meeting the need for this product, and now whatever the additional customer growth, either as new company formation or takeaways from someone else. So it's not surprising it's a bounded, well-executed company. So I'm delighted for them. I'm delighted I said buy it two months ago when we were asked. As I often say here, things are proving out to be exactly what they should be, which is these are solid, high-growth, cash-flow-generating companies, probably worth closer to six times if they're going north to 30%, maybe even a little higher, right, which is what they traded at for a decade and a half before COVID. And there you go.
So yeah, but of course you're right. But to me, Twilio is more interesting because it's also benefiting from net new customer growth. When Jeff Lawson was on the show, Twilio was in the — I mean, it wasn't even that long ago — it was in the doghouse, right? It looked dead, a dated product. And Harry asked Jeff about this, and Jeff's like, 'Well, actually, I haven't been in the game for a little while. I'm working on nuclear fusion and harnessing the sun's energy.' But if I had to think about it, Twilio is going to be a beneficiary because APIs are what AIs and the agents need. We have the dominant service, and as these agentic products scale, they will use us, and Twilio will do well. Maybe not Segment, right, and some other stuff, but the core business will. And he was right. It has become — it's just n equals 1, if you go into Replit or Lovable, it's also the default choice. It goes back to your early framing: are you getting value for new products to your existing customers, and are you getting new customers? And when you do the latter, yeah, it's good, because I think why would anyone in AI, why would Lovable or Replit bother rebuilding this stack? It's like, especially if you can buy it on an API basis, just call it a day.
Well, the risk would be if at the infra layer someone had built a better Twilio that was better. You might switch, right? But Sierra's $15 billion deal run on Twilio, right? There's a lot of — I'm not a total expert, but obviously there's reliability, right? There's infrastructure under the infrastructure. And so my learning is, for a lot of folks, nobody built Twilio. Nobody beat Twilio. It's not just software. It could, it's possible, right? But now they're a beneficiary because this infrastructure was good enough, like Apple in a — I mean, it's a little attenuated, but there's something — it's good enough to benefit from all the trend happening. It's good enough.
Who are the other traditional SaaS companies in SaaS jail that should be released in the same way that hopefully Atlassian and Twilio are being released?
Well, here's where Rory and I diverge. That's why I'm worried that Atlassian isn't a two-pronged AI beneficiary. To be a two-pronged AI beneficiary, you have to be able to monetize your AI and you have to attract new customers. There's two prongs, and the ones that have done it so far are close to infra, right? Cloudflare, Twilio, Datadog, and even DigitalOcean, which proves anybody can do it, right? If you're the 11th cloud provider and you can grow 35%, 2x stock price, anyone that has a — can do it. But the one — I'll tell you the one I'm waiting to see. So HubSpot this week announced that HubSpot will put agents on par with humans in their coming release. It will be — their platform will be completely open to agents, and they'll make sure that the agentic version of HubSpot is at least at par with the human version. That's the right vision. Now, are they going to overcharge for it? I mean, I'm not even sure anymore it matters outside of SMBs, but I want to see if that works. It's a little late, but it's not too late. It's a little late, it's not too late. I want to see if it works. In a way, it's Marc Benioff's headless vision that he talked about, right? But let's see if HubSpot can become the hub for agents in all of its categories, for SMBs, for GTM. It should reaccelerate dramatically. Let's see. Let's see if it works. If it doesn't work there, I think we can write all the rest off.
all of its peers. I mean, it should work, but HubSpot has such a broad customer base. It's relatively more tech-centric than Monday, right? So I think this headless thing — I'm not saying it should lead HubSpot to double, right? It's not mathematically possible. I believe over the next 12 months, this strategy, if it's real, should lead to genuine reacceleration at HubSpot. Otherwise, there's no hope for these classic categories, because they're going to make it completely open to all agents.
I think, to your point, Jason, far more of them are going to fall into the not-reaccelerating. Reacceleration will be exception, not the rule, right? And then for the others it's a question of is it a slowly evaporating ice cube or a quickly evaporating ice cube.
The underlying issues in this apocalypse haven't changed, right? For the drama to reduce around it, we need a few more folks to be in that category, I think. And I'm not sure Atlassian gets both prongs, but I'm here for it, because it lifts all the tides, right? If we can have three or four of these, then we could kind of like — the underlying issues are there, but we can move on and talk about other things.
Just to push a little bit on the positive on Atlassian again, because I actually think you're changing the goal, because I thought your other rule was new customers, which obviously is the best of all, but I don't think it's realistic, any more than I think Zoom will ever get a new customer again. Everyone who needs a Zoom account has one. But the other test you applied, which I thought was a good one, was can they sell new products to their customers? And Atlassian's daily active users, their AI revenues did take a jump. So I do think there's some lift there. You're right, it would be great if 10 or 15 of the companies start doing that, then you have a sense of what good looks like for SaaS companies, because I think that's what people are struggling with, because there's no universe in which any of these companies become — obviously not an LLM or a Sierra or a Glean or anything like that, that's just not going to happen. You can't get there from here.
The question is, can you return to 30% growth with free cash flow positive and stock-based comp under control and gross and net retention such that no one's terrified that you have a zero terminal value? If you can do those things and demonstrate relevance, then the advantages you bring to the table in terms of scale, in terms of a couple of billion dollars in revenue, can all come to the fore, right? And you're right, a couple of these guys have done it. If more of them do it, then we'll know what winning looks like. And to your point, Jason, then it'll become painfully clear what not winning looks like. And, you know, let's be frank, what we saw in Medallia was an investor walking away saying, 'This thing isn't winning. I just can't get there from here.' Right? Even though it had positive EBITDA that was, you know, five or six times coverage, it's just like there's just nothing here, right? So ironic in many respects, seeing what Twilio and Atlassian have done will be a positive for the people who are on that journey and will be the nail in the coffin for the people who aren't, because it'll be like, oh, that's what it takes to win, and you're not doing it, mister fill-in-the-blank.
Onwards to private company land. Anthropic at 44 billion. I thought Jason's question here, which he put in, was exactly the right one: are there enough developers for this level of revenue growth to continue? And you can immediately say yes when you look at the TAM of, like, the service value of developers. But when you look at this, it's 100 million per day. How did you guys react to this?
I think it's the right question. I think that if I was to pick one number that I'd like to know, which would give me an informed opinion on this — and we're trying to figure it out, we're doing some work in the portfolio — what is the steady-state token spend as a percentage of salary dollars per engineer for a fully mature AI-first organization? Right? Because I actually did a bottoms-up knowledge-work TAM, and I think in anything other than pure AGI, which is too arm-wavy for me, most of the other jobs have a task automation potential, and my view that's sub-10%. You know, you can do some of marketing, some of sales, some of accounting, but not all of it. Whereas for coding, you can do a shit ton today. And we don't argue the former yet, Harry. The point is, coding, it's pretty clear that it can be done, that there's a huge amount of automation that can be done. So now what, in a way that it's not as clear yet for the other areas. Let's just go with that for now, right? Therefore coding is the tip of the spear. Coding is, pick your cliché, it's the canary in the coal mine. So therefore, if you know what the long-term steady-state automation, as, you know, token as a percentage of salary is, you know how big this can be. And at 20% or 30%, Anthropic can grow into that multi-hundred-billion-dollar revenue category, right? Maybe even half a trillion dollars, right? At 5% it gets a lot harder, right? So to me, that's the question.
When you look at Andrej Karpathy saying, right, he used to use it for 20% and now he helps it with the final 20%.
But how much would you have to pay a month to get Andrej Karpathy to code for you? I can tell you it ain't 250 grand a year.
Probably about a billion a month. That's my...
I'm 20k an hour just for me. That's what I quoted this morning.
Someone wanted to — I got a request to help them look at this vibe code. I said 20,000 an hour. I got a yes. I don't know if it'll really happen though. I just do it for fun, right? That's my price. One interesting thing, you know, David Sacks and Marc Andreessen and others were pointing out that the number of reqs out there, job specs for developers, engineers is up, right? Are there just enough developer dollars and everything? It's just interesting that 20% doesn't sound high to the scale analysis, but it's not going to come from net headcount cut in developers and engineers that are AI-pilled. It's not coming from loss of humans, right?
I totally agree, because to be very clear — and this is where I don't know why people struggle with this — and I think words I never thought I'd say, David Sacks and people are entirely right on this thing, right? And Aaron says it really well: if automation, if 20% spend on tokens 3x's the effectiveness of your developer, then the ROI in developers goes up, so the number of developers will go up.
Yeah. That's the point people are missing. If the ROI is higher, then if you can attract them, the number will — you'll hire more.
Yeah. Now you have all sorts of second-order effects backwards. Yeah. It's what your point says. There'll be lots more competition. There'll be lots more bundling. I think software companies will have to cover a wider surface area, because there's just going to be more competition, products are easy to make. But there's no doubt that if 20% token spend — this is hypothetical — if you have a 200-grand engineer, if 40 grand on tokens doubles that person's productivity, and you had 10 engineers, my guess is you'll have 15, because you're like, 'Shit, these engineers are really good.' Now, you might spend less in sales and marketing because your product will be better. So you might spend more in COGS, you might have more in cost of goods because your token spend will go up, but your efficiency should go up.
So can I share maybe one slight bull case on it that I didn't even realize until this week? So definitely people are missing the point. If you can find the engineers that are AI-pilled and are capable, you'll hire more and more of them because they're infinitely more productive. Of course you will, if you're growing. If you're shrinking, the calculation is different. Like, actually, if you're hyper-growing, you'll hire unlimited engineers if you can find folks above the line with AI, right? So, but a funny thing is, so we built this AI VP of marketing and AI VP of customer success at SaaStr. They're pretty good now. It took a while to get them pretty good. And I got to tell you, I'm too busy. I never looked to see what they cost each month in tokens and others. I never looked until I looked literally this week for the first time, I think Sunday.
What do you think it costs to run a full-time semi-autonomous AI VP of marketing and customer service? What's your guess it costs per month to run those in tokens and everything? These are autonomous now. They're doing everything. They replaced many people.
Jason did not run a single efficiency maximizer there. So I'm going to give you four or five. I'm going to give you three grand. I don't know.
Harry. So, six grand total for two full-time agents. You're right. There's no attempt to optimize.
You — you following me? 2,800. Oh, I'll give you...
Those like Price Is Right games, isn't it?
Absolutely. I admit I did think that. I mean, is Jason going to... Yes, there's a bit of gamesmanship in that answer here.
Two of them full-time. Two full-time human equivalents. $254 a month.
250. I sent this to Amelia on our team and she's like, 'Per day in Slack?' and I said, 'No, that's the whole month.' So it just may be — this kind of ties to Notion saying that, you know, open-source LLMs are fine. It may be that not only is engineering the first and best use of LLMs, okay, for all the reasons we've discussed, it may be that the next wave are great, like they're just as good, but man, we don't need as many tokens as we thought to replace Jason on the marketing team. We only need $254 a month for both of them running full-time, right? It's going to be a little higher this month because of SaaStr Annual, but not much, man. Not much. That's deflationary and weird at the same time. Amelia literally thought that was per day. $254 a month to run two highly valuable autonomous AI agents for marketing and customer success. Pretty crazy.
