This is "Wall Street Week." I'm David Westin bringing you stories of capitalism. The AI race isn't just among companies and countries to get there first. It's also a contest between scientific discovery and making a whole lot of money. And Demis Hassabis is trying to win at both. Plus, if we don't watch out, China will end up beating the U.S. in AI by winning the race to bring new power online, including through a dramatic increase in renewables. And even as some governments are trying to attract new business and wealth through favorable taxes, others are going the other way, which has led to a nasty public spat between Ken Griffin and New York's Mayor Mamdani. But we begin with the war in Iran, which seems far from over, despite President Trump's wishes. But so far, the war hasn't really bothered the debt and equity markets all that much. Bridgewater founder Ray Dalio has spent a career making long-term investments based on his understanding of the geopolitics and the politics of great economic powers like the U.S. being challenged by others.
Follow the cash. Follow the money, okay? There's a reaction like wars are bad, and wars are bad. But the reality is markets trade as the present value of future cash flows by and large. And so if you've got the cash, follow the cash. So what's happening in the way of changes, what it means for energy in Asia, or what it means here and for our cash flows, but the markets are trading on the basis of the cash flow. So when we came into this period of time, there was a reaction before we had the earnings reports. There was a reaction that this is a scary thing. Quite often, markets will sell off at that time. They did sell off. And then we had great earnings estimates. And the reported earnings were much greater than the actual earnings. So follow the money. At the end of the day, you're exchanging a lump sum payment for a future cash flow and that's what matters.
What about those longer term treads? I mean, tectonic plates as they were shifting. Whether it's monetary, whether it's financial, whether it's geopolitical. How does the war in Iran fit into those sort of long-term shifts?
Yeah, it's interesting. If you look at the markets, Pearl Harbor comes. Imagine that. And you see not much effects. Initial effect, and then you see the cash flows mattering. But over the period of time, it depends. There are the winners, there are the losers, and there are the neutral countries, okay? Economically, the winners still experience the cost of the war. The debt, like the British Empire, had the debt and had its consequences. The losers of the war get wiped out. You change all orders. You change the domestic political order, the international order, the monetary order, and almost everything. The winners are the neutral countries because they profit during the war. The United States made a lot of money in both World War I and World War II in the time when that wasn't in the wars. And then it accumulated a lot of gold and so on, and then it entered the period late. So the neutral countries are the ones that end up not being disrupted and end up doing the best.
I'm not even sure what it means for the U.S. to win the war in Iran right now.
Okay. The world is looking at, will Iran has this control the Strait of Hormuz? Will it retain the uranium, the nuclear? And will it also have the power through the missiles and others to inflict harm? Will the United States have the power to fight the war? In other words, with politics and Americans with gas prices and cost of living, we now have a situation where the world is looking at this and defining it. Does the United States have the capacity to win the war? And this has huge implications because it means, for countries, it means alliances. Why do they have the bases there? The United States has about 750 bases in about 80 countries, and those bases are largely there under the assumption that the United States will turn up and defend them. Right now, that perception is changing. So I think winning the war is clear. Iran is perceived as a middle power, not a great power, and can the United States win it or not? And this is now having a big effect when I go around the world, like in Asia. You know, the United States has been viewed as a countervailing force relative to China. Okay, now it's believed that the United States cannot be relied on to fight that war, will not be there with those bases. And this is changing relationships with China, too. You're seeing a number of leaders go up to China and essentially have relations, but it's like the tribute system. But also in the region, there's the recognition, in their view, that there is an environment where the countries in the region have to recognize and respect that power. And so now you're seeing that happen. That tribute system is not an oppressive controlling system. It's much more like the more powerful have an obligation to behave well with the less powerful, and the less powerful have an obligation to recognize the more powerful, and they should operate in a harmonious way.
You say that as far as we can tell, you can tell. The Chinese, by and large, think they're doing pretty well in the rivalry with the United States right now.
China Inc. is making a ton of money. In other words, if you look at the amount of money that they are making through their export earnings, and the amount of financial assets that they've accumulated and are accumulating, it's huge. So one talks a lot about trade, but you have to look about money. And the quantity of money, and their earnings, and their raising of living standards, and how they're competing in various areas, certainly AI, but robotics and a number of areas, you would have to say that they are doing very well.
We say the post-World War II order imposed largely by the U.S. is breaking down. Would you say China has a substantial say in not dictating the next world order?
Yes, of course. But that doesn't mean I think you said it well in not dictating. I think that there will be an evolution. And I think that China's rise in relative power that we're talking about is creating a situation that they will create a tribute system type of system. And what's important and actually practical about that is it recognizes that there are differences in power, okay? The system that we went through, a tiny country in the United Nations could have the same vote as a huge country, and it wasn't a practical system. So I think you're going to see it evolve in that region as being a tribute system type of system. I think increasingly we're going to see that in the world. I don't expect China to be an aggressive military power. I think that you will see economically Chinese companies competing in the world. You're going to see an acceleration of that. The use of the RMB as a world currency, you're going to see an acceleration of that. It won't replace the dollar quickly, but it's going to grow quickly for transactions. So you're going to see that kind of operation. You're going to see in negotiations, you're going to see that you will not be able to push around China, that there will... it will be a force.
What does this mean for investors such as you? I mean, investments are made against an order of some sort. There's a predictability, you have contracts, you can enforce them. If in fact there's a breakdown of the world order, what does that say to investors?
I think, first of all, when we think of investing, we have to think of what is investing for. And it's our total life, not just making the most money. So they have to think about diversification very well. Right? In other words, they have to think about, we're now in a turbulent time. And that means, for example, the value of money could be a risk. What currency is it going to be in? So, and how do you diversify? So for example, now as we have AI having a big effect, it's a fantastic technology that's going to have big revolutionary effects. If we look in history of such cases, what we can see is then it also can create bubbles. Also liquidity is very valuable in a very rapidly changing world, because uncertainty is so great. Look at the difference in Sachs chip stocks, by way of example, right? So who would guess? Who could know? So, and so liquidity is very valuable. That's right. Diversification is very valuable. And when I say diversification, I do include gold in that, in terms of money, because we do have a question mark in terms of money. And these are not tactical moves. In other words, I don't think that the average man should be able, should be moving in and out based on what I say or what others say. They should have a strategic asset allocation mix that they by and large stick to that has the best reward to risk ratio.
Coming up, what happens when the world of scientific discovery runs up against the need for hundreds of billions of dollars? The story of Demis Hassabis of DeepMind, next.
This is a story about passion and profits. The quest for scientific discovery often begins with curiosity, but money and power can follow closely behind. We saw it with the printing press, the nuclear bomb, and now we're seeing it with artificial intelligence. When a technology becomes powerful enough to change the course of humanity, who should benefit most from it? And who has the power to control it?
Maybe Demis Hassabis turns out to be the Robert Oppenheimer of the 21st century. Somebody who leads a project like the Manhattan Project, brings into the world an incredible technology, it's a massive scientific achievement, and it's dangerous. And I think the builders of the technology, including Demis, as I got to know him, had that same thought.
Sebastian Mallaby is a senior fellow at the Council on Foreign Relations and the author most recently of "The Infinity Machine." His book chronicles the rise of artificial intelligence through the lens of one of its key players, Demis Hassabis, a Nobel laureate and the co-founder of Google's AI lab, DeepMind.
Right from the start, they were thinking, you know, the Manhattan Project was both good and bad and probably going to be the same with AI, and we have to be careful. And so right at the beginning of DeepMind's story, Demis Hassabis meets his scientific co-founder, Shane Legg, at an AI safety lecture in London, and this is, you know, 17 years ago. You know, again, the nuclear analogy is instructive. We have a nuclear non-proliferation treaty for nuclear weapons. It's not completely airtight, but it's better than nothing. And that's what we're going to need to have with artificial intelligence.
To get there, some believe that we might need a wake-up call. That's what Nobel laureate Geoffrey Hinton told us late last year here on "Wall Street Week."
Some people say that our best hope is to have AI try to take over and fail. We need something to really scare the ---- out of us. Something like Chernobyl for AI. I'm not sure I agree with that, but that's certainly a possibility. We need something to make people pay more attention and put more resources. So at present, the big companies aren't going to put, like, a third of their resources into figuring out how to make it safe. But if it tried to take over and only just failed, maybe they would.
Even without an AI uprising, Mallaby thinks policymakers have become more aware of the technology's risks, especially in the wake of Anthropic's Mythos rollout.
Mythos is a dangerous point because already, you know, the U.S. Treasury secretary, the Fed chairman have told the banks, "Listen, your bank accounts are going to be emptied if you don't protect yourself against these systems." So we've had hints of Cuban Missile Crisis already. I would point out to Geoffrey Hinton, who I like very much, that, you know, before the Nuclear Non-Proliferation Treaty in the 60s, there was the 1950s. And in the 1950s, that's when the IAEA to track all the nuclear material was created. In 1956, it was negotiated. So, you know, that was actually ahead of the Cuban Missile Crisis.
Whatever the outcome is for AI, Mallaby thinks it will be shaped by the people who create and control it and their individual personalities and motivations.
And in Demis Hassabis' case, you know, he's building something which he himself says is dangerous, right? Why do you do that? What makes you want to do it? And the answer in his case is scientific curiosity. He is so burningly determined to understand what he calls the fabric of reality, that he expresses that ambition in spiritual language, that to understand nature is to become closer to God.
For others, Mallaby says, it's the ambition for money or power.
I think if you look at the other end of the spectrum, you look at Mark Zuckerberg. For him, it's always been really commercial, right? He wants AI because it will make Instagram and Facebook be more compelling, maybe more addictive. That's what he's motivated by. I think Elon Musk just wants to be the greatest industrialist of all time, so he wants to do it for that reason. Sam Altman is kind of opportunistically riding against something that will make him powerful. This is a man who thought of running for governor of California. He's rumored to have thought of a presidential run. So he wants power.
But whether it's power or money or scientific achievement that motivates the world's AI titans, they all have at least one thing in common, the drive to be number one.
I remember going to see Demis right after the launch of ChatGPT at the end of 2022. Of course, this was the moment when DeepMind and Demis Hassabis had been the leaders in global AI without dispute for a decade. And all of a sudden, this upstart in California, Sam Altman, drops this model, it goes viral, and Demis is no longer the leader. So I go see him and I say, "Well, how do you feel about this?" And he says, "Sebastian, they've parked their tanks on the lawn. This is war." You could see that competitive fury in his eyes. And yes, I think most complicated human beings have more than one personality inside them. And in Demis' case, there is the scientist, there is also the furious competitor.
There's also the enormous need for money, for capital to compete, for compute, but also for the talent that comes across in your book about how much it costs to really get some of these scientists to come work with you. Does that necessarily take it out of the science and make it fundamentally a commercial phenomenon?
Well, it's definitely a commercial phenomenon, and we just saw in the results this week from all the big tech firms that they've expanded what they say they're going to spend on the computing chips, the infrastructure that they need. This is just going from extremely big to crazy big. So you're totally right, it's commercial, and we can't escape that. But it could also be scientific. You could have both at the same time. And for what it's worth, Demis' view is that the future path to the kind of AI that can unlock all of science is through these large language models. There's no alternative path where you go in some totally parallel route. So we're going to build these large language models, they're going to get better and better, they're going to become more agentic where they actually take actions, they're going to understand the physical world, that spatial intelligence, and then from there it will get into the ultimate test, which is supposing you trained an AI, and you told it everything that people knew in 1911, could it then invent by itself general relativity?
The tension between the science and the business of AI has come to a head in the ongoing trial between Elon Musk and OpenAI. At the center of the trial is a debate over who should control the chat GPT creator, and the outcome could shake up the corporate models that have underpinned the tech industry's explosive AI growth. As of right now, as we speak, it's something like $725 billion this year from the big investors. How does that pencil out?
I mean, fundamentally, what we've got at the moment is an A-plus technology with a C-minus business model. And the purpose of capital markets is to bridge from today when the technology is great but you're not making money to some beautiful future when finally you figure out the business model and you do make money. But I think we're running an experiment in the limits of that capital market function, because the capital markets are not infinitely deep. So when you have OpenAI, which was spending money like completely crazy and was not attached to one hyperscaler deep-pocketed balance sheet, that was extremely precarious, is extremely precarious. I said three months ago that I thought there was a 50-50 chance that OpenAI would go bust. Basically, I mean it would be absorbed by another company. And I still believe that, that by the summer of next year there's a half chance that it just runs out of its ability to raise money, it has to sell itself.
And that's where the hyperscalers are now all created equal, because in a Google they can say we're making up more money on search and maybe genius as well. We've got some revenue coming in for this. And Amazon can say we certainly have the cloud that's helped us a lot. Then you get to a Meta. It's not quite so clear what they have to support this investment.
Right, right. And they just seem to be quite clumsy about translating all the money they spend on AI into actual AI results. And we'll see how this plays out. But there was this moment last year in 2025 when they were doing record expenditures on the signing bonuses of AI scientists because basically they didn't have much of a team. And the only way they could get a team coming from behind was to just 10x people's salary. And so all the other labs were going nuts. I actually witnessed the head of one of the other companies pretty much yelling at the Meta person saying, you're draining all our talent. You guys are completely useless. You're never going to build a system that's really powerful because you're hopeless. But you're taking our good people away and then the Chinese will overtake us and then they'll kill us. It's pretty extreme.
If throwing money at a problem is the clumsy solution and often not the right one, what business model both contains ambition and allows science to flourish? Mallaby says some of the big players have tried through their corporate structures though none has yet proven effective.
You know all of the top three labs have experimented with these governance ideas and in fact in my research for this book I found out about a thing called Project Mario which was secret hitherto. But Project Mario was essentially Demis Hassabis saying I need safety governance. I need a kind of non-profit board which will oversee the powerful AI when I get it. And we can't just have the corporate board of Google deciding how it gets rolled out. That's not democratically legitimate. That's not good for humanity. We need that non-profit structure to be grafted onto Google. So he spent three years fighting about that. As we know in open AI more in the public domain they began as a non-profit and then they grafted on a for-profit later. Anthropic has its own version of this kind of hybrid for-profit non-profit. But the harsh reality is, as you said earlier, this is an extremely expensive technology to build. And so the for-profit capital raising kind of red and tooth and claw capitalist thing is going to dominate because you need money all the time.
Is there anything the government can and should be doing now on the safety front?
So there are three things. The first thing is we already have a national AI sort of security monitoring body. But it doesn't have enough resources. It doesn't have the power to veto a model before it's released. We should have one which is like the Food and Drug Administration which is properly resourced. It has expert staff. And if the drug is not safe or efficacious, you can ban the release, right? AI is just as dangerous as drugs. So we should have an FDA for AI. Second thing we should do is we should divert more money from just building the model stronger to alignment research where you align the model with human priorities. That's a whole field of engineering. It's getting some resources at the moment. But obviously it's not in the commercial interest of the companies to invest too much in that. So public policy needs to support the public good of AI alignment. And the third thing is on the international front because like it or not the Chinese have very good AI models. So unless we bind in China and other countries like France, which has the AI lab, Mistral and other places, we need everybody to acknowledge just like we did in the nuclear age that this is dangerous if it proliferates into the hands of terrorists and so forth. And so we should all come together with agreed joint common safety standards. Otherwise if just one country is safe and the other ones aren't, we haven't made humanity any safer.
The invention of the atomic bomb gave humanity a stark warning. It's up to humans to safeguard against technology of immense power endangering us all. And as the AI battle rages all around us maybe we can take some lessons from that earlier arms race to limit the potential damage from the next one. Up next the U.S. is in a race with China to develop AI. But who wins may depend less on the models and chips than it does on how we go about finding the power for all that AI needs.
This is a story about taking your eye off the ball. Since President Trump came to office the first time he's been focused on the economic and national security risks posed by one country in particular.
Did you say China? China. China! We were losing to China. We want to beat China. We're leading China.
In his second term, President Trump has focused on AI as a key area of competition between the two countries and specifically the chips needed to drive all those large language models.
China and other countries are racing to catch up to America. Having to do with AI. And we're not going to let them do it. We have the great chips. We have the great everything. And we're going to be fighting them in a very friendly fashion.
But while the U.S. is doing what it can to protect its lead in the computer race there's another contest that it may be losing. The battle to make sure we have the power we need to drive all that AI we're developing.
It's fascinating because when you look at AI, there's a huge energy need for the data centers.
We all know Hank Paulson from his time running Goldman Sachs and then leading us through the great financial crisis as Treasury Secretary. But he's also devoted much of his career to climate issues and helped lead Goldman Sachs to China over 30 years ago.
We have one big advantage on China in the sense that we're energy independent, right? And they aren't. But we have a shortage of electricity in this country. The demand is much greater than the supply and it's growing. And so we have a shortage of electricity to power data centers. China, on the other hand, they're investing massively in coal and a lot of things I wouldn't like them to be investing in. But they are investing big time in renewables, solar and wind. They have more renewables than Europe, the U.K., the U.S. combined. They're going to have half their energy from renewables. So they've got plenty of electricity. Meanwhile, in our country, utilities can't meet the demand. Electricity prices are spiking up. So ratepayers are putting up their hands and say no more at the same time we need the electricity. And so the interesting thing is if you look at the U.S., all of our electricity, essentially new electricity the last couple of years has come from solar and wind. At the same time, the administration is restraining it. So again, I would say that we are ahead of China when it comes to AI. They're investing massively. But I got to tell you, the biggest potential drag we have is not having enough electricity to power our data centers.
Are we disadvantaging ourselves?
Former U.S. Ambassador to China Nick Burns saw the unprecedented scale of China's energy investment firsthand.
I used to travel a lot by train in China because you can see a lot more of the country, you can talk to people. The degree to which China is building transmission lines all across the country and I visited 26 of the provinces,
The degree to which they're now controlling the global supply chain in electric vehicles, in lithium batteries, in solar panels, in wind power. They are the world leaders in this and I think that the United States should be making a similar effort. You know, maybe it's not as cost effective now. But we have to think out to the 2030s and 2040s and I do think as we consider this big challenge of how do we compete with China and yet not get into a war with China, we have to start planning more long term as they are doing.
The numbers bear out what Hank Paulson and Nick Burns have seen on the ground in China. Since 2021, in just five short years, it has added more power capacity across all energy technologies than the United States has built in its entire history. And that gap is only growing. Over the next five years, China plans to add more than 3.4 terawatts of energy generation capacity, nearly six times as much as the U.S.
They've been developing their electric grid at a rate that is extraordinary.
Elizabeth Economy, a China policy expert and senior fellow at the Hoover Institution, says there will be a high cost to falling farther behind.
China has made a big bet on renewables and clean energy more broadly. This past year, for the very first time, it has more power generation capacity in clean energy than it does in fossil fuel energy. They're not the only ones. Europeans are following suit. But we clearly are moving in the opposite direction, sort of all in on fossil fuels. I think it's important to understand that the bet from the Chinese side is not necessarily just about the health of the Chinese people or the Chinese environment. This is a real economic play for them. They are cognizant of the fact that by 2035, the clean energy market is estimated to be globally as big as $7 trillion. And they want to command that market. So they have spent a lot of time over the past several years investing very heavily in renewables. You know, last year, $1 trillion in renewable investments. And as a result, they've seen their exports of EVs skyrocket. 80% increase in 2025, 40% for battery exports, 20% for solar panels. This is a real moneymaker. So I think for the Chinese, as they look out, clean energy is green, right? It's green for the environment and, you know, it's green for money.
You make a really interesting point that this has been going on for several years. President Xi did not just wake up yesterday and say, 'Let's have a lot of renewables for AI.' It started before really there was the big push for AI. How much of this is pure commerce rather than development of AI and competition in AI?
I mean, on the energy side of it, I don't think that... I think that AI is very late to the game. I mean, the Chinese have been beginning with renewables beginning in the late 1980s, early 1990s. They were already inviting Western firms in for wind turbines and solar panels and saying, 'Sure, we'll give you access to the Chinese market. Now you just give us some of your advanced technology or set up an R&D center,' or sometimes they might just illegally appropriate the technology. But, you know, one 5-year plan after another, renewables have been part of the Chinese plan. And you're right. Exactly. Xi Jinping did not wake up, you know, one day and say, 'Oh, this really matters.'
Though China's push into renewables may not have been intended for AI, that's where it could matter most. In the U.S., power demand is exploding, with consumption from data centers alone expected to triple by 2035, putting even more pressure on a grid already under strain. But instead of racing to close the gap with renewable alternatives, the U.S. is pulling back from a sector China increasingly dominates, accounting for roughly 80% of global technology production in solar and battery tech, and more than 70% in wind.
This enormous development of renewables in China didn't come free. They had to spend some money to do it. If the United States wanted to get back in this game and compete on the renewable part, does it have the capacity? How much money is involved? How much money has the Chinese government really put into this?
I mean, at this point, it's easily over a trillion dollars. It's been billions of dollars every year, and as I mentioned, a trillion dollars, you know, just last year in clean energy investments. So there's not a way that we're going to compete across this spectrum of technologies, you know, solar, wind, nuclear. We're just not going to be able to do that at this point, even in EVs, right? China's exports were worth about $76 billion last year, ours, somewhere around $3 to $4 billion. I mean, don't forget, they're also a country of 1.4 billion people, so roughly 3 and a half more times as large as we are. So that capacity is much greater as well. But could we get back in the game? I think that was the point of the Biden administration's Inflation Reduction Act, right? It was a mix of subsidies and tax incentives. It attracted an enormous amount of foreign investment. So it had, I think, a lot of potential to reboot the clean energy sector in the United States. But, you know, the Trump administration is not that interested in the clean energy in the renewable sector. And so, you know, we saw that they rolled back probably 95% of the Inflation Reduction Act.
