Ep12. Tech Stocks vs the Rest; AI VC Bubble, Calcium CT Scan | BG2 with Bill Gurley & Brad Gerstner

0:00 people talk about the military industrial complex we may have C created a healthc care industrial complex that really can't stop maximizing profitability and different ways of making money and and not focus necessarily on the lowest cost best most preventative process for sure that would be my guess as what's going on

0:38 hey Bill hey Brad how you doing man enjoying the summer I you know it's it's a good start to summer I was down in I was down in DC I picked Lincoln up from an internship in DC I guess just over a week ago now you know it was actually the night of the debate we hosted a poker game on Capitol Hill and we had members in the game from both sides of the eye and we're kind of watching the debate in

1:02 the background and it was pretty wild because you know we got through as we're watching the debate you know nobody was really surprised at what was happening you know the biggest surprise of the night is nobody was surprised they're like oh yeah like this is this is you know the condition of the current president and yet you know so I I we ended the night and ended the debate and I thought like there was not a lot to

1:25 see here because we've been talking about this for months and then of course we had the fur of the last couple weeks you know so that was good and you know it seems to me the last few weeks have been like all politics all the time every every every pod every show agree you know and I I looked at the calendar we're a few days away from the Republican convention it starts next Monday in Milwaukee which is really

1:53 the kickoff of you know the the final push in the campaign the Democratic campaign I looked is five weeks from now in Chicago so it's interesting sometimes they're closer and this time they're about 5 weeks apart and then I count it up we have 90 trading days until the election so 90 Market Days until the election and so I thought you know maybe we kick off here talking about how funds are positioning particularly technology funds in the

2:22 public market are part are are positioning ahead of the elections do you do you believe people are weighing the elections is a critical factor in what they want to be doing with their funds for sure for sure but we'll get into that a little bit because I you pushed me a little bit on you know how much markets are moved by active versus passive dollars Etc and then of course you and I have been talking about a lot

2:45 of our friends are talking about I think the biggest debate of the summer and in AI continues to be the thing you've been talking about I think for quite some time on this pod which is you know is a is the AI hype ahead of the ahead of the meat do you know is there is there beef on the burger and you've been making the case that you know the spending I think and some of the commentaries out in

3:07 front of the AI benefits and we've seen and we'll we'll we'll we'll we'll dig into I think a lot of Articles out this week on this and then finally maybe you know it was about a year ago that I was talking about a topic near and dear to me this calcium CT scan and why it should really be standard of care for people over 35 I sent you a video you know on on some of the politics of why

3:34 calcium CT scan partly because of stent and partly because of other things right didn't become the standard of care and I thought you know maybe just as a little bit of Summer wrap we' we'd revisit a couple topics on that that have come up sounds great that's awesome do you want to lead us in yeah I mean tell us tell us where you think the markets are right now I I agree with your point that politics have dominated

3:59 the conversation so much it's almost like people aren't even aware of whether the nasdaq's up or down in a given day or a given week it's not really on people's mind tell us what you think's going on and then I do want to dig deeper there's a lot of data out that success that suggests consumer discretionary spending is dropping pretty precipitously and I'd like to get your feedback on that yeah well let's get into it I mean it is it is wild

4:26 right like AI stocks continue to perform really well let's think Mag s nasdaq's now up 20% on the year we have Mike Wilson you know of Morgan Stanley Fame who called the 22 you know crash come out and say recently he thinks we're going to have a 10% pullback ahead of the election but yet the people who did the sell in May and go away that was a pretty bad idea because May and June and early July have continued to move

4:53 pretty meaningfully higher but you know if if if you ask me to prognostic at on kind of what I think's happening you know listen the Market's pricing in now 60% chance of a trump Victory right and with that they're pricing in the permanence of corporate tax cuts that we've talked about before represent 20 to 30% of the earnings growth since 2017 so this is a really big deal as a reminder to everybody the the tax cuts

5:25 that were passed in 2016 that went into effect in 2017 those terminate by Design next year unless they're renewed so they terminate at the end of next year and so that would be a significant headwind to markets and so I think as you know as Trump has kind of surged in the poll the permanence of those tax cuts have also come you know into focus and then I think the other thing is the Market's now pricing in a 73% chance of a rate

5:57 cut before the election so we have two fed meetings before the election we have one on July 31st and we have one on September 18th and the fed's been dropping some breadcrumbs right referencing things like the slowing in the discretionary spending bill referencing the fact that we've seen a tick up in the unemployment rate referencing you know the fact that core PC continues to roll over it's given itself I think a window here to begin to cut rates and and remember the

6:29 Market's most interested in that second derivative are we going up or are we going down and I think the Market's pretty well convinced that rates are going down and so the economy is slowing but it seems like a bit of a soft landing and so that's the setup and that's why I think we've seen such elevated performance out of big you know big cap Tech you know but we have Q2 earnings starting in two weeks and I think this is going to be a

6:56 really important earning season you know is is it going to show acceleration right the the reason stocks have been going up is because earnings have been beating you know will it again occur you know in this quarter I think there's a chance that this may be one of the trickiest quarters where the expectations have now creeped far enough ahead that it's going to be a little bit difficult for expectations to keep up with them but I pulled a little bit of

7:22 data you know courtesy of our friends at Morgan Stanley Ashton Curtis you know he sends out this this this weekly email you know he had some data in there last week that I thought was interesting so he said May and June have been two of the top three largest months of tech selling since 2010 right so I I feel like there's a view in the world that you know everybody's crazy about tech and everybody's crowding into Tech but here

7:51 here's some data that that supports the opposite view so long short Equity Funds have been adding to their Tech short Tech exposure has fallen to the bottom desis over the last year due to outside selling semiconductors and semi stocks have driven most of the net selling during these months and overall hedge funds are more underweight growth than at any point Morgan Stanley has seen in the last 10 years what do you think is

8:21 causing that well I you know we've had this huge runup unabated over the course of the last six quarters and I think that people are just saying listen we've got uncertain elections coming up we've got an uncertain earning season the margin of safety is compressed so whatever number of units of risk you want to have on you're going to take a few of those units of risk off right if you've been you know like we're having a

8:47 good year this year there's no need to be heroes over the course of next where do that money go BR it's got to go somewhere well I you know it's just gone into dry powder you have more cash on the sidelines you have more ability to buy on any of these pullbacks and so you know I think you see that through some of this active selling but Bill you asked me a really important question and I sent you some

9:10 data on it you know you said how much signal is there in the fact that you and you know kotou and tiger and other people Capital group may be buying or selling you said what percentage of that action today is active versus passive do you see that chart I sent you got it right here and was that a surprise to you let me let me hear the your analysis on talk well I mean you know so

9:37 basically what it shows is that about 11 to 12% of the dollars in L in in in large cap Tech think Mag 7 are quote unquote active dollars so think long only in hedge funds yeah so if you would have looked at this in 2010 that would have been above 20% so clearly today fewer dollars that are being traded in the market one out of $10 is what you would call a fundamental manager right somebody who's

10:07 sitting there running the numbers and this is obviously higher for the mag 7 because they're so big and so if you're buying an index you're buying more of them than you would have on a on a percentage basis I think that's I think that I think that's probably true and so I guess the point would be or you know the push back that you gave me is yeah these are interesting data points out of Morgan Stanley but it may not tell the

10:33 whole story because if fund flows continue to come in right if people generally are saying we're go we feel good about the markets we want to continue to invest in our 401ks we want to continue all of these dollars passively flow into these ETFs and so fund flows have continued to be strong as markets have gone up so there was this tweet you know that that you sent me which is kind of The Tale of Two

11:00 Cities right it's what you referenced earlier if you look at consumer stocks from McDonald's to Nike to Lululemon Sofi Walgreens Papa John's just in the last week they all hit 52- we lows y right and then there's a group of stocks which is casual dining stocks which are you know really that midm market that midm market the PF chain type of the world exactly exactly and the Papa John's of the world that are

11:31 down you know 30 to 40% on the year and remember a lot of what happened here bill is this is the pull forward that happened in 2021 because of covid we had huge build outs in these businesses earnings went from Flat to really accelerating in these businesses and everybody started valuing them at kind of peak multiples like they were growth stocks and then what we have now is oh got a little dog action over there what

11:59 what what what we have now is them really just normalizing I think back to Trend and so you know I I think we have a good chart here courtesy of Goldman Sachs which shows the earnings growth over the course of the last 12 months so if you look at it for Microsoft Nvidia Amazon Google meta earnings are up 38% over the last 12 months and the stocks not surprisingly are up a lot if you look at the S&P 500

12:29 as a whole earnings are you know roughly flat during that period of time and if you look at if you take out those tech stocks the other 495 earnings are actually down 5% so that's the reason there's this massive dispersion in the public markets and the reason shorts have worked so well this year is you could be short hundreds of these S&P stocks that are actually down on the year and long just the mag 7 and you'd be having a terrific

12:59 year is there is in your mind is there a not an implication of this that is a question about the broader economy I I also saw a a someone had tweeted out some credit card data and one of the things that was down year over year was travel a sector you know quite well so is there is there is is part of what's happening with these casual dining and these consumer stocks lack of spending is that

13:30 something you're worried sure for sure I mean listen we everybody if if you look at folks other than you know you know wealthy folks in this country they burned through their stimulus checks right their excess savings are gone credit card borrowing is hitting you know every single month a new High and so I think you're seeing the results people are just having to make tradeoffs and you know travel happens to be one of the last things people want to trade off

13:59 right they'll forego the new refrigerator they'll forego eating out every night before they'll forego their summer vacation but yes that's even being touched so this is exactly what the FED wanted to orchestrate bill right it wanted unemployment to go up it's getting unemployment to go up it's getting consumer spending to slow down it's why they're in a position to cut rates and the gift that the markets had really is that at the same time like we

14:28 would otherwise be talking about a recession but we had this surge in infrastructure spending around AI right which gave life to all of these technology companies and one of the things that you know we're going to put this chart in here one of the things that you ask me is you know is the big PE you know names are they overvalued and so I asked my team to go through an exercise look at the peak multiple that

14:54 they were trading at in 21 Q4 21 look at the trough multiple they were trading at in 22 and then where are we today right so you know take Apple for example it it's peak in 21 it was trading at 28 times at its trough last in 22 it was trading at 22 times today we're at 32 times so we're above Peak for Apple 32 times forward PE forward PE yeah okay okay consensus forward PE in the case of

15:24 meta yeah run through them all just because some people will be listening where are they yeah in the case of meta right in 21 you were you peaked at 22 times we troughed remember at 90 bucks a Shar in 22 at 12 times and now we're back at 24 times okay in the case of Google peaked at 24 times troughed at 17 last year now back at about 23 times in the case of Amazon we peaked at 64

15:56 times right in 22 it got a low as 46 times now we're at 33 times so Amazon is actually as a multiple of earnings trading below where it was during those periods why because they've been cutting costs Etc and driving earnings as growth has slowed in the case of Microsoft peaked at 37 troughed at 23 we're back at 35 you know so you get the point here and in case I I skipped Nvidia 66 times

16:26 was the peak the trough was probably the start of this year actually at 20 times and now we're on consensus number back closer to 40 times and so if you look at these I think you can make an argument on both sides Bill we certainly are nowhere near the trough but these don't this doesn't feel to me like the stuff that bubbles are made of right I can make an argument that you could these things could all be down 10%

16:57 in the next 3 months and none of them would be screaming buys right right but none of them are are are in the territory where I expect that they would be down 30 or 40 or 50% you know they're not trading at hundreds of times sales like a lot of software companies you know were at the end of 21 and so I think that you know as we sit here I Thinkin it's a tricky moment there may be an earnings air

17:23 pocket in this quarter I think it's there's less margin of safety in this quarter than prior quarters we got the uncertainty of the election so you know if I were playing from home I'd have a little less on take a few units of risk off the table but ultimately I can paint a pretty bullish scenario for you right how do you how do how do you how do you frame the fact that that you know it's the same thing we've been talking

17:48 about for several quarters now where you've got these seven stocks that are performing right they're performing from an earnings growth standpoint from a cash flow free cash flow standpoint yet you know what we just talked about the rest the entire rest of the Market's not so yes what what does that mean do you have to own them because they're the only thing that's working or or is it scarier to is is there anything about the fact that

18:19 the rest of the entire rest of the S&P isn't working that should cause concern yes I think it should cause concern other than the fact that the FED is in an very enviable position from a monetary policy perspective to cut rates and add some juice to the economy when it needs to and I think that's what's going to happen which is part of the bullish scenario right the market is saying there's a 73% chance the fed's

18:45 going to cut rates and the reason for that is unemployment's ticking up and you have 490 stocks whose earnings are not growing and that is a recipe for more economic distress if we don't get in front of it how how do you if you're looking amongst these seven are you are you will be curious if you're willing to make a comment like which one and and and and maybe with the backdrop that AI might be driving some of these wh which

19:13 ones feel safer to you here yeah it's a it's a good question well first to say we own them all okay and you know the second thing I would say is altimeter Peak exposure to these names was about 70% over the course of the last 12 months so we had 70% of our dollars at one point in time in these names remember at one point I had 30% of my dollars in meta alone off of the bottom so we had a lot

19:43 in these names we've taken a lot of you know almost half of that off the table now we haven't redeployed it further out on the risk curve because for all the reasons you and I talked about I'm nervous about things further out on the risk curve but that's just you know and where are you overweight dry powder what I would say here is you know again if I turn the tables on you Bill and said you

20:06 and I have been doing this for a really long time and do you think more money has been lost trying to time these things or made by timing these things and my my instincts here are you can't just like totally be out of this Market yeah if you have you've missed a tremendous move over the course of the last six quarters and the bullish case I was going to make to you is I think you know if the market if the Betty Market

20:33 is right there's a 60 70% chance of a trump Victory set the politics of that aside but that means you're likely to get a permanent tax cut at the same time that you're getting a reduction in rates right now imagine if you get a resolution to the conflict in the Ukraine now imagine if three or four quarters from now some of these AI benefits start catching up with the software companies and their Investments right that is a highly constructive

21:04 scenario that you would want to be invested against and so you know like I don't think you have to be Allin all the time but I think that's what the market is beginning to sniff out and that's why you know after a blockbuster year for technology last year you're having another good year this year my quick reaction would be that meta is somewhat unique in the group in that if if there were a air pocket you know or something that came

21:35 out of the llm AGI world they're not really I mean they're playing with the open source models but they're not really dependent on it and their core AI use cases and even llm based the that's driving their their ad matching and and their content engine so seems like seems like they get all the good with out any of the risk and anyway for what it's worth yeah no I listen I think that there's a maybe good time to shift

22:06 to this conversation about AI costs being way out in front of AI revenues and whether or not that constitutes a bubble but certainly meta is you know however you want to Define it it's one of the most profitable AI companies in the world as is bite dance Tik Tok but you know you've been saying for some time Bill and and and and I who knows knows what I I don't have a strong point of view on on which candidate is more

22:34 likely to follow through on something on Tik Tok but that would obviously be a massive Boon for for Facebook and meta if it happened no doubt no doubt that's you know again if we look at the calendar that's something else that you know the clock's ticking on I mean shortly after the election or I think shortly before the election the ban is meant to go into you know effect I now I I I think it is in the court so

23:00 maybe there's a stay of execution there but there are a lot of things that are you know potentially going to drop here and that this election's going to have a lot of consequence on yeah coming back to this topic of AI you know it's interesting to me you and I have been talking on this pod I remember when we went over the $2 trillion buildout for NVIDIA over the course of the next four or five years and you asked the

23:26 question some six months ago what the hell do you have to have in terms of Revenue on the other side of this in order to justify these Investments and over the last few weeks A Chorus of high-profile firms have seemed to come out and say versions of the same thing Bill maybe we just start there and you break it down a little bit we go back and forth but there was you you know maybe the first piece that came out

23:51 David Khan over at Sequoia you know you've got Goldman Sachs with a piece Modest Proposal had a piece McKenzie did some work that was all quite skeptical but David KH had this piece called you know AI 600 billion dollar question and and in it he said the AI bubble is reaching a Tipping Point navigating what comes next will be essential right effectively arguing that there's a big gap between revenue expectations implied by the buildout and

24:23 the actual Revenue growth that he sees in what he calls the AI ecosystem system yeah that sounds like a pretty Stern warning to venture firms and entrepreneurs out there yeah and and and and yeah and look look I the main thing the main point I was making was that the more you promise the more you set up the risk that someone's gonna gonna start taking the other side of the argument and so I'm not surprised that

24:51 this happened mainly because there have been people willing to say the most out landish thing or the most optimistic thing or this is going to go on forever this is going to scale forever it's going to solve every problem no one's going to have to work again we're going to have Ubi for everyone like these are pretty massive claims and so and I think the other big thing to keep in mind that I don't think we've seen

25:17 really before in a tech ecosystem or a tech cycle is this one is very capex forward like they are and that's what's driving Nvidia that's why Nvidia is the biggest winner in this whole thing but the the these this mag s is spending on a capex level at an accelerated rate to anything they've done before and so it it all puts it out there what David did was simply try to aggregate the

25:47 spend that was being put in place and then and and and think about that as Supply and then say what will it take for there to be Demand on the other side to suck all this up and and it's a public link we'll put it in here so people can go read it and I I recommend people look through all this stuff because it it's all super interesting but he he's having trouble adding up the other parts to the other side and I

26:13 think one reasonable question to ask is why would someone at Sequoia go out on a limb with a pessimistic view we all know that the competition to get get into whether it's early stage midstage or late stage deals is is somewhat dependent on your ability to to be seen as an optimist and to be seen as someone that's that has a positive point of view and so you know why why would someone take that that point of view and that I

26:44 did I reached out to him because I was just curious about it and his view which actually is somewhat sensible to me is if you let the markets run crazy you end up with a higher risk of a reset and and I will also tell you having lived through what happened with sof bank and and the last cycle having crazy money in the market is not necessarily consistent with creating positive return for your Venture Capital portfolio it it

27:16 it can start to Trend the other way if you end up with Hyper competition if you end up where every single player has $400 million which I think is true in the the co-pilot AI coding space and so I think I think his intuition is let's keep things reasonable un let's keep the card on the tracks and let's not go out over our skis I I mixed a bunch of metaphors there I okay so so so let's just break

27:46 it down a little bit because I think it's always difficult to know out of out of these arguments you know seoa is one of the biggest investors in AI right now they probably done more rounds than just about any firm and and and so here's a firm that's doing a ton at what some might argue are pretty high valuation since in fact go on Twitter and find a lot of these critiques and at the same time they're saying but you know

28:12 don't go out there and do too many deals you know it seems to me that you know as as I look there of course it's what SAA said at East Meets West a couple weeks ago bill investment always comes before the return and it's almost never perfectly matched in terms of timing right it's like it's impossible to think that it would be perfectly matched in terms of timing I would argue here like we don't really see big rounds out

28:41 of you know the soft Banks and tigers of the world the people we see big rounds out of are you know the microsofts and nvidias and Amazon of the world and you know meta is investing a lot of dollars and so yes I do see that you know there's no doubt that AI investments in the Venture landscape are about the only thing getting done they're super hot the valuations are really high again I think we've been

29:10 somewhat circumspect on a lot of those rounds simply because we think they're great companies just hard to earn a return from where a lot of these rounds are getting done but you know my sense is that this is more a critique on you know a timing mismatch than it is a critique on whether or not we're going to get there like I didn't read anything in that article or the Goldman Sachs article that caused me to lose hope

29:36 whether or not AI is going to be have a Major Impact I think that would come let's let's transition to the Goldman so so in addition to seoa who you might ask why would they have an incentive to take a a skeptical point of view Goldman put out a a rather I mean it's a readable length it's like 30 pages I I recommend anyone read it they can get a hold of it I don't know what the current state of

30:02 affairs are on on Research dissemination and we'll find out if we can post it but they started with two people they had a professor from MIT and he took I think a pretty strong point of view he said many people in the industry seem to believe in some sort of scaling law that doubling the amount of data and compute capacity will double the capability of the models but I would challenge this in several ways and he goes on to

30:30 suggest he he doesn't believe in in kind of either linear scalability or exponential scalability and you know that gets back to a conversation we've had in the past like will when when when Sam says 4567 and says oh they're all going to be as better than the one before Is that real or not and I think it's a it's kind of a big outstanding question that's out there today and then they had a research who used to be a semi analyst he came

31:01 out and took a point of view very I think very similar to the Sequoia point of view that the buildout of over a trillion dollars will need to have massive you know return coming off of it in order for this to have worked out and it gets back to this point that we're putting all the capex up front and I I pushed back on you a little bit in that whether it was the mobile wave or the

31:26 internet wave like it didn't require this much betting on the come you started to get some results right away that that and and and it and and people were able to leverage technology I mean the internet had been built out over 30 years prior to when it actually kind of flourished and so there wasn't this like every player didn't have to put up so much money so so so let me let me just a couple quick comments

31:54 first we got an MIT Professor saying I don't know if I believe in the scaling laws I think you have all the the best folks in the industry today from open AI to anthropic to you know Elon Etc who have all said they were surprised to the upside by larger models leading to you know really breakthrough outcomes and in order to believe that Professor you have to believe that Elon doesn't know what he's doing he just bought a you know is

32:21 investing in a 100,000 h100 cluster just raised a ton of money to do it he clearly believes that there are upsides to scaling open AI you know Microsoft clearly believes there are upsides to scaling Google believes they upsid so the folks on the field not the professors critiquing From The Towers are spending their money because they see the benefits so I you know I I I guess that critique doesn't hold a lot of water you know for me I think that

32:53 of course they all also acknowledge like Yan laun has argued that this may not in fact be the path to AGI and we don't know how many more you know rounds of scaling are going to continue to lead to enough beneficial Improvement to justify the incremental spend but most people I think on the field today would argue that we're not there yet and then the second thing is it's not true to say that prior Cycles didn't have big

33:25 investment I mean by our analysis for example just Amazon spent over a hundred billion dollar on AWS invested for over eight years before they saw profitability in that business we know that reality Labs was was you know willing to make you know a 20 billion investment perom for a decade in order to bring us virtual reality we think they' brought that down and pivoted more toward AI but the fact of

33:55 the matter is that we have companies that are printing cash multi-trillion dollar businesses think of it like a nation state Bill if you were a nation and you had Surplus like these companies have Surplus what would you do you would invest in your National strategic advantage and these companies are investing in the single greatest Vector of potential advantage in the future and the fact that they all agree on that you know suggests to me you know coming

34:26 at it from diverse points of view that there's probably some logic to the stuff that they're investing in and then finally I would just say I do see benefits granted I agree that there is hype that is running ahead of the reality but to the tune of you know three billion dollars open AI has people reaching in their pockets and paying real money including myself for their service and I do that rationally because I use it every day it's a great service

34:55 now I'm sure people will come and comp heat and those prices may get driven down Etc but I think we're still at the early phase then finally and I'll shut up you and I both came on this pod and talked about fsd2 I mean we're seeing breakthroughs in self-driving that you and I did not think three years ago were possible because of model breakthroughs that have occurred now granted those may not be llms but it is still the same AI

35:20 infrastructure that we're talking about and these chips that we're talking about that are unlocking those advantages so I I just you know the Goldman piece again didn't didn't hold except from saying don't get to over your skis well great I agree don't get too over your skis but outside of that I don't I'm not really sure the argument that they're making well I would I would I would definitely double click on one point you just made which is I do think that

35:48 traditional AI models that live behind products like fsd2 are very very different than lolms from my point of view and those are the same things driving you know meta internal engines and if you have a problem that is set up to be solved by that type of solution I think you know the there's unlimited potential and so I I I buy into that I

36:20 think the real question about scalability is specifically tied to llms and not pointed pointed at AI there in addition there's so much interesting content came came out McKenzie also put out a piece that that was basically a bunch of survey work from organizations that have been playing around with AI and a couple of things I think really popped one people still have trouble right they have trouble with hallucinations they have trouble

36:51 with errors they they are making progress they're making progress in the areas we would expect customer service number one sales enablement a little bit number two and and it goes back to a point I I I just feel very strongly about which is llms are great at taex they're horrible at numbers and even Kevin Scott on a podcast he did ironically with Sequoia that's over this past week he he made that point and so

37:24 there there is an I think there are a bunch of in questions so let let me lay out a few of them one does does the does the cap is the could the capex spin be ahead of itself which is what sorya mentioned and and what this the second piece of the Goldman piece is is llm scaling exponential linear or will it diminish and in addition to the MIT

37:54 Professor I mean there there are a number of people that have been around these problems for a long time who believe that the llm models will have diminishing return on spend and clearly Dario doesn't think that he had a podcast out this week on good company I would encourage people Sam doesn't believe that and Kevin Scott clearly on this podcast he did with SEO he's the CTO at Microsoft shares the enthusiasm that Sam andario do that this is just

38:26 going to go on forever like we're going to put more compute into more training and more data and the llms are going to get better and better and better and I think that's an unproven point and you sound like you're in their Camp I'm I'm probably more skeptical I think that the way that lm's work is actually set up for diminishing marginal returns but we will see hopefully we'll see very soon but but we haven't one of the reason

38:54 we haven't seen is because things things keep getting pushed out the amazing Voice demo that we saw on the last open AI demo day they had talked about releasing the The Voice product in two weeks and it's been months mons and it's not out and people aren't even talking about when it's coming up and so anyway things do I think that's a big question another big question that's hinted at in the McKenzie piece and a

39:25 little bit in the Gman piece is how much of this is going to be cost reduction versus Revenue creation and and if it's only cost reduction is that enough and and even in the cost reduction case I think some of the initial claims the Claret case Modest Proposal called a procal the the the when you talk to people about how much benefit you get in in coding you know it was originally like 40% now 30 and 20 people have come

39:55 off of their original CLA clim so there's no question it's adding value but I think and then you know where are the revenue creation pieces we do have some companies in our portfolio where they're charging more for the AIP that's Revenue creation I think the more of that stuff we see the better so no I I listen I and I would ask you it seems to me the greatest danger bill right like if meta invests a little bit too

40:24 far ahead of of of where the benefits are right right the stock will be down a bit and if Microsoft does the stock will be down a bit but you know there's not there's nothing lethal to these businesses right they can move the training clusters over to inference you know a lot of things they can do if some of these things change it seems to me very different for a venture back business right and we see a lot of

40:46 these Venture back businesses right that raised billions of dollars out of the gate they REI they exist at the beneficence of the Capital Market and people have to be convinced that they're going to have revenues that give them payback and we saw another announcement this week that Adept you know had sold or been parted out to Amazon we've seen this with a couple other businesses you know that are effectively it seems to me like take

41:17 unders did you have any perspective on that and it seems to me if if there's real risk in the ecosystem the risk is to all of these Venture back companies because they're the ones who have to become self- sustaining the guys in the public markets these are trillion dollar businesses throwing off tens of billions of free cash flow a year you know if they waste a Year's worth of spend right that's not a question of existence the

41:41 way it is for these Venture back businesses you you're right look the adep thing is which was positioned by the Press is similar to the inflection outcome there's no way that's a win for Venture capitalists like I'm sure Venture capitalists try and spin it and we heard some spin around inflection but it you know I it's just not possible I mean we need to be realistic like if you're a venture capitalist and every one of your deals turned into one of

42:10 these weird human Aqua hires with a license deal back you're you're not going to generate a return for your portfolio like it's best case you're this company had raised $415 million how much are they going to pay for the license deal and then you leave this thing kind of pseudo alive like and then the people that are running it are you going to demand a dividend on that amount or like how do you get like there's no way this is

42:39 optimal or even even really something you should celebrate and it is driven I suspect by the the limitations on acquisition by the big players and so this is but but but it's also it's it's just an alternative to a low price sale it's not a win and and and I wonder you know if part of it is the founders raising their hand and saying and if you read the press release they

43:10 put out it kind of says this like they're kind of afraid to be on the field you know where to your point right and and and when you put this much money in these companies and you ra I've said this a lot and I I'm sure I borrowed it from someone much smarter than me you know valuations represent discounted future expectations they're not an award for what you've done in the past and so if you raise at a billion if you raise

43:36 at two billion if you raise it 14 billion the you have to accomplish to to live up to that expectation you just signed off on is really high and so you have to find Revenue you have to find performance and and it may or may not be there and so I I agree I mean I think I think you phrased it the right way the this is where the risk lies and and and and the playing fields difficult to

44:05 understand I mean if you listen through all this content that came out even in the past two weeks the the you know Kevin Scott made a comment very similar to one Sam made a while ago which is don't try and add value just a little bit or don't he even he even said on this thing don't go do a small focused model on you know let's say a particular vertical but because we're going to keep investing in the in the foundational

44:30 model and it's going to it's going to be great at everything it's going to be great at the big stuff but it's going to be great at that Focus stuff and we'll run over you and so where are you supposed to go like if you can't focus and you can't add value you know Sam said people are using only x% of open AI they you need to use 90% but what is it you're doing if you're using 90% of the

44:54 other model I don't know I don't know where you're you're headed as a startup so it's a it's an interesting playing field well I think that I think it's well said and perhaps that if if we had to tease out a red thread that I think is actionable from all of these pieces the Goldman piece Sequoia you know Mackenzie Etc you know it is just an acknowledgment that things have run up a lot that billions are getting

45:21 invested in Venture that we're back to high valuations that expectations are going up that public multiples are going up and you know we're getting closer to a reckoning and it could fall either way but the distribution of probabilities make this a more challenging time for the you know for those Venture companies that are lucky enough to raise at these high- price rounds but but but let me just shout out you know one that you and I you know met with Bill which is

45:48 Arvin from glean you know here's an example of a company that I've talked to 10 of their customers they absolutely love the product they're getting you know real benefits they would not want to give up the product you know it's Enterprise search meets Ai and I do think that there's a lot of real work getting done under the covers and I see with them like I see with open AI with you know with some Enterprises and with

46:16 lots of consumers that feeling of magic that it really changed you know our friend Rich Barton said it's the one piece of software he couldn't live without right like that's you don't hear that out of CEOs very often and so you know I think kudos to the guys who are grinding and creating that but I do think that there are a bunch of folks I see a bunch of grifting right in the AI landscape right it it it's where

46:44 you can raise money they're raising money at high valuations I do think that the mortality rate in AI is going to be very high and the winners are going to be incredibly large and if this is all as big as we think it is this is going to play out over decades this isn't going to play out over the course of the next 10 days and you know again I'll just repeat the warning Sacha gave East

47:07 Meets West you know he's like I'm a total believer but I also am preparing the company that we may have to have a big draw down between here and there you know if these things aren't perfectly sequenced and I think the whole ecosystem needs to be prepared for that yeah fair enough you know I got a note the other day that that really impacted me and you know I've been talking a lot about these calcium CT

47:34 scans you know and just in the spirit of mixing it up a bit you know Bill you heard me talking about them a year ago you got a calcium CT scan so many folks I know have gone out and gotten one done and but this was a woman who said you know she got it done she didn't think women were really at risk but I you know she had heard me mention it enough times she thought she'd get it done she got a

47:58 score in the 900s it really scared her she found a lot of plaque and blockage and so I did a little bit of digging and here was the thing that a stat that blew me away five times as many women die of a heart attack each year in this country is die of breast cancer five times as many women die of a heart attack in this country versus breast cancer and while the mamogram is appropriately and widely accepted as

48:25 standard of care right very very few women do a calcium CT scan which I might argue or I've heard argued is the mamogram for the heart right David Marin Dr David Marin the head of preventative Cardiology at Stanford says it's the mamogram for the heart as a reminder to folks it's 150 bucks you can Google you know calcium CT scan you can get it done at any number of clinics

48:56 in whatever town you live in I've had hundreds of people over the course of last year text email and they just found things and you know they they found either blockage or plaque or other things that they didn't know were going on with their heart but even the folks who came back with a zero score say I'm so happy I did it because I'm I'm at ease like I know what the situation is and we've all been trained to track this

49:21 cholesterol which is not predictive of heart health right people people put you straight on medication off of a cholesterol score fast fast and by the way and I had in one of these mini pods I did with Marin he said that half the people right who have good cholesterol have a bunch of plaque in their arteries right and plenty of people who are in the red zone of cholesterol have no plaque in their arteries so wouldn't you just rather get

49:51 to the source and say take a calcium CT scan just say do I have plaque or do I not have plaque in my arteries but Bill the piece the thing I want to talk about and I'll post this there's a documentary on YouTube I would encourage people to watch called the Widow Maker right and this refers to the artery which most often gets blocked and causes a lot of death but the this documentary painfully outlines the politics behind the calcium

50:20 CT scan and why the stent Lobby and other forces including the Insurance Lobby appeared to have prevented the calcium CC CT scan from becoming the standard of care and it was a a really interesting part of that documentary bill was a battle that took place in the Texas legislature you have the head of several medical institutions you know that kind of went to war with the state of Texas

50:52 because the state of Texas passed legislation out of both houses that would have required the insurance companies to cover the 150 bucks for these calcium CT scans so this is just it's another interesting place if you have 45 minutes and you want to see how government can get in the way of Technology and how a bunch of vested interests try to keep this from happening I would encourage you to watch it we'll post we'll post the link

51:20 what's your thesis as to why the establishment is nonsupportive of a lowcost preventative scan well what I've been told by heads of Cardiology at Harvard and Columbia and Stanford and all the folks I've talked to right I ask them all a very simple question what do you do for yourself your friends and your family just tell me your Care standard of care for yourself your friends and your family and 100% of them follow the same

51:54 protocol which is a calcium CT SC no later than 40 and if they have any signs of plaque they go on a Statin to reduce their ldls their bad cholesterol as low as possible and so I actually don't think the establish establishment cardiologists right are against it I think that there are some folks connected with various lobbyists right the stent Lobby now there was there was a trial around stent Bill a few

52:25 years back called called the courage trial which basically disproved that stents are actually that valuable what they found was that a calcium CT scan and medical intervention was at least as valuable as a stent so for example I think today most people will not even have stance put in even if they find high you know rates of plaque they'll just do it through Statin Etc but I you know it's interesting I've asked them why they want to you know

52:55 spend as much time with me as they have and they said because you can get the word out right millions of people are losing their lives and it can all be prevented by taking a calcium CT scan but this thing this thing's cheap and fast so I don't think you really answered the question like what's the why would people be against it like what's the point of being against it what's I listen I think the economic

53:21 point for being against it is insurance companies don't want to pay for it the the folks who are in the business of repairing the heart after the fact like those in the stent business right it's good for their business that you aren't preventing it medically and then finally I think Bill it's just never underestimate the inertia of the way things are you know my mom 88 years old she goes to a doctor and I I said mom why are you taking this

53:51 medication she said I don't know it's just what the doctor tells me to take yeah I hear you I I I I I don't I don't buy into the insurance one just because I don't actually think insurance companies are interested in cutting costs they make a percentage of what is spent and the more the merrier the more that's in there the merrier I do think that the medical industry I I I listened to this podcast once I I I need

54:16 to find it but where a gentleman argued that over 90% of NIH grants go towards things that are potentially monetizable so either a product or a drug and that the NIH is less interested in funding things that might be just preventative behav like behavioral things like what you eat or your diet or things that that don't lead to monetization and we may have created a

54:47 people talk about the military-industrial complex we may have C created a healthc care industrial complex that really can't stop maximizing profitability and and different ways of making money and and not focus necessarily on the lowest cost best most preventative process for sure that would be my guess as to what's going on there a bunch of states that seem to require referral you know most

55:19 people a lot of people don't even have relationships with a doctor this is particularly acute in poorer communities and so you know if you want to get a referral you can simply Google referral calcium CT scan there tons of referral services on the internet cost you 20 bucks you get a referral but I would encourage you most imaging centers you know if you follow me on Twitter at altap you'll see just search calcium C and you'll see people from almost

55:50 every city in the country who've posted where you can get them in their City the cheapest price you can get them in those cities there's a mobile unit up in in Seattle that does it for 55 bucks walk in no referral needed bottom line is you know I have no no dog in this hunt except for the fact that I lost my father way too early to heart disease in a situation that was 100% preventable so I wanted to have this done for myself

56:17 for my siblings Etc I had a low score when I got the calcium CT scan done I went on a stat and it reduced my ldls and I'm in control and I have the information and I can watch this longitudinally and I was shocked to learn some of these facts behind the scenes as to why it wasn't being treated as a standard of care and so you know if we can move the ball down the pitch just a little bit by spreading

56:42 the word out there it is simply one of the easiest things you can do and I think you should really think of it as the mammogram for the heart and as seriously as we all take things like colon osies prostate you know exams mammogram Etc this is the number one killer in the world by a long shot so the fact that we're not doing the preventative care on it makes no sense good seeing you man yeah great

57:08 seeing you and thanks for doing that hopefully hopefully you save some life let's get her done I'll talk to you soon take care bye bye as a reminder to every everybody just our opinions not investment advice