Leopold Blows Up, OpenAI Drastically Cuts Prices, Microsoft’s Best Day

0:00 Leopold Ashen Brener's situational awareness hedge fund blows up and sells off its stock portfolio. OpenAI has cut prices on its latest models by as much as 80%. And big tech earnings leaves Satya Nadella a very happy man. That's coming up with Reed Alberg from Semaphore right after this. Welcome to Big Technology Podcast, a show for coolheaded and nuanced conversation of the tech world and beyond. We have a great show for you today. We're going to talk all about the implosion, but it's still kicking of Leopold Ashen Bunner situational awareness hedge fund.

0:34 too much fund, too little hedge seems like to be the problem there. we'll also talk about OpenAI cutting prices on its latest models. some of them by as much as 80%, what does this say about the AI price war? And of course, it's big tech earnings week. So, we'll just go through the big takeaways from what we saw from big tech, especially as it relates to the AI trade. So joining us today is Reed Albergi, returning champion from Semaphore. Reed, great to see you.

1:01 Welcome back. >> It's awesome to be here. Glad to be introduced as returning champion. But I I I didn't know this was a a contest. So >> it is it is, >> you know, what are the KPIs? How do I win? How do I stay on top? >> I think just have a good time. Do what you do. I there's no worries on this one. So, Reed, I don't know if you've been following the blow up of situational awareness, which has been this this headphone, this headphone, this head hedge fund from Leopold Ashen Brener, who's a former OpenAI employee, a former FTX employee. It was sort of the highest performing hedge fund in the world, I think. I mean, it had it went from millions of dollars in funds to 20 billion dollars in assets under management. and then it it effectively, you know, I think blow up is maybe a little too strong, but it effectively blew up this week and it had to sell its a large part of its stock portfolio or all of its stock portfolio to Citadel run by Ken Griffin. I I was like I was thinking, is this too niche to start the show? But I I it's just one of those stories that I'm just too fascinated by to let wait until the second half. So, curious what your perspective is on what's happened here. obviously he'll still continue with the percentage of his assets that he's kept, including a large stake in Anthropic. but I'm sure there's some big lessons to draw here, and I'm curious which ones you've drawn. Yeah, in a way, like if you just look at what happened on its face, it is just not a technology story at all, right? It's a guy who got overlevered, you know, with his with his, you know, market bets and had to sell his position because, you know, he couldn't he couldn't cover the the short-term losses, right? He's probably actually the fund was actually doing well if you look at like his bets, right? Like, but, you know, you you can't you can't you can't handle these short-term dips if you're if you're overlevered. So, it's like, oh, who cares? Like, why is this important for technology? I what what but what I think is so fascinating about it is that it's it you watch the reaction to this and like of course there's a lot of shot and Freud you know this guy was like the golden boy you know the Wall Street Journal was profiling him and you know he's this like you know EA effective altruist person and I I think like people sort of I think there's some joy in him going down but what it but what it it like from some people but what it gets at is like there is such a divide in the tech industry right now between I think there are the the sort of more traditional tech people who you know some might call themselves accelerationists. they just want to see, you know, this new technology being built and then this kind of like I don't even call it EA because I first of all like since FTX blew up like it I don't even hear EA like people don't describe themselves that way anymore but there is this sort of remnants of the culture of EA of these people who are just not like your traditional tech people and if you even if you just step back and think about it like no one in tech would would brag like no one in Silicon Valley I don't know about you I've never had anyone brag to me about their public market stock trading. Like that is like not what people value in Silicon Valley.

4:13 They value building. And so in a way it's like this to me it just highlights this this sort of new cultural divide which I'm fascinated by. Like I just I don't know where where it's going to go. It could disappear or you know it could turn into an even bigger rift and there's like two there's two tech industries essentially. >> Okay. So >> maybe I'm taking that too far. >> You know I don't think you are. And this is a very interesting thread to pull.

4:38 and I think we should like talk about it for a moment and then talk a little bit about what Leopold was actually holding because that's pretty interesting in and of its own right. But the EA thing is interesting because there's a couple things that sort of characterize effective altruism. And I'm not going to do it justice here. but one of the things that characterizes the movement is sort of you try to make as much money as you can and then do as much good as you can.

5:03 And so whereas like previous altruists might have just been like I'm going to go, you know, volunteer for people in need, effective altruists might say, I'll take the most capitalist job I could find and then eventually donate. And that's associated with like movements like give directly where like they give no basically no strings attached donations to and I think that's a great program by the way you know to places all over the world. So the the other side of it, I'll just say this other one other thing because it's very interesting how it combines is there's a big belief in this sort of formula that's called expected value. And I don't think it's unique to them. but it's effectively like you know you you want just to give one example it this is kind of like the canonical example right if you could flip a coin and you know 49% is you blow up the world and 51% is you know you create utopia they would flip the coin every time because the expected value of utopia is higher than the expected value of annihilation right it's like oh if you add 51 and 49 up and divide by two or whatever I that's still 50/50. You know what I'm the math makes sense that the the better value is going to be on the utopia bet. And so this is the second time in in in in recent history where someone who comes from that sort of background and the other one being Sam Bankman Freed seems to have made you know big enough bets that make you think is this is this a pretty disastrous way to to think if you're running a business now. No fraud here as far as we know.

6:40 He's not even negative, but a you know, not a parallel blow up, but it's it rhymes in a way. >> Yeah. Sam Bankman Freed wasn't negative either in the long run. >> He was the best investor of all time. >> I mean, if they didn't make him sell, >> this is the this is like the other part of this is like a lot of these people go work at like Jane Street Capital and they they look at the world and the markets as this like, oh, it's like child's play. like it's this algorithm that you can just crack and like you know it's sort of like this unemotional view of and it's and it's like a a simplistic view of the world and then it blows up in their faces because if you look at this stuff in this very simplistic way it's like well you know the the it's it's like you're sitting in your college dorm room talking about philosophy you know well I mean everyone wants AI and of course like you know these things these these products will have to be purchased just to build these AI data centers. Therefore, you could just put all your money in those stocks and you're going to be fine without like, you know, really paying attention to how like there's there's fluctuations in the market that have nothing to do with like the actual, you know, long-term value of these of these things. And, you know, I mean, that this is sort of what happened to FTX. And yeah, I just think I think that's like it's almost like this hubris and I think that's like a real turnoff to people, right? And it's not. And the other thing is like that a lot of these people went into AI because they were like, well, this is where I can do the most good because this is a dangerous technology and so I have to go into this to kind of help steer it and make sure that it's, you know, that it's properly stewarded.

8:20 which is also like a kind of hubristic way of of looking at it and it's not a Silicon Valley way of looking at it, right? That's not like the traditional way of of thinking about technology, right? technology is this good thing. Of course, there's always downsides, but you know, it's exciting and you go and you build it because it's it's fascinating and you're part of the future and it's just this to me the mindset divide there is what this story is really about because if it wasn't for that, Alex, would we be talking about we would not be talking about this, right?

8:51 Like there's there's been bigger blowups recently, you know, on Wall Street of people who've done crazier things and lost more money, right? And we don't talk about that on tech shows, right? So to me, that's why it's important. >> Yeah. Okay. I'm gonna disagree with you slightly on that. I do think we would still be talking about it, although I think this adds I think the reason why the story is irresistible are the undertones that you bring up. but but but you I I think it's impossible to disassociate it with the tech story because and this is going back to that hubris example.

9:25 Situational awareness was or is TBD like the most pure bet on AI taking off and taking off very soon. And effectively like if you could give a one-s sentence description of like what he's doing it would basically or what he was attempting to do is basically you know profit off the singularity effectively like the the belief was we're in the singularity now nothing's going back to the way it was and if you make the right bets now you can you know go exponential and and he really did but this is why I think it's important to talk about you know what his biggest holdings were. so its long its biggest holdings were Nebius Group right a neocloud SanDisk and Micron which is like the RAM and the and the memory and Cororeweave another neocloud. So basically like his his long his long holdings were effectively the bottleneck bro type of long holdings which is like demand for AI is going to increase so substantially that these companies are going to be you know worth multiples of what they were and for a long time this year it actually seemed like that was right. So he was that that on the long side. The short side to take his thesis even further was software. reportedly some of the shorts were software companies like Adobe, right? So this this is basically like if you were to ask >> how do you put like AGI in one hedge fund?

10:54 >> It would be this. >> But like I said at the top, the job of the hedge fund is you got to hedge a little bit. And this was an unhedged hedge fund. >> It was unhedged, right? I mean it's just dumb finite. This is why this is why tech companies don't they wait so long to go public because they don't because the public markets are insane. Like I I don't even I first of all like it a lot of times aren't even humans trading you know in these stocks right it's just algorithmic trading and second of all like I don't actually I've written about this a lot like I don't actually think Wall Street understands technology or AI like I don't I think they're just you know it's like meme it's like memes are driving this you know these trades up and down right but he's I mean look you have to give him credit like he was one of the first people to really like put his money down on memory and that there there was this memory shortage, right?

11:44 And long-term again, he's right. Like this stuff is, you know, these are good bets. Like what smart people are doing now is they're just buying these stocks at a discount, right? They're they're on sale right now. And so you buy them and it's like, you know, that's what and they're in all of our 401ks, etc. Like I don't trade individual stocks, just to be just to be clear. But like, you know, it's a it's a long term like people are going to be buying this stuff. It's valuable technology and you know you like hedge funds of course if you're doing short-term trading like yeah you have to hedge like you can't you know you can't put yourself in this position but you know he had no experience in this space right it's this is like 101 we're here with Reed Algatti the technology editor at Semaphore we did hear from Leopold at least in a note to his to his counterparts or his investors so so what he basically tells investors is the investors in his fund is he sold only to the point where effectively he covered his shorts. So so he said this is his direct words the fund was not shut down liquidated or transformed into a private only fund. We are continuing to operate as a hybrid public private fund as before. However we will manage our public book only as a paid on on a paid for basis while we draw the lessons from these developments. most importantly we took steps that were necessary that to fight another day. Okay this is important. So, not only did he make this bet, you know, like we said, an unhedged bet on AGI, he he did it with leverage, right? So, there was there was, you know, so at some point the reporting is that he was like 4x leveraged on this bet, which means like, you know, if if memory continues to go up, then then his number goes up a lot more. But if it doesn't, which it didn't, then that that sort of leads to the cascading effect here.

13:32 >> I mean, I learned about this in like grade school, right? I mean, this is like not this is not a new concept, right? I mean, this is like the 1929 stock market crash. It's like it's very basic stuff. All right. Leopold continues. He says, "A, as an interim update, our current unodudited estimate of net month-to-ate performance is 67%. And of net year-to-ate performance is plus 80%." So, negative 67 on the month plus 80 on the year, I guess. And he says final figures will follow through our normal reporting process. I guess you'll take it if you're plus 80 on the year. I don't know.

14:07 >> Sounds pretty good to me. >> It's better than my 401k this year. >> So, so basically this guy might still like it's it's not the end of Leopold. He still has billions of dollars that he's managing, but certainly a humbling moment for him. >> It's definitely humbling. Yeah. And he'll he'll go on. He'll be fine. That's why it's like I'm like this is not like the it's it's this cultural significance that to me is interesting. not the not the actual trade, you know, it's life life goes on. I mean, I I don't know about you, but like I don't see these stocks having issues in the long run.

14:42 Like, you know, there's a whole meme right now about this stuff being expensive. I know we'll we'll talk about that later, but you know, it's like ultimately I just don't see this this thing reversing or slowing down like it's it's moving forward. How do you I mean do you do you agree? No, I I think compute there will still be a large demand for compute at least for the next important number of years I think. So, it's like this was sort of the the whole thing, by the way, and this is going to be a theme on this show for the next couple weeks is duration mismatch, right? You can be right on the general thesis. You could be wrong on the timing. And when you're wrong on the timing, that could be devastating. That goes for Leopold. but it also goes for all these investors in, you know, the big data centers, right? Like the idea is I build the big computer for you and then you within, you know, x number of years turn that into profit. we we know that the big computer money is being laid out. We don't know if that's going to be turned into profit.

15:42 eventually are these AI companies going to going to make money by developing their you know these AI models? Probably. Although it's sort of debate about how that happens now. but they they are the pressure will be to do it on a timeline that lines up with when the money comes due. >> Yeah. I mean I think the difference though here is like you can look at past like tech buildouts and there have been these boom and bust cycles. You had the dark fiber back in the day. I'm sure you've talked about that a lot on the show. I mean, this is like getting used today like there's high demand for it.

16:15 So, when you see people like make these bets on compute like Meta or SpaceX AI and they're off on the timing, right? Or maybe off totally if depending on your opinion, they can then turn around and and sell that compute because there's so much demand. So I think these bottlenecks that he's invested, Leopold invested in and others like there are other bottlenecks too. I think those actually pre they're like pre I mean other people have made this point too.

16:45 I'm not the first person to say this but like those actually you know kind of prevent this thing from going off the rails. It's like a it's like a bubble you know prevention mechanism the bottlenecks. >> Yeah. Yeah. Well, that that is that is so so let's actually so let us let's run that idea next to a headline from this week and see if and and see you know if it's totally lockite because you know we've been talking a lot on the show recently about how models are are starting to reach not necessarily par but maybe close to it. Right? the Kimmy K3 situation that we just saw was another model that sort of, you know, is not equivalent to like, let's say, the Fables and the GPT 5.6 Souls, but close to the latest series of models.

17:34 And when you have not one or two leaders, but a bunch of leaders, the prices will inevitably come down because how else do you compete? CNBC has a story for us on this. OpenAI cuts prices for two of its GPT 5.6 six AI models as companies grow sensitive to costs. Here's the story. OpenAI on Thursday announced it is slashing the price of two of its latest artificial intelligence models. GPT 5.6 Terra and GPT 5.6 Luna roughly 3 weeks after their public release. The company is facing pressure to cater to more costsensitive to a more cost-sensitive customer bra base where enterprises have been less inclined to deploy expensive models without a clear picture on the return on their investments. So Terra gets cut 20% and Luna which I believe is the lightmost lightweight model that they have is cut by 80% on the price. Now, OpenAI says they've they've found some efficiencies in these models, and I don't doubt it. but Reed, going back to your your point earlier, when you see these price cuts, right, the demand has always been basically that the companies that want to snatch up these data centers believe that they can sort of take the GPU, use it, you know, run a model through it, and then mark up the tokens that they get out on the other end. but if the markup is lower and lower do we see that sort of unlimited demand can you know persist well I think there's two or three there there's actually two or three sort of different things going on there right one is who's who's actually selling the equipment for the data centers right the GPU providers then you've also you got the the model providers right who are who are creating the software the application layer the the frontier models for that run on these things.

19:27 and then you're actually talking about the the data center services providers, right? The it, you know, just having a data center and being a dumb, you know, essentially like rack provider is not actually like a great long-term business. It's pretty good now, but that's why like these companies like Cororeweave, they want to offer services on top of the data center, right? There's actually like three things going on. one the the chip makers and the people who make the memory and all this stuff like they're selling this no matter what because like someone's just gonna use it so they're okay right and then I think the model providers it's a different question right which you're asking which is like can you actually spend billions of dollars training these models and then you know and then you know charge a premium for them while some Chinese company can essentially like distill from that model and offer it for free. Of course, you know, those Chinese models still have to run on really expensive GPUs, so like doesn't change the game for for Nvidia, but the model providers also like they're yeah, some companies aren't going to use them.

20:33 They're going to try to fine-tune. They're going to build on premise data centers. They're going to do all sorts of stuff, right? But this is like the total addressable market is so large that I think there will always be companies and businesses that are going to you know they're going to use anthropic and open AI models which by the way you know they these companies offer like a whole suite of models from like really cheap efficient ones to the the frontier and those models run more efficiently and better on the harnesses like essentially the software that open AAI and anthropic build and there's a data flywheel there, right? So the more people use them, the better they get, the more efficient they get. So there's I think we saw the same thing with cloud adoption, right? Like you know people it was cloud was more expensive like why would I do that? I'll just build my own data. Eventually they went to the cloud because it was just it was just more predictable in the long run. It's cheaper, you know, it's it's it's something you don't have to worry about.

21:32 So I think you can kind of you can make these arguments. I think there are definitely risks to these frontier companies. I don't really think the the Chinese open source, you know, the free models are the the most important risk. I think that's a that means like I don't think these companies by any means, the frontier model companies are going to like take over the world and become these huge companies that control like 90% of the global economy. Like that is not going to happen. But they're still good businesses. That's sort of how I look at it. like we tend to have this zero sum thinking around this stuff which is like what I try to get away from.

22:10 >> Yeah. No, it's by the way we love talking through nuance on this show. In fact, I think that like you know it depends on the week. you know there there'll be one week where folks will say hey this show is in the can for AI and then there'll be a next week when we cover something else where it'll be like the show is is a doomer show. And it's like we're trying to just consider the full range of of potential outcomes and pressure test them. And so on this note, I think you're right. It might it might not be China, right? But it seems like first of all, the labs are lowering prices on their models. and it's not just them, you know, this is from that CNBC story. Microsoft CEO Satya Nadella repeatedly highlighted his company's cost-effective models during its quarterly earnings call with investors on Wednesday. Google also debuted three new models this month that aim to undercut competitors on cost.

23:07 so so just to go back to this point, right? Because I I'm not saying it's well, you know what, I'm going to I won't necessarily rule out that it's a zero potential zero situation here. I'm just going to throw it to you and hear your perspective on it. the the basically the point is like what's driving this build out of the data centers. Yes, it's of course demand to use AI. So maybe it is just like the hyperscalers that end up winning in the end. But a lot of the the push is coming from OpenAI and Anthropic who believe that if they that they will compete on compute and and looking at it if the prices come down for OpenAI, the prices come down for Anthropic, the prices come down for Google, the prices come down for Microsoft, you know, are those investments in all those data centers then worthwhile? You see what I'm saying? Well, yeah, I see what you're saying. I mean, and also like let's let's like also differentiate the hyperscalers from like the chip makers, right? And the people who make all the equipment like, >> you know, I think Nvidia is just sitting pretty like they're just selling the stuff no matter what happens, right? I think the hyperscalers, you know, yeah, I think they'll make money, but they also have to sell services. They can't just they can't just be like GPU providers. Like they have to but there are a lot of services to be sold. like this stuff doesn't really work that well unless you this has been the story of the year, right? Like these models were super powerful. We had the reasoning models, but they weren't really doing all that much until people figured out how to put them into these harnesses, connect them to tools, run them in loops, you know, all this stuff. And all that stuff just requires more GPU, just requires more tokens, right? So I think like yeah I mean in the end sure like these things come down in price they get but then you know you have Javon's paradox people just use more of it right and it's so I don't know about you when you use this stuff I I use it personally because I I want to try to understand the technology I find it very fun and ve and actually useful like I've you know but then I'm also talking to people about it all the time and I see how people you know there's a lot of people who are using it in obviously way more advanced ways than I am. And you're like, "This is useful technology." Like, this isn't the kind of thing. It's not a fad, right? This isn't like I don't know those you know, pedal counting watches or something that people like are like, "Oh, this is cool. I I should put all my money into, you know, into step counting watches." Like, this is actually like, you know, really useful technology for individuals and for businesses. So the market is so large that I just don't see I don't I can't see this being a zero sum game only because the world will not tolerate like one winner in a in a product that everyone in the world has to use that would that that company that winner would be way too powerful. It just doesn't it just does not work that way.

26:10 Does that make sense? >> Yeah. Yeah. Totally. Yeah. I I guess like you know I shouldn't say that they're going to zero but to me it's like you need to have companies that are going to make money on top of those GPUs for that buildup to continue. and so so I'm looking at these prices coming down and I'm like well where where's that going to happen? but but I think you you've answered the question in terms of where you think it will happen and I I don't think I people are willing to pay for this.

26:35 >> They're willing to pay for it and the usage is just going to increase as these things become more useful. Yeah. I mean I this is the other thing that's crazy to me. Like people are paying like $20 a month for chat bot like consumers, you know, or pay like they're it's crazy. Like I can't I'm surprised how much people are actually willing to pay cuz the the adage when I got out here covering tech was like no one will ever pay for this stuff. Like you could not charge for Google. You could not charge for Facebook. That's insane. How many blue check marks do you see on X now? That's crazy. Those are people paying money. Like if you if you put like people will pay $10 or whatever $20 a month for Twitter on my bingo card in like you know 2013. I would have been like you are insane. Like no one will pay for Twitter. And they are now. And I think that's a whole change that is like underappreciated. Like people actually pay for this stuff.

27:33 >> Yeah. I did this experiment in a couple of events that I was at where I was like all right if let's say you're using chat GPT and OpenAI doubled the price for you would you pay double and like all the hands went up triple more hands went up >> and I don't know I feel like I shouldn't say this out loud but it's become so useful to me that if it became a $100 a month at the base in terms of what I'm getting now I'm on the $20 plan >> I would do it so >> yeah and I think they know that but they're also Like these companies are in growth mode, right? They're willing to lose a ton of money to gain market share. Like that's the game. So just because somebody lowers prices, this is not like, oh, okay, now it's like in the discount bin and who car, you know, this isn't fashion products, right? This is like they're trying to go out and and take over the market, >> right? But price but price wars are a real thing, right? Like you could eventually, right? Your opportunity is my margin just kind of compete away all the profit in a commodity.

28:33 You could I mean, but that's not typically how it works in like growth tech businesses, right? Like you you go out and you and you win the market and then you worry about the money later. Of course, these companies are trying to go public. I I don't know. Like this is the thing like do you really I mean maybe the mark maybe these IPOs get delayed like I don't know but that is that is actually beyond my like I haven't thought that much about it but like there is an argument I think to be made like they should wait a little bit to to IPO.

29:02 >> What's the argu what would your argument be for that? Well, well, it's just if you have like if you're still in this like insane growth mode, like is that going to make sense to investors? like you said investors do look at this like well you should if you're selling a product like you should be charging more than it costs you to you know >> for that product right and like ultimately but you know on the other hand I don't know Amazon lost tons of money in the public markets for years before they finally you know turn a profit so maybe it's fine I but like you have to be a certain type of company a certain type of CEO to like gain the trust of of retail investors right like You know, Elon Musk is that type of person is is Daario is Sam. I don't know.

29:46 >> And even then with Elon, >> even then it's can be tough. >> SpaceX can be tough. They have up they have ups and downs. >> All right. So, so let's let's continue on this theme of it's going to be all right when we talk about vendor financing. so you had a story this week about safe super intelligence which is run by Ilioskever the former chief scientist of open AAI where kind of out of nowhere I was like all right we have a breakthrough and now it's time to put a lot of compute behind it.

30:13 I think he was like, "Time to build the bigger computer." which is one of his favorite lines. And Nvidia decided to make a big strategic investment in them, $5 billion. >> for a company that doesn't have a product. I think before I think before a year and a half ago, that would have been the largest venture raise in history by some margin. And now it's kind of like whatever. so but your your perspective on it when you wrote in semaphore was basically like >> it's all good. So talk through talk through what happened and why you feel that way.

30:46 >> Yeah, it's all good. No, I mean I think I think there's this like it it it's like this circular investing, right? That's the big concern. It's like, well, if you're a company, you're you know, if you're Nvidia, you're essentially buying a customer. That's not a good thing. Like, you know, that's not a real customer if I'm just paying you to buy my product. But in the end, it's like I guess you're it's a bet on safe super super intelligence. ILA sets a proven commodity. Like I personally think there's reasons to be skeptical because they've they're so secretive and I just I just you you haven't seen in the history of AI development big breakthroughs happen in secret. These usually you know these papers come out they pingpong around everybody you know it it cross-pollinates and then people come up with ideas around the same time.

31:35 So, but maybe there isn't. Maybe that maybe they've figured something out like working in secret, right? So, Nvidia sees that and they go, "We want to bet on that." Like, you know, they they've got the next big thing. Okay, that's one thing. But let's say they fail. Let's say Safe Super Intelligence like doesn't get it done. They've built this big computer now and everybody wants big computers, right? So they're going to be able they'll either sell it or they'll rent out their their big computer to other people like like SpaceX AI did or Meta did. So if you're Nvidia, you're like there's not actually like that much risk here. Like it's not it's not in the end that much risk. And like one thing these people are all good at like Ilia, which is really underappreciated, is making these big computers work really well. Like that is actually like probably the most valuable skill of an AI researcher at this point, right? Is like figuring out how to efficiently string these GPUs together, make them work all at the same time. It's really hard to do. So like you're basically, if you're Nvidia, you're like, well, if if Ilia doesn't have this major breakthrough in AI algorithms, he's probably one of the best like hyperscaler providers around. So, it's really just not like a I to me it's not a crazy bet if you're if you're Jensen.

32:58 There's a lot of hedging in that one. Yeah, I would say. >> No, I was going to say basically like if you're if that's the case, why even sell your GPUs and why not just give GPUs away for a stake of anybody of a company of anybody who wants them? And in fact, that is what Nvidia is doing, right? They have this new approach with startups where they're like, "All right, if you want GPUs, we'll take a chunk of your company and we'll deliver the hardware."

33:21 >> Yeah. But they're still not But they're not like, "We're going to just be the we're just going to do everything, right?" That's not their, you know, they're not like, "We're just going to build a data center." I mean, they do more of it because now they're selling it in entire racks as opposed to like >> I don't think you can really just buy one of these GPUs now. You got to buy the whole rack. which is probably a smart a smart move, but yeah, I mean it to me it like I I have not heard an argument and maybe you can maybe you can steal man it, but like I haven't heard an argument that against that really.

33:55 It's just like it's more like well this thing could all be a bubble and then Nvidia's left holding the bag or you know something like that. But like they're the like my colleague Liv Liz Hoffman compared them to AIG, right, in the financial crisis, which I think is a cool headline. Like that's that's like exciting. It's like kind of scary, you know, like like horror movies are scary. But I I also think it's like I I don't I don't I think there's so there's so many differences between that situation and this one.

34:25 >> Okay. I actually want you to if you're willing to or you want to to steal men because you're you know Yes. Yes. Guess there's an argument, a good argument to be made for why this continues. but where could you see it unraveling if it does? I look, it's a great question. I think I think that probably the biggest risk is that there's some algorithmic breakthrough that actually means you don't need powerful computers anymore, right? Like someone figures out, oh, actually, I don't know, the human brain is a very efficient computer, right? It runs on whatever 20 watts or something. It's a doesn't require a big data center.

35:07 there are actually companies, come to think of it, that are growing human brains and want to use them as computers, like actual brain tissue. So, you know, this isn't total sci-fi. And they're like, well, you know, we've we actually can do AGI on a, you know, on a thumb drive or something, right? It's like we don't need these big data centers anymore. then maybe the whole thing collapses, right? It's like all of a sudden you just you can you know there's there's this the the data centers become dark fiber because you know all of a sudden like you could you can run everything you need on one tiny sliver of the you know the massive data center that OpenAI is building in Texas.

35:49 I don't know. That's one. Like I think that's a real possibility, but like of course I don't know like who's developing that. Like I think you know maybe it's the many brain tissue computer people, >> right? And if that happens then civilization definitely changes. You'd have to imagine. >> I mean it won't be bad for civilization. I like that would be a good thing for civilization. It' be a bad thing. It'd be a bad thing if you're Nvidia. be a bad thing if you're building these data centers, right? bad thing for open AI and anthropic. They get totally superseded. But humanity has this like access to cheap intelligence. We don't have to build all these new power plants like you know dope that like >> Yeah. Like and some of these investors lo you know some of these investors in the Gulf lose lose some money and you know we all move on.

36:39 >> Yeah. All right. before we go to break I want to talk to you a little bit about what Sam Alman has been up to this week. He's actually been in Washington DC talking to government officials about what's to come for OpenAI. let me read to you a little bit from the Washington Post and you can share with me whether you think this is actually new or it's the stuff they've been doing already for a while. So the story says in the briefings Altman described an upcoming product that would enable multiple AI assistants known as agents to work simultaneously in the background dividing tasks and collaborating with each other. he also described how the system could answer math problems that have never been solved before. He described how the new agents could transform the American economy, allowing workers to do tasks that typically would have been outsourced to other professionals. He described how a software engineer could use the agents to help with human resources or a writer could use them to enable graphic design.

37:31 One of the people said, "What do you think?" Same stuff for new stuff. >> Sounds like the same stuff to me. That's how that was my reaction when I read that. Yeah. >> Are you do I mean when I use codeex you know their their desktop they're I guess now it's just chat GPT the desktop app on Mac. I'm always asking these these agents to spawn sub agents. >> H >> like it's it's like I don't think I'm really that great at it but like that is what they're doing right? They're coordinating. I'm like, you be the you be the product manager and then I want you to spun sub agents to do the tasks and then I can talk to you so you're not busy.

38:11 >> That's crazy. >> Like, do you do that? >> I I've been just I've been being a silly human and asking to the agents to do everything that I want them directly. >> Well, I think probably they're going to automatically do that now, right? That's that's I think that's the new thing that he's t talking about like just but it's just I think that's just better orchestration of these things like it's it's how do you make them how do you get them to do their job with less human involvement like I I do a lot of checking in I don't know about you but like I'm you know you you get the blue dot on if you're using the chat GPT you get the blue dot and then you got to check in >> like it would be great if you could just be like look here's here's my goal figure out how to the best way to get to that goal and I'll check back with you in a week or something, you know, sort of like I'd be fine.

38:59 >> What project do you use it for? >> I mean, I just use it for everything, but I mean, last like the most recent one last week was it was not a work project. It was just personal like we were in my neighborhood, we have like flooding and we needed to collect data for for the county so that they can get data on flooding. They have no there's no county like California doesn't have like a data collection project for flooding. So I made the data collection project but it it took me 2 days and I you know I just checked in every once in a while but now our neighborhood has a data collection portal and you know a database and a backend and we can send data to the county with photos and videos. It's basically a web app, but that's just the most recent one that I did last week.

39:46 And you know, it just isn't that much work. And people are like, "Wow, how did you do this?" I'm like, "I didn't do it." >> Codex did, >> right? Yeah. I mean, but but it'd be great if you could just oneshot that. Like, there's a lot of checking in. There's a lot of trial and error. It could be great if you like after two days, you just get a product and it's done. I mean, that would be >> I think it'll happen like Yeah. All right. I I think it'll definitely happen.

40:13 >> Okay, let's go to break and come back and talk a little bit about why Microsoft might have had its best week ever. and then a little bit more on big tech earnings. That's coming up right after this. And we're back here on Big Technology Podcast Friday edition with Reed Alberatti, the technology editor at Semaphore. Go to semaphore.com in the technology section. You drop your email address there or right on the lefth hand side and you can get Reed's terrific newsletter. That's That's the And it's free. And it's free, >> right? So, well, anyway, I won't I won't discourage signing up for paid.

40:48 >> Do you think that there's a semaphore bubble? Is there a bubble? Is that what you're going to say? Cuz we're sl we're slashing prices and >> you are offering. >> I think yeah, your GPU providers are going to start to sweat a little bit. You might get you might get Leopold margin called man. >> He's going to short us. Darn. By the way, now you've said it on in public, it will go on the YouTube and the LMS will train on it and the LMS will start to believe this stuff and then people will believe it.

41:14 That's how information works these days. >> Oh man. Well, in that case, I am an amazing athlete and my children are geniuses. >> Okay. All right. >> Go on. All right. Let's talk about Microsoft. they had the biggest one day market cap gain for any US company in history. That's according to the Wall Street Journal. The company's stock surged 16% if it after its earnings qualled concerns that investments on data centers, chips, and more would outpace the company's ability to generate cash. It's kind of going exactly to the conversation that we've had. It's a $450 billion one-day gain.

41:52 and and that's the largest market cap gain by any company in history ever. it the core parts of this earnings report was that Azure Microsoft's cloud grew 43% in in the quarter they report on and and they they promised that it would that they would not go negative free cash flow next year. They also have a lot less debt than their peers. U Reed, let me just give you my big question on Microsoft. I don't fully understand what they're doing. I'll admit it. their approach to AI has been kind of weird.

42:27 Back back open AI, criticize open AI. be all about like you know sort of your solution to the problems of the foundational labs. even as open AI has made this $250 billion commitment to buy compute from them which I think is largely what's propelling their their cloud growth. and the market loved it. So what help me understand what's going on with Microsoft? But you're you said it yourself. I mean, the market wants an efficiency story right now, right? That's that's what, you know, that's what they're buying.

43:00 And Microsoft's been selling that. I mean, you've interviewed Mustafa. I interviewed Mustafa. I went down to Microsoft AI not too long ago and talked to him about their models and they're they're building these these frontier well eventually they want to build these frontier models, but they're focusing on efficiency and building them from scratch. you know and they have a massive install base, right? like they they like the I think the big question though is like can they to get into their strategies like can they actually transition through this AI phase and turn all of their products into you know intelligent you know and basically hold on to that enterprise business and the market clearly thinks right now they've got a great path toward you know in that direction right the super efficient models they have all these businesses which are the meme right now is like they all want to save money. They're spending too much on tokens. And so if Microsoft is positioning themselves to be the answer to that question, like they're going to do fine. They're going to keep they're going to hold on to the That's how I read it. unless I'm missing something like that. That's kind of it's a simple I mean it's crazy that it's that it's the record one day gain.

44:13 Like I actually didn't even realize that until you until you said it. That's the the market's just it's just mind-blowing to me because I'm like this is not there's nothing new here. like this has been their strategy for a while now and they've been telegraphing it, but I guess the market's just got the metal. >> Yeah, the market for has really been I mean Microsoft was like the worst performing hyperscaler or big tech company this year I guess up until yesterday or yesterday, right? And the market has sort of been of two opinions about it. It's like if you're if you're against Microsoft, you're just the the OpenAI bet is going to spiral out of control while that technology disrupts your enterprise business. to to thread the needle, it has to be the opposite. It has to be open AI is going to crush it. and you know AI will continue to go a pace and all all you know along the way you will continue to be able to to grow your enterprise business and it's interesting to see the market you know vacasillate one to the other and it sort of goes back to our our Liupold discussion is that the the way the market has seen AI shifts seemingly week to week one week you're the the king and one week you're you know you're the joke and this volatility is just going to be the nature of the beast for a while until this settles out.

45:33 >> I totally I agree with that assessment completely. It's volatile because it's based like the market is not there's no like fundamentals that they can really look at. It's based a lot on vibes like weektoeek vibes like who's up who's down. I if you're Sati is a great CEO. He's I think he's done a great job of like seeing AI making this open AI bet really like pulling themselves right into this into the thick of this race and then like not getting over his skis like not overinvesting. So now they have this better this better debt to you know the debt ratio essentially. And like I just think but he's got to be sitting there going like this is great.

46:18 Like I love this one day gain, my recorded one day gain, but like this too shall pass, right? Like he know like they all know like they're up now, they'll be down later. And when they're down, they'll you know, they know they'll be back up. And you know, Google I think has is a bit they're a bit down now, but like you know, I think they're all like Sundar is threading that same needle. They're all they're all threading that needle of like disruption on one side. you know, like big big like hasty bet mistakes on the other side, holding on to that old business while understanding that it's not forever and they have to be, you know, they're all like what was it Satia said? I'm going to make making Google dance.

47:04 >> Like they're all dancing, right? And I but I think that's >> I think that's great that they're all dancing. Like I love that they're taking these cash pals that they were sitting on forever and they're spending that money and I think that's awesome. They should be spending that money. It was like the saddest thing that like the biggest tech companies in the world, the most valuable companies in the world couldn't figure out what to do with all that cash, you know, and now they're spending it on dancing, >> right? But they're also going negative now, right? That their free cash flow is evaporating. You're like, spend it, take the debt, take the risk.

47:38 >> It's great. we should all be celebrating it, right? Like this is awesome. This is what you want. Like this is how innovation happens. Like the, you know, we shouldn't be like, "Oh no, like these companies are, you know, they're they're spending a bunch of money on this new innovative technology." It's like, no, we're all going to win. Like just everybody needs to just chill out. Like move, you know, they're they're startups again. They have to reinvent themselves. They have to move forward. They're facing competitive pressure. pressure from startups and innovators. We have which we haven't even really seen yet, right? Like the AI stuff is so new that like there there isn't really even like this this like creative destruction application layer yet. So like it's it's fine. Like just it's all going to work itself out.

48:27 >> All right. Someone else who might think it's fine today is Andy Jasse. Amazon turned in 37% growth at AWS. they were like hovering around 17 18% for years. now they're double that and more. They're up 15% today. Same story. Yeah. I mean I think look you we were talking about this earlier like they they are building these massive data centers that are going to be incredibly valuable in this in this AI era. And like it's not just the data set like they're also building all these services like so much of this is going to run on these on whatever AWS is building on top of those GPUs. So they're you know they're also it's a long these are long-term things. They will be up, they will be down. But like in the end, unless somebody builds that tiny little 20 watt brain computer thing that we were talking about earlier or something else comes out of left field, like it's all kind of they're all kind of winning in my mind.

49:28 >> Yep. All right, Google. Interesting story here. Last week they they grew cloud revenue by 82%. but said they were going to spend a little bit more. To which I was like, if you're growing your cloud revenue at 82% and you're saying the spending is fundamental to growing that cloud revenue and you say you're going to spend more and you now have not only search but a chance to be in league with Amazon and Microsoft on web services, why not do it? the market punished them right afterwards and the the notion was that they had grown the market had grown wary of all this AI spending. However, today I can report that Google's made up all of that loss and more. They're now above where they were before the stock got hit post earnings.

50:15 >> Why is that? >> I think the market saw Microsoft, they saw Amazon and they just sort of put a uristic on and they said, "Well, if it's if they can do it, Google can do it, too." and we're gonna it's almost up in lock step with the other two >> or there's a bunch of algorithmic trading happening and it's all just you know computers just making random bets of No, you could be right. >> Yeah, I mean you could be right like I I when when Google took that hit for for all those investments I I thought my thinking was that there's this is like also meme based, right? It's like it's disconnected from the actual fundamentals of their cloud revenue. And it's really about the fact that like there's this sort of view out there that Google, you know, they were behind the chat GPG moment happened. They caught up. They were on top. And now, you know, the harness thing happened, everybody's everybody's loving Claude and Google's kind of like not as much in that conversation. And so they're viewed as being a little behind, which I mean on coding they admittedly are. they're like six months behind on coding. So, so I think the market's like, yeah, like, you know, if you were on top with the models, then we would be cool with this spending, but you're not really on top with the models, so we're not. It's like, which is just to me like it's none of it makes any sense. It's like totally illogical.

51:42 >> Yep. >> It's like lot like who cares? Like these are cloud services. Actually, more and more people are using Google Cloud. Like it's actually pretty good in the in the AI era. Like they of I don't know for whatever reason people seem to like it. Like I I just hear I don't have like a this isn't a statistic but just more like a zeitgeist thing like pe people are using Google cloud in a way that they weren't before. Like I didn't hear it was all AWS before. So but that's like they they're serving other models.

52:11 Like that's not like their models that's doing that. It's just actually like a it's a pretty good product for what people are building in the AI agentic era. It's a good place to host all your apps and etc. >> And they're starting to sell chips TPU. >> Right. Right. The TPU business is great. Like you know that's also another fascinating one. Right. like they're they're like making these deal these partnership deals with people because they don't want to spend they want to offload some of the capital it takes to like build these data centers so they're you know they're doing that I don't know it's it's but it's like none of that matter like that's so disconnected from like who has the best models so why is in in that sense it's it's just like AWS but AWS doesn't have the best models so why is the market cool with AWS but they're not cool with Google like it's all so irrational is my point.

53:04 >> Yep. All right. Maybe this one is more rational. Meta drops 10%. as the AI costs increase. Now, I know, okay, you're going to tell us build big computer. It's going to be fine in the end. but the Wall Street >> No, I I'm not I'm not that you're not. No, you haven't predicted me on that. I don't I'm not going to figure out go. >> I haven't figured out the meta thing. I'm like, you guys want to be a hyperscaler or something? Like I see Meta is the thing where I think like I don't know what's going to happen with social media in this in this whole era.

53:40 Like I just like they haven't to me meta hasn't really shown a way through like how do they like their business is sort of getting disrupted or at least like they don't have like big new ideas. They're just like, "We're building the big computer, too, and we don't really have a use for it, so we're going to rent it out, too." Like, like Space Xai. but like Mark Zarker is not Elon Musk, right? And they don't have rockets, and they aren't building humanoid robots. They aren't they don't have the biggest fleet of autonomous vehicles on the road. Like, they're not.

54:16 So, it's like, what are they? Like I just don't to me I the meta one is the is the big that's like the biggest question mark of all the ones that we've talked about. >> >> I don't know how you feel about that. >> Yeah. I mean you know basically on the call the analysts I don't want to say they were begging Mark Zuckerberg but they were basically begging him to turn that excess compute into like a hyperscaler and Zuckerberg goes I think it would be foolish to basically just sell all the compute and take a short-term profit. and the market is just like sell.

54:46 But with Meta, with Meta, I don't know if this is right. I have nothing to sort of say that this is the thinking inside there. But I can't help but wonder if they're just waiting to see if it's possible to build an AI companion. and to date it hasn't been possible yet, but to build an AI companion that like won't like destroy people's lives if it gets an update or and won't tell people to like break up with their partners or potentially harm themselves, right? That has been the issue with that's kind of why I think we're not seeing the proliferation of the love bots. You know, opening I was supposed to do dirty mode but never released that. it's because it's too dangerous right now.

55:25 But if a company can figure out how to like build an AI companion, which I think is going to be even stickier than reals or Tik Tok, because come on, it's just like you've you've built a digital friend that's always there for you. not saying this is a good thing. I'm just saying that like potentially Meta is waiting for that opening and then is just going to go hard on that on that route >> maybe. But I don't think that's a very good business though. I mean, >> that is where I'm like, >> I'll tell you why it is.

55:56 >> Well, because like how much are you will like ask your audience like when you ask them to raise their hands whether they would pay triple the chat GPD cost. Like ask them how much they would pay for an AI companion. Like I don't think it's that much. >> Well, the meta business will be ads and referrals. Now, it won't be like your lover is going to be like, you know, why don't we pause this deep central conversation for to hear from our sponsor Kayak.

56:20 but like maybe you'll tell it one day I really do do need a flight to you know somewhere and it will be like all right I bought it for you and then you know the fagasker air you know gives a kickback or something like that. Okay, fine. Like there's an there's a market for someone could build an AI companion. There are other companies doing that, by the way. And then and they can make some money off of it. Like it's nothing. It's a drop in the bucket, I think, compared to what Facebook is and Instagram, like their their core businesses and and whatever WhatsApp, you know, fits into that. But I just think it's not like, yeah, they could do it, but it's like not that hard of a problem. It's like not that interesting of a problem and I don't think it really makes that much money in the end. Like enough money to to really matter.

57:10 >> Agree to disagree on this one. I This is good. Reed, you and I, we typically agree on so much, but we've been at odds for the whole show today, which is awesome. >> You're never going to have me on. I'm I'm not the champion anymore. You're going to be like, I'm done with >> No, actually contrasting beliefs is great. Like that's I feel like that's the way I learn. So, it's nice. >> let's do one more. Let's do Apple.

57:31 so Apple like you would imagine just delivers like crazy earnings. but the overhang is the bottleneck bros. Basically Apple next Apple saying look we are supply constraint. We need memory for our stuff to work and the guys building the big computer are taking all the memory. And they've already raised pro prices on on on you know MacBooks and and and you know big big computers and soon soon it's going to be your your phone and that will impact sales. Yeah. And so Apple you know fessed up to the market about that this week and and they're getting hit.

58:12 >> Yeah. Well, you know PSA like you can just buy a super cheap phone instead of an expensive iPhone. download chat GBT, you know, and talk to your talk to your codeex agent and have it recreate all of your iPhone apps and, you know, just have it do stuff for you. Like, you don't really need, you know, if you want to save some cash, you don't want to buy the really expensive you know, iPhone, that's how you do it.

58:37 >> I still use an iPhone just >> I just I mean, this is I I I don't Look, take this for what it's worth because it's not based on anything. But folks, if if you're thinking about upgrading to a new iPhone, this might be the window to do it where the 17, which is a great phone, I've got it, is sitting there. It's going to be the cheapest new model that you'll probably ever see. this would be the window. I would say >> the last iPhone. Get a screen protector for it. Get a case.

59:07 >> Do not drop this. Do not drop it. >> This is your last phone. No, it's a tough I think Apple's just in a tough position. I'm not I'm not a big believer in the long term in Apple long term because I, you know, as much as they make great hardware, they make great products, I buy them, I use them, like all this stuff. I just think that cuz I see it in my own life already as a bit of like a like a early adopter on all this stuff. like it. Your phone becomes less and less important. It's it's it just becomes a device that you look at and talk to and that's not how Apple makes its money. It makes its money because you have customer lock in.

59:54 You have photo sharing with your family. You got your you don't want to be a green bubble and blow up the the group chats that you're in and all that stuff. And like ultimately that becomes less important. I think walled gardens or like customer lock in is not as important unless unless like you know maybe I get locked in maybe you end up getting locked into open AI or something right but it's like and I think Apple has a long way to go before they they have the AI lock in so that's their that's their finish line for them like they need to get the like they need to build the most powerful AI assistant that works across platform and they need to do it like now >> and I and I don't think Siri is that. I don't think the new Siri is going to be that. So I'm I'm just I'm just like not a believer in Apple long term for that reason.

60:53 >> The website is semaphor.com. Reed Alberg is the technology editor there. Sign up for his newsletter. Reed, it's really always a pleasure to speak with you. Thanks again for coming on the show. >> Super fun to be here. Thanks, Alex. >> All right. Thanks everybody for watching and listening. on Wednesday, Dave Khan, partner at Seoia, will come on to talk about what AI needs to do to make the bet pay off. And then we're going to go company by company and talk about the strategy in terms of resource allocation that each is pursuing. It's one of my favorite conversations of the year and MG Seagler will be with us next Friday to break down the week's news.

61:29 Thanks again and we'll see you next time on Big Technology Podcast.