Anthropic S-1 Shocker, Greatest Business Ever? Google’s $500B Wipeout, Midterm Predictions

[0:00] All right, everybody. Welcome back to what is of course the number one podcast in the world tweaking all the mid podcasters out there. Four, five years running the all-in podcast. It's episode 295 and Sachs is back. Sax is back. Sax is back. How you doing, brother? >> Good, good. I saw some fake news that Oh, >> you guys had stopped using the term super intelligence. You're getting some shade for that. >> Oh, I listen, we're we're here for this
[0:32] week in super intelligence right now. [laughter] Here we go. I mean, the whole super intelligence. >> It was kind of ridiculous. >> Oh, are they >> and maybe I shouldn't striand it, but they were trying to say that we were using the term AI still instead of SI. >> Who was saying that? This is literally what the press is on. >> Now, this is why it's such fake news. They have a photo of me. I wasn't even on the October 23rd. >> You do look great though. You do look very presidential there, man. If only >> look at this fake news. >> I mean, they're US most influential tech
[1:04] podcast. Well, that's good. But actually, we're not just a tech podcast. We're the number one podcast in the world. Give us >> has cooled on the use of the term super intelligence. And then they tried to say that I somehow was defying the president's instructions. >> All right. >> But I but I want to clarify I was not on the October 23rd episode. So, got I'll be keeping you guys in line on this from now on. >> Absolutely. Well, we will get focused on super intelligence. Uh, with us again this week, your favorite organic farmer,
[1:35] David Freeberg. How's Oh, doing? You've been pretty busy yourself. >> Oh, in Kenya this week. Lots of excitement, lines of farmers trying out true potato seed. >> Your energy looks pretty good. You look like you got some good energy. And um, speaking of good energy, man, we had a fun time playing cards last week. That was a blast. A great dinner. >> You didn't stop talking for seven hours. >> Sort of like the podcast. >> Yeah. It's like a podcast. >> It's unbelievable. It's unbelievable.
[2:05] >> Time. Come on. That was a lot. >> Talking talk. No. Affleck texted me after. I'd never want Jay Cal on the game again. >> I can't out Affleck as a member of the group. >> It's going to be Ben Affleck or you and we pick him. So, you're out. >> You're never getting out. >> I mean, you just kept chirping for eight hours straight. It's unbelievable. He could not >> been at the game for a long time. Had a lot of material. I had I had stored up. >> It was It was really fun though. It was >> so much fun. And Chimat Poly Hapia, everybody's favorite enterprise sales executive from the 8090 Corporation.
[2:37] [laughter] How'd you do this week? Did you hit Did you ring the gong? Did you hit your quota? Or are you going to have to work this weekend? >> Q4 is off to a good start, but I never want to count the chickens. >> Okay, that's that's good considering you whiffed Q3. Um, >> no, no, no. Q3 was okay. We whiffed Q2. butchered it. Butchered it. [laughter] Butchered when I all my fault, too, because I I forced these poor. [laughter] >> I I forced these three poor salespeople to just only focus on the gigantic
[3:07] deals. >> You're learning. You're learning. >> I had to learn the hard way. >> You want to get those singles and doubles and the people who pay on time and and who start the projects on time. >> We'll see in ancest. But like, you know, you can build a ginormous business with singles and doubles. >> Absolutely you can. Speaking of gigantic businesses, Anthropic Ant dropped their S1. That's the document that outlines the nature of the business for an IPO, an initial public offering. And got to
[3:37] ask the question, this seems to be the greatest business in the history of entrepreneurship. Goldman and Morgan Stanley are going to lead the round and they are targeting November 16th, right before Thanksgiving for this IPO. We've been waiting for a long time. It's been delayed. The ticker will be Ant N. And they're aiming to raise, wait for it, $100 billion, in other words, like 3 months of compute. And that would make
[4:08] it the largest IPO ever, surpassing SpaceX. They raised 85 billion back in June if you remember. And Poly Market says our great partners at Poly Market say 78% chance Anthropic raises at least 95 billion. The valuation 1.5 to2 trillion. Here's your Poly market. Right now it's saying between 1.75 and 2 trillion market cap 31%. So yeah, assume it's going to be slightly under 2 trillion. The revenue is the story sachs
[4:42] 16.3 billion in the first half of 2026. That is 14x year-over-year. So in other words, the first 6 months of 2025, 1 14th of what they did in the first 6 months of this year. Q2 is going to be a whopping 11.6 billion, a 30x jump over the last five quarters and almost as much as they made in the first half of the year. They say the TAM, the total addressable market for their tokens and services is 40
[5:12] trillion. That's extraordinary. I don't know how they backed into that, but we'll talk about it. And they're projecting 100 billion of ARR by the end of the year. Now unspecified if that's annual reoccurring revenue or their annual revenue run rate which is a rR like a pirate. They've got $112 billion in cash and a very unique ownership structure. Seven founders, yes they have seven, are going to hold 50.1% of the voting power
[5:43] through a single class F share. Saxs, is this the greatest business in the history of capitalism? It could very well be. I mean, I think this is probably going to be the biggest venture outcome of all time, especially given the time in which this was created. I mean, this is only a six-year-old company. I think the exit here is going to be on par with SpaceX's IPO, but SpaceX has been around for like 20some years. So, this is probably the fastest value creation of any
[6:13] ventureback company in history. And I don't know if you saw, but there was a a tweet this morning about the distribution of wealth this is going to create among the employees. Hundreds and hundreds of employees are going to be making hundreds of millions of dollars and then thousands of employees are going to be making $10 million plus. I mean, this is going to be an enormous wealth creation event like San Francisco and maybe all of Silicon Valley has never seen before. Now, there's a few other data points in this S1 that I think reflected the strength here. So
[6:45] number one is that this $80 billion loss number that we've heard so much about that the media has constantly been pumping and harping on as proof that Anthropic was either a fake business or that we were in this sort of whole bubble. That narrative basically just got completely refuted because it turns out that that $80 billion loss is a phantom number. It resulted from the fact that Enthropic had issued convertible notes to basically their infrastructure partners like Amazon and
[7:16] so forth. And as Anthropic's valuation increased, those convertible notes got recorded as a loss on the balance sheet and that flowed through into the income statement. But it's not a real loss. If they had just issued equity, that loss wouldn't be there. So it was not a cash loss. It's basically a fake number. And in fact, what was revealed in this S1 is that Anthropic has been an extraordinarily capital efficient business. So they've raised something like I think it was around 110 billion
[7:46] roughly and they've only spent about 9 or 10 billion throughout the entire course of this this business and they still have like you said Jal about 100 billion left of cash or cash equivalents on the balance sheet. So everyone thought based on the previous reporting that this was a huge loss-making business. In fact, it ended up being a very capital efficient business. And then the other thing that you saw was that their margins have been improving. I think their gross margin is now something like 85%.
[8:16] And what you see is that for a given task or capability, they're showing roughly 10x improvement year-over-year in their ability to deliver that task. the cost effectiveness of that task. It gets 10x cheaper year-over-year and that allows them to cut the cost of that model or that task by let's call it 50%. And so the consumer recognizes a huge cost savings, but they are able to
[8:48] realize an even greater savings because they're they're able to capture the rest of that efficiency in their margin. And that that's what we basically saw is that again they're cutting the cost of their tokens significantly, but their margins are going up even faster because they're able to produce these models that are more and more efficient and they call them compute multipliers. It's very interesting the way that Anthropic sees their business. The framework that Daario has is that there's raw compute
[9:18] which are scaling very rapidly as well as a result of better and better chips and more and more of those chips and then there's the compute multipliers which are things like algorithmic improvements or better curation of the data or it can be things like uh better architectures more you know architectures things that make all these models more efficient so they're able to give you the same answer for onetenth the cost or they can take those efficiencies and create greater
[9:48] capabilities. So this is what we're seeing is that that business is actually improving and I think it is a little bit of a reputation to all the people who've been saying over the past year that they're getting commoditized away that open models are basically are putting them on a hamster wheel where they're basically going to zero on gross margin or that it's a business that only works because it's heavily subsidized by venture capital. In fact, I think there's a lot of reasons to believe that anthropic has a pretty big lead. And if you believe that recursive self-improvement has kicked in, as they
[10:19] are claiming it has, then their lead could actually grow. Freeberg, your thoughts on the impact of this massive deluge of capital coming in to Silicon Valley and then this corporate structure 51% ownership and what impact this might have on the technology industry, the venture capital industry and then on democracy here in the United States. We've never seen this much capital flow through to uh a nonprofit
[10:49] organization um or whatever they're calling this anthropic uh nonprofit entity, but 80% of the seven founders shares are going into this nonprofit entity of some type. Benefit corporation, who knows what it's going to be structured as. It's optional, but that's another interesting uh shoe to drop. So, take it whichever way you like, in whichever order you like. Can I just comment on the the economic value that's arising from AI that kind of
[11:19] perhaps revealed a little bit in this? So in the S1 Anthropic shows how many customers they have that are spending 100K or more. >> If we take a look at the image here, it's a pretty remarkable ramp in customers spending 100K or more. 200 customers in 2024, end of year, 1500 end of 2025. And at the end of September, uh, 11,900 customers spending 100k or more. So I asked the question, you know, how many customers are there for which a
[11:50] $100,000 annual spend is less than 1% of their total annual spend? And the answer is in the US it's about 200 to 300,000 businesses. Globally it's bit over a million. So, you know, if you just say, "Hey, look, Anthropic's customers that could spend 100k or more and have it be less than 1% of their total spend, the addressable customer base is about a million customers. So, they're only at call it 1% of total customer penetration
[12:23] potential." Now, the question is, is there real money to be made here? So, I took a look at the kind of AI value stack to try and identify who's making money where. And it turns out everyone's making money. So, and I think we've talked about this quite a bit. And I know Chimoff's got some views on this as it relates to the Neoclouds. >> What is a chart? Is this like AI output or that or you? >> I I had I had Claude make this for me as an image. >> Cool. >> Or I should just say my analyst made this for me in my shop. >> Your bot.
[12:53] >> And so, you know, I basically said like start with Nvidia. How much does Nvidia spend to make the chips? And then how much do they sell the chips for? So for every dollar of COGS, every dollar that Nvidia spends, that turns into $4 of revenue for Nvidia, 75% margin. And then that gets sold to SpaceX. And then SpaceX turns around and they're making, you know, an 83% margin on that chip spend because they're kind of looking at a 5-year depreciation. So they spent 10 billion on Colossus one, 5year life, two
[13:25] billion a year depreciation. And so that's kind of the cost per year, but then they're making 1.25 billion a month on Colossus. And then Anthropic is showing in this S1 pretty remarkably to Sax's point that they're making about 85% incremental gross margin on every incremental dollar coming in. It's obviously a baseline of compute spend, but 85% is kind of the incremental gross margin. So at the end of the day, a dollar that Nvidia spends turns into $18 that Anthropic is making
[13:55] selling to customers. And the question is, are customers making money? So we're seeing the customer ramp as it is and the spend ramp as it is and the customers are making call it on the order of two to 10 times the money they're spending because otherwise there there would be probably a retention issue and a decline in spend. Maybe I'm wrong. Maybe it's early days of exuberance and people are losing money and we could debate that point a bit but generally speaking if AI is delivering value to the customers I think this shows that there really is true
[14:26] productivity arising from AI that across the whole value chain there is such margin to be had there's so much value being created all the way through to the customers and we're only 1% or anthropic is only 1% penetrated on their customer potential and probably less than 10% of the spend potential per customer um that this really is what I think Eric Schmidt a long time ago in the early days of Google used to say Google's total addressable market is global commerce and I think for the first time ever we're seeing a business actually potentially starting to realize that
[14:57] theory that if you can create enough productivity gain for your customers that your TAM is commerce and it really highlights that maybe you know we're almost growing the equivalency of the human working population by 100x or a thousandx or a millionx X with this technology stack. So I I just thought like to me it was so striking how early we are but also how incredibly profitable everyone is which indicates there's quite a bit of productivity being produced across the whole value stack. Um those were my biggest
[15:28] takeaways kind of from the S1. I don't know if you guys agree with this but you know it all felt pretty remarkable to me. I'd be curious to know if you guys think I'm I'm I'm a little loopy on being too exuberant in my reading of this stuff. I think the thing that that is probably the most important is the last box that you said where it you wrote assumption where you said assumption, [laughter] >> right? >> Well, how do they measure that? But by the way, I agree with you, but >> the last box I made up. I said assume two to 10x. So, I'm just I have no idea. But I'm a user of Claude. I think we get
[15:58] a lot of value for Claude. I think our people are able to do more because of Claude than they would otherwise be able to do. So, our business grows faster. We can get more done in a shorter period of time. I think I tangibly experience that pretty regularly. I've talked a lot about moving to open source and we have our own cluster installed with our own kind of open source now. But I think what Claude is showing is that they they have such a high margin. They actually have good elasticity on pricing. So they could push price down and you could start to see them start to segment the market a little bit where they could
[16:28] start to be more competitive perhaps with cheaper tokens for cheaper, easier tasks and then premium tasks charge a higher price for intelligence and start to stratify the value of the intelligence that they're providing by changing the price points. And I I envision that's where everyone's going to go. Nick, I'm going to show you. This is to Freedberg's point about what is the potential downstream productivity gains that everybody can have theoretically with AI. Just put that on the screen. This is from Microsoft's earnings. My research team
[16:59] put this together. It's really quite incredible. What this shows you is that Microsoft's revenue went from 198 billion to 332 billion in the last four years. while staff only increased by 2,000 people. I mean, isn't that stunning? Like, you would have thought in before AI that if somebody said, "Great, we're going to, you know, get close to doubling revenues at this kind of scale,
[17:29] >> right?" >> You probably would have thought that headcount would have doubled too. And the reality is headcount stayed flat. And we don't know how many people will take this offer that Microsoft just gave for, you know, to leave cuz I think they offered it up to 60,000 people, but this number could be under 200,000 depending on how many take it. And so just the scale and the impact on the productivity to your point, this idea that it creates job loss, I don't think is true. It's more that you're seeing productivity gains at the same number of human input. And I
[18:01] think that's interesting. I went through the S1. You want me to give you my little S1 breakdown? >> Mhm. >> This is the most incredible business I've ever seen. I hope that they go public after November 11th because it will force them to update with Q3 and then we'll get even more insight into this is like some contraption that I've never seen before. I've never seen a business like this. It's really, really, really incredible. So, let's cross our fingers because post November 11th, you'll see Q3 drop. What
[18:32] people have been whispering is that the revenue growth kind of moderated to sort of like the 50% range. Q4 is TBD, but let's break this down in a bunch of charts because I think it's interesting. Okay, so Nick, start with chart number one and we'll just go through them one by one. Okay, so the first thing that I always read in an S1 is what are the risk factors? And what I had my team do is I said go put together a word cloud. First tell me, >> this is really cool. [snorts]
[19:03] >> First tell me what are they afraid of. >> Okay. And when you look at it, the share of words in the risk factors that are allocated to different risks are very important. And what this tells you is the single biggest risk to the ant business is compute. They mention it more than anything else. And specifically inside of compute, they talk about data centers, power, chips, grid, electricity, hardware, etc. Then a close second but still second is
[19:35] regulation. Okay, they care about government policy. They care about sanctions. They care about export controls. Then it's this idea of zero data retention and privacy and IP. Then it's AI safety. Then it's just, you know, making money. It's then there's their competitors. Then there's governance. What you notice is what are they not afraid of? They're not afraid of customer traction because they they rarely mention it. They're not really afraid of employees leaving because
[20:05] you'd be an idiot to leave if you were inside and they don't really care about taxes and any of these other things. So this is a business that is very much on the forward foot that understands the binding constraint. So now if you know that the the compute is their biggest risk factor then you double click into that. And I had my team run a further analysis, which is to say, okay, how do they describe these risks, right? How many times do they mention them? How many words are you spilling talking about this? And what you find is that
[20:37] inside of the the the compute problem, their biggest issue is really data centers. And then further, it's the financing commitments that they have and it's the power. All of these are really important because again it helps us highlight what the binding constraint is to this business. So as goes data centers, as goes power and by the way this is a great setup for the politicians because it very obvious if you're a Democrat as you read this and I'll speak about it in a second what
[21:08] you should be trying to do to win in 28 versus what Republicans have to do in 28. Right? Basically, the takeaway from all of this is I think Ant is emblematic of the entire AI complex, which is to say it's all about data centers, which means it's all about power. If you're a Democrat, the best thing you want to do is slow all of this down so that there's a recession going into 28. The only thing you need to do is slow down power and slow down data centers. On the other side, if you're a Republican and you want to have the best chance of winning in 28, this is the one thing that must be done right. You must get the power,
[21:38] electricity, data center thing right. >> Okay. So based on this, your premise is they need data centers. If they don't get data centers, it can't keep growing. However, Saxs, the truth is these are the liberal of all liberals in Silicon Valley. It is the largest amount of money that has ever been made by founders outside of Elon Musk. Uh it would make sense to me perhaps the opposite of what Chamat's saying. Shouldn't the Democrats come in and say
[22:08] we are pro- data center and energy because this is going to help society because they want to see Daario and his group win because they are going to be the equivalent on the left of Elon Musk on the right. Wouldn't it be better for them to steal the um the data center charge and make Anthropic even more profitable so that that 51% of all of their or 80% of all their money just flows into Democratic
[22:38] super PACs >> maybe. But I don't think that's the Democratic party that we have today. I mean the old Clinton Democrats I mean Bill Clinton Democrats are long gone. I don't think the abundance Democrats are picking up a lot of momentum. I mean, the Democrat party is, as Gavin Newsome said, is becoming DSA dominated. So, what is their agenda with respect to super intelligence? either to ban it outright as Bernie Sanders and Elizabeth Warren and AOC want to do. They
[23:09] basically want 20-year jail sentences for developers of super intelligence, and they want corporate death penalty for companies that build super intelligence. or they want to have some extremely draconian regulatory regime that would feature a federal department of AI or federal department of SI that would review and approve every single model before its release. Basically, they want to have a DMV for models. So, look, that is that is that is the
[23:39] Democratic agenda on this. Now, could that be shifted through oligarchs like, I don't know, Reed Hoffman or maybe some of these new anthropic oligarchs like maybe a Dustin Mosuit, something like that. Maybe they can through their massive influence in Democrat circles could effectuate a change. But I tend to think that Chimath is right that Democrats want to do anything they can to sabotage the Trump economy and this whole SI boom is what
[24:11] is driving the Trump economy right now. So I tend to think that's going to be the partisan that's going to be the partisan >> impetus. So you don't need to do much. I think free bird to scuttle the Trump economy since the the war, tariffs, and all that other stuff have driven inflation uh and uh all those problems. Wouldn't it be smarter for the Democrats? >> Hold on. I mean, just just hold on a second. I mean, yeah, >> Jake Al, I think the latest numbers from like Fed GDP now, I think it was 3.7% in
[24:42] Q3 and it was 2 and a.5% in the first half of the year. And you could also look at all the capex that's being spent right now on this buildout and it's roughly 3% of GDP. So you could say that all of the economic growth in the United States right now is coming from this super intelligence buildout. >> Concur with that. We can have fun with numbers, [clears throat] but the Trump economy is a disaster according to Trump's own supporters. So let's just
[25:12] call balls and strikes here. his own voters, the independents who flipped over and voted for him, they are very displeased with the economy and that can be seen very clearly in him having the worst approval rating of his entire career and there's been some doozies in that career. Freedberg, what should the Democrats >> I don't think even even those critics even first of all I don't know what Trump supporters you're talking about. I'm talking about the America First people who feel uh that he didn't deport the 20 million people that they still have. I'm just talking about that
[25:42] cohort. You could put Tucker in there. You could put Megan in there. You you know all that sphere. >> Yes, there are definitely people who don't like the war and they recognize that there is some inflation being caused by the war. But I don't think they've said the economy is a disaster. Anyway, whatever. I don't want to quibble with you about if you're not an equity holder. I think you look at this economy and say both parties, Biden and this Trump 2.0. I think the the bottom half of the economy believes that both parties don't care about them. That's
[26:12] that's what all the uh feedback uh that you're getting and and we'll confirm it all next Tuesday and see what happens with the actual voting. Chimath, let's continue your tear down. >> So that was section one, which is you always read the risk factors first. Get a sense of what is management concerned about, right? So again the takeaway is management is concerned really only about compute. This is a compute problem. Okay. The next thing that I always look at is I look at the revenue side of the ledger and I try to understand what kind of business they have. And this is an incredible incredible
[26:44] business. Exactly what Freeberg said. Why? Because at the growth that they have and the revenue that they have they have barely scratched the surface of the commercial working world. And so this is a little bit more of a nuance chart because what it does, it starts to really break down what we think the revenue stratification is by customers inside of Anthropic. So there's about 40 million individuals and small businesses that are spending under 100K. 40
[27:15] million. Then there's about 10,000 that spend between 100 and a million. There's about 1650 that spend between 1 and 10 million and only 250 customers spend 10 million and more. So to your point, I think what Freeberg said is right. The setup is is that these folks can negatively churn into these existing customers and grow and attract new customers at an incredible rate, which I think is just crazy. And so this allows
[27:47] me to think about what is the upper bound of revenue. And you know, you don't need to get to 100% of what's possible. You need to get to 25 or 30%. And then you need to have a reasonable distribution of negative churn assumptions. And what you start to see is that this can be a very large revenue business in the hundreds of billions of dollars in sort of this 3 to sevenyear time frame. Now, what slows that down? As far as I can tell, and this is more of me putting the 8090 hat on, the
[28:17] reason why you have so much traction in the million and under is when a company gets large enough, they allocate responsibility and budgets down. And at the director, manager, VP level, there are millions of humans running around with kind of million-dollar budgets. And so there's a lot of experimentation that can happen inside of that bucket. They're willing to sign up for three, four, five, six, seven, eight, nine things. The minute you sort of transition from a million to like multi-million dollar deals and this data
[28:48] sort of confirms it. It's a much more thoughtful pitch, it's much more crossunctional inside of a company. And you have to show some form of ROI or total cost of ownership advantage. Right? So, what's interesting about this, Jason, is 1,900 companies have been able to make the case. That's what I would say. I think there's a ton of experimentation and I think about 1,900 companies can clearly see an ROI where they can now start to rip in big checks. Now, of that
[29:18] 1,900, a big portion of those are going to be AI natives, right? Folks that are venture funded. So, you have to strip those folks away. And then what's left over is probably a couple of hundred global 2000 type companies. So, I think the ROI case is still a little speculative, but the potential is there. And as long as the potential is there, I think the market's going to kind of price it up. So now that's revenue composition. So then the next thing I think about is capitalization. And I said this before. I said Ant needs to have 200 billion.
[29:49] And I really hope that they actually get close to 250. First of all, let me just say the CFO of Ant Krishna Raalo has done an unbelievable job. The fact that he entering June already had $125 billion is unbelievable. And there's a chart I didn't include, but their total net burn to get there is been like $9 billion or 10 billion. It's just infantessimally low relative to the market cap. So I thought that they had a
[30:20] lot less cash than this. So when I said they need to raise between 200 to 250 and they need to price closer to a trillion, I was assuming they had 30 40 50 billion on the balance sheet, I was wrong. So these guys need to raise between I would say 80 to 120 billion to get to that quarter trillion. And I think in order to do that, the price is probably now going to come in between 1.3 on the low end to 1.7 on the high end. So call 1.5 the midpoint. So, if I had to price the IPO,
[30:52] just eyeballing this, I kind of think it'll come in around5 if I had to if I had to just kind of guess. And the other thing that I noticed is how much cash Alphabet has and also how much cash Meta does not have. I was shocked to see that Beta had negative 1.2 billion of cash. This must be a mistake, but if you look at the 10 Q's as of the end of September, this is what it shows, which net cash. [clears throat] >> Net cash. >> Maybe it doesn't include short-term investments or something. >> I'm going to take a look at Meta's numbers. >> Yeah, it doesn't make sense. >> Yeah, I I'll tell you in one second. Uh your larger point is is right that
[31:23] Enthropic like you said over 100 billion of cash they're sitting on. They've burnt very little of the money that they've raised. Again, their company's been a model of capital efficiency. They're about to raise 100 billion in this IPO. I think they've got about a debt facility with another 80 billion. So you add it all up and this is a company with over 300 billion of dry powder or it will soon have that. So then you've got all these, you know, anthropic bears who are saying they've made all these capex commitments in the future that they're never going to be able to live up to. Well, actually, this
[31:53] secures those commitments because they've got the capital now to basically back up all of those compute orders, all that forecasted capex spending >> till, I don't know, 2030. >> You're exactly right. And because they only have to raise 80, right, or 90 or 100, that's a lot different than trying to raise 150 or 175 or 200, which is where I thought they needed to be. And so the demands they're going to put on the capital markets into the IPO are going to be less, which means that
[32:24] they'll have more pricing power. They'll be able to manage the float better. All of these dynamics, I think, give you a constructive read going into the IPO. Okay, now let's move on because I think here's my biggest take. >> Metaznet cash is negative -2. It is 80 billion of cash and [snorts] short terms and 82 billion of debt. [laughter] >> Wow. >> Okay, now go back to this. What is my big takeaway? It's bigger than Ant. I'm going to build on what Sach said. The entire United States economy is levered
[32:54] to the AI complex. So very narrowly, we're talking about seven or eight companies. That sets the tone for the entire country. And whether we like it or not, that is where we are. Why do I say that? One, the most important companies in the world are in a massive spending binge. Right? These were highly profitable, highly cash accreative, highly cash flow generative businesses that have said we're going to put the foot down on
[33:24] spending because we believe in what's coming into the future. That's what drives GDP and it's what drives growth. Okay, next chart. Now, as they do that though, they deplete their cash and they have to raise debt. Okay, and this is what you see. All but Microsoft, by the way, what an incredible job Satya has done. He's haved his debt while everybody else has, you know, just gone to an unbelievably crazy high number. So, the the AI complex now owes 340 400
[33:54] billion to the market. And you'd say, okay, why is that important? The problem is this. These companies are raising so much money, it starts to crowd out the capital markets. And the most important part of the capital market that it starts to crowd out is the appetite for government treasuries. And what you can see here is that when you look at these AI firms, the amount
[34:24] of money that they need to raise through the end of 27th, it's 30% of all of what Treasury is about to issue in that same period. So they're whether we like it or not, they are going to start competing for demand. Isn't this nuts? It's like you have seven companies that are crowding out the treasury market. And you know, Chimamath, a lot of people are looking at that number and they're trading these stocks down based on that. I kind of view it the opposite, which is I don't these are smart companies. I don't think they'd be making those kinds of
[34:54] investments unless they thought there was ROI there. And so, >> well, there obviously is ROI based on the token usage and the fact that only 1 or 2% of people in corporate America are even using these tools. We are greatly underestimating the uptick here. Claude hasn't even launched a bot yet, a Grock bot. and OpenAI just launched theirs and it's in like a small >> use case when a hundred million or 200 million white collar workers who subscribe to say the office suite right the similar office 365ing happens in
[35:24] corporate America everybody's got five agents running >> I think the utilization of these things is going 500x the token usage is 500x >> that means we're going to have not enough compute and everybody's got the build out >> completely wrong there won't be enough and people are going to look back on this moment and say why didn't you build more compute why didn't you spend more on capex >> you're absolutely right Jason the problem is the regulatory push back the the amount of approvals and the ability
[35:54] for utilities to find the staff and the ability to actually turn these things on and then the ability to get the capital equipment you need it just isn't there right now so we as a country are sort of clogged up we can't do it even if we wanted to do it >> freeberg you know the The other issue here is if we are not spending enough building this out and the country a large percent of the of the country believes in socialism and is against the oligarchs both Republican, independent
[36:24] and democratic oligarchs. This is a this is what they think of us and of the leaders in our industry and other industries. This is really dangerous because we're not going to be able to to build out the compute we need. and and what does that do to the entire industry in the next 3 to 5 years if we if we can't build out this and how do we turn that narrative around so people are like yeah we should have data centers I have a view that humans try to organize into groups
[36:55] organizations to try and create power that benefits the members of that group so you know we form tribes We form communities and in a in a sense governments are a form of an organization. It's an organizational coalition of individuals to achieve an objective for in the case of a democracy the majority of the voters and as a result organizations in
[37:25] a in a world of you know call it pseudo limited resources compete with each other for those resources. nonprofits, forprofits, governments, they're all effectively competing for resources because the individuals that they represent the interests of are going to be served if they get more resources, get more power, get more influence. So to some extent the power of AI and the influence it enables in terms of
[37:56] media in terms of capital accumulation in terms of changing people's minds in terms of aggregating resources through its competitive capacity productivity etc makes it a bit of a threat to government organizations and so to Chim's point if one of the manifestations of that is that AI is acrewing more interest from capital than governments. Governments aren't going to want to let that happen. And the
[38:28] governments, whether they're right or left, are going to fight for the AI to become either part of the government and the government to subsume the AI or control the AI organizations. And this is why I've kind of argued the case. I think that you're going to end up seeing compute get regulated in the future where compute capacity is going to be assigned by government and they're going to pass laws to try and do that post production. That is like meaning they're not going to control the chips. They're going to control the actual compute layer and they're going to determine who's going to get access to what amount of compute. I think for governments to
[38:59] compete and I think one of the ways this is going to play out to Chimov's point is in the near term in capital there's more capital going to the AI organizations and the government. the governments aren't going to want to let that happen. So they're going to try and stop the data centers because then >> I've never seen something in my adult working life where a complex of a handful of companies are effectively competing with governments now for capital because you've never seen companies in an organized manner have one very narrow thing that they
[39:29] need money for that is a one-way bet on something that attracts the same amount of money that would otherwise go to a traditional 2 3 4 5 year 10ear bond. bond auction. It's It's kind of nutty actually. And by the way, >> the story you're going to hear from both sides is a story of which side benefits the people more. And that's going to be the narrative argument, which is going to be every side's going to say the other side's lying. Because remember, if one side's lying and another side's not lying, >> yeah, >> the side that's not lying says, "Hey,
[40:01] those guys are lying and they're correct." The side that is lying deacto says that the other side is lying because they're liars. And so you'll hear both sides screaming, "We are the better path for society. We are the better path for humanity." It's either government or private market AI. And that'll be the huge battle that's going to brew over the next half decade. >> Well, and we'll see which one >> politicians are for sale. And Daario and Anthropic should start buying just like the right did. >> Oh, they already have.
[40:31] >> I don't I don't see them with champions. Where are their champions? Do they have champions yet? >> For sure. Listen, Anthropic even as a startup prioritized government affairs. They were very active during the Biden administration. All those former Biden officials who were doing AI in the Biden administration immediately joined anthropic. >> My point, Sax, is that you don't >> at the end of 2024. >> No, no, I get that. But you don't see them doing what you guys did, hosting a fundraiser for Trump, being out there publicly in front of it. You don't see them.
[41:01] >> Sure. They've they they have spent they've created packs and all sorts of entities and nonprofits all NOS's all that kind of stuff and they have been massively funding it. They have a huge government you guys did like in you know getting out there and funding >> I don't know what you mean by you I don't know what you mean by you guys I did you have your support for Trump I've never seen publicly come out for Yeah. Exactly. I'm not I'm not Can you let me explain? I'm not a corporation. Of course, >> I'm just one person who has views and
[41:32] yeah, I support certain candidates and I do fundraisers for candidates. I'm not like seeking regulatory capture. I'm just one person. >> I'm saying why hasn't the other founders done that? Why haven't they said we choose this candidate, we choose these candidates? >> We don't know that they haven't. How do we know? >> We know they haven't done it publicly because we've never heard them do it. That's my >> Sure. But >> they have given huge amounts of money to pack. >> I agree. They've done it private >> which which is public information and those packs have supported candidates. If they're going to make a run at this, they should do it publicly. >> There's a huge revolving door where Anthropic has been snapping up every
[42:04] former official. First, it was the Biden administration. Now, frankly, they're hiring a lot of former Trump administration officials. Oh, really? >> And Yo, yeah. This and this is all public information. Yeah. >> But they are building a massive government affairs operation. And look, I think you can expect that as they power up through all of this capital, having a $2 trillion market cap, >> that's my point. they're going to have even more influence in Washington or they're going to be capable of buying a lot more influence. And I think that is concerning. I one thing I will say
[42:35] though is that as they go from being a startup to being a public company that's one of the top handful of companies by market cap on earth. It's going to be very obvious that they are a big tech company and therefore they should be treated like other big tech companies which is to say with suspicion as opposed to this being some poor little startup that you know has innocuous views or is not the 800 lb gorilla they actually are. So, I do
[43:05] think it'll be clarifying on that level for them to be seen correctly as what I've been saying is that they are the most powerful monopoly or or duopoly ever in human history, which is they're creating AGI, right? I've been saying that for a long time. So, I do think that them going public will actually rightsize them in the public consciousness. And one thing you're you're seeing already actually is there starting to be a doomer anthropic split. There's a very interesting article in Vox which is this huge doomer publication over the past week and it
[43:36] was quoting a bunch of these NOS's kind of doomers uh that were basically pointing out that you know like anthropic actually if you if you separate their rhetoric from what they actually do they are the ones leading the charge on recursive self-improvement. There's no single company in the world that is uh doing more to race towards full RSI than Anthropic. They are hellbent for leather on getting to full recursive self-improvement. In fact, a lot of the
[44:08] reason why they are becoming so efficient with their compute, the reason they're able to cut costs, offer the same capability at onetenth the price is because they've increasingly been using their own models to generate these algorithmic improvements to create these compute multipliers. If you go back to August, Anthropic published a very interesting blog talking about how they were using RSI and and 26% they had a chart showing that 26% of their tasks that are involved in
[44:39] basically trying to create the next generation of models. They were already were using RSI to do that. Now, that was back in August. So, who knows what they're at now being in October. So, look, they are they are pursuing RSI very very quickly. And you know, one way to think about that whole pacing letter that Daario published a few months ago is it's almost like they're creating an alibi for themselves where they are acknowledging that, hey, we are pursuing RSI as quickly as anyone. And it's
[45:10] almost like they're they're saying to the world, well, we want it to stop, right? Like we wanted to slow down. We tried to get you all to agree to pace, but you guys wouldn't agree to do that, so therefore we kept going, you know? And it's almost like creating an alibi in advance for themselves if this RSI thing goes really bad. >> All right. >> But I think that they had to know when they published that pacing letter that they're not going to get the whole world on board with pacing. So the whole thing was sort of an exercise in virtue signaling. But in any event, I think
[45:41] what it shows again is I do think that it's possible that an anthropic doomer split is coming because there's no way for them to maintain their lead as the number one super intelligence company without continuing to advance the frontier very rapidly and to continue to pursue recursive self-improvement. And that is something that the doomers are most afraid of of all the of all the various risks, right? they are most worried about a breakaway super
[46:12] intelligence. So I do think that this is the beginning maybe of a divorce between Anthropic and the Doomers, but we'll see. >> Okay, let's get back to your breakdown. Chimath, you had the um the greatest uh revenue, greatest business ever built, yada yada. They have a ton of cash. They have the cash for the buildout. They're going to raise some cash in the IPO and they are the all of this bond activity is crowding out treasuries is where you left off I believe. So let's >> exactly. So I think I think you have to
[46:43] go to these risk factors now and think if you're going to price the IPO or if you're going to buy the IPO how would I decide to buy the IPO? And I think at the 14516 it's kind of priced fairly. So there's no deal but they're giving you a an entry price into the future. So then you have to sort of have a view on the future and I think there are two risks. The first risk was what I showed you on their revenue composition which is how long does it take for Ant to show those
[47:15] 10,000 customers the ROI math that they will need to move from less than a million to single-digit millions to tens of millions. Right? That's one very simple thing that you can check quarter after quarter after quarter. As those numbers swell, the reason they will swell is that they'll have defensible use cases and white papers and analyses that make it very straightforward for a corporate infrastructure to sign off, a
[47:46] multi-person executive team to sign off on a multi-million dollar spend. So that's an ant risk and I think that you can price that risk. The second though is what I teased here, which is the risk you cannot price, which is this market risk. The AI complex has gotten so big that it now competes with US treasuries. Why is that an important thing to note and why does that create market risk? Nick, if you just go back to the last chart, please. So when you look at this, what does it mean for
[48:17] treasuries having to compete with Facebook and SpaceX and Anthropic and Open AAI for money? >> Well, it means that somebody is going to have to pay more. >> Now, let's play out one example. If it's the hyperscalers that have to pay more because people believe the flight to quality and the durational risk of the government is better, then all of the money that the the
[48:49] hyperscalers and the AI complex and anthropic and open AAI have to raise will have to come in at a higher coupon. If that's true, then Freedberg's chart is also true, which is that those rates cascade through the ecosystem. the neoclouds will have to pay more. All these other folks have to pay more. What that means is that you increase and you pull forward the risk of defaults which we talked about last time. So you have this negative reflexive cycle there. Let's say the opposite is true. Let's say that you know the AI complex is able
[49:20] to raise money at reasonable rates and it's the US Treasury that has to actually go through an auction and pay more. Now you have the broad-based cost of borrowing goes up because every other part of the United States economy is levered to the twos through fives and 10-year complex. That is a huge market risk that I don't understand because I've never seen before. >> What is the market risk? Explain it just crisply here as we as we wrap. What is
[49:52] the market risk? >> If interest rates go up because the US treasuries have to pay more for people to buy their bonds, then everything else in the economy has a higher cost of borrowing. that has negative implications. If the opposite is true, the AI complex has to pay more and then there's a bunch of negative repercussions narrowly to that to the complex. The problem is we're trying to buy an AI stock. So many roads lead to downside risk more than upside risk. Now, there are versions in which this all works out and everything is off to the races. But my I guess my structural
[50:23] takeaway maybe Jason is we're entering this very weird >> phase in the US economy where >> we've seen this before and we're seeing it now this complex is too big to fail and I think when you start to see these guys representing 40 50% of all capital market equity and debt flows which then in turn represents 30 35 40% of all treasury issuance as well that this competition happens. These guys are too
[50:55] big to fail, which means that there's a different problem at hand, which is a more systemic problem. So, I'm not saying that there is. >> I'm generally highlighting this is confusing to you as a market participant who's on the inside. I get it. What I'll say is I you could actually argue the opposite, Shim. This is the greatest business ever created. It's an American business. The American economy is still the greatest economy in the world. You could argue versus China, etc. But we are running the table on super
[51:25] intelligence. And if you look at the history of the greatest franchises ever made, I I I did a little bit of research and just this is the first seven years of revenue to to back up what you're saying here. If Anthropic hits the targets they've set out, you know, ballpark uh here is getting to 100 and then 300 billion dollars in revenue eventually 600 billion in revenue. They're well on their way. They're at about 100 billion in revenue this year, which is like a third of a Google, you know, a quarter of a of an Apple. And
[51:56] you look at the cumulative revenue in the first seven years of the best franchises America has ever made, which would be Amazon, uh, Google search, cost perclick search, uh, Freaker, Alma, and the iPhone franchise. It's going to become clear that the three best franchises in the history of business in my mind, iPhone, Google cost perclick search and Amazon, which will this doesn't include AWS. This is just books and retailer. You put the books into the the the AWS into it into later
[52:26] years, it gets even more interesting. It's possible anthropics business is bigger than the top three franchises in the history of business put together. And that is something we've never seen. Which means you have no choice but to buy American debt and this debt. If you're a global participant, where are you going to put your money? In France, you know, in China, you can't put it into China. >> I'm confused. >> Yeah. >> Haven't you been saying for like the past year that open models are going to eat anthropics lunch? >> Well, >> have you changed your tune on that?
[52:56] In the face of new evidence, uh you would have to uh say that they are lowering the prices and the opportunity in the enterprise is um is so great that they're not being dramatically impacted by it. You will see anecdotally startups and enterprises exploring it, but it's obviously not enough now that we know their numbers that uh it's slowing them down. It's not slowing them down yet. I'm not debating revenue risk factor.
[53:26] It's still the biggest risk factor. But if you're >> I'm not debating revenue traction at all or business quality. What I'm saying is there are moments where there's systemic risk in markets where everybody goes risk off. And I think that what I am saying very explicitly is I've not seen in the last 15 or 20 years. The last time we came close to this was in the GFC where you have a narrow part of the economy represent basically all of everything that's happening in the capital markets and all that means is that everybody has to pay a lot more
[53:56] attention. Doesn't matter what side of the AI trade you're on whether you're long it whether you're short it that's not I don't think that's important. I'm saying something more structural which is about 10 companies collectively to fund one thing will be competitive with global governments on borrowing. I don't know what the implications of that is because I have not seen that. >> To the point Saxs that you made and challenging me which is great. Their revenue is slowing down dramatically. You know they their their quarter overquarter revenue is decelerating. So
[54:27] obviously it's on a big number. So >> we don't know Q3 yet. I mean the scuttlebot on X and who knows if we can totally believe this is that things did slow down in Q3 a lot but some of that may be attributable to the fact that they eliminated 99% of distillation right so they voluntarily took a big hit to their revenue >> from people stealing from them >> yeah to prevent the copycat models from from basically distilling them so there was that and then I think the scuttlebutt is that since they cut their
[54:57] token cost considerably uh which was done pretty recently. Now the demand has reacelerated. So >> yes, you haven't found in full effect. Yeah. >> Yes. It seems like they're back to resuming their previous growth after a couple of hiccups in Q3. But I think the thing that's really impressive is just that the way they're able to cut their token costs, it it's not just because they're giving up pricing power, right? It's not that they're losing margin. They're actually gaining margin. The reason they're able to do that is
[55:27] because of all the algorithmic improvements they're making >> in order to make their models much more efficient. >> Yes. And >> just just to dovtail with that, Sax, what's happening with the models is even more impressive. >> The they're lowering the price of tier 2 and tier three models, right? Your your sonnetss, your opus, those are getting cheaper. >> But enterprises are saying that's enough for me. So as they make that cheaper, then businesses get more value. They solve more problems out of it. And they
[55:58] don't feel the need to be on the latest greatest fable. If you're a hollow, maybe you need that to do science. If you're a mathematician, you need it. If they can keep making their second and third run models this much cheaper, 10x cheaper each year. The Jebans paradox is going to get even more pronounced because enterprises will use it more. >> Token cost matters, right? We're sitting here with the token maxing cost. Look what what we're seeing is that I mean we we keep seeing Jevans paradox play out at every level which is as you cut the cost of tokens or more and more use cases enterprises use it more and more
[56:29] and the the net result is that the total demand just keeps going up and the total revenue and market size keeps growing. Also, just to reiterate a point that you made earlier in the program, the new applications that are coming all consume a lot more tokens than the ones that we started with, right? Like agents use a lot more tokens than prompting and cyber defense is going to use a lot more tokens than just doing, you know, a pen
[56:59] test once a year, right? You're going to need continuous monitoring of agents, attack surfaces, all that kind of thing. So all the new applications are going to be using exponentially more >> 50 to 100 times the number of tokens. Yes, >> exactly. So the price will keep going down but the market size keeps increasing. I think the biggest risk factor to anthropic I do think it is some version of the open source models maybe not catching them but sort of saturating intelligence at a low price point for >> commoditizing it is commoditizing it for
[57:29] things like coding or you know where there is a big chunk in the market that is still a risk I would say sort of a second order risk is that in order for anthropic to stay ahead and to keep making their models more and more efficient they have to keep using more recursive self-improvement, right? You see this in the charts that they publish that they are using their latest models more and more to discover these compute multipliers to discover these new algorithmic efficiencies. So they have
[58:01] to kind of push the limits of what they themselves call risky activity. I don't know if I fully believe in the doomer story about RSI, but they themselves say that RSI is very risky, but they have to keep pushing RSI in order to keep delivering these algorithmic improvements in order to stay ahead of the open models. And I just wonder how sustainable that is. At some point, do you get a breach with the doomers that becomes irreconcilable? Do the doomers want to basically shut down RSI or
[58:33] basically slow it down to the point where then the open models truly do catch up? I don't know the answer to that question. It's sort of just a more nuanced take on this idea of open models catching up. >> Yeah, and I think um this chart is super illustrative. Uh, if you can pull it up, Nick Gallup's been um keeping a survey of who's using AI at work daily versus frequently defined as a few times a week. And you know, the people using it
[59:03] like frequently versus daily, we're still talking about 10 and 20% here. It's nent. A lot of the top enterprises are not letting their employees use this in an unconstrained fashion and they're certainly not letting them connect their email, their knowledge bases, their notions, their slacks. Big corporations are not letting people actually use the power of AI because they're scared about cyber. So once the cyber threat shimoth gets mitigated, this is going to go from
[59:35] 10% of people being daily users to 60 70 80%. There's so much growth left here uh when every single employee has an agent. I saw just last week Uber bought open a open AAI chatbt for every employee. That's going to be the next shoe to drop is do you buy these things for every single employee. Okay, I think we beat that one to death. Congratulations to the anthropic team and all the investors on making an incredible uh business extraordinary. And uh yeah, shout out to Sachs who predicted this would be the
[60:07] greatest business ever uh on multiple programs. Turns out you got that one correct. And uh we'll see. We'll see what happens. Uh >> but like I said, I I said two things. Number one, best business ever creating this AGI monopoly. Second, they're going for regulatory capture and we should definitely not allow that to happen, especially in light of number one, right? It's just kind of unsemly and gross for them to be seeking red capture when they already have such a good business and they're in such a dominant position. And I think actually that this
[60:38] IPO will be very helpful and clarifying on that because again once they're seen as a big tech monopoly or part of a you know huge duopoly the arguments for giving them like reg to make this market more competitive break up anthropic movement break up anthropic separate the from the tokens from the subscription. It will like if and the who said it? Gavin that they were claiming they were building the last business ever. You know when you
[61:10] look at the other franchises >> Dario said that >> well Gavin said somebody said Dario Gavin said that Dario said that and then actually >> but Dario did not deny it. Remember >> he had this lengthy response kind of said. Yeah. So yeah, I mean I I think they obviously believe it and if you look at that chart I made with the other franchises, they they obviously have an incredible franchise that's theirs to lose when we get the open AI data. Man, then we're
[61:41] going to have all three of the major uh players in this space um disclosing the key information we need. That's going to be really interesting when we have all of the hands turned over in this poker game when OpenAI files. All right, Google got smashed on Thursday, 10 15% down. We we record on Thursdays obviously Q3 earnings wiped out about 500 billion in market cap. Why? For two straight quarters, Google missed on search revenue. Even though
[62:11] searches are growing massively, the people clicking on the ads is not, which leads to a little bit of shenanigans and trying to get people to click on more ads. They're negative on free cash flow. Even though cloud is ripping, cloud doubled year-toear, 30.7 billion. That's the AWS business they have. It's called Google Cloud. It's quite nice. And overall revenue is still shrunk. They're growing 25% year-over-year. The issue is people are looking at that Google cost perclick advertising network and saying well obviously that goes away at a
[62:42] certain point if you just give people the answer right chat GPT anthropic rock they just give people the answer and in some cases they go solve their problem if it's an agent so that is pretty disruptive search business uh is what pays for everything and that grew 12% down from 17% so it's decelerating but it's still growing nicely free this is your alma mada you witnessed the cost per click greatest business ever. This was the previous one that we said was the best business ever created along with the iPhone franchise. What are your
[63:12] thoughts here? Are you worried about that franchise or do you think they've done a good enough job with the other businesses Google Cloud and uh YouTube come to mind? Android in terms of diversifying their revenue. You worried about Google as a buy opportunity or is this stay away? It's a complicated story. I think the core services, the core Google ad revenue is uh a real challenge right now in terms of can they keep the momentum
[63:43] up. Overall, the business trades at roughly 21 times operating income and you get that sort of a multiple based on reliability of future cash flows and and effectively growth of those cash flows. I think the Google cloud business is looking, you know, really tremendous. I mean, I don't know if you guys remember, it wasn't too long ago when this thing was not making money. Last year, the Google cloud business for this quarter was generating three and a half billion of operating income. This quarter, it's
[64:13] over 11 billion of operating income. And this is a lot like the SpaceX AI story where the value of the compute infrastructure that's been built is just tremendous. The question is, does Google actually have the models that sit on top of it? And in many cases, they do. So they can make a higher margin on that piece of the stack. So when I say it's complicated, I think there's a story you can build in the cloud business that shows the next couple of years of really progressive growth in that business. The core Google services, I think, is when
[64:44] it becomes challenging where over the last year grew from 33 and a half to 39. And as some people have pointed out, this may largely be driven by a change in the pricing algorithm for ads and how Google is now in some cases over earning for those uh for those clicks and over time advertisers will see that they'll experience that they'll reduce spend they'll attract some dollars and it won't look as good of a business. So the question then is do they have a consumer
[65:14] AI business that catches up and accelerates to support that? That's the thing I think everyone needs to be watching is what does the AI replacement look like on the consumer side for Google's core business, >> the core cost perclick advertising network when you type a search into Google, that's the core business you're talking to. >> That's the core consumer business. So the question is, is there an consumer AI alternative that starts to generate meaningful revenue to replace that revenue? And what does the revenue ramp look like there relative to the flattening or decline that may arise in
[65:45] core search? and how quickly does that happen? That is a dynamic and challenging question to answer. Now, internally, I think there's a bit of turmoil there's a bit of like what are we? Not just overall as a company, but just even within the business segments. What is Google search? Is it AI? Is it search? What is Google Cloud? Is it the models? Or is it just the compute, the rental of the compute? And I think we saw this battle play out recently where
[66:15] Jeff Dean and others left Google. And I don't know this for sure, but the theory is that the computer scientists that have been building models at Google maybe aren't getting the resources that they had hoped to get because Google can make so much more money renting that compute out to others. And so it's a really hard question of what do we want to be at Google right now. And I don't think that they have a great answer. And I don't think it came across well in the >> ear. It didn't come across well obviously and people reacted Shimoth but they did know this was coming. They did
[66:46] plan for it. They renamed the company Alphabet and they said they got this great CFO. Let's make all these other bets. Fend for themselves. The Whimos of the world have to make their way in the world raise outside capital. So they they did prepare for this in fairness to the team over there. YouTube surging, Android surging, you know, Google Cloud surging, and then you have the the franchise slowing, searches up, but revenue growth slightly down. So, do you think they can fix this
[67:17] or should they just do a bending spoons and get as much money as possible out of the search and put it into other things like consumer AI, corporate AI, and their future models and hosting of other people's models? What are your thoughts here, Jim? I don't think that's what bending spoons does. And not everything is an analogy to bending spoons. >> Well, no. I'm saying manage it. I'm saying manage search. Let me be clear. I'm saying when I say bending spoons, I'm saying manage it for earnings, not for like growing it necessarily. Just just get as many dollars out of it as
[67:48] possible. >> I think that's what they've been doing in the last quarter. That's why pe but people didn't like that. I mean, there was a very interesting tweet, Nick, maybe you can put it up here. I think a lot of the conernnation came from people reacting to what Max Anderson wrote, which got five million views, by the way, and he wrote this through the lens of somebody, and this is these are his claims, so I don't know if they're they're true or not, but spending half a million dollars or more a month on Google for for years, and he itemized
[68:18] all the ways in which things have changed. And the most important thing that I pulled out of here was what Freeberg mentioned, which is the change in the auction model. So typically in a Victory auction, what happens is Freeberg bids, I bid. If I'm the under bidder, what happens is Freeberg gets filled at my price because he was the high bidder. And so it's a really great way of doing price discovery at Facebook. When we built the first ad system, that's essentially what we copied. We copied Google's feature for
[68:49] feature. But if now what they're doing is they've abandoned the victory auction, Freeberg's right, you're over earning. And if the market starts to smell that out, they're going to start to wonder what's actually happening underneath the hood. So these claims, which are now well syndicated, have been out there since July. And I'm not sure that Google IR has necessarily nipped these in the bud because I think what happened was the at least the information war that happened post earnings was recirculating Max's
[69:21] post here and saying this has been going on for a while and when you look inside the comments it's a bunch of other people seconding his analysis as accurate. So without knowing the details, Jason, cuz I don't spend money in the Google ecosystem, I think it's really important for Google IR to get in front of this because I think if this momentum builds, this idea that this franchise is essentially robbing Peter to pay Paul, like pulling money from the future into the present to kind of
[69:52] smooth out earnings, the market will react badly to it. You're seeing it today. But then this other problem starts which is to your point the composition of ad revenue as a percentage of the overall will fall below a threshold and then they do look like more of a structured conglomerate where now you'll have a YouTube revenue block a GCP block and other bets block and a search block. none are dominant, which in some ways I actually think is better because then you're more diversified and you're less levered to any one single business, but
[70:24] they'll have to go through this complicated process where a bunch of folks may not want to own that kind of a business and there's a different buyer pool. So, you have to go through transitioning out the folks that wanted to own a single stock bet on search or ads or whatever it was and now have to move to this other kind of business model. And when you switch buckets like this, a bunch of folks kind of say, "Oh, it's too complicated." So problem number one is what I would say is if you were Google IR, please read this and refute it or try to figure out how to get in front of it because every
[70:54] analyst now will will try to figure out whether this is true. The second though is uh very narrow. How do you keep Demis at Google? That's it. That's the only task. >> Okay. Uh >> there's there's there's nothing else. pay Thomas Curry in whatever he wants. How do you keep Demos at Google? >> Sax's looking at this uh business. It's been obviously a journey for the past 10 years to make Alphabet have resiliency in revenue
[71:25] streams, diversify the revenue streams. You think there's uh some great risk here and would you be long, short, or neutral stock? Well, I'm seeing people post that Alphabet's Google search revenue drop below 50% of total revenue for the first time. And they're making it sound like that's a catastrophic situation. Basically playing into the narrative that the search business is going to be disrupted by SI. And that's what it seems like on the surface, but when I
[71:56] dug into the numbers, it didn't really seem that bad at all. So it's true that Google search's relative share decreased, but its absolute revenue still increased. So if you look at Google search revenue year-over-year, it was still up 12%. It increased from 56 billion to 63 billion. So still a roughly $7 billion year-over-year increase in Google search. So Google search is still thriving. I think you
[72:27] could say it's not growing that fast relative to other businesses, but you're not seeing it deteriorate yet. And again, the reason why the share fell below 50% is because other Alphabet businesses are simply growing much faster. And the main one is Google Cloud, which basically doubled year-over-year to 30.7 billion. So, it's the rise of the Google Cloud business that has made Google Search seem like it's on the decline, but I tend to think it's a good thing
[72:58] that Alphabet is now finally getting some of these other businesses to really work and to really grow fast and to finally diversify the revenue. Diversifying from search has been something they've wanted to do for a long time. They now have all these other segments. You've got YouTube, you've got G Suite subscriptions. So in any event, I tend to think Google's a little bit oversold on this news today. >> I agree. >> Although I'm not certainly not telling anyone to buy anything. >> Since inception and uh maybe past 10 years, you can pull both charts up. We'll go through them real quick here.
[73:29] But this is just this franchise, the number of searches is still going up. The revenue per search a and that issue uh is obviously the one people are concerned with. But the other side of the coin is absolutely correct, David. the other businesses that they're now only 50% dependent on this business and that will continue. So for me, I just literally bought some shares. So I'm long. I just bought more shares of Google while doing the show. >> Just remember, Alphabet owns 6% of SpaceX and like 15% of Anthropic as
[74:00] well. >> I think 85% of Whimo as well, right? Like that's the um the other piece of this puzzle. Amazon also owns a big piece of Anthropic. They're going to be a big winner. All right, listen. That's our time here. Do you guys want to talk about the election ahead of Tuesday night and predictions or anything like that? >> You've been shephering this. Go ahead. >> What are you guys watching on the midterms? Anything you're keeping an eye on, Chimoth? Any big contrarian predictions on what might happen on Tuesday? >> It's so interesting. I'm like really confused. I've started to stop paying attention just because there's so much
[74:30] misinformation that I I thought that we are going to have and I still think what Sachs called a spritz. [laughter] you got a little spritz. >> I think it's more of a Democratic spritz, but when you look at some of the the early data, you know, and I don't know if Brett Bearer was doing this just to kind of hedge his bets or not, but he did a clip which went viral on Acts where it just looked like it was going to be a bloodbath for the Republicans and they
[75:02] were going to lose both sides, both the Senate and the and the House. I think it's still set up to have the um Republicans keep the Senate and the Democrats to have a narrow majority. And just going back to maybe where we started, the mandate from the Democrats then becomes obvious, which is how do you introduce FUD? And there's one way to do that which is to start subpoenaing everybody and start to do disclosure discovery release
[75:33] document after document after document and let you know the the masses start to churn through this stuff going into 28. So number one create FUD and then number two is I think a economic slowdown benefits the Democrats going into the 28 election cycle and so whatever they can do to kind of like influence power permitting and data centers because as we talked about earlier that's the lever bet. So to me it almost doesn't matter what happens at the federal level except
[76:03] for the FUD part. I think we now should be paying a ton of attention to what's happening in these governorships and some the some of these other races. Sax, has your view changed? >> Look, I think that you can't trust any of these polls. First of all, a couple of these polling firms have come out and admitted that they are fake. I mean, we literally have a couple of >> Oh, yeah. There was a hoax, right? >> Fake polls. There was literally a hoax and and those fake polls were included >> in, you know, those averages. So, some of the polls are outright fraudulent.
[76:33] And then the rest of them are well known to have a bias. Patrick Rafini did a study of the last three elections and found that threearters of the polls all, you know, aired in favor of Democrats. So, we see this as a recurring pattern. We saw this in 2024. You had an Seltzer, who was supposedly the gold standard, say that Trump was going to lose Iowa by like 10 or something like that, and it turned out to be total nonsense. So, the pollsters have a history of bias, of
[77:04] fraud, or you could just say, for some reason, oversampling progressives in their polls. So, I think that people should shut that out. I think that some of them are a tactic designed to depress and suppress turnout and Republicans should just go out there and vote. That the economy is not a disaster. That is total fake news. We know what the growth rates are. It was two and a half% in the last quarter and it's tracking at 3.7% right now. Median household income is
[77:34] almost $90,000. It's at an all-time high. Poverty is at an all-time low. I think the percent of people below the poverty line is like 12%. It's the lowest it's ever been. It's not just a K-shaped recovery. You're seeing real wage growth in real terms by the average household, which was not true during the Biden years. So, I don't think people should get psyched out by this media operation to make people super depressed about what's going on. >> Jell, any views? >> Oh, well, I agree. The polling data has
[78:04] been, you know, a suspect for a long time now across many elections. Wedgewood uh did this like they're claiming performance art, but they were kind of serious. I I don't know who they're working for or what the shenanigans are, but I do trust Poly Market. I think when you look at the poly market pretty clear what's going to happen here >> by the way poly market was wrong on Balsinero although I think maybe he got robbed it was wrong on net and yahoo so poly markets are just a reflection of public sentiment or public sentiment that's willing to place a bet and they
[78:34] could be totally wrong so they were totally wrong about about those two national elections by the way I'm not I'm not predicting some sort of you know miraculous Republican win here it would be very unusual for the Republicans to win a midterm election when they're in the White House, right? And you remember that Bill Clinton and Barack Obama both suffered horrendous midterm losses. Bill Clinton, remember, lost in 1994, he lost to, you
[79:04] know, new congrats, the whole contract with America. That was the first time Republicans took control of the House for the first time in 40 years. With Obama, you had one of his midterms was the shellacking. So, it's quite customary for the out of power party to do very well in the midterms. I'm just saying that the media is already portraying this as a tsunami or a bloodbath. And I think it might be a more normal midterm result. That's all I'm saying. So, I in any event, I think
[79:34] people should just go out and vote, not get depressed or psyched out by whatever the media is telling them because the media has a long track record of being wrong and biased. and JL any view um that's different than where we've been in the past >> I think poly market is going to get it right I think uh Democrats are going to win the Senate 68% chance right now on poly market I believe that and house obviously everybody believes that 92% chance so when that happens uh and the reason I'll back that up is if you look
[80:04] at the the net approval rating of Trump uh all-time low the country is very upset and the libs are going to come out in force to vote anti-Trump. the uh the the moderates are either not going to show up and they're not going to be Trump curious like they were for the second term and you know Okamala was such a disastrous candidate they were like okay I got to try something else here and and they went for Trump reasonably if you were going to have a choice between Kamala and Trump I think Trump's the better choice for most
[80:36] Americans and then you have the fractured uh Republican party where the American first people feel really like they got rugpulled by Trump because of the economy inflation didn't solved. The wars didn't get solved and he started another war. So that group's kind of pissed off. So when you put all that together, I think it's a very easy sweep for the Democrats. Then I think, you know, if you want to look at what the next two cards are, if you look at impeachment, you know, that that process, from what I understand, is a a House and then Senate and it's a a legal
[81:08] proceeding. I think we're going to go right back to Trump being impeached and then both houses are going to do that. It's going to be absolute chaos and then the Dems are going to start putting legislation out there and force the Republicans to vote against it in order to scuttle JD Vance's chances. So, this is obviously going to be a chaotic two years and I let me finish. Hold on. Let me finish before So, what's going to happen is it's going to be a chaotic two years. Uh, and I think what will come out of that ultimately is we're going to need some new candidates on the Republican side and they're going to put
[81:39] the the the Trump um they're going to put the the the Trump era to bed. And then I think that means they put JD Vance uh and Marco Rubio to bed. And they're going to need a new champion that is more populist and actually executes on the populist agenda which they feel Trump represented but didn't execute on. That's my and that's not my personal belief. That's just my analysis. Go ahead. >> No, I I think what I'm saying is you think there's going to be a Democrat FUD
[82:09] campaign. They could control the House. They're just subpoena everybody. >> They're going to subpoena everybody. They're going to look into every single accusation of grift >> they can think of and ones that are valid, ones that are not valid, everybody in between. And so, uh, yeah, and then I, you know, um, we have a really good group, uh, by the way coming. So, join us for the all-in midterm live stream 8 to 10 p.m. YouTube X and Poly Market. Shane Copeland, Tim Dylan, Rahm Emanuel, Taylor Loren. It's gonna be chaotic. And >> Taylor Loren, she's on a redemption arc,
[82:39] I have to say. >> Loren, >> she's actually been great on certain topics lately. >> What is going on redemption arc, I have to say. [laughter] >> Wow. Base Loren coming on the pod. Love it. It's going to be a fun time. >> I love Tim Dylan. He's coming on. >> I'm not going to be there. >> Are you not? Where are you going to be? >> What? What do I need to do? a a midterm live stream for >> cuz you're going to lo your party's going to lose so you're not coming. >> If we outperform, I'll pop in and spike
[83:11] the football. Otherwise, I'm not showing you. >> That's not cool. [laughter] Everybody wants to hear you. >> Come on. >> We could We could drink We could drink some tequila. We'll have fun with the sacks. Come on. You can't cry. We should all be drinking the tequila. >> Chimoth, maybe maybe we should get together at Chimoth's house and drink and do it live. I agree with a lot of your analysis about what will happen if the Democrats win JCAL because >> they have not changed their stripes. Okay. People are just forgetting who the Democrats are and what they were like during co all the lawfair that they
[83:41] perpetrated all the crazy woke stuff. It's all there ready to come back. They have not really analyzed why they lost in 2024. They have not really changed or adjusted anything. If anything, they've become more extreme. Right. the DSA is ascendant in their party as even Gavin Newsome acknowledged. So I think that if the Democrats do take Congress, you're likely to see how nutty they are and the American public will be reminded of that
[84:11] and that will be really interesting to to see. So, >> you know, so that's why there's a pendulum in politics, right? >> There is a pendulum. Um, I think we need to Yeah, I mean I I'm wondering who the champions are. If it's not JD and um Ruby, I wonder who the champion on the right will be. I think it's going to be somebody we can't even name right now is going to emerge. And I think the same thing on the left. Anyway, it's going to be exciting. We're going to get Sachs to show up. And uh we'll see you all next
[84:42] Thursday night for our live stream. Love you besties. Byebye. >> Byebye. We'll let [music] your winners ride. >> Rainman David and it said [music] we open source it to the fans and they've just gone crazy with it. >> Love you queen of kin. [music] >> Besties are gone. >> That is my dog taking notice your
[85:12] driveways. [music] Oh man, my habitasher will meet the sun. [music] >> We should all just get a room and just have one big huge orgy cuz they're all just useless. It's like this like sexual tension that we just need to release somehow. [music] >> Wet your feet. Wet your feet. >> Your feet. [laughter] We need to get our [music]
[85:42] all in.