NVDA GTC, M&A Wiz / Goog $32 B Deal, April 2 Tariff Uncertainty; Huawei Belt & Road; ChatGPT
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if we impose high structural tariffs and if we allow this crazy Biden era diffusion rule to stay in place, which makes it hard for us to export our chips, I literally think it's unilaterally disarming America in the race to AI. Yeah. I think it's a very bad decision. And positive for Huawei, right? Correct. It's going to lead to a Huawei Belt and Road. ♪

Bill, it's good to see you. Good to see you, Brad. As you can see, I'm wearing the Florida Gator hat here as we kick off March Madness. I'm very fortunate that the...

The school that I went to and the team that I rode the bench for is at the top of the heap. We're the fourth seed according to the NCAA, but in Vegas, we're number one on championship odds. Oh, really? It's an incredible team, a great young coach, super deep, talented all the way down, four bigs that are all legitimate, incredible guard play.

unselfish I give him a good shot so do you have do you have him winning at all in my in my bracket yes I mean yes but that that there's some bias I will admit there's some bias in there can you tell us who else is in the championship game

Hmm. I'd have to look at the bracket to make sure. Well, I have to say it's good to be reminded that it's March Madness, but it feels like it's global madness just in terms of like the pace of everything going on in the world, you know?

I can't believe I was in Washington last week. And there's a lot of exciting stuff going on with regard to Invest America on Capitol Hill and at the White House. Congrats on that. That I'm thrilled about. The pace of AI, the pace of these changes coming out of Washington, a lot of which I think is really fantastic. But it's certainly unsettling the markets. And then the last couple of days, I've been down at GTC, the big NVIDIA developer event

You know, while there's a lot of uncertainty in the world, you know, I'm super bullish on where all of this is headed. And this is one of those moments at times where I just feel like you have to hold these two competing but simultaneous truths that things really are accelerating and that we're getting ourselves in a position for this period of, you know, the golden age to

But still, some of this caution is warranted in the short run as we try to figure out how it all unfolds. And for those that listen to us regularly, they'll know that many months ago, you expressed this concern that some of the changes were going to create disruption in the financial markets and that you were getting more cautious. And that played out. I guess everything moves fast these days, but that played out extremely quickly.

And so the markets have corrected the Mag 7. I think the cover of Barron's had the list of the Mag 7 and how down they all are. And so, yeah, I mean, anytime you get a correction, then people immediately want to know now what, right? And so has the air come out that you expected and now it's something different or do you remain cautious? Yeah.

I think it was like on February 4th or February 6th, we did that pod and I said, you know, well, I think the golden age will come. The first we have to go through this golden age of uncertainty.

That we had kind of maximum political uncertainty, maximum economic uncertainty, maximum technological uncertainty. That causes discount rates to go up, causes risk premiums to go up, causes multiples to come down. And the first leg of that, I think the NASDAQ is down about 10%.

since that moment. I think a lot of the components of the NASDAQ are down much more, 20%, 30%, right, since that moment. And I think that's just the gas of uncertainty being let out. And just in the last week or so, Bill, we started rolling over to the second potential leg of concern, which is fear of recession and growth.

And so what I would tell you- Which can become a self-fulfilling prophecy, right? Like if people fear, yeah. Absolutely, absolutely. And so in fact, what everybody is now wringing their hands about, right, is where are we today? So I think it's a mixed message. So let me give you a couple of the data points that we're looking at, we're collecting on both sides of the message.

You know, first, I would say that kind of the negative data points have been gathering steam. What are those? Well, consumer confidence is worsening. So this is consumers worried about their jobs is up to a really a much higher level than it's been out over the course of the last several years.

Business confidence is worsening. So this is a record high share of consumers think business conditions, right, are worsening. Then we hear on CNBC from Delta Airlines at first and then from United Airlines and then from Frontier Airlines that consumer demand is really, uh,

taking a hit. And remember, the airline stocks is kind of the bleeding edge. Am I going to fly to Vegas this weekend to watch the games in Vegas? I'm a little bit worried about my savings or this or that. So I'll just watch it at home rather than going to Vegas. And so I watch that very closely and we track it. And we have this really interesting chart that we'll post on

The U.S. supply and airline supply and demand balance. And we're seeing, you know, a real downtick in terms of consumer employment. So this is TSA passenger growth. So that's a leading indicator, again, on the negative side. And then are you able to are you able to tell if it's consumer traffic or business? And people have been talking about government traffic, maybe way down.

I think it's all in there, right? Because it's hard to differentiate between a small business, a sole proprietorship and consumer. So I think it's all in there. And then, of course, if you look at the Atlanta Fed tracker, the GDP tracker, which is kind of this, they call GDP now, it's turned down pretty significantly. And a lot of people, Kevin Hassett and others have pointed out kind of the one-time issues that are impacting this around net exports.

But let's just suffice it to say that that's going down. And then the Fed just reported today that

that things, in fact, are resetting. So literally, but right before we got on here, Bill, the Fed has released their new median dot plot, if you will, for what they think about GDP, inflation, et cetera. So what they just told us is the median estimates of all the Fed governors, lower GDP. So they took their GDP estimate for the year from 2.1 to 1.7. They took their unemployment rate for the year up,

right, from 4.3 to 4.4. And they took their median expectation for inflation up as well, which is slightly concerning, from 2.5 to 2.7. So all three of those things the Fed just told us are kind of moving in the wrong direction. And they're looking at, they're really pointing to the economic conditions, and they're saying the economic conditionings are worsening. Now,

Let's talk about kind of what we're hearing out of the administration and the other side of that. You know, I think one of the keys that people have to get their head around is this administration has a principled view about restructuring globalism. This is that uncertainty, the political uncertainty I was talking about. J.D. Vance gave this incredible speech yesterday, Bill.

At the American dynamism event that Andreessen puts on in Washington. And there were two things he pointed out. He called them the two conceits of globalism.

Right. And he said, this is the reason we have to have tariffs and we have to restructure the world. The first one was that he that he talked about was that he said, you know, there was this view in the United States that we would just whack up the world. We would do all the high value stuff and then places like China would do all the low value stuff.

But of course, they start with manufacturing, then it moves to precision manufacturing, and then it moves to design. And before you know it, BYD is designing a better car, and CATL is designing a better battery system.

and their vertically integrated supply chain around semiconductors no longer is dependent upon NVIDIA for inference. Now they're running inference at DeepSeek on the Ascend 910 produced by Huawei. And so that was the first thing that he pointed out. And the second thing is he said cheap labor is fundamentally a crutch to innovation. And so that the United States has not innovated and industrialized the way that it should have. So my point here is,

that when you think about the administration's policies that is causing some of this uncertainty, right, this is very intentional, right? Scott Bessett, our Treasury Secretary, calls it the American detox period, right? That we need to reset the fiscal and monetary balance in the United States, and that there's going to be some short-term pain for longer-term gain, right?

So I think that we haven't had a clearing event. We're going to have reciprocal and sectoral tariffs announced on April 2nd. And so the market is in this churning back and forth, waiting and seeing, trying to figure out if this tips the economy into a negative light. But I will just say, so what's the positive on here? I would say two big positives or maybe three big positives.

Number one, first, Besant said that he's seeing data points from credit card data and bank data that the consumer is really not slowing down. Moynihan from Bank of America was on CNBC this morning and said that consumer credit growth and bank expenditures from Bank of America were actually up 6% year over year, had not slowed down despite the fact that they're getting a little bit more concerned about the economy. So the real-time data does not look that bad to me.

Secondly, I think that when I talk to managers, and I've talked to a lot of long only and hedge fund managers over the last couple weeks, they're all in their bottom quartile of exposures, Bill. So they all kind of heeded the warning of the market, said, I'm going to get out of the way here for a while. But interestingly enough, they all believe that the back half of the year and next year is going to be really great.

And so there's this, you know, there's this, you know, volume dial where they've all turned down the volume dial a little bit, but they all kind of want to get back in before this plays through. So that's the question.

Are we in for another 5% to 10% leg down? Can we find a bottom for the market? Or are we going to get a clearing event? And I think it's too early to know. How do you square your airline data with those other data points?

Yeah, they asked that question to Moynihan this morning on CNBC. They said, how can consumer spending be good if the airline data is ticking down? And he said, they just shift their spending. So they're spending on local entertainment and restaurants, et cetera, and the bigger ticket items are turning down. He said, but in the wash, and they're looking at $1.5 trillion of consumer spending per quarter,

He said in the wash, it's up 6% year over year. So again, I think when you think about the Fed's median forecast, those are forward-looking forecasts. So I think what a lot of people are saying is the data right now is there's a little bit that's mixed.

But most of the data, the consumer is still holding up. But I will tell you, talking to CEOs, CEOs are absolutely more on hold today than they were before. They want to see what these April 2nd tariffs bring before they make big decisions. And do you have any insight into that or perspective on where that lands?

Because, I mean, obviously everyone's talking about this, but there's a big question as to whether Trump's negotiating or not. And so will the bark be worse than the bite and does what lands is simpler and less disruptive than maybe what was broadcast at the beginning? Well, so I have two strong points of view on that. One is.

This is not a negotiating tactic by Trump. I think that diminishes the administration's principled approach to restructuring globalism. I mean, you really have to listen to the speech that Vance gave yesterday. I did. Whether it's Besant, whether it's Howard Lutnick, whether it's like they have a fundamental view that the middle class was hollowed out.

by, you know, effectively sending all of this labor offshore. They want to re-industrialize America. And so, like, this is not just a negotiation to try to get a little bit more. In that light, Bill, when you think about the tariffs coming on April 2nd, they have said there's about 15 countries. They're going to outline country by country what they call them. I think I heard Besson call them the terrible 15 countries.

Country by country, the trade and the non-trade barriers and what that totals, right? Is it $1 trillion? Is it $2 trillion? They expect a lot of those countries to come to the table. They said some of them have already come preemptively to try to cut a deal. Some of them will come after the fact to try to cut a deal. I don't see...

Like if on April 2nd, we're going to lay this out, I don't see how that can be the end. It feels like a lot closer to the beginning to me of a negotiation than it feels like the end of a negotiation. But I think, you know, there are going to be a lot of things made clear. Like one of the things we've talked about, are there going to be tariffs on semiconductors? There

There's a good argument not to tariff semiconductors because we're in an AI race. Why make it more expensive for U.S. companies? But at the same time, if you just look at, you know, re-onshoring American manufacturing, you would probably say we need to put some tariffs on, you know, the import of semiconductors to incentivize the domestic building of semiconductor manufacturing supply chain. Yeah. I will tell you for what it's worth and, you know,

I'm always open to changing my mind later and would love perhaps to be proven wrong so that I could adopt a different perspective. But I remain, based on all the learning I've done to this point in my life, a big believer in comparative advantage. And I also think that there are people around the globe that want to work harder for less money than people in America do. And they have the ability to improve their life

on a percentage basis from a standard of living or that kind of thing, a wellness perspective, more than someone would hear for the same marginal effort. And

I think because of that, you know, water runs downhill and that's where those jobs want to go. And pulling up, pulling up the wall. I mean, I've said some of this stuff before, but pulling up the wall, I don't think it's going to work. I don't think there's anybody that wants to build a $40 microwave in America. And I look at the, you know, competition in the auto market where China now has, what, 35% of the global market?

And they're producing better cars faster. Like, I don't like, does anyone really expect GM and Ford to reorient themselves overnight? And I don't even think they could because of the presence of the labor union. So I don't, I don't know. I'm, and you and I have talked about

Morris Chang's comments about, you know, why he went from Texas Instruments to Taiwan. And, you know, I guess one day maybe we get to full automation and that's a completely different world. But even if that's what you're encouraging in the U.S., it doesn't bring the employment back. It just brings automation here, which has some value.

Um, but, but, but that's the part that I think is a little between JD's two main points. One of them like vilified the loss of jobs, but I don't think the approach brings the jobs back. He's talking mostly about innovation and, and, and was a little derogatory towards cheap labor, which I, I don't think is the appropriate way to look at people that are trying to, you know, hustle their way up the ladder. Well, you know,

I do think objectively when you look at the facts, I,

there has not been much in the, you know, the bottom 40% of the country has not been, you know, kind of keeping up. I think you make a good defense and frankly, a defense that most CEOs I talk to are in agreement with you. And I would say even maybe a majority of Republicans on Capitol Hill, Bill, are in agreement with you. It's basically an argument against higher structural tariffs. I

I do think that the middle ground for the administration, I think they have a principled, a structured, and a sound belief that unfettered free trade has not been good for America. And they have a view that fair trade...

where the U.S. has appropriate incentives for structurally important industries, whether it's advanced manufacturing, whether it's semiconductors, whether it's steel and aluminum, et cetera, to be produced in the United States. So maybe it's a cop-out by me, but I do believe there's a middle ground here. And if we just try to quantify it for a second,

Last year, we had about $65 billion in tariff revenues generated by the United States. And the real question is, what are we going to? If I told you, Bill, we're going from $65 billion in tariff revenue to $120 billion in tariff revenue, I imagine you would say, that doesn't feel like that big a change. We can absorb that pretty easily. If I told you we're going from $65 billion to a trillion of tariff revenue,

right, that we were going to erect a trillion dollars in kind of barriers, I think you would be more concerned about the impact that would have on the economy, not only globally, but also domestically. I don't mean to put words in your mouth, but would you agree with that? Well, I mean, I would just continue, like, to say, like, like,

When you talk about the hollowing out of the middle class in America, that happened – if you believe that happened, that happened simultaneously with bringing 500 million people out of poverty in China. And so from a global perspective, is that trade – like, is that –

global poverty improved dramatically over that period of time. So you get into an interesting debate. But I also think whether it's through tariffs or restrictions, like protecting the U.S., and I would say this applies to cars and AI and everything else, protecting the U.S. by trying to

somehow injure or disable or hinder a competitor that's in a different country, in the long run, will make us weaker. I believe that fundamentally. You know, listen, I don't think this is about protecting us from global competition, right? If I believe that's where the administration was going, I would give much stronger case for pushback. I think this is about making the playing field more even, right?

so that we're not the stooges on the global stage where we're effectively handing over our IP and our high-paying jobs to them. Because, you know, we're going to see on April 2nd, like there's a firm belief that the Europeans, as an example, are harassing our companies, are imposing standards on our companies, all these non-tariff barriers that probably add up to trillions of dollars.

would be my guess. And that it fundamentally creates an unfair playing field. You're never going to sell a Cadillac in Berlin, but we got tons of BMWs being sold in the United States. And so I'm all for making the whole playing field fairer. I don't really have a great sense for the level of these imbalances. I'm looking forward to exploring those. And it does...

It strikes me as reasonable that over 40 years where we've basically had one party rule, both Democrats and Republicans all promoted free trade and globalism, that there's probably room for optimization.

And, you know, and so we'll see if they go if they over tilt on this. I will tell you this. My belief is that if we're targeting tariff revenues going from 65 billion to a trillion, I don't think the U.S. economy is prepared for that. And I think that pushes us into a recession. If I think we're going from 65 billion to something like 150 billion by just making it more fair across the board. And Scott Bassett has been very clear.

He's like, if they remove the barriers on their side, we remove the barriers on our side, and all tariffs will come down. If that's the objective of the administration, which when I listen to their words, that's what it sounds like, then I think it's a good policy and one the economy will easily absorb.

You know, one thing I would say, and then we can move on and get into the AI stuff. If reproposity is the goal, I really think the communication could be done better. Like that can be calmly discussed if that's the goal. And you can use math and show slides and you don't have to be combative to get

to that goal. And I think you'd be more effective. Not that that's why we're here to guide the administration, but I really think that's a rational argument and bringing a combative tone to that goal, I think makes it harder to achieve and may create behavior on the other side that was unwarranted and unneeded.

Well, listen, I think the reset you've seen in the market, if you said, what is the number one thing that's striking fear into the market, whether they're CEOs, Capitol Hill, consumers, et cetera, it's this fear over tariffs and what it's going to mean for the slowdown in the US economy. I think the Fed median forecast just came down principally because of fear over tariffs and the uncertainty that that creates in the economy.

So we're going to know a hell of a lot more in the next 60 days. And that's why I think you're not going to see tremendous flows into the market over the course of the next 60 days, because I think a lot of market participants are going to wait, right? They want to see, is this really just about making it fairer and flatter playing field? Or is this about starting a new

big trade war, which I don't, again, I don't think is the case. One more comment on that, and then I will force us to move on. Zannie, who I've met, who's the editor of The Economist, was on Farid this past week on Global Square. And she's based in the UK, obviously, but covers all of the globe. She said the attitude amongst the European leaders is so kind of

of angry and chafed that there's a likelihood they may come to trust China more than the U.S. And I just think that's an important reality to consider that that may be happening anyway. Like if you look at BYD sales into Europe and that kind of thing. But boy, you know, talk about, you know, picking a fight you didn't want that that would that would create the opposite of everything we're talking about.

I think for every one of those, I see an equal and opposite around the world. But I would say when it comes to more investment in the United States, I think the president's announced a trillion and a half of new investment. We saw the $100 billion out of TSMC, including, importantly, by the way, Bill, building a new R&D fab.

Like not just, you know, a three or four nanometer, but advanced R&D fab in the United States. That's critical. And so I think we're going to end up in a better place, but we got to get through kind of that fog of war, like we've said. So, you know, don't expect some big snapback in the market until we start seeing these. And remember, all the goodies...

The tax cuts, the deregulation, the better business environment, and this is a good segue to, we're going to talk about WIS and the M&A market. All of the goodies of a pro-growth administration will come when you get the reconciliation package passed. That's a little bit more back half.

And so we're taking a little bit of this medicine up front, this uncertainty around tariffs, et cetera. And I think when it's balanced out with the pro-growth deregulation side of this, net-net, I think it's going to be a positive for the economy. But let me shift gears here, Bill, because this is right in your wheelhouse, something we've been talking a lot, which is the M&A environment in the United States, the IPO market environment in the United States. And we got a blockbuster deal announced this week.

that Google has announced that,

to buy Wiz for 32 billion all cash deal. Of course, most people know what Wiz is. It's in the cloud security area, which is a huge growth area. They basically are monitoring your company's workloads that are occurring in AWS, GCP, Azure, et cetera, and what code can be deployed on those platforms. Rumors are that they're going to do something like a billion dollars in ARR in this calendar year. Yeah.

And so if you look at it, $32 billion, it looks like they're paying something just over 30 times forward revenue for the business. I think the business is probably close to break even. I don't exactly know where that is. Google's total cloud revenue is about $45 billion.

So when you look at this, this is about a billion on 45 or you're buying basically 2% growth. It certainly is not coming cheap considering that Google trades at five times revenue versus these guys at 30 times revenue. They clearly think it's strategic to their business. But the more interesting thing

You know, I tweeted this week and said on CNBC last week, the M&A market is back. People, they called them off the beach. The corp dev teams are back in the office. They're looking for deals. And this one is going to be a key litmus test for this administration. So talk to me about what you're thinking about from the logic of the deal perspective and what this may or may not tell us about the business environment.

folks are entering into with this new administration. - Yeah, and those are both important topics. And clearly the backdrop to remind everyone, it's been really slow going for M&A, particularly with the perspectives that were held during the Biden administration.

as well as the IPO market, which we've frequently talked about. And so anything that starts to open that up would be seen as a huge, huge positive data point for the venture market. I thought a lot about this with respect to Google. And I think in order to understand it, you have to put yourself in the place Google's in. So

huge, huge market cap, top five in the world, clearly has been successful with acquisitions in the past. YouTube, Android came through an acquisition. So a company that's been successful at acquisition and a huge, you know, if they wanted to buy something with stock, they could easily do that too. But where can they spend it? And there's massive pressure from the EU, as you noted.

it's very unlikely they would allow to acquire anything that relates to search, maybe anything that relates to AI, anything that relates to YouTube. So those may be all off the table. So if you put yourself in those shoes and you say you're on the board or you're on the M&A team at Google,

Which of our businesses would we be allowed to acquire in? And, you know, enterprise is one where they don't have dominant market share. AWS did. It's a more competitive environment with Microsoft and others. And you probably could get something done here. And so I can't prove that's how they got to this place. But my guess is that that's how they backed into saying, well, we should acquire something in this space.

Within that space, you say, how could we differentiate ourselves? And AWS was first. I think AWS is considered a little more developer-friendly. They kind of started in that place from the very beginning. They've been more flexible and open in what they offer. Microsoft, I think, mostly...

leverages their corporate customer base and kind of uses that to drive their business. So Google, how can they differentiate? Security, especially in a distributed world, seems like a very reasonable answer to that question. And so I guess, you know,

To put it all in perspective, watching all that, it makes a lot of sense that they would come to this place. Now, they're still saying it might take until next calendar year to get this done. And I think they put up a $3.2 billion breakup fee.

that they lose if this doesn't get approved. So it's not like this is easygoing. I remember when they tucked in Waze in 90 days. Like, even this is difficult, but I can very easily see how they got to this place. And I'm not deep in cloud security, but I can also have a lot of conviction that that's a good idea for an area of differentiation.

Well, I mean, I will tell you this. I hear it from every single company I'm talking to. They're going to be watching this one very closely because people want to get back to the M&A game. And basically, there's been no M&A over the course of the last several years. You know, we certainly – one area I want to cover here is, you know, just the pace at which we're building monster companies.

Right? Hat tip here to Shardell Shaw at Index, to Doug Leone for another legendary investment. You know, this is a business that was started in 2020.

And they're selling it five years later for $32 billion. $32 billion, one of the largest outcomes in the history of Silicon Valley. And those guys are both repeat offenders at home run power law outcomes. So hat tip to both of them. Green Oaks was in this. And listen, Bill, I'll share a little vulnerability here about Altimeter and myself because I've talked a lot about the search industry.

You know, what can we learn from search as we go to invest in these model companies? And I say, you know, think about all the people who got Lycos and AltaVista and all these logos. They were right about the internet. They were right about search. And they didn't make any money. And all the money went to, you know, to Google.

Well, this is a case where Altimeter was an investor with Sutter Hill in a company called Lacework. Right. Right. And it was competing in a very, very similar space. This was the thesis of Lacework. Lacework raised a lot of money, too much money, I would argue, you know, at the time. And they went hard at go-to-market sales.

but they didn't have the product market fit and execution right relative to Wiz. And I remember when Wiz did that Series B and I said, we've got a product issue. They're killing us in terms of how fast they're growing on product. And so this was a case where we lost money betting in this space. And some of these great, great friends of ours made a lot of money betting on the competitors. We've had plenty of wins here.

But this was one of those humbling times, like, what did we get wrong, right, in terms of team and execution? And shows how hard this business is, Bill, right? It is a razor's edge between, you know, the promised land and not making anything because the winners tend to walk away with, you know, a disproportionate amount of the prize. So any reflections, Bill? You've been around this for a while. $32 billion of enterprise value created in five years? Yeah.

Definitely. And I would qualify one statement. You said they made a lot of money. Sounds like that won't happen until 2026. So let's not count the chickens just yet. Yeah, look, one takeaway I have, which my partners don't, they don't think it's fair, but I'm going to say it anyway. Repeat entrepreneurs in the enterprise space are a golden ticket. Like it is so...

So there are so many learned experiences about go mostly I think about go to market that are repeatable that you can line them up and do it again. And I always think of the workday example is like picture proof of this, right? It's the team that built people saw and, and they just came and did it on the new platform and the technology stacks always changing. And when it changes,

it allows for a new entrant to come along and be disruptive relative to that. And this has happened over and over and over again from mainframe to minis, minis to client server, client server to the internet, internet to the cloud. It just happens over and over again. And so if you have a repeat entrepreneur,

and you can, you know, establish a relationship where they're going to want to come back to you again. Shout out to my partner, Peter Fenton, working with Brett Taylor again, which is a perfect example of this. Frank Slootman. Yeah, the odds of success are way, way, way higher.

And as you said, hat tip to Leone, he's been around a long time having to win this big at the, you know, at the, I won't put him to pasture, but at the end of your career, it's just super impressive. But I think it's, I think, you know, the key takeaway for me is that the repeat entrepreneur with a new wave of,

in, uh, in enterprise is probably the best way to increase your probability of success. And even then, you know, you may run into what you did. So it, you know, it ain't easy, but it's a great outcome here. Great outcome for all these people. And let's hope, let's hope it gets approved. Yeah. So, so, so let's talk about that a little bit, the approval process, because I've got a lot of questions because it's not only important to this one bill,

It's important to the signal, right? Are we going to unleash animal spirits around M&A or are we going to quash them before they get out of the gate? So let's talk about the FTC for a second.

The chair of the FTC, Matthew Ferguson, I think there have been a lot of misinformation about where he stands on M&A. And so the headlines that I saw over the course of the last couple of weeks, in particular, there was a quote that I saw Bloomberg and a bunch of other people reporting, where he said, we're not going to be deferential to the C-suite.

We are going to be the cop on the beat for big tech. And people combine those two things and said, oh my God, this is a continuation of Lena Kahn, right? Here we thought we were moving into a totally different business environment, but that doesn't sound good at all.

So I went back and I read the transcript on a couple of his long interviews. And of course, they pulled those two things out of the interview, but I don't think it's reflective of where he stands. So just a couple of data points that I would add to the conversation. One is...

When asked specifically as to whether or not he differed with Lena Kahn, he said really quickly, I've written hundreds of pages of dissents with Lena Kahn. And he said the number one area I differ with the prior administration is that they lingered.

They created a regulatory fear state that nobody wanted to do anything because literally they would bring an action and then nothing would happen. It would just die over time on the vine. And it was like purgatory for all these companies. And so no deals got done. He said, I'm going to be a cop on the beat. But he said, number one, I'm going to go to court or get out of the way and let business thrive. That is a totally different mindset.

Go to court because you're clearly in violation of the law or I'm going to get out of the way and let the business thrive. So that sounds to me like we're going to get pretty quick action here. Like we're going to know one way or the other what they want to do. And then the second point he made, he said, I'm not a regulator. Think about that. I'm not a regulator. I'm a cop on the beat. I'm looking for fraud, monopoly, or collusion.

And I think those two things may well define a very clear and differentiated approach to the FTC. And I think it's going to be reflected here. I think we have an unbelievable opportunity to unleash an incredible amount of economic growth and capital finding its best home and best place to grow businesses online.

with a lot of pent-up M&A. And I will tell you this, when I look in the public market, I see great businesses that are growing 10%, 20%, 30% that are trading at six or seven times revenue. This deal just got done at over 30 times revenue. There's ample room for buyers and sellers to meet in the middle if the United States is truly open for business. And I would argue that, at least in terms of Google Wiz,

the, uh, it, it passes that test. Like it's none of those three things. So hopefully it will move through quickly. Um, and you know, it sounds like, you know, we've got on the, on the flip side on the IPO front, you know, there's talk of core weave, you know, in the shoot, uh, rumors about Klarna. I think Cerebrus is in the shoot. Uh, it'd be great if we see some IPOs, you have any, any perspective or data on what we might see and when.

Um, my data is remember, uh, I'm on the buy side. So when Goldman or Morgan Stanley want to sell one of these things, our phone rings and they want to check market conditions. They want to check what we're thinking, you know, and then eventually, uh, you know, the roadshow occurs, et cetera. And I would say all of that, our phones are ringing. There's a lot of activity, the ones you mentioned and many others. So again, uh,

Think about this. The NASDAQ's down 10% bill in a month. And notwithstanding that, we get a huge M&A deal announced and we have the pipeline full on the IPO front. So this to me is a strong signal that people believe this is much more of a pro-growth

you know, administration that's going to be supportive of deal making. And if that stuff happens, then I will say whatever you think about tariffs, whatever uncertainty is sitting in your mind about tariffs, there's a lot of upside from this activity percolating through. One thing I would bring up and that is pertinent to April 2nd, which is you and I just said that

that Matthew Ferguson, the FTC, may in fact clear the way here. But the question is, what are the Europeans going to say? Remember, they've been the ones who've been the pain in the ass on all this stuff, right? And these companies now have significant presence in Europe. And so if the Europeans continue to bite our ankles, I think this is one of the things the administration is going to point out on April 2nd and just say, like, we can't have this, right?

You can't effectively thwart business activity between two American companies because you're going to sit there and impose these harsh standards from an M&A perspective. And that, I think, is going to get kicked into the domain of the trade negotiations and tariff negotiations. This would fall into the bucket bill of a non-tariff trade barrier that we're going to punish American companies for.

with excessive regulation that, in fact, hurts our ability to do business. So this is going to be interesting to see how that one unfolds. All right. Now, let's switch gears. I understand you were down in San Jose yesterday. Were you at the SAP Center when Jensen –

I hear there were 18,000 people there. And I saw a photo of his leather jacket, I think, has more zippers and buttons than the previous version. He's clearly the new Steve Jobs.

I will tell you, in fact, I was just down there this morning. I saw our buddy Will Danoff from Fidelity and Gavin Baker. You know, everybody is there. I will tell you this, whatever you think about the upside or downside of the stock, and we're going to get into that. We're going to get into their announcements. What I said to Gavin as I was on my way out

is hands in the air in prayer position to give thanks that this is an American company. This is an extraordinary company that's at the heart of our competitive advantage when it comes to national security, economic security, all things AI.

Jensen is in full founder mode. They're executing brilliantly and they're an American company. And so, you know, and by the way, we take that for granted. It's not yet, you know, like I don't think we should take it for granted because we just got done talking about how competitive the Chinese are with BYD. It could very well turn the tables and we could be dependent upon Huawei for next generation AI chips instead of the United States. And so protecting that level of innovation here in Silicon Valley is important, but the,

Let's talk about what we learned. Just very quickly, while you're on that topic, Jensen was born in Taiwan. And as many have highlighted, many of the founders and leaders of all these incredible American tech companies are either first-generation immigrants or second-generation.

And so I do hope I hearken back to when President Trump told the all in crowd that he wanted to staple a visa to every diploma. I hope those activities are underway. I have not seen any visible activities on that front, but I hope those activities are underway.

No doubt about it. I will tell you, when you think about, in particular, the chip companies, Bill, Liputan, the new CEO of Intel, I think born in Malaysia, I think every one of them has a CEO who was born in Southeast Asia, China, or Taiwan. And so I couldn't agree with you more.

Smart immigration, smart immigration, smart immigration, right, is a huge national competitive advantage. And we ought to, you know, we ought to continue to focus on that. So what came out of GTC that's the same or different than what we knew? Let's just start at the top by saying the stock's basically flat.

The stop peaked last year around $150 a share. It got as low as $105 the other day. It's back to $115. On consensus numbers, NVIDIA is trading at about 20 times next year's consensus earnings estimates. That's really low relative to the S&P. It's trading about 24 times this year's consensus estimates. That's, again, lower than the S&P average. So it's

Like this is not a demanding multiple. Why is it trading their bill? Well, people are worried about the demand.

They're like, is AI overhyped? Is the demand going to continue to be there? What about deep seek? What about the competition from ASICs, et cetera? So there is a big wall of worry about this. And even among the Mag7, Apple, et cetera, all of those stocks, Costco's trading at 50 times earnings. So we have a lot of non-tech companies without a lot of growth that are trading at much higher earnings multiples at this point than NVIDIA.

Okay, so a few of the key things that came out of this, and then I'll tee up a few of the debates. Number one, we talked a lot a month ago about DeepSeek, and he was very clear on stage. He said there was a profound and deep misunderstanding of DeepSeek R1.

Because remember, when it came out, there was a lot of fear that, oh, you can get intelligence on the cheap. You don't need as much compute. You don't need to train these big models. He was vehement that that was untrue. And in fact, he doubled down on that bill. And he said the amount of compute we now know that we need, right, today is 100 times greater than what we believed to be true a year ago.

Okay. So that was one of the things that was buzzing that just what is happening to the aggregate demand, the aggregate TAM, if you will, for the market. And so I want to talk, drill down on that for a second, because he showed an important slide that we'll have here, which was industry estimates on what the TAM is for AI data centers. And he said,

Remember, we did this podcast on February 22nd, Bill, last year, where we laid out the data center rollout. And he said that the amount of compute, he was in Saudi Arabia at the time, the world was thinking it was going to be about $250 billion a year. So a trillion over four years. And he said, no, that's wrong by half.

We're going to do $2 trillion of TAM over the next four years. So something closer to $500 billion a year of new AI workloads, right? So data centers supporting new AI workloads. And then replacement data centers, you know, so these are, you know, x86 architected data centers that are going to move to accelerated compute.

Well, he doubled down on again at GTC. And now he's saying that it's going to be a trillion dollars per year by 2028. So we'll include this side, but we reforecasted the slide we did last year. This is both new AI workloads and all of the existing data centers that he believes will be rebuilt. And when they get rebuilt, they're going to be more accelerated.

So that's going to a trillion a year. So the market is growing much faster than people think. Now, why is this happening? And I think he used a really great example. He said, as of today, you think about somebody who's writing software and they're basically hand coding the software and they can do that without accelerated compute, right? And so you're just working on a normal database in a normal data center. And he said, but by the end of the year,

Right? Most code is going to either be refactored or written from the start using machine learning. It's going to be coding agents that are helping to do that. And those all require accelerated compute. And so if we listen to Mark Zuckerberg or Elon Musk or Sam Altman, they're all saying the same thing, that coding agents are going to come, they're going to displace a huge amount of the handwritten code that was previously getting done on CPUs

And so that's the type of thing. He showed some queries and the reasoning models and why that's multiplicative and leading to much greater demand. But those were, I would say, at the high level. He really made the case that demand is exploding.

across all of these different workloads, literally from, he said this morning that robotics and autonomous cars was already greater than $5 billion revenue run rate for NVIDIA and growing very fast, he said. So they have, from synthetic biology to robotics to

to physics, to all the stuff we see in consumer, to enterprise IT. They have this incredible stack across CUDA, which is multiple layers of software. And then finally, he said, remember, we're not in the business of building chips anymore. That ship sailed a long time ago. We're in the business of building supercomputers. Blackwell is 40 times more capable than Hopper was.

And that the demand is off the charts. And so, you know, notwithstanding that fact, I think the market's checking them at the gate and they're saying, we'll believe it when we see it. And I think a framework for thinking about NVIDIA at this point is this is probably a company at 2.7 trillion that's going to grow at whatever the rate of its earnings growth is, Bill, right? You've seen all the multiple compression you're likely to see.

I think in that regard, you know, they can grind a lot higher. I'll give you my reflections and feel free to push back. One, as you already said, the market didn't move, which implies, if you believe in the efficient market hypothesis, that there was the full absorption of data, neither positive or negative.

Right. Of what was said relative for what expectations were to, I do think there continues to be, and maybe we should just find a way to put a pin in it, but this, this argument about scaling or not scaling that I think no one's in disagreement on the reality, but a bunch of people like to argue it in funny ways. So I do think that,

Most people believe that the pre-training scaling, if it hasn't topped out, it's at least slowed materially. And even NVIDIA is talking about inference being 99.1. And so the scaling is more on inference. Everyone seems to agree with that. When they say everyone got it wrong, I think that falls into that category of that

this kind of nuanced discussion where the bulls don't want to admit that anything isn't scaling. And, and the analysts are just saying, well, it's shifted a little bit and that might matter. Anyway, we can forget about that on the token count thing. Um,

No one in the previous world, let's call it Intel's heyday, talked about the CPU units of performance. Like how many times the CPU transacted. If they had, you would have had crazy exponential numbers also. It wasn't discussed that way. And so no one's counted the CPU clocks that have happened over time. So I do find it like...

kind of be an ultra promotional way to talk about things, to talk about the token count, just because we haven't done that in the past. On Rubin, you know, and I'm biased because Benchmark's an investor in Cerebrus, but, and I would expect this in a more inference-focused world,

You know, Rubin, which is their next gen, they started talking about there's way more on the dye and the dye is getting a lot bigger, which is the direction of cerebrus. So that one kind of confirms to me that we're moving more towards inference. And then the other thing that I thought was interesting and I'd really love your view on is,

He got up on stage and talked about being the chief revenue destroyer. And it was very kind of provocative. And I don't fully understand. I think he may have created a bit of anxiety in his customer base because he was implying that this next generation is so good that it makes the previous generation quite unvaluable. The problem is the companies he's selling to

you know, within the past three years, move from a four-year depreciation to a six-year depreciation on these servers. And if he's going to kill them in two years, there's a kind of an economic problem for these customers. Yeah, I don't, you know, I was there for that.

you know, and it was, I think an off the cuff remark that because the Blackwell generation, the GBs that they're currently selling, not the future generation, the current GBs are 40 times more capable, right? When you look at TCO, uh, uh,

than the hopper generation. And so he said, you know, we're probably not going to sell a lot of new hoppers for the cutting edge stuff that people want to do. So in fact, he showed a slide of the CSP demand. So the top four cloud providers in the United States and what the year over year order was, you know, hoppers, 1.3 million hopper GPUs to the top four CPUs

and comparing like time frame. He said, we've done 3.6 million Blackwell GPUs so far this year. And I think his point really there was this...

The pace of scale up and scale out, Bill, and how much utility that provides to the end customer. And the point is, because we're investors in CoreWeave, we talk to CoreWeave or we talk to the CSPs. The reason they're elongating the depreciation cycle is because the way in which they build these

is all the software upgrades flow naturally through to Hopper. So Hoppers continue to get better over time, even though you've got the same chip deployed. And remember, for inference, Hopper's great. You just wouldn't choose to buy more Hoppers today because the new chip is a better TCO than the old chip was. It's not that the old chip wasn't the right thing to buy at that moment in time. And I would say the same thing is going to be true about Blackwell Ultra.

What I think is when you're on the pace that he is, he's got 35,000 employees. They're executing blisteringly fast. They've got the best supply chain in the world. And I think it puts tremendous pressure. Like, I think the gap between him and AMD, you know, NVIDIA and Intel, NVIDIA and all these custom ASICs,

In fact, he made a comment that I think roiled some people. He said about the custom ASICs, he said, don't you know that the vast majority of custom ASICs that get designed and get taped out actually never scale into any commercial production?

And we hear that Tranium is now cutting their cost, you know, on AWS is cutting the cost on Tranium chips to try to get a lot more customers. You usually don't cut costs on things, right? When things are going great and you've got a really competitive product. I think Tranium's not even competitive with Hopper, let alone with where Blackwell is today. And I think, you know, Jassy would be the first to admit they're buying as much NVIDIA as they can get their hands on. So I

I don't, I'm not worried about what that comment means for their release cycle. I think this is one of the few companies in the world that paints a, you know, can you imagine if Apple took the stage today and told us what was going to be in the next four iPhones, right? They'd never do it. They don't know.

This guy is planning out where the next four generations of the product is going to be. And I think he's got an incredible path. He introduced this new improvement around photonics, which I think is pretty incredible. If they execute against the plan, it's going to be a lot bigger business. And I don't see many people able to close...

you know, to close the gap on them. And I think they'll stay ahead of the rest of the world. So that was my take on things. You know, question back to you. Yeah, go ahead. Go ahead. You know, he said this morning that he doesn't think, he said on CNBC, I don't think tariffs will have a near-term impact on our business. And there's a lot of talk, Bill. We've talked here recently

about the Biden AI diffusion rule, right? That makes it much harder to sell these chips to like 50 countries, this convoluted system. We've talked about, you know, the fact that Chinese export controls are likely going up. We're going to get this announcement on sectoral tariffs on April 2nd. Do you have any points of view or any thoughts about what we should be doing with regard to, you know, those things

and NVIDIA. If you were the president, would you be imposing higher export controls? Would you be getting rid of the diffusion rule or keeping the diffusion rule? How would you think about it? Let me make one brief comment and then I'll answer that question. I do want to...

agree with you on one point. I'm looking at a list. Oh my God, you're going to agree with me on a point. Well, I don't think our job here is to just agree with each other. It'd be a very uninteresting podcast. So I try and maybe create an alternate viewpoint. But I look at the Mag 7s

And I'm looking at them ranked by market cap. And if you ask the question, I think you would agree with this. If you ask the question, which of these companies is executing the fastest right now? And which of these companies is most exposed to global trends? NVIDIA would win both of those, correct? Correct.

Yeah, I mean, listen, it's a smaller position than it was the last couple of years because all of our position sizes are smaller as I took down risk at the start of this year. But again, I don't expect this is going to be one of those flash in the pan. Oh, it's up three X because multiples expand a lot. I'm assuming multiples stay largely the same and I just get the benefit from the great execution and the top line and the earnings growth of the business. And I will say, you know, this slide that I showed you here, Bill,

Wall Street consensus expectations are basically that NVIDIA tops out at $250 billion of revenue. Like somehow there's like this ceiling there. And if you believe that to be true, then their share of the market falls off a cliff because the market's growing really fast. I don't think they're going to lose share of market. If anything, I think they probably gain share of market in a fast-growing market. But I do think back to these –

The diffusion rules, there are a lot of people who are around the rim at GTC, and they are very worried about tariffs. They're very worried about the Biden era AI diffusion rule. They're really worried about Chinese export controls. So I just thought I'd get your opinion on that. Well, look, I said it a few weeks ago. I think the number one risk on the stock

is government action from DC. And a lot of people have been asking questions about the percentage of their revenue that goes to Singapore. And then they replied and say, that's billing, not shipping. And then people say, well, where is it being shipped to? And there's all these questions about deep seek and where they trained. And I certainly think that it's impossible to stop

a startup from any country from traveling to Europe or Malaysia and running a model. Like, I don't know how you're going to prevent that and moving the bits back. And so I don't think there's a solvable problem, but I also think there's a lot of angst

in DC about China. I think a lot of it's misplaced and overly angry. I think your friends at OpenAI added to that last week by putting out an anti-DeepSeek paper that I thought was quite sad. Like if a company like GM or Ford were to put out a paper like that about BYD, we would look at them and go, oh, you just want the government's help. You must be uncompetitive.

And so I don't know why we would think about that differently from one of our leading AI models. But I do think that these people have a lot of power. I think it's a bipartisan issue. And I think it's the number one risk on the stock, flat out. You know, my view on this is if we impose high structural tariffs—

And if we allow this crazy Biden era diffusion rule to stay in place, which makes it hard for us to export our chips, I literally think it's unilaterally disarming America in the race to AI. I think it's a very bad decision. And positive for Huawei, right? Correct. It's going to lead to a Huawei Belt and Road. Listen, I already think this has backfired against us.

DeepSeek is running inference on Huawei 910s because they may not be as efficient as NVIDIA, but they just throw a hell of a lot more power, which they got a lot of in China, at these chips, and they can do it. And part of the reason...

China has been forced to build a vertically integrated domestic supply chain, literally from design to fabrication around chips is because the United States made it super hard for them to get their hands on NVIDIA chips. And so we really have to ask the question, did we achieve our mission?

And there are a bunch of people arguing, well, we need to even throw higher export controls on China. You know, listen, I don't want to do anything to make it easy on China. I'm fine trying to slow China down a little bit. I just think it's a task –

in futility. There's no denying they already have frontier models. They're releasing them every day. Their frontier models are smaller. It's the deep seek moment. Now, Baba has one. ByteDance has one. That horse is out of the barn, as we've already seen with BYD, as we already saw with CATL. China is going to have frontier capabilities. The bigger issue is this, Bill, on the diffusion rule.

right? Which the Trump administration ought to, ought to throw away and start over. This diffusion rule will make it hard for us to get chips to Saudi Arabia, to the UAE, to India, to, you know, our friends in Southeast Asia. And it makes it hard through this regulatory capture that some of the U S CSPs put in place, you know, all these hoops they have to jump through. And I just see Huawei walking right through that door, uh,

and beginning to run the table globally, like frankly they've done. Remember, they said this would never occur in telecom equipment, Bill, because of Nortel and all the highly capable telecom equipment of the United States. Huawei ran the table across the globe with Huawei gear because the U.S. did this. Like we ought not make the same mistake twice.

By the way, I think it can go further. Like every time I've listened to ASML, who's I think a Dutch company, is that correct? And someone that has dominant market share, like 80 or 90%. When you hear them talk about the restrictions that the U.S. government has put on a Dutch company to sell into China, I always hear this kind of reluctance and a bit of being angered that this company

the U.S. thinks they have that authority. And then you take what I said earlier that came from Manny at The Economist. You know, I could easily see us provoking Europe to the point where the ASML team just says, well, screw it. We don't care what you say. We're selling to China. And I think that could easily happen. So I don't know. I think we've got to calm all this down a little bit. Well, one of the things that, you know, maybe we'll wrap this little section here.

When it comes to what we ought to be allowing China to participate in here is like I totally agree back to the tariffs issue.

that it should be a strategic objective of the United States to re-onshore fabs, right? And you and I have a bit of a disagreement on this. You know, it gets back to this Morris Chang. Morris Chang says it's too hard to do. U.S. workers don't want to do the work. They don't want to live in dorms. They don't want to do the six days a week. I

I don't think we need to do that. I think with the level of automation that we now have in fabs, and I think given the strategic national importance of having these fabs, I'm happy that this administration has put the pressure on TSMC to build their next generation R&D lab or fab in Arizona. I think it's achieving the desired results. What I would hope that they would do is maybe announce tariffs, but make them conditional bill. They say, if you don't do these things, TSMC,

TSMC, NVIDIA, et cetera, and prove to us that you're building manufacturing capabilities back in the U.S., then we reserve the right to hit you with tariffs, but we're not going to impose them today. We'll have a two-year delay or whatever while we want to provide the incentive, but we don't want to slow down U.S. companies in the race to AI. I think that would be a terrible mistake.

And so hopefully that's the middle ground, the administration, you know, guided by folks like, you know, Scott Besson, David Sachs and others find their way to. I think that would be a reasonable middle ground. And I think it is a great objective to get this stuff back in the United States. But maybe to wrap here, we can hit on a topic that you and I talked about the other week. And this gets back to this couple questions. One, just thinking about, you know, we had the launch of Grok.

you know, Big Bang, the launch of DeepSeek. Maybe we just check in a little bit. Gemini's had some updates on where we are in the state of consumer AI demand. And importantly, the topic that I've been reading about around contribution margins, you know, like even if revenue is growing, are they selling dollars for 50 cents and are they losing money on each incremental, you know, unit of business?

I'll kick it off by saying this.

When I look in the App Store, DeepSeek jumped up to number two and was there for a couple of days. ChatGPT was at number one at the time in App Store downloads. Now DeepSeek isn't in the top 100 last time I checked. When Grok jumped up to number two for a few days, last time I checked, it's now around 65. Gemini never really jumped up. It's hanging out around 55.

The point being, and ChatGPT is still number one in the App Store.

The point being, I've said about consumer markets now for a while that all my pattern recognition from Google and Matter is that these tend to be winner-take-most markets, that it's almost impossible to dislodge the inertia. You can't get there by being slightly better. At this point, you're going to have to be 10x better than ChatGPT to slow down that inertia. That was the learning from prior markets.

from these prior periods. And now we've seen the reports, over 400 million weekly average users. And I would tell you, I believe that OpenAI is massively supply constrained. I think they're building these two huge campuses, data centers, one in Abilene, Texas, the other one in Denton, Texas, one with Oracle, one with CoreWeave.

And I think they have to build all that just to actually launch the products that they currently have. That's not even supporting future growth. It's just like supporting the demand they currently have. I think they have four or five products literally sitting on the shelf because they don't have the compute to deliver it to customers. Any thoughts there, Bill? Like, have we seen, do we know the winner already in consumer AI products?

Well, I mean, I think your argument is very, very solid. Like, I don't think there's any data points that would suggest that there's an immediate threat to that. I would think that the powers that be at Google and Grok, you know, and Meta and Amazon, you

Must be up at night all night trying to solve this problem. And so I guess Netscape had Microsoft. OpenAI has four or five of the most powerful companies in the world aimed at them. And so you're right. They have a lead. It could be insurmountable. They have...

you know, all the King's horses and all the King's men behind them. And so it'll be interesting to watch. You know, we've talked about the thing. I think if someone crushed voice, it might give them an advantage to move fast. That might be particularly compute intensive, which we'll get into our next topic. But for now, I don't have any ability to take the other side of your argument.

Well, you know who the couple I didn't mention there? I didn't mention Meta, right? And we know those guys are in full beast mode, but they've been unusually quiet. Like, I'm actually shocked how slow we've seen any change there in terms of a standalone consumer app. I know it's coming, but I've heard it's been coming for a long time.

and or even the integration within their existing apps. I'd love to talk with Zuckerberg about that. And the other one is Apple, right? And we've talked about that again, just not seeing any real change there. And in the meantime, I'm seeing, I think the stuff that we're going to see over the course of the next

eight to 10 weeks out of OpenAI as they get these releases teed up, I think it's going to be pretty profound and continue to add pressure to that lead. But let's ask the question. Wait, wait, wait. One thing I have been thinking about. So I do think that DeepSeek

by choosing to be more open than Lama. And the key area, they're more open than Lama. They don't have these caps. And so Lama and Mistraw and a few others, they claim to be open. But if you get too big, you have to go pay the piper. And so, you know, and there's always been a continuum of open source. Like it's always every company chooses their spot on that continuum and tries to see what they can get away with.

Because deep seek is so prevalent in the enterprise right now, my point of view, and it's been forked like 1500 times on Hugging Face, like, and for all the reasons open source works, that's why that's happening. I do think it's an interesting moment in time for meta in particular to consider maybe going left and getting even more open with Lama. Yeah.

which I think would be really powerful for them. And this probably won't happen, but even OpenAI could consider doing that. If you're right that they're a consumer product company, there's not much risk in taking that leap.

and it would undermine anyone else that's trying to compete based on the quality of their proprietary model. So anyway, I wanted to bring that up. Where were you? Well, listen, you've been appropriately tough in asking questions about the gross and the contribution margins for these businesses, right? And so I saw a report recently on Anthropic.com

suggesting that they had lower contribution margin. So let's just first just unpack what that is. So contribution margin is basically, what do I have to pay as a variable cost to

to provide the service that I'm providing. So in the case of Anthropic, most of their enterprise API, I believe is sold through AWS. And they have to pay a huge customer acquisition fee in the world of Google, we would call it TAC, probably to Amazon. And then of course, you have all the costs that

that you have to pay to actually serve the model, right? And there's a variable cost associated with serving the model. And when you take those two things into account,

Because of the large percentage of their revenue that is indirect, they have very little or no contribution margin, right? So no net revenue really flowing through the P&L. Now, juxtapose that against somebody like OpenAI, where almost all of their business is direct. So they don't have to pay traffic acquisition costs or rev share to anybody. Right.

Right. Which obviously you have to that has to be the business model because the cost of serving these things are expensive. Now, of course, both of those things ignore, Bill, your overhead and your training costs. Right. And so that's truly fully loaded. But I'm just looking even at the contribution margin level, because if you're not if you're not meaningfully positive at contribution margin, then you have no chance of covering the cost on a fully burdened P&L.

Yeah. So, so, so here's, I've been thinking about this a lot. I will introduce, let's just call this loosely and, uh, and a first draft, uh, an idea that I'll call the girly negative gross margin AI theory. Okay. And here we go. Cause my brain, I can wander in some pretty interesting places all by myself, but a lot of people have been comparing, uh,

things to the internet revolution. And, you know, I know why they do that. There's so much excitement, you know, for all similar reasons. And so they want metaphors and comparisons. In addition to that, I would say, and you just explained it, the unit economics are messy here because you have, you know, you have variable costs that is, especially if you're buying, you know, your compute from someone else.

You may have CapEx. And then there's a question of, are you depreciating that over how long? And do you charge the unit economics against that? Some of these players have credits that they were given by the large platforms as investors. Do you really take that into account or not? And in addition, you have tons of VC money. And so if you're going to raise billions of dollars, you're going to have high burn rates. These things just are

are part of the game. In addition, I think there is a mindset that most people

VC markets are winner take all. And so you can't lose market share, right? It's just, you can't lose market share. So if you can't lose market share, how do you price? Do you price to market or do you price to cost and value like you would in an economic textbook? Or do you just price to market? Meaning I can't lose because of price. And so it becomes a buyer's market.

I'll create a theoretical example because I think there's also an issue of stacking. Let's say you have, and let's not pick on any company. Let's say you have a large model provider that's buying compute from a hyperscaler.

And then let's say there's a startup doing voice for the enterprise on top of that model provider. And all these people are buying compute from the one below it. If those second layer and the third layer are both negative gross margin, the consumer is buying compute from the hyperscaler at a price that's lower than they would if they bought it directly.

because it's being subsidized by two players in the middle. And on top of that, if this is true,

You're triple counting revenues, right? Like there's a transaction that a consumer is making against this model, but because it's negative gross margin, you're literally adding it up three times. Same thing would be true if you were, you know, in a really what people would consider a shitty business. If you were just, you know, a global distributor of retail products and you're taking 5%, although here it's negative. And so, yeah,

This theoretically could be happening out there. And you pile in the tons of VC money, the fact that everyone believes these markets are winner-take-all, the fact that the founders are likely unsophisticated financially. I'm not taking shots at them. They probably haven't had a lot of finance classes. And you don't have great visibility on unit economics.

It's set up to be messy, and you could have substantial resets as people get in touch with unit economics. When and if they're forced to, and that's a very unpredictable time window of when that would happen.

This is a theory. I'm not suggesting it's 100% true. It's possible this is going on. Well, listen, I think the one place I would absolutely agree with you, Bill, is that the unit economics and the ability to compare across these businesses is messy. That's number one. Number two, what I would agree with you on is in no way are these business models proven yet to be anywhere close to as good as Google. Remember, Google raised less than $50 million before they went public.

And so Google was able to do what they did with very little upfront capital. And then their unit economics from the very start were profitable. And this is a really important point. In the internet, the businesses that work, the marginal unit cost to serve a customer were near zero. Were near zero. For Google, which is partially why it was so economically efficient. I think that was true for Meta also.

Right. And I will tell you, so here's my takeaway. For whatever AI companies emerge with a consumer business model or an enterprise business model where they fully control the top of the funnel,

where those people are coming to them at almost no incremental cost because their friend told them about it or whatever. There's no marketing cost. And so your only cost is actually serving the inference to support that customer. I think those will have a unit economics that are exceptional at maturity look a lot like the internet companies. But I will say that right now you hear these top line revenue numbers. And the first thing you ought to be asking yourself is who do they have to pay to get that revenue?

And what are they loading in terms of their variable costs against that revenue? Time will tell, but my sense is there aren't very many sustainable business models here today. And I think what I mean by that is that you're going to have to support this level of CapEx.

that these companies are undertaking, you're going to have to have tens of billions of dollars in high margin revenue in order to support the reinvestment that you're making on the back end of these businesses. Obviously, I think the best position one at this moment, subject to change in terms of the independent players is OpenAI. But remember-

For Meta, they have a printing press kicking out billion-dollar bills in the back room, so they can invest against this for a long time. Amazon can, Google can, to your earlier point, Bill. You're not going to have a clearing event here where it's winner take most because these guys will continue to throw money at it for a long time. And I would say among the other independent players, Elon and Grok have a great product, have executed incredibly well, and he has a unique product.

very unique ability to raise global capital for a long time along with X.AI so you absolutely can't count him out of the race but

But maybe we just wrap it there. I mean, it's a period of consolidation for sure. You got a lot of uncertainty in the world. You got Nvidia trading at 20 times earnings. You got a lot of questions about these companies. But we're going to turn over a lot of cards, I think, in terms of these products over the course of the next

eight, 10, 12 weeks, we're going to turn over a lot of cards on tariffs on, you know, kind of status of the reconciliation bill and taxes, et cetera. And, you know, that, that's what makes it interesting. I mean, we could find ourselves, you know, off to the races, uh, come this summer. Um, or I think we could find ourselves with, uh, you know, uh, in the middle of a trade war and, and, and, you know, and everything's slowing down. So there's a lot at stake here over the next 90 days.

Let me make three final thoughts on my silly theory. One, I think one of the reasons this can happen also is this steep price decline we've seen on models and older models. And so I think it's very easy to

for a founder or a team to say, well, it's okay that I have negative gross margin or that I'm pricing here because look what happens. Like in six months, the compute for this will be a lot cheaper. And I think that's a very rational decision too. I think that also

leads to what everyone seems to be seeing, which is when people go to production, they look for cheaper solutions. And this is why I think open source thrives, why DeepSeek is working on the enterprise. I think everyone, when they go to production, they optimize.

And then third, just in terms of this theory, if we're going to compare to the internet area, if there are high variable costs, I think you have to think about e-commerce more than you think about like Google, right? And there were a lot of businesses. This gets back to selling dollars for 85 cents.

that we're growing by achieving that. And so I'm very curious how it all play out. All of that said, as you know, I'm a huge believer in AI. It's causing all kinds of disruption. It's going to create all new kings and queens in the venture market. I just like getting under the hood and seeing what's happening on the margin. Well said. Well said. We're going to see a lot more in the weeks ahead. Good to see you. Good luck to Florida. All right. Appreciate that. Go Gators. Take it easy.

so