The Wisdom Wall

“If you're a founder and you want to compete in this, you know, in the model game, you know, and you don't have their backing, there is no, no chance.”

“Amazon had this monopoly retail business they could use to subsidize AWS, gain share for a decade, and then begin to take price. That would be a rational strategy for OpenAI to follow. So you take the profitable consumer business, you use it to subsidize, you know, the, the, the market sharing other applications that…”

“What that tells me is the model layers being increasingly commoditized. And that there's not going to be a lot of intrinsic value in, in, in that intelligence layer, that operating layer. You're going to have to build applications that guys like Bill Gurley and, and you and I are using every day. And that's where the…”

“Out of the thirteen billion dollars of capex required, you know, if you make an assumption about 25 75 or 30 70 equity to debt, that probably requires like a three billion dollar equity check.”

“And so I would always ask my analysts when they would bring me a power company, I would say, why is that better than NVIDIA? Right? It's a derivative, it's a derivative NVIDIA. It's the exact same bet. So why not just buy more NVIDIA?”

“Like you can have the best computers and chips and biggest cluster in the world. But if you don't get the architecture right around your reasoning model and the other guy does, they're probably going to win.”

“If you're aiming for traditional venture like returns, then I don't think there are a hundred growth companies, right? That you can go put in a fund of five or ten billion dollars equally weight them and get a four to five X over any reasonable period of time.”

“You can't go raise another five hundred million and not have pressure from all your employees for employee secondary For spending more money on more projects, et cetera, and the NPV on those other activities will be lower, and the incentive your employees have to stay with you once they sell 10 or twenty million…”

“power is the primitive for AI, and that's why China is heads down in this race, and they're taking our technology, right, and they're, you know, they're improving it”

“If you're a closed model company, the question first is, okay, I'm going to have to To compete and keep up with this frontier level competition. That's hard enough. It takes a lot of resources, but number two, Mark's going to give it away. You know, meta is going to give it away for free. Now you have to develop a…”

“when the public markets gives you a sign, right, like it did Meta or Facebook in the fall of twenty-twenty-two when the stock goes to 90 dollars a share, right, there's nowhere, there's nowhere to hide. You confront the brutal truth. You confront the reality. Public market investors You know, it's the collective wisdom…”

“the value is not in the model. Right. Just like the value is not in storage. Right. You could say storage is a part of the AWS cloud, but that there's not a lot of value in that thing unto itself. The value is in the enterprise relationship. The value is in right. The, the, the, uh, the, the pen number of services that…”

“Apart from the people who are on the very frontier, if you're on the frontier and you have something totally different, it seems to me that that's a place where that is defensible. But if you're not on the frontier, man, it seems that these are going to be really fast depreciating assets that are going to be…”

“when you don't, when you, when you proforma something out, right, when you stop treating it like cash, right, it leads to a misallocation of resources because you're effectively saying this doesn't exist, and when you, you know, what, what happens when the cost of something disappears? You get a lot more of it.”

“The switching cost is not with the LLM. I agree with you on this. The switching cost is really around where your data resides, right? We've heard this talked about data gravity.”

“if we have this view, the only reason China's competitive or winning is because they're, they're stealing or they're subsidized. I think what that view does is it allows us to delude ourselves into believing we don't need to get better ourselves.”

“the way to beat them is not to, you know, try to cut them off at the knees. We don't need to make it easy on them. But the United States needs to accelerate our race, and I think by, if we focus too much on how do we slow down China, we take the eye off the ball on how to accelerate our own race”

“I think that makes it harder if you're in the, the lab game. And you don't have a consumer product and you don't own an application that you can drive high gross margins.”

“Although I would say that we're starting to see network effects, right, on the data side. We're starting to see switching costs with permanent memory, as you and I have talked, you know, starting to see.”

“You can't just cut two trillion dollars in a single year. That would be an 800 basis point headwind to GDP. It would throw us into a recession, if not depression, like, like state.”

“So I think what the market was saying is, okay, three hundred billion, half of that will show up as increased prices and taxes on consumers and on businesses. Half of it will get eaten by the, the producer of the product in China, in India, wherever, you know, that's not that big a headwind to the U S economy.”

“So it is a fast depreciating asset. The second you're off the frontier.”

“And there is nothing, there is nothing wrong with a down-round IPO. It's simply a price at a moment in time, and if the market in 20 and 21 was overheated, And prices were really high in the private markets. That's just a fact of life.”

“Greedy investors will find you if your company is growing really fast in his great margins. Look at Samsara, ok? Samsara went public, and everybody said, too small, not enough coverage, stock's not working. That, that company has been a grand slam home run in the public markets, ok?”

“if you drive down the price of the cost of compute, then the reflexivity is people will consume a lot more of it. Now, this is also known as the Jevons paradox, right? As price goes, goes down, we demand more of it. The aggregate amount of Consumed, of, of, of the compute consumed actually goes up, right?”

“So you go back to GPT-IV, you know, and you're compressing, you know, the entire internet. But now we really don't need to do it because we've trained them to use tools like the internet, right? They're true reasoning engines.”

“the biggest problem was there just weren't that many people connected to a high speed internet. So all the things we dreamed of occurring were just inefficient to happen at that time. Uh, but what's probably even more surprising, Bill, is how dramatically we underestimated the long term. Over the next 20 to 25 years,…”

“If you get memory, the switching costs explode.”

“So, you know, if you think that infrastructure expenses are going to grow at 30% a year, then I think you have to believe that the underlying inference revenues, right, both on the consumer side and the enterprise side are going to grow somewhere in that range as well.”

“airbnb and Disney and the cruise lines and the airlines start seeing downticks, now you know that the consumer is really getting pressured. So there is no doubt.”

“But remember, historically, rate cuts that are preceding a recession or fears about a recession are oftentimes sold, right? It doesn't cause the market to go up. It actually causes the market to go down.”

“when prices are high in venture, you know, you don't just stop doing venture. Right? But you do less. And you wait for the really great stuff. And when prices are high in the public markets, you don't necessarily step out of the markets altogether, but you just do less. And that's how we think about it here. It's less…”

“In fact, I was talking to a large data company this week who's in the business of serving models, and they were lamenting the fact that the pricing umbrella was set by open AI and there is no price, right? So that it's a much lower margin business than the traditional software business.”

“And I think this is one of the big psychic or behavioral hurdles to these companies getting out and getting into the public markets.”

“The capital intensity of that undertaking is very different than starting a software company, right? And so, um, the risk reward to both the founders and the risk reward to the investors changes a lot.”

“And so, if Washington wants to get serious, it needs to be an integrated, right, national policy. You can't fix AI without also taking on, um, our future energy needs.”