Why Apple Needs a Management Overhaul & Why Google is Catching Up with Hyperscalers

Ironically, Google, whom we all piss on, has executed the best of the four. They have a model that works. Apple doesn't even have a product that works. Microsoft bought someone else's product but doesn't quite own it. So it's kind of weird. Facebook is desperately trying to buy product, but it's not like out of success, it's out of terrible psychological need for a product. Even though they don't have a business to justify it. I don't think these guys are too powerful. If anything, I think they're a bunch of rich people on the back foot behind the new trend, desperately trying to catch up. Ready to go.

Team? I'm so excited for this. We have a great schedule for today. As you know, it's always my favorite conversation of the week. So I want to dive right in and start in the world of venture. We had Victor leaving Benchmark. Now there's only three partners remaining with obviously Eric, with Chathan and with Peter Fenton. It's big news in venture. I'd love to understand how you thought about this and how you responded to it.

One, listen, if folks are, if the best AI researchers are jumping from meta to, to anthropic to whatever in six months or getting massive packages, there's no stability and it should be the same adventure, right? That's thought number one. Like this is not the bucolic, whether it was every bucolic, but the idea of Benchmark in the ebay days of a bunch of gentlemen investors staying for 80 years, it's possible that's part of the past.

Right?

And then the other tactical thing, I learned this myself. If you are going to leave a fund and you can, you have a hot hand, better to do it early. Like staying longer doesn't help. Like it might seem like it helps the fund, it doesn't help you. You're probably not going to leave with much carry, right? You're going to have to start over. So there's definitely reasons to stay at a fund, right? Especially a top fund. But you might as well leave the moment you can because there's not a lot of economic incentive, all things being equal, to stay. Right. I mean, starting over is not that fun.

Agreed. And yeah, no, I think it is very interesting. I mean, I think stepping back, I remember benchmark founding in 95. I remember them pitching us in 95. So I would have said what's happened here? And Benchmark will be fine. So let's start with that. They'll find two other people to fill those slots and they'll be Fine, because they've been. I think the interesting thing is to a rounding error. I would have said being a partner at Benchmark is kind of one of the top gigs in venture. They've been able to hire people from other places, other good firms, get them to join Benchmark. We all know the shtick. Equal carry, focused fund, no layers of hierarchy. It's a really compelling story and it's been a compelling story for 30 years. The stunning fact now is someone can be in the best gig and venture and decide, no, it's not enough, I need something more. And they can actually probably pull that off. I mean, that to me is the big data point. It's less about Benchmark. It's like a talented individual with obviously prior entrepreneurial success can be in venture two years and decide to leave Benchmark. Not to go back to being a founding startup entrepreneur, but to say I can get money and continue this business on my own on equally or more attractive terms, it just speaks to where the market is, rightly or wrongly. And we can talk about that in a second. For that kind of top tier talent, it's very much a sign of the times. And you made a comment. Most people who are good investors would prefer to just do it themselves. You stick together with your partners for a combination because you hope there's some strength and diversity of some diversification, to use a less loaded term. And because there was a perception for a long time of a bare minimum fun size, team size to get funded. And clearly all those perceptions are gone for at least a small number of very successful, talented people. And that's what's worth talking about.

The thing, the nuance I've thought about over the years is if it were me, if I were myself at that time at a similar spot, I wouldn't leave Benchmark. I wouldn't leave Benchmark because I think what a lot of these folks going out on their own mission and Harry and I did it right and Harry and I had brands behind us. We actually had brands, quirky Brands, Saster and 20 VC. But we under. I think especially today we underestimate how powerful it is to meet a founder and say you're from Benchmark. It's friggin powerful. And I think I would argue, Harry, I want to get your thoughts. I would argue that you and I are at the edge. Anything less than a brand that we have, I wouldn't do. I just wouldn't. Everyone's different. But it's not that you don't have the skills of hunting. It's not that you don't have the skills of evaluating the relationship building or schmoozing, but I, you know, there's a lot of the best founders, you know, they just want the same guys that are in Figma, the same funds that are in Figma. They do, right. And, and 20 VCs above the line. But it's not, it doesn't have the storied history of, of Benchmark. What do you think, Harry? That's why I'm not sure I would leave Benchmark.

I think people greatly over exaggerate the impact that this has on Benchmark. And I don't mean that rudely to Victor, but I don't think any Firm has played AI in the 18 months as well as Benchmark have done despite the team churn that they've had. Let's just go through this. McCor over 100 million in error. Hey Gen hitting 100 million Naira fireworks 140 million Naira Sierra with Brett Taylor over 100 million Naira Manus AI the best Chinese AI team there is. Lagora the best European AI team there is in many respects all with double digits ownership in one single fund. Hell, how do I be an LP in that fund?

I'm going to call stop here. Only because we didn't. You actually didn't answer the question. We agree. I mean let's stipulate Benchmark will be fine because they're awesome investors. That's just not an interesting discussion. Right. I actually think until you cut him off, Jason was starting down the far more interesting discussion. And it's super interesting with this group because I've actually never had this discussion with two people who've done the thing. There's very few people who've done the thing that Victor did which is raise a solo fund. And the odd thing is I'm on a podcast with two of the people who've done it. Both of you as brand names. Right. So I actually think talking about his Benchmark awesome is fun because they are fucking awesome, but it's just not that interesting.

Would I do it if I was Victor? Yeah, of course I would.

I would.

And you know why I would? Because he showed in his investing that he likes to move across scale in a way that I don't think Benchmark likes or allows in their disciplined manner in a similar way almost to Myles Grimshaw who's another fantastic investor. But I think they are multi stage investors and just want to intersect with founders. Whether it's at the pre seed like Victor did with Brex or whether it's writing a $55 million check into hey gen. Which is really outside of what a benchmark deal would normally be being that size check on entry. And I think I look at it and go hey, I just want to engage with the best founders. I don't want the constraints of a partnership. I can get a lot of money privately from great individuals and I'll own 100% of the carry. A frickin man. Thank you very much. I'll do that all day.

I hear you. I just have a more nuanced view now that time has gone on.

Right.

I remember when I left I had two, two of the. Two of the two top brand name funds reach out to me that I did not know well. Just it wouldn't have worked out right. But I had a pretty hot hand when I, when I did. Harry will remember, right. And I didn't even take the meetings right. For real. Because I'm like it's just not, it doesn't. I can't get the math to work in my head. 100% of the carry. Right. I can't get the last. The lack of autonomy to work on my. And I'm like I've been a founder with a modest level of success. I ain't going to work for somebody like it was enough. I didn't take any of these meetings like. But time has gone on and I, I do think that you just if you're gonna leave understand the value of the brand you're leaving behind. Right? It just, it just, it's, it's more, it's bit if you have no brand. And here's my, my only. And Harry challenged me. I just think in today's world if you have no brand at all. It's tough. I think it's tough.

1 disagree. 100 you're so right. It's tough. But I do know Victor and he is in the most exclusive inner circle of Silicon Valley that exists. He's in the Sarago Elad Gil.

Yeah. So he has his own micro brand of relationships that will make it work for him.

Right. And I would actually say the thing that's more important and attractive than brand is is scale of cash. The only thing that I find attractive about joining another firm which I never would do ever obviously but is the fact that I could deploy $1 billion check into a great company. And actually I think scale of cash is almost a more attractive magnet than stellar.

That's the one way the world's changed, right. We wouldn't even be Having this conversation even four years ago. Even four years ago. And have the conversation.

Right. Yeah. What you find attractive, I'm just thinking here what you find attractive about being on your own. To your point, how it's the ability to pour large. I'm just trying to sell it. The ability by large amounts of cash. What Jason is missing is making the point. So you give up on the brand if the existing brand is strong. So you probably have to come to the table with an equivalent brand. And you probably do, because if you don't have an equivalent brand, you won't be able to get the big cash. So what you're basically saying is, and I agree, is that if I have, let's just say, a functionally equivalent brand as an individual to the brand of the firm I'm at, in other words. Hi. Hi. Right. So I'm not losing a ton on deal flow from transitioning and I get all the money myself, then I should just go do that because I can do what I want 100%. What's interesting is the people who need to think about this a lot of the LPs, and I'll tell you why. Because what it says is we will now finance you to do all the things that we spend 20 years telling every other venture firm not to do. Right. And I think that's a big insight. Right. For 20. If you think about the kind of like very much an lp, focus on discipline, stick to your lane, do the stuff you do well. We value teams, we value cohesion, we value long term. And what they're now saying, and maybe correctly, this is not a dis. This is a reflection on where the world is. And sometimes the value of listening to advice and sometimes the value of not listening to advice. What they're showing by their actions, and we'll talk about a lad in a second, is they also like a product that says thank you for your input on being focused. I'm ignoring it. Thank put your input. I'm being a value add in terms of taking board seats in the last case. I'm ignoring it. Thank you for your input on small funds as I'm ignoring it. Oh, and by the way, after giving me all this input, I'm ignoring it all. And then you're going to give me the money. Note to self, you just. What are you doing here, people? It's super interesting. But what it says is, as I say, thank you for your advice now. Thank you for your money. And that's why I think it's an interesting time.

What does that Tell you then that a lad has such a strong brand that he is able to do that, say, thank you for your advice. I'm not going to take it over and over again. I don't mean that badly against him.

He's incredible. I think what he says is exactly that. I think it's funny. He says two things and they're nuanced because they go one way. One thing it says is, in the end, idiosyncratic success triumphs. Bland, mediocre standard advice. You know, winners win. If you see something working, you're just going to lean into it. Right. You know, because I think Elk is correctly are saying, I had this pattern matching thing and these are the things that I said we shouldn't do. And then I look at this. Moving on to a lad here because we had him on to talk about next. Oh, my God, this guy was a seed investor. Airbnb and Stripe. He's written the last 15 years, he's not put a foot wrong. He has access to the best deals. Screw my rules, this guy's going to make money. Right? So on the one hand it says, you know, capitalism works. And there's a. So part of what's going on is there's a big signal coming here that says the things that we believe for 20 years mightn't be as true today. We should lean into the new. That's the positive side. And I believe that to be clear, I actually look back and I go, and I'm sure you'll ask about this when I say it in a second. So we'll put a pin in this. You look back and you go, hmm, There are things that I thought would happen to do that you look back and go, maybe you don't. Right. But let's leave that for a second. The other side of the table is this. Sometimes, sometimes rules of thumb or heuristics are in place because across cycles they've been proven to be correct. And my guess is some part of this trend makes total sense. And some part of it, you look back after the next down and turn and say, oh, yeah, that's why we had that rule. That's why we had the stick to the knitting rule. That's why we had the more than one partner rule. And I think you'll find some parts of this, like, totally free and easy, will prove to be challenging as you move across an entire cycle and zooming out. Never forget, there's no data on anything through a cycle yet for anything that started from about 2010 on. Right. So Again, I think that this. So I think the LPs, I think they're discarding some of their rules of thumb and in some cases they'll be right. But my guess is there was an embedded piece of wisdom in that that will come back when you discard it to bite you in the butt as you go to the next downturn. That's a long answer, but it's a super. Frankly, I think it's a super interesting subject.

I think Elad is the best embodiment of the concentration of value. And to your point of picking your space, you said very wisely, Rory and I always remember this. Josh Kushner is a master property developer in the way that he picks the block and buys the best house on the Block, Stripe in FinTech, Databricks and Data OpenAI AI. And I think Elad is very similar in terms of making sure that whatever that category leader is, whether it's Helsing or whether it's a bridge or whether it's stripe, he, whether it's Harvey, he is in that leader and he's in it big. I think that's really impressive with him. And then he's also an amazing picker. I remember he sent me Vanta at Pre Seed. The man has access like no one else. He's able to cover spectrum like I've never seen before. Do you know what I worry about when I see this news? Speed of deployment equals relevance. And I think about this because we're very disciplined on three year fund cycles. Temporal diversification. I know everything that we've said, maybe Jason doesn't agree with on temporal diversity, but just like doing what we said we'd do on how we invest and how slow we are. And I see actually cadence of deployment can lead to relevance in a way that really benefits that manager.

Yes, it does. And I think we talked about this before. You internalize that. In the short term, that's true. And again, and the only guardrail on that is the only people who mind money are the people in charge of minding the money. And the people who are in charge of the mining money here are the LPs, and they're trying to figure on the one hand they want because people are deploying capital quickly and getting capital are by definition getting short term positive feedback. No one deploys a billion dollars values at 800 and then gets more money. So if you're deploying capital quickly, you can assume you're getting markups, you're getting success, you're in the hot deals and what you're left with is the LPs trying to figure out is this a hot hand that I have to follow or is this a flash in the pan signal and it could blow up in my face. And it's not one way or the other. It's a tricky thing to figure out because by following you made a comment on consistency, by doing what you said you do, by being consistent, you know, you lower the chance of just drifting off and screwing it up. But you probably pass up on the upside of being as aggressive as someone who's not honoring the temple diversification and who is using that velocity, right? So all other things being equal, the person who's doing more deals has more relevance. So therefore the only question, as long as they're deploying it well, well, it's a double win. You have relevance in the short term and returns in the long term. If you deploy it badly, you have relevance in the short term and failure in the long term. And I've seen, frankly I've seen examples of both, right? I mean I think Allied Gill is for example, the example of the latter. I think Wiley successful seems to be doing everything right. I'm willing to stipulate one of the most talented investor generation and we'll do it really well and continue on doing it well. That's one example. I've also seen the examples of people who've been relevant for two years because they're putting the money out and then the money blows up and they're gone. I mean, Tiger is the obvious example now they're still around but a shadow of their former selves. Their quote unquote relevance in 2021 meant that they saw every deal that year but they picked badly, so they got sent home. Same thing with SoftBank. You can be relevant. Put this. Any early stage VC worth a dam in Silicon Valley knows who the dumb late stage money is. And you can tell. I remember watching, I won't even name names like oh, that late stage investor is attending that early stage investor meeting. I know why they're there. That's money. That's dumb money that they need. And those investors obviously blow up. So in the end, relevance is a short term thing. Like I say about this job, the only thing that's true about this job over the medium term is you have to be right. And the hot hand who's right across an extended period of time and as I say, lad, I think is one of the best of that. You know, you deserve to get the capital, you deserve to get the Runway because you've proven over 10 or 15 years your ability to pick and as you say, stunningly pick both early and late. Right. I don't think, yeah, we can come back to what is wrong with the single person model. But I'm willing to say the following. If it doesn't work out, it won't be because the person in charge of it isn't brilliant, he clearly is. It'll be because structurally there are problems with that model on that stage.

Well, the interesting thing is when you look at bluntly the best performing managers or the breakout managers the last few years, I think you put probably Thrive Green Oaks Founders Fund and Elad Gill definitely up there. And all four of them are one person led. I'm not saying there's not great teams beneath them, but they are one person led very dominantly. That is interesting and that's a very significant change from the venture partnership of old that was so predicated amongst the industry.

It is.

And it's easier, I think, perhaps wrongly, to be one person led. The later you go. And the reason I say that is this. If you are, let's just play it out. If you want to be an early stage investor, right, and you're putting up doing series A's, I'm going to say just doing early stage because I recognize that all the names you cited have some amazing early stage investments and I want to come back to that because it's important, right? Because there was an insight in that that the Pure Lake Stage guys didn't have. But if you want to do, if you want to put most of your money in early stage investments, right. What it means is every partner can only do so much and if one partner is called the dominant partner, then all the others are, you know, to some extent not able to speak for the firm. And you don't want to have a person doing a 10 or 20% ownership position who can't speak for the firm, right? So I think in early stage, if all your dollars are going early stage, you even as a partner in the firm, I want the guy in the Next who's running 10 more deals beside me to be roughly a peer of mine. Because I don't want some weak person who's not that good, who's a frankly a bit of a beta, who's willing to work for half nothing to be running my money. Right? Because you want, which is why Benchmark, as the quintessential early stage firm internalized, you need to have equality so that anyone can be a premier partner. It's totally different. Late Stage, when you make, when you're not trying to be on the board, you're not trying to be involved day to day, you're not, you're not, your time is not consumed by the deal. You're just making decisions. Right. Making decisions arguably can be best done as a smaller group. So in the limit, you can have, you know, one person making the calls on the late, on late stage deals, and it's much more scalable because you make, if you try to put out billion dollars and you want to write in $20 million checks, someone has to make 50 decisions. But if you put it out in $100 million checks, someone only has to make 10. And it's hard to make 50 decisions. So I think what you see about these, as you say, mainly late stage funds, is that someone is capable of making the big decision. They have structure to do other things, but then someone is calling the big shots and they've been getting it right. And that's true for Greenup, that's clearly true for founders and probably be true for, I mean, my guess is fast forward three years, there'll be three other people in the firm in junior roles, but that guy will be calling the shots and he's earned the right term.

Rory, can I be so blunt? Does it make you question your model when you see these kind of dictatorial led firms, not in a horrible way, but dictatorial led firms with mass capital sources, and then you look at yours, more discipline led sized and with partnership structure?

No, I think, no, because I think we're all children of the era we grew up in, and we've survived two downturns. And typically in the downturn, the high price, late stage guys go bust. And I'm not saying all these I will, but it's what happens at every time, because remember, you're only taking one risk as a late stage investor, which is valuation risk. And when it goes wrong, it goes wrong in 100% correlated fashion. Everything blows up in your face.

So over my liquidation preference always bails me out, doesn't it, Rory?

Yeah. And by the way, and just for our listeners, you're being sarcastic there, you're exactly right, it doesn't. So I think to build over an extended period of time, I think you have to build much earlier. And that's been our primary focus. And I think to do that, you have to have much more of a partnership structure. So I think that's the place you end up in. Right. If you wanted to build a late stage firm, you can be much more hierarchical by definition, almost you should be because there's a whole bunch of economic reasons. We can talk about that. That's a fun thing to do. And look, cynical comment, not cynical, realistic comment. I said this to my face. If I'd known in 2009 that we were heading into the best equity decade ever with zero recessions coming out of the worst equity decade in a long time with two recessions, I might have played a different hand. Right. If you know that, if you know that stocks are going to go up pretty unstoppable, we're at an all time high today. They've gone up for 15 years. If you knew that the correct risk adjusted work, adjusted money, adjusted play was to just do Tiger and not quite shank it in 2021. I don't know if that answers your question is, you know, if you knew then what you knew, you might make that play and make more money, but you design to survive the cycles you've seen.

We can move on. But I actually would go that Tiger will do better than people think given that given their positions in OpenAI scale, there's many others that actually are not, are not bad companies. And you said that they picked wrongly. I would argue they didn't pick wrongly, they just picked everything. And in that there's some good and some bad.

I totally agree. And it's not, it's not a, oh my God, look, they're stunningly successful investors. It's just, you know, as an lp, you probably would prefer to have skipped that experience because one of the things you have to look at is, is, you know, you'll have this phenomenon of the average IRR is great, but if you only. But if most of the funds went in at the top, you know, the LPC just participated in that. Not so happy. I agree. It's not that they're not going to make money.

I'm sure They've only mentioned 15 minute long context window while it's thinking through debugging or complex stuff. Okay, you know what I would love to do now? Run four of them at the same time or maybe even 15. Okay. So that 8k bill, all things being equal, could easily be 10k. And I remember and I didn't get it, you know, maybe a month or two ago, Farhan one of the CTOs at shop, I think CTO of Shopify let all their developers use the most AI they wanted, no caps. And the top guys were using 10k a month on credits because they were running multiple things in parallel.

Okay.

And if we're talking about 15 minute context windows and this, you know, whatever open open. I mean ChatGPT5 has a, you know, whatever a million tokens or a billion token windows. Right? Debug my entire code base now do this other thing. And now I'm doing 10 things in action. I think everyone, my learning is I think every developer at a top tech company growing is going to give them $10,000 a month of AI credits. Everyone's going to get 10,000, not 200, which is what we're thinking. We thought that was a lot a couple months ago. They're all going to get $10,000 a month. Every leading tech company. It's cheaper than hiring any human and you can't find humans. So if that means a 50x growth per developer spend, it's going to be a CFO's nightmare. But putting that aside, that's 50x growth from where we are today. For cloud code and anthropic or if they use it through cursor, it really doesn't matter where you're buying the tokens. 50x per human, that's a lot of growth, isn't it? I'm convinced, like it's not even. It's like blindingly obvious to me now. And Shopify already got there like 10k is fine, not 210k. And we're going to consume, you know. And the other thing that the CEO of Replit said I think yesterday about this was you can't cap it because any great developer will consume almost unlimited tokens no matter how cheap they are. So I think we're all going to land at this 10k, 8 to 10k per month. If you're a good developer, you're going to be on 24 hours a day, you're going to be on AI, not a couple minutes here or there.

First of all, directionally I totally agree with what you're saying, which is zooming out a million miles. I think what you're saying is these and bringing it back to entropic. These guys have something, a model that makes developers who are expensive asset extraordinarily productive. Somehow the market's going to find a way to massively reward them. I agree. And you made a comment on capping and it's been interesting separately. Late stage. How'd you put this? Better more likely survivors than the late stage players who dash in from the public, think it's all a financial game and then get blown up, right? These guys, the list you named have in my view, played it perfectly. And including jumping a lad in that having really great early stage deal flow and access and then realizing that the best way to monetize that is to Follow on your $10,000,000 a check with a $200,000,000 Series E check and collect the money every way.

We'll move on. But the brilliance of Josh and Neil from Thrive and Green Oaks. They made half a billion dollars plus from Carvana in the public markets. Buying when it was in the dumps and writing that up. That is a fucking good picker when the world tells you otherwise. I mean, such.

I just have to look at that stock chart to make that bet. It was, it was a falling knife, that one. Right.

And then Neil also does windsurf at seed.

Yes.

Okay, I give. I give up. Neil too.

Good.

Anyway, we said about concentration of value. Anthropic started out raising at 100, then it got so much demand it went up. It went up. It landed somewhere between 150 and 180. I heard it was closer to the 180, which wouldn't be surprising. I'd love to hear your thoughts on how you guys read this, what you make of it.

Well, look, the thing is, the interesting thing here is I believe that there was a billion late last year and 4 billion this year. So this is classic. The thing of what really counts as the first derivative, the growth rate, maybe even the second derivative, not just the growth is good, but the growth rate appears to have accelerated, which is stunning, right? In other words, because most of your expectation is you start off growing at 300%, then 200%, then 100%. See, the absolute numbers are going up, but the growth rate's down. These guys appear to have re accelerated at scale. So you're doing a billion, you're, I don't know, doubling more than doubling and Suddenly you're doing 4 billion and you're 4 or 5 Xing. So I mean if these numbers are correct, that's amazing. And I think that's what's getting valued. And we can both feel smart last week because you pinged us on OpenAI versus Anthropic. OpenAI at 300, Anthropic at 100. Feeling pretty good about that. 1.8x in a week. If only we bought. So yeah, I think that's what it is. I think it's just the people are looking at the re acceleration and it's clearly a two horse race, brutally and with everyone else either not shipping or not monetizing and are not relevant in the case of some of the smaller things. And you're buying the re accelerating winner.

I'll tell you for what it's worth. What I. You know you also asked about capping clod code, right? For overage. That one. I. This is, I know this is one one part of Anthropic, but my experience in Vibe coding, I mean my captain obvious learning is we're vastly underestimating the revenue potential per developer per user of, of Claude and Anthropic. We're vastly underestimating it. We're vastly underestimating it.

Why?

Jason just educated because what was clear to me, I was on a path to spend $8,000 a month vibe coding. Okay. And even with that, Harry, what's happening now? Now the context windows have gotten longer. So now on replit and I think lovable just did in the new release, you could have up to a 15 minute long context window while it's thinking through debugging or complex stuff. Okay, you know what I would love to do now? Run four of them at the same time. Or maybe even 15. Okay. So that 8k bill, all things being equal, could easily be 10k. And I remember and I didn't get it. You know, maybe a month or two ago, Farhan, one of the CTOs at shop, I think CTO of Shopify, let's all their developers use the most AI they wanted, no caps. And the top guys were using 10k a month on credits because they were running multiple things in parallel.

Okay?

And if we're talking about 15 minute context windows and this, you know, whatever open open, I mean ChatGPT5 has a, you know, whatever a million tokens or billion. A billion token windows, right? Debug my entire code base. Now do this other thing. And now I'm doing 10 things in action. I think everyone, my learning is, I think every developer at a top tech company growing is going to give them $10,000 a month of AI credits. Everyone's going to get 10,000, not 200, which is what we're thinking. We thought that was a lot a couple months ago. They're all going to get $10,000 a month. Every leading tech company. It's cheaper than hiring any human and you can't find humans. So if that means a 50x growth per developer spend, it's going to be a CFO's nightmare. But putting that aside, that's 50x growth from where we are today. For Claude code and Anthropic or if they use it through CUR, it really doesn't matter where you're buying the tokens. 50x per human, that's a lot of growth, isn't it? I'm convinced. Like it's not even. It's like blindingly obvious to me now. And Shopify already got there, like 10k is fine, not 210k. And we're going to consume, you know. And the other thing that the CEO of Replit said I think yesterday about this was you can't cap it because any great developer will consume almost unlimited tokens no matter how cheap they are. So I think we're all going to land at this 10k, 8 to 10k per month. If you're a good developer, you're going to be on 24 hours a day, you're going to be on AI, not a couple minutes here or there.

First of all, directionally, I totally agree with what you're saying, which is zooming out a million miles. I think what you're saying is, and bringing it back to Entropic, these guys have something, a model that makes developers who are expensive assets extraordinarily productive. Somehow the market's going to find a way to massively reward them. I agree. And you made a comment on capping and it's been interesting. Separately, Antropic did some capping for their plans and I think Cursor did some capping and some token limiting for their plans. And you'd ask the question, Howie, is that good or bad? I think it's amazingly good. Right? I think it's. What it says is, as Jason said, there's infinite demand for this product right now at the price point of 200 bucks and the cost of generating those tokens, the economics doesn't work for the model provider. And you could look at that and go, oh my God. I'm going to worry about the fact this is the economic model wrong. And at a point in time it probably is, my guess is somebody's gross margins are troubling. But when you're selling something, we have a couple of facts. One is the long term trends are in your favor because all these costs just go down over time. Thank you very much, Mr. Nvidia. And you've got almost infinite demand. You just price it to the point where you just get these people hooked. And over time your costs are going to go down and their hookedness, as Jason said, is going to go up. And maybe today you're selling them 200 bucks. What a tokens. So you're selling them, you're getting 200 bucks and maybe you are spending 250 bucks on tokens. So you cap them now at 170 and you think your margins are crap, but next year that 170 will be 120 even if the token count goes up. And as Jason says, you raise that 200 to 400. What it says is there's not infinite, but an astonishingly strong demand pull for Claude code and related products, either directly using it via Claude code, or indirectly using the anthropic models with one of the other providers like Cursor. And that's going to reflect in the entropic numbers, which is reflecting in the valuation and it's going to be reflecting a whole bunch of pushing and shoving around gross margins for a year, but in the end, and you'll stabilize out to something that works for everybody. So I think, yeah, it's astonishingly bullish on market size and growth.

Moore's Law shows the reduction in cost over time has pretty much always been an immutable law. When you look at that immutable law and the impact that that will have on token cost, surely that impacts what we said there about per spend per developer being 10k per month. Because in 3 years time it'll just be so much cheaper on a per token basis.

Yeah, but the products. The whole reason your lovable investment works, Harry, is these products are so much better than six months ago. I thank you. Maybe, but I, and you're right, maybe it all plateaus. I think a lot of that's shooting from the hip. I just think these products are getting exponentially better constantly and we'll consume a million tokens and a billion in a trip. I mean, or the token value be more. We just, we have inexhaustible demand to run multiple processes in parallel 24 hours a day for development. Like our agents don't sleep, Harry. This is the thing I didn't get until I ran like four different AIs for Saster. Our AI SDR brings in. We were DMing yesterday, right? Our AI SDR brought in a deal, you know, like a 70k deal. And it doesn't sleep. And if you're an engineer or developer, your AI isn't going to sleep anymore. Now you don't want it touching production code. Okay? I have learned that lesson. Okay? But if it's debugging or, or working on complex issues or building out an algorithm or, or doing refactoring part of your code base, you will, you can consume. It can work for you 24 hours a day. Right.

So.

And we will use all of the token. There may be an end limit. Right, Just. And so maybe this investment Will peter out. But I don't see it today. Right. I think, good God. We're going to be coding 20. We're all going to be coding 247 with our agents. Everyone's saying that like it's so hard to get a job in software today. If you look at the Wall Street Journal, it's not remotely true. If you have the skill set today, if you're super smart in math or CS or physics and you're in, you're in any school today. Like my son's a freshman and he's off the charts of math. He already has offers, okay. And he's not even looking. Okay. So we have this, you know, this is what we know. But I can see it in the world if you're top tier developer, like you just want to arm them up with every tool you possibly can because no one wants the folks that went to DeVry programing school like they wanted in 2021. That market is dead. Right. So we're going to arm them up with 10k a month.

Listening to everything that you say then, Jason, Anthropic is at least a $2 trillion company maybe, right?

I mean, you know, it's just, there's just so much investment here right now. Are there issues if you know, if you know, I mean, I mean obviously OpenAI is coming very hard at them right now. Right.

I'm not signed up for 2tr, but I, you know, and I don't have to be to say that, you know, this is going to be an extraordinarily valuable company. I don't, you know, there was a, there's only four or five companies that are worth more than a trillion and it's worth pointing out that only one of them is, you know, really selling. Just kind of develop Nvidia, obviously, which is pretty much a monopoly selling, you know, 100% market share in the most valuable commodity you have. All the others touch every human being on the planet who has it, Apple, you know, Google, Facebook and Microsoft. So I don't think you for a record just to say it, I don't think you get to more than a trillion dollars if you're just selling stuff to developers and infant. Which isn't to say I don't think.

You do extraordinarily well if Anthropic ends the year at what, 7 billion in revenue, right. Velocity. And, and let's say the average Anthropic developer customer is paying $100 a month now and that goes to 5,000. Okay, yeah.

If you multiply everything's amazing. I know.

But, but, but, but I'm not being, I'm not being facetious. This is my, this is my Captain Obvious epiphany that this is bigger than the $4 a month we spend on JIRA at Atlassian. This is, this is all the VCs like to talk about, how AI is going to tap into the human budget. And some of it is just Sony baloney. I've learned this is completely true for developers. $10,000 is nothing to replace a $500,000 fully burdened developer that quits in seven months. Rory, these kids are quitting, okay? They're quitting for the $100 million off. I'm not being facetious. When I think it's 50x, I'm not being facetious, right? It may not, it may not add up to 2 trillion, but I think the TTAM, the true TAM, is 50x what it is today, without question. Because, because we, this is the greatest case not of making developers just more efficient, right? But of radically. Of rap. Of truly tapping into that non existent human budget that people have, right? There's no one to build this software out there or there's no one to build it. There's. Outside of Cursor, no one can hire anybody. And even in Harry, even at Cursor, it's hard to hire, isn't it, Harry?

It is. They have a big war chest and.

So lovable, it's hard to hire, right? Lovable doesn't win every developer they want on planet earth, do they?

Listen, you mentioned lovable. We mentioned Rat Plat. We saw, saw Microsoft, we saw Google roll out lovable slash Rattlet competitors. Question being there, is it too late? These are actually very established brands in Ratlad and Lovable in this case. Is it too late or is incumbent distribution so overwhelmingly strong that they will be the victors with these.

It's a funny one. The. The. The Microsoft competitor to lovable and replit. Right? And bolt. Now, this will change. It's beta, right? It's limited. Everyone shares one database. So you may have seen some issues I had around my database, but at least I had my own one. Everyone shares the same database. Don't. So Microsoft says, a clear warning. Be careful what you put in the database. Maybe you don't want to build. What's the, what's the, what's the app that just had the terrible leaks today that we were just talking about before we started? Yeah, don't build the T because everyone's sharing the same database. What that says to me Is look there, listen, Microsoft can catch up. That's not taking this seriously enough. That's not take or it's being so panicked that you have to put something out there, right? Which is probably more the case. They're so panicked that it is a big deal, right, that replit and lovable are 200 million in six months that we'll put something out there that no one in their right mind would use.

Yeah, I agree.

One database. They could only afford one instance at Microsoft they only could afford one database at a time.

They could only code one. But yes. So the answer to the direct is it too late? In other words, are the lovables already too established for Microsoft to manor? I think Jason's is the right answer. It's more a question of are they going to focus on this thoroughly and comprehensively enough to win? Because if they put all their eggs in winning this basket, right, they probably could. But you know, it seems odd for example to angst as Microsoft about oh my God, I'm losing $100 million revenue to lovable when wake up, I'm losing $900 million to cursor in a product I already have been shipping for five fricking years. In GitHub Copilot, if the thing you delivered first can't beat the newcomer, how are you going to beat the even more trivial newcomer where you're later than that, right? So I think, you know, brutally, I.

Think Roy, is GitHub just a massive fuck up for Microsoft? If you're sitting in that meeting, if you're sitting in that meeting, you're going oh my God, we had the start, we had the Runway and we've let someone come up from behind and seemingly trounce us. Is that the mindset you think?

I mean they probably would say oh, we have $500 million of revenue, we're doing. They probably have some corporate story why they're better. But the truth is, yeah, it's a mistake because whenever you start, I mean the thing about in any market when you're Microsoft, if you start with a monopoly and you fast forward three years and someone exists, by definition you screwed up your job as a monopoly was don't lose the monopoly, right? They had massive market share with GitHub and you know, they added the copilot, you know, when that was CEO, it was that one said I'll be it was an excellent product. And you know, fast forward four or five years they seem to have slipped up. I mean you can't not say it's a mistake I mean because you shouldn't let that happen. So yes it is and that's my point. If you're chasing shiny object system symptom on the next thing, which is now I have to do a lovable thing, are you really putting enough effort into making sure that your, you know, your cursor competitor is as good as it should be? And you know, I think for all this is kind of and I'm not fully formed on this yet so I'm kind of going out and look for all the Microsoft is amazing in AI story. They're better than AWS of the three hyperscalers but you know, they don't have their own model. The relationship with OpenAI is a bit tortured. Cursor's now 900 million and they're developers which is their core kind of raison d'. Etre. In a world where they're at 500 with a five year start, I don't think they're playing a perfect game. And I don't know if trying to do still more things is the way to win here versus actually doing some.

Things well, that's the trap, right? Trying to do even more things usually doesn't work no matter who you are, right? Startup or Microsoft, it doesn't usually work.

And you know Satya made the ever so funny comment that he wanted to make Google dance. Well, you know, fast forward a year or two, they appear to be dancing pretty fucking well.

Microsoft own OpenAI in many respects. Amazon own Anthropic in many respects. And then Google own distribution and Gemini in a way that is very, very powerful and important. You have to buy one and you have to short one. Which one do you do?

Which of the three stocks are you talking about buy Google short? Aw, Amazon. They're just, I mean and I'm not fully developed on that yet, I haven't spent time but. But Google has the advantage of underestimation. It could lose its search business that knows it. There's a lot in this because remember I was just talking about the hyperscalers. If you looked at the three hyperscaler execution then it's easy. Let's just do the hyperscaler first because otherwise we don't have to think about retail and search, which are big things. I admit on the three hyperscalers five years ago, Amazon built the category and was the dominant one. Microsoft was number two because they could lever over and into the Azure. So they were kind of limping onto the field with a bunch of relationships and Google was nowhere to the point where There were credible stories about them getting out of cloud. Fast forward to this quarter. Google's nailed it. Great growth in Q2 as of the recording. We don't know where Amazon and Microsoft is, but funnily enough, by the time you produce this podcast, people will know because I think they're reporting tomorrow. But my gut is just looking at the trends that Google is pulling ahead and is the smallest, but by far the fastest growing Amazon's growing site. Microsoft is roughly equal in scale to awb, admitting that there's always some weird accounting of Azure and has a slightly better growth rate. So by definition of the three AWS is the hyperscaler underperformer. And I'm 100% certain I could make that case. That was a lot.

Listen, I don't. Obviously if I had to make the bet today, I would make Rory's. But I won't make it for the Captain obvious reason. That one of the reasons is there's unlimited demand and it has its own tpu. Right. As Amazon licks its wounds and recovers from which it's already working Code red on. Right. When it gets back in the sweet spot of what its customers need, demand will be unlimited.

Agreed. I actually, I think you're right, Jason.

Which is Oracle.

Agree. Oracle self. I mean, if you have. If you have. I mean, and I look at this a lot because there's a little part of the contrarian in me that says, could you hit the point where that stops? Because if it does stop, the correction is going to be super interesting. Right. So I look at it and then I have to. And I'm kind of trying to be the cynic and I'm trying to find some evidence of overshooting on demand. And to your point, Jason, you're exactly right. I can find none. You kind of go, I can't remember Amazon or I think Microsoft said, biggest problem didn't have capacity. I think one of the other hyperscalers said we could sell more shit if we had more shit to sell. That is a new idea. That is the best thing in the world, the simplest thing in the world is to be selling something that everyone wants to buy. And it's just a beautiful place to be in right now. And all those guys are there.

Yeah.

And the Wall Street Journal had an article yesterday of what the number one KPI for public company CEOs is. It's reducing headcount and growing revenue. Reducing headcount. That's the number one. From bank of America on down. It went through all these big not Just the little tech startups, everyone wants less headcount and, and the answer meta is AI. There's unlimited demand to, to, to do that, to drive headcount down and revenue up. So it's got, I guess it's going to end but when we're all just living in the matrix, I don't think.

It ends that way. I'm just going to go out another limb. I don't know, I've had two coffees today. I don't think it ends when everyone's automated and the demand stops. I think what really, and I'm keeping an eye on this because there's a trade to be done when it happens. I think what's interesting is the creation of AI kind of is happening at hyper pace. There's $600 billion of CapEx, whatever, just a huge amount going on. Enterprise's ability to adjust it is still relatively slow even though demand is growing. You're still at that super early 20th. And I think one of the weird things would be if, and I'm going to call it if, how long can you continue investing 600 billion a year against a $30 billion growing revenue line? I mean at some point, like for example, even Microsoft was interesting. They did a bunch of layoffs and you know, and you know Satya did his comment on the enigma of growth I didn't quite get. I think what he's saying is really he's trying to say yeah, it's pretty cold blooded to fire a bunch of people when you have hyper growth and 40% operating margins. But what he didn't say is part of the dirty little secret is we're going to have to start depreciating half our free cash flow in CapEx through the income statement over the next 3 years. So we're going to have to take people out just to be the same level of efficiency. So there's a lot going on. At some point someone's going to depreciate all these Nvidia chips and someone's going to have to pay for them. Right. So I do to you and I'm sorry, I do think there might be a slowdown at some point in time but right now there's no evidence of it whatsoever. And you know, everyone did the oh my God, Nvidia is in trouble at 140 and now it's at 170. You know, the only trend worth a damn in the last year has been lean into the hypergrowth, lean into a little bit of the math.

Just so I understand, Rory, you're saying depreciation is the primary reason why you'd see that damage something?

No, I'm saying yes, I'm saying not just appreciation, no one ever gets. No, I'm saying if you continue to spend and run through your income statement large capex without an associated revenue line, eventually the world says dude, maybe you shouldn't be doing this. Right. And the truth is right now you're getting the depreciation, you're not getting the revenue commensurate with the spend. You're getting revenue growth. Jason is right. There is large corporate demand, but even with the best will in the world, they can only digest so much software in a year.

David Kahn from Sequoia is.

I love that piece. Honestly, I thought about writing something like it and I was like, oh, it's done now. Don't need to say that. But the interesting thing is it's a great quote. The market can stay euphoric longer than you can stay solvent. If you traded that position a year and a half ago, you'd have said the man's going to top out. You'd have shorted Nvidia at 100 and you'd be one sad puppy at 170. And forget even the stock prices, the spend by the capex, the hyperscalers have gone up since then. So I think the thesis is actually correct at some point. But that's, excuse my language, fucking useless if you're a stock trader. Is it correct today? Is the only question worth the damn and I don't know when that happens.

And I think you bring that back to Jason's point of the $10,000 per developer.

Jesus.

I just want to buy more and more and more Nvidia today.

And I go fully priced for that baby. So I'm not in the same place but I, but as yet I go back to. But I think Jason is right, fundamentally that insatiable demand is there. The only question is how quickly can it be met? Quick enough to cover the nut. Can I ask you, do you think.

And I sound like a communist here, but we have never seen incumbents at this size and scale before with this dominance where they can drop $15 billion on a team and it's 40 days of free cash flow. Bluntly, who gives a shit about the money? It's worth the chips on the table. And when you look at Google's asset base, it's insane. Are these companies too powerful?

No, I'm just going to go straight out to the no, because whenever people have been equivocal on that one of my bigger hearts, whenever we've been equivocal on these kind of questions, you end up with people coming up with dumbass things like the whole AI regulation, like the whole FTC process. So there are some things about these powerful corporations I don't quite like and I wish we could do nuance and fix some of the problems without going quit. But if you have to pick one of two worlds, either idiot regulation or just let free capitalism run wild, I'm voting for the latter because I think in the end Mr. Market will take care of these things.

I don't know do Mr. Market says that you know Adam Smith's invisible hand and you're seeing that now with Zuck hiring with an unlimited budget, making B2B hiring, to Jason's point, the biggest problem in startups that will just get worse.

The interesting thing is we have to decide if oligopolies are okay now. Monopolies, we could. Monopolies you don't have. The case is clearer, right? And maybe monopolies are good, monosopies are even more complicated. But we could argue the monopoly dynamic here. All of these that we're talking about, the reason they're interesting is they're oligopolies. We have three to four players, right? We have Oracle's all of a sudden competitive, right? Massively competitive with Google, with Microsoft, with Amazon. We have OpenAI anthropic grok in friends like. And so if you want, I think if you want to give up on oligopolies, I quit this venture, I quit this business. Let me return capital, I'm going to do an open view, I'm calling it a day. Here's the rest of the money. I'm going to write out my winners because if oligopolies aren't okay, I quit like and you know if you read a classic textbooks on oligopolies, they compete on features, not price. There's a lot of hints of that, right? That these products kind of are the same price, right today and a lot of folks believe that's good for an economy because. Because oligopolies maximize innovation, they don't maximize discounts, but they pour all the money back into R and D because they're competing on features, not price, right? If you believe in technology, you might almost want oligopolies, right? Three to four players. Three to four players.

I totally agree with Jason. I just want to come back to your point on toothpaste because I think they're two actually slightly different comments. All of the incumbent older Companies, the trillion dollar companies are in their own market monopolies. Apple, I would argue near Microsoft, Facebook, Google in an old market, search, iPhone, social, though they'll resist that definition forever and whatever. Microsoft is corporate. So in the old businesses, they're in their monopolies. But Jason's exactly right. In these new businesses where they're putting their money and where the new startups are coming in, what you're seeing is oligopolies, which is what you'd expect. Now maybe fast forward 10 years and they grind down to monopolies. But right now, in the markets that matter, for all the power that Apple, Facebook, Microsoft and Google brought to the table, it's OpenAI and anthropic that are making the run in. So I would argue that says there's simply no need for these whining, worrying FTC people to sweat it. Because the truth is none of those companies executed well. I mean, ironically, Google, whom we all piss on, right, and say that's good, has executed the best of the four. They have a model that works. Apple doesn't even have a product that works. Microsoft bought someone else's product but doesn't quite own it. So it's kind of weird. Who else is there? Facebook is desperately trying to buy product, but it's not like out of success, it's out of terrible psychological need for a product, even though they don't have a business to justify it. So I don't think these guys are too powerful. If anything, I think they're a bunch of rich people on the back foot behind the new trend, desperately trying to catch up.

Rory, what do you do if you're Apple? You're looking at that assessment, which I completely agree with.

I think there's a board you say to yourself, do you have a management team that's too old? Because that's the only button you have. And I love Tim. I have made a lot. Apple is my largest single position. I have agonized about selling it for a decade and a half and I haven't. So I love that man. Thank you very much, my little house, much gratitude. But you just do wonder, is this the team to grab what's going on in AI, which they absolutely should have a product on? And at some point do you say you just have a bunch of folks who aren't figuring it out and do you make a change? And that, you know, that's. That was the comment rather than some kind of tactical, hey, you should buy X, Y or Z, look in the mirror and say, are you getting this done now. I think it's very hard for a board to do. I think it's very hard for a board full of supernulleries to do. It's very hard when the numbers are still good. But, you know, you haven't grown in five years. You've done a magnificent financial engineering. Thank you very much again for your dividend. But you're not winning. And at some point the buck stops at the top.

Well, do you think AI? I don't know. Do you think AI is, do you guys think AI is a legitimate threat on its own to the App Store?

No.

Because if I look at Apple today, it's 25% of the revenue is from the App Store. 40% of its profit, right?

Yes.

And 75% of its revenue is iPhone and App Store. So if AI just enables more apps to be purchased and Apple keeps its tax. Right. And AI and maybe, maybe you should stick to your lane in the short term. Right. If you couldn't get Siri to work after 27 years, if app Store is, is a monopoly to your earlier point, and it's not, not everything's under threat from AI, Right? Not, not everything. If it's a beneficiary of AI, Right. Then maybe, maybe they have the last laugh. Maybe they have this high margin last laugh of all this AI revenue gets more and more of it gets routed through App Store and they take their 26% fair comment. Could be worse. Could be worse than taking 26%.

I, I but I agree that Jason, because you're right, when you make the hardware and the logistics of making the hardware the thing you're amazing at and hoping to design, your whole business doesn't go away. You're exactly right. You don't have, you can talk about Google ironically and say existential threat to the downside, if no search, no matter what stuff we're using for AI, I think we'll be using on our iPhone. So I think that's a very fair pushback. It's not as existential. Right. But the brutal thing about capitalism, it's like, what have you done for me lately? Congratulations on building the best consumer product in the last 50 years. Thank you for the App Store business and the services business, which is awesome. But did I mention, you know, what's the new, new thing? Right. Do you want to run the risk of another, you know, we waving my arm furiously here. Open AI Thai personal companion that knows everything about you. Do you want to let anything get between this and you as a user for your 1 billion user base. So I agree it's not existential. It's not, but it's a. If you're not moving, you know, it's a shark thing. If you're not moving forward, you're dying. And they're not moving forward in AI, Google pays them to be the search provider and maybe they just collect their tax that way. You're exactly right, then that OpenAI can do the same thing. And maybe Apple says we build great hardware. Our hardware has such a dominant place that people will continue just to pay us money. So, you know, we got it from Google and we're fine. Even though the courts are trying to stop that now we're just going to get it from OpenAI. You actually that's the argument that says stick in your lane. You make the 20 billion from other people giving you money. I don't know if I buy it, but yeah, that's the argument.

I don't know how much OpenAI pays Apple today. Let's assume it's still zero.

Right.

Which it used to be. I'm skeptical, but you know, if it's. I mean, Jesus Christ, 108 million going through true per month. I may have wrong. You know, if, if, even if there's a sweetheart deal here, if Apple can just keep 25% of all of that, it's a good model.

One of the challenges I would push therefore is owning the hardware is a great bit and it has a long inertia factor. In other words, long after you stop innovating, you can steep monetizing.

Right.

Which is I think the stage where they're at now. And the question is, at some point do you need to do more than that to keep not just surviving, but growing. Right. And that, that's. And that. And maybe it is stay in your lane and just get paid by everyone else effectively for product, for placement.

I love that debate by the way. That was a fantastic discussion for me as an observer. It was brilliant, but it's a tough one. You said there about management team switch. Maybe Zuck hired again with another stellar hire from OpenAI Chief Scientist or whatever it was. I mean just he is going all out. To what extent are we like 80% of the way there in his mind, do you think in terms of his acquisition on talent spend versus this is 5% of the way there. Like when does Zuck stop this siege?

I don't have a clue. He seems, I mean his argument, which, when you heard the speakers, If I'm spending $30 billion on capex a year or 40 billion, whatever it is now do I need to, should I skimp on the five or 10 people who can spend that most correctly? It's Jason's point. The super S care engineer is spending so much money that you know, you, you don't care. My, I mean, my assumption is that at some point, at some point the marginal return on the next scientist gets negative. So you probably stop spending 100 million bucks a pop. But you know, I get what he's done. He said I'm going to spend 40, $50 billion in CapEx, I better spend a billion, $2 billion, $5 billion to make sure I have the smart people to kind of implement that program. It makes sense.

You know, it's not even that big of a deal because if, if he wants, which isn't going to happen, he can always just stop. It's only in the past. He can stop tomorrow and say we're just going to, we're just going to harvest classic Facebook Facebook ad revenue. We're going to become the next Yahoo and we're going to kind of just be a cash cow. It doesn't matter. What, like if you're a public company that's massively profitable, the past doesn't matter. Does, doesn't matter. Right. You can write off any, you can write off anything, you can fire all the people and you're still obligated with these massive contracts, but you can also write them off as one time expenses or stick them another bucket. They don't matter. They don't matter. If you have massive cash, you can always do a mulligan at least every eight quarters.

Yes, and obviously, but they did a mulligan on virtual reality with the whole.

Yeah, the mulligan.

But the interesting, but the argument is, well again he gets to the. Are you buying insurance or is it existential? I mean implicit in that statement is that if you do nothing, if you're unsuccessful in AI, your core business just continues to compound. Right. And as long as that's true, you're right, Jason, if the core business is kicking off, what's it, 200 billion a year of revenue? 40%. If your core business is kicking off 40 or $50 billion and you make a $40 or $50 billion mistake, you just go in the penalty box for a year and you move on. You're exactly right. But of course part of the reason he says he's doing it is because he says it's existential. The horrible outcome is you misfire on the new innovation and the new innovation eats your core business. Right. Like I would argue for Google, if they misfired on AI, they wouldn't have search. Whereas I think your point was right. More right than me. If Apple misfires on an open air type AI product, they'll still be making hardware and it won't be existential. And to your point, if Facebook misfires on matter, they clearly still have Facebook and if they Misfire again on AI, you're as long as they still have, you know, 40 billion of free cash flow, nobody cares. So you're right.

And I think it's even. I think the other thing is like when I intentionally, you know, Zuck is telegraphing to the market, I'm making this bet like very clearly. Right. And so like when I was a VP at Adobe, you're trapped with your 40% net margins because you can't invest in anything because the market is expecting cash to reign to the bottom line. Come. And yes, shot new did a good job when they were moving to the cloud of getting, getting, getting some credit once for a massive generational shift. But, but Zuck can not only spend all this money, but he can say to the market, give me a little bit. And Larry's doing the same right. At Oracle. Give me a little time. Right. We're going to get back to those classic margins and the market won't punish you because most public companies are trapped in their margins that are profitable. You're stuck. Like you can't go back. It is almost impossible for most public companies to actually spend the cash they're generating. So Zuck's got a triple down here because he's getting also a hall pass. The market's saying it's okay to spend everything. Right.

Look, remember, it's not only that the market won't punish you. The important point is the market can't punish you because in the case of Meta, you avoided control.

So yes, the market, but your stock price could be.

But it's worth pointing out if you're. But that's why I think you're exactly right, Jason. If you're a quote, normal company, your stock price goes down and the vulture circle. Whereas if you're Meta, your stock price goes down and you're sad and you say sorry and your employees don't do as well and there's dissatisfaction, but you still have control. Same thing with Oracle. So I think that you're right. Those two players can swing a bat secure in the knowledge that no one has a voice other than them, which must be.

And they can actually take, they can actually spend their Cash, which is otherwise trapped. Yes, trapped. With these large public companies, it just builds up in weird areas and it's unspendable. All you can do is repurchase your stock, right? Most all you can do is buy something, an acquisition and do some accounting shenanigans, right? Or repurchase your stock. Most like steady state, boring public tech companies are trapped when they're profitable. It's not. It's not the. It's great because you're not losing money, but the lay people like, why don't you invest it? It's not that simple. Your EPS goes down. No one likes that with a normal company, right? No one likes that with a normal mature. No one wants to see Zoom's revenue EPS go down. It's the whole value of the company today, isn't it?

And this is why Mr. Buffett is right. Once a company becomes ex growth, the most important thing to assess about management is their ability to rationally allocate capital, including sending that capital back to the shareholders, which is, as we said before, Oracle has done in spades. Anyway, what else, Harry, what else we.

Got final one and then we'll do a quick fight. It's just Figma is obviously going to IPO this week. I do think we have to talk about this. I don't think enough people are excited enough about it. I remember when this would have been the most exciting thing in tech this week and it would have dominated news. This is, you know, it looks like it'll price at, you know, 18.8. I think it prices 5pm either today or tomorrow, which is yesterday. When this is out. Are we excited enough about this? How do you expect this to pan out? Is a pot baked in? Help. Help us understand it as an audience.

I think it's unfolding. If anyone listened last week and this week, by definition, they were glutton for punishment. But it's unfolding exactly what we said last week, which was the price the filing range was, I think, 24 to 28 or something like that. They've drummed up demand, which felt low. They've drummed up demand just in the last 24 hours. They've refiled to, I want to say, 32 to 35. So it's worked. The bankers are doing a great job. They've whipped up enthusiasm now that they know they're multiply, oversubscribed, they've raised the filing range. I'm sure the rest of the drama is pricing at the high end or maybe above the range and then a pop. So the Whole movie is unfolding now that they know they're multiply, oversubscribed, they've raised the filing range. I'm sure the rest of the drama is pricing at the high end or maybe above the range and then a pop. So the whole movie's unfolding exactly out of talk about how they're trying to make people be more specific about their demand to better allocate the shares and avoid that pop. But I think the structure of these approaches means that that's almost unstoppable. So my gut is, and this is horrible, because you're predicting something, you're breaking the first rule rule of predictions. You either predict the number or a time, but never boat. And I'm predicting something now that by the time this thing comes out, people will know if we're idiots or not. But my sense is it's hard not to imagine this thing pricing and then popping very well because the structure of how they went at it is such that they will almost certainly be that money left on the table feeling. But I'm wildly excited about it. I think it's great. I mean, it's a wonderful company. It's got compelling numbers. It's a great story of a guy picking himself up after a difficult acquisition and showing the world it wasn't just going to be a acquisition or nothing story. And by the way, I think everyone gets excited once it prints because it's all just talk now. But the reality of four VC firms each making a billion dollars, that'll focus the mind.

You know, it's funny, I just remember September 22, September 2022. Saster Annual was in September then. And the Adobe deal acquisition happened and no one talked. 10,000 people talked about nothing but Figma.

Correct.

Nothing. Now this was after the. It was a fascinating deal because the 2021 bubble had implode. It crashed, right? And all of a sudden Scott Belsky and Timar, our heroes, they're going out in 2022 and paying 2021 prices for this scrappy startup, Figma. And it was people's jaw dropped, right? It's like this was the deal of the century, right? Fast forward to today. And this is their. That in my ecosystem, people aren't talking about it. Listen, four VCs making a billion dollars, great topic for, for the pod, right? Don't get me wrong. But. But it's just boring to people today. And it was, it was the 10,000 people executives there. The crowd was hushed in 2022. September 2022, no one ever. Nothing to talk About. And now let's, you know, I might, I might burn. I might burn 6,000 on my, on my. Claude credits this, this month. Lovable did what again? I mean, it's just, it's not that this, you know, hopefully this is a $30 billion market cap company for all of our sakes. But it's, it's. The zeitgeist has been lost here in traditional software. Even the best of the best of the best. Figma is S tier. It's the. Maybe it's the. But, but it's, it's not capturing our imagination the way it was and maybe that's okay. B2B software used to be boring. Maybe it's super boring again.

First of all, I just want to cue the Scotty Schlafer, you know, the interview, the five minute interview when he says, you know, you win the Masters and then, you know, five minutes later it's like, you know, the press is asking me, how are you going to play next week? This feels like that. It's like, you know, venture returns $30 billion. And all Jason's got to say is, well, you know, what's going on at Lovable, right? There is, but I think you're right. I mean, this is the vibe.

It's the vibers.

Now, a couple of things. One, there's no doubt that once you announce a 20 billion acquisition, everyone's kind of monthly, mentally ran the cash register. So you don't get that. You know, it's odd to take the victory lap twice, but I totally think they deserve it. But I think the more salient fact is what you're saying is there's still going to be a few more pre AI IPOs at scale because there's a couple other companies like that, like Canva and stuff. But you're right, the hype cycle has moved on to the new story on what's going on in AI, which by the way, doesn't mean that massive amount of money can't be made in other areas. I mean, I always think, you know, and even in, you know, I think if you look back, semiconductors. Semiconductors became uninvestable by venture in about 2004. And in the subsequent 20 years in the public markets, people made out like bandits. It was the best performing sector ever, even excluding Nvidia. Right. So I think what's happening is startup activity in the space that Figma plays is not going to be a thing anymore. You're not going to do a non imagine you're not going to build a non AI collaborative design tool. You're not going to build a non AI any kind of B2B software. So as you say this and the excitement, the new, new thing is not that, but that's the function by the way of it taking 12 years to go from a startup to an IPO. By the time you get to an IPO, and I think we're going to see this across the board, by the time companies that are 10 year old get to an IPO, you probably are half a tech cycle or a tech cycle behind. It's terrifying. I said this to an lp, our holding period is now longer than the tech cycle. That's a terrifying fact. Figma's holding period is 12 or 13 years and you're now in a world where they talk in the S1 about, you know, we're going to have to adapt to AI now. It's going to be an amazing company, it's going to be great and I think they will adapt to AI. But it's just a, we're talking here about intangible things, not money things. And I usually prefer to talk about money things but you're right, Jason, from a buzz perspective, the caravan's moved on. But on the other hand it's moved on and deposited 20 to 30 billion dollars. I think everyone involved will get over there, get over their sadness very, very quickly when they look at the stock.

Surfs and when Figma nails vibe coding, man, that's going to be what we all want.

What?

Well, I mean they're going after it with Figma.

I know, but it's what we really want. We don't really want because if you look at the replits and the lovables like today and the world's going to change and I'm a super fan of both right now, sending my bumps. But a huge use case today is prototyping. If we're being realistic, it's prototyping apps and it's very powerful and it's very fun and the pixel perfect osity is terrible. Like they look, the apps look, you can smell these apps and they're not what real apps look like. So as soon as I go into Figma and do this and it looks like I really want it to look like, like a designer for. I'm out, I'm out of anything that's not pixel perfect. I just don't want it like I don't want, it's just like a Squarespace site. I don't really want something that looks like squarespace and I can smell a lovable or replit app within six seconds of hitting their website. And so Figma isn't going to disrupt programmers right? Like the way lovable replit is. But this prototyping, I don't really want to do it in these apps. Listen, you're closer to it Harry than I am but I can't imagine this isn't a very interesting war in 2026.

You mean here the war between the Vibe coding and you know design feels like Figma interesting right now they're great.

You can go into Bolt or lovable and replit in different ways and in some cases in one click go from Figma back and forth. It's great. But today they're great partners. It doesn't make sense that they will be great partners for prototyping in 12 months. It makes no sense. And Canvas saw this early right. I don't know whether they'll really get there but they saw that's why they went tried to go really early into this. They got it right.

I think Canvas product will much more compete with lovables the much more consumer friendly children doing science project, mothers doing businesses that is the I think the designer to really average consumer bluntly is a very different product paradigm to design for and I I don't see that.

Competing make makes sense that Canva is a bigger competitor at the low end. Right. And you know that's why Wix Bot Base 44 or whatever but to the extent but I see on my social you know got to be careful of X. Right. It's a weird cross cross section of the world. But I notwithstanding all the complaints a lot of developers are using these products to prototype the folks that have helped me as a Vibe coder. These are CTOs. I had a CTO reach out to me at 80 million. He's like I just didn't want to distract my team. I'm building my own app in replit. Here are my 10 tips and so that I would rather like I would rather do that in Figma that use case so it just the comp as you the competition is at multiple levels, right?

Yeah because some part of the Figma user base is you know more picture perfect you know full on built out apps. But some app some is some is rough me up what this thing would look like. And your point is? You might want to do that now using a tool that actually builds you a vaguely functioning prototype.

Well even more like listen I mad respect for Figma but as an end consumer I hate it when I get a figma A Figma link because the thing doesn't work. Yeah, I don't want to click through from, from like this is, this is why, why working with designers, I want, I want to blow my brains out. I don't want static stuff, okay? I want it like when you send me my figma, okay. I want it to. Now I'm not expecting that it works in production. I want it to work. I don't want, I don't want to, I don't want design elements. And so as soon as my figma works out of the box, it's vibe coded, man. That's, that's what that. Then, then that's all I want. Right?

And then the fun thing for those guys, like, I mean, look, the very best companies run by founders who see this, who've demonstrated and in my view, these guys clearly have the ability to bounce back from stuff, are going to be all over this shit and you are 12 months from now. It's going to be, you know, if, if you don't have a billion dollars at stake in it, it's going to be fun to watch. You know, how what kind of products these guys roll out to be competitive with parts of either the coding, the cursor or the prototyping marketplace, and how that design all the way through the code marketplace shapes out. Because look, there's a big pot of money here and everyone's trying to make sure they get that bit right.

We're going to have some fun here. Okay, so we're going to do a Kalshi quick fire, but I'm just going free rogue on this one. And I tweeted this last night because I was just super fricking intrigued to see where everyone landed. And so the tweet was, let's play a game, end of next year, over.

Under, under, but close. Yeah.

Well, you think? Harry, help me multitask. We're coming up on a billion today, right? Yeah. And the bet is 4 billion next year, right? What is, what, what is just my L4M model, say, just trailing velocity, say that that gets me to almost, that gets me to almost 3 billion or so.

Yes, you get the 3 billion. Yeah.

So okay, now, now use my math of, of at least spending twice as much per developer, bare minimum. Right?

You get there. You're right.

I got, I gotta, I gotta go.

Yes. Yeah, yeah, you're exactly right. I, I, I buy that by the way.

It does.

And that by the way, it's also proof if they're doing 4 billion. And I don't believe the gross margins, those negative people say. But if the gross margins are 50%, that's another 2 billion coming on tropics way. So it's been good for them too. Next.

Yeah, I don't. I don't think the gross margins are negative.

I agree. So even 50 gross margins, I can tell you as.

As someone who keeps paying these replica checks, they ain't negative. I guarantee you. Replace Replit's gross margins are pretty good.

Okay.

They're. They're pretty. I bet they're in the 60s even today. I could be wrong. But they're not losing money. They're not. At least at the gross margin level. There's just. No, they're not.

They.

There's no way they're losing money with what they pay, what they charge. Right. It's a. It's a high markup to give you this environment. Right. It's a high markup on those tokens.

Lovable hits 400 million arrow by the end of next year.

End of next year first I have no doubts. Yeah, that's easier to do the math. One to 106 months. I mean that would be a colossal F up if it doesn't get to 400. As crazy as it is. Right.

Where does it price then, Jason?

What's that?

Why does it price?

Unfortunately, Harry, it might be to a down round to the recent price. Unfortunately.

He's just messing with you.

Cut.

Cut.

There's only, only one hitch in the analysis as we regress to the real world, right. Of real. Of real. As we regress to the mean for valuations. Unfortunately.

Unfortunately, I'm gonna. It's interesting when I look at those two bets, they're not dissimilar in the sense of they're but lovable being at 400 million versus cursor being at 4 billion. I'm just trying to assess the relative likelihood of the two. I think the cursor bet's a little more sure. Look, the trajectory of lovable as you know better than me, 100% points to that. The only thing that could bite you in the butt would be some kind of churn explosion. And you obviously have the data and I obviously don't. So I'm just trying to come up with hey, if your job isn't investor to think, what could prevent that from happening?

The bull case is easy to make to pull out of our beer. The bull case is easy. We could do that.

The bear case is you were wrong about long term duration of subscription. And you know you would argue Jason, that's Not the case because you're now a guaranteed vibe quarter subscriber.

Final one We've chatted a lot about predictions the final mother of predictions. OpenAI Is it over or under on 800?

What do you mean 800 for what?

800 billion valuation for a company when? By the end of next year. Oh now it's reportedly raising now between 360 and 380 just under.

I'll tell you what I'm doing mentally there's no larger I'm just looking at the step ups in the rounds as you'd expect are getting smaller right. You get 2 or 5x and then you have you go from 80 to 150 which is almost a double just under 300 to now 350 I don't know if they raised the 300 and there's another 350 going on. I'm just guessing. Do you see another doubling round by the end of next year? It's a lot to have happen. It might be worth it but another price round above 800 don't know.

I'll take the contrarian on you there and say that because of GPT5 and because of Kodaks being too few very significant breakthroughs they'll have enough. Plus Jony I've coming out with something a first product. The three combined will be enough to get enough excitement over 800.

Just two quick thoughts on it. One I think there is so much money and more invested in this company sometimes these valuations are just willed. Sometimes people are too deep. Everyone's too deep into OpenAI and if OpenAI needs 800 to survive OpenAI will will find 800 it will find it. It may be through investors that get other things. It may be through existing investors, it may be through weird combinations of offshore money but no one can afford for it to lose anymore. There's so many stakeholders that if that is what needs to be solved 800 it will. It will be solved. And I actually think the meta issue, you know the CEO of Anthropic had this thing this week where he was explained because they're supposed to be the good guys right? This we left open AI to build something safer and he's explaining why we have to take money from the Middle East. Now I don't know if you saw this right? He's like we have no choice. We his point I guess the flip side is he didn't want to that this was lowering their at their their pristine ethical values to take money from the Middle east but his point was we have no choice, Right? So I think the bigger issue isn't 800 billion because people are invested. The bigger issue is when will all the capital on Earth and Mars be exhausted? And there is. That is a finite number, right? It is a finite number. You know, you know, Trump has already been lassoed into Stargate with David Sack. I mean, Rory can help me figure this out. There is at some point open I could consume all available capital available to it in the Western world or in the Eastern world.

Let's talk about a more nuanced version there, because I do. It's actually an interesting question and I think, I think Paul Kadrovsky did a piece which is just looking at the capex investment in AI as a percentage of GDP and comparing it to two other booms, the dot com boom and the railway boom in the 1840s. I loved it because again, I was trying to think through what are the comparables. And the railway track analogy is a good one. We're running now at about 1.2% of GDP, which is basically 1.2% of GDP, is going into making CapEx data centers, which is a little above the 1.1% of GDP that was going into bandwidth at the top of the 99, 2000. So we were already slightly bigger than the bandwidth boom. And we know how that ended. But interestingly, and I did not know this, it was 6% of GDP in the railroad era a year. So at peak railroad mania, it went to 6%. Now, as they pointed out, in that case, you were building an asset that lasted 150 years. Years. And in fact just today did a huge acquisition. Whereas in this case, you're building an asset that appreciates over three years. So it's not like with like. But just to kind of give a sense of the outer bounds to your point, Jason, of how crazy could this get, right? We're already a bigger boom in terms of CapEx than 99, 2000, but we're nowhere near as big as boom as the railway boom. The pleasing thing about that answer is it allows both parties to continue to feel great. If you're a nervous guy like I sometimes am, you're like, shake, this is crazier than 99, 2000. Makes me nervous. The Internet was big. Dunno. If you're an optimist, you're like, hey, we're only spending one quarter of what we spend to build the railroads, and intelligence is better than railroads, surely, so we're fine. So it's a nice piece of analysis that literally doesn't allow you to conclude anything. Right. My gut is all joking aside that I don't think you can get to 6% of GDP.

Apollo was 4.4% Apollo, but that's just the space program.

That's the total. Now I'm winging it, but I'm totally willing to do it. That's 4.4% of GDP across eight or nine years, which is an annual spend of about 0.3.4%. It's not a single year. There's no way we spend 4% on Apollo. I think, you know, we were only spending 6% on defense. So no, it's, it's per year if.

I believe Reddit, which is always correct. But, but four point, it breached 4.5% in 1969. It was just under it in 1968. 4.4% of our whole economy. In all seriousness, I think that's why Sam Altman named it Stargate. I think, I don't, I don't, I think everything he says that, that seems simplistic and calm and almost cute. When he says Stargate, he's like saying, listen, guys, we spent 4.41% for several years on Apollo. We should spend more on, on, on, on AI. I don't think it's a coincidence. I don't think I took me a little while. I don't think anything he says is flippant. I don't think it's flippant. I don't think it's, I don't think it's off, off, off the cuff. I think he's, he's doing his own nerd, nerdy style of clear communication. Stargate is Apollo. We need it all and David Sachs is making it happen.

Right?

So let's.

Okay, so, so 6% on railroads ended in a bust. 4%. I'm going to give you your 4% for two years and I'm going to check it all. But just say you're right. It is worth pointing out in 1970 they just stopped funding NASA like crazy because they're like, if you look at.

This, if you look at this chart on Reddit, the crash is bad, man. Yeah, peaked in 1965. Peaked in 1965.

We've got the moon, we're done. Let's kind of recycle the dollars here. So, you know, 4%, then it crashes. So yeah, you could look at 1.2% of bandwidth and it crashes. So we're clearly above of the possible crash limit, but below the outer bounds. I don't know what to make of that. I don't know if you spend as much per year for five or six years on this as you do on relevance. We'll see. And this is why, going back to what I said earlier, you can love the long term trends but at the same time you can say to yourself at some point there could be a break in the spend to bring it back to your point. It's also why you have to go to sovereign wealth funds because you need. I mean we're now so irrelevant in the context of financing this that it's almost laughable. Right?

I mean I think it's, I'm going to get in trouble for this. Laughable. That's a moral debate on, oh no, I'm sorry, we have to go to Saudi for money. No shit you do.

Because that's where the money is. I also think it's fair to them and I'm trying to Don Mike, they obviously from day one on Tropic was set up very much thought to be more angsty than most about trying to do good. And it's interesting if you look at both companies, I mean if you just read OpenAI, it's been a long journey from we only want to do good to oh my God, we need to raise a lot of money. And it's almost touching and it's starting off with innocence and then coming to grips with the fact that it turns out it's very hard to raise $200 billion for charity, whereas $200 billion to turn into $800 billion. You can find pretty much anyone to do it. You know, the convert. It's basically watching a whole bunch of folks realize that there's a reason why capitalism exists. It's actually very, actually life affirming. As a capitalist, you can go, hm. These are people who a priori would have been appalled by all this. But when they went out to actually pursue their dreams and they wanted the capital to get those dreams possible, they had to join the system. Yeah, welcome to capitalism and that to tie it back.

And that's why I think open if, if OpenAI needs to raise at 800, not wants to, if it needs to, it will solve for it. Whether it's solving wealth, money, whatever marked up stuff warrants, we don't see a backdoor. Promises, promises for access.

That's actually an interesting point.

It'll solve for it.

That last one will be the. I mean we didn't talk about it, we didn't have time. But you're right, Jason, part of the asset you have to monetize is your ability to tell large sovereign wealth you can tell. I mean I think OpenAI is a way of telling it. A domestic sovereignty story will give you your model will give you a thing and people aren't going to put an ARR multiple on that. They're going to for the right.

I don't care.

So I think you're right. I'm not sure It'll be worth 800 but again one of the reasons I like doing this is I change my mind when I hear good arguments. You're right, Jason. They probably could find a way to back into it which is different than saying it'll price the day it goes public in a public market which will be a very different discussion.

Tim, I gotta be honest. I think the best show we've done, I mean for me as a spectator, I've enjoyed it the most. The debates have been fantastic. Like bravo. Both of you really like amazing fun. Thank you for this guys.