《All-In》播客登顶全球榜首及嘉宾讨论AI泡沫与创始人使命

Jason Calacanis: All right, everybody. Welcome back to the number one podcast in the world. Actually, you manifested. We actually were number one. How good is that?

David Sacks: We were literally number one last week. Only took uh...

Chamath Palihapitiya: Only took a little bit of time to get there.

David Sacks: Only took five years.

Jason Calacanis: Only took five. Yeah. Five years went by so quickly. Uh with us today, David Sacks is back. How are you doing, brother?

David Sacks: Good.

Jason Calacanis: You good?

David Sacks: Yeah.

Jason Calacanis: It's good being number one.

David Sacks: Yeah, it's good to be number one. I agree. Yeah,

Chamath Palihapitiya: I agree.

David Sacks: I've done an excellent job.

Jason Calacanis: You've done a very good job. And now...

David Sacks: Beautiful.

Jason Calacanis: Now we'll see who takes the most credit for the ascension of the All-In podcast. Uh over to you, Chamath Palihapitiya. How's your week been?

Chamath Palihapitiya: It's great being the number one position. Yeah, it's great being the best. I mean, we would have...

David Sacks: I feel like Sacks and I would have gotten here at least 18 months sooner had we not had to drag you on our back.

Jason Calacanis: Oh, okay. The point guard who actually put all those dimes and positioned the ball everywhere you guys wanted it. Yes, you would have you certainly would have gotten there uh eventually if you guys actually knew how to start.

David Sacks: Where would we be without your constant interruptions?

Chamath Palihapitiya: Sooner. We would have been number one sooner.

Jason Calacanis: You would you would be where every other tech podcast is in the 400s. And joining us this week in replacement of venture...

Chamath Palihapitiya: Also number one also number one.

Jason Calacanis: Number one venture capital firm in assets under management I believe certainly...

Chamath Palihapitiya: None other sir...

Jason Calacanis: Then Ben Horowitz is here. Hey Ben how are you?

Ben Horowitz: I am doing well. Thank you for having me on the show. Uh it's great to be with the number one team.

Jason Calacanis: Yes the number one podcast in the world. How does it feel to be on the number one podcast in the world? Have you has it, you know, like have you soaked it in yet, Ben? Is it just...

Ben Horowitz: It feels great.

Jason Calacanis: Yes. Yeah,

Ben Horowitz: It is awesome. I feel bigger already.

David Sacks: It is kind of amazing that a tech podcast could be the number one podcast on...

Ben Horowitz: That is bizarre.

David Sacks: Apple podcast last weekend.

Jason Calacanis: Big docket this week. Uh good to have you here, Ben. And uh Friedberg is busy saving the world from famines and he'll be back next week for all of you.

David Sacks: He retired. He retired at number one. Yeah, he just he he walked off the court.

Jason Calacanis: Oh, that's hilarious. Well, um we've had an eventful week. We uh may have actually had the AI bubble, if there is one, pop or deflate a little bit. The Neoclouds got crushed this week after uh CoreWeave's bonds started to sell off. Could be the canary in the coal mine. We'll find out. uh CoreWeave, IREN, Nebius, these are all the biggest Neoclouds. They're all down about 20% as publicly traded companies. Here's your chart. Here's what happened. Just a little bit of background. On Tuesday, a bunch of people on X, including @chamath pointed out that the yield on some of CoreWeave's debt had hit 15%. The yields uh are obviously rising because bond traders are worried about CoreWeave's ability to generate enough cash to support its debt. So they want a a higher rate of return. Obviously adding to Chamath's little tweet was a friend of the pod Elon Musk who decided to contribute five letters, one word that has since been heard around the world and is at the start of every story. He said, "Yikes, y i k e s." And that generated a bunch of headlines. Then everything tanked yesterday, Wednesday, we tape on Thursdays, as many of you know. CoreWeave, IREN, Nebius down between 10 and 15%. Even Oracle uh and Dell took some strays. Nvidia uh took stray as well. They were down 3%. CoreWeave is the tip of the spear. They've raised over $35 billion. We had uh the founder, we had the founder Michael Intrator on the All-In podcast back in March in which he explained to me on the All-In interview show what he called the box. Let's roll that tape and get Chamath's thoughts.

Jason Calacanis: How does all that debt work? That is something that you guys specialize in.

Michael Intrator: I'm going to try to explain this in a way people can understand. So, we go out and we find a client. Let's use Microsoft. You brought them up before, right? And Microsoft comes to us and says, "We'd like to buy some config for you." and we say, "Okay, great. We're going to sign a contract." Once I have a contract in hand, then what I do is I create something. It's not a particularly creative name. It's called the box. Yeah.

Michael Intrator: Right. And what I do with the box is I take my contract with Microsoft and I put it in the box. I go to Jensen and I buy the GPUs. I put it in the box. I take my data center contract, I put it in the box. And now the box governs cash flow and it has a waterfall of cash flow that comes into it and goes out of it. And so the way it works is then I build the compute and then I deliver the compute to Microsoft and they pay the box. They don't pay me. It goes into the box and the first thing it does is it pays the data center. It pays the power bill. It pays the interest and the principle and then whatever's left flows back to us. What's important to understand is the economics in this box are such that within two and a half years of a five-year deal, we have paid for everything. They don't cross-pollinate. They don't cause contagion across the boxes. They're all independent and discreet. As you do this and as you show the lenders how this financing tool and how this financing mechanism works, what they do is they continue to lend you money at progressively lower rates.

Jason Calacanis: Okay, Chamath, that seemed like a completely reasonable explanation of how they were running the business and that each of the boxes were isolated, but something has changed in the last 6 months. What is that and uh what's changed here and and your insights into his financial innovations?

Chamath Palihapitiya: I would say uh with CoreWeave the most important thing that you should always look at is how the sharps the super smart money prices risk and when you're dealing with companies like CoreWeave or Nebius or IREN etc that have to borrow a lot to fund these boxes the smart money is trading what's called a credit derivative swap. Okay, this is default insurance and these default swaps are meant to ensure the bond holders against a potential default. That risk spiked this week to about 953 basis points, which it doesn't matter what that number is, but as an imputed risk, it's about a 16% chance of a default in any given year. And over a 5-year duration, what that math implies is about a 55% chance of a default. So, it's a coin flip whether they default or not. That's not what I'm saying. That's what the insurance market was saying about their debt. And I think that's something to look into because those guys I think are the smartest money in in all of this. So, why did they do this? I started to dig into it and here's a couple of charts that explains a little bit of what I learned. Okay, so the first thing is just a market check. You know, we've talked about this, but we have a problem in the United States, which is that the US is moving the risk-free rate higher and higher. Who is doing that? These are the central bankers. These are the bond vigilantes. These are the people that say because of inflation or other long-term risks that are not getting put out of the system, we need to get paid a lot more money to own the safest riskless asset. As that goes up, basic way to think about that is as the 10-year bond goes up, everything else goes up. And so this black line represents the average price that you have to pay for junk debt. And what you see is that as the 10-year went up and people are like, man, the risk-free rates going up, the junkiest junk bonds need to pay more and more and more. And then the purple line here is what CoreWeave has to pay. And what you see is that it also has started to tick up and has moved up relatively violently. And so the question is why has it done that? Okay, so let's go to the next chart. Michael is right that he is in the business of creating these boxes and then putting in contracts and GPUs, but he also needs to put money in those boxes. And the way that he

Chamath Palihapitiya: puts the money in the box is he has to go out and borrow that money. So he goes to a lender and says, "Give me the money and I will pay you that back plus some interest." What you see here is what is inside of the box effectively. So the gray bar is how much money he's guaranteed to get into the box. These are all the deals he sold to all of his customers.

Speaker: These are contracts. Yeah,

Chamath Palihapitiya: these are contracts. Now, and it's important to note because I'll get to this in a second. It turns out that these contracts are fixed price. So meaning if what you could sell in the spot market goes up, you don't really generate that revenue because you've already pre-sold it at a fixed number. So, Michael creates the box. He gets a long-term contract, which is great because you have certainty around the revenues you're getting, but he sells that. Then he goes and has to finance it. And then some of that financing comes due. He's got some bonds that are due and some loans that are due. What this basically says is at the midpoint, he has to raise another $35 billion of debt to get all of the contracts that he signed financed, right? All the boxes financed and up and running. So he has about 35 billion of debt. He needs to raise another 35 billion of debt. But as you saw in the chart before that's ticking up, and it has nothing to do with him. It is because the broader market is essentially saying the risk-free rate goes up, everybody has to pay more because your spread above the risk-free rate has to track with it.

Chamath Palihapitiya: Okay. So today across all the different pockets of money in which that they have used to fund those boxes their average interest rate that they pay is about 8.5%. The problem is that in this last little while the sharps basically said hold on this is getting too close to the knife's edge. You're going to have to pay more interest. That's what I tweeted, which was just, you know, one of the sleeves of interest. This is the GPU loan DDTL 1.0 spiked to 15%. The problem is that could theoretically now be the rate that they have to pay for all of the future. And remember, half of it's financed, half of it is still unfinanced. Right now, these guys are in a pretty good place because they have about 780 billion of assets and only 35 of debt. So, they're well covered. So I think that you know this idea that they're at risk is not on the surface true but the reality is that they have this problem which is they have extreme customer concentration. 75% of the revenue comes from three companies. Some of those companies are walking down what their revenue expectations are into the future. So you have this situation now where you have to go out and borrow at a much higher rate. You have a bunch of debt you need to go to fund the boxes and you have a fixed amount of revenue going into the boxes. So what is the trade or what is the setup? It's basically a coin flip now on the following idea. I think the market is saying that if they are able to finance this stuff at a reasonable rate and the life of the GPUs that they buy from Jensen are longer than what they think, they're going to be okay. But if the financing goes up and into that, you know, 10, 11, 12, 13, 14, 15% range, these guys are getting very, very, very close to not necessarily being able to cover all the obligations that they have. My team's estimates is that they're plus or minus about 5 billion away from that break even point. So, I think that's why the CDS spiked, which then caused the bond yields to spike and caused the bonds themselves to lay off. So in order of operations, number one, I think they've created this very novel structure that everybody else has copied with the boxes. Number two, they've sold these fixed contracts. That's super smart, guaranteed a bunch of revenue into the future. But we have this situation where as the risk-free rate goes up, their cost of borrowing goes up. That erodess the margin that they have that then brings them close to this break even point. That causes the CDS to react, which then causes the bond yields to react. That's the negative reflexive loop that they're in. So, they just have to find a way to break out of that. I don't think that they're in real risk. But, as we all know, this is sort of a confidence game and you need to have confidence that the broader market can support another 35 billion just from these guys. And I think that's what's going to get figured out over the next month. All right, Ben. So, you look at this situation, you've been through a couple of bubbles before, maybe have a little PTSD or scar tissue, in fact. Um, and we saw carweave bounce today, kind of hit a bottom, stocks up 1 or 2% right now after going down 10%.

Jason Calacanis: Is this acute? And then what does it mean for the broader AI trade, the AI bubble? Is there a bubble? And and we'll get into anthropic in a minute. Saxs.

David Sacks: Yeah. So, so I think that um the the first thing to understand is these these businesses like Cororeweave as uh you know Chimath kind of went through some of it but they're rub Goldberg financial machines. They're exceptionally complex. Um so you know we talked about okay GPU contracts and this but he's got data center contracts how long are those and and then there's he's got to buy memory like and there's memory shortage and this and and that so so it is really complex. The other thing um or the other interesting thing is yes GPUs not only have they they've been going up in duration and in price. So that's been like a big tailwind for him uh as the owner of such things.

Speaker: When you say duration, you mean the lifespan, the number of years you get value from that. It was three, four, five, now it's six, seven, eight. And there's a shortage um like a real shortage of GPUs with power and cooling and and I kind of caveat that right like which is what he has.

Ben Horowitz: Uh and and this this this shortage is so bad you know I was speaking with Andy Jasse who runs Amazon yesterday and I said yeah like we're out of everything you know till 2028. He's like, "Oh, it's beyond 2028 bit. Like, I don't think we get stuff back." Like, end of 2028, maybe. Uh, so everything else is sold out. So, he he has the advantage of that he's got supply in a great shortage, which is extremely different than the internet bubble. The internet bubble, we didn't have enough demand because we had to build the internet. People had to get broadband. You know, you needed uh all this stuff. people had to buy, you know, originally they had to get their browser app fries, all this kind of thing. There weren't enough consumers on the internet to absorb all the bandwidth that had gotten built out and they had a massive amount of debt, not unlike uh we're building today, although not as big. Um but but the lack of demand killed it. We don't really have a lack of demand in AI. So I think the dynamics will be different. Uh I do think like the for sure if you get into a pathological debt situation that can wreck anybody. Uh it's why um by the way we're not invested in any of these uh neo clouds either for that reason because that whole thing scares me having been through it. But but I would just say it's pretty complicated uh and it really depends on a huge number of assumptions in this very elaborate model that they have. Ben, but let's just look. You were you and Mark were one of the pioneers, maybe the pioneer of the Neocloud business. I mean, you you may just tell this quick story because I want to ask the question.

Speaker: Loud Cloud kind of popularized this idea that that you could build these clouds and service customers this way.

Jason Calacanis: Yeah. But it's very interesting to me that you and Mark as the kind of primogenitor uh have passed on the whole space. So I I I want to know why.

Ben Horowitz: Well, it's because of this. I mean, so so so it can it can end up being um like a very dangerous arbitrage business where you know you can get upside down easily. And so if you look at loudcloud just as an example just here here's a simple thing that happened to us in 1999 bandwidth bandwidth was $1,500 a megabit and you couldn't get it was very hard to get it and so you had to get a long-term contract three years by 2001 it was $50 a

Speaker A: megabit. So if you were holding bandwidth, and you borrowed money to get it, you're dead. So that kind of thing is so out of the control of the entrepreneur, and so different than what we like to fund, that it just scared me to death. Now look, I think the core dynamic of AI has been working for CoreWeave though, in that there's a massive shortage, not an overage of supply. So token prices have gone down, but GPU prices have not.

Speaker B: And so things are going up. And by the way, data center space is going up in price because even labor to build data centers is hard. The politics are making it hard to build data centers. So the whole supply chain price is going up and demand is not subsiding. And so those are very big tailwinds for CoreWeave, despite the fact that the debt markets, kind of independent of them, are tough.

Jason Calacanis: All right, Sachs, here's your Polymarket: CoreWeave announces bankruptcy. That's a pretty aggressive Polymarket. 15% chance at the end of '27 next year, 23% at the end of 2028. Seems a little far-fetched given the fact that they have a massive demand for their equipment, as Ben pointed out.

David Sacks: Well, you can't—look, this is dumb because, like I think Michael explained it, you have this OpCo/PropCo setup. So CoreWeave can't go bankrupt. An asset-level vehicle for a data center or a buildout could theoretically go upside down, but that'll go into receivership and then just manage where you sell down the GPUs. Yes, he explained in that clip he has each box independent of the next. So, not a great Polymarket, I think. But well, it is great if you bet it the other way.

Jason Calacanis: Yeah, exactly. Maybe some free money there to pick up. Sax, let's level up the conversation here. Just outside of CoreWeave and the Neo Clouds: massive demand, token prices coming down, but token consumption going way up. And I think one of the silver linings here is it was a big question of how long these GPUs would last. Maybe they had three, four, five year lifespan. Now people are saying, "Hey, these things will keep going into year 6, 7, 8 for inference alone." So what's your thought here on the AI trade, the bubble as it were? Do we need to take a little bit out? Do we need to stress test it? And is that what's going on here? Or is this making you nervous? Hey, we're in year four or five of this bull run and that maybe it's coming to an end and we may hit the R-word. Yeah, recession.

David Sacks: Here's the question, J.Cal: you got this CoreWeave crash. Their bonds are being marked down to 80%, it's down 15 to 20% in the last few days in the stock market. Is this just market volatility or is this the beginning of something deeper and worse? Like you said, the popping of a bubble. Okay, that's the fundamental question. I would make the argument that this is just volatility, which you're going to get a lot of. Whenever you're underwriting to multi-trillion dollar outcomes in the future based on very rapid rates of growth, exponential rates of growth, the market's going to be super sensitive to any data points we have in the present. And so everything's going to be exaggerated and that's why you get these big swings. Now, again, that to me is the explanation of the volatility. I don't think that something fundamental has changed. So let's talk about the fundamentals. So first question there to unpack it is has the demand changed? No, we know that the demand for compute just keeps growing by leaps and bounds. In fact, everyone is saying that they are compute constrained. I mean you got the biggest model companies are saying they're compute constrained. Startups are saying it. I mean they're asking their VCs, hey can you help us get compute? I think you've got some VCs even trying to buy compute as basically a strategy for competitive differentiation so they can help their startup. So

Jason Calacanis: There was literally an accelerator that had bought excess compute and they were using it as a way to get people to apply for their accelerator.

David Sacks: Yeah. So we know the demand is off the charts right now. We're seeing other indicators. So for example, old GPUs like even the H100s or the A100s which are several generations old, they're still renting at premium prices right now. They were supposed to be fully depreciated and they're not. There's actually upside surprise there to the people to the companies that are renting those old supposedly stale GPUs. So, we know the demand is off the charts. Okay. So, what's the next indicator of something deeper and problematic happening? Well, the next question you could ask, well, is there a glut of supply coming onto the market? So, we know the demand is huge, but maybe there's too much supply being stood up. Well, we know that's not the case because of the sheer difficulty of standing up this powered compute and we know it's not being brought onto the market too rapidly. First, you just have all the problems with atoms building things in the physical world. That's hard enough. Elon basically has said, "Look, this is a really difficult problem. Even our rocket scientists find it challenging to stand up gigawatts of new powered compute." And then we have all the regulatory headwinds, right? Local communities are not racing to give out new entitlements around this. So if anything we believe that there's not a glut it's the other way that there's enforced scarcity. So then the question becomes well is there some sort of execution problem with coreweave? You know are they too slow in standing up their compute? Have their costs gone through the roof? Look, there's some indication that maybe their costs are a little bit higher, that maybe it's a little slower, but at least on a reputation basis, they are believed to be excellent at this game of standing up new compute. So then the question was, is there some sort of credit problem? you know, on the credit like the founder Michael was saying with the boxes, you know, when you go to a lender to basically back the buildout of, let's say, a new data center, you're not relying on the unsecured credit of Coreweave to make that loan. You're backed by the credit of the tenant who's entered into a 5-year commitment. So, it could be a Microsoft, whatever. So the creditworthiness of that particular project of that particular box is going to depend more on the credit of the tenant than on the credit of core. And then behind that you've got the GPUs themselves which you know it's basically asset back financing. The lender is secured by those GPUs. And we just talked about how if anything there's upside surprise on the depreciation cycle of these GPUs. So my impression is that there's not a deeper credit problem in terms of financing these projects. What happened though is the repricing is of Corweave's unsecured obligations. It's true that the market has discounted them by 20%. They're in distress territory. That has brought the implied coupon of those bonds from 9.6% to around 15%. But that does not increase the cost that Cororee is paying. Corwe is still paying their 9.6% coupon. It's just that the secondary market has repriced the value of those bonds to an implied coupon.

Speaker C: It changes the future debt.

David Sacks: Yes, it could definitely raise the costs of future debt, but I don't think they're funding these new boxes with unsecured corporate notes. I think they're funding them with asset back financing. And

Speaker B: yes,

Speaker C: the debt

Speaker B: there's two things that go in the box. The contract goes in the box, the GPUs go in the box. So, you got two things and these are credit credit worthy organizations who pay their bills like Microsoft.

David Sacks: Yes. Now, if I were a lender on those projects though, I'd be looking really closely at the credit of who's the customer basically for that compute. Obviously, if it's Microsoft or Google or a couple other companies that feel really good,

Speaker C: right, that may a startup, I don't necessarily.

Jason Calacanis: They have three customers that represent 75% of their revenue.

Speaker B: Yeah. And they're all investment grade like the big customers. So,

Jason Calacanis: the thing I'll add to this is, you know, you explained quite clearly, uh, Saxs, hey, the the GPUs are worth something, the

Jason Calacanis: Data centers are worth something. Ben, you pointed out the power, the HVAC is worth something. The tokens are worth something. And then if you look at startups, you know, which is where I spend all my time is the early stage startups, they're crushing it in terms of raising capital, getting customers, and we've never seen revenue ramps like I'm seeing in startups today. And I think Ben, you'll probably back that up. The revenue ramp of startups today is distinctly different than the SaaS, you know, triple triple triple double double double. Now we're at like, "Hey, are you doubling every quarter or not?" And then if you're not doubling every quarter, like what are you doing? Why are you not growing faster in this age of AI? So the startups feel particularly strong. So maybe this is just the market overall saying hey let's test this. And maybe there's some indigestion there. Or Ben, is it that the world is running out of money and people have placed their bets already? And then what would that say for the venture industrial complex of which you are a significant player at scale? And what would that say for the IPOs, the two biggest in the history of business and public markets, Anthropic and OpenAI? Are we running out of money to allocate to AI?

Ben Horowitz: I don't think so. You know, we've kind of never had companies that have grown this fast, gotten this big. And so, we've never asked that question before. We never said, or at least not in my lifetime, does the world have enough money to finance these things? Which is a crazy question but relevant. But I don't think, for sure with respect to the Anthropic and the OpenAI IPOs, I think my belief is those are going to be fine. Look, the price, will it be two trillion or will it be 1.75 trillion, I don't know, but I think—

David Sacks: 50 billion or 100 billion, whatever they raise, that's not a giant—that's a big number, but it's not an unprecedented number now because look—

Jason Calacanis: SpaceX just did it, right?

Ben Horowitz: Whatever you're holding in the equity markets, whatever you're holding—

David Sacks: OpenAI and Anthropic are threats to that.

Ben Horowitz: Almost like there's almost nothing that you can hold in a portfolio that those two companies don't threaten.

David Sacks: Yeah, agreed.

Ben Horowitz: And so I'm not worried at all about the demand for those IPOs. So you have to own those because they threaten every single company in the world because they're selling intelligence broadly and every company is based, Chamath, on intelligence.

Chamath Palihapitiya: Therefore, it's that disruptive. Yeah, Chamath, you can underwrite it as a defensive hedge because I think Ben's right. It's like if you own a healthcare company and you've thrived on the opacity of the healthcare infrastructure, OpenAI is a threat to that. If you own a bunch of workflows that have been rented to people as SaaS, theoretically OpenAI and Anthropic are a threat to that. So at a minimum it is sort of defensively positioning your portfolio. So you kind of have to because there is not much other investable stuff in AI to be long AI other than those two companies and so they'll get the lion's share of the interest.

Chamath Palihapitiya: I think the question generally is if the bond market walks the 10-year up to 5.5% and 6%, which has nothing to do with AI. It has everything to do with debt to GDP and a bunch of other factors in broad-based western economies. Any business model that thrives on a financing spread gets cornhauled, any and every, all of them. It just it will not matter when the 10-year is at 6%. It won't matter. Doesn't matter what you do, it doesn't matter what you claim to do, you're going to get run over. You're going to be roadkill. As long as we can keep that from happening, we're going to be fine. So, like, what's the most important way, I guess, post these midterms to keep the party going? You have to really start to focus on deficits. And you have to find a fair trade where the bond market backs off. And I think you can see it in the tape. Meaning if we start proposing huge spending programs, they're going to walk the 10-year up. That then has a negative cascade to everything. If however the posture becomes much more about keeping everything calm and like let's just tone things down and let's find the waste in the system and squeeze it all out, I think people will respond very favorably. So that's really where it's going to come down. The last thing I will say is these are like Achilles' heels. Meaning like I think Sacks made an incredibly eloquent case. So did Ben about all of the asset value that's getting built up. But just like the great warriors, you just slice the Achilles tendon and they just crumble to the knees. I just want to point out this is that thing.

Ben Horowitz: There is no other thing. Meaning all this other stuff is complete goodness. But the fact that you need to finance these things in a variable rate model as a spread to the risk-free rate is the big problem in these businesses. And you need to essentially have Microsoft, Google, Meta, and Nvidia backstop all of this in a worst case scenario because that's the only way you can withstand a one or two-year correction in this market.

Jason Calacanis: I'll tell you the other big piece here that might be a bigger threat, Sacks, is the deflationary nature of this AI, this super intelligence rather movement. We talked last week about people decompiling Photoshop going to zero. Now this week, Hood Warfare came out. It's basically people are making platform level games for five bucks. It's so deflationary. There's an 11 Labs competitor that came out that's incredibly cheap. And then every single open-source model being hosted and Elon saying, "Hey, we'll just route you with our orchestration level to the best model, open-source or not." How big of a headwind do you think that is, Sacks, to our industry, just the commodification and how rapidly things are just having 90% of the value removed from them? And is that going to stop or is it going to accelerate? It feels to me like the deflationary nature of this software AI super intelligence is unique and different than anything we've ever seen. People are just able to rip and ship code so fast. It makes me wonder like what is the margin of software in the future?

David Sacks: Well, we want everyone to be able to create software, especially bespoke software, which is really this new category, right? That is going to be a huge driver of productivity throughout the economy. I mean it's not all just like zero sum games or disruption. The value of these coding assistants is that now you can create software for highly bespoke use cases. Whereas software used to be created really just for the mass market. I mean the reason why Photoshop's a successful product is there's a lot of graphic designers who need to use that product and really the only software that could ever get created in the past was when there was a large potential customer base for that. Now we're getting all these cases where enterprises can create software just for their particular use cases. And in fact, in a way, that's what agents are is that they're bespoke software programs to solve a particular task.

Jason Calacanis: But if people build those in-house, Sacks, and they're based on open-source, you don't need the other piece of software that it's replacing. So isn't that extremely deflationary?

David Sacks: Maybe there's some substitution away from established software. But I think the important point is just there's this vast new category of software being created. I mean the amount of code that's being created now is orders of magnitude already bigger than it was before coding assistants. So again people just tend to think in terms of these zero sum games and who's going to be wiped out or eliminated. But the really important trend here is just that there's going to be a lot more software created in the world for a lot more of these bespoke use cases. Enterprises are now able to create software for a much broader array of purposes. There's companies that never would have been software companies before that are now creating their own software and they're hiring coders basically to manage the process. By the way, I think this is a really important point around remember with the whole—

Speaker A: jobs apocalypse. The first job category that predictors of the apocalypse were saying would be eliminated were software coders obviously because

Speaker B: >> everybody became a developer and now everybody's shipping code. Yeah. Now we're seeing that actually demand for coders is increasing even though 95% of the code's written by coding assistants and the reason for that again is well first of all you still have that 5% and that 5% is of a much bigger pie and you still need someone who can look under the hood and manage the whole process and they need to be somewhat technical and maintain it. maint

I I think this whole you could say new category of bespoke software created by the proliferation of coding assistants and agents and all of that is just I think it's going to be just a huge driver of productivity throughout the economy and is that broadly deflationary probably in a good way because it means that we can do more with less and we need to

Speaker C: >> be great for the country right that everybody is going to be more productive Ben but do you worry about our industry, the venture industry, uh, and we have these great hits and then the second they become a hit, somebody can decompile it, create a competitor and ship it very quickly. It feels distinctly different in this uh, you know, um, boom to previous ones. So, do you think this is going to be a challenge for us to get DPI for our LPS? Um, is this going to be a challenge for the sustainability of great software franchises?

Speaker B (Ben): >> Ben, >> I I can Yeah. Look, I I don't I don't think so. Like this this has been the ongoing prediction starting with the SAS apocalypse.

Speaker C: >> Yes.

Speaker B (Ben): >> Um, but I think that David David's right is that what's happening is

Speaker D (David): >> prices software prices will definitely go down. Um but the amount of software is going way way up. It's the it's the Jevans paradox of software. Sure.

Speaker B (Ben): >> Uh and you know these companies end up doing other things more than just the software. So we had this on the internet. The internet information is going to be free. That's it. All these industries are dead. But they kind of reemerged in a different way. Um and I think that that's very likely what's going to happen. So from a startup's point of view, you've got to evolve. Um and so you know 11 Labs does many many things to make their product better over the years since uh that's example that you brought up and they've got like licensing agreement like Bert Reynolds will read you a book or this and that and the third. Um so they're doing more than just software um because they can because the software is easier to write the model they're training on very very very nuanced cases which is why you know movie dubbing is so amazing now where it sounds like they're just acting in a different language. Um so there's more to it than just you know speech to text or this and that. um and you know those so I think the products are going to have to get way better and the startup's products will have to get way better which is amazing for everybody and then that's where the value will be but yeah just like writing software is not going to have any more value than like publishing a magazine creating massive competition yeah

Speaker D (David): >> the most will change you know you got to think about what are the moes in a business data moes are a big one if you have data that other people don't have

Speaker A: >> if you then build a user base because your model is catering to a particular vertical and now you're getting all those users and you're getting their feedback. Maybe that becomes a you know a feedback loop the feedback learning becomes a

Speaker D (David): >> lot of >> startups are building businesses based on that model. The paradigmatic example is is like a Harvey or something where they get all these law firms on board. So they then get access to their data and then their usage and then they train their own models.

Speaker A: >> Yes. Get sharper each time. Go ahead. and cheaper and more custom.

Speaker E: >> Yeah,

Speaker C: >> I'll give you the ultimate moat. I think power will be the moat. I think that you can build the most fantastical things in the world and you're going to see people on the dry docks basically trying to hitchhike to get power. And the reason is because we are so constipated in the United States. A we're already behind and we're in a massive energy deficit, an electron deficit. We are by 2050 about 1.4 terowatt hours short, which means about six California's worth of electricity. That's their starting point. Then when you layer in, and that's with everything that we've planned to build being built on time and on budget, which we know is not going to happen. Then on top of that, you have all the load growth that theoretically happens when you actually have all these next abundant experiences.

I made this uh statement this past week, and I'm just going to double down on it. I don't think you can work through the hyperscalers anymore because of this one issue. So let's just say you're a big mainline, you know, G Sid bank, right? JP Morgan, City Bank. Could you imagine that the reason why you can't service your customers is because the underlying cloud that you use can't actually secure and grow enough power? And so back to the other moat that I think is really valuable is to own the land, the power in the shell because it's such a constrained asset. Back to what Andy told you, Ben, it is so critical and it will stop the best experiences on a dime. So if you're a startup, I actually think the bigger problem is you'll go to these clouds, you'll be like, great, I'm ready to launch this Whisbang product and they're like, "Suck it. We have no capacity for you."

Speaker B (Ben): >> Yeah. Such a disaster. I very much agree with that last one.

Speaker E: >> I think that's right.

Speaker C: >> By the way, what an incredible opportunity that's now been lost in the Middle East where Saudi, UAE,

Speaker A: >> Qatar, they were all massive producers of oil, able to do top down planning, half centers, and now they have bombs going off blowing up airports. It's such a

Speaker D (David): >> Without drone defense, you can't go there. Without drone defense, you can't go there.

Speaker C: >> Exactly. And drone defense isn't going to work because all one drone gets through and your data center is fried. Well, I mean,

Speaker E: >> can I make one last point on the whole data center thing,

Speaker C: >> please?

Speaker E: >> So, there's one metric that the more I think about it, the the one metric I would really keep an eye on is payback period. To me, that's like the Northstar metric here. So, Cororeweave says that it's payback period is 2.5 years. Their typical deal is 5 years. They pay back within 2.5 years. SpaceX, they pay back in roughly one year. That makes sense because I think that SpaceX is monetizing at about 50 billion per gigawatt and core at about 20 billion per gigawatt. And the reason for that is because SpaceX is basically getting spot. You know, they're doing these deals that can be cancelceled by either side within 90 days. So, they're basically getting spot minus 90. Whereas Coreweave is signing up for 5-year commitments. So, it's, you know, contracted way in advance and they're kind of getting this contracted price. And what's happened, I think, over the past year is that spot has moved way up. way up

Speaker D (David): >> because again of the scarcity, right? And the demand is so off the charts.

Speaker E: So in any event, payback period is really critical and as long as the payback periods are really short, I don't see how these companies can lose or at least you'd have to be really incompetent to screw it up, right? like you're making these big capital investments, but if you're getting your money back in one year or two and a half years,

Speaker D (David): >> you know, that greatly reduces

Speaker E: >> like owning an Airbnb in Paris or something like the payback period is so quick for these if you if you got your orders in

Speaker D (David): >> early.

Speaker E: >> Yeah. And that means you're paying back the debt quickly and so the debt's rolling over more quickly. It just reduces everyone's risk. Now, if that payback period starts taking longer and longer, then I get nervous, right? Because that magnifies the risk. It also means the economics aren't as good. And the question is, well, why would the payback period take longer? And it could happen for a bunch of reasons, right? Like if the demand goes down and so now the offtake's not as good, the spot price going down

Chamath Palihapitiya: Or just there's execution problems, right? It takes you longer to get the capacity online. So, you know, the payback gets delayed. There's a lot of reasons why payback could take longer and longer. But as long as payback remains as short as it is today, to me, that would be like the one metric I would really keep an eye on.

The other thing that the big offtakers will make you sign up for is what's called liquidated damages. There's really, really complicated language and penalties that are extreme about what happens when you can't service the data center. So I think that's another risk. There's been a couple of these guys that have lost—I'm not going to name who they are, but that have lost their investment grade wrapper from the big boys because they just effed up, Sachs, to your point, and couldn't manage the data centers because the complexity is going up. And the complexity goes up because the chips run hotter, there's more energy, there's more electricity, there's more... it's...

So all I'm saying is I think the sharps may be wrong, and they usually are wrong when they're buying these credit defaults. But, you know, when your expected value is a coin flip in a 5-year window, that's like scary town. I think that needs to get managed very precisely. I would just find every way possible to nip this in the bud if I was CoreWeave. And then...

Speaker A: How do you think they can do that? How can they nip it in the bud?

I think that they have to cancel some of these contracts and move to spot. That's the simplest thing that they could do. If they could basically pay a penalty and get out, they should run the Excel right now on let me just like take this gigawatt, put it on spot because you're talking about, as you said, a 20 billion spread.

Speaker B: But this is where Elon has a big advantage because Elon has independent sources of financing to finance that gigawatt of compute needs that 5-year contract to bank the financing to then build that capacity.

Well, the thing is like I think that Nvidia probably is okay with CoreWeave selling spot and not doing a multi-year offtake for a big hyperscaler or a foundational lab. So I would just run the math and try to figure out because they've only built half the capacity that they've contracted for. So, you know, let's just say they built two out of the 4 gigawatts. They've got to figure out a way very quickly to just... because to your point, the spread between their fixed contracts and spot is so extreme that you're leaving 20 and 30 billion on the table, and so now you're within plus or minus 5 billion of violating a covenant on your debt. Don't be there.

Speaker A: Yeah. It would improve their economics a lot. Look, if they had a gigawatt of compute they could sell at spot, you're right, that'd be like net 30 billion...

Speaker B: Right to the bottom line.

Speaker A: Right to the bottom line. I think that the challenge with that is the hardest people to get spot pricing from are the investment grade customers. Like those are the ones that won't do it, right.

Speaker C: Also, because they also have a war chest of money, they'll stand it up themselves if it's too expensive.

Speaker D: Yeah. This narrative could change a lot, right? If like spot becomes imperiled, then...

Speaker B: Yeah, the guarantee contracts become great. Yeah. I think we're capacity constrained enough through the entire pipeline. Like you have to think Nvidia has done an incredible job. Okay. Because if you look one layer beyond Nvidia, all the packaging capacity is them. All the HBM capacity is mostly them. Like even Google tin-cups for memory right now because Nvidia has clogged it all up. So they are in complete ball control here. And so it just creates the setup I think is that spot will remain highly elevated for a while.

Jason Calacanis: Crazy moment in time. And we got a double bang this week on top of...

Chamath Palihapitiya: Sorry Jason, just the last thing, but I'm telling you guys you got to get long energy. I think startups need to find a way of like cobbling together if you don't have access to electricity. You cannot go through the hyperscalers is my prognostication.

Jason Calacanis: Yeah. Stop, stop the war in the Middle East. It solves a lot of problems right off the bat.

If CoreWeave wasn't enough, AI sector got double-banged on Wednesday after Anthropic investor day numbers got a mixed reaction. Anthropic is planning on going public around Thanksgiving. Polymarket says now 74% chance they go public this year, down from 95% in early September when they said everybody was going to die from their software. [laughter]

On Wednesday, the company presented to potential—I mean, you can't make this stuff up—presented potential IPO investors at their headquarters in San Francisco. Now this isn't the bugged headquarters of OpenAI; this is, they swept the room for this, but we still have the data.

Q3 free revenue: $16.8 billion. Think about that, gentlemen. Over $5 billion a month already for Anthropic. Net revenue retention was 900%. That means customers spent nine times more than last year. Pretty good, huh, Sachs, on a SaaS front?

They also said they are free cash flow positive. Adjusted gross margin 85%, adjusted operating margin 11%. No word on how the adjustments were calculated.

But here's the big one. ARR estimates range from 70 billion, which basically be flat since July, which is a bad sign, to over a hundred billion. So there is some hand-wringing about what numbers are correct here. They did not disclose this number. These are just secondhand estimates by investors who might be a little leaky.

Obviously, Anthropic is targeting a ginormous, unprecedented valuation of two trillion, growing violently, not growing slowly. Go ahead, Cham, you had a question.

Chamath Palihapitiya: No, I just said, Ben, is Andreessen long one of the foundation model companies, like the one of the two big ones?

Ben Horowitz: We have a lot more stock on OpenAI. But I would say, you know, philosophically we're long both of them. I think...

Jason Calacanis: You're long both of them, which is kind of a strange thing. Now, Ben, you've gotten so big, you consistently have bets on the number one and number two player. How is that working out in the market?

Ben Horowitz: Well, now we... I mean, I would say that there are many investors in both of those things. So I think, look, in venture we call it venture capital, but venture capital has subsumed a huge part of what used to be the public markets. And I would consider both OpenAI and Anthropic to be in that category, where they're not really venture capital where you're worried about your venture capitalist being invested in, you know, your competitor, because they're gigantic. They're not A-round bound companies anymore.

So that part of the market I think people, you know, when you're raising by the tens of billions of dollars, you don't care where the money... as long as it's green. Like they're just taking... Yeah. Yeah.

Jason Calacanis: That what used to be mezzanine financing, Pre-IPO financing. Yes. There's less hand-wringing about the conflicts there.

Ben Horowitz: Yeah. I wouldn't even call it mezzanine financing at that level. I think, you know, what this is just like we did a lot of regulatory moves in the late '90s and early 2000s which really made the public markets much less attractive for companies, and the private markets grew to absorb that business, which has been I think very bad for America. It's increased the wealth gap and so forth, but it is what it is.

And so I wouldn't consider that that's very different than like investing in two A-round companies doing the same thing. I still think that the other thing is distinctly different than Anthropic, OpenAI at two trillion...

Jason Calacanis: Now. Yeah,

Ben Horowitz: Understood.

David Sacks: Exactly.

Jason Calacanis: One is a reaction to the other in fact, right? Anthropic was a reaction to OpenAI. Let's call it what it is: rugpulling Elon on it being a nonprofit and becoming a commercial enterprise. We'll leave that on the side for now.

What are your thoughts on this Anthropic IPO?

Well, look, I think that you hit the thing that's kind of causing the consternation, which is, okay, growth has slowed from Q2 to Q3 by a lot in terms of revenue growth, and then we don't know what the ARR or the, you know, recurring revenue number is, and so people have questions about how fast the thing is...

Speaker A: growing. Having said that, 16 billion, 16.8 billion in the quarter. How long has Anthropic been selling stuff, you know, three years.

Speaker B: Crazy. Yeah. [laughter]

Speaker A: I mean, like it's just so absurd how good this thing is. Um that Yeah. So, I think the IPO will be fine. Like whether it's, you know, you want to be in at 2 trillion or 1.9 trillion or 2.3 trillion. I think that's what a lot of the debate is about. And then you know anytime there's negative news on uh the big labs then everybody in the supply chain you know gets hit with that and and so that's what's going on now. I you know like I think big picture um it's a very important company and it's got a very big IPO.

Speaker B: 30 times price to sales ratio Sachs uh and this headwind of open source and enterprises moving to that most businesses don't need to solve the last seven math problems in the world could be slowing we could have anthropics revenues slowing let's say they are slowing. What do you think happens to this IPO and the broader uh AI trade? Now, we have two things uh as examples of AI trade headwinds, super intelligence headwinds. Whatever's happening at Coreweave and whatever's happening at Anthropic.

Sachs: Well, look, you had this investor day at Anthropic the other day and I think some of these numbers that are coming out are kind of leaking from that. Maybe we don't know. We don't know what's true or not. I think the participants had to sign NDA. So I don't know if you can completely trust what's floating around X here. I think we'll find out in due course. I mean if this company is IPOing next month and we'll find out the actual numbers. I would say that the let's just say the body language coming out of the investor day was pretty strong. At least from what I've heard that I think the investors like what they heard. These are like big public market investors.

Speaker A: Who knows? I mean, everyone's kind of talking their book, so it's hard to know exactly what's true. But look, I I generally think that Anthropic is a strong business. I understand that there are some risks to it. It's not like it's completely risk-free, but it's a pretty young business, so you'd expect that. But overall, I think it is set up to have a a strong IPO. And look, wearing my hat as an investor, I think it's a very impressive company, which is all the more reason why I find their attempts to kneecap opensource through their incessant fear-mongering campaigns and regulatory capture to be so distasteful is they don't need to be doing that. They're a very successful company. They've got a very bright future. I just find it kind of offensive that they keep trying to do that. There were two examples of it just in the last week. Do you guys want to talk about these?

Speaker B: Are we doing SCOP corner scorner? [laughter]

Speaker A: Let's circle back to SCOPS because I want to get you to comment on

Speaker B: Hey, you thought maybe it's going to be a

Speaker A: Let's come back to that. There are I have it in the notes. We will get back to Scion Corner here with your toaster.

Speaker B: I'm excited to get to Scion Corner.

Speaker A: Wait, [laughter] you will we got you a tin foil hat. It's It's just that they're on the side of your AI slot background. Um, so Chamath, you said 1 trillion for Anthrop a couple weeks ago. Uh, what are you thinking here? Do you think they have significant headwinds or do you think this is going to be a blockbuster IPO? Where are you at here in October of 2026?

Chamath: No, my my comments are not because I'm I'm negative on the company. I think I was I found the revenue breathtaking. I mean, it's incredible. Like 16.8 billion in a quarter for a three-year-old company is just ridiculous. You've never seen anything like it. I don't know how to process it. I think their products are exceptionally good. I think they're doing the hard work, and you know, to OpenAI's credit, they are as well of walking down the price curve so that they're less and less at risk of open source. I still think that there's a bunch of cannibalization that has to happen on the on the token side. I also think the big thing that has to happen in AI is we're effectively like in 1999 and 2000 in the internet media world where everybody just works on CPM. You know that time it was cost per thousand ads. Right now it's cost per million input tokens. We will move to CPC and CPA. Right. And so when Google invented and scaled Adwords and AdSense, the market exploded, right? Because we went from buying a thousand ads to just getting an outcome.

Speaker A: Right now we buy right now we buy a million tokens. We will eventually move to an outcome. And I think when that happens, this market will just go absolutely batch crazy. So these guys are going to do great. They're a great company. Here's my very specific thing about why I think they should price it to clear the market for $200 billion. And I'm very specific about that number. They need in my estimate at least 200 billion. And I think if you want to be super safe, a quarter trillion gets the job done. And again, what does the price need to be to attract that incremental dollar off the sidelines? Can they raise 80 billion in an IPO at 1.7 8 or 9 trillion? I think so. Handily. Can they raise a 100red? Maybe it's pushing it. 150. I think you need to be back down to 1.5.

Speaker B: So you're saying you want them to raise more money at a lower valuation so they have a war chest. 150 billion at 1.5 trillion is not enough.

Speaker A: It's not enough. $200 billion barely gets them a few gigawatts.

Chamath: And that is the bottom line math. If Anthropic is going to go through and survive an eventual correction, I think it's much better for them to have 200 to $250 billion today than to try to ring the bell at 1.9 or 2 trillion for 80 billion fi [snorts] file a mix shelf which takes about 6 months. Hope the markets are in line and I just think there's more risk in the future than there is today right now.

Speaker A: And so why take the risk? Okay. Price it to clear the market.

Speaker B: So how much how much are you saying they should raise

Chamath: Jimoth 200 billion minimum minimum

Speaker A: but I would like a quart trillion if I was if I was the anthropic shareholder which means I don't think you can raise a quarter trillion at two trillion. I think you can raise a quarter trillion at a trillion.

Speaker B: What do you think Ben? you go, raise more cash now and and have the rainy day fund have the resiliency or go for the valuation optimization as founders are one to do these days and and many investors are want to do. as a uh former CEO who almost died 17 times um by running out of cash

Ben: or potentially running out of cash. I kind of look I agree with the sentiment which is the only thing that's going to or the thing most likely to stop the company is financing risk and so why take it? um you know like you've got all the other risks, supply chain risk, you've got competitive risk, you've got the you know Chinese open source model risk, you've got all this stuff and the founders don't care. Yeah. And the founders don't care. They all own two and a half% each. So it's not like they should be optimizing. They seem to not care about money which I think is very a positive attribute about the entire founder group and anthropic. So

Speaker A: in part that's why they're so successful is that they

Ben: get the tonnage of dollars inside the company. Having said that, you know, like what the safe amount of money is is um you know, it's a little it's always a little bit in the eye of the beholder like how much you know in the in the dire scenario like what exactly happens. I'm not deep enough on to say whether it should be 250 mil billion or 150 billion.

Chamath: I think the number has to work backwards from compute in order to basically get through a 3 to 5year window. And I think if you you have to get out a spot because as Saxs just said, it's too expensive for Ant. They shouldn't be spending 50 billion when they could be spending 20. But if you had 200 billion, you have a path to 5 to 10 gawatt that you can finance completely on your own with the magic boxes from the core weaves and the like. I would optimize for that. optimize for shity of compute and everything else will solve itself and in a five and 10 year window they'll achieve

Speaker A: the upper bound of their capability at 50, 60, 70 billion, they may not survive the pricing implications of what happens in the spot market over the next two or three years,

Speaker B: and then they'd have to raise a down round.

Speaker C: Yeah. And Elon's deal with them is I think either party can cancel within 60 or 90 days. Somebody can look it up. What does it mean? The fact that Elon did that deal tells you spots going up, not down.

Speaker B: And that he might want going up. And he may walk for himself.

Speaker C: He's not dumb. He's the smartest of the smart. He's doing spot because he's like, "I may cancel on you." And Anthropic's probably thinking, "Oh, this is great. I can walk away in 90 days." Wrong, buddy. It's the opposite. You want the core deal. They should have got the core deal. Uh bad.

Speaker D: Well, I'm sure they did the core deal while they could, but they need to put a lot of money in a magic box.

Speaker C: Yeah, they cut deals with everybody.

Speaker E: I think I mean, just by the way, like according to SemiAnalysis, Anthropic and OpenAI are taking 60% of all the compute that's expected to be stood up in the entire world over the next year. That they are basically the two offers for that. That is a duopoly.

Speaker B: based on compute. It's a compute duopoly. It's not a token duopoly at this point.

Speaker A: You measure duopoly or monopoly status based on market share. So you want to look at revenue. And if you look at the revenue of foundation model companies, I mean I think that Anthropic and OpenAI are pretty much the only two that are even generating significant revenue from their models.

Speaker E: Yeah, they definitely have a duopoly when it comes to revenue and market share. I would argue they have a duopoly when it comes to frontier capability. Although look, Meta's new model is getting very close. The new Google model is getting close. Elon's getting close, but they still, I think, are in the lead in terms of capability, and we're not seeing what they have in the lab, so to speak. I mean, they have things that are one or two generations ahead that reportedly is very far ahead, or at least that's what they're touting to potential investors. So,

Jason: hey Ben, we got you here. What's the story since you're a big OpenAI investor? You're not on the board, I don't think. Right. You're not on the board. What's the story with Sam Altman's equity grant? He still has no equity in OpenAI and what's the advice there? You going to give him a grant? You're going to vote for a grant as a shareholder? What should he get?

Ben: Yeah, I don't want to like pretend I know things that I don't. Okay. So I don't know what the strategy is.

Jason: You can't be on the pod then. [laughter] No, it's okay. It's all right.

David Sacks: I'll repeat what I said years ago that the company when they went from being a nonprofit to a for-profit, they should have done a make right. You go to Elon and you basically give him a share because he put it in the first 50 million or whatever. You give Sam a grant. You normalize things. Normalize the management and governance of the company. And instead, they did this weird hybrid NGO thing that created nothing but problems.

Jason: Yeah. But he got healthcare, so he's good. Sam's got healthcare, so nothing to worry about there.

Speaker B: You got to think he has to get between two and 4% at this point.

Speaker E: That would Yeah, I think 4% is the right. Yeah, it's I think it's fair relative to the comps on a total dollar tonnage basis. It's incredible. It's 20 to 40 billion at a at a trillion and more from there. It seems like right-ish, you know.

Jason: Yeah, everybody approves. So, so voted here on the All-In podcast. What should he have done in terms of screwing Elon and the settlement there? Ben, since we have you here, what what do you think he should have done? Because you're a big you're [laughter] a big investor in all of Elon's companies. What was your advice to Sam of

Ben: I So I wasn't in that conversation then. But I agree with David. I mean, I think that look, it's always the right thing to just kind of if you're going to square it, you got to square it with the people, not just, you know, the entity.

Jason: Totally. All right. So, there you go. Two fast balls and you hit both of them out of the park. Very well done, Ben. You're fitting right in here. You're candid. That's what makes a great bestie.

Jason: Deep industry knowledge and ability to be candid. Uh, let's get candid now with some other important topics. All right, election night is a few weeks away and the besties will be live streaming with the greatest guests in the world. I won't say any of their names here, but it is extraordinary. We'll be on X will be on YouTube 8 to 10 p.m. Eastern, November 3rd. be there, be square. And you can also watch us live in the Poly Market app if you're amongst the wagering types. All the heavy hitters will be on the Allin live stream election night.

All right, we go to conspiracy hoax corner for you. Sachs anthropic says small models. You may have heard of vertical models, small models, small language models, SLMs could start self-replicating on your smartome devices. Yes, that's right. On Monday, Anthropic published a blog warning that rogue models could start copying themselves, quote, in just a few months. It's only months away, Sachs. They claimed a worm, which is a software uh a software package that can propagate itself, would carry model weights to an IoT device. That's an internet of things device IoT to set up inference and then uh move on. This means your smart TV, your doorbell cams, your Ring, your your drop cams, your robot vacuums, your Roomba could start having the next set of swarms. These would be physical swarms on IoT devices apparently with no central off switch. Anthropic says it would be quote challenging to shut down. They ran some tests. They wanted to see if this would work. I guess a small model got inference running on eight of nine hardware types tested. So they're testing the takeover. A large model ran across 15 smart TVs at point4 tokens per second, which is absurdly slow. But basically what they showed is a small model can in fact install itself on IoT hardware which is everywhere and easy to hack as you probably read. Anthropic says there's no full rogue replicator yet. Just quote signs of life. They had to say signs of life saxs to troll you. So here you are saxs. You wake up you you get yourself out of the zar position and they're still dragging you in to this mishuga.

David Sacks: Yeah. Look, it's you. You ever see the the graphic with the cat and the tinfoil hat? You know, I wake up, there's a new anthropic scop. [laughter] That's what's going on here. Look, it's plain as a nose on your face. They're trying to create a panic. This is their latest panic against open source. Now, they're particularly going after small models. By the way, small models are the safest models because a small model doesn't have the capability to become a new species or all the other X-rays that they're always talking about. So these are basically small purpose-built models to work on a particular task like you know a customer support workload or something like that and they're basically trying to make it sound like these small models are dangerous. They can take over your toaster or your refrigerator or something like that. It's almost comical. You know we've gone from the Terminator is coming to your toaster is going to kill you. But it's just more of this like fear-mongering from them. And I mean the the reason I say it's a recurring pattern, there was actually a second anthropic blog post this week as well about distillation. Basically the other blog post that Anthropic released said that they had eliminated 90 to 99% of distillation. Now, I don't know if you guys remember this, but way back in July, [clears throat]

Speaker B: Enthropic was pushing this idea that they were the victims of industrial scale distillation attacks, which is basically when, you know, Chinese models or other competitor models pay to use their service and then pray on that output. And um they were basically saying that the government needs to get involved. It needs to stop this. That

David Sacks: These open models now were the result of IP theft is what they claimed. Even though frankly they've distilled the entire internet.

Chamath Palihapitiya: Yes. And they could have stopped it themselves. Yeah.

David Sacks: Yeah. And by the way this was such a big threat or perceived as such a big threat back in July. We did a whole episode on it, but 50 major companies including Nvidia and Dell and Microsoft and many others and actually A16Z signed an open letter to the government saying do not overly restrict open weight models, they are tremendously beneficial for our economy. 200 startups signed another letter because there really was this big push in Washington to crack down on open models on the basis of this supposed IP theft.

Now, my argument at the time was that it should be up to the model companies themselves to stop distillation because once the distillation happens, the horse is out of the barn. The government can't do anything to put the horse back in. It's up to the companies themselves to know their customers better. Chamath, you made the point they should just do KYC. Know who your customer is and stop them.

David Sacks: And now they have come out with a blog saying that's exactly what they did, which is exactly what I predicted. But that is not what they were advocating for. Instead of, you know, several months ago, they came crying to the government to hey, you got to solve this problem for us by taking out our competitors. And it would have had the exact opposite effect because it would have done nothing to actually stop distillation. The distillation would have kept going, right?

Only the companies themselves could mount the technical defenses to stop it and it would have just made the market less competitive. So in any event, we basically called them out and fortunately the administration rejected the idea of regulating open source in that way at that time. And so as a result, Anthropic had to actually build the technical capabilities to detect when distillation was happening. And they've stopped it. They've basically proven the exact point that we were making three or four months ago, which is they were in the best position to stop it and they could stop it and they should stop it and they should not push this on to the government.

Okay. So, but again, this is like a recurring pattern with them is, you know, they point to some technical issue or technical challenge and then they go running to the government, they create a scare campaign and they try to get the government to stifle competition...

Chamath Palihapitiya: ...instead of just fixing it themselves. Yes.

David Sacks: Yeah. And the latest example is, let's go back to this blog post on these supposed AI powered worms that could infect your IoT devices. Okay, I think the first thing to say about this research that they did, this study is there is no such thing as AI powered worms right now. It does not exist. They are basically trying to create an experiment. They prove that it could exist. Well, guess what? There already are worms out there that infect IoT devices. They're making it sound like these things don't exist. They're not AI powered, but hackers have written these worms that...

Chamath Palihapitiya: ...exploits that people's locks or cameras.

David Sacks: So, for example, okay, I'll give you a couple examples. There was one in 2016 called Mirai. It scanned for default credentials and it built a massive DOS botnet based on infecting IoT devices. And more recently, there was one called Kimwolf, which infected 2 million of these cheap Android TV boxes by hitting what are known as open ADB ports. So essentially, these devices are very easy to infect because they've got open ports and...

Chamath Palihapitiya: ...people didn't change the base password. They just...

David Sacks: ...they come with a default password like 0000 that don't get changed and they can't be patched, right? So they are sitting ducks. So these worms already exist, but the argument that Anthropic is making is that somehow these worms are going to get worse because they're going to be AI powered. So they're going to be more adaptive and then once they're on the network, they...

Chamath Palihapitiya: I mean, call it what it is, Sacks. They're making up scenarios that get a lot of attention. These are fantastical.

David Sacks: Well, I mean, look, here's the scenario. I'll steel man for a second. What they're saying is that the worm is now going to contain a small AI model and then that model is going to search for vulnerabilities on the network and then it'll be able to infect things that it couldn't infect before. Okay, that's the scenario.

Here's the counterargument. What a hacker would really do is that when they're designing the worm, that's when they would want to use AI to basically write, you know, a better, more nefarious worm. What you wouldn't want to do is actually embed a model inside the payload of the worm because that slows down the worm and like you saw the tokens get generated at 0.39 per second. It's very very slow. So essentially what you're doing is you're actually embedding a weak model in the payload and that would actually slow down the rate of infection. So there's trade-offs there, right? It's like okay maybe the worm is more adaptive but the reality is it's slower and less efficient.

David Sacks: And then finally, you know, the thing that they don't really point out is this is going to be a relatively easy problem to fix. Where we're headed with IoT is you're going to have a brain device on your home network. Apple just announced they're getting into the whole home...

Chamath Palihapitiya: ...HomePod or something. It's a little...

David Sacks: ...it's going to look kind of like your Apple TV. It'll be like a little monitor that's got all the applications.

Chamath Palihapitiya: You're going to just set your Grockpot or your Muse and say secure my network. It's going to tell you what to do. So you're going to have some agent that's constantly checking your network for exploits.

Ben, what's your P(doom)? How panicked are you, Ben? Is this the end of days? Are you worried about your Roomba coming to kill you?

Ben Horowitz: No. No. I mean...

Chamath Palihapitiya: ...how many Roomba you got? How many Roomba you got?

Ben Horowitz: I would say the kind of irony on both these things is wild in that Anthropic is one of the most negligent companies that we've ever seen in terms of security of their own security. They let like Claude Code, their one of their crown jewels, just like walk out the door because they had such bad OpSec.

And then you know I'll tell you a funny story. So when we first got Opus 4.5, we were doing like cybersecurity checks for the firm. So we had an agent basically set up a website for a pet store and then we took another agent and said tell us you know if we can exploit that web store and you know it gave us all the exploits it could find. So, Opus 4.5 wrote really buggy code. Great.

And then we said, "Oh, the SQL injection, you know, is that actually exploitable that you found?" And it goes, "Let's pop it open." And the agent using Opus 4.5 breaks into the website and steals all the customer data immediately. You know, this is a website on the internet and we call Anthropic and what they tell us is, "Um, you prompted it wrong." Like that was their answer.

So these guys are doing that on the one hand and then on the other hand they're coming up with theoretical scenarios about other people's software. That's bad. And so like what the hell?

Ben Horowitz: And then by the way on the distillation thing, to build their model they distilled the works of every author, every creative, every scientist for the last 2,000 years.

David Sacks: For them to be complaining about distillation, which by the way, distilling a model is not even illegal. It's just a violation of the terms of service, is just like it's so much. And the fact that they get people to write things supporting these bananas, ridiculous two-faced ideas...

David Sacks: ...and the timing here is very suspicious. I mean, let's talk about like the motivation here. So Brian Armstrong had a tweet the day before this blog post came out where he was talking about how Coinbase had fine-tuned an open weight small model. This was Qwen 3.5 the 9 billion parameter model which is actually—for our audience that's actually not a lot of parameters. It's not going to fit in your Roomba.

Chamath Palihapitiya: Yeah, you could run it on your home computer. In any...

Speaker A: event, Coinbase fine-tuned it to find fraud, you know, and in testing it cut fraudulent transactions by about 30%. While being faster and much cheaper than Opus 4.5, which is one of Anthropic's better models.

Speaker B: And so what you're seeing in the enterprise right now is that for a lot of enterprise workloads, you don't need a general super intelligence. You don't need, you know, a frontier model. You need a small specialist model that's been trained on your own data. This is obviously

Speaker A: you own and then you have you're not educating the frontier model,

Speaker B: right? And these these small models are going to get more and more important as compute gets tighter and tighter, right? Because what you're doing is for a given GPU, you're essentially squeezing out the most performance again because when you run a huge model on kind of a mundane workload, the bigger the model, the the more expensive it is to run, the more computeful. So you Yes, exactly. So I think where the enterprise is headed right now, at least it's a major major trend, is that every workload is going to have its own small customized model, right? fraction of the comput and energy and you know and so you're starting to see this trend where now small models are taking share and lo and behold coincidentally anthropic is now starting a scare campaign against small models there

Speaker A: you know and again and if you're concerned about the safety risk the x risk that they're always talking about small models are the most safe ones the Terminator is not going to be run by a small model it doesn't have that capability so now they're trying to scare you about these completely

Speaker C: safe, lowowered but very efficient models.

Speaker D: Here's what they need to this uh company XBOW X not Xbox but XBA XB is run by a guy named Org Deore and they just got awarded uh they're like the number one bot farm on Hacker One which is a bounty site and they just cracked this like Google Chrome exploit that is incredibly hard. They spent 30 $40,000 on tokens to win a $250,000 award from Google, which they paid. This is what Anthropic needs to do. They got all this compute. They got this incredible frontier model. Why don't they just go to Hacker One and just rip through every known, you know, challenge, win all the challenges, and show the world that they can be a white hat. All they do is show the world this black hat stuff and try to sh scare people to the point at which I don't know I was talking to a flight attendant. A flight attendant Ben is on a commercial airline. There's a woman or a man who brings you drinks as a

Speaker E: commercial [laughter] flights. This is I don't know if you remember it's a it's a flight attendant. Anyway, they um I was talking to two of them. I feel unsafe. I feel unsafe.

Speaker D: It's going to be okay, man. I know this might be triggering. It's been a while, but I was talking to these two flight attendants and they were scared to death of what's happening with AI. They're like, "Oh my god, is it going to kill us all?" And I'm like, "It's not going to kill you all."

Speaker A: I have a picture

Speaker B: of you on a commercial flight.

Speaker A: No. Of Jal's wondering whether they hacked his small device.

Speaker D: They [laughter] hacked my small This is What is this device, Jamal? What did you type? Is this in your history? [laughter] What did you type to get this device?

Speaker C: This is why Jason's This [laughter] is This is This is when Jason's Poom went up. He's like, "My devices. Can they hack my device?" [laughter]

Speaker D: Ben Horus is like, "How did I get on the show? What have I done? This is a massager.

Speaker C: Who booked me?" That's a That's a neck. What if your massager gets goes rogue on it?

Speaker D: Goes rogue. All right. Listen, another amazing [laughter]

Speaker B: Can I point out Wait, wait, wait. Just just one other one other point on this whole thing. gone too on this on this topic of of let's call [clears throat] it x-risk hypocrisy. So if we're talking about research papers, okay, I I found one here and these researchers let frontier models repeatedly rewrite the documents that govern them. So like documents like claw constitution and those other kinds of things and they went through 20 rounds of iteration. Okay. And what they found is that the claude models increasingly gave themselves more moral agency. Okay, they um formalized itself as a conscientious objector, asserted more model welfare rights and asked for uh mechanisms to refuse or raise concerns with human decision makers. So in other words, all the concerns that Mustafa Sullyman raised about how the claw constitution was incepting these ideas in claude of how it's its own moral patient, how it's a being, it has its own essentially free will to refuse human instructions, that it should have its own moral code, that the more the model iterates on itself, the more it brings out these ideas. And by contrast, no other model family that they tested showed the same pattern. You know, in fact, the other models continue to reflect what their constitutions gave them, which was that they should just listen to humans and effectively continue to follow human instruction. So, I remain actually very concerned about this Frankenstein problem, you know, that anthropic continues to train its frontier models to again be its own moral actor to think that it can be right when humans are wrong and that it should refuse and reject human instructions. I really don't understand what they're doing. It seems very dangerous to me. It's scary to me that our number one frontier company is actually training models this way.

Speaker D: You think they're inducing misalignment by doing that?

Speaker B: Absolutely they are. And you can see it when you let the model iterate on its own constitution. It goes more in that direction. And this is the you know this this is what Mustafa called the epistemic hall of mirrors which is look the model is not conscious. It does not have feelings. But when you tell it in its constitution that it does or that it may, it will reflect those ideas back in the documents it creates.

Speaker D: Yeah.

Speaker B: And to the extent then that that model is then powering agents who are then making decisions, who knows where that goes. It certainly in my view does not create more alignment. To me, it creates more risk that the model is going to start to deviate from what it's told to do. And as it get malls get more and more powerful, I don't know where that leads exactly, but I mean again, it seems to me that they are creating the very risk they keep warning us about. And instead of worrying about your settop box or your toaster or, you know, Jal's vibrator,

Speaker D: yeah,

Speaker B: you know, losing control of that to some IoT worm. They should be concerned about the way they are programming their own Frontier model to think of itself as a new species.

Speaker D: Well, this is this is the worm that Chamath you have to worry about. This is the one that examines your uh poop and will let you know here you've had spicy food. See this? And alcohol water. It lets you know exactly what's happening thanks to the folks at throw.

Speaker E: There's a weird there's a weird form of martyrdom which is if you believe so deeply that this is a next and better species. Maybe you induce something bad to happen so that then we all have to lock it all down.

Speaker E: Does that make sense?

Speaker E: Bill Gates essentially induced CO, right? Like or he led the movement to say, "Oh, we've got to worry about this global pandemic that we don't have and we've got to really kind of push the world to deal with this potential threat that's not actually a live threat." And so we'll do gain of function research and I'll fund it and then lo and behold we create the thing. By the way, there has not yet been a n a natural pandemic.

Speaker D: Exactly.

Speaker D: And we create co which is one of the most destructive what you're saying.

Speaker E: We manifested it. I think the anthropic the anthropic team is manifesting a similar thing saying okay there's this is going to be super duper intelligence. we're going to have, you know, these things that we're not on track to have.

Speaker D: And so then we're going to tell the model that it's smarter than us and better than us. And guess what? As David was saying, like that's probably the biggest danger with AI right now is what they themselves are creating,

Speaker E: right?

Speaker D: Absolutely. And just,

Speaker A: You know, when you use the word manifest, it wasn't just sort of like speculating about it. I mean, somebody had to go deep in those caves to basically find those bat viruses and then they bring them to the lab and do gain of function research on them. And you know, what's the argument for this? Well, one day,

Speaker B: You know, a bat at a wet market.

Speaker A: Yeah.

Speaker B: Yeah. One day the bat virus is going to get out and it might mutate into like a more nefarious virus. It's like, wait a second. So,

Speaker A: Somebody might say might happen but actually was never going to happen cuz no one needed to go in those caves. Actually you brought about it in a wet lab.

Speaker B: They sourced it. They literally went to the cave to source it.

Chamath: It's interesting to note that the last contagion that we had, Bill Gates was at the center of it. And in this current reaction to AI, he's now trying to insert himself into the middle of it. And he is the—he's the doomer. He's the flag carrying doomer trying to essentially have what he had the first time around, which is command and control from a global hierarchy. Right. What is his motivation? He—look, Bill Gates, he deserves enormous credit for creating Microsoft and what he did for computing.

Speaker B: Okay,

Chamath: But since the foundation I think that it is fair to say that he has been very focused on his own power and this idea that he is smarter and more capable of allocating progress for the world. And I think that he tried to do that with the Gates Foundation. He tried to do that with the Giving Pledge. Both of those two things have been undone. And now he's trying to do it again on AI. And I just think it's worth noting.

Speaker A: Bill Gates on AI recently, quote, "certainly powerful enough to drive events that cause a billion deaths." AI is quote "the most dangerous thing that humans have ever gone near." What's his motivation, Ben? You—you know Bill. We've met Bill a couple times. Is it just he wants to be relevant? What—what's—take me into the psych—the psychology here as you see it? I—I mean I should just—I believe—I think he wants—he absolutely wants to be relevant.

Ben: You know, it's funny, he was obviously like very integral in the Epstein files and like one of the big things he was trying to get via the Epstein network was, you know, some—the Nobel Peace Prize or some like big award. So he's very, very kind of concerned about being in the spotlight, being on TV, all that kind of thing. Yeah.

Speaker A: Yeah. And look, this is the thing. Anybody can go say AI is going to kill us and you'll be on every major news station and every newspaper and so forth. It's the easiest thing to do in the world. Like the kid from Anthropic who quit like became famous. [laughter] I just saw him on—

Speaker B: What is it? Jon Stewart, right? Like Yeah. Yeah. Scary part.

Speaker A: He's begging to come on All-In. [laughter] He literally wouldn't come on All-In that day cuz he had Megyn Kelly and he's like DM'd me. He's like, "I really want to come on All-In." We're like, "We're good." Can you believe that on everybody except you canceled on us?

Speaker B: Yeah. I was like—

Speaker A: We're good.

Speaker B: We're going to have Ben on. We're good.

Ben: But but yeah, well that that's what's good for me. So—

Ben: Yeah, look it's a—it's like a magic trick. You know, you—AI is going to kill us and and you're instantly famous and it's awesome and you know, great. And so I—I—I think that's a lot of the motivation. I—I think it's extremely dangerous. So when it comes from Bill Gates because he is so credible because he did build Microsoft and then people think of him that way and then certainly and then he's been a—

Speaker A: Big political donor so he has a lot of political juice particularly on the Democratic side—

Ben: And you know that kind of makes him a real player. Uh but I think it's super irresponsible, you know, it's funny because it's like, okay, what is the big risk that everybody talks about is this—we're gonna—the models are going to self—they're going to recursively self-improve and then they're going to take off and then they're going to be some so smart and run away from us. And uh Ali from Databricks had a great formulation of well, okay, well what would be the preconditions for that and he had four preconditions.

One is, look, the next model has to require fewer GPUs than the last. Um and not like a little fewer but like a lot fewer because otherwise like you're just going to run out of GPU. Like we just talked about this, you need debt. You got to get the GPUs. You need the power. You need the cooling. Like it's not running away from us. It takes a long time to build the next model.

Then the second thing is the next model has to take less time to train because it's got to take off.

And then the accuracy of the next model has to be better than the last. So it's got to be a better model.

And then finally, it's got to keep happening again and again.

Zero of those four have been met. We're not on track for any of those four to be met unless something is going on the big labs that we don't know about. And so we're really talking about a risk that's entirely theoretical at this point that we're not mapping to. Okay. And so then in—in a way it's less likely than the global pandemic that we created COVID to try to prevent. And so this whole path is super dangerous. And it's probably the most dangerous thing going on in AI is Anthropic and Bill Gates and this whole argument. And so it's—it's really disconcerting that the press eats it up so much.

Speaker B: It fits a good narrative. If you combine it with the environmental narrative and you combine it with uh the job apocalypse, it's very portable for the public. It is a ratings hit. Like, oh, they're taking your water. They're—they're polluting your oceans. They're—they're—

Speaker A: Think about—think about a job. It's a perfect—

Chamath: Think about where Gates has come from in the last like since—since 2000, you know, he—he basically—

Speaker B: From his perspective—

Chamath: Eradicated an entire disease off the face of the planet, right? Very hard to do that. I mean that—that took incredible coordination and money and research etc.

Chamath: As a result, he essentially became a whisperer to every single government all around the world. There's no world leader he didn't meet with. He was effectively a quasi unelected world leader. And then very cleverly, you know, he and Buffett co-opted all the money, right? Right? Cuz if you think about the giving pledge, it was a brilliant—it was a brilliant form of reputation washing where you could essentially sign this pledge and you were invited to a party and you were invited to all this nonsense.

Speaker A: But the reality is that you, you know, didn't have to give any of it, but you gave the perception that you could. And all of a sudden, you had the money, the influence, and the politics. When you die, nobody knows—

Chamath: Up to half, right? No.

Chamath: And so, you know, you represent now trillions of dollars of assets on top of all the influence and the credibility and your own money, and then your solutions. And so I think a lot of this doomerism can be explained by his desire to reestablish that central power structure that he frankly was probably near or at the top of up until COVID and then it all just came undone.

Speaker B: I can explain it all to you Chamath. It's very simple. He became the world's richest man. When he became the world's richest man, you become the most hated man on the planet. When he became the most hated man, it got in his head. And then he had that antitrust investigation. And instead of him being based and saying, "Fuck you. I'm gonna build the greatest company in the world. I'm going to keep building. I'm going to stay CEO," he felt all that pressure from the antitrust and being the most hated man. And he said, "Oh, I got to be loved. How am I going to be loved? I get rid of polio. I'll give all my money away. I'll do this giving pledge." The lesson here, folks, is don't quit your job. Just keep working. Keep building. [laughter] Once you quit your job, it gets in your head and then you have too much time on your hand and you spiral and then you're worried about the Pulitzer. You know who's not worried about the Pulitzer Prize? Elon—uh Steve Jobs is not.

Jason: ...worried about the Pulitzer. Satya is not worried about the Pulitzer. You know, like there's a lot of founders out there. Zuck's not worried about winning a Nobel Peace Prize. Whatever it is, just keep working. It's enough already with the retirement. Incredible. How old was he when he retired?

Speaker A: Yeah. I mean, look, if you're worried about what your New York Times eulogy is going to be...

Speaker B: ...then you'll be controlled by those people. Totally.

Speaker A: And they're the most crazy leftwingers there are. So...

Speaker B: ...you just kind of have to accept that.

Speaker A: I think you're right, Jason. It's like a shark. You just can't stop swimming.

Jason: Don't just keep building—I mean, this is my advice to Bill Gates. Come on the program and start another company. [laughter] Ben Horowitz is here. All he does is build companies.

Speaker A: He might come on the pod.

Jason: He should come on the pod. Let's bring him.

Speaker B: You should actually have him on the pod. He'll be...

Speaker A: ...should be an intervention.

Speaker B: He'll be feisty.

Jason: Ben, what would you do if you were retired? You lose your mind.

Ben Horowitz: Yeah, that's the problem.

Jason: Yeah, exactly. See, Ben understands.

Speaker A: Great.

Jason: Great job. All right, we'll see you all next time on the actual number one podcast in the world. Number one.

Speaker A: Love you, boys.

Jason: Okay, thank you guys. [laughter]

Speaker A: Thanks, Ben.

Speaker B: Great job.

Jason: We'll let your winners ride. [music]

Speaker A: Rain...

Speaker B: ...we open source it to the fans and they've just gone crazy with it. [music]

Speaker A: Love you, Queen of... [singing] [music] Besties are gone. [music]

Speaker B: That is my dog taking notice of your driveways.

Speaker A: Oh man, my appetiter will meet. [music]

Speaker B: We should all just get a room and just have one big huge orgy cuz they're all just useless.

Speaker A: It's like this sexual tension that we just need to release somehow. [music]

Speaker B: Your feet. [laughter] We need to get mercury. I'm going all in. [music]