A riddle for you before we move on. Yes. We’ll do Salesforce, Netflix, Square, Amazon, Palo Alto Networks, Facebook, Snap, Proofpoint, NetSuite, and CoreWeave have in common. No idea. They all broke issue. Oh, wow. And we’re back. Bill, great to see you. Good to be seen. I mean, you have to be pretty stoked coming off those wins last weekend in San Francisco. Yeah, I’m repping the Gator hat still. I’d say we kind of eked by for those that did watch. That was an incredible final few minutes. Explain it. Take us through the final few minutes.
Well, I mean, to be honest, I was afraid. I didn’t think there was a chance at this point because they were behind by so much as you were heading into the end of the game. And they basically scored four three-pointers against zero from the other side. They intentionally fouled and had missed free throws. So, I think someone said the Yahoo game predictor had it at about 98% Texas Tech with very little time left on the clock. And they somehow eked it out.
Now, the bullish people will say, oh, you lived through something like that. Now, you have confidence to deal with anything. But, you know, the odds makers have put Duke in front of Florida at this point. And that started in the opposite place. So, anyway, one game at a time. Super exciting. I was out in San Francisco at the Chase Center. Got to hang out with the coach a bit and some of the players’ parents. And it was a good trip. And now, since I’m in Austin, it’s right down the street here to San Antonio. So, a lot of friends coming in. And we’ll see what happens. It’s going to be a heck of a weekend.
And maybe if a certain couple of teams end up in the championship game, I’ll sneak in there on Monday night. I guess as long as we’re repping and rolling. I have two degrees, one from Florida and one from Texas. The Texas ladies are playing in the Final Four in Tampa. So, a lot of good stuff happening.
Speaking of a lot of good stuff happening, I think there are some people in the world that think a lot of not-so-great stuff is happening based on market reaction to the president’s announcements of these tariffs. So, why don’t we kick it off talking about Liberation Day? Yeah. So, we’re recording this right after Trump’s presentation. I think you and I both watched it and then we jumped on the pod. You’ve been talking about this. It’s obviously been choreographed that this was coming.
And, you know, you’ve been saying for a very long time that Trump and his team are very serious about this rather than the argument that it’s just a means to an end and a way to get a negotiation started. You have made the point that you believe that they believe this is actually where we need to take the economy. And as such, you’ve been conservative and worried about where this would go. You gave a presentation last week on how to think about this. What did you talk about there?
I think it was at the JPMorgan Tech Conference. It was pretty clear to me and you, and we were talking about it in early Feb, that this was doctrinal. There was a philosophical belief around trade that they wanted to create a more fair and level playing field. And the real debate has been going on is like how big? And there are a couple of different camps.
And so JPMorgan had this great event in Montana last week with 100 tech CEOs. They had Howard Lutnick, Elon Sachs, Doug Bergrum, all talking about various aspects of this. They asked me to do a little bit of a presentation on decoding the Trump economic agenda. And really, it boils down to this, Bill. At the top, I think that all the CEOs in the room are pretty excited about the golden age that people have been talking about.
You know, a pro-growth administration, pro-business, pro-investment, lower taxes, less regulation, pro-M&A. We’ve seen this M&A flywheel starting to kick up, this AI super cycle. But everybody’s been pretty terrified about these tariffs. And the real question going into today, Liberation Day, was were tariffs going to land closer to the $600 billion trillion tariff level that Peter Navarro had been talking about and Howard Lutnick had been talking about? Or maybe at a little bit lower end of the spectrum, which we heard a little bit more from Scott Bessent and Kevin Hassett. And I think everybody was holding their breath.
Well, we got the answer. We got the answer today. And so I was framing that at the J.P. Morgan conference. I showed this slide you’ll get a kick out of. I ended the presentation with two planes coming in for landing. They both actually land, believe it or not, but it’s like the glide path that we land here with tariffs and budget cuts matter a lot. And so, you know, we got the news tonight. You’re right. We just listened to the president talk, and he came in on the larger end of this.
I mean, there’s no other way to slice it. There was a headline that hit right after the market closed from the Wall Street Journal, I believe, that it was 10 percent across the board. And the markets jumped up like two and a half percent. Right. And then as the presentation started unfolding, they started coming in. People saw this chart that they presented on reciprocal tariffs. Right. Where they say tariffs on China going to 54 percent. Can you believe that?
Thirty-four percent on top of the 20 percent that already exists. And he starts going through this list and the futures, the S&P futures, the Q, the Nasdaq futures start sinking. They had a 600 basis point fall between where they initially jumped and where they ended up. So the market is not liking this at all. And depending on what index you were looking at, we were already down eight to 15 percent on the year. Now, whatever comes in tomorrow will be on top of that.
So that’s the chart. That’s kind of the initial reaction out of the market. We can break them down a little bit if you want. But that was the initial reaction. Right. And one of the pieces that I witnessed, and I think everybody else did as well, maybe you have more data on it, is when they said reciprocal tariff, they kind of redefined what a tariff is for the reciprocal calculation. And they are including others, whatever.
I don’t know what else goes in there. Maybe you know exactly what fills this in. But basically, the Trump administration is calculating an effective tariff, if you will, for each and every other country, which may not be the explicit tariff. Correct. I mean, they call them non-tariff trade barriers. This is everything from what they call currency manipulation to things like judicial actions that restrict free and fair trade of our products into their countries.
And by the way, we know there are non-tariff trade barriers. So, like, it’s not totally surprising. But if you and I were to do the math on these, you can kind of make those numbers whatever you want to make them. And so, you know, if I had to go through this, the tariffs largely break down into let’s call it three or four big buckets. Right.
There’s the auto tariffs. That’s largely on Mexico, Canada, and Germany. And the auto tariffs were imposed at 25 percent. In fact, he had 20 members of the UAW union in the front row at the event. He invited, I think, the president of the UAW up on stage to make some comments. And he said these people used to be Democrats. The Republicans now were the only ones who fight for them. And by the way, this is really, you know, he said we won the state of Michigan because of this.
This is what I campaigned on. You know, these are the promises we made and we’re delivering on the promises. It is striking to me that just politically, this is what Democrats were running on 20 years ago. And it just shows how much the political parties have changed. So this is a big tariff differential as it relates to autos. Then he had the reciprocal tariffs, which are the ones that I outlined here, Bill.
Remember, Trump is the negotiator in chief. This is the starting point. All these tariffs go into place, and we’ll put these charts up on April 9th, country by country. And so we’re going to hear all these ad hoc negotiations going on, some of which I’m sure like Vietnam, he’ll declare victory on even before we get to April 9th, because they’ve already capitulated on a bunch of tariffs. He’s also declared that there are $6 trillion of new investments that people have committed to in the United States.
He mentioned NVIDIA, Apple, TSMC, SoftBank, OpenAI in his remarks. In fact, I particularly noted when he talked about SoftBank and OpenAI, he said great companies. So, you know, for the people who are watching the battle between OpenAI and NX, that was notable. And then he said, we’re going to have a minimum tariff of 10 percent on all countries. So even if you’re not on this list, we’re going to have a minimum tariff of 10 percent on all countries. And then, of course, China is kind of in this bucket on its own, right?
That’s going to be a huge negotiation on its own. There are a lot of things that go into that negotiation, everything from the Panama Canal to the TikTok stuff. So set that aside, if you will, for a second. There’s no way that lands, I think, at 54 percent. That’s the headline tariffs, okay? When we do the math and we add all of these up and say, what does this come up with?
The headline is we were at $77 billion last year, and we end up at about $750 billion. Remember, Peter Navarro, the hawk, the person who had been saying we’re going to land big tariffs, he was estimating $600 billion. So this definitely landed on the larger side. But then they came out right after that, and there was a footnote about things that were exempted from the tariffs. Exemptions, which included pharmaceuticals and, notably for you and I, semiconductors. Wow. Right?
So Taiwan’s got a 32 percent tariff, but semiconductors are exempted. And so we’re going through the value of those exemptions right now. My hunch is that this is going to land right around $600 billion. But, Bill, I have to ask you, you know, here we are. You and I, we’re trying to make our way through this, make sense out of it.
I don’t think there are many CEOs we know who support this or like this. In fact, I think a lot of congressional Republicans don’t like this. You’ve made an eloquent defense of the benefits of free and largely fair trade. When you start hearing things like this, like, okay, this category got exemption, or this category got exempted, just give me your reaction, right? As somebody who I think totally understands the benefits of free trade, when you see the Republican Party doing this, how does it make you feel?
Well, yeah, I mean, at a high level, I’m a believer in open markets, free trade, and comparative advantage. And that’s been studied for a very long time. There are very solid mathematical arguments why if you pull up the trade walls between multiple countries, you’re going to hurt the efficiency of both of them in the long run. And I, at least from a theoretical perspective, I’m a believer in that.
I think there’s another issue for the markets and for the CEOs, which has to do with both the slow pace at which they could realistically respond to this, and then the amount of ambiguity that’s been out there. And so, let’s say what the administration wants to encourage is for you to relocate a factory that you have or let’s call it production that you have in Thailand and put it on American shores. That’s not a quick process.
And if you start that process today, it might take three years before you’d have the type of volume to be capable of bringing that back. And probably at a higher cost. I mean, one of the things that I’ve said over and over again, I don’t think our labor is globally competitive, nor do I think it wants to be. And so, even bringing it back, you’re going to have a higher cost of production because we’re going to have a higher cost of labor.
That being said, this ambiguity, you know, there’s a lot of people even going right into this announcement that didn’t know what percentage of it was real versus bluster. And there’s, I think, at this point, just reading the papers, not making my own assessment, the administration has a reputation of maybe some of this is for negotiation, maybe some of it’s not real.
And so, you’re left not knowing what’s going to be the policy three months from now, six months from now, or 12 months from now, which makes it very hard to allocate CapEx in any meaningful way whatsoever. I think it’s so well stated. You and I have said, you know, markets and business abhors uncertainty. Yeah. Right?
It can deal with almost anything, but it has to have predictability so it can build a forecast, so it can look at an investment and say, is that NPV positive? I was literally texting with some big CEOs during the president’s announcement, and they were asking questions. Do you see us exempted? You know, are we in there? And this is just amazing to me, right, that you have this level of uncertainty.
I was with those hundred CEOs in Montana last week, and I would say almost to a one, they said things are slowing down in February and March because nobody knows what to do. And remember, the Fed had just come out last week and had taken down their forecast for GDP growth, had taken up their forecast for inflation, had taken up their forecast for unemployment by the end of the year.
So, the economy, you know, most major economists are increasing their probability of recession and are slowing the rate of growth. And the question today was, was Liberation Day a clearing event? Does everybody have clarity now? And I think your point is a great one. Even though they may have gotten an exemption or they may not have an exemption, the question is, can I count on this?
And how long can I count on this? And can I really plan a year out based on this? Or is this going to change yet again over the course of the year? And so… And by the way, there’s cascading effects. So, if you’re unsure about things like this, you’re not going to hire a bunch of people, for example. You’re probably going to pause hiring because you don’t know how much earnings you’re going to have.
So, those kinds of things can proliferate downward and affect unemployment and eventually affect consumer spending just by freezing nearly everything in the economy. Let me tell you two other cascading effects. I heard from one of the CEOs last week that four contracts with him had actually been canceled, right? Because they had three European contracts canceled and one Asian contract canceled because the countries were so upset with America that they’re going to do deals instead with European country companies or whatever the case may be.
And then I saw a couple of tweets, Bill. One was that China and Korea and Japan were actually going to collaborate in response to the U.S. tariffs. Somebody said, you know, we haven’t seen the Koreans, the Japanese, and the Chinese combine forces on anything since the Mongols caused them to get together. And so, it is causing a lot of strange bedfellows.
I sent you the tweet where the Europeans, the president of Europe, President Macron, they’re all going to China and they want to talk about closer trade negotiations with China. And you warned us about this. I think you said the meeting was in Vietnam. And obviously, I got that from the president of the Economist who had predicted that that would happen. But yes, you know, there’s no reason that that wouldn’t happen.
And there’s a lot of ramifications of this. I don’t think that anything came out of it that’s going to be good for the markets and good for stocks. But that’s more your world than mine. I’ve always shunned macro analysis. Let me just maybe opine on that for a second. Like, where do I think we go from here? After hours with the NASDAQ down, peak to trough post-Trump at almost 18 percent. Right?
That’s down a lot. A lot of names in the NASDAQ are down 40 percent or 50 percent. So, we’re starting to get some of that fear into the market. Somebody asked, and I said, as very rude, I do believe the president wants to do deals. He believes in fairer trade. I think we’re going to land the plane closer to $300 billion or $400 billion in tariffs, not $600 or $700 billion, and certainly not a trillion in tariffs, even though it feels today like it was bigger than that.
And one of the things I think that’s going to kind of force the president’s hand, he talked at the press conference. He had a bunch of senators there and House members. The senators and House members are hearing from their constituent CEOs that they don’t like these tariffs. And remember, most important to the president, he wants to get this reconciliation package passed, which he calls a big, beautiful bill.
He wants to get this thing passed, which puts in place no taxes on tips and the permanency of the tax cuts which he passed in his first administration. He can’t afford to lose a single Republican vote. And so I think that that also is going to guide him a little bit more to the center. And that’s what, you know, we’ll see whether the market believes that. Certainly didn’t believe it after hours today.
We’re going to get a little bit more positive on the companies we like the best because we think some of this fear is now getting priced in. What will you be looking for in the next 30 to 60 days as this plays out? Yeah, I think we’re still in the fog of war, certainly. But I will be looking at, do these exemptions on things like semiconductors and pharmaceuticals hold?
Are we seeing the country-by-country renegotiation on some of these things? And probably most importantly, Bill, it’s really about China. China is the second largest economic power in the world. It scares me how big the tariffs are that we are suggesting are going to go in place on China. And I think, you know, it’s imminent that he and Xi are going to have to talk and get a big trade deal done.
And so those are the things I’m going to be watching for. I don’t think I see any clearing event here for at least another 30 to 60 days. But remember, the best opportunities to buy something are when people are a little fearful. So you may have to just take a bit of a leap of faith on this one if you want to purchase at the best prices. Makes sense.
You know, another thing that we heard a lot about this week, Bill, speaking of China, is some developments in Chinese open source and some developments on the U.S. open source front, particularly with respect to these frontier models. You have a lot of, I think, understanding about the history in China around open sources and about the history of the United States around open source.
So help us unpack, if you will, what do you think strategically is going on in China with respect to these open source models? I’ve seen some people tweet that maybe DeepSeq was forced into open source by Xi. Do you think that’s going on or is there something else going on here? And by the way, I mean, all this culminated in the past week with OpenAI moving, you know, are talking again about open weighted models, which is a really important data point.
So how did we get from where we were to where we are? So, yeah, I read that same tweet and I think it was remarkably misplaced. China has been supportive of open source for well over a decade now. If you look on most of the major open source products and look at the management page and who the sponsors are for these, like Linux, you’ll see many of the major Chinese companies have been there and been supporting it for a while.
Why? They’ve been accused of stealing tech IP for years. And so when something like open source comes along, this looks like the best thing possible, right? There’s no one that can accuse us of IP theft because there is no IP ownership in an open source world. And so having dealt with those accusations for probably 40 or 50 years, I think everyone in China, the government and the entrepreneurs writ large view open source as a very positive movement for their country relative to the West.
And so they’ve been in on it for a long time. They’re very adept at it. They’re very big believers in it. You know, when we talked about the interview with the DeepSeek founder, I would say he had as much kind of emotional mindset that his entire emotional mindset was tied to open source. He believes in it and wants to support it. So that’s an important backdrop.
So I don’t think China got there in some calculated way or do I think it was some recent move. I think they embraced open source over a decade ago because it made a ton of sense for them in a world that had pointed a finger at them from an IP standpoint. So, let me just double click on that. So basically what you’re saying is they may have been fearful that they would have been cut off from other types of software products in the United States.
Like, you know, there might’ve been export controls or other things put on them. So they said, I may as well support Linux because I may not be able to get Windows. Right. But I think that discussion happened a long time ago. Like it wasn’t recent. But I think it’s important because that lays the foundation, right? That if that’s a foundational belief among Chinese entrepreneurs and Chinese companies, then it’s understandable that this new generation of entrepreneurs might also see the advantages of open source.
Another thing that I think people have to remember is that within, also within the past decade and maybe 15 years, many U.S. companies have learned to use open source as a defensive tool rather than just an offensive tool. Say more. Yeah. So this is the biggest companies out there. If they get in a position where they feel like they’re behind the eight balls, so they’re not in a leadership position, they will embrace open source as an attempt to level the playing field.
And a great example is Kubernetes. So Amazon took this huge lead with AWS in the hosted server business. Everyone was afraid of that. Google had a piece of technology called Kubernetes that was orchestration that would allow you to move a workload if that became a standard from one large server vendor to another.
It basically created ease of distribution so you could run on multiple clouds. They went to the Linux Foundation. They recruited IBM, a whole bunch of other people, got everyone behind it. And it gained so much momentum that Amazon had to embrace Kubernetes. So it worked. And we don’t have a monopolist in that cloud business right now, perhaps because of that deft move made by Google.
But they did it with Android against Apple, you know, being notable. And Meta did it with Llama here, right? They came to the table. They weren’t first to the table in the AI space, but they were disruptive with open source. One other thing I would point out about that type of move and attention, in addition to saying it’s defensive, I think it’s great for consumers.
Like if you study economics in business school, you know, there’s this notion of pure competition. Where do you have the most fluid competition, which leads to the lowest prices for a consumer? And certainly open source does that versus proprietary code. Like it’s just hyper-competitive. And that’s why it’s disruptive. And that’s why people use it in this way.
So that’s a huge backdrop to where we are today. I believe DeepSeek has been remarkably successful in the enterprise. And that’s, you know, it’s hosted by AWS. It’s hosted by Google. It’s being used around the world. I’ve heard from Hugging Face that it’s been forked over 1,500 times on their site. And so it’s prolific. I’m beginning to hear concerns that D.C. may take action to limit the use of DeepSeek.
You’re saying Washington may intervene to take action because there are people perhaps lobbying against or other concerns that Washington may have about open source Chinese models being used by American enterprise. I think it’s safe to say both of those things are happening. There are people that are really concerned about, you know, Chinese technology getting underneath our products.
Whether or not this particular code could be bad or not, they just might have that default. And then I think there are people that are lobbying because it would benefit their company. Either way, if that gets traction, you have a window in the U.S. right now where someone might move to go left of DeepSeek in terms of openness on one of their models, either in an offensive or defensive move. And I think it’s a short window. And so it’ll be very interesting from my point of view to see whether Google does that or Meta. I think they have an announcement coming up in a few weeks of their next model. I don’t think Anthropica would do it. They’ve been so anti-open source, it would be very out of character for them. But it will be interesting to see what happens on this front. And that leads us up to OpenAI making an announcement, which I’ll let you describe.
Well, listen, we’ve talked here and Sam has been dropping the breadcrumbs on Twitter, right? That they wanted to launch an open-source model. They’ve been GPU constrained. They’ve been bandwidth constrained. But he got the announcement out this week, which I was thrilled with, where he said, we’re excited to release a powerful new open-weight language model with reasoning in the coming months. And we want to talk to devs. So he’s inviting all these developers to participate and give feedback. He said, we want to make it a very, very good model. We’re planning to release an open-weight language model, one of our first since GPT-2. And he says, we’ve been thinking about this for a long time.
And the interesting thing is somebody in the replies I saw said, are you going to make people buy licenses if they get a lot of users, like Meta is doing with Llama? And he kind of takes a jab at Meta and he says, no, we’re not going to. He says no. Yes, he said no. He says no, which indicates maybe we’re going to out-open Llama. So that’s on the one hand, kind of opening AI. And by the way, just hold your thoughts. In case people don’t know, openness is a continuum. It’s not black or white. And that’s true of all the open-source technologies. In the open-source model world, some of the players, most notably Meta with Llama, have a usage restriction against the free use of the model at $700 million. And that’s what you were referring to.
And so at least in a tweet, Sam suggested they won’t have that in theirs. So back to you. Yeah, no, which I think is notable. Because remember, at the end of this month, we have LlamaCon, which is the developer event for Llama. It’s a big deal for Meta. The launch of Llama 4 has been rumored for a long time. In fact, I think there are just a lot of people who are surprised they haven’t released it. But it seems to everybody they’re going to have to release it ahead of LlamaCon.
What I’m hearing, Bill, is that it’ll be a 400 billion parameter model. It’ll be a mixture of expert model using 50, 60, 70 experts. It’s going to have huge context window, like 10 million context window, and it’s going to launch this month. I think it’s terrific that OpenAI has now fully committed. Everyone on the team, Brockman, Kevin, et cetera, we’re all retweeting this. And maybe even suggesting that this is going to be a more capable model and even more open. I think it’s good that we have competition in the U.S. for an open-source model.
And when it comes to the administration and what Washington, D.C. is going to do, my best sense is they do not want to see a Huawei DeepSeq Belt and Road, either with chips or with open-source models. They do not want to see the world run on DeepSeq on Huawei 910 chips. And so, this gets back to the AI diffusion bill and how we’re going to restrict these things. I think they would love to see the world continue to run on U.S. compute, U.S. silicon. And they would love to see Llama and perhaps OpenAI’s open-source model around the world. They know it has a lot of distribution.
So I think this was a really positive step forward on that. And you bring up an important point, which is, you don’t have to be, let’s say something does happen to limit DeepSeq usage. Whoever’s going to jump in to try and lead the open-source movement in the West, if they want to be a global player, they don’t just have to get left of everyone else in the West. They still have to compete with DeepSeq on a global basis. And I don’t think it’ll be interesting to watch. I’m very, very curious how this plays out.
I’ve already asked Clement at Hugging Face if maybe he will create a continuum so we can rank all these different models from an openness perspective. Because there’s so many different facets by which you could be open or not. Oh, but actually, I had one more thing. Since you’re involved at OpenAI, you can correct me if I’m wrong. But you have been saying for a couple of quarters now that the real opportunity for OpenAI is on the product side versus the model side, which hints at being more of a consumer product than, say, the enterprise API business that they’ve also been in.
If they think that also, and I’m not involved, so this is a conjecture on my part, being more open with your model is a really deft move. Because it will put more pressure on other players to try and keep up. And it will allow your model to have more pervasive usage globally. And you talked about running out of compute. The minute you put that model out where other people can download it, they’re doing that on their servers, not on yours.
And so, I just think it’s a very clever move for the same reason Google would have supported Kubernetes. You’re kind of wiping out the business opportunity for other models to play on the API side if you make yours open, which helps protect the competitive flank. And, once again, great for consumers. Yeah, I think it makes sense on a bunch of fronts. On the first front, I think they want developers to develop on their platform and build applications for OpenAI. And so, this brings them into the ecosystem.
Number two, I think that they fundamentally have a view that they want to build products and applications that move humanity forward with AI. And this is another way to do it at scale. Sam has said publicly now, I’ve heard him several times say that he thinks that models are commoditizing. They’re anti into the game. They will continue to push the frontier. So, he thinks they’ll have the best models. But that general intelligence, that average level intelligence, as we already see, is going to be widely distributed.
And that the battleground, Bill, is really going to be fought around products and services. I wouldn’t say that they view themselves as exclusively a consumer company. But clearly, ChatGPT is a major thrust, a major focus of the business. It’s the market-leading consumer application, probably has 80% to 90% market share. I think network effects are kicking in and other things. But I also think their enterprise business is, if not the biggest, one of the biggest and also growing at the fastest rate.
Because remember, the consumerization of the enterprise. One of the fascinating things that’s happening in the enterprise is these are all users of ChatGPT. So, when the CEO shows up in the boardroom and somebody says, yeah, we’re looking at bringing AI into the company. And we’re looking at ChatGPT enterprise. It’s an easy yes. But it reminds me of when every CEO said, hey, get me an iPhone in the enterprise. And they were on BlackBerry and they all switched to iPhones because they loved using them at home.
I think the natural thing for them to do. So, it’s not to say enterprise is going to be a battle. It’s not going to be winner-take-all. But I think these guys do have their eyes squarely set on building a big enterprise business. And there’s probably two different types of enterprise. There’s probably a product that people buy user licenses for, for doing white-collar research-type work where they may, where I think what you said will be very relevant. Like having the UI they’re used to.
And then there’s the separate side, which is models that underlie the types of business processes that you’re building. Well, one of the things you pinged me on this week was the investment round around OpenAI. And I’m happy to share what I can share. But you had some—
Tell us what happened. What was announced? Yeah, well, I mean, they announced the long-rumored investment that was led by SoftBank, which many people described in the headline as a $40 billion investment round. I think if you read the breakdown of it, it comes in a couple of tranches. The first tranche being closer to $10 billion. The second tranche being closer to $30 billion.
And it’s an extraordinary amount of money. It’s bigger than any, bigger than I think the largest IPO sans maybe one or two that has ever been done. I’ve often described these as private IPOs. Altimeter participated along with several others who were reported. And the valuation was like $260 pre, which would make it, if all the money were to come in, a $300 post valuation. And so it certainly got a lot of attention this week.
And you asked me the question, I think, Bill, just around kind of valuation, right? How did we think about valuation? The first thing I would say is market leaders never look cheap. When I invested in Google in 2005, when I invested in Meta, when the IPO broke and we looked at those late-stage private rounds, I certainly remember the Microsoft round in Meta at $15 billion that was roundly criticized as being incredibly expensive. None of these things, you’re certainly not going to buy a market leader on the cheap.
But if you really look at this, I think that they’ve said publicly they expect their revenues this year to be around $13 billion, right? To do $13 billion in revenue probably means you have to exit the year closer to $15 to $18 billion in run rate revenue. So as I look at this on a forward run rate for this year, you’re paying something like 20 times revenue for the business.
Now, we also had a couple other announcements this week. There’s the Anthropic funding round, and there’s talk that they’re doing a billion to $2 billion in revenue, a $60 billion funding round. So that to me looks like something like 50 times revenue. So again, you got OpenAI at 20 times, Anthropic at 50 times. And then we had the merger of X and X.AI. Correct. Which are rumored to have around $3 billion in revenue. And the combined market cap there is like $125 billion.
So that looks like closer to 80 times revenue. So the market leader here, which usually trades at a premium, not at a discount, to me, again, we can argue about the sustainability and could somebody disrupt them? And is 20 times a good valuation in this environment? Yeah, but aren’t they spending a lot of money on compute? And is it really high-value revenue? But apples for apples relative to their peers, it certainly appears to me like 20 versus 50 versus 80. It’s hard to say that this would be more expensive on a multiple basis than Anthropic or X.AI.
Yeah. And I also read that there are still contingencies on whether the full conversion from a nonprofit to a for-profit happens. So I think there’s some stuff. If that’s true, there’s still some stuff to play out. But one thing I would say when I witness this from afar, and once again, you’re involved, I’m not. So correct me if I’m wrong, but having lived through the Uber Lyft situation, which oddly had Masa coming to the table also, our world has just evolved into one where so many people believe in power loss.
So many people believe in network effects and that these markets are winner-take-all, that you end up with these massive capital raising rounds. And, you know, it’s not lost on me that both with Stargate and with this one, the headline number is bigger than the piecemeal when you start to unpack it, which, for better or for worse, from my position, smells of being promotional. And so why would you do that? Why are you trying to have a bigger headline number? And that number does get repeated in the press.
So it does work in that way. And I come back to, you know, I suspect the company’s sending a message to Anthropic and anyone else in the game that we’re here for the long haul. And they probably didn’t anticipate all the moves that Elon’s made with X and Twitter. And obviously that is another deep-pocketed player. But, boy, if you’re on the Anthropic investment side, I’d be scared. I’ve lived through this before. It is a sport of Kings, if you will.
And then lastly, one thing that naturally falls out of that is unit economics get postponed. You have to believe in the power law and the network effect. They’ve, in addition to that headline number, I think they’ve said publicly they expect to lose five to seven billion this year. And with an employee count of, I think, six to seven thousand, that’s not going to run you more than a billion or two. So there’s some number between the revenue number you talked about and subtracting two billion for expenses.
And the rest is your operating cost of keeping this AI machine going. I ran some loose numbers and I come up around 15 or 20 bucks a year for a non-paid user, just to run the servers on their behalf. And, you know, eventually you might get to advertising. Eventually you may convert more of them to paid. These are things we’ve seen play out over time. They played out with ad models. But once again, if you’re going to try and lay chase to them, you got to be prepared to underwrite that cost yourself.
Listen, I think the analogy is a fair one, Bill. And obviously Masa was involved in the Uber Lift battle. So it’s an easy one, particularly with his involvement here to say you’ve referred to it before as weapons of economic destruction, all of this capital. But I would remind you, there was a moment in time in 2020 where the headlines were that Uber would never be profitable. It was a failed business model. It will never make money. And here’s a business that’s going to do six billion in free cash flow.
And so, and so the winner does take all and the winner does take most. I will tell you, as a shareholder, I speak with the leadership of the company all the time about unit economics. Obviously, if I’m investing in the business, I feel confident in their leadership around unit economics. One of the things that I think is really important here is just like what’s happening in the business. Sam tweeted this week, they added a million ChatGPT users in an hour.
In an hour, they crossed 20 million subscribers, paying subscribers for ChatGPT. They crossed 500 million weekly average users of ChatGPT. In fact, they’re going so gangbusters. They’re throttling all their demand. In fact, I don’t know if you saw David Sachs’ tweet where he said America’s leading AI companies are all reporting that demand is off the charts. So much so that they’re being forced to impose rate limits. And he said, fortunately, we have massive new infrastructure projects coming online, which gets me to the point of why are they raising so much money?
You and I are talking about taking the pod down to Abilene, Texas to see Stargate, to Denton, Texas, to see the CoreWeave facility that they’re standing up for OpenAI. And the fact of the matter is, I think that they need to bring on a massive amount of compute just to support the demand they currently have. I can tell you when you look at the product pipeline for OpenAI, whether it’s, you know, there are two or three models they already have completed on the shelf.
There’s a lot of agent stuff that they want to do that’s on the shelf. I think there’s a lot of stuff they want to do around pricing, but they can’t do these things today in open source with their current level of GPU demand. And Sam went online, Seth, anybody has a cluster of a hundred thousand GPUs, send me a DM. And you may say it’s promotional and hyperbole, but the round was already raised. It could be both. I actually think, in this case, it’s true. I know they were pulling a lot of things offline just to support the demand.
Now the irony is where, what was this demand coming from? Right. And the demand, because we didn’t mention Gemini 2.5 that happened to release this last week. And part of the reason we didn’t mention it is because literally on the day that they launch it, OpenAI launches this upgrade to Imogen where people are making all these anime photos of themselves that literally blew up. Demand for a billion anime photos a day from the United States all the way to India, and they can’t support it.
And some people may say, oh, well, this is an example of how dumb AI is. People are using it to make anime photos. But I would point them to Chris Dixon’s blog that he wrote some time ago where he says, listen, the next big thing will first appear as a toy. There are a lot of things that we do for entertainment. A lot of things that we know that OpenAI and ChatGPT are being used for a lot of deep research.
But the fact of the matter is, at least as to this one, and I’m not going to get into the other valuations for the other models, but I’d say at least as to this one, I was an early investor in Google. I was an early investor in Meta. I saw what those early consumer products look like, what those demand curves look like, what that cohort retention look like. And I would just say to you that what I see out of ChatGPT reminds me a lot of kind of those winner-take-all consumer applications. They’re not infallible.
It’s not that they can’t be assaulted. Grok has been a great model launched by Elon. But I think they really do have a big moat, and I think the network effects are kicking in. And I think that not only are they an order of magnitude bigger, but they’re also growing a lot faster. So, I think that the consumer business here will ultimately be valuable. But to your point, the unit economics can be crap along the way, and it’s up to the company to launch the things like advertising, paid, different pricing tiers, etc., that bring all those things.
Let me ask you a question, since you went down that avenue. I think they’ve announced, is it 20 million paid users and 500 million total users? So you have a 4% conversion rate. How do you think about paid versus advertising that conversion rate? How do you think about the business model with those facts on the table?
Yeah, I mean, honestly, I think that right now we probably, you know, we’re throttling ChatGPT. So when you bring on more compute, all those numbers would be higher, right, if you just have more compute. Secondly, I think most of ChatGPT users are using a model that’s like a year old, right? Because we haven’t been able to upgrade the, they haven’t been able to upgrade the models because I don’t think they can support the things they want to do in the upgraded models from a GPU perspective.
So my suspicion is when they’re able to do that, they’re going to have a lot more flexibility around things like pricing tiers. Sam has said he doesn’t particularly like advertising, but at some point, they will obviously have something that they think is beneficial to consumers that will be around that. If you look at Operator, if I say to Operator, book me the Four Seasons Hotel in New York next Tuesday and it does that for me, which I think they’re getting a lot closer to you and I have this back and forth on that.
But, let’s just stipulate that even you believe at some point they’re going to get there. And if we’re driving that kind of value for users, either the user will pay or the end merchant will pay. I think there are all sorts of business models that will evolve around that. So my hunch is you’re going to see a mixture of advertising. You’re going to see a lot of different pricing tiers. You’re going to see models.
I don’t think we’re going to have this long menu of model choices that forces the consumer to understand the difference between 04 Mini and 03 and 01 and all these different models. I think you’re just going to have a smart model, ChatGPT-5 or ChatGPT-6 that may be coming sooner rather than later. That’s just going to make those choices for you. And so I think there are a lot of ways.
But by the way, we’ve talked about this in the past, but I’ve often felt that one of the reasons that Google is so susceptible to disruption is how they’ve maximized the revenue per visitor. And I personally don’t think there’s any way when that world you’re talking about, that agent world evolves, that that partner in a hotel is going to pay a fee anywhere close to the fee that’s paid to Google by someone that’s marketing a service.
I always say using LTV math versus transactional math. I just don’t think there’s any way you can get there. And so that’s a huge disruptive advantage for OpenAI. Well, let’s click on that for a second. You know, we have our friend Glenn Fogel, who runs Booking.com and is an incredible CEO. They’ve built an incredible business. And they’re one of the largest advertisers. They’ve historically been one of the largest advertisers on Google.
I think it’s been reported that Google generates, it’s one of their largest advertising categories in the world, is travel, hotels specifically. Booking is one of their largest global advertisers. So you sell a $100 hotel room and you take $20, Booking.com, let’s call it, take 18 to 20 bucks. And then you pay a portion of that to Google, maybe half of it, maybe more than half of it.
Well, actually, to be fair, in many circumstances, they’ll be using what I call LTV math and they’ll pay more than 100%. Oh, they’ll pay $50 instead of $20 because, and then they’ll say, well, if the customer comes back twice in a year, we get to break even in the first year and we’re going to hold them forever. And this is why that won’t work in the agent world, which is no one’s going to think that way. Because if you’re a white-label service that’s underneath the agent model, the most you can share is 10 of the 20, right? Or whatever, you know, it’s a change.
So there’s no doubt there’s competition coming to that. You know, Google’s traded down from $200 to $150 and change. And, you know, they see that disruption coming their way. The irony here, right, is we still have this antitrust investigation with Google. I always get a laugh out of the fact that finally in 2025, the first time we’ve actually had competition for Google, it’s very clear that competition is coming to all those categories.
And now we get around to talking about breaking up their search monopoly. I mean, it’s ridiculous. I don’t think that’s, I think that’s the last of our problems. But I do think we’re going to see business model evolution around these different categories. So let’s just say, Bill, that it settles out at $10, right? That the hotels are clearly willing to give $20. Let’s say it settles out at $10. Well, hell, that’s all upside for OpenAI.
Right, but it’s replacing $50 for Google. That’s my only point. Yeah, no, very good point. By the way, another thing played out in this space, a little out of order of our competition, but there’s this acronym people are starting to use MCP that is a way for you to represent your service. Like if you were Booking.com to a model so that it’s not simply scraping your website, which is certainly not the ideal way to do this thing.
That standard, I believe, got started in Anthropic, but OpenAI has agreed to support it. And so another factor that plays out with whoever’s most aggressive with the open standards is they might be able to take a lead in defining these things, which could be advantageous to them. And I got to tell you, you know, I meant to say this earlier when we were talking about the open source stuff, but I got to believe the anxiety is high at Google.
I got to believe the anxiety is high at Meta. We’ve seen some high executive shifts and departures also at Apple in terms of who’s in charge of these things. And so I see those moves and I think that must represent anxiety. You know, there’s a lot at stake. And so it’ll be really interesting to see how open people are, how willing they are to be open with their models, how aggressive they are, because I think it’s a really critical window. I’m talking about like the next three to six months could dictate who’s standing on top of the hill five, ten years from now.
Well, the tectonic plates, as I’ve said, as we’ve said for now two years, this is the first time they’ve shifted in this magnitude in 20 years. This is a 20-year event for 20 years. The search paradigm ruled everything in consumer Internet. And Google stood at the top of that mountain and it took something, you know, it took an AI-level shift. It took ChatGPT moment and them getting to the scale of maybe a billion monthlies and 500 million weeklies to even lead to this conversation.
But things happen very slowly, Bill, as we know, and then they happen very fast. And I think that’s your point. Yeah. Before we run out of time, we had an IPO, which we haven’t had very many of. Let’s talk IPOs, both CoreWeave. But after that, let’s just talk about IPOs in general. That’s great. You know, like, as you know, we’re shareholders in CoreWeave. Since a couple rounds ago, we were one of the largest buyers in the IPO and we’re happy we did.
You know, I have to say on Friday, I was pretty damn nervous, Bill. It broke the offering price, went down to about $37 a share. I think today they had some announcements of this deal with Google where they’re going to. Provide NVIDIA, Grace Blackwells through CoreWeave.
So Google is going to be buying a bunch of NVIDIA chips through CoreWeave. And one of the big criticisms of this company was they were too dependent upon Microsoft. But now they’ve diversified. They have Microsoft, Meta, now Google, OpenAI, NVIDIA, Cohere, Mistral. And so I think they’ve really emerged as the leading AI kind of cloud.
And the stock in the last couple of days, despite the fact they took it public last Friday. I mean, talk about taking a company public into a Category 5 hurricane. I mean, we had Liberation Day staring us in the face and they had to fly into that. And, as you pointed out, it wasn’t the least controversial of IPOs. But I have to give credit to Mike Intrator and his team.
And listen, I’m here in Silicon Valley. They started this company five years ago. It’s worth over $30 billion today. It’s played a really important role in standing up OpenAI and a lot of the leading AI labs. And I just think that’s a good thing for all of us. But it’s also fair to ask the questions that you’ve asked around the durability, if you will, about CoreWeave in the revenue.
Yeah. And look, you’re absolutely right. It’s so funny. We sit around and complain about the IPO market not being open. And, for the entirety of 2024, the markets were up 30%. You know, the sunshine was out and no one was going. So here, someone finally gets the guts to go. And the markets, of course, have turned the other way.
And that’s why, man, anyone that tells you when you’re ready to go public that you have to wait on the markets to be in a particular place, I would tell them to shut the fuck up and take your company out. You can’t control that thing. That’s an external factor.
And I also believe a lot of people, because of my stance on direct listing, said was this a good IPO, a bad IPO? I mean, as you said, there’s stuff moving all over the place. You have a leader in their field, unquestionably, huge revenue growth. Their business model isn’t fully unpacked because the CapEx is invested so far ahead of the product.
So you can’t look at the income statement and say, oh, the right economics are perfect. And there’s questions about what is the appropriate depreciation schedule and all these things. But I am glad that they got out and I’m glad that it’s done fine. And they’ve had basically two customer announcements since they went out, which shows how fast this AI world moves.
And I think that’s why the stock went from 40 to 36 and way back up above that. Now let’s hope that it brings more IPOs to the table. This company needed capital because it’s a capital-intensive business. And those are the ones that tend to come to the markets eventually, no matter what.
We have this offsetting reality that the Stripes of the world and Databricks and others are choosing to delay being public and have massive access to private capital. And maybe that’s a discussion for another day, but there are a few others. Klarna’s in the pipeline. We’ve talked about Cerebrus being in the pipeline. And so I’m always hopeful.
I’m always just wanting for there to be more companies that are willing to move into the public markets, but the offset of what we talked about at the beginning is going to be there. And so we’ll see how those things interact with a choppy market. Well, yeah, and somebody else I should mention is Morgan Stanley.
I mean, they took a lot of heat last Friday on this deal. Why are you bringing it now? The stock went below 40. CNBC was roundly critical of the company and of Morgan Stanley and the stock’s at 60 bucks or whatever it ended today at. And so again, we feel good as shareholders. I feel good for the people involved in the company.
Obviously, there are still questions that remain about the business. You mentioned depreciation. The one thing I’d tell you about the depreciation argument, as it relates to this company, is a lot of people push on, there’s a statement by Jensen at GTC that hoppers may not have value because Grace Blackwell is so much better. He was a little more aggressive than that.
Okay. So say it. He called himself the chief revenue destroyer and basically made statements that I think, if you interpreted accurately, would imply that maybe you should have a two-year depreciation, not a six. Like he made it sound that way. It’s very abrupt. And he took a lot of heat and he probably wishes he hadn’t said it, but he said it.
My view on this is like, listen, because we’ve got to square this circle. We have the Saks tweet, we know the inference demand is off the charts. Everybody is demonstrating their need for more GPUs to run inference. Everything in the world is becoming inference. We’ve talked about that at length.
And so my view is this: when you talk about two years for GPUs, cutting-edge GPUs are going to be used for cutting-edge training for the frontier models in that first two-year period. But all these things are going to continue to get used for inference. So the right way to think about CoreWeave, and I think the consensus margins for this business are like 25% EBIT over the course of the next couple of years.
How do they get there? Think about their unit economics bill, their CapEx, their OPEX. So they’ve got to get a data center. They have to pay for all their operating expenses. Then they have to buy the servers. So the way this works, I think, is they sell a four-year deal to Microsoft or a four or five-year deal to OpenAI or a four-year deal to Google or whatever.
They expect to pay back all the CapEx, OPEX, and GPUs in three years. And so the fourth year, which is a four-year guaranteed contract, the fourth year is your profit margin, right? And then anything you earn past the four years, that’s all gravy on top. And the consensus earnings are not giving them any credit for anything after the end of those contract periods.
Now, what I’ll tell you is, and we’ve done a lot of research on this, there’s still a lot of A100s in use in the world today. In fact, Jensen has talked at length about that. That’s a 2020 product. So we’re in the fifth year and A100s are still out there being used by almost everyone that bought A100s. And then if you look at it, I think Jensen at GTC said last year that OpenAI had just retired the V100s.
That was a 2017 GPU. So that’s like a seven-year lifecycle that they were using those for. And so I think that we have a lot of comfort that at a minimum, people are going to be using these things for four years, a couple of years for training, a couple of years for inference. I’ve yet to hear of anybody throwing away any GPU because it doesn’t have value.
Remember the way CUDA works, the software that runs these GPUs, it constantly gets upgraded. It’s like my Tesla, right? I had an old Tesla Model S, like seven years old, but it felt like a new car because my software got updated all the time. And frankly, it still got me to the places I needed to get to. It wasn’t as good as the new model I bought in December with full FSD and everything else, but it didn’t feel like a really old car because the software was constantly updating.
I kind of think of that the same way for these GPUs. The GPUs are getting better every year, even though the hardware remains the same. So I’m not nearly as worried about that depreciation schedule. It seems to be a big hit on the company and lots of people are talking about it, but they’re out the door and kudos to them on this big new deal today.
But look, the pushback on that is obviously that it’s not a zero or one, like you make it sound like it’s binary. You either throw it away or it’s super valuable. And what inevitably happens is the earning power of that product drops over time. And so there is, I think, a reasonable question, should it be more of an accelerated depreciation schedule?
The idea with depreciation is to mirror the useful life. So you’d want it to mirror the earnability of the asset over time. And so six years straight probably isn’t the best fit for that, but we’ll see. We’ll see what happens over time. Their peers, the incumbents in this world were at four years ago and pushed it to six, which wasn’t. And the answer may lie somewhere in between.
And, like I said, I don’t think they need it to be more than four in order to achieve the margins that they have. But they’re also, to your point, it’s a highly levered business. They got to de-lever the business. So there’s a lot of things in play here with CoreWeave. That’s why, again, if you look at the multiples it’s trading at, well, I don’t know what they are today, but the multiples that came public at, we’re not overly taxing from our perspective, but there’s a lot of headwind for all these AI companies.
I mean, you have Nvidia trading at 19 times fully taxed earnings. And so there’s a lot of skepticism in the world, notwithstanding all the stuff we hear about demand, a lot of skepticism in the world about AI demand. A riddle for you before we move on. Yes.
What do Salesforce, Netflix, Square, Amazon, Palo Alto Networks, Facebook, Snap, Proofpoint, NetSuite, and CoreWeave have in common? No idea. They all broke issue.
Oh, wow. And so when the talking heads on CNBC and others are critical of a company because they trade below their IPO price, it’s just such a wrong way to look at things. I think one of the reasons those high-quality companies get priced to perfection is the founders are stronger-minded and have more leverage and negotiate more on this agreed-upon price, which would also go away with a direct listing.
But boy, what a silly way to think about quality, whether or not you give away more and pop. That’s what a lot of people think. You know, I don’t like that. You know, well, I kind of thought that maybe you thought this was a perfect IPO because it ended day one at precisely 40 bucks, which was the offering price.
Which was probably engineered. Let’s be realistic. You also, there’s some peculiar terms in this company that you may have played a part in. The series C has a put right at like 3875. No doubt in my mind, people wanted to make sure it priced above that, which may have played a factor here. Who knows?
But let’s move on. Let’s talk about one more thing before we go. So much news in one week. The tech talk thing, there’s new information as we speak to tell me. Well, I mean, listen, there’s a lot of rumors swirling, which not surprisingly, this deal is set to expire or need to be extended by April 5th under the terms of the first congressional extension that was made by Trump.
They’ve made very clear that there are a lot of buyers for the TikTok asset, and that the president wants to put together a deal. And, of course, we have all these tariffs going on, on China. So I’m sure this will end up as part of a big trade negotiation as it pertains to China. But as you know, just for everybody, we’re shareholders.
I’ve been a shareholder in this company since 2015, one of the earliest venture capital rounds in ByteDance, the parent company, which owns TikTok. For the last two years, I’ve agreed largely with Elon and sacks and others that we should engage with China. We shouldn’t just shut down TikTok. We should make TikTok abide by the rules and regulations that we have in this country.
And that’s what this whole legislative unwind was about, the for sale of spin-out TikTok US. So here’s what I’m hearing. I’m hearing that there will be a new company stood up, and I’m not privy to any information. I’m not party to these negotiations, but I’m hearing, let’s call it TikTok US, and that TikTok US will be partly owned by ByteDance.
But I think they have to keep that ownership threshold under 20%. So let’s call it 19.5% owned by ByteDance that it will be owned partially by just the existing shareholders. Remember the shareholders in ByteDance, 60% of those are U.S. investors like Altimeter. So that we’ll get our shares in ByteDance or in TikTok US.
And then the 50% of it or thereabouts will be new investors. So think folks like some of the rumors I’ve seen, Amazon and Dreesen, Oracle, et cetera. And these are investors who are not currently in the cap table of ByteDance. So Altimeter or Co2 were currently in the cap table ByteDance, so we’re not going to be part of the new investor syndicate, or at least that’s my understanding.
So imagine they stand that up. And then the question, where would that money go, Brad? So the money would go into this new company, right? So the new company would be capitalized with this new money. It would have a new board. So it would be new, fresh capital for the new company. It wouldn’t go to ByteDance.
No, that’s my understanding that it would go into new company, that new company would get a license to the algorithm, and it would be up to new company to audit that, to audit the data. Because remember, that’s the whole point here, Bill. Like we want to have some control over the algorithm and the data.
So it makes sense that Oracle would be involved in that. Because remember, TikTok runs on the Oracle cloud down in Texas. I think a logical question is, okay, what’s the big, what’s the so what here? And I’m hearing that the valuation for TikTok US could be pretty low, which I would expect.
Right. Because remember, Trump has said maybe we’ll put this in the US sovereign wealth fund. So he’s negotiating the deal. I expect that he wants to get a pretty good deal. You didn’t mention what percentage was for that. But is that part of the cap table too? No, no, no idea.
Yeah. One particular question. If you go back six months, maybe three or six months, there was a lot of discussion that I would suggest that the parent company, ByteDance, had no interest in this deal. They’d rather shut it down than do this. Have they changed their mind for some reason? Is there a new perspective from their side?
Well, I think, remember, if we go back six months, there was a camp that said shut it down. And there’s a camp saying, or we’ll just take it. Right. And like, I think that the company’s perspective, Yaming, the founder of the company, he basically said there’s no way to separate the algorithm between TikTok US and TikTok rest of world because creators in the US create content that go to the rest of the world and vice versa.
And so, if you took away all the US, it does so much damage. You would be better to shut down TikTok US and just invite the US creators onto the French platform or the United Kingdom version of this or the Australian version of this via a VPN or something. So I think the big change here, Bill, is this idea that US TikTok and global TikTok will continue to use the same algorithm.
And it’s just a license to the US TikTok would be my guess was part of that bridge or breakthrough. I think a key thing here is like, how do Altimeter or Sequoia or other US investors remember, 60% of the investors in ByteDance are US investors. And the investors in places like Altimeter, they’re pension funds, they’re teachers, they’re firefighters.
And if you think about the fair value for ByteDance, I think most people, although it only trades at, let’s call it 300 billion, most people think the fair value of this is closer to a trillion dollars or certainly to 800 billion. So if you take 60% of a trillion dollars, that’s 600 billion in locked up venture capital value for all of the endowments and pension funds, etc. For US investors, that’s more than almost every other unrealized venture gain put together, Bill, right?
And so if you’re able to take this company public, that turns into DPI, like hundreds of billions of dollars of DPI that goes out to the investors in these venture funds. This company being TikTok or ByteDance? This company being ByteDance. But we had to get the TikTok deal done as a condition required to get ByteDance public or ByteDance out the door.
And so remember, ByteDance, about 90% of ByteDance’s business is not TikTok US. 90% of the value of the company is things like Douyin, which is the Chinese version of TikTok, and Daobao, which is the Chinese version of ChatGPT, and TikTok around the world. And so there’s a huge and profitable business inside of China and the rest of the world.
And we’re just debating this piece in the United States. And so as a shareholder, I will tell you that whatever the dilution is caused by this, it’s nominal relative to the value of the total. And what I really want to see get done is just certainty, right? Certainty for the company. I think it’s good for the US that TikTok will remain.
My kids love it, and I’m glad we’re going to make them abide by the rules of regulation. I think it’s a win for Team Trump. I think it’s a win for ByteDance. But remember now, we just hit them today with 54% tariffs. So there may be a conversation that has to occur before Xi and Trump. I thought this deal would get approved by China. Now I’m not so sure.
And the Chinese government could probably block the deal. Exactly. So just because we announce a deal, if we do hear a deal announced over the course of the next few days or over the next week, doesn’t mean that it’s a done deal. But I’ll leave on an optimistic note. Okay, let’s do that.
I think that the president wants to do a deal with Xi. I don’t believe we’re going to have 54% tariffs against China. It’s too important to the rest of the world that we can cooperate with China on things like ending the war in Ukraine, things in the Middle East. Yes, there is a great competitive struggle between the two countries.
But I think that ultimately, the president will cut a deal. He said that he likes Xi, invited him to the inauguration. And as we know, he’s a dealmaker. And now we’ve got everything from the Panama Canal to negotiate over to TikTok and all the other trade deals between the two countries.
So I suspect that when we get back to what really came out of Liberation Day and what really matters, I think the most important thing that matters is U.S.-China bilateral trade relations. And I think that’s going to really dictate the direction of global growth and the direction of U.S. and China economic growth over the course of the next few years.
Important to watch. All right, man. Take care. Great seeing you. Have fun at the games. Take care. As a reminder to everybody, just our opinions, not investment advice.
This is an experimental rewrite
Speaker 1: A riddle for you before we move on. Yes. Can you guess what Salesforce, Netflix, Square, Amazon, Palo Alto Networks, Facebook, Snap, Proofpoint, NetSuite, and CoreWeave all have in common?
Speaker 2: No idea.
Speaker 1: They all broke issue. Oh, wow.
Speaker 2: And we’re back. Bill, great to see you.
Speaker 1: Good to be seen. I mean, you must be pretty stoked coming off those wins last weekend in San Francisco.
Speaker 2: Yeah, I’m repping the Gator hat still. I’d say we kind of eked by–for those who watched, it was an incredible final few minutes. Can you explain it? Take us through those last moments.
Speaker 1: Well, to be honest, I was afraid. I didn’t think there was any chance because they were behind by so much heading into the end of the game. They scored four three-pointers while the other side scored none. They even intentionally fouled and missed free throws. I think someone mentioned that the Yahoo game predictor had Texas Tech at about a 98% win probability with just a little time left. But somehow they pulled it off.
Speaker 2: Now, the optimistic folks might argue that experiencing something like that builds confidence for dealing with anything. However, the odds makers now have Duke favored over Florida, even though it started on different footing. So, one game at a time.
Speaker 1: It was super exciting. I was out in San Francisco at the Chase Center, got to hang out with the coach and some of the players’ parents. It was a good trip. And now that I’m in Austin, it’s just a short drive to San Antonio. Lots of friends are coming in, and we’ll see what happens. It’s going to be a heck of a weekend.
Speaker 2: Maybe if a certain couple of teams end up in the championship game, I might sneak in there on Monday night. I suppose if we’re repping and rolling, it makes sense. I have two degrees—one from Florida and one from Texas. The Texas ladies are playing in the Final Four in Tampa, so it’s a lot of good stuff happening.
Speaker 1: Speaking of a lot of good stuff, there are some people who think a lot of not-so-great things are happening, judging by the market reaction to the president’s announcements about these tariffs. So, why don’t we kick it off by talking about Liberation Day?
Speaker 2: Yeah. We’re recording this right after Trump’s presentation. I think you and I both watched it and then jumped on the pod. You’ve been discussing this; it’s clearly been choreographed.
Speaker 1: Exactly. You’ve been saying for a long time that Trump and his team aren’t just using this as a negotiation tactic—this isn’t just a means to an end. You’ve pointed out that they really believe this is a necessary direction for the economy. Because of that, you’ve been cautious and concerned about where this leads us. You gave a presentation last week on how to think about this. What did you cover there?
Speaker 2: I think it was at the JPMorgan Tech Conference. It became clear to us in early February that this was a doctrinal shift—there was a philosophical belief around trade that they wanted to create a fair and level playing field. The real debate has been about the magnitude.
Speaker 1: JPMorgan hosted a great event in Montana last week with 100 tech CEOs. They had key figures like Howard Lutnick, Elon Sachs, and Doug Bergrum discuss various aspects of this. They asked me to present on decoding the Trump economic agenda. It really breaks down to this, Bill: The CEOs in the room are excited about this golden age everyone’s talking about.
Speaker 2: Right—pro-growth administration, pro-business, pro-investment, lower taxes, less regulation, and a boost in M&A activity. We’ve seen the M&A flywheel pick up, alongside this AI super cycle. But there’s a lot of fear around these tariffs.
Speaker 1: The big question leading into Liberation Day was whether the tariffs would be closer to the $600 billion trend that Peter Navarro had discussed or at the lower end that Scott Bessent and Kevin Hassett mentioned. I think everyone was holding their breath.
Speaker 2: Well, we got the answer. I framed that at the JPMorgan conference and ended the presentation with two planes coming in for landing. They both land, believe it or not! But it illustrated that how we navigate the glide path of tariffs and budget cuts is really important.
Speaker 1: We just listened to the president, and he definitely came in on the larger end of what was discussed. There was a headline that hit right after the market closed—something from the Wall Street Journal about a 10 percent tariff across the board, and the markets shot up by about two and a half percent.
Speaker 2: But as the presentation unfolded, the mood began to shift. People saw a chart that showed reciprocal tariffs—where tariffs on China could hit 54 percent. Can you believe that? That’s a 34 percent increase on top of the existing 20 percent tariffs.
Speaker 1: As he went through that list, the futures—like the S&P and Nasdaq—started to drop. There was a 600 basis point fall from where they initially jumped to where they ended up. The market is definitely not responding positively to this news. Depending on the index, we were already down 8 to 15 percent for the year. Whatever comes tomorrow will be added to that.
![Placeholder for a chart showing market reactions]
Caption: Chart illustrating market reactions to the tariff announcements.
Speaker 2: That captures the initial market reaction. One thing I noticed, and I think others did as well, was their redefinition of what counts as a tariff, particularly for reciprocal calculations. They included other elements, but I’m not exactly sure what they all are. Do you have insight on what else is included?
Speaker 1: Right. They classify them as “non-tariff trade barriers,” which encompass everything from currency manipulation to judicial actions that inhibit free trade of our products into their markets. And yes, we know these barriers exist, so it’s not surprising. But if you or I were to calculate these, the numbers could be manipulated.
Speaker 2: When breaking down the tariffs, they can largely be categorized into three or four big buckets.
Speaker 1: Right. The auto tariffs are primarily aimed at Mexico, Canada, and Germany and were set at 25 percent. At the event, Trump had 20 UAW members in the front row and invited the UAW president on stage. He commented that these individuals used to be Democrats and now only the Republicans fight for them. He added that they won Michigan because of these policies.
Speaker 2: It’s striking that this approach mirrors what Democrats campaigned on 20 years ago. It highlights how much the political landscape has shifted.
Speaker 1: The reciprocal tariffs that I outlined earlier are just a starting point. These tariffs are now set to go into effect, and we’ll get charts on April 9th by country. I’m sure we’ll hear about ad hoc negotiations, and some countries like Vietnam may simply capitulate before we get to April 9th, allowing Trump to declare victory.
Speaker 2: He also mentioned $6 trillion in new investments committed to the U.S., citing companies like NVIDIA, Apple, TSMC, and OpenAI.
Speaker 1: Right, and it was interesting how he specifically pointed out SoftBank and OpenAI as “great companies.”
Speaker 2: That’s notable, especially with the ongoing competition between OpenAI and others. Then he stated there would be a minimum tariff of 10 percent across the board. So, even if countries didn’t make this list, they’d hit that baseline.
Speaker 1: And of course, China falls into its own unique category, presenting a huge negotiation challenge. Many factors are at play there, from the Panama Canal to the TikTok issue. But I’m skeptical we’ll reach 54 percent as the final tariff level.
Speaker 2: Right. The headline figure of $77 billion in tariffs last year ballooning to a potential $750 billion this year is alarming. Remember, Peter Navarro had predicted $600 billion, so this landed on the higher side.
Speaker 1: But immediately after that, they slipped in a footnote about exemptions—like for pharmaceuticals and, importantly for us, semiconductors.
Speaker 2: Wow. Taiwan has a 32 percent tariff, but semiconductors are exempt.
Speaker 1: Exactly. We’re currently assessing the value of these exemptions. I suspect the total could trace back closer to $600 billion. But Bill, where does that leave us? It seems many CEOs we know aren’t supportive—many congressional Republicans likely dislike it too.
Speaker 2: You’ve eloquently defended the benefits of free and fair trade. So tell me your reaction when you hear about exemptions and the Republican Party’s approach.
Speaker 1: At a fundamental level, I believe in open markets, free trade, and comparative advantage. There are solid mathematical arguments for why removing trade barriers benefits efficiency for multiple countries long-term.
Speaker 2: What’s the other issue impacting markets and CEOs?
Speaker 1: The slow pace at which they can realistically respond and the underlying ambiguity. If the administration wants companies to relocate factories from Thailand back to the U.S., that’s not a quick process.
Speaker 2: True. Starting that move today might take three years before there’s enough volume for it to be viable again.
Speaker 1: Exactly, and with higher production costs since U.S. labor is likely not globally competitive.
Speaker 2: Right—there’s a lot of uncertainty around what percentage of these tariffs will be realized versus what’s just posturing.
Speaker 1: The administration has a reputation for some of its actions being for negotiation, which leaves everyone wondering what will be the policy in the coming months. That uncertainty complicates any meaningful capital expenditure planning.
Speaker 2: As we’ve both noted, markets and businesses can’t stand uncertainty.
Speaker 1: Exactly. They can handle almost anything, but they need predictability to build forecasts and determine if investments are worth pursuing. I was texting some major CEOs during the announcement, and they were asking whether they’d be exempt.
Speaker 2: That’s astonishing given the level of uncertainty!
Speaker 1: Right—in Montana last week, nearly every CEO I spoke to mentioned that things have slowed down in February and March due to uncertainty.
Speaker 2: And the Fed recently downgraded their GDP growth forecast while raising expectations for inflation and unemployment.
Speaker 1: The economy is generally perceived to be slowing, with major economists increasing the probability of a recession. So, was Liberation Day a moment of clarity?
Speaker 2: That’s a great point. Even if someone secures an exemption, the main question is whether they can depend on that exemption to plan effectively for the future.
Speaker 1: And the cascading effects—if companies are uncertain, they’ll hold off on hiring, which impacts consumer spending and economic activity broadly.
Speaker 2: To your point, a CEO shared last week that four of their contracts had been canceled. They lost three contracts from European companies and one from Asia—all because those countries are seeking better deals elsewhere due to discontent with U.S. policies.
Speaker 1: I even spotted tweets suggesting that China, Korea, and Japan might collaborate in response to U.S. tariffs. It’s unprecedented, and as someone mentioned, we haven’t seen those nations come together since the Mongol invasions.
Speaker 2: It’s creating some unexpected alliances. I sent you a tweet about European leaders like Macron heading to China to discuss closer trade negotiations.
Speaker 1: Yes, you warned us about this. You said this would happen during a meeting in Vietnam—drawing from insights from the president of The Economist who predicted such moves. There are significant implications here.
Speaker 2: I doubt anything that emerges will have positive market effects. But that’s more your territory than mine.
Speaker 1: Let me share my thoughts. The NASDAQ is down almost 18 percent peak to trough since Trump’s announcement—some stocks have plummeted by 40 to 50 percent. Fear is definitely seeping into the market.
Speaker 2: And how do you anticipate this will unfold?
Speaker 1: I genuinely believe the president wants to engage in trade deals. I suspect we’ll end up closer to $300 billion or $400 billion in tariffs rather than $600 billion or $700 billion, even if it feels larger today.
Speaker 2: What might influence that shift?
Speaker 1: He mentioned Senate and House members during his press conference. Those members are hearing from their constituents that they dislike these tariffs. The president needs to pass his reconciliation package—the “big, beautiful bill”—which includes maintaining no taxes on tips and ensuring the permanency of the tax cuts from his first term.
Speaker 2: He can’t afford to lose a single Republican vote because that could steer him towards a more centrist approach.
Speaker 1: Exactly, and we’ll see if the market believes that. It clearly didn’t after hours today.
Speaker 2: Looking ahead, what will be critical in the next 30 to 60 days as this unfolds?
Speaker 1: We’re still in a fog of war, no doubt. I’ll be monitoring whether exemptions for semiconductors and pharmaceuticals remain intact, alongside observing country-specific negotiations.
Speaker 2: And most crucially, how things play out with China.
Speaker 1: Definitely. China is the second-largest economy globally, and I’m concerned about the sheer size of the proposed tariffs. I think discussions between Trump and Xi are imminent for a significant trade deal.
Speaker 2: Those are good points, and I don’t see any clearing event in sight for at least 30 to 60 days. But keep in mind, buying opportunities often arise when fear is prevalent. You might need to take a leap of faith for the best prices.
Speaker 1: That’s an insightful approach. Speaking of fear, we also heard significant news this week regarding developments in Chinese open source and progress on the U.S. open source front concerning frontier models. You have a deep understanding of the histories in both countries around open source.
Speaker 2: So help us unpack what’s strategically occurring in China concerning these open-source models.
Speaker 1: I saw some tweets suggesting that DeepSeq may have been forced into open source by Xi. Do you think that’s the case, or is something else at play?
Speaker 2: That speculation seems completely misplaced. China has supported open source for over a decade. Just look at most of the major open-source products—like Linux. Major Chinese companies have been backing these projects for quite some time.
Speaker 1: Why do you think that is?
Speaker 2: They have faced accusations of tech IP theft for years. When open source emerged, it provided an excellent opportunity for them to avoid those accusations, as there’s no IP ownership in the open-source realm. So, the Chinese government and entrepreneurs see it as a positively strategic movement relative to the West.
Speaker 1: I see your point. You’re saying they recognized the advantages of open source a long time ago due to the pressure they faced?
Speaker 2: Exactly. So, they fully embraced it long ago.
Speaker 1: And let’s not forget that in the last decade, U.S. companies have also started leveraging open source defensively—not just offensively.
Speaker 2: Right. Major companies use open source to level the playing field when they’re struggling to keep up.
Speaker 1: Can you provide an example?
Speaker 2: Sure! Take Kubernetes, for instance. Amazon dominated AWS in the hosted server realm. This worried competitors like Google, which had Kubernetes technology for workload orchestration.
Speaker 1: So, what did they do?
Speaker 2: Google rallied support for Kubernetes within the Linux Foundation, bringing in major players like IBM, which built momentum around it. This collaboration forced Amazon to adopt Kubernetes, preventing them from monopolizing the cloud sector.
Speaker 1: That’s fascinating!
Speaker 2: It’s similar to Meta’s approach with Llama—they weren’t the first in AI, but they made a disruptive entry with open source.
Speaker 1: There’s also an economic aspect to all of this, right?
Speaker 2: Absolutely! Economically, open source promotes heightened competition, which ultimately leads to lower consumer prices—making it a powerful disrupter in the market. Speaker 1: So, that’s a huge backdrop to where we are today. I believe DeepSeek has been remarkably successful in the enterprise. It’s hosted by both AWS and Google, and it’s being used globally. I’ve heard from Hugging Face that it’s been forked over 1,500 times on their site. So, it’s quite prolific. However, I’m starting to hear concerns that Washington, D.C. may intervene to limit the use of DeepSeek.
Speaker 2: You’re saying Washington may take action because there are people lobbying against or expressing concerns about the use of Chinese open-source models by American enterprises?
Speaker 1: I think it’s safe to say both of those things are happening. There are people genuinely worried about Chinese technology being integrated into our products, whether or not this particular code may be harmful. They might default to that assumption. Additionally, there are those lobbying for action because it would benefit their companies. If any of this gains traction, the current climate allows for someone in the U.S. to potentially move left of DeepSeek in terms of openness on one of their models, either as an offensive or defensive maneuver. And I think that window is quite short.
Speaker 2: It will be interesting to see whether Google or Meta makes any moves. I know Meta has an announcement coming up in a few weeks regarding their next model, which could be significant. I don’t think Anthropic would engage, though, as they’ve been very anti-open source, which would be out of character for them.
Speaker 1: Speaking of announcements, OpenAI has also made waves this week. Sam has been dropping hints on Twitter about launching an open-source model. He highlighted the challenges they’ve faced, like being GPU and bandwidth constrained. This week, he finally announced that they plan to release a powerful new open-weight language model with reasoning capabilities soon and wants to engage developers for feedback.
Speaker 2: That’s exciting! There was even a reply where someone asked if developers would need to buy licenses if they gained a lot of users, similar to what Meta is doing with Llama. Sam jokingly shot that down, suggesting they won’t restrict access in that way, possibly indicating they might outdo Meta in terms of openness.
![Placeholder for a model comparison chart]
Caption: Chart comparing the openness and usage restrictions of various AI models.
Speaker 1: Indeed, there’s a spectrum to openness in the open-source model world, and Llama has restrictions against free usage at a $700 million rate. Sam’s tweet implies they won’t adopt such measures.
Speaker 2: That’s notable, especially with LlamaCon coming up, where the launch of Llama 4 has been highly anticipated. Many expect Meta to release it before the event.
Speaker 1: I’ve heard it will be a 400 billion parameter model, utilizing a mixture of experts—around 50 to 70—and it’s expected to have a context window of 10 million. OpenAI’s commitment to being more open is encouraging; competition in the open-source domain in the U.S. is crucial.
Speaker 2: Exactly, and the administration likely wants to avoid a situation where DeepSeek, possibly linked with Huawei’s infrastructure, dominates. They also want the world to rely on U.S.-based computing and silicon, preferring models like Llama and OpenAI’s to hold their ground in the global marketplace.
Speaker 1: Correct. They wouldn’t want the global market running on DeepSeek’s models. However, there’s a unique challenge. Whoever aims to lead the open-source movement here not only needs to excel in the West but must also compete with DeepSeek internationally.
Speaker 2: True! I’m curious to see how this unfolds. I’ve asked Clement at Hugging Face to potentially create a continuum for ranking all these different models based on openness, given the myriad factors involved.
Speaker 1: And speaking of OpenAI, you’ve suggested their greatest opportunity lies in product development instead of just model advancements, hinting at a shift toward consumer products.
Speaker 2: If that’s the case, being more open is a strategic move that could pressure competitors to keep up, allowing OpenAI’s model to gain global traction. Plus, releasing a model for widespread use moves the compute demands to others’ infrastructure rather than just theirs.
Speaker 1: That’s a clever tactic. Similar to Google’s support for Kubernetes, this could eliminate other models’ profitability in the API space by opening the door for broader usage of their model, benefiting consumers in the end.
Speaker 2: Indeed. They likely want developers to build applications on their platform, expanding their ecosystem. Plus, their goal of moving humanity forward with AI is being magnified through scalable product and application development.
Speaker 1: Exactly. Sam has consistently mentioned that AI models are becoming commoditized, with the battleground shifting towards products and services rather than exclusively model capabilities.
Speaker 2: And while ChatGPT is their leading consumer application—capturing about 80 to 90% market share—they’re also focusing on their enterprise business, which is seeing rapid growth. This alignment mirrors the phenomenon of consumer preference spilling over into the enterprise market.
Speaker 1: Yes, it’s not about a winner-takes-all scenario. Their appetite for developing an enterprise business is clear and quite strategic.
Speaker 2: We should also touch on the recent funding round around OpenAI. It was a long-rumored investment, led by SoftBank, estimated at around $40 billion.
Speaker 1: Correct. The breakdown seems to indicate a first tranche around $10 billion and a second around $30 billion, which totals an extraordinary amount—likely larger than any IPO aside from one or two in history.
Speaker 2: That’s a significant milestone. They’ve shared expectations of around $13 billion in revenue this year, which likely means a run rate of $15 to $18 billion. In terms of valuation, that places them at about 20 times revenue.
Speaker 1: In comparison, Anthropic is rumored to be raising at a 50 times revenue multiple, while the merger of X and X.AI is around 80 times revenue. So, at 20 times, OpenAI seems relatively reasonable against those metrics.
Speaker 2: While still needing to clarify some aspects relating to the potential for their conversion from nonprofit to for-profit, there’s considerable optimism around these developments.
Speaker 1: It’s essential to remember, especially with our experience from the Uber and Lyft battles, that there’s an existing belief in power law dynamics and the notion of winner-takes-all.
Speaker 2: Right, and that can create massive capital raising rounds, but there’s no doubt that headlines can seem promotional. This leads to questioning the motivations behind these announcements.
Speaker 1: Yes, they could be trying to send a message to competitors like Anthropic that they’re in this for the long haul, especially in light of recent moves from other heavyweight players.
Speaker 2: Plus, it postpones the conversation about unit economics. If they are predicting losses of $5 to $7 billion this year, the path to profitability is foggy, especially with the operational costs associated with maintaining their AI infrastructure.
Speaker 1: Exactly. We’re potentially looking at significant operational costs just to sustain the AI model, factoring in server costs and the transition to future revenue models such as advertising or paid tiers.
Speaker 2: Indeed, the focus will be on innovating revenue streams and maximizing customer lifetime value without losing sight of economic dynamics that affect sales and market behavior.
Speaker 1: And let’s not overlook the competitive landscape. Companies like Booking.com, large advertisers on Google, reflect how revenue models could evolve.
Speaker 2: That’s an important point. How travel and hospitality firms integrate with evolving AI models reflects the broader implications for commercial strategies moving forward.
Speaker 1: Right. Google’s antitrust investigations make it clear there’s fierce competition ahead. The evolution away from their monopoly might open avenues for new players.
Speaker 2: And as these dynamics play out, the next few months could be crucial for determining the landscape of open-source models and who might dominate long-term.
Speaker 1: Absolutely. The large shifts we’re witnessing are unprecedented, especially as the consumer Internet has revolved around search paradigms for years. The introduction of AI technologies marks a significant pivot.
Speaker 2: Before time runs out, let’s discuss IPOs. We haven’t had many lately, but CoreWeave is definitely one we should highlight along with other emerging opportunities. Speaker 1: You know, I have to say, on Friday, I was pretty damn nervous, Bill. The stock broke the offering price and went down to about $37 a share. Today, they had some announcements about a deal with Google where they’re going to provide NVIDIA chips through CoreWeave.
Speaker 2: So Google is buying a bunch of NVIDIA chips through CoreWeave?
Speaker 1: That’s right. One of the big criticisms of this company was its heavy dependency on Microsoft. But now they’ve diversified their partnerships—with Microsoft, Meta, Google, OpenAI, NVIDIA, Cohere, and Mistral. I think they’ve really emerged as a leading player in the AI cloud space.
Speaker 2: Interesting! The stock has been volatile, especially considering they just went public last Friday, which seems like a risky move.
Speaker 1: Absolutely! It’s like taking a company public into a Category 5 hurricane. We had Liberation Day staring us in the face, and they had to navigate that unpredictability. As you pointed out, it certainly wasn’t the least controversial of IPOs. But I have to give credit to Mike Intrator and his team.
Speaker 2: Definitely. And it’s impressive that they started this company just five years ago. It’s worth over $30 billion today and has played a crucial role in supporting OpenAI and many leading AI labs. That’s a positive development for all of us.
Speaker 1: While that’s true, it’s also fair to ask the tough questions you’ve raised about the long-term durability of CoreWeave and its revenue streams.
Speaker 2: Right, and it’s funny. We often sit around complaining about the IPO market being closed. Yet in 2024, markets were up 30%, and still, no one was ready to go public.
Speaker 1: Exactly! When someone finally has the guts to go for it, of course, the markets shift downward. Anyone who tells you to wait for the market to be in a specific state is mistaken—it’s an external factor beyond your control.
Speaker 2: I agree. And there’s debate about whether this was a good or bad IPO. Like you said, things are moving all the time—they have a leader in their field and huge revenue growth.
Speaker 1: Right, the business model isn’t completely unpacked yet because they’ve invested so far ahead of the product lifecycle. You can’t just look at the income statement and determine if the economics are flawless.
Speaker 2: There are certainly questions about the appropriate depreciation schedule and such. But I’m glad they got out there, and it seems to be doing well, especially with two customer announcements post-IPO—indicative of how fast this AI world is evolving.
Speaker 1: Yes! That’s likely why the stock fluctuated from 40 to 36 and then back up. Let’s hope this leads to more IPOs. This company needed capital because it operates in a capital-intensive sector.
Speaker 2: It’s a shame that companies like Stripe and Databricks are choosing to delay going public because they have access to private capital. That’s a conversation for another day, though.
Speaker 1: True. There’s also Klarna and Cerebrus in the pipeline, right?
Speaker 2: Yes! I’m always hopeful for more companies willing to move into public markets, but the choppy market dynamics we discussed earlier will be present too.
Speaker 1: On another note, we should talk about the recent situation with Morgan Stanley. They received a lot of scrutiny last Friday regarding this deal.
Speaker 2: True. They faced backlash when the stock dipped below 40, and CNBC was quite critical of both the company and Morgan Stanley. But look where the stock ended up today.
Speaker 1: Right! As shareholders, we’re feeling good. I’m happy for everyone involved in the company. Of course, questions remain about the business—it’s good to revisit the depreciation topic.
Speaker 2: Indeed. And about that depreciation argument, many people reacted to what Jensen said at GTC about how Hoppers might not be as valuable due to Grace Blackwell’s capabilities.
Speaker 1: Yes, he called himself the chief revenue destroyer and made statements that could suggest a two-year depreciation rather than a six-year one. That was a bold move from him.
Speaker 2: Definitely! The inference demand is off the charts, and everyone is clearly in need of more GPUs for that purpose.
Speaker 1: Agreed. With cutting-edge GPUs, they’ll still be in demand for both training and inference over time. There’s a consensus that CoreWeave’s margins are likely to land around 25% EBIT in the coming years.
Speaker 2: To understand how they get there, you have to consider their unit economics, CapEx, and OPEX. They need to establish data centers, cover operational expenses, and purchase servers.
Speaker 1: Yes, effectively, they sell contracts to major players like Microsoft, OpenAI, and Google. They expect to recoup all those costs within three years.
Speaker 2: Exactly! So, in year four of these four-year contracts, their profit margins come into play. Anything beyond that is just additional profit.
Speaker 1: That’s right. However, the consensus earnings seem to ignore any returns post-contract period, which seems problematic.
Speaker 2: And there’s still a lot of A100s out there, as Jensen mentioned during GTC. They’re still being utilized, even five years after their release.
Speaker 1: Exactly. Even the V100s from 2017 have a long lifecycle—they were used for around seven years. We can feel secure that these GPUs will be valuable for at least four years.
Speaker 2: The software updates on these GPUs keep them current, much like how my old Tesla felt new because of constant software upgrades.
Speaker 1: So, I’m not overly concerned about the depreciation debate. It seems like a significant issue for the company, but they’ll be fine given their recent deal.
Speaker 2: Of course, the pushback suggests that it’s not simply black-and-white. There’s a question of whether the depreciation schedule should mirror actual asset earnability over time.
Speaker 1: That’s a fair point. The idea of depreciation is to reflect useful life, and a straight six-year schedule may not perfectly fit the actual lifecycle.
Speaker 2: Yes. As we discussed earlier, their peers initially operated under a four-year schedule before extending it. The ideal answer might lie somewhere in between.
Speaker 1: I don’t believe they need more than four years to achieve their projected margins, but they still have to de-leverage the business, which adds another layer of complexity.
Speaker 2: Definitely. These multiples they’re trading at aren’t overly taxing from our viewpoint, but many AI companies are facing considerable headwinds right now.
Speaker 1: Agreed. Nvidia, for example, is trading at 19 times fully taxed earnings, which only amplifies skepticism about AI demand, despite the narrative around it.
Speaker 2: Before we move on, I have a riddle for you. What do Salesforce, Netflix, Square, Amazon, Palo Alto Networks, Facebook, Snap, Proofpoint, NetSuite, and CoreWeave have in common?
Speaker 1: No idea. What’s the answer?
Speaker 2: They all broke issue!
Speaker 1: Oh, wow! It becomes a flawed perspective when the media criticizes a company for trading below its IPO price.
Speaker 2: Right! Those high-quality companies often get priced to perfection, largely because stronger founders negotiate better terms.
Speaker 1: I suspect that some peculiar terms in this company played a role in the stock performance.
Speaker 2: No doubt! Let’s shift the focus. There’s a lot of new information coming in about the TikTok situation.
Speaker 1: Yes, there are numerous rumors swirling. This deal is set to either expire or be extended by April 5th due to terms that Trump established in the first congressional extension.
Speaker 2: It seems evident that there are many buyers interested in the TikTok asset, and the president is looking to put together a viable deal.
Speaker 1: That’s right! However, with the tariffs on China, this is likely to factor into a larger trade negotiation.
Speaker 2: Remember, we’ve been shareholders since 2015, one of the early venture rounds in ByteDance. I believe we should engage with China to make TikTok comply with our regulations instead of shutting it down.
Speaker 1: I agree! This whole legislative effort is about ensuring TikTok operates within U.S. guidelines.
Speaker 2: Here’s what I’m hearing about the potential deal: a new company, let’s call it TikTok US, will be formed. ByteDance will retain ownership under 20%.
Speaker 1: So ByteDance would own about 19.5% of TikTok US, while existing shareholders will share in the benefits too?
Speaker 2: Exactly! The new company would be capitalized with fresh money from new investors like Amazon, Dreesen, and Oracle.
Speaker 1: I assume this capital won’t go to ByteDance directly but toward the newly formed company?
Speaker 2: Yes, that’s right. The new entity would be licensed for the algorithm, which can then be audited to ensure compliance.
Speaker 1: What’s the expected valuation for TikTok US?
Speaker 2: It might be relatively low, especially with Trump suggesting it could tie into the U.S. sovereign wealth fund.
Speaker 1: That raises an interesting point since ByteDance had previously seemed disinterested in a deal. What shifted their perspective?
Speaker 2: Yaming, the company founder, believed it was impossible to separate the algorithm for TikTok US from TikTok globally. Without U.S. involvement, the ramifications would be detrimental.
Speaker 1: So, the realization that TikTok US and the international version would share the same algorithm could be a pivotal factor.
Speaker 2: Right! It’s worth noting that 60% of ByteDance’s shareholders are U.S. investors. That makes the situation critical for them.
Speaker 1: Absolutely! If ByteDance goes public, that would unlock significant unrealized gains for those investors.
Speaker 2: Right. The majority of ByteDance’s revenue still comes from its international branches, like Douyin and Daobao, not just TikTok US.
Speaker 1: As shareholders, we’d ideally want certainty. Protecting TikTok in the U.S. is a win for both the users and ByteDance.
Speaker 2: Definitely! However, with the recent tariffs imposed, we must realistically consider the challenges this may introduce.
Speaker 1: It’s true that even if a deal is announced, it may not be a done deal. The Chinese government could still step in.
Speaker 2: Exactly! I remain cautiously optimistic. I believe the president is interested in making a deal with Xi-for the benefit of both countries.
Speaker 1: I think you’re right. There’s too much at stake economically for a deal not to happen. The ability to cooperate on issues like Ukraine and the Middle East is critical.
Speaker 2: True! While there’s an ongoing competitive struggle, I sense that the president, being a dealmaker, will likely look for common ground on matters like TikTok and other trade discussions.
Speaker 1: Ultimately, U.S.-China bilateral trade relations are crucial and will play a significant role in determining future economic growth for both nations. Speaker 1: Important to watch.
Speaker 2: All right, man. Take care! Great seeing you. Have fun at the games.
Speaker 1: Take care! And just as a reminder to everybody, these are just our opinions, not investment advice.