Invest Like the Best with Patrick O'Shaughnessy
00:47:53 · Ben Thompson
[00:47:53] S2: It feels like it might be a situation of better be lucky than good to a certain extent. Apple has their whole ecosystem. At the end of the day, they do own access to customers. So they can get suppliers. This is the classic aerator play. If you own access to customers, suppliers come to you, not the other way around it. So they can get suppliers for their AI as needed. And by the way, to the extent it's true that people don't want to be productive, they just want a sort of a chatbot. Not only can they serve them a chatbot and finally getting a Siri that works, but you can see a future where this absolutely can work on device. And they actually don't even need to pay for inference costs either because they're using the customer's electricity. I don't think we're quite there. There's a reason they're using Google Cloud and Nvidia chips, but you can certainly imagine a future where that's the case. And they're in physical goods. Actually making phones is hard. Having retail, having distribution for physical goods, they're more insulated. The smartphone is so perfect. It's small to fit in your pocket. It's big enough to watch basically anything on it. You can run your whole life on it. All your entertainment is there. When we talk about customers who wanna be entertained, the TV is now an accessory. It's all on your phone. I don't see anyone taking over the phone. The question is, is the phone always gonna be the center? Or is there a bit where, particularly in the home, is where open AI's efforts here are very interesting, you want sort of an ambient AI, where you just talk to the AI and it tells you what you need. Apple is the best position to provide that, but can they provide that without having leading edge models? Can they provide that if they're so phone centric? Or is it like a Microsoft situation? Microsoft didn't miss mobile. They were very early to mobile. The problem is their mobile was a small PC. They assumed the PC would always be the center and their phones were gonna be something that was off that Apple realized, no, we need to reset. The phone is not gonna be accessory to the Mac. The phone is gonna be the phone. The iPod helped them realize that and going with Windows and all that. But will they fall into a Microsoft like trap? Assuming the phone's so good, it's always gonna be the center and then let's figure out around it.
00:50:10 · Ben Thompson
Or is this finally the time when actually ambient, the cloud, just in general, AI being everywhere, It can manifest through your phone. It can manifest through a device, can manifest on your computer is actually better and is actually disruptive to them. I think it's possible. I also think it's totally valid for Apple to double down on what they do. The other thing about the AI stuff is on what basis should we expect Apple to be good at this? At the most crude level, AI is this probabilistic endeavor. Apple is the king of deterministic products. A physical product, you ship that iPhone, you ship it once, and it's gotta be good. If it's bad, it costs you billions and billions and billions of dollars. Apple's never had an iPhone recall. It's amazing. That care and decision making and diligence and fierceness in terms of your supply chain and making hard decisions is very, very different than everything that goes into like making great AI. I generally prefer companies to do what they're good at. So from my perspective, I'm fine with Apple not doing AI. I want them to keep making great devices.
00:51:15 · Patrick O'Shaughnessy
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00:52:35 · Ben Thompson
[00:52:35] S2: OpenAI and Anthropic obviously are the riskiest, but also have the biggest upside. Never discount, number one, the power of belief. They think they're creating God. The most impactful things in history have usually been fueled by religion. The two religious organizations in Silicon Valley are open as kinda like mainline. They go to church every Sunday. Uh-huh. This are like evangelicals. That's anthropic. They're all in. It is core to their belief. That goes a long way. The fact you need to make a business work for you to survive goes a very long way. Google just needs search to not die too quickly. Meta has the huge advertising business In a world where Meta was run by anyone other than Mark Zuckerberg, they would not be on the weeding edge. That is one of the purest manifestations of founder energy for better or for worse. Their business is so amazing. You see them just easily sort of doubling down on that. Google, there's a bit where they had Google Cloud, they have TPUs. They've been doing research in this. It makes sense why they're pursuing this. Meta being like, actually, we're gonna hire a completely new team or we're gonna start from scratch. This all again is pretty insane. Credit to Mark Zuckerberg in that regard. Again, you could decide whether that's a good idea or not. And then SpaceX AI data centers in space, the theory is there. Do they have to own their own model though to do that? They'd get better margins if they do. Then again, if we actually run out whether through political opposition or power or whatever it might be. If we run out of data centers on earth, they can run whatever model they want. As we're seeing with selling their capacity to Anthropic right now. They're all pretty interesting. Probably the case for Space X AI is probably the weakest because the data center and space play is so highly differentiated. If that plays out, I'm not sure to what extent they need to even have their own model. So why are you wasting billions and billions of dollars in the meantime? That's a fair question. From a tactical perspective, I love the cursor acquisition. That makes so much sense for both companies. And so I've been intrigued to see what they do. Meta is probably the most interesting.
00:54:35 · Patrick O'Shaughnessy, Ben Thompson
[00:54:35] S0: You've written a lot about this recently. [00:54:37] S2: I think there's a very good case to make that it is more reckless to not be on the frontier if you're a digital company. The counter to Meta is actually Microsoft. Microsoft is not on the frontier. The reason why Microsoft has $40,000,000,000 of free cash flow last quarter, Microsoft paid a $10,000,000,000 dividend last quarter. There's some money, but their play is, oh, wait. We're gonna play all these off each other. We're gonna provide middleware. We're gonna provide the platform that enterprises will build on us, and we're gonna sort of disintermediate the models. I think it's a rational play. It's the IBM play of the nineties. History echoes. Everyone talks about Google. Google like following Microsoft. Microsoft follows IBM. And you can see that to an extent. [00:55:17] S0: What did IBM do? What's the analogy?
00:55:19 · Ben Thompson
[00:55:19] S2: Well, so IBM had this dominant. We talked about it in the seventies. And then you fast forward to the nineties and IBM is this very distressed asset. And the thought was IBM needed to break up into all these different pieces they had. So Lou Gerstner comes in and he takes it over. Gerstner's real key insight to IBM is we're pretty mediocre at everything. It's kinda like what I talked about with Microsoft before. And that's the price of monopoly. Once you've been a monopoly, you kinda lose your capacity to be good because you didn't need to compete anymore. And I think a lot of tech incumbent companies have this problem. It didn't matter what they did, they were going to rake in money. And if you don't have the pressure, if you don't have the incentive, if you don't have the fear of death or the fear of God, as we talk about these model companies, then you don't do your best work. And the problem is that you... Once you lose that muscle, it's gone. You're just sort of fat and flabby. So what Gerstner realized is actually the worst thing IBM could do would be to break it up into component pieces cause all those component pieces are actually not very good. Our biggest asset is that we're big. It's like, what? No. What does it mean we're big? It's the nineties. This internet thing's coming along. There's all these companies that kind of know they have to figure out the internet and they don't know what to do. They need someone who can come in, understand their business, and help them get online. That's basically what IBM did. So they built out, and this is an echo of what's happening now, huge consultant force, and they put all their time into billing. Basically, it was middleware where they would go in and they put this layer between a company's old school mainframe, which all these companies had, and then modern web services. On the other hand, they could have websites and e commerce sites and all this sorts of thing. And it gave IBM a thirty year lease on life. Yes, in theory, you could go get point solutions for all these hot Silicon Valley startups, but you understand that. You don't know how to do that. You know us. We'll come in. We'll create all this middleware, build this big consulting force to help you implement it, and you'll get online. And IBM basically brought all of corporate America online. That's Microsoft's playbook.