Invest Like the Best with Patrick O'Shaughnessy
00:08:16 · Patrick O'Shaughnessy, Ben Thompson
[00:08:16] S0: If you can know anything about the future of how this will go to be more confident in, like, where the equilibrium will end up, what is it? Is it like the length of the s curve? Like, how far up the s curve we are? At some point, these things presumably will level out, maybe not. What would be the thing you'd wanna know that would give you a better sense of what the future might look like? [00:08:34] S2: I am concerned that with the scare around people freaking out about mythos and this hugging face incident, that the actual implication of that is not that we reduce these dangers, but we just stop releasing stuff. We on the outside start to lose any sense of like where exactly What's [00:08:58] S0: actually the frontier, yeah.
00:08:58 · Patrick O'Shaughnessy, Ben Thompson
[00:08:58] S0: actually the frontier, yeah. [00:08:59] S2: What is actually the frontier and where it is. There becomes sort of a false sense of security because right now everyone's basing their understanding of mythos on fable. But how good is fable actually relative to mythos? That sort of gap is only going to, I think, increase over time. So I think that's a real question that I'm not sure about. This question of the recursiveness and AI sort of making itself better, does that lead to some sort of takeoff? And at the end of the day, there's timing questions in lots of different ways. I'm worried about the timing mismatch in terms of the actual return on investment producing enough revenue to fuel investment. We're working our way down the capital curve. We started with free cash flow. The speed with which the tech companies blew through the debt markets is kind of incredible. It took like a year. And now Google's issuing equity. Nvidia's putting together these [00:09:51] S0: This $500,000,000,000 thing. This $500,000,000,000
00:09:51 · Patrick O'Shaughnessy, Ben Thompson
[00:09:51] S0: This $500,000,000,000 thing. This $500,000,000,000 [00:09:53] S2: thing to tap into like pension funds and insurance floats and things like that. What's after that? Where's the money come after that? Well, ideally, we actually flip back to free cash flow funding this. But if there's a gap there, if we don't get there soon enough, then we could have a big blowup. But at the same time, even if we have this blowup, the AI is not going away. It's not going to stop improving. It's going to keep sort of progressing in a way that we look back on the .com era, or we look back on the railroad era, or we look back on whatever bubbles through history, ultimately immaterial in terms of the broad scope of humanity, even if they were very devastating. [00:10:34] S0: What can the railroads teach us, do think? It's not the last bigger build out, right, in terms of percent of GDP or getting I
00:10:34 · Patrick O'Shaughnessy, Ben Thompson
[00:10:34] S0: What can the railroads teach us, do think? It's not the last bigger build out, right, in terms of percent of GDP or getting I [00:10:41] S2: think we might be bigger at this point, or it's like it was the biggest. In the ballpark. The railroads had a real duration mismatch. To build a railroad and make money off it was a decade or multiple decades long endeavor. Whereas you had to issue money to pay for it in the short term. And the world ran out of money. Right? I think that is probably the aspect. I think that's why people reach for the railroads because everyone talks about, are we gonna have enough compute? Are we gonna have enough electricity? Maybe the nearest term questions, are we gonna have enough money? Which is kind of a bizarre thing to think about. That's what happened in the eighteen seventies. The world just ran out of money. The funny thing is the railroads kept operating and they expanded the West. Their contributions to GDP was astronomical. They're still contributing to GDP. Railroad money is what's going into Google right now for Berkshire Hathaway. Like like very funny. No. [00:11:39] S0: It's quite literal.
00:11:39 · Patrick O'Shaughnessy, Ben Thompson
[00:11:39] S0: It's quite literal. [00:11:40] S2: Berkshire Hathaway has this problem. To me, this NVIDIA deal is very much paired with the Google equity issuance, which I thought was shocking when it happened. Why was this shocking? Because it's Google. They can't raise money. Like, why are they issuing equity? Why are they reducing their upside if they believe so strongly in this? But the Berkshire comparison is interesting because to a rough approximation, they make... They have C's candies famously, right? Tremendously high margin business. The problem with a lot of high margin businesses is the percentage profit you can make is very high, but the absolute profit you can make is No [00:12:14] S0: reinvestment runway.
00:12:15 · Ben Thompson
[00:12:15] S2: That's right. Like you're just accumulating cash. The brilliance of the BNSF railway thing was basically they took the C's candy profits and said, here's another industry whose margins are way worse, But the absolute dollar amounts are so large that those way worse margins result in absolute profits that are much larger. BNSF in 2025 or something, the amount of free cash they've threw off in one year was more than Seas Candies had thrown off its entire lifetime. Even though you're talking about a low margin business compared to a very high margin business. I think there's an aspect from Berkshire Hathaway where once your capital gets so large, you start operating in a world of like absolute numbers as opposed to percentage numbers. And the reason why I thought that was so interesting, that story, is it seems to capture where Google itself might be going. And so there is very symbolic for them to invest in Google. Google has this unbelievable high margin business of search. One of the most perfect, beautiful business models of all time. And the purest aggregator of them all, like scales in every direction. Doesn't have to invest any money to do it. Everything's zero marginal cost. It's amazing. Meanwhile, there's this AI opportunity which requires just astronomical... It's just incinerating cash. But you can imagine if AI is intelligence and it's TAM is basically all white collar work. And eventually with robotics, everything potentially, the absolute profits available here, even if the margins are lower, is so much larger that will we look back and Google search with C's candies? It feels like that's what's happening. In that world, you use all your free cash flow. They've done that. You tap the debt markets to the tune of hundreds of billions of dollars. They've done that. You issue equity. What does an equity issuance do? It dilutes your interest and your interest to your shareholders. So you have a smaller percentage of the pie. Well, you have the smaller percentage of an astronomically larger pie. At the end of day, no one's going be complaining. It is very symbolic. Berkshire being the symbol of that equity issuance in that, are they actually not just an investor in Google, but a model for Google and where they're going?