Prof G Markets
00:26:50 · Ed Elson
[00:26:50] S3: I think that's totally fair to say. And that's why, you know, I I don't have big problems. I was thinking that we were gonna get this filing, and it was gonna be like non gap palooza, and they were gonna make all of these ridiculous adjustments, take out the training costs, do all of the... These gymnastics. They didn't do that. It was clear. It was honest, and it's very clear, as you point out, that they are making real efforts to be sustainable in terms of the amount that they spend. And I give them total credit for that. And I think it's something that we have given them credit for in the past. But the thing that I I... I'm a little stuck on is the fundamental business model itself because... And this goes... Scott, you mentioned the the cash flows. I think that that is a backward looking analysis that... And we're not paying enough attention to the fact that they have already signed up to spend $800,000,000,000. And we're not seeing any of that... Those dollars reflected in the income statement currently. They have a more than $160,000,000,000 compute agreement with Broadcom. They have a a $120,000,000,000 agreement with SpaceX, $110,000,000,000 agreement with Amazon. And to Josh's point about these moats, they have recognized that it's kind of a problem that they have to spend all of this money buying compute from companies that are actually their competitors in a lot of ways and that they have actually expressly named as their competitors. And they have said that that's that's
00:28:10 · Josh Brown, Ed Elson
[00:28:10] S4: What would you suggest they do? Because if they get caught without enough compute, it's probably worse than overcommitting. Like, given given where we are, like... Because then you definitely lose. If you can't do my work, you can't do my my workloads. Okay. No problem. Alphabet can. [00:28:31] S3: 100%. [00:28:31] S4: There's some some element. So what would you... If you... Let's say you had the ear of the business planners at Anthropic, what would you tell them to do if not lock up as much compute as you can on a guaranteed contract basis? [00:28:45] S3: Well, this is where I think I agree with you, which is I think they're probably get... Making the right decisions given the situation they're in. And by the way, they've told us what they're gonna do, and that is they're gonna start building their own compute. And this is what I thought was most important about the filing where they said that they're gonna build out, compute infrastructure that will require, in their words, substantial capital expenditures that will, in their words, quote, change the cash flow profile of the business. So for me, I I think their answer is like, we we can't we can't continue in a situation where Google might rope us into some onerous agreement because, you know, they're our competitor and we've named them as such. We have to be independent. But to me, that means spending tens of billions of dollars, which we're not seeing reflected. [00:29:33] S4: I think they could buy a Neo Cloud.
00:29:33 · Josh Brown, Ed Elson, Scott Galloway
[00:29:33] S4: I think they could buy a Neo Cloud. [00:29:35] S3: Maybe that's the answer. Maybe once all of the wreckage of the Neo Clouds has been sort of piled up, maybe they go in there and buy a Neo Cloud on the cheap. That... Honestly, I think that might be the answer. I think that's a good idea. But my point isn't to say they're making bad decisions. They're stupid. They... They've got it all wrong. I don't think that at all. I think that they've... You know, for what they've done, it's incredibly impressive. I just think that the position that they're in is actually very difficult. And I think that it aligns with your points, Josh, that they don't have much of a moat here. They're competing with these other companies that already have their own cash cows and these businesses that are incredibly profitable. They're plowing their money into compute. [00:30:14] S4: Who has more of a moat to you? OpenAI or Anthropic? So chat GPT or Claude. No. Which has a moat? Neither? [00:30:23] S0: Well, if momentum is a moat, no. In software, is very hard. I mean, your moats are intellectual property, human capital, culture. [00:30:31] S4: I'm more worried about ChatGPT. [00:30:33] S0: Well, the momentum right now is very much for Anthropic and slightly against ChatGPT. [00:30:38] S4: I a 100% agree with that. And the enterprise business Anthropic, the Claude Enterprise is much further along.
00:30:38 · Josh Brown, Scott Galloway, Ed Elson
[00:30:38] S4: I a 100% agree with that. And the enterprise business Anthropic, the Claude Enterprise is much further along. [00:30:47] S0: And they're less price sensitive. Like, there... A couple of things. Ed's your... Ed, your number about the the commitment, and that's used as the scary thing here is the infrastructure. The number is somewhere between 5 and 800,000,000,000 based on the reporting I've seen, and some of these are firm noncancelable contracts. Others are options with looser commitment language. [00:31:07] S3: The SpaceX one.
00:31:07 · Ed Elson, Scott Galloway
[00:31:07] S3: The SpaceX one. [00:31:09] S0: Yeah. But the numbers I've seen and the gross margins I've seen show that if it if it maintains anything resembling the scale it's growing at, that it's gonna begin to hemorrhage cash. And the question I would have is if they're showing... And granted, I hate some of this adjusted EBITDA bullshit, but it does look like they have positive gross margins. And at this and at this scale, wouldn't you expect those compute costs? It already has the second greatest revenue per employee just behind NVIDIA. I mean, a company that's five years old or six years old. If it just continues... Even if it... Its growth rate's cut in half, it strikes me that the cost for a computer are gonna go down. And at this scale, which is one fifth, one tenth, one twentieth of the scale, they're estimated in the next estimated in the next twenty four to thirty six months, it feels like those gross margins should only go up. And they are able right now to show something resembling being an earshot of substantial free cash flow without a fraction of the scale that it looks like they're gonna be at in twelve or twenty four months.
00:32:18 · Josh Brown
[00:32:18] S4: The per unit cost of compute is going down. It's actually crashing. The thing is the usage is going up by so much that the overall dollar amount being spent on compute does not fall, it goes up. So the per token cost is plunging like it should. This is the history of technology. That's good. The thing is the services are so popular and in so much demand that while the per token cost falls, the sheer explosion in everyday usage is rapidly outpacing that so that the dollar cost of compute is not falling. It's rising, but you'd make the argument that's actually a good thing because it shows how sustainable this bull market in AI demand should be. What do you think about that?