Invest Like the Best with Patrick O'Shaughnessy
· Dan Wang
[00:00:00] S1: Yeah, I think AI, for me, what is most important is going to be in the next five years. Today, I think that the U.S. still has a decisive lead on most aspects of artificial intelligence, mostly because it has the compute resources here. It has the leading Nvidia chips, and China does not. But if we are going to have much more AI in our lives, I think the competition is much more of a toss-up again, looking forward to the next five years—which is a lifetime by the standards of a lot of AI, maybe a shorter time span for the rest of us. And here is where I think China actually does have a lot of advantages in AI relative to the U.S. If we have much broader AI in our lives, we’re going to be using AI for all of our queries. We’re also going to demand much more power than we currently have, and the U.S. has not been doing very well on adding new power to the grid. As I said, it is only going to be adding something like 50 gigawatts of solar this year, relative to 500 in China. No new nuclear plants are under construction. Maybe that will change because the Trump administration is more friendly toward nuclear, but the U.S. has simply not added much by way of power. China, I think, as a civilization—as the engineering-state civilization—is just very interested in making sure that no heavy industry ever goes hungry for power. The scale of electrical production in China is vastly outpacing the U.S. The question of talent is always very fluid. Right now, how many researchers really matter for artificial intelligence? I don't know if the figure is more like 10,000 or more like 1,000. Within the 1,000, it seems like China has a lot of really good talent, which was represented by DeepSeek earlier this year, showing that it’s not only Silicon Valley that can produce really good reasoning models. At least from what we can tell in some of the publicly listed hires for Meta’s superintelligence, a substantial number of these really elite engineers—I think there are 11 who are publicly disclosed—something like seven of them had gone to Chinese universities, and I believe they’re all Chinese nationals.
· Dan Wang
There’s some sense of nervousness among some folks in Silicon Valley that these elite engineers might pack up their bags and decide to repatriate back to China for a variety of reasons—either because ByteDance is offering a much better comparable pay package, and they can live a much more comfortable life in Beijing or Shanghai; or maybe they just want the better noodles, which California doesn’t really have. There’s also some sense in which they feel anti-Asian hostility in the U.S. They fear the rhetoric of the Trump administration. Some of my Asian American friends here are nervous that the Trump administration is going to turn super populist and drive out all of the Indian engineers as well as the Chinese engineers. So within this talent pool, if a substantial number of them decide to repatriate, then it’s a little tough to say exactly who’s ahead on talent. But it’s possible that the Chinese will have some sort of lead here. Then there’s also a question of if AI gets much better—what will the Americans use it for? What will the Chinese use it for? America is much more of a services-driven economy. Maybe we have all of the data to automate our healthcare sector as well as our consulting sector, and the Chinese are going to have the data to automate their manufacturing sector. To be very glib here, I’ll say that maybe America gets a much better McKinsey, and China gets a much better Foxconn. They’re going to use this much better AI Foxconn to produce a lot more drones, munitions, and ships as well. The U.S. simply doesn’t have the training data or the process knowledge in place to get much better at manufacturing. So maybe right now we haven’t seen another big DeepSeek moment, but I think the future is very much up for grabs. China right now has really good talent and really good reasoning models. It is now compute-constrained, but it seems like Donald Trump wants to make a deal and impose an export tax of 15% on Nvidia, while giving a lot more compute to China. I think the future is going to be a really tight race between who can get to AGI and who can deploy AGI in a much better way.
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: What is the most interesting thing to you about Huawei? [00:00:00] S1: I think Huawei represents a Chinese company that is super vertically integrated, which does a little bit of everything. Part of the founding myth of many Asian companies—take the founding myth of Foxconn, which makes all the iPhones, the Taiwanese manufacturer—started by making something like the plastic television knobs before it made desktops and iPods and iPhones. I forget exactly what, but something related to switchboards is what Huawei started on, until it became a company that makes 5G equipment, base stations, mobile handsets, and a million and one other things, according to parts of Washington, D.C. It also has a really close relationship with the People’s Liberation Army, making some sensitive military goods for them as well. But there are a lot of these Chinese companies that decide, “Why not? Let’s just be vertically integrated.” We’re not only going to make all of our electric vehicles—we’re also going to make the batteries and some of the chips that are powering the vehicles as well. And there is this element of vertical integration that, to go back to one of our earlier points, I want to use to set up a contrast between two of America’s handset companies. First, let’s compare Apple. What is the valuation of Apple now? It’s about three, four trillion dollars. [00:00:00] S0: Many trillion, yeah.
· Dan Wang
[00:00:00] S1: With Xiaomi, whose market cap is, I don’t know, not more than one-tenth of Apple’s valuation—probably not even one-twentieth. Apple has been famously working on a car for about 10 years, named Project Titan, until it decided to throw in the towel a couple of years ago. Xiaomi, which is worth maybe one-twentieth the level of Apple, and which is mostly a handset maker as well as a maker of rice cookers, fans, and all sorts of other household consumer electronic goods—the CEO of Xiaomi declared in 2021, “I’m going to invest $10 billion in making my car. This is going to be my focus. This is going to be my last great entrepreneurial venture.” What happened afterwards? Again, Apple threw in the towel and decided not to make any vehicles. Xiaomi’s first electric SUVs are now on the streets in China. They keep raising their production quantities because a lot of people really love these SUVs and these cars. Most striking to me: a few months ago, there’s a very well-known German racecourse in western Germany called Nürburgring, which has a racetrack nicknamed the Green Hell because it twists through the mountains there. Xiaomi, in its first time entering this race—making its very first car—won one of the speed records, beating established companies like Porsche and BMW. This is a company that had the manufacturing workforce, the ecosystem of suppliers, and to some extent, government support, and it was really able to do something that a much richer company was unable to do. And so this is where I come back to the question: are we undervaluing China? Should we really be looking at measures like Nobel Prizes? Are we undervaluing China because we think too much about the market valuations of big companies like Nvidia and Apple? Maybe what actually matters is a company saying that it’s going to do something—and then actually achieving it. Once it achieves it, it makes some really good products that are genuinely world-beating. That’s something we see with Huawei, with Xiaomi, and with a lot of other companies living in this fiercely dynamic, entrepreneurial environment—tearing each other apart through market competition, sometimes underhanded—and producing great technology champions along the way.
· Patrick O'Shaughnessy
[00:00:00] S0: So if we were to step back, and you frame this whole thing as: okay, the engineering state has its strengths and weaknesses, the lawyerly state has its strengths and weaknesses, and these are the two superpowers. If you were to boil the whole story down to the simplest narrative that you could imagine, how would you do that for, say, a 15-year-old or a 10-year-old—a kid trying to understand the trajectory of the world who may not grasp the subtle difference between lawyerly and engineering? Have you attempted to boil it down even to that level and create the best story for them to understand what’s happening?
· Dan Wang
[00:00:00] S1: What I would point out is that when China decides to do something, it moves really quickly. It’s much more of a whole-of-society, whole-of-government effort, and it’s much more serious about doing big projects. Sometimes that goes disastrously off track because they end up committing to something like the One-Child Policy or Zero-COVID, in which the number is right there in the name. It’s almost an engineering project—there’s no ambiguity about what those things mean. Whereas the U.S. is much more deliberative; it thinks a lot about things. Often, it fails in some of these goals that it tries to pursue. The U.S. couldn’t possibly have achieved Zero-COVID because there was no possible enforcement mechanism to get people actually staying indoors and not going outside in a big way. So the U.S. doesn’t get stupid ideas like Zero-COVID, but it also doesn’t get things that it says it really wants to do, like California high-speed rail. One of my conclusions, one of my new realizations after writing this book, is that maybe there can be too much state capacity. Maybe you don’t want a state to be too efficient. If the engineers are too efficient and they drag society off track, they can go really far before there’s any course correction. You want the ideal level of state capacity that’s much more than what the U.S. has right now, but maybe a little bit less than what China has.