Unsupervised Learning with Jacob Effron
00:41:59 · Patrick Chase, Erik Bernhardsson, Jacob Effron
[00:41:59] S2: the showed it to us, so I don't know that it counts. [00:42:01] S1: Yeah. So I don't know if it counts. Like, I never, like, sent a pitch deck to an investor. Sent it to few angels, actually. But that... And that's the only pitch deck I've ever made, actually. But in terms of the scale, yeah, I mean, we're we're grown, you know, 100 x, I guess, in terms of revenue, something like that since then over the last three years. So a lot of growth. I think I think in a way, like... I don't know. Maybe I'm, just... You know, my my experience has mostly been at hyperscale startups. Like, I was a Spotify for seven years and some other places. So so so for me, like, this, like, fast growth is kind of all I've seen. Like, you know, this, like, you know, every every six months, you have to rewrite all the systems. You have to kind of rethink everything you're doing. You have to kind of change all the processes. Like, you always feel like you're behind. Like, I don't know. I I kinda like the mask. [00:42:51] S0: I guess we would love to, you know, since since we have your your mind on the podcast, we'd love to kinda zoom out, maybe talk a little bit about the broader info market and some things that have been in the news of late. You know, maybe maybe most top of mind these last few weeks, I feel like there's been tons of discourse about neo clouds. Right? They like, you know, how the debt's trading, they've traded down, they're kinda back up a little bit now. And I'm curious, like, what do you think happens to this landscape over time?
00:43:12 · Erik Bernhardsson
[00:43:12] S1: I think the neo clouts are, like, fine business models. Like, I I I think people have been, like, confusing it, like, a little bit. They're like, wow. There's so much demand. Like, revenue's gonna grow, like, so fast. And and then, you know, there's a little bit of sort of a... Almost like a VC mindset of, like, oh, like, thinking in, like, revenue multiples. But but I think all of these, like, these NeoClouds, like, growth is actually quite expensive for them because they have to go and raise a lot of debt. So And I I don't know if necessarily, like, you know, just because, like, they grow a lot, like, you know, like, it's very, capital inefficient. Like, these companies are at at their core, like, you know, financing vehicles. Like, they're very... Like, they're doing leasing, like, of hard assets, And and that's, you know, and that's like a... Inherently, you know, harder to scale the capital. Now that that market is kinda saying, woah. We deployed a lot of capital into NeoCloud. It's like, maybe maybe hold on for a second. Like, you know, we don't have that much more capital to lend, and so the interest rate is starting to go up. But... Yeah. Also, by the way, like, these companies have incredibly high leverage. So so, of course, they're gonna have more volatility. Like, the the the residual equity value is gonna go up and down much faster on the stock market with GPU prices and stuff like that. But they're, like, fine business models. Like, you know, they kinda locked in customer contracts and raised debt against it, and, like, you know, now they're paying off that debt. And and and in many cases, it turns out the residual value has been higher than people expected. Life time of GPUs has been longer than people expected. So they can resell once they paid it off, like, at a higher price than people thought. So, like, they're gonna make a bunch of money from that. Like, it takes a few years to get there. But I think in that sense, like, Neoclass will do well. Not particularly differentiated. So I I I... You know, long term, I think they're gonna start
00:44:47 · Jacob Effron, Erik Bernhardsson
[00:44:47] S0: work with a lot of them. Like, is is there any differentiation you see? [00:44:51] S1: I mean, it's, like, a little bit, but, like, at its core, it's, like, you know, like, relatively undifferentiated space. So I I I mean, my view is, like, you know... I mean, Elon was, like, tweeting the other day, like, all of your clothes are gonna die. Like, I I think that's kinda bullshit. I I do think Elon had a point when, like, basically, like, when he implicitly was saying, like, SpaceX has a much lower cost of capital. I don't think there's a coincidence. And if you look at the, like, the the three successful hyperscalers, Amazon, Azure, or AWS, Azure, and and GCP, that they're all attached to companies that had very solid cash flow, and they're all public companies that that had very low cost of capital. Because that at its core is is... Makes the life a lot easier if you wanna build something that's very capital efficient... Capital intensive. So I I I think in general, like, that is something that Neoclass will struggle with. Like, they have... You know, they they... They're gonna have a high cost of capital, and and it's gonna be hard for them to grow fast because of that. So so we'll we'll see about the market, but they're, like, decent business models. Like, I I think there might be an opportunity to buy the dip. I don't know.
00:45:54 · Patrick Chase, Erik Bernhardsson, Jacob Effron
[00:45:54] S2: You had an interesting tweet that was a lot of the the NeoLabs could become NeoClouds, you know, if their their model doesn't work out, but they have locked in these contracts. I definitely could see the the world going that way if, you know, if you have valuable compute that continues to appreciate because there's so much demand. But Yeah. [00:46:12] S1: I mean, Mistral kind of did that. Right? And, you know, like, it seems to be fine. I I think a lot of people are making these, like, very large buying decisions, and they kinda rationalize it. Like, they're like, well, if you don't need the GPUs, we can just resell them. Right? Like, that's almost like a form of insurance. And and you have to, you know, assume that with, like, all these NeoLab... You know, there's so many NeoLabs out there that have each raised 1,000,000,000... They always write... Raise exactly $1,000,000,000 for some reason. I don't know why. I guess they like that number. And and then buying GPUs. [00:46:39] S0: Very precise financial modeling that points Yeah. Yeah. Yeah.
00:46:44 · Erik Bernhardsson
[00:46:44] S1: So so some of them, I think, will probably work out really well. And... You know? But I imagine in the grands... You know, like, some of them will not work out. And if they don't work out, well, now they're sitting on a ton of GPUs. Like, you know, let's resell those GPUs. Right? Like, especially if there's ever, like, a scenario where, like, VC funding pulls back. Because I I think what... What's what's kind of a scary thing about some of these commitments is, like, you know, effectively, like, what what happens today when you make a GPU commitment is you only have to pay about 30% upfront, sometimes a little bit more, sometimes a little bit less. But what that means is like you can raise a billion dollars. You can go out and and get GPUs for $3,000,000,000 and only pay a billion dollars upfront. I mean, not exact math. But the problem is like, you know, in a year, now you're on the hook another for few 100,000,000, and, like, every month, now you have to pay. So so I I I think that creates, like, a little bit of, like, implicit leverage in a lot of these companies and and and and a and a dependence on subsequent fundraising. And, you know, that works as long as they can go and raise VC dollars to fund the the GPU bills. But at some point, it might not work. And and in that case, I think you're gonna see it a little bit more of a a secondary market where some of these neo labs might, you know, pivot to doing a little bit more sort of neo cloud style, like, we have a bunch of GPUs or or just resell it back to the cloud or I don't know. I'm I'm very bullish on AI as a whole, but, know, I always, like, look for these, like, sort of structural, like, risks. So overall, I think this could be, like, incredible application, incredible demand. But, like, you know, is a 100% of the Neolabs gonna succeed and, you know, be a, you know, trillion dollar company? Like, probably not.
00:48:15 · Jacob Effron
[00:48:15] S0: You know, I I feel like on the AIM for side, one big category that has gotten a lot of buzz is like this RL as a service market and kind of a bunch of folks, you know, almost forward deploying and, like, helping companies build their own models. And, you know, you have had folks like Satya saying, hey. Every company is gonna have their own model. Like, do you subscribe to that? Like, what do you kinda think of this... Of of that overall market?