Decoder with Nilay Patel
00:18:50 · S1, S5
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00:20:40 · Nilay Patel
[00:20:40] S2: I'll just make a dumb comparison to the iPhone. It's iPhone season, I just reviewed the iPhone Duo. Apple keeps the iPhone looking the same for several years now. Right? They build all of the tooling for the new iPhone and then they just reuse it for two or three or four models to get all the value out of that investment back before they move on to the next thing. Apple puts out a new iPhone, they keep selling the old iPhone for a while to get more value out of that investment and that development program. The AI industry does not seem to be doing that. Right? All of their emphasis is on developing the next new thing, deprecating the old thing pretty fast and moving you on to the to the new expensive product, which at the same time they're building the next new expensive product. At some point it feels like that will rationalize, right? That there will be something that is worth just collecting margin from while they go invest in the new thing. And I just can't figure out where Anthropic sits in that cycle.
00:21:30 · Joey Brookhart
[00:21:30] S4: I mean, we do see this, know, open source token volumes are picking up and there's a lot of areas, yes, where the open source models have become good enough. And I think on a go forward basis, you're like, okay, was that because of distillation? And then the Frontier Labs have some defensibility actually going forward. Or I think when we talk to clients too, it's how do we actually think about Frontier versus open source on this debate, or even non Frontier? So something like a Sonnet type model, if you want to do the iPhone 18 versus the SE type analogy. We do see that dynamic, obviously open source is a question of how much can that take? And then two, because we're so early in these verticals, we don't know what's going to be fully agentic. There's no human in the loop for actually human in the loop where, yes, you can do, you know, where the harness actually has, I should say, some value and defensibility to it. The kind of, you know, big area I'd look at here, especially when we talk to enterprises today, is, yeah, only the coders are allowed to use the frontier models at a lot of these enterprises. If you're a non coder, you are some of these companies just limit you to Sonnet if you're a, you know, a cloud, an Anthropic company. And I think that's reflective of how, you know, management views, and wants to budget for this, like what for Frontier Intelligence is actually worth to them in certain areas. Like in my financial analyst brain, you know, Claude could not build a good financial model, you know, six months ago. It's getting better if you connect it to the right areas. But we've gone from something where, okay, I needed a junior analyst six months ago, maybe I don't as much anymore, and then will I have a full junior analyst at my disposal anytime or multiple pretty quickly if I have unlimited budget or token budget? And I think we just look at that across you know, every vertical and and like major job category.
00:23:12 · Nilay Patel
[00:23:12] S2: And and the time horizon in each of those categories is going to be different and I think that's just one of the one of the bigger questions I have is on how quickly do they get to where they think they can go. I want to dig in on some of the the numbers here. The the one that jumped out in all of the comment sections on all of the forums and all of ours articles yesterday was $80,000,000,000, Anthropic lost $80,000,000,000 that is related to a technical charge. Can you just explain the $80,000,000,000 Cause it doesn't seem it doesn't seem particularly relevant to the revenue and profits they're they're talking about.
00:23:42 · Joey Brookhart
[00:23:42] S4: Yeah. It's a it's a non cash charge because their valuation has gone up so much and they've issued, you know, warrants or convertible notes. You have to account for that in your balance sheet. So it's just a non cash charge because their valuation has gone up so much since they issued, you know, these warrants and notes. So yeah, that's something you would always back out. You know, you can argue on stuff like stock based compensation, you know, should we really be thinking about that on a non GAAP versus, you know, a cash, you know, versus because it's a non cash, if I just hand employees shares, you know, I have to account for that on my income statement, but I'm not actually handing them pure cash out of my, you know, bank balance. So it's not an area like that. It's, you know, it gets the accounting, you know, the high level if you don't know accounting, it looks bad, but it's because they've grown so much and their valuation has gone up so much.
00:24:24 · Nilay Patel
[00:24:24] S2: Some of the argument here about that charge is obviously, you know, that's Amazon was the other party there. Obviously, Amazon's very happy because Anthropic is buying a ton of AWS, and sure they're happy the valuation has gone up. But over time, Amazon is going get diluted this way. Right? That's that's part of the dynamic there. They're going to obviously IPO, they're going to put a bunch of shares in the market. It's very clear that over time they will issue more shares to raise more money. It doesn't seem like they're going to stop wanting to raise money anytime soon. How would how are you thinking about that in terms of just investment into a company like Anthropic that your valuation might be going up, but your actual ownership stake might be getting diluted over time?