Decoder with Nilay Patel
00:28:00 · Nilay Patel, Joey Brookhart
[00:28:00] S2: Unless you're trying to build digital god and unless it doesn't diffuse across the economy as fast as everyone wants it to. Those are bets, right? [00:28:07] S4: They're huge bets and I think like the numbers you look at if you're really bullish on this ramp of like into the digital economy is, you know, they say within their Fortune 500 customers, they have 50% of the Fortune 500. They are 0.1% of their total customers' operating expenses. I think when you look at that on like a per user basis, it's like $8 a month if you believe OpEx is, you know, doesn't include cost of goods sold, and if you believe it cost, you know, they include a cost of goods sold, you know, it's sub $50 per month. And they said the same thing, of their top 5% of Claude Code users, they're spending $18,000 a year on average, the top 5% of users. Their non Claude Code users spend under $75 a month, well under $75 there's this huge, especially when we talk to enterprises and these traditional buyers of software of IT, penetration is extremely low in like traditional white collar work. And I think that's the big point is, too, there is a large ramp period here of both seats adoption and usage. You know, you can make arguments of who's going to win in this, but it's obvious, you know, the Frontier Labs are going to get some portion of this. It's going to be pretty material to a net new ARR next year in 2027.
00:29:18 · Nilay Patel
[00:29:18] S2: One of the things that's really interesting about that is we talk about the Frontier Labs, we talk about the hyperscalers, Anthropic has a lot of wild risk factors in this S1, including that Claude might be conscious and kill us all. But one of the most direct and maybe easiest to understand is that AWS, Azure and Google Cloud are both suppliers and competitors in some real way, particularly Google. They say, these relationships could turn. Right? They have a big relationship with SpaceX AI. Elon is going to train Grok, they're going to compete with SpaceX AI at some point. That relationship might become precarious. As you say, they're only renting their compute. At some point the market might force them to own more of their compute because their own competitors don't want to lease their capacity to the leading company. How do you see that playing out?
00:30:05 · Joey Brookhart, Nilay Patel
[00:30:05] S4: We definitely see both OpenAI and Anthropic going more direct and owning, not owning the compute, but more rent to own or going through an SPV, you know, that some financial sponsor does and kind of doing the compute more directly versus renting. So there's two points of this, too. Google, from one perspective, is also selling their external chips to customers and saying, hey, we don't care to monetize this within Google Cloud or even allocate the share of, if you think we're very chip constrained, we don't even care that these are going to DeepMind or internal GCP compute for us to monetize. We're just willing to become a chip seller. Anthropic loves TPUs, they have there's 3.5, four gigawatts plus and probably more in the pipeline in terms of orders there of Anthropic buying these chips directly to then rent. That's Right. The market buying [00:30:52] S2: them directly to rent. So they're buying them into a Neo Cloud? [00:30:55] S4: Yeah, they buy them through like an SPV, or the SPV buys them and then they rent it from the SPV. [00:31:00] S2: Got it, okay. [00:31:01] S4: Even within Google Cloud or AWS or Foundry, Anthropic is massive. 48% of their business comes through the Bedrock Foundry and Vertex, where people are paying through their existing cloud relationship to access these models. They're not even talking to they are, but you don't have to interact with the Anthropic Salesforce. [00:31:21] S2: You mentioned this earlier. This is the marketing channel where Anthropic gets rev share.
00:31:21 · Nilay Patel, Joey Brookhart
[00:31:21] S2: You mentioned this earlier. This is the marketing channel where Anthropic gets rev share. [00:31:24] S4: Right, and if you're AWS and you're saying, oh, I'm running Anthropic compute for, let's say, million per megawatt, but now I'm getting 16% of 65 a megawatt plus the compute cost as well, we're seeing margins at all the clouds go up right now. Part of it is CPU utilization is going up because of all the coding and then some of the RL side, but these token as a service businesses, as we call them, so AWS, Bedrock, Microsoft Foundry, Google Gemini Agent Enterprise Platform, formerly Vertex, are actually massively increasing kind of the margins on AI at these clouds. So they're benefiting as well, and shareholders are giving them credit for this recently. I think in Q2, both Azure and AWS had, you know, extremely, extremely strong quarters on the back, AWS specifically on the back of Anthropic's growth on Bedrock. [00:32:13] S2: Do you think that will keep Amazon from ever wanting to train its own frontier models? They're doing a good job of letting AWS be the infrastructure for everybody else, But they're one of the only big tech companies that hasn't felt the insecurity of not having their own models.
00:32:13 · Nilay Patel, Joey Brookhart
[00:32:13] S2: Do you think that will keep Amazon from ever wanting to train its own frontier models? They're doing a good job of letting AWS be the infrastructure for everybody else, But they're one of the only big tech companies that hasn't felt the insecurity of not having their own models. [00:32:26] S4: It's interesting, I think they're very happy to serve a wide variety of customers and they have very little. And we look at like our estimates of training compute, they have the least of any hyperscaler, know, if don't even, yeah, ex Oracle maybe. It doesn't seem like there's much strategy there. I know both, you know, Microsoft in the last two quarters has been talking about a little more, you know, AWS on the call has been talking about a little more, but it's not a huge, huge, they're not doing it to the same extent that Meta is or trying to be competitive here or even Google with Gemini. And I think, especially someone like Dylan will tell you, if you're not trying to compete at the frontier, there's really not a place for you, especially if you're only dedicating a few 100 megawatts to internal you know, one internal use cases like serving Amazon retail, but then two, training. There's a lot of commitments, yeah, to make to be good at this. [00:33:14] S2: It's it's a conversation for a different day, but I look at these Microsoft job cuts, and I see it as the glimmer of evidence that they're going to try to compete in the future. They got burned. They obviously got burned pretty bad by OpenAI.
00:33:14 · Nilay Patel, Joey Brookhart
[00:33:14] S2: It's it's a conversation for a different day, but I look at these Microsoft job cuts, and I see it as the glimmer of evidence that they're going to try to compete in the future. They got burned. They obviously got burned pretty bad by OpenAI. [00:33:25] S4: Yeah. I mean, they have in the new agreement that they signed, they have the right to monetize OpenAI models for essentially not paying OpenAI anything. They're going to have, you know, some interesting things ahead where they monetize OpenAI models or even through like Microsoft three sixty five CoWork and Copilot applications where they're not paying OpenAI anything for a Frontier model.