Decoder with Nilay Patel
00:40:03 · Nilay Patel, Joey Brookhart
[00:40:03] S2: to buy chips, we're not going [00:40:04] S4: to fill them up in these, you know, they'll just sit empty and chipless. But that's where a lot of the, you know, that's the majority of the spend is on the chip side. So if we do end up in a place where we're actually oversupply from a data center perspective, I know that's a little bit different, it's the exact opposite of what the question was, they kind of had said that from like an ROI perspective. I think this comes back to that larger question, are we still going to be super supply constrained? A lot of people now, especially in the last three weeks, are talking about are we in this massive glut of compute as we look towards 2028 actually? Because the same thing we talked about from Anthropic going from negative 94% margins to positive 85% in kind of compute efficiencies means as you bring on more inference megawatts that are making a lot more revenue per megawatt, all else equal, you need less compute. So it's a question of, you know, are we going to have enough revenue in 2028 to justify the ROI, you know, on 2,000,000,000,000 plus of CapEx?
00:40:57 · Nilay Patel, Joey Brookhart
[00:40:57] S2: This is why I spent so much time asking about capability overhang and how good the models are today because you can see some competitor that is less idealistic about AGI saying actually we're going to do a bunch of forward deployed engineers in all of these verticals where they haven't taken advantage of AI and sell them high margin inference because we'll automate big chunks of their business and they'll see the return. And right now a bunch of the Fortune 500 has not seen return on AI spending. So if you're actually just better at customer service and deployment and productizing the model, you might get way ahead of where Anthropic needs to be because they're still thinking about AGI every single minute of every single day. And I don't know man, I look at Dario standing next to Marc Benioff at Dreamforce and like that dude does not want to be there right now. Right, he wants to be thinking about like the machine God. There's something there where you can just see that competitors coming up with an open source model and be like we're actually going to productize this and we will actually take the revenue that everyone else is depending on. [00:41:58] S4: And too, like in the interim, that's why it is getting, you know, more verticalized because you need something to bridge, you know, an AGI where it just does fully does the job. You need something to bridge, you know, the actual model today. [00:42:09] S2: We'll just take that for granted. Yeah. Yeah.
00:42:12 · Joey Brookhart
[00:42:12] S4: To get there, you need some bridges of where it actually sits in with the actual end user at some point. And so I think everything is going to come down to this, is there going to be some timing or adoption mismatch where we just don't get the revenue at a certain point in time to justify that chase of training compute towards AGI? And I think that's a risk. The other risk I think we look at is do we get more models at the frontier, even at the open source, that are as competitive in coding, where token pricing across the frontier needs to be taken down because, you know, like I mentioned earlier, like, you know, lower switching costs. Even at SemiAnalysis, we went from, you know, 95%, 90% plus of our usage at the end of Q2 was on Anthropic models after release of 5.6 and Astra, that went down to 70%, and then with Opus 5.5 it's gone back to 90% plus, you know, roughly. So it does come back even like the base of revenue today, and they've said, know, that we have net revenue retention of 900% seeing this massive, massive growth. This isn't a traditional software business like ServiceNow or Workday where you have like just incredible like logo or gross, you know, retention of 95%, 98%. Customers sign these nice three year contracts, they never churn, they add some seats, maybe they adopt another product that is being upsold. This is purely consumption. Think the other portion was the 20% drop in the last two weeks of the year versus the prior two weeks you know, last year, in token or, you know, in token spend because the holiday season. You know, people aren't, you know, you're not going to do work code stuff. You're not going to be coding for work during the holidays. So this consumption business, mean, is extremely, extremely pure consumption business, different than how we think about like Snowflake or Datadog today in public markets.
00:43:57 · Nilay Patel
[00:43:57] S2: Obviously, Anthropic is not the only company that's going IPO, opening eyes right next to them. They've delayed theirs. You mentioned earlier, Anthropic is much more enterprise focused. I think OpenAI for a long time thought that Google wouldn't react to them and they would just take the search business away and everything would be fine. Google obviously reacted for better or worse, searches now, AI overviews. Looking at the Anthropic S1, what are you looking ahead to in OpenAI's? Because they are a more consumer facing company.
00:44:27 · Joey Brookhart, Nilay Patel
[00:44:27] S4: Yeah. So OpenAI was sixty forty consumer, 60% consumer, 40% enterprise at the end of Q1. That didn't flip for the first time until January or August to be enterprise focused. And what they'll tell you is enterprise business, the consumption business, because it was so consumer and subscription focused, consumption, this consumption business that's 80% of Anthropic's revenue, just the token business, that didn't take off till a release of five point six. Oh, and then with Astra. And those are really great models. OpenAI took the majority of actual net new ARR in Q3, but it's going to take some time because I think what's been publicly what's been in The Wall Street Journal, like negative 100% EBIT margins versus we're seeing positive 11% here, there's some differences, some pretty big differences in the business model where they just haven't they just don't monetize at the same rate that Anthropic does. And that's a little bit because the business makeup, the verticals, that consumer versus enterprise split, that's changing. And I think what they'll tell you is, they see a really good Q4, they have a much stronger enterprise sales function than Anthropic has, so I'd expect them to come up but I don't think the financials are going to look as good as this even when they S1 maybe in early twenty seven. [00:45:41] S2: Do you think that's why they delayed it to get their financials looking better?
00:45:41 · Nilay Patel, Joey Brookhart
[00:45:41] S2: Do you think that's why they delayed it to get their financials looking better? [00:45:44] S4: Yeah, I think they're, you know, they had a really strong Q3, enterprise grew 100% quarter over quarter versus the total business was 77%. So I think you get another strong quarter of enterprise here. If Opus five point five didn't take a ton of share, that, yeah, it it'll put them in a much better position to kind of tell the story. [00:46:04] S2: There are some other turns here between now and when Anthropic actually goes public. They're going to do a roadshow, there'll be some pricing events. What are you looking for from Anthropic?