We're all short intelligence
Knicks in Four
Wednesday night was absolutely insane. The city is fully abuzz and if the Knicks can pull it off, it will be the end of NYC as we know it. Midtown will be a bombed out DMZ. The sports bars of the city will be torn down to the studs.
Scott Heiferman (a real NYC tech OG) rolled a mini app to find Knicks watch parties around the city.
I’ll see you at the Garden on Monday.
Anthropic filed its S-1 and SpaceX goes public next week. There’s ≈$3T of market cap hitting in the next few months with at least another trilly on the way (OAI). Google is selling ≈$80B of stock and it’s not much of a story.
We are witnessing the total takeover of already-concentrated financial markets by a single story; debt and equities, publics and privates, newcos and established names. This will be an entirely unprecedented wealth creation and liquidity event. The exuberance about AI the technology will have become fully overtaken by exuberance for AI the financial asset.
These are (or at least have been) obviously great stocks. Whether or not they are great businesses is the most important question in financial markets right now. I don’t know ¯\_(ツ)_/¯
The Bull Case
World-changing technology. They wind up with infinite surface area, and everyone pays them for everything. Intelligence is the most valuable market in the world (all white-collar work), and they become both an accelerant for and a tax on global GDP. LLMs either scale in other domains like they’ve done in coding or it turns out that every task is actually a coding problem after all.
And this is not even accounting for true AGI and a post-scarcity / post-economic world.
The Bear Case
Foundation models are obviously incredible products but turn out to be terrible businesses.
Training is a cost of revenue, not an R&D cost. Stop training, everyone churns and moves on to your competitor or a distilled Chinese version. The labs are perpetually investing unbelievable sums in building these fast depreciating assets (capex and training).
Every model is bigger and more expensive to run and also gets distilled faster, so these companies have to make huge up-front investments that depreciate extremely quickly. They are competing against one another and with the in-house labs of huge companies that throw off huge amounts of cash. They’ll never be able to charge enough because of competitive pressures. They will just run out of money and places to get it.
So what?
On balance, it’s almost certainly better to bet on the bull case, despite how much upside has already been sucked out / pulled forward at these prices.
If there’s any chance the bull case is right, and you have either a low enough cost of capital or are otherwise short the proliferation of intelligence, you have to get exposure here.
And everyone who works a white-collar job is structurally short. We’re all waking up every day betting that our intellect and creativity will matter. Nobody has any incentive not to be in it and every incentive to be in it, even beyond all the high-falutin’ stuff. (You just look like a fucking moron if you don’t have exposure).
So we’re definitely in a reflexive bubble. If you don’t believe the incentives/structural reflexivity just look around and use your eyes.
Is the bubble worth it?
Will it be like railroads, which ultimately produced a ton of valuable infrastructure (I think yes), or like crypto, which was basically a wash (though of course we wouldn’t have AI without all the chips and stuff from crypto)?
Here, the intelligence and capabilities are a positive externality of the bubble/exuberant build outs. And the more distillation happens, the more the frontier gets eaten by open source, the better for everyone. It does seem clear by now that as long as we don’t completely bungle the second order impacts (on society, politics, and business) that we are all going to be the winners. I mean this literally. Productivity is the main thing. It doesn’t require AGI or LLM maximalism to believe that we’ll look back on today’s standard of living (our material conditions) and standard of toil (the drudgery we accept for ourselves) the same way we look back at a pre-electrified world: impoverished, immiserated, and base.
It’s possible the labs ultimately get wiped out. I don’t know, and I’m not betting on it. But the bubble being worth it for the world and worth it for the equity are not the same question. If information wants to be free, then intelligence wants to be unbounded.
None of this answers the actual question of the business vs the stock and the bonanza won’t settle it one way or the other. A business is not a stock, and a stock is not a product; the price won’t be a verdict.
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It’s time to lock in (sound on).
Great technology != great product != great business.
iPhone was all three. But its core technologies were not "iPhone," it was multi-touch + OS X + a full Mac inside.
LLMs are the multi-touch of this era. Claude Code/Co-Work is much closer to the iPhone. Claude and ChatGPT feel like the Blackberry, directionally correct, but will get wiped out when you do a native LLM product.
LLMs are great technology, and CoWork/Code are great products, but ultimately the token business will have the cloud business model (PaaS), with the R&D costs of, say, 1x000 iPhones. So no, it's not going to be a great business. That's okay. It will still be transformational.