Can open models squeeze the frontier premium?

Just to give people a sense of where this is happening, almost all of these cancellations are Virginia and Indiana, according to some just cursory research here. And there have been zero cancellations due to local opposition here in the great state of Texas where we have over 150 gigawatts of data capacity requests. So if you want to do this, come to Texas, talk to Abbott, talk to Ted Cruz, you just cc them on your tweet and they'll have you to the poker game and they will green light it. Brad, before we move on, want to get your opinion on open source and how powerful it is and how powerful Apple Silicon is getting. I'm not sure how you factor this in at Altimeter into your thinking, but this seems to me to be a massive headwind against the two big bets you have. All of these open source models, we started running them, picking up about 85% of our tokens right now. And every startup I know is saying, we are standing up our local models and we only use the top models, the paid ones, when we have jobs we can't do. So I'm just curious your thoughts on that. And you can add to that the order research project from Carpathi that came out this weekend for people who don't know, we now have a group of tinkerers who are setting up their open clause and now setting up large line of models and now trying to train them with this auto research tool. This seems like a parallel track that could be material. I'm just curious if you're monitoring it at all.

Seek to 1:04:30

Let me finish, guys. I'm making my point. Shut the up for 30 seconds. I believe that this is going to derail their IPOs. I'm taking it from the top. It's going to derail their IPOs. It's going to be headwinds against it because I think that they're going to have massive margin compression. I believe they're spending so much money that I think they're going to get caught in a trap. I think this could be a trap for them. They overspend. They don't have the same profitability and it doesn't pencil out. And startups are the future. The startups are what eventually the enterprise copies. I think you're wrong. Sacks, go ahead.

Seek to 35:03

And the time and the compute. So if an AI agent is replacing a $200 an hour consultant, right? Take that as an example. So three consulting firms, they're competing. They need the smartest consultant. They're charging 200 bucks an hour. The difference between spending 3 bucks on a cheap model or 15 bucks on an expensive model to replace a $200 an hour consultant, it's just irrelevance. That inference cost difference is irrelevance if you're getting something that's bulletproof for 15 bucks. And so I think that's what we're seeing play out. The best evidence for all of this is just revenue growth. Right? We can sit here and speculate all day long as to what this company-

Seek to 37:35

There's two points that I think are really important. Open source makes frontier tokens more valuable. So like, let's just say, let's use an example. Let's say that, you know, Anthropic, OpenAI and Grok, they're at like a 250 IQ or 200 IQ. Well, if you have a 200 or 250 IQ intellect, they can orchestrate these open source 150 IQ intellects. Like that, that's actually more, that makes the 250 IQ intellect more valuable, is because it can farm out tasks. And just in the same way, you know, if we're going to use the Manhattan Project analogy, you know, everybody, you know, talks, you know, talks about Richard Feynman. And you know, who's the guy who ran it all? And you know, there's these 10 really smart physicists. Who's the guy who ran it? You know, who said, I am become death? Who's the guy who ran the Manhattan Project? Come on, Oppenheimer, Oppenheimer. You see at Oppenheimer and even you had 10, you know, effectively Nobel laureates, maybe 30 of them. But they needed like the 2000, you know, merely, you know, top 10,000 in the world physicists. So having more having more affordable intelligence, it actually makes the frontier even more valuable. And I think a very plausible outcome is one which frontier tokens are 65 to 85% of the economic value. Open source tokens are like 80% of the volume. And that's good for everyone. And everyone wins.

Seek to 49:12

But just to be clear, I'm a fan of open source because open source is software freedom. And to Friedberg's point, I would like there to be a, let's call it decentralized outcome with respect to AI. I don't like the idea of AI being controlled by two big tech companies that work closely with the administrative state, you know, hand in glove. So look, we're all kind of in some sense rooting for open source to be an option. And it does provide a bunch of advantages over closed source, right? You get customization, you get control, you can run on your own hardware. You don't have to worry about the data problem, you know, your alpha getting leaked to these companies that might compete with you, all those types of things. And the market is so big that I'm sure we will see some success with open source. It will take a meaningful chunk of the market. But if you're looking at where the revenue is right now, it's these two companies. It might end up being a situation like Apple and Android, where Android got a lot of market share, but Apple is where all the monetization was. Yeah. And I think that Dwarc has raises a really good point that as the demand is 10x-ing year over year, but the compute can only be built out at, say, 3x year over year, because just all the friction of all the things in the real world that get in the way, permitting, regulation, bans on new data centers, all that kind of stuff, I think that the price of the compute is going to go up, and that will provide an advantage to the models that have the most lucrative algorithms, that are able to produce the most intelligence per watt, or the most intelligence per token, or per GPU. And right now, that is those two companies. And in a way, you could say they have a self-reinforcing loop, because if you have all the revenue, and right now, like I said, it's just two companies of all the revenue, you can then plow that money back into the next training run. Right? So that's the flywheel here. And look, I think that it's great that Open Source is providing an alternative. We shouldn't do anything to get in the way of that. I think that these online debates tend to become a little bit histrionic in the sense that everyone has to argue for-

Seek to 56:53

It's also okay for Anthropic to say, you know what, I have this next generation class of model. I'm going to instantiate, I don't know, a life sciences program, a cybersecurity business. That's where they can capture, as Sacks was saying before, over time, trillions and trillions of enterprise value, because I do think they have excellent models and they have excellent engineers and they have momentum. But if you're going to build a business model that tries to ascribe this layer as having a lot of terminal value, I think that that is a mathematical mistake. That's it, you can't do it.

Seek to 36:13