Apple's $200B Gut Punch To Google! The AI War Just Escalated

This week’s AI Rollup is a ringside ticket to the highest-stakes tech brawl on earth. David, Ejaaz and Josh unpack Apple’s threat to yank Google from Safari, the $200 billion market-cap gut-punch that followed, and Microsoft’s tangled profit-share web with OpenAI. Plus why Sam Altman just hired Instacart’s former CEO to turn raw AGI power into everyday apps. They demo the newest frontier models (Gemini 2.5 Flash, China’s trillion-parameter DeepSeek-R2) and explain how cheaper tokens and home-grown Huawei chips could upend the GPU monopoly. Finally, the crew dives into crypto’s AI-agent boom, from VirtuaL launchpad mania to decentralized training networks that promise an open-source Plan B for humanity’s future intelligence. Tune in for the only AI recap you'll need this week.

David: https://x.com/trustlessstate
Josh: https://x.com/Josh_Kale
Ejaaz:https://x.com/cryptopunk7213

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https://x.com/LimitlessFT
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TIMESTAMPS

00:00:00 AI Game Of Thrones
00:02:43 The $200B Blow To Google
https://x.com/KobeissiLetter/status/1920154534342459841
https://www.reuters.com/business/apple-looks-add-ai-search-companys-browser-bloomberg-reports-2025-05-07/

00:12:59 How To Maximize Use Of AI

00:16:33 The Microsoft Empire
https://www.reddit.com/r/singularity/comments/1kkjop0/the_scale_of_microsofts_influence_in_llms_and

00:21:41 Is OpenAI Actually Winning?

00:27:00 OpenAI's New CEO
https://openai.com/index/leadership-expansion-with-fidji-simo/
https://arstechnica.com/ai/2025/05/openai-creates-ceo-of-applications-role-taps-instacarts-fidji-simo/
https://x.com/fleetingbits/status/1920518509907620111

00:33:33 New Frontier Models
https://x.com/officiallogank/status/1912966497213038686?s=46
https://x.com/itspaulai/status/1912947803338453501?s=46
https://x.com/bongrandp/status/1913040244963766432

00:39:56 Model Aggregator

00:47:22 DeepSeek R2 Is... Insane?
https://x.com/deedydas/status/1916160465958539480?s=46

00:54:02 Crypto AI Agents
https://x.com/thedefiedge/status/1920436450048245922
https://x.com/vaderresearch/status/1919717523525632326?s=46
https://x.com/kurorosage/status/1919555819772776888

01:00:21 Decentralized Training
https://x.com/_AlexanderLong/status/1919416512156144053
https://x.com/NousResearch/status/1917299865060794484

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Not financial or tax advice. See our investment disclosures here:
https://www.bankless.com/disclosures⁠

Creators and Guests

Host

David Hoffman

Host

Ejaaz Ahamadeen

Host

Josh Kale

What is Limitless: An AI Podcast?

Exploring the frontiers of Technology and AI

David:
Welcome to the AI Rollup brought to you by the Limitless podcast,

David:
where we stay up to speed with the emerging trends and developments in the AI space.

David:
I'm David Hoffman here with my two co-hosts, Ajaz and Josh. Ajaz, how you doing?

Ejaaz:
I'm good, dude. It's been quite a week, like subtle on the model updates,

Ejaaz:
but we're starting to see some of

Ejaaz:
the ripples of some of these strongholds that big companies have on ai right

Ejaaz:
so we'll get into some of the stories later but effectively we're seeing like microsoft owning

Ejaaz:
pretty much the entire stack of ai and we'll get into like what kind of effects

Ejaaz:
that has but also apple suggesting that they might update their search and remove

Ejaaz:
google from the default caused google to lose

Ejaaz:
almost 200 billion dollars in two hours and i watched this happen in real time so

Ejaaz:
i think for the last two years or so we've seen kind of ai on this rocket ship

Ejaaz:
right you open ai pop up out of nowhere wow these are it's a really cool product chat gpt etc

Ejaaz:
but now we're starting to see okay right the big boys have come to play how

Ejaaz:
much like of a stronghold do they have on the entire stack and what can they

Ejaaz:
do with this can they control our entire lives or is there room for disruption

David:
Yeah, the Silicon Valley just tightens. They're just going at it,

David:
realizing exactly where their choke points are and where other people's soft bars are.

David:
Josh, this is the first AI roll up that's fully on the Limitless podcast. How does that feel, man?

Josh:
Oh, man, it's exciting. I'm stoked. I'm glad for, I'm grateful for all the people

Josh:
listening who followed with us. There's a lot of AI content that is coming that

Josh:
is super, super exciting.

Josh:
And I think this week is no different. I would frame this week for the people

Josh:
listening as like the highest stakes version of Game of Thrones that we're watching unfold.

Josh:
And it is the largest titans in the world that are fighting for the most valuable

Josh:
prize, which is basically this new form of intelligence, this new thing that

Josh:
can control a lot of people. So it's really exciting. This is a crazy week.

David:
I think that's why I think I really like these episodes. Is this just real world

David:
Game of Thrones being played out?

David:
One of the first episodes that we did, Josh, we talked about just like what

David:
does an intelligence explosion mean?

David:
And it's kind of a big take that I think throws people for a loop.

David:
But the conclusion of that episode that we did, which I encourage everyone to

David:
go watch, is that we are making God.

David:
God is the end product of this. And so no wonder, you know, Facebook and Apple

David:
and Google and OpenAI and, you know, four more companies in China

David:
are all like turning into these gigantic tech titans, trading blows with each other.

David:
And I think, Ajaz, that is what you are going to open us up with,

David:
the blows that are being traded this week as everyone tries to jostle to position

David:
to be the first person to create God.

Ejaaz:
Yeah, so let's start off with the first right hook. Apple is coming for Google's throne.

Ejaaz:
And they're supposedly, or rumored, to be launching their own AI search product.

Ejaaz:
Now, let me give you a bit of context here.

Ejaaz:
You know when you open up the Safari browser on your Apple laptop or on your

Ejaaz:
mobile, and you go to the dress bar and you just type in your search query, right?

Ejaaz:
That uses Google by default.

Ejaaz:
And Apple actually pays Google the privilege of $19 billion per year just to

Ejaaz:
have Google automatically default in that search bar, right?

Ejaaz:
So it's a big deal, just let alone to license Google search, right?

Ejaaz:
And so this week, Apple execs Eddie Q

Ejaaz:
says that the AI search via tools like, you know, like chat GBT or Claude of

Ejaaz:
perplexity, things that, you know, the three of us have used on this show pretty

Ejaaz:
frequently is way better than Google.

Ejaaz:
And I don't know about you guys, but I've kind of like started transferring

Ejaaz:
my habit to that as well. Like I don't use Google to search anything anymore.

Ejaaz:
Even when you search something on Google, it's funny, it shows you a little

Ejaaz:
AI summary at the top of the page as well. So it's using AI itself.

Ejaaz:
And they're saying that they're exploring revamping search, which means that

Ejaaz:
they might replace Google.

Ejaaz:
So as you can imagine, this had a pretty gnarly effect on Google's market cap.

Ejaaz:
As soon as this announcement went live, it knocked $200 billion,

Ejaaz:
which equated to about 10% of Google's entire market cap.

Josh:
Red candle, like

Ejaaz:
Super aggressive over two hours. And I watched this happen.

Ejaaz:
I saw a tweet and it said like, Google's lost $100 billion in market cap.

Ejaaz:
And I was like, nah, that's not true.

Ejaaz:
And then I just saw it like subsequently just go lower and lower and lower.

Ejaaz:
And I think for context here, Apple has the biggest distribution for Google

Ejaaz:
searches. They have, I think, 2.35 billion active devices and all of them have

Ejaaz:
Safari pre-installed and has Google as the default browser there, right?

Ejaaz:
So let's hypothesize for a second and say, if they decided to switch,

Ejaaz:
then Google loses billions of search queries per day.

Ejaaz:
I think another way to look at this is like Safari accounts for,

Ejaaz:
I think, about 18% of all web browsing activity. So that's page views.

Ejaaz:
And in the USA, it's 30%, right?

Ejaaz:
So if this switches, Google would lose nearly around a third of their browsing activity, right?

Ejaaz:
And the cost to Google is larger, actually. Like putting that together,

Ejaaz:
that is, okay, what? Hundreds of billions of searches per year and around $50

Ejaaz:
billion of like gross ad sales.

Ejaaz:
So Apple can basically do this in a single software upgrade, by the way. guys.

Ejaaz:
And don't forget like ChatGPT itself is re-holding their search function.

Ejaaz:
We mentioned it last week. So I just think this is completely nuts and it just

Ejaaz:
shows that the distribution power of Apple at the device level,

Ejaaz:
and Josh, you spoke about this last week as well, isn't something to be joked

Ejaaz:
around with, right? Maybe the moat is at the device level for now. What do you guys think?

David:
I think we've all been watching Apple struggle with what to do about AI.

David:
They had this like whole AI announcement over a year ago and we've all been waiting for it.

David:
Now people are realizing that their AI execution abilities has not been great.

David:
So I'm a little bit confused because this would imply that they are more ready

David:
to make moves in AI than I understand them to be.

David:
Josh is a huge AI Apple fanboy and hardware fanboy. So I bet he's got some pretty

David:
interesting takes here.

Josh:
I do have some takes. I've been, well, very disappointed with Apple's ability

Josh:
to execute on AI, which leads me partially to believe that the market really

Josh:
overreacted to this news.

Josh:
$200 billion getting wiped out in two hours is kind of crazy,

Josh:
particularly because Apple hasn't yet rolled out any AI. And this is not a new

Josh:
problem for Google. Where we've been talking about this for months,

Josh:
there's a trend of the 10 blue links dying.

Josh:
Google search is clearly on the way out. It is a slow bleeding thing.

Josh:
Sure, this adds some accelerant, but I don't think this is as detrimental to

Josh:
Google's business as we think.

Josh:
So Google and Apple kind of have two polar opposite problems.

Josh:
Apple has amazing products, but they can't actually create the software to use it.

Josh:
And Google has incredible software. The Gemini, the new Gemini models are about

Josh:
as good as they can get, but they're really bad at creating consumer products

Josh:
and experiences for people to use them.

Josh:
So what they're doing is they're kind of harming each other.

Josh:
Like Google has the search, Apple has the users, and Apple's severing that link,

Josh:
which hurts Google's revenue. I think 56% of Google's revenue is search.

Josh:
That percent is going to continue to drop anyway, regardless of whether Apple

Josh:
cuts them or not, because AI is just getting so good.

Josh:
I think one of the underrated aspects of this that people aren't discussing

Josh:
is the cost per query of search versus AI.

Josh:
So the cost to generate a token is an order of magnitude higher than the cost

Josh:
to generate a search query. So if

Josh:
AI actually can't support the volume. We don't have the GPUs.

David:
Sorry, the cost to generate a single token is a order of magnitude more than

David:
it is a single search. Yes, it is.

David:
And so for an average AI query, you need hundreds, thousands of tokens.

Josh:
Yeah, you need a lot more data, a lot more bandwidth, a lot more compute power

Josh:
because Google is really just

David:
Nearly a naive 10X. It is incredibly more expensive to do AI search than it is to do a Google search.

Josh:
Yes, perhaps not token, perhaps not order of magnitude per token,

Josh:
but per search at least you can think of it each search is at least 10 times

Josh:
more expensive than a or each ai search is more expensive than a single search query because google's

Josh:
query is really just an index and it's just going through an index and pointing

Josh:
to things uh this is actually generating net new content so what i hope google

Josh:
would do google has this unique opportunity where they have i think 270 million paying subscribers

Josh:
they need to figure out how to get them onboarded onto ai they need to create

Josh:
a product they need to create a service they need to to fight back against this

Josh:
trend of the 10 blue links dying.

Josh:
And we're kind of seeing that, like you just mentioned, where when you do make

Josh:
a search query, it shows you this little Gemini prompt at the top where it kind

Josh:
of summarizes their results.

Josh:
But it's not there yet. And I'm really hoping they could figure out a way to

Josh:
monetize this like huge consumer base that they have to save themselves. But I guess we'll see.

Ejaaz:
Why do we think they suck so much? It's kind of been the recurring story of

Ejaaz:
Google, no? For like the last couple of decades, they tried to do the whole

Ejaaz:
like social network. What was it called again?

Ejaaz:
I forgot. Oh, but Circles, that sucked and died.

Ejaaz:
They're trying to do the whole like smart device situation. In fact,

Ejaaz:
actually today they announced that they are rolling out Gemini to all their

Ejaaz:
smart devices, right, their smart TVs, their watches and stuff.

Ejaaz:
And I was thinking about this and I was like, wow, that's pretty cool.

Ejaaz:
They're trying to like get it on different devices, collect different kinds

Ejaaz:
of data. And then I was like, who uses this stuff aside from like the Android

Ejaaz:
cell phones? No one, right? So maybe it's a skill issue.

Josh:
It's certainly a skill issue. And we saw this with the entire AI trend since

Josh:
inception. Like Google invented the transformer. Their researchers created the

Josh:
transformer white paper.

Josh:
That's why we have all these models now. And they had it for many,

Josh:
many years prior to OpenAI coming around and launching the ChatGPT API and then ChatGPT the product.

Josh:
They just can't seem to figure out how to create good products with their technology.

Josh:
It's like a bunch of really bright, intelligent nerds who can do amazing research

Josh:
and form these amazing creations, but they don't actually know how to sells

Josh:
people and that's that's been a serious problem

David:
Maybe we've branded this week marketed this week as like the old tech giants

David:
titans just going blow for blow but it's also there's some notion of like senality

David:
in these things like apple google they're just,

David:
old companies and so they're like old people trading blows and you're kind of

David:
just cringing as you watch it because,

David:
they are hurting each other, but they're not creating any value,

David:
as much value as they are harm, if that is indeed what's going on.

David:
And then by contrast, you have the much more sharp, newer startups,

David:
the Anthropics, the OpenAIs, and they're untested.

David:
And OpenAI doing hardware is a completely new field, but there's something optimistic

David:
about that, I think, than let's just get some new blood into this game and see what happens.

Ejaaz:
So you think that's going to leave more opportunity for smaller startups to

Ejaaz:
take the throne, potentially, David?

David:
Yeah, I mean, if Apple can't make hardware. Yeah, exactly.

David:
Yeah. If Apple can't make hardware that has AI integrated and if Google can't

David:
figure out how to integrate a software into hardware, well, maybe it just takes

David:
a net new generation of companies to solve that problem.

Ejaaz:
Or maybe it takes a net new medium or device or experience to onboard those

Ejaaz:
people, potentially, right?

Ejaaz:
Right. Like I've again, I keep saying this on episodes, but I have never spoken

Ejaaz:
into my handheld device unless on the rare occasion that I call someone and it's usually my mom.

Ejaaz:
And now I'm doing it like every day. Right. So I feel like we're getting closer

Ejaaz:
and closer to this weird little metaversal scenario where everyone is just kind of

Ejaaz:
got their digital avatars real and talking to each other through those digital

Ejaaz:
avatars potentially. pretty crazy.

David:
We've talked about on the show about how too many of our friends outside of

David:
the tech circles are just not using ChatGPT. They're just not using AI.

David:
And I went to one and I just told them, hey, download ChatGPT,

David:
open up the voice feature in it and start talking to it.

David:
And then their first question was like, what do I talk about?

David:
I'm like, literally the first question that comes to mind, just go, just go for it.

David:
And then call me back after you do that. And they call me back like,

David:
20 minutes later it's like i just talked to chat tpt for 15 minutes we just

David:
talked about whatever i was able to ask it questions and and talk about things

David:
that i was not able to talk to my friends about and i'm like.

Ejaaz:
Yes that's what

David:
So and i think that that is a homework assignment that i want to give listeners

David:
if you have not tried the voice,

David:
voice mode in chat tpt open up chat tpt after you're done listening to this

David:
episode and giving us a five-star review and subscribing on youtube open up

David:
voice mode and just start talking to it and see what happens and yeah just tell

David:
us in the comments about what that experience is like.

Ejaaz:
And i'm kind of curious to hear what you folks are talking to chat gpt about

Ejaaz:
i i hear a lot of my friends talk to them yeah

Ejaaz:
it's like it's like relationship advice it's like therapy for like issues growing

Ejaaz:
up as a kid as a kid and then a lot of people start to use it for like work

Ejaaz:
stuff but not like hey can you design this document for me it's like

Ejaaz:
i got into this situation with paul and i think he's encroaching on my territory

Ejaaz:
at work and i wonder like how can i like politely like put to him that he should

Ejaaz:
just basically fuck off and it's it's just he's like deeply personal and

Ejaaz:
i think very contextual to the individual and their own experience so it's kind of like outside of

Ejaaz:
Yeah, that's an interesting thing, actually. It's outside of the social etiquette,

Ejaaz:
you know? Do you know what I mean?

Ejaaz:
Like posting a picture of your ice cream cone at this new kind of ice cream

Ejaaz:
shop is like cool and accepted, right?

Ejaaz:
But talking to, or like speaking to this like weird social genie in a bottle

Ejaaz:
about like your personal afflictions with Paul is kind of weird. Yeah.

David:
It's useful for opening up about subjects that are hard to open up about.

David:
I think especially for dudes who it's easier to say, harder things to a robot

David:
than it is to another human,

David:
and so it kind of gives you that like safe space to be able to like talk about

David:
hard things that are on the cusp of things that you want to talk about but you don't have,

David:
the optionality you don't have the surface area you don't have the person to do it with.

Ejaaz:
So it's solving the the male loneliness epidemic

David:
Yes yes right yeah all of our all of our best friends yeah yeah yeah and this

David:
is how we give all of our data to it.

Josh:
Seriously that's how it's gonna happen i was listening to an interesting conversation

Josh:
that sam altman had actually it was at a sequoia session in sf this week and

Josh:
he was talking about how people use ai in different age brackets

Josh:
so he said the older people generally use it as an optimized search engine if

Josh:
they've even discovered it and then the like

Josh:
mid 20s to like late 30s group they use it kind of as

Josh:
a leverage tool to maybe help them with work and maybe solve some questions

Josh:
and then the younger people who are in middle school high school who are who

Josh:
are much younger they use it as an entire life operating system and they kind

Josh:
of load all their thoughts into it they load all of their homework into it

Josh:
they load everything into it and they consult it before before doing anything

Josh:
and it is like the single point of truth and the single reference that they

Josh:
can consult for for any sort of decision they make so i find that

Josh:
train interesting and going back to the point david that you made earlier that

Josh:
is there a new company that's that's going to dethrone apple and google and

Josh:
and open ai is going for it he very clearly said that they're going for the

Josh:
the ai subscription os plan for your entire life is is how can we build that

Josh:
that ecosystem for you have to

David:
Subscribe to your own life.

Ejaaz:
Uh that's literally the black mirror episode episode one of the new season you

Ejaaz:
know josh i as you were saying that, I was thinking like, why does that sound familiar?

Ejaaz:
And then I realized my sister, who is Gen Z, does exactly that.

Ejaaz:
So we briefly shared a ChatGBT account.

Ejaaz:
Lord knows how that's influenced my algorithm, actually. But she would literally

Ejaaz:
dominate 75% of conversations per week.

Ejaaz:
And it's just questions of like, random, like little social conversations that

Ejaaz:
she didn't know the answer to or things that she could have just,

Ejaaz:
I don't know, figured out herself.

Ejaaz:
And she was just offloading every single bit and I was like what is OpenAI going

Ejaaz:
to do with this data we should we should probably get some kind of like Gen

Ejaaz:
Z roundtable on this show at some point guys and like

Ejaaz:
Just kind of like interview them and see what they're using.

David:
There's this chart. We're going to shift subjects here. There's this chart that

David:
I saw on my timeline this week that I'm hoping one of you guys can explain to

David:
me. It's Microsoft's relationship with other companies in the space,

David:
OpenAI, Windsurf, Cursor, VS Code.

David:
And there's like lines of like ownership and partnerships between Microsoft

David:
and all of these things. And I kind of don't get it.

David:
I kind of understand that like, okay, Microsoft has their fingers in all of

David:
these different things and these weird partnerships. and deals and like org structures.

David:
But like, so I'm sharing it on the screen. It's like Microsoft has a 49% profit

David:
share with OpenAI, which owns Windsurf, which is forked from VS Code.

David:
And OpenAI is also an investor in Cursor, which is also forked from VS Code.

David:
But Microsoft owns VS Code.

David:
Can someone just like tell me what all of this is?

Ejaaz:
So Microsoft, if you guys recall about, I think about a year ago now,

Ejaaz:
guys, do you remember when there was that big saga with Sam Altman as CEO being

Ejaaz:
kicked out? by his board.

Ejaaz:
Do you guys remember this? When that happened, Satya Nadella,

Ejaaz:
CEO of Microsoft, kind of like rubbed his hands together and thought,

Ejaaz:
you know what, now is an opportune time to show support to OpenAI.

Ejaaz:
And we can do this in the sense of financial investment. So I think they invested

Ejaaz:
somewhere upwards of like $20 billion.

Ejaaz:
I don't know whether that was

Ejaaz:
set over a couple of years, but or just that one smack bang investment.

Ejaaz:
And they would invest a further $19 billion in providing all the GPU and CPU

Ejaaz:
infrastructure for OpenAI to run their inference and training.

Ejaaz:
So for OpenAI, that was a pretty good deal, right? It's like,

Ejaaz:
what, you're going to pay for all our compute hardware and help us train our

Ejaaz:
models and we don't, like, hang on, wait, what do you guys get in return?

Ejaaz:
And Microsoft said, well, we would love a bunch of equity and be like the majority

Ejaaz:
shareholder. And Simon Altman basically said, fuck off.

Ejaaz:
But what we can do is we can give you a 49% profit share of all services that

Ejaaz:
we charge for through OpenAI. And...

Ejaaz:
Any products we potentially acquire and integrate into OpenAI.

Ejaaz:
So if we look at the first top half of this diagram, Microsoft gets a 49% profit share of OpenAI.

Ejaaz:
And as we know, last week, OpenAI announced that they're acquiring Winsurf.

Ejaaz:
Now, a little bit of a kind of brain refresher for everyone.

Ejaaz:
Winsurf is the same as a company like Cursor, which were featured on the show before.

David:
It's the second place to Cursor.

Ejaaz:
Yeah, second place to Cursor. And the best way to think about it is these two

Ejaaz:
companies make it really easy to code up different kind of software apps and

Ejaaz:
these could these apps could be games these apps could be apps that appear on

Ejaaz:
your ios store to help you with

Ejaaz:
therapy personal training whatever you can dream up you can basically type in

Ejaaz:
a prompt like you do in chat gpt and it kind of codes up an app for you and

Ejaaz:
these companies like windsurf and cursor

Ejaaz:
Are now worth north of several single-digit billions because of this superpower.

Ejaaz:
And within this product itself, it's known as an integrated development environment.

Ejaaz:
It's basically carefully packaged software tools, code editors, and stuff like that.

Ejaaz:
So it abstracts away all the complexities of being a software engineer,

Ejaaz:
right? So people like you, me, and Josh can essentially code up stuff,

Ejaaz:
even though we haven't got any formal training or expertise in software engineering, right?

Ejaaz:
Now, there's a little circle on the bottom left, which says VS Code.

Ejaaz:
And people are like, I haven't really heard of VS Code. What is that?

Ejaaz:
It was the forefather to Cursor and Winsurf. Think of it as literally the thing

Ejaaz:
that gave birth to Winsurf and Cursor. In fact, there were rumors that went

Ejaaz:
around back in the day that Cursor had basically just forked VS Code's software.

Ejaaz:
So an interesting fact here, in 2024, a survey was done to see you know,

Ejaaz:
how much of the integrated development environment does, you know,

Ejaaz:
these different companies command?

Ejaaz:
VS Code commanded 74% of the entire market.

Ejaaz:
Now, I'm guessing that market share is down a bit, but that's basically the layout here.

Ejaaz:
So Microsoft has its hands on VS Code, and by proxy of OpenAI,

Ejaaz:
Windsurf and Cursor, because OpenAI acquired Windsurf, and OpenAI also invested

Ejaaz:
a hell of a lot of money into Cursor.

Ejaaz:
So I would say that some people have pitched this as like Microsoft owns the

Ejaaz:
entire AI stack and they kind of do, and I'll get into that in a second,

Ejaaz:
but it's mainly the coding stack that they have a stronghold on, on AI. Yeah.

Ejaaz:
Josh, I know you have a ton to say on this, so I want to throw it to you.

Josh:
Yeah, it's funny. It's like Microsoft funds OpenAI, OpenAI funds Cursor,

Josh:
and now buys the cursor rival Windsurf.

Josh:
And all this is on top of Microsoft's own open source code editor that they've forked.

Josh:
And now Microsoft's same dollar is getting taxed three times in the same ecosystem

Josh:
because they're competing against themselves with Copilot, which is Microsoft's own AI offering.

Josh:
So it's this very messy, conflicting thing in which Microsoft found themselves in.

Josh:
I'm not sure how happy they are about this because now Sam is trying to reduce

Josh:
that 49% profit share so that they can go public is the rumor this year.

Josh:
So it's kind of, it's a messy situation.

David:
Is the takeaway here that value is accruing to OpenAI more than it is to Microsoft

David:
and it's on the backs of Microsoft's work?

Josh:
Yeah. So there's an interesting dynamic that's part of the deal that we probably

Josh:
should mention where the nature of the deal is I think it's 75% of OpenAI's

Josh:
profits go to Microsoft until it recoups $13 billion, the total investment.

Josh:
Then after it's recouped its money, it reduces down to the 49%,

Josh:
which we're at, which goes until OpenAI reaches $92 billion of profit.

Josh:
And then after that, they're free and clear. So the special profit ends.

Josh:
So there is a cap on this upside.

Josh:
If Microsoft does hit that cap, that's still an amazing investment.

Josh:
They turn, what was it, $19 billion into $178 billion. So they've done really,

Josh:
really well. I think Microsoft is in a good spot.

Josh:
OpenAI, though, has this open-ended version of this profit margin.

Josh:
And if you ask Sam Altman, he'll probably say, oh, yeah, it's just a decade

Josh:
until we reach a trillion dollars of profit or something outrageous like that.

Josh:
So in the long term, it seems as if OpenAI stands to win.

Josh:
In the short term, Microsoft is doing well, but they also do have this little

Josh:
leech on them where now their largest investment is kind of leeching away users

Josh:
from Copilot, which is Microsoft's own offering.

Josh:
And it does create this weird dynamic where I'm not sure they're stoked about

Josh:
it. And now Sam has a lot of leverage because now he's trying to get that 49%

Josh:
profit share down even lower so he can make it more approachable to public markets

Josh:
when they try to go public.

David:
I I'm not privy to like the internal operations and like balance sheets and

David:
all this stuff but the idea of Microsoft you know I don't know 10xing their

David:
cash on billions of dollars,

David:
doesn't seem to feel so great when at the end of the day they don't own anything

David:
they get more money but they don't own any value they don't own,

David:
their game here the game of thrones is all these companies are trying to make

David:
God and there's no amount of money that is worth trading.

David:
The not having the opportunity of like owning a slice of God.

David:
And so I kind of see Microsoft as like the loser in this situation,

David:
no matter how many times they can multiply their cash.

Ejaaz:
So let's actually dig into that, David. I kind of went down a little bit of

Ejaaz:
a rabbit hole when one of you posted this in our chat.

Ejaaz:
And I was like, okay, well, hang on a second. What does Microsoft Stronghold

Ejaaz:
actually look like here, right?

Ejaaz:
So let's break it down. And then I have a comment on like where I think the moat is, right?

Ejaaz:
So in terms of compute, Microsoft Azure, which is their main cloud service,

Ejaaz:
right, competes with like AWS and Google Cloud, is OpenAI's exclusive cloud

Ejaaz:
for frontier model training and inference.

Ejaaz:
So Microsoft has dropped $13 billion on custom GPU clusters alone,

Ejaaz:
just to fund this, right? Just for the privilege of training OpenAI's frontier models, right?

Ejaaz:
So as long as Azure remains like this kind of, I don't know,

Ejaaz:
training substrate for open AI models, switching costs will keep Microsoft at

Ejaaz:
the center for now. But as you said, there's a heavy reliance on open AI there.

Ejaaz:
And I think this agreement is in until like 2030 or something, right?

Ejaaz:
They don't have overall board control, right? But Microsoft's hand is basically

Ejaaz:
firmly on Sam's shoulder saying like, hey, let's get first look into these other things, right?

Ejaaz:
The other part, which I thought was interesting is, Josh, you mentioned that

Ejaaz:
it's competing directly with Copilot, right? Microsoft Copilot.

Ejaaz:
But Copilot is based off of OpenAI's 4.0 and 4.mini models, right?

Ejaaz:
It's so incestual. Yeah, it's so incestual.

Ejaaz:
And Microsoft, I read this and I want to get kind of verification on whether

Ejaaz:
this is true, gets access to the 4.0 weights specifically.

Josh:
Yes, that is true.

Ejaaz:
So this is an important thing. So the more I think about it,

Ejaaz:
I'm like, huh, I think the moat is actually,

Ejaaz:
it only remains for Microsoft in this stronghold position if they continue to

Ejaaz:
get access to OpenAI's model weights, which I just don't see happening for the

Ejaaz:
longevity. Why would OpenAI do that?

Ejaaz:
And secondly, they're relying on developer stickiness through integrated environments

Ejaaz:
that use VS Code or whatever that might be.

Ejaaz:
Again, it depends on whether a good enough app or a software engineering community

Ejaaz:
decides to use Microsoft's VS Code.

Ejaaz:
And again, I don't see that as being too sticky to start off with, right?

Ejaaz:
And then, so when you look at that, and then on the coding side,

Ejaaz:
we can't forget that Microsoft owns GitHub as well, right? That's like 100 million

Ejaaz:
users and VS Code, which has accounted for about 74% of the IDE market share,

Ejaaz:
which we mentioned, right?

Ejaaz:
And then we have some of the equity spillover. So I'm not entirely convinced,

Ejaaz:
as you said, David, that Microsoft...

Ejaaz:
Their hold on this is going to remain quite permanent when OpenAI has so much power here.

Ejaaz:
If they were to switch to like some other provider in 2030, Microsoft's stronghold goes.

David:
I think this saga will continue. But ultimately, OpenAI has the IP.

David:
They own the model. They have the talent.

David:
And I think Microsoft is like scrambling to like work its way up the long tail of crumbs.

David:
And maybe it can like negotiate into like bigger and bigger crumbs.

David:
But that's kind of how I see this is like ultimately like OpenAI is the big

David:
winner here and there's no way for Microsoft to really change that.

David:
That's my takeaway from this section.

Ejaaz:
Yeah, I agree with you. I think the young blood has it here. Yeah.

David:
Yeah, let's get into the drama inside of OpenAI that happened this week because

David:
OpenAI has a new CEO that's not Sam Altman. So that's kind of crazy.

David:
I think we all understood like OpenAI is Sam Altman, but there's this new blog

David:
post and new news. OpenAI expands leadership with, I'm going to butcher this

David:
name, I'm so sorry, Fidigi Simo.

David:
And this is a message from Sam saying, hi everyone, I have some exciting news to share.

David:
I'm hoping to do this in a few weeks, but a leak accelerated our timeline and

David:
they go on to announce the new ceo,

David:
josh what's your takeaway with this is it real is this a real new ceo because

David:
the idea of cm altman not being at the helm of the ship is kind of crazy to me.

Ejaaz:
You guys ever watch the series the boys from amazon

David:
Prime yes yes never seen okay the superhero movie.

Ejaaz:
Yeah the concept josh seeing as you haven't seen it is it's all about superheroes,

Ejaaz:
but the dark side of superheroes.

Ejaaz:
So they're all gamed by political investments and they're like lobbied and a bunch of these things.

Ejaaz:
And it just shows the evil side of superheroes that it's not all fun and glory.

Ejaaz:
And there's this big corporation that manages these heroes, but of course,

Ejaaz:
managing a super powerful talent agency for superheroes.

Ejaaz:
But of course, when your superhero can laser beam you to death,

Ejaaz:
kind of who's in charge is the question there so they appoint the ceo and the

Ejaaz:
running joke in the entire series is she has absolutely zero power she runs

Ejaaz:
and gets them coffee and all these different kinds of things now i am not

Ejaaz:
suggesting that this is the case but the reason why i bring up that example

Ejaaz:
is she has been appointed as ceo

Ejaaz:
of applications at OpenAI. And it was branded across headlines that she was

Ejaaz:
CEO of OpenAI. That's just not the case.

Ejaaz:
She has some kind of equity ownership, but Sam Altman is very much still the

Ejaaz:
person, the man in charge.

Ejaaz:
And I think he's using this effort, at least he claims in the blog,

Ejaaz:
that he is going to now focus solely on research towards AGI

Ejaaz:
and towards aligning AI models to be to the benefit or betterment of humanity

Ejaaz:
and so we can focus his attention 100 on that whilst this new lady fiji simo

Ejaaz:
Can focus on building groundbreaking applications for the consumer end users

Ejaaz:
of open ai and i found this really interesting because well i had a few reactions

Ejaaz:
to this and i'm curious what you guys thought

Ejaaz:
Number one was like, Sam's been talking about AGI, AGI as the most important

Ejaaz:
mission of OpenAI since its literal birth, right?

Ejaaz:
And now suddenly he's making this big move to have someone who has a huge amount

Ejaaz:
of experience in building consumer applications to focus a large part of the

Ejaaz:
company's effort and resources and money on this.

Ejaaz:
So it made me think, are we actually as close to AGI as we thought?

Ejaaz:
Or maybe there are some other nuances and obstacles that we need to overcome.

Ejaaz:
Maybe it's at the technical hardware level, or maybe it's just the fact that

Ejaaz:
these things don't understand contextual awareness enough. And so they can't

Ejaaz:
be as personalized as we want. And they're only going to be used for niche cases. I don't know.

Ejaaz:
But on the optimistic side, I thought I looked into this Fiji Simo person,

Ejaaz:
and dude, her career and experience is absolutely stacked.

Ejaaz:
So she was just head of product or CEO at Instacart, which as you know,

Ejaaz:
is like one of the the top consumer applications in the western side of the hemisphere at least

Ejaaz:
and before that she was head of facebook whatever that title means but it sounds

Ejaaz:
again like a ceo of applications head of facebook at meta for 10 years which

Ejaaz:
is absolutely insane so she obviously has

Ejaaz:
a crazy amount of experience building consumer applications and i'm actually

Ejaaz:
really excited to see whether she builds out this amazing like chat gpt app

Ejaaz:
store i don't know what's your take josh

Josh:
Yeah, this is exciting for me because it displays like a clear divide in open

Josh:
AI. There are now two races that they're running. It's the consumer application

Josh:
race where we need to get these users. We need to lock them in.

Josh:
We need to create the best experience possible.

Josh:
And then it's the other half, which is we need to create AGI.

Josh:
And we need to create these systems that power this operating system that we want to build.

Josh:
So for me, this reminds me similar to X when Elon bought it and Linda Iaccarino became CEO.

Josh:
She's the one in charge of designing the day-to-day experience.

Josh:
But Sam is very much still the one who is calling the shots,

Josh:
who is providing the guidance to where the company is going.

Josh:
But to me, this signals to me like they're getting very serious about winning

Josh:
this race by having Sam fully committed to the AGI race. I think there is increasing competition.

Josh:
They now have a $500 billion investment with Project Stargate.

Josh:
Elon is trying to figure out how to get a terawatt of power to a data center.

Josh:
This is a huge scale battle that they're fighting, and the stakes are very high.

Josh:
So I think Sam focusing on AGI is good.

Josh:
This new CEO coming in, focusing on applications is good. I think she'll be

Josh:
responsible for building that.

Josh:
Life ecosystem that we talked about in the last segment sam is focused on building

Josh:
this super form of intelligence and i think that feels like a winning strategy

David:
Yeah so the way i'm hearing this is that sam is focused on building out the

David:
raw intelligence capacity of the open ai models like this this crude oil this

David:
oil this refined energy and then this new,

David:
ceo of applications is in charge of what that looks like, basically distribution,

David:
but like turning that energy and putting it into applications that fit in all

David:
different corners of our life.

David:
For whatever industry you're in, whether you're like, you know,

David:
pick an industry, any industry, some sort of application is going to be built

David:
that connects the AGI that Sam is trying to engineer to the end user,

David:
end product in a multitude of different ways that needs to come with like,

David:
you know, unique interfaces, unique experiences that fit into the different corners of the world.

David:
So that's kind of how I see, that's how that's how i summarize what you guys

David:
just kind of like put together there.

Josh:
Yeah sam's building the engine and fiji is building the the sports car on top

Josh:
of it or the yes the like really luxurious town that is powered by this single

Josh:
engine right it's kind of a good way to think about

David:
It yeah i can't looking at this photo she's very goth-like in this one particular photo.

Ejaaz:
I knew you were gonna say

David:
Something i can't not comment on how goth she looks and then when you go and

David:
you actually just search her on google she's just a very normal.

Josh:
Looking yeah welcome to the media

David:
This one particular photo just looks incredibly goth.

Ejaaz:
Yeah, why did they pick that? My God.

David:
I don't know, dude. All,

David:
right. All right. Let's get into the new models section.

David:
So every single week, almost every single week, there's some new models to talk

David:
about. This week is no exception. Gemini 2.5 Flash and also some new models

David:
out of China as well. Jaws 2.5 Flash. What do we need to know about it?

Ejaaz:
Okay. So firstly, I'm cheating a little bit here this week, guys,

Ejaaz:
because this model was actually announced, I think, three-ish weeks ago,

Ejaaz:
But we haven't updated Frontier models on this show for a few episodes.

Ejaaz:
And there are actually a few more recent ones.

Ejaaz:
Yeah. New to us. New to us. Okay. So Gemini 2.5 Flash.

Ejaaz:
It's funny. Earlier, we were talking about how Google kind of struggles to innovate,

Ejaaz:
at least at the consumer app level, but also at some other levels,

Ejaaz:
aside from just kind of like boring search queries or whatever,

Ejaaz:
you know, that important function that we rely on a lot.

Ejaaz:
Gemini 2.5 Flash is actually one of the leading models right now,

Ejaaz:
prior to O3 popping out. In fact, it is better than O3 in many ways,

Ejaaz:
but we just don't talk about that because OpenAI is still the darling child right now, right?

Ejaaz:
But it just doesn't get the love and attention that it needs.

Ejaaz:
And part of me thinks, you know, the reason behind this is because you can only

Ejaaz:
access it via API right now and not through their like main consumer interface

Ejaaz:
for Gemini. So their chat GPT interface equivalent.

Ejaaz:
But it is much better at reasoning and it shows huge gains over its previous

Ejaaz:
model, which is 2.0 Flash. So, you know, you can basically turn or toggle off

Ejaaz:
thinking or reasoning depending on what kind of thing that you're looking for.

Ejaaz:
And if you pull up this table, I think you guys just pulled up the comparison

Ejaaz:
of Gemini 2.5 Flash to like OpenAI 04 Mini, Croc 3 and all those kinds of things. It's

Ejaaz:
Comparatively cheaper than the majority of the models. I think only Gemini 2.0

Ejaaz:
Flash was cheaper than it. But of course, when you get a step change function

Ejaaz:
in actual ability for the model, it's way better.

Ejaaz:
And it's way better if you look across all metrics when it comes to things like

Ejaaz:
reasoning, science, coding, maths, etc.

Ejaaz:
I'm just wondering why it isn't talked about as much or maybe it hasn't been used as much.

Ejaaz:
My guess is it's because OpenAI is still so sticky and has all the kind of attention

Ejaaz:
when it comes to, hey, I want to try out this AI thing.

Ejaaz:
Like David, when you suggest to your friends, I'm guessing you don't go to them

Ejaaz:
and say, hey, get Claude or God forbid, Gemini. Yeah, no, you don't do that,

Ejaaz:
right? You're like, use ChatGPT.

Ejaaz:
So again, it just demonstrates no matter how good your model is right now,

Ejaaz:
at least, the stickiness with OpenAI is still there. Josh, I wonder if you have

Ejaaz:
any thoughts on Gemini 2.5 Flash before we move on.

Josh:
Yeah, it gets back to the thing we were talking about earlier,

Josh:
where you just have to create good products for these things.

Josh:
To have a new Frontier model is, it's impressive, but it's no longer like,

Josh:
oh my gosh, I must try this because

Josh:
my models that are on my like chat GPT desktop app are really great.

Josh:
And I'm pretty happy with that. So I think the reason why people aren't excited

Josh:
is because like I'm personally not going to go and engage with the API to test this thing.

Josh:
So therefore, it's not really super relevant to me. And I'm excited for the

Josh:
downstream effects if people want to create cool products on top of it.

Josh:
But as it stands now, I think myself and many other people are limited in their

Josh:
excitement because there's not many use cases for this for me.

Josh:
I think I'm most interested now in how this impacts my life or how this impacts

Josh:
the services that I use to improve my life.

Josh:
And if it's just an API call and there's not a lot of developers building interesting

Josh:
things that I use on a daily basis, then I'm like, oh, all right,

Josh:
well, O3 is still pretty great. I'll just stick with that.

David:
Right now, when OpenAI releases new models, like the new one is the O3 model, right?

David:
And that is going around in my life with my friends, talking to you guys on my Twitter sphere.

David:
It looks like and feels like back in the old days when Apple would release a new iOS update.

David:
And iOS would like make a material upgrade and all of a sudden our lives got

David:
enhanced. And it feels like that, like a new ChatGPT model launch is like this.

David:
Everyone's life is getting enhanced. We're all playing with it.

David:
It can do new things. It's very exciting.

David:
No other model release feels like that it doesn't have any impact on me because

David:
i don't use that app but it also does kind of beg the question why why doesn't

David:
this product exist and by this i mean a,

David:
a app like chat gpt or a front end like chat gpt that is a model aggregator,

David:
that also does the work of encode like remembering me and so right now i'm very

David:
excited that my chat gpt remembers all of my conversations and I'm excited to

David:
grow a relationship with ChatGPT to the point where like

David:
I start to work and go back and forth with ChatGPT on how best I want it to talk to me.

David:
I am like nurturing this relationship that I have with ChatGPT so that when

David:
it spits an output, it's spitting it out in a form factor that I like.

David:
Why is there not a product that aggregates all of the models?

David:
Because if you go to ChatGPT and you like do the little dropdown menu,

David:
there's like 4.0, 0.3, 2.5, 2.5 high mini, like blah, blah, blah.

David:
And I don't know what any of those means. And I don't care.

David:
And I just want to have this model aggregator do the work of choosing the best

David:
model intelligently while also doing the work of remembering me and my preferences.

David:
And I don't understand why that product doesn't exist yet.

Josh:
I'm not sure I have a great answer for that. I know very early on in the AI

Josh:
days, there was a company called Poe, which probably still exists.

Josh:
And they were an aggregator in the sense that you You can select your own model.

Josh:
It didn't have memory it didn't have the smart selection it just required the

Josh:
manual oversight to tap it i think we're kind of seeing this happening on the

Josh:
enterprise level with windsurf which we mentioned last week where windsurf is

Josh:
kind of serving as this orchestration layer

Josh:
they call it where as you submit a problem it will choose the optimal solution

Josh:
for that problem based on the model but in the consumer world i would imagine

Josh:
there's probably some sort of technical or privacy restriction

Josh:
on the model level preventing that from happening because it If you think about

Josh:
Apple and their App Store, which is probably the closest connection to this,

Josh:
is they won't allow any third-party applications on an iPhone.

Josh:
They must be approved. They must go through the centralized service.

Josh:
Open AI's largest moat right now is memory, is the new feature that they rolled out. So I'm not sure.

Josh:
That's why I'm thinking there's probably some sort of technical limitation preventing that from happening.

Josh:
It's because I find it hard to believe they would give up all of that data for

Josh:
free to an aggregator that can become much more powerful than them.

Ejaaz:
Yeah, I think cost is definitely a major function. Have you guys seen Open Router

Ejaaz:
by any chance? They kind of do what we're discussing right now.

Ejaaz:
This is the company set up actually by the ex-CTO and co-founder of OpenSea, Alex.

Ejaaz:
So if you pull up Open Router right now, just shove it into Google,

Ejaaz:
You'll see that it's described as the open interface for LLMs.

Ejaaz:
And basically, you can pull across any kind of model that they integrate with.

Ejaaz:
And it includes all of the frontier models from Western companies,

Ejaaz:
as well as some Chinese or Southeast Asian companies like Alibaba or DeepSeek.

Ejaaz:
And actually they're also famous for privately screening

Ejaaz:
if that's the right term new models before they even officially get announced

Ejaaz:
so open ai's 4.0 and o3 were actually tested privately you just didn't know

Ejaaz:
that you were testing it you was given a private code name like vulcan or something like that

Ejaaz:
and people were like wait this model is so good and it beats this benchmark

Ejaaz:
and that benchmark and everyone started speculating oh this might be open ai's new thing

Ejaaz:
And so they have a direct relationship where you basically type in a prompt on this website or you

Ejaaz:
build an app based off your API and it can select whatever model you want.

Ejaaz:
Now, I think the way that it's configured right now for this particular company

Ejaaz:
is you can kind of select which model gets picked for whatever type of query.

Ejaaz:
So it's not quite autonomous and smart.

Ejaaz:
And as far as I know, they don't have a memory function. Maybe Alex is going

Ejaaz:
to work on that going forwards. but I don't know this is kind of like the underpinnings

Ejaaz:
of something like that maybe

David:
Imagine being Alex and you leave OpenSea in like 2022, right at the end of the

David:
NFT summer to start an AI model aggregator project in 2022.

Ejaaz:
And then Sam Holman picks your company. Yes.

David:
Wow. Just perfectly selling the top of NFTs.

Josh:
Well done.

Ejaaz:
Well done.

David:
That's not the only model that came out. No. We also have one out of China as well.

Ejaaz:
Yeah, I mean, we haven't spoken about our friends across the ocean, but DeepSeek,

Ejaaz:
the ones that kind of like shocked the entire Western AI world by creating a

Ejaaz:
model that was much cheaper, but more effective or as competent as OpenAI's

Ejaaz:
frontier models, which they spent billions and billions on

Ejaaz:
and DeepSeek just spent a couple hundred million millions on, is supposedly

Ejaaz:
releasing their next major model update.

Ejaaz:
So it's not officially out just yet, but this has kind of been leaked that the

Ejaaz:
model will have 1.2 trillion with a T parameters, and it'll be a hybrid mixture

Ejaaz:
of experts model, which means that

Ejaaz:
whenever someone queries the model the entire set of parameters

Ejaaz:
aren't queried at once which is typically how a lot of these models work instead

Ejaaz:
it's more efficient and it might hit like 37 billion parameters which is needed

Ejaaz:
to answer your particular query or your question right so it's much more efficient

Ejaaz:
and that's how they like mainly drive down the cost

Ejaaz:
it's also going to be almost a well almost 99 but it's 97.3 cheaper than gpt4o

Ejaaz:
which is just again insane and we were kind

Ejaaz:
We were kind of talking about like, you know, earlier, what kind of moat would

Ejaaz:
Microsoft have with like Copilot or Gemini have with 2.5 Flash?

Ejaaz:
And you could argue that being cheaper per query or per token could be a moat there, right?

Ejaaz:
Because it all adds up. And if you're a startup that's consuming a ton of data

Ejaaz:
and you can get kind of like near the same kind of quality that OpenAI results

Ejaaz:
give you, then I'm going to take that cost cut and trade off and just use this model instead, right?

Ejaaz:
It's trained on a hell of a lot of data, 5.2 petabytes.

Ejaaz:
And it's meant to have a much better reasoning model. Okay, blah,

Ejaaz:
blah, blah. We always speak about these different characteristics.

Ejaaz:
But what's something that's actually cool here is that last point on this tweet.

Ejaaz:
82% utilization in Huawei Ascend 910b.

Ejaaz:
What they're referencing there is a Chinese manufactured AI chip.

Ejaaz:
And I just want to emphasize how important this is because to date,

Ejaaz:
NVIDIA has literally, and I'm not making this up, dominated like,

Ejaaz:
Like 95% plus of the chip manufacturing industry.

Ejaaz:
And that includes like the compute side of things, chip design,

Ejaaz:
like which informs how your model is going to get consumed, data trained, etc.

Ejaaz:
It influences a heck of a lot. We just don't speak about it as much, right?

Ejaaz:
And now we have China, which was supposedly meant to be a decade behind the

Ejaaz:
Western world, coming up with a chip that is 75% as good as NVIDIA's flagship

Ejaaz:
or one of their old flagship chips, the H100s.

Ejaaz:
So it's just really interesting to see how much China, and we're going to get

Ejaaz:
into this in the next topic, but DeepSeek, Chinese manufacturers with Huawei,

Ejaaz:
they're building their own kind of empire.

Ejaaz:
So maybe it's not Game of Thrones on the Western world. Maybe it's just Game

Ejaaz:
of Thrones, but then China just kind of like swoops in and takes out the head.

Ejaaz:
Josh, I know you have a ton of experience on the hardware side of things.

Ejaaz:
I know you love nerding out about this. I want to hear your take on this?

Josh:
I'm obsessed with DeepSeek in the way that I kind of love the Grok team as well,

Josh:
because they just have the fastest rate of acceleration.

Josh:
And I think when you're competing on these like long time horizons with really

Josh:
high stakes and strong exponential curves, the rate of acceleration is probably

Josh:
the most important thing to pay attention to.

Josh:
So Gemini and OpenAI are very clearly the leaders in terms of frontier models right now.

Josh:
I think what we're seeing with DeepSeek is this hyper focus on efficiency.

Josh:
And that efficiency has exponential scales that I think will probably quickly

Josh:
exceed that of the top leading models in the US.

Josh:
What's interesting is they're winning on the hardware front and they're winning

Josh:
on the software. Well, they're not winning on the hardware front,

Josh:
but they're rapidly getting closer.

Josh:
You said it had each, what was the percentage of the H100 that they were able to capture? 75%.

Josh:
So they're 75% there. And that number was much lower just a few months ago.

Josh:
What China has is really great manufacturing capabilities. They have really

Josh:
smart developers who are hyper-focused on this resource constraint.

Josh:
And what we're getting is these incredible models. 1.2 trillion parameters, I think.

Josh:
Is that a record for a public model if it does go public?

Ejaaz:
Yeah, Meta's supposedly working on a 2 trillion parameter model.

Ejaaz:
But, you know, we're talking about sizes here.

Josh:
So far, if this were to release today, this would be the largest public model.

Josh:
And the cost of it are a fraction of what it costs to use GPT-40.

Josh:
So the trends that we're seeing is an increase in efficiency,

Josh:
an increased rate of acceleration in progress, and an aggressive decrease in

Josh:
cost per query or cost per token.

Josh:
And those three things are like really powerful effects that are going to affect

Josh:
markets in a really big way.

Josh:
I think as we get more power at a lower cost, it unlocks the amount of productive

Josh:
output of these tokens. I forget the amount of trillions of tokens that Microsoft

Josh:
said they generated in the last quarter, but it was many, many trillions of

Josh:
tokens. And if you can get

Josh:
10 times that token output for a fraction of the cost, that's a lot more intelligence

Josh:
you can use to either distill models like we see in the smaller models like

Josh:
that Quinn is doing, or just to apply to even larger models and to do reinforcement learning on those.

Josh:
So I think the cost per token and the efficiency of these models is something

Josh:
to really pay attention to.

David:
Okay, so if R2 is coming in with a 97% cost reduction, as in the cost of running

David:
this model is 97% cheaper, that means we can just, you know,

David:
do 33 times more compute for the same amount of cost.

David:
So you get 33 times more compute for the same cost.

David:
But does that result in a 33 times better outcome?

David:
Because I don't think that that's true. I think the queries that you get,

David:
the products that you get to come out of that compute is running up on some

David:
sort of like constraint, right? like we don't just get 33 times better outputs right.

Josh:
Not directly so the constraint mostly is in the actual model intelligence and

Josh:
those benchmarks that you see so this would be if it gets released 1.2 trillion

Josh:
dollar or trillion token model or parameter model and that would be the upper

Josh:
bound of intelligence so it's not

Josh:
creating that new intelligence it's not agi but what we do have is we have a lot more use of it so

Josh:
currently the the cost per token here is much more expensive

Josh:
and when you get a cheaper token you unlock the second order effects of that

Josh:
which means consumer applications become a lot more cheap it means that we can

Josh:
get access to just a lot more intelligence a lot cheaper and a lot more accessible

Josh:
and i'm not sure i have great examples of

Josh:
of where that comes but i'm not sure there's anyone in the world that wants

Josh:
that doesn't want more intelligence and doesn't want more queries or shots on

Josh:
goal at doing this so it's not that it is a smarter form of intelligence But

Josh:
the amount of it and the accessibility of it goes up significantly.

David:
Well, that's kind of just on brand with like what China tends to bring to the

David:
table. It seems like the United States, Silicon Valley, brings these net new

David:
innovations, more intelligence, increasing IQ, and then China just makes that cheaper.

Josh:
Yes. Although this time, 1.2 trillion parameters, that is the new top dog.

Josh:
So as of now, assuming Benchworks come out well, that would be highest intelligence

Josh:
and lowest cost, which is like a huge win.

Ejaaz:
I actually had a question. If the cost per query goes down and we kind of continue

Ejaaz:
this trend or this directional trend towards post-training via reinforcement learning, right?

Ejaaz:
Wouldn't this basically enable them to scale that up?

Ejaaz:
So you could end up with a much smarter model at a cheaper cost because it costs

Ejaaz:
less to query in itself, right?

Ejaaz:
So you could just chuck in a bunch of, you know, reasoning traces,

Ejaaz:
which for those of you who don't know is kind of like questions,

Ejaaz:
which will show a question A and then an answer B.

Ejaaz:
And the model basically has to figure out how to get from A to B.

Ejaaz:
And that's what makes the model smarter through reinforcement learning.

Ejaaz:
Josh, don't you think this will basically open up

Ejaaz:
an opportunity for them to scale to a smarter model i'm guessing that's how

Ejaaz:
they're doing it right now right alibaba is doing the same thing with quen i

Ejaaz:
mean yeah the new model that they just released is only 235 billion parameters

Ejaaz:
but it's as smart if not better at certain math coding and science benchmarks

Ejaaz:
and maybe not so much the social reasoning side of things but on certainly across

Ejaaz:
those benchmarks than some of the frontier trillion

Ejaaz:
dollar not trillion dollar trillion Yeah,

Josh:
No, that's a really great point. I think you're right. What we probably see

Josh:
is similar to Quinn in the distillation of models and then the hyper specialized

Josh:
version of those models.

Josh:
So as basically the way these distilled models work is there's this giant foundation

Josh:
model and it uses reinforcement learning to create these good prompts,

Josh:
these really high quality prompts that get fed into a smaller model that can

Josh:
run locally on a, let's say a laptop or your own device that you have at home.

Josh:
What happens from this probably is is now that you have this higher form of

Josh:
intelligence that you could distill much more cheaply you can create a lot more

Josh:
of these distilled models that are even even tighter in size even smaller and

Josh:
maybe enough to run on your iphone

Josh:
that are effective enough to actually work and maybe you get a distilled model

Josh:
that's kind of like a sirion steroids type thing that you could run locally

Josh:
on a phone but maybe you also just get a really great

Josh:
hyper focused model on a specific type of math problem or a specific category

Josh:
of science or like a very specific data set that it's trained on

Josh:
that costs basically nothing because it's been distilled down and it costs so

Josh:
cheap but it's really really smart at this one particular thing and if you have

Josh:
a series or a network of these nodes that are hyper trained on a specific category or a specific problem

Josh:
then you could kind of build this mesh network on top to to interact with each

Josh:
one based on your the needs of the query so it creates this interesting modular approach

Josh:
versus the large foundation model where if you can distill these things down

Josh:
cheaply enough and broadly enough into all these hyper-localized little nodes,

Josh:
then you could access a lot of general intelligence very, very cheaply.

Ejaaz:
It reminds me of another example. I mean, like the general theme that we're

Ejaaz:
talking about here is Chinese AI manufacturers can basically make things cheaper and more efficient.

Ejaaz:
But the difference, which is typically what they've done with like mobile phones

Ejaaz:
when Huawei is copying a bunch of iPhone stuff.

Ejaaz:
But the difference here is that they're actually innovating on the design and

Ejaaz:
the execution, which is really important.

Ejaaz:
And it reminded me that Huawei this week launched, I think it was like a 718

Ejaaz:
billion parameter model,

Ejaaz:
but it was trained on 6,000 of their new Ascend chips, which is like their equivalent

Ejaaz:
of like NVIDIA H100s or whatever you want to call it, right?

Ejaaz:
And this was a significant reduction from the 8,000 chips that they used to

Ejaaz:
train their previous model, which was half the parameter count.

Ejaaz:
So basically, chip count down,

Ejaaz:
model intelligence up, which is a scary but pretty exciting trend to see.

Ejaaz:
I guess the benefit of this so far is that us on the Western side can kind of

Ejaaz:
benefit from it because they're open sourcing all these models and they're probably

Ejaaz:
trying to vamp attack some of the bigger companies in America.

Ejaaz:
But at some point, they're going to close the gates because they've achieved

Ejaaz:
parity, if not betterment of these models.

Ejaaz:
So it's an exciting trend to kind of watch.

Ejaaz:
And it's not one that's getting publicized in the Western media as much.

David:
I'm just seeing as all of these numbers come down ever since we started this

David:
podcast, you know, token parameters go up, chips go down, and the rate of this

David:
happening is just not slowing whatsoever, which makes me think that just like,

David:
it just keeps on going it just keeps on going.

Ejaaz:
Yeah so we're going to end up in this like infinite abyss david where we can

Ejaaz:
you you can talk to chat gpt as much as you want you know earlier on josh was explaining how

Ejaaz:
you know doing search queries via ai is so much more expensive than doing a

Ejaaz:
google search query but maybe not for long maybe not for much longer

David:
By the end of this year it's not going to be the same.

Ejaaz:
Yeah yeah

David:
There are some things to talk about on the crypto side of things where we got

David:
this podcast started. So cookie.fun is a website I got pulled up right now,

David:
which shows the total market cap of all AI agent tokens.

David:
Now, maybe to call a spade a spade, these are meme coins associated with AI agents.

David:
I think that's a fair take. But this sector of crypto, the AI sector of crypto,

David:
has gotten a lot of life back in it over the last two weeks.

David:
Ijaz, tell us what happened.

Ejaaz:
Yeah, so in this particular instance, life translates to money.

Ejaaz:
The total market cap of these ai agents if you remember back in the day i think

Ejaaz:
it peaked at like 25 billion and then it got crushed basically over subsequent months to about 3.2

Ejaaz:
billion dollars now over the last three weeks it has almost tripled oh just

Ejaaz:
over tripled actually to 11.4 billion dollars as of this screen recording right

Ejaaz:
now right and as you can see

Ejaaz:
charts are green across the majority of the spectrum of things.

Ejaaz:
And you're probably wondering, hey, guys, what's happened? Like,

Ejaaz:
has some like crazy innovations been going on? Like, give me the summary as

Ejaaz:
to why this is happening.

Ejaaz:
So let's go through some of the takeaways.

Ejaaz:
Number one, virtuals is leading this entire kind of progression,

Ejaaz:
right? So if you remember back in the day, we used to speak about kind of like

Ejaaz:
the top AI agent protocols. Virtuals was one of

Ejaaz:
Over the bear market, all three of them were crushed, but all three teams were

Ejaaz:
kind of heads down focusing on pioneering new kinds of innovations.

Ejaaz:
And virtuals really kind of like came through as the leader here.

Ejaaz:
So they specifically added over $600 million in market cap over the last two

Ejaaz:
weeks. And that's just in the virtuals token. So it's back over a billion dollars.

Ejaaz:
And they've made a number of changes since we last checked in on them.

Ejaaz:
So if you pull up this tweet, which basically kind of like has like this fun

Ejaaz:
little table as to what they've basically done.

Ejaaz:
So in January 2025, they go through things like agent revenue,

Ejaaz:
agent commerce protocol, fee structure, chain.

Ejaaz:
Basically, everything on the left was kind of unclear, a bit of flimsy, kind of Ponzi-like.

Ejaaz:
And on the right side, they have a much more structured product and focus strategically

Ejaaz:
for what they're trying to build and how they're supporting creators or agent

Ejaaz:
developers on their side of things. But let me explain what any of this means

Ejaaz:
and what the highlight is.

Ejaaz:
So they created a new agent launchpad. And for those of you who don't know what

Ejaaz:
an agent launchpad is, it's basically kind of like a

Ejaaz:
Cursor, if you like, where you can go on, you can use a no-code environment

Ejaaz:
to design what your agent might look like or what it might do,

Ejaaz:
what functions it might serve.

Ejaaz:
And then you can launch that agent. And usually you can associate a token with

Ejaaz:
that agent. So it's kind of like you're IPO-ing an agent.

Ejaaz:
And they created this thing called a Genesis launchpad, which is meant to be

Ejaaz:
a fairer way to launch agents.

Ejaaz:
So they've completely replaced the bonding curve model with something they call

Ejaaz:
proof of contribution, which basically means you need to do something helpful

Ejaaz:
towards the virtual ecosystem if you want to get access to buying the tokens

Ejaaz:
for that particular agent.

Ejaaz:
And contributions are measured in something called I think it's like virtual

Ejaaz:
points or they're kind of like loyalty points

Ejaaz:
and there are many ways to earn these points you can stake virtuals you can

Ejaaz:
yap or talk about virtuals on x or you can simply just hold virtuals tokens

Ejaaz:
or certain virtuals tokens

Ejaaz:
then there's kind of like this pre-sale and people can commit and and the

Ejaaz:
Of course, that's not the only thing that people are talking about.

Ejaaz:
They're talking about the returns that they're getting on this thing.

Ejaaz:
So the average return multiple on each of these tokens, David,

Ejaaz:
since they launched this launchpad is about a 12 to 20x, which is insane, right?

Ejaaz:
Until you realize that the FTV that you're investing in is like $212,000,

Ejaaz:
not million, $212,000. So you kind of have like a guaranteed ROI.

Ejaaz:
What I don't like about this is probably what you can already guess.

Ejaaz:
And if you pull up this tweet by Vader is it's mainly just about the money right now.

Ejaaz:
And it's not really about much innovation. And I know the virtuals team personally

Ejaaz:
are working very hard on creating value.

Ejaaz:
And you could also argue that on the traditional AI space that they haven't

Ejaaz:
kind of created anything of definitely more marginal value on the enterprise

Ejaaz:
side of things, but not as valuable as we'd expect to see. So it's kind of like,

Ejaaz:
you know, they're kind of fighting for the same kind of thing.

Ejaaz:
But it's good to see that they're kind of like focused on this thing,

Ejaaz:
right? The second thing is virtuals updated their fee.

Ejaaz:
Flywheel, which means that 70% of fees get given back to the creators.

Ejaaz:
Now, previously, that wasn't the case. And the effect that this has had is basically

Ejaaz:
any kind of agent developer that launches a coin can basically get continual

Ejaaz:
money to continue developing their product.

Ejaaz:
And that's been a really good way to kind of like sustain the ecosystem.

David:
So for the AI listeners out there, it's probably worth knowing that there's

David:
this meta happening in the crypto industry around these token launch pads.

David:
The meta that's going on this week is this like Believe app thing,

David:
which allows you to launch a token that is paired with, but other than that

David:
has no material association with kind of a vibe coded app.

David:
So you can vibe code an app and then you launch the app and then you launch

David:
a token with it. And it uses the token to gain virality for the app.

David:
You know, you attract some degens. If they play with your app and then they

David:
like your app, they might buy your token, which again has no material association

David:
with the app other than it's sharing the same brand.

David:
And so on one side of things, we have the AI agent part of this like crypto

David:
industry, which is downstream of virtuals, which is a token launchpad.

David:
And then there's the token launchpad side of things, which is the token engineering,

David:
the crypto degens, the speculative gambling that really turns people off to crypto.

David:
And on the spectrum of like, is this AI innovation or is this token launchpad

David:
financial engineering?

David:
Like, is this for the AI people or is this for the crypto degens?

David:
I'm placing this more on the crypto degens side of thing than any sort of like

David:
AI fundamentals. That's kind of my take about this.

Ejaaz:
Yeah, I think you're right. And I think it's important to just say that,

Ejaaz:
again, this is mostly about the money.

Ejaaz:
Most kind of media coverage on this or like updates that people get excited

Ejaaz:
about is the return multiple that they get, which is, of course,

Ejaaz:
one of the main reasons why people get in crypto. They want to make money,

Ejaaz:
but it's also kind of like it gets kind of like

Ejaaz:
boring or repetitive over time. And we want to kind of see some real pioneering

Ejaaz:
innovation that isn't just some kind of meme coin relationship.

Ejaaz:
Otherwise, you know, what are we doing here? We might as well just like talk

Ejaaz:
about gambling picks every week, right?

Ejaaz:
Moving on, talking about actually on the note of talking about some real fundamental

Ejaaz:
use, decentralized training or distributed training is actually an area where

Ejaaz:
Web3 or crypto innovators are actually

Ejaaz:
Bettering ai or pioneering ai so we've spoken about these companies that are

Ejaaz:
listed on this tweet here a bunch of times before but to give some context

Ejaaz:
In order to build these ai models you need a heck of a lot of compute and money

Ejaaz:
and data and it's very costly so some folks had a bright idea of thinking well

Ejaaz:
what if we do this in a decentralized distributed way

Ejaaz:
where we can aggregate compute from people's idle laptops, computers, cell phones,

Ejaaz:
and we can kind of like combine them into some kind of decentralized network

Ejaaz:
And use that compute to train models.

Ejaaz:
And so a bunch of teams were like, okay, cool, that sounds like a good idea.

Ejaaz:
But it was much easier said than done, because the way you need to network and

Ejaaz:
connect these different GPU servers and laptops and stuff is not an easy task at all.

Ejaaz:
In fact, by the end of 2022, the best minds at Google could only put together

Ejaaz:
a 400 million parameter model.

Ejaaz:
Fast forward to today and Jensen announced that they're using RL or reinforcement

Ejaaz:
learning to train a 72 billion parameter model, which I know isn't as big as 1.2 trillion, Josh.

Ejaaz:
I know it's not as big as like the DeepSeek team, but it shows massive improvement.

Ejaaz:
And this is being led by Web3 folks.

Ejaaz:
So kind of just not really going down the list, but just giving you an overlay here.

Ejaaz:
Teams like Jensen, teams like Prime Intellect, teams like News Research are

Ejaaz:
really pioneering open source distributed training.

Ejaaz:
And I don't think it's something that should be overlooked because if executed

Ejaaz:
well, these blockchain networks could be worth hundreds of billions one day.

Ejaaz:
And I'm not exaggerating because what cost or value would you give to networks

Ejaaz:
that train some of the best local or frontier models of our generation,

Ejaaz:
right? That can be co-owned by multiple people so i thought that was that was really cool

David:
Yeah, the idea of having a decentralized alternative to the very centralized

David:
powerhouses, open AIs, et cetera, is like attractive to me, just like kind of

David:
like on a redundancy perspective.

David:
Humanity at least has like a plan B, but I'm not sure if they can go toe to

David:
toe with the big boys. Josh, what's your take?

Josh:
Yeah, I agree. I'm still trying to wrap my head around it.

Josh:
I'm trying to get excited about it. I think it's an exciting development that

Josh:
is early. And again, like the rate of acceleration seems like it's going fairly well.

Josh:
The the initial take is that all of the largest companies in the world are trying

Josh:
to just gather all the information in the world and distill it into a model

Josh:
and we're seeing that closed source but we're also seeing that in open source

Josh:
with with meta and now meta has up to two trillion parameters on the next model

Josh:
and that's going to be open source

Josh:
open weight and i would imagine if people want to build something interesting

Josh:
from that they could take it and then distill that massive knowledge base down

Josh:
however they would like to kind of customize it into distilled models

Josh:
So I'm trying to just understand the difference between

Josh:
that, like taking an open source model and distilling it into whatever you want

Josh:
based on all this knowledge they've done the hard work to collecting versus

Josh:
going to collect your own

Josh:
data and use it in a decentralized way to build your own ground up model instead

Josh:
of kind of taking a top down approach.

Ejaaz:
Yeah, I completely agree. I think what this is ultimately going to result in

Ejaaz:
is niche use case, kind of bleeding edge or frontier edge models that serve

Ejaaz:
a small percentage of people, right? Maybe it's people that care about privacy

Ejaaz:
of data, or maybe it's people that care about using a certain amount of encrypted,

Ejaaz:
personalized information that they don't want to share with anyone, again,

Ejaaz:
from a safety aspect, to train a model that serves a particular function.

Ejaaz:
It comes back to what we were saying earlier. Like, if you don't have a good

Ejaaz:
enough product that comes from this AI thing, you're not going to make it.

Ejaaz:
And this isn't just unique to decentralized Web3 folk. This is also very prevalent

Ejaaz:
to the top dogs at the top. Like, we're talking about Microsoft, right?

Ejaaz:
What are their unique models beyond just getting direct access to OpenAI model weights, right?

Ejaaz:
If you don't have access to that, then you're kind of like nothing unless you

Ejaaz:
build an amazing product. So it's going to come down to the product.

Ejaaz:
It's going to come down to the founders.

Ejaaz:
I am excited that open source is still pushing really hard at this.

Ejaaz:
And I'm more than confident that some good kind of app program or software will

Ejaaz:
eventually come from this.

Ejaaz:
But you're in a very competitive mode and competitive industry that is being

Ejaaz:
funded equally so on the centralized side.

Ejaaz:
And at this point, you can't even argue that monopolies aren't open sourcing

Ejaaz:
because the folks at Meta, the folks at DeepSeek are all doing it anyway.

Ejaaz:
So let's see how this pans out and let's keep our heads in the game.

David:
Josh and Jaws, it's another week, a lot of news to cover. I'm sure in seven

David:
days, there'll be a lot more news to cover. And I look forward to talking to you guys then.

Ejaaz:
Yes, sir.

Josh:
Awesome. Another great week.

David:
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