Exploring the frontiers of Technology and AI
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The story of Cursor is quite possibly the greatest comeback story in the history of AI.
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Just 90 days ago, some of the smartest people in tech had completely buried this company.
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They gave up on it. And Cursor was just an AI rapper that had raised too much
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money and Anthropik was about to crush them.
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Then seemingly overnight, everything changed. If you look back to January of
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last year, they were running at about $100 million in ARR.
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Fast forward to today, that number is 3 billion. This is one of the fastest
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software ramps in history, way faster than open AI. So why?
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And on this episode, we're going to discover the moat that just about every
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single critic on the internet missed.
Ejaaz:
To truly understand how impressive of a run-up Cursor's had,
Ejaaz:
we have to start from the beginning.
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So Cursor was founded by four MIT graduates in 2022.
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Their founder, Michael Trull, is only 25 years old right now.
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He was 23 when it was founded. So it's an incredibly young team.
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All four of these founders, by the way, are on the Forbes 30 under 30 list.
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So massively successful young company. But what were they building?
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Well, they discovered a problem. If all these new AI models like Claude,
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like ChatGPT could code for people, you would still need some sort of a system,
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some form of a harness, some form of a coding editor to be modernized around new AI coding models.
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Traditionally, you would have an IDE, an integrated developer environment,
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and you would use this to kind of like edit your software, see what the code
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looks like in reality, like right next to it, side-by-side screen.
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But there was nothing quite for that when it came to coding AI models.
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Cursor wanted to be that. And so they forked VS Code, which is a popular open-source
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software program from Microsoft, and they created what critics ended up calling it a wrapper, a
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Initially, the criticism was, this is just an AI wrapper and the actual brain,
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the AI models are the smartest thing and the most valuable thing.
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And they'll eventually replace the wrapper.
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That actually didn't end up happening. If you look at this crazy growth curve
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that we have on the screen right now, they started off in Jan 2025 with $100 million ARR.
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That then 5X'd a few months later to $500 million.
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And then by the end of 2025, they were at $1 billion. And then we just got the
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news this week that they hit $3 billion. Now,
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What's crazy about this is their projection for the end of this year is $6 billion.
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I actually think they might kind of blow the roof on this entirely.
Ejaaz:
It sounds similar to Anthropic because Anthropic started with Claude Code and
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they had this kind of like meteoric exponential rise.
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The same thing is happening with Cursor, but they have a very different mode.
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67% of the Fortune 500 companies all use Cursor and they went from being the
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hottest commodity to the most criticized commodity to now potentially being
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acquired by one of the biggest frontier AI labs in the world.
Josh:
Yeah, it's amazing how quick the ties have turned. I remember back in the day,
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Cursor was actually the hottest piece of software in AI because everyone was using it to write code.
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Then the AI models that came out like ChatGPT and Anthropics Claude,
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they kind of crushed it. Everyone forgot about it.
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The comeback story is huge and it's a testament to where the AI industry is headed now.
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A big part of this we're gonna talk about all the time is Harness.
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This Harness, if you think about like a human being and the LLM being the brain,
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a basic LLM is kind of like a brain that's been concussed a thousand times.
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It has no memory it has no ability to kind of
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function outside of itself the harness is the
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body it's the containing mechanism that provides the
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system with memory it provides the system with custom tool
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sets and inputs and outputs and it gives it everything it needs to think
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critically so that's why you'll notice that on some of these harness companies
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they're actually just making a living off of building harnesses for ai models
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in the hopes they could do so better than companies like anthropic better than
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companies like open ai and funny enough even though they made some progress
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in creating these harnesses,
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people were still kind of writing them off as trivial and non-necessary.
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Because, I mean, if you think about it, Anthropic has the intelligence.
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OpenAI has the intelligence. Why is just a rapper going to make a difference on that?
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And I think that was the single point that a lot of people got confused on and tripped up on,
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And that's not necessarily true.
Ejaaz:
Yeah, I think the best way to analogize around this is if an AI model is the
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brain, you still need a bunch of appendages. You still need the eyes to take in data.
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You still need ears to hear things. You still need a body, a medium to kind
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of like translate that intelligence into the real life, right?
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That is basically what Cursor is to all these different AI models.
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And that's what they have proven. So what is this exact product?
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What is this exact moat that Cursor has? It's known as the agent harness, as you just mentioned.
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And the way to think about it is it's kind of like a scaffolding that turns
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like a role model into an autonomous coding agent that can manage its time well,
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learn when to use a prompt for what particular intent or purpose,
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and most importantly, do it efficiently.
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There was news that broke this week that Microsoft is now relinquishing all
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their employees' access to Claude Code because they're just using way too much
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money of the budget that Microsoft has for it.
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Uber, they had an annual budget at the start of this year for all their employees.
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All their employees burned through it in four months. It's completely gone.
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So everyone's trying to like reassess how the best way is to use the different
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coding models. It's kind of like they're using it as kind of like a blunt tool.
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They're kind of like throwing kind of like stuff at it and like hoping it would
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like come up with an answer. It's very inefficient.
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Cursor is the number one product to kind of like formalize all of this and make
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you kind of like an additional genius on top of like what you're already prompting
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with these coding models.
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So the way that the harness works is you kind of build up different aspects
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of it. You kind of like teach it how to use muscle memory in the correct way
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when it comes to specific flows or coding programs that you're working on.
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It teaches you how to manage your work. It spins up different types of agents.
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It gives the agents specific personalities.
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It orchestrates these agents across effectively all the workflows.
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So if you're a company, this is hugely important because you have many different
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sub teams that are doing this particular thing.
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And then, of course, this is translated into a distribution for Cursor itself.
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So I mentioned companies, 67% of Fortune 500 companies use Cursor.
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And they may say like, hey, we use Claude Code or we use GPT 5.5,
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but it is through Cursor.
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So they're the surrounding environment that has been able to build this.
Josh:
Yeah, when we think about moats, there are some pretty unexpected ones that
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I found out in researching about Cursor.
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Did you know that three quarters of Cursor's final compute was their own reinforcement learning training?
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A lot of it was done internally and proprietary.
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This isn't stuff that you can find on GitHub. This isn't open source data.
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And they also have a tremendous amount of data on how millions of developers
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actually accept, reject, and edit their suggestions.
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And that feedback loop is a really big data set that's also proprietary.
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So they take all these data sets they loop them together and
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they build in this really refined reinforcement learning stack
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on top of the harness that creates a bit of a moat
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that other companies don't have and that data is
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incredibly valuable because a lot of other companies they'll create
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a wrapper it's just an api to another model they don't actually
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get the full training loop there cursor has figured this
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out and they've done so and their new model proves this
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thesis because now cursor isn't just a harness company cursor
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is actually creating very highly intelligent models most
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recently with cursor 2.5 which i believe is just as
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good as claude opus 4.7 and gpt 5.5 high at least on some benchmarks like this
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is incredibly impressive to go from just a wrapper company to an incredibly
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powerful harness with a leading edge frontier model i mean we just covered google
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last week they didn't even get
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to the frontier and now suddenly cursor is this is a pretty big deal okay.
Ejaaz:
So some some fun facts from their recent model uh that i i really really enjoy so number one.
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It is trained on a completely open source model, which is significantly smaller
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than the current frontier models that come out of Anthropic or OpenAI.
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It's called KimiK 2.5. Now, if you are reading that or listening to that and
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thinking, hmm, isn't that like a
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Kimi K 2.6, you'd be right. But they used an older model and still built a harness
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around it that competes directly with Opus 4.7 Max and GBT 5.5 Extra High.
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I'm showing you on the screen here.
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If you look at it, the discrepancy is literally like 0.5 or like a one percentage point.
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But a few things that I want to suggest here is look at how cheap Composer 2.5,
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which is Cursor's Frontier model is compared to GPT-505 Extra High and Opus
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4.7, despite being as good.
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It is four times, sorry, it is eight times cheaper than GPT-5.5 and 11 to 12 times cheaper than 4.7.
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But I also want to point out that another Frontier AI Lab released their model this week.
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It is Google Gemini 3.5 Flash.
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And it not only is dumber technically than Composer 2.5, this harness that is
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wrapped around just a small, careless open source model, but it is also four times more expensive.
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So the point I'm trying to make here is this proves the thesis that the harness is the moat.
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And actually, Sam Altman recently commented on this saying, I don't get all
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the criticism around agent harnesses.
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It is quite obvious that you have foundational pre-training and post-training
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of a foundational model, but then you also need to wrap all this orchestration layer around that.
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And Cursor is the only one or the number one company right now to have built that moat.
Ejaaz:
Sam Altman himself tried to acquire and they rejected.
Josh:
That's funny. Yes, I got to give Sam credit. He saw this coming.
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He knew what was happening. He tried to acquire them. I believe the number was $3 billion at the time.
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Now their ARR is double that. So clearly it was a good deal that he would have had.
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They rejected it for a good reason. But there is a new entrant into this deal space.
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We've mentioned it before. If you've been listening to the show,
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it's Elon and SpaceX. they have acquired the option to purchase Cursor.
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Now, that option was $10 billion guaranteed to Cursor.
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No matter what happens, Cursor gets $10 billion, SpaceX gets paid out, zero for that.
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That gives them the right, the option to buy Cursor outright for $60 billion
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within the first 30 days of their IPO.
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Now, we have new information on this IPO in that it is likely going to launch June 12th.
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So SpaceX is now on the clock. They have until the middle
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of July to decide if they want to spend 60 billion
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dollars or not to acquire this company it seems as
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if the decision has already been made it seems that elon
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is going to indeed buy spacex and now the
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new number is 20 times what sam altman offered at 60 billion dollars so clearly
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the value is being realized and now this is being bundled into a pretty impressive
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frontier ai company i mean spacex has the data centers in space they have all
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the infrastructure they've been leasing out their Colossus Data Centers to Anthropic.
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All of those resources are going to be available to the Cursor team.
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And I have to imagine that combining XAI with Cursor is going to create a pretty
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meaningful run on the new Frontier.
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And Anthropic and OpenAI are going to have some serious competition incoming.
Ejaaz:
Yeah, I think it's important to point out why this deal is so symbiotic between
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both of these companies.
Ejaaz:
So Cursor runs into a problem, right? They have this amazing agent harness,
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but they're always reliant on waiting for Frontier AI Labs to release a new model.
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And then build a new harness around them, right? So they're like,
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okay, well, I wish we could build our own models, but like we don't have enough compute.
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So I guess we'll take this open source model and wrap our harness around it.
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Ideally, you get access to the foundational frontier American model first.
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So Elon saw this and said, hey, not only will I give you the compute,
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I'll give you access to my frontier model, Grok, which gets to train on a million plus
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Bleeding edge GPUs that I have in Colossus 1, 2, and in the future, 3.
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So Michael Truel saw this and was like, hell yeah, we'll take the compute and
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you give me an optional buyout of $60 billion if this goes well or $10 billion
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for the compute if this goes like a pear shape. So that's completely fine for me.
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Now on Elon's side, he wants nothing more than to beat Sam Altman, OpenAI specifically.
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Currently, Sam Altman is sitting somewhere near the top. So he did two things.
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He partnered with Dario and Anthropic recently to give them compute and like
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make more money off of that. But most importantly, he intends to acquire Cursor
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specifically so that he can get access to this harness and wrap it around Grok.
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So Grok overnight ends up becoming probably somewhere near the number one coding AI model.
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And that instantly puts Elon in the mix for the most important AI race in the world, which is coding.
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Yeah, like if you believe that AI writes most software over the next five years,
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then Cursor becomes a tollbooth.
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And this is something that Grok didn't have previously. They've been trying to build a coding model.
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It hasn't been going super great. They're training some now.
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But Cursor gives them a shortcut right to the front. And owning that tollbooth
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is far more valuable than owning the cars that run by it.
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And that's basically what Grok was prior to the acquisition of Cursor and the harness.
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So now Elon is assembling this full vertical stack.
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He has rockets to deploy the satellites, satellites to deliver bandwidth, X to capture attention,
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colossus to train the models and cursor to write the software as
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the toll booth then there's grok on top of all this to
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talk to the users it's this really unbelievably compelling stack and
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i think spacex has this super unique ability to
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kind of change the ai industry
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at their will like currently they're empowering anthropic by giving them
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the data centers but we both know there's a three-month option on that
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that they're not beholden to so in the case that cursor does
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really come up with some breakthrough training in the case that cursor comes
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up with some breakthrough models it needs all the trading data they can claw
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that back and it sounds like they're kind of testing that now with these larger
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models they i mean this post is teasing elon with a half trillion grok model
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and then a 1.5 trillion parameter model so they're increasing the size fairly quickly.
Ejaaz:
Yeah elon has publicly stated uh recently that he has got a 15 trillion parameter
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model and in the future very near future 20 trillion parameter model now the
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15 trillion parameter model plans to go live in July,
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if he's using Cursor's agent harness and data mode to feed Grok into becoming
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a frontier coding AI model,
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we may get this number one frontier
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coding model to compete with Anthropic and OpenAI as soon as July,
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which is insane, given that the IPO is happening very soon, and they're looking
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for different new revenue incomes, and they need a reason to kind of like propel them even further.
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And then like, there's the other part of this, which you kind of
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you obviously needed so much more compute to kind of like feed these different
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models. And SpaceX is the number one company to scale that massively.
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They're doing this through space, through AI data centers, which people still
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think is a fairy tale, but ends up probably becoming the most feasible one given
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all the power constraints on earth.
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So Cursor not only gets acquired by a frontier AI lab, by a guy that is obsessed with scaling things.
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And so like if he can scale the harness, it's a win-win for them.
Ejaaz:
But also the tollway booth to infinite compute that could make Composer 2.5,
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3, 4.5, 5, the number one leading model in the entire world. It's pretty cool.
Josh:
It seems cool, but there are a few risks. There's a few things that we need
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to look out for, a few landmines that still could be stepped on,
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things to take note of, one of those being that Composer 2.5,
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it does still run on Kimi K 2.5 weights,
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which is the model from the Chinese lab, Moonshot AI,
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and Cursor runs it on Cursor's own infrastructure.
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So user code routes to Cursor servers, not moonshots.
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So the data is defensible, but the actual model is not.
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We'll see if they can continue that with the Grok models.
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I'm assuming that's what's going to happen is Cursor is going to shift their
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harness to fully support Grok and we'll see.
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I mean, XAI has not historically been at the frontier, been able to create the most capable models.
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I will say they're the most price performant models. And that's really interesting
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for the case for a Cursor.
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But it is something to note that the current underlying technology is still
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that Chinese lab from Moonshot.
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It's not an actual AI model that they own. So that is one wildcard that I think is noteworthy.
Ejaaz:
I see the other criticism is also the commodity thing, right?
Ejaaz:
They're saying, OK, well, if Curse has been able to build this agent harness,
Ejaaz:
what's stopping a really well-funded competitor from doing the same?
Ejaaz:
The same reason why you would give that to Anthropica, you wouldn't make that
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argument to Anthropica OpenAir.
Ejaaz:
They have the lead right now. And I would actually argue that they have a more
Ejaaz:
distinct lead because the harness isn't just one thing.
Ejaaz:
It is multiple singular things that you need to kind of orchestrate and combine
Ejaaz:
into one thing. You've got the memory side of things. You've got the agent creation.
Ejaaz:
You've got MD file management. You've got all these tool orchestrations.
Ejaaz:
There's so many different things that Cursor does well, which is exactly why
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Winsurf and a bunch of other competitors hasn't really
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been able to translate what cursor has been able to do
Ejaaz:
so i don't think that's a major issue i also think like to
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be honest like um the chinese open source model whether
Ejaaz:
it is that or not isn't really um a
Ejaaz:
point of contention here because i know when they get access to a western model
Ejaaz:
specifically grok they'll be able to do an even better job the proof in the
Ejaaz:
pudding is they took opus 4.7 and they took gpt 5.5 and they wrapped cursor's
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harness around it and it ended up giving them a 10 to 20 percentage point increase
Ejaaz:
across all key benchmarks.
Ejaaz:
So the point is, the agent is definitely very valuable. And I think if Elon
Ejaaz:
and Grok and Kursa work closely together right from the foundational model training,
Ejaaz:
you know, they see what the architecture is being used on a Colossus one right
Ejaaz:
from the ground up, they'll be able to create something pretty special, in my opinion.
Josh:
Yeah, I think I am going to remain pretty bullish on SpaceX, bullish on Cursor.
Josh:
I mean, we saw what happened when OpenAI acquired Windsurf.
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Codex very quickly got very good. And I'm sure they took a lot of that data and rolled it into it.
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And now Codex is probably the top coding harness, if not very close,
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right, neck and neck with CloudCode.
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So these things do make a meaningful difference.
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It's clear that SpaceX has been trying to get into the world of coding.
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Cursor is going to be that company. One thing to note is when this company sells for $60 billion.
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The CEO is 25 years old. We mentioned this on the roundup last week,
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if you were listening, but he's probably going to become the youngest billionaire in the world.
Josh:
That's pretty exciting. That's got to feel good. And I wonder what the integration
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between those companies looks like. A lot of these acquisitions that we find are acqui-hires.
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They are to acquire talent. So we'll see how the talent gets distributed,
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but a huge exit nonetheless.
Josh:
I mean, I remember, what was it last year? Maybe it feels like an eternity ago,
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but like Cursor actually was the hottest software on the block.
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Everyone was using Cursor. Everyone was really excited to write agentic code
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that was when vibe coding didn't even exist it could
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just kind of help you complete sentences now the whole world has shifted and
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cursor has gone through the entire narrative cycle of being the hottest thing
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in the world to being dead and now being right back at that frontier helping
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xai um push themselves to the frontier so it's a huge comeback story and just
Josh:
like it it's a good time to be bullish on cursor you.
Ejaaz:
Know i just realized something. There's a really hot new job role that is becoming
Ejaaz:
more pervasive in AI, and it is called the Forward Deployed Engineer.
Ejaaz:
Anthropic and OpenAI are like obsessed with this role. And what it is,
Ejaaz:
is basically an engineer slash consultant, which goes into enterprise companies
Ejaaz:
and teaches them how to use Clawed or GPT in an effective manner.
Ejaaz:
And the number one problem they're trying to solve is how does all this tool
Ejaaz:
use actually make sense?
Ejaaz:
Like we need to create custom tool use, we need to create a custom agent,
Ejaaz:
we need to create custom orchestration management,
Ejaaz:
Sounds pretty much like cursor and i i wonder
Ejaaz:
if there's a world in the future where um you don't need
Ejaaz:
to get a forward deployed uh employee to
Ejaaz:
come in and like kind of build it from the ground up custom systems for your
Ejaaz:
company you just have cursor which has an orchestrated tool which does all of
Ejaaz:
this for you and that becomes the kind of like new sas version of this forward
Ejaaz:
deployed engineer um yeah either either way i i'm impressed with cursors uh
Ejaaz:
kind of like bouncing around but
Ejaaz:
like undeniable assent as of recent.
Ejaaz:
At 25 years old, Forbes 30 under 30, he's not in jail. So he's hopefully breaking the stereotype.
Ejaaz:
We still have time. We have around probably 60 days until the IPO and potential acquisition.
Ejaaz:
But that is the story of Cursor. We thought it was a really important story
Ejaaz:
to tell, mainly because it was birthed off of my, I'll speak for myself,
Ejaaz:
my own kind of like incorrectness around calling Cursor a rapper.
Ejaaz:
Sometime last year, I was like, they're going to get replaced by Anthropic.
Ejaaz:
But we had a learning recently that I was like, that's definitely not the case.
Ejaaz:
And they have a moat that we haven't spoken about on the show so far.
Ejaaz:
So we hope you found this informative.
Ejaaz:
And we're going to keep tracking all of these processes going forwards.
Ejaaz:
Josh, do you have any final words?
Josh:
Well, that's the moat. That's the change of heart. In fact, you wrote about
Josh:
it this week on our newsletter.
Josh:
So if you're not subscribed to the newsletter, you can do and go read that piece
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on where this change of heart came from and kind of the complimentary version
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to this podcast episode.
Josh:
If you enjoyed, please don't forget to share it with your friend.
Josh:
Leave us a nice comment letting us know what you think about maybe about cursors
Josh:
basics idea are you investing you think this is bullish or not um share with
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your friends don't forget to give us five-star rating wherever you get your
Josh:
podcast and like always we will see you guys in the next episode thank you so
Josh:
much for watching see you guys.