Did Apple Get AI Spending Right?, Microsoft & OpenAI’s New Reality, Where’s Stargate?

23:12M.G. Siegler:I feel like. Yeah. Oh my goodness. The Apple chip versus the Nvidia chip will be a very interesting, the ultimate battle. Like, could you imagine if it goes back to that? Like those two companies famously have a sort of a history where they don't like each other. They wouldn't let, uh, Nvidia GPUs for gaming run in, in Apple systems. And Apple famously is the one company not buying up, uh, as many Nvidia GPUs for these training runs left and right as much as possible. And even when they're doing them, they were using potentially TPUs and whatnot. But anyway, yeah, if that becomes that ultimate thing, and there's lots of talk, right, that NVIDIA wants to potentially obviously build CPUs, which they've been doing for the flip side for inference and everything else that they're going to be needed for in the future of AI.

23:59M.G. Siegler:But there's even talk that they would build their own potential actual PC systems, right, to go after sort of more of those markets and presumably go after more of the hardware front end because right now, obviously, they're the biggest company in the world, but a massive player on the backside of all this AI work that's being done. But if they really want to be a front facing company and brand again, like, do they go for it and start to build their own machines, you know, with their capabilities? Yeah, that'll be interesting. All right. So let me just deliver the punchline to the beginning of our conversation here, which is, you know, is Apple making the right bet on, you know, with spending much less on CapEx?

24:40Obviously, new CEO coming in, and we have signals that he believes in some part that they've been going too light on the AI spending. First, when he came in, when John Ternus came in, first thing he said was, this is the most exciting time to develop products, highlighted artificial intelligence right at the top. Then last week, he was on Apple's earnings call and signaled that Apple would take a somewhat different approach financially than it did under Cook. I'm just going to read a little bit from Bloomberg, an article by Mark Gurman about this. And it's a little bit financial. I'll try to go through it at a high level and then we can talk about what it means.

25:20German writes, under Ternus, buybacks or dividend hikes could potentially slow in size or frequency based off of the conversation that he had on the earnings call, and that may alter Apple's longstanding pitch to investors. We'll generate enormous cash flow and return it to you. Now they have the optionality to do it less, Evercore analyst Amit Dharani said. In other words, Ternus could spring for a blockbuster acquisition or dial up spending on R &D. he could expand the company's AI infrastructure, something its Silicon Valley peers are doing at a furious pace. I think that these things don't happen by accident.

25:55I don't think it's like, let me create the option for myself. Obviously, we know. Ternus has been preparing to take over the CEO position for probably a year or longer. He had to have been thinking about this. This is one of his first major financial signals. Maybe the AI spending is coming.

26:13M.G. Siegler:at the very least i feel like this is optionality right like this gives him the ability to basically go out and spend uh far more to a far greater extent than apple has to date because to that that point like this is a big moment apple has a famous policy in place to try to be you know cash neutral as you're noting they don't do they don't actually do that because they generate so much so much profit that they still hold a bunch of money on their balance sheet but remember there was a time, I guess, in the Steve Jobs days where their cash balance was ballooning to the point where it was just way out of line, out of band versus what everyone else had in the industry because they were generating so much profit and holding it all and not doing major M &A and not doing stock buybacks.

26:58M.G. Siegler:Tim Cook changed that. And I do think that that's a big part of why the stock has done so well under him and it's become a$4 trillion company because he does dividends and does stock buybacks. And basically, they're signaling now, not necessarily that they're going to stop it entirely. And I think that there's still some mechanisms in place to do some of the buybacks that have been promised already. And so they're going to continue that, at least for the somewhat foreseeable future. But they are sending a signal, and it's an explicit signal. They wouldn't say it if it wasn't something there that they might not, they don't have that policy anymore, that they want to remain sort of that cash neutral position.

27:33M.G. Siegler:And instead, they could start hoarding cash again. And that could be used for a few things, as you noted. Either they do M &A, they start to do some M &A, they start to do more R &D. And by the way, in the binary bet piece, I note they did hit a record in R &D spend last quarter. and that signals something interesting that they're spending and looking into more and more future technologies. At the same time, all of their peer group is also spending more. Everyone's, of course, focused on the CapEx because the number is much, much greater. But still, they're all spending record amounts on R &D and Apple is in that group too.

28:08M.G. Siegler:They're spending records amount and this might help them to further accelerate that. They could also sort of retire some debt, I guess. There's other more wonky sort of financial reasons why they might want to do this. But to me, again, I think it's sending a signal. I think they're doing it now for a very good reason, which is that even though Ternus has now been announced in place, it's still Tim Cook running the company. And so this sort of gives them a little bit of cover. So it's like when Ternus actually takes over in the fall, his first order of business isn't to blow up Apple's capital sheet and freak out Wall Street.

28:44M.G. Siegler:It's like, look, guys, we're guiding towards this. Like there might be a time in the future where we're going to need to spend more. And again, to your exact question, I think that it's a reasonable assumption to make that they're going to start spending more on CapEx, too. Even if they're not going to train models, they're not going to train an LLM inference and doing other things that you need to do. We already know that they're doing work behind the scenes. And another key part of this, remember, of this entire announcement was Johnny Surugi, who's Apple's chips chief and obviously a very vital part of the company, given that they announced on the same day that they're announcing a new CEO, they announced that he has a new title, a new C-suite level title.

29:22M.G. Siegler:And I don't think that those two things are unrelated. And I do think that the fact that he's working on, you know, arguably the most important thing that Apple has done over the past decade, which is their silicon. And if they're also, as has been sort of whispered about and rumored, if they're working on their own chips and able to do inference and be able to do more AI workloads, they need CapEx in order to do that. And so, again, all these things potentially are related. And I think this is signaling that more spend is coming for sure. Yeah, I agree. I think Apple is going to make some big acquisitions in Ternus's first year for him to set the tone that it's going to be different.

29:58And I think that's good. I'm in favor of that. two more Apple things before we go. First of all, you know, looking at the calendar, we are going to, you know, right now we're saying maybe Apple is making the right move. But even still, they have a terrible AI product, like nothing. We're going to find out in a month about whether all this like, you know, sort of, what would you call it? Wise restraint is actually wise or whether they're just being stupid and they have no idea how to build these products because new series is supposed to come next month.

30:35M.G. Siegler:Yeah. And I mean, I think it's wild that it's that quick already that it's happening at the same time. Like if you believe the reporting by, you know, Mark Gurman, it's basically like they've still delayed it a couple of times, right. From when it was going to roll out in potentially beta form to get it out there early. And, you know, maybe it's just wanting to keep it back in order to make a big, big wow moment at wwdc when they do actually launch these things and unveil them to the world like look we finally did it sirius finally fixed and we can make a big to-do of it you hope that's the case it's also possible that it's the opposite of that that they're having still some troubles integrating it and and the edge cases right because much like amazon as you brought up with with sort of you know their own work and alexa and whatnot on ai dating back to the siri days earlier Siri days too.

31:25M.G. Siegler:They've had a hell of a time and Google has as well sort of transitioning from their original models, Google Assistant to Gemini, to Bart and then to Gemini and then Alexa to Alexa plus and Apple Siri to, I assume it's still going to be called Siri. Maybe it shouldn't still be called Siri, but it's still like, you know, there's a world in which Apple is having a hard time sort of making that transition just as the others have before them. I think Alexa plus is the best of the bunch. I have to say, I really, I really like using it. It is good. Um, you know, relative, I think to where it was at, it's, it's a good sort of conversational AI.

32:03M.G. Siegler:Do you use it though, for any of the things that Amazon, you know, hopes to use it for it? Do you shop with it? For example, sometimes, uh, but I was shopping with old Alexa, but what I really use it for is to settle arguments in the house. When we're debating things like my wife and I, I think I've said this before, but I'm American. She's European. We have strong opinions on which system is better. So we'll just sort of get into a debate. And then all of a sudden we'll just summon, we could, we changed his name to Ziggy. Like it has some other names. So we'll summon Ziggy and that tends to settle the, uh, settle the argument for us.

32:37M.G. Siegler:And I mean, that sort of speaks directly to what, you know, the iPhone point earlier, it's like, it sounds like you use it basically because you have devices around your house, Right. And it's a good conversational AI. And so you can use it instead of taking out your phone and bringing up chat GPT or Claude or whatnot. And I think that that's, again, a case in Apple's court. Like, what's the best AI device? It's the one you have on you. Exactly. The one in your hands. It's not the one that it's not the theoretical one out there. It's the one that billions of people already have. That's right. OK, last thing.

33:05And then we're going to go to break and then talk about Microsoft and open AI. I think we can spike the football for a moment and you in particular that when this turn is talk was starting to surface. I think we both felt strongly that there was something there and there were voices out there that said, nope, Tim Cook is going to stay for a while. And and here it happened. The transition is underway. way.

33:29M.G. Siegler:Yeah. I mean, again, I, we had talked about this and I feel like beyond sort of the reporting, I think financial times, right. Ends up looking really good in the way that they framed it. And I think that, you know, that was accurate. And I think it was accurate for a reason. I think that there was, you know, that someone wanted it to be known, uh, that cook was very seriously weighing this decision and maybe it wasn't a slam dunk, you know, that it was going to happen for sure. Maybe he wanted to take the holiday time to think it through and make sure that, you know, like unlike Bob Iger in the past, that when he handed off that first go around to Bob J.

34:05M.G. Siegler:Peck and then COVID hit and the world blew up and it ended up being a really bad situation for Disney. Maybe Cook also wanted some optionality and just to see what it was. But we had talked about it seemed like there was some fire behind that smoke because it just was a perfect time for him to do it if he chose to do it because of the way that the earnings were going to play out, which they did in Q1, record, all-time record earnings for Apple. And because of the way that the stock was likely to react, and it's bet$4 trillion now. And because of Apple's 50th anniversary in April 1st, and Cook, obviously, that was important to him.

34:43M.G. Siegler:He made it very clear. And so all of these things came into place. The one thing that I think was downplayed for the most part that I didn't read about too much, but I think was in my mind at least a big indicator of this, was the sort of board machinations of – and maybe this is just because this is sort of my world of investing in VC and whatnot and board dynamics where when Apple announced that Arthur Levinson and Ronald Sugar would be able to stay on board after their 75th birthdays, which is the historic step-down time for Apple board members. And the fact that Levinson was the board chair, that to me indicated that it was very likely that they were waiting on something, right?

35:25M.G. Siegler:They didn't want to appoint a new board chair if Tim Cook was going to come in within a very short amount of time and become that board chair. And I think that that's, you know, in some ways it might be as simple as that, that they basically extended, you know, the contract of those folks and allowed them to stay on, both because they needed a good transition, you know, for the overall company. There's been a lot of turnover, as has been clear over the past many months, beyond just the Cook stuff. There's a lot of executive turnover and even some on the board. And so they wanted steady hands. But you also want steady hands when you're doing a CEO transition.

35:59M.G. Siegler:And I think, again, you could read a lot into that tea leaves-wise. And I think that that ended up being the case. All right. Let's go to break. We're going to talk about Microsoft and OpenAI doing away with the AGI clause and Microsoft allowing OpenAI to work with any cloud provider, which is fairly big news that I don't think has been played up enough as far as the OpenAI story goes. Of course, there's been a lot of stuff in the news, so hard to follow everything, but we'll try to cover this story and also give you the latest on the Stargate infrastructure build-out when we come back right after this.

36:35Most leaders know how work is supposed to happen, but when it comes to how it actually gets done day-to-day across tools, teams, and handoffs, They're mostly guessing. That's exactly the problem Scribe Optimize was built to solve. Trusted by over 80 ,000 enterprises, including nearly half of the Fortune 500, it gives leaders a live view into how work is really happening across approved business apps without interviews, manual process mapping, or extra effort from the team. And because it's continuously analyzing real workflow activity, the insights stay current instead of going stale the moment a process changes.

37:05You can see which workflows are happening, where time is going, and which tools are involved. It automatically surfaces top issues, explains why they're happening, and even recommends ways to fix them with estimated time savings. And importantly, it's built with privacy in mind. So activity is only captured in admin-approved business apps, and user-level data is anonymized by default. The kind of visibility that used to take months, now it's just always on. If you're ready to stop guessing and start seeing, visit scribe.how.bigtech. That's S-C-R-I-B-E dot how slash bigtech. Look, if you have a kid in school right now, you know the drill.

37:38what should take 20 minutes of homework ends up taking two hours and usually ends in tears. And every good tutor, well, they're fully booked for months. This episode is brought to you by Brainly. Brainly is an AI-powered personal tutor built by educators, not a general purpose chatbot. It doesn't just give your kid the answer. It walks them through step-by-step explanations so they actually understand the material. It learns how your child learns, diagnoses when they're struggling, and builds a personalized learning path in under three minutes. Available 24-7, there's no scheduling headaches, and it's just a fraction of the cost of a private tutor.

38:16Finals are coming. Build your teen's study plan now. It only takes minutes. Go to brainly.com slash bigtech to get 50 % off your first Brainly subscription with my code BIGTECH. That's B-R-A-I-N-L-Y dot com slash bigtech. Find the vacation you're looking for in Missouri. Whether you're searching for this, wanting something like this. Oh, that's cute. Maybe up for something like this. Or just really, really need something more like this. You'll find the vacation you want in Missouri. Missouri, it's the getaway that gets... You. Plan your fun at visitmo.com. And we're back here on Big Technology Podcast with M.G.

39:09Siegler of Spyglass. You can find it at spyglass.org. Highly recommend you go check it out and sign up for the newsletter. One of my favorite reads. M.G., let's talk a little bit about the clause, right? So Microsoft and OpenAI famously have had very interesting and weird iterations of their tie-up, including this one clause in the contract that if open AI sort of reached AGI, then Microsoft lost all rights to its technology after that. And last week, basically what happened was Microsoft and open AI came to this agreement where, first of all, open AI could work with any cloud provider and then it immediately ran and announced this deal with AWS.

39:53So it's now available on Amazon for Amazon cloud customers And I anticipate, and given my conversations that I've had with Thomas Curry and the head of Google Cloud Platform, that it will come to Google fairly soon as well. He wants it there. So that's one. But then the second and maybe the weirder thing was this AGI clause is now gone. And basically, Microsoft has access to OpenAI's IP till 2032. And that is the state of the partnership today. Is it too simple to read this as Microsoft has been kind of annoyed working with OpenAI and has this huge stake in the company, realized the two companies would basically be better as far apart as they could be.

40:38And meanwhile, wants OpenAI to grow because it has such a large stake in the company that it says, go ahead and work with anybody. You're not helping our Azure business as much as we thought you would. and so we'd rather just you kind of get out of here be big be as big as you can and we'll just

40:54M.G. Siegler:take the money uh nope not too simple to read it that way i think that's the way i read it i mean this is fun it's just following this whole drama and the saga has been fun especially because they keep insisting that there's you know nothing to this like everything is great and you know we'll get the sam and satya picture tweeted out every once in a while but obviously at this point like There's been enough reports. There's been enough just of these weird deals. The fact that this deal, this new update to their agreement is happening six months after the last one, which was this massive undertaking with a lot of changes made so that OpenAI could clear the path to eventually become the public benefit corporation and get actual equity holders in the company.

41:41M.G. Siegler:And that, of course, would pave the way for them to eventually go public, which they're obviously still working towards. But the fact that the AGI clause didn't go away in those negotiations was interesting, right? Like they tweaked it, but they didn't kill it outright. And presumably that still annoyed Microsoft because at the end of the day, they still had this weird thing hanging over their heads where even though they tweaked it to the point where previously, if I have it right, the OpenAI board could have announced AGI and just torpedoed the deal, basically ended the relationship with Microsoft.

42:16M.G. Siegler:Microsoft and they were able to do whatever they wanted. And so they had this unilateral power over the deal. So Microsoft did away with that in the last go around of those negotiations, but it's still there. They just had to sort of co-agree. And so it seemed like a de facto going away of it, right? Like, was Microsoft ever going to agree to let them go away from their obligations from a business perspective? Probably not. But now it's much cleaner. Now there's no more AGI clause. I don't know when I when I wrote about this, I didn't know if to read into that, that if there was anything to read into it, this is the notion that maybe OpenAI thought it was coming sooner or thought it was coming later.

42:56M.G. Siegler:Right. Like that they felt like that they could do this now because they didn't care. But ultimately, I'm not sure that that matters at all. I think that all that matters is they had a deal that they wanted to do with Amazon. They had famously taken a huge investment from Amazon, which we had talked about previously. Right, which Microsoft almost got sued them for. Right, they were going to sue them because it was a question of the definition of state versus stateless models or getting into the weeds of what they could legally do. And so that was obviously going to be another headache and battle going forward.

43:33M.G. Siegler:And at the same time, OpenAI, I think that there's a very real case to be made that part of the reason why Anthropic has seen the sort of incredible surge by all accounts that they've been seeing is because they have this path where they can sell their models via Amazon and via Google, right? And now via Microsoft as well. And so they have a much more greenfield opportunity because they have all of the major cloud providers that they could sell on, whereas OpenAI was restricted in that they could only really do it. through Microsoft. And so I think that the two sides, it sounds like Satya and Sam got together and basically hashed out a simple, at least relatively speaking, more simple agreement, get rid of the AGI clause and allow us to run our models anywhere.

44:17M.G. Siegler:Oh, and by the way, the most interesting thing to me about this entire announcement was while Microsoft no longer has to pay revenue share back to OpenAI, OpenAI still has to pay it to Microsoft and they have to pay it, even when they're using AWS or potentially Google in the future. And so beyond what's your point about, um, Microsoft being incentivized with the, um, you know, with their equity holding, which obviously they care about and want that to be as, as big of a company as possible so that their percentage of that big company is bigger. Um, the fact that they're going to be making more and more money off of their chief rivals in the cloud, potentially obviously help grease those wheels and make that happen, I feel like.

44:56What's more valuable to Microsoft? I mean, it's hard to know exactly, but having OpenAI grow, let's say 50 % bigger and having your 25 % stake, you know, grow in that same nature. Or if you believe, because I think in your recent pieces, you've stated OpenAI has the best models. It certainly seems like in terms of released models, GPT 5.5 is the best on the market right now. I think you know maybe being the only place making Azure the only place you can get those models is so is just even if it I mean I'm thinking from a Microsoft standpoint even if it hampers open AI a bit uh it's almost like no matter how annoying Sam might be to you like going and working with Amazon that is a tough thing to give up that exclusivity is a tough thing to give up and while I can understand how like you know physiologically the Microsoft might have been kind of like to hell with it, go do what you want.

45:52I still kind of think that it might be a mistake to let OpenAI go everywhere.

45:57M.G. Siegler:So, and this speaks to, you know, the point of my piece writing about the end of the clause is that there's another potential clause in here, which I think was downplayed a little bit in that, and I can just read this part of it. Microsoft remains OpenAI's primary cloud partner and OpenAI products will ship first on Azure unless Microsoft cannot and chooses not to support the necessary capabilities. So to me, that's that and is very important, right? Because it's basically saying, assuming that they worded this like in very direct, very deliberately in this way, which you have to believe that many lawyers poured over, poured over such a statement.

46:34M.G. Siegler:This was a statement in the blog post. Or at least co-pilot. A couple of co-pilots. Maybe co-pilot hallucinated the entire thing, the agreement. But if this is to be believed, It's basically that Microsoft still has a right of first refusal on these new models and new capabilities that OpenAI puts out there. So say when they roll out GPT 5.5 for the first time, there might be a world in which they could say like, hey, we want this to be exclusive on Azure for a set period of time. I'd love to know what those terms look like, how long they could actually keep such exclusivity if they're allowed to.

47:12M.G. Siegler:could be something, you know, like, and if they roll out a new product, if open eye rolls out a new product, they have to offer it, you know, first on, on Azure as well. And it's basically open eyes only out in that situation is again, if Microsoft cannot support whatever it is, or they choose not to. So it's not even the fact that they would say like, yeah, but you guys don't have X, Y, and Z capabilities in Azure. And so therefore we're going to roll this out on AWS, we're going to roll this out on Google Cloud. Microsoft has to explicitly say we will not roll out whatever X, Y, and Z is. Now, who knows if they ever get to that point, but you could see a world in which, say, OpenAI and Amazon come up with some new amazing product offering that they're saying is only available, only able to be done on AWS, and Microsoft getting, again, mad because they would say, like, well, look, we can roll that out on Azure too.

48:05M.G. Siegler:Like, so I don't, I don't agree with your, your ability to roll this out exclusively on AWS. You know, this is going to come up again. Like, there's no way this is the end of this, of this conversation and the end of like the animosity between all the parties here. Like, because to your point, Mike, the fact that Microsoft is, is okaying open AI, they're 25, 27, whatever it is now percent holder you know, giant equity portion of the company working with their chief rival, the biggest cloud provider in the world, is sort of incredible. And so obviously this is still going to come up time and time again, but there's new clauses to be had here.

48:46It seems like anybody who can say the sentence, open AI would not exist without us, tends to get very annoyed at open AI, whether it's Elon or

48:55M.G. Siegler:Microsoft or whatever it might be. Yep. It's never going to end. And this is, yeah, this whole, when they do a deal to your point, they're obviously going to do a deal with Google. They're going to be in GCP at some point. And then it sort of becomes, you bring up an interesting point around Azure and Microsoft's game plan. You know, historically, I think Amazon has more run the game plan, but now to the point that all the clouds are doing it, they all want to offer all the models, right? They're saying like, we want the customer to choose whatever model they want. We want them to be operating on our cloud, but we want them to choose.

49:32M.G. Siegler:We don't care if it's our own model. We don't care if it's an open AI model, if it's an anthropic model. So they're reaching to the point now with open AI's new unlock that they'll all be able to offer basically all of the models. And Microsoft, I guess, with these newer, smaller clauses might be able to say, You should pick Azure because even if you can run all of the other players, you know, models on the other clouds, we're going to get the first look at the new, the latest OpenAI models. And maybe that's enough to sway some companies, you know, to go. You can still choose Claude if you want.

50:08M.G. Siegler:You can still choose maybe not Gemini, but you can still choose something else. Some of these other models, DeepSeek and whatnot, if you want. But we're going to have the first look advantage still, even if we don't have the exclusivity full time. It's almost like movie windowing. It's a weird new world we're entering. Now in theaters, GPT 5.5 before it comes to DVD on Google Cloud. Coming to AWS in early April. Oh, my goodness. Yeah. No, there's truth to that. All right. I definitely want to cover this Stargate story because it's one of those big stories where, folks, if you recall, OpenAI announced this$500 billion build-out of AI infrastructure.

50:50Elon Musk famously said they don't have the money. And then Stargate, there were reports that like, oh, the Stargate company never formed. And Stargate itself didn't get started. And now Stargate is kind of this catch-all word encapsulating all of OpenAI's infrastructure. And MGI, let me know if you think this makes sense. This is like a good window into OpenAI's infrastructure as a whole because I think the conventional wisdom that OpenAI was going to go out and build a lot of its own infrastructure. And actually, it's shifted to OpenAI has secured those data centers as opposed to building those data centers.

51:34And this has kind of happened in a really quiet way that the headlines in the beginning were very loud and, you know, obviously got a lot of attention. but what's happened afterwards certainly has not. So take us into that story.

51:47M.G. Siegler:Yeah. And it got loud to the point where, remember, this was President Trump's first day back in office. He has Elon Musk, sorry, not Elon Musk, famously not Elon Musk there, even though he's a part of the new Doge part of the whole administration. He is not there, But there with him is Sam Altman, Elon's big rival, Moss's son, and Larry Ellison. So the three of them are there alongside President Trump in the White House announcing the Stargate, Project Stargate, which was going to be a$500 billion, which, you know, was a massive deal. It looks sort of quaint almost now when you talk about these numbers, given where these companies are valued at.

52:32M.G. Siegler:But it was a massive infrastructure deal. And obviously, it was a big win for the Trump administration. We could argue that a lot of these deals were maybe already in place, and maybe they were repurposing things and whatnot. But that's sort of par for the course, it seems like, with some of these announcements. But still, regardless, it was a great PR moment and a great moment for all these companies. And it looked like a great moment, you know, potentially for America. We were going to have this huge, huge new AI initiative backed by these major companies, including, obviously, the government.

53:01M.G. Siegler:And so fast forward over the next year, it basically went into place that the first Stargate, which was going to be in a data center in Abilene, Texas, which, by the way, did not start out as a Stargate project. It started out oddly as an Elon Musk project that Oracle was building. A whole range of people were building. Blue Owl Capital is involved with it. A lot of other players are involved with it. But basically, OpenAI was able to bring this in with Oracle to make it now the first Stargates. And it was going to go from there. But fast forward again over the next year, there were just a lot of weird reports about deals getting backed out of and nothing sort of coming online in the way that they had hoped.

53:45M.G. Siegler:They again had talked about of the$500 billion,$100 billion was committed right out of the gates and they were going to come out swinging. And again, it was just really slow going. And the subsequent reports had it that like, yeah, well, maybe we're not going to use this facility. And maybe SoftBank was having a hard time raising the debt needed to get this facility off the ground. Maybe Oracle was having a hard time raising the debt needed to get out. Oh, by the way, Oracle and OpenAI are backing out of this facility, the extension of the Abilene site. And who's coming in? Microsoft, oddly. And so all of these weird things going on.

54:18M.G. Siegler:But you're exactly right that to me, this basically encapsulates the change that OpenAI has made over that time. And I think that there's other plays in here which are sort of tangential but related, including the big deal with NVIDIA, which is another interesting deal, right? We have talked about it previously where NVIDIA announced with much, much pomp and circumstance with Jensen and Greg Brockman and Sam Altman that they were going to invest$100 billion into OpenAI over an extended period of time. And then all of a sudden that quietly went away. Well, what was a big part of that deal? A big part of that deal was clearly in order to secure the debt required for OpenAI to continue these buildouts.

54:59M.G. Siegler:OpenAI has been talking about in various blog posts over the time span since Stargate came out that they needed to come up with interesting and mysterious new ways of doing capital financing for these data center build outs. And yes, to your exact point, the thought process seemed to be that they felt like they needed to own these. They weren't going to own the Abilene site because that was already sort of, again, backed into that was already in place. But going forward, they wanted to own a lot of these. And to me, that just read like they realized that their real threat was Google. Google, of course, famously owns their data centers and owns all of the infrastructure that they need.

55:32M.G. Siegler:And so how was OpenAI going to be able to compete with that? Well, they couldn't, as a massively money-losing startup, be able to raise the debt needed in order to build out these facilities. And so they were partnering with Oracle, with SoftBank, eventually with NVIDIA. But again, all of these sort of came back and were pulled back to varying degrees. And now the narrative, it seems like, has shifted fully. and I've written about this because it felt like that was an easy thing to read in between the lines of that they were changing that narrative that it was no longer going to be Project Stargate building up, you know, these massive infrastructure for open AI, whereas it's going to be now we're going to figure out how to build up this massive infrastructure individually, all these companies, and maybe we'll rope them into Stargate and Stargate will just be the catch all term, exactly as you laid out.

56:19M.G. Siegler:And now that seems to be the world. And the only thing I would say, the other layer of this is the weirdness is related to sort of the evolving PR strategy of OpenAI, where they now write blog posts that are sort of gaslighting in the way that they're basically saying like, yeah, as you know, we announced this as it was always going to be the plan that this was sort of going to play out this way. And that's just not the case. Like, if you look at those old blog posts, they were not laid out in the way that they're currently laying out the current Stargate initiative. And you see it in the pullback again of Stargate, not just in the U S either in the UK and all around the world, like they have these initiatives and it's all tied to, it seems like it's all tied to obviously the need for them to corral spending a little bit if, and when they're going to really try to go public.

57:04Yeah. I mean, one thing I'll say is that this new strategy also shifts all the risk to like the partners through the oracles and NVIDIA's and a lot of the Neo clouds that kind of exists like the Nebius and the core weaves. I mean, we had core weave on and the one thing I couldn't, you know, I thought they did a great job explaining their business when they were here on the show. And obviously, I think their stock popped like 12 % after their appearance. So folks, put your people on Big Technology Podcast. But I think the weakness in the whole story is your whole business is based off of OpenAI keeping this promise of building out the infrastructure.

57:40And last week in particular, when there was that Wall Street Journal report, which OpenAI pushed back on very strongly, that like Sarah Fryer, the CFO, was like, if we don't make more money, we're not going to build more data centers. That caused a real reaction in these partners in the neoclouds. The whole wave of them got hit pretty hard. And that is like if you're looking for areas of risk or weakness in this whole AI story, that's the place I would look.

58:09M.G. Siegler:Yeah. And going forward, the question is going back to their old strategy or what seemed to be their old strategy where they felt like maybe they had to combat Google, right? And Google, again, owns the infrastructure. And what's the reason why you'd want it? Why wouldn't you just want to offload all this, right? Because it'd be great. Well, at the end of the day, you're paying people in order to do this work. And if you own and control it completely, just like we talked about with Apple, owning the whole stack and whatnot, you're going to have better cost advantages over the people who don't.

58:41M.G. Siegler:And so Google's in a much better position, it feels like, at the highest level of being able to do all of the AI work that they need to do because of their massive infrastructure capabilities. Whereas OpenAI just doesn't have that. And look at now what's happening even with Anthropic, where they're scrambling to ramp up on the infrastructure side. because I think OpenAI is a good point that, you know, for all the talk of the past many months that maybe, you know, I don't remember how exactly they framed it, but that OpenAI was spending like drunken sailors or whatnot, you know, like in terms of their infrastructure plans.

59:17M.G. Siegler:There was an upside to that in that they now have the capacity to meet the demands, whereas Anthropic, it feels like, does not. And so again, does Google have those problems? No. Does Microsoft, I mean, all the cloud providers are saying that they're capacity constrained and they are to certain degrees, right? Because it comes down to ultimately chips and or power. But still, if we believe that we're going to get to a world where those issues are eventually resolved, Google's just overall owning of, again, that entire stack when it comes to the infrastructure is going to give them massive cost advantages over what OpenAI is going to be able to offer up at that steady state.

59:56M.G. Siegler:We're not in that steady state right now. And so it's sort of masked a little bit, but there's a reason why they wanted to get there, right? They're not, are they going to be able to compete on a, on a cost basis with, with the Googles of the world and, you know, increasingly the Microsoft's Amazons of the world as we go forward with these massive clouds. And so that's what it comes down to. And that's going to be, but that's like, that's a few years down the road, it feels like, right? And maybe open AI is public already by then. Maybe they get in a situation where it ends up playing out okay from them because they're now a public company.

1:00:30M.G. Siegler:They're able to sort of, they were able to corral spending a bit, focus. I'm laying out a, you know, a good case scenario for them. And they're able to sort of use different monetary instruments to raise what they need, to raise debt and whatnot, to build out their own infrastructure. And because of the way that things are constantly evolving, maybe it doesn't matter so much that they don't don't control the infrastructure at Abilene. And it doesn't matter so much. They control, you know, the first few Stargates. What matters is the Stargates going forward, because those are the ones with the latest chips and the better inference and able to do the better inference and whatnot.

1:01:06M.G. Siegler:And so there's a world, I guess, that they can do that. But still, it's going to be, there's going to be so much money needed to get from A to B, where that's going to be the story of the next couple of years, few years at least. Most definitely. This hour went by extremely fast. We're talking about potentially covering the Musk-Altman trial, but I think when you're on in June, we'll actually maybe have a verdict to discuss. So we'll leave it till June. Talk about things that are moving fast. Like that's going to change 10 times in between now and then. Exactly. So we'll keep an eye out on that.

1:01:37That'll be interesting. And again, folks, definitely recommend you go check out Spyglass at spyglass.org. MG, great to see you again. Thanks for coming on.

1:01:45M.G. Siegler:Thank you, Alex. All right, everybody. Thank you so much for listening and watching. And we'll see you next time on Big Technology Podcast. Some follow the noise. Bloomberg follows the money. Whether it's the funds fueling AI or crypto's trillion dollar swings, there's a money side to every story. Get the money side of the story. Subscribe now at Bloomberg.com.

1:02:31M.G. Siegler:Thank you.