NVIDIA Earnings, Nano Banana 2, Block Cuts 20% of Workforce | Kenn Ricci, Howard Marks, Yash Patil, Scott Morton, Fan-Yun Sun, Adam Draper & Doug Bernauer, Sammy Azdoufal

12:50Scott Morton:Like very, very detailed. This, this is the same report that I pulled out that the, the, the current labor displacement narrative isn't holding up because job postings for software engineers are rising rapidly.

13:05Sammy Azdoufal:Yeah. But it's pretty remarkable that Citadel was able to get that report out so fast. It dropped, I think, on Monday right after Citrini went viral on Sunday, or maybe it dropped Tuesday or something like that. They got that really fast.

13:17Scott Morton:Yeah, it dropped Tuesday.

13:19Sammy Azdoufal:I mean, that's like a quick turnaround for a pretty detailed analysis. I thought that they were just reposting.

13:24Scott Morton:Let's check the em dashes.

13:26Sammy Azdoufal:I mean, the interesting question about replacing white-collar work versus augmenting in new things is that the AI labs are obviously selling into enterprises. That's growing a lot and the revenues are very real, tens of billions of dollars. But when you look to the other startups that have put up really big ARRs, I'm trying to square like Suno just announced that they're selling 300 million in ARR for AI music. And that's a huge number. It's so big, but it doesn't feel like replacement work. yet. It feels like it's just an additive new thing. Like there were just a lot of people that wanted to pay$10 a month for a cool app.

14:14Sammy Azdoufal:Same thing.

14:15Scott Morton:How many non-technical people had an idea for an app? How many people that weren't musicians had an idea for a song? They never could.

14:23Sammy Azdoufal:They're just unlocking all this later. And then you see it with like Higsfield 2 and all the viral loops. And then what's that other one? Not Webflow.

14:33Scott Morton:TBPN Simulator.

14:35Sammy Azdoufal:No, no, no. But Lovable is one where huge, huge growth. And it feels like, yes, Lovable is going into enterprises and whatnot. But it feels like there's a lot of just net new software developers, website builders that are joining that platform and building stuff. And it feels very incremental. It does not feel very substitutional to me. And I'm wondering how much of the Suno story translates to the AI lab coding model story as well. And that's certainly what Citadel is hinting at with the increasing demand.

15:08Scott Morton:Citadel is also showing that new business formation is rapidly expanding. This is from the U.S. Census Bureau. You can see that year over year it is jumping, which we love to see.

15:22Sammy Azdoufal:Did Clouseau delete this post, the Great Recession of 9.52 a.m. to 11.16 a.m. February? Too bad. Let me tell you about Sentry. Sentry shows developers what's broken and helps them fix it fast. That's why 150 ,000 organizations use it to keep their apps working. And let me tell you about Shopify. Shopify is the commerce platform that grows with your business and lets you sell in seconds online, in-store, on mobile, on social, on marketplaces, and now with AI agents. NVIDIA's stock is falling because it needed to clear an options wall of$200 a share. So given a lot of folks were long calls into the print and it didn't clear$200, Brokers are selling stock to reverse some sold calls.

16:04Sammy Azdoufal:It's that simple. This isn't fundamentals. It's market mechanics, says Gordon Johnson. Very interesting. I don't fully understand all the dynamics that can happen with some of the stuff Jane Street does to move around the market. But, you know, we'll see. I would say hold your judgment of NVIDIA for the next quarter.

16:26Scott Morton:Samsung becomes the first Korean company to reach a$1 trillion market cap.

16:34Sammy Azdoufal:Pretty remarkable.

16:34Scott Morton:Over on companiesmarketcap.com. You can see they are sitting at number 12.

16:40Sammy Azdoufal:That's your homepage, right?

16:41Scott Morton:Yeah, homepage.

16:41Sammy Azdoufal:Yeah.

16:42Scott Morton:Homepage for sure. Definitely homepage. Just under Berkshire Hathaway. Pretty good. And Broadcom is above that. But Samsung passed Walmart and Eli Lilly.

16:53Sammy Azdoufal:I mean, increasingly important in the AI era, right? There's a lot of fabrication and whatnot. I don't think it's all the TVs. There was some interesting stat about of the$1 trillion companies, isn't Samsung like the most highest margin, the lowest margin or something? There was some post from yesterday we didn't get to, but there was a lot more context on that. Anyway.

17:20Scott Morton:ramp capital is sharing, says Patriot. And somebody says, I have open clause sending low ball offers on Zillow all day just to make boomers start panicking. And he says, can you give me an update on the Zillow campaign today? The Zillow update, listings contacted today, 372 average offer 70 % below asking positive responses, zero negative responses, 270. One response was violent, but I've reported it to the Tampa police department. No response. 102. Would you like me to keep making offers?

17:52Sammy Azdoufal:70 % below asking? Just you're selling a million dollar property. Can you do 300k?

17:59Scott Morton:Let's bring in John Palmer. Let's bring in John Palmer, our surprise.

18:03Sammy Azdoufal:He's live in the TVP and Ultradome.

18:05Scott Morton:Coming in.

18:06Sammy Azdoufal:You know him. Nice hat. You probably know John Palmer

18:13Scott Morton:as being one inch shorter than you.

18:15Sammy Azdoufal:Well, he's the face of leg lengthening surgery right now, right?

18:18Kenn Ricci:No, they were saying I'm the Goldilocks technology brother. Some people were saying you're a little too tall. Oh, okay. And Jordy, tall in his own right, but maybe not quite tall enough. But sure, at this table. Yeah, so they wanted someone right in between, so I was contacted by your team and happy to be here.

18:32Sammy Azdoufal:I love it. Well, actually, introduce yourself, for those who've been living on the New York Data Center.

18:37Kenn Ricci:Yeah, sure. My name's John Palmer. I was a co-founder and CEO of a company called PartyDow. Recently announced that we're going to be joining Stripe soon, so that was an awesome five-year journey. and also work on a company called Area Technology, which does logo and graphic design for brands like yourself. Shout out to the new logo and graphics package. And yeah, that's nice for me.

19:01Scott Morton:Well, we wanted to hang and do some timeline with you. Let's do it. As a sign of great respect in our culture.

19:08Sammy Azdoufal:Yeah, what you got, Jordy?

19:10Scott Morton:What do we have here?

19:13Sammy Azdoufal:How do you guys enable pseudo for an open client?

19:15Scott Morton:Baby Keem says, yesterday he hits the timeline. How do you fix open clot internal reasoning leaking? Peter Steinberger. What does he actually mean?

19:25Sammy Azdoufal:Does anyone know what that means? So, I mean, we read your post about something small is happening. Hilarious. Yep. How much of that was real? Did you ever actually buy a Mac Mini?

19:35Kenn Ricci:So the entire post was tongue in cheek. Yeah. But I did, unbeknownst to you, I did actually buy a Mac Mini that week. I did set it up. You did set it up. Setting it up was the best 48 hours of my life. Since then, I've used it not very much. So it's, I don't know. I think the reason I bought it originally was basically to tinker and see how real is the hype. I set it up. I installed various plugins and skills. I made sure my setup was super optimized. And basically, I realized the only thing I really needed it for was coding remotely in repos I'm working on or side projects when I'm out and about on my phone.

20:12Kenn Ricci:And you can already do that with a million other tools. Actually, even the Cloud app, you can just connect it to whatever repo. You can literally just use Cloud code in the app. And so there was really very little delta that it provided in terms of value beyond what I was already doing. And I did try some other things. I've been trying to get it to work on Google Sheets and invite people. But the big problem is that the browser use specifically is pretty fragile. And I think it's going to get better. So I don't have buyer's remorse yet. I think that Mac mini purchase will come in handy. but so far it's like, hey, I want to add someone to a Google Sheet.

20:47Kenn Ricci:Can you invite them? And it's like it opens the modal to share. It types in their email and it's like, oh, I crashed. Like it can't get past like the share modal of a Google Sheet. I'm sure I could optimize my setup further, which I'm looking forward to doing. Skill issue. Skill issue.

21:00Sammy Azdoufal:Skill.md issue.

21:01Kenn Ricci:It probably is a skill issue.

21:02Scott Morton:Yeah, you need to get the skill called skill issue and make sure that's running. it is it is uh i don't know if this is like a brilliant pr move from baby keem's team or if this is real but either way it's really really uh funny but yeah it was how mainstream this went uh our lawyer uh got a mac mini uh he's obviously pretty pretty tapped in but it's cool to see

21:29Kenn Ricci:well i was with you at the gym this morning that we should i i'm excited about a market for bootleg skills. So you don't, you don't just like, you don't want to be the guy just listening to hits on the radio, right? You don't want to just be going on skills.sh and getting the, what would Elon do skill? That's, that's pretty, that's everything. And it turns out that one was like actually, it was actually malware. So what you want is within your trusted social circle, people that you spend time with IRL, USBs full of markdown files with bootleg skills that you kind of keep internal. And there may even be a market for that, you know, on Craigslist.

22:01Kenn Ricci:Yeah. And you

22:01Scott Morton:You can say, if somebody says, hey, can I try the USB? Can I borrow it? You say, well, this skill is kind of like a personal thing. It's not really that bad. You need to be gatekeeping your skills.

22:11Kenn Ricci:That's probably the last moat in tech is gatekept skills. Just proprietary markdown files powering the entire global company.

22:18Sammy Azdoufal:I do honestly wonder what the conversion rate from buying the Mac Mini to actually using OpenClaw regularly was. Because I think that your post was funny because a lot of people definitely went through that. Like I went and bought a Mac mini and it did take me like a week even to unbox it because I just had like a busy life and I didn't have time. And then when I did, it was like, okay, well, I didn't have a monitor at home. So I had to play it in my TV. And then like the actual setup does take time. Like 48 hours is not that much of a joke.

22:46Kenn Ricci:And I think on this point, like I do think you need like a solid month at home fixing it. So I've been out of town for a week. I'm here in LA. I live in Brooklyn. And a lot of the time when you hit a wall, it's like, okay, now you probably need to get on the Mac mini yourself and like add whatever environment variables or keys that you need to set up a new account for it yeah and since

23:03Scott Morton:i haven't been home like i can't really like you know on a more serious note amazing like isn't like five years ago everyone was posting like i miss like hacker totally yeah i miss i miss i miss the old silicon valley and it feels like this this feels like uh it feels like we're back yeah yeah a

23:23Sammy Azdoufal:lot of people definitely like open up the terminal for the first time in years i mean this is true for VibeCode generally. Like a lot of people would step back from just writing code or committing code to any GitHub repo. Yeah. The VibeCoding boom.

23:35Kenn Ricci:It's funny because I do really prefer the quad code like user experience to any of the like slicker desktop tools because of a lot of reasons. But it is funny. You're like in the terminal. I think everyone, there's definitely a major factor where like you feel really cool using the terminal if you're not an engineer. But you're just, it's all plain text. Like speaking in plain English. And like it's speaking to you in plain English. But you know, if you're at the airport or in a co-working space, I look pretty performative

24:01Scott Morton:Shrey says Baby Keem just humbled a model, that is actually an exact lyric from Baby Keem's song, Stat that's a good reference Deep Cut and someone else said 2 phone Baby Keem, that's another lyric but 2 Mac Mini Baby Keem

24:22Sammy Azdoufal:and Baby Keem liked it

24:24Scott Morton:he's very online We're working on getting baby Keem on the show to break down his full, his full setup.

24:32Sammy Azdoufal:Yeah. I mean, one of the biggest questions that I feel like is still sort of unanswered is like, is like, what are people doing with it? What, you know, obviously if you're working on a startup and you're building a piece of big software and you're committing to it and you're firing off just managing agents remotely, that feels relevant. Although yes, you mentioned you can just do that already.

24:49Kenn Ricci:Yeah. I mean, I actually, whatever, like I'm definitely not the top person who's like, that's right. but I feel a lot more confident, even for coding. I actually don't love doing it with OpenClaw because I've got my reps in with CloudCode. I trust the harness. I trust its ability to utilize the model in the best way. So even for coding, I'm just using CloudCode remotely anyway. So I'm still waiting to find the use case. I think one interesting thing, though, is just that I think prior to this whole OpenClaw wave, the whole idea was all the AI labs had their computer use demo, and it was running in the totally anonymous VM somewhere.

25:28Kenn Ricci:And I do think these things are way less useful without your personal data and your personal context and the stuff on your machine. No one solved trusting it enough security-wise. My Mac Mini back home, it has its own Gmail, iCloud, whatever, because I'm not going to let it touch my data. But if we do get to the point where you can be confident that it has all the files on your file system and all your accounts, and it's not going to leak anything or make a done mistakes sending it to someone i do think the ability to like do all of your knowledge work on the go even if it's just like i do the same stuff i do today with ai i can just do it on the

26:01Scott Morton:go yeah would be a major leap in terms of like idea guys have been waiting for yes yes it's the

26:06Kenn Ricci:moment idea guys have been waiting for though i think yeah we can riff on that if you want just

26:10Sammy Azdoufal:more phone based work more like okay this is something i need to do regularly turn it into a cron job like the agent should be able to do that yeah yeah i totally think so also i was just really excited about this like Napster sort of moment. Like every idea I was joking with you, like every idea that I have for like something to vibe code is like something that doesn't exist not because of code. Like if you want a fitness tracker, like yes, you can vibe code one, but you can also just go to the app and get a free app store and get a free one, or you can pay. Like there's plenty of products in every category.

26:40Sammy Azdoufal:The things that you want, but can't get are like something that jumps every paywall, something that, you know, so like gives you videos for free. that are behind walls and stuff. And like these walls exist for a reason. And maybe those come down in a world where everyone's like working on open source agents and just sort of showing up as themselves and synthesizing everything. But it feels like it's much harder to actually productize that fully because so many of the things that people want are like, yes, they're possible in open source in the sense that like file sharing was popular. Totally.

27:17Kenn Ricci:Yeah, and even though I will say like, even though I guess so far, I don't want to say I'm disappointed because it was really a learning thing, but I still, it's never a good bet to be like really bearish on new form factor with like novel tech. So I'm still pretty bullish and excited about like three, six months from now, what that same Mac mini could be doing. And it doesn't need the Mac mini. It could be on whatever service, but I think it's going to get pretty exciting pretty quick.

27:41Sammy Azdoufal:Yeah. What did Playboy Carty mean by this? Did he, was he responding to Baby Keem? Is that what we're supposed to read into this? Is he also getting it back to me? Is the Jeremy Irons in Margin Call? Is that the meme?

27:55Yash Patil:This is when he says that the music is going to stop.

27:58Sammy Azdoufal:Oh, okay. So Playboy Cardi is calling the top? I have. You have? Yeah. Whoa. Are you a film guy?

28:07Kenn Ricci:I'm not. Have you seen Borat? I would never call myself a film guy, but I've seen a lot of movies. Have you seen Borat? I have seen Borat. Okay, okay. That's fine. The whole bit is that Jordy hasn't seen enough movies. Yeah. He hasn't seen any movies, in fact.

28:18Sammy Azdoufal:Wow, interesting. RIP the market. We had a good run. The three kinds of stock market days so far. Donald Trump spins the wheel of tariffs and replaces a 5 % tariff on Belarusian wheat with a 22.4 % tariff on Pakistani jet engines. All stocks lose$2.6. Substack newsletter publishes a story about DoorDash going badly. DoorDash down 862%. Global financial system teeters on the brink. And three, NVIDIA announces earnings of$100 trillion, beating expectations by 1 ,000x. Jensen Wang named new king of earth while his stockholders to form the new permanent ruling class NVIDIA down 3 % on the news. This is the press of the market.

28:57Sammy Azdoufal:Are you a day trader guy?

28:59Kenn Ricci:No, no.

29:00Sammy Azdoufal:Are you an investor?

29:01Kenn Ricci:I am an investor. Okay. How do you think about the markets? Are you a businessman? What's your strategy? I'm an investor. I'm a businessman. I don't know. I think my approach is like pretty smooth brain value investing. Like good fundamentals. I'll buy the stock and hold it for a long time. definitely not doing a lot of even even intra-month trade it's it's really like long you're not like a one-man jane street i'm not a not a one-man jane street what about what about crypto i feel

29:25Sammy Azdoufal:like if you're working in crypto even adjacent to crypto there's just so much alpha from seeing essentially like angel investment style opportunities from someone who's building something that's you just know it's going to be hyped and the token's going to moon the issue is

29:41Scott Morton:It's like wildly distracting because as soon as you have enough money, is that I think I think I, I don't like doing a lot of like individual stock trading because as soon as then, then my attention is gravitating towards this thing that's not actually productive.

30:00Kenn Ricci:Yeah.

30:00Scott Morton:And so what do you think?

30:01Kenn Ricci:I think that's true. And I think, I mean, obviously if you're trading like perps in crypto, like you better stay on top of it because like there's a moment to exit or if you just hold it longterm, you'll probably get liquidated at some point. So I just don't touch any of that. You're right, though, that there are whatever. There are like weird things in crypto where like someone, you know, or someone's doing a project and they airdrop a token or something like this. And you wake up a week later and it's worth like whatever month's worth of your salary.

30:27Scott Morton:um so i think that's let's talk about jane street because i've seen maybe 10 000 posts kind of blaming them entirely for uh the just crypto price action over the last couple months you haven't been able to have you been able to find anything that is like definitive um uh obviously the lawsuit came out and they were like we were going back and forth on it because Because they pulled funds out of this liquidity pool right after.

31:01Kenn Ricci:Actually, I don't even think they pulled funds. I actually think they sold into the pool, which is, I guess, the same thing. I don't know.

31:10Scott Morton:But they did it five minutes after. We were saying maybe yesterday or the day before that, okay, it's a public blockchain. In theory, it's not actually a smoking gun necessarily. But either way.

31:25Kenn Ricci:I'm only as informed as you are in terms of the tweets. I haven't verified anything. But, yeah, my understanding is that, I guess, Tara Luna had a lot of money in this pool, and they had planned to pull, whatever, $180-something million out of it.

31:43Scott Morton:Yeah.

31:43Kenn Ricci:And that, I guess, the allegation is that Jane Street heard that this was coming before everyone else. That's, like, the material, non-public information. and so then also pulled their money or sold it, yeah, like just minutes after Tara did it. And you're right that it's public. So I guess like, again, not a source of truth here. I'm like relaying secondhand with confidence information that I read on the timeline. This guy's built for podcasting. Yeah, I'm relaying this to you secondhand without confidence. But yeah, I guess you could say, hey, anyone could see that and they just reacted quickest.

32:19Kenn Ricci:but I think, I guess what that would come down to is what are the internal ops on moving those funds like that? I would imagine that a fund like Jane street with$85 million in this pool, isn't just sitting in someone's like hot wallet met a mask. Right. So they probably would have,

32:33Scott Morton:they could have like some type of protocol or actually software like as some type of protective mechanism and that they clearly are, I don't know.

32:43Sammy Azdoufal:A lot of stuff feels like conspiracy theories that it feels very similar to like the Robin Hood GameStop fiasco where there was like a lot of conspiracy theories about like Citadel purposely tanking markets and the bailing out hedge funds at various points and I always thought that was just like people looking for scapegoats and a whole bunch of market actors just playing hardball because that's the that's the default structure. I don't know.

33:15Kenn Ricci:Yeah. I mean, I'm not that comfortable, like, yeah, speculating on this either. Cause I'm just like, all right, I saw, you know, this in the timeline,

33:21Scott Morton:they are interesting though. DGen CPA says Jane street got my dad drunk and made him cheat on my mom when I was three.

33:27Sammy Azdoufal:See, a lot of people are hunting for, uh, for, you know, uh, deep dish

33:32Scott Morton:from Joyer says Jane street killed my dog.

33:35Sammy Azdoufal:That would not be good.

33:36Kenn Ricci:You're just getting a lot of the cathartic, like crypto people who've just been wrecked by these fiascos, like now have, a viable scapegoat.

33:45Sammy Azdoufal:He's not a bad trader. The market was manipulated by Jane Street.

33:49Scott Morton:Tampa International Airport has come out and said, we've seen enough, we've had enough, it's time to ban pajamas at Tampa International Airport.

33:58Sammy Azdoufal:This is great. Read the next line. After successfully banning Crocs and giving everyone the amazing opportunity to experience the world's first Crocs-free airport, it's time to take on an even larger crisis, pajamas at the airport. Is this real? Is this actually Tampa's airport?

34:17Scott Morton:It's hard to say. What's your airport travel?

34:21Kenn Ricci:I was going to ask you guys, because you're traveling together a lot. I don't know. It's always a dilemma, right? Do you wear, like I get the pajamas thing, because if you wear your nicest clothes, then to me, when I get to my destination, I'm like, those were on the plane. Yeah, it's like, unless I have laundry. So for me, I'm rocking one of my more mid-fit. It's like something I don't care about, something lightweight that packs light as well, because after that travel, that's not coming out of the bag for the duration.

34:49Sammy Azdoufal:Well, there's a contagion theory here, because if I'm in a suit, but I'm sitting down in a seat that someone in pajamas just sat down in, then I'm getting their pajamas all over my suit. And so it's just a vicious cycle. Are you guys business cash on the plane? I've actually traveled in suits many times, and it's underrated. Interesting. I think, I mean, besides the fact that I've heard that you can get upgraded to first class more easily if you're dressed up, I don't know how apocryphal that is. I feel like that's just people trying to justify. I think people just, they see the suit and they're like, respect.

35:21Sammy Azdoufal:Here, please, take my seat. I'm in pajamas. I have the first class seat, but you deserve this.

35:25Kenn Ricci:I think I'd feel more comfortable with that if I weren't as tall as I was. and you are because the suit, you know, more powerful aura, definitely less comfortable, especially if you're in a seat where you're kind of constrained and it's kind of bunching up. It's really not what I feel in your image.

35:41Sammy Azdoufal:What about the TSA ban? Have you seen this? TSA shutting down? TSA pre-check? Pre-check. This is just like a ploy to increase private jet ownership, right?

35:52Scott Morton:Yeah, clearly we can ask Ken Ritchie about this. The lobby is trying to push people into charter.

35:58Sammy Azdoufal:He's kicking the commercial aviation enjoyers while they're down. It's really brutal. What does Joe Weisnthal say about this? He says, I'm very pro-conformity, very anti-social behavior in public, and yet I can't understand why people care so much about other people's airport attire.

36:12Scott Morton:Just say that you wear pajamas to the airport. Just say that you wear pajamas to the airport.

36:17Sammy Azdoufal:Flying is unpleasant enough.

36:20Scott Morton:Burger King is launching an AI chatbot that will assess workers' friendliness and will be trained to recognize certain words and phrases like, Welcome to Burger King, please. And thank you. It's huge. The AI will be programmed into workers' headsets, according to The Verge.

36:35Kenn Ricci:I think Chick-fil-A got access to that technology like a decade early. Yeah, yeah, yeah. Because there's a my pleasure. There's a thank you, there's a my pleasure every time. Yeah.

36:43Scott Morton:Apparently, when McDonald's opened in Russia, there's a quote, after several days of training about customer service at McDonald's, a young Soviet teenager asked the McDonald's trainer a very serious question. Why do we have to be so nice to the customers? After all, we have the hamburgers and they don't.

37:00Sammy Azdoufal:They need to be nice to us if they want these hamburgers.

37:02Scott Morton:What was it? Did McDonald's launch something as well?

37:06Sammy Azdoufal:I thought they launched an AI thing too, wasn't it?

37:09Scott Morton:AI is coming.

37:10Sammy Azdoufal:They launched the big arch. The big arch is the big burger. But then I thought there was, I mean, at this point, every single company has an AI strategy of some kind. And so everyone's putting various stuff. Are you an F1 guy?

37:27Kenn Ricci:um he's a tennis guy i'm a tennis guy but i watch like the f1 you know highlights and recaps i'm rarely like getting up to watch the race live but um play tennis or watch tennis or both um play and watch both a lot um yeah um what does it say best friends should be able to apply to

37:45Sammy Azdoufal:jobs together and get hired as a set new age hired hiring looks like four to six talented people clustering together and building a feature and getting acquired um that's yeah this does

37:55Scott Morton:I mean, a horse did post this. A horse is kind of going off.

38:00Sammy Azdoufal:A horse has been on a generational run. Literally a horse. Yeah, underrated to describe it.

38:06Scott Morton:Riley Walls, we talked about this yesterday, joined the Labs team at OpenAI.

38:11Sammy Azdoufal:Very exciting. We were talking about this kind of offline before the show

38:17Scott Morton:that it seems like there's a lot of opportunity and hiring for not just ability, which Riley Walls clearly is incredibly talented and has an insane, probably the most elite idea guy actually on the pitch playing right now. And that's hard to say as idea guys ourselves. But I think hiring for, you called it hiring for the mind share.

38:44Kenn Ricci:Yeah, I was pointing out, obviously, both Riley and Pete Steinberger, both incredible devs, so not trying to take away from that. But it's interesting that both of those, either hires or acquisitions, also come with a lot of developer mindshare. And I think in a world where if you just run out to the extreme, software production costs go to zero. So being an engineer, being able to build stuff, that skill becomes more of a commodity than what are you trying to acquire or hire for. Maybe in this interim period, it's like a blend. I still want you to be a good engineer, but I also want you to bring me developer mindshare.

39:22Kenn Ricci:And I think to that point, it's like, you know, with OpenClaw, for example, it was definitely the best product in the market, but it was open source. So anyone could have, you know, forked it, copied it, whatever. But I think it really would have been hard for someone to catch up given how much MindShare it had. It was like the fastest growing open source repo of all time. So what you're buying, it's like even though it remains open source and forkable and in like a foundation and other people could build it, the reason you buy Pete in addition to him being a great developer and idea guy, whatever.

39:51Kenn Ricci:It's just that he's bringing the mindshare of all the people who definitely follow him, have notifications on for all his posts. They're following all the updates because he's bringing a mindshare to open AI.

40:00Scott Morton:They probably spent a few, you know, 600 bucks or something like that on a Mac Mini. Some sort of hardware device to run the model. Noah Smith is sharing, the job postings for software engineers have picked up since Vibe Coding became a thing. They had been declining until the early part of last year, actually. And again, this is why, I mean, we've talked about this over and over and over. I feel like there's this, like, two different narratives being spread on Instagram. It's just, like, this, like, labor displacement narrative going super, super, super hard. And then over here, like, it's just an entirely different world.

40:44Sammy Azdoufal:Yeah, I mean. Tyler, how do you interpret the software engineering number? Have we talked about this yet?

40:49Yash Patil:Yeah, I mean, so I think I broadly agree. So when Dario won and Dorkesh, he had this take where it's like you go from AI doing 90 % of coding to 100%, and then it goes from 90 % of all suite tasks to 100%. And so when you're kind of in the interim period, engineers get super, super productive. But then there's a point where it's actually like instead of being super high-leveled because the AI is doing 99%, 99 % now that AI is doing 100 % and it's actually like it just kind of instantly goes to zero so like I think you should imagine that like yeah you actually see you should see a lot of like hiring because everyone wants like a vibe coder at the company but then at some point vibe coding becomes so easy that like you don't need any any like special talent to be able to do it

41:31Sammy Azdoufal:and then you just have the random person I mean yeah so basically if if you if one day you're not

41:38Scott Morton:sitting at your desk you're like you're kind of the the vibe coder in the coal mine yeah canary

41:43Sammy Azdoufal:Oh, okay. Okay. Yeah, yeah, sure. I do wonder about like, because there is a world where software engineering postings and jobs are substitutive for other roles. Like you can have someone whose job is like a business analyst and every day they open Excel and crunch some numbers. And then you could hire a software engineer to automate that task 10 years ago, 20 years ago. And a lot of companies did. And if Vibe Coding sort of eats into other things, you could see the rest of white, it's like the white collar work could go away because the software engineers are doing it. And then the bigger question is like, is like, you're sort of jumping ahead to like a full unemployment scenario where no one has a job.

42:28Sammy Azdoufal:But in the world where there are like a few jobs there, I keep thinking about this thing that Pavel Asperov said, where he was like, yeah, like everyone, if the software engineering jobs go away, like get ready to compete with software engineers in every category because they're going to learn financial analysis. They're going to learn to trade. They're going to learn to sell. They're going to learn all these things. And if they're just like smart and hardworking people and they have AI tools, both helping them upskill, reskill and shift and do whatever they need to in the new role, like you'll just, those people will still be employed.

43:03Sammy Azdoufal:They'll just be in a different part of the economy.

43:04Scott Morton:me so Rachel Carton who's coming on the show soon says by more than a three to one margin young Americans believe AI will take away opportunities there's a lot of uncertainty surrounding AI especially among the youth using it as a joke like liquid death Gucci or Equinox have tried is not a wise marketing strategy yeah the blowback around Gucci was predictable but it was also strange that they chose to use an image that looked like it was at a GTA too I guess It's just like not even trying to look like one of the images that we looked at looks like a normal photograph and looked cool. And the other one like was like a GTA style characters, which really didn't hit the interesting.

43:49Scott Morton:Jira Ticket says, but sir, that's rage bait. If you do this, you'll slopify the timeline and you're posting something that, you know, has no value. We are selling engagement to willing scrollers at the current fair algorithm parameters. uh, Avi Schiffman had, uh, was, was, uh, certainly.

44:10Sammy Azdoufal:Have you ever talked to an AI just like as a, as like a being or like a friend or like it just is like any, any like non-productivity. Like earnestly. Earnestly. Yeah. Just like chatting back and forth with it. Not for any specific business purpose. Have you ever fallen in love?

44:26Kenn Ricci:No, no, no. I really haven't earnestly. I haven't, I haven't really given that. I have like to test it out. I wasn't like wholeheartedly engaging. Yeah.

44:36Sammy Azdoufal:It's weird. I don't know if it's like a personality thing or maybe I'm just too busy or something, but I've never been like, I will, I will, if I'm in a video game, I'll go talk to a NPC on a side quest. I'm down, like I'm down to explore the story that's there, but for some reason it just hasn't clicked with me.

44:56Kenn Ricci:I don't know. I haven't even done that. Even when I was playing MMOs back in the day, I feel like I would always just be skipping dialogue. Yeah, I actually do skip dialogue.

45:07Sammy Azdoufal:It's hard to really buy into it.

45:09Kenn Ricci:I think maybe a good, the synthesis of that would be, I would be down to play a new Elder Scrolls game where there are really good AI models behind the characters. Then I'd be exploring it because I've decided to suspend disbelief to play this game. So while I'm in this game, let me do it. But in my real life, I'm not having a heart-to-heart.

45:26Scott Morton:Next time you call me and I don't pick up, go into ChatGPT and say, pretend you're Jordy. Let's talk about today's work.

45:36Kenn Ricci:I do think that's more interesting. Again, maybe not as a heart-to-heart.

45:41Sammy Azdoufal:I mean, there's companies that do that, like an AI version of an influencer and whatnot.

45:46Kenn Ricci:I mean, you guys have hundreds, if not thousands of hours of live show now. You could probably get a pretty good Jordy model. That's what I'm saying. And if you were like trying to riff on show planning, like it would actually functionally be pretty good.

45:56Sammy Azdoufal:I just have no desire for it. I don't know. Give it a shot, John. Maybe, maybe.

46:01Kenn Ricci:I do think this is an interesting take on the open claw style stuff where like, I think there's a world where, again, security is like a big asterisk here. But like, if I had open claw, okay, so I've been riffing on this idea for a while that I'm just a JPT5 client. So like chat GPT has GPT5. Okay. And I'm John Palmer. So I'm John Palmer transformer. I'm JPT5. Okay. And I'm just a client for JPD5, which is my brain.

46:25Scott Morton:Oh, okay, it's the brain.

46:25Kenn Ricci:And so, like, you guys.

46:26Scott Morton:It's kind of like a harness.

46:27Kenn Ricci:Yeah, I'm a harness. Yeah, well, this is the clothes are the harness. And the brain is the model. Yeah. And my mouth is the client. I don't know. So in that, anyway, I won't go into the whole riff, but I guess, like, so my Mac Mini, I named JPD5. And hypothetically, if I could train it on, like, all the writing and speaking I've ever done, plus my whole file system and it knew, like, what I do on my computer, One version of that is it's single player. It's my open claw. I use it to do my tasks. But I'm really interested in like the multiplayer. Again, this is the security. Security is not ready for this yet.

47:00Kenn Ricci:But if I had my Mac mini and either humans like yourselves could really go like, hey, I need John for something. I know he did that one project and all the files are probably on his computer. Could I go micropay his agent and be like, yo, I need help researching this crypto thing that you did, whatever. and if my agent could actually give you it's like you're not accessing the same one size fits all model that everyone has you're accessing you know that model with some custom you know contacts and prompting or whatever and that would be cool so like you know you have access to jordy anyway but for someone who doesn't you know if that random third party out there wanted to riff with jordy on a marketing idea it'd be cool if they actually could and you had set up that model it wasn't you know opus 4.6 trying to replicate you but it was like all your insider info it's kind of of cool and then you know the agents could do it to each other now jpt5 could be talking to jht5 yeah and they could be like we could be hanging irl and our models could be hanging back at home like kind of like a kid's play date like my model's like hanging out with your model they like hey let's get john involved they go get john coogan's so it's kind of a fun uh i mean there's

48:07Sammy Azdoufal:a take on that where it's like that's dystopian or something but that's not that's not how i feel i I just feel like I'm just bored.

48:13Kenn Ricci:We go brainstorm for an hour on some concept, and then we come home and we find out our models cooked up something way better. Yeah.

48:20Sammy Azdoufal:I don't know. I was looking at the Claude.

48:23Scott Morton:I think it's actually possible, especially if you bring the original idea, and then you say, like I want John Palmer GPT to talk with John Coogan GPT about this idea and like come back with a bunch of ideas. It will work a lot better for someone like John who has spoken on the internet for hundreds of hours.

48:52Sammy Azdoufal:There's so much that I don't say on the mic. That's why you actually want to talk to me.

48:56Kenn Ricci:It would be cool if the model could like decide to price its own services and negotiate with whatever model is hiring it. I mean, whatever.

49:04Scott Morton:Avi Schiffman dropped user interview number three. We're not going to play the video because it's kind of sad, but Gary Tan said, this is not the happy demo path. Apple or Google would never make this one of their launch videos. It's not what you will hear about in a TED Talk, but it's real. AI doesn't get tired, doesn't ghost. A lot to think about with this one. Yeah, Avi continues to find new ways to break through the noise, but in some ways, even though this video feels somewhat dystopian, this is someone who's struggling with mental health, actually gets in an accident in the video, it does feel like the most real, raw experience of AI companionship in this form factor.

49:58Sammy Azdoufal:Yeah, it's a reflection on like, do you remember his interaction with Paul Graham very early on? He was like, I'm building like a hardware device for AI. He put out like some very vague post about his plans and everyone was like, this is impossible. Like Apple will crush you. They have the supply chain, they have the distribution, they have brand, like you will never win in this category. And Paul Graham told him like, in order to win, you have to do things that Apple would never do and be counter positioned. And so at one point he was thinking about doing something that looked like very organic, you know, no smooth lines, no rounded edges, crazy colors that Apple wouldn't pick, like just really moving outside of their design language.

50:42Sammy Azdoufal:So you wouldn't feel like that. And then, yeah, this, this type of messaging is certainly in line with like the anti-Apple. Yeah. And I don't know. It'll be interesting to see where the company goes. People were so bearish on that ad campaign. We were very surprised by how broad the billboard campaign was. They got the Heineken response. Oh, did Heineken like young come out?

51:06Scott Morton:So Heineken also just came out with a new campaign that I want your guys' reaction to. I don't know where exactly it is, but it seems to be global. and it's just like a graphic of a voice note and it says the campaign is don't send a whatsapp note it could have been a beer in person so they're like taking like the total like real world

51:29Kenn Ricci:approach which which i think is i think it's good uh you know i i think you you had matt zeitlin on the show recently and he and i play in a pretty regular like friends poker game not big money It's really like a social hang, but it's funny because like everyone's like multiple people have wives here. Like, why are you going to play poker? That's DGN. Are you losing money? Whatever. But I mean, I had a post a while back that's like in the current like casino economy between like prediction markets, meme coins, like crypto trading, whatever. Like an in-person poker game with your friends is like the most wholesome.

52:04Kenn Ricci:Like if you're going to gamble and lose like 100 bucks, go do it with your friends over four hours, like having a drink and hanging out. And you're solving the male loneliness crisis. I've heard the same argument made for cigar nights.

52:16Sammy Azdoufal:Yeah. It's like cigar is obviously bad for you, but getting together with friends and actually maintaining social, you know, ties is probably really good for long-term health.

52:25Kenn Ricci:It's pretty great, honestly. And if you play, if you play a regular poker game, even with strangers that you only knew through this game originally, like six months out, you've logged like so many hours just like hanging out that it's like a pretty great, like wholesome, wholesome vibe, you know? I should have been to it. Yeah.

52:41Sammy Azdoufal:I'm not a big poker guy.

52:42Kenn Ricci:If you ever knew, we can have you guys.

52:44Sammy Azdoufal:Okay, let me do some ads. Let me tell you about Gemini 3.1 Pro. Gemini 3.1 Pro is here with a more capable baseline. It's great for super complex tasks like visualizing difficult concepts, synthesizing data into a single view, or bringing creative projects to life. And let me also tell you about public.com. No, Plaid. Plaid Power is the app to use to spend, save, borrow, and invest, securely connecting bank accounts to move money, fight fraud, and improve lending now with AI.

53:10Scott Morton:Dan Romero says, I spent five years cloning an existing app with a network effect, building the software is not the hard part. And he was building this app for a very specific sub-community and was able to get a massive amount of attention. So I think this is like a good, clear rebuttal of at least that one part of the Citrini piece.

53:36Kenn Ricci:yeah I think I had posted a while back about how again same thing like software costs go to zero everyone's like oh yes I'm an idea guy I'm going to be crushing it now because now I can just use cloud code and build whatever I want but it's like if you just make one more logical leap it's like okay everyone has that now so if you're just like building your ideas like if you're building vibe coded apps for consumers you're actually in a way more competitive space than it's ever been so I actually think it's almost more like not to riff on the idea guy thing too long, but like actually being paid like a salary to be an idea guy or like making good income to be an idea guy will actually be like a very privileged position where only companies that have like real moats and monopolies on distribution will actually be able to hire like people whose job it is just think on the idea.

54:23Kenn Ricci:Because if you have a good idea and you ship it, you know people will use it because you've already got the distribution. Versus if you're, even if you've got a great idea and you can vibe code it up, if you're in this sea of vibe coders producing way more apps. The other thing is

54:38Scott Morton:there are certain idea guys throughout history that thrives because they had a unique insight. They brought it to market. They executed pretty well, but it just was a great idea at the right time. And so it got traction, attracted great people and things like that. And in a world where an idea can be made, and we've seen this with, I think, a bunch of marketing on X over the last year where if somebody has like a good style of launch video, it will be immediately replicated within a month. And then it will become just kind of like flooded and the meta will kind of die quickly. And so in a world where like ideas are like cheaper than ever, is it really just about like idea guys getting lapped by people that are great at executing?

55:22Scott Morton:And it's like, yeah, you had this great idea. You shipped it. Someone else saw that and is like, that's a great idea. I'm going to ship it today. And then I'm just going to out execute you.

55:31Sammy Azdoufal:someone should launch their startup with a congressional testimony that would be a great aura farm if you just the first time you're ever seeing about this company they're just answering questions and getting grilled by congress people about what their what their plans are it's always like typically the top of the mountain like mark zuckerberg built facebook for decade then he starts getting called to testify then he starts getting sued but if you just come out the gate day one.

55:59Scott Morton:Augustus was kind of, he was like half the time in El Segundo, half the time on the road.

56:06Sammy Azdoufal:He wasn't being called to testify. He was like, you know, standing up. I know, but he's kind of doing it a bit. Yeah. It kind of did work like that. It's very funny. Anyway, let me tell you about Figma. Ship the best version, not the first one with Figma. Introducing Claude Co. to Figma. Explore more options. Push ideas further.

56:25Scott Morton:We got new Apple products. What's coming out? This coming week.

56:30Sammy Azdoufal:Oh, yeah.

56:31Scott Morton:We don't know exactly. It's the Macbook. It has the Apple logo on it, though.

56:34Sammy Azdoufal:We know that. We do know that. Spoiler alert. Oh, that's why they're touching it.

56:40Scott Morton:How are you guys thinking about the touchscreen Mac? Because one of my least favorite things in the workplace is when people put their fingers on my screen. It makes my blood boil. And so, maybe they have some new... I could see Apple at this point. They've got the iPhone sock. They could have a little attachment that has a cleaner, a little spray bottle, an Apple spray bottle.

57:06Kenn Ricci:They could have a magnetized Roomba, and you stick it to your screen while you walk away, and it drives around and identifies the swatches. Yeah, like a Zamboni. Yeah, like a Zamboni. It's so messy. The Apple Zamboni. I don't know. You want to create the problem and then have the product that solves the problem in the same launch. So touchscreen Mac with the Rupa.

57:26Sammy Azdoufal:Yeah, that's such an odd choice because I feel like the whole – humanity has gone down the path of the touchscreen laptop, and it's been available for years, maybe over a decade, and I just feel like it's never really broken through. And if we were at least seeing like, oh, yeah, well, obviously like 80 % of PC users have a touchscreen, and it's clearly a dominant form factor.

57:49Kenn Ricci:Yeah, it's like the reason for the touchscreen is like I'm away from my computer. I can't carry around a dedicated keyboard and mouse, so I guess I just have to figure out a way to use the screen for everything. But it's not superior. If I have room on my desk for a keyboard, I'm always going to be faster.

58:07Scott Morton:Yeah, doing the, like, it's going to look very, maybe it's better for people that aren't as tech native. like i can imagine like like uh like a maybe older family member like you know wanting to zoom in on a photo and maybe it's more native to them to to kind of like use the the kind of like

58:27Kenn Ricci:pinch functionality yeah it feels hard though like if it's in a again i don't even know if this is what they're releasing but if it's on a laptop like i actually kind of have to like reach past the keyboard it seems like a far reach to like like if you're like even keeping your arm held like rays like this for more than like 30 seconds would get i think tiring for most people anyway

58:45Sammy Azdoufal:i don't know the first time i saw it i just thought mac mini honestly because it just looks like well

58:50Scott Morton:they're making the mac mini in the usa they came out with that announcement houston right and i will

58:54Kenn Ricci:be you know getting rid of my current mac mini and buying the usa made in the usa of course running kimmy 2.5 on my made in the usa mac mini well uh we have some videos to watch but we don't

59:07Sammy Azdoufal:have IEMs for you, so we should probably let you go get back to the rest of your day. Thank you so much for coming and hanging out. Yeah, absolutely. And we will see you soon. Let me tell you about Okta. Okta helps you assign every AI agent a trusted identity, so you get the power of AI without the risk. Secure any agent, secure every agent with Okta. And let me also tell you about Console. Console builds AI agents that automate 70 % of IT, HR, and finance support, giving employees instant resolution for access requests and password resets. Let's flip through some of the videos that we missed because there are some good ones in TSMC's plant in Arizona,

59:47Scott Morton:which is spread over a thousand acres, is expected to cost$165 billion.

59:55Sammy Azdoufal:I thought they already had a TSMC Arizona up and running. I guess they're expanding it To the$165 billion? It's still coming online. I wonder when. What day is this actually going to go live?

1:00:07Scott Morton:Got to send Tyler over there.

1:00:09Sammy Azdoufal:Oh, yeah. Won't you be in the area soon? Don't want to dox your weekend plans. Later today. Later today. Maybe I should check it out. Go check it out. Get arrested for trespassing. We forgot to play this AI video of the AI leaders, There's Elon Musk and Sam Altman as old men. Did you want to watch this? Pull it up. This was a very, very bizarre video. Extremely viral over on Instagram. Yes. Oh, yeah. It's in section E here. Let me tell you about Cisco. Critical infrastructure for the AI era. Unlock seamless real-time experiences and new value with Cisco. It features Energem, move the world. Here we go.

1:01:00Sammy Azdoufal:No purpose, but they had a lot of time on their hands. The less people actually did physical work, the more they... You can't restart videos on Instagram. Had lost their jobs. They had no money, no purpose, but they had a lot of time. Visual fidelity is just another level up. I don't know if this is the latest Chinese model, but it's really good. Use the energy of humans to power the machines that took away their jobs. The voices are a little odd, yeah. They're still in the uncanny valley, but the actual video is really strong.

1:01:43Scott Morton:It's deeply wrong to put our technology leaders like this. Should have made them look like bodybuilders. if you're going to do this. Yes. But it is a funny bit. Disturbing.

1:01:54Sammy Azdoufal:Anthropic's going into consumer now. Is that right? Adam Feldman joined. I recently joined Anthropic to lead consumer products, and we're growing. Our goal is to build AI that millions of people will use every day to think better, create more, and accomplish what matters to them. A bit biased here, but this is the most interesting opportunity.

1:02:12Scott Morton:Yeah, so back in Q4, I was expecting that they would care a lot more about that they cared more about consumer that they were letting on. I think like when if you look at their actions this week, you see that when they were. They're lagging. They were really leading with safety. And now that coding is a competitive market, they're obviously dialing some of that back. And when they had actually zero consumer adoption or functionally zero consumer adoption, they didn't care about consumer. But if you look at Keep Thinking campaign, you look at the Super Bowl campaign, you don't do these things unless you care somewhat about consumer.

1:03:08Sammy Azdoufal:It all bleeds together anyway. And so it seems like it's the end of the road for all the AI companies that they have some sort of consumer footprint. It's hard to be that deep. And when you think of like the pure plays, I mean, even Amazon, I mean, they sell a ton of tokens through AWS, but then they also have Rufus because they need to vend the AI into their distribution, into their platforms. And we've seen Lama be vended into Instagram and WhatsApp and all the different consumer interfaces that people use every day. And people will use those for business context in consumer apps. Gmail became dominant in consumer and businesses all over the world because there's a huge blend that happens as people work both, you know, professionally in their personal lives and vice versa.

1:03:59Sammy Azdoufal:They do work when they're at home and all sorts of different stuff.

1:04:02Scott Morton:Raghav has some breaking news. Apple has acquired the rights from Netflix to air Drive to Survive Season 8 on Apple TV+. You were expecting something like this over a year ago at this point, that if you're going to be spending all this money in the F1 movie and the

1:04:17Sammy Azdoufal:F1 streaming rights, you want to be actually be the home of Formula One. Yeah, it's sort of like content vertical integration. Like you want to be able to take the viewer on this journey from novice. So you watch the F1 movie, which has Brad Pitt in it, and it's just super accessible and anyone can throw it on and have a good time. Even if you're not an F1 fan, you can watch the F1 movie and know. And in the movie, there's a voiceover that explains all the mechanics of how the sport works. And so you learn, and you come out of that saying, okay, I'm kind of interested. Then you could watch Drive to Survive, and then you could actually watch the full race.

1:04:55Scott Morton:Trey says, Apple should sponsor Cadillac F1. I get the conflict, but also Penske owns IndyCar and has a team. Well, it's funny because - Wait, what would the conflict be?

1:05:03Sammy Azdoufal:Oh, because they're airing it?

1:05:06Scott Morton:Yeah. So the feed would cut to them more or something? It feels separated. But remember, I had a pretty viral post last year. I forget. I was, I think, quoting Jen Moji and saying, like, Apple's clearly run out of ideas. And obviously, that's not fully true. But I was saying that they should just have a Formula One team.

1:05:30Sammy Azdoufal:She'd be like, you wanted the Apple car? This is the Apple car. It's an F1 car.

1:05:34Scott Morton:Because, like, one car on the pitch that just has no, or sorry, sorry on the track that has grid grid grid yeah three fingers um uh one car out there that's just all white it would go extremely hard there yeah no one's really doing white enough like no logos

1:05:53Sammy Azdoufal:yeah oh no logos at all yeah like not even an apple silver like it like silver just like perfect pearlescent white or something that would be very very cool uh let me tell you about 11 labs build intelligent real-time conversational agents reimagine human technology interaction with 11 labs. And let me also tell you about Turbo Puffer, serverless vector and full-text search, built from first principles and object storage, fast, 10x cheaper.

1:06:16Scott Morton:Semi-analysis says Micron's $100 billion mega fab in New York is at risk of delay due to just six concerned citizens and their frivolous lawsuit. The project has already taken an absurd 1 ,200 days between announcement and groundbreaking competitors overseas who began at the same time now have built and working fabs. Micron spent 612 days on the environmental impact study, including a 45-day public input period. Yet hours before groundbreaking, they were hit with a lawsuit calling the process unnecessarily rushed. 612 days on an environmental study. Comments from local boarders on NIMBY parity, we are not trying to stop any progress, but we don't want this just bulldozed into our area.

1:06:59Scott Morton:This is a real quote. The lawsuit itself didn't come from a ground groups uprising. a California-based workers' rights group went door-to-door in New York seeking plaintiffs. They eventually found just six people willing to sign on, but that's enough to potentially halt the project. That is so insane. Syracuse local news outlets excellent reporting on the group behind the lawsuit. Neighbors, for a better micron, found that before the suit was filed, the group had never held a meeting or a vote. Some members didn't even know who the others were. One member of the suit who, as a former lawyer you might expect to be smart, says that Syracuse has the highest child poverty rate in the country.

1:07:35Scott Morton:What is Micron doing about that? Anyone can agree it's a worthy cause, but do we really think an advanced memory semiconductor manufacturer is the right vehicle to solve it? To be fair, it is legitimate to consider the environmental impacts of a fab. They are large industrial projects that can be harmful if not built and operated safely, but these last minute injunctions are rent seeking, not legitimate environmental concern. We estimate the lawsuits will cost$100 to$500 million to settle, despite the fact they should be thrown out as frivolous. Ultimately, Micron has probably budgeted for it as a small fraction of a$100 billion project.

1:08:08Scott Morton:Still, there is a non-zero chance these six concerned citizens delay the entire thing. If the U.S. wants to compete in strategic technologies like Micron's project, which produces a key ingredient in the AI supply chain, it must reduce frivolous rent-seeking litigation. AI tools will only empower these people as it trivializes nitpicking on complex rules and 10 ,000-page documents. that is uh yeah really wild like this feels uh yeah this feels like any state should be generally excited about having a hundred billion dollar project which will undoubtedly generate hundreds of millions of and someday billions of of tax revenue but uh patrick says nimby's are being replaced with bananas.

1:08:57Scott Morton:Build absolutely nothing anywhere near anyone.

1:09:04Sammy Azdoufal:The Cetrini scenario is now on Kulshy. There's a 12 % chance that the Cetrini scenario happens, which of course is the S &P falling. It's interesting. 12 % feels high, but the rules summary is fascinating here on this market, if at least three of these happen, it resolves to yes. So unemployment rate exceeds 10%. S &P declines more than 30%. Zillow home index value declines more than 10 % year over year in any of New York City, Los Angeles, San Francisco, Chicago, Houston, or Phoenix. Labor share of gross domestic income falls below 50%. Inflation falls below 0 % in any monthly release. And if any of those happen before July of 2028, the market resolves to yes.

1:09:58So sort of interesting

1:09:59Sammy Azdoufal:because there's a whole bunch of different scenarios where something could happen that's not AI related that could trigger one of those. I was reading an article in the Wall Street Journal today about expats, the number of Americans that are retiring abroad is just increasing. And it doesn't really have anything to do with AI. It doesn't really have anything to do with immigration policy. It's just sort of like Americans are wealthy, the dollar is strong. And so they find they, you know, they want to go travel and the internet makes it easier to go live in a different country and hang out and, you know, stay on the beach.

1:10:32Sammy Azdoufal:And so that number has been climbing. And so if that climbs a lot and people leave America, but they stay employed and they leave before they retire, like that could lead to lower unemployment because the labor pool's lower. There's a whole bunch of different things that could happen that could adjust these things. But it's still, it's still interesting because I mean, on the face of it, unless there's some weird alternative scenario, none of these would be particularly good. And fortunately, it's still sitting pretty low at just 11.6 % chance, but probably worth following. Let me tell you about Lambda.

1:11:06Sammy Azdoufal:Lambda is the super intelligence cloud building AI supercomputers for training and inference that scale from one GPU to hundreds of thousands.

1:11:15Scott Morton:Some breaking news. This was sent to me by Jay Yarrow, formerly was at CNBC for quite a long time. Fortune is launching a daily business this show, according to Adweek, the latest in a series of publishers, including The Guardian to do so. Mark Stenberg over at Adweek says this initiative is likely an attempt to imitate the success seen by other daily business programs, such as TVPN. So if you want to make the fortune version of TVPN, there's a role. They're hiring a showrunner for a daily show.

1:11:53Sammy Azdoufal:Do you think they've acquired the tap water required to make that show work?

1:11:58Scott Morton:Yeah, we've got to bring we got to bring we got to remind people that you want to remind people right now yeah so

1:12:04Sammy Azdoufal:i mean if you're if you're going to clone tbpn or or do something that's inspired by tbpn uh we do have a terms of service so if you've ever watched the show uh you've actually technically agreed to this and and buried in the terms of service is is an agreement that if you clone the show or copy a piece of the show or rip off the show or even are just inspired by the show, it's fine as long as on your first episode, you drink a glass of tap water. Just one glass of tap water. Otherwise, I think the gods might curse you. Yeah.

1:12:38Scott Morton:It's really just a nod. It's a sign of respect.

1:12:42Sammy Azdoufal:And also, if you don't do it, you are legally required to pay us 100 % of your revenue forever. Yeah. But that's like a minor thing. The bigger thing is the tap water. Just focus on that. Anyway, we have our first guest of the show in the Restream waiting room. Let me tell you about MongoDB. What's the only thing faster than the AI market? Your business on MongoDB. Don't just build AI. Own the data platform that powers it. And without further ado, we have Sam. Welcome to the show. How are you doing?

1:13:11Scott Morton:How are you doing?

1:13:13Sammy Azdoufal:Thank you so much for joining.

1:13:16Scott Morton:We've got Vacuum Guy. How's your week been? Were you expecting to go this viral? Well, not really.

1:13:23Fan-Yun Sun:Because it's been like 10 days I discovered the bridge.

1:13:26Scott Morton:Yeah.

1:13:27Fan-Yun Sun:So it's interesting now.

1:13:31Scott Morton:Wait, how many? You said, did you say two years?

1:13:35Fan-Yun Sun:No, 20 days. Sorry. 20 days. 20 days.

1:13:37Scott Morton:Okay, breakdown. Why do you start hacking on your DJI vacuum? Give us the full kind of chain of events. Okay.

1:13:46Fan-Yun Sun:Well, I don't even try to hack it. It was just a side project. I saw my little guy cleaning my living room and me playing on my PS5. My brain just makes some association stuff. And I was like, okay, what if I could drive my boy with my PS5 controller? So what did I do? What I do, what I did, I take the DJI app, because DJI have an official app called DJI Home. And I try to understand what happens when my robo vac moves. When it goes straight, when it goes left, and turn right. Check the data between my vacuum and DJI Cloud, and try to replicate it with my PS5 controller. and after maybe one hour I have something working like I could drive it with my PS9 controller but I want to go like further like if my little guy have less than 30 % of battery I want to hear him cry so you feel pain so I need to try the battery status, the percentage of my battery.

1:15:14Fan-Yun Sun:So I continue my reverse engineering of the DJI Home app and find out how to do it, how to ask the battery status. I do it. But what I receive is not like, oh, your robot is 80 % of battery. I got tons of data, a lot of battery status. I didn't understand. So I take this big chunk of data, it was a lot. I open my code, send the file and just asking him like what's going on, explain him what I'm trying to do. And if there's something I did wrong, like why I have this data? And he answered to me like, OK, it's not just for device. There are thousands of others.

1:16:13Fan-Yun Sun:So I take a little bit of time to process this. Well, because it's AI, of course, I double check. I try to manual read my big log file, the data from the vacuum sent back to me when I asked it about the value status. And yeah, it wasn't just my device. So for me, it was like, okay, I have a key, my own user key. Let me control my robot. It looked like my key, I can open other doors than mine. So the software I built to control my robot and also try the full stream video and microphone from the vacuum. I have some environment variable, like the thing you change just to make your software working with another device.

1:17:09Fan-Yun Sun:So I have two stuff, like here, and the serial number of the device. So I was just like, okay, I just need to change the serial number and put another one, and maybe it's going to work. It's happened that I have a friend who is as stupid as me to buy this vacuum. I just asked him his Serian number. So he gave it to me, performed some tests, and yes, everything worked. I saw everything. I hear him. And I can control him to control his robot with a really low latency, which is great. and so it was like a little bit shocked about what we saw so I started to check the DJI back currency program they have one but everything is in Chinese when you go to the website, I was a little bit confused like it's just for Chinese citizen and even the reward was in the local currency of China so I just tweet about it, like hey I'm not a Chinese citizen and I applied for it I didn't have any answer so I applied but in English to the Google C program and no one answered me and I was

1:18:36Scott Morton:like you weren't supposed to, that's not a bug yes

1:18:40Fan-Yun Sun:that's a feature

1:18:42Sammy Azdoufal:it seems like it

1:18:44Fan-Yun Sun:so I was a little bit frustrated about it, so I start live tweeting about what I discovered. I didn't show how I did. I just showed some data I can have, data I can try from DJI Cloud.

1:19:05Fan-Yun Sun:They finally answered to me, just because I arrested them on Twitter by DM. And they said, OK, thank you. We're going to check that and be back to you as soon as possible. They come back to me probably one day after, telling me, okay, we saw the issue, and we fixed it. Thank you for everything. But they didn't fix the problem.

1:19:37Scott Morton:By this point, you have full access and control over 7 ,000 individual devices?

1:19:48Fan-Yun Sun:To be more precise, it was 7 ,000 vacuum and 3 ,000 DJI power. It's like their battery pack or something like that. And connected to internet apparently because I have access to it. But yeah, it was around 10 ,000 devices.

1:20:08Sammy Azdoufal:And how did you get the serial numbers for those again? I imagine that they've sold more than 7 ,000. So what made the ones that actually were showing up for you different than the ones that you couldn't access?

1:20:25Fan-Yun Sun:Can you repeat or rephrase it?

1:20:28Sammy Azdoufal:So I understand how you had your serial number and your key, which turned out to be the master key. And your friend sent you his serial number and then you were able to control his robot vacuum cleaner. but if I have one of these and you don't know my serial number how do you get

1:20:49Fan-Yun Sun:access to it unfortunately it yeah I give it to me without any keys like if I take my own user key yeah and plug it to the mqtt protocol of DJI I see everything so I didn't have to guess the number of everyone I just saw the data like clear um wow uh guys xxx start cleaning for example yeah and like yeah so i didn't have to hack uh and encrypt or crack anything everything was clear and so oh sorry excuse me no no no

1:21:29Sammy Azdoufal:it's just fascinating that uh that all of that data was just because that's actually two different vulnerabilities like one is the the network topology and the other is the access key and you would expect that both would be locked down or at least one but the fact that both of them were um were uh were available to you is uh very disconcerting yes and so just after that yeah

1:21:57Fan-Yun Sun:i don't i'm not gonna say they're gonna lie about fixing it and not fixing it but They probably just fixed some stuff, but not everything. I was talking with The Verge, who started to contact me when I was live tweeting what I discovered. So we planned to do a demo. And during the time we planned to do it, and the real demo, it's like two days happened. And during this time, DJI released another fix, which worked. But not really. It's worked. I can't retrieve anymore the camera, the stream video. I can't retrieve the microphone from other users. It's protected now. And during the demo, I still have access to all of others' data.

1:22:51Fan-Yun Sun:I still have access to the 2D map plan, or Magma Pro plan, sorry, because this vacuum has tons of sensors, and they need like a 3D map of where you live to make sure you know where to go when you need to clean. So I still got this data, and the full telemetric system of DJI. We performed the demo with the Verge, and one day after no more access to other data

1:23:25Sammy Azdoufal:everything was what a remarkable story thank you for sharing it with us yeah how

1:23:33Scott Morton:do you think that how much confidence does this give you that the DJI drones that they've sold millions of could have do you think they're more locked down or do you think this could be kind of a company wide issue

1:23:48Fan-Yun Sun:I don't know but But the last thing about the story, they still have two major issues. We decide with the version not to disclose it publicly because it's kind of bad and I can talk a lot about it. We try to play a fair game with the company. Like, okay, we give you a little bit of time. We know this breach is not as easy to fix as the first one. But they still have two major issues. And indirectly, like really indirectly, you can still have access to stream video from other users.

1:24:24Sammy Azdoufal:That's crazy.

1:24:25Scott Morton:That's so insane. Do you know how many, any idea how many of these vacuums they've actually sold? Do they publish any of that data? 7 ,000. Oh, oh, oh. So they've only sold 7 ,000. So you got access to all of them? I was assuming that you had only gotten access to a subsection. It seems like you got them all.

1:24:50Fan-Yun Sun:They didn't separate the region. It was like a whole bucket, like a bucket with the whole devices.

1:24:57Sammy Azdoufal:Yeah, a new product, and there aren't that many out there. So absolutely wild story. It's just insane.

1:25:02Scott Morton:I hope that they're contacting customers who have them in their homes and letting them know that, hey, by the way, anybody on the entire planet. It's a data breach.

1:25:13Sammy Azdoufal:It's like, unless they can prove that you were the first and only person to ever access to this and you didn't go further, then they have an unknown, you know, liability here that they should disclose. So it will be very interesting to see how they respond. But thank you for the citizen journalism, the hacktivism. Yeah, it sounds like you're handling it

1:25:35Scott Morton:in the right way. And looking forward to whatever you discover next we will be following along. It's great to meet you.

1:25:42Sammy Azdoufal:Have a great rest of your day. We'll talk to you soon. Let me tell you about Phantom Cash. Fund your wallet without exchanges or middlemen and spend with the Phantom Card. And let me also tell you about Cognition. They're the makers of Devin, the AI software engineer. Crush your back lot with your AI engineering team. And without further ado, we have Ken Ruggie, the chairman of Fleckjet, here at the TV.

1:26:07Scott Morton:What's going on?

1:26:07Sammy Azdoufal:Good to meet you. Hey, John. Hi, Jordy. How are you? We're fantastic.

1:26:12Scott Morton:We've been looking forward to this.

1:26:13Sammy Azdoufal:Thanks so much for taking the time to come chat with us. I would love to start with your early career because do I have it right that you actually served in the Air Force?

1:26:24Howard Marks:Yes, I went into the Air Force through the ROTC program in the late 70s. It wasn't that hard to get into the Air Force then. The Vietnam War was still active in people's rearview mirror. and I actually probably wouldn't have been able to go to college if it wasn't for the ROTC program. So it wasn't that I had this strong desire to be in the Air Force, but I did love to fly, and it actually helped me get through college.

1:26:55Sammy Azdoufal:That's amazing. Yeah, I'm sorry.

1:26:58Howard Marks:No, no, I was going to say, it was interesting. I always wanted to go to the University of Notre Dame, and I was going up for a visit, and I heard my parents, we lived in a very small house, thin walls, and I heard my parents talking about they couldn't afford it. And they said, who's going to tell them we can't afford to send them to school? So I went to my visit and I said, is there any financial available? And they said, well, you kind of missed the window for that. But if you were interested in the military, you could go down and enroll in ROTC. So I went down there on a Saturday that was closed, but I decided for whatever reason I wanted to be a Navy pilot.

1:27:33Howard Marks:I'm standing at the Navy ROTC trying to copy down the number, you know, on the old rotary phones. And somebody taps me on the shoulder and they said, can I help you? And I said, well, I'm an incoming freshman and I'd like to fly. And I'm thinking of joining the Navy ROTC. And he looks at me and he says, you sure you've been admitted to Notre Dame, son? Because the Navy has boats and the Air Force has jets. So I'm Colonel Mahler. I'm head of the Air Force detachment. Why don't you become an Air Force pilot? And that's how I ended up in the Air Force. That's amazing.

1:28:03Sammy Azdoufal:So you were flying before college. What was the context of that? Or you were interested in flying?

1:28:09Howard Marks:No, no, no, no, no. I learned to fly through what was called the FIP program, which was an internal program through the Air Force.

1:28:15Sammy Azdoufal:Okay. And then, so I don't know how long you were in the Air Force, but it sounded like when you got out, you had the opportunity to buy a company for a very low amount of money. And I want to know the anatomy of that deal and go a little bit further than you've been, than you've talked about before, because it sounds like one of the most fascinating deals that maybe doesn't happen anymore, or maybe financial engineering still exists like this. But I'd love to know, sort of, when did your business career start? What happened after you left the Air Force?

1:28:45Howard Marks:Well, you know, I always say that I never really identified myself as a businessman. I love to fly. I loved aviation. And, you know, people can And people can go into business because they love business. And those guys could run a candy store. They could run an insurance company. I'm not that guy. I'm an inch wide and a mile deep. And I know a lot about like one very narrow section, right? And so don't ask me to give you advice on running a candy store. But in my early years, I was flying for a charter company called Corporate Wings. And I got there because after the Air Force, I went under reserves.

1:29:22Howard Marks:After the reserve assignment, I flew for Northwest Orient where I was furloughed. And so I started to realize, you know, being a pilot has a lot of insecurities. You know, at that time, remember, in the early 80s, there's only 5 ,000 corporate jets in existence. You know, today we have 35 ,000.

1:29:40Sammy Azdoufal:Wow.

1:29:40Howard Marks:And so the industry was small. It wasn't stable. And so the charter company I was flying for came up for sale. and I called my dad at the time and I said dad I think I want to buy this charter company it's cost$27 ,500 and how are you going to pay for it and he's I said well they have 27 ,000 in the bank so I'm thinking if I buy the stock I'll just use the I'll just use the 27 ,000 and pay pay for the company goes well but I thought you said 27 ,500 where are you getting the other 500 bucks. And I said, well, why do you think I called you? So yes, leverage finance exists today. It just has a lot more zeros to it.

1:30:23Sammy Azdoufal:Yeah. But so when I heard that, it's a fantastic story. I'm confused why a stock would be for sale so close to cash value. Were there a lot of liabilities that were coming down the pipe that then you had to generate the revenue to deliver on? It just sort of defies basic economic logic.

1:30:43Howard Marks:All right, so we're going to tell a story that's known to only a few. And the true story here is that in the early 80s, there was investment tax credit of 10%. And it came in cash. So you could buy a plane. At those times, a citation was a million dollars. You got a$100 ,000 tax credit. And corporate wings at the time was actually called J &J Aviation. and they had King Airs and two citations that were on investment tax credit, but they didn't exist. The owner of this company, a guy named Jeff Tolk, created a fraud around the existence of these planes. I was flying the King Airs. That was in another—I mean, I didn't know anything about it.

1:31:27Howard Marks:But the dispatcher at that company, when the fraud became unveiled and everybody headed for the hills, The dispatcher of the company I was friends with, he said to me, I can't run a company because I'm a dispatcher. We need somebody that could fly, make the customers feel comfortable. So the deal was there because the company was done. And so that was why that situation was unique. But few people know about the citation fraud. That's really how it evolved. We changed the name from J &J to Corporate Wings, and that's how it began.

1:31:59Sammy Azdoufal:So a lot of hair on the deal, but some decent customer relationships and probably some decent employees that could actually fly. What assets remained after you sort of cleaned up the corporation, right?

1:32:12Howard Marks:So we had four airplanes. We had two King Airs, a Navajo and a Cessna 421. Shortly thereafter, the King Airs got worried and they left. So my business was a grand total of a Navajo and a Cessna 421 for you old-time pilots out there. But by the way, I thought I died and went to heaven, right? I mean, I had a business I had. I'd go to the hangar on Saturdays and polish the nacelles of that Navajo. I was so proud of that airplane.

1:32:40Sammy Azdoufal:That's amazing. So then talk about the scale-up, because obviously you have a massive footprint in business now. But what were the key steps along the way? What were the key turning points for you?

1:32:52Howard Marks:Well, I'd say the key turning points were in the mid-'90s when Fractional was evolving. and I had this nice charter company, maybe 20, 25 airplanes at the time, but saw Fractional starting to steal market share in a big way from charter because a consistent level of service, the fact that they could run one way. In those days, charters were always out and back. You paid round trip for the aircraft. So I kind of saw the threat of Fractional. And that's when I came up with the idea to form Flight Options. And Flight Options idea, at that time, nobody had done fractional with used aircraft. They'd only done it with new aircraft.

1:33:30Howard Marks:You had, you had citation shares with brand new citations. NetJets was working with Hawker and Citation at the time. And how would it work?

1:33:38Scott Morton:How would it work mechanically? There'd be basically, uh, uh, somebody would say, Hey, I'm going to buy this jet. I'm going to cut it up into eight pieces or whatever. And then what did they effectively crowdfund it? Like everybody had to come together at the same time. How did that actually work?

1:33:56Howard Marks:You know, I'm sorry, majority, but there was no internet at the time. So crowdfunding. No, no, I don't. I meant like a thing. Yeah, yeah.

1:34:03Scott Morton:Throw a jet up on Kickstarter.

1:34:06Howard Marks:No, but you hit on the key issue. You couldn't start with one jet. You had to have enough jets that people would buy a share because they could catch on very quickly. If four of us own a jet, you have to have at least four of them in case we'd all want to fly at the same time. So you had to get to the point where you had a minimum number of aircraft. And in 1997, I was out trying to raise capital for just that. My idea was to start with 12 aircraft. They were going to be used Citation IIs and used Hawkers. And at the time, I needed$12 million of debt. And I went out to all the debt sources I could get.

1:34:47Howard Marks:I had my great presentation on. I had my shirt and tie and blue suit. And I went to all these places, and nobody would give. I mean, in the end of the day, I think we raised like$2 million based upon having that much money in the bank. It was ridiculous. But this was in late 97. Then in 1998, Warren Buffett buys NetJets. In June of 98, he buys NetJets. And my proposal was literally on everybody's desk. And from June of 98 till August of 98, we came away with over $200 million of financing, General Electric, Boeing Credit, Commercial Credit Corporation, Bombardier. And so all of that was that it was actually in some ways Warren Buffett that got me into the business because he doesn't buy net jets.

1:35:38Howard Marks:He christened the industry and allowed my proposal to have meat to it. So that was really we went live with flight options in November.

1:35:46Scott Morton:Needed somebody to legitimize the industry. And then people looked at your pitch and they were like, hey, this guy is a pilot. He's got all this operational experience. He knows how to work with customers. He's actually a solid bet in the category.

1:35:58Sammy Azdoufal:He's in the right market. Yeah.

1:35:59Scott Morton:Yeah. How much was what there was, there was massive amount of wealth creation in the late nineties. Did that, was how much of that just, just in the, in the kind of internet boom, did that play into, into just like a lot of new demand coming in or was that not a factor?

1:36:19Howard Marks:Oh, unbelievably a factor. Because we tended to be with the used aircraft, we had the same model. It's just the buy-in was lower because a brand new citation was 8 million, but a used one was 2.4. So we had the same model, just the buy-in was lower. And so it became very entrepreneurial. It became nouveau riche were interested in it because they were conserving capital. I can remember there was a company called Internet Capital Group. and they were in the late 90s and they had an annual meeting in Philadelphia and we sold 30 shares at that meeting because everybody was instantly wealthy there.

1:36:56Howard Marks:And then, of course, you know what followed that, right? The dot-com bomb came. And then in 2001, it just went away.

1:37:05Sammy Azdoufal:So was that dot-com crash hard for your business? How did you get through it? I mean, with leverage, it feels like there's always a risk of just actually total capital collapse, total loss. How did you weather the various storms that you've faced throughout your career?

1:37:22Howard Marks:I've been through four, and every one has been different. But that one, because the industry was still in its infancy, there were a lot of other – at one time, there were 55 startups in this area. If you remember, United Airlines had a startup in the space at one time. So I weathered through it by finding a merger, right? As people were moving away and the business was shrinking, find somebody else in deep doo-doo and then merge with them, right? And then create a new story. So that was brilliant. And in that case, it was Travel Air, which was a division of Raytheon. And that was the merger we did to come out of the dot-com bomb.

1:38:02Howard Marks:But, yeah, you're right. I can remember like we came into it combined with 200 aircraft and came out of it with like 120. Wow.

1:38:11Sammy Azdoufal:Explain the dynamic of the buyout with Raytheon. It was a very interesting dynamic. I was not familiar with this particular process, but explain the economic mechanics, how the bidding worked, the results, because I've never heard of that before. It's fascinating.

1:38:29Howard Marks:Yeah. So it's a term called shareholders roulette. Yeah. And it's used often in a company where you have 50-50 ownership. And what it simply says, because normally if a company has a buy-sell agreement, and those buy-sell agreements will say something like fair market value determined by three independent auditors. And if you're the seller in a pinch, you take a 15 % discount. So it normally defines the process of valuing the company. But when you have two 50-50 owners, one person just simply goes to the other person and makes them an offer to buy and to sell at the exact same number. And then the other party chooses whether they want to buy or sell at that number.

1:39:09Howard Marks:So it forces you to a fair number. And if you remember, Raytheon didn't want to be in that business. They're making missiles. So it never occurred to me that they would ever want to own the business. But what I did was I got the business underwritten by a private equity firm, Org Bupinkus. We underwrote the business at that time at$360 million. And I went to Lexington, Massachusetts with my$180 million buy and sell offer to them, thinking, look, they had a business that was going broke, right? I gave them around$180 million. I thought, Raytheon's going to erect a Ken Rickey statue in Massachusetts.

1:39:46Howard Marks:I brought them this$180 million, right? They thought I was cheating them. They thought it was too little and they bought me out.

1:39:54Scott Morton:And so the business at that time, you said was you said it was losing money or you're saying the business. Yeah.

1:39:59Howard Marks:When we merged, their business was losing money. We were maybe making six or eight million. And the combined, you know, the economies of putting them together, right sizing the fleet back office. We thought we had a projection for about 30 million dollars. And to just show you how times are changed, so it was based on that$30 million projection that the multiple came out, and that's how we got to the valuation.

1:40:23Sammy Azdoufal:That's still 12x EBITDA forward number. There's a lot of risk there. That's crazy that they took the deal.

1:40:29Howard Marks:You kidding me? Of course it was crazy. I didn't get it. And you know what? It was the worst day of my life because I didn't want to be out of the business.

1:40:36Scott Morton:Well, yeah, so you have to make this buy-sell at$180. You're ready to buy them out. And you can't. Then you wind up getting bought out. But there's no walking it back. It's over at that point. No, no. They just called your bluff.

1:40:48Howard Marks:You deliver them two letters, one that says, I will sell to you at$180 million. One says that I will buy from you at$180 million, and they pick one and sign it. That's crazy. And I was gone.

1:40:59Scott Morton:You were like, I wish we did a duel, like a proper duel.

1:41:02Sammy Azdoufal:It's remarkable. You know what?

1:41:04Howard Marks:In some ways, it absolutely turned out to be a blessing, but you never see that in real time, right? I can remember those days. I was like, I felt like I'd lost my child. I mean, it really was. But in reality, because I had raised money along the way, I only owned 16 % of the combined of the entity. So, you know, my buyout, I got 16 % of the 180. And then we bought that company back from them in 2008.

1:41:30Scott Morton:No way. No way.

1:41:32Howard Marks:Okay. And we bought it back in total.

1:41:33Scott Morton:Wait, so that was like five years you were waiting?

1:41:37Howard Marks:Yeah, almost six. And by the way, I bought it in the middle of the 2008 financial crisis. We bought it back for$130 million. So we bought it back at$0.30 on the dollar.

1:41:49Scott Morton:What did you do in that window? You just twiddling your thumbs?

1:41:55Howard Marks:I don't have that twiddle-your-thumb gene. I actually began a disastrous process, which leads me to much pain these days. I began to roll up the FBO industry. And I started by buying, I partnered with a company called Allied Capital, and we bought the Mercury Air Centers, which were primary in California. And we started that in 2004, and we sold that company to Macquarie, which was Atlantic Aviation. We sold that to them in 2007. And so we bought - And it's painful because you wish you held on.

1:42:30Scott Morton:You wish, in hindsight, you wish you didn't sell.

1:42:34Howard Marks:Well, what I was going to say was that we were buying them at six times, and we were one of the first transactions that traded at 15 times. Now, today, FBO industry is trading to private equity well north of 15 multiples. And what are they doing? They're raising the fuel prices to people like us to fund the acquisitions of what I started. So, you know, it comes back to roost.

1:42:57Sammy Azdoufal:You mentioned four key crisis moments, four financial crises that you've soldiered through. Dotcom, obviously one of them. Housing, Great Recession, another. What were the other two?

1:43:12Howard Marks:So in the greatest interest rates, 84, when I remember doing proposals to buy an airplane at 21 % interest rate, we had that huge interest rate issue in the early 80s.

1:43:24Scott Morton:Did you have any adjustable rate loans at that time? Or everything prior to that was fixed and you were just having to work off of the 20-something?

1:43:35Howard Marks:Well, it wasn't that I had any debt really at that time. Corporate Wings was more of a management company. I needed people to buy a new plane so that I could run it in charter and become the manager of it. So I had to make a proposal and they said, what's my cost of capital? And I would say, well, the going interest rates are 21%. So that was tough on the industry. And then Gulf War I. In the early 90s, when we hit Gulf War I, the sale of new aircraft came to a standstill during that crisis. So I would tell you, high interest rates, Gulf War I, dot com bomb, financial crisis.

1:44:13Sammy Azdoufal:How is the aviation industry doing today? There were some folks asking about eVTOLs, automation. There's tariffs and depreciation schedules are changing. It feels like a time of transformation, but I don't know if that's just what it looks like from the outside.

1:44:31Howard Marks:Well, I think our industry, the cool thing about aviation is we're always in transformation. We live in an industry that always has something cool coming up. So that's fun. I'll tell you that I don't want to be a Debbie Downer on your program, but we are in a time of abundance. And I think you can, if you've only been in our industry for five years or eight years, you can come to think that this is normal. And we're living through a time where it's easy to see, right? There are two economies. We can talk about the cost of bread. We can talk about the cost of gas. But fractional owners and private jet owners aren't living.

1:45:10Howard Marks:they don't live in that world. The wealth transfer that's going on doesn't live in that world. So we have this one world that's living in really good times because it's very in right now to be, you know, business and wealthy. And that is creating what I think is an overabundance in our industry. I think this is extraordinary. In my 40 years in this industry, this is one of one. And I think we have to be careful not to be complacent about this being normal. Because I say, you know, this too shall pass. But right now, this is the world we live in. We live in this abundant world in our industry.

1:45:50Sammy Azdoufal:What about specific technologies that might change aviation? There's been a lot of talk about flying cars, a lot of talk about eVTOLs, not a lot of production process, not a lot of movement there. But do you have more insight into some of the new technologies that might be coming out in the next decade?

1:46:08Howard Marks:I think the new technologies, I mean, I think the number one thing we're going to see is how windows go away from the airplanes. So today, if you look at the supply chain, if you go back four, three, four years ago, it was titanium. That's been solved. The problem in the supply chain today is windows. If you ask Embraer, ask Michael Maffetano, ask them, why are your deliveries slipping? They say it's the windows. I didn't know this, but 50 % of aircraft windows fail when installed.

1:46:38Scott Morton:And if you get a failure in the air, we have a buddy who had a lung collapse because of a broken window.

1:46:51Howard Marks:So I think the technology that's coming very fast, I don't know if you saw that Embraer announced the smart window in their Prater 600. So they've taken out one of the windows in the aft part of the cabin. And instead of that, they put a digital screen. And you can make that screen just look outside because there's cameras outside. So if you want to see if anybody's stealing your luggage, you could look out the window and see it. But the reality is in flight, you could make it day. You could make it night. You could watch a video. You could make it larger. You could make it smaller. So that is, I think, the start of what's coming next.

1:47:26Howard Marks:We'll get to the point where we'll eliminate passenger windows in rapid form. If you're familiar with the auto aircraft, that is in their development process without windows. And then it won't be long after that that we'll be rid of the cockpit windows because, like you just said, high failure, expensive to maintain. So I think that's a technology that we can pretty much assure is coming quick.

1:47:49Scott Morton:How do you evaluate new technologies? I'm sure anytime there's any type of new private aircraft manufacturer or eVTOL company, they're coming to you, they're pitching you. They want like some type of like LOI, even though they're not going to deliver for, you know, even five, five, ten years. We've seen so many of these companies kind of come and go or have a good render or kind of like demo. And then they never end up getting off the ground at all. So I feel like the tech industry, maybe it doesn't feel like this from your vantage point, but it doesn't even get excited about a lot of these eVTOL projects anymore, or at least the insiders don't.

1:48:29Scott Morton:But how do you— I'm sorry.

1:48:31Howard Marks:Let me separate eVTOL because I think that's a different class from innovations in aircraft and so on. First of all, I think it's my obligation for someone that loves aviation to invest inside and encourage people to come up with new technology. So I will say I've invested in four clean sheet aircraft. I'm 0 for 3 with one that I still have development. So I invested in the Supersonic. Boom Supersonic, no way. I did that. I was at the Ariane. I was an early supporter of the Ariane product. Right. We're an early supporter of the auto aircraft. So I think part of it is just our obligation is to encourage technology.

1:49:15Howard Marks:OK, some of it, some of it is is is self-serving because, you know, you do have a, you know, a duopoly. You know, we do have a polyopoly, I guess, in the in in the aircraft business. And right now, the main manufacturers control so much from the pricing of aircraft, the servicing of aircraft. So encouraging people to be entrepreneurial in the phase is something I feel obligated to. Now, I said I haven't done very well at it, but we'll continue to try to encourage those technologies. I think eVTOL is something different. eVTOL is a totally different market. We've been a supporter of Beta. I did the SPAC at EVE.

1:49:55Howard Marks:These are the Wright brothers. This is early aviation, and we're generations away from those aircraft being suitable for our businesses, that we're not going to have flex jet fractionals. They're not luxurious. They don't have the weight capabilities. A lot of them don't even have no pressurization, no heating, no cooling. People will go, well, what do you need heating for? It's only going to be six minutes. Well, okay, that's not luxury. It's not something we can do, right?

1:50:25Sammy Azdoufal:Yeah, that's funny.

1:50:26Howard Marks:But I think it's a great technology, and it's going to happen.

1:50:31Sammy Azdoufal:Yeah. Why do you think the Concorde failed?

1:50:36Howard Marks:It's a great question because I think it was a wonderful aircraft. There were only 15 of them, so lack of adoption would be the number one reason. It's hard to – 15 aircraft, you can't keep parts in. And, you know, it's just I think it was it's obviously as a financial reason. Now, there were other, you know, environmental concerns at the time. Most of the environmental concerns aren't a challenge anymore. Most of the technology now can deal with that. So it's really I think we're just we're like I think we're on the I think had Arian maybe started a year and a half later. They'd have played into this era of abundance that we're in, but they got caught in before COVID.

1:51:19Howard Marks:And so that kind of hurt them a little bit. I think had they been a little bit later, I think the market's right. I think we're ready for this.

1:51:26Scott Morton:We're ready for supersonic. What's the most number of hours that you've ever heard of an executive flying annually? You don't have to name the person, but just the number of hours.

1:51:41Sammy Azdoufal:600? 600 hours in the 80s. Whoa, okay.

1:51:44Scott Morton:That's quite a bit lower than what the Financial Times was reporting on. But what did they say? Well, the Financial Times was reporting on, I think, Alex Karp. Didn't they have expecting him to be up in the thousand-something range? And we were saying, it seems like this guy is doing deals in Europe and Asia and America constantly. You can imagine he's constantly in the air.

1:52:09Sammy Azdoufal:Think about this one second.

1:52:10Howard Marks:There's only 2 ,000 hours in a year. So how are we going to—

1:52:13Sammy Azdoufal:Well, the headline was that he spent$17.2 million on flying, and they worked backwards to estimate that that was 2 ,457 flight hours. But a lot of that is based on the plane. Obviously, if you're in a very expensive plane,$17 million goes a lot less far.

1:52:35Scott Morton:Could have been the BBJ.

1:52:37Sammy Azdoufal:Could have been the BBJ. Anyway.

1:52:39Howard Marks:Now, I personally fly between around 350 hours a year. 350 to 400 and and you know but i'm doing a lot i go long trips i'm going i go back and forth to operations in europe so uh and i feel like that's a lot of hours but how is how is uh

1:52:57Scott Morton:starlink uh how is starlink uh impacting aviation overall there's a lot of excitement from it rolling out on the commercial space most of the i'm sure all the jets that are there uh in the sort of flex jet fleet have had great, great internet, you know, connectivity in general for quite a while. But what is the what is the ongoing impact?

1:53:20Howard Marks:Well, not to correct you, but that was not a true statement. Connectivity in corporate aviation has been a challenge for many years. In fact, I would tell you it was the Achilles heel because here you go buy the $70 million jet and you get on it and you have one of the old technologies, you know, and it's a disaster. You're like, how can I pay this kind of money and I don't have the internet? Starlink has changed everything. I mean, Starlink, like even for me now, I used to never, through my flights, if I had an eight hour flight, I'm leaving this weekend. I can schedule anything in that flight.

1:53:52Howard Marks:If you want to do this podcast from the air, we can do it because, so you can just keep your schedule and remember it works on the ground. The old technologies only worked in the air. So now you had taxi takeoff, you couldn't do a phone call. You couldn't watch a movie. So disruptive. So disruptive, yeah. No, it's changed a lot. In fact, we did the initial installations on Musk's airplane, and because of that, we got the initial STCs for all of Starlink. So our fleet's been in Starlink very early on. Our competitors are just starting to convert to it.

1:54:30Scott Morton:Yeah, how do some of these, how do the contracts work historically? did some of the old connectivity providers lock some fleets into really long-term agreements? So now they have to make a decision, hey, do we continue paying for this plus Starlink? Because we've just been wondering how slowly some commercial airlines have reacted seems surprising, just considering it's such an easy way to create a meaningful differentiation for passengers.

1:55:01Howard Marks:Well, I think you're dead on, right? Money makes the blind see. So if you try to find the solution to what you're missing, it is the fact that they have those long-term contracts. Now, I don't know enough about all the contracts. I know our contract, you know, our initial contract with GOGO allowed us to, because we have so many planes, we could just add and take off planes at will. And we have not yet done the Phenom fleet because there's a different antenna needed for the smaller fuselage. so we still do have about 80 airplanes that are on the go-go system, but we'll be converting those.

1:55:36Sammy Azdoufal:That's great.

1:55:37Howard Marks:Well, thank you so much for taking the time.

1:55:39Sammy Azdoufal:This was a lot of fun. I learned a lot. Hope to talk to you soon. Love what you guys are doing. Thanks so much. Let me tell you about the New York Stock Exchange. Want to change the world? Raise capital at the New York Stock Exchange.

1:55:54Scott Morton:It's that easy.

1:55:56Sammy Azdoufal:And we have Howard Marks in the Restream waiting room from Oak Street Capital. Let's bring him into the TV pin ultradale. How are you doing?

1:56:03Scott Morton:Welcome.

1:56:05Sammy Azdoufal:Thank you so much for joining. I would love to kick it off with the high level on your theory of the market cycle. And then maybe we can walk into how you're thinking about markets today and over the last few years, but the high-level thesis on the market cycle, how do you explain your overall thesis? Sure.

1:56:31Adam Draper:Well, thanks, Paul. Thanks for having me on today. You know, I've watched what you do, and it's terrific, and I'm glad to be part of it. Thank you. You know, basically, a company or a market or an economy makes progress along what we call a trend line. And so the value that it creates should progress along that trend line. But the point is that while the progress there is pretty steady and gradual, sometimes people get too excited and they overvalue that progress. and the market goes to an unsustainable high. And then something comes along that makes that correct back toward the trend line, but given the way human nature works through it to an unsustainable low.

1:57:25Adam Draper:And then eventually that's corrected back toward the trend line to a high. So the point is that whereas the underlying thing progresses gradually, the price fluctuates wildly around that trend line. And the main reason is the fluctuation of psychology.

1:57:48Sammy Azdoufal:Yeah. How far back do you go when you think about market cycles? Does the same theory apply pre-industrial revolution? Well, you know, I'm old, but I'm not that old.

1:58:01Adam Draper:I didn't mean it like that. I wasn't there. But yes, I think, well, I think, you know, one of the most valuable operative quotations is from Mark Twain, who supposedly said that history does not repeat, but it does rhyme. So the things that rhyme are the elements of human nature that cause these excessive fluctuations around what I'll call intrinsic value or reality. So, you know, the desire to get rich quick, envy of seeing others get rich quick, the belief that it's possible to get rich quick, the fear of missing out, the fact that people get more excited the higher the price goes, which should be worrisome.

1:58:50Adam Draper:So these things, I think, have always been in place. And you read about bubbles that took place. Let's see, the Tulip bubble, I think, was 1620. The South Sea bubble was 1720. And so these excesses, these human failings, have always been part of what goes on.

1:59:10Scott Morton:But this time is different. No, I'm kidding. How do you think a lot of the guests on our show have maybe been through the COVID kind of brief correction and chaos of Zerp, but don't have much else to go off of. that can kind of be an advantage because you could just be so optimistic that even if something, you know, that, you know, you do get a big correction, maybe you get a fast rebound. Yeah. Has being through a number of these cycles ever hurt your performance because you just weren't like optimistic enough or, you know, this this idea that, you know, optimists make money and, you know, pessimists sound smart.

2:00:00Scott Morton:hard

2:00:03Adam Draper:Well, you know, my firm, Oak Creek Capital Management, first of all, doesn't invest for the most part in the stock market. We're mostly investors in what's called credit or debt. But I think that we are what's called contrarians. I think we're my partner, Bruce Karsh, and I are essentially innately contrarian, which is to say that we are most comfortable doing the opposite of what the herd is doing at the extreme because we see its error. And so I think we've always done that naturally. And so we are I think we're conservative by nature. And I always say, by the way, in 1978, Citibank asked me to go to the bond department and start a high yield bond fund and a convertible bond fund.

2:00:54Adam Draper:And and and it worked great because being a lender requires conservatism. if they would have said, I want you to start a venture capital fund and predict when Amazon is going to be created, I would have been a disaster. I'm not a futurist. I'm not an optimist, et cetera. But when I have seen excessive pessimism and excessive gloom causing crashes, and I've seen a few, it has come kind of naturally to go against that excess. And so I think, ironically, one of the things we've done best for conservative people is seize the opportunity at the lows, again, by being contrarian. And I wrote a memo in October of 08 after the global financial, after the bankruptcy of Lehman with the title, The Limits to Negativism.

2:01:58Adam Draper:And there is such a thing as being too negative.

2:02:02Sammy Azdoufal:Do you think contrarianism, like you just described, is purely innate or can it be learned? Is it a muscle that you can build over a career? Is it something that folks in everyday life who maybe aren't professional investors, but might benefit from not getting overheated and falling in with the herd can learn? And if so, how?

2:02:23Adam Draper:I think you can learn these things. You know, I wrote a book called Mastering the Market Cycle. I'm not really trying to plug the book, but who wouldn't hurt? But, you know, and it all talks about how to deal with the cycle. And what I think is, I get all these questions. Can you learn this? Can you learn that you learn this can you can you learn to be unemotional? Can you learn to be what I call a second-level thinker? Can you learn to be a contrarian? The answer is I can tell you why it's important. I can explain to you why it's essential Is it something you can ingest? I don't know, you know I For some reason or another come by it naturally it's easy for me relatively by the way i don't want to give the impression that when i make these calls at at the at the highs or the lows that i do it without some trepidation i'm never sure anybody who's sure is an idiot you know they say there are two kinds of people who lose a lot of money the people who not know nothing and the people who know everything so i i'm not trying to imply that it's easy, but it does come fairly naturally to me through the combination of my emotional makeup and the application of logic.

2:03:45Adam Draper:If somebody else doesn't have my emotional makeup, they could learn the logic. Maybe they could learn to do it. It might not come so easy. That's all I can say.

2:03:56Sammy Azdoufal:How do you think about the concept of Black Swan events or the integration of black swan events into a market cycle? Because going into COVID, I was looking at the health, the fundamental health of the American consumer, the fundamental health of the economy. Everything looked very strong. And I think that's why the economy rebounded as quickly as it did and then sort of overheated. But do you need to put black swans out of your mind? Are black swans even a real thing? Like, how do you think about that concept?

2:04:28Adam Draper:They're a real thing. I don't think you can do anything about them. My term, the term I've always used for what Taleb calls a black swan, is an improbable disaster. And by the way, they're not all disasters. There are improbable bonanzas too. But I mean, if you just think about the improbable disaster, it is something where if it happened, it would be disastrous. But it's very improbable. What do you do about it? And in my in my opinion, you can't do anything about it if you say, well, I'm concerned that there could be, you know, an eight hurricane earthquake. I'm concerned that there could be four hurricanes in a row.

2:05:14Adam Draper:I'm concerned that there could be nuclear war and I'm concerned that there could be inflation at 20 percent. Well, you can protect yourself against that. You can call that guy who lives in Omaha. he'll write you an insurance policy to protect you against all of those things. You just won't like the premium. And if you take out that insurance policy and you pay that high premium and you're protected. In the vast, vast majority of years, it's not going to happen. And after a little while, you'll get tired of paying those premiums and you'll stop, probably in time for it to happen.

2:05:50Scott Morton:Yeah.

2:05:51Adam Draper:So so so you really can't. And the things that are in the way, way distant tales of the probability distribution are just things you have to live with. That's real life.

2:06:06Sammy Azdoufal:How do you think about the education that goes into becoming an investor and how that's changing? It feels like it's easier to learn without mentors because everything's been compacted into AI and open sourced on the Internet. And you can watch great lectures and podcast interviews. What's changed and what's the same? Well, my perception is that AI, number one, AI has a mentor.

2:06:33Adam Draper:It reads everything that ever happened and ingests it and remembers it and can find it. and then ai becomes a mentor and and and uh it it tells you uh you know how to think it gives you examples of thought processes so so i think it just makes it so much easier to learn you know and uh uh i wrote a memo in december i write memos to my clients that october was the 35th anniversary. And I talked about AI in a memo December 9th. And then I have a son named Andrew. He's in the tech world. He's a terrific venture capitalist. He's co-founder of a group called TQ Ventures. And given the recent events, he pushed me to revisit that memo and update it.

2:07:31Adam Draper:And he had this great idea. He said, why don't you why don't you ask Claude to tell you about what's been happening? And so he and I developed a request which we input input it to to to Claude. His help was invaluable. But of course, he does this all day with all of his brilliant founders. And and so Claude wrote me a tutorial which enabled me to to update the memo. And I learned an incredible amount, you know, from in a field that is not native to me through doing that. And so it was a mentor to me and it can be a mentor to others. But as we know, you have to ask it the right questions. and Andrew and his buddies helped me do that.

2:08:25Sammy Azdoufal:Yeah, how has technology changed the credit markets or just investing in credit over your career? I can imagine computerization, the internet, there's sort of a continuum of advances that just help information flow more freely. AI feels like just an extension of that but how has the actual work changed over your career?

2:08:54Adam Draper:Right now, AI is helping us marshal data with a thoroughness and a speed and an error freeness that we never had before. I don't think it has changed the process because it what you see it all comes down in the end to looking at a company and assessing the probability that it'll pay its debts and I don't you know I don't I think we're still better at doing that than than AI is oh by the way I should tell you that an hour or two ago we put I put out a new memo updating the December memo. You probably haven't seen it. I may make reference to it. Please. Pardon me?

2:09:42Scott Morton:No, I was saying we do have it pulled up, but for the audience. Okay, great. So, you know, it says in there, and I asked Claude, and Claude said, look,

2:09:57Adam Draper:the truth of the matter is that the thing that AI is the weakest at is doing analyses on brand new things where there aren't established patterns. And I think that that's a lot of what we do. And so at the present time, I think AI can marshal the data, organize the logic, frame the question. I don't think it's the top of the heap in answering the question yet. Of course, I can always be wrong. But, you know, and I say in the memo that I think that what AI does is is predicts based on past patterns. It predicts what kind of companies will pay their debts and whether a given company will pay its debts.

2:10:51Adam Draper:And it puts forth a hypothesis with regard to an individual situation. and it tells you you should or shouldn't invest. I think, as I understand the status of things today,

2:11:09Adam Draper:you need people to check the hypotheses. I don't think I would make an investment commitment based on the hypothesis alone. I would want to check it, but I think it gives you a great starting point. And by the way, so I wrote the memo. I said to Andrew, do you want to look at it? He says, why send it to me? Why don't you send it to Claude? Ask Claude to take a look at the memo. So I did. And I was absolutely, and if you read the memo, I was absolutely dumbstruck by what I got back. Because it responded to me. I said it responded to me. It felt like a note from a colleague or friend. It was personal.

2:11:53Adam Draper:It was warm. It drew analogies to my 35 years of memos. It talked about some of my, some of the people I respect. It injected humor. It was, it was complimentary. It, you know, it said, it talked about a section that it thought was really good. So I wrote to Andrew. I said, is, is, is AI, is Claude an ass kisser? Because I thought it was maybe unduly complimentary. He said, well, dad, ask it to be hypercritical. So I wrote back. I made a few corrections. I said, now, would you please be hypercritical? So it writes me back and it says, do you want me to be hypercritical or hypocritical? It's making a joke, you know?

2:12:45Adam Draper:And so, you know, I think that it's going to change our world. But I think that we have an activity in our investment world called indexation, where rather than pick stocks, a lot of people who invest in the stock market now instead just invest in a vehicle that emulates the S &P 500 or some other index. And indexation has put a lot of people out of business because a lot of people used to A, do an inferior job, underperform the S &P, and then B, charge highly for their services. There's something wrong with that. And a lot of those people are out of the business now. And the majority of equity mutual fund money is managed through indexation or passive.

2:13:38Adam Draper:I think AI will advance that. What it does is it just raises the bar and weeds out the people who don't add value. I don't think it'll replace the best, but it'll replace a lot.

2:13:56Scott Morton:How are you personally comparing the AI build-out and the advancements in the various models and stuff happening at the application layer all the way down to the hardware layer to the internet build-out? There's so many different comps from investor psychology to overall consumer psychology. We were talking earlier this week on the show about the Battle of Seattle and the protests around the Internet build out and the fear that people had around jobs getting outsourced, going overseas, as well as just disintermediation. And it feels like so many of the radical predictions that people made about the Internet are still being made about AI.

2:14:43Scott Morton:Some of them came true with the Internet, but they came true over a decade or two. And in some ways now it feels like AI really is just a continuation of many of the same trends that the Internet brought along. But some of the predictions are even wilder this time around. Well, I think that, first of all, I am in that debate. I'm on the side of the warriors vis-a-vis society.

2:15:14Adam Draper:I, by the way, remember I said 10 minutes ago, I'm not that much of an optimist. Yeah. So I can imagine the jobs eliminated. And I am not imaginative enough to think of all the jobs that will be newly created. So I see a net decline in jobs. And I do worry about that. AI is similar to the technological bubbles that I've seen. And the technological bubbles probably go back all the way to the railroads, you know, 140 years ago. But the power of AI relative to the predecessor technologies, I think, is vastly higher. The speed of innovation is vastly faster. I think innovation, I think if you look at the Claude and all the coding models and the way they've progressed and the way anthropics revenues have progressed.

2:16:21Adam Draper:I think you have to say that this is faster than anything we've ever seen before.

2:16:24Scott Morton:Well, and it's because you have the distribution that was laid starting over 20 years ago.

2:16:32Adam Draper:But I think the speed at which AI can innovate is faster than the speed at which society can adjust. so you might say it'll catch up but i think you could i think at minimum you're talking about a significant period of dislocation how the other thing the other thing that we haven't touched on but is is is the biggest difference between ai and everything else we've ever seen is the autonomy and all the other technologies starting with the railroad up through the internet were I would call labor-saving devices. We had a job to do, and the new technology did it better, faster, cheaper.

2:17:17Adam Draper:AI, it's different. It's not just going to do the job we used to do. It's going to design new jobs. It's going to assign new jobs. It's going to take on work we haven't asked it to take on. It's going to take on work we didn't think it could do. and it's going to operate at some point in time without instruction. In the memo, I talk about the fact that ChatGPT brought out a new model earlier this month. And in the write-up for the model, they said, basically in English, AI, the model, helped us design the model. There's never been anything analogous to that before. So when I think about this extreme level of competence, speed, etc., I think of dislocation for people.

2:18:15Adam Draper:And, you know, there are people who say, and I reference in the memo, there are people who say, oh, I have great news. People aren't going to have to work. To me, that's terrible news. you know I think we get a great deal from our work other than a paycheck yeah and and how is are those elements of life going to be replaced

2:18:41Sammy Azdoufal:it's a wild time how are you feeling about the United States relative to other countries the rest of the world there's a lot of uncertainty generally politically at the same time America seems to have a lead in the AI race. How are you feeling about just America broadly?

2:19:02Adam Draper:Well, I don't know enough about the technology to know where we stand in the race or what it's going to take to win the race or anything like that. But I think, you know, and there was, the big news recently was that Anthropic is going to, I don't even know the right terminology, but let's say be less reticent in certain areas to apply technology. Because in America and in a lot of developed countries, we have these things called scruples. Oh, no, you know, I'm not going to do that. You know, oh, yeah, well, yes, you could do that, but I'm not going to do that. This is an arms race. And, you know, we're America has never had a serious rival before, never had a serious rival.

2:19:59Adam Draper:We thought Russia was a serious rival. We were wrong. It was never really a threat other than militarily or, you know, atomically. But we've never had an economic rival before. Now we have an economic that we have a rival in many dimensions. And of course, it's China. And and I think that I will be at the core of that of that rivalry. And, you know, if if we slow down because of our scruples and they carry on pell-mell, I think that'll help them win. And if they get control of AI, if they have highly superior AI, I think that could be one of the things that makes life tougher us. So and by the way, I consider myself as having scruples, but I worry about what this implies.

2:20:59Adam Draper:And by the way, if you want to think about scruples, think about this. One of the areas in which we have a problem, which is not highly talked about or acknowledged, is a rare earths. And rare earths are ubiquitous in many areas of technology, and we're dependent on China for that. So here's a question for you two young guys. Before China developed its primacy in rare earths, who had primacy? Wasn't it America?

2:21:28Scott Morton:I think we did, and we decided it was dirty and it was worth shipping overseas before. Bingo.

2:21:35Adam Draper:Yeah. A hundred, you get a hundred points for that answer. Let's go. Thank you. It was us. And as I understand it, as I understand it, most of the rare earths came out of one mine in California. And my guess is some ecologists concluded that, as you say, that it was dirty. And so we maybe we shouldn't do it. And then guess what? And guess what China said? We'll do it. We'll do it. And we'll do it cheaper.

2:22:05Sammy Azdoufal:Oh, yeah.

2:22:05Adam Draper:And so they got all the business. Yeah. And that's how you create a dependency.

2:22:10Sammy Azdoufal:Yeah. And there's a big question about how does the dirt over there just come right over here? Like potentially, you know, I think it's possible. It's all one atmosphere. But look at what happened with energy in Europe. Yeah. Oh, yeah. Germany had a bunch of nuclear reactors. Crazy.

2:22:27Adam Draper:And then they said, well, we don't really like having nuclear reactors because it's not ecological. And Russia said, oh, we'll do it for you. We'll supply your energy. And you develop a dependence. So the point is, what you had in both cases is you had decisions made on purely economic terms in areas that probably should have included some strategic decision making, geopolitical strategy. But it was all ceded to the economists and the ecologists. Yeah. Hard decisions. These are hard decisions.

2:23:05Sammy Azdoufal:They are. Can I completely switch gears and ask you sort of a personal finance question? I've heard this rule of thumb that the allocation between stocks and bonds should be tied to your age. If you're 50 years old, you should be 50-50. If you're 25 years old, you should be 25 % in bonds. But recently, the bond markets and the stock markets have been more correlated than decorrelated. And I'm wondering how you think the average person should think about the equity markets versus the debt markets.

2:23:40Adam Draper:First of all, there are no numbers that hold true for everybody. So any rules of thumb that have numbers in them, you have to throw out.

2:23:47Scott Morton:The only rule of thumb is no rules of thumb.

2:23:51Adam Draper:Who was it? Somebody once said that every generalization is flawed, including this one. Yes. Right. So. So.

2:24:02The point is that stocks and bonds have different qualities, existential qualities, and people

2:24:11Adam Draper:should understand what the difference is. And it's not the difference is not merely that one is called stocks and one is called bonds. You have to understand the difference. And then you have to figure out for yourself what the right, I would say, risk posture is. And each person and each company and each insurance company, each sovereign wealth fund, each investor should figure out their normal, appropriate risk posture based on age, wealth, income, sufficiency of age of wealth and income, aspiration, number of dependents.

2:24:49and intestinal fortitude, the ability to live with fluctuations.

2:24:54Adam Draper:And it's different for everybody. So, you know, that rule of thumb generalization hints at a direction, which is to say maybe younger people whose lives lie ahead should take on more uncertain paths, which have a higher trajectory, but more uncertainty. and older people who are approaching retirement should have a less uncertain path and more dependability. Makes perfect sense. The number using something like your age as the answer is silly. But I think everybody has to think about those things. And it's not easy to come up with the answers, but you better do it because it's damn important. Yeah.

2:25:36Scott Morton:Last question for me.

2:25:40And

2:25:41Scott Morton:Were you ever deeply pessimistic about the Internet, about what the Internet's impact would be on society in the way that you are around AI and potential labor displacement? That's a great question. Because you could have pessimism about, hey, we got a lot of fiber in the ground that's not actually being used, that we're headed off a cliff here. that's kind of like maybe more like economic pessimism but uh societal pessimism i'm curious

2:26:13Adam Draper:you know uh i think the honest answer is that i never was i never knew enough about the internet uh to reach that point of pessimism because you didn't have the internet you didn't have well i didn't have lms i didn't have my son kicking me in the butt uh making me do the research. I mean, he has really pushed me. He said, dad, you have to know this stuff. And he does it all day. And, and so I think I know much more about AI than I ever did about the internet. And, and so, so the answer is I never did reach that level of pessimism with regard to the internet.

2:26:53Sammy Azdoufal:What's the, what's the fundraising cycle like for Oak Tree Capital? How often do you raise funds? What's the latest fund?

2:27:02Adam Draper:Well, that's an interesting question. I mean, we have a lot of different kinds of funds. We have some which are very plain vanilla and produce a steady return fairly dependably. We don't do anything in what's called high-grade bonds or investment grade. Everything we do is non-investment grade. So we don't do a gilt edge. But so nothing we do is 100 percent dependable. But but and so we we have some that are mundane and modest return, moderate return. And then we have some that are highly aspirational and and and often tied to the cycle. I think it's fair to say we're the world's leading investor in distress debt.

2:27:48Adam Draper:And so sometimes when there's a lot of distress, there's a lot for us to do. we have the ability to invest a lot of money and historically have high returns. When everything is placid, there's not much to do in distressed land. So we have to kind of go into remission. And we don't raise much money in those funds. And we raise small funds with which we can do very selective things and make do with a modest supply. So a lot of our fundraising is tied to that. The other thing is we're worriers. When in good times, most people plunge ahead, we tend to pull back because we get worried because they're too damn optimistic.

2:28:36Adam Draper:You know, Buffett says, Buffett says the less prudence with which others conduct their affairs, the greater the prudence with which you must conduct your own affairs. Or he says, we, we must conduct. And I believe that. So when everybody is is unafraid, I get terrified because they do nutty things that put us all in jeopardy. The scariest thing in the world, the riskiest thing in the world is the belief there's no risk. And when people believe there's no risk, the world gets crazy. There's an old saying in the banking business, which is where I started my career. That the worst of loans are made in the best of times for this reason.

2:29:14Adam Draper:So that that really defines our cycle. When everybody else is having a ball, making money, hand over fist, doesn't see anything to worry about, you know, we kind of go into a cocoon because that's to us, that's scary. And it hints at very few opportunities when everybody else is terrified and wouldn't touch risk with a 10 foot pole. And as a consequence, you get highly paid for taking risk. That's when we turn aggressive.

2:29:42Scott Morton:which uh i don't know how much you you uh if you read or or talked uh with andrew about citrini's uh sunday memo the 2028 global intelligence crisis which citadel uh responded to by basically saying we have an intelligence crisis right now with everyone's reaction to this piece but did you ever have a memo that had wild that that created really wild near-term price action or in the way that the Cetrini piece did or with the way that information moved historically? Did that kind of...

2:30:24Adam Draper:No, look, he used a device of, I mean, he even said, this is not a prediction. This is an extreme case to illustrate. I've never felt that it was attractive to do that. You know, I try to I try to live in the in the middle of the probability distribution and and understand what's going on in the middle of the probability distribution rather than again. I think maybe you would say that Cetrini's case was a black swan.

2:30:57Sammy Azdoufal:Yeah.

2:30:58Adam Draper:And and and I don't I don't traffic with black swans.

2:31:05Scott Morton:well yeah it's interesting it's uh it kind of needed to come from a sub stack that gives the kind of appearance of being if you're just reading it for the first time it gives these kind of appearance of sophistication sure but doesn't come with having run you know tens of billions of dollars of of of assets well thank you so much for taking the time to come chat with

2:31:32Sammy Azdoufal:Yeah, really enjoyed it. It was a really enjoyable conversation.

2:31:35Adam Draper:Well, as I said, I think you guys are doing a great job, and it's really a pleasure to be part of it.

2:31:40Sammy Azdoufal:Yes, we've loved having you. Hopefully we can do it again soon. Congratulations. Yeah, tell Andrew he's welcome.

2:31:45Scott Morton:And let's plug the book.

2:31:48Sammy Azdoufal:Go buy the book. And it's available where all books are sold. I'm sure that there's an audio version as well. Exactly. Thanks so much. Cheers, Howard. Bye. Let me tell you about Vanta. Automate compliance and security. Vanta is the leading AI trust management platform. And let me tell you about LabelBox, RL environments, voice, robotics, evals, and expert human data. LabelBox is the data factory behind the world's leading AI teams. And without further ado, we will kick off our Lambda Lightning round. I'm getting it, Ben. We got new graphics. New graphics. The Lambda Lightning round has been done.

2:32:26Sammy Azdoufal:We did it. We have Demi Guo from Pika. She's the co-founder and CEO. Welcome back to the show. How are you doing? Thank you so much for coming back on the show. We're fired up. Please tell us about AI Selves. Tell us about the latest launch. What did you launch today?

2:32:43Doug Bernauer:Yeah, for sure. So we all have the same problem. You know, there's only one of us. Your mom needs, you know, help with her computer. Your partner sometimes wants, you know, more time, especially for a founder. Her friends want to hang out. you know you're profound or you're so busy that maybe you're missing out or like on a group trip planning but you're in the meetings or on flights or asleep so then we could raise this question like what if there's a second you we build something you know new which is called ai style where you can get first to it you can raise it and it will grow with you you know evolve and it becomes a living extension of you this is what you and john balmer were just talking about

2:33:27Sammy Azdoufal:two hours earlier in the show. You're like, John and Jordy are going to talk to each other and get stuff done. Is this purely for entertainment or do you actually see a business sort of use case where someone with a great marketing mind will create an AI self and then I would be able to go to them and bounce a Super Bowl ad campaign off of them? How do you see the user actually interacting with this?

2:33:50Doug Bernauer:Yeah, for sure. I think there are many ways you can do it. First, it definitely, it's you, but it's always, like you mentioned, it's like infinite availability, right? So 24-7, available, always on, can be everywhere. So, you know, your family, mom, people who love you will be able to have more access to you. So your mom will be able to like talk to your AI self and help her to debug IT problems. But like you mentioned, it's the same for, you know, people who have great expertise, right? So like if you're a really genius marketing person, then maybe other people can talk to her to gain more marketing knowledge and she can monetize off it.

2:34:33Doug Bernauer:And it's because it's AI, so it breaks all the human limits. So it can be very capable. For example, like I mentioned, it has your marketing taste, but it also can do everything 10 times faster.

2:34:51Scott Morton:How do you get enough data for an individual to make it an accurate representation of the individual? We've talked about this because we put out three hours a day of content of ourselves talking, hanging out. But most people don't have that.

2:35:09Sammy Azdoufal:We're going 24-7 with this. Let the AI selves host the rest of the other 21 hours a day.

2:35:16Doug Bernauer:Yeah, for sure. like yeah the whole thing sure you guys can use your ai self directly give like this yeah so yeah but um to answer a question about how do we get data to have an accurate representation of you i would say there are like three three angles like first is um it could import more data of you so for example like import all the tbm is showing the past um so you can learn from that um but also when you're using AI self, there's this constant process. You're correcting and guiding it. When you're using her or him to generate marketing assets for you, he will also learn the marketing taste you have.

2:36:00Doug Bernauer:When you're using her for a short-term productive word, he will also learn the taste, basically. The last angle is that identity also really matters. here because, for example, your mom might not care. It's 100 % accurate about everything is accurate about you. But as long as you're AI, she will be interested because otherwise she could not find you, right?

2:36:25Sammy Azdoufal:So, yeah. Well, thank you so much for coming on. Unfortunately, we have some breaking news. So I need to cut this interview short, but we'll love to have you back on the show soon. So have a great rest of the day. And congratulations on the launch. We'll talk to you soon. Cheers. Goodbye. And the breaking news is that Warner Brothers says Paramount's new offer is superior. Netflix now has four days to respond. The culture market is continuing to diverge. When we started tracking this, Netflix was up at 50%, Paramount at 40%. Now, Paramount is starting to run away with it. They're at 62%. And Netflix is down at 33%.

2:37:03Sammy Azdoufal:Will they sweeten their offer? We don't know, but Netflix has four days to respond.

2:37:08Scott Morton:More breaking news. More breaking news. What else? Square is cutting from 10 ,000 to 6 ,000 employees, a 40 % reduction. Let's head over to Jack. He says, we're making blocks smaller today. Here's my note to the company. Today we're making, and I wanted to ask Howard about this because it feels like so much of, I'm curious to see what Jack says around the reasoning. but this i've been shocked that more ceos when their stocks are down and beat up aren't looking at what happened with x and saying we can there's a huge expense yeah we have here yeah payroll and anyway so he says today we're making one of the hardest decisions in the history of our company we're reducing our organization by nearly half from over 10 000 people to just under 6 000 That means 4 ,000 of you are being asked to leave or entering into consultation.

2:38:01Scott Morton:I'll be straight about what's happening. First off, if you're one of the people affected, you'll receive your salary for 20 weeks plus one week per year of tenure. Equity vested through the end of May, six months of health care, corporate devices, and 5 ,000 to put toward whatever you need to help in this transition. That is generous. We're not making this decision because we're in trouble. Our business is strong. Gross profit continues to grow. We continue to serve more customers and profitability is improving, but something has changed. We're already seeing that intelligence tools we're creating and using paired with smaller and flatter teams are enabling a new way of working, which fundamentally changes what it means to build and run a company.

2:38:36Scott Morton:And that's accelerating rapidly. I had two options cut gradually over months or years as this shift plays out or be honest about where we are and act on it now. I choose the latter. Repeated rounds of cuts are destructive to morale, to focus, and to trust that customers and shareholders place in our ability to lead. and I won't read the whole thing, but this feels a little bit more real.

2:39:01Sammy Azdoufal:What Citrini was sort of predicting a little bit. Yeah.

2:39:04Scott Morton:Yeah. And it feels more real than some of these other cuts where they do like a 8 % riff and then say, oh, we're getting, but going down by nearly half.

2:39:14Sammy Azdoufal:Also, I mean, Block has been mostly spared the Sasspocalypse. I mean, over the last one month, The stock's down 17%. Over the last six months, it's down 30%. It's not down 50%, 60%.

2:39:27Scott Morton:Yeah, but still, it's trading at somewhere around.

2:39:30Sammy Azdoufal:It's way off peak. The peak stock price was$263. Now it's at 54%. And so there's certainly a question about how they build back. Well, let me tell you about Gusto, the unified platform for payroll benefits and HR built to evolve with modern small and medium-sized businesses. And without further ado, let's continue our lightning round and bring in Yash Patel from Applied Compute. How are you doing?

2:39:54Scott Morton:What's going on? Good, how are you?

2:39:55Sammy Azdoufal:Good to see you again. Good to see you. Since this is the first time on the show, long overdue, please introduce yourself in the company.

2:40:02Doug Bernauer:Yeah, yeah. So my name is Yash. I'm the CEO of Applied Compute. And what we do is we build what we call specific intelligence for enterprise. And what that means is, right, like, you know, AI is sort of, you know, going at breakneck speeds. these general models are getting better and better week over week. But if you're using the general thing, you're kind of never having your competitive edge. So what we think is there's a ton of latent knowledge or subject matter expertise that's kind of in an enterprise. And what we want to do is help enterprises capture that, imbue that into their agentic workforce, and start to scale up their agentic coworkers.

2:40:41Sammy Azdoufal:What does an actual onboarding process look like for an enterprise? Is it just sort of turning loose?

2:40:47Scott Morton:Before you answer, I just got to say, I love the, I love specific intelligence. I don't, I've got enough general intelligence. I really like some specific.

2:40:56Sammy Azdoufal:I think a lot of people are feeling that they're like, everything's at 99%, but I want 99.999%. Exactly.

2:41:05Doug Bernauer:Yeah. Yeah. I mean, like, um, you know, there's that MIT, uh, Gen AI, state of Gen AI paper that came out a while ago. And, you know, the thing it highlighted, you know, the reason 95 % of these AI pilots fail is because these things don't really do the last mile. So they don't adapt to feedback. They don't get better the more you use them kind of like an employee would. And, you know, that's really what you need in enterprise in order to actually have like a productive employee. You know, you can do kind of simple automations. We've seen a lot of like workflow building and that's great. So I kind of think about this as like RPA plus, right?

2:41:42Doug Bernauer:You had, you know, used to have like sort of like your click and drag RPA. Now you're introducing models into it. But to do sort of like real cognitive work that like knowledge workers are doing, you kind of need to go a step above. A lot of that is context. But a lot of what we do is fundamental research on the model level too, because we think in sort of building this next agentic employee is going to require sort of touching the entire stack.

2:42:07Sammy Azdoufal:And what does your stack and supply chain look like? Are you a beneficiary of open source? Are you partnering with big labs? You obviously have a lot of experience with big labs. But what does actually deploying one of your products look like?

2:42:22Doug Bernauer:Yeah, so we're a platform. So we deploy a platform inside of an enterprise. We really want to sell the entire stack. So that's being able to plug into all of your system record and data. Because we think context is there. it's just really fragmented right across all these different applications and even people a lot of stuff is in people's heads this this tacit knowledge um so you know we plug into all of your data we have our rl proprietary rl post-training stack where we can train these sort of like um reasoning models directly on top of your data all the infrastructure around models which makes them agents right so uh there's the model but an agent is really like where's that model running, what tools does it have access to, all the permissioning and authentication.

2:43:08Doug Bernauer:And then above that is like the application layers. So how are humans interacting with these agents? How are they like sort of guiding it, instructing it on what to do? And then the observability around all of this. And what we think our value really is, is closing the loop. So everyone's been talking about continual learning. I think that's entirely how this space is going to go, right? Like we have offline evals today. Um, that's because that's kind of the best thing we have to benchmark really is these models are getting so damn good, but, um, you're going to be evaluating them based off the real work that they're doing, um, in the enterprise and like while you're actually tasking them with stuff.

2:43:46Doug Bernauer:So, um, we basically help capture all of that information, um, turn it back into, uh, context and data that we can use to continually train these things.

2:43:55Scott Morton:Uh, I don't know how much you can share or how many of, how much is this is a secret sauce that maybe you'll talk about on a podcast three years from now when you've already won. But how do you get all the context that lives in people's head into your system so that it can be used across the organization? I imagine you've tried a bunch of different attempts and ways.

2:44:21Doug Bernauer:Yeah. Yeah. So I think there's like a couple of, you know, standard sort of recipes that you can use to start these things. And I actually want to be super clear. I think RL is sort of one of the best ways to train these models today, but it's not going to be the only thing. And it's going to constantly evolve. It's honestly quite nascent in its stage, right? You know, I think Karpathy and a lot of these other folks have talked about like how overly simplistic it is. But, you know, a good example, Jordi, might be embodied work, right? So humans go and spend a ton of time going and creating artifacts that they spend a lot of reasoning effort on.

2:45:00Doug Bernauer:And what you can actually do is you can look at these artifacts, these final outputs, and sort of say, hey, this is what good looks like. And then optimize models, sort of train models to produce things that look like that. So, you know, I think a recent example of this that we actually, you know, we put out some collaborative research with Mercore like two days ago, sort of hill climbing on this new agentic benchmark they call APEX. So it's sort of a professional services benchmark across law, investment, banking, consulting, management. And, yeah, we're sort of number one on the corporate law subdomain there, I think.

2:45:37Got bumped down to, yeah, and like number four or five overall.

2:45:42Doug Bernauer:So, yeah, it's crazy how much you can do with these small amount of data.

2:45:49Scott Morton:Where is Applied Compute? And like where, what sectors are your customers like having their mind blown in the way that software engineers have generally with Cogen tools over the last year?

2:46:04Doug Bernauer:Yeah, it's a great question. So we're really targeting, you know, institutions where there's a lot of sort of built up knowledge and context over decades, right? So this is like financial services, insurance, healthcare, bio, places where data really, really matters. I think, you know, even the coding domain, right, it's, you know, there's so much, there's such a high ceiling there in terms of the types of models you can go and train. So, you know, we've been doing some work with cognition, helping train some custom models there. But yeah, I think like places where there's a lot of sort of like institutional knowledge, that's where this sort of imbuing it into these models shines the most.

2:46:50Sammy Azdoufal:Well, thank you so much for coming on the show.

2:46:52Scott Morton:Do we have to, I think we got to hit the gong.

2:46:54Sammy Azdoufal:Oh, yeah. Yeah. I mean, the fundraising, it was a little bit ago, but how much did you raise? We want to hit the gong.

2:47:01Doug Bernauer:Yeah. So we raised 80 million last year.

2:47:06Scott Morton:Better late than never. Great to finally have you on the show. You're welcome anytime.

2:47:14Sammy Azdoufal:Yeah, we'll talk to you soon.

2:47:15Scott Morton:I hope we can hang again soon.

2:47:16Sammy Azdoufal:Have a great rest of your day. We'll talk to you soon. Let me tell you about CrowdStrike. Your business is AI. Their business is securing it. CrowdStrike secures AI and stops breaches. And let me also tell you about Railway. Railway is the all-in-one intelligent cloud provider. Use your favorite agent to deploy web apps, servers, databases, and more, while Railway automatically takes care of scaling, monitoring and security.

2:47:40Scott Morton:Scott, get in the ultradome. He's not here yet.

2:47:43Sammy Azdoufal:Scott Morton. We're running a little bit behind. We'll check on him. And in the meantime, we will tell you about Scott is here. We have Scott Morton from Revel. He's the founder and CEO. Welcome to the show.

2:47:56Scott Morton:What's happening? Hello. Great to be here.

2:47:58Sammy Azdoufal:How are you doing? Massive day. Take us through the fundraising news because I just hit the gong and I want to hit it again?

2:48:06Scott Morton:Yeah, we've raised$150 million for our Series B in Lightby Index Ventures. Major participation from Redpoint as well.

2:48:16Sammy Azdoufal:Amazing. So, since it's your first time in the show, let's break down the product. What are you building?

2:48:23Scott Morton:Yeah, so we are solving a basic problem in that the software used to control and test hardware systems really has not improved since the 80s and 90s. So you have these companies building, you know, the most complex cutting edge systems like hypersonic jets and satellites. And they're using control software that was designed for Windows 98. So yeah, it's insane. And so we provide a state-of-the-art software platform that really makes the control software and test software no longer a bottleneck, but instead an accelerant to their development. Do you have any experience making hardware? or did you just think this was a cool idea?

2:49:03Scott Morton:Yeah, I know. So I spent nine and a half years at SpaceX. Overnight success. Yeah, worked on a lot of these systems, wrote a lot of control software for Falcon 9 and the later Starship vehicle launch site. And SpaceX was really like a proving ground for software for hardware systems and also kind of the highest stakes environment.

2:49:24Sammy Azdoufal:Yeah. So, yeah, maybe go a little bit deeper in terms of software for hardware systems. Like when I think about a rocket taking off, I could think about like a gravity simulation, like a full 3D environment, something on Unreal Engine. Then I could also just think about like a whole bunch of, you know, like business logic, basically testing different ratios and applying the laws of physics at sort of just a mathematical level. Like what's the shape of the product? What are the most common problems that are solved?

2:49:59Scott Morton:Yeah, I mean, this is, you know, this is the software that will control the hardware system directly. You know, engineers typically, you know, they need to often have a control software. And, you know, overall, it's like if, you know, if they can only test, they're like, let's say you're building a pump or something. If you're only able to test that five times in a week, imagine if you could then test it 50 times in a week and how much of a better pump you're going to then deliver when you need to ship that product.

2:50:25Sammy Azdoufal:So with a pump, I could imagine, what is it, CFD, fluid dynamics? Are you simulating individual fluid molecules flowing through a system, or are you acting on a higher level of abstraction? What's in demand right now in terms of simulation and control software?

2:50:46Scott Morton:Yeah, so this is more so like you're designing a pump from the very beginning. And you first kind of design the system, you then fabricate an initial version of it. then you need to set up kind of an environment for how you're going to make sure that what you've built is actually going to work. It's not going to break, let's say. And so where we said this is the software that will both control the pump, but then also all the systems around it that are going to kind of make that simulated environment.

2:51:09Sammy Azdoufal:Yeah. What do you think of the term digital twin? Is that overused and too buzzwordy? Yeah, hilarious.

2:51:16Scott Morton:Yeah, I know it's used everywhere. I mean, simulation is a big component of all of this. but we're more so in the rapid iteration in testing these systems. So for instance, we're running a deep partnership with Impulse Space, if you know them. They have a rocket engine test site out in the Mojave Desert. Our software will run that whole system. It's a large facility and we enable the engineers there to write all their control software, make their command and control interfaces and then also execute those together and they're trying to figure out what they want to see on that system. Where are you getting traction?

2:52:00Scott Morton:$150 million Series B tells me that you're not just selling into pre-seed companies in El Segundo. Are you getting into some of these larger legacy manufacturers yet, or is that part of this round? Yeah, we've done really well with scaling startups so far, both doing the test software, but also control software, working with Radiant Nuclear, providing their command and control system. But yeah, we are engaged with some larger companies. Doug is here physically in the old freedom.

2:52:35Sammy Azdoufal:He's about to come on the show.

2:52:36Scott Morton:He's coming on in 10 minutes. He's like, I have a bug report.

2:52:40Sammy Azdoufal:I have a bug report. It's amazing.

2:52:45Scott Morton:Yeah, but yeah, we're doing very well with the kind of scaling startups, but we're now starting to engage with both larger companies in aerospace, but then also in more of heavy industry mining, more of industrial control, oil and gas type applications. That's cool. Is this a good place to just kind of vibe code, not even look at the code? You just kind of tell them not to make mistakes? Or is part of this is like if there's software errors on your side, there can be very physical, expensive consequences in the real world? Yeah, no, I mean, it's definitely the latter. I don't think a lot of people are really vibe coding this type of software at this point.

2:53:27Scott Morton:And we do have some plans for that to make that enable you to vibe code potentially for control software. We do actually have our own programming language, believe it or not, which maybe sounds pretty wild, but there really isn't a good programming language specifically designed for controlling hardware systems. And part of that is actually designing out a lot of the common mistakes that are made. So this language, if it compiles successfully, it actually cannot crash when it is run. That's an example.

2:53:55Sammy Azdoufal:You know Goldman Sachs has their own programming language? I did not. I think it's called slang, securities language, right? I think Bloomberg. I've heard of that, yeah. Yeah, there's a number. Jane Street, OCaml. It's not theirs. It's open source. But respect. Programming language respecter here.

2:54:10Scott Morton:That's right. Anyway. So great to finally have you on, Scott. We still got to hang one of these days.

2:54:17Sammy Azdoufal:Maybe we needed a custom programming language for TBPN.

2:54:19Scott Morton:Yeah, Tyler. TBPN lag. Tyler can learn his first programming language. This is what we need.

2:54:25Sammy Azdoufal:It's more of like a plain text programmer these days.

2:54:30Scott Morton:Sorry, Scott. We're having too much fun. We're having fun. Congratulations to the whole team. I'm sure you'll be back on very, very soon.

2:54:37Sammy Azdoufal:Have a good rest of your day. Thank you, guys. Goodbye. Let me tell you about Restream. One live stream, 30-plus destinations. If you want to multi-stream, go to Restream.com. And let me tell you about Public.com, investing for those that take it seriously. They've got stocks, options, bonds, crypto, treasuries, and more with great customer service. And without further ado, we will bring in Sun from Moon Lake. Sun and Moon. You see what I did there? Congratulations on the launch. How are you doing? And thank you so much for joining the show. And please, explain exactly what you built and how much AI is going on, because it's a crazy demo.

2:55:12Sammy Azdoufal:We're hopefully going to be able to pull it up, but we'd love to know about how you're positioning the product, how you're explaining it, and what Moon Lake is.

2:55:20Doug Bernauer:Yeah, of course. So actually, let me take a step back. Please. Define role models first, because there's such a term that is overloaded. So I define world models as models that can predict a model that can extrapolate the next state of the world in an action. And in fact, I'm defining this right now because I'm predicting that you guys are going to ask me about,

2:55:46Adam Draper:okay, how is our world model different than other worlds?

2:55:48Doug Bernauer:Sure, sure. This capability is actually just like my world model capability. And the biggest problems with foundation models in AI today is that these models don't have these role model capabilities such that it can't predict and act in long horizon tasks. Yeah.

2:56:05Sammy Azdoufal:No, we've seen with like Genie 3, amazing ability to paint on the wall, come back, paint again, and the paint's still there. But we're so far away from a real game mechanic of you're five hours in and you go back and you get a new quest. Like we're far away from that. At least it felt like that until this demo.

2:56:24Doug Bernauer:No, exactly. Like there's different schools of thoughts when it comes to local models. and really it comes down to how are you representing the world for the tasks that you care about simulating. So for example, for Genie, they have really pretty pixels. The problem with it is that it can't remember the world currently more than a minute. But it's an absolutely incredible technology. The way we're approaching it is to say we're going to use logic and symbolic representations such as code to encode the interactivity and deterministic part of the world. And then we're going to use pixel priors to then render the world.

2:57:11Doug Bernauer:But the pixel prior is only responsible for the appearance. Games or real-world physics, there's a lot of deterministic part that is better represented through code and symbolic representations. Yeah.

2:57:24Sammy Azdoufal:So when I watched the demo, I was very impressed. it felt like the first sort of turning a coding agent loose on the Unreal Engine platform. Are you using a game engine under the hood? And then how much of a harness did you have to build to actually get this result? Because the little interactions around there's music playing and you can bowl and you actually have a game within a game. You can go up to an arcade game and play Space Invaders that it was all built. How much of this is the harness? How much of this do you get for free by sitting on top of Frontier LLMs? And then what are you using in terms of game engine and stuff off the shelf?

2:58:07Doug Bernauer:Yeah, great question. So we actually are using a game engine, but we force a game engine and make a lot of customizations on top of it.

2:58:15Sammy Azdoufal:Oh, probably Godot?

2:58:16Doug Bernauer:Our model, exactly. The Lara model to essentially leverage a lot of things that off the shelf can't. Awesome. So you can think of it as this co-generational model that we post trained to be able to use a variety of tools to build the world. Very cool.

2:58:36Sammy Azdoufal:So do you want to become a game developer and use your own tool to generate the next super deep world at way lower cost?

2:58:48Scott Morton:No, John, you're slaying in a game right now.

2:58:52Sammy Azdoufal:Yes. We'll get into simulation theory at the next interview. Or do you want this to be like a consumer tool similar to what we've seen with Suno mid-journey, where there are people that go and sort of generate their own images or music and enjoy those for themselves? Maybe they share them, but maybe they just enjoy them for themselves. How do you see this being adopted?

2:59:12Doug Bernauer:Yeah. Frankly, our ambition is beyond gaming. So we really want to solve multimodal reasoning. Like be able to allow models to really do long-horizon planning, both the virtual world and the physical world. Yeah. But for instance, commercialization, short-term commercialization, we want to empower basically people to be able to monetize with their ideas that is not bounded by their skill. We want to be the enablement player to shift leverage from skill or domain knowledge to really taste. So that everybody with good ideas can monetize in their ideas.

2:59:47Sammy Azdoufal:Yeah. So how much of a network is important here? Like I'm thinking about the priors of Roblox, building games within the game engine. And a lot of that comes from the network effect, the multiplayer nature. Do you think that will be important as a growth engine for you? Absolutely.

3:00:07Doug Bernauer:In fact, in our agency today, you can say I want to build an open multiplayer game. Sure.

3:00:12Sammy Azdoufal:And then the model engine would automatically configure database and multiplayer setups for you.

3:00:18Doug Bernauer:Yes. So you can actually one-click deploy this experience. Yes. and share it with your friends.

3:00:23Sammy Azdoufal:But importantly, that would not be that sticky of a network effect for you. And so what I'm thinking is like, do I wind up with a Moon Lake handle at some point that I can take across the different games that are created through the platform?

3:00:39Doug Bernauer:Yes. Okay. So you will be able to say, you know, create an ID and then create 10 of your games that just monetize on top of Moon Lake's platform. And we help you distribute it to the players and helping monetize.

3:00:52Sammy Azdoufal:That's amazing. This is very, very cool. Take us through the funding news. How much have you raised so far? We've raised$20 million. Who's in? Any good?

3:01:03Scott Morton:I think that was the same round as last time. But it's an honor to hit it again.

3:01:11Sammy Azdoufal:Yeah. I'll hit the gong for anything that Jeff Dean's ripping checks into. Congratulations. It's a great lineup of investors. And thank you so much for taking the time to come on the show. Yeah, great to get the update.

3:01:22Scott Morton:Really impressive progress. Congrats.

3:01:24Sammy Azdoufal:We'll talk to you soon. Have a good rest of your day. Let me tell you about AppLovin'. Profitable advertising made easy with Axon.ai. Get access to over 1 billion daily active users and grow your business today. And let me also tell you about Graphite. Code review for the age of AI. Graphite helps teams on GitHub ship higher quality software faster. And you heard us tease it earlier, but we got some very special guests in the TVPN Ultra Dome. We got Adam Draper. How are you doing? And Doug Bernauer. How are you guys doing? Good to see you. Look at this outfit. Thank you. Welcome back. What you got?

3:02:00Sammy Azdoufal:A hat for us? There you go.

3:02:02Scott Morton:We've both been on once. Wait, I saw a preview of this.

3:02:05Sammy Azdoufal:I saw the nuclear hat earlier on the show. I also got you guys a gift. Whoa. Whoa, whoa, whoa, whoa. Is this a safety orange? Do you have a meat stick hanging out of here? We got gags. This guy's got props. He's got props.

3:02:21Yash Patil:You know, we're up here for a little while.

3:02:23Sammy Azdoufal:Is the orange because you're doing construction? Well, Lucy is orange. I've been wearing orange pants for about 10 years.

3:02:31Yash Patil:For about 10 years.

3:02:33Scott Morton:Oh, yeah, you've got to have the vest for when you're doing video podcasts because we didn't see your pants last time.

3:02:39Yash Patil:Well, I asked Twitter what I should wear today. Okay, yeah. And so I was just walking around L.A. Yeah, yeah. And they said the Dumb and Dumber suit. There we go. And so I went walking for costume shops, and I ran into a great guy who tried to sell me everything in the store. Fantastic. And I ended up on this. There you go. That's great. Should we open this?

3:02:59Sammy Azdoufal:Can we open this? Yeah, yeah, yeah. I want to open this.

3:03:03Yash Patil:You got to give them time to crush this charm. I felt inspired. Here, open the whole thing. Okay, do you guys know Funko Pop?

3:03:12Sammy Azdoufal:I am familiar with Funko Pops. What did we get here? What is this?

3:03:15Yash Patil:Whoa.

3:03:17Scott Morton:Look what it says. Whoa. Custom.

3:03:21Yash Patil:Custom Funko Pops. Crazy.

3:03:23Scott Morton:Crazy.

3:03:24Sammy Azdoufal:You can just get these made?

3:03:26Scott Morton:How does this work?

3:03:27Yash Patil:Dude, you know, if you think about a gift far enough in advance. Thank you.

3:03:31Scott Morton:There you go. This is amazing. That's crazy. I feel like we've got to protect those so nobody kind of messes with them.

3:03:36Sammy Azdoufal:Yeah, we should consult with Dylan Eberscott on our team who knows collectibles very well. because we might have to get this PSA certified. I think we should, actually. Something like that. That's amazing. That's amazing.

3:03:47Scott Morton:Thank you.

3:03:48Sammy Azdoufal:Doug, good to see you again. How are things going? They're going really great. I can imagine that demand for energy is in endless supply. What's the latest in your world, though? Absolutely.

3:03:59Doug Bernauer:Humans like being humans. They like lots of energy. They do. And you better get ready for the gong. Okay. What you got for us? We just raised$360 million. Can we get a pre-gong?

3:04:09Sammy Azdoufal:Sounder.

3:04:14Scott Morton:that's a big number congratulations on saying the biggest number 360 million fantastic you want another gone is that yeah and i want you to hit the horse actually it's on your side no we got it never i know we should make a horse gone okay so it sounds a bit wrong so i i

3:04:32Sammy Azdoufal:mean i've you know i've been to i've been to the radiant facility in el segundo does this unlock a new facility? Is there going to be a separate manufacturing line? Just a lot more humans working, joining the team? Like what is the money for?

3:04:45Doug Bernauer:Yeah. It's mainly a scale of production at our factory facility in Tennessee, which we signed for in October. Congrats. About 80 acre site right now and already broke ground. Okay. Digging on site and buildings going up. It looks awesome. I saw art yesterday.

3:04:59Sammy Azdoufal:And so, so now you have, when we were last talking, you were talking about still doing design work. You were working on the, what was the helium loop. I remember you explained some of this to me very nicely, dumbed it down. But how far are you along in sort of locking the design? Because if you're setting up a manufacturing plant, I imagine that you're going to lose some flexibility at some point, right?

3:05:23Doug Bernauer:Yeah, absolutely. So we're doing a test in the dome very soon. And we actually, since we talked last, we've gotten approval from the Department of Energy. Cool. It's a really boring sounding complex name, but it's the approval to fuel and go go to full power. Government approval?

3:05:38Sammy Azdoufal:That's more gong-worthy. We should have the gong.

3:05:44There's a lot of people with money.

3:05:46Sammy Azdoufal:There's only one government that can actually put down a stamp, you know? It is incredible progress that doesn't get enough credit. But anyway, so continue.

3:05:57Doug Bernauer:Yeah, so it's called a preliminary design and safety approval. It's done, so that means the design is locked. So that thing we were working on finishing out, That was the big event, and now it's been months of review back and forth, and we're good. We're proved. They're the only ones.

3:06:08Sammy Azdoufal:So no big change. Oh, we're moving away from helium. We're moving away from tricep.

3:06:12Doug Bernauer:Well, this is just, I should say, that's just for the first unit that goes in the dome. And we've got more of a team now working on the production units that we're going to build lots of and build many at a time, right? Up to 50 per year from that factory site.

3:06:25Sammy Azdoufal:One a week. So 50, that's 50 megawatts. Are you still thinking about the one megawatt architecture? Yeah, absolutely. Replace the diesel generator? Yeah. Okay. And then in terms of demand, initially there was a lot of demand from, you know, stranded places where energy is very expensive to get to. You're off the grid, you're on an oil and gas site, or you're in a military context. Has the demand shifted? Have the AI folks showed up?

3:06:50Doug Bernauer:Oh, yeah, absolutely. Okay. I mean, we have an announced deal with Equinex for 20 units. Wow. Down payment on them. And, you know, what will end up happening is we're going to make many reactor products, right? Nuclear reactors can be products. Yep. that really has never happened before because usually you dig a big hole in the ground, you build a building, really you're making a building. Yeah. Right? And it's not a product. You have to, to be a product, it has to be mass producible. Yeah. And so that's really what Radiant is all about. Yeah. We're going to be making reactors for space. Yep. Reactors for maybe the bottom of the ocean floor, reactors that float.

3:07:24Doug Bernauer:Atlantis. Reactors on a truck, reactors on a plane. Think about them as like, they come out of a building and they move. Atlantis mode. Yeah.

3:07:30Scott Morton:Sound effect. I don't have that.

3:07:33Sammy Azdoufal:That's the horse. Walk me through some of the economies of scale. If I want, in a long time, whenever it's ready, if I want 10 megawatts, is it more efficient to get 10 one-megawatt reactors or just scale up and create one 10 that maybe is bigger, maybe has different manufacturing and transportation requirements? requirements, but when do you think about actually scaling up the design versus just selling more of the existing product?

3:08:05Doug Bernauer:Yeah. So our mandate is really mass produce. And so we don't want to make things that are not, that are immobile. And so if you operate a reactor that's at a larger power scale, it's going to be more efficient. There's actually a neat effect where like if you put a little bit more nuclear fuel in a design, that fuel makes the other fuel that you had go a little further. Sure. So it's very cool. And it's this like exponential scale. But, you know, we know what we're doing. We're totally focused around the efficiency that we provide is more like deployability, right? If you go, I want power next week, we can actually do that.

3:08:35Doug Bernauer:And if you go too big, you can't do it. You lose that. So that's what Kaleidos, the product, is about. Got it. Makes sense. But this round is really exciting. We actually had, you know, Adam led the rounds and actually has invested in every round. Every round. Every round.

3:08:50Yash Patil:I used to be called the most invested, investingist. So he used to say I've invested the most, but now I get to say. Is this your biggest check ever? Yeah. So BoostVC, pre-seed for magic and mutants and historic things. And that's how we look at it. Cool. We generally are investing$500 ,000 into all the deals. Seems like a shift. But every once in a while, you encounter a company and a founder who you just enjoy and care about, and you want to go all in. Back up the truck. In October, after they had announced the Nashville plot, my partner and I, Brayton, we got together and we were like, can we do it?

3:09:38Yash Patil:And so we decided to just back up the truck. We went for it. And unfortunately, he is incredible investors. He's an incredible founder. And everyone just re-upped. We got to lead it. It was fantastic.

3:09:52Sammy Azdoufal:Does that change the overall strategy of Boost? Or is this sort of like a special case where you went to the LPs and said there's a specific opportunity that we're targeting?

3:10:04Yash Patil:Yeah. So great question. I do think that there are opportunities like this that emerge when you get to know your founders well. So I've invested in 600 companies over the course of 15 years. Here we go. I like that, yes. And, you know, we do follow on. We do do those things. But I just feel, hey, if Doug does this, if the team at Radiant is capable of doing this, this makes historic change in a world I want to live in. And so I ended up getting to care about the founder as well as the mission. And so by doing that, I get to. So my quick answer, you asked a very specific question. In the situation where that will continue to be true, it would be really fun to do more of these.

3:10:55However, I wear orange pants.

3:10:59Yash Patil:Yes. And I love the early stage.

3:11:03Sammy Azdoufal:Yeah. So you should still, you're still very focused on the early stage. Like we shouldn't just think, oh, Boost is just a major growth equity firm now.

3:11:10Yash Patil:I don't think I could sell. Yeah, I don't know. No, I just love the energy. I love being the gateway to be able to help people pursue their dream of whatever the thing is. And I've been able to see people across the entire stack for over the last 15 years. And, you know, I also now get to be in the room and watch nuclear reactors be built.

3:11:34Sammy Azdoufal:Yeah. Are there are LPs and investors that you talk to sort of receptive to this idea that nuclear technology is like sort of getting pulled forward by the AI boom, but sort of uncorrelated with it because like we still need energy for oil and gas exploration and the military and all these different things. Like it's not so hyper-indexed on like make or break. Do we get to ASI or not? Like this technology is useful in all scenarios.

3:12:06Yash Patil:Is ASI the new ASI? We have the goalposts.

3:12:10Scott Morton:We have our goalposts over there.

3:12:12Yash Patil:There's a great book called Scythe that calls that the Thunderhead. Thunderhead. So we can call it that now. I'm going to call it Thunderhead for the rest of the month. Okay. Ooh. I like that. Thanks. So the general answer is I think across all markets, energy only gets consumed more, and that's like such an easy sell.

3:12:35Scott Morton:So it's pure execution risk at this point.

3:12:38Yash Patil:Yeah, and so we know the demand is there. We know that there's a huge nuclear wave where the government is behind. And so limited partners and other investors, they want access. Now, when Doug pitched me seven years ago, like none of those things, the energy was still a real problem.

3:13:01Howard Marks:Overnight success.

3:13:04Yash Patil:On fire. I got a hot hand right now. Oh, my God. None of those things, like none of the other things were true. It was, you know, people thought it was a regulatory burden. People thought, like, the government would never allow you to do this. But, you know, we have built nuclear reactors before. We have nuclear reactors. And so when he pitched me on a phone call in 20 minutes, I said yes. And we wrote the largest check we had ever written at that point also. And then we did this last October. We wrote a bigger one.

3:13:38Sammy Azdoufal:How much work do you think needs to be done on the public perception side? because right now data centers are unpopular. And I think the number one reason is not slop in your feed. It's energy prices going up. And if you build more energy, if you build more clean energy, it should be a win-win. Everyone should be happy. But I just have this inkling that if you go and you say, we're building a data center, we're going to make it look good. You won't be visibly obstructed. And we're building a power plant for it. It's a nuclear power plant. you're still going to get a few protesters. Maybe not as many, but they'll still be there.

3:14:14Sammy Azdoufal:So how do you think about positioning nuclear for consumers, for people that might have this in their neighborhood at some point or in their state or in their country even? Or in their podcast studio. Ideally, ideally. Sign me up. Do you guys want? And then how do you think about it? We actually did look at it.

3:14:36Scott Morton:We looked at a studio space. We were about to put an offer down on it. and we were like, what's in that door? And they were like, oh, don't worry about it. That's just the machine. And we were like, oh, I'm actually very curious about it. And I'm actually pretty worried about it. In that case, they were cleaning the soil from some industrial waste that had happened

3:15:00Sammy Azdoufal:like 50 years prior. Soil remediation. Yeah, soil remediation, 100 years on. But anyway, communication about the risks of nuclear, the benefits of nuclear. What do you think are the important points to get across? And then how do you think those diffuse through the populace?

3:15:16Doug Bernauer:Yeah, it's really important, first off, to talk to the public and really explain how to think about nuclear. And I wrote a thing called Atoms for Prosperity that lays out some of those points. But we are making it now into a cooler kind of series. We can't go through all of the individual points here. But I think you're right about AI. I think that people don't like really a big building going up, like a big monstrosity that's going to bring a bunch of attention and people and traffic and like all the stuff that it brings. And you also have the added complexity of the energy markets typically being very regulated.

3:15:50Doug Bernauer:There's a lot of laws around it and they can just get a higher rate they have to pay if they get enough votes. And so that's probably more on the growth side of things. The good news is the thing that we're doing is the opposite. Most people doing nuclear are targeting something big. and there's a lot of excitement around nuclear right now and AI. A lot of people are saying a saying. They're building a building. We're not doing that. We're doing the doing. Sure. So, and what is that? It's just reactors that we build. They're on our site. It's a building far away that you never see as the customer and it just appears when you want it.

3:16:28Doug Bernauer:It goes away when you want it to. You call us and go pick it up.

3:16:32Sammy Azdoufal:Yeah.

3:16:32Doug Bernauer:It's kind of beautiful. It's like totally different from other nuclear. So I think that will help quite a lot because it's just such a different thing to be able to go, you know, I can have clean power. And we go, yeah. And they go, I can have it next week. Yes. And they go, and it can send it away anytime. Yep. Anytime you want. And no waste. Yeah, we take that and we handle that.

3:16:52Sammy Azdoufal:Talk about the ramp because we were looking at the data center that was recently protested in New Brunswick, New Jersey. It was tiny by AI comparisons, 25 megawatts. You could probably supply it in half a year. But Meta's average campus right now is around 500 megawatts. Take you 10 years to power that. What does the ramp up look like? What does the ramp up to get from 50 a year to 500 look like for you?

3:17:20Doug Bernauer:So I don't know. It's not really something we're trying to address. What I'm most interested in is being able to put reactors in really crazy places. Like put a reactor on the bottom of the ocean floor, like I was saying.

3:17:32Sammy Azdoufal:Why would you actually want one on the bottom of the ocean floor?

3:17:35Doug Bernauer:It's the same reason you would go put a research facility in Antarctica. Oh, okay. Because it's far away, and it's weird there, and you're going to learn some things. And we haven't ever done it before. Interesting. And so it's a frontier. Yeah. And that's kind of all that I'm excited about is the frontier.

3:17:48Sammy Azdoufal:So in theory, you would sink some sort of remote lab that had camera equipment, lights, and sensors, and you could understand what's happening at the bottom of the ocean. That's fascinating.

3:17:58Doug Bernauer:I don't know what you'll learn.

3:17:59Sammy Azdoufal:James Cameron should become the spokesperson.

3:18:01Doug Bernauer:Anybody could, yeah, if you want, we can make a reactor for that, right? And the thing is, like, if you want, you can't use a combustion power source, and there's definitely no sun.

3:18:08Sammy Azdoufal:Yeah.

3:18:08Doug Bernauer:So it's, just think about that, right? That's actually interesting. We're the only thing you can do in a lot of places, actually. Yeah. Not just that one. It's just a good example to get people to think, like, oh, shoot, okay, bottom of the ocean floor. Yeah. All the way up to anywhere in space. Yeah. As far from the Earth as you want to be. Yeah. As far from the sun as you want to be.

3:18:23Sammy Azdoufal:Oh, true. Right?

3:18:24Doug Bernauer:Think about that. Yeah, solar's weaker on Mars, right?

3:18:27Sammy Azdoufal:Yeah.

3:18:28Doug Bernauer:Yeah.

3:18:28Sammy Azdoufal:Interesting.

3:18:31Doug Bernauer:I like solar plus nuclear.

3:18:32Sammy Azdoufal:Yeah. I love it.

3:18:34Yash Patil:I think you're on the right path, though, that education is one of the most expensive issues, right? And stories like having a nuclear reactor on the ocean floor that's functioning and we're learning tell a great story. And so those stories become easier to tell as more of them exist. The hard part is the in-between. We saw this when we were in crypto also. Everyone was saying, like, the banks will never let you do this. The governments will never let you do it. And now, obviously, like it's on the Congress floor. It's all the raves.

3:19:05Sammy Azdoufal:So many big, massive. Yeah.

3:19:07Yash Patil:And so like transitions take time and they're expensive. But like it's important because the end consumer gets a better product.

3:19:13Sammy Azdoufal:Yeah. In the early stage of I would call like the hard tech boom, the defense tech boom, the El Segundo boom, the dollars that were being raised. You're talking about 1980s? Yeah, I'm talking more about like 2022, maybe when people started paying attention in Silicon Valley. But the dollars were small, and so they could be sort of flyer checks from VCs. Now we're getting into real numbers. What do you think about the relationship with the SaaSpocalypse? It feels like public markets investors are rotating away from software. They would love something like industrials, energy, something that's clearly going to exist in 100 years, no matter how good the computers get at AI.

3:19:56Sammy Azdoufal:But then in Silicon Valley, we'll talk to founders all the time where they're raising for a software product, basically. It's just AI indexed. And so they're soaking up 200 million of capital every other day. What's happening at the early stage in terms of excitement and at that growth stage to fund projects like this?

3:20:13Yash Patil:Well, as we are growth investors.

3:20:15Sammy Azdoufal:Yes, yes, especially. Private equity guys, really. Pre-seed and series D.

3:20:19Yash Patil:Oh, I actually have a shirt that says pre-seed and series D. Oh, I love that.

3:20:23Scott Morton:You're thinking, you're actually thinking on the longest time around. I'm going to make a custom gift.

3:20:33Yash Patil:Technology looks like magic. Incredible. Well, here, I'm sure we both have thoughts on this. So we've been investing in hard tech. We have a way of when everyone really gets excited about something, we like looking the other way. And over COVID, we saw everyone getting really excited about software because we were all locked in our houses and inside. And like software was where you saw everything.

3:20:56Sammy Azdoufal:Anything for remote work is just booming.

3:20:58Yash Patil:And so we made a conscious decision to be like, hey, that's not always going to be true. Let's invest in in-person businesses that are like physically expensive, that are high capex. And so we obviously invested in Radiant multiple times and a bunch of other, Starfish, Venus, just an incredible number of fantastic companies. And so we were able to – I think that there's a sense in the investment world where they want to be a part of something that's important, but sometimes they're not considering whether or not it's a good investment. And I think that balance is at scale right now. That would be my, like, and I think they're probably overestimating the SaaS apocalypse.

3:21:44Yash Patil:I think so many talented people are building so many incredible things. I was just at the Upfront Summit, which was just over here. Walkable. Yeah. So thank you. This was very efficient for me. And you know who I love to hear speak is Kathy Wood from Arc because she's just so optimistic about unlocking technology assets to everyone. and a lot of other people were sort of in the AI negativity bucket. And I was like, how can you not be optimistic? We just saw, you know, everyone who's building awesome stuff on this show, right? Like incredible AI things.

3:22:22Scott Morton:Well, I don't know if you saw, but Square just did the largest layoff in S &P 500 history on a percentage basis. That's crazy. And so that's kind of the flip side. And even Howard Marks required.

3:22:38Yash Patil:Get in touch with BoostVC. Okay. And we're going to invest in some Square alumni. I think it's the –

3:22:47Scott Morton:You've got 4 ,000 of them.

3:22:49Yash Patil:Fantastic.

3:22:50Scott Morton:So get the brink trucks ready.

3:22:51Yash Patil:There are talented people there. We would love to invest in them. And I think what AI is really causing is this eruption of amazing individual entrepreneurs. it's like the next wave so it's exciting

3:23:05Doug Bernauer:on that note of optimism there's a very cool video we released just yesterday that I thought you might want to see and I think you guys have a prep so we can have a look see and just shows what we're building right so we talked about the approval the regulatory approval

3:23:28I remember

3:23:30Sammy Azdoufal:I think you showed me the raw material for this. That's harbor in the loop.

3:23:34Doug Bernauer:That's us doing orbital welds and tubing. That's the mounts for the pressure vessel. That's the forged pressure vessel piece. That's crazy. And that's what we're doing.

3:23:42Sammy Azdoufal:Yeah, amazing. July 4th. I love it.

3:23:46Yash Patil:So cool. How awesome. It's just huge physical things. We're back to building huge physical things.

3:23:54Sammy Azdoufal:So you'll bring that design to the dome? That's right.

3:23:57Doug Bernauer:All that is the actual nuclear reactor hardware that we're showing. And this is really like the most that we can possibly show to the public. Yeah. And we now have two buildings. One is just all manufacturing. It's like you go in, it's all machine shops. These big fancy glove boxes where we're doing welding with controlled gas conditions. Wow, yeah. It's so much different from the last time we were down. Yeah, yeah, yeah.

3:24:16Sammy Azdoufal:When I was at the office, were you sending out for like CNC parts? Oh, yeah. A lot of stuff we had to send out. Yeah. A ton of stuff. Because I noticed a lot of equipment, but there wasn't that much actual machining material to make stuff that you would put on. So having the machines in the actual building must speed up iteration as well, right?

3:24:40Doug Bernauer:Absolutely. And a lot of the incoming capital allows us to make those moves and do those things and even invest a little bit in R &D for things that are really far out, that aren't even a product yet, that are just like, we realize the limitation and we're like, we're going to go push on that thing. And if it moves, we'll have something no one else has. Yeah.

3:24:56Sammy Azdoufal:Last time I was there, I think you had around 40 people. How big is the company now? Oh, my God.

3:25:01Doug Bernauer:150.

3:25:02Sammy Azdoufal:Wow. Talk to me about that road. I mean, you were at SpaceX for a long time. Did you ever manage that many people? Is this a new challenge for you? No.

3:25:12Doug Bernauer:I did a very weird job when I was at SpaceX. I was there 12 years, and the first couple years I did it.

3:25:17Sammy Azdoufal:Overnight success.

3:25:19Doug Bernauer:I loved it. That's why I stayed 12 years, right? It's the coolest mission, like make life multiplanetary. I love that. And I left to make a reactor company to make power for that mission still. Like, I still want our reactors to go that route.

3:25:31Kenn Ricci:Totally.

3:25:31Doug Bernauer:Of course, a different type. But I was doing stuff like, you know, I made the first Falcon 9 ground system. And then I made the first two rockets. I traveled around the country testing the first two Falcon 9s that flew. And then I did the first ever rocket with legs. And that was, like, report directly to Elon with, like, three other people. Those craftsmopper, right? Go to his desk, yeah, and go, here's what we're doing. And we got so lucky that every time we came to him, we were pretty much like, and the Qualtank passed, and it worked, and the schedule's good. So he loved it, right? It was like, great.

3:26:01Doug Bernauer:But from there, it was like, then I was doing Boring Company, and I was doing Hyperloop. It was every Elon side project, which is exciting.

3:26:07Sammy Azdoufal:Yeah, you were supposed to move around special projects, so not really full scale up constantly. But now it's higher, higher, higher.

3:26:13Doug Bernauer:But I would just go and talk to whoever I needed and cross every line possible. And I didn't use the right channels of communication. I just pulled all the assets. And I'm building a thing. I'm doing a thing and I'm ignoring everything else. And that's basically still how I operate.

3:26:25Sammy Azdoufal:Yeah, that's great. Kid and candy shop.

3:26:27Doug Bernauer:Powerful.

3:26:27Sammy Azdoufal:Anyway, Jordy, anything else?

3:26:28Scott Morton:No, guys, congratulations. Thank you so much for coming on the show. Thank you for coming here. This is fantastic. Yeah, this is great. This is a great one. So excited. I genuinely cannot wait to get my own. Yeah. I don't know what I'm going to use it for yet, but I'm going to have one.

3:26:42Doug Bernauer:How many are you going to need in total? How many back pennies can you power?

3:26:45Scott Morton:You're talking about the bottom of the ocean one? 2035, 2035. Yeah. I'm going to need some for a boat. I just decided that.

3:26:52Yash Patil:An electric nuclear boat.

3:26:54Sammy Azdoufal:I mean, off-grid for the preppers, for the rich preppers, the AI billionaires. They might want it. Yeah, yeah.

3:26:59Doug Bernauer:Well, and if you have some real estate on the moon, it's not very high value without power. There you go. So you want to get some power for that. I like that.

3:27:05Scott Morton:I like that. Guys.

3:27:06Doug Bernauer:Thank you so much.

3:27:07Scott Morton:Thank you. Amazing progress. Have a good rest of your day. Hang out. Hopefully we can see you and wrap up the show.

3:27:12Sammy Azdoufal:That concludes our guests for today. Thank you for watching TVPN.

3:27:18Scott Morton:Let's get more into. to the block news.

3:27:21Sammy Azdoufal:OK, yeah, you can pull some up. The other big news is that Nano Banana 2 launched today, combining pro capabilities with lightning fast speed. We, of course, did. This is the latest image generation model from Google. And Tyler gave me a little review. He ran a couple benchmarks. Some pretty impressive results. You said it's slower. And is that because it's reasoning more, you think?

3:27:48Yash Patil:So it's unclear. I saw people saying online that it was actually much faster. So I'm curious if it was just like, wow, they were just deploying it. Sure, sure, sure. And it was on Google. It was on the studio. It wasn't on the Gemini website when I was trying it. Yeah. So that could be, I'm not actually sure if it's.

3:28:02Sammy Azdoufal:Yeah, I mean, the headline is intelligence and visual quality at flash speed. So I think that they were going for something faster. But yeah, I mean, these models take time.

3:28:11Yash Patil:I think I was using it right when it was being deployed.

3:28:13Sammy Azdoufal:But there's examples here.

3:28:14Yash Patil:A big upgrade over Nano Banana Pro.

3:28:16Sammy Azdoufal:Yeah. Yeah, a lay flat infographic depicting the water cycle, some cartoons. Yeah, it really has always been great at nailing these complex graphics that typically you would absolutely have to do piece by piece and then maybe add the text afterwards because you would get slight hallucinations or misspellings. And it seems to be one-shotting these things at this point. So we, of course, ran Waldo Bench, where we try and use a generative image model to create a photorealistic Where's Waldo graphic. And you can be the judge. This took you a couple prompts, but we did in fact get a Where's Waldo that fits the right perspective.

3:28:59Sammy Azdoufal:I feel like the scale of all the characters is correct. And most importantly, there's only one Waldo and he's somewhat hard to find. It's not the hardest Where's Waldo. So I'd give it sort of an eight or nine out of ten on Waldo quantity and placement. But as you zoom in, one of the key features of Where's Waldo is that there are little storylines playing out throughout the image to distract you from finding Waldo. And so that is, in fact, happening here. You can see some folks building a some kids building a sandcastle, some people in line for what looks like ice cream. There's a mariachi band.

3:29:37Sammy Azdoufal:There are sunbathers. There's a large sandcastle that's gathered a lot of folks. The level of quality, once you actually zoom in very, very closely on the individual people that are being depicted at a very small scale, this is totally nitpicking. But there are some hallucinations still. It's not quite at the level of visual fidelity of a handcrafted Where's Waldo, but it's getting close. And so congratulations to everyone over on the Nano Banana 2 team who made this possible. It's certainly a major step forward, although I'm moving the goalposts again because I want my full Where's Waldo just as intriguing as a typical Where's Waldo.

3:30:19Sammy Azdoufal:Jordy, what else do you have for us on the block news? How is the internet reacting to the news that block laid off so many people?

3:30:26Scott Morton:I mean, it's 4 ,000 people, which is a huge number. And then I was trying, I ran a deep research report to try to find, because it's certainly not the largest layoff ever, but it is the largest layoff as a percentage of the overall workforce in S &P 500 history.

3:30:47Sammy Azdoufal:Wait, how is that possible?

3:30:49Scott Morton:so the second largest layoff in s &p 500 history was like 30 phillips at 22 and a half percent chevron at 17 and a half percent verizon nearly uh 15 intel did 15 percent in uh 2024 gm did 15 percent yes in 2018 meta so i guess i guess the the twitter the twitter restructuring doesn't

3:31:13Sammy Azdoufal:count because it was delisted before that happened. So Twitter went from 7 ,500 to 1 ,500. And yes, I think you're right. It might not have been in the S &P 500 at the time. Yeah, it wasn't. Interesting. Well, there's some reactions. Will Slaughter, Bama Bond says, in three years, from December 2019 to December 2022, Block more than tripled its head count from 3 ,900 to 12 ,500, unwinding less than half an insane COVID overhiring binge has much more to do with Jack Dorsey's managerial incompetence than whether AI is going to take your job. And so people are immediately jumping to, is this AI? Is this not?

3:31:54Sammy Azdoufal:The stock's up 25 % on the news. So the investors certainly think it's the right move to make the right hard thing to do. The other interesting thing is that Block, if I'm correct, did a fairly large merger with Afterpay. And I don't know how much overlap in the employee base there was, but it's not uncommon when a merger of those two sizes, $10 billion. I think the Afterpay merger was in the tens of billions. Afterpay block acquisition. Let's see. It was 13.9 billion. It was an all stock deal. It was originally announced at 29 billion. And I'm not sure how many total employees. Let's see if we can pull up this.

3:32:43Sammy Azdoufal:Afterpay had around 1 ,000, 1 ,500 employees. And so there's a few different things this go. Dan Primack says it's stunning in its candor. And if you're one of those spared, How could you not be wondering how long until AI comes for your job too? If CEOs get comfortable that this is okay, let alone if they believe shareholders will be rewarded for it, could set off a stunning layoff wave. Very interested in the AI will create.

3:33:13Scott Morton:Yeah, so the obvious pushback Tully over at Solana is making it. He said, didn't Jack have 10 ,000 people running this website when only 75 were needed even before AI? So, yeah, again, it doesn't really matter whether or not a company is actually getting tremendous efficiency from AI. Every CEO is going to do this. And we've said over and over and over, I'm surprised more CEOs haven't done the Elon thing. Salesforce has 76 ,000 people at the company, right? It's basically a city. And, yeah, it's really, really sad. Jared Sleeper, who has a fantastic episode on Odd Lots about the Sasspocalypse, he says, first of many sad days, as painful as it is, Jax did focus service by being decisive.

3:34:11Of course, really sad day.

3:34:13Scott Morton:These employees will be able to quickly go and hit the job market, which probably gives them somewhat of an advantage over future layoffs like this.

3:34:26Sammy Azdoufal:If you're not a software engineer, this should be a wake-up call to what has happened in the past few months with AI engineering tools. Everything has changed. Now we get to watch as companies learn how to either use these tools in earnest or slowly fall behind, says Dustin Curtis. I'm very interested to learn the shape of the layoffs. Did they lean more software focused or less software focused? This is certainly just one company, one example, but interesting to see how this matches with the Citadel rebuttal of the Citrini piece. A lot of people are seeing this as like vindication of the Citrini piece.

3:35:03Sammy Azdoufal:Anyway, we will cover it more.

3:35:06Scott Morton:Tay Kim says, every media person, please read this before writing your narratives tomorrow. Jack Dorsey is Jack Dorsey. Do not extrapolate. Do not pass go. Responding to Will Slaughter's post.

3:35:20Sammy Azdoufal:Yeah.

3:35:21Scott Morton:Yeah. Square, for context, did around$24 billion in total revenue in 2025. They've been trading at around$30, even though the business is profitable and growing, and so had certainly been beat up. but very very sad day Gavin Baker had a post that Kyle Harrison highlighted he said the fact that Twitter is running well with headcount down significantly really matters whether they admit it or not everyone in SV admires Elon a lot of venture funded CEOs are sending emails like this inspired by Elon and taking drastic actions margins are going up um biology says this is the first ai cut and it will send shockwaves remember jack is one of the greatest founders of all time he created this platform that we're all on has been early to many technological shifts and block is doing very well as a business so for him to cut 40 percent headcount in this way is a signal to everyone in tech get good now become indispensable work nights and weekends learn the ai tools and raise your game where you might not make the cut as an employee or as a company.

3:36:34Scott Morton:I know that sucks, but capitalism is natural selection. The market is unforgiving because you are the market. After all, it's not like you're buying some random gallon of milk from the store. You're always buying the best product at the best price. So too for apps, your customers are always installing the best piece of code they can get. And because AI is going to create new winners, if you aren't the best in your market, someone may become better with AI. To be clear, block severance is generous by any measure, 20 weeks of pay, six months of health insurers invested equity, all of that goes far beyond any typical package.

3:37:04Scott Morton:Jack did his level best to cushion the disruption. The laid off are a temporary unfortunate class as opposed to a permanent underclass. But had he not leaned into the AI transition, he might have had to lay off more people slowly and over time as faster competitors went after his market share. How would they do that? Sure, AI is not a panacea by any means, but the closer you are to software engineering, the more aggressively you need to embrace agentic workflows. The AI companies are already doing that in places like Stripe, Shopify, Coinbase, and now Block are pushing hard on this area. There will be overcorrection, but the fundamental technical innovation is real, and you need to either disrupt yourself or get disrupted.

3:37:42I think that's generally good advice.

3:37:49Sammy Azdoufal:Anything else in the timeline you want to review? I'm sure we will be covering this tomorrow.

3:37:56Scott Morton:A16Z says every tech company can fire at least half their people, but most can probably do 80%. Black pill.

3:38:03Sammy Azdoufal:Thanks.

3:38:04Scott Morton:Yeah. And to round it off, we'll leave you with a white pill or something like a white monster, which is that Joe Weisenthal is sharing the chart for the Monster Beverage Corporation, which seemingly is entirely AI proof.

3:38:19Sammy Azdoufal:yeah monster's been ripping fascinating company history founded by a very how much do you think

3:38:27Scott Morton:uh how much do you think citrini paid paid square to do this life

3:38:35Sammy Azdoufal:yes to validate how deep does it go after being mocked for the last four days

3:38:43Scott Morton:yeah um fed speak says on one hand jack is a notoriously bad business operator and on the other hand it's over uh yeah the the the the pushback on um on bology saying jack jack is one of the greatest founders ever is simply that yes he is one of the greatest founders ever and i don't think anyone would say that he is the best operator sure of yeah of of um and and that's okay yeah right but sometimes being the best founder means making the super hard decision and having the foresight to uh yeah get ahead it would be a very weird situation if only jack

3:39:22Sammy Azdoufal:dorsey founded companies take him said stand and 80 same dude bought jay-z's title not the greatest operator yeah take him's white pilling he's always white pilling i enjoy him anyway thank you for watching the show today leave us five stars on apple podcast and spotify sign up for our newsletter at tbpn.com. We will be live tomorrow at 11 a.m. No, we won't. No, we won't. We're off tomorrow. We're off tomorrow. We are heading to Montana. And so we have some affairs to attend to, and we will not be live tomorrow, but we will return on Monday. And I can't wait. So mark your calendars, 11 a.m. Pacific on Monday.

3:40:03Sammy Azdoufal:We love you. Goodbye. Goodbye.

3:40:09Yash Patil:Nice work, brothers. I'll see you

3:40:11Scott Morton:on the next one.