The Cournot Equation, Micron’s $200B Bet, Hollywood vs. Seedance 2.0 | Diet TBPN

0:28It's the year of the fire horse. equilibrium at least dario amade and dorkesh patel are and you and me and some folks on the timeline we're going back and forth and basically trying to get to this question i feel like we should give the context on this on the titling strategy at least because we call the uh run of like we'll title an essay why is no one talking about the curnell equilibrium because this one guy had this super viral yes like a year or two ago and he's and the title was why is no one talking about Mark Andreessen. We were laughing about it so much because he's one of the most talked about investors in venture.

1:05He's on the Midas list constantly. He's written essays and books. Everyone's talking about... Been viral a million times. He's done so many podcasts. Yeah. He's someone that everyone in the industry has an opinion on already. He's not like a Midas lister up there, but not a lot of people. It's like everyone's talking about it. But in this case... The basic idea is that if there's only a few players in a given market, you can think about, you know, any specific market, lemonade stands or whatever, and they aren't competing on price, they will compete on supply. And they'll try to predict what their competitors are doing and then respond accordingly.

1:41And this is really, really relevant to the AI lab discussion because you can tell that even though all the leaders of the AI lab say, I don't think about the competition, I don't talk about the competition, all the used general terms, they're all obsessed with what everyone else is doing and they think about it constantly, very clearly. And if someone's buying 10 billion of compute over here, they're going to counter with eight over there, try and jump to 12. And everyone's sort of keying off of each other. You know, Microsoft pauses, AWS goes all in. There's all these like horse races. It's why semi-analysis exists and provides great cross-functional data.

2:16Outside of tech, there's this discussion that I see that's always funny to me where people would be like, the price-to-earnings ratio. Brian says they don't want you to talk about the coronavirus equilibrium. They don't want us to talk about it. They don't want us to talk about it for sure. There's this discussion. I saw one person say, the price-to-earnings ratio for open AI and Anthropic is just simply too high. And I was like, earnings? These companies are losing money. They don't have a price-to-earnings ratio. It's a divide by zero. This is going to blow your mind. Yeah, it's so much worse than you think, right?

2:45They're not making any money. The other side of things is the inference factory. So this is essentially a manufacturing business. You have variable costs, so GPUs, power, engineering overhead, and then your revenue is subscriptions, API usage, and enterprise contracts. And so when you just look at inference, you see positive contribution margin. And we can see that because we can compare the cost to inference a model of the GPT-5 class size or the Opus 4.5 size. You can see what does it look like to run an open source version of that model on commodity hardware. It's way, way cheaper than what you pay to Anthropic or OpenAI.

3:24So they must have good margins. And everyone sort of agrees at this point that inference margins are, in fact, healthy. The question is, how do you balance those two pieces and when do you risk over investing? And that's sort of this Corneau game of chicken that everyone's playing. The Corneau equilibrium comes when a small number of labs, an oligopoly, effectively choose supply at the frontier level and then the market clears at a high price for frontier access. So choosing supply in this case means how many data centers get built, how many GPUs get ordered, but also how much low latency capacity is allocated to the top tier.

3:55So, you know, right now they just, OpenAI just did the Cerebris deal. there's Claude Fast, and there's a whole bunch of different modes that will deliver faster inference. And how many of those fast queries you get, how much of the best chips are allocated to a particular tier that you're paying for is an economic question for the labs. There's a ton of developers and knowledge workers who are happy to pay hundreds of dollars a month or more, but they always want the best available model. This is most people in executive roles in startups. Yeah, I got my$200 a month subscription. I'll pay$250 or$100 or whatever, a couple hundred bucks.

4:32And it just makes me better at my job. I just do whatever I need to do. But don't give me the old thing. I want the best. I want to know that the hallucination rate is as low as possible. 1 % of the time, it makes a career-ending mistake. So having a product, not just an API business, gives you leverage. Because at some point, the models are smart enough where you don't need to train them. you don't need to train a model that is 4 % better because people are still coming to your application and having a good product experience, right? Yes. So historically, one of the critiques to Anthropics business was that they have to just be on this constant, constant sort of hamster wheel of training the best model because the majority of their business is this API business.

5:18They're not an aggregator yet. Swap it out for a smarter model. That said, they have cloud code now, which gives them some more leverage over the market. And the really interesting thing is that Dario is now talking about being near the end of the exponential or maybe producing like the final models. Because we've talked to a few people about this, but it's very unclear if it's possible to create like a super intelligence that's like 5 ,000 IQ. It might just be they get good at all knowledge work and they can answer all tasks, but it's like the digital guy. At that point, it does commoditize and you drop out of Corneau equilibrium and you become more, customers are more aggressive about switching to cheaper models to cut costs because the frontier is now commoditized in the entire backlog.

6:06Everyone is at the frontier basically. And so in that scenario, you switch over to Bertrand competition, which doesn't really mean that profits go to zero, but there is more competition. And it looks a lot more like the hyperscaler cloud market, which is I think what people have been sort of signaling towards and also it sort of explains why a lot of the VC firms are getting in multiple companies because they don't think it's going to be winner-take-all anymore. They think it's going to be much more oligopolistic for the long term and there will be competition between the major three or four labs and it will be much more about how can you marshal enough supply, create a huge barrier to entry.

6:41Like you and I could start an AWS competitor tomorrow but it's gonna be extremely expensive to bring up data centers that just serve web apps everywhere, let alone AI stuff, right? Building all those data centers. You're thinking what I'm thinking? You're thinking AWS competitor? People are saying, when does TVBP do a product? I was hanging with my buddy, Ben, on Sunday. We both live in Malibu. He was thinking of just getting some chips and setting up Malibu Inference. There we go. Just the name alone. Sounds like you could get at least one. Malibu Inference. That's really funny. would be a beautiful name for a neocloud.

7:17Yeah. Let's play the clip of Dwarkesh Patel and Dariyamade discussing the economics of AI labs. Like we have a, you know, let's just imagine we're in like an economics textbook. We have a small number of firms. Each can invest a limited amount in, or like each can invest some fraction in R &D. They have some marginal cost to serve. The margins on that, the gross profit margins on that marginal cost are like very high because inference is efficient. There's some competition, but the models are also differentiated. There's some, you know, companies will compete to push their research budgets up.

7:57But like because there's a small number of players, you know, we have the, what is it called? The Cornell equilibrium, I think is what the small number of firm equilibrium is. The point is it doesn't equilibrate to perfect competition with zero margins. If there's like three firms, if there's three firms in the economy, all are kind of independently behaving, behaving rationally. It doesn't equilibrate to zero. Help me understand that, because right now we do have three leading firms and they're not making profit. And so what is changing? Yeah. So, again, the gross margins right now are very positive.

8:40What's happening is a combination of two things. One is we're still in the exponential scale-up phase of compute. So, basically, what that means is we're training, like a model gets trained. It costs, you know, let's say a model got trained that costs a billion dollars last year. And then this year, it produced$4 billion of revenue and cost$1 billion to inference from. So, you know, again, I'm using stylized number here, but, you know, 75 % gross margins and, you know, this 25 % tax. So that model as a whole makes$2 billion. dollars um but at the same time we're spending 10 billion dollars to train the next model because there's an exponential scale up and so the company loses money each model makes money but the company loses money the equilibrium i'm talking about is an equilibrium where we have the country of geniuses we have the country of geniuses in the data center but that that um model training scale up has equilibrated more maybe maybe it's still it's still going up we're still trying to predict the demand but it's more leveled out.

9:55There is another fun clip that we should watch from A Beautiful Mind. Jordy, have you seen A Beautiful Mind? No. It won the Oscar for Best Picture, I believe. It's about the mathematician John Nash. Have you seen A Beautiful Mind? I have not. Wow. Unc status over there. You would have. Inverse. I was walking on the beach with Senra, and we walked by an incredibly famous, one of the top movie directors of the last probably 10 years. Wait, really? And Senra was like, do you see that? And I was like, see what? It's a guy with a dog. That's hilarious. I feel like that your beach tours have been really star-studded lately.

10:35This is a different from the previous one you mentioned, correct? Yes. Wow. Yes. That's remarkable. Well, let's pull up the clip.

10:46It's from A Beautiful Mind. yes you might want to stop shuffling your papers for five seconds is that eric lyman yes it's eric lyman in the in the ramp biopic we got we got we got our cast right here oh this is the original like looks maxing moving in slow motion will she want a large wedding you think should we say swords gentlemen pistols at dawn have you Remember nothing. Recall the lessons of Adam Smith, the father of modern economics. In competition, individual ambition serves the common good. Exactly. Every man for himself, gentlemen. And those who strike out are stuck with their friends.

11:29I'm not going to strike out. You can lead a blonde to water, but you can't make a drink. I don't think he said that. All right, nobody move. She's looking over here. She's looking at Nash. Oh, God. All right, he may have the upper hand now, but wait until he opens his mouth.

11:52I think this is very, very stylized and completely apocryphal. Like, he definitely thought of this theory, but not at a bar. We block each other. Not a single one of us is going to get her. So then we go for her friends. But they will all give us the cold shoulder because nobody likes to be second choice. But what if no one goes for the blonde? We don't get in each other's way. And we don't insult the other girls. That's the only way we win. That's the only way we all get laid. So he's describing the prisoner's dilemma. Adam Smith said... Where everyone must work together. Best result comes. from everyone in the group doing what's best for himself, right?

12:46That's what he said, right? Incomplete. Incomplete. Incomplete. Because the best result would come from everyone in the group doing what's best for himself and the group. This is some way for you to get the blonde on your own. You can go to hell. Governing dynamics, gentlemen. Governing dynamics. Adam Smith. Who's wrong? Careful, careful.

13:14Thank you. Anyway, very fun. Dave says, just join the stream. We watching a movie. Yeah. Lots of game theory going on in the AI wars right now. Everyone's trying to figure out how far to push it. There's a fair amount of risk. There's still the Corno game of checking around who will invest the most in advancing the frontier. But the end state looks a lot more durable than pure model commoditization and the perfectly competitive situation that many were predicting a few years ago. Buko Capital says, I thought Dwarkesh had a good point that software engineering is the only job where the full context needed to do the job is available to an AI agent via the code base.

13:50And I didn't think Dari had a good answer for why automating other jobs will be as easy. This got a lot of people kind of reacting, kind of disagreeing generally that all of the full context needed to do the job is available. But I do think something we need to figure out. Yeah, we were debating this because there was a post that was just sort of like a Wojak reaction that was just making fun of this. And it wasn't clear if they were saying that they were agreeing or disagreeing. But basically, my take was, well, it's possible that a lot of the full context needed to do the job of a lot of different white-collar jobs is, in fact, logged.

14:33It's just logged in the final product, which is like a deck or a spreadsheet or a decision. and then a whole bunch of emails, a whole bunch of slacks, and then a whole bunch of Zoom calls that's recorded. And so, yes, if you're running a business where a lot of work gets done in smoky bars late at night and back alley deal making, sure, that's going to be harder to automate. But in the world where it's someone sitting in front of a computer and there's a screen recorder running, you should be able to pull up most of the context. At the same time, You can't just snap your fingers and go back and get every decision that was made in the 80s that allowed Coca-Cola to become a dominant soda maker.

15:14But you can with Linux. You literally can with Linux. If we get people on calls just being like, knowing the call is being recorded and used to train something to replace them, they're just like, I'll tell you offline. I'm not speaking this secret into the record. Golf this weekend? Debate around the posture of Dwarkesh. Dwarkesh, his posture was absolutely excellent. He's been in the gym a lot. He looks fantastic. I love this sweater. The crew neck works really well. The pushed-up sleeves is a particular choice. Didn't translate into that Chad Wojak, but he looks fantastic here. A lot of fun on the timeline looking at the looks-mogging or whatever, the looks-maxing.

15:56I don't even know. I can't. Frame logging. That's the. Yeah. He kept bringing up the example of a video editor saying, yeah, but when will the models be good enough to edit videos? Well, yes. Pick out moments. Yes. And give me two years and another 500 billion. We've tried every tool there is. They can't do it yet. It's tricky. I don't know. I don't know what's. And it's not even that we're not trying the tools to replace the people on our team. We're trying to make them have higher output. One interesting thing is that there aren't a lot of open source, like, Premiere profiles. I've edited a ton of videos for YouTube.

16:39There's a whole bunch of cuts in there. What I cut out, what I didn't. You could have that record, but it's not stored in GitHub. You can't necessarily train on it. You can train on the final product and understand, but you don't understand what actually got left on the cutting room floor. There's this whole concept of, like, kill your darlings like when you're in the edit like you need to be cutting more you're like I like that shot so cinematic so cool but does it actually advance the story no so you cut it down I was watching the matrix this weekend and there's this amazing shot of when Neo and Morpheus are going to visit the the Oracle and they reach for the doorknob and the doorknob has this perfect reflection and the reflection shows Neo and Morpheus and they had to do this crazy VFX shot to hide the camera in more what looks like Morpheus's coat because if you point a camera at a mirror you see the camera and you don't want to see the cameraman there that ruins the shot and so they did all this crazy stuff to like to like you know cover up the camera and I'd seen the behind the scenes and been like wow that's really impressive and in my memory I thought it was like oh it's such an important shot they probably had lingered on that for like five seconds to really let it sink in like they're pulling a trick on the audience it's beautiful it's like half a second and they did all this work and then they knew that like from a storytelling perspective, you don't wanna hang out and watch a picture of a doorknob for five seconds.

17:57And so all these decisions, like they sort of get chronicled, but they don't get neatly organized in the way that a GitHub log does with pull request discussions and what happens. So it'll be difficult. So maybe two years and another$5 billion does it, but it's coming, so we'll keep monitoring it. Andrew Reid says horses don't stop, they keep going. Wait, did he actually say that? Yes. No way. In response to 2026 being the year of the horse. I love it. One of the greatest lyrics of all time. Originally, to explain the joke, it's a young thug song. And the actual lyric is, hustlers don't stop, they keep going.

18:35But it sounds like horses. And so people put horses don't stop, they keep going. And they show the AI generated image of the horse bench pressing. And it's incredibly inspiring. There's a lot of young thug songs that are hard to decipher. 100 percent uh let's hit the size gong for this pennsylvania girl scout six years old breaks records selling 87 000 boxes of cookies she's unstoppable unstoppable how much is that what's the arr estimating that it's somewhere around 600 000 of sales it's amazing at only six years old really incredible stuff heartwarming that's awesome india's adani group to invest 100 billion in ai infrastructure hit it again the country's ambitions to become an AI power India's Andani group and energy and logistics giant said it would invest a hundred billion dollars to develop large-scale data centers by 2035 the largest such commitment in India so far Tyler what do you think about the timing here is this gonna be too late are the clankers gonna like it's 2035 how are we looking there is that I mean, singularity.

19:47Yeah, I'm very bullish on on the clankers coming pretty early. So, you know, time will tell, I guess. I cannot wait to pull up this clip. It is it is a big number that I feel like a lot of countries have been teasing big numbers. But this is kind of logging Macron. Yeah, this is like a really big number. You see a bunch of like multibillion dollar deals, multibillion dollar releases. But this is like a serious, serious, serious investment. So, you know, good news. Micron is spending$200 billion. Congratulations for saying the biggest number. Micron. Micron is spending$200 billion to break the AI memory bottleneck.

20:28For decades, memory chips were low-margin commodity products. Now the industry can't make enough to satisfy data centers' hunger. Just like this one company is like, yeah, we're going to spend twice as much as India. Micron technology is the largest American maker of memory chips, the tiny slices of silicon that store and transfer data and help power everything from smartphones and car computers to laptops and data centers. Micron is rushing to add manufacturing capacity to avert the biggest supply crunch the memory industry has seen in more than 40 years. Did you hear that the PS6, the PlayStation 6 is now delayed because of memory shortages?

21:042029, pretty big delay to 2029. They really don't refresh. You just created a trillion gamers. No, seriously, I think adding insult to injury to... The gamers might actually be... Gamers might rise up. They might be an important voting block. A lot of them are of age to vote, and a lot of them would rather have new gaming hardware than necessarily AI slopping the feed. They're like, yeah, I can't afford the new PC that I wanted. What do you think? I don't know. I mean, I feel like this says a lot about how good the PS5 is, right? Because they can afford to just postpone the PS6. What games actually need?

21:45Oh, now you don't want technological progress? Wow. I want it to go to the data centers. I don't care about the next game graphics. Have they gotten that much better in the past five years? Yeah, maybe, but for the actual gameplay, is it that important if the actual pixels are... Realistically, a lot of this stuff should be moving to the cloud soon if it's not already. And then if you're running in the cloud, you can upgrade the hardware. And in theory, you should be able to run like a Gen AI up-resing pass to make it more photo real. And I feel like that's gonna be where more of the juice is squeezed out of the graphics than just continuing on the traditional path of like more pixels, more ray tracing.

22:26It'll be make a really beautifully designed video game that works really well, really tight, deterministic interactions so it's satisfying, and then give it a layer on top. We've got to have like a Ram trader on the show, really somebody that's in the thick of deal making in this space. Moving on, Lucas Shaw was on a tear over the weekend reporting on the Warner Brothers Paramount conversations. He says this morning, Warner Brothers is going to resume talks with Paramount after two months of rejecting them playing mind games. The company still says it's committed to Netflix, but needs to find out just how much the Ellisons will offer.

23:05He originally reported on this Sunday, but it's being confirmed today. Again, we kind of knew this was going to happen. If the Allisons had been saying, we're giving you a big number, but it's not our biggest number. It's not our best and final. So no surprise here. Let's flip over to Claude Bott. Kent Dodd says, name's the thing Claude Bott. Claude asks for a rename. Renames to OpenAI, buys it. Legendary couple weeks. No confirmation on buying. It's an open source project. They're keeping it open source. There's a whole bunch of different. Yeah, Dave Morin, I remember reading, is going to step in to, I believe, run the foundation that will kind of steward the open source project.

23:54And then Peter's obviously joining OpenAI. I'll take this day off to figure out this whole open claw thing. Every entrepreneur on President's Day weekend. We've talked about this on the show before. Long weekends are really good for AI progress and AI diffusion. Petition for three-day weekends to speed up AGI timelines probably would work for sure. Fumblegate. Fumblegate. Did Anthropic fumble OpenClaw? Will Brown says, honestly, crazy that OpenClaw sold for$1 billion. Like, he's really the first solo$5 billion founder. Time will tell if it's worth$15 billion that OpenAI spent on the acquisition.

24:31but it's pretty wild that you can just vibe code an open source project and make 40 billion in a couple months now. It really, really nails it because everyone jumped immediately to a billion. Immediately. Off of nothing. Off of nothing. Off of like one rumor. It's very, very funny. Who knows? Alex Cohen breaks it down for Gen Z. If you're wondering what happened today, Claude was mogging OpenAI for weeks. Then this Jim Cell dev ships Claudebot, which was the fastest growing open source thing ever. Absolute looks max for the whole ecosystem. Anthropic tries to dairy goon him with legal. Dev renames to OpenClaw.

25:08OpenAI slides in like a void pulling chad with acquisition interest. OpenClaw gets acquired by OpenAI. Now Anthropic is getting jester gooned by the entire timeline and OpenAI is giga maxing off their fumble. Anthropic could have just let him cook. Instead they went full moid and got outframed by the jester maxers at OpenAI. The looks-backs, like, the lingo is really, it feels, like, hilarious. I do wonder the half-life. I feel like it's got to be towards the end of this boom, but the rise of the kick streamers is certainly the story of the year. Certainly the story of the year. What did Claude do?

25:48What did Claude do? The Pentagon has said that Anthropic will pay a price. There was reporting last week that Claude was leveraged in some way during the Maduro planning, the planning of the Maduro raid. I was imagining in my head Dario as Walter White in the SUV, just being like, watching the logs and seeing Pete Hegseth running a deep research report on Maduro. Who is Nicolas Maduro? He's just like, no! No, don't do it. Yeah, very unclear how it was used, but a lot of pushback. SAG-AFTRA put out a statement on CDANCE 2.0. It's not a comment. It's a statement. Now, the Chinese have been quivering in fear ever since SAG came after them.

26:45SAG stands for the studios in condemning the blatant infringement enabled by ByteDance's new AI video model, CDance 2.0. The infringement includes the unauthorized use of our members' voice and likenesses. This is unacceptable and undercuts the ability of human talent to earn a livelihood. It is kind of interesting that just in this statement, they're admitting to saying, like, it's so good, you're going to make it impossible for our members to earn a living, which doesn't actually... It says undercuts. Undercuts. It doesn't say eliminates. C-Dance 2.0 disregards law, ethics, industry standards, and basic principles of consent.

27:20Hit that boom. AI development demands responsibility that is non-existent here. Completely correct. Some of the C-Dance videos are insanely infringing. It's just like, wow, it's Larry David. Beginning of the end, says Growing Daniel. Disney, as expected, sent a cease and desist letter to ByteDance over C-Dance 2.0. I wonder. It's crazy. I wonder how ByteDance will actually react to this pushback. Obviously, they expected it. Yeah. They know that they're not abiding by a number of different U.S. laws. Whether or not they care is another thing. Yeah. Like, if you make an AI version of Andrew Huberman and you get a fresh ad account, you can probably start spending money before the Huberman Lab team finds out what you're doing.