The World’s Fastest Growing Defense Company, OpenAI’s Code Red, Google Strikes Back | Diet TBPN

0:00Why is no one talking about Armin Popperger? He's the CEO of Reinmattal, and they've been on an absolute tear. We're, of course, going to get to Code Red. We're going to talk about OpenAI. But we talk about OpenAI every day, basically. And I thought it'd be interesting to meet the CEO behind the world's fastest-growing defense company. It's on the cover of the business section of the Wall Street Journal. When I think high-growth defense companies, I usually think Anderil or, you know, Sironic. Or there's so many other companies that are growing very fast in defense tech. Ryan Mattal's been on an absolute tear.

0:35They're now basically the same size as Lockheed Martin and General Dynamics. You can see the gun that they make in that picture. They make massive cannons. They make artillery shells. They've been very important to the Ukraine war. So in the last three years, they've been on an absolute tear. They've gone from roughly$5 billion in market cap three years ago to$80 billion in market cap. We've got to ring the gong. We've got to warm up the gong. Ring the gong.

1:0480 billion market cap. They've been on a tear, but they've been basically three key drivers to the growth, to the story. First, they had a head start. This company, they actually started it over a century ago. 1889. Can you believe that? They spend their first 25 years basically just stacking up ammo for the German Empire. This obviously comes to a head in 1914 when World War I breaks out. At the time, the company was one of the largest arms manufacturers. They were pretty big after 25 years of just stockpiling ammo, growing, growing, growing as a defense company. World War I breaks out. But then after the war, they got to pivot.

1:43They got to pivot because the Treaty of Versailles forces them to switch to non-military products. They say, hey, you got to build. Make some trains. They get fixated on trains. And also typewriters. Not the first group to get fixated on trains. Fixated on trains. Happens to the best of them. But they have a good run. They stay in business. They keep making trains. locomotives particularly uh you know they're making big stuff and then 20 years later it's uh the mid 30s 20 it's uh 1935 around there uh they are uh they're starting to get back into weapons and ammo production they can't stay away uh-oh who are they rearming the wehrmacht uh and world war ii obviously it's massive for production they're printing they're making lots of weapons uh but by the end of the war, their facilities have basically been destroyed by air raids.

2:33They need to rebuild the company from scratch. So after the second war, they get banned from making weapons again until 1950. And so they have to go back to making typewriters. They keep getting relegated to typewriters. You guys, no more guns. That's enough. You have to make some typewriters. And so they get back into defense tech in the 50s, 60s. The German armed forces gets reestablished in 1956. And by 1979, Ryan Mattal is making 120 millimeter guns that go on leopard tanks that you've probably seen in that image roughly. And so there's lots of M &A, lots of diversification over the next few decades.

3:08They expand into automotive and electronics. And that kind of brings us to the second act of the story, which is the Ukraine war. Russia invaded Ukraine on February 24th, 2022. Ryan Mattal was around 5.5 billion market cap then. And three days later, Olaf Scholz, the chancellor of Germany, gives what's known as the Zeitung Wende speech, which literally translates to turning point. So he says, this is a turning point. Europe has been invaded. We now have a foreign army on European soil. Even though Ukraine's not part of NATO, it feels like Russia's expanding. If they just keep going in the same direction, they're eventually going to be in our hometown.

3:51So we got to do something about it. And what does he propose? He doesn't just say, hey, this is a big deal. He says, no, we're actually going to invest$100 billion off balance sheet from some fund into defense tech. We're going to spend more money. And then, of course, there's a whole bunch of other initiatives that happen. There's the Trump negotiations around how much Europe should pay as a portion of GDP on defense. But basically, it's this major turning point where Europe goes from spending sustainment levels. okay, we're going to spend this much every year, to we are going to double or triple or exponentially grow our spending.

4:25And it's all going to be net new. So you can go and fight for it. And that's what Ryan Mattal does. So revenue's grown 50 % since 2022. They're guiding for sales of$58 billion in an operating margin of more than 20 % by 2030. So they have like almost AI growth level numbers of everything. It feels very similar where there's a structural change in the way their business is going to work. Same thing as Eli Lilly, same story. There's a couple of these stocks where there's now sort of a mega trend and they are in position to capture a ton of value as long as they can execute. The big question is what winds up happening.

5:04But the third leg of the stool, the third important piece in this story is the current CEO, the man no one is talking about until today, Armin Papurger. He's been called a white-haired Goliath. I love that. CNN. Can we pull up a picture? Just randomly threw that in. There he is. There's some other photos. And last year, he was targeted in an assassination plot by the Russians. What? So CNN reported that Russia had made a series of plans to assassinate several defense industry executives all across Europe who were supporting Ukraine's war efforts. Earlier this year, Armin Papberger opened a new factory that will allow his company to produce more of an essential caliber of artillery shell than the entire U.S.

5:51defense industry combined. Ryan Mattel is now the world's fastest-growing large defense company and a key player in Europe's quest to rearm. Ryan Mattel's stock is up 15x since Russia's full-scale invasion of Ukraine in 2022, giving a market cap of$80 billion, roughly on par with U.S. rivals. So let's head over to red alert territory. Gavin Baker, responding to the reporting, says, October,$1.4 trillion in spending commitments. November, rough vibes. And December, code red. Life comes at you fast. It certainly has felt fast ever since that fateful podcast. Yes, that was a crazy turning point. Although there was plenty of conversation, you know, prior to that around what the trajectory of OpenAI would actually look like.

6:46The code red, like, leak from the information reported. It was clearly, like, some sort of all-hands that Sam Altman was, you know, holding a town hall with the rest of the OpenAI team. And he's kind of just saying, like, lock in. That's what he should have said. Never say code red. You got to say, lock in, brothers. Lock in. And say, we're taking that hill. We're storming their fortress. We will grind Google Gemini team into paste. And we will crush our enemies. We will see them driven before us. Hospitals learned this lesson. Yes, they did. They used to say code red. Yes. That meant there was a fire in the hospital.

7:22And that you would probably want to figure out a way to get out. Yes. I think if you're a CEO who's under incredible scrutiny, like you're Sam Altman, and you have beat reporters at this point who are texting your employees every single day, hey, what's going on? What's on the ground? Give me a quote. What happened? Yeah, so to give people context, a beat reporter might reach out to, they will actually adopt the strategy of just trying to wear someone down where they will send hundreds of messages to individual people on the team just over and over and over, relentless, like email, cell phone, Instagram, DM, LinkedIn, just like constantly, constantly, constantly flooding, hoping that at some point this person just says like, fine, like I'll chat with you.

8:08The name Beat Reporter comes from them trying to beat you down. That's the whole point. Is that true? That's where it comes from. No way. Are you messing with me? Yeah, I'm messing with you. Okay, okay, okay. I have no idea. But I like the idea of it. It's like they just try and beat down your employees. It's like that. They try and beat you down. There is some praise for OpenAI on the timeline, which we should get to from none other than Blake Robbins. Blake says, OpenAI is operating on a different level. Play that sound cue, Jordy. The amount they have shipped in the past few weeks and months is incredible.

8:43Feels like we are witnessing a generational run. This was on October 6th. Okay, this was on October 6th. Sora was, I think, number one in the charts at that point. Yes. It's now 21. Yes. The scattershot nature raises questions about the company's discipline and ability to support these disparate initiatives. Is OpenAI a frontier research lab, a social network operator, a commerce engine, a hardware company? Because it's hard to do all of that well. If you go back to the BG2 interview or just the BG interview, Sam's answer to the question of how are you going to support the$1.4 trillion of commitments was we're automating science and we're making consumer electronics.

9:33And the reason that that, to me, that was kind of like a concerning answer because Google has been doing those things for years. Yeah, but they've earned the right because they have 25 years. Yeah, they're funding it with massive cash flow. Yeah, hundreds of billions of dollars in revenue and so much cash. I have a plan. If Sam Altman really wants to set the record straight, everyone's saying, Code Red, oh, Code Red, it's so bad. He needs to come out with a statement. We're going to Baja Blast Gemini out of the app store. if he says our plan is to Baja Blast Gemini and Anthropic into the minor leagues of AI research, I think he just wins completely.

10:15Let's actually play this clip from Ashley Vance here. Yeah, yeah. So to speak to Gemini theories specifically, you know, it's a pretty good model. And I think one thing we do is try to build consensus. You know, the benchmarks only tell you so much. And just looking purely at the benchmarks, you know, we actually felt quite confident. You know, we have models internally that perform at the level of Gemini 3, and we're pretty confident that we will release them soon and we can release successor models that are even better. But yeah, again, kind of the benchmarks only tell you so much. And, you know, I think everyone probes the models in their own way.

10:58There is this math problem I like to give the models. This is funny. I think so far none of them has quite cracked it, even the thinking models. Can you just tell us? So, yeah, I'll wait for that. Is this like a secret math problem? Oh, no, no, no. Well, if I announce it here, maybe it gets trained on. It's going to get so saturated. To speak to Gemini theory specifically, you know, it's a pretty good model. And I think... Let's read what Prinz is saying here. So, new interview with Mark Chen from OpenAI. Ashley Vance, the interviewer, has apparently been spending a lot of time at OpenAI, including sitting in on meetings.

11:30He seems to be writing a book. And he seems to think that OpenAI has made some huge advance in pre-training. Pre-training seems like this area where it seems like you've figured something out. You're excited about it. You think this is going to be a major advance. Mark doesn't spill the beans, though. He says, we think there's a lot of room in pre-training. A lot of people say scaling dead is dead. We don't think so at all. Big question about what that means. Is that scaling RL? Is that scaling dollars in? Is it, oh, yeah. yeah, if you invest$100 trillion, you can give it one more IQ point. It's like, yeah, that would be an example of like scaling holding, but like no one's going to make that trade off.

12:05Okay, so what Sam said in the internal Slack memo is he was directing more employees to focus on improving features of ChatGPT, such as personalizing the chat bot for more than 800 million people. And again, we've seen them like launch more functionality around this. I think the theory is that this could be a very like, make the product really, really sticky. Whether or not that's true generally is still unclear. It's certainly people have been very loyal to 4.0. Other key priorities covered by the code red include image gen, the image generating AI that allows users to create a variety of photos.

12:46Fundamentally, what LLMs are doing, what these chatbots are doing is they're basically instantiating full web pages. They should be able to instantiate anything that you could possibly land on, whether it's a video, an image, a blog post with images embedded. Like it should be able to like not just understand everything and give you the answer, but it should be able to contextualize that answer in any format. Should they say, hey, we're just going to use Nana Banana, which is like a crazy thing. But, you know, there is a world where they say like, hey, yeah, like we're not going to focus on that.

13:20OpenAI has a strong hold on the consumer market to the point where if they swapped out the underlying model, they would still accrue tons of the value because people don't really know what model is which. I think the average user doesn't do it. But first, Tyler has a – Yeah, I mean I think that especially makes sense in the context of images and video because they're just so expensive. Yeah. Like I think a Nano Banana Pro image is like – I think it's like 10 cents. No way. Okay, that might be per like 1 ,000 or something. But it's still, they're really expensive. Videos are even more expensive.

13:53Videos are like really, really expensive. Oh, architects are cooked. AI is coming for you. Prepare accordingly. And you see this and it's like this AI generated image and it looks like remarkable. Looks like a floor plan. It looks like a floor plan. It looks amazing. Like it looks like, okay, yeah, that's like all the lines are straight, but you zoom in and it's like one of the funniest layouts ever because you realize that it's just, it's just one massive room with with like three or four okay so first off okay so you come in through the two-car garage then there's a powder room so mud room so so first off there's this mud room lawn mudroom and laundry with two bathtubs in it scroll up to the right okay yeah right there so why do you have two bathtubs next to your coat closet right in the mud room in the mud room and then and also like you can't go normally you come out of garage you go straight into the mud room but here you have to go into the main area which is the gallery hall and then you go from there into there and so scroll to the left a little bit so we can see the what is the coat what is the coat there's a powder room and then there's the coat bathroom two toilets two toilets next to each other remember we were touring that facility and it had two it had two two bathrooms right next to each other with no line next to it or yeah yeah yeah we were In the office, in the crazy office that had the machine, one of the bathrooms just had, it was like meant to be a private bathroom.

15:19And it just had two toilets there. We were like, why the two toilets? So you come in through your main foyer. Then there's a master bathroom. Then there's a coat bathroom with two more toilets. And then there's a huge walk-in closet, which isn't even directly attached to anything else. So you have to like go through this corridor to get to the rest. And so this master suite has three toilets, but then it gets better. So go over to the top right hand side. So look at bedroom number two. It's just like off the center. Then bedroom number three is there. Then there's a Jack and Jill bath. Then scroll down.

16:00Wait, three sinks? Three sinks, no toilets. And then there's another bathroom. and then there's a third bathroom with a five sinks. You might not like it, John, but this is architecture at its best. Is AI going to help with architectural design? Of course. Is Nano Banana going to randomly one-shot the perfect floor plan? No. Also, no. This is why OpenAI is in code red. In the two weeks since the Gemini launched, ChatGPT unique daily active users, a seven-day average, are down 6%. He is sharing, to be clear, web traffic data. Ah, these traffic sources are so rough. I just feel like people use apps.

16:51Anyway, part of the code red, of course, is that OpenAI's Sora app has fallen out of the top 20 most downloaded apps in the United States on both the App Store and Google Play. Things are falling. I actually opened up Sora today. I looked at it and there was some cool stuff happening. This is a little bit of a hot take. There was still a lot of slop, which I would define as a POV video of a bus driver with a bunch of cats on the bus and it's cute and funny. It's a chipmunk water skiing, like that type of stuff. Is that why you were late for the gym today? No. Do you think they have to explain the funding gap at this point?

17:35Or can we all just agree that maybe everyone got a little too excited? Yeah, I don't know. I don't know. I feel like everyone's sort of repriced everything already with the Oracle round tripping and just this idea that some of the equity investments, they are circular, but it's basically just like a discount on their purchases. And, you know, these things probably aren't as binding as we think. And so I feel like the OpenAI is going to blow up the economy narrative. I feel like that was really oversold. It should be fading, in my opinion, but I don't know. Apparently, ChatGPT is also down right now.

18:14I just tested it. It's not down for me, but the chat says it's down. Time to Baja blast those surfers back online, brother. it's time to rock and we're gonna have to blast some uh some funding into this company because apparently there's a 270 billion dollar funding hole squaring the total it leaves open ai in a 270 billion 207 billion dollar funding hole the math doesn't work maybe open ai should release to the world here's how the math can work because i haven't seen anyone state how this can actually work even if you get there open ai does fall 207 billion dollars short of the money it needs to continue funding its commitments, right?

18:51So it has in 2030, OpenAI free cash flow will be about 287 billion. That's like insane. If you're in a situation where you have$287 billion of free cash flow, like you can't raise more debt on that. Like I feel like math tends to work out when you go from a nonprofit to a$300 billion cash flow a year in 10 years. Like it just, everything just forms in front of you. Like, yes, you are building the bridge as you're driving, but that tends to happen when you're on that much of a tear. We should read through Ben Thompson's latest piece because he's provided a lot more context on Google, NVIDIA, and OpenAI with a post called Google, NVIDIA, and OpenAI.

19:39Would you look at that? You have Luke, bored on Tatooine, called to adventure by a mysterious message born by R2-D2 that he initially refuses, is refusal of the call. This is the classic hero's journey. A mentor in Obi-Wan Kenobi leads him to the threshold of leaving Tatooine and faces tests and carries the battle station plans to the rebels while preparing for the road back to the Death Star. He trusts the force in his final test and returns transformed. And when you zoom out to the original trilogy, it's simply an expanded version of the story. This time, however, the ordeal is in the entire second movie.

20:18the empire strikes back. The heroes of the AI story over the last three years have been two companies, OpenAI and NVIDIA. The first startup is called with the release of ChatGPT to be the next great consumer tech company. The other was best known as a gaming chip company characterized by boom and bust cycles, driven by their visionary and endlessly optimistic founder, transformed into the most essential infrastructure provider for the AI revolution over the last few weeks. However, both have entered the cave. They're in the cave. This is the cave of disillusionment and are facing their greatest ordeal.

20:54The Google empire is very much striking back. So Google strikes back. The first Google blow was Gemini 3, which scored better than OpenAI's state-of-the-art model on a host of benchmarks, even if actual real-world usage was a bit more uneven. Gemini 3's biggest advantage is its sheer size and the vast amount of compute that went into creating it. This is notable because OpenAI has had difficulty creating the next generation of models beyond the GPT-4 level of size and complexity. What has carried the company is a genuine breakthrough in reasoning that produces better results in many cases, but at the cost of time and money.

21:32Ben Thompson creates aggregation theory. This idea of like, it's so important to aggregate demand in the modern internet world. It's potentially the only thing you can do. You can't really monopolize supply. It's very hard to monopolize supply, but monopolizing demand is something that happens. And the strength of habits is significant. Like we're watching this stuff every single day so we can take the time to, okay, yeah, we should test out this other, you know, model. We should daily drive this app. But for a lot of people, if they have a map that's installed and they've been using it for a year.

22:08They're never changing. The thing that I've heard come up multiple times is people that when Gemini 3 launched, they switched to Gemini 3 on desktop, but they stayed using ChatGPT on mobile. And I mean, to be completely transparent, like the Gemini mobile app is really, really struggling to stay connected. There's something in the, when you fire off a prompt, it doesn't like save it locally and then cache that and then send it off, inference it, and then come back. Like, unless you keep the app open, like it will just give you like a server disconnected error. Like I've gotten like dozens of these and that's gonna be a real, I think it should be something that they should be able to fix in like a weekend.

22:50This is, I think, a broader point. The naive approach to moats focuses on the cost of switching. In fact, however, the more important correlation to the strength of a moat is the number of unique purchasers to users. Okay. So that you can see where this is going with like, Nvidia has five buyers and ChatGPT has a billion buyers. I argued that you could map large tech companies across two spectrums. The degree of supplier differentiation from Facebook, where the supplier is completely commoditized, just your friend on Facebook, to Microsoft and Apple, where the suppliers are somewhat more controlled.

23:26Yeah, there's the... What a chart. The more unique buyers of your product you have, the stronger your moat because you have to convince each one of them. He started this article recounting the hero's journey in part to make the easy leap to The Empire Strikes Back. However, there is a personal angle as well. The hero of this site has been aggregation theory and the belief that controlling demand trumps everything else. Google was my ultimate protagonist. Moreover, I do believe in the innovation and velocity that comes from a founder-led company like NVIDIA. And I do still worry about Google's bureaucracy and disruption potential, making the company less nimble and aggressive than OpenAI.

24:08More than anything, though, I believe in the market power and defensibility of 800 million users, which is why I think ChatGPT still has a meaningful moat. At the same time, I understand why the market is freaking out about Google. Their structural advantages in everything from monetization to data to infrastructure to R &D is so substantial that you understand why OpenAI's founding was motivated by the fear of Google winning AI. It's very easy to imagine an outcome where Google's inputs simply matter more than anything else. One of my most important theories is being put to the ultimate test, which perhaps is why I'm so frustrated at OpenAI's avoidance of advertising.

24:48Google is now my antagonist. Google has already done this once. Search was the ultimate example of a company winning an open market with nothing more than a better product. Aggregators win new markets by being better. The open question now is whether one that has already reached scale can be dethroned by the overwhelming application of resources, especially when its inherent advantages are diminished by refusing to adopt an aggregator's optimal business model. I really wonder who's going to take the leap first? Who is going to jump and put ads in the app first? It feels like Google should do it.

25:25Yeah, nobody's going to be like, what? Google is putting ads in a product? Yeah. It won't be that surprising. Apple AI chief John Giandrea is leaving the company. Amar Subramanya from Microsoft is joined to lead AI under Craig Federighi. Amon brings a wealth of experience to Apple. He's quoting here. Having most recently served as CVP of AI at Microsoft and previously spent 16 years at Google, where he was head of engineering for Google Gemini. This is bearing the lead. He joined Microsoft AI four months ago. Wow, what a crazy turn of that. LinkedIn says six months ago, but who's counting? That's pretty fast.

26:08This makes sense considering Apple is partnering with Gemini and not a lot of people are going to be in a better position to help integrate that into Siri than Amar. Strange hire for a number of reasons, but it's hard to argue that the Apple job is a bad one. Anything is an important improvement at this point. So the bar is as low as it comes. I'm personally just excited to actually test drive what Gemini, how it works in Siri, how seamless that is. Because if it really is just raise, press the button, get Gemini, and it's linked up properly and it doesn't have timeouts and it gets back to you pretty quickly, like that's going to be a pretty powerful experience.

26:48That's definitely going to cut down on ChatGPT app usage for iPhone users, I would imagine. Underrated threat. I would think so. I don't even know that Apple will benefit massively from this. It's not like they're going to sell twice as many iPhones. They're already so big for it. I don't think it's necessarily like especially bullish for Apple. It's an underrated threat for OpenAI. I would think so. There's a lot of queries that I'll hit chat GBT on mobile that are not even like super economic, but just a lot of my usage around like, hey, just trying to learn about something or research a product, et cetera.