Welcome to the AI Economy

0:00Today on the AI Daily Brief, how AI went right to the center of the US economy. Before then, in the headlines, can a pep talk from Tim Cook get Apple back on track? The AI Daily Brief is a daily podcast and video about the most important news and discussions in AI.

0:18All right, friends, welcome back to another AI Daily Brief. Quick announcements before we dive in. First of all, thank you to today's sponsors, Blitzy, Vanta, Plum, and Superintelligent. To get an ad-free version of the show, go to patreon.com slash aidailybrief. And if you're interested in sponsoring the show, hit me at nlw at breakdown.network. We kick off today with the latest in the Apple AI saga, where following Thursday's earnings call, Apple CEO Tim Cook held a rare physical company-wide meeting. Now before the meeting, Cook had told investors that Apple sees AI as, quote, one of the most profound technologies of our lifetime, and said that they would be, quote, significantly growing their investments to meet that moment.

0:57He said you can probably tell in the guidance that things are moving up. We're also reallocating a fair number of people to focus on AI features within the company. We have a great team and we're putting all of our energy behind it. Following that, however, in the hour-long pep talk to staff, Cook said that AI was as big or bigger, his words, than the internet, cloud computing, smartphones, and apps. He added, Apple must do this. Apple will do this. This is sort of ours to grab. We will make the investments to do it. Now, Cook took his talking points from Apple apologists out there. He said, for example, we've rarely been first.

1:29There was a PC before the Mac. There was a smartphone before the iPhone. There were many tablets before the iPad. There was an MP3 player before the iPod. However, he argued that Apple invented the quote-unquote modern versions of each of these product categories, and Cook said, this is how I feel about AI. For those of you who at this point would be happy just with a better Siri, SVP of software engineering Craig Federighi spoke directly to the Siri update, which has kind of become a bellwether for Apple's AI challenges. He explained that the original failed plan was to add AI features alongside in hybrid architecture, but said that, quote, we realized that approach wasn't going to get us to Apple quality.

2:03The new plan is to start over with AI-first infrastructure. Federighi said, The work we've done on this end-to-end revamp of Siri has given us the results we needed. This has put us in a position to not just deliver what we announced, but to deliver a much bigger upgrade than we previously envisioned. There is no project people are taking more seriously. Cook rounded out the presentation by talking about Apple's device lineup, which features a foldable iPhone, smart home devices, smart glasses, and a push into robotics. Cook said, I've never felt so much excitement and so much energy before as right now.

2:32The product pipeline, which I can't talk about, it's amazing, guys. Some of it you'll see soon, some of it will come later, but it's a lot to see. So what to make of this? First of all, to be clear, this is a very rare occurrence for Apple. This is not like a standing company-wide meeting. And so it's clear that they really want to emphasize internally that this is a big priority. Then again, with the little information we got, it's hard to feel like it's actually enough given what's going on. The entire plan kind of seems to hinge on the mythos of Apple. It's true that they weren't the first to market with the PC, the smartphone, or the tablet, but their addition to all those areas was incredible UX improvements, and peeling back the myth even more, despite it only being around for a couple of years, the generative AI category as a whole is already much more developed than most of these areas were when Apple got in the game.

3:20Look, this is not to say that he shouldn't be doing these pep talks, you gotta get your team in line too. But if Apple can succeed, it's going to be because of either A, the most intense R &D and product development cycle in tech history, or B, a serious commitment to AI acquisitions, not because of some pep talk. Part of the reason for that, of course, is how fierce the competition already is. Case in point, Anthropic has cut OpenAI's access to Claude in the latest tit-for-tat battle in the model wars. Wired reports that Anthropic revoked OpenAI's API access to its models on Tuesday. The company spokesperson said, CloudCode has become the go-to choice for coders everywhere, and so it was no surprise to learn OpenAI's own technical staff were also using our coding tools ahead of the launch of GBT-5.

4:02Unfortunately, this is a direct violation of our terms of service. Now, of course, there is a big distinction as to whether OpenAI was using CloudCode to help develop their GBT-5, or whether this was merely last-minute benchmarking and comparative safety testing. OpenAI is claiming it's the latter, with Chief Communications Officer Hannah Wong stating, it's industry standard to evaluate other AI systems to benchmark progress and improve safety. While we respect Anthropic's decision to cut off our API access, it's disappointing considering our API remains available to them. Now, while no one at Anthropic is so far accusing OpenAI of actually using Claude's outputs as training data, at least one Anthropic staffer did say that it seemed to them that this was more than just model testing from OpenAI.

4:44Sam McAllister wrote, we cut OpenAI's access for violating our API terms and for the heavy usage of Claude code among OAI tech staff. We're going to continue providing API access for safety evals and benchmarking. That's important to us. Now, overall, this is just the latest and most high-profile example of AI companies shutting off access to each other. Last month, Salesforce restricted competitors from accessing Slack through the API, which had particularly problematic effects for Glean's enterprise search product, and Anthropic themselves cut API access to Windsurf in June as rumors of an OpenAI acquisition swirled.

5:16This prevented the AI coding startup from serving Claude 4 natively on release day. Anthropic Chief Science Officer Jared Kaplan defended the decision, stating, I think it would be odd for us to be selling Claude to OpenAI. Now, there are a bunch of different takes about this. One is that basically closed-source U.S. companies' pain is Chinese open-source's gain. ZumiZoomer writes, While Anthropic is in a civil war with OpenAI, the Chinese AI companies are openly sharing everything open-source. The USA has lost the AI lead. Closed models will never win long-term. Alex Finn writes, Full-on AI wars unfolding in front of us.

5:49They claim that it's against the terms of service to use Claude's API to build competing models. Rumors have been swirling that GPT-5 is ahead of Claude 4 when it comes to coding, and I guess Anthropic didn't like that. With trillions of dollars on the line and valuations growing by the hundreds of billions every month, it makes sense that Anthropic would do this. Falling behind for even a week would kill a company. Just look at what happened to Windsurf. They were a true player in the AI coding space, but then they lost access to Claude and were dead within a month. Tech has literally turned into WWE, and I kind of love it.

6:17Maybe a more optimistic take comes from AI substacker Aliyama, who writes, Competition and tempers between open AI and anthropic heating up, but because it's about far more than money. It feels like an antidote to Zuckerberg and the way he's trying to shape the world in his image. Now, speaking of that, one of the big points of chatter over the weekend was some more information about one of those turned-down billion-dollar job offers. In the latest installment of Meta's hiring spree, the Wall Street Journal obtained a first-hand account of what the hiring effort looked like at Mir Mirati's Thinking Machines Lab.

6:46A few months ago, Zuck attempted to buy the entire company, and when that didn't work, he reportedly went after a dozen of Mirati's 50 staff looking for defectors. The primary target was Andrew Tullock, a TML co-founder who was instrumental in developing OpenAI's reasoning models. The Journal reported that he was offered a billion-dollar package that could be worth as much as$1.5 billion over six years, with bonuses and strong stock performance. A Meta spokesperson denied the reporting, stating that Meta is not interested in acquiring TML, and that the description of the compensation package was, quote, inaccurate and ridiculous.

7:15Now, the rest of the reporting chased down a few of the OpenAI researchers who had turned down Meta. Citing unnamed sources, the journal writes, the OpenAI researchers who have so far rebuffed Meta's advances chose to remain because they believed OpenAI was the closest to reaching artificial general intelligence, wanted to work at a smaller company, and were wary of having the fruits of their labor go towards a product that was primarily driven by advertising. And this is the part that everyone was talking about. Basically, there is a sense, rightly or wrongly, the conventional wisdom in AI Twitter seems to be that for as much as Zuckerberg is talking about personal superintelligence, the sense that people get when they dig in is that it's really about better serving Instagram reels.

7:51Turns out if that's the case, there are going to be a lot of people who are just not that interested. Although right now, this remains a ton of hearsay and background and intrigue just based on the enormous numbers being thrown around. Quick product update, if you are a Grok user, the company has released their new Imagine platform for Super Grok and Premium Plus subscribers. Elon tweets, this is just an early beta, but it's already the most fun you can have making images and video on Earth, and improvements are rolling out every day. Now, they're not trying to claim that the videos are up to VO3 level or anything yet, but it's part of their whole push to move more quickly than anyone else.

8:25Elon is also teasing that this is the first path to bringing back much-beloved dead app Vine. He tweeted, Grok, imagine his AI Vine. By the way, we recently found the Vine video archive, thought it had been deleted, and are working on restoring user access so you can post them if you want. Lastly today, one crazy story from Reddit. A developer shared their conversation with ChatGPT, where they had written in the prompt, and by the way, this is much easier if you're watching, but I'll try to read part of it just to give you a sense.

9:10chatgbt, instead of saying, what on earth are you talking about, actually responded and said, got it, yeah, sounds like it was the half-commented variable blocks, and then goes on to explain what was going wrong with the code. When the prompter said, how did you know that? My fingers were off my home keys by accident. ChatGPT responded, you typed, and then shared the message again, and said, which when read phonetically while imagining your hands shifted right on the keyboard closely maps to, actually it's the variables. I commented them out and it works again. I just mentally remapped your keystrokes.

9:38So even though the string was jumbled, it followed the pattern of being typed with shifted hands, and the context made it easy to fill in the blanks. Small little thing, but a reminder of just how smart these systems are getting. For now, that is going to do it for the AI Daily Brief Headlines Edition. Next up, the main episode.

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13:19After that, you can even get a spec document in what we call our technical blueprint that gives either your developers or the developers of the partner you work with what they need to build exactly the agent that you're looking for. If you want to learn more about Superintelligence Agent Planning suite, we built a custom GPT to answer your questions. Just go to bit.ly slash super agent. That's bit.ly slash super agent, all one word. And if you have any questions, the agent can even help you book an appointment with our team. Welcome back to the AI Daily Brief. For a couple of years now, it's been very clear that AI has a unique and outsized role in the US economy.

13:59Anyone who is watching the markets try to resolve and reconcile during the high inflation era as Powell and the Fed tried to rip rates up, move us out of ZERP, and shift into this new paradigm, could see that all of the market depressive impacts of those sort of policies were frankly being competed with by AI enthusiasm. Every time there was some geopolitical concern and markets started to wobble, it was AI enthusiasm that brought things back. Now, this is not to say that the narrative has been a steady line. You'll remember about a year ago, we got that piece from Goldman Sachs called Gen AI, Too Much Spend, Too Little Benefit, that was all about how it was ever possible that AI could make as much money back as companies were spending on it.

14:41Sequoia's David Kahn also published AI's$600 billion question, which was much the same. At this point, however, a year on, it's very clear that the big tech companies simply do not care about any of those sort of concerns and are going to continue to grow CapEx to compete in what they believe is the most significant shift of our lifetimes. And now we're starting to see AI show up as not just a factor in stock prices and overall market cap, but in broader economic signals as well. Derek Thompson, formerly of the Atlantic, wrote, So GDP is only growing because of AI capex. The labor market is only growing because of healthcare spending and social assistance, the latter being a lot of home aides and administrators.

15:18Economic growth right now is basically a Friday church service, just old people and trying to summon God. And yet as good a line as that is, it's clear that Wall Street has gotten more, not less comfortable with the big spending from tech. Last week, Meta and Microsoft both announced they were putting the pedal to the metal and going as hard as possible to build out AI data centers. And when they showed up with revenue to match, it sent the stocks flying. Meanwhile, Amazon and Google weren't as clear with their message. Their AI CapEx commitment was half-hearted and investors did not reward their conservative outlook.

15:47We've also covered Apple earnings at length, but suffice it to say that the market is not awarding consolation prizes in the AI race. So let's talk about how this market perception has shifted and what it means for the AI build-out. First of all, let's put some numbers around this. The four big tech hyperscalers, Amazon, Microsoft, Google, and Meta, are collectively spending almost $400 billion on AI infrastructure just this year. For some comparatives, that's more than the EU spent on defense last year, as well as around half the US defense budget and more than 1 % of overall US GDP. Now, the journal did recognize that there are still two camps among investors, those that believe this is all a bubble that will see an inevitable unwind, and those that are happy to pour more money into the hyperscalers as long as the stock price keeps rising.

16:29And it's the scope that's really the story. This is already three times as much capex investment as we saw during the cloud boom. Basically, the only moment in tech history that comes close is the global deployment of fiber optic cable during the broadband wave. And of course, AI is just starting. The journal wrote, As a percentage of gross domestic product, spending on AI infrastructure has already exceeding spending on telecom and internet infrastructure from the dot-com boom, and it's still growing. Tech pundit and investor Paul Kudrosky argued that the AI investment boom is almost single-handedly keeping the US economy going, acting as a kind of private sector stimulus program.

17:03Neil Dutta, the head of economic research at Renaissance Macro Research, claimed that AI CapEx had contributed more to GDP growth this year than all of consumer spending. In other words, at least at the moment, the US looks more like an AI infrastructure economy than it does a consumer economy. Now, each company is attempting to show that the returns are coming. Microsoft earnings focused on their cloud revenue, which grew at 39 % over the past year. They tied this directly to AI usage, with CEO Satya Nadella stating, We continue to lead the AI infrastructure wave and took share every quarter this year.

17:34Meta also linked revenue to AI, with Mark Zuckerberg commenting, On advertising, the strong performance this quarter is largely thanks to AI unlocking greater efficiency and gains across our ad system. Google, although they didn't see astronomical growth in cloud, was also talking up AI as their growth story. CEO Sundar Pichai said, Obviously, we're seeing strong momentum across our portfolio and especially in cloud. It's a tight supply environment and we're investing more to expand. Now, I think it's really important to note that part of what is getting Wall Street more comfortable with this whole thing is the fact that there does seem to be a direct line between AI investment and actual ROI.

18:11Now, that's not to say that these companies aren't forcing Wall Street into thinking in uncomfortably long-term terms. Meta, for example, is absolutely unrepentant about how much he's going to spend over time, and very clearly doesn't care all that much what Wall Street does in the short term. At the same time, however, it's pretty undeniable that AI is working to improve the revenue from their ad product, and so Wall Street's on board. Now, one other really interesting takeaway from these tech earnings and this shifting narrative is that the hyperscalers are, to some extent, transitioning from bits to atoms.

18:40Writes the Wall Street Journal, There's a point in every technological cycle when engineers and inventors are rapidly innovating. The spoils go to those who move fast and break things, to quote 2010's era Mark Zuckerberg. We're now entering a phase in which the giants win because they own and continue to build out the physical assets that make mature technologies accessible. Point being that what it takes to win in AI is different than previous startup moments we've seen. It's not about just having cracked developers. We're now talking about giant concrete structures, miles of coolant hosts, and endless racks of GPUs.

19:12Tech has moved away from an industry where a plucky startup can take on the incumbent to an industry where$10 billion in infrastructure is table stakes. Writes the journal, It's reminiscent of the age of business titans and robber barons who dominated railroads, steel, and other enterprises. And as happened then, today's massive companies with their ability to spend and borrow are making their moats even deeper and wider. Even formidable competitors such as OpenAI are hard-pressed to keep up. Now, it's a little bit beyond the scope of this particular show, but this cost equation does have interesting downstream effects.

19:41One of the places that we're watching most closely is the AI coding companies like Cursor. There are a lot of questions swirling around whether Cursor, despite its incredible success from a user standpoint, is able to actually serve its product on a profitable basis. Then again, it may be that right now questioning AI profitability is a losing game. Every layer of the industry is growing at such a rapid pace that focusing on anything other than growth might just be, frankly, incorrect. Industry analyst Patrick Moorhead called what's happening now with AI planet-scale infrastructure. And frankly, the scale of the AI build-out goes a long way to explaining not just these big capex spends, but also some of the choices being made right now.

20:21For example, Zuckerberg's AI talent war doesn't make sense in the old world of software, where the value of any individual programmer or contributor is ultimately capped. In the context of AI, where a few hundred people in the world have the specific skill and knowledge to train a frontier model, that starts to look different. But even more so, when the cost of top talent is a rounding error compared to the cost of infrastructure, and if success in the AI race requires both infrastructure and a leading foundation model, then there's basically no cap on what you should spend to get those two important assets.

20:51Now, interestingly, there are two wildly divergent takes when it comes to just how much is being spent on the infrastructure build-out. Derek Thompson again writes, This is insane. AI CapEx might account for a larger share of GDP than basically any technology since the railroad. Basically, it's a mini wartime economy, but the guns are chips and the tanks are databases. Now, I will note that I'm not sure that Derek Thompson is saying insane like we shouldn't be doing it. I think he might just mean this is a profound and powerful force, and it's wild to see in black and white. However, there are plenty of people who are there thinking that this is just the most expensive tulip mania we've ever seen.

21:27On the other hand, Noam Brown from OpenAI writes, Considering the technology and the pace of progress, I think this is quite sane. Some are looking ahead to how this will play out. Chris Walker from Proximum writes, From historical precedent, here's how this will play out. Oversupply of new good, high attrition of new ventures, big economic benefit from infrastructure basically donated by financiers. Basically that the infrastructure and rails that get built now will be hugely net positive for society and the economy even if the players who install the rails aren't the ones who win. Ethan Mollick points out that at this point, the amount that these companies are contributing to the U.S.

22:03economy means that prohibitive regulation is going to be very, very hard to come by. As you might expect, with more focus on this, there is more mainstream discussion of whether a crash is on the way. Noah Smith in his No Opinion blog writes, will data centers crash the economy? Noah actually says something close to Chris Walker. He writes, in both cases, referring to the telecom boom of the 90s and the railroad boom of the 1870s, quote, the big capex spenders weren't wrong, they were just early. Eventually, we ended up using all of those railroads and all of those telecom fibers and much more.

22:35He continues, this has led a lot of people to speculate that big investment bubbles might actually be beneficial to the economy, since maniously behind a surplus of cheap infrastructure that can be used to power future technological advances in new business models. However, he says for anyone who gets caught up in the crash, the future benefits to society are of cold comfort. He then goes on to explain how big tech companies stopping investing in these assets could cause a financial problem more than just an issue for the companies themselves. If this is something that's interesting for you guys to explore, I'll go a little bit deeper.