Why OpenAI’s CFO Just Sparked an AI Bailout Debate

0:00This podcast is sponsored by Google. Hey folks, I'm Amar, product and design lead at Google DeepMind. We just launched a revamped vibe coding experience in AI Studio that lets you mix and match AI capabilities to turn your ideas into reality faster than ever. Just describe your app and Gemini will automatically wire up the right models and APIs for you. And if you need a spark, hit I'm feeling lucky and we'll help you get started. Head to ai.studio slash build to create your first app. Today on the AI Daily Brief, some extremely unfortunate comments from the OpenAI CFO talking about a government backstop of their data center deals.

0:38And before that, in the headlines, is Apple about to pay a billion dollars a year to Google to use Gemini for Siri? The AI Daily Brief is a daily podcast and video about the most important news and discussions in AI.

0:54All right, quick announcements before we dive in. Firstly, thank you to today's sponsors, Gemini, KPMG, Robots and Pencils, Blitzy, and Rovo. To get an ad-free version of the show, go to patreon.com slash ai daily brief, or you can subscribe on Apple Podcasts. And to learn more about the show, including sponsorship opportunities and available jobs, go to aidailybrief.ai. And as always, I continue to be thrilled about just how much incredible information about AI ROI is coming in through this benchmarking study. It's available at roisurvey.ai, and it will only take you a couple of minutes, and trust me, you are going to want to have access to this information.

1:27I believe that we will have, when all is said and done, thousands of use cases with reported ROI, which I hope will give people a much better sense of where their deployments sit relative to others. Again, that's roisurvey.ai, and now let's get to the show. Welcome back to the AI Daily Brief Headlines Edition, all the daily AI news you need in around five minutes. After much speculation, it appears that Google has won the contract to power Apple's AI version of Siri. According to new reporting from Bloomberg, Apple has signed a billion-dollar-a-year deal with Google to license their models to use as Siri's new brain.

2:03Bloomberg's Apple insider Mark Gurman reports that Google will provide a 1.2 trillion-parameter model, which is a custom version of Gemini. Gurman wrote that this would, quote, dwarf the level of Apple's current models, which are only 150 billion parameters in size. Presumably, this clears a major blocker and puts Apple in a strong position to release a new version of Siri as scheduled next spring. The Gemini model will power Siri summarizer and planner functions, which synthesize information and execute agentic tasks. Apple's models will continue to drive some minor Siri features, and the entire process will run on Apple's private cloud servers to ensure that user data is completely segregated from Google.

2:38Apple has, in fact, already allocated infrastructure in anticipation of release. Gurman said that the deal won't be widely publicized, with Apple preferring to keep Google as a behind-the-scenes partner. The deal also won't extend to integrating Gemini into Siri as a chatbot, nor will it include Google's AI search being added to Apple's operating system. Gurman noted, Apple still doesn't want to use Gemini as a long-term solution. Despite the company bleeding AI talent, including the head of its models team, management intends to keep developing new AI technology and hopes to eventually replace Gemini with an in-house solution.

3:09In service of that goal, Apple is continuing to train a trillion-parameter model that they hope to use to power consumer applications by next year. Barely AI pointed out the same thing that many noticed when it comes to the state of play in this space. Google getting Apple to pay at a billion dollars a year for Gemini to power Siri after Google had to pay Apple$20 billion a year for distribution to be the default search on iPhone Safari browser. Ahmed is investing, meanwhile, just pointed out that this is yet another indication of Google's absolutely monster year. Moving over to OpenAI land, a million enterprises are now using ChatGPT.

3:43Back in 2022, ChatGPT became the fastest-growing consumer tech product in history, reaching a million users in just five days and 100 million in five weeks. And now ChatGPT appears to be the fastest-growing business software platform in history as well. ChatGPT work seats are up 40 % in two months to reach 7 million, while ChatGPT Enterprise seats are up 9x year-over-year. GoToMarket leader Maggie Hott wrote, When I joined OpenAI a little over two and a half years ago, ChatGPT Enterprise wasn't even built yet. It was just an idea. An idea that the world's most powerful technology could also be the most useful if we built the right bridge between innovation and impact.

4:18Today, more than a million businesses around the world are using OpenAI's products, making OpenAI the fastest-growing business platform in history. Alongside the milestone, OpenAI shared some stats around ROI. They said that use of Codex as a coding agent is up 10x since August, with companies including Cisco seeing a 50 % reduction in code review times, cutting project timelines from weeks to days. Carlyle Group reports that agent development time has been cut in half using AgentKit, while accuracy has increased by 30%. Indeed is reporting a 20 % increase in applications since the introduction of their AI-driven invite-to-apply feature alongside a 13 % boost in hirings.

4:53One of the big reasons that I don't think that the enormous projections of these companies are as outlandish as they appear to some is just how much we're still scratching the surface of the eventual total surface area of enterprise usage. Over in Funding World, the gold rush for vertical AI startups continues as Decagon is rumored to be raising at a valuation north of $4 billion. The information reports that Decagon, which is an AI customer support startup, is in talks for fundraising that could see the startup valued as high as$5 billion. They last raised in May, achieving a$1.5 billion valuation, so this is yet another app layer AI company that has seen their valuation more than double in a matter of six months.

5:30The report stated that they're now generating, quote, significantly more than$30 million in ARR, which is up from$10 million last year. Now, in addition to this showing that there is continued appetite for private financing at high valuations, I think it's also part and parcel of the continued significance and maybe even growing significance of the app layer of AI. Another funding story from a slightly different part of the industry, data center startup Crusoe is working on a secondary sale that would value that company at$13 billion. Crusoe is one of OpenAI's major infrastructure partners, handling the construction and GPU deployment of the Stargate facility in Abilene, Texas.

6:04The information reports the tender offer would see$120 million worth of liquidity offered to employees. The rumored$13 billion valuation is a 30 % bump from an equity funding round that closed just weeks ago, according to sources familiar with the deal. Finally today, let's end on an ambitious note. Google has announced a new moonshot project to put data centers in space. CEO Sundar Pichai tweeted on Wednesday, Our TPUs are headed to space. Inspired by our history of moonshots from quantum computing to autonomous driving, SunCatcher is exploring how we could one day build scalable ML compute systems in space, harnessing more of the sun's power, which emits more power than 100 trillion times humanity's total electricity production.

6:44Like any moonshot, it's going to require us to solve a lot of complex engineering challenges. Early research shows our trillium-generated TPUs survived without damage when tested in a particle accelerator to simulate low Earth orbit levels of radiation. However, significant challenges still remain, like thermal management and on-orbit system reliability. More testing and breakthroughs will be needed as we count down to launch two prototype satellites by early 2027. Google researcher Travis Beals wrote in a blog post, In the future, space may be the best place to scale AI compute. This approach would have tremendous potential for scale and also minimizes impact on terrestrial resources.

7:18Now, at the moment, the cost of launching a space data center is a significant blocker, but Google sees the cost converging to become roughly comparable to a terrestrial data center by the mid-2030s. Google is planning to partner with a company called Planet on prototype satellites by 2027 to ensure their hardware can handle the increased radiation of space. Now, whether you think this is the AI industry completely jumping the shark, or you see it is exactly the sort of big ambition that gets you excited about technology in the first place, is a question that each person will have to answer for themselves.

7:47For now, that's going to do it for the AI Daily Brief Headlines Edition. Next up, the main episode.

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11:05welcome back to the ai daily brief for the second time in a week open ai has stirred up a completely unnecessary and incredibly viral and virulent hornet's nest of commentary and critique by being too loose with their communication and failing to understand that they are no longer some quirky startup that can just talk flippantly. And if you think I sound annoyed about this, you are right that I am because it has big implications for how this entire industry will interface with politics, markets, and culture in the year to come. I'm referring in this case to comments from OpenAI CFO Sarah Fryer at the Wall Street Journal's TechLive event in California on Wednesday.

11:44There were a number of different elements of the conversation. Fryer rejected the idea of an AI bubble. She commented, I don't think there's enough exuberance about AI. When I think about the actual practical implications and what it can do for individuals, we should keep running at it. She discussed the circularity critique of all these funding deals, saying, I kind of reject the premise completely. We're all just building out full infrastructure today that allows more compute to come into the world. I don't view it as circular at all. A huge body of work in the last year has been to diversify that supply chain.

12:14Fryer also deferred chatter about an IPO, denying that OpenAI is currently making preparations and saying that an IPO is, quote, not on the cards right now. But none of that was the commentary that got picked up. Instead, it was this section, which the WSJ so crisply summed up as OpenAI wants federal backstop for new investments. For the sake of completeness, let's listen to the clip where Fryer is talking about how OpenAI is compute constrained, always trying to build at the state of the art, always trying to use state of the art chips, and thus has to figure out how to finance all of it. Where the conversation starts is with a discussion of the difference in the dynamics of funding based on how long we find chips are actually valuable and useful for.

12:54So the question is, how long does a chip remain on the frontier? Is it three years, four years, five years, or even longer? Now in a world where we have no compute, we're compute constrained, we are absolutely using chips that have like A100 equivalents that have been around like maybe six, seven years at this point in time. If that's the case, financing chips gets a lot easier. If the timeline on the chip stays short, that gets harder. And so this is where we're looking for an ecosystem of banks, private equity, maybe even governmental the ways governments can come to bear meaning like a federal subsidy or meaning like just first of all the the backstop the guarantee that allows the financing to happen that can really drop the cost of the financing but also increase the the loan to value so the amount of debt that you can take on top of an equity portion for some federal backstop for investment.

13:54Exactly. And I think we're seeing that. I think the U.S. government in particular has been incredibly forward-leaning, has really understood that AI is almost a national strategic asset, and that we really need to be thoughtful when we think about competition with, for example, China. Are we doing all the right things to grow our AI ecosystem as fast as possible? So those are the comments. And what's important here is that it was Friar herself who introduced the word backstop. In other words, this wasn't an overzealous headline writer putting words in her mouth, which, as we've seen plenty of times, can happen.

14:34Now, some folks tried to give Friar the benefit of the doubt and explain what she was trying to say. Lulu Chang-Mezerby, who is a PR leader and commentator, wrote, unfortunate comms fumbled to use the baggage-laden word backstop. In the video, Friar is clearly reaching for the right word to describe government support. Could have gone with public-private partnership or collaboration across finance, industry, and government as we've done for large infrastructure investments in the past. Instead, she kind of stumbles into using Backstop, which was then repeated by the Wall Street Journal interviewer and then became the headline.

15:04Now, Friar herself and the OpenAI newsroom later sought to clarify, writing on LinkedIn, OpenAI is not seeking a government backstop for our infrastructure commitments. I used the word backstop and it muddied the point. As the full clip of my answer shows, I was making the point that American strength in technology will come from building real industrial capacity, which requires the private sector and government playing their part. Unfortunately, this was not one that could be easily walked back from. Macro research firm founder Julian Bridgen writes, I smell a rat. Why does Sam Altman need the taxpayer to guarantee their debt if they're going to make hundreds and hundreds of billions of dollars?

15:38Has he just done a cash analysis and realized he's cash flow short? Entrepreneur investor Sam Lesson writes, a pre-bailout bailout. I appreciate the balls to ask and what a sign of the times. He followed up, lol, no crap that a government backstop will drop your cost of capital. By the way, I would love one of these two if we were handing them out. Just about a week ago, finance commentator Luke Groman wrote, when the too-big-to-fail banks were doing stuff like this prior to the GFC, in this case referring to off-balance sheet debt to finance a metadata center, Groman continues, they knew at some level they would get bailed out when the S hit the fan.

16:09Please timestamp this. If and when this goes pear-shaped, the hyperscalers will get federal bailouts just like the too-big-to-fail banks did. Luke then followed that up with a headline from the Wall Street Journal saying, Wow, only five days elapsed from the time I speculated this would happen eventually. Former White House AI advisor Dean Ball writes, Friar is describing a worse form of regulatory capture than anything we have seen proposed in any U.S. legislation, state or federal, I am aware of. A firm lobbying for this outcome is literally, rather than impressionistically, lobbying for regulatory capture.

16:39Investor Jeff Park writes, OpenAI is a non-profit that now wants a federal backstop guarantee for all new CapEx investments, but also wants to IPO at a trillion dollars next year for its exclusive shareholders. And you wonder why Momdami was elected in a landslide. And indeed, what is inescapable from this, and what was clearly completely ill-considered by Fryer and OpenAI, was the context into which these comments were going to come. Finn Murphy writes, For all the tech people complaining about MomDomi, I would like to point out that a federal backstop for unfettered risk capital deployment into data centers for the benefit of open AI shareholders is actually a much worse form of socialism than free buses.

17:14Nemo on X writes, Not sure this was the best time to soft launch a future bailout. And Spectrum Markets president Brent Donnelly captured the mood with his simple tweet, F off. Now, one thing that's important to note is that this was not just Fryer out on her own. Altman on Tyler Cowen said something similar. In that interview also published yesterday, he said, At some level, when something gets sufficiently huge, whether or not they are on paper, the federal government is kind of the insurer of last resort, as we've seen in various financial crises and insurance companies screwing things up. I guess given the magnitude of what I expect AI economic impact to look like, I do think the government ends up as the insurer of last resort.

17:51But I think I mean that in a different way than you mean that, and I don't expect them to actually be writing the policies in the way they maybe do for nuclear. MEC E. Mike writes, this MF is now pretty directly taunting us that he's becoming too big to fail and we're the backstop. Now, as you heard from Fryer's comments, there is clearly an assessment of global geopolitics here. For OpenAI, they see very clearly that AI is a geopolitical issue and that the U.S. government is treating it as such. And so removing the word backstop and trying to get at what Fryer was actually trying to say, there is inevitably going to be some sort of relationship between the U.S.

18:24government and the industry with this much geopolitical relevance. This was reinforced by the fact that these comments came on the same day of comments from NVIDIA's Jensen Huang, who put in the starkest terms yet that he thinks that China will win the AI race with the United States. In an interview at the Financial Times Future of AI Summit on Wednesday, he plainly said China is going to win the AI race. He said that the West is being held back by cynicism, adding we need more optimism. Perhaps even more than a negative attitude, Huang believes the US is being limited by regulatory burden. He noted that state-based rulemaking means AI companies will need to deal with 50 new regulations.

18:58In contrast, Huang pointed to new Chinese energy subsidies for running domestically made chips, commenting power is free. Now, one of NVIDIA's big advantages over Chinese-made chips is energy efficiency. But earlier this week, Beijing introduced a 50 % electricity subsidy for data centers using Chinese-made chips, making that advantage irrelevant. Now, these comments, of course, come shortly after President Trump shut the door on sending NVIDIA's Blackwell chips to China, even in a downgraded form, meaning that it's possible to read these comments as frustrated and or self-interested. At the same time, Huang has consistently presented this as the inevitable outcome of chip bans all year.

19:32After the story started to get traction, NVIDIA and Huang released a clarifying statement where Jensen commented, As I have long said, China is nanoseconds behind America in AI. It's vital that America wins by racing ahead and winning developers worldwide. Many people got that these two sets of comments were interrelated. DC Investor writes, OpenAI now wants a federal funding backstop for their data center build out, and Jensen talking much more openly about how we will lose to China if we don't rapidly build out our energy capacity. It's becoming very obvious that what appears like broken capitalism, circular investment between these firms is actually implementation of a national policy priority.

20:07They are trying to make it look like it's being done through the free market, but this is very likely orchestrated in ways that are not being broadly discussed yet. TLDR AI is likely not a bubble, it's a free market Manhattan project. A couple of weeks ago, gmoney.eth wrote, If the AI race is considered an issue of national security and winner-take-all, then one needs to only look at military spending to see that it won't slow down anytime soon. The first meaningful downtick wasn't until the Cold War ended. Every dollar spent on AI can be justified because the spoils of winning are so high. Gmoney followed that up just yesterday, writing, If you view this as a race of USA versus China, there is literally no ceiling on the money that will be spent to secure AGI-ASI.

20:46And everyone in power, both sides of the aisle in the US and leadership in China, will be willing to sacrifice the lives of most of their citizens through inflation to win this race. So this can't be like the housing crisis which started in 2007 with the collapse of Countrywide and culminated more than two years later with the collapse of Lehman. If we have an AI spending collapse for two years, we will be toast. So this bailout will happen in a matter of weeks if not days. The interesting thing here is AI execs are now saying the quiet part out loud. They're tipping their hands. They're telling us we need ungodly amounts of money in order to have a shot.

21:15Usually when the government will print or ease, they call it something slightly less obvious. We got that with TARP, QE, Operation Twist, SIVB bailout, or whatever other alphabet soup bailouts we've gotten over the last 20 years. Using this as a backdrop, the Mamdani victory really makes sense last night. If financial execs got bailouts in 2008, and AI execs are already calling for bailouts before they even need it, then why shouldn't the average citizen get the bailout? Now, at least one open AI voice said that they didn't think that government backstopping should be the policy. Rune wrote on Wednesday night, I don't think the USG should backstop data center loans or funnel money to NVIDIA's 90 % gross margin business.

21:50Instead, they should make it really easy to produce energy with subsidies and better rules. Infrastructure that's beneficial for all and puts us at parity with China. Finance A Lot pointed out why the average American is unlikely to be compelled by the idea of winning the AI race. They wrote, have they defined what winning the AI race is? Is it the first country to reach 25 % unemployment? Commentator Connor Sen points out, The epic political backlash coming on the other side of this cycle is so obvious for anyone over the age of 40. We turned banks into the bad guys for 15 years. Good luck to the AI folks.

22:24We're subsidizing the companies who are going to take your job, and you'll pay higher electricity prices as they try to do so. And this brings me to my issue with all of this, and why despite being in the AI industry, I am doubling down on this particular critique. We are operating in a world right now where there are two entirely separate economies. There is the AI economy that is booming, and there is the rest of the economy, which is, putting it charitably, not. Outside of our little corner of the world, some of the biggest political debates going on are whether the government is going to continue to pay for food stamps.