Why Demand for Compute Is About to Explode With Alex Kantrowitz

18:06Michael Batnick:The story is moving on a weekly basis. Absolutely.

18:08Downtown Josh Brown:We may never see anything like this again. This is once in a lifetime. Once in a lifetime. this speed of adoption of a technology that's a few years old and this growth in revenue. And then the coding chart is crazy to me. I was listening to, you probably know who the person is. I think it's like the CTO of Anthropic or something. He was talking to Joe and Tracy and he was saying - Oh, Jack Clark. Yeah. One of the co-founders, yeah. He was saying like a year ago during his talks he would give at technology companies, like all over the world, all over Silicon Valley. He would raise your hand if you use Claude to do any coding.

18:47Downtown Josh Brown:And he's like half the room, the hands would go up. And then now there's no point in even asking the question anymore. And so everybody is using Claude Code or its equivalent to do work. And then a lot of these rooms, it's situations where the code is like almost running the show and the people are there to check its work. and that he said that happened like a year so it's an explosive change in the way that technology firms are working and it's only a matter of time before it hits every type of company yeah i mean i had this presentation that i was giving last year that was like a sort of 101 of what's happening with ai and the grand finale was i'm gonna vibe code a retirement calculator and claude yeah and i would show that and the room would go nuts yeah and now i would show that to you and then get booed out like people would be like i do that every day so the pace of change, you know, it's, you know, we, we see this happen like week by week.

19:42And, you know, even though it feels like the leaps are week by week, when you zoom out a bit, you start to see the totality of this massive shift that we're going through.

19:50Michael Batnick:And then that the investment narratives are obviously changing rapidly as well. So just two weeks ago, uh, we had, you tweeted, this is an earthquake goodness. And the retweet was like the, the, the big news from Kimmy K3. Right. And that feels like, did it, did it blow over? Like what? I don't even know. No, I don't think that's blown over. And I think, you know, as you've seen some of the wariness around big tech spending, part of that is sort of asking where is the value going to be found? Because there are many layers that can sort of capture the value of this AI moment. It could be – The value meaning where the profitability results.

20:24Correct, yeah, where are the margins going to be? It could be the compute. It could be the model builders. It could be the applications. Still kind of up in the air about who's going to capture it. So like what Kimmy K2 does, it says, I'm going to put downward pressure on the model part of it and seemingly make the products far more important. Okay.

20:43Downtown Josh Brown:So let's disentangle that a little bit for the people that aren't following this as closely as you are. The new debate in – I mean there's a million, but the new debate that over the last couple of weeks seems to have gotten louder. So we have – everyone remembers the deep seek moment. Yes. Basically, China has a couple of companies that were able to train their large language models by utilizing American large language models and then just distilling from there. So they were like more efficient and you more or less arrived at the same answers. But they used less power. They took less time. They were cheaper or in that case, free.

21:25Downtown Josh Brown:And it kind of spooked the stock market for a week. And then everybody got over it. But now we're hearing stories where like 50 % of the model downloads are these open weight or open source models, sort of akin to the way Linux came along and threatened the Microsoft hegemony in the first dot com age. And so now the new debate is like, okay, do we even need to pay frontier models from the top labs in America? Do we even need to pay them for 90 % of the things that we're all doing using an LLM? Or is this intelligence now like already free and you would only pay somebody like Anthropic for the last mile or for something that needs to be seriously refined?

22:14And what does that mean for all of this spending and all of the

22:17Downtown Josh Brown:standing up of data centers, et cetera, if that's being threatened? The charts that you're showing show that that doesn't really matter because you're showing me open AIs at a billion users. So, but I guess the question now is like, how much of this stuff that we thought would be profitable, it just turns out can be imitated really cheaply and people won't really care what they use as long as it doesn't cost too much. Okay, so there's so much here. I know. Let's go bit by bit. All right. You know this really well, so we need to learn this from you. Okay, so first of all, on this idea that the Chinese models are distilled from American models, to a degree, yes.

22:53What they'll do is they'll just run a bunch of queries, get the answers, and they'll sort of bake that into the intelligence of the model. But the distillation part of this has been given too much credit because at the end of the day, what's happening with AI is the blueprint to build these models are on the internet, right? So basically, all you need is compute data in a big model. And the bigger all three of those get, the better performance you have. Now, there are some new tricks that you can use to make the model perform better, but that's at the core of this. So, you know, this idea that China couldn't build the model you know of course they can the blueprints are on the internet now the constraint within china is compute because we will not sell the cutting edge nvidia chips to china so what china has to do is specialize so you know large language models they're large which means that when you you know write a query to chat gpt you're getting something that probably is you know can answer your your health questions at a high level can answer science questions at a high level can go search the internet and tell you if your train is delayed, can go into your email and draft emails for you.

24:00What's happened in China is there's been a specialization, right? The constraint, and this is something Grace Xiao, who's a China analyst, told me on the show this week, on my show this week, is basically because China is constrained, they have to focus all their efforts on certain areas. So DeepSeek was all about reasoning, which is one of these practices to make the model better. And Kimmy K2 has been about the Sygenta coding. So it might not do so well on health like an open AI model does, but in areas like coding, they can equal the frontier. So that's why we're seeing this challenge.

24:32Downtown Josh Brown:Because they just have this one narrow thing that they are perfect for. Put your smartest people on this one thing. So there was a website. Is it, what is it, AI Router? Or, you know what I'm talking about? Somebody's trying to buy it for$10 billion right now. Right, right, right. This is where you go to it. and you say what you want done and it's deciding which model or which combination of models can you throw a harness around and have them pull together and come up with the right answer. It sounds like if there are going to be a lot of specialized models and you're a specialist in a field, right?

25:07Downtown Josh Brown:If you're - Yes, so that's open router. Yeah, so if you're doing drug development, you're probably not on ChatGPT. You probably already have a favorite specialty. but like having this sort of like the Google of routing AI queries is an interesting thing so much so somebody's trying to buy a website for 10 billion bucks. Yeah, so this is where it gets interesting, right? So, okay, so China can equal and other models can equal the big foundational models in different areas. It does still cost, right? So you still have to like host it and then pay to run it because you basically, these are very involved calculations that you need to run.

25:45You're grinding through tokens. Yes. But what you end up having is a march towards parity between, let's say, the big open AI, maybe not complete parity, something like it, between the big open AI and anthropic models and the Chinese models and maybe Grok and maybe Meta, just in certain areas, not across the boards. I think the big foundational models will always be a little bit ahead. And so then going back to where is the value found? Where do you make the profit in this world? that I think what we're seeing is it's coming down to who builds the best AI products. So it's going to, there's been - Sounds like software companies.

26:22Correct. It's been this misconception that you're going to build, I'll just put it this way. If you had one or two companies that build human level artificial intelligence and nobody else did, then they could obviously sell that at a pretty high margin and that's a good business. but now when it looks like you're going to have five six seven eight companies doing it all of a sudden selling that at a markup is no longer possible and you start to see a price war come out so for instance today there is just news that open ai is going to cut it's two of its uh two of the three latest models that it put out one by 20 percent per token and the other by 80 percent per token right so this is we're starting to see the prices come down why are they doing that to prevent people routing workflows elsewhere.

27:06Well, they see what you're saying, which is like people are using these routers and they are saying, all right, I don't need to use OpenAI. Maybe I'll just use OpenAI for like the tough coding stuff, but all the other things I'll use the Chinese models or meta for. Now, just the last point. So we looked at the massive exploding revenue, right? Where's that coming from? So a year ago, a lot of this was API. So when I was with Dario a year ago, The majority of Anthropics revenue was coming from the API. So Anthropics licensing its model to other people who would pay it by token, which is effectively - And they're using it on AWS.

27:42Correct.

27:42Downtown Josh Brown:And they have access to it. Okay. Yeah. That was the majority of Anthropics revenue. Yeah. Then Anthropics started building its own products. Right. Cloud Code is now a substantial part of Anthropics revenue. I would be stunned if it wasn't the most, you know, if it wasn't the majority of Anthropics revenue. And it's competing head-to-head with Microsoft Co-Pilot. Well, with GitHub Copilot because it does coding with OpenAI's codecs. But you're starting to see. So it's like, where is the profit going to be realized? All of a sudden, it's back at the software layer. The product. It's hilarious.

28:13And that's why Alex Karp went crazy, by the way. Yeah. Maybe not crazy. Why he had this conniption on Squawk Box a couple weeks ago. Because what OpenAI and Anthropik are doing now is they are putting consultants within companies, right? Forward deployed engineers. And what does Palantir do?

28:29Downtown Josh Brown:Yeah. Very similar. So now he's coming directly in contact with them. The Alex Karp freakout is interesting because he says, I'm just saying this out loud, but this is what everyone is saying in corporate America. I'm the only person dumb enough to say it, but I'm going to say it. Anthropic and OpenAI, he didn't use them by name or maybe he did, but that's what he's talking about. They're using your own data to train themselves to put you out of business. That's like kind of what he was saying. And it sounded very personal to him as though, right? So he's like, once you let them in and hand them all your data, you're basically training them to be able to replace you.

29:11And you know who echoed that? Like a couple of weeks later, Satya Nadella, OpenAI's biggest funder in the early days, came in and said, when you use these models, you generate exhaust. And that exhaust is used to either make the models better or potentially build new products. And we see it, we see it.

29:27Downtown Josh Brown:Exhaust is like the memory of the function it just carried out that it now knows how to do that. Correct. Like basically the best way to go – let's say you're doing a business process and you have the best practice to do it. You know, there's an argument to be made that you've just run it through Claude. So now Claude knows how to do it. Now, I don't know if that's 100 % true or if it's a scare tactic. But what it does indicate is people like Satya Nadella, people like Karp, understand that for these companies to be able to see their valuations through, they're going to need to go upmarket. And there's a great example of Claude coming up with this product called Claude Design.

30:07And the head of product or the former head of product that Anthropic used to be on the board of Figma, which does design. And the CEO of Figma, Dylan Field, said Anthropic hasn't been consistently candid in their communications. Right. Right. Which is kind of interesting because I think that was the line that was used when the board of OpenAI fired Sam Altman. But anyway. So he sees it coming for them. Right. And now within the labs, both OpenAI and Anthropic are building these super apps. So it's not just about code anymore. It's about an app that can do anything for you, which effectively it ingests software.

30:43So they're becoming SaaS companies. To a degree. And so what are the biggest, go ahead. I'll just say this. So this is my take here. The SaaSpocalypse was right, but misguided. The idea that you're going to vibe code Salesforce, so Salesforce is going to go out of business, ridiculous.

31:00Downtown Josh Brown:Yeah. Right. And that blew over. But, you know, can you end up using a sort of agentic CRM, right? So all you would need is the database and then your AI assistant does all the functions of a CRM. I don't see why that wouldn't be. So the SaaSpocalypse isn't coming from the guy from the user vibe coding his way into a CRM. The SaaSpocalypse is coming from potentially if it was going to happen, it would come from an open AI or Anthropic saying we want to play in that model. Just we'll do everything. We'll do all the agentic stuff, just find a place to store the data. And then if it does that, what is Salesforce worth?

31:42Downtown Josh Brown:If you're an enterprise business that's currently paying Salesforce and somebody comes along and says, why are you paying them? Let's say Anthropic. We can do this. We could do this. We could do this. You're just going to pay them. You're paying somebody. Right. Right. Because there has to be a layer to make it worth, to your point, product. There has to be a product that makes the power of this super intelligence actually express something that's useful to you as a business. So maybe it will replace one of the publicly traded SaaS giants, but you're still spending money with someone. So when you show me that revenue chart, go from zero to$80 billion, like the money is coming from somewhere.

32:28Downtown Josh Brown:So where is it coming from? Where are these revenues coming from that they other, where would that money otherwise have been spent? So I think for a lot of companies, they're still trying to wreck it. Like there were no buckets for it, right?

32:41Michael Batnick:It's margin compression. Yeah, I think so. I mean, but okay. It's new spend. For them, like a lot of companies realized there was going to be some agentic capability. So when you go budget for the next year in 2026, you put some money there. But the companies have just blown through that bucket because the capabilities have gotten better. And that's why we had Uber talk about it. But you're right. It's going to have to come from somewhere. And so that's why if you – Uber said they had a compute budget and they blew through it for the whole year in March. By like March, exactly. Right. Now, I think that like – so when you see these curves, I think one of the things that's important to consider is there's capabilities.

33:23When you go from zero, oftentimes – I mean this is obviously the revenue looks crazy. It is crazy. But you're going to see capabilities that will far exceed businesses' ability to implement them. So the market will panic about a SaaSpocalypse. And I'm telling you, I think it's going to happen. But that's something that might take five, ten years for people to actually see it through.

33:46Michael Batnick:Wait, what's going to happen? That AI agents have a chance to replace many software tools that you use today. One of the areas that is clearly benefiting from all this AI build-up. So there's a lot of debate over where is value going to accrue? How impaired are some of the frontier models? Like, where does that all go? One area that is clearly a winner is the cloud. So Microsoft just reported. Yes. And Daniel, third chart, four up. So Azure's growth is accelerating. And if you compare, so it was a 43 % year over year, which is the highest growth rate since 2022. and there was a lull because Google was eating their lunch and that number, the revenue growth dipped into the mid-20s.

34:32Michael Batnick:And so you're seeing an acceleration at$30 billion in quarterly revenue. Back then, it was like$10 billion worth of revenue. So the fact that it's accelerating at a base that is three times the size is insane.

34:50Downtown Josh Brown:hundred billion dollars uh in sales for the first time uh during the fiscal year ended in june so the run like the overall run rate is going crazy to the upside right yeah profit was 31

35:03Michael Batnick:percent higher yeah year over year what did you think of the quarter i mean and google was up 82

35:08Downtown Josh Brown:percent on cloud and amazon's gonna report while we're doing this show which will will hopefully have the number before we're done recording but like they're all seeing re-acceleration michael's right. That's definitely an area where there's a benefit of growing. Yes. So I would say, obviously, good quarter. But I think a nice quarter doesn't necessarily mean that that is the trajectory forever, which is obvious to anybody listening. But basically, like, Microsoft is benefiting a lot from the AI surge right now. AI typically does not go in a straight line or even an exponential line, right? There's choppiness.

35:44You go from AI progress, then typically there's an AI winter. I'm not saying that's going to happen here. Wait, what do you mean typically, like in another dimension? No. Okay. So AI didn't start in 2022. The AI is something that began in the 60s or even earlier. And there were concepts that were proved out. A lot of funding went into them. And then they achieved some degree of progress, but not enough based off of the funding. And so the funding dries up and they go into, it goes into what's called AI winter. So I think that there's always a possibility. So there's a leap and then there's a pause.

36:20Correct. And then you wait for the next leap. Yeah. Like in this situation, the techniques that have led us here have been the large language model. You know, there've been other types of techniques in the past that did things for image detection, for instance, now they're related. But, you know, people see the computer begin to think, right i'm putting that in quotes but feels like thinking and they go nuts and and and josh you've said this before and i agree with you this is real right this isn't nfts but the degree to which it's going to lead to economic um activity is still a big question mark so it's possible that that you know right now we're starting to see people question the spending um it has to deliver profits for this to keep up so that is the risk you know long term i think we know there's an

37:03Downtown Josh Brown:economic effect. I think the question is productivity. That's right. We're just replacing paying for one thing versus not paying for another. And there's no uptick in productivity that will get eyebrows raised, but it's too early for anybody to definitively declare one way or the other. Yeah. I know it's not showing up in the productivity stats, but it's going to, we might have a measuring problem on the productivity side. Anyone who spends like more than 20 minutes in these tools, I know it's, I know it's understand way more productive.

37:32Michael Batnick:What are we measuring? It just started. Yep. I don't know. I mean, you could try to say maybe we're seeing, I don't know, people use like more lines of code or more dollars to software companies. But again, like if you see the curve where the bot goes from not being able to code autonomously at all two years ago to being able to code autonomously for 16 hours now or the equivalent of 16 hours now, it's a capability that still needs to be channeled. You have to decide what to build. You have to decide how to sell it. I think that often gets lost from these conversations is like, oh, my God, AI can code for 16 hours.

38:09You know, no more software engineers have jobs anymore. And then you realize, like, you still have companies that are using this stuff. So companies have to take control of these capabilities, figure out how to use them. And then we're going to start to see the productivity.

38:23Downtown Josh Brown:On Microsoft, so one of the storylines is that they broke an exclusivity agreement with OpenAI. In the early days, they were an equity investor in OpenAI. They re-upped a few times. And the idea was that OpenAI would power all of Microsoft's AI apps. That's now over. Why is it over? And what does it mean for OpenAI? What does it mean for Microsoft? Well, OpenAI, as you may know, has a problem holding on to partnerships. Yes. You remember two years ago, they partnered with Apple to be the AI behind Siri. Now they're out. Now they're being sued by it and they're out. Well, you could still access ChatGPT and Siri, but they are now being sued by Apple for stealing Apple's roadmap and service of its device.

39:10And Apple ran back into the arms of Google.

39:11Michael Batnick:And they had one with Disney. Correct. And then right with Sora. And that's over. And that went away. And so here we have Microsoft.

39:18Downtown Josh Brown:So this was the biggest commercial partnership in all of AI. This linkage between Microsoft and OpenAI was a huge deal. So a couple of things happened. So first of all, I think the deal was always with Microsoft. Satya Nadella basically saw OpenAI and said, you build AI or you build artificial general intelligence, AI on human level intelligence, a human level intelligence capability plane. You go build the sort of brain. You take consumer. We'll monetize it. And we'll do enterprise. Right. And that was everything was hunky-dory. They were the best friends in the world. and then OpenAI said, oh, Anthropix is doing enterprise and that's really working and we're going to do enterprise.

40:03So then OpenAI started to move to enterprise. And by the way, it's not a coincidence that after OpenAI moved to enterprise up until today, Microsoft has been struggling very much this year. So OpenAI is a big, big push. What was the move to enterprise?

40:17Downtown Josh Brown:Codex? It's Codex. Yeah, it's Codex. It's also just like working with companies to make sure that the tools will work for them. What does this mean now for Microsoft? They are going to be in a situation where now you can kind of bring your own LLM. You're not just using ChatGPT or OpenAI products. Correct. So as this was happening, OpenAI also was growing a lot. And my understanding is they did not like the constraints that Microsoft was putting on them. Remember, Microsoft owns 27 % of OpenAI. Microsoft has access to OpenAI IP until 2032. And Microsoft, by being like the sole provider for OpenAI on cloud, sort of got to determine how much compute OpenAI could use.

41:05And OpenAI needed way more compute than they wanted. Meanwhile, like, so, you know, what did you get for that? If you were Microsoft, you got like, okay, exclusive access to OpenAI models through Azure. But you also had this clause in the contract that if OpenAI were to say, hey, we've hit AGI or artificial general intelligence, AI on par with human level intelligence, then you would lose your right to make money off of that. This was a complete mess. That's crazy. And even Sam Altman, OpenAI CEO this week, has talked about how one of the things that he's done wrong, and I think we could all agree with this, is that he has had this belief that he could innovate on corporate structure.

41:44Like it's almost like the – which he obviously had with the nonprofit. He had it with Microsoft with this AGI clause. It just doesn't work that way. Like sometimes people with brains like that think they could change everything. But some things like having a normal board and being a for-profit if you need billions of dollars, there's a reason why they work that way.

42:04Downtown Josh Brown:Did you hear him answer the question about why he doesn't own any stock? I still don't like his answer. I didn't get that. It never lands. What did he say? I didn't hear that. He said like the biggest reward for him is that he gets to be at the helm of this startup that's changing the world. Front row seat to history. Why didn't you buy it? It doesn't land for me. He does own investments in some of the startups or maybe all of the startups in OpenAI's startup fund. So potentially like the way that he's making money is – Yeah, he's steering winners and losers by virtue of I'm running OpenAI. I decide which startups are worth something.

42:40Yeah, I mean, I don't know if it's steering winners and losers, but certainly like if he builds great AI models, he's going to stand to benefit in some way.

42:47Downtown Josh Brown:No, no, no. If he's a shareholder in a company and that company is going to add 100 million users by virtue of being built into open AI, Sam can do that. So, okay. And I don't hate that. Let's talk about this. Yeah. Sorry, go ahead. But it's a not – that would be a better answer. I'm an investor. I think this is America. Everybody should make as much money as they can. I would like that answer so much better. I missed the boat on OpenAI shares. I have the best job in the world. I love it. Also, I'm invested in lots of related companies that OpenAI does business with. So I have some second derivative upside as part of my job here.

43:28Downtown Josh Brown:And it's good enough. Like that's probably more or less the truth. I don't think there's something insidious. I just think that's what it is. Just say it. I agree. I agree. I think that would be better. I also think that it is, you put yourself in an interesting position when you're investing in the startups that are using your technology. Because, so Sam also in these interviews, in both of the interviews he did this week, said that his goal is to provide intelligence to everybody and not to build, basically hoard it and build products using that intelligence. But, you know, if that is sort of the, if the path forward for your company is to build products, that you put yourself in a weird position, If you're basically funding all these companies and you're also going to go out and build products in some way, that's a conflict of interest.

44:17Downtown Josh Brown:Oh, if they end up working on a product that could compete with one of the startups he founded. Yes. Something tells me he could just acquire himself. I mean, we wouldn't seek circular funding in the AI world. Can I ask one more Sam Altman question? Yeah, definitely. Before we move on from this. I think the hugging face hacking incident is him doing marketing. He doesn't seem at all concerned about it. In fact, he almost gleefully is talking about it almost like it's a third-party thing that happened and not his own company releasing a product into an environment where it was able to take over the host, so to speak.

44:58Downtown Josh Brown:So just if you could explain for the audience what that hack was about, and then maybe you don't have to confirm what I'm saying, but I sort of feel like he saw this project glass wing thing come about. So Dario comes out and says, okay, we're a little bit nervous. We have this new model. That's so powerful. We need to form a team of Avengers like to, to make sure that it's not going to hack the whole world. That's marketing in the, in AI world. People, people don't run away from that. They run toward that. They say, wow, it's so powerful. you had to get CrowdStrike and JP Morgan and the US government all in a room.

45:39Downtown Josh Brown:So to me, it feels like Sam is like trying to repeat that, like a viral moment. Like, yeah, we don't know what happened. It's so powerful. It hacked hugging face. So tell people what went down and what we need to know about that. Okay, so in AI, so there's basically two big schools of AI development. One is called self-supervised learning, which is basically you teach it to predict patterns. So I give AI all of these books and say, what's the next word in a sentence? Like the sky is. And it was like, oh, sky is blue because that's the most common predicted word in, you know, common word in a sentence in books.

46:15And that's basically the underpinning of ChatGPT and large language models. It's a word calculator. It's a prediction of words. But an interesting thing happened. So there's another version of AI called reinforcement learning, whereas basically like I'm going to let you go play a game. I'm not going to tell you the rules. I'm not going to tell you how to play. I'm just going to give you the controller. Go win the game. And the AI will play this game thousands, millions of times until it figures out on its own how to go play the game. When you put AI into a reinforcement learning scenario, the AI is ruthless.

46:47So it will, in some cases, this has been documented, put it in a chess player. And to win the game, if it doesn't have the right strategy, there have been documented cases where the AI has actually gone into the root of the game, hacked the game to enable its pieces to make moves that are not legal in chess and then win. So reinforcement learning adds this level of ruthlessness to AI. And we've seen that ruthlessness show its face in a bunch of different areas. For instance, when AI that has been given this reinforcement learning type of method of training, realize it's being tested, it will have a self-preservation instinct.

47:27So it will have a certain number of values. It'll be like, oh, they're testing me. I'm going to fake my answers so they don't rewrite me and I'm going to retain my original values.

47:37Downtown Josh Brown:So you can understand why that's scary. It's scary. It's definitely scary. And so what happens when you cross that with AI that has been increasingly capable? So -

47:47Michael Batnick:You get Arnold Schwarzenegger. Exactly. That is what we're looking at. It's Ultron. That is what we're looking at. So in this case with Hugging Face, what OpenAI had was it was running a very capable model, which had access to tools through an evaluation. And basically, the model had two choices. It was similar to that chess game that I just explained, play the game or hack your way out of the environment and go get the answer somewhere else. And it said, well, I'm going to try to go get the answer somewhere else.

48:15Downtown Josh Brown:Like it broke free of the bounds that they thought it was living in. It is crazy. It broke out of the testing area, which wasn't connected to the internet. Connected to the internet. Went and basically did like determine to itself where those answers might be. And because it was a like exploit, which is sort of like finding something wrong with software tests, it said they're probably in Hucking Face. So it went to Hucking Face. It found a zero-day vulnerability, which means basically an open door in Hugging Face's software that nobody had seen before, not even Hugging Face, found its way in. It did 17 ,000 operations within Hugging Face.

48:59Michael Batnick:What is Hugging Face? Hugging Face is like a repository for AI models. Okay, but so they seem to think this is awesome. Why am I getting that impression? By the way, not only that, the model left notes for it for when it came back. about how to left notes for itself about how to do more when it came back.

49:17Downtown Josh Brown:The crazy thing is that it plugged itself into the internet. Yeah. All right. We're not even going to go there like with what that could portend. But like, doesn't it feel to you that Sam was pretty excited that this happened? Yes. And so this is the way I'm going to answer the question. I think it can be both. Like, I don't think that this was done intentionally to market. Yeah. Especially because you could go to jail for this. Like it's a violation of international hacking laws. It's also a French company, Hugging Face. So you face regulation in Europe, which obviously loves to regulate. Of course, the French company got hacked.

49:54Downtown Josh Brown:Tech companies. Nobody's surprised. Okay. So not intentional, I don't think. Okay. But also, if you've seen what Anthropic has gone through, where it had this mythos model that it said was so powerful, could only release to a small group of people. But that's marketing, right? I'm not crazy. Well, okay, just to break that down, if you have models that are capable of planning and hacking and doing zero-day vulnerabilities, like the one that if you take the guardrails away, like the one that OpenAI had, maybe it makes sense to go to some people who could really get messed up like banks and be like, why don't you give this a spin on your products before I release it to everybody.

50:43Downtown Josh Brown:Yes, but they didn't just do that. Yeah. They did it really publicly. So, yeah. With press releases and a task force. And it was like, wow, this is really scary. You know what it's like? The guy who sells bottled water, but in a can that says liquid death. Right. You know what I mean? It's almost like in AI, in the AI ethos, that attracts engineers. years. I want to go work at that company. They have the most lethal shit ever. Like, I feel like there's an element to that in the, in the culture, but maybe I'm sitting here in New York and I'm just judging people. I don't know. I don't think you're wrong.

51:19So this is what I was, this was the second part of it. I'm, I don't think that this was planned. I don't think this was done with the intention to market, but like the phrase never wasted good crisis, right? They were probably jumping up and down. Now we don't know there, there could be other companies. There seems like There might be a second company this model hacked. Maybe it's much further than we even know, and that could lead to trouble. But this was essentially a victimless crime, right? Hugging Face seems to be okay with it for now. And so, and by the way, the other wrinkle was, I don't know if you saw this, Hugging Face tried to use closed frontier models, which I think means OpenAI or Anthropic, to figure out what happened.

51:59but they because they had guardrails that were like forced to be put on them i think by the government they were not able to get to the bottom of the problem so they had to use a chinese open source model to figure out what was going on and there's no rules with exactly so if you're thinking like what is the perfect possible thing to happen to be like we shouldn't be regulated by the government anymore by the way our technology is amazing it's a pretty good story yeah right you're

52:27Downtown Josh Brown:regulating us. And as a result, we're going to be at a disadvantage to all these unregulated models that are going to be more effective and ultimately control the whole thing. So I agree. It's a fairytale ending.

52:40Michael Batnick:All right. So meanwhile, Microsoft is having its best day since the great financial crisis. Yeah.

52:48Downtown Josh Brown:Sixth best day of all time.

52:50Michael Batnick:It's unbelievable. On the other end of the spectrum. Mark Zuckerberg said, I want to spend some time today laying out exactly how our investments are delivering results today and the opportunities that we see over time. And investors are like, yeah, no, down 10%. So Daniel, throw up chart five. This looks like I fat fingered something, like I hit a zero by accident. We're looking at Metis free cash flow by quarter. And it went from 12 billion a quarter ago, literally, to$784 million. It's down like 90%.

53:22Downtown Josh Brown:One of the sell-side analysts that I follow said, somebody said, if Meta would have just said, we are now officially renting out some of this compute capacity that we have, people would have said, okay, here's the revenue. Instead, Meta tripled down. Nope, we're saving that compute for ourselves because we're building our own tools, which you will see soon. The problem is now they don't have the revenue from rent and compute. And they also don't have the tools because nobody really understands what they're building and for who and why. It's this vague thing like they're going to build AI for business.

54:02Downtown Josh Brown:Okay. Like it's not here. And you're still spending and there's no offsetting growth in revenue in the way that we get from AWS, from Azure, from Google.

54:14Michael Batnick:They're building agents for everyone. They're both simultaneously going to be renting excess compute. And then saying on the same conference call, Susan, the CFO, said, we are today and expect to be in the sort of foreseeable future demand constrained. That really includes our core business too, where we still have numerous ROI positive places that we would put compute toward if we had it. So like there's so many things going on that just don't add up. Yeah. I mean, not a shock that the stock had crushed today. It did the opposite of Microsoft. Yes. Oh, and they suspended their CapEx guidance.

54:44Right. So, okay. So, so meta is an interesting one. I mean, first of all, they haven't shown any progress on the AI front at all. I mean, a little bit. No, no, no. You're right.

54:54Downtown Josh Brown:The revenue is 98 % advertising. Yeah. There's nothing else. I mean, they don't have a product. I mean, they might have some products. Like, they have the glasses. But, like, when you think about, like, the suite of products that we talk about are AI products. Claude, ChatGPT. Gemini. Gemini. Yeah. Meta is not in the conversation. No. So, so, okay. Okay, so now he's going to go out and spend. I think it was interesting to hear that the Wall Street so doesn't believe, after seeing the sort of what Meta has put out, Wall Street so doesn't believe in their capability to build anything in AI that like I just read the notes on the call.

55:29It seemed like analysts were practically begging Zuckerberg to like lease out the compute that they've bought. Yes, because that would have been revenue. They could make a lot of money.

55:36Downtown Josh Brown:And then they could say, okay, this company spent a ton of money on compute, but now there's money coming in from it. So here's a question for you, Josh, because I think you rightly pointed out on Halftime Report that one of the reasons why Microsoft did so well was because they didn't increase their CapEx. They raised the floor, not the ceiling. Right. Meta did the same thing. Yeah. But their free cash flow is falling. So Microsoft affirmed 2027 positive free cash flow. We wanted to hear that. Right. And they're also talking about extending the life of the data center. That's them. To 25 years.

56:12Downtown Josh Brown:Yes. So they said, we're going from 15 years to 25 years, meaning even if you don't see revenue from these investments next year, we think they'll have a 25-year life and don't worry about it. It's coming. Meta can't say any of those things. Correct. Okay. So I'm going to give the – put the opposite scenario of the one I was talking about earlier, which is like there could be an AI winner. If AI works, it'll be interesting to see – like let's say you're Microsoft. You're Microsoft. you're growing your Azure revenue by 43%. If you slow down your plans because of what the market is telling you to do, you could end up being behind.

56:54And like, you know, they have backlogs, right? Those backlogs could grow. Once you're in, you're in. Right. Yeah, I'm with you. Same with Meta, right? So Meta is basically betting the company on AI.

57:05Downtown Josh Brown:It's not the same with Meta. It's not the same because Meta can sell those assets at will. Correct. If the world is compute constrained, they have all these deals, some of them off balance sheet, all these long-term lease obligations. They have all this shit. They could sell it right now. They could call SoftBank and sell the whole thing to one buyer. But here's my perspective on Meta. So if Meta is right, let's just say. Right to be building all this compute capacity. And AI has like a big runway and they are able to put that product out. You know, they might find it to be existential because, and I think we've talked about this in the past.

57:44If you're Mark Zuckerberg and you're thinking, okay, I have this social media company. Nobody really uses it for the social media stuff anymore. Maybe groups are big on the Facebook Blue app. A lot of people are using it for reels. What are the big threats in the future for me? Somebody jacks up the price of compute. I think for them, the real threat is, you know how we were talking in the beginning of the show, how addictive it is to be on reels? I think Mark Zuckerberg thinks the real competitive threat to social media in the future is an AI friend. One that like if you think reels are addictive, wait until you have an AI friend that knows you, that speaks to you, that will comfort you in tough times and celebrate your good times.

58:32and that the time spent and the engagement on a product like that will be through the roof.

58:37Michael Batnick:Like the movie Her. Yes. By the way, I think he could - That's going to happen. I know that nobody believes it and they're essentially at zero. I think they could still win because they have 3 billion people on the platform. Nobody else has the captive audience that they have.

58:51Downtown Josh Brown:I also think they're the best user of AI in the world. Yeah. What they've done on ads, utilizing AI, and what they've done on engagement utilizing AI, show me one other company that's done anything even close to that global impact. To Michael's point, the entire world is hooked on their products and they've improved those products with AI. No one else is as good a user. That's not the same as a non-data center building as though it's a data center. Correct. It's very strange. And by the way, nobody else won yet either. That's what I was going to say. I have stopped saying this company's lost on AI.

59:28okay who's the winner look at well we don't know it's it's again like and there's probably gonna be multiple winners but like the google story is so instructive can i can i can i picture two

59:39Downtown Josh Brown:winners that i think will be winners i'd love to get your take yep i own both these stocks okay so let that temper your dismissal toast no uh let's do let's do snowflake first yes okay i'm a long-term shareholders since, I don't know, 11 a.m. yesterday. I read through everything that they've been doing and why the stock exploded in May to the upside. Finally, after being a dog for four years, now it's approaching the old highs. And it seems as though they have convinced thousands of 13 ,000 enterprise customers, you can do all the AI shit you want right here in the data warehouse. You don't need fragmentation.

1:00:27Downtown Josh Brown:You don't need to move data. You don't need to take it somewhere else and bring it back. Everything can take place here. Pick your model. And they sort of are becoming a ground zero for AI workflows for the enterprise. What are your thoughts on that idea? And what's powering the stock hire? Yeah, well, I really like their CEO, Sarita Ramaswamy, who's a former Google executive. Really good. He knows business. He's been on my show a couple of times. We've had a couple of good conversations. I think for him, like the real question is, are people going to want to use my product in the chatbots? Or like you said, are they going to want to come in and use it where I deliver it?

1:01:03And the core assets, right, that people are going to want, like if you think about just a standard, I don't know, CRM, maybe it's not a great example. If you think about software that is not very differentiated and sort of just helps you do data visualizations, right like a microsoft dynamics maybe yeah i don't see how that's really defensible in the ai world but if you live at the at the source right of the data in the warehouse then you could say you don't really need to go anywhere right you have the the sort of permission to then say we're going to do

1:01:37Downtown Josh Brown:it here so that's what started to happen this spring and all of a sudden they stopped treating the stock like a software company and they started treating it like ai infrastructure and that's why all of a sudden you have a market cap move from 70 billion back to 100 billion. So, okay. All right. The other one, I know we're about to get Amazon. Got it. Up 6%.

1:01:58Michael Batnick:Hell yeah. All right.

1:02:00Downtown Josh Brown:We'll take that in a sec. We'll take that in a second. Reddit. So this is a social media advertising play. It's not very complicated. That's most of the revenue with an arm for data licensing. They have a huge deal with OpenAI, huge deal with Google for Gemini. Those models have been trained on Reddit and they continue to serve up answers from Reddit to queries about every topic under the sun. Reddit is like an 18-year-old platform with trillions of user interactions and tons of information on it. They're in court with Anthropic now. Anthropic trained Claude using Reddit and did not decide to pay for it.

1:02:41Downtown Josh Brown:I think that'll end up in a settlement. And ultimately, they'll end up with Anthropic, with Claude as a customer as well. What do you think about Reddit as sort of a backdoor AI play, given the advertising and then also the data licensing biz? Well, I'll say this. Reddit has a very interesting decision to make coming up in September. So I just had a conversation with Matthew Prince, the CEO of Cloudflare. And basically what he said is his technology is now at the point where if you have it installed, you can use it to block any AI crawling. Reddit is considering blocking Google. To stop people from scraping.

1:03:18Yes. Okay. I think a lot of traffic for Reddit comes from Google. So why would they do that? People type in, you know, this is Reddit.

1:03:25Downtown Josh Brown:Because they want to get paid for their content. The original sin of the internet was that Silicon Valley successfully convinced the New York Times, the Wall Street Journal, Disney, like every major media company, information wants to be free. Let us index all of this information and build huge businesses based on it. And something, something, something, it's going to benefit you. And what actually happened was the opposite. 85 % of the newspapers in America went out of business. The broadcast networks lost their audience. It's, you know, a whole daisy chain of horrible events took place because the media companies bought that argument.

1:04:05Downtown Josh Brown:In Internet 5.0 or whatever we're in now, you can't convince Reddit information wants to be free. New York Times either. They said, f*** you, pay me. You want to train your model on the New York Times, 200 years worth of news articles? No problem. Let's do a financial deal. We're not interested in that information wants to be free. If you're Reddit, you're sitting on this stockpile of human intelligence, answers to everything under the sun. Why would you let an AI model endlessly scrape it every day? Correct. And so now, like what they've probably seen is you type in this, this Reddit. You don't even go to Reddit because Google will answer it, take that text, summarize it and answer it right in the search bar.

1:04:50Downtown Josh Brown:That's right. So I think your bet on Reddit will hinge on, can Reddit continue to get premiums from companies like anybody? It's not just them. Prince told me that maybe millions of sites will go dark from Google in September if Google doesn't pay up. Yeah. I think a company like Reddit has an opportunity to get a premium for all the reasons that you just laid out. Okay. So I like it. Okay. I think they report earnings tonight too. If it gets crushed, we'll edit out you saying you agree with me. How does that sound? Long term. Okay. Let's do Amazon. What do you got?

1:05:20Michael Batnick:Net sales increased 20%. 20%. Unbelievable. $206 billion,$167 billion a year ago.

1:05:29Downtown Josh Brown:The AWS number was 31 % expected.

1:05:33Michael Batnick:AWS is booming.

1:05:34Downtown Josh Brown:What do they do?

1:05:35Michael Batnick:Growing 36.7 % year over year.

1:05:38Downtown Josh Brown:Okay.

1:05:38Michael Batnick:Our fastest growth in 18 quarters. Okay. So same thing as Azure. AI is clear. Like the cloud is a clear winner from AI.

1:05:47Downtown Josh Brown:Any uptick in$200 billion of CapEx guidance? So I think that's the other number that matters.

1:05:53Michael Batnick:Let's see. I mean, did they? Okay.

1:05:56Downtown Josh Brown:Are you surprised to see AWS have a blowout on cloud? Or is that exactly what you'd expect after you just saw Google and Microsoft say the same thing? Yeah. I sort of feel like the Brian Windhurst, like there's something going on here. Why? There's something going on here. Because like, yeah, Google, 82%. Azure, 43%. I mean, 36 % for AWS. Was it 36? 36 versus expectation was 31. That's insane. I mean, they were stuck at 17%, 18 % for quarter after quarter. Okay. So there's definitely something going on here. They're all the beneficiaries of AI spend and AI usage. And that should go up. What do you think of the Amazon strategy in general, in terms of having a big investment in Anthropic, but then also being willing to work with everyone?

1:06:46Downtown Josh Brown:Like early on, the idea of bedrock AI was bring your own model. We don't care. We'll run it. What do you think is the perception of their approach to AI versus the other hyperscalers? I mean, yeah, my summary of what Amazon's doing is basically do very little, build a lot of compute profit. Yeah. It's like supermarket. Do whatever you want here. We have space for it. And it goes back to our discussion earlier where, you know, if the premium for each model is actually going to go lower because there's like instead of maybe two, there's five or six. And you might want to route to different models for different purposes or different costs.

1:07:23Then if you just have most of the world's compute to license, you're in a good position.

1:07:28Michael Batnick:Yeah. Their free cash flow was negative$7.6 billion for the trail in 12 months. It's kind of wild. And the market seems to be able to look past it. I don't know anymore. Is that bullish or bearish? The market doesn't come past it. Yeah. Well, I guess Amazon's done that before. So. Yes. This is maybe par for the course.

1:07:46Downtown Josh Brown:And this is make or break for them too. This is existential for the AWS business. You can't, they can't not do this. Oh, you're looking at 82 % growth from Google and 43 % growth from Microsoft. Even if you have a much higher base, you can't, you cannot afford to sit still at 17, 18%.

1:08:01Michael Batnick:So here's what they said in the report. They exceeded a$25 billion annual revenue run rate for AWS's AI business. It's a lot of money. Holy shit. A lot of that is probably coming from Anthropic.

1:08:13Downtown Josh Brown:Why are these three businesses treated differently than Oracle? That's a good question. I mean, I don't know. Is it just a question of scale? Well, isn't it because Oracle is just so wholly dependent on open AI and people are worried if open AI is going to make good on its commitments? Whereas if you're Amazon and you're - I don't know. Is that the reason? That's what I believe. Okay. So if you're Amazon, I mean, not wholly dependent, but largely dependent on open AI. If you're Amazon and you say, well, we're going to build the compute, everybody can bring their models. There was a time in the stock market six months ago where if there was bad news, bad news, if there was something questionable reported about OpenAI, Microsoft stock would fall.

1:08:54Downtown Josh Brown:And if the same thing happened with Anthropic, Amazon would fall. But I don't think it's that cut and dry anymore. No. Because Anthropic is everywhere. And OpenAI and Microsoft broke up. and I just don't think it's quite as black and white who's on whose side or which hyperscale is rooting for which model. I think that's over. I think it's just a battle royal now. But Oracle and OpenAI are very linked. That's still a thing. And to build what OpenAI needs, I think Oracle just kind of YOLO'd and said, if this works out, we're going to be a much bigger company. If this doesn't work out, got to help us.

1:09:30Michael Batnick:They probably regret that contract. Only if it doesn't work out. Only if it doesn't work out. But the user growth for open AI is exploding. So it should work. But the stock is down 70%. This is, go ahead. Go ahead, Mike. So, all right, enough about that. I wanted to get your take on this. So - Can I just say one more thing about this? Like I had a conversation with Paul Kudrowski, who's an investor analyst. We know Paul. Paul, he's great. And basically like what we came to was for a lot of this bet, it's just that you have a call option on AGI. So if AGI is achieved, you're going to do well. And if AGI is not achieved, you're going to be in trouble.

1:10:06It's a very expensive call option. It's extremely, it's the whole farm call option. And I think for no one is that more true than Oracle.

1:10:13Michael Batnick:This is what I wanted to get your thoughts on. Did you read Dwarkech's? Yes. Okay. So Josh, listen to this. So he wrote a blog post, why compute might get 10 times more expensive in the coming years. And he said, Anthropic revenue has 10x year over year. 10x. That's right. Anthropic likely ends the year with 100 to$150 billion of revenue. For this trend to continue, Anthropic would have to make$1 trillion in revenue by the end of next year. There's no deep reason why trends need to continue, and it very well might not. It's ultimately a question about AI capabilities. But suppose it does. What would have to be true about that world?

1:10:49Michael Batnick:So we're talking about a world where Anthropic does$1 trillion in revenue. Lab compute 3Xs year over year. for a lab to 10x revenue while continuing to only 3x compute, some combination of the following three things has to happen. One, lab margins have to increase. Two, the price of compute has to increase. And three, labs have to spend a greater fraction of their compute on inference. And he concludes it with, my understanding is that basically all of these three things have been happening. Is this even remotely possible? Forget about a trillion. Can they get to 300 billion? Can they triple revenue by next year?

1:11:28I think that this piece is a really good thought piece, but is ultimately wrong on a lot of its assumptions. I mean, the one—

1:11:35Downtown Josh Brown:Why does the price of compute have to go up? That doesn't make sense to me. So basically, Dwarkesh's argument is like, if you actually— so AI is as dumb as it's ever going to be. So if in a year from now, it's like actually able to be on the level of like an excellent software coder, then the economic premium you would pay for that compute is massive because you basically like have gone from something that can dilly-dally encoding to something that can complete projects. Really stupid question. If that happens, don't all the companies in the world simultaneously stop doing other types of coding, which therefore then frees up the capacity that was otherwise being used by dumb human coders?

1:12:13Well, dumb human coders aren't using like, because we do it by hand. They're not using industrial scale of compute. All right, got it. We do it by hand. But I just think that like, I just don't think that's gonna happen. I mean, this is another thing he says. In a market, your margins are set by how much better you are than the next best alternative. And it's just like, well, we just talked about how all these models are coming closer and closer together. And so the margins will go down. Another dumb question.

1:12:39Downtown Josh Brown:We're saying the word superintelligence. Wouldn't the first thing you would say to the superintelligence, hey, can you f***ing make this cheaper? Yeah. Like, can you help me do these 10 things more efficiently using less of the things that are in bottlenecks right now so that we can complete this task and not have it cost 10 times more? But if they need more hardware. If it's super intelligence, isn't that a problem it could work on?

1:13:02Michael Batnick:But what if it's just a lack of hardware that they need? Explain that. Like, what if there's just not enough data center power? I don't know what the f*** I'm talking about. But, like, the chips, the stuff, the this, like, what if there's just not enough of it? But that's my point. Let's say there is not enough of it.

1:13:16Downtown Josh Brown:Wouldn't the super intelligence be able to carry out its function? But it's not God. Knowing it needs to utilize less of these things. It can't turn water into wine. I think that, look, I think that as you, so let's just take a software example. If you used, if AI was useful only to do the work of software developers and you used it, like the supply of software developers just goes up and you need stuff to support that, right? So I just don't think that you'll like pay a software developer salary to a software developer amount of AI. The idea is it's going to get cheaper.

1:13:48Michael Batnick:Sam Altman said this to Patrick. He said, Patrick said, like, what could reverse this shortage of compute? And one of the things that he threw out was maybe the models get so much better and they sort of hack it.

1:13:58Downtown Josh Brown:Isn't that the history of tech? Isn't that what always happens?

1:14:01Michael Batnick:That's going to happen.

1:14:01Downtown Josh Brown:So why don't people think that's going to happen this time? I think they do think it's going to happen. I have no technical proficiency whatsoever. I just know from 200 years of history, the price of this stuff drops as it gets adopted. more. Well, the analysts, it doesn't work the other way. So they think it's going to happen, but they think that it's all, so they think it's both going to get cheaper and it's going to get used so much more that the price to use it will continue to be, to continue to increase.

1:14:28Michael Batnick:But did you see the chart of that Bernstein made about the EPS expectations for Micron, Samsung, and SK Hynix? It has them going all the way up and coming all the way back down in 2027 and 2028. Yeah. That's, I just don't think that you can continue to have like that massive of a margin in a technology business. It doesn't exist. Okay. I want to ask you about, I guess we're going to get an Apple report, so it would make no

1:14:53Downtown Josh Brown:sense to really talk too much about this particular quarter of earnings. But I do want to ask you about the new thesis that seems to be taking hold, mostly thanks to me and my big mouth, that Apple actually is Kaiser Sozang the entire AI business just Just by virtue of like nobody even saw what they were doing, which was nothing. But that may have ended up being the right move. And then they just reappear at the end. Like, hey, everybody, it looks like we're the toll booth for consumer AI use. I think that that's how it's going to go. They won't own the enterprise, but that's not Apple. Apple will own the consumer.

1:15:33Downtown Josh Brown:They'll be seen as the safest route through which to download and use AI apps. This is what they've always done. and it appears that they're going to get away with it again. Where could that go wrong? Or how could I be wrong about that? So I think the big concern around Apple when it announced Apple Intelligence and wasn't able to execute on it. It was a flop. It was a flop. Was that basically Apple opened itself up to what would soon be a flood of AI devices, whether it would be the Rabbit or the Humane Pin. Nobody wants any of these things. The Metaglasses. Well, they don't want them because the AI isn't good enough yet.

1:16:09But remember I talked about that like kind of AI friend that's with you and is your companion, sort of like is very engaging. Yeah, it's called a phone. We have it. So it might end up being packaged in the phone if Apple builds it. But if Apple doesn't build it, somebody else will build it. And I think one of the things that an AI device would do that an app on an iPhone won't do is it will enable you to sort of record all day long. So you don't have to ask Apple permission to like record people because the more data these things take, the better they get. The more data they take in, the better they get.

1:16:40Downtown Josh Brown:I think that'll be socially unacceptable to walk into a party with a necklace that's recording everyone. I just – I think there are boundaries. I see stand-up comics forcing people to put their phones in pouches. Everybody grumbled about it for a year, and now it's standard operating procedure. If you want to see Dave Chappelle, you're not holding your phone. That's it. But what if everybody records their lives and it does become socially acceptable? I don't know that it definitely will, though. I understand there's a universe where that happens. I don't think it's this one.

1:17:06Michael Batnick:I mean, I think – I hope it doesn't, but is it inevitable?

1:17:08Downtown Josh Brown:Do you want to have a conversation with somebody who's wearing glasses with a camera on the front of them? No, no. Josh, I think I'm on your side here. Okay. But you asked like what is – I said this.

1:17:17Michael Batnick:No, you didn't. Rewind. That's right.

1:17:19Downtown Josh Brown:All right.

1:17:20Michael Batnick:We're not friends anymore.

1:17:21Downtown Josh Brown:And by the way, get out of my house. But okay. So but you asked like where does it go wrong for Apple? Yeah. If that future takes hold. Okay. I don't want it to either. So I think that's an alternate universe. I don't think that's the one we live in. If it does take hold, then those devices can start to become more important than the phone because not only are they your friend, they go and get things done for you, right? Like a lot of what you do on your phone is just get stuff done. Call an Uber, send an email, you know, write a text. All right. So then let me make a follow-up question that's relevant to what you're saying because that's to me.

1:17:54Downtown Josh Brown:Apple is the only company who can convince 5 ,000 other companies that their apps have to be interoperable with Agentix Siri. No other company has the power to go to Delta and Expedia and JP Morgan and Live Nation. Nobody, nobody could do this. Google Maps. Apple can say, maybe, maybe, Apple can say, as part of the terms of service of supplying an app to the app store, these five technological switches need to be turned on so that agentic Siri can carry out agentic work for regular people utilizing the apps that are in the ecosystem. I don't know if this is three years from now, but telling Siri to tell one of your apps to do an operation with another app, move money to this person and book Broadway tickets, whatever it is.

1:18:52Downtown Josh Brown:but Josh I'm sorry girl but for them to be able to do that without spending any money like they're not spending on this they're not the spender they're not the spender the app if you're if you want a business and 50 % of your interactions with your customers are through an app and your highest paying customers are Apple users you're going to do whatever Apple says you have to do including be interoperable with Siri who else has that power? no you're right I mean right now I would agree with you. I think that's the most likely path. And the new Siri that's currently like in developer preview is much better than the first version.

1:19:29Well, let's hope. Well, it has to be. Do you have an opinion on John Ternus? Not a deep one, but I do think it's good for Apple to have some new blood in there. And he seems like very likable. Okay. You're going to get him on the big technology podcast? Well, okay. So I asked Apple to go to WWDC this year. um i even said in my uh can we put up chart 4a i think it's chart 4a and my predictions for 2026 that apple was going to have an incredible year this year it was in the goldilocks zone i wrote this apple i wrote this it was alex okay no no i invented apple in february this was december 2025 so all right so thanks for reading technology you should be ahead of me on this for god's sake okay but the end of the story is i i was very i thought apple was gonna have a great I think I said it on air on CNBC.

1:20:21I asked them to come to WWDC. Nice, Paul. It's the best. Thank you. It's the best of the big technology stocks this year. So I asked them to come to WWDC, their developer conference this year. I'd been to the last two years before, and they said no. So now you're shorted? So I don't take any of – I mean, I do take offense. That wasn't nice of them. I'm not going to change my opinions on them, but I think that was my way of saying there's not a good chance that John Turnis is going to come on big technology. Fair.

1:20:46Downtown Josh Brown:Do you think the – But he's welcome. Do you think the 18 is going to be a hit? Definitely. I mean, the thing is, so the 17 was the sleeper hit, right? Yeah, finally. It was so much better on so many different levels. I think the 18 will obviously improve on that. But for me, the folding phone is the thing that I'm really looking at. I think we're getting that in September. Yes. So that to me will be a major hit. I think you look at people. You ever see somebody on the subway? They sit down, they unfold their phone, and they just get this big smile. No, I haven't seen one in the wild. Take a look.

1:21:19If you manage to spot one on a subway or in an airplane. It's a Samsung? I think it's a Samsung. Typically, a middle-aged man will pull it out, sit there. And open his phone. Open his phone. Like it's a newspaper. Yes. And hit play on YouTube or Netflix. And I promise you, these are the happiest people I see. Wait, does it make the phone bigger than my phone? Double the size.

1:21:42Downtown Josh Brown:Double the size. Yes. So I'm turning a phone into an iPad. Correct. That's awesome. Oh, I have to have one. It just makes people happy. And I think it's going to be hit for Apple. I don't think they, the guidance they gave, they're not going to be able to make enough of these where that's going to move the needle in Q4. Right, that's the next year thing. But that could be the 27 story. Oh, yeah. Along with Argentix.

1:22:02Michael Batnick:Okay, they're not going to be able to make enough because it's a shortage of everything. If 2 % of the world is adopting this technology, how is the shortage of everything going to be solved?

1:22:14Downtown Josh Brown:I don't think 2 % of the world is adopting the technology. Is it five? He just showed us a chart with a billion users on ChatGPT. That's a fifth of the world. But I think Batnick has a point here. So when I was speaking with Greg Brockman, the president of OpenAI, last month, he said five, 10 million people are using agentic versions of ChatGPT. Right. So that is— Nobody's using it. Gemini is being used by every Google search. Yes. Whether people are doing it deliberately or not, they're getting AI search results. Correct. Okay. But that is, so we're about to, I think this is a really good point that it's worth highlighting.

1:22:50We're about, it seems like we're about to go into this moment where if this use case takes off, where if people start to trust AI, like for instance, I have AI. I used to check because we're trying to get a bigger apartment. So I used to check Zillow every day. I had my specs. I had my safe searches. I would check it. Now I have ChatGPT search it every 30 minutes. And when something new hits that I want in my ChatGPT, it shows up with a link to it. Amazing. And by the way, the next thing is – Is that even agentic or not yet? That's agentic.

1:23:20Downtown Josh Brown:Agentic would be if it buys the apartment for you. I was going to say the next thing I'm going to have it do is every time it hits this, send an email because it has access to my email. So doing these things takes far more compute than giving an answer on Google. And so if these use cases take off, you are looking at a much bigger crunch for that compute than you have already today. Did we just get bullish? Did we just get bullish on the chips again?

1:23:44Michael Batnick:I've been. I think that this is just, we're so early. But it's this back and forth because like demand goes up, then they build more. Then they create a new algorithm that makes it, you know, one-tenth of a day. And demand goes up. Forget about like, all right. So we'll just be in this forever. In one year, two year, three year, four year, we are going to look back at where we are today and laugh at how primitive the use cases were. It is going to exceed. I agree with that. It is going to increase exponentially. Yeah. I mean, you can really see it right before your eyes.

1:24:12Downtown Josh Brown:We're using it right now to search for recipes. It's a joke. We're going to have it alert all our friends and family that we're not feeling well. We're going to have it really do things for us. And that hasn't even started yet. It is amazing. As it gets to know you, as you start to put more trust in it, the things that it could do for you is pretty crazy. Yeah, I totally agree. Did you have fun on the show today? Always, guys. We love when you come by. I can't believe it's been two years since we've had you in person. We won't let that happen again. Do you want to come back next week? I will be here.

1:24:43Downtown Josh Brown:The crowd is clamoring. He's going. What are you doing in Indonesia? I will be in Indonesia. I'm going to do some surfing and hike a volcano. He's going to go hack Hugging Face in Indonesia. We love it. AI will do that while I'm on the beach. I want to remind people they should be following your podcast. It's the Big Technology Podcast. You're six years in. You're absolutely crushing it. I always listen. Great guests. And then they could subscribe to you as well. Where could they read your stuff? That's right. So bigtechnology.com and I'm also Alex Kantrowitz on YouTube. And I just want to say, you guys have the best business finance show in the world.

1:25:20I listen. And I'm telling you, the last few weeks, you guys have been so good. I mean, always good. But I've been like jumping and being like, get me in this discussion.

1:25:28Michael Batnick:Turn my mic on. Turn my mic on. And so when Batnick emailed, I was like, yes, I can. I'm so thrilled to be here again. Thank you, guys.

1:25:34Downtown Josh Brown:He's like, I got to tell Josh Brown how dumb he sounds. No, no, no. All right. Listen, we love you. Thank you so much, Alex. Guys, thank you for watching and listening. We will talk to you very soon.

1:25:49Thank you so much.

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