Prof G Markets: Google’s Quantum Breakthrough & The World Cup Goes to Saudi Arabia

25:55We're back with ProfG Markets. Google has unveiled a new quantum chip called Willow, which outperforms the world's most advanced supercomputers. In just five minutes, Willow can solve a problem that would take a supercomputer 10 septillion years to solve. That's longer than the estimated age of the universe. While some scientists have hailed this as one of the decade's biggest breakthroughs, the chip currently has no practical application. So Scott, we're going to get your thoughts, but I kind of just want to start here with a breakdown on like, what is quantum computing? And it's a little confusing, but just bear with me.

26:33So the key difference between quantum computing and regular computing is in how they process information. So a regular computer processes information using binary code. So it's a zero or a one, and these ones and zeros are known as bits. I think people know that. A quantum computer, on the other hand, processes information not with bits, but with qubits. And the funny thing about qubits is that they can be a zero and a one at the same time. This is obviously very confusing and strange, but I think the best analogy to think of this is to think of it like a coin flip. So imagine you flip a coin.

27:15A classical computer can only tell you whether it's heads or tails once the coin has landed. But with a quantum computer, it will analyze the coin as it's being flipped. And while it's flipping, it will calculate the probability of it being heads or tails, or in the case of computing, a one or a zero. So it's fundamentally a different way of analyzing information, and that's the key technical difference you need to know about what quantum computing actually is. Okay, enough with the nerd talk. Let's just talk about the practical implications of quantum computing. So there are three important traits, in my view.

27:53The first is that these quantum computers are exponentially more powerful than classical computers. And that is not hyperbole. As you increase the number of qubits, the compute power of a quantum computer increases at an exponential rate. That is not true of classical computers. So they're extremely powerful. Two, and this is really important, is that they make a ton of errors. And this has been the biggest problem in the field, because it turns out that as that quantum computer tries to figure out if the coin's going to land heads or tails, it very often gets it wrong, which screws up the entire computation.

28:31And that's a huge problem, which leads me to the third important trait, which is it's highly impractical. Not only in the sense that it gets things wrong, but it's also just designed for these drastically complex questions, as you could probably tell at this point, that just don't really have a place in our world right now. Now, the reason this Google announcement is a big deal is because they've supposedly solved for the second trait that I mentioned, which is it makes a lot of errors. With the Willow chip, this new chip they've come out with, the more qubits you add to the computation, the more accurate the computation gets.

29:08In other words, in addition to being crazy, crazy powerful, this computer, unlike other quantum computers, also gets things right. And that's the most important difference. That's why this is actually a really big deal, the fact that they have come out with this. So we will get to what this might mean for Google's business, but I'll just stop there in my review of what is quantum computing. Maybe you have some reactions. What's interesting is the market seems to love it. I think because they thought this would help supercharge their internal efforts and also that it sort of signals that Alphabet still has, I've always said Alphabet's the greatest concentration of IQ in history since maybe NASA in the 60s or 70s.

29:55And this is sort of them saying, you know, we still got it. And the market seems to like it, even though they're not entirely sure what the applications are. One of the interesting notes here, someone says, this is more shot across IBM's bow than it is across NVIDIA's bow. But this seems to be a signal. I would argue this is more of a branding event for Alphabet. No one's been able to say, which business will this impact? This is just Alphabet has amazing IP and this should help across their entire ecosystem. But I still don't understand what are the consumer applications they'll launch with this and how is that going to result in additional earnings?

30:37There are some business use cases that Google hasn't really talked about, but the analysts and the people who are interested in this stuff are talking about. And I can just go through a few of them that I think could be really important. So one is healthcare. So unlike a classical computer, these quantum computers can simulate molecular development at mass scale. So in theory, they could revolutionize the pharmaceutical industry. At least that is what is being said about quantum computers. It's something that classical computers are not good at. The second one, this is the one I find most interesting, is encryption.

31:18So this could massively affect Bitcoin because cryptography is predicated on binary code. That's how the Bitcoin mining system works. And that's what makes it so impenetrable. But with a quantum computer, you could essentially break any encryption system in the world, including bitcoin now to be fair to mine all the bitcoin in the world today you'd need a quantum computer with a capacity of 13 million qubits the willow chip has a qubit capacity of only 105 so we're not there yet but theoretically we could get there and that is also why we saw a dip in the price of bitcoin the day this was announced because i think a lot of people in the bitcoin world went, holy shit, what if this thing could crack into the Bitcoin network in a day?

32:13It can't yet, but at some point it could. Boy, I hate to say it. I would enjoy that. I know that's an awful thing to say. I would enjoy it too. If all Bitcoin became hackable. Why does that make me happy? Why does that make me happy? Oh gosh. I think those are my two most interesting use cases. My takeaway here, this could be a really big deal, but major emphasis on could, because it's not totally clear to anyone what the timeline on this is. And we hear about a lot of powerful technologies out there that could revolutionize industries. We don't know when it'll happen or what it'll look like. So my prediction downstream of that is that I think quantum is going to become the new corporate buzzword.

32:57I think it's going to become the new vehicle to make these very, very big promises that could pan out, but similar to crypto and similar to AI, you're not accountable to delivering actual results because it's so far off in the future. So this to me is like a CFO's dream. Like if you can just build a little quantum research lab in your company, you don't even need to generate revenue from it. You will likely drastically increase your multiple overnight and it does not need to be reflected in your financial results. So my takeaway from this, I think this is real. I think this is cool. But I predict a huge hurricane of corporate bullshit that is going to come rolling in hard.

33:38And I think the name of that hurricane will be quantum. I don't know if you knew this, but here at Prop G, we raised$7 billion two years ago and we've been experimenting with quantum computing and it's really starting to pay off. Actually, you're not a real person. Actually, that'd be AI. Look, I did what I always do. I turned to AI and I said, give me the difference between AI and quantum computing. And they said, okay, AI is a simulation of human intelligence and machines that can learn, reason, and make decisions. Example applications, image recognition, natural language processing, autonomous vehicles, and recommendation systems.

34:09Quantum computing leverages the principles of quantum mechanics, including superposition and entanglement, to perform calculations much faster than classical computers for certain problems. Example applications, cryptography, optimization problems, material science simulations, and drug discovery. so yeah there you go and they use this word qubits all over again how so more importantly how do people invest around this i i heard we saw we had in the notes ruggetti computing they make chips for quantum computing much like nvidia builds chips for ai started by an ibm quantum scientist that stock is up sevenfold this year another quantum computing bet is ionq is pursuing a different type of quantum computing than Google, one that could potentially be better for precise measurements in fields including aerospace and defense.

35:06INQ is already monetizing quantum, secured a$55 million contract with the United States Air Force Research Lab this year, and offers quantum computing through Google Cloud, AWS, and Azure. Revenues have increased 90 % this year. The stock is up 150 % year-to-date. So this feels pretty cutting-edge, but But I love what you said, that there's going to be now quantum washing. But also, I wonder if these guys, as much as their stock has been up, I wonder if these quantum computing sectors are going to register anything resembling the kind of AI Lollapalooza in terms of value here. We'll be right back with a look at the World Cup in Saudi Arabia.

35:53If you're enjoying the show so far, hit follow and leave us a review on Prof G Markets.

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37:41We're back with ProfG Markets. Saudi Arabia will host the 2034 World Cup, marking a key step in the country's plan to establish itself as a global leader in sports. through its sovereign wealth fund the country has invested billions in a range of sports including golf boxing esports and formula one and the fund is also close to finalizing a one and a half billion dollar deal for a six percent stake in the pga tour so finally we can stop talking about quantum computing scott and get back to what we're really good at which is football um we've talked a lot about saudi arabia on this podcast it's expanding influence in the sports world your reactions to Saudi Arabia.

38:22I'm not sure anyone thought this wouldn't happen, but Saudi Arabia is officially the host of the 2034 World Cup. Well, first off, there are few organizations that have this veneer of credibility that are more corrupt than these international sports organizations because they operate in this sort of nether-netherland, the International Olympic Committee, and FIFA really takes the crown. So if you were going to have countries bid, you would want to avoid some sort of conflict. Well, no. FIFA announced a four-year, $100 million sponsorship deal with Saudi Aramco, Saudi Arabia's national oil company, the most profitable firm in the world, earlier this year.

39:03So my guess is that was kind of a down payment. And the rest of the world said, okay, we can't... I mean, when you show up and you're bidding on a piece of art and Bill Gates shows up and says, oh, it's my dream to own this piece of art, you know, you might as well go home, right? And this is what's happened here. I think this may be the first time that there was only one nation bidding. And they're basically kind of, I think every other nation that was thinking about bidding thought, we're not going to pull 1 ,100 people together and former governors and get everyone jonesed up to put together the ultimate bid and then host you first class, the FIFA.

39:45the FIFA corrupt committee that comes over and they get all these great dinners and they've said, no, we're just not going to bid. And also, realistically, it's worth more to the kingdom than any other country in the world because these are coming out events. This is a way of highlighting, we're for real. You should come here. I remember the Olympics when it was the opening ceremonies in Barcelona, and I had never heard anything about Spain or Barcelona. and then they had this brand new beautiful stadium and they had this runner, the lighting of the Olympic torch and it was this ridiculously hot guy wearing no shirt and he's running and he stops outside of the stadium and you see this amazing stadium and the guy picks up a fucking bow and arrow and then he pulls it back and you see his unbelievably ripped torso and then he looks at the camera and then he nods and he detenses the bow and arrow and he puts the arrow down and he inflames it and then he pulls it back and he pulls the thing back for dramatic effect like it's like about to snap and he fires the thing and this fucking flaming arrow flies from outside of the stadium over the top of the stadium into like this six-foot semicircle of incendiary lights it and then it runs up to the Olympic flame, torches it.

41:13And I'm like, I'm going to fucking Barcelona. I mean, it was just so amazing. And then most recently, the Paris Olympics have brought kind of new riz to Paris. I remember watching some of the sports at the Olympics and thinking, it's time for me to get back to Paris. Those people just, they just understand style and grace and romance. These are coming out parties. I don't think, I would bet 97 % of the world's population hadn't heard of Qatar until the World Cup. So Saudi Arabia has all of these immense projects coming online. They want to transition to a knowledge-based economy, educational institutions, tourism, services.

41:54And this will be their way of bringing the wealthiest people in the world and the eyeballs of the rest of the world to the kingdom. And that's worth a lot of money to them. And it wasn't, everybody knows about the United States. Most people know about Germany. So while they might be willing to spend 10, 20, 30 billion, I mean, I got to think if Qatar spent a quarter of a trillion dollars or 250 billion, I wouldn't be surprised if the kingdom spends half a trillion dollars on these games. All I know is we are going at, and it's going to be amazing. It's going to be amazing. And, and I'm betting on, I think team England is finally going to have their due here.

42:33It's definitely going to happen. Cold Palm at the home. It's coming home. It's going to come home. It's coming home. What you're describing there is, I mean, you said being on the world stage like that is worth a lot of money to them. I think this is the interesting question here. It's like, what is this worth? Is it worth it to do this? And if you look at the actual ROI, the return on investment of these global sports tournaments, there's a study from the University of Lausanne, which looked at every Olympic Games and every World Cup between the years 1964 and 2018 to answer that question. And what they found is that 95 % of the time, you lose money.

43:12And the average ROI for the Olympics and for the World Cup was negative 38%. There were only three competitions in history that turned out to be profitable, and those were the 1984 LA Olympics, the 2010 Vancouver Winter Olympics, and the 2018 Russia World Cup. And every other tournament lost money. Now, to be fair, this is only focusing on the revenues that can be directly attributed to the tournament. So it's the ticket sales and the broadcasting rights and the sponsorships, et cetera. What it doesn't measure is what you're talking about, which is the soft power. The idea that you're seeing these countries and then maybe you want to go there and you want to spend some money there.

43:51I don't know what it is. So my question to you is on soft power because I'm naturally a little skeptical of soft power because of the fact that it is so hard to measure. And I get the feeling that we get a little carried away with the glitz and the glamour and the fame of it all. And so I guess my question to you is like, how does being on the world stage actually translate into legitimate economic activity and like long-term GDP growth? Because I get the sense that you believe this is actually a very good idea economically for Saudi Arabia. Oh, it's enormous. The last time I was in Riyadh, what I noticed was they put on a lunch and invited me and they had all these entrepreneurs.

44:37And I thought I'm going to meet all these Saudis. And I did meet some domestic entrepreneurs, a bunch of kids who had gone to U.S. schools and then come back to Saudi. but what i was shocked by i met hundreds of entrepreneurs who were like yeah i started a specialized glass company you know glass that goes on components and iphones in seoul and i moved here because uh i thought the quality of life would be better and basically the kingdom guaranteed me that they would buy everything i could produce i met all these entrepreneurs from Germany. The bottom line is money and growth are a flame and human capital, especially young human capital, is a moth.

45:20What you said about soft power is that companies that demand specific attribution oftentimes just shouldn't be in the business of brand building. Because the thing about brand building is that Philip Morris was never really able to directly, they knew that convincing people that if they smoked Marlboro Reds, that they could relate to and were more like a man with a deeply chiseled jaw riding an Appaloosa. But they could never reverse engineer a specific billboard to 95-point gross margins on a pack of cigarettes that people were paying four bucks for that cost 20 cents to produce. And brand building, quite frankly, is a little bit about taking a leap of faith, believing that if the intangible association surrounding a product, a service, or even a nation will create more awareness, more trial, because you can bet MBS looks at Dubai and what they built there and says, fuck, how did we let that happen?

46:22We're a bigger economy. We have more money. I'm pretty sure that what the mandate he's given to his ministers of infrastructure or development is like, I want Dubai to seem like a fucking cow town after we're done. I want everyone coming here. The good news about the kingdom of Saudi Arabia is they have what feels like infinite capital right now. The bad news is it's running out in 30 or 40 or 50 years. And they're smart. They know it. So they're like, we need to transition from a fossil fuels-based economy to a services, tourism-based economy. And that's the bad news. we need to do it. The good news is you have a blank check to get it done.

47:02But, oh, branding is all about taking a leap of faith on these intangible emotions. And I'll bet the year after the World Cup, you're going to see tens of thousands of small and big businesses and the key to all this, the secret sauce, human capital go, you know, honey, would you be willing to move to Riyadh? And people go for the first time, yeah. You know, the bottom line, when you're when you're worth billions of dollars, spending money on whatever it is, you know, a finely tailored suit, it doesn't mean anything. Even if that finely tailored suit is 10 ,000 bucks and no one would pay for that, it doesn't matter.

47:41They have the money. What they need is to transition their economy. So I actually think it's like, this is probably going to be a good investment, distinct of how much it costs. Well, I think the distinction there is like, I agree with you when you have a lot of money, it's not a big deal to buy a$10 ,000 suit, but it would be a little crazy to buy a million dollar suit. And we have no idea how much they're going to spend on this thing. If you look at how much Qatar spent, they spent$220 billion. I would bet that Saudi Arabia is going to spend way more than that. So I think the way you frame there is totally accurate.

48:23It's like, they know that the immediate, this is immediately going to be in the red from an expenses perspective, but they're looking at the long-term payoff and the long-term benefits. And the way I would, let's say they spend like a quarter of a trillion dollars on this. I think they'll spend more, but let's say they spend that much. That is a quarter of a trillion dollar billboard, essentially. You're basically, it's a giant ad. And I think the question is, is that ad worth it? And I feel pretty somewhat convinced that it might pay off, that it might be worth it based on your analysis there.

49:00But I think the key takeaway for me is like, this is no more than an ad. No more than an ad? That's everything. That's awareness, unearned margin. And let me just go back to brand building. I don't know what Russia spent on the World Cup, dramatically less than 220 billion. But I went to games in Moscow and St. Petersburg. And I remember thinking St. Petersburg was arguably one of the most beautiful cities I'd ever been to. Walked around, there'd be squares where old people were dancing. And I just had such a positive impression of Russia and specifically St. Petersburg. Now, them incarcerating Americans on trumped up charges, that's sort of like, okay, I'm not going back to Russia for a while.

49:45That sort of ruins the ad, exactly. These actions on a political stage can wipe out a quarter of a trillion dollars in branding. Yeah. Well, let's just take a moment to talk about the controversies around this, because that's important to the brand here, too. I mean, if people think that this was rigged, as many people do, or they think that Saudi Arabia is an unethical country, that's important to this conversation, too. But I'm just going to start with this bid evaluation report from fifa that they released which i just found so funny it's this report where they assess all of the viability the viability of all the possible host nations so first off they gave saudi arabia the highest viability score ever which is hilarious they said that from a commercial standpoint the bid is quote very good but my favorite was their evaluation of the human rights risk, which they determined was, quote, medium, which is also hilarious.

50:49Human rights risk of the games or human rights risk of KSA? Of the World Cup, of them hosting the World Cup. Human rights risk, medium. That was their analysis. But they ultimately landed on the greatest score ever given in the FIFA bid evaluation report. Yeah, it's called money, the greatest score. Exactly. I'll go. 100 % I'll go. I can't wait. I literally can't wait. And also, I actually quite like the kingdom and think they're doing good things. But like people, people hear your views on Saudi Arabia and they get upset when you defend them. And the reason they, I mean, the things that people focus on, there's one, the killing of Jamal Khashoggi.

51:33We've talked about that. There's migrant worker conditions. I would argue that that's in basically any, any country. You're leaving out treatment of women. Yeah. There's discrimination of women, which they are improving on. Yep. Um, but, you know, still not great. But then there's also the discrimination against gays, which they are definitely not improving on. So the penalty for homosexuality in Saudi Arabia today is still, in some cases, death. And, you know, in combination with the fact that a lot of people think this voting system was rigged, which it probably was, they were the only bidder, I think a lot of people are saying, there's foul play here.

52:16what I would say, I think we all agree there is foul play here in some sense. The question is, how bad is it? Like, how bad are the human rights abuses and how bad is the corruption? And is it bad enough that we will start to see mass boycotting of this World Cup? Because on this podcast, we're not going to evaluate the ethics of things. We're going to evaluate the economics of things. And so what I'm interested in, and I'd like to get your view, is do you think the human rights stuff and the corruption stuff is bad to the point that people are actually not going to go to this thing and they're not going to watch it?

52:56Or is this another one of those situations where we talk about it a lot online, maybe we see some protests, but at the end of the day, everyone shows up and everyone makes money? Oh, entirely the latter. And also, this stuff's important, and public pressure and international pressure is important. And I worry one of the things I don't like about the most recent election. I have trouble waving my finger in anyone's face around women's rights right now. We're the only nation that's taken away a women's right. Typically, every other nation in the world, when they grant women rights, they get to hold on to them.

53:38And the kingdom right now, in my opinion, is reforming faster than any nation in the world. And every six months, MBS rolls out new reforms. Women in the kingdom used to need the permission of their husbands to travel. They've done away with that. They couldn't drive. They can now drive. That may not sound like a big deal, but I'm looking at the slope of things. In addition, I want to be clear. I think they murdered Khashoggi. The question is, all right, they did it. I think they paid a huge price for it. Does that mean we're never going to do business with them again? And let me go even further.

54:13I think there's less anti-Semitism in the kingdom right now than there are pockets in the United States. I think the kingdom is probably going to normalize relations with Israel. This is a complicated issue. I don't want to pretend to have moral clarity around this. The question is, do I think people are going to go and corporations are going to headquarter there? Absolutely. This will be the most successful World Cup in history. Because at the end of the day, Ed, and this isn't the way the world should be, the way the world is, money wins. and they'll put on an amazing show and they will clean up their act or they will try to.

54:50And also it begs a bigger point. Are human rights going to be better or worse if the World Cup is in the kingdom? I would argue they're going to be better. I would argue when they are on a global stage that they have more motivation and incentive to improve, to continue to improve and head in the right direction. I'm more around engagement and sitting and waving your finger as, you know, a 15-year-old in Mississippi who's raped, doesn't have access to terminate a pregnancy. We have gotten so far afield here, Ed. Let's go back to talking about cubits. Cubits. Yeah, I think just to summarize what you're saying there, it's like they are trending in the right direction.

55:36You cannot argue that. They definitely are on the right trajectory when it comes to human rights. Are they doing that for ethical reasons? Probably not. But I think they've looked at the rest of the world and they've seen that, generally speaking, a nation that has strong human rights laws and that treats its people fairly, generally speaking, those countries get rich. I think that's pretty much the play here. Okay, we want to participate in this economy. So we're going to go lean into human rights, not because we necessarily want to for our people. I genuinely think that. I think we're going to do it because it's going to make us some good money.

56:14And that's worth it. I think that's what's going to happen here. Let's take a look at the week ahead. We'll hear the Fed's interest rate decision for December and we'll also see earnings from Nike and FedEx. Scott, do you have any predictions? Well, my prediction is that Meta's next earnings call, which isn't until February, is going to be just blow away, again, Again, expectations because, you know, that notion that if you put a frog in a boiling water, it jumps out. If you put a frog in water and then turn the heat up, it doesn't know it's being boiled to death. I don't think we realize just how bad the rage has become in the United States.

56:53And as someone, I only spend probably two weeks every two months there. So it's like when you come home, Ed, and you haven't seen your kids for a while. and this was like one of the most rattling things that happened to me when I used to go on business trips for two or three weeks, I could notice I would always poke my head in when they're sleeping and a couple of times I'm like, oh my God, he's grown. And that would rattle me that I was spending too much time on the road. Whereas when I'm with them every day, I don't perceive them growing because it's incremental. The interrupted cadence of living in London and only being in the US once every couple months, I have noticed a dramatic increase in what I'll call community rage or public rage.

57:35Everyone is pissed off. Everyone is dissatisfied with each other, with policies, with government, with the world. And I think that is the primary signal for profitability at Meta because Meta has figured out that it's not sex that sells in the world of marketing, it's rage. The amount of rage that has been fomented and monetized by Meta has hit a new high, I believe, around the election. And so the proxy or the litmus test or a decent blood pressure test for rage in the U.S. is the profitability of Meta. And it is fucking off the charts right now in their largest market in the U.S., which I believe means they are going to report a just staggering quarter in their next earnings call in February.

58:25So my prediction, another massive beat for Meta based on the fact they have figured out a way to not only incent, but monetize rage, discord, and polarization in the United States, which is at record levels. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Jessica Lange is our research associate. Drew Burrows is our technical director. and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Thursday for our conversation with Morgan Housel, only on Prof G Markets.

59:23As the world turns And the dark flies In love