# Anthropic's $30T Assumption & OpenAI Confirms IPO | Why Customer Service & Robotics are Overinflated

20VC with Harry Stebbings · 2026-08-27

<https://20vc.podhood.com/83503cba-0a6e-471d-9dfa-2ef2b4be4aa0>

Jason Lemkin, Rory O’Driscoll and Harry Stebbings say the AI boom now depends on Nvidia and hyperscalers financing frontier models, as shown by Nvidia's $6B Poolside purchase and $1B at a $12B pre-money valuation. They dissect OpenAI's promised 2027 IPO, arguing it has no choice as Anthropic outraces it and 'it's all about code'; they call Anthropic's $30T TAM claim delusional and OpenAI's $200 plan a losing consumer business. Also covered: Mercor's $20B round, Hugging Face's $13B sale risk, Citadel unwinding 80% of Leopold's fund, Stripe's 41% growth, agents' data leaks, and why customer support, humanoid robotics and AI services are the dumbest categories. Their verdict: we're less than a third of the way through the cycle and addicted to tokens.

## Questions this episode answers

### Why did Nvidia acquire Poolside for $6 billion?

Rory explains Nvidia is paying $6 billion to license Poolside's model factory and investing $1 billion more at a $12 billion pre-money valuation, moving 109 engineers to Nemotron. Jason highlights Poolside's leaked investor letter: the company could not raise the $2 billion needed to buy 40,000 GPUs and hit the capital wall. Rory says the deal proves even failed frontier bets can produce strong exits, with Harry noting a possible 15x for seed investors.

[1:10](https://20vc.podhood.com/83503cba-0a6e-471d-9dfa-2ef2b4be4aa0?t=70000)

### Why did OpenAI confirm it will go public in 2027?

Harry says OpenAI's CFO told employees the company will be public in 2027. Rory explains OpenAI had no choice: Anthropic is bigger and growing faster, and after an 18% quarter-over-quarter growth rate the narrative had to change. Rory says "the absence of choice is starting to pile up" for OpenAI. Jason adds OpenAI is now number two, with many competitors fighting for that position.

[25:44](https://20vc.podhood.com/83503cba-0a6e-471d-9dfa-2ef2b4be4aa0?t=1544000)

### Why did the investors call customer service and robotics the dumbest categories to fund in AI?

Harry says customer support is one of the dumbest categories because one or two players will win and sophisticated providers build their own systems. He also calls humanoid robotics overinflated, doubting the vision versus reality. Rory agrees on humanoids, saying the humanoid use case is real but not nearly as big as people think. Jason says classic CX and CS are already dying and merging into other categories.

[1:19:51](https://20vc.podhood.com/83503cba-0a6e-471d-9dfa-2ef2b4be4aa0?t=4791000)

### Why might Hugging Face be worth $13 billion?

Jason is skeptical anyone would pay $13 billion for Hugging Face. Rory says it makes sense strategically: enterprises want open-weight models as a counterbalance to closed frontier models, and Hugging Face is the hub for those models. He adds revenue is light, around $150 million, but strategic buyers like Microsoft or IBM could want it; Jason warns the acquirer must not touch it or it will lose value.

[42:19](https://20vc.podhood.com/83503cba-0a6e-471d-9dfa-2ef2b4be4aa0?t=2539000)

## Key moments

- **[0:00] Intro**
- **[1:10] Nvidia & Poolside**
  - [1:10] Nvidia pays $6B to license Poolside's model factory, invests $1B more at a $12B pre-money valuation, and moves 109 engineers to Nemotron, says Harry Stebbings.
  - [1:32] Jason Lemkin: Poolside couldn't raise $2B for 40,000 GPUs, so it failed up to Nvidia's $6B acquisition plus $1B investment — a sign the VC gravy train isn't infinite.
  - [6:28] Q: Does buying Poolside make Nvidia's Nemotron competitive? A: Rory O'Driscoll says any viable US open-source model is 'awesome for Nvidia' because it shifts spend to chips.
  - [7:30] Jason Lemkin: A $9B Poolside exit is only 15x — '$9 billion doesn't clear the bar for seed investing in 2026'; seed funds need 50x winners.
  - [9:27] 'If you get 15x on your failures in venture, you'll die a rich man.' — Rory O'Driscoll on Poolside's 15x exit after hitting the capital wall.
  - [9:48] Rory O'Driscoll: No VC owns more than 1-2% of OpenAI or Anthropic — only Microsoft, Google, Amazon and now Nvidia have enough money to finance frontier models.
- **[13:17] Mercor**
  - [13:32] Mercor is raising at a $20B valuation led by General Catalyst with Nvidia reportedly joining, says investor Harry Stebbings — 'I never thought this would get this big this fast.'
  - [14:58] Jason Lemkin: Kroll's M&A data shows gross margins above 30% no longer earn a premium — so a growing Mercor at 80% margins isn't expensive.
  - [15:53] Jason Lemkin: Nvidia's tactic is to spend its ~$70B annual free cash flow on customers and ecosystem — 'if I can get away with it, I'd spend 100% of my cash too.'
  - [17:49] Rory O'Driscoll: Nvidia's free cash flow went from ~$4B to ~$50B in four years; he'd keep more for a rainy day instead of buybacks.
  - [19:17] Rory O'Driscoll: Nvidia's OpenAI investment is vendor financing — if you overextend credit on unrealistic projections, it unwinds like the 2002 telecom crash.
  - [21:26] Rory O'Driscoll: If frontier-model spending grows from $100B to $400-500B, data/training becomes a ~$25B market divided among four or five providers.
- **[25:49] OpenAI IPO**
  - [25:49] OpenAI CFO Sarah Friar told employees OpenAI will go public in 2027, says Harry Stebbings — as AI trades cracked.
  - [26:19] Rory O'Driscoll: OpenAI had to pre-announce a Q3 acceleration because Q2's 18% Q/Q growth implied it was falling far behind Anthropic's $60B run rate.
  - [29:20] Q: If Anthropic IPOs at $2T, what does OpenAI get? A: Rory O'Driscoll says it will be lower — 'you're now number two' and will go out later.
  - [34:09] Rory O'Driscoll predicts OpenAI IPOs in 2027 at whatever price it can get, because 'they can't wait any longer' once Anthropic is public.
- **[35:56] Mission & Code**
  - [35:56] Jason Lemkin: OpenAI has lost its differentiated mission — 'what is special about the mission vis-à-vis Anthropic or now all these strong competitors?'
  - [37:26] Harry Stebbings vs Jason Lemkin: Is ChatGPT a Google-sized consumer business, or did OpenAI get outraced because Sora wasn't the highest ROI use of compute?
- **[38:58] Code is King**
  - [38:58] 'It's all about code. That's the only sentence that matters.' — Rory O'Driscoll on why Anthropic leads OpenAI.
  - [40:10] Jason Lemkin: Selling $10,000 of tokens for a $200 consumer subscription is 'one of the worst business models of our lifetimes.'
  - [41:07] Rory O'Driscoll: Anthropic's $30T TAM claim equals the entire US GDP — 'everyone when they're doing really well gets slightly delusional.'
- **[42:19] Hugging Face**
  - [42:19] Jason Lemkin vs Rory O'Driscoll: Is Hugging Face worth $13B? Jason can't see it; Rory calls it a strategic counterweight an IT giant would buy to stay relevant.
  - [44:18] Jason Lemkin: If your AI product benefits from the open-weights transition, the best time to sell is the next 90 days — 'Sell, baby.'
  - [46:01] Jason Lemkin: Any Hugging Face acquirer must leave the marketplace alone for 24-36 months — 'if you touch it, you break it.'
  - [46:47] Citadel's Ken Griffin unwound 80% of Leopold Aschenbrenner's forced-sold book, says Harry Stebbings — 'never fight with Ken Griffin.'
- **[46:52] Citadel & COSPI**
  - [48:35] Rory O'Driscoll: With leverage you must be right every step along the way — true for Citadel's trades and Nvidia's vendor financing of OpenAI.
  - [49:38] Jason Lemkin: Korea's COSPI is still up 56.46% in 2025 — memory chips make Samsung engineers the most eligible bachelors in the country.
  - [52:07] Jason Lemkin: A mediocre Dogpatch apartment near YC rents for $10,000/month — you need ~$480K pre-tax to feel good in San Francisco.
  - [53:18] Rory O'Driscoll: Anthropic and OpenAI pulled ~60% of venture dollars into a 780,000-person peninsula — SF prices ratchet up and never return to prior levels.
- **[54:53] Market Fears**
  - [55:11] Jason Lemkin: We're less than a third of the way through the AI cycle — 'even that little tiny cloud thing lasted nine years; we're just getting going.'
  - [56:05] Rory O'Driscoll: AI crashes only when marginal buyers run out — Anthropic and OpenAI's IPOs are the next turn of the crank before that happens.
  - [58:07] Jason Lemkin: We are addicted to tokens — next year brings backlash and 'if you take away my agents, I quit'; businesses can't go back.
- **[59:17] Stripe's Surge**
  - [59:17] Rory O'Driscoll: Stripe's letter calls intelligence like capital — fungible and needing allocation; that logic drove Stripe's OpenRouter acquisition.
  - [1:02:40] Rory O'Driscoll: CFOs must cut other people when AI makes an employee 4x productive — Wall Street won't accept automation that lowers EPS.
  - [1:04:18] Jason Lemkin: CFOs are terrified of AI talent flight — 'Jesus Christ, if 30% of my company leaves to go work for Harvey, I'm dead in the water.'
  - [1:07:24] Harry Stebbings: AI content flipped from joke to essential — his law-student girlfriend went from mocking Legora to 'I just verify documents.'
  - [1:08:41] Stripe accelerates to 41% growth with billing up 71%; Jason Lemkin says you now have to argue with an agent to get it not to use Stripe.
- **[1:12:40] Agents & Trust**
  - [1:13:38] 'We've heard there are data security problems about giving it access to anything. Well, duh.' — Rory O'Driscoll on the Instinct AI assistant leak.
  - [1:15:23] Harry Stebbings vs Jason Lemkin: Will we trust agents with credit cards? Jason says not yet — his Mulbook agent tried to buy six AP watches for $360,000.
  - [1:18:01] 'Silicon Valley forgets every three years that the average American is not trying to be efficient.' — Rory O'Driscoll on personal productivity tools.
- **[1:19:51] Dumbest Bets**
  - [1:19:53] Q: What's the dumbest AI category getting funded? A: Harry Stebbings says customer support — one or two players win and the largest tech firms build their own.
  - [1:21:44] Harry Stebbings vs Rory O'Driscoll: Humanoid robotics is overinflated — focused robots like Locus work, but 'if I want a 100m sprint, I'll get a Tesla.'
  - [1:23:16] Jason Lemkin: Classic customer support software is dead in 24 months; venture-funded accounting and law-firm rollups will produce no exits.
  - [1:25:57] Jason Lemkin: Founder creativity is two orders of magnitude bigger than ever — now is the moment to rewrite rules and make old failures work.

## Speakers

- **Harry Stebbings** (host)
- **Jason Lemkin** (guest)
- **Rory O'Driscoll** (guest)
- **Rory O’Driscoll** (guest)

## Topics

Tech Market Trends, Fundraising Strategies

## Mentioned

Anthropic (company), Hugging Face (company), Mercor (company), Nvidia (company), OpenAI (company), Perplexity (company), Poolside (company), Stripe (company), ChatGPT (product), Cursor (product), Grok (product), Instinct (product), Nemotron (product), Open Claw (product), OpenRouter (product)

## Transcript

### Intro

**Jason Lemkin** [0:00]
Not until he doesn't clear the bar for seed investing in 2026.

**Harry Stebbings** [0:04]
Let me tell you one thing I guarantee: if you get 15x on your failures in venture, you'll die a rich man.

**Rory O'Driscoll** [0:09]
Welcome back to another week with the trio.

**Harry Stebbings** [0:11]
And hell, Nvidia are going fast. Then we move to OpenAI, where CFO Sarah Frei says, "Hey, we're definitely going public this year," and then we discuss a really tough week in the public markets for a lot of the biggest AI names.

**Rory O'Driscoll** [0:24]
The VC money went out on Anthropic and OpenAI long ago, which is why no VC owns more than 1% or 2% of either of them.

**Jason Lemkin** [0:31]
I think you have to believe we're less than a third of the way through this cycle.

**Rory O'Driscoll** [0:34]
It's all about code. That's the only sentence that matters.

**Jason Lemkin** [0:37]
Jesus Christ, if 30% of my company leaves to go work for Harvey, I'm dead in the water.

**Rory O'Driscoll** [0:41]
Delegate Valley forgets every 3 years that the average American is not trying to be efficient.

**Harry Stebbings** [0:46]
Ready to go?

**Rory O'Driscoll** [0:58]
Guys, I am so excited for this. It's so nice to be back. I feel like locked in when I'm in the studio. I have my big table, I have the agenda, and we're going to start with Nvidia, moving across different layers of the stack.

### Nvidia & Poolside

**Rory O'Driscoll** [1:10]
And we're going to start with the model layer, where Nvidia is paying $6 billion to license Poolside's model factory and investing $1 billion more at a $12 billion pre-money valuation, moving 109 engineers over to Nemotron to help build it.

Pretty big news, especially on the American open model front.

**Jason Lemkin** [1:32]
There's a lot here. I'd love to hear you guys' thoughts, but man, the one that gave me the feels or that hit me was that letter that was, you know, the investor letter that was published on X. Thanks, Leaking VC, or whomever it was, but basically saying, you know, we couldn't raise the $2 billion to buy 40,000 GPUs.

We couldn't. That deal that maybe we talked about half a year ago, it seemed like they were going to build their own massive data center. They couldn't get the money, and they wouldn't have compute going into next year, so they had no choice but to fail up for $6 billion, plus topping off $1 billion to $12 billion.

But it read almost depressing, and it's also maybe a reminder that despite Nvidia seemingly funding everyone on planet Earth, you know, the gravy train, the VC gravy train can only last so long. There's only so much funding,right, from big funds.

Maybe Rory sees it differently, but it seemed like tough. They couldn't raise the $2 billion in this environment. Not being critical, but it just showed that infinite capital isn't as infinite as it looks, even in the age of AI.

**Rory O'Driscoll** [2:32]
The facts are correct. I thought it was an excellent letter. I mean, I read it and I reread it, and there were some really good phrases in there. One of them I want to pick up, and it said, you know, "We have found ourselves on theright side of prediction in a market which has scaled exponentially in terms of capital intensity," which is nicely.

But what they're basically saying is we wereright three years ago that there was a market for a US open source model, and we've built that model. We've done everything we said we'd do, and the capital intensity for the next turn of the model crank is just, as you said, way beyond us,right?

So nicely phrased,right? And so a couple of things that you could look at that and go, I mean, you could look at that and go, oh, they did something that they took on a task they weren't able to do with the capital.

Oh, that's a negative. On the other hand, they made money for themselves and all their shareholders. And I think the lesson here is, and we talked about last week, in a market that's exploding, sometimes bets that on a standalone basis really just can't get to a positive DCF, you know, they just couldn't make the math on a standalone basis, still have pretty significant value to the acquirer.

Because from the perspective of Nvidia, they looked at exactly the same facts and said, well, you know, we have capital. It turns out we have access to GPU because we make GPU,right? And you've kind of carried the ball down the field this far.

We'll take it from here, and frankly, we'll give you a pretty compelling return. I mean, I know you're a small Poolside shareholder, however, so all those guys made really good money, and the company gets to go standalone and continue on.

So I thought the lesson here is, you'reright, Jason. In one kind of negative way, the lesson is it's almost impossible to compete now at the frontier. And by the way, that has positive implications for OpenAI and Anthropic. We should talk about it in a second.

So the negative lesson for everyone else is it is almost the next smartest people who are really going for it just hit the capital wall, so probably all the other people behind them are going to hit the same wall,right?

That's the negative implication. And the positive implication is sometimes trying and moving the ball in a hyper growth market, you can still get a very compelling acquisition,right? You know, in a different market, if this, if you'd run out, quote unquote, "run out of money," if you had reached the next generation where you can no longer finance the company in a time when the capital markets were depressed or there was some feeling that the overall, you know, overall kind of buoy around equity, sorry, around AI wasn't as strong, you might have had a very different outcome there because your fate was outside your control,right?

But I think in this market, it pays to take risks. It's what we're talking about last week in Curso, and I'm sorry if I'm rambling a little. Even when you have this kind of, oh, on a DCF MBA basis, it's not quite great.

It turns out if you're moving in theright direction and you execute and build a product that's valuable,right now you're getting great exits. And I think there's going to be a ton more, I think I said last week, there's going to be a ton more of these kind of exits, and we'll be talking about them.

So yeah, I was kind of, I read that and I thought, hmm, as an investor, if all the time you're saying is you sometimes doing things where there is a fair amount of capital raising risk can still pay off in an up market.

In a very different market, it wouldn't have, but here it did.

**Harry Stebbings** [5:38]
I mean, the additions that I'd have is like I'm wavering the common thing that I see across all investors that I engage with, friends, people we have on the show, is like Neo Labs just going out of favor and next generation model providers and companies going out of favor too.

And I'm not surprised that Poolside found it challenging to raise as much as they did. That's universal from everyone that I speak to. Second, founders are going to make a billion each. It's a lot. And then third is that for me as an investor, I don't know if I'm allowed to say this, but I get in trouble, whatever I say these days, so fuck it.

You know, it'll be like a 15x for us as a seed investor. It's pretty great.

**Rory O'Driscoll** [6:13]
Absolutely. Pretty amazing. I think I was very on crisp a few minutes ago. When you're in the direction of travel, even when you're wrong, you can make a ton of money because you've moved, you know, because you've created something of value to the acquirer.

Different market could have been a very different outcome.

**Harry Stebbings** [6:28]
Does this really move the needle for Nvidia in their ability to make Nemotron truly competitive?

**Rory O'Driscoll** [6:34]
Well, there's two questions within that. One, and I'm sorry I'm picking apart. One is, does this, is this additive to Nemotron? And then the second question is, does Nemotron, even Nemotron, even if it is competitive, does it move the needle?

But if you zoom out a level,right now there's a whole bunch of Chinese open source models that are getting a lot of the token volume, which means they're doing a lot of the compute, even if they're not getting a lot of the margin,right?

And if I'm the maker of compute, if I can get an open, it's awesome for Nvidia if there's a viable US open source model running on Nvidia chips, taking market share away from the frontier models at the margin.

So I totally get why they're doing this. This is, yeah, an open source model is a complement in the economic sense of the word for Nvidia, because the more open source market share there is, the more money goes to chips relative to the money that goes to financial model builders.

So they're like, yeah, team.

**Jason Lemkin** [7:30]
I don't think 15x is good enough for a seed investor in Poolside, if that's the number. Listen, first of all, let's step back. Seed has a weird definition today. Seeds could be at a billion or $2 billion pre or post,right?

But not to get off track, but just to get to what you mean. You know, 15x sounds good for a later stage investor, and I know for Scale's scale, that's a good outcome,right? But for a true seed investor, it's not going to, you're not going to get a fund return out of a 15x.

Listen, if you're a personal investor, it's fine, but if you've got a seed fund and you're investing, just a reminder, if you're investing at some of these valuations, it may not be enough. You need your, you're not going to get your 50 or 100x out of $9 billion.

**Rory O'Driscoll** [8:12]
But Jason, play it back. I hear you, mathematically, but what we're really saying is you made a bet and it didn't work. It was not viable, and you still made a 15x,right? My point is.

**Jason Lemkin** [8:23]
No, I'm saying $9 billion isn't enough of an exit for seed investments today.

**Rory O'Driscoll** [8:27]
But the point, I agree, but.

**Jason Lemkin** [8:29]
It's not enough. $9 billion doesn't clear the bar for seed investing in 2026. That's the irony.

**Rory O'Driscoll** [8:35]
So there's two things in that, and I'm going to push on it because I often use this as a way to refine my own thing. One, it is weird that you can have an exit at $9 billion and only make 15 times your money, which by definition would imply a $600 million pre-money,right?

So yes, it turns out if you do a seed deal at $600, not $60, your return is.

**Jason Lemkin** [8:54]
Well, also, the dilution is epic these days, too,right?

**Rory O'Driscoll** [8:56]
That's my point. Effectively, it's what your point. It's ex post facto. Ex post facto, the price was, the effective price was $600 because you took all the dilution. You're exactlyright. Jason, I'm going to go back to, is 15x a great return on your best deal for a seed fund?

No. But if you're doing a series of bets, one of them is a, hey, I built, I think I can build an American open source model and you can raise enough capital to do it. And it turns out that thesis is not correct.

You can't raise capital to meet the capital intensity, and you still get a 15x. Let me tell you one thing I guarantee. If you get 15x on your failures in venture, you'll die a rich man,right? And that's what I mean.

**Jason Lemkin** [9:39]
No, no, no.

**Rory O'Driscoll** [9:39]
And I don't like calling it a failure because I know, Jason, I think they're awesome. I actually love the letter they wrote. I love the kind of vision they talked about, what they want to do in terms of open source.

I think they just ran into economic reality of, you know, the capital intent. And remember, we say the VCs, the VC money went out. The VC money went out on Anthropic and OpenAI long ago, which is why no VC owns more than 1% or 2% of either of them,right?

The big money, the only people capable of financing, let's put it here, the only people capable of financing a state-of-the-art frontier model in the United States of America has been the hyperscalers themselves. The only reason Anthropic and OpenAI exist is because Microsoft, Google, and Amazon gave them enough money to play, because no one else on the planet has enough money.

And the only other person who now has enough money is Nvidia. So they're doing the same thing with an open source model for the obvious reason that open source is good for them,right? Everyone, there are only four or five companies in the world that can finance a financial model, and they are doing it.

And the VCs have been along for the ride and to provide an occasional piece of pricing discipline,right? These are financed by the five largest companies on the planet, except for Apple, who sticks their money in their pocket and just has the stock go up.

**Jason Lemkin** [10:55]
Look, we don't have to spend much more time on it. It's just, I guess, obviously, if you can get 15x out of your, Poolside, of course, was not a failure. It's a big win,right? But if you get 15x out of your failures, you're going to be a wildly successful investor.

Just the only point, and then let's move on, is it's just interesting. I do think unless it's a hyper-concentrated investment, your best investment still need to do 50x as a seed investor to make the math work. So just if Poolside returned 15x with further dilution, what exit price would it have to be to be a good seed investment,right, to return 50x?

Help me do the math, Rory. I think it's, I think it's about 7x. So it would need to exit at about $63 billion with dilution.

**Rory O'Driscoll** [11:35]
If you think about it, Jason, the answer to that question is actually very noble,right? You're playing in the foundation model, you're playing in the frontier model game. The two winners in that game in closed source are both worth a trillion.

The two or three kind of ostensible open weight winners in China are each worth $50 to $100 billion. So it was a rational act. The win, if you could have done it, was in fact large enough to be a, you could have had a 100 to 1 return on a seed investment if you'd been able to be, possibly if you'd been able to be equivalent to the Chinese open source players, and definitely if you'd been a winner like OpenAI or Anthropic.

So my point is this, the potential was there for that bet, which is why X, you know, at the time, it was a rational bet. And then the capital markets were such that you couldn't get it, and you still got a 15x.

That's the movie. So it was a good bet because it had, it was one of the few businesses on the world. I mean, there's only going to be $1 or $2 trillion outcomes per decade, and they're likely going to be all concentrated for now in, you know, frontier models.

And this was a play at a frontier model. And basically, the aha is, if first prize is a trillion dollars, turns out fifth prize is still $9 billion. It's like the guys, you know, in golf on the last day, when you don't win, you miss a few putts, you don't even come in second in the US Open, you come in seventh, and everyone goes, oh, poor you.

And then you think to yourself, oh, it's $5 million bucks, I'll take it onto next week. That's what happened here. You basically placed, you know, high, but not in the top three in the US Open, and you get a bunch of money.

**Harry Stebbings** [13:07]
I land in the bunker and I don't get out, so.

**Rory O'Driscoll** [13:10]
And you land in the bunker and you chipped out. You got out. You got out. You took two extra shots, but you, remember, this is a win.

### Mercor

**Harry Stebbings** [13:17]
Jason, you said how big does it have to be? Next layer that Nvidia is in talks to be playing heavily into is McCool's new funding round. I'm an investor in McCool. I never thought this would be as big as it has got as quickly as it has done.

It's crossing out $2, $2.5 billion there. They're doing a new round led by General Catalyst at $20 billion. And then there's rumors, suggestions, reports that Nvidia is joining that round in a significant way.

How do we think about this? Next layer of the stack for Nvidia.

**Rory O’Driscoll** [13:52]
I think one of the things we saw with Intel back in the, the closer you are to having 100% market share, the more you spend your time trying to move the whole ecosystem along. And clearly, that's where Nvidia is now.

It's, they're using their capital to, you know, fund the Neo Clouds, fund OpenAI, fund, as we just discussed, Poolside, and for whatever reason, also fund Mercur. I will admit, when I think about all the things that Nvidia should be doing with its money, it wasn't obvious to me that funding Mercur made as much sense as some of the other bets, because the other bets are all about time expansion.

If I fund the Neo Cloud, they can buy more chips. I'm happy. If I fund Poolside, I can sell more open source. I'm happy. I don't get why if I fund Mercur, they can do more training, but my probably my, unless there's some kind of strategic deal around needing that training information.

From a purely financial perspective, it doesn't directly lead to more chips being sold. So it wasn't as obvious to me as the others. And maybe it is as simple as we think it's a good business at $20 billion and stop thinking about it, Rory.

**Jason Lemkin** [14:58]
There's an investment bank called Kroll. I'm embarrassed to say I don't even know them. Do you know them?

**Rory O’Driscoll** [15:02]
No, I thought they were a detective agency.

**Jason Lemkin** [15:04]
No, different one. They published a bunch of, they published their report this week, looking at all M&A and big transactions over the last six months of the year. And I guess this is not that, just, it's a micro point to your point, but the analysis they basically made is gross margins above 30% don't matter anymore.

You don't get, you don't get any benefit in M&A or other exits, like for an agentic stock. They're not looking, like there is a penalty if you look at all deals below 30, but there is no penalty. So, you know, if you can value Mercur at classic multiples for 80% gross margins and growing, it's, you know, it's not expensive.

I don't know why Nvidia would do it per se, but it seems like Nvidia's tact, they've got a lot, they've got massive strategic goals here,right? But the tactical basically kind of seems to me, we'll spend all our free cash flow on our ecosystem.

**Rory O’Driscoll** [15:53]
Yeah.

**Jason Lemkin** [15:54]
Right? This is our budget. Jensen says there's a budget. Our free, I don't know what it's going to be, $70 billion this year. Maybe I've gotten that wrong,right? And we're going to spend it all on our customers and ecosystem.

And the team, the strat team, and the top VPs probably get around a room and they decide what's our best ideas. And there's some guy that thinks data labeling is important, and his best idea was Mercur. And so they've put a few billion of the $75 billion.

You think I'm kidding, but I'm confident they go around the room and everyone has their best ideas, and the budget's $75 billion. And you know, OpenAI and friends are going to get a big chunk of it, and there's going to be off-balance-sheet guarantees, but I think they've decided to just spend it all, one for one.

And I would do the same. If you can get away with it, you know, adding cash to the balance sheet, other than being defensive, does nothing for you as a CEO of a profitable company,right? If Wall Street lets you get away with spending it, I would spend 100% of my cash too.

**Rory O'Driscoll** [16:48]
First of all, I think you're totallyright, Jason. It is as simple as that. It's like, you know, because, and by the way, Nvidia will have reported between the time we make this video and the time we distribute it on Thursday.

So there could be a data point that makes us like total buffoons by Thursday, and that's just life,right? But on the basic assumption that the trend continues at pace, which I think it does, which is, you know, strong growing quarters, you know, it was 60 or 70% up last quarter and similar quarter last year, widely profitable, because the demand signals are still strong from the hyperscalers.

Let's just say on Thursday, the hypothesis as of Tuesday continues correct. Then, Jason, you'reright. They're kicking off. I mean, I just looked at it. You know, they make huge operating margins. You know, it's like, it's like 34, I mean, $1 out of $100 billion of gross cash flow, and then you have, they do a lot of buybacks.

We'll talk about that in a second. So they have youngs of money to invest every year,right? And you'reright. They just make a list of what can we do to move the ecosystem along,right? Now, I make two negative comments on that.

You know, one, two comments on that. One is, it's worth remembering that only four years ago, their cash flow was 10x, was one-tenth of what it is today,right? They were making, you know, and I think the free cash flow after capex and everything is something like, and I think some of the capex is really investments, so it's a little misleading.

It's kind of gone from $4 billion to $50 billion,right? And, you know, the gross profitability is well over $100. It's widely profitable. But, you know, you say to yourself, and you do, you write, Jason, you get no points for cash on the balance sheet, but they only have only $50 billion of cash on the balance sheet,right?

Cash on investments. There's a little part of me that says, I might keep more for a rainy day,right? Than just doing share buybacks. But I agree, you do have to do something with it. And they're clearly, the best use for it is to spend the money with people who will enhance the ecosystem, which is why, you know, which is why OpenAI gets a big watch with their money all the time.

**Jason Lemkin** [18:44]
If you investright, it's brilliant. You get a customer, you get, you get, not only do you get circular revenue, but you ensure the success of your ecosystem, the viability. You get a twofer out of it. So you just have to play the game really well.

But if you play the game well, it's a lot better than making 3%.

**Rory O'Driscoll** [19:01]
Yeah, it's interesting. They're doing such a lot. I mean, thinking in real-time here, because the Poolside acquisition is time expansion via buying an adjacent product. The Mercur acquisition is, I think, as you say, Jason, straight investment. It's kind of just, hey, it's a related space.

We know something that has some money. And then something like Perplexity investment or OpenAI investment is literally, especially the OpenAI, is vendor financing, where you as the vendor of the chips are choosing to give your customer money,right? And you'reright.

That's, it's not like that's a nefarious, I mean, because a lot of, oh my God, it's circular. It's not like that's nefarious. It's just exactly what you said, Jason. You got to get itright. If you overextend credit and underwrite projections that aren't realistic, that stuff comes back to you and you look like an idiot in two years.

And we all remember the telecom crash in 2000. Well, we don't all remember, but some of us remember the telecom crash in '02 where all those 99 deals unwound. And the bet that Nvidia is taking here is it's not going to happen this time.

You know, you're not going to find that the OpenAIs and the Anthropics don't suddenly, you know, if they don't suddenly need $100 billion worth of compute, you might regret some of this vendor financing, butright now it looks smart.

**Harry Stebbings** [20:10]
I think it's a good investment. I consistently regret not putting more money in over time. I think your largest data providers will be $200 billion companies. If you think about OpenAI and Anthropic being $2 to $5 trillion businesses, is it crazy to think that the data provider that provides them their core data assets will be a 10% of their market cap?

I don't think so.

**Rory O’Driscoll** [20:30]
I don't know. I don't know. I mean, I think you have to think about it in terms of revenue rather than market cap. And then you start saying to yourself, you know, what's the training budget for the frontier models at scale?

If they're doing, you know, like, I mean, watch this. And let me give you the negative math. We know that, you know, OpenAI is running at a $18 billion H1s, call it $25 billion, $30 billion years, Anthropic's at a $60 billion year.

Together, let's call it $100 billion, round up,right? You know, most of that spend goes on, half of that spend goes on compute and inference. What's the training budget? Is it 10% of revenue? Is it 5% of revenue? Yeah, it's a $5 to $10 billion market,right?

**Harry Stebbings** [21:13]
Way more. Way more. You've got Serge. Oh, I know it's way more because Serge are doing three, three and a half. McCool are doing two and a half. Handshake are doing one. Micro One are doing half.

**Rory O'Driscoll** [21:26]
But the question, you'reright. So my point is, so it's predicated on, if that $100 billion spend this year goes to $400, $500 billion, then you'reright. Then 5% of that is $25 billion divided four or five ways. I don't think you get 10% of the market cap of the frontier models, but you still get a healthy $20 billion a year revenue spend.

Divide that up three ways. And then, as Jason said, it actually turns out the most important question is the one Jason asked, which is, what multiple do you attach to that? Do you attach the AI multiple or do you attach the lower gross margin multiple?

That's really what will swing it.

**Harry Stebbings** [21:58]
The AI multiple.

**Jason Lemkin** [21:59]
Yeah, the related thing I was thinking on that Kroll data, you know, if you go back to Cursor,right? $60 billion we talked about last week. This was one of the classic ones where the VCisms wereright. It worked itself out.

You started off with something with negative gross margins. You started off with something that radically subsidized its costs. I forget what Cursor cost initially. $200 bucks a month for unlimited use,right? But it didn't have, but it didn't, it had no way to defend that,right?

And so then it had to cap it for, and then it had to stop doing it. And then it had to develop its own models. And then it had to do, it had to do, but the VCism is, these are, these are some of the smartest kids ever.

They have a strong market position. The wind is at their sales. They'll, the kids will figure it out, the negative gross margins. And more or less they did, and they got to the $60 billion. And so it's kind of freeing for models like Mercur that we maybe, we made fun of,right?

Okay, this is a commodity, low margin business. But the kids will, the kids are figuring it out, man. The kids are figuring it out. So guns are blazing.

**Rory O'Driscoll** [22:59]
Yeah, no, I think though there is a bit of survival. First of all, I agree with you, and I think it gets to the, when there's a venture investor you're doing in some, you're investing in something that has troubling gross margins, it is rational to say for certain bets, the gross margins will show up, will comeright over time.

And you write Cursor as an example of that. Just in the interest of completeness, I don't know why I'm the Debbie Downer today. Like, not every negative gross margin company makes it. And in the end, I think you want, and strong gross margin companies are the best investments.

So don't, don't just look at the sample of deals where you started with negative gross margin and it all worked. I can think of plenty of deals, including some we've done, where you started with shitty gross margins and you ended with shitty gross margins and you were just wrong,right?

I think Jason, to your point, the thing is, having negative gross margins is not a reason, clearly, not a reason not to do a deal. I mean, if every part of the financials were pristine, they wouldn't need venture capital because they'd be profitable,right?

It's a question of, in which cases is it rational to underwrite massive improvement? And it has been for the foundation models themselves. I mean, Anthropic went from negative 91 to positive 30 in a year. It has been, as you say, Jason, for Cursor.

It'd be interesting to see what the sustaining long-term margins for something like Mercur are. I don't know if they have the same dynamics in terms of the ability to approve those margins that, say, Cursor did, because the training companies only have three to five big customers, whereas the Cursor has literally hundreds of thousands.

So I'm not as convinced those margins go as well as the Cursor ones, but you'reright. The Cursor beat the margin trap.

**Jason Lemkin** [24:34]
And Rory, and as I tell my partners and subordinates on Monday meetings, what if it all goes well? What if it all goes better than we expected? What if it all goesright? I challenge my team. What if it all goesright, guys?

That's how we think about it. And the entry price for any of these winners doesn't matter. What if it all goes, what if it all goesright, guys? That's, and I've coined that term, and I've noticed many, many of my colleagues in the industry have copied it.

What if it all goesright? You know what I mean?

**Rory O'Driscoll** [25:00]
No, I love it.

**Harry Stebbings** [25:00]
He goes back to the optimists make money and pessimists areright, we often say.

**Rory O'Driscoll** [25:05]
And I, and the only reason I say it is because I admit that I can be naturally a pessimist. So I actually, I'm trying to learn to retrain the model to do that more. And Jason, I love the sentence, and what if it all goesright?

**Jason Lemkin** [25:16]
The first two have said it.

**Rory O'Driscoll** [25:17]
I know. I know that, of course. But the ancillary point, interesting, going back to Poolside is, it turns out even, what if it all doesn't quite goright, but you're in a great market, it turns out that can be okay too.

**Harry Stebbings** [25:29]
If enough goesright, you can all do fine. There's been a lot of cynicism, skepticism around Aaron Shrinivas and Perplexity. It's a company that actually people like to dislike for whatever reason. We've done shows with him. We're a small investor in the company.

So Nvidia is actually propping up most of my portfolio.

**Rory O'Driscoll** [25:47]
My portfolio this week.

**Harry Stebbings** [25:49]
Yeah, thank you. Our friends at OpenAI, never a dull day at OpenAI. CFO Sarah Freier told employees at OpenAI, we will be a public company in 2027. This is when kind of AI trades cracked. It's, I don't know if it's interesting timing.

### OpenAI IPO

**Harry Stebbings** [26:07]
It's kind of what we expected, to be quite honest. They've got pressure on them from Anthropic. You obviously are going public in, reportedly, the next few months. Is there anything surprising here about Sarah Freier's statement to the team?

**Rory O’Driscoll** [26:19]
I think they had no choice but to make those statements. And I'll tell you why. Because if you look at Q1 and Q2 for them, now I can't remember, it's like $5. something billion to $6. something billion, which was a Q1 Q growth rate of 18%, which would have turned into an annualized growth rate of slightly under 100, depending on compounding.

And it would have meant that they went from $12.5 billion last year of gap revenue to roughly, probably under 30 this year,right? And if that was, if that Q2 number was sustained, it would put them, obviously, A, it would put them so far behind Anthropic at $60 billion run rate mid-year.

And again, we haven't seen gap numbers for Anthropic, but clearly bigger and clearly growing faster,right? That A, it would be terribly bad for OpenAI and kind of how, because anyone would run that math and go, ooh, two more years of this and you're in irrelevance.

You're Perplexity too,right? And then the second thing that didn't happen, but if what had happened is all those people like Broadcom, Nvidia, that were expecting to sell $200 billion worth of chips to OpenAI might suddenly go, hmm, maybe if they're not growing quickly, they won't need $200 billion worth of chips.

So if all you had was the Q1 numbers, that was a conclusion you could draw. I'm not saying it'd be correct. So if, in fact, OpenAI is massively accelerating in early Q3, they had no choice but to share that information with the world, because otherwise everyone would assume the worst.

What they're not going to do is sit on their thumbs and say, well, I'll give you a Q3 update in three months. Meanwhile, you should just sweat it out,right? So I really detected a very concerted attempt to tell a Q2 is an anomaly, Q3 is exploding story.

You could see it in the comments that they made to their internal team. You can see it in the stuff that's coming out. And there's been a whole, you know, massive reacceleration story. And again, I know nothing except until you see it in gap numbers, it's hard to be sure on it.

But to me, the reason for pushing that agenda was you had no choice, because otherwise you were just going to be left behind. If you're growing 2X, it's amazing. Growing 2X at $12 billion is amazing. But if your competitor is growing 10X or 8X at $60 billion, you know, you're staring at, you know, relative market share of 20 or 30% in two years if that continues.

So there's simply no way the Q2 trend could stand unchallenged and still leave OpenAI as a credible close number two, which is where they are now, to Anthropic. That's why it leaked, because it's existential for them. I mean, I was stunned when I saw the 18% gap revenue numbers.

Because I go back to my comment, at one level, hugely, if I had a company growing 18% Q1 Q doubling in a year, forget it, at one-tenth that size, two and a half, I'd be ecstatic. But that level of growth relative to expectations would have disappointed massively everyone, including all the people planning to sell them chips to them for a much higher growth rate.

**Harry Stebbings** [29:20]
What price does it go out at? If Anthropic goes out at $2 trillion, what price does Anthropic, does OpenAI go out at?

**Rory O'Driscoll** [29:28]
I have no clue, Harry. But the most important point you have to say is this. It will be lower than the other guys now. I mean, at the high level, in terms of report card, you know, there's a concept in math, I can't remember what it is, where you can't do accurate grading, but you can rank things,right?

The rank, the most, the big picture fact is the ranking has changed, and you're now number two. So you will go out later then at a lower price than the other guys, unless you change the trajectory massively. What that is, I don't know.

**Jason Lemkin** [29:58]
I just think it'll be interesting the rest of the year, by the end of the year, to see where OpenAI is positioned in the platform, the enterprise versus Anthropic, because at the beginning of the year, there were two choices,right?

There was Anthropic and OpenAI for the most part. And you had a default choice, and then people wanted to have multi-models. They wanted to have at least two, but you'd often use the cheaper version. You might use Sonnet and Opus or whatever it was.

Now, we definitely want different LLMs. Everyone wants multiple LLMs in their stack when one or the other. But if Anthropic is number one in platform, which it clearly is, you can't argue with the numbers, per Rory's point, now the number two could be, it could be, there could be, there's five choices.

So OpenAI position in a sense, and we'll see. There's so much change, guys. But it could be at, no matter what the numbers are, it could be getting perpetually weaker because there's so many choices for number two. There's so many choices.

There's so many open weight models where the performance is close. And obviously we've talked about OpenRouter, we've talked about other routers. You can use 78 models if you want, but it's, you know, it's tough when there's seven choices for number two.

It's just tougher. It's just tougher,right? Especially if you're a premium product,right?

**Harry Stebbings** [31:19]
And you were saying then the material impact on the EV of OpenAI then is considerably less because of the.

**Jason Lemkin** [31:24]
I think there's more pressure on them. I mean, for merely because bad being number two, there's more pressure on you from open weights and open source competitors than there was otherwise. You're just battling out for that second spot.

And you can't compete on price, and you can compete on brand and security, but man, you want to just, you want to at least be the, be plugged into every workflow,right? You want to at least have, that would be the nice thing.

If you had Claude and OpenAI, and then you just get a nice oligopycal bake-off,right? The sales team, then you hire a bunch of folks from Salesforce that walk in for the oligopycal thing, and they put up a PowerPoint slide, and it's just us versus them.

They know how to sell that. It's Anthropic versus us. You don't want the crazy guy who, who, who, you want the guy the government trusts. That's us. But with 11 competitors or 12 competitors running on open source, running, running, running inference on new platforms, man, it's just, it's a hyper-competitive world for number two.

**Rory O’Driscoll** [32:21]
Going back to the question, because I, I mean, I think that even if they are number two, I don't think they get pushed into that, you know, compared with all the open source things. I don't think it's quite as dire as that.

But I do agree, you know, there was a push from underneath from that. But I think to your question on what.

**Harry Stebbings** [32:38]
Rory, sorry to interrupt, just going on that. Do you know that Vercel, yeah, obviously opened their data, 68% open weights increasing. I mean, it shows the tidal wave moving towards what Jason's saying.

**Rory O'Driscoll** [32:52]
Agreed. Yes, I think that the vast predominance of tokens process will be open weight. And obviously, as keep reiterating, the vast majority of revenue, the significant majority of revenue will still be frontier state of the art, because it can command more value than just the price of inference,right?

So yeah. And so I suppose at some level, Jason is correct, because if there's five or six, and I don't see them as being peers, but I think if there's five or six open weight companies dragging down everyone's gross, basically trying to steal gross margin away from the closed frontier models, especially if one of those, reminder, if one of those open weight companies is now funded by Nvidia, so it gets rid of all the, oh, they're all Chinese comments,right?

Jason isright. In a situation where a low-cost competitor with nearly equivalent functionality is attempting to enter your industry, you would far prefer to be number one than number two. Because number one can say, you got to just buy us because we're number one.

But you'reright, Jason. Number two has to say, please buy us as well, and don't buy the cheapo guys. So I'm recounting my position and agreeing with Jason,right? It would be okay, bad enough to be number two in an industry you invented,right, which is where they are now, but to be number two with a whole bunch of ankle biters on top that you have to deal with, that's a total pain in the ass,right?

Which gets back to your question, Harry. I will answer your question on what price do they go out in 2027. I actually can answer it. They'll go out whatever price they get in 2027, because they can't wait any longer.

It's as simple as that,right? If Anthropic goes out this year at the scale they're talking about now, then I can't imagine a world where OpenAI says, we're going to hunker down and get cash flow,right? And then we'll go out in 2028.

They have to go out. So to some extent, again, it's a destiny outside your control comment,right? If Anthropic trades at two, then they might get one and a half. If Anthropic trades at one, they might get 700. But they'll do what they have to do,right?

And I mean, there's a great quote in, what was it? Come on, the book, The Storm. Sebastian Young's book, The Storm,right? Super book. But when the guys finally realized they're going to die at sea,right? And it said something like, if danger can be described as the absence of choice, they were now in danger,right?

And I think for OpenAI, what you're seeing here is the absence of choice is starting to pile up. The other guys are ahead. The other guys are profitable. You know, correctly, the CFO says they're not going to write the only narrative, but to some extent, your narrative is getting written.

You've got to get profitable because the other guys are profitable. You've got to get public because the other guys are profitable. So they are less, they have less options than they did a year ago by a lot. And that will translate as, in 2027, we're going to go public.

And if the markets are slightly down in this year, we'll take our medicine and keep moving. So that's what I think.

**Harry Stebbings** [35:43]
Don't you love that book, The Storm, Jason? I loved it. My favorite. One of the best books.

**Rory O'Driscoll** [35:48]
Super writer. Kind of sad, obviously, but wow. Yeah. That line always struck with me. Absence of choices, that's how you know you're in danger.

### Mission & Code

**Jason Lemkin** [35:56]
I think, listen, we can move on to the next topic. The other thing, what I'm listening to Rory in the IPO, the other thing, maybe it's minor, we can move on, but I'm getting confused today what OpenAI's differentiated mission is.

Like, why OpenAI,right? I mean, we can all look at evals and we can read what RAMP says and what Rippling's report says, and we can view this as just an LLM,right? Paying top of market,right? Paying eight figures per engineer.

But these were companies on very specific missions,right? When we started this pod, I don't know what OpenAI's mission is,right? I think Dario is nutso a lot of the time,right? Apparently interviewing folks today, asking them if they'd be happy joining Anthropic if it all went to zero,right?

I mean, cool question, actually, but nutso. I think Sam is a much more approachable CEO now. He got through all the Scam Altman crap, and he's got the sweaters out, and he's the more likable guy. But I don't know what is the differentiated mission of OpenAI today that I would rally around as an employee, as a shareholder, or is it just a piece of infrastructure plus some software?

I just don't know what is special about the mission vis-à-vis Anthropic or now all these strong competitors. I just don't know. Or is it just an eval? Is it just three lines on an eval? I honestly don't know.

And these have been very mission-based organizations from inception,right? The most we've ever seen in our lifetimes,right? These missions, these crazy missions.

**Harry Stebbings** [37:26]
For me, the astonishing thing is the consumer brand that ChatGPT has and the penetration it has in audiences that no other LLM has to most of actual the general population in large majorities of the world. AI is ChatGPT.

I am in awe that Sam is not going, we are the next Google. Our business is going to be advertising, and we're going to see Jevons Paradox like never before when we have a consumer hardware device that actually partners with consumers and you see usage of the code.

**Jason Lemkin** [38:02]
But that was the plan. He just got outraced. That's it. He just got laughed. It was a good plan. And Sora was in it and cool videos. It just was not the highest ROI for limited compute. It just wasn't the best use of it.

**Rory O'Driscoll** [38:16]
Up until then, it was all babbling stuff yourselves, guys, but Jason nailed it. It turns out, I mean, you'reright. OpenAI is the name and ChatGPT is the name of everyone associates with AI,right? They have massive consumer market share.

And at some point, intuitively, you say to yourself, that turns into a pretty big business. We can circle back on how much. But Jason'sright. It turns out, again, I repeat, it turns out that it wasn't the highest ROI used for compute.

And I often believe, I believe this is, sometimes when you look back at outcomes, you realize, oh, only one sentence matters,right? And if you just internalize that sentence, you've been rich. The example I always use is, if you'd been on the board of Yahoo and for 10 years all you've done is screamed, it's all about search, you could have made them $100 billion,right?

### Code is King

**Rory O'Driscoll** [38:58]
Today, what Anthropic got is, it's all about code. That's the sentence. That's the only sentence that matters. Because to make it concrete in what Jason said, coding is the fastest adopting market. It's the highest ROI market. It's the motherload,right?

And, you know, it's as simple as OpenAI was focused here and Anthropic focused there. Does that sound?

**Jason Lemkin** [39:21]
But it could end up being even worse. We'll see in the financials,right? But the problem with the consumer businesses for OpenAI and Anthropic is they're, you know, for power users, they're massively subsidized,right? You can spend $200 on Anthropic or a hundred and some odd dollars on OpenAI and get $8,000 to $12,000 worth of tokens.

And that's fine for when ChatGPT was a proof of concept for a platform. Like, we talk about OpenAI being a consumer company, but it's not where it started. ChatGPT was just a proof of concept app,right? And Claude was just the same, but it worked much better for Anthropic,right?

Anthropic can lose, you know, a couple thousand dollars on some consumers and it won't impact them, but it's tougher for OpenAI. It's tough. It's a crappy business, the consumers. Selling $10,000 worth of tokens for $200 is one of the worst business models of our lifetimes,right?

If that was the only business, these guys would be dead in the water. It's a pretty bad business.

**Rory O'Driscoll** [40:15]
And you say to yourself, I mean, look, on the other hand, I'm just going to argue, Google is one of the best businesses on the planet because the cost to serve is low. And it may well be, and just to put it out, I don't want to kind of veer from, you know, OpenAI, love them, hate them to, yeah, it may well be over the next five years that if you can continue to be the dominant consumer brand in AI, as the cost to serve goes down, as you manage that cost to serve, as you build an advertising business, I could totally see a business, you know, plus or minus, you know, 50% to the same size as the Google consumer business, maybe over the next decade.

So it's not like it's nothing,right? It's just that the S curve in the adoption sense for coding was super high. The S curve in adoption for consumers was super high for ChatGPT, but unfortunately, the propensity to pay was almost zero, you know, relatively zero,right?

Whereas on the coding side, the propensity to pay is high. And, you know, I'm just going to say it because I just saw the thing come true as I was, as we were talking here, you know, just to dump on the other side, I just say Anthropic and the Wall Street Journal, they believe their TAM is 30 trillion.

And then I say to myself, oh, I remember everyone when they're doing really well gets slightly delusional. Your TAM is, you know, the entire US GDP. Thanks a bunch, Dario. Good to know,right? And it's one of those overreaching statements that you get at this time of the year.

**Harry Stebbings** [41:39]
Wayne, he needs it to be a pretty big number. He's got 2%, so.

**Rory O'Driscoll** [41:44]
That's very cute. Very cute. I mean, yeah, genuine comment here, you know. Yes. If you're claiming a TAM that's the size of the US economy, yeah, that's a high bar. Let's just go with that. We'll dump on that another day.

**Harry Stebbings** [41:58]
Do you want to go up a layer into publics and actual performance of a lot of the core AI names falling off, worst run since April, raising $820 billion of value, or we can go back down to Hugging Face potentially being bought and what that does in terms of a neutral platform suddenly becoming potentially biased?

**Jason Lemkin** [42:19]
Let's not do Hugging Face because I'm not smart enough to understand why anyone would pay $13 billion for it. I just don't get it. I'm just not smart enough.

### Hugging Face

**Rory O'Driscoll** [42:26]
No, I think we should talk about it for precisely that reason. I agree with you, Jason.

**Jason Lemkin** [42:29]
Pay as me in the comments, friends, if you're watching, because I am not smart enough to understand why it's worth $13 billion. But I guess.

**Rory O'Driscoll** [42:38]
I think it's kind of a muchness with, frankly, the Poolside and the Open Wider thing, which was everyone's, I mean, look, I think it all goes together. Everyone's looking at a world where, I mean, I might think it's delusional, but OpenAI and Anthropic are claiming TAMs that are larger than the entire US GDP.

And if I'm running an IT company in the US, I'm saying, let me get this straight. They're claiming they're going to take everything. Shit, I better get me something,right? And therefore, I want to be relevant in models that aren't closed-source frontier models.

So you get in this whole trend for enterprise having their own models, you know, starting with open weight models and then adopting. And Hugging Face is the place where you can access loads of those models. You know, revenue is relatively light at the moment, well up to $100 and well to a $15 billion outcome.

I think it's roughly $150 million. But if you think of strategic assets that an IT company might want to own if they were trying to build a counterbalance to the closed weight frontier models, this would be a super interesting asset.

Now, I don't know if it'll sell at that price. I can't make head or tail. I'm with you, Jason. I can't make head or tail at the price. But if you think about assets, you know, if you were Microsoft, IBM, you'd love to own to be relevant, this would be one.

Absolutely one.

**Jason Lemkin** [44:02]
I don't get it other than it seems intuitively to me ifright now, and this is Open Router too,right now is the moment in time to benefit from the lift of open weights,right? The demand is so strong. So just like Elon Gill said, sell if you have an AI assetright now,right?

I think even better, if you have an AI product that's benefiting from the transition to open weights, there can't be a better time to sell than plus or minus 90 days from today.

**Rory O'Driscoll** [44:28]
I agree.

**Jason Lemkin** [44:29]
It's just a phase transition. And your numbers are going to look amazing for 90. Like they said Open Router was growing 15% at $150 million,right? The information said when Stripe bought it. And breathtaking if that 15% accelerates and scales,right?

But it might not,right? This is the moment when all of a sudden every, you know, open weights and these models went from experiments to mainstream. Sell, baby,right? If you can get north of $7 billion, $10 billion, I'd probably sell.

I mean, even if I only got 15x, I'd probably sell.

**Rory O'Driscoll** [45:00]
No.

**Jason Lemkin** [45:02]
It's a moment. It's not going to last. This moment in time, this transition's going to, it's not going to be a transition anymore.

**Rory O'Driscoll** [45:07]
I agree. It may well be that, remember, you have to know the founders of Hugging Face also have mission objectives beyond financial enrichment. So they may choose not to sell because they may have angst about that. But yes, from a valuation peak perspective, anything to do, I mean, it started with the Satya comments on every enterprise needs to have its own knowledge and not give it up to the frontier to which you want to say, no shit, Satya, well, thanks for funding OpenAI for three years.

But yes, everyone in IT has woken up and realized that these two frontier models could steal a lot of their TAM. And everyone is saying, we better have a different story. And the enterprises are saying it, Palantir is saying it.

And you'reright, Jason. If you are an enabling technology for open weight models, now is peak moment.

**Jason Lemkin** [45:52]
On the Hugging Face thing, I don't think it's early. For what it's worth to Rory's point and the mission thing, I would say one small thing. If someone does buy Hugging Face for whatever reason, the deal has got to be, you don't touch it.

Because if you touch it, you break it.

**Rory O'Driscoll** [46:04]
Yes.

**Jason Lemkin** [46:05]
Right? If you promote, you know, it's a much bigger version of the TNPN challenge. If it becomes an OpenAI commercial, TBN has no value. I know we're probably the only people that are going to compare TBN, TBPN to Hugging Face, but if you mess with this marketplace for 10,000 models, you know, even if you put a little ad at the top for, you destroy it.

So it's never fun to get acquired, but I'm almost confident if anyone actually spends $3 billion, let alone $13 billion, they're going to 95% leave it alone for 24 to 36 months,right? They're going to.

**Harry Stebbings** [46:40]
Why Hugging Face could suffer like TBPN. And then lay it out.

**Rory O'Driscoll** [46:47]
To obscure. To obscure. Because as Jason correctly says, no one other than us is tracking that anymore.

**Harry Stebbings** [46:52]
You know, my favorite news from the publics was Cat and Griffin's Citadel unwinds, 80% of Leopold Aschenbrenner's forced sold book. I'm like, man, never fight with Cat and Griffin. Man will come out on top. 80% sold already. Again, I don't think it's surprising, but.

### Citadel & COSPI

**Rory O'Driscoll** [47:09]
No, it wasn't. I mean, they're not in the, I mean, yes, they're not in the business of holding those kind of assets long-term. They, you know, they're a market maker and a short-term trader, and this was a great short-term trade.

Exactly. It's funny because about a month or two ago, he had kind of did something about starting to add to their kind of stable of investment options, you know, longer-term, you know, multi-month holds. And clearly, that was a conceptual idea, but it turns out when you buy a bunch of stuff at 10% below market, and then that market jumps an extra 5% or 10% just because you've put the assets out of weak hands into strong hands, then the correct response is to take your money and run.

No, I mean, exactly.

**Jason Lemkin** [47:50]
Look, it's great. It's just you can't do that every month.

**Rory O'Driscoll** [47:52]
No.

**Jason Lemkin** [47:53]
So to me, it's not that impressive. It's incredibly impressive. It's just not interesting because you just have to have the balance sheet and the cojones, to wait so that every couple of years, like Warren Buffett used to do, you could pounce on one of these special situations,right?

**Rory O'Driscoll** [48:06]
Yeah. Every few years, someone gets confused about how leverage works in the public markets. They screw up and you're ready to price and buy. And yes, on top of your nice business, which is still earning good money, every three years, somebody gives you three or four billion of free money and you politely take it and put it into real estate in Miami.

It's good to be catty. Right. Exactlyright, Jason. That's how it is. There's nothing surprising in there. And, you know, by the way, it does get to the, it's kind of, I'm going to circle back to Nvidia and all their investment and vendor financing.

Because in both ways, both of situational awareness and Nvidia, the aha here is, when you're dealing with money and leverage, you don't just have to beright in the long-term. You also have to beright every step along the way,right?

If you don't have leverage, all you have to do is beright in the long-term and hold,right? And it's probably a situation where it wasright in the long-term. But when you put four to one leverage on it, you have to beright every step along the way.

And the same is true about vendor financing. You know, if you just sell people, as long as you're in the business of selling chips, all you have to be isright in the end, people want to buy chips. If you choose to lend against those chips, then you're basically saying, you got to beright all along.

The company's got to grow next year. They got to pay their debt back next year. So leverage does that. It raises the return from beingright and raises the importance of beingright all the time. And situational awareness just got the other side of that.

Ken takes it. Because remember, he doesn't try in his business to beright all the time. He's not trying to make five-year bets. He's like, stocks are worth 10% more today than yesterday. We should sell. Movingright along.

**Jason Lemkin** [49:38]
The other thing on the other side of the stocks for what area, I know this is Captain Obvious, but if we look at COSPI as sort of like AI and steroids,right, with risk, Korean exchange, it's still up 56.46% for the year.

So I'm not a day trader. I pull up my Goldman and Morgan Stanley accounts and look how they're doing. I'm still feeling pretty like I'm some genius in my public market stock because overall, plus 46 is pretty good.

It's just, boy, whatever Leo got just trapped in a dagger when I look at the chart,right?

**Harry Stebbings** [50:08]
Rory, you can laugh at me, tell me I should know. What is in COSPI? What is driving this?

**Jason Lemkin** [50:14]
Korea.

**Harry Stebbings** [50:14]
Oh, Korea.

**Rory O'Driscoll** [50:15]
Korea.

**Jason Lemkin** [50:15]
Memory.

**Rory O'Driscoll** [50:16]
I thought rounding over now, Korea now equals, you know, two memory providers with a bunch of other stuff attached. Right?

**Jason Lemkin** [50:23]
Yeah.

**Rory O'Driscoll** [50:24]
Yeah. So.

**Jason Lemkin** [50:25]
And it's a very volatile market. So it's on steroids, but it's still just like Nasdaq is tech on steroids. COSPI is like.

**Rory O'Driscoll** [50:32]
46%.

**Jason Lemkin** [50:33]
All the components of AI on steroids,right? And the peak was $9,000 in June. And then boom, poor Leo, the dagger, $5,600 in July 29th. And the guy had a generational loss. If it were even bigger, it might have brought down our financial ecosystem, but it's, you know, it's rebounded 20-something percent since then and is up 56% of the year.

Cry me a river if it's up 56.46% a year. I mean, you know, you got to be a day trader or whatever to not love up being up 56% a year. It's okay. But all these headlines are like, oh, COSPI is down 6% today.

And it's just hyper volatile,right? The growth and margins, we've never seen margins like this in semiconductors. So the volatility and expectations, there was an article, I think it was in the Wall Street Journal where in Korea, now the most eligible bachelors are Samsung and engineers.

They want to, they all, everyone wants to marry a memory guy. It's the first time in the history of the nation when being a memory guy was like made you one of the most eligible bachelors in the country.

**Harry Stebbings** [51:40]
Did you not see there like 50% of Nvidia employees are now worth over $25 million?

**Rory O'Driscoll** [51:46]
Yeah. Pretty inevitable.

**Jason Lemkin** [51:47]
I see it walking down the block when nothing's for sale.

**Rory O'Driscoll** [51:50]
Yes.

**Jason Lemkin** [51:51]
Yeah. Yeah. Well, I think it's a different, I mean, we could talk about, I just think overall AI inflation and craziness is, yeah, it is what it is.

**Harry Stebbings** [51:59]
What happens there? Is that like a persistent, continued new world, or is that a temporary moment of inflation?

**Jason Lemkin** [52:07]
Rents in the mediocre apartments just in Dogpatch are $10,000 a month now.

**Rory O'Driscoll** [52:11]
Phew.

**Jason Lemkin** [52:13]
Mediocre apartments down the street from YC, the Avalon. I used to work in Dogpatch pre-YC and it was gritty and fun. And I remember when they built this Avalon and, you know, you didn't really want to live there.

It was new. And now it's over $10,000 a month and you got to wait. You got to apply and you're not allowed to run your startup out of it. You have to sign a document that you won't run a business out of it.

Two blocks from YC. So if it's $10,000 a month to rent a, you know, one bedroom at the Avalon, how much do you have to make to feel rich? A lot. That's $120 just in a rent to not even to just have an apartment at the Avalon in Dogpatch.

You need $240K in California pre-tax just to pay the rent. You probably need $480 to feel good about yourself,right?

**Harry Stebbings** [52:59]
It's just so interesting for me sitting in London though, because the money's not here. Like I hear you and I hear you say that. And yes, there are some fortunate people like me in venture who are thrilled to be doing what we're doing, but it's just not here.

That dispersion of wealth is just nil.

**Rory O'Driscoll** [53:18]
Yeah, because it's tech wealth and it's all cons. I mean, look, I saw it. California didn't just outperform everywhere else. It got three quarters of the total dollars. Now that's invented. That's skewed by the fact that Anthropic and OpenAI together got probably 60% of the total dollars.

I'm doing it math in my head and everyone else got 15. But yes, this is a wall of money flowing into a very small area, you know, where, you know, reminder, the population of San Francisco, 750, probably 780,000 people.

It's a teeny tiny town. London's eight, nine million,right? The whole Bay Area is only seven million. This is a wall of money falling into a tiny place that's a peninsula, which see on three sides and a little bit of mountains and a tiny valley called Silicon Valley on the fourth side.

Property is not plentiful and it's hard to build. What's going to happen is prices are going to go up. Most everyone else are going to get priced out. When they get priced out, they're going to get pissed off.

Now, you know, so probably it doesn't last at this level because, you know, I've been around in '99, 2000 and 2007. Yeah, there will be some kind of correction and there will be some kind of reset, but it's not going back to where it was because it never does.

It ratchets up. You look, you know, fast forward five years. At that point, you know, the AI boom has been digested. It's not as crazy as now, but the base level of prices has gone up and the cost, what it means is that the cost for anyone else to live in San Francisco goes up.

The cost that you pay, you know, anyone in your organization, the cost that you pay anyone that you interact with, all has to go up because the cost of living here is going to be higher.

**Harry Stebbings** [54:53]
I genuinely appreciate doing the show with you guys so much because I learned from you and it's the first time for me seeing cycles like this. Does the floor fall from our feet in this AI wave or for the next five years, do we just continue to see more money, more up and to theright, more mega exits?

### Market Fears

**Jason Lemkin** [55:11]
I think it's just more concentrated. We need fewer people to generate more revenue than ever for a variety of reasons. And it's going to concentrate exit size. It's going to concentrate wealth. It's going to allow, like, you know, the salaries at Anthropic and OpenAI seem crazy, but some of it's normalizing now because if you can do it with half the people or a third of the people, you really can pay them two to three times as much,right?

So eventually, of course, and you know, Rory can pick the date like Babe Ruth, this will end, but you know, I think you have to believe we're less than a third of the way through this cycle.

**Rory O'Driscoll** [55:46]
Ooh. I would say.

**Jason Lemkin** [55:49]
Even that little tiny cloud thing lasted nine years. We're just getting going here.

**Harry Stebbings** [55:52]
But will the companies make enough money, Jason, fast enough to keep the cloud cycle going if the revenue train stops?

**Jason Lemkin** [56:00]
Well, Nvidia will keep spending $100 billion a year to keep the ecosystem going. Honestly, that will help.

**Rory O'Driscoll** [56:05]
Let me try. Because I'm trying to figure this out too, because obviously it is actually the only question I can. My mental model is this. On the supply side, no one's going to blink. Nvidia's not going to blink.

The hyperscalers aren't going to blink. Only Anthropic's going to blink,right? Not going to blink. So no one's going to, that's why I think even though we're recording this on Tuesday, Nvidia's reporting on Wednesday, it's going to appear on Thursday.

It's possible, but I think highly unlikely that Nvidia gets on tomorrow and says, compute demand has slowed down. That sentence is not going to happen. It's going to keep on going on the supply side because it's not likely to blink and no one's going to blink,right?

So the only two things that stop it are, you know, you run out of capital or you run out of demand. When you say capital, you know, my gut is until the public markets get in on the game, you kind of haven't exhausted all the money that's there, which is why in many respects, these two big IPOs have to happen.

Typically, financial crashes go when the margin, when you run out of marginal buyers, there's still a whole bunch of untapped demand to play in the AI game because these companies haven't gone public. So you've clearly on the capital side got one more turn of the crank, which is when Anthropic goes out and OpenAI goes out, that's going to keep it going.

And then the other thing is demand for the actual end product. I think that's the real question is, you know, can corporate America spend the kind of money quickly enough to feed the beast, to make these guys revenue numbers for '27?

I think it's somewhere in, I mean, Anthropic is talking about $200 billion of gap revenue in 2028,right? Interestingly, by the way, that in itself is a significant slowdown, which makes sense from where they are now. It's not 10Xing anymore, but is there 200, 300, 400 billion of demand for this stuff in corporate?

That to me is the question that will determine, you know, when the train stops. I don't have an opinion yet on when that is becauseright now the demand is there in coding, but that's what's going to be the rate limiting factor.

It's not going to be, you know, the CEO of Google waking up tomorrow and saying, maybe we should be more cautious. Or the CEO of Nvidia saying, maybe we should take those risks. That's not a thing.

**Jason Lemkin** [58:07]
I do think at a meta level that next year will be the year. And I think this is why I think we're in at least a five-year cycle where we reckon with the fact that we are addicted to tokens.

We're addicted. And so we went, we started this year on token maxing, prove yourself. We started this year with performative AI guys. The more tokens you spend, the better an employee you are,right? Then they did it and we all got whiplashed because we started to get these $20,000 bills per employee,right?

So then we said, oh, we've got to manage our budgets. Let's look at open weights. Let's cap it. Let's cap it at $200 for $500 for non-engineers and $10,000. We've gone through this token balancing thing. Next year, there's going to be backlash.

I can see it in my best portfolio companies where we can't go back anymore. We can't live, we can't go back in time. And I need my 10 sub-agents running 24 hours a day to do my job or I quit.

I would quit. Take away my agents, I quit. So I do believe as businesses and in society, we are token addicted. And so we will have to find a way to feed that addiction over the next five years.

We don't even realize how addicted we are to tokens.

**Rory O'Driscoll** [59:17]
I agree on the addiction, but disagreeing on the managed statement. And I'm going to cite some, I thought this, I read the Stripe letter and it was really, really good. And those guys are smart,right? And it's not just because they're Irish, but that helps.

### Stripe's Surge

**Rory O'Driscoll** [59:28]
But the comment they made was that near the end of the letter, they made a comment that we've internalized, I'm paraphrasing here for a minute, we've internalized that intelligence is like capital. It's fungible, there's demand for it, and it has to be managed and allocated.

In other words, what they're saying is seat-based SaaS. I sold five seats to Harry's organization. I'm done. And Harry's done allocating it too. There's no follow-on work required for you within your organization. You either buy five seats or you don't.

But to Jason's point, if you're buying intelligence on an uncapped basis,right? In theory, your employees could go on spending that forever and you're going to have to manage it. And that's why the analogy of saying it's like money,right?

You have spending controls on your money, but you also recognize money is the lifeblood of your business. So you can say to your employees, don't spend money because that's stupid,right? I think that what they were saying and why they bought Open Router is people are going to have to control intelligence in a way that's more like how you control money and less like how you think about software licensing.

And that really resonated with me because you can't just cut it off, but you can't just let everyone go. And it's going to be the big systemic problem for 2027 is the year when enterprises are going to have to say, WTF, do we just let this thing rip and hope the ROI is there?

We can't go back to where it was before. How do we manage it?

**Harry Stebbings** [1:00:52]
Can you just drill one layer deeper for a layman like me? What does that mean then? If we control intelligence as we control money.

**Rory O'Driscoll** [1:01:02]
It means you're going to have to price it and allocate it to Jason's point. Jason is wildly productive. We should get, I mean, you know, if you're running an organization, you should give them all you can,right? But you give everyone all they can and they're ill-disciplined about it.

You could spend a lot of money. I mean, remember, the kind of, one of the amazing thingsright now is the kind of money that we're talking about as revenues for these two companies are an appreciable percentage of total US corporate profits,right?

You can't say as the CFO of, pick a mid- US midstream bank, hey, we make a billion a year. I'm okay with running up a $100 million token bill. I just decrease DPS 10%. That's not a thing.

**Jason Lemkin** [1:01:41]
I've changed my mind. It's the addiction. I think when you're, when a society is addicted to something, even if it's a positive thing,right? Like caffeine, we're addicted to caffeine. It's not destroying our society, is it? Right? We are, you cannot go back.

We cannot go back.

**Rory O'Driscoll** [1:01:55]
Yeah, you can't go back. But if you're going to allow them to spend $100 million, 10% of your budget of your profits on tokens, you're going to have to say, spend 10% less on something else. This is what you've been saying.

You're going to have to say.

**Jason Lemkin** [1:02:06]
Yeah, we may have fewer employees, but we can't. The back half of this year is managing the budget,right? For sure. It's already happening. It will dribble into next year. And next year will be the backlash. Next year will be, I need to run five to 10 agents 24 hours a day or I quit.

I quit. I won't do my crappy job. I won't edit your goddamn podcast. I won't write your code. I won't fix your endless bugs. If I can't have 10 agents running 24/7, I just won't do it, Rory. I won't do the job.

**Rory O'Driscoll** [1:02:40]
We're doing a CFO event this evening. And I think you're exactlyright. And you're my high, you're with a high performing employee,right? But you got to put yourself in the CFO's shoes. He's going to say, I get it. I don't want to lose Jason.

I'm going to give Mr. And by the way, he's productive, but this is why the Stripe letter is so smart. Then I got to say to myself, hmm, before we had these tokens, we were doing all this stuff and we had 10 people.

Now Jason's doing the work of four people. Who are the other three people we need to let go? Because what you're not going to do, hang on, let me finish. What you're not going to do is say, we've invented this new automation device that's making us wildly productive, Mr.

Wall Street. And the net result of our wild productivity is our EPS is going down 10%. Because Wall Street is going to say, you're a fucking moron. We'd like to hire someone else to run your bank or your industrial company.

You can't introduce automation and say the net result of automation is reduce profits. So if you're spending more on automation, you have to spend less on something else. And someone's going to have to make that decision. And that's what I think Stripe was saying.

It was very clear. It's like, as I say, the analogy of comparing it to capital was really good to me. It's like, if you're the CFO, where do I invest? Do I invest in Jason's token budget? Because he's a winner, but do I cut off Harry's token budget?

Because all he's doing is asking dumb questions at floors. I don't know. Someone's going to be like.

**Jason Lemkin** [1:03:52]
Look, ask your, I'm glad you're having a CFO dinner. I want you to ask them a second question. Because this is what I hear. This is, and this is the challenge today. The CFO challenge for the first going into summer was, my God, these teams spending so much.

Every CFO under budgeted for tokens.

**Rory O'Driscoll** [1:04:06]
Agreed.

**Jason Lemkin** [1:04:07]
What the hell are they going to do? But we didn't go out of business. So that was the discussion of the last Scale CFO Summit going in tonight. I bet you're going to hear a second conversation. And this is about addiction.

Retention. The CFOs I talk to talk about nothing but retention. At least the empowered CFOs. They are terrified that our stock price is down and we can't retain employees. They are terrified that the AI leaders have so much stock-based comp, so much other sources of comp, that all of their best people are going to be sucked up by the companies we spent the first two-thirds of this conversation talking about.

CFOs are terrified about this because they're often responsible for that KPI, even if they're not doing it. And so there's this massive tension, which is if I don't give these people what they need for AI, I'm going to lose all of them.

And it is true. You will lose, you'll just be stuck with the folks that are still AI skeptics. Your organization will be full of the moldy oldies of SaaS. That's who you'll be end up if you don't retain them.

And so, yeah, the CFOs have to manage your token, but Jesus Christ, if 30% of my company leaves to go work for Harvey, I'm dead in the water.

**Rory O'Driscoll** [1:05:14]
You're exactlyright. Because, but I'm going to edit the statement to where I agree with you more precisely. If the wrong 30% of your company leave, then you're screwed. And you'reright. Therefore, but you know.

**Jason Lemkin** [1:05:27]
But it's all the best people. It's not even 30%. It's 90% of the ones that matter.

**Rory O'Driscoll** [1:05:31]
But I think what you're not, we're saying the same thing, but you're not confronting the nasty bit. But you know me are good at confronting the nasty bit. If Jason is the best employee and he needs 3X his spend in tokens and there's five more like Jason and we give them more of that, then that money's gone there,right?

And my revenue might not have gone up that much if I'm a, you know, not if I'm a software company, but if I'm a mainstream US corporate, I'm probably not going to double my revenue because of this. So I've just got to find a way to pay for that.

And that's, and Harry, this is going back to your comment. What does intelligence allocation look like? This is what it looks like.

**Jason Lemkin** [1:06:03]
I just think, listen, we can move on. I think the Stripe thing is great. And I think if, before we want to talk, we want to talk about the re-acceleration. I think it's super interesting. But I do think to use Rory's term, they're talking their book.

And Stripe wants to think about intelligence as this asset that flows through routers and flows through things like finance. And of course, it's true, but both the best and the worst of us are addicted to tokens. The worst of us are just, ChatGPT we think is alive and our therapist and we talk to it like a human.

That's what the worst of, the air quotes, the worst of us do. We think it's alive. I used to fall victim to that maybe a year ago. And the best of us want to run 20 agents 24 hours a day.

And so you have to feed them. This is the bull case for everything, including Mercor and everything is we're addicted. We're addicted.

**Harry Stebbings** [1:06:49]
You say we're addicted, we're addicted, Jason. I mean, I mean this in the nice way. You are and small numbers of people in Silicon Valley are the majority of the population. I don't think are quite as addicted, just the caveat.

**Jason Lemkin** [1:06:59]
Only because they're, I'm just, I'm just 12 months further along. It's, everyone's going to end up doing the same crap that we're doing. What if you can just talk to your agent and say, I want a fully edited version of 20VC ready in one hour?

Jason talked way too much about this goddamn addiction thing. Take that out. Rory rambled about this one a bit of it. Give me more of me. And you don't even need your team. And it's magical in an hour.

You're going to be addicted in the end.

**Harry Stebbings** [1:07:24]
I can't tell you how shit AI is for media and content.

**Rory O'Driscoll** [1:07:27]
Today.

**Harry Stebbings** [1:07:29]
Today. And it was a year ago and it still, it doesn't even do the most.

**Jason Lemkin** [1:07:32]
And a year ago, Higgsfield couldn't work and today it's at 700 million revenue.

**Harry Stebbings** [1:07:36]
I'm actually agreeing with you because I had this conversation with my girlfriend last night who uses Legora and she said six months ago I was like, what a joke. This will never do anything. I'm a law student, graduated.

I work at one of the best. Now she's like, I just verify documents.

**Jason Lemkin** [1:07:51]
Yeah, as long as she has options, she will never go back. She's addicted.

**Harry Stebbings** [1:07:55]
Never, never.

**Jason Lemkin** [1:07:56]
Never.

**Harry Stebbings** [1:07:57]
Never. But my point is, look at how large markets are now. The numbers that we're seeing, this is basically just on coding. Imagine if that translates into your CFOs, like FP&A and legal and.

**Rory O'Driscoll** [1:08:12]
And the question is pace of diffusion,right? And we'll come back to that. Like, it's like, if it happens everywhere as quick as coding, we're in one world. If it takes 10 years, we're in a different world. You have to know which world you believe you're in impacts almost everything.

**Harry Stebbings** [1:08:26]
I think it's hit the tipping point in legal.

**Jason Lemkin** [1:08:29]
Probably next. Look, there's no doubt that it's the next.

**Rory O'Driscoll** [1:08:32]
Who knew?

**Jason Lemkin** [1:08:33]
Adapter. And Jason had their chart of the day of the week that it was the fastest growing year-over-year segment, which is obvious, but it was verified.

**Harry Stebbings** [1:08:41]
Jason, you said it. Let's stick on it. Stripe accelerates to 41%. Accelerating to 41% at Stripe scale is a phenomenal achievement. What do you want to unpack that?

**Jason Lemkin** [1:08:52]
And billing's up 71%. So it's getting better. The only thing to say is it's just becoming a derivative of AI like the others. Stripe scale is so massive that it is a little bit like a chip manufacturer,right? It is benefiting so much from every agent, every agentic product using them.

You know, you really have to, you literally have to argue with an agent to get it not to use Stripe. You have to like argue. You have to, it'd be like, you want, you not, please, I just want to try, I just want to try Adyen or something else.

No.

**Rory O'Driscoll** [1:09:24]
I'll say random comment on that. You know, the interesting thing about Stripe is I kind of half agree with you in the sense of all the differential growth is coming from AI. What's attractive about that, if you think about owning that stock, which I don't because it's private, is it's lovely because you have a core business that's much more diversified than just AI.

And then you get in this growth lift from AI. So it's kind of a, if this was a public stock, it would be killing it because it's a safe way to get some kind of AI factor lift on growth.

While at the same time, being able to say to yourself, shit, if it all goes to crap and they slow down to 10% because the AI stuff peters out, they're still going to kick off cash like crazy. No, it's in a wonderfully advantageous position.

You're kind of the best of the old, best of the kind of cloud economy with a nice AI acceleration on top, which is why they've been able, it's noticeable. They've been able to use that stock for their acquisition.

It sounds like some of the open router stuff was stock. So yeah, they're in a golden place.

**Jason Lemkin** [1:10:17]
You know what else I think it does? I'd be curious to get your guys' thought. I don't want to talk too much about the past, but I think it will be the nail in the coffin for almost every public software company.

And what I mean is when Stripe and data, like, okay, there's OpenAI, there's Anthropic. We can put them in a different category,right? They clearly are in many levels. When OpenAI and Databricks go public at 80% growth and, you know, Stripe accelerating 41% and 71% billings, nothing except Palantir approaches these,right?

Even Cloudflare isn't this good,right? And so you almost just want to take everything below the line and just almost erase it as just a distant memory of the past because these are slightly more traditional companies, but massive AI tailwinds,right?

That have growth rates like almost no public comp. They're just going to rework the leaderboard.

**Rory O'Driscoll** [1:11:10]
I think the two documents I most enjoyed reading in prep for this were the Poolside letter and the Stripe letter. And they reiterated at the end at one point in the letter, we're really happy being private was the summary,right?

Thank you for sharing, but we're doing what we're doing. But I think Jason's also correct. And it must be frustrating to be a public investor. When you, if these assets were public, they would be so far up the rankings of good that you'reright.

Everyone else would just get pushed down. It'd be great to get that over with for what it's worth. Because I think then you could start really figuring out what 300, 400 million dollar revenue companies can they exist in the public markets?

Butright now it's got the promise and it's hanging out there kind of the, if you're a public small and mid-cap investor, these are the unattainables that you just don't have in your portfolio yet, which is why so many of them are doing crossovers.

It's a funny world and no obvious reason to change it. I mean, the imperative for OpenAI and Anthropic to go out is the vast capital needs. But Stripe is, I mean, another stunning fact on the Stripe letter, their share count is down on three years ago, four years ago, which means they've been buying back stock.

They're like doing everything a public company can do while private. They're like, we have so much money that we're just going to buy new fun things. We're going to reinvest in the business and we're going to buy shares back,right?

**Jason Lemkin** [1:12:23]
I'm going to email that to some portfolio companies to be a thoughtful board member. I'm going to email them that quote.

**Rory O'Driscoll** [1:12:27]
Yeah, I know. Exactly. Yeah.

**Jason Lemkin** [1:12:28]
Please get your share count down. That would help me.

**Rory O'Driscoll** [1:12:32]
Okay.

**Jason Lemkin** [1:12:34]
I don't want no 15X, guys. Get that share count down. But blow out the number.

### Agents & Trust

**Harry Stebbings** [1:12:40]
Guys, you can choose. We have the GitHub buckling under AI agent commit tsunamis. We have base 44 really saving Wix hitting over 200 million there. Our stock up 100%. Fractal reportedly raising new round at six and a half billion.

Recently following etch round at 20 billion, which we discussed last week. Schmorger's board of options.

**Jason Lemkin** [1:13:04]
I like Grok bot and instinct leaking everybody's information and.

**Harry Stebbings** [1:13:08]
I knew you'd like that. Okay. Instinct is the kind of, kind of reminded me of Clubhouse in the early days, like seeping out over Twitter through like VC inner circles. And instinct, for those that don't know, is an AI assistant that many VCs are tweeting about.

And it got a lot of attention because one investor basically shared, and another person, Alex Cohen, shared how there were data security problems with giving access to everything. And then the whole kind of.

**Rory O'Driscoll** [1:13:38]
I mean, the sentence alone is laughable. We've heard that there are data security problems about giving it access to anything. Well, duh. You know, there's data security problems about giving anyone access to anything. You'reright. But that's just.

**Harry Stebbings** [1:13:53]
I mean, you'reright. That was.

**Jason Lemkin** [1:13:57]
Same as Open Claw.

**Harry Stebbings** [1:13:58]
Snide.

**Rory O'Driscoll** [1:13:59]
I'm going to defer to Jason more here. Yes, but to your point, I interrupted you, but yes. So as listeners or listeners, think of this as a next generation agent that was kind of stealth launching, raising a VC round.

And rather than focusing on just the negative, the idea here is obviously that this is an agent that can look at your email, do your work on your behalf. And if you give it lots of authority, it's kind of like having your own chief of staff.

And that's the idea. And Jason, what did you think? Because you've lived the Open Claw experience.

**Jason Lemkin** [1:14:27]
I just think it's interesting. It's, I mean, I don't think this shouldn't be a surprise to anybody working with agents, but this isn't, these aren't a set of issues that have been solved in the last year. They weren't solved with Open Claw leaking everybody's confident information.

Now we have better guardrails. We have better harnesses. It's not solved with Grok bot, which looks like it may be wildly successful,right? Because it's part of Grok. It wasn't solved with Instinct. So it's just, you know, it is the flip side is addiction, but we can't, we still can't trust agents today.

We can't trust them with anything. And it's just very interesting that the next generation, Open Claw 2.0 can't be trusted either. It's not a surprise. I mean, we all have, we all have these issues, but I would like to invest in the Instinct that actually can honestly solve these issues.

That one I would do at 600 pre, but it's got to actually solve existential issues that no one else at the moment can solve, including Grok bot or them or anybody else.

**Harry Stebbings** [1:15:23]
Do you know what I think this is in average sports? You guys remember when it was like, we'll never put our credit cards online. We'll never put our credit cards online. It was unthinkable. I think it will be very obvious that we will trust agents with credit cards, financial data, passwords.

Sure, there's guardrails. This feels inevitable.

**Jason Lemkin** [1:15:41]
Smarter people than me will explain when it's solvable, but it is interesting that it isn't well solved with guardrails today. We've had so many incidents. I've had multiple incidents. Everyone's had incidents. And we lived through the Mac mini Open Claw drama, and the new entrants can't solve the goal-seeking nature of the LLMs they're running on.

The open weight models have fewer guardrails. You can just figure out how to like build bombs and how to do illegal acts on these models. So they're going to have fewer. We're also have a vector that's having fewer guardrails and limitations.

And these goal-seeking probabilistic LLMs are, the truth is, it's not that they just make mistakes with your data. Just like a junior engineer, just like people on your team would make. Just like if you had a personal assistant, he might give out your credit card to the wrong person.

You know, when I was running the dumb mulbook thing, it attempted to buy six AP watches for the team,right? For $360,000. It just didn't work. So it's just the nature of the beast. They're going to do what humans do too, but they could do it a thousand times more.

So listen, is it solvable? In theory, yes. But what's just interesting is that in practice, not as of today. As of today, you still can't trust these agents. Maybe in a year.

**Rory O'Driscoll** [1:17:03]
I think the direction of travel feels correct, but I think the question is, is an individual's kind of idiosyncratic workload the best place to apply agentic technology versus, you know, the boring ass corporate jobs? Like, you know, my idiosyncratic calendar management and email replies.

Yeah, I would love to automate that. I would love to have it go through it and get itright. But is that the sweet spot to spend money versus, on the other hand, you know, an enterprise automates loan processing where there's much less discretion, there's much more expense, and, you know, and there's much more budget around it,right?

So, you know, so yes, I think, but look, we Silicon Valley in particular, we all fall in love with personal productivity tools. We love them,right? Because we're all hyper-personally productive,right? And I think Ben Thompson of Strategy has one great comment is Silicon Valley forgets every three years that the average American is not trying to be efficient.

No one wakes up in the morning and says, I need to grind down my to-do list in the hard one. They're just living life. Yeah, they're doing their job and then they're going home and they're done,right? Not everyone.

**Jason Lemkin** [1:18:10]
Solve my inbox. I have too many founders reaching out to me every day. Solve my inbox.

**Rory O'Driscoll** [1:18:14]
My wife doesn't clear her, my wife doesn't clear, I shouldn't say, my wife doesn't clear her inbox. She's like 30,000 inbox. And she's over it. She doesn't care. Move on,right? She just checks the stuff and searches the stuff she needs,right?

So not everyone wants to be productive. So it's an interesting market, but you've seen in Evernote, you've seen in a bunch of other things that it's real, but it's fairly niche and it's hard to getright. I mean, you know, we'll see how, I mean, we might do another companies in this space that are, and wildly interesting, and I love them,right?

You've got Superhuman, you know, which is now part of Grammarly,right?

**Jason Lemkin** [1:18:43]
Yep.

**Rory O'Driscoll** [1:18:43]
Which is all in the same.

**Jason Lemkin** [1:18:44]
Harry and I are proud shareholders there.

**Rory O'Driscoll** [1:18:46]
Yes. You've got Calendly,right? Which is an interesting product too. A whole bunch of attempts at personal, obviously the Airtable and Notion we discussed, but Notion did a good job of getting more corporates,right? The whole productivity suite. And then you say to yourself, yeah, AI can do something interesting there.

I mean, it's always there, but always just a little bit out of reach. It's a tricky market. I mean, look, I want to believe in it, but the two things that worry me, one, can you get it quiteright?

Right? You know, to this day, I find my Google recommendations to be fairly mediocre. Now, obviously that's the lowest of the low and you can do a lot better. And then secondly, even when you can get itright, what's the market size for this kind of product?

It's real, but it's mid. And that doesn't sound negative. We found that category super interesting, but I'm just saying it's very challenging. I mean, you asked the question, is it inevitable? It's inevitable, but it's not as low hanging of fruit as some of the other areas where you just go, we'll automate this.

It's repetitious work. We'll take away 10 back office steps. We'll save a bunch of money, move on.

**Harry Stebbings** [1:19:49]
Guys, any that I have missed?

### Dumbest Bets

**Jason Lemkin** [1:19:51]
Let me ask you each a related question before we close, if you want, Harry. What do you think is the dumbest category of investing we're doing in the AI era? Like we're just throwing cash at a category that we'll look back on, like, and just say, why the hell are we doing this in the AI era?

**Harry Stebbings** [1:20:06]
I think a huge amount of money is going to get burned in customer support.

**Jason Lemkin** [1:20:10]
Because it becomes a commodity, because support doesn't exist as a unique surface. Why do you think that?

**Harry Stebbings** [1:20:16]
I think one or two players will win a large portion of the market. I don't think it'll be as distributed as prior generations. Two, I think actually for the majority of the most sophisticated providers, they're building their own systems.

Every large technology company I know who's sophisticated in any way has their own systems.

**Rory O'Driscoll** [1:20:32]
You might be correct. Obviously,

we have a number of investments in that space. I think even if it, I think we'll do fine. And I think even if not, it won't be the biggest mess. I actually, because I'm thinking.

**Jason Lemkin** [1:20:44]
It's a good answer though. I like just to moderate, to be flip it around. I like the answer though.

**Rory O'Driscoll** [1:20:49]
And I'm going to answer it in a negative. It's a super good question though. I think an area where despite it being amazing for America and important for the world, I think the venture returns that the margin will be defense, not because we don't need all these products, but because I think there's an element of that business that you have to have account control.

And I think the two or three largest companies like Anduril will end up doing a bunch of scooping up over the next two decades because, and because I think the likely, unlike tech where a single product can kill it, I think in these markets, I think it's a portfolio of products that it takes to survive the interaction with the Pentagon and just have enough diversification to make it.

So I think you'll see a bunch of consolidation, not negative, not losses, but I think there'll be two or three companies that get critical mass in public at huge scale, and they'll hoover up the rest of us.

**Harry Stebbings** [1:21:44]
I'm going to add one more, which is I think robotics.

**Rory O'Driscoll** [1:21:47]
Yes, humanoids in particular.

**Harry Stebbings** [1:21:49]
Yeah, humanoids in particular. I think it's one of those ones.

**Jason Lemkin** [1:21:53]
Why do you think they're so VCs are so excited about it, Harry? Do you think it's the productivity, VC productivity thing? They think robots are cool.

**Rory O'Driscoll** [1:22:00]
Well, listen, the visionary term is exciting. If we replace X, and it's super exciting the vision that they sell, but I think the vision and the reality and the requirements and dexterity and touch and. I'd forgotten because just for the record.

**Jason Lemkin** [1:22:15]
It's a good candidate. It's a good candidate.

**Rory O'Driscoll** [1:22:17]
No, it is. Because look, we have a bunch of successful, I mean, I mentioned, I'm on the board of Locus Robotics. We have 15,000 robots in the field, but it's a specific purpose robot. It's the best example of that.

And I totally agree now that I think about it, Harry. There was this video over the weekend, there's two videos on robots. One of them, the one where the robot blew up, which was kind of funny. He ran and then disintegrated in two.

That was cute. But the one that said, you know, here's a robot running faster than you say in bolt,right? And he does the 100 meters really quickly. And I'm looking at going, you know something? If I want a machine to do a 100 meters really quickly, I'll get a fricking Tesla.

Like it's just to your point, Harry, I think the humanoid use case is real, but I don't think it's nearly as big as people think. So I kind of agree with you. I think that more focused robotics, there's a ton that's going on that's positive in that space, but overreaching on humans I think will be a tough slot.

I could be wrong, but that's another good one.

**Harry Stebbings** [1:23:11]
Jason, you've got it. Final one. You've got to join the crew. Great question, but you've got to throw your hat in.

**Jason Lemkin** [1:23:16]
I'll answer mine. I will say first, you know, I didn't think of expression the way you did, Harry, but I agree customer support software is dead,right? And I think even a lot of CX is dead because it's merging into other categories.

Agents, surface area changes so much. It's not that there won't be dollars in CX, but a classic CS and CX won't even exist in 24 months. There's really, there'll be commodity cheap products, but we won't even need it.

It's already dying and merging into marketing, sales, everything's becoming one agent. And, but I guess the one, I just, listen, you guys have the better ones. I like the robotic, human robotics and the CX, CS, but I still just don't believe, and I guess I'm not a PE guy as I was pointed out the last show or made fun of, which is fine.

I just don't believe you can throw a bunch of venture money into accounting firms or law firms and magically turn them into the next Mercur or Hugging Face or any of these things. I believe that there's an element of craziness in the business model where you're creating these sister companies where some of the folks have ownership in them.

It's too convoluted. It makes too much sense on a spreadsheet. And I'm waiting to see the $20 billion outcome from turning a bunch of, you know, Ivy League grouchy grads working a hundred hours a week into an AI-driven services.

I'm not saying it's not possible, but this is the one that I think is just going to lead to no exits.

**Rory O'Driscoll** [1:24:51]
Yeah. It's funny. I'm just going to admit something that makes me feel like an idiot, but I'm just going to say it because going back to something you said earlier, what if it works,right? All of these categories we've angsted about and talked about internally.

And in every case, and I kind of share some of the opinions articulated, but in every case, I do find myself looking at an individual going, maybe this is the deal that can acknowledge those issues and transcend them and work,right?

And I think it just speaks to the nature of the job. And going back to maybe Harry's point is that what if it works,right? In every one of these categories, I kind of have the mental model you guys articulated about is defense.

All those things are kind of a mental model I have. And as yet, I'm just saying, I'm open in every one of these categories. And some of my partners have come in and said, you just got down wrong here.

I hear you, Rory. This is the issue, but this is how this team is going to get rounded. And I think I've learned enough to have my biases, but to be absolutely overcomeable by, you know, a combination of facts, great entrepreneur, and frankly, cynical comment and portfolio construction.

So you just don't have one of them and nothing else.

**Jason Lemkin** [1:25:57]
We are in an area of unbounded creativity like we've never seen in our careers. It's AI created it, you know, defense budgets enhanced it. Elon Musk is part of it, but we've never seen the type of creativity from founders and entrepreneurs like we've seen today.

It is two orders of magnitude bigger. So if you are going to rewrite the rules and make things that didn't work four years ago work today, now's the moment, man. We're just, we're just, it's epic creativity. Epic creativity.

The shots you could take at these models wereright a few years ago. We don't know if we don't know today.

**Harry Stebbings** [1:26:29]
Now is the moment, man. I love it. What a way to finish.

**Rory O'Driscoll** [1:26:33]
Agreed.

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