Comfy Sunday Spaces v37: OAI/Anthropic Revenues, Neocloud volatility and Trading Philosophy

but we can still comment on maybe its fairness or unfairness. The beautiful thing about public markets is that there is a standard of reporting, and if you misrepresent your company's financials or you lie or you do something illegal, you do go to jail. And private companies that still happens, obviously, but there's quite a bit of leeway. Now, we're not saying on Throp Hacker, Open AI, or lying about the revenues, but it is quite frustrating that people who have access to that information may be making very informed decisions in public markets. For example, if someone knew that Open AI or Anthropics revenues were slowing down, presumably that would affect their future spend, and they may actually go in and short some of the companies that are direct beneficiaries or indirect beneficiaries of the rapid, ravenous spend of these two massive frontier lab businesses. So, again, this is less about markets or sentiment or trading, and more about maybe the frustrations that I've had personally. Kyle, I don't know how you feel about it, but it does blur the line where you are not allowed to. And I know we say crime is legal, and we kind of joke about these things. I personally don't joke about these things, but it is quite different to public markets where you are not allowed to have asymmetric information on a company. Now, you can do research, and you can spend quite a bit of time trying to become a very informed market participant, but certain market participants having access to information about these two massive private companies does feel quite unfair at times, especially when we're trying to navigate these fairly complex and at times theoretical markets. So, I just wanted to open up with some of that. I know I had an interesting week on Twitter, as many of you have seen, but I do think at a certain point, it is important not just for like, especially if they're seeking outside funding, right? There's a big difference if it's a family business and it's compounded over generations and generations, that I suppose can be grandfathered in and is entitled to stay private. But a new company that is frontier technology, being allowed to stay private and become one of the largest companies in the entire world, which affects quite a bit of the market that everybody is exposed to, does feel like a little bit of maybe something that will be looked at in hindsight and said, okay, well, if a company has tens of billions of dollars of revenue and has raised hundreds of billions of dollars of capital, maybe it sort of is a public good and outside investors should have the opportunity to invest and this company should be forced to go public. There are forcing functions that forced companies like Facebook to go public back in 2009 or whenever they went public where it was based on the number of investors that you had. And people in Facebook essentially launched these SPVs to sort of get around this rule because Facebook really didn't want to go public, but they ended up being forced to go public by the SEC. So again, like, I'm a free market sky, but I do think that it is important that the public is able to share in quite a bit of the upside and speculate if they choose to. And then additionally, maybe public markets should be a bit more efficient where reporting can be once a year. That way companies aren't as short term oriented or companies can choose to report every quarter or report once a year. And there's a little more flexibility, but they can still be liquid, tradable instruments, I think. That would probably be a reasonable change. Markets have changed considerably since these rules and regulations were created. Some of the SEC rules that we follow were made literally hundreds of years ago almost at this point due to speculation in the 1920s. So again, just wanted to put that out there, not really relevant to what we're thinking about markets, but just more on philosophy about markets. And generally, it is quite frustrating that someone like situational awareness could have asymmetric information or people with exposure to Anthropic or the ability to get that information have the ability to make really informed decisions and markets. It does feel quite unfair. So yeah, anyways, Kyle, what are your thoughts? Yeah, I mean, look, I just, I don't completely unbothered by any of that, right? Like, it doesn't, I just don't feel any need to, I don't feel any reason why a company should be forced to come public, right? I kind of think that they have the autonomy to do what they want to do. I do, however, think that these companies are unique in the very special sense that they have for better or for worse kind of distilled all of the public information on the web, right? Like it's, it's kind of weird how there's like a lot of, not copyrighted material, but if you've ever contributed anything to public domain, you've ever written an academic paper, you've ever made a blog post, you've ever uploaded a YouTube video, you're like training data. And these companies have essentially taken a lot of just random people's contributions to the web or to the collective consciousness and distilled it and used it for profit. And you're kind of seeing, I think, a lot of that sentiment being addressed because anthropic just promised, I think this was hours ago, this news came out to donate up to 20% of its shares to the, what is it called? Like the Trump kids accounts or something? The Trump accounts. But basically creating these vehicles to essentially give their company not the voting rights, but just the economic upside to people that are, you know, just kind of like regular Americans. So there's like something being done to address that, but it does feel like there's a lot of externalities. There's a lot of, I think, you know, fear that they're, they're, they're conducting things that are getting quite dangerous. There's a lot of cryptography fears in the last week where they're, they're, you know, doing frontier math that is bordering on being dangerous for people who enjoy the benefits of, of cryptography for, for communication. And just like a lot of other stuff, there's a lot of, a lot of hacking cases coming out. There's a few more companies in addition to hugging face that claim to have been victims of swarms of AI agents hacking them. There's the biggest repo or the fastest growing repo in history and GitHub is, I think it's called RIA reverse engineer anything. And it's this idea that you can take a compiled binary, grow a decent amount of AI at it using the special harness and really bust the thing up and start breaking programs like Photoshop and a lot of other stuff. And so there's, there are like real people being harmed by this now. And so there are externalities that I think are not well-addressed. And I think being a private company, especially in a regime where the world so badly needs you to work for like, you know, economic reasons that you're kind of like in this weird spot of being like simultaneously a little bit dangerous, but also very untouchable. So I don't know, that's what I'm uncomfortable about. But whether or not a large company has to, you know, if Anthropic and Open the Eye like made furniture or something, and they got to be a trillion dollar company and just making furniture, I just don't think anybody can give a shit. They'd be like, let them be, you know, this guy's going to be private, let him be. But it's just because the way that their company is set up, both borrowed from everybody and also directly impacts everybody that it feels like it's odd for them to be private. Yeah. And that's why I kind of have the distinction of if they're raising outside capital. I think as a furniture store, you presumably would be fairly cashflow positive and maybe you'd issue some debt or something. But, you know, a lot of the LPs in these VC firms are public pension funds, especially at this scale. So people do have some exposure to them. But I think just based on raising outside capital and then reaching a certain size, which then has downstream effects. So I'm quite a few public companies, maybe, I don't know. But yeah, I agree. I think free markets ultimately win. But there needs to be reasonable regulation. But again, like you could make the argument around healthcare and a bunch of this other stuff. So Kyle, I do want to also give you a shout out. So Kyle did a podcast with Taiki, who's a good friend of ours, a friend of the spaces, a friend of the pod, a friend of the family. And you crushed it. It was one of the best podcasts I've ever listened to. Obviously, I might be a little bit biased. But it was truly fantastic. And podcast and person do make a big difference. It was a lot of the commentary was quite interesting. Obviously, people thought you were me, thought we were not two different people, which was kind of funny. Blattering maybe that we have this split personality. But no, I highly recommend anybody who's listening to the spaces to go and listen to Kyle's podcast with Taiki. He goes over quite a bit and far more eloquently than I've ever been able to be. Then I've ever been able to be a lot of, yeah, a lot of good trades from, you know, rollbit and hype and a lot of this other stuff. But okay, so let's get into open-air and through-opric revenues and why they matter. So obviously these are two massive companies. These are two companies that are driving a substantial amount of return in public markets. Now, it came out recently that, and again, these are not audited financials and these are all rumors. So, you know, you have to go and verify on your own. But it came out recently that open AI or rumors were floated that open AI was on track for $70 billion in ARR. Now, ARR is different to revenue. ARR is a bit of a confusing metric. Again, it's annualized run rate. So what does that mean? That means you could take the last day of revenue and project in ARR. If you made a million dollars that day, your ARR would be $365 million, you know, over the course of a year. If you take the last week, then multiply by 52, so on and so forth. So it's kind of not disingenuous, but it's non-gap accounting. So it's kind of saying, like, we make this amount of money. And if we continue to make money at this rate, this is what we would make for the rest of the year or some, typically it's year or year to date. And it came out recently that inthropic or excuse me, opening AI, walked their numbers down from $70 billion to $50 billion. This happened, I believe it was like Monday or Tuesday of last week. And the markets didn't really care. The market kind of shrugged it off and, you know, it continued. I think, you know, S&P closed kind of green on the day. And then the market started selling off of it. This also coincided and was kind of interesting timing with Anthropic doing investor days last week, where they went and they are trying to go public. So we have not seen their S1, which is, you know, the filing document that, you know, will tell us all about their financials prior to going public. So investors are able to make an informed decision whether they want to potentially purchase the IPO or not. And they went to their investor days and numbers always leak. And the numbers came out that they in quarter three made something like $17 billion. I think it was like 16.8. Now, Anthropic on the other hand had been projecting. And this was based on maybe July figures or August figures, but certainly early to mid Q3 that they were on pace for $100 billion of the era. Now, if you do the math and you say, okay, well, $17 billion times three is about $50 billion a year in revenue. That doesn't really equate to $100 billion in the era. Now again, most likely what they are saying is that by quarter four by the end of the year, they will make something like $25 billion in quarter four. And then they will be able to project a $100 billion AAR. That seems fairly reasonable. Now, a 50% increase is exactly what they did quarter of a quarter from quarter two to quarter three. But that was during an era of, you know, token maxing. And since then, Anthropic tokens and generally the cost of using some of these programs has simultaneously gone up in terms of the pricing wars for some tiers where you know, via using API and using, you know, some of the heavy use costs have actually gone up for the consumer. And then the actual price Protoken has gone down. Now, there are two schools of thought here. The first is that these companies are the best businesses on earth. And this is the bull argument. These companies are the best businesses on earth. And the only reason why it is so cost prohibitive and they're not massively profitable is because they have to do pre-training for their models. Yeah, that is a totally reasonable argument. I think if you remove pre-training, inference is only 37% of actual data center usage at this point. The rest of it is pre-training or something akin to that. And so, yeah, if they were able to use 100% for inference or 90% for inference, then this would be a massive gross margin business. And it's a very reasonable argument. The bare argument would most likely be that these businesses do not really have a moat. And once they stop pre-training, why would people use the frontier intelligence, which you may not even need for the majority of tasks, and they will kind of go to the free tier and it will sort of be a game theoretical race to the bottom in economics where people...