00:00 Speaker A
You’re upgrading your view on Open AI and its orbit. In plain English, explain why Gil and why public market investors who are listening right now, Gil, why should they care?
00:16 Gil
Well, yes, this really is about Open AI. and if we’ve looked at the stocks for the last six months, what you’ve seen is that the market has decided that Google is the only winner and then the whole Open AI complex orbit is lost, right? So that’s why Google has outperformed Microsoft, Nvidia, Oracle so much over the last six months. What we’re arguing is that Google is a winner, but the race is not over. And while Open AI was meandering a little bit a few months ago,
00:59 Gil
they are now far more focused on what they should be, which is chat GPT and good frontier models. They’re also now scared their investors into a very large round. Microsoft, Amazon and Nvidia don’t want Google to win. They don’t want Google to run away with AI. So they’re now going to fund Open AI with another 100 billion dollars on top of the 40 billion Open AI already has. So Open AI will have time will have the capital to spend on more compute,
01:38 Gil
ramp revenue. And the last thing we expect from Open AI is that over the next few days or weeks, they’re going to introduce a new model that’s going to be state-of-the-art. So it’ll be better than Google. So this whole story and narrative that Google has already won is going to be harder to tell when the best model is actually an open AI model.
02:00 Speaker A
When you say state, yeah. When you say state of the art there, Gil, I’m just curious, better than Google, how are you judging that, Gil? by by what variables, by what metrics?
02:14 Gil
Well, we we benchmark it internally. My colleague Alex Splatt looks at the public benchmarks and then he also runs the models to see how they compare. And and so he has an up-to-date benchmark on that and he expects that the next model from Open AI is going to be top of the rankings for that based on external uh benchmarks as well as his benchmark. And then the publicly traded companies are the important ones right now. Since Open AI isn’t public, we’re talking talking primarily about Microsoft and Nvidia that are going to revert
02:57 Gil
in terms of their stock performance when that happens. When Open AI has the capital and has the best model, they should revert to the mean with Google, which is right now trading at a far higher multiple compared to Microsoft and Nvidia and compared to its historical multiple trading range.
03:19 Speaker A
What about those Gil who say, and I’m interested to get your take on this, and we’ve had tech analysts on the show. They look at Google and they say, Gil, Sundar Pichai, he he just has certain advantages over Altman. He’s got that full stack. He’s got the chips, he’s got the cloud business, he’s got the distribution. What do you say to that?
03:46 Gil
That that’s all true, which is why Google should be a winner. But if you look at a little deeper than that, chat GPT has three times as many users as Gemini and Anthropic is leading in the enterprise. Google Cloud just accelerated to 48%, but it’s still smaller than Azure and AWS and their ad business is growing slower than Metas. So yeah, Google’s a winner. They have a lot of structural advantages here, but they’re not the only winner and they’re unlikely to be the only winner, especially
04:26 Gil
if Amazon, Microsoft and Nvidia gang up to support Open AI and Anthropic.
04:36 Speaker A
So the the Open AI story you’re telling here, Gil, which is as always, you make a compelling case. What what are the what are the risks for Open AI though? As you were writing this note and talking to your clients, what what could go wrong for Sam Altman’s company?
04:56 Gil
So the first thing was what was going wrong last year, which is they started to spread themselves too thin. If they go back to that, we would be concerned. Let’s not forget Open AI went from having a good frontier model in chat GPT to wanting to build their own chips and build their own data centers and have hardware and and get into enterprise software and all these things that are superfluous and it’s not well positioned to do. What we’ve seen them is come back to focusing on the frontier model and and chat GPT. If they revert back
05:33 Gil
to spending capital on things they shouldn’t be in, we’d be concerned. And then the other thing is you can’t count the chickens till they hatch. until they actually have the 100 billion in the bank from Microsoft, Amazon and Nvidia. It’s not a done deal yet. So we’re going to be waiting to see it that happen hopefully by the end of March.
