Big Technology Podcast
00:06:58 · Ranjan Roy
[00:06:58] S1: I'll disagree there. I actually think it's pretty clear what's happening. I know Nasdaq's like up, what is it? 1.6% as we record after being down over 6% and the biggest fall since COVID, like March 2020. So I mean, we're always gonna get this little bit of a bounce back, but I mean, it's set, it's clear, like the data center build out and the absolute scale that was required to make any of these numbers make sense almost certainly will not happen. So to me, mean, I think I saw like what you'd said was kind of funny around the idea of like, it'll actually restrict spending and that's good for stocks because it it's adding a layer of discipline to hyperscalers that they've not shown on their own. You could even argue maybe Anthropic now out of its $518,000,000,000 in commits on compute might be able to get out of them because if data centers actually aren't able to be built, then maybe that'll be more attractive. I mean, that's like four d chess type of logic in terms of any of this. But I think the main thing to me like, not only have voters spoken and Ben Thompson, like he said that before the constraints were around first to compute and then like actual physical capacity, but now political capacity is the major constraint and I think we're gonna see that going forward. So I think there is no way the assumed build out of data centers and compute capacity can continue as at least it was forecasted to. So then it just becomes how does that change each individual story?
00:08:43 · Alex Kantrowitz
[00:08:43] S0: Alright. I'm gonna challenge you on that because, you know, I'm trying to figure out how real the restrictions are gonna be. And I keep thinking back to the initial techlash where the congress went after tech and the FTC went after tech and the DOJ went after tech. And you even saw meaningful wins from the regulatory agencies in cases they took against these companies. And where are we? Has anything changed as a result of this? I would say very little. And when I... So that... So so I am always tempted to double check my, in my initial reaction on the headline to what's actually gonna happen five years down the road. And you know what, like, you're already starting to see some of the stuff come in here that's leading you to believe that maybe this is also another blip and that the the the votes and the legislators and the governors won't get in the way of of AI build out the way that you we might have anticipated. Here's two things that I want to want to bring up number one. There have been there have been lots of 38 jurisdictions or more that have voted for restrictions or bans on data centers. Right? We agree with that. But that's... That does not limit these tech companies from either a, expanding where they already are because the groundwork is already in place, or b, finding new areas that would be maybe potentially eager to welcome the growth. Right? You're gonna see competition among the states, even among towns and cities within the states to get these data centers in. Because, you know, no matter how ugly they are and no matter what they represent in terms of AI job loss, the trade unions want them there because they do mean at least short term jobs. Right? Then you think about the governors. And even the governor elect of Texas, who ran so strongly against data centers, is now saying she is effectively not anti data center, she just wants them to play by their rules. So what we're seeing is not the end of the data center build out. But it's maybe the beginning of a negotiation.
00:11:04 · Ranjan Roy
[00:11:04] S1: I'll agree that I think it is, the beginning of a negotiation. It's gonna be an ongoing negotiation. But but, again, I think, like, I I keep thinking about this not in terms of, you know, is it going to happen or is it not going to happen? All that matters to me and I think all that matters to the market, is it going to happen the way it was assumed to have to happen to make a number of valuation stories come true? That's it, and it won't. Can't... Every, if Gina Hinojosa is saying, actually, and I think she had said that if the groundwork has already been laid, then maybe those and they're scheduled for completion into 2027, that those can go ahead. And there's gonna be all that kind of nuance around this and which is good. I think like I actually think that's a very good thing. And I think we're gonna... Maybe we do end up in kind of a world of some kind of debate and rationality around this, But that is not what the story requires for everyone from Anthropic, the hyper scare scalers, the oracles of the world, that's not what will work for them.
00:12:12 · Alex Kantrowitz
[00:12:12] S0: Yeah. And it does go back to some of the the developments or some of the volatility, I would say, that you've seen from these companies and and basically from the whole trade. And to me, I think, you know, part of this... And and just to go back to my comment about the volatility here is that so much of this is narrative base. It's a story about potential, and it's less of a story of what's happening today. So let me at least give you my theory of the case for why I think we're seeing the volatility. And then you can, you know, let me know what what you... Whether you think that there's merit there or not. So I just wrote like a couple of of bullet points here. So here are some givens. I think AI is a technology, with potential and a great story, but that story is not commensurate to its current earnings. So you have trillions of dollars in public company traded and trillions of dollars in public company valuations or stock traded on the expectations of effectively two companies with a $100,000,000,000 in combined revenue. So the AI lab's potential was so great that they ended up leading to subsidized demand for AI chips. And that demand went through the roof. But to live out that story, or give it a shot of working, they need the data centers to be built. And all this is basically hinged on these like, you know, small but growing rapid companies. And the market is is used to some sort of certainty around it. But again, new companies, new technology, and small size that are getting bigger is never going to be a normal trade until it starts to, you know, settle out and it hasn't settled out yet. So any hiccup and everything goes haywire, because the small so yeah, because of the small size of the business, the early state of technology and all the hope And data centers in particularly are the linchpin here. Once they go, the story evaporates.
00:14:09 · Ranjan Roy, Alex Kantrowitz
[00:14:09] S1: This is exactly my argument. I I appreciate this. You just laid it out even more eloquently in an instructed way than I did. I mean, this is it. It's it's exactly the... It's a narrow set of companies that the entire trade is built around and anything... Again, we've talked about this even on Anthropic specifically, we're gonna get more into the current state of the IPO, but everything assumes perfect execution. That's on their own internal businesses, that's on growth, that's on revenue, that's on unit economics, but that is also on the data center story to be the infrastructure for this gigantic story and all this promise. So everything depends on perfect execution, and we're seeing even this little hiccup or... Can actually completely derail that story. [00:15:01] S0: Big hiccup. [00:15:02] S1: Mean, yeah. Yeah. [00:15:03] S0: Right. But this is what I'm this is. So this is why I'm going back and forth on it. And I haven't fully made up my mind on it yet is to just go back to is it really the end? Like I you know, I understand that I understand why the market will see a sign like that, and they wants to buy in. But I don't know if it's really the end or not because of all the different times we've seen this negative thing happen and it not actually manifest
00:15:26 · Ranjan Roy
[00:15:26] S1: the way people But so I'll push back on... In the past, the whole, like, idea around regulation and the tech clash was very limited to the actual singular companies themselves. And, like, can the FTC go after Meta? Can... And again, we've seen, I think what was it, New Mexico going after Meta for $25,000,000,000. Like we've seen more and more things happen. And again, Lina Khan and the FTC, there's certainly like actual action taken against large Big Tech. But by the same token, these companies have gotten significantly more powerful than they ever were before. This is a little different to me because this is the regulation is or the government involvement becomes so much more small and targeted in a locality and whether they're gonna actually allow a data center to be built. And that's gonna happen on a one by one basis across the country. So it's not these massive, like centralized federal and central company issues of whether Meta's lawyers can beat the FTC's lawyers. This is gonna happen throughout the country and I think that is what makes it far more unpredictable and actually in a interesting way makes it more likely that something can actually happen to these companies.