Anthropic vs The Pentagon： Who Wins？｜ The Data Center Arms Race ｜ The Ultimate Stock Picks | 20VC with Harry Stebbings

The consensus is in law, Anthropic would probably win a good slug of this case, which is different than saying they're going to win the fight.

The idea that you can just have all this shit for free is at some point going to stop because someone's going to have to cover their nut.

This week Anthropix sues the US government.

Oracle and OpenAI end plans to expand flagship data center.

Meta moves in to absorb the surplus AI data center capacity.

CrowdStrike they beat expectations but trade down and then finally we have our stock picks.

What to buy, what to sell, public market predictions coming up.

I think getting rid of juniors is where we get budget for these data centers in part.

This goes on really cold.

You can have dispossessed urban poor forever and nothing happens.

But if you piss off the 20-something-year-old middle class, the overeducated elites, they tend to cause trouble.

The truth is OpenAI and Entropic have the most amount of surface area to attack of any company in the world right now.

The era of gentle deceleration has ended.

It's dead.

Ready to go?

Boys, we have a big week of news.

As always, we're going to start with this week in Anthropic.

So we have gone from a couple of hundred million dollars in lost contracts with the Pentagon and with the DoD to potentially billions of dollars at risk.

If we start here and the billions of dollars at risk, How did you analyze that?

And maybe Rory, the wonderful context giver, if you want to provide some context.

Yeah, I will.

I think that anthropic, in my view correctly sued the federal government in both California and subsequently in DC, just for procedural reasons, basically saying that the government's designation of them as a supply chain risk was incorrect, badly done and should not legally stand up.

And the reason they're suing immediately versus talking is they're stating that quite a lot of revenue could be at risk for them because the Department of War and the government I think I should say that the administration has articulated a very aggressive definition of supply chain risk.

If you recollect last week, I was... not entirely pro the anthropic position.

And I stand by that.

But I think the government is now overreaching as well.

So like all good disasters, both sides are doing things wrong.

But it's totally rational for the government to say, you want $200 million of revenue from us.

And you want to get in our shorts and tell us what to do.

And we're the Department of War, and we ain't going to do that.

So you're not getting your 200 million.

That's totally fair.

But designating a supply chain risk has a series of escalating consequences.

At a minimum, it implies no one can use them No one can use them selling.

No other company selling to the Department of War can use them for those contracts, which is one step more.

But again, I see how the Department of Defense might get to that place.

But then you're seeing the government articulate these really expansive definition kind of ask, which is throw them out entirely of every government contract, which seems an overreach.

And then even more overreach, and it's actually not happening because the various cloud providers have pushed back on it.

There was one version that said if you use Anthropic at all Microsoft or Amazon, then we won't use you at all in the US government.

And that's an element of, frankly, almost ludicrous overreach.

So what's happening here is basically entropic and department of war trying to figure out you know where in the spat how big is the blast radius of consequences from this 200 million dollar contract?

And my perspective it yet is.

There should be consequences, but having it be this big a blast radius doesn't really stand up and i think the consensus is in law Anthropic will probably win a good slug of this case, which is different than saying they're going to win the fight.

Well, look, I mean, there's something to me that's minorly interesting and then more interesting.

The minorly interesting thing is how hard the hammer came down.

I mean, they're going to lose.

It's like tariffs.

Even if, for some reason, Anthropic wins their case, the Department of War will just come back with another issue, just like tariffs.

They'll find another justification to block, Anthropic or even at a minimum.

I think the real panic.

I think maybe what they didn't realize and then I'll talk about to me what's more interesting.

But I think what they didn't realize is what a blocker it would be with their customers.

This is just a classic B2B sales issue.

You walk into these big deals, and they said it in the complaint, and deals are being cut in half.

We're struggling to close deals because prospects are worried that just some of their business has exposure to the federal government and the Department of War.

And then their competition opening XIA and said, we don't have these problems.

And they may steal the deal.

They literally said in the complaint, this is issue.

And this is classic B2B stress.

The risk only has to be ambiguous in a B2B deal for you to lose and go with another leader.

It just has to be.

It's a little bit less secure.

Or they went down for two days or the database was left open.

And so there was a classic B2B panic and I don't want to get into politics, but I honestly don't.

I mean, the government is saying, listen, we need you for war.

And in fact, it's more than that.

The government is saying we use Palantir without anthropics knowledge to conduct a war in Venezuela and depose the government.

We did that without anthropics knowledge.

It happened.

But the government's going to say you're either going to agree to this or we're going to freeze you out of the US economy.

And it doesn't matter what a court says, because they'll come up with another justification.

There'll be another one.

There'll be a different type of supply chain risk.

It'll be endless until they bend to the will, I think.

You may be right in terms of what the government will do.

But I, just as I say, having been critical last week, I want to say it's wrong to try and drive a wildly successful American tech company out of a good slug of the economy simply because they don't want to serve this one particular need.

And it's interesting.

If you read the complaint, a lot of what Antropic is talking about is literally their First Amendment rights.

This is not a contract.

What they're basically saying is we Antropic, articulated our less than love for some of the things that the Department of War might use this technology for.

And you're trying to ruin our business simply because we use those words.

And that's our First Amendment right, and that's un-American.

And so while I think you are entirely correct It's a really tough position for Entropic to be in.

And as I said, I don't know if they should have picked this fight.

I also think it's particularly unfair of the US government to try and be this sweeping in their actions against what is one of the great American success stories.

If AI really is all about the leading edge of the economy, It's probably a mistake to pound the crap out of one of the two leading companies in that space simply because, at the margin, you find them slightly sanctimonious which many people do and you don't like their politics.

You don't have to buy from them.

And put your $200 million in another place.

Maybe don't let them into the Department of War at all, but stop trying to cut them off at the knees across the entire B2B infrastructure.

I think it's a little bit of an overreach.

But I think you're right, Jason.

Me thinking that is very different than them changing their mind.

There's a style in the administration that's prone to overreach.

And, I'm sure Anthropic, deeply regrets getting down in the mud pit wrestling with this particular opponent.

Because it sucks.

What actually happens here?

Like, realistically, years time, does one cower and give up?

Play out the realities for me.

I think the interesting thing, I think on the merits of the lawsuit.

I think Entropic will probably prevail and may even prevail quickly on some of the you know, I think if

I read the lawsuit last night.

I think they've actually moved for immediate redress, I think, to basically get it reversed.

I think it might prevail on some of the things if I was to be logical, just based on prior might prevail on some of the law.

They won't clearly get a 200 million dollar revenue deal with the us department of war but in a perfect world, if they bend the knee, prevail on the law.

What we've seen in multiple other situations is you end up with some kind of you know, acquiescence to the administration in return for leave us alone to pursue the rest of our daily business, our b2b business.

We're not going to say the administration is not going to be saying to microsoft hey, if you use on tropic anywhere, you don't get any government business, which is the most overreaching version of this, and in return for that, on tropic, we'll probably have to bend the knee and be slightly supplicant.

That's my gut.

They'll win the law, just like many of the other institutions have won some of the cases but will find that they've picked the fight they regret and just want to settle it.

Does this impact their going public later this year?

PolyMarkets predicts Anthropic no longer does.

And Polymarket and Kelshi know.

I mean, Polymarket and Kelshi were able to tell you the date at which we were going to attack Iran.

I mean, there's the amount of, Polymarket knows lots.

The only thing I, it does, they are tied, right?

The only thing I would say.

Maybe there's a related point that's broader than this I'd like to make, but I do think we overstate IPO risks in general.

Rory's been through this, right?

And listen.

It totally makes sense that people would react oh my God, Anthropocasto work to perfection to pull off the IPO they want, given the amount of capital they want and the valuation of a trillion.

And being a supply chain risk would be risk factor number one and freak out the public markets.

I think we've all seen every startup we've ever worked with IPO with several of them.

Several things that had to be highlighted in their prospectus, and it never seems to be the end of the world.

IPOs are very binary, right?

Either folks get super greedy and they're genuinely massively oversubscribed, or they barely get done at all.

So I just think that is overstated by the media that there's existential IPO.

Until it shows up in the numbers, I don't think fear overcomes greed.

And so we didn't actually get to that, though, which I'm going to push you on.

Does it show up in the numbers, yes or no?

At the level of growth we're seeing, it can't show up in the numbers yet.

The beauty to numbers, and this is why I think 80 of public B2B companies are in much worse shape than they look is they're backwards looking.

Every set of financial statements is backwards looking.

And it's even worse, unless you do a SPAC or something, you can only project so much.

So you're stuck in backwards looking land.

The closer you get to the IPO, the less you can say about the future and the more you have the benefit of hiding in last quarter.

I'll be clear.

I don't think it shows up in the numbers.

Provided what appears to be the consensus legal outcome happens relatively quickly, which is you can't designate.

First of all, the process of designating a supply chain risk has more steps than if you read the actual legislation, than just deciding at five minutes notice.

There's a review, like all government actions, there's a review process, all those kind of steps.

And then the second thing is, like I mentioned earlier, the interpretation from the hyperscalers who remember, do a huge amount of distribution for these guys and the developers who are clearly flocking to the app right now clearly is I can use this for definitely non-department of war and possibly non-government use cases, without any supply chain risk whatsoever to a rounding error.

If that version of the world, which appears to be the correct legal intention prevails, then yes.

If they went to court and they started to lose those cases, then they would be on the back foot and then they would have to probably settle pretty quickly.

But the consensus appears to be that, from a legal perspective, in this case the administration is overreaching.

So right now no, it's not showing up because yes, you're clearly down 200 million in license revenue.

And if you're the sales rep for the Pentagon at Anthropic, it's going to be a slow week, right?

Conversely, if you're the sales rep or the guy running PLG growth for the Anthropic Cloud app or for the Anthropic development products, you're exploding.

At Jason's right against that wall of growth.

There's nothing showing up.

If those numbers are correct,

Let's do the math here.

200 million, let's call it 17 million a month.

So they're doing 1.5 billion.

17 billion a month is 1%.

So this is a company that's 10x-ing, so it's going to drop 1%.

It's lost in the noise.

I mean, I'm sure they deeply regret ever taking on that 200 million contract because it's in the noise compared to the business and now it's produced this contingent risk.

One of the things I reflected on this a little bit was on the one hand, it can seem very localized to anthropic right.

It's principles and a DOD, DOW, Department of War deal.

But I think a lot of us are going to have to wrestle with these issues.

I'll give you a very small example.

Worked with a ton of next-generation CRM products that everyone's building.

We talked about dad VC.

Everyone's building.

And the approaches to next-generation CRM are very different.

Some are very agentic focused.

Some are redoing the classic core, lead contacts opportunities.

Some are building together with existing folks.

A lot of approaches.

But there's one thing that all of them seem to have in common.

Every single thing that a human does is fully tracked and logged.

Everything.

Now, if we go back in time when things like Gong blew up, at first we had a pause.

We're like, oh my god, my business is tracking not just a random call, but every single call.

We had to pause for a moment.

Is that OK?

And this became the way we worked, Gong, Gong et al.

Then, you know, even during this pod, we kind of, Granola, is that okay?

You know, is granoling people in meetings okay?

Now every app is this is becoming necessary core CRM functionality to record and manage every keystroke, every interaction, everything you type, everything you do, because otherwise you can't automate a CRM.

Like the Next Generation CRM just does not work if you have any privacy in the workplace at all.

And so it's just an example of you wouldn't think that a Next Generation CRM would have to deal with the same issues as Anthropic and the Department of War.

But I think many of us are going to have these issues.

Are we going to lower change our morals?

Are we going to say a 40% to 50% layoff is no big deal at Block?

Because it's part.

And I think, as we chase these faster and faster growth companies, I think we're going to discard more and more of our previous moral standards.

And maybe that's the AI life.

I have a little bit of anxiety here, just a little bit.

A technology that's so important that it's consuming 50, the capital investment of the entire united states probably should have a significant number of pretty significant societal changes.

Two signs that, like maybe, we're facing, or entering, an age of more realism.

One is oracle and open ai and their plans to expand their flagship data center.

So stargate texas data center expansion to two gigawatts potentially being axed, capping in at 12 gigawatts.

Is this early signs of the end of the capex cycle and hype cycle or not?

More no than yes.

Look, because I'm sitting and going.

I think we are over-investing and I think at some point there's going to be a reckoning and a bunch of companies are going to realize they've massively over-invested.

But I don't want to be that kind of guy who's trying to call the turn, you know, three years before it hits right.

Because I think the proof that it was look it speaks to-.

How can we be over-investing when Jason tells us that this is the year of inference and we'll have inference running?

Can we come back to that?

I will come back to that.

We can't possibly be over-investing.

I mean, the point is this.

On the question you've asked no because instantly, Meta said no.

If you guys don't want this data center because you're having some issues, we'll take it.

So I think if you just look at all the comments from the hyperscalers, if you look at Jensen's comments right now, at least to Jason's point demand is insatiable.

So demand right now.

If demand is insatiable, then you can't use this kind of one-off set of dynamics around Oracle as a sign of oh, it's the CapEx cycles turning.

I think that would be over-extrapolation.

I think that Meta is playing a game.

Google is playing some of it.

Amazon's playing some of it.

And it's hard for Oracle and anybody else to play, which is that ultimately and I think Meta is the only one that I've known that's explicit is they're betting on a world where your AI is 24-7, persistent and infinite.

Right now, most of us are using a little bit of ChatGPT, a little bit of Claude.

Maybe we're using a couple hours of coding compute, which is quite expensive if it's not bundled.

And that's it.

But but none of us are talking.

I mean, we made fun earlier in the days of the open AI pen with Johnny Ive.

Right.

We made fun of it.

But I think we missed the point.

And at least I did.

I missed the point when we talked about it, which is I didn't fully understand, because this is a few weeks later.

Right.

This is six months later.

I didn't fully understand. what the world would look like when our AI agents run 24-7.

And the amount of compute that we will need to do that is obviously orders of magnitude.

Multiple agents running in parallel, which is everything Cursor's about.

Everything Cloud Code is about is multiple agents running in parallel.

Replit v4, it's all about running 5, 10, 20, 50 agents in parallel 24 hours a day.

I mean, I'm not even smart enough to do the math, but we're talking about multiple orders of magnitude of compute that we need today.

Does it get more efficient?

Maybe.

On the RAM side, it's not.

We've already run out.

So anyhow, my point is, I think, one thing that Maybe because Meta is so consumer and also in some ways so far behind,

But I do think they're making this bet of 24-7 persistent AI in your life at a consumer.

And so they will buy all the compute that is available that they can afford to make this dream happen, because they're well positioned for it.

As silly as it sounds, they're probably the well.

Unless Claude, which is playing its own end game, or Chachibi can figure out its social side, they're pretty well positioned to be the AI that lives with you 24-7.

Them and TikTok.

They're pretty well prohibited and so the world's going to be so different, right?

Genuine question, Jason.

What is that thing that they're shipping that you're talking about?

I don't understand.

What is my AI that's 24-7 that I can get on Facebook or Instagram?

I don't see it.

It watches, it listens, it actually can see.

It can see everything you do.

It sees everything you do.

What tense are you using?

Are you using the present tense or the future tense?

What should happen today?

What is entirely possible today?

It's just we can't afford it.

No, which is that as soon as this call ends, this Zoom ends, my AI talks to me.

Hey, Jason, that was something pretty dumb you just said with Rory on the call.

Let me explain where you got it wrong.

And let me explain how this ties together.

I don't even do anything.

My AI is already ahead of me the second this Riverside ends.

That could be true today in everything you do in life, every partner meeting, every pitch you make.

It's just we cannot afford for the moment the level of compute it takes to have that, right?

I'm willing to stipulate, partly in humor, that the amount of compute it would take to correct All the stupidities that I say, you say and Harry say, might well require data centers in space.

So you might well be right, but I'm not sure we can afford that.

What about your AI?

Every minute of your at least putting out your personal life, your work life, helping you be better on every single thing you've said or thought.

Every single decision you, how many micro decisions do you make all day long?

Not even the big ones of a hundred million dollar check.

How many checks do you make every day, every week?

And if your AI has full context, full history, has every deal that's ever been done at scale, every deal in the last year, every deal any VC has done, every article, every interview?

Is it hard to imagine that that AI, immediately after every conversation you have, won't enrich your work life?

Of course it will.

It will be instantly better.

But I don't know.

The problem is, in the short term, Oracle doesn't have the cash to keep up, going to Harry's point.

It just doesn't have the cash.

But Meta does.

One of my big ahas on this whole is it all going to go wrong?

Question is The zoom out comment.

Is the people who say it's not talk technology and the people say it is talk economics?

And we kind of just don't quite overlap.

Right.

And that's the core of the challenge in this discussion.

There's a million things you could envisage doing with quote unquote AI.

The question is, are they worth doing at what price?

I mean, I was just doing the math in my head.

There's $600 billion being spent on CapEx.

There's 150 million people working in the United States of America.

150 million, that's 600 billion.

That's roughly four grand per head, right?

I don't know if an employer wants to spend four grand per head on automating with AI.

I mean, if you run through all the people, there's a bunch of people serving coffee.

They probably don't need four grand's worth of AI.

You start doing that math and you say to yourself, is the return there?

So I stand by my comment.

I think we probably are over-investing, right?

And at some point, those chickens come home to roost.

And I don't think it's a controversial statement, Harry pushing back, because Zuckerberg, who I think is wildly smart, has even said it.

Everyone's said it.

Bezos has said it.

This is probably going to go wrong, but I'd prefer to ante up and be in the game and have a chance of winning than not ante up, like Apple, and know I'm going to lose right.

By definition, if six or seven people articulate that that's the game they're playing, and only six or seven people matter in this discussion, then it is almost tautological to say we're going to overinvest because that's what game theory says.

Until such time as someone realizes, oh, I'm in the poker game, but I don't have the right hand.

I got a fault.

Until that happens, we're going to overinvest.

And I don't think it's happening in 2026.

The only person that's even struggling slightly to cover their nut is Oracle, because they had the weakest balance sheet and the least compelling use case, which is why, at some point, they're going to throw 20000 or 30000 people over the side to make the PL work.

Meta can borrow, Google actually has a business and Microsoft is quietly stepping back from the table.

So this game goes on for another year or two, but I do stand by my comment.

There's a level of overinvestment going on.

I thought it was interesting.

It was rumored and this is rumors, so Rory does not like rumors but that Alex Wang is that Alex Wang is being sidelined and that his position is no longer as superior as it once was, with the creation of a new lab and him not being in charge of it.

That lab director reporting directly to Boz and it appearing like the scale acquisition was bluntly hastily done and a mistake.

And to your point, Jason, on matter being behind, that is the kind of consensus that's being shared.

That would be overinvestment.

I paid $15 billion for an asset that 12 months later I put on the bench.

That is the very definition of overinvestment.

So I actually think you made my case for me, right?

And the fact that the response of Meta would be oh well, we'll do something else, shows that we're not yet at the overinvestment being terrifying stage.

We're simply at the, I got to win, try something.

If it doesn't work, try something else.

Can I?

I want to come.

I'll add I think this MOLT book is an interesting micro story of Meta's very interesting AI strategy, AI MA strategy.

Before we get there this overinvestment thing, I just want to bring up one thing that happened this week which I think people misunderstood.

And it's so important to my point of we're not even like the amount of AI we want to use when we're running 24 that we're we're.

We need massively more compute than we have which is anthropic.

Launched a true Claude Code Review.

Great hooray.

To find bugs, to find issues.

And they said it's $15 to $25.

And the internet blew up.

Oh my god, this is so expensive.

I only spend $200 a month for Macs.

I spend $20.

And now you want $20 to do a code review to check for bugs and issues?

And there are certainly folks who are trying to manage their Cloud Code costs to the bare minimum.

They're vibe coding from a cafe in Thailand, and they got to keep.

But the response back from the head of Cloud Code, or at least whoever built the feature, was my god, we're spooling up 10 plus agents in parallel to run for 20 minutes to find every single bug in your product.

You could do this manually.

And I've been doing it manually in Replit for months.

But to do this in one click.

It's profoundly, like humans can't even do this, find every single bug in 20 minutes.

And so the amount of compute now they need 20.

Even Claude Claude Code needs an extra 20 bucks of compute to do this.

And you know what you'd really like to do?

Run this after every commit, not episodically, not getting up your nerve to spend 20 worth of tokens, which is a lot, because this isn't subsidized, right.

This is Anthropix.

You'd love to run this 10 times a day. after every commit you make.

That is orders of magnitude more compute being used for this code review than we used before.

And so we're just, between that, everything running 24-7, we've just scratched the code.

Because if you've built anything in Cloud Code or Replit or Lovable or whatever, what you realize is it's just the beginning.

Who's doing all the QA?

Who's doing all the code review?

We've only scratched the surface.

We do need data centers in space so that I can keep coding.

But I think the point is interesting from the news.

I think people miss this point of this code review.

Thinking is 20 a lot to review your entire code base and find all your top bugs.

Is that a lot of money?

It's 20 bucks.

Of course it's not.

You know, we're happy investors in Code Rabbit, standalone company doing it across multiple tools.

And yes, now we have exciting and interesting competition from Claude.

Claude, that's bad.

On the other hand, validates the space and says, you need to do this.

I think your description of the product of the need is exactly right.

People.

If you're generating infinite amounts of code using all these agents, the idea that you're not going to do code review is absurd.

So you're going to have automated code review.

You're exactly right.

And I think that whole comment about your comment about spinning up all those agents was exactly.

You illustrated my point.

From a technology perspective, there's infinite need for large amounts of agents to do a large amount of code review.

From an economics perspective, you have people complaining about the fact that they were being asked to pay 20.

And you're exactly right, Jesse.

The correct answer, which Claude was too nice to give, because we know they're nice people, despite what Pete Hegstead thinks was for Jesus' sake I'm giving you, you're automating an entire developer.

And we're giving you automated, we're letting you generate infinite code for $200 a month.

And you won't even pay 20 bucks to check it before you put it into production?

For God's sake, man, pony up.

That's the correct response.

And that's where technology is meeting economics.

The idea that you can just have all this shit for free is at some point going to stop because someone's going to have to cover their nut.

And then we'll discover.

The really interesting question is how many of those users are prepared to pay 20 per code review, or 200 per big code review, or whatever?

So I do agree with you.

The demand is infinite.

The number of things you can do is just freaking amazing.

The question is, what are the things that people are prepared to pay full boat for?

And it was interesting, by the way, and it kind of validated a little something we were thinking.

Claude, I would love to be the pricing person for Claude, and you've done pricing, Jason.

How do you decide?

What things do you kind of, because they've got some really interesting things going on.

The API is expensive and metered.

On the other hand, Cloud Code the subscription.

As you point out, you can get a whole ton more than you should be at 200 bucks.

So they're kind of not metering that.

And then they decided, and in my view wisely hey, maybe code review is something that kind of feels managerial.

And maybe there is budget for that.

And you and I both did deals where they were low-end SaaS land, which were PLG for individual users.

And people were like, oh, how are you ever going to make money on small, low-end signatures?

But the more you go to management of signatures in the enterprise, the more there is a propensity to pay.

And I think this is the beginning of the same thing.

You, Mr. Hacker, you could have all the free code gen you like for 200 bucks.

But if you're going to be rolling this out into Bank of America systems, you're going to want the deluxe, not the 25 code review.

You're going to want the $250 security proof code review.

And you're going to see that kind of push to make money here.

I don't know if that makes sense or not, but I think that's the whole dynamic.

The whole shit ton of stuff you can do.

And then at some point, someone's going to have to pay for those data centers.

And it ain't going to be Pete at the Department of War.

I think related to that, the thing that...

Sorry, Harry, you can keep us on track.

You're the boss.

But I think there's certain things we've talked about in the past that are true, but we're also willing into existence.

The enterprise is willing its desire for AI to replace humans.

So it's going to accelerate because they want it to accelerate.

I mean, my god, the one that is being accelerated is hire no junior developers.

Hire no juniors.

This is being willed into existence.

No one wants to train anybody.

It ties to this code review because, listen, if you're going to hire no juniors, of course you can spend 200 bucks or an extra $500 a month to do code review for your senior developers, they're already insanely competitive, productive, right?

And I think the death of the junior It worries me.

And I had dinner last night with my son, who's off the charts smart but he's at Penn State, which is not a top 10 Ivy League school.

And he said there are just zero jobs for anyone in CS or math.

There's just zero.

There's no one even coming by. to hire them for C tier.

There's just he has job offers because he's like publishing things on Jensen.

Fine string theory that I don't understand.

So great.

Six people in his class at a large state college have tech offers, but it has become not only an art, But in his world we just don't want juniors.

We don't want to train them for three months or six months.

They don't know the tools cold.

They don't know it.

And that's where the budget comes from.

When you hire no juniors, we're just a world of of, of the middle of the bell curve in terms of experience.

We don't.

We don't want folks that don't want to pick up the tools and we don't want to folks that aren't experts and uh, it's going to ripple.

This is my big worry for 2027.

Is it happens?

It's going to be true in sales.

It's already true in support, like you want humans in support, but you don't want juniors, My god, I want a human that knows Code Rabbit cold, that can handle the escalations.

I don't need junior marketers.

I don't need junior nothings.

Harry, not to get us off track, but I think getting rid of juniors is where we get budget for these data centers in part.

They're just dying faster than we ever thought.

It's happening in front of us, the death of the junior.

It's bad for society, but it's a reality.

MARK BLYTH I think it ties to two fundraisers that we saw.

Rory, you may disagree as an investor in one of them.

I would agree as an investor in another.

But we saw Intercom raising $250 million, and we saw Legora raising $500 million.

And I think both tie to your point there of the replacement of juniors and lower ranking.

MARK BLYTH... Death of the juniors.

Why would I want?

I mean God, I mean I know I'm not a Legora or Harvey expert, But I do know the dated space.

I mean, who the hell wants to wait for an associate to scale up for two years?

That was the classic legal hiring.

You hire someone from a top school, ideally that was top 10% of their class.

They have the IQ.

And you basically subsidize them for two years until they cross the line and become senior enough that they can work with a top client or take a case.

God, who wants to do those two years now? unless you have to, unless you have to.

This has been one of our long-running discussions and it's good that I'm evolving my position, Jace.

I said this, I've kind of come more to your perspective that there clearly is something going on here.

And even though I don't believe in the catastrophic mass unemployment scenario, I think you're exactly right.

For a couple of very targeted demographics, one of which is entry-level comm-sci-type jobs.

Other would be actual customer support jobs, actual legal associate jobs.

There is a meaningful impact on unemployment right now.

So I just want to acknowledge you.

Let me finish, right?

It is interesting, and I think that's true.

On the other hand yeah, part of you says typically, when there's new technology right, the best adopters are young people because they come in with less priors.

And there's a part of me that says are these schools doing their job, especially now that it's what?

2026.

If you're graduating ComSci graduates who aren't AI first and totally awash in using these tools, you're just not doing your job.

And I think there's an element of not Rory, you're unable to alter curriculum fast enough to update Sinklord curriculums.

Take time to change.

Well, they need to change that because if you're looking at investing a hundred grand a year for four years at a four-year college education to get a computer science degree that turns into unemployment and a barista job, you should be pissed and you will be pissed. but i'm with you but when you look at andre kapathy's journey in six months time from bluntly using it for 20 to 80 and this is andre kapathy that i think it's unreasonable to expect an educational institution like university to alter the entire curriculum on claude's ability to progress throughout the kind of skill journey it certainly doesn't appear to be happening Rory's point, should we be expecting it from these institutions?

Yeah, they're becoming, you know, they're becoming irrelevant.

They're becoming just babysitting, expensive babysitting for four years.

And they shouldn't be.

And, you know, I think Give him credit.

I think 15 years ago Peter Thiel articulated the perspective that the ROI on higher education is going down.

And at the time, it was still high.

And it's worth pointing out, even to this day, unemployment among college graduates is lower than unemployment among high school graduates, which is lower than unemployment among high school dropouts.

So you're still, quote unquote, better off going to college.

But the point is now you take into account the net present value of that 400 grand, you're not getting your money back on anything other than the best degrees.

It's not, you know, these are not the most deserving people on the planet.

They still have a lower three point something percent versus 4.4 average.

But there is still, but there definitely is a trend here that would be troubling if you're a recent graduate.

So I'm kind of with you on the trend.

Roy, when you say you don't see the mass unemployment case, or you don't quite think that or think it's an overreach when you look at legal computer science, customer support, bookkeeping those alone, if it had no impact anywhere else, would be mass unemployment.

I don't know if it would be.

Again, look at the numbers.

I actually was looking at it today.

Entire tech industry excluding tech people employed in non-tech companies.

Technology NAIC classification 51 tech companies 31 32 million people in the United States, of whom roughly 800000 are software developers.

If you go down by half, that's 400,000 software developers.

It's a lot of people, but it's...

It's 0.2% unemployment.

And how many are in customer support? much bigger number, right?

You're exactly right.

But also way more fungible in the sense of a lot of the low end customer support.

There's lots of other service type jobs folks can do.

I'm just a believer Harry, that over the again I want to be over the medium term.

The technology takes longer to diffuse than we in Silicon Valley allow, and people are more adaptable.

So over the medium, I'm not.

I don't see any kind of 10 plus tech-driven unemployment, which is and I know you're going to disagree

And the point is, we don't have to argue about this because in the end, we'll know, right?

I just think I have 200 years of facts on my side and you have shit, but maybe you're right.

That said, I do believe you are right in the short term.

In isolated pockets of very vocal people are really struggling.

I have three recent college graduates, too, over the last five or six years.

So I'm totally aware of how hard it is to get a job as a college graduate.

And I think it's a real issue and we better get on top of it.

Because what are the other things the French Revolution teaches you, right?

And actually history in general says, It's going to sound really cold.

You can have dispossessed urban poor forever and nothing happens.

But if you piss off the 20 something year old middle class, the overeducated elites, they tend to cause trouble.

And I actually think the continued production of masses of college graduates, fused with their sociology and English degrees, facing and comm science degrees, where they've played it by the rules for 20 years, and then given them mass unemployment for that cohort is going to be problematic.

So I'm kind of... I'm not...

I want to be clear just because I think the macro trend is not there doesn't mean I don't think the micro trend is a real issue.

And that, to Jason's point, I know if it's a moral issue, it's an economic issue.

And I predict in 26, it's going to be a political issue.

I mean, it's so funny to watch the NPS survey, right?

The NPS for AI polls really negative, right?

It's like, and as someone tweeted, you've been telling us you're going to blow up the world and make us all unemployment and you're surprised to discover we don't like you.

I mean, it's almost funny.

Yeah, but at the same time, if you look I'm sure Intercom data says this everyone's data that works in a heterogeneous human AI agent environment, the CSAT is always top 10 for the agents.

It's never number one.

They never say that the number one Most popular person is always a human, but the agent's always in the top.

That is more telling than most people realize, because I think the theme that's like I've it's early, but it's accelerating is we just rather work with agents.

We'd rather hire agents.

We'd rather buy an agent.

We don't want to.

I mean, Harry's got 3,000 applicants for his EA position because he needs a human.

But I tell you, he'd rather have an agent if it worked.

He don't want to interview 3,000 people.

If he could have an agent, he'd pick an agent.

And we're all going through that.

And it doesn't even matter if it's cost effective.

I do agree.

We just would rather have an agent.

I've been thinking a lot.

I know this is Captain, Obvious stuff okay, but my God, why do some of the AI B2B startups grow so quickly?

Right?

The simple answer is product market fit, product-led growth, agent-led growth.

But as you dig deeper and as the year goes on and as we roll into late, 26 and 27 people just want to buy an agent.

They don't want a human.

And if you can deliver, Perceived massive ROI.

That is so appealing.

It is not layoffs.

It is not this.

It is, oh my God, I could get customers.

I could run campaigns.

I could do support without humans.

My God, I want that.

And when I look at so many of the mediocre products the public B2B companies have launched.

They do not service that demand.

I don't want humans at Atlassian or HubSpot or other folks.

I don't want them.

I don't want to make my humans 8% more efficient with your AI.

I don't want these humans.

I want an agent to do this work.

And when you do that, Whether the Legora Harvey, whatever a million on the show, whether they fully can realize that potential, the people will line up at your door when you can give them an AI instead of a human, an agent.

That's what they want.

These are the companies we want to build and run.

And they will keep shrinking as a size of revenue.

They will keep shrinking for this reason.

As is so often the case, I agree with the broad direction and might disagree with not so much the sequencing as the narrative.

I think a lot of the B2B adoption to date, with the exception of customer support and in the last year with the exception of coding.

I think folks like Harvey Legore and GCAI they're not actually about human replacement, except very much at the margin.

At some vague level, maybe I don't need the 17th associate at Linklaters, right?

They've actually, because so far it hasn't been agentic.

So far it's been primarily, let me help you, Mr. Lawyer, be smarter, work more efficiently.

Yeah, at some level, not ask an intern to do something, but it's.

It hasn't been a wholesale replacement story.

I think you're right.

It's been at the task level.

I've been able to increase the number of tasks that I can do and therefore decrease the number of tasks I have to pull in an associate to do right.

I think you're right, Jason.

Now with agents, and I think we've seen it first in software.

It's stunning what's happened in the last six, nine months in terms of the ability of these things to just code start to finish.

And therefore, this is where I think you are right.

We might be at the start of some of this agentification, and the next 12 months will be B2B companies saying now I finally can automate this task entirely.

And then we'll find out what the demand is.

I like to think through a frame of what will my children look at me and how I used to live and go.

God, I can't believe you used to do that.

And I think one of the things they will say that to is I can't believe.

You spent years training people and then they left.

Like all those years wasted and then they left.

That's so nuts.

It's crazy.

I think that will seem incredibly archaic.

I look at my EA today, we've mentioned it.

I've spent years training her.

She's amazing.

And then she leaves.

It's fucking nuts.

An agentic world which compounds education and learning, and they never leave you Jason, would I prefer it.

Motherfucker, yes.

All of that time was wasted.

I've got to start again.

Yeah, I just think if you're founders in B2B, this is what you should be building is something where folks will line up the door because they'd rather work with your agent than a human.

And most of the public.

Companies are not even thinking this way, but the ones, the startups that do blow up.

They line out the door.

Give me an example of the agentic ones, please. as distinct from the automated task ones.

Give me a, what level of agent are you talking about?

I mean, literally, I mean, listen, there's a bunch.

But I've done so much in these GTM agents, these go-to-market agents, OK?

So this last one that we deployed, this Monaco one that San Blon did, I mean they closed seven figures in their first five days and they have 60 days of people lined up.

And look, I'm not hyping it.

They're all good, but why are they lined up out the door?

OK, this is the more interesting question.

Why are they lined up out the door?

Because, whether they're fully successful in all their journey or not, it's worked for us as a tool talks to the prospect, it texts them, it pitches your product and it sets up the meeting.

And the meeting is fully ready to go and close.

If you can deliver that, if you can deliver that, okay?

And it's a high bar and I don't even think it was possible 60 days ago, okay?

And all the other tools we use.

Just just before we call poke holes at it.

It's early, but people will line up the fuck out the fucking door for this stuff.

They'll line out the fucking door for this stuff.

And and so that's what you whatever category you're in.

You want to build this agent that is is sufficiently better than 90 of humans that everyone will pick it.

And the budget magically comes out of nowhere.

It literally comes.

That's why We're just shocked.

The TAMs for some of these products don't even make sense to us.

They're not consistent with the past.

But people will line up the door if you can do this without humans.

I mean, we built our own VP of marketing literally yesterday.

This week was the first time it led our human staff meeting.

Our AI VP of marketing led the team meeting.

It led the meeting.

It summarized every single metric, every single thing, every single thing the humans on our team had to do.

10K of it led the meeting.

I mean, as great as Clay is for enrichment, it's great.

If it could do that, I would give you $50,000 tomorrow, an extra 50 grand tomorrow.

You're doing the intercom deal.

Are you betting that they beat Sierra?

I think that again, I prefer to let Owen speak for himself on what he wants, because he's a very ambitious man.

I'll tell you what I am betting on.

I'm betting on that they can carve out a significant space in that market for that product and that they've had explosive growth in it.

And coming from the SaaS, I'm betting that I'm betting that that team, coming from the SaaS background but being grounded in what it takes in AI, can take a significant portion of market share.

They tend, on average, to be slightly smaller in terms of customer size at the high end of Sierra and they compete more with Decagon.

But one thing that I think in a lot of these categories that are that have traction.

But if you want to say I'm only a partial expert, but if you want to say Intercom versus Decagon versus Sierra versus others, right.

Zendesk, Salesforce.

One thing that people miss a little bit in terms of the winner, which you kind of asked Rory, right?

FDEs, Forward Deployed Engineers, for the moment are a limiting factor.

And let me explain what I mean.

What it means is no one has enough fully trained FDEs that can get a customer up and running fast enough.

No one has enough of these resources, OK?

And what it means, and what it means is that almost every vendor has to pick lanes.

As much as you'd like to do it if it was all software, you've got to pick where you're strong.

And if you're best at digital transformation for enterprises, maybe that's what Brett Taylor is.

You've got to pick that.

And so not that these folks.

I know that the sales team and folks think they're direct competitors.

Everyone has more demand than S tier FDs to service that.

So they're all picking lanes today.

And that is a frontier we haven't crossed yet.

And so in that sense, they're all services businesses.

In a sense, this VC meme is true.

They're not long-term services businesses.

But if you need humans to train it, if you need humans to manage it, if you need humans to iterate it, you have the same constraints that services businesses, have.

And this FTE thing is a limiter.

It's exciting because I think the losers, a lot of the losers out there can't even get good FTEs.

They can't.

Even they can't.

If you look at folks that are a lot of folks that are struggling in AI B2B.

If you peel the layer box, sometimes their agent isn't competitive, sometimes it's too slow, right.

A lot of issues.

But if you really dig down, how many great FDs do you have?

How many folks do you have that can spool up a customer in 30 days?

Well, I've got three.

Well, you're gonna lose.

Just staying on venture and private and just covering the news items so people are up to it.

As I said, Legora raises 500 at 5.5 billion.

Excel lead that round.

Obviously, Harvey are better funded at, I think, $11 billion in the latest round.

Decagon did a tender at 4.5 billion.

Intercom raised 250 million at I don't know the price Roy, you might know, but they didn't announce it.

In debt, right?

No, in debt.

Yeah, they're a large company.

Yes, it's a debt roundup.

Great.

Founders Fund are closing in on $6 billion of new funds.

They invested the last 3.3 in 11 months in amazing businesses like SpaceX and Stripe and Android.

I'd be very happy if I was an LP.

Base44 hit 100 million in ARR.

Don't know if you have anything to say about that, Jason, given Replit.

Does it save Wix?

Well, you know I was thinking we had on the agenda.

CrowdStrike crushes the quarter, trades down right.

Yeah, I was going to move on to that with our predictions.

No, but it's related to the Wix thing.

And then I was looking at Cloudflare, which is on my top four, right?

Cloudflare...

27% growth a year ago, 34% growth last quarter.

I mean, that's pretty good acceleration.

OK, that's pretty damn good acceleration.

40% year over year increase in net new customers.

I think The public markets, we're wondering what's happened this year.

And you had Iran from Monday a week ago on 20 VC, and he said it.

We've got to accelerate. to get back credibility with the public markets.

Accelerate.

Not manage a genteel deceleration, which was 22 to late 2025.

Not manage a gentle deceleration with higher net margins, which everyone thought was the job at scale.

Now, the truth is, you've got to be cloud.

It's not just Pounder.

You've got to be Cloudflare or better.

I wouldn't want to be running Wix because 100 million from base 44 it's great and it shows you can cross, sell right.

And it shows a lot of new things, but their larger customer count is flat to down.

So they've got the gravity of the decline of the core business.

Like they've got to get back to so much growth that a hundred million just, it's not enough.

It's not enough.

And we could.

Rory could help trail out the math, but I think base 44 and there's some cannibalization there.

It's got to be doing five, 600 million to move the needle for Wix with its core growth decelerating.

It's just so hard and And for startups.

You've got to start wondering this year when you should just give up on your portfolio if they're not accelerating.

At what point do you just give up?

Because if the public markets won't tolerate gentle deceleration, how will the private markets tolerate it?

The era of gentle deceleration has ended.

It's dead.

We didn't think it was such a great period 22 to 25 but it was pretty nice that gentle deceleration was tolerable.

I mean, again, so much to unpick.

First of all, to be clear, Gentle deacceleration is like entropy.

It is the end state of the universe because everything deaccelerates to GDP growth, right?

I mean, entropic is- Well, yeah, but like the universe will be dead before some of it happens.

I agree.

So I just want to be precise because you know me, I'm that guy, right?

What you're really saying is- at 10x growth year on year, Entropic can afford to deaccelerate.

At 40 growth, like Figma had a couple of calls ago.

Yeah, you deaccelerate to 30.

You're going to take a little hit.

But you're exactly right, Jason.

What you're really saying is at 10 growth, you're now so close to GDP that you've got to reaccelerate.

So that's really what it is, just being precise.

I don't even know if the public market think it's okay that Figma might decelerate.

I got pushed for that because just take CrowdStrike, right?

Slight deacceleration, 27 to guidance of 23, 27% revenue growth, guidance of 23.

They'll probably beat that by two.

You know, it's OK to grow 25% when you have scale.

I mean, Microsoft and Google are all growing at 13, right?

So you just have to be objective.

When you have enough scale, 25% is enough to matter.

Right?

Not everything's going to accelerate all the time Jason, because it turns out- No, but the markets have been brutal this year.

And I think it's not that you're wrong analytically or empirically, but the markets have given up on folks not accelerating.

They've just entirely abandoned them.

Well, yes.

Again, agreed, I'm being precise.

What they've done is they've said, for three years, I thought it was temporary.

And now I recognize it's permanent.

And now I'm going to value based on this growth rate.

Take a hit off you for technical obsolescence and the terminal value.

Take another hit off you for free cash flow and I'm going to give you eight or nine times EBITDA revenues.

That was sweet that I said that, wasn't it?

That wasn't a good... No, you're exactly right.

I mean.

So they've all created, they've corrected to fundamentally what they're worth, with no pixie dust.

And that's just a tough place to be long-term.

I agree, those guys, The negative spin is they have to reaccelerate.

The positive spin is even a small amount of reacceleration will get you some lift from here.

But you got to do it.

Anyway, Wix is a good example of that.

It's funny.

Let's try and take apart Wix.

I hadn't prepared on this one.

But I can't remember.

The overall revenue is what?

There are 2 billion growing 13%.

Yeah.

If that 100 million business grew at the same trajectory as Loveable or Replit.

I'm going to do some ahead and you guys know the numbers, but let's just play it out.

They went from 100 to 300 plus or minus in a year, fair?

And 300 to 600 plus or minus in another year at least.

If base 10, which is inside Wix at 2 billion, went from 100 to 300 this year, that would mean it's small today.

The problem is this.

From 10 to 100, it gets lost in the noise.

From 100 to 300, it's 10% lift to Wix's growth rate.

So if it's 10 before now, it's 20.

And from 300 to, say, 600, it's 15% lift.

You can't just say it's not big enough, because the nature of a small thing is it's small and then it exponentially compounds.

So I would push back and say if The proportion is also just to say Lovable's at 300 and it projects, it will be at a billion by the end of this year.

I agree.

That's where it's going to go.

It's not that zero to 100 is bad, Jason, but where you are correct is this.

If you're an old school SaaS company and you have this bright, shiny thing inside you that's growing, you know, from zero to 100 in one year, right?

You have to run it in such a way that it can keep up with the lovable and the replates.

And it has to go 100 to 300 and 300, maybe a billion, maybe 600.

And what you're saying and it is correct is, if it ends up hobbled by the wider company or the bureaucracy or the SaaS or the blah blah blah, then you're not going to get the needle moved.

Because well, the challenge is their core customer base.

Their core paid customers declined 12 percent last year, so they're at a terminal state where a lot of b2b companies are where, the where where, and it's not just ai, it is life where they have reached a terminal state for their core customer base.

Right and, And what they've done better than most public companies is hell.

With a great acquisition, they got 100 million of AI revenue on top of it.

That's better than most.

But it is not enough yet.

Not only your math, but the core is declining 1% to 2% a year, which doesn't sound like a lot.

But man, that's rough, right?

But Jason, just doing, I think we're actually ending on saying the same thing.

So you're declining $20 million a year, whoop-de-doo, right?

The point is this, if base 10- Well, you're not adding new customers.

Yeah, it doesn't matter.

Stop.

It doesn't matter.

If base 10 could grow like lovable or replete.

Base 44, but yes.

Base 4, sorry.

Base 10 is a venture firm.

Yeah, cool.

Base 44 could grow like lovable or replete, then within two years they'd be out of the woods and they'd be a 30 growth company right.

So you exactly- Yeah, that's the job, right?

Yeah, they made the right move, but what you're effectively saying is, Inside that other company, they mightn't be able to.

So I think, as an investor, you should be saying to yourself if we think base 44 has the same trajectory, then great.

Then you have a diamond in the rough here.

You get the existing business for free. and you get the new business.

But I think implicitly, you're both saying that it's not going to grow at that trajectory.

It's probably going to grow 100 to 200.

So it's probably going to get the growth rate back up to the mid teens, but it's not going to be enough to dramatically change the trajectory.

That's actually I'm not saying I actually think there is a I think time will tell.

Here's the here's the here's what I and, if we're using Wix as a case study, here's why every B2B company of scale should hope that base 44 works, which is look I love rep, lovable.

They're great.

Okay.

But what, Wix has 6.11 million customers.

The simple reason I'm sure the founder, who's been on Harry's show, will challenge me, but I know half the reason it's working it's a good product is they have 611 million customers to sell it to.

That's okay.

No, it is okay.

They should be able to pull it off.

But $100 million ain't enough.

All the tweets about how great.

The scale is so intimidating that it's tough.

You've got to do what Mark did and buy an Informatica, too, to bridge the gap.

If you're in a game as an existing SaaS company where what Jason's effectively saying is, even when you make the right strategic moves, it's quote unquote, not enough because you can't pull it off for whatever institutional reasons, then that points to a.

You know it's a grim conclusion for most of those companies.

The case study will be Base44 is a good product.

I'm not going to argue where it stands on the hierarchy of vibe coding.

I've used it.

It is a good product.

It's a lean team, but it's a good product.

If Wix can't frack and... cross-sell that to 6.1 million people, what hope is there for you?

This is a rhetorical question to many founders.

It's a bleak question.

Because I can tell you anyone would rather vibe code a website than deal with the crappy templates it comes with.

So it's a great use case.

6.11 million, if it doesn't work, Jason, serious comment.

I think you're exactly right.

I think Wix is, I think it's a perfect specimen use case.

If you can't cross sell the new AI product to existing customers who are trying to do the same thing, just with an older technology, then the acquisition and cross-sell story doesn't work.

This is as good as it's going to get if you're an old-school SaaS company.

Other than managing the client.

So you're right. lab experiment.

As you're watching, Salesforce in my view, wisely buying a few next-generation AI-first companies they've got to do the same dance, just with an extra zero, everywhere.

They've got to take that 40 billion behemoth and find a way to upsell, You know, another 20 billion worth of stuff.

At least they have something in this market to play with.

I look at your web flows of the world in your Squarespace and I go, Ouch.

Yeah, it's a mystery why they're not trying.

I tell you one thing that happened to me this week is I tried Figma Make For Real for the first time.

I know Harry saw it on Twitter.

For my use case, it was terrible.

It was much worse than Base44, much worse than any vibe coding product I've ever used Figma make.

It was terrible.

It was undesigned.

And even worse, all these products have advanced.

So I do this test, and a lot of people make fun of me.

They're like, oh, you're an idiot.

You don't know how to do a prompt.

I've done a few prompts.

My AI apps have been used a million times.

But I also know how these tools work.

So when I want to test a new vibe coding site, I do something very simple which didn't work six months ago and works well today.

Go to sastr.ai and make me a better version.

People make fun of you, there's not enough context, there's not enough data.

Of course there is.

I have massive amounts of context and data on my website.

Scrape it, use your AI, and come up with a better idea.

And I'll tell you, Replit and Lovable and even vZero can do a pretty good job of it.

They come up with ideas.

This is what the AIs are supposed to do.

Make didn't even know it was on my website.

It didn't even try.

It was the worst thing I'd ever seen, nor was it designed.

And so if Figma Make can't do that, and then I can tell you how folks criticize me.

That's the wrong use case.

It's not supposed to do that.

But if Figma Make can't even pick up the context from a website to redesign it, What hope is there for Squarespace and all the other guys right?

Even Figma can't do it.

Worst vibe coding experience I've had in six months is Figma bake.

And I'm not a designer, OK.

I mean.

Because they would say that the use case and I'm sure what the comments said is some version of the use case here is take a design and implement it as code, not take an existing website.

Yeah.

That and res ipsa loquitur is fine in 2026.

Your website doesn't have to say anything coherent because it doesn't matter for design.

That was the other feedback.

Ah.

Which I thought was rather dated.

Because your comment was you were criticizing the work in terms of its written content, not its editorial look.

Well, it was all terrible.

First of all, it didn't design the website.

It just used dated Claude artifacts from six months ago.

So giving me little sparkly icons that are on every tier, three Demo days is not impressive for Figma that there's no design, but it didn't pick up.

My point is they chose not to pick up any context from the assets.

They just chose it.

Did this change your opinion on your optimism as a shareholder or potential shareholder of Figma moving forwards?

Yeah, it shows that the team's not, I think it's worse than base 44.

It's rough.

You're not going to win today if you're doing quarterly release best effort releases.

And I would say most public software companies are also and many struggling unicorns I would say almost all struggling unicorns are doing best efforts.

Quarterly releases.

That's death today.

That world does not exist any longer.

Best efforts quarterly.

Let's get around the table and decide what we're going to ship this quarter guys.

Okay, that's the way i built software.

It don't work today.

I think what's interesting about this discussion is how generalizable it is to the challenges that you know a huge amount of the portfolio faces.

Right is that this challenge of taking an existing business, like you know?

Because one thing i think you can stipulate is the people at sigma are extraordinarily talented.

I mean, it's not a year or two ago since, oh my God, these are the best people out there that built something enormous.

And they clearly have, and they clearly did.

I think this speaks to the challenge anyone faces in a larger company with an existing product architecture finding a way to adopt the new technology, the new architecture and the new way of doing both the way of building and then what you actually have to build in such a way as you can make a big enough impact to change the trajectory of your existing company.

And we've talked about two or three examples.

We've talked about Figma.

We've talked about Wix.

We've talked about Intercom, who seems to have been doing it.

And it's just really damn hard.

But the funny thing is there are literally one point something trillion dollars worth of public companies and another trillion dollars worth of private companies, for whom this is the existential crisis.

And this is really interesting.

We're seeing it across our portfolio.

How do you make sure you matter?

And how do you cut through the internal noise?

And how do you staff your teams?

And how do you create the urgency?

And how do you create a sense of what's possible?

But the odd thing is, this is precisely when you should be hiring young people who are coming in replete with the knowledge and unencumbered by priors.

So maybe all those unemployed computer science, but maybe in some of these SaaS companies, genuine common here you do need some young talent to see what you can do and do some Y Combinator, aqua hires of failed teams and say how do you turn around your RD development, which takes, as Jason says three six, nine months to deliver something, when the team down the road are delivering a new version every week?

Because if you don't figure this out, you're going to trade at eight times EBITDA, which at best is two or three times revenues.

And it's going to be pretty freaking unsatisfactory for the people who paid 30 times.

I don't think there's a lack of desire, by the way, for young people.

I think there's a lack of desire for one or two years in a role who's been indoctrinated enough to think that the world is a certain way with a certain set of tools.

And what you actually want is the 18-year-old who's on every subreddit and knows every intro to a TikTok.

Totally.

We have to make some public market bets, and I wanted to save some time for this.

And so we have four companies that we need to choose.

Jason, would you like to start with your four?

And you can give like a minute as an explanation, or you can just say them.

Up to you.

Okay, hold on, I got a little confused here.

Mine haven't really changed.

Mine were Palantir, Cloudflare, Shopify and CrowdStrike.

OK?

And the fourth one I'm not sure about.

I'm sticking with my three.

I'm going with the same.

I'm betting on momentum is the only thing that's going to save us in the age of AI.

So I'm betting on overpriced Palantir Cloudflare, which is re-accelerating and benefiting from AI, and Shopify, which is gaining market share.

I actually can't find a fourth from my cohort, but because I made up the bet, I'm gonna go CrowdStrike because I don't think AI is gonna hurt them.

But I would almost go IGV instead of CrowdStrike, but I'm gonna go CrowdStrike.

But even though I want to do Atlassian, because I think it's above the fold and a good one, it doesn't fit the thesis.

So I got to pass.

After using Make, I cannot do Figma.

I cannot do Figma after make.

This is not a world-class product.

So I got to stick with CrowdStrike.

I'm sharing you on CrowdStrike.

So we have that in common.

I'm adding NewBank.

I think NewBank is actually dramatically underappreciated.

They're going to enter the US.

It's a good bet.

They've still got David at the helm.

They're growing 28% year on year.

I think NewBank are incredibly solid.

I am going for the incredibly boring NVIDIA.

I think that's a good one.

I think, honestly, if we're going to see inference skyrocket, NVIDIA will win.

Acquisition of Grok, movement into inference layer, I don't fucking sell Jansen.

Great.

And then I'm actually going to go for an out there one of Reddit.

It's down 40%.

I think it's a data layer for a lot of the LLMs.

And given its pricing, it's a good buy.

Well, you had a broader circle than I did.

Yeah.

But that's all good.

That's all good.

Yeah.

And that's my gripe, Harry, because that wasn't the assigned homework.

What was he assigned homework?

He's the schoolmaster.

The assigned homework.

As I understood it was, a whole bunch of SaaS stocks went.

It was.

The software is dead.

Which stocks won't be impacted from that or not?

That was the tech versus the in the universe of stocks are presumably tech stocks.

I don't know.

Are we picking anything?

Genuine comment here, because I thought the intellectual exercise was to say, how do you think...

What was the barrier of what is qualified and what isn't then?

It has to be a SaaS stock.

Totally.

I mean look, if you're saying any tech stock you can do, you probably pile into a bunch of.

I mean yes.

I stuck with the narrow homework assignment, but I support Harry's version as well.

I don't think it's so far afield.

Wait, Jason, what's the narrow homework assignment?

I thought we were trying to find the gems in beaten down software companies.

I think CrowdStrike counts.

I think NewBank is... not really count, but I'll give you a pass on it, right?

I think Nvidia doesn't count, but it's fun.

And I think Reddit probably doesn't count, but it's all good by me.

But Palantir counts?

You don't think it's a software company?

You're still debating this pre-IPO company that's a services company?

Well, I didn't see why Palantir would count.

I'm not saying your choices don't count.

I'm just saying most people would put it in the bucket of software stocks, Palantir.

And they wouldn't put Nvidia in it, that's all.

And there's a reason for this.

I'm just pushing a little.

Because I actually think look, if the question is what should you invest in overall, that's a totally legit question.

And we can have that discussion sometime.

I genuinely thought the exercise here was triggered by software.

The meme was software is dead.

Everything went down.

And then the question you had to say to yourself is, where do you want to play?

You know, like, do you think in the abstract?

I think that's why Jason's comments were interesting.

You had the first question, which is in the abstract, which was without price is quote software dead and what's the continuum of software from?

I don't think it's dead, but I won't grow all the way to.

I don't think it has a future to.

I think it's actually going to grow just fine.

And then second comment is you can have your opinions on that, but then you got to take into account price.

God, I can't imagine going to the scale partner meetings.

We'd be debating this stuff forever.

Just get the... Let's just do the... Thumbs up or thumbs down?

Rory, what would yours be?

I'll tell you.

I think I did the Of the boring ones that have been savaged on a below 10x EBITDA.

I think Salesforce at 8 or 9x EBITDA and even team at 9x EBITDA with decent growth is okay right.

I think those are good stocks.

For the record, I also bought WorldCloud.

I put the full 250K we said we'd bet into WorldCloud the day we bet and we're about up 4% so far.

Nothing major, but nice, right?

In a month, in a week.

I would also do...

So those are companies and the interesting thing about those those are squarely in the strike zone of could be replaced by AI, but I don't think they will be.

Then the next bucket is I actually think the AI fear is overdone and they're kind of in that mid category of GARP.

They're not stupidly priced. and they got decent growth.

And I put Toast and Intuit in there because they're software, but with a huge slug of transactions that aren't going to be replaced by AI.

And then at the very top, I kind of and I actually thought Jason raised the most interesting category, which was the high growth companies, where I think the AI is going to kill them story was totally overdone.

And the best example of that was CrowdStrike.

And the proof that it was totally overdone was by the time we're talking about it, two weeks later, it's gotten back almost all the hit it took on the day right.

So it's been kind of one of those up and then down things, right?

So I would in that bucket.

However, to continue and finalize your thing, I think with more fear because I'm more afraid of the current high price overall than I am of the SaaS apocalypse.

I would, with fear, pick CrowdStrike because you're paying at mid-high teens of MTM revenue.

I think the EBITDA multiple is 50.

The growth rate's 23%.

That's scary. but it's an enduring company.

And I wanted to pick two expensive ones where you're not dealing with.

My first two are 8 or 9x EBITDA boring-ass value.

The other two are early teens EBITDA, which is roughly the same as Microsoft and Google.

Pretty boring, right.

And then you've got the high price ones over 30 and 40 times EBITDA.

In other words, they're not cash flow justified.

So you're still story based.

And I went CrowdStrike, And then I'd get scared.

And then I'd get drawn to Palantir.

And I never thought I'd say that because I've been.

No, but the growth rate, they're one more year of growth away from being normalized okay.

And maybe you're a year and a half.

In other words, you're forward paying two years.

And I think this administration is going to spend for two years.

So I reluctantly, reluctantly put Palantir into that bucket.

And so that's kind of where I come out.

Wait, was that seven or four?

Who were the four?

Two of each.

Two cheap value, two GAR and two, oh my God.

I mean, it's, you know, it's prices where you kind of go, you have to get the, To your point, and that's why I thought the last category that you put all of them into is the venture category.

Effectively.

The only category that I listed that's even vaguely venture relevant is the 30 growth plus people.

And that's...

Yeah, the crowd strikes the palantirs of this world.

The astonishing thing is, 95 of the assets in the public market are utterly venture, irrelevant in terms of growth rate and everything like that, because you just haven't had any public IPOs.

By definition, the return profile from this back is probably significantly below what you should be able to get in venture if you've got the right price, which is, of course, the caveat.

As long as you've tracked those four areas, it's good by me.

Yeah, yeah.

Baniyov's gonna be unhappy with you, Jason.

You go to his- I mean, no, no, it's not that I would, I'll pick value stocks.

I'm a deep, deep believer in Salesforce.

I guess I can swap it.

Jason, if you would choose one value stock today like I'm not asking you to actually put your money in this one, but like- where you're, like I'm having to reach for a gem in value what would it be?

Well, listen, I only believe in reacceleration.

This is my only thesis, right?

I have no other thesis.

And so you have to pick Atlassian, because I can't find another downbeat and one that's reaccelerating.

It's that simple.

And so my fourth one, Palantir, Cloudflare, Shopify, it's just the math.

For the fourth candidate, I was CrowdStrike versus Snowflake versus Atlassian, right?

I had Atlassian, I would pick Atlassian and probably in a year I'd pick Salesforce, because I think it's all gonna work.

Don't get me wrong, but we need to see it.

Um but uh, the only reason I ding snowflake is and this, this is no, I couldn't do better is it's not founder led?

And it's just, that's my thesis today.

Like I, I can't pick Mongo or I killed Mongo or snowflake just on not being founder led.

That's just, that's just, just have a bright line.

But if you look at the numbers, you could argue Snowflake's a better bet than CrowdStrike, right?

But Atlassian, I don't know why it hasn't gotten any credit for reaccelerating, right?

I mean, obviously the answer is they don't believe it will sustain.

They don't believe it will last, right?

I think the argument there, and that's why I hesitated, I put it in because I like it.

The argument there is, which is a scary one, is that the software development lifecycle itself is changing so dramatically that you're effectively a software product that coordinates the software development lifecycle.

You know, seats are going to change, workflows are going to change if you don't stay on top of it.

You have a software that coordinates how people engineering departments run in 2022.

And the risk on team is that in 2027 they're just going to run so differently that you're not the thing.

Now I'm willing to bet he can figure it out, but yeah, there's a legitimate risk on that one.

But in a way I don't think.

For example, I think on Salesforce.

You know, your destiny is a little like SAP.

Your worst case, if you can't reaccelerate, you just optimize, right?

And boring as be damned, increase free cash flow.

I mean it is worth pointing out that all the big One of the reasons I went with that was all the big pre-SaaS companies that had systems of record.

Oracle PeopleSoft, which rolled up into Oracle and SAP, survived and financially thrived, even if they're not exciting in the age of cloud.

And my guess is Salesforce does the same in a way that the mid-tier point products don't.

In a consolidating world in cloud, they can probably be mean and pick up other people.

Yeah, that's uninspiring, but there you go.

Well, what people, I mean, listen, Harry, you can bring it to an end.

If you wanted to bet on Salesforce, I'll tell you the simple reason.

It's just the numbers don't show reacceleration yet, right?

At least the organic ones.

I'm long on Salesforce.

The simple reason and I know this, being super deep on agent force and everything is, unlike a lot of folks on this list, they have more demand than they can serve.

And it's a complicated issue.

Not every customer can get agent force to do what they want and can train it and get an FTE.

But what you really want to squint and bet if you want to bet on turnarounds is who has more AI demand than they can service.

And there may be more than Salesforce, but there probably aren't too many more folks who literally are turning away customers because they can't service.

And going earlier in the conversation.

Those are the startups I want to bet on too right that have that.

How are you going to build something where the demand for your agent is so strong you can't even service it?

And Salesforce does have that.

The reminders for me on this.

Just to put it that I have to revisit in my own head the eternal venture question of how much for how much.

In other words, how much extra on revenue or EBITDA multiple do you pay for 30 growth versus 20 versus 40?

Jason, to your point, because I like your sort algorithm.

And in a venture business, they're the only things you invest in.

But I will say, sometimes in the public markets you just get a little scared at the kind of 30 40 times EBITDA multiples, 12 14 times revenue multiples, in conjunction with the 20 growth rate, when you think back to the fact that the average SaaS company used to trade at six times with a growth rate of 30.

So there's a little part of me that says.

What happened at the low end was everyone woke up and said these things aren't growing at all.

I'm giving you eight times EBITDA.

That's it.

The question is, what happens if at the high end people go 20% or 30% growth?

It looks great relative to Salesforce. but it looks shit relative to Entropic.

And maybe I shouldn't go back to my.

Oh you know, six times revenue, seven times revenues and you have 50 capital risk.

I mean, I don't know.

I'm not saying it's going to happen.

I'm actually saying I'm reminding myself of how, you know, just good growth at a pricey price is always tricky.

You know, the great thing about 100% growth is it covers everything.

Growth solves all.

Time for a wrap.

Game on.

[Anthropic's Legal Battles, The AI Capex Reckoning, and the Death of the Junior Developer]-[Anthropic vs The Pentagon： Who Wins？｜ The Data Center Arms Race ｜ The Ultimate Stock Picks]

📋 Summary

The Legal and Strategic Peril of Anthropic

The Overinvestment Debate: Infrastructure vs. Economics

The "Death of the Junior" and the Shift to Agentic Labor

The End of "Gentle Deceleration"

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[Anthropic's Legal Battles, The AI Capex Reckoning, and the Death of the Junior Developer]-[Anthropic vs The Pentagon： Who Wins？ ｜ The Data Center Arms Race ｜ The Ultimate Stock Picks]

📋 Summary

The Legal and Strategic Peril of Anthropic

The Overinvestment Debate: Infrastructure vs. Economics

The "Death of the Junior" and the Shift to Agentic Labor

The End of "Gentle Deceleration"

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[Anthropic's Legal Battles, The AI Capex Reckoning, and the Death of the Junior Developer]-[Anthropic vs The Pentagon： Who Wins？｜ The Data Center Arms Race ｜ The Ultimate Stock Picks]