AI peak is peak AI

Rob Armstrong (0:06)

Pushkin. The vocabulary word of the day today is Ouroboros. For those of you who don't know that word, it is a snake that eats its own tail, and it is a powerful symbol both of life and of death. Today on the show, we will be discussing whether AI is the synergistic parabolic, high growth, high return investment of a lifetime, or a monster in the process of consuming itself and taking all of us with it. This is Unhedged, the Markets and Finance podcast from the Financial Times and Pushkin. I am Rob Armstrong coming to you from a refreshingly cool New York City, where I am joined by the editor of the Lex column, John Foley. John, welcome back to the show.

John Foley (1:10)

Thanks, Rob. It's a delight to come here and discuss Ourobori with you.

Rob Armstrong (1:17)

In the last couple of weeks, the kind of diagram that is dominating Wall Street research reports is what you might call a spaghetti diagram of the relationships between the companies that make up the AI industry. So OpenAI, Google, Microsoft, NVIDIA, AMD, CoreWeave, Oracle, Intel, the US government, all there's like different kinds of lines connecting all these things that represent kind of customer relationships and investments and take or pay contracts and et cetera. Can you just give us a little flavor for the Ouroboroish? The Ouroboriality of this.

John Foley (2:00)

Yeah. So all of these companies that you've mentioned all do different things that are necessary for the arrival of AI and the mass adoption of AI. From NVIDIA makes chips, AMD also makes chips, CoreWeave puts the chips into data centers, Microsoft also is using data centers to create cloud products for its customers, et cetera, et cetera. What's happening at the moment is that all of them are kind of finding different ways to work together and invest in each other, to bring this new AI reality to fruition. But it's very confusing and it ranges from direct investments. So NVIDIA, for example, investing in OpenAI and saying it would invest more, OpenAI investing in chipmaker AMD. Some of these are just kind of commercial collaboration. So for example, you can now use OpenAI's models on Google's cloud, even though Google also has its own models and is a competitor to OpenAI. So everyone's just kind of trying to work out, like, who can do something for me right now? It doesn't matter whether they're a competitor or whether they're literally doing the same thing or doing something different. They're a supplier, they're a customer.

Rob Armstrong (3:04)

And strategically, what do we make of all this? Let's look at it from the point of view of Sam Altman, the head of OpenAI. Strategically, what is the point of all of this? Basically, handing back and forth of quite large checks.

John Foley (3:22)

So, Sam Altman has a problem and an opportunity. The problem that he has is that he wants to build an enormous number of data centers that process an incredibly large amount of data. He's looking at spending about a trillion dollars, we've worked out at the FT, on data centers. That's the problem, he's got to work out how to do that and how to fund it. He needs all the ingredients, he needs the chips, he needs the bricks and mortar, he needs the power, he needs the cooling systems. The opportunity is that OpenAI is red hot. Everyone wants a piece of it. No one is not taking Sam Altman's call at the moment. It looks like he can dictate terms. So he can call all these companies that are part of this ecosystem and say, I need you to commit to do this. I need you to commit to give me chips, I need you to commit to build me data centers. Here's what I want in return and they say yes.

Rob Armstrong (4:07)

Yeah. Buy some of our equity or we're going to buy some of your equity or we're going to have a contract where I commit to spend $50 billion with you over X, Y, or Z period.

John Foley (4:16)

Absolutely. And he really is mixing and matching. So some of these deals are similar but different. So for example, NVIDIA has promised to buy a stake in OpenAI, a large multi-billion dollar stake in OpenAI. AMD, which is a rival to NVIDIA, is instead giving OpenAI a massive slab of stock, 10 percent of the company pretty much. And it's not quite giving, but it's basically giving it away for a pittance. So in each case, OpenAI gets a promise that it will receive loads of chips, and it also gets something else. NVIDIA is putting in cash, AMD is putting in stock. They're sort of paying tribute to Altman and saying, thanks for being a customer who's going to buy a shedload of our chips. And in the process, is going to keep our own stock market valuations high because we share in that glow that surrounds OpenAI right now.