Ten31 Timestamp: Partly Cloudy

Marty Bent (0:00)

Monday, October 19th, year of our Lord, 2026 John Arnold, we meet here to go over the situation that was monitored over the weekend. How are you, sir?

John Arnold (0:11)

I'm really disappointed, because I was promised Black Monday. If you were on the timeline over the weekend, if you happen to be an ex-addict, as I imagine most of our listeners are, unfortunately, you were probably shown charts on Saturday night showing that there was a massive 50 basis points wick on the S&P on hyperliquid, and that was supposed to be presaging Black Monday this morning. But thus far, I'm seeing much less chaos and carnage than I was promised. So unfortunately, nothing can ever happen.

Marty Bent (0:39)

Quite the opposite. NASDAQ up 1.4 percent, S&P up 67 bips on the day, Dow Jones positive as well, VIX down.

Yeah, no Black Monday here.

John Arnold (0:56)

I am not in fact entertained. Neither.

Marty Bent (1:02)

We won't talk about the French riots. We're going to jump straight into something we discussed last week, which was the, it wasn't Anthropic specifically. We was talking about OpenAI and the revenue numbers. I remember that was two weeks ago, but big headlines here over the last week from Anthropic. Anthropic third quarter revenue is set to hit 16.8 billion ahead of IPO.

Big number, but growing slower. Then previous quarters, and that's causing a lot of consternation. A lot of people are saying the AI trade is over last week, over the fact that a lot of the Neo clouds tanked, and then we just have Anthropic coming out and saying, they're going to strengthen their defense against distillation attacks. In recent months, we've made substantial progress in reducing the effectiveness of distillation attacks on cloud using new methods that will be outlined in this blog. Early evidence suggests that these methods have reduced the amount of data harvested by distillers by around 90 to 99 percent, so trying to protect what they deem to be their IP. But I think the all in guys were talking about this over the weekend too.

The whole business is built on a massive distillation attack of all the information that has ever been aggregated in human history.

John Arnold (2:14)

It is a bit ironic when you kind of step back and think about it, but I think this is, I felt like a good lead off for the week because this is where, this whole story, the AI complex is really where a lot of the themes that we talk about meet most keenly everything from real resource demand to running it hot to reshoring to geopolitical competition, ultimately to the government's ability to fund itself and then through that to Bitcoin. So all roads kind of run through this right now and you can see that in markets last week. As you said, the testing the waters meeting or maybe just be, maybe post testing the waters now, it may just be the actual roadshow. But in any case, the private investor meetings that Anthropic did last week failed to impress. There was deceleration in Q3, which is the literal worst thing you can imagine as a public markets investor, especially if you work at a massive platform shop. One thing you can't do is decel, and there was deceleration, even though we're at numbers that a year ago probably would have been, gotten you laughed out of a lot of rooms, at least on the East Coast.

I just thought that, I think there was a lot you can say about it. There are a lot of projections you can take. The distillation piece was interesting to me because I think there's some debate over how much impact that might have had on Q3, if they were aggressively moving to reduce distillation, and now you pass that headwind and maybe you see growth pick back up. You could also make the argument that, well, if a meaningful amount of the business was built on distillation that they're not going to allow, then how much revenue growth was somewhat unsustainable. People can make their assessments on that, but either way, I do think you're getting into a point now of the numbers have gotten big enough that it's going to get harder and harder to sustain the level of optimism and constant bid and constant positivity around the story. If you're seeing any hint of things kind of slowing, I think the distillation element is interesting on a geopolitical perspective because on one hand, I can agree with all the all-in guys that, well, it's kind of unfair, it's kind of ridiculous to be against distillation when all the IP was in some sense built on distillation. The flip side is, I think we're going to see if it has a meaningful impact on the delta between the frontier and open source and open weights. Well, that probably won't be answered over until the next few months or through the end of the year, as we see model releases and how they stack up. But from a national security perspective, from a winning the AI or the SI race, I guess perspective, I do think that it'll be very interesting to see how much that actually matters to the open model competition.