No Mercy / No Malice: A New AI World

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I'm Scott Galloway, and this is No Mercy, No Malice.

Which AI company will build and sustain trillions of dollars in shareholder value?

The answer is no.

The New World of AI, as read by George Hahn. A hat tip here to Financial Times columnist Robert Armstrong, who gave some insight on the Prof G Markets podcast, which led to this post.
DeepSeek, which has wiped out more than a trillion dollars in market value so far. What is your view on DeepSeek? In a way, a genie has been let out of the bottle that cannot be put back in.
If it is in fact true that AI models are much cheaper to build and even run than we thought before, people who are on the right side of this trade is everyone. Now we have a vision of the AI industry where it is much more competitive.
Much of the value might be captured by consumers rather than companies. A new technology emerges that ushers in remarkable productivity or, better yet, dopamine on demand.
A group of talented people builds a thick layer of innovation on top of the tech,

financed by government,

and a small number of CEOs leverage storytelling to access cheap capital

and overwhelm the competition with brute force.

These companies engage in regulatory capture, i.e., they become johns for our elected whores, and create trillions in shareholder value.

GPS, e-commerce, payments, search, social, streaming, all produced trillion-dollar-plus entities. AI is likely as transformative a technology as the aforementioned, and it's already setting records for consumer and enterprise adoption.

So the question is, which organizations will capture and sustain trillions in shareholder value?

The answer may be no.

Mark Andreessen says DeepSeek is AI's Sputnik moment. That's the wrong analogy.
This isn't a rival flexing technological superiority, but dispelling the myth that we, the U.S., are the only game in town. The Soviet Union did that before Sputnik, in 1949, when it detonated its first nuclear weapon.
Bicycles, sanitation, airplanes, vaccines, and CRISPR are just a few technologies that have changed the world, but their benefits were dispersed across society rather than being hoarded by a few shareholders. I increasingly believe AI will join this roster.
It presents dynamics similar to most stakeholder versus shareholder innovations. Government-backed or university-developed, like the Internet, GPS, vaccines.
Open source or public domain, like Linux, Python, Wikipedia, USB, and too foundational to be monopolized, like bicycles, sanitation, airplanes. In sum, the winners here will be stakeholders, not shareholders.
Scan your emotions after reading the last sentence. Did you reflexively grab your shareholder pearls and feel this was maybe a bad thing? It isn't.
America becomes more like itself every day, and our obsession with and idolatry of the dollar has put the public good in the backseat.

Billions of stakeholders benefiting from AI versus one business becoming worth more than every stock market on earth except Japan and the U.S. and one man being worth more than Boeing

feels less sexy, less American. Hint, NVIDIA and Jensen Huang.
In December, Chinese hedge fund High Flyer released an open-source AI chatbot called DeepSeek that looks to be almost as good as OpenAI's ChatGPT. It was reportedly designed in a matter of months by modestly paid millennial engineers

and doesn't run on the expensive NVIDIA chips the U.S. prohibits from being sold to China.

DeepSeek reportedly cost $5 million to train.

It cost $100 million to train OpenAI's LLM.

NVIDIA fell 17% on January 27, losing over half a trillion dollars in market cap. In one day, the company shed the value of the entire global auto industry, not including Tesla.
We don't know if January 27 was a speed bump in AI or the beginning of a tech market correction many have been expecting for 15 years. Some air definitely came out of the balloon, but just some.
NVIDIA fell to its October 2024 price level. No big deal.
The deep-seek revelation was shocking, but not surprising. A Chinese company knocks off an expensive U.S.
product at lower cost? See above. China.
In retrospect, it's easy to identify the action that rang the bell at the apex of a market. I believe the gong may have been the news that SoftBank is close to leading a $40 billion investment in OpenAI at a valuation of $340 billion.
This is double the valuation the firm raised at four months ago and a similar valuation to TikTok parent ByteDance. IP theft and addiction are both great businesses.
However, crime pays more as OpenAI is being valued at 92x revenues versus ByteDance at 2.3x. Jesus, after reading the last sentence, I wonder if Sam Altman is going to begin using terms such as community-based EBITDA.

Masayoshi-san's limited partners, i.e. his investors, are looking for venture-type returns, 3x to 5x in 7 to 10 years.

Meaning Masa's LPs, i.e. masochists, believe OpenAI will be one of the 10 most valuable firms in the world.

Soon.

Yesterday, I skirted along the edge of the atmosphere at four-fifths the speed of sound,

traveling from London to New York in seven hours.

The least expensive tickets were $400.

Jet transport technology has changed the world. 60 years ago, my mother crossed the Atlantic in a steamship.
It took seven days and cost 4x what flying does today. Commercial aviation has created enormous value.
However, the vast majority of that value has been captured by consumers and society versus airlines. Since 1945, the industry has experienced years of low-margin profitability, only to have its gains wiped out by periods of huge losses, like $128 billion in 2020.
Starting in the 1980s, personal computers put technology that had cost tens of millions 20 years earlier on nearly every person's desk. The gains in productivity globally have been substantial.
I was on the board of Gateway Computer in 2006,

Weakflex. We were the second largest manufacturer by unit volume of a technology that, at the time, had greater adoption and a bigger impact than AI has at this moment.
I raised and purchased 18% of the firm for $90 million.

18 months later, we sold it to Acer. I raised and purchased 18% of the firm for $90 million.

18 months later, we sold it to Acer for $900 million.

Why?

A, the CEO urged us to sell as he felt there was a real risk we might run out of money.

Think about this.

NVIDIA shed 600 gateways on the DeepSeek news.

AI could be enormously valuable

and at the same time a lousy business.

As with email, the user may capture 99% of the value

and the manufacturer, 1%.

What looked at first like a proprietary asset may turn out to be a public good. By the way, isn't this how education and healthcare are supposed to work? But that's another post.
Vaccines may be a useful analog here. I have a stock screen looking for potential fallen angels to buy.
One of them is Moderna.

At the height of the pandemic, the company's stock was nearly $500 a share.

As I write this, it's $33.

Vaccines may be the greatest innovation in modern history.

However, their value to shareholders is fleeting.

Private assets can transform into public ones for a variety of reasons. Economists have different words for the process depending on the details.
It might be called decommodification, non-excludability through diffusion, or commonization. They're all Latin for, there is no money here.
The ironies of DeepSeek are pretty rich. The biggest is, as John Stewart pointed out, AI stole AI's job.
Another one is the way Sam Altman has been bitching that DeepSeek stole some of his IP, distilling big OpenAI models to produce its own smaller, more efficient version. This conjures Steve Jobs whining that Bill Gates stole the idea of a graphic user interface from Apple.
Gates responded that Apple had stolen the idea too, when Xerox PARC left its garage door open. OpenAI is built on data it took from other people under the banner of fair use.
Hannibal Lecter is irate that his neighbors aren't vegan. Another irony is that the U.S.'s attempt to keep American-made chips out of China may turn out to be a powerful argument in favor of free trade.
NVIDIA is now in a reasonable position to tell the U.S. government, quote, You've only created an incentive for adversaries to develop workarounds, destabling the AI industry and U.S.-China relations, unquote.
Anyways, it's an argument.

Finally, though, what looks like it may be very bad for business

has the potential to be wonderful for the rest of us.

Not just for the public, but also for the tech industry.

Since the rise of Amazon and then Netflix,

valuations have been driven not by innovation, but capital.

We thought King Kong was singular and under U.S. control.
And then a prehistoric reptile appeared on our shores, empowered by many years of exposure to nuclear radiation. FYI, Godzilla, hashtag awesome,

was meant to be a metaphor for nuclear weapons.

Feels weird, but recently I find myself rooting for Canada, Denmark, and the lizard.