Reid Albergatti (3:34)

Yeah, he's really picking on the Apple. I think it's, I think it is really remarkable because I mean, Gruber has been, you know, the ultimate Apple fanboy over the years and Apple loves him. I mean, I think, you know, him doing this, it's almost, it almost seems to me like a, like a spell has been lifted. He sounds like somebody who's been under a spell, I think probably for many, many years and is now sort of waking up to reality. Because it's not like this is, you know, something brand new. It's not like this is a huge turn of events, right? This has been a gradual thing that's been going on for, for many years as the company is sort of scaled back on innovation, really leaned on the fact that it's walled garden, some might call it a monopoly. And it really, I think used that marketing power, that goodwill that it's had since the days of Steve Jobs here to kind of show that hey, we're not actually behind on AI. And of course they are behind on AI and that's just the reality. And I think when you come out and you sort of and you make all these promises, I mean it's bound to come back and bite you. And I think that was, that was Obvious to anyone who is not under the Apple spell. I think immediately when they, you know, when they did that big marketing show a year ago. So, you know, it's just fascinating to see the world's biggest Apple fanboy turn on the company.

Alex Kantrowitz (5:00)

Yeah, like I think Gruber has been willing to be critical of Apple in spots appropriately so he's kind of came on the show last year to do an Apple super episode. I think it was really fascinating to hear his perspective about the good times and the bad within Apple. And you know, I think that it wasn't, it wasn't just him that bought this Apple Intelligence message, it was the market as well. They sent Apple stock up significantly on the belief that there would be a super cycle based on the iPhone 16. But the thing I think that is particularly different here with Gruber is that he's, that Apple has lost trust. Lost his trust. He says the fiasco here is not that Apple is late on AI. It's also not that they had to announce an embarrassing delay on a product featured last week. Those are problems, not fiascos. And problems happen. They're inevitable. The fiasco is that Apple pitched a story that wasn't true, one that some people within the company surely understood wasn't true. And they set a course based on that. I think that Apple, the, the Apple, the Apple sheen, right, has been a big part of this company for a long time. What they said was taken as gospel. They rarely, rarely failed in public. When they did it was non consequential like Apple Maps. I mean Apple Maps is nothing compared to Apple Intelligence. Now they're failing in public and they're losing credibility. And I think that double whammy, right, picking up to, you know, why we think Apple's Siri embarrassment is more than just a product. I think Gruber captures that pretty well.

Reid Albergatti (6:30)

Well, I would just add that it's not that Apple intelligence isn't as good as they said it was going to be or that, you know, it's the fact that other people are innovating and that's what it's being compared to. Right. We can see the rest of the market, we can see advances in AI. These other companies now can't even keep up with demand for their AI products. And meanwhile Apple's is terrible. And I think that's the problem because before what would happen is Apple would, I don't think this is the first time they've done this. Right. I mean they make all sorts of claims and promises that are not true. They've done that over the years, but their customers are really locked in and they've. And they prevent innovation. Right. So like, it's not like there was some other App Store, you know, I mean, you had the Google Play Store, but essentially like the App Store for Apple is its own market, right. And there wasn't, there's not another app store on there. So it's not like you could really. There was nothing to compare it to and now there's something, something to compare it to and people. And that's sort of the problem, I think.

Alex Kantrowitz (7:34)

And I think that that's totally right. And what really forced the issue here, we talked about it a little bit last week was the Amazon product reveal with its voice assistant, whose name I won't say because mine is not muted right now. But we are expecting that, that AI Assistant plus to come out this month. And if it does, it's going to really make. And it works. It's really going to make Apple look even worse. And I mean, I'll just tell you, I was speaking with some Apple watchers after that Alexa. Oh, shoot, I said it plus reveal. And they were just completely shaking their heads being like, you know, why, why can't they do that? And last week we ventured a guess on the show that it was culture. And I think that Gruber just gets to it in his post in a way that's extremely salient. He cites a 2011 Fortune story talking about Jobs and his intolerance for failures. Steve Jobs doesn't tolerate duds. Shortly after this Mobile Me launch event, he summoned the team, gathering them in a town hall auditorium in a building on Apple's campus. According to a participant in the meeting, Jobs walked in, clad in his trademark black mock turtleneck and blue jeans, clasped his hands together and asked a simple question. Can anyone tell me what Mobile Me is supposed to do? Having received a satisfactory answer, he continued, so why the fuck doesn't it do that? And then basically, Jobs berates the group for the next half hour. You've tarnished Apple's reput rep reputation. You should hate each other for letting each other down. And Gruber cites this and now he returns to Cook. He says Tim Cook should have already held a meeting like that to address and rectify the Syrian Apple intelligence debacle. If such a meeting hasn't yet occurred or doesn't happen soon, then I fear that's all she wrote. The ride is over. When mediocrity, excuses and bullshit take roots, take root, they take over a culture of excellence, accountability and integrity cannot abide the acceptance of any of those things and will quickly collapse upon itself with the acceptance of all three. What do you read from that, Reid?

Reid Albergatti (9:45)

Yeah, again, I just think it's. That's been true for a long time. And you can ride the wave for a very long time when you have essentially a monopoly. Right. So I think for people who've really watched the company closely, it's like, you sort of know this, but it just takes a really long time for this stuff to kind of play out. And we're just seeing decisions that happened a decade ago start to really manifest itself. And I don't think Apple's going anywhere. I mean, I think, you know, they'll have, they'll have many more years and probably good years in the future, but it's just not, it's not going to be looked at the same. I also think if you look at these companies, like all the other big tech companies are kind of like doing everything now, right? They're like, you know, meta is. Is doing their own AI chip and spending billions of dollars to roll out these data centers. Sure, Apple, Apple is going to do that too, but I think it's not the same thing. And I mean, look at Amazon with aws. They all have these multiple lines of business. Google, you know, they're leading quantum computing. And Apple just, it's just an iPhone company. And I think it's just. That's a really narrow thing in today's world where, you know, there's this explosion of this new technology. And also, you know, another BS thing that Apple pitched, which is this privacy thing, which, honestly, like, I cannot believe how much mileage they got out of that. They kind of just painted themselves into a corner because, you know, all these other companies that Apple has been trashing for all these years, they've been collecting this data and, and growing their, their ML expertise for many years. And now, you know, that becomes this very valuable technology and Apple's just not doing it because they, you know, I think because of really another BS marketing tactic, honestly.

Alex Kantrowitz (11:38)

Yeah, and look, I, I think what you said about Apple's not going bankrupt. Neither of us believe Apple's going to zero, I don't think. I mean, they are the one company that stayed above $3 trillion. They're down 12% this week. And we're going to talk about the stock implications here, but they're not, it's not like they're going to fall apart. The iPhone is still strong, services is ascendant. But they also have had declining iPhone sales like their iPhone sales in Q1 this year were I think 3 1/2% less than they were two years ago. That's not good. You actually want that number to go up if you want a higher install base. And so you could, you basically are going to become a company that is milking your asset, which is Apple installs with things like app store fees and Apple TV plus fees and storage fees and not a company that's going to be selling the things that, that people love and selling your inventions. And I think that there's one thing that I would add to Gruber, which is that I think they still are a company that knows how to build excellent products. I love the latest gen iPhone that I have and the MacBook for instance. But it's a very specific type of excellence. It's an excellence that makes products work very well with their custom silicon and the fact that their operating system is closed and they control it, that's a great innovation and it works well with their operating system. But that type of excellence is not a type of excellence that transfers well. And to AI, which is inherently messier, more open ended like you said, requires more data, requires more collaboration. A large language model is unlike most other programs in that it's totally probabilistic, like it's not a deterministic program, which means that when you release it, you don't control it. And I think that's tough for Apple and their culture of excellence in one area just is very difficult to transfuse onto this area totally.

Reid Albergatti (13:31)

I think in the tech industry you have to constantly be disrupting yourself and you know, if you want, if you want to survive in the long run. And you know, a walled garden is, is a way to just sort of, you know, be insular and sort of, you know, ride what you have. And I mean even their company headquarters, you know, it is kind of like a walled garden, you know, it's like a metaphor for the company and it's like it's not. Again, I don't even think this is so much about Apple. Apple is just the same, they're doing the same thing, it's the same company. It's just eventually, eventually new technology comes along, right? And you just don't know when that's gonna happen. Like nobody saw ChatGPT happening and you know, but you knew something like that would happen eventually, right? It's totally unpredictable and you know, now it's happened and it's actually a great lesson about antitrust too. Cause there were all these antitrust cases against Apple and I always thought it was like, you know, I mean, yeah, they are this monopoly and a lot of those cases, like cited stories that I wrote, you know, when I was at the Washington Post. But I'm like this. And I had this thought at the time, like, this is never going to disrupt Apple. What's going to disrupt them is new technology. That's how you create sort of creative disruption. And it's sort of why to bring it to what's going on today, you know, in Washington. It's like, why when, you know, you start defunding basic research, that's the stuff that ultimately those are the seeds, to use the Apple metaphor, that eventually lead to, you know, this new technology that forces companies to either innovate or, you know, or sort of die on the vine.

Alex Kantrowitz (15:13)

That's right. And yeah, and I don't think like this is our second week in a row talking about this. I don't think it's because we hate Apple or we're rooting against it. I just think that this is a fascinating business story. It's the most powerful, most valuable US tech company failing to get ahead of the latest, the most important tech moment in a long time. And that's why we're here, not to try to shit on Apple or anything like that.

Reid Albergatti (15:40)

I agree. I probably sound like I'm anti Apple. I just bought a new MacBook Pro. It's amazing. Love it.

Alex Kantrowitz (15:48)

We always have an idea. Every one of these segments is. We would talk about how bad Siri is and then our latest trips to the Apple Store.

Reid Albergatti (15:54)

But I do hate Siri.

Alex Kantrowitz (15:55)

Yeah, I mean, both can be true. And that there's a reason why they're still the most valuable company in the world. By the way, a little more collateral damage to this. I don't think anyone picked this. Very few people picked up on this. But it was buried within a Girman story in Bloomberg. He says Apple is still working on a foray into a new product category, the Smart Home Hub. Its developed device code is called J490 with an iPad like screen and home control features at one point. The company had hoped to announce the product in March, which is now. But because the device to an extent relied on the delayed Siri capabilities, it has been postponed as well. So there is collateral damage here.

Reid Albergatti (16:36)

Well, have we belabored that point?

Alex Kantrowitz (16:40)

I don't know if we've done enough. Uh, but, but it's now, now it becomes interesting because like I said, Wall street for a long time didn't penalize Apple here. Uh, they still expected big upgrades in the iPhone 16 and the iPhone 17. And because of that, the stock price has held very strong. And again, it's a story stock in some ways. It's trade. It trades at a premium. People hold it as a dear possession. Like even in the comments on some of the CNBC clips I watched on YouTube this week, people are saying everything these people downgrading Apple are saying is correct. But I'm still never selling a share. But the downgrades are coming and Apple got in the past week downgrades from Jefferies, from Barclays and from Morgan Stanley. And there's this analyst Eric Woodering at Morgan Stanley that I thought has had some terrific coverage on what's going on with this, with the stock. And I'll just read a, a little segment that he shared on Closing Bell with Scott Wapner about this on cnbc. He says, okay, he says it, it has an impact on, on upgrades that Siri or an advanced Siri integrated with Apple Intelligence is the number one feature that consumers want from Apple. And in the event they don't get the Apple Intelligence feature they're looking for, 50% say they defer their iPhone purchase. As a result, it has an impact on upgrade rates. So Wall street has gotten in. They have seen what we're starting to see, or they're starting to see what we have seen. And they're, they're downgrading and the Stock is down 12% right now. I don't want to do like a stock prediction game, but you know, like how far down could this go? But again, if it's a stock built on a story and built on a sterling reputation, if the story and the reputation starts to take a hit, those share prices can as well.

Reid Albergatti (18:35)

Yeah, for sure. And I think they're not even really, I mean, even, even those analyst reports are like such, it's such short term thinking. It's like, oh, well, maybe it'll be next year when Siri gets better and then people will, you know, flock to the iPhone again. This is, I think the AI thing is it's changing the whole paradigm. And so you have to think there will be things about the way we, you know, that the phone may not be the form factor, you know, in the future at some point. Right. Because of the way AI is changing things or, you know, it doesn't really may not make sense to, it may not matter. Like the, the, the technology may surpass the whole concept of a walled garden, you know, altogether so, and again, it's not predictable. And I'm not making a prediction, but I just think this is how these things go. Like, we just can't, you can't even imagine what the world is going to be like when these new waves of technology come in. And you know, all I know is it won't be the same. So.

Alex Kantrowitz (19:33)

But do you really think that the phone is not going to be part of the mix? I mean, I imagine even if AI becomes, even if we get AGI, you know, so to speak, we'll still be using phones for a while. Like the Humane pin. I don't see that happening.

Reid Albergatti (19:47)

Well, yeah, again, I'm not, it's not that I know what the form factor is. I just know like when we even, even calling the, the iPhone a phone is almost, is almost thinking like in a previous, it's a previous era of technology, right? Like it's a, it's a device that, that connects us to, you know, to intelligence, right? To, to the world. To the world, to this web that gets us, you know, into the cloud and allows us to communicate or allows us to be entertained. And if you think of it that way, I mean, there's all kinds of devices, all kinds of things that could sort of replace that or add to that, that sort of take you outside of this ecosystem that Apple has built. So I just think, again, who knows what it is? Neither of us are, we're not technologists, right? We cover this stuff, but it's just, if you look at the trajectory of new technology, that's what will happen.

Alex Kantrowitz (20:49)

Maybe it's the Vision Pro, maybe that's where we go. Nicely done. Tim Cook, you were ahead of it.

Reid Albergatti (20:55)

Well, at some point that will be something people use. I'm sure that would be one form factor. But what they really wanted to build was AR Glasses, right, Which now sort of metas, you know, kind of getting into that game. They have this amazing prototype. Who knows if they'll be able to mass produce it. But that's that technology again. It's like it's not quite there yet. It's like you, they're looking at these things that they think are the next, you know, the next wave and it turns out to be something completely different. Right? Like they did not see chat, nobody saw it coming, to be fair, but they were completely unprepared. They were the least prepared of all the big tech companies for, for that to happen.

Alex Kantrowitz (21:39)

Definitely. And you know, I say Apple Stock is down 12% on the week and well, maybe that's Apple intelligence related or maybe that's just something related to what's going on in the market right now because The S&P 500 has entered correction territories down 10% off its highs. And a lot of that is coming at the expense of the quote unquote Magnificent Seven, or the big tech stocks that were the growth engine behind the markets strong rise over the past couple years, up 50% in 23 and 24 overall. Now it's a different song. And this is from Yahoo finance. An astonishing 1.57 trillion wiped off the Magnificent Seven. Since the start of 2025, the volatility in the tech sector has wiped that amount off of the Magnificent Seven's valuation. Nvidia saw the biggest decline in the group, having lost 539 billion off its valuation year to date. Tesla, Amazon, Microsoft, Apple, Alphabet have all fallen since the beginning of the year. The only one holding up is, is Meta. Maybe it's just the Orion glasses, maybe the market loves those, those AR glasses. But look, it is a big downturn right now. We're in the middle of, obviously there's, there's bigger forces than tech that are sending the market down. Obviously the tariff threat may be an impending trade war. But to me, a big question that comes up in the middle of all these declines is, wait a second, we are in the middle of maybe the biggest moment of funding for tech R and D ever when it comes to building research and data centers for AI development. And a lot of this has been funded based off of or bolstered based off of the fact that the stocks have been so high and you can expect a pretty nice return because of your spend, might get help your share price go even higher and you'll, you'll get better earnings. Does the fact that all these share prices have gone down as much as they have, you know, does the fact that Nvidia could lose a cool half trillion dollars in a couple of months, does that impact the tech industry's willingness, ability to continue to invest in AI? What do you think, Reid?

Reid Albergatti (23:46)

No, I think that the investment in AI will continue. You know, there's a, I think there's two things happening. I mean, one for sure, like if you look at the private markets, there's plenty of money to go into these, you know, into building, you know, building out AI infrastructure, et cetera. I think there, there may be a question around, like, is it going to be the public companies that do that? Because, you know, Amazon is, is spending, you know, $100 billion this year on AI infrastructure, for instance, and Microsoft is not far behind that. You know, all these Companies are spending huge, huge dollars on building out their AI infrastructure, which there is huge demand for as well. I mean, it, it actually makes sense. I mean, this stuff is very useful today. It may not be profitable. It may cost more to run those, you know, to run these data centers than they're getting paid for right now. But we know those costs come down over time. So there's this huge demand for a new technology, and they're trying to meet that demand. That's not a complicated thing to figure out. I mean, investors understand, like, you know, you need to fund this stuff and some of those investments will turn out well and some will fail, but that, that will just continue. But I think there's this, like, this other thing that's happening, which is like all these VCs in Silicon Valley supported the Trump administration. And you know, they felt like the Democrats were kind of anti tech, they were regulating too much. You know, it was like there wasn't a great relationship between tech and, and the Biden administration. Right. So they went to Trump. At least part of, you know, a bunch of VCs, people like, you know, Andreessen and, and, and obviously Elon Musk. I think you have to wonder at this point, though, whether we're looking at a fundamental shift in the economic system right now because of the tactics or whatever you want to call them that the Trump administration is playing right now. And I sort of wonder whether. I think the industry was like, hey, we kind of just wanted a little less regulation. We didn't necessarily want you to tank. This entire system that actually works pretty well. Has worked pretty well. Right. Like there's free capital. You, you fund these startups, they have a great stock market to go public in. You know, the, the, basically the whole system is, favors the stock market. And that's. Now it's, it's not even changing. It's just completely unpredictable, as you said. So I kind of see those two, those two themes as really interesting to watch.

Alex Kantrowitz (26:28)

Yeah, and it works well for, like, the system works well for who? It works well for VCs, it works well for shareholders. It wasn't working well for, I would say, a good chunk of the US which is why they became why I think support built in favor of protectionism and against free trade. It's really hard to undo free trade. I think we probably could have been more careful in terms of the way we entered these trade agreements. But free trade, as it happens, does benefit big tech in a big way, whether that's advertisers from other countries, you Know, trying to sell into the US Market and running ads on Facebook or expanding in the US and then buying cloud compute here and in particular buying, buying cars. And then you look at Tesla and you're starting to see some, some ripple effect here. This is from Business Insider. Tesla's latest decline could be one for the history books. It says Tesla's lost so much value in a short period of time that JP Morgan analysts said they couldn't think of another comparable moment in automotive history. We struggle to think of anything analogous in the history of the automotive industry in which a brand has lost so much value so quickly. The JP Morgan analyst wrote in a note on Wednesday that those, the historical cases before were confined to a single market, whereas the decline in Tesla sales in 2025 is not specific to any one nation or geography. So I guess you have the threat of tariffs which Tesla has now started to say could impact them. And maybe also some blowback to Elon Musk being so close to the Trump administration and associated with his policies that you see in places like, I think Germany, that sales have dropped something like 75% on Teslas.

Reid Albergatti (28:16)

It's ironic, I think, that the Germans don't want to buy Teslas. I mean, you know, and there used to be the whole meme about German cars, right? Like if, you know, within the Jewish community. I mean, I think it's sort of, well, Tesla's a special case, right? I mean, it's hard to separate all of these things out. I mean, people don't like, you know, they don't like Elon Musk. There's all these protests. People are throwing Molotov cocktails at the, you know, at the dealerships. Obviously a lot of people in the press don't like him either. They're writing nasty stories that's probably having a ripple effect in the market. I mean, they've also seen sales drop, I think in part because they have this whole, you know, this whole new lineup of cars coming out, right? Like the, there's a slump in January anyway and then on top of that, their cars are like about to be refreshed. It's like the new iPhone is about to come out. Why would you buy an iPhone? So I think, I think it's, there's a lot of things. The company though is still, I mean, they're just way ahead of the industry technologically. I mean, the, the full self driving technology is just like, it's incredible. Like somebody gave me a ride home from the airport yesterday in a Tesla. They did not touch all the Way from, you know, the San Francisco Airport to Marin county, they didn't touch the steering wheel once. I mean, this stuff is. And it's incredible. And it's running on like transformer models, right? A single transformer model. So when, if Tesla starts, if they start updating their cars and they're selling cars that allow you to, you know, not have to pay attention at all, like not even look at the road. I mean, I think that company people are still going to buy that product no matter who's running it, I think.

Alex Kantrowitz (30:05)

Well, let me then put this to you. Is this a moment? And of course, this is not investment advice, right? This is just two reporters kind of riffing. So don't buy based off of this advice. But is this a moment that you'd want to invest in companies like Tesla as they're being hit by sentiment and maybe the Magnificent Seven as they're sort of, they're being put in the middle of a potential trade war. Now, I think the optimistic view would be that a lot of this is just posturing, or at the very worst, it's Trump trying to get some of the tough stuff out of the way in the beginning of his term. So he looks like someone who's really saved the economy towards the end and left it in good shape, do what you have to, basically crush inflation and then build from there. And in fact, I asked you, Reid, if there are any stories you want to discuss today, and you said it's a great time to invest in AI stocks thanks to Trump tanking the market. So I turn that to you. Is this the moment?

Reid Albergatti (31:04)

Right? I mean, yeah, back to not. I mean, look, I don't invest in individual stocks. I basically never have because, you know, being a business reporter all these years doesn't allow me to. But it does. Look, you're just. Tesla aside, I mean, I would say Tesla's probably an AI stock. But Tesla aside, like, you know, there, there, there's huge demand for this new technology. I mean, at the end of the day, like how. I mean, something very drastic would have to happen to change the current situation, which is you have a new wave of technology that is going to completely upend the world economically in the long run. It's just a question of how fast it will happen. And all these companies that are building the infrastructure around that, they're kind of no brainer investments in my mind. But it's easy for me to say, right? I'm not putting my money, I mean, I have whatever, a 401k. But how, how does that not? Like, how does a company spending a lot of money to build a new technology that has tremendous demand, like, how does that not make sense? You. You tell me. I. I can't, you know.

Alex Kantrowitz (32:22)

No, I think it does make sense. It makes sense as long as it delivers. And I think we're still in this point where we're not exactly sure the magnitude that AI will deliver. Okay. We think we've gotten over the hump of will AI be useful? Oh, it sure is.

Reid Albergatti (32:37)

Yeah.

Alex Kantrowitz (32:38)

But we don't yet know, like, let's say, what percentage of GDP growth AI will contribute to. And if it's not a meaningful percent, then a lot of this investment will be like, all right, well, you know, you can upload your tax returns into ChatGPT and have a fun conversation with it, but it's not going to, like, you know, help a company make 10% more revenue.

Reid Albergatti (33:01)

Well, wait, there's two things. There's two things there that I think you're. I think you're combining, which is like, GDP growth and companies making money. Like, you don't. You don't have to make a lot of money. You don't have to move the GDP of a country.

Alex Kantrowitz (33:15)

No, without a doubt. I was using that as an example to illustrate the cumulative productivity increases that we're seeing from AI. And so the argument for those who support AI is that it will be profound enough that it will lead to tangible nationwide productivity increases. Of course, a company can make money, that you can make money again off of these, like, pay $10 and you can put JD Vance's face on a lemon. But the question is the magnitude of this, and that's that to me is like, when you ask, like, should we question the wisdom of this technology that's going to change everything. It's like the reasonable doubt that you would have here is, is not that anything that's been done politically will change what's been happened, where the trajectory is, but just like, how, how much they live up to the big promises that some of the AI labs have put out there, like Dario Amodei saying, you know, there's not going to be a software engineer in, like, three months. If that's the case. That's a, you know, very different than if it's, again, just this thing that you can kind of joke around with and, you know, tell your secrets to, and then it can give you some advice.

Reid Albergatti (34:26)

Right. I mean, what I'm saying is I actually don't know what the GDP impact is going to be of, of AI because The thing that people always forget is like you can invent something that's amazing, but people have to adopt that technology. And it's, and you know, generally we're very slow to adopt technology. I mean, if you look at the, the Internet, you know, or just the personal computer, Internet, web, sort of era of the last like 35 years, I mean that was, it's a massive change. Like it's, it's completely disrupted, you know, the job market. Right. But it happened gradually. It's not like it wasn't like it just smacked everyone over the face and instantly all these jobs ceased to exist. But it did change. You know, there are jobs that don't exist. A lot of jobs don't exist because of that new technology. And I think AI is, it's, it might happen faster. There's different scenarios, right? If it, if all of a sudden it's like, it just happens so fast and there's no, you just have no choice but to adopt it. And you know, that is probably not a great thing. Honestly. That would really, if that might really affect things in a, in a negative way. Because I don't think humanity is really great at sort of, you know, adjusting to these really fast changes. But you know, over time for sure. Right. But then at the same time, like, you don't have to have like if even just software development gets totally disrupted, if that's the only thing that comes out of this, which seems like pretty likely at this point, like that's enough for, you know, for these companies to make a ton of money. It's still, it's still like a good investment. I think, like regardless of what the, of what the big long term impact is on, on the world, if that does that, I mean, does that make sense or do you disagree?

Alex Kantrowitz (36:13)

I only disagree slightly. I think that, that the money that we're seeing being put into these companies would not, would be very different if the use case was only software development. Would. Are you still going to make a company that, that is extremely profitable potentially. But are you going to make something that's going to live up to the expectations of investors if it can just do software engineering? I don't think so. And I don't think that's what's being pitched to the investors either.

Reid Albergatti (36:43)

No, no, I mean, you're right and it is, I think it is much more than that. But, but even that is like, you.

Alex Kantrowitz (36:50)

Know, that's a big, I'm not gonna deny that's big.

Reid Albergatti (36:52)

Yeah, yeah. I mean like if anyone can hire, if anybody can have an army of software developers for basically nothing. Like, that's pretty, it's pretty impactful.

Alex Kantrowitz (37:01)

I agree, having been as deep in the technology as I have been, I'm sure you've done the same. Trying it out, testing the new features. It is incredible what it's doing, like how quickly it's moving and how good it is already. But again, there's one more question overhanging all this, which is how much better is it going to get? Because those concerns about the, you know, the diminishing returns on pre training and growing the size of your models, those are legit. Yann Lecun's going to be on the show next week. We're going to talk about it. He's pretty convinced that we've sort of, we have hit that moment of diminishing returns. And hearing him speak to it, it's like, okay, so we're gonna need some more breakthroughs to keep this, to keep having this technology be more, more useful. And we don't know what those break breakthroughs are. So there's a chance that we just kind of hit a cap of what LLMs can do today. And of course then you go to productizing them. And that's the big debate we have on the show all the time. It's the product or the model that matters. But I would say it may be trouble. Again, if this is the best they are, I'm not complaining, they're very good, but they need to get better to again, live up to these expectations.

Reid Albergatti (38:18)

Yeah, there's totally a leap of faith thing that, that happens. And, and I think Jan is so smart and, and you know, love his, you know, just anything he puts out there is, is fascinating to listen to. But I think that, you know, there's, there's this leap of faith thing that, that happens with AI where you, you, you, you build more compute capacity, right? You give people, you, you allow, you know, AI researchers, computer scientists access to just more compute power and they just come up with new ways to use it. And so, yeah, I mean, of course, you know, if you start to, if you ramp up, you know, if you just increase the comp by orders of magnitude overnight, I think it looks like there's a plateau because it takes time. Like normally that happens more gradually. So like the, the AI research and the compute power kind of go together over time. Like they, you know, it, it's a, it's like a ping ponging. There's a little more compute, a little more research, a little more. Right now there's just this huge leap in compute. So I think the research hasn't quite caught up to it yet. But again, like, that's not something you can prove. Like you can't prove that there will be some breakthrough in the future, that some kid who's graduating from Stanford today is going to figure something out two years from now. But I do think it will probably happen. And I guess we're going to talk more about some of the new technology later too, so I don't want to get too much into that now.

Alex Kantrowitz (39:47)

Well, that is a great tease. So we are going to talk about some of the new technology, including the development of proprietary chips from Amazon and what that's going to lead to, how that's going to advance AI. And also we haven't yet talked about how OpenAI is going to let other apps deploy its agent AI. So we'll do that when we come back from the break right after this. Race the rudders, race the sails, Race the sails. Captain, an unidentified ship is approaching.

Reid Albergatti (40:18)

Over.

Alex Kantrowitz (40:19)

Roger, wait, is that an enterprise sales solution?

Reid Albergatti (40:24)

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Alex Kantrowitz (40:41)

And we're back here on Big Technology Podcast with Reed Albergatti, the technology editor at Semaphore. We have big news coming out from OpenAI. This is from the Verge. OpenAI will let other apps deploy its computer operating AI agents are said to be the future of AI, and now OpenAI is trying to help developers build their own. The company is releasing a new Responses API that offers building blocks for developers to create agents capable of searching the web, digging through files, and performing tasks on a computer on their behalf. There are some agents that we will be able to build ourselves, like Deep Research and Operator, says Oliver Godement, the head of product for the OpenAI platform. But the world is so complex that there are so many industries and use cases, and we're super excited to provide these foundations building blocks for developers to build the best agents for their use cases and their needs. I want to say that this is big because giving this technology to developers, to me seems like a real opportunity to be able to sort of prove out the agent use case we've been hearing about so often. But the skeptical side of me says Operator and Deep Research seem more like a party trick than an actual application right now. And I guess it might be useful in some maybe Obscure data entry case. But these companies are already using, like, macros and robotic process automation. And I don't know if this will necessarily be a leap ahead. Reid, you've been following the news. What do you think about it?

Reid Albergatti (42:16)

Well, yeah, I mean, I think you bring up a good point. I mean, look, I think it's probably big just because you're giving developers, you're giving the general public access to something that will allow them to just unleash their creativity on this technology. And I think that's always interesting. Like, it's just sort of exciting to, to kind of like see what people come up with. I haven't played around with it yet, but I don't know if you've done this. I. I learned that it's called Vibe coding. I didn't really know, but, like, I.

Alex Kantrowitz (42:51)

Indeed, yeah.

Reid Albergatti (42:52)

I mean, I started doing that and, you know, it's just like, it's incredible what you can do, you know, you know, when just playing around with this stuff is somebody who just doesn't really know anything about coding. What you can build is. It's amazing, but it's also kind of. See how like, again, back to, like, the infrastructure buildouts, you could see how, you know, you start hitting these token limits, these context limits that sort of, you know, I think limit the technology right now, but, like, will those barriers will, will be, you know, as long as people keep investing in the, you know, in the infrastructure, which I think they will, those barriers are going to go away. And then I think that's when it becomes really, you know, even more transformative.

Alex Kantrowitz (43:39)

Have you Vibe coded anything fun?

Reid Albergatti (43:42)

Yeah, like, I did some stuff with.

Alex Kantrowitz (43:44)

Which we define Vibe coding. It's basically just prompting software and just adjusting based on prompts, not coding things and just building in anything that you want in your daily life.

Reid Albergatti (43:55)

Right. In my case, it's just like, it's like, okay, I'm going to try this. Let me see if I can build a little app with Replit Agent. And then eventually I need more tokens, I need more power. I'm going to go use Claude Sonnet. And it's like create software that does this and you watch it write code and then you're putting that into terminal. And at the same time, I mean, for me, as somebody who's covered technology but never been a technologist, it's like, I'm learning so much too. It teaches you in a way how software works. If you don't know already. And I find it, if you do that and you start really getting into it and you start hitting these limits of the token limits and stuff, and you're getting cut off. It's like, oh, okay, I can see. I kind of see now what this is all about and why we need all these data centers and, you know, to bring the cost down. But. And so, like, I just. It's when I see that, I'm just like, oh, I want to try that. Like, I want to see how that. How that works. What have I built? I mean, I. You know, the thing is, it's not, like, it's not there yet. So these things aren't, like, super complex, but, like, just stuff to help me, you know, help me plan kids summer camps, right? Like, going out on the web and pulling, you know, pulling information off of various, you know, websites and. And, you know, putting it into different forms. I thought that the one fun was just, like, looking at, like, having operator look for specific. Specific emails and then, like, connecting that to, you know, Twilio and having it send me a text message about it. I mean, you could just do cool stuff, and it's not. But again, like, I want to build more complex things, right? I want to, like, find ways to save lots of time and automate everything from my professional life to my personal life. And we're not quite there yet, but it seems kind of close. Have you built anything? What have you done?

Alex Kantrowitz (46:09)

Yeah, I mean, I've built. I mean, using Claude, and it's just a couple prompts, but I've built games like I talked about on our Wednesday episode with the Roblox CEO. I also built retirement, like, a retirement calculator where I uploaded a fake bank statement and was just like, make me a financial plan based off of this bank statement. And I was like, all right, well, now build me a retirement calculator just for kicks. And it built a working retirement calculator with, like, various fields, like a very nice and sophisticated one. So to me, I think that, like, just this power to imagine and prompt any piece of software, like, as we're talking, I'm thinking, like, do I want to build, like, my own tracker for big technology stories or podcast guests, specific calendar? Like, you can probably prompt that with Claude and they give you dedicated links, so you can kind of use that as a webpage. And sort of, next thing you know, you have this, like, custom application that you would have had to pay maybe a few thousand dollars for someone to build for you.

Reid Albergatti (47:09)

Yeah, totally. And I think it's. Have you. Have you played around with, like, any of these ones? The, like. Like the Replit agent. There's a bunch of them where they'll like literally just built you just like build me this. And the app is just created.

Alex Kantrowitz (47:22)

Yeah, I mean that's what. Claude can do that now.

Reid Albergatti (47:25)

You did that with Claude, like totally end to end. Yeah.

Alex Kantrowitz (47:28)

And to end Claude.

Reid Albergatti (47:29)

Yeah, that's a, that's, that's really fun. Yeah. I mean Replit uses Claude, so I guess it's similar, but.

Alex Kantrowitz (47:35)

Yeah, yeah, no, it's, it's crazy. And like when we talk about how things are going to get better, that in particular to me is, is very exciting and, and it might be lucrative. So it's like. Again, talking about the payoff, we have a story. It's a little bit old, but I think we have, it's worth talking about on the show that OpenAI is reportedly planning to charge up to $20,000 a month for specialized AI agents. So they're working on a high income knowledge worker agent which will be priced at 2,000amonth, a software developer agent at 10,000amonth, and the most expensive rumored agent, $20,000 per month for a PhD level research assistant. The story, I think this is the information story. They say that SoftBank and OpenAI Investor has committed $3 billion to use OpenAI's agent products this year alone. So maybe this is an answer to our question from like, what's going to happen from the first half? Do you think this stuff is going to get any uptake?

Reid Albergatti (48:36)

Reid, you know, the $20,000 thing, it hasn't actually launched yet. But my guess is if it does launch, and I did read that story and the information, great, great reporting as always. If it does, if it does launch, then I think they know, you know, there probably is demand for it. Right. And I mean, it's amazing that. I mean there's, they have like the 200amonth plan too, right? The pro plan that, oh yeah, apparently is just, you know, has incredible uptake and they're still, you know, they're still losing money on it to be fair. But I mean the fact that people are willing to pay that much for this stuff is just, you know, and it's, and it's still so new. I mean, it just feels like, it still feels like V1 to me. I mean, when I, when I play with it. So, you know, it's just, it's, you know, it's an amazing, it's amazing technology.

Alex Kantrowitz (49:29)

I think definitely is. Have you tried or do you have any thoughts on Manus? I think it's called Manus. Manus. It's the Chinese agent.

Reid Albergatti (49:40)

You know, I haven't used it actually I tried, I tried Deep Seek, played around with that, but I have. Have you used that?

Alex Kantrowitz (49:47)

I haven't used it. I've just seen it working at like incredibly fast paced speed. And I actually read this. I mean, I've applied to be on the wait list, but there is apparently a lengthy wait list and I don't know, I've been, I've been too busy this week to write them and say, hey, can I get like a press access point? But MIT Tech Review did get get access and I read their review and they found that it feels like collaborating with a highly intelligent and efficient intern. While it occasionally lacks understanding of what it's being asked to do, makes incorrect assumptions or cuts corners to expedite tasks, it explains its reasoning clearly. It's remarkably adaptable and it can improve substantially when provided with detailed instructions or feedback. It's promising, but not perfect. Okay, so this journalist gave Manus three assignments. One of them, let's just talk about one. Compile a list of notable reporters covering China tech. So this is the review of how it did it gave them a list with five names and five honorable mentions below them. Some of the journalists notable work was listed, some of it wasn't. The journalist asked Manus why and it said it was lazy partly due to time constraints. I tried to expedite their research process. This is my, again, this is my criticism of this stuff. Yeah, you could probably just ask ChatGPT for a list and it will do just as good a job as your fancy agent. So I think we're going to just have some moments where we try to have to figure out how to use these. And like you said, it's going to take a while for the use cases to develop.

Reid Albergatti (51:24)

Yeah. And I think the other thing that's sort of about the Chinese ones, like Deeps, I mean, DeepSA had this app as well. Is that even OpenAI? Do you remember Sam Altman tweeting like, we're sorry, we're out of GP, we're just out of GPUs. I'm sure you talked about it on the show and it's like they're blocking GPUs from being sent to China. So imagine, imagine those, you know, if any of those products took off and they would just have a very difficult time, you know, keeping up with the demand if, you know. So it's all about efficiency, right? Like it's all about creating, you know, doing this stuff with as efficiently as possible, which is great, but like, you know, even the state of the art stuff, like Claude Sonnet and et cetera is, you know, pushing the, they're barely, you know, it's still like V1. Right. So if you're doing the sort of like slightly less than the state of the art, but more efficiently, it's never going to be that impressive. Right. Because it's always kind of like a slight step behind. So that's sort of how I view these products. They have to get more efficient. Everybody's trying to do that. Everybody's trying to make this stuff as inexpensive as possible. The big labs are doing the same thing. Right. So I don't know. I mean, I think they're, they're interesting, but it's not like it's not going to like blow our, you know, blow up the whole market, you know.

Alex Kantrowitz (52:57)

Yeah. And it's just going to take a while for use cases. I mean, I think criminals will have a great time with this stuff because it will just try to fish everybody and hack into their systems. But the good use cases I think will be tougher to find. So, as Bert, Right, before we leave, I want to hear you have a story coming out in Semaphore. It's about Amazon's chip effort called Project Rainier. Now, I've always wondered about these proprietary chip efforts because you hear the same thing from every CEO that talks about them, which is we'll take every chip that Nvidia will give us and we're very confident in our own chips, which to me is somewhat contradictory. So what have you found and which part of the executive statement should we believe the most?

Reid Albergatti (53:41)

Well, you know, I went out and, you know, visited the Amazon chip lab and talked to them and you know, they obviously, you know, they want to talk up their technology. The interesting thing I think about, there's a couple of interesting things about the Amazon effort. So, you know, they've been at it for a while now. They acquired this Israeli company, Annapurna Labs, 10 years ago and this is their second generation of the Trainium chips, Trainium 2. And this chip is, I mean, it's not as good as like an Nvidia chip on a one to one basis, if you compare them. But if you network them together and you're talking about hundreds of thousands of these things and every piece of the network of the data centers are custom built to be as efficient as possible, you do start to get sort of these efficiency gains. And that's kind of what it's all about. Right. We've talked about this. Now this has come up on this show a few times. So their big project is called Rainier, right? They're going to build this huge cluster of chips and they say that they've found a way to connect multiple buildings together using, using this elastic fabric technology that they've been at for, for a while. If that's true, I think it's really interesting. I mean, to my knowledge, you know, people have trained models across multiple locations for sure, but the state of the art models, you know, either they have to be split apart where like parts of the model are being trained in one building. But what Annapurna is saying is they, you can actually treat a multiple location cluster of compute as one massive cluster as if it's in the same, as if it's in the same building. I mean, if that's true then, you know, I think that puts them a step ahead. And then the other, the other big thing is that, and this is not new, but they've, you know, they got Anthropic to, you know, train the next model of, of Claude on this, you know, on this Rainier cluster and work, you know, what's that? It worked well, no, they haven't, they haven't actually built. The cluster hasn't even been built yet. So I think this is like, it's like a big test I think, for, for Amazon if they can actually pull this off. And the other thing is like they're a huge investor in Anthropic so you know, it's not like, I mean, I'm sure there's, you know, that has something to do with this decision, but I also don't think Anthropic is just going to like, they're not going to like decide to, you know, to, to stake their future of the company on this technology if it's not good. And so I think what happens, like what could happen with this effort is that, you know, and also Anthropic has helped them design these chips and all that. And what could happen is, you know, if this is a success, if they're able to build Claude, and Claude remains, you know, state of the art, that gives them a lot more customers, right, because now Claude will run more efficiently on the Trainium 2 chips. And so I think that that actually does start to help. And they've got some other, you know, some other customers as well, like databricks. Apple is considering it, you know, poolside, which is like a kind of, kind of hot AI company. So I think there's an interesting, I mean they Definitely have an interesting story around these data centers. And they're not the only ones. They're not the only ones out there. I mean, Google is obviously. They've been doing this the longest. This kind of vertically integrated custom chip strategy Meta's getting into it, reportedly, so there are other people doing it. But I mean, if you think about this, the scale of this stuff, efficiency does become kind of the most important thing. So I do think maybe not every kind of every custom chip out there, but the ones that where you can really vertically integrate are really interesting.

Alex Kantrowitz (57:53)

And so what happens to Nvidia?

Reid Albergatti (57:56)

Well, Nvidia is fine. I mean, I don't think the pie is growing so big, so it's growing so fast. Nobody's going to lose here. None of these big players are going to lose. Nvidia people are still going to. Nvidia still won't be able to keep up with demand for their chips, I think, for. For a long time. I mean, it's just that you need more like, it's just not, you know, you can't meet demand with just Nvidia, I think, definitely.

Alex Kantrowitz (58:24)

All right, we will set this podcast to go live just as your story comes out. Tell folks where they can find it.

Reid Albergatti (58:30)

They can find it on semaphore.com and please sign up for my newsletter. It's free for now. And are you guys going paid?

Alex Kantrowitz (58:40)

I just gonna have a little.

Reid Albergatti (58:42)

I just like to, you know. Yeah, I don't want to make it. I want to create some urgency, you know, like maybe. Maybe you'll get grandfathered in when we do.

Alex Kantrowitz (58:51)

Okay, well, I'm. I'm subscribed. I get it every time it gets sent out, and I do suggest you go check it out as well. Reed Albergatti, great to see you again. Our returning champ delivers another championship performance here. Thank you for coming on the show.

Reid Albergatti (59:04)

Thank you so much. It was really fun.

Alex Kantrowitz (59:06)

Super fun. All right, everybody, as I mentioned, Jan Lecuna is going to be on the show on Wednesday, so stay tuned for that. You're not going to want to miss it. And then next week, Ronjin and I will be back to break down the week's news. Thank you for listening, and we'll see you next time on big technology Podcast.