Jerry Neumann on the Problem With Investing in AI Right Now

Summary

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Odd Lots: "Jerry Neumann on the Problem With Investing in AI Right Now"

Podcast: Odd Lots
Hosts: Joe Weisenthal & Tracy Alloway (Bloomberg)
Guest: Jerry Neumann (Venture Capitalist, Columbia Business School professor, author)
Date: November 12, 2025

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Episode Overview

This episode tackles the hot topic of AI investing, questioning whether the current AI boom offers genuine paths to wealth for investors. Guest Jerry Neumann, a veteran venture capitalist, academic, and co-author of "Founder vs. Investor," shares his provocative thesis: "AI will not make you rich." Neumann unpacks parallels between the AI revolution and past transformational technologies—especially containerization—arguing that structural factors and market dynamics often mean incumbents, not visionary upstarts, capture most of the new value. The conversation explores speculation versus real opportunity, whether we're in an AI "bubble," and what investors can truly expect as AI integrates into the economy.

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Key Discussion Points and Insights

1. Where Are the AI Pure Plays? (02:00–04:01)

• Joe Weisenthal notes the lack of publicly traded "AI pure-play" companies, with Nvidia being the closest analog.
• Tracy Alloway: "Here you have this thing that a lot of people would say is revolutionary technology...but there doesn’t really seem to be that much pure play."
• The market is currently favoring "picks and shovels" (infrastructure, chips, cooling) rather than direct AI products.

2. Is AI Actually Making People Rich Right Now? (05:22–06:34)

• Neumann challenges the narrative that AI is already creating vast fortunes:

  "Money's not money till it's cash." (Jerry Neumann, 05:29)

• He cautions that early-stage value creation doesn't always equate to value capture for investors.

3. AI vs. Previous Tech Revolutions — The Containerization Analogy (06:34–12:37)

• Jerry draws a detailed parallel between AI and the transformative (but slow, and not hugely lucrative for new entrants) impact of shipping containerization.
• Shipping containers revolutionized logistics but didn’t mint a wave of new billionaires—the biggest gains accrued to incumbents (e.g., Maersk) and society at large.
• Neumann: "Technologies always come in these technological systems if they're worthwhile...the hard part here was building the system, not the individual technologies." (11:43)
• Story of Sealand: The upstart who initiated containerization profited mainly by selling out early to an incumbent.

4. Why Incumbents Keep Winning (18:05–19:12)

• Neumann: The current advantage in AI is less about technological moats, more about resources—"Anybody can build a foundation model, right? If you have the money."
• The pace of actual technology change is now "evolutionary, not revolutionary," so cash and scale are the new moats.

5. The Exit Problem: IPOs, Consolidation, and Market Timing (19:36–24:48)

• Neumann and the hosts explore how consolidation is likely: Most startups are hoping to be acquired by incumbents.
• Hard to predict or time the "IPO window," so the wise VC seeks companies that can become self-sustaining while waiting for an exit.

6. Comparing Today's AI Market to the Dot-Com Bubble (24:48–26:08)

• Difference: Dot-com public involvement was more direct (employees, consumers had significant financial exposure), whereas much current AI investment comes from large, risk-averse entities (big tech firms).
• Consensus: Today's AI economy may have less direct "wealth effect" and systemic risk compared to dot-com days.

7. Are We in a New Tech Wave—or the End of One? (26:42–29:36)

• Neumann invokes Carlotta Perez’s framework of technological cycles, arguing that AI may be the climax of the existing computer revolution, not the start of something entirely new.
• "This is not a new technological revolution. I think it's the end of the old one." (Jerry Neumann, 28:45)

8. What’s the Path to Profiting from AI? (29:36–33:16)

• For VCs, the "IKEA moment" hasn't arrived yet; the massive incumbent winner exploiting AI, analogous to Ikea in containerization, hasn’t appeared.
• The winners aren't those who cut costs with tech, but those who use it to offer more and grow bigger:

  "If you’re firing people because of AI, you’re doing it wrong." (Jerry Neumann, 33:18)

9. Will Legacy Firms or New Entrants Thrive Most? (40:28–40:56)

• Drawing on historical analogies, Jerry expects legacy firms to adapt and thrive—as with Walmart and Ikea post-containerization—rather than upstarts dominating.

10. Bubble Talk: Is AI Overvalued? (41:05–42:28)

• Neumann sees signs of "overvaluation" and an infrastructure bubble (e.g., chip and data center overbuilding), but:

  "I think things are overvalued, and I think there may be a infrastructure bubble…But, I don’t think you’re going to need as many chips in the future as you are buying today." (Jerry Neumann, 42:06)

• He distinguishes this from more dangerous "true bubbles" (which involve leverage and greatly harm the broader economy on collapse).

11. Investor and Public Sentiment in Bubbles (48:42–49:28)

• Bubbles are fun yet stressful for participants:

  "If I'm in it, I'm really anxious…Am I gonna sell at the right time? I'm also kicking myself for not investing more." (Joe Weisenthal, 48:42)

• Neumann agrees: "Bubbles are fun, especially if you're young and stupid...but it's stressful both after." (Jerry Neumann, 49:20)

12. Who Will Win—and How? Final Takeaways

• Massive, lasting gains will go to companies that use AI as an enabler to expand businesses and pass value to consumers—not simply to cut costs.
• The “AI will not make you rich” message is aimed at investors expecting quick or obvious windfalls; actual long-term winners may be boring, established firms applying AI as infrastructure.

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Memorable Quotes

• "Money's not money till it's cash." (Jerry Neumann, 05:29)
• "There’s a difference between value creation and value capture...who’s going to get that value?" (Neumann, 06:09)
• "Technologies always come in these technological systems if they're worthwhile...[the real revolution is] building the system, not the individual technologies." (Neumann, 11:43)
• "If you’re firing people because of AI, you’re doing it wrong...You should be using AI to say, ‘I can use my people to do more. I can grow my company, I can vary my products, I can take more market share.’" (Neumann, 33:18)
• "This is not a new technological revolution. I think it's the end of the old one." (Neumann, 28:45)
• "Bubbles are fun, especially if you're young and stupid...but it's stressful both after." (Neumann, 49:20)
• “From a consumer standpoint, why do I care if your workflow...is more efficient because of AI? Either the product is better or it’s not.” (Joe Weisenthal, 35:52)

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Notable Segments (Timestamps)

• AI public market conundrum and investor picks-and-shovels talk: 02:00–03:27
• Containerization analogy and its limited windfall: 06:34–12:37
• Moats in AI—cash, not code matters: 18:05–19:12
• Legacy v. upstart AI winners: 40:28–40:56
• Bubble discussion and what it really is: 41:05–42:41
• Investment psychology in bubbles: 48:42–49:28

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Episode Tone

• Inquisitive, lightly irreverent, skeptical of hype cycles but genuinely searching for deeper mechanisms at play.
• Jerry Neumann brings a thoughtful, historical-analytical perspective, gently deflating the notion of easy money in AI without dismissing its technological importance.

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Bottom Line

AI is revolutionary, but don’t expect to get rich by chasing the next hot startup. The biggest winners are likely to be resource-rich incumbents that use AI as leverage to scale, not to shrink. Real returns may come slowly and subtly, as happened with prior “invisible” innovations like containerization. For investors, patience, historical perspective, and skepticism about hype remain essential.

Transcript

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[Joe Weisenthal]

Who's a good boy? Who's a good boy? You're a good boy.

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[Joe Weisenthal]

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[Michelle Hussain]

This is the Michelle Hussain Show. I'm Michelle Hussain. I speak with people like Elon Musk.

[Joe Weisenthal]

I think I've done enough.

[Michelle Hussain]

And Shonda Rhimes.

[Jerry Newman]

That's so cute.

[Michelle Hussain]

This will be a place where every weekend you can count on one essential conversation to help make sense of the world.

[Tracy Alloway]

So.

[Michelle Hussain]

So please join me, listen and subscribe to the Michael Hussain show from Bloomberg Weekend. Wherever you get your podcasts, you certainly ask interesting questions. Bloomberg Audio Studios Podcasts Radio news.

[Joe Weisenthal]

Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

[Tracy Alloway]

And I'm Tracy Alloway.

[Joe Weisenthal]

Tracy, our colleague here at Bloomberg, Ed Harrison, had interesting newsletter today and it's actually something I've been thinking about a little bit lately, which is that for all the talk of the AI boom or the AI bubble driving the stock market, there's no AI pure plays really that are publicly traded. Like Nvidia is probably the closest.

[Jerry Newman]

But.

[Joe Weisenthal]

But three years ago people were excited because they were mining Ethereum. Before that it was like video games. You know, this was only an AI company in people's mind for since late 2022. Google still is. You know, we know they're all investing a ton. There's actually no like no AI company that people are excited about in the public markets.

[Tracy Alloway]

I mean, I think it's true. Here you have this thing That a lot of people would say is revolutionary technology. Right. But you kind of have to decide if you're going to invest in it, is it going to be like upstream or downstream? And there doesn't really seem to be that much pure play, as you say.

[Joe Weisenthal]

As our colleague Sid Verma might like to say. People are investing in the picks and the shovels, you know, of this gold rush. No, I don't think he actually said that. It's just a million other people said. But it is, it's picks and shovels. Right.

[Tracy Alloway]

I make fun of completely reasonable commentary. That's what I say.

[Joe Weisenthal]

You know, it turns out, incidentally, picks and shovels have been great. You know, you could have bought Caterpillar or you could have bought some old school H Vac company that's providing cooling or heating or whatever and made a ton of money. So actually, it turns out, at least for the last few years, all those awful cliches have actually been big money makers and I should not make fun of them.

[Tracy Alloway]

Well, here's the other thing. I would say it does feel like everyone kind of agrees at this moment in time that there is froth in the market. Maybe it's not a massive bubble. Right. But there's some froth. And everyone is kind of admitting or saying that you're going to have some companies that emerge as big winners, much like the dot com era, and then a bunch of companies that like actually end up being losers. And I think again, like that is consensus at this point, but it doesn't really necessarily translate into actual investment because of course the trick is actually picking the winners and losers in the market.

[Jerry Newman]

Yeah.

[Tracy Alloway]

I don't know, it just seems like a weird point in time where people are like, oh yeah, AI is great, but we all know that some of these companies are going to be massive losers. Right.

[Joe Weisenthal]

Right now they're all kind of being treated as winners, which is the other.

[Tracy Alloway]

Yeah.

[Joe Weisenthal]

Anyway, it's a very weird time. We gotta do more episodes on this because it is sort of the central question for. On whether we're just talking about the market or talk about the economy, et cetera. Someone I've wanted to talk to for a long time. Earlier this year he wrote a essay for Colossus called AI will not make you rich. It came out in September. It seems like ages ago. It's very disappointing because I think a lot of people really are hoping to get rich on AI. So this is a very unwelcome message.

[Tracy Alloway]

It's also very much a sort of core, odd lots thesis because in the essay, he compares and contrasts AI with containerization, which is another favorite.

[Joe Weisenthal]

So let's just get to the guest, someone I've wanted to talk to for a very long time. Someone who literally is the Perfect guest. Longtime VC, started venture investing in 1997. Also a professor at Columbia Business School. We're going to be talking to investor Jerry Newman, also the co author of a recent book, Founder vs. Investor. The honest Truth About Venture Capital From Startup to ipo. Maybe he'll tell us when we'll see some of these.

[Tracy Alloway]

And the bringer of Excess Halloween candy. So he gets brownie points for that, too.

[Joe Weisenthal]

Literally. The perfect guest. Jerry, thank you so much for coming in. Thrilled to finally have you here.

[Jerry Newman]

Thanks. I'm glad to be here.

[Joe Weisenthal]

What does that mean, AI won't make you rich? AI has made people super rich, and it's making people rich every single day.

[Jerry Newman]

You know, as an old mentor used to say, money's not money till it's cash. Okay, so is anybody really rich yet?

[Joe Weisenthal]

Oh, come on. I mean, Jensen Huang bought an entire bar in Korea. He's, like, bought beer and fried chicken for everyone. He's right.

[Jerry Newman]

I think it's smart to cash out early.

[Joe Weisenthal]

Okay.

[Jerry Newman]

That's what he's doing.

[Joe Weisenthal]

Okay. Let's say if he really believed it.

[Jerry Newman]

Would he be selling his stock now? I mean.

[Joe Weisenthal]

Okay, so what do you mean? Talk about this, because you obviously have a lot of experience. Actually, that brings another line of question that I want to get into. But what does that mean? It's smart to cash out early when your experience. What does that actually mean?

[Jerry Newman]

So, look, I. I believe that AI is a revolutionary technology.

[Joe Weisenthal]

Okay.

[Jerry Newman]

I'm going to put that on the.

[Joe Weisenthal]

Table, which is important to say, because not everyone agrees with that. So that's.

[Jerry Newman]

Yeah, totally. You know, I'm on Blue sky, and nobody agrees with it, but I do. I think so. But there's a difference between value creation and value capture. So even if AI creates a lot of value for society, who's going to get that value? Is it going to be the early investors? Is it going to be the core, you know, the foundation model companies? Is it going to be. Yeah, consumers, you know, they think that's the question people need to ask.

[Tracy Alloway]

I actually broadly agree with this thesis when it comes to AI, but maybe just to clarify the idea here, compare and contrast this current AI cycle with maybe previous technological breakthroughs. And, you know, I mentioned containers. I think a lot of people aren't used to thinking about boxes as this major advancement in technology. But at the time, they really were.

[Jerry Newman]

Yeah, I mentioned containerization and most of my peers think I'm talking about Docker. So I'm talking about shipping containers, right? The big boxes they put on ships and then they can move from the ships onto the rail cars and onto the back of trucks. And this was a revolutionary technology. I mean, it changed everything about the way we live. I don't remember. I'm probably a little older than you all, but when I was a kid, my grandmother used to send up oranges from Florida at Christmas time. Right. Because they were rare. You couldn't just go into a grocery store and buy them. Now you can buy oranges anywhere at any time. People don't really realize how much our lives have changed because of shipping containerization, because of these global logistics and the globalization of shipping. Now this revolutionary technology, who got rich from it? I mean, generally, if you look at the 1960s, say, how many people became wildly rich from technological innovation? Can you think of anyone? Because I've been asking this question for years. There are people who got rich in media and whatnot, but there wasn't a lot of technological innovation that made individuals.

[Joe Weisenthal]

Did start like 20 years ago. Did they have technology back then? Right.

[Jerry Newman]

I mean, it's. I think this is thing, Right. So we talk about computer technology, the information and computer technology revolution as technology, but obviously there's always been technology. But only at certain times in this technological cycle do people seem to make money as investors and as inventors.

[Tracy Alloway]

Explain more though, because, I mean, I could argue that Maersk or someone like that got pretty rich off of containerization. Like, maybe it took a while, but even though the shipping industry is highly cyclical, when they are in the boom period, they make a lot of money.

[Jerry Newman]

Sure. I mean, the existing shipping companies got very large and made a lot of money. They got larger and made more money. But is Maris, you know who made money?

[Tracy Alloway]

You're talking about new, completely new entrants.

[Jerry Newman]

Yeah. So just, I mean, as background, I'm a venture capitalist, right. Or have been a venture capitalist for a long time, recently retired. And I think about people investing and making money. New companies, inventors or entrepreneurs making money, not the existing incumbents making money. And I think that people will make money on AI. It might be Microsoft making a ton of money on AI. It could be AI. You know, when containerization, shipping, containerization came around. Sealand was the instigator of this. And the founder of Sealand made money primarily because he sold early. Right. He sold Sealand to rjr Nabisco or, sorry, it was just RGR at the time and they thought they were diversifying, which is a big thing, then paid them a lot of money and then they drove it into the ground.

[Joe Weisenthal]

What did Sealand do? What was. Did they. I actually don't, I'm not familiar with this company at all, which I think kind of speaks to your point. But what was Sealand?

[Jerry Newman]

Yeah, so. So it was a truck. It was started out as a trucking company and the founder of Sealand was a trucking entreprene. And he said, you know, it's silly. You go into a port, your truck sits around all day while, you know, the longshoremen put a cargo net into a container ship, load everything into it, pull it out, unload it and then reload it back into your truck. This is not efficient and this obviously is. It's an obvious idea, right? Just put it all in a box and you can then put that box on a truck.

[Tracy Alloway]

The best ideas are always the obvious ones in retrospect.

[Jerry Newman]

But, but the problem with it was, it was a systems problem, right? The longshoremen didn't want it, the ports didn't want it, the port authorities didn't want it, the politicians didn't want it. Nobody wanted this to happen because this sort of enormous change would put a lot of people out of jobs. It would upset the existing order. And it did. I live in Hoboken and in Hoboken there's a lot of piers that nobody uses except to go running on now because back in the 60s it was a long Shermantown and when I moved there in the early 90s, it was empty. It was started to gentrify, but because all of those people had lost their jobs and moved out.

[Joe Weisenthal]

And I suppose like even in the case of Maersk, and I'm sure, you know, they obviously have made a lot of money because the explosion of global trading volumes and containerization is part of that. Like it wasn't overnight wealth. Right? It wasn't. Like it wasn't. It was not. People got richer, but it was not like some bubble get rich quick thing where they suddenly cashed in on the new thing.

[Jerry Newman]

Yeah, I mean, I suppose whoever owns Maersk may have gotten richer.

[Joe Weisenthal]

Yeah.

[Jerry Newman]

But it's not like you're going to look at the force 400 and see all these shipping magnates who became suddenly, you know, enormously wealthy. There are a few.

[Tracy Alloway]

Wait, okay, so if I think about a box, you know, part, part of the.

[Joe Weisenthal]

Let me just keep this whole conversation on boxes actually get to AI at the very end.

[Tracy Alloway]

Well, one more question. We will be able to discuss AI, but I think about a box and as you say it's sort of an organizational structural problem. Like the box itself is not the huge technological advancement necessarily. So what exactly was it about cont. Containerization that prevented it from being disseminated I guess to new upstarts or new companies that could actually use that technology?

[Jerry Newman]

Well, it was so actually not sure I understand the question because containerization became widespread very quickly.

[Palantir Advertiser]

Right.

[Tracy Alloway]

But what I mean is like why was that value seemingly captured by incumbents versus startups?

[Jerry Newman]

Right. I think because it disseminated so quickly. Right. It was an obvious idea. Everybody who saw it said okay, we need to do this right. Everybody who is already in the business said if this is going to happen we have to do it. We can't be left behind, we will be left behind if we don't do it. Which I think was also obvious. So the reason nobody else did it first was it was hard to do, it was hard to make happen. And technologies always come in these technological systems if they're worthwhile technologies. So the personal computer didn't change the world on its own. It changed the world alongside the Internet, alongside a bunch of technologies that formed the system. So the hard part here was building the system, not the individual technologies. And this is true I think of computers as well. The first microprocessors weren't considered revolutionary. Intel didn't consider the 4004 revolutionary. They considered it evolutionary. The engineers have said this and it wasn't revolutionary until people put it to use in ways that they didn't anticipate.

[Joe Weisenthal]

Actually, can we go? I didn't know that. I hadn't really thought about that with intel that at the time it didn't feel to them that it wasn't a revolutionary technology. That's sort of mind blowing.

[Jerry Newman]

It is. Right? This is I think from Michael Malone's the Intel Trinity, the book. He interviewed a bunch of intel engineers and he said they thought they were building a better chipset to build pocket calculators or desk calculators I should say. So they had a client, Busycom, who wanted to build a better desktop calculator. Calculators were big back then in 1970ish. And one of the engineers said well why do we keep building custom chipsets for each different calculator? Why don't we just build a chipset that we can customize the software and change what it does? And intel was kind of like eh. And Busycom was like, okay, we'll pay for that. And then Busycom actually tried to back out, and they gave the rights back to Intel. So intel owned the rights to this 4004. And then they started selling it, and it wasn't Intel. Intel believed at the time it was going to be maybe used for dedicated hardware, hardware controllers, that kind of thing. Not by consumers. So it wasn't until people on the outside said, hey, you know, I love these IBM mainframes or these DEC minicomputers. I'd like to have my own, but obviously nobody can afford that. Why don't I just try to build my own, right? So it was these kind of outside inventors, this permissionless invention, and then it really. The real revolution didn't happen until this. Everybody's like, oh, intel. It was the 6502, where the price came down so dramatically that Steve Wozniak could walk into a computer fair, get some for free, and go home and build a personal computer.

[Joe Weisenthal]

That's crazy. I wonder who made the chips for the Commodore 64 computer that I had.

[Jerry Newman]

They were 6000, 502s.

[Joe Weisenthal]

Those were Intel.

[Jerry Newman]

No, they weren't Intel. They were MOS Technologies.

[Joe Weisenthal]

Oh, got it. Got it.

[Jerry Newman]

Those are the cheap ones, then.

[Palantir Advertiser]

Yeah.

[Tracy Alloway]

Wait, what year was that? When you had.

[Joe Weisenthal]

Well, I had. I think I, like, learned some BASIC and did some coding on the. I would have said maybe 1988, 1987, somewhere around there, made a few. I miss those days. It's crazy that I didn't beat. Can I just say, sometimes when I think about my life path, like, how did I not end up like a tech guy? Because I was, like, very into math. I was like, one of those people who had a computer when I was 6 or 7.

[Tracy Alloway]

In 1987, you were coding. You were 7 years old?

[Joe Weisenthal]

Yeah, yeah. My dad got me this magazine that just. It was very crazy. They literally just sent you pages of code, and then you just typed it in and you could, like, make a video game. I was doing that at seven. I could be like, one of those, like, billionaires whose parents gave him a computer when he was 7. Anyway.

[Jerry Newman]

And it's not too late, Joe. It's not too late.

[Tracy Alloway]

Yeah, it isn't too late. Well, maybe it is too late, because now we have AI doing all the coding, Right?

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[Jerry Newman]

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[Tracy Alloway]

Okay, just so I understand, when it comes to, I guess, the advantages of the incumbents to actually monetizing new technology or benefiting from new technology, is the moat around their business, the network and their sort of role in the network, or is it the vast amounts of cash they have and the ability to sort of roll out massive investment to capture that value.

[Jerry Newman]

I think it's the latter. Right. So anybody can build a foundation model, right? If you have the money. I mean, the technology is not mysterious. It doesn't feel like the technology is really changing very quickly anymore. And of course, I don't have insight into what's happening inside of OpenAI, but looking at it over the past couple of years, it's the same thing, but slightly better. It's evolutionary now, right? The first part was revolutionary and now it's evolutionary. So if you wanted to build one, you could build one. I have friends who are running them on their laptops very slowly, but it's possible. So now the question is, do you have enough cash to build the data centers, to buy all the chips, to build something that is large enough that when you train it, it does something useful? And it's just a question of having that the authority in the market to be able to raise that money.

[Joe Weisenthal]

By the way, speaking of ideas that were sort of really obvious, that took a while, I'm always blown away that, like, how long it took them to put wheels on luggage. I don't think anyone got super rich on that. But when I was a kid, I remember, like we had these big suitcases and that's the most obvious thing. It took a while anyway. I know. I don't think anyone got it.

[Tracy Alloway]

Technology's still not perfected, as you know, because you've been in airports with me and the wheels on my luggage are broken.

[Joe Weisenthal]

But I don't think anyone got like super rich off of wheels. That just seems like an. That was just sitting there. You know, I want to jump ahead actually in the conversation a little bit because I don't want to forget this point, but this is something I've become a little obsessed with, which is I've been meaning to ask a VC about this, which is that there seems to be this blurring of private and public markets in various ways. Retail participation, private markets, et cetera. For the vc, in my mind, I feel like the exit was the IPO or the acquisition. Right. So you buy. Do VCs these days have to think a little bit more about market timing and selling early? So someone who is an early investor in OpenAI or whatever, you know, in the past, they might have just held and then sell at the IPO or the acquisition. Probably not going to happen. In OpenAI's case, they're too big to be acquired. But do VCs and in your experience these days, have to Think a little bit more about this idea of selling early. Timing the exit.

[Jerry Newman]

Well, I think VCs always had to think about timing. I've done pretty well in VC and I attribute it entirely to being lucky at starting investing at the right time. So the first time around I was starting in 97, which India could make money. And the second time around I started in 2007, which again, it was just. Or 2008, it was just an easy time to buy in.

[Joe Weisenthal]

But I mean the timing of the sale, is that something that. Where in the past it might have been automatic to exit now, that was not the case.

[Jerry Newman]

No. I wrote this thing about VC in the 1980s a long time ago. It's on the blog, you can find it. And the thing. Because nobody talks about the 1980s, right? There was plenty of VC in the 80s, but nobody talks about it. People talk about the 60s and the 70s and the 90s. So I was like, all right, what happened then? One of the interesting things about it is there were IPO windows then where? 1983, the IPO window opened, a bunch of companies went public and then it closed again. And you can see it in the numbers when people went public. So people always had to think about timing. The IPO is obviously the best exit because you want to sell to the greatest fool and nobody greater fool than the public, right? So you look for the IPO window to open. When you can't, you have to sell it to somebody else. You know, VCs have this problem of their limited fund life. So I look at my portfolio and I'm a really early investor or have been a really early investor. So I'll look at companies and say, oh, I invested 10 years ago. They're going to have to sell. So people look for the IPO window, but if they can't find it, they have to sell somewhere else.

[Tracy Alloway]

Well, how much of the money flowing into AI startups now is just the expectation that a bunch of these little companies are eventually going to get bought by larger incumbents and basically you're going to have consolidation and you will get that exit.

[Jerry Newman]

I don't think anybody can predict when the IPO window opens. I mean, I wish I could, but I don't think I've never seen anybody even say they could predict when the IPO window opens. So I think a smart VC invests in a company that can become self sustaining to some degree and then you wait for the timing to come, you don't invest and say, I'm going to flip this in three years. Now you know, the other problem is VCs don't invest in all these I companies saying a bunch of them are going to become valuable. They invest saying one of these is going to become valuable.

[Tracy Alloway]

Right, the lottery ticket theory.

[Jerry Newman]

Yeah, the power law.

[Joe Weisenthal]

Speaking of the IPO window, I'm never totally satisfied by a lot of the explanations for the drop off in IPOs generally. Although I know there was that law passed in 2001 or when was it? 2007.

[Jerry Newman]

Sarbanes, Oxley.

[Joe Weisenthal]

Yeah, Sarbanes, Oxley. And I get that law, that law.

[Tracy Alloway]

That law that everyone hated for a really long time.

[Joe Weisenthal]

It doesn't. But then you see like, you know, in 2021 there's like a billion garbage companies went public via SPACs, et cetera. How much is it about? Okay, there are some disadvantages to being public versus there's just so much more private capital out there, such that the imperative to perhaps ever go public and it's liquid and the rounds and like what do you attribute. There are these big companies that are private stripe, but OpenAI and Anthropic that choose to stay private. What do you think the main reason for that is?

[Jerry Newman]

Well, it's because they can. Right. I mean being a public company is no, it's no party. Right. I mean it kind of sucks being a public company.

[Joe Weisenthal]

What is it about it? What sucks?

[Jerry Newman]

Well, you have to tell everybody what you're doing every three months.

[Joe Weisenthal]

Yeah.

[Jerry Newman]

That's, you know, and then they come back and complain about it. So sorry I'm being a little facetious, but it is, it's hard to be a public company. Everybody, you know, anybody who runs a public company will tell you they spend a lot of time being a public company if they're running the company. So that's taking away from actually running the company.

[Joe Weisenthal]

Yeah.

[Jerry Newman]

I think the flip side is you're liquid and that's.

[Joe Weisenthal]

Yeah.

[Jerry Newman]

You know, so if you can stay private, why wouldn't you stay private? Or if you can go public and retain control of the company, you know, like Henry Ford or Mark Zuckerberg, then why wouldn't you do that? But I think it's because there is so much late stage money. This isn't necessarily a good thing. It's because there's so much money out there that's not being invested in more revolutionary technologies earlier. With all this money being invested in AI, you may wonder if people are still going to want to invest. Late stage stripe or the analogous stripe might be making money now.

[Tracy Alloway]

I'm not sure I know you Brought up previous historic analogies like VC in the 1980s, but. But just to focus on the one that everyone else seems to be focused on at the moment, which is the dot com bubble in the early 2000s. What are the key differences you're seeing in terms of the VC and financing environment now versus 20 or 25 years ago?

[Jerry Newman]

I think the key difference is that most of the money is coming from people who aren't looking for much risk. Right. So I mean OpenAI is primarily funded by bigger companies. Right. Most of their money is coming from large companies. What happens if OpenAI gets hit by a bus? Right. So Microsoft's had a bunch of money. A whole bunch of big companies are out a bunch of money. I don't think much happens to the economy, which is different than in the dot com bubble where a lot of consumers were in it. A lot of consumers were in it, leveraged the buying on margin or whatever. A lot of people had options, employees, and they were spending the money from their options before they were liquid. You know, it was, there was a much. I think it was a different dynamic.

[Tracy Alloway]

But the wealth effect was a lot bigger.

[Jerry Newman]

I don't know.

[Joe Weisenthal]

This is, I think this is a contrarian take on your part because you hear a lot about, I mean in two dimensions you hear a lot about the direct wealth effect from people's exposure to the stock market, which AI is a big part of the story. And then you also hear about, of course, the sort of real economy effects through all of the spending which we will get into on the data centers and the caterpillar, the turbines for the gas generation, et cetera. I think many people would say there is a lot right now riding on the health and the sustainability of this particular sector.

[Jerry Newman]

So I think we can separate the companies like Microsoft and Nvidia. And are they overvalued because of this? Maybe. Does it make a huge difference to the economy? Probably not. I don't think so. And the companies who are spending money on infrastructure like building data centers, building power generation plants, those things I think are probably overbuilt or not so much overbuilt as they are built. And I think in 10 years you're going to have a lot of extra compute, a lot of extra power generation, and people will be able to use that for other things. It'll also drive down the price of just using AI. Probably.

[Joe Weisenthal]

Yeah. Jevons Paradox, bro, is going to be out back and forth. All right, so AI, where are we? You talk about cycles and I think you use a word That I had. Eruption. What was the word you used? Tell us how you see cycles and what cycle we're in. Right.

[Jerry Newman]

So a lot of this is based on Carlotta Perez's work, which is pretty familiar to the venture capitalists in your audience, I'm sure. She wrote a book called Technological Revolutions and Financial Capital where she explains the dynamics behind the Kondratiev waves that Schumpeter talks about. So she has this theory about why these happen. And you look at the Industrial Revolution, the second industrial Revolution, you can see these waves of technology, technological systems happening through the economy, where they kind of start out, they grow really rapidly, and then there's usually some sort of adjustment, some sort of bubble bursting, and then things kind of level out and then start to plateau and then a new one starts. And this is. People have noticed this since at least Kondratiev in 1926. She has a mechanism for explaining it, and her mechanism has these four phases. The first phase is eruption, which she spells with an I, which I think is actually in the dictionary as a word. I don't know what the difference is between that and eruption. But it is the part where she.

[Joe Weisenthal]

Sounds smarter than when you write.

[Jerry Newman]

Right. So, yeah, keep saying that. It is the start. It's when people have invented something and it is starting to catch on, but it hasn't caught on yet. There's a lot of people saying, is this the future? Is it not? You look at personal computers in the 19, late 1970s, early 1980s, maybe even before IBM got involved, and people didn't think personal computers were. Some people thought they were their future. And, you know, if you look back at computer history, everybody talks about the people who did think that. They don't talk about the other 99.9% of smart people who said they weren't. This is the eruption phase, where there's a lot of uncertainty about where this technology will go. It's starting to build connections to other technologies, starting to attract money, attract smart people, because it's interesting and it might actually change things. So this is the beginning. And I think the connection here to AI is people wonder if we're in the eruption phase of AI or not. Is this the start of a new technological revolution?

[Joe Weisenthal]

So which phase are we in?

[Jerry Newman]

I think we're not. I think this is the end of the information computer technology wave. The end of the computer wave, right? I think it is. This is the culmination of the computer wave, right? I mean, why did we build computers? We build computers to help us think better, right? This is what they're for. They're, they're knowledge machines. So now we've kind of reached the natural end stage of what they do. They're, they're smart, machines are smarter. So I think this is not a new technological revolution. I think it's the end of the old one. And this is why I compared it to containerization. Because the previous wave was automobiles, mass production, and starting in 1915 or so up until 1970 was the previous wave. And containerization was squarely at the end of that wave. And it was really kind of pulling together the technologies of that wave into something that increased productivity.

[Tracy Alloway]

Right. Like the final step of the global trade and I guess mobility revolution.

[Jerry Newman]

Yeah, exactly.

[Tracy Alloway]

Okay, so how do you react as a angel investor? Are you at the stage where you're looking for, I guess, the downstream winners, like the companies that are going to be able to apply or use AI most effectively, or how are you actually deploying all these thoughts in terms of your own investment strategy?

[Jerry Newman]

I retired.

[Tracy Alloway]

Okay.

[Jerry Newman]

That's, you know, I looked around and I said, look, how am I going to invest in foundation models? Right. I'm, I don't have a billion dollar fund. I don't think that, you know, if you look at the big winners from the early big winners from globalization, the IKEAs, right. I mean, Ikea was a Scandinavian company until containerization and then they became a global powerhouse, a hugely successful company. But they didn't need outside money. You know, Ingvar Kamprad, I think he borrowed like a couple thousand dollars to start that company or to, to get that company to buy some inventory. He never took outside money. You look at, you know, Walmart, which had been around already, it was an incumbent and used this kind of globalization to bring a lot more variety of products to the stores. They didn't need outside money to do that.

[Tracy Alloway]

Yeah. I guess if you're Ikea and suddenly you're flat packing everything and shipping it in containers and that's your big innovation. It's a money saving technology. Right. So you don't actually have to raise new capital in order to flat pack everything.

[Jerry Newman]

Yeah, exactly. Okay. They were already flat packing.

[Joe Weisenthal]

Yeah. Your mention of the Walmarts and targets of the world is like in your essay. It was like a sort of very light bulb thing. It's like. Yeah, I don't know, I guess we take them for granted, but they're clear, like massive containerization winners. The scale that they succeed at is impossible to fathom in some prior era of.

[Tracy Alloway]

Walmart is a logistics company. Change my mind.

[Joe Weisenthal]

Literally. And many of you are like, literally, literally, literally that. But it doesn't feel like with AI that the equivalent has emerged yet. Right. We're still at the age where people are building the container deploying, but the company that exists and is massive, that couldn't exist prior to AI, like, does not feel, does it? We haven't seen that yet.

[Jerry Newman]

Well, you got to be a little patient.

[Joe Weisenthal]

No, no, I get. No, I get it. Seriously.

[Jerry Newman]

I mean, ikea, so contain. The first container ship sailed in, I think, 1956. Okay, so when did IKEA become a global powerhouse? It really wasn't until the 1970s that they started to expand.

[Joe Weisenthal]

This is really important that it takes a little time to take a while. Where would you expect it to show up? Like, what industries would you expect? Because obviously retail existed for a long time, furniture existed for a long time. Then you get these behemoths, other industries that you think are ripe to produce very tortured analogies. The IKEA of the AI wave.

[Jerry Newman]

Well, I think they have to be knowledge intensive industries. All right? I mean, that's, this is what AI is doing, what it is making more efficient. I mean, I think there's people that ask me like, well, then what should I invest in?

[Joe Weisenthal]

And yeah, tell us.

[Jerry Newman]

Yeah, well, this is, you know, I.

[Joe Weisenthal]

Think, well, so give us the answer.

[Jerry Newman]

I've been thinking that myself, but the answer is really that as an investor, I don't decide what to invest in. I evaluate opportunities that come to me. And so I have built a box in which you can evaluate opportunities. Right. They have to look like this. They have to look like an ikea. And if IKEA came to you and said, I needed money at that time, you should have said, okay, I can see how shipping containerization is going to make you a much larger company where nobody else seemed to see that. Right. Certainly the furniture makers in North Carolina didn't see it. So I think this is the box that you evaluate things in. And as a longtime investor, I'm used to evaluating and I try not to come up with ideas that said it has to be a knowledge intensive industry. And I think something that I said in the essay, which I wish I had said more about, was the companies that tried to use shipping containerization to cut costs so they can increase margins did poorly.

[Joe Weisenthal]

Oh, this is key.

[Jerry Newman]

Whereas the companies that use the efficiencies and pass the efficiencies on to the consumers so that they could become larger, became larger. Right. I mean, this is. You look at these people saying, oh, we have AI we're going to fire people. I mean, that, I think is the exact wrong move. And I think it's probably just every, you know, every new thing comes along, people are like, oh, we're going to fire people. You know, it's just an excuse. But. But if you're firing people because of AI, you're doing it wrong. Right. You should be using AI to say, I can use my people to do more. I can grow my company, I can vary my products, I can take more market share.

[Joe Weisenthal]

Right.

[Tracy Alloway]

So the value goes to the consumer. And I guess you capture the value by selling more. Right. More knowledge.

[Jerry Newman]

Yeah. I mean, I think Walmart never tried to maximize margins.

[Tracy Alloway]

Right.

[Jerry Newman]

They.

[Tracy Alloway]

It was. It was volume. Yeah. Okay.

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[Jerry Newman]

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[Joe Weisenthal]

And I'm Max Chavkin.

[Jerry Newman]

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[Joe Weisenthal]

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[Jerry Newman]

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[Tracy Alloway]

Felt about the penny going away. Listen to everybody's business wherever you get your podcasts.

[Joe Weisenthal]

From a consumer standpoint, why do I care if your workflow internally at your company is become more efficient than, say, AI? Either the product is better or new or something. You know, I was thinking about this. I don't mean to like pick on anyone, but just as you made it like open door meme stock, they had a new CEO. He sent out this memo, he's like, everyone has to do start using AI. More is clearly a press release in the form of an internal memo, because it got a. I think it tweeted.

[Tracy Alloway]

Waving a flag going, yeah, you're using AI.

[Joe Weisenthal]

And it's like, yeah, but like, does the economics of buying homes via whatever get better? Like, does it actually make the business better? This strikes me as very interesting, this idea that, like, it's not. It's just not that exciting. Especially any sort of customer oriented company, which I guess is all companies. The fact that AI has become part of their workflow.

[Jerry Newman]

It's the electric knife effect. Right? So I don't know that effect. I just call it that. But I mean, electric knives are one of the fastest growing consumer products in the late 1960s because people are like, oh, we are electrifying things. Let's electrify the knife. And within like three years, they were in some massive percentage of households, like 80% of American households had an electric knife and things like, you know, the blender didn't get adopted that quickly, but who has an electric knife now? Right. I think people take whatever it is the technology is and say, this is everything. I mean, back in the early 2000s, late 1990s, every company was an Internet company. Do people walk around saying, that's an Internet company now? Are you an Internet company? I mean, everybody's an Internet company. Everybody uses it. It's the baseline. I think what a revolutionary technology does is it becomes part of everything. So, yeah, you're right. Consumers don't care that your lawyer is using AI. They want to make sure that they have good legal advice.

[Joe Weisenthal]

Yeah.

[Tracy Alloway]

Our producer just messaged Dash saying that he had an electric knife.

[Jerry Newman]

Oh, does he have one?

[Tracy Alloway]

Probably not in the 1960s, though.

[Joe Weisenthal]

Dash, dash, do you have one now?

[Jerry Newman]

My mom might still have one in.

[Joe Weisenthal]

Case that didn't get picked up on the audio.

[Tracy Alloway]

Well, his mom might still have one. Dash, will you bring it in for us and we can use it as a prop on the table?

[Joe Weisenthal]

I'm just imagining going to a restaurant at the time and it's like, oh, we slice your bread with electric knives. How unexciting that would be from a consumer standpoint. I don't care, you know?

[Tracy Alloway]

Yeah, I guess that's true, but. Okay, but things are different from a shareholder standpoint. Right? And one of the reasons we see when companies say that they are using AI, the share price goes up. It's because shareholders expect all these easy cost cutting gains. Do we have any indication that investors are actually Going to be patient and wait for I guess the value to spread to the consumer or are they just going to demand basically these fast cuts?

[Jerry Newman]

Well, and I mean I'm not a stock market investor.

[Tracy Alloway]

Yeah, I know, I know you're gonna.

[Jerry Newman]

Make fun of stock market. Yeah, you know, I think they have a very short attention span. There's a great quote in that article about VC in the 80s where the wall Street Journal said, you know, there was beginning of the 80s, there was a craze in anything that ended with in onyx. Right. Oh nics. Right. It was, people were right.

[Joe Weisenthal]

So funny.

[Jerry Newman]

But it was a short lived one because it didn't really deliver. And then people were like, all right, let's move on and do something else or invest in something else.

[Joe Weisenthal]

So funny. If I were writing a fiction about the 80s, I would immediately, I would say like applied photronics or something. Yeah, right, Yeah, I hadn't thought about that. That's amazing.

[Jerry Newman]

So I think they want results but I think it's too. People are impatient. I mean I was kidding, but I'm not kidding. People are impatient. They want to see results. Today I don't think AI is going to show you the real revolutionary results for a decade. Taking AI and just retrofitting it onto the way you do things now. Yeah. Is only going to add a little bit to your efficiency. You have to actually re engineer everything around this, change your processes, hire different people or get, you know, train people and then you're going to see big efficiencies.

[Tracy Alloway]

You got to have prompt training in schools. Right. In high schools or something. Well, we were talking about this with Tyler Cowan earlier and he had, you know, a similar point.

[Joe Weisenthal]

Are big companies setting aside. Okay. Like yeah, it's not very exciting that a big company is able to marginally reduce their workforce. I think a lot of those are fake. I have a feeling a lot of these companies are going to have to end up having to hire people back when these things don't work. Or they had nothing to do with AI and they just wanted to do layoffs. Can legacy institutions like there's some like inherent roadblock to the degree to which legacy institutions can incorporate on AI or is this the type of thing where it's just going to be entities that didn't exist before becoming really big household names?

[Jerry Newman]

No, I think it will be legacy. I mean I think, you know, Walmart was legacy, Ikea was legacy. It may not be the names you expect. Right. Sears and Woolworths didn't really benefit from shipping Containerization, they ended up going out of business. I think you have to have the right attitude of how you're going to utilize the efficiencies it brings within your business. Again, to grow your business, not to.

[Joe Weisenthal]

Yeah.

[Jerry Newman]

You know, grow your CEO's salary. Right. You have to be spreading this to the consumers for your company to be successful.

[Tracy Alloway]

All right, in the intro, Joe made fun of Sid saying something completely rational.

[Joe Weisenthal]

Sid didn't even say it.

[Tracy Alloway]

Yeah, I know, I know, but this is your joke.

[Joe Weisenthal]

It's an internal joke.

[Tracy Alloway]

Right. Okay, so I'm going to ask the cliched question in that theme. Are we in a bubble?

[Jerry Newman]

Can you define bubble?

[Joe Weisenthal]

No, I'm sorry, that's an unfair question. I think the question should be asked liberally. It's like, I don't.

[Jerry Newman]

Are things overvalued?

[Tracy Alloway]

Are things overvalued?

[Jerry Newman]

But there's a difference between things being overvalued in a bubble. Right. And I think things are overvalued, and I think there may be a infrastructure bubble. In the article I wrote for Colossus, there's a chart of container ships being built, of ships being built. And you can see this huge rise right after containerization started for a bunch of years. And then it dropped back off because now people had their ships, but everybody had to get in at the same time. Everybody had to go order ships. A ton of ships were being built. And then the CapEx, you know, and then they were like, okay, now we have ships. It's a little different with chips because chips aren't going to last, you know, however long a container ship lasts, 30, 50 years. But I do think that you're not going to need as many chips in the future as you are buying today.

[Joe Weisenthal]

Really?

[Jerry Newman]

Well, you know, you're going to have more use of AI, probably there's going to be more use. But I also would think they would become more efficient in compute. That's just the history of compute.

[Tracy Alloway]

Does your definition of a bubble, does that have to include a buildup of leverage of some sort?

[Jerry Newman]

Well, I lived through the dot com bubble, so yeah, I would say so. Okay, right, because.

[Tracy Alloway]

And you're not seeing that right now.

[Jerry Newman]

Well, because I think a bubble popping has to hurt. And if Microsoft loses a billion dollars, that doesn't hurt. It doesn't hurt any. I mean, sure, it hurts whoever's invested that money at Microsoft, but it doesn't.

[Joe Weisenthal]

Hurt, which is all of us, which is everyone who has a 401K.

[Jerry Newman]

Well, I guess. But I mean, really, Microsoft loses a billion dollars yeah, sure. How much does that affect their stock price? And even if the Stock went down 10%, that's not like the dot com bubble, right? When that popped, people were laid off, the economy went to a recession. I mean it was pretty deep recession. Took a while to kind of pull ourselves back out of that.

[Joe Weisenthal]

Talk to us more about the dot com bubble. I try to bring it up in every conversation because that's when I got interested in markets. I did a little day trading in those days when I was in college, et cetera and, and I just remember that period very fondly because I was young. What do people get wrong in their memories of the dot com bubble?

[Jerry Newman]

So here's the thing I remember most about the bubble. I was a corporate vc. I worked for a big company here in New York, Fortune 500 company. And one of the companies I had invested in was a public company and they were raising more money. This was in January, right before the bubble popped, right?

[Joe Weisenthal]

That was the bubble. The peak was in March, March 2000.

[Jerry Newman]

Then it was January 2000. So the company was selling stock. They said hey, if you want to buy some more stock in our company, we'll sell to without the underwriter discount or before the underwrite of discounts, we'd get it at 7% below the market price. And I went to the CFO of this giant company and I said, hey, we can get a good deal on this stock. We can get 7% off, right? Who doesn't love a bargain? And he said well, do you think the company is worth that price? I said no, no where near. He's like so why are you buying it? I'm like oh, I guess that's a good point. He's like so why would we still own it? And it's like that's also a good point. Right? Which is why aren't we selling this if it's overvalued? I mean the thing that people forget is everybody knew it was overvalued. They were all just waiting for it to go up more before they sold. And he said this and I'm like yeah, I guess better to sell early than late. And we ended up selling that entire position which luckily paid for the whole portfolio before the bubble popped.

[Joe Weisenthal]

This is a, I mean I think this is. There's sort of the difference between John Authors had a really good newsletter I think about a year ago, which is.

[Tracy Alloway]

That you're just promoting all the newsletters.

[Joe Weisenthal]

I'm doing, I'm doing my job to bloom Bloomberg of like. But it was basically like, you know, you get these situations like dot com, where everyone said this is massively overvalued. We all know it. We all. It's ridiculous. Then you have bubbles that are more like the housing bubble, in which I don't think on any sort of traditional metrics the banks were overvalued. I think probably the pes were probably normal. It's just that the earning stream was entirely unsustainable. And I guess that's the question with AI. Like, I don't know, Nvidia is pretty expensive, but like, I don't think people think it's like, like crazy stretched on PEs. It's more the question of, like, is this chip demand at this pace sustainable? Like, are the earnings estimates realistic?

[Tracy Alloway]

Right.

[Jerry Newman]

Well, I mean, the economists said the housing, housing was overpriced in 2005. Right.

[Joe Weisenthal]

The homes were, yeah. The banks, you know, but the banks got obliterated. And it was not because the ratios of the banks were completely out of whack. It's just that the profits could not be sustained by any stretch at that point. Anyway, I think it's an interesting distinction.

[Tracy Alloway]

Well, I think there's still an open question with AI about the network of relationships that are sort of driving a lot of this business. Like, that's where I would see some of the maybe 2007, 2008 analogy actually being true. This idea that, like you have this whole system of funding with banks that's keeping the whole machine going, but when the collateral that's underpinning that system suddenly loses value, the whole thing falls. Ap, you could maybe make a sort of similar argument for AI where you have this network of companies that are sort of investing and selling to each other. If the value of the underlying asset, which I guess would be compute in this case, starts to fall really precipitously, the whole thing kind of collapses. But I'm kind of stretching that.

[Jerry Newman]

It's amazing to me how much of the lessons we Learned in the 90s, people just don't know or remember. I mean, the whole blank check company thing, we did that in 1999. Right. And it all failed. All the SPACs. Right. And it totally failed. And then people did it again. It was crazy to me. And I think this kind of circular. Yeah, I know, right. And it's still a bad idea. And I think the circular revenues also happened in the 90s, and that was also a bad idea. You'd think that people could see that and factor that out.

[Joe Weisenthal]

God, I have so many questions. Why are SPACs a bad idea. On paper it seems like a totally fine way to go public. In practice it only seems like total garbage. Companies take that route.

[Tracy Alloway]

Yeah, it feels self selecting.

[Jerry Newman]

Yeah, yeah, well, of course, because the, the way they're structured to get people to invest in a company, you don't even know what it is yet. It means that there, it's not great for the companies. Right. You get a ton of.

[Joe Weisenthal]

Yeah, oh, right.

[Jerry Newman]

That's just leakage.

[Joe Weisenthal]

Just explain the mechanism again.

[Jerry Newman]

So people, you know, if you put money into a spac when they decide they're going to do a deal, you're allowed to take your money back out of the spac. I can't remember all the details Right. So if you're like, well, it's a good deal, I'll leave my money in. But if you're the company being acquired, you don't know if you're going to be acquired or not because people could take their money out. So just why wouldn't. If you could go public on your own, you would prefer to do that. So by definition the SPACs are buying companies that couldn't go public on their own.

[Tracy Alloway]

Is VC investing fun again? I got the impression like 2 years ago everyone was pretty, pretty depressed and I'm quite sure we did a few episodes on it at the time. But are people having fun again?

[Jerry Newman]

Well, again I retired, so no, nobody's having fun. I wasn't having fun. I think if you have a billion dollars, it's probably fun.

[Joe Weisenthal]

Yeah.

[Jerry Newman]

You know, if you're doing the. I think if you're in AI, it's fun. If you're doing anything else, it should be fun if you're doing something besides AI. Right. Because now everybody is distracted by the shiny new thing. You can go find companies that are interesting to you and invest. The problem is you have to worry about what happens a year from now when they need the next round. Is anybody going to be paying attention? I think it's probably pretty hard to be an early stage investor unless you're investing in AI. And if you're investing in AI, you're probably not writing small checks at low valuations and you can't control the outcome at the end. You can only control what you do at the beginning, so you probably won't be making money.

[Joe Weisenthal]

I have this theory that actually nobody likes bubbles or booms even, but let's say bubbles in part. Like if I missed it, I'm upset because someone else is getting rich. If I'm in it, I'm like really anxious. Am I Going to like. I'm anxious about two things. I'm anxious, am I gonna sell at the right time? I'm also kicking myself for not investing more. No matter how much I invested. I'm upset with myself for not having invested more. Is that right? This is just my impression when I read history, which is that everyone, even in the boom towns, there's this din of stress underneath. Is that true or am I just. Am I just fantasizing, projecting my own neuroses from birth onto.

[Tracy Alloway]

Well, everyone thinks they're gonna time it.

[Jerry Newman]

Right, but the bubbles are falling. Fun, especially if you're young and stupid. Right. I, you know, there's the New Yorker cartoon. I want my bubble back. Right.

[Joe Weisenthal]

Yeah.

[Jerry Newman]

The flip side is it is stressful. I remember. Well, it's stressful both after. Obviously, I. I still have my Razorfish stock certificate. It's. I had it certificated because I couldn't sell it for anything, you know, for any real money. And that at one point had been worth quite a bit of money, more than my house.

[Joe Weisenthal]

Again, I remember. What did that company do? Is it like an ad network or something?

[Jerry Newman]

No, no, they built websites. Yeah, they were great. I mean, they were a great company when nobody else knew how to build websites.

[Joe Weisenthal]

Some friends who work for Razorfish, even as, like recently as like 2010, they sort of hung on for a little while. Jerry Newman, thank you so much for coming on Odd Lots. Been wanting to chat with you for a long time and really appreciate you joining us.

[Jerry Newman]

Yeah, thank you both.

[Joe Weisenthal]

Tracy, I love that conversation. There's a lot there. I mean, obviously I'd like anytime we can talk about the 90s bubble, but I had never really thought about or come anywhere close to thinking about the AI analogy with containerization. It's a little embarrassing because that's such a core topic for us. We've talked about boxes so many times. But to sort of reorient my thinking of AI in these terms is very helpful.

[Tracy Alloway]

Yeah, well, I mean, this just kind of proves the point that no one thinks of containerization. I mean, I said before it is a technology story. And one of the reasons I do think of it that way is because I read that book the Box, which is really good. But no one thinks about it as an investment story because of the reasons that Jerry just laid out.

[Joe Weisenthal]

Yeah, no, that's really interesting. And you know, again, like, it does feel at some point that non tech businesses, non AI businesses, eventually someone, hopefully for the industry, makes a lot of money actually using these tools because we've been in the picks and shovels phase or whatever. But at some point, maybe it's an existing healthcare company or et cetera, or maybe it's a new kind of law firm or an incumbent law firm where it's like, okay, we have found a way to use this technology in a manner that is very profitable, productive, and market expensive.

[Tracy Alloway]

So to me, that's the key thing. So the key thing is it's not that we're going to use this technology necessarily to cut costs and boost profit margins. It's that we will actually expand our customer base and make it up in volume by selling more knowledge.

[Joe Weisenthal]

You know, it's an interesting thing that Jerry said and he put into words something that I hadn't really articulated, thought about before, but this idea about being at the end of this sort of computer revolution and there is something about AI specifically where people, it's like, and it can't really literally be this, where it's like, well, this is the last technology, right?

[Tracy Alloway]

Oh, no, because we're going to get robots.

[Joe Weisenthal]

Yeah. And I don't know if like other booms or technological revolutions had this feeling where it's like, this is the last one. Theoretically, if you get AGI or whatever, robots, you don't need any further technological innovation, et cetera. It creates, I think, a very weird, uncomfortable dynamic. But the idea of AI is the end of what we do with computers rather than the start of like something genuinely new like that actually like snaps into place a lot of thoughts for me.

[Tracy Alloway]

Once we invent God, we're done.

[Joe Weisenthal]

Yeah, once we invent God, we're done. Everything else takes care of itself.

[Tracy Alloway]

Yeah. All right. Shall we leave it there?

[Joe Weisenthal]

Let's leave it there.

[Tracy Alloway]

All right. This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Allaway.

[Joe Weisenthal]

And I'm Joe Weizen. You can follow me at the Stalwart. Follow our guest Jerry Newman. He's at GA Newman. Follow our producers, Carmen Rodriguez at Carmen Armand, Dashiel Bennett at dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to bloomberg.comoddlots for the daily newsletter and all of our episodes and you can chat about all of these topics with fellow listeners in our Discord Discord GG oddlaws.

[Tracy Alloway]

And if you enjoy Odd Lots, if you like it when we talk, talk to you about why you're not going to get rich from AI, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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[Joe Weisenthal]

Who's a good boy? Who's a good boy? You're a good boy.

[Jerry Newman]

That's right, dude.

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[Michelle Hussain]

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