No Mercy / No Malice: A New AI World

Summary

No Mercy / No Malice: A New AI World
The Prof G Pod with Scott Galloway
Release Date: February 8, 2025

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Scott Galloway delves deep into the transformative landscape of artificial intelligence (AI) in this episode of No Mercy / No Malice. Titled "A New AI World," Galloway explores the seismic shifts AI is causing in the global economy, the emerging competition between the U.S. and China, and the broader implications for society and shareholder value.

1. The AI Revolution and Its Economic Implications

Galloway opens the discussion by addressing the rapid advancements in AI technology and its profound impact on market dynamics. He references the emergence of Deepseek, an AI chatbot developed by the Chinese hedge fund High Flyer, which has garnered significant attention by rivaling offerings like OpenAI's ChatGPT.

Scott Galloway [02:10]: "If it is in fact true that AI models are much cheaper to build and even run than we thought before, people who are on the right side of this trade is everyone."

He emphasizes that the decreasing costs of building and operating AI models democratize access, potentially shifting value from large corporations to consumers. This shift hints at a more competitive AI industry where consumer benefits might outweigh corporate profits.

2. Stakeholders vs. Shareholders: A Paradigm Shift

Drawing parallels with historical technological innovations, Galloway argues that AI mirrors the transformative effects of GPS, the internet, and vaccines, where benefits are widely dispersed across society rather than concentrated among a few corporations.

Robert Armstrong [02:33]: "AI is likely as transformative a technology as the aforementioned, and it's already setting records for consumer and enterprise adoption. So the question is which organizations will capture and sustain trillions in shareholder value? The answer may be no."

Galloway contends that AI will follow a similar trajectory, benefiting a broad range of stakeholders rather than being monopolized by select companies. This perspective challenges the traditional focus on shareholder value, suggesting a more inclusive distribution of AI's advantages.

3. The U.S.-China AI Race

A significant portion of the episode is dedicated to the burgeoning AI competition between the U.S. and China. Galloway highlights the strategic moves by both nations to dominate the AI sector, underscored by China's development of Deepseek as a testament to its technological prowess.

Scott Galloway [08:45]: "China knocked off an expensive US product at a lower cost. This isn't just about competition; it's about redefining global technological leadership."

He points out that Deepseek's ability to rival ChatGPT without relying on expensive Nvidia chips—due to U.S. export restrictions—illustrates China's capacity to innovate independently and disrupt established markets.

4. Nvidia's Market Turbulence

The episode delves into Nvidia's significant market downturn following the revelation of Deepseek. Galloway examines the broader implications for the tech industry and investor sentiment.

Scott Galloway [10:15]: "Nvidia shed over half a trillion dollars in market cap in one day. This could signal the beginning of a tech market correction many have been anticipating for years."

He debates whether this incident is a temporary setback or indicative of a more profound transformation in how AI technology is valued and monetized.

5. Valuation Discrepancies and Investment Risks

Galloway critiques the soaring valuations of AI companies like OpenAI, questioning the sustainability and underlying value propositions driving such numbers.

Scott Galloway [11:30]: "OpenAI is being valued at 92x revenues versus ByteDance at 2.3x. This kind of disparity raises red flags about the true value being placed on AI enterprises."

He warns investors to exercise caution, drawing parallels to past tech bubbles and the volatile nature of AI as an investment sector.

6. Public Good vs. Corporate Profit

A recurring theme is the tension between public benefits and corporate profits. Galloway advocates for AI developments that prioritize societal gains over shareholder enrichment, echoing his earlier points about stakeholder value.

Scott Galloway [12:45]: "What looks like it may be very bad for business has the potential to be wonderful for the rest of us. Not just for the public, but also for the tech industry."

He underscores the importance of ensuring that AI advancements contribute positively to society, rather than merely inflating corporate valuations.

7. Ironies and Future Outlook

Galloway concludes by reflecting on the ironies inherent in the AI revolution, such as AI potentially undermining its own development by automating jobs within the industry. He muses on the broader implications for global trade policies and the future landscape of technology.

Scott Galloway [13:50]: "The US's attempt to keep American-made chips out of China may turn out to be a powerful argument in favor of free trade."

He envisions a future where AI serves as a public good, benefiting a wide array of stakeholders and fostering a more equitable distribution of technological advancements.

Conclusion

In "A New AI World," Scott Galloway provides a thought-provoking analysis of AI's disruptive potential and its far-reaching consequences for the global economy and society. By challenging conventional notions of shareholder value and highlighting the competitive dynamics between the U.S. and China, Galloway offers listeners a comprehensive understanding of the stakes involved in the AI revolution. This episode serves as a crucial guide for navigating the complexities of AI advancements and their implications for the future.

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Transcript

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[Kenny Beachum]

What's up y'all? It's Kenny Beachum. On this week's episode of Small Ball, we get into maybe the wildest, craziest, most shocking week in NBA history. The trade deadline came and it did not disappoint. Some trades I love, some I hate it, and some made absolutely no sense at all. The league has been shaken up and I'm here to break it all down with you. Man, what a time to be an NBA fan. You can watch Small Ball on YouTube or listen wherever you get your podcast. Episodes drop every Friday.

[Scott Galloway]

I'm Scott Galloway and this is no mercy, no malice. Which AI company will build and sustain trillions of dollars in shareholder value? The answer is no. The New World of AI as read by George Hahn.

[Robert Armstrong]

A hat tip here to Financial Times columnist Robert Armstrong, who gave some insight on the Prof. G Markets podcast which led to this post.

[Scott Galloway]

Deepseek, which has wiped out more than.

[Kenny Beachum]

A trillion dollars in market value so far. What is your view on Deep Seq?

[Scott Galloway]

In a way, a genie has been let out of the bottle that cannot be put back in. If it is in fact true that AI models are much cheaper to build and even run than we thought before, people who are on the right side of this trade is everyone. Now we have a vision of the AI industry where it is much more competitive. Much of the value might be captured by consumers rather than companies.

[Robert Armstrong]

A new technology emerges that ushers in remarkable productivity, or better yet, dopamine on demand. A group of talented people builds a thick layer of innovation on top of the tech, financed by government and a small number of CEOs leverage storytelling to access cheap capital and overwhelm the competition with brute force. These companies engage in regulatory capture that is they become johns for our elected whores and create trillions in shareholder value. Gps, e commerce, payments, search, social streaming all produced trillion dollar plus entities. AI is likely as transformative a technology as the aforementioned, and it's already setting records for consumer and enterprise adoption. So the question is which organizations will capture and sustain trillions in shareholder value? The answer may be no. Marc Andreessen says deep seek is AI's Sputnik moment that's the wrong analogy. This isn't a rival flexing technological superiority, but dispelling the myth that we the US are the only game in town. The Soviet Union did that before Sputnik in 1949 when it detonated its first nuclear weapon. Bicycles, sanitation, airplanes, vaccines and CRISPR are just a few technologies that have changed the world, but their benefits were dispersed across society rather than being hoarded by a few shareholders. I increasingly believe AI will join this roster. It presents dynamics similar to most stakeholder versus shareholder innovations. Government backed or university developed like the Internet, gps, vaccines, open source or public domain like Linux, Python, Wikipedia, USB and too foundational to be monopolized like bicycles, sanitation, airplanes. In sum, the winners here will be stakeholders, not shareholders. Scan your emotions after reading the last sentence. Did you reflexively grab your shareholder pearls and feel this was maybe a bad thing? It isn't. America becomes more like itself every day and our obsession with and idolatry of the dollar has put the public good in the backseat. Billions of stakeholders benefiting from AI versus one business becoming worth more than every stock market on earth except Japan and the us and one man being worth more than Boeing feels less sexy, less American. Hint Nvidia and Jensen Huang In December, Chinese hedge fund High Flyer released an open source AI chatbot called Deepseek that looks to be almost as good as OpenAI's ChatGPT. It was reportedly designed in a matter of months by modestly paid millennial engineers and doesn't run on the expensive Nvidia chips the US prohibits from being sold to. Deepseek reportedly cost $5 million to train it cost $100 million to train OpenAI's LLM. Nvidia fell 17% on January 27, losing over half a trillion dollars in market cap in one day. The company shed the value of the entire global auto industry, not including Tesla. We don't know if January 27th was a speed bump in AI or the beginning of a tech market correction many have been expecting for 15 years. Some air definitely came out of the balloon, but just some Nvidia fell to its October 2024 price level. No big deal. The deep seek revelation was shocking but not surprising. A Chinese company knocks off an expensive US product at lower cost. See above. China in retrospect, it's easy to identify the action that rang the bell at the apex of a market. I believe the gong may have been the news that SoftBank is close to leading a $40 billion investment in OpenAI at a valuation of $340 billion. This is double the valuation the firm raised at four months ago and a similar valuation to TikTok parent ByteDance. IP theft and addiction are both great businesses. However, crime pays more as OpenAI is being valued at 92x revenues versus ByteDance at 2.3x. Jesus after reading the last sentence, I wonder if Sam Altman is going to begin using terms such as community based EBITDA, Masayoshi San's Limited Partners, that is his investors are looking for venture type returns 3x to 5x in 7 to 10 years, meaning Masa's LPs, that is masochists believe OpenAI will be one of the 10 most valuable firms in the world soon. Yesterday I skirted along the edge of the atmosphere at 4/5 the speed of sound, traveling from London to New York in seven hours. The least expensive tickets were $400. Jet transport technology has changed the world. 60 years ago my mother crossed the Atlantic in a steamship. It took seven days and cost 4.4X. What flying does today Commercial aviation has created enormous value. However, the vast majority of that value has been captured by consumers and society versus airlines. Since 1945, the industry has experienced years of low margin profitability only to have its gains wiped out by periods of huge losses like $128 billion in 2020. Starting in the 1980s, personal computers put technology that had cost tens of millions 20 years earlier on nearly every person's desk. The gains in productivity globally have been substantial. I was on the board of gateway computer in 2006. Weak flex. We were the second largest manufacturer by unit volume of of a technology that at the time had greater adoption and a bigger impact than AI has at this moment. I raised and purchased 18% of the firm for $90 million. Eighteen months later we sold it to Acer for $900 million. Why? A the CEO urged us to sell as he felt there was a real risk we might run out of money. Think about this. Nvidia sheds 600 gateways on the deep seq news AI could be enormously valuable and at the same time a lousy business. As with email, the user may capture 99% of the value and the manufacturer 1%. What looked at first like a proprietary asset may turn out to be a public good. By the way, isn't this how education and healthcare are supposed to work? But that's another post. Vaccines may be a useful analog Here I have a stock screen looking for potential fallen angels to buy. One of them is Moderna. At the height of the pandemic, the company's stock was nearly $500 a share. As I write this, it's $33. Vaccines may be the greatest innovation in modern history, however, their value to shareholders is fleeting. Private assets can transform into public ones for a variety of reasons. Economists have different words for the process. Depending on the details, it might be called decommodification, non excludability through diffusion or commonization. They're all Latin for there is no money here. The ironies of Deepseek are pretty rich. The biggest is, as Jon Stewart pointed out, AI stole AI's job. Another one is the way Sam Altman has been bitching that Deepseek stole some of his IP, distilling big OpenAI models to produce its own smaller, more efficient version. This conjures Steve Jobs whining that Bill Gates stole the idea of a graphic user interface from Apple. Gates responded that Apple had stolen the idea too, when Xerox PARC left its garage door open. OpenAI is built on data it took from other people under the banner of fair use. Hannibal Lecter is irate that his neighbors aren't vegan. Another irony is that the US's attempt to keep American made chips out of China may turn out to be a powerful argument in favor of free trade. Nvidia is now in a reasonable position to tell the US government you've only created an incentive for adversaries to develop workarounds, destabling the AI industry and US China relationship. Anyways, it's an argument. Finally, though, what looks like it may be very bad for business has the potential to be wonderful for the rest of us. Not just for the public, but also for the tech industry. Since the rise of Amazon and then Netflix, valuations have been driven not by innovation but capital. We thought King Kong was singular and under US control, and then a prehistoric reptile appeared on our shores, empowered by many years of exposure to nuclear radiation. FYI, Godzilla. Awesome was meant to be a metaphor for nuclear weapons. Feels weird, but recently I find myself rooting for Canada, Denmark and the lizard.

[Scott Galloway]

Life is so rich.