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- [00:00]
A
Foreign.
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B
You are listening to an art media podcast. Jonathan, what's your number this week?
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A
It's 20 as in $20 billion that was issued today in an RFP, the first tender, effective tender for the Greater Gujdan, that's the Tel Aviv metropolitan area. That's the biggest infrastructure project in Israel, $65 billion. So that's the first third. That's for the excavation of the tunnels. I'm super excited. Think Israel is having a pretty hard time reconciling, you know, high demographic growth with traffic. And it's great to see this project that is going to be, you know, definitive for Israel's growth economically really, you know, like hitting the ground.
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B
Well, maybe the population is about to grow even more because My number is 0, as in 0% income tax rate for new immigrants and returning residents as well to Israel in 2026. And this is part of a new program that's aimed to incentivize those that are thinking about making aliyah or again, just returning after several years abroad. The tax rate does go up gradually after two years. So this is not like a forever promise, of course, but it is a huge incentive. Whose number wins here?
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A
Look, I think where we are right now, encouraging aliyah and also facilitating it also by way of taxes, is really an act of foresight from the government. So I'm with your number this week and we'll wait for my number in a decade to see if we actually have a Metro.
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B
And by the way, we did get a comment in last week's episode that my number hasn't won in a while, at least not unanimously. So I take the win. I won. For all our listeners who've been waiting for me to win and not lose, it's happening. All right. It is 8:30am here in Palo Alto.
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6:30Pm here in Israel, early evening.
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B
Okay. Lots going on. We had an insane week last week in terms of stocks, tech stocks and kind of overall market numbers, which we are going to get to, but also a lot happening on the geopolitical side with big economic implications. One story that again, big implications down the road is Kazakhstan joining the Abraham Accords. We saw Mamdani win in New York, by the way, just as we're speaking, government shutdown. Finally, finally, the longest US Government shutdown in history appears to be winding down. So kind of a mixed bag, I would say. What's your assessment and what else have you really been looking at over the last few days? Jonathan?
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A
I think the focus of our episode today is are we seeing the beginning of the Deflation of the AI bubble. So that kept me busy last week. I would say one thing about Kazakhstan. I had the real privilege of joining President Paris and meeting the previous ruler of Kazakhstan, Nur Sultan Nazarbayev. He's been a close friend of Israel. There is optics here vis a vis the Abraham Accords. But fundamentally there's a great relationship between Israel and Kazakhstan as we speak now. I think the world, very much in light of, you know, some comedies and some movies in the last decade or so about this part in Central Asia, tends to disregard the centrality of that region for global growth and for the geopolitics of the world. The Azerbaijan, Kazakhstan, Uzbekistan, kind of China to Turkey space is undergoing a massive, I would say, competition between China, the US receding Russia and even a receding Iran that wanted to see this as its base. So Kazakhstan joining the Abraham Accord and saying we are formally on this camp, the American, Israeli, uae, possibly Saudi camp is a big deal and it has implications for Israel in terms of economic growth.
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B
Have you ever been to Kazakhstan, Yonatan?
- [03:57]
A
I've been. By the way, one of my favorite places on earth is Almaty, the old capital. I actually taught a two day course at the Almaty Business School and some of the most entrepreneurial, coolest people I've the chance to interact with were in Almaty, in Kazakhstan. It's a very cool place because they are all proud Genghis Khan descendants and they have these stories of the big steppe. They have this huge part of land that has nothing except for minerals. It's a huge country with relative small population and it's like the Wild west kind of being that way entrepreneurial survivors can be there at the edge of civilization in a way. I'm a big fan of the Kazakhs. And by the way, as we record the president of Syria, Jelani is stepping into the White House. This is the first Syrian president visiting the White House in more than 80 years, since 1946. A big change, removal of sanctions. And yeah, a week from now we have Mohammed bin Salman. There's a lot of stuff happening behind the scenes when it comes to, you know, hopeful path normalization in the region.
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B
Well, on to today's episode, we're going to take a look at the AI bubble, which is some are calling it an AI wobble. So the bubble is wobbling. But first, as usual, we are going to look at some of the week's other pressing news, AKA our big shorts. And of course we want to hear the latest update on the Windex. This is the what's your number index that tracks the performance of publicly traded Israeli based or founded companies foreign. Let's kick things off with this week's Windex. Yonatan, I'm scared to ask, but how is last week's. How are last week's numbers?
- [05:35]
A
So you know, sheesh, what a week in Wall street, right? Nasdaq severely hit S and P. Severely hit a bit less, but severely hit with the AI news. And you know, I think also the Jensen Huang comment on record late last week in London that China is winning the AI war. A declaration which he had to retract a bit later. But the numbers that he gave out in terms of production capacity, the Huawei chips and their competitive landscape. It seems like everybody's pushing against Washington knowing that Washington is so wary of a possible loss or lagging in this war. I would say though, if there is any numeric proof that Israeli founded stocks are faring okay in the case of an AI bubble, this week's Windex is a great example. So it is in the red, but it's significantly less in the red compared to Nasdaq and the S and p. Nasdaq lost 3.96% on the week. S&P lost 2.23. The Wingdex lost 1.26. So that's 2.7% better than the Nasdaq and almost one full percent better than the S and P. And really, I think this is in a way an empirical evidence, as much as empirical evidence goes that the Israeli tech scene is sort of beyond the AI bubble, if it does even exist. The resistance came this week from two, you know, companies that we've been following very closely. Lemonade.com jumped almost 25% on the week and so did JFrog with 26.37. It's a great opportunity to talk a bit about JFrog, one of the most exciting companies coming out of Israel. This is one of those companies that provides developers with tools to run digital systems. It's one of those companies for engineers, led by engineers. A great story coming out of Israel. And again, both companies rising so fast against a red Wall street in a red ocean with just, you know, phenomenal reports.
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B
By the way, JFrog has lemonade, obviously we've talked about it extensively. JFrog has not really come up in Windex analyses before. What's leading this jump?
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A
So phenomenal quarterly reports. There has been some doubt about JFrog given automation and given sort of the tools that AI kind of delivers. So in a way, what we're seeing is that, you know, with AI failing to meet its promise, you know, at the pace that is expected, which I think is an unfair pace, to be honest, JFrog is proving by sheer numbers, by sheer P and L. Right. That it is, you know, in high demand. Folks are using it more and more and the expansion is proving that there is great value in the JFROG toolkit, if you will. On the other hand, in the red this morning, and I think we should say Monday.com, shedding an extra 15%, it's been embattled. This is the other side where we do see AI and references and changes in the model of ads. Right. So referrals is chatgpt is perplexity is Gemini the next way of referrals online, changing the entire CAC, you know, customer acquisition cost structure of companies like Monday.com, of Wix.com and others. So I think, you know, that's somewhat of a casualty when it comes to the pace of change in AI. Two more interesting reds. One is Nova, the measurement company, the silicone company, which is very correlated with AI. That's one of those Israeli tech companies that, much like ASML in the Netherlands, rises and falls with full correlation to the Nvidias of the world, losing about 11% on the week. But to me, the most interesting stock this week is actually real economy. ICL, Israel Chemicals. It's actually a very interesting story. In 20, 35 years from now, the monopoly for exploring and mining phosphates from the Dead Sea is expiring. And ICL has had that monopoly. And it also had a right to first refusal once the tender opens up. Right. Which basically means the tender is useless because if companies bid and then the state has to go back to ICL and say, do you want to overbid? Then nobody would bid. Nobody would spend the time knowing that ICL could overbidden. So ICL agreed with the Ministry of Finance in Israel to withdraw from its right to first refusal for what is a $2.5 billion. The stock lost 13.75%. And I think that's a wrong read from Wall street because ICL can still approach the tender. It knows, I think it's been now 50 years that it had a monopoly. It knows best how to run it. It just won an extra two and a half billion dollars in it. And there's a good chance it will win there in an open tender.
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B
Yeah, I love when we have an opportunity to talk about a company that's kind of, you know, not what traditionally associate with Israeli Innovation. You know, unfortunately, it sounded like they were in a bit of a lose, lose decision there, but hopefully goes back up.
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A
Yeah, super well run by the company. I think the market is reading this one wrong.
- [10:24]
B
Okay, let's move along to our big shorts for today. I want to start with a story out of India, which we've covered extensively. India and Israel have signed a defense mou. Part of this was reported earlier again, but reportedly is acquiring missile systems for Israel aerospace industries from IAI for 3.75 billion. And IAI will convert six commercial planes into Indian air force refueling aircraft. Again, a deepening of an already growing strategic partnership with the world's largest democracy. What's super interesting here to me is that this is all happening at a time when Israel has faced, you know, boycotts or calls for boycotts, has not been allowed to even present at certain defense conferences in Europe. And clearly, you know, bigger picture also a deepening of a relationship that, you know, hopefully will be beyond defense tech.
- [11:18]
A
I'm of the opinion that Israel and India, that's the core alliance that gets Israel to its hundredth year with very strong prosperity. Israel and India, by the way, will celebrate 100 years, one in 2047, the other in 2048. I think the most important piece in the deal that you've just described is the tankers, the fuel, the refuel conversion. This is critical on so many levels given where Turkey is right now, India stepping up and saying we want Israeli defense tech, Modi inviting Prime Minister Netanyahu to visit. That will probably happen in November or at the latest in early December. These are very important things strategically for Israel. And if you imagine technologically and economically, a dynamic by which there is a degree of normalization unfolding later this month in the corridor from India through Saudi to Israel, Cyprus and Greece takes shape. That would be the surest path for Israel to double its GDP by its hundredth year. It is so consequential, this relationship. And by the way, I should say, as we record about an hour ago, there was a big, what seems to be a suicide bombing in New Delhi to the entrance to one of the biggest subway stations with eight casualties already. So a lot of similarities, lot of synergies. Very happy to see this deal coming through. The reason the Shekel is still at like 3.25, which is so strong, it could very well in a month or two from now, if this actually starts, this puzzle starts to build, could fall below 3.
- [12:52]
B
You know, I was at a conference here in Palo Alto just yesterday, which really a Lot of the conversation was around the Israel US relationship diplomatically and economically. And one of the things that came up was Israel kind of increasingly looking east versus west for some of these partnerships. Jonathan, do you think that there is a risk here when it comes to some European relationships fraying and just this overall kind of increasing focus on partnerships with the East?
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A
Look, I think it's a great question and it depends on two definitions, what's east and what's West. In that regard, I think Israel cannot afford anything that would strain the relationship with the US Cannot afford. Not from a defense perspective and obviously not from a tech or macroeconomic perspective. And so then it begs the question, what is the West? The west is not in Europe. The west is definitely in the us it's clear that there are select countries in Europe where we want to continue to collaborate with. But I think Europe as a bloc has proven to be hostile to Israel throughout the war. And there are dynamics vis a vis Poland, Hungary, Germany, Italy, Greece that are critical for Israel. So I wouldn't say it's a multilateral dynamic that Europe is of that block and same goes to East. It's very clear that if we want to continue this dynamic with the us, China is out of the game. On our Series B, we had a couple of Chinese funds competing for a ticket and that was very much the case in Israel in 2016. That is not the case anymore. There is no Chinese venture money because of some security and intelligence concerns voiced by Central Command of the US and Washington. And so Indonesia for sure. India for sure. Would Israel, in a scenario of Israel at 100, own an amazing relationship with India, Saudi and Indonesia, aka going east at the expense of UK, France, Spain, Portugal? Definitely. I would totally advocate for that as a strategy, not at the expense of the us that is the most fundamental relationship for Israel and not in any shape and form a China relationship that constrain that relationship.
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B
Well, let's zoom in a little bit. This is another piece of news that caught our eye and it's dealing with the Israeli workforce. I mentioned this on our last episode that there was this Goldman Sachs report published after the ceasefire went into effect late last month. They're very cautiously optimistic on economic growth in Israel, largely due to an easing of labor market constraints. This was really the focus of the report and it asserts that the war led to negative effects on Israel's economy. So from the report they said that they forecast above potential growth in Israel of 5.4% in 2026, 4.7% in 2027. That's versus the 4.6% and 4.3% that they were previously forecasting. First of all, impressions on that, Jonathan. And then I want to get into a piece of this that actually deals with AI.
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A
Yeah, so I guess, you know, just to give folks kind of a few key numbers here. 10 million people, a workforce of about four and a half million people, out of which 10% or 11% are the tech employees. It's a very small number. Less than half a million people are in the tech space. Very, very high productivity, super competitive, super resilient. Other industrial parts of the economy are less adept. I would say the challenges, and that's what Goldman's talking about. That was also the OECD report from last week is that the core reservists are from that half million people. So if the reservists were evenly spread around four and a half million employees, then you would say okay, well then the return to the workforce is evenly distributed. But that's not the case. Most kind of high end, high productivity employees are also the high end, high productivity soldiers, officers, both male and female. So that's where this stems from. I think it is indeed a genuine challenge. But I think if you kind of take three to five year lookout on this, then there are two things that make these really work for super resilient. One is the fact that on the high end the salaries keep on going up. Even though the shekel increased by 25% in a year and a half compared to the dollar salaries in the high tech industry this year, 2025 went up 6.7%. So the appeal to join the tech workspace and to kind of skill up is very, very strong. And remember, Israel is a median age of less than 30 compared to like 47 in Italy. So the ability of the Israeli workforce to kind of adapt and move forward is very strong. I think what OECD and Goldman can't factor into their analysis is productivity gains. If you don't kind of end up with very strong reforms in the Arab sector, in the ultra orthodox sector over the next five years, what we call whale hunting. Right. If the Israeli political system goes whale hunting in areas that relate to personal safety in the Arab sector, employment of Arab women, employment of ultra orthodox in higher numbers and in higher productivity, we're going to see 6 to 7% growth, not just 5 or 4.7. But if we don't do that, then I think Goldman is actually pretty rosy because a status quo activity across the Israeli society is untenable. Yes, we're going to see short term gains, the numbers I think make sense. But if you don't look at the structural dynamics in the ultra orthodox community and the Arab community, this is not going to end well over the long period.
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B
I think a good segue to the AI piece in the report. So they're very bullish on AI providing additional tailwinds to Israeli productivity in the medium to long term. They basically identified Israel as one of the economies with the largest potential productivity gains from AI adoption. The part that doesn't surprise me is that I can absolutely see that like you said, we've got a very young workforce in Israel, a lot of early adopters. You know, on the other hand, as you also said, the tech sector, while hugely impactful to the overall economy, does not represent the majority of the workforce. Far from it. And so do you think that there's actually potential that Israel is well positioned to benefit from any productivity gains in AI outside of the tech sector?
- [19:18]
A
Yeah. And so I think here there are two dynamics at play. One is, and it depends on if you believe in trickle down economics or not, clearly this half million people order magnitude, right? Tech employees, tech drivers, entrepreneurs, so on. For every 1% gain in productivity there, the spillover is massive, right? In aluminum, in real estate, in transportation, in cars, in food and so on. Service industries. That's been very clear in Israel over the last 15 years. There are actually equations that can calculate that. But again, let's say the next elections bring back, you know, political diatribe and let's say 20, 30,000 of those, not a big number, choose to leave and we enter a brain drain dynamic, then the ripple effect is actually very aggressive. You don't get those gains in the half million and you don't get the spillover. That's one piece. The other piece is government, government efficiency. Last week one of my colleagues, ex colleagues, the head of the Israeli irs, which sounds like the most boring role, but he is, Eran Yaakov is an incredible leader who introduced very high end AI into tax fraud. And that AI helped the country collect north of 14 billion shekels in the last two years. That is a significant amount of money. So this is like, you know, a massive growth in income tax collection through tech. So do you get AI productivity gains from the half million people that are already sold? Super high productivity and that creates a spillover 100%.
- [20:44]
B
Well, I think that's a good transition to dive deeper into our long play all about the AI wobble. So that's coming up next. All right, today we are Diving into the recent AI fluctuations. First, I want to just, Jonathan, establish a little bit of context here because I think everybody listening has probably seen some of the headlines. Maybe you've felt this in your own portfolio. But I think that it's really important to kind of tease out what actually happened because in my view this is not really about numbers. It wasn't a numbers led correction or however, whatever you want to call it here. We saw tech earnings come out. The numbers were actually mostly fantastic. So it's not necessarily about that. Right. I think there's been this kind of climate of growing jitters and I think it was really a series of comments that kind of sparked what we saw, this trend. So I think bottom line here, what's important to know is that ultimately tech stocks, American tech stocks, saw their worst week since the Liberation Day market sell off in April of this year. This all happened last week. The market value of eight of the biggest AI related companies, you know, Nvidia, Meta, et cetera, lost $800 billion on fears of an AI bubble.
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A
So almost a trillion dollar wipe off.
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B
It was significant. Yeah, pretty crazy again, I think long time coming, but really sparked by a few sort of comments. There was the Palantir earnings that came out that again were actually really positive, continuing to show, you know, really robust revenue growth. But the stock tumbled more than 8% despite beating analyst estimates both, you know, earnings and revenue. But with Palantir in particular, there have been growing worries that they are way overvalued. Came out that a well known short seller of big short fame is betting against both Palantir and Nvidia basically pulled a short on AI. You know, you could call it that. And then we also saw the CEOs of two major banks, Goldman Sachs and Morgan Stanley, coming out and saying that stocks could be poised for a pullback. And Nvidia CEO Jensen Huang poured a bit more fuel on, on the growing fire by telling the Financial Times that China will likely win the AI race. But long story short, all of these contributed to what we saw in the market. Yonatan, any thoughts at this point on what you see as the comments and as real sort of structural concerns, reasons for concerns at this point.
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A
So I totally buy into sort of your description of how things unfolded. In many ways this is like a theater show with three acts, right? And so act one, which was I think a couple of months ago, we started seeing these circular deals, the total sum of which was that OpenAI, a private company, is exposed to more than $1 trillion of capex capital expenditure to realize its vision. And so that was kind of like, hey, what's going on? What is this circular dynamic? I think that was act one, act two was we started seeing evidence that we might see the end of a Sigma wave. This is much like we had with autonomous driving in like 2018, 2019. Everybody was like, oh, full level five autonomous cars will come in by 2020. Guess what? The last 1% is infinitely more difficult. Right. So chatgpt for you and I is great, but to get agents to work with fidelity that corporates really need is a huge difference. Incomes Act 3, which I think you've described, you know, super accurately against the backdrop of those wobbles. Right. A comment by, you know, the CFO of OpenAI and then a comment by Sam Altman which was I think ridiculous on a podcast with the ex founder of Altimeter Capital who's an investor in OpenAI, basically saying, yes, we're just earning $13 billion a year and we believe that over the next couple of years we will be able to serve a capex expenditure of a trillion dollars even if we don't ipo. That basically assumes that they will continue doubling the revenue quarter on quarter for the next, I'd say six or seven quarters. And that got the market to jitter and I think rightly so. Now one last thing I think is important and we'll talk Israel, because I think we had our doubts whether or not Israel lost its ticket to the train in our previous episodes and argued both ends of that. I think what I'm reading again coming from politics and spending some time also as an entrepreneur over the last decade, dominantly entrepreneurs, when they identify the government is afraid of something, they would want to push that to get favorable terms. And I'm talking big entrepreneurs, the Elon Musk type entrepreneurs. We saw that in Europe with subsidies for alternative energy. Half a trillion euros over a decade in Germany, which ended up giving zero to Germany when push came to shove. Right. I'm sure that the CEO of Siemens and others who were big on that knew that their technology is not sustainable in case of an energy shock. But they pushed because they knew the government was pushed by the green agenda on one side and by geopolitics on the other. Right. So I think the American President and Secretary Besant putting front and center this AI competition makes the big seven and they're lobbyists say, okay, well why don't we just throw it out there? Let's see how Wall street responds and how the White House responds. I don't think they expected in Act 3 to be that inflated. I'll give you sort of my thought process here. If OpenAI ends up collapsing in the next year or two, which I don't think it will, given that it is still private, given that the other big companies, I mean Google, you were saying the quarterly reports like 100/plus billion dollars in top line revenue, that's almost a half a trillion dollar revenue per year. That makes Sense as a 10x multiple on that revenue to be a 4 or $5 trillion company. That's not like the dot com bubble of 2000. These are robust companies. So if they get the AI thing wrong, they have enough of a cushion to fix it. That's not the case for perplexity, that is not the case for OpenAI. And if they will have, as the White House comment went last week on the all in podcast, if OpenAI fails, it's a hyper competitive landscape. So that's what's going to happen. This is not an AIG type dynamic. There's no too big to fail dynamic here.
- [26:58]
B
I agree. And I think even taking it a step further, yes, there's an inherent risk in OpenAI's model because of the CapEx costs here, because of what they're, what they need to do in order to get the kind of revenue growth that they want to keep seeing. It's a bit of a catch 22, right? But these are, even when it comes to perplexity and to OpenAI, these are real businesses. I'm not saying that they're sustainable businesses, but they are real businesses. They have a subscription model. This is not the Internet companies of the dot com, you know, era. There's money coming in. They chose to go the route of a subscription business from the get go. And I think that was very smart and like you said, and I think this is really critical. Yes, they've got advantage of being the first movers here. They've got huge market share, they're the dominant player. But there are other huge players, by the way, Google that just came out that Apple has chosen Google's Gemini for its Siri Pro. You know, it's kind of revamped Siri product. You know, thank God, it's about time.
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A
Big deal.
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B
But that they choose a partner and get us a better Siri. But you know, that is a really big deal. That's a huge deal for Gemini and for Google. And these are still early days. As much as it's all AI all the time, it's still early days. We don't know who the dominant players who the winners and losers are going to be long term.
- [28:15]
A
I think Google is an incredible AI bet, right? Waymo is an AI bet. Waymo is actually a robotic and AI bet on a company that has the balance sheet to address that is out there in the open. That's also another kind of sickness of the AI bubble. It's all privately funded, some by states, you know, some are more nefarious like Qatar. Right. So we don't know which money comes in. It's not in the open, it's not SEC quality reported. So there's risk also in that. I will say one thing about Israel and I want to be bold about that. When I was in government there was a whole question, this is 2008, 2012, right? Why doesn't Israel have a Nokia? Why doesn't Israel have a second Teva? La la la la. Israel doesn't. Size of the economy, right amount of people busy with tech. As we discuss in the labor market, we are far better off in kind of being an early follower, fast follower, understanding where the trend is and creating value along that vector than trying to create the on our own. So a year ago there was a big outcry and is why don't we have a language model? How come there's no large language models in Israel? Well, guess what? There shouldn't be large language models in Israel and Israel should focus on the hardware vertical because clearly that's going in the right direction. That's you know, the Melanox, the Nvidias and what we heard from Elad and so on. Israel should focus on all the services of broader and broader, more intelligent, you know, digital dynamics. Right. Agents, we saw Cyberark and Palo Alto NETWORKS, we see Monday.com, everything that is already a low hanging fruit that can be measured in Wall Street I think is a very good area for Israeli companies to be in. And I would say the same for the cyberspace. Right. No matter where this goes, this has to be cyber protected. And so I feel great for where Israel is right now in terms of being shock absorbent. Will there be huge returns if you get that bet right? For sure. But Israel's outside of that game to begin with, I think. We're not Napoleon. You know what I, we don't want to be aiming that high because there's a risk, you know, we won't make it to Moscow and then that would be the end of it. And I don't think that's a risk worth taking.
- [30:20]
B
Okay, I have a little bit of a tangent here that I'm going to take us on. And I don't know if you heard about, you know, you mentioned Waymo. Have you heard about KitKat?
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A
Sure.
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B
Do you know what I'm talking about, Yonatan? Okay. Of course you do. Okay. So for listeners who don't know, this was a case just the other week in San Francisco where a Waymo ran over a cat called KitKat, which is a great name for a cat, I have to say. And this set off, you know, they had like a memorial rally for KitKat in the Mission neighborhood, and it set off calls for Waymo to be completely banned in the city of San Francisco. And I bring this up because there's a broader story here that we're starting to see unfold across the United States where there is an anti AI sentiment. And you see it starting to happen in a more real way, actually, in areas where data centers are being built out and where people are starting to see their energy costs for residences, for businesses, you know, for small businesses go up. This is a huge, huge issue. And I don't see business leaders and political leaders addressing it head on. And I think that it presents a danger. Right. To AI growth. And so I think this is an area that we're not giving enough attention and to. What is the sentiment now going back to Israel? I mean, this is a question for you from my view from afar, and also it might be partly because of how Israel is approaching AI, which is different from, you know, building out these frontier models, of course. But it seems like in general, in Israeli society and of course, in the tech community, you don't have that resistance to progress, to technological growth. You have more of an embracing of it. And I'm sure that there are pockets where that's not necessarily the case. But from a business, political, societal point of view, I guess the question is to you, Anatan, for starters, what do you see there? Is there an element of resistance as well and of fear or not so much like the way I see it.
- [32:22]
A
Look, even the ultra orthodox have kosher smartphones. So that gives you sort of a sense of what the most kind of, you know, insular communities have decided to go through in terms of advanced tech. But I think you're on to a very important topic, and I think China got it right. I just finished reading Breakneck, the book sort of describing this dynamic in China. And Satya Nadella was saying last week, we have more chips than we need. We don't have enough electricity. We actually have racks of chips in our data centers. That we're not connecting because we don't have enough electrons to have swim through those chips.
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B
By the way, two of those data centers are here in the Bay Area and they're not lit up because of energy needs, you know, energy constraints.
- [33:00]
A
And I think this is really, you know, and Sam Altman said it in the Capitol Hill hearings six months ago. He said it will ultimately come down to the cost of the electron. Now, China, it's incredible. Like, I think 9 terawatt of energy compared to 4 terawatts in the US that has been more or less stagnant over the last 20 years. Signing a deal with Russia, leveraging Russia's horrible geopolitical position, to build a pipeline of 60 billion units of gas, natural gas, at a favorable price to China in RMB in yuan. So not in dollars. Right. Russia gets, sorry for the language, screwed over by this. But China, you know, ensures ongoing electrons. Okay? So I think, to me, I'm not so much afraid also for the US in terms of the Luddite effect that they're not going to adopt. I think the energy piece here is going to be critical. And the problem is this is not one of the. Much like rare earths, you just click a button and you have it. This is very, very complex. So there's one part that makes Israel super resilient to an AI bubble, which is how it's built around tech, the stuff we discussed before. In many ways, America has, you know, the curse of Goliath when it comes to that. It's so well established, it's so regulated, it is so big, Israel's nimble, small enough to kind of make the right course corrections in terms of adoption. Look, I think fundamentally this is a question of value, right? Clear value. And there's so much value that can be created in AI, and I see it dominantly in education. The Israeli education system is in such dire need of creative destruction that there is a, I would say, super strong chance that Israel's going to adopt after its major overhaul, it's going to be one of the top, top education systems in the world. In embedding AI as a core function at the mainstream level. I think these are the areas that the Israeli society is actually earning from being small and nimble. But also the situation here is in such dire need of reinvention, and we're going to see that in the next three to five years that we're going to see this becoming AI first. And the odds of doing that in Israel, which is a centralized healthcare, by the way, Also, centralized education system in a small country are higher than it is in the American society. And really, I think you're spot on in the energy. That is, to me, the Achilles heel of the American competition when it comes to AI.
- [35:29]
B
Okay, so talk about it from the Israeli perspective. You know, obviously a broader correction in public and private valuations is going to have a ripple effect. Beyond that, talk a little bit more about where Israel is relatively protected because of how small and nimble it is, because we're not going after, you know, the frontier model competition, but also where is their exposure when it comes to AI.
- [35:52]
A
So I think two things happened in the last couple of months. One is Erez Haskell, one of the best people in Israel, the most fitting people, has become the czar of AI for the government. And that is a very important piece. So kind of a focal point, investing in supercomputers, investing in infrastructure. What I'm hearing also as an angel investor for the last year is all AI pitches start with, we're not going to create an LLM in Israel. Therefore, my company is going to be, you know, remember the, the Uber of. So my company is going to be the chat GPT of or the interface of, which is music to my ears. That's how you build a resilient tech industry. Right. There are companies trying to play on the forefront and we want to have a couple of those. That's a good chip to have on the, you know, on the roulette. But I think the bulk right now is, is value driven edge, second S curve type dynamics. And again, it makes me very bullish on the resilience of the market. I think you have, you know, people with sleeves up here that really want to push forward.
- [37:00]
B
All right, we began our show with the numbers of the week and we are going to end with the words of the week this week. They are from President Trump. He was asked whether he is worried about an AI bubble during a press conference that took place late last week. And here's what he said. No, I love AI. I think it's going to be very helpful. So many things are happening with it. In addition to which we're leading China, we're leading the world in AI. You know, this, I think, encapsulates everything that we've been talking about. Leave it to President Trump to kind of, you know, put a very simple, definitive, declarative statement on a very complex issue. I will say this administration has been, you know, you were talking about in Israel having an AI strategy, putting the right people in place, obviously you can quibble with a lot with the current administration when it comes to AI. And there are a lot of people who have opposing views here, but they have been aggressive. They have been much more forward thinking and doing things versus talking about things. Not all the right steps, but they're doing it right.
- [38:05]
A
Look, I don't think he's wrong. I think as a snapshot, America is in incredible position. You know, there hasn't been a company born in Europe in the last 35 years that's worth more than $100 billion. There are seven American companies worth north of $2 trillion, all that were born in the last 35 to 40 years. Right. So America, I don't disagree with the President. I think it's a snapshot. He sees it the right way, but not being able to generate energy is an AI strategy. Right. And I think what he did in the Middle east, the trillion dollar visit to secure uae, Qatari and Saudi fossil like easy to activate energy in areas where you don't have that much of green regulations on to secure that so that American, you know, the big seven can actually grow in an energy space that's not an American soil is an interesting way of divorcing your national confined national borders to develop AI which transcends ultimately national board. So I think good steps in the right direction but definitely a precarious situation when it comes to China and dominantly on the energy space. So I don't disagree with the president as a snapshot, but the, the trend is not, I would say, positive.
- [39:16]
B
Well, we'll see what happens with the numbers this week and where the Windex goes, but that is it for today's show. Thank you for tuning in to ARC Media's what's your number? We hope you found it interesting and if you did, please be sure to like subscribe. Subscribe, rate, review. You know the drill, but most importantly, please share it with others who you think will find it interesting. And if you want to make suggestions, share your feedback, please reach out to us at what's your number? @arc media.org and vote for Michal's number.
- [39:52]
A
What's your numbers? Produced by Adam James, Lavina Reddy. Sound and video editing by Martin Juergo. Our theme music is by Midnight Generation. I'm Yonatan Adiri.
- [40:01]
B
And I'm Michal Avram. See you back here next week.
- [40:05]
A
See you next week.
- [40:10]
B
This podcast offers general business and economic information and is not a comprehensive summary for investment decisions. It does not recommend or solicit any investment strategy or security.