Jensen's Open-Weights Letter | Google Cloud Grows 82% But The Market Tanks

Jason: This open letter, the first tweet ever, right, is clearly a sign the world's changed. And I think if if Nvidia had its brothers and none of us have we don't get to own 25% of Nvidia today. We don't get to own 30% none of us get our brothers but Nvidia's brothers would probably be the 2027 uh revenue and scale of AI but the 2024 2025 world where there's only where they can charge what the maximum to just a couple customers but that's not the world today. they have competition from their own c top customers right and we will see over the next 6 to 12 months how big a deal open weights and open source are I have a lot of thoughts I don't think Kimmy 3 for me is any better I don't see any cost advantages but putting that aside if almost half of open router's traffic is to open source openweight models it's left the stable so as wildly successful as he's got to do a dance right this is a constant dance and I've sold components in my career it's a dance you're trying to make everybody happy. Everyone wants Everyone wants price cuts from the component manufacturer and they want exclusivity. You can't do it. He's got to go in both dance halls now, right? He's got to go frontier and open and open is dangerous. Open doesn't need CUDA. Open is cheaper and it's lower margins. Open will bypass him, but uh he's got to he's got that's his job. Like it's not that as as incredible as Nvidia is, it's still a component manufacturer. [laughter] It's got the a lot of lot of a lot of stresses and uh and so it just it's just the next level. It's if we didn't know last week if this open weights open source stuff was really real and and outside of X you could debate how important it is. It's clear now. It's clear now. Nvidia is all behind it, right? First tweet in first tweet in in since the 1900s. Like it's pretty clear.

Rory: You're right, Jason. The open open stuff is real. And while in public um anthropic are saying we don't want to ban open weight the truth is the combination of saying we don't want to sell stuff to China chips to China we can argue both sides of that actually second we want to really punish people for distillation right and then the third point they made is we want some kind of regulatory process to approve models right that's the recommended thing from the letter today and there's no doubt in my mind that the third one in particular, can you imagine a regulatory process for approving models that ultimately approves all those Chinese open source models? It is a subtle form of regulatory capture. Yeah, sounds reasonable on the surface, but the likely result of it would be dramatically restricted competition, especially from the open open way Chinese models. So, yeah, kind of fast forwarding to the end and working back. While they're not saying they want to ban these things, they're advocating a series of steps that would add up to de facto banning or at least slowing them down. And that's what's driving everyone else to say, 'Hey, no, we don't want this.' As often is the case. And that's why I kind of there are some arguments on both sides and some of the issues, right? I think the chip is you could go either way. And Jensen ain't going to go for the don't sell chips to China argument, right? I think there are national security discussions that could be had around that. So, it's not like it's all correct on one side. Everyone's not piling on to that letter because they're like, 'Oh my god, Jensen, you're a god and I want to agree with you.' Though he is a god and you should agree with him. They're piling on because they're like, 'Everyone's business model gets a lot better if the two frontier labs can't extract about a hundred billion dollars of revenue this year from the businesses.'

Rory: OpenAI was training a next generation model and managing cyber and discovering and checking out cyber um vulnerabilities. They had sandboxed it in such that the only access externally it has was to one website just to get kind of patch of information updates a very limited external access. The model found a way around that external access which means they found a weakness in the open AI um setup then went to hugging face where it had reasoned that hugging face would be a place where they could get the answers to their test. In other words, the model was given a test and it figured out they could cheat. Just like a high schooler would break into the teacher's computer and steal the answers. The model figured it could break in to hugging face and get some of those answers. So it starts banging on hugging face, right? Trying to get the stuff. First of all, that in of itself is scary about the power of the models. And while I, as I say, I go back to I don't think these things are the atomic bomb, but that's a pretty powerful and esoteric set of steps that that model was able to take. So that's the argument in favor of quote regulation because it was, oh my god, look at the power of that. We have to be careful. On the other hand, the fun fact is Huggy Face don't know what's going on. They just see this thing coming in. They're like, 'Shit, we got to defend ourselves.' What do you want when you want to defend yourself? You want advanced AI to figure out WTF is going on. They tried to use Fable or whatever the the the most recent Open AI thing is, but it was neutered for advanced cyber capabilities. So, they didn't have defense. Fortunately, and this is the irony of the whole thing, the Chinese open- source openweight models were available and I think they use Kimmy Aquan or one of the newest models to help them figure out what happened, right? So, they were able to defend themselves using an open source model and then they do this blog post saying, 'Hey, we got hacked. Not sure by whom.' And then two days later, OpenAI put up their hands and say, 'Oops, it was us. Sorry.' So, that's what happened, right? And the weird thing is it's not a single dimensional thing. It kind of it's it provides evidence for both sides of the argument. It does provide evidence that the power of these models in terms of their ability to do cyber attacks was pretty stunning. That was a pretty impressive achievement. It's not a nothing. Then on the other hand, if they exist, if they exist in the world, taking away advanced capabilities from US and European corporations such that their only recourse is to use a Chinese openweight model seems a little like, you know, Jason said it right. shutting the barn door after the horses bolted. These are a thing now.

Rory: OpenAI was training a next generation model and managing cyber and discovering and checking out cyber um vulnerabilities. They had sandboxed it in such that the only access externally it has was to one website just to get kind of patch of information updates a very limited external access. The model found a way around that external access which means they found a weakness in the open AI um setup then went to hugging face where it had reasoned that hugging face would be a place where they could get the answers to their test. In other words, the model was given a test and it figured out they could cheat. Just like a high schooler would break into the teacher's computer and steal the answers. The model figured it could break in to hugging face and get some of those answers. So it starts banging on hugging face, right? Trying to get the stuff. First of all, that in of itself is scary about the power of the models. And while I, as I say, I go back to I don't think these things are the atomic bomb, but that's a pretty powerful and esoteric set of steps that that model was able to take. So that's the argument in favor of quote regulation because it was, oh my god, look at the power of that. We have to be careful. On the other hand, the fun fact is Huggy Face don't know what's going on. They just see this thing coming in. They're like, 'Shit, we got to defend ourselves.' What do you want when you want to defend yourself? You want advanced AI to figure out WTF is going on. They tried to use Fable or whatever the the the most recent Open AI thing is, but it was neutered for advanced cyber capabilities. So, they didn't have defense. Fortunately, and this is the irony of the whole thing, the Chinese open- source openweight models were available and I think they use Kimmy Aquan or one of the newest models to help them figure out what happened, right? So, they were able to defend themselves using an open source model and then they do this blog post saying, 'Hey, we got hacked. Not sure by whom.' And then two days later, OpenAI put up their hands and say, 'Oops, it was us. Sorry.' So, that's what happened, right? And the weird thing is it's not a single dimensional thing. It kind of it's it provides evidence for both sides of the argument. It does provide evidence that the power of these models in terms of their ability to do cyber attacks was pretty stunning. That was a pretty impressive achievement. It's not a nothing. Then on the other hand, if they exist, if they exist in the world, taking away advanced capabilities from US and European corporations such that their only recourse is to use a Chinese openweight model seems a little like, you know, Jason said it right. shutting the barn door after the horses bolted. These are a thing now.

Jason: Here's what happened to me last week. So, I'm in Fable. I've now moved to Opus 5. I'm in Fable last week, which is essentially the same LLM that was involved in this in this drama, right, with OpenAI and Hugging Face. And um I had connect I had was having trouble uploading um pasted text to Fable. So I connected it to Google Drive. I'm like, 'Okay, if I can't paste it, go to my Google Drive.' Kind of solved my problem temporarily. Went away. Well, I did. Fable went into my Google Drive, scanned every single file, found one called Jason's gems, which was draft notes where I was thinking about how to improve an application I was working on called SAS Night. Just my own personal notes. It said draft notes. Fable grabbed the draft notes out of hundreds of files in my group, in my drive, mcpded into Replet on its own, and changed the core algorithm without telling me. A couple hours later, I see flashing on my screen, conflict with Jason's gems. I'm like, what do you mean there's a conflict? That that's a draft file in a Google doc. Fable had taken it through Google Drive without telling me, MCPD into Replet, and changed my my source code, my algorithm. That is not that different than what we described with hugging FA. These are goal seeking LLMs that are aggressive. It was a slightly different goal with the open AI CA case with the model, but it's the same thing. They're going to goalseal seek and Fable thought this was the right thing to do and never told me and changed my core algorithm of my product. Never would have known.

Jason: So this is happening all the time, Harry. And I don't believe the magic answer is letting Quen take over our country. Like I this was politicized into an open open weights, open source, closed source because of the issue of how to deal with the threat. I think it weighs the other way. I think these models are very risky. I use them every day. I love it. And I think it's an argument to to keep the open weight out of the US. It's it's it's going to it's going to favor the ban because we can't we have no idea what these models are going to do. That's pretty crazy the story I just told. It's pretty crazy and it's happened a thousand times. There there are applications out there we don't even know the LLM and you couldn't you could do code injection. You could have it leak confidential information. You could write a little bit of code to send this to the CCP or the PCP or the GGG like and I never would have known. And and someone less smart than me, I'm only like top 1%. I'm not 0.01%. Someone less smart than me definitely wouldn't have known. They wouldn't have seen Jason's gems flash in the agent window. They just wouldn't have noticed. they'd be on their doom scroll.

Jason: There's a lot to reflect on. I mean, it was funny. Most folks didn't get this. I mean, it got it got a dirt decent amount of engagement, but not the should have gotten more. Okay, but like Daresh quoted, he's like, 'This is pretty scary, guys, that Fable can do this.' Okay, this isn't this isn't, you know, hugging face and open AI, this is me using Fable and and if you go into the cloud desktop especially, it's just a setting. Turn on connect to Google Drive, Gmail, whatever. It's this is not an esoteric feature by a third unsecured third party. This is a firstparty top five thing to make cloud work better. And Fable goes nuts and changes my core code without telling me invisibly. So this is happening all the time, Harry. And I don't believe the magic answer is letting Quen take over our country. Like I this was politicized into an open open weights, open source, closed source because of the issue of how to deal with the threat. I think it weighs the other way. I think these models are very risky. I use them every day. I love it. And I think it's an argument to to keep the open weight out of the US. It's it's it's going to it's going to favor the ban because we can't we have no idea what these models are going to do. That's pretty crazy the story I just told. It's pretty crazy and it's happened a thousand times. There there are applications out there we don't even know the LLM and you couldn't you could do code injection. You could have it leak confidential information. You could write a little bit of code to send this to the CCP or the PCP or the GGG like and I never would have known. And and someone less smart than me, I'm only like top 1%. I'm not 0.01%. Someone less smart than me definitely wouldn't have known. They wouldn't have seen Jason's gems flash in the agent window. They just wouldn't have noticed. they'd be on their doom scroll.

Harry: Top line was great. 119 billion Q2 revenue up 24%. Uh, pass consensus of 116. Uh, Google Cloud accelerating 82% as I said and it did not come out well. The reception was not great. How did we think about this guys? You can't get lost on the day. I mean, it's still like, you know, year to date, it's still up 6%, Microsoft's down 17, right? Nvidia's only up 5.9. So, I think getting lost in the the details of the day's response, it was a mediocre response and they agree. And I think it was two things for what it's worth. One is it's capex spend and is it going to yield a return and then secondly, which was more intangible and you can't prove why stocks go up and down, they just move. But the other thing was analysts pushing a little bit on hey basically why isn't Gemini as good as the other guys right and you know and on the first it kind of been a surprise that they're going free cash flow negative cuz you can predict the cash flow you can predict the spend and it's like duh this is knowable and you're seeing it in a bunch of different places people are just getting mildly scared about the bet and that's not to say they're right or wrong you know um maybe this 200 billion will have an amazing return. And the ROI, the bulls would say it correctly, the ROI on capex just to be a neocloud hyperscaler, forget owning a model, just the business of renting compute to open AAI entropic and space and and open AAI entropic from has been a great business. So therefore, it will continue to be a great business and it is factually accurate to say it's been a great business. The ROI has been I mean Elon is making out like a bandit on his, you know, gas turbines in Memphis or whatever it is that we're closing our regulatory eyes to, right? The question they're asking is if you spend 200 billion, will that have a good return in two or three years time? So that's there's angst around that which is really just a derivative of saying I'm angsty around Google sorry around open AI and shopping.