Speaker 1: Emergency podcast, everybody. The markets went crazy today due to the deep seek phenomenon that seems to prove that the age of A.I. has shifted from training models to a model's ability to reason. I'll explain why I think that is very incomplete and why this is the worst possible time in human history to be the average investor. Drew, it was quite the weekend.

Speaker 2: Man, Deep Seek took over the Internet. Number one on the App Store. They beat OpenAI at number two, Gemini at number four. I see people tweeting about it like crazy. So please, we had to break our production schedules. We shut down the team meeting. Everything. Yeah, yeah. Please explain to us what Deep Seek actually is and why it matters in this moment.

Speaker 1: So what Deep Seek did was go, well, you guys spent the billions of dollars to train ChatGPT on what the world is like. That's probably the easiest way to think about it. What is the world like? And what I'm going to do, it's something called synthetic data. I'm just going to prompt ChatGPT over and over and over and over and over like a lot. I'm going to prompt the living daylights out of this thing to describe to me the model that it has hidden inside of it, that it learned by crawling all of this data. And so I'm not going to do the work of building that model. I'm going to play a game. Oh, this is probably a terrible example, but like Battleship, where I'm like, is there anything here? Or maybe more accurately, what's here? When I ask this question, what do you tell me about the world? When I ask this question, what do you tell me about the world? And now I can reduce all of these numbers, again, going from training costs 100 million to 5 million, the GPUs that I need to do it from 100,000 to 2,000. And so driving all these costs way down just by going, well, you know about the world. Let me ask you. So Deep Seek's relationship to ChatGPT is the same as our relationship to ChatGPT. So as we prompt ChatGPT and feel like we're getting smarter about the world, Deep Seek was like, well, I'm just going to do the same thing. I'm going to ask it all these questions and I'm going to build my sense of what the world is by prompting the life out of it, which is why you could ask Deep Seek, what are you, and it would tell you that it's ChatGPT 4.0. Because literally it had prompted it so many times, it was basically like, well, this is what I am. So utterly fascinating, but it really does beg the question of, okay, well, are the days of training behind us? And now this is just about, okay, you have a picture of the world in your mind, your LLM, and now it's about who can look at that picture of the world and come up with the most compelling answers. So when I ask it for whatever you're asking it to do, write a bit of marketing copy, have it improve your screenplay, which is something that I was literally doing this weekend as I'm reading all of this drama and getting really good at that is now the name of the game. And if that's true, and this is why the markets went crazy, if that's true, all of these companies that we've been rewarding by buying their stock, like NVIDIA, for making these chips that allow people to train, well, all of a sudden you don't need as many GPUs because you can do all that training on much less sophisticated hardware and you can still get a really compelling answer. So, hey, amazing gift to humanity that OpenAI went and spent all these billions of dollars, but now there's no moat because that exists and I'm able to query the life out of it to build on a much cheaper basis, a working model. And as long as my reasoning is better, or at least as good, I can get you all the answers that you need. So now it's like the market was like, whoa, whoa, whoa. Then our whole investment thesis has changed. The reason I think that this, this is incredible. I do not want to skip past how amazing it is now that people can shift their focus to reasoning and getting really good at extracting the wisdom out of the model's trained sense of what the world is, but would like to remind everybody that right now what it's doing is just saying what is the most likely next letter, running a bunch of experiments about which of those sequences is the most useful, which is utterly transformative in and of itself. But I really believe that the next moment is going to be, okay, that's awesome for copy for a lot of things like law and all that stuff is all going to be cognitive horsepower. Um, but I think the next moment where AI really does the things that we want to do, like when you hear me talking about, it's going to drive energy costs to zero and all that stuff, uh, you need it to understand the physical world, meaning you need that same thing at the level of physics. Now, if I'm right about that, then you're going to have to train the model on the world of physics. And I think that's going to take another insane round of training. And that probably shatters into a thousand different avenues. So understanding, um, chemistry, understanding, uh, the way that it works inside of a closed biological system, understanding quantum physics, uh, all that stuff. It things that I can't even begin to imagine things I don't even know exist that are lanes that people need to go down to figure out, okay, how does it work in this scenario? Um, so it's that kind of that shit from I'm regurgitating internet information

Speaker 2: to now I understand these topics. I understand physics. I understand.

Speaker 1: So imagine you're an LLM and you're running those thought experiments, but as you go down right now, you're just running predictive analysis in a bunch of different ways. What if instead you were validating your prediction against the known laws of physics? So that doesn't help you in marketing copy other than maybe getting better at understanding, um, human psychological responses. Like if you knew, oh God, this ends up getting so complicated, but just to finish the thought, if you knew these words and that sequence triggers this dopamine response and this type of person, holy hell, that would be very powerful to know so that you would be going down the path of saying, okay, I think this is the right next letter or the right next word or the right next sentence based on what I know about neurochemistry. Now that's a lot more powerful than just saying, this is the most common thing that I see, and this right now is the advantage that humans still have is we understand, like when I read this, it makes me feel some kind of way. And if I feel some kind of way, then other people are going to feel some kind of way, but the only way the LLM has any sense that that is true is more people have put that sequence of question and answer, uh, or, you know, whatever streams of sentences right out into the world. So I will assume based on volume that it's better. Okay. Hopefully that gives people a complete sense of a very simplified version of this, uh, why the markets are reacting the way that they're reacting now, if I'm right, that this is all going to be upended again by the companies that have the balls to still be a company that's going to spend the billions of dollars to train on, uh, physics or, you know, chemistry or whatever the case may be. Um, but what scares me about that is this moment may stop all of that investment and watching the market over the next weeks, months, we're really going to see if people like, no, no, no, I do not want to be holding the stock of companies that are making huge capital expenditures into the physical infrastructure, Stargate anyone, uh, because that's not the play anymore. The play for the fast money, which make no mistake is what people are here for the play for the fast money is in that the logic part of it, the inference. Okay. If that happens, and I'm right that the next big breakthrough will require training these models on things like physics, uh, then you may get the market being shy to do that because the second. Somebody spends the billions of dollars to do all that. You're going to get another deep seek like technology that goes rad. Thank you for building that model of the world. And now I'm going to extract everything that I can from that drive all the costs down to next to nothing. And so how this will play out, I cannot even begin to tell you. I love to look at things as a sci-fi writer and say that it's entirely possible that we get into people really being, um, protective of that data that they want to wall things off. And you saw in the conspiracy around deep seek, which is very fascinating to watch it's all happening in real time. But if you went, if you go as of the time of recording this on Monday, uh, if you go to deep seeks website, they have restricted access to deep seek. Now, the initial take on this on X was that this is because, um, the CCP is behind deep seek and they launched deep seek are one on Trump's inauguration day as a way to say, Oh, you think you're going to ice this out? You guys tried to make it impossible for us to access these chips. Cool. So that we couldn't build the training models and we found a way around it using way inferior technology. The ones that we could get made it way more efficient. And we're still able to match you guys within months. So you thought you had a year or two year headstart on us. You have a month, two months, nobody's going to care. And so we're now at parody. Now, what has actually happened, at least as it seems right now is that people started attacking deep seek. They said malicious attacks of our site. And that's why we're restricting access. So yes, right now they're restricting it to people with Chinese phone numbers, but everybody that already has it and downloaded already has an account can still get one. Now we'll find out what's true. If this is really a CCP play to say, haha, motherfuckers, you thought you were going to be able to limit us. We dropped this on inauguration date. Now we're limiting access. It's only for people in China, but now, you know, it exists. Wa ha ha. I don't think that's going to be how this plays out. There's certainly censorship and all that, which is a topic for another day. Um, but. This is definitely a wake up call to America. Uh, so let's talk about what Mark Andreessen said.

Speaker 2: That's exactly where I was going. Can we pull up that Mark Andreessen tweet about deep seek? R1 is AI Sputnik moment. I honestly, I don't know what Sputnik is. So you might have to break this down and give me the elementary level for me. Okay.

Speaker 1: So, uh, I'm sure for a lot of people. So, um, Sputnik was what? 1956, 1958, something like that. Uh, so Russia launches the first. Um, man satellite into space, not satellite. They, they send somebody into space. They didn't get him to the moon, but I think he was the first person to orbit. Uh, and so it was a big deal and it was like, Whoa, Russia, uh, communist country. They're ahead of us. Oh my God. They're going to win the space race. This lit a fire under America's ass. And I would say leads to, um, JFK saying, we're going to get to the moon by the end of this decade. Not because it's easy, but because it is hard. Okay. So it's this whole cold, cold war mentality of we now have an enemy and they're making us sweat. It's like everybody, if you're trying to do something great in life, having a worthy adversary is incredibly useful, but I have a feeling that a cold war is going to be good for humanity for sure. Uh, may even be good for America because of this spirit of we can't lose. We absolutely cannot let China get ahead of us. Now, I think people are going to forget that as of right now, deep seek is open source, so it's on GitHub. Anybody can grab it. They can download it. Um, but there is something unnerving about seeing your opponent move that fast that you're like, huh, I don't know if we're ahead and it's going to matter a lot who wins the race on AI. So I think that this is really going to wake us up. I have, I have felt like I've been screaming into the void for a long time about the thing that if I really want to piss people off, I'll just say, you need to work hard, need to work smart, and you need to work long hours. If I say those three things, it triggers the internet and, and my ex feed is going to be full of people. Hey, dumb ass. Uh, if I'm working hard and smart, why do I have to work long hours? And I will just say, because China's going to hand you your ass. You're always going to have somebody else's like, oh, they're working hard and smart rad that I'm going to work hard, smart, and long hours that somebody is going to do all three. And when you meet them, you will lose. That's a riff on a famous quote. Um, that I think is really true. And I really hope that this does in the way that Mark Andreessen is nodding to inspire us to fucking go hard in the paint. My message to every young person out there, genius is a young man's game. I am doing my best Drew to outrun the truth of that quote, and I don't think I'll be able to do it. And so it really is going to take this next generation to be hungry and to say, I don't give a fuck if you torch the housing market, I don't care if you're inflating my money out into nothing. I'm still going to win. So bad policy doesn't block dunks any more than booze don't block dunks. Now, sadly that isn't true and bad policy will fuck you up, but you really can, at least still in America. I want to believe you can still overcome if you inspire people to go hard enough in the paint. And I believe that national pride is a huge thing for sure, but individual glory, individual sovereignty and freedom, the ability to flex hard to get laid is still going to fucking drive this insane innovation in America. Uh, and this now reminds me of how I felt growing up in the eighties where it was like us versus Russia. Now look, it was all fake and it had us walking this razor's edge of blowing each other up. But it also pushed us, man. Like it was crazy and it felt dope. It felt dope to be like, we're winning and we've got this adversary and we've got to outperform them. And it really does rally people. It hits them in this emotional level. So anyway, I feel like I've been screaming into the void about that for a long time because it doesn't come back to me with people being like, yeah, yeah, yeah. Like I want to do that. And when you get people that really want to win, man, like they are on the field and they are playing to fucking win extraordinary things come out of that. And I would say China is a very worthy adversary. There's a quote in the social network where, um, Mark Zuckerberg as a character says, China has more, uh, geniuses than we have anything.

Speaker 2: More people with genius IQs living in China than there are people of any kind living in the United States. They can't possibly be true.

Speaker 1: Now, if that's true, who it's going to, it isn't going to be easy, man. Like you really have a formidable foe. And people that want to throw a racist racism on the situation you're going to lose because smart and hardworking people are the world over. And the second you try to be like, uh, like paint any nation with any brush wolf. Mistake, mistake. And so, yeah, taking these guys seriously, I think it'd be wise.

Speaker 2: There is still cause for optimism though. David Sacks put out this tweet deep seek. R one shows that the AI race will be very competitive and that president Trump was right to rescind the Biden EO, which hamstrung American AI companies without asking whether China would do the same. Obviously not. I'm confident in the U S but we can't be complacent.

Speaker 1: This, this is the vibe for me. And the fact that he is the AI and cryptos are like having that come from him. Uh, I think sets the right tone. And here's the thing. The youth get whatever country they want. And so it's going to be a question. Do they want a country that is dominant globally or not? And if they do, they will get it because we have got, we are still the place that people the world over want to come. We are still the place has generation after generation after generation of hardcore motherfuckers. And so if we can harness that in policy and in cultural enthusiasm, we've got a shot.

Speaker 2: Nice. Now we have to circle back to the investor markets because markets across the board were down this morning. Some people said Nvidia was done. People were swinging. I seen shorts. I seen all types of stuff. Why did this deep seek announcement have such a rampant effect on the stock market?

Speaker 1: Okay. So this is where, uh, I'm going to start at the beginning and I'm going to speed run my analysis of, uh, life in 2025. Your money's being inflated, which either makes, you know, intellectually or intuitively that saving money is a losing strategy, which it quite literally is people that save money are actively losing money. So you have to do something with it. Some people will just spend it willy nilly yellow their way through life and they're never going to get ahead. Uh, some people will gamble in the stock market and try to get ahead. And so if you focus in on the fact that we are being forced to gamble at a time where the world is changing so rapidly that people are just going to get kicked in the face and people that win one day are going to lose the next, that that is the reality when you are trying to use any gambling mechanism as the mechanism to get ahead the way I would love to see it. And I am a simple mind. Fine. But the way I would love to see it is people know, number one, I save a certain amount of my money. And then I take a certain portion of that and I'm going to try either long term over the stock market. I'm going to try to get ahead, or I'm going to do day trading just because it's fun, it's exhilarating, and it gives me a chance to be right and be people. So you have a lot of very smart people trying to put together a thesis on where the world is going, and then they're going to bet in the markets that their thesis is correct. Now, when you have a stable market where changes happen over years, Hey, you can do that. You can get a nice stable way of looking at the world that pays off over time. Call it value investing. When you have a world where you get over the weekend, people's entire view of what the future is, changes on a dime and PS, the magnificent seven, which have carried the vast majority of the gains in the stock market are all predicated on technology, technology right now, largely being carried by AI, AI suddenly over the weekend just gets wildly disrupted. And so I'm sitting there going right now. I am glad that I'm so certain. I cannot see the future clearly that I don't make big bets in the stock market. So, uh, go up, go down. I'm so conservative that it isn't going to make a big difference to me, but it means that I don't win big. It also means that I don't lose big, which is great, but I'm not winning big. So that's where this really gets hard because if you go in and tell people, stop betting on the market right now, the future is so uncertain. They're going to say, well, the part of the future that I can see pretty clearly is that my money's being inflated to zero. And so they can't stop. They literally can't stop. You'll lose your money. Uh, so I hate that. And because the future is changing so rapidly, this really is the worst time in human history to be trying to make money off of a thesis about where things are going for the average investor. I get that you're super bright quants. We'll be able to do it, but Jesus.

Speaker 2: Now, I remember you said last week we could barely see over the horizon. So let alone trying to have a 30 year portfolio based on Nvidia or based on Tesla or based on some of these companies where are the entire moat of AI was it caused too much to build a data center. So we're the best that can do it. Elon famously spent a bunch of money and built a data center in six weeks. Everybody was kind of applauding how we can invest massive amount of capital to get this strategic advantage. Just for, to your point overnight, that advantage is now gone. So is there any moat left in technology with AI? Like they would, is this a day one rebuild? If I'm open AI, like how do, how does the company respond to when their

Speaker 1: moat is fundamentally removed? This is the part that I can't see. I don't know if money. So, uh, I call it the cover story of the stock market, the cover story of the stock market, which is just gambling, but nobody wants to call it that is that, and this is true. So it's not a fake cover story. It just isn't why people put their money into it. But the result of them putting their money into it is that these companies are able to aggregate capital and deploy that against some thing that they want to bring to market that they think will be incredibly valuable to people and that people are going to spend their money on that thing. Cool. Okay. We want that to happen. It's wonderful. The markets are wonderful. I love it the most. I just don't love the compulsory nature of having to gamble. Okay. So now the question becomes all the individuals that are allocating their capital, trying to get these fast wins off the stock market. Are they going to want to invest in companies that are making huge cap X outlays or not? And if they're not, then now you get back into, and right now I am in wild prognostication phase. I don't know if this is going to play out, but this is how it hits me right now. That we're back into the early days where it was like, we were promised flying cars and we got 140 characters of, if everybody is just going to just reasoning, just reasoning, just reasoning, meaning inference that no, nobody cares about training new models anymore. It's just making do with the models that we already have. That's saying that the models are now as good as they're ever going to be. And we're just going to try to extract more out of them. My intuition, which everybody should discard, but my intuition is that's not going to be the play that until you have a working model that can make sense of quantum fluctuations or whatever the fuck that is until you can map what dark energy is until you can predict exactly how the particles collided in a like the large Hadron collider, a particle accelerator, until you can predict all of that with 100% accuracy, you have not yet mapped out the actual real world. And I think that's ultimately where we want to end up, but I can't imagine anything more capital intensive than trying to solve those problems. Now could just be my ignorance, but. I would be sad intuitively to see us collapse back to just make use of what we have now versus training the life of these, but capital allocators are going to do what they think is going to yield a return to them, period, full stop, end of story. Uh, and so this is where you get into, well, that's what the government is for. And they're supposed to invest in things like this. And I don't know, man, we'll see if you are, um, pushing your government to do entitlements over everything. You just don't have the capital left for this. Uh, it's going to be weird. I, I, I have a vision of the future that I know will have a wrecking ball taken to it like every 72 hours. It's it's crazy. Like that's not literal, but that's directionally correct. And so it just makes it hard to build a stable thesis.

Speaker 2: Yeah. And then for this one, I want you to kind of take off your AI hat, put your entrepreneur hat on, like, how do you outrun your competition? Like to me, like if my moat was gone over the weekend, like is, all right, we're let's pack it up guys. Like you spit, you put your heart into this con into this company, your entrepreneurship journey is so important to you. And then somebody on the other side of the world to your point is working faster, longer, and harder. And then now your strategic advantage is gone.

Speaker 1: Like that has to be all I can do is tell you how you think about it as an entrepreneur. So as an entrepreneur, you say, where am I making revenue? Uh, in fact, here's a quick one-on-one for our entrepreneurs out there. Uh, man, this is so simple to do. It's very hard. It's simple to do in theory and very hard to do in practice. You. Stop telling yourself a story because right now open AI, all of them, they're telling themselves a story. Stop telling yourself a story. Look at the reality of how you generate money. The stock price for a lot of these guys is so important. And so now our access to capital is predicated on what's going on in the market. Okay. Well, now then we have to do the things that the people in the market want us to do. I don't know what the people in the market are going to want to do for the medium to long-term. The short term is all eyes on deep seek and things like that. So now we're moving over to inference, or at least the market is like, I think people are going to do that. So we'll see. So you look at that, you look at what you sell to the customer. What is the customer actually willing to pay for it? You look at deep seek, you see that, Ooh, it's almost as good as, um, open AI four Oh, and if they're doing it for, uh, an absolute fraction of the cost, making this open source, then that's not going to survive for very long. So I know I'm going to have to find something else. So they are going to ask themselves one question and one question only. Where can I put the smallest investment to get the largest return? And if deep seek proves day after day, that that's in being really good at extracting better knowledge from the models, we already have all the companies that are way too far over their skis and building out these large physical things. They're going to be in trouble and they may literally get relegated to the dustbin. And then other people come in and go, all right, this is the new thing. This is what people care about. And so we're going to be able to give them that. And that's it. Like that is how the world will play out. What are people willing to pay for a period? Full stop. End of story. Man, we shall see. Uh, that's all I got. All right, everybody. If you haven't already be sure to subscribe and until next time, my friends be legendary. Take care. Peace. If you like this conversation, check out this episode to learn more. This just in, an asteroid is hurtling towards earth and it's called AI. Billionaire Chris Saka and the dinosaurs tell us to brace for impact. All while X reminds us that Sam Altman himself.