BG2Pod with Brad Gerstner and Bill Gurley
Liberation Day, Tariffs, US v China Open Source, OpenAI Fundraise, $CRWV, TikTok | BG2 w/ Bill Gurley & Brad Gerstner
Fri, 04 Apr 2025
Open Source bi-weekly convo w/ Bill Gurley and Brad Gerstner on all things tech, markets, investing & capitalism. This week they discuss market uncertainty, globalism and tariffs, M&A, Wiz and GOOG, NVDA GTC, consumer AI demand, AI unit economics, & more. Enjoy another episode of BG2!Timestamps:(00:00) Intro(02:20) Liberation Day & Tariffs(19:18) US Open Source vs China Open Source(34:34) OpenAI Fundraise(52:25) Coreweave IPO & AI Demand(01:04:03) Rumors on TikTok dealAvailable on Apple, Spotify, www.bg2pod.comFollow:Brad Gerstner @altcapBill Gurley @bgurleyBG2 Pod @bg2pod
Chapter 1: What was the impact of Liberation Day and the new tariffs announced?
I guess as long as we're repping and rolling, I have two degrees, one from Florida and one from Texas. The Texas ladies are playing in the Final Four in Tampa, so a lot of good stuff happening.
Speaking of a lot of good stuff happening, I think there are some people in the world that think a lot of not so great stuff is happening based upon market reaction to the president's announcements of these tariffs. So why don't we kick it off talking about Liberation Day?
Yeah, so we're recording this right after Trump's presentation. I think you and I both watched it and then we jumped on the pod. You've been talking about this. It's obviously been choreographed that this was coming. And you've been saying for a very long time,
that Trump and his team are very serious about this rather than the argument that, oh, it's just a means to an end and a way to get a negotiation started. You have made the point that you believe that they believe this is actually where we need to take the economy. And as such, you've been conservative and worried about where this would go.
You gave a presentation last week on how to think about this. What did you talk about there? I think it was at the J.P. Morgan Tech Conference.
it was pretty clear to me and you, we were talking about it in early Feb, this was doctrinal. There was a philosophical belief around trade that they wanted to create a more fair and level playing field. And the real debate has been going on is like, how big? And there are a couple of different camps.
And so JP Morgan had this great event in Montana last week, 100 tech CEOs, but they had Howard Lutnick, Elon Sachs, Doug Bergeron, all talking about you know, various aspects of this. And they asked me to do a little bit of a presentation on decoding the Trump economic agenda. And really, it boils down to this, Bill.
You know, at the top, I think that all the CEOs in the room are pretty excited about the golden age that people have been talking about, you know, a pro-growth administration, pro-business, pro-investment, lower taxes, less regulation, pro-M&A. We've seen this M&A flywheel starting to kick up, this AI super cycle. But everybody's been pretty terrified about these tariffs.
And the real question going into today, Liberation Day, was were tariffs going to land closer to the $600 billion, trillion-dollar tariff level that Peter Navarro had been talking about and Howard Lutnick had been talking about, or maybe at a little bit lower end of the spectrum, which we heard a little bit more from Scott Bessent and Kevin Hassett. And I think everybody was holding their breath.
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Chapter 2: How do the new US tariffs affect global markets and trade?
And then I saw a couple of tweets, Bill. One was that China and Korea and Japan were actually going to collaborate in a response to the US tariffs. And somebody said, we haven't seen the Koreans and the Japanese and the Chinese combined forces on anything since the Mongols caused them to get together. And so it is causing a lot of strange bedfellows. And I sent you,
The tweet where the Europeans, the president of Europe, the president Macron, they're all going to China and they want to talk about closer trade relationships with China. And you warned us about this.
I think you said the meeting was in Vietnam. And obviously I got that from the president of the economists who had predicted that that would happen. But yes, you know, there's no reason that that wouldn't happen. And there's a lot of ramifications of this. I don't think... that anything came out of it that's going to be good for the markets and good for stocks.
But that's more your world than mine. I've always shunned macro analysis.
Let me just maybe opine on that for a second. Like, where do I think we go from here? After hours with the NASDAQ down, peak to trough post-Trump at almost 18%, right? That's down a lot. A lot of names in the NASDAQ are down 40% or 50%. So we're starting to get some of that fear into the market. Somebody asked, and I said, at its very root, I do believe the president wants to do deals.
He believes in fairer trade. I think we're going to land the plane here closer to $300 or $400 billion in tariffs, not $600 or $700, and certainly not a trillion in tariffs, even though it feels today like it was bigger than that. And one of the things I think that's going to kind of force the president's hand, he talked at the press conference. He had a bunch of senators there and House members.
The senators and House members are hearing from their constituent CEOs that they don't like these tariffs. And remember, most important to the president, he wants to get this reconciliation package passed, which he calls a big, beautiful bill. He wants to get this thing passed, which puts in place no taxes on tips and the permanency of the tax cuts, which he passed in his first administration.
He can't afford to lose a single Republican vote. And so I think that that also is going to guide them a little bit more to the center. And that's what, you know, we'll see whether the market believes that. Certainly didn't believe it after hours today. We're going to get a little bit more positive on the companies we like the best because we think some of this fear is now getting priced in.
What will you be looking for in the next 30 to 60 days as this plays out?
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Chapter 3: What are the differences between US and China open source AI strategies?
And yeah, but aren't they spending a lot of money on compute? And is it really high value revenue? But apples for apples relative to their peers, it certainly appears to me like 20 versus 50 versus 80. It's hard to say that this would be more expensive on a multiple basis than Anthropic or X.ai.
Yeah, and I also read that there are still contingencies on whether the full conversion from a nonprofit to a for-profit happens. So I think there's some stuff. If that's true, there's still some stuff to play out. But one thing I would say when I witnessed this from afar, and once again, you're involved, I'm not. So correct me if I'm wrong.
But having lived through the Uber Lyft situation, which oddly had Masa coming to the table also, You know, our world has just evolved into one where so many people believe in power loss. So many people believe in network effects and that these markets are winner take all that you end up with these massive capital raising rounds.
And, you know, it's not lost on me that both with Stargate and with this one, the headline number is bigger now. Then, you know, the piecemeal when you start to unpack it, which, you know, for better or for worse, from my position, smells of being promotional. And, you know, and so why would you do that? Why are you trying to have a bigger headline number? And that number does get repeated.
in the press so it does work in that way and and i come back to you know i suspect the company's sending a message to anthropic and anyone else in the game that that we're here for the long haul and you know they probably didn't anticipate all the moves that elon's made with x and twitter and and obviously that is is a another deep pocketed player but but boy you know if you're
if you're on the anthropic, you know, investment, you know, side, I, you know, I'd be scared, like, like, you know, and I've lived through this before. It is a, it is a sport of kings, if you will. And then lastly, one thing that naturally falls out of that is unit economics get postponed. You have to believe in the power law and the network effect. They've,
In addition to that headline number, I think they've said publicly they expect to lose $5 billion to $7 billion this year. And with an employee count of, I think, $6,000 to $7,000, that's not going to run you more than a billion or two.
So there's some number between the revenue number you talked about and subtracting $2 billion for expenses and the rest is your operating cost of keeping this AI machine going. And I ran some loose numbers and I come up around $15 or $20 a year for a non-paid user just to run the servers on their behalf. Eventually, you might get to advertising. Eventually, you may convert more of them to paid.
These are things we've seen play out over time. They played out with ad models. But once again, if you're going to try and lay chase to them, you got to be prepared to underwrite that cost yourself.
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Chapter 4: Why is China embracing open source models and how does it affect US tech?
It was a failed business model. It will never make money. And here's a business that's going to do $6 billion in free cash flow this year. No doubt. Right? No doubt. And so the winner does take all. The winner does take most. I will tell you, as a shareholder, I speak with the leadership of the company all the time about unit economics.
Obviously, if I'm investing in the business, I feel confident in their leadership around unit economics. One of the things that I think is really important here is just what's happening in the business. right? Sam tweeted this week, they added a million chat GPT users in an hour, in an hour, that they crossed 20 million subscribers, paying subscribers for chat GPT.
They crossed 500 million weekly average users of chat GPT. In fact, they're going so gangbusters, they're throttling all their demand. In fact, I don't know if you saw David Sachs' tweet where he said America's leading AI companies are all reporting that demand is off the charts, so much so that they're being forced to impose rate limits.
And he said, fortunately, we have massive new infrastructure projects coming online, which gets me to the point of why are they raising so much money? And you and I are talking about taking the pod down to Abilene, Texas, to see Stargate, to Denton, Texas, to see the CoreWeave facility that they're standing up for OpenAI.
And the fact of the matter is, I think that they need to bring on a massive amount of compute just to support the demand they currently have. I can tell you, when you look at the product pipeline for OpenAI... Right. Whether it's, you know, there are two or three models they already have completed on the shelf. There's a lot of agent stuff that they want to do that's on the shelf.
I think there's a lot of stuff they want to do around pricing, but they can't do these things today and open source. with their current level of GPU demand. And, you know, Sam went online and said, if anybody has a cluster of 100,000 GPUs, you know, send me a DM. And, you know, you may say it's promotional and hyperbole, but the round was already raised.
He's not doing that to me. It could be both.
Yeah, it's true. I actually think, in this case, it's true. I know they were pulling a lot of things offline just to support the demand. Now, the irony is, what was this demand coming from? And the demand... Because we didn't mention Gemini 2.5 that happened to release in this last week.
And part of the reason we didn't mention it is because literally on the day that they launch it, OpenAI launches this upgrade to Imogen where people are making all these anime photos of themselves that literally blew up, like demand for a billion anime photos a day from the United States all the way to India worldwide. And they can't support it.
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Chapter 5: What is OpenAI's new open weight language model announcement?
So let's just say, Bill, that it settles out at 10 bucks. Hotels are clearly willing to give $20. Let's say it settles out at $10. Well, hell, that's all upside for OpenAI.
Right, but it's replacing $50 for Google. That's my only point. By the way, another thing played out in this space, a little out of order of our competition, but there's this acronym people are starting to use, MCP, that is a way for you to represent...
your service, like if you were booking.com to a model so that it's not simply scraping your website, which is certainly not the ideal way to do this thing. That standard, I believe, got started in Anthropic, but OpenAI has agreed to support it.
And so another factor that plays out with whoever's most aggressive with the open standards is they might be able to take a lead in defining these things, which could be advantageous to them. And I got to tell you, you know, I meant to say this earlier when we were talking about the open source stuff, but I got to believe the anxiety is high at Google. I got to believe the anxiety is high at Meta.
We've seen some high executive shifts and departures also at Apple in terms of who's in charge of these things. And so I see those moves and I think that must represent anxiety. You know, these are, there's a lot at stake. And so it's, it'll be really interesting to see how open people are, how willing they are to be open with their models, how aggressive they are.
Because I think it's a really critical window. I'm talking about like next three to six months could dictate who's standing on top of the hill five, 10 years from now.
Well, the tectonic plates, as I've said, as we've said for now two years, this is the first time they've shifted in this magnitude in 20 years. This is a 20-year event. For 20 years, the search paradigm ruled everything in consumer internet, and Google stood at the top of that mountain. And it took something, it took an AI-level shift.
It took ChatGPT moment and them getting to the scale of maybe a billion monthlies and 500 million weeklies to even lead to this conversation. But things happen very slowly, Bill, as we know, and then they happen very fast. And I think that's your point.
Before we run out of time, we had an IPO, which we haven't had very many of. Let's talk IPOs, both CoreWeave, but after that, let's just talk about IPOs in general.
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Chapter 6: How might OpenAI's openness strategy impact the AI competitive landscape?
I think today they had some announcements of this deal with Google where they're going to provide NVIDIA-graced Blackwells through CoreWeave. So Google's going to be buying a bunch of NVIDIA chips through CoreWeave. And one of the big criticisms of this company was they were too dependent upon Microsoft. But now they've diversified.
They have Microsoft, Meta, now Google, OpenAI, NVIDIA, Cohere, Mistral. And so I think they've really emerged as the leading AI kind of cloud. And the stock in the last couple of days, despite the fact they took it public last Friday. I mean, talk about taking a company public into a category five hurricane. I mean, we had...
We had like Liberation Day staring us in the face and they had to fly into that. And as you pointed out, it wasn't the least controversial of IPOs, but I have to give credit to Mike Intrator and his team. And listen, I'm here in Silicon Valley. They started this company five years ago. It's worth over $30 billion today.
It's played a really important role in standing up OpenAI and a lot of the leading AI labs. And I just think that's a good thing for all of us. But it's also fair to ask the questions that you've asked around kind of the durability, if you will, about CoreWeave and the revenue.
Yeah, and look, you're absolutely right. It's so funny. We sit around and complain about the IPO market not being open. And for the entirety of 2024, the markets were up 30%. The sunshine was out and no one was going. So here, someone finally gets the guts to go. And the markets, of course, have turned the other way. And that's why, man, I...
anyone that tells you when you're ready to go public that you have to wait on the markets to be in a particular place, I would tell them to shut the fuck up and take your company out. You can't control that thing. That's an external factor. And And I also believe a lot of people, because of my stance on direct listing, said, was this a good IPO, a bad IPO?
I mean, as you said, there's stuff moving all over the place. Like you have a leader in their field, unquestionably, huge revenue growth. Their business model isn't fully unpacked because the CapEx is invested so far ahead of the product. So you can't look at the income statement and say, oh, the unit economics are perfect.
And there's questions about what is the appropriate depreciation schedule and all these things. But I am glad that they got out and I'm glad that it's done fine. They've had basically two customer announcements since they went out, which shows how fast this AI world moves. And I think that's why the stock went from 40 to 36 and way back up above that now.
Let's hope that it brings more IPOs to the table. This company needed capital because it's a capital intensive business. And those are the ones that tend to come to the markets eventually no matter what. We have this offsetting reality The stripes of the world and Databricks and others are choosing to delay being public and have massive access to private capital.
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Chapter 7: What does OpenAI’s recent $40 billion fundraise mean for AI innovation?
And of course, we have all these tariffs going on on China. And so I'm sure this will end up as part of a big trade negotiation as it pertains to China. But as you know, just for everybody, we're shareholders. I've been a shareholder in this company since 2015, one of the earliest venture capital rounds in ByteDance, the parent company which owns TikTok.
And for the last two years, I've agreed largely with Elon and Sachs and others that we should engage with China. We shouldn't just shut down TikTok. We should make TikTok abide by the rules and regulations, right, that we have in this country. And that's what this whole legislative unwind was about, you know, the for sale of spin out TikTok U.S. So here's what I'm hearing.
I'm hearing that there will be a new company stood up, you know, and I'm not privy to any information. I'm not party to these negotiations, but I'm, you know, let's call it TikTok U.S., And that TikTok US will be partly owned by ByteDance. But I think they have to keep that ownership threshold under 20%. So let's call it 19.5% owned by ByteDance.
That it will be owned partially by just the existing shareholders. Remember, the shareholders in ByteDance, 60% of those are US investors like Altimeter. So that we'll get our shares in TikTok US. And then 50% of it or thereabouts will be new investors. So think, folks, like some of the rumors I've seen, Amazon, Andreessen, Oracle, et cetera.
And these are investors who are not currently in the cap table yet. of ByteDance. So Altimeter or Co2, we're currently in the cap table of ByteDance. So we're not going to be part of the new investor syndicate, or at least that's my understanding. So imagine they stand that up and then the question- And where would that money go, Brad? So the money would go into this new co, right?
So the new co would be capitalized with this new money. It would have a new board.
So it'd be new fresh capital for new co. It wouldn't go to ByteDance.
No, that's my understanding, that it would go into NUCO, that NUCO would get a license to the algorithm, and it would be up to NUCO to audit that, to audit the data. Because remember, that's the whole point here, Bill. We want to have some control over the algorithm and the data, so it makes sense that Oracle would be involved in that.
Because remember, TikTok runs on the Oracle Cloud down in Texas. I think a logical question is, okay, what's the so what here? And I'm hearing that the valuation for TikTok US could be pretty low, which I would expect, right? Because remember, Trump has said, maybe we'll put this in the US sovereign wealth fund. So he's negotiating the deal. I expect that he wants to get a pretty damn good deal.
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