The AI Daily Brief: Artificial Intelligence News and Analysis - Why OpenAI’s CFO Just Sparked an AI Bailout Debate

Starting point is 00:00:00 This podcast is sponsored by Google. Hey folks, I'm Amar, product and design lead at Google Deepind. We just launched a revamped vibe coding experience in AI Studio that lets you mix and match AI capabilities to turn your ideas into reality faster than ever. Just describe your app and Gemini will automatically wire up the right models and APIs for you.

Starting point is 00:00:21 And if you need a spark, hit I'm feeling lucky and we'll help you get started. Head to AI.studio slash build to create your first app. Today in the AI Daily Brief, some extremely unfortunate comments from the OpenAI CFO talking about a government backstop of their data center deals. And before that in the headlines, is Apple about to pay a billion dollars a year to Google to use Gemini for Siri? The AI Daily Brief is a daily podcast and video about the most important news and discussions in AI. All right, quick announcements before we dive in. Firstly, thank you to today's sponsors, Gemini, KPMG, robots and pencils, Blitzy and Rovo. To get an ad-free version of the show, go to Patreon.

Starting point is 00:01:03 or you can subscribe on Apple Podcasts and to learn more about the show, including sponsorship opportunities and available jobs, go to AIDailybrief.aI. And as always, I continue to be thrilled about just how much incredible information about AI ROI is coming in through this benchmarking study. It's available at ronysurvey.a.i, and it will only take you a couple of minutes. And trust me, you are going to want to have access to this information. I believe that we will have when all is said and done thousands of use cases with reported ROI, which I hope will give people a much better sense of where their deployments sit relative to others. Again, that's ROISurvey.aI, and now let's get to the show.

Starting point is 00:01:41 Welcome back to the AI Daily Brief Headlines edition, all the daily AI news you need in around five minutes. After much speculation, it appears that Google has won the contract to power Apple's AI version of Siri. According to new reporting from Bloomberg, Apple has signed a billion dollar a year deal with Google to license their models to use as Siri's new brain. Bloomberg's Apple insider Mark Gurman reports that Google will provide a 1.2 trillion parameter model, which is a custom version of Gemini. German wrote that this would, quote, dwarf the level of Apple's current models, which are only 150 billion parameters in size.

Starting point is 00:02:16 Presumably, this clears a major blocker and puts Apple in a strong position to release a new version of Siri as scheduled next spring. The Gemini model will power Siri Summarizer and planner functions which synthesize information and execute agentic tasks. Apple's models will continue to drive some minor Siri features, and the entire process will run on Apple's private cloud servers to ensure that user data is completely segregated from Google. Apple has in fact already allocated infrastructure in anticipation of release. German said that the deal won't be widely publicized with Apple preferring to keep Google as a

Starting point is 00:02:46 behind-the-scenes partner. The deal also won't extend to integrating Gemini into Siri as a chatbot, nor will it include Google's AI search being added to Apple's operating system. German noted, Apple still doesn't want to use Gemini as a long-term solution, despite the company bleeding AI talent, including the head of its models team, management intends to keep developing new AI technology and hopes to eventually replace Gemini with an in-house solution. In service of that goal, Apple is continuing to train a trillion parameter model that they hope to use to power consumer applications by next year. Barely AI pointed out the same thing that many noticed when it comes to the state of play

Starting point is 00:03:19 in this space, Google getting Apple to pay at a billion dollars a year for Gemini to power Siri after Google had to pay Apple $20 billion a year for distribution to be the default search on iPhone Safari browser. Amit is investing, meanwhile, just pointed out that this is yet another indication of Google's absolutely monster year. Moving over to OpenAI land, a million enterprises are now using ChatGBT. Back in 2022, ChatGPT became the fastest growing consumer tech product in history, reaching a million users in just five days and 100 million in five weeks,

Starting point is 00:03:51 and now ChatGPT appears to be the fastest growing business software platform in history as well. ChatGPT work seats are up 40% in two months to reach 7 million, while ChatGPT Enterprise seats are up 9x year over year. Go-to-market leader Maggie Hot wrote, When I joined OpenAI a little over two and a half years ago, ChatchipT Enterprise wasn't even built yet. It was just an idea. An idea that the world's most powerful technology

Starting point is 00:04:13 could also be the most useful if we built the right bridge between innovation and impact. Today, more than a million businesses around the world are using OpenAI's products, making OpenAI the fastest growing business platform in history. Alongside the milestone, OpenAI shared some stats around ROI. They said that use of codecs, as a coding agent is up 10x since August, with companies including Cisco seeing a 50% reduction

Starting point is 00:04:36 in code review times, cutting project timelines from weeks to days. Carlisle Group reports that agent development time has been cut in half using Agent Kit, while accuracy has increased by 30% indeed is reporting a 20% increase in application since the introduction of their AI-driven invite-to-apply feature alongside a 13% boost in hirings. One of the big reasons that I don't think that the enormous projections of these companies are as outlandish as they appear to some, is just how much we're still scratching the surface of the eventual total surface area of enterprise usage. Over in funding world, the gold rush for vertical AI startups continues, as Decagon is rumored to be raising at a valuation north of $4 billion. The information reports that Decagon, which is an AI customer

Starting point is 00:05:17 support startup, is in talks for fundraising that could see the startup valued as high as $5 billion. They last raised in May, achieving a $1.5 billion valuation, so this is yet another App Player AI company that has seen their valuation more than double in a matter of six months. The report stated that they're now generating, quote, significantly more than 30 million in ARR, which is up from 10 million last year. Now, in addition to this showing that there is continued appetite for private financing at high valuations, I think it's also part and parcel of the continued significance and maybe even growing significance of the app layer of AI. Another funding story from a slightly different part of the industry, Data Center startup

Starting point is 00:05:52 Crusoe is working on a secondary sale that would value that company at $13 billion. Crusoe is one of OpenAI's major infrastructure partners handling the construction and GPU deployment of the Stargate facility in Abilene, Texas. The information reports the tender offer would see $120 million worth of liquidity offer to employees. The rumored $13 billion valuation is a 30% bump from an equity funding round that closed just weeks ago, according to sources familiar with the deal. Finally today, let's end on an ambitious note. Google has announced a new moonshot project to put data centers in space. CEO Sundarpechei tweeted on Wednesday, say, our TPUs are headed to space. Inspired by our history of moonshots from quantum computing

Starting point is 00:06:32 to autonomous driving, Suncatcher is exploring how we could one day build scalable ML compute systems in space, harnessing more of the sun's power, which emits more power than 100 trillion times humanity's total electricity production. Like any moonshot, it's going to require us to solve a lot of complex engineering challenges. Early research shows our trillium-generated TPUs, survived without damage when tested in a particle accelerator to simulate low-Earth orbit levels of radiation. However, significant challenges still remain, like thermal management and on-orbit system reliability. More testing and breakthroughs will be needed as we count down to launch two prototype satellites by early 2027. Google researcher Travis Beals wrote in a blog post,

Starting point is 00:07:10 In the future, space may be the best place to scale AI compute. This approach would have tremendous potential for scale and also minimizes impact on terrestrial resources. Now, at the moment, the cost of launching a space data center is a significant blocker, but Google sees the cost converging to become roughly comparable to a terrestrial data center by the mid-2030s. Google is planning to partner with a company called Planet on prototype satellites by 2027 to ensure their hardware can handle the increased radiation of space. Now, whether you think this is the AI industry completely jumping the shark, or you see it is exactly the sort of big ambition that gets you excited about technology in the first place, is a question that each person will have to answer for themselves. For now,

Starting point is 00:07:48 that's going to do it for the AI Daily Brief Headlines edition. Next up, the main episode. What if AI wasn't just a buzzword, but a business imperative? On You Can with AI, we take you inside the boardrooms and strategy sessions at the world's most forward-thinking enterprises. Hosted by me, Nathaniel Wittamore, and powered by KPMG, the seven-part series delivers real-world insights from leaders who are scaling AI with purpose, from aligning culture and leadership to building trust, data readiness, and deploying AI agents. Whether you're a C-suite executive, strategist, or innovator, this podcast is your front-row seat to the future of enterprise AI. So go check it out at www.kpmg.org.us slash AI podcasts or search you can with AI on Spotify,

Starting point is 00:08:35 Apple Podcasts, or wherever you get your podcasts. Small, nimble teams beat bloated consulting every time. Robots and pencils partners with organizations on intelligent cloud-native systems powered by AI. They cover human needs, design AI solutions, and cut-through complexity to deliver meaningful impact without the layers of bureaucracy. As an AWS, certified partner, Robots and Pencils combines the reach of a large firm with the focus of a trusted partner. With teams across the U.S., Canada, Europe, and Latin America, clients gain local expertise and global scale. As AI evolves, they ensure you keep peace with change. And that means faster results, measurable outcomes, and a partnership built to last. The right partner

Starting point is 00:09:16 makes progress inevitable. Partner with Robots and Pencils at Robots and Pencils.com slash AI Daily Brief. This episode is brought to you by Blitzy, the Enterprise Autonomous software development platform with infinite code context. Blitzy uses thousands of specialized AI agents that think for hours to understand enterprise-scale code bases with millions of lines of code. Enterprise engineering leaders start every development sprint with the Blitzy platform, bringing in their development requirements. The Blitzy platform provides a plan, then generates and pre-compiles code for each task. Blitzy delivers 80% plus of the development work autonomously, while providing a guide for the final 20% of human development work required to complete the sprint.

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Starting point is 00:10:34 Robo runs on the teamwork graph, Atlassian's intelligence layer that unifies data across all of your apps and delivers personalized AI insights from day one. Robo is already built into Jira, Confluence, and Jira service management standard, premium, and enterprise subscriptions. Know the feeling when AI turns from tool to teammate. If you rovo, you know. Discover Rovo, your new AI teammate powered by Atlassian. Get started at ROV as in VictoryO.com. Welcome back to the AI Daily Brief. For the second time in a week, OpenAI has stirred up a completely unnecessary and incredibly viral and virulent hornet's nest of commentary and critique

Starting point is 00:11:17 by being too loose with their communication and failing to understand that they are no longer some quirky startup that can just talk flippantly. And if you think I sound annoyed about this, you are right that I am because it has big implications for how this entire industry will interface with politics, markets, and culture in the year to come. I'm referring in this case to comments from OpenAI CFO Sarah Fryer at the Wall Street Journal's Tech Live event in California on Wednesday. There were a number of different elements of the conversation. Fryer rejected the idea of an AI bubble. She commented, I don't think there's enough exuberance about AI when I think about the actual practical implications

Starting point is 00:11:55 in what it can do for individuals. We should keep running at it. She discussed the circularity critique of all these funding deals, saying, I kind of reject the premise completely. We're all just building out full infrastructure today that allows more compute to come into the world. I don't view it as circular at all. A huge body of work in the last year

Starting point is 00:12:12 has been to diversify that supply chain. Friar also deferred chatter about an IPO, denying that open AI is currently making preparations in saying that an IPO is, quote, not on the cards right now. But none of that was the commentary that got picked up. Instead, it was this section, which the WSJ so crisply summed up as OpenAI wants federal backstop for new investments. For the sake of completeness, let's listen to the clip,

Starting point is 00:12:35 where Friar is talking about how OpenAI is compute constrained, always trying to build at the state-of-the-art, always trying to use state-of-the-art chips, and thus has to figure out how to finance all of it. Where the conversation starts is with a discussion of, the difference in the dynamics of funding based on how long we find chips are actually valuable and useful for? So the question is, how long does a chip remain on the frontier? Is it three years, four years, five years, or even longer? Now, in a world where we have no compute, we're compute

Starting point is 00:13:03 constrained, we are absolutely using chips that have, like A100 equivalents that have been around like maybe six, seven years at this point in time. If that's the case, financing chips gets a lot easier. If the timeline on the chip stays short, that gets harder. And so this is where we're looking for an ecosystem of banks, private equity, maybe even governmental, the ways governments can come to bear. Meaning like a federal subsidy or something? Meaning like just first of all, the backstop, the guarantee that allows the financing to happen. That can really drop the cost of the financing, but also increase the loan to value, so the amount of debt that you can take on top of an equity portion for federal backstop for chip investment. Exactly. And I think we're seeing that. I think the U.S. government in particular has been incredibly forward-leaning,

Starting point is 00:14:01 has really understood that AI is almost a national strategic asset, and that we really need to be thoughtful when we think about competition with, for example, China. are we doing all the right things to grow our AI ecosystem as fast as possible? So those are the comments. And what's important here is that it was Fryer herself who introduced the word backstop. In other words, this wasn't an overzealous headline writer putting words in her mouth, which, as we've seen, plenty of times can happen. Now, some folks tried to give Fryer the benefit of the doubt and explain what she was trying to say. Lulu Chang Meservi, who is a PR leader and commentator, wrote,

Starting point is 00:14:43 at comms fumble to use the baggage-laden word backstop. In the video, Friar is clearly reaching for the right word to describe government support. Could have gone with public-private partnership or collaboration across finance, industry, and government as we've done for large infrastructure investments in the past. Instead, she kind of stumbles into using backstop, which was then repeated by the Wall Street Journal interviewer and then became the headline. Now, Friar herself and the OpenAI Newsroom later sought to clarify, writing on LinkedIn, OpenAI is not seeking a government backstop for our infrastructure commitments. I used the word backstop and it muddied the point. As the full clip of my answer shows, I was making the point that American strength and technology will come from

Starting point is 00:15:21 building real industrial capacity, which requires the private sector and government playing their part. Unfortunately, this was not one that could be easily walked back from. Macro research firm founder Julian Bridgen writes, I smell a rat. Why does Sam Altman need the taxpayer to guarantee their debt if they're going to make hundreds and hundreds of billions of dollars? Has he just done a cash analysis and realized he's cash flow short. Entrepreneur and investor Sam Lessen writes a pre-bailout bailout. I appreciate the balls to ask and what a sign of the times. He followed up, loll. No crap that a government backstop will drop your cost of capital. By the way, I would love one of these two if we were handing them out. Just about a week ago, finance commentator Luke Groman wrote,

Starting point is 00:15:57 when the too big to fail banks were doing stuff like this prior to the GFC, in this case referring to off-balance sheet debt to finance a metadata center, Grumman continues, they knew at some level they would get bailed out when the S hit the fan. Please timestamp this. If and when this goes parashaped, the hyperscalers will get federal bailouts just like the too big to fail banks did. Luke then followed that up with the headline from the Wall Street Journal saying, Wow, only five days elapsed from the time I speculated this would happen eventually. Former White House AI advisor Dean Ball writes, Fryer is describing a worse form of regulatory capture than anything we have seen proposed

Starting point is 00:16:30 in any U.S. legislation, state or federal I am aware of. A firm lobbying for this outcome is literally, rather than impressionistically, lobbying for regulatory capture. Investor Jeff Park writes, OpenAI is a nonprofit that now wants a federal backstop guarantee for all new CAPEX investments, but also wants to IPO at a trillion dollars next year for its exclusive shareholders. And you wonder why Momdami was elected in a landslide.

Starting point is 00:16:53 And indeed, what is inescapable from this? And what was clearly, completely ill-considered by Fryer and Open AI, was the context into which these comments were going to come. Finn Murphy writes, for all the tech people complaining about Mom Dami, I would like to point out that a federal backstop for a fireman. unfettered risk capital deployment into data centers for the benefit of open AI shareholders is actually a much worse form of socialism than free buses. Nemo on X-rights not sure this was the best time to soft launch a future bailout, and Spectra markets president, Brent Donnelly captured the mood with his

Starting point is 00:17:22 simple tweet, F off. Now, one thing that's important to note is that this was not just friar out on her own. Altman on Tyler Cowan said something similar. In that interview also published yesterday, he said, at some level when something gets sufficiently huge, whether or not they are on paper, the federal government is kind of the insurer of last resort, as we've seen in various financial crises and insurance companies screwing things up. I guess given the magnitude of what I expect AI economic impact to look like, I do think the government ends up as the insurer of last resort, but I think I mean that in a different way than you mean that, and I don't expect them to actually be writing the policies in the way they may be due for nuclear. MECCE Mike writes,

Starting point is 00:17:59 this MF is now pretty directly taunting us that he's becoming too big to fail and we're the backstop. Now, as you heard from Friar's comments, there is clearly an assessment of global geopolitics here. For Open AI, they see very clearly that AI is a geopolitical issue and that the U.S. government is treating it as such. And so removing the word backstop and trying to get at what Friar was actually trying to say, there is inevitably going to be some sort of relationship between the U.S. government and the industry with this much geopolitical relevance. This was reinforced by the fact that these comments came on the same day of comments from

Starting point is 00:18:31 NVIDIA's Jensen Huang, who put in this darkest terms yet that he thinks that China will win the AI race with the United States. In an interview at the Financial Times Future of AI Summit on Wednesday, he plainly said China is going to win the AI race. He said that the West is being held back by cynicism, adding, we need more optimism. Perhaps even more than a negative attitude, Huang believes the U.S. is being limited by regulatory burden. He noted that state-based rulemaking means AI companies will need to deal with

Starting point is 00:18:56 with 50 new regulations. In contrast, Huang pointed to new Chinese energy subsidies for running domestically made chips, commenting, power is free. Now, one of Nvidia's big advantages over Chinese made chips is energy efficiency. But earlier this week, Beijing introduced a 50% electricity subsidy for data centers using Chinese made chips, making that advantage irrelevant. Now, these comments, of course, come shortly after President Trump shut the door on sending Nvidia's blackwell chips to China, even in a downgraded form, meaning that it's possible to read these comments as frustrated and or self-interested. At the same time, Huang has consistently presented this as the inevitable outcome of chip bans all year. After the story started to get traction,

Starting point is 00:19:34 NVIDIA and Huang released a clarifying statement, where Jensen commented, as I have long said, China is nanoseconds behind America and AI. It's vital that America wins by racing ahead and winning developers worldwide. Many people got that these two sets of comments were interrelated. DC investor writes, OpenAI now wants a federal funding backstop for their data center buildout, and Jensen talking much more openly about how we will lose to China if we don't rapidly build out our energy capacity. It's becoming very obvious that what appears like broken capitalism, circular investment between these firms, is actually implementation of a national policy priority. They are trying to make it look like it's being done through the free market,

Starting point is 00:20:10 but this is very likely orchestrated in ways that are not being broadly discussed yet. TLDR, AI is likely not a bubble. It's a free market Manhattan project. A couple of weeks ago, gmoney.eath wrote, If the AI race is considered an issue of national security and winner-take-all, then one needs to only look at military spending to see that it won't slow down any time soon. The first meaningful downtake wasn't until the Cold War ended. Every dollar spent on AI can be justified because the spoils of winning are so high. G-Money followed that up just yesterday, writing,

Starting point is 00:20:39 If you view this as a race of USA versus China, there is literally no ceiling on the money that will be spent to secure AGI-S-A-S-I, and everyone in power, both sides of the aisle in the U.S. and leadership in China, will be willing to sacrifice the lives of most of their citizens through inflation to win this race. So this can't be like the housing crisis which started in 2007 with the collapse of countrywide and culminated more than two years later with the collapse of Lehman. If we have an AI spending collapse for two years, we will be toast. So this bailout will happen in a matter of weeks, if not days.

Starting point is 00:21:07 The interesting thing here is AI execs are now saying the quiet part out loud. They're tipping their hands. They're telling us we need ungodly amounts of money in order to have a shot. Usually when the government will print or ease, they call it something slightly less obvious. We got that with TARP, QE, Operation Twist, SIVB bailout, or whatever other alphabet suit bailouts we've gotten over the last 20 years. Using this as a backdrop, the Mamdani victory really makes sense last night. If financial execs got bailouts in 2008, and AI execs are already calling for bailouts before they even need it, then why shouldn't the average citizen get the bailout?

Starting point is 00:21:38 Now, at least one open AI voice said that they didn't think that government backstopping should be the policy. Rune wrote on Wednesday night, I don't think the USG should backstop data center loans or funnel money to Nvidia's 90% gross margin business. Instead, they should make it really easy to produce energy with subsidies and better rules. Infrastructure that's beneficial for all and puts us at parity with China. Finance Alop pointed out why the average American is unlikely to be compelled by the idea of winning the AI race. They wrote, have they defined what winning the AI race is? Is it the first country to reach 25% unemployment? Commentator Conor Senn points out the epic political backlash coming on the other side of this cycle is so obvious for anyone

Starting point is 00:22:17 over the age of 40. We turned banks into the bad guys for 15 years. Good luck to the AI folks. We're subsidizing the companies who are going to take your job and you'll pay higher electricity prices as they try to do so. And this brings me to my issue with all of this, and why despite being in the AI industry I am doubling down on this particular critique. We are operating in a world right now where there are two entirely separate economies. There is the AI economy that, is booming, and there is the rest of the economy, which is putting it charitably not. Outside of our little corner of the world, some of the biggest political debates going on are whether the government is going to continue to pay for food stamps. Meanwhile, the average

Starting point is 00:22:55 age of first-time U.S. homebuyers has surged in the last three years to 40 from a historical average closer to 30, and New York City just elected a socialist mayor. Now, you might say, is it really open AI's job to have to think about all of this context when they make statements? They're just a scrappy startup after all. No, no, they are not. And Open AI, if you are listening, please hear this. You are no longer some Wonderkin startup from Silicon Valley that can afford to be flippant. Every media outlet in the United States covers every comment out of any Open AI leader's mouth,

Starting point is 00:23:32 like they are comments from the White House or a Senate leader or some other wildly significant actor. You don't get to, on the one hand, work incredibly hard to position yourself, as the most essential company of the future and then not understand the communications implications of that role. The time where you guys get to just show up and speak loosely in ill-considered terms is over unless you want to just doom the AI industry to intense political retribution for years.

Starting point is 00:24:03 I'm sorry, but the reality is now you have a responsibility not just to your own company but to everyone else in this industry. And you can't do this. You can't show up on Brad Gersner's podcast and get snide and condescending even if I understand where the frustration comes from. You can't show up at the Wall Street Journal and start bandying about terms and concepts like government backstops. When you do that, you're screwing yourselves and you're screwing the rest of us. So please, I am imploring you.

Starting point is 00:24:33 Start to appreciate the role that you are in. You are no longer a startup, not when it comes to communications, and you don't get to act like it anymore. That's going to do it for today's AI Daily Brief. Until next time, peace.

The AI Daily Brief: Artificial Intelligence News and Analysis - Why OpenAI’s CFO Just Sparked an AI Bailout Debate

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