Father | Husband | Portfolio Manager @ RBC DS & RM Pod My business is helping Canadian families manage generational wealth | CIM®

Edmonton, Alberta
Joined February 2011
Joel Shackleton retweeted
Two weeks ago a life changing amount of money was wired into my bank account from the sale of my business. Since I'm no longer a competitor in this particular arena, I'm gonna drop some sauce on how I completely mogged an entire industry on meta ads. I'm going to be vague so I don't dox myself, but here it goes:
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This is a much longer topic, but taken to an extreme, an intelligent personalized agent effectively minimizes search costs and renders much of supply aggregation and onsite advertising useless. On a long enough timeline, everyone sells ads, but what if there's no one to sell to?
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Joel Shackleton retweeted
I am shocked, absolutely shocked, that Anthropic ARR has likely gone vertical in October after they cut token prices. Except the exact same thing happened for the entire AI market, which is why GPU rental prices have surged while token prices declined. $100b plus in year-end ARR looks possible again.
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Joel Shackleton retweeted
10 million installs (“set ups” is the actual metric that Meta cited) in ~6 weeks is indeed impressive, but it’s certainly not unprecedented, and to contextualize, it’s what an aggressive mobile game launch might achieve in 1-2 weeks. Comparing a mobile game’s launch to that of an app that represents a completely new consumer paradigm is obviously facile, but that’s not the point: install numbers are a vanity metric in the first place, and they provide poor guidance around product-market fit or a product’s potential for commercial success. Yet as I wrote this week in my Meta Q3 earnings analysis, public market investors may be anchored to that coarse signal, given the fact that Meta has more or less tethered the future of the company to the success of Muse. Given how much is at stake, the optics of Meta dropping out of the #1 Top Downloaded position on the US App Store, and descending to as low as #4 today, are ominous. If Muse is overtaken by ChatGPT, the Wall Street narrative is harder to sustain. For that reason, I think Meta should be deploying as much money on mobile app install ads as is necessary to maintain the #1 Top Downloaded chart rank in the US App Store with Muse (not that Muse is currently only available in the US and Canada). ByteDance spent $1BN on user acquisition in the US alone in 2018 to promote TikTok; Meta should be willing to spend a multiple of that given how important Muse is to its narrative.
Muse hit 10.2M U.S. downloads in its first 40 days versus 3.7M for ChatGPT showing how powerful $META distribution advantage is. Even more impressive is Muse retaining 30% of users after 7 days versus just 19% for competing AI apps showing people are actually sticking around.
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Joel Shackleton retweeted
Mark Carney confronts the federal public-service unions Mark Carney deserves support as he confronts the federal public-service unions. After the extraordinary expansion of government employment under his predecessor, restraint is overdue. The Public Service Alliance of Canada announced this week that it will hold strike votes for 120,000 federal employees, beginning Nov. 16. The dispute reportedly involves wages, job security, remote work, and protections concerning artificial intelligence. A strike vote, of course, doesn’t guarantee a walkout, but the union is preparing to increase the pressure. Carney should hold the line. And if he does, Conservatives (and conservatives) should support him. The starting point is to distinguish the civil service from the unions representing its employees. The civil service is a noble and necessary institution. Its traditions of professionalism, impartiality, and public service deserve respect. Its interests aren’t identical to PSAC’s. As my former boss Stephen Harper used to say, government employs people to deliver services and discharge public responsibilities. Providing employment itself isn’t its purpose. Between 2015 and 2024, the federal public service grew from approximately 257,000 employees to nearly 368,000—an increase of 43 percent. Are Canadians supposed to assume that government became correspondingly more effective? The broader productivity evidence points in the opposite direction. Economist Stephen Tapp’s research finds that government-sector labour productivity declined by an average of 0.3 percent annually over that period, while business-sector productivity grew. As I argued in a 2024 paper for the Public Policy Forum, layers of approvals, outdated technology and cumbersome processes can consume resources while frustrating public servants and the people they serve. Boosting state capacity requires changing how it works rather than adding more people. PSAC president Sharon DeSousa says the union will not let the government find savings “on the backs of workers.” But where, precisely, should savings come from if compensation, staffing and working arrangements are all treated as beyond serious reconsideration? Taxpayers are workers too. They have families to support and their own employment uncertainties. Their interests deserve representation.  The strike threat also exposes a problem with labour relations in government monopolies. Canadians cannot obtain a passport from a competitor. That strengthens the case for resolving disputes through binding arbitration rather than withdrawing services from people who have nowhere else to go. Public servants deserve fair compensation and fair treatment when their positions change or disappear. But preserving every existing job cannot be the overriding objective. We should neither disdain public-sector employment nor lionize it. It’s a means to an end. If government can deliver those ends better and more cheaply with fewer people, it has an obligation to the rest of us to do so. Carney can respect public servants while insisting on a smaller, more effective administration. Indeed, defending the institution’s performance and public standing requires him to resist the union’s demands.
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Joel Shackleton retweeted
"Capitalism created the possibility of the win win win. It used to be a zero sum game where somebody won, somebody else lost. The biggest mistake people make they still think we're in a zero sum world. They're obsessed with some billionaires because Bernie Sanders thinks that @JeffBezos and @elonmusk somehow stole the money from the people. They don't understand that it's this prosperity machine that's creating more, not just for those billionaires, but for everything that they're touching. They're creating value for their customers, they're creating value for their employees. Their suppliers are flourishing, their investors are seeing their capital go up. It can be reinvested and compound. All philanthropy ultimately comes from business. That's where the profits are. Where does all the taxes come from? It ultimately comes from business as well. This is the engine that's lifting humanity out. The entrepreneurs are the drivers of that engine. Somebody like Elon Musk, he gets a very, very, very tiny sliver of the value that he creates for the whole world." — @iamjohnmackey
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Joel Shackleton retweeted
Once again the Canadian government FAILS to understand the problem I would know, I founded and ran a tech company for a decade and raised MILLIONS from investors And it was HORRIBLE doing business here Let me explain This isn't a "money issue" This is a regulatory, economic and taxation issue combined with a deep cultural problem Back in 2015 I founded a tech company, using my own money from working in the Alberta oil field We developed our MVP in Montreal and launched our proof of concept right here in the West Island Our first ever investors were our own first clients. We raised $150,000 from them But things got harder when it came time to raise our seed round I met with EVERY SINGLE VC in Montreal. All told us NO Why? Too risky lol... its the very definition of Venture Capital They wanted a pitch deck, projections on 5 years, cashflow, business plan, go-to-market strategy, communication strategy, marketing strategy, Tech reviews, C.V. of founding team, financial disclosure etc We spent more time preparing documents for them than we did scaling our business Worse of all, they all wanted something different and would give contradicting requirements I remember this interaction at the Espace CDPQ, the headquarter for all Venture firms in Montreal ie: Investor: How much do you need Me: $1 Million Investor: So if you only raise $750k what happens? Me: Well we'll adapt XYZ Investor: So then never EVER tell me a fix number. Give me a range. $750K-$1.5M or else you look foolish I went home, reworked the pitch deck The very next day: New investor: How much you need Me: $750K-$1.5M New investor: What... you don't even know your number??? Me: well... yes but what if we raise less or more New Investor: No, you look foolish We said screw it. Approached American Investor Our first was a VC firm out of Houston, Texas Took less than 1 month from initial pitch, to closing. In USD. For more money than what Canadians wanted to offer. Best of all, they understood the fluid nature of a startup. No onerous and rigid plan. No overburdened documentation. Every second wasted on non-operating activities was sucking productive time away from scaling. But Elliot... what about BDC and other AMAZING institutions in Canada We did business with the BDC. a $250,000 loan. Which I had to personally guarantee. Which 25 year old has assets and the balls to guarantee that amount? Very few. It's prohibitive. And reduces capital available to our homegrown companies And this was AFTER MONTHS of explaining to them what we were doing. It was clear the BDC was setup to support traditional brick-and-mortar companies only. Think Manufacturers or Commerces. But a tech startup? They could NOT wrap their heads around it. Canadian banks? Forget it. Outright. Too risky Then I watch fellow startups do the same. And move to the US. Why wouldn't they? In Quebec, I had to pay an extra 15% on top of my payroll as taxes. QPIP, QPP, FSS, CNESST... all to satisfy the government non-stop appetite. Consequences: Well for a startup where every dollar counts, this means lower salaries thus harder to attract top talent (vs American competitors) or I simply hired less staff... thus slowly growth for both my company and the country's economy. But wait it gets worse. Revenue Quebec and CRA both required a plethora of compliance documents filled monthly or quarterly. GST and QST tax fillings, CNESST Salary equity (yes lol) documents, Source deduction documents, RL-1 fillings, Income tax (both QC and CAN), Workplace sexual harassment policy, OQLF policy, CNESST training and certification... the list goes on At least 1 day a month was spent by me and some of my executives preparing and fulfilling these documents. This means we were't scaling our business and instead working for FREE for the government. Then there is the tax burden. Why would top talent want to come here and get taxed at up to 52% marginal rate? While a Miami startup offers higher salary and the State taxes you 0% Finally investor behaviour In Canada... safe. steady return. Great for a Series C. Great for an established companies. No desire for risk. No understanding of the ecosystem. HORRIBLE FOR VENTURE Meanwhile the U.S. , they understand the ecosystem. 90% of their investment will go down to 0. But the few that survive will go on to earn them BILLIONS and change the world. So this new announcement of $1.75Billion won't change the underlying issue that makes us uncompetitive. At best, it will go to startups who will flee to the US the very second the money hits At worse, it will just be another slush fund given to friends of the government and I fear its the latter as usual
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Joel Shackleton retweeted
站在今天看,俄罗斯这波操作,属于手握着一把天胡的牌打得稀烂。 如果不出兵乌克兰,今天全球AI的牌桌上,除了中美,大概率真得坐着一个俄罗斯。 搞AI、跑大模型,底层逻辑就是“吃电、散热、堆机器”。这两年全世界的数据中心老板都在为电费和机房降温发愁。俄罗斯属于老天爷喂到饭:西伯利亚开窗就是纯天然顶级空调;境内水电、核电、天然气很便宜,当年挖矿的都选西伯利亚。 另外俄罗斯人的数学和算法也强,各大国际编程竞赛,Kaggle机器学习竞赛常被俄国人屠榜。全世界除了中美,俄罗斯也搞出了自己完整的互联网生态:搜东西有Yandex,社交有VK,还有Telegram。现在在美股被炒上天的算力黑马Nebius,核心班底就是原先Yandex那帮俄罗斯人。 如果疫情后俄罗斯出地皮、出冷气、出便宜电,再拉着中国这种基建狂魔帮忙拉高压电网、建厂房、铺光纤,欧美资本开服务器工厂。俄国人完全可以成为欧亚大陆最大的“超级算力工厂”,中美神仙打架,它在中间两头收过路费。 结果呢?普京一拍大腿:不行,我得去抢那几块地。 普京的脑子,彻底停留在了19世纪沙皇俄国那种“开疆拓土”的旧梦里。什么有没有出海口啊,有没有所谓的军事缓冲带啊,就算抢方法也多的是,这可这是21世纪啊!现在的世界霸权争夺,抢的是半导体供应链,抢的是先进算法,抢的是高精尖人才。你去顿巴斯抢了几片烂泥地、几座废弃钢铁厂,代价却是把整个国家的未来都押了上去。 枪声一响,一切全崩了。稍微有点本事的程序员、算法工程师,连夜跑路。Yandex核心技术团队,宁可巨亏,惨烈的断尾求生、割裂母国,也要跑到欧洲重组成Nebius。普京把最懂未来的人,全逼成了难民和海外创业者。 在人工智能技术爆发的黎明前夜,全世界都在疯狂狂飙算力、抢占新工业革命的门票;而俄罗斯的老大,却带着几十万人,在泥潭里打着一百年前的一战式堑壕战。 再说一遍,普京不行,国内崇拜普京的那帮人也不行
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Joel Shackleton retweeted
SpaceX $SPCX is finalizing a $40 billion debt raise at sharply higher borrowing costs than its previous financing, according to Semafor. The lowest-rated portion is expected to carry an interest rate of around 8.3%, while a safer portion backed by AI chips could price near 7.75%. The safer portion is expected to price more than 1 percentage point above where SpaceX's existing bonds trade. The deal, led by Apollo and Goldman Sachs, is expected to be finalized next week.
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Joel Shackleton retweeted
# Black October For anyone who knows me even somewhat well, it's clear that I am a 99th percentile tech optimist. However, the vibes have shifted for me quite a bit in the last 18 hours, and I feel a moral imperative to share what I'm thinking and feeling with my circles so that everyone can understand, and hopefully take seriously, what's happening right now. I think October 2026 will have many chapters written about it in the history books. You know those scenes in financial movies like Margin Call where someone realizes that they're all fucked, and no one else sees it yet? And that person feels like they're crazy, and then suddenly everyone is pulling an all-nighter in a boardroom and freaking out? Yeah, that's kind of how this is feeling right now in the SF/Bay Area/AI circles. We're 48 hours into what is being called Black October. In the last 2 days there have been several dozen cyber attacks which, in isolation, would each have been the worst to happen in an entire calendar year. Every sector from government to education to big tech and banks is being massively affected, and people are starting to freak out. In a nutshell, what's happened is that frontier AI models have gotten to a point where they are as advanced as the most sophisticated programmers, with one critical difference: they can work 24/7, and you can spin up 10,000 of them with a single command and they'll work together tirelessly until they accomplish their task. The most advanced models today are from companies like Anthropic and OpenAI, whose current best technology is so good that they haven't been able to roll it out to everyone yet because of the national security risks it poses. Meanwhile, the best open source models (where anyone can just download the model weights and do whatever they want with them, uncensored) are slightly behind the frontier but still 90-95% as capable. These models, developed primarily in China, are being used by black hat hackers to wreak havoc on the Western capitalist structure. Presumably, this has been part of China's plan the entire time, and we're seeing its implications fall out in real time. In red-pilled AI circles, we've been sharing and reading papers called things like "Situational Awareness" and "AI 2027" for the last year or so, which at the time felt a bit like near-term speculative fiction. They laid out the case for why Artificial General Intelligence (AI smarter than any human at any knowledge task) and Recursive Self-Improvement (models that are able to use themselves to get better) weren't half-baked future ideas anymore, but instead an inevitable outcome of the linear progress that's happening. These papers would then talk about things like "takeoff scenarios," trying to envision how that moment would come to be and what it would be like when it happened. It would either be a "slow takeoff" that would play out over the course of months and quarters, happening subtly and only obvious to a few. Or, it would be a "fast takeoff" where it would pretty much happen instantly, like a bit flipping from 0 to 1. From everything that I can see and am feeling, we are currently experiencing the fast takeoff scenario. Beyond the crazy security vulnerabilities that have come out recently, there have also been massive breakthroughs in life sciences, fundamental computer science, materials science, and pure mathematics that have all landed in the same time frame. While I still firmly believe that AI will be a net positive for humanity, it's more clear to me than ever that the societal and individual risk is very real, and is playing out NOW. For as much conviction as I have that this is happening, the thing that's caused me to lose sleep is that I don't really know what to do about it, or more importantly, what to tell you, reader, to do about it. So, the best I can do is make a few suggestions that have always been a good idea but are more timely now than ever: Set up 2-factor authentication for everything. I use Duo. Use a password manager across your devices. I use 1Password. Get an identity protection app set up. I use Alta. Move your IoT devices to their own network. Claude helped me do this. And last, but certainly not least, if you've been avoiding leaning into AI, see this as a catalyst to wake up and start using it. Don't just use the chat mode version of ChatGPT/Claude; click that Code/Work button and see how easily you can have AI write code to help you with your job. One of the biggest vulnerabilities was in a massively popular programming language called PHP, and the prompt that set it off was literally, "Find vulnerabilities in php." This is an unprecedented time for humanity, but as we've done with many things before, we will prevail so long as we are kind, loving, and open-minded to the world. Much love.
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Joel Shackleton retweeted
Today was a clear wake-up call for the market. It’s apparent that most investors weren’t, and perhaps still aren’t, prepared for each of the big 5 (incl. SPCX) to potentially raise multiple hundreds of billions of equity/debt capital through 2030, and multiple trillions collectively. These investors also weren’t prepared for the capex growth to have no end in sight. Ironically, many of the executives of these companies have been out in public clearly communicating their intention to keep spending very aggressively, with no plans to stop anytime soon. And yet, for whatever reason, street estimates called for capex to slow dramatically into 2028 and basically plateau thereafter. The street modeled 50-60% capex growth across the big 5 in 2027 (which itself is low), and then MSD% growth annually. There is no good fundamental reason to model that unless you think companies spend less because the returns on the technology slow, or you think there are severe physical/power/financing constraints (though this would just result in slower growth, not the plateau that’s been modeled). But it seems just as likely that out-year estimates simply defaulted to a plateau. Companies only guide a year out, and few on the sell-side are willing to model years of cash burn at this scale, so in their models, burn peaks in 2027 before FCF flips back positive in 2028 and scales from there. That path doesn’t require nearly as much capital issuance. To be clear, this would be a much happier and easier world for equity investors, who could go back to reaping the rewards instead of writing the checks. But for those who took the companies at their word and modeled continued elevated capex growth through the balance of this decade, these levels of issuance were a mathematical inevitability. Yesterday’s filing from $META probably forced many to contemplate for the first time that each of these companies could actually burn and issue multiple hundreds of billions of dollars in the coming years. The credit markets have already shown signs of strain under the sheer magnitude of issuance, so more of this may need to be done through equity. That means there was also some front-running of eventual, unknown but likely material levels of dilution. Equity markets don’t like being diluted, and they generally don’t like companies spending money at all. Especially not when the dollars get this big and when, rightly or wrongly, many still doubt the viability or magnitude of the returns, or at the very least don’t care to wait around to find out. Add in the crowding and leverage, along with a continued rise in oil on Middle East flare-ups, and you get a meaningful stock correction. And so that’s what I believe the market priced in today: more burn, more issuance, more dilution, more leverage, more risk, more financing constraints (esp. for the most rate-exposed stuff, which got hit the worst today), along with some uptick in the chance this all falls apart. This is going to sound perverse, but I think a day like today is very healthy. The companies are ambitious and the markets are stingy. And they will have to work with one another to get what they want. The companies want unprecedented capital to invest in what they believe is a re-platforming of the entire global infrastructure for an AI future, and the markets demand sufficient evidence that they’ll earn above the required return on the capital they lay out and the risk they take on. Ultimately, this forces the companies to be more disciplined and to show ROI as early and visibly as possible. That doesn’t mean they spend less, just that they have to prove the spend is working. I don’t think Zuck’s comment about monetizing Muse so much more rapidly than previous platforms was a coincidence. He knows what he needs, and he knows what he needs to show to get it. So what now? Is AI a powerful enough driver to muscle its way through the fears being expressed by markets? I think so. The big 5 may grow capex from >$1.3 trillion in 2027 to >$2.5 trillion in 2030, a ~25% CAGR. That implies a lot of paper, but in general, the hyperscalers can afford to pay higher rates, and there still seems to be demand from credit investors for it. At yesterday’s Robin Hood conference, execs at Diameter and HPS expressed a view that 7-8.5% yields on bonds from these companies are interesting. And I’d argue that’s for good reason: aside from SPCX, these companies generate massive operating cash flow and have largely benign net debt/EBITDA levels. On the other hand, the more speculative companies that sit further out on the risk curve, pay higher spreads, and often don’t generate any cash at all will likely be forced to spend less. If you thought CRWV and NBIS would spend a combined ~$150-200 billion of capex in 2030 (vs. ~$60 billion in 2026), that might get cut in half because of financing constraints. But even a $100 billion reduction is only a 3-4% hit relative to the big 5’s 2030 capex, which, on net, is very manageable. That may be an issue for those companies, but it’s not enough to derail the ecosystem as a whole. Ultimately, you have to believe there are attractive returns in AI, which I strongly believe are inflecting and wrote about here: xitter.cf/evergreencap3/status/2…. So even while things remain turbulent, the path still appears bright.
Some thoughts on AI ROI, which I believe is misunderstood and severely understated. TL;DR: AI ROI is inflecting for end customers (most important) and infra providers. Pure model provider ROI is less clear, but models will keep improving regardless, driving the industry forward. Of all the debates on AI, the biggest and most persistent is around ROI. The problem is that the debate revolves around a single, inconsistently applied definition, when in reality there are three: 1) ROI for model providers, 2) ROI for model customers, and 3) ROI for infrastructure providers While cooperative, #1 and #2 are fundamentally at odds with one another. All else equal, the higher the margin a model provider captures on the tokens it sells, the lower the margin the customer of those tokens captures on the work being done. This is driving enterprises to rationalize spend where they can: if a job can be done as effectively with a cheaper model, the ROI on that job is proportionally higher than if it were done with a more expensive model. That’s not 'bad' for AI. It just represents margin shifting from the provider to the customer. Meanwhile, the ROI for infrastructure providers is a collective function of both. And while there are nuances around returns for individual infra providers depending on the concentration of and share between the model and customer cohorts, the reality is that infrastructure ROI overall benefits as long as demand for tokens keeps growing, regardless of the ongoing push-pull between model providers and customers. In the last couple of months, we seem to be heading in a certain direction: aggregate model customer ROI is accelerating as customers benefit from the utility of increasingly intelligent tokens (and apps) at falling prices. This is evidenced by nearly all of the token-volume metrics across the industry, which continue to show growth and/or acceleration. Both the qualitative and quantitative data points on positive customer ROI are growing in concert, most recently with AWS CFO John Felton remarking that he studied AWS’ own token usage and found that, in general, more is better. And for those who still don’t believe in return on token spend, I implore you to model out the number of tokens needed to complete a job of your choice and measure the value of that job relative to the underlying cost of the tokens, with or without the model provider margin. Sure, there can always be waste. But when utilized properly, the returns on tokens are extraordinary, which is exactly what's driving continued volume growth. We’ve subsequently seen this flow through to the cloud infrastructure providers, whose payback periods have compressed and whose returns have also increased, primarily as a function of rising rental prices for GPUs/accelerators. And as those returns have increased, so has demand for the underlying infrastructure, benefiting the AI supply chain at large. So far, so good. That leaves the model providers, where the biggest question really lies. The fact that inference gross margins can be so high is certainly positive in addition to being obvious: the prices at which tokens are sold are multiples higher than the miniscule cost of the underlying FLOPs needed to generate them. And again, the value of the work being done by the end customer is multiples higher than the token prices, so everybody wins. However, inference gross margins paint an incomplete picture, because token prices are primarily a function of model quality, which is primarily a function of training spend. That spend, in aggregate, is causing model providers to burn lots of cash. And because competition remains so intense, it’s unlikely in my view that any model provider can retain its inference margins without continued aggressive training spend. So the two go hand in hand and should be assessed together. While Anthropic’s reported positive FCF in 3Q was a nice surprise, I don’t expect it to continue, especially as OpenAI remains committed to investing aggressively and burning cash for the foreseeable future. So that’s the predicament. The market is unsure what the long-term business and economic model of a 'lab' is, and rightly so. That raises the question: if the labs can’t make money, who’s going to fund the training, and how will the models keep getting better, which is the critical ingredient in continued AI adoption and end-customer ROI? I see a few outcomes to this question: Scenario 1: Concerns about model-provider economics prove overstated, and the market expands rapidly enough to accommodate multiple profitable frontier developers alongside a thriving open-source and open-weight ecosystem, supporting broad-based growth with attractive margins. This is probably the cleanest outcome which is why the market tends to like it so much. I still think this is the most likely path in the fullness of time, but it’s admittedly unclear. The mega-pilled RSI scenario also fits within this outcome, mainly in the sense that the investment pays off. Scenario 2: Because of heightened competitive intensity and elevated training costs, the aggregate model provider ecosystem simply operates at maturity with razor-thin margins and very tight/minimal free cash flow generation, like other extremely competitive and/or commoditized industries. This is at least where we seem to be today, and where we will likely remain for some time. Scenario 3: Financial pressure causes weaker participants to exit, merge, or scale back large training programs, eventually giving way to consolidation and reduced frontier training intensity, which allows the remaining players to expand margins. This seems both logical and likely to happen to some unknown degree, which would be positive for the value of the remaining players. Note that megacap tech hyperscalers, who collectively generate hundreds of billions in operating cash flow from their core businesses and are also training models, can continue to tap into that cash flow for ongoing training (ie GOOGL, META, and more recently NVDA). That will persist regardless of what happens with OpenAI or Anthropic. Scenario 4: Frontier labs eventually convert into true public benefit corporations (in more than just name), owned and funded by a broad coalition of companies and the USG, all with incentives aligned toward the ongoing training and development of new models, effectively making the labs public utilities rather than private corporations. I do believe there is tremendous value in the IP at both OpenAI and Anthropic, and consequently see this as a far more likely outcome than either of them “going bust” and ceasing operations. While this may seem scarier to markets and in the headlines, the actual end result could be quite positive and well distributed across the entire AI ecosystem (rather than concentrated in the two labs). And at the very least, I believe there is strong merit in a pool of government-funded dollars for model development, much like the CHIPS and Science Act of 2022, which authorized $280 billion in federal funding and incentives. The US federal government spends >$7 trillion annually. Point being, there is both ample budget and precedent for the USG (and megacaps/others) to contribute to this national cause. All in, some combination of these four outcomes should play out. And while some paths are smoother than others and there will be inevitable volatility and hiccups along the way, they all ultimately lead to positive ROI on AI spend: better models drive better end-customer returns, which drive better returns on infrastructure. That flywheel is already in motion (as evidenced by rising token volumes, GPU rental prices, and infra returns), and it’s much more sustainable than the market fears. It will take time to get from here to there, but the endgame appears to be quite positive, almost any way you slice it.
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Joel Shackleton retweeted
Some thoughts on AI ROI, which I believe is misunderstood and severely understated. TL;DR: AI ROI is inflecting for end customers (most important) and infra providers. Pure model provider ROI is less clear, but models will keep improving regardless, driving the industry forward. Of all the debates on AI, the biggest and most persistent is around ROI. The problem is that the debate revolves around a single, inconsistently applied definition, when in reality there are three: 1) ROI for model providers, 2) ROI for model customers, and 3) ROI for infrastructure providers While cooperative, #1 and #2 are fundamentally at odds with one another. All else equal, the higher the margin a model provider captures on the tokens it sells, the lower the margin the customer of those tokens captures on the work being done. This is driving enterprises to rationalize spend where they can: if a job can be done as effectively with a cheaper model, the ROI on that job is proportionally higher than if it were done with a more expensive model. That’s not 'bad' for AI. It just represents margin shifting from the provider to the customer. Meanwhile, the ROI for infrastructure providers is a collective function of both. And while there are nuances around returns for individual infra providers depending on the concentration of and share between the model and customer cohorts, the reality is that infrastructure ROI overall benefits as long as demand for tokens keeps growing, regardless of the ongoing push-pull between model providers and customers. In the last couple of months, we seem to be heading in a certain direction: aggregate model customer ROI is accelerating as customers benefit from the utility of increasingly intelligent tokens (and apps) at falling prices. This is evidenced by nearly all of the token-volume metrics across the industry, which continue to show growth and/or acceleration. Both the qualitative and quantitative data points on positive customer ROI are growing in concert, most recently with AWS CFO John Felton remarking that he studied AWS’ own token usage and found that, in general, more is better. And for those who still don’t believe in return on token spend, I implore you to model out the number of tokens needed to complete a job of your choice and measure the value of that job relative to the underlying cost of the tokens, with or without the model provider margin. Sure, there can always be waste. But when utilized properly, the returns on tokens are extraordinary, which is exactly what's driving continued volume growth. We’ve subsequently seen this flow through to the cloud infrastructure providers, whose payback periods have compressed and whose returns have also increased, primarily as a function of rising rental prices for GPUs/accelerators. And as those returns have increased, so has demand for the underlying infrastructure, benefiting the AI supply chain at large. So far, so good. That leaves the model providers, where the biggest question really lies. The fact that inference gross margins can be so high is certainly positive in addition to being obvious: the prices at which tokens are sold are multiples higher than the miniscule cost of the underlying FLOPs needed to generate them. And again, the value of the work being done by the end customer is multiples higher than the token prices, so everybody wins. However, inference gross margins paint an incomplete picture, because token prices are primarily a function of model quality, which is primarily a function of training spend. That spend, in aggregate, is causing model providers to burn lots of cash. And because competition remains so intense, it’s unlikely in my view that any model provider can retain its inference margins without continued aggressive training spend. So the two go hand in hand and should be assessed together. While Anthropic’s reported positive FCF in 3Q was a nice surprise, I don’t expect it to continue, especially as OpenAI remains committed to investing aggressively and burning cash for the foreseeable future. So that’s the predicament. The market is unsure what the long-term business and economic model of a 'lab' is, and rightly so. That raises the question: if the labs can’t make money, who’s going to fund the training, and how will the models keep getting better, which is the critical ingredient in continued AI adoption and end-customer ROI? I see a few outcomes to this question: Scenario 1: Concerns about model-provider economics prove overstated, and the market expands rapidly enough to accommodate multiple profitable frontier developers alongside a thriving open-source and open-weight ecosystem, supporting broad-based growth with attractive margins. This is probably the cleanest outcome which is why the market tends to like it so much. I still think this is the most likely path in the fullness of time, but it’s admittedly unclear. The mega-pilled RSI scenario also fits within this outcome, mainly in the sense that the investment pays off. Scenario 2: Because of heightened competitive intensity and elevated training costs, the aggregate model provider ecosystem simply operates at maturity with razor-thin margins and very tight/minimal free cash flow generation, like other extremely competitive and/or commoditized industries. This is at least where we seem to be today, and where we will likely remain for some time. Scenario 3: Financial pressure causes weaker participants to exit, merge, or scale back large training programs, eventually giving way to consolidation and reduced frontier training intensity, which allows the remaining players to expand margins. This seems both logical and likely to happen to some unknown degree, which would be positive for the value of the remaining players. Note that megacap tech hyperscalers, who collectively generate hundreds of billions in operating cash flow from their core businesses and are also training models, can continue to tap into that cash flow for ongoing training (ie GOOGL, META, and more recently NVDA). That will persist regardless of what happens with OpenAI or Anthropic. Scenario 4: Frontier labs eventually convert into true public benefit corporations (in more than just name), owned and funded by a broad coalition of companies and the USG, all with incentives aligned toward the ongoing training and development of new models, effectively making the labs public utilities rather than private corporations. I do believe there is tremendous value in the IP at both OpenAI and Anthropic, and consequently see this as a far more likely outcome than either of them “going bust” and ceasing operations. While this may seem scarier to markets and in the headlines, the actual end result could be quite positive and well distributed across the entire AI ecosystem (rather than concentrated in the two labs). And at the very least, I believe there is strong merit in a pool of government-funded dollars for model development, much like the CHIPS and Science Act of 2022, which authorized $280 billion in federal funding and incentives. The US federal government spends >$7 trillion annually. Point being, there is both ample budget and precedent for the USG (and megacaps/others) to contribute to this national cause. All in, some combination of these four outcomes should play out. And while some paths are smoother than others and there will be inevitable volatility and hiccups along the way, they all ultimately lead to positive ROI on AI spend: better models drive better end-customer returns, which drive better returns on infrastructure. That flywheel is already in motion (as evidenced by rising token volumes, GPU rental prices, and infra returns), and it’s much more sustainable than the market fears. It will take time to get from here to there, but the endgame appears to be quite positive, almost any way you slice it.
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Scott Wu vs. the models
this is my quant
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AI-driven search yielding much different results than traditional search. Rollins CEO: Result = more fragmented, variable, dynamic customer discovery process. $ROL
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I’ve been cautious semis in part because I didn’t think the mega caps could continue spending like they were and rates were rising. Well then you get the $SPCX $META earnings saying actually we are going much higher on spend and rates as measured by $TLT have come down. Today feels more like taking out stops / throwing in the towel. But the fundamentals have gotten better in the past week. $SMH $SOXX
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I don’t care if it’s the mother of all bubbles, $2T of AI CapEx was worth it just for this
This is what AI was invented for Mormons vs Catholics:
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Muse did 10m US downloads in 40 days with solid retention. 10 predictions from here: 1/ Shopping finally moves inside chat. the PDP stops being the start. 2/ GEO becomes ACO (Agent Conversion Optimization) ranking means reaching a usable offer, not a mention. 3/ Product feeds become the new product page. price, sizes, stock have to match everywhere. 4/ Answer capsules win. 2-4 quotable facts beat meta titles. 5/ Checkout has to be inspectable. no price or ATC in initial HTML, Muse/Instinct/Dots buy elsewhere. 6/ Information architecture becomes a ranking factor. one clean collection URL, citable PDPs, no variant param mess. 7/ JS becomes a conversion blocker. if the agent browser cant render price, stock, ATC, you lose the sale. 8/ Schema is table stakes. Visible copy is what the agent decides on. 9/ 3rd party citations continue to drive the shortlist. wirecutter, strategist, reddit, real reviews. 10/ Measurement changes. Track if the agent reached a usable offer, not just if you got mentioned. this will be the biggest transformation in the history of commerce and marketing
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Even after the rip SPCX feels asymmetric to the upside index of frontier tech with lots of ways to win in three of the biggest markets ever (AI/comms/space), and extremely moated in 2 of the 3 Cult investor base, ST/event funds short, numbers great, Elon pump, cheap if #s work out, tsla merger potential. understand there is alot of NT risk and uncertainty, but can see case where this is 5-10x current value and still reasonably valued
seems like a buy -40% from peak if the ramp is anywhere near correct
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Two things from $SPCX today. [preface this with Elon's singular ability to secure funding - so let's assume he's good for whatever amount this will cost] 1) If SPCX can bring 10GW online in 2027 as an exclusive $NVDA customer, that's probably ~40% of ccs data centre revenue for NVDA. If Jensen allows this level of single-customer concentration, the compute market will likely remain extremely tight in 2027 because maybe 20% of incremental compute flops is going to a single hyperscaler that also doesn't have much 1P model inference to serve. (and >half of incremental TPU flops prob goes to a single customer as well) If that's the case, compute available to rent in 2027 should also remain extremely tight, which means the $40-50B/GW scarcity pricing SPCX is getting on its short-term rentals might persist for longer than anyone expects (maybe Elon is not bullshitting with $500B ARR). This constrains competing frontier labs' access to compute (except Meta) while giving XAI multiple GW of training compute that can be paid for with ~1Y of GPU rental revenues (e.g. 4/6GW rental/training split). This could also prove hugely beneficial to the smaller neoclouds. If the party that corners most of the rental compute market is renting out at $40-50B, this should help the neoclouds secure higher pricing for their multi-yr contracts (say >$25B/GW) and possibly better prepayment / backstop terms. Anything that makes the NVDA neoclouds less fragile is a tick in Jensen's books. Maybe even Zuck gets in on the rental action, which should mitigate the inevitable (IMO) disappointment with Muse adoption and retention (let alone monetisation). 2) Surely a single hyperscaler (which wasn't even on the scene a year ago) confident in bringing on 10GW incremental power in 2027 and gunning for 20GW stretch target using "every other source of power we can obtain" is a big tailwind for a broad swathe of the power equipment vendors?
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