People talk about the military industrial complex. We may have created a healthcare industrial complex that really can't stop maximizing profitability and different ways of making money and not focus necessarily on the lowest cost-vest, most preventative process. That would be my guess as a young school owner. Hey Bill. Hey Brad, how are you doing man? Did you join the summer?
It's a good start to summer as down in DC. I picked Lincoln up from an internship in DC. I guess just over a week ago now. It was actually the night of the debate. We hosted a poker game on Capitol Hill and we had members in the game from both sides of the aisle and we're kind of watching the debate in the background. It was pretty wild because as we're watching the debate, nobody was really surprised at what was happening.
The biggest surprise of the night is nobody was surprised. They're like, oh yeah, this is the condition of the current president. We ended the night and ended the debate and I thought there was not a lot to see here because we've been talking about this for months. Then of course we had the fear of the last couple of weeks. That was good. It seems to me the last few weeks have been all politics all the time, every pod, every show.
I looked at the calendar where a few days away from the Republican convention, it starts next Monday in Milwaukee, which is really the kickoff of the final push in the campaign. The Democratic campaign I looked is five weeks from now in Chicago. So it's interesting. Sometimes they're closer and this time they're about five weeks apart. Then I counted up, we have 90 trading days until the election. So 90 market days until the election.
I thought maybe we kick off here talking about how funds are positioning, particularly technology funds in the public market are positioning ahead of the elections. Do you believe people are weighing the elections as a critical factor in what they want to be doing, what their funds? For sure. But we'll get into that a little bit because you've pushed me a little bit on how much markets are moved by active versus passive dollars, et cetera.
Of course you and I have been talking about a lot of our friends are talking about. I think the biggest debate of the summer in the NAI continues to be the thing you've been talking about. I think the next time on this pod, which is, you know, is the AI hype ahead of the ahead of the meat, you know, is there is their beef on the burger. You've been making the case that, you know, the spending, I think, and some of the commentaries out in front of the AI benefits. And we've seen.
And we'll dig into I think a lot of articles out this week on this. And then finally, maybe, you know, it was about a year ago that I was talking about a topic near and dear to me, this calcium CT scan. And why it should really be standard of care for people over 35 I sent you a video.
You know, on on some of the politics of why calcium CT scan partly because of stent and partly because of other things didn't become the standard of care. And I thought, you know, maybe just as a little bit of summer rap, we we revisit a couple of topics on that that have come up. Sounds great. That's awesome. Do you want to lead us in?
Yeah, I mean, tell us tell us where you think the markets are right now. I agree with your point that politics have dominated the conversation so much. It's almost like people aren't even aware of whether the NASDAQs up or down in a given day or given week. It's not really on people's mind. Tell us what you think is going on. And then I do want to dig deeper. There's a lot of data out this success that suggests consumer discretionary spending is dropping pretty precipitously.
Yeah. And I'd like to get your feedback on that. Yeah. Well, let's get into it. I mean, it is it is wild, right? Like AI stocks continue to perform really well, though, I think mag seven NASDAQs now up 20% on the year. And Mike Wilson, you know, Morgan Stanley fame who called the 22, you know, crash, come out and say recently he thinks we're going to have a 10% pullback ahead of the election.
But yet the people who did the selling may and go away, that was a pretty bad idea because May and June and early July have continued to move pretty meaningfully higher. But you know, if you ask me to prognosticate on kind of what I think's happening, you know, listen, the market's pricing in now 60% chance of a Trump victory. Right. And with that, they're pricing in the permanence of corporate tax cuts that we've talked about before represent 20 to 30% of the earnings growth since 2017.
So this is a really big deal as a reminder to everybody that the tax cuts that were passed in 2016 that went into effect in 2017 those terminate by design next year, unless they're renewed. So they terminate at the end of next year. And so that would be a significant headwind of markets. And so I think as, you know, as Trump is kind of surged in the polls, the permanence of those tax cuts have also come.
You know, into focus. And then I think the other thing is the markets now pricing in a 73% chance of a rate cut before the election. So we have two Fed meetings before the election. We have one on July 31st and we have one on September 18th.
And the Fed's been dropping some breadcrumbs right referencing things like the slowing and the discretionary spending bill referencing the fact that we've seen a tick up in the unemployment rate, referencing, you know, the fact that core PC continues to roll over. It's given itself, I think, a window here to begin to cut rates. And remember, the market's most interested in that second derivative. Are we going up or are we going down?
And I think the market's pretty well convinced that rates are going down. And so the economy is slowing, but it seems like a bit of a soft landing. And so that's the setup. And that's why I think we've seen such elevated performance out of big, you know, big cap tech.
But we have Q2 earnings starting in two weeks. And I think there's going to be a really important earnings season. You know, is it going to show acceleration, right? The reason stocks have been going up is because earnings have been beating.
You know, will it again occur, you know, in this quarter, I think there's a chance that this may be one of the trickiest quarters where the expectations have now creep far enough ahead. There's going to be a little bit difficult for expectations to keep up with them. But I pulled a little bit of data, you know, courtesy of our friends at Morgan Stanley, Ashton Curtis, you know, he sends out this, this, this weekly email.
And we had some data in there last week that I thought was interesting. So he said, may and June have been two of the top three largest months of tech selling since 2010. Right. So I feel like there's a view in the world that, you know, everybody's crazy about tech and everybody's crowding into tech.
But here, I'm here's some data that supports the opposite view. So long short equity funds have been adding to their tech shorts tech exposure has fallen to the bottom desial over the last year due to outsized selling. Many conductors and semi stocks have driven most of the net selling during these months. And overall hedge funds are more underweight growth than at any point Morgan Stanley has seen in the last 10 years. What do you think is causing that?
Well, I, you know, we've had this huge run up unabated over the course of the last six quarters. And I think that people are just saying, listen, we've got uncertain elections coming up. We've got an uncertain earning season. The margin of safety is compressed. So whatever number of units of risk you want to have on, you're going to take a few of those units of risk off.
Right. If you've been, you know, like we're having a good year this year, there's no need to be heroes over the course of the next. Money go, Brad. It's got to go someone. You know, it's just gone into dry powder. You have more cash on the sidelines. You have more ability to buy on any of these pullbacks. And so, you know, I think you see that through some of this active selling, but Bill, you asked me a really important question and I sent you some data on it.
You said, how much signal is there in the fact that you and, you know, co-to and Tiger and other people capital group may be buying or selling you said what percentage of that action today is active versus passive. Do you see that chart? I sent you got it right here. And was that a surprise to you? Let me hear your analysis on top. Well, I mean, you know, so basically what it shows is that about 11 to 12% of the dollars in large in large cap tech think mag seven are quote unquote active dollars.
So think long only in hedge funds. Yeah. If you would have looked at this in 2010, that would have been above 20%. So clearly today fewer dollars that are being traded in the market, one out of $10 is what you would call a fundamental manager, right? Somebody who's sitting there running numbers. And this is obviously higher for the mag seven because they're so big. And so if you're buying an index, you're buying more of them than you would have on a percentage basis.
I think that's probably true. And so I guess the point would be or you know, the pushback that you gave me is, yeah, these are interesting data points out of Morgan Stanley, but it may not tell the whole story because if fund flows continue to come in, right?
So generally are saying we're going, we feel good about the markets. We want to continue to invest in our 401ks. We want to continue all of these dollars passively flow into these ETFs. And so fund flows have continued to be strong as markets have gone up. So there was this tweet, you know, that that you sent me, which is kind of the tale of two cities, right?
And it's what you referenced earlier. If you look at consumer stocks from McDonald's to Nike to Lulu lemon, so far, Walgreens, Papa John's just in the last week, they all hit 52 week lows. Right. And then there's a group of stocks, which is casual dining stocks, which are, you know, really that mid market, that mid market to PF chain times.
Exactly, exactly. And the Papa John's of the world that are down, you know, 30 to 40% on the year. And remember, a lot of what happened here, Bill, is this is the poll forward that happened in 2021 because of COVID. And huge build outs in these businesses earnings went from flat to really accelerating in these businesses. And everybody started valuing them at kind of peak multiples, like they were growth stocks. And then what we have now is, oh, got a little dog action over there.
What we have now is them really just normalizing, I think, back to trend. And so, you know, I think we have a good chart here, courtesy of Goldman Sachs, which shows the earnings growth over the course of the last 12 months. So if you look at it for Microsoft and video Amazon Google meta, earnings are up 38% over the last 12 months.
And the stocks not surprisingly are up a lot. If you look at the S&P 500 as a whole earnings are, you know, roughly flat during that period of time. And if you look at, if you take out those text stocks, the other 495 earnings are actually down 5%.
So that's the reason there's this massive dispersion in the public markets and the reason shorts have worked so well this year is you could be short hundreds of these S&P stocks that are actually down on the year and long just the mag 7 and you'd be having a terrific year.
Is there is in your mind is there a not an implication of this that is a question about the broader economy. I also saw a someone had tweeted out some credit card data and one of the things that was down year of year was travel. So it's a sector you know quite well. So is there is is is part of what's happening with these casual dining and these consumer stocks a lack of spending is that something you're worried about for sure.
I mean listen, we everybody if you look at folks other than you know, you know, wealthy folks in this country, they burned through their stimulus checks right their excess savings are gone credit card borrowing is hitting you know every single month a new high.
And so I think you're seeing the results people are just having to make trade offs and travel happens to be one of the last things people want to trade off right they'll for go the new refrigerator they'll for go eating out every night before they'll for go there's some
vacation but yes that's even being touched. So this is exactly what the Fed wanted to work with great bill right it wanted unemployment to go up it's getting unemployment to go up it's getting consumer spending to slow down it's why they're in a position to cut rates.
And the gift that the markets had really is that at the same time like we would otherwise be talking about a recession. But we had this surge in infrastructure spending around AI right gave life to all of these technology companies.
And one of the things that you know we're going to put this chart in here one of the things that you asked me is you know is the big PE you know names are they overvalued and so I asked my team to go through an exercise look at the peak multiple that they were trading not in 21 q 421 look at the
trough multiple there trading that in 22 and then where are we today right so you know take apple for example it is peak in 21 it was trading at 28 times at its trough last in 22 it was trading at 22 times today where 32 times so we're above peak for apple. 32 times for P forward P yeah okay consensus forward P in the case of meta yeah right to them all just because some people will be listening where are they.
In the case of meta right in 21 you were you peaked at 22 times we trough remember at 90 bucks a share in 22 at 12 times and now we're back at 24 times okay in the case of Google peaked at 24 times trough at 17 last year now back at about 23 times in the case of Amazon we peaked at 64 times right in 22 it got us
low as 46 times now we're at 33 times so Amazon is actually as a multiple of earnings trading below where it was during those periods why because they've been cutting costs et cetera and driving earnings as growth is slowed in the case of Microsoft peaked at 37 trough to 23 we're back at 35
you know so you get the point here in the case I skipped in video 66 times was the peak the trough was probably the start of this year actually at 20 times and now we're on consensus number back closer to 40 times and so if you look at these I think you can make an argument on both sides build.
We certainly are nowhere near the trough but these don't this doesn't feel to me like the stuff that bubbles are made of right I can make an argument that you could these things could all be down 10% in the next three months and none of them would be screaming buys right
well none of them are in the territory where I expect that they would be down 30 or 40 or 50% you know they're not trading at hundreds of times sales like a lot of software companies you know we're at the end of 21 and so I think that you know as we sit here I
think it's a tricky moment there may be an earnings air pocket in this quarter I think it's there's less margin of safety in this quarter than prior quarters we got the uncertainty of the election so you know if I were playing from home I'd have a little less on take a few units of risk off the table but ultimately I can paint a pretty bullish scenario for you right
how do you how do you how do you frame the fact that did you know it's the same thing we've been talking about for several quarters now where you've got these seven stocks that are performing right they're performing from an earnings growth standpoint from a cash flow free cash flow standpoint yet you know what we just talked about the rest the entire rest of the market's not so yes what is that mean do you have to own them because they're the
only thing that's working or or is it scarier to is there anything about the fact that the rest of the entire rest of the S&P isn't working that should cause concern yes I think it should cause concern other than the fact that the Fed isn't in very
inviable position from a monetary policy perspective to cut rates and add some juice to the economy when it needs to and I think that's what's going to happen which is part of the bullish scenario right the market is saying there's a 73% chance the Fed's going to cut rates and the reason for that is unemployment's ticking up and you have 490 stocks whose earnings are not growing and that is a recipe for more economic distress if we don't get in front of it
how do you if you're looking amongst the seven are you are you willing to be curious if you're willing to make a comment like which one and and and maybe with the backdrop that AI might be driving some of these which ones feel safer to you here
yeah it's a it's a good question well first to say we own them all okay and you know the second thing I would say is altimeters peak exposure to these names was about 70% over the course of the last 12 months so we had 70% of our dollars at one point in time in these names remember at one point I had 30% of my dollars in meta alone often bottom so we had a lot these names
we've taken a lot of you know almost half of that off the table now we haven't redeployed it further out on the risk curve because for all the reasons you and I talked about I'm nervous about things further out on the risk curve but that's just you know come and we're waiting dry powder what I would say here is you know again if I turn the tables on you
bill and said you and I've been doing this for a really long time and do you think more money has been lost trying to time these things or made by timing these things and my my instincts here or you can't just like totally be out of this market yeah if you have you've missed a tremendous move over the course of the last six quarters and the bullish case I was going to make to you is I think you know if the market if the Betty market is
right there's a 60 70% chance of a Trump victory set the politics of that aside but that means you're likely to get a permanent tax cut at the same time that you're getting a reduction in rates right now imagine if you get a resolution to the conflict in the Ukraine now imagine if three or four quarters from now some of these AI benefits start catching up with the software companies and their investments
right that is a highly constructive scenario that you would want to be invested against and so you know like I don't think you have to be all in all the time but I think that's what this market is beginning to sniff out and that's why you know after a blockbuster year for technology last year you're having another good year this year my quick reaction would be that meta is somewhat unique in the group in that if if there were air pocket you know or something that came out of the LLM
and the AI world they're not really I mean they're playing with open source models but they're not really dependent on it and their core AI use cases and even LLM base that's driving their ad matching and their content engine so seems like seems like they get all the good without any of the risk and anyway for where it's worth it.
Yeah, I know I think listen I think that there's a maybe good time to shift to this conversation about AI costs being way out in front of AI revenues and whether or not that constitutes a bubble but certainly meta is you know however you want to define it it's one of the most profitable AI companies in the world as is by Dan's TikTok but you know you've been saying for some time.
And who knows what I don't have a strong point of view on which candidate is more likely to follow through on something on TikTok but that would obviously be a massive boom for Facebook and meta if it happened.
No doubt that's I you know again if we look at the calendar that's something else that you know the clock's ticking on I mean shortly after the election or I think shortly before the election the ban is meant to go into you know affect I now I think it is in the court so maybe there's a stay of execution there but there are a lot of things that are you know potentially going to drop here and that this election is going to have a lot of consequence on.
Coming back to this topic of AI you know it's interesting to me you and I have been talking on this pod I remember when we went over the $2 trillion build out for a video over the course next four or five years you asked the question some six months ago what the hell do you have to have in terms of revenue on the other side of this in order to justify these investments and over the last few weeks a chorus of high profile firms have seemed to come out and say versions of the same thing Bill.
Maybe we just start there and you break it down a little bit we go back and forth but there was you know maybe the first piece that came out David con over at Sequoia.
You know you've got Goldman Sachs with a piece modest proposal had a piece McKinsey did some work that was all quite skeptical but David con had this piece called you know AI $600 billion and then he said the AI bubble is reaching a tipping point navigating what comes next will be essential right effectively arguing that there's a big gap between revenue expectations implied by the build out and the actual revenue growth that he sees in what he calls the AI ecosystem.
That sounds like a pretty stern warning to venture firms and entrepreneurs out there yeah and and and yeah and look look at the main the main point I was making was that the more you promise the more you set up the risk that someone's going to start taking the other side of the argument and so I'm not surprised that this happened mainly because there have been people willing to say the most outlandish thing.
The most optimistic thing or this is going to go on forever this is going to scale forever it's going to solve every problem no one's going to have to work again we're going to have you be eye for everyone like these are pretty massive claims and so and I think the other big thing to keep in mind that I don't think we've seen really before in a tech ecosystem or tech cycle is this one is very capex forward
like they are and that's what's driving in video that's why in videos the biggest winner in the soul thing but the these this mag seven is spending on a capex level at an accelerated rate anything they've done before and so it all puts it out there with David did was simply try to aggregate the spend that was being put in place and then and and think about that a supply
and then say what will take for there to be demand on the other side to suck all this up and and it's a public link will put it in here so people can go read it and I recommend people look through all this stuff because it's all super interesting but
he's having trouble adding up the other parts of the other side and I think one reasonable question to ask is why would someone at Sequoia go out on a limb with a pessimistic view we all know that the the competition to get into whether it's early stage, mid stage or late stage deals is somewhat dependent on your ability to be seen as an optimist and be seen as someone that has a positive point of view. And so, you know, why? Why would someone take that point of view? And I
reached out to him because I was just curious about it. And his view, which actually is somewhat sensible to me is if you let the markets run crazy, you end up with a higher risk of a reset. And I will also tell you having lived through what happened with Softbank and the last cycle, having crazy money in the market is not necessarily consistent with creating positive return
for your venture capital portfolio. It can start to trend the other way if you end up with hyper competition, if you end up where every single player has $400 million, which I think is true in the co-pilot AI coding space. And so, I think his intuition is, let's keep things reasonable and let's keep the card on the tracks and let's not go out over our skis. I mixed a bunch of metaphors there. Okay, so let's just break it down a little bit because I think it's always difficult to know
out of these arguments. Sequoia is one of the biggest investors in AI right now. They probably done more rounds than just about any firm. And so here's a firm that's doing a ton at what some might argue are pretty high valuations. And since in fact, going Twitter and find a lot of these critiques. And at the same time, they're saying, but don't go out there and do too many deals. It seems to me that as I look there, of course, it's what Satchis said at East meets West a
couple weeks ago, Bill, investment always comes before the return. And it's almost never perfectly matched in terms of timing. It's impossible to think that it would be perfectly matched in terms of timing. I would argue here, like we don't really see big rounds out of the soft banks and tigers of the world. The people we see big rounds out of are the Microsoft and Enbidias and Amazon's of the world. And Meta's investing a lot of dollars. And so yes, I do see that there's
no doubt that AI investments in the venture landscape are about the only thing getting done. They're super hot. The valuations are really high again. I think we've been somewhat circumspect on a lot of those rounds simply because we think they're great companies just hard to earn a return from where a lot of these rounds are getting done. But my sense is that this is more a critique on
a timing mismatch than it is a critique on whether or not we're going to get there. I didn't read anything in that article or the Goldman Sachs article that caused me to lose hope whether or not AI is going to have a major impact. I think that would come. Let's transition to the Goldman. So it's an addition to Sequoia who you might ask why would they have an incentive to take a skeptical point of view. Goldman put out a rather, I mean, it's a readable link that's like
30 pages. I recommend anyone read it. They can get ahold of it. I don't know what the current state of affairs are on research dissemination and we'll find out if we can post it. But they started with two people. They had a professor from MIT and he took, I think, a pretty strong point of view. He said many people in the industry seem to believe in some sort of scaling law that doubling the amount of dating compute capacity will double the capability of the
models. But I would challenge this view in several ways. And he goes on to suggest he doesn't believe in either linear scalability or exponential scalability. And that gets back to a conversation we've had in the past. When Sam says, four, five, six, seven, and says, oh, they're all going to be as better than the one before. Is that real or not? And I think it's a big outstanding question that's out there today. And then there had a research who used to be a semi-analyst.
He came out and took a point of view, very, I think, very similar to the Sequoia point of view that they build out of over a trillion dollars will need to have massive return coming off of it in order for this to have worked out and it gets back to this point that we're putting on all the cap acts up front. And I pushed back on you a little bit in that whether it was the mobile wave or the internet wave, like it didn't require this much betting on the comb. You started
to get some results right away. And people were able to leverage technology. I mean, the internet had been built out over 30 years prior to when it actually kind of flourished. And so there wasn't this like every player didn't have to put up so much money. So, so let me just a couple quick comments. First, we got an MIT professor saying, I don't know if I believe in the scaling laws.
I think you have all the the best folks in the industry today from open AI to anthropic to, you know, Elon, et cetera, who have all said they were surprised to the upside by larger models leading to, you know, really breakthrough outcomes. And in order to believe that professor, you have to believe that Elon doesn't know what he's doing. He just bought a, you know, is investing in a hundred thousand H 100 cluster. Just raised a ton of money to do it.
He clearly believes that there are upsides to scaling. Open AI, you know, Microsoft clearly believes there are upsides to scaling. Google believes there are upsides to, so the folks on the field, not the professors critiquing from the towers are spending their money because they see the benefits. So, I, you know, I guess that critique doesn't hold a lot of water, you know, for me. I think that, of course, they all also acknowledge, like Jan LeCune has argued,
that this may not in fact be the path to AGI. And we don't know how many more, you know, rounds of scaling are going to continue to lead to enough beneficial improvement to justify the incremental spend. But most people, I think, on the field today would argue that we're not there yet. And then the second thing is, it's not true to say that prior cycles didn't have big investment. I mean, by our analysis, for example, just Amazon spent over a hundred billion dollars on AWS,
invested for over eight years before they saw profitability in that business. We know that reality labs was, was, you know, willing to make, you know, a 20 billion dollar investment per annum for a decade in order to bring us virtual reality. We think they brought that down and pivoted more toward A.I. But the fact of the matter is that we have companies that are printing cash, multi trillion dollar businesses. Think of it like a nation state bill. If you were a nation,
and you had surplus like these companies have surplus, what would you do? You would invest in your national strategic advantage. And these companies are investing in the single greatest vector of potential advantage in the future. And the fact that they all agree on that, you know, suggest to me, you know, coming at it from diverse points of view, that there's probably some logic to the stuff that they're investing in. And then finally, I would just say, I do see benefits.
Granted, I agree that there is hype that is running ahead of the reality. But to the tune of, you know, three billion dollars, open A.I. has people reaching in their pockets and paying real money, including myself for their service. And I do that rationally because I use it every day. It's a great service. Now, I'm sure people will come and compete and those prices may get driven down, etc. But I think we're still at the early phase. Then finally, I'll shut up. You and I both
came on this pod and talked about FSD 12. I mean, we're seeing breakthroughs in self-driving that you and I did not think three years ago were possible because of model breakthroughs that have occurred. Now granted, those may not be yellow limbs, but it is still the same A.I. infrastructure that we're talking about and these chips that we're talking about that are unlocking those advantages. So I just, you know, the Goldman piece again didn't didn't hold, except from saying,
don't get too over your skis. Well, great. Do I agree? Don't get too over your skis. But outside of that, I'm not really sure the argument that they're making. Well, I would, I would definitely double click on one point you just made, which is I do think that traditional A.I. models that live behind products like FSD 12 are very, very different than L.A.I.L.L. limbs from my point of view. And those are the same things driving, you know, meta-s internal
engines. And if you have a problem that is set up to be solved by that type of solution, I think, you know, there's unlimited potential. And so I buy into that. I think the real question about scalability is specifically tied to L.A.L.L. and not point it at A.I. There's so much interesting content came out. McKenzie also put out a piece that was basically a bunch of survey work from organizations that have been
playing around with A.I. And a couple of things I think really popped one. People still have trouble, right? They have trouble with hallucinations. They have trouble with errors. They are making progress. They're making progress in the areas we would expect. Customer service number one, sales enablement a little bit number two. And it goes back to a point I just feel very strongly about which is L.A.L.L.L.M. are great at text. They're horrible at numbers. And even Kevin Scott
on a podcast, he did ironically with Sequoia, over this past week. He made that point. And so there is a thing there are a bunch of interesting questions. So let me lay out a few of them. One, does the, does the, is the could the cap expand be ahead of itself, which is what Sequoia mentioned and what this, this second piece of the Goldman piece is, is LLM scaling exponential, linear, or will it diminish?
And in addition to the MIT professor, I mean, there are a number of people that have been around these problems for a long time, who believe that the LLM models will have diminishing return on-stand. And clearly, Dario doesn't think that he had a podcast out this week on Good Company, I would encourage people. Sam doesn't believe that.
And Kevin Scott, clearly on this podcast he did with Sequoia, he's the CTO, and Microsoft shares the enthusiasm that Sam and Dario do, that this is just going to go on forever. Like we're going to put more compute into more training and more data, and LLM's are going to get better and better and better. And I did this, an unproven point. And you sound like you're in there, can't, I'm, I'm probably more skeptical.
I think that the way that LLM's work is actually set up for diminishing marginal returns. But we will see. And hopefully we'll see very soon. But we haven't, one of the reason we haven't seen is because things keep getting pushed out. The amazing voice demo that we saw on the last open AI demo day, they had talked about releasing the voice product in two weeks. And it's been months. Months, you know. It's not out. And people aren't even talking about when it's coming up.
And so anyway, things do, I think that's a big question. Another big question that's hinted at in the McKinsey piece and a little bit of the Goldman pieces, how much of this is going to be cost reduction versus revenue creation? And, and if it's only cost reduction, is that enough?
And, and even in the cost reduction case, I think some of the initial claims, the clarinet case, modest proposal called a Prokofel, the, the, the, the, when you talk to people about how much benefit you getting encoding, you know, it was originally like 40% now 30 and 20 people have come off of their original claims. So there's no question it's adding value, but I think, and then, you know, where are the revenue creation pieces?
We do have some companies in our portfolio where they're charging more for the AI piece. That's revenue creation. I think the more of that stuff, we see the better. So. No, listen, I, and I would ask you, it seems to me the greatest danger bill, right? Like if Meta invests a little bit too far ahead of, of, of where the benefits are, right, the stock will be down a bit. And if Microsoft does, the stock will be down a bit.
But, you know, there's nothing, there's nothing lethal to these businesses, right? They can move the training clusters over to inference that, you know, a lot of things they can do if some of these things change. It seems to me very different for a venture back business, right? And we see a lot of these venture back businesses, right, they raised billions of dollars out of the gate. They were, they, they exist at the beneficence of the capital markets.
And people have to be convinced that they're going to have revenues that give them payback. And we saw another announcement this week that adept, you know, had sold or been parted out to Amazon. You've seen this with a couple of other businesses, you know, that are effectively, it seems to me like take unders. Did you have any perspective on that?
And it seems to me that if there's real risk in the ecosystem, the risk is to all of these venture back companies because they're the ones who have to become self-sustaining. The guys in the public markets, these are trillion dollar businesses throwing off tens of billions of free cash, low a year. You know, if they waste a year's worth of spend, right, that's not a question of existence the way it is for the venture back businesses. You're right.
Look, the adept thing is, which was positioned by the press is similar to the inflection outcome. There's no way that's a win for venture capitalists. Like, I'm sure venture capitalists try and spin it and we heard some spin around inflection. But you know, it's just not possible. I mean, we need to be realistic.
Like, if you're a venture capitalist and every one of your deals turned into one of these human acqua hires with a license deal back, you're not going to generate a return for your portfolio. Like, it's best case, you're, this company had raised $415 million. But how much are they going to pay for the license deal? And then you leave this thing kind of pseudo alive. Like, and then the people that are running it, are you going to demand a dividend on that amount? How do you get?
Like, there's no way this is optimal or even really something you should celebrate. And it is driven, I suspect, by the limitations on acquisition by the big players. And so this is, but, but it's also, it's just an alternative to a low price sale. It's not a win.
And, and I wonder, you know, if part of it is the founders raising their hand and saying, and if you read depressurally, see, put out it kind of says this, like, they're kind of afraid to be on the field, you know, to your point, right? And, and, and when you put this much money in these companies and you raise, I've said this a lot, and I'm sure I borrowed it from someone much smarter than me, you know, valuations represent discounted future expectations.
They're not an award for what you've done in the past. And so if you raise that a billion, if you raise it two billion, if you raise it 14 billion, the **** you have to accomplish to, to live up to that expectation, you just signed off on is really high. And so you have to find revenue, you have to find performance. And, and it may or may not be there. And so I agree. I mean, I think, I think you phrased it the right way that this is where the risk lies.
And, and, and, and the playing feels difficult to understand. I mean, if you'd listen through all this content that came out even in the past two weeks, the, the, you know, Kevin Scott made a comment very similar to one Sam made a while ago, which is don't try and add value just a little bit or don't even, even set on this thing. Don't go do a small focused model on, you know, let's say a particular vertical. Because we're going to keep investing in the, in the foundational model.
And it's going to, it's going to be great at everything. It's going to be great at the big stuff, but it's going to be great at that focused stuff. And we'll run over you. And so where are you supposed to go? Look, if you can't focus and you can't add value, you know, Sam said people are using only X percent of open eye that you need to use 90 percent. But what is it you're doing if you're using 90 percent of the other model? I don't know, I don't know where you're headed as a startup.
So it's a, it's an interesting claim field. Well, I think that, I think it's well said. And perhaps that if, if we had to tease out a red thread that I think is actionable from all of these pieces, the Goldman piece, Sequoia, you know, McKinsey, et cetera, you know, it is just an acknowledgement that things have run up a lot. The billions are getting invested in venture that were back to high valuations. The expectations are going up that public multiples are going up.
And you know, we're getting closer to a reckoning and it could fall either way, but the distribution of probabilities make this a more challenging time for the, you know, for those venture companies that are lucky enough to raise at these high price rounds up. But, but let me just shout out, you know, one that you and I, you know, met with Bill, which is Arvin from Gleene. You know, here's an example of a company that I've talked to 10 other customers. They absolutely love the product.
They're getting, you know, real benefits. They would not want to give up the product, you know, it's enterprise search meets AI. And I do think that there's a lot of real work getting done under the covers. And I see with them, like I see with open AI with, you know, with some enterprises and with lots of consumers, that feeling of magic that it really changed, you know, our friend Rich Barton said it's the one piece of software he couldn't live without, right?
Like that's, you don't hear that out of CEOs very often. Yeah. And so, you know, I think kudos to the guys who are grinding and creating that, but I do think that there are a bunch of folks. I see a bunch of grifty, right? In the AI landscape, right, it's where you can raise money, they're raising money at high valuations. I do think that the mortality rate in AI is going to be very high. And the winners are going to be incredibly large.
And if this is all as big as we think it is, this is going to play out over decades. This isn't going to play out over the course of the next 10 days. And you know, again, I'll just repeat the warning. Such a gave me East meets West, you know, he's like, I'm a total believer. But I also am preparing the company that we may have to have a big draw down between here and there. You know, if these things aren't perfectly sequenced, and I think the whole ecosystem needs to be prepared for that.
Yeah, fair enough. You know, I got a note the other day that really impacted me. And, you know, I've been talking a lot about these calcium CT scans, you know, and just in the spirit of mixing it up a bit, you know, Bill, you heard me talking about them a year ago, you got a calcium CT scan. So many folks I know have gone out and gotten one done. And but this was a woman who said, you know, she got it done.
She didn't think women were really at risk, but I, you know, she had heard me mention it enough time. She thought she'd get it done. She got a score in the 900s. It really scared her. She found a lot of plaque and blockage. And so I did a little bit of digging. And here was the thing that a stat that blew me away five times as many women die of a heart attack each year in this country is die of breast cancer. Five times as many women die of a heart attack in this country versus breast cancer.
And while the mammogram is appropriately and widely accepted as standard of care, right? Very, very few women do a calcium CT scan, which I might argue or I've heard argued is the mammogram for the heart, right? David Marin, Dr. David Marin, the head of preventative cardiology at Stanford says it's the mammogram for the heart. As a reminder to folks, it's 150 bucks. You can Google, you know, calcium CT scan, you can get it done at any number of clinics and whatever towns you live in.
I've had hundreds of people over the course of last year, text, email, and they just found things. And you know, they found either blockage or plaque or other things that they didn't know were going on with their heart. But even the folks who came back with the zero score say, I'm so happy I did it because I'm at ease. Like, I know what the situation is. And we've all been trained to track this cholesterol, which is not predictive of heart health. Right.
And people people put you straight on medication off of a cholesterol score. Thanks. Thanks. And so I went to the way and I had one of these mini pods I did with Marin. He said that half the people, right, who have good cholesterol, have a bunch of plaque in their arteries, right? And plenty of people who are in the red zone of cholesterol have no plaque in their arteries.
So wouldn't you just rather get to the source and say, take a calcium CT scan, just say, do I have plaque or do I not have plaque in my arteries? Bill, the piece, the thing I wanted to talk about and I'll post this, there's a documentary on YouTube. I would encourage people to watch called the Widowmaker, right? And this refers to the artery, which most often gets blocked and causes a lot of death.
But this documentary painfully outlines the politics behind the calcium CT scan and why the stent lobby and other forces, including the insurance lobby, appear to have prevented the calcium CT scan from becoming the standard of care. And a really interesting part of that documentary bill was a battle that took place in the Texas legislature.
You have the head of several medical institutions that kind of went to war with the state of Texas because the state of Texas passed legislation out of both houses that would have required the insurance companies to cover the 150 bucks for these calcium CT scans. So this is just, it's another interesting place if you have 45 minutes and you want to see how government can get in the way of technology and how a bunch of vested interests try to keep this from happening.
I would encourage you to watch it. We'll post the link. But your thesis as to why the establishment is non-supportive of a low cost preventative scan. Well, what I've been told by heads of cardiology at Harvard and Columbia and Stanford and all the folks I've talked to, right? I ask them all a very simple question. What do you do for yourself, your friends and your family? Tell me your care, standard of care for yourself, your friends and your family.
And 100% of them follow the same protocol, which is a calcium CT scan no later than 40. And if they have any signs of plaque, they go on a statin to reduce their LDLs, their bad cholesterol as low as possible. And so I actually don't think the establishment cardiologists are against it. I think that there are some folks connected with various lobbyists, right? The Stent lobby.
Now there was a trial around Stentsville a few years back called the Courage Trial, which basically disproved that Stents are actually that valuable. What they found was that a calcium CT scan and medical intervention was at least as valuable as a Stent. So for example, I think today most people will not even have Stents put in, even if they find high rates of plaque, they'll just do it through statins, et cetera. But it's interesting.
I've asked them why they want to spend as much time with me as they have. And they said because you can get the word out, right? Signs of people are losing their lives and it can all be prevented by taking a calcium CT scan. But this thing, this thing's cheap and fast. So I don't think you really answered the question like, why would people be against it? Like what's the point of being against it?
What's the, listen, I think the economic point for being against it is insurance companies don't want to pay for it. The folks who are in the business of repairing the heart after the fact, like those in the Stent business, right? It's good for their business that you aren't preventing it medicinally. And then finally, I think Bill, it's just never underestimate the inertia of the way things are.
You know, my mom, 88 years old, she goes to a doctor and I said, mom, why are you taking this medication? She said, I don't know. It's just what the doctor tells me to take. Yeah, I hear you. I don't buy into the insurance one just because I don't actually think insurance companies are interested in cutting costs. They make a percentage of what is spent and the more the merrier, the more that's in there, the merrier.
I do think that the medical industry, I listen to this podcast once I need to find it. But where a gentleman argued that over 90% of NIH grants go towards things that are potentially monetizable. So either a product or a drug and that the NIH is less interested in funding things that might be just preventative behavior, like behavioral things, like what you eat or your diet or things that don't lead to monetization. And we may have created it, people talk about the military industrial complex.
We may have created a healthcare industrial complex that really can't stop maximizing profitability and different ways of making money and not focus necessarily on the lowest cost, best, most preventative process. For sure. That would be my guess as what's going on. There are a bunch of states that seem to require referral. A lot of people don't even have relationships with a doctor. This is particularly acute in poorer communities.
And so if you want to get a referral, you can simply Google referral, calcium CT scan, there are tons of referral services on the internet, cost you 20 bucks, you get a referral. But I would encourage you, most imaging centers, if you follow me on Twitter at all, you'll see just search calcium CT and you'll see people from almost every city in the country who've posted where you can get them in their city, the cheapest price, you can get them in those cities.
There's a mobile unit up in Seattle that does it for 55 bucks, walk in, no referral needed. Bottom line is, you know, I have no dog in this hunt except for the fact that I lost my father way too early to heart disease in a situation that was 100% preventable. So I wanted to have this done for myself, for my siblings, et cetera. I had a low score when I got the calcium CT scan done.
I went on a stat and it reduced my LDLs and I'm in control and I have the information and I can watch this longitudinally. And I was shocked to learn some of these facts behind the scenes as to why it wasn't being treated as a standard of care. And so, you know, if we can move the ball down the pitch just a little bit by spreading the word out there.
It is simply one of the easiest things you can do and I think you should really think of it as the mammogram for the heart and is seriously as we all take things like colonoscomies, prostate, you know, exams, mammograms, et cetera. This is the number one killer in the world by a long shot. So the fact that we're not doing the preventative care on it makes no sense. Good seeing you, man. Yeah, great seeing you. And thanks for doing it. Hopefully, hopefully you say some of it. Get her done.
I'll talk to you soon. Take care. Bye. Bye.