Hey, everybody. So here are my thoughts on this whole Silicon Valley decoupling thing. I was going to just do this as a little rant at the end of an episode this week, but it kept growing and growing as I was writing it. I figured, why not just do the whole thing? Here you go. I think there's a fundamental structural advantage that Silicon Valley and the US tech industry has enjoyed for 30 years that might be on the verge of breaking down. And I don't think enough people are thinking about this.
Tech has become monolithic, right? It's eaten the world. Tech is now 40% of the S&P 500. The magnificent seven companies alone, Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla by themselves. account for 35% of the US stock market. Individual tech companies have market caps bigger than the GDP of entire countries. By some estimates, the gap in GDP growth between Europe and the US is entirely due to tech.
We know this. The entire world uses Silicon Valley's products and services. The modern world literally runs on the innovations Silicon Valley has produced. Why has this happened? Well, one reason that is so obvious people don't think about it much is that in a way, for 30 years, Silicon Valley has had a monopoly on the tech stack and the innovation stack that covered the whole world.
The world uses our phones, our operating systems, our computers, our social networks, our servers, our cloud, our streaming video and music services. Modern Silicon Valley exploded in the 1990s right after the Cold War ended, and Silicon Valley piggybacked on the fact that the whole world was open to trade and America was the sole superpower, and there wasn't really any other competition. for our tech products beyond maybe Japan and South Korea.
And besides exceptions like China, literally the whole world was open to our products. Sure, our stuff was manufactured elsewhere, China, Taiwan, but it was still our stuff people were buying. We were the default option. If there were local alternatives in various markets, that didn't stop Silicon Valley products from proliferating and often dominating. Write the code once, distribute it everywhere, right? When we talk about scale, we talk about the fact that...
The potential market for Silicon Valley products has been, I don't know, potentially every single human being on the planet. But what if that monopoly... on the modern that Silicon Valley has had over the whole world is breaking down. What if the real secret of Silicon Valley's success was the post-Cold War neoliberal order, free trade order that seems to be coming to an end now?
Does Silicon Valley's business model work in a world where it no longer has a monopoly? It's articles like this one that I've been reporting on on the podcast that have made me think this. In an open letter, around 100 EU companies urge EU lawmakers to take radical action to shrink the reliance on foreign infrastructure by fostering a so-called Eurostack. Remember this story I did from Wired this week? Thank you.
keep thousands of businesses running. However, some organizations appear to be reconsidering their use of these companies' cloud services, including server storage and databases, citing uncertainties around privacy and data access fears. We have more demand from across Europe, says Matthias Naubauer, the CEO of Swiss-based hosting provider Exoscale, adding there has been an increase in new customers seeking to move away from cloud giants. Some customers were very explicit.
Now Bauer says, being very explicit that they want to move away from U.S. hyperscalers, end quote. We've been talking for years about how semiconductors, the chips themselves, the things that make everything work have become a fundamental geopolitical priority on par with oil. If your economy doesn't have access to energy sources, it's dead. Likewise.
If your economy doesn't have access to silicon, it's dead. Thus, the move to reshore chip production everywhere. Chips are the geopolitical necessity beyond all others. But what if that impulse is now moving to the entire tech stack? What if countries and companies start to want to reshore everything for strategic reasons, for geopolitical reasons, for social and cultural reasons? In other words,
What if the whole world suddenly stops buying Silicon Valley by default and starts buying local? What if the monopoly Silicon Valley has had on the tech stack gets broken up? I think it's happening. I said on the show this week, words to the effect of what if, let's call it, tech stack sovereignty becomes a geopolitical imperative?
What does Silicon Valley do if it suddenly doesn't have access to 90% of the global market in everything tech simply by default? Can its business model handle that? The signs are everywhere. Let me give you one quick tangible one.
You know how I've been telling you that the hotness in the VC space for a while now is defense tech. The idea is that warfare is being transformed by the likes of drones and robots and autonomy in general. Tons of new startups are springing up to bring this tech to governments and militaries.
And it should be a boom time right now, right? Europe is rearming in a major way, looking to defend itself and use this new technology because it fears it can no longer depend on the U.S. as an ally. So these should be boom times. military tech to dozens of European governments. Except no. Will the Europeans trust American tech? I noted this quote from Nick Denton's recent interview in Vanity Fair, quote,
Palantir depends on European contracts. It depends on NATO, depends on the Atlantic Alliance. If you actually look at what they've been saying and what Palmer Luckey's defense company, Andruil, has been saying, so that side of the right, the tech right is not one monolith at all. And I think... Aside from being insulted, as Denton is suggesting...
What do the Europeans fear from American defense tech all of a sudden? Well, one good way to look at this is through the lens of how America has been treating Chinese tech. Why did the US ban Huawei tech, for example? because they were afraid of secret backdoors and spying and surveillance and the like, and the Europeans might fear that on some level. Old-style military weapons, once you have them, you can use them.
You just put fuel and soldiers and ammo in them and you're good to go. But we know that in this world of smart tech, it's not that simple. They might fear a universal kill switch more. Something like you push a button and the tech stops working. But above all, they would fear things like export bans, like we've done, again, with Chinese tech.
If you buy a fleet of drones, but suddenly you're cut off by an export ban from the supply chain, then you can't repair them, service them, replace them, etc. Better to have your own homegrown supply. So Anandaril might have been founded with the usual Silicon Valley assumption that they could supply their tech to 90% of the world. But right now, they're waking up and realizing that maybe they can only sell to the U.S.
I keep using Europe as an example, but if Europe doesn't trust U.S. defense tech, then would India? Would Brazil? So this is the crux of my argument. Instead of serving 90% of the world as a market, Andrew might only be able to sell to 30% of the world. Imagine if that happened to Apple or Google or Amazon. If, like with semiconductors and chips, people around the world decide that owning their own tech stack locally is a geopolitical, strategic, and sovereign imperative, this could happen.
Back to that article about Europeans maybe not trusting American cloud technology all of a sudden, again, fearing maybe surveillance and backdoors and such, but also, again, a kill switch, suddenly not being able to access their data. Does AWS have to consider that suddenly a huge market like Europe is off the table? Or think about how all the time on the show we talk about European regulation of big tech.
It's largely through the lens of antitrust and anti-competitive stuff, but through another lens, what is this European regulatory push if not an implicit, if not explicit attempt to reassert sovereignty over tech? The US-China battles of recent years continue to be a good analogy. What's to stop Europe from doing to, say, Instagram?
What the U.S. attempted to do to TikTok with the ban? What if Europe said we fear you're surveilling our citizens with Instagram or promoting ideas antithetical to our culture with your algorithms or harming our children or we just want our own homegrown social network with our own algorithms and services?
is because it's such a key part of the communication system in modern life that we fear you could shut down our access to it arbitrarily if a trade war breaks out and we're not able to function. It's the old Tim Wu master switch fear about communication networks. Again, I'm worried that the Silicon Valley monopoly over the technology and innovation stack is ending because for the first time in 30 years, the rest of the world has motivation to seek out alternatives.
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slash ride. I'm not saying Silicon Valley can no longer innovate. I'm not saying the jig is up that way. I'm saying they would no longer have the presumed monopoly because around the world people would have a motivation all of the sudden not to choose the default. Silicon Valley has been the default. Just ask Google how powerful
being the default option is. Signs of what I'm talking about are all over AI. Yes, Silicon Valley created the breakthrough of this AI moment. Yes, Silicon Valley continues to lead in this AI moment. But for the first time in 30 years, a new technology has sprung up from Silicon Valley, but it doesn't have the playing field all to itself in the nascent stages. I'm not just talking about DeepSeek, though I am. I'm talking about how there are...
European AI models and Middle Eastern AI models. The rest of the world is not just accepting Silicon Valley's offering by default, like it did with the internet, like it did with mobile, like it did with the cloud. It is creating its own alternatives. In short, for the first time with AI, Silicon Valley...
has competition. What if an Indian flavor of AI or Middle Eastern or, as we're seeing right now, Chinese flavor of AI catches on even just locally? Silicon Valley doesn't own those markets by default. And once there are alternatives, they might take off. in other markets, maybe Latin America likes the Chinese flavor of AI better than Silicon Valley's.
And if you buy the argument that everything is a tech product now, then what if other types of products are hampered or even banned in other markets? I can't buy Chinese smartphones or cars in the US now because of bans. What if countries ban or put tariffs on American-produced cars or TVs or regular old household appliances? Because again, fear of surveillance, fear of a kill switch. What if the rest of the world does to our tech?
piece by piece, market by market, what we've done to Chinese tech. Is Amazon ready to have their cloud cut off or at least competed with in half the world? What if iOS or Android could only be sold in the U.S. market? If you are an investor in any of the Magnificent Seven, Amazon, Google, Apple, NVIDIA, etc., you need to be thinking about what your company's business model looks like if you're TAM. your total addressable market gets chipped away piece by piece.
And let's not just focus on the big tech behemoths because they actually contribute to a major weakness in Silicon Valley right now. Squint your eyes a bit, and Silicon Valley is basically seven to eight slow-moving, bureaucratic, sclerotic monopolies. That's not healthy. That's a recipe for disruption. Can an innovation hub like Silicon Valley thrive when there are so many monolithic incumbents sucking up all the talent?
And that doesn't take into account the brain drain that is currently happening right now today. For 30 years, talent from around the world flocked to Silicon Valley because that's where all the other talent was. was the launchpad to achieving the scale and TAM of, again, potentially all of humanity. But if the tech world starts to fragment and segmentize, then the talent stays home.
because addressable markets become viable locally, then why go to Silicon Valley? Why not just stay home? I'm hearing this all the time from entrepreneurs and engineers, especially in the AI space all of a sudden. You'll notice that not once in this entire screen have I mentioned the current U.S. administration by name.
This is not a political essay. I'm not trying to make a political point here. I have no personal opinion to posit on whether the current administration's policies are good or bad or otherwise, or if their policies are causing the things I'm describing. As some would say, I'm not qualified. to opine on that. I'm just telling you the angles and realities I'm seeing right now from
the history of tech perspective. That is my specialty. Silicon Valley is facing a new reality. Its traditional TAM might be reduced. Its 30-year monopoly as the default tech stack might be over. Are the Magnificent Seven ready to address this? reality? Is the startup and venture ecosystem prepared for a world that is chopped up and bifurcated and fractured and localized instead of being universal? Is this the death of scale in the potentially every human being on the planet sense of that idea?
I don't know, but it's not looking good. I've worked in US tech for 25 years, so I'm worried because this is my worldview. This is the only industry I've ever known. People have been crying chicken little about the end of Silicon Valley ever since I got into tech, and they've never been right, and I never thought the end of the Valley was possible either, but I can see how it could happen for the first time. To quote Oda Mae Brown in the movie Ghost, Silicon Valley, you in danger, girl.