#200: Anthropic vs. the Pentagon, OpenAI's $110B Round, Interview with Claude Code’s Creator & Block’s AI-Driven Layoffs

0:00All these comments from the government, despite the bluster, despite the back and forth, despite the threads, they are just admitting they can't live without God, and frankly, I agree with them on that because you'd have to pry a cloth from my cold, bad hands if you wanted to take it away. Welcome to the Artificial Intelligence Show, the podcast that helps your business grow smarter by making AI approachable and actionable. My name is Paul Ratesor. I'm the founder and CEO of SmarterX and Marketing AI Institute, and I'm your host. Each week I'm joined by my co-host and SmarterX Chief Content Officer, Mike Kapoor. As we break down all the AI news that matters and give you insights and perspectives that you can use to advance your company and your career. Join us as we accelerate AI literacy for all. Welcome to Episode 200 of the Artificial Intelligence Show. I'm your host, Paul Ratesor, along with my co-host, Mike Kapoor. We are coming to you live on, well, we're recording this live

1:02on Monday, March 2nd. It is 9.30am Eastern time. I will often timestamp the beginning of these. This week may be more important than others, because our first main topic today is going to be all about Anthropic and their battle with the Department of War over the use of Clawed for military applications and monitoring of US citizens. It is a wild topic. It has been a fast moving fluid topic all throughout the weekend. It's very possible that as we're recording this, some things are going to be happening. The unique, very unique thing today about Episode 200 is this is the first time we are recording one of these with a live audience. We have invited our AI Academy Mastery members to join us for this recording. Normally, it's just me and Mike hanging out doing our thing. Today, we are doing this through a Zoom webinar, so we actually have Mastery members joining us. There is a chat. I am seeing out of the corner of my eye going. We are going to take questions from Mastery members at the end. We are grateful to all of our AI

2:06Mastery members and everybody who's joining us today from around the world. This is kind of a cool way to celebrate. We were trying to think what could we do for Episode 200. That would be fun and unique and we came up with the idea of let's just invite some people to be here while we're doing it. Mike and I are going to do our usual thing. We just happen to have some friends with us today to listen in and then we're going to take some questions from them afterwards. Anything else Mike on that and before I run us through the presented by and then dive into this. Now I can't just business as usual. Yeah, business as usual. All right. So today's episode is brought to us by AI Academy by SmartRx, which is where our Mastery members are coming from. AI Academy helps individuals and businesses accelerate their AI literacy and transformation through personalized learning journeys and an AI-powered learning platform. There are 13 professional certificate course series available on demand now. With more being added each month, as a matter of fact, we just added two more. We added AI for financial services for industry and AI for finance for departments. So we have AI department collection

3:12and an AI for industry's collection. And so those two new course series with certificates just went live in the last two weeks. So those are great. Go check them out academy.smartarex.ai. You can learn all about Academy and the AI Mastery membership program. Okay. If you're new to the podcast, we start each week with a recap of the previous week's AI pulse survey. So we ask these questions. You can go to smartarex.ai forward slash pulse and participate in the survey each week. These are informal polls of our listeners of how they're feeling about topics we talk about on the podcast. So Mike, we asked last week, Microsoft AI CEO Mustafa Solomon says most white collar tasks will be fully automated by AI within 12 to 18 months. How realistic do you find that timeline? So it looks like 53% said partially realistic. Some tasks will be most not most. It's interesting. 33% said two aggressive meaningful automation in three is three to five years out. And then 9% said very

4:18realistic. I'm already seeing it in my work. And I think Mike, what I said at the time we talk about that was I think the tech will be able to do that. I just don't think human friction and organizational resistance to change will allow it to happen. That was kind of my general take on that. And then the second was where do you land on AI generated video using real people's likeness in the video? It generates 58% said the tech is impressive, but using real people without consent crosses a line. 22% said it's inevitable and the law needs to catch up. And then 20% said it's mostly a misinformation risk. That's what concerns me. I don't see anybody that said it's creative experimentation and not a big deal. Yeah, perfect. All right. So we will when we wrap up today, we'll give you this week's pulse, but again, you can go to smarterx.ai forward slash pulse and participate in the surveys. All right. So yeah, what a 72 hours Mike. No kidding. So when we were

5:21preparing for episode 200, Wednesday things started going sideways with the US government and anthropic and Mike's going to break down sort of the chain of events over the three days leading into the weekend. And then we'll talk about kind of where we've landed as of Monday. We went into the weekend thinking that main topics one, two, and three were all going to be related to anthropic versus the US government. And then we decided Sunday to sort of consolidate this. So I will just give you a warning. This is going to be a bit more extensive than the average main topic. I would say Mike is that fair to say I would guess. Okay. So we're going to do our best to provide context. I will say that on Saturday or Sunday, I put a post on LinkedIn that I think is relevant here. And I was basically saying like why on the podcast, we choose to try and be as objective as unbiased as possible, especially when it comes to things related to politics and

6:21religion. There are times on the show where we have to wait into those areas. We have to touch on things that can be politically challenging to talk about in a neutral way. And so I would say this is one of those. We're going to do our best to just sort of present the information as best we can describe it in a factual way. And then allow people to sort of form their own perspectives and points of view. So if you're new to the podcast, that is how we approach this kind of thing. And I just wanted to say that up front because some of these things are hard to talk about in this neutral way. And I'll do my best to share that perspective. So Mike, I'll turn it over to you and you can kind of walk us through it happen. And then I will do my best to unpack it all. Sounds good, Paul. So this past week, the Trump administration blacklisted anthropic from all federal government work and that kind of capped off this extraordinary bitter showdown over the future of AI and warfare. So up until this week, interestingly enough, anthropic was one of the more deeply embedded AI

7:26companies in US defense. And that's thanks to a $200 million contract that was awarded back in July of 2025. And as a result of that, Claude was actually the only frontier model approved for the military's classified networks. And it was deployed in some of those through a partnership with Palantir, but as part of its contract and anthropic had these two non-negotiable safety conditions. One, Claude could not be used for the mass domestic surveillance of Americans. And two, it could not be used to power fully autonomous weapons. Now, the Pentagon led by defense secretary, or I guess war secretary at this point, Pete Higgseth, who had recently declared at SpaceX's headquarters that military AI quote will not be woke, decided these guardrails were unacceptable. And reportedly, a flashpoint might have come after the US military raid that captured Venezuelan president Nicolas Maduro, the Pentagon claimed anthropic raised concerns about Claude's use in that operation, though anthropic CEO Dario Amade, flatly denied doing so. But regardless,

8:31whether it's a miscommunication or not, there was a play by play that started right around on Tuesday and into Wednesday and that carried through the week and into the weekend that got very, very, very quickly. So I'm going to kind of walk through very quickly what the timeline was of the major events that will dive deeper into this. So on Tuesday, apparently Higgseth called Amade in a tense and according to the reporting not warm and fuzzy meeting at the Pentagon and delivered an ultimatum that anthropic must allow the military unfettered access to Claude for all lawful purposes and gave Amade until 501 PM Eastern on Friday to comply. If he refused, the Pentagon threatened to invoke the defense production act to force compliance or they threatened to formally designate the company a supply chain risk. So on Wednesday, overnight, the Pentagon apparently sent anthropic. It's kind of best and final offer of how this could all work given anthropics concerns about those two red lines that they don't want to cross. Anthropic reviewed the contract.

9:34They felt the new language was not good enough. It was a bit of a facade and the concessions were paired with all sorts of escape patches and legalese that would allow perhaps in their view the military to disregard the safety guardrails they found to be so important. Now Thursday, this starts to really explode into the public view. Amade releases a statement declaring that anthropic cannot in good conscience a seed to their request. This causes all sorts of political backlash. The Pentagon's technology chief, Emil Michael took the X calling him a liar with the God complex. Meanwhile, the tech industry started to mobilize hundreds of employees from Google and Open AI signed open an open letter urging their executives to also stand in solidarity with the red lines anthropic had drawn and then deadline day, Friday hits and they're kind of a play by play during the day plays out. They had some kind of crazy consequences for what's going on here. So in the morning behind the scenes, apparently, Hague says team offered a major concession agreeing to remove loophole phrases from the contract. In the afternoon, the deal apparently fell apart

10:38completely when anthropic learned the Pentagon still wanted to use AI to analyze bulk data collected from Americans that crossed that line on mass surveillance. Furthermore, anthropic rejected a proposed compromise to simply keep clawed in the cloud to distance it from what they would call edge based autonomous weapons. Desperate to prevent a collapse, topped by partisan senate defense leaders sent a private letter begging the Pentagon to extend the deadline about an hour before the 501 PM deadline president Trump took to truth social calling anthropic left wing nut jobs and ordering all federal agencies to immediately cease using anthropic technology initiating a six-month phase out period. By the one PM happens the deadline passes. Amade has not caved to any of the demands and in the evening, Hague said officially designated anthropic a supply chain risk to national security. It is worth noting here this is an extraordinary black listing tool that is historically reserved for foreign adversaries. It bans any defense contractor from doing commercial business with

11:42the company anthropic immediately vowed to challenge this in court and Friday night and will talk through this as well in a big final twist hours after this happens to anthropic Sam Altman announces that open AI has officially reached an agreement with the Pentagon to deploy its models on classified networks and the catch is that the Pentagon actually apparently agreed to open AI's terms which included keeping the deployment strictly in the crop cloud and enforcing the exact same prohibitions on mass surveillance and autonomous weapons that anthropic had just faced resistance for defending. So Paul, a lot to talk about here. Can you maybe walk us through in depth more of what is going on here? What parts of this are worth paying attention to and importantly, kind of what you think might happen next? Yeah, I was just saying we were getting started. This literally is an entire, we could do two hours just on this topic. It is, there's so much time packing. It is not done. I feel like we are probably in the early stages of all of this a lot

12:42happened in three days, but I feel like there's a lot more to happen to rewind back to even just before everything started going crazy on Wednesday. Time magazine actually had an article. I think this is relevant because my assumption is all this was already happening behind the scenes and this was not accidental that this came out. So time magazine, we'll put the link in the show notes. As the story says, anthropic, the wildly successful AI company that has cast itself as the most safety conscious of the top research labs is dropping the central pledge of its flagship safety policy. The company decided to radically overhaul the responsible scaling policy that we've talked about on the show many times. That decision included scrapping the promise to not release AI models if anthropic can't guarantee proper risk mitigations in advance. So we felt that it would actually help anyone. This is a quote, we felt that it wouldn't actually help anyone for us to stop training AI models. Anthropics chief science officer Jared Kaplan told time in an exclusive

13:46interview. We didn't really feel with the rapid advance of AI that it made sense for us to make unilateral commitments. If competitors are blazing ahead, it commits to matching. So they're anthropic matching or surpassing the safety efforts of competitors. And it promises to delay inthropics AI development. If leaders both consider anthropic to be the leader in the I race and think the risks of catastrophe to be significant. So again, just relevant context that ironically 24 hours before all this happened, an article comes out saying anthropic is shifting its safety policies that are the foundation of the company for whatever that's worth. Okay, so then expanding on some of the items you touched on like. So the first is this anthropic statement. So basically Dario and anthropic get this word from the government that they basically have like three days to concede to these requests. So anthropic released a statement on Thursday. And all this is out publicly. So we're like, oh, what are they going to do? What's going to happen

14:47Friday? So they released the statement on Thursday, the 26th. And in that statement, that's attributed to Dario. It says the Department of War has stated they will only contract with AI companies who has ced to quote any lawful use and remove safeguards in their cases in the cases mentioned above. They have threatened to remove us from their systems. If we maintain these safeguards, they have also threatened to designate that designate us. They supplied chain risk or label reserve for US adversaries never before applied to American company and to invoke the defense production act to force the safeguards removal. These latter two threats are inherently contradictory. One labels us a security risk and the other labels clawed and ascent as essential to national security. The statement continued regardless. These threats do not change our position. We cannot in good conscious a seed to their request. Then, you know, everything's kind of goes 24 hours later. And then the tweet because he andthropics like we still haven't gotten any official word from the government, all we have is a tweet from Hegsith. So on Friday at 5.14 PM,

15:49this is following the Trump truth social thing. It says this week inthropic delivered a master class in arrogance and betrayal as well as the textbook case of how not to do business with the United States government or the Pentagon. Our position is never wavered and will never waver. The Department of War must have full unrestricted access to inthropics models for every lawful and all caps purpose in defense of the republic. And then it goes on and on and says in conjunction with the president's directive for the federal government to cease all use of inthropics technology. I'm directing the Department of Board does seem to inthropic a supply chain risk for national security effective immediately. No contractor supplier or partner that does business with the United States military may conduct any commercial activity withinthropic andthropic will continue to provide the Department of War services for a period of no more than six months to allow for a seamless transition to a better and more patriotic service. Dude, I can do an hour on that paragraph

16:50alone. No kidding. I'm going to I'm going to come back around to the complexities of that paragraph, but each sentence on its own contradicts itself in like five different ways, but we'll come back to that. So then inthropic responds with another official statement. We held to our exemptions for two reasons. So this is now that evening. And I'm at I'm at a hockey with my buddies and I'm like right. We held to our exceptions for two reasons. First, we do not believe that today's frontier AI models are reliable enough to be used in fully autonomous weapons, allowing current models to use in this way would endanger Americans warfighters and civilians. Second, we believe that mass domestic surveillance of Americans constitutes a violation of fundamental rights does designating inthropic as a supply chain risk would be an unprecedented action. One historically reserve for US adversaries never before publicly applied to an American company. We are deeply saddened by these developments as the first frontier AI company to deploy models in the US government's classified

17:53networks and up and as of this moment, still the only one capable of doing this by the way. Anthropic has supported American warfighters since 2024 June and has every intention of continuing to do so. We believe this designation would be both legally unsound and set a dangerous precedent for any American company that that negotiates with the government. Dario then did an interview Sunday morning with CBS where he's he kept using the terms retaliatory impunity, which obviously is legal advice he's being given that you have to set this up as that's what these are. In the statement, they continued no amount of intimidation or punishment from the Department of War will change our position on mass domestic surveillance or fully autonomous weapons. We will change a challenge any supply chain risk designation in court. Okay, so I'm going to stop there for a second. I'm going to go into an Atlantic article which I found to be really solid about the real sticking point here, but anything I'm missing, their micro that you want to like, double click on. No, I think that sums up really well kind of where we're at as of right now in the timeline and

18:55what has happened so far before we kind of get into some of the other lab responses and government responses. All right, so then the Atlantic has this really good art. I think this was from Sunday morning, if I'm correctly. So they they have inside sources at obviously when you're reading this. So they said according to source familiar with the negotiations on Friday morning in Thropic, receive word from Hegsis team would make a major concession. The Pentagon had kept trying to leave itself little escape hatches in the agreements that are proposed to enthrop it. And it would pledge not to use in Thropic's AI for mass domestic surveillance or for fully autonomous killing machines, but then qualify those pledges with loop holy phrases. That's their word loop holy phrases like as appropriate, suggesting that the terms were subject to change based on the administration's interpretation of a given situation. I'm Friday afternoon in Thropic learned the Pentagon still wanted to use the company's AI. This is real key. This is this is the sticking point. They've been doing this since 2022, by the way. So this is not like, hey, we might do this.

19:59They're doing this. Okay, so they learned in Thropic learned that the Pentagon still wanted to use the company's AI to analyze bulk data collected from Americans that could include information such as the questions you ask your favorite chatbot, your Google search history, your GPS tracked movements, and your credit card transactions, all of which could be cross reference with other details about your life. And Thropic's leadership told Hegsis team that was a bridge too far and the deal fell apart. So the reason they want that kind of data is let's say there's like a protest and they want to know which Americans were there. They would use clawed to analyze all this data and basically match you and figure out if you were there or not. That's the kind of thing they're talking about. I went on to say my source when I granting anonymity because they're not authorized to talk about the negotiations also shed further light on the disagreement between a Thropic and the Pentagon over autonomous weapons machines that can select and engage targets without a human making the final call. This is real key. The US military has been developing these systems for years and has

21:00budgeted 13.4 billion for them in fiscal year 2026 alone. They run the gamut from individual drones to whole swarms that can be used in the air and the sea. Now this is really important and this gets back to them dropping the thing from the responsible scaling policy. This is the Atlantic. And Thropic has not argued that such weapons should not exist. To the contrary, the company has offered to work directly with the Pentagon to improve their reliability. But for now, Anthropics leaders believe that their AI hasn't reached that threshold. They worry that the models could lead the machines to fire indiscriminately or inaccurately or otherwise in dangerous civilians or even American troops themselves. At one point during the negotiation, it was suggested that the impasse over autonomous weapons could be resolved if the Pentagon would simply promise to keep the company's AI in the cloud and out of the weapons themselves. This gets into like some more technical detail. Mike, you touched on this a little bit. I'm not going to go down that

22:03path right now, but just understand that's a really important distinction that maybe we'll touch on at a later date. And then the article containing Anthropics leaders might have hoped that other AI companies would hold a similar line related to the surveillance and autonomous weapons. Earlier in the week, they had reason to believe that open AI might. CEO Sam Altman had said that like Anthropic, open AI would also refuse to allow its models to be used in autonomous weapons system. Now, as I said at the start, we try our best to present all sides of debates. So I'm now going to present to you something that and I'm going to connect the couple dots here that I think are extremely important to understand. So this this counterpoint is going to come from Palmer Lucky, who is the founder of Oculus, who sold that to Facebook, made his hundreds of millions or billions selling that to Facebook. He is also the co-founder of Andral Industries. Andral Industries is an American defense technology company specializing in the development of wait for it, advanced autonomous systems. The company, Andral,

23:07raised 2.5 billion at a 30.5 billion valuation led by, and he guesses Mike, founders fund a Peter Thiel. Yep. So this is this is the name. This is the person that you want to keep track of, founders fund and Peter Thiel. Peter Thiel is part of the PayPal mafia. That is where Elon Musk made his first couple hundred million. It's where a lot of David Sacks, like all these guys, they're all connected to PayPal. And then Thiel has the founders fund. So Thiel is, I'll get to it in a second. Thiel is a very important character in all this. So here is Palmer's tweet. He said, do you believe in democracy? Should our military be regulated by our elected leaders or corporate executives? Seemingly innocuous terms from the latter, like you cannot target innocent civilians, are actually moral minefields that lever, lever differences of cultural tradition into massive control. At the end of the day, you have to believe that the American experience is still on experiment is still ongoing. That people have the right to elect and unelect the authorities

24:11making these decisions that are imperfect. Constitutional Republic is still good enough to run a country without outsourcing the real levers of power to billionaires and corporations and their shadow advisors. I still believe, Palmer says. And that is why quote, bro, just agree the AI won't be involved in autonomous weapons and mass surveillance. Why can't you agree is so simple. Please, bro, is an untenable position that the United States cannot possibly accept. So Palmer's position is, and Palmer's very outspoken, like I actually really like listening to Palmer. I think sometimes his perspectives are very different than mine. But as I said in my post on LinkedIn, that's okay. Like we should listen. Sometimes there's things in there that it's like, I actually, in theory, this is a really interesting perspective. Like, you could say, like, inthropic, and I'm going to kind of divert here for a second. Like, this is right, be careful. You can say that inthropic is making a moral

25:18ethical stand here. The precedent it sets is that one company, in essence, one CEO gets to tell the elected officials of our democracy what they can and can't do. What is and is not legal. And that I think actually gets to the heart of what is actually going on here is there's the slippery slope. It's like, okay, if we make these two concessions, well, what else does this corporate bro from Silicon Valley get to tell us the elected officials of the government, of what we can and cannot do? So this is the counterpoint that I've looked at lots of things, read lots of things in the last like 72 hours. I thought he did the best job of just laying out this like, listen, you can take the moral high ground. But at the end of the day, we are electing people to make these kinds of decisions. Now, you might not like what this current administration does with that power. But our democracy depends on these people. If we don't like what they do with

26:22this, then then not let them out of office is basically what he's saying. So I'll stop there for a second. Mike and see if you have any thoughts on this without us getting down to slippery slope here. Yeah, I mean, I feel like it's every angle is a slippery slope here. But yeah, it is interesting. I think it's important to I like all the context you provided because I think this is very easy to get into a really quick like gut reaction black and white thing about this, right? Because obviously something like autonomous weapon sounds super scary. But like you mentioned, it is worth noting that Atlantic article like this stuff is not exactly new. It's already been done. That doesn't make it good or bad. I'm not trying to value judge that. But it's not necessarily like, oh, we are necessarily like coming up with this like awful sinister AI-powered thing. Now maybe Master Rayland sounds a little different. But I would say it's a helpful perspective. I think to have the nuance to this before we kind of get into where it goes, what it means. I think

27:24it is very interesting to hear Paul Merlucky, who is that Peter Teele, act like raging against billionaires having an impact on government is a unique position, I would say. So it's going to be really interesting to see people speaking out of many sides of their mouths and how this makes for some strange bedfellows as well. So then one of the things we often try and do in the show is like, okay, what are the other perspectives? So Eliasetskva, who we've talked about many times, who does not tweet often. Yeah. He showed up and he said it's extremely good that Anthropic has not backed down. And it's significant that opening eye has taken a similar stance. This was before we Sam jumped in and took the deal. He said in the future, there will be much more challenging situations of this nature. And it will be crucial for the relevant leaders to rise up to the occasion for fierce competitors to put their differences aside, good to see that happen today. So again, that was before open AI stepped in and took the control. Right. Now Google, I don't know what's going on there. So we have yet to see, and again, if someone sees this while we're on

28:28this, like, flag us in the chat for us, I have not seen a tweet from Sundar or Demesis Abbas about any of this. They've been radio silence since last Wednesday. The only person, the only major leader at Google that I saw tweet anything was Jeff Dean. And this was on the 25th. He's the chief scientist, Google deep mind and Google, Google research. So when it came out that the government was basically presenting this ultimatum on Wednesday, Jeff tweeted, mass surveillance violates the fourth amendment and has a chilling effect on freedom of expression surveillance systems are prone to misuse for political or discriminatory purposes. Somebody then said, well, what about autonomous weapons? He replied in 2018, I signed this letter in my position hasn't changed. We'll put the link in the show notes, but the future of life Institute published a pledge on lethal autonomous weapons in June, 2018. The in that pledge, it says AI is poised to play an increasing role in military systems. There is an urgent opportunity and necessity for citizens, policymakers,

29:29and leaders to distinguish between acceptable and unacceptable uses of AI. In this light, we the undersigned degree that the decision to make human take a human life should never be delegated to a machine. So June, 2018, there was 5200 AI leaders signed that. Okay. Fun side note. So keep in mind. All right, the government wants to get rid of quad. We're going to, you know, as of right now, you can't work with them. They're on supply chain risk list. Okay. So who steps in? So this was all like, you know, there's five labs that could possibly lose unless they're going to use deep seek from China, which isn't going to happen, but ironically, they're treated more favorably now than our own American-based anthropic company. So you have open AI. You have anthropic Google X AI. Who am I missing? I guess I do to even include Meta in here. Meta. There we go. Okay. Those are the five companies that are building AI models powerful enough in theory to do what the government wants. Yep. Well, who's obviously going to step in?

30:32You know, I'm asked that that that was given. Ironically, I don't know who ceded this article, but nothing is a coincidence at this point. The Wall Street Journal comes out with an article I think it was on Thursday. It says, officials at multiple federal agencies have raised concerns about the safety and reliability of Elon Musk's X AI artificial intelligence tools in recent months. Grokford does not meet the safety and alignment expectations required for general federal use within GSA general services administration and an experimental federal AI platform said a January 15 executive summary. The warnings preceded the Pentagon's decision this week to put X AI at the center of some of the nation's most sensitive and secretive operations by agreeing to allow its chatbot Grok to be used in classified settings, which is what Claude is currently used for. So Elon's trying to slide in and like get Grok in there. Said anthropic was the only developer approved for classified use before the deal between X AI

31:35and the military. But ironically, despite all this, it says in recent weeks, GSA officials were told to put X AI's logo on a tool called USA AI, which is essentially a sandbox for federal employees to experiment with different AI models. So while the logo is there, the tool actually isn't available. So like one possibility and the most obvious one was Elon Musk and X AI, but the government apparently and someone at the government felt like leaking this to the Wall Street general said that tool is no way safe for our systems, even though we're being told to put it into them. Okay. Then one other piece of context before we get into open AI sliding in and taking the contract. Someone I follow and there's a, I think I mentioned Dean Ball last week on the episode, maybe a podcast episode with him. So it's ironic timing. Dean Ball is a former senior policy advisor on AI for the Trump administration and lead drafter of the administration's AI action plan, which I remember at the time saying like, wow, someone who knows their stuff actually wrote this, like this action plan is pretty good. So he provided context to the significance of this

32:37moment on a series of expose on Friday night. So right after all this happened, 525 Friday night, the United States federal government is now by an extremely wide margin, the most aggressive regulator of AI in the world. Congratulations, everyone. Then 608. Think about the power, Hegsith is asserting here, he is claiming that the Department of Defense or War can force all contractors to stop doing business of any kind with arbitrary companies. In other words, every operating system vendor, every manufacturer hardware, every hyperscaler, every type of firm, the Department of Defense contracts with all their services and products can be denied to any economic actor at the will of the Secretary of War. This is obviously a psychotic power grab. It is almost surely illegal, but the message it sends is that the United States government is completely unreliable partner for any kind of business. Damage done to our business environment is profound. No amount of deregulatory vibes sent by this administration matters compared to this arson. This is a Trump advisor. So give down all perspectives. The United States government just

33:41essentially announced its intention to impose Iran level. This is before we bombed Iran, by the way. Iran level sanctions or China level entity listing on an American company. This is by a profoundly wide margin, the most damaging policy I have ever seen. The US government try to take and it probably will not succeed. Okay, real quick, stop there before we get into Sam and then we'll move on. There's a big topic. There's lots going on here. Yeah, I mean, this is probably a whole topic in and of itself, but I feel like as we're doing the play by play and we're like, oh, hey, like how is this affecting the AI industry? I think Dean hits the nail on the head with this is about far more than AI. This is about the US government, essentially from like imposing a command economy on the AI tools and technology. And it's pretty wild to see that kind of move be used so I carelessly. I don't know as the right word, but just so suddenly it seems like

34:43came out nowhere, especially my gosh, we've only talked about the administration in terms of the deregulation piece and then suddenly it's in about face like they regulate the most innovative company. 100% yeah. Okay, so then Sam 9.56 pm Friday night slides in with a tweet and says, tonight we reach finger with the Department of Order to play our models in their classified network. I'm not going to read this whole thing. Basically, they step in, they do the thing, they claim the language is different and gives them like comfort to do this and actually claims that by them doing this, it might actually help Anthropic and that they have actually advocated with the Department of War to not impose these terms on Anthropic. And so he basically says we think by doing this, it's for the best of humanity and the best of the industry. That doesn't go well for them. Obviously, there's almost immediate backlash for doing this. Their own employees are like, what are we doing? There's the letter you mentioned, Mike, people are signing that like we're don't divide us. We're in this with Anthropic. So Sam feels the need to then do and ask me anything

35:47session Saturday night on X and we'll put a link to this. There's things he touched about like why the rush deal like why did you have to sign this so fast? Concerns about the precedent set with Anthropic, the Department of War Black listing them. He gets into that. He talks about red lines and lawful use. He talks about the designation of supply chain risk and how he will continue to advocate. They should not do this to Anthropic, even to their competitors. And then he summarizes it with like three key takeaways. He said there's more open debate than I thought there would be at least in this part of Twitter, while whether we should prefer a democrat, a democratically elected government or unelected private companies to have more power that goes exactly the point Palmer lucky was making. He said, I guess this is something people disagree on, but I don't. This seems like an important area to discuss. So he's saying he is in favor of the government are the elected people and they're the ones that should decide how to use the technology to I think the question behind a lot of the questions, but I haven't seen quite articulated. What happens if the government tries to nationalize open AI or other AI efforts? He said, I obviously don't know.

36:49I have thought about it, of course, it seems to me for a long time, it might be better if building AGI were a government project. So he's actually in a passive way, kind of saying like that's really not a bad idea that the government should probably be doing this, but it doesn't seem super likely on the current trajectory. That said, I do think a close partnership between governments and the companies building this technology is super important. And the third he said people take their safety in the national security sense more for granted than I realized, which I think is a good thing and balance, but I don't think shows enough respect to the tremendous work it takes for that to happen. This is a side note. Again, you may not think this is as significant as I do, but in 2025, and we've talked about this on the show, open AI president Greg Brockman and his wife and I became mega donors to the Trump administration, in fact, the largest single donors, giving $50 million to leading the future, a bipartisan super PAC focused on combating state-level AI regulation, and $25 million to mega ink a troop Trump super PAC. Take that for what it's worth.

37:51So I will say it's very surprising to me that open and the government could arrive at terms on a contract so quickly. This is the government, nothing in the government. It's actually gets done in 12 hours. So I don't even understand how this actually is even possible, but I want to wrap up here, Mike, so we have time for all this other stuff. What I tried to answer is what happens next. So here's a couple of thoughts here. Open the open letter from open AI, Google and other supporting and the topic. So we talked about this. This not divided dot org. We'll put the link in the show notes. As of this morning, 645 Google employees and only 94 open AI, which I thought was interesting, have signed this letter basically saying they support that Anthropic did not make these concessions. I do think that open AI is in a race to save their talent. I think they're going to lose staff quickly over this. I think this is the greatest talent recruiting that Anthropic could have ever done is like if you care about safety, they already were the place

38:55to be. They're probably getting flooded with resumes from top researchers. I'm out. I'm coming over to Anthropic. Let's go. Another note, if the Democrats take back the House and the Senate in the midterms this year, this is going to get insanely messy. So something to keep an eye on. The other thing that I think is hilarious, and this goes back to these like the statement made by Hegsith and how contradictory it was of itself, they're so much of a supply chain risk that they're mandating everyone else stop working with them. But we're still going to use them in the bombing of Iran over the weekend, but it was called was fundamental to that. And we're going to keep them around for six months. So they're so dangerous that we're actually going to allow them to stay in our systems for the next six months. The six month wind down I think is laughable. Like I don't think this ever happens. I think they find a deal. What this administration does is they

39:55they take extremes extreme positions as negotiating employees. You can go read the book that they literally wrote on how to do this. They take the most extreme position. They do the most extreme thing, say the most extreme thing, all to get you to meet somewhere in the middle or closer to like their end game. So I don't think there's any way that this actually happens. I don't think legally they can designate them this way. And I don't think they will. I think they will find a deal. I think they were probably still talking through the weekend. And somehow they find a way to make this work because the government needs anthropic. That is very obvious. Anthropic winds, hearts, and minds. They jump to number one in the app store over the weekend from like 200s. So if you go look right now, Claude is number one in the app store ahead of chat GPT. If the Hegsith post is to be taken literally, it would be catastrophic for anthropic. They would literally bankrupt them and a massive mess for the whole industry. Go back to what I just said. Anthropic raised $30 billion in February

40:58co led by Peter Thiel's founder fund. So the dude who put JD Vance in office as the assistant as the vice president, the guy who put Palmer lucky worry like the puppeteer of all of this co led every round inthropic has raised. He was the first Silicon Valley guy to support Trump in 2016. So anthropic as position is this. What do they call them? The left left wing nut jobs or whatever it is. Right. Right. Feel is the guy that's funding them. Yeah. It makes no none of this makes any sense. So when you when you zoom out, there's just no way this is how this plays out because the other one who who is the chairman and co founder of Palantir, which is what the Claude is being used through Palantir. Peter Thiel is the chairman and co founder of Palantir. Right. So Google owns 14% of anthropic. Amazon owns 15 to 21% of anthropic. Microsoft owns some single data. There's just no way that that this is how this plays out. So I'm going to stop there. I'm

42:05like, if it does proceed and if they do actually, you know, officially designate these things besides just a tweet, the legal case on this will run for years. I think it's just it's one of the craziest things that ever it's not just an AI like one of the crazier news stories I've ever followed. And it's only like three days old. So no kidding. I want to make sure we end up having like time for all the other topics. But this is why we were going to just do this as three main topics. Like it's so much to come on pack. But hopefully that gives some perspective. But Peter Thiel, Palantir founders fund follow the money like anything in business and government follow the money. I don't see any way that Thiel isn't talking to vans and vans isn't talking to Trump and Hexith and all this stuff just gets somehow you make it go away. It's convenient that there was a bombing of another country over the weekend. And you kind of like forget about some of these things or they steal the headlines by the time you get to Monday. And I don't know the whole things wild.

43:08Yeah, the only other thing I'll say is all these comments from the government despite the bluster, despite the back and forth, despite the threads, they are just admitting they can't live without God. And frankly, I agree with them on that because you'd have to pry a cloth from my cold bed pants if you wanted to take it away. So that alone, that fact may confirm everything you just said. We're like, good luck when you try to take this away from people. I didn't think about the enterprise. And so like, yeah, it's the greatest marketing thing they've ever done. Someone in the office this morning came in and it was like, oh, they didn't even need the Super Bowl ad. Like, so if you're a massive enterprise in a highly regulated industry and you now know that the only company for two years that the government trusted with in classified settings was anthropic. Right. Right. Who were you going to trust? Sure as hell is not X AI, who can even get Groc approved to do this stuff. Open AI apparently wasn't already there. Like, how were they not already there? Right. And I have to admit, I have no idea where Google comes out in all of this. I just assumed

44:10Google had already Gemini and classifieds. I don't know. Like, I'm really, really, that's the most bizarre part of this. Like, I'm very anxious to see Google's official positioning on all this. And they are, um, the silence is deafening. I would say from Google's perspective, it's very weird. Google have a couple years ago already. Some issues were employees were like revolting against defense contracts and stuff. I forget all the details, but I think we talked about so they may be really gun shy on that. I guess no. Yeah. And Eric Schmidt, the former CEO and the chairman is very aggressively in the building out of military capabilities. Yeah. Yeah. It's a tricky topic. Well, I suspect that this will not be the last time we talk about it. I probably have a bunch more to discuss on next week's episode as well. Seriously. All right. All right. So let's get into some other main topics this week. So very closely related though, we're kind of talking about some other updates related to open AI. So obviously, they're highly involved in the anthropic story with their decision to accept a deal with the Pentagon. But also, they had a pretty big week and some

45:13other ways that closed $110 billion funding round this week, which is the largest private financing in history. They got 50 billion from Amazon 30 billion from Nvidia, 30 billion from Softbank. And this round values up an AI at a $840 billion post money valuation and remains open for additional investors. So this Amazon investment is really interesting. It's kind of the centerpiece. So of this 50 billion, they're putting in 15 billion is up front. 35 billion is contingent on open AI meeting certain milestones. The two companies expanded an existing cloud agreement by $100 billion over eight years. AWS will become the exclusive third party cloud distribution provider for something called open AI frontier. We talked about this on a previous episode. This is the enterprise agent platform that open AI launched in early February. It helps basically helps enterprises specifically deploy AI agents as configurable AI co-workers. On top of all this, open AI also

46:14committed to consuming two gigawatts of capacity on Amazon's custom training chips. And one final note about that open AI frontier product, the enterprise pushes extending there further because they also launched frontier alliances, which is a program where they're partnering with McKinsey, BCG Accenture and Cap Gemini to deploy this platform at scale. So Paul, busy and controversial week for open AI, lots done, Packyard, that largest private financing round in history. I think that deal with Amazon, and especially pushing frontier into enterprises in these partnerships also merits some consideration here. Yeah, I mean, talk about a wild day for Sim Altman. He tweets in the morning, we raised 110 billion, which if I'm not mistaken, the largest private round was like their own 30 billion round or 40 billion dollar or something. Yeah, yeah. So like two and a half times the largest ever. And then by 10 o'clock that night, you're tweeting, we just stepped in and took this contract from the government. And just for context, like the largest IPO ever was like 25 billion. So I mean, this is unprecedented amounts

47:21of money. In the scaling AI for everyone blog posts where they announced this funding, a couple of interesting notes. They said there are nine million paying business users for chat GPT for work right now. I think that's the first time seen that number in a while. They've moved from 800 million weekly active users to 900 million on chat GPT, 50 million consumer subscribers. So that's where they're at now. I think it's the paid number within there. And then they say the valuation for this round increases the value of the open AI foundation stakes. That's the nonprofit to over 180 billion further strengths of the thing. What has already one of the most well-resourced nonprofits in history. And then the frontier stuff I thought was interesting because we've talked a lot about how one of the big challenges right now isn't the technology itself and what it's capable of within the enterprises. It's enterprise adoption and change management. And so opening I just straight up said like this is the problem. So there was some quotes in

48:22tech crunch from the AI impact summit. It said one of the interesting things and some of the inspiration for the work we've been doing lately. Open AI frontier is we have not really seen enterprise AI penetrate enterprise business process. So in essence, they're trying to think about how do we get this into the enterprises which leads to this alliance partners thing you talked about Mike. So they said the limiting factor for seeing value from AI and enterprises isn't model intelligence. That's how agents are built and run in their organizations. Real impact with AI also requires leadership alignment workflow redesign integration across systems and data as well as the kind of change management that drives adoption. So that's where they announce these four components. And they basically say they're going to work with open AI's forward deployed engineers or FDE which we talked about on a recent episode Mike about how they're staffing up to like put these people. In essence, they imagine taking an engineer who can actually build stuff custom agents. They go work in office with these major brands and they basically find ways to automate work.

49:24And so what they're now saying is they're going to do this in partnership with BCG McKinsey Accenture and Cap Gemini. And they highlighted the capabilities of each of these in this post. But they said McKinsey and BCG each bring deep experience to help leadership decide how to start redesign their operating model embed AI and drive adoption while Accenture and Cap Gemini both advise on strategy and then help wire frontier into the systems and data enterprises actually run on securely and reliable. So that's the premise of this alliance is they're trying through through these companies that already have the relationships with all the enterprises and are trusted by them. Let's bring them in matching with our forward deployed engineers and and that's like rapidly push adoption the enterprise. So opening I needs adoption the enterprise it's hard they've accepted that and now they're trying to kind of put these things together to enable it. Yeah to just quick final notes there fun fact the forward deployed engineer that's actually originated with Palantir that's right they embedded people with the military to deploy

50:29their technology have been doing it for a decade or so. But also just kind of struck me you know we'll talk about this with a number of other topics coming up. But when we talk about on the podcast this idea that the total addressable market that these companies are going after is not software it's not SAS it's employment it's salaries right this is the start of that this is how agents getting into the enterprises as co-workers this is not to be alarmist but that is how this happens. You can get alarmist if you want because it's going to save it for that but I don't even mention that in a super negative way out of the gate it's more like you are seeing the actual steps be put into place for these things to become your co-workers at the enterprise level. Yep it's happening faster than most people. Yes it is. All right so let's kind of get into some of that because our third big topic this week is about an interview with the creator of cloud code. So Boris Cherny who leads cloud code at Anthropics sat down for an

51:32interview on the podcast called Lenny's podcast this week and he made this really interesting claim basically saying coding is effectively solved. He said he has not edited a single line of code by hand since November 2025. Every line has been written entirely by AI. Interestingly Cherny built cloud code as a side project at Anthropic in September 2024 and within five days of releasing it internally half of Anthropics engineering team was using it. The product is now generating a billion dollars an annual run rate revenue and four percent of all public GitHub commits are authored by cloud code. Cherny predicts that will hit 20% by the end of 2026. As a result of using cloud code Cherny had said on the podcast that engineering output in Anthropic has increased 200% per engineer and that there's also a real shift at the organizational level where on his team everyone product manager designers finance people everyone codes and he predicts the by the end of the year. Everyone is going to be a product manager. Everyone will code

52:36the title software engineer will actually start to go away and he actually said it's going to be painful for a lot of people. So Paul let you kind of run with your takeaways on this episode. I know you had a ton of them. I'm just curious though. Obviously neither of us are software engineers but you know I'm wondering do you buy that claim coding is basically solved. I know there's some bigger implications therefore knowledge work at large. Yeah that was what I wanted to highlight this one as a main topic. I tweeted after I listened to this episode that like some Lenny's podcast episodes you listen to twice and this is this is one of them. Yeah. And I have listened to it twice now. So it was I think this is the first time I heard Boris talk. I'm pretty sure it's the first interview of his that I've listened to but following him now for probably six months closely on on X and he's pretty active so you learn a lot from him. But to hear his his story kind of how he created cloud code almost as like a hack. He was just like messing around. I thought was fascinating but I think the real key and the reason we wanted to highlight this and I

53:39would recommend people listen to it is replace code with whatever you do and when you're listening to this podcast. So let's say you do marketing him or consulting or whatever it is just every time he says code replace it with the things you do the tasks that you do for your for your living because that's what he's implying is like whatever we just did with coding is now going to come to the rest of knowledge work and he says that basically. So I think that first it's interesting when this interview dropped and then relevant to everything else we're doing it said the that the thing that drew me to inthropic was the mission it's all about safety and when you talk to people in inthropic everyone you find in the hallway that's all they want to talk about is is safety. So one of the key things he talks about is the way that inthropic approaches training these models and what they're building he said specifically related to building of of cloud code we wanted to ship some kind of coding product for inthropic for a long time we were building the models in this way that kind of fit our mental model of the way that we build safe AGI which is

54:40interesting because usually people in inthropic don't use AGI where the model starts to be really good at coding then it gets really good at tool use then it gets really good at computer use and that's their trajectory I'm going to repeat this again because this is like the me if you take nothing else away from this this is the thing you have to understand coding is it's good at writing code tool use is it doesn't just rely on the language model itself to do the outputs to write your briefs to come up with creative ideas for your campaigns things like that tool use is access to other things like the internet like search so the ability to go use other tools to improve the language model and the computer uses seeing everything on your screen digitally and then being able to act in a digital way that's computer use agents that can do things on the screen just like you and I would so that was the real key he talks about innovation and how there's no road map for innovation you have to give people space and even if like 80% of the ideas are bad that's okay like you never know when the good things going to come he didn't think cloud code was going to work he didn't really even think it was that thing of a thing when he first did it you touched on how

55:43much of his code is written by the AI 100% he said he hadn't written a line of code since like November but I thought there was an interesting note where he said like in February it was like 20% then by May it was like 30% and then by November is 100% so this is not like a multi-year thing this was like within eight months it went from 20% of his work to 100% of his work and but they're still hiring more people but these people are like four acts more productive than they used to be and then when it got into what's next for Claude he did say Claude is starting to come up with ideas which I thought was really interesting because if we think about OpenEI's level of intelligence chatbots one reasoning models two agents three innovators four innovators come up with ideas and I'm increasingly seeing people within the labs talking about the fact that these models are functioning as innovation partners they're actually starting to come up with and solve problems and then he gets into the idea that this is coming to all knowledge work and then that's where they're going a couple other quick notes I thought we're interesting he talks about token budgets

56:46so like when a coder is starting to work at a lab it's like what's my token budget meaning how much access to intelligence do I have how much can I spend using the AI myself to do my job and I think that might become true for knowledge workers like a marketer a sales restaurant say hey okay my salary is 150,000 a year what's my AI budget like how how much AI can I use to help me so if you're telling me I have to keep my flat my head count flat how many AI agents do I get and what's my budget on those AI agents that may sound weird that is already happening and coding and I could see in other industries by the end of 26 that becomes a regular conversation negotiations is like what is my agent budget so I would definitely go listen to this podcast again it can be kind of technical from a coding perspective but if you think about he's like pretend like he's just talking about your profession and replace coding with whatever you do I think it starts to give people a really good understanding of where this is all going and his like analogy the printing press I thought was really well stated about like I might be the

57:49best way to look at this so good interview Lenny does an amazing job it's a great podcast I would definitely go check out that episode all right Paul before we dive into rapid fire this week just one more quick announcement that this episode is also brought to you by our state of AI for business report so we are currently running a short survey to inform our 2026 state of AI for business report this is an expansion of our popular state of marketing AI report that we've done for the last five years so this year we're actually going beyond marketing specific research to uncover how AI is being adopted and utilized across the organization so to do that we're aiming to hopefully survey thousands of business professionals across every industry and every function we would love for you to be one of them if you go to smarter x.ai forward slash survey the survey literally only takes about five to seven minutes to complete in return for completing it will send you a copy of the full report when it drops and you also are entered to for a chance to win or extend

58:52a 12 month smarter x ai mastery membership so that link again is smarter x.ai forward slash survey we would love if you could take that for us if you have not already we'd love to hear from you and I'm just going to note so again if you're listening to this podcast we have a live audience with us today as I mentioned up front our master rumors and I just glanced at the chat so and I'm glancing at my x-feed as right now I can't see any updates on the entire thing but I do see that both Claude and chat gbt were having issues this morning not working could be completely coincidental maybe I don't know there's no right the conspiracies are probably already yeah this is like I haven't for conspiracy everything going on right now all right so let's dive into some rapid fire this week first up Jack Dorsey announced this week that his fintech company block is cutting roughly 4,000 employees which is nearly half its global workforce and he explicitly has named a i as the reason block will shrink from over 10,000 workers to just under 6,000

59:57Dorsey was pretty direct about the decision in a statement on x seed said we're not making this decision because we're in trouble basically was saying a significantly smaller team using the tools we're building can do more and do it better rather than cut gradually Dorsey said he chose to move all at once he was basically highlighting this idea that repeated rounds of cuts are destructive to morale to focus to trust that customers and shareholders put in a company and the market rewarded initially this decision block stock surge more than 24% in after hours trading and however some analysts have noted kind of pushback on the fact that block employed only just under 4,000 people before the pandemic they ballooned during a hiring spree to the very recent 10,000 plus workers and they raised these questions about whether AI is the real driver here or a convenient frame for reversing over hiring so pod let me get you're taking this there are quite a few polarizing opinions on this one some people think he's just like what they call AI washing or basically using

1:01:01AI as an excuse to let people go to correct for that kind of over hiring he's denied that I believe publicly in post on X others however saying this is the canary in the coal mine that signals a coming wave of AI driven layoffs where he do fall on this so he did address this idea that it's AI washing and he tweeted yes we over hired during covid because I incorrectly built two separate company structures square and cash app rather than one which we corrected mid 2024 but this misses all the complexity we took on through lending banking and BNPL I don't know what that means I have to look that one up and that we're now targeting two million plus gross profit per person do you have what it is by now pay later it's like like a firm and all those companies that let you like paying install okay exactly yeah okay so they're now targeting two million plus gross profit per person 4x our pre covid efficiency which stayed flat at 500,000 K or 500,000 from 19 to 24 we have and do run an efficient company better than most so he's basically saying like that is not

1:02:03the case we're already corrected for overhiring okay I'll just note Harry stepings who's one of my favorite podcasts host he's got 20 VC great podcast he tweeted this was yesterday morning I have spoken to three founders in the last 48 hours all of them with 500 to 1000 employees each of them is planning a minimum 20% headcount reduction said with great concern this is about to get very real for labor markets as I've said on the show many times I have talked to companies who have told me point blank they are gearing up 10 to 20% layoffs at any given moment they have contingencies in place of who those people are going to be it this is real like I do think that one person doing it sort of starts to give cover to the others or just like last year in spring we had Toby Ludkey start talking about the reflexive need for people to infuse that and everything they were doing and then it led to other you know CEO saying I think you're going to start to see this kind of thing it'll

1:03:05it'll it'll start in tech that's where it always starts with this kind of stuff but I have talked to a lot of non tech companies that are also planning for a 10 to 20% reduction of the workforce in 2026 yeah and I think it's interesting to see kind of the discussion and debate around these kinds of announcements because again I know this gets headlines and people start getting really polarized around it but really it's a fundamental point to me at the end of the day it's like when you hear something like Boris I applaud code saying developers or whoever now 200% more productive we see that in other forms of knowledge work the fundamental question is is that possible or is it not and I think the answer for us is a resounding yes that's possible if that's possible that doesn't happen in a vacuum that has ripple effects and that's why you have these people considering right leaders considering these decisions because if you can be that much more productive the math kind of does itself from certain financial metric perspectives I will see some people trying contradict this like well then why is anthropoclaring well because they're growing at 10 x per year

1:04:10in their revenue if you were growing at a thousand percent per year you would be hiring more people too right most companies aren't growing even double digit percentage so if you're growing at single digits and you can be wildly efficient and productive with fewer people you're going to do it and that's the reality it's like you can't look at these labs and say oh well they're hiring salesman well of course they've heard it's like high for growth companies yeah they can be 4x more productive is still need more people yeah all right so next up there is a research essay published this past week on substack that actually made it to Wall Street trading desks and triggered a very real sell off this essay it's called the 2028 global intelligence crisis it's written by James van Guilin of Satrini research and Alep Shah a former Citadel analyst and it basically models what could happen if AI displaces white color workers at the pace current capabilities suggests the thesis centers on what these authors call a human intelligence displacement spiral

1:05:11basically a negative feedback loop there's no natural break and they again pretty upfront say they're just hypothesizing their modeling one scenario but in this scenario as AI agents replace software engineers financial advisors and middle management companies start laying off workers to expand margins they reinvest the savings into more compute and accelerate further displacement the essay then kind of introduces two core concepts one is ghost to GDP where AI generated output benefits compute owners but never circulates through this consumer economy and the death of friction where AI agents optimize optimize away the inefficiencies that entire business models depend on so this hypothetical scenario unfortunately gets pretty grim it projects this doomsday economic scenario that results from these factors including a national unemployment rate reaching over 10% and S&P 500 crash of 38% from its peak and a deflationary spiral all by 2028 and the essay racked up tens of millions of views on X a prompted Citadel securities to publish a formal

1:06:16rebuttal the authors themselves clarified hey this is just a scenario not like a hard and fast prediction and poem curious whether or not someone disagrees or agrees with this essay like it moved markets and I'm curious why you think that's the case it just seems wild to me that this I mean random interesting analysis to be sure but just like a random essay can now take the market it's the most practical feasible analysis I've seen of what could happen so like if you think about like situational awareness and all the buzz that that series of papers created this is better in the sense that this is much more approachable and understandable to like the average business leader yeah or worker so I'll read a few excerpts I would highly recommend going and reading this whole thing so again we are not saying this has an 80% probability of coming to reality their whole point was to lay out a possible outcome and I will tell you reading

1:07:17this thing there was lots of it where I was saying it's greater probable outcome that this is close to the truth than what most people think and and that's hard to wrap your mind around but like I'll just give you a few things so they're writing this from the perspective it's like June 2028 and they're kind of summarizing what happened so it starts with the consequences of abundant intelligence says two years that's all it took to get from contained and sector specific which is where we are today to an economy that no longer resembles the one any of us grew up in the quarters macro memo is our attempt to reconstruct the sequence a post mortem on the pre crisis economy so then they're rewinding back October 2026 the S&P flooded with 8000 NASDAQ broke 30,000 the initial wave of layoffs due to human obsolescence began in early 2026 and they did exactly what layoffs are supposed to do margins expanded earnings beats stocks rally good block layoff 4,000 people stock was up 17% record-setting corporate profits were funneled back into AI compute the headline numbers are still

1:08:19great nominal GDP repeatedly printed mid-high single-digitalized growth productivity was booming everything's looking great the owners of the compute saw their wealth explode as labor cost vanished meanwhile real wage growth collapsed despite the administration's repeated boast of record productivity white color workers lost jobs machines and were forced into lower paying roles talks about the ghosts gdp where it's like it's improving but it's not really seeing the impact on the people in a positive way goes into how it started so again imagine the cut topics we just talked about with Boris and Claude it says in late 2025 agentec coding tools took a step function jump in capability go listen to the episode we talked about December 2025 and what changed a competent developer working with Claude code or codex could now replicate the core functionality of a mid-market SaaS product in weeks not perfectly or with every edge case handle but well enough that the CIO reviewing a $500,000 annual renewal started asking the question what if we just build this ourselves the companies most threatened by AI the software companies

1:09:22became AI's most aggressive adopters software was only the opening act what investors missed while they debated whether SaaS multiples at bottom was the reflexive loop had already escaped the software sector the same logic that justified service now cutting headcount applied to every company with a white collar cost structure by early 2027 large language model usage had become default people were using AI agents who didn't even know what an AI agent was in the same way people who never learned what cloud computing was used streaming services they thought of it the same way they thought of auto completers spell check a thing their phone just did it started out simple enough agents removed friction i will not i i would love to read the rest of this it's insane um go read it it is don't read it as fact don't read it as this is exactly what's going to happen but when i if you just think what i just read to you all of that is already playing out there they're talking about the reality of what is currently going on and they're projecting out how could this play out if the exponential curves that these labs are seeing remain true if back in February of 2025

1:10:28when boris looked at an exponential curve and said wow by the end of the year it's going to be writing a hundred percent of my code and he was right that's what's dictating all the decisions it's dictating why google has spent a 180 billion on capex this year all of those exponentials is why they're so confident in a future that probably looks closer to what this article says then what youth or others think the future looks like hmm all right so next step according to at least some measures public support for AI data centers appears to be collapsing so a recent poll by embold research found that only 28 percent of americans now support data centers near their communities with 52 percent opposed that's a net support of negative 24 percent down from barely positive 2 percent just months earlier so I was skewing slightly positive just months earlier data centers now pull worse than natural gas plants solar farms wind farms and nuclear facilities interestingly opposition on this issue appears to bridge the political spectrum left leaning advocates I get

1:11:33so people that do not support data centers are often angry about water and energy strain while right leaning activists view it as elite big tech overreach not that would both sides hate you not good when both sides good and notably the deepest opposition right now is among rural republicans with negative 20 percent net support and there's some really public facing issues that we're seeing where this backlash is becoming real for instance in south haven mississippi Elon Musk's Elon Musk's x AI actually installed 27 temporary gas turbines without permits to power its colossus AI cluster there's these run 16 to 24 hours a day there's been a bunch of reporting on residents complaining and fighting back they describe constant roaring pops high pitch winding an x AI spent seven million building a sound barrier wall that neighbors nicknamed the team who sound wall because it does almost nothing kind of like a cheap product you'd buy on team who and there are some lawsuits potentially in the works around this so Paul it's just really

1:12:36striking me like you said this issue cuts across traditional political divides I wonder like this really data centers could be the lightning rod issue going into midterms they're just like they take a bunch of boxes that in the way and not I'm not saying agree or disagree but like a narratively of like easy to understand for the most part really visible visceral kind of symbol of a lot of things people don't seem to like about AI yeah we've said many times one of the things that slows this down a societal revolt and you need a tangible thing to revolt against and this is an easy one it's easy to protest it's easy to like you said you know the videos online of the loud noises all that stuff is very tangible and understandable to people it'll be very fascinating to watch how they spin this politically because to your point like if Republicans in real areas where the data centers are going hate these things but the current administration is accelerationists in terms of like accelerated all costs forget EPA guidelines all the stuff like just build build build but if they find that the polls are moving based on people's hatred for

1:13:40these things all right it's like what what do you do then so I don't know the answers but this is a really interesting thing to watch to see if it catches steam and actually starts to affect messaging going into the midterms and then just separately like it's a problem like it environmentally which talk to a lot of people who worry about the environmental impact of AI this is a very tangible thing for them to latch on to and like focus on the impact it's having so it's a big issue on a lot of fronts you know one just final aside here I found interesting this is definitely way further down the line but we've talked about that plan to like build data centers in space and we'll see how that actually that ever happened but if someone made a really interesting point in a post online they were like hey you know what another advantage of data centers in spaces people can't go burn them down you know so in this idea of like hey you should know it was like a bad flat yeah you're every person right you know so I think they were kind of getting to this point that hey these are an unintended perhaps benefit of those is that they

1:14:41sidestep this issue but again this is yeah possibly a fantasy we'll see I don't want to spend a topic now on like data centers in space but like have you seen a report yet on like what happens when there's like two million of these things and they start like failing and they just burn up in the atmosphere I have it yet really like got down the center in space rabbit hole but I imagine a data center in space is pretty large so yeah I don't know what happens when it falls back to her there might be a good question for us to run through clot or something one of these days we'll go we'll go deep on data centers and squares exactly right all right so next up anthropic has published what it calls the AI fluency index this is a framework for measuring how well people are using AI so this is a kind of a study and subdata they collected the analyzed almost 10,000 quad conversations and tracked 24 specific behaviors that basically define effective collaboration with AI and they're kind of central finding as most people are still not using AI as effectively as they could and the better AI gets the worst this problem becomes because there's this kind of

1:15:44headline finding here that the verification gap is still a big problem we've talked about this so when clawed produces polished artifacts like working apps code formatted documents they found that users become more directive but less evaluative so the better the output looks the less people question it obviously anthropic says this is exactly backward and so they recommend a few things people can do here so first stay in the conversation treat the first response as a starting point not the answer they found conversations with iteration showed roughly double the effective behaviors of those where users accepted the first output second question polished outputs most of all the moment something looks good that's exactly when you should pause and start verifying things and then third they say set the terms of collaboration up front only about 30% of users explicitly tell clawed how they want it to interact but those who do show dramatically better results so Paul I found this to be a valuable read glad anthropic is putting it together but I guess I just stuff to ask we're three plus years into this and we're literally still coming out just now with

1:16:48these like again really good but like basic stuff and clearly even advanced clawed users or maybe further ahead of the curve people are not using these tools appropriately you goes back to the frontier lines thing about the lack of adoption and understanding of what these things are really capable of in enterprises in particular and I was glancing at this getting getting ready I was thinking back to episode 193 where I talked about like basic intermediate and advanced users yep so like the basic user treats it as an answer engine the intermediate user more as like an assistant and advisor through continuous prompting and dialogue and then the advanced user co-worker on demand subject matter expert like that's how you think about it and I really like the one chart they showed about behavioral indicator prevalence and so it like prioritized these different traits it's like iterates and refines is really important clarifies goal before asking for help provides examples of what goods look looks like specifies format structure needed sets interaction also kind of like sets out like what are the people who are doing it right doing and I think

1:17:48that was like a helpful chart to see and again like a good report to go look at to understand kind of where we are but again I always comes back to we are nowhere near as far along as most people think like yes there are some power users doing incredible things like one of my buddies I was walking into basketball Thursday night and one of the guys building like an AI native startup he's like you mess you play with open claw you got it so I was like dude I don't mess with that stuff like I don't know what I'm doing with open claw I'm not turning that thing loose on my computer so it's like you have these people are just like racing out in the frontiers and doing all this cool stuff but most people are still like it's just an answer engine like I just give it a prompt and I'm happy you're not happy with its output all right next step anthropic has accused three Chinese AI labs deep seek moonshot AI and mini max of running industrial scale distillation attacks on clawed using more than 24,000 fraudulent accounts to extract over 16 million exchanges worth of training data so distillation is like the attempt to kind of train a weaker model on a stronger models outputs and it can be a legitimate technique when it's applied internally but

1:18:52anthropic is alleging these campaigns basically amount to systematic intellectual property theft so the scale varied by lab mini max ran the largest campaign with 13 million exchanges moonshot AI extracted 3.4 million exchanges they were actually focus more on tool use and computer vision deepsakes campaign was smaller at 150,000 exchanges but targeted reasoning capabilities so anthropic frame this as a national security issue arguing that elicitly distilled models lack safety guardrails and can feed capabilities into military and surveillance systems interestingly enough Elon Musk had to win on this as well responding on x by calling anthropic hypocritical he basically is referencing the fact the company just settled for 1.5 billion dollars over their use of copyrighted books to train quad and he mentioned the anthropic guilty of stealing training data themselves at massive scale so I know this is a bit of a technical topic but it does have pretty big implications for kind of the ecosystem overall

1:19:54doesn't it yeah so it was interesting because anthropic google and open air all in the last like 21 days said the same thing is happening to all of them yeah so it's obviously a concentrated attack by the Chinese firms to do this to like steal how it all the weights and how it works and things like that there was an NBC news report in early February it's a Google says its flagship AI chatbot Gemini has been inundated by commercially motivated actors or trying to clone it by repeatedly prompting it sometimes with thousands of different queries including one campaign that prompted Gemini more than 100,000 times interestingly and tying back to the clawed thing I was just trying to find it and so there's this uh who is this guy it's like the undersecretary of war I don't remember his name is I'll finally put it in there but I tweeted like he tweeted something about uh okay so he was attacking anthropic it was on like Sunday and one of the lines in his tweet was what's ironic is that there's been no bigger thief of america's public information

1:20:55identity in mass or creators works than anthropic search the lawsuits so I read I usually stay out of this stuff but I couldn't help myself so I retweet and said is anyone gonna tell him they all did this yeah and so that was I let it go and then I see this morning that he someone did because he deleted the tweet removed the part about them stealing everyone's copyrighted material and retweeted his original tweet minus the part about it's not stealing every stuff because they're all doing it so unfortunately this is the PR battle that the AI labs aren't going to win because everyone's like well you still are stuff who cares if they're stealing your stuff right it is a major problem it is important that they stop this from happening they're not apples to apples but I get the whole like you stole our stuff it's cool if they steal yours but right we don't want this happening this is a bad precedent all right next up in video reported fourth quarter revenue of sixty eight point one billion dollars up seventy three percent year over year they beat analyst expectations with these latest earnings uh the expectations were sixty five point eight

1:21:59billion data center revenue hit sixty two point three billion now more than ninety one percent of total revenue a segment that has scaled nearly thirteen times thirteen x since chat GPT launched in late twenty twenty two um so their full year revenue reached two hundred fifteen point nine billion net income hundred twenty one point one hundred twenty point one billion guidance for next quarter came in at seventy eight billion dollars more than five billion above what analyst expected you would typically think that should be good for in video uh however despite the beat on every metric and video shares fell five point five percent following day erasing roughly two hundred sixty billion dollars in market value the largest single day decline since April twenty twenty five can you clarify this from a poll it certainly seems like these should have these results should have delighted markets yeah I mean they're they're basically projecting out years in advance now on demand it it makes no sense when you look at it on the surface I don't pretend to be a day trader smarter than yeah irrational markets in essence um I'm just looking at other down

1:23:05four percent I don't yeah um Dow and NASDAQ reached down about one percent so in videos down significantly more than the market as a whole um despite you know that I don't know how much I'm starting a war has to do with this but um that like it doesn't it seems like the market as a whole doesn't care that we're we're doing what we're doing in the middle east um so I think it in videos basically just being punished for I don't know what for for for breaking records and projecting well I I don't try and figure this stuff out I just bet long term on companies I think are going to do really well as there's more demand for AI and I would consider Nvidia to be one of those companies well also just worth looking at those numbers regardless of the Wall Street response just because I mean who knows if we're in a bubble how long this will last but those numbers are still going pretty strong yeah I think the biggest problem is that there's the revenue is centered on eight companies probably predominantly and people worry about that and the circular investments are real like they just put 30 billion into open AI that's going to be spent on 30 billion on Nvidia chips like right and so some people worry that it's very bubble like in how this is the mechanisms with

1:24:10which these investments are working is we'll put money into you you will turn turn around and spend that money with us and cloud costs chip costs things like that and I get that I don't I'm not debating that that's interesting yeah for sure all right pulsator wrap up here we've got a number of AI product and funding updates I'm going to run through these very quickly as we wrap the episode you have anything to add please chime in so first up google release nano banana two it's next generation image model that combines the quality of nano banana pro with sub second generation speeds including in 4k images is rolling out now across the Gemini app in 141 countries separately google acquired producer AI formerly the viral AI music tool called refusion bringing the startup in Google labs and pairing it with deep minds lyria 3 music generation model this platform lets you generate full songs create music videos and build custom instruments from text prompts with paid plans starting in eight bucks a month and thropic has expanded its co work platform with a number

1:25:15of enterprise plug-ins which are prebuilt bundles of skills and tool connections for specific job functions including HR design engineering finance and operations the update also includes private marketplaces for internal deployment and new connectors for google workspace docu sign and fact set among others peak elabs which is known for its AI video generator pivoted into a different product entirely creating persistent AI digital twins called AI cells users upload a selfie record their voice answer personality questions and set their AI loose to act autonomously across slack what's app i message and social platforms the company launch this with a retro futuristic infomercial and its employees own AI cells tweeted autonomously about the product last but not least there is some more shake up at thinking machines lab two more founding members of mirror maraudis thinking machines lab quietly left for meta bringing total departures to at least seven since the startup launch less than a year ago this company has raised two billion

1:26:19dollars so far to twelve billion dollar valuation but is lost co-founders and early researchers to both meta and open AI driven by what fortune is reported as money constraints compute constraints any lack of clarity on product that is an aqua are waiting to have if if thing that doesn't get acquired the next 90 days i would be shocked and one final note here like we always do we now have a new AI poll survey that will go live for this week based on this week's topics of the two questions we're going to talk about are where do you stand on the anthropic Pentagon dispute over AI safety red lines and then second block cut nearly half its workforce this week and named AI is the reason what's your reaction be very interested to see the pulse of those two questions what changes between now and next week yeah no kidding so go to smarter x dot a i forward slash pulse and you will find this week's survey there when you hear this episode on Tuesday March 3rd and we would love to hear from you so Paul really really appreciate um you break and everything down for today

1:27:24you know thanks to everyone for tuning in to episode 200 whether you're joining us live or listening to us on your podcast streaming platform uh if you want to catch the q and a that we're about to do uh offline here AI mastery members can watch it in your account and if you're not a member yet head to academy dot sparter x dot a i to join and get access so Paul thanks again yeah and thanks everyone for the 200 episodes like i you know this time last year we had about 40 thousand downloads a month and now it's about 130 thousand downloads a month so the listeners ship to the podcast is as blown up in an incredible way and i know Mike when we're out in the public and get to go do talks and stuff like the amount of people come up to us and say they listen to us every week it's it's awesome to see and it's not something we ever expected um we literally just started doing this to synthesize information every week for ourselves it was a pretty selfish reason why we started doing the weekly you know four plus years ago um so yeah we're just grateful for everybody that listens and for all the personal notes we get and um you know for the grace when you know maybe we don't always stick as closely as we try to neutrality and everything we say and do um

1:28:30you know we're doing our best so yeah hopefully we'll have another couple hundred episodes and we can celebrate we're gonna try and do something special 300 so yeah hopefully we'll get to sometime next year we'll get to number 300 so thanks everyone for listening and for our a master member stick with us we're gonna get into the q and a so everyone have a great week i'm sure we'll have plenty to talk about next week thanks for listening to the artificial intelligence show visit smarterx.ai to continue on your a i learning journey and join more than 100 thousand professionals and business leaders who have subscribed to our weekly newsletters downloaded AI blueprints attended virtual and in-person events taken online AI courses and earn professional certificates from our a i academy and engaged in a smarter x slack community until next time stay curious and explore a i