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

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, 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

on 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

Mastery 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

and 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

realistic. 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

preparing 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

religion. 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

companies 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,

whether 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.

They 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

completely 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

the 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

happened 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

interview. 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

Friday? 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,

this 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

alone. 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

networks 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

what 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.

They'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

budgeted 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

path 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,

raised 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

making 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

ethical 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

this, 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

it 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

this, 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,

and 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?

You 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

and 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

moment 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

essentially 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

came 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

session 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.

I 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.

So 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

to 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

they 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

co 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

like, 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.

Yeah, 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

Google 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

other 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

committed 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

of 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

tech 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.

And 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

their 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

interview 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

the 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

would 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

interesting 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

much 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

so 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

best 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

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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

a 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

Dorsey 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

AI 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

the 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

it'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

in 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

basically 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

rebuttal 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

this 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

great 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

became 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

when 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

so 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

striking 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

these 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

sidestep 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

headline 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

these 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

that 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

anthropic 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

doesn'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

identity 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

billion 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

four 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

which 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

of 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

dollars 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

you 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

you 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

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