15% on all goods coming from Europe, 0% on US goods going to Europe. So an opening up of Europe markets, paying us 15% and on top of that getting commitments like $750 billion, almost a trillion dollars of energy purchases from the US. Or look at Japan, which they announced last week, another huge market. Again, similar. They're going to pay tariffs to the United States. No tariffs imposed on the United States. And they're going to invest $550 billion dollars into the US in a way the president gets to direct. So I would love I would I just think we need to give the president credit where credit is due. Everybody said this was going to lead to retaliation to trade wars was going to be disastrous for the US and all we've seen so far is deals, deals, deals, deals. And I have to say, if this was the CEO of one of our companies, right, let's say we had a board meeting at the start of the year and he outlined these plans and we said, "Hey, we're really nervous about this. You know, this is a high-risk, high-reward strategy. It's either going to backfire and we're going to fire you or it's going to work really well and we give you a bonus." If we're measuring them halfway through the year, I would say that he's in line for a bonus.

[Music] [Applause] [Music]

All right, the summer pods back in action. Uh, good to see you guys. We have our good friend Sunny Madra, the COO of Grock, joining from, I don't know, Sunny, it looks like some fancy hotel in Saudi Arabia in the middle of the night. Good to see you.

>> You picked it up. You picked it up. You have a good, you have a good eye for the Middle East. And Bill, Bill, you got off your boat catching bluefin tuna. You're, uh, you look like you're in some office somewhere. So good to see you.

>> I am, uh, borrowing Mitch Lasky's incredible podcast setup in, in our Woodside office with the, uh, Oh, nice, high-def SLR camera.

>> Nice. You're looking, you're looking good. Sunny, of course, our good buddy Sunny is the COO of Grock. Um, I don't know, Sunny, probably a few hundred million of revenues, maybe doubling year-over-year. I just saw something. You're rumored to be raising $600 million at a $6 billion valuation. Maybe that has something to do with you being over in Saudi Arabia. Um, and of course, you're hosting all the, uh, open-source models in, in your inference clouds around the world. Is that about right?

>> Yeah, you got, you got it right. You touched on all the key points. You know, we don't comment on speculation, but you touched on some good points.

>> Well, it's great to see you in DC last week. Um, you know, our good friend David Sachs is really on a heater. First, it was the crypto summit a couple weeks ago. Of course, the Genius Act got passed, which really teed up these stable coins and, and, and now the Clarity Act around market structures making its way through Congress. And then of course last week was the AI summit where the president laid out, um, a multi-prong strategic plan for American AI that both extends the government's investment and, and leadership, um, but also accelerates the distribution of the American AI stack around the world. Both of those things, both the crypto and the AI summit that he put together, I thought are key contributions really to the next generation of American technology leadership around the world. It's amazing to see that much progress in six months. Congrats to Sachs and the rest of the team. Catios, Dean Ball, Sriram, they really all kind of brought it, brought the heat.

>> Yeah, for sure. Of course, the AI action plan was focused on maintaining global AI leadership, particularly over China. And I hate to say it, but we have really been our own worst enemy. You know, it seems like excess regulation on everything from energy production to model development to semiconductor chip distribution. It's really been a bit of an unforced error by the US over the course of the last 24 months and handed a lot of momentum to China. And I think really threatened our leadership. So, this is kind of a 180 to get America back on track. You know, we've underestimated Huawei and the Chinese AI development, model development really at every step of the way. So, I want to kick off today talking about recent developments with the base models and reasoning models coming out of China because, you know, we had this freakout moment earlier in the year with Deepseek that we all remember. Remember, Nvidia stock plummets. Everybody in Washington's talking about it.

>> But since then, you know, people kind of forgot about Deep Seek. But the reality is China's been on a roll. I mean, they're dominating the global landscape for open-source models. We've seen six to seven high-quality open-source model providers, many of the fastest growing in the world. And this at a time when American open-source, right, Llama 4, has been sputtering a bit, really losing its mojo around the world. Um, so Quen, the open-source model out of Alibaba, has passed, I think, 400 million downloads. Of course, that's released like these other models under the Apache 2.0 open-source license. So, very open, as Bill's talked about. But, Sunny, you tweeted, and one of the reasons I wanted to get you on the pod this week is you tweeted, you know, that the all of these open-source models are really coming together in China. Um, they're leveraging one another. They can distill and generate synthetic data on each other's work. And you went so far as to suggest this might allow them to pass the best proprietary models coming out of the US, um, yet this year, maybe by Q4 of this year. So why don't we dig in there? What is your theory of the case? Why is China, you know, doing so well in open source? And should US model companies like OpenAI and Anthropic be concerned?

>> Yeah. So, uh, let, let's kind of tie it into, I think, three important things that we see happening. The first one being, you know, the Chinese and, and the president addressed this at the AI summit, right? He addressed, um, the, the point around using copyrighted work and he says, you know, he used a great example. If you read a book and you use it, you're not violating the copyright there. And so, he addressed that concern and that was one of the major things that, you know, a lot of people didn't talk about, but I think it's important for the model makers. And so the Chinese just have been able to work around that because of, you know, their position on IP. And what we're really seeing here, and I think, you know, Bill teed it up even better off of my tweet, which is, um, you know, they're able to compound. So what you're seeing very quickly is both the open-source nature, the open weights nature, uh, allow them to basically compound on each other. So instead of working in silos and instead of having to create giant training clusters, um, separately, they can basically take each other's work, build on top of it, almost consider it like a remix of someone's model. K2 sort of a well-known remix of what, what Deepseek had done. And now we're starting to see that happen really fast and we're seeing two dimensions of it going quickly. One, we're seeing the leading edge models getting quicker and we're then seeing them distill down smaller, you know, turbo models really, really fast as well. There was a, a release today of a Quen, you know, 30 billion parameter model which is performing as good as GPT40. So think about that, right? And GPT40 was, you know, world-class not that long ago. So those are the reasons that we're really seeing an acceleration right now.

>> You know, it, I want to dig into this model development in particular. You know, a year ago we were talking about these models being these, you know, stochastic parrots, um, you know, and we really had to compress the entire internet. So you go back to GPT4, you know, and, and, and you're compressing, you know, the entire internet. But now we really don't need to do it because we've trained them to use tools like the internet, right? They're true reasoning engines. When I ask a question today, you know, it doesn't just spit out an answer immediately. It goes and uses the tool and it searches the internet. Um, so if you don't have to compress all this Wikipedia information, I don't know, take, take a subject like World War II, you just need to know how to go out and use the internet to find the information to summarize it in real time. How has that changed the pace of progress and the balance between open and closed?

>> Yeah. And so it's spot on, right, Brad? What we see now and you see it when you use these reasoning models and what I suggest everyone do is when you're using a reasoning model, you can usually expand out its thought process. So when you ask a question, it'll say, "Oh, the person is asking a question about this. What should I do? Let me go and maybe search the internet. Let me go do a few different things." It can have a lot of different tools. And so the push has been towards, you know, really, really strong reasoning models. And, you know, we have to give credit there. OpenAI really started that with 01, that was really the first reasoning model that was put out there. But I think on the back of the research, church, in the back of what, you know, everyone talked about and, you know, the pod's good friend, Noam Brown, was the leader on that program. Everyone's been able to look at that and say, "Let's reframe the problem." And this allows us to build stronger reasoning models that don't have to compress, like you said, all the internet's information. And once they're coupled with strong tools, you start getting these really, really incredible results that don't even just show up in benchmarks because none of the benchmarks really allow you to use a tool to answer the results. And if they did, we're going to see a whole bunch of new set of results that happened there.

>> Hey Bill, just in many ways I think this validates what you were arguing over the last 6 to 12 months. You said this was likely to happen. Everybody knows you're, you're one of the biggest proponents of open source in the world. Um, and you were telling people, don't make, you know, the Chinese are going to use open source to their advantage and now we're seeing that in a really profound way. Why is China so successful here and what, what, what can we learn from them?

>> Well, I, we've talked about it in the past. I won't dwell on it, but China got excited about open source about 20 years ago. It's not a new thing that's happened. And you can imagine when, um, most of the world accuses you of IP theft, that that embracing something like Linux and all the other software open-source products, um, seems very appealing, right? And so I think it became kind of a common way of operating within China. Um, and it, you know, it's a country that hasn't prioritized, uh, IP protection the way we have, you know, around patents. And I, I could make an argument that, you know, there's way more prosperity if ideas are shared instead of instead of protected. But, um, I don't know, the one thing I don't know is in the in the current AI situation, you know, was the government promoting open source and encouraging it or did it just develop through competitive forces, right?

>> But, but now you have, you know, a scenario where these companies, you know, are, you know, are first of all, there's new ones popping up. And so, you know, I almost feel like an idiot when, when Kimmy comes out and Moonshot and, and, and this week, I guess I don't even know how to pronounce it, Zippu, you know, releases a model and I go on Pitchbook and I look it up and they've already raised $1.4 billion. So, shouldn't have been a secret, but I didn't know about it, you know. Um, and all of a sudden they're in the leader tables on Open Router and like, "Oh my god," you know, they're coming out of everywhere. Um, and what it shows you is just that when you have a competitive dynamic where every single player, and I think there may be seven or eight deep-pocketed players with open models in China, they, they all learn from each other extremely fast. And, and in this case, unlike software, you can use one model to distill the other and make it better. So, it's almost like an accelerated, you know, form of that and you just get massive quick co-evolution. And I, I came up with a, a, uh, a little analogy for people. I'll try and do it quickly, but imagine you had two communities. They're both farming communities and, and let's say there's 10 to 20 farms in each. And in one community, they come into the farmers market once a week and they just compete by selling their products, but then they go back. In the other community, when they come into farmers market, they also, in addition to competing and selling, they, they're forced, I don't know who would force them, but they're forced to share all their best practices from that week with everybody and everyone does it and everyone shares their best practices. And then if you ran that exercise over two years or whatever, obviously the community where the best practices are shared across all farms is going to have a higher global output for the community than the one where you've just got proprietary ideas, uh, driving, you know, the individual and, and just competition without the idea sharing. And that may, like, even me saying that may cause some people to scream, "That's socialism," or like, you know, they may not understand open source or how it works or why. Um, but, but I do think you end up with a higher fitness level for a community that's behaving that way overall. You may end up with a lot less chance of a breakout monopolist like we've had in many of the sectors in, in American technology.

>> Well, I mean, let's, let's just assume the Chinese government is in fact encouraging this in whatever ways, right? I mean, if you look at the release of the AI action plan last week, the Trump administration, you know, had a section,

>> They did,

>> which is about encouraging open-source and open-weight models in the US,

>> saying that these could become standards in some businesses and academic workloads. And it's important they're built on the American AI stack. So, you know, as an aside, the Chinese quickly followed, uh, you know, the American AI plan. I think they released theirs a couple days later where they called for the establishment of a global AI cooperation organization,

>> which I thought again is, is, is interesting. So, you know, Bill, how do you feel about, you know, like we, we haven't seen that much traction in the US labs, uh, on open source? Obviously, Llama has been probably the market leader there, but this is for both of you. Uh, you know, handicap for me if you will, how you think this plays out. First, Sunny, maybe you start. What do you see at Grock? Do you see a lot of demand for these Chinese open-source models? And if so, what would it take for an American open-source model to catch up?

>> Yeah, one of the, uh, things that we should pull up is the chart of intelligence to price. And one of the things that you see with the leading open-source models now, which are the Chinese, is 90% of the quality in terms of intelligence, but at a 90% price discount. And I think whenever you offer that to anybody, you're going to see people want to use that, whether it's individual developers or enterprises. And so we're seeing that.

>> Let me interrupt there real quick. So if you're looking at this chart, right, in the top right of that chart, uh, you'll see a cluster of these Chinese open-source companies, right? And the vertical axes here being really intelligence, the horizontal axes from left to right being the cost per million tokens. And so you really want to be in the top right of, of, of that model. High intelligence, low cost. And what this model, what, what this, uh, uh, chart shows is that you, you know, to Sunny's point, you can get 90% of the intelligence right for 10 or 20% of the cost. And the result, I assume Sunny, is that you're seeing huge demand at Grock and in Saudi Arabia where you are right now for these Chinese open-source models?

>> We are. And then now just taking that forward. What do people want? They want some accountability. And that's what you'll get. That's what you sort of got out of Linux and say Red Hat, right? As, as great as Linux was and Bill was touching on it, the majority of the enterprise was using, you know, a distribution which they could go and, you know, point to someone if they needed something. And so I think the world wants models that they can get from companies that they can go to. And so to answer your question, what happens? I think if we look at Q4 this year or Q1 next year, I'd be willing to say, you know, the a top three worldwide model will be a US-based open-source model. And, you know, we've got two big efforts happening there. We know we have the OpenAI open-source, which, you know, a lot of people have been working on and OpenAI, and even, you know, Sam has commented on that and its release later this summer. And then we have all the efforts by Meta. And if you take, you, you combine both of those things together, I don't think you end up with something that ends up further down the list in terms of intelligence and/or price.

>> I, um, one thing I wanted to highlight about the China situation that I think might inform the US situation. I was, um, I was having a conversation with this extremely young AI entrepreneur that I know and he, he, he was pouring over the, the Zippu, I hope I'm pronouncing that right, paper and, um, he asked me some information. I went on Pitchbook and sent it to him, who had funded it. And he, he, he, he asked me, he says, "Why is Alibaba funding all these things when they've got their own model?" And because they're in several of the other competitive plays. And it reminded me of, you know, a lot of the, the, the points that I've made about open source is like, if you're not, if you're not confident you're going to win on offense, you want to play defense. And so for any large tech company, commoditizing a, a potential threat is, is actually quite valuable. You know, you look at what Facebook did with the open compute initiative inside of their data centers. And so, you know, it may just be very well be that that Alibaba just wants to make sure there's no ByteDance, you know, that equivalent in the AI space. And that would be pretty rational. And the reason I think that's an interesting data point when you think about the US and, you know, there, there are several big tech companies that seem to be not on the bleeding edge of AI. You know, you got Microsoft, maybe, I mean, they have access to OpenAI right now, but they might lose that or whatever.

>> You've got, um, Amazon, you got Apple. You know, if I'm at any of those companies, I'd be funding an open-source competitor, you know, rather than funding, you know, like Amazon with Anthropic. I think you're in a much better position to encourage open source. And so, I actually think we may

>> But Bill, are there, are there, are there a bunch of open-source startup models in the US?

>> That's where, that's where I was going next. I, I think you're going to see new entrants, um, pop up, um, that, that, that try to co-evolve with the Chinese models. You know, is Linux American? Is Linux Chinese? Like, no one thinks of it as having a, a domicile, right? And so, um, this is just me predicting. I don't, you know, I, I just think you're going to see, just like you saw, um, Kimmy and, and Japu pop up. I wouldn't be shocked if you see other new entrants pop up that are trying to be, um, like sanctioned or, or, you know, cleaned, you know, use Red Hat as an example, Sunny version of these things because I think if you start with access to those Chinese models, it wouldn't take you long to move into a near place and you wouldn't have to spend the kind of money the foundational model companies have. Um, and, and then you may see a big fight around regulatory capture where they, someone tries to say that's not allowed or whatnot. But I, I do expect to see that. And if I'm the Mistral team, if you're not distilling on these Chinese models, I don't know what you're doing right now, but I don't have any data on that front.

>> OpenAI is rumored to be launching their open-source model any day. Sunny, what would they have to do? So to your point, you predicted, go back to the intelligence and pricing chart, right? So if OpenAI was in the top right of that chart, i.e. if they're able to deliver something at the, the intelligence of let's call it Quen, and they're also able to deliver it to market at, you know, 20% of the cost. It would seem to me that actors around the world, certainly actors, it would be, uh, you know, part of the American AI action plan, we'd want everybody in the world to use that model. And do you believe they have a shot at out-competing, being the upper right, you know, by the end of the year? And, and, and if so, do you think that will be the outcome? Like these companies that are using Quen on Grock, do you think they would prefer to use OpenAI so long as it was equally capable and equally price-performant?

>> Yeah, one of the, uh, things that we should pull up is the chart of intelligence to price. And one of the things that you see with the leading open source models now, which are the Chinese, is 90% of the quality in terms of intelligence, but at a 90% price discount. And I think whenever you offer that to anybody, you're going to see people want to use that, whether it's individual developers or enterprises. And so we're seeing that.

>> But Bill, are there, are there, are there a bunch of open-source startup models in the US?

>> You've got

You know, uh, demand that that they have. Um, ultimately, what I've said all along about Google is there are many ways the best-positioned company in the world, but a lot of their advantage, right, is no longer much of an advantage. Right? And namely, that, you know, they were the dominant place where the consumer started every single query, and we know today that's just not true. And, you know, when people are looking for answers, Bill's book is not in Google. Bill's book is in, you know, ChatGBT. And that's the >> Actually, it's in Google Docs, but, but you're right, you're right. The knowledge of it, the knowledge of it, >> the knowledge of it, and the interaction, and the the token generation. So, my only point is this, >> the battle for the consumer is ultimately where the value occurs, Sunny, not who runs, you know, what hardware. And so Google's dominance, it's been the greatest business in the history of capitalism for 20 years because they owned the consumer. They owned the verb in something that was extraordinarily high margin. And all I would say is the first real threat in 20 years came about because in the ChatGBT moment, it's continued to accelerate. I think ChatGBT will cross a billion weeklys like maybe this year. Um, you know, probably this year, I would guess. Um, and so that to me has always been the case, right, for OpenAI. And when you look at the rest of these frontier labs, the case you've made throughout this pod, about seven of these models in in in in China, being able to open source, distill off one another, drive up intelligence, drive down cost. What that tells me is the model layer is being increasingly commoditized, and that there's not going to be a lot of intrinsic value in in in that intelligence layer, that operating layer. You're going to have to build applications that guys like Bill Gurley and and you and I are using every day. And that's where the battle is on the consumer side. You're going to have the exact same battle when it comes to coding agents and general enterprise applications. And I've said there, I think it's going to be more of a uh uh, you know, heterogeneous world. I think there are going to be lots of players that compete. I think the margins will be lower. Yeah. >> Uh, in that world, but it may very well be that the tide is going up so much here, right? The whole world is transforming so much around this that you're still going to have lots of players who do incredibly well. I have to say, I'm surprised if you would have told any of us a year ago or 18 months ago, right, that the combined enterprise value of OpenAI and Anthropic together would be over half a trillion dollars. And you throw X.AI in there, it'd be a trillion dollars, you know, across the the three of them roughly. Um, it's bigger and faster, and the compute demand is higher than any of us, I think, anticipated. Sunny, hopefully we can keep you on here for a bit. We're just going to wrap up with a um, you know, a topic that I think has dominated really the conversation in the markets over the course of last year, and that's been about tariffs and kind of the reordering of global trade. Bill, you, I know you had some some questions, some thoughts about it, and I'm I'm happy to dig in and talk about it as well.

Well, I mean, I would I would really just love to hear from you, Brad. The the the markets got very nervous when the um, what was it, Liberation Day, when when the kind of unpredictability of how big some of the numbers were and what that might mean, and whether we were walking away from the notion of comparative advantage. And and I think the markets got spooked. And, you know, I think you turn around and look at where the markets are today, and and we've really gone through an evolution of how Wall Street is interpreting the both the initial um launch of the tariffs and the reality of where they're landing. So, how would you describe that? And and why do you think the markets are getting um very comfortable with the where where they're landing?

I mean, not only comfortable, we're at all-time highs. >> You know, and and April 2nd, I was uh going, you know, on CNBC saying the nuclear Navarro was going to be a disaster, and I'm out, right? And that's this the the amazing thing about this administration is there's really uh, you know, it's a team of rivals within the White House. And you had Besset and Lutnik, who were basically outlining this plan for, you know, let's call it 10 to 15 to 20% tariffs across the board that would amount to about $300 billion in total tariffs, up from $75 billion uh in 2024. But you had Navarro, who was basically saying, we're going to replace the Internal Revenue Service. We're going to get rid of the income tax, and we're going to have two trillion of tariffs. Okay? And I was very clear, and I think the market was very clear. We all voted with our wallets and we said, until the president tells us whether it's door one or door two, we're out. >> The market shot first and asked questions later. And that's where you saw that huge drawdown in the market. The NASDAQ was down 21% right at its trough this year. Now the NASDAQ's up over 10. It's a 30% move in about 60 or 70 days, which is extraordinary, even by the historical patterns that we've seen over the course of the last five years.

But let me back up here for a second. >> I think the consensus view of all economists, right, 90% of economists is that tariffs are going to be bad. They're going to be a tax that gets paid by the US consumer. There was a small group led by, you know, Scott Bessant and Kevin Hassid at the National Economic Council that said, no, it's actually going to be different this time. And the reason it's going to be different this time is their theory uh argued was that the world had become dependent upon exporting to the United States. So that the total trade deficit to the United States of goods and services was about $915 billion last last year, a $1.2 trillion goods deficit. And that basically meant that China was selling a lot more to the United States than than they were buying of US goods. And and so what Bessant and Hasset postulated was that these countries have no choice if we impose a tariff on them, so long as it's not draconian, 70%, 80%, what Navarro was talking about, if we impose a 15% tariff on them, they have to eat it. The producers have to eat it because otherwise they're going to end up laying off millions of people in Vietnam, in China, in these countries. And politically, they can't afford to lay these folks off. So that was their theory of the case. The consensus economist said, "No way is that true. You're going to see massive inflation."

But what have you seen? You have not seen the in the the inflation percolate through. I will caveat this by saying, yet. >> Okay. So here we are in July. The e the consensus economist said it would have already happened. And the National Economic Council was out with a paper last week that deconstructed core PCE. So that's the uh uh uh, what the the best proxy the Fed watches for inflation since the start of the year. And it showed this was really interesting. Import prices have been going up at a slower rate than domestically produced goods. Okay? So this is the exact opposite of what you would have expected from tariffs. Of course, you would have expected the imported prices would have been going up more than domestic uh goods. And so we'll show these charts um and we'll we'll put the link to this paper. People ought to take a look at that.

But to me, um, when I look at the president's, uh, the deals he's landing, the deal he just got announced yesterday with the European Union, 15% on all goods coming from Europe, 0% on US goods going to Europe. So, an opening up of Europe markets, paying us 15%, and on top of that, getting commitments like $750 billion, almost a trillion dollars of energy purchases from the US. Or look at Japan, which they announced last week. Another huge market. Again, similar. They're going to pay tariffs to the United States. No tariffs imposed on the United States. And they're going to invest $550 billion into the US in a way the president gets to direct. So, I would I would I just think we need to give the president credit where credit is due. Everybody said this was going to lead to retaliation, to trade wars, was going to be disastrous for the US. And all we've seen so far is deals, deals, deals, deals. And I have to say, if this was the CEO of one of our companies, right? Let's say we had a board meeting at the start of the year and he outlined these plans and we said, "Hey, we're really nervous about this. You know, this is a high-risk, high-reward strategy. It's either going to backfire and we're going to fire you, or it's going to work really well and we give you a bonus." If we're measuring them halfway through the year, I would say that he's in line for a bonus based upon the trillions of dollars that are going to be coming into the United States and the fact that we now have a 300 to a $350 billion recurring, you know, stream of revenues into Treasury in the form of these tariffs, which are being paid. And and and I think Bessant said last week in the month of June, we had our first surplus in the United States monthly surplus since 2015. >> Right, because of the tariff revenues that are coming in. So I will say this, I was on the fence. I knew the nuclear tariffs, the trillion or two trillion, I knew that was a disaster. I said if we landed the plane where Bessant wanted to come in at $300 billion, I thought there was a decent chance that those prices could be passed on in the home countries, and so far it looks like that's the case.

>> Do you have any concerns? What's the uh anything you're watching out for?

Well, I think the the number one thing is core PCE. H did bottom last year and it started to tick up, and so we have to keep our eye on inflation. And of course, I think it's almost impossible to conceive that we would have totally reordered the entire global trading system on the first pass with zero mistakes. So, we're going to have some some goods and some products that, you know, consumers are US consumers are going to end up paying the taxes, and we're going to have to go back and fix some of these things. But, I will say that it's turning out massively better than consensus criticisms. I mean, remember Larry Summers at the CO2 event. >> I mean, this was just a few months ago, and he was saying this is the biggest economic disaster of of his career. And I I don't think you can describe it that way. The markets are the voting machine is telling you, and these are a lot of sophisticated investors. The voting machine is telling you that no retaliations, no trade wars, all these deals getting done um uh works for the US economy. And I will tell you that the Atlanta Now Fed tracker, which tracks real-time GDP, has now ticked up back to 3%. So after going down a lot in April, it's bounced way back up. So economic activity uh appears to be going up. And then one final thing here, remember one of the key reasons for doing this, right? Wasn't just because we were, you know, there was I mean, the EU conceded in the trade negotiations that they that our relationship was unfairly balanced in the direction of the EU. I mean, they said that's the starting point. So we have to rebalance it. But on top of that, a key reason for doing this was to support the domestic production of critical national industries and to make our supply chains more resilient, chips, data centers, energy production. At Altimeter, we just led the series A in a company, I don't even know if we've announced it, but I'll announce it here, which is an all-American producer of rare earth magnets. Right? So these are now viable investments because of the tariffs and the resolve of the government to re-onshore these critical supply chains. So I mean, that's a huge benefit that you would be willing to pay something for, but we're getting the benefit, and on top of that, we're getting paid.

>> Yeah. Can I add one thing, guys? Like not on the economic side, but like, you know, running the supply chain, you know, Grok and look, we're we're fortunate that like the majority of our supply chain is US-centric, including our chips, but >> um, you know, we still have small discreet components. And Brad, exactly what you were saying is happening is that the the producers, the manufacturers of those things are coming and you're negotiating, and we've had pretty, you know, significant negotiations with those folks. And that that was, I think, like not like you said, wasn't anticipated. The other thing is it hasn't been um static. The one thing again, I'll go back to this administration, they moved. Like we've we've seen, you know, our tariff schedule move around probably six to eight times since this all has started because they keep evaluating, they understand, they listen, and I think that's also a function of how this administration operates, and we want to give them credit for that. Like people can go and share with them, hey, like these things are not available, we can't replace them right away. And I think that that's also helping with that last thing you said with the investment you're making is companies get established on shore to take advantage of what these tariffs are causing.

>> Sunny, has your supply chain planning and that that dynamic nature, is that started to settle down? Do you see this, you know, are we reaching the end of the tariff negotiation such that everything can kind of settle down and operate?

It's gone from week to week or even day to day when it first started and trying to figure out what happened to like now we're looking at it monthly. So, it's definitely settling. And Brad, we still have a big thing looming with a China discussion, correct?

>> Yeah. You know, listen, so we landed Europe, we've landed Japan, we're going to have, you know, the long uh the long list is is is going to be coming out. But when you look at our big trading partners, the EU, we do, I think, $900 billion of trade with them a year. With China, it's about $600 billion, but we have about a $300 billion goods trade deficit with both Europe and China. So they were the the the two big ones. Um, China is the big enchilada because it's not just trade with China, right? It's strategic. It's national security, and it's trade. Um, and it's the AI race. We know that, you know, the rare earth ban on Chinese magnets was devastating to US industry. We know the retaliation that, you know, where where H20s were cut off in terms of Nvidia's chips back to China. Reading the tea leaves, I'm going to I'll go out on a limb and I'll say um the consensus still believes like that the China thing is going to be a problem or that it will be small. I think this president wants to do the biggest deal ever done with China. I don't think he's dogmatic at all. I don't think he's some big China hawk. He said at the AI summit last week, I'm a deal junkie. I like to do deals. You can't be the biggest deal maker in the world without doing a big deal with China.

>> All right. >> Right. And I and I, you know, if you just look at today, the Chinese uh reciprocated in a way I think the the US government was looking for. They said, "Hey, we'll postpone all of our retaliatory tariffs." They've invited the president to China. The president has suggested he's going to go to China the first week of September or sometime between September and November. I think there is a very, very big deal that's going to get done with China that's going to reorient the relationship in a big way. And let me just like tease this. The president said earlier this year something that caught all of our attention. He said, "You know, if I could wave a magic wand, I would cut the defense budget in half for the United States, for China, and for Russia." We've never heard a US president in history utter anything like that.

>> Be amazing. That is a what I would call an extraordinarily flexible mindset. And if you go into this deal negotiation with China with that sort of flexible mindset, I think it could include all of the above. Rare earth chips, maybe even military cooperation, certainly a rebalancing of trade. I think China's, Listen, we entered the year with China paying 15% in tariffs. That was pre-Trump. They were paying 15% to the United States in tariffs. So I don't think we're going below 15%. I think they're going to pay >> that in in Trump for >> Trump won and Trump won, right? So I think that they will continue to pay at least 15%, but I think it's going to be much more structured, much more nuanced. You know, Besson's been very clear, China has to rebalance to domestic consumption and away from an export economy that's really uh sticking it to the US in terms of the trades def trade deficit. I think China gets that. I think they want that for their own country. I think they're willing to do that. I think the United States understands that can't happen overnight. It has to happen over a period of years. I think that there's going to be a big Chinese deal done before the year's out.

>> So So let let's close with this, Brad. You've you've often on the pod um been willing to speak about your your own temperature for the US markets and and where you whether you're net long or net short. And you >> you've on this podcast been more enthusiastic than I've ever seen you both about uh about AI, but but this this China theory that you have, I think, would would cause the markets to rip, if you're correct. Um, but you also said we're at all-time highs, you know, and so you want to buy low and sell high. So, where where's your head hanging?

>> Uh, we did a pod, I think, around May 2nd. Well, we did the pod in March and I I I said we're out of the market. I remember. >> Right. And you and you said you're early. And Liberation Day came, and we were happy to be out of the market. On May 2nd, I said we're all we're all back in because the Bessant consensus has won. It's going to be $300 billion. We're going to land the plane. And I outlined a flight path. I said you can land the plane, no inflation, you get rate cuts, and you know, and it's kind of off to the races. And we're up 30%, you know, off of that bottom in the NASDAQ since then. So 30%'s a huge move, but when when you when you telescope out, we're up 10% for the year. >> Okay? And if I had told you guys on day one of this year, here's what's going to happen. >> We're going to rebalance global trade, and we're going to land the plane around $300 billion. We're going to have the economy grow at 3% accelerating. We're going to um uh, you know, have no inflation heading toward rate cuts by the end of the year. um, you know, that is the backdrop, you know, that and we're going to have all of this AI demand and accelerating demand for AI compute. I I would have said the market can be up at least 15% for the year. I think we've captured a lot of the return for the for the year. Bill, I will tell you this though, we see tons of opportunities. And so I would say that we're also bullish on what we see happening in AI. Sunny's going to raise a huge new round here. We're happy to be investors with Sunny as well. And and it's extraordinary to watch watch what Sunny's uh.

No, seriously. He >> wasn't supposed to disclose that. He can edit it out. >> He has. He has it, but his face is turning all red.

>> Have a good week. And >> thank you, Sunny, for coming on with us today. Thank you so much. I know it's >> Thanks for having me. Thank >> Yeah. Thanks, guys. >> Bye-bye. >> Take care, guys. [Applause] [Music] As a reminder to everybody, just our opinions, not investment advice.

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China Open-Source, Compute Arms Race, Reordering Global Trade | BG2 w/ Bill Gurley and Brad Gerstner

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