Transcription
Let's get started with the show. Our first guest tonight is someone we've been very excited. We've been trying to get him on the show for many years. He finally agreed and he's here tonight. Everyone, please give a warm welcome to Sati Nadella, CEO of Microsoft.
Hello. Now, Satia, I have to start by making a confession, which is that I have not been a regular user of a Microsoft AI product since 2023 when uh when one of them tried to break up my marriage. Um, unsuccessfully, I should add, my wife is right there. Those were the days when we didn't have >> think about a world without guard rails.
But so much has been happening at Microsoft uh with AI since then. So just catch us up like what what for people who may not have tuned in a little while, what have you guys been up to in AI?
Yeah, I mean look um the fundamental thing that I feel we're about to move from um is not talking about AI as a one thing to sort of having even a mental picture of what is an ecosystem that is sort of driven by AI right so today if you think about it even since when you first used Sydney to now it has been about frontier model you sort of talked about fable what have But if we are ever going to transition to an economy that is driven by AI, it can't be about one model. It can't be about three firms. It has to be something that's broadly felt where the economy is at the frontier, not a firm or a model is at the frontier. So Microsoft as a platform company to me that's what we we are up to, right? So to me, we had our developer conference last week. It was all about hey can we build the platform and the tools where every enterprise in every country can operate at the frontier. To me that's the question to be saying hey my model does this but the economy is growing at 2%. Means this is not going to end well unless we sort of really get to a place where the economy is inflecting in terms of its economic growth and it's broadspread because the frontier benefits are. That's what happened in electricity and every other technology which was a general purpose technology.
Let me ask about one of the platform shifts that you signaled at build last week when you announced project solara. You said it would be agent first hardware kind of next generation uh set of devices that would have agents running them. Tell us a little bit more about that what that looks like. Can you give us an example of maybe what a >> project two things uh Casey we did at build which were interesting right one was we took the PC itself in fact Jensen had done it the previous uh night at com at competitex where he talked about you know the picture I one of the my favorite pictures was Jensen with the desktops the laptops because the and he obviously had the RTX chip which is a new SOC uh with essentially a pedaflop of compute right right on their PC. So that was about new functionality coming to the old form factor. Right? So think about the what I describe as unmetered intelligence. Right? So the fact that you can have a Windows computer that can run a one bill, you know, uh trillion parameter model locally uh I think is going to be very needed uh if you're going to ever have token I mean agents running 24 by7. But then the question it sets up is in a world where we have these models and these agents that are long running can I have like a badge uh right if I'm a nurse in a hospital and I'm walking to from station to station can I just take out this device which can scan which can input which can take my speech output and turn it into a prompt. um that is what I think an agent first device looks like right so it's sort of really a new the centrality of the phone I think is still going to be there for a lot of apps that we use but in agent world you kind of have that ambient intelligence that is like a sense of field that then works with your models and so that's what our goal is to invent the new form factors that not are not beholden to the old form factor factors for this functionality.
It >> It's super interesting and I want to hear a lot more about it. We have many more questions about AI, but I wanted to ask about one more device that has been in the news today, which is the Xbox. Um the leaders of the Xbox division put out a memo today saying that uh we should expect a hard reset of Xbox coming soon. They said that there are massive increases in the prices of components and that Xbox might need a new business model. So as a big gamer who's enjoyed many happy hours on Xbox, I have to ask what is your strategy for Xbox?
Yeah, so look in fact we're you know this is the 25th year of Xbox. Um and uh we're very thrilled about the progress we have. I mean gaming in an interesting way at Microsoft is older than even Windows and Office, right? The first uh app we built was the flight simulator. Um and so it's got a long heritage. Xbox itself has been there for 25 years. The challenge now for us is to think about how do you innovate both in hardware as well as in the games going forward in a world in an economically viable way. Right? I think one of the things that Asha who has just taken over Xbox put out is that we've invested a lot. No one can accuse Microsoft of not having invested uh for the last 25 years. And now we have to turn this into a sustainable business that delivers what is fundamentally the one of the best sources of entertainment. Still the challenge we have is we're not the been monetizing that entertainment. Uh in fact if anything we've been subsidizing that entertainment. In fact like there's more monetization of Xbox games happening on YouTube uh than at Microsoft. Um and so that doesn't mean we go do things that are unnatural. We want us to do what is really our job, which is to build great games, build great hardware, but we've got to do it in an economically sustainable way. So, I think Asha is uh really 100 days in and she put out a post saying in the next 100 days, she's going to take a fresh look and make sure we deliver on what our fans expect of us both on the hardware side or on the publishing side.
I mean, can you give us just any more detail? Like, like when I hear that, I think, okay, so maybe like the Xbox gets way more expensive, the games get way more expensive. like is there any sort of like carrot you can offer the gamers >> like I I think we have to find ways to deliver the games in which it it's economically relevant for the customer and for us so today there's a issue in fact unfortunately because of what's happening with the cloud and AI the prices have gone up right it's happening with PCs it's happening with phones Xbox is impacted uh as well so the scarcity of the semiconductor supply and memory in particular having a massive impact uh on consumer electronics all up that's a temporal thing uh that I think will get through it it is not going to be a permanent but there is a permanent thing which is what's the Xbox model going forward and that's where if you think about it like PCs and consoles both have their place obviously mobile has people playing elsewhere and so we have to now bring it all together whil Staying true to what we've always done.
Satia, I want to take you back in a time machine. The year is 2023. The board of Open AI has just fired Sam Alman, one of Microsoft's biggest partners. You and your team spend a harried weekend trying to pull together an entirely new division of Microsoft, Microsoft Advanced AI Research, to sort of catch the employees that are making a mass exodus from open AI. You're ordering laptops. you're opening up an office in San Francisco so that all these people have a place to go work. Uh the company looks like it's on the verge of collapse. Uh and then nothing happens. Then then Sam gets rehired and OpenAI stands back up on its feet. Um and I want to present you as part of this time machine experiment with a piece of rare merchandise which I recently acquired from an OpenAI employee which is a Microsoft advanced AI research >> sweatshirt.
That is awesome. To be clear, this division never existed. And I was told by the person who made this that they had to sort of fudge a little bit on the the sort of copying and printing shop uh application which made them prove that they were a Microsoft employee to uh to get this. But this is for you if you ever want to thank >> take that walk down memory lane.
Oh man, that weekend I remember that forever and thank you for this. But all I remember quite frankly of the weekend is India getting thrashed by Australia and cricket. That was the the more tragic thing. So if that had happened in the world where all of these OpenAI employees end up working at Microsoft in a new advanced AI research division run by Sam Alman and Greg Brockman in that world, is Microsoft better or worse off with AI than it is today in this world?
Look, we are thrilled that uh Greg and Sam made it back to OpenAI and they are where they are and they're now, as you said, are filed S1 or what have you. And uh look, it's fascinating, right? When we initially um took the bet on OpenAI, it was a non, you know, it was a a research lab, a nonprofit entity that had created a for-profit uh unit and said, "Hey, they went and shopped around and said, who can back our crazy idea that intelligence is log of compute?" Uh, and quite frankly, there were lots of people that uh were at Microsoft at that time who thought this is nuts. Um but you know we said I think this is a worthwhile thing to back and quite frankly we changed uh I think and they changed through their work and the open AI through their work the world and here we are in 2026 and we're thrilled about it.
You guys recently renegotiated your deal um between OpenAI and Microsoft and I understand what OpenAI got out of that deal. They got the ability to work with multiple cloud providers to be a little bit more open about how they commercialize their technology. What did Microsoft get out of the revision of that deal?
I mean, we have a lot of, you know, interests in OpenAI. We're obviously on their cap table and, uh, we are a a they're a customer of ours, a large one. We are, uh, they're a source of IP for us, uh, all the way to 32 and, uh, uh, and so all of the things and and and at the same time, we have the ability and the flexibility to reuse the IP, build our own IP. We just last week launched MAI models uh which have hill climbed from the ground up. We published in fact the paper which I think should help people even get the capability we have especially if you take those two thoughts right which is uh here is you know intelligence is log of compute and here is a pure lineage model from Microsoft that climbed all the way means that we now have the ability to keep going and uh to us and we would and and our infrastructure I must mention that that we wouldn't have been where we are with even Azure uh but for that close partnership with OpenAI. So we have the compute, we have now the model and we have still the partnership.
Let's talk about those models. Is your goal to make a frontier best model in the world? And if so, what's the strategy for overtaking a chatbt a Gemini cloud?
Yeah. So I think the way I would say is our real goal is to get everyone across the ecosystem to the frontier. So we going to take a slightly different take in saying for example if you think about what's how does one build a frontier model u you hill climb you RL um and then you need data right so at this point we have saturated the data and so that means you're basically hoovering the data from every place right so the question is what if you turned that around and said no there's a base model that has reasoning that has the agent loop but you can bring it into your RLE every company right if you if the if the comp the future of the firm is human capital and token capital I want every balance sheet every income statement in every company to have both and that's our goal with our frontier model our model should be the best model that they can use as a base and keep even the weights uh definitely the harness and the context which is theirs and they can replace our model with anything else. So that to me is more of a vision that I think is what mic I always ask the question why does Microsoft or why does the world need Microsoft and if we are successful can the world around us be successful this I believe is a more sustainable way to go at it we have to ask a question about the AI backlash that we're seeing around the country graduation speakers are getting booed AI is polling terribly uh lots of people upset about data centers what role does Microsoft have in that image or helping to solve that and how do you think the industry can find a path forward that involves I don't know being a little more popular.
Yeah. I think we can start quite frankly by painting a picture and delivering the results on why there are more than you know everyone is a stakeholder right you can't go out there and say I have this unbelievable technology uh except you're not going to have a job and um in fact we're going to take all your water and all your energy and you know uh good luck I mean that cannot be an an And no wonder there is so much anxiety right you talked about the students or you can talk about a community and so therefore you got to do the hard work at this point it is what it is right so you can't deny that the perception is terrible and so I feel at Microsoft we want to whether it's like take the the data centers now it's fascinating we've been operating in Quincy Washington for 20 plus years and I just you know we celebrated our 20th year you know if I look at what all has happened in Quincy in the 20 years. Their tax base has gone up. Their taxes locally have gone down. Uh they have more employment locally. Uh >> because of the data center. >> Because of the data center. In fact, the data center is it's kind of like basically it's become a data center town. uh and we when we we did this you know cookout and people came and they c they celebrate the rejuvenation of Quinsey Washington because of our presence for the last 20 years that long that's the first longitudinal thing of 20 years that I've seen and that's what the communities where data centers are they they definitely can't increase price on energy they have to be you know very you know in fact they they should replenish all the water they use uh and create economic opportunity. So that's on the data center side. But across the economy, if there are small businesses feeling like, wow, AI is making me more productive. If every large multinational is able to say, oh, I'm building that token capital and human capital, right? Because the the big question is employment. Everybody thinks that all jobs are going away. But if you sort of and I'm not saying there won't be real displacement, the workflow doesn't change. But take software development of course you know software development is now all agentic except if you think about even the evolution of the GitHub app right you know when I had a 100 CLI what did I need I need a new IDE it's called an ADE right a backend again some piece of software that helps me manage all of this complexity so I think we have to think about new work that gets done which will be meta cognition meta work that is going to have wages and we have to be concrete about that.
But but help us understand like what your own view is of the potential disruption, right? Like there because I've been talking to so many economists, like tech leaders like yourself about this over the past couple of months and truly opinion is all over the place. And I talk to some folks who say, "Yes, you better believe I'm hiring fewer people next year because of AI." And then I talk to other people that say, "I I can't get um enough engineers. I I want more than I have." So where are you on that? In two years, you're going to have more engineers or fewer.
Yeah. So I think the if if in the early 80s if someone had come to us and said hey we're going to have three and a half billion people in the world who are all going to be typists we would have said why does the world need 3 and a half billion typists except we do we all get up in the morning and type but we're doing quote unquote information work knowledge work and so on. So that type of change is going to have to happen and that and each of them will have a name that and it'll have a wage support that reinvention right so a software developer of the past to the software developer of the future may have the similar sort of skills but the work they do is different because they're managing a group of 100 agents a thousand agents in fact, there's a beautiful term one of my colleagues has which is just like in software development we always had this concept of test coverage one of the new things that we are learning is what I'll call cognitive coverage right? What is a software developer do I my I have a repo full of code that was written by agents I am cognitively understanding what happened and I now need tools for cognitive coverage on what that was built that's the job I think of a software developer and in order to do that you got to go to school you got to learn computer science and have cognitive coverage and this reinvention of work, the work artifact, the workflow, right? Because software went from input to output, that's a format change, an artifact change, the workflow has changed and the work changes with it.
I feel like what people really want to hear is some combination of like your job isn't going to change that much or if it does change, you're going to get paid more. Do you think that either of those things will be true for most people?
I think that that's the thing. The wages you know have always been about what is it that we as a society value right um I mean we've grown the last 200 years 250 years was about a particular form of expertise and accrual of knowledge so when you have abundance of some form of expertise what is that human ability to now build a new expertise that is not trainable right in fact there was a nice blog I read this morning from Sarah Go which was I thought was an interesting one where she sort of mentions hey what is the untrainable parts and that applies to organizations and I think us as well and it's we as humans have agency ambition uh that should not be counted out uh and and if you look at even what is human capital today the human capital in spite of all the digital systems we have in in at our disposal we do the glue work we will discover the new glue work that happens in with all this automation and that I think is the process of change.
One idea that's been floated recently including by uh reportedly Sam Alman and and President Trump has also weighed in on it is the idea of having the US government take direct investment stakes in frontier AI companies. Do you think that's a good idea? What percent of Microsoft would you like the US government to own?
MSFT you can trade. But do do you think that is a way for the the gains of AI to be more broadly felt?
You know, look, this is all very new, right? I mean, the idea that there may be uh the United States whether it has a sovereign fund and the sovereign fund has equity stakes and that somehow um is part of uh what is considered the the wealth of the citizens of this country. I think it's a novel idea. Other countries have done it. I think Alaska has some form of it. uh in the state because of the oil wealth. Uh so I'm not sort of opposed to innovative ideas like this. Uh but at the end of the day, I mean there's this entire movement of if only we had invested some portion of our social security in S&P 500, uh we would have a surplus or what have you. And so to the degree to which some of these ideas can be played out and uh and they succeed, I think we'll all benefit from it.
Yeah. you um told Dwaresh Patel in February 2025 that your benchmark for achieving AGI was 10% GDP growth. Uh seems like we're not super close to hitting 10% yet. Um I'm curious like h how you uh view that kind of statement you made a year ago now and do you see any sort of recent acceleration that makes you think it's more possible?
In fact, it it's one of the things that I think a lot about is the difficulty of even a very powerful general purpose technology and its diffusion and the amount of change management that is required right I mean the systems like for example one of the challenges right now that we're going to face in the next year two years is this you know the economics of tokens uh for example the hard truth is that the marginal cost of productivity improvement has to match the marginal cost of the token. That's a management discipline, right? So, you can't just say, "Hey, I love token maxing because it's sort of uh money in my bank." The business has to benefit from it and that is what is going to really drive it. So, in fact, it's fascinating. The equation for the 10% growth would be when you have a perfect match between the marginal cost of the token to the marginal value and it's priced right. So that means it's the best way to get at it. If that happens 10% is definitely going to happen but not definitely what's happening right now where everybody goes and wipe codes and token maxes that's not a way to achieve 10% growth.
How much uh sort of token maxing has been going on at Microsoft and have you Yeah. and I'm out of it. Like I mean, and what I mean by that is um
you look I want people to obviously and myself I'm like a token maxer too. So it is addictive. It's kind of like hey I love this thing. So then you have to step back when the novelty wears off to say what is it that I'm trying to create. Uh in fact the thing that I love now in in copilot now is our auto mode. And so we now have a very good we have an economic model that's feeding it as well. Basically I say don't use frontier models for non-frontier problems right please let's kind of match these things such that you get the outputs you get the economics uh and it's not it can't be a race to just doing things that just don't add value.
Give us a flavor of like Satcha's token maxing like what are some of your your big token projects lately?
Yeah, I mean like the one thing that I recently um built was, you know, I've always sort of felt that I want a repo that is in sync all the time with discussions that are happening out of band uh that I am not in. Right? Think about even that concept. I like that thing because it sort of is sort of not possible today. Right? So you have essentially the ability now to have an agent that literally is looking at all the work discussions that may be related to your repo and creating the plan and executing the plan. And it's just in fact all I did was I put work IQ which is the database underneath uh all of Microsoft 365 and as an MCP server and to my uh coding agent and I said keep watching that and every time people discuss this repo please change my repo and it keeps working and so this is like the best way to keep your basically your model you know in sync with all requirements that ever come up.
You've been thinking a lot about the political economy of AI. Obviously, you know, the things you're talking about about diffusion and adoption and GDP growth are all part of that. What do you think the people in San Francisco leading the AI companies here get wrong about the political economy of AI?
I I mean, I wouldn't say they're wrong about the political economy of AI, but I do think when I look back at the you know, there's a very cool book I read I think in December. It's I I may have the name wrong but it's written by Joel Murkiar and a couple of our co-authors on it's I think it's called parallel paths to prosperity. They describe a little bit of how the last thousand years thei you know the west grew and what was what was happening in China. So it was a thousand-year history. Um but the fundamental thing when I take from that book and and in general when I read history is the west in particular got three things into a virtuous cycle. Right. They got uh technological revolutions and markets and democracy all both acting as a check on the other. Uh that's why there is no such thing as an economy. It's a political economy. A democracy controls ultimately what happens in a market and then technology sort of tries to disrupt the two and then you keep sort of the checks and balances. That's magical. It's one of the most unbelievable social constructs ever to emerge in the world, right? Think about sort of, you know, the it became the model and we now need that same model to be redefined for this age, but it'll work because it worked the last time. And so therefore I think us reminding ourselves that the balance the checks and uh that each one has on the other is what I think we have we have to aspire for whether it's in San Francisco whether it's in Washington DC or quite frankly anywhere else.
Maybe just as a last question I'm still trying to like hone in on what I think Kevin might call how AGI pilled you are. like there's a sense in the in Silicon Valley that that it really is different this time and that the jagged frontier is going to keep advancing forever and all of a sudden the little tasks that AI can automate today are going to convert into full jobs. How much do you buy that story?
Look, I I buy that anything where the loops can be closed, right? Like coding in fact AI research is sort of possible to close. I think we have now got sufficient um I would say evidence um of that. But is that enough? I don't think so. Um and and and when I think about you know people talk about how verifiable is this task and in the messy real world of even knowledge work uh just saying I'm going to look at the traces of human activity uh is enough to close the loop. I don't think so. That I think is the the challenge which is when I am in a meeting I say things, I note things, um I may observe things but what I do with it is not a trace today that I can rally my way in. Right? And that to me is where we're selling short what is um I would say unverifiable part of the human capital. And so to me that's where the so I believe the advances keep happening. I still am in the more in the world of hey this is platforms tools very powerful very disruptive. I have a lot of sort of I'd say you know humility to say a lot of things will change but at the end of the day so was electricity so were a lot of other you know steam when it first came out and what have you. And so I'm not sort of sitting there and thinking this is the last technology we ever will invent. I don't buy that. I I kind of feel like yeah this is in the pantheon of all technologies a big step up. Uh but I do think that you know there will be more to come.
Very good.
Well Santi Nella thanks so much for joining us. Please thank you so much. Thank you so much. Thank you.