Satya Nadella: AI Is the Future of the Firm

So, what I think we've not yet conceptually gotten right and a shared understanding is what is this future of work going to look like for a tech CEO? You have to be deep inside of what's the tech stack. AI is not a technology. It's the future of the firm. One of the dictums I have is don't use frontier models for non-frontier problems. I think in the AI age that is going to be everything, right? I think I would be very surprised Reed if you were sitting here a year from now if the world is not completely turned on what is my AI supply chain look like.

I couldn't be more delighted to introduce a special episode of Possible with Satya Nadella, the chairman and CEO of Microsoft. Satya and I have known each other a long time, and part of in this is kind of AI revolution for humanity. Uh I thought this would be a great episode to get out. I mean, we covered all kinds of important topics. Satya, as always, is elegant, is cohesive, is smart, is comprehensive, and above all, humanist in what is our AI future. This will be an amazing episode. Actually, one of the things that's great with Satya about filming this here is it it reminds me of the earliest days when we were talking about Microsoft and LinkedIn.

That's right, because we did one of our very, very great conversations here in the Greylock office, so it's like just awesome to be back.

I want to start with something that I don't know as many people realize and appreciate about you, which is with how many books of poetry you have in your house. Um can you say a little bit about your attraction to poetry, favorite poets, what what the engagement is there?

Yeah, I mean, I I actually got into it in different times of my life. I remember that, you know, uh as a middle schooler we had this standard issue English poetry book, which I've been trying to reclaim and get all my life, but unfortunately it's out of print, but it sort of had, you know, even getting, you know, introduced to Shelley or Wordsworth and it had even sort of Indian authors like Sarojini Naidu writing in English and it is I don't know. I felt maybe it was my attention span or what have you. I was naturally drawn to poetry as a thing to enjoy and love and and I've always compared it even to code which is it's sort of compression in its best form. Um and so whenever I'm bored, I get to, you know, go read. I'm not great actually at understanding deeply. I've never studied it. I'm not like so so and so. That's why my reputation of knowing about poetry is far exceeds my knowledge of poetry. Uh but I still, you know, continue to um use poetry as perhaps the best expression of um uh the human experience, right? I mean if you if you sort of broadly think about literature um as sort of what captures more than even history um the human experience, I think poetry is the compressed form of it.

I completely agree. Is there a particular poet that you go back

Yeah, so I the thing that I really I would say the poetry that probably speaks to me most deeply is the Urdu poetry. That is sort of because I grew up in Hyderabad in India and Urdu is sort of the in the air um and some of the Urdu poets both modern and sort of um you know, people in the 17th, 18th century were just extraordinary. Uh and in particular, you know, there's there's this poet uh whose name it goes by Ghalib as his name um and he's just uh extraordinary or even a modern poet like Faiz. Um I was also very having grown up in you know, in Hyderabad, I was very influenced by Rumi. Um in fact, um you You I might the high school I went to was fascinating. In fact, we had um you know, the number of languages which were all taught was obviously there was English. Um there was Hindi, which is the national language, and then um we had Sanskrit. Like basically, you know, uh like Latin here, I guess. And then uh we had the local language Telugu, which is my mother tongue. Um but we also had Urdu and uh Persian. And so, all of them like in fact, when we would break for what was called second language, I I my second language was Sanskrit. Um but you know, they I could see I had classmates who would go to Persian, Urdu, Telugu, Hindi, and it was fascinating.

Well, among the experiences I'm experiencing a little bit of language envy cuz I a joke that I like is you know, what do you call a person who speaks three languages? Trilingual. Two languages, bilingual. One language, American. And unfortunately, I I resemble this joke. Um all right. So, let's uh we're just coming out of Build, which was amazing. Um let's kind of actually start with kind of going back in history. So, you know, Microsoft's first product was a basic interpreter. Um and 50 years later, here at Build, framed the company's future on what others can build with AI. So, what is the new basic interpreter

Yeah.

in this AI era? That's a great one. So, in fact, it's it that that I think is the core of the DNA of the company, right? Which is what can others build, and therefore what should we build? It's sort of the two questions that we always ask ourselves. And in the AI era, to me, the answer is uh the basic interpreter is the hill-climbing machine. Right? Because you think of you Now, bring all of this AI, what is it? It is basically taking an objective, an outcome, an eval that you have, and learning how to achieve that by learning uh using data, using some reinforcement reward. And so, the the entire conference was about not Hey, here is a new frontier model. It was about helping every developer, every company, whether it's a AI native startup or an enterprise, building their own hill-climbing machine so that they can operate at the frontier, right? So, I think that that's it. They The idea In fact, the you know, being very clear about the evals and the objectives that you care deeply about, knowing how to evaluate them, right? That it's in some sense is the most and keeping That's the new IP.

Yes.

Because everything else is pretty mechanical. Uh but knowing what is the set of data that you want to train a model on and how you reward it is probably where the the next level of IP gets created.

Well, and one of the things let's dig into a couple different areas here cuz you and I've had a number of conversations, you know, with Microsoft strategy. And one of them is kind of this question about how enterprises keep the advantage and integrity of their own data. And Microsoft is the most natural company in the entire world to do this. So, what Say a little bit about how enterprises should be thinking about like, "We need our own frontier intel- intelligence, but we also need to maintain control of our data."

Yeah, see that I think is the the question, which is this economy is going to be shaped going forward by both human capital and let's call it this token capital, right? That is true for Microsoft, that is true for a new startup, that's going to be true for any bank that's been in existence for 100 years, right? Doesn't matter. All of us will now need to sort of in fact the interplay between human capital and token capital and compounding the returns of it is what you need to do. So, if you sort of frame it that way, then one of the most important thing is not just even thinking of data in its aggregate sense, right? See, what is the tacit knowledge of an enterprise or a firm? It's the unique ways that you're able to operate, pass judgment, have taste. All that's the tacit knowledge, mostly captured today in the tacit knowledge that is there with the human capital, and some artifacts that are digital. So, now when it comes to AI, the the model, in some sense, is able to extract, if anything, that tacit knowledge through human trajectories, and then code it in a set of weights in a model. So, what I claim is that every enterprise now needs to be more mindful about that interplay of humans and their digital estate working together, those trajectories training essentially the models that they keep as IP versus leak it. Because if you leak it, it's a one-way door. You're done in some sense, right? Which is what is unique, what you may have spent a hundred years, right? In fact, we don't even know how to articulate it, right? Nobody sort of has a line item in their balance sheet called tacit knowledge, but we take it for granted that because we have human capital, we have it. Now, I believe that can leak. And in fact, it is leaking, right? If you look at even the number how the model companies learn, they're essentially setting up these gyms with rewards, which are employing employees who worked at your company previously. I mean, that's sort of should tell you everything what what should not be happening. Which is So, that's one of the fundamental reasons why we want this effectively the regime to change or the paradigm to change, where you welcome the models to come in. They should hill climb inside a machine that you control. Your data is your context you feed the model. You collect, in fact, these traces or trajectories of how work gets done between humans and agents inside the enterprise. But you have a continuous loop of that and you're not letting that leak. That I think is the fundamental operation.

Yep. And actually the related parallel to the tacit knowledge is, and this is one of the conversations you and I had actually at the at the Microsoft board, which was what uh is the future role of AI employees? Right? Because part of the question is say, "Hey, we're going to provision not just, you know, kind of uh tools to amplify human work, great for you know, kind of AI companies, but we're also going to provision at least specialist employees." But the challenge with that is is that one of the things that really matters to enterprises is your employees embody a lot of, you know, tacit knowledge, how to, what to do. Do you want that in other companies and provision other places? What's the your and Microsoft view of the future of work when it comes down to how to think about AI as also, maybe even specialist employees?

Yeah, I mean, I think that that that's right. So, the way to think about this, you know, there are two ways I come at this, right? Which is let's let's take one analogy and I'll come back to it, right? If somebody in the early '80s had come to us and said, "You know what? There are going to be 4 billion typists uh who are going to wake up every morning and start typing." And we would say, "What for? I mean, it makes no sense, right? We have a typist pool, we have a slide pool, and we're you know, fine, uh you know, with that." But except we invented this complete new thing called knowledge work, where everybody was typing and creating artifacts and so on. So, what I think we have not yet conceptually gotten right, and our good understanding, and our shared understanding, is what is this future of work going to look like when you have, let's call it, you know, and let's take Microsoft, we have 20,000 employees and we have, let's say, 2 million uh agents or 20 million agents. All in a loop. What is happening? Uh what is the tacit knowledge that gets created? Um what is, you know, the artifacts uh that are going between agents, between agents and humans, and so on. All that's now going to be played out in the next whatever even multiple years. You can see early forms of this in coding, right? It's a great place to observe, in fact, the the the this even the sort of social change, right? I mean, think about We started in a good old IDE and said, "Hey, AI is in you know, in there." Uh and it's doing code completion. That itself was useful, easy to understand. We've always had spelling correction and IntelliSense was there for in VS Code, you know, from there 15 years ago and and it just got better. Then we said, "Oh, you know, instead of going out of band and going to a browser and, you know, going to Stack Overflow and searching, you can now bring all that coding knowledge to a chat session." Well, that was also also easy to understand and you still were in the IDE, you had sort of the chat. Then we said, "Okay, um you now have reasoning models and some you know, primary you know, preliminary agent loops and so on. And so you can assign tasks." So we had agent mode, right? So you not only had chat, but you can give it small tasks and you could see it complete um and then you could accept what it did and then you could insert it and what have you. Then came the big breakthrough of total autonomy and agentic loop working for long periods of time where you could literally fire forget, right? Where you could assign a high-level intent and it'll go off and do the full PR and you would accept the PR. So that transition, right? Is what I think is going to happen across all work, right? And then now we're seeing it with even in Copilot, we now have chat and we have co-work and now in fact at build we announced something called scout and autopilot. So, what is happening in coding will happen even in knowledge work. Interestingly enough, one of the things we launched even at build in GitHub was a new feature called canvas because what has happened is as we've all gotten so good at using these coding agents. In fact, you know, the biggest challenge we now have is I have a hundred CLI sessions open I'm trying to operate these hundred you know, agents and now the cognitive load on me managing this is so high, right? I mean first of all, I don't I mean they think about it, right? It's a linear chat session in a command line and I have a hundred of them. So, guess what? We now have a back to an IDE, right? So, I have a new IDE we give it a new fancy name. It's called an ADE. It's an agentic development environment. That's what the new GitHub app is. The GitHub app looks like an inbox except it's an inbox of agents that are working across all the repos in in allowing me to do the micro steering of the macro delegation I gave them. Uh but it's a complete UI for the agents to deal with me and for me to deal with agents. And so, I feel so we introduced this new feature called canvas in GitHub where it can like for example, you know, sometimes it's easy to have a Kanban board visualization as a way to run down your PRs. Very useful both for the agents and me to interact versus some chat session. So, I think that that type of innovation is how work will change. In fact, one of the other fascinating things for me is a line of even AI research would be the models will also get much more tuned to learning how to stay the course um and understand human preferences in steerability, right? Because that's what I want. And in fact, I want models that not only do instruction following, but are also really steerable. Uh and that when you have that, that's when you have confidence in it. So, I think the work of the future is about tacit knowledge that gets created by this interplay. Just like knowledge work got created because of digital artifacts and human capital, the new one would be this AI capital and the human capital working together, creating in some sense the digital artifacts.

And what do you think are the things that people miss about how important it is to build out additional kind of structure for enabling enterprises. So, one of them is obviously the enabling humans canvas, you know, ADEs, etc. But what are the like, for example, notions of like, what is uh security in an enterprise?

a great point. It's a great point. So, in fact, the to your point, one is the experience layer. Clearly, that's important. And another one which we referenced earlier was, hey, we need this hill climbing machine as a concept that you needs to be instantiated. But the third is the manageability of it and the security of it. Starting with observability, right? One of the first things we did even, and we talked about it even yesterday, is something called Agent 365. I need to know, I need to have an inventory. I said, oh, there may be 20 million agents at Microsoft. I first need to know, what are these agents? What are they doing? What are their reasoning traces? They need to be fully inspectable, fully auditable. Uh and by the way, when the agents also have this other attribute, they execute they are running, they can generate code and execute. So, you need the environment in which they are executing code with maybe even file system access, network access, to be think that is governed by policy. So, therefore, you now need to give them identities, you need to give them sandboxes, then you need to set policies to govern them. And so we built this entire thing called Agent 365, which really has, you know, we've extended Entra so that you have an identity, we extended Defender so that you have security, we extended Purview so that you can even label the data that is getting created automatically so that you can have data protection. So, I think security, containment, manageability, observability is the way we will have confidence around these agents. The one other thing I'd say Reed also was you know salient in the developer conference was how important it is when you're building these long-running agents. All right, like if you think about right, we have always had in programming languages, you know, programming models for understanding the very, you know, the verifiability of a program, right? And it's execu- at runtime. So, one of the attributes of these long-running agents that we added to Foundry was something called asserts. So, this allows us to assert what are the boundaries, right? So, instead of talking about guardrails as a thing that is sort of just a classifier of some form, you really need to now have the ability during execution to really have that execution path not go off rails. And so, there's a lot of engineering sophistication now that's emerging as we build out the platform, the runtime, the security layer, the management layer, the observability layer.

So, let's go to a little bit of the role of CEO. And I think Fortune recently described you as acting like a startup CEO inside of Microsoft's AI teams. But the more general question because I think a lot of CEOs seek, you know, kind of technology strategy advice about what's going on in the world from you. What do you think the CEOs should be doing around AI? What um you know, kind of when they're like AI brings the kind of a re-founding moment to lots of companies because of the nature. And so, what's your advice to them for how they should engage?

Great question because I've been thinking about this, right? Because in some sense, you know, it clearly for if you sort of you're a tech CEO, you have to be deep inside of what's the tech stack. There's no way you could be a tech CEO and not essentially have a fundamental uh worldview on where the future is going and then to be long before it's conventional wisdom, you have to pass judgment on uh you know, where the company's going, right? So, that's sort of the our industry's sort of pretty binary transition. So, I think there's no hope if you don't have a uh the CEO leading uh from the front and taking the shot on goal knowing that these are fairly uh harsh transitions. But, the interesting thing that now I'm up to now if you are not a tech CEO, you needed to be a great CEO, which means you need to be great at banking or healthcare or whatever it is. And you could always have great partners and technology advisers and what have you. But, now I'm changing my prior on that, right? Because I think because I'm noticing even what's happening and I don't think the the rest of the the the industry and the CEO community has broadly woken up um to this and I'm like perplexed at it because they're still you know, pretty happy doing a press release with a tech company and saying, "Yeah, I got my AI strategy." And you know, pointing to eight agents they built and some outcome. But, this is no longer AI is not like a sort of a technology. It's the future of the firm. Right? It would be like saying, "Oh, I don't know what the about the human capital in my firm." Right? So, I think that this is where my thing would be that you have to now get a deep understanding of what's your token capital. Can you answer that question? Right? Can you concretely say, "Oh, last night or based on all the work that happened across all of our operations, we were able to translate that into a set of knowledge that is somehow now part of my token capital. It can be some context. It can be some skill. It can be some weights in a model. It doesn't need to be any one thing, but you need to be able to specific you know, you need to be able to identify it clearly as something that you own, you control, you created, and you're put in place a system to have that compound. So, I think that that is going to be probably the toughest change. So, this change is like unlike how this is like going to a mobile phone era or a PC era or a cloud era where all I needed to do is to have an IT department that knew how to deal with a bunch of vendors and did some smart things to reduce cost or improve my efficiency. It should start there. I'm not saying that that's not the place, but this is about what what happens structurally in your industry when AI is sort of basically knows everything that it needs to know about being in your industry. And if you start there, then I think you will start understanding that this is not just a tech. Uh it is really about a fundamental change uh to the firm.

And one of the things that I think thinking of the nature of the firm uh is that you've done a great job in leading Microsoft. One of the many different genius moments and skills is uh going through acquisitions and partnerships, right? So, it's you know, whether it's LinkedIn, obviously something close to our hearts. You know, GitHub, OpenAI, etc. And part of what I think Microsoft leads the entire world on is how do you build trust in these other ecosystems? And in the world of AI, that's going to be extremely important, especially as the firm changes. So, what are some of that the kind of the um the kind of lessons you've learned, the things that you are advocating for in order to build and maintain that trust?

so it's so key because in some sense I've always sort of thought about what's long-term stable, right? Um even from a Microsoft perspective. What is long-term stable is for us to be a tools and a platform company where we fundamentally are defined by the amount of value that gets created on top of the platform, which should far exceed anything that is captured in the platform, right? It That's the only way to have stability. If you do that, then you have trust. Right? Because then the customer, the partner knows that it's not a zero-sum. Uh especially it's not a game theoretic z- you know, zero-sum with these games where, "Oh, I'm going to subsidize this until 2 years or 3 years only to then eat your lunch" type of games that the tech people are really good at. Um and so, I've always felt like, "Hey, look, that is all not the way. The way to think about it is to be very principled that you are a platform company, that you will really live and die by your ability to create success on top of the platform, and when they're successful, you're going to be successful." And that is the equation that builds trust and long-term stability for both sides, right? Um I think in the AI age, that is going to be everything, right? I think I would be very surprised, Reed, if you were sitting here a year from now if the world is not completely turned on, what is my AI supply chain look like, where it is helping me as a firm compound the returns of AI that I can uniquely point to as my value in a world where we know that these learning systems by definition don't have boundaries. They have to have boundaries because of mostly structures of markets and society and other mechanisms.

Yep. So, we've talked a lot about chatbots and code, um which have just seen amazing explosive progress. Um what are some of the next frontiers for LLMs over the next few years?

Well, I mean, talking about that, in fact, you know, one of the things that I know you have gotten very, very excited about, which I'm quite frankly, you know, excited for you, but it also has caused us to you to examine where you spend your time, and I'll let you speak to it, but it's sort of unbelievable, uh to see what's happening in science, um and and in fact, the company that I, you know, you started with uh Sid and Monis, you know, it's just a great example, um I'd say of what has happened in, let's call it, coding and knowledge work. If it start happening in science, in fact, I would even claim that I wish in fact, we did it in the reverse order, uh right? Because the um social permission for AI would be so much higher if we had started with some nice discoveries in science that were having great societal benefits. Uh then people would have really thought of this as a thing that is really going to be more helpful. So, I'm really excited uh for you, Reed, what what you're doing. Obviously, you've spent a lot of time, but maybe you want to talk about that.

Well, yeah, so, I mean, it was one of the things that uh I realized over the last month was that um we're seeing such progress with Manas in actually in fact we've got an internal description of move 37 for chemistry cuz we're seeing chemistry that that might actually in fact take shots at really interesting cancers and other things. And you know, it's very early, right? And so you know, these things take a while with all the IDs, but the the fact that we are already beginning to see like we've got some of the best computational chemists in the world. They looked and said that's very interesting. We've never seen it before and that might work, right? And so that kind of thing and so you know, Sid and Uzair and I were talking about this and I said, look, I think I need to get back to founder mode in terms of how to do this and so I need to be able to kind of focus on this and then you know, part of the you know, conversation you and I have had this week is to say, okay, um it's been 10 years on the Microsoft board. It's been a huge honor and pleasure with you know, and not just LinkedIn, but obviously Open AI, GitHub, a whole bunch of things. But you know, at the end of the year I should really be transitioning right now to being founder mode. So like you know, it's like and you know, we'll always be working together. So it's like but but you know, it's time to kind of dig back into the company.

Now, first of all, it's a been such a privilege to have you on the Microsoft board, work with you, obviously through all the partnerships and LinkedIn and you will definitely be missed on the Microsoft board, but I know we'll be very connected, but I'm also excited for you. You know, when you say you're going back into founder mode, you know, that means I'm even more curious about what you're going to be building because it's a as you I think you rightfully captured, this is the moment where I think the impact of these technologies more broadly felt in the society is the need of the hour.

Yeah, no, exactly.

Let's come back to you know, kind of questions around the patterns of thinking that happen with AI because one of the things that I think like I kind of roughly think about these things is you've got an alien intelligence, right? A different version of A that has been built to very much heavily mimic human intelligence which creates a whole bunch of utility for us. But it's patterns of reasoning are not the same as ours, right? And people frequently encounter that and they go, "Oh, that's scary." You're like, "Well, no, actually that's that's Look, you have to pay attention to make sure there's alignment, but it's also wonderful because it enables new things." And so that's part of the thing like the kinds of chemistry we're doing like the humans hadn't discovered this chemistry at Manus, right? What are the other kind of thinkings about this pattern of reasoning, right? That that that kind of amplify human capability.

It's a great one. Like, you know, I've not thought that deeply about sort of how it improves the I mean, if you sort of sort of say there's, you know, induction and deduction that we do. Being in this cognitive loop with an AI, um that is fascinating, right? Because my exploration space is changing. Um right? The you know, like even in coding, one of the most fascinating um things that one of my colleagues introduced me to is he he wrote a new skill which I have in GitHub Copilot. It's called cognitive coverage, right? It's fascinating. What he's done is you know, whenever an agent does some work for me, he says, "Just like how we have test coverage, we now have this new concept called cognitive coverage where we we as humans are going to learn from what it did." And so it's just creates a quiz. So because I literally think of learning uh from and it's sort of it is me matching my ability to essentially form a deductive understanding in some sense um of what an agent did. Right? So, to your point, it is um it's a basically it's mimicking. It's sort of an imitation game on one side. But, that imitation game does create so then my ability to then deductively understand it I think is probably one of the more important human skills we have to develop. So, this cognitive coverage is I'm like fascinated by it, right? Which is oh I think we're going to have something like that, which is the agents are working. They have to be aligned on one side. But, the other side of it is what is new will be us knowing, oh we've cognitively covered what AI did.

Yeah. Well, I think that point intersected with your earlier one about, you know, kind of token capital now AI capital, is that part of the skill set for the modern you know, kind of human knowledge worker is to say, okay, how do I strategize on the use of AI canvas orchestration?

Yeah.

But, also within kind of capital allocation bounds. Right? Because part of what we've seen is people can go crazy on spending lots of tokens in ineffective ways. It's like, you know, buying, you know, go back to bad Pentagon days, toilet seats for a million dollars. And so, putting your thinking together with the cognition together with token management. And what do you think is part of the question around this skill of blending the cognitive coverage with also token intelligence in terms of how do you amplify the outcomes?

one. In fact, I've been thinking about like one of the things that um I think one has to study deeply is what are all the things that become more valuable in the age of let's call it token abundance. One is what you reference, which is how do you use tokens becomes very valuable. Whoever figures out that oh, I can use tokens more efficiently for an outcome that matters in the world is going to get ahead, right? By definition. So, then how does one build the intuition for it, right? Which is oh, like this is where what is that outcome? How do I measure it? What's a rubric? In fact, this is where I think the eval the you know, if it's it's fascinating. How much time needs to be spent, especially for an RL regime, I think it's been the clearest where if you really want you want to set up the rubric um and the eval dimensions or the rubrics scoring dimensions such that they're really capturing the high taste that you only can define. Because if you did that, then you could be token efficient, right? In fact, the other side of the token efficiency is um in some of the examples we even showed at build was let's say you have a um I don't know um some you're a retailer or uh you're a package goods company and one of the things you do is handle sort of transactions around uh trade promotions. Right now, you get all these claims from all the retailers and you have to process them and the humans are doing it. You can easily automate that using an agentic workflow. And you could say oh, I use a frontier model for it. But then one of the dictums I have is don't use frontier models for non-frontier problems, right? So, this is not a frontier problem. You're not trying to discover some new material science. This is a repeatable deterministic workflow, uh but that can benefit from all the mistakes humans can make and claims and so on. So, therefore you do need uh you know, intelligence in it, but you can take, you know, a model like an MAI 5B and use the traces to hill climb in your RLE to perform even outperform even a frontier prompted. Right, so that to me is token efficiency. So that type of human understanding of both the limits of the system, the characteristics of the system, I think become high premium at this stage.

Yeah, I agree. One of the other things that I think is important for people to grok, as you know, cuz we've been in a lot of these conversations, there's a lot of concern in other countries about, you know, kind of sovereign AI. And I think that it may be useful here given we've just kind of gone in a depth about companies and the sovereignty, like the companies, their information, their employees. What are the parallels between what we're doing for companies and how countries should think about kind of also engaging and trust in the AI future?

Yeah, I mean this is interesting because I I one of the reasons why I have really pivoted to companies is because companies exist all over the world. Right, that's the good news here, which is because in some sense given countries thinking abstractly about sovereignty, they can even make big mistakes where they ultimately could erode their comparative advantage that is naturally there today embodied in the commercial activity happening in the country through its company formation and thriving. So therefore preserving that is the best form of sovereignty. Sometimes I think people think, oh, if only I had a firewall or all the data was resident or what have you. You know, I'm not saying those are not considerations, but this is not about even any of that, right, which is this is about making sure that you have an economy. Uh that means you need to have companies. That means that those companies have to thrive in a token economy. Uh that means they need to be able to build that IP. And so therefore, in fact, having partnerships even with companies outside that give you the ability, I think are more important than sort of suddenly falling behind some frontier, right? And so, I think that therefore, I think that this is one of those places where again, even the policy makers have to think about infrastructure. Right? After all, you know, tokens, they're electrons on one end and tokens on the other end. So, you want to be the cheapest, best, and environmentally good producers of those electrons to token conversion machines called data centers, right? So, that one I think is going to be very important for every country to prioritize. Uh of course, the country should even prioritize whether that's their own semiconductor production and what have you, right? That's are all very valid things to do. But beyond that, I think the most important thing is to take what Ricardo was always right on, which is countries have by definition their own comparative advantage, and now they need to amplify that using AI. That means best thing is that whether it's a small business or whether it's the large multinational or even the public sector efficiency in the country is getting better uh and is operating at the frontier. The worst thing for any country to in the name of sovereignty, if they're off frontier, then that makes no sense because you're falling behind. You have to but at the same time, being dependent on one frontier model also makes no sense because then you're not sovereign. So, what's the the way to solve it is to be able to say, "No, we will use models to hill climb on our own one firm at a time." And at an economy at aggregate, that's I think the equation.

The the gesture at Silicon actually uh I think is a good also bring up both for companies and we are building Mayan Cobalt, but also of course partnering well with Nvidia and AMD. So, first what's the strategic job of Microsoft's own Silicon? What might companies or countries also learn from that?

Yeah, so it's interesting if you think about it right we want it's a great way to observe it even because I what I mean if you look at what Nvidia has done or what AMD has done or what Intel has done they built general purpose technology. Which you know, like in fact when I look at what we're doing with GPUs today we're of course using GPUs to do model training model inferencing. But we're also accelerating other workloads. In fact one of the exciting announcements at Build was using GPUs to accelerate Nvidia GPUs to accelerate our fabric data warehouse, right? In fact one of the things that's happening with the agent take workloads is we need more more performance on everything. And so that's a great that's because of the general purpose nature, right? GPUs have you know, Nvidia has CUDA CUDA can be used as a programming model on top of those to accelerate a variety of workloads. In fact we're using the older chips of Nvidia to accelerate and this also works out economically for us, right? Which is a smart for us to take a fleet and keep using that fleet over a lifetime where we are not only using it for some cutting-edge AI, but we're also using it to in fact make an old workload even better performing, right? That's great for Nvidia great for us. But that also speaks to what's happened in terms of the new workloads, right? The new workloads of AI are these data parallel synchronous workloads training inference as well as these new agent runtime workloads which have very different call patterns. Very different and and they're highly constant like there's this they didn't exist 3 years ago right at any scale and now they exist at scale. So, it'd behooves us to start thinking whether it's not even before we even get to the semiconductors. I'm building my data center. My civil engineering is in force. My cooling system, my mechanical systems. In fact, the DC to AC that they we're trying to make sure that the electrons are coming in in kilowatts, uh right? Hundreds of kilowatts straight to the silicon without any losses, right? So, we're trying to minimize even the power distribution in a data center. So, we can optimize to the nth degree for these workloads because they're at such scale. And that's what we're doing with Maya, right? Maya, for example, is being co-designed with our MAI models and the OpenAI models to get the best performance out of them. We're designing Cobalt, which is our arm-based uh core uh for compute, and we're designing it for, for example, using all the agentic traces uh of GitHub, right? Coding, you know, the call pattern of a coding agent is pretty different than human apps or even asynchronous human apps. And so, therefore, we're optimizing and getting massive latency gains, performance gains, and what have you. And so, we're going to be a systems company that continuously to optimizes for the new at-scale workloads that we have while using general-purpose technology from our partners uh to maximize the utility of those. And that flexibility, by the way, uh I think is what really is good. And that that's where I think your question was so good, which is countries should think of that, right? Which is if you really think of there's one thing that answers, right? If I said, "Oh, everything is Maya and everything is Cobalt," that's probably not the right thing for Microsoft. Uh but at the same time, if you said we're open to innovation from the outside, we will innovate inside, we will in fact benchmark everything, we'll be principled about it ultimately for better economics.

Yes, cuz cuz creating the efficient capital token factories is the create human prosperity is the goal.

Exactly. And enabling many of companies to do it. So, uh different thread, um one of the things that I know from various conversations with you that you're very thoughtful on is the topic of children in the modern age because obviously we're creating products for tutors, co-workers, etc., etc. And one of the things we're all exploring together is what should we be doing as an industry to navigate kind of being of helping children elevate the right way and also keeping them safe. What are some of the principles that you know, Microsoft thinking about, you're thinking about as ways to kind of be good as it regards, you know, the next generation of humanity through children.

Yeah, it's a great question. I you know, the the there's obviously important things that we have to do around child safety, right? So, when any digital technology comes out, I think we have to now think as first class, right? There are AI safety issues around cyber, bio-weapons, alignment, but it's also child safety. So, I think that that one thing that we want to make sure is some of the challenges uh of uh current sort of set of let's call it, chatbots, right? And their conversations with children in particular is something that we need to be very mindful of and make sure that we are not uh having children uh not have that agency uh that they need to have in order to interact with this on their terms versus um be persuaded, for example, right? So, those are very important things. But, the other thing that you're pulling on, which I think is a super important, is what does it mean to even be a child in a world like this where there is all this abundance of tokens. And that I think is the the question, right? How do children what should how should learning happen? Uh how should we inspire uh children? What's their sort of ability to go have a new pedagogical system even that they can enter. Because I think even like if you take the traditional ways, right? The anxiety that let's say I I had growing up on learning. Interestingly enough, that's a sort of an artifact of the scarcity of opportunities, scarcity of good learning, and a variety of things which may or may not be true going forward. So, one of the first things I think is creating an learning environment where students and children in particular from the earliest of ages don't develop these phobias for math or science or what have you. In fact, because everyone's by definition a lot more curious. It's just that contact with the world is what, you know, erodes that curiosity and confidence that children have in Italy. How do we develop that even further by giving them the ability to explore, knowing that there's no anxiety because after all the expertise is always going to be there in abundance. It's really your cognitive coverage of that expertise that's more at a premium. Right? That's if I had sort of somebody said that to me as a five-year-old, I think I may have approached life very differently. And so, how do we as a society create the necessary conditions for that? I think it would be probably very important. And I think it's one of the things, you know, I know from conversations with you intensely is like this is one of our responsibilities as a tech industry. Right? This is like it's a No, no, we can't abrogate it. This is like given the ubiquity of the AI technology, we have to be responsible for the next human generation. Exactly. Both both sort of the unintended consequences is something we think about from day one and really building safety guardrails and what have you. Then the great advantages of

New technology, right, have to be democratized. And then I think there needs to be structural change, right? I don't think you can say education remains exactly the same and we value the same credentials. I don't know. I don't think so. Something's got to change.

So one of the things we haven't had a chance to talk about yet, which is very natural in this context, is Pope Leo's encyclical. Which I thought was actually in fact a magnificent part of leadership on the behalf on the behalf of the church. I mean, Pope Francis had actually gotten me engaged in helping them talk about AI 10, 11 years ago, right? So like the church has been amazingly front-footed on this. And actually part of the thing that didn't surprise me at all in the encyclical was the humanism of it, right? Cuz people are thought, oh, it's about religion, it's about how you how you pray and it's like, actually in fact, the the the at least the parts of the church I've interfaced with have been humanists, right?

And do you have any reflections on the Pope's encyclical? To see the Pope weigh in and from what I understand is historical precedent on this, right? I believe the Pope at the time of the Industrial Revolution also had weighed in on the condition of labor and what should it do and what have you. And so to have the Pope sort of come out in defense of what I think all of us could be deeply care about, which is human dignity and human agency in the age of AI, I think it's so important and I'm glad that he has advocated what he thinks is important.

Um the other side of this to me is what is the society like if I look at what is at least describing what what when I think about some of the greatest ways technological advances were harnessed to create great prosperity. The story of the West is pretty unbelievable, right? There's a beautiful book, in fact, that Joel Mokyr and a couple of other authors have written called two It's called, I think, Two Paths to Prosperity, which describes the thousand-year history of China and the West, essentially. And you know, I'm paraphrasing uh here, but fundamentally, some of the constructs, cultural, societal constructs in the West on how to use even the scientific revolution, the industrial revolution, this and they that necessitated a real change in how the society was organized so that it could fundamentally take advantage of this new uh is sort of really massive. Uh Right? That in fact, defined the modern world.

And so, one of the things I feel we now need is a similar coming together from sort of both the moral philosophy. I think the Pope basically sort of said, "This needs to be the moral philosophy that guides uh us going forward." You combine that with even what is the market, what is the what is democracy, uh and then what is the scientific/technological revolution. So, if we can somehow get into a virtuous cycle where the morality and the scientific sort of breakthroughs, the political system, and the markets are all reinforcing each other, then we will have abundance, and we will have many stakeholders all benefiting. And if you don't, we are going to lose social permission, right? So, I just don't think I I this is what the narrow understanding of the success of the West as just a technological breakthrough I think is sort of not the case right it's a unbelievable coming together of a multitude of sort of forces in a virtual cycle it also had really bad parts to it right we know that and so you have to avoid that right which is and so that I think was also some things that the Pope himself wrote in the encyclical which I thought was great which is even to think about sort of what are the bad parts how do we not repeat it what is the way to be you know advocating for this positive cycle I think it's beautifully captured

>> and I thought it was great that it was kind of a focus on how do you keep humans at the center how do you elevate human dignity how do you address needs not just of the wealthy countries but the entire world is I think you know a great you know beacon in terms of how we started to think about it

>> you know I think deeply about that right for example I've always you know you know been like someone who cared deeply about the global south in some sense finally having their moment where they can be real catch-up growth and so I think that there's a real danger now in the age of AI for even that convergence growth to slow and in fact go the other way and so what are the again the global structures because by the way someone sitting in the United States in you know in Palo Alto may think that somehow it doesn't impact them but there's no such thing right you know we share this planet and our destinies are a lot more tied than we think we are just because of you know being far away from what's happening

>> well um last question before we get to rapid fire as you and I both know you know in the US and in Europe there's a lot of AI backlash now part of how as you know I've I've been trying to address it is like with books like Super Agency, trying to say, "No, no, this is an opportunity to gain agency. The transition will be difficult, but embracing the agency and the transformation ultimately you have to, but if you do it you with forethought and and kind of like leaning into it, it can be greatly helpful. Uh what do you think we should be trying to help people in the US and the West understand about why it is that actually embracing AI is more important. And it doesn't mean that there aren't genuine issues in the backlash and obviously work transition all the rest will be real issues, but how do we help people see that this could be an important part of their future?

>> Yeah, it's I think really at least now I've come to the conclusion that um there needs to be real tangible um outcomes that speak for themselves. Because I think what has happened, and this is one of those places where quite frankly our industry even, you know, the way we have talked about it, I mean when you go out and say, "Hey, you know, all economic opportunity will go away for knowledge workers." or you know, "White collar jobs are gone." or you know, I And and you And then you're saying, "I'm excited about building that technology." right? Why would anyone want you to be successful? Right? I mean, I don't want you to be successful. I mean, this just makes no you know, no social sense. So, I feel now um like when, you know, when you have someone in a college commencement be booed because they're saying AI is a you know, means we've now crossed over to people don't believe us. And and rightfully so. So, therefore I think what do we need to do now is time to do the hard work. The hard work is if you're building a data center, let's make sure that that community believes that this data center is great for them. It's the for their tax base, for their community efforts, their real estate value, their schools, their water use, right? Their electricity prices. It can't be again like, "Oh, I said something." No, it has to be real, right? That's kind of what the way we earn social permission. Same thing I would say with employment. We can't abstractly even say, "Hey, lump of labor fallacy, always there's going to be new jobs." What are the new jobs? What are the wages of the new jobs? Uh that I can now go apply for, train myself for, and and how do I really start a new company or what have you, right? I think unless we really get clear. All the third thing which we unpacked a lot, every firm needs to participate in the frontier ecosystem. Oh, it's not like, "Oh, I'm just a feeder of data to some foundation model." Like that is like talk about sovereignty and dignity both being lost, right? At simultaneously, right? By for countries, communities, and companies. So, I think now we have to go all the way and say, okay, this is a positive sum. This is in fact the you know, challenges of some of the technology. We are going to really actively work it. We can articulate the tangible benefits and this is where again, what you will do at Manas and others are also going to be very, very helpful because the world needs more proof points that this technology is ultimately helping human condition and our societies broadly, not narrowly.

>> Yeah. No, AI for humanity. So, you don't have to answer rapidly, but we ask the same questions of all our guests. So, the first one is, is there a movie, song, or book that fills you with optimism for the future?

>> It's this parallel paths to prosperity, all right? Because I I the reason why I like that is because it's a good call to action. For the next thousand years, what's the path to prosperity? There was a blueprint um at least that at the part of the world got it right in the last thousand. Can we now as a an entire planet get it uh right for the next thousand? I think that this is where uh some of our very best work has to be done.

>> Agreed. What's a question that you wish people would ask you more often?

>> Ah, that's a good one. I would love for people to ask me what am I not excited about. Because I'm excited about a lot of things. Uh but I'm not excited, for example, about us losing permission on AI by you know, saying all the wrong things or doing the wrong things even and not having a a complete thought on how to truly have a positive sum construct.

>> Yep. 100%. So, where do you see progress or momentum outside of your industry? And given that Microsoft powers a lot of the world's industry, um but you know, uh it could be robotics, AI, etc. But where do you see progress that inspires you?

>> I mean I mean to some degree you know, the work in bio I mean, if I think about it, right? One of the most complex systems um that we have to have a better understanding of is human biology. So, anything any tool that can help humans take care of humans is probably the thing that will have uh it's it's awe-inspiring. There's this one thing uh we I recently came across, right? Which is this for immunotherapy, I believe there's a test um that is uh you know, basically a a complex costly test that figures out whether a particular immunotherapy will work on that tumor or not. Um and so, Providence and uh some researchers at U Dub and Microsoft Research came together and built this thing called Giga time, which is a cool model, which basically is a simulation of that task and reduces the cost of what could get done only at sort of, you know, for took a lot of time and a lot of money, now can be done by any tertiary sort of hospital in a, you know, in any city. And that type of economic sort of availability of sort of medicine in and and medical practice, I think is just breakthrough.

>> So, last question. Can you leave us with a final thought on what you think is possible to achieve if everything breaks humanity's way in the next 15 years? And what's our first step?

>> Mhm. I think if everything breaks our way, I've always gone back like what's the dream um of the world compounding at 10% GDP growth. Right? Um that is what can happen, right? You mean one thought experiment is if the industrial revolution had reached all corners of the world at the same time. And every country could express their comparative advantage fully. Right? That's the maximalist positive sum construct. Can we do it? Right? Because we are kind of captive to this, you know, what we will describe as, "Hey, that's not how the world works. History is about dominance and dominant powers." And And I'm not saying we will defy all that, but the bottom line is you should since you asked me to dream, I'm dreaming that if humanity can get back past their bounded rationality and only sort of say, "Oh, history repeats itself and we are only never going to get better than, you know, I know fighting these wars and and what have you." And say, "No, no, no, let's maybe we can change the course." Uh then the first step would be to accept that that possibility exists is what I would say is what will get us down. Otherwise, we're going to back to re-litigating, oh, we are Let me look at history and then just try to match.

>> Beautiful dream. Sateer, always a pleasure, and I'll see you next week at the board meeting.

>> Thank you so much, Reid. Thank you so much.

>> This is [laughter] awesome. Such a fun

>> Yes,

>> conversation.

>> Yes, exactly.

>> Possible is produced by Pallet Media. It's hosted by Ara Finger and me, Reid Hoffman. Our show runner is Shawn Young. Possible is produced by Tanaz Deelo, Katie Sanders, Spencer Strassmore, Imo Zoo, Aman Souri, Lexi Kevin, Danny Garrison, Trent Barbosa, and Tafadzwa Nemarundwe.

>> Special thanks to Surya Yalamanchili, Saida Sabiyeva, Ian Ellis, Greg Biato, Parth Patel, and Ben Ralis.