The Race...

The Race is on.  

Every.  Single.  Angle. is being deployed in championing AI/SI to the finish line of IPOs and further financing.  The depth and breadth of the campaign would be mind-boggling if it was not commensurate with the financial numbers (the WSJ today reports 750 Billion in compute investments from Anthropic alone) involved and the ownership of them.

From essays that claim individual cells in neural networks are on the verge of interpretability, to suggestive governmental regulation that would erase small lab competition, to "The End of History" missives with Anthropic investors and celebrity historians regarding the transmogrifying nature of the technology and its importance for the future.  The coordination is amazing.

The Foreign Affairs article listed above is telling and gives away the plot:

𝘛𝘩𝘦 𝘥𝘦𝘤𝘪𝘴𝘪𝘷𝘦 𝘲𝘶𝘦𝘴𝘵𝘪𝘰𝘯 𝘪𝘯 𝘵𝘩𝘦 𝘤𝘰𝘯𝘵𝘦𝘴𝘵 𝘣𝘦𝘵𝘸𝘦𝘦𝘯 𝘉𝘦𝘪𝘫𝘪𝘯𝘨 𝘢𝘯𝘥 𝘞𝘢𝘴𝘩𝘪𝘯𝘨𝘵𝘰𝘯 𝘮𝘢𝘺 𝘵𝘩𝘦𝘳𝘦𝘧𝘰𝘳𝘦 𝘯𝘰𝘵 𝘣𝘦 𝘸𝘩𝘰 𝘢𝘤𝘩𝘪𝘦𝘷𝘦𝘴 𝘢𝘳𝘵𝘪𝘧𝘪𝘤𝘪𝘢𝘭 𝘨𝘦𝘯𝘦𝘳𝘢𝘭 𝘪𝘯𝘵𝘦𝘭𝘭𝘪𝘨𝘦𝘯𝘤𝘦 𝘧𝘪𝘳𝘴𝘵, 𝘣𝘶𝘵 𝘸𝘩𝘰 𝘤𝘢𝘯 𝘣𝘢𝘯𝘬𝘳𝘰𝘭𝘭 𝘵𝘩𝘦 𝘳𝘢𝘤𝘦.

Thus, a Cold War analogy of civilizations (East vs West) and AI business models (Open vs Closed) is used to substitute analysis of the discounted value of future cash flows for a business into the battle of Epistemology itself for all humanity.  Subtle.

At this point I expect a claim that an LLM can "at some point in the future" (hey, only 2 years away to AGI!) destroy civilization then travel back in time and create it again in its own image...whatever that is...just for "fun".

Anthropic shows its hand...

Within the span of a few days (which included some volatile AI sector action), Anthropic has directed its narrative.

Rumor has it that it now seeks a 1.5 T valuation (down from 2T) in the wake of an investor meeting discussing a proposed S1 Prospectus.  The salient point is that the S1 will show the increase of the increase in growth is slowing by 100% points. (3QoQ revenue growth was down >100 percentage points (44%) vs Q2 (146%).

So, a valuation decrease of 500 Billion based off the perhaps unexpected drop in growth.  A nice round number.

But wait, there is more.

In a nice PR stunt, Anthropic will "donate" 5% of its shares to a charitable fund.  The fact this fund will be an LLC residing within anthropic with no details about how the funds are to be used or irrevocability, management, etc. is left for the future.

But wait, there is more.

Anthropic is seeking regulatory oversight for large LLM players, citing its own proposals here.  

Quite the few days of appeasement, olive branches, and regulatory capture eh?

This is Fine...

For those keeping score: Six U.S. companies now represent nearly a quarter of the worlds investable public-equity market, as measured by MSCI ACWI (All Country World Index). Nvidia Apple Microsoft Amazon Alphabet Meta. Now, as a thought experiment, let's say that both Anthropic and OpenAI IPO at the "Mathematically Correct" amounts of 2 Trillion and 1.5 Trillion (let's ignore the free float here for posterity/expository reasons), respectively, and let's just say they are eligbile for inclusion in the ACWI. That makes 8 (eight) companies who play in the same sandbox and subject to the same economic cycle comprising 26% or so of the entire world's investible equity markets. Those 8 (eight) companies would be "larger" (again, market caps are a bit misleading here but hyperbolics are warranted in this of all cases lol) than the combined weights of Japan, the UK, Canada, China, France, Germany, Switzerland, Taiwan(!!?? recursivity NVIDIA???), and Australia. I honestly don't know if I should scream USA! USA! USA! or mumble "This is Fine..."

WWTD?

 Teddy Roosevelt would have looked at the current AI regulatory imbroglio and decided: "You want a governmental regulatory backstop and presumptive (small?) guarantee of US financial backing that lowers your risk pre and post IPO? Excellent. You are now a subsidiary of the Dept. of Energy and are public utilities. Equity holders will be compensated at current market valuation - this of course surrenders future gains, but let's just balance that vs. extinguishing all future IP liability from "training" and call it a day." Of course, things are far too complicated for that to happen today, which is by design. Great move (and timing) to entreat the world for safety, etc. l With the Frontier firms in fuill IPO promotional frenzy, its also telling that the signal/noise ratio is blowing up.

Straits and Rails...

 In this episode of "Straits and Rails"...

Anthropic/OpenAI: We should slow everything down. Our cost of capital is rising and debtholders are asking questions. Engage The Clerisy and manage optics. Double trouble for any scrappy competitors if the Fed is raising rates AND we achieve regulatory capture. 

The (Intellectual) Clerisy: Great! Thanks for the business! But why slowdown? We are expert historicists and see no issue here because it's different this time. Trees grow to the sky!?

Anthropic/OpenAI: Let's go with AI will kill us all by 2030. UNLESS responsibility, reason, and a very large regulatory moat prevails. 

The Intellectual Clerisy: Thanks for the talking points. Narrative received. Engaging our Press and Government friends. Any particular Think Tank you want writing the regulations written by you in their white papers?

Press: Thanks for the business! (sound of virtual printing press running "Doom to Humanity" 24/7) This should get us through this week's news cycle. Then on to midterm elections!

NVIDIA: Guys wait. We should talk about this. The more you buy the more you save! How could you be losing money? Also, any way to heighten security around the Taiwan Strait until TSMC Arizona II is fully on-line? 

U.S: All going "exactly" as planned. All that remains is to convince China that the AI arms race is more important than the Taiwan Strait and we expect the same results as the last Cold War given China's centralized ownership of its banking system and creaking real estate sector. Nobody wins a "keep up with the Jones's" race with us. Time for a meeting to discuss Guardrails and friendship! TSMC Arizona II will come online in 2027. This gives us options and chip security.

China: This is it! Full steam ahead! We will convince our US friends that we are committed to safety, but in reality, will outspend them for more data and more compute. Huawei, get on it! Call Russia for more oil and all the things mined from the earth! Also, NVIDIA...can haz plz Blackwell??? We promise we will abide whatever licensing agreement you wish, just like we did the other times we bought foreign originated technology.

NVIDIA: Exactly. "More" is the mathematically correct strategy in the AI race. How many would you like? (subject to U.S. Approval, of course. Could take years...maybe you just stick with whatever Huawei can come up with)

Russia: ¯\_(ツ)_/¯ plus ça change...ok, we have our own problems, and we need you to buy our oil and rare earths, etc. Good luck though. Hopefully your datacenters don't turn into glorified Cold War museums like our Nuclear Silos. Also, can we be paid in Drones? The Strait of Hormuz has supply chain issues for Iranian ones...

Instant feedback mechanisms in the Middle Kingdom...

Subtle.  Very subtle...and there is nothing Russia can do about it given it's increasingly precarious position.  Sell at cost (or at a loss) to keep the wheels greased in the East while ceding territory in the West.  Such is the power of a defacto monarchy - you can ignore market signals (both financial and political) so long as the local populace is controlled.

One wonders If Ukraine has a plan to retaliate for Russia's targeting of water supplies.  Either direct action (eliminating potable reservoirs/distribution systems) or indirect (attacking arable land/farming concerns)...but unlike the movie (the screenpic above) "Red Dawn", it appears unlikely that Russia will have any ability to capture land as a countermeasure.  

Four years of war and economic isolation have reduced the Russian president to a supplicant in a relationship growing more imbalanced -- and at times tense.

Before Putin made his 14th trip to meet with Xi in China, he publicly signaled that the two countries would strike a breakthrough agreement on energy. Indeed, his May visit had no bigger ambition than persuading Xi to greenlight a second natural-gas pipeline between Russia and China -- known as the Power of Siberia 2, a project two decades in the making that Moscow desperately needs.

But the Russian delegation that flew to Beijing ahead of Putin ran into a brick wall. Chinese officials made it clear to the visiting head of Gazprom, Russia's state-owned gas giant, that they would sign up to the pipeline only if Russia sold them gas at the same lower-than-market rate Moscow sells domestically, said people with knowledge of the talks. In essence, Beijing was asking the Kremlin to subsidize the project.

Driving home their point, Beijing's officials told the Russians not to raise the issue again until the terms changed, the people said.

A day later, Putin left the Chinese capital having signed 42 agreements and joint declarations. The pipeline deal wasn't among them. Beijing offered no public explanation.

"Xi received Putin like an emperor receiving his visitor in his castle," said Joerg Wuttke, a veteran German business executive with long experience in China-Russia relations, "and sent him home."

Readers here...

 ...are not suprised at the spike in Vol.

Still has some time before weak hands get forced out.