TEK2day Podcast

Proprietary LLM builders need to experience a valuation haircut as open source LLMs take share from proprietary LLMs. Proprietary LLM builders (OpenAI, Anthropic, Google, Microsoft, Amazon), have enjoyed lofty valuations over the past several years. Given the rise of open source competitors - which are on par with proprietary models from a performance standpoint and can be operated at a fraction of the cost - the proprietary model builders should suffer a valuation haircut. I believe that open source LLM builders such as DeepSeek and META will win the day and that 80% of LLMs and SLMs in production 5 years from now will be open source language models. https://open.substack.com/pub/tek2day/p/valuation-haircut-is-due-for-proprietary?r=1rp1p&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false

Originally published Dec 21st 2024. View the video version here on YouTube: https://youtu.be/6P0jQxZTuQo?feature=shared

We demo NotebookLM for a YouTube video, for a TEK2day article and for an EPS call transcript. Watch the video version of this episode here: https://youtu.be/wjqMhBdTxSQ?feature=shared

Watch the video version of this episode here: https://youtu.be/dc68lkZ1Bxo?feature=shared At some point cost and payback period will factor into frontier LLM building, especially as use cases are not well defined. We are at the $1 billion LLM level today. $10 billion will likely be the cost of developing frontier LLMs by 2026, $100 billion by 2027 and $1 Trillion by 2028 should the current pace of development continue. In episode 507 we make the case for smaller, “baseline” language models that are industry domain-specific, trained with opensource data as well as with proprietary enterprise data. These baseline models could power various applications and services and also be used to train third-party models. This scenario would create a natural selection/survivorship process for language models whereby smaller models power well-defined use cases that address specific commercial needs. This path makes more economic sense than developing ever larger monolithic LLMs in a vacuum.

Watch the video version here: https://youtu.be/v-2vsjFEXdo?feature=shared

We walk you through Google's AI-based podcast generation tool. Watch the video version of this podcast episode here: https://youtu.be/y2CNtayIBrU?feature=shared

View the video version of this podcast episode here on YouTube: https://youtu.be/dbwP3r6Nvqw?feature=shared Read the related TEK2day article here: https://tek2day.substack.com/p/backtesting-the-tek2day-founder-ceo See the backtested portfolio here: https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=3zih7QmbLhWF4jG4AUChu1 See this podcast episode on X: https://x.com/JonathanMaietta/status/1828490305815093585

Watch the video version of this podcast episode on YouTube: https://youtu.be/7XHKgYLYZP0?feature=shared Read the related Substack article here: https://tek2day.substack.com/p/founder-ceos-vs-comps Watch the video version of this podcast episode on X: https://x.com/JonathanMaietta/status/1828445724075254096

Eric Schmidt's comments regarding Agentic AI were overly bullish in our view whereas Deepmind co-founder Demis Hassabis has a more grounded perspective. View Schmidt's remarks on our Substack page: https://open.substack.com/pub/tek2day/p/former-google-ceo-eric-schmidt-speaks?r=1rp1p&utm_campaign=post&utm_medium=web View Schmidt's remarks on X: https://x.com/JonathanMaietta/status/1826427051693502607 View Hassabis' talk on the subject of Agentic AI: https://youtu.be/pZybROKrj2Q?feature=shared View the video version of this podcast episode on YouTube: https://youtu.be/EJRSNHKlQwo?feature=shared

View the video version of this podcast on YouTube: https://youtu.be/8Y9MCNVQlcY?feature=shared

A CrowdStrike update that was pushed this past week took down Microsoft, which had a cascading effect across the real economy. MSFT could use M&A to mitigate that risk going forward. Microsoft could acquire 100% of the equity or at least a meaningful equity stake in any technology company that strategically impacts Azure, Windows, and Microsoft in general in order to enforce a rigorous process around third-party software updates. Such an equity stake likely would have prevented this week's CrowdStrike disaster. In addition, owning a material equity stake in strategic technology partners would enable Microsoft to influence product strategy and direction. The risk of a material, negative event caused by a third-party application is too great for MSFT to not want to take risk mitigation measures. Equity stakes are a great risk mitigation tool. Watch the video version of this episode here: https://youtu.be/kyN4RMAWibs?feature=shared

A back-end loaded year puts the FY'25 consensus revenue estimate of $120 Billion at risk. Watch the video version of this podcast here: https://youtu.be/RqVDLOhcSOc?feature=shared

We cover NVIDIA's insider activity which is heavily weighted toward insiders selling. In fact, over the past 3 months, 99% of NVDA insider transactions have been share sales. We also cover Gen AI.

MSFT is enjoying a 3,000x MVA to Gen AI Revenue multiple. Read the full TEK2day article here: https://tek2day.substack.com/p/msfts-3000x-market-value-added-to Watch the YouTube version of this podcast episode here: https://youtu.be/465MY47xG6Q?feature=shared

If Microsoft's Gen AI effort is to be a success on the order of justifying MSFT's share gains (up 87% since Dec 30th 2022), Copilot Pro ($20 per user per month) needs to be a success. Read the full article here: https://open.substack.com/pub/tek2day/p/microsoft-copilot-pro-show-me-the?r=1rp1p&utm_campaign=post&utm_medium=web Watch the YouTube version of this podcast episode here: https://youtu.be/LOOfcW7Rt3I?feature=shared

View the video version of this episode here on YouTube: https://youtu.be/0Lx7Njk4QLE?feature=shared

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See our related article here: https://open.substack.com/pub/tek2day/p/recessions-happen-when-fed-funds?r=1rp1p&utm_campaign=post&utm_medium=web

Watch the video version of this episode here: https://youtu.be/9ZaFtnJaD58?feature=shared Read the related TEK2day article here: https://open.substack.com/pub/tek2day/p/there-is-nothing-magical-about-the?r=1rp1p&utm_campaign=post&utm_medium=web

View the YouTube version of this episode here: https://youtu.be/vXVAWgm8Ghs?feature=shared Read the related TEK2day article here: https://open.substack.com/pub/tek2day/p/adobe-creative-cloud-is-not-growing?r=1rp1p&utm_campaign=post&utm_medium=web

View the YouTube version of this episode here: https://youtu.be/r4spPWX9U1Q?feature=shared Read the related article here: https://open.substack.com/pub/tek2day/p/worst-case-for-the-economy-and-markets?r=1rp1p&utm_campaign=post&utm_medium=web

See the YouTube version of this episode here: https://youtu.be/nlt71a6dnVI?feature=shared Read the full article here: https://open.substack.com/pub/tek2day/p/fed-discount-window-borrowing-increased?r=1rp1p&utm_campaign=post&utm_medium=web

Watch the YouTube version here: https://youtu.be/jVcaKYGK_V0?feature=shared

Watch the YouTube version here: https://youtu.be/hSyrR5uZSUw?feature=shared Read our related article here: https://open.substack.com/pub/tek2day/p/which-companies-are-generating-meaningful?r=1rp1p&utm_campaign=post&utm_medium=web

Unknowable outcomes bring Gen AI's ROI into question.

The video version of this podcast is here: https://youtu.be/B1mF-zqklZY?feature=shared Our related TEK2day article: The LLM Space Is Richly Valued Thanks To The Fed: https://open.substack.com/pub/tek2day/p/the-llm-space-is-richly-valued-thanks?r=1rp1p&utm_campaign=post&utm_medium=web Related video: https://youtu.be/6g8Qi9AnjuM?feature=shared

View the video episode here: https://youtu.be/mOs873KLA8U?feature=shared

View the video version of this podcast episode here: https://youtu.be/Zd30vLlKyJ8?feature=shared Read the related article here: https://open.substack.com/pub/tek2day/p/execute-your-buyback-when-the-stock?r=1rp1p&utm_campaign=post&utm_medium=web

View the YouTube version of this podcast episode here: https://youtu.be/AbOfProg-AM?feature=shared

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The video version of this episode may be found here: https://youtu.be/S3dXXtRGabc?feature=shared

Fed Chair Jerome Powell needs to channel Dr. No from the James Bond series. Powell needs to say “no” more often in order to help maintain the United States' fiscal solvency (the U.S. of course is insolvent). Banks, CRE owners, PE firms, institutional and retail investors and of course the political class will all soon be clamoring for Powell to ease monetary policy. Too often Powell has caved and said “Yes” to ultra easy monetary policy – from ultra-low interest rates to growing the money supply as measured by M1 by 419% from February 2020 to March 2022. Treasury Secretary Janet Yellen will be in Powell's ear on behalf of Congress and President Biden. The pressure on Powell to ease policy will be intense this election year. Biden would like to see lower rates to help spur the economy while Yellen would like to see lower rates to help ease the Treasury debt burden. In addition, I believe the Biden Administration will try to push through stimulus checks for a third time (stimulus 3.0: once under Trump, 2x under Biden) to buy votes ahead of the November election. My sense is that many Americans have not yet made the connection between money printing/stimulus checks and price inflation, and therefore would welcome stimulus checks, which of course is the last thing the United States needs. I am not confident the GOP would push back on a stimulus bill. Rather than have an adult conversation with Americans as to why stimulus checks are a poor idea (printed money creates price inflation and further increases the debt load), the liberal GOP may wrongheadedly reason that it would be a bad idea to fight a stimulus bill in an election year for fear of being viewed as non-compassionate by voters. This would be ironic since fiscal austerity is the compassionate course of action given the United States' current fiscal predicament.

Ep. 473: FOMC Press Conference Reaction by TEK2day

Here is the related TEK2day article: https://open.substack.com/pub/tek2day/p/the-jobs-picture-is-not-rosy?r=1rp1p&utm_campaign=post&utm_medium=web

Weekly Update: Bank Term Funding Program: https://tek2day.substack.com/p/weekly-update-bank-term-funding-program-1d3

Weekly Update: Bank Term Funding Program: https://open.substack.com/pub/tek2day/p/weekly-update-bank-term-funding-program-9a7?r=1rp1p&utm_campaign=post&utm_medium=web The Fed's Balance Sheet Reduction (QT) Update: https://open.substack.com/pub/tek2day/p/the-feds-balance-sheet-reduction-cd4?r=1rp1p&utm_campaign=post&utm_medium=web

Related TEK2day article: "The NFL Is Making A Strategic Mistake:" https://open.substack.com/pub/tek2day/p/the-nfl-is-making-a-strategic-mistake?r=1rp1p&utm_campaign=post&utm_medium=web

Here is our related TEK2day article: https://open.substack.com/pub/tek2day/p/bofas-unrealized-losses-taper?r=1rp1p&utm_campaign=post&utm_medium=web

Here is the YouTube video I referenced: https://youtu.be/A2aoS00Wqog?feature=shared Here is our related TEK2day article: https://open.substack.com/pub/tek2day/p/the-second-tier-media-companies-are?r=1rp1p&utm_campaign=post&utm_medium=web

Subscribe to our YouTube channel here: https://www.youtube.com/@TEK2day We cover recent TEK2day articles around CPI, the Bank Term Funding Program (BTFP) and stagflation. CPI: Prices Will Remain Stubbornly High Unless Unemployment Increases: https://open.substack.com/pub/tek2day/p/cpi-prices-will-remain-stubbornly?r=1rp1p&utm_campaign=post&utm_medium=web The Fed Is Going To Reverse Course Quickly It Seems: https://open.substack.com/pub/tek2day/p/the-fed-is-going-to-reverse-course?r=1rp1p&utm_campaign=post&utm_medium=web The Big Four Banks and The Fed: https://open.substack.com/pub/tek2day/p/the-big-four-banks-and-the-fed?r=1rp1p&utm_campaign=post&utm_medium=web Our amazon kindle book: "Stagflation Is Imminent": https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M

Subscribe to the YouTube version of the podcast here: https://www.youtube.com/@TEK2day The article I reference is here: https://open.substack.com/pub/tek2day/p/jobs-data-if-the-government-says?r=1rp1p&utm_campaign=post&utm_medium=web

Most of today's GenAI economics is at the infrastructure layer – whether it be money paid for AI chips, or money invested in the development of large language models (LLMs) or money paid for the right to license LLMs for inclusion in various applications. However, we are not at the point where users are demanding that various applications incorporate GenAI such that GenAI functionality in the aggregate is generating billions of dollars of revenue. GenAI is largely a productivity enhancer at the application layer at this juncture.

Some thoughts about 2024: Companies will provide conservative 2024 outlooks when they report Q4 results later this month and early next month. The Fed will likely renew its Bank Term Funding Program, further backstopping bank balance sheets against unrealized losses. The Fed will reinflate bond prices and asset prices in general as it cuts rates and eventually winds down QT. The Fed will quickly cut rates close to the zero bound if the economy rolls over sharply. QE could also be in the cards. Treasury debt will spike higher as a percentage of GDP in 2024. The 2024 fiscal deficit will exceed $2 Trillion, further devaluing the U.S. Dollar. The fiscal side will stimulate through heavy spending (fiscal spending is up 17% fiscal year-to-date through the end of November). Wars are active or actively brewing on multiple geographic fronts which could significantly impact oil prices as well as be a source of disruption both for the American economy and the capital markets. State-sponsored cyberattacks on critical infrastructure is a real threat. A contested election is my expectation for November 2024. Read the full TEK2day article: https://open.substack.com/pub/tek2day/p/2024-will-be-anything-but-boring?r=1rp1p&utm_campaign=post&utm_medium=web Read our Amazon Kindle book: https://www.amazon.com/Stagflation-Imminent-Jonathan-Maietta-ebook/dp/B091NB9V7M Learn more about TEK2day here: https://tek2day.com/about/ John Ford reference here: https://youtu.be/POgWODZyUGQ?feature=shared

The Fed won't allow the BTFP to expire on March 11th without first re-inflating the bond market. The banking industry had $684 billion of unrealized losses on the books at the end of Q3. Bank of America alone had $132 billion of unrealized losses on held-to-maturity securities, $107 billion of which were mortgage-backed securities at a yield of 2.12%. At such a low yield, those securities will be underwater unless the Fed Funds rate moves close to the zero bound. Banks typically pull back on credit when a significant amount of unrealized losses are carried on their balance sheets. Banks have not pulled back on credit to the extent they would have if the Fed had not created its Bank Term Funding Program (BTFP) back in March. The BTFP is attractive to qualifying banks as it allows them to borrow while valuing their underwater collateral at par. Further, in recent weeks the BTFP's borrowing rate has been below Fed Funds (4.83% as of 12/28), which creates a short-term arbitrage opportunity for the banks. Without the BTFP crutch, it is likely that banks would tighten credit. Banks would likely tighten credit in the absence of the BTFP given their concern about the unrealized losses they carry combined with a softening macro economic environment. That is, unless the Fed rapidly reduces interest rates close to the zero bound in order to fully reinflate the bond market. How else will Bank of America and other banks that gorged on debt when the Fed Funds rate was at zero percent ever get their heads above water? I say allow the banks to suffer realized losses, but that is not how the Fed operates. Separate from the Banking unrealized loss issue, the U.S. has the problem of $34 Trillion of Treasury debt, approximately one-third of which is financed short term. Treasury needs to bring the cost of servicing its debt down. Today, the Fed Funds rate is pushing the average cost of servicing the Treasury debt higher. Interest expense will account for approximately 20% of Federal tax receipts in fiscal 2024 - a suffocating amount. Therefore, between Treasury's debt mountain and the Banking industry's enormous unrealized loss position, the Fed has sufficient motivation to move interest rates significantly lower in 2024.

Economic conditions are deteriorating. Revenue growth will slow in 2024 and operating margins will be squeezed. 1H 2024 will see conditions deteriorate for most companies. The Fed potentially cutting its Fed Funds rate by 25 BPS in March will not mean squat to companies carrying meaningful amounts of debt, especially high yield issuers. High yield credit spreads need to widen to reflect the increased cash flow risk for most companies in 2024. Read the full article here: https://open.substack.com/pub/tek2day/p/high-yield-credit-spreads-should?r=1rp1p&utm_campaign=post&utm_medium=web

There are an infinite number of serious threats posed by Advanced AI. OpenAI founder Sam Altman, OpenAI's Board of Directors and Microsoft CEO Satya Nadella owe it to the American people (all people for that matter), to fully disclose what it was that Sam Altman lied to his Board about concerning ChatGPT's capabilities. Mr. Altman going before Congress to say “sorry” post some horrific ChatGPT-related disaster will be too little too late. Here is our related article: https://open.substack.com/pub/tek2day/p/advanced-ai-some-concerns?r=1rp1p&utm_campaign=post&utm_medium=web

One measure of inflation is to compare growth in the money supply to GDP growth. Money supply growth should not exceed economic growth. When money supply growth exceeds economic growth, that resulting “slack” is inflation. Written another way, inflation exists when the money supply grows faster than GDP. See our related TEK2day article here: https://open.substack.com/pub/tek2day/p/inflation-in-pictures?r=1rp1p&utm_campaign=post&utm_medium=web "Inflation is the process of making addition to currencies not based on a commensurate increase in the production of goods." —Federal Reserve Bulletin (1919)

Here is the related TEK2day article: https://open.substack.com/pub/tek2day/p/reflecting-on-the-immorality-of-inflation?r=1rp1p&utm_campaign=post&utm_medium=web