Short answer: Hooman Radfar says AI is early but he expects a cycle and contraction rather than superintelligence in two to five years, pointing to concentrated, round-tripping deals like AOL's in the dot-com era.
Watch this answer from Episode 14 (starts at 22:19) · Episode 14 notes and transcript
From Episode 14: Inside the $1.4 Trillion Solopreneur Market + the Tools We Built (ft. Hooman, Collective CEO), starting at 22:19.
Jordan Metzner [22:18]: We're gonna transition into the a little bit of AI news, and then we'll wrap it up. This story came out yesterday, but definitely, like, top story right now is just how much absolute amount of capital is going into AI. So, NVIDIA stock jumped as they announced a $100,000,000,000 investment in OpenAI. Obviously, there's news in Oracle raising capital and them getting money and them investing. So it seems to be happening everywhere. But, I guess this, to me, means this is just the early days, simply just of how long it takes to deploy this capital and build these data centers. You know? I saw Sam Altman on CNBC today, and he was standing in a dirt lot. So it seems like he's far away from getting those chips online. I don't know. What are your guys' thoughts as kinda where we are in the early innings of AI here?
Hooman Radfar [23:03]: Happy to start. I think first question is where are we in the AI trajectory? I think we're early, but I think, as most people would hypothesize, the slope is increasing quickly. I think the other thing that's interesting here, though so there's, like, these two schools of thought, and I'll simplify. One group thinks this wave is the last wave, if you will. Like, we were gonna get we're gonna get to AGI superintelligence with this wave. The investment trajectory you see here, the willingness to invest in loss of the companies, all of that stuff, it's kind of with that hypothesis. Like, it doesn't matter because whoever wins this wins. Right? The second group thinks it might take longer, and definitionally, there'll be a cycle, which means this cycle will bust. It doesn't mean AI is broken. It doesn't you know, not, like, negative on all those stuff. It's just there will be a contraction because there's gonna be an overinvestment, and, you're gonna hit that classic trough of disillusionment, all those things. Like, enterprises right now, they're trying to apply AI. They're spending a ton of money.
Hooman Radfar [24:01]: Let's see if they can operationalize it. Let's see if it all works right now. And that's that's an if statement. Okay? And so I'm personally in the latter camp. I think I don't think we're gonna get superintelligence in the next, like, two to five years. Open to being wrong, obviously. I'll caveat it with, I don't know. This is the weirdest
Jordan Metzner [24:21]: Most difficult
Hooman Radfar [24:21]: Thing to call in my career. So but that if you make me bet, I think that's what I'm betting. Part of it is around the structure of these deals, to be frank, and how the market's structured, and I'm happy to go into it. But I think this is it's like Jenga, and I can walk through that. But, Sam, I'm curious to see what you think.
Sam Nadler [24:38]: Totally agree with you. I'm I'm more in the latter camp. But, I do wanna hear your thoughts on the structure of this deal because I think it's a little bit unusual. And, previously being, a VC and an investor, what are your what's your take on the structure?
Hooman Radfar [24:55]: Well, let me take a step back, and I think a lot of people know this. Right now, the stock market is dominated by seven companies, and those seven companies are very much tray tracking along one company, specifically like NVIDIA. And so but NVIDIA's market, they're very concentrated. I think on the magnitude of 37%, and I may be incorrect on this exact amount, but I think it's some somewhere close to that, is, like, two companies, which they can't disclose. But they're probably in the Mag Seven, because who has that much cash? Right? And so what people are doing is they're they're in this chip war, and they're buying, again, with this assumption that this might be the last time. Okay? Now what happens if Google builds their own chip? And what happens if they're the customer and they pull back on NVIDIA, and NVIDIA misses by 20%? What does that look like? And then you compound that with some of these they're like round tripping deals. By the way, for people who are old Internet people, this didn't end well. AOL was the king of round tripping. So what do I mean by that?
Hooman Radfar [25:53]: There were these deals where AOL would go, and I don't know if people know this, AOL owned part of Google. AOL owned part of all of these different companies, Yahoo, Amazon. And they'd come in and say, okay, you're gonna give us equity. We can invest, but you're just gonna give us the money back because we're gonna go like, a lot of it because we're gonna drive traffic. And then everyone wins because you go public and your stock price goes up because you're growing, and we're growing, and everyone wins. Right? Apparently, know, DOJ and others didn't look too fondly on that. It's not dissimilar to what you're seeing here. Nvidia, for example, great company, and I'm sure they diligence this, so I wanna disclaimer. But they're going out and investing in the startup ecosystem. So they put 50,000,000, 100,000,000 into a company, but then they okay. And this company's buying a bunch of NVIDIA chips. And I'm sure, like, know, you look at CoreWeave. You're seeing permutations of that deal. Right?
Hooman Radfar [26:39]: Where Sam goes out and says, I'm gonna do get 300 how are you gonna pay $300,000,000,000 to Oracle, over the next n years? Like, it was a five or something like that?
Jordan Metzner [26:49]: The numbers are crazy. I mean, Facebook's promise at the White House last week. I mean, it's everywhere. Right? It's everywhere. It's crazy.
Hooman Radfar [26:55]: Okay. Great. So you're gonna do that deal. Right? And then it happens that NVIDIA is gonna invest. So NVIDIA is gonna put money in for data centers. Who's who's building those? Who's gonna be it's Oracle. Right? Like, who's gonna be part of that? Not just the infra, but, like, some of those. So my point is there's a lot of shuffling of capital, equity on one person's balance sheet, revenue on another balance sheet, and it's highly concentrated. And that dynamic, it's very susceptible to change. So if there's anything that slows down in this market, anything that stops it, I think you're gonna see a, like, a big it's not gonna be like a slow stop. It's gonna be like hitting a wall. That's what I meant to him by kind of the challenge. And, I mean, the startup ecosystem is, I mean, gonna be even worse. Like, you can take any company. Some of these companies have negative gross margins or AI companies have 50% gross margins. Can you imagine a SaaS company raising at the valuations they're raising at 40% gross margin?
Hooman Radfar [27:45]: It's a joke. I mean, Jordan, you know how much pressure were the margins for you in the company that we worked on. I'm just like, it's not gonna last. At some point, they're gonna be like, I want cash flow.
