Arvind Krishna & Nikesh Arora: Quantum Threat, Open vs Frontier AI, AI Cyber Warfare & SaaS Collapse
All-In · 21 Oct 2026
Source: https://allinchamathjason.libsyn.com/arvind-krishna-nikesh-arora-quantum-threat-open-vs-frontier-ai-ai-cyber-warfare-saas-collapse
Transcript: https://podcasts.opennash.com/shows/all-in/arvind-krishna-nikesh-arora-quantum-threat-open-vs-frontier-ai-ai-cyber-warfare-36bc76/ (via OpenNash Podcasts, machine-generated)

I know that you guys have been using the T word a lot, the last day or two in your conversations, the tokens, but maybe we could kind of pivot a little bit away from AI. I guess it's a little bit rooted in AI, but there's been this big conversation set in the last couple days about cryptography. And uh some of the risks to cryptography. I think it it took root after the open AI math drop. But there's more conversations now about this big quantum initiative and how that might kind of take us into an era where we need to kind of start to think about adopting quantum cryptography.

But Arvind, maybe we could start and talk a little bit about where things stand today from your view.

Sure, so, um, a little bit of what David just touched on is, uh, DARPA's been running a competition called QBI or Quantum Benchmarking Initiative. Um, a couple of hundred companies joined it a couple of years ago, I think it's down to maybe thirteen are left. So that tells you kind of what's maybe real, I'm calling it, maybe not quite real, some of it is real.

And so their goal is who can build a quantum computer that works. Let's sort of put the technology side out of it, and the debates are is it 2028, 2029, twenty thirty three, and sort of if you pick the middle point, let's call it twenty thirty. Well, it will break today's cryptography. That's not a supposition, that's just a reality. And if that's gonna happen, then what's the cryptography that you gotta use to, uh, protect yourself against that?

Unfortunately for some of you, what's even worse, if you have an encrypted hard disk today, that gets stolen, somebody could keep it for five years and break it at that point. The good news is post quantum cryptography is understood, it's well known, the code is written. But people have been too lazy to get to it. But I think the wake up moment is now.

Are the solutions that we understand quantum proof or quantum resistant? Because it's sort of based on our basic understanding today of what quantum probably looks like.

Yeah, um, no, it is based on understanding at a theoretical level of what quantum could do. So they are quantum proof in the same level of rigor that today's cryptography cannot be broken by today's classical computers. That's actually not a theorem proof level answer. It's more based on complexity theory in computer science, which is grounded at the end on some assumptions, not on.

So, if you look at where we are today and that twenty thirty midpoint, can you just walk us through the evolutionary moments that you need to see? Where we all have to start paying attention and say, OK, how do we move?

Yes, so today you got toy quantum computers, I'll call I'll call them toys, because they can do certain problems, but they are rife with errors. They have no way to scale fully yet. So question one will be who's the first one who can demonstrate not a simulation, not on the side, but some level of error correction or mitigation on a running quantum computer. Step one. And so I'll predict you'll see somebody make claims by next year, then you should get third parties to evaluate.

Are those claims real? You'll find one or two will make progress by 2027. Error correction, not at scale, but error correction. Question two will be Can you run these things at some level of scale? Not yet complete scale. I call it gate computations for the lack of a better word. Today, most people are somewhere around 10,000. Which, if you think of a normal computer, is not very much. I mean, your iPhone does a couple of, uh, billion, uh, per minute.

So gate computations is somebody scaling from 10,000, are they adding a zero each year? That's the second milestone I would put. You put those two steps together. And now, if you put a zero per year, that means you could be at 10 million by 2029. That's remarkable. That can do some things that'll surprise the hell out of everybody.

Does this reference kind of this notion of a logical qubit being kind of an error corrected operating qubit? Is that is that is, is that, is that a term you've adopted logical qubits? And E. that everyone kind of has the same milestone, the same metric?

I don't love the term, but I think it's a fair term to just explain to people to say, hey, if I say I'm building a computer, it's got 10,000 cubits. And they say, yeah, but they're all noisy. You're right. So if I begin to error correct, it in some sense decreases the effective capacity of the machine. So a logical then says, OK, what's the effective capacity of this machine is, I think, a reasonable way to look at it.

So that's a that's a term that I, while I don't love, because it's not like I've taken these four things and it's like a D-Ram cell, and that's it. It's actually the whole machine is error corrected, but it's got some divide. So 10,000 physical, maybe 200 logical.

OK, so you have red teams that think about what is at the frontier and pushing it. Let's say that you start to see these ooms, these orders of magnitude start to compound. If you had to guess, where would your red team say are the obvious honeypots? Where do you point that if you were a bad actor?

If you think from the perspective of everybody here has pretty much crypto keys running across their entire IT infrastructure. It's not one thing, everything is running with crypto keys which are encrypted. Every vendor in our space has keys at each end. So the first thing that's gonna happen is whatever is not quantum proof is gonna be breakable. So our view is you can't wait for 2029 or twenty thirty, because it's not like one day all of us are gonna go and say, Oh shit, let's go burn $5 1 trillion of IT infrastructure and let's go build it again in one year, because now we need quantum safe infrastructure.

So you should be build, you should be replacing your IT stack today with quantum safe or quantum proof infrastructure right now. Now there are technologies, there are capabilities which are already out in the market where you can start, you know, wrapping, uh, post quantum ready through keys around traffic as a stopgap, so you can do that. But the time to if, if he says it's 2029, thirty, we're already late.

We're three years away.

Or three years away, and I'm pretty sure everybody in this room has got a few $100 million of IT spend that is earmarked for this year. And I'm guessing 50% of your spend is on infrastructure that is not quantum safe.

There was a pretty senior AI researcher that said we don't need to wait. Hm?

Twenty nine.

Well, I mean, his view was actually models, uh, AI models today can get us there before quantum computers get us there. Do you have a view on this? And I guess, you know, and and I guess it's rooted in this idea that on the frontiers of number theory, you can see AI start to develop models and proofs that are not apparent to humans today. That allow us to rethink how we can effectively do code breaking. And perhaps the open AI math dump this week is an early indication that this might actually be a good prediction that he made.

Since you geeked a little bit by going down that direction, you'll excuse me if I just geek a little bit. It's not going to be possible. At the end of the day, this goes back to stuff that people like Richard Feynman did. You cannot simulate something on a different architecture and expect a more efficient result. So, if you take that as a thesis, quantum computers do not operate in arithmetic, which is what all of classical computers, including GPUs do.

Could you have an AI algorithm discover a new quantum algorithm? Absolutely. Could it run it effectively and efficiently on today's hardware? Yes, it's not possible. So you need quantum hardware to run these things to get the positive advantage that the quantum algorithm has, otherwise it'll be slower, or by an order of a thousand or 10,000. So could you prove that it's a workable algorithm? Yes. Could you get that benefit? Unlikely.

I think the argument is using, and I know we're geeking for a minute, but just using classical computing, you can actually have a different path, an arithmetic path. For example, if you had a better predictor of the distribution of prime numbers, you know, uh, like at at the frontiers of number theory that we've not really resolved. We can start to have classical models that can start to break cryptography.

It is possible. The question is, how long will they take? Because that's always the question. So I think it it is going to be possible, but if it takes ten years to break one key, most people are gonna rest in peace. Then it's not a practical answer. That's the that's, I think, where the debate is gonna lie, but it won't prove out until it's done.

let me move the conversation to something that's happening currently. I would love to get both of your takes on the following concept. There's open source, there's closed source, there's frontier, there's pacing the frontier, there's now effectively very reasonable alternatives that are, uh, open weight at a minimum. Your philosophy around the entire spectrum and just give us a sense of how we should think about models and capabilities over the next couple of years. Nikesh, you want to start?

Sure, like, I think earlier in the day, somebody said, don't restrict your teams in terms of capability in the experimentation phase. Don't start trying to cost optimize, don't start trying to stitch your own in that phase, because the teams who work for us, twenty, no, twenty to 20,000 people, have just discovered AI in the last twelve to eighteen months, and it's not fully diffused across the organization. So if you make it harder for them to adopt, if you make it harder for them to understand, it's gonna take longer for us to be ready.

So, right now, we're saying, go use the best model you can find, the easiest way to use it, so you can understand, can we validate the things that these things can do, whether it's from an efficiency perspective, a revenue perspective, or a product development perspective. That's kind of I'll call it phase one. But in phase one, what we've discovered is there's different horses for different courses, right? What people don't understand, there was a moment whenever we thought the cybersecurity was gonna get consumed by AI models, and you know, our lives are over because mythos is gonna solve every problem.

Guess what? We inspect all traffic at an endpoint at the cost of $20 a year, right? Hundreds of megabytes of traffic per endpoint at the cost of twenty, $25 a year. Because machine learning is running on your endpoint, your compute, and we run it on a twenty, thirty, forty megabyte payload. Now, if you want to take all that traffic, run that through open AI using tokens for every employee in your company, sounds like a sound of revenue.

Like open AI will probably generate all the revenue in one year from one company, right? So that's not a practical example of how models use. So what you do is you take a small language model, you compress it, you make it task specific, you keep keep training it until it gets to 99.9% accuracy. And say, instead of using it using machine learning algorithms, we're gonna use generative AI, small language models, and they're gonna do that.

The end. So, my point is what we're doing is we're trying to figure out what tasks requires, what level of intelligence, and what is the cost of that intelligence for that particular task. And you suddenly discover you don't need a Ferrari for every task. And by the way, the customers don't wanna pay for a Ferrari for every task. I'll give you the flip side. Flip side is, let's assume we are undergoing a breach. You're being attacked, you know you're being attacked.

At that point in time, every customer in the room says, don't worry, use the general model you need to stop the breach because they know the business impact of that breach is in the billions of dollars. At that point in time, I can run agent swarms, I can do all kinds of stuff that you want from a defensive perspective. So there, I may want to use the most up to date frontier Lm and say, go think about it, reason the hell out of it and figure out how to stop this breach, how to make this happen.

So what we're discovering is you're gonna end up using frontier LMs in unique cases where the business value that is gonna get disrupted justifies. We can do, do discovery, what we want. I think for most practical use cases in enterprises, we're gonna end up training some version of an open source model. And I think when it comes to even in peacetime, for us, for example, running a defender model, we most more than likely gonna take an open weight model, use our own proprietary data, train it, manage the weights, because that sort of gives us the auditability, the explainability, and the the open system, we can actually explain how that happened.

I completely agree, but I'm going to take a slightly different lens to get to the same exact end conclusions. Let's take economics. So today, $20 for a million tokens for probably generation minus one, fifty if you want to go to the most extreme. Uh, we could take, uh, one of the Chinese open weight models, take a Kimmy K three, something 800 billion parameters. And if you run your own GPUs with a little bit of optimization, but I'm talking like a week of engineering work, we could drop the cost to about a dollar to $2 for a million tokens.

Which enterprise in the world will not accept a ten times, or in this case, a forty times cheaper answer for effectively what can do 95% of the work? So I think economics is important. The second is going to be at the end of the day, um, you, you just talked previously about chain of thought, not just the end tokens. Well, effectively, then you're giving away your IP if that chain of thought can be captured and logged and audited by somebody else.

So, so brand and IP is going to drive people to say, I need to run the models on my own. Well, you can't run a frontier model on your own because none of them will give it to you, so then you're back to open weight. And the third is geopolitics. The best open weight models today are Chinese. By the way, I think there's very little danger if you're putting them in a sandbox and running them by yourself.

Sure, if you use them from a cloud, that's different. But I think that over the next year or two, I'm very doubtful that there will not be great models that come up in the West that are also open weight and that are as capable as the Chinese. The gap in these things is six to twelve months at the most. And so all those three drive me to conclude. I don't know whether it will be seventy five to 90%, but that's the range I would put of all token users will go to open weight models for the reasons I mentioned, added to the reasons that Nikesh mentioned.

And the token consumption that's left over, is that because you actually need it, or is that because it's a default behavior and people are too lazy to change?

OK, so I'm going to talk about developer behavior. And since I was one, I'm making fun of myself in a younger age. Developers are lazy. They're gonna use the most expensive, the most expensive answer unless you put a control on it. Because it's easy. And so that is going to dro- take it there. So I would say, if experimentation phase, you allow that to prove it works, and now I got to put in a cheaper answer, it's probably fine.

If it gets me there a lot faster, but doing it for production usage is where I am skeptical that it's of value, except for a tiny number of use cases.

Nikesh, you were brought in as one of the small circle of people from Mythos, kind of preview it, be it their partner. I'm sure you're now doing that with Open AI as well. When you're sitting with these guys, is part of you thinking they're looking at my business and they're like, Wow, this is a great business. I do think, do you think that they're? And and and what is the? What is the actual technical boundaries that you expect to be respected?

And the reason I ask this is we've talked to a couple of other CEOs. I think Mark Benioff does the best example of this, where, you know, we've talked about ZVR, and he's been incredibly aggressive about making sure there's zero data retention and doing that on behalf of his customers. What's so interesting about these EDR and all of this stuff is like none of the models say that they won't generate synthetic data. It's literally not in there.

You guys should look. There's all these outs, there's all these trap doors. So I'm just wondering, like, when you're in the room, what are you thinking?

When you're in the room, you come out and say these guys are not gonna get into my business.

They're not gonna.

They're not gonna be able to get into my business. Because I, I, if you think about what when Mythos came out, right? The we, we've been paying billions of dollars for encoding agents. Well, guess what? We're fundamentally every, not everybody got ZDR encoding. There's tons of people out there using cloud code who have no issue about that data training the model. So we are training these models with end users doing coding. These models are getting better and better at doing coding.

Well, guess what? If you teach a model model what good code looks like, it also can figure out what bad code looks like. So the person that Mythos did, it figured out what bad code looks like. And if you let it loose against your code, it'll tell you what is bad. What's fascinating is when I did that, even then it was fine, it was hallucinating 30% of the time. But the problem is the reason it's perfect for attackers, they just need one vulnerability.

They don't need ten vulnerabilities. If you're a defender, you need to find every vulnerability and patch it. So all the people in the room, I think we've been through this journey in the last twelve months is that everybody here has gone tested them, either with Mythos or with some cousin of Mythos, or some open source model they discovered. Every vulnerability has to then be tested, understood, you know, figured out, and I would guess in this room, if I show of hands, people say the numbers roughly sixty to 80% have been, have been real, and 20% have been hallucinations.

So from that perspective, the models are great to be able to tell you what the vulnerability is. But I don't. I don't even think anybody in this room, if you ask them, raise their hand will tell you that they're not gonna even use cloud code to patch the vulnerability without having tested again.

I have a very random question, but it makes me think. So you're engaged to defend companies, but it now looks basically like warfare, like both of you guys, you know, it's like warfare. And so is there something that you can learn from how war has been fought, or how war is being fought, and do you do that to actually inform how the technology should behave? I don't know if this question makes sense, but

I think to the extent that you can be better together, you can collaborate like Arvind runs a program. We're now saying we're all finding vulnerabilities. Why don't we pool our vulnerabilities and find the defense once, as opposed to every company in the room trying to go test all the open source vulnerabilities they have, figure out how to patch them, go patch them individually. So then you take some trusted parties, give us your vulnerabilities, we'll patch them, we'll distribute the patches so you can all be safe at the same time.

It's kind of like how cybersecurity works today. If we find an attack technique in a different part of the world, we can take that attack technique, write machine learning code, and ingest that into our product and make sure it gets available to every customer.

is a genically written code error free? No, OK, explain that.

So, look, but first, on your war question, so what Nikesh talked about is you can have powerful alliances where the alliance effectively can become more powerful than the attacker. That's technique one, technique two in warfare. What has been the most effective is asymmetry. And so often an attacker is cheaper than the defender, so the defender runs out of money and at some point then concedes. Or can you make defense equally cheap? In which case, you can basically have symmetric warfare, and then you have a much better chance of success.

And the third, which has been the way all wars have been won, is when you get technological superiority on one side. So go back to World War two, go back to Korea, go back to Iraq, go back to anyone. If you get technological superiority on one side, you tend to win. And so our goal is, can we get technological superiority? And that's what Nikesh was referring to. Can we find vulnerabilities? Can we patch them? Can we put boundaries around them?

That makes it really expensive for the other side to now try to find a way through. So that's what I would answer. Look, at the end, will agentic code be superior to human written code? Absolutely, we can find that. We use, uh, agents and coding agents now for probably half the code that is written inside our place, and it is superior to what was being written before. But the reason it's superior is the agents can also do evals and basically make sure that everything they can find is actually fixed before it ever goes out.

All that said, we're only finding all the flaws that we know how to find. And so you get into this weird loop in computer science. OK, do I?

It's not really properly verifiable.

It's not fully verifiable because that is a task that is going to be almost, uh, computationally infeasible right now. Now, I'm not going to hold out hope that it's doesn't become what you were talking about in number theory and all that. This is a task in which maybe we'll find a way to actually get to be able to verify the correctness of these things, at least in where the inputs are limited. The input can be anything, then I think it's really hard.

Does that make sense? Yeah,

let me ask the implications of the points that you just made. It seems obvious to me that there isn't a world where China and the United States, or the West, or whomever, a bunch of international countries all hold hands and say, let's all stop AI development. That being the case, it becomes a necessity that there's an arms race, that there's a defensive or offensive superiority requisite, that there's a compute capacity requisite, that there are all of these needs that arise to protect industry, to protect our economy, to protect our jobs.

Does that argument win the day with everyone that's trying to stop AI and the political conversations and the social stuff about AI needs to stop, and we need to stop doing this. Does this point about the inevitability of one side having it re requiring the other side to defend it, change the the the conversation? I'd love for you guys to share any anecdotes you've had with senior party officials who might not be in power today, but might be coming into power, and whether they're gonna kind of have a view change around this because of that point.

I think it's abundantly clear that nobody's stopping. Everybody seems to be working at a frenetic pace to try and make sure that they get a better, smarter, faster model. Um, it's kind of interesting. You can take the charitable side and say there's no technology in the world that was built where people were building security in parallel. I don't think TSA existed when they built planes. There's no, like, right, brother, say, great, we have planes. Let's figure out how to.

Take your shoes off.

Let's frisk everybody before they get on the plane. That was not what they were thinking about.

Exactly. Keep the explosives, keep the explosives out of the shoes.

Yes, you're right, that's not what they were thinking about. So unfortunately, we've been shown the dark side of these models, and we've over rotated on the dark side of the model. Where now the entire conversation is about the dark side and the perils of AI, and not on the benefits of AI. I think there's a narrative problem. That notwithstanding, I don't think anybody's slowing down. I think the most likely outcome, which I think hopefully is the right outcome, is that in the world.

Uh, you said it, and Arvind said it earlier, if you build something, you're accountable for it. If you build something and unleash it, you can't unleash and say, oops, I don't know how to control it. That argument doesn't work.

Cuz you wrote the software. Yeah, this whole argument that you didn't write the software, that the software was written.

well, no, because the engineer is gonna say, well, agent seven, four, five, six, five from my harness wrote it, and it's like, no, you wrote it. Well, but the company still wrote it, so there's product liability.

But, but you're, you're a commercial enterprise. You're taking economic value in return for giving me something. You're required to abide by the responsibility, the responsibility that you signed up for. So I think that's, I, in my mind, it's that simple as that. And there's enough regulation in the world, perhaps too much, to hold people accountable for stuff that they put out in the open market, where they don't take responsibility, they don't take responsibility.

but but David, it's actually impossible to control it unless we think the entire world is going to sing kumbaya and say, let's slow down, which, as you said, is unlikely. So if that's the case, fine, you put slow down here, maybe. Well, OK, does it mean Japan slows down? does it mean China slows down? does it mean India slows down? No chance. They'll say, great, you're slowing down, gives me a chance to catch up and get ahead.

So, a digital technology is impossible to actually slow down, and the European example tells us. So there you get afraid of all the possibilities. I'm not saying they're real dangers. You get afraid of all of them, and you impose regulations first. I guess it's such a vibrant tech economy there, right?

Yeah, well, I mean, neither of you actually answered my question about conversations you've had, which, uh, cuz I, I'll tell you a conversation I had last week in DC. I had drinks with a member of Congress, pretty senior ranking guy, and the conversation had two parts to it. One is, I think one of the CEO's of the biggest companies in the world is completely freaked out about cyber, and he's losing his mind and he doesn't know what to do.

And I just had dinner with him. And here's all the stuff he said. And then I also think that by Q four, we might see a fifty state ban on data centers, which isn't likely, but he says, Fifty's a big number. Big number.

Have fifty states ever agreed on anything in this country?

No. Well, a few things about six.

So that would be amazing.

Yeah, get everyone together. But like, when everyone agrees on something, you know it's not true. But I think, um, and and it's that, it's it's the fact that both of those statements are being being said by someone. So where do you think this resolves? Like, how do we resolve this path forward?

He's good at this.

I'll try to answer your direct question. So, look amongst us, we have all and other members of your group have. We've all had different conversations with different members of this administration, the previous administration. The Senate runs longer than just one admin. Uh, Congress tends to change a lot faster. This question has been in there since 2022. The Senate had closed hearings in twenty two, they had open hearings in twenty three, Congress had them, the White House had them in both admins, and they go on and on.

This question. The regulation question on AI and data centers is driven, I'm gonna be sorry and cynical, is driven by populism, not by any reality. If I can get more votes, should I look like I'm trying to do those things? Politics is politics. I'm not gonna say that's not real. It is real. That said, enough people also care deeply about the long term economic advantage. And so that's the balancing act that is happening. I do think we are on the correct balance right now, but I'll acknowledge an election can change where we fall on that balancing act.

On data centers, I think there's no chance all fifty will ban. Is it possible thirty will ban? Yes, the remaining twenty will rub their hands in glee at that point. If you look geopolitically for a second, it seems like we're trending to a place of haves and have nots. So I can everybody in this room is a have. You know, you're a western market company. You have the benefit of being able to work with guys like you, but there's a certain price of entry that may not make sense for the random pick your company anywhere else around the world.

What happens then when these models are so capable and effectively free? What is the actual manifestation? I'm sure you've had to think about this in terms of how you want to respond. So how do? How do you think about that problem, this separation of haves and have-nots?

Look, I think Arvind said that you have to make technology so cheap that it can be easily accessible by everyone. And I think we have the opportunity of making that happen. I don't think that it's gonna be so expensive that if you can run an economic enterprise, it should be possible in the envelope to be able to find a way to protect yourself.

So I don't think we're gonna end up in a have have not scenario. I think the bigger challenge, which is more pertinent to people in the room, is I fear that we will see fast advances in compute development in two large countries in the world. We may not see that as evenly distributed across the rest of the world. And compute is very dear right now. It's very hard to get compute to run anything at scale at the current moment.

And the challenge is gonna be that the further away you are from the epicenter, the less likely you will have access to this compute. It's not because of economic reasons, it's purely because of supply constraints. I think that's the bigger challenge, right? You could be a company in Europe and you have the right intentions and the motivation to go and sort of innovate, optimize and run with it. And you may suddenly discover that because you're far away from the epicenter, you don't get access as much as companies in the Western world in the US, or perhaps in China are gonna get.

I think, look, I like to look at history because it gives us some information on how these things roll out. I think this is the classic labor versus capital tradeoff that is happening. It happened in the seventeen hundreds, it happened again in the eighteen hundreds, it happened again in the nineteen hundreds. People who spent more on capital than worried about labor tended to win every previous one of the seven or eight cycles like this. So this is what is going to happen this time.

What Nikesh pointed out is the two nations here are also quite willing to be capital intensive. It's not as simple as this. And they're willing, at the end of the day, to concede that labor is going to be less important. That's the way it goes, it's going to play out. Nations that get very hung up on social and left leaning philosophies that labor has to be protected at all costs. Not that there has to be opportunity for labor, but every existing job has to be protected, are the ones that are going to lose.

Because I think the ones there, to Nikesh's point, it's cheap enough. Somebody in one country can use the capability, but what's going to be in their head is, hey, but does it mean there's a job loss or a job displacement? Job displacement you should take because it may result in a better job. I think that's the social philosophy that's going to determine winners and losers here.

I have a final question before I give it to you for the final question, but my final question to both of you. You mentioned this year, which was great. Can you tell the story about? I'm a huge fan of vertical integration, huge fan. I I think, like, you know, markets swing in pendulums, and you know, there was a world, like even in the sixties, seventies and eighties, where there was the conglomerate, and it was a an incredibly valuable enterprise.

And it was in a time of turbulence, it was a safe harbor for capital because the conglomerate was the mechanism by which you organized. And then when you had peace and prosperity, then people disaggregated, and I think we're moving back to the world of the conglomerate. And you told me that you just back there about the vertical integration of IBM at its peak. I just wanted you to, and then Nikesh, what your thoughts on vertical integration are?

So what Jamat and I have often talked about is the IBM mainframe, which, by the way, there's a few people in the room who do use it quite well and at scale. The IBM mainframe has lasted sixty five years. Why? It was vertically integrated. We are a little less right now in the sense we don't go all the way to dirt. In the sixties, we went all the way to dirt, meaning we found sand, we made our own wafers, we built our own fabs, we built our own chips, every single thing, out to the metal that surrounded the machine.

What that avoided was any IP leakage, but it allowed us to keep the profit of the complete stack in the company. Today, the only piece we don't do is the actual fab. Still, the design of the chips, the design of the engineering, the resilience, the bulk of the software is inside, and that vertical integration, you got to decide. Yeah, of course, I'm not going to make our own metal. You buy metal, and fabs is because of scale, but I think that vertical integration in areas which are of incredible important advantage, which goes back to the infrastructure point.

The two of you were making before is incredibly important to understand. Where do you want to be? And where? If it's a commodity, then you should not be.

But you can see that the modern day version of that is Nvidia. If you look at what Jensen is doing, he's the modern day version of the vertically integrated stack. You know, he went and bought

Jensen is at the dirt and he's.

he's got a hugging face. He wants, he understands that there's gonna be a balance between frontier models and other models. He's trying to fund everybody in the ecosystem to ensure that they don't stray from the vertically integrated stack that he's producing. And the good news is, if you control the vertical stack, you can decide which part of the stack to commoditize. So you can decide to move profit between layers. And if you see that there are other people attacking a certain part of your stack, you, you, they destroy the profit pool on that stack.

You move the profit to the other part of the stack, and you can see that happening. Very powerful market leverage.

So to put you on the spot, so if you look at the application layer today, what's the obvious vertical integration strategy that open AI or Anthropic should be taking? And then what's the defensive mechanism for the companies that are maybe on the receiving end of that?

I think you're already seeing that, and and I think we're we're we trivialize this conversation. We start saying, open models, open weight, it's literally, it's an open stack versus a closed stack. Because I don't think I I think at some point in time, this notion of running something like an open router become impossible. Because models are getting more and more, each model is requiring more memory, more context, more understanding. You can't separate context and memory from the reasoning.

Now, if you want to separate reasoning from the context and memory, then open router is only responsible for moving the reasoning tokens back and forth. So I think over time, you'll start seeing it doesn't make sense that you have a effectively end to end stack. It'll be like this CPA you talked about earlier when you were chatting. So it's a cost per action. The action will require you to go and traverse the entire logic from prompt till outcome, and then memory will require or make it easier.

And there will be too high a friction for you to move your task from one stack to the other stack because it has all your context in memory. And you're gonna see that. Look, look at what's happening in the personal agent space, right? If you start training a personal agent with all your context, all your APIs, all your connectivity, now you've built a moat. Cuz now I can't take that every day and move it to the next stack and the next stack.

So I think you will find in the application layer, they're gonna have a vertical stack as well, which will go through the entire process of software reasoning, memory, context.

To your logical conclusion, everybody will have their own, then Yes, and then because it's just the right thing to do.

and then brute force distribution wins again in the enterprise space, right? You're seeing that in the consumer space, brute force distribution is gonna compete. In the next three months, every frontier lab is gonna have a full on full court press on the muse concept, right? They tried that six to nine months ago, it didn't work. They now, with Facebook showing us how it can work, I think pretty much everybody has it. There will be APIs. It'll be the largest battle of consumer control.

Every app that exists in the iPhone has to become headless.

maybe we can wrap by going from vertical integration to horizontal expansion. It's been a common business strategy in enterprise technology companies to expand horizontally through M and A, drive synergies, cross sales, and so on. And you've obviously both done it exceptionally well, uh, and executed it well. How has your view been affected in the last year, this year, let's say, in terms of valuations and multiples, cost of capital?

Let's talk about M and A in the context of cyber, then we can talk about M and A in the context outside of cyber. In the context of cyber, I have always maintained over the last eight years that it's silly that our customers have to buy forty different solutions and stitch them together. We barely understand our. You think you understand our ten other vendors with you can stitch it, God bless your soul, right? So we're working as fast as we can to take disparate parts of our industry and find the way to stitch them together to have the data work together.

I think that's a journey. And if you want parallels, when I started my first job was at Fidelity Investments many years ago. We had twenty three systems, which collectively would be called CRM today. We had master tables, we had tables that concatenated with them, we had twenty three different applications that did twenty different things. Today, you go buy it off the shelf and you cringe at the cost of Salesforce or the cost of Microsoft Dynamics or Oracle, or whatever you choose to do.

So, in thirty years, what's happened is that's consolidated the singular platform. The customers don't stitch the solutions anymore, because what happens is these software solutions become consistent, they all become like each other, they all roughly do the same thing, and there's no differentiation. So I think same thing is gonna happen in cyber. That's what we try to do. We've tried to find things that are best in their category, stitch them, make them work, so our customers don't have to do the stitching.

That's kind of the answer on cyber. For some reason, you know, cyber is enjoying much better valuations lately because of the the AI mythos event, which is fine, which will rationalize over time. Uh, because all these guys are gonna go spend unlimited amounts of money on cyber. Outside of cyber, I think it goes back to the conversation Chamath and we were having earlier about. It's very hard to understand the terminal value of software. It's not clear what software is gonna survive the next five to eight years, with where we are from an AI perspective, and the notion that product market fit is getting disrupted for many of these companies.

We all know with if AI was applied well, how our current software should behave in an ideal scenario. I know what I want from half the package software that I buy. I know if if I could have my magic wand and make it do things, I know exactly how it should work in an AI first world, which means somebody's gonna do it. So I think there's gonna be huge disruption in the S A. S space over the next few years.

Arvind, are you looking at anything thinking, hm, juicy multiples?

So, so, the over the year, it was very attractive at the beginning, not so attractive a month ago. We'll wait and see how it goes over the next few. But actually, I want to build on Nikesh's thought. This is not just unique to cyber. The average enterprise uses anywhere from 500 to 5,000 distinct software vendors. In a world when you have to protect against it all, it's not just the cyber threat, that's a massive attack surface.

So you have to ask yourself, could I replace 490 of them with minor AI capabilities? And do I need to go back and leverage five to ten main platforms? That implies massive consolidation, because that's where the spend goes. That's what I believe is going to play out. So there's gonna be consolidation because if you want to keep your cost of distribution low, then they can distribute all of it. And if the value of that software is falling, then you cannot afford independent distribution for each of those.

I believe that's going to play out, whether it takes six months or six years, it's somewhere inside that equation. Uh, I do think also software should be distinguished. There is software where there is a lot of interaction value, which, as we have seen, clearly can be replaced with a lot of AI. Both examples you used were things which were interaction rich. But if in the end, you go down to I need you to be reliable at ten to the minus fifteen, which is a database lookup for somebody doing retail banking or closing the books.

I think that's gonna be hard to replace that easily with, uh, AI generated software. So I think there is going to be a distinction on how easy it is for them to do that.

Yeah, you're gonna run that digital twin for years before you cut over.

Correct, and then there's there's no cost advantage to do that.

Yeah, guys, thank you very much. Arvind Krishna, Nikesh Arora, thank you. Thank you.

Thank you.

Thanks everybody. All of you.