Billionaire investor Chamath Palihapitiya is outlining a scenario that could reshape the economics of artificial intelligence, arguing that Google and Meta have enough firepower to make chatbots effectively free in order to crush OpenAI’s advantage.
In a new episode of the All-In Podcast, the former vice president of user growth at Facebook responds to an argument made by investor Jason Calcanis that Google and Meta will make their AI chatbots free to drain OpenAI’s massive user base.
Palihapitiya first notes that Big Tech titans are sitting on a massive stockpile of cash that holds no value to the firms unless deployed through mergers and acquisitions (M&A), stock buybacks and other means.
“The reason why they will [make chatbots free] is that they have such an inordinate amount of cash, and that cash is valueless on the balance sheet. So you might as well just rip it in. If you look at the companies that have a need to spend money right now, it’s Google, it’s Microsoft, it’s Meta, it’s Nvidia and Apple. Yeah, all of those companies have so much cash. If you actually look at the DCF (discounted cash flow) of the enterprise value of these businesses, it gets very little credit for that cash, almost to the point where it’s worthless.
And so you either need to spend it on M&A, spend it on buybacks, or spend it to subsidize a product so that you can maintain your leadership in the broader market. And so what you’re going to see is these big companies do this capital allocation model in a much more aggressive way.”
Palihapitiya notes that while stock buybacks tend to increase share price, the move is reaching the limit of its usefulness as a tool to impress investors. Instead of buying back shares, the billionaire notes that the money could be better spent on investing in endeavors that would lead to market leadership.
“So there’s only so many share buybacks that these guys can do. They approve $50, $60, $70, $80 billion in buybacks. It just doesn’t lift the stock price the same way it does when you actually show leadership in a product category. If you’re just going to underwrite a decision, just look at the last three weeks of Google stock performance; it basically doubled once we thought that Gemini was incredible.”
Chamath notes that the Big Tech firms could weaponize their enormous cash troves to torch the competition.
“And so if you want to make Gemini even more incredible, just pour another billion users into it. And if that costs you $50 billion, it’s okay, because you’ll make a trillion dollars of market cap. It’s like a no-brainer.”
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