Episode 144
Happy New Year! This is one of my favorite episodes of the year — for the fourth time, Nathan Benaich and I did our yearly roundup of AI news and advancements, including selections from this year’s State of AI Report.
If you’ve stuck around and continue to listen, I’m really thankful you’re here. I love hearing from you.
You can find Nathan and Air Street Press here on Substack and on Twitter, LinkedIn, and his personal site. Check out his writing at press.airstreet.com.
Find me on Twitter (or LinkedIn if you want…) for updates on new episodes, and reach me at editor@thegradient.pub for feedback, ideas, guest suggestions.
Outline
(00:00) Intro
(00:44) Air Street Capital and Nathan world
Nathan’s path from cancer research and bioinformatics to AI investing
The “evergreen thesis” of AI from niche to ubiquitous
Portfolio highlights: Eleven Labs, Synthesia, Crusoe
(03:44) Geographic flexibility: Europe vs. the US
Why SF isn’t always the best place for original decisions
Industry diversity in New York vs. San Francisco
The Munich Security Conference and Europe’s defense pivot
Playing macro games from a European vantage point
(07:55) VC investment styles and the “solo GP” approach
Taste as the determinant of investments
SF as a momentum game with small information asymmetry
Portfolio diversity: defense (Delian), embodied AI (Syriact), protein engineering
Finding entrepreneurs who “can’t do anything else”
(10:44) State of AI progress in 2025
Momentous progress in writing, research, computer use, image, and video
We’re in the “instruction manual” phase
The scale of investment: private markets, public markets, and nation states
(13:21) Range of outcomes and what “going bad” looks like
Today’s systems are genuinely useful—worst case is a valuation problem
Financialization of AI buildouts and GPUs
(14:55) DeepSeek and China closing the capability gap
Seven-month lag analysis (Epoch AI)
Benchmark skepticism and consumer preferences (”Coca-Cola vs. Pepsi”)
Hedonic adaptation: humans reset expectations extremely quickly
Bifurcation of model companies toward specific product bets
(18:29) Export controls and the “evolutionary pressure” argument
Selective pressure breeds innovation
Chinese companies rushing to public markets (Minimax, ZAI)
(21:30) Reasoning models and test-time compute
Chain of thought faithfulness questions
Monitorability tax: does observability reduce quality?
User confusion about when models should “think”
AI for science: literature agents, hypothesis generation
(23:53) Chain of thought interpretability and safety
Anthropomorphization concerns
Alignment faking and self-preservation behaviors
Cybersecurity as a bigger risk than existential risk
Models as payloads injected into critical systems
(27:26) Commercial traction and AI adoption data
Ramp data: 44% of US businesses paying for AI (up from 5% in early 2023)
Average contract values up to $530K from $39K
State of AI survey: 92% report productivity gains
The “slow takeoff” consensus and human inertia
Use cases: meeting notes, content generation, brainstorming, coding, financial analysis
(32:53) The industrial era of AI
Stargate and XAI data centers
Energy infrastructure: gas turbines and grid investment
Labs need to own models, data, compute, and power
Poolside’s approach to owning infrastructure
(35:40) Venture capital in the age of massive GPU capex
The GP lives in the present, the entrepreneur in the future, the LP in the past
Generality vs. specialism narratives
“Two or 20”: management fees vs. carried interest
Scaling funds to match entrepreneur ambitions
(40:10) NVIDIA challengers and returns analysis
Chinese challengers: 6x return vs. 26x on NVIDIA
US challengers: 2x return vs. 12x on NVIDIA
Grok acquired for $20B; Samba Nova markdown to $1.6B
“The tide is lifting all boats”—demand exceeds supply
(44:06) The hardware lottery and architecture convergence
Transformer dominance and custom ASICs making a comeback
NVIDIA still 90–95% of published AI research
(45:49) AI regulation: Trump agenda and the EU AI Act
Domain-specific regulators vs. blanket AI policy
State-level experimentation creates stochasticity
EU AI Act: “born before GPT-4, takes effect in a world shaped by GPT-7”
Only three EU member states compliant by late 2025
(50:14) Sovereign AI: what it really means
True sovereignty requires energy, compute, data, talent, chip design, and manufacturing
The US is sovereign; the UK by itself is not
Form alliances or become world-class at one level of the stack
ASML and the Netherlands as an example
(52:33) Open weight safety and containment
Three paths: model-based safeguards, scaffolding/ecosystem, procedural/governance
“Pandora’s box is open”—containment on distribution, not weights
Leak risk: the most vulnerable link is often human
Developer–policymaker communication and regulator upskilling
(55:43) China’s AI safety approach
Matt Sheehan’s work on Chinese AI regulation
Safety summits and China’s participation
New Chinese policies: minor modes, mental health intervention, data governance
UK’s rebrand from “safety” to “security” institutes
(58:34) Prior predictions and patterns
Hits on regulatory/political areas; misses on semiconductor consolidation, AI video games
(59:43) 2026 Predictions
A Chinese lab overtaking US on frontier (likely ZAI or DeepSeek, on scientific reasoning)
Data center NIMBYism influencing midterm politics
(01:01:01) Closing
Links and Resources
Nathan / Air Street Capital
Air Street Press — essays, analysis, and the Guide to AI newsletter
From Air Street Press (mentioned in episode)
Is the EU AI Act Actually Useful? — by Max Cutler and Nathan Benaich
China Has No Place at the UK AI Safety Summit (2023) — by Alex Chalmers and Nathan Benaich
Research & Analysis
Epoch AI: Chinese AI Models Lag US by 7 Months — the analysis referenced on the US-China capability gap
Sara Hooker: The Hardware Lottery — the essay on how hardware determines which research ideas succeed
Matt Sheehan: China’s AI Regulations and How They Get Made — Carnegie Endowment
Companies Mentioned
Eleven Labs — AI voice synthesis (Air Street portfolio)
Synthesia — AI video generation (Air Street portfolio)
Crusoe — clean compute infrastructure (Air Street portfolio)
Poolside — AI for code (Air Street portfolio)
DeepSeek — Chinese AI lab
Minimax — Chinese AI company
ASML — semiconductor equipment
Other Resources
Search Engine Podcast: Data Centers (Part 1 & 2) — PJ Vogt’s two-part series on XAI data centers and the AI financing boom
RAAIS Foundation — Nathan’s AI research and education charity
