AI Hurtles Ahead

“Nothing has ever taken hold at the pace AI has. It's able to change the world at a speed that approaches instantaneous, outpacing the ability of most observers to anticipate or even comprehend. In the past, infrastructure was built for a new technology, and it often took years for that infrastructure to be fully utilized. In the case of AI inference, however, demand already exists and is growing rapidly, and I'm told AI is supply constrained.”

“The training phase must not be thought of as loading the model with information, which I had done until now. It goes far beyond that. It consists of teaching the model how to think. By absorbing text, the model learns how to understand reasoning patterns and form them, how arguments are structured, how to generate new combinations of ideas, and how to apply learned reasoning patterns to novel situations.”

“Level three is autonomous agents. At this level, the user doesn't tell AI what to do. The user gives it a goal as well as the parameters of the desired output, things like length, time taken, content, and points covered. The agent does the work, checks it, and submits a finished product. This is labor replacement at the task level, not assistance.”

“On February 5, OpenAI released GPT 5.3 codex. In the technical documentation, they included this. GPT 5.3 codex is our first model that was instrumental in creating itself. The codex team used early versions to debug its own training, manage its own deployment, and diagnose test results and evaluations. Listen to that again. The AI helped build itself.”

“And there's something else. AI doesn't have skin in the game. It doesn't feel the weight of concentrated positions or the fear of capital loss. Its willingness to take risk might not be constrained by humans' normal risk aversion. The best investors sense potential risk intuitively, and this contributes greatly to their success.”

“While I mentioned it in my December memo, I want to point out again that some AI revenue is currently circular in nature, derived from AI companies buying from each other. The chain of revenue has to ultimately rest on end users paying for real economic value. And while that's increasingly the case, the question of how much revenue is circular remains an open one.”

“A friend of my daughter-in-law heads the department that writes advertising copy for an ecommerce company. She told me AI could replace 80% of her staff. I can't imagine software companies will need as many people to instruct Claude to write software as have been writing software up until now. And I believe driving is one of the top jobs in America, taxis and limousines, buses and trucks. Waymo, driverless cars, already handle roughly one fifth of the taxi trips in San Francisco, and I see them all the time in LA.”

“Since no one can say definitively whether this is a bubble, I'd advise that no one should go all in without acknowledging that they face the risk of ruin if things go badly. But by the same token, no one should stay all out and risk missing out on one of the great technological steps forward. A moderate position applied with selectivity and prudence seems like the best approach.”

“Howard, everything you know about investing came from other people. Benjamin Graham taught you about margin of safety. Buffett taught you about quality. Charlie Munger taught you about mental models from multiple disciplines. John Kenneth Galbraith taught you about the psychology of financial manias. You read thousands of books, memos, case studies, and annual reports over fifty years. Every input was someone else's thinking.”