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Back to 20VC: Who Wins the Inference Market | Has Open-Source LLM Inference Peaked? | What Happens to the Cost of Compute | The Real Limits of Post-Training and RL with Erik Bernhardsson, Modal CEO, with Erik Bernhardsson.

Do Companies Still Have Software Margins?

Erik Bernhardsson says almost no company today has software margins anymore. The 90% margins plus that Silicon Valley showed 10 years ago are basically gone. Modal has a long-term opportunity to get to 40%, 50%, 60% margins, and Modal is never going to get to software margins.

The reason is topological. The stack of vendors runs through applications, models, infrastructure, cloud, and Nvidia. When a customer pays a dollar at the top of the stack, the dollar has to flow through a lot of different layers, and at every layer gross margins are going to be 20%, 30%.

There is a lot of margin opportunity and a lot of opportunity to make a lot of money, because the space is so big. The dollar is still split across a lot of layers in the stack, so the 90% software margin businesses are gone.

Grokipedia·Silicon Valley·Nvidia

Transcript

20VC: Who Wins the Inference Market | Has Open-Source LLM Inference Peaked? | What Happens to the Cost of Compute | The Real Limits of Post-Training and RL with Erik Bernhardsson, Modal CEO ·

The Twenty Minute VC: Venture Capital | Startup Funding | The Pitch

More from this episode

  1. Why Did Erik Bernhardsson Wait Until His Mid-30s to Start Modal?Erik Bernhardsson started Modal, his first company, at 36 or 37 because he never had quite enough confidence in himself, and a little of the money was missing…
  2. Can You Raise a Venture Round Without a Pitch Deck?Erik Bernhardsson says he has never made a pitch deck, and the rounds still closed. He kind of hates fundraising.
  3. How Much Does Modal Burn Each Month?Erik Bernhardsson says Modal burned only a few million a month up until last year, and monthly burn is now a lot.
  4. Who Will Win the AI Inference Market?Erik Bernhardsson says the AI inference market will be enormous, like a new cloud, and inference alone will not be enough to win it.
  5. Is Buying GPUs Like an Open-air Drug Market?Erik Bernhardsson says buying GPUs at NVIDIA's GTC conference in San Jose felt like an open-air drug market, with GPUs instead of drugs.
  6. Will GPU Prices Come Back Down?Erik Bernhardsson says GPU prices will come back down, though he cannot say when. Hardware prices are like gravity and fall in the very long run.
  7. Is CUDA Still a Moat for NVIDIA?Erik Bernhardsson says CUDA is a little overstated as NVIDIA's moat. He does not think CUDA itself is the moat. He calls it an annoying programming model.
  8. Is Nebius a Better Business Than CoreWeave?Erik Bernhardsson says he does not know whether Nebius is a better business than CoreWeave. Both, in his view, have executed extremely well.
  9. How Did Harry Stebbings Thank New Followers?Harry Stebbings sent a personal thank-you to every follower who followed him before 50,000. He typed each note himself. Every night from 1 till 2.30 a.m.
  10. Has Open-source LLM Inference Peaked?Erik Bernhardsson says open-source LLM inference has not peaked.
  11. Are Software Engineers Going to Be Fine?Erik Bernhardsson says software engineers are going to be fine for the next 10 to 20 years.
  12. How Much Do AI Labs Pay New Graduates?Erik Bernhardsson has lost new graduates to some of the big labs for 20-plus million.
  13. What Does Erik Bernhardsson Think Makes a Good Dad?Erik Bernhardsson treats being a good dad as setting his two kids up for success in life, and he always thinks about the right amount to push them.

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