AI, Middle East, China, Tariffs, Recon Bill, Invest America | BG2 w/ Bill Gurley & Brad Gerstner

Summary

• After Gerstner’s 10 days in the Gulf, Gurley frames the Trump administration’s May ‘25 repeal of the Biden diffusion rule as flipping US AI policy from “Washington control” to “Silicon Valley partnership” — ~$1T investment commitments each from Saudi, Qatar and the UAE, plus a 5GW UAE-US AI campus (~2.5M GPUs, “almost like a global Stargate”) with Nvidia, OpenAI and Oracle. “We’ve ripped the chains off… now we’re going to allow our companies to go compete and win.”
• The counterfactual both hosts feared: a year more of the old path and the Gulf commits to Huawei full-stack AI — “we were 100% on a path towards building a wall around America, not building a wall around China,” the exact opposite of the internet era, where the US won because the world ran on American tech.
• Tariffs appear to have leaned toward the Bessent door, away from the “nuclear Navarro” door: Gerstner’s team re-ran the math — China at 30% strategic / 15% non-strategic, rest of world ~10% yields ~$300B in tariffs vs. the $800B implied on Liberation Day and $77B last year. Still a 4x revenue jump but digestible on a $28T economy — which is why the market that fell 20% bounced 20% in 20 trading days, “just back to where we started the year.”
• On the remaining H20 export ban, Gerstner would reverse it: China already has frontier AI (“their open-source models might even be in front of the United States”), Nvidia was tracking to a $50B China business, and keeping ByteDance/Tencent in the CUDA ecosystem beats gifting data and profits to Huawei. He “would not be terribly surprised” to see a deprecated Nvidia chip approved for China within the 90-day window.
• The reconciliation bill is stimulus, not austerity: extending the 2017 cuts (a $3-4T tax hike avoided), no tax on tips/overtime/social security, immediate expensing — roughly $400-500B annual stimulus — but tariff revenue isn’t scored, DOGE cuts need rescission, and defense rises ~$150B to ~$1T. “People should not get their hopes up” the $2.2T deficit gets halved; Gerstner calls saddling kids with $50T+ of debt “morally unacceptable.”
• Invest America made the House bill (renamed the “MAGA account”): $1,000 in an S&P 500 account for each of 3.7M kids born yearly, a “401k from birth” compounding to ~$50K at 18 and ~$150K at 30 — Gerstner’s redistribution alternative to a 57% all-in rate for high earners that he says is nearing the Laffer tipping point.
• Gurley’s governance alarm: Joe Grundfest’s May 14 study shows Delaware fee awards of 7x+ are 23x more likely than federal courts (10x+ awards, 57x more likely), with 55% of the extreme cases from just two judges — the Tesla nine-share plaintiff wasn’t a one-off but structural. “Any company that I’m involved with, I’m going to encourage to leave”; Texas SB 29 (codified business judgment rule, 3% derivative-action threshold) is the destination.
• Two crypto/China kickers: the Genius Act cleared its Senate hurdle — stablecoin issuers could become “the biggest holders of US debt on the planet” within 5-10 years — and China now appears to have four deep-pocketed open-source models (a likely Baidu release is scheduled for June 30), while the US open-source response still waits on OpenAI, Meta post-Llama 4 blowback, and Elon.

Deep dive

1. Riyadh, Doha, Abu Dhabi: control gives way to the art of the deal

• Gurley rode with the AI delegation (David Sacks leading, Lutnick and Bessent alongside, “pretty much every major CEO in US technology”) and describes a “massive 180 shift from… the Washington approach of control” — CFIUS blocks, the Biden diffusion rule restricting chip sales to ~100 countries — “to much more of a Silicon Valley approach to partnership and openness.”
• The scale surprised even him: ~$1 trillion investment commitments into the US from each of Saudi, Qatar and the UAE in the first five months of 2025, with the diffusion rule repealed in May, plus the Abu Dhabi announcement of a 5-gigawatt UAE-US AI campus with Nvidia, OpenAI and Oracle — at ~500,000 GPUs per gig, “about 2 and a half million GPUs… almost like a global Stargate.”
• Sacks’s framing, which Gurley endorses: “not just a single deal. It’s a new framework for advancing American AI both at home and abroad” — positioning the US stack as partner of choice “for decades to come.” The diplomatic dividend matters too: Syria sanctions lifted “probably gives way to the Saudis signing the Abraham Accords,” even as Iran sits at a fork between a nuclear deal and “a hot war situation.”

2. Gurley pokes at the cheap-power thesis

• Asked what these national data centers’ real edge is, Gurley starts with cheap power — electrons converted to tokens — and the region’s pivot from “powering the industrial age by exporting oil” to powering the AI age by exporting tokens.
• Gerstner’s back-of-envelope pushback: cooling and power might be ~20% of COGS, maybe ~10% of revenues — so a 2:1 power advantage buys only ~5 points of operating margin or pricing room. Gurley’s response widens the case: latency (local serving for Europe, the Middle East, India), cheap labor, robotic data-center buildouts, and sovereigns like likely Sheikh Tahnoon’s UAE (G42) investing “at a level that really no other sovereign on a global basis is investing at.”
• The counterfactual that anchors the whole segment: Huawei share was already rising in Saudi — a 92-year ally being told AI is existential to national development while “we’re not going to give you our best technologies” — and a year more of that “would have been largely… commitments to build on Chinese AI stacks because they couldn’t afford to do nothing.”

3. The Google-in-2000 analogy and the wall around America

• Gerstner’s signature comparison: imagine Washington in 2000 requiring federal approval before Google launched in any country — “it would have prevented Google from ever becoming the global powerhouse… so advantageous to the United States. Hard power, soft power, economic power. And so that’s what we were doing in AI.”
• Gurley’s internet-era symmetry: last time, “the rest of the world used America’s internet and China built their own internet” — the pre-repeal path pointed to the exact inverse, America AI walled off while China AI took the rest of the world. Both agree the AI boom “is going to be even bigger than the internet boom,” so copying Europe’s regulatory stagnation (Gurley cites a fresh WSJ piece on how EU rules stifled tech) would be a disaster.

4. The China Hawk Industrial Complex — a real disagreement

• Gurley won’t let the celebration stand unqualified: the Hill and Valley conference tone “was the opposite of everything we just talked about” (one blogger: “Welcome to the China Hawk Industrial Complex”), and his 25-years-in-VC diagnosis is that defense-tech investors adopt hawkishness like “defending your children” — “once you invest in something, you just start to adopt the mouthpiece for it.”
• Gerstner pushes back — “we’re big investors in likely Anduril… big investors in ByteDance. I have an intellectual capacity to understand these investments for what they are” — and cites his running debate with Josh Wolfe as legitimate disagreement, while insisting the Middle East case is unambiguous: “If we can’t be in partnership with our allies like India, like the Middle East… then what are we doing?” They explicitly agree to disagree on whether portfolio exposure warps the discourse.

5. Tariffs lean toward Bessent’s door

• Gerstner’s two-door frame from three weeks ago now appears to favor door two, “the Bessent or the Hassett approach” — rather than door one, “the nuclear Navarro path” — with Bessent saying “our goal is not to decouple from China, especially in non-strategic goods.”
• The re-run math: as Gerstner understands it, China is at 30% (reportedly 10% base + 20% fentanyl, which he interprets could drop on a precursor deal), non-strategic goods possibly back to 15% or lower, rest of world ~10% → ~$300B in tariffs vs. $800B on Liberation Day and $77B last year. Half hits consumers, half gets eaten by producers — “not that big a headwind to the US economy,” hence the round trip from -20% to flat on the year.
• Gurley flags the underappreciated detail: rare-earth and magnet restrictions were removed in the 90-day pause — critical for companies with strategic inputs, though it could snap back “if things were to go off the rails.”

6. The H20 ban is the wrong fight

• Jensen’s public math, as relayed: the ban forfeits ~$15B of next-year sales and ~$3B in US tax revenue; Gerstner extends it — a $50B China business in two to three years, “probably another $10 billion of profits to Nvidia that were lost” that would have funded R&D keeping America at the chip frontier.
• Gerstner’s position, hedged but firm: “China already has Frontier AI. Huawei is already there… Arguably their open-source models might even be in front of the United States.” Selling into China is “a closer call than selling chips to the Middle East, but… when push comes to shove, I would sell chips into China” — keep ByteDance and Tencent in CUDA rather than feeding the Huawei stack. Gurley adds the standard corollary: restriction “just gives them more incentive to implement their own technology faster” — see autos and robotics.

7. Reconciliation: real stimulus, no real deficit fix

• Mechanics for listeners: reconciliation suspends the filibuster under the Byrd rules — 50 Senate votes, not 60 — with the “big six” (Johnson, Jason Smith, Thune, Crapo, Hassett, Bessent) negotiating; House passage expected this week, Senate amendments through June, signature around July 1-2.
• Contents: extending the 2017 cuts (otherwise a $3-4T tax increase hits in a year), no tax on tips (Gerstner thinks a cap is already included — otherwise “you just redefine your consulting company as all tips”), overtime, social security, and immediate expensing of capex — together “probably a four or five hundred billion dollar annual stimulus.”
• Gerstner’s honest accounting against the hopium: tariff revenue isn’t scored in the budget, DOGE cuts (maybe $100B) don’t count without rescission, defense rises ~$150B to ~$1T — so with a $2.2T deficit and $38T of debt, “people should not get their hopes up that… our budget deficit is going to magically be cut by 50%.” He backs a balanced-budget amendment and a dedicated deficit task force; monetizing the balance sheet is live (Gurley’s Texas example: the university system’s 2.1M Permian Basin acres throwing off ~$894M/year), with Trump now saying proceeds pay down debt rather than seed a sovereign wealth fund. Carried interest elimination: presidentially endorsed, not in the House bill.
• Gurley’s biggest-possible-cut wish: Trump’s floated idea of halving military budgets alongside China and Russia — “the biggest thing he could possibly deliver as president. Our neo-China-hawk friends wouldn’t like it, but I would like it quite a bit.”

8. Invest America gets in — even if they renamed it MAGA

• The design: $1,000 in an S&P 500 account for every child born (3.7M/year), locked like a 401k from birth, topped up by parents, companies, church groups — ~$50K at 18, ~$150K at 30. “You get them into the game, they can open up their phone and see that they own a little bit of Berkshire Hathaway… They feel like they have a shot at the American dream.”
• The Washington lesson Gerstner learned: “you lose ball control” — the House renamed it the MAGA account (“money account for growth and advancement”), “deeply polarizing” branding he hopes the Senate reverses. Trump’s intervention with the Speaker “broke the logjam.” His pitch to Democrats: this is better redistribution than raising a 57% all-in rate for high earners that Gerstner says is nearing the Laffer tipping point — it “disproportionately benefits the 60 to 70% of people who are left out and left behind.”

9. Delaware is structurally broken; Texas wrote the fix into code

• Gurley’s exhibit: Joe Grundfest’s May 14 paper (former Reagan-appointed SEC commissioner) comparing 2009-2024 fee awards — in Delaware, 7x-or-higher multipliers are 23x more likely than in federal court; 10x-or-higher, 57x more likely. Worse: 55% of the 20 extreme cases came from just two judges, and the chancellor both sets the multiples and assigns the cases — “she could hand them to herself.” “This is more damning than just the one Tesla thing… chaos is being built into the system.”
• The Tesla absurdity restated once: a plaintiff with nine shares, lawyers taking ~$345-380M — “makes no effing sense whatsoever.” Gerstner’s synthesis: Delaware was chosen for predictability and now carries “the greatest risk of long-tail adverse outcomes”; the onus is on Delaware to explain its fix, but Gerstner bets inertia means 90%+ of companies re-incorporate there anyway.
• Texas SB 29 as an alternative: codified business judgment rule, up-to-3% ownership threshold to bring derivative actions, exclusive Texas business-court venue, jury-trial waivers, limits on books-and-records fishing. Gurley: “the important thing is to get out of Delaware” — and if Nevada wants to raise the bar, send him the materials.

10. Stablecoins, open source, and the Manus dust-up

• The Genius Act (Sen. Bill Hagerty) cleared its Senate hurdle: full reserve backing, unified federal oversight, consumer protections — ending four years of “persecuting everybody involved in crypto.” Gerstner relays a claim that in 5-10 years stablecoin issuers could become “the biggest holders of US debt on the planet”, and cross-border B2B payments (John Collison “super bullish,” Stripe building here) shed intermediary fees. Gurley, a longtime crypto skeptic, says Hester Pierce’s May 8 paper — blockchain as a better securities-tracking mechanism, regulatory sandboxes, regulatory capture breeding market fragility — has him ready “to revisit” his bearishness.
• On China open source: likely Baidu pre-announced its latest model for June 30 and switched to open source — Robin Li had publicly championed closed models — making it the fourth deep-pocketed open Chinese model after DeepSeek, likely Qwen and a third (“Xiai” as heard). Gurley: since models demonstrably improve each other, “four simultaneous models all open source… will be tough to keep up with,” and banning DeepSeek is “whack-a-mole because there’s four, not one.” Gerstner expects OpenAI’s open model “in the next 30 days or so,” notes Llama 4 blowback at Meta, and concedes “the early leadership here probably does go to China.”
• Gurley on the likely Manus attacks: he’s no longer a GP on Benchmark’s new funds and wasn’t part of the investment decision — and the facts undercut the pile-on: Manus is a wrapper running only on US models (never DeepSeek), with offices in Singapore, Japan and the US, all workloads and customer data on US hosting. “There’s a lot of room in between” China hawk and Sinophile. Gerstner’s coda: 50% of US AI researchers are Chinese, xenophobic drift is self-defeating, and his ask is an AI visa plus reciprocity — “I’d love to see our internet companies allowed in China… tariffs come down on both sides.”