Our best cyberweapon is unavailable as open Chinese AI models forge ahead. #
- Welcome to *. Cautious Optimism, a newsletter on tech, business, and power. Modestly upbeat
Monday. The US-Iran war is on hold, again. Shipping slowed in the Strait of Hormuz after attacks left trade crippled again; thankfully, oil prices aren’t spiking.
Closer to home, we’re staring down the barrel of online age verification, which could rewrite how we use the Internet. And it’s the last few days of the second quarter, which means it’s very nearly earnings season. Admit it, you are just as excited as I am!
Today, we’re talking about Hugging Face reaching a critical revenue milestone; the latest on the prediction market front; and we close with a look at the current state of AI in cybersecurity. To work!** — Alex**
📈 Trending Up #
Chinese humanoid robots…American humanoid robots…bundling, unbundling…American imports…theocracy…self-driving cars…going to court…Martian moss…JD Vance in the Valley…
State capitalism, South Korea edition: Micron’s earnings underscored the strong demand for memory products that power the AI industry. That hunger is so deep and pervasive that South Korea is now planning a $590 billion investment alongside its local memory chip makers Samsung and SK Hynix to build chipmaking facilities in under-developed parts of the country.
We’ve seen related efforts in the United Kingdom and France, which make clear that no nation wants to hand its digital future to potential rivals. That’s true in South Korea, but the country is also pairing its national compute plans with capital infusions into domestic champions that can profit from other countries’ spending.
Normally, ** CO **opposes state capitalism, as it leads to economic distortions by granting the government the ability to steer the economy, rather than the market. In this case, the direct investment in memory capacity feels more like a state-led venture round; the demand is there, the companies just need more capacity. Maybe it’ll work out, even if the success of state-backed capital investing in national priorities
is spotty at best. Speaking of which, South Korea is also planning to spendaround $650 billionon data centers over the next 10 years, bolstering domestic compute capacity by 10 gigawatts. A lot of compute and a double-down on a national product of critical future importance? Not the worst set of decisions we’ve seen.- The South Korean stock market has been on a crazy journey in recent weeks, soaring and crashing in rapid succession.
Hugging Face: Best known as a repository of open AI models, the startup recently crossed the $100 million run-rate revenue milestone. Individual users can subscribe to the service for more storage and inference credits, and companies can buy lots of Hugging Face for their teams with the usual enterprise bells and whistles. Apparently, many people use Hugging Face as a home for their AI needs, and that’s valuable.
- Frankly, I didn’t expect Hugging Face to be a great business, even if its service has been stellar. My mistake here was underestimating global demand for AI models and inference.
While the United States is a bit behind on open-source/weight AI at present, at a minimum, some of the value created by open models is accruing on our shores. That’s nice to see. And the Hugging Face crew seem like lovely people, so I like seeing them win, too.
[📉](https://finance.yahoo.com/news/servicenow-pledges-1-5bn-investment-110000403.html) Trending Down
[📉](https://finance.yahoo.com/news/servicenow-pledges-1-5bn-investment-110000403.html)
Japanese IPOs…clean government…fuel availability in Russia…Russian consumer sentiment…CNN’s leadership? …clean government…giving Anthropic your token…flow
**Gambling: **Over the weekend, an X user from the crypto community posted that they felt it was gross to see the Coinbase app push a “vulnerable, young, unsophisticated, financially poor user” towards “gambling on sports and the price of Bitcoin.”
Yes, we’re talking about prediction markets. In particular, Coinbase’s own efforts in the space.
Coinbase entered the prediction market game last December, albeit with just a preview version, as Kalshi was providing “market flow” at launch. The company soon after said it was buying The Clearing Company to “scale world-class prediction markets trading.”
That move yielded strong results. As we’ve seen with prediction markets seemingly everywhere, by the time the product rolled out broadly in late January, people were more than ready to gamble (trade?).
Here’s an excerpt from Coinbase’s Q1 earnings report: Prediction markets are scaling fast, reaching $100 million in annualized revenue in March. That’s just two months after launch.
Currently dealing with a crypto winter, Coinbase likely finds the new revenue stream a welcome addition to its portfolio. But is it marketing a service that many think is basically gambling too hard?
In response to the original post, Coinbase CEO Brian Armstrong provided a thoughtful response:
I’m pro-freedom. Consenting adults should be able to do what they want with their own money, as long as they’re not harming others. […] That said, it doesn’t feel right to aggressively promote high-risk products to unsophisticated users. There’s a difference between making something available and making it the focus of the app. […] We can mitigate this with clear disclosures, AI-powered financial literacy tools, and personalized experiences.
Armstrong went on to call for regulation, stating that “society — through democratic processes — should ultimately decide what’s allowed,” not private companies like his.
Another way to view Armstrong’s comments is that Coinbase will do what is allowed and profitable, and if society decides otherwise, it’ll listen to collective wisdom.
That’s slightly bullshit, though, as the prediction market space is currently not being governed by democratic norms. Instead, the President’s son is cashing in on two of the leading companies in the space (Kalshi and Polymarket), and the federal government is fighting tooth and nail to whomp states’ ability to regulate the industry.
Welcome to the cybersecurity cold war #
When hackers breached British car maker Jaguar Land Rover last year, the company lost five weeks of production, resulting in the “costliest cyberattack in the nation’s history,” per the New York Times. It turns out that the hack was not the work of local miscreants; it was carried out by hackers linked to the Russian government.
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