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AI Dev Essentials #5: 🤯 Cursor Valued at $9B, Gemini 2.5 Pro & More AI Updates

GPT-4.1 and Gemini 2.5 Pro are changing how devs build tools in Cursor. Plus: massive funding for Cursor, OpenAI acquires Windsurf, and new agentic dev tools.

Hey Everyone 👋,

John Lindquist here with the fifth issue of AI Dev Essentials! This week, I've been relying more on GPT-4.1 in Cursor (which seems vastly improved since I last tried it) when building CLI and node tools. GPT 4.1 seems more aggressive in using tools as a pseudo reasoning step, while Gemini 2.5 Pro often jumps straight to code changes based on its "real" reasoning. I'm finding that GPT 4.1 in Cursor is becoming legit, especially with a "please explain that back to me" workflow. The speed allows for almost instant alignment. This "time to alignment" is so critical. It's that moment you *know* the AI is on the same page after a brain dump. On another note, programming is getting weird! I had a moment working on an MCP process manager where all the code was correct, but my *English descriptions* of what it was doing were too technical and thus misleading. Wild times!

Big news: Gemini 2.5 Pro upgrade launched a couple hours ago. I'm super excited for this to land in Cursor, hopefully even later today! For now, you can try it out in AI Studio. I can't wait to see the improvements in Cursor's agent mode, especially since the tool calling is reportedly vastly improved. Beyond that, the major themes this week include impressive new generative AI capabilities for voice, a continued surge in developer tooling and frameworks (especially open source), and ongoing discussions around prompting best practices and AI model quirks.

Let's dive in!

🎓 New egghead.io Lessons This Week

When to Use Cursor Rules Instead of MCPs

This lesson demonstrates creating a Cursor Rule for a CLI tool (`ghx` for scraping GitHub examples) to make it available to the agent. It highlights how agent requested rules can be a simpler alternative to MCPs for tool integration, offering more control over context.
Brainstorming and Planning with Mermaid Diagrams in Cursor

Learn to use Cursor Rules to enable Mermaid diagram generation. The lesson shows how to create and iterate on diagrams (like basic to do app flows and sequence diagrams for optimistic updates) visually within Cursor, providing a way to plan before coding.
Create Complex Cursor Shortcuts to Run Commands and Generate AI Commits

This lesson walks through setting up a custom keyboard shortcut (Command+Shift+S) in Cursor's JSON settings to run a sequence of commands: stage all git changes, use Cursor to generate a commit message, commit, and then push/pull.

💰 AI Coding Assistant Valuations & Acquisitions Skyrocket

The AI coding assistant space is on fire with some massive financial moves happening.

Anysphere (Cursor IDE) Hits $9 Billion Valuation

Cursor's parent company, Anysphere, reportedly secured a new $900 million funding round, pushing its valuation to an estimated $9 billion. Key investors include Thrive Capital, Andreessen Horowitz (a16z), and Accel. This is a huge jump from their $2.5 billion valuation in January 2025, showing incredible investor confidence. (Source details from PitchBook: "Maker of AI-coding software Cursor is doubling its valuation every 8 weeks", citing The Financial Times; and Crunchbase News: "AI-Powered Coding Tool Anysphere Lands $900M At $9B — Report".)
OpenAI Reportedly Acquires Windsurf (formerly Codeium) for ~$3 Billion

In what would be its largest acquisition, OpenAI is said to be acquiring Windsurf. Windsurf, an AI-assisted coding tool, was previously valued around $1.25 billion. This move clearly signals OpenAI's intent to bolster its position in the AI developer tools market. (Source details from Mashable citing Bloomberg: "OpenAI is buying Windsurf for $3 billion. What does that mean for ChatGPT?"; and Investing.com citing Reuters/Bloomberg: "OpenAI agrees to buy Windsurf for about $3 billion, Bloomberg News reports".)

My take: It seems like OpenAI, above all, needed the team behind Windsurf. The value of people talented in code generation is through the roof right now. But they also needed a product ASAP, so it's essentially like they're paying for same day shipping, even with this incredible amount of money. And it boggles my mind that Cursor's valuation is estimated at $9 billion. I know a lot of us developers look at both Windsurf and Cursor and kind of think to ourselves that we could have forked VS Code and built these things. So, seeing an incomprehensible amount of value being assigned to what looks like something that we could build if we just would have dedicated our time to it is always pretty shocking.

Here are the highlights that caught my eye this past week:

🚀 Model & Platform Updates

This week saw some impressive new releases and updates in the model space, particularly around generative capabilities for voice, alongside ongoing platform refinements.

Gemini 2.5 Pro Upgrade: Now with Better Coding and Function Calling.

Google announced a significant upgrade to Gemini 2.5 Pro. It boasts improved performance in coding (especially frontend web dev, editing, and transformation) and more reliable function calling. The new model (`gemini-2.5-pro-preview-05-06`) automatically replaces the previous version with the same pricing and rate limits. Details

This is the update I've been waiting for! Reliable tool/function calling is a massive unlock for agentic workflows. Eager to put this through its paces in Cursor.
Minimax's High Ranking Text to Speech Models on Replicate.

Minimax's speech-02 models (speech-02-hd and speech-02-turbo) and voice cloning capabilities are now available on Replicate. They are touted as top ranking TTS models. Replicate Blog
Gemini 2.0 Flash Photo Editing.

Google's Gemini 2.0 Flash is showcased for its ability to edit photos using natural language, without needing traditional tools like layers or brushes. (Mentioned by Rishabh, Source)
Grok 3.5 Beta Coming Soon.

Elon Musk announced that Grok 3.5 will have an early beta release next week for SuperGrok subscribers. He claims it can accurately answer technical questions by reasoning from first principles. (Source)

🛠️ Developer Tooling, Frameworks & Ecosystem

The developer ecosystem continues to expand with new open source tools for data extraction, updates to agent frameworks, and interesting discussions on platform choices and best practices.

ContextGem for Structured Data Extraction.

A new open source LLM framework, ContextGem, aims to simplify extracting structured data and insights from documents with minimal Python code. (GitHub ContextGem via Sumanth)
Cloudflare Agents SDK Update: Upcoming Auth and State Handling.

An upcoming PR for the Cloudflare Agents SDK will enhance Agent classes to handle OAuth, redirect URLs, and reconnections out of the box. This makes every Agent an MCP client with state management. (Mentioned by Sunil Pai, PR Link)

Authorization has been one of the biggest challenges for MCPs, specifically because the MCP sits behind the AI agent. Most things are just configured in a simple JSON file defining your MCP servers. Triggering OAuth workflows inside UIs, which are essentially streaming text and working on other tasks, has been weird. Any sort of standardization and convenience they can add to authentication is very welcome, in my personal opinion.
Persistent File Storage for Cloudflare Durable Objects Demo.

A demonstration of a real filesystem and terminal for Cloudflare Durable Objects using a Rust based chunked SQLite FUSE strategy ported to `ctx.storage.sql` and an xterm.js frontend. (Demo, Tweet)

I love that as more new developers come on board, we can give them paradigms they're familiar with, like file systems and basic terminals to manipulate files. I think one of the biggest holdups for developers with things like images on their websites is they're just so unfamiliar with the various concepts around routing and where things are hosted. Any effort that brings existing paradigms that beginners understand to complex subjects is welcome, in my opinion.
Stripe MCP Monetization.

Stripe now allows MCP developers to monetize their MCPs with subscriptions or usage based billing. It's compatible with various clients including Cloudflare's Agents SDK. (Stripe MCP Payments via Jeff Weinstein)

Stripe is obviously the biggest player in allowing people to spend money on things, so it's no surprise they're introducing ways to make money with MCPs. I'm definitely curious to see what sort of services will pop into existence now that you could request them from AIs. I'm in no hurry to pay for any MCP service myself, and I don't have any to recommend yet, but I'll definitely keep my eyes out for what may manifest from this.
Cloudflare Workers Monorepo Template.

Jacob Hands shared a template for creating Workers monorepos. It's inspired by the `mcp-server-cloudflare` repo which deploys multiple Workers from one repo with shared packages. (GitHub Template via Jacob Hands)
A Story of Migrating from Vercel to Cloudflare.

A developer shared their experience migrating their entire infrastructure to Cloudflare. They cited reasons related to control, security, performance, and pricing. (Source)

I've seen a lot of people try to do this, especially with the perception that Next.js kind of locks you into Vercel. So I just think it's valuable for people to realize that options are out there and that a lot of your projects are more portable than you think they are.
New MCP Authorization Spec.

A new MCP authorization spec has been introduced. It defines the MCP server as an OAuth "resource server" and outlines the authentication flow. Den Delimarsky provided a blog post with more details. (Den Delimarsky's Blog via Yenkel)

It'll be interesting to watch any of the MCP specs evolve over time. I know there's been a lot of work done with streaming. Authorization is obviously going to play a huge part. It'll be interesting to see all these pieces of MCPs fitting together and how all their auth will sync up, where the walls are built, and what they can and cannot do to communicate with each other. I can't imagine a system of roles and identifications for the various MCPs and how they allow each other to speak to one another is going to be critical for MCP moving forward.

💡 Prompting, Workflows & Best Practices

This week brought fresh perspectives on interacting with LLMs, managing context, and structuring UI generation prompts.

"AI Rivalry" Prompting Technique.

Greg Isenberg shared a technique of pitting different AI models (ChatGPT, Claude, Grok) against each other. You feed one's output to another with critical feedback to elicit better results. (Source)

There's so much potential left to unlock when multiple models work with and against each other. It's still a little cost prohibitive to use this for a lot of the tools you're probably building by yourself. But I love any sort of back and forth or ping pong or even parallel agents coming to conclusions and fighting over what the best answers will be. I can only imagine what these techniques unlock. Hopefully someone will send me a credit card to run a bunch of experiments.
Theo's Take on Major AI Models' Quirks.

Theo (t3.gg) shared a list of issues and frustrations with various AI models and providers including Gemini, Claude, ChatGPT, and Mistral. He covers setup, cost, and availability. (Source)

I really agree with Theo's breakdown here. I've had a very similar experience trying out each of the models. So, definitely worth checking out his list. It's just a well written, very concise list.
Tips for LLM Tools Editing Files with Diffs.

Matt Pocock initiated a discussion seeking examples and best practices for implementing LLM tools that edit files using diffs in TypeScript. (Source)

I hopped in on this discussion with Matt about my personal experience working with diffs. It's just so challenging to get LLMs to produce precise diff worthy code based on line numbers and white space, and then trying to match that up with the original file. It was a fascinating thread to read about how some people are solving the problem by using a second LLM trained specifically on diffing two files and essentially rewriting the entire file. It's a problem space I spent a lot of time in last year, but I'm just going to leave it up to all of these IDEs and tooling who are so far beyond where I got to now that it's not worth spending time on for myself.
Prompting Guide for Lovable.dev for UI Generation.

Felix Haas shared a step by step guide on how to prompt Lovable.dev for better UI generation. It covers high level descriptions, look and feel, brand guidelines, UI library specification, and component details. (Source)

I have some non developer friends using Lovable, and they seem to be really enjoying this, so I'm sending this over to them. This newsletter is more focused on a bit more experienced developers and what they would expect to read about, but this is definitely something I'm going to shoot over to a few people I know.
Survey of AI Agent Protocols.

Elvis (omarsar0) highlighted key takeaways from a survey paper on AI Agent Protocols. He discussed the agent internet ecosystem, timelines, protocol overviews (MCP, A2A), evaluation considerations, and use case analyses. (Source)

I know that MCP gets so much attention, and it's interesting how it's taken over so quickly, but there are many other concepts to pay attention to, such as the A2A protocol. So it's definitely worth reading through how some of these things, when and why you would use different protocols.
Vercel AI SDK `useAssistant` Hook.

Sam Denty pointed to the `useAssistant` hook in the Vercel AI SDK for building AI assistants. (AI SDK Docs)

The `useAssistant` hook was something I wasn't aware of, and Sam shared it with me. For an awesome hook for building out web based AI tools, I didn't know it existed, and I thought I'd pass it along because it covers a lot of scenarios that I would be building for web cases.

👨‍💻 X Posts from the Cursor Team

Folks from the Cursor team continue to share valuable insights and tips for getting the most out of the AI-first IDE.

Effective Context Management in Cursor.

Eric Zakariasson (from the Cursor team) provided tips on managing context in Cursor. He emphasized the combination of intent and existing codebase state, using surgical @ mentions, rules for patterns, and MCP for external systems. (Cursor Docs via Eric Zakariasson)
New Cursor Guide for Web Development.

Eric Zakariasson (from the Cursor team) also published a new guide for web development workflows in Cursor. (Cursor Docs)
Cursor Rules for Better Results.

Ian (shaoruu) (from the Cursor team) shared examples of Cursor rules they use. These include specifying libraries, listing UI components, defining commands, and using "Auto Attach" for specific file contexts. (Cursor Docs via Ian)

✨ Workshop Spotlight: Conquer the Complexity of Cursor

Master practical AI development workflows in Cursor. This hands on workshop covers Agents, multi file analysis, effective prompting, Cursor rules, and strategies for handling AI failures.

When: Thursday, May 8, 2025, 9:00 AM to 2:00 PM (PDT)

Where: Zoom (Live Q&A included)

Investment: $249