Invest Like the Best with Patrick O'Shaughnessy
01:04:54 · Ben Thompson
You and I have set up these little content businesses that make great money. Content is you get a ride on social media. I grew up on Twitter, people sharing my links. It was amazing. If you're selling some product, the beauty of the internet is there is a niche out there that wants that product. The question is, how do you find the niche? Facebook advertising. That's what it does. It helps products find the people who didn't even know they wanted that product, but when they get it, they're so happy they got it. That's a huge societal positive. You have new business from a new entrepreneur making a new product. You have customers who are happy they got something that they didn't know they would get otherwise. Those customers, by the way, got lots of free entertainment and they'd have to pay for it along the way. And Meta made a bunch of money for themselves and their shareholders, which is basically everywhere in the world. This is why advertising is great, and Meta's advertising in particular is awesome. And I get frustrated that Meta doesn't talk about that. Mark Zandberg has never really talked about the societal benefits of advertising except in passing in twenty years. He's handed it off to other people to take care of. And maybe there's a bit where him not paying attention is why there is a certain grit and grime that goes in building an advertising business. People get frustrated or have questions about as far as data and all those sorts of things. And maybe there was a bit where he didn't wanna be involved in it and wipe his hands of it. But you saw this when Apple passed ATT. App tracking transparency was one of the worst antitrust violations in the history of technology. Apple unilaterally obliterating all these business models while they're simultaneously building their own as far as advertising goes and doing all this tracking. Why? Trust us. And meanwhile, they're running these advertisements. Remember that advertisement of people on the bus, like, overhearing everyone around them, what they're saying? That was such a dishonest representation of how advertising works on the Internet. You had Tim Cook in congress talking about companies selling data. Facebook's not selling your data. That's value to them. Why would they sell the data? Meta was not prepared to respond. I think you got this to Sheryl Sandberg back in the day.
01:06:54 · Ben Thompson, Patrick O'Shaughnessy
She wouldn't every call would talk about advertising, great it is and have a bunch of case studies, people who are benefiting from advertising and these new entrepreneurs. And then she left and it's kinda like that hole never got filled. It feels like it's a company that's kind of like embarrassed. We make a lot of money from ads, but we got glasses and we're doing AI. It's like, you have ads and ads are awesome. I think if they had communicated that more consistently, they would be in a better place generally from a PR perspective. They would have been a better place relative to Apple. And I think they would have an easier time right now convincing Wall Street that let us invest. The other problem is they've spent cumulative 100 some billion dollars on Oculus, which I dated all along. And so there's a bit where why should we let you spend money again? [01:07:38] S0: The one major player and company that we haven't talked about much is Jensen and NVIDIA. And I'm curious how you would tie this back to the notion of not understanding commodity markets in Silicon Valley, whether or not you think compute ultimately is a commodity. I'm curious whether or you think intelligence will ultimately be a commodity. It's interesting that intelligence and compute, which seem to be by far the most interesting and important topics in tech, both might be commodities and less differentiated than What's tech also the
01:07:38 · Patrick O'Shaughnessy, Ben Thompson
[01:07:38] S0: The one major player and company that we haven't talked about much is Jensen and NVIDIA. And I'm curious how you would tie this back to the notion of not understanding commodity markets in Silicon Valley, whether or not you think compute ultimately is a commodity. I'm curious whether or you think intelligence will ultimately be a commodity. It's interesting that intelligence and compute, which seem to be by far the most interesting and important topics in tech, both might be commodities and less differentiated than What's tech also the [01:08:03] S2: case so? The most interesting thing about the Internet is free distribution. Bandwidth is a commodity. The fact that I can pull out my phone right now and connect to any information source in the world for free, free on a marginal cost basis, it's because it's commodity. It changed the world. Commodities changed the world. There is a aspect of differentiated products by definition have lower TAMs because there's a elasticity aspect to it. Not everyone can afford to pay for it. People's willingness to pay is going to differ. Your market is gonna be constrained. Apple's never gonna serve the whole world by selling a device, whereas a Google can because it's free. That matters. You're paying for a commodity, but to the extent it is available to everyone is the extent it is impactful. The Internet is a commodity. It changed the world. So I don't think it'd be weird that intelligence ends up a commodity and changes the world.
01:08:03 · Ben Thompson, Patrick O'Shaughnessy
[01:08:03] S2: case so? The most interesting thing about the Internet is free distribution. Bandwidth is a commodity. The fact that I can pull out my phone right now and connect to any information source in the world for free, free on a marginal cost basis, it's because it's commodity. It changed the world. Commodities changed the world. There is a aspect of differentiated products by definition have lower TAMs because there's a elasticity aspect to it. Not everyone can afford to pay for it. People's willingness to pay is going to differ. Your market is gonna be constrained. Apple's never gonna serve the whole world by selling a device, whereas a Google can because it's free. That matters. You're paying for a commodity, but to the extent it is available to everyone is the extent it is impactful. The Internet is a commodity. It changed the world. So I don't think it'd be weird that intelligence ends up a commodity and changes the world. [01:08:49] S0: Commodities often are not thought of as as good a businesses as these differentiated, harm mentioned products. I'm curious for your thoughts on Jensen and NVIDIA specifically.
01:08:49 · Patrick O'Shaughnessy, Ben Thompson
[01:08:49] S0: Commodities often are not thought of as as good a businesses as these differentiated, harm mentioned products. I'm curious for your thoughts on Jensen and NVIDIA specifically. [01:08:57] S2: NVIDIA's position is, I think, definitely unnatural. You look at NVIDIA, they've maintained all their margins. Isn't that amazing? It's 2026 and everyone's coming for them and they're still charging however much money for a chip, but they're actually not maintaining their margins because this whole question of circular financing is people talk about Lucent and things like that. And you know, this whole deal and NVIDIA's providing a 25% backstop. But if you actually ascribe a value to that, to NVIDIA's taking equity in the neo clouds or whatever. They guarantee they're gonna buy all their compute to 2030. Why do they do that? So that the entity in question can get a lower cost of capital so they [01:09:36] S0: can buy a bunch of new
01:09:36 · Ben Thompson
[01:09:36] S2: stuffs, etcetera. But implicit in that, why do they get a lower cost of capital? They get a lower cost of capital because NVIDIA assumed risk. This is my point before. Risk never disappears. It just appears somewhere else. Taking on risk has a price. There's a world where AI takes off, it never stops, and everything is fine. And NVIDIA captured all the upside of their risk. But there's also a world where, say, that this is Neo Cloud that backed up, A ton of compute comes to market. The hyperscalers have plenty of compute. They don't have enough compute. NVIDIA is paying for a compute that no one wants. They just lost a bunch of money. If you think about it, there's an expected value of that investment. That expected value, it's not zero. It's not 100%. It's somewhere in the middle, but that is a diminution of Nvidia's profitability. If you actually look at their business holistically, what that is, is a price cut. Now the price cut didn't show up in margins. It didn't show up in what they're offering, but a lot of what Nvidia is doing is how can we maintain our margins even if the wide view sort of discounted cash flow, expected value, holistic view of our company. People do discount cash flows, but are you actually considering all these pieces? The reality is is that moving stuff off the balance sheet by and large works. But they're doing all these deals to maintain what feels somewhat unnatural. We have seen price cuts. They're just manifesting in these very bizarre sort of ways. Now in the long run, I think the challenge is their ultimate competitors are the hyperscalers, particularly Google and Amazon. So Google and Amazon aren't just building their own chips, but they're also looking to sell those chips externally. Google already made a deal to sell, like, 20% of their TPUs, Genthropic. On the last earnings call, Andy Jassy practically confirmed that they'll be selling Tranium threes or maybe Tranium four, or they'll be selling Tranium chips sort of eventually externally, which makes sense. That gives them a long term buy into these companies. There's a huge amount of R and D that goes into developing chips. They get more leverage on their spend. It all makes sense. And by the way, they're not selling their chips on differentiation. They're selling their chips as commodities. NVIDIA is the one selling differentiation.