Invest Like the Best with Patrick O'Shaughnessy
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.
01:11:36 · Ben Thompson
People aren't going to Amazon to use Tranium. So they're not cannibalizing the attractiveness of their cloud by selling Tranium outside. So they're NVIDIA's biggest problem. Because what's the number one advantage that the hyperscalers have? Scale. Lower cost of capital. It's a capital fight. They have a lower cost of capital than the Neo Clouds do. The Neo Clouds are... They'll buy NVIDIA left, right, and center. And by the way, it also makes total sense that why SpaceX satellite, Elon's out there, we will always buy NVIDIA because they're the best. No. You'll buy NVIDIA because they're the most fungible. NVIDIA is true. It is the most fungible. CUDA's moat is dramatically diminished because the models don't care what they run on, and that's what actually matters was built on top of the models. But it still matters. It's still something of a moat. It's if you wanna play the game SpaceXi is doing, where we're gonna build a lot and rent it out, but reserve the right to pull it back, of course, you're gonna be on NVIDIA because the easiest way to rent it out is to be on NVIDIA. You saw this very early, by the way. You go back to 2024, 2023. NVIDIA starts talking about all these sovereign clouds. They start talking about... They tried to call these Neotron models. They had this thing in 2024. I remember. It was the first one where it was like the rock star GTC at San Jose and like the huge Colosseum and just one comes out. It was a very boring GTC. The old ones used to be NVIDIA demonstrating like 50 gazillion things as they're throwing stuff at the wall. They knew they had something with GPUs, and they're trying to like find these