Invest Like the Best with Patrick O'Shaughnessy
· Matthew Smith
[00:00:00] S1: Make sure when your assets are deployed that you understand exactly what the source of your natural gas will be. Make sure you have physical supply locked up and that you understand your counterparties and what will likely be very meaningful counterparty risk in two or three years. And counterparty risk isn't something we've really talked about during the last couple of years in the AI boom. But when it comes to parties being long and short something that is moving a lot, imagine being short memory a year ago or 18 months ago and finding out all of a sudden you're short memory. That is what this natural gas market looks like to us, not two years out, but six-plus months out. And making sure you understand the physical provisioning of gas for your assets is important for the hyperscalers and for the buyers of simple cycle and CCGT large-scale plants, but especially for fuel cells. We are very cynical whether you can deploy fuel cells at scale. Because there isn't the gas in the system to power those 24/7, 365. And so therefore, we treat them in our base case that I described as backup gen. To the extent you were to deploy fuel cells as baseload gen, that only pulls forward and is additive to the convexity that I described. CEOs and partners on projects, whether you are the E&C company trading at 25 times cash flow, which is a historically high multiple for an engineering construction firm, and your main business is building natural gas plants, and we may not be able to build or deploy more gas plants at a certain point in 2029, 2030 because gas is much more expensive and you may have regulators asking questions. The focus for you should be on how do you do accretive M&A to backfill your and diversify your business so that you're not entirely beholden to natural gas generating asset build. For hyperscalers, I know memory has been a pain point. Natural gas could be 20, 30, or 40% of their cost of doing business, at a time when they're supposed to be reaching escape velocity with profitability.
· Patrick O'Shaughnessy, Matthew Smith
[00:00:00] S0: Performance per watt is probably a compute metric that we're going to care more and more about. [00:00:00] S1: I would say that the questions or the challenges for each industry of companies is a little bit different, but it's all focused on making sure you're managing risk and you understand exactly when your plans play out, how it can go wrong — which in this case means what if gas is not $3.50, but $10 or more? What happens if physical gas is questioned? What happens when consumers and therefore regulators start to ask questions? [00:00:00] S0: Matt, I love talking about the energy system with you. This was an especially fun one on the back of so much of your work. So fascinating and interesting. I hope, as the US has been very good at doing historically, that lots of people listen and start to imagine solutions and also create the right amount of urgency to get those solutions in place, and that we emerge from this more resilient, more capable, more efficient, all these things. Thanks so much for your time.