Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: And the way Elon did this was systematically underpricing SpaceX or whatever else? What is the actual method? [00:00:00] S1: Just never being greedy on valuation, never pushing valuation. Just that simple. My friend Antonio pointed out SpaceX compounded at low 30% per year for a decade, and that was just because Elon was focused on preserving the superpower and trying to strike a fair balance between investors and employees. I think it's wise. But could Anthropic raise money at probably at least a 100% premium to this rumored latest mark? Of course. [00:00:00] S0: Let's get to the watts and wafers part of the discussion. Always my favorite thing to talk about with you. The importance of this infrastructure buildout — every time I feel like it's getting overheated, the next time I talk to you, it seems like we should have done way more than we did. You've studied S-curves and the steepness of those S-curves a lot, and you know a lot about history. Talk us through how you're thinking about watts and wafers today as the key two inputs into this whole thing.
· Gavin Baker
[00:00:00] S1: Capitalism is going to solve the watts shortage — absent big regulatory political blowback, which I think is a real possibility. The head of data center infrastructure investing at one of the big PE firms — Blackstone, Apollo, KKR — said it used to be energy and chips were our biggest gating factors. Now it's zoning and approvals — much more important. A lot of companies are waiting till after the midterms to take action in terms of maybe workforce reductions. Nobody wants to be a pinata during the midterms. You've seen a lot of companies that make turbines announce plans to significantly increase capacity. There are 2 of these machines that can cast these big blades. We haven't made one in 80 years in the West. We don't know how to make them anymore. All of that is true. By no means am I minimizing the industrial engineering magic and artistry that goes into those, but capitalism is very good at solving problems like these over time. There are other sources of energy besides these turbines, with a longer timeframe. So the watts shortage will probably begin to alleviate in '27, '28, and then orbital compute will really solve that. I do want to reframe orbital compute, because when people hear "data centers in space" which we discussed in our last episode, they picture a Pentagon-sized building in space. They're like, "Well, we can't do that." That's not what it is. A Blackwell rack weighs 3,000 pounds. It's 8 feet high, 4 feet deep, 3 feet wide. It's racks in space. SpaceX showed you an illustration, and it's a rack. That's the satellite, but it's probably about the size of a Blackwell rack. It has these solar wings that are probably 500 feet long on each side. You keep it in a sun-synchronous orbit, so those solar panels are always in the sun. Because it's in an exactly sun-synchronous orbit, the radiator, which extends behind it for hundreds of feet —
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: This is a common criticism. How are you going to cool everything? [00:00:00] S1: I've spent a lot of time at Starbase over the years, and I've talked to a lot of SpaceX engineers. I do think it is the most talented group of engineers on planet Earth, and they're very confident they have solved this. They're not always confident. There's some engineering that needs to happen to turn Starship into a Mars Colonial Transporter. Will they do that? [00:00:00] S0: Absolutely. [00:00:00] S1: What are they more focused on? I'd say probably repair and maintenance. [00:00:00] S0: Those are the two big responses — the radiator, and how do you repair whatever issue goes wrong in the rack?
· Gavin Baker
[00:00:00] S1: And the answer is, until you have floating Optimuses, you don't. Starship is going to change the space economy in ways we cannot imagine. Particularly if regulation becomes a constraint to data centers — none of it's going to matter. You're going to sell as much orbital compute as you can make. And then obviously you link these racks using lasers traveling through vacuum, which are already on every Starlink. It's just mind-blowing to me that SpaceX operates the world's largest satellite fleet, which is 98 or 99% of all satellites in orbit. Every Starlink — they're cooling it today. Starlink V3 is going to operate at 20 kilowatts. A Blackwell rack is only 100 kilowatts. People talk a lot about density. Well, if you're connecting the racks with lasers through a vacuum, you can make the rack bigger physically. You're focused on weight, not size. In a data center on Earth where you're trying to connect racks, ideally using copper, minimize lengths — cabling is a big cost. You do want that rack to be small. Copper when you can, optics when you must. But in space, there are all sorts of things SpaceX can do that maybe some of these naysayers are not contemplating. They operate more satellites than anyone. They have a 20-kilowatt satellite today. So maybe you just scale that up to 60 kilowatts to start. They seem very confident they're going to go right to 100 to 120. The same company now also operates the largest data center on Earth. They have the world's best hardware engineers. And all sorts of people, almost all of whom are not smart enough or practical enough to work at SpaceX, are these armchair skeptics. I don't want to quote Larry Ellison, but somebody was being skeptical, and Larry was just like, "Listen, he's out there landing rockets. I don't see anybody else landing rockets." And the reality is, 10 years later, no other company is consistently capable of landing and fully reusing an orbital rocket. None of this makes sense without reusability, and that means you have to land it. I would like to redefine orbital compute as racks in space, not giant floating Pentagon-sized data centers in space. That's silly. What makes a data center is that you're connecting these racks with lasers. So it'll be racks in space connected with lasers into a virtual data center.
· Patrick O'Shaughnessy
[00:00:00] S0: If you think about that state of the world — let's say that all happens and we're really good at getting these things up economically and running — matrix multiplication all over space. What does that mean for terrestrial data centers?
· Gavin Baker
[00:00:00] S1: Someone once said America was going to suck as hard as it can on every energy source it can get. I just think the same is true of compute. It's why I'm probably less worried about an Edge AI bear case than I was. We're going to consume as much compute as we can. Inference is very sensible for orbital compute. Training will be done on Earth for a long time. So I don't think this is super bearish for terrestrial data centers. Those are going to be valuable for my lifetime. But if you are in this ecosystem of power production and cooling and you are massively ramping capacity, a lot of these capacity ramps are going to be hitting just as all of the silly skeptics start to understand that orbital compute is very real. It's worth thinking long and hard about that if you're one of those companies. All sorts of cool stuff is happening in the interim. We're getting really good at repurposing jet engines. There's Boom Aerospace doing this. Capitalism is hard at work on watts. On wafers, though, it's just this group of flinty, older humans in Taiwan who are the most important humans in Taiwan. Whatever they are — the overwhelming fraction of the country's GDP, water usage, electricity usage. They talk about the Silicon Shield. They all view themselves as inheritors of Morris Chang's sacred legacy. I vividly remember visiting Science Park more than 20 years ago and talking to them, "Do you think you could catch Intel?" And they said, "This is such a beautiful dream, but it's a dream for our grandchildren." And they did it, partly because of Intel's self-inflicted wounds. They think very differently. One reason Jensen flies over there so much is he wants them to expand capacity. It's wild that Jensen has never had a contract with Taiwan Semi. They do business on what seems fair, in handshakes. Just fascinating. No contract. It's going to be fair over time. We're partners. We're going to be fair to each other. The truth is, based on every prior market precedent for a foundational new technology like AI, you've always had a bubble. Carlota Perez wrote this great book about this. Markets are efficient. They correctly understand that this is a foundational new technology. There's what Mauboussin calls a breakdown in diversity. Everyone becomes bullish on this new technology. And I am beginning to worry a little bit about a diversity breakdown.