Invest Like the Best with Patrick O'Shaughnessy
00:51:31 · Patrick O'Shaughnessy, Alex Sacerdote
[00:51:31] S0: Everyone's overwhelmed. [00:51:32] S2: Everyone's overwhelmed. But in the power supplies, every NVIDIA chip or rack uses 50 to a 125% more power that drives the ASPs of Delta and advanced energy. I can't believe these stories when I hear I'm like, wait. So your ASPs are gonna, like, go up 40% for the next four years in a row and it's higher margin? The broader picture is the AI demand if we're right with this L curve, we're already short the DRAM market, the NAND market, the PCB, we're already 30% short all these things as we are now. [00:52:14] S0: A measure of percent AI, percent market share. Do you care more about the absolute or the rate of change of those metrics? [00:52:21] S2: We did this presentation in 2024 where we listed everybody's market share and then I asked Claude to plot it to a thing, and it actually didn't get it right because what it didn't get is the rate of change. So the rate of change is important. And that's incredible too because you go from 10% to 30% and your growth rate accelerates and your margins accelerate. So rate of change is very important.
00:52:47 · Patrick O'Shaughnessy
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00:54:09 · Alex Sacerdote, Patrick O'Shaughnessy
[00:54:09] S2: Said, why do you tell everyone your secret? And it's like, why does the casino teach people how to play blackjack? It's really hard to do. You have to be comfortable investing. I've been doing tech for twenty years at Whale Rock. We've got a team that's been doing this, covered many cycles. No one's paid attention to hardware and chips at all. So you've got all these newbies coming into it. [00:54:34] S0: You and Gavin. That's it. [00:54:35] S2: Yeah. And Gavin's done a great job. People weren't comfortable with it. It's harder to do than it seems. And a lot of these companies, their charts are up so it's scary. Can I buy? And then you also have to have the holistic view. Because if you don't have conviction every time with Nvidia over the last four years, it's, oh, they had a great year. Oh my god. It's gotta be a bubble. And then they had another great year and it's like six months of marking time. It's gotta be a bubble. This is like getting out of hand. This is pretty scary. The bare cases are not totally without merit. But if you can see the whole picture and understand how these things are unfolding and gain conviction in that, frankly, if you're just a semi analyst, so many semi analysts missed it because they didn't see what was really happening at the foundational model layer and how this broader picture. So it helps to have the big picture. It helps to have decades and scores of s curves that you're looking at and where it plays in different things.
00:54:35 · Alex Sacerdote, Patrick O'Shaughnessy
[00:54:35] S2: Yeah. And Gavin's done a great job. People weren't comfortable with it. It's harder to do than it seems. And a lot of these companies, their charts are up so it's scary. Can I buy? And then you also have to have the holistic view. Because if you don't have conviction every time with Nvidia over the last four years, it's, oh, they had a great year. Oh my god. It's gotta be a bubble. And then they had another great year and it's like six months of marking time. It's gotta be a bubble. This is like getting out of hand. This is pretty scary. The bare cases are not totally without merit. But if you can see the whole picture and understand how these things are unfolding and gain conviction in that, frankly, if you're just a semi analyst, so many semi analysts missed it because they didn't see what was really happening at the foundational model layer and how this broader picture. So it helps to have the big picture. It helps to have decades and scores of s curves that you're looking at and where it plays in different things. [00:55:37] S0: What makes you the most concerned or uncertain? Is it just the rate at which all this stuff changes? What keeps you worried amidst what seems like pretty extreme bullishness?
00:55:48 · Alex Sacerdote
[00:55:48] S2: One thing that bothers me is there's a lot of negativity in the general population about AI. And there's a lot of negativity in some aspects of the government. You know, I think Maine just banned data centers and only 20% of the people are optimistic about AI and potential for negative regulation. But I do think kind of the genie is out of the bottle. Another risk is that if AI slows down in its improvements, I think there's a whole lot of AI adaption to happen even if the models didn't improve. But Jensen said this years ago when he was talking about his graphics chips. If good enough is good enough, I won't have a business. Every year, he made the graphics a little bit better and people always wanted the best. In AI, if Anthropic sort of hits a wall and stops improving or OpenAI, then the open source models will catch up. It might be a race to the bottom and won't be good for the stocks probably. It could be good for the chip companies. Chip companies don't care who wins. So that's another positive. And they'll benefit. Jensen really wants open source to like take off. It's all he kept on mentioning at his last GTC. So that could be a risk. Another thing is if one or two of the players falters and loses its position and can't compete, that could be like a lot of compute that they don't need in the future. Now if AI is so big, somebody else will suck that up, and we saw that with Oracle canceled a big deal and then Meta went right in. But let's just say Meta decided not to be involved with AI, hey, we can't keep up, it's just gonna be a waste of our resources. We watch that very carefully. In general, we see more companies truly going after this and even Microsoft going trying to build their own. Those are some of the key risks.
00:57:48 · Patrick O'Shaughnessy
[00:57:48] S0: Seems like you really have done very little in the application layer of AI. Historically, the apps ended up being most of the market cap, not the infrastructure and there wasn't really a model layer in the past. Guess you could say it was the clouds or something. Why focus so much on the bottom layers of Jensen's five layer cake versus things in the application layer that are actually getting used by consumers?