00:34:07 · Jaimin Rangwalla, Molly O'Shea
[00:34:07] S0: Yeah, not in space, And it helps me kind of think through, like, how are bottlenecks easing, not easing? Like, is something changing in the environment? Like, at the end of the day, for me, the most important thing is what is the rate of change, and is the rate of change moving towards tighter rate of change, or is it easing? And if it's easing, what is causing the easing and what is the degree of easing? And is it easing to the point where it's a problem, or it's just easing to the point that it's healthy and it just facilitates the growth? And so I think that we're super focused on the data center companies. We're super focused on neo clouds, hyperscalers, on the ground where all the new build outs are happening, where is power available, where is equipment available, where is labor available, and we're trying to track all of that in real time. [00:34:54] S1: Yeah, it's been fun to see. I was recently down in Miami at ExoWatt, and they're an energy company, a renewable energy company for data centers. Hanan, the CEO, he was explaining out the labor that they're bringing to market because of this new industry they're pretty much facilitating. It's down in Miami, it's manufacturing, and then they build out for these facilities, and it's manufacturing all in The United States. Think there's a lot of negative sentiment about job. Obviously, there's scale to these things, there's a job replacement because of AI, but there's also job accretion and new layers of the economy that are being created.
00:35:38 · Jaimin Rangwalla
[00:35:38] S0: Yeah, I mean, I think that's the We'll ultimately see where the T plus ten years looks. We've gone back and looked at all the different innovation waves of technology, even back to automobile, everything, like even beyond the seven major waves of tech that we talk about. And usually there's some job loss at the jobs at risk, but then there's a whole giant section that people don't talk about, which is new job creation, new business formation, you know, like all of the different types of innovation that come off of the core innovation of new companies that are formed. Like even today, don't talk about it, but we're actually at one of the highest new business formations that we've ever been at, because everyone's now, Oh, I can use the ad to maybe redefine how this business works or start a new business that does this. And so I think people are very focused on the negative side of things, or at least like whatever. Some people choose to focus on the negative side of things, but I think that there is a significant opportunity for new job creation. And again, it'll depend on how fast the disruption happens because maybe there's a window where the disruption happens a little faster than the new electrician can be trained because it takes two or three years for the new electrician to be trained, the new plumber to be trained, the new the new construction worker who's building out the distribution lines for utilities. Like, You can't flip overnight to those jobs, and so maybe there's a little bit of a time lag. But broadly speaking, there's a lot of companies that we look at that are massive shortages of the amount of labor that they have. And it's not one type of labor. It's a lot of different types of skilled labor, which usually means that the salaries for those jobs are going to go up to try to lure more people to do that. And so it might just be that the next X number of years in a world of AI, like those are the jobs that are actually in the poll position versus maybe what was in the last twenty years.
00:37:18 · Molly O'Shea
[00:37:18] S1: In our interview with Thomas, he was talking about the bank teller and how that actually evolved. It didn't really actually decrease any jobs. There were just more jobs spread out. That's always a hot topic. So in talking about market dynamics, you have this framework of sellers of shortage versus buyers of shortage. Can you break that down, who's winning and what's kind of the explanation?
00:37:42 · Jaimin Rangwalla
[00:37:42] S0: Yeah, so we try to simplify sellers and buyers of shortage in the concept of you have semiconductor companies, you have power, you have memory infrastructure, everything where you have a fixed amount of capacity and you have greater demand. And that greater demand is driving price increases, margin expansion, and when price is the main lever of your revenue growth and you have fixed costs, your operating profit actually go up multiples of what your price increases or your revenue is growing at. And so we've seen companies that have been able to increase their earnings three, four, five, six, 7x just in a matter of a year or two, companies that would have been plus or minus a certain range for ten, twenty years. And so these shortages, are critical to AI, whether it's memory, hard drives, there's a shortage to kind of the development of AI, have driven significant earnings power. And the market is rewarding that set of earnings. What the market is not rewarding and not rewarding as much is the companies that are buying that shortage. And so that would be the companies that are putting the CapEx into the ground. And so if you look at the multiples of Microsoft, of Amazon, of Meta, they've actually all compressed in the last couple of years because their CapEx is going up. And if you just think about it, if memory pricing goes up 100% and Microsoft has to spend two units instead of one, they're not actually getting two units of benefit. They're still getting the same benefit they would have gotten if they spent the previous price because it's not like the memory is always different. Right now you're just seeing like for like price increase go up so much. And so I think that the market is, for the moment punishing that the ROI on that dollar is a little bit less because it's just cost inflation versus actually new technology driving the higher price.
00:39:23 · Jaimin Rangwalla
And so the stocks that are working and the part of the market that everyone is really excited about, optical, power infrastructure, even labor stocks, because labor is in shortage, you're seeing rates rise in labor, memory, CPUs, GPUs, even TSMC, which is one of our largest holdings, they're taking price too because they just like, we have a finite amount of capacity, and so we have to try to figure out how are we going to make sure that we're generating enough profits and knowing that if we're going to reinvest in more capacity that we're getting the right pricing and the right margins and the right return on investment. So those are the types of companies that are winning. Now, I don't think that I actually think Amazon and Google are an unusual camp, those are the two companies that we really like because they are also a bit of a hybrid in that Google has TPUs that they sell and Amazon has talked about selling Tranium or at least openly discussed like what the value of Tranium is. And so maybe there's room for them as well because they would be buyers of the shortage, but they could also be sellers of the shortage. And you know, Google has been a great stock and they have their own bottle. So there's a lot of other things that they're vertically integrated in, which makes them great. But I think that that's a little bit how we're thinking about the market today. There's the buyers and then there's the sellers. The buyers are being punished because their CapEx is so high that their near term cash flow is gone. And that transfer is happening directly to the pockets of the sellers of the shortage. And so those are the ones that are being rewarded at the moment.
00:40:54 · Molly O'Shea, Jaimin Rangwalla
[00:40:54] S1: Have there been any surprising breakouts? [00:40:58] S0: Yeah, I mean, you know, an area that I think has done really well is optical. Optical for years was viewed as just an area that had constant oversupply, undersupply, oversupply, undersupply. Now I think it's becoming more of a critical part of the infrastructure of the future. And I think that that is the one that probably surprised me the most. We'd been following memory. We'd been following CPUs, GPUs, accelerators, all of these, but optical is the one that I think surprised me the most. [00:41:27] S1: And where are the biggest bottlenecks?