Invest Like the Best with Patrick O'Shaughnessy
· Gavin Baker
[00:00:00] S1: There's many ways you can make money. I think we went into great detail on a prior podcast about how just inventory dynamics made these inventory cycles inevitable in semis. The iron law of semis is just that customer buffer inventories have to equal lead times, and that's why you got these inventory cycles historically. We haven't seen a true capacity cycle in semis, arguably since the late '90s, and that's because Taiwan Semi has been so good at aggregating and smoothing supply. And a big problem in the world right now is that Taiwan Semi is not expanding capacity as fast as their customers want. They're in the process of making a mistake just because you do have Intel and with these fabs, they're not as good and it's really hard to work with their PDK, but now you have this guy, Lip-Bu, who's a really good executive and really understands that business. I mean, by the way, Patrick Gelsinger, I think was also a good executive, and he put Intel on the only strategy that could result in the success. And I actually think it's shameful that the Intel board fired him when they did it. But Lip-Bu's a good executive, and now he's reaping the benefits of Patrick's strategy. And Intel has all these empty fabs. And eventually, given the shortages we have of compute, those fabs are going to be filled. So I think Taiwan Semi is in the process of making a mistake, but they're just so paranoid about an overbuild, and they're so skeptical. They're the guys who met with Sam Altman and laughed at said, "He's a podcast bro. He has no idea what he's talking about." They're terrified of an overbuild. So it may be that Taiwan Semi, single-handedly that their caution is the governor. I think governors are good. It's good that power's a governor. It's good that Taiwan Semi is a governor. If Taiwan Semi opens up at the same time when data centers in space relieve all power constraints, but that's like, I don't know, five, six years away that data centers in space are majority of deploying megawatts. Yeah, I think you can get an overbuild really fast, but just we have these two really powerful natural governors, and I think that's good, smoother and longer is good.
· Patrick O'Shaughnessy
[00:00:00] S0: We haven't talked about the power other than alluding to it through the space thing. I haven't talked about power very much. Power was the most uninteresting topic. Nothing really changed for a really, really long time. All of a sudden we're trying to figure out how to get gigawatts here, there, and everywhere. How do you think about, are you interested in power?
· Gavin Baker, Patrick O'Shaughnessy
[00:00:00] S1: I'm very interested. I do feel lucky, in a prior life, I was the sector leader for the telecom and utilities team. So I do have some base level of knowledge. Having watts as a constraint is really good for the most advanced compute players, because if watts are the constraint, the price you pay for compute is irrelevant. The TCO of your compute is absolutely irrelevant because if you could get 3X or 4X or 5X more tokens per watt, that is literally three or 4X or 5X more revenue. If you're going to build an advanced data center costs 50 billion, a data center with the ASIC maybe costs 35 billion. If that $50 billion data center pumps out 25 billion of revenue and your ASIC data center at 35 billion is only pumping out eight billion, well, you're pretty bumped. So I do think it's good for all of the most advanced technologies in the data center, which is exciting to me as an investor. So as long as power is a governor, the best products are going to win irrespective of price and have crazy pricing power. That's the first implication that's really important to me. Second, it is in the only solutions to this, we just can't build nuclear fast enough in America. As much as we would love to build nuclear quickly, we just can't. It's just too hard. NEPA, all these rules, it's too hard. Like a rare ant that we can move and it could be in a better environment, can totally delay the construction of a nuclear power plant, one ant. That is America today. [00:00:00] S0: So is a frog.
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: So is a frog. [00:00:00] S1: It's crazy actually. Humans need to come first. We need to have a human-centric view of the world. But the solutions are natural gas and solar. And the great thing about these AI data centers is apart from the ones that you're going to do inference on, you can locate them anywhere. So I think you were going to see, and this is why you're seeing all this activity in Abilene because it's in the middle of a big natural gas basin and we have a lot of natural gas in America because of fracking. We're going to have a lot of natural gas for a long time. We can ramp production really fast. So I think this is going to be solved. You're going to have power plants fed by gas or solar. And I think that's the solution. And you're already, all these turbine manufacturers were reluctant to expand capacity, but Caterpillar just said, "We're going to increase capacity by 75% over the next few years." So the system on the power side is beginning to respond. [00:00:00] S0: One of the reasons that I always so love talking to you is that you do as much in the top 10 companies in the world as you do looking at brand new companies with entrepreneurs that are 25 years old trying to do something amazing. And so you have this very broad sense of what's going on. If I think about that second category of young enterprising technologists who now are like the first generation of AI native entrepreneurs, what are you seeing in that group that's notable or surprising or interesting?
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: One of the reasons that I always so love talking to you is that you do as much in the top 10 companies in the world as you do looking at brand new companies with entrepreneurs that are 25 years old trying to do something amazing. And so you have this very broad sense of what's going on. If I think about that second category of young enterprising technologists who now are like the first generation of AI native entrepreneurs, what are you seeing in that group that's notable or surprising or interesting? [00:00:00] S1: These young CEOs, they're just so impressive in all ways and they get more polished faster. And I think the reason is they're talking to the AI. "How should I deal with pitching this investor? I'm meeting with Patrick O'Shaughnessy. What do you think the best ways I should pitch him are?" [00:00:00] S0: Yeah, and it works.
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: Yeah, and it works. [00:00:00] S1: Do a deep research thing. And it's good. "Hey, I had this difficult HR situation, how would you handle it?" And it's good at that. "We're struggling to sell our product, what changes would you make?" And it's really good at all of that today. And so, and that goes to these VCs are seeing massive AI productivity in all their companies. It's because their companies are full of these 23, 24 or even younger AI natives. And they're impressive. I've been so impressed with young investment talent. And it's just part of it, like your podcast is part of that. There's just very specific knowledge has became so accessible through podcasts and the internet. Kids come in and they're just, I feel like they're where I was as an investor in my early 30s and they're 22. And I'm like, "Oh my God." Like, I have to run so fast to keep up. These kids who are growing up native in AI, they are just proficient with it in a way that I'm trying really hard to become. [00:00:00] S0: Can we talk about semis VC specifically and what is interesting in that universe? [00:00:00] S1: One thing I just think is so cool about it and so underappreciated is your average semiconductor venture founder is like 50 years old. Okay? And Jensen and what's happened with Nvidia and the market cap of Nvidia has like single-handedly- [00:00:00] S0: Ignited.