Invest Like the Best with Patrick O'Shaughnessy
· Gavin Baker
I think the first Blackwell model will come from xAI, and the reason for that is just according to Jensen, no one builds data centers faster than Elon. Jensen has said this on the record. And even once you have the Blackwells, it takes six to nine months to get them performing at the level of Hopper, because Hopper is finely tuned. Everybody knows how to use it. The software is perfect for it. The engineers know all its quirks. Everybody knows how to architect a Hopper data center at this point. And, by the way, when Hopper came out, it took six to 12 months for it to really out-perform Ampere, which was the generation before. So, if you're Jensen or Nvidia, you need to get as many GPUs deployed in one data center as fast as possible in a coherent cluster, so, you can work out the bugs. And so, this is what xAI, effectively, does for Nvidia, because they build the data centers the fastest, they can deploy Blackwells at scale the fastest, and they can help work with Nvidia to work out the bugs for everyone else. So, because they're the fastest, they'll have the first Blackwell model. We know that scaling laws for pre-training are intact, and this means the Blackwell models are going to be amazing. Blackwell is ... It's not an F-35 versus an F-4 Phantom, but from my perspective it is a better chip. Maybe it's, like, an F-35 versus a Rafale. And so, now that we know pre-scaling laws are holding we know that these Blackwell models are going to be really good. Based on the raw specs, they should probably be better. Then something even more important happens. So, the GB200 was really hard to get it going. The GB300 is a great chip. It is drop-in compatible in every way with those GB200 racks. Now you're not going to replace the GB200s.
· Patrick O'Shaughnessy
[00:00:00] S0: Yeah. No new power laws. Yeah.
· Gavin Baker
[00:00:00] S1: Yeah. Just any data center that can handle those, you can slot in the GB300s, and now everybody is good at making those racks. You know how to get the heat out. You know how to cool them. You're going to put those GB300s in, and then the companies that use the GB300s, they're going to be the low-cost producer of tokens, particularly, if you're vertically integrated. If you're paying a margin to someone else to make those tokens, you're probably not going to be. This has pretty profound implications. I think it has to change Google's strategic calculus. If you have a decisive cost advantage, and you're Google, and you have search and all these other businesses, why not run AI at a negative 30% margin? It is, by far, the rational decision, take the economic oxygen out of the environment. You eventually make it hard for your competitors, who need funding, unlike you, to raise the capital they need. And then on the other side of that, maybe you have an extremely dominant share position. Well, all that calculus changes once Google is no longer the low-cost producer, which I think will be the case. The Blackwells are not being used for training. And then when that model is trained, you start shifting Blackwell clusters over to Inference. And then all these cost calculations and these dynamics change. It's very interesting. Like, during the strategic and economic calculations between the players, I've never seen anything like it. Everyone understands their position on the board, what the prize is, what play their opponents are running, and it's really interesting to watch. If Google changes its behavior, because it's going to be really painful for them as a higher-cost producer to run that negative 30% margin, it might start to impact their stock, that has pretty profound implications for the economics of AI. And then when Rubin comes out, the gap is going to expand significantly.
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: Versus TPUs? [00:00:00] S1: Versus TPUs and all other ASICs. Now I think Trainium3 is probably going to be pretty good, and Trainium4 are going to be good. [00:00:00] S0: Why is that the case? Why won't TPU v9 be every bit as good?
· Gavin Baker
[00:00:00] S1: A couple of things. So, one, for whatever reason, Google made more conservative design decisions. And part of that is, so, Google, let's say, the TPU ... So, there's front end and back end of semiconductor design, and then there's dealing with Taiwan Semi. And you can make an ASIC in a lot of ways. What Google does is they do mostly the front end for the TPU, and then Broadcom does the backend, and manages Taiwan Semi and everything. It's a crude analogy, but the front end is, like, the architect of a house. They design a house. The back end is the person who builds the house. And then managing Taiwan Semi is stamping out that house like Lennar or D.R. Horton. And for doing those two latter parts, Broadcom runs a 50% to 55% gross margin. We don't know what on TPUs. Let's say in 2027, TPU I think consensus estimates may be somewhere around $30 billion. Again, who knows? $30 billion I think is a reasonable estimate. 50% to 55% gross margins. So, Google is paying Broadcom $15 billion. That's a lot of money. At a certain point, it makes sense to bring a semiconductor program entirely in-house. So, in other words, Apple does not have an ASIC partner for their chips. They do the front end themselves, the back end, and they manage Taiwan Semi. And the reason is they don't want to pay that 50% margin. So, at a certain point, it becomes rational to re-negotiate this, and just as perspective, the entire opex of Broadcom's semiconductor division is, round numbers, $5 billion. So, it would be economically rational now that Google is paying ... If it's $30 billion, we're paying them $15 billion. Google can go to every person who works in Broadcom semi, double their comp, and make an extra $5 billion. In 2028, let's just say it does $50 billion. Now it's $25 billion. You get triple their comp. And, by the way, you don't need them all.
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: Yeah. [00:00:00] S1: And, of course, they're not going to do that, because of competitive concerns. But with TPU v8, and v9, all of this is beginning to have an impact, because Google is bringing in MediaTek. This is maybe the first way you send a warning shot to Broadcom, "We're really not happy about"- [00:00:00] S0: All this money we're paying you.