Invest Like the Best with Patrick O'Shaughnessy
00:17:43 · Gavin Baker, Patrick O'Shaughnessy
[00:17:43] S2: think that may very well be true, but then you- We have OpenAI and open source massively accelerating, yeah, the competition, and if you look at the sum, it isn't accelerating. Like I think open source is a little bit of, um, you know, they talk about dark matter in the universe, like open source is kind of dark matter to the public markets It's hard for public markets to measure it, but like if you just track what these inference clouds are saying, people saying things on podcasts or people saying things in meetings, they're not audited financials. Demand is clearly accelerating, which makes sense, 'cause you had this huge capability leap with GM five point two and KVK three, which I think we're gonna see continue. I think you're gonna see Nvidia bring Neutron steadily closer to the frontier. But man, it has been a humbling, challenging month, and but just, it's also like, wow, I've kind of pressure tested every assumption. The underlying fundamentals are improving. Nvidia is actually, as we record this, at its lowest forward PE of the last ten years. Crazy. The only time the cibes have been cheaper were Liberation Day, DeepSeek, those were kind of V bottoms. [00:18:57] S0: And that means to you just that the market thinks they're significantly over-earning?
00:18:57 · Patrick O'Shaughnessy, Gavin Baker, S3
[00:18:57] S0: And that means to you just that the market thinks they're significantly over-earning? [00:19:01] S2: Yeah, the market 100% thinks they're significantly over-earning. And you, we need to be humble. Maybe they are. Maybe they are. But like my kind of mission out here this week was to look for negative data points as hard as I could. I normally come to Silicon Valley, and, you know, there's a mixture of, "Here's something negative, here's something positive, da da da, unbalance is positive, you know, tech, it creates value over time." But I haven't been able to find one that is like a quantitative metric, that anthropic third-party data. I would say that seems to be hotly contested by the end. By the Anthropic [00:19:40] S3: shareholders who are, who are chopping at the bit to tell you what they know, but are also very scared they're not gonna get an IPO allocation if it gets back to the company that they're the ones who said, "Actually, things are great," you know? You can just see Anthropic shareholders like, they wanna be like, "It's not true!" You [00:19:58] S2: know? It's hard for me to believe that open source and open AI have accelerated to the extent they did, but yeah, Anthropic is clearly in the pole position. And oh, by the way, Grok and Also, you can see from third party data, like July was a pretty transformational month with Grok four point five, Grok builds coming out. So it has been a tricky month, and I have a friend, I have a friend at Finality, who just says the way to have navigated the last three years is just do the dumbest, most
00:19:58 · Gavin Baker, S3, Patrick O'Shaughnessy
[00:19:58] S2: know? It's hard for me to believe that open source and open AI have accelerated to the extent they did, but yeah, Anthropic is clearly in the pole position. And oh, by the way, Grok and Also, you can see from third party data, like July was a pretty transformational month with Grok four point five, Grok builds coming out. So it has been a tricky month, and I have a friend, I have a friend at Finality, who just says the way to have navigated the last three years is just do the dumbest, most [00:20:31] S3: superficial thing as quickly as possible and just cycle between them. [00:20:36] S0: What is that now?
00:20:37 · Gavin Baker
[00:20:37] S2: Yeah, well that's just-- That has been the current- Risk all month in response to these narratives that factually, except for credit, aren't true, and the work we've done makes me think that credit just isn't gonna matter as this reprices. Let's just say you do need credit to like build the flops we need. Well, if credit's not there, it just means the flops that are there are going to be even more valuable, and then eventually that will improve the metrics, and then it's like credit is there, so as long- As long as we're in a compute shortage, which I'm just like desperately trying to find a single sign that we're not in one and that it's not actually getting worse almost by the day, it's almost like the problem becomes the solution. And then this company, Black Forest Labs, I think that's their name, I hope I got it right, 'cause there is an interesting essay that got sent to me, you know, I think we've talked before about Mike Mowson's theory that breakdown in diversity is kind of what leads bubbles and crashes, and essentially everyone I know The public equity investment business, whether retail or institutional, every piece of news gets fed into Claude, and Claude, Claude code, sometimes a Claude agent, and it's probabilistic. There's probably not that much variation in the way it's interpreting this news. It's, it's almost like we're back to, um, in stock market terms, there's never really been this way in the stock market before, but people talk about the fragmentation of media and how- It used to be like Walter Cronkite, only voice of truth, and now we don't have that anymore. It's like Claude, it's kind of Walter Cronkite for the stock market, and everybody just believes Whatever it says. Whatever it says. And by the way, it's really smart, but it's not always right. Its interpretation isn't always correct. And with the stock market, you are fundamentally dealing about, you know, a probabilistic Bayesian interpretation of the future. It feels like, in the market, here's this piece of news, it gets fed through Claude, Claude interprets it this way, a huge chunk of people trade on Claude's view. And so you've seen stuff, there's this guy- TBU, he's like, uh, part of the anonymous semiconductor mafia on X. Yeah. Actually, very smart guy, I know him in real life. But he posted this amazing chart of Japanese capacitor stocks.
00:23:02 · Gavin Baker
And he said, "We've had an entire capacitor cycle in six weeks. " And it's true, you know, the stock's like, whether they double, triple, or quadruple, I don't know, but like, vertical, and then whoosh! Like the actual fundamentals haven't even hit, and yet you've already had what probably would have normally been a three-year cycle in like six weeks.
00:23:26 · Patrick O'Shaughnessy
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