Invest Like the Best with Patrick O'Shaughnessy
00:39:09 · Gavin Baker
[00:39:09] S2: of Hynix? I'd do the exact same thing in videos doing right now, which is I would be going to the buyers of GPUs, Trademips and whoever and saying, "I'll participate in the Nvidia credit wrapper. Now, their business is just inherently less stable and predictable, but in some way, and maybe they just put up some cash up front so it's like they're not on the hook. I'm just making this up, but like, do something, like you- You can, because you have money now, and credit markets are revolting. I'm sure our friends at Blackstone and Apollo are suggesting some variant of this to the memory companies. But hey, we will put up some amount of money from our cash flow today, and then it's God, it's surety that makes the person who's extending the debt feel better, but we want some sort of a cut of the ongoing revenues as well. That is One hundred percent what I would do, and it's almost like a logical extension of the LTAs, where they're trading upside for durability. Here, you can effectively get a royalty on recurring revenues, and that is what Nvidia is doing. And I do think that is very misunderstood, and I think it would serve Nvidia well to really explain this. One, they're really bullish on AI. Essentially, every time they haven't taken an equity stake in something, it's been a mistake. They've taken equity stake in everything essentially, except the memory company, is that for a long while, Anthropic, then they took an equity stake in Anthropic. But like, why not if you have cash flow and you're bullish on AI and Jensen, because he sees every lab, he knows all the advances, you know, like all these continual learning labs, you know, Safe Superintelligence is now working with them, he sees everything, and like what he sees makes him bullish So one have some equity upside, and then two, have a revenue share, and you're generating hundreds of billions of dollars of free cash flow and helping to kind of bridge what is clearly kind of a gap, at least given everybody's got free cash flow negative, until the operating cash flow accelerates enough that you can internally fund this. It's very opportunistic in a good way, and it significantly increases their revenue per gigawatt, and then it also strengthens their competitive position. You and I, we both have startups, but okay, that's great, use that startup's chip.
00:41:35 · Gavin Baker, Patrick O'Shaughnessy
What prices are they playing at Taiwan Semi? Higher than Nvidia and all these guys. What prices are they paying for HBM DRRAM? Higher. Can you finance those chips easily at the same rate as Nvidia? No. And so it's always like, there's a real burden. Particularly if you use HBM D RAM, you're in the crosshairs of this, unless like H they made really different architectural choices Everything that's happening is actually pretty good for him. By the way, going back to game theory, in Dropic, if they had been as aggressive on compute as OpenAI had been, they would have run away with it. Now OpenAI is back in the game, I think Grok is in the game, those are the companies on the Pareto frontier. And they have the compute. Do you think after watching that, anyone is going to let off the gas? Right. It was, I think, four months ago that Dario was talking about how- Wow, it was a really thoughtful commentary, but he's like, it's really, really hard because if you buy too much compute, you could go bankrupt at the scale of these things. But if you don't buy enough, you could lose. Well, OpenAI just got back into the game, and now SpaceX is in the game in a big way with Grok four, five, and Cursor. After watching that, from a game theory perspective, is anybody going to back off anytime soon, especially if it can be funded out of operating cash flow? [00:43:01] S0: Have you met anyone in your travels out here that you would say is like way more bullish than you, and if so, what do they believe that you don't?
00:43:01 · Patrick O'Shaughnessy, Gavin Baker
[00:43:01] S0: Have you met anyone in your travels out here that you would say is like way more bullish than you, and if so, what do they believe that you don't? [00:43:07] S2: I mean, essentially everyone out here is more bullish than me, man. I mean, you know, I read this thing that Dorkesh wrote, and I was like, [00:43:15] S0: "The three X compute [00:43:15] S2: price thing or whatever." Yeah, well, he was-- I forget what it was. No Basically that renting an H one hundred for a year would cost two hundred and fifty thousand dollars, and that's fifteen x the current spot rate. Exactly. Like, wow, you know, that was just like, that wasn't my book. That wasn't in my, forget my like Bayesian probability space of expected outcomes. That wasn't even in my considered but dismissed as totally unlikely outcomes. Four cash, he's a very smart guy, he's very plugged in, then he pointed out that margins on compute They're going up, the amount of compute is going up, and inference margins going up, and if you multiply those three, that's how you're getting this crazy acceleration into some of the labs plus open source, or though the margins on open source aren't really going up. I look at what's happening in the stock market and I feel like a foolish optimist. And then when I talk to people, whether it's people at the labs, anyone in this ecosystem, I'm like bearish relative to essentially everyone. It's just a strange state of affairs.
00:43:15 · Gavin Baker, Patrick O'Shaughnessy
[00:43:15] S2: price thing or whatever." Yeah, well, he was-- I forget what it was. No Basically that renting an H one hundred for a year would cost two hundred and fifty thousand dollars, and that's fifteen x the current spot rate. Exactly. Like, wow, you know, that was just like, that wasn't my book. That wasn't in my, forget my like Bayesian probability space of expected outcomes. That wasn't even in my considered but dismissed as totally unlikely outcomes. Four cash, he's a very smart guy, he's very plugged in, then he pointed out that margins on compute They're going up, the amount of compute is going up, and inference margins going up, and if you multiply those three, that's how you're getting this crazy acceleration into some of the labs plus open source, or though the margins on open source aren't really going up. I look at what's happening in the stock market and I feel like a foolish optimist. And then when I talk to people, whether it's people at the labs, anyone in this ecosystem, I'm like bearish relative to essentially everyone. It's just a strange state of affairs. [00:44:24] S0: What do you make of the DUV news out of China, where I've seen reactions really along a spectrum of like, "This is the equivalent of like what ASML had in 2001 or something," or, "Like, no, this is actually the first bit of news in a new story for how we should think about the global supply of cutting-edge compute." I
00:44:42 · Gavin Baker
[00:44:42] S2: think both could be true. Make an analogy, like let's just say a DUV machine was a jet turbine, and now an EUV machine is like a warp drive. DUV machine's like a propeller plane, EUV's like a jet turbine. They didn't have it before, and now they allegedly do, and that is like a phase transition. You've gone from like liquid to solid. Now that solid, that jet engine, prop plane, whatever, is twenty-five years behind, but still it's important And I don't think should be dismissed, but I also, you know, it's kind of funny, you just see this in the stock market. The stock market massively overreacts, and then if this ever hits ASML's orders, maybe it hits it in five years, and like the market has forgotten about it, gotten worried about it, forgotten about it, gotten worried about it, forgotten about it multiple times along the way. So I do think that was probably an overreaction, but we shouldn't dismiss that either. And if you're China, like this is really important to you. You know, there are some reports that like an EV machine had been smuggled into China. I mean, what a feat of espionage, 'cause those things are like giant and delicate, yeah, they're huge. I don't know if that's true, you know, there's some noise about it, but, you know, China, they're really, really good, they're really, really smart, they work brutally hard. And they see this as super important for them as a country. But are they gonna go from the year two thousand and one to two thousand and twenty-six, or even two thousand and thirty? It's a learning by doing, and you can't accelerate the doing. You can't teleport into the future. You actually have to go through those learning cycles. Is it significant? Yes. Did the market overreact? Probably. It's very hard as an American to really understand what is happening in China. And like have total conviction and clarity, you know, like for better or worse, we are decoupling. That is a process that has been set in motion, and at this point, it almost feels like it's self-reinforcing on each side. That's unfortunate. We are where we are. They're not gonna stop, neither are we.
00:46:56 · Patrick O'Shaughnessy
[00:46:56] S0: Any commentary on, like, every other company in America? Like, I feel like right now it is ten companies, couple private,