The Exchanges

Q Where do the, uh, US, uh, unshoring efforts Fall in that category. What do you make of them from the chips act to like all the thing that is being built? Everything looks like it's massively delayed by the way, which perhaps is not surprising.

A I think TSMC is manufacturing wafers and they're like building real wafers and there's real fabs and like, you know, there's some other fabs that have been announced and like they're doing well. And there's like a bunch of like different kinds of plants, like a Korean company making a random gas plant in Texas for, you know, their chips, right? Like, uh, for chips and all these like sort of things are happening. Um, I think the chips act did really well with its It's just, I don't think people understand the scale of the semiconductor industry. It is the most complicated supply chain in the world. Right. It's much bigger than, you know, say manufacturing airplanes. It's much bigger than like, you know, really anything else. Right. If you look at the top 10 companies, like of the world, I think eight of them designed semiconductors right now, obviously like Google designed semiconductors, but it's like, oh wait, no, but their cost of search would be like 10 X higher if they didn't have TPUs and TPUs were super optimized for search. Right. Or like, You know, you, you, you go down the list, right? Like Meta serves recommendation systems with their chips, right? Like you go down the list. It's everyone is making their own chips. Apple devices would be materially worse if they didn't have their own chips. Right. Um, and you just go down the list. It's like, it's the most complicated…

AI assessment note: “We are doing 50 over like a decade. There's a difference in scale here”

Q And do you think it's a good thing for the market? It's yet another one of those deals that's structured as a, as a license but released an acquisition?

A I certainly think it's not good from an anti-competitive sense, right? I don't think people should just be able to buy companies without, like, any antitrust, like, process at all. Now, in the case of, like, Like a large company buying a startup. I'm completely fine with it. The flip side is like, Hey, we know the deal is happening, right? Uh, this happened for a company. I was an advisor for NVIDIA acquired in Fabrica just maybe a few months before they did Grok and similar style of deal, right? If someone wanted to strike it down, that's the biggest limbo, right? We've seen this happen in venture and you probably know more stories of this, but like a company trying to get acquired, they get stuck in limbo for like a year and then it falls apart. Yeah. It's falls apart. The deal did because some regulatory BS and now the company was, and the founders were focused on getting the deal done instead of like making the product better for a year. And now they're like behind or, you know, they, they, they weren't focused on growth as much. Right. You know, you only have so much time as a founder. So in that sense, I liked the license deals. Right.

AI assessment note: “I certainly think it's not good from an anti-competitive sense, right?”

Q Do you think AMD can, uh, catch up?

A I think AMD will be caught up at times and very behind at other times. Like, currently they're super far behind, right? Because Blackwell is just way better than MI-tri-fifty-five. Um, and then, you know, Rubin comes out and they'll be way, way behind, but then AMD's new chip comes out and AMD will be caught up, or even slightly ahead. On a hardware perspective, software's behind, right? And you have this, like, leapfrogging and, and AMD is a very credible second competitor. I don't think they'll Go beyond, like, I think they'll stay in single digits market share, single digit percentage market share. Single digit percentage market share is still pretty good. Yeah, I mean, NVIDIA's revenue this year is going to be like, it's a lot.

AI assessment note: “I think AMD will be caught up at times and very behind at other times.”

Q the specifics of, of that deal, but, like, I, I did hear variations of this where, effectively, you have a large player guaranteeing the debt being the last recourse. Uh, for a lot of, uh, infrastructure build. It's sort of, uh, this, uh, plus, uh, the whole, like, Oracle commitment. There is a fragility into this whole thing that can be a little unnerving. What do you make of it?

A I think it's completely fine, and I think, like, people are, like, freaking out and making narratives where there really shouldn't be one. It's like, well, ok, Google doesn't have enough data center capacity, they need people to build data centers, but No one can build a data center because they don't have the cap, but like don't have, you know, in many cases capital is not the, you know, they don't have capital, right? Or like no one will give them a loan because they don't trust some random fucking company. And it's like, but then Google's like, well, no, we've due diligence then we think they can build it here. We'll like even guarantee we'll buy the thing or start using it once they build it. You know, just having a customer alone spoken for it was enough. Right. Um, in the case of core wave, they were actually able to no backstop, right? They were able to just say, Hey, look, here's our Microsoft contract for this many GPUs. I want to put in that data center, that data center, that data center. Here's the contract for renting those GPUs. I want to hire these people. I want to do this. No one will like, they don't have any money, but then they were able to like have it work out because they were able to get people to lend to them. I think like core, we've did that and there was no circular financing, but that was when there was like the scale of investment was like single d…

AI assessment note: “I think it's completely fine, and I think, like, people are, like, freaking out”

Q Yeah. And do you think, uh, CUDA is going to remain that mode? Uh, I guess the combination of CUDA and whatever came out of the Mellanox acquisition, like do, do those persist as long lasting advantages?

A I think they do. I think networking is super important. I think, uh, the CUDA software mode is very important, but it's also like changing rapidly, right? It's an incredible amount of the software that NVIDIA GPUs run on is not from NVIDIA. It's, it's the developer ecosystem that's open sourcing it. When you look at, for example, VLLM and SGLang, right? These support AMD GPUs almost as first-class citizens now, and VLLM is getting significant support for TPUs, for Tranium, and there will be other chips coming out from startups that also support VLLM slash SGLang. Now, like, how difficult is it, you know, the, the reason why CUDA is so important is like, okay, I can do whatever I need to do, right? Programming a GPU. I think most AI chips will not be consumed by people programming anything for it. They will download an open source inference engine, they will download an open source model, and then they will put it on the, and it's really simple to download VLM and, like, make it work. Like, it's not that hard to set up, uh, you know, a server. And NVIDIA's putting out a lot of open source software like Triton Inference Server and, and, uh, Dynamo and all these things to, to make it easy because that is the consumption model ultimately for The majority of AI, right? Is, and it might be like, oh, it's my own inference engine, but most servers will not run code besides the inferenc…

AI assessment note: “I think they do. I think networking is super important.”

Q What about all the startups? You mentioned a few, so there's, uh, Cerebrus on the one end of the spectrum, and then newer ones, Etched, and, and others. If AMD has a You know, uphill battle in front of them. Like, do you think those guys can take a significant market share?

A You sort of the whole specialization game, right? You, you have to specialize because you're never going to beat Nvidia at their own game, right? They're going to have the supply chain on lock. They're going to get to the newest memory technology or process technology or whatever packaging technology, whatever it is, sooner than you. And they're just going to crush you, right? If you play their game, you have to, uh, AMD is trying to play Nvidia's game, but AMD is like, Extremely good at engineering silicon, right? Everyone else has to, has to, has to try something weird or different, right? And so when you look at Etched or Maddox or Positron or Cerebris or Tenstorn, you got to look at all these companies, right? There are unique things about what they're doing, and it's not clear if AI models will still be within that realm when that comes out, right? Uh, does, oh, now people use like engrams and other sparse attention techniques. Is that like, Is, does that change like some of the specializations people are doing or, Hey, people are now doing like, you know, models are now sparse MOEs instead of being dense models. Does that change things? There's so many optimizations and changes on the model side, and you can't predict what's going to happen with the ML research easily. At least you can't, the thing you're optimizing for today has to be a vision of where AI will be in two …

AI assessment note: “it's not clear if AI models will still be within that realm when that comes out”

Q Yeah. Talking about that, so, um, CapEx, is there a CapEx bubble? Are we, uh, investing too much, or actually are we investing not enough, given what you were saying earlier about, uh, the, the, the rate of revenue increase and, and therefore implied demand, uh, that you expect for this year?

A I'm obviously a maxi. I think we're going to Need a lot of in front. I think I'm literally paid to like analyze the supply chain and can do consulting. Like that's what my company does. So like, obviously I'm very biased. Um, I think, I think we're pretty good at calling when, when things go down though, right before, like a part of the supply chain or whatever. But anyways, you know, again, going back to the economics of it's north of a hundred billion dollars of revenue exiting this year for AI from a base of, you know, sub one billion gen AI from a base cause ads and stuff is like already a multi hundred billion dollar AI industry. Right. You know, go back March of 20, 23, it was like less than a billion, right? And 20, 24, I don't know exactly what number, maybe, let's call it 10, and 25 was maybe like 30, 40. It'll be north of a hundred easily. If you're talking about a hundred billion dollars of revenue, let's say at a 50% gross margin, so that's fifty billion dollars of gross profit, um, and fifty billion dollars of cogs, that fifty billion dollars of cogs needs to run on infra, which costs roughly five, if a five, if you're talking about five year depreciation, call it two fifty billion dollars, right? Of infra for a hundred billion dollars of revenue. Okay. What is, what is the actual spend on AI and for this year it's going to be like, It's, I mean, it depends on what…

AI assessment note: “I'm obviously a maxi. I think we're going to Need a lot of in front.”

Q Fascinating. Turning to the geopolitical aspect of, of, uh, all of this, which is always fun. Huawei and Nvidia in China, last year there was like, 10 or 12% of their overall revenue and This year they were saying that their market share has basically dropped to not very much. Is that Huawei chips? Is that restrictions? Is that tariffs? Uh, what's happening over there?

A I think it's a variety of things. Actually, in, in some, in some quarters last year, uh, it was even north of 20, I think, but I don't remember exactly. But anyways, you know, if you look at 20, 22, China was almost the size of the U.S. in terms of buying server hardware, right? Almost. Not quite, but getting there. Um, and it looked like they were gonna be the same size as America in like a year or two after that, right? And if you look at, like, global data center capacity, global cloud capacity, et cetera, et cetera, et cetera, it's American companies and Chinese companies, right, that dominate the world. American companies are obviously doing a lot better here, but both of those dominate the world. And if you look at, like, every industry, right, you know, it's, it's, it's very clear that, like, China wants to insource stuff, right? So in 2015, they made these five-year plans for two, 20 20 and 20 20, uh, five, where they set the percentage of semiconductors they wanted, uh, domestically produced. And they've missed the goal both times. Which is fine, right? They set really aggressive goals and even, you know, shoot for the, uh, moon, even if you miss, you hit the stars, right? And that's sort of what's happened, right? Like, look, China is not caught up on, you know, leading edge semiconductors, but microcontrollers from China are almost as good as the microcontrollers are…

AI assessment note: “I think it's a variety of things.”

Q So now is, uh, Nvidia also dominating the, the inference market. Is there any world where Nvidia is no longer the king or they seem to be getting stronger?

A I think the thing about Nvidia is they take. The Andy Grove mentality, like more serious than anyone else, right? Like, okay, fine. Google like implemented OKRs because Intel did it, but that's like, you know, management stuff, right? Only the paranoid survive, right? This is like core to the Bay Area, um, core to NVIDIA. Um, Jensen is very paranoid about losing, right? These specializations, if he just kept making his mainline chip would mean people could, you know, point, point solutions for specific parts of the market would crush him on cost and performance, and then he can't justify his margin. That's a threat to NVIDIA's business model as a whole. Especially if the best model only changes every three months or the model you want to roll out. Okay. Well then you have three months to figure out how to make a model work on one chip architecture for that point solution. And you know, it's fine. Software, software advantage of NVIDIA is not that important then. Jensen's super paranoid about losing. And frankly, it's really hard to hire enough talented chip people. When you look across the market, there is only a few companies who have successfully created a chip architecture, Software to run the models accurately, run the, run the models accurately, right? Like, cause you can look at random APIs of say an Alibaba Quinn model and different people are doing all sorts of tricks, …

AI assessment note: “point solutions for specific parts of the market would crush him on cost and performance”

Q Okay. I mean, do you think that's a world where the U.S. just decides to invest in semiconductor at the scale that's needed?

A You know, I thought we just needed a bigger chipsack, but Look, Trump's kind of gotten TSMC to promise to invest a fuckload more and they're moving on it, right? They're like actually like just building it. It's like, I'm going to tear off the shit out of you unless you build a fab and it's like, we'll build a fab and they're building it right now. The timelines for fabs just takes forever because again, it's the most complicated thing in the world. The cleanest space in the place in the world is not like a hospital or a biotech lab or whatever. It's a semiconductor fab and the most expensive tools in the world are not You know, any of these medical tools or whatever, it's, it's semiconductor tools or it's not a rocket. It's a semiconductor tool, right? Like everything, you know, I, I describe it as, um, I remember when I was a kid, I was like, I want to be a rocket scientist. And then I was like, oh, I want to be a surgeon. And I'm like, wait, chips are like rocket surgery. Uh, but even cooler, right? Like I think, um, anyways, like sort of like there, there are fabs being built in America. They won't take America to self-sufficiency. I don't think that's a relevant. I don't think that's a goal relevant. Like that's relevant, right? Like globalism is generally just good. Hot take. Um, like in terms of economics.

AI assessment note: “there are fabs being built in America. They won't take America to self-sufficiency.”

Q Um, is there one thing they're missing that they don't have yet?

A I think there's a lot of things. I think if you were to close your eyes and say, or if you were to cut off every country and say, there's no more globalism, China has the most vertical stack and semiconductors today. And they're the best at semiconductors in the world because Their fabs could still run somewhat on a lot of things because they have built some of these chemical supply chains, right? Like TSMC for certain kinds of chemicals, a hundred percent share from Japan, right? Or Intel, same thing, right? Or, you know, for certain kinds of tools, a hundred percent share from Netherlands or a hundred percent share from, you know, this American company or that, you know, Austrian company or this or that, right? Like there's just all these, like, you know, this Swiss company, like, it was just all these different places have a hundred percent share. It might be one company might be three companies, but geographically, or In the same area. And China's built that up, right? Because they've created this made in China initiatives, which just plowed money into it. And they've got this culture of like the diffused, like, you know, these provinces are like, yeah, I just decided I'm going to focus on, or it might not even be, it might not even be the city, right? It may be the, like, you know, someone brought it there and decided, and then people were like, oh, wow, you're doing that?…

AI assessment note: “I think there's a lot of things. I think if you were to close your eyes”

Q Is your sense that the broad American government is just, uh, aware of all of this?

A Well, you know, the chipset only passed because the automotive, like, prices went up because car manufacturers are, like, The worst cause they do just in time inventory, right? Or worse, but like, it's just like a thing, right? Just in time inventory systems. COVID happened, sales plummet, fabs that were making, you know, random power ICs or random microcontrollers for engines got repurposed to the boom from COVID, which is, which was data centers and PCs and smartphones. So that stuff was booming. And then when people were like, Oh wait, actually like, you know, I have some money. I stayed at home. I didn't go out. I didn't drink. I have a lot of, I have some cash, right? Let me buy a car. They went on about cars and cars started skyrocketing in prices. Oh, let's restart, and let's, let's, oh yeah, can I, can you sell me that microcontroller for the engine again? It's like, no, I, I'm making a slightly different microcontroller that works for, you know, uh, let's say a keyboard, or a mouse, right, or whatever, and it's like, and, and, and they actually didn't just leave me flat-footed, and they were like a partner through COVID, right, you know, versus, you just left me. Screw you, Ford, or whoever, Toyota, um, or automotive OEM, you know, you up that supply chain, and so, Chips Act did not get passed, only got passed because that happened. And people are like, oh my God, the …

AI assessment note: “even though that's what was pitched to all the senators, like I know people”