Odd Lots - Data Centers, Crypto Miners, and Gamers Are All Battling for Semiconductors

Episode Date: May 27, 2021

These days, there's a shortage of chips everywhere you look. Some of it is related to idiosyncratic events specifically related to logistics. Some of it is related to production challenges relating to long, pre-existing trends. And other aspects are simply related to the fierce battle for chips among a range of players. On this episode, we speak with Brian Venturo, the CTO of CoreWeave, a cloud services provider about serving his clients, the role of crypto mining in tightening the chip market, and other players, like gamers, who are looking for more computing power.See omnystudio.com/listener for privacy information.

Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. Unfortunately, my colleague Tracy Allaway, she is off today and is particularly unfortunate because this is going to be a big one. So, you know, like on this podcast, obviously we talk about chips a lot. And I think now we've done like eight different episodes on semiconductors and who makes them and the shortages and the challenges of building them and so forth. So odd lots listeners will know that. We also do a fair number of episodes about cryptocurrencies. And of course, that's for obvious reasons why cryptocurrencies have been going up a lot. And it's a fascinating area.

Well, this episode, I actually am going to say it actually combines the two because it's slowly becoming clear that you can't really talk about the semiconductor market right now without talking about cryptocurrencies because you need chips to mine them. And when the cryptocurrency market is booming, people want to acquire more chips to mine them. And it's becoming a sort of more significant source of demand. If you look in the video gamer community, there's a huge frustration about their inability to buy various graphics cards from the likes of Nvidia because Ethereum miners snap them up. Recently, there have been stories out of Asia, China in particular, where people are buying hard drives. because they want to mine the new cryptocurrency, Chia. Bitcoin is mined using specialized chips, but ultimately that takes chip production capacity, too. So really, the stories are interlocked, I think, in a way that I hadn't up until recently

fully appreciated. And I would not say that crypto is the main source of reason why there is a shortage or difficulty getting semiconductors, but everything matters at the margin. And so we're going to explore this nexus today between what is going on in the world of semiconductors, the fight to acquire semiconductors between different players because you have the miners, you have the gamers, people use computers, you have data centers, which of course have tremendous chip needs. And they're all fighting it out for this semiconductor capacity. And it all comes together. And it's a really fascinating facet of all of these different stories brought together. I'm very excited about this episode. I am going to be speaking with Brian Venturo. He is the CTO and co-founder of Corweave, which is a cloud computing company. And we'll get into the details of specifically what they do.

But as a cloud computing company, of course, it specifically has a lot of chip needs itself. And so he's going to walk us through what the world looks like right now. He's also in the Ethereum mining space, sees it from all the different angles. We're going to talk about that. So Brian, thank you so much for coming on odd lots. Thank you so much for having me. This is a topic that I am near and unfortunately dear to. So we're really excited to dig into it.

So why don't you just get us started? I mean, cloud computing, you know, people think of Amazon, AWS, people think of Microsoft perhaps, but obviously they're not the only players. What is CoreWeave and how is it situated within the cloud computing ecosystem? We typically talk about ourselves as a specialized cloud, right? So we're primarily providing highly scalable, highly paralyzable burst compute to companies that are in the VFX production and rendering space. That's VFX, that's video graphics.

Yeah, correct. So pretty much anything that you see that's episodic on a streaming channel or that's being produced in long form content, like that's being touched by a VFX artist somewhere, whether it's on the compositing layer or if it's actually on the computer-generated graphics layer, that stuff needs a significant amount of compute, and that's one of our focus areas as a business. So we're there for them.

And then in addition to that, it's AI machine learning, so it's model training and serving. There's one additional one that kind of sits between the media and entertainment space and the batch processing space, which is called pixel streaming, which is serving real-time experiences in your browser. Right. Right. So if you ever go to configure a car online, they don't have 700 million versions of that car rendered. They actually do it in real time on a GPU somewhere in the data system. And then the last piece is kind of legacy HPC. Right. So it's highly parallelizable batch processing. It's people who are doing drug discovery, if they're doing cancer research, kind of everything under the sun. What makes us a little bit different is that we're not really competing for people to host their WordPress blogs. Right. So we're building for.

We're building scale compute for large customers of compute. And then we're kind of working with them all along the way to kind of meet their needs. And we do a lot of bespoke builds for people. So we're constantly in the chip market and in the component market. And just because every industry kind of has their own unique needs. So is there such a thing as a sort of a normal chip market? I mean, right now, and we're going to get very deep into this. And right now we know that there's an incredible amount of demand for chips for

cryptocurrency mining. But, you know, go back, I don't know, 2018, it was a bare market for crypto. There wasn't a lot of enthusiasm at the time. Talk to us about what a sort of normal chip market looks like and what your needs are as a company on a say annual basis to acquire chips such that you can provide cloud services for your customers. Let's start with the normal world first. Yeah. So let's start off by framing the kind of our annual needs. Great. That's perfect. We're probably buying between like, let's call it 7 and 10,000 servers a year. Okay.

That 7,000 servers is going to be built two different ways, right? One portion of that we're going to build in-house, which is typically like our really dense GPU compute. And then the second piece is going to be kind of more generic CPU builds that we buy for ancillary services and other things that may not be GPU focused. And that's typically from regular like OEMs, like Super Micro, HP, Dell, whoever that may be. what does the typical market look like? Well, you know, like sitting here today, I would, I would die to go back to like six months ago. The typical market is a place where you can,

where things are in stock and you may have trouble finding them, but it may take you a couple hours and you can find the stock that you need and have it delivered the next day. Wow. It's not really like that right now. I spend most of, like, it's a little wild that half my job here is really scouring the internet to try to find people that may have stock. like if I'm looking for a certain item, whether it's a CPU, whether it's RAM, whether it's a special motherboard that we're looking for, you know, I go through kind of our regular partner channels first, which is some of the large distributors. And then typically right now I get told there's no chance you get that within 16 weeks. And then I go to eBay, right? And I don't go to eBay to buy the stuff. I go to eBay to say, okay, is there supply out there? How do I source it? Because it's really hard to kind of connect buyers and sellers in this market because there's so many people that provide services and are hard to.

distributors and resellers. So it's really like, okay, like get a feel for what's out there and then go hunt it down. So it's pretty wild. Like last year, it would be no problem for me to go out and get 10 terabytes of RAM, right? And like 64 gig dims of RAM and build up 10 terabytes and get it overnighted to me if we needed it for a build. And like, I mean, there was a time late last year where we actually had somebody get on an airplane from California to Chicago because we needed something done in like three hours. That's just not possible today. Wait, did that person have a chip in or some sort of chip set in their, that they just traveled, they just got on the plane and brought it to? Yeah, we needed that we had to deliver something for a client.

It was a late, late on a Friday night. And we needed, I think it may have been like 20 terabytes of RAM. Okay. And we found a supplier in California that was still open that had it in stock. And we paid them extra to put them on a plane. Wow. Right. So a lot of what we do is very much just in time.

Yeah. Right. So we've done dumb stuff like that before. But if I needed to do that today, like, I don't even think I could source the RAM. So, again, we'll get to the today, but I want to keep diving further into the normal market. When you talk about GPUs, CPUs, RAM, talk to us a little bit about the difference between the two GPU and CPU and how they serve different types of applications for your customer. Let's start with the VFX industry. Okay. Right. So it's really usable there for two different things. The first is for virtual workstations where artists are actually now fully migrated to the cloud and working in the cloud on a desktop that we've helped them set up.

So, you know, we have hundreds and hundreds of artists doing that today. They connect to us via a low latency application from their laptop or from their desktop at home or whatever it may be. And then they're connected to a hardware accelerated desktop in our cloud. That's one use for the GPU, right? The GPU provides the hardware acceleration of the desktop as well as the graphics for what they're doing. And then the second piece for GPU compute on the VFX side is for the actual rendering itself. For us, we actually spend kind of two different markets in the rendering side. Like one is for large studios where they have people rendering every day.

And then we also operate a direct-to-consumer render farm for small freelancers and artists that has like just over 25,000 users at this point. On both sides, though, the demand there is is bursty and crazy where, hey, they need to get a shot done. they need it done in the next two hours to meet a deadline. And if they were to do it on their own computer or in their own farm, it may take them 40 days. We really become the only option at that point for some folks. And it's my job here to make sure that I have the GPUs, the scale of GPUs available to be able to handle a large number of concurrent users like that.

I'm looking at your website and scrolling down to one thing. It says the GPUs you need when you need them. And you say we currently have over 45,000. and Nvidia GPUs. And so when we talk about this battle for chips between gamers and miners, these, and I don't know if they're precisely the same, but generally speaking,

these chips that you have are like the chips that everyone covets. No, they're not, right? So they're very similar in nature, but... They're similar. Right, so we're an Nvidia Cloud Service provider partner. Okay.

So we're restricted from offering consumer-based GPUs in our cloud. Got it, got it. Right? So we're actually, we're required to buy data center GPUs. So, but from a technological standpoint, we're talking, we're talking about roughly the same type of technology. Yeah, you know, yes, it's, okay.

Like, the data center GPUs typically have a little bit higher quality. Like, they may have error correcting RAM instead of just regular video RAM on them. And then typically the frame buffer, so the actual amount of video memory on the GPU is going to be higher for the data center cards. Got it. But technologically, what people are lining up for in stores, outside. of video game supply stores and what you have a deck of 45,000, probably more by now. It's the same kind of technology.

And it's the artists that which the animation artists who probably worked for big studios or television shows on Netflix and so forth, they all want access to roughly that same technological capability. Yeah. It went from having the access to that in their office. Yeah. Now that they may not have IT staff that's sophisticated enough to set it up for them or their office may no longer exist, right? And we've seen this huge rush to the cloud. The wild thing

is we get on the phone with studios and they're like, by the end of the call, they're like, okay, when can we start? To be honest with you, the problem that we have as a company is we're actually limited in our ability to onboard. Right. Is there's just so much demand for this cloud migration. Yeah. And then when I look at that from a capacity planning perspective, it's like you're looking at this environment that we have today where the world is in this one big shortage of everything possible, doing the capacity planning and scaling for that is kind of hard. You said something, you said burst capacity. And again, I'm looking at your website. It says the GPUs you need when you need them. And so what I take from this is that perhaps there are some

consumer startups or whatever, and they might use AWS cloud. And they use a sort of predictable on a day-to-day basis, roughly share of cloud capacity. What you're offering, though, or I guess part of your niche, it sounds like is here's someone who doesn't normally need computational power, but when they need crazy computational power, a burst of it that's not regular, you have huge, you have huge scaling ability for them. Yeah, you know, that's the crazy thing. When we hired a director of sales last year, I had known them for like 10 years and I was like, dude, like every customer we talk to tells us they just cannot get the capacity they need at the big clouds.

And he's like, yeah, okay, like that's a bunch of BS, whatever. whatever, okay, you're being like hyperbolic. And then he joined us in the first like 50 meetings he did. Everyone said the exact same thing. So I think that the industry really struggles with that access to scale. Yeah. And the reason for that is just I don't like AWS, GCP and Azure are building these, their kind of hyperscale data center regions to handle every single use case under the sun.

Right. Right. So they've got X number of types of CPU compute. They've got all different types of optimized compute. And at the end of the day, there's only a certain portion that's available for the GPU stuff. And when that's our entire business, we can really approach it very differently. You know, what we want people to do is to come in and say, hey, I need to get 2,000 GPUs. I need them for three hours.

If they were to do that at AWS, like, one, it may not even be possible for them if they don't have a good relationship. And then two, they probably have to do a lot of like manual engineering and reservation planning to get there. We have people come in all the time that they'll burst. to like two, three, four, five thousand GPUs for like six hours and then we won't hear from them again for three weeks. My commitment to them is that I want them to have that capacity without having to talk to me. So one thing that, and I guess I kind of intuitively knew this before, but one thing that's making this clear is that cloud computing, you know, you think of a cloud, like a literal cloud is just a cloud up there, but cloud computing is just not a commodity,

both in terms of the specific types of applications, but also in scaling and the difference between sort of like standard runtime, consistent demand versus cloud that can be turned on at high scale for a client at a moment's notice. That's a really good point. I like to think that our scale helps us break the commodity label. Yeah. But for anybody who goes in and needs like one virtual machine with like four CPU cores, and 16 giga ram, like, all right, go get it the cheapest place.

Right. Same, same. But that's not even the people that we go after or talk to, right? I can't help them. I can't help them there. Right. Why is RAM hard to come by? Okay.

So let's go to crypto mining. All right. I guess where I was, I was trying to like hold off the crypto part for as long as we could, but I knew eventually I would ask a question and we'd stumble into the crypto part. So I guess we're there or now. Yeah. So a lot of the supply chain stuff here is going to be driven. He's going to kind of link back to crypto.

Well, actually, then in that case, let me, so before then, you mentioned how you would love to go back like six months ago because your job was really easy. So when did you notice that things were starting to change and that sourcing compute, whether it's GPUs, CPUs, or RAM that was suddenly starting to get tighter? You know, every February, it gets pretty rough because of Chinese New Year. Okay. Right. So you kind of rush to get all your orders in before the end of...

Oh, because this is where it's all being manufactured. true. Yeah, before the middle of January, right? And then if you get it in before the middle of January, they're going to do everything they can to ship it out before the start of their holiday. If you send it by air, you'll have it early February. Send it by boat end of February. But like if you wait, there's nothing that gets processed in February in China. Okay. So that was kind of like normal operating conditions in the middle of January. And, you know, crypto was kind of doing his thing and it was kind of ripping the roof off. Yeah. And you saw it coming, right? But a lot of that was

you know, that was really on the consumer side. And so consumer GPUs are really tight, didn't really impact us. And then starting in March, orders that we had placed in January that were supposed to be in stock in the U.S. And we're supposed to be delivered the next day, they didn't show up, right? And this is like, let's call it medium quality server-grade CPUs. So like AMD, Epic Rome platform. And we had maybe 500 or 750 of these things on order. And it was like, okay, fine.

like the other components that we need to do, our builds aren't here yet. Like, they arrive in early March, and we were actually waiting on GPUs at the time. And I kind of wasn't really pressing about it. And then middle of March came, and I'm like, where's my stuff? And you reach out and they go, oh, we didn't foresee the semiconductor shortage. I'm like, what are you talking about? You told me these were in stock, in vendor warehouse yesterday, like that it was fine. And this is kind of what you start to see when the market gets stretched like this is you have

conversations like that and people just flat out lie to you in the supply chain. that was the first real telltale sign. The second one was when I went to buy, I think it was like 800 sticks of 64 gig DDR4. You know, for that, like for DDR4... What's DDR4? It's system RAM. Okay.

Right? So it's the most recent commodity system RAM. There's new versions coming out, but this is really what's used today. Okay. You reach around for system RAM because a lot of that stuff comes out of liquidation, right? So you can get it for this particular component. For RAM, you typically buy it used.

you're not going to go out and spend 60, 70% premium on this stuff just because that doesn't really wear down. Okay. So I reached out to one of our main suppliers and I said, hey, man, I need 800 sticks. And he's like, dude, I got nothing. I'm like, what are you talking about? Like, what do you mean you have nothing? He's like China bought.

Wait, sorry, when was it? What month? This was in March? Middle of March. Yeah. Okay. And he goes, he goes, dude, like, I had some guy in China buy all of it last night. I'm like, what do you mean all of it?

And he's like, yeah, he bought like 10,000 sticks. stupid question stupid question i don't know if this is you know proprietary 10 000 sticks like what are we talking about from a dollar amount uh two and a half maybe i think it's maybe two and a half million bucks okay okay right but 10 000 sticks a ram is not really a small order right you don't just like buy that and throw it in the closet for rainy day right well i guess maybe this year you do and i said okay like what's going on and that said that's he was like you know some one buyer came in from china and bought it all. And, you know, I kind of gave him the expletive laden. Oh, you got to be kidding me. A couple days later, he called me and he was like, hey, I got like 400 sticks. Like, do you want them?

And I said, yes, I'll take like everything you have. So that that was kind of my reaction to that first one. Then a week later, I went back to the same guy and I said, hey, I've got a need for like Intel Zeon v4, which is chips that probably stopped production like 2019. Like, what do you got? And he's like, dude, like, are you going to kill me if I tell you that I sold them all to China last night? I'm like, okay. So this is at the point when when Filecoin was going from like 20 bucks to 180 bucks. So just for listeners that don't know and why do you explain it further, but Filecoin is a new cryptocurrency is actually, I think first conceived of back in like 2017. It only recently launched.

But the idea is essentially cloud files distributed file storage in the cloud rather than hosting your documents with a company like Dropbox or Box. you host a network of a decentralized blockchain network of computers all around the world. Yeah, and all around the world, there's a little bit disingenuous at this point. I'd say it's 95% centralized in China. Okay. But the ecosystem in China is they are insane for this project. Okay, interesting. And the demand for this project spans, it spans every component in the supply chain, right?

So you need GPUs for the actual computation of proofs. You need CPUs because you need high core clocks for some of the processing. You need RAM because of the storage operations and actually putting stuff in cash. So they're kind of buying across the board. Got it. If you search real quickly, you'll find mentions in the news of people putting $1.3 billion into file coin mining. And, I mean, there's real money over there. Whoa.

So this file coin driven demand has kind of sucked up beyond what the typical component demand in crypto bubble or crypto expansionary times, it's called that instead of a bubble, is going to drive. Right? So it went from, you know, 2018 or late 2017, early 2018, where the demand was only for GPUs

to now you have Ethereum driving demand for GPUs. You have file coin driving demand for everything under the sun. And the amounts of capital that are being thrown at this in China is just draining the supply chain across the world. Wow. Right. So that was really when I was like, okay, like my life just changed and we have a risk here where we may actually be governed in our ability to grow by access to the components. I just want to point out, like I'm looking at a price chart right now of file coin, the coin.

Even as recently in January, like say January 1st, one coin, one file coin was trading at $22. Fast forward to March 31st, a file coin according to this chart. I'm looking at $1.92. So that's almost like a 10-bagger on the price of file coin over the span of about three months, which really, it seems to me, then just makes the demand to acquire all of these chips even that much more. If acquiring one coin is worth 10 times more, then what you're going to be willing to pay for the compute to mine a file coin, that just went up a lot. Yeah, you know, and one of the things that's unique or weird about file coin is the staking requirements.

Okay. Right. So, you know, a lot of the cost of actually building the storage isn't in the storage for Filecoin. It's the amount of coin you actually have to stake to be able to provide your storage to the network. Oh. And at the time, like when it was like 190 bucks, like we had a lot of internal conversations

about this. Like, why aren't we going crazy on this? And why aren't we doing this for us to provide a one petabyte of storage, which isn't a ton of storage to the network, we would have had to stake a million dollars with a file coin. Okay. Right. it cost me maybe like 100K to build one pet of five storage. So 10 times the hardware value I have to put up in staking risk

and a coin that just went up like 10x. I think at the time, like it was this positive feedback loop where people were going into it because they want the prices going up, but to get into it, they had to buy more. So you buy, wait, so you buy hardware to mine file coin, but then to actually be able to plug your hardware into the network and actually, you know, use it, you also have to buy the coin itself. So as you say, there's like this weird, like positive feedback loop that emerges where you make

this capital investment in semichin chips, but then to use the chips to acquire coin, but then to actually make the chips worthwhile, you have to buy the coin itself and so that you get this, like crazy network effects. Yeah, you know, it's so like, I'm not going to throw the P word out there, but in terms of schemes, it's a pretty good one. It's a project that I think that internally, like, we're, we still look at as, you know, it fits our infrastructure really well. But right now, it's just so hard to get into it because you have to really have

access capacity for it. And getting access to that excess capacity is just so hard, like kind of bringing us back to the broader conversation here. Right. And now another, now I want to get into some of the other sort of coins that are driving this dynamic. You and I had a chat, like, on the phone, like two or three weeks ago before we did the podcast.

And now, and I hadn't like sort of seen any articles about it. But then there's this other coin, Chia, that's in the mix. So what's happening with that? Yeah. So that one is pretty crazy, too. Okay. This is, I guess, a different take on proof of work, right? So I guess they're calling it proof of space time.

Yeah. And effectively, what you do is you use CPU compute to create what they call plots. Okay. And then once a plot is created, it's like a couple hundred gigabyte space on a hard drive. Yeah. You can move that to cold storage. And then for up to five years, you can use that. as a mining mechanism to gain rewards on the network.

That's another one that I didn't really see coming. Yeah. And we build large, like, multi-petabyte level storage clusters in each of our data centers. And they're CEF-based, so it's a software-defined storage technology. Okay. And one of the things that we do there is we build them to have triple replication. Right. So for every one petabyte of storage usable for my clients, I have to have three petabytes

like on the ground that installed. That makes me a pretty big buyer of hard. This is another piece that kind of showed up in January that I didn't really understand yet is we were we were trying to get access to I guess a quasi non-public skew and it's one that really meant for data centers. It would reduce our latency and our storage access patterns. SKU SKU, you just mean a product. Yeah, yeah. Sorry. No, no, it's fine.

I just make sure. So we went through this process of kind of qualifying with the manufacturer and they were asking me all these questions like, what are they being used for? But I'm like, dude, they're hard drives. What do you want? Like, are you selling them to me or not? Like, if you want to increase the price, increase the price, I'll buy them. I don't care. And it wasn't until March when, like, this, when Chia launched that I was like, oh, like,

these guys had a run on their stock and they weren't able to provide, like, product to their real customers. So the demand for Chia, for hard drives with Chia, it's twofold, right? So the first is you really need like high speed MVME or SSD disks that are local to your CPU compute. Okay. To run the plotting. And then once the plotting is done, you can push it off to whatever.

whatever cold storage device, whether it's like spinning rust, like hard drives or or whatever it may be. But then it just sits there and the access pattern is pretty low in that data. So this is another thing where I have conversations to say, hey, like, what do you got in like Saz, like 7200, 4K on hard drives? And they're like, would you believe that somebody bought all of these last night? I didn't expect to be getting dragged into Chia. Yeah. And I was only really dragged into it by the problems I was having acquiring things.

And like, you know, every once in a while, like the bells go off. Like, you know, idiot, go look at this. Like, what is this thing? Yeah. So now we've got a pretty large Chia mining operation. So this is something that I want to get into. And it's actually pretty interesting. And the way your set up core weave, prior to like, you know, all this like crypto going nuts over the last, over the last several months.

So particularly it seems like since January and March when all these alt coins just started going bananas, your clients were people who actually had what most normal, humans consider to be real world needs. So like animating a TV show or animating a movie. Yeah, they're actually making things. Actually, actually making things. And so you'd go out into the market and buy chips and it wasn't that hard. Now you're also involved in the mining, but you do it in such a way that it doesn't, it complements the service you provide to your clients as opposed to competes with them, I guess.

So can you explain a little bit about how you use cryptocurrency mining yourself at Corweave to complement your business, complement your existing business model? The permissionless revenue from cryptocurrency mining has really been what's allowed us to build to the scale where we can provide these burst compute services. Right. Like without crypto, especially over the last like six months, we would have had to raise significant amounts of money to do it to run this business. I think that like life to date, we probably sold, like we maybe raised like six or seven million bucks in this whole thing. Yeah. Every time that we're looking for capital or capital, we have capital requirements, like we're always trying to protect ourselves. Like as founders, like you don't want to dilute it.

You especially don't want to dilute to buy a depreciating asset. So we've been able to get pretty creative. And some of that's been from the crypto side. Some of it's been kind of from just founder and partner commitment to fund things internally. What crypto does for us, like say that our clusters at a, a steady state or one of our clusters is a steady state. And we've got, let's call it, 20,000 GPUs in that cluster available for clients. If we only have like 3,000 GPUs of base load demand in that cluster, yeah, right? What are we doing with the other 17,000? Right. And if I don't

have to talk to a client and I don't have to do anything besides start a minor on those things and I can make 60% of the revenue I would make for my cloud clients, like that seems pretty good. So we mine on everything, everything possible when we, we don't have higher-end workloads running. So this is actually, this part is super fascinating to me. So if you want to have the ability to offer your client's burst computers, burst compute, then by definition, at any given time, you have to have significantly more capacity than is your sort of like normal base load.

And the way then from your perspective to make the investment in that capacity worthwhile so that you can go out and buy chips that you only expect to offer to your clients that maybe normal state 30% capacity utilization is if during those times the other 70% are earning revenue for you from cryptocurrency mining. Yeah, you know, I think that the payback calculation is a little bit different. Sure, okay. But that's 70% with crypto mining is what allows me to aggressively expand my business. The 30% that pays the bills.

right, it allows me to kind of operate, but the grand plans over here is really to kind of just continuously grow this compute fleet. You know, we have customers that come in all the time that are, I can't get what I need, I can't get this, I can't get that? Like, hey, can you promise me that I can get 150 GPUs? I'm like, dude, it's fine, 150, like, whatever,

you don't have to talk to me. So another way to think about it is like, if all these people are playing the game of buying all different kinds of chips to mine, you're essentially forced to play the game too. Yeah. You know, we try to operate in different segments. So typically when mining, like Ethereum mining rigs are being built,

they're being built for the lowest cost possible. Right. Right. So the GPUs are really the only expensive thing in the setup. Like the host device may have, whether it's somebody building it out of like an egg carton or like an egg shell carton from in their garage or putting it on like an open air rack

or putting it on a wood frame or actually putting in a closed chassis with forced airflow, the motherboard there is going to be super cheap. It's going to have a really low-end CPU. It's going to have like four, eight giga-ram. These aren't the types of systems that were uncompeting to build, right?

Which is why it's without the last five months here, like it's always been kind of reasonable. I never had to compete for high-end CPUs before. I never had to compete for server chassis before. Never had to compete for like network cards. stuff. And this is where Filecoin really throws things into a loop. But on the mining side, you know, everybody talks about how miners and gamers are opposed to each other. And, you know, I think there's been some vilification of some of the larger mining operations around the world that

they're taking all these GPUs. And I'll tell you that even on our mining stuff, when the NVIDIA 3080 came out, we looked at it and was like, oh my God, this thing's a three slot. Like, we can't, like, we can't deploy that. What does that mean a three slot? So it, It takes up three slots on a motherboard, right? So it's just the different spacing than what they had done previously. And typically kind of the mining GPUs and mining variants they had released in the past were dual slots. So we would take up two slots on a motherboard. Then they went with these crazy things that were three and are like, okay, like, we can't deploy that at scale.

And our focus at the time was just so different that we didn't even buy any. There are some distributors in the U.S. that show like real-time availability and real-time how many back orders they have in their queue. Sure. And you see them and they have like, we expect 500 Nvidia RTX 3080s on September 1st. And like pre-orders is like 47,000. Huh. I'll tell you, like the 47,000 pre-orders, I don't think that's sophisticated mining operations. I think that's like you and me personally going and doing it and putting in our garage.

Where do gamers fit into the mix? Because I'm in like a Discord group and I don't really understand half the jargon in it, but it's basically a group for gamers who are looking to acquire. InVVIDIA GPUs because they just want state-of-the-art graphics for their systems. How do they even stand a chance in this world? And how does the industry think about sort of making sure that they can get access to this technology? There's two steps here that there's two pieces here that are really a problem. Yes, the mining demand is a problem.

But the mining demand is a problem because the economics warranted it. Yeah, right. Right. And, you know, one of the crazy things about proof of war cryptocurrencies like Bitcoin and I guess Ethereum in his current life is that the early on mining component of it is like the greatest user acquisition strategy in the history of the world. Right. It's like, hey, you have a computer.

Your computer may already have this device. If you turn it on, we're going to pay you $10 a day. Okay. Right. And that $10 is now denominated in Ethereum. And now you say, okay, I've got all this Ethereum. What do I do with it? And now you as the user are now researching everything in Ethereum because you now have this

financial asset. Right. The hundreds and hundreds of thousands of people that have got. gotten into cryptocurrency from mining, it's like, it's crazy. And I think it's one of the things that's like super overlooked or super overlooked, excuse me. The mining economics definitely drive a lot of this, right? And Nvidia is taking steps to put their hash rate limiters on and to kind of enforce that in a certain, in such a way for the Ethereum mining to say anybody who's going to buy this stuff at real size, like buy the crypto mining focused GPUs. To me, the bigger

problem is really the scalpers. It's the guys who are running bots on a house. Amazon and they're buying the GPUs as soon as they list and they're selling them on eBay, right? Is the supply isn't making it to the end user. And it's, I think that that supply is probably artificially overpriced right now. And, you know, the crazy thing is that the Ethereum mining economics kind of warranted it, so maybe it's not artificial. Right.

But for the gamers, they're going, what the heck, like this thing's supposed to be 600 bucks and it's $2,600 bucks. But between like retail and that the gamers actually getting it, it's almost like there's two huge obstacles for them. I don't see a way to solve that. Well, I guess if the cryptocurrency, I mean, the crypto market crashes every few years or booms every few years. Hey, it's different this time, man. Come on.

But in theory, it could crash, from your view, would that ease up capacity for all these things that we're talking about? Probably not. How come? Right. I think what you would see is you'd see a lot of GPUs that come back to market as kind of like distressed assets. Okay. Right. But I don't think that those are going to go in large blocks. They're not going to wind up being piecemeal out to the end users. And, you know, there's some services and some companies in the U.S. that actually do specifically that as they buy, like, use crypto mines and they piecemeal them out, I guess, one GPU lots on eBay. Yeah. But what I mean, setting aside the selling of use, I mean, new chips of all these different stripes are always being manufactured. So theoretically, like Nvidia and dozens of other companies that make hard. and so forth, in 2022, if let's say we're in a crypto bare market, does that free up capacity

or does that free up hard? I don't think so. Why? I think this is where you have to look at the structural change that we're seeing in the compute market. Okay. Everything is more compute intensive. Everyone's going to the cloud.

Right. Data center demand for GPU is just exploding. Okay. Even if crypto were to disappear. Yeah. Like the demand, the growth pattern of this market as well as kind of home gaming and everything. like the global foundry space for semi-conductors is just too small for all the industries that are relying or reliant upon it. Ford's going to have to cancel how much, like not deliver how many trucks this year because of the semiconductor shortages.

Like that, like wild. Right. And it's impacting everything. And when you get kind of in that structural dislocation like this, like the whole like saying in commodity trading is like high prices cure high prices. Yeah. The timeline to cure these high prices may be several years. Interesting. How many people are essentially in this game of, I mean, it's interesting, like, I can go on StockX, like the sneaker website, and they actually have a few categories of chips and you can buy, buy Nvidia chips on there, and they sell for like 300% above MSRP, and you can see the price chart. How many different players, whether they're sort of large brokers or individual scalpers, have essentially like gotten, in this game of chip price arbitrage

and trying to get themselves in the middle between, in the middle between the chip manufacturers or the chip distributors or somewhere between Amazon and eBay and gotten in this game of sort of like chip reselling as if it's a commodity or a stock. Yeah, you know, it's not just the scalper zone either. What's unique about the GPU supply chain with Nvidia in particular is that they make the GPU chips

And they actually, they sell them to, I guess they call them ad and board partners. Right. And this is people like, it's Gigabyte, it's MSI, it's EBGA, it's ZOTAC, which is like a PC partner brand. And they actually take those boards, they fabricate them, they put the cooling devices on them, and they sell them to end users. And, you know, I think that the ultimate pricing on that stuff is really controlled by the AIBs. What's AIB stand for again? The add and board partner. Okay.

Right. So this is like the kind of fabricator or distributor at the end of the line there. And they're no dummies, right? They see crypto demand. They see where it is. And price definitely changes with where crypto is, right? Is that they know that they have a limited supply. It's virtually unlimited demand.

So it's like this is really just supply and demand like in its most laissez-faire state. Yeah. And, you know, I think that one of the things that the U.S. Like one of the problems in the West here is that I don't think a lot of the stuff even gets out of China. What do you mean by that? If you know a guy at the AIB in Shenzhen, and you're local, and you want to come in and pick up a thousand GPUs, that's a much easier transaction. And like in terms of like political capital, just on a personal basis, like I think it's a lot easier for them to do than it is for them to ship something to Brian Venturo in the United States. Ramping up here a little bit, you know, you've explained how your life kind of.

kind of has changed in the last six months in terms of the difficulty of acquiring compute, whether it's GPUs, CPUs, RAM, and so forth. What is it like now on a day-to-day basis and how have you had to change your business strategy so that you can grow your cloud capacity alongside customer demand? Yeah, you know, it used to be that GPUs were the problem for us to get. Okay. And GPUs right now, like the data center cards, like I've got shelves and shelves and shelves. packed with data center cards waiting for builds.

And they're all blocked by CPUs and RAM, right? CPUs in particular. I had a conversation with my CEO. I've been with for 17 years now in kind of different businesses. And I called on and I said, hey, I just found a bunch of AMD, Epic Milan CPUs in stock ready for ship tomorrow. I bought 100 of them. And he was like, well, how many do they have?

And I was like, I don't know, like 250. He's like, why did you buy the rest? And I'm like, well, I didn't really want to spend the money. Like, I didn't have a place to put them right now. he's like, dude, this is literally all you complain about every day is not getting access to stuff. Go back and buy the rest. So I went back to buy the rest and in that 15 minute period, the rest were gone. So, you know, this is a theme.

It's not just chips, obviously. And we talk about this with lumber. We talk about this with industrial commodities. This idea that you buy more when there's a sort of sense of scarcity. And so I'm curious about like how much of the tightness of the chip market is essentially it's like, well, I don't know where the next shipment is going to be available. I don't know what I'm going to be able to buy these AMD chips in size. I don't know whether next time I'm going to buy RAM in size.

So how much does that have the effect of causing people to then over order so that they can at least get some assurance of the chips that they're going to need and then which would then further exacerbates the shortage causing more overordering? I can answer for us. Yeah. Like I mentioned earlier that we're a pretty. just in time operation. Okay.

On the inventory side. So what I'm talking about, if I go out and buy like 250 CPUs, like that gets me like one month of supply. Okay. You know, the, the CPUs that I did buy that were delivered the next day, like, which was even more of a surprise, like they're already in systems. They're already online. And this is a couple weeks ago.

When I'm talking about buying things and stockpiling them, like my usage time frame is much, there's no like there's no speculation on component values. Right. It's like, hey, we're going to need them in the next 30 days. I typically wouldn't buy it until I needed it in the next seven. But here we are. The world was on fire. Six months ago, you might not have made an order until seven days before you needed to build them out.

But that is now lengthened out to more closer to 30 days. Yeah. And on the OEM side, so we've got a bunch of stuff that stuff that we're waiting on deliveries for right now. We've probably like high tens, maybe 15 to 20 million in CAPEX that's out there kind of being fabricated. Yeah. And this is with OEMs. and, you know, when we're doing the deals, it was, hey, we're committing to do this within four weeks, and now it's like out to 12 weeks.

And you go through the conversation with them and you're like, all right, like, I get it. Like, I know what's going on to you. It's kicking me too. Like, I understand the problem. All ability to plan in real time is like completely out the window. Huh. Wow. Yeah, that's the theme.

I mean, that seems to be the theme of so many different industries, whether we're talking about shipping, logistics, trucking, lumber. and so forth, everybody's planning ability has kind of gotten obliterated. Yeah, yeah. I mean, the shipping thing is crazy, too, because, like, stuff that I would normally put on a boat and run three weeks for, I'm like, put on an airplane, the boat may sink, like, may get stuck. I have no idea what's going to happen. Like, get me my stuff.

All right. I just want to go back to one question because I still felt a little bit unsatisfied by the answer. Let's say cryptocurrency disappeared. I don't know how that would happen. Maybe the prices crash. maybe somehow there's a coordinated national effort to ban it, or maybe financial institutions are banned from dealing with it. Somehow that industry, which is extremely big and growing and worth like $2 trillion

and market cap, I'd just say somehow it gets obliterated. Well, we can put a real scenario in this. Like let's say that the Ethereum devs actually ship proof of stake. Right, right. Okay. Right. So, I mean, that's what, like, that's the biggest question that I get from investors is, what about proof of stake? Yeah.

And so proof of stake for people who don't know, it basically currently Ethereum operates with the same security model as Bitcoin mining more or less with a sort of high chip and electrical spend in order to secure the network and acquire coins. They want to change the model to something where there's less mining. Theoretically, they'd be greener and so forth. But tell me how you see proof of stake affecting thing. I'm not going to talk about the probability of that happening. Okay.

I mean, they've shown, like, well, I'm going to give one comment on it. you know, starting in 2016, proof of stake was shipping every three months. Yeah. And here we are in the middle of 2021. And like, do I think they're eventually going to get there? Yes,

I do. But like look at the market. Look at how much money has been spent on mining hardware. Yeah. And building these mining operations. Like the miners are not going down without a fight. And without a fight could be launching new coins. It could be contentious forks.

It could be anything. But, you know, this idea of GPU mining has been, is going to die. It's been going on since, the advent of GPU mining, right? Like when Bitcoin went from GPUs to FPGAs, GPU mining was dead,

and then like six months later, light coin showed up. Right. So there's always going to be this, this demand for security driven by GPU compute, I think. It goes back to that kind of like fair launches and the idea of getting coins out to the,

quote unquote, to the people. Yeah. Right? Is that as soon as Ethereum goes proof of stake, like that's going to be rewarding the incumbents more so than new entrance, right? You're not going to have 100,000 people go plug in a GPU and learn what Ethereum is.

I just think that the idea that when Ethereum goes proof of stake that GPU mining dies is a little bit crazy. We don't necessarily know what it's going to be yet, but I'm pretty confident that there's going to be something. Now, in a price crash environment, you know, this is really where we built our whole business is taking the contrarian bet in the binary outcome environment, which was really like January, like December of 2018,

January of 2019, right? It's like, I don't know, but crypto's either going to zero or it's not. Like, I think that in the mining space, like, where you make real money is when you're in a position to take that contrarian distressed asset back. We look at that as a company is like, yeah, it would really suck if crypto went to zero again, but look how awesome it worked last time. Right. And I don't think we're the only ones to think that way.

But bottom line, still, if I'm a gamer and crypto goes to 10, crypto crashes 90%, Does it get easier for me to acquire GPUs so that I can play a game at higher quality? Well, it'll get easier for you to acquire or use GPUs to play games, but I don't necessarily know if you're going to want them. Why? Why not new? Why not the new ones? Why wouldn't it be easier for me to then go on Amazon? Because, I mean, Nvidia is one of the most valuable and forward-thinking companies in the world for a reason.

Yeah. Right. They understand market demand. Yeah. And if they see crypto crash, like they know that a portion of their demand is from crypto, right? They're launching their crypto-specific lines. They're going to book less foundry space. Why not just shift some of that foundry space over to gamers, though? Well, I mean, but before we already concluded that it's the same, it's the same chipsets. Right. Right. They're

just being packaged differently. Right. So, and one of the things that people don't necessarily understand is that, you know, in a lot of the cards, whether it's like a 3060 or 3060, T.I. Or 3070, that that may be the same chip set with just features disabled. Right. Right. Right. Or maybe bin packed differently because it has like the quality of the run was was worse for some portion of it. And Viti is not making all these decisions like, hey, let's go build like 50 million 3060s, right? They've got their kind of foundry space and what that may be booked and they know what

their overall yield is going to be. And then they're just kind of optimizing what they bring to market, right? It's just in a down crypto year, I think that what they did with the Turing line where the RTFs series, I think. that the production of that line was was way lower than the GTX 1000 series. Right. And that was kind of coming out of crypto winter during crypto winter. And I don't think those GPUs are hard to find. Got it. Right. But you could but you also couldn't buy 50,000 of them. Got it. Well, this is a fascinating discussion. Like I said, we've talked a lot about

chips in the past, but we really haven't gotten into the actual fight to acquire them. Plenty more to dive into on this topic alone, I feel like. But Brian, really appreciate you coming on odd lots. Thanks for having me. I'd love to do it again sometime. Yeah, for sure. Take care, Brian. Well, I would love to be able to talk about that episode with Tracy. Unfortunately, she's not here, but I thought that was completely fascinating. You know, this idea, so many parallels between everything else we're saying, like the inability to plan, the requirement to buy further out into the future, this idea that sort of just in time isn't working. And it really does seem like the rise of these new coins, file coin, Chia, like every

sort of like commoditized technological capacity that you can think of. Somebody, it feels like, is making a coin that can mine it. And it's fascinating. And I thought it was fascinating that Corweave's own business model is kind of enabled, like, on one hand, they're competing with all these miners for chips. But on the other hand, their ability to use idle chips in order to mine currency and get revenue when they're not being used for the normal computing by their clients is super interesting. So I loved everything about that chat. I love the merging of the crypto and chip story.

And I increasingly think that you can't talk about one without the other. So really appreciated Brian coming on. And just making a plug here, by the way, if you haven't checked it out yet, you should. definitely check out the Oddlots blog, Bloomberg.com slash Oddlods. Tracy and I have been writing there. We've been posting transcripts there. I myself have been going back and reading transcripts because when I do, I learn a lot each time. I found it to be incredibly useful.

Check it out. Go to Bloomberg.com slash Odd Lots and read our blog. So this has been another episode of the Odd Lots podcast. I'm Joe Wisenthal. You can follow me on Twitter at the stalwart. Follow my normal co-host, Tracy Alloway on Twitter at Tracy Allaway. Follow our producer, Laura Carlson. She's at Laura M. Carlson.

Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of the Bloomberg podcasts on Twitter under the handle at Podcasts. Thanks for listening.