Prof G Markets - Nvidia’s Rise, Intel’s Fall, and the Chips in Between — ft. Patrick Moorhead

Episode Date: October 24, 2024

Scott and Ed open the show by discussing the timeline for Disney’s succession plan, Netflix’s earnings, and Cooper Hefner’s offer to buy the Playboy brand. Then Patrick Moorhead, CEO and Chief Strategist of Moor Insights and Strategy, joins the show to break down the state of play in the chip industry. He explains how Intel lost its lead, discusses what makes Nvidia such a dominant company, and shares different investment opportunities in and around the semiconductor industry.  Check out Prof G Markets in Spanish and Portuguese on Youtube.  Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

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So now, it's easier than ever to be a marketer. Get started at HubSpot.com slash marketers. Today's number, 47 million. That's how many American adults visited a haunted house last year. I used to go, true story Ed, for Halloween as a gifted kid. And they'd say, what are you supposed to be? And I'd say, I was supposed to be a lot of things. I like that.

It's good. It's a gadget. That's good. I like it. I think that's good. It's on brand for you. Yeah. Also, my wife said she's going to show up at our Halloween party dressed as our sex life.

But here's the thing, Ed. She didn't come. She didn't come. That's not as good. She came as a ghost. You knew I was going to go dirty. Anyways, welcome. Yeah, exactly. Welcome to Profiting Markets. Today, we're speaking with Patrick Moorhead, founder, CEO, and chief analyst of Moore Insights and Strategy.

We're going to be talking about chips. Before we get to the news, Ed, what's going on with you? What's the good word? I'm doing very well, Scott. It was good to see you last night at the Raging Moderates live event in New York. Oh, someone's a little threatened. That's right. That's right. Daddy's cheating with another co-host. Oh, or as I like to call her, Ed's replacement. Better Ed.

Better E.D. That's true. That's true. That's right. Yeah, yeah. Not quite as cocky. Being a little bit nicer to the dog. That's right. That's true. That's right. Yeah, yeah. Not quite as cocky. Being a little bit nicer to the dog. That's right. I thought it was great. I love the location.

As you know, I love live events. I think we should do more of them. Next up, we need to do another Prof G Markets event. That's what's on my agenda. Where do you want to hold it? I think we should do a live tour around the whole country. You want to do a tour? 100%.

We showed up in Austin, and it was a smashing success. A lot of people. And we gave them maybe a week's notice. Yeah, 400 people, yeah. Then we got to keep it going. Yeah, that's your way of saying, I want to get laid in a strange city. Which I got. Which I got.

Oh, Ed. Oh, hi, Ed. Oh, you're so smart. Oh, God. Literally. Literally. Literally. I like it to be about me, and it's really bumming me out that people come towards me and make eye contact and then kind of get closer to me like, maybe not. And they veer to the young guy.

We got to stop that. That is not happening. Our world tour. We're going to do our world tour. Like, literally, Taylor Swift will have nothing on us. All right, enough of that shit, Ed. Get to the headlines. Now is the time to fly.

I hope you have plenty of the world at all. Disney announced it will name Bob Iger's successor in early 2026. The company has also tapped former Morgan Stanley CEO James Gorman as the company's next board chairman. Netflix added more than 5 million paid subscribers in the third quarter. That's up over 14% from a year earlier. The company also beat expectations on the top and bottom lines. Shares rose 11% following that earnings report. And finally, Hugh Hefner's son, Cooper Hefner, submitted a $100 million offer to buy the Playboy brand. If the bid is accepted, he plans to increase the brand's relevance through new licensing and media opportunities,

and the stock popped 15% on the news. Scott, your thoughts, starting with Disney's succession plan? I don't think Bob should have come back. And I think it's time for new generational leadership in these media companies. I don't think they understand streaming. I don't think they understand technology. It's time. And this is the way of saying, this is kind of a dignified goodbye, announcing the succession strategy and giving investors comfort that they are thinking about succession and they realize that this is good governance. It's like, okay, Bob is 73. He's the first ballot hall of fame executive. This has been pretty much a disaster for shareholders. I think if you bought shares Disney 10 years ago, you haven't made any money. And it's got incredible assets. So I think they want to bring in someone to figure it out. Now,

they're claiming that it's going to be someone internally. They've created this Hunger Games environment where they've identified four potential successors. And the only insight it would offer is that my experience with successors is that one, there's a bias towards outsiders because you're just more attracted to strangers and it's easy to be come across as impressive. And the more you get to know people, you just figure out that nobody's perfect. So there's a bias towards bringing in someone new from a tech company or whatever it is they're going to do. Also, it's better to be lucky than good. And that is, so they have a very talented person who is one of the four people they've identified as a potential successor running ESPN. I would doubt it's going to be him because you want to be on top of a business that's growing

about the time they're looking for the CEO because they will unfairly attribute the success or the failure of that group to the individual running it. And market dynamics trump individual performance. I think ESPN is just going to have a rough road for a few years. I don't care how brilliant the person running it is. So I would imagine, if you had to guess, it'll be maybe an outsider. Although if they've identified four people from inside, it'd be a cultural shock and really demoralizing if they brought in someone from the outside. They have said they are reviewing external candidates. The internal candidates they are reportedly considering are, I can just list them for you now. So there's the head of TV, Dana Walden. There's the head of parks, Josh DeMara. There's the head of ESPN, as you mentioned, Jimmy Pitaro. And then there's the studio head, Alan Bergman. But they have also said that they are reviewing external candidates. And the question that I would have for you is, who would you think would be right for the job, external or internal? Well, the person they want is Ted Sarandos, but Ted's worth $10 or $20 billion now. It's not going anywhere. It's either going to be the person running the

streaming network if it does well, or it's going to be the parks and the gaming. I just can't believe it'll be anyone from the movie, the movie, the traditional TV. The person running ABC is not going to run Disney. They're not going to say, oh, the business only declined 11%. The market declined 18. You're very good at what you do.

It's going to be the person who shows up with surprises to the upside on their business. Right. In which case you would think that it would be, which is what my guess is, Josh Tamara, who's the head of parks. But at the same time, having said that, you think back to 2020 when Bob Iger resigned, he passed the job on to Bob Chapek, who was the head of parks. And then he only had two years until he was ousted. So they are in a little bit of a dilemma here. It does

feel the most likely candidate is the Parks guy, but they already hired the Parks guy and it didn't work apparently. That's a fair point. Well, let's do it. If they had to choose an external candidate, who would you choose? I mean, initially two, three years ago, I thought they were going to acquire Snap and then Evan Spiegel might end up being CEO of Disney. Interesting. But I don't, you know, even as poorly as or sideways as Snap has gone, it's too expensive to acquire. I think the bloom is off kind of the tech media rose, if you will. Do you have any thoughts? I think my top pick, if you had to go external, would be Neil Mohan, who's the CEO of YouTube. He kind of built YouTube into what it is today, YouTube TV and all this stuff. But to your point, you know, bringing in these tech guys feels really sexy and fun at the

beginning, but you think about it over the long term. And ultimately, I think the best person for the job is someone who understands the business internally better than anyone. So I think internal candidates are always the way to go, which is why, as we've discussed, I love Nike's new pick. I love it when people go inside the company. But speaking of entertainment, we should talk about Netflix, who had a great quarter. EPS was a beat. Revenue was a beat. Huge margin expansion, highly profitable. Thoughts on this great quarter from Netflix? Yeah, revenue up 15%, profits up 41%. They saw growth in their ad tier, which I hate, but I guess it's working.

But I think it's growing off a small base. Still think it was bad for the brand, but that's just me. But it did account for over half of all Netflix signups in the regions where it's available. They're just, this is, so at the end of World War II, the Germans had, could I be any older with my World War II references? Seriously. I'm meeting Angie Dickinson at the polo lounge later. She and I are going to watch Johnny Carson again. I used to party with these cool cats in Cuba. I'm just so old right now. Anyways, at the end of World War II, the Germans had better officers,

better technology, better technology, better tanks, but we had more gasoline. For every one gallon of gasoline they had, we had 38 gallons, and we just literally overwhelmed them with gasoline. And Netflix is just winning this war on gasoline. They are producing triple, quintuple the amount of content. Apple can't compete with them. And so, according to Matthew Ball, Netflix delivers an average of 16 billion hours of entertainment per month versus 3.1 billion hours of Disney. So think about that. Disney has to be totally niche and focused on family because if just 20% of Netflix content qualifies as family, that means they're going toe-to-toe

with Disney. There's just so much on Netflix I'd like to watch. And the number that always struck me is I believe their churn, their annual churn is 9%. Hulu's at 15, Max's at 17, Disney's at 21. When you have churn that is double the rate, that means they have to recreate their customer base every 12 years, whereas Disney has to recreate its entire customer base every five years, whereas Disney has to recreate its entire customer base every five years, meaning they have to spend double the amount on marketing and customer acquisition costs, meaning that they have that much less

to reinvest in content, which again, reduces churn if you have more content. So it's just sort of an upward spiral. Get this, Apple TV has a churn rate, an annual churn rate of 40%, meaning that if they don't market, they essentially go to zero in 30 months. They have to reinvent their customer base every two and a half years. So I believe they're running away with it. The only kind of fly in the ointment here that they will point out and that you've done a good job of pointing out is I believe Netflix total share of streaming or viewership of video viewership in the U.S. is 7 or 8 percent.

And YouTube's at 10. The only—comparing Netflix to Paramount is like comparing, you know, Michael Jordan to, you know, someone who plays softball for their high school team. It's just not even—it's not the same—these guys aren't in the same league as Netflix. The benchmark, the competition for Netflix is now YouTube. And it'll be interesting to see if they get more kind of into each other's business. I bought the stock at 10 bucks. That's the good news. The bad news, I sold it at eight. I want to find a time machine so I can go back in time, find me, find my ass, murder me, and then kill myself. I'd be in a fucking Gulfstream and we'd be on that tour with our big oval windows in the Gulfstream 650 ER. We can do that anyway. God.

God. It's so frustrating. The world is our oyster. We can do it. No, it'd be better if we were having oysters on my fucking Gulfstream, Ed. We can do that too. We can do that too. It's called NetJets.

I'm with FlexJet. Learn more about your boss. Anyways, go ahead. I think that's right. It's kind of a ridiculous game to be comparing to Paramount and all these other tiny streamers. If we were to come out

with a bullish takeaway from this quarter from Netflix, it would be that, as you pointed out, the ad tier is actually working. And there was some debate over whether ads on Netflix were a good idea. You were critical of that strategy.

But I don't think you can say that, I mean, the numbers don't really lie here. The ad tier is working. It is off a small base, 35% quarter over quarter growth. But it accounted for more than half of the new signups to Netflix. So I think putting ads on Netflix probably was the right idea for Netflix. I'm still, I'm not a fan of this because the key, I hate to use the word storytelling. My good, good friend, Will Arnett said, stop calling yourself a storyteller. He hates that word. He also hates Elon Musk. That one really got to you.

He also hates Elon Musk. So he and I bonded over that. He's more triggered than me. Anyway. That was a good impression. But Chanel could make a lot of money offering, you know, $100 shoes instead of $1,200.

I just wouldn't go there. I think it's, I don't think it's a good brand move, but anyways, I'm sticking, I'm sticking with that. Sticking by it. Okay. Well, let's end here with this news about Playboy. Cooper Hefner has been

talking about how Playboy is one of the most well-known iconic brands in the world, and yet, as a business, it is doing very poorly. Just a fun question for you. If you were Cooper Hefner, what kind of business ideas would you want to come up with? I have a few myself, but let's hear what you would do to revamp Playboy as a business. or the majority of my professional life trying to talk about how you build great brands now and during they are. I don't say the brand era is over, but the sun has passed midday. This brand is almost meaningless. It has a lot of awareness, but it basically means the magazine industry. It means soft porn.

The lad, the lad brags, is that what they call it? Maximum and all that stuff came in, made it sort of legitimate. Then the internet came in. They just were caught in no man's land, poorly run business, run as a lifestyle business. It's been a disaster for shareholders. And all this notion that somehow the brand is a big deal, I would do one of two things, or maybe both. One, I would just cut it down to like eight people and just license the shit out of the brand and milk it. And I know that sound, I don't, I think that's a business model. It does have global awareness. They're not I would hire the guy, the general manager from 11,

the strip club in Miami, and I'd open four or six strip clubs in different cities around the world. Because they'd go, oh, Playboy, it's sort of dirty, but it's sort of classy a little bit. But no, I would not invest in this company. I don't understand why he's doing this. If I were them, I would try and do a deal with OnlyFans, maybe. Something like that. Like have a brand extension of OnlyFans, but I don't know why OnlyFans needs them. So I had some similar ideas on my list. I have... You have a list?

I've got my list. All right, go for it. Premium OnlyFans competitor. Oh, there you go. Target the 20 most successful creators on OnlyFans, make them an offer they can't refuse. And then you'll just launch an offensive onto this hegemony that OnlyFans has created in the adult content space. Remember, OnlyFans is growing by around 20 to 30% per year, did, you know, one and a half billion dollars in revenue last year.

Someone needs to compete with OnlyFans. And I think it could be Playboy, and it could be sort of the premium OnlyFans with Playboy branding. Second idea here is Playboy Mansions, which I would say is just the strip clubs meets nightclubs meets hospitality. So open up these kind of hotel nightclub hybrids in Vegas and Miami and call it the Playboy mansions. Very tacky, very childish, very not PC, but at least it's sort of more in line with what Playboy actually is. And that is what it is. It's a sex brand marketed to men. And the third idea would just be to start Playboy the agency. And you just sort of tap into this growing industry of soft porn on Instagram and on TikTok. You just start signing these TikTok dancers and Instagram influencers who are making millions doing these product and brand endorsements. Again,

this is not a cool or good business to be in, but I think their mistake is, to your point, thinking that they are iconic, when in reality, it is just a sex brand. It is just for horny men. That's what this brand is. Yeah. You know what? Can we just put a bullet in the brain of this fucking brand? I just, like, every five years, someone talks about reinvigorating the brand. Just let it die. Put it out of its misery. I don't think any of this is good for the world in general. So I think I'm with you. Let's just let it die. Put it into hospice. We'll be right back after the break for our conversation with

chips expert Patrick Moorhead. If you're enjoying the show so far, hit follow and leave us a review on Prof G Markets. Fox Creative. This is advertiser content from Zelle. When you picture an online scammer, what do you see? For the longest time, we have these images of somebody sitting crouched over their computer with a hoodie on, just kind of typing away in the middle of the night. And honestly, that's not what it is anymore. That's Ian Mitchell, a banker turned fraud fighter.

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you'll discover what differentiates their investment approach, what learnings have shifted their career trajectories, and how do they find their next great idea? Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. Support for the show comes from Alex Partners. In business, disruption brings not only challenges, Published by Capital Client Group, Inc. to making sure your company knows what really matters when it comes to AI. As part of their 2024 Tech Sector Report, Alex Partners spoke with nearly 350 tech executives from across North America and Europe to dig deeper into how tech companies are responding to these changing headwinds. And in their 2024 Digital Disruption Report, Alex Partners found that 88% of executives

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Here's our conversation with Patrick Moorhead, founder, CEO, and chief strategist of Moor Insights and Strategy. Patrick, thank you very much for joining us. Thanks for having me on. I really appreciate it. I'm a fan of the show, so it's nice to be on. Off to a flying start. So we're going to get into chips today, and I want to start with some very basic high-level questions. So my first question to you is, there are several big players in the chip industry whose names we know very well at this point. NVIDIA, AMD, TSMC, of course, all the big tech companies, they're all sort of playing some kind of role in the chip market. What we don't know quite as well is actually what those roles are, how they are interacting with each other in the chip market. So my first question to you is, what do all of

these companies actually do? And what is the relationship between all of them? Yes. So the way that I like to break down the chip market is you have the manufacturers, and those are the TSMCs of the world, and even Samsung. You have what I call the designers, the ones who don't own a factory, but they do the design. And these are the NVIDIAs of the world. And then there are companies who are designers and builders, and those are companies like Intel and Samsung. And then you even have companies like Arm who just sell intellectual property. And what they do is they all work together as a system. One piece of the value chain I didn't mention were software tools. As odd as it sounds, most, actually all of these semiconductors are

designed using software, companies like Cadence and Synopsys. I'd love to get an overview from you on the types of chips involved here. So we hear a lot about GPUs versus CPUs, logic chips versus memory chips. What are the main differences between these chips? And why is it important that we as investors know about them? I like to look at it as the continuum of programmability. So for instance, on the left side, you have CPUs. And those are the ones we heard most about up until the NVIDIA phenomena. And essentially, they're the easiest to program, but they're also the least efficient. And then you go on the right-hand side of the scale, and you have what are

called FPGAs, which are programmable. And then somewhere off to the side, you have memory chips. And GPUs are really, really good at parallel tasks. CPUs are really, really good at serial tasks. And again, like I said, there's just different levels of programmability. GPUs can do a whole lot of things, right? GPUs can display graphics, right, for gaming. But also, as we've seen, they are really good at training LLMs, SLMs, and even doing what's called the inference of AI, particularly around those large language models. So yeah, there's pretty much a chip for everything you want to do. So when I got out of business school in 1992, the best job you could get was to go to work for a firm called Intel. Use Intel and what happened there, if you can, as sort of a brief history of the chip market. What went right or what went wrong for Intel, and what does it say about the broader market? Yeah, so Intel actually started off as a memory company. And then they were the offshoot of Fairchild Semiconductor.

And then what they did is they were popularized by making the most popular CPUs forforward platform for its DOS computers, which subsequently became OS2, which then came into Windows. And yeah, I've been in and around Intel since about 1990, but what they did is they got the fast-moving start on a general general purpose CPU. Up until that point, everybody, Scott was making their own CPUs. You had IBM, you had a deck or digital equipment corporation. You had HP making its own CPUs. And what they did is they, they got it to this scale. And the volume for PCs then was really unprecedented. And everything was going really, really well for them, right? They were the number one semiconductor company by revenue. And then they lost the recipe, Scott, for manufacturing, okay?

Previous two CEOs ago, a gentleman named Scott Kurzanich was the CEO, and he literally said, we don't have to be the best designers because everybody's going to have to fab their chips at Intel. And what they ended up doing is turning a, what was a three-year lead into a three-year deficit. And what they had to do is they had to go in and redo all of their designs, Scott. So let's say they designed for 16 cores. What they had to do is they had to reset that entire design to go to, let's say, 12 cores. So they were higher power, they were lower performance, and that gave AMD the ability to come in and take their market share. And then now, I would say for the last

four years, you have this absolutely unrelenting desire for GPUs and AI, which again, in addition to AMD taking market share away from them, you have this new category. So spending a lot more money on GPUs versus CPUs. So that is kind of the longer and the short of what happened to Intel. And if you look at valuation, I mean, NVIDIA is worth 36 times more than Intel. And, you know, you can check on your stock chart how quickly that happened. I always thought in the chip market, just from a business strategy standpoint, that these enormously expensive, long lag time chip factories were the ultimate moat. And then it ends up that that wasn't the secret sauce, that it was all in the design, that there was a ton of slack manufacturing capacity that they could rent. Wasn't that sort

of the unknown known or that surprised everybody and created this massive disruption and transfer of market cap from the manufacturers to the designers. Yes, Scott. We used to have 20 chip manufacturers about 10 years ago, actually 20 years ago, and then people started to get into these areas of specialty. And I think this is a tale of specialization, where the specialization moves so much more quickly than the integrated model. They're called IDMs, the Samsungs, the Intels of the world. But I mean, the number one thing that happened, Scott, is Intel's manufacturing, they just hit a ditch. They lost the recipe. They were late to adopt a technology called EUV. EUV is a way to etch a wafer or to put the lines that the electrical signals connect by shooting a laser at a metal and it deposits it onto this, you know, this round wafer. It sounds like absolute science fiction,

but TSMC was early and Intel kept saying this technology is not ready. This technology is not ready. And they just got absolutely left behind. And then the competitors to Intel, the AMDs, the Qualcomm's, the Nvidia's, their businesses grew so much and that kept feeding the TSMC beast, right? All of this and these new customers come in, the Broadcom's, even the Marvell's of the world. And then the more external customers, when you're a chip factory,

the smarter you get on how to solve problems, how to get into technology quicker. And that's a capability that Intel just didn't have. It makes a lot of sense why Intel has fallen from your description. Less clear to me, though, is why NVIDIA has just skyrocketed. I mean, $3.5 trillion market cap today, second most valuable company in the world. And it appears that it's because they're good at designing chips. I mean, all I know really about NVIDIA is that they have the fastest and smartest GPUs in the world. But I'd love to get your view on how did they get there? What makes NVIDIA such a strong company at the operational organizational level,

such that they can create the smartest and fastest chips in the world. Yeah, so a little background. NVIDIA's first chip was 1995. They're looked at as the first GPU provider in 1999. And then around 2005, the company wanted to do more things with the GPU. And what they did is they got with universities around the world, and they would give grants, they would invite them to conferences and say, what can you do with my parallel processing unit, the GPU, other than graphics? And University of Toronto did a research project that showed you could do image identification very, very quickly using this GPU. And then NVIDIA in about 2006 created this, for lack of a better term, a language to better program these GPUs called CUDA. That was in 2006. They've been working at this for literally between 15 and 20 years to get that GPU to do more things than gaming and workstations. And then it just kept getting bigger. You had machine learning that kicked off about a decade ago, and then generative

AI, which kicked off about three years ago. And now everybody has FOMO, the hyperscalers, whether it's Amazon, Google, Meta, and Microsoft, just literally buying billions and dollars each of GPUs to feed these data centers. And I think, you know, a lot of this is from management style. I know, Scott, in your program, you talk about this a lot. Jensen has 40 direct reports, and it's a very command and control type of leadership. They stick to the vision, and that's one of the benefits of having a founder, a founder, CEO-led tech company is, you know, you're not necessarily, I don't want to say distracted by investors because they're super important, but you're not, you know, like a Mark Zuckerberg, you're not just ebbing and flowing with the whims of Wall Street. And the final thing they've done is it's not just the heart, right? It's the software. I would say, I would pause that they have a bigger software lock-in with CUDA

and then all the different applications and the frameworks and the ML libraries that get laid on top as they do on the hardware side. And then NVIDIA just doesn't sell chips. It actually sells the board that the chip goes on. It sells the rack that goes into the data center. It'll sell you an entire rack of equipment and the networking and the cables to go along with that. integration to build the moats because they do know, and we've seen this historically, somebody can always build a better mousetrap. Somebody can always build a better piece of hardware. But if you have that software lock-in, you have some elements of, I want to say, permanence. There's no permanence in tech, but you have a longer lasting advantage. Stay with us.

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on their missions, and reach more customers globally. The platform offers a suite of specialized features and tools to power businesses of all sizes, like Stripe Billing, which makes it easy to handle subscription-based charges, invoicing, and all recurring revenue management needs. Learn how Stripe helps companies of all sizes make progress at Stripe.com. That's Stripe.com to learn more. Stripe. Make progress. We're back with Profit Markets. So it appears that traditionally in the 20th fuels that whoever controls or has access to the best chips just has a step change advantage over our adversaries. And I would love to just get your sense of who's winning and losing the chip wars on a geopolitical level. It feels like we're just

kicking ass. Yeah. So Scott, from a design basis, we're absolutely kicking butt and taking names. If you look at the big designer names, they're typically U.S. based. We are losing woefully on the manufacturing side. Only roughly 5% of semiconductor manufacturing is in the United states uh and the other 95 percent is is abroad most chip making is happening in in taiwan where you have um chinese uh warships circling and flybys flyovers but by the air force and then in south South Korea, that's cannon shot from North Korea of two very risky places. And this is the jenison driver for the CHIPS Act. And that's where all this government investment is coming from. But, you know, Scott, China's very resilient, right? We cut them off

from this special EUV equipment from a Dutch company called ASML. And what they did on the smartphone side is they just got very clever and used an, I don't want to call an off-brand foundry in China called SMIC, and then an AI. Scott, you have Huawei creating these AI chips called Ascend, and they're using lower-level GPUs, just more of them, and training these models. So, yeah, I mean, we are dominating now, Scott,

but you give China enough time, and, I mean, we are dominating now, Scott, but you give China enough time and we've seen they will figure this out at some point. I'm always trying to look for the investment opportunity. And I'm like, OK, I missed NVIDIA. Maybe I didn't. Maybe it'll go to 10 trillion. And then I look at Intel and think, OK, they've got to have some IP there. And the valuation has been beaten down so heavily, maybe that's the opportunity. And then I go, well, actually, the friction point in all of this is

energy consumption, and I should be investing in nuclear, the supplier's nuclear. What are your thoughts about the supply chain here, and who stands to benefit? And if you're willing, I don't know if you do this, set it against the current market capitalizations of those firms. Fusion, if you're looking for the long bet, is something that I would be looking at. The other thing is on the design side. So when we started the show, I talked about GPUs being kind of in the middle of programmability, CPUs on the left and these ASICs on the right, the hyperscalers are getting into these ASICs to train and do inference on AI. And the two companies that are the biggest provider of those, a company called Marvell and a company called Broadcom. I would be looking at them because we can't just solve this by throwing more energy at it. We have to solve part of this problem with design and lower power. I know you brought up Intel. I actually think, I mean, Intel is so undervalued right now. They're basically around bulk value. I do believe the only way they have to go is up. I think they're too big to fail.

I like what I see on the manufacturing roadmap from them. They just cranked out two new chips on this new process called 18A. And they're just woefully undervalued at this point. Just from an investing perspective, I feel like in a market that is as technical as this, all you can really do, in my view, if you're choosing, you know, which chip company should I invest in? I imagine it basically comes down to, you know, who has the fastest and the smartest and the most efficient chips. And I think it's very tough as just, you know, an observer of markets and as a regular investor to have real insight into that, other than just taking these companies'

messages at their word for it. You know, our chip is 10 times faster than NVIDIA's. That to me is like, okay, great, I'm down. I just love to get your view as an analyst in this, in this sector. Like how do you actually analyze what the strengths and weaknesses are of these different companies without just trusting, uh, what they tell you? Yeah. I mean, I'm literally in the business of, of cutting through the, uh, the BS and I, I, I take more of a long, longer term analysis. And what I look at are, are moats and not that everything they did in the past, it's a prediction of the future. But when it comes to execution capability, it's a really darn easy way. Like, I think it's the easiest way to figure it out. And I think looking at, you know, forward PE and PE ratios are great to look at. Some people say that NVIDIA is

colossally overvalued. But if you look at their PE and what they're doing, it's like, that's not bad. And then you think about the forward PE. Chips, you know, I take the claims that they make, the roadmaps that they have. I talk to almost all of their customers, right? I talk to almost all of NVIDIA's largest customers, and Intel, and Broadcom, and Marvell, and Microsoft, and piece together their claims versus what I think the reality is. And, you know, these companies aren't giving investors the long-term view because they don't have to, because most investors only go out to maybe 18 months. Now, one thing that we all need to recognize about this AI phenomenon is the market is growing, right?

This isn't even necessarily about share shift. What I think I can tell you is NVIDIA will lose market share. But you know what? matter because the market is growing at a much higher rate that offsets any type of share shift to, let's say, AMD or these homegrown chips from the hyperscalers. A slightly more bearish thesis I just want to get your reaction to. Last week, we saw these earnings from ASML, which you pointed out, which is sort of doing the lithography for the chips themselves. And they had a sort of not that great quarter and the stock tanked and it brought down all

these other chip stocks with it. And then a couple of months ago when NVIDIA reported earnings, they had a pretty decent quarter, but maybe not as magnificent as people hoped. And a very similar thing happened. The stock came down and so did the rest of the chip stock market. And I have concerns as an investor about what is going to happen when one day a large chip maker says, we're seeing a softness, we're seeing a reduction in demand,

and how that is going to affect valuations in the chip market at large. Because what I'm seeing is that these valuations are very high, but also at the same time, highly unstable. They seem to react very erratically to even the smallest indications of softness. And let me hit ASML first. ASML was a really easy one. It was one customer. It was Samsung, who's having issues with getting what's called two nanometer process out, and they delayed and canceled some orders. That's it.

AI was up. And one customer, when you have so few chip makers out there, can cause everybody to domino. And when it comes to NVIDIA, you saw a ton of volatility once the stock did the big split. So you had a lot of retail investors who came in, which added just a ton of volatility. And some of these people make so much money on the run-up, they're looking for any reason to potentially sell. But what we've seen with NVIDIA is we said the same thing when they were at $1 trillion, and then $2 trillion, and then $3 trillion, and then here we are are at 3.5. Now, I think what everybody should be looking at is when do the other stocks move with it, right? There's been stocks that

have been related to NVIDIA that have gone up, like the Broadcoms, the Marvell's, the AMD's, the two markets that haven't gone up at all that I think are huge opportunities. And I know you brought up the risk, and here I am talking about opportunity, but any chipmaker who's in the PC market or the smartphone market, right? Smartphone market has been in decline, flatline, PCs weren't doing really well. Once those new AI capabilities hit from the operating system, I believe that AI on the edge will keep moving up. These big name stocks, these data center stocks, I am very comfortable with. The only thing that would throw me off of that, if let's say Microsoft, Google, Meta, their investors cried foul on capital expenditures. Because right now, all these companies have AI FOMO and they keep buying all of this data center equipment to stand up these LLMs because they view this as a kind of once in a decade opportunity for growth

and share shift. So just as we wrap up here, Patrick, it strikes me a lot of young people specifically, or a lot of young men listening to this podcast, and they're thinking about where they allocate or invest their finite human capital. Like, what industry do I want to be in? And, you know, I keep reading reports that production for media companies in Los Angeles is down 40%. It's just a meltdown. I'm getting calls from friends in the media industry saying, hey, I'm thinking about switching industries. It strikes me that a pretty good long-term bet, no one has a crystal ball over the next 10, 20, 30 years is chips. It feels like that is a good sector to maybe allocate your human capital. What advice would you have for young people thinking, I want to get into this industry,

what types of skills, what types of jobs? Is it just be an engineer? Is it on the business side? Is it on the marketing side? One, do you agree that it's a good industry? And I think that's going to be an easy one. And two, what advice would you have for a young person thinking, I want to position myself to be attractive to this industry and break in? Yeah. So first off, Scott, I just want to acknowledge all the great stuff you do for helping young people. You gave them the advice that it seems like other people are afraid to give. And it's tough, right, out there. And I think, yeah, thank you for doing that. So looking at semiconductors, there's at least 10 to 15 years left. And I'm just saying that as a hedge of, I always thought semiconductors were cool, but I could be biased.

But then they got really hot when the stock market took off. There's different jobs you can have. You can be on the hardware side, meaning you can design these chips with the software that I talked about. You can test those chips. The semiconductor game is probably 50% software now and 50% hardware. At NVIDIA, it's more like 70% software, 30% going out there in the overall tech, the, maybe the non-Mag7 chip companies like Microsoft and Google. Patrick Moorhead is the founder, CEO, and chief strategist of More Insights and Strategy, a global technology analyst and advisory firm. He is a top-ranked tech analyst, a contributor at Forbes, and frequently appears on CNBC and Yahoo Finance. Patrick, an interesting conversation on an important topic. Appreciate your time. Thank you so much, and keep up the good work, guys. Appreciate that.

Thanks, Patrick. Thanks, Patrick. Algebra of Wealth. Scott, Patrick said one of the reasons he thinks NVIDIA is so successful is because it doesn't ebb and flow with the winds of Wall Street. It's not so focused on just pleasing its investors. I'd like to get your take. Do you agree with that philosophy? Or do you think it's more important to focus on keeping your shareholders happy?

That's the right philosophy. Because if you think it's more important to focus on keeping your shareholders happy? That's the right philosophy because if you think about, I mean, the CEOs who have been most successful have been, look at the CEOs of Netflix and Amazon and Jensen. And we talked about Jensen. So let's talk about Amazon and Netflix. Netflix took out debt, borrowed money such that they could, if you will, overwhelm the competition with gasoline, just have more and more content than anyone. They adopted the Amazon strategy and said, we're just going to produce so much more content

and quality content by globalizing it, being very cost-conscious, but we're just going to overwhelm the competition and we're going to actually go out. And despite the fact we already have good cash flows and equity, we're going to borrow billions of dollars. And a lot of analysts said, that is not a good idea. You're being reckless. Amazon was always, yeah, I could show more profits. I'm sure the market would like it in the short run. I'm not going to. Buckle up. If you don't want to be in a company that's losing a shit ton of money and that a lot of analysts are going to say we're going out of business, a lot of analysts in the 90s said this company is an obvious bankruptcy because it's losing so much money. The reason why I have never built, I think, a big business is that I come from this very old

school of within six or 12 months, you need to be profitable. I was never confident. I never had the confidence to go really big. And looking back, I think the difference between creating a company that got, you know, my company did well, but the reason I was never able to build a billion-dollar company is I was probably too focused on shareholder value and profits. And these guys had the vision to say, I don't really care what my investors want in the short term. I have a vision. I have access to the capital, and it might make my investors nervous. My stock might get hit.

We are going deep into the pain here. We don't care what you think. This is the strategy. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Jessica Lang is our research associate. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Profiteer Markets from the Vox Media Podcast Network.

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