The Compound and Friends - Why Bubble Talk is Totally Wrong with Ankur Crawford

Episode Date: April 17, 2026

On episode 238 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Dr. Ankur Crawford to discuss: the strongest names in AI, the future of the Mag 7, the semiconductor market, the case for Amazon, and much more! This episode is sponsored by Invesco and Janus Henderson Investors. To learn more, visit https://www.invesco.com/us/en/solutions/invesco-etfs/income-advantage.html?audienceRole=FinancialProfessional  Learn more at ⁠https://www.janushenderson.com/ Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

So remind me again, how did you first meet Adam? You guys worked together? Oh, my God. Adam, when I came to Alger, I had just finished my Ph.D. New didly shit about anything. Okay. And my very first... How old were you?

I was 28. Okay. Where do you do your PhD? Stanford. Not so a community. In material science and engineering. So like it was like... Right.

And I sat down. My very first cell-side meeting was with Adam. Okay. And he was a summit connector analyst of Bernstein. Okay. And he probably talked most of the time. So he did talk most of the time, but I was like, wow, what a cool, like, smart guy. Yeah.

And we just stayed in touch after that. Okay. So we're going to get into how you came to Wall Street and we'll do all that stuff. Oh, okay. All right. I listened to my first time on semi-Ernie's call today. Oh, you did. It was very strange, I thought.

I'm sure you listened to a million of them, that the analysts asked questions. and then the CFO repeats the question that has been asked for every single question. It's bizarre. I think. I don't know what's happened there because he literally is like, all right, so the question was, I'm like, huh, that's weird. And then he just did it the entire call. So it used to be that there was like actually an audience. And so people would ask in the audience and they were on stage.

Oh, that makes sense. That was how it used to be. But you heard the call. Like, I heard the question. Yeah, I don't know. But that's a plausible. Maybe it's a cultural, you know. I thought it was odd that their deck looks like it was made in the 90s, like their investment

deck. What is that? I don't know. Well, I mean, it's only like a trillion-dollar company, so you got to give them some time. But it looks like it was made on MS DOS, like, honestly. Like, I pulled one chart, but it just looks like that hasn't been updated since 1988. How do you listen to conference calls? Do you, like, you dial in, or do you have you discovered quarter yet?

Yeah, I have a half quarter, but we use something called era. Oh, okay. What's that? So it's similar to quarter. You basically go through and you just click, click through into a call. It makes it really easy. So we're investors in quarter, but also like power users. I'm obsessed with it.

I don't know how I ever used to, because I like seeing the words get illuminated as they're being spoken. Yeah. So you're reading it and hearing it at the same time, and I feel like it sinks in better. So it's interesting. I talked to one of your sales guys from quarter and told them that I think I forget exactly what the pricing was, but era who was giving us better pricing. Okay. I know some people there, so.

Yeah. Well, I think they actually use quarter on the back end. Oh, really? Yeah, you should. Yeah, white labeling it. Okay. All right. How many, how many calls?

Yeah, please. Yes. How many calls are you listening to each quarter? Like, do you have, do you have, like, people listening for you on some or do you get to everything yourself? No, I have, we have a team. Okay. Right?

And, yeah, so we have a team that listens to everything. And then selectively will, you know, I'll go through and listen to certain calls. Okay. What are the ones that you personally won't miss? Oh, I mean, definitively the hyperscalers. I did miss TSM today because I had just a personal appointment. Don't worry. The eye story is intact.

That's what they said. Great. I read your notes. Yeah, so I don't know. It depends on which quarter it is. I'll try to listen to like Walmart or Costco to understand what's happening on that side of the consumer, an industrial company, a healthcare company. So just a smattering. Yeah.

Because there's no way that as a portfolio manager is where we're going to be able to get through the entire portfolio. It's too, yeah, it's too many. And they're all together and it's like a fire hose. Yeah. You know, it's a great service. There's a company, there's a subset called The Transcript that I subscribe to. where they pull from, like, the most important quotes from all different companies that, of course,

you can't listen to all of them. So that gives you a good sense of... Oh, yeah. Like, obviously, I don't... They're doing that with AI. I don't know, man. This guy listens to a lot of calls, but, yeah, I'm sure. I'm sure.

I mean, alternatively, you can just go into perplexity, and I'll give them the lineup for the day and... Correct. But no, court can do that. They can all do it. Like, give me the best quotes. What are they say about this? It's great.

All right. This is your first, my understanding, your first podcast. No. Yes. No. It's my, no. He says, no. He says, my second.

What was, did you do Joe Rogan last week or something? What was you? I don't know. What was it, Scott? What else? Morning Star. Oh, Morning Star. All right, fine.

But we're going to pretend this is your first one. I'm sure it was great. Shouts a Morning Star. I'm sure it was terrific. All right. This, this one's going to, this is going to be a lot of fun. And I'm so appreciative of you coming and doing this. Are you okay?

Yeah, these are kind of uncomfortable. I think you have them on backwards. Oh, I do. Why didn't you tell me that before I told you? I just noticed now. So this should be on your left side. Is that better? Yeah, that's better.

Okay. Am I hair okay? You look great. Okay, great. Daniel, I blame you. I feel like you're not on top of these things. So. All right, guys.

How are we looking at? Our guest has nine more conference calls to listen to today. Thank you for looking pretty good. Let me come in and search you up. All right. That's our theme song. So usually the guest will deliver a freestyle rap over this. Do you have something prepared?

No, I do not. All right. I do it next time. I do it next time. Sorry. Episode 238. Whoa, whoa, whoa. Stop the clock.

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Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. 238. What's your lucky number? It really is. Ladies and gentlemen, welcome to the 238th edition of the Compound and Friends, your favorite investing podcast, arguably, and many would say the best podcasts in all of investing. We appreciate you guys listening each week.

John, we're doing record numbers this year, record numbers. All right. Our guest today has never, ever before been on a podcast. I have it on high authority. She is Dr. Anker Crawford, the executive vice president and portfolio manager of the Alger Capital Appreciation, Alger Focus Equity, and Alger Spectra, Large Cap, Growth Equity Funds. And more, one more, the Alger concentrated equity ETF. I just counted four. You doing four?

Yeah. Okay. That's amazing. Congratulations. The ticker on that last one is CNEQ, and that was launched in 2024. Anchor holds several patents and was awarded a fellowship by the National Academy of Sciences. She came to Wall Street 22 years ago and trained at Alger as a semiconductor analyst before becoming head of the technology team and began her career as a portfolio manager in 2012.

In high school, she was, no, I'm just kidding. All right. Welcome to the show, Ankur. You excited? Yeah, I'm fired up for this. I'm excited. I totally am. All right. So we're going to have some fun.

We're going to talk big picture. It's pronounced encore. We're told. It is pronounced encore. Like, do it again? Yeah. All right. I apologize.

Let's do it that way instead. Are you sure, though? Because I like the way that I did it. All right. Encore, I want to start with like, the big picture stuff that everyone is talking about today. But then we're going to go much more in depth on semiconductors. and your, like, sort of your expertise. Michael and I have so many questions that we want to ask you,

and some of them will be like a Wall Street person trying to understand the chip business better, but some of them might even be insightful questions. And I'm certain by the end of this recording, all of our audience will be much more knowledgeable about that area of the market. Sounds good? Yeah, I hope I can answer all your questions.

Okay, question one. What is the fastest land mammal? I'm just kidding. A cheat. All right. Can we talk about your approach to investing, just generally speaking? How do you manage your funds and how do you think about your role as a portfolio manager? Yeah.

I mean, look, Alger is a growth manager. We've been a growth manager since the 60s. The idea of growth was really incepted by Fred Alger. Is that right? Yeah, like he was one of the first growth managers, I think, ever. And so when he intercepted what growth is, it really came into. different forms. Like, the essence of it was, where is the change? Because oftentimes where there's change, there's unrecognized opportunity. And if you can recognize that change before the market,

then you make a lot of money. Right. So, you know, that is the core of what we look for is an incredible amount of change, or just change in general. And that comes in two buckets. One, what we call high-unit volume growth, which is a typical growth company that is having high revenue growth and they're, you know, disrupting the market in some way. Typical, you know, they may or may not have a lot of cash flow right now, but they're growing into it. This is what will attract your attention to a stock. Right. So it's a high top line growth. And the other side of the equation makes us a little bit different in our philosophy relative to most growth managers, because it's what we call lifecycle change. And these are companies that have already been through their growth initiative. They've

probably saturated out their markets, and then they have to figure out who they are. Right? They've grown up, and they're like, do I have more growth left in me? Or do I, like, what do I do from here? There are some great examples of that. Great examples of that. Is it an example of that? Apple's an example of that.

Microsoft is an example of that. You know, Western Didge right now is an example of that. The IPPs are... In Video. In Video is an example of that. That's right. Right. So it's as these companies try and reinvent

vent themselves. Dan O'Hur was an example of this. Right. So it's almost as if, you know, they have to figure out how they're going to grow again or not grow, right? But we're looking for the ones who are inflecting positively on growth. And what's interesting about that leg of the philosophy is that oftentimes those are incredibly low multiple stocks. And people will say, why are you buying value? And what I say in response is, no, this isn't value. This is unrecognized growth. Okay. I like that. The pitfall there, a lot of companies try to reinvent themselves and can't. That's right. And so part of that thesis is, you know, what kind of management team do you have? And are they capable of actually turning around the ship? I mean, so think about Microsoft.

When Satya came on, you kind of have to hear what he's saying and then see what he's doing in order to execute on the next decade of growth. So that's really what we're looking at. The management team, team is crucial for executing that kind of strategy. Okay. And then away from the company itself, every once in a while in the markets, we have a moment where an innovative new technology emerges and the entire world changes right before our eyes. So obviously, we were talking about AI today.

And I'd just love to hear your take on where you think we are in the AI story. And are you still as excited about it now as you. you might have been three years ago when that change first came along and we got, you know, the original LLMs and people started talking about it for the first time. Yeah, I think my excitement and my awe of the capabilities has only increased. Increased. Increased. Okay.

I mean, you know, I remember three years ago, we wrote a paper called AI and declining cost to create. And in order to write that paper, there was a lot of research that needed to be done. And I remember talking to a lot of kind of AI natives, you know, people who are in the AI supply chain talking to them about the capability of what was possible. What is happening today is happening what I thought would happen two or three years from now. But, you know, the timelines have been pulled in. And in part because the capability is just exponential. Something specific that's happening today or you're just saying like the pace of it?

I think they like agents. Agents today and what they're capable of today. I thought we're going to happen, you know, in 28. Okay. And that capability would come in 28, not necessarily today. And so I would, I would, you know, oftentimes as analysts, we think linearly. And the market thinks linearly. But we are in a time of exponential growth.

And so it's really hard to get your arms around what exponential actually means and what the end point is. Okay. And so for me, it's been a, I mean, it's a continuous learning process. I have never slept less and worked more because there's just every day. There's new updates that are happening and there's just something new to learn. What's like the most jaw-job-dropping example of an agenic product or something that you've gotten a glimpse at where you just said, oh, my God, we really are living in the future?

I'll tell you the weekend that OpenClaw came out. Okay. I didn't sleep. Not that far, not that long ago. Was that two months ago? That was February. Yeah. And I had taken my sons on the ski team.

And like I had to wake up and I get him ready. And like I stayed up the entire night. Doing what playing with it or reading about it? I was reading about it. And at the time I was at, you know, I had a phone. I was at someone's ski house. And so I didn't really have access to the capability of what it could do. But and I tried to launch one at home to be completely honest.

And, you know, it was kind of a mess. I was a little bit afraid of the security aspect of it. But then perplexity computer came. And that was probably a month ago. Oh, perplexity computer. What is that? Perplexity computer is almost like OpenClaught, but it can't, it doesn't have all of the functionality because it won't go log in and do things for you after having logged in.

Right. So, you know, it will, again, go do things. Like I built an app. and in that app, I was having a really hard time publishing it and kind of putting or putting payments into it. And perplexity computer completed the task for me. Okay. So you have this thing paying bills for you on the internet?

Well, this thing, I mean, as I was telling Mike before it, you know, I have a daughter who's going to college and the entire college process was so horrible. Oh. I thought that no one should ever. Say more. No one should ever have to go through that. I know. And so we hired the.

college counselors. So I just recreated it using an AI bot. What? The common app, filling out the common app? It's the common app, the colleges, and it basically just guides your child through the entire application process. And you feel comfortable enough that it's doing exactly what a traditional college advisor would do? I do. Really? I mean, we worked with three different college advisors. I would say, you know, they were open. Yes. Okay. It's a lot of guts that you have. Because you haven't been through process before. Yeah. Okay.

But now that I saw it, it was like, and it was actually my daughter's idea. She's like, you know, there's a lot of kids that can't get a counselor. That's true. You know, why don't we democratize this process? That's true. And so, you know, on one of the snowy weekends, we couldn't do anything. So I started building this app. Okay.

So it's filling out the common app with your kid and she's interacting with it. And it's not telling her what schools to apply to. But we're helping her organize all the things. she has to do for each school? Well, it goes through and it asks you questions, like it asks you 12, pretty deep questions. I think all of us should answer these questions because it tells you a lot about yourself. Okay. And then it uses those questions.

You tell it, you put in all your stats, you tell it what colleges you want to apply to. It takes the questions and just organizes it for you. So it has version control. You can send it to your parents or your counselor for comments. Okay. But it has something called strategic intelligence that allows you to, allows the kid to say, like, how am I supposed to answer this question? Yeah. You know, given my background, given my stats, given what I've been involved with, how is the best way, like, what should I really be saying?

And so it basically allows that. I'm starting to think, like, the colleges should almost force the kids applying to apply via AI interaction to prove that they're going to be ready for the world that's coming. or that's already here, quite frankly, it almost seems like this should be part of the process. Yeah, I mean, I think it should be. I built it. So, you know, I think the point is, like, not necessarily the app and how it will, you know, can really change the experience of applying to college.

But the fact that, like, I've never coded before. Yeah. And I built this and it took me like 60 hours to build it. That's a long time, actually. I know. It was three weekends. Yeah, but she's never coded before. So without it, it would have taken you 60 years.

That's the point. It would have been infinite because I would never have done it. You just wouldn't know where to start. So based on what you said earlier about the type of companies that you buy, these companies are experiencing exponential growth. There's nowhere near saturation. I mean, they just started based on, I guess let's use like the most recent round, Anthropic raised at $800 billion. Would this be interesting to you or is it like too early in their growth phase? So interestingly enough, we recently press.

participated in the last round, and that last round three weeks ago was at $380 billion. Oh, my opinion. Open AI was 800. And Open AI was 850, I think. Okay, so say more. And so we did actually participate in that round. And in part, what's happening is, I mean, we have never before in our, in the course of the market, seen companies that are staying private till they're almost a trillion dollars. And so there's a lot of value that our clients aren't really capable of touching. And so we're actually going and finding really great companies that we believe in that we think will grow in the private markets that have a road to IPO over the next two to three years. Which vehicles are this in? It's actually across all our funds. And so as part of the I guess the 40 Act funds, we're able to take 50.

percent of the fund and put it into private. Into private. And is this the first time in the history of Alger that you guys have done this? No, we've done it before. Like we were early investors in Palantir back in, I think, 2012, 13, something like that. And we were investors in time. So it's not something that we've done often, but we are seeing a really interesting pipeline of companies now.

If you have companies, like if you have companies going to $500 billion before. before they even file an S-1 and you're a growth investor. On the one hand, it's sad that they're not public and more people can't get access. But part of me feels like this helps make the case for active management, at least for growth funds. Like, growth funds should be doing this as a differentiator versus, you know, whatever their benchmark is. Right. Well, I mean, we should be doing it in part because there's so much value for our clients that is residual and we're not able to capture it in the public markets. And then these things come public and you have another decision to make.

That's right. We are up a lot. Do we stick around? I mean, you probably have a lock up or whatever it is. Yeah. And look, we haven't had to contend with that quite yet. Okay. And we'll see.

It'll be really interesting as Anthropic and data bricks and open AI come public. What happens? Well, yeah, because you don't know how the public market will react to it. Like, if the public market vomits it, you might buy more. That's right. So what sort of access of financial information do you have as investors in these companies? We get depending on which company it is, it's quarterly, we get quarterly statements. Now, you know, not all of them are like have full, they won't have conference calls,

but we have access to the management teams or someone at the company. You do this Berkshire Hathaway, so don't worry. I want to talk big picture. You say that we are short compute. globally. Everyone is short compute? Everyone's short compute. For how long do you think that persists?

Because one of the things, if you're invested in a lot of the stocks in the space, one of the things is like, am I going to be like the last buyer? Am I going to buy right before all of a sudden there's like a glut and everyone overbuilt and, you know, the KAPX plan starts to moderate? And that's everyone's biggest fear. Arguably, that's kept people out of this for three years. some people, but how do you think about that compute shortage and how much more runway there might be? So I think of it in many different aspects. First of all, I'm going to go back to that first

thing I said, that we think linearly. We've been trained to think linearly. You give someone two data points. What do they do? They connect them. They connect them. How far is distance between here and there? That's right. And it's also they extrapolate it, right? So, but what happens if in fact, that growth is exponential? And again, like, and that's, this is why people, are struggling with the CAP-X numbers and the growth numbers because we really haven't experienced exponential growth. And so, you know, that's one aspect. I do believe that this is exponential kind of growth in the amount of compute that we need. And that is predicated on the fact that intelligence is when you start to build a neural network, it is an exponential network. it is an exponential problem.

Especially my intelligence. It's a hugely exponential problem. I have always said this. Right. In other words, because when you talk about neural and you talk about it's the amount of connections. That's right. And the amount of connections is infinite. It's a big number multiplied by another big number.

And for every layer beyond, it's an exponential problem, right? So for every connection here has, you know, an exponential kind of more connections. beyond it. So I think that when you think about how we can use intelligence and as we try to recreate intelligence, that demand is, it's difficult to fathom, but it is very real. So think about agents. You know, a year ago we were worried about a, you know, oh, are we in a bubble? Yeah. Then we got agents. And right now, we're all. all stopped out on on the agents that we can use and the tokens we can use and you know people are

trying to token max and um their their bills are getting out of control why is that because once we can ask someone to do or something to do something for us that is productive we will deploy it the ctio at uber said they already blew their entire 2026 budget on compute it's and it's like April did you see did you see that what do you make of that is that do you think that they just have the guts to say it and there were a lot of companies in that same position because of the cost of all this compute? Yes, yes. I think there are a lot of companies that, you know,

want to use more of the compute. And now that it's becoming accessible and democratized because you don't have to be a coder or to use it and anyone can use it, I mean, usage I do think will go through the roof if they have the tokens. We're going to do some market stuff. But to segue there,

does having the level of conviction that you do in the exponential opportunity enable you to live through the periodic drawdowns, not just for tech and AI, but just like market-wide. Is that a big part of your portfolio manager persona? I don't know if I have a portfolio manager persona per se.

Well, it seems like you're very, it seems like you have this innate bullishness about the possibilities. And so maybe that would enable you to endure more volatility than somebody who is either, skeptical or doesn't have that same level of conviction? Well, let me give you an example. You know, in February, I got pretty worried about the market.

And it was kind of like a guttural instinct of, you know, something doesn't feel right. We're starting to put ships into the seas near Iran. And instead of just sitting there, despite my bullishness, you know, I raise 7% cash in our concentrated equity fund. Yeah. Right. Not by selling anthropic. Not by selling it.

And so it was kind of like more of like a take, you take everything across the portfolio just to raise the cash to, to buffer yourself for volatility. That doesn't mean necessarily that, you know, you're incredibly negative on the AI trade. In fact, through the course of that period of time, I've only become more bullish. So that doesn't mean there won't be volatility with that trade because not everyone believes the same thing. I do. Well, you can raise cash because you have the impression that others are going to sell and that that's going to open up opportunities. That's right. And that doesn't make you bearish. It just makes you, I think, cognizant of the fact that other people are going to create those opportunities for you and you have to have cash to take advantage of that. That's right. And you know

what? If you can sell something for a profit and buy it back 30, 40 percent cheaper, you do that any day. I have a dumb question that I know Josh is thinking, but he's afraid to ask you, so I'll do it. When you and everybody says we're short compute, because everybody's saying the same thing. What literally does that mean? Like, where are the bottlenecks? And what does that mean for investors? I'll handle this. Electricity is a very big bottleneck.

Stop, stop, stop. It's enough of you. No, go ahead. Well, I mean, the unit of measure that we're talking about is tokens, right? Okay. So for Michael's benefit and some of the people in our audience. Could you please answer the question? No, no.

I'm asking you are. Josh really wants to answer it. Why do we measure this in tokens? What does, our audience is like 90% people that are either investing for other people or for themselves and just 10% absolute lunatics. What is the audience need to understand about the way that you're thinking about the compute shortage and why tokens matter to this conversation? And are all tokens created equal? That's a really great question. That's one of the best questions I've ever heard.

So tokens are a unit of intelligence. And think of it as, I mean, technically, a token is two or three letters. So you send out a question and it's 100 letters long. That's 30 tokens, right? That's technically what, like, your input token would be. But really, you should think of tokens as being units of compute. And the more thinking are the units of thinking and units of intelligence. And the more intelligence you need, the more tokens you use.

It's as simple as that. Because not just your prompt, but then the response coming back to you. That's right. And the tokens come from where? You buy them from these companies? The tokens is just think about as like if your chip is a flywheel or if it's a factory. You know, this is why Wright-Jensen calls it an AI factory. So it's a factory where you're saying I'm putting in three tokens.

I'm getting out a lot of intelligence or I'm putting in this many tokens and I need a lot of intelligence out. It has to grind through it. And that grinding is compute. Right. The computer literally has to carry out its calculations. That's right. And then reply back. So I guess the question is it's like, all right, so I pay a multi-subscription to these companies, to these LLMs for the privilege of using the compute.

And the bottleneck is where, like, they can't get enough because Nvidia can't give them enough chips because Taiwan Semi-can't manufacture enough of them. Like, where is it getting caught? Right. Right now it's you don't have enough chips, right? Still. You still don't have enough chips, although there's other parts of the supply chain now that are becoming short. So DRAM is, you see what's happening in the DRAM market. DRAM pricing, you know, grown, I think, 100% year over year.

And that is unusual for a commodity. Was that for saleable for you? Did you know that that was going to happen? You know what? Early on, like two years ago, I was like, God, this is going to really pull on DRAM. But the memory market was horrible. So quite honestly, I thought I was wrong. I was like, my gosh, I'm not seeing a response in the.

You weren't wrong. You were so ahead of your time that nobody else had gotten to that conclusion. That's so interesting. The market was giving you a wrong signal. And you just thought it was so obvious that it would have priced it in. So you thought you were wrong and the market was wrong. Yeah. And I thought I thought I was wrong. And then, you know, it basically just took off at the September of last year. So Micron was at $85 in August or August of last year. Where is it now? 450. Right? So it wasn't until just now that the market was like, oh, my God. You know, we have this massive DRAM shortage because the pricing had just started to take off. In my head, Mike Ron was like $175 billion market cap.

I think it's like $400 now or something, maybe even more. Is it really? I only know the share price. I don't know what the market cap is anymore. But these things move so fast. It's hard to keep track of the market caps. You know what? The thing with the memory stocks, I try to,

explain this to, I try to explain this to somebody that doesn't know, uh, finance or stocks at all. 515. Sorry to interrupt. And, market cap. Is that nuts? It's a half a trillion. No big deal. No big deal. Um, I try to explain this to somebody who is like not an hour industry because they're like, should I buy sand disk or whatever? I'm like, yeah, I don't care what you do. He's like, no, no, like explain, explain it. Explain it. So rather than try to like go into like memory chips, and shortages and it's cyclical, but maybe this time it's not cyclical. I explained it to him in a language that he would understand. I said, think about like restaurants in New York, right?

So we have a restaurant called the Corner Store. It's the hottest restaurant in the world. You literally cannot get in. I've been there twice, not to brag. People line up at 3 o'clock in the afternoon on a Thursday and like hold places for people. And that's just to put their name down so they could sit at the bar. okay you like cannot go in this place it's like Taylor Swift's diner okay was it good oh it's great it's unbelievable but the the point is I mean it's nothing it's not like the it's very good

it's roast beef sandwiches like it's not like you're not gonna fall out of your chair and that's the point there are 500 other restaurants in the same neighborhood but people aren't lined up out the door of any of these other ones or maybe one or two of these other ones and so my my point was like right now, so many people recognize the opportunity in this small handful of stocks, there's like a line to buy them. And they sell off and then they recover just as fast because just everyone wants to be there. It's not that you can't buy another stock. It's not that you can't go to another restaurant.

There's only one corner store. And if you open five corner stores on the same street all next door to each other, each one of them would have a thousand people waiting online because right now everyone just believes these stocks are going to keep doing what they've been doing or that restaurant is like the only place that they want to be. But it changes over time. So if you're about to buy it today,

don't look at what the chart has done over the last year because it's not going to repeat or if it does repeat, it would be extremely anomalous. So the one contention I would have with that announcement, is that the corner store. She's stupid bastard. No, please. Give it to me.

Is that, you know, you're saying there could be many other corner stores around. Yeah. But in reality, because these are technology plays, there's actually, for each technology segment, there's only a handful of. But you and I are old enough to remember when memory was the ultimate semiconductor-related commodity. Okay. But let's talk through that life cycle. Yeah.

So when I started, you know, my career, there was like 12 different memory companies. Three were in Taiwan. They were funded by the Taiwanese government. There was like three in Korea funded. There was micron. I've even forgotten all of the memory companies. Now, over time, because of the nature of how difficult it is to, and this is actually a story of the semiconductor industry, because it was so hard to actually produce things at a smaller and smaller node,

they were all forced to consolidate. Yeah. And so what happened? We basically came to this point in time as a consolidated industry where you basically have three players providing DRAM. Sandus got bought by somebody and then came back out. That's right. It got by Western Dage. That's right.

And then spun back out. And these stocks were eight, nine, ten times earnings. That's right. was a chip, when there was a glut in memory, you could not give these stocks away. I mean, there's eight times earnings in August, eight, nine times earnings in August. And so, um, so the, the thing is like there, there's only three companies you can buy to play memory, right, to play DRAM. Right.

And so there is no alternative. And only three suppliers to the industry. Forget about the stocks, like the commodity, the product itself. That's right. There's only three of them. Yeah. So there is actually, the reason there's a line out there. the door is because if you want to play memory, there is actually no alternative.

When you say play, you mean from the investor's point of view? From an investor's point of view. So Western Didge, in January 25, had a market cap of $15 billion, and it's now $1.25, almost. Is this a bubble? No. And in part, what's happened is like, think about the data that is produced. So this is a very interesting. The problem is that Michael can only think linearly.

You have to think exponentially, Michael. That's why I love him, but... So think about all the data that's being produced. There's video. There's, you know, these agents that are producing things for you that need to now be stored. And so all of that data has to go somewhere. Now, the hard disk drive industry is very similar to the memory industry. There's two players, Seagate and Western Ditch.

And they're not adding capacity, right? They're not actually adding physical units. They're increasing the density. of their hard disk drives, which is how they add capacity, but they're not doing it at a rate that is going to cause a supply demand imbalance. Right. And it's another business nobody wanted to be in five years ago. That's right.

You know, I love hearing you say it's not a bubble, because these aren't your biggest positions. So it would be very easy for you to say, like, yeah, that shit is really stupid. Yeah. Well, I do think the bubble talk is really stupid. Go. But we can get to that. Name names.

No, I'm just kidding. Why is it stupid, though? Because to take the contraside, at a certain point, like, these stocks will not be rising at the same rate that they have been. So it could be that it's not a bubble for the products and the chips, but it might be a bubble for the investments people are making. Or and or it could be a bubble in demand for compute because there won't be revenue at the end of the... So that's the part that I don't believe, right? At least through 26, 27 and into 20s. 28, based on the cap X that we expect, I don't think that we'll be in supply, demand balance for compute. We have that kind of easily. I don't know if 2030 is going to be that way, depending on how much cap X we put in the

ground. It's almost like asking me in 1996 whether or not we're going to be in a bubble in 2000. Well, I mean, I don't know. You tell me where the valuations are. You can't predict what people will do. Right. You can't predict what humans will do with their money. It's impossible to know what they'll do three years from now.

but based on the fundamentals of the announced cap-ex over the next couple of years, you think the market is still in an imbalance benefiting the sellers. That's right. That's right. But the reason that we have to reconsider all this bubble talk is, yes, the stocks have gone up. Yes, it's gone from $15 to $125 billion. But look what the numbers have done. I mean, just in the last three months, Western Diggis numbers have gone from 10 to 25.

Wow. Yeah. Right? Which numbers? the earnings numbers for 26 or 27, one of those, like $10 to $25. Yeah. It's like a different company. It's a completely different company.

And this is classic lifecycle change for us, right? Where the industry is changing because of, you know, the market changing. So when, like, Nvidia, for a long time, people are like, isn't this a bubble? Isn't it over for Nvidia? Well, tell me what the right numbers are for Nvidia. Tell me what the right numbers are for Micron and Western Dage. And I'll tell you if we're in a bubble or not. Ancor, one of the things people have trouble with, though, is pattern matching and their over-eagerness to say this thing looks like that thing.

And I won't even go into like dot-com stuff because it's played out. But just in the last few years, the solar stocks came and went. The electric vehicle stocks came and went. We had 20 electric vehicle related IPOs in 2021, 2022. And a lot of them literally went to zero. most of them are single digits even today. And that's despite their fundamentals having improved. So people say, here we go again.

They're bidding these stocks up like crazy. They think ABC. If A, B, and C don't come through, these stocks are all going to crash. Okay. So let me comment on that in that. How do you differentiate is the question? So let me just about the bubble and like people who often talk about this being in a bubble right now. What I have found is that sometimes it's almost easier.

If you don't understand something, be like, oh, it must be a bubble. I agree with that 100%. And so there's a lot of like portfolio managers that I have talked to and met with and CIOs. And it's interesting because the PMs are often, like they came from health care or consumer. And getting your arms around what is happening with that kind of background is really hard. Is that part of your advantage as a growth manager? Personally, I think so. You're native to this sector.

Personally, I think so because it seems so obvious to me. Like, what is about, I've had, I've never had this much clarity in my career. And in part because it's pretty clear what's about to happen. Okay. So you think, you think that it's people that, because we say bubble talk is code for I missed out, or I'm so smart and these people just made all this money in XYZ, it's impossible. therefore it must be a bubble. Like, that's how people think.

I know, but that's kind of crazy. I agree, but. Right. So that's on the bubble part that I thought was important to highlight because I do think when I hear people talk about a bubble, I always ask, tell me, tell me where you think it's a bubble. Is it just the KAPX numbers? Okay, let me justify, why don't I justify to you that KAPX number?

And I can. Yeah. So, wait, can you? Can you? I can in a second. Let me get to a solar question. Because the solar. The solar question is a really important one.

Solar was a massive market. And in 2000, when was it, 2000, when we had this company called Trina Solar and J.K. Solar, there was all these. Or the Chinese panel makers, the Canadian panel, right? Right. And all of those guys, CSIQ, Canadian Solar, they came to market. And, you know, I was particularly, like, I graduated from Berkeley. I, you know, I loved alternative energy. I thought like oil was evil.

And, you know, I would go to these meetings. And the guy was like, yeah, we basically built the solar company in my garage. And I was like, that's so weird. You built a solar company in your garage and you're IPOing for $2.4 billion, which now seems like nothing. But I'm like, how does that work? And I was just a young analyst. I was like, there's something wrong with this. Like if I can go, I'm a material scientist, I can just go build a business.

I can just go build a 2.4 build. You could spin up a photovoltaic cell right now. That's right. And so like, why do these guys get to win? And so what happened there was the technological hurdle was so low. Yeah. That as long as there was any profit to be had, it would basically get deprecated. It became a manufacturing challenge to just make them the cheapest.

And of course, China will always win. But then there was also this big government subsidy component to it, which, you know, would come. and go. But I just like people lost a lot of money. People lost a lot of money. So all right, so in this case, the dollars being spent on this are real and growing. The profitability of it is high from the outset. It's not like one of these things where everybody has to lose money in order to subsidize it. A few companies are willing to do that. But a lot of these companies are coming out of cash flow in their cap-ex. And that makes it very different. And I think what you have to remember is if you look across the entire supply chain.

Because from 2000 to 2020, we have had, the entire supply chain has been consolidated. So think about that, right? You had, you know, semi-cap equipment consolidated over the last 20 years. The box makers. The box makers consolidated. You know, the chip makers consolidated. The, I mean, even like the networking guys consolidated.

And so you're coming at this problem from, and why do they consolidate? Not because they had to. It just, like, technology became so complicated that in order to go from like a six-inch wafer to an eight-inch wafer, you almost had to join forces because the R&D budgets were out of control. Okay. Right? And that happened for the chip guys too, for to do a tapeout, which is basically spin up a new

chip. the cost of doing a tapeout was going up, you know, three, four, five X for every single note. To fit all the transistors, do all the testing. Right. So the way to do it is you consolidated the market, so you just had more scale. So the R&D budgets were amortized over more revenue. As I say, I can't remember the last, like, chip IPO. Like we.

Sterer Labs. And when was that? Um, 2024. But that's the point. Like, I remember an era where there was a semiconductor IPO every week. Right. And it's just, we. don't have that.

And now they're like just a handful of semi-connector companies, you know. There used to be 45-50. Or using the same three foundries. That's right. And it really won that matters. So can I ask you this? I think the biggest question for investors, if we could see into the future, that would put this debate to bed, is the transition from the hypers, from asset light to asset heavy,

spending all of this money. And I see you're getting ready to cook. I can't wait for you to jump in, like Amazon, which is one of your biggest positions. All right. So they're spending, whatever they're spending on CAPEX. Are they going to get a return on their investment that will allow for this to keep going? So what I would say is I can't 100% say that they will get the same return that they expect. And going into this year, this was my number one, like back in before Meta put out their big

App X number. I remember talking to our team and saying, I'm really worried that, you know, the hyperscalers are going to zero cash flow. And that handoff of we, we value things on cash flow. You know, as growth managers, we want to see the cash flow. They're reinvesting all of their cash flow. They're reinvesting all, all of them are investing all of their cash flow. And that handoff can be a tricky one. Because whenever you have a valuation regime handoff to going from PE to cash flow or cash flow to PE from EV to sales to earnings. There's always a period of tricky.

We're living through it. And we're living through it right now, which is why they haven't done anything for a while. Well, this is why they de-rated. We used to prize how asset light they were and how high their cash flow was. And now the story's different. Now they're in the most massive investments life cycle. ever seen. And there is no, there is no more free cash because they're plowing it right back into data centers. That's right. And what I would liken it to is when they started building

out the cloud, right? So in 2011, 2011, 13, 14, right? So, so Amazon started building their cloud probably a little bit earlier than that because they're doing it for internal use. They were spending a lot. We just didn't know because they, it was kind of inside of their, it was Amazon. They weren't even telling people, like, right? That's right. And even Microsoft, if you look at how they spent, they were able to kind of build this cloud, although they spent a lot of money. But it wasn't like this sort of spend.

It wasn't this kind of spend, but only because the cloud didn't come as fast as AI has come. So if we basically had said, oh, let me give you the capability of the cloud with the, you know, with a 5G network and, you know, give it to you immediately, the spend would have been significant. And that's what's happening with AI. Like the time horizons have compressed so much. And the capability is so, it's exponentially growing. So what is Amazon spending the money on?

And where is the return going to come from? Well, they're spending the data centers, chips, cooling, you know, the entire chabang of, you know, how you have to build up a data center. What's the Amazon? What's the Amazon relationship with Anthropic in your mind as an investor? Like, how key is that? Because I remember three years ago, Amazon was talking about bedrock AI and saying, we're basically going to be a bring your own model. Like anybody can use any AI model they want at AWS and the street like that. And then Anthropic just took off for the enterprise.

And all of a sudden it started being more like, well, you know, if you want to play Anthropic, the way to do it is via Amazon because of that relationship. So is that part of why you're so bullish on Amazon? or not necessarily? No, look, I think Amazon, if you look at the valuation for Amazon today, on a P.E., on a gap P.E. basis. Yeah. And I forget exactly what it is, but it is absolutely not egregious. Yeah.

You know, it's at like teens. Yeah. For on an earnings basis. Which is maybe the lowest valuation you've ever been able to buy the stock for since it's been public. That's right. I mean, compare it to Costco or a Walmart. It's, I think, 10.

points lower than either of those. So is that really kind of the right valuation for a company like Amazon? It is a grocery store. It is a grocery store. That's right. But it's a, it's a very efficient grocery store. The partnership with Anthropic and the investment, like how important is that to your thesis for why AWS could be one of the biggest beneficiaries of AI? Or is it not that important? I mean, it's important because it drives the, it drives the top line for it for AWS. Right. Right. So I mean, if AWS is going to grow and the mid to high 30s this year. And part of that is because of Anthropic.

Okay. So it is important in that aspect, but really for the duration, because Anthropic is going to work with other companies as well. Right. They do. They will. All right. Right.

And so it can't be the only crux. So Amazon, look, they have Traneum. Like, just like Google has their TPU, Amazon has Traneum. And so it is important to own the stack. Okay. Because it does lower your cost of compute. Andy Jassy was talking about Traneum and some of the other chips that Amazon is making and saying, if we were to be valued or if people were to think about them as though we were selling these chips to third parties,

it would be like a $50 billion business. Do you think that the street is starting to, I don't want to say re-rate because it hasn't really, but do you think the street is starting to feel a little bit more bullish about Amazon's, A, ability to produce chips, but be more importantly, potential willingness to become a big chip seller, given the shortage of compute. Like, could that be a whole new leg to why the stock should go higher? And I own the stock, so I want you to consider my question through that lens. That's an interesting. Yeah.

You definitely own more than I. So what I would say to that is that, look, it's an important aspect of the technology. They've been working on Trainiam for a long time. I think they are behind the curve, actually, and they are catching up. So Traneum 4 is still... Delete all of that. It's still an okay chip. It's not a fantastic chip.

I think TPU is a fantastic chip that competes with NVIDIA. That's the tensor processing unit from alphabet. That's right. And mind you, they've been working on that for five years longer than Amazon's been working on their Traneum products. Okay. So Amazon will catch up. I think what is exciting about Amazon on that aspect, not that they're going to sell their chips, is that they can effectively make a compute layer that is, you know, cheaper.

So you can do compute on a tranium that will, you know, be cheaper for you to run, potentially. So more supply for a supply-constrained market? So, well, I think it's just more so to think. about the stack. Okay. Right. So if you go and say, I'm going to, I'm going to use AWS with a trinium chip to do a certain workload, you know, might it be cheaper if it done on a trinium? It may be.

Versus a very broad, powerful GPU that maybe is not necessary overkill. That's right. For that one task. And it goes to your question about tokens, actually. Like, are all tokens created equal? We didn't answer that question, did we? And the answer is? No.

Okay. So all tokens are not created equal. Right. I fundamentally believe that this market is going to, there's going to be tokens that you pay a lot for. And there's going to be tokens that, you know, when I ask GPT what the weather is going to be. Right. First, help you create an atomic bomb. That's right. I understand. Right. Very different. And so why should we be paying the same dollar value for each of those tokens? And not quite the atomic bomb. I don't ask it to do that. You might. All right. Get my kid into print. I got it. Same idea. No, I think that's a really important part of the conversation is that, you know, the initial build is like, all right, it's GPUs. These GPUs are insanely powerful and probably over, it's like putting a lion in your house to catch a mouse. If your daily use

of Claude is like, what should I have for lunch today? So the market will figure out what to use for water, maybe already has, you're saying. Right. And it hasn't figured it out quite yet. because all tokens are still kind of the same token value. Yeah. And so, you know, I do think drug discovery tokens will have a completely different value in the market than, you know, your educational tokens. So that won't impact me as a user of these LLMs, but that will impact the way the enterprise version is being priced for corporate customers.

Right. And I also think it might be, it might impact what model you use. Right. So people are already figuring that out. People are already saying, I use this for this. I use this for the regular people, not professionals. I would imagine professionals, they go way more in depth on which of the company's operations are we carrying out here versus there. Right. Or an app that you build. Right. If you're going to build an app for drug discovery, you might, you know, you may, you may price the app at a level that it allows you to use the most advanced tokens or the most kind of. valuable tokens. Okay. All right. So the products will be in part priced on how or which tokens are being utilized.

That's right. So these companies keep saying that not spending enough is an existential threat. They have to spend. And they're able to say that because we're in a bull market. And even though some of these stocks haven't done amazing in the very short term, like investors are still giving them the benefit of the doubt. Is there, it sounds like there's, it sounds like there's, you don't think there's a risk that they might say on a call.

Hey, you know what? We're actually going to take our foot off the gas pedal. But, like, is there a chance at the market, and I know we're speculating here, that maybe the market could force their hand? Like, if Microsoft didn't stop going down and the stock is down 45%. At one point, does Satya say, all right, guys, like, maybe we should chill out with all this. The metaverse example. Like, the stock market enforced the end of Metaverse spending.

I think we all would agree on that. Like, he probably would have kept going two more quarters had the stock not been in a 70% free fall. Now Zuckerberg controls all the votes. So it really had to just be his acknowledgement that all of these investors who were selling the stock can't all be wrong. Right. That's the concern there. I think, I think, again, it's very different than the Metaverse because the Metaverse, the promise of the Metaverse was... I know, believe in it, by the way.

I credit to me. I actually believe in the Metaverse still, but you needed AI to get there. None. Did you buy a Beach House next to Snoop Dog's virtual Beach House? No, I just played Roblox with my kids. All right. So, but, you know, the Metaverse is actually, I do think it can be a reality. It just needed the capability of AI to get there.

And so in 2020, like I remember doing like a little thing for Alger on the Metaverse. And I said, this is a 2030 event, right? It's 10 years out. So he was trying to invest in 2020 or 20, when was that, 21? 2020, 2020, 2020, 2020, 2020. change the name of the company. Right. To basically get to 2030, that was a long period of time.

And also all by himself. Also all by himself. All by himself with kind of deprecated compute. Right? So he didn't have GPUs then that were going to drive this AI revolution. Okay. So this is different. This is not that.

So this is different. And in part because, you know, everyone's so worried about the ROI. Like, will we get the ROI back? And what I would say right now at this moment in terms of, they're basically making their money back in 18 months. Wait. How? What?

So the cost of compute is actually rising right now. If you look at the cost of an H-100, it has been rising. It hasn't been going down. And so you look at the compute stack and how the per hour pricing of a chip inside of one of these data centers, the payback is 18 months. Meaning the meaning because the price of the chip. is going up. That's right. An investment that you might have made 18 months ago.

Now you're in the money. But wait, is that the right way to measure it? For now, it is, but the point is, what is the ROI? Right. So if you get paid back your capital in 18 months, then do you really have to justify your ROI? Now, the other thing I think that people, like, miss in this is that they can turn,

as soon as they see the demand start to decline or get curbed, guess what? They'll turn off their CAPEX. We're nowhere near. We're nowhere near that. But the point is it's not like a, it's not like the telecom, you know, bubble of 2000. So that's where I want to go next. So this is the other thing the bubble people will say.

Look at these deal announcements. Every one of them is circular. Every one of them involves a company, vendor financing, some sort of an investment, or paying a customer to pay them back to either buy compute or chips or use of a data center or lease something. And I've heard Jensen deflect that. It's like, of course it's circular. We're all in the same ecosystem doing business with each other.

How could it not be, you know? And I'm sympathetic to that. But like, what would you say to people that say, oh, I remember the late 1990s when one company needed to make earnings this quarter so they would do a deal. And then the next quarter, the other guy had to make earnings. So they would do a reverse deal. I understand this is not the same thing, but how do you answer that? I answer that, but look, every deal has been different.

I think that Amazon meta deal, I worrys me more because you're giving away part of your company to say, use my chips. And I'm going to get 10% of my company. What's the Amazon? What's the Amazon meta deal? Not Amazon, AMD. Oh, okay. Right? So meta, meta gets 10% of AMD if they get to a certain amount of revenue and AMD chips.

Right? So effectively, they're giving it for 0% gross margin. Yeah. You know, that to me is a little bit more, quote, circular, open AI and meta. Open AI and meta. Both are, both had deals with, with AMD that looked like this. NVIDIA basically seating the market to enable the market is less worrisome. Because, I mean, Nvidia's revenues on, on AI, like the AI based revenues is going to be hundreds of billions of dollars.

Yeah. So the two billion that they gave to Corweave is like, are they really enabling their own revenue? not really. Well, they're seeing a partner who, if that partner is successful, it means years and years and years of future chip sales. That's right. Why is that bad? Why is that bad?

I don't think it's bad. It's not bad. I think it's actually common sense. It's not, well, we see examples of this in every single industry is another thing to point out. So you see, Pepsi gives a restaurant all kinds of free advertising and banners and things to decorate their bar and therefore sells more Pepsi into that bar for years and years to come. This is just a high-tech version of it with billions of dollars, not thousands of dollars, but it's like a fairly common thing.

Yeah, that's a great example. You know, I do think you probably see it in a lot of different industry. Miller light says, here's a billiards table. Put it right in the middle of your bar. And the lamp hanging over it is going to say Miller Light. And the rest, the tavern owner is like, okay, cool, we have a pool table. they're buying Miller Light forever and the bar does better

and like this is obvious stuff. Yeah. We're just talking about it on a much greater scale here. Yeah, and that's what scares people. I think, again, if you think about the magnitude of what's happening here... Well, my metaphors have to do with eating and drinking.

I don't know if you're picking up on this. So the audience definitely is. So the... You know, the magnitude of what's happening here is just, it's hard to fathom. Again, we go back to that. Like, it's really hard to think how big and how massive this changes.

And that's why I think people are just struggling with it. Okay. So give the audience, give the audience three stocks that will double before the end of the year. Oh, no. I'm just kidding. Can we talk about like some of the actual investments that you're making in the public markets? Sure. Okay.

All right. So we're looking at some of your holdings. Wait, can we go back to one thing? Yeah, shut up, Josh. So one of the things I want to go back to is that this fact like in 2000, one of the issue, with what happened in 2000 in that 2000 bubble is the CAPEX that was spent was long-lived assets. So you put it into the ground. You think about like fiber optic cable. You put it in the ground, you spend billions of dollars and they were effectively long-lived assets.

Like nobody needed them for five years. No one needed them for five years and then demand fell apart. But you also didn't have the technology to take, to make use of those cables. There's no web video. There was no. Do you remember using the internet in 2000? It was a horrible experience. Yeah. It was like chat rooms where you're typing. It was there's no social media yet. There was no YouTube.

There was no. I mean, you could barely like download a webpage without it, you know, glitching or having to be. It could take like 10 minutes to download a song from Napster. Right. Like that was the internet. Right. I mean, 2004, 2005, like downloading a movie would take two hours. Days.

Yeah. It would be, it would be a horrible experience. And so we had dreamed the dream in 2000, but we actually didn't have. The technology to support it. The Cappex was a timing mismatch. That's right. Before the demand for all that stuff they invested and would show up. And what's really different now is actually all the technology is in place.

And it's like I've likened this to when I've spoken to advisor just to make it a little bit more tangible. I've likened it to, you know, if you were an F1 car engineer. You're going to say Burger King. She's not using food analogies. I'm sorry. I can't think of a good food analogy. But if you were like, you know, an F1 engineer and you dreamt up this amazing car and you're like, this is the way it's going to work and I think I'm going to win because, you know, I've dreamt this amazing car up. And you get to the race and you have four wheels.

Yeah. Right? This time you've actually built the car and the only thing that you're waiting for is gas. Okay. Right? Or, you know, electricity, charge your battery. But like the point is that. Now, the only thing you need is the compute.

You have all the other parts in place. The tech is here. So therefore, the CAPX is going directly into something that is currently working. That's right. But speaking of the CAPX is another doctor investor who's on the other side. Dr. Barrie says that there's accounting shenanigans which have their amortizing these expenses. Yeah, I don't think that's right. So he's basically saying, oh, they're using five-year depreciation, but there are six-year

depreciation and they're actually four years, which is absolutely just incorrect. So why is he, why is he saying that? I don't know. He's saying that. He's saying that the, so you're saying, these chips last a really long time. They might not be the newest, it might not be the newest versions. The A100s are still working. And those are from eight years, seven years ago?

Those are from 20, what, 26, they're from 2021. So six year old chips are still very actively being used. I mean, the idea that these computers are just, or that the, the chips are going to die in three years. I don't, I don't, I don't really. understand it. All right. Let's do some tickers. So, some of your holdings, and I sort of know a little bit about some of these, but why are you bullish on? Let's, we'll just go like a few. Tell us about Nebius. Oh, wow. What? That's like a big, long story, which is really fascinating. I will try to shorten it for you guys. Yeah, keep it to like 90 minutes. I understand that Nebius, my understanding is this was

originally part of Yandex, which was the Russian Google. It wasn't part of Yandex. Oh, it's what Yandex became. Nope. So Yandex was the Russian Google. Yeah. Headed by a man named Arkadi.

Yeah. And when the Ukraine war happened... In Russia, Google searches you. That's right. All right. Go ahead. When the Ukraine war happened, you know, he had just a disagreement with the politics. Okay. And, you know, he was one of the quote unquote oligarchs that, you know, was a sanctioned,

but he was also on the outs with Putin. He ends up leaving. 1,500 of his engineers end up leaving. I think Arkadi paid for all of them to leave. And then they sat there. He's like, okay, I have $2 billion. What are we going to do? And they said the future is really AI.

We know how to build data centers. Let's build AI data centers. because we think we think we can do it better than everyone else. And so, you know, remember they were Yandex. They got delisted. So it's in Europe. Now it's in Belgium or? It's in the Netherlands.

They're based in the Netherlands. But one day they get this call from the New York Stock Exchange being like, you're going to get listed on Monday, right? And they're like, what do you mean? Like, we're like a private company right now. And it was a Thursday. So they worked all weekend. They get listed.

And all of a sudden there was this like weird ticker on the, on the exchange NBIS. Yeah. And I didn't know what it was either. Yeah. And so like I was like, is it a war? Like what is this thing? People were trading it though.

People may have been. But you know what? Initially when people traded it, it was all the people that were stuck in Yandex. Right. Right. That were like, thank gosh I could get out now. And so they're like, get me out. I've been stuck here for years.

And then, but they didn't have it. No one knew what the story was. So they put out this 110 page deck on, online and I don't know, I remember hounding them being like, I need a meeting with you, and they had no time. Yeah. So I hunted them down in Davos. And as one does. As one does. And it was, and I just got to, we got to know the company really, really very well. Okay. So you look at this as, because I know they're in autonomous vehicles and they have a lot of stuff going on, but like you look at this as a data center play that's domiciled in Europe,

but doing business all over the world. What I would say is that this is actually, potentially the next hyperscaler, the next AI native hyperscaler. Really? Yes. Okay. Tell us about QXO. Oh, QXO. QXO is a fantastic company.

It's not a typical tech company, right? But we all know Brad Jacobs. Brad Jacobs was the serial entrepreneur. He put together URI, XPO, left XPO, and began QXO. QXO is a building products company. He started it probably about a year and a half ago, bought beacon roofing. And he's basically going to consolidate the industry. What's really exciting about this is that, A, it's Brad Jacobs.

We really, like you talked about the management team, we know what he is. That guy's amazing. He is, Brad Jacobs might be one of the most impressive people. Why is he in roofing right now? because he's consolidating the home the building products market because it's incredibly fragmented. So what he's seeing is that, well, there's all these mom and pops that are in building products. They don't know how to tile and like all kinds of materials. He will. He just bought Kodiak.

Yeah. And he's starting to get into the rest of it. So he started with roofing. Then he's going to get into everything else. He's going to take pricing at efficiency at technology. So you're a growth investor. Like how much potential do you need? dare to be in a story like this to include it in your portfolio?

Do you think this is like, if it all, I know we don't know that what's going to work, but if it really works, you're not looking for like a 20% return. That's not how you invest. No. Okay. So let me give you just like the framework for how he thinks. Beacon is about a billion dollars in EBITDA. He thinks that he's going to increase the EBITDA of his company to $5 billion in 29 to 30.

That's a big deal. That's a big deal. In a quiet, sleepy industry. That's right. And he's done this over and over. This guy. And he's done it over and over. I never heard of this guy. I think maybe four years ago he was on Patrick O'Shaughness's podcast.

He's been on, I think, again, what an incredible story. Oh, you know what? He's also an incredible human being. If you see how he takes care of the people that work for him, A, he's a workaholic. B, he truly takes care of them. Like, he is like a good boss. People, he's a great leader. So he has all the, everything you want to see in a fantastic CEO. I just listened to his book. I think it was called How to Make a Make a billion dollars. Yeah. The first one or the second one. There's two of them.

How to make a few billion dollars. Yeah. What's the investment case for App Lovin in a world where we think the apps are going to write themselves? Tell us about that. You own that in your Ease the app and some of your funds. Yeah. So App Loven is, it's not really an app creating tool.

It's an advertising tool. It's the Loven. It's the Loven part that matters. And what's exciting about App Loven, it used to be. Yeah, but this stock did get caught up in the, software. It did. And part because it's part of the IGV. And this is, this is part, and we have talk about software at some point, but. Yeah. We'll go have dinner. We're just getting started. I know. I need another hour with you guys. Okay. So with App Lovin, you know, they're basically an

advertising company. And what they realized is that they have a lot of data. They have probably 50% share of, you know, served ads in mobile games. And what they realized is, you know, what, we're pretty good at this. We're using an AI engine to serve up these ads, and we're improving kind of the return for our clients. Why don't we start putting in lipstick or, you know, actual goods and monetize our ads differently? Okay. And so that whole story of we're not only going to show you games to be downloaded inside of games. So you're actually going to be in commerce. So you're playing Candy Crush and an ad pops up for Scrabble, like digital, like that. Okay. So they got very good at that if people play this game, they'll probably play that game. Okay, fine. They're not to price it.

The game app wants more exposure. Great business. You're saying they're now taking this business in another direction. That's right. So all of a sudden, they're entering the e-commerce market to sell goods. And it helps them monetize their inventory significantly. Okay. And so really interesting. I mean, Adam, another, look, one of the keys for us is the management team. Adam is a founder, CEO, hungry. He's very involved with who gets hired, how they get hired, the head count. He's keeping his headcount flat, regardless of the top line growth. So it's just a cash generation like.

You seem to be on a first name basis with a lot of the founders of the businesses that we're talking about. How important is access to management for you as a portfolio manager? If there's a company like a Nebius that says, we're not going to talk to you, I don't care if you come to Davos. We don't do, like, or does that cool you off in terms of wanting to be an investor? Or is it not that important? No, it's important.

Because they end up being the stewards of your capital, of our client's capital, right? We're betting, I mean, it is an important leg of any story as like who is leading a company. Yeah. You know, what is their integrity? Right. You know, it's really important to know the management teams. Obviously, like, that access is. to them though, where you like them personally and they, they screw over shareholders or they're

more inept than you thought? Like, is that the downside to that? Um, well, it's not like I'm friends with them per se, right? You just need to be able to ask them questions. That's right. And I need to, I need to understand, like, are they, are they good, are they, are they good stewards of capital? I mean, it's important to me for me to understand that Brad is a great leader. Okay. But that, that is really, like, He has incredible humility. That is important for me to understand. I have two more things we have to get to where the audience will kill me.

One of them is software, but before we go there, I said two days ago, I think Intel is like the stock of the year so far. Yeah. The comeback in Intel is extraordinary for a lot of reasons. Number one, it's not every day

that a former Dow component fallen angel, formerly one of the biggest market caps in the country, drops almost to single digits, has a new CEO come in after multiple failed new CEOs, and actually strikes a chord with growth investors again and reinvents itself. So that thing that we talked about early in the show about that reinvention, this looks like that on steroids, but I don't know as much about semis as you do, obviously.

So I'd love to get your take on like, is this a buy here? Or did we miss the whole thing or investors getting too excited? I'll be honest, I don't know. What I do know is Lipbu is amazing. Lipu, yeah, Lipu is the new CEO of Intel. He is, again, an incredible leader. He is a visionary. And I mean, his story with Cadence,

someone should do a deep dive on cadence and see how he turned cadence around. He took it from almost going bankrupt to the company that it is today. Okay. And that was under Lipbu's direct. So if there's anyone that could take this asset and turn it around, it's lip-boo. The foundry is now being seen as a strategically important asset, whereas they were being ridiculed as recently as three years ago. These idiots thought they could build Taiwan Semi in the United States.

Yeah. And what I would say, that's where I'm skeptical. So you don't believe necessarily that that's a great asset. And Taiwan Semi's doing it too in Arizona, aren't they? Taiwan Semi is building their fabs in Arizona. But if we're short compute and Intel is a company that can help bring more compute to the market. Right. But you have to, it's not easy.

Right. So if you've been inside of a fab and built a chip, it's difficult to build a chip. I wouldn't know. Which is why, like, you only have one. Right? You only have one foundry now. You have TSM. So you're not convinced that this foundry is going to be as successful as the bulls.

I don't know, right? Because it is, it is a bet on the execution of the engineers inside the foundry. Lipbu is not an engineering. You know, so hopefully he will hire the right people to make this happen. Okay. But I don't know. Okay. So you're not in the, you're not currently in Intel?

No. Have you looked at it recently? We have looked at it recently. I just, it's, it's an existential question. Like, can you be a foundry or can you not be a foundry? Okay. Sasspocalypse. Jensen has said the bears have this story completely wrong.

Agents, an agentic AI, is actually going to utilize. all of these CRMs and corporate software to help people, they're not going to spin up their own versions. Therefore, these companies do still have moats and they are relevant for the age of agentic AI. How do you feel about that? I don't agree, respectfully. You think Jensen's being too nice?

I think Jensen can't really say what is happening because... Okay, so that's what I think. And so why do you think that? I think what you think. Like, no way. Like, there's no way all of these companies can remain relevant if, if Anthropic is going to continue to come on at the rate that it's been coming on. So that doesn't mean I think they're all cells. But, you know, I think it's really hard to know, obviously.

But right now, they're all being treated like sales. Well, because the growth story, Salesforce cannot do what they've been doing for the last 15 years, where you re-up and the contract goes up. Right. And that's a huge part of the story. Raise prices every year and no one's going to push back. How could that be possible? And of course we can't know.

Is the market overdoing it? Okay. So if you look at, let's take Salesforce. Salesforce, as of yesterday, it was trading at 10 times EV-Def free cash flow. If you include stock-based compensation. Right? Right.

Oh, no, if you exclude stock-based compensation. Including stock-based compensation, it's like 14 and a half. That's not that compelling. It's some. It's kind of trading like broken tech with a little option value. That said, I think there's other interesting things out there right now that, you know, I'm definitive will cross this chasm. So, you know, the issue for me on the entire software space is that we only use 15 to 20% of the software of any of these packaged software that we buy.

Yeah, they're selling it per head. And people might say, you know what? what, I'll pay you per use. I'm done with this game. That's right. And so it's a more competitive market, right? People can write their own software. And maybe, you know, maybe, and there are a lot of people that will have, well,

will say that's not right because you have the security issues. Valid. Right? And it's valid. But again, why am I paying you more if I don't use the software? If one of my employees comes to me and says, I wrote this sick program, I run a wealth management firm. I'm not going to be like, oh, cool, plug that into our system. Let's see what happens. I don't care how much money I'm saving. I will potentially destroy my business. So that's the

vibe coding thing. But there's a middle ground where the IT department at a company can do it themselves. It makes a concerted effort to actually replicate something that they're paying a third party for. And they show it to the board of directors and they say, like, guys, we really can do this and we can save the company $80 million over the next five years. And the company says, all right, that's what we're going to do. Like, that's the real threat. Top line is coming down for these companies. That's right.

And so I think the best case scenario is they don't get, you know, uplift, as you were saying on that DBNR, right, which or is the basically the expansion, the expansion revenue. So they no longer can grow on a seat by seat basis how much they're selling it. And that's a big part of the growth story. That's a big part of that. You know that if we think AI, if we think that AI is threatening like employment in general, then higher head counts are going to be harder to come by, period. Even if you can get a company to sign another package, doesn't mean they're going to have the same amount of employees.

That's right. And so that dream of that 40% operating margin that, you know, was why these SaaS businesses traded at the multiple that they did. I think that's a different terminal value. I don't know if it's 30. I don't know if it's 20. My gut is that given the landscape, these should be 20% operating margin businesses. Is cybersecurity immune or not immune?

I think parts of cyber will be immune. Parts of it will not be. Right. So, you know, Apollo Alto or a crowd strike, more likely to be immune because they're platforms and they can build on that platform just like Microsoft. Yeah. But point solutions across all-

Like identity. Right. Okay. Point solutions across all of software are going to be at risk because they'll just be usurped by either, you know, new players or people who will, like you said, write code inside of the company. And or by bigger players that basically just add that on. I think the market has this right. When I look at Constellation, so Constellation is like a collection of a thousand tiny niche software businesses where it's like, this is dry cleaning software.

So, I don't know. This is 20,000 dry cleaners in America, and they all standardize on this one tiny piece of software. That seems super susceptible in a way that Crowdstrikes Falcon platform is not susceptible. And if you look at the dispersion, even within software, let's say they're all down, the ones that are, the ones that seem more replaceable, those are down more. Like, it doesn't look like just a wholesale panic. It looks fairly reasoned.

Yeah. I mean, like, cadence isn't down as much as team, Adelassian. Right. Right. Atalassian has zero moat. Yeah. And that's why it's trading down to, I don't know where it is anymore. But.

That. Okay. Are there any software stocks that you think it's already overdone and the market really has it wrong and are buys? Um, you know, I do think App Lovin was put into that bucket. Okay. And just because it's in the index and they treated it. And just because it's in the index.

And there were some short reports on it. And, you know, people are worried about advertising and agentic advertising and how does how does Apploven get involved with that? You know, I think companies like Pallenteer, they're like the shepherd that is basically having everyone cross the chasm with them. Do you own Pallantir? We do own Pallantir. Not in the ETF, but across the other ones. That one didn't come down until the end. Right.

Like that one held up. better than the rest of sass? Well, it's kind of sold. It actually, I don't know, went from 210 to 160 before like the sasspocalypse. And then it went, you know, later. Okay.

But so it has, it has pulled in quite a bit. Is Adobe dead? They're acting like, there's nothing special about Adobe. And meanwhile, I see OpenAI shut down SORA and I don't know who's using all these other tools,

but is anyone paying for anything? I don't know. They are paying for Adobe. I just started to use Higgsfield, Higgsfield AI, which is basically a video generator. It's pretty amazing. What are you using it for? What sort of videos are you generating? Honestly, I just play with all these tools to figure out what they can do.

And with Higgsfield, I was trying to figure out if I can make an advertisement for my app. Right. And to see if I wanted to have a TikTok video, how might I make it? Right. And it was pretty good. I mean, it wasn't great, but it was pretty good. good. I don't know if you, I don't know if anybody told you this, but I am the creator of something called Halo. Have you heard this term? I was told you were. On a scale of one to 10, how

clever is that? Would you say? It's clever. I would say I. No, that's good right there. No, no, no. Wait, wait. When we did that, when I, when we first thought about this like AI and the declining cost to create, the corollary to this was not, I mean, Halo is like a really awesome. She's trying to say she came up with HALA. No, no, I didn't. But was that any tangible asset would get multiple expansion? And here we have it. I mean, basically.

So your packaging of it is beautiful. Yeah, gorgeous. Well, all right, so the reason I'm asking you this question, though, could we overdo it? Could we overdo which part? Oh, I'm sick of it. I'm sick of hearing about HILA. Michael's going to throw himself out the way of a few years ago. All right.

looking at the Mag 7, if you had to rank all of them from most halo to least halo and I said I think, so my first opinion, Apple and Amazon are the two most Halo stocks in the Mag 7, meaning the physicality

of what they have and do. Okay, they don't own data centers, Apple, but like my rectangle is my rectangle. And it's not going anywhere. And it's central to how the user is interacting with all of this AI. I think it's very Halo.

What do you think about that? Okay. If Apple doesn't act soon, that impact, that halo designation is going away. Because over time, I do believe that AI will allow us to extract ourselves from our screens.

Okay. Into what, though? Glasses? It could be glasses. It could be. Desktop device? You've seen the open AI button. It doesn't matter.

It doesn't matter. It does. Maybe not. Not that. A contact lens? But some form. Something will come along. I don't know.

It could be a bracelet. It could be spectacles. It could be something. Right. It could be something that hangs with you. What Apple should be doing is becoming that personal agent. I can't believe they're not doing it already. I don't know.

Where is a Gentic Siri? I don't know. Why doesn't Siri book my plane tickets? I don't know. Okay. I agree with you. But they are not doing it. Why?

They can't do. I think they can't do it. Well, I think they can do it, but they're so... They fired the AI guy recently. I think they don't have the horses. They didn't, I don't know if they fired him or if he left. Sure. But I think the issue is that they're so concerned with security.

As their whole being has been, we are going to keep your data. We're the safe tech. And so how do you do this and still maintain the story that you're basically the safest tech? So, you know, I think there's... There's probably a bit of a conundrum. You think that's why they announced, they announced new and improved Siri and AI capabilities two full years ago, have not delivered. Multiple iPhone models have come and gone and they don't have it.

It's great. I've never seen anything like it. I'll tell you it's incredibly frustrating. Are the alarm bells going off there? Are they nervous? I certainly hope so. Okay. I certainly hope so.

because I don't know if they're nervous. I think that to some extent they've, you know, milk this device enough. I personally hate carrying around an iPhone. Okay. I wish I didn't have to. I love it. I take it in the shower.

No, if there were a new form factor that everyone was doing, I would do, if it's an amulet that you were around your neck and you talk into it and people just got used to that, I would roll with it, but there just isn't. But there will be. So, so our job is to figure out what the possibilities are in three years. Right? Is it possible for there to be a different device that is screenless? Is there, is it possible for there to be a different device that you interact with differently? So you're not, you know, opening this 150 times a day. Okay. Right. And I think there is. But if that goes away, what happens to matter? Yeah. So, so there, this is a discussion that we've had internally of as you go to a more screenless world, what happens to other business models.

That is the Instagram. Right. If I don't, if I don't, if I, if I, don't have my rectangle and I'm not doing this, then where does TikTok and Instagram get revenue from? Wouldn't it be wonderful to not have TikTok and Instagram? You know how bad it is for our brains? It's like really good for my ego, though, at least Instagram. All right. I get it.

I mean, but they said, listen, I remember Google Glass was already like 12 years ago. It was a bust. The Snapchat spectacles didn't go anywhere. Apple's own stupid helmet that only Michael bought no one else on earth. They sold one. He returned it to his credit. Like, I'm waiting, but until I think the rectangle is the rectangle. And I don't think that anything can get in between us and our rectangles.

Yeah. I think for now you're right. Yeah. But the longer they don't have a solution, the more at risk their model becomes. Their CAPEX went down year over year. They seem super comfortable. Resting on their morals. Well, I don't know if it's rest.

I actually think this part is brilliant. They're like, you guys spend the CAPX. We're just going to be the layer on top. We just hit the 30% in the app store. We're just going to sit on top and use your compute. Like you guys go spend all the CAPEX. I think it's either Apple or Amazon or the best of the MAG 7 year to date for different reasons.

Well, is Apple still the best business in the world? I think the biggest size and the highest gross margins, probably. No, Apple's gross margins are not the highest. gross margins and video's gross margins are higher. Oh, Nvidia, yeah, Nvidia would be the best. Even Google, Google's gross margins are higher. Is that right? Okay. Yeah, Apple is 40%.

38, 40% is apples. That's it? Yeah. What a piece of shit. Ancoeur, did you have fun on the show today? It was great. All right, so we're going to take a brief intermission and then we'll, no, I'm kidding. I have to say, this has been so illuminating for me.

I've learned so much just talking to you today, and I think you were amazing on the show, and thank you so much for doing this. Thanks for having me. You guys are fun. Would you come back? Oh, I would love to. What are you doing next week? Not next week.

This guy, or you're shaking his head now. All right. I want to tell people how they can learn more about Alger and your funds. So is it Alger.com? Is it that simple? Yeah. Okay. And do you do, you're not doing social media really, are you?

A little bit? No. No. But for you. So I respect that the most, I think. Maybe I'll write a butt to do it for me. We want to have you back to talk about robotics and, I know, look at your face.

Look how excited you are. All right. Well, so we're going to... Oh, we have a lot to talk about. All right. So maybe we'll do that later this year. I just want to say thank you so much for joining us. And guys, thank you for listening.

Compound appreciates you. If you have not yet, hit the like button on this episode, on whatever platform you are watching or listening to us. Now would be a pretty good time to do that. What do you think, John? Right now? 100%. 100%. All right.

Guys, thanks again. We'll see you soon. You guys are fun Yeah