Invest Like the Best with Patrick O'Shaughnessy
Gavin Baker - AI Market Jitters - [Invest Like the Best, EP.485]
· Summarized
Key takeaways
- Despite recent market declines in AI stocks, fundamental industry metrics such as cash flow, GPU availability, and inference cloud activity continue to accelerate, indicating strong underlying growth.
- Private AI companies and private infrastructure projects are advancing rapidly and unseen by public markets, explaining potential valuation disconnects.
- Supply chain constraints, long-term contracts, and game theory of memory market share are critical to industry profitability. If cash flows slow or credit tightens, infrastructure buildout could face challenges.
- Regulatory risks represent the biggest threat to AI development and deployment. The industry needs to improve its storytelling to mitigate political and public misperceptions.
- Technological innovations like SRAM accelerators, disaggregated architectures, and continual learning models could significantly improve ROI and scale of AI hardware.
- Potential dark horse companies, including smaller startups and space-related ventures like SpaceX, could emerge as key players unexpectedly, altering the competitive landscape.
- Maintaining a balanced view and pressure testing assumptions is essential, as the true opportunities and risks in AI are still unfolding amidst rapid technological progress.
Summary
Market Sentiment and AI Industry Fundamentals
The podcast begins with the hosts reflecting on market dynamics, noting a recent period of upheaval in AI stocks despite strong underlying fundamentals. Gavin discusses how metrics both inside and outside the industry, such as GPU pricing, inference cloud activity, and cash flow from major tech firms, indicate continued acceleration in AI development and adoption. He emphasizes that much of the recent market jitter appears disconnected from these ground realities, which suggest ongoing growth and technological progress.
Discrepancies Between Private and Public Markets
Gavin highlights that private AI companies and private cloud infrastructure projects are advancing rapidly, unseen by public markets. This disconnect explains why market valuations may seem disconnected from what is happening behind the scenes at Silicon Valley’s cutting-edge firms. He mentions that private companies’ cash flows and innovations are much stronger than what the public market perceives, driven by advancements like open source inference models and increasing compute efficiency.
Supply Chain constraints and capital markets
A major focus is on the supply chain for AI hardware, particularly GPU and memory pricing. Gavin discusses how long-term contracts, supply agreements, and the game theory of memory market share are crucial to understanding industry profitability and growth. He warns that if operating cash flows don’t continue to accelerate, or if credit becomes scarce, the entire buildout of AI infrastructure could face significant hurdles. The importance of strategic financial arrangements, like revenue sharing and credit wrappers for Nvidia, are also examined.
Regulatory Risks and Industry Narratives
Gavin stresses that regulation remains the most significant risk for AI and data center expansion. Despite widespread growth, public perception, policy debates, and misinformation about environmental impact or job displacement threaten to slow progress. He advocates for the industry to be more proactive in sharing accurate stories about AI’s societal benefits, such as healthcare and infrastructure investment, to counteract political pressure.
Technological Innovations and Cost Improvements in AI Hardware
The conversation shifts to technological innovations, particularly the potential of SRAM accelerators and disaggregated AI architectures, which could greatly improve ROI for AI hardware. Gavin also discusses ongoing advancements like continual learning models, multi-modal systems, and the evolving role of open source tokens in reducing costs and increasing durability of AI models. He emphasizes that such advances will influence how the industry scales and sustains growth.
Future Market Players and Dark Horses in AI
Gavin speculates on potential lesser-known companies that could become dominant players, akin to the 'dark horse' contenders like Micron or specific startups like Leibou and Cognition. He also considers the role of SpaceX and orbital compute as future transformative firms, although these are not yet fully appreciated by markets. The discussion underscores the importance of unique technological or strategic advantages that could disrupt current industry leaders.
Summary and Final Thoughts
The episode concludes with reflections on the resilience of the AI industry amidst recent setbacks. Gavin reiterates that despite market jitters, the fundamentals remain strong, and the true risks, mainly regulatory, are manageable if the industry acts transparently. He encourages a balanced view of technological progress and emphasizes that the most significant opportunities and risks are still unfolding, demanding continuous pressure testing of assumptions.
Sponsors
- Ramp · Ramp is the only platform built to make your finance team leaner, faster, and better, saving businesses 5% annually on average so you can stay focused on growth. Ramp customers grew revenue 3.2 times faster than the average American business. Visa, Fersel, Cursor, Stripe, Notion, 11-Mibes, Shopify, and 70,000 other businesses all run on Ramp. Learn more at ramp.com slash invest.
- Felix Byrogo · Felix Byrogo is a personal finance agent that turns a single prompt into finished client-ready work using your firm's templates, context, and standards. Send Felix an email like, take these comments and turn them for me, or update my tracker with the context of these emails, or run the ability to pay math on this buyer, and Felix sends back Finnish PowerPoint decks, Excel models, and source research. Felix works the way your team already does, delivering work quickly and accurately around the clock. Learn more at rogo.ai-fuelix.
- WorkOS · The best AI and software companies from OpenAI to cursor to perplexity use WorkOS to become enterprise-ready overnight, not in months. Visit workOS.com to skip the unglamorous infrastructure work and focus on your product.
- Vanta · Vanta automates security and compliance for over 16,000 companies, helping them stay auto-ready around the clock and streamline audits. It works like a 24-7 GRC engineer, finding issues, drafting fixes, and cutting vendor assessment time by up to 50%. Special offer for Invest Like the Best listeners: $1,000 off at vanta.com/invest.
- Ridgeline · Ridgeline has built a modern, real-time operating system for investment managers, handling trading, portfolio accounting, reporting, compliance, and more on a unified platform. Visit ridgeline.ai to learn more.
- Rogo · Rogo is an AI platform specifically for finance, building agents trained to understand diligence, modeling, and analysis workflows on Wall Street. Check out rogo.ai/invest for more.
Show notes
My guest today is Gavin Baker, founding partner and CIO of Atreides Management. This is our seventh conversation, and just two months after Gavin's last appearance.
It's about the gap between what the market is doing and what companies are seeing. It's been a tough month or so for public AI names, but there's no sign of a slowdown on the ground in Silicon Valley.
We discuss the latest moves, contracted vs. spot GPU prices, the game theory of memory supply agreements, and why Claude has become the Walter Cronkite of the stock market. We close on SpaceX, orbital compute, and what Gavin sees as the single biggest risk to all of it.
Please enjoy this conversation, from the famous table at Benchmark, with my friend Gavin Baker.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
-----
Become a Colossus member to get our quarterly print magazine and private audio experience, including exclusive profiles and early access to select episodes. Subscribe at colossus.com/subscribe.
-----
Ramp's mission is to help companies manage their spend in a way that reduces expenses and frees up time for teams to work on more valuable projects. Go to ramp.com/invest to sign up for free and get a $250 welcome bonus.
-----
Trusted by thousands of businesses, Vanta continuously monitors your security posture and streamlines audits so you can win enterprise deals and build customer trust without the traditional overhead. Invest Like the Best listeners get a special offer of $1,000 off Vanta when you go to vanta.com/invest.
-----
WorkOS is the infrastructure B2B and AI-native companies use to sell to enterprise. It covers everything enterprise security requires: SSO, SCIM, RBAC, Audit Logs, AI governance, and more. Trusted by 2,000+ fast-growing companies, including OpenAI, Anthropic, Cursor, and Vercel.
-----
Rogo is the AI platform for finance. They're building agents for Wall Street that are trained to understand how bankers and investors actually do work: from diligence and modeling, to turning analysis into deliverables. To learn more, visit rogo.ai/invest.
-----
Ridgeline has built a complete, real-time, modern operating system for investment managers. It handles trading, portfolio management, compliance, customer reporting, and much more through an all-in-one real-time cloud platform. Visit ridgeline.ai.
-----
Editing and post-production work for this episode was provided by The Podcast Consultant.
Timestamps:
(00:00:00) Welcome to Invest Like The Best
(00:02:35) First Question: July Was 2022 in a Month
(00:04:08) The Private Companies Public Markets Can't See
(00:05:06) Old GPUs Repricing Higher
(00:06:53) Walking Through the Month
(00:08:22) Kimi, GLM 5.2 & the Open Source Freak-Out
(00:10:51) Real Yields, Spreads & CDS
(00:11:54) Does the Build-Out Need Credit?
(00:15:22) A Sell-Off With No Clear Villain
(00:17:35) Open Source as Dark Matter
(00:18:39) Nvidia's Lowest Forward PE in 10 Years
(00:21:35) Claude as Walter Cronkite for the Stock Market
(00:23:55) Continual Learning & Sample Efficiency
(00:25:19) What Would Actually Scare Him
(00:26:38) Routers & the Multi-Model Future
(00:30:51) Tokens as a Percent of Comp Spend
(00:33:37) The Game Theory of Breaking an LTA
(00:36:41) Nvidia's Credit Wrapper & Revenue Share
(00:37:45) What He'd Do If He Ran Hynix
(00:41:46) Who's More Bullish than Him
(00:43:28) China's DUV Machine
(00:46:10) Bull Case for Software
(00:48:16) The RSI Maximalist View
(00:49:31) Inference Clouds Growing Without Burning Cash
(00:50:35) The Biggest Risk Is Regulation
(00:53:44) Telling the Story Better
(00:57:15) Dark Horses
(00:58:02) SpaceX in the Public Markets
Follow this show on AudioBrevity and new episodes get summarized for you. Create a free account