Invest Like the Best with Patrick O'Shaughnessy
Alex Sacerdote - How to Invest Through Technology Cycles - [Invest Like the Best, EP.477]
· Summarized
Key takeaways
- Understanding where a company or technology is on its S-curve is crucial for timing investments and predicting exponential growth.
- The AI industry is characterized by a focus on infrastructure and foundational models, with scale, intellectual property, and network effects creating significant moats.
- Infrastructure chips and compute hardware are experiencing a renaissance, driven by the exponential growth in AI workloads, leading to a de-commoditization and increased innovation in hardware components.
- Despite optimism, investors should be aware of risks including regulation, model stagnation, open-source competition, and erosion of competitive moats.
- Deep relationships, thorough due diligence, and intuitive understanding are essential in private market investments and in identifying long-term winners.
- AI tools are improving research and analysis efficiency but do not replace the importance of human judgment, relationships, and experience in making investment decisions.
- Maintaining a broad network of investor relationships and sharing ideas helps improve conviction and uncover opportunities.
Summary
Introduction and Context Setting
The podcast begins with host Patrick O'Shaughnessy introducing Alex Sacerdote, founder of Whale Rock Capital Management, highlighting the firm's focus on technological innovation, large-scale private and public market investments, and their specific lens on technology S-curves, competitive advantages, and underappreciated earnings potential. The episode aims to explore these themes through Alex’s investment philosophy and current areas of conviction, notably AI and infrastructure.
Alex Sacerdote’s Investment Framework and Current Convictions
Alex discusses his overarching investment thesis centered on technology S-curves, durable competitive advantages, and undervalued earnings growth. His current top conviction is Anthropic, which he sees as a critical player across the AI stack, from chips to models to applications. He emphasizes the importance of understanding where companies are on their respective S-curves to identify exponential growth phases, and he shares insights about his approach to private market investments, which includes deep relationships, extensive due diligence, and proactive engagement with company management.
Understanding Technology S-Curves in Investing
A significant portion of the episode is dedicated to explaining the concept of S-curves and their importance in technology investing. Alex elaborates on how different technologies follow distinct curves, noting the importance of timing in entering these markets—early enough to capture exponential growth but avoiding the pitfalls of being too early. He discusses historical examples like internet adoption, electric vehicles, and smartphones, emphasizing the need to monitor adoption barriers, demand signals, and how competitive moats develop during different phases of the S-curve.
The AI Stack and Industry Dynamics
Alex explores the AI industry landscape, focusing on the competitive dynamics among leading players such as Anthropic, OpenAI, and Google, highlighting the importance of scale, intellectual property, and network effects. He emphasizes that infrastructure—in the form of chips, compute, and hardware—is now experiencing a renaissance due to the exponential growth in workloads, leading to a de-commoditization of hardware components and remarkable unit growth. He also discusses the importance of company moats, scale, and how early winners establish significant advantages.
Risks, Challenges, and the Future of AI Investment
Despite bullish optimism, Alex acknowledges risks such as regulatory hurdles, slowing model improvements, open-source competition, and potential erosion of moats. He stresses the importance of understanding the rate of change in market share and growth metrics and the challenges in predicting which companies will ultimately lead. The episode discusses how companies at different levels of the stack might evolve or be disrupted by the continual improvements in AI models and infrastructure.
The Application Layer and Downstream Opportunities
Alex notes that, historically, the most valuable part of tech investments has been the application layer, but currently, the focus is on infrastructure, chips, and foundational models. He expresses cautious optimism about the future role of application software, recognizing that disruption may still be a few years away, but anticipates a wave of innovative app companies leveraging AI and foundational models.
Research, Insight Generation, and the Changing Nature of Investment Analysis
The discussion covers how AI tools are augmenting research and analysis work at Whale Rock, improving productivity but not replacing the critical thinking and relationship building that define high-quality investment research. Alex underscores the importance of deep company relationships, anecdotal evidence, and human intuition, especially in complex sectors like enterprise AI.
The Role of Networking and Idea Sharing Among Investors
Alex emphasizes the value of professional relationships, sharing ideas, and maintaining a network of like-minded investors. He describes his process of building conviction through discussions and collaborative analysis, which complement his scientific approach to understanding cycles and technological shifts.
Building and Evolving Whale Rock’s Product Offerings
The firm has diversified its investment products over time, including long-only and private strategies, driven by the recognition of the underweighting of large tech companies and the potential for alpha. Alex discusses how their research-driven culture, cumulative knowledge, and flexible product design enable Whale Rock to serve a broad investor base with tailored investment options.
Closing and Personal Reflection
In closing, Alex shares personal insights about the importance of humility, integrity, and mentorship. He reflects on his father’s influence, his approach to risk, and the rewards of a patient, research-focused investment philosophy. He underscores that consistent, long-term compounding—similar to business or personal relationships—is the key to success.
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. Learn more at ramp.com/invest.
- Vanta · 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 · WorkOS provides infrastructure solutions for B2B and AI-native companies to sell to enterprise, covering security requirements like SSO, SCIM, RBAC, Audit Logs, and AI governance. Trusted by over 2,000 companies, including OpenAI and Anthropic.
- Rogo · Rogo is the AI platform for finance, building agents for Wall Street trained to understand diligence, modeling, and analysis, turning insights into deliverables. Learn more at rogo.ai/invest.
- Ridgeline · Ridgeline has built a modern operating system for investment managers, handling trading, portfolio management, compliance, and reporting in a real-time cloud platform. Visit ridgelineapps.com.
Show notes
My guest today is Alex Sacerdote, founder of Whale Rock Capital Management.
Whale Rock is a technology focused investment firm that manages more than $17 billion across hedge fund, long only, and hybrid strategies. Over the past three years it has been one of the best performing hedge funds, compounding at roughly 44 percent a year.
Alex invests through a single lens that he has refined over twenty years. He looks for technology S-curves, durable competitive advantages, and underappreciated earnings power.
This conversation is a tour through how he applies that framework right now. We start with his highest conviction position, which is Anthropic, and use it to work through the entire AI stack from chips to models to applications.
Please enjoy my conversation with Alex Sacerdote.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
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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.
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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.
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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.
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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.
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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.
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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 ridgelineapps.com.
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Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com).
Timestamps:
(00:00:00) Welcome to Invest Like The Best
(00:02:29) Alex Sacerdote
(00:03:08) Anthropic: Highest Conviction Position
(00:13:23) Investing in Private Markets at Scale
(00:19:08) S-Curves: The Full Framework
(00:25:08) When to Buy Tech Companies
(00:30:20) Identifying the Leader from the Pack
(00:34:04) Anthropic & OpenAI's Competitive Moats
(00:37:31) AI's Threat to Enterprise Software
(00:43:18) Network Effects in the Agent Era
(00:44:22) The Hardware Renaissance: Chips & Infrastructure
(00:53:56) Why So Few Investors Get This Right
(00:55:36) Key Risks to the AI Bull Case
(00:57:47) The Application Layer
(00:59:40) How AI Is Changing Research at WhaleRock
(01:02:53) The Role of Investor Networks & Idea Sharing
(01:03:40) Building a Multi-Product Firm
(01:07:58) WhaleRock as a Learning Machine
(01:09:15) The Kindest Thing
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