Busy couple of weeks on results front
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Sam Altman, Open Ai chief joined President Trump to announce the Stargate Project, A $500B data centre/super computer initiative spanning 4 years. Key partners are NVDA, ORCL, OpenAi, ARM, MSFT and Softbank. We will deploy $100B immediately. Altman went on to say 'this infrastructure will secure Americas leadership in AI, create in excess of 100k jobs and create massive economic benefits for the entire world.
The build out is in progress now, starting with Texas. The entire stack will operate on Nvidia hardware and software.
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Well, it's interesting looking back at the commentary around certain tech names vs the wider noise, naysayers and speculation. I can assure you those that were negative will continue with the same comments. Classic human nature, an inability to change ones mind or simple envy. Take your pick.
The area where there is the most misunderstanding is, the built out of AI is required to make machines a LOT smarter than they are today. A machine 100X smarter than a human. We aren't even 1X yet. Further the foundational models build on one another. You can't build chatgpt 10 without building 5 through 9. Further there is simply not the GPU or HBM or the rack scale capacity or the power supply to build it even if you wanted too. Stargate looks to be around 5M GPU, it will vary because one must assume chips being used which haven't been built like Ruben next. Masa Son speculated 20M would be needed to run the known models being built today. This is just the chatgpt, llama, Claude, PaLM models. Many times more will be needed for robotics, autonomous cars, enterprise and sovereign solutions.
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The build out(progress) is an investment in the future, no different to any other major infrastructure. The goal is it will pay off significantly for the early investors. And the point I'm making is, we don't have to defend our position because it is evidence based. Evidence that shows clearly that the main players in this space have a very long runway for growth. A runway that is clearly much bigger than even the most bullish actually thought.
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A good example of why we maintain a US centric strategic asset allocation:
INDIA
A year ago, India was recovering from a recession triggered by Covid-19 with renewed optimism. The country had surpassed China as the world’s most populous nation, and its leaders were proclaiming India as the fastest-growing major economy globally.
This was music to the ears of foreign investors, and to India’s Prime Minister, Narendra Modi, who, at every opportunity, boasted about his nation’s inevitable ascent. With a population of 1.4 billion, a revitalised India could potentially become an economic powerhouse, driving growth across the world, which was still grappling with trade wars, China's difficulties, and Russia's invasion of Ukraine.
India overtook the UK in 2022 to become the world’s fifth-largest economy, and by next year, it is anticipated to surpass Germany to claim the fourth spot. However, India has recently shown signs of slowing down, exposing its vulnerabilities even as it rises in global rankings.
The stock market, which had enjoyed years of growth, has now erased the gains of the past six months. The currency, the rupee, is rapidly depreciating against the dollar, diminishing the value of local earnings on the international stage. India’s emerging middle class, whose wealth soared post-pandemic, is now questioning where things have gone wrong.Since the government withdrew large sums of cash from circulation in 2016 in a failed attempt to curb the underground economy, the economy has never quite regained its previous pace of 8 percent growth. It only appeared better because of the "Covid dip," which affected many economies. India’s economy didn’t return to its pre-pandemic size until last year, later than most other nations.
The reasons behind the slowdown are open to debate. However, one impact is certain: foreign investors have been exiting the market.
“Foreign investment has decided that the Indian stock market is overvalued,” prof at LSE 'asian economies'. “It’s quite logical that they would exit these troublesome emerging economies and invest where they can earn more,” such as on Wall Street."The above notwithstanding, India even at its peak, significantly underperformed IML
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Sam Altman, Open Ai chief joined President Trump to announce the Stargate Project, A $500B data centre/super computer initiative spanning 4 years. Key partners are NVDA, ORCL, OpenAi, ARM, MSFT and Softbank. We will deploy $100B immediately. Altman went on to say 'this infrastructure will secure Americas leadership in AI, create in excess of 100k jobs and create massive economic benefits for the entire world.
The build out is in progress now, starting with Texas. The entire stack will operate on Nvidia hardware and software.
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Twilio(TWLO)/PHT- provided investors with a business update last night, reporting that Q4 revenue and earnings will be at the very top end of guidance and gross margin will be better than expected.
Twilo has been as low at $50 and as high as $150 during our holding period and we have been actively managing the position, taking advantage of low prices along the way.
The stock is up 60% since October and it popped another 15% after hours last night.
Regards
Adam
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If you recall, we mentioned Nuclear power in the data centre quite some time ago. More recently it's become a discussion point. Over the past few months we have been looking at it as an investment option. We have decided to pass. Why?
Utility companies are very heavy capital consumers. The best investments allow for expanding sales capacity with a relative high margin and relative low capital deployment . Like software or take Apple, a premium brand which attracts super high margin. Power generation is the opposite. Sure, we knew that several stocks would likely move higher but is it FOMO or something sustainable?
Monetising nuclear power for the data centre will take years. The market is reacting early and with irrational optimism in our opinion. And we feel when the reality of years long wait for earnings to materialise, the debt and the drag that will have on earnings, becomes reality the gains will start to unwind. Choosing a winner is also fraught with uncertainty.
Our thematic approach to investing and portfolio building allows us to look at the segment(AI) for complimentary businesses. A supply chain of critical businesses, without which accelerated computing wouldn't exist. However power is a commodity whereas other components are very complex, difficult to product, have high margins and a select few control the supply. This is where we want to be invested.
We will be adding a new name very shortly (2-3 weeks) and an announcement will be made closer to the time.
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Thanks Adam. This has the fingerprints of a 'buy-and-hold' strategy all over it, which I like. Short term-ism on businesses with less strong fundamentals is referred to by our old friend Terry Smith as 'Greater Fool Theory', and I approve more of the former.
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Breaking News-Trump revokes Biden's AI Chip Difussion policy. It's now a case of watch this space to see what they come up with. It's definitely a positive
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It didn't 'react' when the Stargate project was announced, nor when they imposed the chip policy so i don't expect much now. Investors are waiting for earnings/guidance and whilst other tech reporting next week or so will be a catalyst I doubt much will happen until they announce their quarterly figures and provide some commentary on the rest of the year-after all it is floating around its all time high. And it is the world most valuable company
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Thanks Adam, makes sense, easy to forget they stock split @ 1200 not too long ago !!
Any thoughts on SMCI ? I know earnings are due soon, in the light of no more bad news, I'm hoping for something positive !@exIM said in Busy couple of weeks on results front:
Thanks Adam, makes sense, easy to forget they stock split @ 1200 not too long ago !!
Any thoughts on SMCI ? I know earnings are due soon, in the light of no more bad news, I'm hoping for something positive !I'm hoping SMCI will drop swiftly so I can buy some more.
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Hi,
Re SMCI, it appears as though they did nothing wrong. Earnings won't be officially released until they file the 10-k, the dead line is 25 Feb. They can comment on an earnings guide but it's just that. All 10-Q(quarterly) will remain outstanding until they file the 10-k (Annual Report).All I'll say is the mess they found themselves in would not have happened if the senior management had tighter control over everything. They made bad decisions in certain communications with investors and 'the street' and I hope they have learned from it!
Stargate and all future DC build out needs DLC. SMCI just don't supply DLC, theirs is no doubt, the best. There is only so much capacity, globally and they control maybe 40% of it. So imo either way they are going to get a lot of business. But as you have seen, great product, lousy management, so the point is, they need to make certain corrections in many areas. We decided to retain a holding because of two reasons, we booked a very high realised gain and the product is too good to ignore.
The company will have to raise more capital to meet the continued increase in server prices and demand-this isn't anything new, so i expect a combination of equity(dilution) and debt.
Things for them should get back on track after March, provided they file on time-i believe they will.
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Meta, not to be outdone by OpenAi just announced its 4 Million Sq ft, Louisiana Data Centre. Power consumption will be 2GW and all renewable. The project will be finished by year end and consume 1.3 million GPU at a capital cost of circa $65B. To put that into perspective, there are 500 data centres in the UK consuming 6.9GW. It's enormous. Meta is at an all time high of $650. We purchased the stock initially on 3 May 2024 for $450
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Over the weekend, a little know Chinese start up published results of it's latest LLM-DEEPSEEK which were very impressive, sending the US tech sector into a wobble. They claim to have achieved these results with a handful of chips and a laptop. Not quite but $5M. The truth looks like they have 50,000 H100 Nvidia chips-and obviously they can't say that. My take is, are we to believe an unknown has done what Altman, Deepmind, Musk and Zuckerburg could not. In our opinion all that has changed today is the market wants to sell stock and even if there is some truth behind the claims it doesn't change a thing.
LLM's like chatgpt are not the end game, in the scheme of things they are very early and basic building blocks. Stargate and Meta's $65B data centre announced Friday are AGI-goal machines.
To think across the Mag 7, they all got outdone by a handful of guys in a back room with a laptop is, shall we say 'unlikely'.
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If anything, it may show that China are not as far behind as many think-the LLM is apparently very good but the suggestion it was trained on a handful of H800 chips is not plausible. If anything it will drive even more US investment.
