00:00What's really interesting, you've been thinking about some of these bottlenecks, and we think memory is one.
00:04We've been thinking about how infrastructure is one of them as well.
00:07We're thinking about how power is to EPEC.
00:09How are investors trying to play this?
00:11Are they still worried about an AI bubble, or are they still all in on the areas that still are in demand?
00:17Well, there are now bottlenecks that are trying to pop, as you say.
00:21One is energy and memory chests.
00:23We also have a heavy rise in metal prices, especially copper prices, that are pressuring input prices higher.
00:31And these pressure in input prices started to worry investors in many segments.
00:36Not all segments are concerned, but many segments, especially hallway companies and data centers,
00:42are now feeling the pinch of higher input costs and eventually higher energy prices as well.
00:48And one of the other problems is obviously the trade tensions, potential shock to supply chains,
00:53and all of that is just playing quite negatively into this AI, the optimistic AI narrative that we had seen over the past three years.
01:02And then comes TSMC, that sort of eased a lot of that anxiety, saying that AI demand, we see it.
01:08Sure, we're cautious, but we see it and we build.
01:11What does that mean about the ultimate story?
01:13How much did optimism get breathed back?
01:14Well, it did.
01:17TSMC beat estimates.
01:18That was not a surprise.
01:20That's just another quarter of very strong results from TSMC.
01:24And they say that the demand in AI remains strong and they're building more chip plans.
01:30And that also justifies TSMC's building chip plans outside the United States, in Japan, in Europe, and obviously in the U.S. as well.
01:38So, the demand remains strong, but building these chip plans and building the data centers requires confidence.
01:46And the confidence, the supply of confidence is unfortunately not infinite.
01:51So, that is going to be a bottleneck and that's going to be the capacity constraint that could eventually become a headache for the sector and the growth expectations.
02:00Deepak, if I showed you a long-term chart of memory spot pricing, it would be for a number of years basically steady, only because of the severity and the surge in the last month.
02:14At this juncture, do we need to start talking about the impact of memory, you mentioned energy as well, on inflation and have a more economic discussion about what this shock, this bottleneck is causing?
02:26Well, obviously, there are now rising worries about the fact that all of these AI demand and resources being limited is going to start pushing prices higher.
02:36For the memory chips, we're talking about very big numbers.
02:40I mean, 30% rise only last quarter, according to Samsung's report earlier this month.
02:45And as Ryan also said, I mean, this is a very important component of hardware companies and it will eventually start pressuring their profit margins and leads to price pressures.
02:57Now, the question is how much of these costs, of these additional costs, will be pushed onto the end customers?
03:04The reality is that we do not know, but the higher the demand, the higher the prices will be going to be going up and the higher the pressure will be on the profit margins.
03:15There, the competition is going to be important.
03:17The higher the competition, the bigger the impact on profit margins.
03:21And these companies will not be able to push the prices too high because, well, then there will be implications on the demand side.
03:29The memory bottleneck, is that going to be the talking point of this technology earnings season?
03:37Well, yes, I think that is going to be one of the major talking points along with energy and the metal prices as well.
03:45All of these input prices are rising.
03:46The other thing that we will be really watching very closely in this earnings season is obviously the headline numbers.
03:53But not only, we will be also looking very closely into how the revenues are being booked and how the loans are also being booked in order to not let the technology companies build this narrative, but also try to dig into the risks that could be underlying.
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