00:00It's hard not to start with that delayed SpaceX launch. I mean, this is on the back of that mega
00:05IPO announcement.
00:06Is this significant that they're delaying this launch?
00:09No. SpaceX's superpower is managing complex systems and change, and they are being careful and deliberate.
00:17They are being engineers right now. They will figure this out.
00:20They have proven that they know how to launch rockets into space, build a broadband network, and they're just being
00:27careful, as they should be here.
00:29They've got a new pad, a new rocket. This is exactly what they should be doing.
00:33It's just a matter of time before it launches. It's not just SpaceX that's announcing an IPO.
00:37I mean, it's anthropic. It is open AI.
00:40Is there a sense that these tech space companies are at a time when the Internet companies were launching as
00:47well, were IPO-ing as well?
00:49Can you draw the comparison?
00:50Yeah. Listen, I lived through that time as an engineer.
00:53I was an engineer in the telecom equipment industry,
00:56and there's many, many comparisons that we can make between then and now.
01:01The most important is this.
01:03Back then, there was dark fiber everywhere.
01:08Telecom services companies were laying out infrastructure far in advance of demand,
01:13and we had not figured out the business models to really make these Internet companies work.
01:20Today, we are not in that same spot.
01:22There are no dark GPUs. We are short of compute massively.
01:26And the most bullish signal that is going on in the markets right now is that anthropic revenue chart.
01:32They have gone from, at the end of 2022, they had about $10 million of revenue.
01:37They 10 times did in a year.
01:39Then they 10 times did again to a billion.
01:41Then they 10 times did again almost to 10 billion.
01:44In the past three months, they have added $20 to $30 billion of recurring revenue.
01:51We are in a massive surge of end demand, enterprises paying for tokens, paying for artificial intelligence.
01:59And it's largely on one job category, software development.
02:02So we do not think we are in a bubble.
02:04We think we are at the beginning of something profound, the beginning of a profound productivity shock.
02:09So if you can get a piece of the IPO, you get in, you buy.
02:12Well, we already own it in the strategy that I manage.
02:16We own Anthropic. We own OpenAI.
02:18But for the rest of us.
02:20We are very bullish broadly on the category.
02:23I won't get into specific names, but broadly on the category.
02:27And we do not think markets are pricing in what happens downstream.
02:31When companies start applying this into their businesses, how that will allow them to deliver better outcomes to their own
02:39clients,
02:39take market share, and manage their costs.
02:42It's a very, very exciting time.
02:43Yet some people say the market's already priced for perfection.
02:47I mean, that's quite a contradiction to what you're saying.
02:49Yeah, we disagree.
02:50If you look at the S&P 500, it's trading on 22 times forward earnings.
02:54But that is dominated by seven to nine very big companies on the market cap-weighted basis.
03:02But let's look at it on an equal-weighted basis.
03:04That's a better representation of how individual names in the market are trading.
03:10Trading about 17 times forward earnings.
03:12That's relatively in line with the past 10 or so years.
03:16The market is not pricing in the productivity shock that we think we're going to see in the financial services
03:22industry,
03:23in the healthcare industry, in the media industry, as artificial intelligence is applied into these businesses.
03:30And we see not only greater productivity, new value created, but also managed costs.
03:36That's not in earnings estimates right now for the broader economy.
03:40So we don't think the market is overpriced.
03:41But increasingly, it is shifting to Asia, right, when it comes to tech and AI plays.
03:47The likes of Korea, despite the recent sell-off, it is still up 70% year-to-date.
03:51I'm just wondering if people are underappreciating the concentration risk.
03:57After all, the COSPI is about two stocks.
04:00Yeah, that's right.
04:01Really what you're asking about is what is the importance of memory in all of this?
04:05And as we enter this agentic era, remember in artificial intelligence, we're really three big phases.
04:12First was the generative AI phase.
04:14Write me an earnings document or summarize an earnings document.
04:17Help me write a better email.
04:19The next phase was reasoning.
04:20Help me think better about our problem.
04:22We're now in the agentic phase.
04:24Do the work.
04:25And through each one of those phases, the demands on the compute infrastructure have evolved.
04:31As we enter the agentic era, the demands for GPUs will be very, very strong.
04:36But we also need lots of CPUs and we will need lots of memory.
04:40And so that is why firms like Samsung, Micron and SK Hynix are doing very, very well.
04:46The memory demands are very, very strong.
04:49And again, it's just getting started.
04:51We've really disrupted one job category.
04:54And the COSPI can continue its lead.
04:56I think so, because it is dominated by the likes of SK Hynix and Samsung.
05:03And they are critical memory suppliers.
05:05The deal that Samsung signed with its labor union, does that reshape the way you think
05:11of Samsung as a stock?
05:14Well, certainly we own it.
05:16I think that its labor union is being opportunistic.
05:20I didn't get really wrapped around the axle on the labor union.
05:25But average bonus of $340,000, that is quite a game changer.
05:29And pricing for memory is up meaningfully.
05:31They have very, very unique skills.
05:33We think the demand is going to far outstrip the increased costs that they're going to
05:38have to pay.
05:39So still buy Samsung?
05:41We like the memory space broadly.
05:44And we think that investors do not appreciate how big this agentic error is going to be.
05:49That is going to be great for memory companies.
05:51How else do you play AI in Asia?
05:54Well, so certainly there are contract manufacturers here.
05:58There are hardware companies here.
06:01There are also interesting open source model companies here that are trying to build business
06:06models around it.
06:07Now, specifically in Asia, we own Alibaba and Tencent.
06:12So we are back into China.
06:13We were very, very careful with China over the past many years because we didn't know the
06:18rules.
06:20Certainly the rules would change on investors.
06:22And you're back because?
06:23We're back because we think the two names that we own in China are tied to something
06:31that the Chinese government cares a tremendous amount about, being a leader in artificial
06:35intelligence.
06:36They need their market leaders to win this game.
06:40And so we do not think they're going to change the rules on their two leaders in artificial
06:45intelligence and Alibaba and Tencent.
06:48So that makes us much more comfortable being back.
06:50Do you think the world is still underappreciating the innovation out of China?
06:55Absolutely.
06:56China has been an incredible innovator here for the past 26 years.
06:59Their markets are priced like they are facing big challenges.
07:03They're not pricing in those innovation capabilities that are also very, very strong in China.
07:09So we think it really is a G2 type of framework.
07:12The U.S. is a fantastic innovator, but so is China.
07:17And so we are comfortable being back in in those AI related names where we're confident the government wants them
07:23to win.
07:23You're comfortable and you're confident about the outlook for AI and CapEx.
07:28I'm just wondering, these are, I guess, changing circumstances, right?
07:32Higher for longer.
07:33At some point in time, I guess earnings will get hit.
07:37How are you looking at the prospects for earnings?
07:40Well, so certainly what you're getting at is the, I think, the higher inflation, the higher fuel costs, the higher
07:46interest costs.
07:47Those are all areas of concern for us.
07:49We hope that some sort of deal is reached in the Middle East and ultimately that the straight gets opened
07:55up and oil starts to flow again.
07:56It will bring down pressures on inflation and certainly oil.
08:01And so hopefully this is a temporary situation that we're in right now.
08:05But again, we do not think, and yet we're starting to see enterprises experiment and deploy at scale artificial intelligence
08:15and take out and rewire their cost structure.
08:17We're seeing it throughout Silicon Valley.
08:19We have seen very strong revenue growth from many of the companies in Silicon Valley, but also rewiring of their
08:25cost structures, rewiring of their organizational structures.
08:29And we think that particularly first with the technology companies, we will see the AI benefit of selling artificial intelligence,
08:36but we will also see the AI benefit of rebuilding their organizational structures to be dramatically more agentic.
08:44The messaging is pretty clear, bullish.
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