00:00There's picks and shovels, but picks and shovels can be big or small or somewhere in between.
00:05And we've become so focused on this small group of ginormous technology companies.
00:10We talk less about the rest of the field, and that's the field that you play in.
00:14That's correct. Thanks, Seth. It's great to be here.
00:16And absolutely, I mean, we're seeing really this opportunity broadening out beyond just a small group of players
00:22which have really powered the CapEx trade so far.
00:25And we're seeing that broaden out to many of the companies that maybe aren't even thought of as AI companies
00:30per se.
00:31They're not known as technology companies, but you're seeing the value chain expand beyond just the compute,
00:37the memory players, into areas like water and power.
00:40I mean, these are critical areas when you look beyond the value chain that are going to be needed to
00:45support the growth of AI and data centers.
00:48And so there's a number of really interesting opportunities, I think, that sit beneath the surface in the mid-cap
00:53arena
00:54that we find very attractive.
00:56Really interesting how that's played out over time.
00:59If you take high bandwidth memory as an example,
01:03it's been quite some time where high bandwidth memory is part of the server design.
01:07And it seemed like overnight we were like, oh, my goodness, everyone needs high bandwidth memory.
01:11Is that analogous with what's happening in power and water?
01:14People are saying, uh-oh, we better do something.
01:16I think it is.
01:17I mean, there's obviously a lot more challenges as you move from to the law of physics around implementing some
01:23of the power needs
01:24that are required to support all these data centers.
01:26And so there's, I think, a whole breadth of opportunities that aren't necessarily as focused on.
01:31But when you think about not only the data centers around the need for power and energy, but also water,
01:38when you look at the scarcity of water, the water treatment that's required all the way from the actual development
01:46of the chips
01:46into the data centers for cooling, that's another really interesting area that I think, as an enabler,
01:52those companies that are providing those technologies are going to be very well positioned
01:56when you look out over the next five to ten years.
01:58When you look at the Mag7, there's a lot that's analogous between them.
02:02They are hyperscalers, or they have similar business models, or they rely on the same partner, NVIDIA.
02:09In the mid-cap segment, there's a lot more diversity.
02:12Very much so.
02:13It's a bigger field.
02:15How do you pass all of that?
02:17Yeah, it's a great point.
02:19And I would say within the large-cap arena, when you look at the concentration in the index and the
02:24large-cap index,
02:25roughly about 40% of the index is driven by ten companies.
02:30When you look at mid-cap, the largest constituent is actually closer to about 70 to 80 basis points.
02:35So a lot more dispersion, a lot more opportunity set.
02:38And I'll also say, just from a valuation perspective, you've got large-caps trading today close to 21 times.
02:44You've got small-taps closer to 25 times.
02:47And you've got mid-caps around 17 times.
02:50This is a very attractive value prop relative to comparable earnings growth that we see over the next few years.
02:57And so we think there's a lot of great opportunities, again, and also the concentration, the sector composition is quite
03:05different than large-caps.
03:06So you're able to diversify away from this very, what is becoming a more crowded trade, into areas that will
03:14benefit from AI.
03:15But they're not dependent upon AI.
03:17So a lot of the opportunities that we focus on have AI as an enhancement.
03:21Did you give a case study?
03:23Absolutely.
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