00:00Micro is now macro. That's how big this AI company's spending has gotten too.
00:05So one thing that we're paying attention to is capex kind of trajectory.
00:09I'm not just talking about NVIDIA. I'm talking about the whole AI complex.
00:13Already beginning of the year, it was record level and it has been revised higher.
00:18And higher capex also means competition for capital is intensifying and that pushes rates higher as well.
00:25We're in a higher rate environment, but on the flip side of that, durable income becomes a more important theme
00:31for portfolio, which we're very excited about.
00:34But back to equities, MAC7, you know, we just talked about the S&P 500 trading at below 20 times.
00:42MAC7 for PE is just above 23 times, which is close to a three year low at the moment,
00:49mostly because of what there has been a bit of consolidation rotation, but also strength of earnings.
00:55So within the broader AI ecosystem, there is a sub thing, which is scarcity sellers are doing quite a bit
01:02better than scarcity buyers.
01:05And NVIDIA is scarcity seller.
01:08You look at some of the price increase that we have been talking about.
01:13It really does show that they have earnings pricing power, earnings momentum, and that's something that we are very excited
01:18about.
01:19Oh, that's really interesting.
01:20So you see that as a pricing power story for NVIDIA, not a concern about margin squeeze on higher memory.
01:27The read you take from that is they have pricing power.
01:30They can do this and do it comfortably.
01:32Well, there is the whole AI ecosystem and pricing dynamics very much kind of shifts where revenue is accruing.
01:40So there is pricing power.
01:42Memory prices are also going higher.
01:45And I would also think of memory providers as scarcity sellers, too.
01:51So if you think about them as kind of players within the whole ecosystem, sellers better than buyers in this
01:58particular case.
02:00And the models have a role to play within the overall ecosystem as well, because we talked about how valuations
02:06look attractive.
02:07But earnings durability very much at this point divides AI bulls from AI bears.
02:13And as we think about kind of the commoditization risk from China, it impacts models.
02:19And specifically, we just talked about some of the pricing dynamics.
02:22It's happening within model providers, too.
02:24You look at leading model labs in the U.S. OpenAI, for example, you see that the less advanced models
02:31are more kind of facing the pressure of commoditization,
02:36whereas the very leading edge models, they still command pricing power.
02:41And that is important, which is why they are throwing everything at it to try to lead in the frontier
02:46race.
02:47So the bottom line is we're still positive.
02:49The AI trade, because momentum is very strong, CapEx is strong, your CapEx is my revenue, so things are going
02:55up.
02:56But we're paying attention to model development to understand the progress of technology.
03:01We're paying attention to GPU rental prices to understand demand.
03:06We're also paying attention to incremental margin, in particular, to understand monetization trends.
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