Should Ban Pass, These 4 Stocks Will Benefit

August is off to a great start for those who have been following our AI Investor Podcast. Several of our stocks enjoyed great weeks, and our AI Investor Podcast co-hosts believe we are just getting warmed up as the summer continues. This week, Eric Bleeker and Austin Smith are looking at several stocks, including Amazon, AMD, and Palantir, while exploring a potential buy in Ultra Clean Holdings Inc. Eric will also share four stocks that could benefit should Donald Trump's ban on China datacenter components be passed.

0:00 Intro

2:08 Market recap

4:35 Narratives surrounding hyperscalers changing this month

8:57 Trump admin reportedly banning China datacenter components

17:37 Leopold Aschenbrenner

20:37 Palantir, AMD and SpaceX

32:48 What we can learn from Marvell

38:24 SpaceX helping Nvidia trend in right direction

43:09 Shopify earnings

46:55 Ultra Clean Holdings Inc. a stock to watch

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Join Eric Bleeker and Austin Smith from 24/7 Wall St as they discuss how artificial intelligence technology is quickly flowing through the global economy - leading to massive changes and opportunities for forward-looking investors. 

The AI Investor Podcast from 24/7 Wall St. explains, in practical and accessible terms, why AI is such a disruptive and exciting technology and shows investors how they can potentially position their portfolios to benefit from these game-changing shifts.

Transcript

SPEAKER_01 0:00

You are listening to the AI Investor Podcast from 24-7 Wall Street on today's episode. Don't be confused by the share price to think that this company is not important in this space. This company touches every aspect of the AI industry. They will move competitors and sister companies double digits based on what they do and what they say. Good afternoon, Eric. We are back with the AI Investor Podcast. It's the tale of two cities. I am East Coast, you are West Coast. We've got some biggie Tupac rivalry going on here. We are both traveling. But Eric, how has the summer been treating you? I think you're back home visiting family. How has uh how's early August been to you?

SPEAKER_00 0:46

It's great, Austin. Yeah, I gotta go up to uh beautiful Kamano Island, Washington. It's kind of peak weather time. Unfortunately, we do have a lot of wildfires in the area. People have probably seen it on the news in areas like Spokane. So uh a lot of fire, and we wish everyone the best dealing with that. But you know, aside from our various summer breaks, it's it's been a return to optimism in the market this week. Um, so whereas we uh spoke last week about how we had kind of called these times in the past, such as March of this year and April last year, and after Deep Seek, and we were planting our flag in the ground to say this is a truly great time to buy at that moment. We uh I think we got more lucky than anything, but I I think we may have successfully called the bottom to the very day there, as we've had quite a furious rally after that. I know in my own personal portfolio, I'm not far from all-time highs here. Some of the AI stocks are probably a little more ground to catch up, but um, uh furious shift in sentiment, uh, especially after kind of some of this debt unwind has uh kind of stopped being the predominant story of the market.

SPEAKER_01 1:52

Yeah, you know, no uh pride before the fall. So we we can't take too much, you know. Uh we don't want to brag about a victory lap, but I do think you kind of nailed this one. You know, I don't know if you bottom tick to the day or the hour, but pretty darn close on the call. And you on our last episode, and you even said we're closer to the end than the beginning here. And you know, the the major shift is pretty insane. Microsoft's up 25% in a week. We saw Amazon reporting earnings with AWS accelerating up to you know almost 40% growth of the Mag 7. Amazon is my largest position and one of the companies I do um like the most for this moment in time just because of the many avenues of optionality. They've got fantastic AI exposure. You've got the retail advertising and the fulfillment business. Um, but what do you think is behind it? Are you seeing other people out there echoing this? You know, are there other uh you know prominent AI investors talking about this shift? What are what else are we hearing out in you know the scuttle butt?

SPEAKER_00 2:45

Well, Austin, I do think we talked about the specific situation to situational awareness, the hedge fund that had been uh had to basically get rid of its trades and block position. You know, it wasn't just them. I I working with our writers on 24-7 Wall Street, I had been highlighting coming into this earnings season that the short interest in stocks like Microsoft, Amazon, Meta was at its highest point since 2022 across those. I think there's just large short positions across not only hyperscalers, but also some of these stocks in the AI infrastructure trade. I think, I think a lot of that um, you know, it it now has come off the board. And in addition, as I had said in the last episode, we're closer to the end than the beginning in some of this unwinding of kind of leverage that had to happen. So there's a large sentiment shift specifically on the hyperscalers. You mentioned Microsoft up 25% a week. That is rare territory. I believe their 15% jump the day after earnings was I think the largest one-day jump since in 20 years. And you also mentioned Amazon accelerating AWS to 37%. Austin, there's a striking estimate this week out from UBS that basically said that they could be at $500 billion in profits by 2030, by the start of the next decade, which is a truly remarkable figure. You think of Amazon, the company famous for foregoing profits, potentially at a half trillion annually. And and what's really behind that kind of model there is that AWS is the profit driver of Amazon's business, and a little bit of a different narrative across the past week about hyperscalers themselves. You know, Gavin Baker, who we've talked about along the show, famous investor, um, who uh is the PM for a treaties management, he was on the Invest Like the Best podcast, I believe, for like the seventh time. And he was just talking about how he views the market. And I was really heartened to see how close his numbers were to the ones I had shared on the latest podcast, where I'd said, I believe the build-out can be financed right now at around 1.5, 2 trillion on the north end. But what we could see is incremental revenue could continue pushing this number higher. And that's exactly the point he made. He had said he sees right now the market at about $1.3 trillion in potential operating cash flow from these hyperscalers, but he sees this maybe being $2 trillion or more at some of the kind of uh rental rates he believes you could get for cloud computing. And his point from this, Austin, was that largely the market is probably overestimating the amount of financing that will be necessary. And if it if anyone remembers from last week as well, I talked about this stool. AI being three kind of legs of the stool of what's the progress of the technology, what's the adoption of the technology, what's the financing situation, how do we afford this build-up? And I said the weakest leg of the stool is financing. So I think at the beginning of last week, we had just seen kind of peak negativity around financing and across earnings this past week, some commentary from some of the companies. Um price action improving, as I've mentioned, narrative falls price action. We just have a lot different views. So we have a rare moment right now, Austin. We've seen you know, if if AI infrastructure, if the hardware stocks are doing well, software is doing bad, and and if uh infrastructure is doing well, the hyperscalers have struggled. We've seen this kind of relationship moving back and forth. And we've actually seen across the board gains for the past three or four days, which is which is truly interesting. So, you know, uh one last point on this I would say before I toss it back to you. Um I I would like to just say thank you to everyone, the community, lots of comments across Spotify, YouTube. We've we've always talked about how we would like this to be a community where, you know, part of this these moments that are so hard, which July was a very, very hard month to invest. And we got a lot of comments about how you know the the what we provide on the podcast help people stay the course and get to this other side that we're now seeing after this past week. So that that we we can't say thank you to every single comment, but I did just want to say if you're someone who's left a comment, who's engaged with the show, uh, we we really do appreciate that. And and at moments like this is when that community aspect really matters the most.

SPEAKER_01 7:21

Uh, I really echo that. And while we cannot recognize every commenter individually, I will recognize our uh original OG fan, Nolan, still out there, still commenting. And Nolan, you know, I love seeing you in our comments from the beginning. I love seeing all of our commenters, of course. But last week's episode really was tremendous, fantastic engagement. It was really heartening. Eric, I don't know about you, but I shared a lot of the comments with my wife just because it felt really good to see people out there benefiting and you know, valuing the work that we do here. So uh yeah, thank you to everybody who took the time to do that. It really does mean a lot to us. Uh now, a bit of a shaky transition here. Eric, I don't know how to fit this into the three-legged stool analogy. I don't know if this is like the whirling dervish in the stool analogy or the room in the room that can knock the stool over quite how to go with this. But there's there's another factor in the AI industry that we have usually steered people away from, and that's regulation and the geopolitical dynamic. And just by way of context, so people understand that this is not a trivial element in the AI trade. So in the Biden era, there were the diffusion rules trying to regulate, you know, how we were getting chips out there in the world. You have noted that ASML is an amazing company that in many ways sits at the heart of the AI investment thesis, but it's a company that largely doesn't control its own investment destiny because they're a chess piece in this geopolitical juggernaut match between the United States and China. And so, so tariffs and regulations and trade, that they're another element in this industry that sits outside the stool. And it can make that stool more valuable or it can make that stool really shaky. So sometimes it cuts against you, sometimes it's a tailwind. But I want to talk about the new recent rules that came out of the Trump administration banning transceivers in US uh AI data centers from China. So this is a case of maybe the regulation cutting in our favor. Nothing you want to count on per se. It can cut both ways. Sometimes, if a company is too sensitive to regulation, we might stay away from it simply because we can't predict that. But what is the story here? Because anybody who's in your optics trade has seen that trade fade in the last few months. And suddenly anybody who maybe hung on saw a lot of their positions up 15 or 20% and might not know why. So talk to me about this ban, and then I would just love to hear your thoughts after that. How do you think about regulations like this in the landscape and how do you incorporate them in your investment thesis to the extent you can?

SPEAKER_00 9:43

Yeah, speaking of the whirling dervish, uh, I am unfortunately traveling. The construction crowdside just started using buzzsaws, so I apologize for that in advance if audio quality takes a dip here. But Austin, yes, this is the same thing.

SPEAKER_01 9:56

Is that what it is? You're just boots on the ground. You are here for our listeners. You are trying first you went to Abilene, now you're wherever you are checking out the newest data center build out. Don't apologize for that sort of you know intense you know uh of research where you embed yourself in the industry for our listeners.

SPEAKER_00 10:12

I'm I'm getting my last sip of water before it's all sucked up by this data center right now.

SPEAKER_01 10:16

So hey, that's about a one hundredth of an almond there. Make sure you save that for cooling, uh cooling Varerubin.

SPEAKER_00 10:22

Yeah, so it was reported by Reuters, uh, I think it was four separate uh sources on this, uh, that the US was essentially looking to ban uh optical transceivers, as we've talked about. You're gonna run um data over fiber, and then you're gonna need transceivers to be able to turn that back into electrical servers. So we've we've talked about all of the companies that are in this trade: applied opto electronics, coherent, fabrinat, lumentum. We've I think we've got seven or eight that's in this category. They saw an absolutely wonderful 2025. Well, they saw a wonderful last eight months of 2025. People who have been on this ride knew it it can be relatively shaky. And um they they took a breather, especially a stock like Applied Optoelectronics. Now, I will say why we had invested in applied optoelectronics. If you go back to our original recommendation, which was made last August or podcasts around there, um, I had said specifically this company, first and foremost, it does not have the best technology, but it's an outstanding geopolitical hedge because they are moving to get an increasing amount of production in the United States, and they're gonna be very aggressive about growing their production. We saw that play out, and even after a 60% drawdown, that stock was up something like 400% from where we had recommended it. So applied optoelectronics uh was up 19% Tuesday, coherent 12% Fabronet, 16%. Everything in this broader space was up a lot because the idea would be they're gonna have a lot less competition, right? Now, this story is gonna require some nuance. Um first, the language and it's kind of unclear. It it cites this as being applied to new optical transceivers. I don't know if that necessarily means new technology or new transceivers coming in. There's there's still so little known about this topic. And it would seem an outright ban would be extremely difficult because what we have is more than 50% of volume for transceivers comes from China itself. So if you did this, you would all of a sudden we we talk about all of the bottlenecks across AI and what memory's done to it. You would be creating the mother of all bottlenecks, and you would effectively, well, it might be good for some companies in our portfolio, that would not be an overall net positive situation. The other thing we've talked about the materials that go in to make these optical components being largely from China. We've talked about a company, uh AXT, the ticker symbol AXTI, became very popular this year. There is kind of a little bit of a if we push too hard on this situation, China will be able to push back. They have their own weapons that they would have essentially the raw materials to be able to really slow down this industry. So, Austin, what do I think the situation is here? I think there's a lot of gamesmanship, right? And to your larger point, it would be nice just to think about what cool technologies are gonna make a major impact on the world and improve the world and be able to invest in those companies. But we do live in a situation where the United States and Chinese economies are rapidly decoupling from each other. And we have to talk about this on a almost weekly basis, right? There's there's almost new news. We had DUV, uh, China basically creating uh the precursor technology to EUV. We talked about that last week, and and now we'll have this news. And and I do think what this sets up is I believe there's a summit once again between President Chi and Trump. I think it's in September. Um I might have that wrong, but essentially we might have some leverage going on before that, some negotiating happening in public with leaking out this proposal to try and get concessions in other places. So, you know, I would just say on this, it it is a striking um news story. It had a major impact across portfolio stocks yesterday. This would be objectively good news for an applied opto electronics because we bought them largely because of the geopolitical hedge they have. A company like Fabronet, which is a contract manufacturer in the space, this would be incredible news for. They've they've centralized their production in areas like Thailand for this very event. And it would be good news for our coherent and lumentum with less competition. So Austin, I would say how we think about applying or thinking about this kind of geopolitical situation in general, um, you know, increasingly you do have to look at where your companies get exposure for from. And, you know, for memory and for some parts of the semiconductor industry, what China presents in a domestic supply chain is a threat to them, right? So this is going to be a threat in certain areas. And there are ways that if you believe this decoupling will continue to be a situation, or you at least want some exposure to the upside of it, there are ways to benefit. And that's where, you know, last week we went with ACM Research, which is a company that we think will benefit from the expansion of this Chinese supply chain. So I think, you know, it it remains a risk, as I've talked about in the past, as a company like Taiwan Semiconductor, absent the geopolitical situation, it trades at a permanent discount, right? It there is a permanent discount applied across a lot of companies we invest in. But there are also ways to structure your portfolio that if this divide happens, you have potentially more upside from it than than downside, which is which is some of the positions we've tried adding, thinking about buying stocks in a portfolio sense.

SPEAKER_01 16:14

I mean, to some extent, any company or technology or industry that's sufficiently important to any economy ultimately stands the risk of becoming a geopolitical pawn. So you have to be aware of these things. You can't fool yourself that the risks aren't out there. But what I'm not hearing in your commentary, and it's also not how I invest, is that that is the thesis. You know, it is never the point of, oh, we are going to invest in this because there will be, you know, this ban down the road and we'll we will benefit, or, you know, we can't invest in this because, you know, the inverse as well. Um, so it's something you need to be aware of. If these things happen, and look, energy investors know this uh as well as anyone, agricultural investors know this as well. So uh this is just a part of investing in any industry that's sufficiently meaningful for a large economy. Um so yeah, uh, yeah, keep keep your keep your head on a swivel, so to speak, but don't let it prevent you from buying a good company, nor should you make an investment that is totally predicated on that thesis. Because particularly, you know, the these uh these trade positions can wax and wane with administrations and individuals as well, right? And you never know which administration is in power and their stance on a certain industry, and are they more favorable to energy or more favorable to technology or whatever the case may be. So just a just another reason that investing is the most fun and most challenging game on earth. And speaking of challenges, um, our boy, uh Leopold Auctionbrenner, uh, I'm not sure if we're getting that uh any better than we did last week. So, what happened with Citadel and their flagship fund, which is the fund where situational awareness was swallowed into.

SPEAKER_00 17:50

Yeah, we had covered this a little bit at the beginning of the podcast, talking about how this unwind um that we were covering earlier across recent podcasts, and especially with the last one of situational awareness. When we had started recording that podcast, the news that it had sold off its entire equity portfolio had just hit the wire. So we were recording right after that. I I thought it would be worth tying a bow on what happened there. Essentially, the six Civigel flagship fund went from 0.45% performance in July prior to the buy-off, the situational awareness portfolio, up to 5.9% for the month and effectively doubled its returns for the year. So last year I talked about number one, how all of the positions across that portfolio had seen 20 to 30 percent gains the next day companies like Bloom Energy, Nadius, many of the hyperscalers. I think what really happened in this situation is again, a lot of the short interest on these stocks that were kind of pushing on it, trying to basically push situational awareness over the edge because they knew it was wounded. They immediately came off, which reduced a lot of pressure. And then once Citadel bought it, um, we essentially had a larger turnaround uh facing a lot of these AI stocks. So I don't believe that this situation coming to a conclusion and reaching a local bottom are entirely unconnected to each other. And I I think you know, we had a lot of leverage to unwind. You know, you saw that in retail investors, you saw that um, especially in Korea and a lot of US portfolios as well. But I I think that situation is largely resolved. And and I think now that the smoke has cleared, we are seeing how much of the broader trade across AI stocks was being leaned on by this specific situation awareness position. So for anyone listening out there, it's probably just even more of a green light that what was happening in July, it doesn't mean that there's not gonna be the potential for any more sell-offs, but the uniqueness of that sell-off, we are probably past that more than it's going to be something that's going to continue into the future.

SPEAKER_01 20:04

A fun and interesting storyline to watch. I would totally expect, you know, there's some minor uh there's some very good reporting to come out in the next week or two. We're gonna see some some multi-page pieces out of the journal or the times about sort of what happened here behind it. And uh Leopold, you know, you had a good run. I don't think it's over. I think we're probably gonna uh hear from him again. But this this is the sort of fun drama that Wall Street sometimes serves up. Speaking of drama, there there is no uh more reliable indicator of or you know, no more reliable drama generator rather than earning season. So I want to talk about some of the more volatile companies we've seen out there. I want to hear about Palantir. Absolutely outrageous commercial growth going on. I want to talk about what's happening with AMD, and I'd like to pair that with SpaceX because what's happening with AMD is somewhat the tail end of SpaceX's comments and decision to transition into NVIDIA. I'd love to hear you comment on that. And then uh let's shift notes to Shopify, a company that's not in the portfolio, but actually one that I recently added personally. So I'm excited to hear your commentary on what is going right with Shopify today. So let's start at the top. Palantir, uh absolute darling, was it 2022 or 2023? I forget when their shares first started going absolutely hyperbolic. Um and I think it can had two back-to-back years of absolutely outrageous growth. Shares have pulled back a little bit. People were seeing maybe the bubble there in that specific position, not AI to be clear, but they were seeing that specific position pop. But Palantir really silenced the doubters with this most recent earnings call.

SPEAKER_00 21:35

Yeah, Palantir I've talked about it in the past on this podcast that the first kind of AI report we issued from 247 Wall Street that was downloaded by more than 50,000 people, it really focused on Palantir as one of the best opportunities in the market. By the time we launched this podcast, it had run up quite a bit, so it wasn't a stock I had immediately added. And we've talked about it. Across the past two or three months, we've had some listener questions on it. And I largely said that one of the things I would like to see from them, I'm a lot more focused on the commercial revenue side because it's so much more scalable than what's going on with their government side. And I do worry that their government business could be something that, you know, you talked about geopolitical fears with Paris earlier, and, you know, the relationship between the US and China. Well, something like Palantir's government business could definitely take a big step down if we have a new administration, because Palantir has been relatively close to the current administration. What we saw this last quarter, Austin, was Palantir at 149% commercial growth, which is extremely strong. And a situation that we have also talked about on the show is that there is a really compelling pitch that seems to be resonating right now with enterprises around sovereign AI. And Palantir has a full-throated pitch on this. CEO Alex Carp of the company will not miss words about throwing anthropic under the bus, open AI under the bus, and saying, hey, if you are putting your data into, you know, into anthropics products, into open AI's products, you are throwing away your alpha. And what they're pitching as the alternative is their AIP product, which basically is becoming the control plane for the AI workflows we think will undergurge just about every single enterprise in the world across the next, you know, one to ten years. And basically it's a way to keep your own proprietary data, increasingly be able to put that into the models you use, have greater model selection, and it's resonating. And that's why their commercial revenue is really accelerating. A situation that's developed a little bit in the background that people might not have seen. I've talked a lot in the past. Well, software has had extremely negative returns as a group across the past 12 to 18 months. I do think there's a placement in the portfolio for the cream of the crop. A lot of the companies that are gonna fit best into the future of AI. We've added companies like Snowflake for this. We've added companies like Cloudflare, we added ServiceNow in our latest episode. And you know, Cloudflare, Snowflake, they've been on fantastic runs. And I think Palantir, there was an evolving narrative that they were essentially going to get run over. What made them special was going to get run over by anthropic and open AI. And right now they are pushing back in an extremely successful way. So, you know, Palantir is a company that is expensive. It feels like a stock that will uh permanently be expensive in a way, but it's definitely one I would increasingly look to even at today's prices, just because what they are pitching works so well with what enterprises want to hear. And I think they have found a place for themselves to be integral in this next phase of AI.

SPEAKER_01 25:05

And yeah, so first of all, I I love that explanation because people will be confused at the many different faces that Palantir's investment thesis has taken. And speep, uh I remember early on we were talking with a former coworker who sort of jokingly told you, and I think this is in 23, yeah, I don't really see Palantir as the AI trade, but well, whatever. And you know, sort of ribbing you a little bit. Turns out, you know, that was that was quite the thesis and tailwind there. And so Palantir's morphed a couple of times, not necessarily in their own execution, but in how the market has viewed them. So I really appreciate you discussing their different role as a sort of hidden winner here. And also, hey, if somebody can get this to Alex Carp, come on the pod. You know, I uh I actually grew up in the town that Alex Carp now lives in. I'm filming this podcast right around the corner. So I'll hop on my bicycle, I'll head over and we can do this in person next time. So, Alex, we'd love to interview you and hear your explanation of you know Palantir's positioning going forward. Uh, the flip side, Eric, is AMD. Eric D's AMD's been a huge winner and uh one of the you know maybe uh hidden in plain sight chip plays that that is not never made in the portfolio, but they are really selling down now on some commentary from SpaceX about their decision to go with NVIDIA chips. I'm talking specifically today, uh, NVIDIA chips going forward. They said that they think the Vera Rubin platform is the best choice for them in building out their data centers. But what did we see with AMD's earnings overall? You know, is are they are they strictly selling down because of SpaceX's comments, or were there also some negative, you know, maybe rumblings in the earnings that we could glean as well? And this was more validation.

SPEAKER_00 26:41

Yeah, I would say first on the carp point, it's not likely, but it's also a non-zero percent chance. If there's one CEO who would show up barefoot, having walked to your house tomorrow, it would be him. So, you know, if if someone out there can connect this, I would love to see CARP show up at Austin's house tomorrow. Um, AMD's quarter, yeah, they're down, I think six or seven percent today. Um the quarter was fine. Uh revenue 11.5 billion versus an 11.3 estimate. That's not a massive being this environment. Um their revenue is growing at 50%, which is significantly below NVIDIA, which they now trade at a significant premium by most metrics too. Their data center growth is at 107%. I think last quarter, if I'm remembering the right this right, if you backed out China, NVIDIA's data center growth was something like 145%. Um, what I actually like the most about this was the earnings call. And I've talked about this for a few different companies, was entirely optimistic. Uh AMD's uh CEO, Lisa Sue, she was really painting a picture of they've had some pretty aggressive long-term targets that they are very confident they're going to be able to exceed them. But Austin, you know, at the end of the day, this is just a stop. Once again, I've talked about this closing ratio. How much is AMD worth as a percentage of NVIDIA? This has been closing, closing, closing under a belief that the advantages that NVIDIA has are being chipped away at, eroded, things like CUDA, um, that in the past Metal Av companies really want to standardize around NVIDIA, um, aren't so much the case anymore. And also, the hyperscalers are so large, it really behooves them to have alternatives. And NVIDIA um the prime alternative to NVIDIA that's not building your own custom chips is essentially AMD. So I thought this was a fine quarter, Austin. You know, it's just AMD itself when the market was seeing this frantic sell-off of semiconductor stocks throughout July. I think AMD was only down like 10%. Well, a lot of the other stocks were down 30 to 50%. So it's a company that's held in extremely well. Um, they continue to perform. I would caution people though, if you were following this podcast when NVIDIA launched Blackwell, it's really hard getting these large systems out into the wild without a lot of problems. There's a ton of optimism around Helios and AMD systems. I but you know, they are complicated beasts. I think you have to like lift them into factories with cranes. They're so huge. Maybe, maybe that's just a meme and not entirely true, but they are absolutely massive. There's there's going to be a learning curve on this. And I wonder if some investors will get caught a little flat-footed as these learning curves um show up. Because with Blackwell, it was probably the most successful product launch in technology history at this point. You could call it that, but it was not smooth. And at the beginning, there's a lot of sell-offs on video shares as reports came out around difficulties getting those uh placed at scale. Next up, SpaceX. And this will dive to the case.

SPEAKER_01 29:58

Eric, I I want to say I want to stay on your AMD point a little bit. Um, the chip trade has been one of the most successful trades in the AI space these last few years. Intel is in the portfolio, NVIDIA is in the portfolio. AMD has had an overall net very fantastic run. Um, ARM has been had a wonderful multi-year run here. I have had in my mind, and I'd love for you to either validate or invalidate this thesis here. As people have woken up to this opportunity, these valuations have become stretched, not necessarily unjustifiably so, but a lot of them have become stretched from where they were a few years ago. And there's now many more chips in the landscape that people are putting very, you know, betting various futures on. So there's Intel, AMD, NVIDIA, kind of the obvious ones, but then there's also uh Google's TPU and Trainium and AWS's chips. There's also Cerebrus' chips. So it would seem to me that the net chip industry is going to experience multi-year tailwinds on inference growth and AI growth. But individual investments, should we expect greater double-digit volatility out of these chip stocks as quarter to quarter we get prints like this, right? Where you get these stretch valuations, and then maybe AMD didn't get that allocation and it went to another chip manufacturer or vice versa. Like is that should we expect the overall chip trade to be positive, but volatility to be amplified these next two years as some chips win and some platforms win and others lose? And I mean lose expectations, not that they're losing customers. I want to be clear. But at these valuations, there's there's a lot that has to go right to live it, live up to the belief of what these can be. Meanwhile, there's more chip options out there now, vying for those same opportunities.

SPEAKER_00 31:40

It is interesting. I've seen a lot of talk from people about how we're going through the semiconductor industry, it has always been cyclical. Um and uh we're we're going through an extended what you'd call super cycle for it right now, thanks to AI. But a lot of people saying we're basically going through what used to happen for a lot of companies, the entire cycle that would last years and as little as a few weeks. Um, I I think Gavin Baker brought this up in the podcast. But there's uh a component, um there's a component, uh, MLCs uh that essentially they went up an incredible amount, like 500% on optimism around shortages around them. And then in July, they were, you know, down something like 60% as a group, right? So I do think we are going to see some increasing volatility. Um the overall accelerator um market is going to be something with a lot of growth in coming years, uh, especially as we look at some of the planned numbers around capacity. But as you noted, you know, it's also an area that um Blackwell, you know, I just talked about how uneven that was. You look at Marvell, a stock that's now working out so well. And I kept saying it, it has so many tailwinds. It feels like it has to work in spite of itself. But it was held back so much because of reports of how it's basically custom accelerator projects were going that had a lot of revenue tied to them. And they had a lot of other things working, but these other areas of investors trying to get ahead of each other with news from the supply chain puts a lot of negative sentiment on the stocks, right? And and I think we're gonna see a lot more of that. So I think it is just you need to have your plan in place, right? As we saw it in July for the market in general, if you don't feel really confident about the opportunity that you're in, you risk getting shaken out of it. Likewise, with some of these uh companies, if you're an AMD investor and you're not really confident about the opportunity that you have, and and maybe they drop 30% because of a starting high valuation and some rumors about Helio struggling to get traction. And maybe one of their contracts with one of the companies doesn't materialize in the way that's necessary, you can get shaken out of that position. So I think that is a good thing for investors to think about because um the overall trajectory for this industry is up and to the right and continues to be. But I think the volatility along the way, yes, it's it's going to increase.

SPEAKER_01 34:17

And this is not specific investment guidance. People have to do their own due diligence here, but in the spirit of transparency and just sharing how to how we manage our own money. Two years ago, that opportunity felt for me like it was ripe for call options. And we had actually talked about that on an episode. You know, should you put some options on an Intel? Should you put some options on a Marvell? Those worked out very well. But that was an environment where those companies couldn't catch a break and all of the sentiment was against them. So not much needed to go right for them to re-rate and get the higher expectations. Now it feels like we're on the other side of that. So today, if I'm investing in this trade, it's got to be multi-year time horizon. And for me personally, probably equity, not options, right? You know, I sort of like options when the company feels like it's been thrown out in the dustbin a little bit and not a lot needs to go well to get that re-rating. Now things need to continue to go very well to maintain that re-rating. So in that sort of environment, I'm typically thinking, okay, smaller position, equity only, buckle up and expect volatility, but probably not options. That's at least how I'm thinking about it. But um, enough of that. Uh, on to another, you know, chip stock, AI stock, everything in one basket company, and that's SpaceX. Companies had a pretty rough run uh since their IPO. And we had also talked about this. Brad, I don't know if you want to play the clip. I think both of us said, yeah, we're not buying this on IPO. We expect this to follow a meta-type pattern. And so far, we've seen the first part of that play out. I think SpaceX last I looked was down about 40% from IPO, and I could be off give or take, 10% in either direction, but it hasn't been a great debut. Um, the company continues to announce massive CapEx plans, but independent of the success of the shares in their debut of market, this is an a very significant, very meaningful player in the AI trade. The comments from them can move, you know, related companies like AMD double digits, as we're seeing today. Um, and it also looks like those same comments could be a tailwind to NVIDIA, which was a position you recently added to on one of the recent pullbacks. I think was it in uh July, early July, or maybe late May. But what are we seeing out of SpaceX's first quarter here? This company is nothing if not ambitious.

SPEAKER_00 36:33

Well, and that was the point that I was making that the SpaceX podcast we filmed remains far in a way at least listen to podcast, um, which, you know, again, I I've talked about in the past. I I understand there's a lot of uh for various reasons. There's a lot of people who just don't really want to hear about Elon Musk. But the reason I thought it was so important was, you know, this is not a space company. This is more broadly the vehicle that Elon Musk is using to form his artificial intelligence ambitions. And as you mentioned, he is nothing if not ambitious. I said, you need to know about what is happening with SpaceX because the ramifications of what SpaceX is gonna push for could have ripple effects across every single stock in the AI trade. And that is exactly what we're seeing right now. You know, this this earnings call last night from them is just wild. You know, you listen in and Musk is saying, hey, uh, our forecast, we're we're looking at a trillion dollars in revenue, not not a run rate, an actual trillion dollars by 2030. And this is this is you know, a company that just reported a quarter with like, I think it was 8.6 billion in sales. So he's already talking about a trillion.

SPEAKER_01 37:53

As they say.

SPEAKER_00 37:54

He's he's he's never been afraid to give a bold prediction anywhere. But you know, they're talking, Musk was talking. I need to think about how to frame this properly. I believe it was that they want 10 gigawatts of compute operational by the end of 2027 with 15 gigawatts of power capacity. Right now they have 1.4 gigawatts and rather heroic effort to get there, building out their um uh large data centers in the Memphis area. So, Austin, yes, what happened on the call as well is that Musk said that they are essentially going to use Vera Rubin from NVIDIA because it's the best architecture. They're not gonna do a split with AMD. They're not gonna go for a huge custom project per se. You know, they are really going all in on NVIDIA. That led to NVIDIA shares rising today. It probably contributed, as referenced earlier, to the AMD uh slight sell-off today with shares down, I think, six or seven percent. The biggest question is where is all this money coming from, right? Um, you know, the you can talk about uh 10 gigawatts operational, you know, that's that's gonna be very expensive at a minimum. We're talking something like $500 billion on a time frame that seems impossible. Um, so you know, Austin, I would expect why did Musk go with NVIDIA? Well, he can say it's the best architecture, and NVIDIA is quite good, but there's probably some financing considerations here. There's there's probably something where NVIDIA is going to give something in return, which, you know, is frankly how AMV's been winning a lot of its contracts. That, you know, they they get big contracts with companies that come with equity investments or other tickers. So it wouldn't surprise me if NVIDIA had to do some sweetener to get this big deal with SpaceX. But if if they even, you know, if they're shooting for the moon and wind up somewhere in lower earth orbit in terms of their expectations for what their compute is, this is still largely material upside for NVIDIA across um 2027 and into 2028. You know, if if they reach half their ambitions, we're talking about something like an incremental hundred, 150 or 200 billion dollars in revenue for NVIDIA. So this is very material news. Um if I'm NVIDIA, I definitely want SpaceX in my corner because of the scope of ambition from Musk. As I said, if people are thinking of this as a space company that's gonna have um, you know, internet in space, yes, they just did an announcement about their first satellites with NVIDIA, but you know, the target for space is something like a gigawatt um by 2029, something in that range. But what they're talking about terrestrially is 20 or 30 times the scale. So if if you're not watching SpaceX, you need to absolutely be watching them because um they're a risk and a potential catalyst to your portfolio. You know, they're I think Musk is gonna go so hard. He is he is the leading candidate to blow stuff up, and he is the leading catalyst to be the reason NVIDIA hits $10 trillion in valuation.

SPEAKER_01 41:14

Boy, I love that. And I'll give you a couple more elements there that I think just you know further underscores some of the points you made. Why did SpaceX go with NVIDIA? They said it's the best architecture. They would actually know because remember, uh Musk, and this was back when it was XAI, uh linked together what, 20,000 NVIDIA GPUs and made them coherent in just a couple uh couple of weeks, which was a feat like previously unimaginable. Jensen Wong publicly praised it. And I think it was um not Gavin Baker, um Brad Gersner, who is close with Jensen and knows a lot of the players in the space, including Elon, said, look, the thing you gotta remember about Jensen is he wants his chips to be used. You know, he figures out allocation largely based on who's actually going to use these things, and he knows Elon will use them. So there is a good partnership there. There's also some existing familiarity with NVIDIA chips in that they were able to do something with them that nobody else at the time was able to pull off, in addition to financing considerations and all the things that you had talked about. And you had said, where does the where does the money come from for this? Certainly some financing from NVIDIA, but there's also like a, I mean, to call it non-zero undersells it. There's like a virtual inevitability at this point that Tesla becomes a part of the SpaceX portfolio, which gives the company this whole different revenue line that they can lend against and and borrow against as well. So I think we should absolutely expect that to occur, where SpaceX becomes a bigger company with, you know, bringing that Tesla revenue in-house, not strictly for the purpose of borrowing against it, but it certainly makes borrowing a lot easier. So and in an incredibly large and important company, and don't be confused by the share price to think that this company is not important in this space. You know, that this company touches every aspect of the AI industry. They will move competitors and sister companies double digits based on what they do and what they say. So you have to pay attention to what they do and disconnect that from just the early market debut results that we've seen. Um, I want to close it out with one more earnings discussion here, and this is Shopify. Uh, company had a massive earnings beat, largely crediting AI with it. I don't know if this is shooting the arrow and drawing the bullseye around it a little bit, but this seems to me, and I didn't go as deep in the numbers as you, I'm sure, but this seems to be to be a little bit of the case of something we've been talking about over the last year, which is these companies that early on seemed like AI was a threat to them, are themselves impressive technology companies. They will harness the power of AI and create even more value for their customers who they understand at a deep level, and they have these, they have industry lock in, they have relationships, they have industry um awareness, they can get faster and more efficient by using AI internally to make better services for customers. Um, so, but what did you see in Shopify's earnings? It doesn't distill down to just that. Simple narrative here, but this seems to me to be at least be some validation that that potential exists. There are companies that can do that, and this is one of them.

SPEAKER_00 44:08

Yeah, and Shopify, I believe you own it too, right, Austin? You own Shopify. Yeah. I've I've owned Shopify for a long time. I don't have in the AI portfolio just because it's not necessarily an AI company, but this is a company I've long admired and owned. It's it's also a company that's really struggled to get back to some of the heights that it had at the peak of COVID, you know, maybe, maybe inflated heights. But they're up, I think, more than 30%. As we phoned this on Wednesday, uh, August 5th. Uh the headline was guidance for next quarter at 32% versus 26% expectations. That would put them at a fourth quarter of over 30% growth. So they're seeing some reacceleration in their business. But Austin, a lot of credit towards this. This is a company that is really AI forward. Um, you know, their founder is someone who is really out at the forefront about talking about AI usage, not only for their company, but how they're going to enable their customers from it. And they they talked about on their call AI-driven order flow tripled year over year. And another thing that's in the zeitgeist that we're talking about with Palantir and the value proposition that they are giving to their customers is um Shopify gave a lot of credit to what's going on with them with the amount of unique data that they have and being able to pair that with things like open models to be able to create superior products. So, you know, that would be yeah, that that is what they are calling their alpha. And this is also the sovereign AI appeal that Palantir is making. This is this is the same tail ones that are benefiting companies like Snowflake as well. So I think we are definitely seeing, I've been alluding to this in prior podcasts about how there is this kind of shift happening. And it doesn't mean that things like anthropic and open AI aren't hugely important still. It's just there's a little bit of a maturation and a development of the broader software ecosystem happening before our eyes. So I thought that that was an important earnings to look at. I did want to talk about one other um one other earnings right now. I want to see one second.

SPEAKER_01 46:18

While you're pulling that up, I'll say, you know, this is not an inevitability. This is a company showing the potential of that. And while you're pulling that up, if you like, if listeners like this uh trend and thesis, other companies you can look at, um, among the ones you've also talked about, um, Snowflake, uh, but uh uh Toast, Block are companies that also may have the same opportunity here, right? They have their own first-party data that they could bring in and use to create sort of this much more powerful in-house model solution, or or you know, leveraging it with other models to create more value for their users. So it doesn't mean those companies will will necessarily execute on that potential, but it is there.

SPEAKER_00 46:55

And and I I remember the other stock I wanted to talk about, which ties into just a broader point. Alter Clean Holdings, uh, that's ticker UCTT. We had talked about them in a prior episode because a reader had suggested them. I said, hey, I really like them. Um I I like the space they're in, which is semiconductor equipment. They were just looking, you know, they're they're at the upper end of their valuation range. Well, you know, I I do try and follow these companies. And in their earnings, I wanted to point out that they were talking about um the semiconductor equipment industry being $250 billion in size by 2028. Last week, I had talked about when we were discussing Lamb Research's earnings, that I thought that the semiconductor equipment industry could be somewhere on the order of 25% larger than Wall Street expects in 2028. Well, Wall Street expects $190 billion, so their estimate of 250 puts it now over 30%. So we could be looking at this entire industry being something on the order of 30 to 40% larger than Wall Street's expectations. And this company being a supplier into larger systems, they they get a little bit more forward visibility into areas. So I've been reading different um, you know, commentary from a lot of these companies, and it is extremely positive right now. So as we're being kind of aggressive in the coming weeks, this is a space with some higher valuations. I said I liked it, but what I'm seeing this earnings season says to me, the wave that's coming at it is even bigger than I had forecast, which was already 25% ahead of Wall Street. So it's something to keep in mind.

SPEAKER_01 48:38

In many ways, that's been the story all along the last few years, right? Wall Street would look at what came before and model it to what was expected to come next, but this is such an unprecedented tidal wave. They kept continually for years underestimating the potential, even though people on the leading edge were saying, no, like we're gonna do 100 billion of capex. And Wall Street's like, 100 billion of capex, they'll never do that, right? Now we've got hyperscalers, you know, five are up, you know, two are above 200. Some of them are probably effectively going to announce that they're above 200 soon. So in many ways, that disconnect has been the story of the last few years. You're just looking at, you know, using history as your model, which is certainly important, and you need to understand it, but using that to discount the magnitude of what is coming next when these leading edge companies are saying, no, guys, this is this is bigger than what we have, this is bigger than anything we've seen before. And they're throwing out numbers that seem impossible and yet we continually, you know, blow past them and then hit another one.

SPEAKER_00 49:30

I saw a wonderful thing this week. Number one, that um AWS from Amazon was launched in uh 2006 and it did like $21 million in revenue the entire year. And now it does $21 million in revenue every hour. So that's number one. That's a good stat.

SPEAKER_01 49:46

That's a good stat. I like that one.

SPEAKER_00 49:49

And number two, uh someone had posted an old Wall Street note on AWS from I believe it was 2010, estimating the potential total addressable market being six billion dollars.

SPEAKER_01 50:04

Um that's a big thing.

SPEAKER_00 50:08

You know, and this just shows to the future. Partially, we we've talked a lot from the beginning is you know, if if you are just kind of investing in semiconductors, but you don't have really strong conviction, this is an industry that tends it's historically been extremely cyclical. Um, it it it tends to have very violent price movements. Um but if if you do kind of have this deeper belief that we have also talked about about the future being something where AI creates it's it's not just this chatbot use of it today, but it becomes this infrastructure across companies and it becomes a foundational layer of the economy, which is what the internet is now, right?

SPEAKER_01 50:56

It's the closest analogy.

SPEAKER_00 50:58

Exactly. And then when you do that, you know, you can foresee a future that is incredibly hard for any Wall Street firm to model. And if you can buy the best in breed companies and things like uh semiconductor equipment, they they become something that it it it can be more than just another cycle along with some kind of growth rate with waves and it and it and it is a new trajectory because you have that fundamental estimate of where the future heads. And and if your estimate for that one key question is right, there's a good chance that everything that flows from it in terms of your investing is going to be significantly above average returns. Even if even if your stock select, even if you miss a stock here or there, you know, I'll be moaned. Oh man, I I wish we had included AMD uh when when I was buying um some of the processors, or you know, I'd be moaned not making a few more memory plays or missing something from optics. But the overall idea is we managed to get investments across these trends and we managed to get upside. And and largely it was from having that cohesive belief of where the future was headed and what technology looked like. So I believe that if you have a cohesive belief about what the next two or three years looks like right now, um, there are some industries like semiconductor equipment, testing, things I've been talking about in recent episodes, that are largely um still very niche domains that that potentially have a brighter future ahead of them that um is difficult uh for for places in Wall Street to to imagine. And that note too, I did want to cover CXL today, um which is going to be an exciting technology about maybe how we get around some issues with memory bottlenecks. But let's put that on our next podcast as well, because I I do like um I do like being able to cover some of these big trends. And I I feel like it's it's been a while since we kind of got a really meaty bite of one of these emerging trends because the market's been so heated, we we haven't really had the time to pause and and uh you know digest that instead of just talking about recent market action.

SPEAKER_01 53:15

Yeah, I would love that. And yeah, I actually do have a bit of a hard stop, so I've got a boogie anyway, since we are we're in, we're playing in different time zones now. But I love that point you made, and we've seen it so many times over the last few years. I mean, I remember when you and I first started working together, it was impossible for Wall Street to imagine mobile advertising as a big industry, right? Because at the time their entire use case was like, well, we're on the iPhone 4, right? And look how big the screen is. And are people really gonna look at ads on their phones and how much time do they spend on their phones? And like, what a joke that turned out to be. I mean, Instagram is you know one of the most potent ad companies on earth right now, not to mention YouTube and YouTube Shorts. The same thing has happened with stream video on demand, right? When Netflix tried to do their whole quickster spin-off, it was unimaginable how much video content people would consume digitally in the future from YouTube and YouTube Shorts and TikTok and Netflix itself. And even if you were able to imagine some elements of that and get it right, you know, you you or even if you were able to appreciate that it was bigger than what Wall Street was modeling at the time, you probably still underput by an order of magnitude because these industries can snowball on themselves. So I just I that point is something that I really want to underscore for people that these industries can get so much larger than we can comprehend just because they're new, we grasp trying to apply something from recent history to it to understand what it could become. But when it is something totally new and differentiated, like cloud computing or mobile advertising, you almost can't do that, right? It's just because no prior model will fit appropriately. Um, Eric, with that, look, I do look forward to the deep dive analysis on the next episode, but I've got to go. Thank you so much for your time. Listeners, thank you for your time as well. Again, one more shout out, our appreciation. We really genuinely uh loved all the engagement on the last episode. And anybody who's able to leave us a comment, feedback positive or negative, we read them all. We read them all. We want the hard feedback too out there. Please do so. YouTube, Spotify, wherever you get your podcast. Uh, and Eric and our listeners, until then, I'll see you next time. The AI Investor Podcast is for educational purposes only and should not be considered investment advice.