RSI Is Closer Than People Think, Per Tae Kim

We have take him in the waiting room. Let's bring him in to the TVP on Ultra Dome. Hey, how you doing? Hey guys, doing great. What's going on? So tell me, last time you were on the show, you bottom-ticked it, what's going on? I think I made the bullish call on CPUs, memory, and Nvidia. Nvidia's not like 5%, 10%. But the skewed aims have still double, even after this big drawdown, and the GSPM may answer up 100%. So I'm hoping that it's the same thing again. I come on here and stop going up again. Yeah, ideally we could have an emergency reserve of take-out here. And so if the market has ever down, we just-- Strategic reserve. --we call you up, you jump on, and then it's-- It looks fun, it goes literally the exact bottle. And you know, what exponential after that? It'll take him effect. So where are we right now with the level of fud, the level of downward pressure on the AI trade broadly, the chips, the semi-trade-- reset for us on where sentiment is, and then we can work through the different pieces of counter examples. So I think sentiment's very negative. I'm kind of had this huge up-parabell gut move the last few months, and likely a lot of retail and hedge funds piled in. And we were seeing this online down. I think the first big part of it was the Iran War getting worse. Every time we had the first ceasefire and negotiations, stocks started taking off right after that. And then when we had the actual ceasefire, we had to follow through. And then as soon as Trump started bombing Iran again, chips stocks have kind of plummeted in the last two, three weeks. And then now we're seeing just back to the old pattern of media and the viral hot takes spreading a lot of fud I think we saw earlier this month, I think Reuters quoted like Zuckerbergs about its anti-AI. They took it out of context. And then every media person was with the hot take that this met a-- was seeing bad returns that they're going to cut in catapults. And then we had leaks right after that saying that it looks like meta is going to raise catapults. So we're seeing a lot of this hot take fud. Yesterday, I think we had a flurry of stuff that scared people, the Wall Street Journal of Enderfinancing article that we'll see what happens with that. We had CMXT, IPO, in China, and everyone freaked out over that. We had the information article on ASML. We could go through each one. And then the kidney thing, it's obviously a big thing. Yeah, we'll definitely get there. And I want to talk about open source and video strategy there, obviously. Starting with the Mark Zuckerberg news in Reuters. This was July 2nd. Meta's Zuckerberg says AI agent tech progressing slower than expected. Zuckerberg added that the company's reorganization that included major job cuts was not as clean as it could have been. Zuckerberg and other meta executives have been seeking to moderate some of the organizational changes introduced this year. And they said that the trajectory of agentic development over the last four months hasn't really accelerated in the way we expected. The company's bets on new structure haven't come to fruition yet. And so people were sort of reading this as maybe Meta's going to pull back. But then it felt like the response was extremely quick with BAS going on a podcast and Alex Wang sharing a whole bunch of progress across a few different models and data points. And then a semi-analysis wrote a whole bull case for MSL talking about how they have compute. And also they have more of the internal structural alignment to properly yellow in the AI era if I'm boiling it down as brutally as possible. Just because with Google there's always this debate between, "Oh, do you sell the TPUs or do you sell the cloud?" Do you have it? Ben it in the product. Whereas, Mark Zuckerberg is able to sort of go all in on this new idea. And so maybe there's more glimmers of hope there. But what else have you been tracking downstream of Meta's ambitions? Well, I mean, they've been very upfront that their investing heavily in AI. Alexander Wang is tweeting multiple times every few weeks that they're going both force. They're going to redo open source AI models. I think he said that while I see that over a weekend. And it's, I mean, if you actually look at it. And then Roy Ders came up, I think, with an article saying that they're actually going to raise cat-x dramatically this year and next year. So all that kind of fear that that quote about its venti-kai from the town hall that kind of like spook the market for a few days and kind of those completely false. Yeah, it feels like it's a comms-air because the language that's been coming out of Meta has been a little bit like AI is going to replace our employees. And it feels like it'd be much better for them to come to the market with a message of we're going on the offensive. Like we're a hyperscaler. Well, to be fair, that was the internal town hall. They didn't mean to leak it. And we're going to leak that one quote and put it out the headline before there are. Yeah, it's interesting. Like Meta did Meta basically go through like an eight year period where like internal town halls didn't instantly leak. I think everything leaked always. I think everything's been everything. I know, but there was a period where like the sort of attention of the media way, way less on like what Meta was doing internally relative to the 2010s. And all of that attention just went to the labs, right? Yeah, yeah, yeah, no, that makes sense. Yeah, I guess the question is like the question that I keep coming back to is like, where is their revenue ramp? Where is their AI revenue going to ramp and when, right? Because as you just keep- I would say ads like the ads like the AI has been there. That's always been my view too, but when you're continuing to ramp capex with and saying like we're going all in on agentic and we're building a harness and we're also going to do open source and it's like, well, what is the strategy? Sure. Like where is it going to take you to a billion dollars of like pure AI product revenue? Or just API revenue, what's going to, and then to five and ten and what's going to allow you to like justify this spend other than I think the market would love it. They just said, yeah, we actually need all these GPUs because we can actually be ten time, we're already good at ads, we can be ten times better and that's where we're going to get the ROI on all of this capex. Well, they're definitely getting ROI and that the market is worried about all this extra capex on the, they're going for the frontier AI model face again and they had to reset what they had to allow people left and now weighing higher the ton of people and we'll see what happens over the next, it's going to take time, it's going to take six to twelve months before you see any more progress. But just that when you don't, you know, like came out a few weeks ago with a lot of spare than people, it wasn't, yeah, the frontier, but it was much better than what people expected. Yeah. So how have you been processing the Nvidia letter around open source and all the back and forth, all the people jumping on, the companies that have been staying back? I think it's been very impressive what they've been, they've basically united the entire tech industry against the throttake in the last like three, four, eight, 18 trillion in market cap has signed on last time I tracked across any Google for a little time. Amazon signed on eventually. What he did, yeah, he signed on yesterday, they tweeted out. I think Apple is still the holdout. Apple also was, which is kind of strange because they're the one that would most benefit from open source open weight models being, you know, more available, I would think, but I don't know what Apple, but I mean, they pretty much got the whole tech industry to kind of corner and throttake in their position. Yeah. Open AI signed on. Yeah. What did you think of? Obviously, it's a phrase. Yeah, I don't know how, how if, I don't know if they're really, I don't really, I don't mean they're being like cornered by any means, right? Well, Jensen is on the record that he said, I think to Bloomberg that those rising sentiment that something was going to happen on the regulation front, white house or whatever. Sure. Yeah, we saw that this was last week. You had at least four people in the admin say, we're not against open weights, we're against distillation. And at least I was reading into that of some type of regulatory action around open weights and then positioning it as we're targeting. This is like we're heading yesterday. Yeah, about pushback and restrictions and he's doing under the safety umbrella, but definitely Microsoft and video are worried that what to white house or Congress is going to do something on this front. Yeah, that's why they took it. Yeah, it seems very reasonable that he would have no problem with like Gemma or Lama or any of the open source from like American hyperscalers where if you find out that they're just telling you just walk across the street and see them. And also these big companies have huge, huge, I mean, they have safety teams but also just like huge incentives to not have a safety incident happen on their watch because you're trying to like catch up to the frontier and then all of a sudden you have a safety incident. That's going to be really bad for your overall brand. you have a different business to protect whether it's social networking or Google search, if all of a sudden the Gemma model winds up being a thorn in someone's side for a cybersecurity reason or a bio reason, that would be really, really bad. But a foreign company that is just like hurling it over here can kind of just be like you guys deal with the consequences potentially. So I think that's what Daria is worried about. What about the overall idea of like where it feels like we're sort of replaying the deep seek moment, open source is going to reduce cost. And so that's a reason to pull back on the AI trade overall. How have you processed that? It's almost it's almost a perfect catalog. People are worried about Kimmy. But when you actually read the technical paper and their blog posts, this is not a tiny efficient model. This is 2.8 trillion parameters. It's going to require a ton of compute to serve. I mean, we saw the first day they put it out, but their server's got slammed. Even in the blog posts, they say it's best run on a kind of a server with 64 GPUs. So big super clusters that are networked well. And that's perfectly runs great on and did it. And if you remember, during the whole deep seek thing about year or a year or so ago, the market freaked out that deep seek was going to be so efficient that it will lead to a compute glut. But deep seek was the example of the reasoning model that actually it was the opposite. It created a ton of demand. And I think the same thing has been happened with Kimmy where when you have more capable models that come out, people find uses for them. And right now, just like last year when reusing models took off, agents at AI and agents are taking off right now. And the market is kind of like not realizing that because right now, just like last year, when reasoning models were taking off right now, agents at AI is taking off. And the next six, nine months are going to be bigger than anyone believes. And it's on the record. Dan is on the record. At the YC thing again, like people don't, I don't know why people don't listen to you. It's on YouTube. That the next six months, it's going to be much more dramatically better for AI than the last two years in terms of advanced capabilities. And I heard you say RSI before. I think it's going to be RSI. People inside open AI and definitely anthropic and anthropic put a blog post on this. RSI, I think, is a lot closer than people think. And if RSI actually happens in the next three, six, nine months, that's going to soak up insane amount of commute. I mean, we have this exponential ramp for reasoning, exponential ramp for agents. And then if RSI actually happens and I think it sounds like both frontier labs think it's going to happen very soon, that's going to soak up an unbelievable amount of commute as the AI models use more compute to self-develop and improve. And I think that's one thing that people think that both anthropic and open AI are kind of winking that, oh, it's happening. Anytime I tweet something on RSI, all these frontier AI speakers like my tweet. So I think that's good. What is your sort of framework around compute hoarding? Because certainly, certainly it has been happening when you look at, when you look at, you know, like going back to the meta example, right? They're not selling compute yet. They're maybe curious about it or exploring some deals. They have all this compute and they're betting on their own ability to create the capability that will have enough demand to justify that. Do you just think there's so much demand overall that it just, you know, even if there's hoarding, it just will leak out. And it's okay. So much demand overall. I mean, the SKHINX executives said during their IPO run that their customers are asking five to six times more than they're able to serve. And they're going to double capacity over the next five years they said. And their customers and I'm going to assume it sounded like Jensen are asking for five to six times more than they're able to build. So there's overwhelming demand. You guys were at the advanced AI and the event. Lisa Sue raised her CPU, a Genetic CPU forecast. Just three months ago, it was 120 billion for 2020 30. Three months later, they raised it to 220 billion. Like she doesn't do that. She doesn't do that. You have that just on the red. I've got that ready. Well, I just love this chart because he called it perfectly. He actually did. It's crazy. The deals don't, don't, you know, raise their tams by like these multiples in a few months. If they're not seeing insane demand coming in, especially now public CEOs who are serious business leaders who have been running like non meme stocks for decades in their last series. Everyone's freaking out that this is the top combat ball over again. But what if these hyper-scaler GPU cloud businesses are amazing businesses? Like we're going to say, and they say, if you do inference, it's 60 to 80% profit margins. Right? These are amazingly profitable businesses as long as we keep growing the next few years. And again, just like last year, we're on this exponential run right now over the next two quarters. And the market isn't seeing that. Everyone's freaking out that, oh no, we're spending too much. And even the Sam Altman podcast came out today and another podcast was plugged in. Sam is out there. He said that he regretted pulling back on the compute purchases. They made a mistake by not putting the pedal to the metal because now things are taking off again. So like Amazon CEO in April, if you everyone read his annual letter, Andy GSC wrote, he talks about how free cash flow works. We're not betting $200 billion on a hunch. We see that demand. We know it's going to be insanely profitable. And free cash flow positive in the medium to long term. So that's why we're investing $200 billion now. And in the year or two, we're going to see insane amounts of free cash flow. The thing that people worried about right now, it takes time to build out these data centers and fabs. And you bet now. Hold on, hold on, hold on. If you see free cash flow, that assumes that the revenues have to catch up and then the capex can't grow more exponentially. And so that means you have to see some sort of plateauing. Maybe it's at the end of the chart. Maybe it's this 2030 range. But there is a different world of just like continued growth forever. And then we sort of like, got out of money. Now push back. I have there. That's the static view, right? If they don't grow revenue for the next three years, yes, you can't do that. But they're growing as you're doing. The governor is growing 40%. Google Cloud is going 80%. Yeah. And this is growing a double digits. So if revenue is growing for you to 80% this year or next year and the year after, that's more revenue you have. That's more operating cash flow you have to invest. Right? So that's what people are missing. And if this stuff, if the data center you're building now, you're spending all of us now, generates a unbelievable free cash flow in 12 to 18 months because this is Gen. T. K. I. is actually aging and re-architecting all the workflows inside companies. And you need to do the Gen. T. K. I. coding agents to make your product better. Because if you don't, if you don't iterate 100 different iterations of your product and R. N. D. If you don't do AI, just like AT&T is doing at the Gen. T advancing AI at AMD, he's talking about they're putting 100 Gen AI models into production. They're burning a trillion tokens a month and then that's growing double digits. The reason why they're doing that is because by using a Gen. T. K. I. you're providing a better customer service, a better, you have a better product, aren't you? And you're helping your companies make better products and services. And if you don't incorporate AI into your company, Verizon, your other company is going to do, it's going to incorporate AI and then disrupt you and then you lose all your revenue. So everyone's wearing the ROI, ROI is important. But you also need to return on revenue because if you don't use AI, your rival is going to use AI to beat you in the market. Yeah, yeah, yeah. I think the diffusion story is still even though we got like sort of jitters by the token-maxing thing. Just the actual usage of AI across companies is still pretty limited in terms of the amount of people that are using it at the time that those people are using it. Like there definitely is a San Francisco bubble of startups where everyone is using AI a lot. But if you just walk into a normal business, a lot of people are like, yeah, I got to check that out, which is a crazy way to do. Let me give you some context here. Yeah, our Akiraazian Jared Sleeper over on the X-ray saying, Enterprise adoption, disparity remains enormous. Any cited Aura saying usage would 100X if every company adopt today, I did the degree of the most advanced companies. There's like this small group of companies that are. People forget in the ramp in the ramp data, like adopting AI can mean like having a ChatcheeBT pro account for someone, which is like not exactly the same as like using codex and like coding agents and stuff. It's important. I think that you know if I have someone on my team, I want them to be able to go and do a deep research report, but that's like table stakes. The question is like, are you actually speeding up anything that's repetitive in your job? And that diffusion is just starting to take hold. So the total market size in terms of the eye. T and dollars management in corporations. It's about $6 trillion, right? A year. The two main frontier AI model companies, open AI and the throttling, I'm going to say I think this is roughly accurate or doing $120 billion combined in ARR. Well, I can't that go to $200, $300, $400 billion in the X-E or two. I mean, the growing exponential rates when we're taking off. And if the market is $6 trillion, right? Why can't they grow to $200, $300, $400 billion in the next couple of years? I mean, it's just do a little logic and rational deduction. This is definitely possible. And it's happening right now and it's accelerating. And people aren't-- they're just taking these big headlines where we have this $50 billion financial times. And we find out it's over 30 years. It's like on the homepage. Well, yeah, yeah. I wanted to ask you about this. And Vidya revealed this tenant for $50 billion data center that will use its chips. Explain what is actually going on here. So the financial times is put on their homepage today. The Nvidia is going to backstop at least for a data center of Texas, $50 billion. And I saw that. I was like, oh my gosh. Oh, that does it sound good. Yeah. It literally sounds like they're buying their own chips. Like it sounds like the most bad thing you could do. Then they actually read the article halfway down the article. It's like a 15 year lease. And it's only $50 billion if they renew the lease after 15 years. So it's like over 30 years if they renew it. Then if you think about that, you're like, when is it? 50 billion divided by 30s if they renew it. That's not the bill. Yeah. And Vidya's 15 year lease commitment for the Texas site is worth basically $20 billion. And renewal options would take the total value to $50 billion over 30 years according to Hut 8. OK. But what do you think their plans for the site? Is this they are going to have some-- like what do you expect them? So my point is this is a billion-- whatever, $1 billion or $2 billion a year, right? It's a non-story. But it's a big headline since it's a headline or a homepage. Yeah. And also $80 billion. But it's not like you're taking a $2 billion loss every year. It's you are the tenant. And then you are also renting that out. So hopefully you're making profit. It's a rounding error. It's like-- they're doing 320 billion run rate a year now. That's going to go to 400, 500 billion next year. And we're talking about something that might be a billion. This is not a story. But this is how people run with the sensationalized headlines and people panic and freak out. I think they just wanted to say the biggest number. That's exactly the point. And we're going to see what happens with this Wall Street Journal article. Both OpenAI and Nvidia are not commenting so far. We'll see-- But take us out of the rumor. We'll have to wait. Well, it's not a rumor. It's a Wall Street Journal and other people reporting that. Yeah. Nvidia is in talks with OpenAI. It's a backstop soft bank up to 200 billion. We don't know the details. And I don't want to speculate and comment. But let's actually see the details before we-- I think the market had a really big negative reaction yesterday to this story. Because everyone-- I mean, Jim Kramer was telling his audience, like sell everything at the Open today, because AI and data that is.com-- Oh, it was insane. Let's see the actual deal. And then that trick's in the numbers before we kind of can freak out. Yeah. Yeah, that makes sense. So-- Yeah. Honestly, when you say freak out and sell everything, sell your house, sell your stocks, then I'll freak out. But until then, I feel OK. I mean, I just see the fundamentals. I see the CEO of AMD expanding her tam dramatically in over the last three months. I see RSI under her horizon. And like, every AI researcher is like, oh my god, this is going to happen. We have to get there sooner. And then I see the obvious use case of a Gen. Take AI where you have to re-architect your workflows internally. Every company has to do this. So everything is taking off. You see when the president of Korea came to San Francisco area last week, they had like a day in the valley. Incidentally, in video, CEO, Jensen Huang, Brawkomp, CEO, Huck Tent, Dario, Sam Altman, or there. Yeah, do a little logic detumption. Why are they there like crazy? Because they need HBM memory, and they're dying to have it. So if you think about that, that means there's insane demand and HBM memory is insured. And it's tremendous demand for it, right? Talk about the NVIDIA CUDA mode. It feels like a big piece of AMD's advanced AI event was maybe the CUDA mode isn't as much of an issue anymore in the age of Agentic AI. You can have an AI agent write you the software that you need to use any chip. And that creates less pricing power for NVIDIA. But there's another world where you're not really-- NVIDIA doesn't necessarily need a mode because everything's just growing so fast that they're still growing. But how have you interpreted the processing of the potential death of the CUDA mode? So AMD's on a-- Kimi wrote a couple paragraphs in their blog posted about how they created a GPU kernel, all that. So everyone gets scared, whatever. We'll see what it's like in real life. This is just-- AMD is incentivized to say, oh, CUDA's not a problem anymore. CUDA's been a tremendous mode, and I think it continues to be a mode. And the reason why is it's super reliable, all the bugs have been optimized and fixed. And that comes from hitting the software-- millions of times and billions of times. Like, you don't know if you use Cloud Code or Kimi that what they figure out using their training data is going to work in the real world. They could talk about one little piece that does well. Let's see how it actually works. But Nvidia's big mode is its scale, its co-design, of actually working through the networking, the CPU, the GPU, and how everything works together. And the other big thing is their balance sheet and their ability to get supply commitments from-- I think I said this before-- optical startups are like upset because Nvidia secured all the supply for all the optical components. Same thing with TSMC wafers, same thing with HBM memory. So Nvidia is using their size and gorilla and be able to pre-pay and get components that are in shortage. So they've become the dominant-- over the next year or two, you're going to see Nvidia able to add tons of revenue because they're able to lock up all the supply components. And that's another thing that people don't really talk about is their supply chain and their ability to work with partners and secure component inventory. Is there still energy fud that we would run into an energy bottleneck before we run into a chip bottleneck? So Jensen said this last week on the Bloomberg interview that there are a lot of bottlenecks, including data center shell, power, and all those things, components, energy, whatever. So all those things, it sounds really bad, right? And then right after that, he said, I think the chip industry has enough supply to double their revenue every year. Basically, implying Nvidia has enough supply for energy and all that stuff. No one is pricing that in. So everyone talks about bottlenecks. Nvidia CEO just basically told you on Friday that they have enough supply chain and all the bottlenecks stuff to double revenue every year. No one-- Nvidia's revenue at the submitter next year are a lot lower than double. I'll tell you that. Do you think the market prices in just how much of almost every important AI company and every category in video actually owns? It feels like every single-- we're constantly focused on who's going to raise CapEx next and where does this quarter coming in. And it feels like in two or three years, people will look at Nvidia's balance sheet and be like, wait, they have what I imagine then could end up being a trillion dollar plus of just ownership in all of these great companies, which again just goes back to the advantages of that early scale. While all these companies are trying to compete away Nvidia's margins and all these different things, they've been able to accumulate, again, positions in all of these incredible companies. I mean, we saw the SSI news yesterday and there's a great example of that. But how do you see it? So I think look at Jensen's history and investing in these companies in CoreWe and see how much money they made. They just bought, taken, the optical companies, momentum and coherent. Jensen is enabling the future because he sees this overwhelming title of demand. And he needs these companies to be able to build up their supply chain and to give supplies and chips to Nvidia. So they actually ramp every hard. Everyone's freaking out that this is vendor financing. What if hyperscale, GP Cloud, are so profitable and these companies need capital to build up that supply so they can serve the GPU cloud services over the next year or two. Maybe Jensen sees that coming, like he did with all these other companies like CoreWeave. And that's why he's investing in these companies to be able to expand their ability to make the components the industry needs. So I think you're exactly right. And in a year, two, three years, Indity is going to have all these stakes in these companies. And it's going to look like he was a good investor because he has been in the past. I mean, by leather jacket for like five grand and sell it for a million dollars, I don't know what else you need to see. I mean, think about that. Are you a secret better? Did you win that? No, I got to get you a jacket. The real question is-- I do have them till someone distills the jacket. And open sources that you can get a dupe of a Jensen jacket for two bucks. That's what I want. Anyway, thank you so much for coming on the show. Jury, you got anything else? This was great. Yeah, this was always a special time. Thanks for putting up with all of our jokes. Hopefully this becomes the lucky charm for the markets. Yes. I agree. I agree. I agree. The bottom is in. Great to see you, Tay. Have a good rest of the week.