The Information's TITV
00:00:13 · Akash Pasricha, Paul Kedrosky
[00:00:13] S0: Welcome everyone to The Information's TITV. My name is Akash Pasricha. It is Friday, November 6. Today on the show, we are going to dig into the big sell off we saw yesterday on Wall Street for tech companies and whether or not the narrative around the AI build out can recover. We're also talking to the CEOs of Lyft and Dropbox about each of their quarterly results. We then have a conversation for you with OpenAI's member of the technical staff, Ambrosino. We talked about OpenAI's latest acquisition and how the company is looking to stand out with its product strategy. I sat down with Andrew at the Thesis Conference, a big event here in New York City hosted by media and AI company, Every. We're also gonna play my conversation at the event with Dan Shipper, Every's founder and CEO. We talked about why unexpected player in the model race right now could have the edge. It's gonna be a great show, so let's get right on into it. Tech stocks are looking to rebound after Thursday's steep sell off, which hit some of the biggest names in AI. NVIDIA is back in the green this morning after falling 9% yesterday. It is a similar story with Micron, AMD, and Marvell. To break it all down, I wanna bring on Paul Kedrosky, general partner at SK Ventures. Paul, welcome back to the show. It's great to have you here. [00:01:32] S1: Hey, Akash. Good to see you. [00:01:34] S0: Okay. So what do you think here of the sell off yesterday? Were people just asleep? Did they not wake up the day earlier? I mean, what what... What's what's going on?
00:01:44 · Paul Kedrosky
[00:01:44] S1: You know, the market's a really funny place. It came to a conclusion, though. So let's just go backwards really quickly. So forty eight hours ago, back to the midterms. And the market came to a particular conclusion about what the midterms meant in terms of the AI build out with large. And it was really funny. I was in New York in a bunch of meetings with hedge fund managers and asset managers and others. And the conclusion everyone came to was actually this is good. This is actually good for the hyperscalers because if you constrain the supply of data centers and you're a seller of data centers, it's no different than constraining the selling of oranges. It's good for the orange sellers, which is a really, I mean, glib and naive take on what constraining data center construction might mean. And by constraining, of course, I mean that something like... And I put this out the other day, but something like 41% of the data center construction queue in The United States, which is in the hundreds of billions heading to trillions, is in states that are now... Have governors and governors elect that have said in one form or another that they'd like to either pause or delay the data center build out. So if you work backwards, I grant you that, you know, as an orange seller, this may be good for you. But as a data center supplier, this is very bad for you because you're seeing a significant fraction of the queue become, at the very least, pushed out. Right. It's not actually canceled. And so if you work backwards and do some fairly straightforward math, it turns out there's this company called NVIDIA, for example, that's a very large supplier to many of these data centers in the build out. And so, of course, you can map out exactly what the consequences might look like in terms of revenue shortfalls and delays. Finally, the markets did the math, and it turned out the figures weren't so good even for orange sellers.
00:03:19 · Akash Pasricha, Paul Kedrosky
[00:03:19] S0: Yeah. So look, you put out a note... I can't remember if it was yesterday, today. Well, you publish a lot of it. I mean, you flagged this Baker Institute estimate that suggested that based on the Texas data center halts, NVIDIA's revenue, depending on your assumptions, it could be impacted somewhere between 215%, which is a big range. Depends on how Right. But I guess my question is, it's not a small proportion, even if it's 10%, it's not a small No. [00:03:54] S1: It's not a small number. You know what? And just to really quickly, not to interrupt, but to put it in another kind of context, it's not just that those data centers are in states where something like 40% of the queue is potentially delayed, It's also the global scale of Texas alone as a data center hub with respect to construction. The way I map it out globally that... It goes like this. The US ex Texas, China, and then Texas, if it were a sovereign nation, which I'm sure would be delightful for it, if it were a sovereign nation, would actually be the third largest hub with respect to global data center manufacturing. So this is consequential, not just in terms of The US or regionally, on a global scale. And so this goes back to this this this point you're making that, you know, the the maths matter because the Texas, in in effect, is a global player with respect to the size of its data center market with per per construction.
00:03:54 · Paul Kedrosky, Akash Pasricha
[00:03:54] S1: It's not a small number. You know what? And just to really quickly, not to interrupt, but to put it in another kind of context, it's not just that those data centers are in states where something like 40% of the queue is potentially delayed, It's also the global scale of Texas alone as a data center hub with respect to construction. The way I map it out globally that... It goes like this. The US ex Texas, China, and then Texas, if it were a sovereign nation, which I'm sure would be delightful for it, if it were a sovereign nation, would actually be the third largest hub with respect to global data center manufacturing. So this is consequential, not just in terms of The US or regionally, on a global scale. And so this goes back to this this this point you're making that, you know, the the maths matter because the Texas, in in effect, is a global player with respect to the size of its data center market with per per construction. [00:04:43] S0: Do you think NVIDIA has anywhere else to look for growth in this world where maybe Texas, the data centers in Texas are not buying as much as they would have once had?
00:04:43 · Akash Pasricha, Paul Kedrosky
[00:04:43] S0: Do you think NVIDIA has anywhere else to look for growth in this world where maybe Texas, the data centers in Texas are not buying as much as they would have once had? [00:04:56] S1: No. Because the the permitting the permitting and build up process is so slow. This just becomes this this game of saying, I now have a new project, and it's... We have a spec for, you know, Louisiana or somewhere else. And the problem, of course, is... And we've seen this in the recent construction data, that the the queue itself is very... How shall I say, slippery? The data center construction queue. So whenever utilities ask for deposits, and these can be modest deposits, not on the order of $20, I'll grant you, but, you know, in in the order of low millions, suddenly the data center construction queue begins to shrink dramatically. A Northeastern utility found that acquiring deposits shrank it by almost 70%. And so the queue itself, it's very difficult to understand what's actually in it because it's so far out in terms of when actually things will get built. So yes, the answer is yes, you can play that game, and no, it doesn't matter. [00:05:42] S0: And nothing overseas, you think?
00:05:42 · Akash Pasricha, Paul Kedrosky
[00:05:42] S0: And nothing overseas, you think? [00:05:45] S1: Well, no, because again, think back to the size of Texas as a sovereign nation. Texas is sovereign to replace that. There is no place where you can replace that size of queue if you grant that something on the order of, you know, 25 or 30% of the projects within this so called sovereign nation of Texas in the data center sense is gonna see delays. So, no, it's not straightforward to see how you do that. And I mean... Obviously, this has all kinds of other consequences, which I've written about many other times. The data center is a de facto stimulus program in The United States. It was on the order of 25 to 40% of US GDP growth for umpteen quarters in a row now, is which one of the reasons why the prior... While the current administration embraced it so strongly that it was a de facto stimulus program that was in part bankrolled by the private sector and then steamrolled a lot of local interests in terms of the permitting and build out. So this has consequences in terms of the health of the economy writ large, not just, you know, Jensen Huang's bankroll.