E396: The Future of Compute, Data Centers, and AI

How I Invest with David Weisburd - David Weisburd

David Weisburd discusses compute as a strategic national commodity, akin to oil, with growing demand from AI and data centers. He emphasizes the need for a liquid futures market to hedge compute costs and highlights the evolving infrastructure stack and investment trends.

Key takeaways

• Compute is becoming a strategic national resource like oil.
• A liquid futures market for compute is needed to hedge rising enterprise costs.
• Data center construction is accelerating, driven by AI demand and private capital.

Transcript preview

You look at Venezuela, for example, they have the largest oil reserves, you take that away, the government starts collapsing and I think the same way is true for compute going into forward. It's a national strategic commodity that needs to be treated that way and needs to have a market built around it. You're trying to size the market, how do you go about sizing market like the projection 7 trillion? If you take a look at the world today, where is most of the money being poured into? It's all in data centers. Every single sovereign wealth law and every single private equity firm, any person, any person, any person, has an investment somehow into a data center project and that just shows the sheer of construction that we are going to be doing in the next years. the future. Every enterprise today and if you look back a hundred years from now everything was powered by oil right the clothes you wear most of the enterprises the largest ones were powered by some sort of form of oil whether that's jet fuel or a crude oil or any refined form of that and I think today the large economic input for our society is going to be compute and whether that's as a usage of like AI or different tools off of that so we think there needs to be a liquid market that exists for compute the same way exist for any other commodity. commodity markets in general exist mostly for people to hedge away the risk of the commodity. That's the base case. What's the base case for compute? It's probably the same reason, right? Today, enterprise's largest cost. People talk about, oh, we're spending this many dollars on tokens. We're spending this many dollars on compute. Compute will become the largest cost for any enterprise in the next five, ten years in the future, and there needs to be the same way to sort of hedge away that risk. Maybe you could explain to a layman, who, who a layman, who, who, who, who, who, who your, who, who your, who your, who your, who your, who a customers are and why are they using Orrin? Take any inference provider for example, right? Their demand is very spiky. You don't know when someone's gonna click generate generate on your application that you're building. And so the inference providers need to serve their customers in a very spiky way, right? People come in and buy tokens a lot for one hour they won't buy any for the next hour. So that demand inherently needs to be hedged in a way that it's a futures market because you have to be buying on demand or in like a month to month sense or a week sense or a week sense, where you're, where you're, where you're, where you're, where you're, where you're, chunks because you don't know what the long-term outlook is compared to many different companies like open AI or entropic where they have like a base level of compute I think that we work primarily with a lot of the infants providers today. Maybe you could double click on why compute is such a volatile market today and whether you expect that to continue. Today like demand outpaces supply by a lot and so that creates a huge gap and it's just a simple supply and demand economics question about what has happening in the market. Volatut volatility in the market in the market. Volatte in the market. happening in a day-to-day sort of sense is like, hey, this cluster just came online, then maybe supply increases a bit and so demand decreases. And then also, like, if a new model comes out, usually demand outgrows supply by a lot. So there's a lot of factors like that that take place in the market. The reason we think compute is probably more a commodity in the world sort of thinks of it this way. If you look at the war in Iran, the one thing that they're also targeting now is oil fields and data centers. So clearly, I think the world starts to realize that compute is a very If you take a step back and you think about why is compute a strategic asset you think well if all the country's applications and all their data infrastructure is built on this compute if you knock out that compute layer you now have applications are not working businesses that are not being productive and the country starts to grow at a slower pace than a country that has access to compute exactly and it's just like a commodity market right you look at Venezuela for example they have the largest oil reserves you take that away the government sort of starts collapsing and I think the same way is true for compute going into forward it's a national strategic commodity that needs to be treated that way and needs to have a market built around it. Maybe you could talk about the stack and AI who the different players are and where you plan out. You can kind of think of in like five different verticals I think is the easiest example that people use. So there's the whole application layer of companies to think of like Harvey, all these companies that build applications on top of the models, then there's the model layer companies. So you can think of these as like open AI, and they're all big, X AI or SpaceX now and those sort of companies that build these models. Below them we say that there's the infrastructure companies, right? And so you take a look at these and these are like core weave, NEBS, Crusoe, construction or co-location facilities to help turn that energy from a green field into a co-location data center and so think of those serves as like Brookfield for example is a really good data centers yeah exactly they build the actual physical shelves of the data centers it's just construction at the end of the day and then below that is all the energy companies so you look at like Bloom Energy for example is one of the largest ones or SB energy GE is a huge one that they've been building turbines now for data centers and so that's that's kind of that's kind of like the stack look at today. A lot of the money today is being poured into all these like application layer companies, right? And obviously below the stock there's the chip companies. I forgot to mention those like the NVIDIA, Amd, that's a yeah at the very like core. And who needs to hedge their computer company? It's the model companies and the sort of data companies. That's the stock that we play in right between both of those. And the main reason is because the model companies are the ones that buy a lot of the compute and they sell tokens off of that. And then the data center companies are the companies are the data center companies are the companies are the companies are the companies are the companies are the companies are the companies are selling the compute itself. They're the farmers and the if you think about commodity market like who's buying corn and then who's selling corn the farmers are the data centers and the buyers the corn are the model companies. Expert calls have always been one of the most powerful ways