Investing for the AI Boom: Masters in Business with Glen Kacher

Masters in Business

Barry Ritholtz interviews Glen Kacher, the founder and CIO of Light Street Capital, about his career trajectory from Tiger Management to leading a

Key takeaways

• NVIDIA currently maintains a dominant market share of approximately 85% in AI accelerators.
• Kacher identifies a core group of essential companies, including NVIDIA, AMD, Broadcom, TSMC, and Microsoft.
• The shift from 'training' models to 'inference' creates new opportunities for specialized, lower-cost chip architectures.
• The current AI boom is viewed as part of a much larger 15-to-20-year computing cycle similar to the transition to internet architecture.
• Data center expansion faces emerging risks from political pushback and energy availability in regions like Texas and Virginia.

Main topics

• AI Infrastructure and Semiconductors
• Career History at Tiger Management and Integral Capital Partners
• The transition from training to inference in AI

Notable quotes

You don't buy the second or third best company in the space. You always buy the best company you can.

Conclusion

This episode offers a sophisticated look at the hardware and infrastru

Transcript preview

Speaker 3 (0:00) The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the day. Speaker 5 (0:04) My fellow Americans, this is Liberation Speaker 4 (0:07) Day. Speaker 3 (0:08) Stories that move markets. Speaker 4 (0:10) Chair Powell opened the door to this first interest rate cut. Speaker 3 (0:14) Impact politics. Change businesses. This is a really stunning development for the AI world. And how you think about your bottom line. Listen to The Big Take from Bloomberg News every weekday afternoon. on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Speaker 4 (0:33) Bloomberg Audio Studios. Speaker 2 (0:36) Podcasts, radio, news. This week on the podcast, my extra special guest is Glenn Kacher. He is the founder and chief investment officer at Light Street Capital. He's got really a fascinating background and a great track record. He worked at Julian Robertson's Tiger Management, eventually ended up at Roger McNamee's Integral Capital Partners. He's put together really a fascinating focus and track record. One of the few hedge funds located right in the middle of Silicon Valley, focused on AI and technology. I found this conversation to be absolutely fascinating. And I think you will also, with no further ado, my conversation with Light Street Capital's Glenn Kacher. Speaker 2 (1:36) Glenn Kacher, welcome to Bloomberg. Speaker 5 (1:39) Thank Speaker 1 (1:39) you. Speaker 2 (1:39) Before we get into Light Street, let's talk a little bit about your background. You graduate from University of Virginia School of Commerce with a bachelor's in commerce, and eventually get an MBA from Stanford. Was investing always the career plan? Speaker 1 (1:56) It was. I started, you know, really looking into that industry. I read a book by Peter Lynch while I was in college, one up on Wall Street. And or beating the street. It could have been the first book, actually. And I was just. just caught by this idea of the search for great companies, great ideas. And the way he told the story of finding these companies and researching them, it was really a journey of a detective trying to figure out what would matter in the future. And that really captivated me and my interest in becoming an investor. Speaker 2 (2:36) So in between UVA and getting your MBA at Stanford, You work at Julian Roberts Tiger Management. How do you get to Tiger Speaker 1 (2:47) at 22? Very fortunate opportunity. So one of the... Speaker 1 (2:56) teachers or instructors at McIntyre School of Commerce at UVA, was a former Tiger management partner in Michael Bills. And Michael taught several finance classes there for a couple of years. He had taken some years off from Wall Street after working at Tiger and then before starting a fund-to-funds business that he's run very successfully. And he suggested that I take a look at it. I certainly knew of Tiger. Tiger was It seemed about half of the investment staff actually at one point or another attended UVA. And so a lot of the guys there sort of knew what we were capable of as young guys coming out with finance degrees from UVA. And Robertson was legendary. Speaker 2 (3:45) In 93, was he still running the ship? Oh, yeah. Very much in charge. Speaker 1 (3:50) Very much in charge, yes. You know, I was there from 93 to 96 full-time, and then... But still, when I went to Stanford for a year, I worked for Tiger as well. And Julian would occasionally wake me up with a 6 a.m. phone call when I was in business school. 6 a.m. East Coast. No, 6 a.m. my time. 9 a.m. his time. Just a half hour before the market. So he had some discretion there. But we had some great times learning and talking through the technology industry at the time, investing in. Companies like Dell, Microsoft, Compaq, and Cisco Speaker 2 (4:30) were some of the... So really, right out of college, you're full on technology? Did Speaker 1 (4:35) you look at other spaces? I worked briefly looking at financial institutions with Rob Pitts there. And we had a great time doing that. But I was certainly more interested in technology. I had really studied that industry prior to going to... to New York. And so it was a better fit for me following that industry. And I think two or three months into the job, I ended up sitting two chairs away from Bill Gates at an analyst meeting at the sort of after the meeting dinner. And at that point, I knew I was in the right spot. To Speaker 2 (5:12) say the very least. So after Stanford, you end up at Roger McNamee's Integral Capital, and you stay for 13 years, and you really Less of a public markets analyst and more of a venture sort of banker. You either lead or co-lead venture investments. And the list is pretty impressive. Agile, ArcSight, Blue Nile, Epiphany, Extensity, Fortify, Interwoven. Log me in. Open table, Overture, GoTo.com. What's the common thread? Is it just, hey, that's what was hot in the late 90s? Or what tied that list Speaker 1 (5:52) together? Well, the amazing thing about Roger was he really focused on saying, look, we can't cover every company in this industry. We were a small team, much like, you know, at... Tiger, there were two or three of us looking at tech at any one time. And at Integral, even though we were tech-focused firm, but we had four or five people total. But even with that number, you can't cover the entire industry. So you have to focus in when you're investing and say, where is the change? really happening most quickly? Where is it most dramatic? That disruption equals opportunity as an investor. That's a theme that comes Speaker 2 (6:30) up over and over in your career. Identify the disruption and get in front of it before the existing companies realize what's coming down the pike. It's great to be early, but not too early, right? I mean, that's also an important part of it. Right. I started on a desk and early was equal to wrong, at least when you're trading public equities. Not only do you do all of these privates where you've co-led, is this right, about 46 deals? Speaker 1 (7:00) 46 deals at Integral over 13 years. Speaker 2 (7:02) I read something you had said about that. And you said, you know, the takeaway from all these private venture investments is you don't buy the second or third best company in the space. You always buy the best company you can. Give us a little details on that. What's the thinking behind it? Speaker 1 (7:20) Well, experience, right? I mean, you see the movie over and over again, whether it's private investment or in the public markets. The old saying was the number one player is going to get two-thirds of the market. Number two player might get 20%, 25 % tops. and everyone else fights for the scraps, right? And, you know, there's the ability to make higher margins and have the dominant market share is just so dramatic. And I think in technology, we've seen the power of that, you know, the ability to sort of compound that lead is definitely there. Now, you also see in technology that... that you can get disrupted, right? Incumbents are the real innovation and these disruptive changes tend not to come from the big companies, but the smaller companies. There are exceptions to that. And, you know, we can talk through that. AI is kind of an interesting. test case and the semiconductors behind AI. But there's real power into compounding that lead. So let's talk about those Speaker 2 (8:29) moats and the winner-take-all situation. Is that primarily a technology phenomena? Is it a modern era phenomena? Or is this companies that develop a unique moat regardless of the space they're in get to capture most of the market share? Speaker 1 (8:46) Well, I think you've seen in mature industries, whether you look back at, you know, GE and Coca-Cola, you know, you've seen certainly there's advantages to having that dominant distribution and market share. But in technology, I think it's more a story of getting in front of your competitors and investing more. You have more dollars to invest back in the technology. to grow that lead and that compounding of advantages when or compounding of innovation at the early part of a market's development can be incredibly powerful. And then that gives you the opportunity to put in place other kinds of moats that do kind of block your competitors from coming along. You know, there's a lot of discussion today around NVIDIA. A lot of people sort of assume NVIDIA is going to lose their massive market share in AI accelerators, which is roughly 85%. And certainly, I think the move to inference is an opportunity for competitors to change what's going on there. But I think people right now are, for instance, underestimating NVIDIA's opportunity to innovate as well. So Speaker 2 (10:02) let's define some terms for some of the laypeople that might be listening. Compute and inference. Explain what those are. Explain. how Speaker 1 (10:12) they're investable themes. Sure. So the training compute or the chips, the AI accelerator chips, and today NVIDIA dominates that still with their graphics processor chips. And those chips originally were made for gaming, for doing very rapid mathematics that have to do with... calculating physics and lighting, shading in video games, it turns out that the same kind of mathematics are incredibly well positioned to do the math around AI. And then... So you're training a model, an AI model, that will be able to make judgments. And then when you're actually using that model to ask questions and, you know, or have it solve problems and actually execute those problems, that's called inferencing, right? And so inferencing can be done on a more simple chip. So people have kind of used a phrase XPU to... to X out the graphics and let's say this is the next generation of chips that can be used to actually solve the problems with those models that are built. Speaker 2 (11:37) Meaning the compute and the inference are going to be on the same chip. Speaker 1 (11:40) They can be done with the same chip, but you can have a more specialized lower-cost chip, usually an inference with more memory, for instance, and there's different approaches and software to execute that with a lower-cost chip. Speaker 2 (11:54) so it sounds like our are alphabetical evolution has been cp use then fp use gps now exp uses what Speaker 1 (12:02) what's beyond that Speaker 1 (12:05) Well, I think that's why we use the term X. There's TPUs, Google's version of their AI chip. We've got Tranium, et cetera, and others, competitors. So there's lots of flavors. You also saw, for instance, NVIDIA by Grok, which was another approach to inference. So there will be many flavors and many opportunities and ways to innovate. in inference to, because ultimately that will be a larger market than the training market. Speaker 2 (12:40) Really interesting. So I usually save my mentor question towards the end of our conversation, but your list of people you've worked with and worked for is just so... incredible i i want to get it out early in addition to julian robertson and and roger mcnamee there was philip lafont steve mandel chip morris who was i think at blue ridge um alger viking lone pine impala matrix kotu that's like a murderer's row of of modern investing names what what did all these legends have in common um and how were they each different Speaker 1 (13:21) Well, I think the focus for, you know, we had a great team there at Tiger Management, and so many of us went on to start our own firms, and many of them sort of modeled by what we experienced at Tiger and seeing how Julian did it. I think Julian was just such an inspirational leader and had... It was so values-driven and really focused on, hey, we want to work with the best people. That doesn't just mean the people around the table with you and your investment staff. That also means the CEOs that we backed and the CFOs of those companies. We looked for people that we thought were of high integrity. And if there was any question about the integrity of those CEOs and CFOs, we were out. We just weren't interested in that company. Speaker 1 (14:14) you know, Julian was, there were no shortcuts, right? It was, you got to do the work. Explain to me why and how we got. to the conclusion that this company is one, positioned incredibly well, and two, it has a real opportunity. There's something fundamentally changing in their industry or in their product set that's going to change their trajectory. And then the last one was, hey, let's use our power and success to help other people, right? And so the combination of that, of those... principles was very powerful. I think many of us wanted to see if we could do something similar, and that was really powerful. And then I was lucky to go on to work with Roger and John Powell at Integral Capital and Chip Morris. All three of those guys came out of T. Rowe Price. And we worked with Kleiner Perkins. We were in their building. So we were surrounded by some other incredible investors that just saw things early and really invested in great entrepreneurs, people like, you know, Jeff Bezos and the founders of Google. And it was just, I was lucky that I was able to see so many inspirational people and things happen early in my career and just wanted to try to do it on my own. Really, really fascinating. Speaker 2 (15:32) Coming up, we continue our conversation with Glenn Kacher, founder and CIO of Lightstreet Capital, discussing the firm's founding and launch. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. Speaker 3 (15:48) The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the day. Speaker 5 (15:53) My fellow Americans, this is Liberation Day. Speaker 3 (15:57) Stories that move markets. Chair Speaker 4 (15:59) Powell opened the door to this first interest rate cut. Speaker 3 (16:03) Impact politics. Change businesses. This is a really stunning development for the AI world. And how you think about your bottom line. Listen to The Big Take from Bloomberg News every weekday afternoon. on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Speaker 2 (16:20) I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Glenn Kacher. He is founder and chief investment officer of Light Street Capital. The firm is a technology-focused hedge fund and private investment firm located in Palo Alto. which is a good place to start. You launch in 2010. The great financial crisis is still dominating the news flow. What was the original pitch to investors? Speaker 1 (16:55) Sure. The original pitch was, look, we've... The game board had kind of been reset in terms of making money. Multiples were low. And we saw the emergence of kind of four things. Mobile with the smartphone really growing. At that point, it was becoming a dominant platform. Social media was still... Most of it was private, but we saw Facebook emerging and Twitter