A Neocloud boom feels inevitable. Clicking out one layer, the data center infrastructure buildout feels like it could turn into one of the largest wealth creation moments ever in physical infrastructure. Now that I’ve spoken in absolutes like this, we can bookmark this post for later when we look back on “signs of the top” :) Let me caveat this post with the fact that I’m very AGI pilled. Just about any estimate for “tokens consumed by X date” or model progress or data centers built or total demand I’m taking the over. In all seriousness, the numbers are staggering. Rumors / reports peg Anthropic / OpenAI at ~3-3.5GW of capacity to end 2025. OpenAI has talked about getting to 30GW by 2030. Let’s assume Anthropic has similar plans. Just those two alone will bring on (or plan to bring on) ~5

I’ve been thinking a lot recently about comments $Microsoft(MSFT)$ Satya made a few years back. If we rewind the clock to mid / late 2022, the biggest thing on software companies & investors’ mind was “when will the optimizations end.” The ZIRP period of 2020-2021 created a buying frenzy - no one was thinking about costs (when it came to cloud / cloud software spend), they were only thinking about growth and capturing more market share (oversimplification, but you get the main point I’m making). At the end of the day, the market was providing cheap and abundant capital (for public and private companies), and investors (for both public and private companies) were rewarding growth (ie placing the most emphasis on growth when determining valuatio

In the early days of AI, we saw the rise of “GPT Wrappers.” Companies that created a product that resembled a thin layer on top of a model. People loved to mock these products, saying all the value was in the model with everything around it commoditized. “Why would I use your app when I can just use ChatGPT directly?” Years later, we have a new name for “wrapper” which is now “harness.” OK that’s a crude analogy and not exactly apples to apples... a harness is really the code that determines what information a model sees at each step, what to store, what to retrieve, and what context to present. It’s the scaffolding around the model. But the spirit of the comparison is directionally right: there’s an enormous amount of value in what sits around the model, not just the model itself. And we

Memory stocks have taken over recently. If the early AI “trade” was compute, the current trade is memory! Over the last year: $SK Hynix, Inc.(HXSCF)$ is up >300% $Samsung Electronics Co., Ltd.(SSNLF)$ is up >200% $KIOXIA HLDGS CORP(KXHCF)$ is up ~1,000% $SanDisk Corp.(SNDK)$ is up >1,200% $Micron Technology(MU)$ is up >300% $Western Digital(WDC)$ is up >400% This is by no means an exhaustive list of memory related stocks, but it should give you a flavor of what’s happening in the stock market for memory related companies.

Another week and software continues to grind lower. However, despite all of the carnage, there was another big winner this week! $Fastly, Inc.(FSLY)$ is up ~100% over the last week. The week prior, $8x8(EGHT)$ had the big week (they were up ~70% in a week). Always an opportunity somewhere… I thought I was done talking about “is software dead” after the last couple weeks Clouded Judgement posts, but I just had more thoughts I wanted to share… I think two things are true. I think people are simultaneously under and over estimating the impact AI will have on the existing software complex. The difference is the timing. Overestimating in the short term, and underestimating in the long term. I see a lot of argu

Another week and software continues to grind lower. However, despite all of the carnage, there was another big winner this week! Fastly is up ~100% over the last week. The week prior, 8x8 had the big week (they were up ~70% in a week). Always an opportunity somewhere… I thought I was done talking about “is software dead” after the last couple weeks Clouded Judgement posts, but I just had more thoughts I wanted to share… I think two things are true. I think people are simultaneously under and over estimating the impact AI will have on the existing software complex. The difference is the timing. Overestimating in the short term, and underestimating in the long term. I see a lot of arguments claiming software is dead because everyone will just vibe code their own software. I don’t buy this at

Well, software is dead again! At least investor confidence is dead… The median NTM revenue multiple for the cloud software universe is 4.1x. That’s the lowest it’s been in 10 years (it was about the same very briefly in 2016, when the fed started hiking rates for the first time after the GFC ZIRP period). The current median FCF multiple is 18.9x. The previous low in the last 10 years was ~26x! However, the “narrative violation” metric here is the growth adjusted revenue multiple median is still 0.35x vs the pre covid average of 0.28x (you can see the graph below, I post it every week). So while multiples are at historical lows, so are growth rates. The FCF multiple is the most telling, however. With the current median ~30% lower than the prior low point in 2016 So what’s going on?! I think