(Preview) SpaceX Hype and the Elon Bargain, Nvidia and the Neoclouds, Q&A on Dropbox, Google, Ferrari Luce Backlash

Hello, and welcome to a free preview of Sharp Tech. Hello, and welcome back to another episode of Sharp Tech. I'm Andrew Sharp, and on the other line, Ben Thompson. Ben, how are you doing?

Filled with regret, Andrew.

Over what?

Well, I was going through the rundown last night, and there was a question about the Ferrari Luce on here. I decided I was going to troll on Twitter and do the guy in the courtroom saying, “I like the Luce.” But I was in the context of Sharp Tech—

Mm-hmm.

—where last week I explained I don't like electric cars.

Right. Not really an EV guy, yeah.

I actually have a much broader take on the Luce that ties into that. But no one on Twitter has that context, so I'm just hanging out on Twitter defending the car everyone hates, and I'm not really defending it. I was actually trying to have this very subtle diss of it.

Okay.

Total failure on Twitter.

I did not—

You can't do—

—pick up on your diss at all. I saw the tweet—

I know, and it's terrible.

—and I was like, “What the hell has Ben doing here?”

I was thinking about Sharp Tech. You can't delete a bad tweet now.

Yeah.

Right? You just—

You gotta own it.

—you leave it because you're getting beaten down by the comments. You gotta own it. So I'm going to explain myself on this podcast. And we actually talked about it on the other thing, so I'm going to double-dip—

Okay, great.

—because I do feel the need to defend myself, but none of that defense is going to make its way to Twitter. This is actually going to be a theme of this podcast: Twitter being annoying.

Mm.

But this one was understandable.

I cannot wait. That's going to be the party in the back. It's going to be mostly male on this episode. We'll try to hit as many questions as possible, and the Luce discussion will be the party in the back, because you've had takes all week long, and I felt like you were pushing back against some of the consensus backlash to the Jony Ive design.

No, the consensus backlash is totally right, but mostly because they don't understand why they're right.

Mm.

And there's a bit of what our friend Spike Eskin has—the what?—the accidentally viral critical consensus—

Yep.

—where it just becomes the thing to have an opinion about something. And the annoying thing about AVCC is, number one, I share Spike's desire to inherently push back against it.

Yeah.

So that definitely fuels the tweet. But the other part where AVCC gets super frustrating is when AVCC is right.

Mm.

But people are just so on the bandwagon that it gets really annoying.

And they're all—

Yeah.

—annoying about it. Okay, well, we'll dive into all of that in about an hour. For now, we will begin with SpaceX. You wrote a big SpaceX article on Wednesday. It was really sort of an Elon, Inc. article, because there was a lot of good Tesla discussion in there as well.

But as to SpaceX and the impending IPO, I'll read from your article: “SpaceX is seeking a $2 trillion valuation on a mere $18.6 billion in revenue, with $4.9 billion in losses last year. Growth actually slowed from 35% to 33%. That slowdown happened despite the addition of xAI, and thus also X, which tipped the company from a small profit to that massive loss thanks to $5.1 billion in AI R&D expense. That R&D, keep in mind, went toward building a model that is in fifth place and whose entire founding team recently left the company. But sure, $26.5 trillion AI opportunity.”

Alongside that note, you also wrote that the SpaceX IPO is an IPO worth supporting. So tell me why. Tell me how you're making sense of all of it.

Well, this is part two of Twitter being annoying. Tae Kim, who I quite enjoy—

Great follow.

He has his own newsletter.

Yep.

Yeah, he's a big NVIDIA guy. He wrote the book The NVIDIA Way, which was a great read. He quoted this paragraph and said, “Oh, I love Ben Thompson. He'll give it straight.”

The reason that paragraph is in there was to say up front that this whole thing, from a financial analyst perspective, doesn't make any sense.

Doesn't fully pencil out.

Right. And so, just in general, when it comes to anything Elon Musk-related, I write about him once every five years.

Mm-hmm.

And the reason is that it's really annoying and impossible. Why do I never cover Tesla earnings? Because Tesla, all along, is fueled by promises and belief, especially of—

Cybercab—

—like retail investors.

Well, but you go—

—coming soon. Imagine how big the market's going to be. Yeah.

Well, so I wrote “It's a Tesla” in 2016 or something like that, when the Model 3 was made available for preorder and 300,000 people put down $1,000 in 12 hours.

Mm-hmm.

That remains pretty incredible for a car. It spoke to the power of Elon Musk and the brand.

Yeah.

I wrote another one a few years later, “Mistakes and Memes,” about this flip. You go back to the March on Washington, a very famous civil rights march, which entailed years of preparation, both in terms of seeding the political ground and organizationally. That specific march, I think, was 2 years in the planning.

Mm.

And it culminated in this incredible moment, one of the most famous speeches in history: Martin Luther King's “I Have a Dream” speech. That was how mass movements had to be built. You built them up, and they culminated in this massive spectacle on the National Mall.

I didn't know that.

On the internet, it doesn't work that way. On the internet, you can spin up masses overnight.

Mm-hmm.

I think I wrote “Mistakes and Memes” in the context of the whole GameStop sort of thing, but there have been other things, like the color revolutions, and there was a sense of, Why is it that we get these huge movements and nothing happens? It's because this whole process has been inverted. You can spin up a mass movement on social media—

Mm-hmm.

—but if you didn't put in the years of building the infrastructure around that movement, then it just sort of sputters out and everyone forgets about it.

Mm-hmm.

However—and this is where I tied Musk into that article—what makes him unique—there are a lot of things that make Elon Musk unique, and unique can be good and it can be bad. But no question, he's unique.

Yeah.

There's a bit of a Jobsian reality distortion field, but Musk has nuclearized that sort of capability, where you leverage the masses to achieve the means by which you build the structure that spun up the masses in the first place.

Hmm.

The Tesla stock has always been the best story of this. I have not written about Tesla earnings because any sort of breakdown—even once they achieved success and, honestly, the stock went to the moon—still doesn't make sense if you actually sketch out their profits and losses and expected value.

Not super rational.

People on Wall Street have been writing that TSLA stock does not make sense for ages.

For 10 years, yeah.

And they look dumb, though, because the stock went up. They got their shorts washed when the Model 3 worked and the Model Y worked, and the stock went to the moon. But just because it went to the moon, it's like, okay, if it had stayed where it was, then it actually made sense—but it didn't. It got escalated.

The crazy thing about the Tesla stock that always amazed me, and I'm sure this is the thinking for SpaceX going public, is that they would do a stock issuance to get more money. If you issue more stock, you're diluting the stock that's in the market. The fundamental value of the company—if the company's worth $1,000 and you have 10 shares worth $100, if you issue 10 more shares, nothing has changed about the quality of the company. So the shares should go down to $50 each.

Less valuable. Yeah, you mentioned this last week.

Tesla would issue shares and the stock price would go up. And so it's like they—

Just pile in, man. You know, go for a ride with Elon.

See where you end up.

Right. And everyone’s like, “Oh, yes, he’s investing more money in the company. We’re going to achieve our dreams, achieve our goals.” It’s easy to sit around and mock this and look at these rubes being led astray by Elon, and you’re seeing a lot of it with the SpaceX thing, right? “I can’t believe these idiots are going to invest in this company with these numbers.” That’s why this paragraph was there, in a mocking tone, to reflect that reality. But what Musk is doing and has done again and again is sell people on a dream such that they will put money into the dream, and that’s the means by which he goes and pursues the dream.

Mm-hmm.

He’s flipped over the process. He creates movements to fund infrastructure instead of infrastructure building to a movement. It’s a complete inversion of the way things used to work. He’s the master of retail in that way, the master of the internet, of memes.

Mm-hmm.

SpaceX is the new meme stock. That’s just going to be the case. And so the question then, if you accept that this is what happens—it seems irrational, but this is what happens—is there a path—

To build an infrastructure—

—in terms of what he’s promising—

—that’s actually going to make a ton of money and justify any sort of valuation in this neighborhood?

Right. Backwards justify. So you look at all the idiots who are buying unbelievably expensive Tesla stock and doubling down when they were issuing more. They all made a lot of money.

Yeah.

Right? At the end of the day, all the people who were pointing out that was dumb did get rich—

And by the way—

—the people who held the stock did.

I will just note that my best friend is a money manager. He manages my wife’s money. I’ve mentioned in the past that my wife has Tesla stock. For literally 8 years, my friend Ed has been coming to me and saying, “The fundamentals just don’t make sense with Tesla. You need to get out.” Alice will always say no, and the fundamentals still don’t really make sense with Tesla when you look at the multiple and the valuation and the Cybercab stuff. It is definitely a real possibility.

On the SpaceX front, there are real things that they have working in their favor. They got a $45 billion contract for compute with Anthropic over the next 3 years. Either side can walk away from that deal with 90 days’ notice, which is pretty interesting, but Anthropic definitely needs the compute right now. The AI infrastructure business alone is real and should grow for them. But what I love—

Right. And I should have acknowledged this: I do like xAI. I think the way I’m interpreting it is xAI’s new team is basically Cursor.

Mm-hmm.

Which I think is quite interesting. Cursor needs compute. They need to build their own models. It’s not a viable business if their ultimate model is throwing out to Anthropic or OpenAI or whatever it might be. But they also have lots of interesting data. They have a very good enterprise business that’s still growing.

Mm-hmm.

And if it’s important to be really good at coding, it’s hard to imagine a better place to start. So I don’t even hate where xAI is in that regard. Almost certainly, that deal was structured because you can’t do a $50 billion acquisition with your S-1 already filed.

Yeah.

So I don’t hate where that’s going either, and I probably should’ve given more credence to it. But I wanted to write about space data centers, and I wanted to acknowledge that. I think this framework is actually important.

Mm-hmm.

It’s important to understand the Elon framework, which is not conducive to your friend Ed.

Exactly.

For obvious reasons.

Well, but it has been—I mean, look, the odds of starting a new car company 15 or 20 years ago, whenever Tesla started, and actually succeeding—literally, it had not been done in 100 years.

It had been 100 years.

Yeah.

Yeah, exactly.

And so clearly something he’s doing is working, and I just appreciate any company that’s IPOing. I feel like I came to Sharp Tech in the post-IPO era, and half the companies we talk about are private companies, so I’m excited to open up the balance sheets and have some fun, first of all.

Yeah. Well, this is part of why the IPO is worth supporting. Number 1, just in general—look, this is not a defense of Elon Musk, up and down, left and right.

Yeah.

But there is a bit where both sides go too far. So, on one hand, again, this is why I come back to that tweet: I just had tons of Elon bros in my mentions—

Like Will Ferrone calling into your mentions. Great.

—going off on me, who clearly didn’t read the article, right? They were just attacking that one screenshot, and they’re listing all these things. Whatever, I do engage.

Your article was pretty positive, all things considered, on what’s possible for SpaceX.

I know, but it widely got interpreted on Twitter as very negative, which is funny. I was worried about coming across as way too much of a believer, and so I needed to shield myself and be like, “Look, this is all kind of ridiculous; it doesn’t make sense.” Of course, that’s the part that totally got anchored on. This is why I don’t write about Elon. There’s no winning.

Yeah.

But to the Elon point, look, Tesla exists. The self-driving is amazing.

Mm-hmm.

Is it ever going to get to fully autonomous with vision only? We’ve litigated that. It’s still an open question. As it is, it goes door to door and you don’t have to touch the steering wheel, and it does it reliably.

Yeah.

It’s amazing. Everyone needs to have experienced it at least once. You owe it to yourself just to appreciate how good it is. So that exists. Rocket boosters do land on ships routinely.

Yeah.

It happens every week, multiple times a week. It’s not even a news story. And—

Starlink exists.

Starship, we’ll see. It’s taking a long time.

Mm-hmm.

They’re spending a lot of money on this. It’s definitely, I think, been much more difficult than they think, and I’ve made the case for iteration: getting to the limit, finding exactly where it is—stuff should blow up. There’s a reason the risk factors in the S-1 start immediately with Starship. It’s multiple pages long, because all this stuff depends on getting that sort of capacity into space. In 2024, they caught that thing with chopsticks: “Oh, they’re almost there, they’re going to get it.”

Yeah.

Right? It’s been 2 years, I should say. So it’s a real risk factor. But, number 1, Musk has earned it, and Musk IPOs are by and large good for society. I think that’s been shown, number 1. Number 2, their ambitions are so large and the commensurate risk factors are so high. People talk about, “Oh, it’s not fair that retail investors don’t get a chance to get into startups, and all they do is catch stuff at the end.” It’s like, well, you want to be a VC? Here’s your chance.

Yeah.

And, by the way, being a VC means you might lose all your money. But that’s great. I think it’s great that that opportunity exists. Buyer beware. This is not stock advice. I don’t invest in stocks directly. If I did, probably not for me because I—

Well, it looks pretty overvalued right now, as IPOs go, but who knows?

I don’t know. Maybe I’d buy a few shares just because, hey, we might pull it off. But I’m glad it exists.

Yeah.

And—

I agree.

So there you go.

Well, what I love about SpaceX is it’s not a software company. They’re building real infrastructure that actually matters and could change the way we live in a variety of ways. They’ve already changed national security in some very positive ways, delivering internet in new ways, building out data centers faster than anyone on Earth, at least in this country. Maybe going to Mars, I don’t know. I don’t know if we’ll get to Mars, but I support the ambitions in the physical world. I think that’s pretty cool. So we’ll see what it turns into.

Speaking of the physical world, though, Justin says, “Before we go to space for data centers, aren’t there uglier but more plausible terrestrial or near-terrestrial escape hatches? For example, modular data centers attached to offshore oil platforms or other stranded energy sites powered by gas that might otherwise be flared, with existing industrial maintenance infrastructure, fiber/backhaul, and the ocean as a heat sink.” Lot going on there.

Obviously, marine environments are brutal, and maintenance would still be a nightmare, but that seems dramatically more tractable than launching disposable rack satellites and accepting orbital hardware depreciation. My question is, if the core sticking point is terrestrial power and zoning opposition, why shouldn't we expect the industry to exhaust every conceivable alternative before orbital data centers pencil out? I'm very pro-space industry, and I'd love billionaires to subsidize orbital industrial capability. I'm just struggling to see why Earth-side ugly solutions don't dominate space compute economically for a long time. What do you think, Ben?

So this is totally valid pushback.

Mm-hmm.

So, in fact, a lot of the pushback we're going to go through is valid, and for SpaceX specifically, there's a bit of, “You have a hammer; what's the biggest nail I can find?”

Yeah.

Right? So there was something on Techmeme today—there's an article from The Information—about Apple touting how its own chips give it an advantage in AI. Did Apple develop its chips to give it an advantage in AI?

Hmm.

Or is it casting about and retrofitting its advantages to tell a story about how it has an advantage in AI? Now, that's definitely true, and it also might be true that they do have an advantage in AI—

Mm-hmm.

Because of their chips. All these things can be true at the same time. This definitely applies to SpaceX. SpaceX was not created to put data centers in space.

Yeah.

Right? And so there is a certain retrofitting of mission, and there's a bit where AI is arguably rescuing the SpaceX economic case—

Mm-hmm.

By virtue of delivering this theoretical market that is so large that they didn't plan for, but it happened to come along at the right time.

$26 trillion opportunity right there.

Right.

Yeah.

SpaceX is making the argument for data centers in space because they're a space company.

Mm-hmm.

Right? So, totally valid response. Now, in pushing back on Justin, there are a few reasons why I am fairly optimistic about data centers in space.

Yeah.

Number one, I absolutely think there will be things like this, maximizing everywhere we can find energy. And, by the way, in the meantime, there's still a lot of places to build data centers, particularly in places like West Texas. To his point, there's the bit about how they actually have more natural gas than they know what to do with.

Mm-hmm.

Because it's a byproduct of extracting oil, and yet they literally just set it on fire.

Yeah.

Right? Because they can't get rid of it. It's actually a net positive. It is carbon positive to the Earth to build a data center instead of flaring it up. A lot of existing data centers that have been retrofitted for AI were Bitcoin-mining operations for the same idea: Look, we can just monetize what is actually excess energy.

Mm-hmm.

And then everyone's like, “Oh, wait. I know what's better than Bitcoin: AI. Let's make tokens,” and tear it all out and put stuff in there. There's this whole ecosystem of rando old-school—what was the name for people who find oil wells? Wildcatters, or—

Yeah, wildcatters.

Wildcatter-type people who would just find oil wells and stuff. That's going on with AI and finding places to put GPUs.

Okay.

So, absolutely, absolutely a thing. And so, yeah, data centers on oil platforms, sure. Why not? You do need—there's lots of stuff that goes into that. You have to convert that natural gas into power.

Yeah.

You need turbines. Guess how long it takes to buy a turbine right now?

Probably quite some time. I'm sure—

Like, 7 or 8 years or something like that.

Most of that supply chain is rooted in China.

Yeah. Well, no, actually, a lot of it is not, believe it or not.

Okay. That's good news.

In part because turbine-blade technology is one of the West's great secrets. There's Siemens, there's GE, there's—

Oh, that's right.

It might be Mitsubishi Heavy Industries, the third one.

Yeah.

But—

One of those companies had a big espionage scandal 3 or 4 years ago because that's a nut China has yet to crack.

Yep, turbine-blade technology.

Mm-hmm.

And so there's been a big push toward much less-efficient turbines, temporary ones, or generators, like Bloom Energy, which is doing fuel cells. Those are not nearly as efficient as a proper generator, but you can't get a proper generator, and there's demand right now.

Mm-hmm.

Now, all these things can, and I think will, be solved over time. So it's not dispositive that this means we're fundamentally constrained in how many turbines we have.

Yeah.

We can make more. Wouldn't it be easier to make more turbines than to have data centers in space? Let me just write Justin's next email for him: Yes, that might be the case. So the thing about data centers in space is that there are some fundamental advantages.

Okay.

The fundamental advantage is pretty straightforward, which is free power, right?

Hmm.

And so you do get power, and it's actually relatively simple, all things considered. It's not capturing gas, setting it on fire, boiling water, and spinning blades. If you think about it, the actual power generation is kind of nuts in how it works. And this gets back to the bit we talked about last time. We're not talking about putting a warehouse in space. It's putting a bit of compute that's about the size of what Starlink satellites are today.

Mm-hmm.

Now, you need more cooling. Just to put it in context, I think the International Space Station's 70 kilowatts, and it was very difficult to figure out how to deploy the radiators to cool that. You're going to have to figure that out if you're going for, let's say, 100 kilowatts.

Yeah.

Positioning it so that one side's always in shade and one side's always in sunlight will solve some of these issues. But the long and short of it is that there's an elegance and simplicity to this that I think is underappreciated—

Well, and that's—

This—

My question is, in terms of where they're—

By the way—

Driving to, would it be a cheaper solution, in addition to more availability in space? Is that the goal—the SpaceX value proposition that they're trying to offer?

No, I don't think so. Or—

Yeah.

The bit is that Elon, at his best, ends up with very elegant solutions that took astronomical amounts of investment up front to get in place.

Mm-hmm.

Starlink is an example of this. Starlink on airplanes is so obvious. But to get to the state where, of course, every airline is going to sign up for it, they had to invent rockets, they had to invent rockets that land, they had to do Starlink. They had to do all this.

Yeah.

There's a complexity in Justin's solution that is an ongoing operational complexity. You have to continually figure out what you're going to do with these GPUs, getting the natural gas, powering the turbines, maintaining the turbines, and all that. It's complex on an ongoing basis, even if the path to getting there is much easier.

Mm-hmm.

What Musk usually does is the path to getting there is hilariously difficult—

A nightmare.

And seems stupid.

That no one sane would ever try, yes.

But if you get there, it's super elegant, super reproducible, and super scalable.

Mm-hmm.

The idea that we talked about last week, too, is that space is so much bigger than people realize. And if this is a bet on the demand for compute being effectively infinite—

Yeah.

Where these racks in space would be is providing marginal compute, which just means you need one more bit of compute. Where are you going to go? Of course, you're still going to have the data centers on Earth, which, by the way, are probably going to be extremely profitable because they're cheaper.

Mm-hmm.

But the marginal—if compute becomes a commodity, the price of the commodity is set by whoever adds one more bit of the commodity.

Mm-hmm.

What's their cost structure? On one hand, it's the most expensive one that has the worst margins that adds that marginal compute. But if demand is large enough, then that marginal piece of compute—if you're the only one that can add marginal compute—you can make it up in volume.

Yeah.

That is literally the answer here. There’s a make-it-up-in-volume aspect, which, by the way, should always make you worried and suspicious, and feels very bubbly. “We’re gonna make it up in volume” has always been the excuse to do things that make no sense. But that’s the case: it’s a make-it-up-in-volume situation.

At some point, the demand for compute becomes so large, and the constraints on doing it on Earth become so difficult, and SpaceX gets so good at this, and actually, Starship works—

Right.

—they can deploy at large scale, that this very elegant solution, where we basically move all our compute to space, you look back—

And if it works—

—it’s like, of course, this is how you do it.

And it’s streamlined, yeah. Because you can envision a scenario where we get 10 years or 15 years down the line, and sure, you can set up an offshore data center on an old oil rig that you bring natural gas in for, and you generate your compute—

No, no, the natural gas is from the ocean, to be clear. You’re not bringing in the natural gas.

Okay.

But yes. That’s Justin’s point: the energy is there, but it’s still one of those things you look at, and if the elegant solution works, it’s like, why aren’t we gonna do it that way? Just launch more satellites. It’s very easy.

And my point would be, you do that, and then you get 6 months down the line and say, “Oh, actually, we need more compute.” And then a year down the line, “We need more compute.”

Well, you’re just on this treadmill forever, right? And then—

Exactly.

Yeah.

So if there’s an alternate path where they’re offering marginal compute in perpetuity, and SpaceX—

Yeah.

—has cracked that nut—

Exactly, yes.

—then it’s much easier to offer it, even if it’s more expensive. So—

Right.

—we’ll see whether we get there.

Because the implementation cost of the alternatives gets very, very high. No, that’s exactly right. Now, again, everything I just described to you may sound stupid and impossible, and you might totally be right. That’s why this is an unbelievably risky investment. This is why the laws exist.

Now, should the laws be changed to make it easier for retail to get into private companies? That’s certainly a debate that could be had, particularly as the world has shifted to larger and larger companies staying private longer and longer. This isn’t Microsoft going public at, like, $100 million or whatever it was.

Mm-hmm.

You could ride it all the way up. That’s definitely a discussion to be had, but the reason we have protections against retail investors getting into private companies is because you’re likely to lose your money.

Yeah.

And SpaceX is like, “What if we create a company so audacious and large that we could give the public the opportunity to lose all their money without any regulations whatsoever?” Here we are. So it’s—

Here we are, and we’ll see where we go. Again, maybe we’re going to Mars 10 or 15 years from now. Adam says, last SpaceX question:

“How durable is the SpaceX rocket monopoly? At present, it seems that SpaceX has 2 incredibly valuable moats: a monopoly on space delivery, commercial rocket contracts, and a monopoly on low Earth orbit internet, Starlink. You can currently project out a few years, as Ben’s done, and see how it’s possible that they’ll have a third moat in the future: racks in space.

“This, of course, assumes a lot, and Ben makes that point in his article. For me, however, the most crucial assumption is that SpaceX will be the only game in town for space delivery going forward. Now, there’s no doubt that SpaceX has a huge lead in reusable commercial rockets, but is it safe to think that that will stay the case for a decade, 2 decades, longer?

“In other words, if racks in space become as important as Ben thinks they might be, there would seem to be enormous incentives—far greater than any that exist for satellite delivery and internet satellite constellations—for investment in second-mover R&D, whether from Blue Origin, other startups, or even nation-states.”

What do you think, Ben?

Yeah.

I’ve wondered the same thing about the SpaceX rockets.

No, it’s a very relevant question. Blue Origin has landed boosters—done suborbital, I believe—but they’ve done it.

Mm-hmm.

China is obviously working on this. And to Adam’s point, if the economic incentives get large enough, problems get solved, particularly if it’s been demonstrated that they are solvable.

Yeah.

It’s way easier to invent the second booster that lands precisely because you know it’s doable.

Mm-hmm.

Just like it’s gonna be easier, in some respects, for China to invent—

Turbines.

—Starship, right, because they know it exists.

Yeah.

And a lot of the equipment they need, they can take it apart, look at it, and try to figure it out. And so that’s absolutely a fair point.

This is maybe an argument for why continued investment in xAI is a good thing. If you get there first, and your model and your tooling accrue software-type network effects, in part because you were there and you had way more capacity than everybody else, that provides more durability than just having infrastructure. I think that’s probably the point there.

Actually, it is important to get something defensible in the long run. The way I look at it, though—not coming here as an Elon Musk fanboy or a SpaceX stock advocate—if we get to the state where multiple companies are making reusable rockets—

Mm-hmm.

—and there are multiple companies putting compute in space—

The thesis was correct for SpaceX.

That’s right.

Yeah.

It’s a wonderful world. It’s a world I want to live in. So I’m actually not worried about it. But—

Fair enough. That makes sense.

This is why I had to give myself permission in this article. I’m not being a stock analyst here. I think the—this, you know, I wanted to tie it into the agentic inference idea, this idea that there’s just gonna be a lot of compute, that everything we think about how compute has to look today—

Mm.

—I’m not sure is exactly what compute’s gonna look like in 10 or 20 years.

Yeah.

And part of that is certainly the thesis here. But yes, it’s a fair point, Adam, and I don’t care.

Fair enough. All right. Well, shifting gears, let’s run through some mailbag questions. Aaron says:

“Hi, guys. In Ben’s Tuesday post on NVIDIA, he discusses the AI stack and makes an interesting distinction between where the benefits accrue in the short term because of bottlenecks, and in the long run because of moats. The distinction tees up how NVIDIA’s new reporting segmentation, which was likely done to show just how much of their sales were going to the ACIE customer base, where they have a much stronger moat than they do—

Yeah, is there—

—with hyperscalers.”

Is there a definitive way to pronounce this—

So I saw ACIE in this email, and I immediately thought of Acie Law. In honor of Acie Law, former Texas A&M great, who had some great battles with Kevin Durant about 15 or 20 years ago now, I’m going with ACIE. I’m probably getting that wrong, though.

Yeah, so just to be clear, ACIE is A-C-I-E, which is AI, Cloud, Industrial, and Enterprise. Basically, it’s all of NVIDIA’s sales to non-hyperscalers.

Right.

So exclude Google, exclude Microsoft, exclude Amazon, exclude Facebook. Is that all of them? It’s hard to keep straight.

So we’re talking about CoreWeave here?

It’s not hard to keep straight. There aren’t very many of them. No, CoreWeave is in the ACIE category.

Right.

All these wildcatters that are finding old Bitcoin data centers and putting GPUs in there, those are in the ACIE category. Companies buying GPUs for themselves are in the ACIE category, and governments buying—

Yeah.

—anyone but the big guys is ACIE. We’ll go with ACIE.

Acie Law.

A.C. Earl or Acie Law? Yeah, I thought of both—

A.C. Earl.

—A.C. Earl and Acie Law.

Another good one.

Yes.

Remember some guys?

That’s right.

Isn’t the ACIE customer segment itself, though, currently benefiting significantly from bottlenecks? Aren’t neoclouds largely only thriving because there’s a huge supply shortage? And ultimately, when there’s a balance between supply and demand, won’t the very fact that these guys need to buy an entire NVIDIA bundle, paying NVIDIA’s huge gross margins, by definition mean that they will lose significant share to lower-cost hyperscalers who have their own ASICs and can avoid the NVIDIA tax? What do you think about that possibility? All right, and that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharptech.fm. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from Stratechery and the Stratechery Plus bundle. Check it out, and if you've got feedback, please email us at email@sharptech.fm.