#771: Why AI Demand Won’t Collapse with Mel Mattison

**SPEAKER_1** (0:07)
You've had a dynamic where money's become freer than free.
When you talk about a Fed just gone nuts, all the central banks going nuts. So it's all acting like safe haven.

**SPEAKER_2** (0:18)
I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor.

**SPEAKER_1** (0:29)
I mean, that's part of the bold case for Bitcoin.

**SPEAKER_2** (0:31)
If you're not paying attention, you probably should be.

**Marty Bent** (0:36)
Mel Mattison, welcome back to the show, sir.

**Mel Mattison** (0:40)
Well, thank you for having me, Marty. I appreciate it.

**SPEAKER_1** (0:42)
Yeah.

**Marty Bent** (0:43)
Well, we're going to talk about a lot of things today. AI, is it real? Is it hype? Is it a mixture of the two? We've got the Fed, obviously, Warsh has taken the helm since we last spoke.
We've got some micro stuff to talk about in terms of individual memory stocks that you're following, and then we can get into the fiscal side of things, how much debt the US federal government is, and how they can sustain that debt, and all the entitlement programs that they've built up, and then probably ending it with Scott Bissent for a call for a new economic regime at the New York Economic Club a couple of weeks ago, which has been a hot topic in my circles. We covered it this morning on the weekly show I do with my partner John Arnold at 1031, and I'd love to get your thoughts on that, but I think just starting with the hottest chick in the room right now, which is AI. How are you reading this?

**Mel Mattison** (1:41)
Well, AI is definitely one of two main forces that I see driving markets right now. I think it's AI, and then what I want to just kind of encapsulate because there's a lot of interplay, it's just kind of geo macro stuff. And, you know, that's Iran, that's Ukraine, that's the Fed, that's fiscal deficits. And those are things that the reason I categorize those together is because they're not related to like earnings, right? So another simple way to say it is what's going on in the broad market, like broad macro and what's going on with earnings and company specific. And earnings are all about AI. And I just cannot see a way that AI is going away. Like, I think there's a lot of people out there that are talking about, you know, who's going to be the winners, who's going to be the losers. And I do agree that's not the easiest game to play.
But I do think there are certain segments that it's very hard to argue. Like, for example, why SK Hynix at four times PE?
It should be trading cheaper than it is. Like, if you say, Mel, what's the base case where Micron at like seven times forward earnings is just the earnings are going to fall off the cliff between now and the end of the decade? And I just can't picture that case because it's like, okay, is it going to be open source or closed source? Who knows? But at the end of the day, if compute demand is going to just go up exponentially, it's going to need memory. Unless you're stipulating that there's going to be some new found memory breakthrough. And I think if your kind of hurdle rate for investing in something is that it's impossible for some black swan new technology to take it out, then there's literally nothing to invest in. Like, you know, I mean, I mean, are you going to invest in Bitcoin? Well, quantum could come in. Are you going to invest in US treasuries? Well, the government could collapse and all of a sudden, Congress could say, we're not going to raise the debt ceiling. Are you going like, if you literally want to say there's no black swan, impossible downside, then you can't invest in anything. So I will grant you there could be some big memory breakthrough. But absent that, you have companies like Micron, signing multi-year agreements, trading at six, seven times earnings.
You have capacity growing at 200%, 300% a year, not capacity, demand of what people want growing at 200%, 300% a year, while capacity is only growing at 20%, 30% a year.
And you have companies like Apple saying, we've got to raise prices. You've got, I mean, if there's not truly a memory shortage, if there's an Ed Zitron, you know, narrative out there that this is all BS, then why is Apple raising prices? Like, because then there's no demand. Like, there's no problem. Why would Apple want to raise prices if this is all just going to collapse in the next three months? And I just can't see it. And I think Ken Griffin put out a post the other day about, like, the days of, like, hedge funds monitoring pocket or parking lots and saying, I'm betting on this quarterly earnings. Like, that's the old Alpha. The new Alpha is like looking at this stuff and taking longer term views. And I don't know if Micron is going to be $800 or $1,200 a month from now, but I'll bet it hits $3,000 in the next 12 months. I'll just bet it does because it's just too cheap. It's just too cheap not to double or triple from here. And I think people that think, oh, it can't do it.