Alex Sacerdote - How to Invest Through Technology Cycles

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. If you enjoy these conversations and want to go deeper, check out Colossus, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus along with all of our podcasts at colossus.com.

**SPEAKER_2** (2:00)
Patrick O'Shaughnessy is the CEO of PositiveSum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of PositiveSum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of PositiveSum may maintain positions in the securities discussed in this podcast. To learn more, visit p-s-u-m dot v-c.

**Patrick O'Shaughnessy** (2:27)
My guest today is Alex Sacerdote, founder of Whale Rock Capital Management. Whale Rock is a technology focused investment firm that manages more than $17 billion across hedge fund, loan only and hybrid strategies. Over the past three years, it's been one of the best performing funds compounding at roughly 44 percent per year.
Alex invests through a single lens that he has refined over 20 years. He looks for technology S-curves, durable competitive advantages, and underappreciated earnings power. This conversation is a tour through how he applies that framework today.
We start with his highest conviction position, which is Anthropic, and use it to work through the entire AI stack from chips to models to applications. Please enjoy my conversation with Alex Sacerdote.
Alex, you were saying that your highest conviction position is Anthropic right now. Can you tell the story of discovering it, making the investment, using this anecdote as an excuse to talk about all the things that I think you and I are mutually interested right now? Investors like you, investing in private markets, Anthropic the business, AI, everything. It's a great way to zoom in. Why is it your highest conviction and how did you get started?

**Alex Sacerdote** (3:27)
When the gun went off with OpenAI, Chatch GPT in November 2022, we immediately took the firm and did a massive deep dive with our 10 person team. Anytime you have a new compute paradigm, there's a new stack and that creates new winners and losers on the old stack.
Now, Jensen talks a lot about it, but it's power at the bottom, chips at the bottom, the clouds, and then the foundational models, and then the applications on top.
At that time, this was 2023 early, we said we want to be in the chips and the infrastructure first, and not only do they get the demand first, but we know who the winners are and no matter who wins above, which we weren't sure at the time, we know we're going to need tremendous amounts of compute, and we did a deep dive into that, which we can talk about later. But over the next two or three years, we started to get more clarity on how the foundational model layer would evolve. At the time, two or three years ago, there were 60 different companies going after it. OpenAI was in the lead, and we did a webinar in April 2023, and we said, look, this might be a winner-take-all. It might be a total commodity because there's open-source players. It might be a race to zero, or it might be an oligopoly where there's three or four leading players. And what we saw over the following three years was that almost all the startups fell away and died. And then some of the largest companies in the world, including Amazon and others, and Meta. Amazon never really showed up. We'll see what happens with Meta. But they came in strong. Basically, their effort faltered and they had to do a total reboot. In the meantime, Anthropic kind of was this dark horse candidate. The startup, they focused really purely on the enterprise. OpenAI had kind of won the consumer, and then Gemini can never be counted out. We love Google as well. It's one of our largest positions. So it really started to look like a three-horse race and somewhat of an oligopoly.