Gavin Baker - Watts and Wafers

**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 Gavin Baker, the founding partner and CIO of Atreides Management, and this is our sixth conversation. The central theme is Watts and Wafers, the two physical constraints that in Gavin's view will dictate the next phase of AI.
On power, he thinks the near-term shortage starts to ease in 2027 and 2028 as new sources of energy come online, and that orbital compute helps solve this problem in the long-term. On Wafers, he explains what is different this time from the dot-com bubble and why TSMC's capacity decisions may be the single most important variable to watch. We also discuss Elon's Terrafab, the disaggregation of GPUs, the role of new chip companies and whether economic value of AI will keep accruing to the frontier models. Please enjoy this awesome sixth conversation with Gavin Baker.
All right, so this is our sixth time doing this, if you can believe it, which puts you back into first place, or at least tied first place with Gurley, back into steam territory. Always my favorite conversation about markets and everything going on. Even since last time when we did this, which was so exciting and spectacular, I think we're in an even more interesting time now. Maybe just start by riffing on how it felt for you living through March and April of this year, which felt to me just like a completely unique economic technology and market environment, and you're the biggest student of history and of these times. So what does it feel like?

**Gavin Baker** (3:45)
I would say broadly speaking, there are two kinds of drawdowns. They're drawdowns where you're wrong, company missed estimates, your hypothesis was invalidated, and you have to take your medicine and you crystallize that loss.
Then their drawdowns are periods of underperformance, where you're underperforming because of companies you know really, really well and where you profoundly disagree with the price action and you can lean in. And instead of crystallizing negative performance, you can kind of build, pent up alpha, pent up future performance. And for me, that is what March felt like. The NASDAQ was selling off. At the same time, what was happening in AI was, I think, the most extraordinary moment in the history of capitalism, the history of American business. What I just mean by that is that Anthropic, they added $11 billion of ARR. And what is astonishing to me about this is that the SaaS and Cloud Revolution, it created, we'll call it between $5 and $10 trillion of value. I would say arguably the three highest profile SaaS companies in the last 10, 12 years are Palantir, Snowflake and Databricks. And these three companies employ thousands of people, tens of thousands collectively. They've all spent 10 years building their businesses. And Anthropic added their combined businesses in one month.