Dear Reader,
Welcome to the weekly mailbag edition of The Bleeding Edge. If you have a question you’d like me to answer in a future edition, write to me by clicking right here. Let’s get started…
Colin just wrote about CoreWeave. It would be helpful to give us its symbol!
– Tim L.
Thanks for writing in, Tim! CoreWeave is a company I wrote about in Wednesday’s edition of The Bleeding Edge. It’s still a private company that has a reported $100 million investment from Nvidia.
Even if the company was public, it likely wouldn’t be a great investment in the long run. It takes significant amounts of money and requires massive scale to achieve profitability in the cloud server business. Google Cloud, for example, just turned an operating profit more recently, and the company started that business in 2008.
I mentioned CoreWeave not because I thought it was an interesting investment. Rather, it was a good example of the dynamics in the cloud market.
Public cloud server margins are also going to compress as more GPUs and competition hit the market in 2024. As the larger public cloud companies – such as Google, Amazon, and Microsoft – build out their AI cloud offerings, pricing will continue to trend downward.
CoreWeave is a great example of a company that wisely pivoted away from crypto mining to AI cloud services, but that market is going to continue to be dominated by just a handful of stocks.
Hurray for Claude. What’s the point of AI? What’s the endgame? My 34-year-old son just discovered the healing of God’s mercy. And his response was that it would be great to have an algorithm that could convey that kind of peace. Spooky stuff, Bud.
I’ve been to seances where the table answered questions while communicating with the dead. Was that okay? Is it okay to contact the spirits? Just because we can? No. I put AI in the same category. It’s not necessary for a fulfilling life, and it’s dangerous. I’ll drive my own car. Thank you.
– Sid C.
Sid, thanks for the message. There’s certainly going to be a lot of discussion around AI and its impacts on society. With all new technology, there are going to be some use cases that aren’t for the better. It will be easy to focus on these, and the news stories about it will get a lot of attention.
You bring up some interesting questions. They’re philosophical, spiritual in nature. Let me offer one more potentially “spooky” implication of AI. Someday soon, it could be possible to “raise the dead.” That’s because an AI could – in theory – be trained on all written and spoken material from a public figure.
Combine this with realistic generative images (deep fakes), and we might be able to speak and converse with long-dead figures, perhaps even our relatives.
That’s pretty heavy to think about. And you’re right, the power of this technology is going to feel very uncomfortable at times. But there are also benefits…
The truth is AI will democratize access to knowledge in ways we’ve never seen before. As computers can perform the tasks of lawyers, teachers, and doctors, they will bring access to knowledge people have never experienced before.
If AI gives a father or a mother 10 extra minutes per day removing a mundane task from their life, they can spend that extra time with a child. This will have a profound impact on the world.
The average lifespan of a commercial truck driver is 16 years lower than the national average. Not only are self-driving cars safer than humans, but they will help replace a job that is actually unhealthy for humans to do.
Time is the most valuable resource we have. AI is going to give people more of that. What someone chooses to do with that time is obviously a personal choice – but most people are good, and therefore the outcome of AI is likely to be as well.
The truth is that all technologies come with trade-offs. They make our lives easier and more efficient. But they also introduce some fundamental changes that can make us feel uncomfortable. The best thing we can do is try to understand and mentally prepare for this brave new world.
Hi,
Would like to hear your thoughts re: GPU shortages and markets for decentralized computing. Can centralized markets keep up with demand? How to play it?
– Brendan V.
Good question! On the AI GPU side, clearly, demand is outpacing supply, and all indications point to that continuing into 2024. This will keep demand for GPU hardware high, although some of that is priced into these stocks.
Gaming GPUs, more typically found in gaming systems and for decentralized crypto mining, have fairly robust supply. Pricing appears to have stabilized more recently, showing either a pickup in demand or possibly the manufacturers starting to ship less into the channel. Nvidia is rumored to have pulled back on manufacturing its gaming GPUs to lend that capacity to its wildly popular AI GPUs.
No matter the short-term fluctuations, the GPU hardware market has several years of durability left. Margins will compress, and more competition will come, but the demand for computing power continues to exponentially grow. I’ll be covering a wide range of hardware makers and suppliers in Exponential Tech Investor and Near Future Report.
Hi Colin,
Loving the newsletter and the fact that we still get to enjoy the Investor Channel to its fullest.
Recently, I have been buying DIS at the $85/$86 level. DIS has not traded below, let’s say, $80 since 2014, touching that level only a couple of times in nine years.
I see potential upside to $120, with a stop set at around $75. Good risk/reward IMO.
Initially, I was looking at this purely from a medium-term trade lens, but you brought up the fact that Apple may potentially acquire the entertainment giant’s streaming/ESPN business.
What longer-term impact do you think this would have on Disney’s share price, growth opportunities, balance sheet, etc. if this were to happen? And would you anticipate DIS getting a fair price for the package?
Would love to know your thoughts on the above.
Regards,
– Rhys M.
Rhys, really good question and great timing. As you know, I can’t offer personalized investment advice. But I can speak generally on Disney (DIS).
There’s been quite a bit of news surrounding Disney and ESPN in particular over the past week. It’s rumored that the company is negotiating with the major sports leagues – such as the NFL, NBA, and NHL – to take an equity stake in the sports network.
It’s a risky move for the leagues. They primarily earn revenue from television deals and having networks bid against each other each time the license to show certain games comes up. If the leagues were to own ESPN, it might alienate some networks.
While I see partnering with a league as a possibility, it doesn’t really solve the underlying issues Disney has with ESPN and the fact that league sports rights continue to climb, while affiliate fees from traditional cable subscriptions fall.
I still believe the best outcome for ESPN is for Disney to sell it (or spin it out into a separate company/IPO). And as I wrote, I think the most likely acquirer would be none other than Apple.
In either case, that would be beneficial to a Disney shareholder. First, it would allow Wall Street to fully appreciate the wildly profitable parks business.
Second, Disney would be wise to focus on content it owns and can monetize both on screen and inside the parks. The sports content is essentially leased, and it’s become less profitable.
Regards,
Colin Tedards
Editor, The Bleeding Edge