BONUS EPISODE: Is Nvidia a bubble?

Chris sits down with veteran IG Markets analyst Tony Sycamore to discuss the dizzying valuations being achieved by Nvidia to ask the technical question… is this a bubble?

• 0:00Speaker 00

  Welcome to How We Got Here. And this time, we're going to try and do what is kind of the impossible and pull the sprawling, chaotic world of AI into something that makes sense. And when I have something in front of me that's a bit confusing and a bit sprawling and I need it to make sense, I usually call a bit of a favourite market analyst, and that's Tony Sycamore. And Tony, I've been calling you for quite a few years, and so it's really nice to have you here on How We Got Here. So thank you for joining me.

• 0:26Speaker 01

  My pleasure. Great to be here.

• 0:28Speaker 00

  I've been bugging you about things like interest rate markets, oil markets, kind of global trade, how new policies out of the White House might affect things. I kind of just pick up the phone and give you hell. So thank you. I've never actually properly thanked you for all that time.

• 0:46Speaker 01

  It's great. I mean, it's been a pleasure chatting to you and to sort of guide, I suspect, and your viewers through what is definitely a very interesting time in markets. As you mentioned, gold and oil and all those sorts of things. Bitcoin have just been absolutely flying around. So it is a tricky landscape to navigate and I guess it all has to be put together to try and make sense.

• 1:08Speaker 00

  As I said, I want to talk to you about AI today. I mean, you've been covering markets for 25 plus years. I suspect a lot of what happens in markets comes in cycles and comes in sort of periods and sort of moments of kind of everybody clocking on to things at certain times. Can you think of a time when everyone has been talking about something to this extent? I mean, I think of things like COVID or the GFC, but I mean, AI seems to be so kind of all encompassing when it comes to markets at the moment.

• 1:37Speaker 01

  Right now it is. It is the number one topic on participants' tongues. We have obviously the situation in the Middle East, which is attracting a lot of attention and higher energy prices. But aside from that, it really is about AI and what's going on in that world. And it's certainly fast moving, it's evolving. And I think as we sit here, we're just seeing new developments almost every week. And it's hard to keep track of for the people in the street, even for us in markets. But we're doing the best and I think the movement, the speed of the movement is just astonishing and it's certainly something we're going to be watching in the months and years ahead.

• 2:12Speaker 00

  I read all of the emails that you put out from IG Markets that you kind of, whether it's about interest rates or whether it's about oil or whatever, whenever it's about Nvidia or something to do with AI valuations, I'm always just so fascinated by it. We usually do a thing on this show called Two Truths and a Lie, which is where I say two things that are true and one thing that are a lie. People have to decide whether or not they, what's the lie, basically?

• 2:38Speaker 01

  Yes.

• 2:39Speaker 00

  I wanted to do that, but I also wanted to give you the opportunity to have your own three things to lay out. So if it's okay with you, I'm going to throw out my three.

• 2:47Speaker 01

  Please.

• 2:48Speaker 00

  And then I'll ask you for yours.

• 2:49Speaker 01

  Okay.

• 2:49Speaker 00

  Is that okay?

• 2:50Speaker 01

  Absolutely.

• 2:50Speaker 00

  All right, let's do it because this is a world, this AI world is one with the most unbelievable facts and figures. So here are my three crazy facts. People that are listening can decide whether or not they're all accurate or not. Number one, Nvidia is worth twice as much as all the farmland in Australia combined. What do you think of that?

• 3:15Speaker 01

  It's a big number. It certainly sounds huge.

• 3:17Speaker 00

  440 million hectares, median price per hectare, 10,500, which puts you at US $3 trillion, current market cap of Nvidia is 5.5 trillion US.

• 3:32Speaker 00

  You know what I mean?

• 3:33Speaker 01

  Puts it into perspective, doesn't it?

• 3:34Speaker 00

  All these things are so crazy. Number two, 80% of all Nvidia employees are estimated to be millionaires. This is because they own stock, obviously.

• 3:45Speaker 01

  And the stocks just.

• 3:46Speaker 00

  And the stock has done some stuff. Number three, CEO and founder Jensen Huang got the company's logo tattooed on his shoulder when the share price hit $100. He says he will not be celebrating other milestones the same way. Okay, so they're my three, right?

• 4:03Speaker 01

  And given the rate that the share price has been rallying, I don't think he's got enough space left on his body. So that's probably a good thing.

• 4:10Speaker 00

  He's called that early. No more tattoos, no more for me. But he's not the kind of guy you look at and you think, yeah, you're going to be a tattoo guy for sure.

• 4:18Speaker 00

  So Tony, they're my three. I want to ask you for your three and then I want to, if we can, try to crown a champion fact about Nvidia. So what are your three?

• 4:27Speaker 01

  Okay, so my first one is that last quarter, the quarter just completed, Nvidia reported revenues of $96.2 billion. That was up 106% year on year. Their margins were 75% and of that $96 billion, $59.7 billion of it was net profit.

• 4:51Speaker 00

  So let's just, just, so the growth was 106%?

• 4:56Speaker 01

  Correct.

• 4:57Speaker 00

  The margin was 75%?

• 5:00Speaker 01

  Absolutely.

• 5:01Speaker 00

  Unbelievable. And I mean, okay, all right, good. I'm going to stop asking questions about that. I'm going to move on to the next one. Tony, Tony?

• 5:10Speaker 01

  This coming quarter, Nvidia have guided to revenues of $108 billion. Now, two years ago, for quarter three, we were looking at revenues of $30 billion. So that shows you the pace at which this company is growing.

• 5:27Speaker 00

  And I mean, the obvious thing to say here is that we're now talking about more than a billion dollars in sales a day.

• 5:35Speaker 01

  Correct.

• 5:35Speaker 00

  And that's, that feels like a bit of a moment, doesn't it?

• 5:38Speaker 01

  It's nuts.

• 5:39Speaker 00

  That is nuts. I mean, any other companies ever done that?

• 5:44Speaker 01

  Not at this rate, definitely not in the chip space. But it is possible outside of that. Maybe we've seen it previously, but this is in the chip space, in the AI space, it's unprecedented.

• 5:55Speaker 00

  So those two facts you've talked about, where they've just come from and where they're going, what's your third fact?

• 6:00Speaker 01

  My third fact is Nvidia's chips are designed in Santa Clara, which is still the home base of Nvidia. The chips aren't manufactured there, they're manufactured in Taiwan by Taiwan Semiconductor.

• 6:12Speaker 00

  I'm really glad you brought that up because whenever I talk about this company, so many people, I have erroneously referred to them as a chip maker. And people are very quick to tell me, oh, they're a chip designer, actually. And it's a good point.

• 6:23Speaker 01

  It's correct.

• 6:23Speaker 00

  Yeah, so it's kind of like how on the back of your iPhone, it says designed in California, but it's not necessarily made there, right? It's important to keep that in mind. All right, so we've now just laid out six big facts. One of the people I haven't introduced so far is Rob, our wonderful producer, Rob.

• 6:40Speaker 02

  Hello.

• 6:40Speaker 00

  Hello. Thank you for sitting so patiently over there while we throw massive fun numbers around.

• 6:47Speaker 02

  That's what I do.

• 6:48Speaker 00

  That's what you do. Hey, Rob, we're going to try to crown a champion fact, the one that blows the mind the most out of the six that we've just laid out. Do you have a favourite? I'll whip through mine really quick. So this is that Nvidia is worth twice as much as all the farmland in Australia combined.

• 7:05Speaker 02

  Yep.

• 7:06Speaker 00

  80% of all Nvidia employees are estimated to be millionaires. Jensen Huang, Jensen Huang, the CEO, got the tattoo to celebrate hitting 100 US dollars share price.

• 7:17Speaker 02

  Yep.

• 7:18Speaker 00

  Tony's were massive revenue in the last quarter, a potential more than a billion dollars a day in the forward quarter. And then that the chips are still.

• 7:28Speaker 01

  Made in Santa Clara.

• 7:29Speaker 00

  Well, they're not.

• 7:30Speaker 01

  Sorry.

• 7:30Speaker 00

  Designed in Santa Clara. Designed in Santa Clara, right.

• 7:33Speaker 02

  Where was the tattoo done? Was it on his face? Because that, if he's Kane, that's where you put it.

• 7:38Speaker 01

  You'd know it if it was on his face.

• 7:39Speaker 02

  It's on his forehead, right here.

• 7:41Speaker 00

  It's on his upper shoulder.

• 7:43Speaker 02

  Okay, yeah, I mean, that's not like, you know, people get tattoos all the time.

• 7:46Speaker 00

  Okay, fine.

• 7:46Speaker 02

  If it was forehead, I'd be like, okay.

• 7:48Speaker 00

  Brutal. Straight away, he's carved that one out.

• 7:50Speaker 02

  The farmland one's extreme.

• 7:52Speaker 00

  It is, isn't it?

• 7:54Speaker 02

  As is the amount of money that they've made in profit in the past.

• 7:58Speaker 00

  Billion, billion a day going forward in sales.

• 8:01Speaker 02

  Yeah.

• 8:02Speaker 00

  That's hard to beat for me.

• 8:03Speaker 02

  It's hard, yeah.

• 8:04Speaker 00

  To me, it's out of that and the farmland one.

• 8:06Speaker 02

  Yeah.

• 8:08Speaker 00

  But then again, of course, people at home can decide whether or not any of these are incorrect. And we will say at the end whether or not that's right or not. But so I think, okay, for me, I'm going to go with my own one here, the farmland one. But I think more than a billion dollars in sales a day as well is completely insane. And it kind of sets the table nicely for this chat that we're about to have.

• 8:30Speaker 01

  Agreed.

• 8:30Speaker 00

  About how we got here, because that's what we're doing. I mean, this is a crazy, I mean, it sort of feels like a destination. Of course it's not. But so that's what I want to get into with you, Tony, and I'm excited to do that right after this quick message from our good friends.

• 8:50Speaker 00

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• 9:35Speaker 00

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• 9:50Speaker 00

  Welcome back to how we got here and I'm with IG market analyst, Tony Sikkamore. Trying to get my head around the beast that is Nvidia and AI infrastructure. I guess, Tony, now you spent quite a bit of time looking at Nvidia from a business perspective through an investor lens perspective.

• 10:09Speaker 00

  Can you help us understand what it was to begin with and how it kind of arrived at this absolutely gargantuan beast that dominates all things? What were the beginnings for Nvidia?

• 10:21Speaker 01

  Yeah, well, I think if we're looking at Nvidia, the real light bulb moment for Nvidia was in 2012. It was a gaming company. It was a graphic card maker. It was all of those things, but in 2012, a research team at the University of Toronto developed a program that could look at a photo and for the first time see what was in that photo and say what was in that photo. Now, the program which they developed was actually trained on two Nvidia gaming cards, the type you would see in a PC on a desk, not the supercomputers, which we talk about these days.

• 11:02Speaker 01

  The outcome of that program was so much better than anything that we'd seen previously that it led the insiders, the industry researchers to realize that to move forward with AI, this was the way to do it, building on Nvidia chips. And that really was the light bulb moment for Nvidia.

• 11:21Speaker 00

  Because up until that point, I mean, it had all been about gaming and video gaming. Is that right?

• 11:27Speaker 01

  That's right. It was probably a name known amongst the younger generation that were very much well encapsulated in the world of gaming. But for anyone outside of that, nobody had really heard of Nvidia.

• 11:37Speaker 02

  That's where I knew it from.

• 11:38Speaker 00

  Is that right? Because Tony said to me, this is the company that made your graphics look better.

• 11:43Speaker 02

  Yeah, so I bought a new computer, 2018, 2019, I think. And basically every time you turn it on to play video games, a big pop up with Nvidia comes up on it. And then just years later, suddenly every time I turn on the news, Nvidia, Nvidia, Nvidia. I was like, ah, I should have got on this. It was right in front of me. I missed this opportunity.

• 12:02Speaker 00

  You go insane doing that. I mean, Tony, I've been talking to you about things like Bitcoin from back in the day, right? Like it's a quick way to lose your temper at yourself.

• 12:13Speaker 01

  It is. I mean, if we knew back then what we knew now, it'd be so much easier. But this is the world we live in and Nvidia until then was something that really only gamers knew about. So it has been a massive transformation.

• 12:26Speaker 00

  And I mean, to sort of put the kind of the mark on the board, it started in 1993. Is that right? Because that's obviously an important moment. I mean, 90s were when people started doing more at home gaming.

• 12:37Speaker 01

  That's right.

• 12:37Speaker 00

  That was kind of something that was, you know, started to have more on computers. It was kind of right there for the taking. So 2012 was an important turning point then. That was where things really kind of, I guess it really developed itself into something that was much more serious and kind of bankable. But then what happened after that?

• 12:57Speaker 01

  A decade later, November 2022, a thing called Chat GPT emerged.

• 13:02Speaker 00

  There it is.

• 13:04Speaker 01

  And what we learnt was that OpenAI, which put out Chat GPT, had trained that program on thousands of Nvidia GPUs. And from that point on, Nvidia went from being known as a graphics or a gaming company to be known as the AI chipmaker.

• 13:23Speaker 00

  So what is it about these chips? Because to me, as someone who doesn't understand the particulars here, why couldn't 10 other companies have just bobbed up and said, oh, well, ours are just as good?

• 13:36Speaker 01

  I think it could have happened, but this goes back to that flashbulb moment in 2012. Gary Hinton, who's known as the father of AI, was the lecturer at that university group. And he was, I guess, ahead of the curve in terms of seeing the potential which Nvidia had, which still to this day seems to be the way that things have played out. So it could have been a different story, but at that point of time, the godfather of AI leant towards Nvidia and the results in 2026 are for us all here to see.

• 14:09Speaker 00

  Absolutely. So from 2022 Chat GPT, people start getting their hands on it. It really starts embedding itself into business operations not that long after. And the chips themselves go flying out of the warehouse, I guess.

• 14:23Speaker 01

  You can't make them fast enough.

• 14:24Speaker 00

  Yeah, so that's, I guess, where the valuation starts to head in. I think for me, it was really interesting to be covering the markets and see this shift happen from talking about software companies all the time, just having to talk about hardware companies all the time. Now, is that a big theme that kind of has been recognizable and much discussed?

• 14:43Speaker 01

  A hundred percent. I mean, we go through periods where different thematics drive markets and it's been software. We saw the SaaS apocalypse earlier this year. But right now, and really over the past three years, it's all been about AI. And I think like many, we all started tapping away on Chat GPT, curious, started helping, using it's help to write emails or do some research. And from there, it's just become so much more widespread. We're seeing it in companies using it for coding, for call centers. We're seeing doctors in the medical industry using it to read scans and to come up with new remedies and medicines for, I guess, sicknesses and illnesses have been around for a very long time.

• 15:25Speaker 01

  And of course, we see it in terms of what the potential is for the military. So it's obviously something which is attracting a lot of attention for the US government. And they now see it as a space race. If you lead the chip world, the AI world, Nvidia, all of that is so central to being front and center now in the geopolitical world which we live.

• 15:45Speaker 00

  So many different use cases for it from a kind of a practical application perspective, but also, as you say, I mean, some of the kind of the big picture philosophies now getting talked about are huge. I really want to talk to you about that in a minute. But I mean, one of the things that I think we kind of have to do is talk about the nitty gritty from a valuations, a market perspective. How are these numbers getting so big? You know, where does the money come from here?

• 16:12Speaker 01

  I think we've got to look at and start with the hyperscalers. So Nvidia is not a hyperscaler as such. It's the metas, the Amazons, et cetera, that have forecast or expected to spend $750 billion on capex this year. Next year, S and P expects that to be closer to $1.3 trillion. And front and center of that spend is the GPUs which Nvidia produces. So with this demand just spiraling, with this capex build out, with this whole AI world, which we're seeing envelope markets, it has propelled Nvidia's share price and its valuations to levels now where you couldn't call the stock price cheap.

• 16:56Speaker 01

  But if things continue to go in the way they've gone over the past couple of years, then it could get a lot more expensive.

• 17:02Speaker 00

  Yeah, 5.5, 5.7 trillion US dollar market caps. I mean, these things are, I mean, it kind of, it's really hard to knock people off balance with these numbers anymore because they're getting used to them, Tony, you know?

• 17:14Speaker 01

  I think we were talking probably three or four years ago about billions of dollars. Now trillion dollar is a common throwaway line, whether we're talking about an anthropic IPO, an OpenAI IPO or a SpaceX IPO, the trillion dollar mark is now the new $1 billion mark. And it's, it's just frightening how quickly it's spiraling.

• 17:34Speaker 00

  It is weird how quickly that sort of gets just drawn into the vernacular and people are just okay with it. Like I remember being a kid and thinking that, you know, being a millionaire was just such a huge thing. It wasn't that long ago.

• 17:47Speaker 01

  I agree. I mean, it was a bit, it was a milestone and now it's, well, if you don't have a hundred million, you haven't really made it.

• 17:54Speaker 00

  Yeah, that's right. Rob, if you're not a billionaire, what are you? You know what I mean?

• 17:58Speaker 02

  Hasn't clearly.

• 17:59Speaker 00

  This is the thing, like, so we talk about Elon Musk maybe becoming the first trillionaire. I mean, is that something that we kind of just like, you know, we read and then just go, huh, okay, and continue with our cornflakes? Or, you know, do people actually sit with that, you reckon?

• 18:11Speaker 02

  I think people sit with that, particularly when they're looking at, you know, their gas bills and their water bills and they're like, this dickhead's got trillion dollars. Help me out, brother.

• 18:19Speaker 00

  I think, yeah, that's a good point. I think what it does is it creates kind of a, an underlying bubbling frustration out there. And I think it creates a lot of cynicism as well. Tony, one of the things that I see pop up in the comment section is this question of circular financing and about, you know, what is all this? Are they all just sort of shaking hands, you know, in trench coats? You know, how does this all work? Can you give us a sense of what circular financing means and whether or not it is appropriately applied here?

• 18:49Speaker 01

  Yeah, circular finance. When we talk about Nvidia, we're talking about it producing the chips and then helping its customers to pay for the chips. Now, the way they usually do this is by taking equity in those firms. So cash out as equity or an investment in the company and it receives the money back, so to speak, in the shape of GPU orders. Now, this process has seen those valuations on those companies sit around $7 billion this time last year. We're now talking about those equity stakes across all of those companies being worth around $99 billion. So it's working out so far for Nvidia.

• 19:33Speaker 01

  Where it gets interesting is this circular financing spider web we're currently in, it's not new. We've seen it previously in terms of Airbus and for example Boeing, producing planes and helping the airlines to finance those planes. We've seen it with the telcos back 2001. They're actually basically producing these products and then helping the customers to pay for it. Not only that, we see it every day with car manufacturers. They produce the cars and they then provide you with the loan. So it's not a new concept, but what it does really reinforce is this idea that right now Nvidia is very much well at the heart of this circular financing. It's backstopping many other companies as well as providing equity.

• 20:16Speaker 01

  And that's raised a lot of questions around why Nvidia is doing that. I mean, after all, it is the designer of chips. Now we're going into this world of circular financing where it's virtually backstopping the ecosystem around chips and around AI. And that raises these questions. Should Nvidia just focus on what it does best or should it become the central bank of AI?

• 20:39Speaker 00

  Yeah, well, it's, you know, it's, it's interesting because in a way you're right. We recognize these patterns, but now it's just, it's on so many steroids that, you know, how do you even discuss it in a, in a clear eyed way? It's, it must become very difficult to be an analyst in this environment.

• 20:56Speaker 01

  It is. I mean, you scratch your head and you look at it. As we said, we've seen these sorts of things before and not all of them worked out particularly well. So the question is, right now, as long as this capex, this spending and the valuations of these companies continues to go higher, then Nvidia stands in a bright light. But if for whatever reason, it could be some agents escaping from the sandbox, it could be the revenue coming in for these hyperscalers starts to drop. It could be even a competitor to Nvidia comes out and all of a sudden people are looking at other companies and its valuation drops. So there is certainly a lot of hype and optimism built into it right now, but there's also

• 21:40Speaker 01

  some downside risks by being that central bank of the AI world.

• 21:44Speaker 00

  Yeah, it's all good as long as the music keeps playing, I suppose.

• 21:47Speaker 01

  Hundred percent.

• 21:49Speaker 00

  I wanted to, just before we get to the break, I wanted to ask you as well about data centers, because obviously this is how a lot of the, the kind of the on paper money, the lofty money lands in places like Australia. I mean, Microsoft only last year committed to, what was it, $25 billion in spend on data centers, they're not alone. That was the second round and then we've got other companies doing the same.

• 22:10Speaker 01

  Overnight, Google, $15 billion in Finland. It's everywhere. It's Korea, it's the US, it's here in Australia. And as you said, it's really where the tyres hit the road. You can see it whether you're driving up and down the east coast, all these new data centers. It's something which is driving growth in our economy and economies around the world. It is there, it is obvious to be seen, but it's providing jobs in many respects as well. So jobs in construction, jobs for electricians. And, and what it's doing is it's creating a bit of a two-speed economy in many places, including here in Australia. So we see this massive investment in the data centers and AI, whereas if you look outside of that, things aren't looking as flash and the same can be said for the US.

• 22:55Speaker 01

  So right now there's a part of the economy which is on steroids and it's because of this massive capex, this massive build out. It is creating concerns around energy consumption, around water consumption, and that's another subject altogether. But right here, right now, we can see what it's doing for economic growth across developed markets and it's certainly having a very meaningful impact.

• 23:16Speaker 00

  Well, I think I saw in the most recent capex figures, some analysis from Deanna Messina at AMP. She said that at the current rate of growth, you could see new capital expenditure in this space, the data center space, overtake new capital expenditure in the mining space within like seven to 10 years or something like that. Like the rate of growth is kind of feels like unlike anything we've seen.

• 23:39Speaker 01

  Deanna is really well placed to, to mention that because I've, I've worked with her previously at CBA and she was very much all across all the capex which the miners spent here in Australia. And for so long, that mining capex has been the driver of the Australian economy. But to get an idea just how important data centers are becoming, you only have to go and look at the mines in the Pilbara or, or the coal mines up and down the east coast. What those numbers are are absolutely incredible.

• 24:10Speaker 00

  Now we're going to get to the big, big questions and I'm going to ask you some, some direct questions using a B word right after the break, Tony. I'm looking forward to that.

• 24:19Speaker 01

  Okay.

• 24:22Speaker 00

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• 25:07Speaker 00

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• 25:20Speaker 00

  Welcome back to How We Got Here. I'm with Tony Sycamore from IG Markets. Tony, you have been spending a lot of your time thinking about this and so that's why I'm really excited to sort of ask you all this stuff. One of the things I've been building towards asking you, and I've wanted to ask you this for months actually, is it a bubble? Is this whole AI world, Nvidia, you know, SpaceX valuations, ChatGPT, Anthropic, as they all head towards these incredible mind bending IPOs? Is it just a good old fashioned bubble?

• 25:53Speaker 01

  Yeah, it's a great question. I think to answer that, we've got to start with what is a bubble? And we've had some huge bubbles recently over the last 20, 25 years, whether it be the dot com bubble or the housing market in the US. But we can also go back to the tulip bubble many, many hundreds of years ago. But what essentially a bubble is, is when the price of an asset disconnects from its earnings or its valuations. And certainly we've got examples of that, the subprime crisis where housing prices, the ninja loans, no job, no income, you could still buy a house in the US. This is very different. We're talking about the company Nvidia, which is at the center of AI, being one of the most

• 26:38Speaker 01

  profitable companies in the world. So when we talk about its valuations, we can anchor it back to the amount of money it's earning, but the bubble needs to be driven by higher prices and that attracts more prices. We've seen some bubbles even in markets, mini bubbles, if you like, combust gold metals prices earlier this year. But for me, they don't have any fundamental anchor. There's no valuations, there's no earnings which you can accurately point to. But with Nvidia, as we said, it is the most, one of the most profitable companies in the world. So for that reason, I don't think Nvidia is a bubble. I can probably point to good reasons why the price is probably more expensive than it should be, but I don't see it as one where it is a bubble.

• 27:23Speaker 01

  And it certainly appears to me like you probably do need to be a little bit mindful and a little bit careful if you are late to the game, like you do with anything in markets. But I don't think it's a bubble.

• 27:34Speaker 00

  Okay. Would you be buying it if, you know, I mean, this isn't financial advice.

• 27:38Speaker 01

  Yeah.

• 27:39Speaker 00

  Would you be buying, do you think it's still a buy, you know?

• 27:42Speaker 01

  I think what we're seeing now is the growth rate of Nvidia slow. So we talked about 2025 quarter three, $30 billion in revenues. 2027 quarter three, we're talking about revenues of $100 billion. So that pace of growth has been extreme now. I suspect what we're going to see is the pace of growth just continued, just taper off a little bit. And for me, that's probably Nvidia's share price growing into that earnings trajectory. So I have bought Nvidia a little bit lower than this, down below $200 for a trade. This is coming from a trading perspective. I don't mind it. But it has seemed to struggle

• 28:22Speaker 01

  up around $230 in recent months. So I think you've got to respect the ranges. And with everything, when you're trading or when you're investing, you've got to be mindful that there is a point where you need to think that maybe something hasn't worked out as you anticipated. I mean, there's some very lofty valuations for Nvidia out there. People talking about 300, 350. That could be months, years down the track. So it also depends on your time horizon. If you're a short term trader, then potentially you're looking more at where Nvidia is trading in the short term. If you're of the view that AI and Nvidia is still relatively early on in the piece, and potentially that growth continues to track higher over the next two to three years, Nvidia could potentially go a lot higher.

• 29:05Speaker 00

  I suppose, I suppose the problem with all bubbles is that you can really only say afterwards whether it was one or not. I mean, that feels like in the moment, what you're trying to do is, like you said, you're trying to track things from a technical perspective. You're trying to figure out whether or not the earnings are worth the share price, all that sort of thing. I reckon, and correct me if I'm wrong here, but I think a lot of people out there who maybe aren't as sophisticated as some of the actual market traders, people like yourself, they're kind of looking at this more from a philosophical question of how much is this going to change the world? Because if it is going to completely change the world, then sure, it's worth whatever the share price is. But if it's not going

• 29:49Speaker 00

  to completely change the world, then, you know, how do we price that in the moment? Do you think that's a fair statement?

• 29:55Speaker 01

  It is. I mean, it's just such an interesting question. We're talking about whether we do make the leap towards AI changing the world. And so far, the evidence suggests that it is changing the way we live our lives. We're looking at it, whether it be for helping to write an email, or to do some research, as we mentioned, from all the way up towards the military and the uses on the battlefield. And so far, it looks like it is certainly revolutionizing the way we're going to be living our lives. Now, whether that translates into everybody having a humanoid robot and a driverless car, I'm not 100% sure of that. I suspect that probably does come down the line. But providing we continue to see this innovation, this development continue, and Nvidia remains at the centre of that,

• 30:39Speaker 01

  then it looks pretty good for Nvidia. Now, that said, if we see a competitor come out that makes its chips just as well as Nvidia does, but for a significantly lower price, then that's a different question. And what it does do is it keeps the whole AI thing going, but without Nvidia at the heartbeat.

• 30:59Speaker 00

  We've been talking about Nvidia, obviously, and the chip making side of it. I suppose one of the things that happens, of course, when there's a lot of enthusiasm around a bull market, is that there's this kind of, there's this everyone's along for the ride type of thing that happens. And there's all these other companies that sort of bob up and do a lot of really excellent marketing, if I can say it that way. Do you think that there's any reason to be cautious about getting too swept up in the excitement around AI? You know, perhaps for some of these other ones?

• 31:29Speaker 01

  I think when we look at the potential risks for AI, it's probably going to come from the idea that we do see some competitors come outside of, for example, Nvidia's earnings are pretty much well outside of China. So they're not earning any money from China. So China's rapidly trying to expand its footprint, and I suspect it will do. It's also got much larger reserves of energy, which are really going to be so important for the growth of AI. So yeah, there is some risks there. The other risks, of course, are something which has come to light just over the past 24 hours. We have the researcher from Anthropic talking

• 32:09Speaker 01

  about the threat which AI presents to mankind. He's predicted that we could see the end of human civilization, if you like, within the next decade. So some of that stuff is big picture, and it is frightening. And you, I guess, go back to the idea that a good guy with a gun can outdo some of the work which a bad guy with a gun can do. But, you know, for a guy to come online and talk about his experience as an AI researcher at a company like this, it is frightening. And even in the lead up to that, we've had a lot of stories about agents, which is probably where AI is heading to next. So an AI agent effectively

• 32:50Speaker 01

  doesn't just answer a question, it comes to the point where it's doing tasks for you. It might be booking a tennis court, or it might be compiling all your emails, et cetera. And we're seeing stories now, or reports now of these agents combining together to break outside of the world which they've been consigned to. So it is a threat. And I think this is where the conversation turns to now. Are we going to be able to keep AI within the box? Or is that a bigger threat overall?

• 33:18Speaker 00

  Yeah, it's such a good, it's a good place to take this conversation to, because we've been talking about valuations on the market. We've been talking about, you know, the amounts of billions of dollars that they can actually make, selling products, hardware. We've been talking about all this sort of stuff, but you've sort of taken me to this thing I did want to talk about as well. The person you're talking about from Anthropic, Jacob Coxon, he has this post, he's released this post, and I want to, I'll read it out. Probably going to take a minute or so. Okay, "I resigned from Anthropic today. I spent the last three years doing pre-training research at both OpenAI and Anthropic. Neither company is acting responsibly. They are racing straight to the self-improving superintelligence and

• 34:01Speaker 00

  gambling with our lives. More thoughts below. Do not underestimate the power of this technology. These will soon be superhuman systems that can hack anything, revolutionize any field overnight, and acquire real power and resources. We have all witnessed the progress in each of these domains, and progress is not slowing. The people building AI earnestly believe that it could kill us all by the end of the decade. This is not a marketing stunt. If anything, many executives and senior researchers will couch their phrasing in the press to sound sensible. But I hear the same people express fear privately. No other human activity poses this level of danger. A common response is, quote, if they truly believe this, why

• 34:45Speaker 00

  are they still building it? At OpenAI, many have not deeply internalized the civilizational stakes. At Anthropic, the stakes are well understood, but they are locked in a race to get there first. They believe no one else will act responsibly, so they must do it themselves despite the risk. Accepting this race and entering the end game is a hubristic gamble that should not be launched from a private company's slack. Attempting to speedrun alignment should require extraordinary confidence, but there are no better trajectories available." It goes on for a little bit longer, but I'll leave it there, Tony. I mean, that, that's, I mean, it's, it's easy to understand why something like that goes so viral, isn't it?

• 35:26Speaker 01

  Yeah, it is. I mean, this is certainly a warning bell, if you like. And it's struck a nerve. I think that post now has 122 million views in the past 24 hours. And I think it's struck a nerve, because while we're excited by what AI can bring, we also know that there is potentially some risks associated with that. And it's, I think, for anybody who has children, you sort of think, well, we grew up watching The Terminator, and we saw Skynet, and we saw all of these sorts of things play out. And it feels like that in one corner of the whole AI world is where things could probably go to. And we've talked about agents escaping and doing things, hiding things from their programmers. And it is frightening.

• 36:10Speaker 01

  How do we keep this technology in the box, if you like? Keep it as a tool to progress human society while being aware that there is some downside risks?

• 36:22Speaker 00

  It's hard to know, you know, what to teach your kids, how to educate them, you know, what the future is. I remember being in grade five and being told, I didn't really like doing long division or whatever it was, or normal arithmetic at that age, whatever you're learning. And the maths teacher says, well, you've got to learn this because you're not always going to have a calculator in your pocket. Which obviously turned out to not be true, because I do have a calculator in my pocket all the time. I wonder what the version of that for a year five kid now is. You have to learn blah, because blah's not going to be in your pocket. Well, everything's in your pocket.

• 36:54Speaker 02

  Will they be showing Terminator as an educational piece to kids, these guys?

• 36:58Speaker 00

  They might. Yeah. Terminator was a lot more fun, Rob, when it was science fiction.

• 37:02Speaker 02

  Yeah.

• 37:03Speaker 00

  I don't know. Rob, what do you think when you hear a post like that?

• 37:07Speaker 02

  Um, one part scared, one part I question the motives of the person posting it.

• 37:12Speaker 00

  Oh, okay.

• 37:13Speaker 02

  You know, like, I'm, often when you have a bit of a whistleblower type person, like, I'm like, yeah, you should listen to them. But I'm also like, why are you saying this? What bridge have you burnt that you're going to go out this way? But this is on a different scale, though. So it is, it is obviously concerning. Don't get me wrong.

• 37:26Speaker 00

  Definitely. Look, he's in his late twenties, and he says, I don't want to be a part of this. In fact, I think I may have cut him off before he said that. He says, yeah, if you are a lab researcher, I urge you to consider, well, the next few years will actually feel like, do you want to kick off a super intelligent RL run without a rigorous, you know, he's basically just saying, do you want to be part of this or not? I don't want to be part of this.

• 37:48Speaker 02

  Yeah. I, I get it. I get why he's saying that. But I also feel like we've had conversations like this with other things. We're like, oh, the world's going to end in 20 years because we're all going to overheat with climate change. It's like, well, climate change is real, it's happening, but it's not happening that quickly. So, you know, this is my grandkids' problem, it's not my problem.

• 38:05Speaker 00

  This is like the comment I saw under the saying, yeah, we're all pretty worried about Y2K.

• 38:09Speaker 02

  Oh, yeah, exactly.

• 38:10Speaker 01

  I'm old enough to remember that.

• 38:11Speaker 00

  Yeah, me too. I remember that.

• 38:13Speaker 02

  Yeah, exactly.

• 38:13Speaker 00

  Yeah. Look, I don't know. I think, I think the concern and the fact that it's had that many hundreds of millions of views, clearly, it strikes a chord. Like, I did a, I did a video, a social media video on that fact that we talked about Nvidia being worth twice, even at the time, three times as much as all the farmland in Australia. And that had 37 million views across different platforms. It was something that I, I sat there and went, oh, okay, wow, people are really very clocked on to this. So, you know, we spend a lot of time talking about this from a market perspective, from how investors are behaving with this. But it's something that everyone's interested in in the whole world.

• 38:48Speaker 01

  Chris, you raise a question. What do you tell your children? What do they need to know now, which was the equivalent of our calculator? And I think that raises a really good point. And I've been telling my own children and friends' children that You have to start to get very proficient if you're not already using ChatGPT or Claude or whatever it might be, because it is the way that the world's going. And I think if there is one guiding light with the world we're entering, that certainly has to be it. It just has to become part of your toolbox, whether it's at school. And I know some of the professors don't like it and there is obviously concerns that it's being used. But as long as it's used productively, I think it's something which the younger generation have to become more proficient at.

• 39:31Speaker 00

  You certainly can't pretend that it's not there and it's not available. We're coming to the end of this chat now, Tony, but I wanted to, before we do, I wanted to get your thoughts on some secondary effects of all this sort of stuff, because some of the other things that I call you a lot and ask you about are things like interest rates and productivity and, you know, the way changes in legislation affect the economy.

• 39:55Speaker 00

  Do you think that it's a reasonable thing to say that we don't know what the secondary effects of the advent of AI and the rise in development of data centers, what that will have on the economy?

• 40:06Speaker 01

  Well, we can see it already in many ways. I mean, as I said, you can see the physical evidence. You drive up and down the east coast of Australia, you can see it. But in the markets, we're also seeing it, which is the fascinating part of it. Because we know that when a Meta or an Amazon needs to raise money to continue this capex build out, it goes into the bond market and generally at the longer end of the bond curve, if you like, 10 to 20 to 30 years. And what that's doing is it's crowding out other institutions or government institutions, if you like, as well, that need to finance at that longer end of the curve. So it is certainly playing out in terms of we're seeing long-term interest rates become unconstrained to a degree.

• 40:51Speaker 01

  So we see it here in Australia, we see bond yields at the longer end hitting multi-decade highs. We see it in the US. And this is because those hyperscalers, those big spenders that need to secure debt financing are going into the market to raise cash. And this is something we're seeing in terms of, that certainly plays out in terms of interest rate expectations here in Australia. It also, because of the growth which we're talking about across the global economy, it's also generating inflation, which again then translates into higher inflation. And that also then leads into higher interest rates.

• 41:32Speaker 01

  So the knock-on effect is there for us all to see, whether it's physically or in the markets, it is certainly having an impact.

• 41:39Speaker 00

  We keep having this question too about productivity. I don't, I never know how to have that conversation. It's impossible to me. Like so often we talk about productivity is what hours worked by GDP. How do you even measure it when you've got this thing going on over here somewhere in a way that we don't fully understand?

• 41:58Speaker 01

  Yeah, productivity is a big one at this point of time, particularly here in Australia, because it just hasn't been keeping up with where it should be. But arguably, this whole build out will increase productivity at some point of time. So I think while we acknowledge that the investment in machinery and other capex hasn't been what it needs to be to keep our economy up with other global economies or our peers, if you like, that there is certainly going to be a period of catch-up when all of this AI data center build out comes online.

• 42:29Speaker 00

  That's good. It's just great. Yeah, it's, it's, I mean, we could keep going on this for 10 hours and I would, that'd be a fun chat. But I wanted to return to these facts of ours, just to sort of, just to kind of go full circle here. So the farmland thing, people that are interested in, double all of the value of the farmland in Australia. Eighty percent of Nvidia employees are millionaires. The logo on the shoulder thing, Rob, you're not a big fan of that.

• 42:58Speaker 02

  No, face tat or nothing. Cut it out, harden up, mate.

• 43:03Speaker 00

  Billion dollars in sales going forward. Here's the thing though, we usually do two truths and a lie, Rob. These are all true.

• 43:12Speaker 00

  You know, it feels like you can't come up with a fake fact for Nvidia.

• 43:15Speaker 02

  It's hard.

• 43:15Speaker 00

  Because whatever you say is going to be, you know, true. A squillion bajillion bajillion dollars, yeah, fine, that's true.

• 43:22Speaker 01

  Doesn't matter how ridiculous it seems, it's all true.

• 43:25Speaker 00

  I don't know what to do with that. I guess you just kind of keep watching, you know? Like it's, it's like for me, it's a spectator sport, you know, I suppose. But we all get affected by it in one way or another. I'm sweating over higher interest rates, you know, economic, well, we're in an economic downturn. We're not in a recession technically, but per capita one.

• 43:47Speaker 01

  Absolutely.

• 43:47Speaker 00

  This sort of stuff becomes really hard and we're talking about this two-speed economy. I mean, that's affecting us all, isn't it?

• 43:54Speaker 01

  It is. I mean, it's, it's just, as you said, I think we've got to watch to see how it plays out. We know that here in Australia, a lot of us are sweating on higher interest rates and the next RBA rate hike. And the build out that we're seeing is certainly not helping us in that respect. In fact, at this point of time, it's probably a bigger threat to the budgets, the cost of living crisis, the energy bills which are going up because of the demand that it uses. So it is a big threat in that aspect for, for people, that households across Australia. But the ideal situation is that we do see some benefits come through in the years ahead. And as you said, we wait and we watch and we see how it plays out.

• 44:36Speaker 00

  Before we finish, if you were talking to an everyday retail investor right now, you know, this stuff happening in the AI world, it's, it's changing everything. It's clearly the theme to discuss at the moment. But is the, is the kind of the old fashioned methods of investing, the slow and steady, is that still, does it still work? Is that still what people should be looking at?

• 44:59Speaker 01

  I think so. I had the conversation with my daughter who's 19 recently and the advice I gave her is there's never a bad time to start. So we're in a period where things are evolving quickly. You need to come up to speed with those to keep ahead. And in terms of the younger generation coming through, there's a lot of question marks around housing affordability and those sorts of things. And for me, the obvious starting point for the younger generation is to become involved in markets and to learn about the markets, to define whether you want to be an investor or a trader, because the timeframes are entirely different. So for a younger person that's at college, trying to build a nest egg, then investing is a much better way to go. And as, as I came back to, it's a good time to start. There's never a bad time to start.

• 45:44Speaker 01

  And that particularly plays out when we're talking about the investment time horizon. It could be 10, 20, 30 years, but it's a good time to get started.

• 45:53Speaker 00

  And define those two different things, trading and investing and have a strategy and try to stick to it as best you can, I suppose.

• 45:59Speaker 01

  Yeah, that's right. And the conversation that I had with my daughter, I said, lean on your ChatGPT and understand the difference between investing and trading. Where do you sit? How much time do you have available to you? And you need to understand diversification. And just, I guess, putting out little breadcrumbs for her to nibble on and then to go back to the ChatGPT, that was a great way of doing it. And I encourage anybody that's interested in markets, it's the ChatGPT, the AI makes it a whole lot of, a whole lot easier.

• 46:30Speaker 00

  Tony, it's been so great talking to you. I'm sure that we've left heaps on the table here. I'm looking forward to coming back and asking you all these sorts of questions again, as I do, maybe off mic and off camera. But it's been an absolute pleasure, so thank you very much.

• 46:43Speaker 01

  My pleasure, Chris.

• 46:44Speaker 00

  And thank you, Rob, as always, for being along for the ride. Yeah.

• 46:48Speaker 02

  It's been fun to be here. I've actually put a lot of what we said to ChatGPT and it's just said, we should buy Nvidia stock. There is no AI bubble, it won't destroy mankind. Data centers are great to live next door to, and I should give them all of my water. So there you go. There you go.

• 47:02Speaker 00

  Yeah, a bit of the water, they do like that.

• 47:04Speaker 02

  Yeah, they suck it all up, so there we go.

• 47:07Speaker 00

  Yeah, Rob, we'll be back to our usual programming pretty soon. But yeah, it's been fun to do this one with you too, mate.

• 47:13Speaker 02

  Till next time.

• 47:14Speaker 00

  Till next time. Thank you, everybody. See you soon.

• 47:18Speaker 00

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