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- [00:00]
Michael Batnick
Today's Animal Spirits Talk youk Book is brought to you by Alger. Go to Alger.com to check out the Alger Concentrated Equity ETF ticker CNEQ. That's Alger.com to learn more.
- [00:12]
Ankur Crawford
Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decision decisions. Clients of Britholtz Wealth Management may maintain positions in the securities discussed in this podcast.
- [00:41]
Ben Carlson
Welcome to Animal Spreads with Michael and Ben. On today's show we spoke to Dr. Ankar Crawford, Portfolio Manager at Aldra. We had Ankur on the Competent Friends back in April and were blown away by the breadth and depth of her knowledge and her ability to talk about her space. She worked at Intel. Not only is she a portfolio manager, she was an analyst, but she, she
- [01:02]
Michael Batnick
was in the field, right?
- [01:03]
Ben Carlson
She was in the field. It's so unique and important to talk to somebody that has actual boots on the ground experience because I think a lot of the discussion that's being framed around the AI trade, the growth trade, the semi trade, whatever is is framed through the lens of price and I mean stock price. What does the stock price do? And then you make judgments, narratives based on whatever your opinion is. But to talk to somebody who understands the supply chain, the bottlenecks at such a granular level really opens your eyes as to why the prices are doing what they're doing. It's not just prices respond to the explosive earnings which is obviously the case, but the backlog for as far as the eye can see. It's unique. It really is. I've never seen anything like this. I mean stating the very obvious, we've
- [01:55]
Michael Batnick
talked about and Animal Spirits a lot about the downside case of AI. What could go wrong. I think her case is no, no no no. People are looking at this using the past as their guide. This is different. And here's what could go right with AI. And so I mean she has a very bullish take bullock out bullish outlook on everything. Right? So I think it's important to hear all sides of this debate and I think it is worth we've been saying have an open mind that like maybe this is one of those times that's different. And so she kind of lays the case out for it. And I like I love the discussion about the market making you feel right or wrong about these ideas and waiting for the market to like, catch up with you or it's. Anyway, very interesting conversation. So here is our conversation with Dr. Ankur Crawford from the Alger Concentrated Equity ETF.
- [02:47]
Ben Carlson
Dr. Ankur Crawford, welcome to the show.
- [02:53]
Ankur Crawford
Thanks for having me back.
- [02:55]
Ben Carlson
I suppose back ish. Okay, so we did have you on the compound and friends back in April. And part of the conversation that I found so interesting was you thought you were wrong about the memory trade because the market wasn't confirming your suspicions. And these were more than suspicions. You thought it was so obvious that these were going to work and they weren't. So you thought, hey, I must be wrong. The market, like, right, like you've been doing this a long time. You're humble enough to know that if you're mentally pounding the table, but the market's disagreeing with you, it's usually the market that's right and not you. Okay. This was the outlier in which you were so right. And April is. It was two months ago. I was. It's two months ago. That's it. Micron was at $454 a share, give or take when we recorded. It's now at 1080. 450 to 1,080. It's up 135% since that conversation. So now what signals are we taking from the market?
- [03:59]
Ankur Crawford
Gosh, you know what I would say, I think it was in the context of initially I had thought that I was wrong in September when I had first Micron, that I thought that Micron was telling me or that the market was telling me that I was wrong on the thought process. Look, there's been a lot of movement in the market since April. And I would say back at the end of March there were, you know, Nebbys, I think was at 95 and Astera Labs was at 95 and now Astera is close to 400. And what has happened is that people have. I think the market is coming to the realization that some of what is happening in the AI trade has duration. We have seen, for example, for the NEO clouds, pricing for the NEO cloud per GPU hour is rising because we are short compute. And you've seen anthropics numbers shoot through the roof. I think they started at 30 billion. Now we're looking at 44 or 49 billion in AR. When growth investors are telling you that they've never seen anything like this. I think everyone needs to take heat because this is a Different era. And we can stop calling it a bubble. We can stop calling it one time, and everyone just needs to pay attention to what's going on.
- [05:21]
Michael Batnick
It does seem like the bubble talk is getting a little exhausting. It's funny, I looked. I wrote a blog post in 2017, and people were talking about bubbles back then. It's been a long time coming. Do you think that people are just so reliant on history that. Listen, every time there's been a big capex boom and we've built out a big innovation like this, there's been a bubble. Is it just that people have too small of a sample size? Like, what do you think that people get wrong about that idea? Because anyone who uses history as a guide says, listen, we've seen this, checks all the boxes. So, like, what is it about, I guess this that is completely different?
- [05:55]
Ankur Crawford
I think it's exactly that, using history as a guide, because we have never seen. There's no historical precedent for what is happening today in terms of how fast the innovation is occurring. I mean, just. Was it just last week that we were talking about, like, the Noam Brown tweet about how models will begin training themselves? And we've heard this before, and, you know, I had, I. I said this a couple of years ago on cnbc, I think, where I said, you know, when software begins to write software, innovation becomes exponential. And we are at an exponential innovation curve. We're not used to thinking exponentially. And when innovation, this is digital innovation, it's very easy to adapt and adopt it. So think about, I mean, if the innovation came in the iPhone, right? Then we needed to have dispersed all the hardware and we needed to make sure everyone had an iPhone. And that penetration curve is a little bit different than a digital penetration curve where everyone can adopt it immediately. I think that's what's happening right now, where the digital penetration curve, there is no barrier to entry, to adopt it, and to start using it. The usefulness of the productivity of the AI tools has become incredibly clear. And therefore there is no compute because everyone wants to get their hands on intelligence.
- [07:32]
Ben Carlson
So, Encore, you're the manager of the Alger Concentrated Equity etf. The ticker is cneq. But you've managed this portfolio in, what, a mutual fund or SMA wrapper for quite a while.
- [07:45]
Ankur Crawford
It's actually an ETF and mutual fund and an SMA wrapper.
- [07:49]
Ben Carlson
Okay.
- [07:49]
Ankur Crawford
And about two years ago, as an offshoot of some of the other funds.
- [07:55]
Ben Carlson
Okay. When you just said that, it reminded me of, like, when people Promote their podcast wherever you listen to, right? Apple, Spotify, YouTube, you can get it in any flavor that you like. But if you want Encore's stocks, you can get them. You're a long term investor, you are not. Right? Like these are concentrated bets that you're making on these companies. How hard is it to ride these winners? Because you're right, we are linear thinkers. I wrote this a while ago, many a moon ago. Anybody could do six plus six plus six plus six plus six. But if you ask them to multiply six times six times six, I mean, your brain will melt. We can't think that way. So as we're transitioning from linear to exponential growth. All right, Micron is up 136%. Whatever went from 400 to 1,000, can it go to 4,000? I'm being silly. But like, how do you think about the long term prospects of a stock? We know that it's discounting something a lot. But like people have said, well, this is funny. Micron or. Yeah, Micron is the largest stock in the Russell 1000 value index. Like what? Because the market is probably rightfully putting a discounted multiple on it eight times. Because we know we've been through these cycles before. But the question is, is this cycle of memory different? What do you say? How do you think about this?
- [09:17]
Ankur Crawford
Let's talk about this in terms of not just the memory cycle, because I think that there is something much bigger going on than just the memory. And memory is just kind of an example of what's happening. If you look across the supply chain for semiconductors, semis were kind of a forgotten child. I remember I was a semiconductor analyst for Alger when I first started my career. And it was kind of like we were the ugly stepchildren to software. Because software had these like beautiful business models. Like, you know, semis were cyclical. They didn't get any pricing power. They would like beat each other up every year on getting sockets. And I remember at some point thinking, God, I used to, I used to work in a fab, right? In a bunny suit. Like, it's really hard to make these things. Why is it that semis get no respect?
- [10:04]
Ben Carlson
Wait, hold on, Ankar, can you just, just don't gloss over that for a second. So we're talking to somebody that prior to her career as an analyst and a portfolio manager, you literally worked inside of these buildings that you had to put a hazmat suit on.
- [10:19]
Ankur Crawford
Yeah, well, it was a bunny suit, it wasn't a Hazmat suit. But it was I did, and I did my PhD work at intel and had to build my own wafers there. And and so it was just like I had this appreciation for how hard it was to build this stuff. What happened? Semiconductors became kind of a GDP plus grower plus plus grower to a GDP plus grower to basically almost a GDP grower as a group. As that entire supply chain became a proxy for gdp, it all consolidated. So across the supply chain, whether it's the PCB guys, whether it's the, the, the foundries, the memory guys, the semiconductors, they all semi cap equipment, it all consolidated between 2010 and 2022ish. So what happens when you basically get a consolidated market for the entire supply chain and a demand signal that feels exponential? It's really hard to bring on supply and therefore you have many different things that end up being fantastic, which is you get better margins, better pricing. All of a sudden the power has shifted back to semiconductors and this entire supply chain for sunnies, including the foundries, TSMC Global Foundries, you know, the semiconductors themselves, even like the networking equipment, like. So the entire supply chain chain is stretched right now. And this is just what's happening in memory, but it's happening across every other aspect of semiconductors and this AI build as well, including power. Now power didn't consolidate, but you know, that power is also short. We're basically short, I would say soup to nuts, the entire supply chain for artificial intelligence.
- [12:20]
Michael Batnick
It is funny how the market sometimes tells you if you're right or wrong and that's kind of the ultimate scoreboard. I'm curious how many times that you've changed your mind since like the chat GPT moment back in 2022 about who the winners and losers are going to be. Because obviously there's been a ton of different narratives. Have you been pretty down the fairway on this and pretty resolute or have you, have you changed your mind a lot on how this is going to play out?
- [12:41]
Ankur Crawford
Look, I think that there are some big picture things that I haven't changed my mind on. There's a paper that we wrote in early 23, March, April of 23. It was called AI and the declining Cost to Create and that talked about how software and any digital assets are at risk and value should accrete to the hardware and semiconductor supply chain. That big picture was something that we held onto. However, the components of that are a little trickier. I. E. When should you have sold software? We sold a lot of our software then, but there were Kind of rip roaring rallies like CRM went from 160 to 300, right? There was a doubling because people thought it was an AI winner. There was definitively a points in time where we would question the hypothesis. However, we did stick to our guns on understanding that you know there are swaths of the market that you really don't want to be invested in. They could be trades but not investments individually in names inside of sectors. I think what we have seen is there's been not necessarily like TSM is something that we've owned for a very long time and have only gotten more convicted in. In part because you're, you've gone from a seven player market, you know from 15 years ago to effectively a one and a half player market today. Maybe a two, I would say one and three quarters. Because Samsung and Intel right now are trying to find their, find their sea legs.
- [14:18]
Ben Carlson
The compute shortage that everybody's talking about is this the type of thing that Taiwan semi who actually manufactures these chips? Are they being the responsible stewards of the entire ecosystem of or like or can they literally also not manufacture as fast as supply as fast as demand wants them to?
- [14:41]
Ankur Crawford
Let's study that supply chain as well. TSM is not the holder of all equipment, right? So they need to ask ASML to make them equipment. They need to ask Lam Research and AMAT and KLA 10 core for that equipment as well.
- [14:55]
Ben Carlson
So the equipment that goes into these buildings to actually.
- [14:59]
Ankur Crawford
That's right. So, so let's, if you go across the supply chain for even tsm, even if TSM says you know what, I'm going to add 3x the capacity which they never would do that if they wanted to do that. The supply chain is going to limit that growth because even the semi equipment manufacturers cannot manufacture at that rate because their supply chain cannot, it cannot manufacture at that rate. So and here is the beautiful thing, right? Everyone is afraid that this is a bubble. Everyone is afraid that we're growing too fast. And what I'm telling you is that we are in fact rate limited by the supply chain which is a really important aspect of what is happening. So we're almost capping the growth. So we can't get into bubble territory right now. We can't spend as much as we may want to. That that gives you duration.
- [15:55]
Ben Carlson
What if somebody would say but I'm just playing devil's advocate, everybody knows that supply is constrained as far as the eye can see and therefore we're going to bid up the prices of these stocks in anticipation of an Endless Runway. And of course the impossible, impossible part of this is, well, when do prices outstrip future expectations of what can realistically grow into. And how do you know that? I know. Again, I'm asking you a literally impossible question. So what would you even look to in anticipation of, okay, perhaps prices have outstripped what's reasonably what these companies can deliver on the fundamentals.
- [16:36]
Ankur Crawford
Now what prices are you talking about? TSM prices.
- [16:39]
Ben Carlson
Oh, good question. I was thinking in my brain, stock prices. But if there's actual business prices wherever you want to take that, the most
- [16:48]
Ankur Crawford
common question that I get asked is, oh my God, the valuations are so high. How can you invest in AI when the valuations are so high? And my response to that is on what metric are the valuations too high? Because the first thing you need to get right when you think about valuation is the E. Only then can you come up with a pe. So if the numbers keep moving up because we are in a supply chain shortage through the end of the decade, then what is the right earnings? Now I will give you an example. There is a stock, it's called GeV. I remember looking at GeV and this was, I don't know, a year ago there was a certain thesis around GeV. They make turbines for utilities and for CCGT plants which are required for, you know, electricity, which is required for data centers. There's only three company that companies that make CCG turbines. GEV is one of them. They have about a third of the market and their pricing has gone from like 1250 per per megawatt to something like 2,500 inside of the last year.
- [18:09]
Ben Carlson
That's insane.
- [18:10]
Ankur Crawford
Yes. And it's continuing like I was just looking at the numbers the other day and this is happening across all of these AI stocks. I mean there are stocks on 28 trade at a low double digit earnings multiple because our numbers might be quite differentiated from the street. But again, if you stop thinking linearly and thinking about the exponential, then you have to figure out what the right earnings is. Then, then we can talk about what the right PE is. But I would say this is happening across the supply chain where the numbers are just too low.
- [18:45]
Michael Batnick
Before you mentioned like, hey, there's going to be some trades here too and some investments. When you creating your portfolio which is concentrated, I think, what is it, 30 names or something? Are these all longer term investments? Do you look to any trades in this space that you try to get too cute on or is it. No, these are like, I don't know, you tell me the number three, five, seven year hold. Like, what is your holding period when you're trying to buy these stocks?
- [19:04]
Ankur Crawford
I mean, ideally you're looking at things that you can hold for three years. So I always think about, in three years, will this be a triple? Could this double in three years? Kind of that. That's the mentality. Occasionally there might be a trade in there that it usually is on a pretty short leash.
- [19:23]
Ben Carlson
One of the things that you just said that I would totally agree with is that. And maybe I'm projecting, maybe I'm making this up. I don't think I am. That a lot of investors are asking the questions as I did. I started the show with this, like, is it too far, too fast? Are the valuations too high? Blah, blah, blah. There's still, again, this is like anecdotal, but there's still a lot more disbelief. I do think that investors continue to just be stunned by. By. And they're talking. They're looking at the stock, you are looking at the business. So you have a. To say that you have a better handle on what's actually happening is comical. But you also are talking to investors and you're hearing disbelief, and you're probably saying, like, these people have no idea. They have no idea what's happening.
- [20:12]
Ankur Crawford
Yeah. Honestly, Michael, I love the skepticism because if everyone was not a skeptic, then, you know, everyone would be on the same side as usual.
- [20:20]
Ben Carlson
Right, Right.
- [20:21]
Ankur Crawford
And so I love the skepticism and I love the debate because again, it makes me question my own. Like, it keeps me. Keeps me grounded as well and makes me question my own thesis over and over again. To come back to what I'm telling you, there's nothing really that's deterring me from my viewpoint. That. And look, you. You see it. Look, the most basic thing, I think at some point today you asked me, what do you look for? One of the things that we've been looking at is we own this company called Nebbys. And Nebbys is a. I don't even want to call it a Neo cloud because it's progressed so much beyond that. I would say it's like the first AI hyperscaler. AI. Native hyperscaler, that is, that has been formed in this. In this era. Their pricing for their old chips is up 30 to 40%. So that's their pricing for, like, hoppers. The hopper is the first generation of AI Nvidia AI chips. They were supposed to be going down 15, 20% as soon as you got the next generation. As soon as Blackwell's and Grace Blackwells came in, hopper pricing were supposed to go down, yet pricing is up 30 to 40%. What that tells you is that there is simply not enough supply.
- [21:42]
Ben Carlson
For now. For now, the thing that people keep coming back to is, well, let's see what ROI the buyers are going to see. And what I think what they mean is the hyperscalers. So does that all rest on the shoulders of hyperscalers or are these orders broadening out?
- [22:01]
Ankur Crawford
I think what you have to do is look at the supply chain of AI. So we started the conversation talking about anthropic. Anthropic's revenues are or their ARR is approaching almost $50 billion. Their rumor is that they're actually profitable in Q2. And if you take a look at again, I'm just talking about the publicly available information. If the rumors that they are profitable in Q2, then this whole idea of oh my gosh, no one can ever make a profit profit is out the window because clearly the leader in the space is making a profit. Now I think if you take it just back to fundamentals, the hyperscalers are a bit more confusing in part because some of the CapEx that they're spending is for their own internal means. And it's hard to deconvolve how much is being used internally versus how much is being used to lease or to rent out to other people.
- [23:00]
Michael Batnick
I'm curious what would cause you actual concern though for the people that keep just shouting from the rooftops, this is a bubble. This is a bubble, this is a bubble. They don't seem to quantify anything. They just kind of say valuations are high and stock prices are up. What would be actually a cause for concern for you to say, all right, we've overdone it here.
- [23:15]
Ankur Crawford
Okay, if I could magically wave a wand and we could spend $3 trillion in capex and place it in the ground, I think that would cause me to worry if I saw some sort of an algorithmic change of such that we could do a lot more with less. That would cause me to question. Although I think one of the other misnomers in this market is that we all remember Deep Seq, right? Deep Seek Monday. And the fear was, oh my gosh, that this Chinese model is doing so much and begins spending CapEx. And I think what, you know, the conclusion I had come to over, you know, the last, I guess, year since that's happened is that the business model for an open sourced model is going to be quite different than the business model for A frontier model where the value is going to reside in different places. So for frontier model, the value resides actually with the model holder because they are actually adding value by providing incredible intelligence. So they should hold the value. On the open source side, I think the value actually accretes to the infrastructure layer because the open source models, I believe, are all going to converge upon one another and become highly competitive. So I do actually think that there's this interesting also misunderstanding in the market about open models and closed models and this idea that, you know, the open models are going to take all the profit from the closed models. But I am watching for if any of these open model suppliers can cross the chasm with something super innovative. Because look, I would say that right now you have to be willing to, to survey the market all the time and change your mind because the innovation curves are just so fast that you can't count anyone out.
- [25:19]
Ben Carlson
All right, so Ankar, we've spent, we've spent the entirety of this conversation talking about the Megatrend where your bread is buttered on the AI infrastructure supply constrained, soup to nuts story. But there's more going on here. This is not like a replacement for SMH in your portfolio. This is broader than just the AI stuff. So this is a large cap growth strategy. How are advisors and clients thinking about it? Asking you, where does it go? What's your response to that?
- [25:51]
Ankur Crawford
Look, I think that we are at a very interesting time in our own histories, such that the overall economy is going to move from a consumer led economy into an industrial led economy. And you're starting to see it already where the economic growth is going to be dictated by, you know, reshoring and capex growth. And all of that has a long tail in the broader economy. Which is why, like if you look at the portfolio, there's, there's companies like QXO in the portfolio which are, which is a building products company or heico, which is an airplane parts manufacturer. So it is, I mean, I would like to remind everyone that this is actually very much a large cap growth strategy. However, we're leaning into the biggest change factor in our economy right now, which is artificial intelligence, which touches almost every aspect of the market.
- [26:54]
Ben Carlson
So Encore, we're in the year 2031 and we're looking back to 2026 as this incredible moment in time. Hindsight, with hindsight being 20 20, what do you think is the one area of the AI ecosystem that investors will have wished they paid more attention to?
- [27:14]
Ankur Crawford
I think power in the industrial ecosystem because the same thing that's happening across the AI supply chain is happening in power and that's capacity that's even harder to bring on. So if you look at the ipps which are the independent power producers today, they are trading at kind of low teens multiples which you know, in the broader, I mean, again, you know, and that's low teens multiples on like 27, 28 numbers. It's not like we're looking out to 2032 to justify the valuations. One thing that is very clear is that we don't have enough power for the eventually eventual reshoring of a lot of industry and a lot of capacity back to the us. They are just long term beneficiaries of this AI super cycle.
- [28:08]
Ben Carlson
Encore. This was amazing. Thank you so much for taking the time to do this. For people that want to learn more about your concentrated equity strategy, ticker is CN eq. Where do they find more about the strategy?
- [28:24]
Ankur Crawford
Just go on to our website alger.com cneq Perfect.
- [28:31]
Ben Carlson
Thank you so much.
- [28:34]
Michael Batnick
Thank you to ankur member checkout alger.com to learn more, email us animalspiritscompoundnews.com before investing, carefully consider the fund's investment objective, risks, charges and expenses. For a prospectus and summary prospectus containing this and other information or for the fund's most recent month end performance data, visit www.alger.com, call 800-223-3810 or consult your financial advisor. Read the prospectus and summary prospectus carefully before Investing distributor Fred Alger Co. LLC listed on NYSE Arca Inc. Not FDIC insured not bank Guaranteed may lose value.