Nvidia’s Rise, Intel’s Fall, and the Chips in Between — ft. Patrick Moorhead

Summary

Prof G Markets Podcast Summary: "Nvidia’s Rise, Intel’s Fall, and the Chips in Between — ft. Patrick Moorhead"

Release Date: October 24, 2024

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Introduction and Banter

The episode begins with the usual friendly banter between hosts Scott Galloway and Ed Mylett, setting a relaxed and engaging tone. They discuss personal anecdotes, including Scott’s childhood Halloween experiences and plans for future events, before diving into the day’s primary topics.

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Headlines Overview

1. Disney’s Succession Plan (04:15)

Ed Mylett presents the latest news:

• Disney announced it will name Bob Iger’s successor in early 2026.
• Former Morgan Stanley CEO James Gorman has been appointed as the company’s next board chairman.

Scott Galloway’s Take: "I don't think Bob should have come back. I think it's time for a new generation of leadership in these media companies... They’ve created a Hunger Games environment where they've identified four potential successors" (05:02). Scott critiques Disney’s internal candidate selection process, suggesting a probable bias towards external leaders to inject fresh perspectives.

2. Netflix’s Strong Quarter (04:15)

Ed highlights Netflix’s impressive performance:

• Gained over 5 million paid subscribers in Q3, marking a 14% increase year-over-year.
• Surpassed revenue and earnings expectations, leading to an 11% rise in shares.

Scott Galloway’s Analysis: Scott delves into Netflix’s strategy, emphasizing their content volume as a competitive edge. He states, "Netflix is just winning this war on gasoline. They are producing triple quintuple the amount of content... Their churn rate is significantly lower than competitors like Disney and Apple TV" (09:39). Scott argues that Netflix’s expansive content library and strategic investments in their ad tier position them favorably against traditional media giants.

3. Cooper Hefner’s Bid for Playboy (04:15)

Ed shares the news:

• Cooper Hefner has submitted a $100 million offer to acquire the Playboy brand.
• Plans to revitalize the brand through new licensing and media opportunities, leading to a 15% stock increase if accepted.

Scott Galloway’s Perspective: Scott expresses skepticism about Playboy’s future, suggesting drastic measures: "There’s so much talk about reinvigorating the brand. Just let it die, put it out of its misery" (18:28). He critiques the brand’s relevance in the modern market and questions the viability of its revival strategies.

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In-Depth Interview with Patrick Moorhead (23:03)

Patrick Moorhead’s Introduction: Patrick Moorhead, founder, CEO, and chief strategist of Moor Insights and Strategy, joins Scott and Ed to discuss the semiconductor industry, focusing on Nvidia’s meteoric rise and Intel’s struggles.

1. Overview of the Chip Market (24:00)

Patrick breaks down the semiconductor ecosystem:

• Manufacturers: Companies like TSMC and Samsung that produce the chips.
• Designers: Firms like Nvidia that design chips without owning manufacturing facilities.
• Integrated Designers: Companies like Intel and Samsung that both design and manufacture chips.
• Intellectual Property Providers: Entities like ARM that sell chip designs.
• Software Tools: Essential for designing semiconductors, provided by companies like Cadence and Synopsys.

2. Types of Chips: CPUs vs. GPUs vs. Others (25:12)

Patrick explains the differences:

• CPUs (Central Processing Units): Best for serial tasks; highly programmable but less efficient.
• GPUs (Graphics Processing Units): Excellent for parallel tasks, such as graphics rendering and AI training. Nvidia’s GPUs are pivotal in AI advancements.
• ASICs (Application Specific Integrated Circuits): Highly efficient for specific applications.
• FPGAs (Field-Programmable Gate Arrays): Offer a balance between programmability and efficiency.
• Memory Chips: Separate from processing units, essential for data storage and retrieval.

3. Intel’s Decline (27:03)

History and Struggles:

• Initially a dominant player in CPUs, Intel lost its competitive edge due to manufacturing setbacks.
• Missteps in adopting new technologies like EUV lithography delayed their chip production, allowing competitors like AMD and Nvidia to capture market share.
• Scott remarks, "Nvidia is worth 36 times more than Intel. And you can check on your stock chart how quickly that happened" (30:01).

4. Nvidia’s Rise (33:13)

Understanding Nvidia’s success:

• Early Innovation: Introduced the first GPU in 1995 and pioneered GPU applications beyond graphics.
• CUDA Development: Launched in 2006, CUDA enabled GPUs to handle diverse computing tasks, fostering advancements in AI and machine learning.
• Strategic Partnerships: Collaborations with universities and industry leaders expanded GPU applications.
• Leadership and Integration: Under Jensen Huang, Nvidia maintains a clear vision and integrates both hardware and software, creating robust ecosystems that enhance their competitive moat.

Notable Quote: "Nvidia doesn't just sell chips. It actually sells the board that the chip goes on... They’re doing horizontal and vertical integration to build the moats" (36:48).

5. Geopolitical Implications: Chip Wars (39:08)

Patrick assesses the global landscape:

• US Dominance in Design: Most leading chip designers are US-based.
• Manufacturing Concentration: Only ~5% of semiconductor manufacturing occurs in the US; Taiwan and South Korea dominate production.
• China’s Resilience: Despite restrictions, China is advancing its chip capabilities through companies like SMIC and Huawei’s Ascend AI chips.
• Government Investments: Initiatives like the Chips Act aim to bolster US manufacturing and reduce dependency on foreign suppliers.

6. Investment Insights (42:04)

Patrick discusses investment opportunities:

• Long-term Bets: Fusion energy and companies like Marvell and Broadcom, which focus on low-power, efficient chip designs.
• Intel's Undervaluation: Intel is trading around book value, presenting a potential upside as they advance their manufacturing roadmap.
• Market Growth: The AI-driven expansion in the semiconductor market may offset any potential loss in market share for leading companies like Nvidia.

7. Analyzing Chip Companies for Investment (44:20)

Patrick advises on evaluating chip firms:

• Execution Capability: Assessing whether companies can deliver on their technological promises.
• Valuation Metrics: Forward PE ratios and comparing them to industry standards.
• Customer Feedback: Engaging with major clients to validate company claims versus reality.
• Market Dynamics: Recognizing that an expanding market may allow for growth despite competitive pressures.

8. Recent Market Volatility (46:14)

Addressing recent earnings reports:

• ASML’s Earnings Decline: Caused by Samsung’s delays in 2nm process development, leading to a stock drop and affecting the broader chip market.
• Nvidia’s Volatility: Retail investor enthusiasm following stock splits has led to heightened volatility, but Patrick remains confident in Nvidia’s long-term prospects due to its integral role in AI advancements.

9. Advice for Young Professionals (50:53)

Patrick offers guidance for those entering the chip industry:

• Job Opportunities: A balance of hardware and software roles, with many positions paying exceptionally well.
• Industry Growth: Semiconductor sector expected to grow for the next 10-15 years, despite overall tech layoffs.
• Skill Development: Emphasis on both engineering and business skills to navigate the evolving landscape.

Notable Quote: "The semiconductor industry is a net job adder and it pays so well. Semiconductor pays almost the best of any industry out there" (52:31).

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Conclusion and Final Thoughts

The episode concludes with Scott reflecting on the strategic importance of focusing on long-term vision over short-term shareholder demands, drawing parallels between successful leaders like those at Netflix, Amazon, and Nvidia. He emphasizes the value of visionary leadership in driving sustained growth and innovation.

Notable Quote: "Nvidia doesn't ebb and flow with the winds of Wall Street. It's not so focused on just pleasing its investors" (53:23).

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Key Takeaways

1. Nvidia’s Dominance: Through strategic innovation, robust software ecosystems, and integration, Nvidia has secured a leading position in the AI and semiconductor markets.
2. Intel’s Challenges: Manufacturing setbacks and technological delays have hindered Intel’s competitiveness, allowing rivals to capture significant market share.
3. Geopolitical Significance: Control over semiconductor design and manufacturing is crucial, with ongoing efforts to enhance domestic production capabilities in the US.
4. Investment Opportunities: Companies like Marvell, Broadcom, and undervalued Intel present potential investment avenues amidst a growing and evolving chip market.
5. Career Prospects: The semiconductor industry offers lucrative and diverse roles, making it a compelling sector for young professionals seeking long-term career growth.

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Notable Quotes with Timestamps

• Scott Galloway (05:02): "I don't think Bob should have come back. I think it's time for a new generation of leadership in these media companies..."
• Patrick Moorhead (36:48): "Nvidia doesn't just sell chips. It actually sells the board that the chip goes on... They’re doing horizontal and vertical integration to build the moats."
• Patrick Moorhead (44:20): "When it comes to execution capability, it's a really darn easy way. I think it's the easiest way to figure it out."
• Scott Galloway (53:23): "Nvidia doesn't ebb and flow with the winds of Wall Street. It's not so focused on just pleasing its investors."

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Final Notes

This episode of Prof G Markets offers an insightful analysis of the current semiconductor landscape, highlighting the contrasting trajectories of industry giants Nvidia and Intel. With expert commentary from Patrick Moorhead, listeners gain a comprehensive understanding of market dynamics, investment opportunities, and career prospects within the chip industry.

For more detailed discussions and updates on capital markets, tune into the next episode of Prof G Markets available on the Vox Media Podcast Network.

Transcript

[Sequoia Capital Host]

Support for the show comes in the new season of Crucible Moments, a podcast from Sequoia Capital. What is a Crucible Moment? It's a turning point where we face a tough decision and our response can shape the rest of our lives. These decisions happen in business too, and Sequoia Capital's podcast Crucible Moments gives you a behind the scenes look, asking founders of some of the world's most important tech companies, including YouTube, DoorDash, Reddit, and more, to reflect on those critical junctures that define who they are today. Tune into season two of Crucible Moments today. You can also catch on season one at cruciblemoments.com or wherever you listen to podcasts.

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[Scott Galloway]

Create today's number 47 million. That's how many American adults visited a haunted house last year. I used to go true story, Ed for Halloween as a gifted kid. And they'd say, what are you supposed to be? And I'd say, I was supposed to be a lot of things. I like that. It's good. That's good.

[Ed Mylett]

I like it.

[Scott Galloway]

I think that's good.

[Ed Mylett]

It's on brand for you.

[Scott Galloway]

Yeah. Also, my wife said she's going to show up at our Halloween party dressed as our sex life. But here's the thing, Ed. She didn't come. She didn't come. That's not as good.

[Ed Mylett]

She gave me as a ghost.

[Scott Galloway]

You knew I was going to go dirty anyways. Welcome.

[Ed Mylett]

Exactly.

[Scott Galloway]

Welcome to profit markets. Today we're speaking with Patrick Moorhead, founder, CEO and chief analyst of Moor Insights and Strategy. We're going to be talking about chips before we get to the news. Ed, what's going on with you? What's a good word?

[Ed Mylett]

I'm doing very well, Scott. It was good to see you last night at the Raging Moderates live event in New York.

[Scott Galloway]

Oh, someone's a. Someone's a little threatened. Oh, that's right. That's right. Daddy's cheating with another co host. Oh. Or as I like to call her, Ed's replacement. Better Ed. Better Ed. That's right.

[Ed Mylett]

That's true.

[Scott Galloway]

That's right. Yeah. Yeah. Not quite as cocky. Being a little bit nicer to the dog. That's right.

[Ed Mylett]

I thought it was great. I love the. I love the. The location. As you know, I love live events. I think we should do more of them. Next up, when you do another Profg Markets event, that's what's on my agenda.

[Scott Galloway]

Where do you want to hold it?

[Ed Mylett]

I think we should do a live tour around the whole country.

[Scott Galloway]

You want to do a tour?

[Ed Mylett]

100%. We showed up in Austin and it was a smashing success. We gave him maybe a week's.

[Scott Galloway]

400 people. Yeah.

[Ed Mylett]

And we got to keep it going.

[Scott Galloway]

Yeah. That's your way of saying, I want to get laid in a strange city. Which I get. Which I get. Oh, Ed. Oh, hi, Ed. Oh, you're so smart. Oh, God. Literally. Literally. Like, I don't. I like it to be about me. And it's really bumming me out that people come towards me and make eye contact and then kind of get closer to me, like, maybe not. And they veer to the. To the young guy, you know, we gotta stop that.

[Ed Mylett]

That is not happening.

[Scott Galloway]

Our world tour. We're gonna do our world tour, like, literally. Taylor Swift will have nothing on us. All right, enough of that shit. Ed, get the headlines. Now is the time to buy. I hope you have plenty of the where at all.

[Ed Mylett]

Disney announced it will name Bob Iger's successor in early 2026. The company has also tapped former Morgan Stanley CEO James Gorman as the company's next board chairman. Netflix added more than 5 million paid subscribers in the third quarter. That's up over 14% from a year earlier. The company also beat expectations on the top and bottom. Shares rose 11% following that earnings report. And finally, Hugh Hefner's son, Cooper Hefner, submitted a $100 million offer to buy the Playboy brand. If the bid is accepted. He plans to increase the brand's relevance through new licensing and media opportunities. And the stock popped 15% on the news. Scott, your thoughts, starting with Disney's succession plan.

[Scott Galloway]

I don't think Bob should have come back. And I think that. I think it's time for a new generation of leadership in these media companies. I don't think they understand streaming. I Don't think they understand technology. It's time. And this is the way of saying this is kind of a dignified goodbye. Announcing the succession strategy and giving investors comfort that they are thinking about succession and they realize that this is good governance. It's like, okay, Bob is 73. He's the first ballot hall of Fame executive. This has been a pretty much a disaster for shareholders. I think if you invite shares in Disney 10 years ago, you haven't made any money and it's got incredible assets. So I think they want to bring in someone to figure it out. Now they're claiming that it's going to be someone internally. They've created this Hunger Games environment where they've identified four potential successors. And the only insight I would offer is that my experience with successors is that one, there's a bias towards outsiders because you're just more attracted to strangers and it's easy to come across as impressive. And the more you get to know people, you just figure out that nobody's perfect. So there's a bias towards bringing in someone new from a tech company or whatever it is they're going to do. Also, it's better to be lucky than good. And that is so they have a very talented person who is one of the four people they've identified as a potential successor running espn. I would doubt it's going to be him because you want to be on top of a business that's growing about the time they're looking for the CEO because they will unfairly attribute the success or the failure of that group to the individual running it. And market dynamics trump individual performance. I think ESPN is going to have a rough road for a few years. I don't care how brilliant the person running it is. So I would imagine if you had to guess, it'll be maybe an outsider. Although if they've identified four people from inside, it'd be a cultural shock and really demoralizing if they brought in someone from the outside.

[Ed Mylett]

They have said they are reviewing external candidates. The internal candidates they are reportedly considering are. I can just list them for you now. So there's the head of tv, Dana Walden. There's the head of Parks, Josh Demara. There's the head of espn, as you mentioned, Jimmy Pitaro, and then there's the studio head, Alan Bergman. But they have also said that they are reviewing external candidates. And the question that I would have for you is, who would you think would be right for the job, external or internal?

[Scott Galloway]

Well, the person they want is Ted Sarandos, but Ted's worth 10 or 20 billion now. It's not going anywhere. It's either going to be the person running the streaming network if it does well, or it's going to be the Parks and the Gaming. I just can't believe it'll be anyone from the movie. The movie, the traditional tv. The person running ABC is not going to run Disney. They're not going to say, oh, the business only declined 11% and the market declined 18. You're very good at what you do. It's going to be the person who shows up with surprises to the upside on their business.

[Ed Mylett]

Right. In which case you would think that it would be. Which is what my guess is Josh tomorrow, who's the head of pox. But at the same time, having said that, you think back to 2020 when Bob Iger resigned. He passed the job on to Bob Chapek, who was the head of pox. And then he. He only had two years until he was ousted. So they are in a little bit of a dilemma here. It does feel the most likely candidate is the Parks guy, but they already hired the Parks guy and it didn't work, apparently.

[Scott Galloway]

That's a fair point.

[Ed Mylett]

Well, let's do, let's, let's do it. If they had to choose an external candidate, who would you choose?

[Scott Galloway]

I mean, initially, two, three years ago, I thought they were going to acquire Snap and that Evan Spiegel might end up being CEO of Disney.

[Ed Mylett]

Interesting.

[Scott Galloway]

But I don't, you know, even, even as poorly as or sideways as Snap has gone, it's too expensive to acquire. I think the bloom is off kind of the tech media rose, if you will. Do you have any thoughts?

[Ed Mylett]

I think my top pick, if you had to go external, would be Neil Mohan, who's the CEO of YouTube. He kind of built YouTube into what it is today. YouTube, TV and all this stuff. But to your point, you know, bringing in these tech guys feels really sexy and fun at the beginning, but you think about it over the long term and ultimately I think the best person for the job is someone who understands the business internally better than anyone. So I think internal candidates are always the way to go. Which is why, as we've discussed, I love Nike's new pick. I love it when people go inside the company. But speaking of entertainment, we should talk about Netflix, who had a great quarter. EPS was a beat. Revenue was a beat. Huge margin expansion. Highly profitable thoughts on this great quarter from Netflix?

[Scott Galloway]

Yeah, revenue up 15%, profits up 41%. They saw growth in their ad tier, which I hate. But I guess it's working. But I think it's growing off a small base. Still think it was bad for the brand, but that's just me. But it did account for over half of all Netflix signups in the regions where it's available. They're just. This is. So at the end of World War II, the Germans had. Can I be any older with my World War II references? Seriously. I'm meeting Angie Dickinson at the Polo Lounge later. She and I are going to watch Johnny Carson together. I used to party with these cool cats in Cuba. I literally. I'm just so old right now. Anyways, at the end of World War II, the Germans had better officers, better technology, better tanks, but we had more gasoline. For every 1 gallon of gasoline they had, we had 38 gallons and we just literally overwhelmed them with gasoline. And Netflix is just winning this war on gasoline. They are producing triple quintuple the amount of content. Apple can't compete with them. And so, according to Matthew Ball, Netflix delivers an average of 16 billion hours of entertainment per month, versus 3.1 billion hours of Disney. So think about that. Disney has to be totally niche and focused on family, because if just 20% of Netflix content qualifies as family, that means they're going toe to toe with Disney. There's just so much on Netflix I'd like to watch. And the number that always struck me is I believe their churn. Their annual churn is 9%. Hulu's at 15%. Max is at 17, Disney's at 21. When you have churn, that is double the rate. That means they have to recreate their customer base every 12 years, whereas Disney has to recreate its entire customer base every five years, meaning they have to spend double the amount on marketing and customer acquisition costs, meaning that they have that much less to reinvest in content, which again, reduces churn if you have more content. So it's just sort of an upward spiral. Get this. Apple TV has a churn rate, an annual churn rate of 40%, meaning that if they don't market, they essentially go to zero in 30 months. They have to reinvent their customer base every two and a half years. So I believe they're running away with it. The only kind of fly in the ointment here that they will point out, and that you've done a good job of pointing out, is, I believe, Netflix total share of streaming or viewership or video viewership in the US is 7 or 8%. And YouTube's at 10. So while it's a different business model and a different brand positioning. The only comparing Netflix to Paramount is like comparing Michael Jordan to someone who plays softball for their high school team. It's just not even. It's not the same. These guys aren't in the same league as Netflix. The benchmark, the competition for Netflix is now YouTube. And it'll be interesting to see if they get more kind of into each other's business. I bought the stock at 10 bucks. That's the good news. The bad news, I sold it at 8. I want to find a time machine so I can go back in time. Find me, find my ass, murder me and then kill myself. I'd be in a fucking Gulfstream and we'd be on that tour with our big oval windows in the Gulfstream 650er.

[Ed Mylett]

We can do that anyway.

[Scott Galloway]

God, it's so frustrating.

[Ed Mylett]

The world is our oyster. We can do it.

[Scott Galloway]

No, it'd be better if we were having oysters on my fucking golf stream.

[Ed Mylett]

Ed, we can do that too. We can do that too. It's called NetJets.

[Scott Galloway]

I'm with Flexjet. Learn more about your boss. Anyways, go ahead.

[Ed Mylett]

I think that's right. It's kind of a ridiculous game to be comparing to Paramount and all these other tiny streamers. If we were to come out with a bullish takeaway from this quarter from Netflix, it would be that, as you pointed out, the ad tier is actually working and there was some debate over whether ads on Netflix were a good idea. You were critical of that strategy, but I don't think you can say that. I mean, the numbers don't really lie here. The ad tier is working. It is off a small base, 35%, quarter over quarter growth, but it accounted for more than half of the new signups to Netflix. So I think putting ads on Netflix probably was the right idea for Netflix.

[Scott Galloway]

I'm still. I'm not a fan of this because the key, I hate to use the word storytelling. My good, good friend Will Arnett said, stop calling yourself a storyteller. He hates that word. He also hates Elon Musk.

[Ed Mylett]

That one really got to you.

[Scott Galloway]

He also hates Elon Musk. So he and I bonded over that. He's more triggered than me, that guy. Anyway.

[Ed Mylett]

That was a good impression.

[Scott Galloway]

But Chanel could make a lot of money offering, you know, $100 shoes instead of 1200. I just wouldn't go there. I think it's. I don't think it's a good brand move. But anyways, I'm sticking. I'm Sticking with that, Sticking by it.

[Ed Mylett]

Okay, well, let's end here with this news about Playboy. Cooper Hefner has been talking about how Playboy is one of the most well known iconic brands in the and yet as a business, it is doing very poorly. Just question, a sort of fun question for you. If you were Cooper Hefner, what kind of business ideas would you want to come up with? I have a few myself. But let's hear what you would do to sort of revamp Playboy as a business.

[Scott Galloway]

There's so much talk about. I've spent my life trying to or majority of my professional life trying to talk about how you build great brands and how enduring they are. I don't say the brand era is over, but the sun has passed midday. This brand is almost meaningless. It has a lot of awareness, but it basically means the magazine industry. It means soft porn. The lad brags. Is that what they called Maxima? And all that stuff came in, made it sort of legitimate. Then the Internet came in. They just were caught in no man's land. Poorly run business, run as a lifestyle business. It's been a disaster for shareholders. And all this notion that somehow the brand is a big deal. I would do one of two things, or maybe both. One, I would just cut it down to like eight people and just license the shit out of the brand and milk it. And I know that sounds. I don't. I think that's a business model. It does have global awareness. They are not going to be able to raise the capital to do anything, in my opinion in media. I think that ship has sailed. The other thing I would do if I were them, if they wanted to make a lot of money is I would hire the guy, the general manager from eleven, the strip club in Miami. And I'd opened four or six strip clubs in different cities around the world because they've go, oh, Playboy. It's sort of dirty, but it's sort of classy a little bit. But no, I would not invest in this company. I don't understand why he's doing this. If I were them, I would try and do a deal with only fans. Maybe something like that. Like have a brand extension of OnlyFans. But I don't know why OnlyFans needs them.

[Ed Mylett]

So I had some similar ideas on my list. I have.

[Scott Galloway]

You have a list?

[Ed Mylett]

I got my list right.

[Scott Galloway]

Go. Go for it.

[Ed Mylett]

Premium OnlyFans competitor.

[Scott Galloway]

Oh, there you go.

[Ed Mylett]

Target the 20 most successful creators on OnlyFans. Make them an offer they can't refuse and then you'll just Launch an offensive onto this hegemony that OnlyFans has created in the adult content space. Remember, OnlyFans is growing by around 20 to 30% per year. Did one and a half billion dollars in revenue last year. Someone needs to compete with OnlyFans, and I think it could be Playboy and it could be sort of the premium OnlyFans with Playboy branding. Second idea here is Playboy Mansions, which I would say is just the strip clubs meets nightclubs, meets hospitality. So open up these kind of hotel nightclub hybrids in Vegas and Miami and call it the Playboy Mansions. Very tacky, very childish, very not PC, but at least it's sort of more in line with what Playboy actually is. And that is. That is what it is. It's a. It's a sex brand marketed to men. And the third idea would just be to start Playboy the agency, and you just sort of tap into this growing industry of soft porn on Instagram and on TikTok. You just start signing these. These TikTok dancers and Instagram influencers who are making millions doing these product and brand endorsements. Again, this is not a cool or good business to be in. But I think their mistake is, to your point, thinking that they are iconic, when in reality it is just a sex brand. It is just for. It's for horny men. That's what this brand is.

[Scott Galloway]

Yeah, you know what? Can we just put a bullet in the brain of this fucking brand? I just, like every five years someone talks about reinvigorating the brand. Just let it die, put it out of its misery.

[Ed Mylett]

I don't think any of this is good for the world in general, so I think I'm with you. Let's just let it die.

[Scott Galloway]

Put it into hospice.

[Ed Mylett]

We'll be right back after the break for our conversation with chips expert Patrick Moorhead. If you're enjoying the show so far, hit follow and leave us a review on Profg Markets.

[Scott Galloway]

Support for the show comes from the.

[Sequoia Capital Host]

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[Scott Galloway]

Hosted by Roulev Botha of Sequoia, Crucible.

[Sequoia Capital Host]

Moments provides a behind the scenes look at some of the most tumultuous and defining milestones in tech history. He connects with the founders and they reflect on those pivotal inflection points and how sometimes those moments of turmoil become moments, moments of triumph. Tune into season two of Crucible Moments now. You can also catch up on season one at cruciblemoments.com or wherever you listen to podcasts.

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Support for the show comes from Polestar. Innovation is at the heart of every Polestar car and their SUV. Polestar 3 is no different from the intuitive infotainment system to its head turning design. Polestar 3 is for drivers unwilling to compromise. That means merging a spacious, comfortable interior with the torque and handling of a sports car. Now you can go from 0 to 60 in as little as 4.8 seconds and get an EPA estimated range of up to 315 miles per charge. Polestar 3 even allows the driver to optimize the powertrain between performance and range mode, depending on your drive's needs. Experience an uncluttered dashboard showing you everything you want to know and nothing you don't. The innovations doesn't stop there because you can just have Google turn on your favorite podcast and be immersed in 3D sound by Bowers and Wilkins. Polestar has put in the time designing and refining Polestar 3 and that means the time you spend in it will be the best time of your day. Book a test [e-mail].

[Ed Mylett]

Welcome back. Here's our conversation with Patrick Moorhead, founder, CEO and chief strategist of Moor Insights and Strategy. Patrick, thank you very much for joining us.

[Patrick Moorhead]

Thanks for having me on. I really appreciate it. I'm a fan of the show, so.

[Ed Mylett]

It'S nice to be on off to a flying start. So we're going to get into chips today and I want to start with some very basic high level questions. So my first question to you is there is there are several big players in the chip industry whose names we know very well at this point. Nvidia, amd, tsmc, of course, all the big tech companies. They're all sort of playing some kind of role in the chip market. What we don't know quite as well is actually what those roles are, how they are interacting with each other in the chip market. So my first question to you is what do all of these companies actually do and what is the relationship between all of them?

[Patrick Moorhead]

Yes, so the way that I like to break down the chip market is you have the manufacturers and those are the TSMC seas of the world. And even Samsung, you have what I call the designers, the one who's the ones who don't own a factory, but they do the design. And these are the Nvidias of the world. And then there are companies who are designers and builders and those are companies like intel and Samsung. And then you even have companies like ARM who just sell intellectual property. And what they do is they all work together as a system. One piece of the value chain I didn't mention were software tools. As odd as it sounds, most actually all of these semiconductors are designed using software companies like Cadence and Synopsys.

[Ed Mylett]

I'd love to get an overview from you on the types of chips involved here. So we hear a lot about GPUs versus CPUs, logic chips versus memory chips. What are the main differences between these chips and why is it important that we as investors know about them?

[Patrick Moorhead]

I like to look at it as a continuum of programmabilities. So for instance, on the left side you have CPUs, and those are the ones we heard most about up until the Nvidia phenomena. And essentially they're the easiest to program, but they're also the least efficient. And then you go on the right hand side of the scale and you have what are called accelerators, the official term is application specific integrated circuit or an ASIC. And then in the middle you have things like GPUs. You have what are called FPGAs, which are programmable. And then somewhere off to the side you have, you have memory chips. And GPUs are really, really good at parallel tasks. CPUs are really, really good at serial tasks. And again, like I said, there's just different levels of programmability. GPUs can do a whole lot of things right. GPUs can display graphics right for gaming. But also, as we've seen, they are really good at training LLMs, SLMs, and even doing the, what's called the inference of AI, particularly around those large language models. So, yeah, there's pretty much a chip for everything you want to do.

[Scott Galloway]

So when I got out of business school in 1992, the best job you could get was to go to the work for a firm called Intel. Use Intel. And what happened there, if you can, as sort of a brief history of the chip market. What went right or what went wrong for intel and what does it say about the broader market?

[Patrick Moorhead]

Yeah, so intel actually started off as a memory company and then they were the offshoot of Fairchild Semiconductor. And then what they did is they were popularized by making the most popular CPUs for what ended up being DOS computers. IBM chose the intel architecture as its go forward platform for its DOS computers, which subsequently became OS2, which then came into Windows. And yeah, I've been in and around intel since about 1990. But what they did is they got the fast moving start on what's on a general purpose cpu. Up until that point, everybody, Scott, was making their own CPUs. You had IBM, you had Dec or Digital Equipment Corporation, you had HP making its own CPUs. And what they did is they got it to this scale and the volume for PCs then was really unprecedented. And everything was going really, really well for them.

[Scott Galloway]

Right?

[Patrick Moorhead]

They were the number one semiconductor company by revenue. And then they lost the recipe. Scott, for manufacturing. Okay, previous two CEOs ago, the gentleman named Scott Kurzanich was the CEO and he literally said we don't have to be the best designers because everybody's going to have to fab their chips at Intel. And what they ended up doing is turning a, what was a three year lead into a three year deficit. And what they had to do is they had to go in and redo all of their design. Scott so let's say they designed for 16 cores. What they had to do is they had to reset that entire design to go to let's say 12 cores. So they were higher power, they were lower performance. And that got, that gave AMD the ability to come in and take their market share. And then now I would say for the last four years you have this absolutely unrelenting desire for GPUs and AI, which again, in addition to AMD taking market share away from them, you have this new category so spending a lot more money on GPUs versus CPUs. So that is kind of the, the long and the short of what happened to Intel. And if you look at valuation, I mean Nvidia is worth 36 times more than Intel. And you can check on your stock chart how quickly that happened.

[Scott Galloway]

I always thought in the chip market, just from a business strategy standpoint, that these enormously expensive long lag time chip factories were the ultimate moat. And then it ends up that wasn't the secret sauce, that it was all in the design, that there was a ton of slack manufacturing capacity that they could rent. Wasn't that sort of the unknown known or that surprised everybody and created this massive disruption in transfer of market cap from the manufacturers to the designers?

[Patrick Moorhead]

Yes Scott, we used to have 20 chip manufacturers about 10 years ago, actually 20 years ago. And then people started to get into these areas of specialty. And I think this is a tale of specialization where the specialization moves so much more quickly than the integrated model. They're called IDMs, the Samsungs, the Intels of the world. But I mean the number one thing that happened, Scott, is Intel's manufacturing, they just hit a ditch. They lost the recipe. They were late. To adopt a technology called euv. EUV is a way to etch a wafer or to put the lines that the electrical signals connect by shooting a laser at a metal and it deposits it onto this, you know, this round wafer. It sounds like absolute science fiction. But TSMC was early and intel kept saying this technology is not ready, this technology is not ready. And they just got absolutely left behind. And then the competitors to intel, the AMD's, the Qualcomms the Nvidias, their businesses grew so much, and that kept feeding the TSMC beast, right, all of this. These new customers come in, the Broadcoms, even the marvells of the world. And then the more external customers, when you're a chip factory, the smarter you get on how to solve problems and how to get into technology quicker. And that's a capability that intel just didn't have.

[Ed Mylett]

It makes a lot of sense why intel has fallen from your description. Less clear to me, though, is why Nvidia has just skyrocketed. I mean, three and a half trillion dollars market cap today, second most valuable company in the world. And it appears that it's because they're good at designing chips. I mean, all I know really about Nvidia is that they have the fastest and smartest GPUs in the world. But I'd love to get your view on how did they get there? What makes Nvidia such a strong company at the operational, organizational level, such that they can create the smartest and fastest chips in the world?

[Patrick Moorhead]

Yeah. So a little background. Nvidia's first chip was 1995. They're looked at as the first GPU provider in 1999. And then around 2005, the company wanted to do more things with a GPU. And what they did is they got with universities around the world and they would give grants, they would invite them to conferences and say, what can you do with my parallel processing unit, the gpu, other than graphics? And University of Toronto did a research project that showed you could do image identification very, very quickly using this GPU. And then Nvidia in about 2006 created this, for lack of a better term, a language to better program these GPUs, called CUDA, that was in 2006. They've been working at this for literally between 15 and 20 years to get that GPU to do more things than gaming and workstations. And then it just kept getting bigger. You had machine learning that kicked off about a decade ago, and then Generative AI, which kicked off about three years ago. And now everybody has fomo, the hyperscalers, whether it's Amazon, Google, Meta, and Microsoft, just literally buying billions and dollars each of GPUs to feed these data centers. And I think you know, a lot of this is from management style. I know, Scott, in your program, you talk about this a lot. Jensen has 40 direct reports. And it's a very command and control type of leadership. They stick to the vision. And that's one of the benefits of Having a founder, CEO led tech company is, you're not necessarily, I don't want to say distracted by investors because they're super important, but you're not like a Mark Zuckerberg. You're not just ebbing and flowing with the whims of Wall Street. And the final thing they've done is it's not just the heart rate, it's the software. I would say, I would pause that. They have a bigger software lock in with Cuda and then all the different applications and the frameworks and the ML libraries that get laid on top as they do on the hardware side. And then Nvidia just doesn't sell chips. It actually sells the board that the chip goes on. It sells the rack that goes into the data center. It'll sell you an entire rack of equipment and the networking and the cables to go along with that. So they, they're doing horizontal and vertical integration to build the moats because they do know, and we, we've seen this historically, somebody can always build a better mousetrap, somebody can always build a better piece of hardware. But if you have that software lock in, you have some elements of, I want to say, permanence. There's no permanence in tech, but you have a longer lasting advantage.

[Ed Mylett]

Stay with us.

[IBM Representative]

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[Polestar Representative]

Support for the show comes from Polestar. Innovation is at the heart of every Polestar car and their SUV. Polestar 3 is no different from the intuitive infotainment system to its head turning design. Polestar 3 is for drivers unwilling to compromise. That means merging a spacious, comfortable interior with the torque and handling of a sports car. Now you can go from 0 to 60 in as little as 4.8 seconds and get an EPA estimated range of up to 350 miles per charge. Polestar 3 even allows the driver to optimize the powertrain between performance and range mode, depending on your drive's needs. Experience an uncluttered dashboard showing you everything you want to know and nothing you don't. The innovation doesn't stop there because you can just have Google turn on your favorite podcast and be immersed in 3D sound by Bowers and Wilkins. Polestar has put in the time designing and refining Polestar 3, and that means the time you spend in it will be the best time of your day. Book a test [e-mail].

[Ed Mylett]

We'Re back with Profg Markets.

[Scott Galloway]

So it appears that traditionally in the 20th century, whoever controlled the flow of oil was geopolitically had just an enormous leverage. And now it feels as if chips are sort of the new fossil fuels, that whoever controls or has access to the best chips just has a step change advantage over our adversaries. And I would love to just get your sense of who's winning and losing the chip wars on a geopolitical level. It feels like we're just kicking ass.

[Patrick Moorhead]

Yeah. So Scott, from a design basis, we're absolutely kicking butt and taking names. If you look at the big designer names, they're typically US Base. We are losing woefully on the manufacturing side. Only roughly 5% of semiconductor manufacturing is in the United States and the other 95% is abroad. Most shipmaking is happening in Taiwan where you have Chinese warships circling and flybys, flyovers by the air Force, and then in South Korea. That's cannon shot from North Korea of two very risky places. And this is the genes and driver for the chips act. And that's where all this government investment is coming from. But Scott, China's very resilient. We cut them off from this special EUV equipment from a Dutch company called asml. And what they did on the smartphone side is they just got very clever and used, I don't want to call an off brand foundry in China called SMIC and then an AI, Scott, you have Huawei creating these AI chips called Ascend and they were using lower level GPUs, just more of them and training these models. So yeah, I mean, we are dominating now, Scott, but you give China enough time and we've seen they will figure this out at some point.

[Scott Galloway]

I'm always trying to look for the investment opportunity and I'm like, okay, I missed Nvidia. Maybe I didn't. Maybe it'll go to 10 trillion. And then I look at intel and think, okay, they've got to have some IP there and the valuation has been beaten down so heavily. Maybe that's the opportunity. And then I go, well actually the friction point in all of this is energy consumption and I should be investing in nuclear, the suppliers to nuclear. What are your thoughts about the supply chain here and who stands to benefit? And if you're willing, I don't know. If you do this, set it against the current market capitalizations of those firms.

[Patrick Moorhead]

Fusion, if you're looking for the long bet, is something that I would be looking at. The other thing is on the design side. So when we started the show I talked about GPUs being kind of in the middle of programmability. CPUs on the left and these Asics on the right. The hyperscalers are getting into these ASICS to train and do inference on AI. And the two companies that are the biggest provider of those, a company called Marvell and a company called Broadcom, I would be looking at them because we can't just solve this by throwing more energy at it. We have to solve part of this problem with design and lower power. I know you brought up Intel. I actually think, I mean intel is so undervalued right now. They're basically around book value. I do believe the only way they have to go is up. I think they're too big to fail. I like what I see on the manufacturing roadmap from them. They just cranked out two new chips on this new process called 18A and they're just woefully undervalued at this point.

[Ed Mylett]

Just from an investing perspective. I feel like in a market that is as technical as this, all you can really do, in my view, if you're choosing which chip company should I invest in, I imagine it basically comes down to who has the fastest and the smartest and the most efficient chips. And I think it's very tough as just an observer of markets and as a regular investor to have real insight into that other than just taking these companies messages at their word for it. Our chip is 10 times faster than Nvidia's. That to me is like, okay, great, I'm down. I'd just love to get your view as an analyst in this sector. How do you actually analyze what the strengths and weaknesses are of these different companies without just trusting what they tell you?

[Patrick Moorhead]

Yeah, I mean I'm literally in the business of cutting through the BS and I take more of a longer term analysis and what I look at are moats and not that everything they did in the past, it's a prediction of the future. But when it comes to execution capability, it's a really darn easy way. I think it's the easiest way to figure it out. And I think looking at pe, a forward PE and PE ratios are great to look at. Some people say that Nvidia is colossally overvalued. But if you look at their PE and what they're doing, it's like, that's not bad. And then you think about the forward PE chips. You know, I take the claims that they make, the roadmaps that they have. I talked to almost all of their customers, right, talk to almost all of Nvidia's largest customers and intel and Broadcom and Marvell and Microsoft and piece together their claims versus what I think the reality is. And you know, these companies aren't giving investors the long term view because they don't have to, because most investors only go out to maybe 18 months. Now one thing that we all need to recognize about this AI phenomena is the market is growing, right? This isn't even necessarily about share shift. What I think I can tell you is Nvidia will lose market share. But you know what, it doesn't matter because the market is growing at a much higher rate that offsets any type of share shift to, let's say, AMD or these homegrown chips from the hyperscalers.

[Ed Mylett]

A slightly more bearish thesis. I just want to get your reaction to last week. We saw these earnings from ASML which you pointed out, which is sort of of doing the lithography for the chips themselves. And they had a sort of not that great quarter and the stock tanked and it brought down all these other chip stocks with it. And then a couple months ago when Nvidia reported earnings, they had a pretty decent quarter, but maybe not as magnificent as people hoped. And a very similar thing happened. The stock came down and so did the rest of the chip stock market. And, and I have concerns as an investor about what is going to happen when one day a large chip maker says we're seeing a softness, we're seeing a reduction in demand and how that is going to affect valuations in the chip market at large. Because what I'm seeing is that these valuations are very high, but also at the same time highly unstable. They seem to react very erratically to even the smallest indications of softness.

[Patrick Moorhead]

And let me hit ASML first. ASML was a really easy one. It was one customer, it was Samsung, who's having issues with getting what's called 2 nanometer process out. And they Delayed and canceled some orders. That's it. AI was up and at one customer. When you have so few chip makers out there, can cause everybody to domino. And when it comes to Nvidia.

[Ed Mylett]

You.

[Patrick Moorhead]

Saw a ton of volatility once the stock did the big split. So you had a lot of retail investors who came in which added just a ton of volatility. And they, some of these people make so much money on the run up, they're looking for any reason to potentially sell. But what we've seen with Nvidia is we said the same thing when they were at 1 trillion and then 2 trillion and then 3 trillion and then here we are at 3.5. Now I think what everybody should be looking at is when do the other stocks move with it? Right. There's been stocks that have been related to Nvidia that have gone up like the Broadcoms, the Marvells, the AMD's, the two markets that haven't gone up at all that I think are huge opportunities. And I know you brought up the risk and here I am talking about opportunity. But the smart, any chip maker who's in the PC market or the smartphone market, right. Smartphone market has been in decline. Flatline PCs weren't doing really well once those new AI capabilities hit from the operating system. I believe that AI and the Edge will keep moving up. These big name stocks, these data center stocks I am very comfortable with. The only thing that would throw me off of that if let's say Microsoft, Google, Meta, their investors cried foul on capital expenditures because right now all these companies have AI, FOMO and they keep buying all of this data center equipment to stand up these LLMs because they view this as a kind of once in a decade opportunity for growth and share shift.

[Scott Galloway]

So just as we wrap up here, Patrick, it strikes me a lot of young people specifically or a lot of young men listening to this podcast and they're thinking about where they allocate or invest their finite human capital. Like what industry do I want to be in? And I keep reading reports that production for media companies in Los angeles is down 40%. It's just a meltdown. I'm getting calls from friends, the media industry saying, hey, I'm thinking about switching industries. It strikes me that a pretty good long term bet, no one has a crystal ball over the next 10, 20, 30 years is chips. It feels like that is a good sector to maybe allocate your human capital. What advice would you have for young people thinking I want to get into this industry. What types of skills what types of jobs? Is it just be an engineer? Is it on the business side? Is it on the marketing side? One, do you agree that it's a good industry? And I think that's going to be an easy one. And two, what advice would you have for a young person thinking I want to position myself to be attractive to this industry and break in?

[Patrick Moorhead]

Yeah. So first off, Scott, I just want to acknowledge all the great stuff you do for helping young people. You give them the advice that it seems like other people are afraid to give and it's tough right out there. And I think, yeah, thank you for doing that. So looking at semiconductors, there's at least 10 to 15 years left. And I'm just saying that as a hedge of I always thought semiconductors were cool, but I could be biased. But then they got really hot when the stock market took off. There's different jobs you can have. You can be on the hardware side, meaning you can design these chips with the software that I talked about. You can test those chips. The semiconductor game is probably 50% software now and 50% hardware. At Nvidia, it's more like 70 software, 30% hardware where you can write code, you can architect code, you can test code. And the amount of jobs, even though we see a bunch of layoffs that are going out there in the overall tech, the semiconductor industry is a net job adder and it pays so well. Semiconductor pays almost the best of any industry out there, aside for the, you know, Maybe the non mag 7 chip companies like Microsoft and Google.

[Scott Galloway]

Patrick Moorhead is the founder, CEO and chief strategist of More Insights and Strategy, a global technology analyst and advisory firm. He is a top ranked tech analyst, a contributor at Forbes and frequently appears on CNBC and Yahoo Finance. Patrick, an interesting conversation on an important topic. Appreciate your time.

[Patrick Moorhead]

Thank you so much and keep up the good work, guys. Appreciate that.

[Ed Mylett]

Thanks Patrick.

[Scott Galloway]

Thanks, Patrick.

[Ed Mylett]

Algebra of wealth Scott, Patrick said one of the reasons he thinks Nvidia is so successful is because it doesn't ebb and flow with the winds of Wall Street. It's not so focused on just pleasing its investors. I'd like to get your take. Do you agree with that philosophy or do you think it's more important to focus on keeping your shareholders happy?

[Scott Galloway]

That's the right philosophy. Because if you think about, I mean the CEOs who have been most successful have been. Look at the CEOs of Netflix and Amazon and Jensen and we talked about Jensen. So let's talk about Amazon and Netflix. Netflix took out debt borrowed money such that they could, you know, if you will, overwhelm the competition with gasoline, just have more and more content than anyone. They just, they, they adopted the Amazon strategy and said, we're just going to produce so much more content and quality content by globalizing it being very cost conscious, but we're just going to overwhelm the competition and we're going to actually go out. And despite the fact we already have good cash flows and equity, we're going to borrow billions of dollars. And a lot of analysts said that is not a good idea. You're being reckless. Amazon was always, yeah, I could show more profits. I'm sure the market would like it in the short run. I'm not going to buckle up if you don't want to be in a company that's losing a shit ton of money and that a lot of analysts are going to say we're going out of business. A lot of analysts in 99 said in the 90s, said this company is an obvious bankruptcy because it's losing so much money. The reason why I have never built, I think a big business is that I come from this very old school of within 6 or 12 months you need to be profitable. I was never confident, I never had the confidence to go really big. And looking back, I think the difference between creating a company that got my companies did well, but the reason I was never able to build a billion dollar company is I was probably too focused on shareholder value and profits. And these guys had the vision to say, I don't really care what my investors want in the short term, I have a vision, I have access to the capital and it might make my investors nervous, my stock might get hit. We are going deep into the pain here. We don't care what you think. This is the strategy.

[Ed Mylett]

This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Jessica Lang is our research associate. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Profgue Markets from the Vox Media podcast network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

[Polestar Representative]

In kind reunion.

[Scott Galloway]

As the world.