AI Could Turn Software Into “Dumb Data Pipes” | Dom Rizzo

Summary

The Master Investor Podcast with Wilfred Frost
Episode: AI Could Turn Software Into “Dumb Data Pipes” | Dom Rizzo
Date: June 8, 2026

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Episode Overview

In this episode, host Wilfred Frost sits down with Dominic Rizzo, portfolio manager of the $8.7bn Global Technology Fund at T. Rowe Price, to discuss the seismic effects of artificial intelligence (AI) on the software and semiconductor industries. Rizzo shares his investing framework, the case for ongoing capital expenditure ("capex boom") driven by AI, the changing fortunes of software companies, how semiconductors are shaping up as the new linchpins of value, and his views on the upcoming wave of mega-IPOs, including SpaceX and Anthropic. Throughout, Rizzo offers candid insights on market cycles, AI's transformative power, and the necessity of both hard work and luck in investment success.

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Key Discussion Points & Insights

1. Dominic Rizzo’s Track Record and Early Call on AI (03:00–04:36)

• Rizzo became lead on the Global Technology Fund at T. Rowe Price the day after ChatGPT launched (Dec 1, 2022).
• His background in semiconductors positioned him to recognize and bet early on the AI and semi trade.
• “It became pretty clear that AI could be this incredible productivity cycle. And productivity cycles come with speculative bubbles inherently … Electricity, Internet, trains, railroads. Our job is to navigate that responsibly for our clients.” (03:37)

2. Where Are We In the AI Cycle? (06:35–08:28)

• Rizzo likens AI’s impact to electricity, potentially driving sustained high productivity and growth.
• Capex cycles in pursuit of AI productivity are in “inning 4 or 5” of a 9-inning baseball game: not at the beginning, not at the end.
• “AI has the potential to be the biggest productivity enhancer for the global economy since electricity. And electricity roughly added 1% a year to global GDP growth every year for 32 years. I think AI is already smashing that.” (06:45)

3. The Rise of Agentic AI and Market Implications (09:29–11:47)

• Shift from generative AI (asking chatbots for info) to agentic AI (delegating tasks to AI agents).
• Agentic AI changes compute architecture requirements—CPUs are becoming as mission-critical as GPUs.
• “With agentic, the big difference is the model can now go do tasks on your behalf. So it’s not just about raw intelligence, but task completion.” (09:29)
• AI companies are now charging for enterprise usage, not just consumer subscriptions, opening huge monetization and advertising potential especially for OpenAI.

4. Rizzo’s Four-Part Investment Framework (11:58–13:40)

1. Linchpin Technologies: Mission-critical, “cannot-run-without” vendors in secular growth markets.
2. Innovating in Secular Growth Markets: Taking share where markets are expanding fast (e.g., AI chips).
3. Improving Fundamentals: Revenue and margins accelerating, free cash flow improving.
4. Reasonable Valuation: Avoiding overpaying for hype (e.g., 2021 software) or broken value traps.

• “Good authors borrow, great authors steal. … I ended up developing this [framework] by frankly stealing great parts of other people’s framework at T. Rowe.” (11:58)

5. Why He’s Been Bearish on Software and Bullish on Semis (14:35–16:30)

• AI is a horizontal technology that attacks software’s zero marginal cost, commoditizing it.
• “The software companies frankly got fat and happy. … All of a sudden you have this new technology and AI that not only gives the user a wonderful experience, but could sit on top of the enterprise software stack. ... ChatGPT and Claude … will end up sitting on top of basically the entire enterprise software stack and almost everything else will end up being a dumb data pipe into those two.” (00:00, repeated at 16:10)
• Predicts daily workflows will begin with ChatGPT/Claude, not Microsoft Word or Outlook.
• Only software firms with usage-based models and strong AI integration will thrive.

6. Incumbents’ Response and Enterprise IT Dynamics (17:14–21:17)

• Microsoft still well-positioned because of Azure, but faces new trade-offs on capex across cloud and app businesses.
• AI rewards the most intelligent organizations and workers; “returns to intelligence are almost unlimited.”
• “If you give your best people the best tools … why would you not be willing to spend tens of thousands of dollars on leading edge intelligence?” (18:10)
• Salesforce, unlike Microsoft, is more vulnerable as its product is easily “aggregated” by next-gen AI assistants.

7. Semiconductors: The New Linchpins (22:06–27:59)

• Rizzo, a former semiconductor analyst, remains bullish on Nvidia (consistently biggest position), AMD, Intel, and ARM.
• Shift from GPU-centric to CPU-GPU parity in agentic AI workloads.
• “The way to think about Nvidia is not as a chip company, but a systems company.” (26:12)
• ARM’s advantage: low-power CPU architecture positions them well for new agentic, AI-driven data centers.
• “Vera Rubin, Nvidia’s new system, Vera being their CPU and Vera CPU is built on top of Arm. … The current best [acquisition] is probably when Jensen bought Mellanox, the networking company.” (23:08, 28:00)

8. Memory: Commodity but Essential (31:11–34:37)

• Only three companies can make top-tier DRAM (Samsung, Hynix, Micron). In agentic systems, memory demand has exploded 5–10x.
• Market has swung from oversupplied to undersupplied, resulting in massive revenue/profit growth.
• “You can literally go pull out a Samsung chip, plug in a Micron chip and the system will work perfectly. … This commodity is the hardest commodity in the world to make.” (31:11)
• Korean memory stocks trading at only 4–5x earnings, but fundamentals expected to decelerate ahead.

9. Capex Boom and The “Compute Equals Revenue” Thesis (00:00, 01:14, 37:25–40:12)

• The sustainability of the capex boom is supported by huge ongoing equity raises (e.g., Google).
• “Compute equals revenue. Compute equals revenue.” (Multiple: 00:00, 01:14, 39:15)
• The thesis could unravel if cheaper, nearly-as-good open-source models get broad adoption—but as long as “scaling laws” hold and intelligence tasks grow, demand for leading-edge compute will remain robust.

10. Upcoming Mega-IPOs: SpaceX, Anthropic, OpenAI (47:18–53:54)

• SpaceX’s business prospects are bullish—dominance in launches, opportunity in global connectivity (Starlink), and a potentially major role in agentic AI via XAI.
• Active IPO pipeline puts pressure on passive index flows: “The magnitude of these IPOs … they’re insanely large.”
• OpenAI and Anthropic are each at ~10x revenue multiples—expensive, but perhaps justifiable due to explosive topline growth.
• “The US capital markets are just unbelievably deep, aren’t they? … It talks a lot about the U.S. system.” (53:54)

11. Valuation Landscape: Semis vs. Software (54:07–55:48)

• Both sectors trade at mid-20s earnings multiples, but semis now fetch higher sales multiples due to margin expansion.
• Mag 7 tech stocks trade at cheaper PEG ratios than the rest of the market.
• “What I find so interesting right now is that the Mag 7 actually trade at a cheaper PEG ratio than the rest of the market.” (54:19)
• Momentum reversals (from semis to software) are possible, but current valuations are not stretched in his view.

12. Final Investment Advice (56:11–57:47)

• Rizzo’s three closing lessons:
  1. Find a framework that matches your personality (“…my framework and I are aligned. Right? Linchpin Technologies. Innovating in secular growth markets. Improving fundamentals, reasonable valuations.”)
  2. Work relentlessly hard (“This is a business where people have won Nobel Prizes saying what you do for a living is impossible…”)
  3. Get a little lucky (“You have to get lucky. And hopefully that extends to personal life.”)

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Notable Quotes & Memorable Moments

• Rizzo on the future of software:
  “ChatGPT and Claude … will end up sitting on top of basically the entire enterprise software stack and almost everything else will end up being a dumb data pipe into those two.” (00:00, 16:10)
• On the return of speculative cycles:
  “Productivity cycles come with speculative bubbles inherently … electricity, Internet, trains, railroads. Our job is to navigate that responsibly for our clients.” (03:37)
• On the capex arms race:
  “Because we've learned time and time again, compute equals revenue. I'm going to say it again because it's so important. Compute equals revenue. Compute equals revenue.” (01:14, 39:15)
• On semiconductors’ new status:
  “The way to think about Nvidia is not as a chip company, but a systems company.” (26:12)
• On memory’s paradox:
  “You can literally go pull out a Samsung chip, plug in a Micron chip and the system will work perfectly. … This commodity is the hardest commodity in the world to make.” (31:11)
• On sticking to process:
  “Focus on improving fundamentals, focus on the technology excellence, focus on the management teams, don't focus on the technical dynamics of the market.” (35:01)
• On valuation relativity:
  “What I find so interesting right now is that the Mag 7 actually trade at a cheaper PEG ratio than the rest of the market.” (54:19)
• On luck in investing:
  “You gotta get a little lucky. … Sulla felix—Sulla, the fortunate one.” (56:15)

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Timestamps for Key Segments

• 00:00 | Rizzo’s view: Software commoditization and the AI “dumb data pipe” thesis
• 03:00 | How Rizzo’s timing and career background led to early AI bets
• 06:45 | AI as a productivity revolution and the capex investment “game”
• 09:29 | From generative to agentic AI; implications for compute and investing
• 11:58 | Rizzo’s four-part investment framework
• 14:35 | Why he’s been underweight software, overweight semiconductors
• 22:06 | Deep dive: Semiconductors, Nvidia, CPUs vs. GPUs, ARM’s emergence
• 31:11 | Memory’s role and extraordinary recent returns
• 37:25 | The sustainability of the capex boom; Google’s equity raise
• 41:39 | Testing the ‘compute equals revenue’ thesis
• 47:18 | Mega-IPOs: SpaceX, Anthropic, OpenAI, and market structure impact
• 54:07 | Valuation comparison: semis, software, and the Mag 7
• 56:11 | Rizzo’s three pieces of closing advice

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Summary

Dominic Rizzo offers a compelling, data-rich perspective on the new era of technology investing. He articulates why semiconductors—not software—are at the center of this AI-driven cycle, while traditional enterprise software faces existential risk of becoming "dumb data pipes" for AI platforms like ChatGPT and Claude. His investment process is methodical, rooted in identifying linchpin technologies, secular growers, and improving fundamentals at rational prices. He tempers his bullish outlook with awareness of both market cycles and the ever-present role of luck. The episode is a must-listen (or must-read) for investors seeking to understand the shifting tectonics beneath tech markets in the age of AI.

Transcript

[Dominic Rizzo]

I think the software companies frankly got fat and happy. They had this beautiful business model, highly recurring low churn that allowed them to focus on raising prices and overselling seats. Right? And all of a sudden you have this new technology and AI that not only gives the user a wonderful experience, but could sit on top of the enterprise software stack. I think what will happen over time is ChatGPT and Claude, specifically those two will end up sitting, sitting on top of basically the entire enterprise software stack and almost everything else will end up being a dumb data pipe into those two. So you wake up every day and you start your day with ChatGPT or Claude. You don't start your day in Microsoft Word or Outlook or any of these other historically really important applications. The market is debating is the capex boom sustainable? And I think that's why this Google event of raising. This is the third most profitable company in the world raising equity capital. This is not, you know, some small cap. This is the third most profitable company in the world raising equity capital.

[Moff]

Which tells you what? That the capex boom's continuing?

[Dominic Rizzo]

Yeah, I think so. But I do think we're at this unique period of time where the game theory is who's going to spend the capital and why is that the case? Because we've learned time and time again, compute equals revenue. I'm going to say it again because it's so important. Compute equals revenue. Compute equals revenue.

[Wilfred Frost]

Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the

[Moff]

world, giving you, our listeners, the edge.

[Wilfred Frost]

The Master Investor Podcast is sponsored by Elseguard Interactive Brokers, the World Gold Council and BNY Investments. Please do remember, the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes.

[Moff]

My guest today is Dominic Rizzo.

[Wilfred Frost]

He's the portfolio manager of the $8.7

[Moff]

billion company Global Technology Fund at T Rowe Price. The ticker is prgtx. The performance since he took over leadership of the fund on 1st December 2022

[Wilfred Frost]

has been outstanding, up 43.6% per annum.

[Moff]

That's outperforming the benchmark by 5% per annum. He also manages their $300 million TTEQ ETF, which has strong performance as well since its more recent inception in October 2024.

[Wilfred Frost]

Dom, welcome to the Master Investor Podcast. Great to see you.

[Dominic Rizzo]

Yeah, great to see you. Well, thanks for having me.

[Wilfred Frost]

That performance.

[Moff]

I just want to Dwell on it as we kick things off. The numbers obviously speak for themselves. Very impressive outperformance. 5% per annum is stuff that people dream of delivering.

[Wilfred Frost]

But also the absolute performance has been fantastic, which I guess speaks a little bit as well to.

[Moff]

To good timing and the great tech bull run we've had of recent years.

[Dominic Rizzo]

Yeah. So part of it's clearly timing. Right. So if you think about my start date is December 1, 2022. It's lucky timing. It's the day after ChatGPT launched. Right.

[Moff]

I actually hadn't really realized that when I put the question together.

[Dominic Rizzo]

Yeah. November 30th, 2022 is the day of the ChatGPT launch. And here I am, lucky enough to have covered semiconductors for basically my entire career at t row. Right. 2015, I was given small cap semis because no one wanted to cover them. And then 2018 moved over to Europe, took over our European technology role, and then in 2022 took over the global technology strategy. And that when combined with our framework, which I'm sure we're going to get into, led us to be early. Right. And in size to the AI and semi trade. I love economic history. It's one of my favorite subjects. And it became pretty clear that AI could be this incredible productivity cycle. And productivity cycles come with speculative bubbles inherently. Right. Electricity, Internet, trains, railroads. Our job is to navigate that responsibly for our clients. So fortunately we've been early. Right. In insize now. And now the game's still going and we're going to keep trying to navigate that responsibly for our clients.

[Wilfred Frost]

And just dwelling on the performance a

[Moff]

little bit more because I kind of paused, I thought 44% per annum and only 5% ahead because your benchmark is not the QQQ, it's the MSCI all country world. It, which we were just discussing, has been quite far ahead of the US NASDAQ during that period of time.

[Dominic Rizzo]

Yeah, I think NASDAQ over that time is up 31% a year or something along those lines.

[Moff]

So you're way ahead of that.

[Dominic Rizzo]

Well, so, you know, I think a couple things when I take a step back, I think we were really early to this concept of parallelism being very important for training in AI. And that led to, you know, you know, a sizable investment in Nvidia, which in hindsight obviously was right. I think we've navigated the different trends in AI quite well, whether it's the rise of memory optics, agentic CPUs, we're fairly early to the rise of OpenAI and anthropic as well. When I did the Anthropic round last summer in the global technology strategy, they were just doing $5 billion of run rate revenue. They've now announced they're doing 47 billion of run rate revenue just nine months later. So this has been such an exciting time and I'm just so grateful to be at a platform like T row where I'm given the resources to try to consistently outperform, to have a great team. And then I think a lot of it's the framework and that's the thing that can help us navigate hopefully the up markets and the potential down markets along the way.

[Moff]

So I want to get into the framework, I want to get in as well later to anthropic and SpaceX, the sort of big IPOs that are coming. Because as you mentioned there, you do have a private market investment in one of those, in Anthropic. But first let's just do big picture. And coming off the back of that

[Wilfred Frost]

performance,

[Moff]

where are we in the AI cycle? I mean clearly you got ahead of the curve. Are we still early on that curve? Middle, late in your view?

[Dominic Rizzo]

Well, let's. I said I love economic history. I did a year at the London School of Economics. Let's kind of put it in economic history terms. I think AI has the potential to be the biggest productivity enhancer for the global economy since electricity. And electricity roughly added 1% a year to global GDP growth every year for 32 years. I think AI is already smashing that. I think there's a world where we see mid to high single digit growth out of the United States consistently because of AI. Nominal, not real. And why is that? There's three factors that drive economic growth. Solo economic growth model. There's capital, there's labor and there's productivity. And so AI is this massive productivity surge. Productivity surges come with capex cycles. People chase the productivity surge and they get so excited and inevitably they overspend. And the question people always ask me, have we overspent yet? I don't think we've overspent yet. To use an American analogy, you know baseball, there's nine innings in a baseball game. I think in the capex cycle we may be in inning four or inning five. So we're not at the beginning of the game. We're not at the end of the game either. It's not quite the beginning of the end. Right. But there's a whole nother game which will be what happens when the capex cycle. Corrects and how do we navigate that? So I think this capex cycle can keep going and I actually think we got a pretty strong sign of that this week with Google raising $85 billion or equity or whatever the number ended up being.

[Moff]

So I guess clearly the AI theme for the public took off the day before you took over the fund. ChatGPT was what kind of pushed it into the public mindset. You said you've been really good at navigating the kind of more recent step ups. And as I look at, I think the two big moments in the last sort of few quarters have come from AI companies shifting to serving enterprise much more than those large language models that in late 2022 consumers became aware of and using. And secondly shifting to charging for usage. You know, the amount of tokens being used pay a lot more. Rather than just all of us paying £20amonth just to be able to ask whatever question we want on a whim. Is that a fair summary of the most important themes of the last few months, the last year and what are you looking ahead to to be the next short term AI theme?

[Dominic Rizzo]

So the last few months Dan Niles actually talked about this on your pod. I thought he did a wonderful job explaining agentic computing. And what's the difference between just traditional gen AI and agentic computing? Gen AI with a chatbot, you just ask questions to ChatGPT or Gemini or Claude and it gives you answers back. And that's useful. £20amonth useful. I think that's roughly how much I think over time there's a huge advertising opportunity there and we should talk about that and why OpenAI specifically is very well positioned for that 900 million monthly active users. How well they know you. I think they're going to have a home run advertising capability over time. But with agentic, the big difference is the model can now go do tasks on your behalf. So it's not just about raw intelligence, but task completion. And the first use case of task completion was writing code, generating code. And I remember meeting Dario three years ago in this little San Francisco office. Now they have these big beautiful and there was a very strong focus on the company on two things. One, chasing the scaling loss and two, understanding co generation. Because co generation is what unlocks the ability for the model to go do tasks for you agentically. And that results in different types of compute that's needed. So in a training world, the GPU to CPU ratio is 8 to 1. 8 GPUs for every 1 CPU. As we go to an agentic world, that ratio becomes parity one to one, if not two to one, the other direction, two CPUs for every one GPU. And you know, that's why since the beginning of the year our largest bets have been AMD and Intel are two of our largest bets. So I think there's different elements that become more important. And then what you see in the market is the market chases the bottlenecks. Right? Where's the next tightness? You want to be careful just chasing the bottlenecks. What you really want to do is understand who's going to be able to accrue economic value over the next 18 to 36 months. And that's where I really focus on trying to find these linchpin technologies, the ones that are mission critical to the success of their customers.

[Moff]

So let's touch on that then your investment process and specifically when you are trying to pick a theme or much more importantly the final stock, what are the key things you look out for?

[Dominic Rizzo]

Yeah, so there's four things we look for and I developed this as an analyst. I'm really lucky I got to cover hardware, software, payments, us, Europe, Asia, small cap, Mid cap, large cap, Megan cap. So you need a framework that could do that. I ended up developing this by frankly stealing great parts of other people's framework at trow. And so TS Eliot is this great line. Good authors borrow, great authors steal. I think that's the same way with developing your investment framework. Go look around, see smart people around you and try to take the good parts that resonate with you. So there's four parts to my framework. There's linchpin technologies looking for companies that sell mission critical technologies, innovating in secular growth markets, taking share in fast growing end markets. One reason we were so early right at insize to AI and semis is we saw AI chips going from $45 billion in 2023 to a trillion dollars in 2030 because of the chip intensity of of AI. Right. Third, probably most important for buying and selling is improving fundamentals. So that's revenue that's accelerating, growing faster than you did over the next 12 months, than you did in the last 12 months. Operating margins that are expanding or free cash flow conversion that's improving. And finally you want to make sure you pay a reasonable valuation. The way you get pat earned in tech I think is you pay way too high of a valuation and you can't compound from there. So 2021 software stocks is a great example. Or you buy a broken company and it's way too it's cheap and it's cheap for a reason. So I just want to pay a reasonable valuation.

[Wilfred Frost]

This episode is sponsored by the World Gold Council, the global experts on gold. They champion gold as a trusted strategic asset, provided market leading research to help investors understand gold's role and modernize how gold is owned, traded and used. Developing industry standards and market infrastructure. Learn [e-mail] this episode is sponsored by Interactive Brokers. Building wealth starts with the right broker and Interactive Brokers helps you reach your goals with powerful tools, global market access, low costs and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at ibkr.com masterinvestor.

[Moff]

So why don't we dwell on software stocks then before going into semis? And you've been bearish software stocks for a few years.

[Dominic Rizzo]

There's pockets that you can play, but broadly speaking, we've owned far more semis than software. Yeah.

[Moff]

And just expand. Why? Did you correctly see that?

[Dominic Rizzo]

Yeah. So a couple different elements. So number one, AI is a horizontal technology. And what does that mean? That means it's going to apply to every element of every use case and the area it's going to attack first is zero incremental cost products like software. Right. And I think what's happening in the enterprise is because you've had this magical ChatGPT experience, your tolerance for crappy software has gone down. How many times have you had this experience with your enterprise software? It's just terrible. Right. I think the software companies frankly got fat and happy. They had this beautiful business model, highly recurring low churn that allowed them to focus on raising prices and overselling seats. Right. And all of a sudden you have this new technology and AI that not only gives the user a wonderful experience, but could sit on top of the enterprise software stack. So truly aggregate enterprise software, which we haven't had in the enterprise, we've had it in consumer. Right. We've had aggregators in consumer, Google and Meta being the two most famous. But I think what will happen over time is ChatGPT and Claude, specifically those two will end up sitting on top of basically the entire enterprise software stack and almost everything else will end up being a dumb data pipe into those two. So you wake up every day and you start your day with ChatGPT or Claude. You don't start your day in Microsoft Word or Outlook or any of these other historically really important applications.

[Moff]

That's really interesting because I was going to ask with the growth area, I guess the important revenue area being Enterprise sales as opposed to individual sales, the ability for companies or the likelihood for companies to switch across in any kind of speedy way. I think of this at sky and Comcast, the parent company where I work the day job. It's a Microsoft company. Everything's a nightmare. Logging in on it, it's not going to move anytime soon. And then you think of which company we're talking about Microsoft. They're pretty innovative, they've got a bit of Runway, they're plugged into lots of these AI companies. I guess the pushback would be can they not adapt?

[Dominic Rizzo]

Yeah. So let's go through Microsoft specifically. So Microsoft, basically you can think about it in two businesses. You have the cloud business and you have the application software business. There's a lot more underneath it. But just for ease of use, the cloud business, they're very well positioned. Microsoft Azure grew 40% year over year last quarter. They are making this trade off because they took their foot off the accelerator on the CapEx budget between their products business, their first party applications business and their cloud business. So where do the GPUs go? Really hard question because they have to defend their core. Which is what? Which is Copilot, Word, Excel teams. And they have a lot of really nice applications that if they could get that knowledge graph working together, I think they can provide a good enough solution for most people. And they'll probably deliver that through Copilot or they have a product called Cowork now where they're just white labeling anthropic, but it will be good enough for most people. The issue I think is AI is not a normal technology. What is AI? AI is intelligence. And I think in most organizations around the world, 20% of the people probably do 80% of the work already. What I tell my team all the time, be in that 20%, make sure. I think that the returns to intelligence are almost unlimited. I don't think they're unlimited, but they're very, very high. And so if you give your best people the best tools and you're willing to spend tens of thousands of dollars on them already for travel, our case research tools, why would you not be willing to spend tens of thousand dollars on leading edge intelligence? Our job is intelligence. Effectively. I think that Microsoft has a potential to be a good enough solution for most people and that's okay. And their positioning's okay. But take something like a Salesforce. Salesforce is very different or a workday. Any salesperson who's been on this call hates interacting with Salesforce. They absolutely hate it. It's a terrible user experience. And all Salesforce really is at the end is a database of your customer relationship management. Right? It's when did you talk to your customer last? What did you talk about? Why did you talk about what you did that can be delivered through ChatGPT and a really nice, easy, sleek user experience. Every time I meet a client, it can say, hey, this is the last time you met them. This is what you talked about. You talked about your semis versus software thesis. So there's this fundamental change that's happening combined with there's a business model change that's happening. You're going from this we have a PM internally, Dave Israel, who likes to say if you grew up covering semis, you grew up in Sparta and if you grew up covering software, you grew up in Athens. You live this delicate life, nice and easy in software and Internet land because software is recurring revenue. Recurring revenue is easy, right? Especially if your net retention is high Semis, you have to fight it out every day. Well, guess what? Now it's not just recurring revenue. You have to go fight every day to make sure you're in the token path, make sure that your usage aligns with your revenue. And there's only a few software companies that are already usage based. So there's a business model change, there's a technology change, and then there's a crowding out effect. So this is the last bit on software. $45 billion of recurring run rate revenue. That money's coming from somewhere. There's only so much in the IT budget. And the question going forward is, is Salesforce a 7% growth company that's going to 3 or is it a 7% growth company that's Going to 10? Right? Benioff is trying to do everything he can to get it back to 10. If you made me wager, I'd say it's probably going to. The growth rate decelerates from here, not accelerates.

[Moff]

I mean, I always think when things turn seven to three can go the other way altogether. But I'm not talking about Salesforce specifically, by the way, as a counterpoint to the software thesis in general. And as it happens, Microsoft and Salesforce. I refer people back to our episode with Mason Morfit, the CEO of Value at Capital from January or so this year, which he's a bull on both of those and made a very good case.

[Dominic Rizzo]

Great episode. Great episode.

[Moff]

Well, thank you.

[Wilfred Frost]

Hi guys, it's Wilf. I hope you're enjoying this episode. Just a quick reminder to please hit follow or subscribe on your podcast or

[Moff]

video app so that you never miss an episode.

[Wilfred Frost]

And if you've got time, please do give us a five star rating and leave us a comment. It really helps other people find the podcast too. Now back to the episode.

[Moff]

Let's talk about Semis, because as you said, you were specifically a Semis analyst, you grew up in Sparta, as you just said, and obviously have been right and ahead on understanding a lot of the pie would go in that direction.

[Wilfred Frost]

Is Nvidia still the name, the number

[Moff]

one, am I right? It's 18% of the fund, so strategies

[Dominic Rizzo]

vary kind of depending on around the world, but it's consistently the largest position.

[Moff]

And you mentioned there, and we discussed this with Dan Niles a few weeks ago, the shift from GPUs being in the most prominent kind of demand to CPUs, he kind of framed that, I think as saying it's not bad for Nvidia, but it doesn't make them the number one in the same way. How do you frame that?

[Dominic Rizzo]

So like you said, first off, I'm so lucky to have covered this space for the past 10 years. One of my first meetings with Lisa Sudden AMD was a $2 billion market cap.

[Moff]

What is it now?

[Dominic Rizzo]

You know, almost a trillion. I remember having dinner with Lit Bu when he was CEO of Cadence in Barcelona and he was explaining the importance of this technology called serdes, which is probably the most important connectivity technology in the world that I, you know, a decade ago. So I'm so grateful to all these Lippu.

[Moff]

Now Intel.

[Dominic Rizzo]

Lipu is now the CEO of Intel, who's a wonderful man, a mentor, but I think an incredible business executive. So is Nvidia still the king? Yes, is the answer pretty unequivocally. Look, they have this new system, Vera Rubin, Vera being their cpu and Vera CPU is built on top of arm. I think this ARM acquisition, had it gone through a few years ago, probably would have been the best acquisition of all time in Semis. The current best, I would say, is probably when Jensen bought Mellanox, the networking company. But look, they have a very strong positioning in CPU with their Veris system. They're going to do very well there. But a lot of traditional software runs on top of x86 today. That's the architecture that is used for the CPUs for AMD and Intel. And so I'll give you a personal example. So my agent tool of choice is Codex at work. ChatGPT Codex, OpenAI's Codex and the way it works internally is I have all These different agents. I have a linchpin agent. I have an innovating and secular growth market agent. I have an improving fundamental agent. I have a reasonable valuation agent. I have, you know, about an acceleration chart agent. I have all these different agents internally that sit in Codex. I have two great days on my data team, Albert and John, constantly building me new tools to throw into my agent and accelerate me. And every time they build me a new tool to go use in Codex, they throw data in Snowflake, going back to some software that's in the data path and the token path, they throw it in Snowflake codecs, taps into Snowflake. And then the CPU usage starts running, it starts spinning. And that CPU usage is usually x86AMD or Intel. And so that's why you see such strong demand for CPUs. Honestly, I think the market's gonna be so big that they can all do well. The CPU market in the data center has been $25 billion for a while. And I think we're going to a world where it's $125 billion, right? So I think. I think they can all do well.

[Moff]

So that's really interesting to explain that to me as a layman. So AMD and Intel really well placed in the CPU space. CPUs are more in demand this year than they were last year. And those stocks have taken off Nvidia, because they're so brilliant, have pivoted from making the best GPUs to now making also one of the best CPUs. Is that what you're basically saying?

[Dominic Rizzo]

Yeah, but what I would say about Nvidia, the way to think about Nvidia is not as a chip company, but a systems company. Okay, so it's not just GPUs, it's not just CPUs, it's not just networking. It's how they all work together. Jensen, in many ways, is the most brilliant computer architect in the world. Right. Why was that Mellanox acquisition so brilliant? Is because he figured out the chips need to talk to each other. Okay, who's the best at talking to each other? This small Israeli company, Mellanox. Let's go buy them. So what Jensen can do with his racks is really create a system. And he just bought this Groq chip as well to have something called LPUs and put it all together and make it work flawlessly. And if you're in this race, Right, you're in this race. Who's in the race? OpenAI's in the race. Anthropic's in the race, Meta's in the race. I don't know if Microsoft's in the race. Google's in the race for Leading Edge Intelligence. Xai's in the race. You want the system to just work. You want it to work really brilliantly and really quickly and incredibly powerfully. And what we've learned from Jensen and team is that they always try to optimize for the Leading Edge. The best performance token per cost, per watt, is what they try to optimize for. You know, Google, I would argue, and we haven't talked about Broadcom too much, but Google probably optimized a bit too much for cost relative to performance on their TPU8 and potentially their TPU9 as well. So all that to answer your question, yes, basically Jensen's really brilliant and he knows how to bring the symphony together of all the different pieces.

[Wilfred Frost]

Just dwell on ARM for me for

[Moff]

a second because it's funny, we had Renny Hassan in January. Really loved that episode. And I reposted it recently because they just crossed to become the biggest British company. $375 billion markup. And then by the time two days pass and it's actually like 420, I

[Dominic Rizzo]

was going to say that sounds good.

[Moff]

Jumped again. So, you know, again, comfortably the biggest company in the uk and so many people don't know about it. Obviously it's listed in the us. How brilliant are they in this? Are they a company you own or it has run up aggressively?

[Dominic Rizzo]

You could go, look, it's public. I've owned ARM for a while. Look, ARM has had an incredible run. So all of this, let's just be very clear about how we're thinking about things. The semiconductor index is up 90% year to date and software's flat. I'm not saying that you can't see a software balance. In fact, you're probably likely to see some sort of software bounce. And trying to make sure that we have enough portfolio construction to make sure that we're well positioned for some sort of bounce. That's okay. And stocks go up and stocks go down and stocks go up too much. And you got to think about portfolio construction and risk management and be able to trim when stocks go up. All of that's true. But why is ARM so well positioned? For a few reasons. One, because they were the architecture for smartphones. They really figured out low power, low power CPU processing. And guess what's one of the most important things to do in the data center? Low power CPU processing. The second thing is Their architecture is very well positioned for this agentic being able to do tasks on the behalf of the large, using the large language model to do tasks on your behalf. And so I think ARM will have its place in the data center and it will be a hybrid model. Sometimes they'll give the IP to, they won't give, Nvidia will pay for the IP and sometimes they'll help someone like Meta design the cpu, which is one of the great moves that Rene has made is changing the business model from just a pure IP royalty to hey, let us help you design this chip. We really understand how this architecture works.

[Moff]

Really. He was fantastic when he joined us on talking about all of those things and refer people back to that episode as well.

[Wilfred Frost]

This episode is brought to you by Elseg, the leading global financial markets infrastructure data and analytics provider. To learn more about how ELSEG connects businesses, investors and markets worldwide, visit elseg.com this episode of the Master Investor podcast with Wilfred Frost is sponsored by BMY Investments, a trusted partner for many delivering financial solutions to investors and institutions worldwide. This sponsorship does not constitute financial advice.

[Moff]

You mentioned there to sort of round out some semi stuff. The amazing performance year to date. Talk to me about memory. Where do you stand in that and frankly absurd performance you've seen of late?

[Dominic Rizzo]

Yeah, so memory, I love when people say memory is a commodity, okay? Memory is a commodity in the sense it doesn't matter if you get a Samsung chip, a Hynix chip or a Micron chip, okay? They're all the same. That's not true for GPUs or CPUs or ASICs. That's not a true statement. So you can literally go pull out a Samsung chip, plug in a Micron chip and the system will work perfectly. Okay? This commodity is the hardest commodity in the world to make. I mean tens of billions of dollars of capex. Only three companies in the world could do it. Samsung used to have this thing called the golden price where they knew the exact price of memory, where all their competitors would go out of business. I mean this is a ruthlessly competitive, difficult business. And now you're down to effectively three

[Moff]

people who can make it being Samsung, Hynix Micron.

[Dominic Rizzo]

That's right. And that's on the DRAM side. I don't want to get too technical. There's the NAN side as well. There's more players who could do that. And the Chinese are coming quickly and we could, we could talk about that. What's happened is in an agentic system again, this agent being the big Takeoff memory consumption is like 5 to 10x. And so you're writing all this code and guess what, you're hitting the DRAM a zillion times. And what happened is these companies, because 22 was such a weird downturn, they really slowed down the capex investment. And memory is one of those businesses where there's a price of a bit, just like there's a price of an oil, there's a price of oil, there's a price of a bit. And if there's a lot of demand for the bit, prices are going up. So what you've seen is a market that was way oversupplied go to a market that's way undersupplied with an increasing cost curve and a consolidated industry. And that's why you've seen such incredible performance out of the stocks. But I think it's really because going back to the framework, Linchpin Technologies, there's only three companies that can do this. That's very essential innovating in secular growth markets. Memory continues to proliferate all around the world with improving fundamentals. What happened the past 12 months, you went from 0% growth to 500% growth and then reasonable valuations. These stocks still trade at 4 times earnings. Now, the tough part today as we

[Wilfred Frost]

sit here, they're four times pe.

[Dominic Rizzo]

Hynix and Samsung are four or five micron's, eight or nine. Because the market's so smart. The market's this amazing thing. The market's daring you to buy them. That's what's happening. And why is it daring you to buy it? Because fundamentals are about to decelerate.

[Moff]

I was going to say it's not going to be 400% growth forever.

[Dominic Rizzo]

It can't. And so going back to the fund, so the tension right now on the team and with my framework is three of the four look really good and we have decelerating fundamentals. So, you know, Dave, if you're listening, I'm quoting you again, I'm memory curious. I'm interested. I have some positioning in it, but we did just go through this major acceleration and we have to be humble about the fact that pricing probably normalizes and revenue growth has to decelerate mathematically from here.

[Moff]

So just add onto that. I mean, I didn't realize the P's were quite that low, particularly of the Korean names. But add to me how you factor in thinking about this explosion that we've seen in ETFs in Korea, 3x levered various ETCs and ETNs where clearly there is just a technical market dynamic of forced buying that has played into this.

[Dominic Rizzo]

I think there's a lot of technical market drivers all over the place. I mean just, you know, the VOO is now a trillion dollar ETF. Yeah, right. What's going to happen with these IPOs? How quickly they get placed into the passive will drive not just demand but how people think about risk. Right, because your risk is relative to a benchmark. And then you have these levered ETFs, you have higher participation from retail, which I think is net, net a good thing in the world. Right. Lower cost, higher participation in capital markets is great. One thing you can do to address wealth inequality is make sure everyone's an owner. Right. You want everyone to be an owner. All that being said, of course there's these technical dynamics, but what I've found and where can we be? The goal is always to be the best in the world. That is the goal. You have to have that goal. Focus on improving fundamentals, focus on the technology excellence, focus on the management teams, don't focus on the technical dynamics of the market.

[Moff]

But I guess you don't think that has contributed to the share price performance. One of your four factors is obviously the price you're paying. But I guess, I mean it comes back to the fact the pe is at 4. That's mad.

[Dominic Rizzo]

Well, I think, well, why is the PE at 4? And why does Nvidia trade at 17 times, 15 times, 14 times? It doesn't really matter. The market is debating is the capex boom sustainable? And then what percentage of that capex boom goes to memory, what percentage goes to GPUs, what percentage goes to CPUs, what percentage goes to optics and networking and the area that it has more confidence that you're going to take share in the capex boom trade at higher multiples. Right now that's optical and networking, but at different points that's been GPUs or CPUs or memory. And then you have to balance that with what's the game theory at the hyperscaler level. And I think that's why this Google event of raising it. This is the third most profitable company in the world raising equity capital. This is not some small cap. This is the third most profitable company in the world raising equity capital.

[Moff]

Which tells you what? That the capex boom's continuing?

[Dominic Rizzo]

Yeah, I think so.

[Moff]

Does it also tell you for a company that's bought back tons of shares that, I mean, look, you could argue they'd been a good hedge fund, they bought they bought back shares cheap and they're raising capital at an expensive price. But that's also not why we buy shares in them, right? I mean, because I guess the other point, look to pair that with is

[Wilfred Frost]

their trend has been to buy back

[Moff]

shares, not to issue shares. And their trend has been to fund either out of cash flow or out of debt. Does the fact that they have to turn to the equity markets warn something else? Which is the debt markets are drying up or their cash flows already stretched?

[Dominic Rizzo]

I spent a lot of time with our fixed income team talking to this. This is the benefit of a T row, right? I have Mark Stodden, our fixed income analyst is wonderful. I do not think we're at a point yet where the debt markets have dried up. I think what it says is the size, scale and scope of the spend is bigger than people think. And I don't know how much of it was wanting to get in front of pending IPOs. I don't know how much of it was, hey, we're trading at a reasonable valuation now, 27 to 30 times. Like you said, they bought back stock lower. But I do think we're at this unique period of time where the game theory is who's going to spend the capital and why is that the case? Because we've learned time and time again, compute equals revenue. I'm going to say it again because it's so important. Compute equals revenue. Compute equals revenue. And it was a great pod, so I'll reference it again. The one place I really disagreed with dan was that OpenAI was writing checks that it couldn't cash. I think Sarah, Sam and the entire OpenAI team were very, very thoughtful in locking up compute capacity early. And guess what? Go listen to what CC Way said last night. 26, 27, potentially out to 28. It's very hard to get capacity right now. And compute equals revenue. And if that is the case, I think it leads to a more sustained capex boom.

[Moff]

One final question on the Google Capital raise. Step back with the perfect benefit of hindsight type world as the fund manager investing in tech companies for what tech companies do. Would it have been more ideal if all of these companies before even issuing equity, which obviously is a decent trade as we said, based on the prices, but they've all had to issue tons of debt. Should they all have not bought back stock for years?

[Dominic Rizzo]

I don't know. I think the world changes. You have to play the game on the field. And the game on the field three years ago was not capital. Intense business models. Why did the mag7 outperform the rest of the market? And why did passive gain so much share? Why did passive gain share was because Mag7 outperformed the rest of the market. I think. I think what happened before November 30, 2022 was that these companies had effectively perfect business models, local dominance and were the perfect aggregators. They controlled demand, they commodified supply, and they were free cash flow machines. Everything changed with AI. And why is that? And it's because the scaling laws going back to that original Dario meeting, effectively people can quibble about the exact relationship, but if you spend 10x the money, you get 2x the intelligence, and that's held. And as long as that holds and you believe that there's a very high demand for leading edge intelligence, it leads you to spend more money and it leads you to compete with your competitors. Because if you're spending the money, you got to get an ROIC on that. And guess what? Now you have to go into search more if you're Microsoft or defend your turf from ChatGPT and Claude.

[Moff]

A few other little areas before we get into the upcoming IPOs that are just coming to mind. Is everything that we've been discussing based on that thesis that you said that compute equals revenue. I mean, I guess I was trying to test therefore that. I'm trying to think through the question, but I can't. But have you thought about how that could be wrong?

[Dominic Rizzo]

Yeah, that is the central thesis right now, today on. I keep looking at my watch to find out the date. I don't know what today's date is, but June.

[Moff]

I don't know. Guys, shout out the date.

[Wilfred Frost]

10th or something.

[Moff]

4th.

[Dominic Rizzo]

June 4th. June 4th, 12:30. British Summertime.

[Moff]

I get mocked at sky because I think in quarters. I know we're late Q2, but I'm not.

[Dominic Rizzo]

My life is a bunch of quarters back to back. In a good way, compute equals revenue. Right? So what's a great countercase? How would I steel, man? The argument against compute equals revenue, it's that, Dom, you are overestimating the return to leading edge intelligence. And these N minus 1 models, the models that are almost as good are dramatically cheaper. And if you have intelligence that's almost as good and 90% cheaper, why wouldn't you use that instead of the leading edge intelligence? And so these are the rise of these open source models in China, which I actually think there's some really interesting ones. Every software vendor in the world will tell you this. I've never met a CEO of a software company who doesn't tell you, yeah, we do all of our hard work at the leading edge and then we go to N minus 1 the second weekend. And they so desperately want this to be true because they don't want to live in a capital intense world. They don't want to move to Sparta, they want to live in Athens where there's diminishing costs, they have very high marginal profitability. And that's not the type of technology AI is. As long as the scaling laws hold and you can keep doubling your intelligence for every 10x compute. Again, roughly speaking, I think this is a dynamic. And then people say, well, isn't intelligence enough at some point? And I think if you just think about iq, that may be the case. Right. What's the difference between a 160 and a 170 IQ? I don't know. You don't know? No one knows. If you think about intelligence as task completion, that's very different. And even today, as much as I love my codecs, there's a bunch of tasks it still gets wrong. And in six months it'll be better and a year from now it'll be better.

[Moff]

Yeah, I guess it still does rest on there being an ongoing acceleration in terms of the intelligence development and that we might reach the top of that at one point. Another little offset question. I mean, you might be right of the theme as a whole, but clearly there'll be some losers from this. And maybe it won't be winner takes all, but maybe there'll only be one or two winners. And there's a lot of market cap that sits across whatever it is. 38% of the S&P 500 now represented by this sector as a whole. What's the risk that half of that is not profitable like it is today? In a few years time you've got to get the stock selection right, you

[Dominic Rizzo]

have to get individual stock selection right. And that comes down to the framework. So linchpin, let's start with the first

[Moff]

part of the framework. So I get that and I guess my question on that is if half of those stocks have a big correction, that is hugely relevant for our listeners, is my point. I think you're going to see The S&P 500 falls hard in that scenario.

[Dominic Rizzo]

Yeah, look, I think that this is the beauty of active management. And what is my job? My job is to pick relative winners and relative losers by following the framework. Another way you're asking the question on my framework is whose linchpin status is getting stronger and whose is getting Weaker. Is AI positive to your business or is it negative? Great question for Apple right now. Right now we haven't seen any negative effects to Apple's business at all because of AI. If anything, they've probably had a modest acceleration. People are probably upgrading their hardware a little bit faster because their dram's a little light in their old ones. They don't even know it's light. But you know, going forward, if Apple can't make the shift to Agentic operating systems, it's going to be a major problem for them. And I think we're going to start seeing the first agentic operating systems come out in 27. Now they're partnering with Google. Let's see what happens there. But Apple's service line is primarily driven by one big payment from Google. It's $25 billion a year or whatever the number is. Does that balance a power change as Google provides more AI? These are all the questions we're asking ourselves internally right now. Yes, active management really matters right now whose linchpin status is getting stronger or weaker and then you better have the revenue to justify the spend. And so one reason I think we've seen such incredible stock performance year to date is because before Claude Code, people didn't see the revenue, people didn't see Agentic taking off. But Claude Code and OpenAI Codex have opened everyone's eyes to, oh wow, there's a huge enterprise opportunity here that's really interesting.

[Moff]

I mean, clearly that has been one of the big shifts as we referenced at the start, we're getting squeezed on time, so we're going to have to drop a couple of topics, but definitely want to hit these IPOs. Now obviously as you said, in the private market you have some positions in OpenAI and in anthropic. So I really want to come at this question via SpaceX, a hard one, but we've touched on one of these issues on the technical market dynamics. And as we've discussed on some recent past episodes, the indexes rules are changing, which is perhaps an amber flag to some. People will be forced to buy them quite quickly. SpaceX has not had that revenue uplift that Anthropic has had. I mean, we've got the pricing now, 1.8 trillion market cap, 20 billion revenue. Is that mad?

[Dominic Rizzo]

Obviously I'm not going to say what our plan is for a live deal, right? But let me go through kind of how I think about the different businesses and the different puts and takes and then how I kind of compare and contrast their positioning in the AI world versus OpenAI anthropic in Gemini. So, number one, I think launch is an incredible business, right? I mean, they're the only ones in the world that can launch rockets and land them. My 3 year old has never lived in a world where we can't catch rockets. Isn't that an amazing thing?

[Moff]

That's a good way of saying it.

[Dominic Rizzo]

Every Saturday we get up and we watch rocket videos and then there's connectivity. Right. Starlink, I think really interesting questions. What does that mean for, you know, communications all around the world?

[Moff]

Comcast stocks, not this, not been great.

[Dominic Rizzo]

Well, so I think if you had a lot of fixed assets into areas that can now be addressed by satellite communication, which is really strong. I think it does kind of beg questions. I don't, I don't know the answer, but it's something we think about. Okay, then on the XAI side, they have unique data in the form of X. I do think there's this trope going around the Internet now. Elon is the best at turning atoms to electrons. I mean, he's really good at building stuff. He's great at building data centers. I think that's true. And I think it's very interesting. This cursor call option they've done right, right. Because they need a harness. So the model is very important. The intelligence of the model, but the harness that surrounds it is also really important. And actually that's the takeoff in Claude code was you figured out how to harness the model really well. And so I think the question is, can they create a strong digital enterprise solution between a leading edge model and a harness? And I don't know the answer, but if they do, I know it's a big number, but I don't know the answer there. So those are the puts and takes on SpaceX. Compare that and contrast that with OpenAI and Anthropic. So like you said, Anthropic, very focused on enterprise, has done a really strong job there. OpenAI focused on both 900 million monthly active users, whatever the number is, and a very strong enterprise business as well. Combined, those companies, based on the public reporting, look to be on a path to something like $200 billion of run rate revenue by the end of the year. Who knows? A lot could change. That's the public numbers. And combined they're like $2 trillion of value. Right. Based on the public numbers. That doesn't sound insane to me, you know, by any means. So I think you have to think about all these differently and you have to see where the prices Come and then you got to play the game on the field. The question around SpaceX is can they take a leading edge model, positioning, which they have a very strong leading edge model in, and put a harness around it and generate strong enterprise revenue?

[Moff]

I mean, the interesting thing there though is OpenAI and anthropic, based on your numbers just there is still 10 times revenue, which is a lot. Fine if you're growing like a weed, but it's not 10 times earnings, it's 10 times revenue. But to my point, SpaceX roughly 2 trillion, just below that same valuation, but for 20 billion of revenue.

[Dominic Rizzo]

Let's see is kind of my answer. I think you're raising a really good point and I think the question is, is there latent revenue growth in Xai and Kersher? And frankly I haven't decided yet. So we'll see.

[Moff]

Yeah. Do you think these IPOs as a whole are the. By their size they are, but are just unbelievably important for the market as a whole?

[Dominic Rizzo]

Yeah. Yes, unequivocally. Ray Dalio has been talking a lot recently about what makes bubbles pop. And it's when you need to turn wealth into equity wealth or assets into income. And effectively The S&P 500 has been buying back stock for a long time as a whole. And now we're in a world where supply is coming on in the form of new securities, in the form of companies like Google doing equity raises. Right. So I do think they're very important. I think the question for me is how much does this passive dynamic change the typical pop and then bleed down that you see combined with the magnitude of these IPOs being so large, they're insanely large. What's so interesting though is as large as these IPOs have been, the capacity for the US companies to raise in the private markets has been as large, if not larger. Yes, these IPOs really matter. But I also think there's this unique statement on the depth, breadth and strength of the US capital markets that it's been able to support companies getting this large and then to this phase. I mean, it really, I think, talks a lot about the U.S. system.

[Moff]

It does. I mean, the U.S. capital markets are just unbelievably deep, aren't they? And liquid. It's been highlighted, as you say, from this. It's going to be a fascinating couple of weeks with these IPOs. Dom, we really are out of time, annoyingly. So we have to jump to.

[Dominic Rizzo]

We didn't even talk about valuation.

[Wilfred Frost]

To our final topic, which is, well,

[Moff]

dwell on that quickly then for me, valuation as a whole. But I guess the companies you have, you're very comfortable with.

[Dominic Rizzo]

I'll very quickly because I think it's such an important topic, but I wanted to make sure we hit it. So first let's just do semiconductors versus software. Both are trading at mid twenties earnings multiples. The semiconductor sales multiple is now closer to nine times. The software multiple is closer to six times. Historically that would be flipped, right? That would be the other way. Part of that is the margins have gone up a lot at semis and part of that's the questioning around the long term software business model. What I find so interesting right now is that the Mag 7 actually trade at a cheaper PEG ratio than the rest of the market. So PE to growth. So they trade at roughly a peg ratio of 1 times 22 times and 22% earnings growth. Rest of the market trades at a 1.25 times PEG. And then so many of these companies, we just said the large semiconductor companies trade at peg ratios of 0.4, 0.5 times. So you're talking incredible growth, 30, 40, 50% growth. But then you're talking 15, 20, 30 times earnings. So I look at valuations today, I think they're fine. That doesn't mean that you can't have momentum reversals. We've had a very heavy momentum market year to date. Just from a factor basis, you probably do have a momentum reversal at some point. Like we said earlier, software is flat, semi is up 90%. Again, you can totally have a reversal. But if I look at the underlying valuations, I think that they're relatively healthy.

[Moff]

That's really interesting. And actually Howard Marks also said that the Mag 7 are great companies and justified as the other 493 he worries about when he came on with us. So final question. Dom, for you. As we flagged before the conversation, we ask everyone this. What is your closing overriding piece of investment advice for our listeners?

[Dominic Rizzo]

So I don't have one, I have three. I know we're well over.

[Moff]

Bring it.

[Dominic Rizzo]

So number one is find a framework that matches your personality. So I hope you could tell through today my framework and I are aligned. Right? Linchpin Technologies. Innovating in secular growth markets. Improving fundamentals, reasonable valuations. I once listened to a framework talk where the PM said I'm a really boring guy and I like pouring stocks. And I thought that that was a great framework for him and it wouldn't work for me. So find a framework that meets your personality. Number two, work. Just relentlessly hard. One of my mentors once said, this is a business where people have won Nobel Prizes, saying what you do for a living is impossible. That's the efficient market hypothesis. This is impossible according to that. So you have to work relentlessly hard. And then number three, you got to get a little lucky. You got to get really lucky. The Romans had this phrase, felix, and it was a title they would give to people. And so Sulla was famously sulla Felix Sulla, the fortunate one. Sulla lucky. And it sounds cliche, but I just feel so lucky. You know, my coverage coming in, getting small cap semis in 2015, moving at the right time, taking over the strategy the day after ChatGPT. You have to get lucky. And hopefully that extends to personal life. Right? Lucky in terms of a wonderful wife, kids, parents, sisters. So get lucky would be the great advice at the end.

[Moff]

Well, it's a lovely way to end it. Dom, it's been a real pleasure. Thank you so much for joining us here on the Master Investor Podcast.

[Dominic Rizzo]

Thanks for having me, Moff and next

[Wilfred Frost]

week on the Master Investor Podcast, we

[Moff]

will be joined by my great friend and former colleague Becky Quick, the legendary CNBC anchor. So make sure to hit follow or subscribe on your podcast app if you

[Wilfred Frost]

haven't done so already. The Master Investor Podcast is sponsored by Elseg Interactive Brokers, the World Gold Council, and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show Notes. This podcast is produced by Paradine Productions and Master Investor limited In association with Birdline Media. If you've enjoyed the show, please do subscribe on YouTube or click follow on your podcast platform and you'll be automatically notified each time a new episode drops.