Delian favors AI leaders and businesses insulated from the cycle

Transcript

From the transcript TBPN publishes with the episode.

1. 1:51:48

   Yeah. I think with this stuff all the time from, like, the, you know, sort of space perspective too where, like, you know, you can get diluted into this world where it's, the space economy is growing. But if it's only a bunch of other space startups, like, you know, trading revenue back and forth, you can, like, prop that up for, like, quite some time, trading a dollar back and forth, but at some point, it needs to connect into, like, the rest of the ecosystem. Right? And so, you know, I think there was, you know, some, you know, memes and jokes going around, you know, sort of yesterday about the, like, NVIDIA, Oracle, OpenAI, whatever, 100,000,000,000 investment, etcetera.

2. 1:52:12

   And it's literally just, like, the same dollar effectively going, you know, sort of in circles over and over again. Yes. And that can, you know, sort of work, but, like, that can also blow up. And we just and I think we talked about this in maybe even in the last interview. It's like, you have this crazy dynamic where, you know, the percent of GDP being invested in this category is, like, you know, the equivalent of, like, at the railroad bubble, etcetera.

3. 1:52:31

   Yeah. But a lot of the companies that are doing this have, like, these cash flows from other very large businesses that are driving towards this. Right? You know, Zuckerberg, I think, gave the quote where he's like, look. I would prefer to, like, you know, waste hundreds of billions of dollars Misspend a couple 100,000,000,000. Yeah. Spend a couple 100,000,000,000 rather than lose the machine god race. And so it's just, like, the level of it's just it's like nothing we've ever seen before in terms of, like, the super cycle of, you know, sort of capital going into this. Maybe that has the ROI, maybe it doesn't. When I think about it from, like, the investor perspective, I mostly think about it from twofold, which is, like, how you should analyze any business, which is basically, like, quality of revenue and, like, you know you know, in terms of, like, durability of that revenue and then, you know, the competition, e g, the margins, you know, sort of on that revenue.

4. 1:53:11

   And so I'll maybe provide, like, one example that I think is very strong and one that I think is, like, a little weaker. You guys have had, you know, sort of Melissa, you know, John, know, sort of wife on for Cybernetic Labs. I think of that as a great example where, you know, she has really great revenue growth, and I believe it to be very durable in that most of her revenue growth is coming from things that are totally decoupled Yes. From the, like, insanity of, like, you know, NVIDIA, OpenAI, etcetera, circles. Like, it literally is janitorial companies, right, effectively, HVAC, plumbers, etcetera.

5. 1:53:41

   Those people's revenue, their growth, etcetera, like, is completely, like, economically decoupled. And so in some ways, then Melissa's revenue is completely economically decoupled from the entire AI hype wave. And so when I think about, like, oh, okay. Let's say, imagine a world where all of a sudden, like, you know, the mag seven decide to, like, you know, reduce deployment into data centers and, like, foundation model training by a 100 x years or next year. Which companies are affected by that?

6. 1:54:04

   Okay. Well, like, CoreWeave, I imagine, is, like, going to be affected by that. Oracle, definitely going to be affected by that. OpenAI, Anthropic, definitely going to be, you know, sort of affected by that.

7. 1:54:12

   Yeah. You look at you look at how many companies are now indexed to OpenAI. Right? You have Broadcom, Oracle, Soft Bank, CoreWeave. Like, these are There's a lot of them. Yeah. A lot of them.

8. 1:54:25

   And I think as an investor, you have to take a little bit of, like, a bifurcated strategy where it's like it's I think it's a generational index. And this is you know, if there's one thing that I admire about Peter the most is he just does such a great job of even though he has lots of biases, particular, you know, preferences, etcetera, on one sector or another, founder or another, he's very willing to vary, if you like, soberly analyze the just, like, broad macro world and identify, hey. Even if, like, I don't love, you know, whatever boring SaaS software, etcetera, or, like, the AI stuff, you know, you know, may not be real, still be willing to, like, analyze it from a purely investment perspective and, like, take it on. And, obviously, we've, you know, done decent user checks into this field. Whereas, like, I literally, like, find my biases so strong that I can't even, like I can't even motivate myself to even spend time on it, you know, to, like, you know, analyze it as an investor.

9. 1:55:11

   So that's where I think about the, you know, sort of, you know, durability perspective, and then there's, like, the margin, you know, sort of perspective, which is, like, how much, you know, competition is there. Right? You're seeing, obviously, in these foundation models where just, like, the token cost continues go down, the margin never seems to really be improving. And a part of it like, there's a bunch of, you know, companies that in capital that's going into this. And, you know, some of the, like, let's say, like, AI for, you know, whatever, you know, coding, it has maybe a bit of a similar dynamic where it is, like, you know, a a bunch of companies that are working on it, the foundation model's working on it, etcetera.

10. 1:55:40

    I don't think there's gonna be, like, 15 AI for plumber, you know, sort of companies. Right? And so this is where Melissa both has this, like, great durability and great margins. And so I think you have to take this kind of bifurcated approach as an investor, which is both, like, invest into the, like, index effectively. Now our approach has generally been invest mostly into the thing driving the index, e g OpenAI.

11. 1:55:58

    Mhmm. And then you're, like, you know, sort of counter strategy is invest in things that are totally decoupled from the index and, like, super far away, and then basically, like, nothing, you know, that much in, like, the, you know, sort of messy middle in between. And to go back to, like, the, you know, whatever, you know, the three three two or whatever it was, I do think that in both categories, yeah, I do think there's some merit to it where it's like, the growth rates and EV growth in these companies just do look very fundamentally different, and the bar is definitely higher. It's just been like I've been like, it's been very remarkable to watch Melissa and her company grow at a rate that just like yeah. It's I I just like I you know, it if you had told me, you know, write a distribution of where you think Melissa's revenue growth is going to be, like, when she, like, started the company, this is in, like, the ninety ninth percentile.

12. 1:56:40

    You know? And and I think it just speaks to how much of a wave this can be, and I think Peter talks about this where it's like the Internet wave happened, but then it still took, like, twenty years to get integrate Internet integrated into the rest of the economy. I think you're to see the same thing, you know, sort of here where, like, there might be not as bad of, like, an AI bubble crash, but the, like, implementation period still may take might be more accelerated because just generally society is moving faster, but it may take ten years. And it's companies like Melissa that are getting it integrated into, the broader broader society.

13. 1:57:07

    Have you seen any companies where they've done a good job? They're still in founder mode. They're they're they they've grown like a base of business that then when the AI story came, they could actually act they could act on that in a way that it wasn't like they're a public company, and they need to go through this massive transformation of how they bill, but they can just add AI on top, and then they're actually growing new quality revenue. Are you are you feeling that at all? What are you pointing to?