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Theo Deffenbaugh's avatar

By the way, I love your graphics. One of mentors used to do this for various industries in almost an identical fashion, and I ended up copying him. It is always great to start off a pitch and gets everybody engaged.

My only thought is as you are thinking about value-chains, just because something is in a value-chain, doesn't mean that it brings substantial value. We are so overwhelmed by data and companies, that is become very difficult to digest where we should focus. An example that I've used in the past is to say, "we could claim that ballpoint pens are critical because you need them to sign the contract." However, we all recognize that this is not where the value, thus the investment choice should be.

Something I have done, which I would love to see in yours, is to scale any level by some factor of revenue and gross margin. Depending on the situation, look at both or either is help to think what is the true critical path through the value chain.

Finally, a good old Porter 5 force analysis is often insightful through thinking about where to draw attention in your chain, although I like Grove's version better. Buffet just calls this a moat, but you get it through a force analysis.

The ROI of AI is really hard to understand. From what I can see, the people that immediately say "oh, they'll never hit it" are the ones that simply are not using the tech. If you are a software programmer, and you've been using Co-Pilot or Claude, it will strike you that "my job is going to go away if they keep scaling." The problem with all the revolutions before this is that they didn't replace people to lower OpEx. With the virtualization and work from home, it may be possible for widespread rifs and cost savings.

Mind you, I am NOT saying that their is a clear path make up the $1T capex figure (which I agree with), but if you said, there's 2M truck drivers at an average cost of $100,000 full employment cost, I can find you $200B if the government allow me to implement AI today. It is already generally accepted in the Valley that the biggest problem with rolling AI into driving is the government, not the tech. (The tech isn't perfect, but it would have a lower death rate than humans today for freight.)

I'm not saying that this will happen as it completely depends on the double cycle for LLM or other tensor based capabilities to happen. This is equivalent to the now dead Moore's law. If we continue on the current doubling cycle, it is going to happen really quick. Other than the CPU, AI is software. AI in terms of ramp must be thought of as a software play (once through training) and not a hardware play.

Regardless, you have a great substack.

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Adrian Knoblauch's avatar

Very solid, very comprehensive, very interesting. Thanks a lot!

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