10 years from now these are the companies everyone will wish they owned

[Music] So, we're going to make a quick start as uh we've got a lot to cover, but I do have a question for the audience up front. Before I get to it, I just wanted you to take a look at the slide up on screen. So this slide shows the changing leadership of the world's largest companies by market cap over the past 45 years.

And there are a couple of important things worth noting. So firstly, it typically takes around 20 to 25 years for market leadership to turn over. So that's 90% plus turnover.

Only two companies have survived from one wave to the next. You'll see them highlighted there, Shell and Microsoft. And it was interesting to hear Victor talk earlier about uh Microsoft in the 2000s and no one thought that would be the company that it became and Cisco, Nokia and IBM which he did mention that everyone was talking about are up on that screen you will see as well.

So whilst it's hard to fathom, history shows that the likes of Nvidia, Apple, Google, Amazon probably won't be the largest cap companies in 20 years time perhaps even less. And again, if we uh follow what Victor said, it might be within 12 to 18 months that some of those uh magnificent seven won't be so magnificent, I think, were his words. And please just make a mental note of Intel and Nokia.

They'll be relevant a little bit later on. So, now that you've seen that, I'll get you to answer please the following question. If we get the poll question up on the screen, please whilst you are voting on the poll question, I'll just remind you that the title of uh today's session is 10 years from now, these are the companies that you will wish you've owned.

And whilst we're looking or we were just looking at the largest cap stocks throughout history as a bit of a thought experiment really the question that we want to answer today is what will separate the winners from the losers? Who will the leaders be? And more importantly, how can we identify them?

So joining me on the hunt, Josh, Dave, and Ciao. We're going to get straight into it and I want to take you inside the war rooms of my respective guests. I want to get some insight as to what they're wrestling with right now.

So, ciao, ladies first, what is dominating the conversation at Monroe? >> Well, first of all, thank you for having me here. So great to be here with all of you.

Um, you know, I hate to be predictable. Um, but we talk a lot about artificial intelligence, which is AI, in the Monroe War room. And you know the reason really is over the past two years we talk about AI in the sense of making the AI training the AI we talk about chips we talk about power we talk about how to make AI basically happen what we're talking about now is what is AI going to change and we're seeing AI changing health care profoundly from diagnostic to therapy discovery to patient care to billing to expenses we're seeing AI changing defense profoundly So a lot of these really large trillion dollar markets are really getting either disrupted or accelerated one way or another by the AI.

We see lots of winners emerging. We also see a lot of losers um emerging. So those will be some of the bigger um picture topics we talk about.

>> We could talk about AI for this entire session but we won't. Josh, quick thought on AI and how Janice Henderson is thinking about it. >> Yeah.

Um first thank you uh for having me as well. Uh pleasure to be here. Um yeah, I think the way we sort of treat a a broad topic like AI.

I mean AI is not a thing. It's not the next snazzy app. Um it is a change in the in the very fabric and architecture of our software stack globally.

And so um when we have discussions around AI, of course it's right now we've been focused on pick and shovel providers. We understand that Broadcom and video what have you. Um but I think the analog that I would point you to would be um the 99 to01 period where you know there were a small handful of stocks that you saw on television every single day and if you just watched that you'd think there were six or seven stocks in the entire market and what ultimately ended up happening is that really only I mean you pointed out Microsoft other than that there's not a lot of those names uh that are top of mind anymore.

Um yet the internet itself right what we were what we were all sort of charging toward uh ended up being you know orders of magnitude more important more impactful more more pervasive than anyone could have thought um in the late 90s and so I think that that's the right mental model um at least at this point for AI and so when we talk about AI it's not just is it Nvidia versus AMD it's who can win in the insurance business how is it going to change restaurants how's it going to change content content creation and so forth. So, um it's a very broad pervasive discussion because I think that AI will prove to be that important. >> Yeah.

Dave, I'll come to you now. What's the big theme that you're focusing on at Plato at the moment? >> Sure.

Like when I saw the Thank you very much for for having uh Plato on the panel. when I when I saw the um the subject for this theme, I thought it's a stitch up 10 years, you know, it's a it's tricky and uh so I started to think about about things and it reminded me of an old Jeff Bezos uh talk that I'd heard where he says if you want to predict what the world's going to look like in 10 years, the natural choice is always think oh what's changing? What are the big dynamics?

Uh but he actually turned everything on its head. He said okay actually you know predicting you know technological advances pharmaceutical advanc is so challenging by definition it's it's blue sky um instead what are the things that aren't going to change and for him in the case of Amazon it's obviously in 10 years time it's impossible to imagine a world where people won't want cheap goods quick delivery and massive range okay so from our perspective you know what's not going to change in 10 years time and and who will that favor well there's been a you know there's a I'm not usually in the quote of uh in the habit of quoting communists but uh Lennon has this famous quote where he says that there are a decades when nothing happens and there are days when decades happen and I think that's what's happened in terms of the European defense space for the first time since the the second world war the Europeans are massively stepping up in terms of their defensive spend going from perally less than their 2% NATO obligations to 3 and a half even 5% and that's not going to go away depending on who's who's in the White House. Um that is uh in place.

It's a 10-year trend and I think there's going to be uh some some real value creation on the the back of that theme. >> Yep. Ciao.

Is Monroe uh looking at the defense space as well? >> Yeah. Well, we do.

Um we we like the broader theme of defense budgets going up. Um but you know what even excite us more is also the nature of warfare is really changing. um you really go from very long, very expensive legacy programs to more agile, more tech-savvy um defense companies and and we end up finding all these little component equipment companies that supply sensors, supply tactical computing equipments and the supply nuclear propulsion um for Navy ships and all these companies are definitely seeing their earnings grow in a structural way.

>> Yeah. Josh, take us inside the Janice Anderson war room. a big theme you're talking about right now.

>> Yeah. Um well, one one of my roles is to is to uh oversee the global consumer team and corporate access is really the the the crucial part of the research that we do at Janice Henderson is it's what's most important to us. And so I thought I'd talk a little bit about um you know what we took away and what we picked up from a day at Amazon uh about four weeks ago or so.

Um we get these opportunities every once in a while. It's pretty special to be inside of headquarters and talk to the various CEOs of the businesses. Um, and so what we've been thinking about obviously is AI and how does that change product search, right?

Um, Amazon's got a lot of advantages, but um, you know, if we if we dream about like the blue links at Google going away, how does that impact, you know, Amazon? Amazon gets a most of its traffic directly but still um so we're pushing them there a little bit and trying to understand sort of what's happening there. Um the second you know the main takeaway for me um on Amazon was so this is really interesting and and I think the the US audience might understand this but Aussiey's maybe not quite as much.

So, Amazon um has really become dominated by the cloud story, right? AWS, it's a global igopoly. It's a wonderful business.

It's high margin. All good. Um what that has left though is is a stock that almost doesn't care about the core retail business, which is really weird.

Um so, and I and I get it from a from an investment standpoint, but I sit here as a consumer analyst and I say, "Well, wait a minute. got a $580 billion topline in this in just the consumer business, right? The retail business.

Um the most dominant disruptive retailer in my lifetime for sure. Um and it almost doesn't matter to the stock market like what happens in a given quarter in that business. Now I look at that and I say whoa that is really scary if you're Kroger or Safeway or Target or anyone else, right?

Because what Walmart, excuse me, what Amazon is increasingly doing, and this is kind of in the background and in a pretty differentiated view, I would say as well, um, we believe the next 10 years are going to be an absolute bloodbath in grocery and we think Amazon's going to create it. And the simple logic here is in the US, um, Amazon already has every household with any meaningful discretionary spending power as prime members. They've already got you.

Okay. So, so the imperative for them and the growth imperative is they've got to get each household to comp so to speak. Spend more, right?

Um what what better way to drive uh spending in a household to than to, you know, get you to start interacting with the thing you buy most frequently, which is food, right? Um a lot of folks and casual observers, you know, they see Amazon, they bought Whole Foods in in 2017. We don't see a lot of new Whole Foods.

So, what the heck are they doing? They're not doing anything with grocery. That's wrong.

the capacity is being built in places where consumers don't see. It's off a highway, right? Um Amazon added roughly the equivalent of of Walmart's domestic supply chain in a period of less than two years during the pandemic.

Okay. So, we think we are on the cusp of Amazon kind of hitting that button and starting to drive frequency in grocery. Um we think that's super super important uh over time and we think it's going to you know increase the the duration of the ecosystem and sort of provide the ne that next leg of growth for Amazon.

So we've been spending a lot of time on a very boring industry grocery. >> Yeah. >> But very important.

>> Josh, I'll I'll move it along. Um we want to focus in a little bit more on the key traits, the key characteristics of companies that will be leaders over the next decade. So again, if we're sitting here in 10 years time, what will that look like?

Um, Chia, I might come to you first. You look in the small and midcap space. Uh, so with that lens, what are you looking for?

What traits are you looking for that scream future mega cap? >> Yeah, it's absolutely our bread and butter. Um, so so we're looking for four things for a company that's small today, um, but that could potentially be a mega cap tomorrow.

The first thing we look for is a really large market where something is changing. You have to be at the large market. The the future mega caps cannot grow up in the small pond.

So it has to be a huge market and something needs to be changing because most of the large markets you already have the incumbents get the market in the landlock and size tend to be an advantage. But when things are changing, when Nvidia is making chips bigger not smaller, when nuclear, wind, solar come back to the energy mix, when we're doing something a bit different, then the entire industrial logic of that big market get turned on its head. And that is really the clear the way for for a small innovative company to come in, grow up, disrupt, become a large cap tomorrow.

And there are three other things we look for. One is the absolute fervent loyal customer base. We call this customer perception.

And in so many cases, we see huge changes in the world come from a small groups of people's passion and love. Just go talk to the early users of Google, the early users of Facebook. Remember the first feeling when you touch your first iPhone.

That love from the consumer. You really have to have that killer product, that loyal consumers um for for a future large cap to develop. And then there are two more things.

We love a visionary um committed aligned founder. So one of the telltale sign of a future mega cap is the talent tensity is how intensely can you recruit the best talent in the industry to come work at you. And you know who attract that talent?

A founder. A founder that knows the product inside and out that's fully committed to the mission that runs the company for a long time that's fully aligned. So we really love passionate aligned founders.

And finally, we love company that's profitable. We see the funding cycle come in and out. Um, a a small cap today in order to grow up, you sort of need the free cash flow.

You need the profit to come in so you can self-fund your growth so you're not subject to, you know, the whims of the market, the whims of the debt market or the capital market. So that's the four things we look for. Large market, the structurally growing, passionate founder, consumers that love you, and then finally a profitable business model.

Dave, you're long short. You run a long short strategy. What are some of the red flags that suggest the company won't make it to these leadership statuses?

>> Yeah, sure. Great question. So, we have at play to 150 red flags that are fully systematized.

So, we can look at any company in the world and instantly see what potential risk factors, red flags they have on the horizon. And just a few spring to mind here. Firstly, uh like uh Chiao mentioned, alignment, absolutely critical.

We want to see alignment in terms of uh you know you know very significant ownership, very significant incentives. We want to see clawback provisions. We don't want to see golden parachutes.

That's absolutely uh all key to attract that uh that a um talent. You know, Steve Jobs often said that, you know, the key to really building a great business is you've just got to have all 18 players. You can't have B teams, no C teams.

Just got to get rid of them. Just got to be 18 players. So, I definitely agree with that.

And then Chia's final point, I think she's stolen all my red flags. Me, too. Is uh is cash flow generative?

You know, like u I don't like growth companies that are growth in terms of pie in the sky, hopes and dreams of the future. You look at even uh let me think Amazon 2003, they were throwing off 2003 was early days, right? They were throwing off half a billion in free cash flow year even way back then.

Yeah, I want to see companies that are actually delivering as well as the hope of future delivery. >> Yeah. Uh in the opening session, ladies and gentlemen, I asked you to note two stocks, Intel and Nokia.

So in 2000, sorry, in 2000, they occupied spots uh three and 10. 25 years later, Intel is number 180 in terms of global market cap. Nokia has slid all the way down to 900.

But the bigger point being is that they had opportunities to compete with the companies that overtook them which of course were Nvidia and then Apple which uh went to head with Nokia in the smartphone wars of the early 2000s. So want to understand want to take a little bit of a history lesson understand uh you know why this why one company takes off and one doesn't. Josh I'll come to you.

You've talked about Amazon up front. eBay, you know, is one that sort of has fallen by the wayside in comparison, but more importantly, what parallels do you see today? >> Okay, there's a lot there for that question.

Um, and I am old enough to have the proper context, I suppose. Um, so I mean, the first thing I would say is, and this is this partly gets to your prior question. Um it's this myopic relentless focus on the customer.

Okay, which is sort of unusual actually was unusual um really before Costco came along frankly. Um Costco is the blueprint for Amazon by the way. If you want to know what Amazon's doing, study Costco.

Um and I think it's this relentless focus on providing your customers actual value, right? Instead of trying to make something make a spread off of your customers, right? try to deliver them value, make less per unit transaction, and get big that way, right?

Um, and so if there's a lesson there, I mean, I'd say, you know, and I I I'm pretty stale on eBay, thankfully. We haven't owned it in a long long long long time. But, um, you know, look, I think it's a little bit of a different business model, obviously, right?

The, you know, sort of the auction business is a little unruly. Um, whereas Amazon, you know, was very, very focused from day one. We're gonna we're gonna it's about selection, price, speed, right?

Those are the three things that people care about. And and it's funny, you know, like I think what's happening now in grocery I'll turn it back to grocery very quickly, but um it's all about like knocking down the pillars of traditional retail, right? So re a brick-andmortar retailer, you know, used to win on selection, right?

A Walmart Superenter has 130,000 SKs. That's a lot of stuff in one place. They would generally win on price.

you couldn't really compare price necessarily, right? Um and they would absolutely win on proximity and convenience. Well, I think e-commerce is taking care of the first two, selection and price, right?

There's an endless aisle. Um transparency is everywhere now, right, about price. But I think the final stage, the next stage of e-commerce is going to be attacking that proximity um stool by getting closer to customers.

And that's exactly what's happening, um, both in general merchandise e-commerce, right, and in in grocery. And so, um, look, I think it all begins and ends with a focus on the on the consumer. And so many business models I see just weren't built that way.

Look at a department store. That's not built for customers. It's built to make a spread off of customers to pay for the escalators and the and the, you know, the people behind the counter and so forth, right?

So, um, I think the future is is is very much aligned toward that. >> Yeah. Ciao.

Another pair worth looking at. Nvidia versus Intel. It's a great case study.

One's become a $4 trillion company. >> The other is stagnated and is worth half what it used to be worth. What's the biggest single lesson?

>> Well, if you just remember the four things I talked about, let's just run them through really quickly. Run the pair through. Um, I think the one thing that probably is in common is they're all in the structurally growing market.

The market opportunity was growing. um the the the need for faster more compute was there. So I think that was probably addressable by both but then everything break down.

So let's look at profit. Nvidia is wildly profitable. Not only Nvidia is profitable, individ customers are profitable which is something Cisco of the world never had.

Um Intel has become very unprofitable very quickly especially um with the attachment of the foundry business. Um let's think about customer perception. Um, we've spoken to, you know, of course now the hyperscalers, the cloud operators all love Nvidia chips, but the true love for the Nvidia chips actually coming from the gamers.

Um, if you speak to some of the hardcore computer gamers and when they first put in the Nvidia chips in the computer and finally play the games of their dreams, I mean, that love is palpable. I don't think I've ever spoken to someone that loved the Intel chip in my computer that much. But the biggest difference um is two words, Jensen Huang.

Um Nvidia is led by its visionary founder, Jensen, who's had the same mission from 30 years ago, which is to make compute faster, cheaper, more energy efficient. Intel's mission has gone all over the place, gone through different raations and combinations of management teams. And having that visionary founder means Nvidia for 30 years has did the systematic brain drain of the entire semiconductor and graphic design industry.

The best designer on hardware software where do they want to go work for? They want to go work for Jensen Huang and Nvidia. And that's why Nvidia is iterating product after product and just win the hearts and minds of of his consumers.

So I would say only one thing in common every three other aspect Nvidia clearly won. Thank you. We'll move through this uh next session relatively quickly, but we do have to touch on valuation.

And Dave, I want to come to you because it's one thing to identify these companies, but then you got to make sure you're paying the right price for them. So, where do investors most often destroy value in that process? >> I think uh it's uh it's focusing on on narratives and enticing narratives rather than the hard hard numbers.

Um I I'll give you like a very uh quick example. If you were 25 years ago, you followed a very simple investment strategy and all you did is at the January 1st each year invest in the companies with the highest growth expectations from sellside, from guidance. 25 years later, you've got virtually no money left, right?

There's a a type of growth that that's the type of growth that people we naturally gravitate to. It's the exciting stories, you know, around the campfire. But the type of growth that is really valuable and underappreciated by markets is companies who have a consistent track record of growing free cash flow organically.

Not by acquisition, not my financial engineering, not pie in the sky, humanoid robots that may or may not happen. That's uh that's really the focus of the growth we look at. >> Yeah.

All right. We're going to talk some stocks now. We've talked enough theory, enough history lessons.

So I've asked each of the guests to bring along two stocks. The first segment we'll look at is essentially the next Nvidia or close there too. What's going to be one of the best 10 years from now?

Easy. >> No, a future leader. But Josh, I'll come to you first.

What have you got for us? >> Yeah. So um I live in the large cap world.

So sort of 20 billion and up uh US market cap. So I so I tried to reframe the question a bit and think about like what h 100red billionish market cap stock could be the next trillion plus right so not something you can't invest in today something that's you know large cap and very liquid today and so I chose Spotify um pretty popular stock pretty popular company I get it um but Spotify to us is is is now fully and completely demonstrating signals and signs of of like a long-term winning aggregator um in much the same way that Amazon did for us many years ago. Um they're taking something like 50 to 60% incremental growth share.

Right? So so the industry is still growing. Streaming is, you know, less than half penetrated globally.

In developed markets, it's about half penetrated. Some Scandinavian countries are a little bit above 50%. Um and and many, you know, developing countries are are are well behind that.

Um, but you have a you have a business here that is wildly profitable, very free cash flow profitable, is now down that backside that we talked about where they're just self-funding all kinds of growth. Um, and music as a category is still very undermonetized. There's a chart up there that sort of speaks to that.

Um, and so we feel like there's really good value for the service. We feel like they've broken away from the pack, frankly. And anytime you have one competitor gaining, you know, 50 cents on the growth dollar, that's pretty hard to fight long term.

Like that's a really nice tailwind at your back. So, um, and again to maybe repeat, you know, what my other panelists have talked about, we love founder businesses. Absolutely love them.

And, um, you know, there's a risk. We all, we lose sleep at night sometimes thinking Daniel E might get crazy and start spending a ton of money again. But um we actually think that the the company's really found profitability religion and we think um it's it's pretty much up and to the right from here.

We feel great about this business. >> Yeah. In terms of competition, YouTube, Apple, even Tik Tok now, not that I get on it, but uh YouTube >> how do they how do they stay out in front?

>> Yeah. Um look, it's a big world, right? Um nothing wrong with a with a legal igopoly, frankly.

So um you know, we're fine. Um, look, we we think YouTube is is been massively successful. I think YouTube is is really going to win television in the United States, frankly.

Um, it already sort of is, um, from a streaming perspective. So, um, nothing bad to say there necessarily, but, you know, we like, um, we like focus, right? And there really isn't anything else that Spotify does except audio, >> right?

And podcasts, yes, podcasts aren't music, but it's still kind of the same thing, digitally received audio. So, um, as long as they keep that focus and keep driving forward, I think we're fine. Yeah.

And we own Google, too, or Alphabet. >> Ciao. What's the Nvidia of the next decade?

>> I'm being totally cheeky. Um, the Nvidia of the next decade is still Nvidia. Um, and and let me just give you a few stats and just to show you how early we are in the era of AI.

And I'm being tongue and cheek because I genuinely speak I genuinely believe that 10 years from now in 2035 a lot of the companies we're sitting here talking about they have not been born yet. So this is year three of AI guys. Um let me just remind you in year three of the internet era at that point 1993 Google was not born.

Um uh uh Facebook was 10 years away from being born. when we're thinking about mobile, when we're doing year three of the iPhone, Uber was not born, Spotify was not born. So, I'm a genuine belief um that 10 years from now, there was all these slew of companies dominating the top 10 charts that have not been born today.

But to Dave's point, what has not changed? What is not going to change? I'm reasonably confident these company will be born using the Nvidia software as a development tool.

I'm reasonably confident that the developers of these companies will use Nvidia's hardware as the foundation. So Nvidia has laid out this incredible foundation and the soy from which a lot of these flowers is eventually blossom. Um at year three of a 15 to 20 year cycle which is how long PC mainframe mobile era lasted.

It is way too early to call it the Nvidia of the next decade. This decade is going to be the Nvidia decade. And the last thing I would say, talk about valuation.

With all that growth ahead, you're not even paying that much for it. There's a clear line of sight just to from what they've had in the backlog to get to $10 of earnings and the stock is $168. So for those of those mathematical wizards, that is less than 17 times price to earnings for one of the best growers in large and small cap.

>> Chiao. Right now, somewhere in the world, someone is smashing those Nvidia chips apart, trying to recreate them, rebuild them, do it better, faster, stronger, all of those things. >> How do they stay out in front?

>> Um, how Nvidia stay up front will be, if I give everybody an analogy, will be that you're trying to race against Usain Bolt and he's already like a kilometer ahead of you. Um, and then, you know, let let's run against him. Um, and I'm being really funny, but but really this is true.

So, Nvidia is on a one-year cadence. No one in the semiconductor hardware industry was ever on a one-year cadence. It takes about three to five years to design the chip, get the ecosystem to buy in, tape it out, get TSMC to make it, eventually test it.

You know, it's it's a very lengthy process. And Nvidia now come up with a new chip every single year. So when people are still trying to catch up with the Hopper chip, Nvidia is now scale deploying Blackwell.

when you finally catch up with Blackwell a few years from now is doing oop is is already doing Reuben. So every year there was an Nvidia chip coming out. So for the industry that's tried to compete with Nvidia that genuinely feels like someone is already miles ahead of you and still running faster than you and that's why it's so hard to catch them.

>> Fair enough. Dave, what have you got for us? What's a leader of tomorrow?

>> Yeah. So, so just reverting to that theme that I mentioned earlier, you know, the best way to predict the future is to look for the constants, the things that that aren't going to change, remain the same. So, really in the European defense space, that uh company is Ron Mattal.

Uh so, they uh they're a company that they've been around since 1800s. So a little bit little bit older than uh the Nvidia of the this world but they uh they are a company that are the the bedrock of Europe's uh land defense um system. So in terms of ammunition, tanks um air defense, it's really all about uh Ron Metal.

And if you think about the company, it uh you know that the visibility is there. You know, you've got a backlog. The the backlog since I actually did this slide, it says 40 billion.

It's actually 55 billion now. So, it's a there's such incredible visibility on that through the the EU directives that um they were producing 250,000 shells approximately of artillery a year. Um now they're pushing that up to 2 million per year.

Uh so that there's just a if you if you look at Europe's defenses, just to give you a bit of context, uh the European defensive industry, it's about uh a third to maybe 40% the size of the US. And yet the population of Europe is 540 million versus the US at what 340 sort of thing. So it is so undized and it needs a whole decade of intensive spend.

But there wasn't the political will historically. Now there is with uh with Putin on the the eastern flank with everything that's happened in Ukraine um that uh the eur and you know what's happened in the white house as well. People are saying, "Well, the US aren't the um reliable partner that we thought they always were.

" Sorry, Josh. >> Quite all right. >> And uh and as a result there.

>> Yeah. Yeah. As as a as a result, they really need to pull up their socks and invest in their own domestic reliable capability and that that just doesn't exist uh without this company.

>> Dave, we're at a moment in time. Obviously, there's the Ukraine war. NATO is going through a rearmament.

they uh those moments will pass. >> Yes. >> The sustainability of uh the of the spending h how serious is it?

>> Yeah, absolutely. So, I guess what you you're probably referring to is often once conflicts pass you get a bit of a peace dividend where you know you don't need to expend so much. Uh I think you know this time is certainly different.

uh if the Ukraine war was resolved tomorrow, okay, then within most uh um military analysts say within 5 years, the Russia would be ready to go again and would be ready to push uh westward. So I I don't think uh anyone's under any illusions that that's a very strong possibility. And uh you know, people say, "Oh, but what if you know the Trump leaves the White House?

" So, I think that just doesn't matter at all because you're only at ever one point one election away from the Republicans being back in the White House and and you know, it's only prudent to to be able to defend yourself. So, I don't think that's a a meaningful risk. >> The other stocks uh ladies and gentlemen, I've asked the panel to bring along is something a little bit more exotic.

So, it could be a leader doing something truly special or innovative or a company flying under the radar. David, I'm going to stay with you to kick off this section. what did you bring for us?

>> So, Palanteer technologies very uh interesting, sometimes divisive stock. Uh so, for anyone who doesn't know Palanteer, it's it's all about AI, software, defense. uh this is a a company that uh I think is uh is incredibly exciting because it exists at the intersection of three mega trends and they're essentially defense datification which is essentially all industries you know now running off data to to make decisions intelligently and and of course AI and if you look at uh so there's obviously the military applications which are have been massive about 55% of their their revenue comes from governments and uh in terms of of that with the this AI platform that they've developed that's embedded themselves within the US national security apparatus that's really been referred to as an iPhone moment where they're they're really imshed in in there from a an a non defense capability just to give you an idea of uh the capability that that Palunteer have um I lived in the UK 15 years and uh if any of you have lived in the UK you know that the National Health Service, the NHS, it's uh it's certainly not without its challenges.

So an an example uh they uh around 2002 they started the world's biggest civilian IT project. Okay. And it was to um essentially produce electronic health records across the entire UK.

Not rocket science, right? And anyway, by the time 2011 came round, the budget had gone from6 billion to12 billion and it was a failure and they scrapped the entire thing. Okay.

So, Palanteer come in. Fast forward to 2020. Palanteer come in and COVID had just hit and the UK health services in disarray.

There's no coordination there. It's this mismatch of systems that are incompatible that can't talk to each other. So they they've just got no understanding what's required when and they've got the PPE, the um the ventilators, the oxygen, later on the vaccines, no ability to allocate that in an an optimized fashion.

Uh enter Palanteer. Palanteer came into this archaic siloed system and within a matter of weeks, if you can believe it, they had plugged into these disperate data streams to produce actionable um information and allocate all of these finite precious resources in a a very intelligent fashion. You know, very likely saving, you know, tens of thousands of lives.

So, you know, the these are are real companies that again back to the red flags they look for. Are they generating lots of free cash flow? Absolutely.

Even at this uh very early stage of of the business. >> Y sounds like an exciting one. Josh, what have you got for us in the more exotic space?

>> Yeah. Um so I I wanted to choose something that's, you know, maybe a little bit off the radar. So um we're going to I want to talk a little bit about progressive insurance.

Um this is auto insurance about a $75 billion company. Um, nothing really gets me more excited than like a really boring business that's just phenomenal, right? Um, I talk about bug killing all the time like Rollins, which is Orcin.

It's the, you know, they they kill bugs. Bugs don't care about the cloud. Don't care, right?

Um, they're not going to be disintermediated. So, um, auto insurance. So, this is a good example of, um, the type of business that we do like to invest in.

And we we've talked about, you know, the power of compound growth. You know, humans love straight lines. we we don't do so well with curved lines and like this is a great example of like you know they're not going to have a year when earnings are up 100% necessarily or revenues you know uh accelerating in a nonlinear fashion but if you can compound uh free cash flow at you know 8 10 12% a year year after year in a business-like insurance um you start to develop a real flywheel and so the heart of progressive is really about it um and about taking a business which is insurance underwriting that really used to be frankly a little like you know the show Madmen like it's very relationshipdriven and it wasn't as quantitative as it needed to be and you had actuaries and so forth doing the simple math but a lot of times like underwriting performance was just all over the place um that was actually the genesis of why uh uh Berkshire Hathaways become so big but regardless progressive um underwrites better use uses data better um and then plows that back in and right so it's it's this virtuous circle um and virtuous flywheel and we think as we think about AI this is just a great example of like the kinds of conversations we're having internally now which is like which business models a could benefit from AI number one but number two more importantly where the leadership has the culture of the company postured to take advantage of AI okay because a lot of companies you know they look at something like AI as a threat I don't want to change my workflow gh you know like this is a mess.

I don't want to do this. Whereas like a company like Progressive, they've been a disruptor, right? They that's the ethos and the culture of the company.

And so they tend to see new technologies as an opportunity to to drive share. Um and if you think about like an auto accident, you know, what can you do with AI? Wow.

I mean, there's more cameras on every vehicle than there used to be. There's cameras on every street corner. um when you send out an insurance adjuster, you know, you can use better technology for cam, you know, with camera technology and so forth to try to understand what actually happened in the accident and so forth.

So, um again, pretty low tech, frankly. Pretty boring, uh business, um but boring businesses, man. Get rich slow schemes.

Love them. I love them stuff. >> Ciao, bring us home.

What's something that's a little bit more exotic that you're looking at? >> Yeah. Um it's definitely not boring.

Um so so you know just follow on some of the conversations. So we talk about AI, we talk about compute getting really really fast. So one of the things that's changed with how AI uses chips versus a normal um cloud comput uses chips is is you know when we think about networking of how these things are computing or connecting to each other.

These chips used to be a standalone in a computer or in a PC connected with some of the Ethernet wires that we all see. We all have that at home. you know just connect a single PC to to the network.

It's not interesting. Has been zero innovation for a long time. But now what the AI chips are doing is they are connecting multiple chips.

Right now the record is 72 chips in one rack and the rack will be taller than me. Um and all 72 chips have to be connected to all the other 71. And they have connectivity so tight that they will act as if this is one chip.

They share memory resources. They do all the compute. They break up the tasks in between them.

But the key is they connect to each other. And and and I use this cheeky word. I say, you know, it's one rack that rule them all.

It's really 72 chips in one big rack act like they're one chip. Now the demand for connectivity and networking in between those chips is entirely different from the Ethernet cable you're thinking. Now the chips need be a lot tighter.

This connection needs to be very very fast. Huge volume of data needs to go up and down, back and forth. and then they you know they can't turn into fireballs so they have to actually be cooled in a certain way.

So Astera Labs was created was founded less than 10 years ago to specifically do this. This is a Ethernet connectivity company that does not make any Ethernet cables. It makes chips that help the other AI chips connect with each other.

Um and then as the chip went from you know used to be single chip now 72 chips soon next year it's going to be 144 chips. And then the number of chips connecting in this rack are just going to grow exponentially. You could see the market opportunity for a sterilap sort of grow exponentially as well.

Mathematically this company >> sorry there's two minutes to go and I don't want to rob the audience of the opportunity to ask some questions. I'm so sorry but we better we better get to it. So if we get the slido up on screen um please ask Chia for the rest of that pitch.

I'm so sorry to cut her off but as I said I wanted to give everyone the opportunity to ask some questions. Uh, so audience questions. That's the poll from earlier.

>> Looks like everyone thinks that things are going to happen a lot faster. But were there any questions from the audience? Here we go.

Can fund managers really position for these big long-term shifts when they're judged on a month-to-month or annual basis by the market? Anyone want to dive into that? [Laughter] >> Good start.

>> I I I can jump on that perhaps. Um our approach is a little bit different than than most like the traditional fund manager approach is quite concentrated portfolios and in that case it can be it can be pretty challenging right to to take long-term views especially you know in technology space that's not the sort of picks and shovels side we we are are really diversified okay so we have hundreds of thematics hundreds of positions in our portfolio so if one doesn't pan out it really isn't a isn't a big deal for us there's a great Roger Federer video on at the moment saying he only got 54% of his stock picks right over his entire of his uh tennis shots flying over probably probably better than me and uh anyway um the stock picking is a bit the same you know you if you get 55% right you're actually doing quite well but if you're very diversified that's the way to to do it >> yeah ciao I'll finish with you because I rudely cut you off what's the risk of an Nvidia market correction given that its biggest customers are companies building data centers are business model with debatable ROI. >> I think that debate is over.

Um, so if you actually speak to the cloud computing company, if you speak to the hyperscalers, if you speak to the neo clouds like the core weaves or nebas of the world that do nothing but building these massive AI data centers, they would actually prove it to you mathematically that the return on capital is north of 30%. Um, so yes, you get cut off a really awesome opportunity to hear about Astera Labs, but it's really things like this that really prove the incremental span on AI, especially on networking, is really high. >> Yeah.