I think what it's telling us is the cost of innovation is collapsing, which it has been doing. I mean, the cost of AI training is dropping before this 75% per year. The cost for inference 85 to 90%.
I think it throws the weight more towards inference chips from training chips. And so in videos highly exalted and deservedly so in the training chip space. Inference is a lot more competitive.
Okay. Do we do we fully understand the implications of that? Because the question that everybody's asking this morning is, do I buy the dip?
So if we're seeing the landscape changing, is it too early to make that transition and understand what the implications of it are? Yes, we've been studying the tech stack and where we think it's going. We're going to put out big ideas in, I think, a week or so and give us some hints.
Yes. So here's a hint. We do think there are share shifts taking place within the tech stack.
We think platform as a service. So think Palantir is going to gain significant share. And this news yesterday, I think highlights that reinforces that we think infrastructure as a service is is going to stabilize a share sale.
I mean, software as a service will come down a share. However, I've said all of that, all of them will be growing rapidly. It's just how rapid is.
And Palantir we should say it's one of your one of your holdings, of course, a company you know very well. Cathy So if inference is going to become cheaper, is this going to be a situation that drives more demand? We were talking about, you know, is that where the positivity comes from for the companies that don't train but do and do infer, Yes, how positive is this going to be?
It's going to be extremely positive. So the those using AI, whether for productivity or other applications, are going to benefit. We think the two most profound use cases right now, besides increasing productivity for everyone, autonomous mobility, so think cars, drones and so forth.
And interestingly, the health care space, we think the convergence of various sequencing technologies, a AI and CRISPR gene editing, that convergence is going to cure more and more diseases over time. So these sound like huge positives for the businesses that are involved in in that stream. And what does it tell us about us tech overall?
We had a conversation yesterday about whether this is some kind of end of U. S. exceptionalism, and that might be in terms of stocks broadly, but in terms of the US tech sector, are we talking about that or is this just, you know, the Sputnik moment has been mentioned many times, a chance for the US now to to catch up again?
Yes, I think competition is great for the US and DeepSeek is competition, no doubt about it. I'm hearing all of the titans, tech titans speak of it glowingly. I don't think we know everything about it yet.
So no, I think its competition is good for the United States. Lowering costs is great for the world. The collapse in the cost of innovation should help all regions of the world.
I will say that new productive forces, which was Xi Jinping's new phrase I think 18 months ago seems to be showing through right now. Common prosperity was the previous one, and I still think that's an effect that was more about margins. This is about innovation.
So we're looking more closely at China. Now. I want to pick up on China in just a moment.
I want to go back to that point you make about cost of innovation collapsing specifically. That would almost lead to the fact that perhaps it brings down the barriers of entry for mid-cap tech firms or maybe people away from the hyperscalers. But you haven't seen that second level outside of the AI adopters really catch the same bid in the way you see Amazon or Microsoft or even Oracle catch up a little bit.
What's the hiccup there? If, as you say, the cost of innovation is collapsing, why aren't some of these stocks reflecting that? Well, I think there's a big debate going on.
And if you look at the second, third and fourth quarter of last year, you look at the mega caps and the rest of the stocks in the S&P 500, you'll see mega caps in the second and the fourth did very well. And and the smaller cap stocks did very well, much better than the mega caps in the third quarter. I think there's a little bit of a tug of war evolving here.
And if we're right, the most massive concentration in the market in history, worse than the Depression, is probably going to give way to a broader based bull market. We're seeing that in our portfolios. And it really did start right around actually the day after the election.
And I think one of the most important things is going to happen is. Regulations coming down. Even in AI, in the United States, their regulations started to intrude in a technology that is today where the Internet was in the early nineties.
We don't even know what we have yet. Yeah. We're excited as back then.
But now is not the time to regulate it heavily. Well, I think I think you've got the president on your side when it when it when it comes to that in the state. I want to come back to kind of this idea of of the hyperscalers here you're famous for for your beta strategy, especially when it comes to the tech space.
I think it's fair to say that the high spader right now is in some of these these tech names, in NVIDIA, in Microsoft, in Google. Just looking at some of the moves we've seen in the last 24 hours, not to mention the last 12 months or so, why not increase your holdings for more exposure to the HYPERSCALERS? Yeah, we do think what we do own Meta and Amazon in our flagship and we own more of them in our other more specialized portfolios.
And in Europe here we have an AI and robotics fund and we there we hold probably most of them because they are going to benefit from the declining cost in, in AI and even Meta who was really the opensource leader. The DeepSeek is open source. I think Meta is saying, wait a minute, what's going on here?
And they're going to use some of the techniques, the algorithms that DeepSeek has used to improve their own platform. So we're not negative on them. We think that the neglect of the rest of the market has been extreme and that that is going to change that The strongest bull market out there is a broad based one.
A market favoring six or seven stocks alone is not a strong bull market. And so if we're right, the bull market will strengthen out and gain momentum, awarding rewarding smaller cap stocks than we have seen thus far. These Meta as a great example.
Before they went all in on AI went all in on the metaverse and there was a big, big pullback on some of that investment. Do you need to be sitting on billions or trillions of dollars in cash to excel in AI in the next five years? I think DeepSeek just taught us that the answer is less than people thought.
You don't need as much cash as we once thought. I don't know if the number is right. 6 million to train that model.
That's unbelievable. It's a 10th or less now. Many people don't believe that.
But again, it fits in with the costs collapsing thesis. They were collapsing anyway. Deep sea has just stepped it up a notch.
Have you mentioned earlier that you're increasingly looking at China? I'm interested in what that looks like, but also how much you think that U. S.
tech companies are going to engage with this or US businesses will engage with this new technology, DeepSeek coming as it does out of China, Given everything we've heard about TikTok and where your data ends up, that might raise some flags for some people. You know, it's very interesting. We've been thinking about President Trump or many people have been thinking that, oh, wow, this is very negative for China and US relationship with China.
But there is another point in history that might be repeating to some extent here. It's called Nixon in China. Nixon did not trust China.
He and everybody trusted Nixon because he did not trust China and they knew he wouldn't lead us astray. I think the same thing is happening here with President Trump. And from a technology point of view, I think he likes the competition.
And he actually did say, I believe yesterday that, you know, this just shows that even in the US regulations, especially that executive order on AI, which he rescinded, probably has held us back. And now let's go. Can you talk a moment ago about the Great Depression and the concentration we saw going into the Great Depression, the number of single stocks?
Do you think we get a smooth transition from? That concentration to the broadening out of the market. That's not what the Great Depression taught us.
It taught us that you get a collapse and US consumer confidence, as so many other things seem to be hinged on this stock market performance. Is it a smooth ride from concentration to diversification? How big a gap could that potentially be between one and the other?
Yes, if you look back at the depression, I'm not going to get all of these numbers right. What you'll see is the massive concentration took place until 1932. Yeah.
At which point the market started broadening out and small or mid-cap stocks back then way outperformed large cap stocks. And it makes sense. They had been absolutely destroyed during the Depression, which was binary.
Is this company going to survive or not? With output down 30%, GDP down 30%? It is surprising to me that we got to an ever even greater point of concentration than the Great Depression.
It tells you that in an underlying sense there was a lot of fear in the market and that investors were piling into cash, cash rich companies that, oh, by the way, had a, you know, a leg up perhaps in this new thing called AI. Now I think it's just going to broaden out. We're looking at a Bitcoin handle of about 103,000.
Cathie, I want to bring you into this into this conversation. You've been a crypto bull for a very long time. Yes.
You've also, prior to the break, talked a lot about deregulation under Donald Trump in the tech sector, but then also in the crypto sector as well. What has fundamentally changed since he's taken office when it comes to deregulation? I think I think we will get significant clarity in terms of regulation.
We will get legislation as well. I think many more policymakers in Washington understand that this was a single vote issue for many voters, especially young voters. And so this is becoming much more of a bipartisan issue.
And of course, you have the executive branch also supporting it mightily, you know, proposing that we include Bitcoin in Treasury Reserve. So you've got I think we're going to have support of all three branches of government, are going to be supportive, which is a big change. Well, it would be a big change.
And I mean, what are we really sure of? That, I suppose, is the question, because Gary Gensler, the SEC, he had a very different view of the risks and the retail investor protections that should be in place when it comes to crypto. There were surely a lot of people who still believe that's important.
Well, I think he he didn't understand that this is the next big wave of the Internet. This is the layer of the Internet that developers did not build in the early nineties because no one thought anyone would would buy or use financial services on the Internet. I remember back then no one was going to give their credit card to the Internet, right?
This is the next big wave and it's a huge efficiency move for the financial services sector. In terms of Bitcoin specifically, it is really the leader in a new asset class and we have a paper out on that. You can see the low correlations which do define a new asset class and it is a global monetary system.
It's a very big idea. My professor, mentor friend, Art Laffer, when, when he collaborated with us on our Bitcoin paper in 2015, he said, This is what I've been waiting for since the US closed the gold window in 1971. So he has been energised by this new movement towards a rules based, rules based global monetary system.
Do you think Trump is going to be on board with that? The President has indicated he's quite a big fan of the US dollar and it sounds like what you're suggesting is a replacement for the U. S.
. No, no. We actually think that, you know, that these two will coexist.
And if if anything, what we're seeing with the Stablecoin movement, stablecoin movement, which is how how people is the on ramp into decentralized financial services, they're all backed by Treasury securities, which de facto they're backed by the dollar. So we think that movement is gaining momentum here, especially now with the deregulation task that rules based. But then we see more coins coming all the time.
So they might be receding from the presidency. Yeah, from the president and his wife. So you said Bitcoin was rule space, 21 million units and we're nearly at 20 million now.
So that scarcity value will continue to support Bitcoin going forward. So you're talking about the Stablecoin kind of being backed by these basically by the federal government. Why not?
Just use the digital dollar and develop the digital dollar as that. Same with that same appeal. So I live in Florida and the governor of Florida, Governor DeSantis, has said he will never allow a central bank digital currency to be used in Florida.
I think Texas has said the same thing. This is a states rights issue and it's all about privacy. Many people here in Europe don't think we care about privacy on this one, on this score, we care about privacy.
And this president very much supports that point of view. Well, you're talking then waiting back into the idea of regulation and cryptocurrency. Viewers also kind of chiming into this conversation.
Cryptocurrency has rallied so much on that speculative ability and being unregulated. But if you're talking about these almost caveats to stablecoins or caveats to Bitcoin or caveats to other tokens that may be traded, doesn't that kind of eliminate the fundamental appeal of what has moved it to? I don't I don't agree with that at all.
I thought where you were going was all of these tokens being issued. We went through another period like this. It was 2017 and Bitcoin that year went from less than ,000 to 20,000.
That was the ICO boom and most of those failed. So it's buyer beware, be careful. And that is why we need some regulation here, because it's out of control, as I think you would say.
So Bitcoin is a completely different animal, though. Completely different. Isn't Bitcoin just a correlated asset to tech?
Isn't that's the lesson from yesterday. No, it isn't actually. If you.
I mean it's it's part of the tech correlation on the numbers looks pretty convincing. It's part of the tech movement. But if you look at Bitcoin, it has served as both a risk or an asset to this tech.
Yes. But also a risk off asset. When we went through the regional bank crisis in the US in the spring of 23, Bitcoin took off.
Why? Because there's no counterparty risk. If it did close off, will crypto go down significantly?
The correlations are are there is a correlation, but it is not as high as, you know, small cap equities to large cap equities. The more institutions get involved, yeah, the more correlations will go up. But right now, if you look at the statistics, the correlations in terms of returns and risk among these assets, very different.
