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Now, many people think that semiconductor stocks are inversely related to interest rates. That is not always true. Investors and analysts are worried about everything. This reminds me of the market that I went through early in my career, '80s and '90s. Those were the same worries back then. And what happened?
Sure, we had corrections in the market, but every correction was an opportunity to buy because for 20 years the stock market up went up dramatically. And this technology revolution spreads the wealth around the world. Then in emerging markets, one of the best ways to preserve purchasing power and wealth is
Welcome, Cathie. Oh, thank you. I'm so happy to be here. Great to have you back. Yes. Yes, the second time. Yeah. So, it was about June the last time you came? Yes. Yes. flies. Time flies. But, you seem to be aging in reverse. Aw, aren't you sweet? Thank you so much. Are you still doing a lot of work?
Oh, yes. Yes. Yes. Yes. And I love what I do, you know? Just trying to put the pieces of the puzzle together, how the world works, how innovation's going to transform the world. So, it's fun. It's such a privilege to have you with us today, and especially when AR chips are hammering day by day. Oh, yes.
So, it's actually tough to watch. And Arc says AI is going to push both growth and interest rates higher. Mm, with the market tumbling and also AI crumbling, do you still hold that view? So, uh it's interesting. When I was here in June, the the semiconductor stocks had cracked uh because we had a very strong employment report in the US, and interest rates went up.
And I remember saying at the time that especially in especially in the memory space, it's the most volatile space within semiconductors. So, to expect a lot of volatility, however, we believe we're in a technology revolution that's going to last for years. So, I took a look at SK Hynix. It It's dropped from 3 million uh to 1.2 million or something like that.
Uh and I just looked at the valuation. It's a very low valuation. I think there is some fear that Chinese chips, Chinese memory chips are going to start competing with Korean chips, and that might be true. But, I think two things will happen to help. One is Korea Korean companies are probably going to shift more aggressively towards high bandwidth memory, which is higher value add.
So, that's the first. The second thing that I think is going to happen, and from these levels my confidence is up tremendously, is that this AI revolution that we're in right now, if you use a baseball analogy, we believe that we're not even in the first inning. We're still in the parking lot waiting to get into the stadium.
We are in such early days, and we think the demand growth is going to be explosive. So, we can't use past cycles to try and understand this cycle. We We have to understand that AI has been unleashed in a very profound way. it's going to increase productivity massively. Uh real growth rates are going to continue increasing, uh accelerating, we think.
Uh and with them, interest rates will also move up. Now, many people think that [snorts] semiconductor stocks are inversely related to interest rates. When interest rates go up, they go down. That is not always true. Oh. No, it's not. In fact, many people remember post-COVID when interest rates went up and everything got wiped out almost.
Uh this time around, if you look carefully inside the interest rate uh structure, uh you can break it down into inflation and real growth. Uh the recent increase in interest rates is because of real yields, which are reflecting real GDP growth. Uh the increase has not been because of inflation. And companies in the AI revolution are probably going to grow so quickly that uh higher interest rates are not going to affect them.
They might affect more mature companies. Yeah. But any companies involved in the AI revolution, we think are going to do very well over time. The last thing I'll say is, does this mean that memory stocks here in Korea are not going to be volatile anymore? No, they will continue to be volatile. Uh it's just the nature of the animal.
They're the most uh cyclical part of the market. They're the most commoditized. That's why this move to high-bandwidth memory is so important. Uh so, the volatility should continue, but there's been so much correction to the downside. I can't imagine that we have much further to go on the downside. So, from what I hear from you, AI is actually demanding.
But like nowadays, I feel like market is hunting for bad news. This like CPI, PPI, oil prices, yields. I mean, you could name it. Yes. So, for a turnaround, it all comes down to monetization. Mhm, like show me the money. When are you earning the money? Yes. Is all the massive cap expending really turning into money?
Well, the early signs are yes, and profoundly so. The the most dramatic example is Anthropic. So, Anthropic's ARR, so annualized revenue run rate, was only 9 billion last December. The FT is has a rumor, and we think it's pretty well founded, that the ARR has gone to 75 billion. Yeah. And could hit potentially 90 to 100 billion.
So, think about that. A tenfold increase in revenue in 1 year. Now, how could this happen? Well, the reason it's happening is because enterprises are finding so many use cases, typically related to productivity, starting first with coding. So, the productivity in coding is exploding, and enterprises are willing to pay for it.
In our own company, our chief futurist, he started out at $20 a month when ChatGPT started. Now with Anthropic and with OpenAI, I think he's more on OpenAI. He is spending anywhere from $2,000 to $4,000 per month. Now, what does this mean? Is our CFO upset about this? No, because we didn't need to hire the assistant he was looking for.
He is now doesn't have to train an assistant. He can do all of this work by himself, and he's very excited about it. And I think this is going to be a story repeated throughout enterprises around the world. Now, the other the other AI opportunities are called embodied AI opportunities, and this has less to do with efficiency, although it includes efficiency, more to do with revenue generation, completely new businesses, like robo taxis.
That's the biggest AI project in the world, and we think robo taxi revenues will go from, and this is for the entire ecosystem globally, will go from roughly a billion dollars today to, we think, 10 to 15 trillion dollars within the next 5 to 10 years. To put that into context, the entire global GDP, the entire global economy today, the production of goods and services per year is around 130 trillion dollars.
So, 10 to 15 trillion is a needle mover for it. And you mentioned inflation and interest rates. One of the things that we think is going to happen here includes big surprises. We didn't get one from CPI or PPI this month, but we think we're setting up for big surprises to the low side of expectations on inflation.
Why? Productivity Productivity is anti-inflationary. Technology is deflationary. AI inference cost, so the cost for Chat GPT to answer your question or to complete a task, those costs are dropping 99% per year. So, highly deflationary. And to cap the anti-inflation move off, we think oil prices are going to crack and actually go down dramatically.
Why? Because thanks to robotaxis, we believe transportation is moving to the grid. It's moving away from oil. 57% of oil is used in transportation. And we believe robotaxis moving to the grid means that they will move away from oil toward what powers the grid, natural gas, hydropower, solar, wind, and increasingly we think nuclear power.
So, we think oil prices are going to come down from roughly a hundred to and you can read this in a letter that I wrote recently, maybe three weeks ago. We think they could in this cycle go down to the 30 to 35 dollar per range. So, from 100 to 30 to 35 dollars. People are actually worried that the numbers aren't really making people feel safe about it.
Yes. Well, I think what I like about what's going on right now is we know we're not in a bubble, right? This is not what happens during a bubble because investors and analysts are worried about everything. And I think that's good. This reminds me of the market that I went through early in my career, '80s and '90s.
Everybody was worried about inflation, interest rates, wars, financial crisis. So, back then, we had the S&L crisis. Today, we have the private credit crisis. They're worried about technologies that are are going to transform the world. Are they going to lose their jobs? Those were the same worries back then.
And what happened? Sure, we had corrections in the market, but every correction was an opportunity to buy because for 20 years, the stock market up went up dramatically. So, we call those sorts of market wall markets, walls of worry. The market is climbing a wall of worry. And those actually are the most durable bull markets.
Now, back to Anthropic and profitability. Rumor has it, and we think the rumors are well-founded, that gross margins are above 80% at Anthropic. Those are software-like margins. This is a software company. This is the new wave of software. Basically, enabling customization for each enterprise as opposed to SaaS, which is one-size-fits-all.
Enterprises are willing to pay for it. They're finding it very useful. It's increasing their productivity. And that 80% gross margin suggests that Anthropic's going to be very profitable on on an operating basis as well over time. Uh, I think that the difference between now and the internet era was we are seeing who the winners are uh, already.
So, Anthropic, OpenAI, um, Gemini, Alphabet's Gemini, although it's falling a little behind. Uh, I think the sleeper is going to be Grok, which is Elon Musk's uh, SpaceX AI, although I think he's now calling it SpaceX SI, super intelligence. Uh, so, uh, I think that's a sleeper, um, and don't count it out.
We think uh, we think that uh, Elon has a lot of exciting news in store for us. You strike me as someone with great taste. Um, how do you shop these days? [gasps] Um, I believe it or I hate to shop, and I know that I hate to shop. I've always hated shopping. But, you're such a fashionista. Oh, thank you, but I I leave my shopping to the experts.
So, uh, and A gentle AI is not good enough yet for me, but I am looking forward to it. Uh, I have a shopper, I've had a shopper for 40 years. Uh, she's from Saks. She has great taste. She has great taste, and she knows I can tell. Thank you. She knows the kind of clothes that suit me. Oh. Now, what I am doing, so she has moved from New York City uh, back to Mexico, and so it's much more difficult, but I'm going to be working with her because she has all the information about me, what looks good on me, what design I have no idea what designers I'm wearing.
I have no idea. Uh, but she does, and so she's going to be training my muse. So, she is for now your muse. Yeah, agent. And the reason I asked you this question was because like I see people around giving their credit card to the AI agent and let them handle the whole thing. This pattern doesn't just close down to shopping.
It's changing the world and you can see the how the world is heading into. Which company do you think it would Which company do you think would take the biggest pie for this move? Well, you know, it's interesting. We're at a moment where an ecosystem like Amazon, which is is closing, it's becoming a closed ecosystem.
They're not allowing muse. They're not allowing Grok. And in fact, even Elon Musk said, "Oh, well, maybe I need to start my own platform, my own shopping platform." So, I think muse is in a good place, meaning meta. I think Shopify is in a very good place. Oh, it is. Yeah, Shopify is the back end for a lot of merchants.
Even Instagram Instagram uses Shopify to help fulfill any orders it gets. So, we're looking at names like that. I think now OpenAI, interestingly, tried shopping before its time. They before agents even. Uh And so, I I think they they tried to partner with Walmart and Walmart turned around after three or six months and said, "This is not working." Oh, yes.
So, we're so early. We're so early. I It'll be interesting to see if Amazon does open up and I think it should because odds are very high that it will offer the lowest prices and the greatest selection. And I'm trying to figure out why it seems so insecure because this new world should should work in its favor if it really does have lowest prices, best delivery, best selection.
And so it doesn't really make sense for them to be uh basically saying no Muse, you you and no Grok. But that's what they're saying. So we're early on. I do think I do think Meta is doing a very good job. In fact, Nick Grouse, who's our director of consumer AI and fintech, he's director of research for consumer AI and fintech.
He is addicted to Muse already. He one of the best things that happened to him and maybe your viewers will like this tip is he put in a prompt basically saying, I know that I am that many people owe me money. Many and it's not friends. It is former buildings where he lived. They did they never returned the security deposit.
Or it's the government. He got a tax refund but he had moved and he never received it. So he was able with one prompt to find $1,500 worth of money that people owed him. It was just in limbo. Now, I don't know if the Korean system here in the United States is similar, but if it is, you know, you might be giving your your viewers a very nice tip right now and a good way to use Muse.
He is also using it for nutrition purposes. What should I eat today? What should I buy for the week? Uh he is using it for workout purposes. You know, you know, a different workout every day so he gets all the different muscle groups. Uh and you know, of course he's using it to organize his calendar, uh make reservations, whether it's for vacation or dinner or what have you.
So, he's becoming very dependent on his agent, his muse. So, talking of AI agent with especially personal tasks, it reminds me of Muse. Yes. The popularity of Muse, as you said, is all soaring. Yet Arc sold some Meta on October 12th after buying it last month. Was it profit taking or did you think that the upside was capped already?
Uh no, we do not believe that upside is capped already. In fact, um Muse is up to 2 million weekly average use average I mean, no, daily average users. And it has been number one in the App Store, the iOS App Store, uh the number one productivity tool for 28 consecutive days. Uh now it No one has done that since ChatGPT.
So, uh it's very popular. Uh so, when we made that trim, it was not it was not a trim focused on Meta at all. It had had uh seen some appreciation, but the reason uh we did it is we had the opportunity to buy uh a private company in our ETFs, Kalshi, for prediction markets. And we because we run with so little cash in our portfolios, we had to take a little bit from all almost all of our stocks.
So, that's why it showed up as as but it wasn't an investment call. It was we need to make room for this opportunity we're so lucky to get. I think we're one we might be the only ETF that owns Kahlúa in the United States and we also in the private world own OpenAI in our ETF. So, we're very lucky to be getting these opportunities.
I think it's lucky to get the opportunity but it links to another question. Why meta? Why why not like Tesla or other? Yes, if we had been buying a stock within the last two weeks and this obviously it was within a month. We did not turn around and sell it right away. So, we had to and we had been buying Tesla and SpaceX.
So, so we were choosing stocks that we had not bought or another another rule for us is we prefer stocks not to drop below 1% in the portfolio. So, that limited the number and the natural the natural fallback was was meta. But it was not an investment decision except to say we think prediction markets are going to be as big and as this agnatec agnatec shopping space.
We talked about a stock that you sold. Yes. I would like to talk about a stock you bought recently. I think it was yesterday. Debt concerns were rising recently and call wave dropped like 15% a day except for today just after after arc bought the stock. Wonderful timing. So, what made it so attractive?
It is our thesis that we're not even in the first inning of this AI revolution and we are going to need so much more cloud capacity. Now, we didn't know that Jensen Huang would come out one day after we bought or same day. We we bought it two days in a row. Oh, you Uh-huh. And and so Jensen came out and said, "If anything, their credit rating should be going up.
We're fully backstopping. They don't need the government." And most of the contracts which are with hyperscalers, they're good for these contracts, meaning they will pay the contracts. They will satisfy the contract. So, you know, this happened to us with Coinbase, too. When Coinbase was absolutely getting killed by um SEC Commissioner Chairman's the Chairman Gensler's commentary and by the SEC serving it with a Wells notice.
Um we knew back then that and we bought on that. The stock collapsed. This is the same kind of thing with CoreWeave, but the stock collapsed back then. And why did we buy it if the SEC was against it? Because the judicial system was starting to rule in favor of crypto and against the SEC. So, when we buy, it is with knowledge.
It's not just to take advantage of a stock plummeting. Although we are a liquidity provider. We will buy when stocks are down, whereas momentum players will not. And we will sell stocks when they're up, whereas momentum players will not. So, this is what makes the market. So, let's move to China now.
Six semiconductor hold both US and also Korean chips lately. I think opinions split about this issue, but how big of a hit is this to the three memory stocks, SK Hynix, Micron, and also Samsung Electronics? Yes, never underestimate the Chinese when it comes to manufacturing. I've always wondered why they didn't get into memory sooner, and the answer is it's hard.
It's hard to manufacture. So, maybe they figured it out. They have gotten better with technology, especially since President Xi Jinping is saying new productive forces and anti-involution. Although we don't see you know, we don't see that the competitive dynamic changing there too much. So, I think our answer to this is one, we're going to need so much more memory than people understand.
So, we have another player coming in. We do think that the Korean players have an edge and will maintain an edge in high bandwidth memory. And so, that's probably where the revenue will begin to shift more. So, so that's good, and we need high bandwidth memory. Now, many people look at our purchase of Cerebras.
That's in the public market, and we owned Groq, GROQ, that Nvidia effectively bought. Because neither one of them is dependent on high bandwidth memory. But that was just a way of saying high bandwidth memory is in short supply. And I think with the Chinese coming in, let's just say they are successful.
On the more commoditized end, the consumer device end, let's say. You know, the recent increase in prices is not good for devices. The technology works best when prices are falling or when the quality is uh increasing at the same price. Uh so, I think that uh getting those prices down will re-stimulate the consumer part of the consumer device part of the economy, and that will be important.
Whenever I see prices going up in technology, I do get a little nervous because price elasticity of demand uh is so high. And what that means uh you know, when you raise prices on something, consumers will respond. And they have responded recently. Yeah, they have. You recently mentioned that Bitcoin 10 isn't
[snorts] Is it based on Bitcoin and gold's weak correlation lately? Yeah, it's very interesting. There If you look since 2019 when institutions became interested in in crypto and Bitcoin specifically, um the correlation between gold, physical gold, and digital gold, Bitcoin, is 0.1. Hardly any correlation at all.
Oh. Uh and asset allocators are looking for assets that are not highly correlated. Well, what had sold off recently? Uh it was Bitcoin. What had appreciated recently? It was gold. Uh and so, what we're seeing is the Bitcoin to gold ratio has turned around. Uh and if you look at the chart, and we can provide it to you if if you would like and you look at the chart,
Uh you look at the chart, you'll see that even though it's very volatile, Bitcoin to gold, the uptrend long-term uptrend is in place. Uh and so, we believe that asset allocators are short Bitcoin and are probably moving in gradually here and long gold. So they're probably rebalancing a bit and maybe taking their first positions ever in Bitcoin.
People talk about health strong octobers for Bitcoins, but honestly, I haven't seen it recently the cycle this month. When can we see the upward going up? Um you know, I think I mean I never know about month to month and and that's not how how we're thinking about it. We thought if clarity passed the clarity act passed that that would be a major green light for institutions to move in and so there's some disappointment about that and that's one thing that has happened to keep the lid.
But you know, very quickly after that the our regulators both the SEC and the CFTC came in and said, "Okay, if the legislative process is going to fail here, then we'll come in and provide more clarity ourselves." And so I think investors are assessing fine. Regulators will bring in more clarity. That's good, but in the next administration like if there's a turnover from the Trump administration, will that administration overturn Trump's policies?
So legislation is hard to overturn. Regulation is a little easier. So I think you have that kind of debate going on right now. But I think longer term what's going to be an important force pushing crypto and Bitcoin specifically ahead is is this low correlation with of returns not only with gold but with every other asset and so I think asset allocators are waking up to it and thinking well okay at least I have to experiment with a 1% position.
So on August 19th there was a debasement trade narrative coming out from Bestland and he found that gold and Bitcoin seem to correlate going up. So what's your thought on this? Correlate on going up if if it's the debasement trade they both can benefit. They're both stores of value. We disagree with the debasement trade as it relates to the dollar.
We think the dollar will continue to move up because the return on invested capital in the United States is going up relative to the return on invested capital elsewhere in the world because of our deregulation. It's massive deregulation. And our effective corporate tax rate is the lowest in the world at 8% at least through the end of 2028 thanks to accelerated depreciation.
So the debasement trade sure that's a worry about inflation and both gold and Bitcoin will serve as the stores of value in that environment. So I think he's right about that if people really worried that monetary policy meaning Fed Chairman Warsh is going to blow it. I could see both of them going up but I think that Bitcoin has has
[clears throat] Bitcoin from an emerging market point of view and a store of market point of view is is uh, aligned with stable coins or they're partnered with stable coins in the emerging markets because that's where we see uh, real currency stress uh, starting uh, and so I think that both stable coins uh, in terms of volume growth and Bitcoin in terms of price growth will work well as emerging markets try and work through the turmoil.
Is 1.5 million price tag by 2030 still your base case? So it's always been our bull case. The base case is closer to 750,000. Still a very big uh, acceleration. And we do believe I mean the controversy right now um, you know, my mentor Art Laffer, I don't know if I I spoke with about him with you on our show.
Yeah. Yes, he is such a believer in Bitcoin uh, because it uh, represents going back to something like Bretton Woods. You know, we went off the gold exchange standard in 1971 and he's been looking for a solution ever since. Uh, now he's found two solution uh, Bitcoin for a store of value and stable coins uh, which which uh, pay and share interest.
Tether doesn't but Circle shares rewards or Coinbase shares rewards. Yeah. Um, so one of the one of the things that Art has said recently and again this is getting back to the 80s and 90s where the dollar went up a lot because of really good policies in the United States. Uh, and uh, what happened then is gold the gold price went down.
So there was a direct correlation there. Gold gold is priced in dollars. That that made sense. Um, and uh, so the question is will Bitcoin go down if if the dollar goes up? Well, I think that Bitcoin's role as a new asset class or the leader in a new asset class is critically important here. And it's very low correlation with gold is also important.
So, those are two things that we think are going to propel Bitcoin forward in the years ahead. And we do think as emerging markets they use stable coins for day-to-day Bitcoin's too volatile for that. But as wealth grows, if we're right and this technology revolution spreads the wealth around the world, then in emerging markets one of the best ways to preserve purchasing power and wealth is Bitcoin.
And so I think I think as the wealth increases around the world, Bitcoin will have will play a very important role. Sir, AI and crypto are literally changing the market at lightning speed. What's your best advice for our investors in Korea trying to play the long-term game? Well, you know, look for plays on agentic payments, agentic commerce, and and find the right ecosystem in which to play.
So, we're looking at what companies are doing. Are they adopting these agentic payment methods, agentic commerce methods? It's very early. So, I think we're back to a discussion again. This is more on on the enterprise side as businesses start running themselves or agents start running businesses, we're going to see a lot of API to API payment ecosystems develop.
I would pay attention to the companies that become a part of those those ecosystems. One of the companies we think is a sleeper here is Cloudflare in the cybersecurity space. It already is a gatekeeper for 20% of the internet in terms of protecting it. And it is getting very focused on this a gentle AI world where where it will be sort of the facilitator is this is this is this a friendly interaction or is this a foe and become a little bit of a gatekeeper for a gentle commerce and payments.
Always great to speak to you, Cathy. Oh, thank you. It's great to speak with you, too. We're speaking the same language. Innovation. Thank you for coming to the show today. My pleasure.
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