The AI Compute Boom Is About to Enter a Dangerous New Phase

What's up guys? You're listening to Milk Road and I want to tell you that today's video has actually aired before on our channel, but we thought that this conversation was so good that we should air it twice. So, this is a little excerpt from a past conversation. And just a reminder that if you want to see what our analysts are calling next across AI stocks and crypto, all of that is in Milk Road Pro at the link below. Enjoy the video. Why will the market be more constrained next year? >> Because the AI adoption will not slow down. We will have more AI agents. That's number one. Or like that that's the most important thing, right? We will have agentic AI being adopted in companies, in in in private use cases, more and more in governmental use cases. Um and this will just accelerate the compute demand, right? This is I mean, obviously this is the It's it's a fair question to raise, right? The bears of the compute trade probably outlining that AI adoption will not happen at that pace and therefore we're overbuilding capacity. Me personally as a as as an AI uh bull I do not see that because I have different lenses on that. I use AI at least 10 hours a day, right? Right for Milk Road, for for my other company where I work in. And and and there I also see what it means to adopt AI, also what it costs to adopt AI in a in a company where 10,000 people work, how much you spend on compute, right? How fast that explodes as people start to kind of token max, right? Um and this is just making me bullish on we need more more compute because I see it as I see it in my personal I see it in my business life. Um yeah as And and also one more point on this we also start to see the ROI, right? talked about this this will on on on on Tuesday on the on the roll out with Kyle right? We're starting to see the the adoption of AI and the and the value cases, right? Palantir to me is still the best proof point of this. They're adopting AI, they're spending compute, but they're making companies more efficient. They save companies money. And obviously once companies realize that, "Hey, we found this kind of way or this proper way of adopting AI. Yes, we're spending money on that, but the value we're getting is so much more that this naturally incentivizes you as a company to spend more on compute because you're expecting more return, right?" Um and and and this is kind of the core explanation of why compute demand will not slow down anytime soon. And it's also explaining why we're not overbuilding capacity. >> If you're not a programmer, what the hell are you doing? Melvin's portfolio is up 41% since February. 10 grand behind his moves in that time would have made you roughly $4,000 and 5 months of pro only cost 125 bucks in that same period. Is there a better ROI on any investment right now? Milk Road Pros price goes up from 25 bucks to $39 a month on August 26th, so join before midnight on August 25th and you keep today's price for as long as you're a member. Right. Right. So, what happens I guess what happens when that scarcity starts to actually dissolve a little bit if you could call it or that compute actually starts to scale. >> Yeah. I mean, obviously this situation will not always be like this, right? We are we are running to build more compute. We had the Nvidia announcement from this week saying, "Oh, we have $500 for all for compute. Use use that money to build compute, right? Then we have we had another massive announcement I think it was today or yesterday. Another big American bank not part of that Nvidia consortium saying, "Oh, we have 200 billion here to invest into the AR AI market." So, I'm not saying that compute or I'm saying that compute can stay scarce while the entire market just becomes easier to to scale, to finance, and also to price. And that is kind of the the change versus where we are today. Um and it reduces the value of just having that capacity. Right? And I think I need to explain that a bit, but what I'm trying to picture here is that I'm not saying compute demand will slow down. I'm not saying we're not in a scarce market. It's just we're getting into a more mature market that um yeah, is is you can compare it to the oil oil market kind of, right? It's more standardized. It's a It's oil has still a lot of value. There's still a lot of demand for for oil, but it's it's a way mature market versus compute. And this is kind of the world we're moving to as we're building more supply, as more capital is flowing in, as we're building these market structures with with futures where people have better prices coverage as they can hedge compute as well. And then And And And why am I saying this? Why am I having this slide in this presentation? This changes who's winning in this market, right? It's not about simply having this compute anymore, but providing this compute in a very low cost and efficient way. And that's kind of the And that changes who's winning in the market versus today. >> With this future like beyond 2027, would that not make you bearish on neo clouds after that? Because like basically that if if as the market becomes scalable and more efficient, this premium that you've described on these other slides here, does that not erase that, right? So is this So is this Is this not what you're describing? Is this not a short a short-term bullish long-term bearish thesis on neo clouds? Because even even what you're saying about chips, too, it's like, well, they'll need those chips for the next few years, but beyond that, there will be new chips that are more efficient cuz that's what everybody's building, right? So does that not paint that picture? >> Yes, sort of. I mean, the core question is obviously when are we moving into this world, right? In terms of access to capital, in terms of building future markets, allowing for hedging, allowing for more transparent pricing, we're we're seeing that this year, right? Hedges from CME, that's kind of a big big institutions, um is is coming October this year. And this is just making the market more mature. And yes, it will probably take away this kind of very premium pricing that I was describing earlier from from neo clouds from from Elon of SpaceX. Um But obviously that that the driver number one is demand versus supply. And then the core question is when is this point coming where we're not having more supply versus demand, but it balances out a bit more than it is today, right? Today we have this much uh demand and this little supply. And it slowly slowly slowly slowly over the years get closer to to together, right? Um and that's obviously the the biggest question here to answer. Based on my analysis, I think 2027 we're still in this very constrained world and still allows for premium pricing and actually the market maturing is bullish for the near clouds because if you think about it, the consortium that NVIDIA announced giving you 500 billion dollars is really bullish for them because they're competing against hyperscalers who have massive massive operating cash flow from the legacy business so they they can borrow money at lower interest rates versus the near clouds having higher interest rates or need to sell equity or raise debt or whatever. And and and and those are the structures that kind of alleviates that issue for them, right? And then also the futures they can they can use that to hedge against the falling compute price which again makes it easier for them to access capital. So, on the one hand you could argue it's kind of bullish for them, but as we're kind of moving slowly slowly to towards this future where this real constrained world is going away, then yes, it's probably bearish. But that's down the road. To me that's 2028 and later. >> You know, one thing we've talked about a lot on this show is that crypto is quickly becoming a huge part of the global payments infrastructure and nowhere is that more obvious than in Asia. But if you're actually running a remittance company or a payment business, you know that the hard part isn't moving coins, it's dealing with local banking partners, compliance, liquidity, and all of the operational headaches that come with sending money into places like India and Southeast Asia. That's why today's partner is Sabre. They give payment companies stable coin powered infrastructure to collect and make payouts across Asia without having to build all of that complexity themselves. They've already processed more than 3 billion dollars in transactions across 40 different countries, so this isn't just a concept, these guys are actually doing this for real. If you're building payment infrastructure or expanding into Asia, make sure you check out saber.money. >> So, what I mean okay, I I agree. I mean that's that's a good take. I'm just I'm just wondering at what point the the market realizes that. I feel like I always end up talking to you about timing. I feel like every time we have said this I'm in a in a deja vu Vincent that I've like whenever we have these shows you and I, I always so much my own main questions come back to timing. But I think you actually have a slide about that that pretty much just described what you just said that that's when that's when you in 2028 is when you get into like an efficiency cost market versus right now we have been in like a scarcity and speed market, right? Which is why why SpaceX is able to command those premiums. >> Yeah, no you're you're absolutely right. Timing is the core part here and people will disagree with me that they will say "Hey this the timing for this is 2030 and beyond, right?" I And and then they're telling me, "Oh, 60% of the data centers are delayed." And those are all fear kind of arguments when it comes to alleviating that real compute constraint world that we are in today. I'm just seeing that there's so much institutional capital, but also attention and also from the White House flowing into this right now, especially over the last two to three weeks. Those announcements were just massive and it it it it just takes the issue of money out of the equation. Um and then we're left with the physical constraints like energy and just makes me more bullish that we're building out compute supply faster than what people may be expecting and we're alleviating that issue. And to come to to to to what is on that slide, right? It changes to what you as a compute provider need to do, right? Remember I was how you win today's speed to compute, how how fast you can bring compute to the market and supply demand. In the future, it's about how cost efficient you can bring that compute to the market and by that steering your margin, right? Speed still stay stays valuable, definitely, but it's less of a of a moat in that 2028 world that I'm personally describing, right? And this has different implications on the new clouds, on the hyperscalers, on on on on Elon, and to me also changes kind of who wins. >> Thanks for listening to Milk Road. If you enjoyed the show, make sure you like and subscribe. [music] And if you're struggling to find winners in the market, that's exactly what Milk Road Pro is built for. Our analysts have called some of the biggest winners early, [music] and Pro lets you see what they're buying next, every trade they make, and the research behind every position. Check out Milk Road Pro at the link below. Everything you hear on Milk Road is for informational purposes only. These are our personal opinions, not financial advice, and we may own some of the investments we talk about. Always do your own research and make the decisions that are right for you. See you next time.