'CHINA IS CATCHING UP': The warning every AI investor heard

CHARLES: THEHE CHINA THREAT, FOLKS, THIS IS THE BIG QUESTION, IS IT REALLY DESTROYING THE A.I. TRADE. FOR ME, I TRACE ALL OF THIS BACK TO LATE JUNE. REMEMBER WHEN APPLE STARTED WHINING ABOUT MEMORY AND THEN SUGGEST SUGGESTED OUT LOUD THEY WOULD LOVE TO BE ABLE TO USE THOSE CHIPS FROM CHINA? THE SEMICONDNDUCTOR INDEX CLOSED AT THE HIGH ON JUNE 30TH, AND SINCE THEN AS YOU CAN SEE IT'S BEEN TIMBER. THEN CAME THAT KIMI K3 SHOCKER. OF COURSE, THAT SCARED EVERYONE. AND, OF COURSE, SINCE THEN EVERYONE FROM JENSEN TO ELON JUMPING ON THE OPEN SOURCE BABANDWAGON. GUESS WHAT? THE VALUATIONS OF OPEN OPENAI AND ANTHROPIC ARE BEGINNING TO TAKE MAJOR HITS. U.S. FRONTIER MODEL COMPANIES, LISTEN, THEY HAD BILLIONS OF DOLLARS IN CONTRACTS THEY OWED, THEY FUND THIS COMPUTE STUFF. PUT DOMINOES TOGETHER, THIS IS ANTHROPIC, WHICH WAS UNSTOPPABLE. MEANWHILE, CHINA A.I. EXPORTS ARE ABSOLUTELY THROUGH THE ROOF, SO THE BIG QUESTION IS TO WHAT DEGREE IS THIS KILLING THE A.I. RALLY OR, IN SOME ODD WAY, DOES IT ENHANCE THE VALUE PROPOSITION? I WANT TO BRING IN BARBARA DURAN, BB8 CAPITAL PARER INS FOUNDER AND CEO. THERE'S A LOT OF ANXIETY OUT THERE, THERE WAS ALWAYS A LOT OF ANXIETY ABOUT THE RETURN ON INVESTMENT, BUT THIS SEEMS TO BE THE WILDCARD NOW. >> YEAH. I LIKED WHAT YOU SAID AT THE END, DOES THIS VALUE DATE THINGS. YOU KNOW, I THINK THAT'S REALLY THE KEY QUESTION BECAUSE PEOPLE ARE FREAKING OUT ABOUT RETURN ON INVESTMENT. WE'RE NOT SEEING THE MONETIZATION. CHINA'S COMING IN, PRICING WILL GO DOWN. THE FACT IS DEMAND IS OVERWHELMINGLY STRONG AND LOOKS LIKE IT'S JUST CONTINUING TO INCREASE. YOU KNOW, PARTICULARLY WHEN YOU HOOK AT AUTONOMOUS VEHICLES, ROBOTS AND EVERYTHING ELSE, THAT'S GOING CONTINUE. WHEN YOU START TO DRILL DOWN TO THE CHINA ISSUE AND YOU LOOK AT, SAY, THE MEMORY STOCK THAT JUST WENT PUBLIC, THEY'RE DOING D-RAMS. THAT'S COMMODITY. THAT IS NOT WHERE THE A.I. CHIP DEMAND IS. CHARLES: AND YET SK HYNIX CAME IN A LITTLE LESS THAN EXPECTED. SO THE STREET CAN'T GRAPPLE WITH THINGS. A FEW MONTHS AGO YOU AND I TALKED ABOUT ASML, ARE THEY UNDER THREAT, RIGHT? NOT LONG AGO THEY WERE 10-15 YEARS AWAY, NOW THEY'RE DEBUTING SOMETHING VERY SIMILAR TO THE CHINESE. SO THE QUESTION IS, DOES THE WEST -- PARTICULARLY AMERICA -- STILL HAVE THAT TECHNOLOGY EDGE? >> R RIGHT NOW WE DO, YOU KNOW, THAT SEEMS TO BE CLEAR. BUT IT DOES SEEM THAT CHINA IS CATCHING UP. YOU'RE STILL GOING TO HAVE VERY BIG DIFFERENCES IN WHETHER YOU'RE LOOKING AT MANUFACTURING LIKE TAIWAN SEMI, WHICH WE WILL TALK ABOUT LATER, WHICH HAS STATE OF THE ART MANUFACTURING THAT YOU CAN'T REPLICATE QUICKLY OR EASILY, SO YOU HAVE TO BREAK IT DOWN. GIVEN OUR CULTURE, INNOVATION DOES IT BETTER. CHINA HAS HAIR CENTRALIZATION OF MONEY. CHARLES: SO THE FATE NOW OF HYPERSCALERS. THEY'RE ALL GETTING ABSOLUTELY HAMMERED. APPLE, OF COURSE, IS STANDING OUT IN THE CROWD. IT WAS GETTING HAMMERED BEFORE, IT WASN'T MAKING INVESTMENTS, NOW EVERYONE'S SAYING MAYBE THEY WERE SMART WHAT'S THE FATE OF THESE COMPANIES? >> I THINK RIGHT NOW THERE'S A LOT OF BUYING OPPORTUNITIES. WHEN YOU LOOK AT THE GROWTH RATE, WE'RE TALKING OF LIKE A MAY CARON -- MICRON, SUPPLY CONSTRAINTS ARE THERE THROUGH AT LEAST '27 AND NOW MAYBE '28. SAME WITH NVIDIA. EVEN'S CONCERNED ABOUT THEIR FUNDING, THEIR CUSTOMERS, BUT THIS IS WHAT YOU DO WHEN YOU NEED TO MEET DEMAND. CHARLES: THERE'S A CHART OUT THERE, THEIR CES PAYMENTS THROUGH THE ROOF, BUT ONLY A 6% CHANCE OF DEFAULT, TO YOUR POINT,T, AND THE FREE CASH FLOWS BETWEEN NOW AND 2030 GO TO PLACES THEY'VE NEVER BEEN BEFORE. YOU BROUGHT UP MICRON. I TALKED ABOUT CMX, CXMT. RIGHT NOW ABOUT 7% OF THE GLOBAL MARKET. MICRON, YOU THINK, IS IN A SWEET SPOT RIGHT NOW. >> I DO, AND IT'S REALLY BECAUSE OF THE SUPPLY ISSUE. IN THE PAST THIS REALLY WAS A COMMODITY COMPANY WHERE YOU'D HAVE QUARTER TO QUARTER CONTRACTS IF THAT, THE PE WOULD BE 6-8, RIGHT NOW IT'S BELOW 6 AND THEY HAVE SUSTAINABLE GROWTH FOR THE AT LEAST THE NEXT TWO YEARSS. CHARLES: HISTORICALLY, IT'S BEEN ONE OF THESE INDUSTRIES WHERE THEY HAVE HAD NO PRICING POWER, AND EVERY NOW AND THEN THEY'LL GET IT, BUT THEY'LL HAVE IT FOR A BRIEF MOMENT IN TIME. SO YOU'RE I SUGGESTING IT'S A NEW PARADIGM, THAT THEY'RE GOTTEN TO THE LEVEL. THEY'RE NOT GOING TO LOSE THIS PRICING POWER. >> NOT FOR A WHILE TO COME. IT WAS REALLY D-RAM COMMODODITY WHICH IS STILL A COMMODITY, SO YOU CAN REALLY LOOK AT THEM MORE AS AN A.I. INFRASTRUCTURE PLAY. BECAUSE EVERYTHING THEY'RE DOING IS TEEDING INTO ALL THE A. I. DEMAND WHETHER IT'S DATA CENTER- CHARLES: TAIWAN SEMI, STARTING TO BREAK DOWN A LITTLE BIT. IT'S BEEN BELOW THE 50-DAY BEFORE, BUT IT'S BOUNCED BACK SOONER THAN THIS. IN FREEFALL. UNNECESSARY BUYING OPPORTUNITY? >> I THINK IT'S A BUYING OPPORTUNITY. NOTHING'S CHANGED FOR THEM. PEOPLE SAY, WELL, CHINA, GEOPOLITICAL ETC. ETC. BUT I THINK IT'S REALLY DOWN WITH THE WHOLE GROUP, SO I THINK THERE'S A BUYING OPPORTUNITY. CHARLES: YOU ALSO LIKE ELI LILLY. FOR NOW, THEY'VE WON THE GLP WA- >> AND ALL THE APPLICATIONS THAT WILL COME FROM THAT. THIS IS A HUGE PIPELINE. CHARLES: RIGHT. REAL QUICK, I WANT TO ASK YOU ABOUT THESE EARNINGS AFTER THE BELL MICROSOFT META. THERE ARE A COUPLE OF KEYS TO LOOK FOR. FOR MOVEMENT, AZURE GROWTH, THAT'S WHAT IT'S ALL ABOUT. FOR META, AD REVENUE. WHAT EXACTLY DO YOU WANT TO SEE? >> WELL, ON MICROSOFT WITH AZURE, THAT'S OBVIOUSLY KEY. THEY CAME IN AT 40 PLUS PERCENT, AND THIS TIME IT'S EXPECTED TO BE THE SAME, BUT ALSO WANT TO SEE WHAT THEY'RE SAYING ABOUT CAPEX BECAUSE THEY'VE BEEN CONSIDERED CAUTIOUS AND CAREFUL ABOUT IT. IF THEY PULL BACK, IT COULD BE AN INTERESTING SIGNAL. IT'S REALLY ABOUT THE SUSTAINABILITY OF THE CLOUD BUSINESS. AND META, QUESTION RIGHT NOW IS NOT JUST AS CLEAR THEY'VE MONOTUESDAYEDAL THEIR INVESTMENR ADVERTISING RESPONSIVENESS AND REVENUE, BUT NOW IT'S THEY'RE SPENDING EVEN MORE, SO PEOPLE WANT TO HEAR THEM ARTICULATE, WHAT'S THE END GAME THERE. CHARLES: 15 SECONDS. THE CATCH 22, COMING INTO EARNINGS SEASON THEY SAID IF THESE HYPERSCALERS PULL BACK ON SPENDING, THE WHOLE RALLY DIES. GOOGLE DIDN'T PULL BACK9 AND THE RALLY IS DYING. WHAT DO YOU WANT TO SEE? STEADY, WE'RE GOING TO KEEP THROWING MONEY, OR DO YOU WANT TO SEE A PULLBACK? >> WELL, IN THE SHORT RUN, IF YOU PULL BACK, YOU'RE SAYING, OKAY, WE'RE WRONG, THERE'S NOT THE OPPORTUNITY. I THINK THEY'RE SPENDING AS THEY NEED TO. REMEMBER AMAZON. FROM THE TIME THEY WENT PUBLIC, FOR SIX MORE YEARS MADE NO MONEY BECAUSE THEY WERE REINVESTING IT, AND I OWNED THE STOCK THEN, AND YOU HAD TO LIVE THROUGH -- CHARLES: BEZOS SET THE STANDARD. HE TOOK A LOT OF HEAT, HE PUSHED BACK ON WALL STREET AND IF ANYONE WHO HEL