Gavin Baker - AI Market Jitters - [Invest Like the Best, EP.485]

Patrick O'Shaughnessy welcomes Gavin Baker of Baker Technology Partners back to the podcast for a candid discussion on the recent volatility and underlying dynamics of the AI market. Despite a challenging month marked by significant pullbacks in AI-related stocks, Baker argues that the fundamental picture remains robust, with accelerating metrics across various segments of the AI ecosystem.

The Paradox of AI Valuations and Accelerating Fundamentals

Baker kicks off the conversation by highlighting a striking paradox: while many AI names have seen their valuations drop by 50-60% from their highs, there's a notable absence of negative quantitative metrics about AI. In fact, every metric, from GPU availability and rental pricing to token growth and spot prices of DRAM, is actually accelerating. This acceleration isn't just blind optimism; it's supported by hard data. He points out that operating cash flow from hyperscalers like Microsoft, Meta, and Amazon has accelerated from 28% to 32%, and if adjusted for unusual one-time items, it would be even higher, at 35%. This acceleration is happening even before the full impact of new chips like Blackwell and Rubin is felt.