AI vs Macro: What’s Really Driving the Market Rally?

Añadido: 2026-05-22

[00:00:00]Hello and welcome back to the Market Maker podcast and we are going to talk about the ongoing rally in US stocks.

[00:00:09]I think it's the S&P 500 on track for its eighth straight week of gains.

[00:00:15]You know, what UK political crisis, geopolitical unrests in the Middle East, it's just record highs here. We're on It's the gravy train. If you're not on it, where have you been? Uh but no, in all seriousness, we're going to break down a little bit of what's driving those gains and ultimately a little bit of a dive, you can't get away from it at the moment, into the AI narrative because also we've had Nvidia's earnings, which we can break down a little bit, some interesting new technology that they're looking to roll out, which we can look to try and explain. And then also the IPO feeding frenzy.

[00:00:53]Everyone's at the trough at the moment.

[00:00:55]Salivating for the SpaceX official prospectus got filed this week. And then we've also got OpenAI, and of course Anthropic coming down the pipe. Uh but before we begin, quick shout-out to all the students who joined us at Morgan Stanley's head office in London yesterday as the official kickoff for our summer analyst training program. If you're interested in that program, check out the show notes. Uh but also some of our high-potential candidates were there. So, some of the best and brightest from our simulations from uh all over uh EMEA. So, great to have you all in the room. Did you manage to uh catch up with some yesterday, Piers? I did. Yeah.

[00:01:39]Um yeah, some really interesting, you know, young people. I think the the talent pipeline is uh is healthy and uh the future's bright, people. Well, I when I was walking from MS's office to where we were having our social in the evening, I got stopped in Canary Wharf. Uh I can't I didn't his name, but he was like, "Are you the guy from the podcast?"

[00:02:03]I was like, "Yeah, I could be, yes." And then he said, "Oh, who's the younger guy?" Ah. And I said, "What do you mean, the younger guy?"

[00:02:13]He was talking about Stephen. He wasn't referring to you or I, unfortunately, Piers. Yeah, I didn't I didn't realize the gap was so physically obvious between us and Stephen. Yeah, that's depressing. Let's That's Let's move on.

[00:02:26]So, with that spirit of that, I'm going to wear the a cap for the rest of the episode. Wow. So, I feel you know. New Balance. Is that that Is that on trend anymore?

[00:02:38]Probably not, which means I'm a classic millennial.

[00:02:41]Exactly.

[00:02:43]All right. Well, look, let's go. Let's talk about the S&P 500. And yeah, the longest streak of weekly gains since 2023.

[00:02:52]So, should this be What should we read into that?

[00:02:57]Well, we should read into it that um Well, it's interesting, right? Cuz so a rally with the S&P 500, it's it's obviously such a massive index. Obviously, the name gives it away. There's 500 companies in it.

[00:03:14]And so, when that index goes up, um you know, it could be for many different reasons. So, I think you you've kind of got to delve into the detail. It's okay.

[00:03:24]If the index is going up, well, what's driving that index higher? You know, which components of the 500 are actually, you know, leading the charge and responsible for the rally. Um and I think what's happened over the last few years is the uh the kind of domination of that index from the kind of tech sector and the super scalers. You know, they're such a huge portion of the index that that really, in many ways, most of you know the other sort of let's just say the other 493 stocks in the index um does it matter how they're performing in terms of how the overall index performs?

[00:04:06]So I think we're in this slightly skewed world that everyone looks at the S&P index and go oh my god it's just marching higher. Can you not see there's a war in the Gulf?

[00:04:15]And it's like well well yeah I mean it is marching higher but but why? And remember we've got this the these this kind of we talked at length about this kind of double theme going on where yes we've got this war in the Middle East. Yes we've got inflation concerns. Yes bond yields are rising. Yes we've gone from hoping central banks will cut to worrying central banks will hike.

[00:04:38]That macro shift if all if if nothing else was happening then these markets would be heavily down.

[00:04:47]But it's not the only thing that's happening. This is how the AI revolution thing going on which is the counter balance and right now the counter balance is winning the battle and the markets >> Can I ask a question then? So naturally people will look back and use historical patterns. So how has economic data performed? What's the correlation between the indices and and and those economic signals? And they'll try to extrapolate in order to predict the future.

[00:05:19]The thing is in the past there wasn't AI. That's right. The the the narrative was not there. This counter balance didn't exist. So how important is looking at previous uh economic cycles to the current one that we're experiencing? Well I think that's why people are really scratching their heads or some I should well not some people are scratching their heads going what the hell is going on? Now look is this like gravity defying move to the upside? But I think the the fact the market is going up means that institutional players are buying it.

[00:05:54]You know, the professionals, if you like, they're buying this thing. That's why it's going up. You know, they're not the ones sat there scratching their heads, "What's going on?" They're the ones that are a long and getting more long cuz they understand this is a secular theme. So, we talk about cyclical, you know, the the economic cycle, right?

[00:06:16]The economic cycle will, I mean, historically, if you go back, whatever, post-Second World War, let's say, then on average, an economic cycle lasts 7 years.

[00:06:25]And often an asset manager will be looking at that cycle and trying to figure out, "Where are we in the cycle right now at the moment? Okay, let's go back and look at the previous times we were at this point in the cycle." And right, as you were saying, you know, "How did things behave then?" And okay, let's expect the same pattern to repeat.

[00:06:41]That's fine, right? It's just that every now and then you get what's called a secular shift, which kind of comes on top of that, which is more of a It's not a 7-year cycle. A secular change can lead to a 10-20 year situation. And so, AI is a secular moment, all right? It's It's a It's a It's a revolution. It's a game changer.

[00:07:02]It will change economies, you know, not just this year. It'll change economies forever, right? So, we're we're in the middle of this sort of trying to price in a new reality that now has AI embedded in it. And And this is going to drive the productivity gains that have been missing and absent from certainly Western economies, you know, for 20 years. So, there's a secular shift going on. So, like the industry professionals will understand that. And right now, they're betting that that secular play is the power is the more powerful component. And And that's why the market's going up. But, you know, we should look the market rally cuz it had the the the the kind of detail what's driving the rally has changed. So, whilst you look at the index and you're going, "Wow." You just get a chart of the S&P 500. It bottomed on March 30th, okay?

[00:07:57]Um and from and that, you know, based off the kind of that initial reaction to the Gulf um situation with the US and Iran, bottomed on March 30th and then since then we've just gone through it.

[00:08:10]In fact, the S&P has done more than 1,000 points. So, we it bottomed at just Well, let's just round the numbers. Just about 6,300, okay? We're now trading 7,470.

[00:08:21]And and just to give you as another stat of the the change in the flow of money and expectation with that move.

[00:08:30]So, Bank of America have their annual um hedge fund manager survey or not annual, monthly.

[00:08:37]And actually what that found was that asset allocators boosted their stock exposure to a net 50% overweight in May from 13% last month. Wow. That number's now allocation is at a record.

[00:08:53]Yeah.

[00:08:54]Well, it that in of itself is a bearish signal.

[00:09:01]Because if everyone has now bought, you know, it's it's the change from underweight to overweight that moves the market.

[00:09:11]Cuz that's where you're buying stocks to change your weighting, right? But once you've done that, you're not buying anymore cuz now you're in the overweight position. So, And as Bank of America's main strategist, the guy called Michael Hartnett, said, given that fund managers are now the most overweight on equities that they've been since January 2022, close to them triggering the Bank of America sell signal.

[00:09:40]Oof, there you go.

[00:09:42]Well, look also and I'll I'll add fuel to this bearish fire because when you do look at the rally. So, as I said, March 30th was the low. We've done a 1,000 plus points since then. The first part of that rally I mean, let's break it down like March 30th. So, we basically have 6 weeks. Let's call it What did you say? 7 8 weeks up now? We We're about to do 8 weeks up in a row, right?

[00:10:02]The first Let's say the first quarter of that rally 2 weeks was basically the whole market.

[00:10:10]It was incredibly broad-based.

[00:10:12]And actually, that's a really powerful sign of a sustainable uptrend if just everything's getting bought, okay? So, that was the first 2 weeks of the rally.

[00:10:22]The second 2 weeks, it kind of shifted.

[00:10:24]It was no longer the whole of the market. It was then just really the large caps, okay? So, now Now, this is where the the S&P was taking over cuz it's not just the S&P. We We We look at the Russell 2000 index. That's an index of small caps, right? So, all indices were up in the first 2 weeks. Second 2 weeks the S&P kind of basically kind of you know, went ahead and it was the large caps that were continuing to rally. The small caps kind of ran out of steam.

[00:10:53]Then the kind of third 2-week segment.

[00:10:56]Now, within the S&P, it was no longer the whole of the S&P large caps moving up. It was just info tech, okay? It was just the tech stocks that were rallying and I would say in the final 2 weeks it's no longer all of the tech stocks.

[00:11:12]It's actually you just zoom in to the basically the hardware and the semiconductors specifically that are actually still sustaining the rally. So, as the rally goes on, if you look at it just from a complete top level, well, it's the market's going up.

[00:11:26]But, the context of that rally has really shifted and the the school of thought is that the narrower the rally becomes, i.e. the fewer and fewer and fewer components that are actually driving it, well then the the the more you should expect that rally to reach its end, the less sustainable it is. So really we're we're just on the AI capex spending sort of thesis and and if that holds out then certainly the hardware and semiconductors portion of the S&P 500 will carry on going up. Quick question for you then. So connecting that to the macro picture, which is about the bond yields we've talked a lot about in recent weeks. So the bond yields have been moving because future inflation is expected to be higher. Now that actually inflation in itself hasn't yet perhaps gone to where it it might go.

[00:12:27]But markets are forward-looking.

[00:12:29]Mhm. If you're saying that inflation is coming, well, surely that risk has already been baked in, no?

[00:12:40]Yeah. Um it's just I mean like I you could go back like talking about going back and when did we last have a situation like this and what happened?

[00:12:51]So 2021's a good parallel. So we had a really strong like post-COVID obviously it was the kind of mega cap tech. That's where the the the magnificent seven came from. It was that kind of rally in 2021, right?

[00:13:05]But then the the breadth of the rally deteriorated and became narrower and narrower and narrower.

[00:13:10]And then we had the inflation crisis and transitory and anyway the Fed got it wrong, but then they when the Fed finally started to hike, that's when it all fell over.

[00:13:22]And and 2022 became one of the worst years generally for stock markets we've ever seen. So, I I think we're kind of in that holding pattern right now where we know we're not getting cuts anymore, but are we getting hikes?

[00:13:37]It is still an open question.

[00:13:40]And I know we're pricing in the idea we will, but it's you know, what are we pricing in? Couple of hikes? Maybe.

[00:13:47]So, that we're still in that situation where yes, this oil price is a 100 where are we right now? I mean, everyone's forgot just stopped talking about oil to be honest, but uh Brent's at $105, right? So, it's still up there, obviously. PPI, which is producer price inflation, um which is in some ways a lead indicator to CPI in some ways. It's complicated, but um PPI is what the producers pay for their let's say their um components, then they're building their products, and then they're selling it to the consumer. So, you would expect if the producer prices are rising, you'd expect that to result to prices of goods, finished goods, rising.

[00:14:25]And that would be CPI, right? And that's what the central bank is particularly interested in and and maybe trying to control rates with. But PPI really ramped higher. Um I mean, it got smashed up through 4%, you know, highest reading since mid-2023.

[00:14:40]You know, inflation is coming, and we know that. It's just how long will it last?

[00:14:45]We don't know.

[00:14:47]And how many hikes? We don't know. And so, that's the part that for now investors are happy that in the meantime, as long as we're getting strong evidence that this AI capex frenzy is continuing, well, then we're hey, you know, the economy's going to be solid, and we'll it will be strong enough to live through a little bit of inflation.

[00:15:13]And so, let's get on this kind of secular AI gravy train.

[00:15:17]On that point, then, we have this week SpaceX filed its prospectus to the US regulators on Wednesday evening.

[00:15:29]You've got SpaceX, you've got OpenAI, Anthropic, all likely Well, we know now SpaceX, but the others as well, very likely in the next 6 to 9 months.

[00:15:41]Ahead of an IPO, I find it incredibly hard for that bubble to burst just yet. Yeah, because they will tactically, you would think strategically, if I was any of those companies, I'd be holding back some good news.

[00:15:59]Uh you know, if I was Anthropic, uh the mythos, there's going to be a new mythos, I would imagine, before the IPO, just to give it the last bit of juice.

[00:16:09]So, what do you think about that as a as an investor perspective?

[00:16:15]>> The IPO circus is is kind of coming into town, baby. And you know, talk about distraction. I mean, what war in the Gulf?

[00:16:26]You know? It's Nobody's talking about it anymore.

[00:16:29]Um so, the SpaceX kind of show, I mean, that's going to be epic in size and scale. It's going to be the dominant story for weeks. And you're right, it's absolutely going to keep this sort of yeah, this hype train going with regards to this whole AI situation.

[00:16:50]Um And then obviously Anthropic and I and and chat and OpenAI fine have We don't know the dates on those yet, but you know, that's going to continue this this circus, right? And I would say, yeah, from a vibes point of view, AI, you know, that that that theme and that thesis as that I've been talking about that's really been driving the the market up, should be sustained, you know, outside of something dramatic a a dramatic escalation of >> [snorts] >> the geopolitical situation, for example.

[00:17:22]>> throw I'm going to throw in a Trump-brokered peace deal for you.

[00:17:25]Yeah, well, there you go. Let's go.

[00:17:29]Let's go all the way to everything.

[00:17:31]>> Yeah, right. So, so that that's where we're at, and this SpaceX thing comes at a perfect time to sustain the this kind of the whole story.

[00:17:40]So, a couple things with the SpaceX side of things.

[00:17:43]Um so, we do get more information. One of those, cuz I know there's a lot of people that listen who are interested in uh banking, was Goldman Sachs has got the coveted left lead position.

[00:17:54]Uh so, you know, this is you know, it's going to be the biggest on record ever, and there is severe bragging rights that come with that. So, GS has snagged that that position, but whole host of others will will certainly be involved. What I thought was interesting reading an FT article was talking about uh SpaceX will make relatively few shares available to public investors at its IPO.

[00:18:19]Um so, what that means is a small free float, which under old rules, that would exclude the company from indices tracked by, obviously, trillions of dollars of passive investments.

[00:18:33]What I thought was fascinating was the hunger and desire to get involved on this groundbreaking size deal is the Nasdaq just went, "It's okay, guys.

[00:18:44]We will change the rules. We will loosen the rules to win you over, to get you uh to come over." And yeah, so what they're going to do is SpaceX and other new entrants will be given an index weighting equivalent to three times the value of the shares floated.

[00:19:02]Mhm.

[00:19:04]Uh which is amazing. Yeah.

[00:19:07]It kind of just juices it it's all these tactical little ways. It's so funny.

[00:19:12]it's like the the company the bankers will know on behalf of SpaceX that they've kind of got these exchanges to ransom here.

[00:19:21]And so do make these changes that fuels then is supply and demand of the shares available and the shares themselves are going to be 3x on equivalent weighted basis.

[00:19:32]Yes. That's like genius work.

[00:19:33]>> It's quite amazing. It's like I don't know. It's this sort of you just tear up the rule book every now and then because something comes along that you have to have. I don't know. It's like I don't know.

[00:19:45]Suddenly Messi says, "Right, I'm I'm quitting this club and I'm up you know, anybody interested in buying me?"

[00:19:52]And all other clubs go, "Well, let's scrap our wage cap. Let's just buy him.

[00:19:55]Let's just tear up our rule book. We just need this person because we don't want the competition to get him." Right?

[00:20:03]So, this is like Nasdaq and New York Stock Exchange fighting out of course SpaceX will immediately drop in as one of the biggest companies on the planet, right? We're talking it could be a two trillion valuation here.

[00:20:16]So, you know, you you want the big stuff in your index and so yeah, the Nasdaq of I mean it's quite yeah, that that's three times um the kind of value of the shares being actually issued here is quite quite extraordinary. I have to say. But look, they're only raising 75 Well, hang on.

[00:20:33]I almost said they're only raising 75 billion. Um which would have will make it the biggest IPO in the history of mankind.

[00:20:41]So, I think the word only is misplaced.

[00:20:44][clears throat] But my point is, you know, 75 billion out of a two trillion dollar business, you know, what what even is that? That's less than 5%, right? If my quick math is like 3 and 1/2%.

[00:21:00]So, that that's that's the problem. The free float's going to be so low the demand there'll be a such a huge supply and demand imbalance. Mhm. Meaning that demand to buy this stuff. I I've had my mate call me up last week. You know, he works in he's a contractor for like um in real estate basically. Right? So, domestic real estate development.

[00:21:27]And he he finds me up and goes, "Right, how can I buy how can I buy SpaceX shares in the IPO?"

[00:21:33]I'm like, "What?"

[00:21:35]So, you know, my point is, right, everyone wants a piece of this action.

[00:21:38]Obviously, the professional industry needs it cuz don't forget you've got index tracker funds. So, you know, if you've got if you're running an index tracker, which is such a beast portion of the market these days with BlackRock's kind of ETFs and so on, then this will be a new component, one of the biggest, dropping into the Nasdaq. So, everyone all these index trackers have to buy it cuz they're obviously they've got to track the index, right? And so, but then you've got the main street as well.

[00:22:08]Obviously, kind of get kind of caught up in this frenzy and circus and they want to buy it as well.

[00:22:13]Could you could you just break it down then to explain, say if you are a BlackRock and you're managing one of these funds and you need a certain uh calculated exposure to the index.

[00:22:26]So, you've got what's going to be a top 10 global sized company coming to the index.

[00:22:32]There's only so much capital at play at any one time and although there will be inflows into the overall ETF, for example, um surely some of the money's got to come from somewhere, i.e. to rebalance to accommodate not just SpaceX. Don't forget you've got Anthropic, which is going to be probably a trillion by the time it lists.

[00:22:51]OpenAI's not sure about either. So, you've got possibly 4 trillion worth five to five trillion coming on.

[00:22:59]So, how does that work? Would you expect to see any sensitivity? I know there's some lock-up periods how this type of thing works as well.

[00:23:09]Yeah.

[00:23:10]What does that mean?

[00:23:11]>> I I think I think that I mean, right, it's just sort of a top level, then yes, you're going to have to you know, what proportion of the index is Nvidia?

[00:23:21]Well, its proportion of the index is going to drop when a big new component slides in.

[00:23:28]So, actually, these passive funds will have to sell some just call it Nvidia stock and and kind of reallocate that cash to SpaceX, right? So, yeah, you're going to get some selling of some of these bigger kind of stocks. I'd say outside of the kind of index trackers, I don't know, we've got such a mature sort of um private markets these days that a lot of the big um institutional funds actually already own slices of Anthropic or OpenAI or indeed SpaceX. There's a lot of like there's um a kind of secondary market you know, within that sort of private market where you're getting situations where, you know, SpaceX staff have sold some of their shares, their share options vested.

[00:24:18]They've exercised the option. They then sell the shares, you know, to private institutional players, right? So, you do have some of the institutional money has already positioned themselves you know, pre this thing going public.

[00:24:35]So, that that's maybe a thing, but I would say money is finite and I am concerned about whoever stirred in this sequence I think maybe got a problem on their hands. So, SpaceX is going to go first, right?

[00:24:51]That's coming in in June. I think probably Anthropic will come second just because they're absolutely destroying it and smashing it and it just smashing it out of the park. So, obviously off the coattails of that momentum, timing's great.

[00:25:07]OpenAI have faltered, they've stumbled.

[00:25:11]So, not good timing, but they'll probably be third, but the problem is is there any cash left to to actually properly get involved with a a third, you know, monster monster monster-sized IPO?

[00:25:26]Um, that'll be interesting to see. Yeah.

[00:25:28]Just to conclude there, JP Morgan have issued some projections for rebalancing outflows from passive funds.

[00:25:35]As a rough ballpark figure, Nvidia, they've got penciled at 21 billion, Apple around 16, Microsoft 12, Amazon 11.

[00:25:46]What, as in that's the amount of money that needs to come out of those stocks to move across to get your SpaceX? Yes, which actually uh struck me as quite small. Yeah, that's that's right. Yeah, so I wouldn't be too worried about that as being, you know, the Nvidia rally isn't over because SpaceX is joining the index.

[00:26:10]Put it that way.

[00:26:13]All right. Well, look, talking of Nvidia to do our final segment, we did have the earnings. They reported their fiscal first quarter reports at midweek. Their revenue, 81.62 billion, exceeded expectations.

[00:26:28]A little bit light of a the whisper number. So, just to make sense of that, you have this official market consensus, which comes from the analysts on the street. But then you have like the whisper. The whisper's kind of more not a rumor, it's more like when reality we know it's probably going to lean at the top end of expectations. And so, often the market is more primed for a a reaction based off a whisper than a consensus is is how it would work. Um so they would touch shy of the whisper, but pretty much in line with a whisper.

[00:27:02]Uh adjusted EPS a dollar 87 beat expectations of 176.

[00:27:07]Uh adjusted gross margins of 75% also a beat, and then looking ahead the company guided to revenue of 91 billion dollars, and this is what they always say plus or minus 2% uh which is top of the whisper number that had been discussed uh among circles ahead of the earnings.

[00:27:26]Um so one important factor I did see pretty solid on the guidance especially as Nvidia is not assuming any data center compute revenue from China Yeah. outlook.

[00:27:40]Which is amazing.

[00:27:41]>> without China.

[00:27:42]>> [laughter] >> Yeah.

[00:27:44]Well, yeah, guided 91 billion. I I guess that's going back to my kind of more macro point earlier this secular AI move and like how long will it last? Will Nvidia really becomes an absolute bellwether moment each quarter to you know, provide evidence as to whether that AI revolution is actually sustainable. Is it continuing or not? And their guidance figures the most important of all of that. Obviously those numbers you've just rattled off, you know, 81.62 billion. That's obviously behind us, right? That's quarter that's just finished for them.

[00:28:21]So we want to know what what about ahead? And so 91 billion guidance for the next quarter um is really strong anyway, but you know, is is obviously when you when you've got zero China in there, it kind of makes that even more strong. So basically the point is that that AI revolution is alive and well. Mhm. And that that all important data center revenue, that was a record.

[00:28:50]That was 75.2 billion in Q1. So, some stats for you.

[00:28:55]That's up 21% from the previous quarter, up 92% from a year ago.

[00:29:03]Yeah.

[00:29:04]And talking about talking about the outlook then, I guess one of the things here is that the the bar of expectation just continues to remain exceptionally high for Nvidia.

[00:29:15]So, a lot of people looking ahead and thinking, okay, so what else is coming down the track?

[00:29:21]And one of the things that they said was that Vera Rubin is on track for a second half of 2026.

[00:29:29]And so, while they you know, somewhat casually smashed expectations as they always do, a lot of the people, analysts, the tech world, and so on, are really plugged into Jensen Huang talking about in the conference call Vera Rubin and Vera CPU.

[00:29:46]So, I just thought what we could do is, look, we we don't profess to be technology experts.

[00:29:52]Uh actually, speak for yourself.

[00:29:55]>> what we're going to attempt to do is try to talk about it in as much layman's terms as that our brains can handle and hopefully that will make sense of, you know, why the market is actually This is quite exciting. And actually, the next leg almost of the future Nvidia, you know, could well be dependent on some of this new technology coming. So, Vera Rubin and Vera CPU, what are we talking about here?

[00:30:20]Yeah, I mean, Vera Rubin, I don't know, sounds a bit like some kind of new luxury fashion line or something, but it's it's kind of basically it's Nvidia's it's their ultimate weapon. We'll talk about motes um in a minute. Uh and their their kind of engineering cycle is just Anyway, we'll talk about that in a second, but basically to understand this Vera Rubin thing, you've got to got to look at how AI is changing. So right now I think about So AI is mostly what we say is probably extractive, right? So chat GPT, you know, type in a question, bang, you get an answer, okay?

[00:30:55]That that that wave's we're in it, we're kind of probably approaching the end of it, right? So what's the next part? Well, the next wave is the agentic AI wave. So this is when you basically have autonomous AI agents that they don't just talk and spit back a result to you, they actually do, right? So they they'll go off and they'll write some code, they'll test it themselves, they'll reason through problems, and they'll they'll actually execute tasks. So so on that point then, so how how do these new chips help help with that process? Yeah, well, I mean, let's maybe use an analogy. And let's just say, I don't know, think about a busy restaurant kitchen.

[00:31:38]Okay?

[00:31:40]So for years Nvidia's basically they've made the ultimate GPUs, all right? So in our kitchen, the GPUs, think of them as the elite cooks that are on the line, all right?

[00:31:51]The the row of cooks in the kitchen, they're all you're they're getting on with the heavy lifting, they're chopping the veg, they're cooking the steaks, whatever, right?

[00:31:59]But the line of cooks needs a head chef.

[00:32:04]That head chef that that it hands them the recipes, it it organizes the orders, it you know, it's managing the whole kitchen. So the head chef is the CPU, okay? Whereas all the agents on the line doing the actual work of the GPUs. And and let me guess, the the head chef can't handle like the new ingredients, the new recipes, that they're out of date. Is that what is that what where this >> Well, yeah, but but yeah, but also the the chefs on the line have just suddenly become supercharged. The CPUs can't handle the output from the GPUs anymore. So, basically, you know, the standard CPUs, like you think about Intel, you know, AMD, you know, they were getting bogged down trying to coordinate these insane AI workloads.

[00:32:54]So, basically, this just meant that Nvidia's really expensive, snazzy GPUs were basically just sitting there, sitting around waiting cuz the CPUs couldn't deal with it, okay?

[00:33:06]So, Nvidia said, "Fine. We're just going to have to We'll just build our own head chef."

[00:33:10]So, that's what V- the Vera CPU is. So, it's a custom-built brain designed specifically to orchestrate AI.

[00:33:19]So, it runs data processing 50% faster and uses half the energy of tr- of traditional CPUs.

[00:33:29]Right. So, this almost feels like that sort of vertical play then. So, they're going after Intel, AMD's home turf.

[00:33:36]Uh and in the actual conference call, um I heard Jensen Huang talking about this opening up a a $200 billion market opportunity.

[00:33:46]Yeah. That's just like a massive It's a massive land grab, basically.

[00:33:51]So, okay. So, so that's the So, what you've just described then is the is the Vera part. That's the head chef. Yeah, who's Rubin?

[00:34:00]>> [laughter] >> I It's so hard to not think of these as real people when they've got names like this.

[00:34:05]Well, I mean, actually, well, just as a side, uh Rubin is named after the famous astronomer, as I'm sure you'll you'll be very familiar with. Um What did Rubin do? What Why's Why's Rubin a famous astronomer?

[00:34:20]I Do you know if Do you have to I obviously didn't go to a good enough school to know. Well, discover >> [laughter] >> discovered evidence of dark matter.

[00:34:30]Okay? Yeah, you you to be the gift that keeps giving, Piers. Every episode.

[00:34:35]>> Um so, Vera Rubin, I think I'll beg let's just continue with this ridiculous kitchen analogy for a second. So, basically, Vera Rubin's the entire state-of-the-art kitchen.

[00:34:47]So, it's not just one chip.

[00:34:49]It's basically Nvidia's next-generation AI supercomputer.

[00:34:54]Uh like the architecture's coming It's basically we're thinking late 2026 is the guidance when this is going to hit.

[00:34:59]And so, basically bundles Vera Rubin bundles the Vera CPUs.

[00:35:06]Um and then their brand-new Rubin GPUs, right? So, what you get is this ultra-fast network of chips, basically in one giant like interconnected system.

[00:35:17]Okay. So, what So, what you're saying then to put it really simply is traditionally, you just buy parts. You can kind of think of it as like your home computer. You used to back in the Well, back in the '90s at least.

[00:35:29]>> [laughter] >> You used to buy bits of a and you would build your own one. But, what you're saying is um tech giants are just going to buy the whole pre-built super kitchen.

[00:35:41]Yeah, exactly.

[00:35:42]And but I look because everything is built from scratch. So, to talk to each other instantly, so Nvidia says that Vera Rubin platform can run massive AI models at 10 times lower costs and and energy consumption, you know, per per answer. So, that's why Jensen's noted there's, you know, they're already handing these systems over to A- OpenAI, Anthropic, Meta, you know, Google.

[00:36:06]So, if you want to build the future of AI agents, basically, this is the machinery that you need. Mhm.

[00:36:13]>> [clears throat] >> And you mentioned earlier about an engineering moat. What did you mean by that? Well, so this is one of Nvidia's ace cards.

[00:36:22]Basically, they've moved from what used to be a two-year cycle.

[00:36:27]So, they used to have a two-year cycle of, you know, just product innovation, right? So, a new version of of a chip would be kind of come through design and then into mass production every 2 years.

[00:36:41]It's just they've shortened it to 1 year.

[00:36:44]So, if you think about the sequence, Blackwell chip that hit in 2024, we then have Blackwell Ultra 2025. We then now we've got Rubin in 2026. And basically, this is a very deliberate strategic move by Nvidia. So, you know, it's not just an incredible insane engineering achievement. It just means every 12 months the competition you know, your competitors have now got a baseline that just resets like significantly higher every 12 months.

[00:37:13]And so, obviously, by accelerating this sort of roadmap, it kind of forces your competitors like AMD and Intel basically, they have a what what they call a generational lag then. So, just as your rivals begin to ship hardware that competes with Nvidia's current flagship chip Sorry, guys.

[00:37:31]Nvidia roll out a new one. And like, "Damn it."

[00:37:34]So, this is a key moat for them in this sort of uh AI race. This there's such a huge moat and it's it's so uh I mean, so difficult to almost impossible to try and keep up. Such is the size of the juggernaut now. I mean, obviously, how do you speed up your engineering life cycle? Well, you need to throw money at it. You obviously need talented talented talented people. Obviously, AI itself has sped things up.

[00:38:01]Um but still, money is king.

[00:38:04]And now Nvidia print money for a living.

[00:38:08]Um you know, it just becomes even harder to to compete with that. Hm. That is super interesting. And I was just thinking as well about um Jensen Huang obviously last week was part of Trump's delegation.

[00:38:22]Yeah. Almost Trump and Jensen holding hands as they come off the plane, sort of vibes. Because when you walk into China, to me a G, what better flex?

[00:38:32]And then and then Jensen goes, "We're not even going to put the China into our outlook."

[00:38:36]Yeah. But I'll go and broker you got to think that some deals been brokered last week. Yeah. Exactly.

[00:38:43]Oh, so interesting.

[00:38:45]Cool. Well, look, we'll wrap it up there.

[00:38:48]And thank you very much for listening.

[00:38:49]Uh if you are new to the channel, don't forget to like and subscribe and put on notifications wherever you listen to your podcasts. Also, feel free to leave us any comments, questions, uh observations. Happy to hear your thoughts as well. Uh and don't forget we have an M&A specific uh episode that comes out at the beginning of every week as well. Cheers. Thank you very much and have a great long bank holiday weekend if you're in the UK. Yeah, have an awesome weekend. Thanks a lot.