NVIDIA Takes Off, Temu + Shein Deep Dive

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1:22welcome to big technology podcast friday edition where we break down the news in our traditional cool-headed and nuanced format we have a terrific show for you this week we're going to be speaking about nvidia's bombs away earnings results but really this is the show where we're going to dive deep on Sheehan and Timu. And to do it, we have an amazing guest with us. John Herman is here with us. He's a contributing editor at New York Magazine. John, welcome to the show. Thanks for having me. And we're also joined by Ranjan Roy, the writer of Margins. You can get it at readmargins.com. Ranjan, welcome back.

1:57Good to be here. Ranjan, how stoked are you? This is going to be the show that we've all been waiting for. The Sheehan Timu blowout extravaganza. John, I don't think I can possibly put into words how stoked Ranjan is for this one because... Well, I can tell from the newsletter just alone that this is, you know, a subject. I feel like a Timu notification right now. I'm so over the top. Yeah. That's right. Well, just one more button. Press one more button, advance through one more game, recommend to one more friend, and it's all going to pay off. Absolutely. And we've been sort of, you know, saying, okay, is this the week we do the big e-commerce episode?

2:34Is this the week we do it? And I was like, oh, if we could just get John for this, it would really make the show so great. And you're here, which is awesome. And last week, for those who listened, we went into Shia in a little bit. I think this is going to be a way more in-depth discussion covering. I just learned about it last week. So we're going to cover some of the downsides as well. And I think that you folks are going to love it for those listening and those watching live with us on LinkedIn and YouTube. Let's start with NVIDIA. Okay, NVIDIA had basically a historic, not even basically, a historic quarter.

3:09It went up 24 % on Thursday. Its market cap, as we talk, is$947 billion. So it's getting close to a trillion. If you had predicted who was going to be in that trillion range, not many people would have put NVIDIA in there. they have projected$4 billion more than the consensus among analysts in revenue for next quarter. $4 billion more. That's a tremendous amount of money. And its prediction is$11 billion for the coming quarter, which is just huge. Okay. What do you guys make of the fact that NVIDIA, obviously it's a kind of an AI meme stock, but the money is coming, which is very different from some of these stocks we've seen in the past catch fire?

3:54Yeah, I think last week we were talking about one of the biggest problems about the current AI bubble is the fact that there is absolutely no clear business model for the Microsoft, for the Googles. I mean, right now, again, as we say over and over, ChatGPT, every query loses money. So no one has quite figured out how they're going to make money except NVIDIA. The one thing we know among all of these companies, we might not know how this is going to change search and advertising and content creation or whatever else, but we know it will need chips to power it. And I think that's where NVIDIA is sitting very pretty.

4:30I'll admit myself, I am kicking myself after seeing those numbers because this was the most obvious thing to buy when this all started, when I've been very interested in this. there's absolutely no reason this should not have been abundantly clear but i didn't i can't play i can't play in the market like that because of my job so it's all like my my regrets are all about like calling things wrong or whatever it's all a very silly stupid game for me um but i remember talking to the founder of mid-journey some point last year about you know the rise of image generation and all this stuff. And, and right away, he was just like, yeah, the compute is insane.

5:13We're spending so much money on, on computing, like every time, and it sort of became a joke among friends as we're using these things. Like every time we press the button to generate a stupid image, it's like, we're bleaching ahead of coral where, you know, we're like clearing an acre of rainforest. There's just so much power going into these things. And it was, yeah, that That was always going to be, if the hype cycle was going to continue, it was going to just result in enormous compute needs and tons of orders for NVIDIA. To zoom out a little bit, as someone who grew up at a time where as a teenager, you're engaging in the processor wars between AMD and Intel, you're talking about ATI and NVIDIA graphics cards, which one can run Counter-Strike better and all that stuff.

6:05It's wild to think that those companies and in particular Nvidia was sitting on this territory that they just keep discovering new reserves of like oil or minerals or something on that space that they occupied. They just keep like, obviously they're planning deliberately. Obviously they're, they're investing an enormous amount in R and D, but like also incredibly fortunate that here comes crypto. Everyone needs nvidia hardware here comes ai everyone needs more gpu it's just a wild wild uh electric cars right around the corner could need more chips as well it's just there's no stopping thing to me it's still you know do i am i am i getting the the geforce 4 or am i getting the radeon 9800 it's just like a completely different scale of thinking about this stuff but do you guys think that there's any what's nvidia's potential downside or how do they lose right now it seems like even especially against the intels and the amds of the world they're far far better positioned what what could make them vulnerable

7:11i think there's so much at the front of this ai cycle that could get out of hand and they could sort of experience that downstream a little bit. There's so much money pouring in so many big firms making big commitments. Maybe they're very wise about how they handle that kind of order growth and that kind of growth. But like over the story of the last three years for me is how companies that either lucked into something incredible, had something incredible, saw incredible growth that was actually based in something, how they can still blow it, how like the sort of large tech corporation of this era can somehow squander an incredible opportunity and lead just because of the strange momentum they have, the strange incentives of the markets and leadership and everything else.

8:06I suppose they could be exposed to that. But that's, I mean, And it seems like good news for them, mostly. I guess, who would be the most squandering of big tech? I guess I would put Zoom in there, I think, in terms of sitting pretty and then did not capitalize on it in any innovative way. Are there others that you think of? A much smaller example. Well, a more niche example would be Peloton, where it's like, you know, expensive product, recurring subscriptions, tons of new customers. There should have been a way to handle that. That's the kind of thing that if you aren't involved in a company like that, if you aren't too close to it or in it or subjected to the strange novel pressures that you get from the inside, you could write a simple plan that would work.

8:54But outsiders don't run these things. It's sort of a funny paradox of these companies. But yeah, Zoom, absolutely. You've got a bunch of new customers. That should be the end of the story. Yeah. Ranjan just got rid of his Peloton. So perfect example there. I know. And I don't even want to talk about this rebrand this week. I don't know if you've seen it, but it's too big. Wait, no, what is the Peloton rebrand? Let's just take a minute to talk about it. Sorry, if I may, Peloton is no longer a bike company. It's now simply a streaming fitness company, which I don't know why you would do in trying to make the app the centerpiece when you're competing against Apple Fitness or whatever else.

9:31Suddenly you're in a whole new competitive landscape. But also they're trying to rebrand themselves away from hardcore fitness people. And I don't quite put myself in that category, but at least like, you know, people enjoy working out to the everyday fitness, you know, entry level fitness person. Basically they're trying to increase their total addressable market. You can totally picture some slide in a presentation. So they have this whole new, I think it's called like everyone always on or something like that, But they're basically every single strength that they have had as a company, they're completely just giving away, trying to become something new.

10:10Yeah. Now they're playing against a bunch of free competitors that are fine. You know. Can we go back to the NVIDIA example for a moment? Because Sam Lesson had this really interesting thread or one of his card posts that he does. Not quite a thread, whatever those are. the yeah so he basically says that you know if it's a car analogy they're not an oil company they aren't building cars they're a parts manufacturer that's going to ride the wave of demand and do great for a while but ultimately you know they're going to become commodified what do you guys think about that it makes it makes sense um if you imagine the demands of the moment extending for a long time if you think of them a bit like maybe a close competitor like intel where they get sort of stuck to a particular type of product in a really profound way, personal computers, desktop computers, laptop computers, they're then going to be tied to the cycle of that technology.

11:12So as people move away from desktops, they have to pivot to mobile processors. As mobile processors pivot to like ARM architecture, they're then sort of ill-equipped to deal with that. If we imagine a relatively straightforward progression of AI technology, like building on the same sort of computing systems, maybe flowing through some of the same cloud and computing providers, then maybe, yeah, they sort of, they give or competitors are left with time to catch up. They end up in a market that gradually becomes more crowded. They are sort of reduced over the long term to just, you know, enabling computing power, which if you leave that long enough without too much change, obviously seems kind of dangerous.

12:05But their story recently has also been like being well positioned somewhat coincidentally to handle relatively novel demands from like fast changing technologies. And maybe that's a run of luck. Maybe that's something they can sustain for a longer time. Maybe in five years, we're talking about really, really different things. Maybe there's a, you know, with all this talk about, about the, the big proprietary models, the open source models, running AI services locally versus, you know, renting them from providers. Maybe we're looking at a situation in a few years where Apple is in an unusually good position because their architecture is suited to running certain kinds of software locally.

12:55Maybe this is another... I mean, there are just a lot of possibilities there that I wouldn't want to discount. But yeah, if they sort of won early, then they could lose it if we're looking at a 10 or 20-year cycle where people just need more of what NVIDIA has. They can't protect it for that long. Yeah, I had a comment that said that the CEO Jensen Wong has just been so good at getting ahead of these trends, which I think is sort of the theme that like, yeah, if they stop today, maybe that would be the case, but they're not stopping. And so that is like one of the big reasons to be a bull on NVIDIA is just their ability to get ahead of what's coming and then maybe find a way to get to where the market is going.

13:36So very interesting week. I'm sure it It won't be the last time we speak about them, but definitely wanted to touch on it this week. Let's talk about these companies, Shein, Timu. I'm sure there are some others. John, you had a great story about Timu in particular. We talked a little bit about Shein last week, but I think to kick off this part of the discussion, why don't you talk a little bit about what Timu is and your experience with it? Because, well, both you and Ranjan have both ordered products from it. So we'd love to kind of hear how that's gone. Yeah. I think most people, if they're familiar with Timu, it's probably from the Super Bowl.

14:13Timu spent, I think it was$14 or$15 million on a pair of spots, which is a relatively small part of an enormous marketing campaign to launch an e-commerce, a whole new e-commerce platform in the US and a bunch of other countries. They're based in China, part of PDD Holdings. I'll only say this once because the pronunciation is bad, but my pronunciation will be horrible, but they're a sort of sister service or platform to Penduo Duo, which is a very large Chinese e-commerce platform that sort of originated with a system that recruited local merchants to sell produce, groceries, then budget household goods, then gradually sort of everything.

15:01But a big, big player in Chinese e-commerce. Money from the parent companies being used to fund a huge launch for Teemu. So we've got this feeling of sudden visibility, very cheap products, sort of a somewhat novel app and shopping experience, unless you've used Shein, which is pretty similar, or Wish, which we might remember from a few years ago. But anyway, it's suddenly kind of everywhere. One thing I came across was postal carriers remarking on how many orange envelopes they were delivering on their routes, almost seemingly out of nowhere. Their advertisements across virtually every social media platform, every big ad network, hundreds of millions, allegedly billions of dollars have been spent already marketing this app.

15:53And in some ways, it's a little strange. It feels like it kind of came out of nowhere. It's not, it's interesting to use at first if you've never used anything like it, but it's kind of like a large discount shopping app. So it's a little bewildering from like an analyst perspective, from a consumer's perspective, but it really is everywhere. It's really like getting some traction or that marketing spend is paying off. It's a place where you can buy not everything, but a lot of things. It's not Amazon. It's not like a comprehensive marketplace where you can sort of expect to find virtually anything that you can buy through the mail.

16:34It is pretty comprehensive. You can sort of think of it as like a very, very large discount version of Amazon where products from the cheaper tier and some brands that are popular on Amazon on the cheaper side of things, mostly sourced directly from China, are really well represented. But if you go looking for particular things, if you set out with a shopping list, you might not be able to get everything. If you do, it might not be the type of thing you want. But it's often shockingly cheap. It's super gamified. It's very aggressive in its style of promotion. It has sort of imported a lot of UX and marketing techniques from its Chinese counterpart.

17:23So to American users, they'll feel sort of new and unusual. And it's like a real strategic play. It's a multi-billion dollar attempt to take on Amazon or at least to penetrate the US market and dozens of others from an e-commerce company that is based in China with very close relationships to Chinese merchants and through them, Chinese manufacturers. And it's also an attempt to build like a big logistics infrastructure that is a little bit more focused on the on what happens in China. It's it's it's sort of like if you imagine Amazon as as, you know, kind of a last mile service for for Chinese manufacturers, which in a way it kind of is these days.

18:09timo is a kind of an attempt to to shore up the logistics on the other side to to create an experience that's as close to amazon as possible like relatively quick shipping yeah you have a great line in the story that says if america's retail giants are becoming mere middlemen why not just cut them out and this goes to like amazon building the third-party marketplace like they initially started first party so everything that they would sell to you they would be buying from vendors and then shipping out. And they decided to become more of a marketplace, challenging that third party marketplace, challenging that first party marketplace that they had, bringing the third parties in.

18:43And then eventually they opened up their sales channel to a lot of Chinese manufacturers. And that's kind of what Amazon is today. So it is interesting that this is sort of what they've become between them and Xi 'an, right? I think there's this, and we're going to get to the labor issues. By the way, I heard from people loud and clear, There's some labor issues here. I've read up on it. We should definitely talk about it. But it is very interesting how they're cuddling out the middlemen. And it sort of leads you to believe, like, have U.S. companies put themselves in a position where they're too vulnerable?

19:13They've made themselves too vulnerable. And it seems like they're more vulnerable than we could have thought, especially Amazon. on yeah i think the quote you had it was like made in china which start what i call it the 1990s cutting out domestic manufacturing sold by china starting to kind of cut out domestic sellers and now marketed by china cutting cutting out domestic retailers the idea that at every point that an american retailer gave up part of its value chain that it made them more vulnerable to this kind of disruption to me was one of the most interesting parts to think through this because i mean i think amazon we talked about this last week is by far the most vulnerable from a timu or is she in or both or all these practices because all these companies because they built out their supply chain they essentially lowered their own product quality reliability the product reviews like the whole experience of shopping on amazon they allowed to degrade in order to sell cheaper stuff and gain more market share on that side.

20:16So do you think Amazon is vulnerable from a Tmue? And do you think if not just Amazon, who else, what other retailers or tech companies do you think this actually presents a significant threat to? That made in China to marketed from China shift, that's from Joe at Marketplace Pulse, who's a great analyst on these things. And what's weird about it a little is that the like Timu versus Amazon matchup doesn't seem that intuitive if you're just using them both as an American customer. Like they're quite different. One is more of one kind of feels like a game. It feels like, oh, what can I find that's so cheap that I'm not even worried about buying it?

21:08The advertising campaign is like shop like a billionaire, which not in the sense that you can have whatever you want in the world instantly, but in the sense that you can buy things without thinking about it, without worrying about how much they cost because they're like four bucks. I don't think that quite hit me before. And now that makes a lot more sense. It's actually not bad. It's weird. I mean, you can kind of approach that from a lot of angles that aren't so flattering where it's like shop like a billionaire where you don't have to think about the rest of the world or shop like a billionaire where everything, every movie.

21:37I like it at every level, at every level. Incredible externalities that ripple through civilization. But for Timu, it is absolutely a direct approach to Amazon. Overseas, they're poaching people who've worked with Amazon, more aggressively poaching people who worked with Shein. They are imagining, I think, that Amazon is hoping to move upmarket a tiny bit. not in a big way, but in the sense that they're trying to increase each cart size before they ship, that they're trying to battle a bit of this reputation that they've accumulated in recent years as kind of a junk shop. But I think these things will come into line a little bit more, obviously, stateside, because when I was researching this piece, I did find quite a few sellers who are operating on Timu who also operate on Amazon.

22:38I found a few who used to operate on Amazon who now operate on Timu. And one thing that's sort of under-recognized here is that in this effort to do something, maybe clean things up a little bit, maybe regain control of the review system, unclear. Amazon in the last couple of years has banned thousands of overseas sellers, many of them in China, not because they were selling bad stuff necessarily, but because they were using marketing tactics that were sort of over the line. They were accusing them often of review manipulation. A lot of pretty successful brands that sold stuff that people genuinely liked, maybe projectors or rechargeable batteries or headphones, they'd include a solicitation for a review in the box or a coupon if you wrote a review or something like that, which is over the line policy wise, but resulted in a sense among Chinese merchants and manufacturers who are trying to sell directly through Amazon, who saw Amazon as this wide open portal to overseas markets, that they're kind of at risk, that Amazon has way too much control, that building a business around this one channel where, you know, maybe you sell a hundred million dollars worth of product a year, but you can't get someone on the phone And they're kind of treating you in this antagonistic way and sort of treating you as a different kind of seller than their domestic sellers after years of courting you.

24:07There's a real sense, I think, that Amazon is not as reliable a partner as before. And so that will drive some merchants to Timu. Now, Timu has also been there's a great Wired piece this week about how they are also putting huge pressure on sellers, asking some of them to sell at a loss just to sort of, you know, keep their contracts or get market share about how, you know, Timu itself is just a money hole for PDD Holdings. but you know this is they're sort of doing you can you can think of it as like a very very fast very very capital intensive version of the amazon playbook which is like let's lose money for a while and get market share and then everything will sort of work out i mean it's not just amazon anymore that does that but as a commerce uh as a commerce famous one yeah yeah and the amazon i mean the amazon thing where it's like oh yeah you you're selling you're selling a dollar for 95 or whatever is it was always sort of a funny joke but with with timu it's like you're selling you know ten dollar headphones and losing twenty dollars an order it's like really the wired piece the wired piece it they had us in analysis where the average order is twenty five dollars and they lose thirty dollars meaning they're spending fifty five dollars in total to actually push it through and one of the things i thought was most interesting in terms of thinking about like the all the different market and company dynamics to get these prices so low one of the things i had never actually seen before was their logistics partner jnt express which is a large chinese logistics uh provider they are essentially apparently it costs 14 on average to ship a package and again a 25 average order value that they're losing$30 on.

26:0114 of that is going to logistics, which they provide for free. But then J &T Express apparently is trying to go public soon. And so analysts are theorizing that there is also taking on some of this loss to subsidize it so they can build more volume and market share for when they go public. So it's just like another piece of this puzzle because obviously everyone's just trying to figure out how do they get things so cheap for the customer and realizing there's almost all these different people in this entire value chain who are ready to lose a little bit of money for you. Well, they're also get your$10 or$8 headphones.

26:39Right. And in addition to that, there's sort of this condescending Western perspective that like, oh, these are upstarts that are going to come in and bring these new ways of doing things to the US market and we are not prepared or whatever. But it's like, no, these are mature firms dealing with domestic retail slowdown, dealing with, as you're talking about, these complex calculations about partners going public and recruiting against domestic rivals and stuff. Timu is important. It is like an ambitious play, but it's the kind of thing that I think domestically might read as an overambitious expansion strategy from an arrogant company.

27:20You know, like we're not the center of the story with PDD Holdings. It's just a very interesting, very, very expensive project by an already successful foreign firm, which is not the I mean, this has come up with TikTok a lot. This is not something that U.S. analysts, reporters, also customers are totally used to being like sort of the B story in a plot for a tech company. Like normally it's an American tech company getting really big with a, with a sort of clear domestic story and then getting into misadventures overseas. Like we are the misadventures now for, for some of these firms, which is, you know, we live in a global economy, but.

28:05What, what about like, okay. So if the business model and business practices, let's say aren't unique to a Chinese company, but are very you know every american firm is potentially you know like uh pushed hard in that direction at least let's say money losing money to grow market share one thing i've been thinking about i love one line you had it's about what the shopping experience and again i have bought on timu i posted a tick tock of me dumping out a big box of stuff from timu just to try to be an influencer answer for a moment um the shopping experience so you you had a line it was like you know uh Timo's new American users express an uncertainty and build ambivalence and about what they're seeing until the products show out their door and surpass rock bottom expectations with their mirror presence I literally I ordered a bunch of stuff a few of the I had like a couple of uh the what's the iPhone charger that you can just put your phone on like the wireless pad two of four didn't work but that was fine 50 they're so cheap that I was like actually okay I guess this is okay I uh I ordered a couple of like power strips or some other I ordered a drone for 12 which is probably I don't know how that happened but like literally I would say maybe 75 % of it worked and that surpassed my rock bottom expectations and I was okay.

29:35And the aggressiveness for anyone who downloads the app or signs up for an account, it's wild. It's actually kind of fun for me as a writer to see the push notifications. There's no punctuation. There's no grammar. When you open it, there's deal wheels popping up left and right. You're getting$70 off$50 you don't know what's happening there's this ad that's circulating around the entire internet I don't know if you've gotten it it's this weird finger that's like poised and apparently it's like a fingernail uh to practice painting nail polish on or whatever I don't know basically the whole thing to me is like everything that everyone has always said who works in e-commerce that American shoppers would never go for and are above and just being like no we're deep down, everyone is happy to run after these kind of practices.

30:30But isn't it more than just the American shopper? I mean, part of this, and I think this is important for us to talk about when we talk about shop like a billionaire and the negative externalities there, and the fact this has been able to be so cheap. And John, I'm going to let you answer Ron John's question for sure, but I just think we need to point out what's going on behind the scenes in terms of the labor situation here. So this is another New York Magazine piece about Shein, right, which is, again, coming along this wave with Timu. And it's based off of a Channel 4 report that workers receive a base salary of 4 ,000 won per month, which is roughly$556, to make 500 pieces of clothing per day.

31:07And their first month's pay is withheld from them. And it has another factory workers receive the equivalent of four cents per item. And workers in both factories working up to 18-hour days and were given one day off a month. and in one factory the outlet found women were washing their hair during lunch breaks and workers were penalized two-thirds of their daily wage if they made a mistake on a clothing item so i wonder i mean when we talk about these low prices when we talk about like you know bringing in a model that's not the not american of course it's like a marketing model but it's also a labor model that we need to discuss here and quite frankly just like i was looking at um she and after we talked last week and i was like oh ready to buy stuff and then you know i so i couldn't once i read this stuff i said okay like i'm i'm happy to pay more in other places and i wonder a like if if that is if we think that's still part of the situation and be eventually that's going to catch up with these companies i would imagine i think i mean it's like we can get as broad as we want about this, it's very hard to say with any certainty that spending like$12 instead of$8 on a product from a brand you've never heard of, manufactured somewhere that you don't really have a grip on, is going to be any more ethically produced.

32:30We are sort of, virtually all of these conversations talking about things that are hard to know because they're meant to be hard to know. And also it's worth noting that Amazon in its gradual shift over nearly two decades now to a third-party merchant system is selling goods through merchants that are based overseas. it is therefore insulated even another level than just a brand that manufactures overseas from the source of the goods that are sold through the platform. So you buy a t-shirt through Amazon. To you, it is an Amazon Prime t-shirt. But what you're sort of doing there is buying something that is yet another layer removed from accountability.