BlackRock's Tony Kim on AI's Next Winners?

32:56It's like quantum computing, utility scale, logically error corrected, million qubit quantum computer, 2030. SMRs, fusion small nuclear reactors, regulatory approval, you talk to these companies, 2030. When you say, well, when was AGI happen for classical computing? 2030, 2029, 2028, whatever. Then you say, when will we hit 800-volt power architectures late 2020s, 2030? Will we have solid-state transformers, 2030? Will we fusion longer? But data centers in space, 2030, when it starts to really scale. So you're sitting here. obviously you have the now this AI train that is consuming everything all my time and energy that's 80-90 % of it but you must be always betting on the tomorrow and some of these are long dated things and so I have I spend time on the future allocating X resources of my time on that what will really be transparent not incremental I want nonlinear asymmetric potential.

34:21And then I bet out what is the primacy of today that with not only a three-year financial forecastable window, but with then relevancy beyond. And then everything else that doesn't fit in that window, is it worthy of your time and the opportunity cost to keep investing in that? And there are other strategies, other portfolios, other things that can pursue those. It's just not my focus, really. So I hope that kind of gives you a sense of where, how I frame, this is my opinion, how I frame capital allocation, portfolio, decision making.

35:11Tony Kim:That's a super helpful explanation. I'm sure a lot of your investment memos have 2030 on them. 2030, you know, actually, it's not, 2030 is not far away. No, it's not. Yeah, absolutely. I mean, you know, many companies, right, you got to look 2031. I mean, 2031 is five years. Ten years, 2036. So, I mean, 10 years is almost an impossible forecasting. But five years, a lot of companies will not even have free cash flow by 2031. So you then need to have a belief system that could flip positive beyond. But yeah, I'd say at least a five-year window. You always want to be betting on not what's cool today.

36:09Will you still be cool in five years? Because you become yesterday's news in five years, even though you are cool today. So there's a little bit of that happening, too. Because that really has a huge impact on your exit multiple. If you're just following the trend of today, but you know that there's a half-life to this, it might be difficult to get a good return on the exit. because it will not be what you think it is in five years. And the multiple that people will pay will go down. And your growth rates are decelerating. And now you're in a bind.

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37:37Tony Kim:They build the industry's best speech-to-text, voice agent, and speech understanding models that serve as critical infrastructure for companies like Granola, HayGen, Ashby, and ClickUp. Their speech-to-text models lead the industry in accuracy and quality, and their speech understanding models help you go beyond transcription by uncovering insights, identifying speakers, and highlighting key information from voice data. You can get started today at assemblyai.com slash sorcery and get$50 of free credits to start building voice AI products. That's assemblyai.com slash S-O-U-R-C-E-R-Y. It's been really interesting to see how this new era has breathed life into older categories or categories that have just been around, whether it is chips, whether it's quantum.

38:28Tony Kim:But it's cool to see how entirely new opportunities have formed. And I'm curious of your takes on those. So in that respect, you did mention orbital data centers really didn't exist before. And that is a huge weight and a big weight, especially with SpaceX coming and the whole IPO on that. But there's also fun categories. I recently visited Figure AI, the humanoid robotics company. and I was just at Config Figma's conference and Boston Dynamics was there. And one of their head of designs for human-robot interaction was talking about their humanoid robot Atlas. They're different. The Atlas one is hydraulic, so it can pick up like a fridge.

39:15Tony Kim:Figures is, you know, more of like daily use package sorting, commercial stuff, making cars and that sort of thing. But of these new categories, which ones are you paying attention to? What are you excited about? So robotics, yeah. I mean, the first comment around these older categories, you know, like you said, semi-connectors have been around a long time. And I don't know. I don't understand why people, you know, it's called Silicon Valley for a reason. People forget. But people forgot. It was kind of like the ring of power. It was lost and then it was found. And people always said chips are a commodity, but yet they have the highest profitability of any company in the world of the sector is chip companies.

40:08They're higher margins than software, pharmaceuticals, industrials, telecom, anything. And so this notion that they were a commodity was just a false notion, in my opinion. It really never was. And the other thing is that this industry is very interesting. There were hundreds of chip companies. And then systematically over 20 years, now there's just a few. And so in every category, you have a duopolistic power. And by the way, venture capital, i.e. Silicon Valley, until recently, never funded these companies. So there's no money going in. And therefore, if you have no money going in, you have very new companies.

40:54So in fact, what you have is a shrinking effect. The number of companies have collapsed. And then those that have survived are behemoths with huge pricing power. The complete opposite of commodity. And by the way, all those people are engineering nerds. So I always say it's the revenge of the nerds. It's not the revenge of the nerds, it's the lost ring of power that was found. and so but it was always there and so their time to shine is now. That said, you're right, these other industries it has spawned a renaissance in hardware. When you look at that market cap shift that I was talking about a lot of those go into servers are cool, fiber is cool, power is cool you know rack design is cool people love rack design they're going crazy about rack design it's like you know it's like bending metal copper you know like you know heat you know material science is cool because you need all kinds of new materials you know and then substrates and packaging it's the physical world these are all what i call the physical world the physical sciences.

42:14That's cool again. Going to school to study material science is probably cool. It's very cool. There's not enough chip designers in the world. People in the lost art, you know, like analog computers, it's like being blacksmiths. It's like very few, you know, how many friends of yours go in to study new memory design? You know, I was talking to dinner last night with here at Ray's with one of the biggest memory companies that we cannot get people to design custom memory because like one of those custom co-design with the chip they they want to co-design the memory where the people there are no people we got to repurpose some of these software programmers into memory co-design architects.

43:08And so all of this has happened in the physical, what I call the physical world, this is the next unlock that AI will do. Obviously, we're going to go hard in cognitive work and cognitive labor, and you've got to build these models for that. But then those models then can be repurposed and implemented in robotics. And so the robotics chain is very interesting to me, but it kind of is just a parallel to what's going on in AI. Because if you really think about it, what is robotics, right? I mean, you got a brain that will be built, and the brain will have kind of two parts to it. It'll be a baseline LOM that you and I will communicate as a translator, translate and talk to the robot.

44:00but then there will be it's like the human brain but you also have a the brain for the motor functions that control our muscles and our bodies and our reactions and then the brain for language and memory so they'll have to kind of like a world model like that's kind of one of the new world model for to perceive the world and motion and things and then and a really obviously embodiment of intelligence and like an LLM so you're gonna build these brains two brains into one, you know, and then you take the brain, and then those are like labs, right? They'll be like labs, and many of the big labs are working on robotic brains, and then you'll embody those brains into the body.

44:45But then the body, arms, limbs, limbs, hands, hands are the probably the hardest thing, as I'm sure you know, but the body, the physical embodiment, that That is a manufacturing hardware business. And when you think about that, the Chinese are coming. And there's, I think, 130, 140 robotics companies in China. I'm looking at the current pipeline. I see 30, 40 potential IPOs this year in China. Yes. Yes. Alone this year.

45:30And there's, what, 0, 1, 2 in the United States maybe this year? And the reason for that, though, is also the U.S., the lack of depth in the private markets in China. So they're using public markets as a funding mechanism, unlike in the U.S. So they're earlier. They're going to come earlier, and they're coming in waves. There's 140 of them. And the thing about China is in that physical layer, the body, the motion, maybe the robotic brain development, the world model, they may be behind, right? That's probably most people would say that the West is ahead on the model development. But make no mistake, Chinese and Asia.

46:22and you mentioned Atlas Robot. That's Korean, actually. That's Hyundai that owns Boston Dynamics. But the Asian manufacturing complex, Japan, Korea, and China. I mean, and it's also an extension of kind of EV platforms, right? If you have the physical scale of manufacturing, you then avail yourself to potentially have lower cost to manufacture in mass these robots. And then what you might have is ultimately you can mix and match Chinese physical robot with a Western brain. And I know that's happening. I just want the robotic, those Chinese robots are amazing, right? So why don't we stick a Western brain in there inside?

47:14And permutations of this will continue. And so I think it's a Wild West. a lot happening and um but it's it will be a huge market a huge market and i have i have a soft spot i mean my view is uh one of the things i'm most interested in in the robotic side is around not so much the manufacturing robot of course that will but and you're seeing this coming out of China already is around loneliness, around social embodiment, around education, around elderly, around young people, and to bring consumer and or commercial-like social robots, more so than industrial use.

48:12Tony Kim:That's kind of a hot take. Well, I think that's, I mean, I think if you think about aging populations, when you look at Asia in particular, you know, the birth rates are well below 1.0. And you need 2.1, 2.2 to stay even. And so you're facing demographic population cliffs around the world. You look at actually some of the best performing companies in the world are nursing home companies. And when you look at elderly, they really want companionship. And even amongst young people, you know, there's loneliness epidemics and things like that. And I think robots, even though you don't mind, have not perfect motor function, but if you could embody some intelligence, empathy, it can be many different form factors, too.

49:10It does not have to be the terminator. I think that could unlock a really, really interesting market, a really big market. So that's my view.

49:24Tony Kim:That's interesting. I've seen, and I know this doesn't really count, but I saw videos on Instagram of like a long distance relationship. And there was like a tiny little like pet robot on the ground. It was like a ball of some sort. And it was like the girlfriend like yelling at the boyfriend. And she's like in an entirely another country, like following him around in the house. I mean, you, I'm not sure you've seen, have you seen Star Wars? You've seen Star Wars. Okay. And who are two of your favorite? Did you like C-3PO and R2? Yeah. Okay. Now imagine, and then you have the current embodiment of Optimus and many other, the figure robot, and all these sleek, amazing Westworld-like things.

50:09But I hearken to R2 and C-3PO. What if you had a half-size robot, even half-size? It doesn't have to be full-size. that is approachable, friendly, not masculine, you know, something that, and then that robot, but that has the intelligence of Shakespeare and Einstein and speaks every language like C-3PO. And then you interact. You know, I always think, often think about the elderly, you know, it's like, imagine them having conversations with my mother and others and then also empathetic to their stories and then you can record their stories and record their life histories and you know I think do you need to have a fully figured perfect motor function with you know all the hand articulation or could you get something that can appeal to that and I think that's possible i think that i think that will be a fascinating market to see so yeah i think that would be a very new use case yeah besides building using robots to build lunar the lunar base yeah which i think also that would be cool really cool yeah um it's been interesting to see because i

51:34Tony Kim:cover high a lot of high growth companies in silicon valley the proliferation of course coding agents is a big thing, right? But to your theme of the brain, speech model companies are crushing it. They are growing faster than most other companies out there. There's a company called Assembly AI that is like growing incredibly fast and they're great. And then it's interesting to also see the downstream effects of all this. Okay. So we talked about, we didn't really cover at all any software because it is what it is, but the downstream effects of it now hitting the data layer because now we are we have so many agents that are just creating so much data it's coming downstream and so like the databricks the snowflakes they're hitting some of that extra premium in the market and they're getting some attention and then you go downstream like more app size and then so as agents create more apps now mongo dbs those databases are reaching so it's really interesting to see how like it's streaming downstream are you looking at any of the downstream winners yeah I'm invested in many of those companies.

52:35Streaming downstream or streaming upstream, I don't know. It's down or up. I don't know either, so it could be opposite. Well, no, 100%. In supply chain hardware, is it upstream, downstream? Okay. I'm thinking vertically. So it's like compute models, apps, or compute models, data, apps, something like that. I'm going up the stack. You're going up. I'm going down. Okay, so absolutely. So, you know, like this whole data center redesign thing, I think the whole enterprise is redesigning. And the enterprise itself, if you really think about the future of what a big enterprise will be like, it'll be, on one hand, you're bringing intelligence, tokens, You're bringing tokens in and you will have data layer.

53:41It'll be, because that intelligence will need to interact and be orchestrated around this data layer. And this data layer will be the embodiment of your proprietary data and all your external third-party data. and then companies will ultimately, what is a company? Well, it's people, it's distribution, it's a brand, but at the end of the day it's also can you embody all of the knowledge of your company in what they call like a context layer, a layer of the secrets and the ways of your company. You embody the cumulative knowledge of your employees into some context layer.

54:27Tony Kim:I think Palantir calls this ontology. Ontology, exactly. Yeah, yeah, exactly. So you have this ontology layer, this context layer, sitting on the data foundation with tokens in. And then that's it. And then everyone builds agents. Agents go wild, right? And agents will interact through the context into your data with tokens. That's it. That is the enterprise. And then what I call that is a token flow. Follow the flow of tokens. Either you create tokens, compute, you then serve the tokens, foundation labs, and then you put a harness, package, context around the token, app services, et cetera. So you must be in this token flow to either resell or repackage the tokens with your context and your very specific application.

55:38You serving the token with your intelligence, is it the proprietary closed source token, is it the open source token, sitting on a compute foundation that's creating and firing up the token. If you're not in that flow, It's a problem. And then you mentioned these voice APIs, and you mentioned the data foundation. They are in token flow. And so I think the app companies are struggling to find their place. But some companies have moved into, you know, you're seeing the rise of what I call, I don't know what you call it, inference clouds, edge clouds, edge AI. they're basically kind of that last mile token.

56:28They're providing tokens and developer kits and things so that smaller businesses, medium businesses can take it kind of out of the box. And so they've inserted themselves in this token flow. And, yeah, and so that's, you know, and to me, that's why I go back to this base foundation. where can you earn your margin? Or you do the whole thing. You do the whole thing and you just say I will do all of your claims processing. I will do all of your insurance processing. And so you abstract away all of those layers of the stack and you say I will take on all of your insurance. Pay me X. Pay me X. And so you don't know what are you.

57:23Are you an app company? Are you a service company? Are you a compute company? Are you a token reseller? No, I'm just selling you the whole solution. Today you used to pay 100. I'll charge you 20. And then now you're seeing this. You're seeing certain private equity firms. You're seeing some venture firms saying, you know what? Let's take an old industry. Let's buy these companies. and let's bring in this whole new stack, reimagine the stack, and just sell a whole new solution.

57:56Tony Kim:Do you think, I mean, it's really curious with those PE roll-ups, because I think at the end of the day, they're just creating a new product, but they're buying the customers. Yeah, they're buying, they're buying, they're getting customers, or they're buying companies with customers, and they want to, they're basically trying to restructure the whole delivery of services and there's a lot of inefficiencies, fat, cost in there and then you can rip it all out. Okay, maybe that's a business. Let's see. I mean, I know people doing that are starting to do that. Yeah, that's interesting. I don't know.

58:34Tony Kim:I mean, it's working quite well. We've talked to a couple of them. Okay. Some on camera, some off camera. Yeah. We talked to General Catalyst Creation Fund, and they've been doing a lot of PE roll-ups in creating companies. One of them, Long Lake, just bought Amex Global. Okay. Their travel, I think their travel business. Oh, wow. Which is interesting because you have a small player buying a large player. Yes. Which was really interesting to see. Yeah, I mean, you know, there's this other, you know, framework, rubric that is emerging is, you know, when you have these traditional industries and you have a new company with 500 people that can do and generate the revenue of 10 ,000 people.

59:20And, you know, and they're just approaching it in a radically rethought process. And so the efficiency, and, you know, and so maybe this is what you're kind of alluding to, you know, maybe that's the new framework for these newer companies that are going to really just go at traditional industries. It'll be up to can the traditional company, the incumbent, adjust in the face of these kind of companies coming. And, yeah, I think the jury's out. I think it's very, I'm very intrigued by that. I'm watching it. You mentioned some of these. It could be quite disruptive. So I think that's the next shoe to drop, is all of these traditional industries that have very little adoption of AI, that are still the business workflow, how they've organized themselves, they could be all completely rethought and then refactored with a new kind of...

1:00:24But that would require, like you say, maybe it's so hard to sell products, pieces, and then have your old employees drive that change versus let me just buy the company. I'll do the change. And then, so it's an interesting idea. It's an interesting idea. Yeah, it's all new. I'm watching it. It's something to look out for, yeah.

1:00:48Tony Kim:We only have a few minutes left, but I'll leave you with two questions. Sure. First, what are you most excited about in the next 12 months? I know 2030 is a big date, but let's talk about the next 12 months maybe. Oh boy, next 12 months. between now and June 27.

1:01:09Well, I mean, obviously these big foundation labs, what am I most excited about or more concerned about?

1:01:17Tony Kim:Take it either way, I mean. I just, I think it's a continuation of the thing. What I would, I know like there are these, it seems like every six months there's a scare. Yeah. Yeah. X-pocalypse, X-pocalypse, war, interest rates, too much CapEx, not enough financing, on and on and on. But I think through it all, I am optimistic that this compute wall, the memory wall, the compute demand, this data center redesign, that it will just plow through. And then our fears will be subsided. And so therefore, we will be sitting here a year from now and we'll be talking about many of the same things, continuing on.

1:02:18So that's number one. I hope that's what I'm optimistic for. The second thing is the emergence of, is the progression along this, what I call this whole data center reimagination theme. And so I'd like to see more of just continued proof points along that path. I'm hopeful, excited to see the big labs go public in the next 12 months. I think that will be interesting, it'll be exciting. And I think there is huge market appetite for it. And I would love to see in the next 12 months, or I'm excited for is the next forward step toward orbital data centers. Because that also engenders a radical change in data centers.

1:03:10If you keep pushing on that progression, it could unlock a rethink and moving the burden of terrestrial compute into space, and that can have huge implications, huge implications of how current data centers are even being built. So I'm looking at that to see the progress being made there. So it's going to be an interesting 12 months.

1:03:39Tony Kim:Amazing. Also sounds like a little bit of a manifestation going on over here. Manifestation? Yeah, you're manifesting. I don't know. I'm just, I contemplate. I contemplate. Okay, so as we close out, final question. Okay, so one of our sponsors is Brex, and they're a performance platform for spending smarter and moving faster corporate credit cards. So with this question, it's on the topic of performance. I take this on a personal bend, so no pressure here. But I believe performance personally really revolves around who you surround yourself with. I mean, people say you're a result of your five closest relationships and that kind of thing.

1:04:17Tony Kim:But also, I'm curious, from your standpoint, you've built out a legendary career. who are some of the people it is true who are some of the people that have inspired you or mentored you along the way wow what a question first of all i'm not i'm no legendary career i just i'm just trying to survive but who okay so there you know um

1:04:47I wouldn't say I had mentors but you know what I had? I had people that believed in me at certain points in my life and basically gave me the freedom, the latitude, the keys to the kingdom and said, you know what? I see something in this guy and I will give you the latitude and so there was a guy who brought me into BlackRock, who basically gave me carte blanche and the freedom and latitude to... He believed in what I could do, so that's one. And, you know, I actually did investment banking long ago, and there were a couple people there that took a shot on me, you know, some engineering kid out of the Midwest, growing up in the Midwest, and, you know, I thought I wanted to go to consulting back then, and no consulting firm would hire me, so I wasn't good enough for them.

1:05:45And so there was some of these investment banking, somehow I found a fit there. And then someone else said, go west, young man. And this was like before, dot com. So, you know, certain people that made a bet and just had faith. and it wasn't like they were mentoring me per se, they just had a belief. And so I try to do that, I try to always work with lots of young people to not mentor them, but just try to encourage them, give them a break if they can or give them a shot. But then the mentors I have are all dead. My mentors are, you know, I like to study, I mean, it'd be a huge study of student of history.

1:06:39So Caesar, Alexander, Napoleon, Beethoven, Churchill. I like to, and many, and these kinds of historians, leaders, people that created their own destiny. That's who I, those are my mentors. You know, because growing up where I did, you know, I was not a social kid. I was somewhat ostracized. And so I grew up in libraries and those historical figures and libraries became my mentors. And then when I went to the real world, some people gave you a shot. They just believed in me or the kindness. and so I'll never forget those people. But yeah, so there you go. It's kind of dead people and kind people.

1:07:36How's that?

1:07:37Tony Kim:That's beautiful. Yeah. Wow. Yeah. Great place to end it. Okay. Thank you so much, Tony. It's a pleasure. Amazing. Huge thank you to the entire RAISE team for an incredible event and thank you to Brex, MongoDB, and Assembly AI for making this trip and series possible. If you enjoyed this conversation, you're going to love the rest of the Raze series with Tony Kim from BlackRock, Scott Wu from Cognition, Andrew Feldman from Cerebrus, Rodrigo Yang from Salmonova, Michael Hurlston from Lumentum, CJ Desai from MongoDB, and many, many more like our hot takes that we did at a secret location that you can find on X, YouTube, and Instagram.

1:08:18Tony Kim:Subscribe to Sorcery on YouTube for more conversations with the people shaping AI and join the free newsletter. You can also do paid at Sorcery.vc for weekly insights on AI, robotics, enterprise software, consumer, semiconductors. Did I say AI? AI again. And everything that's coming next, like funding announcements and all big things in tech. Thank you. Bye.