OpenAI Scales Back ChatGPT Shopping Plans, Starlink in Europe, Broadcom’s Revenue Projections

20:46Tristan Guerra:I have to tell you that we've had a lot of analysts on the show. That was probably the most comprehensive summary of a quarterly results that someone has given. So I want to thank you for all of that because there was a lot there. I want to get to the call itself because I was watching the share price. after the results came out and it was pretty flat and then hawk tan starts talking on the call and you alluded to some of these comments here that's when the share price started to really tick up and you know drill down into what was it he said about these five to six customers i mean we know that there's open ai there's meta there's anthropic uh google what was it that he said that was so encouraging to investors about the work with these six customers?

21:33Yeah.

21:34Alexa Liautaud:So in addition to the gross margin profile for Entropic, which again was a little bit of a concern to some investors before because they didn't know how to really quantify that drop in a gross margin in the second half. What's your point? Really the customer diversification, you have the Entropic ramping to what is slightly above 3 gigawatt of deployment next year at Broadcom. I mean, it's hard to say on a customer basis, but that's probably close to 60 billion in revenue. So it's not exactly a small amount. You have a meta that is ramping as well. You have OpenAI that's going to generate a little bit more than 1 gigawatt of deployment next year as well.

22:25Alexa Liautaud:So this year is mostly Google, but you have a host of very well-known key names with strategic agreements in place for several years that are ramping as well. And that customer diversification is also useful, particularly in the context of Google, you know, potentially giving some business to Mediatek on the influencing side. So it was, I think, really reconforting for some investors to hear that there are other customers wrapping. Google was the only customer for which Broadcom did not provide a gigawatt estimate for next year. Our estimate is that it's going to be about at least 4 gigawatts, perhaps more in RAMP next year from Google.

23:15Alexa Liautaud:So Google is going to remain the key customer, which is a good thing as well, because Google ultimately today has the highest performance custom ASIC on the market, which hasn't really changed. It's been leading the way and really the only competitor to Nvidia since since 99, the pre-AI day when companies were already racing to have a trust-a-may-stake to compete against Nvidia. So it's nice to see that I think Google will continue to have very good momentum. And, you know, the channel feedback we get is that Google volumes are going to double this year and double again next year.

23:53Tristan Guerra:So really, what about the MediaTek threat here and all this? I mean, MediaTek, for people who don't know, I mean, they're kind of the low cost entrant to this market. How much share are you projecting that Broadcom could lose to MediaTek? And is that concerning to you at all? Okay.

24:14Alexa Liautaud:So out of the doubling of TPU units, which is total Google custom ASIC for next year, which is going to be about 7 to 8 million units, the capacity that Mediatek is being allocated from what we call POWAS, which is a spatial advanced packaging that is typically used for AI chip. If you look at the capacity that Mediatek is being allocated for next year, it's about 2 to 3 million units out of the 7 to 8. And Ironwood, the V7 TPU is going to have two versions for the first time. The training version, which Broadcom is going to retain 100 % market share. and the influencing version, which presumably is going to MediaTek, versus the V6 today, which is a chip that does both training and influencing.

25:14Alexa Liautaud:Again, I think Huck did a tremendous job yesterday highlighting how difficult all this is to WAMP. And to your point, MediaTek doesn't have the experience of the fact that I'm doing this.

25:27Tristan Guerra:But are you concerned about MediaTek for Broadcom?

25:31Alexa Liautaud:So I think we think that ultimately Mediatek is going to get less market share than the allocation, the 2 to 3 million unit allocation that I've mentioned, just because of difficulties, you know, ramping. I mean, Mediatek was already late by six months, actually taping out that ship, yes, you know, last year. So there's already a delayed ramp. So people clearly are going to watch this. I think it's clear with the size of the customer ramp that we see, again, from Entropic OpenAI and others, that there's going to be customer diversification. We have in our notes a path to$35 in EPS in 2034, and that's assuming some share loss.

26:21Tristan Guerra:Let me ask you two more quick questions. Customer-owned tooling, that is something that we hear a lot about. Is that the same as the media tech threat or just break that down for us?

26:33Alexa Liautaud:So, you know, there is a big part of the design, the front-end design of the check that's done by the hyperscaler. You know, Google acquired a company years ago called DeepMind that gives them capabilities for that. Broadcom is bringing a lot of their own IP to co-design the check. And then it's really a function of the balance, right? How much Font and Google or someone else like Entropic wants to develop in-house as opposed to giving to Broadcom or someone else. So, but Broadcom has a lot of IP and, you know, I think that they can do pretty much something that no one else can do. I mean, you've seen some of the issues that Marvel has had, you know, ramping AWS Trinium 2 last year.

27:24Alexa Liautaud:So, Whatcom may not have 100 % market share. That should be completely expected. But back to your earlier question, I think the customer diversification is such that we're not too concerned about Google starting to diversify their business. Ultimately, Google has such a lot of momentum in units that they need at some point to use more than one supplier.

27:50Tristan Guerra:Right. And last question for you. we had a long-time Intel exec on the show yesterday, and I asked him about the memory chip shortage. And his comment was, look, it's the memory chip shortage today. Tomorrow, it could be a networking chip shortage. And so he was looking out for any sort of language around supply chain crunches. Did we get anything in that vein at all from Broadcom?

28:17Alexa Liautaud:You bring a very good point. So Huck, the CEO of Broadcom, yesterday mentioned have a secured supply of critical components, including HBM memory, all the way through 2028. And they basically saw the trend. So back in 24, they started to already build those inventories. They basically put supply agreements in place, not only for substrates, with the Japanese supply chain as well outside of Taiwan. So that's also part of the value add, right? at the time when people are struggling to get HBM memory, which is a bit more than a half of the total custom ASIC, Broadcom has the product. You don't have to wait three, four months.

29:00Alexa Liautaud:You don't have to pay double the price because suddenly you realize that you have a shortage of supply. They have the product and they can even tweak the product for you, the memory for you to augment the performance. And that's also part of the value add, the value proposition that Boacom offers to their customers. Great.

29:20Tristan Guerra:Well, Tristan, I want to thank you for coming on. That is Tristan Guerra from Baird here on TITV. This week, SpaceX has had an outsized presence in Barcelona at the Mobile World Congress, one of the world's largest gatherings for a who's who of executives and leaders in the telecommunications arena. The Information's Elon Musk reporter was there at the event on the ground and he wrote about some of the chatter that he was hearing about Starlink, SpaceX's satellite network, that it is now positioning towards telecommunications companies to try to accelerate its growth. I want to bring on Theo Waite, our Elon Musk reporter, to give us a flavor of some of the things that he is hearing.

30:02Tristan Guerra:Theo, welcome back to the show. Hello from Barcelona, I guess. Hola. Okay, let's talk about the conversation that we had last time you were on the show, which is you were here telling us about how SpaceX is angling itself towards telecommunications companies, potentially as a customer. You also talked a little bit about, you know, maybe there was a possibility that they could compete with the telecommunications companies. Tell us a little bit about where that stands right now, and then we'll talk about what you heard at the conference.

30:38Theo Wayt:Yeah, so there's an important distinction, right, where Starlink Starlink has its main business, which is selling internet from space that goes down to a consumer terminal that you put on your roof or the top of your RV or whatever. And you need this terminal that you pay for monthly service for, kind of similarly to how you'd pay Comcast or AT &T for wired service into your house to power your Wi-Fi. um that's that's one business where you know starlink is a competitor uh to 18t and comcast and those kinds of companies like it's a small competitor but it is a competitor now um what spacex is mostly talking about this week at mobile world congress is starlink mobile which is it's like direct to cell service so you don't need a terminal you just when you're in the middle of nowhere and you want to send a text message it works with your phone from space um and that's a much smaller business right now, but to grow it, SpaceX needs to do deals with a lot of telecom companies and basically get telecom companies to pay them to then offer Starlink Mobile as a backup service for their own customers.

31:48Tristan Guerra:So the telecom execs that you talked to this week at the conference, what was their temperature towards SpaceX for this Starlink Mobile offering?

31:57Theo Wayt:I mean, there's a lot of, you know, excitement. There's a lot of people that are impressed with the service, because it is, you know, by all accounts, pretty reliable and pretty, pretty good. And SpaceX talked about some pretty impressive expansion plans. But you know, there's also a lot of wariness about, you know, for European companies, especially, but for a lot of non US companies about, um you know spacex given like elon elon musk's like political involvement and kind of the us's unpredictable role in the world right now um and there are also just more like consumer-oriented questions about how much people actually value um you know the ability to use direct to sell like if you talk to space like very pro spacex people they'll say that you know in the future nobody will buy a phone or pay for cell phone service unless they know that they'll be able to use it to take a FaceTime call in the middle of the Mojave Desert or like on top of a mountain.

33:00Theo Wayt:But there's lots of other people who say like, okay, that's, you know, that is cool, but that's not actually like the number one priority for the vast majority of people. And it might actually make more sense to spend money on regular cell towers to make service better in cities or suburbs than pay SpaceX millions or billions of dollars to have direct-to-sell available.

33:24Tristan Guerra:Well, tell us about some of those conversations explicitly, though, because, I mean, you talked with the CEO of Dutch Telecom, for example. I mean, tell us about the conversation you had with him and other executives and what they told you about dealing with Elon Musk.

33:41Theo Wayt:Yeah, so it's Deutsche Telekom, which is the owner. They own T-Mobile, but they're also a big German and other European countries operator. And that conversation was very interesting because I talked to their CEO just after they had announced a deal with Starlink Mobile to bring the next generation of Starlink Mobile service to Europe in 2028. And, you know, he basically said, like, we have to work with SpaceX because they have the best service and we want the best service. But he also acknowledged that, you know, he kind of acknowledged this deal would probably help Starlink politically in Europe.

34:26Theo Wayt:Like he said, Deutsche Telekom has a lot of power in Europe. We have a reputation and this is going to help their credibility in the continent. That's me paraphrasing what he said. And sorry, go ahead. keep going keep going no i mean i would just say the the other thing that he said is that um you know there'd been some questions about whether a lot of spacex's like uh business partners would invest in their ipo and and he said that they're not going to be doing that which i thought was interesting did you talk to any competitors of spacex there yeah there there were there were quite a few i mean the ones i was super interested in were these two chinese companies that are making rival satellite constellations to Starlink.

35:11Theo Wayt:It was really interesting. There was this kind of theater where Gwen Shaw-Well, the effective leader of SpaceX, gave a presentation. And right outside the theater, there was this big China telecom booth where they were showing off Huawei phones that work with this equivalent service to Starlink. And I thought that was fascinating for several reasons, one of which is... China is a huge market for Apple, and they don't have Starlink there. They're not going to have Starlink there. There's no way the Chinese government is going to let SpaceX operate there. And so Apple is going to have to do a deal with one of these satellite providers at some point if they want to have that service there, which I think they would.

35:54Tristan Guerra:And, okay, so the big SpaceX-sized elephant in the room that we have not talked about is the prospect of data centers in space, which has completely dominated the conversation. what was the consensus from people on the ground at this event that you talked to about the about the prospect of that happening in the next couple years i mean you know there was a lot of skepticism

36:18Theo Wayt:about the timelines elon has put out there which you know i i think the general consensus is and this isn't unique to this conference i think a lot of people are saying like it makes sense on a very long time horizon to put data centers in space, but I've met very few people that have said two to three years, which is Elon's timeline makes sense. And I was actually able to approach Gwen Shotwell briefly and asked her, you know, when are you guys launching the first data center into space? And she kind of didn't answer. And then I said, could it happen next year? And all she would say is we have a lot of work to do.

36:53Theo Wayt:So she wasn't exactly reinforcing the timeline that Elon has shared either.

36:59Tristan Guerra:And so last question for you, Theo. I mean, leaving this event, your general attitude or your general understanding towards telecommunications companies' attitude towards SpaceX, I mean, this is a key group of partners and customers that it's going to have to work with. I mean, did you leave more or less optimistic about that partnership altogether?

37:23Theo Wayt:other i mean you know i i'm optimistic that they're gonna have the best uh technology in this area like i i think that's very clear um but i think they're gonna like they're gonna have a lot of uh a lot of trouble potentially uh getting people to pay enough for it to make up for all the money they're investing i mean they have some serious challenges ahead there and um i don't know. A lot of the people I talked to also said it doesn't make sense to me, but I wouldn't bet against Elon. I mean, that's what it always ultimately comes down to. So I don't know. I have to come back next year. I have to go to Spain next year and check in and I'll let you know.

38:01Tristan Guerra:Great. Well, I look forward to that dispatch. I want to thank you for coming on. That is Theo Waite, our Elon Musk reporter from Barcelona here on TITV. Venture capitalists have been pouring money into the defense tech sector and even building out practices dedicated to these operations. General Catalyst invests in that category through its global resilience investing theme that is, of course, much broader than just defense tech. It also includes industrials, energy and health care. I want to bring on one of the firm's partners who has made a number of investments in that category. Alexa Liotto has invested in companies like Anduril and Sironic.

38:41Tristan Guerra:I want to bring her on to hear about how she is thinking about this sector. Alexa, welcome to the show. It's great to have you here.

38:47Akash Pasricha:Thanks so much for having me.

38:49Tristan Guerra:Okay, so we were just talking about data centers in space, and you do a little bit of space investing yourself, right?

38:57Akash Pasricha:Yeah, I mean, it's a core theme to our global resilience thesis, which you mentioned earlier. It's really space is sort of what we see as very much nascent, And there's going to be a ton of opportunity for companies building off of the back of lower launch costs enabled by SpaceX. So it's an incredibly dynamic space right now.

39:17Tristan Guerra:And so what timeline have you guys modeled out here at GC in terms of data centers in outer space? Is it inside three years?

39:26Akash Pasricha:What are we looking at? I think the guest before me said never to bet against Elon. I think, you know, we're very much led by the founders. The best founders will always sort of turn whatever timeline we have on its head. And I think we're looking closely at how cooling technology changes, how power changes in space, all of those things we're getting smarter on to be able to help support our founders, for sure.

39:50Tristan Guerra:Well, look, I want to ask you about the defense tech sector, because that's also an area that you play in a lot at GC. You know, we saw the news this week that the government has, you know, is dedicating this label, the supply chain risk designation to Anthropic. And we've been trying to unpack on the show what that means for Anthropic and for the companies in its orbit. And the question I have for you as an investor in this sector is, I mean, what does that designation mean to you? And how does it change your calculus about which companies to invest in? Yeah.

40:27Akash Pasricha:I mean, first, so we're proud partners to Anthropic. And as you mentioned, we've also been investing in defense and resilience at General Catalyst for 20 plus years. And so as a starting point, as we think about sort of the news in the last couple of weeks, the conversation of how technologists, private companies, the investment community and the government and the government navigate working together is a longstanding conversation. You have, you know, history can be instructive here. You have examples like Google and Project Maven in 2018 or the Pentagon's Jedi contract in 2019, which was awarded to Microsoft over Amazon and then redesigned later on to actually be a different type of contract awarded to four different companies.

41:11Akash Pasricha:And so with respect to Anthropic's work, Anthropic gives American companies the best chance of success and open debate with the government is the longest held American tradition. And so in our view, Anthropic and the DOW have much more in common than they have differences in both believing deeply in defending America. I think as investors, I think what this goes to show and my takeaway is just how startups are building critical infrastructure and how fast the government is thinking about adopting technology to build resilience in very critical sort of core pillars. And this is an important area that we're seeing founders, especially at the early stage, leaving their previous jobs, leaving their businesses and wanting to build in service of that.

41:59Akash Pasricha:And that's especially true at the seed stage with so much going on.

42:03Tristan Guerra:What are those pillars? Because when we talk about defense tech, you know, I think we just call it defense tech. And then there's so much more to it, I'm cognizant. You know, I sort of think of it in AI terms. There's the application layer, the infrastructure layer, the cloud layer, the chip layer. I mean, that's one way to segment the sector. But when you look at defense tech, I mean, how do you segment the market?

42:29Akash Pasricha:It's true. To your point, we don't typically call it defense tech within GC. You know, we really think about it in terms of global resilience. And so that includes defense is absolutely a part of that. That includes industrials, healthcare, how we take care of our senior population, cybersecurity, and financial inclusion around the world. And so it's very much about what are the types of technologies that improve and sort of create economically resilient and healthy societies. And defense has been a huge part of that. We've been very lucky to work with Anduril since the seed. And it's an incredible company taking a little bit of SpaceX's playbook in terms of vertically integrating and building these end-to-end systems.

43:13Akash Pasricha:And so you have companies at that layer. Castellian is another example. And in our portfolio, you have also an infrastructure layer, which is where you get companies that are building in power and wire harnessing and connectivity and a lot of these components that sort of make up the industrial base of the U.S., where you can find sort of these trillion-dollar niches of very sort of unsexy businesses, but really are critically important to building those end systems. And then you have the software layer, which for us is much less about operational leverage or operational efficiency in the business.

43:48Akash Pasricha:Of course, that's a piece of it, but much more about how software is actually adding to the value of the end product and to the experience of the user. And we see that as sort of a concrete difference today in what's possible in building software-enabled hardware.

44:04Tristan Guerra:Now, all these founders that you are investing in, and I understand that global resilience is a much broader portfolio than just defense, but defense tech has sort of been such an interesting sector to watch. I wonder the founders that you find in that area, are they different from the other founders? because I imagine it's a different customer group. It's a different skill set. It's a different level of regulation that they have to deal with. I mean, you know, I wonder who these people are and also how you evaluate that at GC. Are you hiring former government people to help assess that?

44:46Akash Pasricha:Absolutely, I think to all of the above. So the bar, to your point, is very high. And I, you know, and we as a firm look for founders with ambition, fluency, and vision. And our job and what we think about is we meet founders where they are and then give them access to insanely powerful advantages to help them realize their ambition. And when you're working in defense, oftentimes the best-in-class teams, just like in any sector, have a set of superpowers, but you need to be able to build across hardware, manufacturing, selling potentially commercially, but also selling to government, and then of course be just as capable on software as any other team, if not better, because you're operating across different domains.

45:30Akash Pasricha:And so the teams that we work with are often multidisciplinary. You see that in Anduril's leadership. You also see that in many others with nominal, Cameron, Bryce, Jason, they all come from a variety of backgrounds. And so that's primarily what we're looking for. And to your point, we spend a lot of time thinking about how do we go and support these teams working in completely new domains? And this is something that we've been, you know, again, investing in for many years. And so we think about that foundation. And one is the type of capital solutions that they need, right? So sometimes, you know, venture can be an incredible solution for these types of companies.

46:10Akash Pasricha:And other times, there may be other ways to scale inorganically or to think about partnering with other types of capital solutions sort of inside gc and also outside gc is it also like who you're hiring at

46:23Tristan Guerra:gc i mean i mean tell us about the absolutely leaders so potentially to the earlier point around um you know this conversation around anthropic uh we have our general catalyst institute in dc which

46:35Akash Pasricha:is primarily focused on bringing together public and private the public and private communities to educate our founders on all different types of levels of government and we have folks who have been very senior in the intelligence community, folks like Scott Howell, who was former commander of JSOC, folks like Teresa Carlson, who previously ran AWS's public sector business, who are day in, day out with us, supporting sort of the most ambitious founders that are tackling these spaces. And it takes not just capital, it takes that level of expertise and that experience. And it also takes new ways of thinking about creating distribution advantages for our companies.

47:15Tristan Guerra:Now, how do you think about investing in defense tech across different administrations? Because I think there's a lot of people that might suggest that, hey, it's getting a lot of attention right now in the current administration because of their attitude towards some of these technologies. Could the game change two years from now? We have midterms coming up. Could it even change then? I mean, how do you think about this when attitudes can change?

47:45Akash Pasricha:And it's a great question. I think it goes back to the teams we work with and being agile, not just across administrations, but I think there is a lot of shifts happening in technology as well that founders need to be agile for. And so shifting administrations, you know, Anderil was founded in 2017 and has worked across various types of administrations. We, again, are focused on those public-private partnerships that endure well beyond, you know, the four years or the eight years that a specific administration is in office. and we also think globally. We are lucky to have a global platform at GDC where founders can think about obviously selling into the US but also my colleagues are in Europe working with policymakers on shaping what the future of AI looks like.

48:33Akash Pasricha:My colleagues are in India doing sort of the same thinking about local capabilities there and so we not only think about building relationships that endure well beyond a specific administration but also we work with founders who are so ambitious that they're thinking both about the U.S. and about India and about Europe and also still have this ground shifting under them in terms of needing to keep up with AI. And that's what's incredibly exciting is the agility we're seeing with some of the best teams operating here. Great.

49:05Tristan Guerra:Well, Alexa, I want to thank you for coming on. That is Alexa Liotto, a partner at General Catalyst here on TITV. That does it for today's show. A reminder, we are on this stream Monday through Friday at 10 a.m. Pacific, 1 p.m. Eastern. I want to thank you all for tuning in. We really do appreciate your viewership. Make sure to subscribe to the information on YouTube and follow us on X, Instagram, TikTok, and check us out wherever you get your podcasts. I am already excited for our next show tomorrow. Have a great rest of your Thursday. Bye-bye for now.