NEWS: Nvidia’s insane earnings beat, Arm’s IPO filing, and more! | E1797

0:00Apple would rather buy Apple. They want to invest in themselves. And I think Nvidia. Buying Nvidia is going to be absolute chaos. that's the reason like it could continue to be a momentum stock if this the percentage growth stops but the earnings get better in other words they can keep selling these things these h100s for the the same price or higher and they don't have competition and more gets thrown to the bottom line that's a crazy setup there's two ways to increase earnings per share you make the earnings go up or you make the amount of shares less and if you're doing both you're apple yep Reduce the denominator.

0:34Right. That's math, baby. Big setup for them. It's math, baby. It's all math. This Week in Startups is brought to you by Crowdbotics. Great ideas can change the world. And Crowdbotics is the fastest way to turn those ideas into code. Get a free scoping session for your next big app idea at crowdbotics.com slash twist. Open Phone brings your team's business calls, texts, and contacts into one delightful app that works anywhere. Get 20 % off your first six months at openphone.com slash twist. And FitBod. Tired of doing the same workouts at the gym? FitBod will build you personalized workouts that help you progress with every set.

1:20get 25 off your subscription or try out the app for free when you sign up now at fitbod.me slash twist all right everybody it's time for the news yes this week in startup since molly left the program we uh been doing a lot of interviews and so i wanted to bring back news get more news going here now uh we're not going to do woke news we're not going to argue about Trump. I'm going to talk just about the news. No Giuliani. No Giuliani today. No Giuliani mugshot. Throw that in. Oh, God. And my favorite is Michael Rappaport just is going insane on social media. Red flag. Anyway, there's important tech news.

2:04NVIDIA just dropped the mother of all earnings reports, obliterated everything. And I thought I'd have producer nick who's very famous from the all in podcast come on he does a great job uh now that he's been producing the swinging startups for a couple years and all in for a couple years but with me for four or five years he's just great at doing the news you guys love him uh so here he is nick calacanis great feels like a stretch but i appreciate that yes i appreciate that what's that i said great feels like a stretch but i appreciate that oh no you're great at it okay well we'll see how i do today feedback nick is of course my nephew uh my brother josh's son firefighter and uh he worked at um people don't know but he worked at mlb he was editing the world series before i poached him from mlb to come work with me a true talent uh baby all right let's get into it what's on the docket for today for this week in startups so today we're going to talk about nvidia obviously how could you not we're going to talk about arm filing its f1 not s1 it's an f1 uh to go public on the nasdaq we're going to do and do a super deep dive into arm and some potentially major red flags about that business and its relationship with China.

3:09We're going to talk about accelerators and Jason going, what is that company that you threatened with a machine gun 10 years ago? That was Koretsu. Koretsu. Yeah. Jason's going Koretsu for him. I took out an AK-47. I think that video has been deleted off YouTube. I believe that video. We're going to talk about - Yeah, I think so. Better not be. I can't find it. We're going to talk about what the hell is going on with our guy, Ryan Breslow. and to wrap maybe my favorite topic ever and maybe my favorite person ever we're going to talk about the greatest bag secure of all time anywhere in anything ever number one bag secure of all time i won't this is the best bag secure i i think since adam newman i think it's him and adam newman are neck and neck this one might be better all right let's get to it nvidia nvidia Nvidia.

4:01They just obliterated their Q2 earnings. Queue it up for us. So just anecdotally to me, and I don't know, you can answer this too, Jason. This has felt like the most anticipated earnings report in a good way, in a positive way since Zoom in 2020, when everybody went remote and they were like, oh my God, 350 % growth and it was crazy. And the reason why is last quarter, Nvidia reported pretty good earnings, but what made people go crazy in last quarter's earnings report was that they projected$11 billion revenue this quarter, which would have been 52 % quarter over quarter growth. That was$4 billion more than quarter over quarter is the key here.

4:40We're not saying year over year. A high growth company in the stock market is 20, 30 % year over year. 50 % year over year would be El Fuego. Snowflake, smashing. snowflake smashing 50 quarter over quarter just simply does not happen that's like a series startup right yeah well i mean even then you know they're they tend to be doubling revenue year over year sometimes tripling this is an unbelievable um uh idea here is to go 50 quarter over quarter but let's get into it so last quarter when they reported this crazy projection, the stock immediately jumped 25 % from 305 to 380 a share. Earlier today, before they reported it was trading at 470, so it's still going up.

5:24And this growth is sort of being priced in because everybody's kind of feeling like, oh my God, they're going to smash these. So$11 billion was the number they set. They reported$13.5 billion of revenue, up 101 % year over year, up 88 % quarter over quarter, well over the highest analyst estimates of$11.2 billion. Unbelievable. Yeah. Okay. And this is because this really impressive company that made graphic cards that Call of Duty nerds would install on their computers to get the extra frame rate so they could go 120 frames a second while playing Call of Duty at the highest resolution possible on their gaming monitors.

6:05all of that then led to ai jobs being done on gpus instead of cpus and a100s h100s all of these now are becoming essentially the infrastructure of the ai boom and every company feels an existential crisis nick that if they don't get this infrastructure set up and start doing large jobs on it uh they might be outrun by microsoft and open ai or you know claude or bard and so if you have hundreds of billions of dollars or hundreds of millions of dollars laying around as apple google you know pick your company amazon you're going to just start buying these and putting them into infrastructure twitter etc and not to mention startups and so we saw all these startups and the venture community-backed startups.

6:58So you've got a customer base that has unlimited deep products. You said every company, I would say every entity. We're seeing sovereign wealth funds, governments, everybody's getting in on this right now. UK is buying$100 million worth of GPUs. I think Abu Dhabi and the UAE and the Saudis all said that they're going to buy and they're building their own LLMs. This is like serious. Yeah. And that doesn't even bring the issues around China, which we'll put aside for now. them wanting to buy these and and the question i have in all of this because i don't think they're giving out granular information on when these orders and the money is being recognized so if microsoft let's say for the azure cloud and google cloud and and aws each buy you know a billion dollars let's say they put a billion dollar order in when does that revenue get recognized does it get recognized you know monthly as they deliver each one or if each one cost a hundred thousand dollars or fifty thousand dollars do they as they deliver them they get the money which means the money we're seeing drop in this quarter that was just reported would have been money orders that were put in years ago yeah or or or maybe a year ago who knows so then what does that mean for future quarters and i don't think we have the insight into that of how they do revenue recognition And, you know, if somebody is an analyst on this, and they can, you know, provide some clarity on that, I think that's going to be the next most interesting thing to try to understand here.

8:33All right, we all know the one thing that separates great startups from the good ones is product velocity. What does it mean product velocity fancy term, right? You got your product and your velocity speed, the speed in which your product improves. So can you ship updates? Can you release new features? Can you do bug fixes? Can you iterate on the interface? Can you solve problems for your customers? And can you do it quickly? Because you're not alone. You have competitors and your customers have choices. They may solve their problems by writing their own custom code, or they might use your solution.

9:06This is what startups are about. How fast can you get that product velocity going? And so, you know, how do you supercharge it? Everybody says, okay, yeah, we want to go faster, but you got to go faster intelligently. And Crowdbotics is going to help you do that. They're your CTO as a service. Basically, they provide you with the most optimal architecture to get your product to market as fast as possible. You'll have access to an on-demand product manager and developer talent, and they will help get your app into production 10 times faster than conventional development. Crowdbotics can work with your in-house dev team, or you can just have them work independently.

9:38And you own all the IP. You own all the source code. Let the folks at Crowdbotics supercharge your product velocity today. No more waiting. Get a free build plan at crowdbotics.com slash twist. That's a$4.99 value just for the twist listeners. You get that for free. That's C-R-O-W-D-B-O-T-I-C-S.com slash twist for a free build plan. The run-up happened already. I don't think the stock went crazy on this news. No, about up between 5 % to 10%. It hit like 9.5%, then it came down to 7%, then it came kind of down to 5%. So, you know, have you ever read that, that like, I think it's a Reddit post about on like Wall Street bets about how everything has been priced in.

10:20It's like your birth was priced in. Your father was priced in. Somebody put that in here. It's all priced in, right? And so we see that all the time. The hype was there. I was on Fox yesterday, a Fox business this week, and they were asking me if I thought NVIDIA was a buy. And I was like, well, I wouldn't be buying it unless you've got a 10 year window here. And I do think competition is coming for this company. Whenever you show this much revenue, this much growth, you know, you got to think Intel arm, you know, and new entrance into the market. Everybody's looking at this TSMC. Everybody's saying, hey, wait a second.

10:55Is what they're doing so unique that we can't replicate it or make something better? And so you're going to see R &D budgets go into this. And this is where competition and capitalism is at its finest. a company discovers an incredible opportunity and let's face it this is an opportunity they didn't expect nvidia was trading and the biggest most exciting thing about nvidia two years ago was not video games and not ai two years ago the most exciting thing about nvidia was cryptocurrency and that these were being used for bitcoin and mining now that's over and so everybody thought oh my god nvidia after crypto collapsed uh what's the future of nvidia and core weave a company that is now has some crazy billion dollar valuation which all they do is they purchase and then rent out nvidia gpus was originally a crypto mining company that was offering like mining gpus as a service now it's ai gpus as a service the smartest pivot of all time potentially so this is the theory of inducing traffic if you build you know a four-lane highway uh you're going to get a certain amount of traffic and a certain amount of you know delays and you expand it to six you would think like oh it's going to reduce 50 percent the delays and then all of a sudden the delays stay the same and then sometimes you get longer why people see a big beautiful 405 freeway in la or the 10 freeway or whatever it is and they're like oh i should go take a ride to san diego i should just zip down the 405 and check it out so you can induce traffic what's happening here is i think these chips had so much power and they're sitting around they induced developers they induced technologists to come up with a use case crypto was a use case ai vr ar and of course now ai being the ultimate use case so this is incredibly exciting for the industry this is the you know i think the path out of the the last bubble i think this will be the path out of last bubble because all of this infrastructure is going to be built out and just like dark fiber which I'll explain in a second, I think there's going to be an over capacity soon.

12:58And when there's all this extra capacity, the cost of this computing is going to get collapse, NVIDIA is going to have all kinds of challenges. And at the same time, you can mark my words in two years, you take this clip, other entrants are going to come in, everybody's going to have bought all of these and the software is going to be optimized. And then the relays between the software and how you stack these things into supercomputers. That's all going to advance when that all advances, we're going to have a glut of compute. This is exactly what happened during the dotcom era. Everybody started laying fiber.

13:29And they went so crazy investing in fiber that they over invested, then that fiber became like free. And there was so much bandwidth available, that YouTube, and Netflix and all of those emerge. Same thing happened with storage, storage became, you know, incredible, you had, you know, really great, not kind of like Moore's law, but you had good advances in storage, and the cost went down, manufacturing figured it out and then all of a sudden flicker offered free storage and then you had google unlimited storage of photos the we take for you know we take for granted unlimited cloud storage uh and we very rarely pay for it i think the only storage i'm paying for right now personally is my apple iCloud and it's for my family and it's like cost nothing and it's whatever tons of storage in the cloud so i think in two years you might see a glut of this compute other competitors come on board and then that means people are going to be throwing jobs at these things that they wouldn't they wouldn't do right now because it's too expensive so you are subscribing to the sell the news theory on nvidia absolutely totally i think this this can go up there can you know when momentum stocks happen people can lose their minds so that doesn't mean momentum is stopping here but i do think if you were looking at this as a five-year hold or something like i think there's going to be some up and downs here i think they could you know you could have you know somebody like open ai or aws or whoever google say okay we got enough and you could have folks who we have enough compute right now for the jobs we have and we'll see but i think a lot of these language models people are starting to run them on their laptops they're running them on alternative hardware and it might be that the software becomes sophisticated enough that the idea that you would buy 500 million of this to run you know some language model on it or smaller tighter models become in vogue that need less compute entirely right yep and constraint drives innovation so the constraint of bandwidth led to all the jpeg and gif compression the video compression we see today was because we did not have fiber to people's homes we didn't have star links we didn't have gigabit connections at home so they spent all this time trying to um you know uh compress data now it's like you probably don't have to compress it people are like send me 4k to from netflix uncompressed i want to get every beautiful pixel right right uh so the idea of why why compress it if i have all this extra bandwidth all right so just to finish up on nvidia so 6.1 billion dollars in net income in q2 up 840 and 43 % year over year, up 203 % quarter over quarter.

16:12And then just in terms of forward looking, NVIDIA is expecting revenue of$16 billion in Q3, plus or minus 2%. That would be 18.5 % quarter over quarter growth from this quarter and 2.7X year over year. Yes, slowing, but still a big number on a big number. But on big numbers, right? These are big numbers, folks. And hardware. Hardware, yes. heart and the thing that i find fascinating is that they're able to deliver hardware and scale the demand the fact that they can get if they can ship these things i wonder if we're going to be sitting here six months or a year from now and people say i gave you a billion dollars you took my cash because you could like what what are the deal terms here like if you don't do you have to pay in full i have a feeling you have to pay in full for this and then get your your you know uh product a year from now that i do not know sort of like you know i'm sure of it because why wouldn't they take your full deposit you know like if you have a car if you're if you're selling ferraris you put your full deposit down and they give you a fari nick i'm not kidding you two or three years later and they sit on your four hundred thousand dollars that's how it works you don't pay when on delivery you pay now if you want the spot i'm guaranteeing they're taking the money now you might have people complaining like hey where's my where's my product um the fact that they can deliver these is absolutely stunning and uh what do you do with all this free cash flow So that's the big question.

17:35This is a lot of money sitting around. So are they going to start buying companies? And what's the plan with all that free money? Well, we know they've been investing in a bunch of companies, right? They've been investing in a ton of AI companies with some, we mentioned this the last time I was on, with some little side deals where, hey, we invest in you, but also you're getting a ton of GPUs. They just did that with inflection, right? They gave them like 20 ,000 GPUs. They also invested in the company. We don't know how much of the mix of that is actual equity versus just getting GPUs. um they also nvidia's board approved 25 billion dollars in share buybacks which is about six times higher than what they were currently allotted so i think very smartly the board is like let's get this going this is going to turn into if they if they start putting this money towards stock buybacks uh this company is going to start to look like apple and right now this is fascinating to me but if you if you if you look at the the the largest market cap companies in the world uh you can pull this up on the screen there apple 2.8 trillion dollars microsoft 2.4 saudi aramco um selling oil above 2 trillion dollars i kind of take that one out because that's just like you know here's somebody with a pile of diamonds it's not an actual company as such in my mind it's just a natural resource fourth company alphabet aka google 1.6 amazon 1.4 ish and then right behind him at 1.2 ish uh 1.1 actually nvidia bigger than berkshire the next one drops off at 776 billion um they're going to pass amazon will they pass alphabet i mean if they start buying back that sounds that sounds insane going up that sounds insane what you're saying that nvidia is going to be more than alphabet potentially in like a couple quarters that's crazy i mean that's pretty crazy uh and what i love about looking at this uh market cap chart and this is where like the guys on all in give me a hard time that i'm so pro-american and i'm an american exceptionalist you know saudi arabia is the number uh saudi aramco is number three for their natural resources take that out of the list what's the next largest company what's the next largest company that's non-us lvmh viva la france uh 450 billion dollars lvmh congratulations that the next largest is a french company isn't that surprising yeah and then who's next my favorite ozempic maker novo uh nordic nordic nordic nordic how do you pronounce that notice 425 billion that's sword after that 10 cents in china number 20 so you know of the top 20 one two three uh oh i've got tsmc four or five you know we're 15 of them you know 16 of them just tells you everything you need to know about capitalism unconstrained uh capitalism with the greatest entrepreneurs in the world and remember we shared that chart on all in of income disparity and the different lines and this is the result of it is that we get to lead the world in having the largest market cap companies uh and that's why nvidia is here nvidia you can't have these kind of companies in china you simply can't because they would get so big xi jinping would see it as a threat right uh and so congratulations to the nvidia team congratulations to america and congratulations to humanity because i think all this compute the problems we're to wind up solving are going to be a lot more than, hey, can you write me a blog post or can you write some code faster for me or make me an app?

21:15I think we're going to start to, all this infrastructure that's being built, it's going to be very similar to the internet where we couldn't predict what would happen. Couldn't predict what would happen. Can I ask you a question? And it's going to be pretty amazing. Yeah, sure. So how much of this year's sort of big tech, mega cap tech stock run up, right? Everybody's up big. I think as of last month, seven tech companies, Amazon, Apple, Google, Meta, Microsoft, NVIDIA, and Tesla made up 55 % of the Nasdaq's gains in 2023. How much of that was just a wild overcorrection on the downside in 2022?

21:53Because for big tech, almost all of big tech is still relatively high growth and massively profitable. So some big tech companies being down 20, 30, Meta even more last year, was that just like an over correction on the downside due to people being nervous that we were going into a serious recession yes it was how bad those companies looked going into a recession because their spending was out of whack with the opportunity and as i correctly predicted and i got a little bit laughed at by a couple of besties i said well listen if you just cut costs and you get more efficient um wouldn't the earnings then stay the same couldn't you or yeah the earnings issue by just you know laying some people off or cutting investment r d whatever and that's exactly what meta did they said let's not spend as much on these you know crazy headsets and let's just get rid of 10 20 000 people and people forget the layoffs we are now i mean the layoffs happened so fast so furious in 2022 and you haven't seen as many of them you were seeing them in media they're hitting other parts of the industry um and this is why i think we had a rolling recession which i've never seen in my lifetime the recessions usually hit boom two or three quarters of chaos this one was like we're still in it it feels like and it's six quarters now we're in the seventh quarter of recession but we didn't have negative gdp for two quarters but each industry got its kicked and it was like a rolling thing tech yeah banks media and i think real estate's next i don't know who else hasn't been taken uh you know to the woodshed but i think each company got its chance oh i think it's retail is getting taken to the woodshed right now right the low-end retail is getting absolutely destroyed this week so everybody's taking the medicine and you're right it was an overcorrection the magnificent seven are amazing and if they control costs and buy back their shares that's the setup for money printing machines and it creates a virtual cycle okay i cut 20 000 employees i saved all this money the company's more efficient we are more profitable we're more innovative okay let's buy back some shares we don't have anything to do with the money lena con won't let us buy anything okay you know lena cons can't stop us from buying our own shares and that's what apple does you know the biggest purchases apple has made are like beats by tray the largest company in the world does not buy big companies they could have bought tesla they could buy all kinds of interesting companies they they could they could buy disney there's still speculation about that disney would be nothing for them to buy that would rather buy apple easy apple would rather buy apple they want to invest in themselves and i think nvidia buying nvidia is going to be absolute chaos that's the reason like it could continue to be a momentum stock if this the percentage growth stops but the earnings get better in other words If they can keep selling these things, these H100s for the same price or higher, and they don't have competition and more gets thrown to the bottom line, that's a crazy setup.

24:53There's two ways to increase earnings per share. You make the earnings go up or you make the amount of shares less. And if you're doing both, you're Apple. Yep. Reduce the denominator. Right. That's math, baby. A big setup for them. It's math, baby. It's all math. Are you still using your personal phone number for your startup? It's 2023. It's time to stop. It is a huge mistake. that founders make. Why? You're just getting started with your company and you don't think about phone numbers as being an important part of the IP collection of your startup. With open phone, you can totally solve this problem.

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26:00And we use it for things like event communication. So we get one phone number, but it can go to multiple people like a round robin thing, we have a shared phone number, do that for customer support and open phone is rated number one on g2 for customer satisfaction and you know i trust g2's ratings open phone it's ready it's affordable starts at just 13 bucks a month but twist listeners can get 20 off any plan for the first six months at open phone.com twist and if you have existing numbers with another service no problem easy peasy lemon squeezy open phone will port them over at no cost head to open phone.com twist to start your free trial and get 20 off All right.

26:39You want to talk about Arm? Yeah. I mean, Arm is a very complex one. I searched them off, went absolutely crazy. I don't know what the difference between F1 and S1 is. So, it's very simple. Foreign company. Yeah. You got it. F is for foreign company? Got it. All right. I don't know if it actually stands for foreign, but yeah, F1 is foreign companies listing on US exchanges. Arm is a UK-based company, obviously. Do you know Arm's history, by the way, Jason? Are you familiar with it? I'm not. Tell me. So they were founded in 1990 actually as a joint venture between Apple, a company called Acorn Computers, and a company called VLSI Technology.

27:12They went public on the London Stock Exchange and the NASDAQ in 1998. Obviously, we all know SoftBank acquired ARM for$32 billion in 2016. And then in 2020, SoftBank was going to sell ARM to NVIDIA for$40 billion. and nvidia agreed to the deal but that was called off in february 2022 to a bunch of regulatory pressures um and can you just imagine if nvidia not only had like a complete stranglehold on the gpu market but they also were owned arm and had 99 of uh smartphone chip designs too it'd be insane crazy well and the other thing if you just think about what would have happened with masayoshi-san's position he would have owned nvidia oh yeah the bottom so i think that might have been a three or four x so whatever he's going to get out of it going public now it could have been a yum yum and that just shows you how hard it is to be a capital allocator oh my god i got offered 30 bucks a share for robin hood right before the ipo and i was like you know what i think this is a company for the ages i want to keep it the market corrects and you know we distribute at 11 a share now other trades i made selling in secondary we sold shares of some companies at a billion that then became worth 300 million so you just never know it's very hard to clear positions uh you know in an optimal way yeah what i learned is they said how did you get rich or how did you get great returns for your lps and your fund selling too early selling too early yeah is is uh what happens but this is going to be very interesting because their revenue is going down um basically sideways essentially basically flat going public when things are flat you say well why would you go public when it's fine when i stay private and fix that well we all know why that's happening masayoshi's son needs liquidity he needs to get a return who does he need to give the money to the saudis who gave him the money for the vision fund so this pays off the vision fund softbank the corporation bought the vision funds investment in arm they locked in 25 of it 25 of it 25 of it so that gave the saudis some of their money back a billion dollar valuation by the way which is higher than their ipo target valuation is that sketchy at all to you by the way or no i think when that trade was made it is definitely inside dealing and the question is like will the the people who are shareholders of soft bank you complain about that and follow lawsuit yeah so soft bank the corporate entity buying out the vision fund yeah that is uh uh the the definition of a conflicted transaction so there's a term it's conflicted transactions They have to go through a level of scrutiny.

29:49And yeah, they can wind up in lawsuits anytime you have them. And so, but you know, like we say here in Silicon Valley, no conflict, no interest. Conflicts are kind of the reason people do deals. And so this pays off the Saudis. And so companies are going to get pushed out public because they have no choice. And that's what's happening here. You would much rather keep this private for a couple of years and make it grow 10 % year over year, clean it up, have an AI strategy. It would be better timing. yeah they mentioned in that go ahead sorry no as i say that might be the opportunity to buy the shares is that now this is low expectations are low what is their ai strategy and if you believe in the management team and you believe in their ability to produce new products which i don't know i don't know enough about arm to know if they can make new competitive products and what the track record is at competition but if they can make competitive products then maybe this is the time to buy.

30:41Yeah. They mentioned in their F1 that they are trying to differentiate because Arm is 99 % of all smartphones are built with Arm's chip architecture, right? Two of their major customers are Apple and Qualcomm. Qualcomm makes chips for Samsung. They make chips for Google Pixel. So they dominate the smartphone market, but they actually don't make any infrastructure for GPUs. So they are not in AI at all, aside from CPUs. So ARM basically said they're pivoting into building chip architecture for CPUs that can be used for AI and for cloud computing. And it's been pushing pretty hard into cloud computing over the last couple of years.

31:19They also mentioned that in their F1, that Amazon and Alibaba both use ARM-based chips in their cloud data centers. So it seems like they are saying we are not just smartphones. And by the way, the reason that the revenue was down slightly is because they are so concentrated in the smartphone market that when smartphone sales are down like they were globally the last year arms revenue basically reflects that so they're kind of just like a proxy for the smartphone sales and globally in a way yeah in a way and i predicted i i thought like they had to get tim cook out of apple like five or six years ago because i predicted smartphone sales would slow down when they got to like iphone 10 because i was like i can't tell the difference between eight nine and ten and i'm their like tip of the spear customer i would buy the s you know i'd buy the intermediate model i loved smartphones so much and this is the first time this cycle you know i think i have an iphone i don't even know i have to think it through i have an iphone 13 iphone 15's coming out right and i don't even care i now have gotten to the point where like a grandma or your auntie or uncle who has like a five-year-old phone i'm like well it works and i really don't see the need to upgrade and it turns out during a recession i think a lot of young people or people who are on budgets are like why would i upgrade and i used to make fun of people who had you know two or three generational phones you've been in the meetings when i've said that like upgrade that phone i have don't come to a meeting with a founder with a four you know with a iphone four when the iphone nine is out like are you crazy you look like an idiot um now i'm kind of like yeah i'm gonna i'll skip i basically skipped the 14 the first time in the history of the iphone i skipped a gen um yeah i i'm actually more interested in the laptops i i'm upgrading my laptop every year because the m1 the m2 is so impressive and i just love i just love this macbook air i had an m2 you know macbook pro but i'm like this this m2 where i had the m1 and i was like i had the m1 with the big screen i was like it's heavy this lightweight macbook air is delicious yeah um i'm getting a new this is a this is a challenging situation what are you getting uh i'm i want i'm gonna get a uh two terabyte ssd m2 ultra i think um because we have an extra macbook capacity right now that we're going to send back and we're getting a ton of credits for it so it's only going to be like i mean for you what is that going to cost three grand for the best one no it's like 4500 for the best one but with the credits that we have to allocate towards it it'll be about two grand i think yeah i see i think you should go right to the 4500 one i'll be honest because your time yeah if you are doing edit oh you are so you're you're literally buying a 4500 laptop yeah yeah but it'll cost us 2100 after the trading credits got it right but i'll tell you why i think if i mean i know i sound like a lunatic right now but nick does a lot of video editing and if that gets the show out two or three hours early whether it's this week in startups are all in it's worth a 4500 laptop versus a 2000 one and then your time is precious this thing's going to save you an hour a week or two hours a week what do you think i don't know i have no idea i have to try it first i don't know on the old export yeah yeah on the export yeah hour if it saves you two hours that means they get a hundred more hours of nick a year or 50 hours more that's like getting one week out of you a year yeah that's incredible yeah that'd be great all right let me let me finish up with some arm stuff so they have they have a really unique business model, which I don't know that a lot of people know about, they make money in two ways.

34:47They have licensing fees where customers pay ARM to license their design blueprints. That was about 40 % of revenue last quarter. And then they have royalties. So they actually take a percentage of revenue on everything sold using its chips that use its design infrastructure, 60 % of revenue last quarter. But in their F1, they noted some major, major red flags. and one of them is they have a huge dependence on China. And this is a little conflating, so I'm going to try and explain it really simply. So in the F1, they note that their top three customers right now account for 44 % of its revenue.

35:24And I think this makes a lot of sense, right? Smartphone chip giants like Apple and Qualcomm are known as major ARM customers. So you'd think that they'd be making up a majority of it because the smartphone market doesn't have that many major competitors. But it goes a little bit deeper than that. Arm's single largest customer is an entity called Arm China. This is an independent entity that has exclusive rights to distribute Arm's technology in China. And last year, Arm China accounted for 24%, one quarter of Arm's total revenue during its most recent fiscal year. So can you explain the risks of having one whale customer like that?

36:02It's a huge risk. When you have that, what you have to do is quickly try to increase your customer base so that the percentage goes down. So who knows what this has been over time. And the way to do that would be to have arm India, arm Singapore, whatever other large markets there are. So you can have this in SaaS software, sometimes somebody just buys a lot of your software. And the real challenge is they will someday wake up and say well for 24 of their revenue um is there a better way to do this and when you think of arm you know they produce this architecture like a blueprint if you want to think about it that way of like here's how to build a chip okay there's an open source version of it what arm is doing is proprietary and what they're building is called an isa uh instruction set architecture is like wonky term for it there's an open source instruction set architecture called risk, RISC dash V.

37:04So imagine open source, you know, MongoDB or some open source database versus Oracle. So the question is, and I don't know if they put open source ISAs as a risk factor in their F1, I gotta get used to saying that. But I think that's another one. And so let's say you're this arm China, well, what if you start using risk, and they say, you know what, we're going to make 10 % of our chips with this risk architecture, that's open source and free. Okay, so the 24 % take 10 % of that, that's 2.4 % headwind of lost revenue. And then if they keep, you know, expanding, you keep losing revenue. You know, so this is a, it's a, it's a challenging business, and it's a dogfight.

37:50And that's what makes capitalism great. All right, you know, I've been on a health kick over the past year, and you know, I care about data driven solutions. And if you listen to this podcast, I bet you do too. So let me tell you about FitBot. This is a data driven workout app that blends machine learning with exercise science. FitBot creates custom dynamic workouts programs based on your fitness goals, your experience. And most interestingly to me, the available equipment, let's say you got a bunch of kettlebells, or let's say you're at some, you know, sparse gym at a hotel, or you're on vacation, you got nothing.

38:26Well, FitBot will maximize your fitness gains by varying the intensity and the volume between your sessions and leverage the equipment you have or don't have as the case may be. You can customize the length of your workout what muscles you want to target and so much more. So let's say you want to get a 30 minute workout in and I want to do chest triceps and abs, but I'm staying at an Airbnb, there's no equipment. FitBot can create a perfectly optimized workout for me based on these parameters and it will do it for you to check it out. It's amazing. The design of this app is extraordinary. I I was able to invest in it.

38:58That's how impressed I was with it. Fitbod takes the guesswork out of fitness. Just open the app and start making progress. You deserve it. Get 25 % off your Fitbod subscription or try out the app for free when you sign up now at fitbod.me slash twist. That's F-I-T-B-O-D dot M-E slash T-W-I-S-T for 25 % off. Can we go a little deeper on Arm China for a second? so all businesses in china by the way are red flags it gets a little crazy yeah it gets a little crazy specifically so yeah arm china is owned by a couple of different entities acetone limited is one of them that is an entity that's controlled and created by soft bank it owns 48 percent of arm china and arm the original arm holds a 10 non-voting interest in acetone which represents a 4.8 % non-voting share in Arm China.

39:52So they own a very small amount of it and they don't control it. 52%, a majority stake of Arm China is owned by a Chinese private equity firm called Hopu, H-O-P-U, and quote, other Chinese parties. So just the long story short, Arm doesn't have any material control of Arm China. Furthermore, Arm noted its relationship with Arm China as a significant risk in its F1. Let me read you some of these quotes, Jason, and you just respond to them as you would, as an investor would. Quote, this is from the F1. In the past, we have had issues obtaining timely and accurate information from ArmChina. We believe the underlying problems causing our past inability to obtain such information have been resolved, but we can provide no assurances that our access to ArmChina's records will not be inhibited again in the future.

40:40Quote number two, in the past, we have received late payments from ArmChina and have had to expend company resources to obtain payments from them. Quote number three, ArmChina - Did they send Furia? Is that Furia? It's my best advice. You got the B on your head. You got a B on your head. ArmChina has possession of, and this is the money one, ArmChina has possession of or access to certain material IP and customer data pursuant to the IPLA. IPLI stands for intellectual property license agreement and other commercial arrangements with us, us being ARM. Although ARM China is contractually obligated to protect this IP and data, we are limited in our ability to monitor or influence the manner in which ARM China protects our IP and data from theft, loss, or misuse.

41:31Does this sound like a safe relationship with a company that makes up 25 % of your revenue? this is doing business in a frontier market uh and uh you know or a banana republic you know pick what phrase you want to use uh you know third world might get you canceled uh but it's a lawless place and this is why you know as crazy as it feels in the united states sometimes you see sam bankman freed you see elizabeth holmes and you're like oh my god capitalism is out of control and the socialist you know arms of you know podcasts like tech won't save us they kind of lose their minds oh my god capitalism united states out of control elizabeth holmes ftx sam bankman freed these are minor and those people go to jail now you stress you know contrast that to china and how do you know the accounting's correct and when you say 52 is owned by other parties might that be the ccb the communist party which party i mean it sounds like a heck of a party i'd like to be invited to it i think it was 17 17 of arm china is owned by other chinese parties 35 was the chinese i mean at the end of the day like putin's russia or xi jinping's china it's owned by the state everything's owned by the state and the state can at any point in time tell you you no longer own it or you own half of it just like in saudi arabia in the kingdom there was a renegotiation with the different families came together and hey guess what you don't have the esplanade jobs you only get two no-show jobs and we're taking over the concrete it's just like dealing with the mob and what you have here is like some honesty because if you're in the west you must be honest about this now you could say oh my god you know this back collapsed or this stock had fraud or this company was you know investing the client's deposits all kinds of crazy stuff can happen with bernie madoff and ron whatever but capitalism in the united states we saw that chart we showed of like hey we're 15 16 of the top 20 it's because we have a rule set and at the end of the day even though you might disagree with a call here or there you kind of get the sense that the system is not rigged in the united states what this tells you is the system in china is absolutely rigged if you want to play that game you better have access you better be ready to lose the money and you better have access to some people in the military in a really nice military outfit you know with a lot of those badges on it um you need to have some of those generals in your corner when i started going to china 15 20 years ago i remember them telling me like you have to have like if you were in a gaming company you needed to have a certain general on your board because gaming was somehow when you had a gaming company incorporated you had to check in with the military and you had to have some kind of military connection it was very strange uh so be careful and this is why i think you know sequoia is no longer operating there i think they made the right move the united states is decoupling the rules over there are crazy the accounting could be completely fraudulent and they could be selling more of your chips out of the back of the factory than the front uh and that's just the nature of business in a corrupt environment and i would also that doesn't mean there's not corruption in the united states it's just the percentage of corruption corruption is the default there arm makes chip designs and that is now a major national defense issue for every country in the world it's even more high it would be different if this was like a software company or whatever this is like legit national defense problems and this customer just happens to be located in china generally accepted as the biggest adversary of the west yep i don't know it just seems like a major risk that um there were some articles about it this morning that i noticed i was like oh my god that's crazy i'm not a big fan i'm not a big fan of um doing business in china um and i but i do think we the path forward should be for our societies to collaborate on you know important problems in the world and for us to do trade but i think we got i know people think china got the better of us i think we kind of got the better of china um because we got all these low-priced apple phones and apple's an american company and so i think we won and i think we'll continue to win and and authoritarian countries are only as good as the psychological state of their dictator all right you want to talk about some accelerators that might be predatory or might not be well you know this yeah this is an interesting situation that's bubbled up yet again everybody has issues with accelerators um both the you know people talking about the the valuations of people coming out of legitimate accelerators like y combinator or accelerator and then what y combinator or launch you know what price we pay so maybe just i could start off with just explaining why accelerators exist there are a ton of companies accelerators allow those companies the best ones to be selected from the overall pool of startup ideas and then be mentored sharpen their blades get better at what they're doing and help them network raise money and get advice typically occurs over 12 weeks our accelerator we expand it to 14 weeks get a couple extra weeks in there to introduce people to stuff and get product market fit and they get a heck of a deal 100k for 6 % in the case of launch accelerator y-combinator gets 7 % for 125 great deal that would be a valuation of about 1.7 million dollars.

47:27When you graduate from our accelerator, you might be raising money at six to 15. If you graduate from YC, you might be raising money at eight to 25, right? They bring 1000 investors together, they hype things up, they put high pressure on folks. But essentially, what the people coming to Y Commerce Demo Day, or ours are doing is saying, Hey, J Cal, can you sort through all this stuff, diligence it, and tell us what the best 1 % is. That's all we're doing. We're sorting through the 1%. You know who else does that? Harvard, Stanford, any college. You know what does that? Like colleges when they do it with basketball players, right?