Micron Technology's ( MU ) post-earnings decline and Nvidia's ( NVDA ) shaky sales aren't exactly a vote of confidence in the AI landscape for investors this week. Is this the first sign of an AI bubble materializing?
To help answer these questions and more, LeadEdge Capital founder Mitchell Green joins Yahoo Finance's Catalysts to talk about the long-term vision for trading artificial intelligence.
“If you believe that hyperscalers are going to be the ones that are going to spend a lot of money, I should say hyperscalers and the Singaporean government and the governments of the Middle East are going to spend more money on this stuff next year. Then maybe it's There's a long time. You think this CapEx might be a little bit of a bubble, it's probably a short one that we think is very real, but a lot of people think this stuff is going on. It will take time.”
It may be some of the AI ”incumbents” who actually come out on top at the end of the long-term adoption timeline, Green says.
For more expert insights and the latest market action, click here to watch this full episode of Catalysts.
This post was written by Luke Carberry Maughan.
Video transcript
Shares fell today after the company forecast that it failed to live up to the high expectations that investors had for the AI space and the company in particular.
And it comes on the back of a wild ride in video this week when the company briefly topped Microsoft as the world's most valuable.
That stock is now down about 5% over the past five days.
So should investors be reading about the potential AI bubble coming?
Joining us now is the founding partner of LeadEdge Capital, a venture firm focused on the technology and software sector, Mitchell Green here with us at Studio Mitchell.
Thanks for being here.
Thanks so much for having me.
So talk to me about what you're looking at in terms of concentration, okay?
Because obviously that's causing some concern for investors who like to say in the video as the new Cisco.
Are you seeing this moment as a bubble?
What investors say?
Do they say it's too much or do they say we'll ride Cisco for a while?
If you believe NVIDIA has a bit of a law of both, we think AI has them back.
We think AI is very real.
We have not made any AI investments ourselves.
I am glad to enter.
why why
I think it's real.
We think it takes a lot longer than that, but especially with NVIDIA.
You own NVIDIA today.
It's like 100 and a $20 stock or whatever.
Roughly this is Rs 4 to 5 of the next year's earnings.
So it trades at 30 times growth, which is not expensive.
I think there is only one basic thing.
If you believe in hyperscale and they are far from their competition, like MD and some of these smaller companies that are attacking the edge.
But this, these people have built an incredible business and incredible chips.
If you believe there are going to be hyperscalers, which are going to spend a lot of money, I see the Singapore government and the Middle East governments going to spend a lot of money on this stuff next year.
Then it's probably also if you think that this capex might be some kind of a little bubble, it's probably a, a short uh, what we think, it's very real, but in playing this thing. It will take a lot of time. people think.
And it's our belief that it's like the telecom boom in the late nineties, early two thousand where people massively scaled capacity, we're going to believe you here too, see, over time. Costs come down dramatically as well.
If you wanted to build a website in 1997, you went to some microsystems and you know, it cost 50 million rupees to build your website today.
You take out your credit card, spend 25 rupees and go to GoDaddy.
The same will happen with AI.
So what does that shakeout look like?
Oh, if you have a lot of V CS in some of these companies, we think there's going to be a lot of zeroes.
This, this, the interesting thing about AI is that there are three things that people don't think about.
With the arrival of that phone on your desk, the iPhone whatever, 2007, 2006 whenever it came out, how many companies that didn't exist after 2000 that didn't exist before 1997?
Alas, 2007.
How many new companies were created that are worth more than $100 billion?
Three Bytes, Dance Pin Dodo and Uber Only Three, you know who wins?
Post holder.
So there are big incumbents like Salesforce or Microsoft or Oracle or Google or Small Snowflake.
They will win both.
We have never seen such a growth rate in companies.
I'm stealing a line from a very famous VC.
They have never seen such growth rates in companies, but they have never wavered.
In other words, the overall dollar retention rate is not that good.
So it seems like a lot of people are trying it but it's not sticking with consumers.
So it's like a lot of project-based stuff right now.
And I think it's going to happen, and that would mean it's probably some kind of bubble.
Will we see these companies?
Small, are they going to fail?
Are they going to get it?
I guess, in terms of stability, I think a lot of people would say, well, we're going to see some kind of stability within the space.
Many startups are not going to succeed.
But are we going to see these big players?
I think some of the smaller players coming in get it?
And when you talk about that timeline and, well, but when you talk about that timeline, what sounds more realistic than that everybody's excited about it?
Now, what would it take for you to get in when we see that overall retention rates are increasing?
So, overall retention rates are all, what I mean to the viewer is that you take in $100 of annual revenue next year before you have any sales or anything.
If you didn't add a new customer, do you end up with $70 or do you end up with $95 like 95 is best in class, think about people on Salesforce.
It's impossible to get the likes of Salesforce or Oracle or Microsoft Office and these products are very difficult.
But when you have an overall retention rate of 70%, that means 30% of your customers are converting every year.
And we're seeing really low retention rates, we'll be interested in that when the overall dollar retention rates are.
Yes.
90 plus
Okay fine. Really quick, like less than a minute here, you've said before, your biggest mistake in the last decade was not predicting multiple expansions.
Are you possibly making that mistake again?
By not finding it on AI yet, maybe.
But that's okay.
We don't have to do that, we can make boring software companies like Pacem make that, cardiac monitoring software or GrowthZone that the Chamber of Commerce can make.
So with 40% of software struggling right now this year, it's a great time to invest in companies.
But again, a large amount of our portfolio, we will sell to private equity.
So more than 60 percent of our companies are profitable businesses where you may not have heard of any of these businesses like Growth Zone or GVL or Pacemate.
They will never be a major IP OS.
We don't need them, we'll sell them to one of 100 private equity firms or we'll sell them one tick to a strategic and, you know, 2 to 5 of our money versus trying. To bet on multiple ifpo markets.
I'm coming back.
The reason the IPO market isn't strong right now is because if you run money at Wellington or Tree or Fidelity, it's easy to go through Microsoft or Facebook or Google or NVIDIA.
They're growing very fast because I think the biggest challenge in a lot of software companies is that if you look at the whole software ecosystem as public companies, they're not growing as fast anymore.
Many of them have become very slow.
Well, Matt Green, we'll have to leave it there, but thanks so much for coming into the studio.
We hope you will return soon and continue this conversation, building a partnership.
Thank you so much Michelle.
Thanks for having me on.