Episode summary
Why the AI Boom Is Just Getting Started
Invest Like the Best
· · Hosts: Patrick O'Shaughnessy · Guests: Alex Sacerdote
Summary
Alex Sacerdote argues that AI is still early in its adoption curve, but the opportunity is already visible in the infrastructure layer and, increasingly, in code. Whale Rock’s framework is to look for the right S-curve, identify a durable competitive advantage, and buy when long-term earnings power is still underappreciated. He says enterprise AI is less than 1% penetrated and describes the current phase as a “backwards L curve” because usage is rising so fast that demand is outrunning supply.
He traces Whale Rock’s conviction in Anthropic to the post-ChatGPT scramble, then to the rise of coding as the first real commercial unlock. In his view, coding shifted AI from a promising tool into something closer to an agent, and Anthropic has stayed ahead by serving enterprise use cases, building products around the model, and benefiting from recurring feedback loops in usage and training. He expects AI model competition to settle into a small oligopoly, not a pure commodity market.
Sacerdote is far more cautious on application software. He says many software vendors’ AI products have not moved the needle, budgets are shifting toward model spending, and some incumbents may face pressure from AI-native replacements. By contrast, he sees the hardware stack—from chips to memory, networking, cooling, and fiber—as entering a renaissance, with rising demand, decommoditization, and shortages creating unusually strong economics across the supply chain.
Key takeaways
- Sacerdote says enterprise AI is less than 1% penetrated and expects adoption to move from tinkerers to early mainstream over the next four years.
- He argues Anthropic’s edge comes from enterprise focus, coding leadership, and product layers built around the API, not just the model itself.
- He thinks AI is creating a hardware renaissance, with chips, memory, networking, cooling, and fiber all benefiting from decommoditization and shortages.
- He says most application software is under pressure because AI spend is going to model providers first and many SaaS AI features are not yet monetizing well.
- His investment process favors buying when the S-curve is visible but still early, because that is when earnings can compound far beyond what the market expects.
Notable quotes
“When you get the right part of the S-curve, you get exponential unit growth”
“the enterprise AI or enterprise application AI market is less than 1% penetrated and we've never seen, you know, we talk about S-curves, we call this an L curve, just straight up”
“We were at certain points maybe 5 years ago, we might have had 40 or 50% of our portfolio in software”
“we call it the decommoditization of the hardware industry”
How the episode opens
When you get the right part of the S-curve, you get exponential unit growth. If you have a very strong business model, your earnings don't grow linearly, they grow exponentially. You know, the world doesn't think exponentially.
Very few people believe you can accurately predict 2 3 4 years out. But if you follow and understand the Scurve and you you know the moes and you know how to model, you really can uh predict these these great things. the enterprise AI or enterprise application AI market is less than 1% penetrated and we've never seen, you know, we talk about S-curves, we call this an L curve, just straight up.
Alex, you were saying that your highest conviction position is anthropic right now. Can you tell the story of discovering it, making the investment, using this anecdote as an excuse to talk about all the things that I think you and I are mutually interested right now, investors like you, investing in private markets, anthropic, the business, AI, everything. It's a great great way to zoom in.
Why is it your highest conviction? And how did you get started?
Yeah. Well, when when the gun went off with OpenAI chat GPT in November 2022, we immediately took the firm and did a massive deep dive with our 10 person team. And we anytime you have a new compute paradigm, there's a new stack and on the and and that creates new winners and losers on the old stack.
And in this stack, you know, it's now Jensen talks a lot about it, but it's power at the bottom, chips at the bottom, the clouds, and then the foundational models, and then the applications on top. And at that time, this was 2023 early, we said, we want to be in the chips and the infrastructure first.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai s-curves
- inflection points
- anthropic conviction
- ai software market
- ai hardware renaissance
Companies and tickers mentioned
- Whale Rock Capital Management
- Anthropic
Watch the episode
Watch “Why the AI Boom Is Just Getting Started” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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