Data Centers, Crypto Miners, and Gamers Are All Battling for Semiconductors

building them and so forth. So Odd Lots listeners will know that we also do a fair number of episodes about cryptocurrencies, and of course that's for obvious reasons why cryptocracy has been going up a lot and it's a fascinating area. Well, this episode, I actually I'm gonna say it actually combines the two because it's slowly becoming or that you can't really talk about the semiconductor market right now without talking about cryptocurrencies because you need chips to

mind them. And when they said, when the cryptocurrency market is booming, people want to acquire more chips to mind them, and it's becoming a sort of more significant source of demand. If you look in the video gamer community, there's a huge frustration about their inability to buy various graphics cards from the likes of Nvidia because etherory of miners snap

them up. Recently, there have been stories out of Asia, China in particular, where people are are buying hard drives because they want to mind the new cryptocurrency Chia Bitcoin is mind using specialized chips, but ultimately that takes a chip production capacity to so really the stories are interlocked, I think in a way that I hadn't up until recently fully appreciated, and I not I would not say that cryptos main source of reason why there is a

shortage or difficulty to get a semiconductors, but everything matters at the margin, and so we're going to explore this nexus today between what is going on in the world of semiconductors, the fight to acquire semiconductors between different players.

Because you have the minors, you have the gamers, people use computers, you have data centers, which of course have tremendous chip needs, and they're all fighting it out for this semiconductor capacity and it all comes together and it's a really fascinating facet of all of these different stories brought together. I'm very excited about this episode. I am

going to be speaking with Brian Venturo. He is the CTO and co founder of core Weave, which is uh it's a cloud computing company, and we'll get into the details of specifically what they do, but as a cloud computing company, of course, it's specifically has a lot of chip needs itself, and so he's gonna walk us through what the world looks like right now. He's also in the ethery of mining space, sees it from all the all the different angles. We're going to talk about that. So, Brian,

thank you so much for coming on odd lots. Thank you so much for having me. This is a topic that I am near and unfortunately dear too, so I really excited to dig into it. So why don't you just get us started? I mean cloud computing. You know, people think of Amazon Aws, people think of Microsoft perhaps, but obviously they're not the only players. What is core Weave and how is it situated within the cloud computing ecosystem?

We typically talk about ourselves as a specialized cloud right, so we're primarily providing highly scalable, highly paralyzable burst compute too. Companies that are in the VFX production and rendering space.

That's VFX. That's video videographics correct, Like, so pretty much anything that you see that's episodic on a streaming channel, for that's being produced in long form content like that's being touched by a VFX artist somewhere, whether it's on the compositing layer or it is actually on the computer generated graphics layer. That stuff needs a significant amount of compute, and that's one of our focus areas as a business,

so we're there for them. And then on in addition to that, it's AI machine learning, so it's model training and serving. There's one additional one that kind of sits between the media and entertainment space and the kind of batch processing space, which is called pixel streaming, which is serving real time experiences in your browser. Right, So if you ever go to configure a car online, they don't have seven million versions of that car render. They actually do it in real time on a GPU someone in

the data. And then the last piece is kind of the legacy HPC, right, So it's highly parallelizable batch processing. It's people who are doing drug discovery, if they're doing cancer research, kind of everything under the sun. What makes us a little bit different is that we're not really

competing for people to host their word press blugs. Right, So we're building for we're building scale compute for large customers of compute Um, and then we're kind of working with them all along the way to kind of meet their needs. And we do a lot of the spoke builds for people. So we're constantly in the in the chip market and in the component market. And just because every industry kind of has their own unique needs. So is there such a thing as a sort of a

normal chip market? I mean right now, and we'll get we're going to get very deep into this, and right now, we know that there's incredible amount of demand for chips for cryptocurrency mining. But you know, go back, I don't know, it was a bear market for crypto There wasn't a lot of enthusiasm at the time. Talk to us about what a sort of normal chip market looks like and what your needs are as a company on a stay annual basis to acquire chips such that you can provide

cloud services for your customers. Let's start with the normal world first. Yeah, So let's let's start off by framing the kind of ore and all needs perfect. We're probably buying between like let's call it seven and ten thousand

servers a year. That's seven ten thousand servers is going to be built two different ways, right, One portion of that, we're going to build a house, which is typically like a really dense GPU compute, and then the second piece is going to be kind of more generic CPU builds that we buy for ancillary services and other things that may not be GPU focused, and that's typically from regular like O E m's like super Micro, HP, Dell, whoever

that may be. What does the typical market look like? Well, you know, like sitting here today, I would I would die to go back to like six months ago. The typical market is a place where you can where things are in stock, and you may have trouble finding them, but it may take you a couple of hours and you can find the stock that you need and haven't delivered the next day. It's not really like that right now.

I spend most of it's a little while that half my job here is really scouring the internet to try

to find people that may have stocked. Like if I'm looking for a certain item, whether it's a CPU, whether it's RAM, whether it's a special motherboard that we're looking for you know, I go through a kind of our regular partner channels first, which is some of the large distributors, and then typically right now, I get told there's no chance to get that within sixteen weeks, and then I go to eBay, right and I don't go to eBay to buy the stuff. I go to eBay to just say, Okay,

is there a supply out there? How do I source it? Because it's really hard to kind of connect buyers and sellers in this market because there's so many people that provide services and our distributors and resellers. So it's really like okay, like get a feel for what's out there, and then go hunt it down. So it's it's pretty wild.

Like last year, it would be no problem for me to go out and get ten terabytes of RAM right and like sixty four gig dems of ten of RAM and build up ten terabytes and get it overnight it to me if we needed it for a build. And like, I mean, there was a time late last year where we actually had somebody get on an airplane from California to Chicago because we needed something done in like three hours. That's just not possible today. Wait, did that person have a chip in or some sort of chip set in

there that they just traveled. They just got on the plane and brought it to Yeah, we needed that. We had to deliver something for a client. It was a late late on a Friday night and we needed I think it may have been like twenty terabytes of ramp okay, and we found a supplier in California that was still open, that had it in stock, and we we paid them extra to put them on a plane. Wow. Right, So a lot of what we do is very much just in time. Yeah. Right, So we we've done dumb stuff

like that before. But if I needed to do that today, like I don't even think I could source the ramp. So again, we'll get to the today. But I want to keep diving further into the normal market. When you talk about GPUs, CPUs, RAM, talk to us a little bit about the difference between the two GPU and CPU and how they serve different types of applications for your customers. Let's start with the VFX industry. Okay, right there, it's

really usable there for two different things. The first is for virtual workstations where artists are actually now fully migrated to the cloud, and working in the cloud on a on a desktop that that we've helped them set up. So you know, we have hundreds and hundreds of artists doing that today. They connect to us via a low latency application from their laptop or from their desktop at home or whatever it may be, and then they're connected

to a hardware accelerated desktop in our cloud. That's one use for the GPU, right, The GPU provides the hardware acceleration of the desktop as well as the graphics for what they're doing. And then the second piece for for GPU compute on the VFX side is for the actual

rendering itself. For us, we actually spend kind of two different markets in the rendering side, Like one is for for large studios where they have people rendering every day, and then we also operate a director consumer render farm for small freelancers and artists that has like just over

twenty users at this point. On both sides, though, the demand there is is is bursty and crazy, where hey, they need to get a shot done, um, they need it done in the next two hours to meet a deadline, and if they were to do it on our own computer in their own farm, and may take them forty days we really become the only option at that point for some folks. UM, and you know, it's my job here to make sure that I have the GPS, the scale of GPS available to be able to handle a

large number of concurrent users like that. I'm looking at your website and you know, scrolling down, one of the thing is is the GPUs you need when you need them, And you say, we currently have over in video GPUs. And so when we talk about this battle for chips between gamers and miners, these and I don't know if they're precisely the same, but generally speaking, these chips that you have are like the chips that everyone covets. No, they're not, right, So they're very similar in nature, but

they're similar. Right. So we're in video cloud services provider partner. Okay, so we're restricted from offering consumer based GPUs in our cloud, got it, got it right. So we're actually we're required to buy datas energy pus. So, but from a technological standpoint, we're they're talking, we're talking about roughly the same family

type of technology. Yeah, you know, yes, it's okay. Like the data center GPUs typically have a little bit higher quality, like they may have error correcting RAM instead of just regular video RAM on them, and then typically the frame buffers, so the actual amount of video memory on the GPU is going to be higher for the data center cards. Got it. But technologically what people are lining up for in stores outside of video games supply stores and what you have a deck of for do you I have thousand?

Probably more? By now? It's a it's the same kind of technology. And it's the artists that would the animation artists who probably worked for big studios or television shows on Netflix and so forth. They all want access to roughly that same technological capability. Yeah, it went from having the access to that in their office now that they may not have i T. Staff that's sophisticated enough to set it up for them, or their office may no

longer exist. Right, And we've seen this huge rush to the cloud, the wild things we get on the on with studios and they're like by the end of the call, they're like, Okay, when can we start to be honest with you. The problem that we have as a company is we're actually limited in our ability to onboard, right,

is there's just so much demand for this cloud migration. Yeah, and then when I look at that from a capacity planning perspective, it's like you're looking at this environment that we have today where the world is in this one big shortage of everything possible. Doing the capacity planning and scaling for that is this is kind of hard. You said something, you said birth capacity, and again I'm looking at your website. It says the GPS you need when

you need them. And so what I take from this is that perhaps there are some you know, consumer startups or whatever, and they might use AWS cloud and they use a sort of predictable on a day to day basis roughly share of cloud capacity. Well you're offering, though, I guess part of your niche. It sounds like, is here's someone who doesn't normally need computational power, but when they need crazy computational power, a burst of it. It's not regular, you have huge, you have huge scaling ability

for them. Yeah, you know that. That's the crazy thing. When we hired a director of sales last year, I had known him for like ten years, and I was like, dude, like like every customer we talked to tells us they just cannot get the capacity they need at the big clouds and he's like, yeah, okay, like that's a bunch of b s whatever. Okay, you're being like hyperbolic. And then he joined us. In the first like fifty meetings,

he did every one in the exact same thing. So I think that the industry really struggles with that access to scale. Yeah, right, And the reason for that is just I don't like a w S g C P

ANDAGE or are building these. They're kind of hyper scale data center regions two handle every single use case under the sun, right, right, So they've got X number of types of CPU compute, they've got all different types of optimized compute, and you know, at the end of the day, there's only a certain portion that's available for the GPU stuff, right, And when that's our entire business, like, we can really

approach it very differently. You know. What we want people to do is to come in and say, hey, I need to get two thousand GPUs. I need them for three hours. If they were to do that at AWUS like one, it may not even be possible for them

if they don't have a good relationship. And then too, they probably have to do a lot of like manual engineering and reservation planning to get there, we have people come in all the time that they they'll burst the like to three four or five tho GPUs for like six hours and then we won't hear from again for three weeks. My commitment to them is that I want them to have that capacity without having to talk to me.

So one thing that and I guess I kind of intuitively knew this before, but one thing that's making this clear is that cloud computing. You know, you think of a cloud like a literal clouds at the cloud up there, but cloud computing it's just not a commodity, both in terms of the specific types of applications, but also in UH scaling and the difference between sort of like standard run time consistent demand versus cloud that can be turned on at high scale for a client at a moment's notice.

That's a really good point. I like to think that our scale helps us break the commodity label. Yeah, but for anybody who goes in then needs like one virtual machine with like four CPU corps and sixteen RAM like, all right, go get in the cheapest place, right, same same, But that's not even the people that we go after or talk to, right, I can't help them. I can't help them there, right, Why is RAM hard to come by? Okay, so let's go, let's go to crypto money, all right,

I guess where I was. I was trying to like hold off the crypto part for as long as we could, but I knew eventually I would ask you a question and we'd stumble into the crypto parts. So let's I guess we're there now. Yeah, so that there's a lot of supply chain stuff here is going to be driven back, it's going to be kind of linked back to crypto. Well, actually, then in that case, let me so before then, you mentioned how you would love to go back like six

months ago because your job was really easy. So when did you notice that things were starting to change and that sourcing compute, whether it's GPUs, CPUs or RAM, that was suddenly starting to get tighter. You know, every February it gets pretty rough because of Chinese New Year. Okay, Right, so you kind of rushed to get all your orders in before the end of because this is where it's

all being manufactured. Yeah, before before the middle of January, right, and then if you get it in before the middle of January, they're gonna do everything they can to shift it out for the start of their holiday. If you sent it by air, you'll have it early February, sent it by boat end of February, but like if you wait,

there's there's nothing that gets processed in February in China. Okay, So that was kind of like normal operating conditions in middle of January, and you know, Crypto was kind of doing his thing and it was kind of ripping the roof off and you saw it coming right, But a lot of that was, you know, that was really in the consumer side, and so consumer GPUs are really tight,

didn't really impact us. And then starting in March, orders that we have placed in January that we're supposed to be in stock in the us UM and we're supposed to be delivered the next day, they didn't show up right.

And this is like, let's call it medium quality server grade CPUs, so like a md epic rome platform, and we had maybe five hundred or seven fifty at least things on order, and it was like, okay, fine, like the other components that we need to do our bills aren't here yet, Like they arrived in early March, and we were actually waiting a GPUs at the time, and I kind of wasn't really pressing about it. And then the middle of March came and I'm like, where's my stuff?

And you reach out and they go, oh, we didn't first see the semi conductor short. I'm like, what are you talking about? You told me these were in stock inventor warehouse yesterday like that. It was fine. And this is kind of what you start to see when the market gets stretched like this, is you have conversations like that and people just flat out lie to you in the supply chain. That was the first real telltale sign.

The second one was when I went to buy I think it was like eight d sticks of sixty d d R four you know for that, like for for d d R four what d d R four it's System Ram okay, right, so it's the it's the most recent commodity system rahm um. There's new versions coming out, but this is really what's used today. You reached around for System Ram because a lot of that stuff comes out of liquidation, right, so you can get it for this particular component for Ram, you typically buy it used.

You're not going to go out and spend sixty premium on this stuff. Just because you know, that doesn't really wear down. So I reached out to to one of our main suppliers and I said, hey, man, like I need eight hundred sticks and he's like, dude, I got nothing, Like what are you talking about? Like what do you mean you give nothing? He's like, China? But when was that? What?

What month? This was in March? Middle of March? Yeah, and he goes he goes, dude, like I had some guy in China buy all of it last night, Like what do you mean all of it? And he's like, yeah, he bought like ten thousand sticks. Stupid question and stupid question. I don't know if this is you know, proprietary sticks, Like what are we talking about from a dollar amount two and a half maybe I think it's maybe two

and a half million bucks? Okay, okay, right, but ten thousand six a ram is not really a small order, right you don't just like buy them and throw it in the closet for rainy day. Well I guess maybe this year you do. And I said, okay, like what's going on and then said that's he was like, you know, some one buyer came in from China and bought it all and and you know, I kind of give him the the expletive late and you gotta be kidding me.

A couple of days later he called me and he was like, hey, I got like four hundred sticks, Like do you want him? And I said, yeah, I'll take everything you have. So that that was kind of my reaction to that first one. Then a week later on the fact of the same guy and said, hey, I've got to I've got a need for like Intel's on V four, which is chips that probably stopped production like ten, Like what do you got? And he's like, dude, like, are you gonna kill me if I tell you that

I sold them all to China last night? Like okay. So this is at the point when when final coin was going from like bucks. So just for so just for listeners that don't know, and why do you explain it further? But file coin is a new cryptocurrency is actually I think first conceived of back in like seventeen. It only recently launched, but the idea is essentially cloud files,

distributed file storage in the cloud. Rather than hosting your documents with a company like dropbox or box, you hosted on a network of a decentralized blockchain network of computers all around the world. Yeah, and all around the world. There is a little bit disingenuous at this point. I'd say it's centralized in China, okay, but the the ecosystem

in China is they are insane for this project, okay. Interesting, And the demand for this project spans it spans every component in the supply chain, right, So you you need GPUs for the actual computation of proofs, you need CPUs because you need high high core clocks for some of the processing. You need RAM because because of the storage operations, and actually putting stuff in cash. So they're kind of

buying across the board. And like if you if you search real quickly, you'll find mentions in the news of people putting one point three billion dollars into file coin mining. And I mean there's real moneyed over there. So that this file coin driven demand has kind of sucked up beyond what the typical component demand. And crypto bubble or crypto bubble or crypto expansionary times, it's called that instead

of a bubble, it's going to drive, right. So it went from you know, two thousand eighteen or two thousand late two thousand seventeen early two eighteen, where the demand was only for GPUs two. Now you have Ethereum driving demand for GPUs, you have file Coin driving demand for everything under the sun. And the amounts of capital that are being thrown at this in China is just draining

the supply chain across the world. Wow. Right, So that was really when I was like, okay, like my life just changed, and we have a risk here where we may actually be governed in our ability to grow by access to the components. I just want to point out, like I'm looking at a price chart right now of file coin, the coin even as recently in January, like say January one, one coin, one file coin was trading

at twenty two dollars. Fast forward to March thirty one, a file coin coin to chart I'm looking at, was at So that's almost like a ten bagger in the price a file coin over the span of about three months, which really, it seems to me then just makes the demand to acquire all of these chips even that much more. If if acquiring one coin is worth ten times more, then what you're going to be willing to pay for the compute to mind a file coin that just went

up a lot. Yeah, you know, And one of the things that is unique or weird about file coin is the staking requirements, right, so you know, a lot of the cost of actually building the storage isn't in the storage for file coin, h it's the amount of coin you actually have the stake to be able to provide

your storage to the network. And at the time, like when it was like a hundred nine bucks, like, we had a lot of internal conversations about this, like why aren't we going crazy on this, and why aren't we

doing this? For us to provide a one Paeder bid of storage, which isn't a ton of storage to the network, we would have had to stake a million dollars with a file coin, okay, right, it costs me maybe like a d k to build up one pad of storage, so ten times the hardware value I have to put up in staking risk and a coin that just went up like ten x. I think at the time, like it was this this positive feedback loop. People were going into it because they want the prices going up, but

to get into it, they had to buy more. So you buy wait, see, you buy hardware to mind file client. But then to actually be able to plug your hardware into the network and actually you know, use it, you also have to buy the coin itself. So, as you say, there's like this like weird like positive feedback loop that emerges. Are you make this capital investment in semi in chips, but then to use the chip to acquire coin, but then to actually make the chips worthwhile you have to

buy the coin itself. And so do you get this like crazy network effects? Yeah, you know, it's so like I'm not gonna throw the P word out there, but okay, in terms of schemes, it's a pretty good one. It's a project that I think that internally like we're we still look at as you know, it fits our infrastructure really well. But right now it's just so hard to get into it because you have to really have access capacity for it, and getting access to that access capacity

is just so hard. Like kind of bringing us back to the broader conversation here and now another now I want to get into some of the other sort of coins that are driving this dynamic. You and I had a chat like on the phone like two or three weeks ago before we did the podcast, and now and I hadn't like sort of seen any articles about it. But then there's this other coin, Chia that's in the mix, So what's happening with that? Yeah, so that one is

is pretty crazy too. Okay, this is a I guess a different take on proof of work, right, so I guess they're calling it proof of space time. And effectively, what you do is you use CPU compute to create what they call plots, and then once a plot is created, it's like a a couple hundred gigabyte space on a hard drive. You can move that you can move at the cold storage, and then for up to five years you can use that as a as a mining mechanism to gain to gain rewards on the network. That's another

one that I didn't really see coming. And like we build large like multi petal bite level storage clusters in each of our data centers and they're STEFF based, so it's a software defined storage technology. And one of the things that we do there is we we build them to have triple replication. Right, so for every one pet of it of storage usable for my clients, I have to have three petabytes like on the ground that installed. That makes me a pretty big buyer of hard drives.

This is another piece that kind of showed up in in January that I didn't really understand yet, is we we were trying to get access to I guess a quasie non public EXCU and it's it's one that really meant for data centers. It would reduce our latency in

our storage access pattern. You sk you just mean a product? Yeah, yeah, okay, no, no, no, it's fine, just making sure so we we we went through this process of kind of qualifying with the with the manufacturer, and they were asking me all these questions like what are they being used for? But I'm like, dude, they're hard drives. What do you want be selling them to me or not? Like if you want to increase the price, increase the price, I'll blind, I don't care.

And it wasn't until March when like this, when she launched that I was like, oh, like these guys had a run on their stock and they weren't able to provide like product to their real customers. So the demand for Chia for hard drives with Chia, it's twofold, right.

So the first is you really need like high speed NV and ME or SSD discs that are local to your CPU compute to run the plotting, and then once the plotting is done, you can push it off to whatever cold storage device, whether it's like spinning rust like hard drives or or whatever it may be. But then it just sits there and the access pattern is pretty

low in that data. So this is another or thing where I have conversations say hey, like what have you gotten in like SASK and hard drives, and they're like, would you believe that somebody bought all of these last night? I didn't expect to be getting dragged into she in, Yeah, And I was only really dragged into it by the problems I was have acquiring I was having acquiring things, and like you know, every once in a while, like the bells go off, like you know, AD eight go

look at this, Like what is this thing? Yeah, so now we've got a pretty large she of mining operation. So this is something that I want to get into. And it's actually pretty interesting in the way you're set up Core. We've prior to like you know, all this like crypto going nuts over the last over the last several months, so particularly it seems like soon as January in March, when all these all condit just started going bananas. Your clients were people who actually had what most normal

humans considered to be real world in need. So like animating a TV show or animating a movie. They're actually making things, actually actually making things. And so you are your go out into the market and buy chips and it wasn't that hard. Now you're also involved in the mining, but you do it in such a way that it doesn't it compliments the service you provide to your clients as opposed to compete with them. I guess, So, can you explain a little bit about how you use cryptocurrency

mining yourself. At core, we've to compliment your business, compliment your existing business model. The permissionless revenue from cryptocurrency mining has really been what's allowed us to build to the scale where we can provide these first compute services. Right like with without crypto, especially over the last like six months, we would have had to raise significant, significant amounts of

money to do it. To run this business. I think that like life, to date, we've probably sold like we may maybe raise like six or seven million bucks in this whole thing. Yeah, every time that we're looking for capital or capital, we have capital requirements like we're always trying to protect ourselves. I guess founders like you don't want to dilute it, especially don't want to dilute to

buy a depreciating asset. So we've been able to get pretty creative, and some of that's been from the crypto side, some of it's been kind of from from just founder and partner commitment to fund things internally, what crypto does for us, Like, say that our clusters at a steady state or steady state and we've got let's call it GPS, and that cluster are available for clients if we only have like three thousand GPUs of baseload demand in that cluster, Yeah, right,

what are we doing with the other seventeen? And if I don't have to talk to a client, and I don't have to do anything besides start a minor on those things, and I can make six of the revenue to make from my cloud clients, like that seems pretty good. So we we mind on everything everything possible when we don't have higher end workload running. So this is this is actually this part is super fascinating to me. So if you want to have the ability to offer your

clients burst computers, first compute. Then by definition at any given time you have to have significantly more capacity then is you're sort of like normal baseload. And the way then from your perspective, to make the investment in that capacity worthwhile so that you can go out and buy chips that you only expect to offer to your clients that maybe you know normal state capacity to utilization is if during those times the other seventy percent are earning

revenue for you from cryptocurrency mining. Yeah, you know, I think that the payback calculations is a little bit different. Sure, that's se with crypto mining is what allows me to aggressively expand my business that pays the bills, m right. It allows me to kind of operate. But the grand plans over here is really to kind of just continuously

grow this this compute fleet. You know, we have customers that come in all the time that are I can't get what I need, I can't get this, I can't get that, like a can you promise me that I can get a hunter to the GPUs? And like dude, it's fine, I don't like whatever. You don't have to talk to me. So another way to think about it is like if all these people are playing the game of buying all different kinds of chips. To mind your

essentially forced to play the game too. Yeah, you know what, we try to operate in different segments, right, So typically when mining like etherory and mining rings are being built,

they're being built for the lowest cost possible. Right, So the GPUs are really the only expensive thing in the setup, like the host of ICE may have, whether it's somebody building it out of like an egg carton or an like an eggshell burton from in their garage, or putting it on an open air rack, or putting it on a wood frame, or actually putting in like in a closed chassis with forced airflow. The motherboard there is gonna be super cheap. It's gonna have a really like low

end CPU. Um, it's gonna have like four gig a RAM that these aren't the types of systems that we're I'm competing to build, right, which is why it's without the last five months here, like it's always been kind of reasonable, right. I never had to compete for high end CPUs before. I never had to compete for server chastis before, never had to compete for like network cards and stuff. And this is where file coin really throws

things into the into a loop. But on the mining side, you know, everybody talks about how miners and gamers are opposed to each other, and you know, I think there's been some vilification of some of the larger mining operations around the world that they're taking all these GPUs, And I'll tell you that even on our mining stuff, when the nvideo thirty eight came out, we looked at it and was like, oh my god, this thing is a three slot, Like we can't like, we can't deploy that.

What does that mean? A three slot? So it takes up three slots on the motherboard, right, So it's just a different spacing than what they had done previously and typically kind of the mining GPUs and mining variants they had released in the past, where we're dual slots, so we take up two slots on the motherboard, then what these crazy things that were three and they're like, okay, like we can't deploy that a scale and our focus at the time was just so different that we didn't

even buy any There are some distributors in the US that show like real time availability and real time and how many back orders they have in their queue and you see them and they have like we expect five video RTX on September one, and like pre orders, like I'll tell you, like the forty seven thousand pre orders. I don't think that's sophisticated mining operations. I think that's like like you and me personally going and doing and putting in our garage. Where do gamers fit into the mix?

Because I mean like a discord group and I don't really understand half the jargon in it, but it's basically a group for gamers who are looking to acquire in video GPUs because they just want state of the art graphics for their systems. How do they even stand a chance in this world? And how does how does the industry think about sort of making sure that they can get access to this technology? There's two steps here that

there's two pieces here that are really a problem. Okay, yes, the mining demand is a problem, but the mining demand is a problem because the economics warrant it, right. And you know, one of the crazy things about proof of war cryptocurrencies like Bitcoin and I guess ethereum and it's in its current life, is that the early on mining component of it is like the greatest user acquisition strategy in the history of the world. Right, It's like, hey,

you have a computer. Your computer may already have this device. If you turn it on, we're gonna pay you ten dollars a day, right, And that ten dollars is now denominated in ethereum. And now you say, Okay, I've got all this ethereum, what do I do with it? And now you as the user, are now researching everything in

ethereum because you now have this financial asset. The hundreds and hundreds of thousands of people that have gotten into cryptocurrency from mining, it's it's like, it's crazy, and I think it's one of the things that's like super underlooked

or super overlooked. Excuse me. The mining economics definitely drive a lot of this, right, and and videos taking steps to put their hash rate limitters on and to to kind of enforce that in a certain in such a way for the ethereum mining to say, anybody who's going to buy this stuff in real size, like by the crypto mining focus g peeps. To me, the bigger problem

is really the scalpers. It's the guys who are running bots on Amazon and they're buying the GPUs as soon as they list, and they're selling them money bay, right, is the supply isn't making it to the end user, and it's I think that that supply is probably artificially over priced right now. And you know, the crazy thing is that the ethere of mining economics kind of warranted. So maybe it's not artificial. But but for the gamers,

they're going, what the heck? Like this thing is supposed to be six hundred bucks and it's twenty bucks between like retail and that the gamer is actually getting it. It's almost like there's there's two huge obstacles for them. I don't see a way to solve that. Well. I guess if the cryptocurrency, I mean the crypto market crashes every few years or but booms every few years. Hey it's different this time, man, Come on. But in theory it could crash. From your view, would that ease up

capacity for all these things that we're talking about? Probably not? How come right? I think I think what you would see is you'd see a lot of GPUs that come back to market. Is kind of like the stressed assets, okay, right, But I don't think that those are going to go in large blocks. They're not gonna want to be piecemealed out to the end users. And you know there's some services and some companies in the US that actually do specifically that as they buy, like use crypto minds and

they piecemeal them out. I guess one gp lots on eBay. Yeah, But what I meant aside the selling of views, I mean, there are new new chips of all these different stripes are always being manufactured. So theoretically, like in Vidia and dozens of other companies that make hard drives and so forth, if let's say we're in a crypto bear market, does that free up capacity or does that free up don't? I don't think so. I think this is this is where you have to look at the structural change that

we're seeing in the compute market. Everything is more compute intensive, everyone's going to the cloud data center. Demand for GPUs just exploding, Okay, even if crypto were to disappear. Yeah, Like the demand the growth pattern of this of this market as well. It's kind of home gaming and everything. Like the global foundry space for STEMI conductors is just too small for all the industries that are relying are

reliant upon it. For it's going to have to cancel how much like not deliver how many trucks this year because the semi conductor shortages like that, like wild and it's impacting everything. And when when you get kind of in that structural dislocation like this, yeah, like the whole like saying in commodity trading is like high high prices, cure high prices. Yeah, the timeline to cure these high

prices maybe several liters. Interesting how many players? How many people are essentially in this game of I mean it's interesting, like I can go on stock x, like the sneaker website and they actually have a few categories of chips and you can buy buy in video chips on there and they sell like above M S r P and

you can see the price chart. How many different players, whether they're sort of large brokers or individual scalpers, have essentially like gotten in this game of chip price arbitrage and trying to get themselves in the middle between in the middle between the chip manufacturers or the chip distributors or somewhere between Amazon and eBay and gotten in this game of sort of like chip reselling as if it's a commodity or a stock. Yeah, you know, it's not

just the it's not just the scalpers soo either. What's unique about the GP supply chain within video in particulars and video that they make the GP chips and they actually they sell them too. I guess they call AD and board partners, right, And this is people like it's kicka Bite, it's m s I, it's e v g A, it's Zotec, which is like a PC partner's brand, And they actually take those boards, they fabricate them, they put the cooling devices on them, and they sell them to

end users. And you know, I think that the ultimate pricing on that stuff is really controlled by the ai B s what's a I B stand for? Again, the added board partner, Right, So this is like the kind of fabricator or distributor at the end of the line there, and there're no dummies, right. They see crypto demand, they see where it is, and price definitely changes with where crypto is. Right, is that they know they have a

limited supply. It's virtually unlimited demand. So it's like this is really just supply and demand, like in its most less a fair state. Yeah, and you know, I think that one of the things that the US had, Like one of the problems in the West here is that I don't think a lot of the stuff even gets out of China. What do you mean by that? Oh, if you know a guy at the AI B and shen Jen and your local and you want to come in and pick up a thousand GPUs um, that's a

much easier transaction. And like in terms of like political capital, just on a personal basis, like I think it's a lot easier for them to do than it is for them to shift something to Brian Vinturo in the United States. M ramping up here a little bit. You know, you've explained how your life kind of has changed in the last six months in terms of the difficulty of acquiring compute,

whether it's GPUs, CPUs, RAM and so forth. What is it like now on a day to day basis, And how have you had to change your business strategy so

that you can grow your cloud capacity alongside customer demand. Yeah, you know that it used to be that GPUs were the problem for us to get okay um and GPUs right now, like the data center cards, Like I've got shelves and shelves and shelves packed with data center cards waiting for builds and they're all blocked by CPUs and ram right CPUs in particular, I had a conversation with my CEO I've been I've been with for seventeen years now and in kind of different businesses, and I called

on I said, hey, I just found a bunch of amd Epic Milan CPUs in stock ready for ship tomorrow. I bought a hundred of him and he was like, how many they have? And I was like, I don't know two. He's like, why didn't you buy the rest? And I'm like, well, I didn't really want to spend the money, like I didn't have a place to put him right now. He's like, dude, this is literally all you complain about every day is not getting access to stuff.

Go back and buy the rest. So I went back to buy the rest, and in the fifteen minute period, the rest are going. So you know, this is a theme. It's not just chips, obviously, and we talked about this with lumber, we talked about this with industrial commodities. This idea that you buy more when there's a sort of sense of scarcity. And so I'm curious about, like how much of the tightness of the chip market is essentially it's like, well, I don't know where the next shipment

is going to be available. I don't know what I'm gonna be able to buy these m D chips and the size. I don't know when whether I'm next time I'm going to buy RAM and size. So how much does that have the effect of causing people to then over order so that they can at least give get some assurance of the chips that they're going to need and then for which were then further exacerbates the shortage

causing more over ordering. I can answer for us, like I mentioned earlier, that we're pretty just in time operation okay, on the inventory side, So when I'm talking about if I go out and by like two CPUs, like that gets me like one month of of supply, okay, you know the CPUs that I did buy that were delivered the next day, like which was even more of a surprise, Like they're already in systems, are already online that this

is a couple of weeks ago. Where when I'm talking about buying things in stockpiling them, like my my usage time frame is much that there's no like there's no speculation on component values here, and it's like, hey, we're gonna need him in the next thirty days. I typically wouldn't buy it until I needed in the next seven but here we are. The world was on fire six months ago. You might not have made an order until seven days before you needed to build them out, but

that is now lengthened out to more close to thirty days. Yeah. And on the O E M side, so we've got a bunch of stuff, that stuff that we're waiting on deliveries for right now. We've probably like high tens, maybe fifty million capex that that's out there kind of being fabricated. Yeah, and this is what O E M s. And you know, when we were doing the deals, it was, hey, we're committing to do this within four weeks, and now it's

like out the twelve weeks. And and you go through the conversation with them and you're like, all right, like I get it, Like I know what's going on to you taking me to like I get the understand problem. All ability to plan in real time is like completely out the window. Huh wow. Yeah, that's the thing. I mean that seems to be the theme of so many different industries, whether we're talking about shipping, logistics, trucking, lumber,

and so forth, everybody planning ability has kind of gotten obliterated. Yeah, yeah, I mean the shipping thing is crazy too, because like stuff that I would you like normally put on a boat and got three weeks four, I'm like, put it on an airplane. In the boat may ink, like may get stuck. I have no idea what's gonna happen, Like, get me my stuff. I just want to go back to one question because I still feel felt a little bit unsatisfied by the answer. Let's say cryptocurrency disappeared. I

don't know how that would happen. Maybe the prices crash, Maybe somehow there's a coordinated national effort to ban it, or maybe financial institutions are banned from dealing with it. Somehow that industry, which is extremely big and growing and worth like two trillion dollars in market cap, and just

say somehow it gets obliterated. Well, we can we can put a real scenario in this, like actually ship proof of steak, right right, Okay, right, So I mean that's what like, that's the biggest question that I get from investors is what about proof of steak. Yeah, it's a

proof of steak for people who don't know it. Basically, currently, ethereum operates with the same security model as bitcoin mining, more or less, with a sort of high chip and electrical spend in order to secure the network and acquire coins. They want to change the mall to something where there's less mining. Theoretically they'd be greener and so forth. But dr tell me what how you see proof of steake

affecting things. I'm not going to talk about the probability of that happening, right, I mean they've shown like, well, I'm gonna give one comment on it, um, you know, starting in two thousand sixteen, proof of steake with shipping every three months. Yeah. Um. And here we are in the middle, And like, do I think they're eventually going to get there? Yes, I do, But like, look at the market, look at how much money has been spent

on mining hardware and building mining operations. Like the miners are not going down without a fight, and without a fight, could be launching new coins. It could be contentious forks, it could be anything. But you know that this idea

of GPU mining has been is going to die. It's been going on since the i'd been to GAP mining, Right, Like when Bitcoin went from GPUs to f p g a S, the GPU mining was dead, and then like six months later lightcoin showed up, right, So there's always going to be this this demand for security driven by GPU can pute. I think it goes back to that kind of like fair launches and the idea of getting

coins out to the quote unquote to the people. Yeah, right, is that as as soon as Etherorium goes prof ofstake, like, that's gonna be rewarding the incumbents more so than new entrance. Right, You're not gonna have a hundred thousand people gonn plug in a GPU and learn what etherium is. I just think that the idea that when Ethereum goes pro the stake, the GPU mining dies is a little bit crazy. We don't necessarily know what it's going to be yet, but

I'm pretty confident that there's going to be something. Now. Let's like in a price crash environment. You know, this is really where we built our whole business, is taking the contrarium bet in the binary outcome environment, which was really like January, like December of two thousand eighteen. January right, is like, I don't know, but Crypto is either going

to zero or it's not. Like I think that in the mining space, like where you make real money is when you're in a position to take that contrary and distressed asset. What we look at that as a company is like, yeah, it would really suck if Crypto went to zero again, but look how awesome it worked last time. Right then. I don't think we're the only ones that think that way. But bottom line still, if I'm a gamer and Crypto goes to ten crypto crash, does it get easier for me to acquire GPUs so that I

could play a game higher quality? Well, it'll get easier for you to acquire used GPUs play games, but I don't necessarily know if you're gonna want them. Why why not new? Why not? Why why not the new ones? Why wouldn't it be easier for me to then go on Amazon? Because I mean, and Videos one of the most valuable and forward thinking companies in the world for a reason. Yeah, right, that they understand market demand. Um, and if they see crypto crash, like they know that

a portion of their demand is from Crypto. Right there, launching your crypto specific lines. They're going to book less foundary space, why not to shift some of that foundry space over to gamers. Now, well, I mean, but before we already like concluded that it's the same it's the

same chip sets, right, right, They're just being packaged differently, right. So, And one of the things that people don't necessarily understand is that you know in a lot of the cards, whether it's like a thirty sixty or thirty sixty t I or thirty seventy, that that may be the same chip set with just features disabled, right or maybe bempacked differently because it has like the quality of the run

was was worse for some portion of it. And video is not making all these decisions like hey, let's go build like fifty million thirty sixties. Right, They've got their their kind of foundry space and what that may be booked, and they know what their overall yield is going to be um and then it's they're just kind of optimizing what they bring to market, right. It's just in a

down crypto year. I think that what they did with the Turing line where they're the r t X two thousand series, I think that the production of that line was was way lower than the g t X one thousand series, right, and that was kind of coming out of crypto winter, during crypto winter, and I don't think those gps are hard to find. Got it right? But you couldn't, but you also couldn't buy got it well,

This is a fascinating discussion. Like I said, we've talked a lot about chips in the past, but we really haven't gotten into the actual fight to acquire them. Plenty more to dive into on this topic alone, I feel like, but Brian really appreciate you coming out on odd lots. Thanks for having me. I'd love to do it against some time. Yeah, for sure. Take care Bran Well. I would love to be able to talk about that episode with Tracy. Unfortunately should not hear. But I thought that

was completely fascinating. You know, this idea so many parallels between everything else we're saying, like the inability to plan, the requirement to buy further out into the future, This idea that sort of just in time isn't working, And it really does seem like the rise of these new coins, file coin chio, like every every sort of like commoditized technological capacity that you could think of somebody. It feels like it's making a coin that can mine it. It's fascinating,

and I thought it was fascinating. The core we've owned business model is kind of enabled, Like, on one hand they're competing with all these miners for chips, but on the other hand, their ability to use idle chips in order to mind currency and get revenue when they're not being used for the normal UH computing by their clients is super interesting. So I loved I loved everything about

that chat. I loved the sort of I love the merging of the crypto and chip story, and I increasingly think that you can't talk about one without the other. So really appreciated Brian coming on and just making a plug here. By the way, if you haven't checked it out yet, you should definitely check out the odd Lots blog bloomberg dot com slash odd Lots. Tracy and I have been writing there, We've been listing transcripts there. I myself have been going back and reading transcripts because when

I do, I learn a lot. Each time. I found it to be incredibly useful. Check it out. Go to Bloombergy dot com slash odd Lots and read our blog. So this has been another episode of the Odd Lots podcast. I'm Joe Wisntal. You can follow me on Twitter at the Stalwart, following my normal co host Tracy Alloway on Twitter at Tracy Alloway. Follow our producer Laura Carlson. She's

at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesco Levie at Francesca Today, and check out all of the Bloomberg podcasts on Twitter under the handle at podcasts. Thanks for listening, e