243: Shopify's Muskets, Nvidia Q4, Elastic & AWS, Jim Keller & TSMC, Intel Discrete GPUs, Thinking in Cohorts, Renewable Energy, and Aerial Footage

"you're going to see a lot of exciting CPUs coming from us"

Doubt grows with knowledge.

—Johann Wolfgang von Goethe

🥺 I was playing soccer in the basement with my 3yo (turning 4 in three weeks), and out of the blue he asked me “how many minutes are we dead?” (“Comment de minutes on est mort?”)

It reminded me of when my older boy first understood death. I think he was 5yo at the time, and cried a lot, saying things like “I don’t want maman et papa to die…” 😢

📕 🏋️‍♂️ Speaking of my kids, I started reading ‘The Way of the Warrior Kid’ by Jocko Willink to my oldest boy. (Jocko’s an ex-Navy SEAL, he has a great podcast where he goes deep into military memoirs and biographies… at least the early episodes I’ve heard are like that, I think he does more interviews now).

My boy is *so* into the book. The first day before bedtime, we read 7 chapters and he didn’t want me to stop.

The lessons boil down to pretty simple things: have a growth mindset instead of a fixed mindset, problems have solutions if you look for them, train your body and your mind, learn how to learn, be humble, ask questions when you don’t understand, figure out your moral code and let it guide your life, be disciplined and organized, face your fears in a safe/controlled setting, the psychology of bullies/learn to defend yourself, etc.

But it’s well-written, funny to a kid that age, and is all stuff I wish I had been taught explicitly in a way that connected with me (like through a badass story!) rather than have had to figure it out piecemeal when I was much older.

If you have kids in the 7-12 age range, I recommend checking this book out.

🚙 🍱 🚕 🗣 If I had to make money driving, I’d much rather deliver food than drive people around. As an introvert, that sounds like a much better job (I could listen to audiobooks and podcasts, not have to interact with people much).

I wonder what the breakdown of introverts vs extroverts would be if Uber did a survey of its drivers (especially those who only drive for Uber or UberEats).

🙋‍♂️🙋‍♀️ I’ll soon record the 5% AMA Podcast, so this is your last chance if you’d like to ask a question: You can submit it via this simple form.

I’ve got 14 questions so far, which is fine, but a bit surprising since in the first AMA last year I had 42 questions. I guess I’m growing less interesting over time ¯\_(ツ)_/¯

💚 🥃 For the price of one alcoholic drink, you get 12 emails per month (plus 𝕤𝕡𝕖𝕔𝕚𝕒𝕝 𝕖𝕕𝕚𝕥𝕚𝕠𝕟𝕤) full of eclectic ideas and investing/tech analysis.

If you make just one good investment decision per year because of something you learn here (or avoid one bad decision — don’t forget preventing negatives!), it'll pay for multiple years of subscriptions (or multiple lifetimes).

As Bezos would say of Prime, you’d be downright irresponsible not to be a member (if you don’t see paid options, it’s because you’re not logged into your Substack account):

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Investing & Business

Shopify: Arming the rebels with muskets?

Over the past few years, we’ve heard so much positive stuff about Shopify, and it’s well-deserved. Tobi and Harley are obviously great, etc. But now that the stock is down, some less rosy stuff is coming out, and I think that’s healthy.

I always try to remember the lessons of the book ‘The Halo Effect’ (I always say that this one balances out ‘The Outsiders’ by Will Thorndike, and that together they are more powerful than each book taken separately).

Here are highlights from a thread by Moiz Ali, a Shopify merchant and shareholder:

1. Shopify stock is down 50% over the past 12 months. Its mission may be to "arm the rebels," but it is giving us muskets in a war that is increasingly being fought with machine guns.

2. Let me start by saying I own a lot of Shopify stock. I love the brand and want it to do better. Native Deodorant is on Shopify, as are other brands I own. I’m down 6 figures on today’s announcement alone. And I own more Shopify outside this account, so I'm probably down $200K

3. Everyone in e-commerce glorifies Shopify. They should because it is amazing. But it can also be sooo much better. Here is how:

4. Shopify has benefited from two tailwinds over the past few years:

A. Outrageously cheap facebook ads that have made merchants more successful, and

B. The growth of ecommerce (mobile, Amazon, COVID, etc.).

5. It has capitalized on that opportunity!

So many brands built businesses on Shopify as a result of cheap facebook ads. Shopify took advantage of that by building so much infrastructure that it is *THE* place to start a new ecommerce company.

6. Shopify is cheap, reliable, and easy to use. Pretty awesome!

That tailwind (cheap fb ads) is coming to an end however.

That’s what I’m most curious about.

Is the ROI on Facebook ads going down that much? I suppose the DTC sector has grown so much, and more and more niches are getting multiple competitors over time, so the auction mechanism is pricing ads much more “efficiently” and leaving less alpha for advertisers on the table (ie. spending $1 to get back $5, which can then be re-invested into more ads at similar ROI, creating explosive growth).

To a lot of marginal businesses, slight changes to the ROI of ads can be a life & death thing.

Shopify is still benefiting from the growth of e-commerce, but that growth is now slowing too.

7. However, it has had 5 years to arm its rebels with more than muskets, and has failed to do so. Here’s what I mean:

8 Shopify Analytics suck.

You can’t even do cohort analysis on Shopify. Can you believe that? So many brands try to raise money and say 30% of our customers repeat, when they mean that 30% of this month’s revenue came from returning customers.

Why is this important? Cohorts helps merchants understand LTV. This will help merchants market more, and spend more wisely (and probably spend more on marketing overall) on facebook and other platforms. It should take an hour to build. WTF?

He then makes interesting points about subscriptions and audience sharing, and possible problems for larger brands on the platform (I keep hearing how well Shopify Plus is doing, but maybe there’s another side to that story?), which I’m cutting here for length.

Shopify is squandering an opportunity to build a platform that empowers merchants of all sizes.

As the tailwinds that filled its sails fade, it needs to improve by building out more and better products.

Shopify is in a unique spot - it can grow its own business by empowering its merchants, and giving them better tools and data to grow their own stores.

But in order to do this, it requires foresight and a genuine understanding of what merchants needs.

I think it may also require a change in culture to be even more software focused (ironic since it is led by a developer).

tobi lutke @tobi

@moizali good feedback. thank you

I’m an outside observer to all this, I don’t know how correct Moiz’s take is, but it’s certainly worth thinking about and looking into if you’re trying to understand Shopify.

Above are Shopify’s stock drawdowns since IPO.

🔥 Nvidia Q4 Highlights 🔥

Data-center revenue was +71% in Q4. Oh, it must be because of an easy comp, right? Let’s have a look…

In Q4 2020, data-center revenue was +97% 🤯

Same for overall revenue, up 61% for FY21, on top of 53% last year.

And by the way, while Nvidia has navigated supply-chain issues better than most and has played Samsung and TSMC against each other as well as they could, they still have supply constraints (more on the gaming and networking sides, but still).

To be clear: I’m not extrapolating and saying that I know how fast the company will grow and for how long, I’m just looking at the present.

It’s also interesting to note that the pro-visualization segment is up 109% in the quarter, on top of 30% in Q4 of last year. It’s still relatively small compared to gaming and data-center, but it’s rapidly becoming more significant, and I wonder if this is early signs of traction from all the new software that they’ve been launching around Omniverse 🤔

They keep adding legs to the stool…

Some highlights from the transcript:

Availability of our gaming products in the channel remains low.

It’s always hard to sell what you don’t have… I’m so curious how many units they could move if there were *no* supply constraints at all. What’s the real demand out there?

GeForce Now footprint

we announced a partnership with Samsung to integrate GeForce NOW in its smart TVs starting in Q2 of this year. This follows last month's beta release of the GeForce NOW app for LG smart TVs. In addition, we teamed up with AT&T to bring GeForce NOW to 5G mobile devices in the U.S. We also added our first GFN data center in Canada.

Their cloud-gaming thing doesn’t get that much ink (e-ink? pixels?), but it’s a pretty cool thing, and they’re doing a good job on distribution.

With any product, friction and defaults matter a lot. That’s why Netflix pushed so hard to get into everything and have a dedicated button on every remote.

When people turn on their new TV and see a ‘GeForce Now’ option, and realize that they can play AAA games pretty easily with just a controller and their TV, you have a much better chance of convincing them to take the plunge than if they need to do a lot more work.

NVIDIA Omniverse enterprise software entered general availability. [...] Omniverse can be used by individuals for free and by enterprise teams via software subscriptions.

This is smart. You want people to be able to tinker with the software, try it out, learn how to use it, etc, for free.

They still have to run it on your hardware, so it’s not purely charitable, but it also builds out the ecosystem of devs/artists, and that’s the most important aspect for now. It’s not for no reason that everybody — Microsoft, Apple, Adobe, Autodesk, etc — are discounting or giving away software to schools.

Hyperscale and cloud demand was outstanding, with revenue more than doubling year-on-year. [...]

Inference-focused revenue more than tripled year-on-year. Accelerating inference growth has been enabled by widespread adoption of our Triton Inference Server software

This is interesting, and shows the power of focusing a lot of energy on the software part of the stack:

The [benchmarks] numbers show performance gains on our A100 GPUs of over 5x in just 18 months, thanks to continuous innovations across the full stack in AI algorithms, optimization tools and system software. Over the past 3 years, they show performance gains of over 20x powered by advances we have made across our full stack offering GPUs, networks, systems and software.

On the ☠️DEADDEADDEAD☠️ deal for ARM:

Last week, we terminated our efforts to purchase Arm. [...]

We are on track to launch our Arm-based Grace CPU, targeting giant AI and HPC workloads in the first half of next year. Our 20-year architectural license to Arm's IP allows us the full breadth and flexibility of options across technologies and markets. We will deliver on our 3-chip strategy across CPUs, GPUs and DPUs.

Whether x86 or Arm, we will use the best CPU for the job

Here’s Jensen on supply constraints:

We are supply constrained. Our demand is greater than our supply. As you know, our Data Center product line consists of GPUs, mix, BlueField DPUs, Quantum and spectrum switches, HGX, if you will, system component, meaning that the entire motherboard or the entire GPU board is delivered in combination because it's so complicated. And so we have products that span a broad reach of use cases for data centers from training of AI models to inferencing at very large scale, to universal GPUs for public cloud, industry standard servers, commodity servers for enterprise use and supercomputing systems that use InfiniBand and Quantum switches.

And so the application space is quite broad. We saw demand constrained pretty much across the entire range.

We expect supply to improve each and every quarter going forward. And this quarter, this coming quarter, the Q1 -- the April quarter is based on guidance that Colette just made, is consistent with an increasing supply base. We expect to still be demand constrained, but our supply base is going to increase this quarter, this next quarter and pretty substantially in the second half.

On their plans to keep developing ARM-based products, even without owning ARM:

We have multiple-arm projects ongoing in the company from connected -- from devices to robotics processors such as the new Orin that's going into autonomous vehicles and robotic systems and industrial automation, robotics and such. Orin is doing incredibly well. It started production. And as we mentioned earlier, it's going to drive an inflection point starting in Q2, but accelerating through Q3 and the several years after as we ramp into all of the electric cars and all of the robotic applications and robotaxis and such.

We also have Arm projects with the CPU that you mentioned, Grace. We have Grace and we surely have the follow-ons to Grace, and you could expect us to do a lot of CPU developments around the Arm architecture.

One of the things that's really developed nicely over the last couple of years is the success that Arm has seen in hyperscalers and data centers. And it's really accelerated and motivated them to accelerate the development of higher-end CPUs. And so you're going to see a lot of exciting CPUs coming from us and Grace is just the first example. You're going to see a whole bunch of them beyond that.

🔥🔥🔥

I really hope that they’ll go neck deep into CPUs, the industry could really use even more innovation. Apple’s M1 has really shaken things up, and I want more of that kind of thing.

On how Nvidia thinks about software:

NVIDIA is a software-driven business. Accelerated computing is a software-driven business. It starts from recognizing what domain of applications we want to accelerate and can accelerate and then building an entire stack from the processor to the system to the system software, the acceleration engines and potentially even the applications itself [...]

The way to think about our software licensing — so we've always been a software-driven business, but for the very first time, we have packaged licensable software on — available to customers.

There's some 20 million, 25 million servers that are installed in the world today in enterprises, not including clouds. We believe that every single server in the future will be running AI software. And we would like to offer an engine that enables enterprises to be able to use the most advanced, the most trusted, the most utilized AI engine in the world. [...]

The NVIDIA Omniverse is targeting — is designed for creators contributing content to a virtual world and connect it to robots that are contributing to content in a virtual world. [...] There are 40 million designers and creators around the world. There are going to be hundreds of millions of robots. Every single car will essentially be a robot someday.

🤖 👋

Looking under the surface of revenue growth

Chart from Thomas Pueyo

Elastic Settles Trademark Fight with AWS

[Elastic] announced it has resolved its dispute with Amazon in the trademark infringement lawsuit related to the term “Elasticsearch.” Following this resolution, Amazon has begun removing the term Elasticsearch from various pages on its website as well as from its service names and related project names. (Source)

Market Musings

Liberty 💚🥃 @LibertyRPF

@TidefallCapital @HedgeyeComm In the current market, if you miss a little, you’re down 25%, if you hit consensus, you’re down 5%, if you beat, you’re flat, and only if you are out of this world do you go up 10% ¯\_(ツ)_/¯

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Science & Technology

Jim Keller presentation at TSMC event

“AI is literally the biggest transformation I’ve seen — it’s bigger than the internet, it’s bigger than mobile, and it’s going to change everything we do.”

Most of the presentation is a high-level description of the AI revolution and of the AI chip that Keller’s current company, Tenstorrent, is building to more natively run AI code (graph computing) than the current GPU-based accelerators. Very interesting stuff.

h/t friend-of-the-show and OG supporter Nick Ellis (💚 🥃 🎩)

US Renewable Energy Capacity Added in 2021

Throughout 2021, the renewable energy sector installed 27.7 gigawatts (27,723 MW) of new utility-scale wind, solar, and energy storage capacity, with 10,520 MW being installed in the fourth quarter. These clean power projects represent $39 billion in investments across the sector.

• Wind power capacity installations for 2021 totaled 12,747 MW for the year, with 5,409 MW brought online in the fourth quarter.

• The solar sector overall installed 12,364 MW for the year, including 3,937 MW added in the fourth quarter.

• Battery storage installations totaled 2,599 MW in 2021, outpacing 2020 by over 1,500 MW. During the fourth quarter, 1,173 MW of battery storage projects were brought online, the first quarter ever to pass 1 gigawatt of new installations.

There are now over 1,000 clean energy projects under development across the country, totaling 120,171 MW of new capacity in the development pipeline. This includes 37,802 MW under construction and 82,369 MW in advanced development. (Source)

Something to keep in mind with these capacity numbers is that not every MW of capacity is created equal — solar or wind may have a capacity factor of 30% while hydro or nuclear may be closer to 90%.

In other words, don’t just think about the capacity of the pipe, but also about how often water is being pumped through it… You may need 3GW of solar capacity to equal 1GW of hydro, but even that isn’t the whole story, because of the intermittency issues.

Where are the builds happening?

The top five states for new installation additions in 2021 include:

• Texas (7,352 MW),

• California (2,697 MW),

• Oklahoma (1,543 MW),

• Florida (1,382 MW)

• New Mexico (1,374 MW)

Intel’s Discrete GPUs are Coming (slowly)

Intel Arc Graphics Timing and Roadmap Update – AXG expects to ship more than 4 million discrete GPUs in 2022. OEMs are introducing notebooks with Intel Arc graphics, code-named Alchemist, for sale in the first quarter of 2022. Intel will ship add-in cards for desktops in the second quarter and workstations by the third quarter. (Source)

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The Arts & History

Beautiful aerial videos from around the world, Screensaver Edition

This is now the screensaver on the Mac Mini that is connected to our living room TV, so once in a while, I just look at beautiful aerial footage of drones flying over cities or planes flying over mountain ranges… There’s even footage from the ISS, up in orbit!

You can select the video quality to match your screen — at 4k HDR, it’s pretty amazing!

If you have a Mac (sorry to my Windows & Linux brethren and sistren¹), check it out:

• Aerial is a free and open-source Mac screen saver

1. Yes, it’s a word. TIL.