20VC: Sequoia's David Cahn on AI's $600BN Question | Why the Data Centre is the Most Important Asset | Servers, Steel and Power: The Core Pillars Powering the Future of AI
Aug 5, 2024
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David Cahn, a Partner at Sequoia Capital with a rich history in AI investments, dives deep into the future of artificial intelligence. He discusses the $600BN question in AI and how high capital expenditures are reshaping the competitive landscape. Cahn believes data centers are the backbone of AI's evolution, emphasizing the crucial role of 'servers, steel, and power.' He reveals that the biggest opportunities lie in building out data centers and navigating supply chain challenges, urging startups to seize the moment amidst the shifting tech dynamics.
Data centers are essential in AI, becoming the industry’s backbone due to the complexities of training advanced models efficiently.
Investors must balance optimism and caution regarding AI's promising future, particularly concerning substantial capital expenditures amid financial risks.
Kahn's journey as a twin has uniquely influenced his approach in venture capital, instilling adaptability and a competitive spirit vital for success.
Deep dives
The Imperative of Data Centers
Data centers are becoming the most critical asset in the AI industry as models increase in size and complexity. The discussion highlights that training advanced frontier models becomes impractical on existing data centers due to rapidly evolving technology and hardware. By the time a data center is built and utilized, the GPUs become outdated, illustrating the necessity for constant innovation in data center design and operation. This emphasis on data centers underscores a shift towards viewing AI not just as a software solution but as part of an industrial infrastructure that requires substantial physical and technological investment.
Investment Balancing Act
The podcast details a significant conversation regarding AI capital expenditure (CapEx), noting the complexity of investing in AI while managing financial risks. While many are bullish on AI's transformative potential, there’s a concern regarding the sustainability of investment given the substantial financial commitments required. Acknowledgment from industry leaders like Mark Zuckerberg and Sundar Pichai about overbuilding suggests a more cautious and strategic approach going forward. The implication is that while the potential for AI exists, investors need to be prudent in evaluating the long-term viability of their commitments.
The Unique Value of Twins
David Kahn discusses how being a twin has significantly shaped his personal and professional identity. He suggests that being a twin instilled a sense of empowerment, allowing him the freedom to think independently despite prevailing herd mentalities. This twin dynamic also fostered a competitive spirit, driving him to constantly strive for excellence within shared experiences. Kahn believes these formative experiences have uniquely positioned him for success in the competitive landscape of venture capital.
The Role of Compute and Data in AI
The significance of compute resources, data, and model efficiency is examined, highlighting the delicate balance between these elements in the AI ecosystem. Kahn explains that while compute is critical, the architecture of data centers and the physical nature of how compute is generated complicates the scenario. The conversation points out that breakthroughs in model efficiency will always be outpaced by advancements in compute and data center capabilities. Hence, investment dynamics will require continual adaptation as the landscape of AI rapidly evolves.
Navigating Capital and Power Constraints
A dynamic discussion around the industrial implications of power availability for the burgeoning AI sector is presented. Kahn emphasizes that the AI revolution is likely to drive an urgent need for more renewable energy, spurred by the demands of massive compute operations. Having a reliable energy supply is critical, and the growth of AI is expected to further catalyze investments in power generation infrastructure. This aspect highlights how intertwined the energy sector is with advancements in AI technologies.
Looking Ahead in Venture Capital
Kahn shares insights on what he sees as necessary traits in founders and future trends in venture capital. Highlighting a continuous improvement mindset, he believes that adaptability and learning from others is crucial for success in the rapidly shifting landscape of venture investing. Kahn also suggests that the ability to recognize transformational talent and invest accordingly is paramount for founders looking to build the next unicorn. This reflects a broader recognition that the future of venture capital will involve careful assessment of disruptive potential across technology verticals.
David Cahn is a Partner @ Sequoia Capital, one of the great venture firms of the last 5 decades. Before joining the Sequoia partnership, David led Coatue's venture business as a General Partner and COO where he led investments in Hugging Face, Runway and Supabase. David also joined the boards of Weights & Biases and Replit.
In Today's Episode with David Cahn We Discuss:
1. AI's $600BN Question:
What is the $600BN question in AI today?
Is it possible to believe "AI will change the world" and "Capex levels are too high" at the same time?
Why do the cloud players have to act now? When does the Capex reduce for them?
How does Meta not having a core cash cow in cloud change the way they can respond?
Why is all the risk today being borne by the large incumbents? Why is that good for startups?
How will we see Satya and Zuckerberg change their narrative towards their Capex spend to the public markets?
2. The Data Centre is the Most Important Asset:
Why does David believe that data centre is the most important asset?
What does he mean when he says "servers, steel and power" are the pillars of AI?
What happens when the development of models outpaces the construction of data centres?
Why does David believe no one will ever train a frontier model on the same data centre twice?
3. The Biggest Opportunities in AI:
Why does David believe the biggest opportunity right now is in the build-out of data centres?
What does the supply chain look like for the build-out of data centres? Who are the winners?
Why does David believe the biggest opportunity in finance is in creating new debt instruments that will allow the largest incumbents in the world to move this data centre spend off balance sheet?
Why does David believe that AI will drive more energy innovation than any policy has done?
4. The Secrets of Sequoia: Inside the Walls of the Greatest Firm in Venture:
What does David and Sequoia believe is the one definition of success in venture?
Who is the best at find companies in Sequoia? Who is the best at picking?
Why does David believe conviction, not picking is the hardest part in venture?
How do Sequoia want to shape and mould every investor in the firm?
20VC: Sequoia's David Cahn on AI's $600BN Question | Why the Data Centre is the Most Important Asset | Servers, Steel and Power: The Core Pillars Powering the Future of AI
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