Why the AI Boom Is Just Getting Started
Whale Rock's Alex Sacerdote (20 years of tech investing) lays out the firm's S-curve framework and why he thinks AI is the steepest adoption curve they've ever mapped — so vertical he calls it a backwards **"L curve, just straight up."** The core claim for investors: **enterprise application AI is "less than 1% penetrated"** and the infrastructure layer only ~10% penetrated, with usage today concentrated in the "tinkerers" (Sundar's "10 bips of knowledge workers"; Anthropic ~14–15M DAUs). Sacerdote argues penetration goes from 10bps to 2–5–15% over four years, and that demand is so far ahead of supply the world is **"already sold out… there's not enough computer in the world"** — echoing Marc Andreessen that compute shortage is the one sure thing of the next four years. His highest-conviction position is **Anthropic, bought at a $180B valuation in August 2025** on a code-driven thesis: Claude Code went agentic, ~20M coders each potentially spending $20–30K/yr in tokens implies a "half a trillion dollar market just from coding alone," and revenue was scaling "100 to a billion on the way to nine." He frames the foundational-model layer as a three-horse oligopoly (Anthropic, OpenAI, Google) — like cloud's three-vendor structure — with real differentiation (Anthropic for finance/PE, Google for PDFs), not pure commodity, plus recursive self-improvement from coding feeding back into the models. The sharpest investable thread is hardware: the **"decommoditization of the hardware industry."** Data-center workloads now grow 10x/year, pushing every component to physical limits and turning former commodities (HBM, PCBs, Ethernet switching, fiber, power) into high-margin, high-visibility, IP-rich businesses. Named winners include Celestica (bought ~8x earnings, sole Google TPU server supplier, 50–60% cloud Ethernet share), Corning fiber, Elite Materials (copper-clad laminate), Delta and Advanced Energy on power. Whale Rock is structurally short the application-software layer (Salesforce-type incumbents whose AI is 1–2% of revenue) and went **net short software entering the year**, which helped Q1. Buying examples cited: Nvidia at 4x earnings (2023), Tesla 5x (2019). Risks he names: anti-AI sentiment and regulation (Maine banning data centers; only 20% public optimism), a model plateau letting open-source catch up into a "race to the bottom," and a major lab faltering and stranding compute.
Key points
- Anthropic is Whale Rock's highest-conviction position, bought at a $180B valuation in August 2025; Sacerdote passed on the earlier $60B round because gross margins were negative and coding hadn't yet exploded.
- Coding is framed as the true AI unlock: ~20M coders potentially spending $20–30K/yr in tokens implies a ~$500B coding TAM alone, with Anthropic revenue scaling "100 to a billion on the way to nine."
- Foundational models are an oligopoly (Anthropic, OpenAI, Google) analogous to the three-vendor cloud market, with real differentiation — Anthropic strong in PE/finance, Google in ingesting PDFs — not pure commodity.
- Enterprise application AI is "less than 1% penetrated" and infrastructure ~10%; Sacerdote calls the curve a backwards "L curve" and expects penetration from 10bps to 2–5–15% over four years.
- Supply is the binding constraint: the world is "already sold out," Anthropic has roughly half the compute it needs, and Marc Andreessen's one sure call is no compute shortage relief for four years.
- Whale Rock's framework is S curve + competitive advantage + underappreciated earnings power; they bought Nvidia at 4x earnings (2023), Tesla at 5x (2019), and Amazon AWS "for free."
- The big hardware thesis is the "decommoditization" of the data center: workloads grow 10x/year, turning HBM, PCBs, Ethernet, fiber and power into high-IP, high-margin, multi-year-visibility businesses.
- Named hardware winners: Celestica (bought ~8x earnings, sole Google TPU server supplier, 50–60% cloud Ethernet switch share, liquid cooling), Corning fiber, Elite Materials (copper-clad laminate), Delta and Advanced Energy on power.
- Whale Rock sold nearly all application software and went net short the group entering the year (helped Q1); incumbents like Salesforce have AI at only 1–2% of revenue against a $40B base.
- Sacerdote introduces a modified "rule of 40" for AI: % of sales that is AI + market share in that category, with rate-of-change mattering more than absolute level.
- Key risks named: negative public/government sentiment (Maine banning data centers; only 20% optimistic), a model plateau letting open source catch up into a "race to the bottom," and a major lab faltering and stranding compute.
Notable quotes
And so we think the I don't the enterprise AI or enterprise application AI market is like less than 1% penetrated and we've never seen we talk about S curves, we call this an L curve, just straight up.
We're at 10 basis points of people really using AI and we're already sold out of all the there's not enough computer in the world.
So Marc Andreessen said in the next four years, one thing he's sure of is there's not going to be enough compute.
So I think at the time, this is pretty funny, we wrote in our letter, we made the investment at the 180 valuation, we said, and I think they were hoping to get to a 9 billion.
We heard that even within Anthropic at that time people were spending $100 a day on tokens, which if you do the math comes out to 20 or 30 thousand dollars a year.
You've got a half a trillion dollar market just from coding alone.
When we were buying Nvidia in 2023, we were paying 4 times earnings.
And so not only are you creating tremendous unit growth, but the industry, we call it the decommoditization of the hardware industry.
You know, the DRAM market, the nand market, the PCB, we're already like 30, we're 30% short.
If anthropic sort of hits a wall and stops improving or OpenAI, then the Open source models will catch up and then it might be a race to the bottom.
Themes
- AI-capex sustainability
- compute-supply bottleneck
- foundational-model oligopoly
- private-market AI investing
- hardware decommoditization