We've got Dan Dreyfus on the show. He's with Fortuna Capital.
We're going to be measuring human progress by how much electricity we consume. The semiconductor industry, I view that as an industrial or infrastructure company β it's effectively a factory. We try to figure out where the world is going, and then we try to figure out what we're going to need to get there.
In the next 10 minutes, I am going to try to teach you about critical minerals, commodities, our incredibly fragile infrastructure here in the US that is going to require trillions and trillions of dollars of investment if we want to achieve our technological objectives, our reshoring, re-industrialization objectives, and our national security and military objectives. But first, a little bit of history.
We are at a very significant inflection point right now in US economic growth and what it's going to look like. Really from the early 2000s until just a few years ago, the US went through effectively what I think was an economic miracle where we created so much growth, so much market cap, so much value without really having to invest any capital at all. I mean, think of all the companies that were created with no capital. You had Google with the search engine. You had Meta with social media. They bought WhatsApp for $30 billion with 12 employees, no capital whatsoever. You had the streaming platforms, the food delivery platforms. You had Apple computer which was Capital Light β created trillions of market cap. You had software as a service. Absolutely no capital required to create all that value.
And at the same time we were creating these companies, we were literally tearing down all of our critical infrastructure and moving it overseas to China. So we were really doubling down on that capital-light mentality. But then it sort of started to come back to bite us, right? We had COVID, we had the Russia-Ukraine conflict, we had the tariffs, now we have the Iranian conflict. And every time we had one of these geopolitical flare-ups, inflation spiked like a rocket. You need a telescope to see how high inflation went. And it never came down. The reason for that is we let our supply chains get way too fragile and way too weak. There's no resiliency in the supply chains.
And now we're at this inflection point where we want to reshore everything that we tore down and moved to China. We want to re-industrialize. We have this technological compute revolution that is infinitely more infrastructure-intensive than compute was in the last generations. And this is creating this really wild demand shock for infrastructural critical minerals commodities at the same time where there's a supply shock because we just haven't invested in this stuff for so long.
There are so many capital cycles going on at the same time. I've never seen this many going on at the same time in my career. We have the aerospace cycle β Boeing and Airbus have a trillion dollars of backlog over the next 10 years. Now throw in the space economy which is going to compete for the exact same materials and backlog that Boeing and Airbus are trying to source.
We have the grid. Anytime it gets a little bit cold in Texas β ERCOT, the Texas grid's not connected to the rest of the US grid β every time it gets a little bit cold that grid shuts down and they're freezing in the dark. Then here in California, Paradise β that power line that caught on fire and killed 300 people. Did you know that power line was over 106 years old? There's parts of the grid in this country that are over 106 years old.
Here in California, if half the people buy electric cars or there's robotaxis and we all go and plug them in at 6:00 p.m. after work and turn up the air conditioning, we're just going to kill the grid. Boom. We're going to kill it. We're all going to be sitting in the dark. So the grid barely works for what we need it for right now. And we haven't even started talking about the tsunami of demand, electricity demand that AI is going to bring.
And there's power generation. We've let China go and build multiples more power generation than what we have here. This is a trillion-dollar-plus capital cycle. That's probably going to be a trillion dollars every 10 years for the next 30 years. Data centers β this is now a trillion dollars per year. Per year. All infrastructure, all commodities. Then there's semi fabs. The CPU is making a huge resurgence. CPU intensity is going up like a rocket. And I bet you this number is way too low β $750 billion. I bet that's going to be measured in the trillions. And then there's defense. Taiwan's turned into a porcupine. Japan's raising their defense budgets. Europe's raising their defense budgets, the US raising their defense budgets.
What the similarity is amongst all of these end markets is none of them will work without critical minerals. None of it. None of this can happen.
So here's the problem. Last April, China announced that they were going to cut off exports of some critical materials to the US β Samarium, Gadolinium, Terbium, Dysprosium, Lutetium, Scandium, Yttrium, Erbium, Silver. Just cut it off. And we're close to a lot of big industrial supply chains.
The cut off of Samarium-Cobalt magnets β we learned that the Ford Motor Company was within days, literally days of their entire production line shutting down, the whole Ford Motor Company. And same with McDonnell Douglas, by the way. This put people in the Department of War, Department of Energy into a panic.
And to their credit, they're doing something really aggressive and really important. They are now going around to small resource owners across the US and into Canada and they're knocking on the doors of these companies that were left for dead in the last 20 years and they're saying: here is three pieces of paper. The first piece of paper is an equity check that we're investing into your company so that you can go and start converting your resource into a mine. And then the company says, "Oh, that's a shock. But the problem is I've been waiting on my permit for the last 20 years. Nobody wants to give me a permit." They say, "Oh, look at the second piece of paper. There's your permit. Go and start building right now." And then they show them a third piece of paper and the company says, "What's this?" And they say, "This is an offtake agreement. Take-or-pay with a minimum floor price that's going to guarantee you a very high internal rate of return on your project where you can keep all the upside above the minimum price."
Now, China has an absolute grip. It's absolute on all of these critical minerals. And it's going to take at least 10 years, probably 20 to catch up. But we got to start somewhere because we just can't have China leading over us and squeezing our testicles every time that we don't do something that they don't like. I've done commodities now for 25 years and I've never seen something like this happen before. It's truly what I call a vuja day moment β the overwhelming feeling that none of this has ever happened before.
So here's copper. This is the king of metals. This is just one example. We need copper for everything. If we want clean energy, solar power per megawatt takes five times the amount of copper than a typical base-load CCGT gas-fired turbine. Same with wind β seven times the copper. Data centers β for a 1 gigawatt AI factory, you need 50,000 tons of copper per gigawatt. And we're going to start building 15 gigawatts of these things per year. Per year. So 50,000 tons per gigawatt and 15 gigawatts is 750,000 tons of copper that we're going to need for these things.
Do you know what the copper supply was last year? It grew only 500,000 tons. And this is just the data centers. Then electric cars β if we're going to have robotaxis everywhere, an electric car consumes five or six times the copper than a traditional internal combustion engine.
And then there's the military. In the Ukraine-Russia conflict, did you know that we used more explosives than in all of World War II? Did you know that? And the artillery shells of these explosives, guess what they're made of? One of them is called the Copperhead β very cleverly named after a poisonous snake. They're all made of copper. Do you think we go into the battlefield and recycle that copper? No. That copper's gone.
So we need these metals for everything that we do. Now where are we going to get it? Going back in human history to Mohenjo-Daro, we have mined 700 million tons of copper. 700 million tons of copper over the past 10,000 years. Now 80% of that copper, we could probably get it all back if we wanted, but what we'd have to do is we'd have to tear down this building. We'd have to rip up the grid. We'd have to tear down the buildings in Europe, in Japan, in China. And we could get all that copper back. Sure. Then we'd be doing this conference in a tent.
So how are we going to get it? Right now copper demand is 30 million tons per year. About 4 million of that supply comes from recycled copper. The rest, 26 million tons, is mined. And if we just grow in line with GDP β forgetting about data center upside, forgetting about green energy, solar upside, just growing at GDP like we used to. Now listen carefully.
Over the next 18 years, we're going to need 700 million tons of copper. Over the next 18 years, we're going to need as much copper as we mined in the last 10,000 years. That means we're going to need five world-class mega tier-one mines coming online every single year. You can Grok this or ChatGPT this β you can count on one hand and have some fingers left over the number of tier-one mines that are coming on between now and the end of the decade.
So I don't know what they're going to do because it takes 7 to 12 years to build a copper mine. The existing copper mines are dying. The big mines in Chile over a hundred years old. The grades are depleting. This is going to be a major, major challenge and an upcoming bottleneck. Right today, all the rage is in memory and HBM and NAND prices are going vertical because that's the bottleneck. Now if you want to look around the corner and see the next bottleneck coming, I strongly urge you to look at copper. A supply shock meets a demand shock. Commodity cycles typically last 15 years and have multiple hundreds-% of upside. We're only a few years into this. This is just really getting started.
The copper price is easily going to double from here. I've seen Molybdenum go from a dollar a pound to $33 a pound. So a double is no big deal.
I want to say one more thing. We spoke about demand β we're having this demand shock. We spoke about supply. But what we haven't spoken about is how we're destroying the value of the US dollar. Since COVID we have absolutely destroyed the value of our fiat currencies.
Today we have $40 trillion of government debt that's growing at $2.5 trillion every year. On top of that we have $100 trillion of discounted present value of future social liabilities β Medicare, Medicaid, Social Security, pensions β also growing by $2.5 trillion a year. So you have $2.5T of growth on the federal debt, $2.5T of growth on the social liabilities. The US government only has $5.5 trillion of tax receipts every year.
So what's going to happen the next time we have a recession where tax receipts go down and spending has to go up? We're going to print giga dollars. In the 1970s, we had this problem as well. The way we did it is we just debased the currency through some inflation, through some growth. And the currency lost 70% of its purchasing power. Commodities and hard assets and infrastructure will protect your purchasing power in that kind of environment. Go and look it up β in the 1970s, what was the best performing asset class by a mile? That's your homework.
So with that, thank you and look forward to chatting with you guys.
[Q&A begins β Chamath Palihapitiya]
Chamath: On the prediction show you definitely had β I thought the best performing asset was going to be copper.
Dreyfus: Yeah, and that's before I talked to Dan. The copper price is easily going to double from here. I've seen Molybdenum go from $1/lb to $33/lb. So a double is no big deal.
Chamath: Take a step back. You said something really interesting backstage β if you look at everything we're doing right now, we're barely going to keep up with just the natural energy demands of humanity. Explain that thesis.
Dreyfus: We have not invested in upgrading and modernizing and hardening the electric grid since post-World War II. We just let it go. The last two, three, four administrations were sleepwalking. Now if we simply just want to achieve our objectives to re-industrialize, reshore, electrify β when I say electrify, that means replacing old gas boilers with heat pumps, every commercial building is doing it, electric car penetration going up, using your electronic devices more β not even talking about AI. Not even talking about AI, we're going to have shortfalls just from that. Just from living our lives. Blackouts, brownouts, and rising electricity prices.
On Silver: Whether you're talking about solar, NAT gas, uranium β we're going to have the raw inputs like the natural gas we drill from the ground. But what we're going to be short of is the critical minerals to build the nuclear power plants. We're going to be short the silver, for example, to build these solar panels, especially if we start launching data centers in space.
Right now the silver supply-demand dynamic is we consume 1.2 billion ounces a year. We supply 1 billion ounces a year. So there's a 200-million-ounce deficit per year and we only have 600 million of above-ground inventory left. So the clock's ticking. We got three years left, guys, before we just stock out. And then the solar story is β where do you get the silver for the photovoltaic cells?
Chamath: What about generally β scarcity breeds innovation. Are there new technologies in mining that will unleash productivity?
Dreyfus: For some commodities, yes. Coming out of the 14th century, there were these guys called alchemists. They said they could turn lead into gold. Back then the periodic table was just four elements β water, fire, air, earth. Every time they saw something in the earth they didn't know what it was, they called it a rare earth. So rare earths are everywhere, and the technology to extract rare earths is going to allow us to have a huge abundance of them. But the problem is processing them. The Chinese have all the technological know-how to convert what you take out of the ground and convert it into something that we can use. With something like copper, the market is so big that it's really difficult to find a technology that could solve that problem overnight.
Chamath: How do you trade off different sources of energy β gas, solar, nuclear, hydrocarbons? Why are you super bullish solar? What about nuclear?
We're swimming in natural gas in this country. We can build solar β that's not the bottleneck. And nuclear β we can't really build it. We can't even build the containment vessels in this country. The Koreans can do it but we can't do that here. So there's always going to be these big bottlenecks in the system.
Whether you're talking about solar, NAT gas, or uranium, we're going to have the raw inputs. What we're going to be short of is the critical minerals to build the nuclear power plants. We're going to be short the silver to build these solar panels.
On Solar Footprint: A 1 gigawatt AI factory if you wanted to do all solar β and I'm a big solar bull β with a capacity factor at 20% because the sun doesn't shine all the time, a 1 GW data center needs 5 GW of solar. Each GW of solar takes up 7,000 acres. So at 5 GW, that's 35,000 acres. That's bigger than San Francisco. So where are you going to find the people? Where are you going to find β that's the biggest bottleneck we have, by the way: craft labor.
Jason: I'm curious from the audience β how many people have put up solar and/or Powerwalls? [About half.] How many are planning to in the next year or two? [Another 20%.] So it's pretty obvious this is an affluent crowd. They are routing around the grid. Is the solution to this energy independence in the home, in the business? Businesses are not waiting for the government.
Dreyfus: You're going to need the grid no matter what for industrial use. That's the foundation of industrial use.
You brought up a great point on one of your shows β the utilities are just really goosing up the cost to do everything so that they can report to their regulator and earn that ROE on the higher capital base. What's really underappreciated is that's where all the inflation is coming from. It's from the transmission and distribution from the utility. Power prices over the last 20 years, even after the rise, are still down in real terms. Making it is still cheap. It's getting expensive β getting it to people. Because labor by far is the biggest bottleneck. Craft labor.
Jason: If we have this rivalry with China and they're the brittle part of the supply chain, we can solve the problem of job displacement β people in America who want jobs. These are going to be incredibly high-paying jobs. We can bring the fabs from Taiwan here, which we're doing.
The craft labor that we're going to need is going to be almost limitless for what we have to build. There's really no other way around it. In the 2000s, we tore down all our factories and moved them to China. And who got killed by that? It was the blue-collar craft labor. It created all kinds of unintended consequences. Fentanyl, wealth gaps. Pennsylvania. The coasts were making all the money, in the heart of the country the salt of the earth was getting killed. What's ironic today is that same part of the middle country β those people that got displaced β are now getting entry-level salaries. If you go to Quana University and you're top of your class, you're starting out at 150 grand right out of high school. And the jobs that they're doing, ironically, are the jobs that may or may not be displacing some of the early, lower-level white-collar labor. The tables have totally turned.
Dreyfus: It's an efficient market. The jobs are going to flow where the money is and the money right now is really coming into this area.
Allocation Toolbelt: So for our kids and for the country, the generational toolbelt for us allocating: get some exposure to copper, silver, critical minerals, and then there's a bunch of service providers in and around that area that we should be investigating over the next year.
Chamath: Don't forget the labor β the service providers, that's a big one.
Chamath: How do you allocate capital? You're at the front end of owning mines and production, but also end-use cases. How do you decide where not to play? Because a lot of these things look like incredible end markets, but you can get run over. If you're in the wrong part of the market, there's supply shocks, supply shaping by China, price dumping. You could lose a lot of money too.
You really have to understand supply chains. To a lot of people out there, supply chains are this sort of weird mystical concept. I still think a lot of urban Americans still think a ham sandwich comes from the refrigerator β and they don't think about the 30 million pigs every month that are getting slaughtered outside of Chicago. (1) You've got to understand where the pinch points are in the supply chain. (2) You have to really make sure that you're not going to get technologically disrupted β find something that's going to replace that tightness in the supply chain.
Jason: Give it up for Dan.