Transcript:
Caroline Woods: I. Investors know the chip story, but what if the next big opportunity isn’t making chips? It’s moving data between them. Yuri Khodjamarian is chief investment officer at Tam ETFs and joins us now. Yuri welcome back.
Yuri Khodjamarian: Thanks very much for having me.
Caroline Woods: So we last talked about SpaceX. You’re back with an ETF targeting the next piece of the I build out the team of Photonics and optical ETF laser. To kick things off, what exactly is photonics and why should investors care?
Yuri Khodjamarian: I think the best way to think about it is to understand that AI is creating a huge amount of computing power within these data centers, and that computing power is just getting bigger and bigger and bigger. And at some point, the other parts of the computing system are going to require, you know, an upgrade in a way.
Yuri Khodjamarian: And one of these is how data is moved between parts of the data center, between the individual servers and within even the individual chips. And the reality is that data is moving at such speed, and it’s also moving with so much bandwidth that the copper connections that we all know, the copper wires that connect the world are just not keeping up.
Yuri Khodjamarian: You know, they’re hitting their physical limit. And the obvious answer, which is happened in lots of other industries, is you move to light, which is photonics. The idea that you can use the full spectrum of light to move data means that you can move data faster and can move a lot more data, which is what a lot of these AI systems need.
Caroline Woods: So replacing copper with light. But what am I actually buying with Lazear? Kind of walk me through the portfolio. How do I get exposure to light in my portfolio?
Yuri Khodjamarian: Absolutely. One of the things that we pride ourselves all the time is building these curated universes of companies. And we sort of leave no stone unturned. We find the most interesting businesses exposed to this particular scene. In the case of optical and photonics. You’re looking essentially at the entire supply chain and value chain of creating the devices that then the, basically leads the data centers to be able to connect all of those different parts together.
Yuri Khodjamarian: So you’re thinking about the machines that make the substrates, that make the materials that then create those particular lasers or optical components that allow light to carry data inside the data center. So you’ve got winners and leaders in terms of companies like momentum. You know, which is a transceiver maker and, one of the world’s leading laser producers as well, all the way back to the beginning of the value chain, which is, companies like Exxon, which make the machines that make the materials to make those lasers.
Yuri Khodjamarian: So you can imagine that what we’re trying to do is giving investors exposure to the entire value chain. And we particularly focus on Western companies, particularly focus on the ones that have the winning capacity and winning technology to deliver optical and photonics solutions to the data center.
Caroline Woods: So lumen, Tim, is your largest holding. Looks like nearly 18% of the funds, but your second largest holding is anthropic. How does a photonics ETF end up with more than 9% exposure to a private AI company?
Yuri Khodjamarian: So one of the things that we really focus on a time eye is we’re trying to give investors a good package together. So the way we see it is that the way we define the universe and the way we think about it is it’s the entire AI infrastructure stack. And if you look at a company like anthropic is obviously the Lem layer.
Yuri Khodjamarian: It is the demand layer for a lot of these types of equipment. We had the opportunity to add this as a position. It’s something that our portfolio managers look at and consider as part of their entire investment universe. And in the case of Lars at AR, we thought that that would be a good fit within the portfolio. We also were able to invest in it at what we think is an attractive valuation for what is probably going to be a generational company.
Yuri Khodjamarian: Private companies can be an ETF. Some think that that is something that investors want and something that we are prepared to offer after having done all the necessary due diligence. Very similar to our NASA ETF and its pre IPO exposure to space X.
Caroline Woods: Why anthropic over OpenAI.
Yuri Khodjamarian: That’s a great question. I think a couple of maybe more subtle points. I think one is that anthropic is a major kind of investor and user of some of the optical technology. So it’s a slightly better fit in terms of the infrastructure buildout that they’re doing. A lot of anthropic future compute is going to be based on the TPU ecosystem, which, as you know, is developed with Broadcom, which is a beta, and its tonic and optical technologies and TPUs tend to be a much more or to a certain extent, somewhat much more heavy in terms of its usage of optical technologies than maybe the Nvidia ecosystem.
Yuri Khodjamarian: So I think that’s one, maybe more technical reason why we’ve gone forward as a fit. But really, we think that the most important application of AI is going to be within businesses. And anthropic is a leader in the B2B space, in terms of its overall revenue exposure. So broadly, we think it’s a more interesting business. It’s also much harder to access, in terms of buying those shares out into the secondary market.
Caroline Woods: So if I’m buying land here, in part because I want access to anthropic before an IPO, what do I need to understand about that exposure? And then what happens when anthropic does IPO or what happens to that position within the ETF?
Yuri Khodjamarian: Absolutely. Look, first of all, you have to understand that we’re making an investment decision here. And the second thing is that we have done the necessary diligence to make sure that this is an exposure investors can trust. You know, there are multiple layers of due diligence that go into making an investment decision like that that are maybe different to buying a public company you own.
Yuri Khodjamarian: Or the ETF owns anthropic through an SPV, which is a very standard way of making investments in the private world. These speeds have no fees attached to them. So essentially investors are just paying the management fee of the ETFs. So it’s a very cost effective way to gain that kind of exposure as well. Finally, we we think it’s once it comes into the ETF that that’s the exposure that you’re getting.
Yuri Khodjamarian: So you’re getting a collection of the leading infrastructure photonic businesses plus the anthropic stake.
Caroline Woods: Okay. You know, I was just taking a look at some of your other top holdings, not the quintessential AI names that probably appear in many investors portfolios. I, you know, do see some familiar names. Tower semiconductors in there. We had mentioned momentum, but how should I be thinking about photonics exposure in my portfolio versus other sort of eye exposure?
Caroline Woods: Is this complementary? Does this replace something? What if I own names like Nvidia and Broadcom right now. What does this give me that those don’t already give me.
Yuri Khodjamarian: Absolutely. Look I think the way to think about the AI infrastructure buildout is to kind of start top down. I think it’s no secret that there’s going to be a large build out, that it is probably going to be in the trillions of dollars, probably higher than maybe the rest of the market kind of thinks at this moment.
Yuri Khodjamarian: And what you need to think about that a infrastructure build out is to say, where are the particular bottlenecks that are being hit as we accelerate that data demand? If you look at something like GPUs and TPUs, which is what Broadcom, Nvidia provide is a pretty well-supplied market. So there is no supply demand mismatch really. The only thing that’s placing that demand picture is how quickly can we build the data centers and how quickly can TSMC produce them.
Yuri Khodjamarian: And once you start getting into the rest of the I infrastructure value chain, you start to hit bottlenecks. And there are several that have arisen over this past period. And the one that we focus on, the distance you have is the optical bottleneck. Essentially, what’s happening is the demand is starting to like the mass of the uploads because as these data centers are becoming more powerful, the data needs to move a lot faster.
Yuri Khodjamarian: So we’re starting to replace components with optical fibers. And remember, this is a kind of a networking concept. So the more powerful each particular connection within the network is, the more you upgrade the whole network. And there are more connections than there are individual parts of that network. If you look at, people like Goldman Sachs, they estimate that this market is going to grow something like ten times over the next couple of years.
Yuri Khodjamarian: So there’s an enormous demand imbalance. But the key part, which is why this is an interesting investment opportunity, is the supply. There just is a massive constraint on supply delivering the lasers, transceivers, optical equipment that goes into these data centers. And this creates a positive investment environment because you have very strong demand, forward orders and companies are be better able to build out their business to take advantage of this opportunity, which could be multi-year.
Yuri Khodjamarian: So that’s why we think that it’s an interesting area to look at. And so for investors that are looking over the broad investment portfolio and I they should be making deliberate decisions. They should be thinking this I build up could be one of the largest things he’s ever done. Should I be stupid on just giving the general exposure through things like Nvidia?
Yuri Khodjamarian: Or should I be thinking about what are the individual bottlenecks? So these are very nice compliments to for example, holding in Nvidia or Broadcom where you’re saying, actually I think this part of the build out is going with a tighter supply and demand mismatch for this period of time as the build up goes on. One of the things about the optical industry that people maybe don’t appreciate is that historically, it was an area that was forgotten by the market, and that’s because most optical technology went into telecoms, and telecoms has just not been a growth industry.
Yuri Khodjamarian: And so for a lot of investors, you’ve got this kind of weak starting point because it was an industry that was overlooked. And that creates some of the most powerful investment opportunities in the marketplace.
Caroline Woods: I was going to ask how big the opportunity is, but you already said it’s a multiyear opportunity. But I guess what has to happen for this market to grow as much as you expect?
Yuri Khodjamarian: That’s a great question. And one of the things that there’s a bit of a debate as a what needs to be start to introduce optical components further and closer to the actual accelerator chips, the Nvidia chips, you can think about a future where even at the chip level, you are using optical components to move data, because it’s become such a high data burden, and we need to do some move so quickly to deliver some of the agents that you’re seeing out there, like Muse or Instinct.
Yuri Khodjamarian: So really, it’s about understanding what the Nvidia and Qualcomm roadmaps look like. And that’s perhaps one of the debates out there in terms of what will accelerate demand sensor. You will see we move to having Co packaged optics as called where optical components are coming much closer to the chip. Then the opportunity is much near-term and much bigger than it is when we think about it is that there might be some delay to this is going to take some time, but that creates a longer environment where some existing optical components see a bigger pick up in demand.
Yuri Khodjamarian: And then we have generation of technology changes. So that is probably the thing that’s pacing how big this opportunity is. And when does it happen. Now or in a couple of years time.
Caroline Woods: But AI infrastructure has already had this massive run. So investors are investors early to photonics and optical at this point. Are some of these stocks already pricing in the opportunity?
Yuri Khodjamarian: Look, I think it’s fair to say that I infrastructure trade in certain areas is probably well known to people. I think the points that are less clear are probably how big is the final outcome going to be? I think if you had spoken to someone two years ago or a year ago, they would have said, you know, maybe it’s a 2 or 3 trillion investment opportunity.
Yuri Khodjamarian: I think there are some estimates now that are out there that are five. And if you look at some analysis from the partner research partners in this ETF, you know, they’re estimating $10 trillion, which is bigger than any of the numbers out there in the market. I think it’s also going to take longer than people realize. And there are certain pacing things that are happening.
Yuri Khodjamarian: You know, TSMC can only produce chips at a certain pace. We have a huge need to power these data centers, which is going to take time to build out as well. And so those things are pacing the opportunity, if you will. And so investors can kind of make a bet here that things are going to take longer and probably going to be bigger than the rest of the market thinks.
Yuri Khodjamarian: So even if some of these stocks have already started to react, which they have, the I kind of I could bet right now is one on the length and magnitude rather than whether it’s happening or not. In terms of valuations, it’s very easy to build valuation pieces if you think it’s bigger and longer than the market thinks for most of the AI infrastructure stocks out there.
Yuri Khodjamarian: So if you’re prepared to take a longer term view, there is a opportunity there. Of course, short term and especially this year, the eye infrastructure trade has been very strong. So a lot of these stocks have gone up. So short term it’s possible that you’re going to have. And you see already over the summer this periods of volatility as the market processes run up and share prices against the expected opportunity to.
Caroline Woods: I want you to take your ETF cap off for just a second and put on your CIO cap and talk to me just about the opportunities that you’re seeing in the current market. Because we have memory stocks selling off so far this month, obviously still big winners year to date, but down double digits for a lot of the big names.
Caroline Woods: We have software stocks that have been making a comeback or at least some software stocks making a comeback. Then of course, there’s the big seven. As you think about where the best opportunities are right now based on current valuations, where are they?
Yuri Khodjamarian: It’s a great question. And also when I get asked these things, it’s sort of it’s difficult to say on a short term horizon where any particular direction of the market is going to go in, but I think it’s helpful to think about things longer term. So for me personally and the way we look at the market, we like to look for these opportunities where you’ve had a period, ideally a very long period of underinvestment.
Yuri Khodjamarian: So whether you’re looking at the US power situation, when you’re looking at something like photonics and optical stocks, those were stocks that saw very little roles. And there was essentially underinvestment in the supply chains because there was just no demand for us. There’s suddenly now thrust into this growth environment, which creates a really interesting valuation opportunity long term.
Yuri Khodjamarian: So I see a lot of opportunities there as you’re prepared to think longer term and appreciate that demand and supply imbalance that’s been built on the market right now. I think other areas as CIO that I see is investors need to start to think, how is I going to move? Even if you think the I infrastructure trade probably has some way to go?
Yuri Khodjamarian: What is the actual impact of EI on different parts of the market? And I think that part is what we’re digesting this year and what you’ve seen in software stocks where they sold off and not covered. I think the interesting trade right now is to understand which vertical is I going to have the greatest impact in, and then starting to think about that vertical position opportunity.
Yuri Khodjamarian: So one area that we really like is health care. I mean we’ve recently launched it’s yes in that area each flight. It’s actually the first and only ETF focus specifically on health care. So you can see our thinking moving right where we are. Big believers in the are bottlenecks and the build out of eye infrastructure. And the second leg is where are the underappreciated opportunities in the application of AI.
Yuri Khodjamarian: And we think health care is one of those. You’ve already seen some of these stocks start to react to the market environment, as companies like anthropic and others are investing and building AI for science and for biology. It’s a massive opportunity out there. You know, health care is 20% of GDP in the United States and growing. I think there is an opportunity here to really build long term value for some of these businesses.
Caroline Woods: Interesting. And there’s an ETF for that of course. All right. I think it’s a great time to pivot to our rapid fire round of this or that. Quick questions quick answers no hedging if you can help it. Are you ready Arie.
Yuri Khodjamarian: Go for it.
Caroline Woods: More upside from here AI chips or AI networking.
Yuri Khodjamarian: AI networking.
Caroline Woods: Photonics early innings or getting crowded.
Yuri Khodjamarian: Early in its.
Caroline Woods: Biggest AI bottleneck. Power or data movement?
Yuri Khodjamarian: That’s a difficult one. I’m going to say power.
Caroline Woods: Better AI trade from here. Hyperscalers or their suppliers.
Yuri Khodjamarian: Their suppliers.
Caroline Woods: Bigger AI risk valuations or slowing CapEx?
Yuri Khodjamarian: Or absolutely slowing CapEx.
Caroline Woods: Hyperscale or CapEx in 2027, accelerating or peaking.
Yuri Khodjamarian: Or accelerating.
Caroline Woods: AI stocks next year, broader rally or fewer winners.
Yuri Khodjamarian: Probably broader rally or.
Caroline Woods: Off anthropic IPO by Ethiopian or wait.
Yuri Khodjamarian: Oh, definitely buy at the open or own.
Caroline Woods: When his private AI IPO boom in 2027 bullish signal or warning sign.
Yuri Khodjamarian: I think probably slight warning sign.
Caroline Woods: Anthropic or OpenAI.
Yuri Khodjamarian: Anthropic.
Caroline Woods: AI trade from here. Chase momentum or wait for a pullback.
Yuri Khodjamarian: Well we’re sort of in a pullback. So chase momentum.
Caroline Woods: If rates stay higher for longer I infrastructure AI software.
Yuri Khodjamarian: AI infrastructure.
Caroline Woods: AI stocks are space stocks for the next five years.
Yuri Khodjamarian: While you’re making me choose between I’m going to go.
Caroline Woods: To maybe.
Yuri Khodjamarian: Space space stocks.
Caroline Woods: And if you could only own one AI stock and it’s not an ETF, which is it?
Yuri Khodjamarian: I would go for the mental.
Caroline Woods: Bring it back. Bringing it back to Lazear. Finish this sentence. The biggest risk for investors is buying Lazear or betting on photonics is.
Yuri Khodjamarian: I think it probably is a CapEx potential CapEx slowdown in 2028.
Caroline Woods: All right. We’ll leave it there. Yuri Khodjamarian, Chief Investment Officer Tamar ETFs, thanks so much for playing along, shedding some light on this ETF and we really appreciate your insights as well.
Yuri Khodjamarian: Thanks very much for having me.
Caroline Woods: If you enjoyed this ETF spotlight check out our full interview with Dave Ellison. He breaks down what bank earnings tell us about the economy right now and gives his top bank after earnings.