Memory is a Bubble, But Nvidia Protected – Jan Van Eck on Semis Surge

Well, what I would say within the AI ecosystem, Alfred, there are bubbles to use a word that probably don't like that much, right? I do think that the memory specific pocket is a moment in time. You know, one hates to call a top when something is like this, but I personally am wary about the memory stocks because in the medium or long term, they don't have quite the competitive moat. I believe that Nvidia does. I think we're in what we call a crypto winter and I don't think it's coming back. Like I just don't think a lot of those projects and softwares will be at all interesting or alive in 5 or 10 years from now. So the concept of blockchain and stable coins are definitely there and Bitcoin is there, but a lot of other parts of the ecosystem are just to me going away. It's such a big company, SpaceX, that we're glad as ETF sponsors to have it in the public markets. As you said, the amount of money here is absolutely staggering, right? It's just staggering. You're talking about cumulatively hundreds of billions of dollars. It's just the waves of liquidity that are going to be sloshing through the economy I think will be positive short term for economic growth and I think they will be absorbed.

Wilfred, it's great to be here for the first time with you.

Something like that. Yeah.

That's crazy, right?

Yeah, exactly. Tap out now, but I'm sure you won't. And that's why you're showing up for this podcast.

Yeah, I mean listen, I think the Van Eck investment philosophy is to try to take a big picture macro view. I call it 10-year macro. And what I mean by that is in 10 years looking back in 2036, we were going to look back and say what are the very biggest themes affecting the world and therefore financial markets. And that hopefully filters out a lot of noise. But I think what we're left with is at least three things: AI, the rise of India, and the overbaring by the US, your country the UK, and Japan leading the way I would say. So from the AI perspective, it's pretty simple. We have demand for compute up here for this wonderfully efficient new technology and supply here. And so everything is at the semiconductor is at the heart of that obviously. I drill down a little bit further towards Nvidia. So one of the reasons our ETF has outperformed other semi-ETFs is that it only focuses on the top 25 stocks and it allows the largest holding to rise to 20%. So it's really been riding the Nvidia train if you will. And Nvidia itself is a whole separate podcast right of the incredible performance. So are we comfortable I asked myself with semiconductors today and Nvidia and I am. One never knows if a company can lose its competitive moat, but I think Nvidia will definitely be one of the leaders 10 years from now. Partially because it's the mainframe of AI if you will, not just a single chip manufacturer GPU manufacturer like it used to be which was not only cyclical but also highly competitive. And so you know I think Nvidia with its software and its cost advantages that it has not only in the scale of production but also because it produces more efficient chips per dollar of electricity or pound. Then I think I think and with forward earnings only, you know, kind of in the low 20s. So all of those things, even though Nvidia hasn't been the hottest stock in SMH, our semiconductor ETF over the last nine months, I think it's a very solid piece of your portfolio. Sorry for the long answer.

Absolutely. I mean the methodology of REF and and you know some of it was thought and some of it was luck Wilfred. But when you only pick the top 25 names what's ended up happening at least in this era of investing I'll call it the last 15 or 20 years is that large caps have really led the way. So by only having 25, there were probably well over a hundred semiconductor companies, by filtering out the bottom ones that were in more competitive spaces, you eliminated that drag if you will. Now that's not always true for all periods of time in investing, but over this period of time, it's really leveraged into these bigger winners. In the short term though, year to date up 58%, clearly it's broadened out enormously. The memory stocks have been on a tear. Can that be sustained?

Well, I doubt the performance I mean, we've just had historic performance in the month of May. So, I doubt that's going to continue. But I don't think see, again, this is where I get to this kind of super macro view. If demand is up here and supply is here, then we're not in an irrationally priced market because the capital markets are telling entrepreneurs, come here. We need your capital right. We are valuing your capital because we need to build out AI compute centers. And that's just not surprising. I think the reason that our way of looking at the markets with this 10-year view works is because humans have this bias towards looking backwards. And when big trends happen, whether it's the rise of a country or the rise of a major technology, we just can't look backwards the last prior quarters of company earnings or a prior use of technology to really understand the scale of the buildout. Now, that's not always true. There are a lot of fake fads and technologies, right, that don't play out, but this is one that clearly is grabbing all global markets by the throat and shaking them up.

Well, what I would say within the AI ecosystem, Alfred, there are bubbles to use a word that probably don't like that much, right? So going back to the end of last year, the question was what was the financial sustainability of the OpenAI ecosystem. OpenAI as Chad it's one of the leading model companies, was Claude going to leapfrog it, and so the companies in the OpenAI ecosystem I call it, that's obviously only a very loose description, Oracle and CoreWeave that had leveraged into building compute for them were both down 50%. So even within the sort of broader trend you will find pockets. That was a company specific pocket. To your question, I do think that the memory specific pocket is a moment in time. You know, one hates to call a top when something is like this, but I personally am wary about the memory stocks because in the medium or long term they don't have quite the competitive moat I believe that Nvidia does. And so I think entrants will come into that memory. There's no doubt there's a shortage right now and that's giving them pricing power. Most of the reason that their profits are exploding is not because they're selling a lot more, they have limitations, it's because they've increased their prices. And you know that means that other companies that use that memory are going to be looking to economize on the use of it. So I'm with you, it feels bubbleicious and so it's not something that we're reducing our exposure in the memory space for our actively managed funds.

I mean yeah it seems not only do they have the manufacturing capability but they also have the capital to build these very expensive manufacturing chip manufacturing facilities. I would guess that one of the advantages that Nvidia has and TSMC is because they are working with broad swaths of the ecosystem, basically everybody, they are seeing where the technology is going in terms of customer needs and so I think most people would say that TSMC will be there in 10 years, they'll be a survivor.

Yeah, this is going to sound very much like we're an ETF sponsor, but a diversified approach is definitely the way to go from a company perspective. Timing wise, when you're in the middle of a trend like this you'd rather buy during a pullback rather than leap in right now. And we talked several minutes ago about the flows into SMH and I think a lot of the assets of the fund are people that have bought many years ago and are just letting the appreciation work. And I think that's healthy in a way right, that there's not a lot of quick money chasing it. Now there is money chasing this, the memory stocks and they will chase the hot spots in the ecosystem to your point before. But I think overall we're still overweight semiconductors in our broad portfolio models but we're itching to take a little profits here.

Right, yeah, oh by far, I mean it's over 95% of assets even though we do have an active business and it's sort of specialized in gold mining resources and emerging markets but it's important to us. I sit with our active portfolio managers.

Uh it's a scale game for sure. You know, I think that especially in the privates area and hedge funds, active management can be a diseconomies of scale game. What I mean by that is if you just have too much money, you know, you can't run an early stage venture fund or a small cap fund, right? They have to they are what people call capacity constrained. You just can't manage too much money on it. ETFs are the opposite. They're a scale game. So the more AUM, the more you can service a broader swath of clients. And then you know we don't compete with Vanguard in the core of people's portfolios but for the specialty areas where we do compete we tried to have our fees be very competitive. The last thing I would say and that's the reason I do podcasts like this is that in the private area the active side of the business where a money manager can align with investors or clients is to co-invest. We have so many niche ETFs that we don't want to own all at the same time. So the way we try to align with our customers is by using our research and sharing our research what we like and what we don't like at any moment in time. So that's why we do these quarterly outlooks. Sometimes we're bullish about a lot of things and sometimes we're not.

Well, I think there's two ways in terms of active decision-making around ETFs. So, one is which ETFs do you own? And if you have specialized ETFs like Van Eck generally does, we have some broader ones, but do you own semiconductors or not? I mean these types of even though the tool may be passive in ETF but the decision how to weight them and how to time those investments is very active and in Van Eck's view almost like the most important decision because the way you know we look at the world is asset allocation selection is really really important to investors and you know our history we started the first gold fund in the United States and you know we think gold is a very powerful diversifier in your portfolio at various points in time. I'm not as always gung-ho as my father was, but so that's an active decision. Then the second piece is does it make sense to have an actively managed ETF? And I think that's bigger in the United States now than it is in Europe. But we do have selected actively managed ETFs. One I'll give you two examples of flavors. One is a stock picking or investment picking that targets I'll call it the crypto industry or digital assets. We launched an Ethereum ETF and I started talking to clients. I realized no one had any idea what Ethereum was and why it would perform or what the risks were. And you know our job as a money manager is to try to describe opportunities but also risks. So I said okay let's pivot and offer an actively managed fund in that area so that you don't have to follow the vagaries of Ethereum or a particular bitcoin miner or another payments fintech like Revolut. Let us follow the industry and shift things around actively. So that's like an active stock selection ETF and then we actually have an active actively managed asset allocation ETF for your real assets or commodities exposure in your portfolio. So if you don't want to choose between gold and oil or between oil and oil stocks, then we have that type of actively managed ETF. And what are the tickers for each of those two? Uh NODE is the stock picking digital assets ETF. And my colleague Matt Seagull is very active on Twitter if you want to spend some time reading his daily comments on stocks in his universe. And then RAX is the real assets allocation ETF. And to state the obvious to listeners, obviously Jan has an interest in those ETFs and nothing on this podcast constitute direct financial advice.

Wow. You know we probably don't have time to talk about all the market structure impacts but I would say let me tell you two areas that I'm particularly worried about and it's more in the fixed income area number one just illiquidity of fixed income right. If we have a bond ETF only five or 10% of those bonds in that portfolio will trade on any given day so that means that there has to be people behind the scenes brokers making markets in those bonds and during market crises, people tend to reduce their risk and therefore those bond ETFs can trade less efficiently. Some might say more accurately. I would probably say more accurately, but still they will trade at wider spreads meaning more expensive to buy and sell and they'll probably fall in price. The second thing it has nothing to do with the ETF industry but my biggest concern about financial markets as I as I mentioned before is the spending by some of the governments in the developed markets but sticking with the ETFs I'd worry the most about fixed income.

Well, Wilfred, like you'd guess from my 10-year macro philosophy, I love charts that are multi-decade charts. I tell I always say like if anything less than 10 years is a chart crime. If you have the data obviously, but if not, try to find an analogy that has a longer history. And 30-year bonds for Britain and Japan were hitting multi-decade highs last year and that march has continued this year, I think, for slightly different reasons in each country. You have a little bit of political turmoil maybe at the top or less certainty maybe than we have. So yeah, I think that that's, and government bond markets are some of the weirdest, most inefficient markets in the world. From my perspective because they tend to lock into a certain mindset and really become disconnected from reality. If you remember before the European financial crisis or whatever that was, where Spanish and Greek bonds had lower interest rates than German bonds. I mean that just never made any sense and then suddenly boom they became repriced dramatically. So, I guess I would say what's interesting to me and telling is that bond investors are requiring higher long-term yields for the UK and for Japan. I'm very nervous about the US, but timing is everything in life. And so I do watch the 10-year Wilfred and I'm the most I tend to worry the most about it, but I also know that we're in this era where other people aren't worried about it. And so we didn't break out really to longer term multi-decade highs and the US 10-year is still in a trading range but it's something I really watch very closely. Just to contextualize that, the US budget deficit sort of peaked at 6.5% two years ago and because of Trump's tariff revenue had been declining and I'd predicted sort of a lower 5% budget deficit this year, which is still very high. It should be no more than 3%. But it was headed the right way. If the US is spending half a trillion dollars on this Iran war, that would suddenly catapult us to again 6.5 or 6.9% budget deficit. And I just can't see markets not worrying about that. I mean it's really interesting because I think in the last two weeks we've also seen the very strong correlation, even if it was the UK that was the trigger the last two weeks or Japan everyone kind of moved in sympathy because of these bad debt dynamics which I do think is interesting even if the US isn't in quite as perilous a position as the UK or Japan, it is likely to move in sympathy if we do see the 10-year or 30-year keep rising in yield.

100%. I don't think and I haven't actually and I look forward to talking with my clients and others about what would happen if there really was a loss of confidence in the US government's ability to meet its obligations. And I don't think there would be anywhere to hide. You know, Wilfred, I say that, well, gold is a good medium or long-term hedge, but I think if everyone were running away from the financial markets, probably gold would sell off as well. So I don't see how semis would be immune from that. To a certain extent, you could say, well, the tech sector isn't that debt dependent, and so there shouldn't be the direct link. But I think when everyone's running for the exits, I don't think anyone would be able to run any other direction. Let's talk about the opportunities then if we do head to a more inflationary decade, which I guess is a big part of why we've seen yields move higher. Gold, do you think would see some selling in the short term, but is attractive in the medium to long term? And tell me a little bit about the GDX ETF, the gold miners ETF, which you guys run and has been hugely successful. At the current level of price, even if gold doesn't move, are those miners all making good profits?

Oh, yeah. They're gushing cash. They finally have escaped purgatory for the last 15 years. First of all, gold wasn't high. August institutions like the Bank of England sold gold at about $250 an ounce by the way in the late 1990s. Thanks Gordon Brown. Yeah, there was just this era that gold was not an important part of people's portfolios anyway. So that started to get reestablished but also the companies themselves had too much debt and couldn't control their costs of production and investors got increasingly disappointed with those companies year after year and the valuations if you want to call them PE ratios kept falling and falling. I think the bottom was kind of 2016 or so. Actually gold shares went down 90% from 2011 to 2016. So in 2011 people thought oh post financial crisis government's throwing money at the markets of course gold has to benefit and then of course it didn't. So anyway these gold mining companies faced a lot of headwinds and their prices really cratered. But they've really rebuilt their balance sheets. They're borrowing less money. They paid a lot of that back and they're gushing cash right now. To me, gold is a very long-term trend because I just think that given what we were talking about several minutes ago, even if you're not as worried about US government spending as I am, you probably will marginally put less money in US treasuries. And so gold is just to me reemerging as the number one global currency because if it's not the US, I don't think it's going to be China. I don't think it's going to be India. They don't even to a certain extent they have capital controls themselves. They don't want to be an international reserve currency, right? So I think that and they culturally being buying a lot of gold. So that's why I think gold reemerges as the number one currency. It's a multi-year process. I could see it trading sideways here for a while because it had such a run last year.

They've been around forever, Wilfred. When we started getting into the ETF business, we drew on our strengths in global resources and gold and emerging markets. So that was the first kind of ETFs and back then there weren't as many ETFs as there are now. So like these would have been the first to market. And we said well people like to trade oil services or people will want to trade nuclear. Nuclear took a long time. I think it was found it was a year in the second or third year we were into ETFs so something like 2007-2008 but it was so unpopular that I think even five years ago there were less than $20 million in the ETF.

Because the policy shift was so dramatic. I've hardly ever seen anything like it. And it wasn't really discussed by politicians, but in the US under Biden, basically the Biden administration got behind nuclear and also some important Democratic governors. So it then became bipartisan in the US and then internationally even Japan and all these countries that had walked away from nuclear many countries have active besides China obviously have active nuclear programs. So yeah, that's what's led to the inflows and that has mainly been inflows at Wilfred over the last couple of years.

Well, I think sometimes what I say 10-year macro and my point is that sounds a little futuristic or uncertain. I actually think some trends further out you go are more you can have greater conviction. So for example, demographics, you can't fight demographics. Whatever is happening now, you pretty much know what's going to happen in 10 years, whether with respect to shrinking populations or whatnot. So India when a country does that amount of pro business reforms as India has done under Modi and continues to do it even though it doesn't make headlines in the United States at least like last year. bankruptcy law, labor law, a whole bunch of different deregulatory pro business reforms took place. There's just no country that does all these pro business reforms regardless that doesn't grow at a higher rate. Projections are that India will be the size of continental Europe in 10 years. So that's sort of projection number one. Importantly for investors is can we make money out of that because GDP growth doesn't necessarily translate into profit growth or stock market returns. It just so happens that India also several decades ago pivoted to a more pro-equity culture when emphasis and some of their early tech companies went public and there was a lot of wealth created and there seems to just be a social consensus that it's okay to be rich even very rich in India. So I combine those two things and that's my pounding the table long-term macro view.

Yeah. So if I asked you who had the largest number of equity research analysts in the financial services sector, you probably would not come up with the name Morningstar. But that is in fact the case. I think they're not necessarily good at marketing that fact, but they built that out and their equity research approach is what you're talking about, which is the premise is that markets are very competitive. It's very hard for one company to have above normal profits over a longer period of time unless they're lucky enough to have some kind of competitive moat and that could include technology or economies of scale or whatever. But their approach is to reduce the universe of all companies to those that they think have a competitive moat which is a very small percent of the universe. I would guess 5%ish. And then they use a valuation formula because they project forward earnings and they say well we'll put in this ETF the stocks that are the cheapest amongst those with the competitive moat. And it's grown to 11 billion in AUM. Is that as steady as she goes type growth? It's, is it rushed to that recently? No, I would say it's really not fair to compare it to the S&P, but of course investors did that and for many years for several years it outperformed the S&P not just that year but cumulatively over its whole life. So that's where most of the growth in AUM happened. It's lagged. I mean that was really heroic to have done that in 2023 for example which was after the tech selloff in 22 was a recovery year. So there were really some good years for that approach. It's lagged a little bit because it's missed some of the explosions in semis believe it or not. So that's sort of lost a little bit of its assets in the last couple of years.

Yeah. So we filed for we were the first ETF sponsor to file for a Bitcoin ETF in 2017. And the reason for that was very simple. We saw it as I saw it as a competitor to gold. Some of our clients of course but Bitcoin was going up much faster than it has recently. And so we said just like this platinum and silver to gold, Bitcoin would be an alternative. It might not replace gold, but it'd be an accompaniment. So sort of fast forward to where we are today. I think Wall Street in the last year or so has basically taken the best of crypto sort of the blockchain decentralized visibility aspect of blockchains and some of the other 24/7 capabilities and some of the programmability of money aspects. This is a little bit too wonky maybe, but we love wonky. In 2026, I call it the year of corporate change where companies like Bank of New York or JP Morgan or Cumberland Trading in Chicago, big trading firm, they're trying to create what I would call corporate chains. So get the best of whatever's out there, but I still want to control the ecosystem. I still want it to be the Wilfred chain, because I want to keep my customers in my network. So that's kind of where we're at. Those companies almost all financial companies in the US now are using stable coins or one aspect of crypto and trying to capture an ecosystem. I don't think that's going to work for a lot of them. But anyway, that's how the technology adoption is evolving in my view in 2026 and the year of corporate chains. And the winners are relatively few. So for the rest of crypto tokens, I just don't think we're in what we call a crypto winter and I don't think it's coming back. Like I just don't think a lot of those projects and softwares will be at all interesting or alive in five or 10 years from now. So the concept of blockchain and stable coins are definitely there and Bitcoin is there, but a lot of other parts of the ecosystem are just to me going away. So Bitcoin itself or Ethereum, the two biggest. And by the way, I love the ticker for your Bitcoin ETF is HODL, which made me laugh. I didn't know that was the ticker. Are they still early innings or are they now halfway through their life cycle, late cycle? You know, I who knows. My view is that Bitcoin would achieve sort of half the market value of gold. Because gold has gone up and the price target of Bitcoin is still multiples of where it is now. I would just remind a lot of US investors seem to have forgotten that Bitcoin hit all-time highs last year and that this is the fourth year of the happening and so every four years Bitcoin goes down a lot and it's down this year is not surprising. In fact, we basically predicted it.

I think it's marginal. So you know, as you know we design a tie theme every year and what I on our tie this year besides celebrating the Declaration signing the Declaration of Independence we talked about the three most important things in US financial history: Alexander Hamilton, FDR who saved the banks, and the stable coin bill of last year because it enabled for the first time in US history the ability of a technology company to compete against the banking system because otherwise all our financial lives are always you don't have a life until you have a bank account and then everything flows through your bank account. Well, now these tech giants can compete against the banks. But the banks have faced competition before. The money market fund at the end of the 1970s offered much higher interest rates than the banks were able to offer, and so the banks lost a lot of money to money market mutual funds, but they certainly survived. There was a stickiness to their customer base I just don't think will go away.

Um, you know, I'm not religious about this. It's such a big company, SpaceX, that we're glad as ETF sponsors to have it in the public markets. I think all the steps that they're doing actually make a lot of sense. And you know, it's a very small amount that is initially going to list, 3 to 4%. A lot usually if a company has that small amount of shares being traded it won't be eligible for inclusion right so they really have to drip this out over time and as you said the amount of money here is absolutely staggering right it's just staggering. You're talking about cumulatively hundreds of billions of dollars. How much did we raise in tariff revenue last year? 300 billion. So it's sort of like the waves of liquidity that are going to be sloshing through the economy I think will be positive short term for economic growth and I think they will be absorbed. One of the arguments about why aren't more companies going public is the fact that active money managers like we can in our active funds can buy IPOs. ETFs can't buy IPOs. I don't really buy that argument, but that's a legit argument that we have fewer IPOs because they can't be included in these indices. I think it's good to re-examine all assumptions and we have when you have a large cap well seasoned company like this, this isn't some startup with no revenue that's trading at a trillion dollars, Wilfred, this is a very well-established company that's entering these indices.

Ask the big questions, right? Take the macro big picture view. I think what Van Eck has done since we started, my dad started the firm in 1955, is really just bring the perspective of Dutch and English investors that they developed 4-500 years ago which is look at political risk, look at countries, are they pro business, are they likely to reward equity and financial market participation, and have a discussion about asset classes. China's rising, right? How big should your allocation be? India is rising today. How big is your allocation to India? Should you just take prior historical weights or should you say maybe I want to own more of that? Hopefully people are in the AI trade. What about gold? Are you involved in gold? Should you be involved? What's your longer term perspective? Take the big picture view. We always say we're not the source of knowledge. It's great to have discussions like this and to talk with other people in the market to test your hypotheses around that.

Thanks, Wilfred.