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Nvidia’s Margin Dilemma & The $4Trillion IPO Mania · The Financial Exchange Show

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  Speaker 1: Zada and Mike Armstraw.
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  Speaker 2: Good day to everyone. It's Chuck, it's Mike, it's Tucker
• 1:19
  Speaker 2: with you. And feels like a Friday. You know, I
• 1:25
  Speaker 2: thought Monday this week felt like Friday, to be honest. Yeah,
• 1:28
  Speaker 2: Well I got home on Monday and I was like, man,
• 1:32
  Speaker 2: what a week.
• 1:34
  Speaker 3: But here we are.
• 1:35
  Speaker 2: It's it's Thursday, and we got some economic data, we
• 1:38
  Speaker 2: got in video earnings, We've got some IPOs to talk about.
• 1:42
  Speaker 2: I mean, honestly, kind of a fun little day for
• 1:46
  Speaker 2: Look on Monday, I teas that this was gonna be
• 1:48
  Speaker 2: kind of a crappy week where they're like, there's not
• 1:50
  Speaker 2: much interest. I'm kind of interested in today's stories actually,
• 1:54
  Speaker 2: and maybe that's just Tucker doing a great job curating
• 1:57
  Speaker 2: the stack usually as probably is. But in any case,
• 2:02
  Speaker 2: we've got some stuff to talk about.
• 2:05
  Speaker 4: It is pretty fun in a big part because it's
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  Speaker 4: kind of ipo mania right now.
• 2:13
  Speaker 3: Well it's not just like weird little IPOs.
• 2:15
  Speaker 2: It's not like, well, here's this little biotech company out
• 2:20
  Speaker 2: of Fiji that's hoping to discover if they can turn
• 2:24
  Speaker 2: snakes into people.
• 2:26
  Speaker 4: You know, it's not a bunch of people pushing SPACs
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  Speaker 4: on companies that barely have existed.
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  Speaker 2: It's it's big names. It guys, it's freaking Elon Musk,
• 2:38
  Speaker 2: and then it's been in a million people to Mars,
• 2:41
  Speaker 2: and then it's artificial intelligence. Like if if you can't
• 2:45
  Speaker 2: get hyped up about that, then you are not hypable.
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  Speaker 3: That is what I have to say about that.
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  Speaker 2: But let's kick things off talking about a company that
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  Speaker 2: needs no introduction in that is in video. They reported
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  Speaker 2: earnings after the bell yesterday, and as they have for
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  Speaker 2: the last three years, their earnings are absolutely fantastic. They
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  Speaker 2: beat their estimates both on top and bottom line. Their
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  Speaker 2: margins were basically in line, maybe a touch light. They
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  Speaker 2: came in at gross margins of seventy five percent instead
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  Speaker 2: of seventy five to one. They guided for Q two
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  Speaker 2: that they are gonna do ninety one billion in sales,
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  Speaker 2: that is, topping the average estimate of eighty seven billion.
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  Speaker 2: Some analysts had them doing ninety six billion in Q two,
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  Speaker 2: and so on the back of this, the best thing
• 3:33
  Speaker 2: that you can say about in Vidia stock is that, hey,
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  Speaker 2: it's up a quarter percent, which means great. They did
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  Speaker 2: what they needed to and they're sitting here as a
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  Speaker 2: five point five trillion dollar company because by the end
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  Speaker 2: of this year, their calendar year twenty twenty six earnings
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  Speaker 2: are going to be somewhere in the ballpark of like
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  Speaker 2: three hundred and sixty to three hundred and seventy five
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  Speaker 2: billion dollar. Here's the reality is, sorry, their calendar y revenue,
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  Speaker 2: it is now tremendously difficult for Nvidio to surprise anybody.
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  Speaker 2: You know, their sales eighty five percent.
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  Speaker 4: But look, this is a five nearly and a half
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  Speaker 4: trillion dollar company who supplies every major AI company out
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  Speaker 4: there with semiconductors, and so you just they can't surprise anybody.
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  Speaker 2: No, and everyone's paying attention to AI right now. Whereas
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  Speaker 2: the times when they were really surprising people in twenty
• 4:34
  Speaker 2: three and twenty four were when we were still you know,
• 4:37
  Speaker 2: having chat GPT rite haikus in the you know form
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  Speaker 2: of you know, Chuck Norris speeches and stuff like that.
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  Speaker 2: Today people are actually using AI to do interesting and
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  Speaker 2: meaningful and cool, useful things.
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  Speaker 3: Yeah, So what did they say that was of interest?
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  Speaker 4: That's out there that they continue to focus on their
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  Speaker 4: lack of ability to do anything in China and say
• 5:02
  Speaker 4: that they've pretty much given up ground to Huawei when
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  Speaker 4: it comes to chip sales.
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  Speaker 3: There they.
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  Speaker 4: They managed to turn this as an opportunity rather than
• 5:14
  Speaker 4: a threat. But they spoke about broadening their customer base
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  Speaker 4: beyond the major players out there. Why do they need
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  Speaker 4: to talk about doing that, well, because guess what, Google
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  Speaker 4: and sorry Alphabet and Amazon are already developing semiconductors compete
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  Speaker 4: with Nvidia and pretty much everybody else out there wants to.
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  Speaker 4: So they're talking about, hey, we need to broaden our
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  Speaker 4: customer base. So all interesting stuff, but ultimately, I keep
• 5:38
  Speaker 4: coming back to this is gonna be the you know,
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  Speaker 4: the last company that surprises us when it comes to
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  Speaker 4: the AI trades and video, because we know what all
• 5:46
  Speaker 4: of their customers are.
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  Speaker 2: Doing, right once, Microsoft and Google and everyone not not
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  Speaker 2: Google so much. Google's using a lot of their own chips.
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  Speaker 2: Even Microsoft is designing, you know, their own chips now.
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  Speaker 2: They had an announcement this morning. I think about a
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  Speaker 2: deal with Anthropic On that side, I think the only
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  Speaker 2: question about in Vidia is a market share one. Right now,
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  Speaker 2: you know, does some of this additional competition eat into
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  Speaker 2: their market share? And the data so far is not
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  Speaker 2: really And if it is, who cares? Because they're still
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  Speaker 2: able to make plenty of money. Yeah, that's it. Now
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  Speaker 2: Is that going to last forever?
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  Speaker 3: No? Right, because I mean, let's think about this for
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  Speaker 3: a moment.
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  Speaker 4: They just spoke about how they are broadening their customer
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  Speaker 4: base because they face competition from Amazon, Alphabet eventually Microsoft
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  Speaker 4: and other time days. Does this not read exactly like
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  Speaker 4: what we're used to when it comes to hardware, which
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  Speaker 4: is a very high pert What did you just say?
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  Speaker 2: Their profit margins were in the most seventy five percent
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  Speaker 2: gross and uh, let's see, we've got operating margins at
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  Speaker 2: sixty percent.
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  Speaker 4: So like that, you're a hardware business that's running operating
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  Speaker 4: margins of sixty to seventy five percent on what is granted.
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  Speaker 3: Earth shattering technology.
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  Speaker 4: So like, yes, granted, but you're telling me that you're
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  Speaker 4: going to maintain that over the course of the next
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  Speaker 4: five years.
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  Speaker 3: I don't think.
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  Speaker 2: So here's what Innvidia is trying to do. Here's the
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  Speaker 2: case against commoditization in their business. And Jensen's talked a
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  Speaker 2: lot about this.
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  Speaker 3: In terms of.
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  Speaker 2: When you look and again, I know, I know one
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  Speaker 2: percent as much as I need to in order to
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  Speaker 2: actually explain this fully, but I'm gonna give it a go.
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  Speaker 2: When companies are designing their models, now, it's not just
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  Speaker 2: about raw computing power. It's about the specific architecture for
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  Speaker 2: the chips that allow things to flow in the way
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  Speaker 2: that they are built and racked and put together in everything.
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  Speaker 2: And one of the things that Jensen's talked about is, hey,
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  Speaker 2: if you build a model and it's optimized to run
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  Speaker 2: on in VIDIA hardware, if you were to go and
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  Speaker 2: grab trains from those Amazon Yes or TPU chips from Google,
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  Speaker 2: it wouldn't run as efficiently. Because you've optimized for a
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  Speaker 2: certain hardware, you can still run.
• 8:13
  Speaker 3: It on them.
• 8:14
  Speaker 2: It's not you know, but it's basically okay, like we've
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  Speaker 2: built things this way because this is how it needs
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  Speaker 2: to be run the way that i'll you know, connect.
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  Speaker 3: It sounds like IBM to me. It is.
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  Speaker 2: Look, the x eighty six architecture that is still used
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  Speaker 2: today is something where okay, when you're talking about like
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  Speaker 2: IBM compatible PCs, it's the idea of okay, like this
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  Speaker 2: is how we did it. Now again, it didn't end up,
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  Speaker 2: you know, creating dominant market share for IBM because they
• 8:42
  Speaker 2: licensed the technology so it could be used you know elsewhere.
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  Speaker 3: But it is.
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  Speaker 2: Something where in Vidia saying yeah, if if you want,
• 8:49
  Speaker 2: if you're used to like constructing models for our architecture,
• 8:54
  Speaker 2: switching over, you can't just switch, and so we can
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  Speaker 2: maintain some pricing power through doing so.
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  Speaker 3: Do I fully buy that?
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  Speaker 2: I buy some of it at least, But again, I'm
• 9:05
  Speaker 2: not qualified enough to be able to tell you if
• 9:07
  Speaker 2: you know it's one hundred percent certain or not. What
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  Speaker 2: I can tell you is that model commoditization is absolutely
• 9:17
  Speaker 2: going to be happening, and that means that a lot
• 9:20
  Speaker 2: of these companies are going to need to figure out, hey,
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  Speaker 2: how can we get our cost down in order to
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  Speaker 2: be profitable because we can't keep spending what we're spending
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  Speaker 2: on this stuff. It doesn't make sense.
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  Speaker 4: Now, what do you mean the businesses that are using
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  Speaker 4: the models, not the model?
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  Speaker 3: Well, I guess the.
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  Speaker 2: Model creators, because eventually, if all the models are basically
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  Speaker 2: doing the same thing and there are no switching costs
• 9:43
  Speaker 2: between models, then you're looking at and you're going, Okay,
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  Speaker 2: that's going to drive model costs down. And if it
• 9:49
  Speaker 2: does that, then the cost of all the hardware inputs
• 9:53
  Speaker 2: has to be driven down as well in order for
• 9:54
  Speaker 2: these companies to be profitable, so.
• 9:56
  Speaker 3: We can we have a few minutes to tackle this.
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  Speaker 2: We've got two hours after is models? Are the models
• 10:04
  Speaker 2: more likely to go the direction of search?
• 10:08
  Speaker 4: Where I mean, realistically, while I use Google for everything,
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  Speaker 4: it is not so much better than being that if
• 10:14
  Speaker 4: I were forced to switch, it would be detrimental. It's
• 10:17
  Speaker 4: just that Google managed to dominate the market share. Or
• 10:21
  Speaker 4: is it the likes of social media that the next
• 10:24
  Speaker 4: best and greatest thing is going to constantly leap fraud
• 10:27
  Speaker 4: the other one and it's going to be fairly easy
• 10:29
  Speaker 4: for the kids to switch?
• 10:31
  Speaker 3: Or is it something? Are those not the right comparisons?
• 10:33
  Speaker 3: I guess what if?
• 10:38
  Speaker 1: Here?
• 10:38
  Speaker 2: Here's another one is the possibility because like I don't
• 10:40
  Speaker 2: know all the everyone's going to be trying to figure
• 10:43
  Speaker 2: out what can keep people in our ecosystem because as
• 10:45
  Speaker 2: commoditization happens, that's what companies do. They say, what can
• 10:49
  Speaker 2: we use to differentiate ourselves? But the other one that
• 10:52
  Speaker 2: I'll put out there's a possibility is look what if
• 10:54
  Speaker 2: this is what if the models end up being like.
• 10:56
  Speaker 3: A web browser? Like you don't really pay for the
• 10:59
  Speaker 3: web browser right.
• 10:59
  Speaker 2: Now, you don't really care, but like everyone has one
• 11:02
  Speaker 2: that they're just kind of familiar with, but ultimately like
• 11:05
  Speaker 2: it's it's not a thing. It's just kind of the
• 11:08
  Speaker 2: chassis for the whole thing. It's not with the actual stuff.
• 11:11
  Speaker 2: So I don't know. I just I really struggle with
• 11:16
  Speaker 2: it because what you are seeing is again everyone's releasing new.
• 11:19
  Speaker 3: Models like weekly or bi weekly.
• 11:21
  Speaker 2: Now that's a sign of commoditization, right, And they're all
• 11:25
  Speaker 2: like benchmarking pretty similarly like that. It's not that much
• 11:29
  Speaker 2: differentiation there. So I don't know exactly how to reconcile
• 11:34
  Speaker 2: it all. But what I will tell you is this
• 11:39
  Speaker 2: artificial intelligence is not going to be the one business
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  Speaker 2: that never sees its margins go down as more companies enter.
• 11:48
  Speaker 3: I will say that, Yeah, let's take a quick break.
• 11:52
  Speaker 2: When we come back, we're talking about some upcoming IPO, SpaceX, Anthropic,
• 11:58
  Speaker 2: open AI.
• 11:59
  Speaker 3: Get cited next.
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• 13:06
  Speaker 3: All right.
• 13:07
  Speaker 2: So we are heading towards, uh, basically the the biggest
• 13:13
  Speaker 2: IPO boom in history. When we talk about the scale
• 13:17
  Speaker 2: of the individual companies that are going to be ipoing
• 13:21
  Speaker 2: this year, I.
• 13:22
  Speaker 4: Think we should maybe put together a a sound, a
• 13:26
  Speaker 4: custom sound intro for IPO Mania twenty twenty six.
• 13:30
  Speaker 3: Tucker, something exciting, Okay, we'll look into it.
• 13:34
  Speaker 4: I know you built that cool background noise for Wall
• 13:36
  Speaker 4: Street watch and I'm thinking an IPO Mania twenty twenty
• 13:39
  Speaker 4: six bumper.
• 13:39
  Speaker 3: Can you I bet you could do this using AI.
• 13:42
  Speaker 2: Now, can you just get like a big crowd like
• 13:44
  Speaker 2: chanting like IPO like something like that, and.
• 13:48
  Speaker 3: He's gonna make it cooler. Let's let him do it.
• 13:51
  Speaker 4: Generally speaking, whenever I haven't I got nothing for something audio,
• 13:55
  Speaker 4: I think that it's gonna be cool, and then Tucker
• 13:57
  Speaker 4: comes up with something way cooler, like when paul A
• 13:59
  Speaker 4: Monica diss heard on us for six months and then
• 14:01
  Speaker 4: came back, way cooler than anything I thought of.
• 14:04
  Speaker 3: What would happen? Then return of return? Yeah that was good. Yeah,
• 14:11
  Speaker 3: I did enjoy that. So let's talk a little bit.
• 14:14
  Speaker 2: We've got three big i pos that are coming down
• 14:17
  Speaker 2: the pipe right here. We'll go in order of their
• 14:20
  Speaker 2: anticipated I p onis meaning the date yes, timeline, Yes.
• 14:27
  Speaker 2: First up is SpaceX who the the s one for
• 14:30
  Speaker 2: SpaceX uh just became public yesterday. And one the filing Yeah. Sorry,
• 14:39
  Speaker 2: it's the filing that they need to make with the
• 14:42
  Speaker 2: SEC in order to basically say, here the financials for
• 14:45
  Speaker 2: the company, here are the risks present, and give investors
• 14:49
  Speaker 2: the ability to make informed decisions about.
• 14:53
  Speaker 3: What to do.
• 14:54
  Speaker 2: Uh So, I think it's instructive to walk through the
• 14:58
  Speaker 2: numbers first and then some of the commentary inside that
• 15:03
  Speaker 2: s one.
• 15:03
  Speaker 3: This is gonna take us a little bit of time
• 15:05
  Speaker 3: to go through. Here.
• 15:07
  Speaker 2: Here's what we know revenue for SpaceX. And this is
• 15:10
  Speaker 2: a calendar year data, or maybe it's fiscal whatever it is.
• 15:15
  Speaker 2: Either way, it's full year data twenty twenty four, about
• 15:19
  Speaker 2: fourteen billion in revenue, twenty twenty five, about eighteen point six.
• 15:24
  Speaker 3: Billion in revenue.
• 15:25
  Speaker 2: If one were to do some math on this, what
• 15:29
  Speaker 2: you would find is that you are seeing about a
• 15:34
  Speaker 2: thirty three percent growth rate in revenue for SpaceX. Okay,
• 15:40
  Speaker 2: Their actual space revenue declined.
• 15:44
  Speaker 3: Slightly year over year.
• 15:46
  Speaker 2: Okay, it's not like great if your company called SpaceX
• 15:49
  Speaker 2: and your space related revenue is not going up like okay,
• 15:52
  Speaker 2: is what it is? Expenses increase from thirteen billion in
• 15:57
  Speaker 2: twenty twenty four to twenty one billion last year. On
• 16:01
  Speaker 2: top of that, you had some interest expense from outstanding
• 16:04
  Speaker 2: debt and stuff like that. Long story short, last year
• 16:07
  Speaker 2: company lost about five billion dollars.
• 16:10
  Speaker 3: Okay. The targeting a two.
• 16:13
  Speaker 2: Trillion dollar valuation, which is one hundred and seven times sales.
• 16:20
  Speaker 4: So just can you repeat that revenue number for me?
• 16:23
  Speaker 4: Eighteen point six billion. Okay, So just to give you
• 16:26
  Speaker 4: a sense for some big boys out there in terms
• 16:29
  Speaker 4: of I just was looking at the biggest companies by revenue,
• 16:32
  Speaker 4: so not market capitalization, but how much revenue do you
• 16:35
  Speaker 4: bring in? Walmart's bringing in like six hundred and eighty
• 16:39
  Speaker 4: billion in revenue, Amazon close to that, United Healthcare four
• 16:45
  Speaker 4: hundred billion, Apple nearly four hundred billion dollars in revenue.
• 16:49
  Speaker 4: Tesla's sorry, SpaceX is gonna be bigger than a lot
• 16:52
  Speaker 4: of these guys on eighteen billion in revenue and a giant.
• 16:57
  Speaker 2: Loss, yes, yeah, and a widening loss also. Okay, So
• 17:04
  Speaker 2: it's it's one where again they're gonna if they get
• 17:07
  Speaker 2: a two trillion dollar valuation, you're talking one hundred and
• 17:10
  Speaker 2: seven times revenue. Now, it's one thing if your revenue
• 17:13
  Speaker 2: is doubling each year. It's another if your revenue is
• 17:16
  Speaker 2: going up thirty percent. And you kind of look at
• 17:19
  Speaker 2: and you're like, okay, so what does this mean. Let's
• 17:24
  Speaker 2: say their revenue growth stays similar. Okay, if you look
• 17:29
  Speaker 2: at this five years out, they've got seventy seven billion
• 17:33
  Speaker 2: dollars in revenue then, Okay, five more years, three hundred
• 17:37
  Speaker 2: and twenty two.
• 17:38
  Speaker 3: Billion in revenue. Okay. So even if you're approaching an
• 17:41
  Speaker 3: Exxon Mobile by that.
• 17:42
  Speaker 2: Ten years from now, if they go, if they grow
• 17:44
  Speaker 2: at this rate, they are still going to be seven
• 17:48
  Speaker 2: times sales at two trillion yep.
• 17:51
  Speaker 4: Now, Elon Musk would tell you that space is the
• 17:53
  Speaker 4: final frontier, Chuck, and the the revenue opportunities are limitless
• 17:58
  Speaker 4: from things like mining in space and colonizing Mars.
• 18:01
  Speaker 3: So obviously you're run.
• 18:03
  Speaker 2: There, but I understand in fact, So here's the thing.
• 18:07
  Speaker 2: In a lot of these s ones you generally see
• 18:10
  Speaker 2: like pretty conservative language because.
• 18:16
  Speaker 4: Because you don't want to mislead investors into getting sued
• 18:18
  Speaker 4: right after your IPI.
• 18:19
  Speaker 2: Quite honestly, like the SEC doesn't generally allow a whole
• 18:22
  Speaker 2: lot of fluff in in these things, like they they generally,
• 18:28
  Speaker 2: you know, want you to be kind of controlled on
• 18:32
  Speaker 2: this for future markets. They talk about space tourism in orbit,
• 18:38
  Speaker 2: manufacturing passenger and cargo transport to the Moon and Mars Mars,
• 18:42
  Speaker 2: energy production on the Moon, and Mars asteroid mining. Guys
• 18:49
  Speaker 2: like I gotta be honest if you're investing in SpaceX
• 18:51
  Speaker 2: because they're gonna mine asteroids, you can wait until they
• 18:55
  Speaker 2: start mining the asteroids a bit earlier. So again, none
• 18:59
  Speaker 2: of this is to say how the company will or
• 19:00
  Speaker 2: will not perform if they get a two trillion dollar
• 19:03
  Speaker 2: market cap. I could see a world in which it
• 19:05
  Speaker 2: becomes an eight to ten trillion dollar market cap ten
• 19:08
  Speaker 2: years from now. Like none of this is like crazy
• 19:10
  Speaker 2: to think of because markets are not necessarily rational in
• 19:13
  Speaker 2: this and that.
• 19:15
  Speaker 3: But what I am.
• 19:16
  Speaker 2: Saying is the actual financials of the company have some
• 19:21
  Speaker 2: you know, question marks as far as, hey, do they
• 19:24
  Speaker 2: support that valuation if Elon Musk were to no longer.
• 19:28
  Speaker 3: Be the CEO?
• 19:30
  Speaker 2: And I don't think that you can answer those questions conclusively.
• 19:33
  Speaker 3: Let's take a quick break.
• 19:35
  Speaker 2: When we come back, we got Wall Street Watch and
• 19:38
  Speaker 2: more IPOs.
• 19:40
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:43
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:47
  Speaker 1: on the Financial Exchange Radio Network till now for Wall
• 19:53
  Speaker 1: Street Watch, trecking the stocks, the DATO and the headlines
• 19:56
  Speaker 1: driving markets so far today right here on the Financial
• 19:59
  Speaker 1: Exchange Radio.
• 20:00
  Speaker 5: The video earnings are here and markets are mixed with
• 20:03
  Speaker 5: the modest selloff in tech. Right now, the Dow is
• 20:07
  Speaker 5: down only four points completely flat, SMP five hundred down
• 20:11
  Speaker 5: over four tenths of a percent, NASDAC down seven tenths
• 20:14
  Speaker 5: of a percent or one hundred and eighty eight points.
• 20:16
  Speaker 5: RUSS two thousand is up nearly two tenths of one percent.
• 20:20
  Speaker 5: Ten year Treasure reeled up three basis points at four
• 20:23
  Speaker 5: point six zero percent, and Oil up nearly three percent higher,
• 20:27
  Speaker 5: trading right around one hundred and one dollars a barrel.
• 20:30
  Speaker 5: Nvidia posted record sales and income in the first quarter,
• 20:33
  Speaker 5: driven by demand for data center computing in the rise
• 20:36
  Speaker 5: of AI agents.
• 20:38
  Speaker 3: The chip giant.
• 20:39
  Speaker 5: Also announced an eighty billion dollars share buyback plan and
• 20:42
  Speaker 5: increase its quarterly cash dividend from one penny to twenty
• 20:45
  Speaker 5: five cents a share. The stock down by two percent
• 20:49
  Speaker 5: so far. Meanwhile, several quantum computing stock seeing gains after
• 20:52
  Speaker 5: The Wall Street Journal reported the Trump administration is awarding
• 20:55
  Speaker 5: two billion dollars in grants to nine quantum computing companies
• 20:59
  Speaker 5: and deals that include US government equity stakes. IBM is
• 21:03
  Speaker 5: the biggest beneficiary of the package, with the Commerce Department
• 21:06
  Speaker 5: agreed to give the company one billion dollars. IBM stock
• 21:10
  Speaker 5: is up by seven percent.
• 21:12
  Speaker 3: Elsewhere.
• 21:12
  Speaker 5: Walmart said sales grew in the first quarter as shoppers
• 21:15
  Speaker 5: looked for value and bought more online. However, the retail
• 21:18
  Speaker 5: giant issued a worse than expected financial outlook amid surgeon
• 21:22
  Speaker 5: gas prices, Walmart down by seven percent, and Serbo tax
• 21:27
  Speaker 5: parent into It announced plans to lay off seventeen percent
• 21:30
  Speaker 5: of its workforce as it remakes itself into an AI
• 21:34
  Speaker 5: first platform. Into Its shares are plunging by nineteen percent.
• 21:39
  Speaker 5: I'm Tucker Silvan, that is Wall Street Watch.
• 21:42
  Speaker 2: So we talked about SpaceX. Open AI is next on
• 21:46
  Speaker 2: the list because it sounds like they could be making
• 21:51
  Speaker 2: a filing for their IPO by tomorrow. They might do
• 21:54
  Speaker 2: an S one, Yes, they might, and so it'll be
• 21:58
  Speaker 2: very interesting to see what we get from them. The
• 22:02
  Speaker 2: timing then probably running maybe a month or so behind SpaceX,
• 22:05
  Speaker 2: somewhere in the Midsummer range. Kind of a quite honestly
• 22:10
  Speaker 2: a strange time of year to IPO, just because if
• 22:13
  Speaker 2: there's one thing that I know about investment bankers, they
• 22:17
  Speaker 2: generally prefer to be in the Hamptons in July and
• 22:21
  Speaker 2: not in New York City too bad.
• 22:23
  Speaker 3: But hey, here's gonna be the exception when you gotta
• 22:26
  Speaker 3: feed the ducks. You gotta feed the ducks.
• 22:30
  Speaker 2: I don't really have anything else to say about the
• 22:32
  Speaker 2: open Ai one, just because like there's like, we don't
• 22:35
  Speaker 2: have anything reported right now on it, so we'll see
• 22:38
  Speaker 2: what we get tomorrow. But it does sound like they're
• 22:41
  Speaker 2: trying to speed their timeline up as well. Finally, the
• 22:44
  Speaker 2: third one in the group, this was kind of wild,
• 22:48
  Speaker 2: so Wall Street Journal exclusive yesterday around five pm. Anthropic
• 22:53
  Speaker 2: is looks like they're heading towards.
• 22:56
  Speaker 3: A fall IPO.
• 23:00
  Speaker 2: Again, We'll see what we get from open Ai, just
• 23:02
  Speaker 2: because I'm curious to see their numbers. The growth that
• 23:06
  Speaker 2: Anthropic is going through right now is actually the most
• 23:11
  Speaker 2: insane that I've ever seen in any company. To put
• 23:16
  Speaker 2: this in perspective, they are expecting their revenue to come
• 23:22
  Speaker 2: in at around ten point nine billion dollars for Q two,
• 23:27
  Speaker 2: which is a forty four billion dollar annual run rate. Again,
• 23:34
  Speaker 2: this is just kind of nuts. If you look at
• 23:40
  Speaker 2: where they have come from. They've grown from a nine
• 23:46
  Speaker 2: billion annual run rate at the end of last year
• 23:49
  Speaker 2: so December thirty first, to forty four billion in a
• 23:54
  Speaker 2: five month span. To put this in perspective, we'll ever
• 24:00
  Speaker 2: heard of Meta Facebook. Yeah, the Zuck Do you know
• 24:05
  Speaker 2: how long it took them to go from nine billion
• 24:07
  Speaker 2: to forty four billion in revenue eight years, four four years.
• 24:13
  Speaker 2: Anthropic just did it in five months, allegedly. I mean yeah,
• 24:17
  Speaker 2: like they're not gonna lie about it before they IPO, no,
• 24:23
  Speaker 2: I mean it really.
• 24:25
  Speaker 4: The timing of it, though, is fascinating because this literally
• 24:27
  Speaker 4: came out at the exact same time that open Ai
• 24:30
  Speaker 4: hinted that they're going to file their S one and
• 24:32
  Speaker 4: so one. I wonder if open ai even files it.
• 24:36
  Speaker 4: You know, if this is the news coming out of
• 24:38
  Speaker 4: your direct main competition that you have sure if you
• 24:43
  Speaker 4: if you're not profitable, or if you don't have a
• 24:46
  Speaker 4: very clear profitable path to profitability in that S one,
• 24:49
  Speaker 4: you probably don't file the thing because you're gonna get bludgeoned.
• 24:53
  Speaker 2: The other piece with Anthropic is and again we'll have
• 24:58
  Speaker 2: to see the actual financial report because again this is
• 25:02
  Speaker 2: all being reported by the Wall Street Journal. Look again,
• 25:06
  Speaker 2: they're not going to lie. I don't think this is
• 25:09
  Speaker 2: all just some giant fraud, is what I'm telling you.
• 25:14
  Speaker 2: They're also reportedly profitable at these levels of revenue, I know,
• 25:19
  Speaker 2: which is the more impressive piece. Quite honestly, Now, it's
• 25:22
  Speaker 2: not like a crazy level of profit, but they are
• 25:25
  Speaker 2: expecting to turn about a five hundred and fifty million
• 25:27
  Speaker 2: dollar profit in the quarter, which, if you do the
• 25:30
  Speaker 2: math out, is like a five percent profit margin, which
• 25:34
  Speaker 2: is pretty impressive given that last year they said that
• 25:37
  Speaker 2: they didn't think they would be able to turn a
• 25:38
  Speaker 2: full of your profit until twenty twenty eight. Now they
• 25:42
  Speaker 2: also didn't think that they would grow this quickly. But
• 25:45
  Speaker 2: calud code and the associated products with it are again
• 25:49
  Speaker 2: like they are the fastest growing part of the AI
• 25:53
  Speaker 2: space according to just about any data out there right now.
• 25:56
  Speaker 4: Do you have any estimates for open AI and anthropic valuations?
• 26:00
  Speaker 3: Both that I've seen are somewhere in the trillion dollar range. Okay,
• 26:04
  Speaker 3: so just bear with me for a moment here.
• 26:07
  Speaker 4: What was the name of the hardware company that went
• 26:10
  Speaker 4: public a few weeks ago last week?
• 26:13
  Speaker 3: Last week? The chip company?
• 26:14
  Speaker 2: Yeah, I found out it's actually pronounced Cerebras, not Sarah Bros.
• 26:17
  Speaker 3: Okay.
• 26:17
  Speaker 2: So Cerebras goes public and immediately fetches evaluation of ninety
• 26:22
  Speaker 2: five billion okay, so nothing. We then have planned IPOs
• 26:29
  Speaker 2: from a potentially combined four trillion dollars now, not for
• 26:33
  Speaker 2: there's not four trillion dollars of equity just going out
• 26:36
  Speaker 2: into public markets.
• 26:37
  Speaker 3: That's not what's happening here. Most of it's locked up
• 26:39
  Speaker 3: the first and eighty to three hundred and sixty five days.
• 26:42
  Speaker 4: SpaceX, in fact, is releasing a you know, minutely small
• 26:46
  Speaker 4: portion of their total overall equity as part of this IPO,
• 26:50
  Speaker 4: so small in fact that you know, a bunch of
• 26:52
  Speaker 4: it breaks the addition the current rules of a bunch
• 26:55
  Speaker 4: of indices that are rapidly putting in changes to be
• 26:58
  Speaker 4: able to include a space X into their into their indices.
• 27:02
  Speaker 3: But where does this money? I mean, I.
• 27:07
  Speaker 4: Don't think that people are just sitting on a few
• 27:11
  Speaker 4: hundred billion dollars in bank accounts saying, oh, have I
• 27:16
  Speaker 4: been waiting for these IPOs or what?
• 27:19
  Speaker 3: That's that's not the sense that I get right now.
• 27:22
  Speaker 2: No, the the estimates that I have seen are that
• 27:26
  Speaker 2: from a liquidity perspective, you're talking like a couple hundred
• 27:32
  Speaker 2: billion dollars to a few hundred billion need to come
• 27:34
  Speaker 2: from somewhere. And as you know, like it's it's not
• 27:38
  Speaker 2: just gonna be people who are like, you know what
• 27:41
  Speaker 2: call a Bank of America tell them to wire ten
• 27:44
  Speaker 2: billion to you know that. No, it has to generally
• 27:48
  Speaker 2: come from other assets that are held in investment accounts.
• 27:53
  Speaker 2: And so the question that you do have on these
• 27:56
  Speaker 2: these pieces here are get away. You fought, what are
• 28:00
  Speaker 2: you doing? There's a bug all over my microphone and
• 28:03
  Speaker 2: it was bothering me.
• 28:06
  Speaker 3: I know, I know, but chuck turned into a skits.
• 28:10
  Speaker 2: So yeah, the the money has to come from other
• 28:15
  Speaker 2: risk assets, and so potentially these IPOs can act as
• 28:20
  Speaker 2: a liquidity drain on other parts of the market. Now,
• 28:24
  Speaker 2: the counter to this is everyone who can do math
• 28:29
  Speaker 2: is looking at these numbers saying the same thing. And generally,
• 28:33
  Speaker 2: once you've identified a problem in markets, usually that doesn't
• 28:39
  Speaker 2: become the main source of, you know, the issue in
• 28:43
  Speaker 2: financial markets, because everyone then works to address said problem.
• 28:50
  Speaker 3: You know, it's it's.
• 28:50
  Speaker 2: It's it's kind of like think about any crisis that
• 28:54
  Speaker 2: we go through in markets. Oh, like, you know, hey,
• 28:57
  Speaker 2: back during COVID, Hey like we're shutting this down. Great,
• 29:00
  Speaker 2: here's a bunch of money. Okay, there's the fly. See
• 29:03
  Speaker 2: it's right at your nose. It's right at your nose.
• 29:07
  Speaker 2: It's a very aggressive fly. We're gonna have to break.
• 29:09
  Speaker 5: Before you ever see those rackets with the elect I
• 29:14
  Speaker 5: got a couple of those at home.
• 29:15
  Speaker 3: I gotta get one air for the studio. My brothers
• 29:17
  Speaker 3: and how much vaulted you how much vaulted you got
• 29:19
  Speaker 3: in that thing.
• 29:20
  Speaker 1: It's a good amount.
• 29:21
  Speaker 3: We would always dare each other to lick it. What
• 29:26
  Speaker 3: but brothers do? This is my co host.
• 29:31
  Speaker 2: So again, I don't know that this actually has the
• 29:34
  Speaker 2: impact on markets that could be feared because everyone knows
• 29:38
  Speaker 2: this is coming. But at some point the actual mechanics
• 29:41
  Speaker 2: and flows may overwhelm that and be like, Okay, yeah,
• 29:44
  Speaker 2: this is going to cause something.
• 29:45
  Speaker 4: So you know what we need just purely for the
• 29:48
  Speaker 4: entertainment factor, and it's never going to happen. But an
• 29:51
  Speaker 4: open AI and anthropic I po same week. The investment
• 29:56
  Speaker 4: banks wouldn't like it, the companies wouldn't like it. But
• 29:59
  Speaker 4: I can imagine nothing more entertaining in markets than these
• 30:02
  Speaker 4: two companies who there is no more direct competition maybe Google,
• 30:07
  Speaker 4: but no other pure plays quite like them. To see
• 30:11
  Speaker 4: them go public and even even the same year, is
• 30:14
  Speaker 4: going to be fascinating.
• 30:18
  Speaker 2: I just keep thinking about how I'd like to see
• 30:20
  Speaker 2: open AI merge with shutter stocks, so they could be
• 30:22
  Speaker 2: called open and shut.
• 30:24
  Speaker 3: Sure, I think that'd be nice.
• 30:25
  Speaker 2: Yeah, you know.
• 30:26
  Speaker 3: Let's take a quick break when we return.
• 30:29
  Speaker 2: Yeah, it's digging on this quantum computer story that Tucker
• 30:33
  Speaker 2: talked about. We'll talk to you about what's going on
• 30:36
  Speaker 2: and who the beneficiaries are of it after this.
• 30:39
  Speaker 1: Remember, you can watch the show live every day on
• 30:43
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• 30:46
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• 30:49
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• 30:52
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• 30:57
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• 31:01
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• 31:04
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• 31:06
  Speaker 1: to know. The face is the Financial Exchange, all right.
• 31:25
  Speaker 2: We got a piece here in the Wall Street Journal
• 31:29
  Speaker 2: US to award quantum computing firms two billion dollars in
• 31:32
  Speaker 2: take equity stakes, and nine firms are going to be
• 31:37
  Speaker 2: receiving grants from the US government. IBM's getting the biggest
• 31:41
  Speaker 2: with about half of it at a billion dollars, and
• 31:45
  Speaker 2: eight other companies are gonna, you know, take home the
• 31:47
  Speaker 2: remaining amounts and Look, I've got kind of mixed feelings
• 31:52
  Speaker 2: on this. On one hand, I am a big believer that,
• 31:57
  Speaker 2: in general, the US government can produce through its investment
• 32:04
  Speaker 2: some of the greatest scientific breakthroughs that we've seen.
• 32:08
  Speaker 4: See GPS, laser technology, pretty much anything that has come
• 32:12
  Speaker 4: about over the last Yeah.
• 32:15
  Speaker 2: I'm also generally a believer that the way in which
• 32:18
  Speaker 2: that benefits the most people is through that development taking
• 32:22
  Speaker 2: place through government labs and then being able to either
• 32:25
  Speaker 2: sell or license the technology out, similar to you know,
• 32:27
  Speaker 2: GPS and stuff like that, as opposed to saying, hey,
• 32:31
  Speaker 2: here are the companies that we think should be the
• 32:33
  Speaker 2: winners and or losers in that particular business.
• 32:38
  Speaker 4: Yeah, I'm just not sure that we as society want
• 32:43
  Speaker 4: the US government and thereby Congress and the President to
• 32:47
  Speaker 4: be I guess the steward of shareholder.
• 32:51
  Speaker 2: Value deciding which companies are worthy of investments.
• 32:54
  Speaker 4: Well, keep in mind, too, we're not talking about just
• 32:56
  Speaker 4: the initial purchase. The US government then owns those shares,
• 33:00
  Speaker 4: right like, not necessary, maybe in perpetuity, maybe not.
• 33:03
  Speaker 2: For state to own companies. Because here here's the There
• 33:07
  Speaker 2: are a couple of principal dangers. The first is, hey,
• 33:10
  Speaker 2: we've invested this much money. It's not going well, Let's
• 33:13
  Speaker 2: invest more and try to turn it around. Now you're
• 33:15
  Speaker 2: taking capital from what could otherwise be productive resources and
• 33:18
  Speaker 2: trying to chase after money that might have gone back.
• 33:21
  Speaker 3: Sure.
• 33:22
  Speaker 2: The other piece is, hey, let's say that I Mike.
• 33:25
  Speaker 2: Let's say that I'm a genius. Okay, not even a genius.
• 33:29
  Speaker 2: Let's say I'm a super genous, super genius, the boy
• 33:33
  Speaker 2: super genius. And I had a dream about how to
• 33:37
  Speaker 2: solve quantum computing, and I decide, okay, I want to
• 33:42
  Speaker 2: start this quantum computing company. Then all of a sudden,
• 33:46
  Speaker 2: the US government comes in and gives IBM a billion dollars.
• 33:50
  Speaker 2: And I'm sitting there and I'm like, well, I can't
• 33:52
  Speaker 2: compete with that. It squashes competition because you don't want
• 33:57
  Speaker 2: to be competing against the US government's interests there, Like,
• 34:02
  Speaker 2: it's just not a situation where you can fundamentally win.
• 34:05
  Speaker 2: They have unlimited coffers and I do not, right, And
• 34:09
  Speaker 2: so these are the questions that you get into on
• 34:12
  Speaker 2: these kinds of things. And it's not to say, hey,
• 34:17
  Speaker 2: I don't want the US government trying to encourage innovation
• 34:20
  Speaker 2: in certain areas, but it is to say, when you
• 34:23
  Speaker 2: start talking about taking equity stakes in publicly traded companies
• 34:28
  Speaker 2: that you know are not necessarily like can IBM. Let's
• 34:35
  Speaker 2: be honest, maybe they end up solving quantum computing.
• 34:37
  Speaker 3: Maybe they don't.
• 34:38
  Speaker 2: They've kind of been a joke for the last fifteen years. Yeah,
• 34:43
  Speaker 2: so it's it's kind of like, Okay, why are they
• 34:45
  Speaker 2: getting a billion dollars here?
• 34:47
  Speaker 3: I mean, not a dissimilar argument from Intel. When's the
• 34:50
  Speaker 3: last time we talked about IBM?
• 34:52
  Speaker 2: Right, it's I think the last time we did it
• 34:55
  Speaker 2: was one of the last couple earning seasons where we
• 34:57
  Speaker 2: were making fun of them for basically having gotten no way.
• 35:00
  Speaker 3: Yeah, for a while. Like the counter argument.
• 35:04
  Speaker 4: Would be, you're a direct competition with China, who very
• 35:08
  Speaker 4: much embraces the public private investment partnership, So let's.
• 35:15
  Speaker 2: Model ourselves after China. Yeah, I think it's a hard No, Yeah,
• 35:19
  Speaker 2: I'm with you.
• 35:20
  Speaker 4: I don't think it's a compelling argument, but I think
• 35:22
  Speaker 4: it is an argument that some would lay out, and
• 35:24
  Speaker 4: I just I would look at that model and say,
• 35:27
  Speaker 4: I can't say that it's been a defining success over there.
• 35:32
  Speaker 3: So yeah, I'm with you. I don't think it's a
• 35:34
  Speaker 3: good idea.
• 35:34
  Speaker 4: I think there's some roles that government can play, such
• 35:37
  Speaker 4: as ensuring the technology onto computing and other critical technologies
• 35:42
  Speaker 4: that are developed here stay.
• 35:44
  Speaker 3: Here from an ip standpoint.
• 35:46
  Speaker 4: And I just think there's better ways to do that
• 35:49
  Speaker 4: than taking an equity stake in the companies themselves.
• 35:52
  Speaker 2: There are places where stuff like this can make sense.
• 35:54
  Speaker 2: When we were talking about the stuff like you know,
• 35:56
  Speaker 2: rare earth materials, where hey, the investment from the prime
• 36:00
  Speaker 2: its sector doesn't make sense because like the dollars just
• 36:03
  Speaker 2: don't work.
• 36:04
  Speaker 3: But even there, you don't need an equity stake.
• 36:06
  Speaker 4: You don't like you can just say, hey, the US
• 36:08
  Speaker 4: government is going to be a buyer of this product
• 36:10
  Speaker 4: at this price if it's managed domestically, and you still
• 36:13
  Speaker 4: don't need to go in there and own the company.
• 36:18
  Speaker 3: It's true.
• 36:19
  Speaker 2: It's a real question as to whether or not you
• 36:21
  Speaker 2: want the US government owning significance with anything.
• 36:25
  Speaker 4: Else we talked about when we talk about the expansion
• 36:27
  Speaker 4: of government. You you cannot just sit here and say, well, yeah,
• 36:31
  Speaker 4: but I trust President Trump right like he's not gonna
• 36:35
  Speaker 4: sell it all and take the shares personally when he
• 36:36
  Speaker 4: leaves office, Like that's not how this works.
• 36:39
  Speaker 2: And the other piece is okay if if if you're
• 36:44
  Speaker 2: again just like play out the string. And I'm not
• 36:45
  Speaker 2: saying like anything, if you're okay with this because there's
• 36:52
  Speaker 2: a certain president in the White House, but then a
• 36:54
  Speaker 2: different one comes in, would you still feel the same way? Yeah,
• 36:58
  Speaker 2: you know, if if you you've got President Newsom in
• 37:01
  Speaker 2: two years, are you like, yep I trust that deal making?
• 37:06
  Speaker 2: If you've got you know, President AOC in two years,
• 37:09
  Speaker 2: are you like, yep I trust.
• 37:10
  Speaker 3: That deal making?
• 37:11
  Speaker 2: You got to look at it from the broader perspective
• 37:13
  Speaker 2: of overall governance and not well they can do this
• 37:18
  Speaker 2: now because I trust them. And it's generally why I
• 37:22
  Speaker 2: get to a place where I'm like, okay, Like picture,
• 37:25
  Speaker 2: like the person who you think is least qualified in
• 37:27
  Speaker 2: the role, and what powers would you want to grant them?
• 37:31
  Speaker 3: Right?
• 37:32
  Speaker 2: You know, Like it's just a case of in general,
• 37:37
  Speaker 2: you don't want any one person to have the ability
• 37:41
  Speaker 2: to make these kinds of decisions because eventually you're going
• 37:46
  Speaker 2: to run into someone who makes bad ones. And this
• 37:50
  Speaker 2: is why having those responsibilities and powers delegated to you know,
• 37:54
  Speaker 2: consensus through things like Congress tend to make more sense
• 37:58
  Speaker 2: or we can just not take mistakes and companies yeah.
• 38:02
  Speaker 2: Or or capital markets where you can allocate capital efficiently,
• 38:05
  Speaker 2: and if the idea is not investible, then it gets destroyed.
• 38:09
  Speaker 2: Let's take a quick break. When we come back, well,
• 38:13
  Speaker 2: we got our two. Luke Cower from Sherwood News is
• 38:15
  Speaker 2: going to join us. We're talking Walmart t SA, and
• 38:18
  Speaker 2: a whole lot more.