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Why Anthropic Is Pulling Ahead of OpenAI · The Financial Exchange Show

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Speaker 3: Lane, Good morning, Welcome back to the Financial Exchange.
1:13
Speaker 4: It's a jobs week here.
1:14
Speaker 3: We received a JILT support job openings labor turnover survey
1:18
Speaker 3: this morning at ten am, just six minutes ago. We'll
1:21
Speaker 3: talk about that during the next segment. We've got markets
1:24
Speaker 3: a bit of neutral mode this morning after the President
1:28
Speaker 3: said that the negotiations are continuing with Iran. Was not
1:33
Speaker 3: quite enough to jolt oil markets back into sell off mode.
1:38
Speaker 3: Though we've got oil pretty much steady for the day,
1:40
Speaker 3: sitting at ninety two dollars and twenty six cents. I
1:45
Speaker 3: think investors might finally have been jostled enough on the
1:49
Speaker 3: straight of horror moves talk to just say, you know,
1:52
Speaker 3: show me when there's real evidence of something improving there
1:55
Speaker 3: rather than what we've been seeing so far. But it's Mike,
1:58
Speaker 3: Paul and Tucker with you on a Tuesday here. And
2:02
Speaker 3: amidst all of the uncertain uncertainty about the Middle East,
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Speaker 3: amidst all the uncertainty about the jobs market and concerns
2:10
Speaker 3: that graduating seniors have about entering this labor market at
2:13
Speaker 3: this moment in time, we have the all important AI
2:16
Speaker 3: trade that is really continuing to suck up any of
2:19
Speaker 3: the remaining oxygen in the room, and we do have
2:23
Speaker 3: some new info on that this morning, with Anthropic pulling
2:27
Speaker 3: ahead of open Ai in one category, which is going
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Speaker 3: to be the first, probably the first to market with
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Speaker 3: an IPO here, as Anthropic goes ahead and files some
2:39
Speaker 3: necessary documents ahead of their IPO filing. So I want
2:43
Speaker 3: to get your take, Paul on the importance of first
2:47
Speaker 3: to market here. Obviously open ai has the first to
2:51
Speaker 3: market brand with chat GPT, you know, pretty much ubiquitous
2:56
Speaker 3: with those early stages of artificial intelligence and generative Since then,
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Speaker 3: at least in professional circles, it's been all Anthropic claude,
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Speaker 3: you know, full steam ahead, and it looks like they
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Speaker 3: might actually beat them to market here with an IPO.
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Speaker 2: Yeah. So, just to summarize, Anthropic filed some confidential documents
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Speaker 2: with the SEC and preparation for an IPO. This is
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Speaker 2: not well right right the filings. We don't know what's
3:24
Speaker 2: in them yet. We don't know what they're trying to
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Speaker 2: raise in terms of dollar value. We know what SpaceX
3:29
Speaker 2: is trying to raise. We know when SpaceX is going
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Speaker 2: to go public with Anthropic here, those details are yet
3:34
Speaker 2: to emerge. But this is the first step in the
3:37
Speaker 2: process in going public. It is certainly a telltale sign
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Speaker 2: that it's going to come sooner rather than later. The
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Speaker 2: specifics are are, you know, low at the moment, but
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Speaker 2: they had recently received a valuation of nine hundred and
3:51
Speaker 2: sixty five billion dollars in their most recent private investment raise.
3:55
Speaker 2: This is a company that was founded five or six
3:58
Speaker 2: years ago and it's already to closing in on a
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Speaker 2: trillion dollar valuation. In terms of what this means on
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Speaker 2: first to market, they are trying to take advantage of
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Speaker 2: what is a very favorable capital cycle to raise money
4:13
Speaker 2: because the AI trade is sucking up all the auction
4:16
Speaker 2: in the room. Just like you mentioned before, we have
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Speaker 2: the Philly Philadelphia Semiconductor Index this year which encapsulates all
4:23
Speaker 2: of those chip related companies up eighty three percent. You
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Speaker 2: have just a really just substantial demand for investors everywhere
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Speaker 2: to get in on the AI trade, and so Anthropic
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Speaker 2: is going to be the one. It looks like that
4:38
Speaker 2: takes advantage of the liquidity associated with the public markets
4:43
Speaker 2: for years, not as many as SpaceX, but for the
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Speaker 2: last few years, just raising a significant amount of the
4:48
Speaker 2: private markets. There are pros and cons to this approach.
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Speaker 2: On one edd of things, you can make the argument
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Speaker 2: that they will be the one that is scrutinized first.
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Speaker 2: All of their warts will be examined significantly. I think
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Speaker 2: what's probably going to be of utmost focused to investors
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Speaker 2: is we have a good sense for what their recurring
5:06
Speaker 2: revenue looks like. In some of their revenue numbers, I
5:09
Speaker 2: think I saw that they were about five billion dollars
5:11
Speaker 2: of revenue in Q one and they generated a five
5:14
Speaker 2: hundred and sixty million dollar profit. That profit figure is
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Speaker 2: going to get evaporated very quickly, so I don't anticipate
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Speaker 2: to see that in future quarters. They are running at
5:23
Speaker 2: an annual recurring revenue according to sources of about forty
5:27
Speaker 2: seven billion dollars, and I do want to step back
5:29
Speaker 2: for a second and just illustrate that they are making
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Speaker 2: a lot of money. Their revenue growth is absolutely astounding.
5:37
Speaker 2: There is this metric that you can use when you're
5:40
Speaker 2: looking at subscription businesses for software which is called net
5:44
Speaker 2: dollar retention, which basically it studies the recurring revenue that
5:47
Speaker 2: you get from the customers on the platform. And the
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Speaker 2: reason why Anthropic has become I guess the new nine
5:53
Speaker 2: hundred pound gorilla in the AI space and not so
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Speaker 2: much open AI anymore, at least in investor circles. Is
5:59
Speaker 2: because people are customers that are going on their platform. Typically,
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Speaker 2: when you're studying this figure, one hundred percent is sort
6:07
Speaker 2: of status quo. Your people that you have on your
6:09
Speaker 2: platform are spending at the same level. If that shrinks
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Speaker 2: below one hundred percent, you're spending less. There's churn, there's downgrades.
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Speaker 2: If it goes over one hundred percent, that means you're
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Speaker 2: on a platform and now you're spending more. Their net
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Speaker 2: dollar retention rate is five hundred percent according to their CFO.
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Speaker 2: A good one like Snowflake, for example, which is another
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Speaker 2: publicly traded company, is one hundred and forty percent.
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Speaker 3: So plain English, here, customers are subscribing to the platform
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Speaker 3: and spending a whole lot and one subscribed either adding
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Speaker 3: licenses or spending on additional.
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Speaker 2: Simple way to put it, you're spending a million dollars
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Speaker 2: with claud and with Anthropic on their platform one year.
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Speaker 2: The next year you're spending five million, five times what
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Speaker 2: you were spending before. That's what they're seeing from a
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Speaker 2: metric standpoint. So I do want to illustrate though the
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Speaker 2: valuation's crazy high, it's almost a trillion dollars. They're growing
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Speaker 2: revenue really fast.
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Speaker 3: So there's a lot we don't know about this company yet,
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Speaker 3: and a lot that will be learned once those filings
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Speaker 3: are made public and we know a little bit more
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Speaker 3: about their disclosures around profitability and revenue growth and all
7:10
Speaker 3: sorts of things that just don't get made public yet.
7:13
Speaker 3: The question still comes to mind, why does being first
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Speaker 3: to markets matter so much?
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Speaker 4: And I have a few answers.
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Speaker 3: One, there really aren't many other publicly traded companies in
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Speaker 3: the AI space that so closely resemble each other as
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Speaker 3: open AI and anthropic. I think you could maybe make
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Speaker 3: an argument for some of the chip designers being pretty
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Speaker 3: similar in terms of market structure. But other than that,
7:37
Speaker 3: these two, you know, are pretty close, you know, in
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Speaker 3: terms of business model what they're trying to do. Two,
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Speaker 3: once public, they will be, as far as I know,
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Speaker 3: the only two publicly traded pure play.
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Speaker 4: Model designers that are out there right.
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Speaker 3: Google's out there, you know, Twitter X will soon be public.
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Speaker 3: But at this moment, like though none of those are
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Speaker 3: pure plays, this is going to be, you.
8:02
Speaker 4: Know, the first two pure plays.
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Speaker 3: Let's say that Anthropic does go public and they knock
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Speaker 3: the cover off the ball in terms of the IPO,
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Speaker 3: and it holds up for the next six months and
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Speaker 3: things look good.
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Speaker 4: That's not a problem for open Ai as far as
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Speaker 4: I'm concerned.
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Speaker 3: If they then have the opportunity to go public, yes,
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Speaker 3: their metrics are going to be compared to Anthropics and
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Speaker 3: they'll be valued based on that, but not a huge
8:27
Speaker 3: issue if things hold up. If things go poorly, that's
8:31
Speaker 3: where open ai is in big trouble, right, And that's
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Speaker 3: why I think being first to market really does matter
8:36
Speaker 3: in this case, because it could go poorly in a
8:39
Speaker 3: number of different ways.
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Speaker 2: Right.
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Speaker 3: You could have a killer, blockbuster IPO followed by two
8:45
Speaker 3: to three months later the stock price falls apart and
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Speaker 3: doesn't quite keep up with expectations. You could have a
8:51
Speaker 3: stock that goes through a really messy IPO and then
8:55
Speaker 3: appreciates after the fact. In any of those events, that
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Speaker 3: adds to the pressure for open Ai, because again, these
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Speaker 3: companies are very close together in terms of how they
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Speaker 3: compete for business, what they're trying to do, et cetera.
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Speaker 3: And so that to me is the downside for open Ai.
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Speaker 3: By going second. They don't want to go second. They're
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Speaker 3: trying to race to get an IPO together too, I think.
9:17
Speaker 3: But that would be the downside if the anthropics does
9:20
Speaker 3: not go off perfectly, if they do not have a
9:23
Speaker 3: lot of investor optimism, and it's not just optimism day of, it's.
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Speaker 4: Got to hold up for a while.
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Speaker 3: That would be the potential issue for open Ai if
9:31
Speaker 3: they're end up going second. And why I think it
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Speaker 3: is actually kind of a big deal for whoever gets
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Speaker 3: to market first.
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Speaker 2: Could you make the counter argument I'm not necessarily willing
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Speaker 2: to jump to make it that then open aiy just
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Speaker 2: delays their IPO further. On that negative case scenario where
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Speaker 2: Anthropic It's IPO goes poorly, Open Eye just says, all right,
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Speaker 2: we'll pump the brakes.
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Speaker 4: Yeah.
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Speaker 3: But so if that's the case, it's not as though
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Speaker 3: open ai just suddenly doesn't need new cash, right, So
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Speaker 3: then they have to go back to private markets and
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Speaker 3: and they say, okay, now what's our valuation.
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Speaker 4: When you have this.
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Speaker 3: Perfectly easy to measure, we'll get more proparable. Good point,
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Speaker 3: they'll get marked down to market. So yeah, I do
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Speaker 3: see some potential risk ahead for both of these companies,
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Speaker 3: but obviously they are as you mentioned, walking into a
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Speaker 3: market right now that seems to have skies the limit
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Speaker 3: appetite for gobbling up AI anything, So we will see
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Speaker 3: what happens here and more details to come on the
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Speaker 3: looming Anthropic IPO. Let's take quick break when we come back.
10:28
Speaker 3: Jobs report released fifteen minutes ago. We'll cover that next
10:31
Speaker 3: here on the Financial Exchange.
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11:24
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Speaker 5: and voting that Paul.
11:46
Speaker 3: I feel as though the last few months I have
11:48
Speaker 3: just been an old man yelling at young kids for
11:52
Speaker 3: their pessimism about.
11:53
Speaker 4: The job market.
11:53
Speaker 3: But we have been hearing a lot of pessimism about
11:56
Speaker 3: the job market from young people. They commencement speakers have
12:01
Speaker 3: been flooded with Anybody that's attached to the tech industry
12:04
Speaker 3: anyway has been flooded with booze over their statements about
12:07
Speaker 3: artificial intelligence. We have pieces like this one written about
12:12
Speaker 3: how the layoffs and the tech industry are so difficult,
12:15
Speaker 3: and how getting hired in that space right now is
12:20
Speaker 3: really tough because unemployment levels for young people are near
12:25
Speaker 3: recession levels, which I would very much debate. But this
12:29
Speaker 3: morning we got a JILT Report and once again contradicted
12:33
Speaker 3: the story of a weakening job market.
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Speaker 4: So I want to start there with. First off, what
12:37
Speaker 4: the JILT report is.
12:38
Speaker 3: It's a monthly report put together by the Bureau of
12:41
Speaker 3: Labor Statistics.
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Speaker 4: It's a bit old.
12:43
Speaker 3: It's measuring data as of the last day of April
12:46
Speaker 3: of this year, so you know, we're a month away
12:49
Speaker 3: from this thing now. But what it tells you is
12:52
Speaker 3: how many companies are out there looking to hire people,
12:55
Speaker 3: how many people were fired from payrolls, how many people
12:59
Speaker 3: did get hired. It's a good indication of how much
13:04
Speaker 3: churn is in the labor market, or how much slack
13:06
Speaker 3: is in the labor market. And by slack we mean,
13:09
Speaker 3: you know, is there far are there far fewer jobs
13:12
Speaker 3: open right now for people looking for work? Is it
13:15
Speaker 3: way more jobs open like we saw during the pandemic
13:18
Speaker 3: when there were two job openings for every person looking
13:20
Speaker 3: for work, And the answer is we remain fairly balanced,
13:24
Speaker 3: and in fact, the job openings grew. So the number
13:27
Speaker 3: of job openings increased today to seven point six million
13:30
Speaker 3: in the month of April, that is a bump up
13:33
Speaker 3: from the previous month. And at the same time, total separations,
13:38
Speaker 3: which again primarily come from layoffs and discharges, were down,
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Speaker 3: So the total separations decreased to five point one million
13:46
Speaker 3: and five million, respectively. So you know, both hires and
13:51
Speaker 3: separations did decrease.
13:53
Speaker 4: But the overall narrative here.
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Speaker 3: Remains, Yes, a labor market that is a little bit slow,
14:00
Speaker 3: and you know, not an incredible amount of turnover, especially
14:03
Speaker 3: compared to the last few years. But overall, we are
14:07
Speaker 3: actually seeing an increase in the pace of job openings,
14:10
Speaker 3: meaning employers seem to be more optimistic about adding people
14:13
Speaker 3: to the pay rolls over the coming months.
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Speaker 2: Yeah, this is a nice increase. This is the most
14:17
Speaker 2: we've seen, I think since Yeah, twenty twenty four, So
14:21
Speaker 2: this is welcome news in a labor market that does
14:24
Speaker 2: seem tenuous. And I do feel, like Mike, this is
14:27
Speaker 2: a situation where sentiment from citizens and employees out there
14:32
Speaker 2: is perhaps weaker than the underlying data. I don't know
14:35
Speaker 2: if it's part of the news cycle where you mentioned
14:38
Speaker 2: that undergraduate pessimism about getting a job. It just feels
14:42
Speaker 2: as if there is a lot of misinformation on where
14:45
Speaker 2: the labor market stands at the moment. It's it's sort
14:48
Speaker 2: of a mix of two different scenarios, where one is
14:52
Speaker 2: you do have a slowing of new jobs being added,
14:55
Speaker 2: but at the same point in time, unemployment has you know,
14:58
Speaker 2: stayed at four point three per And while the tech
15:01
Speaker 2: layoffs are highly publicized, from a broader perspective, we're not
15:06
Speaker 2: seeing this massive amount of layoffs and that plays into
15:11
Speaker 2: all the dynamics we talk about with the labor market
15:13
Speaker 2: when we cover the subject, You've got a lot of
15:15
Speaker 2: baby boomers retiring, you have limited immigration, so that shrinks
15:19
Speaker 2: the supply side. So it's sort of a mixed picture,
15:21
Speaker 2: and I feel like that's hard for people to fully
15:25
Speaker 2: put their arms around. They just want to tend to
15:27
Speaker 2: gravitate to perhaps the more pessimistic view of the market.
15:31
Speaker 3: So again, the job openings increased to seven point six million,
15:36
Speaker 3: that's up seven hundred and thirty one thousand. The rate
15:40
Speaker 3: of job openings increase as well, to four point six
15:43
Speaker 3: percent in April. In terms of where they're coming from,
15:46
Speaker 3: big increase. Professional and business services up six hundred and
15:49
Speaker 3: sixty eight thousand. Professional and business services is not a
15:54
Speaker 3: terribly descriptive category, so I was looking at what exactly
15:58
Speaker 3: does the BLS put in there, and it's a lot.
16:01
Speaker 3: You've got accounting and finance, consulting, architecture, science and design,
16:07
Speaker 3: administrative work, business support, corporate management all included in that
16:13
Speaker 3: one big.
16:13
Speaker 4: Cat jobs there.
16:15
Speaker 2: There's been, you know, threatened to be an existential risk
16:19
Speaker 2: facing them.
16:20
Speaker 3: That's kind of my point is, you know you've got
16:22
Speaker 3: paralegals in here, You've got legal assistance. In here, you've
16:25
Speaker 3: got accountants and finance and and all these roles, computer
16:28
Speaker 3: and it. All of these roles have been mentioned specifically
16:31
Speaker 3: as hey, these jobs are under threat because of AI.
16:34
Speaker 3: You know, go get a job as a plumber, because
16:38
Speaker 3: otherwise AI is going to kill your job. Nothing against
16:41
Speaker 3: getting a job as a plumber right now, like you're
16:43
Speaker 3: probably going to have the best job security of any
16:45
Speaker 3: of us for the next thirty years. But what this
16:49
Speaker 3: report tells me is that those concerns about the labor
16:51
Speaker 3: market for now seem to be overblown. And I'm confirming
16:55
Speaker 3: it with some other data too. If I take a
16:58
Speaker 3: look at the unemployment rate for twenty to twenty four
17:01
Speaker 3: year olds, it is not low. It's it's April unemployment rate.
17:05
Speaker 3: We'll get a new update on this on Friday, by
17:07
Speaker 3: the way, but as of April seven point six percent
17:09
Speaker 3: unemployment rate for twenty to twenty four year olds. But
17:12
Speaker 3: that is again down from April of last year. And
17:14
Speaker 3: in fact, when I take a look at the unemployment
17:16
Speaker 3: rate for twenty to twenty four year olds in every
17:18
Speaker 3: single month of twenty twenty six, it's been lower than
17:21
Speaker 3: it was in the same months of twenty twenty five.
17:25
Speaker 2: Yep, I looked at twenty two to twenty six, I
17:27
Speaker 2: mean similar demographic breakdowns, and yeah, it's five point six
17:31
Speaker 2: percent there. So it's but it's like you said, so
17:34
Speaker 2: to slowly tick down. Is it higher than it was
17:36
Speaker 2: in twenty four and twenty three, Yes, it is higher.
17:39
Speaker 4: Everyone's unemployment rate was higher than it was in twenty
17:41
Speaker 4: twenty three. It's not it was not abnormal.
17:43
Speaker 2: That's why I said twenty four to two, because that
17:45
Speaker 2: it at least somewhat slowed down.
17:47
Speaker 4: Yeah.
17:47
Speaker 3: The fact of the matter is the unemployment rate that
17:50
Speaker 3: we experience, or the unemployment market and job market that
17:53
Speaker 3: we experienced in twenty twenty one, two and three and
17:57
Speaker 3: parts of twenty twenty four to two was an ab
18:00
Speaker 3: normally type one.
18:01
Speaker 4: Due to COVID.
18:03
Speaker 3: You had this massive change in how business was done,
18:06
Speaker 3: who was going to do it, where it was going
18:08
Speaker 3: to be done, from massive amounts of stimulus and money
18:12
Speaker 3: in company coffers for retaining employees, and it just led
18:16
Speaker 3: to this bifurcation of the job market for a prolonged
18:19
Speaker 3: period of time. Salaries went way up here. It was
18:21
Speaker 3: good for employees, and I hope they took advantage of it,
18:24
Speaker 3: but it was abnormally strong. It's weakened a little bit
18:28
Speaker 3: from there, but more than weekend. I'd say it's normalized
18:31
Speaker 3: from there.
18:32
Speaker 2: How close is it do you have twenty seventeen through
18:34
Speaker 2: twenty nineteen there?
18:35
Speaker 3: Yeah, So the unemployment rate that we are seeing right
18:37
Speaker 3: now for twenty to twenty four year olds, and again
18:40
Speaker 3: I'm looking at that statistic only. We did not reach
18:43
Speaker 3: this territory until the late twenty tens, after the Great Recession, right,
18:48
Speaker 3: we started getting into this type of unemployment situation when
18:51
Speaker 3: we were in twenty sixteen, twenty seventeen, okay, far after
18:55
Speaker 3: the recovery. You know, eight twenty ten, we were looking
18:58
Speaker 3: at the high double digits, you know, post dot com bubble,
19:03
Speaker 3: we are looking at the high single digits.
19:05
Speaker 4: We are well below those levels.
19:07
Speaker 3: And so I continue to see green shoots in the
19:09
Speaker 3: labor market, and I think this is a good indicator
19:12
Speaker 3: for what we might see on Friday, or at least
19:14
Speaker 3: during the summer, when we go take a look at
19:16
Speaker 3: these job creation numbers. Given the increase in the pace
19:20
Speaker 3: of postings. Let's take a quick break when we come back.
19:24
Speaker 3: Full market recap is next with Wall Street watching.
19:40
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19:43
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19:47
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19:52
Speaker 1: Wall Street Watch tracking the stocks FANDATO and the headlines
19:56
Speaker 1: driving markets so far today, right here on the Financial
19:59
Speaker 1: Exchange Network.
20:00
Speaker 5: Markets relatively quiet and mixed as traders sift through a
20:03
Speaker 5: new flurry of news items from the tech sector.
20:06
Speaker 4: Wall Street's also.
20:07
Speaker 5: Keeping a close eye on developments from the Middle East.
20:10
Speaker 5: In the price of oil right now, the Dow is
20:13
Speaker 5: down two tenths of a percent, SMP five hundred is
20:16
Speaker 5: flat only up by one point, NASDAC up about a
20:19
Speaker 5: tenth of a percent, RUSS two thousand up about half
20:22
Speaker 5: a percent. Tenure treas reeled down two basis points at
20:26
Speaker 5: four point four to four percent, and oil edging higher.
20:29
Speaker 5: Not much movement there, trading right around ninety two dollars
20:32
Speaker 5: a barrel.
20:33
Speaker 2: Well.
20:34
Speaker 5: Marvel Technology shares are surging twenty four percent after Nvidia
20:38
Speaker 5: CEO Jensen Wong said Marvell could become the next trillion
20:43
Speaker 5: dollar company thanks to demand for AI hardware. Meanwhile, Hewlett
20:48
Speaker 5: Packard Enterprises seeing it's stock rally twenty five percent after
20:52
Speaker 5: the Information Technology company blew away Wall Street expectations with
20:56
Speaker 5: its second quarter earning, citing rampant compute demand from customers
21:01
Speaker 5: transitioning to AI tools. Alphabet announced plans to raise eighty
21:06
Speaker 5: billion dollars to help finance AI infrastructure investments. Alphabet stock
21:10
Speaker 5: is down over one and a half percent. Outside of
21:13
Speaker 5: tech lingerie, retailer Victoria's Secret hiked its full year guidance
21:17
Speaker 5: after beating first quarter earnings expectations, citing lower tariff costs
21:22
Speaker 5: and willingness from customers to spend full price on its products.
21:27
Speaker 5: Shares are jumping forty one percent higher, and after today's
21:32
Speaker 5: closing bell, we'll see more earnings from Palo Alto Networks.
21:36
Speaker 2: I'm Tucker Silvan.
21:37
Speaker 4: That is Wall Street watch. I'm sorry, Tucker. What was
21:40
Speaker 4: just jumping forty one percent?
21:42
Speaker 2: Victoria's Secret Secrets out man.
21:44
Speaker 3: Okay, the single day price moves that we're seriously are
21:49
Speaker 3: pretty ludicrous at the moment. At least, nobody's making an
21:52
Speaker 3: AI claim with that one. I suppose, as far as
21:55
Speaker 3: we know, speaking of AI claims, Alphabet is raising eighty
22:00
Speaker 3: billion dollars via equity sales. So, first of all, what
22:05
Speaker 3: does this mean they're issuing new stock or taking stock
22:07
Speaker 3: out of treasury and selling it to the general public.
22:10
Speaker 3: That means it dilutes the existing shareholders. They're going to
22:13
Speaker 3: be doing this to the general public for about half
22:16
Speaker 3: of it. Some of it's going to be coming through
22:19
Speaker 3: what was it, It was like forty billion via timed sales,
22:22
Speaker 3: preferred stocks and thirty notes, and then ten billion to
22:26
Speaker 3: deal with Berkshire Hathway to buy a bunch of it
22:28
Speaker 3: correct eighty billion dollars. Just to put into context, that
22:32
Speaker 3: was the size or a little bit bigger than the
22:35
Speaker 3: most recent size of Anthropics' latest funding round, which was
22:38
Speaker 3: around sixty.
22:39
Speaker 4: Five billion dollars.
22:41
Speaker 3: As a percentage of like Alphabet size here, you're talking
22:46
Speaker 3: about less than two percent.
22:48
Speaker 2: Of these is going to go there. Yep.
22:50
Speaker 3: The idea that Alphabet can raise eighty billion dollars by
22:56
Speaker 3: offering for sale less than two percent of their outstanding
22:59
Speaker 3: share just dwarfs everybody else in this industry and really speaks.
23:05
Speaker 4: To this moment for this company. And they have a
23:08
Speaker 4: lot to execute on here.
23:10
Speaker 3: But if you're trying to compete with Alphabet right now,
23:13
Speaker 3: good luck, good luck out spending this company, right And
23:18
Speaker 3: that's what a lot of This is coming down to
23:20
Speaker 3: right now, is how quick can you get this stuff
23:22
Speaker 3: up and running. You know, they rolled out their own
23:26
Speaker 3: semiconductor design chips very rapidly. They're selling them to other
23:29
Speaker 3: companies now they are arguably, I don't know that you
23:35
Speaker 3: can make a successful argument that they're the number one
23:38
Speaker 3: model that's out there, but they're in the top three.
23:41
Speaker 3: Top three contenders are chat Gypt, Gemini, and Claude. Would
23:45
Speaker 3: be my feeling on this, and for one of those
23:51
Speaker 3: three to be able to so easily go to market
23:54
Speaker 3: for themselves and just say, yep, eighty billion dollars being
23:56
Speaker 3: raised like nothing. Yes, the stock's selling off today, but
23:59
Speaker 3: two percent, I mean logically right, You're you're issuing shares
24:04
Speaker 3: that are going to dilute existing shareholders by you know,
24:07
Speaker 3: less than two percent. The stocks down less than two percent, Okay,
24:11
Speaker 3: investors are all on board.
24:12
Speaker 2: It seems the capex that Google will outlay this year
24:16
Speaker 2: is about one hundred and ninety billion for reference, that's
24:19
Speaker 2: five times what they spent in twenty twenty two. And
24:22
Speaker 2: oh by what, by the way, if you think one
24:24
Speaker 2: hundred ninety billion is a lot of money they might spend,
24:28
Speaker 2: Analysts anticipate and again these are projections three hundred billion
24:31
Speaker 2: in twenty twenty seven. They are in such a unique position, Mike,
24:35
Speaker 2: when we talk about this AI story, in that if
24:38
Speaker 2: you look at AI from a stack perspective, you've got
24:41
Speaker 2: all these different layers to it. The first layer is
24:44
Speaker 2: the chips, and that's where Nvidia's made their bread and butter.
24:46
Speaker 2: They design the chips that are used in a lot
24:48
Speaker 2: of these models. Then you go up to the next
24:50
Speaker 2: level where you talk about the infrastructure, the data centers,
24:53
Speaker 2: the cloud, networking, fiber optics. Google's a player in that
24:57
Speaker 2: they have their own data centers, They're involved in the cloud,
25:00
Speaker 2: they have their own chips, they have TPUs that compete
25:02
Speaker 2: within videos GPUs. Then you go up further up the stack. Oh,
25:05
Speaker 2: it's the model you just talked about Gemini. That's their
25:08
Speaker 2: model that competes with Claude and chat TPT. And then
25:12
Speaker 2: the last piece is how do you feed your models.
25:14
Speaker 2: It's through data, it's through different content on the web. Well,
25:18
Speaker 2: Google's really well positioned there too. All your searches every
25:21
Speaker 2: single day, say YouTube, Gmail, etc. So they have this
25:26
Speaker 2: very unique position where any improvements that they make or
25:29
Speaker 2: any capital that they can raise that can fund further
25:32
Speaker 2: improvements on any of these pieces that I mentioned in
25:34
Speaker 2: the stack here, can really make them have a significant
25:37
Speaker 2: advantage over their competitors. The question is how long that
25:41
Speaker 2: can last. For there's always technological innovation that can unseat
25:46
Speaker 2: the company that's sitting at the top of the perch.
25:49
Speaker 2: But right now it's a pretty strong fortress to be
25:51
Speaker 2: able to just at a blink of an eye raise
25:54
Speaker 2: eighty billion dollars where anthropic and others to go out
25:58
Speaker 2: and raise that amount of money takes a lot more
26:00
Speaker 2: effort than what Google's just done here.
26:04
Speaker 3: Yeah, by the way, Paul, totally, you're right. They're definitely
26:06
Speaker 3: not a monopoly.
26:08
Speaker 2: Remember just this was that's such attorney on the knife
26:11
Speaker 2: point if you think about it.
26:13
Speaker 4: September of last year, Yeah, it seems like a lot.
26:15
Speaker 3: Google was declared a monopolist by US District judge I'm
26:19
Speaker 3: at Meta, and then was told that they weren't going
26:23
Speaker 3: to be broken up, in no small part due to
26:25
Speaker 3: the threat of artificial intelligence on their business. We're looking
26:32
Speaker 3: now less than nine months away and they are arguably
26:37
Speaker 3: the up and coming leader when it comes to artificial intelligence. Again,
26:42
Speaker 3: you can't say they're the number one in any of
26:44
Speaker 3: these categories, but they checked the box in just about
26:47
Speaker 3: every single one. So yeah, that one looks kind of
26:51
Speaker 3: funny and quaint when we look back on it. At
26:53
Speaker 3: this point, the dominant position that Google occupies right now
26:58
Speaker 3: is pretty fascinating to watch. Look, I don't mean to
27:02
Speaker 3: get over excited about this. Here is the flip side
27:06
Speaker 3: to this coin. Like alphabet is talking about spending, what
27:09
Speaker 3: do you say, one hundred billion.
27:11
Speaker 2: One hundred and ninety one hundred ninety billion this year.
27:14
Speaker 3: One hundred ninety billion dollars in capex this year. You
27:18
Speaker 3: cannot convince me that they are worried about the price
27:21
Speaker 3: they are paying when they're spending that hundred and ninety
27:23
Speaker 3: billion dollars, right They are just throwing money out out
27:25
Speaker 3: the window and saying, build it as fast as you
27:27
Speaker 3: can get the you know whoever you need to pay
27:31
Speaker 3: to build out these data centers, to build out these models,
27:34
Speaker 3: hire them, get it done.
27:35
Speaker 4: Do it now.
27:37
Speaker 3: We've started to see, you know, very beginning stages of
27:41
Speaker 3: a few companies taking a more critical eye at their
27:45
Speaker 3: AI usage.
27:45
Speaker 4: We covered this last.
27:47
Speaker 3: Week and I don't think it's gaining any traction, but
27:49
Speaker 3: if you want my argument for how companies like Alphabet
27:54
Speaker 3: get caught off guard by this, or you know, just
27:57
Speaker 3: the AI industry as a whole gets caught off guard
27:59
Speaker 3: and find you see the bubble start to pop, it's
28:02
Speaker 3: from the end users, the corporations that are using the
28:05
Speaker 3: models and paying exorbitant fees to do so, going back
28:08
Speaker 3: and saying, hey, I know, we planned on expanding our
28:12
Speaker 3: AI models and using these more thoroughly in the business
28:16
Speaker 3: environment in twenty twenty seven, but it's gotten to the
28:18
Speaker 3: point where it's cheaper to hire humans to do it.
28:21
Speaker 3: So we're not expanding anymore, and we're going back to anthropic,
28:24
Speaker 3: We're going back to Gemini, We're going back to open
28:26
Speaker 3: AI and saying we're not expanding our licenses next year
28:30
Speaker 3: because this is more cost prohibitive than hiring a human
28:33
Speaker 3: to do the same work. And then that just reverberates
28:36
Speaker 3: right down the whole supply chain. We are not there, No,
28:40
Speaker 3: we are very much still in this expansion stage. But
28:43
Speaker 3: if you want my like ten thousand foot view of
28:46
Speaker 3: how this all comes crashing down, and again not to
28:49
Speaker 3: say that AI is then defunct or irrelevant, but the
28:53
Speaker 3: Internet wasn't made defunct or irrelevant. When it went through
28:56
Speaker 3: a bubble popping, it was just revalued based on, Oh,
28:59
Speaker 3: the growth is going to be there forever. And right now,
29:02
Speaker 3: all I'm seeing is, Hey, the growth is going to
29:05
Speaker 3: be there forever. Spend money now as quickly as you can.
29:09
Speaker 2: Yeah, they're not. They're not spending because they don't think
29:12
Speaker 2: they can drive a return on though. Let's be clear
29:14
Speaker 2: about that.
29:15
Speaker 4: One of the question does it come question is can
29:17
Speaker 4: they drive their return?
29:18
Speaker 1: Well?
29:19
Speaker 2: Can they drive the return in twelve or eighteen months?
29:21
Speaker 2: That's what Wall Street's going to be focused on. The
29:24
Speaker 2: clearly Google is doing is from a long term perspective
29:26
Speaker 2: because they think it's going to be something that can
29:28
Speaker 2: be ever last, not ever last an it can be
29:30
Speaker 2: a significant driver of growth down the road if they're
29:32
Speaker 2: looking from a broader perspective. But I get it. You
29:35
Speaker 2: could see a correction in a twelve to eighteen to
29:38
Speaker 2: twenty four month span of time. If you see that pullback.
29:41
Speaker 3: Yeah, not that it means that that's going out of business.
29:43
Speaker 3: They've got plenty of profitable business units.
29:45
Speaker 2: Uh.
29:45
Speaker 3: But yeah, you want my argument for how this you know,
29:49
Speaker 3: little fun tower of cards could come tumbling down? That
29:52
Speaker 3: would be how the valuation start to get a jostling.
29:56
Speaker 3: Let's take a quick break when we come back. Yeah,
30:01
Speaker 3: let's talk about America's new financial middle the middle class.
30:05
Speaker 3: What's happening with them? They're not happy about this economic
30:08
Speaker 3: moment that we're sitting in. Let's talk about them next
30:10
Speaker 3: here on the Financial Exchange.
30:12
Speaker 1: Subscribe now to our YouTube page, where you'll find daily
30:15
Speaker 1: interviews and full shows of the Financial Exchange. We'll get
30:18
Speaker 1: you caught up on anything and everything you might have
30:21
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30:25
Speaker 1: one seven three six two one three eighty five with
30:28
Speaker 1: your comments and questions about today's show. This is the
30:31
Speaker 1: Financial Exchange Radio Network, Paul.
30:43
Speaker 3: Another week, another survey of consumers and Americans telling us
30:46
Speaker 3: that they are not feeling great about the economy, this
30:50
Speaker 3: time from Ed Jones and Gallup.
30:52
Speaker 4: They did a survey of five thousand people.
30:55
Speaker 3: I believe, Yeah, roughly five thousand people were pulled late
30:58
Speaker 3: March early April, and unsurprisingly, some fifty one percent of
31:03
Speaker 3: US adults feel financially conflicted, saying they're experiencing both stability
31:07
Speaker 3: and uncertainty. Sixteen percent said they felt financially fulfilled, while
31:12
Speaker 3: as thirty two percent were financially stressed.
31:15
Speaker 4: It's that big.
31:16
Speaker 3: Middle chunk that you know, we tend to be focusing on.
31:19
Speaker 3: And this follows one of many you know, this follows
31:22
Speaker 3: several other polls that we've had about the state of
31:26
Speaker 3: the average American that shows things that aren't terribly optimistic.
31:30
Speaker 3: You can take a look at the University of Michigan's
31:34
Speaker 3: Consumer Sentiment Survey, which just produced the worst reading on.
31:37
Speaker 4: Record since the nineteen was.
31:41
Speaker 3: It forties or sixties that they started that survey, I
31:43
Speaker 3: think it was nineteen sixties, which tells you that the
31:47
Speaker 3: average American, according to the result of that survey, feel
31:51
Speaker 3: worse than they did during the nineteen seventies, oring the
31:53
Speaker 3: oil shortage, they feel worse than they did post nine
31:57
Speaker 3: to eleven. They feel worse than they did at the
32:00
Speaker 3: depths of the Great Recession of two thousand and eight.
32:03
Speaker 4: So I just don't know what to make of some
32:06
Speaker 4: of that.
32:06
Speaker 3: This survey doesn't seem quite as bad, but it does
32:09
Speaker 3: follow another trend that we hear over and over again,
32:11
Speaker 3: which is, oh, I'm financially doing all right, but the
32:14
Speaker 3: economy is a darn mess. I think that's how I
32:16
Speaker 3: read that uncertainty piece of Hey, you know, I'm doing
32:20
Speaker 3: okay today, but I'm stressed about the future seems to
32:23
Speaker 3: fall into that same category of my financial situation's fine,
32:27
Speaker 3: but look out, United States, You're on a you know,
32:29
Speaker 3: a catastrophic path that we're going down.
32:33
Speaker 4: I don't find interesting.
32:34
Speaker 2: Yeah, I don't know if it's a byproduct of just
32:37
Speaker 2: national news coverage. It does seem like, I mean, news
32:40
Speaker 2: in general tries to sort of scare and alert people
32:43
Speaker 2: and focus more on some of the negative stories, And
32:45
Speaker 2: it does feel like when meeting with clients and looking
32:48
Speaker 2: over market performance, it is for those people who don't
32:52
Speaker 2: follow it closely, there's a big sort of dichotomy between
32:55
Speaker 2: what they're hearing on the news and how they feel
32:58
Speaker 2: about the US and the economy versus what the numbers
33:01
Speaker 2: are from the market returns. And maybe that plays into
33:06
Speaker 2: some of this sentiment piece here, is just there's this
33:09
Speaker 2: overwhelming negativity that's around gas prices. Will do it often too,
33:14
Speaker 2: I mean, to be fair, that's something that we saw
33:16
Speaker 2: in twenty twenty two. The only real piece that I
33:19
Speaker 2: glean here from this survey because I've grown to have
33:23
Speaker 2: increasing skepticism on these sentiment surveys in general, as you
33:27
Speaker 2: alluded to before, where they've been historically to where they
33:31
Speaker 2: are now. The personal savings rate is something that is
33:34
Speaker 2: a numerical statistic that is calculated, and that has dropped
33:38
Speaker 2: to its lowest since June of twenty twenty two at
33:40
Speaker 2: two point six percent. So certainly, at least that is
33:43
Speaker 2: indicative from a numbers perspective that Americans are saving less,
33:47
Speaker 2: which backs into the fact that, hey, inflation has crept
33:50
Speaker 2: up over the course of this year, and you're starting
33:53
Speaker 2: to see that a little bit in terms of the
33:54
Speaker 2: savings rate.
33:55
Speaker 4: Yeah.
33:56
Speaker 3: The savings rate argument, though, always is a double edged
33:58
Speaker 3: short because you could say, yeah, they are strapped for
34:01
Speaker 3: cash and spending more. It could also speak to confidence. Sure, Hey,
34:06
Speaker 3: I am so confident that I'm going to put money
34:08
Speaker 3: on the credit card this month because i know I've
34:10
Speaker 3: got a job and money coming in. I'm sure so
34:12
Speaker 3: security check is coming in, so I'm confident enough to
34:15
Speaker 3: not need to save as much money. So yeah, it's
34:19
Speaker 3: it is difficult to get a real sense from these
34:22
Speaker 3: sentiment surveys of whether or not they indicate anything about
34:24
Speaker 3: how people are going to vote, how the actual economy
34:28
Speaker 3: is going to do in the coming months that they
34:29
Speaker 3: haven't signified much of anything for the future as of late.
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35:47
Speaker 3: So we mentioned Berkshire Hathaway during the previous segment when
35:51
Speaker 3: it came to an investment tie up with Alphabet. They'll
35:53
Speaker 3: be buying some ten billion dollars worth of shares that
35:56
Speaker 3: Alphabet is issuing in public markets in order to raise
36:00
Speaker 3: cash for the AI push and spend that they need
36:03
Speaker 3: to do under the new leadership at Berkshire Hathaway, greg
36:07
Speaker 3: Abel now taking over the day to day operations of
36:11
Speaker 3: the company. They're also pledging some six point eight billion
36:15
Speaker 3: dollars to acquire Was that an intentional cough?
36:20
Speaker 2: Theres a cough.
36:21
Speaker 3: Butt Taylor Morrison Home Corporation for six point eight billion dollars,
36:28
Speaker 3: reflecting not only some confidence in this arguably in Alphabet,
36:34
Speaker 3: but maybe more broadly in the AI trade, alongside some
36:37
Speaker 3: confidence in the future of the housing market.
36:39
Speaker 2: Yeah, a little bit of a head scratcher or just
36:41
Speaker 2: not what you're accustomed to with Berkshi're halfway on. Specific
36:44
Speaker 2: to the Google investment, the ten billion dollars to say
36:46
Speaker 2: that is not a move of a warm Buffet led
36:50
Speaker 2: firm that typically has really stayed away from technology investing.
36:53
Speaker 2: Apple was standing, which is their largest equity stake, but
36:57
Speaker 2: greg Abile not shy on jumping in and spending some
37:01
Speaker 2: of that three hundred and ninety seven billion in cash
37:04
Speaker 2: that Berkshire Hathaway has piled up. This investment is much
37:07
Speaker 2: more in line with something that you would see normally
37:09
Speaker 2: from Berkshire halfway big bet on the home building side
37:13
Speaker 2: of things. It's been an area in the economy that
37:15
Speaker 2: has been weak. But if you look at the valuation
37:18
Speaker 2: metrics on the Taylor Morrison company here, it's cheap relative
37:23
Speaker 2: to book to value, which is something that Buffett would
37:26
Speaker 2: really study, and how he came up from investing is
37:29
Speaker 2: buying things that were trading at discounts. And also it
37:33
Speaker 2: backs into this idea that Buffett has always had just
37:36
Speaker 2: betting on the American economy, betting on the US housing
37:40
Speaker 2: market is something that they've amassed a lot of bets
37:42
Speaker 2: in over the course of the last you know, five
37:45
Speaker 2: ten years plus, and so this is much more their
37:48
Speaker 2: their mo than the Google investment.
37:50
Speaker 3: Yeah, seems like I mean, I think one thing that
37:53
Speaker 3: Berkshire has probably learned over the last decade is they
37:56
Speaker 3: probably have some regrets eno about not being deeper in
37:58
Speaker 3: the tech trade for the last two decades. But this
38:01
Speaker 3: bet here, I mean, I recognize that it's tough to
38:05
Speaker 3: build homes right now.
38:06
Speaker 4: We're buy homes right now and afford them.
38:08
Speaker 3: But there's really no argument that we have an undersupply
38:10
Speaker 3: of homes, and I can see how they come around
38:13
Speaker 3: to this investment. We've got to take a quick break,
38:15
Speaker 3: but a lot more to cover in the second hour
38:17
Speaker 3: of the show. Markets are open and slightly positive on
38:20
Speaker 3: the day. We'll be back with a whole lot more
38:21
Speaker 3: right after this