Prof G Markets
00:00:00 · S0, S1
[00:00:00] S0: Support for the show comes from BCX, the public ticker for private tech. The US stock market started history's greatest wave of wealth creation from factory workers in Detroit to farmers in Omaha. Anyone can own a piece of the great American companies. But today, our most innovative companies are staying private longer, which means everyday Americans are missing out until now. Introducing VCX, a public ticker for private tech, now available wherever you buy stocks. Visit getvcx.com for more info. That's getvcx.com. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the fund's prospectus at getvcx.com. This is a paid sponsorship. [00:00:46] S1: I'm Ina Garten, and each week on happy hour, I invite new and old friends for a drink and a fun conversation at my kitchen table in New York City. On this week's episode, I'm joined by chef Paul Carmichael. We talk all about the incredible restaurants he's worked in, the best music to play in the restaurant bathrooms, and how he reacted when he found out his restaurant, Cabawa, had been ranked number one by the New York Times. New episodes of happy hour are available every Wednesday. You can watch on YouTube or listen wherever you get your podcasts. Cheers.
00:00:46 · S1, S2, Steve Eisman, Dan Chiolan
[00:00:46] S1: I'm Ina Garten, and each week on happy hour, I invite new and old friends for a drink and a fun conversation at my kitchen table in New York City. On this week's episode, I'm joined by chef Paul Carmichael. We talk all about the incredible restaurants he's worked in, the best music to play in the restaurant bathrooms, and how he reacted when he found out his restaurant, Cabawa, had been ranked number one by the New York Times. New episodes of happy hour are available every Wednesday. You can watch on YouTube or listen wherever you get your podcasts. Cheers. [00:01:26] S2: Hey, everybody. Sue Bird here back with another brand new episode of Bird's Eye View this week. Joining me on the pod is Kara Lawson, head coach of Duke University women's basketball and team USA. Kara and I break down how the twenty twenty six WNBA finals are unfolding. We revisit team USA's path to World Cup gold and discuss how far the women's game has come. Plus, Kara reveals her favorite player that she ever coached. Check out Birds Eye View on YouTube and wherever you get your podcasts. [00:02:02] S3: Money market's met. [00:02:03] S4: If money is evil, then that building is hell.
00:02:03 · Dan Chiolan, Ed Elson
[00:02:03] S4: If money is evil, then that building is hell. [00:02:06] S5: The show goes on. The president never watched it so so. Welcome to Prof G Markets. I'm Ed Elson. It is October 28. Let's check-in on yesterday's market vitals. The major indices climbed with tech rallying for a second day. All eyes will be on Microsoft and Google's earnings tonight. Brent crude was volatile again but ended the day around $114 per barrel. The yield on ten year treasuries was stable ahead of the Federal Reserve's interest rate decision out later today. And finally, Meta shares declined nearly 2% following the completion of its $25,000,000,000 stock sale. The sale was part of its plan to raise nearly $100,000,000,000 in equity for its AI ambitions. Reportedly though the offering was five times oversubscribed. Okay. What else is happening? As we discussed yesterday, Anthropic's highly anticipated s one is out, and investors are still digesting the filing. Today, we wanted to get another opinion about the company's upcoming IPO and some of the questions that have gone unanswered, including its financial feasibility, Anthropic's governance, and also the state of the AI bubble at large. So here to break it down one of our favorite guests, Steve Eisman, the legendary Big Short investor and host of The Real Eisman Playbook. Steve, great to see you. I'm gonna start general. What did you make of this filing? What jumped out to you?
00:03:38 · Steve Eisman
[00:03:38] S3: Well, the thing that jumped out to me the most were two things. The first was there's an awfully long list of future capital commitments that add up to something. I mean, it depends what you include, don't include, 800 to 900,000,000,000. You know, when you're at $809,100,000,000,000, what's a 100,000,000,000 amongst friends? It doesn't it doesn't really matter. So that's just one thing that that is, I don't know if the word is concerning, but just the way these people operate is, you know, that's just what they do. So that's the first thing. What I thought was even more interesting was that the numbers are only through the second quarter. Now I have heard that they're going to have to put out third quarter numbers before they go public, although I'm not a 100% sure that's correct. However, there are reports out there that at least have the revenue for the third quarter as well as the compute infrastructure cost for the third quarter. And that actually tells a tale because for those of us who, you know, who have been paying a lot of attention, as we all know, in the first half of this year, token maxing was at its height. This is, and for those viewers who don't know what that is, token maxing is where basically software engineers were ordered by their companies to use AI 20 fourseven, and to hell with the costs. But after the first half of the year, people got a lot more cost conscious. The Chinese open weight models took more market share. And so what I wanted to see was what what happened in the third quarter after the token maxing was over. And and so if you look at the fourth quarter, first quarter, second quarter, and third quarter, and you look at two statistics, the sequential revenue increase, and then the revenue divided by the compute infrastructure expense. So if you go to the fourth quarter of last year, which was really just before token maxing really took off, revenue growth was 43%, and the ratio was 0.69 times, which meant, of course, that revenue was less than compute expense. Okay. First quarter, token maxing takes off, revenue growth goes from 43% sequentially to 135% sequentially, and the ratio goes from 0.69 to 1.4. Impressive. And then in the second quarter, which was the height of token maxing, revenue growth jumps again to 147%, and the revenue to compute goes to 2.08 times. Now let's talk about the third quarter.
00:06:25 · Steve Eisman, Ed Elson
Third quarter, token maxing is over, sequential revenue growth goes from 147% to 45%, and the revenue divided by compute goes from 2.08 to 1.7. That tells you something. That tells you that the end of token maxing has had an impact. The other thing that I have heard, I haven't been able to confirm it, is that sometime in October, Anthropic cut its prices by about 50% to try and get back a lot more market share. Whether that's gonna come out on the roadshow, I don't know, but it certainly would be the the data points that I would be focused on the most. [00:07:04] S5: Something that was notable looking through the filing is that a lot of those charts that they put up at the top showing you how the business is doing, they do not include q three at all. [00:07:15] S3: Right. That's why I bring it up. [00:07:17] S5: And there has been speculation that that was an intentional decision in order to hide the... What seems like a reality, which is that the business growth is slowing quite significantly as you have just explained. Do you think it was intentional? Only very intentional. [00:07:37] S3: That's all. Only very intentional. [00:07:40] S5: Very intentional. [00:07:41] S3: Yes. Not intentional. Very intentional.
00:07:41 · Steve Eisman, Ed Elson
[00:07:41] S3: Yes. Not intentional. Very intentional. [00:07:47] S5: I guess this gets to sort of a larger question about this filing, which is like, how much does it actually tell us is really the question that I'm trying to get at. Because you point out the future compute commitments, which for me, that was the most important thing that I read. I'm like, okay. They have narrowed their losses. They're getting to a better place. That's good. Oh, but hold on. $800,000,000,000 coming down the line. And in addition to those $800,000,000,000 in compute costs that we're going to see at some point, They also say that they're going to significantly significantly increase capital expenditures, which to me tells me they're gonna just build data centers, which seems like a massive pivot, a massive, change to the business. [00:08:30] S3: I don't know if they're gonna build data centers, but they're certainly gonna be spending a lot more money either, maybe they'll rent, and that'll cost them a ton. I don't know, but clearly, I agree with you from what you're saying that, put it this way, when you commit to $800,000,000,000 your expenses are going up. How much they're going up? We don't know, because I'm not the CFO of the company. I don't know, you know, how this is all gonna play out. I read one report from someone who argued that by next year, they'll be spending 80 to $100,000,000,000 in CapEx. So so, you know, I I don't... But I don't even know what that... Is that expensed, or does that go on the balance sheet? You know? It's unclear.