Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: What do you make of the multiples that specifically Anthropic and OpenAI — which in my mind are the reference assets, the most pure-play takes on this trend — really being not that crazy? If you just look at the sales multiple and compare it to maybe where Databricks and Snowflake and these companies traded at their peak, how do you process it? How do you make sense of it? [00:00:00] S1: OpenAI and Anthropic are pretty different animals from a capital efficiency perspective. Anthropic clearly has a dramatically lower cost per token than OpenAI. They just do. You can see that in the amount of money they have burned to get to a roughly similar revenue scale. I think they've burned maybe 80% less than OpenAI. So as businesses, they clearly have very different structural ROICs. I think Sarah Friar is one of the most exceptional CFOs. They're doing a lot of things to try to improve this. [00:00:00] S0: And they've secured a lot of compute.
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: And they've secured a lot of compute. [00:00:00] S1: They've secured a lot of compute. That's another big difference. It turns out being aggressive really paid off. Anthropic at $900 billion for $50 billion in ARR, growing at ridiculous rates — a true statement is that if Anthropic could just wave a magic wand and get all the compute they wanted, they'd probably be doing well north of $100 billion today. Maybe $150 billion. They have clearly deprecated the intelligence of Claude. Claude is generating, even on Opus, 70% less tokens for the exact same question. As we talked about last time, token quantity equals quality of answer and quality of thinking at some level. And there is an intelligence density per token that also matters. I've felt that as a user. So they would be doing materially more — $100, $150, maybe $200 billion. So you might be buying it at more like 5 times unconstrained — I'm going to make up a new number — URR. Unconstrained run-rate revenue. [00:00:00] S0: Why do you think they don't raise $100 billion at a $3 trillion valuation or something like this? If you were the Anthropic CFO — Krishna's awesome, we just had him on — or if you're Sarah, it seems to me, if the inbound I received following the Krishna episode is any indication, everyone I've ever met is trying to invest in both these companies.
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: Why do you think they don't raise $100 billion at a $3 trillion valuation or something like this? If you were the Anthropic CFO — Krishna's awesome, we just had him on — or if you're Sarah, it seems to me, if the inbound I received following the Krishna episode is any indication, everyone I've ever met is trying to invest in both these companies. [00:00:00] S1: I think it's wise. The future is uncertain. You are clearly in a very capital-intensive game. Even if you are Anthropic, who I am sure is at very positive gross margins on inference today. Anthropic probably starts generating cash this year if they're not already generating cash, which is probably the case. But still, you probably want to be able to raise more capital, access more compute. The world is uncertain. Ukraine is starting to really, really win. How is Russia going to respond? There's still a lot of uncertainty in Iran. All this uncertainty probably amplifies geopolitical uncertainty over time. So it's an uncertain world. If I think about Elon — Elon has always made investors money. He treats it like a sacred covenant. And as a result, because he's made people money for now 20 years, he has a superpower. He can essentially raise as much capital as he wants whenever he wants. Being focused on making investors money is wise, and creates benefits that don't just last for a year or two — they can last for the next 20 to 30 years. [00:00:00] S0: And the way Elon did this was systematically underpricing SpaceX or whatever else? What is the actual method?
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: And the way Elon did this was systematically underpricing SpaceX or whatever else? What is the actual method? [00:00:00] S1: Just never being greedy on valuation, never pushing valuation. Just that simple. My friend Antonio pointed out SpaceX compounded at low 30% per year for a decade, and that was just because Elon was focused on preserving the superpower and trying to strike a fair balance between investors and employees. I think it's wise. But could Anthropic raise money at probably at least a 100% premium to this rumored latest mark? Of course. [00:00:00] S0: Let's get to the watts and wafers part of the discussion. Always my favorite thing to talk about with you. The importance of this infrastructure buildout — every time I feel like it's getting overheated, the next time I talk to you, it seems like we should have done way more than we did. You've studied S-curves and the steepness of those S-curves a lot, and you know a lot about history. Talk us through how you're thinking about watts and wafers today as the key two inputs into this whole thing.
· Gavin Baker
[00:00:00] S1: Capitalism is going to solve the watts shortage — absent big regulatory political blowback, which I think is a real possibility. The head of data center infrastructure investing at one of the big PE firms — Blackstone, Apollo, KKR — said it used to be energy and chips were our biggest gating factors. Now it's zoning and approvals — much more important. A lot of companies are waiting till after the midterms to take action in terms of maybe workforce reductions. Nobody wants to be a pinata during the midterms. You've seen a lot of companies that make turbines announce plans to significantly increase capacity. There are 2 of these machines that can cast these big blades. We haven't made one in 80 years in the West. We don't know how to make them anymore. All of that is true. By no means am I minimizing the industrial engineering magic and artistry that goes into those, but capitalism is very good at solving problems like these over time. There are other sources of energy besides these turbines, with a longer timeframe. So the watts shortage will probably begin to alleviate in '27, '28, and then orbital compute will really solve that. I do want to reframe orbital compute, because when people hear "data centers in space" which we discussed in our last episode, they picture a Pentagon-sized building in space. They're like, "Well, we can't do that." That's not what it is. A Blackwell rack weighs 3,000 pounds. It's 8 feet high, 4 feet deep, 3 feet wide. It's racks in space. SpaceX showed you an illustration, and it's a rack. That's the satellite, but it's probably about the size of a Blackwell rack. It has these solar wings that are probably 500 feet long on each side. You keep it in a sun-synchronous orbit, so those solar panels are always in the sun. Because it's in an exactly sun-synchronous orbit, the radiator, which extends behind it for hundreds of feet —
· Patrick O'Shaughnessy, Gavin Baker
[00:00:00] S0: This is a common criticism. How are you going to cool everything? [00:00:00] S1: I've spent a lot of time at Starbase over the years, and I've talked to a lot of SpaceX engineers. I do think it is the most talented group of engineers on planet Earth, and they're very confident they have solved this. They're not always confident. There's some engineering that needs to happen to turn Starship into a Mars Colonial Transporter. Will they do that? [00:00:00] S0: Absolutely. [00:00:00] S1: What are they more focused on? I'd say probably repair and maintenance. [00:00:00] S0: Those are the two big responses — the radiator, and how do you repair whatever issue goes wrong in the rack?