Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: My guest today is Dan Sundheim. Dan is the founder and CIO of D1 Capital Partners. I've wanted to do this conversation for a long time. Dan is one of those investors who thinks about markets and business constantly and has built a career entirely around that obsession. What makes him unique is that he operates at full intensity across both public and private markets simultaneously, with major stakes in some of the most important private companies in the world, like SpaceX, OpenAI and Anthropic, while running a global public equity portfolio that spans nearly every industry and doesn't concentrate in the consensus names. We start at the beginning of his career, with a story I've never heard him talk about publicly before – how a short case he wrote on Orthodontic Centers of America and posted on Value Investors Club crashed the stock and helped him land his first job. He shares why he backed Anthropic at a moment when many people told him it was the Lyft to OpenAI's Uber, what reading Dario Amodei's essays reminded him of Bezos' letters to shareholders, and how he thinks about LLM business models through the lens of Netflix and Spotify. We spend time on the extraordinarily stressful moment in early 2021 when GameStop hit the firm, and what Dan believes is the single biggest tail risk facing the global economy right now. It's hard to spend time with Dan and not come away struck by how much he genuinely loves his work. I hope you enjoy this great conversation with Dan Sundheim. I want to spend a bunch of time talking about public versus private. You do both. You started investing in privates more than 10 years ago. You were kind of one of the pioneers of this. You've got some amazing, huge private positions. Draw the contrast today in 2026 of the difference in how the two markets feel. I'm curious of a lot of things here, like how you think about valuation differences, what one tells you about the other, the business of privates versus a public equity hedge fund. I want to go into all of it. At a high level, what is your feeling on the difference between the two markets?
· Dan Sundheim
[00:00:00] S1: It changes over time. It depends where you are in a cycle. I'd say right now I think that there's a lot of interesting opportunities in late-stage privates. Some of the largest companies in the world by market cap are private right now. And not only are they large and private, they are innovating in a way that's going to change the world. This moment is particularly interesting. I think that in general, private markets are less competitive. Obviously, the core skillset of analyzing businesses is the majority of what creates value. But there's other aspects of it too. Oftentimes there's no disagreement among private investors that a certain company is excellent. But that company has to want you to be an investor in the company. So it's competitive from the standpoint of being able to create a situation where you can invest in the best companies. But in terms of like, how difficult is it to generate returns by assessing companies? I'd say the public markets are the most competitive in the world. Even though they are less efficient than they were before, it's still – you have more people in more places looking at information and companies. Whereas on the private side, just by definition, you have fewer people looking at every situation and less capital. I would say that one difference that equalizes it a bit, is that you don't have this dynamic on the private side, of people doing things that are economically irrational because they're focused on the short term. Or their business model is not consistent with investing based on long-term intrinsic value, which you have in the public markets. In the private market, every time we're looking at a business, everybody's doing the same thing. We could talk to other firms that are investing in the same company. Their research may be different than ours, but it is all trying to get at the same answer. That's very different than the public markets. So there's fewer people competing, but they're all doing the same thing. Whereas in the public markets, there's tons of people competing, but they're all playing a different sport.
· Patrick O'Shaughnessy, Dan Sundheim
[00:00:00] S0: If you think about the key companies in your private portfolio today – Anthropic, OpenAI, companies like SpaceX, Ramp, et cetera. What does that group teach you? Like, what do you think you see coming that maybe the public markets don't fully appreciate yet, that don't have that same exposure to those great private businesses? [00:00:00] S1: As long as I've been doing private and public investing, at some points in time there’s synergy. But I'd say if you go back to when we founded the firm, 25% of the time we looked at a private company, there was some synergy with what we were doing on the public side. Now, because of AI and because there's so much innovation happening in the private markets, the synergies are just greater than I've ever seen before. In that, I think if you're going to take a view on public companies that are deeply impacted by AI – which eventually will be almost every public company – you should have an opinion on, “Where's the technology now? Where's the technology going? What are the implications of it?” And investing in those companies gives you that perspective, in a way that I've never seen greater synergy. [00:00:00] S0: When you first were considering your initial investments in OpenAI and Anthropic, did you pattern match their businesses or their business models on anything that you had seen historically? Did they remind you of anything?
· Dan Sundheim
[00:00:00] S1: They were very different, in that when we first invested in OpenAI, I wouldn't say it was contrarian at all, to some extent. We invested originally in the $125 billion round. So I don't think people were entirely sold on LLMs as a business model, but if you wanted to invest in LLMs as a business model, OpenAI was the one. Whether you invest in LLMs or didn't invest in LLMs was debated quite a bit. I mean, I think there was a lot of uncertainty about the ultimate business model of these companies, so that was what we had to figure out. Anthropic was a different situation, in that when we first invested in Anthropic, a number of people that I spoke to who I think are very smart, drew the analogy of Uber versus Lyft. Or, “why are you going to invest in the second player?” In most industries, investing in the second player is not the path to glory. But the way I viewed it was – it was incredibly difficult at that stage to say who was going to be first and who was going to be second. The pattern recognition, to answer your question, for me on Anthropic was just reading Dario’s essays and listening to him on podcasts. When I look back at my career and look back at the companies we missed – Amazon in the early days – and I think, “What could I have seen?” If you look at their income statement, you would just see a sea of red. The only telltale sign was reading Jeff Bezos' 1997 shareholder letter, which was like – the clarity of thought, his understanding of what he wanted to achieve and how to create value for shareholders was greater than almost any public CEO I dealt with. If I had read that and almost ignored everything else, it would've been a really important sign, and very profitable. Dario struck me like that. It wasn't that the models at that point were so differentiated. I think they were considered to be one of – probably at that point – five, six, seven players that could ultimately be important. There's still a lot of debate around LLMs as a business model, but I felt like he was incredibly skilled and extremely focused. And I place a lot of weight, rightly or wrongly, on clarity of thought and the ability to communicate as a CEO. What you want to achieve and how you're going to achieve it. Especially in written form.
· Dan Sundheim, Patrick O'Shaughnessy
Because taking the time to write something down – you actually really have to go through everything you plan to do and express it in a way that makes sense to everybody else. And Dario just did that better than almost any CEO I've seen since Bezos. [00:00:00] S0: How would you frame the debate today about LLMs as a business model now that we know a bit more?
· Dan Sundheim
[00:00:00] S1: Back then it was like, are these businesses going to ever generate an economic return? I think one analogy was, “AI will be huge. So was air travel.” Airlines were not a good business. There's nothing differentiating about one airline versus the other, and so therefore the returns go down to the cost of capital. Obviously we took a different view, but that was like a 65-35, 70-30 degree of confidence in that. At that point, it was more about the skew. If things played out like we thought and the business models were actually moated, it would be huge. I think at this point we're in a different place in terms of the debate that’s important. The debate that's important now – if you want to look through a positive lens, which we do – you'd say that the businesses have taken slightly different lanes and have excelled at different things within AI. So, OpenAI has been great at consumer and has had good traction in enterprise. Anthropic has been incredibly successful at coding. There was a thesis when we first invested that APIs, or the business of having other software companies plug into you, or other developers plug into your model, would be commoditized. It would just be a race to the bottom. I think that debate is more or less irrelevant, because as you've just seen with Claude Code and even OpenAI's API business, these are durable businesses. And yes, can you switch? You can, the same way you could switch from AWS or Azure, but it's not worth it for a lot of businesses to do it. And there's sufficient differentiation among the models. If you look at the underlying margins of these companies, they are not the margins that you see in a commoditized industry. The gross margins are quite high. The competitive landscape, I think, is not heavily debated. At this point, you probably have four or five LLMs that will be relevant in the long term. I don't see that changing. Not that there's not sufficient talent out there, it's just that the capital required to get into this business is too great and these companies are too big at this point. And then you kind of get the snowball of – the more capital you have, the more compute, you get better researchers. I think it would be very difficult. So the competitive landscape is not really in question. I don't think anyone would say that these business models are commoditized.