More Tales From Nvidia: The Makes No Sense Edition! (Issue #255!)
This is an interesting tweet.
Although it is AI specific with regard to OpenAI, I view it more broadly regarding the investment world these days.
Open AI’s valuation should be going down, not up. The fundamental picture keeps getting worse. The prior round valuations were grossly elevated to begin with. There is seemingly nothing but massive losses on the horizon. Executives are leaving in droves. They have all sorts of issues with the product, and its related risks. The CEO is a clown. The industry overall has real issues.
We are likely looking at midterms where Democrats may gain some power (which I have stated can be viewed as a market headwind — more corporate and individual taxes, etc.), which will not be good for AI either.
Yet no matter how much worse things look, they can somehow attempt to keep raising money at a higher valuation than the prior elevated round.
One of their biggest investors (SoftBank) needs to keep borrowing money at elevated rates to keep funding them. It is almost as though there is an expectation that because the prior round was done at X, the next round will be done at almost 2X.
Who is doing this, and why? It makes no sense. The fundamental answer is the next round of financing should be done in bankruptcy court, in my view.
Anthropic is no different with regard to how the IPO is theoretically being priced and how their business is valued. The equity markets in total seem no different now.
It really makes no sense. It is almost like there is some sort of magical force elevating everything. I have never seen anything like this.
Position: None
