00:00 Speaker A

Just to get a little bit more specific here, let’s talk about Open AI for a moment since you’re talking about generative AI. So, the company looks like according to one estimate, it’s going to take in about $13 billion in revenue this year. Um, but the spending that it is doing, not just this year, but over the next several years on Oracle alone, for example, is going to be $60 billion annually. So, how do you close that gap?

00:35 Speaker B

So, Open AI I think is a is a special situation here. and I think that is what is starting to spook the market a little bit. To kind of refresh the numbers you just laid out, I think Open AI is currently generating an annualized revenue run rate of about $13 billion dollars. That’s up from about 5 billion at the beginning of the year and they expect that to be exiting the year at about 20. So, this is a company that’s growing at a pretty extraordinary clip. And if you extrapolate out that kind of growth, just to be fair, supporting $60 billion of annualized CapEx doesn’t seem like a crazy, um, aspiration. I mean, they they have to continue to grow at that type of clip, which is going to be the hard part. But, um, I do think to take a step back, back to my first point, Open AI’s investment, um, uh, plans are what seem to be spooking the markets. I think initially there was this euphoria, the Open AI spend that showed up in Oracle’s massive backlog was gave the market a lot of excitement. I think then people slowed their roll a little bit, have become a little bit more apprehensive. And then you had Sam Altman out this week talking about a trillion dollars of AI infrastructure projects down the pipe. We don’t know the timing on that, but I guess that’s a long-winded way of saying, if Open AI can continue to grow at the clip they’re currently growing at, the market shouldn’t be concerned about that infrastructure spend specifically, but Open AI is definitely separate from a lot of the other infrastructure spend that’s out there.

01:54 Speaker A

Gotcha. Fair enough. Um, so does it sounds like you don’t have the bubble concerns then that have been expressed by some in the market?

02:05 Speaker B

Well, I don’t think I so, let’s let’s I think there’s two types of bubbles, right? There’s valuation bubbles, and then there’s earnings bubbles. Two two types of bubbles in public stock markets. I think what we had in the .com, um, era was a mix of both. There was vastly overvalued companies on earning streams that never materialized. I think what we have today, speaking more so to the large cap tech companies, it’s very hard to argue that there’s a valuation bubble right now. I think valuations, so long as the earnings estimates can be realized, valuations are not the problem. So, are we in a bubble right now? I think that’s a very nuanced response. Um, I feel good about where valuations are. I’m paying much more attention to earnings expectations. And the ironic thing about a lot of what’s recently been announced is these are CAPEX plans that will support earnings growth for the AI infrastructure arms dealers like Nvidia, like the public cloud players for the foreseeable future. So, I don’t think we’re going to learn the answer to that anytime soon, and I think it’s going to be very case-by-case depending on the company, um, et cetera. So, hard to say. I’m definitely watching very closely this CAPEX, the trajectory of this CAPEX, and the monetization on this CAPEX. But as things stand today, I feel reasonably comfortable against a market backdrop where there’s increasing concern.