I spent about an hour today trying to convince a friend that works in private equity that OpenAI is undervalued at $30B. I pitched him on short AI timelines and transformative growth, and he didn’t disagree with those arguments directly. He mostly questioned whether OpenAI would reap the benefits of short timelines. A few of the points:
It’s a competitive industry with other players on par or not far behind. Google, Meta, and Anthropic are there already, and startups like Stability and Cohere could quickly close the gap. This is especially true if “scale is all you need”, rather than human capital or privately generated data.
The main opportunity is B2B, not B2C. Businesses are more cost sensitive and interested in cheaper alternatives than consumers, who gladly accept name brands.
Profits often lag behind research breakthroughs for years and even decades. There’s no billion dollar app for GPT yet. Investors “don’t care about anything that’s more than 15 years away.”
IMO these are boring economic arguments that don’t refute the core thesis of short timelines or AI risk. OpenAI is getting a similar evaluation to Grammarly, which also sells an LLM product, but with worse tech and better marketing. It’s being evaluated on short term revenue prospects more than considerations about TAI timelines.
If OpenAI is working closely with Microsoft than MSFT becomes an extremely attractive investment. Microsoft is in talks to invest 10B. If this goes through I would strongly advise investing in MSFT. Seems like one of the best ways to get exposure.
MSFT is already valued at $1.7T (it’s the 3rd largest company in the world). What multiple do you think is realistic over the next 5-10 years? Or would you suggest call options? (If Microsoft owns 1⁄3 of OpenAI with this latest deal, that still only represents 0.6% of MSFT marketcap. Also OpenAI profits are meant to be capped at 100x; with that you’d only get a 1.6x on your MSFT.)
Tech as a whole went up a lot after COVID, then down in the last year or so. This helps demonstrate how much the entire sector can change in value.
(In addition, if a ton wealth went started valuing tech stocks higher, it would take less than $1 to raise the value of them by $1. Maybe much less than $1. A great deal of global “wealth” is really just “expectations of value or future earnings”. So as expectations rise, the S&P 500 and I believe “Global Wealth” would rise as well.)
In comparison, tech stocks might be valued at like ~$6T?
According to companiesmarketcap.com, Apple, Microsoft, Google and Amazon alone are worth $6 trillion. I am not familiar with an estimate of the total market size, but I suspect it is substantially higher than $6 trillion?
Sorry—I was thinking, and should have specific, about the FAANG stocks, plus maybe NVIDIA and one or two AI-specific companies. All of tech globally is significantly larger, though I think most of these companies likely won’t substantially compete in the AI race.
If Microsoft takes the lead among big tech companies then the market cap doubling in five years would be reasonable. Though its unclear they will pull that off. If timelines are fast and Microsoft stays in the lead 10T isn’t crazy. It’s also worth noting that even if the AI thesis doesn’t play out Microsoft is a 25PE blue chip with very capable management. So the downside here is pretty low as far as buying tech stocks goes. Buying call options requires getting the timing right.
I spent about an hour today trying to convince a friend that works in private equity that OpenAI is undervalued at $30B. I pitched him on short AI timelines and transformative growth, and he didn’t disagree with those arguments directly. He mostly questioned whether OpenAI would reap the benefits of short timelines. A few of the points:
It’s a competitive industry with other players on par or not far behind. Google, Meta, and Anthropic are there already, and startups like Stability and Cohere could quickly close the gap. This is especially true if “scale is all you need”, rather than human capital or privately generated data.
The main opportunity is B2B, not B2C. Businesses are more cost sensitive and interested in cheaper alternatives than consumers, who gladly accept name brands.
Profits often lag behind research breakthroughs for years and even decades. There’s no billion dollar app for GPT yet. Investors “don’t care about anything that’s more than 15 years away.”
IMO these are boring economic arguments that don’t refute the core thesis of short timelines or AI risk. OpenAI is getting a similar evaluation to Grammarly, which also sells an LLM product, but with worse tech and better marketing. It’s being evaluated on short term revenue prospects more than considerations about TAI timelines.
If OpenAI is working closely with Microsoft than MSFT becomes an extremely attractive investment. Microsoft is in talks to invest 10B. If this goes through I would strongly advise investing in MSFT. Seems like one of the best ways to get exposure.
MSFT is already valued at $1.7T (it’s the 3rd largest company in the world). What multiple do you think is realistic over the next 5-10 years? Or would you suggest call options? (If Microsoft owns 1⁄3 of OpenAI with this latest deal, that still only represents 0.6% of MSFT marketcap. Also OpenAI profits are meant to be capped at 100x; with that you’d only get a 1.6x on your MSFT.)
MSFT is valued at 1.7T using scenarios that don’t assume transformative AI.
If you really think TAI will happen soon, and think they will dominate, I think the EV of MSFT would go up much further.
How much further? And how much relative to the stock market as a whole?
The stock market as a whole could become significantly larger.
I just did a quick search:
- The total S&P 500 Market Cap is ~$33T
- Total Global Wealth is ~$460T
In comparison, FAANG tech stocks might be valued at like ~$6T?
[Edit: Changed “tech stocks” to “FAANG tech stocks”]
https://www.slickcharts.com/sp500/marketcap
https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html
Tech as a whole went up a lot after COVID, then down in the last year or so. This helps demonstrate how much the entire sector can change in value.
(In addition, if a ton wealth went started valuing tech stocks higher, it would take less than $1 to raise the value of them by $1. Maybe much less than $1. A great deal of global “wealth” is really just “expectations of value or future earnings”. So as expectations rise, the S&P 500 and I believe “Global Wealth” would rise as well.)
According to companiesmarketcap.com, Apple, Microsoft, Google and Amazon alone are worth $6 trillion. I am not familiar with an estimate of the total market size, but I suspect it is substantially higher than $6 trillion?
Sorry—I was thinking, and should have specific, about the FAANG stocks, plus maybe NVIDIA and one or two AI-specific companies. All of tech globally is significantly larger, though I think most of these companies likely won’t substantially compete in the AI race.
If Microsoft takes the lead among big tech companies then the market cap doubling in five years would be reasonable. Though its unclear they will pull that off. If timelines are fast and Microsoft stays in the lead 10T isn’t crazy. It’s also worth noting that even if the AI thesis doesn’t play out Microsoft is a 25PE blue chip with very capable management. So the downside here is pretty low as far as buying tech stocks goes. Buying call options requires getting the timing right.