@BetterIRR

Stonks: Prefer low starting multiple + margin expansion + robust topline

Joined April 2020
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The AI boom is narrower than almost anyone admits. The top 10% of firms account for 99.5% of all model-serving spend, 99% of neocloud, and 95%+ of OpenAI and Anthropic billings. And 80.4% of the heaviest AI spenders run on venture capital, not their own revenue. This is a concentrated, circular buildout. A handful of companies are the entire trade.
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Is the AI boom a bubble outside Tech? 馃搲 Rev per worker: S&P 493 flat 馃搲 Profit margins: S&P 493 flat 馃搲 Productivity boost: None Non-tech sees AI token spend as a cost center, not growth. The macro AI story will be decided in the S&P 493, not the Mag 7. T at Apollo
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This is a worse data set than ramp but tells the same story. All the AI growth (declerating as it is) is being driven by the top 1% VC funded companies. Ex AI lab VC funding is already 0.5T. This bubble only goes on if ever larger VC cheques are written.
Matt Harney
@SaaSletterOct 23
馃憖Yipit coverage of Anthropic below
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(And 500B is a lot already.) Either $NVDA (or someone?) starts parabolically funding VC firms or this is all over.
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Modeling $REAX is an incredibly frustrating experience. That said I feel pretty good that we are close to 14x synergized pre-tax earnings (48M). Not the worst price to pay for a secular winner in REAL at the trough of the cycle.
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more replies
If you think they can get there in say 5 years you're looking at a tripling of pre-tax income in 5 years. On top of that, you likely have a housing recovery sometime within those 5 years further juicing things. The base biz will also be growing, REAL had impressive share gains.
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Anyone have a strong view on the name? Think it's a good setup.
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Your hyperscalers are dead money for 2 to 3 years: -> Over earning across the board (implemented price hikes on non AI workloads via compute + memory constraints) -> Neocloud BKs will lead to distressed GPU pricing -> Equity investors will start paying attention to massive 1/x
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Off balance sheet lease + obligations -> hypers will either have to keep funding the labs funding w/ no hope of return or do it themselves in house to not loose edge (perma a worse business than pre-ai) -> Over capacity comes with structurally higher cost base need absorb
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Was it this easy to call the top in the dot com bubble?
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AI bulls, is this good?
AI
@mostgroundtruthOct 22
Replying to @stevenfiorillo
@stevenfiorillo
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When aggregate AI spend goes negative the real fun starts!
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It's all fake. Meanwhile, token prices are down 25% m/m.
Joe Weisenthal
@TheStalwartOct 22
Great chart from Slok. Everybody knows that a very small % off companies are consuming the lion's share of token consumption What's interesting is that of those top 1% of spenders, they're overwhelmingly VC-backed companies. May have implications if VC-funding starts to slow.
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What's the best way to play this? Want trough valuation @ trough margins.
Amy Nixon
@texasrunnerDFWOct 20
Pending home sales fell to a record low in September: Lower than during a global financial crisis Lower than when the entire country was on lockdown for a deadly pandemic
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Any $MBX.TO fans out there? Think it's a solid setup.
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This underscores the point I have been making, even the present ARR is fake. AI spending is very very top heavy, and if this is correct, 80% of that is VC funded.
Ara Kharazian
@arakharazianOct 20
This chart shows the key risk to the AI trade, and it's missing from the latest revenue announcements. The AI boom is fundamentally driven by a top 1% of companies that drive 80% of spend. Within that top 1%, 80% are venture-backed. That's all fine if the AI trade works out, and if, as some prominent investors say, everyone wins. But if it doesn't work out, then we have a cascading effect of large customers simultaneously pulling back their AI spend.
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Is this true?
MacroValue
@pradeeepkOct 17
Imo the single most bearish chart for the AI trade here Inference in only ~37% of compute usage Source @SemiAnalysis_
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I love how all the AI bull theses are always "the hyperscalers can fund this" or "nvidia can backstop that" and not "we will generate the trillions in revenue needed"
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