Can AI stocks beat Big Tech? In this episode, I discuss OpenAI and its decision to expand a secondary share sale that lets insiders sell about $10.3 billion of stock at roughly a $500 billion valuation. Although skeptical at first, the calculations reveal there is a path for OpenAI to deliver outsized returns.I cover:(0:00) The $500B question (01:11) Why the Nasdaq Index is the benchmark (03:35) Inside the OpenAI-Microsoft deal (05:50) The bull case: OpenAI’s trillion-dollar path (09:33) The AI market explosion (12:39) The bear case: Competition and constraints (17:13) Exploring the models of tomorrow (20:58) The disruption premium (23:21) Where will OpenAI’s revenue come from? (29:14) The final verdict Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.
Full Episode
Today, I'd like to speak to you about a question that really got me thinking. So I was on WhatsApp with my buddy and we were discussing the news that OpenAI is allowing insiders, that is early investors in the companies and employees, to sell up to $10 billion of stock at a $500 billion valuation. My friend asked me this very pointed and helpful question. At this price...
Would you be a buyer or seller of OpenAI? Now, investors have lots of choices when they decide where they should put their money. That's based on one level, risk and return. It's based on their worldview. It's based on building a diversified portfolio that rides out the bad times and wins in the good.
So when my buddy asked me this question about OpenAI, yes, it's about whether I reckon OpenAI's value will go up or down in the coming years, but it's also about the other choices one might have with this sort of notional investment in the firm. Would you be better off putting your money elsewhere? Now, given OpenAI is a technology stock, that somewhere else Easiest be the NASDAQ index.
It's the stock index that aggregates most of the big tech players. And so in my interpretation, the real question is, do I think that OpenAI is going to outperform the NASDAQ over the coming years? Now, what I should remind you is that nothing I'm saying is financial advice, not a red sentiment. So it's a fun experiment. I've been thinking about it. So let's start with some context, right?
There is a benchmark here, right? Over the last decade, the NASDAQ index has returned roughly 13% per year. It's pretty generous. Over 15 years, it's returned about 17% a year, nearly 23% over the recent three years as the world has got excited about AI and this new technology. So What does 17%, that 15-year track record, mean?
It means that roughly every four or five years, if you'd put your money in the NASDAQ, it would double. Not adjusted for inflation, but just in sort of nominal terms, it would double. That's pretty punchy. With that punchiness comes some volatility. Prices on the NASDAQ bounce up and down. Nothing in life comes for free. You get the return of the NASDAQ. You get a pretty excitable stock index.
So if you buy an index like a NASDAQ, which you can do in many different ways, you get a bit of diversification and every single company in that index is a public company subject to the governance and reporting of public companies. And if you bought that index, it's immediately liquid. You can take your profits and losses whenever you like.
You know, you could sell when it's a bit high so you could go off and treat yourself to whatever you fancy. Private companies can't sell their shares. You can't sell those shares as easily. They are somewhat illiquid and they don't have the same infinite information rights or governance controls as you're forced to do on the public markets.
So all of that should add what would consider a risk premium. You know, you can't be buying open AI when you could be buying the NASDAQ because, you know, you get the benefits of that diversification and sort of public governance. 17% is not enough. It's got to be much more than that. It's got to be, I don't know, in the case of this 20, 25%.
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