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Chapter 1: What is OpenAI's recent capital raise and its implications?
OpenAI is raising $122 billion. What comes next? Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Travis Hoey. I'm joined today by Rachel Warren and Lou Whiteman. And guys, the big headline of the end of the day yesterday was that OpenAI has, I guess, officially now raised $122 billion. I don't think they have all the cash yet. But this is companies like Amazon, SoftBank.
Microsoft is apparently back in the game, investing in OpenAI. But Lou, I'm curious about a couple of things. This, I think, is definitely the biggest raise in Silicon Valley, maybe even the biggest single raise ever for a company, and they're not really close to being profitable. Does this bring an IPO closer? The ARK funds are investing, so now retail is coming in as well, through a backdoor.
What are your thoughts on that? I know it's a big question, but it just seems like they're setting up for this IPO, but yet they still are burning through tons and tons of cash.
Yeah. I think it's important to note that some of this is backwards-looking. Some of this is just announcing the close of a round where they've announced some of these, or at least it's been reported if they haven't announced it before. A lot of this is just what was coming. Look at the IPO. Look, they say $2 billion or so in revenue per month. Figured out on the valuation, about 35X sales.
Guys, I'll be honest, I've seen worse.
That's so crazy, but that is true.
Yeah. But look, theoretically, it's growing, so that's good. Huge caveats with this. Some of Amazon's money is tied to achieving artificial general intelligence. If and when that happens, we'll see. It feels like just lawyer bait. Doesn't it feel like we're going to end up in court in two years battling over whether or not the AI is actually general intelligent or not?
The interesting thing here, though, is trying to figure out what from here. OpenAI wants to go public. Shares already trade on secondary markets. Reportedly, it is hard to find buyers for these shares right now. Anthropic is all the rage. I think that's a better gauge if true. And again, I'm not on those.
I don't know that if true, that is a more interesting data point than basically a press release announcing kind of all of the hard work they've done. But to be honest, open a kind of, OpenAI kind of needed the win, right? It's been a rough couple of weeks for them. Even if this is just them out here beating their chest, saying, we're still in this game. We're still in this.
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Chapter 2: How does OpenAI's funding round affect its IPO prospects?
If you're an institutional investor, right, you're betting on the foundational layer of the entire AI economy. We've seen, you know, institutional investors essentially salivating to own a piece of the business. I I'm curious about whether that appeal, how that's going to translate to a public listing.
When you're looking at a valuation of this magnitude, a significant chunk of at least near-term future success is already priced in. For the stock to really pop post-IPO, OpenAI doesn't just have to succeed, it has to become one of the most valuable companies in history.
What would be really interesting is when we see that S-1 filing, right, really pulling back the curtain on their exact margin structures, their compute costs. I think if those disclosures show diminishing returns or even that open source rivals are eating some of their pricing power, that kind of growth at all costs narrative could sour quickly.
So those are some things I'm thinking about right now.
The IPO is fascinating. You can game an IPO. This isn't news. We're not talking about anything. For example, one of the reasons SpaceX will achieve their $1.5 trillion or whatever is they are not going to sell a lot of shares. You can set supply based on demand. OpenAI is a very different story. Arguably, even if they're a success from here, the buzz is gone.
There are going to be a lot of insiders who are looking for exits. Plus, you have a huge need for money. They're not really positioned to just sell a small sliver because they actually need to raise this money as soon as possible. It's a tough IPO to get right, I think. And yeah, I think that's the next move here if they get there.
I wouldn't be surprised, actually, if you see an additional bridge round before then. I don't know if an IPO is looking likely in at least the next six months for them.
That does seem like a challenge, Lou, that they are in this position. We've seen this with companies. Back in my history, I remember SunEdison was one of the hottest stocks on the market for a little while, but their entire business model was predicated on raising the next round, which was theoretically going to pay off. That worked literally until it didn't.
And OpenAI seems to be in the same situation today, where if AGI, you keep moving the goalposts further and further out, AGI is this panacea of cash flow, but we're going to need a ton of cash to get there.
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Chapter 3: What challenges is Nike facing with its recent earnings report?
I'm not saying it can't continue on as a company. I'm not saying that it won't be the biggest seller of athletic shoe wear from here. I think it could be. I still don't think it's going to get my attention as an investment.
It is fascinating how this has changed those supply-demand dynamics. The interesting thing I saw in the report was that they're actually gaining share in wholesale. That was up nicely, mid-single digits. But their direct-to-consumer is down.
So the strategy that they put in place when the pandemic started and what you think these companies would like to be growing is that building that direct relationship to customers, just still not clicking.
To be fair, that is intentional, because that is what they said, that, okay, we overdid that, we have to get back in good graces with wholesale. It is partially intentional. Whether or not it's a good long-term strategy, we'll see.
Yeah. Still, they've lost a lot of that shelf space to the companies like we've been talking about. All right, when we come back, we're going to go back to artificial intelligence and Oracle's news. You're listening to Motley Fool Money.
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Welcome back to Motley Fool Money. Oracle is back in the news, this time for maybe not great reasons. 30,000 people have lost their jobs. I think all those notifications went out yesterday as we were recording. This has just been an absolutely crazy ride for Oracle. We went back and looked. Remember that announcement that seems like it was 10 years ago?
They added $300 billion worth of remaining performance obligations. A their stock popped on that news. Shares were up 30% in a day or two. They're now down 40% since before that announcement. The market is rejecting what their new strategy shift is, Rachel.
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Chapter 4: Why is the market reacting negatively to Nike's performance?
Interesting thing, Travis, and we hinted at this before OpenAI. I think right now, game theory would suggest that even if any of these hyperscalers are having second thoughts, their most rational move is to keep spending. We can deep dive on that if you want, but even if you think it's a mistake, you almost have to keep spending right now. I wonder if that is true. We don't know that's true.
Maybe they don't see it as a mistake. The whole premise might be false. It could be a period of really weird, volatile decision-making, if that's the case, though, for these companies.
Let's take Google as an example. Hey, if we overbuild, we would be better off overbuilding in artificial intelligence and data centers and GPUs and all that kind of stuff, rather than underbuilding and missing out on the opportunity. But then you look at a flip side like Oracle, And they're building with debt. So it seems like the calculus is just very different.
And if they have to keep up with those other bigger hyperscalers, they just don't have the fallback. And that's what seems to be the challenge to me, is that if Google spends all their cash flow for the next three years and then realizes it's not a great return on investment, they can just reverse course. And they'll be fine. Microsoft will be fine. Amazon will be fine.
Right. I think that's part of it. But look, very simple. They have all said we are pursuing this because it is the future. If they all blink together, it would be fine. But if one of them blinks, even if everybody's seeing the same thing, and even if it's the rational move, I think the read will be ours isn't as good as everybody else's, or we have failed.
And so I do think that just the short-term decision-making matrix is to keep doubling down, even if you have doubt, until there are clear signs that your competitors are, like, if they could all get in a room, what would they actually talk about? Who knows? But I don't think that's going to happen.
It just kind of sets up, there could be remarkably bad decisions made where 10 years from now, you look back and say, what were they thinking? I'm trying to get at maybe what they were thinking.
The other thing that we need to think about as investors is the market is starting to send those signals. The market is, we talked about it on the Friday show, management teams are going to have to start thinking about, hey, if we cut back, is the market going to cheer?
Because if you've got a crashing stock price, eventually, somebody is going to lose their job and implement a different strategy. They're going to look like a hero. A lot of game theory, as you said, going on in Silicon Valley right now. Be fascinated to follow over the next few years.
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