Skyrocketing AI stock prices have been a point of great anxiety over the past few months. Allegations of a bubble extend even longer, and with Michael Burry’s latest short position, the market took a hit. Afterwards, a whole rabble of AI industry leaders have made their way onto the media to reassure the world there is no need to worry. These attempts have had varying levels of success.
These industry leaders have been very vocal in the past, and present in the media. Think of Sam Altman and Alex Karp. They’re voices are as synonymous as the companies themselves. They are the face of the industry in many ways, and their energy, character, intelligence, and diligence, have maintained belief in their companies. Yet it seems the market anxiety has finally caught up with them. Although Palantir does make a profit each year of around 500 million dollars, its stock price is vastly overvalued, trading at 120 times their revenue, at an intimidating valuation of $455 Billion. And OpenAI, well, they don’t make profit. In fact they themselves say they are projected to lose $74 billion in 2028 alone. They have also announced that these costs will turn into profit by the year 2030. How this will be done is not clear. OpenAI as a company is similarly valued at around $500 billion. The terrible difference is they don’t make profit.
The TLDR of the problem is these companies are way overvalued for the revenue and profit they bring. As a business model, it is extremely dangerous. In this latest round of interviews, they addressed these concerns.
First we start with Alex Karp, CEO of Palantir, who appeared on CNBC’s Squawk Box the day of both Palantir’s financial quarter results, and Michael Burry’s short position publication. Palantir’s financial results were actually higher than expected. A big win. But here Alex Karp was, live on air, looking 10 coffees in, rattled, and panicky, as he was asked his thoughts on Michael Burry’s new announcement. In all honesty, the guy was making no sense, rambling on and on, touching on irrelevant topics like left-wing politics, fentanyl, and Mamdani. It perplexed me, because all he really needed to do was say something to the effect of: “Palantir is making profit, we just had higher than expected earnings, there is nothing to worry about, the short position is unfair.” Easy right? Instead he had to go on an erratic tirade.
On Burry’s short position he said: “It’s crazy motivating because I’ll tell you why the short sellers are constantly getting screwed by Palantir because every time they short us, we just are like tripling down on getting the better numbers and in part honestly to make them poorer.” Later adding: “you have this massive growth but currently as far as I can tell the two companies he’s shorting are the ones making all the money which is super weird. Like the idea that chips and ontology is what you want to short is batshit crazy.”
Then onto Sam Altman. He had an interview with Brad Gerstner, a top investor, on his podcast for a Halloween special. Gerstner holds stock in OpenAI. He starts to ask Altman how OpenAI is going to be able to pay for their spending commitments of $1 trillion with a revenue of $13 billion, and Altman actually cuts in and interrupts him before he finishes the question.
Sam Altman says: “First of all, we’re doing well more revenue than that. Second of all, Brad, if you want to sell your shares, I’ll find you a buyer… I think there’s a lot of people who would love to buy OpenAI shares. There’s people who talk with a lot of, like, breathless concern about our compute stuff, or whatever, that would be thrilled to buy shares. So I think we could sell your shares or anybody else’s to some of the people who are making the most noise on Twitter about this very quickly. We do plan for revenue to grow steeply.
“We understand where the technology, where the capability is going to grow, and how the products we can build around that and the revenue we can generate. We might screw it up, like this is the bet that we’re making and we’re taking a risk along with that. A certain risk is if we don’t have the compute, we will not be able to generate the revenue or
make the models at this kind of scale.”
This was not as much of a disaster as Karp’s interview, but it still had people on alert online. I don’t think Gerstner even meant it as an accusatory question, but Sam did approach it in that way, perhaps in his head it linked in with a lot of the accusatory chatter on social media of the AI bubble. It is a fair question after all. The short answer is, they believe they can grow revenue exponentially with the higher compute power. That compute comes from the data centers that they are paying for. Although they cannot pay for that now, they believe they will in the future.
Although there is huge criticism and anxiety in the public and analyst community, investor reaction to this has been light, and many have even doubled down on companies like OpenAI. SoftBank for example, sold all their 5.8 billion Nvidia stocks this week, which may seem like a move to escape, but in fact reinvested it all into OpenAI themselves.
Finally we have CEO of AMD Lisa Su, who also appeared on CNBC’s Squawk Box. This time it’s a more relaxed appearance. Well reasoned, confident, and quite frankly, jovial, Su said: “I don’t think it’s a big gamble. I think it’s the right gamble. And the way I would say it, is we can also definitely see that more computing and more investments equate to a faster pace of innovation… I think you can also see all of the pointers to more productivity and more capability.”
AMD’s earnings beat expectations last week, but their stock dipped. It has now stabilised.
For all the hype around Michael Burry’s short position, the news has fallen flat. The size of the short was reported as being close to $1 billion. In fact, this is a total misreport. The real size, as Burry has explained on X, is around $9.2 million. Now Burry has announced his famed investment fund Scion Capital will close down, citing his own feelings of being out of touch with current market trends. The problem now is, there is no real pushback against the AI industry. Within the investors, there is nothing but support.
One of my observations is that, in fact, the AI industry is unlike any other industry. Less of business, and more in terms of ontology. They have business models in mind, and many of the companies do generate revenue. But at the moment the goal is to create huge investments, and develop the infrastructure for super intelligence and AGI. There is belief that this will generate profit in the future, but this is only one consideration for this field. I believe they are correct. That AI is going to forever change our society. They have made a big bet that this level of intelligence is possible, but to achieve this, they need trillions of dollars, and time.
Financial viability is not the only factor here, some in the industry believe this is a kind of frontier of human life as we know it. At the 2020 World Economic Forum, Alex Karp said this: “Military AI will determine our lives, the lives of your kids. This is a zero-sum thing. The country with the most important AI, the most powerful AI, will determine the rules. That country should either be us, or a Western country. It doesn’t mean your anti our advisories, it just means: would you rather have them with the equivalent tech or us… This program will quite literally determine who is standing here and what they are saying in five years.”
