What we're about to see is $400 billion worth of new supply flooding the market all in one go. And so the question is, is the demand going to keep up with the supply? When I look at the fact that the largest IPO year ever was 2021, where $140 billion was raised, we're about to see triple that. We're about to see 10 times more the amount of money that was raised in the IPO markets last year. It was around $44 billion. We're about to see $400 billion, probably more than that. My view, supply is about to flood this market. It is going to outstrip demand. The only answer after that is that prices go down.
Today's number, 59. That's the percentage of Americans who say they will not watch any World Cup match. Is it? What's worse than the US men's national soccer team?
Absolutely nothing, Ed. Nothing.
Are you excited about the US team?
No, I'm not excited about the US team. I'm excited about the England team.
Team England, your man Cole Palmer.
Well, he's been left out. You heard that?
Cole Palmer. I mean, it was just devastating news. Cole Palmer has been left out of the England squad. So, a lot of not really much reason for the Chelsea fans to be watching, but I'm still going to be cheering for England anyway. We still got some amazing players on the team. Harry Kane's going to be carrying us. Jude Bellingham, you know, team England all the way. But yeah, it's very, very sad about Cole.
Cole Palmer did not make the England squad.
Because we've just had a, we've had a bad season. And Cole, I mean, as much as I love him, he hasn't performed. And I think this guy is basing his decisions over form versus fame. Uh, he also didn't include Phil Foden, who's kind of our other star.
Foden, I understand. When I, I've been to three World Cups. I've been to the US, Russia. Last time we did it, whenever it was, like '94, and then I was in Russia, and then Qatar. And when Cole Palmer was at... Eze came on the field in the second half.
Mhm. I had lunch with, I forget the name. The guy was a Team England coach of the last one. Lovely guy. And of course I couldn't like stop heckling from the cheap seats.
Yeah. Southgate. Based on the fact that I've played FIFA once or twice, which makes me a coach, I'm like, every time Eze and Palmer came in, the whole mood, the whole vibe, the whole momentum of the game changed. I'm like, why didn't you start them? And of course, he sat there and he was very polite, thinking, who the [__] is this guy asking me about football? I didn't even imagine how much second-guessing that guy gets. Uh, but yeah, I can see. Well, anyways, um, I think it's a big mistake not to have... Who are the, well, let me put it this way. Who are the two or three young stars from Team England that everyone's excited about?
Eze's in the squad this tournament, and he's been playing incredibly well for Arsenal. So, people are very excited about Eze. Um, Manchester Saka, of course, everyone's excited about Saka. There's a new defender on Manchester City, Nico O'Reilly, who will be interesting to see. But I mean, the other big star who got left out as well is Trent Alexander-Arnold, who's the Real Madrid star.
We need to speak to the coach.
Oh, yeah. Let's get him on the phone. Thomas Tuchel, Scott Galloway has some advice for you. You need to stick with your superstars versus, I don't know, whatever this intellectual... um, I don't know what you would call this.
Going for form, form over fame. I mean, that's it. It's, yeah.
This show is off to an awful start. It's off to an awful start.
Well, this is what happens when you go on tour and you have this hangover. I slept 12 hours yesterday and I still feel terrible. This is the problem. I'm not, I'm not sharp right now.
Well, imagine doing it when you're like 90 years old and you're with a bunch of children roaming around the nation trying to figure out what you're gonna say tonight that's any different than the night before. I felt like Mick Jagger out with a boy band.
Yeah, like out with 'N Sync when they were still in high school.
Um, what was the highlight for you of the tour? Let's...
Well, we'll get to that. We're going to do a full review of the tour at the end of the show.
So, I think I'm just going to launch us into the business stories of the show. What do you think about that?
Let's do that. What? What the hell?
Google is making a massive bet on AI and asking investors to help fund it. The company is planning an $85 billion equity offering, which would be the largest stock sale in history. Roughly $10 billion of that investment is expected to come from Berkshire Hathaway, which will reportedly receive a 6.5% discount on their shares. Google's stock fell 4% after the announcement. The fundraising effort highlights the significant cost of competing in the AI race, and Google had already been ramping up spending aggressively. In April, it raised its projected capex to as much as $190 billion for the year. And the timing is notable because Anthropic just confidentially filed for an IPO last week. And SpaceX is set to go public this week as well. So, some analysts believe that Google is trying to secure the investor capital now, possibly before it has to compete with those other offerings. Scott, we've got an absolute whirlwind of huge equity offerings here. We've got SpaceX. We've got Anthropic soon to come. We've got OpenAI supposed to come later. And now we've got Google with this 80 to 85 billion equity offering, the largest public equity offering of all time. Um, initial reactions.
I just loved reading this. I think it's such corporate genius. And a tech executive that doesn't get her due is the CFO of Alphabet, Ruth Porat. So, first off, this is going to be the largest equity offering in history or to date, unless, I don't know, one of the big three, the other three going out raises more money. And it's kind of the story that, or the news story so far has been, if Alphabet needs to tap the markets for additional capital with the kind of cash-generative juggernaut it is, it's kind of like Warren Buffett taking out a mortgage. It just gives you a sense for how thirsty this capex is, or how much is required to keep up. Now, I would argue that's not this. I think they could fund this off their balance sheet. My sense is that a CFO's job is to find the cheapest capital possible and use that capital as a weapon to pull ahead of everybody else. That's their job. How do we raise more money less expensively than everybody else? And I think what Ruth Porat, and what I believe is everyone else, you know, Microsoft, Nvidia, CoreWeave, Apple are going to may do the same thing, is they're like, okay, look at the valuations that are being paid or supposedly might be paid for, you know, they'll call them the big three, Anthropic, OpenAI, and SpaceX. That is insane. And so what they're saying to the market is, okay, you want some of that upside of incredible infrastructure investment on this brave new world of AI which has a TAM the size of, you know, not Everest but of constellations. Okay, you can get some of that upside with us and there's a whole lot of less downside. If AI doesn't work for Alphabet or it doesn't live up to the expectations, it's still an amazing business. And so what they're doing is they're cutting the line and saying, 'Okay, if there's this cheap, i.e. stupid, capital out there that is so dying to get into this business that they'll pay this type of valuation, fine. Here you go. We're cutting the line and we're going to take $85 billion off of the table because the cruelty of capitalism is that every resource is finite.' And the amount of new capital willing to go into AI infrastructure bets is finite, and they're about to take $85 billion off the table. So, I wouldn't be surprised if we see Amazon all of a sudden announce a new equity offering. I think this is genius. Cutting the line and taking $85 billion of cheap capital off the table and saying, 'Hey folks, uh, look over here. We're hot. We're in the hot space and there's less downside with us.' I think it's brilliant because AI has become the railroad boom of the 21st century. And that is, everyone agrees it's transformative, but it's more difficult. The harder question is whether or not the people laying the tracks will earn a return on that capital. And every time we've had this kind of capex in the past, whether it's the highways, the global telco build-out in the late '90s or railroads twice, there ends the electric grid, there's usually a bit of a crash following it as people realize the ROI is just not there. But I love this story. We talked about it yesterday on the editorial call. I just think it's hilarious. These guys are stepping in front of the little kids and basically the twofur here is Gemini wants to kick Anthropic and OpenAI in the nuts and they're doing this by stepping on the carotid artery of their capital raising plans.
Yeah, I think that's exactly right. And the thing that you mentioned yesterday is, you know, maybe the pitch to investors is maybe there's less upside for the Google IPO versus the SpaceX IPO, but at least you're protected on the downside. My argument is I think you could argue that there's actually a lot more upside in the Google offering because you've got SpaceX going out at more than 100 times earnings or more than 100 times sales, excuse me. I mean, if we were to price Google, which is already an incredibly successful business at the same multiple of SpaceX, Google would be worth $45 trillion. And so this is, I mean, this is a company that is actually priced quite reasonably when you compare it to the other offerings out there. So I would argue that when you look at it on a risk-adjusted basis actually there's a lot of upside here and so they're almost just rebranding themselves as the hot new AI company by making this equity offering and I think it's really fair game. Now, you mentioned this idea that they're going to extract the capital out of the ecosystem, which I think is very true, and I think it does pose a problem to Anthropic and to OpenAI and potentially to SpaceX, although SpaceX is set to go out pretty soon. And it does seem that there is a little bit of a concern here that whoever goes out first is going to suck up all of the energy and all the capital out of the room. And Google is creating a problem there. So that's one point that those new AI companies need to be aware of. But I just want to go through the size of these offerings here and add it all up. So you've got SpaceX which is going to raise $75 billion in its IPO. Largest IPO of all time. Uh, I mean the largest amount that was ever raised was Saudi Aramco in 2019 with around $29 billion. SpaceX is going to raise 75 billion. So that's one. Then you've got Anthropic. Anthropic just raised a private round. It's Series H. They raised $65 billion in their private round. Just for context, that is more than double the size of the largest IPO of all time. And this is a private round. Now, this company's going to go public. It's going to IPO later this year. So, presumably, they're going to raise more money at the IPO. Let's call it say $100 billion or somewhere in that ballpark. It seems reasonable that that's what they're going to do. Now, let's look at OpenAI, also going to go public. Their last private round, they raised $122 billion, more than triple the largest IPO of all time. So, let's just assume that they're also going to raise, I mean, we're going to be conservative here, somewhere in the ballpark of $100 billion. And then you've got Google, which is raising 80 to $85 billion, the largest public equity offering of all time. So add it all up, these companies alone are about to ask investors for $360 billion-ish of fresh capital. And that's in addition to the $30 billion that have already been raised so far from IPOs this year. So this is $400 billion of new equity issuance that is about to be flooded into the market. I just want to go back to Econ 101. What is Econ 101 all about? It's all about supply and demand. This is the fundamental thing that we all learn when we take economics and the rule of supply and demand is what happens to prices when there is an oversupply of a product, when the supply outstrips demand. The answer is prices go down. And I think what we might be about to see in the stock market is the same thing. And that is for years what we have seen in the public markets is a scarcity of new equity supply. There's been very few amounts of IPOs that have been happening, very, very little new equity issuance. The IPO market's practically been dead since 2021. But we're about to see $400 billion worth of new supply flooding the market all in one go. And so the question is, is the demand going to keep up with the supply or is the supply going to outstrip the demand? It's a very simple question. And I think to me when I look at those numbers, when I look at the fact that the largest IPO year ever was 2021 where $140 billion was raised, we're about to see triple that. We're about to see 10 times more the amount of money that was raised in the IPO markets last year. It was around $44 billion. We're about to see $400 billion, probably more than that. My view, supply is about to flood this market. It is going to outstrip demand. The only answer after that is that prices go down. I do think that once these companies go public, that's going to signal the top and we're going to see a very significant bull pullback specifically in the AI trade because there simply isn't enough capital to go around to keep prices propped up.
The other thing that hasn't gotten the reporting that I think it deserves is that Berkshire Hathaway is getting a 6.5% discount. So when arguably the richest company in the world needs to sell stock at a discount, they're telling you that even the capital has become scarce even for them at these levels, right? I mean that struck me that they needed, I don't know if they wanted the credibility or an anchor for the deal or the diligence or brand halo that Berkshire Hathaway brings, but why on earth did they need to offer Berkshire Hathaway a 6.5% discount to what retail investors are going to pay? Do you have any thoughts there?
I think that's part of the problem here. Why is there a concern? And I think there is a very reasonable concern. We're now getting to a point where people are asking is there actually enough dry powder left to go around? I mean the fundamental question you have to ask yourself if we're about to see all of these IPOs and it's going to total somewhere close to $400 billion. The question is do investors have $400 billion laying around in cash right now? Does that actually exist? And so that's the first question. It sounds like Google at least maybe is a little bit concerned or maybe there's like a shred of doubt that actually it does exist right now. So they'll give some shares to Berkshire Hathaway because they said we'll lock it in and we'll do it at the 6.5% discount. So does that exist or are investors going to have to sell something in order to buy these IPOs? I think that is the question. If the cash exists, then great, no problem. The markets continue to rip as they have done for a long time. I mean, later down the line, we're going to see that investors are a little bit more strapped for cash and there might be problems later on, but if the money's there, then okay, good. I doubt that all of that money is there or that investors are willing to shell out like that. I would think that people are going to have to sell something in order to buy these. And then the question becomes, what are they going to sell? Are they going to sell their homes to buy the SpaceX IPO? I don't think so. Are they going to sell their defensive positions like their industrials and healthcare and utilities? I don't think so because I don't think you want to switch from those defensive positions and then go into these highly risky AI positions. I think if you're selling something to buy SpaceX or to buy Anthropic or to buy OpenAI, realistically, you're trimming your tech positions. Like you're probably trimming down on Tesla for example to get into SpaceX or Nvidia or Broadcom or maybe you had some investments in these ridiculously high-performing chip companies like SanDisk and all the rest of the chip companies and you're going to take some of your profits from those positions and then put them into these other IPOs. Either way, the point is there is now a significant justification to pull back from these standard equity positions in AI, which is going to put pressure on prices moving forward. So, this is really the real test of AI. Can you keep these prices up when you suck out this degree, this amount of capital out of the markets? And is that going to be sustainable for the long term? And I would just finish here by pointing out some research from BCA Research where they looked at some of the largest IPOs going back to the '30s. They looked at like the Xerox IPO in 1936 and the Ford IPO and the McDonald's IPO. And what they found is that the S&P tends to underperform right after these major blockbuster IPOs because what always happens is that there's so much excitement when the IPO happens. The IPO sucks all the capital out of the ecosystem and then it leads to a period of time where there simply isn't enough capital to prop up that demand. And so it's hard to believe that that isn't going to happen at this point. I don't think it necessarily means that we enter like a structural bear market, but I do think that it means that this is, I mean we're in kind of crazy town right now. These companies know it, which is why they're going out to the markets now, raising at the largest valuations that are humanly possible. And then we're going to enter sort of the sobriety phase where we realize, okay, I mean, what more can we buy? What more can we prop up? Um, and so I think that's the thing to keep track of right now.
I mean, remember when Marc Andreessen said software is eating the world, now it's transitioned to AI is eating balance sheets.
It's just coming in and soaking up. And I just got off a webinar for a section, the AI adoption company, and disclosure, I'm an investor. The, I mean the thing that fascinates me, they were asking me what am I advising companies around and I'm so happy not to be advising companies anymore. Anyways, the...
Instead you're advising Gareth Southgate.
A lot more fun. Seriously, the amount of golf I had to [__] play, Ed, with people I didn't enjoy that much.
I just cannot picture you playing golf.
Oh, I played. I got to like an eight handicap. Um, I was playing golf every weekend, like twice a week. If you ran a strategy firm in the '90s in San Francisco, you either played golf or you didn't have new clients. It was absolutely how you got to know your clients was golf. I promised myself when I moved to New York, I was going to pour all of that time into fitness. And I have played golf maybe three times in the last 20 years and I do not miss it. Anyways, one of the things everyone's talking about, token maxing and the wrong incentives. You should be focused on productivity versus how many tokens used. But something that struck me is I finally got one of those prompts. I've been, I love Claude. I play with it. I play with it a lot. I think one of my biggest unlocks in terms of a hack was connecting my Gmail. And it's such incredible optimization for your search because if I'm trying to figure out, all right, what is the, you know, Vox gets acquired by James Murdoch, I'm like, okay, what does that mean for us? So I say please go into my email and look at the agreement I have with Vox. Is there a change of control provision? You know, and you can't ask the web that. But there's so much information that's germane to you and your communications with everyone and it goes through and it says here's a thread from 2023 that explains and the agreement that you both parties signed in the exact paragraph. It's just such... Anyways, I'm fascinated with Claude. I love it. I purposely don't ask it for personal advice because I just, I don't ever want to have anything that gets in the way of my relationships or inspiration or motivation or incentive to ask people and friends for advice versus asking something that's just going to take me to a regression of the mean. But anyways, I got one of those prompts finally that said, 'You're out of tokens and we need you to upgrade to Claude Pro Max for $200 a month.' And at first I'm like, 200 bucks a month. I'm like, wow. And then I thought that's a lot. And then I read that Claude Pro Max costs, if I sign up, it costs Anthropic $5,000 a month in compute and inference to service you. And so I quite frankly, what I'm saying to people now is like, all right, create incentives around or try and attach productivity regardless of the technology you use and have workshops and lunch and learns that are optional. This is how you connect different things. This is what it's good for. I have found that AI is really disappointing as it relates to imagery. You know, everybody thought it would come up with great videos or Instagram posts or imagery. I find it's really disappointing there. I find it's terrible at original writing, but it's amazing for distillation, editing and finding interesting data or analogies that you might insert into your writing. But the writing itself has to start with a human. At least that's what I found. But what I tell people is if you had a business tool that right now cost you 20 cents but the provider was spending five bucks on it, you might want to adopt and experiment at the outer edge because you are getting, it's never been cheaper. At some point they're going to have to, while I think there'll be a war and the cost will come down. It's pretty inexpensive right now. Um, well actually it may get cheaper with these Chinese open-weight models, but let me summarize this word salad. There has never been a moment in history where despite the unparalleled revenue growth which Mark Mahaney reminded us of, the RBC analyst in San Francisco...
