Let's welcome in our headliner for our annual conversation from the Milken Conference out in Beverly Hills, Brad Gerstner, the founder and CEO of Altimeter Capital. It's always great to catch up with you. This is especially timely given it comes on the heels of those mega cap earnings reports. We'll also discuss Anthropic versus OpenAI during our conversation today because you are an investor in both. So, that's a really interesting position to be in. But let me get your thought if I could to start things off, Brad, where we are in the market first and foremost and whether you, like many, are as surprised at the speed in which we rebounded from those March lows and hit these new highs as we have this conversation today. A minor pullback of course in the moment notwithstanding.
Yeah. Well, it's great to be here, Scott. Not only on my 55th birthday, we're usually out there in the round with all these people walking around us. I think this is our sixth or seventh Milken together. So, it's great to be here. What I would say is, I mean, listen, the conversation here has been terrific. We came into this year and there was a huge question overhanging the market. Would AI revenue show up to justify these legendary spending levels by the MAG 5? This year, we're going to have 800 billion in total capex by the MAG 5. And the question was, would there be revenues to justify that? And what we saw over the course of the last month were two things. Number one, the market got comfortable that we were going to get past the geopolitical concerns in Iran and the strait. And number two, they saw the revenue showing up from the hyperscalers. 28% revenue growth out of Amazon at tremendous scale, or 39% for Azure, 63% for Google. Extraordinary. And of course, Anthropic is adding revenues at rates we've never seen before, by the way. And so is OpenAI. And so the question as to whether or not the revenues would show up to justify this level of spending has been answered very loudly at least for the moment. But listen, part of the reason we're still hanging out at market multiples or in the case of Nvidia way below market multiples is there's a wall of worry. Will the revenues continue? Are they durable? Are the margins going to be high enough to justify, you know, the return on investment? Those questions have to be answered. I certainly feel strongly that they will be answered in the affirmative, but that's the reason we don't have a bubble and we're not running away with super high, you know, multiples in excess of the market.
I just read the stat before you joined us according to Goldman that the mega caps now trade at a smaller premium than they had before to the S&P, like 13%, for the simple reason of what you and we here at the desk have talked about, the growth in the revenues and the earnings projections are astounding. So what does, just figuring your positioning and knowing the stocks that you own, I don't know, the last month must have been just incredible for you guys. But what does your positioning look like?
Yeah. I mean, listen, last month was, I've been at this now for over 20 years professionally in the public markets. It was our best month in the history of Altimeter. And we're bouncing off, you know, a bottom that was a tough month the month before, but we stayed the course. You can see what our exposures are to. We own compute. We own logic. We own memory. The substrate of AI. And I continue to believe that, you know, those things are going to perform incredibly well. Think about memory as an industry is only trading at five times earnings, in the case of Nvidia trading at 13 or 14 fully taxed GAAP earnings. And so, we think these things are undervalued. We understand the concerns that are in the market. But listen, it comes down to this. If AI does what we think it's going to do and these companies supply the chips to AI, they're going to be much much higher in the years ahead. I've said before, I think Nvidia will be the first 10 trillion dollar company. As I sit here in May of '26, I believe that to be true. And whether it comes all at once or whether it comes over the course of the next two to three years, we're patient. We're going to own this. It's one of our largest holdings.
So, as we sort of look at what we learned, so to speak, from these mega cap earnings reports, right after they all came out, we characterized them on this program as Alphabet looking like the clear winner from the reports, not in the biggest picture, and you can have a different opinion, of course, and we'll get that from you momentarily. The clear loser from earnings appeared to be Meta, still suspect, appeared to be Microsoft. And humming along Amazon like you were just talking about and the reason why it's one of your largest positions. Have we characterized those fairly do you think?
I mean listen, all of those companies are doing extraordinary things. Let me just give you a statistic. It's just eight quarters ago that collectively they were doing $150 billion in revenue. Now they're doing $350 billion in revenue. They are growing tremendously faster than what the consensus expectations were just a few quarters ago. I think all of those companies are going to do great. Certainly, people are asking the question about Meta. You're spending all this money on capex. What do we get for it? Right? So, they're going to have to show continued acceleration. They're going to have to continue to do the things to maintain margin. They've talked about how they're going to continue to tighten the belt, to make sure that the margins pay for the returns that we're getting. But I'll tell you this, if I know Mark Zuckerberg and team, they're going to deliver some great models and some great products, productivity for the consumer, entertainment for the consumer later this year. I think it will continue to perform well. But listen, Amazon, Microsoft, and Google have tangible returns. Their cloud revenues are accelerating at scale. We thought Amazon was best positioned for a lot of reasons, partly because it had underperformed, partly because of Trainium. But they're really just doing an incredible job now. Major shareholders of both Anthropic and OpenAI. OpenAI about ready to distribute all of their models across AWS, which we think will help accelerate OpenAI. But clearly Google with its TPUs, its cloud services is benefiting tremendously from what's going on in AI. And most amazing, let me just say, I was on here two years ago and I said, listen, Google is suspect because 10 blue links is going to get displaced by the answers of AI. They grew search revenues 19% in the quarter, way higher than we forecast a couple years ago. I'm glad we had the mental flexibility to own Google along the way here, but the reality is this moment because the rate of change is so high, Scott, you have to maintain your mental flexibility. But I don't think you're well served by trying to day trade this. You'll get whipsawed because the market was down a lot earlier in this year only to come roaring back. I mean, you look at the returns in the month of March and April. If you sat out 3 weeks in April, you missed two or three years worth of return in many of these stocks. So that's the danger of trying to think that you can outrade this thing.
To borrow the phrase from Yogi Berra, it's like deja vu all over again a little bit. It sounds around Meta specifically as you're just articulating all the money they're spending. Can they hold in margins? Can they this that and the other? It almost feels like you want to draft another letter, but your position size today isn't what it was when you wrote the original time to get fit. But are we in a little bit of a moment in which investors are crafting their own sort of questions about this company?
Well, I'll tell you, Susan Li is an extraordinary CFO. She's focused on free cash flow. Mark and the team are totally AI-pilled and are focused on delivering the best products in the market. I think they're going to shock the world in the second half of this year with some of the products and the models that they're going to roll out, but they know they have to deliver. The nice thing is AI is bringing incredible efficiencies to their business and everybody else's business. I think you're going to see margin expansion. If you look at the S&P 500 earnings increase, a tremendous amount of that is coming from margin expansion. I think we're going to see that for the next 3 years, it's going to show up in the economy in the form of productivity gains. And Meta led the way in the fall of '22 and in the spring of '23. Remember, it was Mark Zuckerberg who wrote his own letter that said flatter is faster, leaner is better. He's lived up to it. He's led the way. I think he'll continue to do that with Susan making sure that margins stay intact notwithstanding all of this investment.
I'm hoping that you're not going to give me a I love all of my children equally kind of answer when I ask you about Anthropic versus OpenAI in which you invest certainly in both because I feel like, and Joe alluded to this a moment ago, that investors have started to try and pick a winner at least now between the two of them and that Anthropic seems to have stolen a lot of the buzz because of their positioning within the enterprise relative to the consumer. You've had some questions now being asked about who's on the best road map to an IPO. Is OpenAI missing some of their revenue targets and their user targets. All of these things that we gave them at least at the beginning the benefit of the doubt now I don't feel like it's so much. How do you answer that?
Well, listen, the Kentucky Derby was this weekend and the horse that started in last ended up winning the Derby. The fact of the matter is we have three or four horses in this race. They're jockeying. They're changing positions along the way. They're all great. And guess who's winning? Team America is winning. We have multiple models competing. Whether it's Elon, whether it's Google, whether it's OpenAI, whether it's Anthropic, they are keeping America on the frontier at the moment. Make no mistake about it. Anthropic has taken the lead in January, February, March, and April by adding historic levels of new revenue, right? Because they came out with Claude Code and Opus 4.6 in early December and enterprises across the world are adopting it. But if you look at the growth in Codex over the course of the last four weeks or three weeks, it's pretty incredible. If you look at what's being said on X and Twitter about Codex versus Claude Code, incredible. So here's the thing you have to know. I believe that the wave is the biggest wave in the history of technology will be incredibly beneficial for America. I'm rooting for all of them because I'm rooting for America. I think you can own all of these. It's not that everyone is equal at a moment in time, Scott. But this idea that one of these is going to win it all, I think is misplaced on the enterprise side, just as we have with Amazon, Google, Microsoft. We have great competition. They split up the profits of the cloud business. I think you're going to see that in AI on the enterprise side. On the consumer side, sure they haven't got to a billion weekly actives yet, but they already are at over 900 weekly actives. It is the verb still in AI, but you can't count out Google or Claude. And a lot of consumers are using it. So, we have active competition. They're both doing great. Here's the deal. I would buy both of them today in the market if they were trading in the public market because I believe that the entire sector is early in its penetration of the largest TAM, the total addressable market we have ever seen. We are still very early days. The two winners are going to be much much bigger than they are today.
Brad, great to see you. Happy birthday and I agree completely with your assessment of OpenAI.
This Joe turnover by the way can't see. Go ahead Joe.
Oh, Brad knows me well enough to know my voice. Brad, I have to ask you, there is some general concern about ultimately when OpenAI and Anthropic step into the public market. Where does the capital come from? Is that a concern from your perspective? Walk us through how you see that unfolding.
Well, first Joe, you've heard me say many times they've already IPOed. They were just private IPOs. OpenAI raised 110 or $120 billion in the most recent round. Look at the cap table of the investors in that round. It looks, first it's bigger than any IPO we've had at 120 billion. And then, the list of investors in that round from the Fidelities and the Capital Groups to the Altimeters and the Cotus, it looks like a day one IPO cap table. So, I think you got to understand that. Secondly, whether or not they'll be bought in the IPO in the public markets all depends on how the company is doing relative to its price. You and I both know there are trillions and trillions and trillions of dollars on a global basis that look to find any opportunity for arbitrage, any opportunity for alpha. So, so long as they're priced fair to the future expectations of the company, of course, there's going to be tremendous demand for the business. The same for Anthropic. Frankly, the demand for Anthropic shares today is some of the highest demand I've ever seen over the last 25 years in Silicon Valley. So, you know, I hope and you've heard me say, I want these companies to come public. I think it's super important that retail investors in the United States have the opportunity to participate in the two most important companies to come along in technology in years. I'm thrilled SpaceX and xAI are going public at the end of June. Right. Most people are talking a lot about Anthropic and OpenAI. Elon is an N of one. He's building incredible capability and capacity on the data center side. And so that one's going to be the first one out of the gates. I love the fact that they're all coming public. And I would love to see each of them put some shares away for every kid in their Invest America, their Trump accounts, right? Could you imagine if every single one of these 40 or 50 million kids had a share of SpaceX or a share of OpenAI or a share of Anthropic in their accounts? That's the way you align all these kids with the upside of capitalism and the upside of AI.
