"80% No, 20% Yes" — Coatue's Philippe Laffont Responds to Michael Burry's AI Bubble Warning

So for me, it really makes me think about the way that I want to invest. To be the anti Darth Vader where I view Darth Vader, obviously as Blackrock.

Actually had dinner with him last night, and I accused him of being Darth Vader. And he said, you're not totally wrong.

Thank you for having me as well.

Yes. I mean, I've said the story before, but I'll go through a very, very quick background. I was undergrad and grad at MIT, and I was studying computer science, and I only wanted to work for Apple, and I had five job interviews when I graduated from grad school and five rejections. And that's how I ended up.

I'm not a very good computer scientist, clearly.

But I got into the investment business. And any of you guys want to come and visit us in our office? I have this ginormous museum of every Apple product, including the ones that don't work. And whenever the Apple management comes, I point out we would have done better if I'd been there. But anyway, it's been.

You know, in 2000. I've only had five good ideas in 25 years. Really my 27th year doing this, when we started the fund, we had 50 million. And today we have almost 100 billion. So it's been a long ride, but I've only had five good ideas. And I feel that in technology you have to think about the big trends. And in my case we had the PC, the PC network, then we got the internet, then we got the mobile internet because we wanted it in our pocket. Then we wanted some apps. So we had cloud computing to have the apps. And then today we have AI. And AI seems to be such a big trend obviously. And yes, we are a little bit at the center of everything. But last time I felt at the center of everything was in 1999. So I'm a little bit worried. I don't enjoy feeling at the center of everything.

In 99, we recognized that we were probably in a bubble, so we survived. After that, we invested in a lot of internet names. Then we switched to mobile internet and we got Apple. And I feel like in the investment world you think about a macro trend, and then when you latch on to one, you peel the onion and there's 50 layers. So when you think that Apple becomes big, it has so many implications on everything. And today obviously the big one is AI right.

I would say usually I work my way up to that. But since you mentioned 1999, I would say 80% that we're not and 20% that we are. I think the biggest differences around why not being in a bubble is that the people funding the AI CapEx, it's these companies that generate about $1 trillion of EBITDA a year every year and have no net debt on their balance sheet. The hyperscalers. So the hyperscalers, so very different than during 1999, when it was the retail and the financial markets that were financing. That said, you're seeing the financial markets. Google just issued 80 billion. There's a little bit of debt, very, very small amount of debt on the scale of things. So the capital markets are becoming a little bit more involved. And then the other part is the P/E multiple is let's say 20 times 21 times during 99. The P/E was like 50 or 60. Now the 20% where we could be in a bubble is what if stocks are cheap because the earnings have been front loaded and at some point the earnings melt. And so we're thinking about earnings that are not sustainable. That would be the other argument.

Yes. How do you our assets are split about 50/50 between the publics and the private. And I've always felt if you allow me for one second I want to rant about, I have this view of the public markets where I think that Blackrock and Vanguard and all the large funds that are quasi index fund like Fidelity and Capital, they've basically completely corrupted and warped the public markets. And if you think about it, private credit in my mind exists now because investment grade credit was so rigid that it basically allowed this new market to be created and in the public markets under the pretext of low fees. Everybody now in the room thinks the same. So if you think about the public markets with Blackrock and Vanguard, it would be like all of us are in the room like sheep and we're all thinking the same, and we're all going to jump over the hill at the same time. And I think that before public markets had much more diverse opinion. Right now it's like one big train everybody gets on. This is why there's no IPOs. This is why there has basically been software IPOs. And this is why when they are IPOs, they're gigantic IPOs. Because if everybody thinks the same then we're only willing to accept a new person in the club when he's big and strong and absolutely uncontroversial. We don't know if space is worth 2 trillion or not. But we all agree that it's a very valuable company. And so for me, it really makes me think about the way that I want to invest. And I'm exaggerating a little bit, but it's sort of to be the anti Darth Vader where I view Darth Vader, obviously as Blackrock. And I want to be able to be public stocks and private stocks.

I'm very friendly with them. One of his family members works at Coatue, and I actually had dinner with him last night, and I accused him of being Darth Vader. And he said, you're not totally wrong.

Well, it's Obi-Wan. French people are not known to be particularly humble, so don't let me going down that way. But I think that the way to invest in the future is you have to invest in public and private. You have to be willing to be different. There are times where we've held 80% cash in our fund, not fully invested at all times. I think risk management matters, and I think those are all the things that one should do. And if you think about it, who was the best guy that had a lot of cash, a lot of publics and a lot of private, it was Berkshire Hathaway and nobody asked Warren, why do you hold on to so much cash? Or why do you have this in public, this in private? And in particular, the thing that bothers me the most with the public markets is they've completely surrendered their intellectual, intellectual, creativity and intellectual capability to the indices and the indices. They're decided by, like bureaucrats that live in the basement of MSCI and the basement of, you know, S&P. And how is it possible that we're allowing these people to tell us what we should invest in the future? And I think this is all disguised under the fact that the fees are low, but you're basically dying by a thousand cuts. And so I feel hopefully the way we invest at Coatue and our success is almost by thinking all the things that other people do that don't make sense, and just hopefully by doing those, it's like 75% of the work.

Let's say that AI turns out to be a really big deal, which I think which is we said 80%. That is going to be a big deal. And I think it's going to be a big deal for the next ten years. Not just that. Like in one year, it's catastrophic and it's over. They'll be ups and downs. But these trends that I spoke about the last 10 or 12 years on average, so we're probably two years into a ten plus year, 10 plus year trend. Right. So let's say that you like AI a lot. You may just say, well, look, the basic unit that makes AI work is semiconductors. So I would like to have a lot of semiconductor exposure on top of it. You could say that these AI models, one of the things is the way I think about these AI models is they're like digital 3D printers, i.e. they can replicate anything that's digital. So you could tell a model, here's a big book that describes how Excel works. Write a piece of identical software to Excel, and in a few hours you get it. So if that's the case, you could say, whoa, that could be very bad for software. So now why am I letting the MSCI guy decide that my semiconductor weight has to be 19% and my software weight has to be still 30? So you do your own MSCI, we do our own MSCI. Yeah. And you can do that on the public side. And then on the private side you have to go and think like what are going to be the companies that in essence will be part of the Nasdaq in 5 to 10 years. And there you have time to front run the indices because since they don't want anything that has any hair and they don't want to invest in any companies that are losing money, and sometimes you have to lose money to establish your number one or number two position. Then maybe we can invest in those before. So that is Anthropic, OpenAI for case. You know we own Anthropic. We own OpenAI. But there's a lot of other interesting companies, one that people don't talk a lot about. But I think it also become a trillion is Revolut. I think that Revolut is like this. Nobody has been able to replicate Bank of America or JP Morgan yet in the digital world, I think there will be a super large digital bank of some sort. Because if you have one software that works in every country and you don't need any branches, then presumably you're going to have a great cost advantage. And I think that could be Revolut.

Yes. So is that a yes? No, that's when I go. So it means Sarah. Good question. But I'm not going to answer it. What you're asking me.

Yes, I will answer precisely that. But let me just start with this. Before people talked about the Magnificent Seven and in essence the Magnificent Seven. It was the seven largest companies in the world. And at one point they all became worth 1 trillion. I think that today it depends on the day. There's probably close to 20 companies that are worth 1 trillion. It's the Magnificent Seven, but you've got TSM, Hynix, Samsung, Micron. So you got the rise of some big semiconductor.

We are in some of them. But I can't disclose secrets there. And there's also some two, three, $4 trillion companies I think Nvidia's five. Another question is, let's say the market cap of the world today is about 70 trillion. Let's say that in ten years of the US and the market cap in the world, I think is 130 trillion, the wealth of the world is 500. I always like to attach myself to key numbers, and obviously the rest of the wealth would be real estate and, you know, other things like that. So in ten years, maybe the market cap of the US is 150, and maybe the market cap of the world is 300. It would be 7% per year for the next ten years. So could you have a $10 trillion company back then? Could you have $5 trillion companies out of either 140 or 300, meaning like, could a company become 3 to 5% of either the US or the World Equity Index? I'm like, yes. And so now the next question is, well, what kind of companies could do that? And then the question becomes, do you think a company that provides intelligence could become one of the largest companies of the world in ten years? And I don't think there's going to be that many companies that can provide intelligence. And on the subject of intelligence, I think that as the industrial societies have grown, the way you can measure industrial society is like, how many utilities do you have? So water became a utility, electricity became a utility, broadband became a utility. Gas and energy or utility. I think intelligence is going to be like the fifth utility. And so for 50 to 200 bucks a month, all of us are kids, our grandkids are going to be incredibly intelligent, and it's going to be utility to be intelligent. What's not going to be a utility is judgment, courage, intuition, loyalty. There are many other ways that we can distinguish ourselves, but the basic thing of intelligence is going to be utility. And so the question is can Anthropic or OpenAI or maybe another one someday, ten years down the road, be worth 5 to 7 trillion? And I don't know that the reason why I don't care is because if I've got a portfolio of them, then at least I've constructed something. That luck is on my side. And I think the key in the money management is try to build a portfolio where the luck is on your side. And could Anthropic be worth 5 or 7 trillion in ten years? Absolutely. There's a chance now. Maybe it doesn't work, but hopefully I'll be able to adjust if that's not the case. But I'm happy that at least I own an option into that future.

Yes, I like to diversify because first I'm wrong a lot. I don't have a crystal ball, but the part that underlines what I really believe in is that the AI is going to fundamentally change so much of what's going on. It's not just AI, there's other trends like in space. I think space is going to change broadband. I think the whole telecom infrastructure is going to go to space. If you think about space, what's amazing is a satellite. Right now, we're probably one mile away from my phone to your to a tower and on a highway, I could be as far as 30 miles away from my phone to a tower. If I'm in a car in the middle of Arizona, something like that, maybe 40. A satellite is only 200 miles away, and space is infinite. There's no zoning, there's very little regulation. I think all the telecom infrastructure of the world, the undersea cables, the fiber optics, the cable, the wireless is going to move to the sky, which, by the way, has very bad implications for wireless companies, for charter cable companies, for anything land based, anything that's land based. Now, they might be able to adapt. They'll change some companies. They don't let just the future happen and do everything about it. But if I was a CEO of that company, I would definitely think, wow, I need the option value in case that word where they are partnering happens.

Like, I don't know if it's like the problem with my with my framework and you saw that is I'm never sure what something is worth today. So if you tell me like a SpaceX today worth 1 trillion maybe is it worth three. Yeah, maybe. And is the IPO going to be at two? Probably. Well you can't value it off of the current metrics. And it's very difficult. But where I've been able to make most of the money is I try to view myself as a growth investor. And I think a growth investor is someone who wants to be a value investor in ten years. So the most important thing for me is to think, what could the earnings of SpaceX be in ten years? And if it's really, really cheap in ten years, then I can own some today and I can own more if it goes down and I can sort of survive along the way. And so I don't really know what it's worth today, but I could paint the fact that it could be worth a lot today, a lot in the future. And one way that I think is useful is to always say the opposite, which is to say, oh, I know it's so obvious that SpaceX is so overvalued. This is total fucking bullshit. It's so expensive. But to say but why is many people in the market think that it actually is worth 2 trillion? What is it that they see that I don't? And I found that that line of thinking at least has been able to get me out when I'm like sort of stuck in, you know, in a bad space.

You know, I, I found that there's a reason. Obviously, I spoke to you guys about it at the beginning, why engineers don't necessarily make good financiers. And it's very clear that a decent or good financier can make for a very bad engineer. And so I think that the thing as an investor is don't get bogged down in the details and think about the big picture. So in the case of space, just thinking like, look, could mining move to space tourism, move to space. Could telecom move to space. Could real estate move to space whatever. Right. And I think it's just you have to be creative. You have to be a little bit imaginative, but you don't need to get lost. Like some investors are really good. And they can tell you the 19 different chips of Nvidia. And why is the Rubin different than the previous one, which I don't even know than the current one that I also forgot the code name of the current one. Blackwell. Blackwell. There you go. But I do know that the Nvidia chip is like a neuron and all the connectors of the chip. It's like a synapse. And why the AI is so powerful now is we have gotten rid of this very dumb CPU based, which is like the old calculator, this dumb computer fabric. And we're reinventing this computer fabric that looks much more like a brain that I feel is like the big idea. And not to get lost in the details, but when you're talking about multi-trillion dollar companies changing the way we think and we live and we operate, leadership really matters. So I wonder what you look for in some of these founders and CEOs that you invest in early that you think are going to change the course of history.

Yeah, you know, I do. And I'm worried because you see Bernie Sanders, who has decided that he thinks that we should take half of nationalized. And I was like, damn, that's why I left France. You know, I didn't think these ideas existed in the USA, you know? Now, a tax rate might be even higher in the US than in France or some European countries. But I think that the two leaders, and this is the one quality that may be much more than a communication, charisma or leader that I look for is people that can adapt, adapt and survive. And in different times adaptability is different. Right now, the there's people are worried about what AI means. I'm worried about what AI means. And so we have to respond to those worries. We can't just say some sort of absolute way. And so these leaders are going to need to change and adapt. I think that it's not true at all that AI is going to get rid of jobs. I think that usually why you can't find a job is because you have no skills. And by my definition, with intelligence, you're going to be really clever, really fast. So if you're clever, you should be able to find a job easier than if you're not. So I'm pretty optimistic about the future, but we need to find ways to include society. The government should be highly involved in AI, but hopefully not nationalizing the companies either.

When the US took the equity stake in Intel, so the CEO of Intel, he had been an advisor of Coatue for seven years. And I was like, God, first of all, look, the government, they think they know more than me about Intel. How silly are they? And they cut the deal in like 24 hours. And turns out it was a really good idea. Was that 20? And I think I started buying maybe some Intel at 80. So look who was the dumb one. And where is it now? Like one one. Excuse me. Where is it now? 130. That's. I got 100 or 110 and.

So things change and the government can make very good decisions because the government has a view around geopolitics and the fact that semis need to be built in the US. And then maybe investors, they don't understand some things. So I think that's what happened there.

Biggest home run. You said five good ideas. I think the biggest home run is that we have had always good risk management, and I attribute it to a quality that nobody believes in. But when I arrived in the US, I was an American and I was like, this is an amazing country. I don't want to do anything that I get shipped out. So for me, being careful was second nature. Second part is I started January 1st, 2000. Anybody that wasn't careful got wiped out. And for me, surviving 2000, 2001 and 2002 to this day is like a tattoo that I have. How did you do that? And I can never. Back then I was a good analyst, but a very bad portfolio manager. But the part that I had that was lucky is I always tried to meet all the other portfolio managers, and to this day I'm very connected and I always speak all the time to everyone. And so while I don't always have very good ideas myself, I have a good sense of why different people think different things. And I felt that for me, being outgoing but also being careful by nature, it was like my way of ensuring that I could stay in the US for a long time. And so maybe that's why I took a little bit less risk and was a bit careful. But that adaptability at the end, I'm still around 27 years later, and I don't know if I have 27 years left. I'm 58, but I think why not? I could potentially work to 85.

My portfolio is growth in risk. But the way I'm going to answer that would be it's not always like that. Sometimes I have a lot of cash, sometimes I have a lot of hedges. And also I might be less risky than someone who's not in growth because they're going to die from a thousand cuts. Whereas if I can survive the bounces, I'm being pulled by this fast pace train. And so that's also an advantage. So it cuts both ways to be to be in growth. Sometimes I would say that the people who have the bad portfolio is the value guys who are all in, you know, private credit and real estate and other areas that are not as involved in defining the future as the areas that I invest in.

We think more about innovation than tech. So there's innovation in many sectors, not just tech. Sometimes it's not obvious, but we do some stuff in healthcare. We do some stuff in maybe real estate around data centers, which I would view as real estate for tech. So I look at I think we cover 85% of the S&P. So that gives you a sense of a pretty broad.

You know I have a schizophrenic relationship with Bitcoin. When it goes up I wake up at three in the morning and I'm like why do I not own any bitcoin. And then when it goes down I'm like, well that's why. And in general my view of Bitcoin is a much more interested in the rails and in the stablecoin. And I've always thought that Bitcoin was the answer. It was the relief valve to my theory around Blackrock and Vanguard that if Blackrock and Vanguard control all the ships, Bitcoin was the one escape valve while they were no IPOs. And then this would explain why I as you now have SpaceX and other IPOs coming potentially that could be a big risk to bitcoin because those people that want to speculate or that want to be in another part of the market were now have a new instrument to basically that you can invest through. So I'm. Negative Bitcoin and also in general I'm always every time I say I'm negative something we're near the bottom. So you guys can decide.

My conviction, my highest conviction idea is to decide what your risk tolerance is. And it could be 0% of your portfolio all the way up to 100. And once you've decided what the risk is, is to make bets where you'll be able to look back in ten years and say, that was a courageous bet that I made, thinking that the world was going to change at a much faster pace in the next ten years, and it was a good bet. That's my best idea.

Thank you very much.

Thank you.