"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.