SpaceX IPO Sparks Anticipation for OpenAI and Anthropic Public Offerings

[00:00:00]What I would say to you is I share your sense that this is the kind of bell that might ring at the top. Um, it is an unprofitable company in aggregate. It is an enormous valuation.

[00:00:13]I think we all we both read in the paper this morning the Goldman estimates of what growth would have to be in some parts of their business, like 100 X, in order to justify the current for a long period of time, for a long period of time. And those projections have a way of not happening. Um, it is not impossible, but it's hard.

[00:00:32]Um, I think that that it is, um, the, the I think investors might be missing just how much money is being sucked out of the system between large IPOs. This won't be the last one.

[00:00:50]OpenAI and anthropic are coming, and there's a ton of other IPOs that are stuck in institutional investors portfolios that also they'd love if they could get them off at any point. Um, then the float might be tiny today, but you have a large number of shareholders.

[00:01:06]Private investments. We read again this morning the 10 or 15% of some endowments, um, entire endowment is in the one namespace.

[00:01:15]So they're going to want to sell employees.

[00:01:18]They're going to want to monetize and go from being wealthy on paper to wealthy and a bank deposit. And so that's a lot of stock for sale.

[00:01:27]And we have to sell that stock. Well, apparently Google and Facebook need more money. And where OpenAI and anthropic need for money and utilities need more money to power and chip companies need to build new factories in America. There's so much demand for money.

[00:01:44]And I think we're in a vulnerable place where ultimately supply and demand for money determines the cost of capital. And that's true in a bond market.

[00:01:53]And it's in effect true in the stock market.

[00:01:55]So we might be looking at some um, supply demand, um, excess um, where prices soften just because there's so much supply of securities and, and the need to, to monetize is so great by these private companies.

[00:02:14]And that was famed value investor Seth Klarman on this week's Masters in Business podcast. Joining us now for more on that conversation. Is the host Masters in Business.

[00:02:21]It's very great to speak with you. And let me start with what we heard Mr. Klarman speaking about there just a moment ago.

[00:02:25]That's all the money getting sucked out? Yes.

[00:02:28]By this fake space IPO. But presumably what will be sucked out by the OpenAI and anthropic IPOs here in a few weeks time?

[00:02:35]What does that mean? I think we had a long conversation on this show with at Ludlow, Billy Lipschitz, about like, if SpaceX goes first through such enthusiasm, so much eagerness to get into that stock, what does it mean for these other two companies intending to go public?

[00:02:48]There's a massive in their own rights that it's so funny because Klarman, throughout our whole hour and change conversation, repeatedly said, I'm a bottoms up guy. I'm not a top down guy.

[00:03:01]Our decisions are made one by one on each specific investment decision.

[00:03:08]And yet when we're talking about IPOs, that's a very much a top down situation.

[00:03:14]Um, you know, the world is complex. We go through a period where it was a year ago, a year and a half ago, everybody was complaining, gee, we're no IPOs. Nothing's coming out.

[00:03:27]This is terrible. Now you have a lot of giant IPOs coming out. And, um, a different group of people are unhappy. Um, the bottom line is, uh, for someone who's a value investor like Klarman, how expensive are the opportunities that are out there? And are we willing to sit in cash and be patient throughout the 40 plus year history of the Balbus group?

[00:03:52]There have been times where he's raised 30, 40, 50% cash of their total investable assets, which is something like 23, $24 billion right now.

[00:04:04]Um, they haven't done that yet, but he's starting to accumulate, uh, more cash as opportunities become, uh, either pricier or harder to find.

[00:04:19]But is there, I mean, to follow up on David's question, possibly with the dumber version of it, is there an endless amount of money here at some point? If all these IPO's are going for these astronomical amounts, doesn't doesn't not just interest, but don't you run out of supply, or is this something that you think the market can sustain so well first? Um, if you look at the space IPO, forget the $2.5 trillion that's make believe Mark.

[00:04:46]That doesn't reflect the fact that $75 billion, uh, is the what's floated, which is, let's be honest, these days, with so many trillion dollar companies, $75 billion is just walking around pocket cash.

[00:05:05]Sure you like it? That's number one.

[00:05:08]Number two. Um, Deutsche Bank did a really interesting analysis that said, let's look at the percentage of total market float of a whole market, uh, of new issuance.

[00:05:20]And this year we're about 0.8%. Uh, we peaked somewhere in 21.

[00:05:27]During the Spac frenzy, around 2.2, 2.3%.

[00:05:32]So there's a ways to go before this really becomes problematic.

[00:05:38]And keep in mind, now that space is public.

[00:05:41]It's going to take them a full 12 months to slowly feed out a healthier chunk of their float. I don't I haven't read any of the docs on anthropic or OpenAI or any of the other potential mega IPOs, but my assumption is it's going to be something similar.

[00:06:01]They'll come out with 50 to 100 billion, a tiny slice of the float, and then slowly feed that out as they judge market appetite for fear.

[00:06:10]You talk to investors of all stripes, and I want you to put value investors into that pantheon. Not the sexiest kind of of investing, but I'm curious in this moment through the role that they are playing and how should we should look at somebody like Seth Klarman in the context of the kind of fervor that we're seeing, the excitement, the enthusiasm we're seeing about AI and all the potential that that it could bring here in the future.

[00:06:33]What is the role of value investing today in the year 2026?

[00:06:36]So, you know, the definition of value investing has changed over the years.

[00:06:41]And I think of someone like Klarman, um, as not a straight up traditional Graham and, uh, equity value investor. But Bal post has demonstrated they're opportunistic. They look at different asset classes.

[00:06:59]They look at distressed debt, they look at credit, they look at real estate.

[00:07:03]They're not afraid to go outside of the traditional US equity, selling at a at a discount because some company ran into a hiccup.

[00:07:14]And that's part of the reason why value why Battle Post has put up numbers about 20% a year for the past 42 years. That's pretty, pretty impressive.

[00:07:24]That said, when we are in an environment where large cap growth, where momentum is dominating value, forget not being sexy.

[00:07:35]Value is going to generally underperform in that environment right up until the point when the leadership shifts go back, um, to 99 and 2000.

[00:07:47]How many people said Warren Buffett has done this value is over.

[00:07:52]Just as we were about to enter a decade long period of value outperforming growth. Um, so someone like, uh, fun like bal post that has a lot of different expertise and a lot of different, um, ways of approaching opportunistic investing.

[00:08:09]Yeah, the traditional equity value approach, um, when that's out of favor, they look elsewhere. Uh, and again, he is not afraid to hold, you know, a chunk of stock. Now Klarman in the interview said, hey, back in the day, there were times where I would hold 40, 50% cash.

[00:08:28]Yeah, we really don't do that anymore. We try and find some, um, opportunity that will generate a return while we're waiting for better opportunities.

[00:08:38]But ten, 20% cash is not unheard of. And he thinks that we're not quite at the top. He's certainly aware of, um, if you listen to the conversation, he is aware of the impact of AI and how it is generating a lot of activity. And that sort of momentum could push for a a good couple of years. Very great to speak of.

[00:09:02]He has always been a great host to host the Masters in Business podcast, joining us on this Saturday. Be sure to check that out anywhere you get your podcasts. Barry.

[00:09:07]Thanks again.