AI trade is a combination of 'perception and reality': Bradley Tusk

Tusk Ventures founder and CEO Bradley Tusk dives into the "perception vs. reality" aspects of the broad AI trade and commenting on where these speculation trades may be manifesting behind SpaceX (SPCX) and OpenAI (OPAI.PVT) valuations.

Video Transcript

00:00 Speaker A

What makes markets interesting? What probably makes your job really interesting is that it's a combination of perception and reality, right? And if it's, you know, all perception that's one thing, all reality, that's another, but you have to do both. So like if you think about Ashton Brenner's fund, my guess is, he's a genius with math, he's a genius with statistics, but human nature doesn't always follow the numbers, right? Like, if you think about like that's what Common and Tversky and Thinking Fast and slow, that's why they won a Nobel Prize was basically we don't always follow the things that are economically rational or even rational in terms of our own day-to-day lives.

00:33 Speaker A

And so that's the case here too. So when you look at it overall, is AI a massively transformational technology that is going to touch almost every facet of life? Absolutely. Is there going to be a massive demand for a lot of it? Yes. Are there a lot of new companies? All of it. Yes. However, that doesn't mean that logic then goes out the window. It doesn't mean that when you have companies like SpaceX where it's, you know, at one point it was 125X revenue, right?

00:57 Speaker A

Math is still math, right? So yes, you can be excited about something, you can believe in something, there's some economic validity to that in a way. But at the end of the day, P has to be greater than L, you have to have EBITDA, margins have to be positive. And if you can't do any of those things, you're not a real company. And so I kind of like when we were chatting a bit before we went on the air, remember WeWork, I you've been to a WeWork, right? Like, it's a real thing. Anyone's been to WeWork knows like it's physical, tangible real estate and property that's useful.

01:29 Speaker A

But at the same time when Masa decided, oh, it's not worth 3 billion, it's worth 47 billion, everyone lost their shirt because yes, it was a real business worth two or three billion dollars. And I think the problem is, like if you take Open AI, they've got a roughly trillion dollar valuation. They had a 13 billion dollar revenue last year. I know it's going to probably double this year, but like 13 to 1 billion doesn't really compute and that doesn't even count the 1.4 billion in cap backs on top of it.

01:57 Speaker A

So I I just think that we are yet again and we've done this throughout human history where we get excited about something and we all want to be part of it and we overvalue things and then all of a sudden we have that oh no moment. I was about to say something else, but I remember on TV. And then we kind of start pulling back.

02:07 Speaker B

Brad, speaking of Open AI, let me give you another example. When you hear reports that Nvidia, you know, could be providing a $250 billion financial back stop to Sam Altman's company. Some people saw that as a yellow flag.

02:18 Speaker A

It is. For sure. I mean look, if Open, if you think about it, like I did an analysis on my substack of what would an Open AI IPO look like. And fundamentally, if they open at a trillion dollars and let's say they pop on day one because people are excited, if you bought in at that and you wanted just to assume a 25% return, so nothing crazy, they would have to go from something like 13 billion in revenue to like 280 billion in revenue in like three years, right? No one's ever come anywhere near that.

02:48 Speaker A

And people forget the fact that they have a billion four in or sorry, a trillion four in capital commitments on top of everything else. And so, if you're Nividia, you kind of can't afford for Open AI to go broke because you need kind of the the music to keep going. But, you know, the reason why Jared was just doing that and if there's any yellow flag to me, that's the fact that Jared's doing that was the biggest yellow flag I've seen so far. The music sometimes stops.

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