The Garrulous Jay – What’s That Coming Over The Hill..?

Over the next 12 months the US stockmarket is likely to welcome three of the largest companies ever to list. The three AI monsters – SpaceX, Anthropic and OpenAI could all come to market with valuations in excess of $1 trillion.

It is perhaps unsurprising therefore that there has been renewed speculation that a new technology-driven bubble is inflating in markets.

But these seemingly huge valuations are being bolstered by the exponential growth in revenues associated with AI companies, and the anticipation of the ways in which they may be able to facilitate huge productivity improvements in many existing businesses, whilst also solving some of mankind’s and the planet’s biggest problems.

First up will be SpaceX, which is actually more of a ‘Musklomerate’ than an AI pureplay, incorporating as it does Elon’s intergalactic ambitions with the X social media platform and xAI. It could list as soon as the middle of this month and is targeting a valuation of $1.75 to $2.0 trillion.

OpenAI is expected to be next up, with a possible listing in September and a speculated valuation of around $1.0 trillion, with Anthropic potentially following a month later with a $965 billion price tag.

I have no idea whether these valuations make any sense: I have some difficulty getting my head around the concept of a ‘trillion’ full-stop. Nor do I know if these companies will end up being great investments.

I do, however, have a few thoughts… I wonder if it’s possible to view these companies as 21st century utilities: in an era when what powers the world is not water or oil or electricity, but ‘compute’ it is these companies that provide the fuel that powers other businesses.

If so, then maybe there are some lessons to be learnt from other utility companies and markets.

The first of these would be that their offering is a commodity and commodities tend to see pricing power eroded, unless of course there is scarcity of supply. This is driven by reduced differentiation and an absence of end users needing to use multiple providers.

Consolidation then tends to follow from this to counteract pricing pressure by benefiting from scale economies. And consolidation may in turn lead to increased regulatory intervention, restricting how much businesses can grow, what they can do and how much they can charge.

This could ultimately mean the real beneficiaries of the AI revolution are not the AI companies themselves, but those that use their services.

The counterargument would point to the sustained success of the likes of Alphabet, Meta and Amazon as the technology frontier has moved from the internet to cloud computing and on from there. But perhaps their time is coming to an end as these new companies displace them.

Then again, perhaps first mover advantage in AI itself is also less valuable than fast mover advantage, with nimble followers adopting and adapting from the current leaders examples. And maybe for them we need to look east towards China.

Whoever ultimately wins, it’s going to be an interesting few years.