The Dots Are Here!

0:01Travis Hoium:The dots are here and Motley Fool Hidden Gems Investing starts now.

0:09Travis Hoium:Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium joined today by Rachel Warren and Lou Whiteman. Guys, Meta's Muse had the market's attention for nearly a month, but that's long enough in the world of artificial intelligence. Dots are here. This is a Muse-like product from OpenAI. It can operate within ChatGPT. Rachel, they're all bringing out these interesting characters. They want us to be using agents all the time and kind of interacting on an ongoing basis with Muse, with Dots. What do you think about OpenAI's play into this world? I mean, I think this is kind of the continued push for durable monetization for OpenAI, right?

0:50I mean, there's been a lot of experimentation to see what works. I think this is sort of the next iteration of that. You know, Dots, there's a$200 a month plan. There's also a$500 a month tier for the really kind of heavy corporate users. And so, you know, this is not for a casual consumer use case. This is very much for digital power users, really, you know, highly technical professionals thinking data analysts that might be running massive sets across systems, software engineers running continuous background code tests. There are applications here. So this isn't, you know, a chatbot. It's really an advanced workflow infrastructure layer.

1:24What's kind of interesting, though, is I was reading that OpenAI is already cutting compute limits on the$200 tier because running the background agents is obviously wildly expensive. So that could be a bit of an issue in terms of execution. I mean, as you noted with Meta's views, it sort of held the spotlight for a few weeks. Then OpenAI has jumped in with dots. I think one of the big takeaways for me here is we're seeing that, at least algorithmically speaking, modes don't exist right now. You know, the moment one of these companies invents a new feature, a competitor clones or improves it within weeks, no one is sitting on a lead in terms of those types of products.

2:00Travis Hoium:Yeah, Lou, that seems to be a big piece here is that whatever somebody creates, no matter how awesome it is, somebody can just copy it. And it only takes about 30 days.

2:08Lou Whiteman:Yeah, weren't we just talking about this two weeks ago when we were talking about why we shouldn't be too excited about Metastalk at this? Yeah, sure enough. Look, congratulations on the modernization strategy. They had$200 a month. All they need is what, about 200 million users annually to pay for their compute spend? I don't know what they're doing here. It feels like that maybe they were just annoyed with Meta's valuation because it doesn't feel like that there is a real chance for monetization here. There's no chance normals are going to say, huh, let me sign up to pay$200 a month to find out if this is any good.

2:43Lou Whiteman:That's just not going to happen. I mean, I guess you could give it away for free and hope people get addicted. But again, they have muse down the street. And with the compute costs, I don't know if that's a good idea. So this is neat. This is fun. This is still not answering any of the questions that we have about this company. It's a great proof of concept. But if it's not a revenue producer, opening, I still got big questions. If this is an add-on to a$200 subscription plan, I've still got big questions. So I don't know what problem they're solving here other than saying, look what we can do.

3:18Travis Hoium:Yeah, Lou, I wanted to touch on that because that seems like the interesting thing with all of these products. And we keep coming back to this over and over again. This is amazing. I think it's great that we can do all of these things. I've found great use cases in Muse. They're not massive use cases, but just small improvements to my life. And yet I'm not going to pay for them. It's great that Muse is free. Is this the fundamental problem with these companies is people are getting some use out of it. But when you say, hey, you got to pony up even$20 a month, most people aren't paying that.

3:48Lou Whiteman:I don't want to say it's I want to be careful with my words here because we're early days. Yeah. And there's plenty of paths that we can take to get there. But we've said it before, you know, not with opening eye and Anthropic because they don't have a history. But all of these companies basically from the valley, these guys are used to double digit return on invested capital numbers. If you look at the amount of capital that they are spending on this, there's massive amounts of revenue. There was what one, was it Apollo, who said we need a couple trillion in revenue in the years to come just to justify all of what's going on here.

4:24Lou Whiteman:And I still don't see how these things are going to get there if they're commoditized. Now that we just have two, Gemini hasn't entered the chat yet. They might. But now that we have two, how does anyone have pricing power here? So how do we just the same basic questions? And again, I'm not going to sit here and say they can't answer them. I'm not going to be that Luddite. But as far as investable, there is nothing about this that changes versus two months ago what we would think about these companies. This is a neat feature. This shows the potential of the technology. But I just it still doesn't feel like a business plan.

4:59Travis Hoium:Rachel do you think any of these products have people moving to a different service that I think that we've kind of learned that the big players in the industry are going to remain the big players in the industry we don't really have any instinct has come out but I don't know it seems like they're already kind of past their peak but as we look at Meta's products at now OpenAI's products Lou mentioned it Gemini is probably going to come out with something I would be shocked if Apple doesn't integrate these kind of features into the iPhone that I have sitting in my pocket all the time. Do you think that anyone is actually going to move to a different platform, move their data, move the way that they're interacting?

5:39Travis Hoium:Or is this all just entrenching the incumbents even further? I think it could risk just entrenching the incumbents even further. I mean, kind of like I said earlier, I think OpenAI is really looking for a monetization strategy that sticks. And I don't think they found it yet. It doesn't mean they won't. But that's part of the problem. You could easily see Microsoft, Alphabets, Google, Apple could build these sort of tools into an operating system for free. I mean, OpenAI's kind of chief advantage is the brand momentum, right? That early user data. There's a real consumer edge there in the sense that that's where a lot of kind of your average users who first got introduced to generative AI went.

6:17But if Meta is giving away a similar product for free, really to protect its ad model, OpenAI's paywall, it kind of looks flimsy. So the real lasting moat is probably going to be those who weave these agents deepest into the enterprise systems. But I think we are seeing a time where that kind of flat monthly subscription doesn't make sense long term. If you have a power user's continuous usage costs, the company way more than they pay in fees. Could we see a model that pivots to a consumption-based utility model? That could be really interesting to think about. I don't think that this is going to be the end-all be-all for open AI.

6:51I think it's the experimentation phase. I think we should expect to see more of that. That's good, but this is not going to be the solution to their cash burn and profitability problems.

7:01Lou Whiteman:Yeah, the issue is at the end of the day, it's neat when something autofills your calendar, but are you really going to pay to have something, to not have to type a couple of things? But here's kind of the other argument, the argument against Rachel. And I don't know if I believe this, but I think this is the way, if this ends up being, if we're wrong, this is why we're wrong. Silicon Valley right now is in a rut. It is a shell of its former self. It's an echo chamber. Right now, we are all just copying each other and doing the same things. We need a Steve Jobs. We need someone to just say, hey, no, this is different.

7:38Lou Whiteman:And I think at some point, there's a good possibility that somebody will emerge with just a different idea. And that may be the path towards monetization, towards riches. I'm not that guy. I don't know what that is, and I'm not sure it's going to come. But it feels like that if this moment does happen, it's not going to be from any of these companies. It's going to be from somebody outside of it who just looks at it differently and tries something different that works.

8:03Travis Hoium:It is so fascinating to see how fast these companies are coming out with really interesting products. And then we come, as investors, come in and you start to think about how are you actually going to make money on this? And there's not necessarily a great answer, even for a company like Anthropic, who we're going to talk about in a moment.

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9:51Travis Hoium:Anthropics IPO is expected in the next month or so, and we're starting to get more leaks. This is a company that has leaked a lot of its numbers in the past. The reporting earlier this week was that we got some information about what their 2025 numbers are and what their commitments are for 2027. But, Lou, what did we actually get? Because it's not the real full filing.

10:13Lou Whiteman:No, we haven't gotten really anything. We've gotten somebody leaked something to a couple of sources is the best we can tell. Reuters and the Financial Times both have some information. it's select information it's not the most recent information which is weird if it was a third party that just had the documents why would you just copy and paste the old stuff that isn't interesting so look well look with all these things that we can get into what's there but the most interesting this is true with mna all the time i think it's true here is who's leaking it why they're leaking it why now to me is almost more interesting than the numbers and yeah the numbers, we can get into it.

10:53Lou Whiteman:There's some things there, but it's mostly just confirming everything we thought.

10:57Travis Hoium:Yeah. Rachel, what are the numbers that we need to keep an eye on, at least from what we learned so far? And then I do want to get to how that translates to what we should be looking at when the official S1 comes up. Yeah. I mean, there's a few key numbers to look at. I mean, some of this is from 2025. And then we have, of course, the expectations for 2026. I mean, you should know that about a quarter of Anthropics' entire 2025 revenue came from just two customers, right? They are operating at a total net loss of about$42 billion. That was largely driven by a$34 billion accounting charge. If you strip that out, the operating loss was still$8 billion.

11:31Anthropic spent more than$7 billion on infrastructure in 2025 alone. And they have disclosed commitments to spend$518 billion on cloud computing power over the next decade. There's a couple other things I want to hit here. You know, we know they're seeking a$2 trillion valuation. You put that on their$4.6 billion 2025 revenue. That's a 434 price to sales multiple. Now their exit run rate for the end of 2026 is supposed to hit anywhere between$100 billion and$120 billion. Let's say they hit the lower end of that range,$100 billion in revenue. That$2 trillion valuation comes down to a 20 times forward price to sales multiple.

12:12But most of that funding is coming from tech, private credit packages, venture capital. You know, Google and Amazon, they give billions to Anthropic, and Anthropic immediately hands those billions back. It's a circular wheel of funding, which is something I've talked about on prior episodes. So I am very curious what the final prospectus is actually going to look like. But these are some real numbers that we're looking at, and I think it paints at least a story where we still have way more questions than answers.

12:39Travis Hoium:Lou, just some context on that$518 billion number. That is commitment over the next decade. So, you know, it's not just a single year, but Alphabet generated$446 billion in revenue over the past year. So we're talking about Anthropik saying, hey, we're going to be one of the biggest companies in the world relatively quickly.

12:58Lou Whiteman:Yeah, there's a Mark Twain line about there's lies, damn lies and statistics. Numbers without context are just numbers. And just as again, we're supposed to be talking to investors here as investors. I don't think there is anything in any of this that is actionable. Now, it's a good thing because we're going to have to see the S1 before we can take action. But look, there are other numbers floating around online that might that that I can't give any credibility to either, because, again, we're not seeing that. But that would imply that the recent few months revenue growth does not look like what they had hoped for, maybe even when they were writing the S1.

13:45Travis Hoium:And this goes from you were they were flying high late in 2025 and early in 2026 when everybody suddenly was using Claude, when it was being integrated into it was the coding one that all programmers were using. And then suddenly. ChatGPT and OpenAI catch up. You know, Gemini gets this act together a little bit. So that's kind of the context behind what you're saying.

14:06Lou Whiteman:Yeah. I mean, this is bubblegum. This is stuff that people like us love to just chew on for a while, and it makes for great headlines and great fodder. But really, we don't know anything other than, OK, some of my priors seem to be confirmed and some of them, maybe things are going differently. Let's just wait and see the S1 and judge that. Because, again, a number without context, a number without a historical trend is just a number. And there's just not much here that I think we can draw conclusions from.

14:41Travis Hoium:Speaking of upcoming IPOs, we had one that was pushed back this week. Talk about that in a moment.

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15:21Travis Hoium:Welcome back to Motley Fool in Gems Investing. we learned that Aura's IPO has been pushed off. This is the ring company helping track your health, getting data all the time about your heart rate and things like that. They were looking for a$15 billion valuation. That's more than 10 times sales. They were supposedly oversubscribed. They were supposed to go public earlier this week, but Lou, they did not. Why does this happen? And what does this say about the IPO market right now?

15:46Lou Whiteman:I think it says what we already know. Look, it's weird. In some sense, the markets are near an all-time high, But if you look at volatility and specifically single stock volatility, one thing you can look at is kind of a form of the VIX. VIX is a measure of volatility. Looking at single stocks versus the VIX, and that is at a spread that is very unusual, which I think speaks to the choppiness of the market. We're talking about Aura, but what if we could talk about Whole Tech, SB Energy, Inspire Brands, the Dunkin' Donuts owner, Bamboo Insurance, and about a dozen more who have delayed IPOs citing market conditions or other reasons.

16:20Lou Whiteman:in just the last month or so. That's just from my syndicate list, just looking at it. This is not a great time. Volatility is actually the, volatile times are the worst times to take a company public. The mechanisms of going public is you have to build your order book. You have to build buyers and sellers ahead of the launch, and they have to commit. And when you commit, you don't want volatility. You're putting your money kind of out of your hands for 72 hours in some cases. It is really hard for the banks behind an offering to manage an offering, keep it stable when things are volatile right now.

16:59Lou Whiteman:I don't even know if this is Aura's decision. It could be the banks just saying, like, look, IPOs, they really love to make them controlled. They really like it to be orderly. It's almost like trying to go fishing in a hurricane. You may be fine. It might turn out. You can probably get your hook in the water, but it's not going to be a smooth sale. I think that this is just a simple case of the bankers recognizing the market. They're pulling them left and right here and saying, let's just wait till the volatility goes down and then we can try and then we can do a more controlled offering.

17:34Travis Hoium:Rachel, what do you think about this in relation to some of the bigger IPOs that we may have not only in the next month, but in the next six months? Because Anthropik, like we mentioned earlier, hoping to go public in the next month, although So there was talk that it may have already been public by now. OpenAI is the other one talking about early 2027. Those are maybe bigger. Maybe you don't have quite as volatile an IPO with a$1 trillion valuation than you do with a$15 billion valuation. But it just it seems like a strange time in the market, given the fact that we are near all time highs. But companies are saying, we're going to wait until things are even better.

18:09Yeah, I mean, I think that what's happened with Aura and some of these other companies that have delayed their IPOs, I think it's a very, very different story than the interest and likely hype and excitement you'll see in the markets around IPOs like the anticipated ones of OpenAI and Anthropic. I think, if anything, if you're an AI-focused company right now, the window is wide open, I think. But for everyone else, it's narrowed significantly. And it's interesting. I mean, Aura had just launched their IPO plan last week. So there's a very sudden pullback. The deal was reportedly four times oversubscribed.

18:40to institutional buyers were fighting on the price and forced demand at the bottom of the range. I think there's an understanding that investors are not willing to pay the favorable multiples of years gone by for consumer hardware companies. Essentially, we're seeing, of course, rising sovereign debt yields, surging borrowing costs are impacting investors. And I think they're demanding wide pricing discounts to offset rising interest rates. So there's, I think, a lot of concern about how that impacts some of these private companies entering the public markets. As Lou noted, there's been a string of other IPO delays and withdrawals.

19:12I think there's also the idea that some of these companies pulling their listings essentially close to the finish line, they might struggle to find another open window to return to the public markets anytime soon. And I think it also highlights this idea that whereas once a really strong consumer brand, a popular flagship product, I mean, in this case, or they're profitable, Revenue is growing favorably. They have millions of users. That's not enough to guarantee a successful public debut, at least not in this market. I think the interest, the real tailwinds are centered on the AI companies right now.