Google Raises $80B, Confidential IPO 101, OpenAI Expands Codex | Diet TBPN

0:00John Coogan:It feels so good to be back. You know who else is back? Google with a huge fundraise, an equity fundraise. Surprising to a lot of people because they haven't raised equity in years and years and years, but they raised a cheeky 80 billion. The Wall Street Journal has the story. Alphabet's mega fundraising shows the value of being a public company. Let's be honest, John. The real story is that you got a haircut. I did. I didn't just get a haircut. I got them all cut. I got them all cut. Hey, we got the team there. There we go. That's a new angle. I like that. Well, alphabet. In AI money talks, says The Wall Street Journal, the ability to tap stock market capital is important again after a quarter century of being all but irrelevant.

0:43John Coogan:So let's run through it. $80 billion stock-based fundraising should be taken as a rebuke to those salivating over the forthcoming IPOs of SpaceX, OpenAI, Anthropic. The search giant is showing its competitive advantage in an area that increasingly matters for artificial intelligence, access to money. Ben Thompson has a great breakdown, too, of how capital is so important in the age of AI and the war for AI. In AI Money Talks, the biggest companies are paying out hundreds of millions of dollars to lure top researchers and tens of billions to build data centers while financing losses as they build their AI businesses.

1:17John Coogan:The money being funneled into AI is probably already making it harder for non-AI startups to raise capital with 61 % of all venture capital last year going to AI. That feels low. Like based on, but there was a lot of hard tech. Well, everything sort of gets wrapped into AI. I was talking to someone about like - Yeah, that's why it feels low. How to have a conversation about AI. And it was like, you can talk about sycophancy. You can talk about data centers and water and energy and being an eyesore. And then you can also talk about enterprise sales and SaaS. And you can talk about consumer. and it just touches absolutely everything.

1:56John Coogan:It's almost, it feels like if you're trying to have the AI conversation, rude, rude about the Jared Isaacman of the years. We love Jared Isaacman. I don't think that's rude. Maybe it's a secret. I don't know. Our great space leader, Jared, is incredibly handsome. People like saying that about getting a haircut. I got my ears lowered. That's another dad joke. Got my ears lowered. Anyway, yesterday, Alphabet announced a massive$80 billion equity raise, says Brandon Grell in the TBPN newsletter. You can go sign up, tbpn.com. The raise will be broken up into a few milestones over the course of this year.

2:31John Coogan:Berkshire Hathaway, Greg Abel at the helm. Warren Buffett obviously still at the table. There was a viral post yesterday. Somebody was saying Buffett retires and they immediately invest in Google at all-time highs. What other company did they invest in at all-time highs? Was that Apple? Apple. Apple. Apple. And look what they did. I mean, for a long time, for, what, 30, 40 years, Warren Buffett was known as not a tech investor, couldn't wrap his mind around it. Valuation's always too high. Business too frothy or too high growth. Well, I think he knew vibe coding was coming. For sure. And he thought, how can I value a software company when the cost of producing software is obviously going to zero?

3:14He was saying that back in 2010.

3:15John Coogan:Yeah, he wanted to get in on Genmoji a decade early. Yeah. No, obviously like the business was printing, it fit the Warren Buffett mold. I was actually doing this deep dive on like, where would Warren Buffett find value in the AI supply chain? I was trying to dig into, you know, if you apply that framework, because there's a lot of froth, there's a lot of excitement, there's a lot of high growth opportunities, but - Where would Berkshire trade if Warren came out of retirement and just said, I'm coming out of retirement to invest in AI bottlenecks. Not only does Berkshire re-rate, I think everything goes way higher.

3:51I think so.

3:51John Coogan:John, they want you to crack another Diet Coke. Another Diet Coke. Here you go. Boom. Satisfying. Another one. When I did this analysis, the name that popped up was... Buffett saw G-Stack and knew that the AI revolution was real. It is God mode, after all. It is God mode. Yeah, in the memo. Well, it's like God mode Berkshire is buying 10 billion worth of shares at a roughly 6 % discount from Monday's closing price Another 30 billion dollars will consist of underwritten public offerings and the last 40 billion will be staggered common stock offerings beginning in Q3 2026 and overall the dilution is very low all the shares Alphabet will sell are brand new meaning the plan is slightly dilutive for existing shareholders But at their 4 trillion market cap, where are they right now?

4:39John Coogan:They're way, way up. $80 billion just isn't that much dilution for the shareholders, fortunately. A lot of opinions on the timeline about this deal this morning. Brandon Corral has seen a number of people theorizing that Alphabet is sucking up liquidity AI demand from investors before they'd be able to buy an Anthropic or OpenAI IPO. Richard Rehard-Jark gave a few less conspiratorial explanations. Yeah, a lot of people were saying that about SpaceX. SpaceX, yeah. But the other, the more simple answer is you should probably raise capital when it's cheap. Yeah. And we've seen liquidity pull out of other sectors of the market.

5:14John Coogan:And so it has to go somewhere. Certainly makes sense that it would go into the latest and greatest technology. So Alphabet is seeing demand for Gemini go up. And so it's going to invest more in compute and scale. The first question is why did Google issue equity instead of debt? So there's some rumors that debt might be coming. And the equity is sort of a precursor to that. But Ben Thompson writes debt is all things being equal the preferred instrument for investment. The proceeds of the latter pay off better than the former and existing equity holders reap all of the benefits. Equity, on the other hand, removes the risk of debt, but at the cost of giving up a future share of profits.

5:51John Coogan:That leads to why what may be the Occam's razor. Google is going to start issuing a lot more debt as well, which is to say that everyone continues to underestimate the amount of demand there is for compute. Of course, that's not far off from a more bearish interpretation. Google is uncertain about the return of investment of all of that capex and would prefer to share the risk along with the upside. If there isn't a substantial debt issuance down the road, then this might be the right answer. Yeah, I mean, compute is remarkably expensive. We're looking at, you know, even within the COGS or the cost of inference for the labs, we're seeing, you know, dollars per task.

6:32John Coogan:It's a lot of money, a lot of dollars flowing into these data centers. But when you actually run the numbers on the tasks that they are completing, comp that to other sources to get something done, you're seeing positive ROI. So it's all just a productivity uplift, which is good to see. The Wall Street Journal continues and says, bond investors think the hundreds of billions of dollars of debt being raised by big tech is pushing up the yield and other borrowers have to pay. And it's even affecting government bond yields. The hyperscalers of Alphabet, Microsoft, Amazon, and Meta have become major bond issuers as they ramp up spending, with Alphabet alone raising$85 billion in a series of record-breaking issues around the world.

7:09John Coogan:In the past year, they might raise more in debt. But the stock market is the obvious place to raise capital, to spend on the exciting bits of AI. Where the returns are unknown, technology is rapidly developing, and business models are in flux. Unlike debt, companies don't have to repay their shareholders, And if it takes longer to make money from AI or never makes money, the company can simply wait it out if it was financed by stock, though investors would be very unhappy. Alphabet is one of a tiny number of companies capable of raising so much cash without tanking its stock, thanks to its near monopoly in online search and credibility with Wall Street in new ventures.

7:41John Coogan:That's a really good point. For a long time, tech has been sort of cold on Google's side projects, but they're starting to bear so, so much fruit. You look at the progress with Waymo, and it's very clear that just one win in Waymo will be a power law that will wash out all of the side chat apps that never went anywhere, or little software projects and April Fool's jokes that they launched. And some of them will become really big businesses as well. They have other stuff. Calico. They have the mosquitoes right now. The mosquitoes are crazy. That was a weird, weird headline. I didn't know they were in the mosquito business.

8:17I'm excited about releasing billions of genetically modified mosquitoes into the environment to try to kill all the mosquitoes.

8:26John Coogan:Wait, they're mosquitoes that kill mosquitoes? Is that what they do? Oh, okay. They're like infernal or something, basically. I'm excited because there's almost certainly could never possibly be any unexpected downside to disrupting the circle of life. Who knows? Who knows? People have been studying this for like 20 years. So I'm optimistic. It's one of those things. Yeah, one of those things would be amazing if we can just nuke all the mosquitoes off the map. But I got a feeling they're doing something important. Yeah. Should we be selling the bug repellent industry short right now? Should we be going turbo short all mosquito repellent companies?

9:06John Coogan:They're probably going to go out of business if they get rid of all the mosquitoes, right? This is Finance 101 right here. Anyway, I can keep reading. Don't give our little retail trailer over there. Any ideas? He's going to go short. While$80 billion is huge, it amounts to less than 2 % of the market value of a company trading at$4.5 trillion. The stock was down just 2.6 % in pre-market trading. There seems to be an unlimited supply of willing buyers to fund AI. If it turns out there is a limit, Alphabet can only benefit by going first. From a societal standpoint, says the Wall Street Journal, the purpose of the stock market is to funnel money from millions of savers into giant projects, just as in the 19th century railroads.

9:47John Coogan:For the past 25 years, that role has been less important as private capital funds grew large enough to finance companies for much longer before they needed to go public. AI's vast consumption of cash is beyond even the capability of private markets, however. Sure, there are other reasons to list, such as allowing employees to cash out their stock options. 30 billion, you mentioned this earlier today, 30 billion of Alphabet's stock issuance is earmarked for paying tax on employee stock awards. But the ability to tap stock market capital is important again after a quarter century of being all but irrelevant.

10:20John Coogan:As we move into a new era of capital heavy industries, the stock market stops being merely a way for private investors to exit, but an attractive source of capital. The bear in me worries that all this equity raising is also about taking advantage of record stock prices and could be a sign that the top is near, says the Wall Street Journal. In the journal today, Berkshire is convinced the American dream of home ownership will stay alive. Berkshire is convinced the American dream of home ownership will stay alive. Let's go. Under its new chief executive, Greg Abel, Berkshire raises its bet on a market recovery by adding another housing company to its portfolio.

10:56John Coogan:Fantastic. Berkshire Hathaway,$6.8 billion deal to acquire. What are you laughing at? I'm just laughing at the fact that they did two$10 billion deals. And one was buying like an entire home builder and the other was buying like 0.01 % of Google. And just the scale of these different things. Like it's an extremely cool deal. We'll get into it. It's very interesting. But at the same time, it's like total peanuts compared to like the AI buildup. Well, yeah. It's like, what is that? And it's potentially like a work smarter, not harder moment. Like we'll see which one of these ends up generating a better return.

11:30John Coogan:This seems extremely important. I'm extremely excited. Yeah, yeah. But this is like one data center or an entire home builder. that is their entire business and probably very storied. We'll get into it. Well, we don't know. He might be pivoting it into a data center. Maybe. That would be the ultimate. Maybe. Black pill. A couple two-by-fours, Rackham, you know, Meta's using tents. Maybe the next data center looks like a house. A lot less controversial. You know, the NIMBY, if you just see a nice craftsman home next to you, you're like, yeah, whatever. It looks nice. You know, I don't have a problem with that.

12:00John Coogan:You know, oh, their chimney's smoking. That's the diesel generator. There's a data center among us. This might be the solution. Tyler, what you got? I was going to say, like, these two deals are still small compared to, like, the actual cash that they're holding. Yeah, what do they have? I think most recently it was$397 billion. That's so much. So even then it's like, oh, wow, you know, he's so white-filled. He's turbo-long. But, you know, he's still cash Chad right now. Oh, hopefully inflation doesn't get him. We'll see. Anyway, continue. With an all-cash agreement Sunday for Taylor Morrison Home Corporation, the Omaha-based conglomerate is poised to become a top-five U.S.

12:33home builder, adding to its growing portfolio of housing-related companies. Berkshire's home builder deal is a sign that a prominent investor thinks the housing slump will eventually pass, and it wants to be positioned to take advantage of any market turn. More than 75 % of young renters still think they someday will own a home. That is great. I'm glad that I would have thought it was less than that, given sentiment online, and so it's great.

12:59John Coogan:There's been a bunch of weird studies where when you zoom out, You look at Gen Z homeownership, and it's actually pretty high, but that's driven by non-coastal cities because people move to San Francisco. Obviously, house prices are through the roof, and a lot of people are like, yeah, I want to rent and go to some local house party. Like, I want to be in the mix, and then at some point, people make the decision. So it's more about, like, family planning, but, of course, there's all sorts of, you know, affordability issues. This investment is grounded in a long-term belief in the strength of America's housing market and its underlying fundamentals, which we see as enduring over time.

13:37Berkshire is raising its exposure to a housing market in its fourth year of dismal sales. High mortgage rates, job market uncertainty, and the rising cost of living have kept many prospective buyers on the sidelines. Builders have been forced to offer incentives, such as paying part of buyers' mortgage costs, just to unload their inventory. Builder confidence is low. Single-family home starts to climb 9 % in April, the steepest drop since August. A third of builders said they had cut their prices last month. Moreover, many Americans now think homeownership is beyond their budget. More people are renting for longer or putting their savings into the stock market rather than investing in a home.

14:12Analysts say the U.S. housing shortage of more than 4 million homes means new homes need to be built. They expect more buyers will return to the market once mortgage rates, which recently hit a nine-month high, come down and trigger pent-up buyer demand. Berkshire has agreed to pay a 24 % premium to Taylor Morrison's closing stock price at$58.58 on Friday. Analysts see the price is a good deal for Berkshire because the actual value of the builder's home portfolio bellies its lagging stock price. That is an incredible bargain, says Tony Avila, chief executive of Builder Advisor Group.

14:46John Coogan:This is the first deal for Abele. Greg Abel, the new CEO of Berkshire Hathaway and Warren Buffett said, gave a quote to the journal, he has launched. He has launched. I love it. On Monday, they talk about the Google deal. Taylor Morrison is a safer bet in a precarious home building market. The company tends to focus on the higher end of the market, which has performed better. A significant part of its business is built around buyers looking to upgrade to nicer homes rather than entry level buyers who are struggling the most. In addition, the company is part of a smaller segment of builders that have leaned into so-called build to rent communities.

15:19John Coogan:of single-family homes constructed for the sole purpose of renting. Congress recently threatened Build to Rent developers with a proposal that would force them to sell their properties within seven years of building them, but House lawmakers removed that proposal in an attempt to rescue the burgeoning sector. The Taylor Morrison deal is the latest example of consolidation in the residential construction industry. Last month, Avalon Bay Communities and Equity Residential agreed to merge in the largest multifamily combination on record years after sluggish profits. This puts pressure on others to find a dance partner, says Alan Ratner.

15:53John Coogan:Interesting. Well, we'll continue following up on that. Well, let's head over to James Walker. Okay, what's James Walker up to? He's boarding this morning's flight with an emotional support trout. Is this AI? Is this real? This is insane. Honestly, I don't think AI could nail this era of Instagram filter. Is the fish alive? This is crazy. bringing a fish on a plane is hilarious and that does not feel very uh humane it feels like a very uncomfortable situation for a fish but i guess we got to get somewhere uh you got to go you got to go in the tube think about it though john think about the things this fish will have seen that many fish would never see in a lifetime yeah is it inhumane or is it inhumane not to let the fish yeah if you got a trout it's like i think the earth is flat i've never seen the curvature You're like, well, you're going into 747, and I'm showing you out the window.

16:48This was a good post from Key. He said, this dude is effing Sherlock Holmes. Somebody says, 100 % this ad is sponsored by OpenAI from the official OpenAI account. It's not even sponsored. This ad is posted by OpenAI.

17:11John Coogan:It's not even marketing. It's just communications. This is a wild post. It's so funny. Terrence Tao, AI creates more room to experiment, test unexpected paths and discover what might otherwise stay out of touch. Terrence Tao, goat mathematician from UCLA. Very fun to see him talking about his process, where he's still seeing value, how he's using models. He talks about this a lot a lot of times. It just allows him to flesh out his work Build a chart that he wouldn't otherwise build very synergistic fully in like the centaur centaur Centaur era what else is going on in the timeline Joe is a ball is something the price of way is going bananas It's protein crisis.

17:57This is not so so it's going on. Here's what's a little funny.

18:01John Coogan:Okay, break it down We know why the price of way is going bananas We don't need Joe to tell us. It's because Joe is going bananas on his weight consumption. Oh, you think he's responsible? I think he's the problem. He's like, we're all trying to figure out who did this. He has been looking bigger. Much bigger. His traps, specifically, they've been eating his head. Yeah. Yeah. And he has those Death Star delts on the cap, on the shoulders. It's really crazy. And the lats, when he does the lat spread on Odd Lats, it gets aggressive. It's a little too much. So cooler with the way, Joe. But here we have some news.

18:35John Coogan:In early May, a supplier delivered bad news to baking and beverage company Hello Amino. It had run out of whey protein. Canada-based Hello Amino uses the ingredient in all of the 30 high-protein baking mixes it sells. Founder Ali Swift found another supplier, but it means importing whey protein isolate from the U.S. at a price that's 50 % higher and due to increase again soon. The new whey protein delivered other complications. that dried out the company's baking goods due to the manufacturer's different processing methods. That's true. A lot of different ingredients will change the output. Not always created equal.

19:11John Coogan:Our pancakes came out like sawdust, Swift said. The company plans to reformulate using different combination of proteins. Protein has really leaked into everything. I have not found, I've been surprised whenever I see the trend pieces about like proteins packed with everything. Everything has protein in it. I don't know, I haven't like, it hasn't snuck into that many of the things that I eat throughout the day. Like there isn't protein in my diet. Coke, I don't know what else I consume, but this whole trend of like protein packed, like cereals and, you know, salads and lunches and dinners and protein packed pastas and stuff.

19:43John Coogan:I never really, it's kind of stuck with the normal stuff. Yeah. The idea that, you know, if you eat one, you know, two to three, you know, solid meals a day, you have some protein that you also need to be snacking on protein in between. It's just insane. It's completely unnecessary. Well, I had another question come up from a friend of the show about why are companies filing IPOs confidentially? It's an interesting question, and I sort of tugged on the thread. Liz Hoffman was talking about this a little bit. So Anthropic confidentially submitted a draft S1 registration statement to the SEC June 1st.

20:21John Coogan:That was yesterday. Liz Hoffman said, reminder that the ability to confidentially file an IPO was a 2012 rule change meant to ease small companies, meaning less than a billion dollars of revenue, into the markets. And it was later expanded to what we're... Yeah, it was meant to be like a smoke grenade. A smoke grenade lets you talk to investors before you get out. Did we change the camera? So she asked the question of like, what are we even doing here? And I was curious, like, what are we doing here? Like, why do all these companies file confidentially? And then the S1 comes out. This is what SpaceX did.

20:55John Coogan:It's not like Anthropics unique in this. This is very much standard practice at this point. But how do we get here? And why? Is this good? Do I like this? I don't know. Let's find out. So first, the basics. Confidential IPO filing. It doesn't mean that you IPO in secret. It means the company submits a draft S1 to the SEC for private staff review SEC employees. It's a smoke grenade. Yeah. Great analogy. Before releasing the prospectus on and Edgar, which then every hedge fund can download, anyone can download, it becomes public. So this lets companies run the SEC review process while keeping the sensitive financial details private.

21:32John Coogan:And there's a few reasons why you might wanna do that. So any regulatory stumbling blocks can be dealt with in advance. And so the final filing is clean and ready to go. SpaceX did the same thing, filing a draft submission confidentially before the public S-1 dropped a week or two ago. After the 2008 financial crisis, this is where this all starts. there's a lot of regulation that results from the fallout. Sarbanes-Oxley is the main one. And the financial markets slowly built back and started opening up as the economy rebuilt. So post Dodd-Frank, post Sarbanes-Oxley, you get a lot of regulation.