E213: Groq is the private market Nvidia?; Figma’s IPO a buy?; Robinhood’s pre-IPO stock tokenization legal and good for investors?

0:00Clint Sorenson:Gents, Grok, my favorite private semiconductor company. GROQ, not to be confused with GROK, Grok from XAI, the large language model. But I want to talk about the semiconductor business, Grok. They opened up their first data center in the EU, right? This is their Grok cloud business, right? So if the three of us were developers, we could go to Grok cloud, basically competes with like a Amazon AWS. Google Cloud, et cetera, right? Cloud services, but for AI, running your AI models, inference, right? So Grok is a big company,$4.8 billion secondary market valuation. That's up 73 % from their August 2024 round.

0:47Clint Sorenson:But I'm interested just to talk about, like we haven't talked about like AI infrastructure as like an investment opportunity, right? Clint, I already know where you stand on this. So maybe we'll start with Evan, right? To give him the first crack. But like, what do you think about kind of the picks and shovels play, Evan? Like this AI infrastructure, semiconductors, electricity, data centers, all that. Like, where's your head on that? Is this an interesting investment opportunity, companies like Grock or others maybe that you might have on your radar screen? Yeah. What do you think? I do. I think it's interesting.

1:21You know, one of the, there's a lot of ways you can get exposure to the infrastructure of picks and shovels, but there's very few that give you exposure as a pure play. And I think that like, that's where you saw with core weave. And that's why I think you've seen such a run up on the business because it's really just a pure play. And I think rock is another example of just a pure play where, you know, you invest in Microsoft, you had exposure to AI, Google, you exposure to AI, but it's like more diversified, broad exposure. I think that investors who really are bullish on the sector, which I'm one of them having a pure play access is a really great opportunity to potentially capitalize on this transition toward AI.

1:57And I know we said it before, there's no shortage of use cases for AI. I think it's just totally transformational across every single sector of the economy, every single sector of the way people live. And so if you can get exposure on a pure play on an asset class that's going to grow so much, it seems like a pretty no-brainer play for me.

2:19Clint Sorenson:Right. And there's a lot of the private companies are pure play like, excuse me, in the AI space, right? In the private markets. Is that fair? Well, yeah, definitely on the software side, but there's very few on the infrastructure side. Even look at like NVIDIA. NVIDIA, you're not getting a lot of pure play, hardware, infrastructure, picks and shovels. A lot of the picks and shovels are diversified plays like Oracle, Microsoft, even NVIDIA, Google, et cetera. This is really a pure play opportunity. You know, go for it. Yeah, okay, gotcha. So Clint, you know, like I always talk about, we got AI infrastructure, AI platforms, that's like the open AIs and profits of the world, and then AI apps.

3:00Clint Sorenson:But I know you have like a special place in your heart for infrastructure and picks and shovels. Like talk about like the risk adjusted return kind of components, or maybe just risk as opposed to risk adjusted returns, but just risk as it relates to, you know, like an app, or like even the platforms versus more like these pick and shovels and infrastructure play like a grok? How do you think about that from a portfolio perspective or investment perspective?

3:27Nick Fusco:First and foremost, I look at, follow the money. I look at the flow of money. Where is it going? At the end of the day, the money is going to infrastructure.

3:35Clint Sorenson:If you look at CapEx expenditures, right?

3:41Nick Fusco:So there's a number of ways I look at infrastructure. First off, let me back up. These infrastructure plays like grok, which are foundational, Nvidia, right? Grok's kind of this underdog competitor built for AI, right? Capitalizing on supply constraints and supply chain, you know, I would say inefficiencies, right? In terms of how you're pricing these GPUs or LPUs in the form of Grok. Then there's infrastructure that's more related to energy infrastructure and actually scaling. And so I like this Grok deal, this EU data center being in Finland for the, you know, the clean energy, because it's going to take a multifaceted energy approach to actually scale AI long term.

4:21Nick Fusco:And so I think this is a strategic opportunity long term. But I look at the energy infrastructure and the infrastructure as a real asset kind of separate. So there's two prongs the infrastructure play. And I love both of them. The money's going there. That's where the money's flowing. And the money has to flow there in order to get real scale and growth. When I look at these hyperscalers, not saying they're bad businesses, But I see a tremendous amount of risk there when I'm looking at the percentage of their operating cash flow that they're poised to spend on infrastructure and what that means for margins.

4:58Nick Fusco:Will the market penalize margins? We've got to remember in 2000, Cisco missed by a penny and the NASDAQ corrected 83%. Not saying it's going to happen this time, but you've got valuations at really, really high levels, not price for perfection, but price close to it. price for a consistent exponential growth of earnings. And you've got these companies spending a tremendous amount of money to scale AI. And we don't really know how that's going to manifest into profits, at least in the short run. And so we can see how it can manifest or at least pontificate how it can manifest into efficiency gains or productivity gains.

5:37Nick Fusco:But in terms of profits, I don't know. And I think we won't know for some time. And so at the end of the day, I think the safer, quote unquote, when you're looking at risk, that bet is in infrastructure because that's the flow of funds is going. And that's what you need. It's like the foundation of a house. So the foundation of AI is going to be built on energy and it's going to be built on infrastructure and in particular chip infrastructure. I think we've got a tremendous amount of movement, positive movement and momentum in this chip infrastructure, whether it's changing the way chips are constructed, whether it's making more energy efficient.

6:13Nick Fusco:I know there's companies out there doing gallium oxide chips, whether it's creating chips for specific use cases, almost like just-in-time manufacturing, whether it's these big energy projects like we saw with the recent announcement of Fermi and Texas Tech. I mean, this is massive, and it's going to shape investments, in my opinion, in the US, shape investment outcomes for the next 10 to 20 years. But I think the best play is infrastructure, both on the energy side and the chip side.

6:42Clint Sorenson:Okay. All right. So this is like, I think a perfect segue. So I echo that. That said, I do feel that AI apps could be an incredible investment opportunity. I just have, to your point, Clint, I have no idea when that's going to start to like firm itself up a little bit to where I'm going to feel comfortable, like placing bets with high conviction, right? It's all Harvey, right?

7:08Nick Fusco:Like we talked about Harvey last week. You got it.

7:10Clint Sorenson:I think, yeah, stuff like that where you can.

7:13Nick Fusco:You got to pick your spots.

7:14Clint Sorenson:Those could be great businesses with great returns, but like, you know, is OpenAI going to come and like build a Harvey solution and then gobble up? You know, it's interesting. So Figma, so this is the next topic I wanted to hit on with you guys, right? So Figma just announced they're going to do their IPO. They came out with some numbers. $750 million in 2024 revenue. that's up 48 % year over year. They were profitable in both Q4 and Q1. Okay. They didn't announce the valuation, but look, I mean, I don't know if you guys remember this, but back in 2022, Figma was going to sell to Adobe for 20 billion.

7:52Clint Sorenson:And then the UK EU regulators killed that deal. So I don't know what revenue was back in 2022 for these guys, but it must've been less than 750. It was my, well, what is that? It's like, you know, probably like 600, like something less than that, 500 million. This is, I mean, even at$750 million revenue,$20 billion valuation, that's more than a 20x multiple. That's like, I think, a very good multiple for a business like this, right? That deal getting killed by the regulators really stinks, right, for investors. But they did bring up AI. Like I would say Figma is kind of like an AI app or has potential to go that way if they start to use open AI and Anthropic and some of these other large language model businesses or any of the open source models, right, to integrate AI into their solution, which of course they're doing already.

8:51Clint Sorenson:But they specifically called out AI risk, right? So, I mean, Evan, like, do you think, or, you know, any thoughts on the IPO? Maybe just start there. And then two, do you think that you got to be a little bit more thoughtful about coming into a company like Figma when you got AI and you don't really quite sure what's going to happen with AI coming down the pipe here? I mean, you absolutely always have to be careful, but I think that Figma has built an absolutely astounding business. Yeah, they do have a great following. I think that when I look at those retention numbers, I look at the, like, you know, when I, I mean, I work with a lot of different startups.

9:32I'm in the ecosystem. I would say it's almost a universal who's working on Figma, everybody. So I don't think that's changing anytime soon. In fact, like, I know that Figma is even used at like the big hyperscalers when you're like, okay, well, you know, like, and those hyperscalers tend to build their own infrastructure for things like email chat, you know, et cetera. When they're using Figma, you know, it means that that product must be just exceptional across the board. And I've used it and I think it's exceptional. I think this is a really strong and durable business for today. I do think that there's AI risk in everything, right?

10:04Because the challenge with Figma is that it is still generally designed for quote unquote experts. That's why you see Canva has been such a successful behemoth in that segment that's a little more like prosumer. And I think that Canva is much more likely to be taken out than Figma. from an AI perspective, because it's a simpler customer. That's right. I do think that, look, this business seems to be quite durable. I do believe that$20 billion would be a very frothy valuation to go at it. But then the way that these IPOs have gone this year, it wouldn't be a surprise to me to see that sort of thing run up.

10:40So yeah, I think you have to be a little concerned. I think every S1 is going to have AI risks. I think that's just part of the disclosures because of the uncertainty. but I could also see this business being just highly durable and very strong moving forward for the next decade. So I'm, I mean, potentially even a public acquisition target of a company like open AI.

11:01Clint Sorenson:Yeah. Fair point. So, Hey, who knows? Fair point. So Clint, like, I know this is a totally unfair question, but I'll ask it anyway. That like Figma, like, what do you think this thing will do once it goes public? I mean, it's not an AI company. I think the, to Evan's point, like we saw, you know, core, we've ripped. circle ripped right that's kind of on the back of the genius the genius act that passed right so maybe that was certainly a tailwind i mean this is uh this is kind of a sas tech company uh you know chime came out they like like i haven't looked at their stock price this week but you know it was up it was definitely up from the ipo but it's kind of it's kind of come back a little bit uh at least last time i saw it right um after kind of its initial pop i mean what do you think about this company?

11:47Clint Sorenson:How do you think it'd be received in the public markets?

11:50Nick Fusco:I think it's going to be received pretty well. It's got a lot of hype in terms to Evan's point. My bet with that, depends on where it's priced at the end of the day. Sure, sure, sure, sure. But if it's priced around where Adobe was set to take it out and you've seen massive growth in... I mean, they've got 1 ,000 customers that are over 100K each. They've got 91 % margin. I mean, this business could use a little disruption, frankly. And I think as long as they're leveraging AI, I think that they're in a safe spot for a while. And I think they're going to be rewarded, right? They've got SaaS-like financials.

12:31Nick Fusco:And I think it's a good business. And so I think at the end of the day, how much is the cult following? Because that's what you're seeing is it's all about the cult following lately. I mean, retail is really driving the market. And so if it's got the cult following, you'll see it surprise to the upside. I mean, that's what we've seen in everything. All of the IPOs that have strong cult retail followings and market to the retail are thriving.

13:01Clint Sorenson:Yeah. Yeah. And that's just the way it is. Yeah. Yeah. Okay. So positive on the IPO. This one's interesting to me. It really is.

13:14Clint Sorenson:yeah i mean like it makes sense for these guys to go because obviously they were ready to do something back in 2022 so now the ipo window's back open you might as well let it rip um so i wish them the best man i hope they kill it once they hit the hit the public space but all right let's wrap up with robin hood's free ipo stock tokens here we go here we go let's do it let's Fire it up. Let's go. All right, here we go. So we got – so Robinhood announced at a con – did I pronounce it right? Con? That's can. Can, France. In a very aesthetically pleasing scenario right out in front of a pool with the ocean behind.

13:56Clint Sorenson:It was beautiful. And they announced that they're doing this – these stock tokens. So they're doing OpenAI. They're doing SpaceX, a million dollars of OpenAI and$500 ,000 to SpaceX. So these are not big dollar amounts, right? But I think it was more about the pipes, at least their opinion on the pipes. So it's only available to European investors. It's now subsequently come out like over the weekend that they're buying the tokens are going to own SPV, special purpose vehicles of OpenAI and SpaceX. which of course own the stock, right? Also, I just saw right before we jumped on this, that the Lithuanian Central Bank, which is Robinhood's regulator in the EU, is now asking questions about the structure because OpenAI posted on X that this was not OpenAI stock and that they didn't approve this and buyer beware.

14:58Okay, anyway, what do you guys think of this?

15:02Clint Sorenson:Okay, Clint, what do you think, man? Is this a viable structure? Maybe start that way, right? Do you like this maybe on a high level? Is it good, bad? What do you think, man?

15:18Nick Fusco:I mean, I like it for our space. If you're thinking about it from raising awareness on pre-IPO equities and getting people interested in owning these companies or pieces of these companies and kind of what you've been talking about for the last couple of years, which is this shadow market, this other stock market that exists with the number of companies going public shrinking, with the number of private companies continuing to grow, with it being absolutely dwarfed in terms of relative size, being private larger than public. I think getting people access to private markets is awesome. That's why we get on here every week and we talk about this subject, because we think it's important in order to build a diversified portfolio if you really want to own the market and own equity.

16:01Nick Fusco:And so I think there's a number of opportunities and advantages there. So that's my thoughts. I think from a tokenization, I mean, how many buzzwords can you throw at a press release to try to raise marketing awareness? That's where I'm going to end, and I'll turn it over to Evan. Well, the stock did pop, though, right? 13 % or whatever. I mean, it works. Yeah, right?

16:20Clint Sorenson:Come on. It works.

16:21Nick Fusco:What do you think of it? What do you think, man? What do you think? I mean, look, I've spent the better part of the last decade working on how to democratize access to alternative assets. I think that this is something that there's been substantial demand. There's been substantial headwinds on the regulatory and compliance side. I think this is why we're all on this podcast talking about this. I believe it's important for retail investors to have some access to this asset class. I believe that the risks, it's important to disclose the risks. But we're talking about generational technology companies that are raising at valuation substantially higher than many public companies today in the private markets.

17:02And if there's a world where some of these companies go to a trillion while they're private, it's going to be a total sad experience for most of America to not have exposure to that. It's true. And so I think that it's fundamentally beneficial to have this opportunity. Now, on the tokenization side, yes, I agree. It's a buzzword. I also think that, look, if AI is disrupting the way that traditional businesses operate, I think that tokenization presents a massive opportunity to disrupt the way that financial markets operate today. And they are inefficient. And most even technology fintech companies built in the last 10 years are built on legacy infrastructure.

17:40And you cannot build better products when you are stuck dealing with the DCCC. DTCC. You cannot build better technology when you're dealing with clearinghouses, when you're dealing with clearing brokers. It's just not possible if you are building a fintech on top of a wrapper. And Robinhood, they've been around for long enough where they've rebuilt the stack. And they realized that using new technologies such as tokenization present a massive opportunity to, one, make these businesses faster. to make them more efficient and three, make them more cost effective.

18:13Clint Sorenson:Right, right. And so all three of those things present massive tailwinds for a total revamp of the way financial services work. The most unfortunate thing about this is that it will happen overseas before it happens in the United States. That makes me bummed out personally, but it's also good to let them try it out. When it comes to SpaceX and when it comes to open AI, I think that there's a lot of kerfuffle around all the news. Oh, is it a stock? Is it not stock? Is it equity? Is it not equity? Look, at the end of the day, the private markets are SPVs wrapped in SPVs. No one is actually on the cap table anyway.

18:46So people are all getting - Somebody is.