Favorable AI market still has 2-3 years, says Deepwater's Gene Munster

Kelly Evans (Anchor) 00:00.350

let's ask gene munster he's managing partner at deepwater asset management and gene i'm curious what you think caught i have a theory but i want to know what yours what you think is going on here i mean to me it seems like a lot actually improved sentiment after open AI did that

Kelly Evans (Anchor) 00:14.270

massive raise last week after sam altman came out and defended kind of the idea of where is all the money going to come for for their data center ambitions over the next few years on that podcast that alex kantrowitz did that is that what turned things around here what do you

Kelly Evans (Anchor) 00:27.350

think is going on

Gene Munster (Managing Partner) 00:28.870

i think it was that was the moment and just to put some more context on that this eight hundred and thirty billion dollar valuation the fact that they're confident that they can raise tens of billions i think is evidence of an example of a private market company that's really

Gene Munster (Managing Partner) 00:43.230

setting the the narrative on the public side and i think that this whole concept that this this is a profitless prosperity around these large language models i think is continuing to be put to rest we understand and investors understand that the pricing of tokens is going to go

Gene Munster (Managing Partner) 01:00.470

down by sam altman 's account ten X per year but the ultimately the usage is going to increase by more and i think that that is at the center of this big raise i want to put some more quick context about why that was encouraging if you look at his expectations about where their

Gene Munster (Managing Partner) 01:15.950

revenue is going to go over the next few years doubling in each of the next few years that basically puts open AI at a valuation of about twelve times calendar twenty six revenue now that is a very favorable relative that's kind of in line maybe like a slight premium to the rest

Gene Munster (Managing Partner) 01:34.070

of software for example and keep in mind that this is growing at a hundred percent versus software growing at fifteen percent

Kelly Evans (Anchor) 01:40.470

so kelly just jump in there and say in other words what you're saying is they're trading at about twelve times price to sales i know it's not a perfect metric by the end of twenty twenty six which is in line with where other software type companies would trade it they're not

Kelly Evans (Anchor) 01:54.470

trading in other words at some crazy multiple if their revenues are achievable in just the next twelve months

Gene Munster (Managing Partner) 02:00.350

exactly and i you know that i just want to emphasize one comment which is where the whole AI conversation comes down if that is achievable and ultimately i'm in the camp that this is achievable i think that there is upside to that hundred percent growth they've showed that

Gene Munster (Managing Partner) 02:15.830

they've continued to do that and i think that this commentary about this raise gives some investors some confidence to look back over the past month there's been five positive data points large positive data points related to the open eye everything from micron earnings to

Gene Munster (Managing Partner) 02:33.390

commentary from aws CEO about how they're building out nvidia raise their guidance for for calendar twenty six from fifty percent growth to mid sixties and that excludes age twenty 's and so i think what this has given us this gift essentially from open AI from their fundraisers

Gene Munster (Managing Partner) 02:52.830

given investors a chance to step back and saying wait a minute maybe i looked past what has been some really impressive updates related to where AI is over the past month and so i think that's part of the recovery and i emphasize the word recovery it still isn't fully i don't

Gene Munster (Managing Partner) 03:09.830

think the market is fully factoring in all of the good news we've heard around AI over the past month

Kelly Evans (Anchor) 03:14.830

sure and i'm i'm going through your list here and you're like look i mean you've mentioned some of this amazon web services demand keeps skyrocketing nvidia raised their calendar twenty six growth to sixty five percent from fifty just at the end of november broadcom i mean let's

Kelly Evans (Anchor) 03:29.230

talk about what a quarter that was and look at what happened with the stock oracle right can i ask a weird question gene it seems like in a way the better open AI prospects look the better the whole AI trade does whereas the better gemini 's prospects look which seem to come at

Kelly Evans (Anchor) 03:43.230

the expense of open AI to some degree the more that trade looks a little shaky even though it's good for google 's shares am i overemphasizing that distinction

Gene Munster (Managing Partner) 03:53.650

i think so i think at the end of the day the the the the central question we're all asking back to a comment you had a minute ago about if they hit this i think when it comes to google when it comes to open AI all the large language models all these companies is just that simple

Gene Munster (Managing Partner) 04:08.250

question of do you believe that ultimately the growth of these companies will exceed high expectations and i think if google continues to grow a surge higher than where investors think it's kind of eleven twelve percent for calendar twenty seven they recently grew at fourteen

Gene Munster (Managing Partner) 04:23.950

percent look at what's happened obviously with google cloud and that impressive growth if they continue to do that i think it's going to be a positive read for the overall AI trade i think that whether it's google or positive commentary comes out now the that's the good news is

Gene Munster (Managing Partner) 04:40.750

that across the board the data points continue to be most positive now again the market may not give it credit in any week to week but the data points have been most positive the the challenge there is that imagine what would happen if we actually got a negative data point i

Gene Munster (Managing Partner) 04:56.710

don't foresee one but i think that is the the question that continues to nag investors are we one week away from a negative data point which ends up kind of putting us in a funk again