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Tag: Stock Markets

  • The War Of Unintended Consequences…

    The War Of Unintended Consequences…

    I know. The headline should read “LAW” but where’s the law these days? Certainly, it’s nowhere near Washington as the new Trump fund raising “squeeze” is an emailed request for cash donations in exchange for “private national security briefings” straight from the desk of The Don himself. I kid you not. Anyway, let’s get back to the war, or ‘excursion’ per the Orwellian Oval Office. Clearly, things on the Iran war front are not going to plan. My particular favourite summary of the moment is a delicious one from The Economist: “Although Donald Trump claims to have destroyed 100% of Iran’s military capabilities, the remaining 0% is wreaking havoc on the global economy.” Now, the purpose of this article is not to re-hash all the negative first-order global impacts of the war ranging from higher fuel prices, to supply chain disruption, to inflation, to reduced growth….to interest rate hikes. Yuk! None of this helps financial markets or business in the near term but I’m intrigued by some of the second-order possibilities which could emerge from an extended period of uncertainty. I’m thinking of three areas in particular:

    AI Infrastructure: The simple math of a shock to the global economy is that financial flows dramatically shift. Quickly. Extra money will be needed to meet higher energy bills, economic stress etc. That money must come from somewhere else in the system. So, one thing to consider is that the hundreds of billions Saudi Arabia , UAE, and Qatar committed to the funding of AI infrastructure projects might just be needed to rebuild energy infrastructure closer to home. Current estimates of the cost of the attack on Qatar’s Ras Laffan LNG hub is up to $20 billion per annum . And the worst bit, the rebuild could take 5 years – so let’s call that $100 billion. There is a teeny weeny bit of irony here given the US tech broligarchs’ man in the big house (and ballroom) has screwed up royally. Current estimates suggest $4 trillion is needed to build data centres, processing chips, training models, memory chips and storage by 2030. A squeeze on access to that investment capital will favour the biggest balance sheets and cash flows like Google, Microsoft and Amazon. Not for the first time, I worry about OpenAI’s positioning in the middle of all this AI excitement (remember the famous FT graphic) and being attached to more than $1 trillion of AI projects. So might its bankers worry, watching its tiny balance sheet.

    Electric Revolution: There was a theory for years that Saudi Arabia was deliberately keeping the oil price lower in order to delay the electric/renewable revolution. Their thinking apparently was that if energy was cheap it would remove the urgency to seek alternatives to fossil fuels. So, with Asian buyers already paying over $170 per barrel of oil we are beginning to see some interesting developments. In a little more than 2 weeks, Chinese EV player, BYD Co, is seeing its showrooms packed with customers wanting to switch to EV models. From Bloomberg….”At a BYD Co car dealership in Manila’s financial district, demand for the Chinese company’s electric vehicles is so high that Matthew Dominique Poh said he’s seen a month’s worth of orders in just the past two weeks.”  This feels similar to the Covid-19 acceleration of remote working. Also, spare a thought for US auto manufacturers who have scaled back their EV ambitions to keep the Dearest Leader happy and have written off $55 billion of EV projects. Timing is everything they say…..Get ready for some pretty interesting EV headlines in the coming months.

    Defence: Ukraine was the wake-up call when the world’s second most powerful military power turned the Kremlin’s “3 day operation” into a battlefield quagmire which has decimated its stores of equipment and weaponry, incurred more than 1 million of its own military casualties and incredibly has now lasted longer than the Soviet Union’s WW2 conflict with Nazi Germany. Fast forward to today and we are witnessing the world’s most powerful military gain almost total superiority over Iran but now staring down the barrel (!) of a strategic disaster that “nobody ever expected” per the stable genius hurling ketchup against the walls of Mar-a-Lago. The trapping of 20% of the world’s fuel supplies in the Strait of Hormuz and the destruction of critical energy infrastructure in UAE, Saudi Arabia and Qatar has been achieved with drones which cost as little as $20,000 but require the US to quickly run through their stores of $2m missile air defence weapons. Astonishingly, the Pentagon is looking for an additional $200 billion of budget to fund this “excursion”. However, the bigger picture is that military strategy and economics have utterly changed. Drone warfare developed on the battlefields of Ukraine is the scary future. For some it will be opportunity. Check out the IPO this week of the Ukrainian drone software company, Swarmer, on the Nasdaq. The IPO price was $5 per share but by the close of its first day of trading the share price was $55. Just the 950% gain in one day of trading. Oh, and last year Swarmer had generated just $300,000 of revenues. The US military-industrial complex is having its “ChatGPT” moment and will soon embark on a massive drone warfare investment programme.

    Clearly, not all of the above is cheery stuff but it does feel like some ‘leaders’ in business, technology and investment are now facing very different prospects than they planned for just a few short weeks ago. And, there doesn’t seem to be a “TACO” option this time.

  • What’s The Crack…?

    What’s The Crack…?

    God bless the Taoiseach, Micheál Martin’s script writers for his St Patrick Day’s trip to Generalissimo Trump’s Oval Office. The Taoiseach might succeed in avoiding eye contact with Secretary of State, Marco Rubio’s over-sized shiny shoes chosen by the Boss (no seriously), but the usual exchange of pleasantries laced with some colloquial Irish banter could scupper the whole event. As the non-strategic ‘genius’ of trapping 20% of the planet’s oil supplies in the Strait of Hormuz begins to hurt the entire global economy, it would probably be best to avoid slipping “That’s gas!” into the chat, or “Now we’re suckin’ diesel!” or even “What’s the craic?”.  Zero craic for the Taoiseach’s advisors anyway. But, on a broader level, the Trump regime bluster is beginning to crack. Current commentariat thinking is that Trump will avoid an Iran quagmire by declaring ‘victory’ soon and flooding the media with the usual deflections and outright lies. Bizarrely, this time I wish that messaging strategy would work. However, there’s a tiny flaw in this plan. Or, as Captain Blackadder used to say to Private Baldrick, “It’s bollocks”.

    The opening of the Strait of Hormuz is in the gift of the new hardline regime in Tehran, not Washington.  Yep, that regime change thing isn’t going so well. Unless the US puts boots on the ground, there won’t be much need to crack hydrocarbons in the Persian Gulf for the foreseeable future. Oil production volumes in the region are already being wound down but the bottom line is that the global economy is ‘missing’ circa 8 million barrels of oil per day (out of approx. 100m global demand). This doesn’t sound like an earth-shattering proportion of overall demand but …..welcome to the world of commodities. Any supply/demand imbalance can lead to outsized price movements as the marginal price (most expensive barrel) sets the price for the entire market. The International Energy Agency is already describing the situation as “the largest supply disruption in history” and has released 400 million barrels from reserves. However, despite this announcement (delivery times vary) the price of oil continued to rise to over $100. That doesn’t feel like price control. And, Trumpolini can go on Fox News every night and bluster but the gas prices at the pump are the only truth for voters. It’s not the only crack in the victory messaging….

    There are other critical products which travel through the Strait of Hormuz. Seaborne diesel disruption could cause global supply to fall by up to 12%. To be clear, diesel is the most macro-sensitive oil derivative product in the global economy. Think freight, agriculture, mining and industrial activity. Then think of all those ‘always winning’ MAGA voters employed in those sectors. Also, keep an eye on headlines from India and Indonesia who are both frantically seeking new supplies of urea, ammonia and other fertilizer feedstocks. Bangladesh has already closed its universities to save fuel and now we’re talking about the guts of 2 billion people impacted by the basics of food production, education and power. However, if you thought this was just a developing world problem, let’s take a look at the very highest echelon of the financial food chain.

    I’ve always been conscious that financial fragilities and leverage can exist in the global economy for extended periods of time but ultimately something cracks. And, that crack can be far removed from the specific vulnerable market. We frequently write about the perils of depending on “other people’s money”. We have also written about the massive growth in a market known as ‘private credit’. In other words, private loans to private companies which do not come from banks. This market has grown five-fold since 2010 to $2.5 trillion globally. Remember these are loans from institutions (not banks) like Blackstone, Apollo, Ares, HPOS, Carlyle, Blue Owl etc. Of course, the explosion of AI investment spend on infrastructure has accelerated the growth of this asset class (private credit) but, as always with fast-growth lending, due diligence standards slip, risk management gets sloppy, and bang….. there’s a problem. Well, this multi-trillion dollar asset class already had two problems:

     

    1. In October 2025, two companies in the US in quick succession suddenly collapsed. Private credit instruments backing auto-parts supplier First Brands and car dealership Tricolour suffered catastrophic losses. Suddenly, risk entered the private credit equation.
    2. In January “SaaS-pocalypse” became a market driver as investors began to fear for the growth and security of once-robust software (SaaS) business models under threat from AI. This, in turn, affected perceptions of the security of loans extended to software companies. Companies like SAP and Oracle saw their share prices fall up to 50% from their highs.

     

    In recent months we have been reading smallish headlines about private credit funds experiencing “difficulties”. Guess what? Depending on “other people’s money” can be tricky when headlines cause anxiety. Yep, people who invested in these private credit funds and vehicles (SPVs) wanted to get their money back. Blue Owl was the first high profile name to suspend redemptions. Then it was Blackstone limiting investor withdrawals, followed by the Big Daddy of them all, Blackrock/HPS. Now, Morgan Stanley and Cliffwater are doing the same this week. So, that’s 6 ‘financial gates’ closing as fast as the Strait of Hormuz. You don’t need to guess what other investors in other funds are thinking. Now consider the impact of a disrupted global economy and how the traditional providers of capital to the global economy are reacting. Clearly, deal conversations with Tokyo banks, UAE sovereign wealth funds and European family offices are going to be of a very different tone to those held just a few short weeks ago.

    Listen carefully…that sucking sound is not Kash Patel, JD Vance (how quiet is he!) or Howard Lutnick simpering to the Dearest Leader’s latest delusions. Nope, that’s the sound of the global financial system experiencing geopolitical and leverage cracks simultaneously, and the beginnings of capital flows going into ‘flight to safety’ mode. Hopefully, stability will return to the Middle-East soon. We have stared down the barrel of threatened global chaos before. In fact, for 47 years senior US strategic security personnel gamed out the theory that the Iranians would never shut down the 2-mile wide Strait of Hormuz knowing that the US and their allies’ response would be too damaging. That theory is now dead because the White House moved first and apparently (based on this week’s Truth Social outbursts) had no coherent plan for after…..

    Now, that would be gas if it wasn’t so serious.

  • Battle For Capital Starts At Home

    Battle For Capital Starts At Home

    Investment capital does not come easy. Unless you’re Kristi Noem, the very recent US Secretary of Homeland Security. It seems Kristi had no problem accessing capital to fund a $220m personal branding campaign, a fleet of $70m luxury jets with queen-sized beds to ride around the nation and multiple photo shoots of the DHS Secretary on horseback at national monuments. Those rides – that word is doing some heavy lifting – are now over. “Generalissimo Bonespurs” bravely reached for his social media keyboard last night and fired her via Truth Social. At least it was a fate less lethal than that experienced by Kristi’s late puppy, Cricket, who was shot by “ICE Barbie” for discipline issues. No tears from Cricket, or the rest of the caring world me thinks. Anyway, I’d like to stick with investment capital and discipline.

    The screaming headlines away from the Arabian Peninsula in 2026 have been again all about AI, and the ‘space race’ to spend more and more money to build that AI future. Leaving aside the discipline or uncertainty of returns(success) on that capital spend, there is one certainty. This enormous shift of investment capital – $650 billion spend this year by MSFT, Amazon, META and Google alone – risks ‘crowding out’ other sectors desperately looking for capital to fund their own growth plans. In fact, Pitchbook data indicates funding for AI exceeded half of all VC deal value in 2025 (53% of $513 billion). However, this sector concentration phenomenon highlights a challenge for Europe. Clearly, the investment capital is out there but Europe is struggling to muster up ‘big ticket’ investment to truly dominate/gain monopoly on the global stage. Consider SAP as the only European ‘startup’ of recent decades to achieve a valuation of over €100 billion. Then think of the still privately owned SpaceX eying up a 2026 IPO with a $1.7 trillion valuation. The US is on a different planet to Europe in terms of swinging the investment capital ‘bat’. Indeed, Mario Draghi’s report on EU competitiveness way back in 2024 flagged a couple of things relevant to today’s article:

     

    • Europe needs to radically overhaul innovation. Draghi noted only 4 of the world’s top 50 tech companies were European.

     

    • His solutions included innovation in Europe’s financial markets: 5% of European GDP (or €800 billion per annum) needs to be invested in Europe’s best innovative companies, infrastructure, energy etc. This capital could be unleashed through joined-up thinking on common EU debt instruments and unlocking the vast private savings pools in Europe’s aging societies.

     

    Closer to home, the government and Tanaiste Simon Harris are promising a new savings scheme to incentivise savers to deploy some risk capital. Despite the presence of so many bold brave successful US multinational corporations in Ireland’s economy, we have become a nation fearful of risk. Possibly we have been spoiled and become risk flabby due to multi-national ‘air cover’. The €170 billion of savings sitting in Irish banking deposit accounts earning returns below the rate of inflation is a damning indictment of our national financial literacy and an exercise in mass wealth destruction. Something radical needs to happen so we will be writing further on this theme in terms of what’s possible and what we believe might work. After all, we are pretty much the only Irish free-to-access platform for investing and purchasing the shares of young fast growing companies. So, we do have a view close to the coalface and….. we also know the hurdles currently experienced by both the companies seeking investment and the institutions assessing the returns prospects of those companies. Let’s first consider how venture capital institutions, family offices and private equity houses make that returns assessment.

    One of the more thought provoking pieces I have read in the last 12 months was an article by Progress Ireland’s Sean Keyes. He used real numbers in an investment decision example to demonstrate how an Irish company when competing against other European companies (not even US ones) for investment “need to be smarter, harder working, or luckier than Europeans to achieve the same results”.  Why? Simply put, investment companies have a ‘hurdle’ or returns target which they put in all their marketing literature for their investors, partners, shareholders etc. It will be expressed as an annual rate of return over the duration term of the investment (eg 20% or 30% per annum over 5 years). However, this is NOT the same as what the investee company achieves in its own operations. Think of two companies earning profits of €1m per annum for 5 years and then selling/exiting for €10 million to a new owner. You’d be right to think that both companies delivered €15 million over the holding period of the investment. But…. that is NOT what the investment company will receive. That will depend on the tax regime of the relevant investment. Here’s where the numbers don’t look good for Ireland’s companies. We DO have a low corporation tax (15%) but other taxes significantly change the returns picture for investment companies. Consider the following:

     

    • Ireland taxes dividends at the highest rates in Europe (remember the distribution – out of company – of those €1m per annum profits)
    • Capital Gains Tax is the 4th highest in the EU (remember that €10 million exit)

     

    Clearly, the post-tax picture for investors in Irish companies compared to the exact same average EU company is lower. Therefore, an investment manager needs to know that an Irish company is going to deliver a supra-normal PRE-tax performance in order to deliver a post-tax result in line with his ‘hurdle’ requirements. The Progress Ireland article is worth a read to understand the framework calculations but for the purposes of this article (and Friday lunch deadline approaching) I would flag the two key numbers which standout. An Irish company receiving €1m of VC funding and required to beat a hurdle of 30% per annum over 5 years needs to generate€ 23.7m over the 5 years. Meanwhile, the average EU start-up receiving the same €1m VC investment only needs to deliver €11.3m over the same period. That feels like an Irish start-up needs to be roughly twice as lucky, smart and hard working than average. It also feels wrong. Not the maths, the returns hurdle implicit in any Irish start-up investment by an institutional player is way too onerous. Radical thinking is required and none of these challenges are addressed if we end up incentivising SSIA-type savings schemes which steer investment capital into publicly listed companies on global stock markets.

    We already have an incentive solution for that. It’s called a pension. So, we will return to this topic again with more on the potential solutions and the wider imperative for Europe to mobilize its vast savings’ pools. Frankly, if we and Europe don’t encourage risk-taking discipline, then we all economically end up like poor Cricket.

     

  • Keep Your Eyes On The Prize, Not the ICE…

    Keep Your Eyes On The Prize, Not the ICE…

    I know, I know…. we’ve all heard enough of “big piece of ice”, “ICE”, “Iceland”, “hundreds of feet of ice”, “not on the frontlines” etc. And…best not mention the threat to the icy “G” spot (thousands of miles from Melania) which has ‘ruptured’ the rules-based world order. Anyway, it’s Friday and the past week felt like months before closing with the ‘bigliest’ TACO ever at Davos. Not the food version, but the geopolitical clown car currently posing as the leader-for-life of the autocrats anonymous therapy  group, The Board of Peace. Entry fee is a billion, leave your moral compass at the door. Parody is dead, but for investors not quite exhausted by awful, there are genuine investment prizes out there and they are developing nicely despite the Davos noise. The White House brown shirts in ICE might ask you not to believe your eyes and ears in Minneapolis, but for the next 3-4 minutes, just read and believe….

    Smaller companies are doing very well in 2026 on public markets. In fact, the smaller company US equities index, the Russell 2000, has beaten the blue chip S&P 500 index for the 14th consecutive day. That’s the best relative (small vs large) winning streak seen in markets since 1996. So, despite the headlines confidence in markets is actually pretty high. A more esoteric check on confidence can be found in the way bigger (than equities) bond/debt markets. Confidence in high quality company bonds is measured by the gap(extra cost) between US risk-free government bond yields (Treasuries) and the yields of the bonds(debt instruments) issued by companies themselves. The larger the gap(the “spread”), the larger the uncertainty of investors. So, check out current spreads of just 0.71% which are the lowest demanded by investors since 1998. In other words, investor confidence is riding high. That means many investment themes remain intact.

    Best performing US large company stock last year? Good ol’ Sandisk. Yep, it delivered 577% returns to investors in 2025 alone. Its run continues. Sandisk has just clocked another 110% return in January…That’s a 1,300% return in less than one year and a reminder that the ‘picks and shovels’ of AI infrastructure are still hot, hot, hot. Not long ago Sandisk was a stodgy old memory card company (think USB thumb drives) but memory chips have became a major supply bottleneck for AI development. Generative AI models like Gemini, ChatGPT and Claude need ever-increasing ‘context’ as reference data. Or, as we used to call it, memory. An interesting part of this story is Sandisk’s partnership with Japanese manufacturer, Kioxia, whose multi-decade expertise in manufacturing is delivering a significant cost advantage. There will be more Japan surprise cost/value stories this year but it’s no surprise to Gravitas readers of our “Japan Series” of articles in 2025. Take-private buyout deals in Japan hit a record $40 billion in 2025. Now, think about Japan household savings storing up $14 trillion of firepower which equates to more than three times its GDP. However, there’s another Japan story which is worth watching too…

    We keep writing about the bullying power of global bond markets. One of the biggest is Japan’s government bond market (JGBs). Last week witnessed Japanese government bond yields (cost of money) rising to levels not seen since the 1990s. That is a worry because Japan has a lot of debt (but also a lot of savings). However, there is a bright spot in this rising bond yield story. Ordinarily, inflation is a bad thing, particularly for bonds. But… in Japan, monetary authorities and successive frustrated governments have spent decades trying to generate inflation to encourage spending NOW, and not years in the future. Of course, bond yields can’t be let run out of control but if managed/balanced carefully, there will be many more buyout deals, venture capital growth and M&A in the Land of the Rising Sums….of investment capital. The bond yield spike is not just a Japanese phenomenon.

    US monetary authorities have been cutting interest rates since 2024 but bond yields (and mortgage rates) remain stubbornly high. In this instance investors are worried about Fed independence, tariff chaos and the vaporising of the rule of law in Washington. Somebody might have to explain to Agent Orange that bonds and debt instruments are financial contracts. Then again, that never meant much to him or his poor bankers in Manhattan during the ‘90s. However, this inflation uncertainty can be a good thing for particular parts of the investment markets. In particular, you will hear more about real assets. Atoms rather than bits. Anyone seen the silver price this week? Yep, $100 here we come.  Or check out Brazil. It makes and owns lots of real things in the agricultural, mineral and materials spaces. Brazil’s stock market is already up 10% year-to-date while US and European markets are sitting on more restrained returns of 1-2%.

    These are not new themes. Really this article is a reminder, despite the bewildering headlines and global ‘rupture’ (do read Canadian PM Mark Carney’s Davos speech), that investment and economic stories continue to develop along the same trajectories experienced in 2025. Indeed, to use Carney’s words, if there is a new theme/story, it is to look at the ‘middle powers’, not the autocratic gorillas, and explore opportunity in the likes of Japan, Brazil and ….. a Europe which finally stood down a bully with some not-so-subtle assistance from those law-loving global bond markets.

  • Themes And Dreams For 2026

    Themes And Dreams For 2026

    This won’t help my US visa application any time soon. However, it is possible to be on the right side of history and seek investment opportunity too. History may record that 2025 was a dark year of barbarity in Gaza, criminal meat-grinder slaughter in Ukraine, trade tariff chaos, war crimes in Venezuelan waters and full strategic capture of US national security policy by the Kremlin. And, yet I’m hopeful. I will leave it to more mainstream outlets to review 2025. Instead, I’d like to take a look at a number of 2026 investment themes – new and old and not AI – which are developing in potentially unexpected ways. Many, in a good way.  Let’s take a look at the data and start to dream….

    Global Trade: Dare we return to Brexit. Anybody see the UK paying over €600m to re-join the EU’s Erasmus student exchange programme? Don’t worry. We are not going to re-visit Brexit but we are going to cite this as an example of slow-moving sanity repairing self-inflicted harm. Similarly, the “America First” tariff policies in Washington are now beginning to reveal some awkward truths. The mighty US dollar has slipped by 9-10% against other major currencies, US equities (+15%) have underperformed global equities (+29%) and the US manufacturing sector has been losing jobs for 7 months consecutively. Oh, and China, the original bipartisan focus of US trading ire, has just seen its trade surplus exceed $1 trillion for the first time in history. So much winning. What are the chances of US trade policy moving away from tariffs? Well, the polling for US mid-term elections in 2026 is looking pretty bleak for incumbent Republicans. And, the spectacular Vanity Fair quotes (more of them later) from Trump chief-of-staff, Susan Wiles, are prompting Washington insider speculation of a policy re-set or ‘cry for help’ from within the White House. To be clear, nobody sane thinks Wiles (in 11 recorded interviews with Vanity Fair) was unaware of the likely end result.  Bank on that. So…..

    Financials: If you’ve been dazzled by AI you might have missed the massive performance of financial stocks this year.  Financials in the US (+20%) have outperformed technology (+18%) but check out UK banks being tortured by a chaotic Labour government. The FTSE All-Share Banks index is up just the 56%!! In Europe the Euro Stoxx Banks index has clocked a 76% increase in value year-to-date. Meanwhile, Europe’s fintech banking star, Revolut, has completed its second funding round since August. The latest round was eye-catching for the $75 billion valuation achieved (vs $48 billion in August) and the backing of Nvidia’s venture capital arm. That’s a 56% increase in value in just a few months. More importantly, healthy performance in banks and financials usually reflects overall confidence in the global economic cycle despite the dark headlines. Bluntly, banks feel the fear first. It’s not there. In fact, the latest Bank of America investment survey shows investor sentiment at its strongest since 2021. And, that confidence might be showing up in strange places…

    Europe: There appears to be a growing view that Europe has been shocked into taking responsibility for its destiny on the geopolitical stage. The loss of the US as a reliable ally – outlined in the recently published National Security Strategy 2025 – means Europe must back its own. All the way. It was striking to read recently that in Europe, over the past 50 years, just 14 companies started from scratch ended up with valuations over $10 billion. In the US that number is 241!  German defence company, Rheinmetall AG, at €70 billion is now worth more than BMW, VW or Mercedes. Its value has appreciated 15x since the outbreak of the war in Ukraine. Unsurprisingly, Franco-German defence company, KNDS, is eying a €25 billion IPO in Amsterdam in 2026. Furthermore, conditions of ‘war’ have historically driven innovation. So, when the head of the UK’s MI6 intelligence services and its chief of defence staff both warn in the same week of the need “to be ready to fight”, we should expect a massive step up in investment in Europe across the board, to strengthen not just defence but energy grids, communications, technology, supply chains etc. Europe’s prompt for action might be scary but there might be a surprise further east….

    Geopolitics: Europe is still reeling from the stunning geopolitical alignment of Russia and the US sealed with the Kremlin’s approval of Washington’s National Security Strategy “as largely consistent with our vision”. Read that twice, watch the party of Ronald Reagan spin in its grave (yep it’s dead) and remember those famous Russo-proverbial words borrowed by Reagan…. “trust, but verify”. Then think about who is really driving the Ukraine peace talks. In recent weeks we have seen oil hit 5 year lows, the Russian economy battle rampant inflation, the Russian central bank selling its gold reserves and Europe moving to seize ‘indefinitely’ $200 billion of Moscow’s foreign reserve assets. If I were to offer a contrarian view on current peace talks, or even dream, I’d say Russia and Putin has more problems than we think. Furthermore, the unseemly haste of Trump’s agents, Witkoff and Kushner, to rush Ukraine into a Russian-written deal has a ‘frantic’ feel about it. Just a thought, or dream.  Of course, these are not the only deals which could light up 2026 in an unexpected way….

    Private Exits: The IPO pipeline of 2026 could break all sorts of records. Databricks has just completed a $3 billion Series L funding at a $134 billion valuation – yep that’s an “L”. We hear it so often now, but the private market really needs some big exits. OpenAI could be up for a $500 billion IPO. ByteDance ($480 billion) and Anthropic AI ($180 billion) are also on the blocks, as is Stripe with a $100 billion promise. I’m loath to mention the biggest of the lot, SpaceX, which is targeting a whopping $1.5 trillion 2026 valuation and thus pushing its owner Elon Musk in to trillionaire territory. Unless……

    Electric Vehicles: Ford might be grabbing the headlines this week with a monumental $19 billion walk away write-down of its electric vehicle (EV) projects. And, people worry about AI infrastructure over-spend? As China continues to accelerate away from the EV pack in its global dominance of the EV manufacturing ecosystem, whither Elon Musk’s Tesla? First, one can’t miss the opportunity to re-print Trump chief of staff Susan Wiles’s marvellous Vanity Fair assessment of Musk this week among others in this “only the best” Trump inner circle/cabinet. The New York Times summary is best:

     

    Trump’s White House Chief of Staff Susie Wiles describes Trump as an “alcoholic’s personality”, JD Vance as a “conspiracy theorist for a decade” and Elon Musk as “an avowed ketamine user” and an “odd, odd duck” in an interview with Vanity Fair

     

    Hmmm. An odd, odd duck. Tesla might just be reaping the DOGE or DUCK whisperer whirlwind. Tesla currently is valued at $1.5 trillion with a price/earnings valuation of 327x. Yep, 327x – I might raid the ketamine jar too. You’d expect Tesla to be growing, right? Well, the ducks are lining up. November sales for Tesla were the lowest seen since 2022. The brand destruction by Musk’s dive in to right wing politics has been epic. In Europe not a single country achieved sales of more than 750 units, except France. If it walks like a duck, tweets like a duck…….we can only dream.

    Old Economy: Surprisingly, 5 of the “Magnificent 7” tech stocks have under-performed the AI-giddy market this year. In fact, the original perceived AI ‘loser’, Google, has been the stellar performer, up 56% year to date. Now, it might be worth taking another look at other ‘losers’. Defence and banking  stocks are already back in vogue, but in ‘war-like’ conditions the basics become critical too. So, it’s possibly no great surprise that the Basic Materials sector in the US has clocked the best sector performance by far, up 33%. As the race to electrify the global economy accelerates, critical minerals, precious metals and mining stocks stand to benefit from urgency, security and scarcity. Gold is up 65% year-to-date, silver has more than doubled and platinum is up 117%. Keep an eye on Mr Copper too with a 34% uplift in 2025.

    Plenty to think about above, and possibly dream too. What a year! I’ve a feeling I won’t be short of writing material in 2026.

    That’s nearly it folks for 2025. Thanks for reading and the words of encouragement along the way.

     

     

  • Is This The End….?

    Is This The End….?

    Let’s start with the easy one. I’m A Celeb 2025 is almost finished. The more tricky version of this headline question might relate to the Epstein files or even the filing of war crimes charges in The Hague against US Secretary of War, Pete Hegseth. Not any time soon me thinks. We could ask Sleepy Don but he might become angry – about the sleepy bit, not the war crimes or paedophilia. Actually, the question most asked in recent weeks is about the end of the AI boom. I asked my own excellent AI ‘friend’ Claude (courtesy of Anthropic) about ‘bubble’ mentions in the media and even he agreed in his remarkably comprehensive market summaries of public and private markets that the AI bubble question is occupying investors’ minds. Mine, not so much. More on Claude later, but first a historical perspective. The last technology boom in 2000 did indeed end in a bust but generalisations on technology can be misleading.

    Back in 2000 we should remind ourselves of the telecoms companies racking up massive debt obligations to acquire mobile spectrum licences and build out fibre/internet networks. Then there were the infrastructure suppliers like Ericsson, Nortel and Cisco dependent on those telecoms, internet and wireless expansion projects. Then the projects stopped. A possible over-simplification by this writer, but a combination of over-build and debt pressures slowed activity and cratered the valuations (growth expectations) of the leading infrastructure players. For illustration, Cisco was trading on a price/earnings multiple of 200x in late 1999. Twenty five years later the Cisco share price has finally recovered to within touching distance of its $80 high in 2000. However, one must make a distinction between the infrastructure plays and the tools/applications which were built on those over-priced networks….

    The Nokia phone in my year 2000 pocket didn’t end up ruling the world but Apple and the mobile internet did. Similarly, Google was just 2 years old at the time and wouldn’t IPO until 4 years later, the same year as TheFacebook Inc was born. Mobile networks enabled commerce (Amazon) and communities (social media platforms) to flourish and generate enormous wealth. Readers might be now detecting a similar pattern with AI. The race for computing power (in 2000 it was networks) is an infrastructure story but investors must not lose sight of the applications of AI and the business models possible (Amazon was an online book store once). The tools like Claude, ChatGPT and Sora are really only in their infancy. The infrastructure story is driven by GPU/TPU chips (Nvidia), cloud computing, hyper-scale data centres and energy. And it’s possibly infrastructure again where risks are building. The CEO of IBM, Arvind Krishna, in recent days put some numbers on those risks.

    Krishna cited a data centre power consumption estimate of 100 GW which at current costs would mean an $8 trillion capital expenditure in the next few years. Now, for the wet blanket of capital reality. That ginormous $8 trillion spend would need to earn profits of $800 billion just to pay the interest/cost of that capital. Yep, that’s stretchy but get ready for the other reality. This infrastructure isn’t piping, fibre, railways or copper which lasts for decades and is depreciated gently over time. The chips which currently power Nvidia’s $5 trillion valuation and sit inside all these data centres could become technologically obsolete within 5 years. Arguably, at current innovation/evolution rates that timeline is too optimistic. Imagine having to replace all your chips every 3 years… ? That should make creditors to these huge data centre projects a little queasy.  The International Financing Review summarized the massive acceleration in borrowing as follows:

     

    “An unprecedented splurge from companies at the forefront of the AI boom that has left banks and investors potentially on the hook for billions. Alphabet, Amazon, Blue Owl Capital, Broadcom, Oracle and Meta have between them issued US$120bn of corporate bonds since September – and are raising another US$38bn in the loan market. The debt binge shows no sign of abating, with JP Morgan predicting US$300bn of bond issuance next year – and US$1.5trn by the end of 2030. Another US$2.3trn could be raised in equity, structured finance and private capital markets over the next five years, as hyper-scalers tap every available pocket of capital to finance the US$5.3trn of investments into AI they are expected to make”

     

    Before everyone runs for the hills, we need to be mindful of some very positive starting points. These technology giants tapping the debt markets in most cases are swimming in cash, have dominant market positions and are generating prodigious annual cash flows of almost $700 billion. These are not the fragile telecom balance sheets of the TMT bust in 2000. Of course, OpenAI, sits in the middle of that famous Financial Times graphic showing $1.2 trillion of data centre projects. In my personal view, OpenAI is the weakest link but that could take years to play out. The harsh truth for all investors is that we don’t really know who will win the foundational large-language-model (LLM) race. Google’s Gemini 3.0 seems to be winning this month and did anyone notice Google share price is up 67% year-to-date? Yep, and my Claude’s parent company, Anthropic, is looking to IPO at a $350 billion valuation. These are very early days. Just ask Nvidia. Actually, don’t. They are saying nice things about almost everyone because all are prospective customers. But….. as always watch what a company does, not what it says.

    Nvidia made a $2 billion investment in chip designer, Synopsys, this week. This is just the latest move by Nvidia in what can only be described as a deal spree. In 2025 alone the company has backed 77 equity investments in start-ups, as well as making 5 outright acquisitions (Source: CB Insights). Let’s just say it looks like Nvidia is hedging its AI ‘winner’ bets. Indeed, the ‘AI infrastructure’ bubble fears run the risk of missing the true lessons of the TMT bubble bust of 2000. ChatGPT might be today’s Nokia but the monthly user statistics tell another ‘mobile’ story. ChatGPT is used by 800 million people each month. Gemini is fast catching up with 650 million devotees and Microsoft’s Co-pilot has 200 million monthly users. The market, business or individual, is already converted. That’s the true investor opportunity.

    Meanwhile, there’s a bigger story brewing at the other side of the world. Arguably, we really do need to see that story end very soon. More next week on why troubles in Japan’s bond market REALLY scare me……

  • Big Deals And Big Themes To Watch….

    Big Deals And Big Themes To Watch….

    Been a tough week. And that Epstein dog hasn’t even barked yet. Anyway, let’s not dwell on the ‘what ifs’, let’s focus on more positive action. In particular, activity in the M&A and funding worlds, which should be taken as generally upbeat pulse-takes for individual investors. These deals also reflect the key structural drivers for the rapidly changing global economy. Change, you say? Well, Germany has had an engineering/capital goods trade surplus with China for decades. Not anymore. China in 2025 is now running a surplus with Germany. Oh, and nobody in the Oval Office will tell the Donald…. but “America First” has caused US equities to underperform overseas equities for only the third time in a decade. I know, whoodathunk amid all the giddy AI headlines? Interestingly, the deals I’m seeing in recent days also have a non-US focus.

    Infrastructure is still a huge magnet for investment capital. Blackrock’s Global Infrastructure Partners vehicle has swooped in Spain to acquire the Digital & Energy unit of domestic construction giant, ACS. Yep, that’s a data centre and AI play with a whopping $27 billion price tag. Sticking with AI, and back in the US, Mira Murati’s Thinking Machine Labs is currently doing a funding round with valuation in the $50 billion region. In its last funding round in July (checks notes, yes) that valuation was $12 billion. Not to be outdone, Elon Musk’s xAI is raising $15 billion at a $200 billion valuation. So, I think we can safely say AI and the US are still leading the giddy stuff. Elsewhere, the deals are more fundamental. Try energy.

    Private equity monster, Carlyle, is exploring an acquisition of Russian oil giant Lukoil’s global assets valued at almost $22 billion. Meanwhile, Spain’s energy champion, Repsol, is considering a reverse merger of its $19 billion upstream unit with potential partners including US energy producer APA. In addition, Google has signed a deal with French oil giant, TotalEnergies, to buy 1.5 terawatt hours (TWh) of solar electricity over the next 15 years in Ohio. That’s enough power to run the entire state of California for 10 days. Again, data centres are the key driver for the energy land-grab, be it fossil-fuel or renewable. However, as Spark closes out a lightning-quick raise of €1.5m for the impressive AuriGen Medical team, we should not forget demographics and the hugely significant structural growth in healthcare opportunities(check out our May 2025 series of articles on Japan).

    Pfizer has acquired weight-loss start-up, Metsera, in a $10 billion all-cash deal. Then the rebuffed original buyer of Metsera, Novo Nordisk, went to the debt markets to finance the $5.2 billion purchase of US biotech Akero Therapeutics. The sense of a deal ‘cluster’ in pharma-land was further heightened by Merck’s likely acquisition of another biotech, Cidara Therapeutics, in a $3.3 billion deal. Like the Metsera deal, the bidding war for Cidara was intense too. So, things are looking pretty healthy in health M&A. As for the unhealthy world…. we continue to watch ‘Whiskey Pete’ deploy US Navy assets off Venezuela.

    If ever there was a classic ‘wag the dog’ distraction mission this might be the one. Particularly, given both Jeffrey Epstein and Ghislaine Maxwell in emails from 2011, sound mystified about the “dog (Trump) that hasn’t barked” in the criminal investigation under way at that time. Venezuela is yet another prompt for all sovereign nations and the investment world to be thinking defence. Some aren’t just thinking. Valor Equity Partners have led a chunky $510m funding round for a counter-drone radar start-up, Chaos Industries, at a $4.5 billion valuation. Also, watch out for Germany’s Quantum Systems which manufactures interceptor drones which can climb 4 kilometres in 30 seconds(!). Last heard on the street, they were raising $150m at a $3 billion valuation.

    All of the above sectors, bar health, position power sources and storage as key elements in competitive advantage. Note infrastructure and power are closely linked. The best positioned infrastructure assets will be those which bring energy/cost efficiencies in a world where AI is gobbling up more and more electricity, possibly at the expense of everyday consumers and traditional businesses. There is a reason why 40% of e-commerce deliveries in Europe are now done in out-of-home (OOH) parcel lockers. It makes sense for both the primary carriers (DHL,UPS, FedEx etc) and the consumer to make ‘the last mile’ more efficient. At Spark Private, we also think OOHPod makes a load of sense with lots of exit opportunities (and founder exit track-record) and great infrastructure positioning. In all of the above deals, everyone is trying to take the lead in positioning in the market. It can feel good too when it’s good for the world. In fact, I can still remember seeing a much-loved guy on his cool new electric bike just 5 years ago, and thinking to myself how happy he looked. I will keep that thought always…..

                  W.H. RIP.

  • Strong Grounds For Optimism, And Action….

    Strong Grounds For Optimism, And Action….

    I should be terrified. Watching Netflix’s House of Dynamite was definitely disturbing. In real life, the guy with the nuclear codes is having another Canada tantrum and refusing to rule out a third presidential term. Meanwhile, financial market headlines are full of ‘bubble’ talk as Hallowe’en approaches and yet…… I’m suddenly very optimistic. It might be Hallowe’en season but there are two other ‘seasons’ in full swing which could bring significant wealth enhancement. Firstly, we are in the middle of corporate earnings results for Q3. Secondly, Irish earners will soon be looking for opportunities before year end to invest in EIIS-eligible deals to reduce their income tax costs and balance their investment portfolios. My sense is that the stars are aligning nicely for a further burst of action in the next few months. As always, companies need to lead so check out the latest developments.

    We mentioned Q3 earnings season but we didn’t mention the “Magnificent 7” superstar tech stocks dominating the financial headlines. Deliberately so. The latest ‘tot up’ of Q3 earnings reveals a much broader participation of companies in healthy earnings reports. So far, 145 companies out of the S&P 500 index have reported Q3 earnings. A whopping 84% of those companies “beat” analysts earnings forecasts which is the highest “beat” rate seen in four years (Source: Bloomberg).  Average earnings growth across the reporting companies is on track for a year-on-year acceleration of 15%. The bottom line, literally, is that operational fundamentals are very strong. Critically, this profit growth is spreading to smaller companies; the Russell 2000 index of smaller companies is clocking an even higher 2025 profit uplift of 25%. You might have to pinch yourself, then check your notes re current challenges faced by companies. Try these for starters:

     

    • Global disruption to supply chains and energy markets due to Ukraine war.
    • Relatively high interest rates since 2022.
    • Tariff and trade chaos thanks to the unstable ‘genius’ in the White House.


    In many ways these are historical known ‘unknowns’ in Rumsfeld-speak. However, the positive twist on this uncertainty is that, if companies are able to generate significant profit growth despite these challenges, then this generation of corporates must be fundamentally very robust. This opens up another possibility, a very exciting one. What if interest rates were now beginning to fall and China and the US were about to agree a trade framework? Well, there’s a 97% chance (per money markets) of the Fed cutting interest rates this week and the news from the Trump trip to Asia is positive on a China deal happening too. Dare we dream of a Ukraine breakthrough? We might ease up on the Kool-Aid there, but we do note a weekend article in The Telegraph about Putin’s fears of a coup. We will continue to dream. However, the deal junkies in the private equity world seem to be picking up on the same fundamental positivity.

    Blackstone’s COO, Jon Gray, in its Q3 results call with Wall Street analysts was certainly pointing to more activity:

     

    “Directionally healthier markets, more liquid markets, better credit markets, better IPO markets; that’s healthier for realizations….The deal dam is breaking.”

     

    Closer to home, private equity exits in Europe’s financial services have reached an all-time high with 77 deals year-to-date worth $31 billion. As we wrote last week…… Banks are SOOOO back! However, it would be a mistake to think this was frothy financial ‘engineering’. In fact, it’s more engineering than finance on a global basis. Private equity investment deals in global infrastructure have rocketed by 44% year-on-year to $25 billion. That’s the second highest total deal value seen in a decade. Clearly, there is a lot more going on than an AI revolution. In the Spark Private world of venture funding and smaller private equity deals we keep a close eye on smaller company activity benchmarks. Two caught the eye this week:

     

    • Smaller company tech equity indices in the US are up 23%…. in just 3 months.
    • Small company industrials are hitting new all-time highs and breaking out on technical charts.

     

    An environment where global trade tensions, interest rates, corporate earnings, smaller company valuations and private equity deal activity are all moving in the right direction will undoubtedly generate more deal opportunities. Pitchbook’s latest review of European private equity (PE) activity is telling:

     

    “A run of large-cap deals in Q3, buoyed by interest rate cuts and improved macro stability, saw European PE dealmaking grow to €177.1 billion (about $206.7 billion) in Q3…….37% of overall PE deal value, €66 billion, came via 19 deals worth over €1 billion—more than Q1 and Q2’s mega-deal value combined. In total, 48 mega-deals took place in Europe over the first nine months of the year. That figure is expected to approach 70 by year-end, making 2025 one of the most active years for such deals in the region on record.”

     

    So enough of the headlines, where’s the action for private investors? The key questions for many investors at this time of year are…

     

    How can I access the deal flow?

     

    Can I do it in a tax friendly manner?

     

    Spark Private can help on both fronts. More specifically, investors can quickly build a well-diversified portfolio of 7-8 companies with top-calibre teams, EIIS tax rebates and genuine structural growth opportunities in a matter of months. Now, for the action…..YOUR action.

  • Banks Are So Back!!!

    Banks Are So Back!!!

    It’s a weird world right now. I endured another episode of “The Celebrity Traitors” last night and wondered how the US version would work without offending the Kremlin ‘besties’ and reality TV cast of Mar-a-Lago. And who knew Joe Marler would out-smart Stephen Fry? Serious kudos to the rugby front row forwards fraternity. Anyway, park reality TV and let’s face market reality. Another weird one very close to home – Irish banks are now achieving 89% customer satisfaction ratings. It’s amazing what one can achieve by leaving the small business sector completely unbanked in terms of risk capital. However, it can’t be denied that banks are SO back in a global sense. And, some are really ratcheting up the risk dial. Today’s article is really a whistlestop tour of global financial sector developments which caught the eye in recent weeks.

    Let’s kick off with Blackrock Inc. It’s results season and Larry Fink’s giant asset manager recorded net inflows of investment monies in excess of $250 billion in Q3 alone. Blackrock’s current total assets under management (AUM) have just hit a record $13.5 trillion, yep trillion. You might say Blackrock is not a bank but if you look closer at those investment inflows, you’ll see private credit(lending) is a huge driver of asset growth. You’d be right in thinking that other institutions are competing or replacing banks in the financing space. That trend brings its own risks. Indeed, the IMF took the opportunity in its 6 monthly Financial Stability Report to warn about “the rapid growth of non-bank financial institutions”. Then, the EU’s Single Resolution Board (which ultimately sorts bank collapses) also warned this week of the “dire” consequences of a non-bank failure. Sounds nervy, but the financial services sector is enjoying record growth thanks to the lack of nerves among investors…

    Robinhood, the trading platform loved by meme-stock and crypto fund day-traders, has seen its share price rocket by 250% since January this year. Then check out Charles Schwab, the US broker/trading platform which started out in commercial life as a newsletter with 3,000 subscribers, and was briefly owned by Bank of America in the 1980s. I had to wipe my eyes on this one, but Schwab now holds $11.6 trillion of investor assets and has just announced its intention to offer digital currency (crypto) trading in 2026. That number was just over $4 trillion when Covid-19 struck. This growth in assets can be equated to the growth of balance sheets and collateral to be used in further investing activity. We can’t avoid mentioning AI but the infrastructure spending by cash rich tech giants is another boon for investment bankers. The latest data from research house, Gartner, is that global AI spending will be $2 trillion in 2026. Amazingly, the star of our most recent article, OpenAI, sits in the middle of $1 trillion of that spending. Needless to say, Wall Street investment banks are doing cartwheels as big tech names compete with each other to announce bigger and bigger spending plans as their share prices(and executive option pools) rocket on each headline. No wonder luxury laggard, LVMH, is seeing its share price suddenly perk up. It’s not alone.

    Investment banking blue chips like JP Morgan, Morgan Stanley and Goldman Sachs all posted record equity trading activity and revenues. The Daily Upside summed up the joy across the wealth and brokerage spectrum:

     

    “Results from other financial firms this week also showed that clients from scrappy retail traders to high-net-worth jetsetters are hankering for equities and investments. Wealth units at Bank of America  (revenue up 19% year over year to $1.3 billion), Goldman Sachs (up 17% to $4.4 billion), Morgan Stanley (up 13% to $8.2 billion) and more notched high marks. Customer assets at Schwab competitor Interactive Brokers rose 40% to $757.5 billion, and daily trades there rose 47% to $3.86 million.” 

     

    But it is a weird world. The crypto universe cratered last weekend as Bitcoin elevator-shafted investors with a 20% drop in price from $126,000 to $105,000. Then gold keeps marching remorselessly to $5,000/oz in $100 clips. There is a sense that different cohorts of investors are buying different assets but there’s enough liquidity (investment flow) to drive EVERYTHING upwards. It was striking to see in Schwab’s record inflows that Gen Z and Millenial investors accounted for a third each of new accounts being set up and looking for equity exposure mainly. Meanwhile in California, there’s a new bank coming. Erebor is a new crypto-focused bank which received federal approval this week. The excellent Morning Brew newsletter reports:

     

    “The new venture will offer traditional and crypto-oriented banking to upstart tech companies and the ultrawealthy, according to its charter application and approval letter. It needs another stamp of approval from more federal officials before operations can commence, but road bumps are unlikely under President Trump’s crypto-friendly administration.”

     

    Before you think it’s all crypto and AI out there, keep an eye on more familiar moves. Goldman Sachs has done an interesting deal buying Industry Ventures for nearly $1 billion. Small beer you might think, but Industry Ventures is in the venture capital ecosystem with $7 billion of VC assets bought from other VCs (known as secondaries). Clearly, Goldman is taking a view on more VC deals/exits happening and should be a boost for the start-up world. Oh, and JP Morgan are going to put $10 billion to work in nationally important industries and supply chains. In fact JP Morgan sees itself involved or banking $1.5 trillion of projects in the coming years. Here’s what those deals might look like…

    Meta/Facebook has just sealed a $30 billion private capital deal to finance its Hyperion data centre build in rural Louisiana. Here’s the kicker – Meta retains only 20% ownership. Morgan Stanley has arranged $27 billion of debt and $2.5 billion of equity in a special purpose vehicle (SPV). Yip, that’s a more than 10:1 debt-equity structure. Welcome to the world of superhero collateral in the form of AI infrastructure. This is the largest private capital deal ever but expect many more over the next few years. Of course, there are concerns.

    FT headlines this week highlighted poorly structured loans (read opaque dodgy) going wallop and hitting US regional banks’ share prices badly. Also, volatility in financial markets is picking up. However, the key drivers of global investment activity are big tech firms, private capital, sovereign funds etc and they have trillions of cash and collateral to deploy. This is not quite TMT era when the major players, telcos and media, were already swamped with debt. Returns on investment will obviously be the metric to watch in the future but arguably we are a few years away yet from getting visibility on AI’s payback. So get ready for more deals, more AI and more financial services profit joy. You’d almost be tempted to get exposure to these big structural trends. Well….. keep your eyes peeled next week as Spark Private will have a very interesting deal for you with a strong blend of alternative assets, financial services and AI baked into the offer.

    We are SOOOO back.

  • Virtuous Circle Or Circle Of P..AI..N?

    Virtuous Circle Or Circle Of P..AI..N?

    I’m getting flashbacks. Not good ones. Financial ‘engineering’ was a feature of the world’s last two financial crises. In the TMT bubble collapse, Enron used its stock as collateral in long-term contracts or asset sales which were described as “circular hedging transactions”. The goal or impression sought was to mitigate risk but ultimately all risk was really tied to the Enron share price. In the credit crisis of 2008/2009, new ways of packaging property debt with a bewildering array of acronyms (CLO, CMO, RMBS etc) were supposed to insulate risk within different tranches. Until, they didn’t.

    Now, I’m reading about new ways to finance the AI boom and, again, the risks keep coming back to a very narrow collateral pool. The word “circular” is back and one name keeps cropping up; OpenAI. My newsfeed has been bombarded with multiple graphics from Bloomberg, Goldman Sachs and The Financial Times (see below) illustrating this circularity accompanied by headlines stating that OpenAI is at the centre of a $1 trillion AI infrastructure spending boom. And, I thought they were just building a chatbot (ChatGPT).

     

     

     

    Here’s a few things you might have missed about OpenAI….

     

    A recent funding round valued OpenAI at $500 billion, the world’s most valuable private company, but….

     

    It generates NO cash. Latest figures for H1 2025 reveal revenues of $4.3 billion while incurring a net loss of $13.5 billion. Yep, it’s losing more than 3 dollars for every dollar of sales it generates.

     

    OpenAI has signed up to $1 trillion of deals with the likes of Oracle ($300 billion), Nvidia ($100 billion), AMD ($80 billion) and Coreweave ($22 billion). The Stargate project alone is a $500 billion infrastructure project.

     

    OpenAI’s core product, ChatGPT, has built a weekly user base of 800 million people.

     

    Now, let’s return to the deals. I’m not sure the graphics of circularity really capture what’s going on. In recent weeks the world’s most valuable company, Nvidia, announced a $100 billion investment in OpenAI. In return, OpenAI will buy Nvidia’s graphic chips (GPUs) as it builds out its data centre infrastructure. You can see the circular vendor-financing risk in that deal. However, in the last 24 hours OpenAI has announced a further deal with Nividia rival chip maker, AMD. I’m going to lean on Bloomberg’s excellent Matt Levine in imagining the language of current deal negotiations with the loss-making OpenAI.

     

    OpenAI: We would like six gigawatts worth of your chips to do inference.

    AMD: Terrific. That will be $78 billion. How would you like to pay? 

    OpenAI: Well, we were thinking that we would announce the deal, and that would add $78 billion to the value of your company, which should cover it.  

    AMD: …

    OpenAI: …

    AMD: No I’m pretty sure you have to pay for the chips.  

    OpenAI: Why?

    AMD: I dunno, just seems wrong not to

    OpenAI: Okay. Why don’t we pay you cash for the value of the chips, and you give us back stock, and when we announce the deal the stock will go up and we’ll get our $78 billion back.

    AMD: Yeah I guess that works though I feel like we should get some of the value?

    OpenAI: Okay you can have half. You give us stock worth like $35 billion and you keep the rest.

     

    Levine is spot on. It has been bothering me for weeks now. CEOs in the tech world have spotted that a company’s share price goes up on the announcement of huge spending plans (not profits). In extremis, one could route the “value” of the share price gain to a cash-strapped customer like OpenAI. Funnily enough, AMD’s share price rocketed 35% on the OpenAI deal news adding $60 billion to its market value. And, so the merry go round continues. Sure enough, Nvidia, has responded to the behind-the-back dealing of OpenAI with rival AMD by announcing a $2 billion investment in OpenAI rival, xAI, owned by Elon Musk. The total funding round for xAI will be $20 billion but there’s a few extra ‘engineering’ twists. The $20 billion ($7.5 billion equity, $12.5 billion debt) is going into a special purpose vehicle (SPV – remember them?) which will buy GPU chips for xAI’s Memphis Colossus 2 data centre. The SPV, in turn, will rent out the GPU chips for 5 years, with the debt backed by the chips rather than the company. Hmmmm. The rent and SPV details should raise alarm bells.

    The attraction of constructs like rent, leases and special vehicles is that it increases the complexity of an organization and also makes it more difficult to track the true returns (or not) of a company. Rent and leases are considered off-balance sheet items ie they don’t show up as DEBT on the balance sheet. To complete the circle, I’m reading about Oracle today and its astonishing $380 billion in revenue it will generate by renting out its cloud servers to OpenAI and other AI developers over the next 5 years. Oracle can’t afford a rent default. It is not cash rich like Google or Microsoft. In fact, its debt-equity ratio is a whopping 520%. Michael Cembalest at JP Morgan put it rather well…

     

    “Oracle’s stock jumped by 25% after being promised $60 billion a year from OpenAI, an amount of money OpenAI doesn’t earn yet, to provide cloud computing facilities that Oracle hasn’t built yet, and which will require 4.5 GW of power (the equivalent of 2.25 Hoover Dams or four nuclear plants), as well as increased borrowing by Oracle whose debt to equity ratio is already 500% compared to 50% for Amazon, 30% for Microsoft and even less at Meta and Google. In other words, the tech capital cycle may be about to change.”

     

    Change, yes. But some things never change in credit or investment cycles. OpenAI might be at the centre of a $1 trillion investment revolution driving stock prices ever higher. But, ultimately “other people’s money” will make its presence felt. Bloomberg is reporting that the amount of debt tied to AI has ballooned to $1.2 trillion. This makes AI the largest segment(14%) of the investment-grade market, surpassing US banks. That means more eyes and scrutiny on the circular world of AI. Bluntly, if a problem emerges it won’t be seen in the stock markets first. It will be in the bond markets with its army of credit analysts. As a final thought, and given the scrutiny applied to the track records of key entities in investment ecosystems, what must credit analysts think of OpenAI?

     

    • As recently as 2023, the OpenAI CEO, Sam Altman, was fired, then re-hired.
    • OpenAI co-founder, Elon Musk, is now a bitter and richer rival.
    • The company is a strange governance hybrid with control residing in a non-profit Board.
    • OpenAI and early backer, Microsoft, have been in dispute over their partnership terms.
    • CEO Sam Altman was quoted this week in FT saying becoming profitable was “not in my top-10 concerns”
    • Recent $100 billion investor in OpenAI, Jensen Huang of Nvidia, was not told about the deal with rival, AMD.

     

    None of the above makes OpenAI a bad credit. But, with trillions of dollars of investment capital on the line any loss of confidence in OpenAI could spiral rapidly into a whole new circle of “engineering” PAIN.