47fucb4r8curb4fc8f8r4bfic8r on X: "The back-of-the-envelop math here is very wrong.

Firstly, the $1t valuation is not justified by the metrics provided, because he gives no growth rate and no justification for a 20x earnings multiple--is he just extrapolating from the S&P 500? Oh dear, but hey lets run with it...

OpenAI is hitting a $42.6b run rate and a ~252% yoy growth rate. Let's assume a 20x earnings multiple (Andrew isn't actually using the 80% gross margin here--he gets 20*x=1trillion, or $50billion earnings and for 100-200b rev that's a 25%-50% earnings margin--I honestly don't think he knows this because he doesn't know what he's doing).

Using our numbers and Ho's valuation logic, we get 42.6*.25~.5=10.7~21.3 earnings, so valuation of 213-426b, a 50-75% markdown from current FMV if we ignore growth rate. However, that 252% yoy growth rate means that, if they sustain that for just one more year, you get $153b in revenue, which gets you to the $765b-$1.53t valuation range, and OpenAI is smack in the middle of that.

Remember, we're assuming a 20x P/E multiple, which is usually given for extremely mature companies whose revenue is growing less than a tenth of what OpenAI is getting. Honestly, an OpenAI valuation in the $3-$5 trillion today is defensible--not saying I would endorse it, mind you. But it's absolutely defensible.

It's not a bubble. The valuations I've seen at the PE/public markets level have astounded me in their reasonableness. (VC is another story red nose wearing motherfuckers)

Ho is surely an intelligent guy, but this post is financially illiterate." / X<br>Post

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47fucb4r8curb4fc8f8r4bfic8r

@47fucb4r8c69323

The back-of-the-envelop math here is very wrong.

Firstly, the $1t valuation is not justified by the metrics provided, because he gives no growth rate and no justification for a 20x earnings multiple--is he just extrapolating from the S&P 500? Oh dear, but hey lets run with it...

OpenAI is hitting a $42.6b run rate and a ~252% yoy growth rate. Let's assume a 20x earnings multiple (Andrew isn't actually using the 80% gross margin here--he gets 20*x=1trillion, or $50billion earnings and for 100-200b rev that's a 25%-50% earnings margin--I honestly don't think he knows this because he doesn't know what he's doing).

Using our numbers and Ho's valuation logic, we get 42.6*.25~.5=10.7~21.3 earnings, so valuation of 213-426b, a 50-75% markdown from current FMV if we ignore growth rate. However, that 252% yoy growth rate means that, if they sustain that for just one more year, you get $153b in revenue, which gets you to the $765b-$1.53t valuation range, and OpenAI is smack in the middle of that.

Remember, we're assuming a 20x P/E multiple, which is usually given for extremely mature companies whose revenue is growing less than a tenth of what OpenAI is getting. Honestly, an OpenAI valuation in the $3-$5 trillion today is defensible--not saying I would endorse it, mind you. But it's absolutely defensible.

It's not a bubble. The valuations I've seen at the PE/public markets level have astounded me in their reasonableness. (VC is another story red nose wearing motherfuckers)

Ho is surely an intelligent guy, but this post is financially illiterate.

span:not(:empty)~span:not(:empty)]:before:content-['·'] [&>span:not(:empty)~span:not(:empty)]:before:px-1 [&>span:not(:empty)~span:not(:empty)]:before:shrink-0 min-w-0 overflow-hidden">Andrew Ho

@andrewho03

Jul 30

I'm actually fairly bearish on frontier lab valuations. I've never seen the reasons articulated to my satisfaction, so before I go to sleep, I wanted to quickly jot down my thinking here.

The basic issue is that the labs are highly unprofitable. This may seem like a simple Show more

span:not(:empty)~span:not(:empty)]:before:content-['·'] [&>span:not(:empty)~span:not(:empty)]:before:px-1 [&>span:not(:empty)~span:not(:empty)]:before:shrink-0">12:16 PM · Jul 30, 20269.5KViews

67<br>43

span:not(:empty)~span:not(:empty)]:before:content-['·'] [&>span:not(:empty)~span:not(:empty)]:before:px-1 [&>span:not(:empty)~span:not(:empty)]:before:shrink-0 min-w-0 overflow-hidden">Andrew Ho

@andrewho03

Jul 30

You seem to have completely missed my point about training/R&D expenditures

20<br>svg]:size-5 text-body hover:bg-mix-current hover:bg-mix-amount-10 active:bg-mix-current active:bg-mix-amount-15 focus-visible:bg-mix-current focus-visible:bg-mix-amount-10 outline-current -m-2 shrink-0 cursor-pointer border-transparent p-0 text-body size-9 [&>svg]:size-[1.25em] [&>[data-engagement-icon]]:size-[1.25em] group-hover:bg-mix-current group-hover:bg-mix-amount-10" aria-label="View count" type="button" data-state="closed" href="/andrewho03/status/2082820902685970929/quotes">1.7K

span:not(:empty)~span:not(:empty)]:before:content-['·'] [&>span:not(:empty)~span:not(:empty)]:before:px-1 [&>span:not(:empty)~span:not(:empty)]:before:shrink-0 min-w-0 overflow-hidden">Dale Cloudman

@DaleCloudman

Jul 30

My main bear case for frontier...