Zuck Needs More Money
Zuck Needs More Money
As of this morning, Mark Zuckerberg knows what it’s like to be the CEO of a microcap biotech or a junior gold miner.
And not in a good way.
Shortly before the market opened, Meta Platforms announced it will issue $95 billion in new shares to help finance its AI ambitions.
Granted, it won’t be doing so all at once. But at META’s current $1.6 trillion valuation we’re still talking about the company growing its share count by about 6%. Just the whiff of “shareholder dilution” sent the share price down 1.6% at the open today.
Meta’s saga this morning is a microcosm for the AI sector at large.
“Investors are beginning to ask a question that should have been asked long ago,” says Paradigm macro maven Jim Rickards: “Where are the profits from the hundreds of billions of dollars being poured into artificial intelligence?”
For months, Jim’s been telling readers that AI is looking more and more like a classic financial bubble — “enormous capital spending, sky-high valuations and promises of extraordinary future profits.
“We've seen this movie before. The dot-com bubble followed a similar script before trillions of dollars in market value disappeared.”
As Jim sees it, the weakness in tech stocks last week constitutes a warning: “Investors are beginning to focus less on the promise of AI and more on the enormous cost of building the infrastructure needed to support it.
“This is how financial bubbles begin to unravel. Investors initially focus on growth, market share and ambitious projections. Eventually, they start demanding evidence of sustainable profits.
And when expectations are high enough, even strong earnings reports may not help.”
No, last week’s sell-off does not mean the bubble has burst: “But it demonstrates how quickly investor enthusiasm can turn into skepticism when enormous valuations collide with questions about profitability.
“Investors should pay close attention to the financial realities behind the AI story, not just the promises made by its biggest promoters.
“The technology may have a bright future but that doesn't mean today's AI stock prices do.”
Markets Today: Anthropic IPO, Dwindling SPR
All of the above notwithstanding, Mr. Market has the attention span of a gnat. So for the moment, all of last week’s AI spending concerns have been cast aside.
A little while after Meta’s announcement, the S-1 filing for Anthropic’s IPO was made public. The company behind the Claude chatbot is opting for the ticker symbol ANT. (Geez, now I’ll have the Frank Sinatra song “High Hopes” going through my head the rest of the day.) Shares could begin trading as early as the week before Thanksgiving.
We’ll dig into the S-1’s numbers as the week goes on, after our folks give them a little time and consideration. Meanwhile, the market’s knee-jerk reaction is to send AI stocks in general ripping higher. The Nasdaq Composite is up 1.2% as we write, sailing past 26,000 again. Heck, Meta shares are in the green now.
The S&P is up just under 1%, approaching the 7,700 level again. The Dow is up a half percent near 52,500.
Congratulations to readers of two premium Jim Rickards advisories — 167% gains on Wynn Resorts put options in Crisis Trader and 440% on Chevron call options in The Situation Report.
After closing last week a bit below $4,000, gold has recovered that round number for the moment. Silver is back over $54.
Bitcoin is sinking toward $80,000 — territory last seen a month ago. And Ethereum is approaching its August levels near $2,300.
For the record: The feds are dipping into the Strategic Petroleum Reserve. Again.
The Energy Department has authorized a drawdown of 400,000 barrels to supply a Phillips 66 refinery in Louisiana that’s undergoing a temporary disruption to crude deliveries for reasons no one is specifying.
“The government calls this an exchange, not a sale,” per the OilPrice website. “Phillips 66 must return the borrowed barrels along with additional crude as a premium.”
Still, this latest move will bring the SPR’s level down to another low last seen in 1982 — a level many analysts believe to be the “operational minimum.” That is, any lower and the oil will be too watery — or worse, the salt caverns in which the oil is stored will start to collapse.
In the meantime, U.S. crude futures begin the new week down more than 2% — approaching $101. That’s despite a report by The Times of Israel that ahead of Israeli elections tomorrow, there’s an “unprecedented confrontation” between Prime Minister Benjamin Netanyahu and the military’s chief of staff over “an action that could lead to a lightning confrontation with Iran.”
If SpaceX and Tesla Really Do Merge…
“Imagine Elon announcing a merger that creates a company worth roughly $3.5 trillion,” says Paradigm trading pro Enrique Abeyta.
As mentioned here last week, Elon Musk has publicly confirmed that a SpaceX-Tesla tie-up is on the table — a prospect that several Paradigm editors including Enrique have entertained for the better part of a year.
“A $200 billion stock offering could provide a massive war chest for Elon's next moves,” Enrique says. “That money could enhance AI development, expand Starlink or fund major acquisitions.”
Good for Elon, not necessarily good for shares of either SPCX or TSLA. “I expect both to trade in a volatile range while the merger details and approvals are worked out.
“But I believe a deal could create huge opportunities in several other companies.”
All of them operate in the wireless space — where Musk clearly has ambitions, given SpaceX’s existing Starlink service and its recent $8 billion purchase of wireless spectrum from Grain Management. “That's a major step toward becoming a broader mobile communications provider,” Enrique says.
Among the possibilities he laid out in a recent issue of our sister e-letter Truth & Trends…
- T-Mobile (TMUS), one of the Big Three wireless operators. “Buying it could give Musk quick access to millions of customers, nationwide infrastructure and valuable wireless spectrum”
- AST SpaceMobile (ASTS) could become a takeover target for Amazon or Google, hoping to keep pace with Elon’s ambitions in wireless service
- SBA Communications (SBAC) owns and operates cell towers. “If SpaceX builds a ground-based wireless network to strengthen Starlink, it could become a major new customer for tower operators.
“I’m not necessarily saying to go out and buy these stocks today,” Enrique avers. “But they are three strong examples of companies to follow closely as events unfold.”
Virtual Power Plants: An AI Solution?
Google is making an offer it hopes electric customers can’t refuse.
To free up grid capacity for its AI data centers, the company wants to pay homeowners and businesses to shift their electric-usage habits.
In June, Google signed a three-year agreement with a privately held firm called Voltus for up to 100 megawatts of “virtual” power capacity in PJM, the country's largest regional electricity market.
Last week, the companies announced an additional 1,070 megawatts, bringing the agreement to well over one gigawatt — more than 10 times the original amount.
To be clear, no new generating station is involved. Instead, Voltus will recruit electric customers to let software coordinate their batteries, smart thermostats, EV chargers and other equipment.
On hot afternoons, air conditioners can precool houses before the peak. Cars can charge later. Home batteries can discharge when the grid is tight. Participating customers receive financial incentives, including payments and bill savings.
This practice is called "demand response." Coordinating thousands of these resources creates what's known as a virtual power plant.
The potential is enormous.
A Duke University study estimates that the existing U.S. power grid could accommodate another 98 gigawatts of large electricity users if those new customers agree to briefly reduce their consumption during periods of peak demand.
But can a virtual plant be as dependable as a conventional one?
Google seems to think so. Under the original agreement, Voltus is responsible for meeting Google's contracted capacity obligation. But can it attract enough customers?
One of Voltus’ partner companies, Octopus Energy, says its programs attract 60% of potential customers. But it’s tougher sledding elsewhere: Octopus exec Nick Chaset said in a recent interview that even strong utility demand-response programs may enroll only 5–20% of customers.
The technology is available. Enrolling enough customers and delivering dependable capacity are the harder parts.
None of this eliminates the need for additional power plants. But virtual plants could make better use of the infrastructure we already have, potentially reducing costs for everyone.
In the end, the test won't be how much capacity Google contracts for. It'll be how much Voltus can deliver when the grid needs it most.
Mailbag: Avoidable Armageddon
“A very important 5 last week,” a reader writes after Thursday’s edition. “I think our politicians in Washington, old as they are, are too young to understand the realities of war.
“Personally, my family and I have moved to South America, where hopefully we would be farther from any such eventualities, although I don't believe anywhere on the planet would be far enough to justify complacency.
“Finally, I don't believe potassium iodide is any more likely to ‘expire’ over time than sodium chloride, or common table salt, so any expiration date written on the bottle would be meaningless.
“Wow, powerful stuff you wrote on nuclear annihilation. It’s downright scary,” says another note.
“Sadly, I’m old enough to remember, as a child, the Cuban Missile Crisis. Also back in the ’60s, there were ways to survive a nuclear war with Russia… Ah, what???
“Every Wednesday at noon, the air raid sirens would wail in Seattle. In elementary school, that meant a version of the duck and cover for earthquakes now. It was, back then, get under your desks, get away from the windows and look away and close your eyes tight, should we see a bright flash. Yes, nuclear war was survivable!
“So anyways, my father, a WWII veteran of the entire Pacific campaign, had his own version of duck and cover. His makeshift bunker, in the basement, along with food/water storage, old WWII cots with bedding, etc. And thanks to Khrushchev, every time he’d rattle his saber and roll his tanks into upstart satellite USSR countries, such as Romania, Czechoslovakia and then this Cuban thing, I’d get called in from playing outside and down to the basement we’d go, eating dinner and watching the news on a little black-and-white TV with rabbit ears. I didn’t understand it and it was scary. I hated that Khrushchev guy, because he’d ruin playing with the neighbor kids, and that basement had spiders! A bit of overkill, upon reflection…
“Yes, my father was somewhat of an early survivalist and some of it did rub off on me. Food and water storage, emergency kits and stuff galore. However, that is more for storm survival and power outages. I don’t think any of that would help should the idiots in charge finally hit the button. Seattle would be in the crosshairs immediately. Similar to you being downrange of those missile silos, Seattle has Boeing plants and airfields, Bangor submarine base across the Puget Sound and Everett naval base, culminating with joint base Fort Lewis/McChord in Tacoma. We’d be gone in a literal flash!
“Geez Dave, thanks for conjuring up some long-forgotten memories… Like the old adage, sit down, spread your knees, put your head between your knees and kiss your ass goodbye! Think I’ll put on ‘My City Was Gone,’ by the Pretenders đ”
“Far too real,” writes our final correspondent. “Nuclear war: I have no doubt that, like going bankrupt, it happens gradually and then suddenly, to misquote Hemingway.
“We are literally watching it happen gradually, and have been so conditioned that common citizens are ignored in politics that we’re thoroughly convinced there is nothing we can do.
“Look at the popularity and benign nature of ending daylight saving time clock jumps, and that was held up as a masterpiece of statesmanship to accomplish in the House of Representatives and then it stalls in the Senate. Even when it is well known that significant health issues, traffic accidents and workplace accidents all are dramatically increased by the clock jumps. Even suicide rates are increased. And somehow even that can’t be ended by our legislative bodies.
“Elon is right, for humanity to survive we must be multiplanetary. I hope to live to see it.”
Dave responds: We’ll wrap it up on that hopeful note!
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P.S. If you’ve read alarming headlines about an "unprecedented" cybersecurity flaw and wondered what if anything you should do about it personally…
… then I direct you to Friday’s edition of our sister e-letter Altucher Confidential. Chris Campbell lays out exactly what happened… how it puts you at risk… and four steps you can take right now.
If nothing else, do what I did over the weekend and protect the mobile phones in your household from “SIM swappers.” You can do it on your provider’s app or website. Ask your favorite AI chatbot to walk you through the steps if need be.
