On today's episode of Equity, Rebecca Beran speaks with Alok Sama, Morgan Stanley veteran and former president and CFO of SoftBank Group International. The two discuss Apple's latest tech announcements, Sama's views on the AI hype cycle, and how the tech investment landscape has changed since the dot-com era. Sama also shares insights from his upcoming memoir, “The Money Trap: Lost Illusions Inside the Tech Bubble,” due for release on September 17th.
Sama joined SoftBank in 2014 after cutting his teeth at Morgan Stanley, where he worked closely with Masayoshi Son, the Japanese conglomerate's iconic founder. He oversaw Son's $32 billion acquisition of Britain's Arm Holdings in 2016 and led SoftBank's $59 billion merger of Sprint and T-Mobile.
That means Sama is knowledgeable when it comes to researching the technology and investment landscape.
Thoughts on Apple and AI
Apple unveiled the iPhone 16 series, its first to feature AI-powered features, at its “It's Glowtime” event on Monday, though Apple Intelligence features won't be released until later this year, and Sama said the true impact of Apple's announcement remains to be seen.
“At the consumer level, [the impact of AI] “It's still in the early stages,” Sama said.
Sama also touched on the unusually high valuations of companies in the AI space, including Nvidia ($3.3 trillion), Anthropic ($18.4 billion), OpenAI (over $100 billion), and xAI ($24 billion), and whether they're evidence of the AI bubble bursting.
Sama says she isn't too worried.
“If you look at Nvidia's performance, the way they've grown their revenue and earnings is not too far off from reality,” Sama said. “Nvidia is trading at about 35 to 40 times forward earnings, which is not outrageous. What was outrageous was Cisco, which traded at 200 times earnings. If you invested in Cisco in 2000, you'd still be losing money 24 years later.”
Sama also noted that Nvidia's major customers, the so-called “hyperscalers” — Google Cloud and Microsoft Cloud — are large enough that they risk overinvesting, not underinvesting, in AI.
The two also touched on the incestuous and cyclical nature of investment in top AI companies, with Sama pointing to Nvidia and Microsoft investments in OpenAI, which was valued at more than $100 billion in its latest round, and describing a situation in which OpenAI is investing in Microsoft Cloud, which is investing in Nvidia chips, etc.
“The Money Trap”
Sama delved into key points from his book, particularly the psychology of the investment hype cycle and the precedent established in Silicon Valley of valuing companies based on growth projections rather than metrics like revenue and profits. In today's risk-averse market, investors are doing more due diligence, but it's a matter of balance between being too cautious and being too eager to invest, Sama said.
He said Son had the opportunity to invest in Facebook in 2009 at a valuation of $10 billion, but ultimately turned it down. Meta is now valued at more than $1 trillion. “This is an example of Son following valuation standards well, but it came back to haunt him. This is the reality of tech investing.”
But Son didn't make that mistake again, investing in ByteDance and its powerful AI algorithms a few years later at a valuation of $75 billion.
After all, VCs have learned to take business models into account, but human nature will always fall prey to the groupthink of the hype cycle.
Equity is TechCrunch's flagship podcast produced by Theresa Loconsolo and posts every Wednesday and Friday.
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