As I wrote in the piece, I'm extremely skeptical that xAI should be valued as if it is a frontier lab.
But as you say, going back to the xAI + SpaceX merger, analysts consistently seem to value it as if it is, so I predict the public will too, at IPO time.
I assume "extremely skeptical" is you being generous, is there anybody other than Elon who says xAI/Grok are SOTA? The only thing anybody says about it is that it's only good for porn, but local models do porn too so xAI has no moat or edge at all as far as I can see.
There is actually a real bull case for xAI (that I don't endorse), e.g. from people who think that chips & computer is the main determiner of model quality. xAI may plausibly soon have the biggest training apparatus of anyone.
If you don't spend any time comparing models to the point where you don't know about benchmarks, why do you care where people think the line for SOTA is?
The benchmark game is wholly gamed, but the proof is in the pudding. I know people using Anthropic, OpenAI, and Gemini. Chinese models locally. But who uses Grok for anything but porn? Whatever the benchmarks might say, Grok is just trash in practice. They spent too much time teaching it to be edgy and not enough time teaching it to code.
> I assume "extremely skeptical" is you being generous
I'm not sure that's the case. Every value in this forecast is absurd, I actually think the author is sincere in there feeling that they are being extremely skeptical.
Yeah, I might have stated this poorly. In the forecast it's just a question of expected value, I don't give almost any probability to "Starship is worthless".
My 50% CI on Starship's fair market value at IPO time is $123b - $227b, with a 80% CI even wider, not based on my own modeling, but based on anchoring to analysts that give credible arguments.
I read your comment as being glib, but in forecasting this I was really puzzled how much to anchor to how analysts tend to value these businesses.
I ended up largely deferring to them, e.g. predicting the public will value xAI at $258 billion ($222b - $310b) at time of IPO, even though I've elsewhere been skeptical that xAI should be valued like a frontier AI lab.
Yeah, it's wild. But it's not like the P/E should be 30, what do you think would be fair?
That's the thing about SpaceX, some businesses are real businesses that can be modeled in normal ways, like the government launch contracts, and to some degree starlink.
Others, like ~all of xAI, and the starship stuff, are being valued completely independent of revenue. I predict the IPO investors will generally follow the analysis consensus today with those eye-popping numbers.
I remember in the 00’s when people would complain about how ridiculous a 30 PE was for tech stocks, and how no other stock was at that ridiculous price point except tech. Guess that starship has sailed.
The "official" value of a stock is it is the current best guess of the market for all future earnings until infinity discounted back to the present at some discount rate (to account for the time value of money). That price to earnings rate is 1, because it's the definition. The "E" in PE ratio, however, is for a different time period: traditionally just the trailing 12 months (or previous completed FY- for high growth companies you will sometimes see "last month's revenue multiplied by 12" or other guesses).
This calculation is why "growth" companies dominated the stock market during the 2010's: with the Zero Interest Rate Policy that most of the developed world had, the discount rate that the markets used ended up being basically zero. In which case a market player is indifferent between a dollar in 2020 and a dollar in 2040. So if a company had a 10% chance of being worth a trillion dollars in 2040, that was worth (0.1 * 1 trillion=10 billion dollars). But with a more traditional 4% discount rate then a dollar in 2040 is worth less than half of a dollar in 2020, and that means your 10% chance of being worth a trillion dollars in 2040 has less than half of the value. Even if nothing else changed about your business, just the discount rate changing halved the value of your company.
P(rice)/E(arnings) ratio of 1 would mean it pays for itself in the earnings period.
The earnings period is 1 year.
It would mean making 100% return on investment each year. Being that low is only possible if there's reason to think the business is extremely precarious and unlikely to survive.
P/E 30 means returns of 3.33%, P/E of 20 means 5%. These are sensible numbers given people have other investment opportunities.
P/E of Tesla being 400 or so means it would take 400 years of its own profits to be able to afford to privatise itself, i.e. returns of 0.25%; being that high is a gamble that future revenue/unit time will go up by a factor of about 20 to bring it into the sensible range.
The upper bound from the grandparent comment for P/E 500-1000, says the annual return is 0.1%, which is what I saw on various current accounts, not savings accounts, not special deals, current accounts.
Of course not. If the P/E was 1, every single public company would be immediately gobbled up by Private Equity firms, who would make their money back after a few years of operation and the rest would be pure profit.
I do not know the P/E ratio for your magic box, sorry.
A P/E ratio of 1 indicates that a company's share price is equal to its earnings per share, suggesting that investors are paying $1 for every $1 of earnings.
A P/E ratio of 10 indicates that a company's share price is equal to its earnings per share, suggesting that investors are paying $10 for every $1 of earnings.
Which is the better deal? Neither! The first company could suddenly earn more per share and you will be better off. The second company could loose earnings per share and you will be worse off.
A P/E of 1 means you are paying exactly the earnings per share, which is the fairest and most non speculative price. You are paying what the company is earning.
But why should the fairest price be equal to exactly 12 months of earnings? Why not 1 month, or 100 months?
Is there something special about the length of Earth's orbit that makes it the correct ratio for converting flows to values? If a business were incorporated on Mars, would the fair price be one Earth year of earnings, or one Mars year of earnings? (The latter price would be 88% higher.)
Now you’re beginning to understand. Listen I have a degree in economics. I never wanted to economics because it’s all bullshit. It’s arbitrary measurements and it’s not a science.
Yeah, sharing information across Claude Code sessions really is a problem that needs solving. An urgent hack, where you're using Claude Code to debug and trying to get help from your team, is one such case.
Yeah, and this is a pattern I saw in the Fancy Bear Goes Fishing book, a lot of discovery of malware is either pure luck, or blunders from the malware developers. https://en.wikipedia.org/wiki/Fancy_Bear_Goes_Phishing
reply