The Biggest IPO In History Isn’t What You Think It Is

Sid Jain joins the show to discuss how emerging markets have quietly become an AI trade. Finally, Ed breaks down the truce between Microsoft and OpenAI. Patrick Boyle is a hedge fund manager, a university professor and a former investment banker. Sid Jain is a Deputy Portfolio Manager at GQG Partners. Get your tickets to the Prof G Markets tour Subscribe to the Prof G Markets Youtube Channel Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

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• 1:00Speaker 03

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• 1:29Ed Elson?

  Today's number? 90. That's how many seconds Russell Brand spent trying to find his favorite Bible quote live on Piers Morgan before he finally gave up. The former comedian was on the show to discuss his new book, How to Become a Christian in Seven Days. Sources say step one is to be accused of sex crimes.

• 1:53Speaker 05

  Money markets mad. If money is evil, then that building is hell.

• 1:57Speaker 06

  The show goes on!

• 2:03Ed Elson?

  Welcome to Prof G Markets. I'm Ed Elson. It is April 28th. Let's check in on yesterday's market vitals. The major indices were mixed as Trump considered a proposal from Iran to end the blockade and open the Strait of Hormuz. The S and P and the Nasdaq edged up to new records while the Dow fell slightly. Meanwhile, oil prices rose and Microsoft's stock fell early on the day on a renegotiated deal with OpenAI. The stock later recovered to end in the green. More on that later.

• 2:35Ed Elson?

  Okay, what else is happening? SpaceX is gearing up for the biggest IPO in history, but investors are starting to wonder what exactly they are being asked to buy. The company is targeting a $2 trillion valuation, which would instantly rank it among the largest companies in the S and P 500. But this is no longer just a space company. It's also a satellite internet company, a launch company, and increasingly, an AI company with new bets and new acquisitions adding to the story. And for all of the hype, there are real questions hanging over what would be the market's biggest event in years, such as can space-based data centers actually work at scale? What happens to Elon Musk's control once the company goes

• 3:20Ed Elson?

  public? And ultimately, can that $2 trillion valuation be sustained in the public markets? Well, here to help us answer many of these questions, we are speaking with Patrick Boyle, professor at King's College London, former hedge fund manager and host of one of the most popular finance YouTube channels. Patrick, so good to see you and so glad to finally have you on the show. I wanted to speak with you because this SpaceX IPO is set to be one of the most important events in a really long time in the financial markets. And you recently released a video titled, quote, "The SpaceX IPO Scandal." So I will start

• 3:59Ed Elson?

  with the obvious question, which is, why did you describe this IPO as a scandal? How is this company being sold to investors? What are you skeptical of with this IPO?

• 4:11Patrick Boyle?

  Well, the thing that's quite questionable about the way this IPO is being done is just the way that it is being forced into the Nasdaq 100 index almost instantly. I think there's going to be a 15-day delay. And also, the weighting that it'll be given is much higher than you would expect for a company with a very low float. So in a funny way, the company goes public at a very high valuation. People will probably buy in firstly, there's a lot of people are just very excited about Elon Musk and his companies. They'll put money in, but then the the expectation is that the indexes will be buying fifteen days later.

• 4:56Patrick Boyle?

  You know, at the current valuation, they're talking about it would have a four and a half percent weight in the in the NASDAQ one hundred. There's also been talk about possibly S and P pushing for early inclusion as well. And that would essentially mean that there's just a frenzy of it being bought up, stuffed into the portfolios of people who index, who are not really valuation sensitive. And it's the the valuation they're talking about, to be clear, they're talking about a hundred and twenty five times sales. So that's not earnings, that's sales. And we don't even really know what the earnings are of SpaceX.

• 5:38Patrick Boyle?

  There was, you know, Reuters published that they had EBITDA of eight billion dollars. But EBITDA is not earnings, it's earnings before essentially the cost of building satellites and building rockets. You know, which for SpaceX, you have to imagine is a significant cost. There's a famous quote from, I think, around two thousand and two where Scott McNeely, who was the CEO of Sun Microsystems, spoke about, you know, the the price that people had invested in Sun Microsystems. And he said, well, you, you know, what were they thinking? They invested at ten times sales.

• 6:20Patrick Boyle?

  And he said, you know, if you put your money in at ten times sales in order for me to return it to you in ten years' time, I have to pay all of the earnings out, or sorry, all of the sales out as dividends. And that assumes that I'm not paying any staff, that I have no R and D cost, that there's no manufacturing costs. He said there was no way people were going to get a return on investment at ten times sales. Now we're talking about. A hundred and twenty five times sales. And you know, it's worth noting as well that SpaceX is, it is an exciting company. It is growing, but it's not growing. You know, analysts expect it to grow twenty five percent next year. That's not good enough.

• 7:05Patrick Boyle?

  Like, Google went public, I forget how long ago, but they were growing at two hundred and forty percent a year. And they went public at ten times sales once again. And so the price, it's not really, the question isn't whether it's a good or a bad company. A bad company can be a good investment if you get in at a low enough price. And an amazing company can be a terrible investment if you overpay for the stock.

• 7:34Ed Elson?

  So, so much in there to unpack. I mean, I guess let's just focus on the price for a moment. Why is, I mean, when it goes public, you could imagine a world, if we lived in an efficient markets world, you could imagine a world where investors would say, two trillion dollars, that's ridiculous. I'm not buying. And the stock immediately plummets, in which case, maybe it's not a problem. It seems as though in the private markets, there seems to be a little bit more BS available. And you can command these kind of ridiculous valuations. I guess because the negotiations are a little bit more entrenched. And Elon just says two trillion and we say whatever and we sign the contract.

• 8:16Ed Elson?

  But I feel like there's a bit of a, it's a harder bar to, hurdle to get over in the public markets. So I'm with you on all of this, but I wonder if maybe there's an argument to be made here. Well, if it goes public, the markets will decide what the true valuation is. And therefore, maybe there isn't a scam.

• 8:37Patrick Boyle?

  Yeah, I mean, that, that is, that is the purpose of, of markets is to essentially weigh these companies. And in the long run, it doesn't matter. Like, in the long run, a good company that grows earnings will go up. And, but of course, in order to go up more than the market, it needs to surprise to the upside, right? Like, a company needs to be better than people thought it was, to perform better than the market. If it's, if people are right about how good the, the company is, well, then it would expect to get, you know, standard stock market returns. So when you go public at Such an extreme valuation, I mean, the likes of which has never been heard of before.

• 9:21Ed Elson?

  Right.

• 9:21Patrick Boyle?

  You know, it's funny because there's some analysts out there and they're saying, well, there's nothing to compare it to. And, and, you know, you can compare it to aerospace companies, you can compare it to technology companies, you can compare it even to, we'll say, just companies like Nvidia that have a product that there's a lot of demand for. And, you know, and then you'd say, well, how much is Nvidia growing? How much will SpaceX grow? Blah, blah, blah. But, you know, the, the problem is, there's nothing to compare it to if you go with a valuation like this. If you went with a more, um, I don't know, moderate or, uh, you know, uh, earthbound valuation, there's, there's plenty to compare

• 10:03Patrick Boyle?

  a, a company that, you know, that, that is an internet service provider, uh, you know, a very small AI company and, uh, you know, delivers payloads into space.

• 10:17Ed Elson?

  Right. It, it almost seems as though, I, I mean, the markets will decide what the valuation is, but thus far, they have taken a few kind of shortcuts to achieve this valuation. And it seems that some of those shortcuts would include talking about data centers in space and talking about the future and then merging XAI and putting that into the company and then buying Cursor and putting another AI company into the thing so that you have to keep on growing and growing and growing. And then the other point that you make, which I, up until now, hadn't thought properly about, is the idea of just shortcutting your way into the NASDAQ, which I assume immediately puts more buying pressure on the stock because

• 11:02Ed Elson?

  it's essentially inserted into people's portfolios, many 401Ks throughout the country, thus resulting in an elevated valuation. Hence, it seems like that's kind of where the scandal is, that when it's employing all of these strategies to almost fake it.

• 11:20Patrick Boyle?

  Yeah, like the, you know, the, the idea that, so firstly, NASDAQ had to change all of their rules to allow this inclusion because normally a company needs to be, you know, there's a list of rules as to how they weigh, uh, you know, a low float company going into an index, uh, how long it's been public because the idea is it needs to be seasoned in the market and sort of find a valuation with real buyers and sellers. So normally you would expect it to take about a year at least to even consider adding it. Fifteen days is unheard of. And then getting rid of the, the caps for the, the float on it. And, you know, Reuters reported

• 12:02Patrick Boyle?

  that this is because Elon Musk negotiated with NASDAQ and said, uh, you know, we, we can list this thing on the NIC, we can list it on the NASDAQ, we can list it wherever we want. If you want it on the NASDAQ, you have to go with fast track index, uh, in- insertion. And so that, uh, you know, it's, I mean, obviously that's good for everyone who already owns, uh, SpaceX stock. But if you are a person who owns index funds, and, and it's worth noting, it's not even just index funds because there's an awful lot of, uh, you know, fund managers who claim to be active managers. But if you look at their portfolios, they look exactly

• 12:47Patrick Boyle?

  like an index. And so apart from the indexes bind, there will be just a bunch of portfolio managers who say, I can't afford to take the risk of not owning a stock that's four and a half percent of the NASDAQ if I'm being judged against the NASDAQ. And so, uh, you know, in all honesty, it's a very smart way of maximizing demand for the stock right on the point of it going public. Uh, you know, it's questionably ethical from the perspective of the people at NASDAQ to sort of change all of their rules, uh, you know, right around what is by far the, I, I believe it's the biggest IPO in history because, uh, before

• 13:30Patrick Boyle?

  that we had Saudi Aramco where they did, uh, I think they, they did a $29 billion IPO. They're talking about 75 billion for, for this, uh, you know, the public float, so.

• 13:42Ed Elson?

  Yeah, a lot of the ethical questions do land on the NASDAQ here. And I'm reminded of when the NASDAQ decided to include MicroStrategy in the index. And as soon as I saw that, I was like, oh, now it's really a problem. It used to be that this was just a guy who had this Bitcoin treasury company and it was kind of a bunch of BS. But if you bought it, you bought it and that's okay. But as soon as we systematized.

• 14:04Patrick Boyle?

  And if you bought it, you got what you wanted.

• 14:06Ed Elson?

  Right, but then suddenly you're putting it into people's hands who don't even know what it is or what they're actually buying. And I guess the question that I would ask is like, why is the NASDAQ incentivized to do this exactly? Why are they changing their rules? Why are they so desperate to include this company in the index?

• 14:28Patrick Boyle?

  Well, it's a huge, it's going to be a huge company, especially if it goes public at, at what? 1.75 to $2 trillion. It will be, I think there's only five US companies bigger than that right now. You're talking about like Google, Microsoft, Nvidia, like, you know, they will be listing a big company. There's all sorts of exchange fees, trading fees, whatever that they earn off of this. It would not be, they would be unhappy if it ended up on the NIC, for example.

• 15:00Ed Elson?

  Yeah, just looking at the business itself. What do you make of SpaceX as a business? I mean, clearly you believe in many believe that the valuation is a little bit nuts. It would be more valuable than Tesla.

• 15:15Ed Elson?

  What do you make of this business? What do you make of the valuation?

• 15:17Patrick Boyle?

  Well, the real question is, there's, there's an awful lot of stuff in there that you would consider sort of lottery tickets, right? Like where it's stuff that it seems a little bit unlikely, this whole data centers in space thing. It's been tried, there's a company, I can't think of their name now, but they, they launched one Nvidia chip into space in a little satellite to run an AI program where I think it was meant to, you know, learn the works of Shakespeare or something like that. It constantly had to be shut down because it overheats, because it's very difficult. You know, everyone says, well, space is cold, but it's also a vacuum and you need.

• 15:58Patrick Boyle?

  Air blowing over something or water or whatever to cool it via convection. If it has to cool radiatively, you need these massive, massive cooling fins on it. And so the next version of this tiny, you know, Shakespeare satellite is going to have the second largest cooling array in space behind the International Space Station, right? Like, so we're talking about, you know, a very question to to cool like an actual data center, the type of thing they build on Earth. I mean, you're talking about cooling fins that are miles and miles square.

• 16:39Patrick Boyle?

  Like, I mean, it's it's it would be the largest manmade object in space by a long, long, long shot. So i- in terms of like, could this ever work? It it could like, I mean, that, you know, it doesn't violate the laws of physics. Uh, but it might be very difficult to manufacture and to get up there in a timely manner. Um, you know, there's also this kind of insane expectations around the real profit center, like sixty six percent of the profits, um, at least as far as we know of SpaceX, come from Starlink, you know, the satellite internet company. And they have at the moment around ten million paying customers, I believe.

• 17:21Patrick Boyle?

  You know, there's some analysts out there and they said that that uh, that they would reach one point two billion customers. Now, that's quite an amazing number when you look at the population of the planet. Who are like, there's one billion people on the planet who earn thirty five dollars a day, which comes to a bit under twelve thousand dollars a year. They will not be paying for, you know, a hundred and fifty dollar a month internet access, right? Like, the the question is. How big can Starlink get? And it's reasonable to think that maybe it's close to its capacity.

• 18:02Patrick Boyle?

  And then when you even look at SpaceX's launch, they are the biggest launch provider in the world. Like they take the most stuff into space. But I think around two thirds of what they bring into space, if not more, is Starlink satellites. Like it's their own stuff they're putting up there. So in terms of like how big the market is for other companies that want to put stuff in space, it's not obvious that it's a whole lot bigger than what's being launched right now.

• 18:33Ed Elson?

  Patrick Boyle, professor at King's College London, former hedge fund manager, host of a popular finance YouTube channel. Patrick, we're going to have to continue this discussion another time because there's so much to get into here. And it is going to be such an important event that people need to wrap their heads around and actually understand the details. And a lot of those details that you bring up are massively important. So thank you very much for joining us.

• 18:57Patrick Boyle?

  Thank you for having me on. It's been a pleasure.

• 19:02Ed Elson?

  After the break, why emerging markets are on a tear right now. And by the way, we are heading out on tour at the end of May. So if you want to come see us live, go to profgmarketstour.com to get your tickets. Can't wait to see you.

• 19:53Speaker 01

  Are your ad campaigns lighting up the dashboard? But not the pipeline? That's bull spend. And marketers are calling it out in dashboard confessions.

• 20:02Speaker 02

  My boss asked for results, so I opened my dashboard for the only positive sounding metric I had. Impressions.

• 20:09Speaker 01

  Cut the bull spend. See revenue, not just reach. LinkedIn delivers the highest return on ad spend of major ad networks. Advertise on LinkedIn. Spend $250 on your first campaign and get a $250 credit. Go to LinkedIn.com/campaign. Terms and conditions apply.

• 20:23Speaker 03

  Energía baja, falta de concentración, nebla mental? You might be dehydrated. Gatorade Zero powders han sido diseñados científicamente para ayudarte a mejorar el balance de hidratación en el cuerpo. Hechos con la mezcla número uno de electrolitos, sin colores ni sabores artificiales. Shop now online or at retailers nationwide. Gatorade hydrates better than water. Is it in you? Signos de dehidratación leve y moderada. Consulta a tu médico si los síntomas persisten.

• 20:56Ed Elson?

  We're back with Prof G Markets. Emerging market stocks are on a tear right now. The MSCI Emerging Markets Index hit a new all time high yesterday, surpassing its February peak. The index is up about 16% this year. That's roughly three times the gains of the S and P 500. South Korea and Taiwan are leading the move, driven by AI chip demand. This latest rally came on a report that Iran offered to reopen the strait in exchange for the US lifting its blockade of Iranian ports. However, the oil markets remain on edge, with Brent Crude still trading at around $110 a barrel. So here to help us unpack what we're seeing

• 21:40Ed Elson?

  in emerging markets right now, we are speaking with Sid Jain, Deputy Portfolio Manager at GQG Partners. Sid, thank you for joining us on the show. Before we get into what's happening here, could you just remind us what emerging markets actually are? What is this category? What does it entail?

• 22:00Speaker 08

  Absolutely. So emerging markets is a broad term. Generally includes countries that are less developed earlier on in their financialization. And but frankly, from a from a markets perspective, a lot of countries that fall under that aren't what you would consider emerging. So for example, a Taiwan, South Korea, this is generally highly developed, high income countries. But because of their legacy, they still get included under the emerging markets from a markets perspective.

• 22:30Ed Elson?

  Yeah, I always think that we should create a new name for them. I just feel like emerging markets doesn't really do it justice. Either way, those markets are up sixteen percent year to date. They sold off when the Iran war started, but they've now recovered all of it. And that's three times, more than three times higher than the S and P's gain so far this year. So they are massively outperforming US markets at the moment. I guess the question is, why is that happening?

• 22:59Speaker 08

  Sure. So what's interesting with the the the current composition of the emerging market index is that it's really not a reflection on the underlying emerging market economies. It's basically become a bet on the AI capex buildout you're seeing. So the big drivers of the emerging markets for the last, better part of the last two, three years now have been the semiconductor plays, specifically in Taiwan, TSMC being the big one. And South Korea, the memory companies, SK Hynix and Samsung. And in one stat that's pretty mind blowing is that if you look at it on a year to date basis, those three semiconductor companies, TSMC, Samsung, SK Hynix,

• 23:43Speaker 08

  are driving almost seventy percent of the entire index's earnings growth.

• 23:49Ed Elson?

  Wow.

• 23:49Speaker 08

  So this has basically become a one way bet on the capex buildout that you're seeing.

• 23:54Ed Elson?

  We saw a similar thing last year where, again, emerging markets way outperformed the S and P. S and P was up 16%. Emerging markets was up 30% for the year, kind of incredible performance. Was that the same story? Was that a handful of chip companies in a few of these less developed economies?

• 24:15Speaker 08

  So that was a big driver. And just based on how large these companies are as a portion of benchmark, it moves the needle. So for example, TSMC alone has a higher weighting in this benchmark in the entire country of India. So it matters. But there are a lot of bright spots you're seeing across other non semiconductor markets. So for example, 2025 was a fantastic year for pretty much every country in South America. Brazil being another large winner, not just in 2025, but year to date, where the countries are actually doing quite well, economies are improving, their stocks are incredibly cheap. And an

• 24:58Speaker 08

  important catalyst has been a electoral cycle where the countries are moving from the left on the spectrum to more of a right wing, business friendly environment. You're seeing that dynamic. But by and large, I would say, a lot of these emerging markets have structurally improved versus what was the case 10 years ago. 10 years ago, these economies were in a funk. Morgan Stanley called, had a term called a fragile five for a lot of these countries. But as these cycles go, they've turned around and growth is finally coming back after a long time.

• 25:32Ed Elson?

  Do you think that this is something that we're going to see continue? I mean, it's been kind of a spectacular rally for emerging markets last year continuing into this year. And I feel like that was a big question at the start of the year, which is like, is, I mean, it was an anomaly that the US was kind of outpaced by basically everyone else last year. The question for 2026 was like, is that going to continue to happen? So far, the answer is yes. Do you think that it will continue to be yes going forward?

• 26:03Speaker 08

  I I I would say you do have to look at it from a country by country basis. Uh, because again, the index is so misleading, given how lopsided is on AI.

• 26:13Ed Elson?

  Yeah.

• 26:13Speaker 08

  If the AI topic story slows down, or God forbid, turns negative ever, then the index will be in a world of pain. However, outside of that, there's a lot of attractive bottom up stories. I mean, I talked about South America, India, we're finding opportunities, Eastern Europe. Um, so there's actually quite a bit of exciting names and I I think what's, again, where we are in the cycle is so fascinating where for the first time you're seeing earnings growth in these countries actually looked pretty strong, uh, which was not the case pre-COVID. So for example, if you take in India, from twenty ten to twenty nineteen, India earnings growth was basically zero on a dollar basis.

• 26:57Ed Elson?

  Hmm.

• 26:57Speaker 08

  Now you're getting low to mid teens earnings growth and sort of fundamental change versus what was the case before.

• 27:04Ed Elson?

  How much of this has to do with the sell America trade, which got a lot of, made a lot of headlines last year? It turned out not really to be sell America, it was probably more like hedge America. You weren't really seeing that much selling pressure on US stocks, but ultimately you were seeing a lot of buying pressure on all the other stocks. Uh, how much of this is that versus, say, just the incredible performance of a handful of these AI companies?

• 27:33Speaker 08

  So I I wouldn't go, I wouldn't characterize it as sell America, but rather just people realizing how underexposed they are to the rest of the world.

• 27:43Ed Elson?

  Yeah.

• 27:43Speaker 08

  Uh, because for the better part of fifteen years, there was the best earnings growth by far wasn't the US. There really was not many other options. The Tina trade, so to speak, there's no alternative. That's kind of over where, yes, US are some fantastic companies, but the from a growth perspective, you're seeing it percolate to other parts of the world. And so does it make sense to have all your eggs in one basket? Where you can find better opportunities at generally lower valuations outside the US.

• 28:16Speaker 08

  So the move are rebalancing than a wholesale, let's get out of America.

• 28:20Ed Elson?

  Yes, but certainly to do with it, it sounds like a rebound. I mean, so much exposure in the US and then it's like, okay, well, we need to de-risk somehow. Just going back to Iran for a moment. As I mentioned, there was this sell-off and then emerging markets recovered. And it seems as though this is largely a result of investor expectations about the supply chains of these chip companies, I think, though it's kind of hard to understand how the markets really feel about Iran and the straight of moves. What can be said about what's happening in Iran and how it relates to the performance of emerging markets so far? What do we know about the relationship between the two?

• 29:01Speaker 08

  No, it is an excellent question, and I don't think it's just an emerging market question, but also a developed market question in the US. So the AI excitement has thus far overcome any potential down implications from this Iran conflict. Because the view is AI is a structural theme and the compute shortage, so to speak, is worse than the oil shortage. That's the market perception. Our view is that the Straits are still very much closed. Oil, Brent oil is close to $110 per barrel. And if you look at the refined products of gasoline, diesel, jet fuel, they're closer to $200 per barrel.

• 29:44Speaker 08

  And you're already seeing an economic slowdown across most Asian countries. And our view is that the next leg will be in Europe. So we're actually thinking the markets are being very complacent about the risk of an oil shock or a higher prolonged oil environment.

• 30:01Ed Elson?

  What do you, it's so interesting because I could understand why American investors feel this way. This complacency that we are, that some people believe is present in the markets right now as it relates to Iran. In America, there's an argument to be made that America is insulated, we're energy independent, this isn't going to be that much of a problem for the US or for US companies. But then I see the performance. Of emerging market stocks in areas where we are seeing a lot of direct economic consequences where gas prices are rising far higher than we're seeing in the US, which makes me think, why aren't investors in those markets? Why are they feeling complacent?

• 30:44Ed Elson?

  Why do they feel optimistic about the situation despite the fact that on the ground, as you say, it isn't really getting better?

• 30:51Speaker 08

  Yeah, it's interesting because in a lot of the non-AI countries, so to speak, you are seeing earnings get cut. And there is, like, for example, in India, Malaysia, Philippines, where there is quite a bit of nervousness when you talk to other market participants on the implication of energy shock. The nuance, again, going back to earlier point, is it hasn't really mattered yet at all, actually, for the big chip companies.

• 31:20Ed Elson?

  Right.

• 31:21Speaker 08

  So, for example, these companies took another big leg up on the back of Intel earnings a couple of days ago. And so if your view is that AI is structural, these companies, in theory, can grow through any sort of energy shock, although we find it skeptical if a lot of their customers are struggling, the people using AI, or the people spending on digital advertising, there will be a ripple on effect to the CapEx you see. But that's the market view thus far, that these are secular growth stories.

• 31:50Ed Elson?

  Yeah, it's so interesting. It seems as though, I mean, we talk a lot on this podcast about how AI is essentially the US stock market at this point. And you can't, if you're investing in any index fund, it doesn't, even investing in corporate debt, you are exposing yourself to AI. I hadn't fully considered how much that is also true of emerging markets too, out of markets around the world. AI is literally everywhere. You cannot escape it. I could talk about this for hours with you, but we're out of time. I'm going to let you go. Sid Jain, Deputy Portfolio Manager at G2G Partners. Sid, we really appreciate your time. Thank you.

• 32:30Speaker 08

  Appreciate your time. Thanks again.

• 32:36Ed Elson?

  Some news in the world of AI. OpenAI and Microsoft have officially renegotiated the terms of their relationship and have reached what some are calling a truce. Just as a reminder, Microsoft and OpenAI have had a contractual relationship for many years, but recently that situation became contentious. Part of the agreement was that in exchange for its compute, Microsoft would be the only cloud provider that could sell OpenAI's products. In other words, the relationship between Microsoft and OpenAI has long been exclusive. But now they're changing that. OpenAI will be allowed to partner with other companies, which means they can now sell

• 33:18Ed Elson?

  ChatGPT through other platforms such as, say, AWS, which is Amazon's cloud unit, which effectively means that the relationship with Microsoft is now an open relationship. And that is why a lot of people are calling this a win for OpenAI, because they're no longer tied up in their sugar daddy relationship with Microsoft. Kind of. And this is the part that investors seem to ignore in the morning when Microsoft shares fell, but slowly started to realize as the day went on. And that is that this is also a win for Microsoft for a few reasons.

• 33:59Ed Elson?

  In the old agreement, for example, Microsoft had to pay a percentage of their cloud revenue to OpenAI because of this exclusive OpenAI offering that they got to sell to their customers. Well, now they don't have to pay revenue share to OpenAI. And while it's no longer exclusive, they still get to sell OpenAI's products to all of their customers. In other words, Microsoft's cloud revenue just went up. At the same time, Microsoft still has significant control over OpenAI. Microsoft will still receive a percentage of OpenAI's revenue over the next five years. They will still maintain 27% ownership of the entire company,

• 34:42Ed Elson?

  and they will still get unfettered access to OpenAI's technology. Only the difference now is that this access will end in 2032 versus the previous contract where it would end as soon as OpenAI achieved, quote, AGI, artificial general intelligence. How did they define AGI? They didn't. In other words, OpenAI could have ended that agreement basically whenever they wanted. Well, now they can't. So this is what we call a great deal. And that is, both sides are equally happy with the situation, but also equally unhappy with the situation. There are pros and cons to both. No one really comes out on top. And

• 35:26Ed Elson?

  so the conclusion for Microsoft investors here is that the picture now is roughly the same. The company still needs to prove itself with Microsoft Copilot. It still benefits from its relationship with OpenAI, although it still shouldn't become dependent on that relationship. That was also true before. And its overall business, compared to the other hyperscalers, for example, is still significantly undervalued. Microsoft is trading at 22x forward earnings, Alphabet's trading at 30, Amazon's trading at 32. So we land where we landed last week, and that is that Microsoft's stock still looks pretty

• 36:07Ed Elson?

  attractive. As I mentioned a couple of weeks ago, I bought it when the stock hit $400, and I bought again when it hit $380. It's now up to $425. We will find out more when the company reports earnings later this week. But as of today, it still seems relatively cheap, and this news doesn't do much to change that.

• 36:31Ed Elson?

  Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our video editor is Brad Williams, our research team is Dan Shalane, Isabella Kinsel, Chris Noddenhugh and Mia Solvario, and our social producer is Jake MacPherson. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.