From: The Cryptonite Weekly Rap <cryptoniteventures@substack.com>
Date: Thu, Feb 20, 2025, 7:11 PM
Subject: The top AI private companies for 2025—Elon gets hostile with Sam, Masa holds the cards, Hello DOGE, goodbye middle…
To: <g@xny.io>
Will SoftBank’s Masayoshi Son invest in the AI Bubble (or not)?Our speculation over our last two Raps that the private AI company marketplace would inevitably take the DeepSeek trickle-down valuation hit is about to meet a dramatic test. At center stage is, by far, the most highly valued private AI company, OpenAI, which was last valued at $157 million during its $6.6 billion raise last October. As we and others have widely reported, Sam Alman is in talks with SoftBank founder Masayoshi Son to raise an additional $25+ billion for OpenAI at an also reported valuation of $300+ billion. The test for our thesis is whether Masa becomes known as the last guy to put money in the AI Bubble or the first major player to bring the valuations back to reality.
If we were Masa, we would throw our money in with Elon and his AI company, xAI, which is pursuing a hostile takeover of OpenAI at the moment for a discounted $97.4 billion valuation. (Which we think is still too high but better than $300B😳) If Masa is ready to go, he would be joining Elon and an illustrious group of investors, including Palantir co-founder Joe Lonsdale, Hollywood’s top power broker, Ari Emanuel, CEO of Endeavor (Princess Meghan Merkle’s agent), as well as Valor Equity Partners, Baron Capital, Atreides Management, and Vy Capital.
All this complicates Sam's fundraising plans and efforts to convert OpenAI to a for-profit company, which Elon (joined by Zuck and Meta) is already fighting over in court. Since the hostile takeover announcement, Elon has said he would withdraw his bid if OpenAI's board stops its conversion to a for-profit company and preserves its charity's mission. But we all know that Elon knows Sam will never go for that.
The TechBro shuffle makes for good theatre, but it all comes back to valuation. OpenAI is not going to agree to any offer unless forced by someone like Masa, and that is why he is holding one of the biggest cards at this moment. If Elon's group were to acquire OpenAI, the company would be merged into xAI, which was valued at $50 billion in a $12 billion funding in November. Does Masa, or any other big investor, want to give OpenAI, with all its troubles, $25+ billion at a $300 billion valuation or an Elon-led OpenAI+xAI combo at less than half the price?🤔 We know where we would throw our chips if we were Masa.
OpenAI vs. xAIxAI reached the $50 billion valuation milestone over 8 years faster than OpenAI. xAI also recently released its mobile chatbot app called Grok, which directly challenges OpenAI's ChatGPT. Grok was developed within a year of the company's founding in 2023. By most all measures, xAI is the leaner-meaner, faster-to-market of the two competitors, with the exclusive advantage of accessing X content. Not to mention Elon has THE front row seat to the reinvention of government, where AI will play a central role in its transformation.💰💰💰
AI’s $600B Revenue QuestionWe did a back-of-the-envelope AI valuation-to-revenue calculation last week to support our ‘Overvalued AI companies’ post, only to find that—not surprisingly—the venerable Sequoia Capital was nine months ahead of us. Last June, Sequoia Partner David Cahn wrote a post in which he calculated that AI companies need to generate approximately $600 billion in annual revenues to justify the massive investments being made in AI infrastructure.
Mr. Cahn’s bottom line was that even if optimistic projections for major tech companies' AI revenues are achieved, that will still leave a $500 billion sales shortfall.😳 This post was a follow-up to his post-AI’s $200B Question- from less than a year earlier. Read Mr. Cahn’s full post here. Sequoia is an investor in Elon’s xAI, including in the $6 billion Series C funding round in December 2024. The VC powerhouse is reportedly in talks to join a potential new $10 billion funding round that could value xAI at $75 billion—we shall see if the $75B valuation holds up in the coming shakedown. $200 trillion and countingWe are long-term bullish on the Web3 era and mathematically see it as a 10x Web2 opportunity (that was a $20 trillion boom). Our starting proof point is the 145 first-generation private AI companies introduced below. Yes, some of these companies are gearing up for winner-take-90% of the market, head-on collisions (e.g., OpenAI vs. xAI), with the accompanying startup wreckage that will scatter the Streets of Silicon Valley. However, our AI company list also represents 24 target AI markets, touching almost every major industry—an impressive first sketch of the new, more efficient, self-empowered, and decentralized world we will live in. We would further note that all great innovations are built upon financial manias, where the average investment dollar loses money in the first round. The golden lining is that the overfunding of Silicon Valley companies accelerates the development of innovation opportunities and keeps the US in front of its global competition. While the average investment in the roaring 1990s came out underwater, for example, the Internet Bubble put 245 million people on the Internet, which made the $20 trillion in new wealth created during Web2 possible. Our bet is that over-investing in AI infrastructure will play out in the same highly lucrative way. There are a lot of good things going on. Let’s get back to reality, lower private company valuations, tighten our belts, and strap in for our most disruptive ride yet.
Lions and tigers and Elon, oh my!We did include a ‘TechBro backlash’ as one of our top dozen predictions for ‘25. Still, we never calculated that TDS would morph into full-blown EDS.😳 Perhaps we should not be surprised as Elon plays a leading role as a dark or at least ‘directed’ character in the hallucinations of conspiracy theorists from all sides of the spectrum. The Cowardly Lion from the land of DOGE still has them (and Corproate Media) shivering—at least for now. “The New York Times had a front page story about the horrible ‘Constitutional crisis’ going on. I have been studying the US Constitution for close to 70 years now, and I can tell you there is no Constitutional crisis. The US has a system of checks and balances that has endured for over 230 years. The Democrats and media are crying wolf. People are saying its time to hit the streets—that it is time to declare War! No. No. No. The system is working. We have three independent branches of government, and the bureaucracy is not one of them. Trump is saying its time to look hard at these agencies and the trillions they spend in ways that are not necessarily in the interest of US citizens. That is a good thing. If he pushes the boundaries, the courts will step in, as they did with Biden many times.” —Alan Dershowitz, Life-long Democrat and former Harvard Law School professor renowned for his expertise in U.S. constitutional law. Back to reality, Elon imagined and is now running the Department of Government Efficiency (DOGE), a temporary advisory body within the Executive Office of the President is. DOGE focused on reducing federal spending and streamlining government operations, with a set expiration date of July 4, 2026. This is a research and advisory role to the Boogeyman or whomever he designates only, with no authority to order spending cuts, close agencies and programs, fire employees, etc. Any access to government information systems is to read-only, with no ability to tamper. DOGE consists of 20 folks based in DC who report to Steve Davis, a longtime Musk confidant, and CEO of The Boring Company. Most DOGE associates have worked for Elon's companies like SpaceX and Tesla, and they are embedded at federal agencies to review critical systems, looking for potential waste and fraud. DOGE employees have merely READ-ONLY access to any government database that has been approved for analysis. DOGE claims to have saved taxpayers $37.69 billion since starting its work.
Our strong view is that our federal government is now on the road to cutting over 75 percent of its overhead under a new, AI-powered, blockchain-based structure that is much more transparent, decentralized, efficient and requires fewer rules and regulations. This system will also be much better at protecting citizens’ privacy and managing their rights and access to government services. The net result will be much happier citizens, much lower taxes, near-zero inflation, and budget surpluses! 😎🤙🏼
“We can't sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness or exist solely because of the power of politicians, lobbyists or interest groups. We are going to go through our federal budget as I promised during the campaign, page by page, line by line eliminating those programs we don't need and insisting that those that we do need operate in a sensible, cost effective way.” —President Barak Obama on February 24, 2009, during his Address to Joint Session of Congress. President Obama went on to sign off on $5 trillion worth of new legislative costs and drove the federal debt up an additional $4.6 trillion. Every President started their administration with the intention of downsizing the scope and power of government. Obama wanted to do it, and the Boogeyman, with the help of the Cowardly Lion, will make it happen. It’s not a power grab because, by definition, its purpose is to decentralize power from away the executive branch and the US federal government in general and back to the people. It also means more privacy and empowerment of the individual. Who in the modern world is against this? The downsizing of the US government will happen because the Bogeyman has the power to do it, and there is no putting the Cowardly Lion back in his cage. It will also happen because cutting government waste and fraud is what US citizens, and in a free market society, customers generally get what they want. The TechBro’s should lead the charge on investing into the re-training of existing and furloughed government employees to help them become more Web3-savvy. These efforts will also help ease the TechBro backlash—if that. is even possible. We know the DOGE Squad looks young and goofy, but they are very committed and very smart. We need to take a deep breath, let the children play, and trust there will be adults (the courts) in the room to make sure they don’t misbehave.
As it is in the land of DOGE, it is in the land of BigTechAs we also predicted for 2025, the slashing, burning, and retrofitting proposed by the DOGE team is now being emulated in Big Tech. Zuck recently announced cutting 3,600 (5% of its workforce) of Meta's 'lowest performers.' Amazon has also been job-cutting, in part due to the introduction various robots in its warehouses, including Robin and Cardinal (robotic arms), Sparrow (item-picking robot), Proteus (autonomous mobile robot), and Digit (humanoid robot). Amazon has reduced its workforce by over 100,000 employees from its 2021 peak, coinciding with the rapid expansion of its robotic fleet. As Google shifts its focus to AI development, it has offered voluntary buyouts to over 25,000 employees in its platforms and devices division. Salesforce also cut over 1,000 jobs (1.5% of its workforce) as part of a broader restructuring effort to shift the company's focus towards AI development. There are two major themes in BigTech's downsizing. First, the 'managerial class structure' is being replaced by flatter organizations driven by a new, AI-empowered worker class tied to specific output and results. Second, there is a shift to investing in AI development, as every tech company must become an AI company in its own right to survive and thrive in Web3. |
