Anthropic: The Show Must Go On

On Monday, October 26th, Anthropic (ANT) filed an S-1 statement with the Securities and Exchange Commission which paved the way for an IPO in the not too distant future. The S&P 500 and NASDAQ rose on the news and although Animal Spirits haven't engulfed the market yet, it points us in an upward direction. The business press in print, broadcast, and cyberspace is saturated with news about Anthropic. I don't need to rehash yesterday's news. To put it into a nutshell, Anthropic is growing exponentially, losing considerable amounts of money, and is battling with Google's Gemini and OpenAI's ChatGPT for market supremacy in the AI arena. It's a cutthroat competition, but Anthropic is the market leader in the enterprise space.

Would I like to own shares of Anthropic? Absolutely. However, in my opinion, a big problem is that it will be one of the most oversubscribed IPOs in stock market history. This means it will probably be out of my price range once I'm able to purchase shares. Do you remember when Facebook, now called Meta, went public? The market buzzed about the prospect of quick riches, only to have the equity drop 50% soon after it began trading. Financial chatrooms were rife with stories about investors losing fortunes. Although the stock bounced back after it initiated a wireless app plan, there were months of hand wringing. They only had a desktop version of Facebook at the time of the IPO. Zuckerberg caught on quickly. "Move Fast and Break Things" is the company motto.  

The Facebook story isn't an outlier, it's very common for IPOs to fail, or do poorly. Picking stocks is a very difficult occupation. Not only do you have to buy the right stock, you have to buy it at the right time. Pay too much, you've got dead money on your hands. Plus, if you buy on the first day of trading and the stock goes up, you have to prepare for the end of the lockup period when company insiders cash in and dump their shares after working for stock options for years. The shares usually sell off during this time. 

With Anthropic, the easy money has already been made because it's been trading in the private market for a few years. Owned by the more affluent individual investors, investment banks, venture capitalists and pension funds. We're exiting the billionaire era and entering the trillionaire era. My measly portfolio doesn't pass muster to be included with the wealthy elite. That said, Anthropic will be hot on the first day of trading. We haven't had many IPOs recently and this is one of the better ones. I think it's going to be an alpha dog and propel the market higher. Especially when it's going public in the fourth quarter of this year, a historically beneficial time for equities.

I'm a big proponent of AI because I use it daily. A few years ago I installed the Perplexity app on my iPhone. Perplexity was ballyhooed as the frontrunning AI app three years ago, and although still relevant, doesn't quite stack up to the big three. I switched to Google's Gemini because I have a Chromebook and Gemini is built-in to the operating system. Your prompt history is in sync with the Gemini smartphone app if you have a Google account. It makes doing research easier and more convenient. Plus, it's free. The free versions of any of these AI applications are all you need to do the majority of your research. What used to take me an hour or two now takes minutes. 

I recently did a stock screen with Gemini. I found some gems in the Artificial Intelligence subsector of second derivative plays. UIPath (PATH), Penguin Solutions (PENG) and Tempus AI (TEM) were all added to my main watchlist. UIPath is a turnaround play that orchestrates Agentic AI bots for the Fortune 1000. No debt, a treasure trove of cash and a large client base. Penguin Solutions is a software and memory producer for Neoclouds. A Neocloud is a GPU as a service and high-performance infrastructure for Agentic AI. Tempus AI has a big moat in advanced precision drug discovery. All three stocks are beginning to run, so I'm going to sit on the sidelines for awhile and monitor them. I'll pass on them even though we're in a buy high, sell higher environment. I prefer a margin of safety. 

The Magnificent Seven

There's an old expression about Wall Street prognosticators that goes: There's those that don't know and there's those that don't know that they don't know. I know I don't know after investing for close to forty years. You can make an educated guess as to where the market is going (and it's usually up about 75% of the time), but just stick with S&P  500 index funds and you'll double your money every seven years on average. During the current bull market, your investments went up close to 100% in S&P 500 index funds in just over four years. That's a great return.  Many investors are bearish on the market and have done poorly. As John Maynard Keynes so aptly put it, "The market can stay irrational longer than you can stay solvent." 

Back in 2013 the acronym FAANG entered the lexicon of equity investors. Originated by trader Bob Lang and popularized by CNBC's Jim Cramer, it epitomized the large cap growth stocks for more than a decade. FAANG stands for Facebook, Amazon, Apple, Netflix and Google. You'll note that the majority of these stocks are still leading the market except for Netflix. Although a great company, Netflix is no longer a growth stock. Times change. For the last few years, FAANG stocks have morphed into The Magnificent Seven, or Mag 7 as they're  called. The Mag 7 consists of Apple, Alphabet, Meta, Nvidia, Microsoft, Amazon and Tesla. Many of the stocks remain the same but their names have changed.  

Most of these corporate behemoths are going to be here for the foreseeable future, but not all are going to make it. Just look at Netflix. It was supposed to grow to the sky, but the stock price has been cut in half the last couple of years. They are no longer a Wall Street darling. An option for Netflix is to buy NFL and college football broadcasting rights to goose their subscriber base, but that's going to cost money.

Currently, the Mag 7 stocks are in an enviable position. We're in an AI race with China and breaking up these conglomerates would put us behind the eight ball with the PRC. The question remains, which one or which ones are going to fall by the wayside? Many investors thought Meta would remain severely depressed, but they recently released a personal AI agent called Muse which brought the company back into the competition. With over two billion Facebook users, Meta is a formidable opponent. In addition, Meta has Mark Zuckerberg as its CEO and entrepreneurial CEOs are usually a plus. 

Although Nvidia and Apple have outperformed the S&P 500 on a year-to-date basis, the remaining members of the Mag 7 have been laggards. Tesla has negative returns for the year. Elon Musk has stated that he may merge Tesla and SpaceX next year, creating an organization that you would read about in a dystopian science fiction novel, but that is months away. Plus, it will have to get approval from the SEC (Security and Exchange Commission). 

I'm not smart enough to pick the winners and don't invest directly in the Mag 7 stocks, but I still own them in my pedestrian S&P 500 index funds. They command a huge percentage of market cap weighted S&P funds and ETFs. Approximately 35% which is a huge concentration risk. I'm willing to take that chance because historically, only a handful of stocks are big gainers in the index. That said, if you examine the top American stocks going back 50 years, the top ten equities in the index tend to change from decade to decade. Investors seem to believe that the Mag 7 gravy train is going to go on forever. It's not. It never does.

It's been about twenty years since the digital oligopoly began its ascent. What began with modest means is now a cadre of CEOs worth trillions of dollars. The law of large numbers doesn't apply. At least not yet. Which company will become the next Kodak, Xerox, GE, Blockbuster Video or Borders Books? I don't know, that's above my pay grade, but some of them are going to fall. I hope I'm wrong, but history doesn't repeat itself, but often rhymes.

Bukowski

Charles Bukowski needs little introduction to the literati of the mid to late 20th century. A prolific writer of short stories, novels and poetry,  he was the king of counterculture going back to the 1960s. Although he lived in a variety of places during the 1940s and 1950s, it was Los Angeles that he called home after the Vietnam War began. The subject matter of his work is primarily about the underbelly of the City of Angels. What Donald Goines is to Detroit, Charles Bukowski is to Los Angeles. For a five year period during the late 1980s, I read anything of his I could get my hands on. His novels were great and I particularly liked his short stories.

I had some downtime recently and was surfing Amazon Prime for a movie to watch and came across a 2003 documentary, Bukowski: Born Into This. Although critically acclaimed, I really couldn't get into it. I watched half of the presentation and then stopped streaming. I got the gist of the story but Bukowski's schtick seemed antiquated. The chain-smoking and excessive drinking are outdated and that's what he did for the first hour of the movie, if not his entire adult life.

I recently read some of his "Notes of a Dirty Old Man" columns from the Open City underground newspaper going back to the Lyndon Johnson Administration. Bukowski is very funny which is why I enjoyed reading him in the first place. It's a shame it doesn't translate well on film. 

The first book I read by Bukowski was Erections, Ejaculations, Exhibitions and General Tales of Ordinary Madness. The book is out of print, and if you want a new copy, it will set you back $1,200 or thereabouts on Amazon. The material in the book is still in circulation but published in different collections of his stories. One is titled Tales of Ordinary Madness. I prefer the original title and it irks me that everything is sanitized now. Although many writers are on television talk shows and podcasts these days, I don't think it would have been a good fit for Bukowski. If he were alive today, I believe he would have been content to remain in his hovel, hunched over a Smith-Corona typewriter, smoking roll-your-owns and drinking whiskey. 

There's not a lot more to be said about Bukowski that hasn't been said already. Just look at his Wikipedia page. He's the subject of documentary films, was influential in pop culture of the previous century, and had an enviable creative output. It's because of writers such as Bukowski, Hunter Thompson, Jim Thompson and Richard Stark (a pseudonym for Donald E. Westlake), that I have a difficult time reading fiction these days. I know that there's good if not great fiction writers out there, there has to be. For some reason, I've transitioned to nonfiction. Probably because the truth is stranger than fiction. You don't need to read Faharenheit 451, books are being banned nationwide. You want the newspeak, doublethink, thoughtcrimes or the cult-of-personality in 1984, look no further than The White House. 

When I was a kid, I collected U.S. Commemorative stamps. That's what kids did in the 1960s, stamps, coins and baseball card collecting. I had a fairly sizable collection including first-day issues in an H.E. Harris Liberty binder. Ten years ago I went to a stamp and coin dealer and tried to sell it. The proprietor told me that the entire collection was worthless. Nobody collects stamps anymore and there's not a market for them was the rationale. He had a valid point. It's basic economics. If you don't have a buyer, you can't have a seller. Bukowski died in 1994 at the age of 73 from complications of leukemia. I'm approaching that age and it makes me think. I hope Bukowski has a longer shelf life than my stamp collection. Like he said in Factotum: "The world is filled with shipping clerks who have read the Harvard Classics.". 

Disrupters At The Gate

I recently finished reading Disrupters at the Gate by Jeffrey Cole and Harlan Lebo. A very good book but not outstanding because it dragged somewhat in the last few chapters. What let me down was a lack of actionable investment information to help buttress my stock portfolio. That said, throughout the book it gives terrific histories of once stalwart organizations that failed to adapt to changing times. Xerox and Kodak come to mind. One chapter is dedicated to Blockbuster Video and how Netflix dethroned them because they envisioned the future and transitioned to streaming. 

Yesterday, CNBC ran multiple segments on Netflix. They just reported another disappointing earnings report. Although Netflix has a limited slate of NFL games, they don't have enough football on the platform. That's where the action is. Something like 92 of the top 100 television shows are either NFL games or college football. Most of them are NFL. Although the broadcasting rights are expensive to acquire, it's what the American public wants. Netflix stock has been walloped the last few years after being a Wall Street darling for well over a decade even though they carry combat sports and European football. 

Gen Alpha and Gen Z, the preferred advertising demographic for video content, have much shorter attention spans than previous generations. Free services such as YouTube and TikTok are their go to internet destinations for short form video clips, plus social media sites such as Instagram and X are in the mix. Now Netflix is the company being disrupted. Is this a death knell for Netflix? Not at all. It's still a premier streaming service, it's just not the growth company it used to be. Personally, I'm not a subscriber to Netflix although I've been one in the past, twice. They just didn't have enough content offerings that suited my tastes. If they had more NFL or college football games, I would sign up in a heartbeat on the advertising tier. Give me the gridiron or I'm going somewhere else. 

One chapter in Disrupters at the Gate is focused on the personal computer revolution. Most notably Apple and Microsoft. An excerpt of an interview with Bill Gates is included. When asked what kept him up at night, Gates responded, "Two guys in a garage in Silicon Valley.". We're at an inflection point where massive transformation is here because of Artificial Intelligence. Bootstrap organizations that consist of just a few people are making applications for the masses and making millions if not billions of dollars. Although no longer startups, both Anthropic and OpenAI started this way. There's going to be more to come as we get into the second derivative of the AI buildout. 

If we break down the epochs of time, it's BC, AD, PC, WiFi, and currently AI. AI has now morphed into Agentic AI and requires crypto in the form of stablecoins to fully function autonomously. These stablecoins run on blockchains so cryptocurrency is here to stay. According to Matt Hougan, Chief Investment Officer of Bitwise Asset Management, the "Mount Rushmore" of crypto consists of Bitcoin, Ethereum, Solana and Chainlink. These are the foundational blocks in digital assets that will propel institutional adoption and real-world asset tokenization for Decentralized Finance.

I own assets in both Chainlink and Solana via spot-priced ETFs. According to Standard Chartered, the multinational European bank, the bull case for Chainlink  is $200 by 2030. That's almost a twenty-fold increase. Some pundits peg Solana as a seven bagger in the same timespan. We're not even talking about the decade of the 2030s when Blockchain has the potential to be the fundamental driver of the S&P 500 companies. I'm not so sure how high Bitcoin will rise, it's like digital gold. The problem is, at least currently, as Bitcoin goes, so goes the crypto market. That's why I'm rooting for Bitcoin. I'm not sure where this is all going, but AI and crypto are the disrupters now. This is where you're going to make the money. That's what I'm betting on.