Zoom Runs Ahead of Anthropic's 2T IPO? Why ZM Stock Is My Favorite AI LLM Proxy (Better than AMZN?)

0:00 Hello everybody. So a few months ago I started covering Zoom stock. Zoom of course the video conference software. But I never covered it because I liked the stock. I covered it because I like the ownership stake of the stock in Anthropic. Indeed, Zoom invested 1.2%. They bought 1.2% of Entropic back in 2023. Now that stake is a little lower now because there's been further dilution afterwards, but they still use a very sizable chunk of entropic compared to their market cap. And this is in no way reflected in the current value of Zoom. Despite the, you know, 20ish% run since I started covering it, the stock went up about 20%, you know, from 3 months ago. you know, it was in the mid 80s when I first started covering. We are we at 107. We we spiked at 110 a week ago. I still think this valuation does not represent the true value of Zoom if you include the actual value of the Anthropic stake. And I see a lot of people talking about proxies right now because they want to get expo exposure to Enthropic. Anthropic is rumored to IPO perhaps in October and they would IPO at a higher price than SpaceX perhaps two trillion and at least that is what the pundits are saying two trillion. So a lot of people are talking about Amazon and saying oh Amazon is my way to play to play this stake.

1:34 Now if you look at Amazon one of the reason why one would like Amazon is because Amazon has enormous downside protection. It is it is a it is a great stock without anthropic. So that's why people are like, "Okay, I'm going to get Amazon because I want anthropic as the cherry on the cake." But you see, Amazon owns 15% and if they exercise an option for 20 billion, from what I understand, they would own 21% of Anthropic.

2:00 So that's a lot of money, right? That's $420 billion in a best case scenario. If they exercise the option and if Anthropic is actually IPOing at a trillion, it's actually a little less because they would dilute by about 10%. So, it's actually more like 380 billion here. nothing to sneeze at, but you see Amazon's market cap is 2.8 trillion. 2.8 trillion and you had 400 billion, you know, you and and again, if you dilutive if they if they raise 90 to 100 billion at IPO, that's that's closer to, you know, that that's would that would between 13 and 15% bump in market cap for a stock like Amazon. really really good, but it's like 80% of a great great earnings report, right? A Amazon has moved many times 20% on earnings. So, to me, Amazon is a great company, but it's really not a great play or it's it's at least a very conservative you know, safe play on a quote unquote, right? No financial advice. Nothing in say is safe when you buy AI stocks. No financial advice, but it's a it's it's a it's a more conservative play on entropic, right?

3:12 and and you know if you look at Amazon's valuation Amazon valuation of 0.52 it's it's good it's good you know it's it it could be cheaper but but you know I would like to see it cheaper you know to me for example Nvidia is cheaper than Amazon and Nvidia has much much greater roof so I prefer Nvidia but Amazon for example is much cheaper than Google in my spreadsheet. So some people are saying also Google is a way to get anthropic exposure. Yeah it's true but Google is already expensive as it is. So Amazon is perhaps a better proxy than Google. But perhaps the best proxy of them all for anthropic to me is Zoom. So if you look at Zoom, Zoom the company itself on my spreadsheet looks really bad. EV over GP over RG on on which which is my growth adjusted metric, right? That's that's that's the metric that I use to mainly judge growth stocks. It looks very very bad. But why does it look bad? It looks so bad because it's only predicted to grow next 12 months at 4%. Right? If Zoom was trading at 12% on 12 next 12 months sales, my metric would be roughly the same as Amazon. Unfortunately for Zoom, they're not growing very much.

4:17 They're growing, you know, at the pace of inflation. They're growing lower than monetary printing. So, so it's not that exciting of a business. Although I will say that at 27% IBIDA margin and those IDA margins are growing predicted to grow next 12 months at 35%. The the P is 17. I would argue Zoom on its own. If you just look at Zoom on its own for a value investor, that's a very reasonable play, especially because they're hitting operating leverage now and and they're having a lot of operating leverage and and you know the odds are this stock will have 50% margin in no time. And so then it will just be a cash printer that doesn't grow very much. But that doesn't excite me, right?

4:58 I'm a growth investor. What excites me is how much entropic they own. So, like I said, so and more importantly, the the Zoom is mostly derisked because they have $7.7 billion worth of cash on the balance sheet. So, they're profitable and they have a bunch of cash on the balance sheet. What are they doing with that cash? I don't know. But but they're profitable. They have a bunch of cash on the balance sheet. You know, maybe they maybe they should do something with that cash. I don't I don't know. But the point is if if you look at Zoom, the enterprise value is 23 billion. 23 billion of enterprise value. now, how much of entropic do they own? 1.2% from the series C funding 2023, but that has been diluted down by subsequent funding rounds. There's been many more funding rounds. And I have a hard time figuring out how much they own now. Is it 1.1%?

5:46 Some people say that. Is it 1%? Some people say that. Is it 0.8%? Some people say that. And then you have bears who say they own even less and they got diluted away. you know, I have a hard time finding it out. AI seems to believe it's it's a tad under 1%. So I'll probably go with 1%. Just just for the sake of simplicity here. but there if it's 1% there is a major major delta and actually I I I will actually go with 0.9%. I'll show you in a second.

6:15 But there there is an enormous delta of course between what's what value is carried on the books. Zoom zoom's carrying value on the book for entropic is 1.2 billion. So Zoom's 1% stake Anthropic says on the books that it's worth 1.2 billion. Well, well, it's probably worth a whole lot more than that. So, what could it be worth? Well, well, well, let's go ahead and analyze it. So, so first of all, we we have to assume that 23 billion is arguably a fair price for Zoom without the entropic stake. And when I look at Zoom, I'm like, yeah, $20 billion for that business without the entropic stake, that's probably the fair price. I wouldn't be interested, but a lot of value investors would be interested. Of course, what is not factored in into that 23 billion, what's not factored in is their stake in Enthropic, which let's assume it's 1% and post IPO. So, if Enthropic raises at $2 trillion valuation, if they raises a hundred billion, if they raise 100 billion at two at a two trillion dollar valuation, that's that's oh, I made a mist mistake in my math. So, you see, I'm super conservative. That's actually less than that. that that'd be actually 0.95. But but okay, so I'm going to I'm I'm going to be super conservative and just assume a 0.9. So you see I'm very conservative and it'd be a 0.95. I made a mistake here. Anyways, so that so let's assume 0.9. So we're being conservative. Let's assume 0.9 post raise. So that's 23 billion plus 0.9% of 2 trillion. So that would be 23 billion plus 18 billion worth of entropic which would be the new value of entropic of the entropic stake. So 23 billion plus 18 billion you get a new enterprise value in my conservative view here of 0.9 you get a new enterprise value of 41 billion. So that means that after IPO in my view the new enterprise value should show you know 80% upside.

8:08 we should have 80% upside if the market is is is logical in any way because they own 1% of a company worth two trillion right so 1% of a company worth two trillion if Zoom doesn't go up then that means Zoom is valued at $3 billion and of course you know a company with with with you know nearly 50% margin next year earning five billion in sales having5 billion in sales can't be worth3 billion so so so to me there could be some epic repricing for Zoom after the IPO as people realize that actually the the stake to market cap of of of Zoom the entropic stake to the market cap of Zoom I is enormous and it's going to be nearly 100%. While for for Amazon or for Google it's never going to be that because these companies are so and are so huge. and casually I also state two things here.

9:06 anthropics stated ambitions are absolutely insane. Borderline border borderline crazy. You know you may have heard some of the crazy stuff they say like oh there will be states and then there will be entropic. That was a crazy quote that they said. also there you know there's a lot of evidence that whether it's anthropic or open AI they're using the the compute to build the nextg models and to not release models. So there's there's recursive self-improvement on these models. So these models are getting better and better and better. but they keep it in house. They don't they don't publish it because to to win the race of AI is you got to be the first one to have this super intelligent AI and so they're doubling down on this. So so it's a borderline crazy ambition. It's it's definitely an enormous ambition.

9:53 You may remember Open AI who had like a $7 trillion investment ambition or anything like that. So, so what I'm trying to say is that it could it could it could go up at IPO. It doesn't have to stay at 2 trillion. At at IPO, it could go to three trillion. and we certainly saw SpaceX go up quite a bit at IPO. That surprised a lot of people, including me. So, so that's the big deal. And then I'll leave my my viewers who follow crypto with a little thought here, which to me is fascinating. And and this highlights the the good management of Zoom keeping that stake.

10:26 this is this is kudos to Zoom. I'm I'm giving kudos to Zoom for keeping that stake and not selling it early. you know we we have examples like in in the early days of Tesla you had you had was it Mercedes-Benz selling their stake in Tesla in 2010? Bad management. You know what what's an example of of of of bad management? The people who manage the estate at FTX. You know a lot of people are going to lose a lot of money from STX. and and and and I can't help but having pause at whoever managed the stake the state at FTX, you remember the collapse of 2022. Who managed that?

11:04 That's absolutely crazy because when I calculate how much anthropic FTX used to own, that would be worth 180 billion today. So, so, so, so you you you could have made the the the the the poor people who lost money, you could have made them 20 times whole and they literally sold the stake for less than 1 cent on the dollar. I was going to say for for pennies on the dollar, but then I calculated how much they sold that stake. Less than 1 cent on on the dollar. Actually, something like 70 cents on the dollar. They sold that st.

11:37 And they sold that stake to hedge funds like Jane Street or things like that. If you look so so that also gives me pause. I think there will be a lot of debate in the coming years about about this. So so this is a kudos to the quality of the management at zoom for actually not only investing in anthropic in in in 2023. FTX had invested in 2021. Think about that. but also keeping that stake and and and what what what gives me confidence in in that management at least in the the finance folks who did the investment is that I think it's likely that Zoom will keep the stake and Zoom is trying to be a partner with Claude and they're trying to have Claude going to the conference calls etc. So, so to me, to me, I I to me I like this play. you know, it's a it's a little bit different from my usual plays, but I I like this play very much. And so, we'll see. We'll see how that goes. But that's that's how I'm playing the the entropic IPO. Anyways, this was not investment advice. This is not financial advice. This is only entertainment.

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