Baker says growth investors must assume multiple compression and be paid on business outcomes, not valuation.
“It's critical in growth investing to assume multiple compression. It doesn't always happen, but you want to be paid based on business outcomes and assume valuation is not part of the outcome.”
Baker argues measurable things like search may be overvalued compared to unmeasurable things like physical slotting fees.
“You could just measure search in a way you can't measure slotting fees. Anything you can measure generally gets, in some ways, may be overvalued in today's Internet world.”
Baker forecast Facebook's ad revenue from $5B to $11B using time-spent versus ad-spend gap analysis.
“Facebook was roughly 7% of consumers' time spent across all mediums in The United States. And it was just under 4% of advertising dollars.”
Baker says valuation spreads within sectors reached 4.5 standard deviations, now at 3.5 standard deviations.
“Valuation spreads within a sector between individual stocks are at all time highs. It was a 4.5 standard deviation relative to the norm only a few days ago.”
Baker argues AI has changed cybersecurity economics, enabling companies to exceed $20B valuations for the first time.
“That's why for the first time ever, for a long time, I forget the exact numbers, but you never had a cybersecurity outcome over 20,000,000,000.”
Baker estimates average tech growth stocks under $100B market cap are down 40-65% from all-time highs.
“I would say probably the average tech or consumer oriented growth stock that's below a $100,000,000,000 in market cap is probably somewhere between 40 and 65 percent off its all time high.”
Baker estimates Anthropic could do $100-200B in unconstrained revenue if compute weren't limited.
“So you might be buying it at more like five times unconstrained. I'm gonna make up a new number. URR, unconstrained revenue.”
Baker estimates Anthropic would do $100-200 billion ARR unconstrained by compute, valuing it at 5x URR.
“I think they would be doing materially more a hundred, one hundred and fifty, maybe 200,000,000,000. So you might be buying it at more like five times unconstrained.”
Hyperscalers are earning below market rates because spot GPU rental prices exceed their contracted rates, while their cash flow growth is being underestimated.
“Market is overreacting to hyperscale credit spreads widening from my perspective. TL;DR Spot pricing for renting GPU compute materially above contracted rates implies hyperscalers are underearning while operating cash flow acceleration is an underestimated source of funds for AI”
Baker notes NVIDIA trades at its lowest forward PE in ten years.
“NVIDIA is actually, as we record this, at its lowest forward PE of the last ten years.”
Baker notes the Financial Times reported a three trillion dollar valuation for Anthropic and suggests public markets struggle to value high growth.
“$3 trillion for Anthropic in the FT. I feel like I’ve heard that somewhere else. Although public markets generally struggle to accurately value growth when it is this high.”
Baker notes that a three trillion dollar valuation for Anthropic appeared in the Financial Times, suggesting he predicted this figure earlier.
“$3 trillion for Anthropic in the FT. I feel like I’ve heard that somewhere else. Although public markets generally struggle to accurately value growth when it is this high.”
Baker explains that losing banks in IPO processes have financial incentive to leak numbers that embarrass the winning bank.
“ Losing that role costs a bank enormous fees and prestige, so the losers have an incentive to float numbers that make the winner look foolish. As Baker put it: ”
Baker suggests the two trillion dollar figure may actually be too low rather than inflated.
“ Here is the twist. The $2 trillion figure that set off the week's panic may not be a hype number at all. It may be a lowball. Baker's explanation starts with how IPO leaks actually work. The bank running an IPO is called the ”
Baker predicts Anthropic will price its IPO around two trillion dollars then trade upward to three to four trillion.
“ Baker said. His working prediction: price around $2 trillion, then let the stock trade upward to roughly $3 trillion, possibly toward $3–4 trillion. Polymarket traders, for what it's worth, were already pricing an 80 percent probability of an Anthropic IPO this year and 67 percent odds that the company holds the top model at year-end. The strategic reason this pricing matters extends far beyond one company. Sacks argues that Anthropic's quarterly disclosures will become the industry's single most important demand signal — the pace car for NVIDIA, TSMC, Micron, SK Hynix, and everyone else in the chain. ”