In this episode of Equity, Rebecca Bellan sat down with Alok Sama, a Morgan Stanley veteran and former president and CFO of SoftBank Group International. They discussed the latest Apple tech announcements, Sama’s views on the AI hype cycle, and changes to the technology investment landscape since the dot-com era. He also provided insights from his upcoming memoir, ‘The Money Trap: Lost Illusions Inside the Tech Bubble,’ which goes on sale September 17.
A Background in Finance
Sama cut his teeth at Morgan Stanley before joining SoftBank in 2014, where he worked closely alongside the Japanese conglomerate’s iconic founder Masayoshi Son. Sama helped steer Son’s $32 billion acquisition of the U.K.’s Arm Holdings in 2016 and led SoftBank on the $59 billion merger of Sprint and T-Mobile. In short, when it comes to surveying the landscape of technology and investment, Sama knows his stuff.
Apple and AI Musings
At Apple’s ‘It’s Glowtime’ event on Monday, the company revealed its iPhone 16 lineup, which will be the first to ship with AI-powered functionality. Those Apple Intelligence features will come out later this year, though, and Sama says the real impact of Apple’s announcements are yet to be seen.
"At the consumer level, [the impact of AI] is very early days," Sama said.
Sama also touched on the sky-high valuations of companies in the AI space — including Nvidia ($3.3 trillion), Anthropic ($18.4 billion), OpenAI ($100+ billion), and xA1 ($24 billion) — and whether those are evidence of an AI bubble bursting. Sama says he’s not too worried about it.
"If you look at Nvidia and you look at the way it’s performed, it’s not disconnected with reality in terms of how their revenues and profits are growing," Sama said. "Nvidia trades somewhere in the region of 35 to 40 times forward earnings. That’s not outrageous. Outrageous was Cisco, which was trading at 200 times earnings. If you’d invested in Cisco back in 2000, 24 years later, you’d still be losing money."
Sama also noted that Nvidia’s major customers, the so-called ‘hyperscalers’ (Google Cloud and Microsoft Cloud), are big enough to risk overinvesting in AI rather than underinvesting.
The Incestuous Nature of Investments
The two also touched on the incestuous and circular nature of investments into the top AI players. Sama pointed to Nvidia and Microsoft investing in OpenAI’s latest round, in which it was valued at over $100 billion, and sketched out a picture of OpenAI spending money on Microsoft Cloud, and Microsoft Cloud spending money on Nvidia chips, and so on.
The Money Trap
Sama delved into points of his book, particularly the psychology of investment hype cycles and the precedent set in Silicon Valley of valuing companies based on growth predictions rather than metrics like revenue and profits. While investors are doing more due diligence in today’s market, Sama argues that this trend is not new.
"The problem is that people get caught up in the excitement of the moment," Sama said. "They forget about the fundamentals. They start to believe that a company can grow at any rate, without regard for reality."
Sama also emphasized the importance of understanding the underlying economics of an investment, rather than just relying on buzzwords like ‘AI’ or ‘disruption.’
A Conversation with Rebecca Bellan
Rebecca Bellan, host of Equity, had a chance to discuss these topics with Sama and get his insights on the current state of the tech industry.
The Psychology of Investing
In this conversation, Sama discussed how investors tend to be drawn into hype cycles, where companies are valued based on their potential rather than their actual performance. He also highlighted the importance of understanding the underlying economics of an investment, rather than just relying on buzzwords like ‘AI’ or ‘disruption.’
The Rise of AI
Sama also discussed the rise of AI and how it is changing the way we invest in technology companies. He noted that while AI has many exciting applications, its impact on the economy is still uncertain.
"We’re at a point where we don’t know what the implications of AI will be," Sama said. "We’re not sure how it will change the way people live and work."
The Future of Technology
In conclusion, Sama’s conversation with Rebecca Bellan provided valuable insights into the current state of the tech industry and the importance of understanding the underlying economics of an investment.
As we move forward in this rapidly changing world, it is essential to be aware of the potential risks and rewards associated with investing in technology companies. By understanding the fundamentals of these investments, we can make more informed decisions and avoid getting caught up in hype cycles.
About Alok Sama
Alok Sama is a veteran of the finance industry with over 20 years of experience. He has worked at Morgan Stanley and SoftBank Group International, where he was responsible for various investments in technology companies. His upcoming memoir, ‘The Money Trap: Lost Illusions Inside the Tech Bubble,’ provides valuable insights into the world of high-stakes investing.
About Rebecca Bellan
Rebecca Bellan is a journalist and host of Equity, a podcast that explores the intersection of technology and finance. She has written for various publications, including Forbes.com, Bloomberg CityLab, The Atlantic, and more.
Sources:
- SoftBank Group International
- Morgan Stanley
- Apple Inc.
- Nvidia Corporation
- OpenAI
- xA1
