Anthropic and Iran: The Two Forces Driving the Market

Sam Vardas (0:00)

Welcome back to Market on Close. I'm Sam Vardas. On the floor of the New York Stock Exchange, joining me now here at the desk to discuss the two most important factors to the market. Michael Monaghan, Portfolio Manager of Founder ETFs. Michael, thanks so much for your time. You say only two things matter in this market right now, and that is Iran and Anthropic. Why?

Michael Monaghan (0:18)

Sam, it's great to be here. So those are the two big drivers. So on the positive side, we need to see Anthropic price and price well to get the confidence that the AI data center super cycle build out and associated CAPEX will follow through. That's our view and all signs are pointing to that. But we do need to see that data point put in. So that's number one.

Number two, we think what's holding this market back, and we think what really caused the sell off for the last couple of days, we think had nothing to do with AI. We think that was a symptom. We think what really caused this was some of the escalation and fighting in the Middle East. The market is only priced in a certain borders and certain level of kinetic violence. When that kinetic violence escapes some of the borders, specifically the attack on the Riyadh airport, we think that's what caused the sell off this week. And now we're seeing a little bit of a rebound in that.

Sam Vardas (1:08)

Okay, let's start with Anthropic first. I mean, because we did get some of those third quarter revenue numbers being reported by a number of outlets this morning, $16.8 billion.

Obviously, it's preparing for this IPO. The timing is up in the air. But I mean, having spoken to investors yesterday, it seems like they're getting the ball rolling. Are you encouraged by some of the numbers we're starting to hear? I mean, obviously, those leaked prospectus notes as well, a huge chunk of that dedicated to obviously the safety concerns. What have you made of all of that?

Michael Monaghan (1:41)

We think the numbers look great, right? So we're on a run rate of about $68 billion coming out of the third quarter. All signs point to the fact that that's accelerating in October and the balance of the fourth quarter.

We're on track to get to an annualization of $110 billion. And the number that we think matters, that takes away some of the controversy of are the models eating each other, that is the frontier models, but are the open weight models eating them? You saw 900% retention. That shows us that it's not losing within the frontier models, nor losing share to the open weight models. So the numbers we saw make us even more optimistic that this deal will price and price well.

Sam Vardas (2:23)

What about OpenAI? I mean, just because obviously, it's the natural competitor. I mean, I had someone yesterday who went on another financial news network and basically said, they think it might not even happen. I mean, are you hearing this kind of stuff out there in the market given the delays we've seen, the pushbacks, the fact that Sam Altman has been very explicit and say, I want to get this right. I mean, what does that mean for an Anthropic as well?

Michael Monaghan (2:49)

So first of all, I haven't dug in to OpenAI as much as we've dug into Anthropic. We're watching Anthropic very close. As you recall, when you and I talked early in the year, we did a lot of work around SpaceX. We're doing the same amount of work on Anthropic. So that's our focus. I think Sam has a little different plan maybe than the Anthropic folks.

He's taken a little bit of a bent that I think he was trying to grab regulatory capture when that didn't happen and he was rebuked. I think it's more OpenAI specific that he's got to group a little bit now that Strategy 1 didn't work and he's got to cool that off and go to Strategy 2

Sam Vardas (3:24)

Okay. I mean, I was just picking your brains about it because if you're looking at Anthropic, you have to be looking at OpenAI. And as you know, founder ETF focused kind of platform. I mean, obviously he was a co-founder of that company. So I just wanted your thoughts. But on the Iran side, you make a really interesting point about the performance we've seen this week in the stock market. I mean, there seems to be an argument out there that the AI trade is largely insulated from the higher rates environment, which is inevitably what obviously the Iran war higher prices supply shock is feeding through into the inflation and hence the higher rates.