Financial Notes

MITCH’S NOTE 👋

It’s an interesting time for investors right now, particularly those with exposure to the US stock market. We’ve had an AI spending spree bigger than the economic GDP of Switzerland, combined with some interesting accounting practices, a handful of AI stocks have benefited from hundreds of billions of dollars in increased market value... BUT, reactions to the latest earnings reports suggest that this increase in market value could quickly evaporate…

MARKETS 📈

5-Day Performance Breakdown:

AI Money Machine 🤖

There was an article released by Bloomberg a couple of weeks back which has gained a LOT of traction, and perhaps has opened investors eyes as to the financial practises going on in plane sight that has “artificially” (pun intended) increased the market values of lots of different AI companies. In what has been dubbed as “Web of Circular Deals”. Lets unpack some of them…

Lots of palming the same money back and forth with lots of companies involved, but the real issue is here is that it’s all being accounted for as revenue.

Hypothetically, if me and you owned two companies, and I paid you £100, and then you gave me £100 back, we could both bank £100 in revenue on our PnL (even though its the exact same £100, in theory we could keep doing this back and forth until we were both millionaires… on paper!)

Now at the point you give me that £100, I can now place a value on my company. I can go to the Bank to borrow money or I can go to investors to raise money.

At a 50x revenue valuation based on the potential of my business, I could raise £5,000 in investor capital, just from you giving me a single £100.

I could then use that £5,000 to help secure new business and promise to pay for those deals over time and then raise EVEN MORE investor capital, at an even higher valuation, because i’ve secured new business deals.

And that’s all despite making -£26 a year, running an unprofitable operation and being cash flow negative the whole time…

At this point you might think well that sounds a little dodgy, and it only takes a dry up in investor funding or bank borrowed funds for this whole thing to collapse and investor capital to evaporate.

Well, thats exactly what’s happening right now with OpenAI and its spending spree. OpenAI only has $4.3B a year in revenue for the first half of 2025, but it lost $13.5B! Despite being valued at $500B, which is closer to a 58x revenue valuation!

In theory, this could all work, providing OpenAI don’t have funding dry up, and start generating some profit to be more self-sufficient in future, after all companies MUST make profit at some point in time, otherwise they become unsustainable, like we saw in the dot com bubble (Pets.com probably being the most infamous story), although current forecasts suggest profitability won’t come until 2029 for OpenAI.

It’s one of the stories that has caught the attention of the media, allowing them to push the AI bubble popping big bad market crash narrative. Which whilst understandable, given it’s like value and money is being created out of thin air, but in my view, a market crash will occur at some point because they’re part and parcel of investing, but it’ll be less predictable and perhaps when we least expect it.

I think some warning signs have started to filter through though in tech earnings calls that have taken place earlier this week.

Meta being the first company to take a hit, after announcing quarterly earnings, despite seeing strong revenue growth of 26% y/y to $51.2B, beating analysts expectations, they also stated they would increase CapEx (Capital Expenditure) on AI to between $70B - $72B, up from their prior guidance which started at $66B!

The result… their stock plummeted 11%.

A similar story for Microsoft too who reported a $10B increase in Capex, and saw their stock price drop 3%.

But it’s not been all bad for AI investing tech stocks this week, with Amazon stock jumping 11% after a strong earnings beat and Apple stock up 2% after a strong earnings beat too.

So I guess the race to acquire as much AI IP as possible to see who will come out on top, continues… for now!

This is not financial advice or an investment recommendation. Past performance isn’t necessarily indicative of future results. When investing your capital is at risk.

SOMETHING COOL 😎

This week I got together with a bunch of Finance Creators for the annual Finfluencer Awards. I didn’t win the award this year in my category, but thanks so much for your continued support, and to all those who voted. It was great evening, where I met up many people who I’ve only ever seen on my social media feeds, some great people that are in my opinion doing some fantastic work in the Finance Creator Community. Here’s a snap of some familiar faces… 📸

BONUS STUFF ⭐️

VIDEO OF THE WEEK 🎬