Colin’s Note: Last month, I warned you against “buying the hype” behind nuclear-powered AI…
Specifically, I was talking about the small modular reactor company Oklo. And in light of its rocky stock market debut last week, we’ll revisit that call and talk about why it’s important to exercise caution when dealing with early-stage companies.
I get the appeal. They’re exciting to invest in… and the gains can be life-changing… but the reality is that going all-in on early-stage companies thinking you’re investing in “the next Amazon” isn’t a reliable way to build wealth.
I get into it all in today’s video… and if you have thoughts or comments you’d like to share with me and my team, you can write us at [email protected].
Bleeding Edge subscribers, happy Friday.
This week marked the 27th anniversary of Amazon going public. A $1,000 investment into Amazon’s IPO would be worth more than $2.5 million today.
So for many, this seems like the ideal investment strategy. Identify some early-stage companies and just hold onto them indefinitely. Some might even call this the hold-and-hope strategy.
There is a certain appeal to getting in early.
For retail investors, it’s exciting to tell your friends about a little-known company that you’re backing and you’re going to be tracking its progress over time. For someone like me, the allure lies in me being able to say, “I told you so.”
Many in the investment community often reference their past successes like these, but here’s the truth… You’d be hard-pressed to find anyone outside of Jeff Bezos and a handful of Amazon employees, probably his ex-wife too, who have held onto Amazon shares for 27 years.
Early investors faced many ups and downs. Shares of Amazon fell from about $5 per share in 1999 to as low as 30 cents in just two short years. It wasn’t until about a decade later that Amazon shares were comfortably over $5 again. In hindsight, buying and holding Amazon shares today seems like a no-brainer.
But virtually no one outside of Jeff Bezos did this.
I bring this up in the context of another company that went public this week. We discussed in the newsletter just last month.
Oklo is a small modular reactor (SMR) company that has ties to Microsoft. It has multimillion-dollar deals and offers from data center provider Equinex. And it has an early investment from Open AI CEO Sam Altman.
In many ways, Oklo’s story is maybe even more compelling than Amazon’s was 27 years ago. As AI continues to explode and expand globally… the demand for more power-hungry data centers seems inevitable at this point. And a clear solution lies in this SMR nuclear power technology.
When we covered Oklo last month, shares were trading over $15 per share. Today’s shares have fallen under $10. At the time, I advised you to pause before jumping into the nuclear-powered AI hype, and this decision was very straightforward.
First, while nuclear power is extremely efficient and ideal for AI data centers, Oklo is still years away from generating any meaningful revenue… let alone turning profits for investors. The company’s early public offering is primarily a strategy to raise funds for future projects in research and development.
Second, Oklo is one of those blank-check or SPAC companies that have generally performed poorly in recent years. Data shows that nearly every sector has negative returns after a SPAC deal closes.
These SPAC deals, especially in the early stages, are designed to benefit Wall Street insiders and not you.
Investing in these early-stage SPAC companies isn’t like buying Amazon in 1997. It’s more like gambling in the Las Vegas casino. I enjoy a weekend in Vegas as much as anyone… but I don’t go there to build wealth.
In the first three months of this year, Oklo burned through more than $1.2 million and had zero revenue.
My strategy is to wait for the hype around these new energy sources to die down while continuing to capitalize on the growing popularity of AI. If SMRs become popular, they’ll enable AI data centers to expand without constraints and at lower operating costs.
That will lead to greater profitability for software providers developing the next generation of websites and applications.
Additionally, it’ll probably benefit Amazon, which generates most of its profits these days from selling computing power through its AWS division rather than selling books. Early-stage companies can be exciting. And the potential gains can be life-changing.
But the truth is that Amazon has been a once-in-a-lifetime jackpot that rarely happens on Wall Street.
I’ve emphasized this many times here on the newsletter… and I’ll leave you with this thought. It’s far, far better to be right about an investment rather than to be early.
That was The Bleeding Edge for today. I’ll see you again next week.