- The hottest IPO of 2023 is…
- Apparently, Microsoft didn’t overpay for OpenAI
- DALL-E makes its Microsoft debut
The original title of the bill introduced in April was “No Cryptocurrency Payments to State.”
At face value, one wouldn’t be faulted for assuming that the bill was part of the antagonistic, anti-crypto stance of the last two years in the U.S. But that’s not at all what the legislation was about.
Introduced by North Carolina’s House of Representatives, the bill was written to prohibit the state’s agencies from accepting payments in any form of central bank digital currency (CBDC). It went further by also banning any participation in any pilot testing of a CBDC in North Carolina.
The generic sound of “No Cryptocurrency Payments to State” must have been an issue, because early this month, the name was changed to “No Central Bank Digital Currency Payments to State.”
Nice. Crystal clear, and consistent with the intended purpose of the legislation.
Better yet, days ago it was just passed by the state’s House of Representatives…. 118-0. When’s the last time we’ve seen 118 politicians agree on something?
It must have been important. And it must have been urgent.
After all, Florida’s governor proposed a law this March to ban the use of a CBDC in his state. And Senator Ted Cruz from Texas went further by proposing a bill to prevent the Federal Reserve from developing a CBDC outright.
This string of legislation is not a coincidence. These are insiders that have some knowledge of what’s “in the works” at the Federal Reserve. And they clearly don’t like what they are seeing.
I’ve been predicting a major announcement from the Federal Reserve and U.S. Treasury sometime this summer related to its plans for a CBDC. This is something I’ve been writing about for the last several years, and all indications are that it is imminent. This latest string of legislation is a sign of what’s to come.
But we shouldn’t expect a decentralized, blockchain-powered stablecoin backed by U.S. dollars. My prediction is that the technology that will be used is a centralized programmable version of a U.S. dollar – a digital dollar – that can be controlled by the U.S. government.
And that’s the reason that North Carolina, Florida, Texas, and others have recently been speaking out against the plans for a CBDC in the U.S. An “instrument” like this can be used as a form of digital surveillance in the sense that all transactions can be tracked and taxed. There would be no financial privacy whatsoever.
That in itself is bad enough, but the other major concern is to use this form of digital dollar to both restrict and control human behavior. That might sound impossible to do, but it’s not.
Once paper currency has been removed from the system, all transactions will flow through the programmable digital dollar. Transactions used to support beliefs that aren’t deemed “appropriate” by those in charge will be banned. If a taxpayer engages in politically “unacceptable” activity, their funds can be frozen or even deducted as a fine for “inappropriate behavior.” Or if an individual’s carbon footprint is deemed to be too high, money might be restricted only to public transportation – no gasoline purchases will be allowed.
These aren’t just hypothetical situations. Programs like this are being widely discussed in organizations like the World Economic Forum (WEF), many members of which have been supplanted throughout governments around the world, including the U.S.
Once we understand what the technology is capable of being used for, and that there are active discussions to employ the technology in such a manner, it’s easy to understand how urgent of an issue this has become.
And that’s why North Carolina’s unanimous vote is a major victory. Hopefully, there will be many more like it that follow. It’s also a sign of what’s coming…. The devil is on the doorstep, and if we want to keep the right to spend our hard-earned money on whatever we want/need, we’re going to have to step up and say something.
Being able to control how we spend our money is a way of controlling our behavior. The lure of this kind of power is too great for the current government to resist. If we thought the last three years of ridiculous pandemic policies were bad and restricted our chosen lifestyles, if implemented, the programmable digital dollar would be something far worse – a different kind of hell.
A sign of spring for the IPO market?
It’s been a tough run for initial public offerings. As we know, there have been very few IPOs over the last six quarters. In 2022, there were only 188 initial public offerings. That’s the lowest level for a year since 2016. And so far, this year, there have only been 63. And of the IPOs that did occur, they simply weren’t worth talking about.
I’ve never seen such a long run of inactivity. But it’s completely understandable. The current environment of aggressive rate hikes and economic uncertainty caused institutional capital to flock to safety.
Nobody wants to take their company public in this climate. Doing so would result in raising less capital at lower valuations. That means founders have to give up more of their company’s ownership for less money in return.
So the good private companies – those with the financial ability to wait patiently for better days – they’ve all been in build mode and have chosen to stay private. None of them are interested in going public in the current environment.
But there could be some good news on the horizon.
Semiconductor design company Arm just filed to go public, most likely later this year.
Regular readers may remember that Arm is owned by one of Softbank’s venture capital (VC) funds. But Softbank’s fund invested in many companies at absolutely ridiculous valuations. Its willingness to overpay for deals grossly distorted the market, and I’ve predicted that Softbank’s returns from its Vision Fund would be some of the worst in venture capital history.
So I wasn’t surprised to see the news that Softbank’s Vision Fund recorded a record loss of $39 billion for its most recent fiscal year ending on March 31. And this came on the heels of a loss of $27 billion the prior fiscal year. For reference, the Vision Fund raised $98.6 billion back in 2017… and after the most recent announcement, there isn’t much of that left.
Arm is one of the few companies that Softbank’s fund could book a profit on. That’s why the fund was willing to sell Arm to semiconductor giant Nvidia for $40 billion. It would have netted a small profit, but more importantly, provided liquidity for the fund. But that deal fell through last year. The regulators weren’t willing to approve it due to anti-trust concerns.
And that’s why Softbank is now pushing Arm to go public. Softbank’s funds are in trouble, and it needs to raise capital. Softbank has been selling off shares of Alibaba, which has helped, but that’s not enough. An IPO by Arm would likely raise as much as $10 billion in the public markets… and Softbank needs that cash infusion to offset its big losses.
Softbank’s issues aside, this currently looks like it will be the hottest IPO of 2023. I believe Arm could be valued as high as $60 billion.
That’s because Arm is one of the most successful semiconductor companies of all time. It’s not a household name because it develops semiconductor designs and architectures and then licenses that technology to semiconductor companies.
Arm was very early in developing semiconductor technology designed to be power efficient and small. The target was primarily for consumer electronics and other applications, like automotive or data centers, which are sensitive to power consumption.
Because of its strategic focus years ago, it earned a dominant position in the marketplace with all major semiconductor companies licensing its technology. It is a fantastic high-gross margin business with no manufacturing costs, just licensing fees.
So Arm’s IPO later this year could be just what we need to bring the IPO market back to life.
A massive, successful IPO is what the market needs to see that it is finally good to go public again. I’m sure that Softbank will wait for a few months until we get past the current volatility and debt crisis; but if I had to guess, the floodgates will open in the September/October timeframe for IPOs.
Top VCs just validated OpenAI’s valuation…
As regular readers know well, OpenAI is the company behind the groundbreaking generative AI ChatGPT. And we learned earlier this year that Microsoft invested another $10 billion into OpenAI at a $29 billion valuation. That’s after Microsoft funneled as much as $3 billion into the AI startup in earlier rounds.
There was a lot of speculation as to whether or not Microsoft grossly overpaid for the investment. It was also clear to me that Microsoft wanted to have a large enough controlling interest so that it could effectively control the powerful technology and to whom it was licensed.
The investment also empowered Microsoft as the only company that has access to OpenAI’s code, which enabled Microsoft to put the technology to work throughout its own suite of software products.
This looked like a classic case of a large corporation throwing around huge amounts of money simply to control new technology. Many assumed that Microsoft was investing at elevated valuations because it didn’t care about making a profit on its investments.
Well, OpenAI just raised $300 million in venture capital from some very notable investors. They include Andreessen Horowitz, Sequoia Capital, and Peter Thiel’s Founders Fund. These are smart operators in the VC world. They think very carefully about valuations.
And get this – this investment round took place around a $28 billion valuation. This essentially validates Microsoft’s investment by three major venture capital firms.
That’s because these VCs are investing in OpenAI exclusively to make a profit, not to gain access to the technology. Which means they believe the company will be worth multiples of the $28 billion valuation it currently sports.
I’ve argued in the past that given ChatGPT’s growth trajectory, the potential subscription revenue to OpenAI justifies the valuation that Microsoft paid. And now that we’ve had these firms doing their own due diligence on OpenAI, it appears that there is clearly a path to even higher valuations.
This is one of the incredible dynamics of generative AI. In just a matter of six months, there is a demonstrated path to a billion-plus user adoption and multi-billion dollar subscription revenue streams.
And that’s why we’re seeing a record level of funds chasing artificial intelligence deals right now.
Microsoft’s next product move with generative AI…
Speaking of Microsoft leveraging OpenAI’s products – the tech giant just announced its next product move. Microsoft is going to employ OpenAI’s text-to-image AI DALL-E 2.
As a reminder, text-to-image AI systems can produce incredible images from scratch just based on a simple text prompt. Users tell the AI what they want to see, and the AI produces the image on the spot.
This was very much the beginning of the generative AI trend. DALL-E 2 made a big splash last year well before any of us had heard of ChatGPT. So it’s no surprise that Microsoft now wants to employ the text-to-image technology.
To do this, Microsoft will enable DALL-E 2 within its suite of products. This includes Microsoft Word and PowerPoint. Going forward, users will be able to create graphics for their work right on the spot.
Here’s a look at how it works:
Source: PC Magazine
Here we can see that somebody typed in the prompt “a shiba inu astronaut, digital art.” And DALL-E 2 produced four separate images of a Shiba Inu in astronaut gear in a computer graphics-like design style (i.e. not photorealistic).
For anybody that’s had to produce a PowerPoint presentation, we could imagine how useful this would be.
To me, this looks a lot like Microsoft is taking a page out of Canva’s playbook.
Canva is a popular design tool that made it simple for people to develop graphics for the web. And it caught design giant Adobe completely flat-footed.
Adobe’s popular Photoshop product was made for professional designers. With Photoshop, users needed training before they could produce professional-quality graphics.
That’s why Canva became so popular. It allowed anyone to create professional images with no formal training necessary. That took the graphics design market by storm.
And that’s exactly what Microsoft is doing here. The difference is, DALL-E 2 makes it even easier to create incredible graphics inside of common software applications like Microsoft Word or PowerPoint. The functionality is being made available at the click of a button inside Microsoft’s software.
DALL-E 2 is suddenly going to be available to everyone with a Microsoft 365 subscription. And that’s billions of people.
This is very powerful. Because rather than having to access or sign up for a new piece of software, Microsoft is simply making this powerful technology available in the users’ normal workflow, whether it be a browser, a document, or a presentation.
AI will quickly become part of what we use every day, part of the software programs that we are already used to using. And that means that we’ll soon quickly realize that we can’t live without it.
Editor, The Bleeding Edge