Good morning,
At its annual developer conference yesterday, Apple introduced Siri AI, a “profoundly more capable” personal assistant. Shares dropped 2% after the reveal, but iPhone users are still hoping that this could be the end of the “sorry, I didn’t get that” era.
Earnings season is winding down, but it’s a massive week for markets: tomorrow we’ve got the May Consumer Price Index, and on Friday, all eyes will be on SpaceX’s expected debut on the Nasdaq (more on that below). In today’s letter:
AI IPO valuations could face pressure as rate hike odds rise
Big Tech increasingly taps outside capital to fund AI
The expense policy ambiguity gap
LEADING STORY
What rising rate hike odds could mean for AIPOs, from OpenAI and Anthropic to SpaceX
Can’t cut this… could be the new tune of the FOMC hammer. Stocks had a very unhappy Friday after the May jobs report blew past expectations, raising odds of a Fed rate hike this year. The U.S. economy added 172K jobs in May, more than double what was expected, and the “good news is bad news” market reacted: the Nasdaq fell 4.18% on Friday, its worst day since April 2025.
Traders are now pricing in a ~70% chance that the central bank will hike rates in December. Hike bets also surged on prediction market Kalshi.
If CPI comes in hot tomorrow, that could lock in odds of a 2026 hike. Next week, all eyes will be on the FOMC’s first meeting under new Chair Kevin Warsh.
AIPOs in the spotlight… It might seem odd to segue from the CPI to AI, but future borrowing costs help predict whether AI players can sustain their lofty valuations. OpenAI, last valued at $852B, announced yesterday that it confidentially filed to IPO. This comes just about a week after Anthropic said it confidentially filed after raising $65B last month at a $965B valuation.
And of course, this week SpaceX is aiming to IPO at a valuation of around $1.77T, a number which some analysts are skeptical it can justify.
The business has been historically rooted in launches and its popular Starlink satellite-internet service, which brings in the bulk of its revenue. But the valuation target largely hinges on growth projections for its AI business, which includes xAI and Grok. SpaceX recently struck a multiyear deal to rent Google compute capacity at xAI data centers for $920M per month on the heels of a similar deal with Anthropic.
SpaceX reported that its AI unit brought in $3.2B in revenue last year, but Goldman projected to investors that the division would contribute around $322B in 2030, according to a Wall Street Journal report.
Rising rates typically compress valuations as the discounted cash flow and risk-reward equation changes (they also tend to suppress funding and spend). But even in this relatively elevated rate environment, AI companies have been outliers, almost as if they’ve decoupled from the trend. It’s clear in public markets; even more so in private ones.
The bottom line:
The profit window matters more… In the end, valuations are based on the expectation of future returns — and how fast those returns will arrive. Though AI labs are burning through billions, trillion-dollar valuations suggest investors expect significant returns in the somewhat-near future. Rate-sensitivity largely depends on how fast these companies can become profitable (or at least, investors’ perception of this timeline). If investors believe big AI profits will land within the next 5-10 years, rising rates matter less. If the timeline is more like 20 years from now, the math changes.
Watch this space: Big Tech taps outside capital to fund AI
Historically, Big Tech companies have relied on their massive cash balances to fund investments. But now that their capex is expected to exceed $700B this year, tech giants like Meta, Amazon, and Google are increasingly relying on outside capital to fund their AI expansions.
Debt: U.S. corporate bond sales have boomed this year. AI-related companies have issued about $140B in investment-grade bonds so far, accounting for about half of the total issuance. On a record-breaking day for corporate borrowing in March, Amazon alone issued $37B worth of bonds.
Dilution: Google parent Alphabet recently announced plans to raise $85B through sales of its stock to fund its AI buildout. The Financial Times reported that Meta is considering selling “tens of billions” in new stock to finance AI infrastructure expansion.
The unusual reliance on outside money is a sign of how incredibly capital-intensive AI infrastructure is — and how big the bets on its future are.
Watercooler Data: the expense cap ambiguity gap
If you’re curious about how your company’s expense policy stacks up compared to the standard, you might find this chart interesting.
What’s more interesting: how many companies don’t have caps for specific categories. According to Ramp data:
While flights are the priciest category, only 7% of policies specify an allowable amount.
Despite meals being the most common expense category, a daily meal cap is only specified in 66% of policies.
Signals Shortlist
Meta launches ‘Workforce Academy’ to train workers to build data centers (The Wall Street Journal)
What the ‘dean of valuation’ thinks Elon Musk’s SpaceX is really worth (The Wall Street Journal)
🗓️ Leading Events:
Tuesday, June 9: NFIB Small Business Optimism Index
Wednesday, June 10: Consumer Price Index. Earnings expected from Oracle, Chewy, and Stitch Fix
Thursday, June 11: Producer Price Index. Weekly jobless claims. Earnings expected from Adobe, Lennar, and RH
Friday, June 12: SpaceX expected to debut on the Nasdaq
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