Anthropic IPO, Claude &amp

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Transcript

Live Intro And Today’s AI Moment

SPEAKER_00 0:04

Talking about anthropic and uh some thoughts on what's going on with uh Claude and the upcoming IPO and maybe some other interesting things when it comes to where AI is uh beyond besides on my computer running all these things at the same time. If you're watching this on uh LinkedIn or YouTube or X, I can see your comments, which means if you want to engage in this live, feel free. I'm happy to uh read any comments you have. Uh and no one better than Derek Jan to kind of go into all the details when it comes to uh where we are in the AI cycle. Uh because even though we have a war, we have this other thing called uh uh massive unemployment rising because of because of robots, which will make me get into a little bit. So, Derek, uh for those uh who are not familiar with you and Cranechars, uh quick intro as far as uh your background and uh let's talk about AGIX and and infrocket.

Who CraneShares Is And AGIX

SPEAKER_02 0:49

Sounds good. Yeah, my name is Derek Yen. I'm a senior investment strategist at Crane Shares. So, Crane Shares, we manage about like over 30 ETFs globally, uh, and we manage about like 10 billion dollars. Uh AGIX is our one of the latest launch. Uh I think, well, it's already like two years almost. Uh we are one of the first public and private AI ETFs uh in the market. Um through AGIX, we invested in the private AI companies such as like Anthropic and XAI, which now uh become like SpaceX. So yeah, I thought we thought like this is quite interesting timing for this topic because everyone's wondering, yeah, what's kind of like the current stage of AI and how anthropic is gonna continue to do this work. Um yeah, happy to have a wonderful discussion with you.

SPEAKER_00 1:39

All right, so this may be a dumb question, but I think it's it's one that's important. So AGIX is obviously ETF, uh public listed securities, but uh it does have this uh anthropic exposure, and anthropic is not uh not public. Uh explain first of all how that's even possible uh when it comes to the ETF structure.

How An ETF Owns Private Anthropic

SPEAKER_02 1:56

Yeah, actually, like ETF is uh 40 ac fund, and 40 fund, according to SEC, can invest in uh private companies, but up to 15%. So we by the time we invest in private companies, we target around like 10% uh to just those illiquid assets uh in a very liquid uh vehicle like ETF. Um but like we do like fair value those assets daily. So that's like uh the uh we provide like a daily NAV, the net asset value to the ETF. So that investor can invest accordingly. Uh so for anthropic uh and XAI, we invest directly uh on their cap table. So AGX is actually the shareholder of Anthropic and XAI, now it becomes SpaceX. So for uh Anthropic, we invested in their Series E round of financing, uh a validation about 61.5 billion. Uh I think their latest round of finance uh variation is about like 380 billion. Um so uh through those um multiple rounds, uh we fair value uh that position um up to the market.

SPEAKER_00 3:14

Okay, so so again, this is sort of a non-traditional thing, and we're gonna get into anthropic more specifically here, but talk me through what happens mechanically. So you've got this position, it's marked to some value based on you know rounds like you just said. Anthropic goes public at some point, presumably this year. Um, what happens to to that that illiquid part of the ETF? How does the the actual transmission to the stock happen?

SPEAKER_02 3:38

Yeah, so we we own the actual shares, right? So you would think like just traditional private investment, there would be a like lock up here. Um so those shares on the IPO day gonna be POM, it's the same shares, right? Like then the share price is gonna be public. You know what's kind of like a daily share price uh going forward. So those share price times the the shares that we own translate into the value. Um once become IPO, I think that's kind of like more the value um just become very transparent. Uh currently is marked to the market where we believe is fair value. Um so we have a fair value committee. Uh we have a daily meeting actually to determine if the fair value is still fair, right? So um on the IPO day, we definitely the investor is gonna set the fair value going forward, right, by the market. So I think like once the IPO um that we're gonna actually um the anthropic shares become public shares, so we have more dry powder, uh we have more um money to invest in more private shares um of other companies potentially. So that's kind of like a great uh liquidity uh scenario for us.

SPEAKER_00 4:49

And I'm sorry, Mr. What's the current percentage of the ETF?

SPEAKER_02 4:54

Uh we are currently uh because of the uh incroy actually we have some uh dilution. Uh anthropic is about like 2.4% uh in the fund, and SpaceX is like 3% in the fund. Um so like about like 5.4% today. Uh but this is kind of like a dynamic, right? So for AGX, by the time we invest, we're talking about 10% uh into the private. Uh so anthropic and SpaceX can like range from like 10 to uh 12%, uh say like given their like appreciation. Um then there will be inflow. And so the share is gonna be remain the same, uh, but like the the percentage-wise gonna be diluted. Then we have more money, we're gonna invest in more of those two names, or we can add other names. So we are not in the between of that process.

SPEAKER_00 5:48

Okay, so play it out for me. Let's say uh very successful IPO goes public, uh, and let's say it goes up 200% on day one, right? Um, as part of uh your risk management side of things, uh, I would assume, and maybe I'm wrong, that there would be some degree of rebalancing if suddenly becomes 10% of the portfolio out of nowhere. Uh again, maybe I'm wrong, but but talking to sort of mechanically, like what are the scenarios? If it's really out of the gate, uh once it's unlocked, it goes ballistic. Yeah, what does AGIX do?

SPEAKER_02 6:19

Yeah, we have that like snare analysis. Um so the SEC limit for the private is uh 15%. Uh but but but IPO day, uh potentially become like public. Um, but like, yeah, when it's kind of like uh we're huge positioned, uh say like uh the illiquid asset part of the portfolio is uh about 15%. Uh we could potentially uh have like short-term liquidity from uh the brokers, market makers. So those illiquid assets become lower than 15%. Um so that's kind of like uh one quick scenario of solutions for the scenario. Um and then like, yeah, potentially, I think like when it's become IPO, uh you will the public names, uh those those uh say anthropic potentially can be part of our public holding going forward. So we're gonna keep holding those assets.

IPO Day, Lockups, And Rebalancing

SPEAKER_00 7:12

All right, so there's so enough about the uh mechanics, and I think that's that's kind of a little interesting. Um I wanna I want to get a little bit uh more into something that I just saw on X this morning, uh, which is um on the anthropic side. Them uh I saw some statement that the uh the the founder says something along the lines of they're not even sure what's happened with AI. Obviously, my watch is telling me there's something AI. Uh they're not even sure what what uh the AI itself itself is doing. It seems to be doing things that they didn't quite code or or uh or interpret themselves. I keep seeing these things about how uh they think maybe AI is maybe even conscious now uh of itself. Um can we can we I'm just curious, and again, this is from the investment side, but I'm just curious from your perspective. Um is there is there anything maybe concerning that um we're maybe at a point in the AI cycle where we as humans don't really know exactly what AI is is building onto itself?

SPEAKER_02 8:05

Yeah, I think that's that's very important, right? So that's that's why all the AI researchers and those CEOs are now focused on building something that's really understandable by human. Um if you think about like AI is basically like patent recognition, right? Like um learning from the data. So those are like really um algorithms that divide by human, right? So this is the end of the day, is uh just now the technology. Um that is really controllable. I I think like given that like um the whole model is um fine-tuned and really um can be managed by human team researchers. Um so far I don't think that's uh a concern, but I think more concern is really when AI is integrated into our daily life, into our workflow, right, into all those big enterprises. Um trillions of dollars of economic value associated with AI, that is some moment like when you want to kind of like tweak or change the AI model, you have to think about impact to the whole society. Uh if there's something like you have to make a dramatic change in the short term, there will be a lot of disruptions if you think about like all kinds of AI agents or automations linked to the AI models. So to that, I would think like the concern is real. Um so we have to reset it, right? We have to make sure the cybersecurity is ready for those controls. We have to monitor um all those like choking points. So that's where we think um that's now currently, um, there's a lot of demand for that.

SPEAKER_00 9:53

Okay. Uh you actually said something which is uh topical today. I I was watching bits of um Powell being interviewed in the morning, and he's I think he mentioned something along the lines of um we have never we have not yet seen a uh a large-scale cyber attack on the financial institutions. And it was something along the context of you know, sort of extreme events or things that could could cause problems to the economy. Um and he said like that's one thing they were kind of expecting to happen already by now, but it hasn't happened. Presumably in a world of AI, that's gonna be more and more likely. And um the cybersecurity space is interesting because a lot of those stocks actually have, on a relative basis, done what looks like to me fairly okay, you know, in the in the context of some of this big weakness beneath the surface. Um let's talk about um the cybersecurity side of AI and does AGIX have any exposure in any way, shape, or form to that?

AI “Mystery” And Real World Control

SPEAKER_02 10:46

No, we do own like cybersecurity names. Uh and we so just on a high level, uh AGX on the public equity side, uh, we trying to uh fund companies that is AI ready. So uh on each of the value chain, right? From the chip side hardware to infrastructure computing to data preparation to cybersecurity and to applications. So for each of the stack, uh we're trying to find the most AI relevant and AI-ready companies. Uh so on the cybersecurity side, I think narrative has been really like swing, right? So if you think about like previously people talking about like claud or anthropic could just disrupting the cybersecurity firms, right? So when you have like AI can potentially be your cybersecurity solution. But now I think increasingly people realize um there's still like for big enterprises, um, the cybersecurity demand uh is increasingly high because if you think about like uh increasingly, a lot of the decision can be made by AI models, can be made by AI agents. Um so if you think about like you're linking your payment to AI, you're linking your email to AI, your browser to AI, how much value uh are we at risk? So the the demand and the economic value at stake uh is gonna be uh without a doubt, uh gonna be much, much higher when you have full AI deployment. Um so for that, we think some companies in cybersecurity space uh gonna win uh this market share uh and potentially can actually uh have a very high growth potential. So that's how we come about our view on cybersecurity.

SPEAKER_00 12:34

Yeah, and I think that that makes a ton of sense. Um I keep seeing all the arguments that uh the SP 500 at the NASDAQ, they're really just AI indices at this point. Um and I think I can kind of see the argument there, but it's not real thematic AI exposure. Um let's talk about AGIX structurally. What makes that such an interesting fund as far as a pure play when it comes to this idea?

SPEAKER_02 12:57

Yeah, I think like a lot of investor, well, just today, if you own like SP 500 or Nasdaq, uh people are already concentrating a few large cap tech, right? So um you exposure already to AI, but in a very skilled way, right? You're only skewered to kind of like a hyperscaler. You're like investing a lot of your portfolio into the AI CapEx. Um, but we believe now um we're in a new stage, right? Like AI is transitioning from the kind of like the first build out. Well, the build-out is still happening, but like uh gradually I think the value is gonna broaden out to the to the more of the value chain, right? Not only the chips and hyperscaters, but a lot of like what I said, like uh cybersecurity, right? A lot of those data preparation, uh, the new cloud, those computing infrastructure. Um there's a lot of companies actually can capture a lot of value. Um so for that, if you just invest into the SP or Nasdaq or just the broad market index, um, you're capturing a lot of non-AI and you're capturing a lot of companies potentially be disrupted by AI, right? I think now like we've kind of like seen that. So uh the idea for AGIX really to uh identify the companies uh tend to benefit from AI or just uh capture the value from the AI ecosystem in the long term. Uh and then one innovative way uh for AGX is to really include the private AI companies, right? Because we believe um a lot of companies uh are creating values, but they choose to stay in private or just um potentially stay in private longer going forward because there's a lot of capital in the private space. And their IPO timeline is now delayed. Uh previously, companies go IPO when they're like, say, 50 billion, 100 billion, but now uh Anthropoc is 380 billion, uh, and space size is like over trillion. So that's really something I think investors missed when they have invested in the equity space because like those companies supposed to be in your portfolio already uh 20 years ago, but now um more of those uh value creation is happening in the private space. That's why we choose to blend it to a hybrid ETF, right? So have a part, the majority part is the public, but like have some critical part uh invest in the private. Um so that's how AGX framework is. Um to really invest in the whole AI ecosystem, regardless of the public and private.

Cybersecurity And The AI Value Chain

SPEAKER_00 15:41

Yeah, I think that that makes a lot of sense. Um okay, let's talk about sort of the the longer-term opportunity and um how AI uh companies could fare in potentially a recession. Uh, because increasingly, if you haven't noticed, and I'm sure you have, uh there's uh probabilities are rising, right, that we might be entering a recession. Maybe it's a stagflationary recession, which would be horrible if that's the case. Um, but um there's on the one hand, there's an argument that uh you're not gonna stop this AI momentum, right? And if anything, a recession might strengthen some of these AI plays because people will be laid off and they won't get rehired, right, as AI gets implemented during those recessionary periods. The other argument is, well, every recession means that liquidity dries up. And we know there's a tremendous amount of liquidity and and and capital that's needed to build out the AI infrastructure. So where where do you where does crane shares kind of land on that? And how do you think some of these companies might behave in a recession?

SPEAKER_02 16:35

Yeah, I mean, like now, I think like part of like two reasons, right? Like I think like a lot of discussion. One is really AI is replacing um human, right, in the employee like employment world. So um people got unemployed, so then you naturally you you're gonna have a recession, right? So um that's previously, I think like what you heard from Jansen Huang Jansen Huang is really saying that like AI is really, I I think you said as well, actually earlier, that AI is getting you busier, right? So um the the lack of imagination is really um it's like an excuse for like those big companies, right, to lay in off people. Because now with AI you have maximized your productivity. Actually, you can hire more people to do more cool stuff. Um so that's really not uh uh I think a good uh concern, right? So because like if you think about like uh massive productivity gain tends to mean um enterprise earnings and uh profit margin tend to grow. So that's uh really like a more uh positive catalyst for the apple market. Uh so then second, right, for the stagflation, I think that's more real concern, where um that's something quite uncertain, it depends on the current situation in Iran and uh all those energy prices and also uh translating into potentially higher rates. So that's more macro discussion. I would think if for from my perspective, um like if compared to this war, compared to like previous wars, um now US is in better shape in terms of energy diversification. Um so um if you think about like previously, like those wars gonna just have like a short shock, but now with um uh after like preparation for for that, like many times, uh, we think this this probably potentially be more resilient into the energy space. Um then if recession happened or just like economic slowing down, um, you would think the Fed uh tends to cut rates more than um the risk rates, uh, because like the raising rate cannot solve the oil price, right? So if you have like slowing down because of the stagflation, uh potentially uh the Fed gonna react uh more cutting rates, I would think. Um then like when everything's slowing down, um you kind of like want to embrace the quality, right? Where the company is like um still building up, still have like gross potential. Uh if you structurally think about that, like where's the industry? It's still the AI ecosystem is really something structural, is really in the middle of the build-out, middle of the deployment. So we think that potentially can be a more long-term thinking. Um there will be volatility, there will be short-term validation uh screen. Um, but like I think on the long-term, um, this is really like um not like cyclical, but like very structural uh trend that's happening.

SPEAKER_00 19:44

What's been the uh the pushback, if any, at all, when it comes to AGIX? Meaning, you know, you have people that are pitching this to financial advisors, high net worth. Obviously, it's gotten some good traction, but there's always gonna be skeptics, right? So what what do the skeptics say?

Why AGIX Over Broad Indexes

SPEAKER_02 19:57

Yeah, I think like a lot of big uh financial uh advisors or like RAs, they have dedicated private allocation already. Um so like for them, it's not really some like innovative solution because like um having private in portfolio is already happening for them. Um and for institutional investors, yeah, they've been doing that for years. So I think the biggest pushback is yeah, I already own Anthropic, I already own SpaceX. Um but like for a lot of uh advisors and investors, um that's there's really like high bar for them to um invest in the private funds, like lock up for 10 years, paying 220. So I think it's still that's something quite innovative for those type of investors who don't have access to have some exposure, just like institutional investors or big RAs. So this is really unlock a lot of like discussion really around the private markets for a lot of investors. So for us, um, we do have pushback from big institutional investors, but like uh for like smaller investors, this is something quite um meaningful for them uh given like allocation perspective.

SPEAKER_00 21:18

Speaking about allocations, um I go back to people say the SP is basically the NAI index, uh, and the SP is a core holding. Uh if it's an AI index, then that makes it sound like AI should be core, period. I can argue that it should be, right? Because it's clear that the business cycle is no longer housing. Uh it's really AI. Um and if that's the case, do you think investors should view AGIX as a core strategy, a satellite strategy?

SPEAKER_02 21:43

Yeah, I think AGIX is our in our perspective, uh, is the is the core growth of the economy and core growth of technology. So that means like if you think about if you are building up your gross portfolio, uh the AGS tend to have uh a core perspective. Um so so that's kind of like our belief. Um but if you have like more like value or just like more balanced, um like you can think about AJX as more a satellite uh to that point if you think about like the AI is really a th like a theme, right? So um but from our perspective, uh if you think like we're in multiple years of AI development and potentially like a decade of long of structural change coming from AI, this theme can be very sustainable. So that means um this is a long-term application for sure.

SPEAKER_00 23:16

Of course Crane shows has a number of other funds uh aside from AJX uh which are let's call it adjacent to the AI side like COID I know we've talked about that as well. Are we still at the stage where it makes sense to think more about the the brain as opposed to the body side from an investment perspective.

Recession Scenarios And Portfolio Role

SPEAKER_02 23:35

I mean obviously the robotics humanoid angle has been growing uh but it seems to be that um as far as sort of immediate investor attention it's still around the the the intelligence part yeah the intelligence part is is booming right if uh it's it's it's already happened um I think like it's something that um have more like certainty compared to um the physical AI where the physical AI is so early is in uh kind of like the the starting point of the S-curve the adoption um but we think like uh it's good compo right think about like the intelligence part the whole digital AI buildup um that's gonna be um massive um that's gonna be trillion dollars um if you think about hyperscaters they spend like uh I think this year about like 600 billion or more uh in into AI capacks so um that's really like phenomenal but in terms of the the physical AI uh investment or capex into say humanoid quadruped and uh all kinds of like robotic machines adopting AI um that is like tiny compared to those uh digital AI expenditures so we think um over the next five to ten years you'll gradually see a more pickup in the physical AI actually um so potentially have a uh a catch up moment right when when you uh gonna deploy a lot of the intelligence into the the body the physical part is the the world um so I think like just as we said uh the agetic AI is a good example right now what does age what AI agents do is really uh reason planning uh and controlling making decisions so that's exactly what robots need um so if you think about a cumanoid going forward um they can get all the information uh they can reason they can plan and they can do they can make actions right so whether it's uh cooking right or just doing dishes or just stuff like that I've already seen like a lot of good um progress on that. So if you think about that's the trend right so the physical AI potentially uh is even it's still early but have a higher potential. So it's a great combo where AJX potentially be the core and our other found uh KOID uh humanoid is really uh more like a strategic satellite where you have uh um quite like early stage of uh potential but like is it's what the next big thing potentially can be.

SPEAKER_00 26:14

So yeah so we're having mastery uh have both and and and remind me um with AJX the the weighting of that portfolio meaning how you're determining how much to go into any one of these AI type companies how how is that determined?

Robots, Weighting Method, And Wrap-Up

SPEAKER_02 26:33

Yeah so for AJX there's two buckets uh the for the public uh portfolio is uh uh driven by two things one is the AI score the AI score is identified by the AI native researchers that we partner with um they identify the AI readiness and AI relevance for a company uh and that score together with free flow market cap determines the weight um then for the private part is active um so the AI researchers uh are partnered uh they have uh well it depends on first the deal flow and also their conviction on which company is the um kind of like the um where critical in the in the AI's ecosystem but it's in private um so we invest it say anthropic and xai so that's kind of like the the framework for the for the AGX um so for the private as I mentioned there's a limit of up to 15% uh and by the time we invest we build some buffer of 5% so we target to invest 10% in the private yeah I think the waiting part is always an important one right it's like you know if you really want exposure uh to an ecosystem it can't just be NVIDIA. Yeah exactly right um okay interesting and then um uh for um those looking at AJX versus other competitors uh because as you know there's a ton of them that are making these AI types of funds that have been around for a while or you know are are coming soon uh what would you say is sort of a a a key differentiator yeah I think like we when we build AJX um we want to be very different right so uh I would think compared to traditional index um based uh AI ETF uh AJX is more driven by like insights of AI native researchers um so for the public equities um that's quite different because we believe um there's some um uh there's a lot of value add from the AI native researchers because they know what is happening um they know how the model progresses and what is impact on each of the stack right so that's that's one value add the second value add is really the private uh we believe a lot of the private companies such as anthropic is really disrupting um the world but also the public equity space so owning that piece is um is a complete of the AI ecosystem is the complete of AI value chain where a lot of value creation is happening uh just for anthropic like I think their revenue their uh recurring annual revenue is only like a billion uh by 2024 but it's reaching like I think around like uh uh uh nine billion uh 2025 and reaching uh I think like 14 billion uh by February uh this year. So um we have never seen a growth uh for company like this before. Um it's just like validation of how the AI progress is growing. Today is like like I think previously a lot of people ask us why you AJX invest anthropic not open AI not like um just uh the biggest AI company. So our thinking was exactly what happened today because the AI more value add is really coming from the enterprise uh and agenda AI where anthropic uh has a lead um so that's where we think a lot of those um agentic AI or AI agents um those value creation is going to happen um through the API and through the anthropic so that's that's how we really made that investment decisions uh back like a year ago um so so with that like this is quite a different position compared to many other firm uh who missing that like core component uh where radio is creating makes uh makes a lot of sense uh derek for those who want to learn more about AGIX and Craneshares is full suite uh where would you point to yeah like uh investor can go to crane shares.com uh slash AGIX for more information about AGX and uh like our private holding our process our more like uh validation like FAQ um so so those materials and Crane station fact sheet available uh just generally for our uh other ETF uh investor can go to crane shares.com uh for more information AI's take over folks and that means uh crane shares with AGIX can help take over too uh so appreciate the time here uh learn more at AGIX stay tuned for more of these lead like lead lag live episodes it's been a long day uh and I'm doing my best to power through but uh always enjoy listening to Derek and uh thank everybody for watching uh thank you Derek appreciate it thank you guys cheers everybody