How the Snakes Dies: ICE, AMD, ARKK

Summary

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Money Stuff: The Podcast

Episode: How the Snake Dies: ICE, AMD, ARKK
Date: October 10, 2025
Hosts: Matt Levine & Katie Greifeld

Episode Overview

This episode of Money Stuff: The Podcast dives into some of the week’s biggest Wall Street stories with Matt Levine and Katie Greifeld applying their technical expertise and signature wit. The episode explores:

• The meteoric rise and ICE investment in Polymarket, and the broader implications for prediction markets and financial infrastructure
• The “Ouroboros” phenomenon fueling massive deals between OpenAI and chipmakers (AMD & Nvidia), and its resemblance to bubbles
• The mechanics and ethics of ETF “heartbeat” trades, with insights from Cathie Wood
• The world of high-stakes Wall Street puzzle hunts

The tone is congenial, self-aware, and a little irreverent—true to the Money Stuff column’s roots.

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Key Discussion Points & Insights

1. Polymarket’s Billionaire Founder and ICE’s $2 Billion Investment

(Discussion begins at [04:10])

• Shane Coplin’s Backstory
  • Shane Coplin (founder of Polymarket) was profiled by Bloomberg as the world's youngest self-made billionaire, despite a dramatic year:

    "First he was investigated by the government and now he's a self made billionaire."
    — Matt Levine [05:05]

• ICE’s (Intercontinental Exchange) $2 Billion Investment
  • ICE invests $2B, assigning Polymarket an $8B valuation; stunning growth for a prediction market platform.
  • Both hosts note the difficulty of justifying such a valuation on non-sports prediction markets, suggesting the real upside is in sports gambling.

    "My sense is that it is hard to justify an $8 billion valuation for a prediction market that is just elections...and, you know, fun predictions for addicted sports gamblers."
    — Matt Levine [06:20]

• Why Prediction Markets Work — or Don't
  • Matt references the Grossman-Stiglitz paradox: Efficient markets can’t exist because then no one would profit from making them efficient. Prediction markets lack the “uninformed flow” (retail, index funds) present in stocks—until sports betting brings in that essential liquidity.

    “Prediction markets...it has historically not been a super fun gambling market, like with the exception of presidential elections and a few other high profile things. But when you add sports, it becomes a fun gambling market and then that just opens everything up, right?”
    — Matt Levine [10:29]

• What Does ICE Get Out of This?
  • Data distribution and strategic positioning for a possible future where prediction markets replace certain macroeconomic trading instruments.
  • ICE and Polymarket could collaborate on tokenization—either technology innovation or (perhaps more dubiously) regulatory arbitrage:

    "To me, tokenization means two things. One, there's some amount of trading in traditional financial markets...you can call it tokenized. And then to me, it always seems like...what they're always talking about is getting around securities laws."
    — Matt Levine [15:13]

Memorable Moment:
Katie:

"Tokenization has been on my list of things to actually think about for a while. See. But I haven't gotten there, Matt."
Matt:
"I've written about it...I don't have any. I don't know what it means either.”
([14:41 - 16:49])

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2. The AI Ouroboros: Massive, Circular Spending by OpenAI, AMD, Nvidia & Oracle

(Segment starts at [19:20])

• The Snake That Eats Itself: AI/Chip Ecosystem

  • Matt and Katie analyze the almost absurd cycle where OpenAI commits to buy billions in chips (without the cash on hand), sending chipmaker stocks soaring, and chipmakers compensate OpenAI with warrants—each party’s valuation supporting the next’s.
  • "OpenAI has committed to spend something on the order of $100 billion buying chips from AMD. And OpenAI doesn't have $100 billion."
    — Matt Levine [20:04]
  • This cycle reflects how the market values future potential so highly it becomes real spending power today.

    "They're able to commit cash based, not on the cash they have but on their valuation."
    — Matt Levine [20:31]

• Stock Price Ripples & ‘Magic Dust’

  • Deals create predictable stock rallies, which the deals themselves then monetize.

    “Essentially, AMD shareholders will get excited about AMD having this, and so we'll let the AMD shareholders pay for the chips.”
    — Matt Levine [21:32]

  • This isn't unique: Nvidia, Oracle, and others are all in similar virtuous cycles with OpenAI.

• Is It a Bubble?

  • Market consensus seems near-manic:

    "It's unusually easy to visualize the future...and so it's all being discounted right now..."
    — Matt Levine [24:24]

  • Yet both hosts warn that overbuilding is a real risk:

    "Do we need this many gigawatts? Do we need this many data sources?"
    — Katie Greifeld [25:46]

• Early Margin Warnings: Oracle’s Cloud

  • A report reveals razor-thin cloud margins for Oracle, despite the hype, signaling possible cracks in the AI infrastructure gold rush.

    "It's possible that Oracle is in a commodity business. And my sense is that people think that Nvidia is very much not in a commodity business. That could be wrong, right?"
    — Matt Levine [27:08]

Notable Quote:

"Just wonder how the snake dies in the end. Is it because it chokes or because it's being eaten? You ever think about that?"
— Katie Greifeld [27:56]

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3. ARK ETF “Heartbeat” Trades & Cathie Wood’s Take

(Main segment begins at [30:24])

• Explaining the Heartbeat Trade

  • Large, temporary ETF inflows before a hot IPO attempt to capture short-term pop, then withdrawn with profit, leaving the ETF’s retail holders with possible “losses” relative to what the market provided.

    "If like the ARK ETF gets a $20 million IPO allocation and it goes up 50%, then there's $10 million of profits...you get, like, $5 billion of profits with no risk."
    — Matt Levine [31:28]

• Cathie Wood’s Perspective

  • She’s unconcerned; “market plumbing” is part of the ETF world, and as long as the bets don’t pay off every time, she’s fine with it:

    "She's not upset. This is what makes a market. And if they guess right, great. If they don't, well, then they have nothing. They've incurred some costs."
    — Katie Greifeld [33:04]

  • Matt notes this is more emotionally evolved than some ETF insiders, who feel it’s "rude and not nice" to treat retail products as arbitrage vehicles.

Memorable Exchange:
Katie:

“If I have a sink and someone turns on the faucet, I would hope they're washing their hands...not that they're just turning on the faucet and then doing something else.”
Matt:
“If I woke up one day and someone had invested an extra billion dollars in my fund, I'd be like, sweet. And then three days later, if they were like, they took it out again, I'd be like, ah...”
([34:23 - 35:06])

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4. Wall Street Puzzle Hunts: A $42,000 Entry

(Brief segment at [35:15])

• Matt recounts the latest Midnight Madness Wall Street puzzle hunt, noting the $42,000 team entry price (!), the charitable benefits, and the competitive landscape (Jane Street, Citadel employees).
• Shout-outs to the winning teams and an acknowledgment that, for him, all-night puzzle hunts are now “a young man’s game.”

  "It just seemed like a little too much for me."
  — Matt Levine [36:11]

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Notable Quotes & Moments

• On valuation hype and AI:

  "The market has ascribed a value to OpenAI of like half a trillion dollars. And that value is sufficiently real that OpenAI can make financial commitments based on it."
  — Matt Levine [20:31]

• On prediction markets and sports:

  “When you add sports, it becomes a fun gambling market and then that just opens everything up.”
  — Matt Levine [10:29]

• On the abstraction of tokenization:

  “I've thought a lot about tokenization, but I don't have any [answers]...I don't know what it means either.”
  — Matt Levine [16:49]

• On ETF plumbing/emotions:

  “But Cathie Wood, you know, she's not like us. She is built different.”
  — Katie Greifeld [35:10]

---

Segment Timestamps

| Segment | Timestamp | |--------------------------------------------------|---------------| | Banter & Possum Update | 02:07 | | Polymarket, ICE & Prediction Markets | 04:10 | | Tokenization Discussion | 13:38 | | The AI Ouroboros (OpenAI/AMD/Nvidia/Oracle) | 19:20 | | "How the Snake Dies" Bubble Fears | 25:23 | | ETF “Heartbeat” Trades & Cathie Wood | 30:24 | | Puzzle Hunt Recap | 35:15 |

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Tone & Language

• Conversational, witty, a touch self-deprecating, with depth of expertise.
• Technical but explained in accessible terms; irreverent asides are frequent.
• Matt Levine: dry, analytical humor with clear skepticism toward market hype.
• Katie Greifeld: Questions, clarifies, and brings in the human/retail side.

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For Listeners: What You’ll Learn

This episode sketches the contours of financial innovation’s frontline—from billion-dollar bets on prediction markets and AI booms, to the arcane but important mechanics of ETF trades, and even the (very expensive) nerd culture of Wall Street’s puzzle elite. It’s as much about the psychology and sociology of markets as about money itself.

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This summary skips all commercial/advertising segments and post-show credits.

Transcript

[Kelly Cavagnaro]

Hi, I'm Kelly Cavagnaro, Managing Director, Head of North America Institutional Distribution at Janice Henderson Investors. We believe working together is the way to work better. Like combining your portfolio plans and our in depth strategy. Your valued assets and our valuable insights. Your mission and our vision working in harmony to seek the right investment opportunities. Janice Henderson Investors Investing in a Brighter Future Together.

[Public Investing Advertiser]

You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is, you're engaged with your investments and Public gets that. That's why they built an investing platform for those who take it seriously. On public you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto. It's all there. Plus an industry leading 3.8% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com paid for by Public Investing. All investing involves the risk of loss, including loss of principal. Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC. Crypto trade provided by Bakkt Crypto Solutions LLC. Complete disclosures available at public.com disclosures running.

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[Katie Greifeld]

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[Matt Levine]

One day we're gonna touch on the false POS situation.

[Katie Greifeld]

Jesus.

[Matt Levine]

But not today. Not today.

[Katie Greifeld]

No. I'm too fragile.

[Matt Levine]

We can have a possum update.

[Katie Greifeld]

Yeah, tell us about the possum. You cleaned it up.

[Matt Levine]

I cleaned it up. That's really the update. I don't want to say that this show is my therapy because it is truly not that this show is what.

[Katie Greifeld]

You talk about in therapy, but it.

[Matt Levine]

Is the case that like as I was talking about the possum last week, I knew that editors were not going to cut it out and that I was using it as a commitment device to finally make myself just go out there and shovel up the dead possum in my yard. Imagine if you didn't listen to last week's episode.

[Katie Greifeld]

Yeah. Wow, this would be horrifying. Go back. Listen to that. Or don't.

[Matt Levine]

Don't. Because it's not interesting. This is just like. This is the, like, skip ahead banter. But anyway, yeah, I cleaned up the possum and then my wife was like, I listened to your podcast and learned about the possum.

[Katie Greifeld]

That's a good test to find out if your spouse listens. I didn't test the test. I don't think Joe listens because he didn't call me out on the fact that I just wait for him to notice the vomit from the cat.

[Matt Levine]

I assume he knew that. Yeah, this is like densely packed with references.

[Katie Greifeld]

Yeah. A lot of callbacks.

[Matt Levine]

Yeah.

[Katie Greifeld]

He probably also knows that because sometimes I'll say, hey, the cat vomited again. Could you go get that?

[Matt Levine]

Right?

[Katie Greifeld]

And he does.

[Matt Levine]

And other times you'll be sitting pointedly facing away from the cat vomit and he'll be like, I know that you know there's cat vomit there. And you're like, what, we have a cat?

[Katie Greifeld]

Psychological warfare.

[Matt Levine]

Hello and welcome to the Money Stuff podcast. Your Hercule podcast, where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.

[Katie Greifeld]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

[Matt Levine]

Holly Market.

[Katie Greifeld]

Yeah.

[Matt Levine]

So Bloomberg News had a story this week that Shane Coplin, the founder of Polymarket, is now the world's youngest self made billionaire.

[Katie Greifeld]

Which is cool for him, definitely.

[Matt Levine]

Shane Coplin lives or used to live next door to a guy who throws a lot of book parties for finance books. Oh, so you'd see him at like all the finance book parties.

[Katie Greifeld]

That's your kind of hangout?

[Matt Levine]

Sadly, yes. And so, yeah, I've seen Shane Kaplan at book parties.

[Katie Greifeld]

And you've rubbed elvos.

[Matt Levine]

I've rubbed Elvos. And when I saw that article, I thought, youngest self made billionaire. I realized that Shane Coplin is the second world's youngest self made billionaire to be in my phone contest. It's not like an entirely positive development. No, it is for now.

[Katie Greifeld]

For right now, it is a positive development for Shane. We'll continue to watch this space. It is also.

[Matt Levine]

He did it the right order though. First he was investigated by the government and now he's a self made billionaire.

[Katie Greifeld]

I was going to say, I forgot that it was less than a year ago that his apartment was raided by the FBI.

[Matt Levine]

The worm has turned.

[Katie Greifeld]

Yeah. Fast forward to October 2025. He's super rich. Ice of course, the news from this week was that they invested the Intercontinental Exchange. We're not. We're using government names.

[Matt Levine]

ICE can mean a number of things. Anyway, go on.

[Katie Greifeld]

Anyway, ICE, the Intercontinental Exchange investing $2 billion in polymarket. That gives it an $8 billion valuation. Pretty stunning. And it was just last week that we were talking about how prediction markets are eating everything. And here we are.

[Matt Levine]

Keep going.

[Katie Greifeld]

Yeah, right.

[Matt Levine]

It's funny, like, I think of Kalsha as a sports gambling site. Polymarket, I don't know. Polymarket, like, feels a little pure. The Bloomberg story about Shane Coplin's founding a polymarket, he was, like, reading economics papers about prediction markets and thinking this is too good an idea to just exist in white papers. And, like, I think he's, like, fully committed to the notion of.

[Katie Greifeld]

He's a believer.

[Matt Levine]

Yeah, but, like, you know, they did get into sports gambling.

[Katie Greifeld]

Yeah, yeah.

[Matt Levine]

And I think that. I'm not sure, but my sense is that it is hard to justify an $8 billion valuation for a prediction market that is just elections and, you know, who will be time man of the Person of the Year, and. And, you know, like, just fun predictions for addicted sports gamblers.

[Katie Greifeld]

I will say that if you had told me that ICE had outright bought Polymarket for $2 billion, I still would have been like, wow, that's a lot of money. The fact that it does have this $8 billion valuation also stuck out to me.

[Matt Levine]

Right. I just think that valuation discounts a lot of growth in sports and a lot of margins in sports and not the other thing. But I'm intrigued. Right. When you read the announcement, like, and again, when you read, like, Shane Coplin's public statements, like, yeah, they're sports, but they're not leaning on the sports. No, it's not like Robin Hood saying sports gambling is an emerging asset class.

[Katie Greifeld]

Yeah.

[Matt Levine]

They're like, yeah, we're, like, trying to find ways to understand and price the future. And I think that's, like, a noble goal. Prediction markets. He's not wrong that economists have talked about them for years. The idea of prediction markets providing a set of probabilities about the future does seem really socially useful. And my sense was always that no one had cracked the nut, not of, like, creating trading infrastructure or making it legal, but the nut of, like, making people want to trade it such that there was, like, a big market, a big liquid market for it, such that professionals would have incentives to make prediction market prices correct.

[Katie Greifeld]

Right, yeah.

[Matt Levine]

Because, like, no one's like, oh, let's gamble on whether like, you know, the Ukraine war will end. Like, I mean, people are. But like, it's not like a fun gambling product. And so there's not a lot of money to be made if you have good insight into it. And so just the whole thing has never quite worked. Right. And there's US Presidential elections where there's a lot of money, but otherwise it never feels like it quite works. And sports are sports solve that problem. People really want to gamble on sports, and there's a lot of dumb money. And so there's a lot of value for smart money to bet against. And so you have incentives to build good sports prediction models and trade on polymarket, and it all kind of works. And then the question is, does that spill over into the New York City mayor race or macroeconomic variables or the Grammys or whatever?

[Katie Greifeld]

Yeah. Well, I do like that you brought up again the Grossman Stiglitz paradox in your column on this specific item, calling back to another column that maybe the way that we get to that societal useful information is through the avenue of sports betting and a lot of people making a lot of noise.

[Matt Levine]

Right. The Grossen Stiglitz paradox is the idea that you can't have efficient markets because then no one would have incentives to trade and make the markets efficient. Lassie Pedersen says that you need efficiently inefficient markets. You need just the right level of inefficiency to incentivize people, to make them more efficient. And the economist view of prediction markets is people who have particular insight into whether there'll be a war will trade their insights, but who will trade against them? Who's just randomly wandering around, oh, I bet there won't be a war, and then get suckered by the policy experts. And in the stock market, the answers to those questions are super easy. Right. The answer to who will trade against the hedge fund is an index fund who's just blindly managing retirement money and needs to invest it in stocks. And so the hedge fund has someone they know they'll trade against. Or the answer is, like, a retail investor. Or there's a lot of straightforward answers to who is on the other side of this trade that allow people with a lot of information to make money by trading and incorporating that information into prices in prediction markets. It was never clear who those people were. Right. Like, it's not a savings product. Right. Like, people don't put aside a hundred dollars a month in retirement savings in prediction markets. Right. So there's no, like, uninformed flow to trade against there. And it has historically not been a super fun gambling market, like with the exception of presidential elections and a few other high profile things. But when you add sports, it becomes a fun gambling market and then that just opens everything up, Right. It allows people to make money making informed predictions, at least on sports. And then maybe it moves to something else.

[Katie Greifeld]

Yeah. I mean, does that assume that the people who are betting on sports on the prediction market go into other markets such as, I don't know, elections or weather or whatever else?

[Matt Levine]

Well, it's both. Right. So it's like on the one hand, like, do you attract dumb money recreational gamblers to the platform? And then they're like, well, I'm here anyway, I might as well bet on elections. Like that seems plausible. And then the other thing is like, you know, if you are a quantitative trading firm and you have historically traded like stocks and options, a lot of those people are now getting sports curious, right? Like they're building sports trading desks. They're like building models to price sports events. Because it's kind of the same skill set, right. It's like taking machine learning and applying it to a bunch of data and using it to predict the future. And it's like, well, we can do that with stocks, we can do it with sports and there's a lot of money to be made. And so some quant trading firms are either getting into the sports market making business or their traders are leaving to start sports market making businesses. And if those people who are trading on traditional sportsbooks or who are like market making on Kalshi, if those people start market making on polymarket in sports, it's like a relatively easy lift for them to add a election column. Right. Like it's a whole new set of data analysis, but they're already plugged in, you know, they already like know how the market structure works. So maybe if you're making money trading against recreational gamblers on sports and you see election prices that you think are out of line, you're like, well, I'll put a few million dollars on that.

[Katie Greifeld]

Election too while I'm here. Yeah, well, I might as well.

[Matt Levine]

It's just right, it's convenient. Yeah, yeah.

[Katie Greifeld]

So what does ICE get out of this?

[Matt Levine]

I don't know.

[Katie Greifeld]

That's the thing.

[Matt Levine]

I mean, one answer is an investment, right?

[Katie Greifeld]

Yeah.

[Matt Levine]

I mean there's two things, right? It's like if it's the future of sports gambling that's valuable and then like if, like the way you trade your insights into like whether there will be inflation.

[Katie Greifeld]

Yeah.

[Matt Levine]

Changes from like trading treasuries to buying the inflation contract on polymarket. That's a big deal, right?

[Katie Greifeld]

Yes.

[Matt Levine]

And I don't know that that is a near term likely outcome. One, it's a possibility. And two, becomes more likely when you partner with a big exchange firm, ice. Now, when they're thinking about what kind of macroeconomic products should we offer now, in addition to like interest rate futures and bond futures, they can offer predictions of inflation. Right?

[Katie Greifeld]

Yeah.

[Matt Levine]

So that's one thing they get is like the. I don't think that's like currently in the cards. Right. Like, the current situation is like, they're going to distribute polymarket data.

[Katie Greifeld]

Yeah.

[Matt Levine]

Which is of interest to people who trade on tokenization initiatives. The other thing is tokenization, which. Who knows? Right?

[Katie Greifeld]

Yeah.

[Matt Levine]

That can mean a lot of things.

[Katie Greifeld]

Yeah.

[Matt Levine]

It could be in like, technological infrastructure for like trading ICE products where like, instead of buying rate futures, you buy rate futures tokens. Right. But it could also mean, like, everyone talks a big game about stock tokenization. Everyone talks about a game about tokenizing private companies. Right. There's a lot of stuff in that space and like, it is possible that Poly Market, which is crypto native and kind of fun, is better positioned to do some of those initiatives than like the New York Stock Exchange.

[Katie Greifeld]

Right.

[Matt Levine]

Which is the New York Stock Exchange.

[Katie Greifeld]

Right.

[Matt Levine]

And which has like, if you're the New York Stock Exchange, you're like, we're going to make everything tokenized. Like, everyone who's already trading on the stock exchange is going to be very annoyed. Polymarket can tokenize whatever they want.

[Katie Greifeld]

Tokenization has been on my list of things to actually think about for a while. See. But I haven't gotten there, Matt.

[Matt Levine]

I've written about it. It's funny. It's like, to me, tokenization means two things. One, there's some amount of trading in traditional financial markets. You could change the back end of the market structure and make it so that instead of being on some company's ledgers, it's on a blockchain and you can call it tokenized. And it's all a little.

[Katie Greifeld]

Some people will like that.

[Matt Levine]

Yeah. It's the sort of thing that like 10 years ago you'd be like, oh, it'll be a different database for your interest rate features. You'd be like, I don't care about that. But now it's like, oh, it's tokenized. Right. So it's like one thing is like the actual technologies, technological stuff, and it's stuff about how things work together and how if you're a hedge fund, you can move your tokens from one platform to another and you can live in the same blockchain environment for different kinds of trades. You can trade crypto against futures. I don't know, there's that technological market structure stuff. And then to me, it always seems like when people talk about tokenization, what they're always talking about is getting around securities loss. That's not always, always true. I don't know that that's what ICE and Polymarket are talking about. It's what Robinhood is talking about every time they talk about tokenization. Right. And it's like, you see people like, we should tokenize private companies so that you can buy shares of private companies without having them have to go public. It's like, well, that's not how the securities law works. But if you call a share a token, then they don't have to follow the law.

[Katie Greifeld]

Yeah.

[Matt Levine]

So it struck me as wrong, but it might turn out to be empirically correct. But anyway, so there's two kinds of tokenization. I've written a lot about the bad regulatory arbitrage kind, but it's possible the technological kind is important, meaningful, will do something.

[Katie Greifeld]

Well, hopefully these initiatives will bear fruit and we can actually figure out what ICE and polymarket are talking about. Yeah.

[Matt Levine]

I will say that I have spent 10 years writing about financial infrastructure firms saying we're doing a blockchain initiative, it's.

[Katie Greifeld]

All about the tech.

[Matt Levine]

And then like five years later they're like, we have stopped our blockchain initiative.

[Katie Greifeld]

Stop asking about it. We don't want to talk about it.

[Matt Levine]

Right. So it's also tokenization is that it's possible, tokenization. It's like we're putting the futures on the blockchain and then five years later we'll stop talking about it. But I don't know. So yes, I agree with you. I've thought a lot about tokenization, but I don't have any. I don't know what it means either.

[Kelly Cavagnaro]

Hi, I'm Kelly Cavagnaro, Managing director, head of North America Institutional Distribution at Janice Henderson Investors. We believe working together is the way to work better. Like combining your portfolio plans and our in depth strategy, your valued assets and our valuable insights. Your mission and our vision working in harmony to seek the right investment opportunities. JANICE Henderson Investors Investing in a brighter future together.

[Public Investing Advertiser]

You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is, you're engaged with your investments and Public gets that. That's why they built an investing platform for those who take it seriously. On public you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto. It's all there plus an industry leading 3.8% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com paid for by Public Investing. All investing involves the risk of loss including loss of principal. Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC. Crypto trading provided by Bakkt Crypto Solutions LLC. Complete disclosures available at public.com disclosures introducing.

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[Katie Greifeld]

I feel like I talked about Ouroboros on this show before. Oh yeah, yeah. I forget why the snake eating itself.

[Matt Levine]

Snake eating its tail.

[Katie Greifeld]

Well, another way of saying that is, you know, all these big tech companies are just spending money in a circle and this week I feel like that idea was really on display. When you think about OpenAI and AMD and the deal that they inked.

[Matt Levine]

Yeah, it's great.

[Katie Greifeld]

Yeah, I love it. Yeah. So my understanding basically is that specifically with amd, so they agreed to deploy a bunch of AMD chips and as part of that they're also getting a bunch of warrants for AMD shares as well.

[Matt Levine]

Yeah, there's kind of two wild aspects of it. I mean there's at least 17 but like two wild aspects of it. One is that OpenAI has committed to spend. I don't know the number, but it's 6 gigawatts of chips and they've said it's like tens of billions of dollars per gigawatt. So OpenAI is committed to spend something on the order of $100 billion buying chips from AMD. And OpenAI doesn't have $100 billion.

[Katie Greifeld]

No.

[Matt Levine]

1 thing that is happening here is that the market has ascribed a value to OpenAI of like half a trillion dollars. And that value is sufficiently real that OpenAI can make financial commitments based on it. They can be like, yeah, we'll give you $100 billion for your chips. And they're great. And it's like, everyone's like, yeah, that'll work out. Right? But there's no. It's not in the bank. That's like, yeah, it's a $500 billion company. They'll find the money. I don't think that's a wrong bet. It's just an interesting bet. They're able to commit cash based, not on the cash they have bet on their valuation. And then the other thing that's happening is that, like, when OpenAI says anything about anyone, the stock goes up. And so when OpenAI announces a deal of like, we're going to spend $100 billion on AMD chips, AMD stock very predictably goes up. And so knowing that as they negotiated the deal, they're like, what we should do is we should take your very predictable stock price rise and use that to pay for the chips.

[Katie Greifeld]

Yeah, right.

[Matt Levine]

Like, essentially, like, AMD shareholders will get excited about AMD having this. And so we'll let the AMD shareholders pay for the chips. And so that's kind of what happened, which is that AMD stock, we're recording this on Wednesday, AMD stock is up roughly $100 billion from where it was last Friday before they announced the deal. And, you know, that'll cover cost on the chips. And OpenAI, which, as far as we know, has plans to pay cash for these chips. Yeah, yeah. I don't think the deal is like, we won't pay for the chips. The deal is we will pay for the chips. But OpenAI is getting warrants for roughly 10% of AMD with, like, vesting conditions. But they're like penny warrants. And so right now, if you just assume they'll get all of the warrants, that's like a $37 billion ish value transfer to OpenAI, which one, will help pay for the cost of this contract. And two, is only fair because, like, they created all that extra value in amd, Right? Like, they're the ones who, by sprinkling their magic dust on amd, were able to make AMD more valuable. And so, yeah, they get back half that value in warrants.

[Katie Greifeld]

Yeah, well, two things. So to your point that, you know, OpenAI mentions some sort of whatever with another company, a public company, their share price Goes up. Makes me think about what we keep talking about in terms of the private and public markets converging. Obviously, OpenAI famously is not public, but has been making a ton of waves in the public stock market. The other thing is what we saw with OpenAI and AMD this week isn't a one off. They have something similar with Nvidia, which of course is a direct rival of amd.

[Matt Levine]

Yeah, it's very different, but it's at a high level. It's the same thing. Right. It's like we have a partnership where I think in that case, Nvidia is investing in OpenAI.

[Katie Greifeld]

And then Nvidia agreed to invest as much as $100 billion in OpenAI to help OpenAI fund a data center build out. In exchange, OpenAI committed to filling those data centers with millions of Nvidia chips. This is a little bit old, but I was reading this piece from Michael Semblest over at JP Morgan and he wrote this at the end of September. But it spiritually can apply to all of these deals that Oracle Stock jumped by 25% after being promised $60 billion a year from OpenAI in amount of money. OpenAI doesn't yet to provide cloud computing facilities that Oracle hasn't built yet, and which will require 4.5 gigawatts of power, which is the equivalent of several Hoover dams. So it's easy, if you wanted to get scared and flustered, to build a case that there's a bubble being inflated right now.

[Matt Levine]

I don't disagree. It's unusually easy to visualize the future.

[Public Investing Advertiser]

Right.

[Matt Levine]

It's unusually easy to be like, AI is going to be huge. It's going to transform every aspect of life. It's going to require a lot of power. And that requirement is going to be so obvious that we'll build the power plants. It's going to require a lot of data centers. And that requirement is going to be so obvious. We'll build the data centers and it's going to rake in oceans of money. And that is so obvious that the people who'll be raking in the money, OpenAI can just spend that money now. They can just be like, yeah, $60 billion a year, no problem. We'll get that. We'll figure that out.

[Katie Greifeld]

Carts, horses, whatever.

[Matt Levine]

Yeah. Like, this is what capital markets are supposed to do, which is like, discount the future. And here there's like unusually widespread consensus on, like, how big and transformative this future will be and, like, what the steps are to get there. And so it's all being discounted right now into, you know, the price of OpenAI. But also like these enormous, long term, incredibly capital intensive deals where everyone's like, yeah, of course that's going to get financed.

[Katie Greifeld]

Like, that's no problem, slow down, don't worry about it.

[Matt Levine]

And like one, that is the consensus view, right? That is what people think. Right.

[Katie Greifeld]

Very strong, very much so.

[Matt Levine]

It's not like a priori crazy to be like, yes, we can see how this is going to go and so we're putting our money into it. Now on the other hand too, like, yeah, if you want to take the contrarian view, that sounds like a bubble. That does sound like a bubble. Of course it sounds like a bubble.

[Katie Greifeld]

Yeah. Because there is a risk that we are, of course there's a risk that we're overbuilding here. For sure. AI is going to change the future. I feel like it's hard to argue with that. But do, do we need this many gigawatts? Do we need this many data sources?

[Matt Levine]

I don't know how many gigawatts we need.

[Katie Greifeld]

Come on.

[Matt Levine]

Sam Albin has a view and what he says kind of goes. But I don't think it would be crazy to think that the current consensus is wrong in either direction by a factor of two. And if it's low by a factor of two, then everyone's going to get rich. And if it's high, then all these deals will look a little bubbly. But still, in 10 years, AI will have been transformative and we're glad we have many of those data centers.

[Katie Greifeld]

Yeah, for sure. Internet comparisons, et cetera, you can make them here. But instead I'm going to say that there was an interesting crack that seemed to form this week. Did you see that report by the information on Oracle?

[Matt Levine]

Yes.

[Katie Greifeld]

Basically its cloud margins are super thin, to give you the details, according to the information. So Oracle's cloud business has narrower margins than many analysts anticipated. They generated about $900 million in sales by renting servers powered by Nvidia chips. But its gross profit came in at 14 cents for every $1 in sale. Again, this is according to the information, which is like retailer margins, which is pretty crazy.

[Matt Levine]

Not that, I mean, this is a huge business. Right. And so like one question is like, who are going to be the, like Monopoly players in this business and who are going to be the like in the fiercely competitive business of selling to those monopolists? Right. And like. Right. It's very possible that Oracle is in a commodity business. And my sense is that people think that Nvidia is very much not in a commodity business. That could be wrong, right? And my sense is that people think OpenAI is not in a commodity business, that OpenAI has something special. And so when it name checks a public company, that company goes upright. And Nvidia has the same power, right? Nvidia will sign a partnership with someone and their stock will go up. But it's not clear that the people who run the data centers have the same pricing power.

[Katie Greifeld]

Just wonder how the snake dies in the end. Is it because it chokes or because it's being eaten? You ever think about that?

[Matt Levine]

Constantly.

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[Katie Greifeld]

I.

[Matt Levine]

Want to talk about two miscellaneous things I do want to talk about. You had cathie Wood on your show.

[Katie Greifeld]

Yeah, I did.

[Matt Levine]

And you talked about my other show. Sorry, yeah.

[Katie Greifeld]

Thank you. Swimming in showstopping.

[Matt Levine]

Not your show. This is your show. The other show. The ETF IQ show.

[Katie Greifeld]

ETF IQ weekly, Mondays at noon. But you can catch me on the close every day, 3 to 5pm Anyway. Go on.

[Matt Levine]

Good plug. And you asked her about the ETF IPO heartbeat trade we talked about a couple weeks ago.

[Katie Greifeld]

There was no way I could not ask her about it.

[Matt Levine]

Absolutely, yeah. So this is the trade where like someone pumps like a billion dollars into into an ARK ETF and they do it right before some hot ipo and they're betting that the ETF is going to get an allocation in the IPO and the IPO is going to pop and then they will heartbeat out of the etf and so they will have like borrowed shares of all the underlying companies, put it into the etf, taking it right back out again. And they've done nothing. Like there's no trade there. Like they've reversed everything except that they've extracted their port, the IPO pop and monetize that. So if like the ARK ETF gets a $20 million IPO allocation and it goes up 50%, then there's $10 million of profits. And if you own half of the ETF for like a day, then you get like $5 billion of profits with no risk.

[Katie Greifeld]

Yeah.

[Matt Levine]

And so it seems like someone did that a couple of times. And you asked Cathy what about it?

[Katie Greifeld]

I did. So first of all, I asked her who. She said, as have I doesn't know, probably a market maker. And she pointed out that this takes a lot of guesswork on the part of whoever is behind it, the theoretical market maker in this scenario.

[Matt Levine]

Yeah, people got it wrong. Like there's like one of the big ETFs had one of these big heartbeats before a big IPO that they didn't get an allocation.

[Katie Greifeld]

Yeah. This is according to the FT reporting that it was the ARK Innovation etf. That's their biggest etf. Basically, before the Klarna IPO there was that huge heartbeat surge, but ARK didn't actually get an allocation in that fund to Klarna, so it was kind of a worthless experience. Whereas they had somewhat successful did it with Circle, I believe, and ARK was a backer of Circle. I think the FT had mentioned that ark's website had mentioned Klarna in some capacity. So maybe it wasn't a terrible guess. But I also asked her how she felt about it. Actually, my co anchor Scarlet Fu asked her how she felt about it. Was she okay with the fact that her funds are just being used as vehicles to facilitate these trades. And her answer was, she's not upset. This is what makes a market. And if they guess right, great. If they don't, well, then they have nothing. They've incurred some costs.

[Matt Levine]

I was interested in that answer because when we talked about this, that's kind of what I said. I was like, ETFs. On the one hand, her ETFs are her investment vehicles. She runs it, she's making decisions. It's her fund. But on the other hand, ETFs are a piece of market plumbing, and that means they can be used by other people mechanically without being her decision. And so I think that's like an interesting, like, her take on this is like, yeah, we're kind of market plumbing. And so if that's what people do, that's what people do. That's not everyone's take. I heard from one person in, like, ETF world that, like, one, first of all, ETFs can turn down creation and redemption trades.

[Katie Greifeld]

She said no to that. Okay, I did ask her.

[Matt Levine]

It depends on, like, the authorized participant agreements, but, like, their sense was like, the norm is that you can turn down. And then two, this is rude and not nice because on the one hand, these ARK ETFs are market plumbing that anyone can kind of trade against. But on the other hand, they are a retail investment product. And if you are an authorized participant, if you're a market maker trading against these ETFs, it's kind of your job to be a nice participant in the ecosystem and make them a friendly investment product for people. And if you're extracting the IPO premium from the etf, that's not nice to the end investors and it's not a constructive thing to do in the ecosystem.

[Katie Greifeld]

Yeah, I mean, I was also a little bit surprised and interested in her answer. It's very emotionally mature because if I put myself into her shoes and, okay, my fund is a piece of market plumbing, I accept that. But if I have a sink and someone turns on the faucet, I would hope they're washing their hands. Washing their hands in this scenario is investing in the fund because they believe in my stock picking prowess, not that they're just turning on the faucet and then doing something else.

[Matt Levine]

I guess my emotional reaction would be if I woke up one day and someone had invested an extra billion dollars in my fund, I'd be like, sweet and Then three days later, if they were like, they took it out again, I'd be like, ah, yeah. It would be a real emotional roller coaster.

[Katie Greifeld]

Be like, you made my chart so ugly.

[Matt Levine]

Yeah.

[Katie Greifeld]

But Cathie Wood, you know, she's not like us. She is built different.

[Matt Levine]

One more thing we have to talk about is that. So we had Ryan Patch and John Seal on the podcast in May to talk about puzzle hunts generally and the Midnight Madness Wall street puzzle hunt that they run in particular. Midnight Madness was this past weekend.

[Katie Greifeld]

Did you participate?

[Matt Levine]

I did not. Because for two good three reasons.

[Katie Greifeld]

One is that you were taking care of the possum.

[Matt Levine]

One is that to be like an entry in midnight costs, I believe $42,000 for a team of six people.

[Katie Greifeld]

You've got that.

[Matt Levine]

Which is a little steep to the team that I have done puzzle hunts with before. Like people had other things and so like we didn't have get the team together. And three, I am an old man and it runs from like noon to like 4am and the idea of shopping to apparently started in Coney island and like, you know, it goes all over the city and it just seemed like a little too much for me.

[Katie Greifeld]

It's a young man's game.

[Matt Levine]

It's a young man's game.

[Katie Greifeld]

Y. Yeah. Sounds super fun.

[Matt Levine]

It's not only a man's game, but there's a gender divide.

[Katie Greifeld]

I don't know if that phrase works as well. It's a young person's game.

[Matt Levine]

Yeah. But anyway, it was this weekend, 19 teams played. They raised $818,000 for charity for Good Shepherd Services. And I do want to shout out the winners. The winner, winner of the first place team was Reaganvoke3000, which was like the press release says it's a privately funded team. There's like a little interesting thing here which is that, you know, it's $42,000 for a team. A lot of like financial firms sponsor one or more teams from the firm. A lot of other financial firms have their well paid employees just privately sponsor themselves.

[Advertising Voice]

Right.

[Matt Levine]

And so Reagan Vogue 3000, the winning team was privately funded. So it wasn't officially sponsored by a firm, but I've heard it was some number of Jane street people.

[Katie Greifeld]

Interesting.

[Matt Levine]

Second place team was sponsored by Citadel securities and was called Citadel Insecurities, which is a great team named. And the third place team, Midnight Marauders, another privately funded team. Anyway, congratulations on all your success.

[Katie Greifeld]

You did it.

[Matt Levine]

And that was the money stuff podcast. I'm Matt Levine.

[Katie Greifeld]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on bloomberg.com.

[Katie Greifeld]

And you can find me on Bloomberg TV every day on the close between 3 and 5pm Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodloomberg.net Ask us a question and we might answer it on the air.

[Katie Greifeld]

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

[Matt Levine]

The Money Stuff podcast is produced by Anna Mazarakis and Moses Ondahm.

[Katie Greifeld]

Our theme music was composed by Blake.

[Matt Levine]

Maples, Amy Keen is our Executive Producer.

[Katie Greifeld]

And Sage Bauman is Bloomberg's Head of Podcast.

[Matt Levine]

Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

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