the discount rate for the singularity

So you saw this thing called the SaaSpocalypse happen in the stock market over the past year, where all of these software stocks just fell off a cliff. Incredible businesses, earnings are on fire, they're accelerating, and yet the stock prices just keep going down. And that is indicative of something much more fundamental about AI as it affects companies and about how we think about the future as economists as analysts and as individuals making financial and investment decisions and this video is about one of the core drivers or frames through which you can understand those dynamics and that evolution over time of how AI will affect global stock markets investment markets and companies that's going to be the video let's hear a word from the sponsor of today's video and then we'll get it now before we keep going i want to talk through one of the most underrated signals for when you're looking at a company and that is who is willing to put their name on it and that's because last week a small biotech posted some really strong trial numbers and JP Morgan ran a 125 million dollar raise for them that company is Imix Biopharma ticker IMMX on the Nasdaq and they are the sponsor of this segment now they're working on this rare disease called AL amyloidosis and it's where faulty cells in your bone marrow pump out toxic proteins and those proteins build up in your heart and your kidneys and liver until those organs start to not function and Imix is going after that with NXC-201 which is a CAR T therapy and i think a good way to think about that is like retraining guard dogs doctors take your immune cells they train them on a new scent and then they put them back in your body to go hunt down the scent, so to speak, of both bad and cells. And the goal is pretty simple. It's one treatment, one time. Now on September 29th, IMMIX reported an 89% complete response rate in its NXC-CAR T trial. That's 40 out of 45 patients where standard tests found no sign of the disease and an independent review committee confirmed. The FDA also gave NXC-201 breakthrough therapy designation and two other labels for fast track cell therapies and so back to that signal i mentioned so JP Morgan was the sole book runner on that 125 million dollar raise and then funds like Wellington Management, Janus Henderson, Eventide and Breakback Capital also bought in and before that Morgan Stanley and Bank of America Securities led a 150 million dollar raise in May so all in that's about 375 million dollars raised since December and each raise has been priced higher now to be clear banks do earn fees for running those deals that's normal that is worth knowing and the funds buying in are the telling part as well now keep in mind this is a pre-revenue clinical stage company and every raise does mean new shares so existing shareholders get diluted and you should always do your own diligence across the board to see if a company like this is a fit for your investment thesis. Now, IMMX is presenting at the JP Morgan Healthcare Conference in January, and then it is planning the final results and an FDA filing in mid-2027. So if you want to dig into that data yourself and read up on diligence, then here's the link to their investor relations page. And once again, that is ticker I-M-M-X on the NASDAQ and always do your own research. It's a pretty cool story, pretty cool company. And that said, let's get back. And so I want to start with, well, just how are assets priced? How does the stock market work? Where do those valuation numbers come from? And the real core of it are two numbers. You have a discount rate and you have a growth rate. We're not going to go too deep into this, but the growth rate is basically just, well, how much do you think the company will grow over what period of time? Basically, the future earnings of the company. But then you need to say, how do I value those future earnings now? And to do that, you have a discount rate, which just says, this is the relationship between how much I value money now and how much I value it at some point in the future. For example, if I ask you the question, would you rather have $100 now or $110 in the future, let's say in one year, and you said, I want the $100 now, then your discount rate is over 10%. You value having money now versus one year away at more than 10% of the value of that money. And so that model of you have your terminal growth rate, you have the discount rate, and that's basically how there's, you know, a lot more complexity there, but that's basically how you determine the valuation of companies as discounted future streams of cash flows, of free cash flow of earnings. And so great, the world was chugging along and for things, for example, like software companies, you could look out 40, 50, 60 years of earnings and free cash flow or just the amount of money they're making and say, this is how I value those future dividends and the profit they make now. And so that's in some ways the value of the company to me. That's how much I'm willing to pay for it. But then AI came along. And the reason we titled this video, The Discount Rate for the Singularity, is to poke fun at that idea of, okay, and I'll ask this question to you personally for your money, what's your discount rate if we hit this super recursive, intelligent AI next year that solves all of our problems or that causes many problems and, you know, destroys the world or it's a bubble? And it's a question that sounds odd at first, but then you start to think about it and you say, well, okay, let's say I'm 85%, 95%, whatever it is, 95% sure that AI will come about in five years, this super intelligence, and again, solve all of our problems, really like be this incredibly powerful device that solves our lack of money as a society, we get UBI, we get universal high income. Well, I would start spending more money now, right? because I'm only going to need money for another five years. So my discount rate just massively spiked. It just went through the roof because I'm saying I value having money now or over the next five years much more than I do at any point. I don't care about any point that's more than five years. But maybe you think there's a 5% chance that something will go south and it'll ruin the global economy, will enter into a big recession, or not even that AI does anything bad, that it was a bubble. It was a bubble the whole time, and I made a separate video on this. The whole global economy right now is hinging upon the performance of the AI sector in the United States. Let's say that's all a bubble in theory, or you are pricing in a 5% chance that it is in fact a bubble. Well, in that case, you're a risk-averse human. You really care about your money. And so what does that mean? Your discount rate just really goes down because in that environment, you want all the resources you can have to buy food and water and shelter and basic necessities to provide for yourself and the people you care about. Now, I just painted two very contrasting tapes. Either my discount rate super goes up and that radically influences how I think about the world and my financial decisions, or the exact opposite. And you can make the same decision if you look out at companies and are deciding what stocks to buy. And there doesn't have to be this crazy utopia or dystopia future for that to happen. You can just say, I think AI is going to incrementally get better for the next five years. And that's going to make personal AI tutors really awesome. And so Duolingo is not going to have cash flows in eight years because they're not going to exist as a business in eight years. And if you think that's the case, your discount rate for Duolingo just spiked, just went through the roof. and that means their valuation is crashing and they're basically worthless to you. You would never buy or you would sell the stock. Or the opposite. Maybe you think one of the rare businesses out there is going to survive AI, is going to benefit and accelerate from that incremental advance in AI. And so what are you saying? Their growth rate is spiking. I think their growth rate is going to be around for 50, 60, 70 years. It's going to keep going up. Well, now that's a discount. That's a steal. That is something you should buy all the shares you can have. And so why am I saying all this? I'm saying all of this because that is the exact dynamic that has been playing out in global equity markets for the past two years, which is how do you price something as uncertain as AI? The traditional model, again, for asset pricing relies in some sense on discounting future cash flows. How much money do you think they're going to make in the future and how much does that work for me now? But if the future is so fundamentally uncertain, then you can't make that calculation as easily. And what that means is there's more of a spread between what different people think. The numbers are just much less grouped than they used to be. And what that means is more volatility, right? That is exactly where you get the stock apocalypse. You get something like this, and then the stock apocalypse ended for some companies for people who are like, oh, actually, I think they're going to benefit from AI. You flip that dynamic on its head. So you just went from this and then you go right back up. And now these companies have been doing very well, right? ServiceNow, Salesforce, and so on. So I think one of the very important lenses that you need to understand public markets and the valuation of companies and the investments that you make through nowadays is that idea of will they benefit from or will they not benefit from future advances in AI? That's number one. That's how you should benefit your decision-making from an idea like this. And the number two is more descriptive of just, well, if you look at the world, you can start to understand a lot of the volatility and a lot of the moves in public equities and in stocks maybe that you're watching or other assets through that lens of if people just kind of flip that narrative quickly from AI will benefit these companies to AI will essentially render future cash flows non-existent, then you can start to get these really volatile moves. And that is one of the core trends that is affecting a lot of companies and will continue to affect a lot of companies for either better or for worse over the next five, 10 plus years while the future and while AI is so difficult to price. And so I'll end again on that rhetorical question of what is your discount rate for the singularity so fun food for thought there had in mind i hope this one was useful for you it's a little more abstract than usual and this was part of the ai fundamentals series so thinking through the higher level dynamics and evolution of the future of artificial intelligence that's the video and i will see you