Yields Break Out, the Biggest IPO in History, and Why "Hater" Isn't a Strategy

For three years the only question anyone asked me was whether AI is a bubble. Is it real, who wins, what inning are we in. I’ve been saying inning three or four the whole time, and I’ll say it again. But it’s the wrong question, and last Friday’s tape is the reason why.

Here’s the better one. Where is the money actually flowing inside all of this, and what happens to every high-flying name if the bond market becomes the story?

The jobs report nobody wanted

Last Friday the US printed a jobs report that was too good. Stronger hiring, plus upward revisions to the prior two months that pushed the three-month average to its highest since early 2024. Job openings reversed from shrinking to growing.

That’s a hot economy.

For two and a half years the market has priced one thing: rate cuts.

Money was going to get cheaper. Friday said the opposite. When the cost of money goes up, the multiple you’ll pay for long-duration, high-beta, fast-money stuff comes down, and that’s exactly what AI momentum names are.

The compensation you demand for risk has to rise with the risk-free rate. So the two-year Treasury broke out to a fresh twelve-month high, the ten-year sits at 4.57%, and stocks sold off hard. Down two and a half percent on Friday, with more bleeding into this week as we await todays inflation data.

All of it is happening with a Fed in the middle of a leadership change, a President running a war in the Middle East, an inflation mandate he hasn’t delivered on, and a midterm cycle bearing down. That’s a lot of headwind in one frame.

Sit with how stark the shift is. The market spent two years rewarding one kind of positioning, and the regime just flipped under everyone’s feet.

There’s a Canadian wrinkle I can’t ignore. If the data stays hot and the Fed can’t cut, the Bank of Canada can’t comfortably cut either, and we are not in the same economic shape. The US is running hot. Europe is choking on input costs. Most of Canada outside the export-heavy West already looks like it’s in a recession. The exception is Alberta, where oil above eighty dollars has handed us the leverage we’ve wanted for a long time. I’ll be honest. As an Albertan, I haven’t had this much fun investing in eighteen months. That’s an uncomfortable thing to say when a lot of the country is hurting, but it’s true, and that divergence is going to define the next year.

The math says don’t buy stocks. The history says buy the right ones.

Now look under the hood. The ten-year yields 4.57%. The S&P’s earnings yield is 4.56%. Those are the same number. On the classic risk-adjusted math, why would you own stocks at all? You’re not being paid to.

This is where everyone needs to understand one piece of research, because it reframes the whole thing. Hendrik Bessembinder studied 64,000 global stocks over thirty years, a window that includes the dot-com bust, the financial crisis, and four recessions. Every bad thing that’s happened in my lifetime is in the data. What he found is that one to two percent of stocks generated all the net wealth created above Treasury bills. The other 98 or 99 percent, added together, netted out to roughly the return on T-bills. Somewhere between 55 and 57 percent of stocks actually underperformed T-bills over three decades.

Bring that down to the S&P 500 and the point gets sharp. Out of five hundred names, maybe ten or twelve do the real work. If you don’t own them, you didn’t just lag. You got wrecked for all the risk you took. And the cruel part is those names are usually the controversial, hard-to-hold ones. The last few years it was easy. Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, Walmart. The next thirty years won’t be the same companies. But I’d bet my house the shape is identical. One or two percent of the names deliver the entire prize. If you won’t invest into where the paradigm is going, you miss it. Full stop.

The IPO supercycle, and the lie about it draining the market

And the paradigm is going public. Over the next six to nine months we get Anthropic, OpenAI, Anduril, and Stripe, the biggest private payment processor on earth. SpaceX prices this week. Google just raised eighty billion in equity anchored by Berkshire. The greatest entrepreneurs of the last fifteen years are all reaching for liquidity at once. So much for “sell in May and go away.” The people who make their living raising capital can’t go anywhere this summer.

The question every client asks me: won’t all these IPOs suck the money out of the market and trigger a correction? It’s the intuitive fear, and it’s wrong.

Here’s why. The largest pools of capital on the planet, the Fidelitys and T. Rowe Prices and Manulifes and Sun Lifes, mostly have no mandate to own private companies. Where they can, it’s capped around 15 percent. They were locked out of Anthropic, locked out of SpaceX, locked out of the best compounders of the decade. Once these names are public, those funds have to allocate. That’s where the bid comes from. The global equity market is north of a hundred trillion dollars. It can absorb four hundred billion in new equity without blinking. If there’s a problem, it’s a short one.

Think about what that liquidity does on the other side. Ask which Canadian city has minted the most millionaires recently and the answer is Ottawa, because of Shopify. The stock went from a sub-billion valuation to the second most valuable company in the country and turned a generation of early employees and investors into a tech hub’s worth of capital. Now run that forward across the zip codes where SpaceX, Anthropic, OpenAI, and Anduril live. That’s the American flywheel. Liquidity creates wealth, wealth funds the next wave of founders, and the cycle compounds.

SpaceX: the $1.8 trillion magic trick

Which brings me to SpaceX, where I’ll disclose up front that my firm, RBC, is one of the underwriters. They’re raising roughly $75 billion at a $1.77 trillion valuation, $135 a share, listing on the Nasdaq this week under SPCX. That raise is triple the size of Alibaba, the previous record. It’s the largest IPO in history, and it came in double-subscribed. Finding the capital was never the problem.

Is $1.8 trillion outrageous? Of course. But read the prospectus and it gets funny. SpaceX claims a $28.5 trillion total addressable market, the largest TAM in human history. And that number is the whole tell about how Musk works.

There are three businesses stapled into one ticker. Rockets, Starlink connectivity, and xAI-plus-X, and yes, X is Twitter. The Twitter business is a dumpster fire. xAI, for all practical purposes, is a dumpster fire. Before Musk merged them in about six months ago, the core was profitable. Fold xAI and X back in and you get a negative-cash-flow company posting a $4.9 billion loss on $18.7 billion of revenue. So why do it? Because rockets and Starlink are only about six to ten percent of that headline TAM. The other ninety-plus percent is “AI,” and the valuation of AI right now is, conveniently, infinity.

Here’s the part where I’ve changed my mind on the man more than once. Musk’s actual superpower isn’t engineering. It’s that he never forgets his first job as a steward of capital is to make his investors money. He bought Twitter for $25 billion when Biden’s regime more or less forced his hand, pulled his closest friends in to fund it, and three years later that albatross gets merged into the hottest IPO ever. His backers get their liquidity through SpaceX. Along the way he built Colossus, the biggest data-center and chip-manufacturing project in the US, and used it to expand his story from a $2 trillion space-and-connectivity TAM to $28.5 trillion. That’s not signaling. That’s the discipline of putting returns first, and he’s the best in the world at it.

Mel’s frame on this is the one I want people to sit with. For fifteen years a chunk of society convinced itself that if we just clicked our heels and thought about capitalism differently, we could rewrite the rules. We can’t. The person who makes the gold makes the rules, and the rules of free markets outlast whatever Overton window the politics of the moment is trying to drag around. Being a hater is not an investment strategy.

The cleanest proof is Ontario Teachers’. In 2019 the pension put $300 million into SpaceX. That stake is now worth about $16 billion, call it a 5,200% return in seven years. That single gain is more than half the size of Alberta’s entire Heritage Savings Trust Fund. And the point of it isn’t to make anyone rich. It’s to fund stable, defined-benefit pensions for hundreds of thousands of Ontario teachers for decades. Meanwhile the Premier of that same province, Doug Ford, canceled a Starlink contract on principle. Intention and impact are not the same thing. When fiduciary duty gets hijacked by vibes, the people who lose are the teachers and nurses on the other end of the cheque. Have your politics. Vote your conscience. Just don’t confuse a boycott with a strategy.

Canada’s AI “strategy,” and the data-center problem nobody wants to name

About ten days ago Carney’s government tabled its national AI plan, “AI for All.” Six pillars running from protecting democracy to scaling Canadian champions to building global partnerships, wrapped around a $2 billion sovereign-compute commitment and headline promises of $200 billion in GDP and 250,000 jobs. The pillars are fine. They’re all good things to want.

The number is so small relative to the ambition that it reads as a signal more than a strategy, and Mel’s take is the right one. You can’t take a press release to the bank. This is a government with a track record of announcing important things and not executing them at the speed business actually moves. And here’s the line that matters. You do not have an AI strategy if you don’t have a data-center strategy. No data centers means no compute, which means no champions, full stop. That requires energy policy, environmental and infrastructure policy, and a corporate-tax regime that actually rewards the behavior that builds the next Shopify. Right now data centers are becoming the new pipelines in this country, the thing we’d rather argue about than build.

The deeper issue is incentives. As Munger said, show me the incentive and I’ll show you the outcome. When the government is the venture capitalist of last resort, the cheques come with handcuffs, performative conditions, and a capital stack that doesn’t serve shareholders. So you get founders who either pass or get hobbled. Mel and I land in the same place. Smaller hand, less winner-picking, less regulation, and let the dollars we save go to the healthcare, education, and social services we actually want the state running. Government doesn’t need to be good at picking winners. It needs to build the conditions where the private sector can.

Apple’s quiet bet: skip the CapEx war, own the trust

Apple held its WWDC keynote yesterday, and it matters because I’d bet 95 percent of the people reading this operate their lives on iOS.

Apple is the most valuable consumer company on earth and it has badly fumbled the AI ball. It promised “Siri AI” in 2024 and didn’t ship it. Vaporware, which used to be Microsoft’s reputation, not Apple’s. That broke a twenty-year track record of delivery, and it’s been a headwind on the stock for two years. Yesterday they rebranded it “Siri AI” again, showed working demos this time, and pointed it at iOS 27.

Second time looks like the charm.

But the investment case isn’t about whether Siri is best in class. It’s that Apple is the one mega-cap not betting the balance sheet on AI capex. While Meta spends $145 billion this year, Apple is effectively renting compute, leaning on Nvidia chips running in Google’s data centers, and paying Google roughly a billion a year to use Gemini under the hood. They’re happy to be second, third, sixth to the party as long as they ship something better.

That posture is a hedge. If all this capex goes sideways, Apple didn’t pour the money in.

This is also where Anthropic was right and OpenAI was wrong. OpenAI built its name as consumer-first AI, but consumers don’t want to be productive. Step outside your own head if you’re an entrepreneur reading this. Most people on their phones are leaned back, watching YouTube, scrolling, taking a break. They are not going to pay $150 a month for a tree of agents, and they’re using AI the same way they used Google search. OpenAI’s refusal to build an ads product left it stuck. Anthropic went enterprise, where the only things that matter are efficiency and return on invested capital, and built the best harness AI has produced so far in Cowork. That enterprise demand is what lets it underwrite the data-center deals it’s signed with AWS, Google Cloud, and the Colossus buildout.

Apple sits on the consumer layer OpenAI couldn’t monetize. The difference is Apple understands services and the trust that comes with the walled garden. There’s a status-symbol shift hiding in here too. In twenty years the flex isn’t a Rolex, it’s the compute sitting in your home office. I bought a new Mac Studio precisely because I need the horsepower to keep up, and every dollar of that, plus the App Store, Apple Music, and the storefronts, accrues right back to Apple. It rhymes with 2014, when Buffett bought Apple at nine-to-eleven times earnings and made hundreds of billions as services ramped on top of the hardware.

The real edge might be jurisdictional, and it’s the part getting the least attention. Apple has kept its footing with regulators and is positioned to keep operating in the EU and in China, where most of Big Tech has made itself an enemy. New Siri AI features won’t hit those markets at launch, but Apple is one of the very few Western companies that can function there at all. So long as Apple keeps building hardware people trust and doesn’t sleep through a genuine platform shift, the diffusion of consumer AI runs straight through the iPhone. They’ve broken our trust exactly once, on AI, and I think that one comes good.

The through-line

Bonds took the wheel, a hundred billion dollars of founders are about to ring the bell, and the market is plenty big enough to pay for the party. The work isn’t deciding whether AI is a bubble. It’s owning the one or two percent that will carry the whole thing, and refusing to let your politics pick your portfolio.

See you in two weeks.

Podcast & YouTube Recommendations🎙

* Inside The Private Market Boom

* Alex Sacerdote on investing in tech cycles

* NVDA is STILL CHEAP?!