The conversation moves from base rates and AI growth expectations to competitive dynamics, capital cycles, and the fundamental shift toward intangible-driven business models that are changing how we think about valuation, moats, and market structure.
Papers and Resources Discussed:
Bayes and Base Rates: How History Can Guide Our Assessment of the Future
https://www.morganstanley.com/im/en-us/institutional-investor/insights/consilient-observer/bayes-and-base-rates.html
The Impact of Intangibles on Base Rates – https://www.morganstanley.com/im/publication/insights/articles/article_theimpactofintangiblesonbaserates.pdf
Measuring the Moat: Assessing the Magnitude and Sustainability of Value Creation – https://www.morganstanley.com/im/publication/insights/articles/article_measuringthemoat.pdf
One Job: Expectations and the Role of Intangible Investments – https://www.morganstanley.com/im/publication/insights/articles/article_onejob.pdf
Capitalism Without Capital: The Rise of the Intangible Economy – https://books.google.com/books/about/Capitalism_without_Capital.html?id=J3SYDwAAQBAJ
A Better Estimate of Internally Generated Intangible Capital – https://pubsonline.informs.org/doi/10.1287/mnsc.2022.01703
Underestimating the Red Queen: Measuring Growth and Maintenance Investments – https://www.morganstanley.com/im/publication/insights/articles/article_underestimatingtheredqueen.pdf
Explaining the Recent Failure of Value Investing – https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3442539
Guest Links:
Michael Mauboussin Twitter
https://x.com/mjmauboussin
Topics Covered:
* Why OpenAI’s projected growth would be unprecedented in market history
* How base rates provide a reality check on AI expectations
* The role of diffusion models and adoption curves in forecasting technology
* Why massive capital investment in AI may follow past boom-bust cycles
* Lessons from large-scale infrastructure projects and why timelines break
* How intangible assets change the distribution of business outcomes
* The rise of “fat tails” and why more companies now massively win or fail
* Who captures value in AI across the stack from chips to applications
* Why competition may drive AI profits toward consumers, not producers
* How accounting distorts intangible investment and misleads investors
Timestamps:
00:00 Intro and OpenAI growth expectations vs historical base rates
04:32 Why no company has ever achieved 100%+ sustained growth at scale
08:47 Lessons from megaprojects and AI infrastructure buildouts
13:18 Intangible assets and why outcomes now have fatter tails
18:36 Why big tech is growing faster than historical precedents
23:52 Where value accrues in AI and why consumers may benefit most
28:21 Barriers to entry in AI including capital, talent, and scale
32:47 The risk of overinvestment and historical parallels to past bubbles
37:26 Game theory and competitive signaling in AI capital spending
41:58 Why investment returns—not “asset light” narratives—drive value
46:12 How accounting fails to capture intangible investment properly
50:44 Breaking down SG&A into maintenance vs investment spending
55:03 Why understanding reinvestment and ROI is the core investing skill
59:18 Final thoughts on uncertainty, expectations, and base rates in AI
Full episode transcript: