Sean Everett explains how AI is reshaping the income statement by pushing LLM token costs into cost of goods sold and automating tasks, while Bitcoin is disrupting the balance sheet as companies like MicroStrategy shift treasury reserves from cash to Bitcoin. These changes ripple across financial statements, products, and corporate strategy.
Oh, I was gonna do something silly like, welcome back to another episode of Private Equity with Sean. But, um, let's talk about balance sheet disruption and income statement disruption. So we're living through a really interesting time as it relates to capital and computing. This little thing called AI is disrupting the income statement, and Bitcoin Disrupting the balance sheet. So let's talk about each one individually. First off, income statement. Um, how's it changing? AI token costs. LLM— basically you push a piece of text through an LLM, you pay a token, it responds with a piece of text, you pay a token. So both exchanges you're paying. That's a cost of goods sold when you're using an LLM to deliver a product or service. That is replacing— because it's automating work, it's replacing jobs, it's replacing tasks, which means more of the cost structure is moving from R&D expense, which is in operating expenses below gross profit, is moving up the income statement into cost of goods sold. So while your EBITDA may maintain similar margins— I don't know, we'll see— the gross profit margin is going to change. Arguably, it could decrease. So that's disruption and it's existential. So it's like, yeah, we're seeing PE firms actually force their portcos to do AI stuff. It's not, this isn't a bubble. I see it everywhere across Fortune 500s, middle market, and startups. So unless you're in the trenches actually building, advising, operating, doing things with this stuff, Of course you might think it's a bubble. It's not a bubble. It's real. On to the balance sheet. Balance sheet, Bitcoin. Typically treasuries, right? US treasuries, long duration bonds pay you a consistent fee like a bank account, couple percentage points. Berkshire calls that the risk-free rate. The US Treasury, maybe a 10-year. Now Bitcoin is being added to the balance sheet due to fiat disbasement. Or debasement across pretty much every currency in every country in the world. The United States is printing money like there's no tomorrow. What do we got, like $36 trillion in debt? Like, sort of a problem. Maybe we should look into that as a society. Considering it's existing current world's reserve currency, but everything's being digitized and everything's being moved onto the internet, which means you need an internet-native currency, i.e., enter Bitcoin. Been around since 2009, January 3rd or whatever. So regulatory tailwinds. So yeah, smart companies are starting to shift the money they hold on the balance sheet from cash to Bitcoin. MicroStrategy is the market leader. They're now almost a top 5, uh, US public company for the amount of capital that they have on their balance sheet. Berkshire's number 1 with a crazy amount of cash, like $360 billion or something. Mostly because they own insurance companies, which means they're the backstop. So when the big one comes, you better hope those investments that you've been putting money into for decades and maybe a century has compounded enough to outweigh whatever the big one is. Risk is what you don't see coming, right? So yeah, so we're shifting from US-based currencies, treasuries, into internet treasuries, which is Bitcoin. And so then once you start putting Bitcoin on the balance sheet, Then it connects back to the income statement because now it's like, wait a second, that's a technology, it's a commodity, it's an asset. I can do something with that to make it productive to produce cash flow, which is what MicroStrategy is doing with things like STRC, which is essentially paying a 10.25% dividend rate just for holding your money with them for one month. And so they pay out monthly dividends, which is like a never-ending Perpetuity cash flow stream, which then goes into your DCF model. So do you see how these things are connecting? The financial statements are being disrupted. The whole ball game's being disrupted. R&D is being disrupted. Products being disrupted. Jobs are being disrupted. Money is being disrupted. The internet's being disrupted. Self-driving robotics, you name it. So you're either in the game or you're not. And if you're playing to lose, And you're just hoping that you can hide in a corner and this stuff's not going to impact you. That is not a strategy. So, um, if I'm not the first to tell you, just, just do something, please. Just get to work. Put a dollar into Bitcoin. Start playing around with ChatGPT. Hire an engineer. Start messing around with the APIs. You gotta get in the game. If you're not in the game, I don't know what to tell you. It's like you just gotta get in the game. All right, we're at 5 minutes, so I think that's it. Have a good Wednesday. Happy Taurus moon, or whatever the heck's happening out there. Gravity waves. All right, later.
