DXYZ Fund Dives After Surge; Holds SpaceX, OpenAI Stocks

Key Takeaway

• Destiny Tech100 Inc. (DXYZ) plummeted 32%, marking an over 80% loss from its peak, despite still trading four times above its NAV.
• DXYZ's aggressive expansion to include firms like SpaceX and OpenAI contrasts with its recent stock sell-off plan, risking share dilution.
• Elon Musk's xAI garners Sequoia Capital investment, aiming to rival major AI players amidst a competitive landscape and legal challenges with OpenAI.

Market Volatility

Destiny Tech100 Inc., trading as DXYZ on the New York Stock Exchange, experienced a significant drop, plunging as much as 32% on Friday. This downturn brought the fund's losses from its peak to over 80%, as it began to align more closely with the actual value of its holdings. Despite this decline, DXYZ's market price remains approximately four times higher than the reported net asset value (NAV) of the tech companies it has invested in, which stood at $4.84 at the end of 2023. The fund's dramatic fluctuations have caught the attention of investors and analysts alike, with Cole Smead of Smead Capital Management likening the investment in DXYZ to gambling.

Strategic Investments and Fund Dynamics

Destiny Tech100 has made headlines not only for its volatile trading but also for its ambitious investment strategy. The fund, which initially held positions in more than 20 companies, including high-profile names like SpaceX, OpenAI, and Epic Games Inc., plans to expand its portfolio to 100 companies. This expansion is part of a broader strategy to provide investors with access to private technology firms that are often out of reach. In pursuit of this goal, Destiny Tech100 filed to sell up to $1 billion in stock earlier this month, a move aimed at raising capital for new investments but also one that could dilute the value of existing shares.

xAI's Emerging Presence

In related news, Elon Musk's artificial intelligence startup, xAI, has secured a strategic investment from Sequoia Capital. This partnership underscores the venture capital firm's confidence in Musk's vision for xAI, which aims to compete in the crowded AI landscape. With a potential valuation exceeding $18 billion, xAI is positioned as a formidable contender against established players like OpenAI, Google, and others. Musk's efforts to raise up to $6 billion for xAI from global investors, including those who supported his takeover of Twitter, highlight the significant interest and expectations surrounding this new venture.

Competitive Landscape and Challenges

The AI sector is highly competitive, with significant investments required to develop and operate large language models (LLMs). xAI enters this arena with the ambition of developing its chatbot, Grok, to rival the capabilities of existing AI models. Despite the challenges, Musk's track record of innovation, combined with Sequoia Capital's backing, suggests that xAI could emerge as a key player in the AI race. However, the lawsuit Musk filed against OpenAI and its CEO, Sam Altman, over alleged deviations from the startup's original humanitarian goals, highlights the complex dynamics within the AI industry.

Street Views

• Cole Smead, Smead Capital Management (Bearish on Destiny Tech100 Inc.):

  "DXYZ is just another form of gambling today like betting on sports on your mobile phone."