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Alexis Madrigal: Welcome to Forum. I’m Alexis Madrigal.
It is almost unfathomable that there might soon be not one but two new trillion-dollar companies in San Francisco — OpenAI and Anthropic. Only fourteen companies in the history of the world have ever crossed that market valuation. And whether you think it’s justified or not, this is just extraordinary. Two new near-trillion-dollar companies have sprung up in our midst, separated by just a couple of miles, and growing at a rate that’s more or less unprecedented. These prospective IPOs dwarf the many others — Uber, Google, Meta — that have happened in our area over the years.
The current valuations are private — it’s how big investors have been valuing shares in these companies. But sometime soon, probably later this year, they will go public, making it easier to convert shares into, well, literally anything else, but primarily dollars. And many of those dollars are going to land here in San Francisco.
Here to talk about the impact on our city, its housing and labor markets, and more, we’re joined by Enrico Moretti, professor of economics at UC Berkeley. Welcome, Enrico.
Enrico Moretti: Good morning, Alexis. Thanks for inviting me.
Alexis Madrigal: Great to have you. We’re also joined by Mike Simonsen, chief economist for the real estate firm Compass. Welcome, Mike.
Mike Simonsen: Hi. Good morning.
Alexis Madrigal: Gerrit De Vynck, technology reporter covering AI for The Washington Post. Welcome.
Gerrit De Vynck: Good morning.
Alexis Madrigal: And Kami Rieck, contributing writer for The New York Times. Welcome.
Kami Rieck: Thank you.
Alexis Madrigal: Great to have an all-star panel this morning. Gerrit, let’s start with you. What’s driving these companies to go public right now?
Gerrit De Vynck: It’s remarkable, because we’ve had a long drought of tech companies going public. The last big wave was back in 2021. For the most part, large technology companies have been able to stay private because there’s a lot of private capital out there — big venture capital firms willing to give hundreds of millions of dollars to startups to keep growing without tapping the public markets. That’s very different from the dot-com boom in the late ’90s and early 2000s, when much smaller companies were going public. It’s even different from the mid-2010s. These startups are going much bigger than companies like Facebook were when they decided to go public.
What’s really driving it now is that they need even more money. AI is expensive — it’s not like regular software. You need to spend literally tens of millions of dollars every time you want to train a new model, and it’s also expensive to run. Every time you ask Claude or ChatGPT a question, there are all sorts of calculations happening in giant data centers around the world, consuming energy and requiring costly computer chips. By going to the public markets, these companies can raise more than even the largest private investors can provide.
The other factor is employees. A lot of people at these companies have been working for two, three, four, five, six years on these technologies, and they want to realize the fruits of their labor. For many of them, that could mean tens of millions of dollars. When a company goes public, it becomes easier for employees to sell their shares — and use that money to buy houses, or second houses, or even third houses.
Alexis Madrigal: We’ll get into some of those details. Enrico, a lot of your research has focused on the way big technology companies generate ecosystems of other companies, as well as knock-on effects in the labor market. We’re obviously talking about Anthropic and OpenAI, but there are a whole bunch of other startups drawing workers into the city and region too.
Enrico Moretti: There are. But before we get into that, it’s important to put some context around the employment situation in the city. San Francisco is currently about 50,000 jobs below its pre-pandemic peak — we’ve lost essentially one in ten jobs we had before the pandemic. That’s a significant loss. Part of that comes from recent layoffs at large tech companies. At the same time, there is growth in AI sector employment, which offers some hope that those losses will eventually be reversed. But for now, the size of both Anthropic and OpenAI is still quite small. Anthropic has about 2,000 workers in San Francisco; OpenAI probably has five to six thousand. Relative to the job losses the city has experienced, those two companies alone aren’t yet enough to reverse the damage.
There are about 250 very new, fast-growing AI startups in the city as well. Looking forward, a lot of the employment growth will likely come from those —
Alexis Madrigal: Cooking away there in Hayes Valley.
Enrico Moretti: Yeah.
Alexis Madrigal: Kami, the way I’m reading the city right now is that there’s a growing divergence between those who are plugged into the AI economic circuit — part of a global phenomenon that is both enriching them and deeply exciting — and everyone else. And where those two groups run into each other, at least most visibly, is in the housing market, which you recently wrote about.
Kami Rieck: Yeah. Recent data from last month showed that ever since ChatGPT launched in 2022, home prices in San Francisco’s luxury ZIP codes have risen sharply, while in the most affordable ZIP codes, prices have actually fallen. After talking to many real estate agents on the ground — people who’ve worked in the market for at least a decade — many of them have described what they’re seeing as unprecedented. People in AI are offering millions above asking price, paying all cash, closing quickly, and waiving contingencies like the right to inspect a home before buying. And this is all pre-IPO. What a lot of people have been saying is that they don’t expect demand to slow down as these IPOs go through.
Alexis Madrigal: Mike Simonsen, chief economist for Compass — does it check out that San Francisco is acting differently from other housing markets in the country right now?
Mike Simonsen: It’s certainly the most acute case. We can really see what’s called a wealth effect — and it’s not just AI; stock markets are at all-time highs broadly. Wealth-driven home purchases at the high end, the ultra-luxury end, have held up much more strongly — both in number of sales and price resilience — than the price tiers that are more sensitive to mortgage rates. Right now mortgage rates are at their highest point of the year, a little bit lower than last year at this time. But with equity markets driving higher, that’s where you really see it. It’s what’s called a K-shaped economy.
Alexis Madrigal: I was about to say — the K is doing very well. You’re all tired of hearing me say K-shaped everything.
Mike Simonsen: You can really see it in a bunch of places in the housing market — high-end Nashville versus mortgage-sensitive Nashville, the Bay Area broadly. But you can see it most acutely in San Francisco, much more so than in, say, Alameda. The further out you go, the lighter the effect. The extreme parts of the boom are really focused in the city right now.
Alexis Madrigal: We’re talking about the expected IPOs of AI giants Anthropic and OpenAI, and what they could mean for the housing market and overall economy in San Francisco and the Bay Area. We’ve got Mike Simonsen from Compass, professor of economics Enrico Moretti from UC Berkeley, Kami Rieck from The New York Times, and Gerrit De Vynck from The Washington Post. We want to invite you into this conversation — what are your hopes and concerns about what this infusion of wealth might do to or for the Bay Area? Call us at 866-733-6786, or email forum@kqed.org. I’m Alexis Madrigal. Stay tuned.
