AI transcript
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0:00:44 It’s on the minds of everyone from you to your congressperson to your barista.
0:00:52 When they flip that little POS tablet towards you asking for the tip, I always feel like I’m in a
0:00:59 moral crisis of whether or not I tip and how much I should tip because how much are they being paid?
0:01:05 Tipping. The question on everyone’s minds. We’ll bring you the answers this week on Explain It to Me.
0:01:09 Get new episodes every Sunday, wherever you get your podcasts.
0:01:18 Today’s number, 66%. That’s how much sales of U.S. alcohol brands in Canada dropped after Liberation Day.
0:01:24 Ed, I’ve been trying to cut down my alcohol consumption, so I moved to non-alcoholic beer,
0:01:29 and it’s kind of like giving oral sex to your cousin. It tastes similar, but you just know what’s wrong.
0:01:45 How are you, Ed? Trying to get us canceled, Ed. Trying to get us canceled.
0:01:49 Trying really hard. With the same strategy, usually. It usually involves sex with your cousin.
0:01:52 I guess people just don’t care about that. That’s just fine now.
0:01:54 You got to go with what works.
0:01:58 It’s getting our numbers up. I think that’s the reason people are tuning in.
0:02:01 Not the excellent production, rigorous analysis, or insight, just the profanity.
0:02:06 No, no. Definitely not that. But specifically the sex with your cousin jokes. I think that’s
0:02:07 what people really like about this show.
0:02:08 That’s why they’re here.
0:02:10 We should run some surveys on that and just confirm.
0:02:17 I’m glad it’s working, because can’t stop, won’t stop. Where are you, Ed? Which is my way
0:02:18 of saying I want you to ask where I am.
0:02:26 I’m going to take five minutes now to explain exactly where I am. I’m in New York. I’m in the
0:02:29 studio. I’m always in. Nothing’s really changed.
0:02:32 Yeah. Have I bored you yet?
0:02:34 I’m sorry. What were you saying, Ed?
0:02:38 Where are you, Scott?
0:02:41 So Daddy yesterday spoke at the Aspen Institute.
0:02:45 You know, I saw that it was live-streamed, which is cool.
0:02:52 Oh, wow. I didn’t know that. I just got very self-conscious about some of the things I said.
0:02:57 But you have never seen so many rich men in their 70s with their third wife in athleisure,
0:02:59 desperately trying to keep their man on the porch.
0:03:05 I mean, it was like an allo reunion. I mean, so much athleisure.
0:03:07 A lot of on-running shoes, I’m sure.
0:03:13 Yeah. Yeah. And me and Aspen speaking at the Aspen Institute is maybe the widest thing I’ve
0:03:13 ever done.
0:03:22 Who goes to that? Are these business leaders? Who’s at the Aspen Institute function during the summer?
0:03:28 The honest answer is I don’t really know. But Aspen has a group of people who are just very civic-minded,
0:03:35 really into ideas. And the Aspen Institute, which is like 50 years old, does a great job and great
0:03:40 programming. So I was actually really excited to speak there. And I spoke to a woman who used to be the U.S.
0:03:44 editor of the Financial Times. And it was enough of that. I’m bragging. And last night, I came to Chicago,
0:03:51 where I am speaking this afternoon. And then my youngest, my 14-year-old, this is our annual city
0:03:55 trip. He gets to pick a city and we go there. I’m standing at the Soho House in Chicago, which has the
0:04:00 second nicest gym of any Soho House just behind Berlin. I worked out this morning. You probably
0:04:07 didn’t recognize me because of my bulging biceps. But it was so—this, like, handsome 30-year-old dude
0:04:12 comes up to me and he says to me, he’s like, dude, what do you do to work out? It was like the total, like,
0:04:17 you’re so inspiring, you’re so fucking old. I’m like, get away from me. What do you—it was one of those
0:04:22 things, like, dude, I think it’s great you’re here. And I’m like, why? Why do you think it’s great I’m here?
0:04:30 You’re an inspiration. Yeah, that’s—literally, that’s what I’m getting. I think it’s great you’re
0:04:37 here. I’m like, oh, well, I left my walker downstairs, bitch. Anyway. Yeah, that’s not good.
0:04:42 What do you got planned this weekend? What are you up to? I’m going out to Quag in Long Island. I’m
0:04:47 gonna— Quag? Yeah, one of the lesser-known Hamptons. I like Quag. Let me guess, that’s your
0:04:53 in-laws? They have a house in Quag? That’s right. Oh, I got that right. Yeah. Oh, lock this shit
0:04:58 down. She’s got—we like this. And, oh, even better. Hopefully, she doesn’t have any siblings.
0:05:02 No siblings? I’m not gonna disclose any more information.
0:05:05 Yeah, you’re choosing your words carefully. All right, let’s move on. You’re going to Quag.
0:05:09 You’re still in the mating phase. You’re still worried about blowing it. You’re still worried
0:05:14 about the talk. I got the talk about five years ago when my partner said, don’t ever fucking mention
0:05:18 me on any of your work ever again. Don’t mention me. Don’t talk about me. Don’t reference me.
0:05:23 Anyways. Should we get to the headlines? Should we get to the headlines?
0:05:28 You’re on a heater this morning. I’d barely say anything. I’ve just let you go. Let you run
0:05:33 wild. You’re just sitting there. Get used to it. It’s called your in-laws. Get used to it.
0:05:47 As second quarter earnings roll in, several companies are reporting significant financial
0:05:52 hits tied to the tariffs. Oil services provider Halliburton saw a $27 million hit to its profits.
0:05:59 Stellantis reported $350 million in related costs for the first half of the year. Toy company Hasbro
0:06:07 took a $1 billion charge tied to tariffs. And General Motors said that tariffs cost the company $1.1
0:06:12 billion, slashing its earnings by a third. And they are warning that the worst may be yet to come.
0:06:20 So tariffs have officially landed, or at least they’ve landed in earnings reports. There are some
0:06:25 more examples that we saw in last week’s earnings that I didn’t mention there. Dow, which is the big
0:06:31 chemical company, they reported their first loss in five years due to tariffs. The CEO said, quote,
0:06:36 this quarter, the Dow team advanced several aggressive actions in response to the lower for longer earnings
0:06:43 environment that our industry is facing, amplified by tariff uncertainties. Southwest also cut its outlook
0:06:51 due to tariff impact. Stock fell 4%. So in sum, as we discussed a couple of weeks ago, earnings are coming
0:06:57 in for the second quarter. And we had questions over, will we see the tariff impact? Yes, we are
0:07:02 seeing the tariff impact. It is starting to show up in earnings reports. And it’s not showing up in
0:07:07 a forward-looking way like we saw in the previous batch of earnings, where you had companies saying
0:07:12 that, you know, there’s an uncertain tariff environment. And, you know, you, we can expect in
0:07:19 the future, a hit to earnings, a hit to profits, giving guidance that was ambivalent. This is
0:07:25 backward-looking. These are companies saying, in the previous quarter, our profits were smaller
0:07:29 because of the tariffs. That’s what we’re seeing. Your reaction, Scott?
0:07:34 What is interesting is the Trump administration said that they thought this wouldn’t result in higher
0:07:39 prices that companies would absorb this hit. And so far, they’re right. General Motors did not feel
0:07:45 like they had the competitive positioning or the margin power to pass those costs on to the consumer.
0:07:49 So they took a hit to their earnings. Now, they would have much rather just passed it on to the
0:07:57 consumer. But on a more meta level, what I see is, I think 2000 or 2025 will be seen as the year that
0:08:03 late-night TV just went away. And also that the U.S. auto industry basically entered the eighth or ninth
0:08:10 inning of a not a cyclically driven decline such as 08 or the recession in 91 or 92. But I do think
0:08:16 this is kind of the end of the U.S. automobile manufacturing, not even dominance, but preeminence
0:08:21 for one of the two or three best manufacturers in the world, mostly saved by gigantic trucks.
0:08:27 But if you look at a few things that have happened, one, the old guard has announced that these tariffs
0:08:31 are now making a material impact on shareholder value, which eventually
0:08:36 snakes through the economy. They have less money to invest in new factories, new models, less
0:08:41 employment, fewer people with good jobs, fewer car purchases, and you start, you know, this kind of
0:08:47 downward spiral. In addition, our new champion, which has a market cap larger than the rest of the
0:08:55 industry combined, Tesla is really floundering. I mean, there is just the delta between a trillion
0:09:02 dollar market cap and a PE of 180 in a company whose auto sales have declined 12% year on year.
0:09:08 16%. Sorry, I just want to correct because overall revenue for Tesla as of this earnings that we just
0:09:13 saw last week, overall revenue down 12%, but auto sales down 16%.
0:09:18 That’s right. Their services, their charging station was up, which took that 16% number down to 12%. So
0:09:24 to your point, a 16% decline in auto sales has got to be one of the biggest declines in the auto
0:09:31 industry globally. And yet this company trades at 180 times earnings. That cannot, those two things
0:09:36 cannot coexist. So you got our old guard in trouble because of tariffs. You got our new guard trying to
0:09:42 create distractions, whether it’s a diner with robots or trying to pretend this is an AI company and
0:09:49 spend a shit ton of money on AI and put an AI. Effectively, what you have is with Tesla, you have
0:09:56 a guy who is a genius in terms of the intersection between capital markets and shareholder value and
0:10:03 has realized a lot of it is perception. That 180 PE is a function of your ability to create a perception
0:10:07 that you’re the market leader and that you’re an innovator and disruptor. So he’s saying, look over
0:10:12 here, we’re going to build AI and we have a dining company and flamethrowers and tequila and this is
0:10:17 an AI company. He’s doing anything he can because of his $1.4 trillion in market cap across his company,
0:10:24 SpaceX, Tesla, Twitter. The majority of it is tied up in a company that is about to implode in terms of
0:10:30 market cap and that’s Tesla. So you have GM getting hit hard, Tesla, which in my opinion,
0:10:35 is the most inflated bubble in the world right now. And then you have this new agreement, and we
0:10:43 talked about this yesterday, where effectively Japan has got, has said, okay, zero tariffs, big win for
0:10:47 the U.S. on cars coming in. And this stat, which we talked about yesterday, just blew my mind.
0:10:54 About 50 or $54 billion of Japanese autos come into the U.S. We purchase about $54 billion of Japanese
0:11:01 cars. They purchase $2 billion of U.S. cars. So fine. Yeah, no, no tariffs on your cars. Doesn’t
0:11:06 mean anything to us. So what do you have? You have an economic and trade policy that is hurting U.S.
0:11:12 auto companies. You have our champion, Tesla, basically shitting the bed like no tomorrow.
0:11:17 And you have the old guard, General Motors, saying, okay, these tariffs are really hurting us. And then
0:11:24 you have Japanese cars just got less expensive for American consumers, which means U.S. companies,
0:11:28 U.S. automobile companies are going to cede share to Japanese automobile companies.
0:11:34 It’s so funny how both the old guard of the auto industry and the new guard of the auto industry are
0:11:39 being poisoned by the same thing, which is Trump. Interesting, yeah.
0:11:45 For different reasons. So, for example, I mean, Tesla, we just talked about some of the earnings
0:11:53 there, missed on EBIT, missed on EPS, huge miss on free cash flow. This was like an awful, awful quarter
0:12:00 for Tesla. And the stock is down 8% after they released these earnings. And why is that happening?
0:12:06 It’s a brand issue because Elon decided to get in bed with Trump. And you can say that,
0:12:11 oh, the market’s woke, whatever you want to say. But the reality is, that’s why Tesla is getting
0:12:17 impacted because it was poisoned by an association with the president. That is just the plain reality
0:12:23 of their situation. Meanwhile, the old guard, as you say, General Motors, they are getting impacted by
0:12:30 the tariffs. Their net income fell 35%. They took this more than $1 billion hit because of the tariffs.
0:12:38 And their stock is also down by a similar amount, down 8% after that news. And so they’re both being
0:12:46 poisoned by Trump. Meanwhile, as you say, you look at all of the Japanese car companies, which ripped
0:12:55 after the trade deal. 11% for Honda, I believe, up 16% for Mazda, 17% for Toyota. All of those stocks
0:13:02 are ripping. So it’s just so funny, this idea of, you know, we’re going to implement these tariffs and
0:13:07 all these foreigners are going to pay for it. And what we’re seeing is like, no, no, no, that’s not
0:13:14 that’s not the case at all. To your point, GM is eating the tariff here. They have not released any
0:13:20 price increases as of yet. I bet that that’s going to happen later down the line. But basically what’s
0:13:25 happened is you’ve put the tariff up. It hasn’t affected the Japanese companies. They’re good.
0:13:32 And meanwhile, who’s getting hurt? General Motors, i.e. the shareholders of General Motors.
0:13:38 So shareholders are the ones who are eating the tariffs right now. Now, the other thing that I would
0:13:45 add to this, as you said, these companies are eating the tariffs right now. And I can expect that that’s
0:13:49 where the conversation is going to go. And people are going to say, look, Trump was right. You know,
0:13:55 we put the tariffs up, but look, General Motors is eating them. What I would just add is that
0:13:59 there are different things we’re talking about here. There’s the impact to earnings and there’s
0:14:05 the impact to prices. And the first stage of these tariffs, what we’re going to see is an impact on
0:14:10 earnings. And that’s what we’re beginning to see this quarter. But the pricing impact is going to
0:14:17 happen later down the line when these companies realize that their earnings have been hit. They sort
0:14:22 of digest that price, that impact. And then they decide, OK, do we want to pass this on to the
0:14:28 consumer? And what we’ve seen from Goldman Sachs is that 70% estimated of those costs are going to be
0:14:32 passed down to the consumer. But it’s going to be on different timelines. If you’re selling cars,
0:14:36 which are very expensive, then you’re probably going to do it later. But if you’re selling,
0:14:44 for example, cheap consumer products, if you are Walmart, for example, you’re probably going to pass
0:14:49 the costs on earlier. And in fact, that’s exactly what we’ve seen. Walmart is already raising their
0:14:55 prices because of tariffs. We’ve seen the same thing from Best Buy. They’ve both publicly talked
0:14:59 about it. And then Amazon has also been raising their prices, though, of course, they’re not announcing
0:15:07 that. They’re trying to pretend that this has nothing to do with the tariffs. So many things happening
0:15:12 here. But I guess what I would emphasize is you have a hit to your earnings. You have a hit to your
0:15:19 bottom line. Management then assesses the impact. And then we see the price increases later. So I think
0:15:21 we’re still going to see that with GM.
0:15:26 It’ll probably be a mix of the two. But at a very basic level, what you have with the tariffs
0:15:33 in the automobile industry is that essentially you’ve transferred stakeholder value from General
0:15:39 Motors to the government. But it’s as if the government just said, OK, we’re raising taxes
0:15:45 on General Motors. And you can either pass along those additional costs to consumers or you can
0:15:49 eat it in terms of your earnings. And tariffs, generally speaking, are innovation killers because
0:15:54 the government isn’t great at when it’s not systemic. If you need to raise taxes on companies
0:16:00 across every company to make them equally, you know, they all take the same hit. That increases
0:16:07 competition. You need to have taxes. Fine. But when you start punishing certain key industries
0:16:13 unwittingly, you know, the manufacturing industry, people would argue, is important because they’re
0:16:19 generally good middle class jobs and they’re labor intensive. And we have a history in
0:16:24 manufacturing. And also people say it’s important that we have factories that we can convert to
0:16:30 making tanks if need be, that we need to actually make stuff. But these tariffs, I mean, somebody has
0:16:37 to pay. And right now, what you would see is that the losers are GM shareholders. So far, consumers
0:16:43 don’t appear to be losing. Japanese companies in the next two quarters will announce market share gains
0:16:47 at the cost of U.S. automakers. And then you would say, well, the government’s winning. They’re
0:16:55 getting tariffs. Over the long haul, almost every economic study is that the decrease in competitiveness
0:17:01 and the destruction in economic activity means lower tax revenue over time because the economy shrinks.
0:17:15 We’ll be right back after the break with a look at Oracle and OpenAI’s new partnership. If you’re enjoying the show
0:17:19 so far, be sure to give Prof G Markets a follow wherever you get your podcasts.
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0:18:37 I can finally speak unvarnished truth to power and say what I really think about Donald Trump starting
0:18:43 right now. Everyone’s wondering why CBS canceled The Late Show with Stephen Colbert. Stephen Colbert is
0:18:48 wondering. How could it purely be a financial decision if The Late Show is number one in ratings? A lot of
0:18:54 folks. Jon Stewart is wondering. The fact that CBS didn’t try to save their number one rated
0:19:01 network late night franchise that’s been on the air for over three decades is part of what’s making
0:19:08 everybody wonder, was this purely financial? Jimmy Fallon wondering. I don’t like it. I don’t like
0:19:13 what’s going on one bit. These are crazy times. Elizabeth Warren is asking questions. Sean won’t stop
0:19:18 sending links. On Today Explained, we may never really know whether CBS canceled Colbert because
0:19:23 politics or because his show was losing money. But President Trump is hitting at the media in so
0:19:28 many ways that it’s been hard to keep track of them all. We’re going to make it easier. Today Explained
0:19:37 every weekday. Hey, this is Peter Kafka, the host of Channels, a show about media and tech and what
0:19:43 happens when they collide. And this may be hard to remember, but not very long ago, magazines were a
0:19:49 really big deal. And the most important magazines were owned by Condé Nast, the glitzy publishing empire
0:19:55 that’s the focus of a new book by New York Times reporter Michael Grinbaum. The way Condé Nast elevated its
0:20:01 editors, the way they paid for their mortgages so they could live in beautiful homes. There was a logic
0:20:08 to it, which was that Condé Nast itself became seen as this kind of enchanted land. You can hear the rest
0:20:12 of our chat on Channels, wherever you listen to your favorite media podcast.
0:20:26 We’re back with ProfG Markets. Oracle and OpenAI are dramatically scaling up their AI
0:20:32 infrastructure with an additional four and a half gigawatts of new data center capacity. The move
0:20:38 builds on the Stargate initiative, which is a $500 billion project that they announced back in January.
0:20:44 With the addition of this new capacity, OpenAI says it will soon operate more than five gigawatts total,
0:20:49 powered by more than two million AI chips. For context, one gigawatt is enough to power
0:21:01 roughly 750,000 homes in the US. So, Scott, I mean, the headline here is OpenAI has a contract with
0:21:09 Oracle and they’re going to pay Oracle $30 billion a year, which by the way is three times OpenAI’s ARR.
0:21:16 They’re at $10 billion in ARR per year. They’re about to pay $30 billion a year. How are they going to
0:21:21 pay for it? I mean, funding, but it’s unbelievable. And that’s going to give them four and a half
0:21:27 gigawatts of capacity per year, which is the equivalent to two Hoover dams. So just unbelievable
0:21:35 capacity. That’s the headline. The largest story here is just this mass acceleration and investment
0:21:41 in data centers. We just saw the Google earnings last week. They just reported their earnings.
0:21:47 They raised their CapEx guidance to $85 billion for the year. We also saw the same thing with Meta.
0:21:53 When Meta previously reported their earnings, they raised their CapEx to $72 billion. We’ll see if it
0:22:01 goes even higher in the next earnings report. Also, Meta is now building a data center in Louisiana,
0:22:08 which will be the size of Manhattan. And then if you combine the CapEx investment of Meta, Google,
0:22:14 Microsoft, and Amazon, it adds up to $340 billion this year, which is more than the GDP
0:22:22 of Finland. So there was this story of big techs getting into data centers. They’re starting to build
0:22:27 these things out. And they’re starting to raise their CapEx. And what we’re seeing now is like,
0:22:35 all of that is happening times 10. They’re only scaling up even faster. And this is yet more proof
0:22:42 of that between OpenAI and Oracle. Your reactions to that deal and what we’re seeing with data centers
0:22:42 in general.
0:22:48 This is an arms race for the ages. And I mean, there’s a few things here. The first is,
0:22:55 Larry Ellison probably doesn’t get the credit. He is sort of a first ballot Hall of Famer in business.
0:23:01 And that is, he pivoted from a different capital strategy to the benefit of his shareholders. When he
0:23:06 took the company public, I think he owned 27% of the company, and now he owns 41. Now, how did he do
0:23:10 that? When Oracle became this database company that was mature and not growing that fast, but spending
0:23:16 off a lot of cash, they, i.e. Larry, who I think controls the company, made the decision to use that
0:23:25 cash flow to buy back shares. And now he owns 41%. And then he saw AI. And he decided, okay, it’s time to pivot
0:23:31 our CapEx strategy and go really hard and take profits way down and invest massively in the
0:23:37 infrastructure. Because essentially what this deal is, is Oracle is going to provide OpenAI the tools
0:23:44 it needs to train and run its AI models faster. And that includes access to GPUs, storage, high-speed
0:23:51 networks, and custom systems to manage all their data efficiently. And their Oracle’s cloud infrastructure
0:23:59 business is now 43% of their total revenue and grew by over 50% last quarter and is expected to
0:24:07 accelerate to 70% this year. And as a result, Oracle, the stock is up 45% year-to-date and trades at a PE
0:24:14 ratio of 56X, which is about the same as NVIDIA, which is far above its five-year average of 27X. And this
0:24:19 is visionary. This is a company saying, all right, we used to be this mature company that returned money
0:24:25 to shareholders. Fuck that. We’re going all in on AI. It’s worth, it was probably a couple of pretty
0:24:29 uncomfortable earnings calls where they said, we’re taking down our profits. And they said, okay, there
0:24:34 needs to be more than one infrastructure company other than NVIDIA training these LLMs and providing
0:24:40 the backend. It also says that Sam Altman, who I think is brilliant, has said, okay, we want to focus on
0:24:46 the white meat, the kind of the technology, the design, and the front end and becoming like Kleenex or Xerox.
0:24:52 We want to become the default term for AI searches. And so far it’s working, despite the brain drain and
0:24:57 Mark Zuckerberg offering people hundreds of millions of dollars in a date with Lauren Sanchez if they come
0:25:07 work at his firm. I don’t know where I got that one. Anyways, essentially, open AI is still every day
0:25:12 seems to garner more and more market share. It feels like right now they’re running away with it. And Sam has
0:25:18 said that the key to maintaining that leadership is focus and he is going to outsource much of that
0:25:24 backend infrastructure. And he is so confident in the acceleration in their revenues that they’re
0:25:29 willing to commit to a contract that with one vendor that’s equivalent to, as you pointed out, three times
0:25:35 their current annual revenues. And also, I mean, there’s just no kidding around. People consistently
0:25:41 asked me living in London, what’s the difference between London and the U.S.? I’m like, what tech
0:25:47 company is nearly exciting enough that people are just going to throw hundreds of tens of billions
0:25:53 of dollars at a prospective speculative investment around this company? So I think it’s just super
0:26:00 exciting that, A, not only are these companies executing so well, but America continues to be the place
0:26:08 It’s like, oh, we are not afraid to take enormous risks. So I, one, Ellison is a genius who is probably
0:26:14 not mentioned enough in terms of how iconic a business person he is in the strategy. Open AI is
0:26:21 focusing on the front end. And I think it’s inspiring that America continues. Where the fuck else is anyone
0:26:24 doing anything like this? Anything remotely like this?
0:26:30 I agree. And by the way, because of this, Larry Ellison is now the second richest person in the
0:26:38 world. He’s worth $293 billion, ahead of Mark Zuckerberg, who’s at 251, ahead of Bezos, who’s at 249.
0:26:40 Still behind Elon.
0:26:47 You can bet Bezos is not going to introduce Lauren to Larry. He knows better. He knows better.
0:26:52 But I want to take a quick victory lap for myself because this was one of my picks last year
0:26:58 for exactly this reason that we’re seeing. This was, here’s a clip.
0:27:03 I love this. You’re learning, patting yourself on the back. You’re learning.
0:27:06 Ah, the student becomes the master.
0:27:08 Here’s a clip of me being right.
0:27:09 Okay, there you go. Let’s listen to it.
0:27:17 Earlier this year, I said I was bullish on Oracle. My thesis here was that Oracle is kind
0:27:21 of the fourth musketeer when it comes to cloud computing. The options are basically Amazon,
0:27:28 Google, Microsoft, or Oracle. And my view was that Oracle is a really attractive company for
0:27:34 AI companies, especially AI startups, because Oracle is the only one that isn’t actively developing
0:27:39 its own LLM. So if you’re an AI company and you want to compete with the likes of Microsoft,
0:27:46 who’s developing Copilot and working with OpenAI and ChatGPT, or Google with Gemini, you probably
0:27:50 don’t want to be also paying them to keep your lights on. You’d probably rather go with a compute
0:27:56 provider who you ultimately won’t be competing with. In this case, that would be Oracle.
0:28:06 So that was last year. The stock is up 45% year-to-date. It’s up 75% in the past year. And since I first
0:28:14 made the prediction about Oracle and its role, and just my bullish position on its role in cloud
0:28:20 computing, it’s up more than 100%. What was interesting and that what we’ve seen is I wouldn’t
0:28:27 have expected that OpenAI would go to Oracle, but they are ultimately, I think, going to Oracle for the
0:28:32 same reasons which I predicted, which is that OpenAI is now having issues with Microsoft.
0:28:39 And they kind of regret that they sort of signed their soul away to be owned by Microsoft and
0:28:45 ultimately controlled by Microsoft. And now it’s becoming this very tenuous and difficult relationship.
0:28:51 We obviously saw OpenAI buying that company, WindSurf, and then they couldn’t buy them in the end because
0:28:56 Microsoft said they wanted to have all the rights to the IP, which didn’t make sense because WindSurf
0:29:02 was supposed to be a competitor to Copilot, et cetera, et cetera. We have this issue arising where
0:29:10 OpenAI is realizing, oh, wow, we sold ourselves to someone who is a competitor, or at least who will be a
0:29:16 competitor if we really want to play ball here. And so I think that is a big reason why they are
0:29:23 switching over to Oracle, because they’re realizing, OK, we need to kind of get away from this sort of
0:29:29 adoptive parent relationship we have with this big tech company. Let’s go to someone else who we don’t
0:29:34 want to compete with. Let’s go to Oracle. And I think that’s definitely the dynamic that is playing
0:29:40 out for many other AI startups as well, which is why you’re seeing this massive increase in Oracle’s
0:29:46 cloud revenue, as you said, up 50% year over year, their fastest growing business.
0:29:51 So a couple of things. I asked Anshalan, our analyst, to pull together a brief explainer because I said,
0:29:56 I’m having trouble discerning between a data center and an AI data center. So data centers are giant
0:30:02 computer warehouses that store, process, and send information for all types of things, including cloud
0:30:10 storage, apps, and sites. AI data centers are specialized versions of these warehouses that contain GPUs to
0:30:16 train and run artificial intelligence models. So they’re focused on the specified or specific
0:30:23 compute to train these models. They’re much more, as it ends up, energy intensive. Data centers provide
0:30:28 processing power for it as compute. The more GPUs the data center has, the more compute it can deliver.
0:30:34 And then at the very beginning are power plants that generate the electricity that keeps data centers
0:30:41 running. AI data centers, as you can imagine, use huge amounts of energy. What’s interesting about
0:30:47 the infrastructure side, and now Oracle’s basically wants to be, I would imagine Larry Ellison, his dream
0:30:53 is he wants to be on stage next to Jensen Huang, right? He wants to be, he wants to be, you know,
0:31:01 the John Oates, was it Daryl Hall and John Oates of AI compute infrastructure, right? He wants to be the
0:31:07 Ginger Rogers, right? Okay, fine. You can be Fred Astaire, or I’ll be Jerry Lewis, and you can be Dean
0:31:11 Martin. I’m trying to think of great duos, but I’m not doing a very good job here.
0:31:12 Yeah, Ed Ellison.
0:31:16 There you go. Now, but you’re number one. He wants to be, he’s willing to be Scottie Pippen to
0:31:22 Jensen Huang’s Michael Jordan. But if he can be the number two infrastructure player here, he’s going
0:31:28 to do really well because the infrastructure, if you look at NVIDIA, NVIDIA’s top customers, their CapEx
0:31:36 has grown one and a half times as fast as revenue. So their customer base is not only the customers or
0:31:40 the companies that have the fastest growing top line revenues in the world, but they’re spending
0:31:46 50% more than the revenue growth on infrastructure. And just let me go back to Oracle.
0:31:52 When I moved to New York, when I thought I was going to be rich, I moved to New York and thought,
0:31:55 okay, I’m going to be a professor, and I joined the faculty of NYU. And do you know what my first
0:32:01 year salary was at NYU as an adjunct professor? I’m going to guess $30,000.
0:32:10 $12,000. But anyways, how I got here and how this is relevant, the universities have exceptional
0:32:16 benefits and they’ll match up to 10% of your salary in your retirement plan. And I picked two stocks.
0:32:24 I picked Oracle and I picked Nike. And this is back in 2002. And I always put, and this is my advice to
0:32:29 young people, the first thing you do when you get a job anywhere, anywhere, you go to HR and you say,
0:32:37 what tax advantage investment programs do you have here? And you max them out. Max them out. And ideally,
0:32:41 it comes right out of your check. So that money never floats through your hands.
0:32:48 And the Nike investment has not paid off. I’ve owned Nike stock for 22 years. It was great for
0:32:54 about 10 or 15 years. The stock is at kind of a 10-year low now. And Oracle was a fairly mediocre
0:32:59 performer. And then the last 10 years, it’s just skyrocketed. Anyways, I have Nike and Oracle in my
0:33:02 401k. So thank you. Thank you, Larry Ellison.
0:33:08 Just going back to what you said about what actually is a data center. I think it can be
0:33:13 confusing to people because one thing that we’ve seen in the media and the way that this has been
0:33:20 reported on, this deal between OpenAI and Oracle, is that a lot of people are calling it an AI power
0:33:25 plant. People are thinking of it as this is literally a place where you generate power. And I think it is
0:33:33 confusing because, as I mentioned, they’re going to rent out 4.5 gigawatts of power, which makes you
0:33:41 think Oracle is in the business of building, I don’t know, electricity generators or dams or nuclear
0:33:46 power plants. That’s not what’s going on here. This is a data center. And just to sort of remind you of
0:33:53 what is the AI supply chain, what happens when you type in a prompt on ChatGPT, what is the supply chain
0:34:00 of events that leads to that prompt showing up on your screen? The first thing you’ve got is the power
0:34:09 generation by the energy companies and a variety of energy companies. You use that power to power the
0:34:15 chips that are made by NVIDIA that are in the data centers. And the data centers, those are owned and
0:34:25 operated by Oracle and by AWS and by Microsoft, etc. And their job is basically to manage all of the
0:34:35 computing power in those chips and to turn it into a menu of options that is easy for OpenAI to basically
0:34:42 plug in and say, we want to host our software services on your server. So that’s sort of the
0:34:49 difference. You’ve got the power being generated. The power goes into the data center. Oracle, Amazon,
0:34:56 they operate those data centers. They operationalize, manage it, scale it, and then they rent it out to
0:35:01 people. And so that’s what’s really happening here. And so when we hear that term, four and a half
0:35:08 gigawatts, basically that’s another way of saying Oracle is renting out four and a half gigawatts
0:35:16 worth of computing capacity to OpenAI. So I just think it’s a good reminder of what is actually
0:35:22 happening in the AI world and what actually is a data center. Final point before we move on here.
0:35:32 Trump last week announced his AI action plan, which happened at an event that was hosted by the All In
0:35:40 podcast. Let’s just go through what the plan is. First off, he just got rid of Biden’s AI executive
0:35:46 orders. He said that that was bad and he’s issuing a new plan. Okay, what is he going to do? He said he’s
0:35:52 going to withhold funding from any states that impose any AI regulations. This was a big question.
0:35:58 States wanted to get their act together on AI. And he’s saying, no, if you do that, you’re not going
0:36:03 to get any funding. So that’s the first thing. And that actually is pretty substantive. He also said
0:36:08 he’s going to launch, quote, creative approaches to export control enforcement, which is basically like
0:36:15 a non-answer to the question of what are we going to do with these NVIDIA chips, which China wants.
0:36:20 There’s been all these questions. What are we going to do with all of these exports? Are we going to limit
0:36:24 the export controls? He gave no clarity on that. So that was the other thing that happened.
0:36:31 He denounced the U.S. permitting process, saying that it is, quote, impossible to build data centers,
0:36:37 which, by the way, is false. The U.S. has more data centers than any other country, over 5,000.
0:36:42 And the second best is Germany, which has just 529. So we have a permitting problem in terms of
0:36:46 housing. We don’t have a permitting problem in terms of data centers. And I think Meta is proof
0:36:53 they’re about to build a data center the size of Manhattan in Louisiana. So another sort of
0:36:57 distraction. But the final, and I think this is what it’s really all about, and I think this is
0:37:05 really what he cares about. The final plan, well, I’ll let you guess. What do you think is the number one
0:37:11 mission of the new AI plan under the Trump administration?
0:37:16 To transfer wealth from Los Angeles, New York, and the rest of the nation to his buddies in San
0:37:22 Francisco by violating having absolutely no guardrails or having kind of the Wild West in
0:37:26 terms of their ability to crawl, pervert, and monetize other people’s IP?
0:37:34 Yeah, I think that’s probably the subtext. That’s the reality of the plan. That’s not the thing that I
0:37:34 was thinking of.
0:37:35 Go ahead. What is?
0:37:37 It’s to get rid of wokeness.
0:37:37 Oh, God.
0:37:44 So the plan is to, quote, revise the AI risk management framework to eliminate references to
0:37:49 misinformation, diversity, equity, and inclusion, and climate change.
0:37:54 So, you know, the definition of socialism is that when the government decides they should control
0:37:59 the means of production outside of systemic regulation, so deciding you need a golden chair
0:38:03 because you know how to run a steel company, or to decide what is woke or not woke, or decide
0:38:09 if, you know, who Colombia should or should not be admitting. This is all socialism. This is the
0:38:13 government. This is so anti-Republican that the government knows better than the private sector.
0:38:18 By the way, we should call it not his AI policy, but his AI Epstein policy. All of this is a
0:38:22 distraction from the real story that he’s trying to distract from. But anyways, Rocio Epstein,
0:38:27 the Epstein tariff policy, the Washington Epsteins, not the commanders. Anyways,
0:38:33 the thing I take away from this is this is that moment in time when we passed 230, which at the time
0:38:38 made sense, but now no longer makes sense, where this effectively is a transfer of wealth from old
0:38:43 media companies to AI. Because old media companies have to spend a lot of money putting Anderson
0:38:49 Cooper on the ground in, you know, in Iran or wherever. They take huge risks. They spend a lot
0:38:54 of money fact-checking and making sure that Stephanie Ruhle has the right language and looks great and has a
0:39:00 cool studio. In fact, I mean, this shit’s expensive. Traditional media, writing books, producing,
0:39:05 producing music videos, it’s really expensive and hard. And basically what they’ve opted here is they
0:39:12 said, you can just steal all of it, process it, figure out a way to make, slice it up and make,
0:39:18 take a one pound block of cheese and turn it into 16 slices that are worth more. And we don’t mind.
0:39:24 And now I’m of two minds on this. America has a tendency to be kind of ready, fire, aim, and that is
0:39:29 err on the side of a lack of regulation. And I do think there’s a solid argument that America’s economic
0:39:38 growth could largely, one of the many factors could be that we let our horses run. And that’s what
0:39:42 they’re doing here. They’re saying, don’t get in the way of AI. AI is driving the markets, 40% of the
0:39:48 S&P. S&P is 50% of the world equity markets. Let our thoroughbreds run. And I actually found this
0:39:55 policy more thoughtful than a lot of the policies they’ve put out. I think David Sachs or whoever’s
0:40:03 advising him has said, okay, let’s at least touch on the key points and let’s pretend we’re good at
0:40:06 governance and we’ve actually been thoughtful about this. I thought this was actually one of the more
0:40:11 thoughtful releases from the company, but they have said, effectively, like we did in 97 with Section
0:40:17 230, we are opting for the new guys. Now, the economic argument would be, okay, if you fuck over
0:40:24 Penguin Portfolio, Ramden House, Simon & Schuster, Warner Brothers, basically every traditional old media
0:40:29 company and we take money from them, we take their $1, which they get 50 cents for in the market,
0:40:35 and we turn it into $6. But you’re going to see a continued erosion in original IP and the creative,
0:40:39 you know, the people who want to go into journalism, people who want to go into the arts.
0:40:45 It’s a transfer of wealth from the creative community to the technology community in San Francisco.
0:40:51 And just one final point on the wokeness. The market can decide what’s too woke for itself.
0:41:00 Like, if the people decide that the algorithms are too woke, then they will decide that and they’ll go
0:41:07 for the algorithms that are less woke. They’ll go for Grok or they’ll go for ChatGVT. So the idea that
0:41:12 we’re still going on about this woke thing and we need the president to come in and say,
0:41:19 we’ve got to end the wokeness in AI. It’s just, I’m just getting so tired of this stuff. It’s like,
0:41:27 wokeness was a thing half a decade ago. Like, do we really need to keep on rehashing this and hitting
0:41:34 the nail on the head? And to your point, it’s just, it’s a fun talking point that he knows kind of hits
0:41:42 for people. It gets them annoyed and riled up against the annoying libs. Meanwhile, it sort of
0:41:47 distracts from all of the other issues with the tariffs and with Epstein and with Epstein and with
0:41:56 Epstein. And so that’s why he’s hitting on it. But again, it’s just, it’s a waste of time is what I
0:42:03 would say. Agreed. We’ll be right back after the break with a look at a resurgence in meme stocks.
0:42:07 If you’re enjoying the show so far, hit follow and leave us a review on Profty Markets.
0:42:26 Every so often you say a combination of words you never expected to say, such as Tesla,
0:42:31 opened a diner in Los Angeles. This week on The Vergecast, we talked to a writer who went there,
0:42:37 ate the food, and saw a lot of Cybertrucks. Also, Apple’s making a big design change to its
0:42:42 operating systems. It’s called Liquid Glass, and the public can finally try it. Our reviewers have
0:42:47 been testing it for weeks, and they have some strong opinions about how it looks. Finally,
0:42:52 it’s summer blockbuster season. We talk about the new media circuit that movie stars have to endure
0:42:58 to promote their projects. A lot of it involves being chicken. That’s this week on The Vergecast.
0:43:09 Barry Diller was behind many of America’s favorite movies and shows. Now, he’s giving an intimate look
0:43:15 into his personal life. To me, business risks were meaningless. I couldn’t care less about business
0:43:20 risks. I’m Preet Bharara, and this week, Diller joins me on my podcast, Stay Tuned with Preet,
0:43:27 to discuss his sexuality, the end of Hollywood, and how the media industry broke. The episode is out now.
0:43:45 We’re back with Prof G Markets. The meme stock craze has returned. Krispy Kreme, GoPro,
0:43:51 Beyond Meat, and 1-800-Flowers all skyrocketed in volatile trading sessions last week. Shares of
0:43:58 Opendoor jumped as much as 121 percent, and Cole’s stock more than doubled. None of these rallies were
0:44:04 tied to earnings or to any actual news with the company. Instead, they were fueled by social media
0:44:12 chatter, especially on Reddit’s WallStreetBets page. It’s funny, just after this happened,
0:44:17 you know, everyone was talking about the meme stock craze is back. And then suddenly,
0:44:23 American Eagle announces this new ad campaign with Sidney Sweeney. Everyone starts talking about it
0:44:30 online, gets a ton of social media buzz. And then within a day, meme stock movement happens. Shares
0:44:37 in American Eagle rise more than 20 percent, which was more than $200 million in market cap added to the
0:44:44 company just because of this Sidney Sweeney ad. So basically, what we have is meme stocks are back.
0:44:50 Obviously, the GameStop craze happened in 2021. That was a huge deal. There were sort of questions
0:44:59 over, is this a once-in-a-lifetime thing? Is this a one-off? Or are meme stocks here to stay?
0:45:05 This is our proof. Meme stocks are here to stay. This is just a systemic part of the market now,
0:45:11 and we’re seeing this resurgence that really hit kind of a boiling point this week.
0:45:15 So, Scott, your initial reactions to what we saw in terms of meme stocks this week?
0:45:21 I think it goes back to the financial crisis, or the Great Financial Recession, and that is up until,
0:45:31 really up until COVID, we had this natural cycle in our economies where capital aggregates more and
0:45:38 more power, and then there’s an exogenous event, a war, famine, a recession. And there is a natural and
0:45:44 healthy redistribution of capital back from the owners to the earners. What do I mean by that?
0:45:48 There’s a war. The factory gets bombed. The guy who owned the factory loses a shit ton of money,
0:45:53 but you still need people to build a factory. They have more margin power, and there’s a redistribution
0:46:00 back in wealth. When the 2008 recession, Great Financial Recession happened, we bailed out the banks,
0:46:04 but we didn’t bail out the entire economy, and guys like me who were coming into the prime income
0:46:10 earning years back then had a chance to buy Apple, Amazon, as I’ve said, and Netflix for $8, $10, and $12
0:46:16 a share. But since then, since COVID came along, we said, no, we’re not going to let the natural cycle
0:46:23 of exogenous events take the incumbent’s wealth down and give entrants such as Ed Elson an opportunity to
0:46:28 buy Brooklyn real estate for $1,000 a foot instead of $2,000 a foot or a chance to buy stocks at a PE of
0:46:35 12 instead of 30. We’re going to use young people’s credit cards to prop up the value of incumbent’s
0:46:41 assets. And young people are smart. They said, you know what? Fuck this. I can’t buy a home. Stocks are
0:46:46 crazy expensive. So what am I going to do? I’m going to create my own asset classes, and I’m going to create
0:46:51 my own volatility. And I’m also going to weaponize mediums such as Reddit to try and inspire huge
0:46:57 spikes in stock prices such that I can make money. And you also collapse it with what I’ll call this
0:47:04 dopa monster generation, and that is buying and holding a Vanguard fund, it just doesn’t really
0:47:11 get your generation excited. This is a generation all hopped up on TikTok and snaps and streaks that is
0:47:18 used to a media dopa. They’re carrying around an arcade, a porn site, a casino in their pockets,
0:47:25 and they’re used to on-demand dopa. So a combination of one, they think the game is rigged,
0:47:28 so they’re not going to play the boomer’s game of investing in the market of real estate because they
0:47:33 can’t afford to, creating their own asset classes. And also, quite frankly, this is just straight up
0:47:40 gambling. This is a huge dopa hit. And then the algorithms love shoving in your face 210 times a day
0:47:46 screenshot from some douchebag in Miami that has made a million dollars buying Cum Rocket.
0:47:51 And also, on the Democrat side, when Nancy Pelosi leaves Congress with a quarter of a billion dollars
0:47:56 in wealth based on insider trading, young people naturally think the game is rigged. I’m not going
0:48:02 to participate in your game. Yeah, I think that’s exactly right. Just to go through the performances of
0:48:12 these stocks in the past week, GoPro is up 99%. Coles is up 30%. Opendoor up 20%. But it’s up over 390% in
0:48:17 the past month. And then it came back down. So just an example of how these things can kind of go wrong.
0:48:26 And Krispy Kreme up 40%. And I think it’s definitely true that this is a young man’s game. And I think that
0:48:32 is exemplified in the fact that what’s the meme stock that we saw rip at the end of the week,
0:48:38 it was the company that paired up with Sidney Sweeney, who has become just sort of like the icon
0:48:48 of the kind of young male incel movement in a lot of ways. And so, yeah, she’s driving hundreds of
0:48:57 millions of dollars worth of value for this company within a day. And it’s just unbelievable. And to your
0:49:06 point, I think the reason that this is happening is because it’s fun. And it’s, you know, it’s a
0:49:13 distraction and it involves social media and it’s social, etc. But as you say, young people have such
0:49:20 a small menu of legitimate investment options. I mean, as you say, you’ve got the S&P trading at around
0:49:27 25 times earnings. When my parents were my age, it was trading at 11 times earnings. We just saw the home
0:49:38 price data last week. Average price of a home hit another record high, $435,000 for the median home
0:49:43 in America. And then also, we can’t really invest in startups either, because as we’ve discussed a lot,
0:49:48 these startups, these really successful startups like OpenAI, SpaceX, they’re not going public.
0:49:55 And so, young people and retail investors are gated out. So, you can barely even invest in AI. Or if you
0:50:01 do want to invest in AI, you’ve got to invest at these high PE multiples with these big tech companies
0:50:10 that are sort of consuming AI. So, to your point, we invent new asset clauses. We invent crypto.
0:50:19 And we invent meme stocks. And we have a lot of fun doing that. But I think the big warning that I would
0:50:27 clarify, I feel like my generation has this feeling that these meme stocks and these crypto movements,
0:50:34 that it’s a very sort of us versus them mentality, where we’re taking on the big bad banks and we’re
0:50:39 taking on the big bad institutions. But what we’re forgetting is another big part of the story,
0:50:46 which is, by definition, it is actually us versus us. Because when you’re entering a casino,
0:50:53 it is a gambling game, and there’s a loser on the other side. Because remember, we’re not investing in
0:50:59 cash flows. We’re not investing in real businesses. We’re playing a game of musical chairs, where the only
0:51:05 way you can get rich off of this is if you sell at the peak. And the thing you’ve got to remember, last year,
0:51:12 meme stock investors lost $13 billion in one week. You look at GameStop, GameStop is down 70%
0:51:18 since its peak during the Reddit saga. So, the thing you’ve got to remember, okay, retail owned the
0:51:24 institutions. They owned the banks. They owned Melvin Capital. They also owned themselves.
0:51:30 A lot of people lost a lot of money here. And the same is true of crypto. And I think that’s the part
0:51:36 of the story that people kind of whisper. They love this dynamic of the young people taking on the old
0:51:42 people. And it’s really fun when the old people get screwed. But let’s be very honest, a lot of young
0:51:47 people are getting screwed too. It’s just that you’re not hearing those stories because they’re less
0:51:48 exciting to report on.
0:51:54 We’ve said in the algebra of wealth, we know how to get you rich. That’s the good news. The bad news is
0:52:01 it’s slowly and it’s boring. And this notion that you can get rich quick, you’re right. Anyone,
0:52:08 this notion, this bullshit notion, stick it to the man, right? When anyone tells you to stick it to the
0:52:12 man, that means you’re about to get a spear in your chest. And the person telling you to stick it to the
0:52:19 man is the man. So, you know, these things are fun. You know, what I would say is I love to gamble if
0:52:26 you get some dope ahead, but take at least 70, 80, 90% of your hard-earned dollars that you work so
0:52:33 hard to spend less than you make and save money and put it into the most boring, low-fee shit ever.
0:52:38 And if you talk to people who are wealthy and economically secure and can focus on their
0:52:44 relationships, they got there through really boring means. And just keep in mind, if you’re doing this,
0:52:50 you’re gambling. And not only is it the capital risk, it’s the amount of time you’re spending. I mean, it’s
0:52:58 just, I’m still working on how much time I check my stocks. I’m like, okay, that is not a good use of my time.
0:53:04 The final thing I would add on this, just in terms of the us versus them, retail versus institutions dynamic.
0:53:11 The other thing you have to keep in mind now is that a lot of institutions are in on the meme stock thing.
0:53:19 And a lot of institutions are actually spending money hiring these smart social media savvy young people
0:53:24 to help them figure out how to make all these arbitrage plays on the meme stocks.
0:53:32 And in fact, 40% of hedge funds are now using social sentiment analytics for their trading strategies
0:53:37 in 2025 compared to three years ago when it was 10%. In other words, hedge funds see what’s happening.
0:53:42 Their job actually is to trade. And so they’re investing and figuring out, okay,
0:53:47 how do we take the money from these meme stock pops? They’re hiring people who are tracking
0:53:57 Google search and tracking Twitter and tracking Reddit voraciously. And that’s now who you’re up
0:54:03 against. You might not have been up against that in 2021 when this first started happening,
0:54:09 but now that this is part of the markets, this is just the way of the world now. Yeah. The quant trading
0:54:13 firms, the hedge funds are now figuring out how to do this really, really well.
0:54:20 So another way to sort of burst this bubble that you’re one-upping the institutions. It’s probably
0:54:24 not what’s going to happen here. The happiest countries in the world are not a function of
0:54:28 what they have. They’re a function of what they don’t have. Specifically, they have an absence from
0:54:33 stress. When you find out in Norway that your wife has lung cancer, it doesn’t mean you’re also
0:54:38 going bankrupt. You don’t have to worry about your kid’s education. You know that good education is
0:54:44 free and available. And one of the things you want to think about as a young person is you want to clear
0:54:50 out opportunities for real downside depression and anxiety. And when you sign up and you start spending
0:54:56 any money other than what you could lose all of on something like a meme stock, you’re setting yourself
0:55:03 up for some really ugly moments that could trigger, you know, a fairly serious mental health episode.
0:55:08 And that is, it’s tempting when you’re boring and you’re bored and you don’t have a lot going on and
0:55:12 you get a little bit of money to think, okay, I’m going to believe Roaring Kitty or someone on Reddit and
0:55:18 I’m going to go all in on GameStop. And you might lose 70% of your money that you were planning to use
0:55:25 to re-enroll in, you know, junior college. And you really, it’s really mentally taxing. It’s really upsetting.
0:55:30 And the upside there, unfortunately, as a species, we don’t get as much joy from the upside
0:55:38 as pain we get from the downside. So what you want to do is find stocks that will, or invest in the
0:55:43 market, be diversified and let the economy and demographics take over and focus all of your
0:55:48 energy on building unique skills and relationships. And then wake up when you’re my age and realize you’re
0:55:53 economically secure. You are setting yourself up when you play this game to have a mental health
0:56:01 episode. It’s really, as someone who this has happened to a lot of times, I have stupidly set
0:56:08 myself up for months, not years, because I think I’m fairly resilient, of real mental health episodes
0:56:14 and anxiety and disliking myself and seeing the world through a dark colored lens because I decided,
0:56:18 oh, I’m smarter than everybody. I’m going to borrow money against my red envelope stock because we’re
0:56:24 clearly going public. And then when it didn’t happen, I’m really upset at myself and it’s not
0:56:30 worth it. And you think, well, you could have been worth a lot of money if you’d gone all in. Yeah. But
0:56:38 the upside, that potential upside was not worth the downside of that emotional hit to my well-being.
0:56:44 So if you want to have some fun, fine, have at it. But be clear. It’s like when I go down to the casino,
0:56:50 I expect to lose all of it and I only gamble the money, a maximum amount of money that if I lose
0:56:56 all of it, it doesn’t matter. It doesn’t fucking matter. Let’s go to Cirque du Soleil and then the
0:57:00 strip clubs or whatever and I’m fine. I don’t remember it. I don’t do either of those things.
0:57:07 Anyways, but you really want to be thoughtful not only about the return on your investment and the loss of
0:57:17 capital, you want to protect the downside of yourself emotionally because we’re sentient beings and your
0:57:22 emotions and how you feel every day are oftentimes more a function of your chemistry, but these things
0:57:28 can trigger really dark, depressive episodes. So I don’t like these things. I think they’re bad for the
0:57:34 mental health of America. I think they undermine confidence in the markets and they’re an externality
0:57:38 and an indication of just how fed up your generation is with mine.
0:57:46 Let’s take a look at the week ahead. We’ll see earnings from Spotify, Microsoft, Meta, Amazon and
0:57:52 Apple. It’s also a huge week for economic data. On Tuesday, we’ll get a read on consumer confidence
0:57:59 for July. On Wednesday, we’ll get the US GDP report for the second quarter and the Federal Reserve will also
0:58:05 meet for its next interest rate decision. A day later, we’ll see the personal consumption expenditures
0:58:10 index for June. That is the Fed’s preferred measure of inflation. And finally, on Friday,
0:58:16 we will see the US employment report for July. Any predictions, Scott?
0:58:26 Alphabet is going to outperform the market over the rest of the year. And if you look at its earnings,
0:58:35 supposedly AI is this existential threat. A search was up 13%. YouTube was up, I believe, 12%. It has
0:58:42 five amazing distinct units that have over 100. This thing is just a juggernaut and it continues to
0:58:50 perform. Its cloud unit is growing like crazy. And it trades at a P of 23 versus 26 for the broader
0:58:57 market. And I always say that let’s take two average S&P companies. And I always pick Dow and
0:59:05 P&G, which are amazing companies. Would you rather own Dow or P&G? Would you rather have Tide or Waymo,
0:59:10 the leading autonomous driving unit? So they’ve also increased their CapEx to 80 billion, which is
0:59:17 more than Meta and just behind Amazon at 100 billion. Microsoft’s at 80 billion and Alphabet’s going to be
0:59:25 at 85. They’re trading. Again, I just think they’re relative to the S&P. This existential overhang of
0:59:31 the threat of AI does not appear to be bearing out here. So look, I think this company, I think Alphabet
0:59:35 for the rest of the year is going to outperform the rest of big tech.
0:59:41 I totally agree. So undervalued. There’s just no question. I would love for us to get maybe a Google
0:59:49 bear on the program because I don’t understand what the market’s view is on this. I mean, it’s just,
0:59:54 it seems so obvious to me, and we’ve been saying it for so long. And every time we keep seeing earnings
0:59:58 and they keep on outperforming, I just don’t understand who are all these Google bears?
1:00:03 Why do these earnings reports come out? They crush earnings and then the market shrugs.
1:00:12 Like this has to end at some point. And so I would, yeah, violent agreement with you on that.
1:00:16 Five separate businesses that do 30 billion or more in annual revenue. Google search,
1:00:23 their display ad network, YouTube subscriptions, and seven products and platforms with over 2 billion
1:00:30 users. Search maps, Gmail, Android, Chrome, Play Store, and YouTube. And Waymo, which is hands down
1:00:33 the market leader that’s logged over a hundred million total miles.
1:00:39 All those growth vehicles, you’ve got AI, leader in AI, you’ve got data centers, you’ve got cloud,
1:00:46 you’ve got digital media, the most ascendant streaming platform, and the biggest, and somehow still
1:00:52 growing. And then if you want to get into robo-taxis too, you’ve got a monopoly on the U.S. robo-taxi
1:00:52 market.
1:00:56 And it’s cheaper than the S&P. I always say to people, when you’re talking about the upside to a
1:01:00 stock, we spend 90% of our time talking about its potential. You need to spend 50%,
1:01:04 percent of your time talking about it relative to its valuation. And that’s where Alphabet is the
1:01:08 buy here. Its valuation, it’s trading at a lower multiple than the average S&P company.
1:01:17 This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate
1:01:22 producer is Alison Weiss. Mia Silverio is our research lead. Our research associates are Isabella
1:01:28 Kinsel and Dan Shallan. Drew Burrows is our technical director. And Catherine Dillon is our executive
1:01:32 producer. Thank you for listening to Property Markets from the Vox Media Podcast Network. Tune in
1:01:34 tomorrow for a fresh take on the markets.
1:01:38 Lifetimes
1:01:52 You help me in kind reunion
1:02:05 As the world turns and the dark flies
1:02:09 In love, love, love, love
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0:00:44 It’s on the minds of everyone from you to your congressperson to your barista.
0:00:52 When they flip that little POS tablet towards you asking for the tip, I always feel like I’m in a
0:00:59 moral crisis of whether or not I tip and how much I should tip because how much are they being paid?
0:01:05 Tipping. The question on everyone’s minds. We’ll bring you the answers this week on Explain It to Me.
0:01:09 Get new episodes every Sunday, wherever you get your podcasts.
0:01:18 Today’s number, 66%. That’s how much sales of U.S. alcohol brands in Canada dropped after Liberation Day.
0:01:24 Ed, I’ve been trying to cut down my alcohol consumption, so I moved to non-alcoholic beer,
0:01:29 and it’s kind of like giving oral sex to your cousin. It tastes similar, but you just know what’s wrong.
0:01:45 How are you, Ed? Trying to get us canceled, Ed. Trying to get us canceled.
0:01:49 Trying really hard. With the same strategy, usually. It usually involves sex with your cousin.
0:01:52 I guess people just don’t care about that. That’s just fine now.
0:01:54 You got to go with what works.
0:01:58 It’s getting our numbers up. I think that’s the reason people are tuning in.
0:02:01 Not the excellent production, rigorous analysis, or insight, just the profanity.
0:02:06 No, no. Definitely not that. But specifically the sex with your cousin jokes. I think that’s
0:02:07 what people really like about this show.
0:02:08 That’s why they’re here.
0:02:10 We should run some surveys on that and just confirm.
0:02:17 I’m glad it’s working, because can’t stop, won’t stop. Where are you, Ed? Which is my way
0:02:18 of saying I want you to ask where I am.
0:02:26 I’m going to take five minutes now to explain exactly where I am. I’m in New York. I’m in the
0:02:29 studio. I’m always in. Nothing’s really changed.
0:02:32 Yeah. Have I bored you yet?
0:02:34 I’m sorry. What were you saying, Ed?
0:02:38 Where are you, Scott?
0:02:41 So Daddy yesterday spoke at the Aspen Institute.
0:02:45 You know, I saw that it was live-streamed, which is cool.
0:02:52 Oh, wow. I didn’t know that. I just got very self-conscious about some of the things I said.
0:02:57 But you have never seen so many rich men in their 70s with their third wife in athleisure,
0:02:59 desperately trying to keep their man on the porch.
0:03:05 I mean, it was like an allo reunion. I mean, so much athleisure.
0:03:07 A lot of on-running shoes, I’m sure.
0:03:13 Yeah. Yeah. And me and Aspen speaking at the Aspen Institute is maybe the widest thing I’ve
0:03:13 ever done.
0:03:22 Who goes to that? Are these business leaders? Who’s at the Aspen Institute function during the summer?
0:03:28 The honest answer is I don’t really know. But Aspen has a group of people who are just very civic-minded,
0:03:35 really into ideas. And the Aspen Institute, which is like 50 years old, does a great job and great
0:03:40 programming. So I was actually really excited to speak there. And I spoke to a woman who used to be the U.S.
0:03:44 editor of the Financial Times. And it was enough of that. I’m bragging. And last night, I came to Chicago,
0:03:51 where I am speaking this afternoon. And then my youngest, my 14-year-old, this is our annual city
0:03:55 trip. He gets to pick a city and we go there. I’m standing at the Soho House in Chicago, which has the
0:04:00 second nicest gym of any Soho House just behind Berlin. I worked out this morning. You probably
0:04:07 didn’t recognize me because of my bulging biceps. But it was so—this, like, handsome 30-year-old dude
0:04:12 comes up to me and he says to me, he’s like, dude, what do you do to work out? It was like the total, like,
0:04:17 you’re so inspiring, you’re so fucking old. I’m like, get away from me. What do you—it was one of those
0:04:22 things, like, dude, I think it’s great you’re here. And I’m like, why? Why do you think it’s great I’m here?
0:04:30 You’re an inspiration. Yeah, that’s—literally, that’s what I’m getting. I think it’s great you’re
0:04:37 here. I’m like, oh, well, I left my walker downstairs, bitch. Anyway. Yeah, that’s not good.
0:04:42 What do you got planned this weekend? What are you up to? I’m going out to Quag in Long Island. I’m
0:04:47 gonna— Quag? Yeah, one of the lesser-known Hamptons. I like Quag. Let me guess, that’s your
0:04:53 in-laws? They have a house in Quag? That’s right. Oh, I got that right. Yeah. Oh, lock this shit
0:04:58 down. She’s got—we like this. And, oh, even better. Hopefully, she doesn’t have any siblings.
0:05:02 No siblings? I’m not gonna disclose any more information.
0:05:05 Yeah, you’re choosing your words carefully. All right, let’s move on. You’re going to Quag.
0:05:09 You’re still in the mating phase. You’re still worried about blowing it. You’re still worried
0:05:14 about the talk. I got the talk about five years ago when my partner said, don’t ever fucking mention
0:05:18 me on any of your work ever again. Don’t mention me. Don’t talk about me. Don’t reference me.
0:05:23 Anyways. Should we get to the headlines? Should we get to the headlines?
0:05:28 You’re on a heater this morning. I’d barely say anything. I’ve just let you go. Let you run
0:05:33 wild. You’re just sitting there. Get used to it. It’s called your in-laws. Get used to it.
0:05:47 As second quarter earnings roll in, several companies are reporting significant financial
0:05:52 hits tied to the tariffs. Oil services provider Halliburton saw a $27 million hit to its profits.
0:05:59 Stellantis reported $350 million in related costs for the first half of the year. Toy company Hasbro
0:06:07 took a $1 billion charge tied to tariffs. And General Motors said that tariffs cost the company $1.1
0:06:12 billion, slashing its earnings by a third. And they are warning that the worst may be yet to come.
0:06:20 So tariffs have officially landed, or at least they’ve landed in earnings reports. There are some
0:06:25 more examples that we saw in last week’s earnings that I didn’t mention there. Dow, which is the big
0:06:31 chemical company, they reported their first loss in five years due to tariffs. The CEO said, quote,
0:06:36 this quarter, the Dow team advanced several aggressive actions in response to the lower for longer earnings
0:06:43 environment that our industry is facing, amplified by tariff uncertainties. Southwest also cut its outlook
0:06:51 due to tariff impact. Stock fell 4%. So in sum, as we discussed a couple of weeks ago, earnings are coming
0:06:57 in for the second quarter. And we had questions over, will we see the tariff impact? Yes, we are
0:07:02 seeing the tariff impact. It is starting to show up in earnings reports. And it’s not showing up in
0:07:07 a forward-looking way like we saw in the previous batch of earnings, where you had companies saying
0:07:12 that, you know, there’s an uncertain tariff environment. And, you know, you, we can expect in
0:07:19 the future, a hit to earnings, a hit to profits, giving guidance that was ambivalent. This is
0:07:25 backward-looking. These are companies saying, in the previous quarter, our profits were smaller
0:07:29 because of the tariffs. That’s what we’re seeing. Your reaction, Scott?
0:07:34 What is interesting is the Trump administration said that they thought this wouldn’t result in higher
0:07:39 prices that companies would absorb this hit. And so far, they’re right. General Motors did not feel
0:07:45 like they had the competitive positioning or the margin power to pass those costs on to the consumer.
0:07:49 So they took a hit to their earnings. Now, they would have much rather just passed it on to the
0:07:57 consumer. But on a more meta level, what I see is, I think 2000 or 2025 will be seen as the year that
0:08:03 late-night TV just went away. And also that the U.S. auto industry basically entered the eighth or ninth
0:08:10 inning of a not a cyclically driven decline such as 08 or the recession in 91 or 92. But I do think
0:08:16 this is kind of the end of the U.S. automobile manufacturing, not even dominance, but preeminence
0:08:21 for one of the two or three best manufacturers in the world, mostly saved by gigantic trucks.
0:08:27 But if you look at a few things that have happened, one, the old guard has announced that these tariffs
0:08:31 are now making a material impact on shareholder value, which eventually
0:08:36 snakes through the economy. They have less money to invest in new factories, new models, less
0:08:41 employment, fewer people with good jobs, fewer car purchases, and you start, you know, this kind of
0:08:47 downward spiral. In addition, our new champion, which has a market cap larger than the rest of the
0:08:55 industry combined, Tesla is really floundering. I mean, there is just the delta between a trillion
0:09:02 dollar market cap and a PE of 180 in a company whose auto sales have declined 12% year on year.
0:09:08 16%. Sorry, I just want to correct because overall revenue for Tesla as of this earnings that we just
0:09:13 saw last week, overall revenue down 12%, but auto sales down 16%.
0:09:18 That’s right. Their services, their charging station was up, which took that 16% number down to 12%. So
0:09:24 to your point, a 16% decline in auto sales has got to be one of the biggest declines in the auto
0:09:31 industry globally. And yet this company trades at 180 times earnings. That cannot, those two things
0:09:36 cannot coexist. So you got our old guard in trouble because of tariffs. You got our new guard trying to
0:09:42 create distractions, whether it’s a diner with robots or trying to pretend this is an AI company and
0:09:49 spend a shit ton of money on AI and put an AI. Effectively, what you have is with Tesla, you have
0:09:56 a guy who is a genius in terms of the intersection between capital markets and shareholder value and
0:10:03 has realized a lot of it is perception. That 180 PE is a function of your ability to create a perception
0:10:07 that you’re the market leader and that you’re an innovator and disruptor. So he’s saying, look over
0:10:12 here, we’re going to build AI and we have a dining company and flamethrowers and tequila and this is
0:10:17 an AI company. He’s doing anything he can because of his $1.4 trillion in market cap across his company,
0:10:24 SpaceX, Tesla, Twitter. The majority of it is tied up in a company that is about to implode in terms of
0:10:30 market cap and that’s Tesla. So you have GM getting hit hard, Tesla, which in my opinion,
0:10:35 is the most inflated bubble in the world right now. And then you have this new agreement, and we
0:10:43 talked about this yesterday, where effectively Japan has got, has said, okay, zero tariffs, big win for
0:10:47 the U.S. on cars coming in. And this stat, which we talked about yesterday, just blew my mind.
0:10:54 About 50 or $54 billion of Japanese autos come into the U.S. We purchase about $54 billion of Japanese
0:11:01 cars. They purchase $2 billion of U.S. cars. So fine. Yeah, no, no tariffs on your cars. Doesn’t
0:11:06 mean anything to us. So what do you have? You have an economic and trade policy that is hurting U.S.
0:11:12 auto companies. You have our champion, Tesla, basically shitting the bed like no tomorrow.
0:11:17 And you have the old guard, General Motors, saying, okay, these tariffs are really hurting us. And then
0:11:24 you have Japanese cars just got less expensive for American consumers, which means U.S. companies,
0:11:28 U.S. automobile companies are going to cede share to Japanese automobile companies.
0:11:34 It’s so funny how both the old guard of the auto industry and the new guard of the auto industry are
0:11:39 being poisoned by the same thing, which is Trump. Interesting, yeah.
0:11:45 For different reasons. So, for example, I mean, Tesla, we just talked about some of the earnings
0:11:53 there, missed on EBIT, missed on EPS, huge miss on free cash flow. This was like an awful, awful quarter
0:12:00 for Tesla. And the stock is down 8% after they released these earnings. And why is that happening?
0:12:06 It’s a brand issue because Elon decided to get in bed with Trump. And you can say that,
0:12:11 oh, the market’s woke, whatever you want to say. But the reality is, that’s why Tesla is getting
0:12:17 impacted because it was poisoned by an association with the president. That is just the plain reality
0:12:23 of their situation. Meanwhile, the old guard, as you say, General Motors, they are getting impacted by
0:12:30 the tariffs. Their net income fell 35%. They took this more than $1 billion hit because of the tariffs.
0:12:38 And their stock is also down by a similar amount, down 8% after that news. And so they’re both being
0:12:46 poisoned by Trump. Meanwhile, as you say, you look at all of the Japanese car companies, which ripped
0:12:55 after the trade deal. 11% for Honda, I believe, up 16% for Mazda, 17% for Toyota. All of those stocks
0:13:02 are ripping. So it’s just so funny, this idea of, you know, we’re going to implement these tariffs and
0:13:07 all these foreigners are going to pay for it. And what we’re seeing is like, no, no, no, that’s not
0:13:14 that’s not the case at all. To your point, GM is eating the tariff here. They have not released any
0:13:20 price increases as of yet. I bet that that’s going to happen later down the line. But basically what’s
0:13:25 happened is you’ve put the tariff up. It hasn’t affected the Japanese companies. They’re good.
0:13:32 And meanwhile, who’s getting hurt? General Motors, i.e. the shareholders of General Motors.
0:13:38 So shareholders are the ones who are eating the tariffs right now. Now, the other thing that I would
0:13:45 add to this, as you said, these companies are eating the tariffs right now. And I can expect that that’s
0:13:49 where the conversation is going to go. And people are going to say, look, Trump was right. You know,
0:13:55 we put the tariffs up, but look, General Motors is eating them. What I would just add is that
0:13:59 there are different things we’re talking about here. There’s the impact to earnings and there’s
0:14:05 the impact to prices. And the first stage of these tariffs, what we’re going to see is an impact on
0:14:10 earnings. And that’s what we’re beginning to see this quarter. But the pricing impact is going to
0:14:17 happen later down the line when these companies realize that their earnings have been hit. They sort
0:14:22 of digest that price, that impact. And then they decide, OK, do we want to pass this on to the
0:14:28 consumer? And what we’ve seen from Goldman Sachs is that 70% estimated of those costs are going to be
0:14:32 passed down to the consumer. But it’s going to be on different timelines. If you’re selling cars,
0:14:36 which are very expensive, then you’re probably going to do it later. But if you’re selling,
0:14:44 for example, cheap consumer products, if you are Walmart, for example, you’re probably going to pass
0:14:49 the costs on earlier. And in fact, that’s exactly what we’ve seen. Walmart is already raising their
0:14:55 prices because of tariffs. We’ve seen the same thing from Best Buy. They’ve both publicly talked
0:14:59 about it. And then Amazon has also been raising their prices, though, of course, they’re not announcing
0:15:07 that. They’re trying to pretend that this has nothing to do with the tariffs. So many things happening
0:15:12 here. But I guess what I would emphasize is you have a hit to your earnings. You have a hit to your
0:15:19 bottom line. Management then assesses the impact. And then we see the price increases later. So I think
0:15:21 we’re still going to see that with GM.
0:15:26 It’ll probably be a mix of the two. But at a very basic level, what you have with the tariffs
0:15:33 in the automobile industry is that essentially you’ve transferred stakeholder value from General
0:15:39 Motors to the government. But it’s as if the government just said, OK, we’re raising taxes
0:15:45 on General Motors. And you can either pass along those additional costs to consumers or you can
0:15:49 eat it in terms of your earnings. And tariffs, generally speaking, are innovation killers because
0:15:54 the government isn’t great at when it’s not systemic. If you need to raise taxes on companies
0:16:00 across every company to make them equally, you know, they all take the same hit. That increases
0:16:07 competition. You need to have taxes. Fine. But when you start punishing certain key industries
0:16:13 unwittingly, you know, the manufacturing industry, people would argue, is important because they’re
0:16:19 generally good middle class jobs and they’re labor intensive. And we have a history in
0:16:24 manufacturing. And also people say it’s important that we have factories that we can convert to
0:16:30 making tanks if need be, that we need to actually make stuff. But these tariffs, I mean, somebody has
0:16:37 to pay. And right now, what you would see is that the losers are GM shareholders. So far, consumers
0:16:43 don’t appear to be losing. Japanese companies in the next two quarters will announce market share gains
0:16:47 at the cost of U.S. automakers. And then you would say, well, the government’s winning. They’re
0:16:55 getting tariffs. Over the long haul, almost every economic study is that the decrease in competitiveness
0:17:01 and the destruction in economic activity means lower tax revenue over time because the economy shrinks.
0:17:15 We’ll be right back after the break with a look at Oracle and OpenAI’s new partnership. If you’re enjoying the show
0:17:19 so far, be sure to give Prof G Markets a follow wherever you get your podcasts.
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0:18:37 I can finally speak unvarnished truth to power and say what I really think about Donald Trump starting
0:18:43 right now. Everyone’s wondering why CBS canceled The Late Show with Stephen Colbert. Stephen Colbert is
0:18:48 wondering. How could it purely be a financial decision if The Late Show is number one in ratings? A lot of
0:18:54 folks. Jon Stewart is wondering. The fact that CBS didn’t try to save their number one rated
0:19:01 network late night franchise that’s been on the air for over three decades is part of what’s making
0:19:08 everybody wonder, was this purely financial? Jimmy Fallon wondering. I don’t like it. I don’t like
0:19:13 what’s going on one bit. These are crazy times. Elizabeth Warren is asking questions. Sean won’t stop
0:19:18 sending links. On Today Explained, we may never really know whether CBS canceled Colbert because
0:19:23 politics or because his show was losing money. But President Trump is hitting at the media in so
0:19:28 many ways that it’s been hard to keep track of them all. We’re going to make it easier. Today Explained
0:19:37 every weekday. Hey, this is Peter Kafka, the host of Channels, a show about media and tech and what
0:19:43 happens when they collide. And this may be hard to remember, but not very long ago, magazines were a
0:19:49 really big deal. And the most important magazines were owned by Condé Nast, the glitzy publishing empire
0:19:55 that’s the focus of a new book by New York Times reporter Michael Grinbaum. The way Condé Nast elevated its
0:20:01 editors, the way they paid for their mortgages so they could live in beautiful homes. There was a logic
0:20:08 to it, which was that Condé Nast itself became seen as this kind of enchanted land. You can hear the rest
0:20:12 of our chat on Channels, wherever you listen to your favorite media podcast.
0:20:26 We’re back with ProfG Markets. Oracle and OpenAI are dramatically scaling up their AI
0:20:32 infrastructure with an additional four and a half gigawatts of new data center capacity. The move
0:20:38 builds on the Stargate initiative, which is a $500 billion project that they announced back in January.
0:20:44 With the addition of this new capacity, OpenAI says it will soon operate more than five gigawatts total,
0:20:49 powered by more than two million AI chips. For context, one gigawatt is enough to power
0:21:01 roughly 750,000 homes in the US. So, Scott, I mean, the headline here is OpenAI has a contract with
0:21:09 Oracle and they’re going to pay Oracle $30 billion a year, which by the way is three times OpenAI’s ARR.
0:21:16 They’re at $10 billion in ARR per year. They’re about to pay $30 billion a year. How are they going to
0:21:21 pay for it? I mean, funding, but it’s unbelievable. And that’s going to give them four and a half
0:21:27 gigawatts of capacity per year, which is the equivalent to two Hoover dams. So just unbelievable
0:21:35 capacity. That’s the headline. The largest story here is just this mass acceleration and investment
0:21:41 in data centers. We just saw the Google earnings last week. They just reported their earnings.
0:21:47 They raised their CapEx guidance to $85 billion for the year. We also saw the same thing with Meta.
0:21:53 When Meta previously reported their earnings, they raised their CapEx to $72 billion. We’ll see if it
0:22:01 goes even higher in the next earnings report. Also, Meta is now building a data center in Louisiana,
0:22:08 which will be the size of Manhattan. And then if you combine the CapEx investment of Meta, Google,
0:22:14 Microsoft, and Amazon, it adds up to $340 billion this year, which is more than the GDP
0:22:22 of Finland. So there was this story of big techs getting into data centers. They’re starting to build
0:22:27 these things out. And they’re starting to raise their CapEx. And what we’re seeing now is like,
0:22:35 all of that is happening times 10. They’re only scaling up even faster. And this is yet more proof
0:22:42 of that between OpenAI and Oracle. Your reactions to that deal and what we’re seeing with data centers
0:22:42 in general.
0:22:48 This is an arms race for the ages. And I mean, there’s a few things here. The first is,
0:22:55 Larry Ellison probably doesn’t get the credit. He is sort of a first ballot Hall of Famer in business.
0:23:01 And that is, he pivoted from a different capital strategy to the benefit of his shareholders. When he
0:23:06 took the company public, I think he owned 27% of the company, and now he owns 41. Now, how did he do
0:23:10 that? When Oracle became this database company that was mature and not growing that fast, but spending
0:23:16 off a lot of cash, they, i.e. Larry, who I think controls the company, made the decision to use that
0:23:25 cash flow to buy back shares. And now he owns 41%. And then he saw AI. And he decided, okay, it’s time to pivot
0:23:31 our CapEx strategy and go really hard and take profits way down and invest massively in the
0:23:37 infrastructure. Because essentially what this deal is, is Oracle is going to provide OpenAI the tools
0:23:44 it needs to train and run its AI models faster. And that includes access to GPUs, storage, high-speed
0:23:51 networks, and custom systems to manage all their data efficiently. And their Oracle’s cloud infrastructure
0:23:59 business is now 43% of their total revenue and grew by over 50% last quarter and is expected to
0:24:07 accelerate to 70% this year. And as a result, Oracle, the stock is up 45% year-to-date and trades at a PE
0:24:14 ratio of 56X, which is about the same as NVIDIA, which is far above its five-year average of 27X. And this
0:24:19 is visionary. This is a company saying, all right, we used to be this mature company that returned money
0:24:25 to shareholders. Fuck that. We’re going all in on AI. It’s worth, it was probably a couple of pretty
0:24:29 uncomfortable earnings calls where they said, we’re taking down our profits. And they said, okay, there
0:24:34 needs to be more than one infrastructure company other than NVIDIA training these LLMs and providing
0:24:40 the backend. It also says that Sam Altman, who I think is brilliant, has said, okay, we want to focus on
0:24:46 the white meat, the kind of the technology, the design, and the front end and becoming like Kleenex or Xerox.
0:24:52 We want to become the default term for AI searches. And so far it’s working, despite the brain drain and
0:24:57 Mark Zuckerberg offering people hundreds of millions of dollars in a date with Lauren Sanchez if they come
0:25:07 work at his firm. I don’t know where I got that one. Anyways, essentially, open AI is still every day
0:25:12 seems to garner more and more market share. It feels like right now they’re running away with it. And Sam has
0:25:18 said that the key to maintaining that leadership is focus and he is going to outsource much of that
0:25:24 backend infrastructure. And he is so confident in the acceleration in their revenues that they’re
0:25:29 willing to commit to a contract that with one vendor that’s equivalent to, as you pointed out, three times
0:25:35 their current annual revenues. And also, I mean, there’s just no kidding around. People consistently
0:25:41 asked me living in London, what’s the difference between London and the U.S.? I’m like, what tech
0:25:47 company is nearly exciting enough that people are just going to throw hundreds of tens of billions
0:25:53 of dollars at a prospective speculative investment around this company? So I think it’s just super
0:26:00 exciting that, A, not only are these companies executing so well, but America continues to be the place
0:26:08 It’s like, oh, we are not afraid to take enormous risks. So I, one, Ellison is a genius who is probably
0:26:14 not mentioned enough in terms of how iconic a business person he is in the strategy. Open AI is
0:26:21 focusing on the front end. And I think it’s inspiring that America continues. Where the fuck else is anyone
0:26:24 doing anything like this? Anything remotely like this?
0:26:30 I agree. And by the way, because of this, Larry Ellison is now the second richest person in the
0:26:38 world. He’s worth $293 billion, ahead of Mark Zuckerberg, who’s at 251, ahead of Bezos, who’s at 249.
0:26:40 Still behind Elon.
0:26:47 You can bet Bezos is not going to introduce Lauren to Larry. He knows better. He knows better.
0:26:52 But I want to take a quick victory lap for myself because this was one of my picks last year
0:26:58 for exactly this reason that we’re seeing. This was, here’s a clip.
0:27:03 I love this. You’re learning, patting yourself on the back. You’re learning.
0:27:06 Ah, the student becomes the master.
0:27:08 Here’s a clip of me being right.
0:27:09 Okay, there you go. Let’s listen to it.
0:27:17 Earlier this year, I said I was bullish on Oracle. My thesis here was that Oracle is kind
0:27:21 of the fourth musketeer when it comes to cloud computing. The options are basically Amazon,
0:27:28 Google, Microsoft, or Oracle. And my view was that Oracle is a really attractive company for
0:27:34 AI companies, especially AI startups, because Oracle is the only one that isn’t actively developing
0:27:39 its own LLM. So if you’re an AI company and you want to compete with the likes of Microsoft,
0:27:46 who’s developing Copilot and working with OpenAI and ChatGPT, or Google with Gemini, you probably
0:27:50 don’t want to be also paying them to keep your lights on. You’d probably rather go with a compute
0:27:56 provider who you ultimately won’t be competing with. In this case, that would be Oracle.
0:28:06 So that was last year. The stock is up 45% year-to-date. It’s up 75% in the past year. And since I first
0:28:14 made the prediction about Oracle and its role, and just my bullish position on its role in cloud
0:28:20 computing, it’s up more than 100%. What was interesting and that what we’ve seen is I wouldn’t
0:28:27 have expected that OpenAI would go to Oracle, but they are ultimately, I think, going to Oracle for the
0:28:32 same reasons which I predicted, which is that OpenAI is now having issues with Microsoft.
0:28:39 And they kind of regret that they sort of signed their soul away to be owned by Microsoft and
0:28:45 ultimately controlled by Microsoft. And now it’s becoming this very tenuous and difficult relationship.
0:28:51 We obviously saw OpenAI buying that company, WindSurf, and then they couldn’t buy them in the end because
0:28:56 Microsoft said they wanted to have all the rights to the IP, which didn’t make sense because WindSurf
0:29:02 was supposed to be a competitor to Copilot, et cetera, et cetera. We have this issue arising where
0:29:10 OpenAI is realizing, oh, wow, we sold ourselves to someone who is a competitor, or at least who will be a
0:29:16 competitor if we really want to play ball here. And so I think that is a big reason why they are
0:29:23 switching over to Oracle, because they’re realizing, OK, we need to kind of get away from this sort of
0:29:29 adoptive parent relationship we have with this big tech company. Let’s go to someone else who we don’t
0:29:34 want to compete with. Let’s go to Oracle. And I think that’s definitely the dynamic that is playing
0:29:40 out for many other AI startups as well, which is why you’re seeing this massive increase in Oracle’s
0:29:46 cloud revenue, as you said, up 50% year over year, their fastest growing business.
0:29:51 So a couple of things. I asked Anshalan, our analyst, to pull together a brief explainer because I said,
0:29:56 I’m having trouble discerning between a data center and an AI data center. So data centers are giant
0:30:02 computer warehouses that store, process, and send information for all types of things, including cloud
0:30:10 storage, apps, and sites. AI data centers are specialized versions of these warehouses that contain GPUs to
0:30:16 train and run artificial intelligence models. So they’re focused on the specified or specific
0:30:23 compute to train these models. They’re much more, as it ends up, energy intensive. Data centers provide
0:30:28 processing power for it as compute. The more GPUs the data center has, the more compute it can deliver.
0:30:34 And then at the very beginning are power plants that generate the electricity that keeps data centers
0:30:41 running. AI data centers, as you can imagine, use huge amounts of energy. What’s interesting about
0:30:47 the infrastructure side, and now Oracle’s basically wants to be, I would imagine Larry Ellison, his dream
0:30:53 is he wants to be on stage next to Jensen Huang, right? He wants to be, he wants to be, you know,
0:31:01 the John Oates, was it Daryl Hall and John Oates of AI compute infrastructure, right? He wants to be the
0:31:07 Ginger Rogers, right? Okay, fine. You can be Fred Astaire, or I’ll be Jerry Lewis, and you can be Dean
0:31:11 Martin. I’m trying to think of great duos, but I’m not doing a very good job here.
0:31:12 Yeah, Ed Ellison.
0:31:16 There you go. Now, but you’re number one. He wants to be, he’s willing to be Scottie Pippen to
0:31:22 Jensen Huang’s Michael Jordan. But if he can be the number two infrastructure player here, he’s going
0:31:28 to do really well because the infrastructure, if you look at NVIDIA, NVIDIA’s top customers, their CapEx
0:31:36 has grown one and a half times as fast as revenue. So their customer base is not only the customers or
0:31:40 the companies that have the fastest growing top line revenues in the world, but they’re spending
0:31:46 50% more than the revenue growth on infrastructure. And just let me go back to Oracle.
0:31:52 When I moved to New York, when I thought I was going to be rich, I moved to New York and thought,
0:31:55 okay, I’m going to be a professor, and I joined the faculty of NYU. And do you know what my first
0:32:01 year salary was at NYU as an adjunct professor? I’m going to guess $30,000.
0:32:10 $12,000. But anyways, how I got here and how this is relevant, the universities have exceptional
0:32:16 benefits and they’ll match up to 10% of your salary in your retirement plan. And I picked two stocks.
0:32:24 I picked Oracle and I picked Nike. And this is back in 2002. And I always put, and this is my advice to
0:32:29 young people, the first thing you do when you get a job anywhere, anywhere, you go to HR and you say,
0:32:37 what tax advantage investment programs do you have here? And you max them out. Max them out. And ideally,
0:32:41 it comes right out of your check. So that money never floats through your hands.
0:32:48 And the Nike investment has not paid off. I’ve owned Nike stock for 22 years. It was great for
0:32:54 about 10 or 15 years. The stock is at kind of a 10-year low now. And Oracle was a fairly mediocre
0:32:59 performer. And then the last 10 years, it’s just skyrocketed. Anyways, I have Nike and Oracle in my
0:33:02 401k. So thank you. Thank you, Larry Ellison.
0:33:08 Just going back to what you said about what actually is a data center. I think it can be
0:33:13 confusing to people because one thing that we’ve seen in the media and the way that this has been
0:33:20 reported on, this deal between OpenAI and Oracle, is that a lot of people are calling it an AI power
0:33:25 plant. People are thinking of it as this is literally a place where you generate power. And I think it is
0:33:33 confusing because, as I mentioned, they’re going to rent out 4.5 gigawatts of power, which makes you
0:33:41 think Oracle is in the business of building, I don’t know, electricity generators or dams or nuclear
0:33:46 power plants. That’s not what’s going on here. This is a data center. And just to sort of remind you of
0:33:53 what is the AI supply chain, what happens when you type in a prompt on ChatGPT, what is the supply chain
0:34:00 of events that leads to that prompt showing up on your screen? The first thing you’ve got is the power
0:34:09 generation by the energy companies and a variety of energy companies. You use that power to power the
0:34:15 chips that are made by NVIDIA that are in the data centers. And the data centers, those are owned and
0:34:25 operated by Oracle and by AWS and by Microsoft, etc. And their job is basically to manage all of the
0:34:35 computing power in those chips and to turn it into a menu of options that is easy for OpenAI to basically
0:34:42 plug in and say, we want to host our software services on your server. So that’s sort of the
0:34:49 difference. You’ve got the power being generated. The power goes into the data center. Oracle, Amazon,
0:34:56 they operate those data centers. They operationalize, manage it, scale it, and then they rent it out to
0:35:01 people. And so that’s what’s really happening here. And so when we hear that term, four and a half
0:35:08 gigawatts, basically that’s another way of saying Oracle is renting out four and a half gigawatts
0:35:16 worth of computing capacity to OpenAI. So I just think it’s a good reminder of what is actually
0:35:22 happening in the AI world and what actually is a data center. Final point before we move on here.
0:35:32 Trump last week announced his AI action plan, which happened at an event that was hosted by the All In
0:35:40 podcast. Let’s just go through what the plan is. First off, he just got rid of Biden’s AI executive
0:35:46 orders. He said that that was bad and he’s issuing a new plan. Okay, what is he going to do? He said he’s
0:35:52 going to withhold funding from any states that impose any AI regulations. This was a big question.
0:35:58 States wanted to get their act together on AI. And he’s saying, no, if you do that, you’re not going
0:36:03 to get any funding. So that’s the first thing. And that actually is pretty substantive. He also said
0:36:08 he’s going to launch, quote, creative approaches to export control enforcement, which is basically like
0:36:15 a non-answer to the question of what are we going to do with these NVIDIA chips, which China wants.
0:36:20 There’s been all these questions. What are we going to do with all of these exports? Are we going to limit
0:36:24 the export controls? He gave no clarity on that. So that was the other thing that happened.
0:36:31 He denounced the U.S. permitting process, saying that it is, quote, impossible to build data centers,
0:36:37 which, by the way, is false. The U.S. has more data centers than any other country, over 5,000.
0:36:42 And the second best is Germany, which has just 529. So we have a permitting problem in terms of
0:36:46 housing. We don’t have a permitting problem in terms of data centers. And I think Meta is proof
0:36:53 they’re about to build a data center the size of Manhattan in Louisiana. So another sort of
0:36:57 distraction. But the final, and I think this is what it’s really all about, and I think this is
0:37:05 really what he cares about. The final plan, well, I’ll let you guess. What do you think is the number one
0:37:11 mission of the new AI plan under the Trump administration?
0:37:16 To transfer wealth from Los Angeles, New York, and the rest of the nation to his buddies in San
0:37:22 Francisco by violating having absolutely no guardrails or having kind of the Wild West in
0:37:26 terms of their ability to crawl, pervert, and monetize other people’s IP?
0:37:34 Yeah, I think that’s probably the subtext. That’s the reality of the plan. That’s not the thing that I
0:37:34 was thinking of.
0:37:35 Go ahead. What is?
0:37:37 It’s to get rid of wokeness.
0:37:37 Oh, God.
0:37:44 So the plan is to, quote, revise the AI risk management framework to eliminate references to
0:37:49 misinformation, diversity, equity, and inclusion, and climate change.
0:37:54 So, you know, the definition of socialism is that when the government decides they should control
0:37:59 the means of production outside of systemic regulation, so deciding you need a golden chair
0:38:03 because you know how to run a steel company, or to decide what is woke or not woke, or decide
0:38:09 if, you know, who Colombia should or should not be admitting. This is all socialism. This is the
0:38:13 government. This is so anti-Republican that the government knows better than the private sector.
0:38:18 By the way, we should call it not his AI policy, but his AI Epstein policy. All of this is a
0:38:22 distraction from the real story that he’s trying to distract from. But anyways, Rocio Epstein,
0:38:27 the Epstein tariff policy, the Washington Epsteins, not the commanders. Anyways,
0:38:33 the thing I take away from this is this is that moment in time when we passed 230, which at the time
0:38:38 made sense, but now no longer makes sense, where this effectively is a transfer of wealth from old
0:38:43 media companies to AI. Because old media companies have to spend a lot of money putting Anderson
0:38:49 Cooper on the ground in, you know, in Iran or wherever. They take huge risks. They spend a lot
0:38:54 of money fact-checking and making sure that Stephanie Ruhle has the right language and looks great and has a
0:39:00 cool studio. In fact, I mean, this shit’s expensive. Traditional media, writing books, producing,
0:39:05 producing music videos, it’s really expensive and hard. And basically what they’ve opted here is they
0:39:12 said, you can just steal all of it, process it, figure out a way to make, slice it up and make,
0:39:18 take a one pound block of cheese and turn it into 16 slices that are worth more. And we don’t mind.
0:39:24 And now I’m of two minds on this. America has a tendency to be kind of ready, fire, aim, and that is
0:39:29 err on the side of a lack of regulation. And I do think there’s a solid argument that America’s economic
0:39:38 growth could largely, one of the many factors could be that we let our horses run. And that’s what
0:39:42 they’re doing here. They’re saying, don’t get in the way of AI. AI is driving the markets, 40% of the
0:39:48 S&P. S&P is 50% of the world equity markets. Let our thoroughbreds run. And I actually found this
0:39:55 policy more thoughtful than a lot of the policies they’ve put out. I think David Sachs or whoever’s
0:40:03 advising him has said, okay, let’s at least touch on the key points and let’s pretend we’re good at
0:40:06 governance and we’ve actually been thoughtful about this. I thought this was actually one of the more
0:40:11 thoughtful releases from the company, but they have said, effectively, like we did in 97 with Section
0:40:17 230, we are opting for the new guys. Now, the economic argument would be, okay, if you fuck over
0:40:24 Penguin Portfolio, Ramden House, Simon & Schuster, Warner Brothers, basically every traditional old media
0:40:29 company and we take money from them, we take their $1, which they get 50 cents for in the market,
0:40:35 and we turn it into $6. But you’re going to see a continued erosion in original IP and the creative,
0:40:39 you know, the people who want to go into journalism, people who want to go into the arts.
0:40:45 It’s a transfer of wealth from the creative community to the technology community in San Francisco.
0:40:51 And just one final point on the wokeness. The market can decide what’s too woke for itself.
0:41:00 Like, if the people decide that the algorithms are too woke, then they will decide that and they’ll go
0:41:07 for the algorithms that are less woke. They’ll go for Grok or they’ll go for ChatGVT. So the idea that
0:41:12 we’re still going on about this woke thing and we need the president to come in and say,
0:41:19 we’ve got to end the wokeness in AI. It’s just, I’m just getting so tired of this stuff. It’s like,
0:41:27 wokeness was a thing half a decade ago. Like, do we really need to keep on rehashing this and hitting
0:41:34 the nail on the head? And to your point, it’s just, it’s a fun talking point that he knows kind of hits
0:41:42 for people. It gets them annoyed and riled up against the annoying libs. Meanwhile, it sort of
0:41:47 distracts from all of the other issues with the tariffs and with Epstein and with Epstein and with
0:41:56 Epstein. And so that’s why he’s hitting on it. But again, it’s just, it’s a waste of time is what I
0:42:03 would say. Agreed. We’ll be right back after the break with a look at a resurgence in meme stocks.
0:42:07 If you’re enjoying the show so far, hit follow and leave us a review on Profty Markets.
0:42:26 Every so often you say a combination of words you never expected to say, such as Tesla,
0:42:31 opened a diner in Los Angeles. This week on The Vergecast, we talked to a writer who went there,
0:42:37 ate the food, and saw a lot of Cybertrucks. Also, Apple’s making a big design change to its
0:42:42 operating systems. It’s called Liquid Glass, and the public can finally try it. Our reviewers have
0:42:47 been testing it for weeks, and they have some strong opinions about how it looks. Finally,
0:42:52 it’s summer blockbuster season. We talk about the new media circuit that movie stars have to endure
0:42:58 to promote their projects. A lot of it involves being chicken. That’s this week on The Vergecast.
0:43:09 Barry Diller was behind many of America’s favorite movies and shows. Now, he’s giving an intimate look
0:43:15 into his personal life. To me, business risks were meaningless. I couldn’t care less about business
0:43:20 risks. I’m Preet Bharara, and this week, Diller joins me on my podcast, Stay Tuned with Preet,
0:43:27 to discuss his sexuality, the end of Hollywood, and how the media industry broke. The episode is out now.
0:43:45 We’re back with Prof G Markets. The meme stock craze has returned. Krispy Kreme, GoPro,
0:43:51 Beyond Meat, and 1-800-Flowers all skyrocketed in volatile trading sessions last week. Shares of
0:43:58 Opendoor jumped as much as 121 percent, and Cole’s stock more than doubled. None of these rallies were
0:44:04 tied to earnings or to any actual news with the company. Instead, they were fueled by social media
0:44:12 chatter, especially on Reddit’s WallStreetBets page. It’s funny, just after this happened,
0:44:17 you know, everyone was talking about the meme stock craze is back. And then suddenly,
0:44:23 American Eagle announces this new ad campaign with Sidney Sweeney. Everyone starts talking about it
0:44:30 online, gets a ton of social media buzz. And then within a day, meme stock movement happens. Shares
0:44:37 in American Eagle rise more than 20 percent, which was more than $200 million in market cap added to the
0:44:44 company just because of this Sidney Sweeney ad. So basically, what we have is meme stocks are back.
0:44:50 Obviously, the GameStop craze happened in 2021. That was a huge deal. There were sort of questions
0:44:59 over, is this a once-in-a-lifetime thing? Is this a one-off? Or are meme stocks here to stay?
0:45:05 This is our proof. Meme stocks are here to stay. This is just a systemic part of the market now,
0:45:11 and we’re seeing this resurgence that really hit kind of a boiling point this week.
0:45:15 So, Scott, your initial reactions to what we saw in terms of meme stocks this week?
0:45:21 I think it goes back to the financial crisis, or the Great Financial Recession, and that is up until,
0:45:31 really up until COVID, we had this natural cycle in our economies where capital aggregates more and
0:45:38 more power, and then there’s an exogenous event, a war, famine, a recession. And there is a natural and
0:45:44 healthy redistribution of capital back from the owners to the earners. What do I mean by that?
0:45:48 There’s a war. The factory gets bombed. The guy who owned the factory loses a shit ton of money,
0:45:53 but you still need people to build a factory. They have more margin power, and there’s a redistribution
0:46:00 back in wealth. When the 2008 recession, Great Financial Recession happened, we bailed out the banks,
0:46:04 but we didn’t bail out the entire economy, and guys like me who were coming into the prime income
0:46:10 earning years back then had a chance to buy Apple, Amazon, as I’ve said, and Netflix for $8, $10, and $12
0:46:16 a share. But since then, since COVID came along, we said, no, we’re not going to let the natural cycle
0:46:23 of exogenous events take the incumbent’s wealth down and give entrants such as Ed Elson an opportunity to
0:46:28 buy Brooklyn real estate for $1,000 a foot instead of $2,000 a foot or a chance to buy stocks at a PE of
0:46:35 12 instead of 30. We’re going to use young people’s credit cards to prop up the value of incumbent’s
0:46:41 assets. And young people are smart. They said, you know what? Fuck this. I can’t buy a home. Stocks are
0:46:46 crazy expensive. So what am I going to do? I’m going to create my own asset classes, and I’m going to create
0:46:51 my own volatility. And I’m also going to weaponize mediums such as Reddit to try and inspire huge
0:46:57 spikes in stock prices such that I can make money. And you also collapse it with what I’ll call this
0:47:04 dopa monster generation, and that is buying and holding a Vanguard fund, it just doesn’t really
0:47:11 get your generation excited. This is a generation all hopped up on TikTok and snaps and streaks that is
0:47:18 used to a media dopa. They’re carrying around an arcade, a porn site, a casino in their pockets,
0:47:25 and they’re used to on-demand dopa. So a combination of one, they think the game is rigged,
0:47:28 so they’re not going to play the boomer’s game of investing in the market of real estate because they
0:47:33 can’t afford to, creating their own asset classes. And also, quite frankly, this is just straight up
0:47:40 gambling. This is a huge dopa hit. And then the algorithms love shoving in your face 210 times a day
0:47:46 screenshot from some douchebag in Miami that has made a million dollars buying Cum Rocket.
0:47:51 And also, on the Democrat side, when Nancy Pelosi leaves Congress with a quarter of a billion dollars
0:47:56 in wealth based on insider trading, young people naturally think the game is rigged. I’m not going
0:48:02 to participate in your game. Yeah, I think that’s exactly right. Just to go through the performances of
0:48:12 these stocks in the past week, GoPro is up 99%. Coles is up 30%. Opendoor up 20%. But it’s up over 390% in
0:48:17 the past month. And then it came back down. So just an example of how these things can kind of go wrong.
0:48:26 And Krispy Kreme up 40%. And I think it’s definitely true that this is a young man’s game. And I think that
0:48:32 is exemplified in the fact that what’s the meme stock that we saw rip at the end of the week,
0:48:38 it was the company that paired up with Sidney Sweeney, who has become just sort of like the icon
0:48:48 of the kind of young male incel movement in a lot of ways. And so, yeah, she’s driving hundreds of
0:48:57 millions of dollars worth of value for this company within a day. And it’s just unbelievable. And to your
0:49:06 point, I think the reason that this is happening is because it’s fun. And it’s, you know, it’s a
0:49:13 distraction and it involves social media and it’s social, etc. But as you say, young people have such
0:49:20 a small menu of legitimate investment options. I mean, as you say, you’ve got the S&P trading at around
0:49:27 25 times earnings. When my parents were my age, it was trading at 11 times earnings. We just saw the home
0:49:38 price data last week. Average price of a home hit another record high, $435,000 for the median home
0:49:43 in America. And then also, we can’t really invest in startups either, because as we’ve discussed a lot,
0:49:48 these startups, these really successful startups like OpenAI, SpaceX, they’re not going public.
0:49:55 And so, young people and retail investors are gated out. So, you can barely even invest in AI. Or if you
0:50:01 do want to invest in AI, you’ve got to invest at these high PE multiples with these big tech companies
0:50:10 that are sort of consuming AI. So, to your point, we invent new asset clauses. We invent crypto.
0:50:19 And we invent meme stocks. And we have a lot of fun doing that. But I think the big warning that I would
0:50:27 clarify, I feel like my generation has this feeling that these meme stocks and these crypto movements,
0:50:34 that it’s a very sort of us versus them mentality, where we’re taking on the big bad banks and we’re
0:50:39 taking on the big bad institutions. But what we’re forgetting is another big part of the story,
0:50:46 which is, by definition, it is actually us versus us. Because when you’re entering a casino,
0:50:53 it is a gambling game, and there’s a loser on the other side. Because remember, we’re not investing in
0:50:59 cash flows. We’re not investing in real businesses. We’re playing a game of musical chairs, where the only
0:51:05 way you can get rich off of this is if you sell at the peak. And the thing you’ve got to remember, last year,
0:51:12 meme stock investors lost $13 billion in one week. You look at GameStop, GameStop is down 70%
0:51:18 since its peak during the Reddit saga. So, the thing you’ve got to remember, okay, retail owned the
0:51:24 institutions. They owned the banks. They owned Melvin Capital. They also owned themselves.
0:51:30 A lot of people lost a lot of money here. And the same is true of crypto. And I think that’s the part
0:51:36 of the story that people kind of whisper. They love this dynamic of the young people taking on the old
0:51:42 people. And it’s really fun when the old people get screwed. But let’s be very honest, a lot of young
0:51:47 people are getting screwed too. It’s just that you’re not hearing those stories because they’re less
0:51:48 exciting to report on.
0:51:54 We’ve said in the algebra of wealth, we know how to get you rich. That’s the good news. The bad news is
0:52:01 it’s slowly and it’s boring. And this notion that you can get rich quick, you’re right. Anyone,
0:52:08 this notion, this bullshit notion, stick it to the man, right? When anyone tells you to stick it to the
0:52:12 man, that means you’re about to get a spear in your chest. And the person telling you to stick it to the
0:52:19 man is the man. So, you know, these things are fun. You know, what I would say is I love to gamble if
0:52:26 you get some dope ahead, but take at least 70, 80, 90% of your hard-earned dollars that you work so
0:52:33 hard to spend less than you make and save money and put it into the most boring, low-fee shit ever.
0:52:38 And if you talk to people who are wealthy and economically secure and can focus on their
0:52:44 relationships, they got there through really boring means. And just keep in mind, if you’re doing this,
0:52:50 you’re gambling. And not only is it the capital risk, it’s the amount of time you’re spending. I mean, it’s
0:52:58 just, I’m still working on how much time I check my stocks. I’m like, okay, that is not a good use of my time.
0:53:04 The final thing I would add on this, just in terms of the us versus them, retail versus institutions dynamic.
0:53:11 The other thing you have to keep in mind now is that a lot of institutions are in on the meme stock thing.
0:53:19 And a lot of institutions are actually spending money hiring these smart social media savvy young people
0:53:24 to help them figure out how to make all these arbitrage plays on the meme stocks.
0:53:32 And in fact, 40% of hedge funds are now using social sentiment analytics for their trading strategies
0:53:37 in 2025 compared to three years ago when it was 10%. In other words, hedge funds see what’s happening.
0:53:42 Their job actually is to trade. And so they’re investing and figuring out, okay,
0:53:47 how do we take the money from these meme stock pops? They’re hiring people who are tracking
0:53:57 Google search and tracking Twitter and tracking Reddit voraciously. And that’s now who you’re up
0:54:03 against. You might not have been up against that in 2021 when this first started happening,
0:54:09 but now that this is part of the markets, this is just the way of the world now. Yeah. The quant trading
0:54:13 firms, the hedge funds are now figuring out how to do this really, really well.
0:54:20 So another way to sort of burst this bubble that you’re one-upping the institutions. It’s probably
0:54:24 not what’s going to happen here. The happiest countries in the world are not a function of
0:54:28 what they have. They’re a function of what they don’t have. Specifically, they have an absence from
0:54:33 stress. When you find out in Norway that your wife has lung cancer, it doesn’t mean you’re also
0:54:38 going bankrupt. You don’t have to worry about your kid’s education. You know that good education is
0:54:44 free and available. And one of the things you want to think about as a young person is you want to clear
0:54:50 out opportunities for real downside depression and anxiety. And when you sign up and you start spending
0:54:56 any money other than what you could lose all of on something like a meme stock, you’re setting yourself
0:55:03 up for some really ugly moments that could trigger, you know, a fairly serious mental health episode.
0:55:08 And that is, it’s tempting when you’re boring and you’re bored and you don’t have a lot going on and
0:55:12 you get a little bit of money to think, okay, I’m going to believe Roaring Kitty or someone on Reddit and
0:55:18 I’m going to go all in on GameStop. And you might lose 70% of your money that you were planning to use
0:55:25 to re-enroll in, you know, junior college. And you really, it’s really mentally taxing. It’s really upsetting.
0:55:30 And the upside there, unfortunately, as a species, we don’t get as much joy from the upside
0:55:38 as pain we get from the downside. So what you want to do is find stocks that will, or invest in the
0:55:43 market, be diversified and let the economy and demographics take over and focus all of your
0:55:48 energy on building unique skills and relationships. And then wake up when you’re my age and realize you’re
0:55:53 economically secure. You are setting yourself up when you play this game to have a mental health
0:56:01 episode. It’s really, as someone who this has happened to a lot of times, I have stupidly set
0:56:08 myself up for months, not years, because I think I’m fairly resilient, of real mental health episodes
0:56:14 and anxiety and disliking myself and seeing the world through a dark colored lens because I decided,
0:56:18 oh, I’m smarter than everybody. I’m going to borrow money against my red envelope stock because we’re
0:56:24 clearly going public. And then when it didn’t happen, I’m really upset at myself and it’s not
0:56:30 worth it. And you think, well, you could have been worth a lot of money if you’d gone all in. Yeah. But
0:56:38 the upside, that potential upside was not worth the downside of that emotional hit to my well-being.
0:56:44 So if you want to have some fun, fine, have at it. But be clear. It’s like when I go down to the casino,
0:56:50 I expect to lose all of it and I only gamble the money, a maximum amount of money that if I lose
0:56:56 all of it, it doesn’t matter. It doesn’t fucking matter. Let’s go to Cirque du Soleil and then the
0:57:00 strip clubs or whatever and I’m fine. I don’t remember it. I don’t do either of those things.
0:57:07 Anyways, but you really want to be thoughtful not only about the return on your investment and the loss of
0:57:17 capital, you want to protect the downside of yourself emotionally because we’re sentient beings and your
0:57:22 emotions and how you feel every day are oftentimes more a function of your chemistry, but these things
0:57:28 can trigger really dark, depressive episodes. So I don’t like these things. I think they’re bad for the
0:57:34 mental health of America. I think they undermine confidence in the markets and they’re an externality
0:57:38 and an indication of just how fed up your generation is with mine.
0:57:46 Let’s take a look at the week ahead. We’ll see earnings from Spotify, Microsoft, Meta, Amazon and
0:57:52 Apple. It’s also a huge week for economic data. On Tuesday, we’ll get a read on consumer confidence
0:57:59 for July. On Wednesday, we’ll get the US GDP report for the second quarter and the Federal Reserve will also
0:58:05 meet for its next interest rate decision. A day later, we’ll see the personal consumption expenditures
0:58:10 index for June. That is the Fed’s preferred measure of inflation. And finally, on Friday,
0:58:16 we will see the US employment report for July. Any predictions, Scott?
0:58:26 Alphabet is going to outperform the market over the rest of the year. And if you look at its earnings,
0:58:35 supposedly AI is this existential threat. A search was up 13%. YouTube was up, I believe, 12%. It has
0:58:42 five amazing distinct units that have over 100. This thing is just a juggernaut and it continues to
0:58:50 perform. Its cloud unit is growing like crazy. And it trades at a P of 23 versus 26 for the broader
0:58:57 market. And I always say that let’s take two average S&P companies. And I always pick Dow and
0:59:05 P&G, which are amazing companies. Would you rather own Dow or P&G? Would you rather have Tide or Waymo,
0:59:10 the leading autonomous driving unit? So they’ve also increased their CapEx to 80 billion, which is
0:59:17 more than Meta and just behind Amazon at 100 billion. Microsoft’s at 80 billion and Alphabet’s going to be
0:59:25 at 85. They’re trading. Again, I just think they’re relative to the S&P. This existential overhang of
0:59:31 the threat of AI does not appear to be bearing out here. So look, I think this company, I think Alphabet
0:59:35 for the rest of the year is going to outperform the rest of big tech.
0:59:41 I totally agree. So undervalued. There’s just no question. I would love for us to get maybe a Google
0:59:49 bear on the program because I don’t understand what the market’s view is on this. I mean, it’s just,
0:59:54 it seems so obvious to me, and we’ve been saying it for so long. And every time we keep seeing earnings
0:59:58 and they keep on outperforming, I just don’t understand who are all these Google bears?
1:00:03 Why do these earnings reports come out? They crush earnings and then the market shrugs.
1:00:12 Like this has to end at some point. And so I would, yeah, violent agreement with you on that.
1:00:16 Five separate businesses that do 30 billion or more in annual revenue. Google search,
1:00:23 their display ad network, YouTube subscriptions, and seven products and platforms with over 2 billion
1:00:30 users. Search maps, Gmail, Android, Chrome, Play Store, and YouTube. And Waymo, which is hands down
1:00:33 the market leader that’s logged over a hundred million total miles.
1:00:39 All those growth vehicles, you’ve got AI, leader in AI, you’ve got data centers, you’ve got cloud,
1:00:46 you’ve got digital media, the most ascendant streaming platform, and the biggest, and somehow still
1:00:52 growing. And then if you want to get into robo-taxis too, you’ve got a monopoly on the U.S. robo-taxi
1:00:52 market.
1:00:56 And it’s cheaper than the S&P. I always say to people, when you’re talking about the upside to a
1:01:00 stock, we spend 90% of our time talking about its potential. You need to spend 50%,
1:01:04 percent of your time talking about it relative to its valuation. And that’s where Alphabet is the
1:01:08 buy here. Its valuation, it’s trading at a lower multiple than the average S&P company.
1:01:17 This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate
1:01:22 producer is Alison Weiss. Mia Silverio is our research lead. Our research associates are Isabella
1:01:28 Kinsel and Dan Shallan. Drew Burrows is our technical director. And Catherine Dillon is our executive
1:01:32 producer. Thank you for listening to Property Markets from the Vox Media Podcast Network. Tune in
1:01:34 tomorrow for a fresh take on the markets.
1:01:38 Lifetimes
1:01:52 You help me in kind reunion
1:02:05 As the world turns and the dark flies
1:02:09 In love, love, love, love
Scott and Ed break down how tariffs have impacted second quarter earnings so far and what’s in store for U.S. companies. Then, they dig into OpenAI and Oracle’s latest partnership. Ed explains why he has been bullish on Oracle for a while and Scott makes the case that Larry Ellison is one of the more underrated figures in tech. Finally, they look into the comeback of meme stocks, what it reveals about the economy, and why young investors could be left holding the bag.
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