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0:00:34 Hey, ProfG listeners.
0:00:35 It’s Ed.
0:00:40 If you’re hearing this message, it’s because you’re still listening on the ProfG Pod feed,
0:00:44 which means you’re missing half of our episodes on our ProfG Markets feed.
0:00:49 So for all of the content, head over to the ProfG Markets podcast and hit follow.
0:00:53 We’ve also left a link in the description to make it easier.
0:00:57 Thank you very much, and I’ll see you over on the other feed.
0:01:01 Today’s number 1.5, that’s the percentage of global stocks the Norway sovereign wealth
0:01:07 fund owns, making it the world’s largest single investor Norway, where the dating scene is
0:01:10 a song on a hike, and then you jump into a freezing river, and if you survive, you get
0:01:12 a second date.
0:01:23 Not really a joke, Ed.
0:01:24 Just sort of an observation.
0:01:25 Here we are.
0:01:26 Just an observation.
0:01:27 Let’s go Norwegian.
0:01:28 Okay, so this is our Cabbage here.
0:01:31 This episode is brought to you by Fundrise.
0:01:32 We think we’re Norway.
0:01:34 We think we’re rich and civilized.
0:01:37 Meanwhile, we’re arguing over Transcensor.
0:01:40 Meanwhile, we’re arguing over Chan.
0:01:43 Yeah, anyways, never mind.
0:01:45 Keep that in.
0:01:46 I’m getting so fucking old.
0:01:51 I think I’m, I think, I literally think I’m having one of several million strokes that
0:01:52 I’ve been experiencing.
0:01:56 You get to my age, Ed, a stroke is kind of like, I don’t know, it’s like a, it’s like
0:01:58 an erection when you’re age.
0:02:01 It just kind of happens when you’re least expecting it.
0:02:02 Every morning.
0:02:03 Don’t brag.
0:02:08 Don’t rub it in my face, literally, literally don’t rub it in my face, anyways.
0:02:11 It all comes back to the penis.
0:02:12 How are you, Scott?
0:02:13 I’m doing pretty well.
0:02:18 I found out I have to be in Orlando for a speaking gig, and at first I was bummed, and
0:02:23 now I’m like kind of sick of my kids, so I’m sort of excited.
0:02:27 So I’m headed to Orlando on Monday, and then I go up to New York for four days.
0:02:28 I’m excited about that.
0:02:32 I’m going to do our team strategy meeting, where you’re all going to present your plan,
0:02:36 and I’m going to say, you make too much money and you’re not growing revenues fast enough,
0:02:38 just so you know that’s the feedback you’re going to get.
0:02:39 I’m excited.
0:02:40 What about you?
0:02:41 What are you up to?
0:02:42 Let’s see.
0:02:43 I got my sister visiting this weekend.
0:02:44 That’ll be pretty fun.
0:02:45 You’re close with your sister, aren’t you?
0:02:46 Yeah.
0:02:48 I’ve gotten really close with her in the past couple of years.
0:02:50 I’ve always been pretty close, but gotten really close with her over the past couple
0:02:51 of years.
0:02:52 So she’s visiting.
0:02:56 I think maybe I’m just mature, or maybe we’re both more mature.
0:02:59 I used to feel kind of competitive with her.
0:03:00 I think that was probably a problem.
0:03:05 And I feel like when you’re just more secure about yourself, it’s just easier to kind
0:03:10 of get along with people or something, or when you, I don’t know, I feel like we just
0:03:12 have a very mature, nice relationship.
0:03:15 So I hope that continues, because I think relationships go up and down as well.
0:03:16 Does she have kids?
0:03:17 No, she’s not.
0:03:22 But she got married a year ago, so she’s definitely thinking about it.
0:03:23 You’ll be a great uncle.
0:03:26 You’re going to have a central casting to be an uncle.
0:03:28 I feel like I’m going to be kind of awkward with kids.
0:03:30 I think I’m not very good with kids already.
0:03:33 Well, you’re awkward to begin with, but I think you’ll be probably a little bit less
0:03:34 awkward with children.
0:03:35 See, I see it differently.
0:03:39 I think I can sort of like fake my way through being normal with adults, but when it comes
0:03:43 to kids, I’m going to be kind of like fumbling about what to talk about.
0:03:44 I don’t know.
0:03:47 I think you just make fart jokes and threaten to hit them if they don’t behave.
0:03:48 That’s my approach to children.
0:03:49 But no dick jokes?
0:03:52 You can get on the wrong list.
0:03:55 The next time you move, you have to go next door and tell them you’ve moved in next door,
0:03:56 which is real.
0:03:57 A real inconvenience.
0:03:58 It’s a real bummer.
0:03:59 All right.
0:04:02 Well, shall we start with our weekly review of Market Vitals?
0:04:03 Let’s do it, my brother.
0:04:04 Let’s do it, Uncle Ed.
0:04:14 The S&P 500 spent a week recovering from Monday’s drawdown.
0:04:15 The dollar rose.
0:04:21 Bitcoin crashed below 100,000, but then rebounded by Thursday, and the yield on 10-year treasuries
0:04:22 declined.
0:04:24 Shifting to the headlines.
0:04:28 President Trump is adopting a corporate-style buyout strategy, offering federal workers
0:04:34 the option to resign by February 6th in exchange for pay through the end of September.
0:04:39 The White House expects 5 to 10 percent of federal employees to accept the offer.
0:04:43 Starbucks’ same-store sales fell 4 percent for the fourth straight quarter.
0:04:49 However, Revenue Beat Expectations and CEO Brian Nickel shared more details from his
0:04:54 back to Starbucks strategy, emphasizing a renewed focus on customer experience.
0:04:58 The stock was up 8 percent on that news.
0:05:03 And finally, T-Mobile’s fourth quarter revenue exceeded expectations, up nearly 7 percent
0:05:04 year-over-year.
0:05:08 The company also issued its strongest start of year guidance to date.
0:05:12 That earnings beat coincided with the beta launch of its Starlink program, where it’ll
0:05:17 be offering its customers exclusive access to Starlink for the first year.
0:05:21 So Scott, let’s start with this federal buyout here.
0:05:22 Just be clear.
0:05:26 This is not the same as a corporate buyout or a leverage buyout, where you’re buying
0:05:29 out the investors in a company to control the company.
0:05:32 This is what’s known as an employee buyout.
0:05:36 And the reason companies usually do this is to cut down on costs.
0:05:41 Basically, you essentially offer your employees a voluntary severance package.
0:05:46 They can take it or leave it, and the idea is to incentivize your employees to leave
0:05:48 the company with that severance package.
0:05:52 So Trump is doing this, except he’s doing it with the U.S. government.
0:05:54 Good idea or bad idea, Scott?
0:06:00 So I think on a regular basis, it’s probably a good idea to have some churn and to have
0:06:06 some recalibration of a company, and especially I think with the federal government, where
0:06:11 I would think sometimes because of deficit spending and more bureaucracy, I’ll probably
0:06:14 get a decent amount of emails disagreeing with me.
0:06:20 I think sometimes that federal employees aren’t subject to the same regular reviews or standards
0:06:23 that the private market imposes on the private sector.
0:06:28 So I’m kind of down with the idea of occasionally looking at the federal government with state
0:06:33 and local agencies and reviewing it or reviewing the size of it.
0:06:38 Like I said that, as a percentage of the population, our federal employee base has actually been
0:06:41 level or declined over the last 40 or 50 years.
0:06:46 So it’s not like it’s swelled beyond something crazy, if you will.
0:06:51 Now, it’s not kind of the decision or what you do, it’s how you do it.
0:06:56 I do not like buyouts, and that is, I generally find that the people who take buyouts are
0:07:00 your most talented people, because who’s going to take a buyout?
0:07:03 Oh, I’m a really talented 30-year-old that has all sorts of options, and they’re going
0:07:07 to pay me, and I’ve been thinking about leaving because I have a lot of opportunities outside
0:07:11 of the, you know, the DOJ or whatever it might be.
0:07:12 Boom.
0:07:14 Oh my gosh, I’m going to get eight months.
0:07:15 Okay.
0:07:16 Hey, Google.
0:07:17 Hey, Sales Force.
0:07:18 Hey, Aiken Gump or whatever.
0:07:23 I’m in, and I got an eight-month bonus, a signing bonus to come to you.
0:07:29 So I find it’s a self-defeating process buyouts, and that is, I believe in performance reviews,
0:07:33 I would have put more pressure on them to say, to have a thoughtful way to say, “Okay,
0:07:37 let’s do assessments,” because there’s probably some departments that should be staffed up.
0:07:39 The IRS should probably hire more people.
0:07:43 For every dollar you put into the IRS, you get 12 back, and there’s other departments
0:07:48 that should probably lose more than, you know, five or 10%.
0:07:53 I find this is just lazy, and you end up losing kind of your best.
0:07:56 Is there ever a situation where a buyout makes sense?
0:08:03 I guess your argument here is that it’s sort of the quickest way to cut down costs, but
0:08:05 it’s not the most effective.
0:08:11 I think the other side to this would be, well, do we really want to build an entire apparatus
0:08:15 and do this entire review that’s going to cost a lot of money, and we’re going to figure
0:08:19 out all of these ways to understand which of our employees are delivering the most amount
0:08:21 of value versus the others?
0:08:27 It sounds like a lot of bureaucracy versus this very quick and easy way of just shaving
0:08:31 down costs and also just shaving down your employee base.
0:08:33 Is there ever a situation where it does make sense?
0:08:38 When I was on the board of the New York Times, they did a lot of “buyouts” of different
0:08:39 newsrooms.
0:08:43 They owned a bunch of newspapers, and local and regional newspapers were just getting
0:08:44 the shit kicked out of them.
0:08:51 They just didn’t have a place in the new economy, and so they would do buyouts.
0:08:55 The way they would do it was they would go to what I call the kind of critical employees
0:08:57 and say, “FYI, we’re letting you in on this.
0:09:01 We’re going to do a buyout, but we have plans for you and we want you to stay.”
0:09:06 I think in any organization, it shouldn’t be that hard to identify kind of critical
0:09:10 leadership or people who are doing, who are exceptional.
0:09:15 I think there’s this hallmark version of an organization where everyone’s great and
0:09:19 if anyone who’s not great, it’s about the culture and we just got to find them in the
0:09:20 right role.
0:09:21 I’ve identified that.
0:09:26 I’ve said for a while and this is not, again, aspirational, you never say this in all hands.
0:09:30 I’ve kind of jokingly, but have seriously said, 10% of the employees add 120% of the
0:09:33 value and the other 90% are negative 20.
0:09:39 You need to identify that 10%, especially as you scale an organization, and make sure
0:09:41 that they’re nailed to the ground.
0:09:46 This is your equity stake, I’m overpaying you, you have no reason to ever leave, you’re
0:09:49 going to do really well here.
0:09:54 It’s one thing to cut costs, but what you want to do is you want to improve the tensile
0:09:56 strength and the effectiveness.
0:10:02 It’s almost like you could, I would argue, if you had a growth mindset, you’d say, “I’m
0:10:08 going to give the IRS more money, but I need them to increase tax revenues by X dollars.
0:10:14 I need the Department of Veteran Affairs to increase its customer service or its reviews,
0:10:20 its satisfaction reviews among veterans by 5% a year for the next four years, and here’s
0:10:26 a bonus poll, and we’ll keep hiring static, but we need you to be more productive.
0:10:27 We need you to be better at what you do.”
0:10:33 I think that says Elon Musk written all over it that rather than offering a carrot as well,
0:10:39 they’re going at it with sort of a blunt instrument stick, so I don’t think this is the right
0:10:40 way to go about it.
0:10:41 Yeah.
0:10:43 It’s one thing to offer an employee buyout.
0:10:48 That’s another thing to insult all of your employees, call them lazy, and offer them
0:10:51 or DEI hires, and then offer them a buyout.
0:10:56 Those are two very different things, and just some statistics to look at here.
0:11:05 I think when we think about this bloated government trope, we’re sort of thinking of like a Gen Z
0:11:13 DEI hire who’s working at the DOJ or the Department of Education.
0:11:18 But when we think about just the actual demographic makeup of the federal employee base, actually
0:11:25 half of them belong to one of these three agencies, the Department of Defense, Department
0:11:28 of Veterans Affairs, and the Department of Homeland Security.
0:11:33 So that’s not really the people that you would think Trump is targeting with all of his rhetoric.
0:11:40 In addition, the average federal employee is 47 years old, a fifth of federal workers
0:11:42 are already eligible for retirement.
0:11:45 Only 7% are under the age of 30.
0:11:50 So I just think the narrative that we’re telling ourselves about the government and who works
0:11:55 for the government, particularly driven with this DEI or anti-DEI obsession, doesn’t really
0:11:59 tell the true story of who actually works for the government.
0:12:06 The most likely candidate to get cut is a 50-year-old middle-aged white person who works
0:12:07 the Department of Defense.
0:12:08 That’s the most likely candidate.
0:12:13 So I just think it’s worth keeping in mind, let’s look at the numbers and then we can
0:12:15 compare it to the narrative we’re being told.
0:12:19 Let’s move on to Starbucks and their earnings.
0:12:24 I think the biggest change here, the most important thing coming out of these earnings
0:12:29 was this reversal of Starbucks’s open door policy.
0:12:34 And basically the open door policy said, “Anyone can come in and anyone can use our amenities
0:12:37 and come in, hang out, it’s free for all.”
0:12:43 And this gets back to something that I said on this podcast a while ago, which is Starbucks
0:12:46 used to be the premium coffee chain in America.
0:12:53 You think about the premium brands today, you think Lacolome or Blue Bottle or in New
0:12:59 York we have Irving Farm, these sort of nice cool coffee chains where you hang out.
0:13:01 That’s what Starbucks used to be.
0:13:06 Over time, it has devolved into what looks like a fast food chain and I think a lot of
0:13:13 that is quite frankly, the fact that it has become almost like a halfway house for homeless
0:13:14 people.
0:13:18 I mean, practically every Starbucks you enter, you’re either seeing homeless people around
0:13:22 the side or homeless people sometimes inside of the stores.
0:13:27 And this is not a very comfortable thing to talk about, but I find it so interesting because
0:13:30 this new policy is directly addressing that.
0:13:34 They now say that you can only use the bathroom if you’re buying an item.
0:13:37 You can only use the Wi-Fi if you’re buying an item.
0:13:42 They’re going to train the baristas on how to handle loiterers, which is going to be
0:13:44 very uncomfortable.
0:13:49 But I think it’s actually quite important and the most interesting development I saw
0:13:55 was a statement made by this guy, Donald Whitehead, who is the executive director of the National
0:13:56 Coalition for the Homeless.
0:14:02 And he said he was, quote, “very concerned about this new Starbucks policy.”
0:14:08 He said, flat out, Starbucks functions as an important buffer for homeless people.
0:14:10 So this is going to be really controversial.
0:14:13 I think it’s going to get kind of ugly.
0:14:18 This is not a comfortable topic to be talking about, but it does get to the heart of Starbucks’s
0:14:19 issue.
0:14:26 You cannot have a premium specialty coffee brand that is also highly associated with
0:14:28 the homelessness crisis in America.
0:14:31 Well my first question now is, why do you hate the homeless?
0:14:32 I’m kidding.
0:14:33 I’m kidding.
0:14:34 I’m kidding.
0:14:35 I think you’re exactly right.
0:14:40 I don’t think Starbucks has an obligation to make money, treat its employees well, be
0:14:46 good to its community, and then pay their fair share of taxes such that we can have a more
0:14:49 systemic approach to homelessness.
0:14:53 And I wonder if that same person is worried about the Red Lobster or Olive Garden and what
0:14:57 they’re– the fact they’re not letting homeless people hang out.
0:15:04 I saw the earnings, and I thought, OK, Brian Nicole is the CEO, and this guy is pretty
0:15:09 much Jesus Christ in my book because he spent the last six years at Chipotle.
0:15:11 So one, he owes me a lot of money.
0:15:15 And I have eaten at Chipotle.
0:15:18 When I’m in New York, I’m going to eat there basically lunch.
0:15:23 Mary Jean, my chief of staff, knows– she knows what I like.
0:15:26 And it starts with cha, and it ends with poli.
0:15:27 I love it there.
0:15:29 I think he did an amazing job.
0:15:33 The stock was up 9x when he was there.
0:15:40 So I think that the market just wants to interpret everything this guy does and love it.
0:15:44 Because when I looked at the actual numbers, they were fine, but I think the market is
0:15:48 looking for reasons to take the stock up under this guy’s leadership.
0:15:52 And in the last week, it’s up 11%.
0:15:57 So the company’s increased its market cap by $13 billion, and people have been saying
0:15:59 he’s already made $50 million or $80 million.
0:16:00 That’s cheap.
0:16:05 They got a great deal on this guy because the market wants to love him, and the market
0:16:09 wants to say, oh, Jesus Christ is here, and he’s going to figure this out.
0:16:13 The thing that stuck out to me, you did your homework here, and your observation is more
0:16:17 insightful and has a more interesting overlay around public policy.
0:16:22 The thing I loved about it is, it is impossible over time, or very difficult to maintain the
0:16:27 discipline to not add more menu items.
0:16:32 Because you launch one, everyone goes into group thing, people like it, there’s some
0:16:37 evidence, and we all start saying, oh, it makes sense to have charged lemonade, or to
0:16:41 have banana bread, or to have sandwiches, or to have you just start, and before you
0:16:42 know it.
0:16:47 But Steve Jobs said to the CEO of Nike when he was on the board there, he said, get rid
0:16:48 of all the shit.
0:16:53 I think at some point, Nike was selling air fresheners in their stores, and he said,
0:16:54 get rid of all the shit.
0:16:58 The hardest part about specialty retail, and typically, at the end of the day, this is
0:17:03 specialty retail, is not what you have, but what you don’t have, and that is you have
0:17:10 a very curated, tight selection of things that send a very strong signal about the voice.
0:17:16 My understanding is, they are cutting their beverage and food options by 30%.
0:17:20 That means every three items, one of them is going away.
0:17:23 I think that’s a ball or move, and this is what’s going to happen.
0:17:26 In the short run, that will probably take a hit to revenues.
0:17:31 It’s complicated, new signage costs, new training, but over the long term, or the medium or
0:17:36 long term, I would argue, it sends a stronger signal about what we do and what we don’t
0:17:37 do.
0:17:41 And the bottom line is, at the end of the day, Starbucks problems are pretty basic.
0:17:44 They were charging too much and delivering too little.
0:17:49 And then, I go into La Colombe, and I’m like, “Hello, I’m rich Corinthian leather.
0:17:58 I feel like I’m a total Euro trash, which I like, and it’s simple, great coffee, and
0:18:03 I like the crowd in there, and it just feels a little less … There aren’t as many napkins
0:18:05 and shit on the ground, right?”
0:18:07 Yeah, absolutely.
0:18:13 The market’s basically reacting to him addressing the elephant in the room, which is that Starbucks
0:18:15 is no longer a nice place to hang out.
0:18:18 And I think that’s basically the entire game plan.
0:18:22 It’s like, “We’re going to make Starbucks a nice place to hang out again.
0:18:24 We’re going to do free refills for our customers.
0:18:29 We’re going to make sure that we don’t have homeless people hanging around.
0:18:33 We’re going to make it just an enjoyable environment to be in.”
0:18:38 And that suddenly solved all of Starbucks’ problems, at least from a stock perspective.
0:18:43 But your point about, “Here’s the new Jesus Christ,” I just want to point out, they have
0:18:47 awarded him $96 million in compensation.
0:18:49 He’s been on the job for four months.
0:18:53 So the market thinks he’s Jesus, and so does management.
0:18:59 $90 million in stock awards, a $5 million signing bonus, plus buyouts from his former
0:19:00 company, Chipotle.
0:19:05 So he has some serious expectations going into this that we hope he’ll meet.
0:19:10 So far, he’s been worth it, and I don’t … I have no problems without a control CEO compensation.
0:19:14 I just think that should be taxed at 70% once you get above kind of $10 million, but that’s
0:19:15 a …
0:19:16 Another podcast.
0:19:17 I should hold on a second.
0:19:20 I had just a fucking fascinating insight, and it slipped.
0:19:21 It slipped by.
0:19:22 Hold on.
0:19:23 It’s going to be so worth it.
0:19:24 Oh my God.
0:19:25 Hold on.
0:19:28 It’s going to be amazing.
0:19:35 Oh, essentially what they’re doing is they’re taking money, the capital they were spending
0:19:38 on non-customers, and pouring it back into customers.
0:19:41 I thought it wasn’t as good as I’d hoped.
0:19:45 We need a mic drop.
0:19:46 Blinding insight.
0:19:47 It really rocked my world.
0:19:49 Should we move on to T-Mobile?
0:19:51 Yeah, let’s move on to T-Mobile.
0:19:53 We’ll just go over the quarter really quickly.
0:19:55 They beat on earnings, beat on sales.
0:19:58 Sales grew 7% to $22 billion.
0:20:05 Most important number though was their guidance for new customers in 2025, so T-Mobile expects
0:20:11 to acquire 6 million new customers this year, and that is their largest projection for net
0:20:15 new customers ever, which I think is kind of remarkable.
0:20:22 I mean, T-Mobile is sort of an old, slow conglomerate, and then 2025 is for whatever reason going
0:20:27 to be this breakout year for them in terms of net new customers.
0:20:29 Why do we think that’s going to happen?
0:20:32 I think the answer has to be Starlink.
0:20:38 I mean, T-Mobile suddenly has this incredible competitive advantage this year, and that
0:20:42 they will be the only mobile network carrier that offers Starlink’s new direct-to-sell
0:20:43 service.
0:20:47 Now, I don’t know that much about the product.
0:20:54 I’ve never tried it, but supposedly Starlink is the greatest thing since sliced bread.
0:20:56 You’ve said it, Scott.
0:20:57 I’ve heard other people who’ve used it.
0:20:58 They’ve said it.
0:21:01 Supposedly, with Starlink, you will never not have coverage.
0:21:03 You could be in the middle of the desert.
0:21:07 You could be flying on a plane, and you will always be connected.
0:21:13 So I look at this, and I’m really excited, and then I see that new customer guidance
0:21:16 number, and I’m like, “Okay, maybe this makes sense.”
0:21:18 Starlink is amazing.
0:21:21 I heard United is doing a deal with Starlink.
0:21:23 I would fly one airline over the other for Starlink.
0:21:26 It’s incredible.
0:21:27 I had one of those moments.
0:21:31 You have one of those technology moments, the first time you bought something on your
0:21:34 phone, or the first time you used Google Maps, and you’re like, “Jesus Christ, this
0:21:35 is incredible.”
0:21:44 Yeah, the first time I saw porn, wow, it had nothing will ever be the same.
0:21:47 Nothing will ever be the same.
0:21:50 By the way, no one can make sweets we love to me like me.
0:21:53 All right, where were we?
0:21:54 Where were we?
0:21:55 Oh yeah, T-Mobile.
0:21:58 AT&T differentiation for telcos.
0:22:05 So I can’t imagine the pounds of flesh that T-Mobile was able to — that must have been
0:22:06 so fun.
0:22:11 Whoever was the Starlink representative negotiating these deals, they sat down with Verizon, AT&T,
0:22:15 and T-Mobile and said, “Okay, let’s be honest, this is going to be ugly.
0:22:16 Who wants it?”
0:22:21 And we’re going to give one of you a two or three-year exclusive, which is going to
0:22:26 give you tangible differentiation, which is nearly impossible in your category, which
0:22:30 will add billions if not tens of billions of dollars in shareholder value, and we want
0:22:31 it all, bitches.
0:22:36 So them making these projections is saying to the market, “We think this is going to
0:22:38 be a tangible point of differentiation.
0:22:43 What will be interesting is when in their earnings or if they have to disclose the terms
0:22:44 of this deal.”
0:22:45 Exactly.
0:22:46 Yeah, T-Mobile’s the winner here.
0:22:48 The biggest winner, I bet, is Starlink because…
0:22:56 They’re projected to hit $12 billion in revenue this year, which is a 50% year-over-year increase.
0:22:58 You’ve got to think that number is just going to keep exploding.
0:23:01 I mean, they’ve barely even started yet.
0:23:05 This is hardly in the hands of consumers, and they’re still printing money.
0:23:08 I mean, most of it is just like military demand at this point.
0:23:14 One loser, I will say, from this whole thing is going to be Ryan Reynolds and Snoop Dogg
0:23:18 because, from my understanding, the only point of differentiation in the mobile carrier
0:23:22 service industry is which celebrities you can hire to be in your Super Bowl ads.
0:23:28 And suddenly T-Mobile has Starlink versus having Snoop Dogg, like dancing on camera.
0:23:33 We’ll be right back after the break for a look at earnings from Microsoft, Meta, and
0:23:34 Tesla.
0:23:37 If you’re enjoying the show so far and you haven’t subscribed, be sure to give Proficy
0:23:48 Market to follow wherever you get your podcasts.
0:23:50 Support for the show comes from the Funrise Innovation Fund.
0:23:54 The investing world seems to be bending towards democratization, but venture capital always
0:23:57 felt like it may be one of the last ivory towers to fall.
0:24:01 It requires a lot of capital, the right relationships, et cetera, et cetera.
0:24:05 That’s probably why, when the Funrise Innovation Fund launched promising to democratize venture
0:24:07 capital, there was a lot of skepticism.
0:24:10 But the progress they’ve made in a few years is hard to argue with.
0:24:17 The Innovation Fund has now built a $150 million portfolio of some of the most highly sought-after
0:24:18 private tech companies in the world.
0:24:23 And their minimum investment is just $10, which is virtually unheard of for venture capital.
0:24:27 Look, even the best venture funds should be categorized as high-risk investments.
0:24:31 Venture investing is not, for everyone, see above, high risk.
0:24:36 But at a minimum, you can visit fundrise.com/proficy to check out the Innovation Funds portfolio
0:24:37 for yourself.
0:24:41 Visit fundrise.com/proficy to check out the Innovation Funds portfolio and start investing
0:24:42 today.
0:24:47 Relevant disclaimers can be found at the end of the show and at fundrise.com/innovation.
0:24:56 We’re back with Proficy Markets.
0:25:02 Meta, Microsoft, and Tesla kicked off big tech earnings last week, with investors watching
0:25:07 how they addressed deep-seeks AI advancements and the impact of Trump’s new policies.
0:25:13 We will start with Meta, which posted record fourth-quarter revenue, also issued weaker than
0:25:16 expected forecast for the current quarter.
0:25:22 Mark Zuckerberg framed deep-seeks rise as validation of Meta’s open-source strategy.
0:25:27 He also said that 2025 will reshape the company’s relationship with the government.
0:25:31 Shares were up more than 2% in after-hours trading.
0:25:36 Just a few little statistics that stood out to me.
0:25:38 Sales up 21% to $47 billion.
0:25:43 I’m always just shocked at how big the numbers are for Meta’s revenue.
0:25:48 Operating margins expanded 700-bits to 48%.
0:25:52 When you look at the family of apps, which is their main business, the operating margins
0:25:54 are even stronger.
0:25:56 It’s 60%.
0:25:59 This was another really strong quarter.
0:26:03 I’m just so bullish on Meta I have been for a while.
0:26:06 Scott, your reactions to Meta’s earnings?
0:26:09 Addiction is a great business.
0:26:10 They’re executing well against it.
0:26:16 They’ve taken technology, addiction, network effects, monopoly– I mean, two-thirds of
0:26:21 social media globally is on Meta, really well-run company.
0:26:22 I’m addicted to Instagram.
0:26:23 I love it.
0:26:24 I think it’s fantastic.
0:26:28 I can’t stand Mark Zuckerberg and I’m not getting off of Instagram.
0:26:30 They continue to perform really well.
0:26:36 I wonder if their hardware appears to be on a roll right now.
0:26:42 They’re sold out across the U.T.s, the number one product in 60% of Ray-Ban stores, which
0:26:45 obviously isn’t a big revenue item, but they might finally have their own hardware point
0:26:50 of distribution so they don’t have to kiss Sunder Pichai or Tim Cook’s ass.
0:26:52 Have you tried those, by the way, those new Ray-Ban Meta glasses?
0:26:54 I tried them about a year and a half ago.
0:26:58 My son, I was skinning with my son and he kept saying, “Meta, take a photo.”
0:26:59 I’m like, “What are you doing?”
0:27:01 He’s like, “I got these Ray-Ban glasses.”
0:27:04 They’re actually– I mean, this was a year and a half ago and I thought they were pretty
0:27:05 good.
0:27:09 Head sets make no sense, but smart glasses, I think there’s a future for.
0:27:10 Absolutely.
0:27:15 And I think that the Zuck is probably going to get some spillover effect from the massive
0:27:21 investment he’s made in these headsets, but they have capital.
0:27:29 They’ve increased their CAPEX 60% to 65 billion around technical talent and AI infrastructure.
0:27:33 Meta AI is used by more people than any other AI assistant with over 700 million monthly
0:27:34 active users.
0:27:36 They’ve integrated into Instagram, Messenger, and WhatsApp.
0:27:41 Yeah, I think that’s kind of a bullshit statistic because, I mean, I don’t know how many people
0:27:46 are actually actively using the Meta AI tool on those platforms.
0:27:50 I think they’re probably saying that when you search something into the search bar on
0:27:52 Instagram, Meta AI is being used.
0:27:53 I actually don’t.
0:27:54 I agree with that.
0:28:01 I don’t mind it when you disagree with me despite the fact you hate the homeless.
0:28:03 But what they have is distribution and control of consumer.
0:28:07 They do own the rails in a way the chat GPT doesn’t, right?
0:28:08 Totally.
0:28:13 And their ability, I mean, we’re talking about those moments, those technology moments.
0:28:21 I’ve had some chilling moments where I’m going to see a Paris Saint-Germain game and I have
0:28:25 a real pop-up and it’s on hotels in Paris.
0:28:30 I’m like, how the fuck did they, I mean, it’s incredible the targeting they could use.
0:28:35 And it goes to the notion that Meta more than I think almost any organization, maybe with
0:28:41 the exception of Uber, has shown that if you can provide utility, you can violate everyone’s
0:28:42 privacy.
0:28:49 Then for all the bullshit and all the whining in Brussels and DC, young people have said,
0:28:55 violate my privacy just as long as there’s a coupon or I can see where my QX60 is, if
0:29:00 it’s coming around the block, arguably Mark Zuckerberg right now is the most talented,
0:29:04 I mean, he’s one of the three or four most talented business people in the world.
0:29:08 If you just look at it from a shareholder perspective, they made huge investments.
0:29:10 They’re running away with it.
0:29:16 And they’re monetizing the fact that I said that the core Facebook platform and now Instagram
0:29:19 is the most successful thing in history.
0:29:21 Communism doesn’t have this many people.
0:29:26 Capitalism doesn’t have this many people, democracy, you know, there’s no product.
0:29:31 The Kardashians, nothing is as successful as Instagram right now.
0:29:34 It’s a product coupled with the Facebook core platform and then WhatsApp.
0:29:38 These are the most successful things in history as far as I can tell.
0:29:44 Someone might say, well, no, actually it’s Google search, but and he has been outstanding.
0:29:46 They have been outstanding at monetizing it.
0:29:52 Anyways, it couldn’t happen to a more mendacious fuck group of people, but yeah, they’re doing
0:29:53 outstanding.
0:30:01 Let me just point out when you recommended Meta or you chose Meta as your stock pick
0:30:07 at the end of 2022, the stock was at $90 per share.
0:30:10 It’s up to $690.
0:30:14 So if you would have followed Scott Galloway’s advice, I never mind some of his other advice,
0:30:19 but just this one stock pick, you’d be up seven X, almost eight X.
0:30:21 It’s just insane.
0:30:22 This comeback they’ve searched.
0:30:27 Well, what was my stock pick at 2020 but what stock, I mean, now I’m really patting myself
0:30:28 in the back.
0:30:30 I’m going to elevate your praise on me.
0:30:33 What stock did I say was going to be the biggest IPO of 2024, Ed?
0:30:34 Reddit.
0:30:35 Yeah.
0:30:42 By the way, when public five or six months ago, it’s up six fold since its IPO.
0:30:43 Incredible.
0:30:44 I am so angry.
0:30:45 I invested.
0:30:46 I’m so angry.
0:30:47 I didn’t back up the truck.
0:30:51 Fourth or fifth most traffic site in America and it went public at a $5 billion market cap
0:30:56 in every other company on that list trades at somewhere between $800 billion and $3 trillion.
0:30:57 Anyways.
0:30:58 To the applause.
0:30:59 Thank you.
0:31:00 Thank you.
0:31:01 Thank you.
0:31:02 I’d like to thank my agent.
0:31:03 Exactly.
0:31:06 Just a few more things to go over here on these meta earnings, and we should probably talk
0:31:10 about threads, which has grown to more than 320 million monthly active users.
0:31:15 I find that astounding when you just consider the number of companies that have tried to
0:31:19 create their own Twitter alternatives and the meta does it.
0:31:23 And then within about a year, he’s at 320 million MAUs.
0:31:27 Just to put that in context, last year, we don’t know the official number, but last year
0:31:33 Elon said that X had 550 million monthly active users.
0:31:37 So meta says they’re adding a million MAUs per day.
0:31:44 So assuming that growth continues, threads could very well be bigger than X from a user
0:31:46 perspective by the end of the year.
0:31:50 So I just think we should just give credit to threads as well.
0:31:53 Their AI play is paying off incredibly well.
0:31:56 You mentioned that you’re getting those great PSG ads.
0:32:01 They’re saying the ad quality has dramatically increased because of this new AI powered ad
0:32:03 ranking system.
0:32:08 In addition, they are putting out these gen AI tools that they offered to their advertisers.
0:32:13 Six months ago, there were roughly one million advertisers that were using Meta’s gen AI
0:32:14 tools.
0:32:16 Today, that number is four million.
0:32:22 When we just think about the use cases of AI, examples where AI is providing real demonstrable
0:32:28 value in the marketplace, Meta is capturing all of that.
0:32:29 They’re building value in AI.
0:32:33 They’re building the data centers, they’re building models, but they’re also receiving
0:32:38 the value of the AI in the form of their really high quality ad targeting.
0:32:46 So I just think Meta is absolutely crushing it aside from Zuckerberg’s adventures on Joe
0:32:49 Rogan, where he’s ruining his reputation in my opinion.
0:32:52 I think Meta is just doing an incredible job.
0:32:55 I will move on to Microsoft unless you have anything else you want to add.
0:33:00 So Microsoft Cloud Business saw slow growth last quarter due to limited data center capacity
0:33:04 during the owner’s call, Satya Nadella said deep seeks innovations will benefit Microsoft
0:33:06 in the long run.
0:33:10 The beating expectations were a 12% revenue increase.
0:33:16 That growth was the slowest since 2023 and shares fell nearly 5% after hours.
0:33:21 I was a little bit surprised to see the market’s reaction to this.
0:33:24 I mean, they did beat on revenue.
0:33:30 They beat on guidance, they beat on earnings, but the stock fell 5%.
0:33:37 I think what investors are mostly concerned about here is the cloud revenue, which missed
0:33:41 by about 1%, that’s Microsoft’s Azure revenue.
0:33:45 Scott, do you have any initial reactions to Microsoft’s earnings?
0:33:46 I don’t know.
0:33:50 I think the market is, this is a company that’s now, I think it’s the second or third most
0:33:57 valuable company in the world, but the expectations, what you said a while ago that if you don’t
0:34:01 blow away expectations, everyone’s disappointed.
0:34:07 Azure, it grew 31%, not 33%, that’s still incredible.
0:34:12 It’s also in this kind of arms race.
0:34:15 It’s CapEx totaled $23 billion for the quarter.
0:34:21 That’s almost double what it did last year, and Nadella has said he’s signaling a measured
0:34:22 approach to capital allocation.
0:34:24 You don’t want to buy too much of anything at one time.
0:34:28 You want to have the right ratio of modernization and demand.
0:34:30 Very different tone from before.
0:34:31 Yeah.
0:34:35 So, shockingly, I’ve been looking at this, I’ve looked at the stock chart, and over the
0:34:41 last year, it’s basically flat, which I find kind of interesting, and over the last five
0:34:47 years, it’s up three and a half fold, but year to date, it’s flat, so it hasn’t registered
0:34:48 the same.
0:34:50 Is that fair?
0:34:55 It’s gone flat for kind of the last year, but I don’t know if I have a lot of insight
0:34:56 here.
0:34:57 Great company.
0:34:58 Good management.
0:34:59 I think–
0:35:00 Based in Seattle.
0:35:09 I think one of the big questions we were definitely asking following the deep-seek saga, and this
0:35:14 is a conversation we were having with Robert Armstrong, was will all of these big tech
0:35:21 companies keep investing as much money into AI and into AI infrastructure?
0:35:26 And if we just look at these earnings from Meta and Microsoft, the answer appears to
0:35:27 be yes.
0:35:32 I mean, CAPEX or their CAPEX guidance remains on course.
0:35:37 Satya Nadella said that thing about how we’re going to be measured about it, but the investment
0:35:44 plan is still the same, and Meta has said it’s going to keep its plan to spend $65 billion
0:35:45 this year.
0:35:48 That’s the same number we’ve seen before.
0:35:55 And so I think this is a really important thing for us to unpack, because this big tech
0:36:01 AI CAPEX thing is basically what’s driving the entire market value of all the big AI
0:36:02 stocks.
0:36:07 I mean, we’ve said this before, but roughly 40% of Nvidia’s revenue comes from big tech.
0:36:13 So even a slight change in these CAPEX plans could completely transform Nvidia’s business.
0:36:19 So it’s something that investors and we as analysts really need to dig into.
0:36:26 The question I would have for you, they’ve said the plan’s going to stay the same, $65
0:36:29 billion last year was the plan, same thing this year.
0:36:36 Is there a possibility though that deep seek happened too recently for companies like Meta
0:36:40 and Microsoft to report any changes in the spending plan?
0:36:45 So in other words, could it be that this earnings report, they’re reporting something, a plan
0:36:54 that they baked weeks ago, maybe months ago, and if deep seek does change their approach,
0:36:56 we’re not going to see it in this week’s earnings.
0:36:58 We’re going to see it in the next earnings report.
0:37:04 Is there a possibility essentially that the pullback in spending will come next quarter?
0:37:12 So there’s no way they were going to in any way acknowledge deep seek as a threat.
0:37:16 Because that would have just taken, that was like that company that said open AI or I think
0:37:19 it was Czech is having an impact on our stock.
0:37:25 Instead, Mark Zuckerberg, for example, said this is validation of our open source strategy.
0:37:32 And Saaya said it was fine to just almost swatted away like a nat, he just wasn’t worried
0:37:34 about it.
0:37:39 They will remain steadfast in their commitment to spending until they’re not.
0:37:46 And that is, it’s like when you’re, when you’re contacted by the press regarding a CEO and
0:37:50 a startling company, you’re 100% behind them until you put out the press release saying
0:37:52 we just fired him or her.
0:37:58 And they’re going to say that, you know, already open AI is on a full court press to try and
0:38:02 say, move along, no big deal.
0:38:07 They used chat GPT and this is bullshit and it’s not a threat to us there.
0:38:11 They’re already trying to create, they’re like a defense attorney at a murder trial trying
0:38:15 to create muck and confusion about these results that supposedly also worry.
0:38:19 I was thinking Mark Andreessen immediately came out and said, this is amazing.
0:38:23 Is it because Mark Andreessen hates or is he doesn’t like this?
0:38:27 He doesn’t like open AI and this shit is just so thick.
0:38:32 Right. Well, I think he has every incentive to want disruption and to back insurgents.
0:38:39 I, having said that, I’m pretty sure Andreessen has a somewhat decent stake in open AI and
0:38:41 I think it’s huge.
0:38:46 You know, Andreessen’s funding all of them, you know, they’re funding all of the, all
0:38:47 of the startups.
0:38:50 So they just want, they just want disruption.
0:38:53 So there’s a lesson here and that is, all right, if you’re a consultant or a thought
0:39:00 leader or a professor, you make your business and communications, especially around intellectual
0:39:02 property or thought leadership.
0:39:04 This is how you go about it.
0:39:07 You ingest a tremendous amount of information.
0:39:09 It is impossible to digest all of it.
0:39:13 What you do is you ingest a lot of information such that you find something that you think
0:39:19 is real insight and then you try and wrestle with it, really understand it, look at it
0:39:24 through different prisms and be able to talk about it and incorporate it into your wrap.
0:39:28 As a consultant, all I was basically doing was finding other people’s great ideas, finding
0:39:32 what I thought were the best and most insightful ideas and then repackaging them as my own
0:39:34 or my firm’s own.
0:39:35 And that’s not entirely true.
0:39:37 We would reference and footnote who it was.
0:39:42 I had one of those moments with our guest, Robert Armstrong.
0:39:47 And that is, it just dawned on me that if you look at the airline industry, what he said,
0:39:53 or dawned on him, it’s added unbelievable value to the economy and to our lives.
0:39:54 No one’s made any money.
0:39:58 The net income, the net gross income over the last 50 years for airlines and commercial
0:40:02 jet manufacturers has probably been negative because there’s been so much competition that
0:40:07 all of the spoils and capture have been recognized by consumers.
0:40:08 I was thinking about it.
0:40:10 I was on the board of Gateway Computer.
0:40:17 Think about how much PCs changed the world and we were the second largest PC manufacturer
0:40:18 in the world.
0:40:22 Shouldn’t have we have been worth $100 or $200 billion, but we weren’t.
0:40:26 It was a shitty business because anybody, including two kids in their dorm at the University
0:40:31 of Texas in Austin, could pull together a computer and Ted started assembling computers
0:40:36 in his barn in South Dakota, which meant that China could assemble them for no money down.
0:40:42 And the company that made some money was the Brain Intel, but basically PCs as revolutionary
0:40:48 as they were, again, all the capture, all the surplus value was captured by consumers.
0:40:54 And Robert’s notion that this might in fact be, AI might in fact be one of those industries
0:40:57 where everybody becomes more productive.
0:40:58 Everyone’s life gets better.
0:41:03 It’s remarkable, but you don’t have this concentration of capture across a small number of companies.
0:41:05 That has just blown me away.
0:41:13 I think that that is such an interesting insight that this might be the airline of the PC business
0:41:19 where it changes everything or it changes a lot, but it’s not going to, the spoils aren’t
0:41:21 going to be captured by a small number of companies.
0:41:27 It won’t be an easy place to invest or make money because why wouldn’t you have invested
0:41:29 everything in Pan Am back in the 70s?
0:41:33 Oh my God, you can get on a 747 and get to London and this is amazing.
0:41:34 This is incredible.
0:41:35 And guess what?
0:41:43 All those companies, Pan Am, TWA, PSA, Air California, Eastern Airlines, I mean, every
0:41:49 airline I flew as a young man, Braniff, Laker Airlines, I mean, the list goes on and on
0:41:50 and on.
0:41:52 They’ve all gone away.
0:41:53 We’ll be right back.
0:41:57 If you’re enjoying the show so far, hit follow and leave us a review on ProfG Markets.
0:42:10 Support for the show comes from the Fundrise Innovation Fund.
0:42:12 Think of the five biggest names in AI today.
0:42:15 How many of these companies do you own shares of?
0:42:17 Probably not many, maybe one, maybe two.
0:42:18 Why is that?
0:42:21 Because the open AIs and Anthropics of the world are still private.
0:42:25 That means unless you’re an employee or a VC, you’re out of luck.
0:42:28 So it isn’t hard to see why venture capital has been one of the most prized asset classes
0:42:29 in the world.
0:42:33 But unless you’re worth eight or nine figures, you likely don’t have access to these funds.
0:42:35 The Fundrise Innovation Fund is different.
0:42:37 It’s already raised more than $150 million.
0:42:42 It holds a portfolio of pre-IPO tech companies that are valued at tens or even hundreds of
0:42:43 billions of dollars.
0:42:46 And most importantly, it’s open to investors of all sizes.
0:42:50 Visit fundrise.com/propg to check out the Innovation Fund’s portfolio and start investing
0:42:51 today.
0:43:03 Relevant disclaimers can be found at the end of the show and at fundrise.com/innovation.
0:43:05 We’re back with ProfG Markets.
0:43:08 Let’s move on to Tesla.
0:43:12 Tesla missed profit expectations, but expects sales to grow after a tough 2024.
0:43:16 Tesla’s CFO acknowledged that Trump’s proposed tariffs would, quote, “have an impact on
0:43:22 business and profitability, shares climbed more than 4% after hours, and they’re up more
0:43:26 than 80% since the last earnings report.”
0:43:31 I’ll run through the financials that jumped out to me.
0:43:32 Revenue up 2%.
0:43:34 It was a miss.
0:43:38 They also missed on auto revenue by 9%.
0:43:41 They did be on EBITDA, but they missed on earnings.
0:43:45 Overall, I look at this, this is an incredibly disappointing quarter.
0:43:48 However, the stock opens up the next morning up 4%.
0:43:52 I’m trying to think like, okay, well, what are people excited about?
0:43:59 I think we can at least attribute some of that excitement to the full self-driving outlook.
0:44:04 Elon said, quote, “Unsupervised full self-driving will launch in Texas in June.”
0:44:10 He also added, quote, this is my favorite quote, “This is not some far-off mythical
0:44:11 situation.
0:44:15 It’s literally five, six months away.”
0:44:17 I guess that’s enough to get the market excited.
0:44:19 Scott, your reactions?
0:44:23 I wonder when the market’s going to realize this is a giant jazz hands.
0:44:27 I think this guy is on his ninth life in terms of coming up with reasons why this company
0:44:31 should be valued like a software company when it’s not a mobile company.
0:44:36 Its share of the EV market fell from 55% to 49%.
0:44:38 Its competitors are gaining ground.
0:44:44 BYD overtook Tesla and global EV production, marking the end of their three-year reign
0:44:46 as the EV leader.
0:44:48 It’s basically flat to down.
0:44:52 If you look at that, I think it was about $2.25 billion in profits.
0:44:58 A quarter of those profits come from the sale of, I think, carbon credits to other automobile
0:45:03 companies, which are supposedly going to go away under the Trump administration.
0:45:07 You’re looking likely over the next 24 months to decline in profits, which were already
0:45:08 declining.
0:45:11 The margins are already compressing, and they’re bringing down prices already.
0:45:16 Still, even with all this, it’s an amazing company and deserves a premium to the rest
0:45:17 of the auto market.
0:45:20 The question is, does it deserve this premium?
0:45:27 The price to sales on Tesla right now, or the market cap to sales, is 14 versus Ford
0:45:36 at 0.29, General Motors at 0.35, Honda at 0.42, and Toyota, arguably the best-run automobile
0:45:43 company in the world, who’s growing and correctly doubled down on a hybrid’s Toyota trades
0:45:49 at, don’t know, wait for it, a price to sales ratio of one versus Tesla at 14.
0:45:54 Granted, they have some software, they have some interesting power products.
0:46:00 It continues to be, oh wait, it’s a meme stock, you’re investing a meal on Musk, okay, he’s
0:46:06 managed to keep it elevated, okay, we’re beneficiaries of the new kleptocracy.
0:46:10 We’ll figure out a way to get regulatory capture, because I spent a quarter of a billion dollars,
0:46:13 and some people would say I’m the reason that Trump is in office, all right, the market
0:46:17 says this is a kleptocracy, boom, we’ll bid your stocks up.
0:46:27 This thing is so crazily overvalued that I just, and I always have to disclose, I’ve
0:46:32 been saying this for a long time, and I’ve been wrong, but at some point, gravity has
0:46:33 to hit this thing.
0:46:35 It has to.
0:46:40 It’s so annoying, I mean, it goes on and on and on, but I’m still with you on it, I still
0:46:43 think it’s just so, so overvalued.
0:46:49 Can we also just talk about how the Tesla is actually just a bad car, in my opinion.
0:46:50 You don’t like Tesla?
0:46:56 Like, I think the Tesla is a bad, cheap, ugly car, and I used to think it was cool because
0:47:01 it was so novel, but you know, I get in a Tesla, like every other Uber now in New York
0:47:04 is a Tesla, and I’m always disappointed to get in the Tesla.
0:47:08 It feels cheap, it’s jerky, you start to get car sick.
0:47:13 I genuinely think it’s a bad car, and the worst is sometimes I’ll order an Uber Black
0:47:18 when I’m trying to feel sexy, and a Tesla shows up, and I’m like, this is a joke.
0:47:22 This is not a luxury vehicle by any stretch of the imagination.
0:47:28 This is like a bad, cheap, and cheap-feeling car, and I’m wondering if you share the same
0:47:29 views.
0:47:30 I know you used to have a Tesla.
0:47:31 I do think it’s a great car.
0:47:35 I think the Cybertruck is basically a midlife crisis and stainless steel.
0:47:37 I think that thing makes no fucking sense.
0:47:39 I think that’s just so stupid.
0:47:44 The thing that’s always shocked me is, somebody who thinks they understand brands, basically
0:47:49 Tesla is turning into a car for crypto brothers with better credit scores.
0:47:51 Crypto brothers and Uber drivers is my take.
0:47:56 And so he’s looking for more jazz hands, and also Waymo, I was in a Waymo in LA about
0:47:58 four months ago.
0:48:00 I think they have a big head start on them.
0:48:01 So I don’t–
0:48:02 Oh, yeah.
0:48:03 They’ve launched.
0:48:04 They’re giving rise.
0:48:07 I don’t know why everyone’s so excited about full self-driving like it’s this massive new
0:48:08 thing.
0:48:09 It’s here.
0:48:10 Waymo’s already done it.
0:48:11 Yeah, it’s here.
0:48:12 It was really, really impressive.
0:48:14 So at some point we’ll be right here.
0:48:17 At some point, this thing gets cut dramatically.
0:48:24 Let’s also talk about quickly the role Bitcoin played in this quarter for Tesla.
0:48:31 So net income hit $2.3 billion this quarter, up from just over $2 billion last quarter.
0:48:39 But $600 million of that net income was because of the rise in Tesla’s Bitcoin holdings.
0:48:45 So if you get rid of the Bitcoin, the net income would have been significantly lower
0:48:47 than last quarters.
0:48:50 What’s interesting is actually Tesla played by the rules here.
0:48:54 There’s this new accounting rule from the financial accounting standards boards, which
0:49:00 mandates that companies now mark their crypto assets to market each quarter.
0:49:05 And it used to be that you had to report the lowest value recorded during your ownership
0:49:07 of your digital assets.
0:49:12 But now you update them each quarter, and that is reflected in your net income.
0:49:15 I’d like to get your take on all of that.
0:49:22 My view just quickly, I hate this because it feels like once again, the actual earnings
0:49:27 of companies that is supposed to be showing us how is the fundamental business doing?
0:49:31 Suddenly it’s being corrupted again, and it’s now skewed by these wild swings in the
0:49:32 value of crypto.
0:49:37 So even if you have a shitty quarter, which is what they had, if Bitcoin goes up, you
0:49:39 can come out and say, actually, you had a pretty good quarter.
0:49:42 So what are your thoughts on this Bitcoin wrinkle?
0:49:48 Usually, special charges or special revenue recognition, usually the markets discounts
0:49:49 that.
0:49:51 In this case, it just makes no sense.
0:49:58 And this is not financial advice because you can stay, the markets can stay irrational
0:50:00 longer than you can stay liquid.
0:50:04 And I thought this thing was overvalued at 50 bucks a share, I know it’s at 400.
0:50:06 So we’ll see.
0:50:10 And before we get accused of the Elon derangement syndrome, I just want to point out, I genuinely
0:50:12 think I’m calling balls and strikes here.
0:50:15 I think Tesla is way overvalued.
0:50:20 I think SpaceX, particularly because of Starlink, is going to absolutely destroy.
0:50:25 If I could put my money in any startup right now, it would probably be SpaceX.
0:50:28 So I do not think this is us just railing against Elon.
0:50:32 I think we do call balls and strikes.
0:50:35 How Elon, how Elon.
0:50:41 When I walked into, I don’t know if it’s his kind of right-wing proclivities have impacted
0:50:45 the dealer network, but I went in to their retail store in Boca Raton and I said, “What
0:50:47 colors does the Model Y come in?”
0:50:49 And they said, “Viva lasso questions.”
0:50:50 That was great.
0:50:54 Let’s take a look at the reggae.
0:51:00 We’ll see earnings from Palantir, Google, Amazon, Disney and Uber.
0:51:02 The big earnings season continues.
0:51:04 Do you have any predictions for us, Scott?
0:51:11 It’s fascinated with Robert Armstrong’s notion of these industries that the capture here
0:51:17 may be captured by seven billion humans as opposed to a small number of companies.
0:51:24 And it got me thinking, if all of a sudden you can have 80% of chat GPT for 10 or 20 or
0:51:29 even 50% of the price, that was old Navy’s strategy.
0:51:34 My first consulting engagement out of business school in 1992 was they said, “What are the
0:51:36 demographic gaps out there?”
0:51:39 And we did this for the gap.
0:51:44 And we came back and said, “Single mothers, they’re a huge population and they want their
0:51:48 kids to feel good about themselves, but they can’t afford the gap.”
0:51:53 And so the basic premise of old Navy, we came up with a new brand, was 80% of the gap for
0:51:54 50% of the price.
0:51:58 And so we were part of the strategy to launch old Navy, and old Navy was the fastest zero
0:52:00 to a billion retailer in history.
0:52:07 And generally speaking, this 80% of the value for 50% of the price is an incredible strategy.
0:52:09 It’s the strategy of Southwest.
0:52:14 Southwest said we can be 80% of American Delta United for 50% of the price.
0:52:20 And I’m wondering if the old Navy of “AI” has come in.
0:52:25 And where I think it impacts, I was trying to look for winners here, is that I’m trying
0:52:32 to do a scan of what companies had put aside $100, $200 or $500 million, say a pharmaceutical
0:52:37 company said we need to expedite drug discovery in this great era of AI.
0:52:41 So we’re going to have to put aside two, three, $500 million to build our own thick layer
0:52:47 on top of chat GPT or pay them a shit ton of money, or Airbnb or Expedia, which are
0:52:51 probably making huge investments and working with open AI and guaranteeing them a ton of
0:52:55 money for enterprise-wide access to their LLM.
0:53:00 Did their costs of incorporating AI just reduce dramatically?
0:53:06 Are we going to see a bunch of companies that are doing really well say, oh, and I’ve got
0:53:10 good news, we’re growing, and I’ve got great news, and that is we’re going to get all of
0:53:15 the great taste of AI without the calories, specifically the cost.
0:53:20 And that reserve or our CAPEX planning of 100 or 500 million over the next three years
0:53:26 on AI, it’s been reduced by 90% and that’s all going to flow to the bottom line.
0:53:30 So my prediction is there’s going to be a new wave of, I don’t know, you wouldn’t even
0:53:37 call them remora fish that are just going to get kind of get free pickings, if you will,
0:53:44 because their CAPEX just, I wonder, overnight, if it just went down 50, 70, 80%, which is
0:53:48 going to juice their earnings over the next two or three years.
0:53:52 This episode was produced by Claire Miller and engineered by Benjamin Spencer.
0:53:56 Our associate producer is Alison Weiss, Mia Silverio is our research lead, Drew Burroughs
0:54:00 is our technical director, and Catherine Dillon is our executive producer.
0:54:04 Thank you for listening to ProfG Markets from the Vox Media Podcast Network.
0:54:09 Join us on Thursday for our conversation with the one and only Aswath Damodaran, only on
0:54:10 ProfG Markets.
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