AI’s $400 Billion Test Is About To Begin

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When to call the experts and when to do it yourself. That's this week on Explained It To Me. Find new episodes, Sundays, wherever you get your podcasts. Today's number 59. That's the percentage of Americans who say they will not watch any World Cup matches.

What's worse than the U.S. men's national soccer team? What's that? Absolutely nothing, Ed. Nothing. You're excited about the U.S. team?

No, I'm not excited about the U.S. and I'm excited about the England team. Team England, your man, Cole Palmer, well he's been left out. You heard that? What? Cole Palmer, I mean, it was just devastating news.

Cole Palmer has been left out of the England squad, so a lot of not really much reason for the Chelsea fans to be watching, but I'm still going to be cheering for England anyway.

We've still got some amazing players on the team.

Harry Kane's going to be carrying us through telling him, you know, teaming them all the way. But yeah, it's very, very sad about Cole Palmer did not make the England squad. Because we've just had a, we had a bad season and Cole, I mean, as much as I love him, he hasn't performed.

“I think this guy is basing his decisions over form versus fame.”

He also didn't include Phil Fordon who's kind of our other star. And I understand when I, I, I've been to three roll cups of the US Russia last time we did it. Whenever it was like 94, and then, and then I was in Russia and then Qatar. And when Cole Palmer was at, as he came on the field in the second half, I had lunch

with, I forget the name. The guy was a team in the coach of the last one, lovely guy. And of course, I couldn't like stop heckling from the cheap season. Yeah, Southgate, right? Yeah, Southgate, based on the fact that I've played FIFA once or twice, which

makes me a coach. And like every time, as Ian Palmer came in, the whole mood, the whole vibe, the whole momentum, but the game changed. And then why didn't you start them? And of course, he sat there and he was very polite thinking, who the fuck is this guy asking me

about?

I didn't even imagine how much second guessing that guy, that guy gets.

But yeah, I can see, one of us, I'm, I think it's a big mistake not to have. Who are the, well, let me put it away, who are the two or three young stars from Team England that everyone's excited about? As a, in the squad, this tournament, and he's been playing incredibly well for Austin. Also, people are very excited about, as a, um, Manchester soccer, of course, everyone's excited

about soccer. There's, there's a new defender on Manchester City, Nico O'Reilly, who will be interesting to see. But, I mean, the other big star who got left out as well as Trent Alexander Arnold, who's the Real Madrid star.

What? What? We need to speak to the coach. Thomas Tughal, Scott Galloway has some advice for you.

“You need to stick with your superstars versus, I don't know, whatever this intellectual,”

um, I know what you would call this going for form over fame, I mean, that's, yeah, this show is after an awful start. It's after an awful start. Well, this was, this happens when you go on tour and you have this hangover. I slept 12 hours yesterday and I still feel terrible.

This is the problem. I'm not, I'm not sharp right now. Well, imagine doing it when you're like 90 years old, and you're with a bunch of children roaming around the nation, trying to figure out what you're going to say tonight that's any different than the night before.

I felt like Mick Jagger out with a boy band.

With that with end sync when they were still in high school, um, what was the highlight for you, the tour? Well, we'll get to that. We're going to do a full review of the tour at the end of the show.

“So I think I'm just going to launch us into the business stories of the show.”

What do you think about that? Let's do that. Let's, what the hell? What the hell? What the hell.

Google is making a massive bet on AI and asking investors to help fund it.

The company is planning an 85 billion dollar equity offering, which would be the largest

stock sale in history. Roughly $10 billion of that investment is expected to come from Berkshire, Hathaway, which will reportedly receive a six and a half percent discount on their shares. Google stock fell 4% after the announcement. The fundraising effort highlights the significant cost of competing in the AI race.

And Google had already been ramping up spending aggressively in April. It raises projected capex to as much as $190 billion for the year. And the timing is notable because anthropic just confidentially filed for an IPO last week. And SpaceX is set to go public this week as well. So some analysts believe that Google is trying to secure the investor capital now, possibly

before it has to compete with those other offering, Scott. We've got an absolute whirlwind of huge equity offerings here. We've got SpaceX. We've got anthropic soon to come. We've got open AI.

Supposed to come later.

And now we've got Google with this 80 to 85 billion dollar equity offering.

The largest public equity offering of all time, initial reactions. I just loved reading this.

“I think it would such corporate genius and a tech executive that doesn't get her”

due is the CFO of Alphabet, Ruth Pirat. So first off, this is going to be the largest equity offering in history at today. In less, I don't know, one of the big three, the other three going out raises more money. And it's kind of the story that the news story so far has been. If Alphabet needs to tap the markets for additional capital with the kind of cash-genitive

carbonated is, it's kind of like Warren Buffet taking out a mortgage. It just gives you a sense for how thirsty this cap access or how much is required to keep up. Now I would argue that's not this. I think they could fund this after balance sheet.

And my, my sense is that a CFO's job is to find the cheapest capital possible and use that capital as a weapon to pull ahead of everybody else. That's their job. How do we raise more money less expansively than everybody else?

“And I think what Ruth Pirat or, and what I believe is everyone else or, you know, Microsoft”

Nvidia, the core we've, uh, Apple are going to maybe the same thing as they're like, okay. Look at the valuations that are being paid or supposedly might be paid for, you know, they'll call them to big three and throw up at open AI in SpaceX. That is insane.

And so what they're saying to the market is, okay, you want some of that upside of incredible

infrastructure investment on this brave new world of AI, which has a term, the size of, you know, not ever a split of constellations. Okay, you can get some of that upside with us and there's a whole lot of less downside. If AI doesn't work for Alphabet or doesn't live up to the expectations, it's still an amazing business.

And so what they're doing is they're cutting the line and saying, okay, if you, if there's this cheap IE stupid capital out there that is so dying to get into this business, that they'll pay this type of valuation, fine, here you go, we're cutting the line and we're going to take $85 billion off of the table because the crulch with the capitalism is that every resource is finite.

And the amount of new capital willing to go into AI infrastructure bets is finite. And they're about to take $85 billion off the table. So I wouldn't be surprised if we see Amazon, all of a sudden announced a new equity offering. I think this is genius cutting the line and taking $85 billion of cheap capital off the table and saying, hey, folks, look over here.

We're hot, we're in the hot space and there's less downside with us. I think it's, I think it's brilliant because AI has become the railroad boom of the 21st century and that is everyone agrees it's transformative, but it's more difficult. The harder question is whether or not the people laying the tracks will earn a return on that capital and every time we've had this kind of cat backs in the past, whether it's

the highways, the global telco build out in the late 90s or railroad's twice, their ends of the electric grid, there's usually a bit of a crash following it as people realize the ROI is just not just not there, but I, I, I, I love this story. We talked about it yesterday on the editorial call. It's just saying it's hilarious. These guys are stepping in front of the little kids and basically the two for here is Gemini wants

crowded artery of their capital raising plant.

“Yeah, I think that's exactly right. And the thing that you mentioned yesterday is, you”

know, maybe the pitch to investors is maybe this less upside for the Google IPO of us, the SpaceX IPO, but at least you're protected on the downside. My argument is, I think you could argue that there's actually a lot more upside in the Google offering because you've got SpaceX going out more than a hundred times earnings or a more than a hundred times sales excuse me. I mean, if we were to price Google, which is already an incredibly successful business,

at the same multiple SpaceX, Google would be worth $45 trillion. And so this is, I mean, this is a company that is is actually priced quite reasonably when you compare it to the other offerings out there. So I would argue that when you look at it on a risk adjusted basis, actually there's a lot of upside here. And so they're almost just rebranding themselves

“as the hot new AI company by making this equity offering. And I think I think it's really fair”

game. Now, you mentioned this idea that they're going to extract the capital out of the ecosystem, which I think is very true. And I think it does pose a problem to anthropic and to open AI, and potentially to SpaceX, although SpaceX is set to go out pretty soon. And it does seem that there is a little bit of a concern here that whoever goes out first is going to suck up all of the energy in all the capital out of the room. And Google is creating a problem there. So that's one point

that those those new AI companies need to be aware of. But I just want to go through the size of

these offerings here and add it all up. So you've got SpaceX, which is going to raise $75 billion

in its IPO. Largest IPO of all time. I mean, the largest amount that was ever raised was Saudi Iran, Cohen 2019 with around $29 billion. SpaceX is going to raise $75 billion. So that's one. Then you've got Anthropic. Anthropic just raised a private round. It's series H. They raised $65 billion in their private round. Just for context, that is more than double the size of the largest IPO of all time. And this is a private round. Now, this, this company is going to go public.

It's going to IPO later this year. So presumably, they're going to raise more money at the IPO. Let's call it, say, $100 billion or somewhere in that ballpark. It seems reasonable that

“that's what they're going to do. Now, let's look at Open AI, also going to go public.”

Their last private round, they raised $122 billion more than triple the largest IPO of all time.

So let's just assume that they're also going to raise, I mean, we're going to be conservative here, somewhere in the ballpark of $100 billion. And then you've got Google, which is raising $80 to $85 billion. The largest public equity offering of all time. So add it all up. These companies alone are about to ask investors for $360 billion-ish of fresh capital. And that's in addition to the $30 billion that have already been raised so far from IPO this this year. So this is $400 billion

of new equity issuance that is about to be flooded into the market. Now, I just want to go back to Econ 101. What is Econ 101 all about? It's all about supply and demand. This is the fundamental thing that we all learn when we take economics. And the rule of supply and demand is what happens to prices when there is an over supply of a product when the supply outstrips demand,

the answer is prices go down. And I think what we might be about to see in the stock market is the

same thing. And that is, for years, what we have seen in the public markets is a scarcity of new equity supply. There's been very few amounts of IPOs that have been happening, very, very little new equity issuance. The IPO market's practically even dead since 2021. But what we're about to see is $400 billion worth of new supply flooding the market all in one go. And so the question is, is the demand going to keep up with the supply? Or is the supply going to outstrips the demand?

It's a very simple question. And I think to me, when I look at those numbers, when I look at the fact that the largest IPO year ever was 2021 where $140 billion was raised, we're about to see triple that. We're about to see 10 times more the amount of money that was raised in the IPO markets last year. It was around $44 billion, we're about to see $400 billion probably more than that. My view supply is about to flood this market. It is going to outstrips demand.

The only answer after that is that prices go down. I do think that the, once these companies go public, that's going to signal the top. I'm going to see a very significant bullback pullback specifically in the AI trade because that simply isn't enough capital to go around to keep prices propped up. The other thing that hasn't gotten the reporting that I think it deserves is that Berkshire Hathaway is getting a six and a half percent discount. So when arguably the richest

become scarce even for them at these levels. That struck me that they needed, I don't know if one of the credibility or an anchor for the deal or the diligence or brand halo, the Berkshire Hathaway brings. But why on earth do they need to offer Berkshire Hathaway a six and a half percent discount to what retail investors are going to pay? Do you have any thoughts there? I think that's part of the problem here. Why is there a concern? I think there is a very

reasonable concern. We're getting to a point where people are asking, is there actually enough

“dry powder left to go around? I mean, the fundamental question you have to ask yourself. If”

we're about to see all of these IPOs and it's going to total somewhere close to $400 billion.

The question is, do investors have $400 billion laying around in cash right now? Does that actually exist? Or, and so that's the first question. It sounds like Google at least maybe is a little bit concerned, or maybe there's like a shred of doubt that that actually does exist right now. So they'll give some shares to Berkshire Hathaway because they said, we'll lock it in and we'll do it at the six and a half percent discount. So does that exist? Or are investors going to have to sell

something in order to buy these IPOs? I think that is the question. If the cash exists, then great, no problem. The markets continue to rip as they have done for a long time.

I mean, later down the line, we're going to see that investors are a little bit more strapped

for cash, and there might be problems later on. But if the money's there, then, okay, good. I doubt that all of that money is there, that investors are willing to shell out like that. I would think that people are going to have to sell something in order to buy these. And then the question becomes, what are they going to sell? Are they going to sell their homes to buy the SpaceX IPO? I don't think so. Are they going to sell their defensive positions like

their industrials and health care and utilities? I don't think so, because I don't think you want to switch from those defensive positions, then go into these highly risky AI positions.

“I think if you're selling something to buy SpaceX or to buy and throw up a go to buy open AI,”

realistically, you're trimming your tech positions. You're probably trimming down on Tesla, for example, to get into SpaceX or Nvidia or Broadcom, or maybe you had some investments in these ridiculously high-performing chip companies like Sandisk and all the rest of the chip companies. And you're going to take some of your profits from those positions and then put them into these other IPOs. Either way, the point is there is now a significant justification to pull back

from these standard equity positions in AI, which is going to put pressure on prices moving forward. So, this is really the real test of AI. Can you keep these prices up when you suck out this degree, this amount of capital out of the markets, and is that going to be sustainable for the long-term? And I would just finish here by pointing out some research from BCA research, where they looked at some of the largest IPOs going back to the 30s. They looked at the Xerox IPO in 1936 and the

Ford IPO and the McDonald's IPO. And what they found is that the S&P tends to underperform

right after these major blockbuster IPOs. Because what always happens is that there's so much

excitement when the IPO happens, that IPOs sucks all the capital out of the ecosystem, and then it leads to a period of time where there simply isn't enough capital to prop up that demand. And so it's hard to believe that that isn't going to happen at this point. I don't think it necessarily means that we enter a structural bear market. But I do think that it means that this is, I mean, we're in kind of crazy town right now. These companies know it, which is why they're going

out to the markets now, raising at the largest valuations that are humanly possible. And then we're

“going to enter sort of the sobriety phase where we realize, okay, I mean, what more can we buy?”

What more can we prop up? And so I think that's the thing to to keep track of right now. I mean, remember when Andre's since software is eating the world, it now it's transition to AI is eating balance sheets. Yeah. It's just it's just coming in and soaking up. And I just got off a webinar for section of the AI adoption company and disclosure on investor. The, the thing that fascinates me, they were asking me what are advising companies around. And and I'm so happy not to be

advising companies anymore. Anyways, the said you're advising Garo Southgate. Let me find seriously the amount of golf I had to fucking play. Ed with people I didn't go with that much. I just kind of picked you playing golf. Oh, I played. I got to like a eight handed cap.

firm in the 90s and San Francisco, you either played golf or you didn't have new clients. It was absolutely how you got to know your clients was golf. I promised myself and I'm going to New York. I was going to pour all of that time into fitness and I have played golf maybe three times in the last 20 years and I do not miss it. Anyways, one of the things everyone's talking about token maxing and the wrong incentives should be focused on productivity versus how many tokens

use. But something that struck me is I finally got one of those prompts. I've been, I'd love

“cloth. I play with it. I play with it a lot. I think one of my biggest unlocks in terms of a hack was connecting”

my Gmail and it's such incredible optimization for your search because if I'm trying to figure out

all right, what is the, you know, Vox gets acquired by James Murdoch and I'm like, okay, what does have mean for us? So I say, please go into my email and look at the agreement I have with Vox as there are a change of control provision, you know, and you can't ask the web that, but there's so much information that's germane to you and your communications with everyone and it goes through and it says, here's a thread from 2023 that explains and the agreement that you both party signed

in the exact paragraph. It's just such, anyways, I'm fascinated with the cloth. I love it. I'm purposely don't ask it for personal advice because I just, I don't ever want to have anything that gets in the way of my relationships or inspiration or motivation or incentive to ask people

“and friends for advice versus asking something that's just going to take me to a regression of”

the mean. But anyways, I got one of those prompts finally that said, you're out of tokens and we need you to upgrade to Cloud Pro Max for $200 or some month. And if first I'm like $200 a month, I'm like, wow, and then I thought, that's a lot. And then I read the Cloud Pro Max costs, if I sign up, it costs anthropic $5,000 a month and compute an inference to surface you. And so, what I quite think what I'm saying to people now is like, all right, create incentives around or try and

attach productivity regardless of the technology use and have workshops and lunch and learns that are optional. This is how you connect different things. This is what it's good for. I have found that AI is really disappointing as it relates to imagery. You know, everybody thought it would come up with great videos or Instagram posts or imagery. I find it truly disappointing there. I find it's terrible at original writing, but it's amazing for distillation editing and finding interesting data that

are analogies that you might insert into your writing. But the writing itself has to start with

“the human, at least that's what I found. But what I tell people is if you, if you had a business tool,”

the right now costs 20 costs you 20 cents, but the provider was spending five bucks on it. You might want to, you might want to adopt and experiment at the outer edge because you are getting,

it's never been cheaper. At some point they're going to have to, well, I think there'll be a war

in the castle come down. It's pretty inexpensive right now. Well, it actually may get cheaper with these Chinese openway models, but let me summarize this word salad. There has never been a moment in history. We're despite the unparalleled revenue growth, which Mark Mahini reminded us of the RBC analyst in San Francisco. There's never been revenue growth like this. There has never been a time when you've had this type of percentage of GDP invested in infrastructure that hasn't resulted in a subsequent

crash. The railroads proved to be transformative. The internet proved to be transformative. As did the highways, but part of getting there was a froth and a market that crushed early investors. We're not early investors, but investors buying it what was, I don't know what you call it, the first peak, if you will. Yeah, the IPO. Yeah, Amazon in Cisco lost 90 plus percent of the value from 99 to 2001. Obviously, Amazon came back and then some Cisco did not, but this is these capital wars

are just extraordinary. We've never seen anything like it, and I got to think that in the next

12 to 24 months, one or two of these three companies is off 60 or 80 percent. I just don't see how they maintain this momentum. Just to that point, I mean, this is the question everyone's all every investor is asking themselves, should I buy the IPO? I just want to point you to an analysis that was done by truest where they looked at the 30 of these big blockbuster IPOs. They looked at everything from Facebook to Uber to Roblox to DoorDash. They looked at the 12 month returns of

those companies after the IPO. And what they found was that the average drawdown that was experienced by these companies within a year of going public, the average maximum drawdown was 55 percent. Negative 55 percent. So in other words, you could expect based on history with a relative degree of

Now, that doesn't mean that the stock's going to not going to come roaring back later and go way

up over the long term, but it does mean that when these companies go public, that is the peak hype, that is peak demand. That's when everyone wants to buy the stock. And usually what happens is once the demand fades and the hype kind of deflates, you see that the stock starts to draw to fall and over the over the 12 month average, usually they get cut in half. So I think the question for the investor is, do you want to buy right at the IPO when the stock is most in demand when it's

at its sexiest when everyone's talking about it, when everyone's talking about it, in the news, and social media, and on podcasts, or do you want to wait for the hype to likely come down

“and then find your entry point when greed is low and fear is high? I think that's what”

what you need to think about here. SpaceX is going to go public, and so I was going to go public, open hours going to go public, maybe they'll have a pop, maybe they'll just have this explosive entry into the public markets. But realistically given history, they're also going to enter a downturn and they're probably going to dip below the amount or the valuation that they went public at, that's when you want to think about buying. That's when you want to find your entry point,

because doing it now, when hype is like at an all-time high and they're, I mean, these valuations are just ridiculous. We'll see what actually happens without anthropic and opening eye. But if SpaceX is sort of a signal of what's to come, that's not the time that you should be buying. You should be waiting for these stocks to come back down and realistically they all will. So that would be my

“advice. Don't buy it, the IPO, give it some time, wait for the hype to fade, then you could find your”

entry point. What you're doing is what we say a little bit not to do, but I'll engage in it, and that is you're trying to time the market. And I understand that these valuations you may want to stay away from the eye agree with that. Typically investment bank does, one of the reasons to go public is it's a branding event. And you only get to go public once, and you want to manufacture scarcity and hype such that you get a pop. And I've even said advice

companies that are going public price well below the demand, because if you're up 40, 60, 80 circle when public, you know, 200% pop, the additional five or seven percent delusion, which isn't the case here because they're raising so much money, but the additional five or seven percent delusion from or two or three percent from leaving money on the table, because technically you're raising money, you could raise a lot more money at a lower delusion, but the branding you get

when you're seen as, wow, this IPO, even if you can raise money to cheaper cost. To be able to

have CNBC analysts falling over the fact that your first trade was 30% up, that's almost worth

the delusion, because it creates a certain momentum and halo, wow, this must be a great company. No, the bankers manufacture the pop. Sometimes they misestimate and the pop is more, but the last thing you want is a broken IPO, because that'll be the story. If SpaceX were to price at 1.8 and go out on the first trade at 1.5, that would be an extraordinary victory for everyone, including SpaceX. Obviously not the first trade, the people who bought into the

IPO are got allocation, but every story would be SpaceX broken IPO. Not SpaceX raises money at 80 times revenues, but SpaceX has broken IPO. So the banks are smart at estimating demand, they'll look at the number of times that we're subscribed to, and they'll say price lower, price lower, whatever it is, and such that we can manufacture a pop. So if you're fortunate enough in 99.9% of people aren't to get into your allocation in the IPO, then fine. Have

out it, take the bet on the trade and the first trade. Beyond that, I would say look out below,

“and if we're going to, if we're going to have fun here, I think the company that most likely”

has the biggest pop is anthropic, because loosely speaking the story, the overall halo, is that there's a lot of noise out there that SpaceX is overvalued. That's just sort of becoming the little bit of the narrative, right? In this case, it's true. The narrative is actually

true. And then if you look at open AI anthropic, we've never seen a more vicious

trading places or freaky Friday of the market leader in the number two happen in 90 days. And open AI is on the wrong side of that, and anthropic is on the right side of that. So I think anthropic, probably, they have quite frankly, anthropic has more momentum and risk right now, than either of those two companies. The story of SpaceX is its overvalued, the story of open AI is its no longer number one. It's number two, and the story of anthropic is that it's just

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Seriously, all of them. It's been $250 on your first campaign on LinkedIn ads and get a free 250 dollar credit for the next one. Just go to LinkedIn.com/scot. That's LinkedIn.com/scot. Terms and conditions apply. We're back with Proftry Markets. It's been a rough year for fast food franchise operators. So far, we have seen bankruptcy filings from operators for subway, Applebee's,

Popeyes and Calls Jr. And some are blaming the franchise model itself. One McDonald's franchise he said that operators, quote, "cannot absorb all these costs, do all this discounting and still pay to remodel our landlord's building." This issue is especially relevant for McDonald's. It's franchise and affiliated locations account for more than 95% of restaurants and roughly 62% of total sales. Because of that exposure, the company has rolled out a new initiative called

McDonald's Next, which is designed to make its restaurants quote easier to run and more enjoyable to visit. What stands out is how explicitly the strategy focuses on operators not just customers, the message is clear, improving the experience for franchisees is key to improving the business overall. So Scott, fast food franchises are struggling right now. Plenty of bankruptcies, Burger King operators, filing chapter 11, Popeyes operators, Calls Jr. There was a Domino's franchisee,

which also just worked bankrupt this year. And apparently there are concerns about the franchise model. Apparently it doesn't really work anymore. That is at least what these franchise operators are saying or complaining about to the logical operations. When you look at all of these

“fast food closures, do you think it's that or do you think it might be something else?”

So the franchise model is like the licensing model. It's the ultimate business model. They come with a good concept that people love and then rather than scale the company and use your own

Panera. There was a franchise that had 40 stores and other Florida. And you have a talented on the ground,

“you have talented on the ground management. The key to retail is that the owner is there.”

So for example, the most successful franchise model I would argue, arguably so Panera, Starbucks,

in Chipotle, it was had NPS scores of like 62 or 63. And NPS is basically considered kind of the

holy grail of consumer metrics. And that is the number of people that would recommend it strongly recommended versus people that wouldn't recommend it. So it's sort of passion, consumer passion. Chipotle Panera and Starbucks, it was around the same thing. And then 10 points above that was Chick-fil-A. I mean, just striking. And in Chick-fil-A secret sauce, the chicken's fine. It's a great product. But the other ones have a great product, too. It was at this really unique model where they have

25,000 people applied to be one of the 80 or 120 franchisees. And they call from former military veterans to and they have this really sophisticated means of trying to find somebody who they think

is just passionate about the brand and will be on-site every minute of every day. There's all

this data showing that a restaurant does not work if the owner isn't there a lot, whether it's shrinkage, making sure the bathrooms are clean, saying hi to consumers. And so Chick-fil-A, where I'm headed with this, this isn't about a business model. This isn't even about them competing with each other. Newspapers made the same mistake. You know, the New York Times thought it was competing against the L.A. Times or the Boston Globe or the Chicago Tribunal. They were competing against a structural

shift in consumer behavior. And I want to acknowledge, I'm a hammer and everything I see as a nail.

“But I think this is all about, I think this says nothing to do with a franchise model. I think this is”

about GLP1. And that is one and eight, 30 million Americans are on GLP1s. The population of Texas is on

GLP1s now. And you don't go into a Wendy's and eat, you know, a double wap or whatever the fuck they service and then leave and think, wow, that was a good idea. Wow, that made all kinds of sense, super sizing. My McDonald's meal at Newark Airport. By the way, that's that's an amazing meal. Newark Airport McDonald's shout out. It's like, supposedly one in three times a pack of cigarettes is sold. The person buying it is swearing to themselves. It's going to be their last pack ever.

You typically don't walk out of fast food, thinking great idea, great idea. You need cheap calories because it's gotten so expensive. We subsidize beef. We subsidize water. And people are so time-star from working so fucking hard that if you're single mother, I used to eat fast food all the time when I was growing up with my mom because quite frankly, with the most affordable means of getting cheap calories. And it was convenient. It was fast and easy. Unfortunately, it is really

bad for you because they're engineered to addictive with salty, sugar and fatty food that we couldn't find on the savanna several thousand years ago. And it's just really bad for you. And what do you know, GLP1s come? There's something like a 20% of America eats at McDonald's once or twice a day. And I got to think GLP1s are starting to kick in here. The economics of a franchise model are somewhat a play here. And that is, the labor model worked or the franchise model worked when

labor was cheap. Interest rates were low and consumers were organic calories. All of that is broken. But more than anything, people are having an easier time driving by a jack in the box and driving by it. And just saying, I'm going to go home and eat kale. I'm going to go home and have a bull

“is, you know, whatever it is, a bull is serialer. I'm just not, I'm just not that hungry. And I think”

this is, I think GLP, I'm upset this before. I think GLP1s are bigger than AI. So I think that this is sure I'm sure it's something about the franchise model, interest rates, all that, you know, labor, inflation. I'm sure all their concerns are real. But if everybody was, was eating more, that would roll over the anomalies in the franchise model. This is the oxygen is being sucked out of the room. And there's just, it's like going to accompany a shrinking. Everybody starts blaming each other.

And they're questioning the business model. It's like, no, people just aren't buying newspapers any longer. They're reading, they're getting news from different sources. So I'm open to push back here. But I think this is more a story of GLP1 as opposed to the franchise model doesn't work. I think that makes a lot of sense. And I think the comparison to the newspapers is a great one, because it's easier to, if your business is declining and if your competitors are going bankrupt

and then you're struggling as well, it's, it's an easier pill to swallow to say that there's

Or maybe we need to sort of start changing the way that we present our menu. Maybe we need to, you know, upscale allocations. Those are easier problems. But it's a different thing to say that our entire industry is structurally undergoing a shift, which is going to eat away at our bottom line. And that is exactly what happened with the newspapers. And it does seem like a similar thing is happening here. Like a lot of people are saying, oh, it's inflation. Oh, it's, it's the fact

the prices are going up. People are downscaling. Historically speaking, false food is recession proof. Hmm. I mean, look at most major recessions. You look at 2008, false food traffic was stable, because it is one of the cheapest options. I mean, that's kind of what you do. You go get a really cheap option over at McDonald's if you're struggling economically. But so I don't see that as a very viable argument. But it is true, foot traffic to false food restaurants is going down, last quarter,

“it fell more than 1%. They're quarter before that. It fell around 2%. And you have to think that's”

crucial statistic there that I'm sure a lot of these franchisees aren't really thinking about

because it probably seems to out there, which is, as you said, one in eight US adults are now using GLP one drugs. That is 30 million people. And that number is only going up over time. And so if you look at the, I mean, that's the GLP one penetration. Let's look at the false food penetration, four and five Americans are eating false food at least once a month, and around two and five Americans are eating it weekly or more. So if you just count that up among the adult population,

that's around 110 million people, 110 million adults who are eating false food weekly. If you got 30 million on GLP ones, you can just do the napkin math. You're essentially reducing the total addressable market by about 27 to 30%. And that's assuming that the people who are taking GLP one drugs aren't going to McDonald's, they aren't going to Wendy's, they're not going to pop eyes,

“Burger King, Carl's Jr. You name it. And I think that is a completely fair assumption to make.”

If you're on GLP ones, I doubt that you're feeling very good or even excusing the fact or the idea of going to McDonald's once a week or even more than that. I just don't think that that is really happening. So I think that this is definitely true. I think that this is something that these companies need to stop taking really seriously. And I think when these companies report their earnings, it seems that so far they've kind of brushed these concerns aside and said,

no, we're not really worried about that. At a certain point, I think they need to take it a lot more seriously and recognize that this is something that Wall Street and investors are genuinely concerned about because it has way larger implications than you're not running your business right. This is a structural secular issue that they need to start taking seriously. So I'm with you. I'm in agreement. You know, who's probably adopted the franchise model at a greater scale than

fast food restaurants as hotels. Very few hotels are owned by the flag. Four seasons owns one of its property. It's flagship property, it's headquarters in Toronto. Every other four seasons is owned by a rich guy. The things I'd like to, I'd like to own the local four seasons. And then they come in. It's a much better model. They plant the flag. They collect them tap into the reservation systems. They have a very onerous owner agreement around it.

“You have to have someone 24 hours a day at the check-in desk. You have to clean the rooms”

twice, you know, whatever it is. And they take 8 to 12% of top line proceeds. And the owner of the four seasons in New York, I think, had to give it back to the bank because they had to maintain

these onerous standards when no one was checking in. But it's an amazing model. And by the way,

in the hotel business, it's still working because people love the idea of owning the six senses. But all of, almost all of these companies, almost all of the big brands now in hotels, starwood, high-it, a lot of them are basically a franchise model. And it's working. So again, but GLP one, as far as I can tell, one of the few industries I've been able to reverse engineer disruption from GLP one. This isn't the model here. This is beef and the shitty foods

need to be priced to their real costs. We bury the central valley and cattle ranchers in water and we subsidize the shit out of beef that in bad beef that's not good for you. So I don't feel for, and also the fast food industry, you could argue employees people, but a decent number of employees. But I don't think this is an industry. We're going to miss a lot. I don't. My feeling is this is a healthy part. It's like, I don't think we need more CVSs or bank branches in Manhattan.

I'm ready for a lot of those to go out at business. And I don't think we need nearly as much fast food. Now, some people would argue you're being in a lettuce. There's food deserts. It's cheap calories. And eating healthy is really expensive. But I can't imagine it. And we've talked about this before. And more, I just think GLP ones are going to be so massively creative. And I had the head of

Lily. I had the CEO of Lily, which is probably the most important company in the Midwest right now.

Head? No, I don't. Or the Indianapolis. I'd love that. The latest trillion dollar

company is in San Francisco, New York or wherever London. It's an Indianapolis. Yeah, it's good.

“And GLP one drugs have gone from $1,000 a month. Some are between $2,500. I think they're going”

to be $700. And if you can do a GLP one, it's $700 a month. I would argue you're probably going to save money. Because, you know, these costs, these indulges, it's shitty food, alcohol, whatever it is. It adds up pretty fast in terms of an expense. So, I'm, I mean, I hate to say it. I'm sort of excited to see Jack in the box just fewer of them. Now, I would like to see a lot more in and out burgers. I will say that. But I do want to, you know, if there's fewer of

McDonald's, I'm not sure that's a bad thing for the economy. Yeah, I think I agree with that. By the way, just before we end on this point, you know, I think it was a few years ago. We were talking about GLP ones. I mean, we've been excited about this for a long time. We're trying to think about all of the sort of the after effects and sort of who would be the downstream winners and losers. We're talking about maybe fitness companies. And I think I believe we said lingerie companies.

“Here's just some interesting news. Victoria's Secret Stock rose 40% last week. Why?”

Because of an incredible earnings report where they posted massive revenues up 15% to $1.56

billion. They raised their full year revenue guidance to more than $7 billion. They saw sales increases across every single income group. And a lot of people are asking, okay, why is it why suddenly everyone super excited about buying lingerie and buying underwear? I think you could make the case that a lot of it has to do with GLP ones that people feel sexier. They feel more fit. They're in shape. And now they want to go and they bought and they want to buy more,

more sexy lingerie. So, I mean, we can't quite prove causation yet, but I think you can make a case that this is one of the winners. What do you think? 100% when you lose weight and you feel good about yourself, you know, what do you know? You want to go out and buy a new wardrobe. So,

“I think, you know, look, urban outfitters are coming up with on the board of their stock”

is doubled in the last five years. You know, you feel sexier. I think it's going to have a bit of a baby boom that maybe because supposedly lowering obesity rates increases the fertility of somebody. And I think that's a fancy way of saying people are more down to fuck when they feel good about themselves. It's true, right? You feel good about yourself. You look better naked, which, I mean, all of this adds up to a bunch of wonderful things, new wardrobe. I think gems are going to boom

because you want to keep the weight off. You feel good about yourself. It does seem that this entire country is taking fitness a lot more seriously. And then we've just been given a literal drug that is speed-bullying that process and that transformation. I also think it's kind of in a weird way. I think the pharma companies who have doubled down on GOP 1 are going to boom. I wonder if we're going to see a decline in any depressants because there's a link between obesity and depression.

So, look, I'm just so excited about this technology. But yeah, I don't. We asked Mir, one of the moments I loved at PropG. It was Mir when downstream and looked at the supply chain of GOP 1 about three years ago. And said, there's a publicly traded company that manufacturers this syringes. And we talked about it in the stock doubled in the next three or six months. But now I think it's, um, I think it's Nova Nordos because it's just come out with pill form.

And what I think you're going to see here is a giant decline in the cost of these drugs,

which I think is amazing. But meanwhile, I think the profits and the total revenues are going to

I think we're about to get the mother of all lessons in elasticity that the prices go down. Total total revenues will go up because it'll start penetrating into the community just that need it. We'll be right back. I'm for even more markets content sign up for a newsletter at PropGMarkets.com. Support for the show comes from the upwear. When you run a business, one of the biggest hacks is realizing you don't have to do everything all by yourself, which is especially good news

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You can watch it on YouTube or listen in your favorite podcast app. Big news this week for all my Gordon Geckos, my Robin Hooders, my Claude Squad, and Thropic, which is newly the most valuable AI company in the world, announced it would be going public. That news follows reporting that open AI plans to go public as soon as September, and that that news follows reporting that space X, which also considers itself an AI company,

will be going public in maybe just a few weeks from now. Welcome to the era of the Omega IPO.

We are about to see millionaires, billionaires, and yes, probably even the world's first

truly an air created overnight. And yes, it's that guy. But all the tech froze, we're going to make all the money. They need our money way more than we need their products. And we're going to remind you why on today's explain from Vox. We're back with the property markets. We are back in the studio after the first ever property markets tour over the past week and a half. We traveled to five cities, San Francisco,

Los Angeles, Miami, Chicago, and New York. We met listeners. We talked about markets, and we got a firsthand look at how people around the country are thinking about the economy and investing. Now that the tour is behind us, Scott, it is time to debrief. Let's discuss our learnings from the tour. And let's also get into the numbers here. I'll just give you a little bit of data around how this tour actually went down. We sold 5,239 tickets in our five cities. Our biggest city

was New York where we sold out the town hall almost 1,400 people showed up for that show. Our

second biggest show was San Francisco where we sold more than 1,100 tickets. Scott, takeaways, success,

financially, personally, emotionally. So just to be honest, I found it very stressful. You know, if someone gives up, it's one thing. If this pod sucks, they go back to walk in their dog, right? They just turn it off. I think when you have 1,200 people show up for an event, and they've spent 100 bucks or more. By the way, stuff up our tickets in New York, we're going for

“500 bucks. You have to bring it. You have to. That'll be good. Yeah, you want them to really”

enjoy themselves. And also, I felt more responsibility because when I did this with pivot, Kara is so experienced with live events. And I just kind of show up, tell it, Dick Choke, maybe occasionally stumble on some inside and the whole thing works. And she manages the whole thing. And in this one, you're you're outstanding, but I felt more pressure to kind of beat him. See if you will and keep it on track. And I was just, I was just quite frankly, I was anxious.

So I was super relieved, but we had, what are some observations? I think that live events are booming because people want to get out and touch grass. I think getting your, your every brand needs a certain number of evangelists, evangelists are key to a brand. And that is people who just when they hear the brand name, they say to their people, oh, property markets, someone hopefully goes, I love that show. And I saw it and it was a ton of fun. That is just so important to a brand.

So getting out there and trying to find your evangelist and also when it works in this

“tour did work, it's really rewarding. And also it was a nice moment for us. I think when Hillary,”

when Secretary Clinton came out on stage, it felt like sort of the show was validated. The fact that someone that's interesting and important and although it's not really markets related would show

I felt like Mick Jagger flying around with in sync while they were in high school. I'm like, Jesus Christ, I, everyone is just so, I'm like, all right, everybody needs to be in bed by 11 pm. It's like literally on what children. And what you're finding is you can, the ticket, what's interesting about life event. The ticket sales cover your costs maybe a little bit more, but where you make money is on the sponsorship. That's where the big money is. And that is

our sponsorship's range from like 100 grand or 500 grand, we try and get for the tour, we try and get

three of them because the power branding and in-person show is really powerful. And, you know,

those events are just, you know, they're just economical. I'm not sure they make sense. It's a lot of work. I was in seven cities and six days and five stops. And through a speaking gig in there and then anyways, but so I found it exhausting. Very rewarding. The trend is towards in-person events. People are recognizing, one of the biggest trends in the consumer economy right now. And it's the reason why FlexJet is doing well. And the LVMH is not. And LVMH just took a mistaken FlexJet

and why Disney parks are up, but, you know, people buying shit is down. Is it people realizes they get older and coming through COVID that we overestimate the pleasure and happiness we're going to get from things and we underestimate the pleasure and happiness we're going to get from

experiences. And unfortunately, with live nation, which is in Monopoly, it means the Taylor Swift

tickets go for $2,800. People are upset about that without our tour too. I mean, what I can say is it's not really much we can do about it. This is the ecosystem, like if we kind of have to play bowl here with them. Well, and we're charging what I think was a hundred bucks or two hundred bucks, I want to coach Ella. My god, VIP tickets, that's that you don't like have to be into T.P. and have like a 19 year old running over you trying to see Justin Bieber. It's 2,500 bucks.

Which is, by the way, that's about what it costs for like a nose bleed and for the next game right now.

“I think if you want to go see the next, it's just like 2,500, 3000 dollars. Why don't”

if you hurt, but I'm going to get really crazy. The tickets, tier one tickets to the finals for World Cup or $38,000. Someone sponsor us, someone take us, please. Yeah. Yeah. By the way, I think FIFA is the most corrupt organization with the best product in the world. I'll just give some observations as well on this tour. I mean, I think it's a really interesting point and it's an important point for a business perspective that this doesn't make that much sense

for us financially. Like this event is profitable, but we could do other things that are a lot more profitable, specifically continuing to do this podcast and charging way higher than average CPMs because we have a good brand and because we have a good aspirational audience. I mean that's really how we make money. It's not from going and doing live tours. That's kind of how like comedians go make their money because they don't make as much money charging for the CPMs on their podcast.

“They make more money getting people to pay large prices for live events. But I think there are some”

really important things that are rewarding for us down the line which is what makes it worth it for us. One, it's fun. That was I mean just a whirlwind roller coaster of a time traveling around the world around the world, around the nation with the team, you know, we went and we paltied at the feina and then the rest of the team we went out to club space and we stayed out palting and it was our research assistant, dance birthday and we got him a total of 23 birthday and we celebrated which is

fun and it's also great for team morale which is actually important when you're running a very high intensity organization where you're making podcasts and videos literally every single day. So that was really important and then also it's really important for us to understand who the audience is to connect with the audience and to deliver some sort of a payoff for our super fans. Like I was so one thing that we did at the end of every show is we like stuck around and we talked with everyone

because that was meaningful to us and I want to make sure that if you're listening to the show that you're getting some real reward from this and that you're being feeling that you are

“part of a community which is exactly what we delivered for these shows. So that's really important”

from the audience perspective and then finally in terms of making money for the long term,

when you're in the business of advertising there are two things that you want to do. One is you want to get as many downloads and clicks as possible. We all know that. But two you want to demonstrate to advertisers that the relationship with the audience that there is a debt to that relationship and there is a strength in that relationship that the audience has a level of loyalty to you. And so if you can go out there and show the world

They showed up on a Tuesday night and they paid hundreds of dollars for a ticket to show up and

“watch this show. That says something very meaningful to the audience or to the advertisers.”

That tells the advertisers that the audience is listening and the audience cares. So I'm just sort of laying out why this all makes sense from a financial business perspective for property markets. Despite the fact that these things aren't that profitable compared to other things that we can be doing over the long term, it really pays off. And that's sort of the business case for why we're doing it. The final point I will make on why it makes sense to do this

is the content that we get for social media. And we've got a lot of clips from the tour. What I said to the team is we want to make sure that we inspire a massive sense of phomo among anyone who isn't showing up to these live events. I want you to be seeing how much fun we're having. I want to be posting it all over Instagram, all over X, all over LinkedIn, all over Threads. I want everyone who isn't at this show to think, God dammit, I need to show

up to the next live tour. So I hope that we did that. I had an incredibly good time. It was genuinely so fun meeting everyone who listens to this show. And I couldn't believe it at times, but it was so rewarding. And I hope for those who showed up. I hope you had a good time, too. Yeah, other than the relevance, validation, narcissism and money for me, it's all about the fans. Yeah. This is what we're all about. We are transparent.

This seriously, one of the things I found interesting was that I've done a bunch of live events and a bunch of speaking gigs for years. And there's been a transition in Cuba.

The Q&A is always the most fascinating thing. Anytime I speak somewhere, I demand Q&A.

“I think that's the most interesting part. And we had Q&A for a good 20. Sometimes 30 minutes and every”

of that. The shift in questions is dramatic. In that is, a few years ago, people wanted stock tips. It was greed. It was, they wanted to know what, what do you think is the big tech stock pick for the next year? Now, they want career insurance. And that is, the things that it was more, but it was less about greed and more about anxiety. People are talking about AI, housing, and quite frankly, whether we had a lot of questions from parents really basically saying, "Are my kids going to

do as well or better than me?" And we had over, looked at the data, 800 audience questions. And if you were to summarize them in one sentence, it would be that people aren't worried about the economy. They're worried about their place and their children's place in it. So it's gone from greed to anxiety. And it's moving towards the greatest luxury in America is moving from wealth to certainty. And it just reminds me of happiness studies. And that is every year they rank the nations on

who are the happiest. And every year six of the ten happiest places in the world are in northern Europe. And I'm going to stock on the next week. And whenever you go there in the summer, you sort of understand why they're so happy. And then you go back in the winter and can't figure out why they're happy. But it's not the beautiful weather or the beautiful people. What it is is that happiness is not only a function of what you have, but an absence from the fear of things being taken from you.

And that is it's great to have a lot of money. But what's even more important to happiness is not worrying that if your wife gets long cancer, you're also going to go bankrupt. And in the US now, we've decided to optimize the happiness for people who have a lot of money at the expense of the

“anxiety for people who are in kind of in the lower 90, especially I think the upper middle class,”

who have more economic anxiety than they've ever had. And you could just feel that in the questions, people asking what should their kids do, what skill would you give your kids? What is the likelihood my industry gets disrupted here? So in a certain way, it was kind of, I don't want to say disheartening, but people are really, people are just worried. And all of the catastrophizing coming out of the

AI community, which I think is basically fundraising. You can feel it. It's quote unquote, it's working.

People are really, really worried. What about any optimistic notes to end our show? Or what did you feel good about coming out of that tool? The most rewarding is a chance it's been time with the team. You guys have a great team. They're nice people. They've really enjoyed it. That was nice. I think it was bonding for all of us. Hands down to the most. The nicest thing about the whole tour was that in every city we had parents who brought

their teenage kids. And that's just very rewarding to see parents hanging out with their

the phenomena and I want to go to so-fi. Yeah, me to Taylor Swift's company. Does that make sense?

Does that make sense? I mean, I don't like her. I'm not interested in how music I just wanted to go see what's happening to society and culture. Yeah. But the thing that the thing that was worth it was when I was leaving, there's this gigantic platform, cement platform or deck or terrace, so-fi. And the driver who I was with who takes people to and from the Swift concerts all the time is like, look to your left when we go out here. You're going to see about 800 dads and cargo pants.

And I looked at the left and there's this gigantic terrace full of flight guys in their 30s and 40s all on their phones in cargo pants. And he goes, it's dads waiting for their daughters. They didn't want to spend the money. You know, it's too expensive. So they buy ticket. I thought it was so nice. It's too expensive. I'm like, people don't, I thought to myself, these, you know, all these guys are such good men. They come to the concert. They bring their 13 year old daughter, but they

don't want to spend the money on a ticket. So they wait outside for three hours and listen to, you know, the talking heads in our am or do whatever it is they do. And then wait for their daughter to come out because they don't want to spend that kind of money and I take it. Anyway, I found the most rewarding thing hands down was when people brought their, their young adult children. I thought

“that was really affirming. The Taylor Swift's of business. That's what we are. Yeah, that's what we are.”

Yeah. What we really appreciate everyone who came out was so much fun. I mean, honestly, just surreal from like the size of the crowds and and and seeing those lines and just seeing the fact that, you know, we started this thing like three or four years ago and we didn't really know what we're doing or at least I certainly didn't know what we were doing. I mean, even just having Hillary Clayton come out on the stage with us and talking with her about the future of the economy, the future of

America, speaking with Governor Pritzker, speaking with Ted Serandos, the CEO of Netflix about Hollywood like we've come a long way and it was, it's nice to have moments where you just observe that and you recognize that and you celebrate that and that's what that was for us. So again, everyone who came out to the show, I'm so grateful. Thank you so much. And I can't wait to do it again next year. We're gonna have to do it again next year. We're gonna have to figure

out where else to go. I know a lot of people in Denver strangely were upset that we didn't go to go there. Same with Boston. We probably have to hit DC next time. I will note, the Chicago audience, I wasn't sure if we'd have much of an audience there. That was arguably the best audience. I mean, they went, they went nuts. It was awesome. So long story short, that was a great time. I can't wait. I can't wait for the next one. I'm glad. Let's take a look at the week ahead Scott.

We will see earnings from Oracle. We will see inflation data from the consumer price index

and produce a price index for May. And then finally SpaceX is set to price its IPO Thursday night

“and go public on Friday. Scott, do you have any predictions? Well, I sort of made it. I think the”

three, the big three coming up. I'll be interested to see if they're, I don't, this is in prediction. I wouldn't be surprised if they're pricing has to come down a bit. But I think the biggest first day pop or the biggest initial pop on the first trade is going to be on drop. I think the momentum, the risk, so much about an IPO is the narrative versus the numbers. And the narrative is just strongest around anthropic and weakest among open AI. And somewhere in the middle of SpaceX,

because you have Elon, he's a meme. He's great. He's great. You know, it is an exciting company. It's got kind of just, it's every eight-year-old stream, you know, space and rockets and technology. And I think some of those animal spirits will come in around SpaceX. But if I were to rank them,

I think the anthropic has the biggest first day pop. All right. My prediction is that these

“IPOs will mark the top. As I said, I think the amount of capital that they're demanding in these”

fundraising events is just going to be too much. And I think that there's too much supplies going to outstrip the demand. I think that that's going to be the top. These companies going public and then we'll see a period of relative underperformance over the next several months. So that would be my prediction. This episode was produced by Claire Miller and Alison Weiss, an engineered by Bench with Spencer, or video editor is Jorge Colty, or research team is Dan Chalan, his fellow Kinsel,

Chris NoDon, Hugh and Mia Sauvario, Jake McPherson is a social producer. Drew Boros is a technical director and Catherine Dylan is our executive producer. Thank you for listening to Prof. Markets from Prof. Media. If you liked what you had, give us a follow and tune in tomorrow for a fresh take on the markets.