Bulls vs. Bears: Who’s Right About This Market?

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Today's number $250 million, so that's how much back from America spends on GLP-1s for

its employees per year, Ed, to a strange, why do you think I only get sick on weekdays? Why is that? Well, that was enthusiastic. Try again, bitch. Why, Scott?

I was thinking, I was pondering the question, you're a terrible straight man. This is why my comedy is not resonating. Let's start this again. Why do I only get sick during weekdays? This is something, oh, I'm gonna play this game.

Why? Because I have a weekend immune system. Oh yeah, you're at home.

I know how in the studio is broken, there's no wife I working at the Vox Media Studio, which

is kind of insane to me. So I'm recording from home, I kind of feel like it's COVID again, zooming into this. But that's okay. So, Ed, I know you well enough, and also I have a very strong intuitive sense for young men.

Something's on your mind, you're distracted this morning, where you are you upset about something, is something on your mind, or you overwhelmed with gratitude for the exceptional professional opportunity you have, like what? What is running through your head right now?

“What's up with that else, and you seem down, or distracted?”

I'm distracted by a work related event, but I shouldn't disclose it on this podcast right now. Is it a bad thing or a good thing? That was kind of a bad thing. I mean, it's not a big deal.

It's just one of the guys that we have on the show. We did a clip that used some of his data that didn't give him the attribution. When that's happened, and I've been on the other side of that, I'll hear someone literally parrot something I've said, and I think, wow, it wouldn't be nice to just occasionally reference my work when you're literally parroting what I've said.

The best response is, and I've gotten this response, and sometimes I have, and also I've been on the other side of that, where people said, "You cited my data, please reference it," it said, "I think the best response is you're right. We have a lot of respect for your work. We do boost signal boost your work a lot, including having you on the show, which it sounds

like we did. I don't know who we're referring to, but we'll correct the record and be more careful moving forward. I hope you accept our apology and our commitment to doing better." That's exactly what I did, I mean, yeah, exactly.

See, I only get nervous if I actually think that I'm in the wrong, and in this case, I do think I'm in the wrong. That's great self-realization, and just to go, I just interviewed a psychotherapist, so

“I think I know everything about psychotherapy right now, but the shit that hurts, where”

you get really upset or something online, facts with your mental health, it's when there's a kernel of truth in it, when it's like, "I did fuck up," and this happens to me a lot, because I say a lot of stupid shit, I go back and I get attacked and I think, okay, the stupid shit and jealousy or bots or weirdos, fine, it's when there's a kernel of truth, you know, like, yeah, I didn't get that wrong.

Exactly. So what do you do about that? I think with actual people who take the time to reach out to you, it's, and I did not have the self-awareness when I was your age. I used to reer up and get back in their face and think it was about winning the argument,

and then what you realize is you get older is that it's not winning the argument, it's

And to be fair, we love your data, and we do signal boosted a lot, which it sounds like

“we do here, but something fell through the cracks here, I apologize, I'm happy to”

correct the right, and it's like relationships when someone's upset, my, when I was your age in a relationship and someone would get upset with me, I didn't see to try and get back in their face and prove them wrong. And then what you realize is you get older is if someone's upset, you, you know, value the relationship, just acknowledging that they're upset and that likely because you trust

them in their smart, there's a real reason why they're upset in a valid reason and to move to a sincere apology and then move to what you're going to do to try and fix it in the future. I did not have that self-awareness when I was your age, but anyways, I'm going to charge you $300 until you that we have five minutes left and kick you out of my office now. I think that was a great session at, I thought it was good, I think I learned a lot.

Yeah, it's true, I mean, there's something about just the acknowledgement that is weirdly important that you don't really realize until later on, it's like, it's not so much saying sorry, but that is important to people, but voicing exactly what is bothering them and saying it out loud, like, I acknowledge that this is exactly what happened. It's surprising how important that is in relationships and in conflicts, like you can't

“just be like, I'm sorry, like, it's kind of no, no, you need to acknowledge fully.”

Well, in trying to avoid the non-apology apology, I'm sorry if you're upset. No, no, no. Yeah, exactly. We were wrong. We fucked up. I apologize, and this is what we're going to do to make sure it doesn't happen again and try and correct the situation. And then if they don't accept that, call them a snowflake and a bitch and move on. Should we get to today's news? Ed, should we get to today's business news?

Let's get into it. Last week, the S&P 500 hit fresh record highs twice on Tuesday, the index climbs nearly 2%

to its first record close since June, and the following day it notched another

intro day all time high. The rally has led some investors to believe the worst of the

“AI driven setoff is behind us, but not everyone has convinced Michael Barry recently won that”

it is possible. We are a near a major top adding that the market could be setting up for a quote, 1987 type fall. So Scott, what we wanted to do in this segment is sort of lay out the bull cases and the bear cases because it seems that these two factions are extremely at odds with one another right now. We are hitting record highs and yet at the same time, there is a huge amount of anxiety about AI and about the sustainability of this business, about all of the debt which we'll get into,

and of course we cover a lot of it on our show. But I want to just start with the bull case. And we've gathered a few clips here from some famous investing bulls that kind of lay out why the S&P hit a record last week, and why investors feel optimistic about AI. So I'm going to start with a clip from Gavin Baker. He is the CEO of a Trader's Management. This is Gavin Baker on why he's still optimistic about AI. I look at what's happening at the stock market and I feel

like a foolish optimist. And then when I talk to people, whether it's people at the labs, whether any what did this ecosystem, like I like bearish relative to essentially everyone. This is Alex Sassadot, who's the head of well-rock capital management. This is on the same point, cost invests like the best. And here he explains how adoption of AI is only at the beginning and that for it's probably going to grow significantly more. You know, 200 or I don't know how many

700 million people are using AI. They're just using AI 1.0, which is like a search engine on steroids.

But now with these new primitives where you have caught on your computer, linking it in, and then they're going to build true AI bots. And then big corporations are going to build much larger. But where are we in terms of the amount of people doing that? I mean, Sunder said it's 10 BIPs of the knowledge workers the world. So anthropic has something like 14 or 15 million DAUs. Probably a small portion of those are truly doing AI the way you can do it.

So that 10 BIPs, it's classic S curve where these are the tankers. And then it's going to go to

to want to 2 or 3% to 5% to 15% in the next four years. And kind of a light switch this year went off in the enterprise where everybody realizes they need to do this in that house. And then finally, this is our friend Josh Brown on his podcast explaining why he is still very bullish in this market and why he believes this is a healthy bull market. If you gave me a legal pad and said, fill the first page, yellow, yellow pad, fill the first page with every character

ristic you would want for a market rally in order to feel confident to stay long. Like right

“down all the things. Here's what I would write down, okay? earnings beats in every sector. I think”

we have 10 out of 11 companies are on average beating or something like that. So check rotations leadership stocks getting killed and other stocks becoming new leadership defensive rallying with cyclical growth rallying with value, large cap rallying with small cap, revenue growth ahead of expectation, not just games with earnings or buybacks, but like actual sales growth ahead of what's being expected. Analysts raising their expectations for next quarter during this quarter across the

entire S&P 500, which is what's going on, international stock support, lots of IPOs, but not too many IPOs. Like every single thing that I would write down on the pad to say healthy market, we have all of it. That's the bullcase right there. We'll get into it, but your first reactions. I think the economic incentives to someone in the job I do is to catastrophize more than is actually warranted.

So do you just play Josh's comments? I love what Josh says and that is you always have to ask

“us how to work that go right. The problem is and the problem I think we're facing and I think what”

people have to be cognizant of is the market is now six stocks and alphabet and Amazon alone drove nearly half of S&P earnings growth. It feels like the metrics are overstating the positive case if you will. And I like to meet, I think the data around the fact that things are overvalued and the or the bear case if you will, the one piece of data that I just think is very hard to argue it is that if so much of the market is concentrated on the well-being of the prospects of AI

and the investments in these hyperscalers, we have we need if you look at the capax to get a reasonable rate of return on the current capax by the hyperscalers, we're going to need to recognize or create two and a half trillion dollars in incremental revenue from AI. Right now, the cumulative

revenue being produced by AI is 150 billion. So we needed to 15x just to get to a sustainable or just

ifiable ROI on the current capax. I think that is unlikely, and by the way that two and a trillion dollar number, just to put it in context, is greater than all of the revenue of big tech right now. So to get a market level ROI on the current capax, we need to double the current revenues being registered from big tech. That's not to say the market will, I think the market will be up from where it is in 10 years. I think AI is going to prove to be a fundamental technology.

I think there's going to be a lot of winners, but similar to the internet in 99 or the railroads or whatever you want to call it. You know, the railroads proved to be tremendous, great tons of shareholder and stakeholder value over the next century, but that didn't mean it didn't bankrupt a bunch of railroads shareholders along the way. So when I look at all the traditional metrics, I just think there's more asymmetry to the downside than to the upside, and but let me do my

land acknowledgement here in terms of, okay, what does that mean? Scott, what do we do? I'm not suggesting

you sell right now. My attitude is always being the market. What I do think people need to be

mindful of, though, is based on historical norms and trends and ratios that do have value, whether it's the Buffet Index, looking at evaluation, the total valuation, the market relative to GDP, whether it's casheller, whatever it is, whether it's PE, whatever you want to call it,

“things look very frothy right now. So what do you do? I believe it's never been more important”

to think about diversification and also perhaps contemplating lowering your leverage. Because if there is, if we are, if you believe as I do, that we are susceptible to a pretty dramatic correction in the next 24 months, you don't want to be out over your skis and put yourself in a

just to go to the bullcase again, I think a lot of people are trying to understand why exactly

“did the markets rally? Why did we hit this this all-time high in the S&P? And there are a few”

things in there. One that we should just acknowledge is just optimism related to Iran because Scott Basin said on Tuesday that the US and Iran would reach a deal. He said they would reach one quote today or tomorrow. I eat Tuesday or Wednesday didn't happen as this continues to go on. They keep on saying things and then the thing doesn't materialize. But we're just going to sweep Iran to the side for a moment and focus on the thing that really matters in terms of

growth prospects and that is AI. What the bulls would say is that earnings growth is really strong right now. Even if you remove the markups in Amazon and Google's stakes in those AI companies which exploded their earnings as we discussed in the previous quarter, if you take that out, the S&P is growing really strong on an earnings base. It's 27% earnings growth. The other thing that Josh talks about his view is that he says like the trash has been taken out. I eat that

there was the collapse of the cost be. There was the situation awareness collapse. That's all kind of happened and so maybe we've sort of flushed out some of these crazy, uh, speculative bets out of the system maybe. And then of course just that AI demand is still growing. The GPU prices keep going up. The compute deals keep getting signed. The revenues of every AI company continue to grow practically exponentially. And that's all true. But to your point, it doesn't answer the

fundamental question that I'm still thinking about, which is where is the ROI on the end product of AI? Where is the ROI on that that was should be reflected in open AI's business or unthrop existence because you look at the earnings growth today. It is entirely dependent on this data center builder. In Goldman Sachs has data, AI investment is expected to drive nearly half of S&P earnings growth this year. We could do the analysis and try to figure out what exactly the number

is right now. But I think that sounds about right. Especially when you consider how much money these big tech companies are plowing into the data centers. It's coming out like $750 billion this year.

“And then you have to ask yourself, okay, how long is that going to last? And why is that happening?”

Why are they spending all of this money? And I think the most important number that we learned last

week came from Bloomberg, which showed that open AI made up 70% of Microsoft's AI sales last year. So the whole system relies on open AI and anthropic. Two companies which have been proven based on the leaked financials we've gotten to be incredibly unprofitable companies that are burning tens of billions of dollars a year. So I just don't, I don't see how this is sustainable at this point. And I want people, I want investors and the bulls to be answering that question.

Frankly, I don't care how much the semiconductor stocks earnings have gone up. I know they're going up. I know that they're selling chips to big tech. Obviously, because the big tech companies are building the data centers. My question is, how long is this data center build that going to last? And is it actually going to be sustainable? Because if you're relying on all of your AI business on one company, then what are we doing here? What happens if open AI implodes tomorrow?

What happens if they can't get enough money from the, raising enough money from investors? What if they can't raise enough money from the debt markets? I mean, at some point, they need to

“get profitable, otherwise the whole thing does collapse. And so that's what I would say to the”

bulls right now. Why don't you answer that question? Because that's the most important one right now.

The thing you've been talking about a lot on property markets, which really resonates with me, and I also appreciate that you're one of the, one of the many things I like to respect about you is you're not afraid to go, you're not afraid to be a contrarian, and you go where you think the truth in your own God is taking you regardless of what the kind of narrative is. And the narrative is that these AI valuations are everything, and if you don't, and these

five X revenue compounders will continue to compound, and then if you don't say that and support deceptic tank that is the majority of VCs portfolio right now, you're, you know, it's a crime against humanity and you're morally deficient. And there is literally a fairly thin string, a piece of yarn I would argue that if pulled on, we'll bring down the S&P, which will push us into a recession,

become a giant bet on AI. What is it? 70% earnings growth, 92% of GDP growth coming from the CapEx from these hyperscalers, and the most significant thing to happen, or the two most significant things that happen are one in the US. There used to be all of these sources of new incremental demand on the consumer side, you know, whether it was X getting into AI because X AI was going to have a much, however, whether it was meta that was going to offer llama and different consumer AI

applications. And then all of a sudden, they've all said, wait, we're not, we don't seem to be capable of building the front end demand to our platforms, so we're going to lease out our back end

to one of two companies, open AR anthropics. So there's basically two sources of demand creation

right now, and everyone else is pivoting to supply creation. So you have an economy, which is it seems to be very dependent upon one sector, a small group of companies within that sector, and only two sources of demand creation, and both of those companies are hemorrhaging money right now. So it just feels as if the market is incredibly fragile right now, and then the the chase

“or effect, or the other fear factor, is, again, what I think is one of the more dramatic”

numbers, and that it approximately 10% of token usage in January 2025 was from Chinese ALLMs, and now it's approaching two thirds. So the market is bifurcating. I still think the frontier models are German automobiles companies higher margin. There's going to be a big market for them, people want debugging, safety, security. You look at Microsoft co-pilot, which is double that's number of seats. It most people, most AI analysts say it's one of the shittiest applications,

but there's something to having a big company debugging compliance, security, all the good stuff that comes with Microsoft. Yeah, it's another little asset in the giant bundle that is Microsoft selfish. It's plug and play, and you know us, and you can trust us, even if it's not a great product, it has a great warranty, right? But the fact that the ALLMs are coming in and doing to Silicon Valley would Tokyo did to Detroit over 20 years, but in this instance over 20 weeks, I don't think anyone's

being very honest about what's going to happen or they impact that will have. All of these numbers assume we're going to dominate every aspect of the air market globally. I just don't think that's the case. So this is a concentration of concentration of concentration built on massive expectations,

“but also we have such a tendency to focus on the S&P. I think we're going to be winners from Maya.”

I think you and I are going to be better off from Maya in terms of productivity and new job opportunities. Just as we're better off from vaccinations, jet transportation, the railroads, the electric grid, but along the way through different cycles, all of those industries lost a shit ton of shareholder

value. I think we're at that point. Amazon went on to be an amazing company. It lost 93% of

its value from 99 to 2001, because we were in a cycle where things the Froth translated to ridiculous valuations that could not be sustained by anyone including Amazon, and I think we're sort of the numbers would say we're at a similar point. We'll be right back off to the break and if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify or wherever you get your podcasts. Support for the show comes from Zbiotics. After a night out on the town, your body just can't

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in under six hours no endless searching required. Visit upwork.com/markets right now and post your job for free. That is Upwork.com/markets to connect the top talent ready to help your business grow. Spilled UPWORK.com/markets Upwork.com/markets. We're back with Prophecy markets. The blast zone is very clearly those two companies open AI and anthropic which are based on what we know losing money but I should add. We don't know much at all. In Open AI's case, Ed Zitron got his hands on the

financials and he leaked them and we learned from those financials that Open AI lost $21 billion

last year. We can make estimates and do analyses based on what we think is going on over it andthropic. I want to play you one more clip from this Gavin Baker interview on the Invest like the Best

“Podcast. I'd love to have Gavin Baker on the podcast. I think we have reached out to him and Gavin,”

if you're listening to this, we'd love to have you on and talk about this but he said something that I think was really problematic in that episode and he kind of just skipped over it but I want to play this to you really quickly and then break it down. Oh, but AI has accelerated and thropic continues to grow really strongly and is almost certainly pumping out significant amounts of free cash flow. There is zero evidence that Anthropic is generated any free cash flows whatsoever

and they have even said by their own estimates that they don't expect to generate any free cash flows until 2028 and by the way, if they had generated any free cash flows, I can guarantee you we would be hearing about it because it would take the stock market. Why are they raising $36 billion

“from the debt markets on top of the other $35 billion they raise a couple of months ago from Blackstone?”

So and he just he can't you notice his language is that almost certainly generating significant amounts of free cash flow. I don't know what he's thinking when he says that but that's you

can't just say that because the reality is that jump that he makes there just deciding that

almost certainly it's happening that is what the entire AI ecosystem is depending on right now and to me the fact that he says that tells me that there is some serious misunderstanding in the equity markets right now as to what is actually going on in AI because if there are a lot of other investors who like him are just randomly assuming that the Anthropic business model actually works despite they're being zero evidence to support that argument then we have a serious mismatch

in terms of investor expectations and the actual reality on the ground and granted we don't know because Anthropic won't tell us but we did our own analysis of Anthropic's numbers we did it

11 billion dollars last year and we would expect that number to continue to go up because of the

massive amounts of their spending on training and inference so that to me is the problem why are we pretending like Open AI and Anthropic like those businesses are working I mean how are we making that

“job because that's the real problem yeah I think if he'd said if these companies dramatically”

reduce their capbacks they would get to a cash flow positive pretty soon because if you look at the top line in the sector's growth I think that's a defensive argument usually though you have to positive gross margins and what I've been seeing is that I just signed up for if it was Claude Pro whatever and it's 200 bucks a month or something and I read somewhere that it's costing them a thousand dollars a month to service my two hundred dollar a month product but yeah I

look I think if he'd said these companies could be cash flow positive if they decided to dramatically scale back their capbacks because they're growing so fast I think that's maybe a defensible argument but I don't I don't see any evidence that these companies are producing anything resembling free cash flow right now and that's the whole point and that like that is the whole question in this bull market is can open a eyes business make money and can't unthrop it's business make money

and you have the number one AI bull going on podcasts saying that they're already making money almost certainly quote unquote and it's not true and so I I'm just like what are we doing here I have this deck or this talk I do call the AI optimists we have such a tendency to look at everything to the lens of the success of America is the success of the SMP it's such a damaging metric because it doesn't measure PSA it doesn't measure obesity it doesn't measure anxiety doesn't measure

“you know let's say general sense and purpose among young people and I believe AI is going to be”

an in that positive for society we're going to be I think it's going to increase productivity we're going to come up with new ideas new medical treatments faster cycle time for pharmaceuticals I think it's going to be a net positive as long as we figure out the risks and the regulation to try and start the externalities we you know we've been able to control nuclear detonation for almost 80 years with regulation and leverage and harness I believe nuclear

fission to the benefit of all mankind and there's a real issue around rather what regulation is keeping up with this technology but the notion that everything comes down to whether these stocks are going to continue to go up okay just because you don't think these stocks are going to get new to go up doesn't mean that technology is a failure doesn't mean you're wrong

it turns into I have never received the type of pushback and hate as when I question the

valuations of companies in a VCs portfolio and that is the attacker character they don't want to make a good faith argument back and forth it's know the whole world depends on whether or not open AI has a successful IPO knowing doesn't and also there is a positive to all this capax thank god or it's it's a feature not a bug that America is willing to get out well ahead of its skis on a regular basis and the shareholders are willing to encourage these

types of drawdowns because we like risk and we're willing to take these risks and most nations

“are willing to take these risks and we benefit we will benefit from this capax and may I believe”

cause some volatility the market might be a drawdown I think a lot of investors and my view are likely to lose a lot of at least paper gains in the next 12 to 24 months the capax that went into railroads was well ahead of where it should have been a cost share there's a lot of money we have all benefited from that capax the capax in the internet which got hysterical in irrational from an investor standpoint we have benefited from so even if the S&P has a kind of drawdown

I think it's going to have I would still argue there's real societal benefits from the fact that America is a risk of aggressive culture and we make these types of extraordinary capax you know it's not the steel in the ground from global crossing or whatever you know these companies that imploded from these telco infrastructure in the late 90s we're still registering I think benefit from those irrational investments there's a lot to like here but the notion that

everything about the benefit or the progress or prosperity of humanity is all linked to whether the S&P goes up or down I don't know I've said to you for a long time I think your generation would benefit from what I call I don't know a sane correction such that you have the same entry point into great companies that I had as a younger man because all the narrative and all the pumping

and all the shaming online if you don't say a 44 billion dollar acquisition of x-made sense

and the narrative is okay we need rational people to say you know is it kind of the Michael burry like implosion probably not is it the permable things go up forever no it's probably somewhere in between and what I can't stand is the narrative is you're a good guy at a good citizen if you're continuing to pump but if you want to have a rational conversation about maybe shit's over valued right now there's something

wrong with you you're anti-American exactly all we're trying to do is to get to the truth like that's literally all I'm trying to do here what is the actual value of these companies what is the actual fair value estimate for these big tech companies have we considered the fact that they're relying on two companies alone for their AI growth that's where they're getting all of their growth right now and have we considered the fact that those companies that they're relying on

aren't making money and could easily go out of business if they can't keep raising billions of dollars at infinite from the equity markets which we're already starting to see look at anthropic

going and borrowing 36 billion dollars from blackstone this week I mean that's all we're trying

to do and as soon as you say that I mean you shouldn't be so offended by that by us doing that you know like it shouldn't be an offensive thing that we're trying to get an understanding of the truth it's it's fine if we're wrong then we'll be proven wrong but that's all we're trying to do here we're trying to get an understanding of what actually is the value here and it seems that everyone's so sensitive because they have these stories in their heads and they get very upset if you decide

to start poking any hole in that story because I guess they believe that this is their ticket out

“but it's like gravity's going to come at some point so I think we should be having a rational”

conversation about all of these on this point I think it's worth asking the question like you know we're bringing up some of the AI anxiety right now and the question that I keep asking myself is to what extent is that anxiety priced into the markets right now and I think that the answer is that as of basically this week when the markets went way up the anxiety is increasingly being ignored so if we just look at some of the multiples microsoft is up to 27 times earnings which I

think at this point it's pretty fully valued I mean you know that I bought the stock at 380 it's up 30% since then so that's great but I mean the benchmark that I keep trying to look at is how

did these companies trade before the AI boom and the answer is last week microsoft traded

lower than its multiple pre AI this week it trades higher we look at matters and example

“matters a company that company that I think the anxiety is priced in it's trading at 22 times earnings”

pre AI was trading at 31 so that's a company where I think investors are looking at the situation saying we're not sure where the arrow or why it's going to come from which I think is great I think there's some rationality built into that stock right now but you know Google Amazon they're getting very expensive at this point especially Google and it does seem that investors are looking for any reason whatsoever to just kind of shook away the possibility that this whole AI thing won't

work out and so that's really what we have to keep an eye out I don't think that we're in totally crazy town but I do think that that it's as you say it's quite frothy and that's something that we have to acknowledge I don't know I think we're firmly in crazy town when I know friends of yours who are talented kids raising money for their companies and billion dollar valuations and I get it I was there you know in 1997 or 98 I raised money for red envelope at 120 million dollar

valuation on revenues I forget what it was but and at the time I was happy to defend it and

talk about why we were going to be worth a billion dollars and credit sweet first boss I'm

talking about taking as public you don't feel you're in crazy town when you're in the asylum and benefiting from it I mean so but yeah on any reasonable metric any reasonable metrics this does you know whatever you want to call it this to me feels like yeah we've officially moved

“in and taken up residence in crazy town it almost changes week to week I think you're probably”

right it's like this week we're in crazy town last week it was a very different market and this is part of the problem the volatile is so insane week to week the fact that Amazon reports its earnings and then it goes up 15% in a single day like I mean it's almost hard to gauge where actually

Thursday Thursday August 6th or 2020 6 which we're in recording this we are in crazy town

“but I could see it swinging back tomorrow or the next week it's very very hard to gauge at this point”

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today's content the hei to make a very hot topic a comic book that is a galabied and now the job that's a job for sponsored jobs with real profits that's not passed by the crowd of people in the end and finna qualifizier to talent with sponsor jobs. March the indeed einfach yet off indeed.de slash recruiting we're back with property markets last week marked space axis first post IPO lockup exploration giving employees and early investors their first opportunity

to sell shares since the company went public in total more than 911 million insider shares

became eligible to trade more than doubling the free float the stock was relatively stable following the exploration that came just days after space exchange reported its first earnings as a public company on the surface the results looked impressive revenue surge 92% year over year but investors weren't satisfied in the stock fell 8% after the report at the time of this recording the stock is trading around $109 it's down 52% from its all-time high so i'm going to take my victory lap right

now this was my prediction before the IPO as soon as it hits the market space x stock will immediately explode 25% however my other prediction is that within six months probably sooner space x stock will be cut in half why because the valuation makes no sense whatsoever it has indeed been cut in half 52% down since it's high of $225 per share will get into the earnings as well but maybe Scott your initial reactions to this stock price movement is a good business the the the

was up 66% to 4.3 billion that's double what Palantir is quarterly revenue as subscriber growth

double to $12 million but the problem is great businesses that are overvalued with this thick layer

of this enormous bet the mayor may not be paying off AI capex was up 550% to 18 billion of one quarter so space x is now spending more on capex and Oracle and more than x on for a unit that is unproven right now deluding a generally strong satellite business and then there's just the bottom minus the valuation is just still insane if you didn't know this company had been cut in half you wouldn't think it's undervalued or you wouldn't think it's you would think it's overvalued it's just

“it's still ridiculous right now in addition the I think the most then most negative for looking”

indicators is is in addition to just the valuation is kind of a point around the fiduciary here and that is you have the nominal CEO of three public companies and he's tweeting 20 times a day so attention is a is a key resource here for a CEO running three companies and he's not allocating it correctly so I thought my prediction was there'd be a tiny bit of a short squeeze because I thought the revenues typically when you take a company public when I've been on the board of companies

we go public we know what the first quarter earnings are going to be and we don't take the company public unless we know the first quarter earnings report is going to is going to be really strong this was a strong earnings report but a strong earnings report for a company that's trading at a regular value rate the market is looking for any reason to take this company down and also I think existing shareholders that have been in this thing for any distance of time are looking

for any opportunity to sell because they've probably to Elon Musk's credit registered in enormous gains and they're like okay even though the stocks been cut in half I might be up 10 or 20 acts boy am I going to hate it if this company is a 12 bucks and six months which it could be if this company was straight if this stock was trading at $20 and you didn't know it had been at 1.210 and you did any sort of reasonable analysis looking at the sectors it competes in

with the most successful companies in that sector trade at it wouldn't be cheap at 20 bucks a share so any opportunity to sell I would argue people are doing the math here and going yeah and

“what you will see I think the only thing on the demand side will people who anchored off that”

230 and go oh it's a good entry point where stock traded below and this is one of my flaws as an investor

I always think of okay if you know I'm thinking about buying shares and snap I think snap

is dramatically overvalued and I think at some point Evan has to wake up from this this decade long hallucination where he's wasted three and a half billion dollars to try and prove he's Steve Jobs he's not he's Mark Zuckerberg and it's a great core business it's the easiest five or 10 acts I see in the marketplace if we can just convince this one guy to either spend the hard we're unit or reduce the amount of money is taken into the street and burning it but you have to look at

I think it underlying fundamentals and valuations and say what is the asymmetric risk to the upside or the asymmetric risk to the downside I don't see and again this is a mean stock I don't see any reasonable justification for how this company again goes back to being worth a hundred and 20 times revenues I just don't see how you thoughtfully find a man from different shareholders to do that unless Elon again pulls a rabbit out of the hat and starts talking about I don't know space you

know space data centers and space and why it works and he tried in that earnings he tried to pull many rabbits out of the hat and I think what we learned is that people are now calling bullshit on him I'll just let me just tell you some of the things he said he said they're going to build data centers on the moon so it's not just orbital data centers is now it's lunar data centers he said that those moon-based data centers are going to be serviced by humanoid robots and he also said that

their factories will allow humanity to quote scale to one thousand times the economy of earth

in terms of intelligence launched to space but probably maybe even a million times so he's trying to

“do what you're saying and it is the only way that they can get that stock back up to where it was”

in the few days after it went public is they basically just need to pull the wool over people's eyes and wave a magic wand and start talking about data centers and space and inner stellar travel

getting sick of it because it's not compelling anymore and as you say he's spending half his time on Twitter he's spending half his time tweeting about wokeness or about things happening in Minnesota or God knows what he's talking about he's the CEO of two companies at the same time Tesla and SpaceX I guess he's also the CEO of XAI now I guess he's also the CEO of X formerly known as Twitter because remember Linda Yaccarino left they haven't even found a replacement and and that's in addition

to all of the bullshit that he was getting up to in Washington which he now admits was a mistake he says he got carried away with the politics I mean this guy's brain has genuinely rotted

he's totally lost his marbles and we see it in the interviews and I think we're finally reaching

the point where investors are at least beginning to recognize that they're hearing the things that come out of his mouth and they don't sound like some crazy genius who understands things about the future they sound just like a crazy person whose lost his grip on reality and honestly it lost his grip on his sense of self I think we're seeing that in the prices seeing it in Tesla too it's

“down 30% here today that's the Elon premium dying I think that's what's happening I wish I'd acted”

on this like anyone and I still think a basket of baskets of shorts around AI and AI just in companies is probably a decent way to head right now but the the Musk meme every meme stock eventually just becomes a stock and it's like my son gave me this stat that I thought was so

interesting he said that no one is ever able to stay airborne for longer than a second even

Michael Jordan it's like it's weird they can get to 0.95 0.97 maybe in 0.98 but it seemed like the one second barrier ironically everyone eventually gravity wins gravity is undefeated and I still believe in the stock market over the medium in a long term gravity is undefeated and eventually companies trade at the higher the low end of their sector in the higher the low end of market you know market valuations that will eventually happen to this company it's happening now

Tesla's an automobile company that wraps steel around you know around an axle it's a great company it should trade at the top of the automobile range which means it's stock has another 70 or 80 percent to fall space x is an amazing business it's a launch business it has a near monopoly great it'll grow it you know but it's growing 24 percent or was growing 24 percent soon it doubles there's no way to justify the valuation it's basically conquest and space with

incredible launch capabilities but gravity always wins well they're not even a space company anymore

they don't even want to be a space company they're an AI company even if the space business is doing well even if the connectivity business which by the way is crushing and you and I will

“bullish on ages ago on stalling which we were excited about I mean I don't know if you remember”

when we started hearing about space x going public we were excited about this company and it was a moment it was a refreshing moment where we were like we actually like this thing this thing actually makes sense and then they had to just stuff all the bullshit around it specifically the AI and now we're seeing that in the earnings which I also want to get into he's using the excitement and his ability to engineer what is one of the most overvalued IPOs in history at this size

it's not the most overvalued given its size to fund his vision for AI and he might be right the guys of visionary but even if he is right you're buying essentially an AI company at a multiple to the AI companies that seem to be more successful than his company right now I mean if you look at what are the multiples on revenues of open AI and anthropic based on the most recent rounds evaluation what are they somewhere between ten and twenty times revenues but he's saying invest in my

my my Comcast and Space Company it's really a bad AI that's really a lagged in the AI business

“that's where I'm spending all the money that's what this valuation is dependent upon”

and it's a it's a horrible investment compared to the other players in the AI space with respect evaluation so at some point almost every stock is a good buy regardless of the business it's in and at some point every stock is a bad buy you know regardless of how strong they're underlying businesses if the valuation this is a business this is this is a failed in my view I'm gonna say failed a mediocre or meddling AI company cosplaying a space exploration all these

big words rocket mean stock and I think people are like you said are calling bullshit and most of the shareholders are thinking I'm gonna clock my 10x game versus a 3x game in 12 months

gonna happen here is these unlock and also all of the all of the additional incremental lockups he put in place indicate that he doesn't believe the market can't support that the current price can support the natural selling pressure if shareholders were able to sell these shares and make their own decisions so he's made it easy to buy but he's put in place friction around selling what is that tell you about his confidence in the current valuation I just want to go back to some

“of the numbers you brought up in the earnings because I think at first it seemed like a pretty good”

quarter like their revenue grew 92% which was better than expected they're operating losses

narrowed to around 143 million dollars in losses versus last quarter it was like two billion so

you know it looked good at first but the key number that people forgot about or didn't acknowledge and then suddenly acknowledged when they saw it was the capex which was $10 billion last quarter and this quarter it was 18 and a half billion dollars and almost all of that was AI so essentially what we're seeing here is for every dollar that SpaceX is generating in revenue they're spending two dollars and 35 cents on capital expenditures and so if they were to continue spending money

at the pace that we're seeing in terms of their capital expenditures they will burn through the entire 86 billion dollars that they raised from their IPO in about 16 months so they're running out of my very very quickly here and so whenever we look at the operating expenditures for a

“hyperscale I think that's what we got to start calling SpaceX at this point anyone who's building”

a data center and who's story about their AI growth comes from building data centers and selling compute operating income or operating losses don't matter all you need to look at is the capital expenditures because that is where all of the money is going there buying chips they're buying big long-term capital intensive assets in order to build out these businesses and when you look at that number suddenly you realize hold on this thing doesn't work or at least it doesn't work right

now and it's kind of a pipe dream as to whether it'll work out in the future by the way the fact that they're going to burn through all of their IPO proceeds in like less than a year and a half it tells you something about what they're going to have to do next which is going to have to raise a shit ton more equity and more debt issuance too they're going to have to sell tons more debt which tells you why the banks are being still so psychophantic about this company

because the banks know there's still huge dealmaking fees that are in this company they want to

be first up to sell SpaceX's next follow on offering or SpaceX's next debt round I mean they're

“going to have to raise so much more money and I think that's why you saw some of these big”

banks actually raising that price targets despite a quarter that was quite frankly pretty miserable from a capex perspective it was like how surprised I was when I found out I was colorblind literally at the news came out of the purple just so we needed a little dad humor there just so we needed to break up your well with me no one appreciates my my thoughtful bearish remarks a little dad humor there add you got you got SpaceX right you're going to even be

proof more right and and like I said what I was thinking about education or been thinking a lot about higher ed recently and Bill Mar was saying that the problem with higher ed is you guys are

are promoting an orthodoxy and I'm like that's not the problem the problem is the homogenization

of higher ed and that is four out of five faculty members have said they don't think a conservative would fit into their faculty and I've seen this firsthand my department at NYU is just like so woke it's frightening and I'm like this does the kids a disservice because even if they decide to adopt progressive values and there's evidence showing that as people learn more about history and science they do tend to skew more progressive as they go more higher education

we're doing them a disservice if one we don't give them the ability to have a thoughtful conversation around opposing viewpoints and we start teaching them that having a different political viewpoint makes other people more efficient and the same thing's happening here in the in the markets and that is people are trying to say that if you're not a bull on these AI and not pumping the portfolio of the VCs or constantly on CNBC in the entire ecosystem that benefits from an inflated market

and more trading and more volatility and up up in a way that somehow you're moreally deficient.

and quite frankly protect themselves a little bit and I wish I'd have more thoughtful conversations with people around Scott you are a talented hardworking person it makes no sense that you're

“raising this kind of money for these companies which have little revenue you should sell more”

and you should diversify and realize a lot of this success right now is not your fault and that things can change fast and I mean I was thinking about I got invited let's bring this back to me and in 99 I got invited to Davos I was like a rock star I was invited to speak to the 40 largest the CEOs of the 40 largest energy companies in the world I was speaking to the CEOs of Saudi aramco and exon and shell and they were asking me how to run a business and I was all

of 33 by 2001 the third year I was invited back I couldn't get him meeting because people literally thought it was a criminal oh you're one of those fraudsters from Silicon Valley that raised money

and lost it all and the reality is you know it's just helpful to have a thoughtful conversation on

both sides both for the entrepreneur for investors you know for everyone just to have you know a rational conversation you're not a bad person if you're a bull talking up your own stocks fine you're not a bad person if you think things have gotten way too frothy but the thing I didn't I really didn't appreciate when I was your age and advice entrepreneurs listening is market dynamics will always trump individual performance and the mistake I made was thinking that if I just through

myself at something the highly concentrated it will work out no sometimes sometimes your successes and your fault and either is your failure and in 91 I wasn't as smart as I thought and by 2001

“I was an dumbness everyone else thought I was but I think these conversations that are”

too cited if you will or both sides get accurate representation are really important and having said that folks there's only one side here this should come and down I'm sorry this should it's coming down enjoy it enjoy a while it lasts and if you have shares in any of these companies and you you're sitting on a game I would do everything I could to lock in some of those games and putting and put it in really boring shit right now that is least at least an armstition

so way from the eye trade but anyways I'm doing what you're I'm I'm contradicting myself well just to to your point though I feel like the leopold action brand and what happened with the situational awareness is the perfect example and this is what Michael Graham was telling

us when he was on the show last week where it's like you shouldn't be giving 20 billion dollars

to a 24 year old that's that's not going to lead to a great place and as you often said like if you tell a 24 year old enough times that they are Jesus they are inclined to believe you and I mean I wonder what it's done to his life that his fund collapsed in the matter of a week because he did convince himself he bought the hype that a lot of the investors were trying to tell him and he went for a sliverage on the hottest stocks in the market and then what do you know

“the whole thing comes crashing down like I think it's a perfect example of the thing that you're”

describing where the pumpry actually turns out to be a negative for a lot of people it actually does a lot of both financial damage and then also psychological damage long term because I mean yeah people now say oh Leo the old action brand is a fraud he's the sound bankman freed he's Elizabeth Holmes and it's like he was just a kid who was managing money and people kept giving him money and so he kept doing what he wanted to do

Leo pulled it into anything wrong he might have been reckless he might have been out over his

skis but if a 24 year old can risk $20 billion hoping that the eye trade keeps going and he puts on

massive leverage no the the idiots here are the people who decided to invest in a fund that was five x based on a 24 year old supposedly insight into the I've met geniuses they put their pants on one like at the same time and they're subject to the same market volatility as the rest of us okay how fucking smart you are if the S&P is off 40% over the next month I don't care how many roads call you know whatever whatever prizes you've earned you're going to lose your shareholders

a lot of your shareholders money and let me tell you exactly how it feels in 99 and then late 99 about 24 of us were invited by a private jet manufacturer to an airfield to look at jets because they said they were willing to take stock and private company to exchange for planes and we all went to this massive airfield and we looked at different jets and all of us and are kind of 30s we're going like all I want that when I went that one and I did have enough

of much a 30 year old douchebags from Silicon Valley pointing at jets they want that that wasn't going to last by within 12 months my account told me I had negative net worth and I should consider selling my house and and that moment when I had that conversation I remember exactly I was I was in the offices of profit I remember thinking I need to go home and have a conversation with my wife around the possibility of having to sell our house and 12 months before that I was

telling her about the plan I was going to we were going to buy and I remember thinking so let me tell you let me tell I mean new wife building a future she's working your ass off she's working your ass off you're starting to think about kids oh we're honey we're buying a challenger 300 oh wait we may need to sell our house

“so let me tell you it sucks I think his situation is a little bit different because my guess is”

he's made so much money that he's not going to have to sell his house that he's been able to clock and a fees unless he unless he did something stupid like leveraged his own poor folio it's a lot of reputational risk and damage but he'll be fine because he's clearly a very intelligent person and in our society one of the one of the things about America as we love to forgive he'll you know hell I have a scarlet letter on his chest for a while but he'll be able to

raise my if Adam Newman can raise hundreds of millions of dollars for to go buy apartments and call them flow and pretend it's something newer different than just buying apartments which is a good business you know that's one of the wonderful things about America as we love to get

people a second chance and I hope he's not in the same financial position I was but there's no

“but doubt about it it absolutely fucks with your especially I think I'm trying to think as a young”

man in some ways it's easier for a young man because you have more time to recover and I was a bit I don't want to I was a bit sociopath and that is I just wasn't that cognizant I didn't care about Rift I'm just got kicked out of UCLA three times and didn't bother me if I had been kicked out it would have been really bad it would have been but I just kind of didn't care it's like from zero to 30 I did not have enough anxiety I was sleep walking through life I wasn't worried about

the ramifications of my actions or risk I was just like oh I'm fine I'm telling everything would be fine it will work out from 30 to 40 I had just the right amount of anxiety to be aware take some caution start to think about diversifying from 40 on I have way too much fucking anxiety I can think about my son is super responsible he doesn't he doesn't drink and drive he wouldn't he's super responsible but I still find I still create scenarios about the dangerous

mean streets of Aspen for an 18 year old and and then I worry about the ridiculous scenarios the probably won't come to bear in our society and I worry that we're going to have a civil war between the red and the blue I mean my mind just goes fucking crazy places now I don't know where I'm going with this other than a need for any depressants I'm a wrap us up here it's helpful it's helpful to

“know all of this yeah let's let's get into our our week ahead I think we've covered all”

we need to uncover in the financial markets so we'll see inflation data from the consumer price and producer price indices for July we'll also see earnings from rocket lab AST space mobile core weave and super micro computer all of the very heart AI or space adjacent stocks

Scott any predictions I think the downtraft in space X is is basically forcing everyone to come to

from this I think it's Narcan or I don't know what the term is whatever they do to bring you back to consciousness I think that space X space X is you know having over the last 30 days is forcing a lot of people this isn't the canary in the coal mine this is the blue whale in the coal mine screaming and I there's just no ignoring what is happening to space X and forcing forcing people to get out pencils not you know not not not not not not very dust and magic

ones and actually look at these companies through evaluation lands and something regarding what would be a reasonable valuation for these long-winded way of saying I just I think space X is March down is just beginning the declining tide is going to suppress all boats here I have a very

similar prediction first I'm going to take a quick victory lap because last week my prediction

was that we had hit the bottom full meta it immediately rebounded about 10% so we'll see if it holds

still relatively undervalued because I think so much fear and anxiety is priced into that with

“good reason but I think that we hit the bottom seems like we did my approach for this week”

same as you I think there is so much selling pressure coming down the pipeline for space X

I think this thing falls another 20 to 30% by the end of the year

“this episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer”

our video editor is Jorge Colty our research team is down to law on Cristino Donahue and Mia Savario

Jake McPherson is on social producer Drew Burr's is our technical director and Catherine Dylan is our

“executive producer thank you for listening to profGian markets from profGian media if you like”

what you heard give us a follow and tune in tomorrow for a fresh take on the markets you have you you have you you have you you have you you have you as the long term and the brother you