OpenAI Is Spinning Out Of Sam Altman's Control

The US stock market started history's greatest way of a wealth creation.

“From factory workers in Detroit to farmers in Omaha.”

Anyone can own a piece of the great American companies. But today, our most innovative companies are staying private longer, which means every day Americans are missing out until now. Introducing VCX, the public ticker for private tech. Now available wherever you buy stocks.

Visit getVCX.com for more info. That's GetVCX.com. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This sent other information we found in the funds perspective at GetVCX.com. This is a paid sponsorship.

Recommendations can be amazing.

I mean, maybe someone recommended that TV show you've been obsessed with lately. But when it comes to home projects, it's different. If you don't like a show, you might lose a few minutes. If you hire a friend, a friend of a friend to fix a leaky ceiling, you could end up with a flooded kitchen.

Maybe I know a guy just isn't enough for your home. That's why thumbtack works so well. They'll match you with a top-rated local pro, and you can see photos of past work, credentials, and reviews all right in the app. For your next home project, try thumbtack.

Higher the right pro today. Join us for the next episode of D&V's Maritime Impact Podcast. This time I speak with D&V's short-power expert, Hilde Burstab, about how short-power is shifting from a local emission solution to a strategic priority for ship owners.

“What are the biggest barriers to adoption, and what needs to happen next?”

To get the answers, search for Maritime Impact on your favorite podcast platform. Stay tuned. Today's number 60. That's the percentage of Gen Z people who say they would find someone extremely attractive

if they never used AI to make personal decisions.

I'll tell you that I am just sick of Gen Z's arrogance. They walk around and act as if they rent everything. Have you heard from Michael Symbolist? I may or may not have heard from him, but I love the direction that we're heading in, and I don't want to change a thing.

This is because you're some Princeton pro with like, once a PIMS cup, doesn't know how to drink beer. I tell a good joke. You've had better dad jokes. I'll say this one was, this one was okay.

Maybe six out of ten. You've had some bang as last week I figured what it was, but it really hit the spot. So we're trending in the right direction. So I'm not going to tell you what Michael's bonding with Michael Symbolist has or hasn't been.

All I know is that he's been a blessing to the show. I'm not going to say anything. How are you? It's not coming home. Yeah.

I agree. I'm not going to lie. I agree. I'm struggling to find any silver linings or any positives out of that world cup. Well, it's not like you flew to the US with your entire family.

You're going to go see England in the world cup final. Now I'm going to see a mall and messy, which I grant it is great soccer. But do you think it's bad for me? I'm going to wear my team England jersey.

“I think it's bad for me to wear that to the final or show my loyalty.”

Well, take any support we can get. I mean, you might get heckled and people might call you a wanker, but that's okay. Well, that's called social media. That's called me.

That's called a weekday for me. Have you read my comments? You're used to it. Yeah. I mean, it's hard to describe that feeling of just pure disappointment,

but something I've been thinking about. It's just your young. Trust me. You'll get used to it. Yeah.

Have I told you about my divorce, my companies? My general, my general. Like every time I look in the mirror now, it's just a horror and disappointment. Just to give you my sort of takeaways

on just being an England fan. I'm also just being a football fan in general. Something I've been thinking about is, it's so annoying how much worse it feels to lose. Enjoy it as to win?

Yes. Losing the intensity of the feeling of losing is so much greater than the feeling of winning. I mean, you know, we went to the England game and saw Norway. We had a great experience. I had an amazing time.

Don't get me wrong. But we got the win and then I'm kind of like, okay, like, under the next one, great. That semi final loss. I couldn't dig myself out of the hole.

And you never feel that way when you win.

And what is that about human psychology? That's alcohol. So, no, I'm serious. When I was your age and I drank, it'd be like six hours of euphoria.

With a ten minute hangover,

Come boom, I was ready to drink again. And as I've gotten older, the euphoria shrunk and the hangover is increased. So, just so you know, you're going to have more of that

diminishment of upside with a dramatic expansion. I get excited about very little anymore, but I'm worried about fucking everything. Who are you rooting for? I don't even know who to root for.

Well, I know I'm rooting for the final, but it feels like it literally feels like getting a hand job from my cousin at Thanksgiving. It's just not nearly what I was hoping for. Yeah.

Well, I don't know what that came from. I like how I just kind of didn't really know. I just moved on because it's kind of normal at this point. Who are you rooting for in the final? I don't like either of these teams.

“I don't, I think, you know, like your mom.”

I used to like your mom, but something I've been thinking about. It's my problem with Argentina's. My problem with Spain now is both these teams are filled with very, very arrogant people.

And the celebratory, very, very arrogant people. And the celebrations, I don't know if you saw the celebrations of the Argentine players after the England game, but they put up this sign saying the Folkland Islands

are ours. And the way that they celebrated after the game, like there's just a sense of arrogance. I think Messi is an exception, but the rest of the team and the rest of the players,

the way they carry themselves. They're just not very humble. The same as true of the Spanish team. I used to love the Minimal because he was this kind of cute,

“with braces who sort of no one knew why he was so good,”

but he just happened to be this incredible phenomenon.

Now he's kind of brought into his own hype, and you can sort of see him getting that sense of arrogance. I can feel someone saying the same thing about me, but regardless, I wanted quiet English humble people to go all the way and to do it for us.

I wanted the down burns and the Anthony Gordon's to win. I said, it's the superstars, it's the same old, same old. And I wanted to see someone else, I wanted to see someone else rewarded for being humble. And that's not what we're going to see.

So I'm not going to support either of these teams, Messi's the greatest player in history, he's the goat. If he wins this then it'll be kind of nice that we'll have like just a conclusion to that debate, the undisputed goat, but I really,

I really can't get excited about either of them. I didn't like the way the game ended either. I didn't, the vibes at the end of that game were distinctly different from the vibes at the end of other games. I was kind of disappointed. It's, I mean at this stage, there's so much wrapped into it,

emotion, politics, patriotism. I mean, it's very, it's very intense. Plus that's such a historic game with the hand of God and Maradone in 1986. I mean, there was a lot in that. How much joy did we get from team England though?

I'm actually at that stage where I'm, I really am appreciative of the players, the coaches and the fans because I got so much joy. 100% the game I went to with you, the games I watched with my boys. I just thought I thought that team was just an in typical British fashion.

They're just going to be second guessing everybody and ship hosting the coach.

“They had an amazing, I think they had an amazing tournament.”

I agree. And everyone's saying that he made the wrong decision by putting on the defenders. It's the same decision he made against Mexico. Take it to your fan. Let's give the guy a break, is my view.

We'll get shit posted in the comments. That's okay, we'll get over it. We have a lot to get into, so I'm going to launch us into our first story. It was another brutal week for OpenAI. We've discussed the company's hell weeks before.

This one might have been one of the worst. Yeah, the headlines kept plowing up. Apple first sued OpenAI, a legend that it stole intellectual property. The startup announced it is shutting down. It's Atlas Browser less than a year after it's launched.

It's president of applications, Fiji Simo said she is stepping down.

It's first AI device leaked and a movable speaker was an exactly the reveal that many people were hoping for.

The company was also reportedly caught selling advanced AI models to Chinese firms blacklisted by the Pentagon, and then there were the financial and the competitive pressures. According to EMarketer, OpenAI's ad business is on track to miss its own forecast by 90%. S&P also recently downgraded Oracle's debt to triple B minus just one notch above junk status, citing OpenAI as a key credit risk.

At the same time, anthropic is reportedly gearing up for investor meetings ahead of a potential IPO as soon as October. So it appears anthropic will win the IPO race. Plus deep seek, the Chinese competitor is preparing for its own IPO and it could file as early as this year. A successful public debut could make it even harder for OpenAI to attract capital.

And you can feel the shot and fright on all sides of the spectrum here, because in a lot of ways they've alienated the left from a political perspective,

“because of closing up with Trump after there was the falling out with anthropic.”

At the same time, they're also kind of alienating the right. We've seen that Elon Musk has been shit posting Sam Altman, they're alienating everyone. Then we get this Apple lawsuit, where Apple accuses OpenAI of being quote rotten to its core. They said that their behavior of stealing hardware secrets was quote normalized and exemplified by leadership and was quote the tip of the iceberg. So that wasn't very good.

We have the Atlas browser showing down. We have Fiji Simo stepping down. We have the Oracle downgrade. We have OpenAI selling its models to these blacklisted Chinese companies, which doesn't put it in good books for the government. I mean, that was of course, kind of one of the only edges that it had over on throw pick.

“A lot to get into a lot went wrong, your reactions.”

More than just the headlines. What I'm thinking about is the pattern here and that every bubble seems to kind of pop in the same order.

First, the applications to the point, then the infrastructure gets overbuilt.

And finally, capital markets catch up and close. At the turn of the millennium, pets.com failed before Worldcom. And today, the cracks are showing at OpenAI and the next is the infrastructure. OpenAI is reportedly worth over a half a trillion dollars. Yet almost every major narrative has flipped just in the last 60 days.

Consumer products are struggling. Management turnover is accelerating. Monetization is proving harder than people expected. And competitors aren't dying. They're lining up to go public.

So it's becoming sort of, we used to think they were spending as if this market's going to be huge. And it's going to be winter takeoff, which justifying this drunken and toxicated spending. But it's become capital intensive, brutally competitive, and increasingly commoditized. And the real risk isn't that opening AI loses. Is that nobody wins enough to justify these valuations.

And we see an inferling of the collapse from B2C to B2B to infrastructure similar to 99. And again, history doesn't repeat itself, but venture capital sure has held us. And that is, it is massively overspent here. And these valuations are going to come down dramatically.

But I've, you know, I've always said, oh, it feels like 99.

You know, you want to say it's 99, it's probably more like 97. This does feel like you for 99. And then March of 2000 is now in, you know, in plain sight. You were saying when we were talking about this offline, that you think that we're going to have to see a management shake up here. Just based on everything that Sam Altman's gotten wrong.

“And I think, I mean, there is the AI bubble question, which is like, does the AI business model actually make sense if you are in the front end AI business?”

And that's something that has been kind of an open debate. I mean, if we look at the financials of open AI and anthropic, these companies that are losing a lot of money, you would think it doesn't really work right now. Maybe it'll be kind of the Uber or the Amazon where they spend all of this money and then eventually they figure out how to make more money than they spend. And eventually it turns into a viable business, but that's kind of an open debate. And I don't blame Sam Altman or his execution on that reality.

I mean, the reality is that compute is very expensive, building the data center is very expensive.

And so far, it's been very hard to market a viable product, which is commensurate with the costs. But there are some executional mistakes that we've seen from Sam Altman. One would be he's trying to launch this hardware business and apparently he's been stealing from a company that he had previously formed a partnership with. Like, that's something you kind of have to remember about OpenAI is they used to be partners with Apple. The plan was that OpenAI was going to power Siri.

And then Apple turns around and it's actually no, we have a new partner, it's Google. And now we learn why that is, it's because Apple thinks that OpenAI is, quote, rotten to its core and that they have been stealing trade secrets and poaching their employees. So just from like a relationship management perspective, like, clearly that is a huge mistake. There was the issue with we're launching all of these side projects and now we're saying that none of these side projects are actually panning out like the Atlas browser and like so, the image generator, which they shut down as well.

I mean, it just in a remarkable way, Sam Altman is getting the entire world to hate him.

And I've never really seen that from a CEO, a CEO who has become so unlikable, not to one faction of the country or one faction of the market.

“To everyone, I can't find really anyone who is supportive of this company who doesn't have a financial interest in this company.”

And that's wild from a CEO perspective. I mean, there's just so many things. There are AI's been the most poorly managed brand over the last couple of months, and I feel like the CUDA graph of head up your ass brand management was deciding to Kevin O'Leary should be the spokesperson for data centers. I think he made himself this book's bus, and but I agree, they should have shut him down. I said, boss, you want this thing built to shut the fuck up. But like the, I think the thing that really hurts here in terms of credibility and provides legitimacy to what is often perceived is just competitive wrangling is the lawsuit from Apple.

And they're claiming that open AI still trade secrets by poaching over 400 Apple employees and the open AI had recruits bring Apple prototypes, which by the way isn't illegal on its own recruiting employees. There's been laws passing. You can't have Steve Jobs, and I forget who it was Bill Gates had a kind of a gentleman's agreement that later surfaced in emails that they wouldn't put each other employees. And that's not competitive. All that is as a transfer of power from employees who want multiple bidders on their labor and that's illegal.

“You're allowed to recruit other employees unless that employees in executive and assigned a garden, you know, garden leave or not compete, which you have to compensate them for.”

Anyways, the strange thing are the irony of the suit is that Apple has reputation in the industry for stealing other companies ideas and they're one of the most frequently suit tech companies for patent infringement. And in the reality, this goes to a larger and I'm not saying they are, they aren't guilty.

But the reality is the majority of companies that have outside shareholder gains and this is true of an economy that's growing faster than 5% a year.

There essentially thieves or probably more accurately a strip minor. In the 19th century, the US stole manufacturing technology or tech styles and littered the eastern seaboard with manufacturing technology capabilities and even actually kidnapped artists and from Europe. China has been his built an entire economic model on IP theft. And so most of these guys are suing each other, but when Apple comes for you in this case, their communications are very good. It's not an individual. They're not getting into a pissing match with this ego versus this ego. They're just saying, look, they're laying out in a legal kind of a joint, a dual format.

This company is guilty of, you know, kind of mass theft, if you will, but it is really incredible how the momentum is flipped on open AI.

And now we know that Anthropoc is scheduling its IPO talks. Supposedly that lesson is going to come in October, which is very soon. That's only three months away. And, you know, there was a debate of like, who's going to win that race between Anthropoc and open AI, who's going to sort of capture all of the energy and the capital in the room. Clear that Anthropoc is going to win that race. In fact, if we look on Calcy, the odds that they will announce an IPO before 227 are up to 74%. So this Anthropoc IPO is happening. Open AI is tabling theirs. But then the fact that in the same week, we also learn that deep seek is planning its IPO.

To be clear, we don't really know anything about it. It's very confidential. We don't really know anything about their financials. But they're out there and they're planning this. And it seems like the debate used to be, you know, who's going to get out first is going to be Anthropoc or open AI.

“That's on the question. Now the question is, will deep seek get out before open AI?”

And that poses a whole other slew of questions and risks for the company. I mean, what do you make of, what do you make of that? Well, I think the biggest story that has, that it's got almost no coverage is that is what I think is what I would refer to affectionately as is AI dumping from China. And that is free Chinese models went from less than a third of all traffic in late 2025 to about two thirds recently. And it's much less expensive. I mean, essentially what's happening in the air market has condensed what's happened to industrial economies in Europe, but instead of taking two decades, it's taken two months.

And that is they steal the IP on a cell phone tower from Siemens and then they manufacture it with cheaper labor and they sell it back to telcos for 40 cents on the dollar. And there are a lot of regional LLMs in China and they have access to cheaper power, cheaper chips, less power consumptive.

And I think it's happening. And you hear stories of these seas encouraging the portfolio companies to use these open way Chinese models, but you're seeing the best business model in history is IP theft.

“A close second in terms of a pricing mechanism is 80% of the market leader for half the price.”

And deep sea can these Chinese open way models claim they're 90% of the market leader for a third of the price.

This is going to be the next geopolitical pawn once Trump actually figures out what's going on here quickly enough. But the entire economy right now is a giant bet on AI and China has come in with a product that is near near frontier for a lot less money. And that is going to start to -- and me or our head of research put together this graph that just blew my mind one of those mountain graphs. And you see the frontier models, like 89% share in China, you know, 5 or 10% of these Chinese models.

“And the mountain of Chinese of consumption of Chinese open way tokens has exploded.”

And yet it's not getting that much coverage. It's as if I mean, the US auto industry was hollowed out over college 20 30 years.

And it started with the Honda Civic and then they had an accord and then oh wait, but that's just one company. No, it's Toyota which became the largest auto company in the world in terms of production volume. What the Chinese auto build industry did to Detroit in about three decades, it feels like Beijing is doing to USA AI frontier models in about three months. We'll be right back after the break. And by the way, we will be going live on Substack with Noah Smith tomorrow at 130 Eastern. Don't miss it. Subscribe now.

Support for the show comes from Quints. This season is full of opportunities to relax and your wardrobe should reflect that. You can reach for simple high-quality pieces to get you through the warmer weather comfortably. And in style Quints has all the well made summer essentials you need. There are 100% European linen pants and shirts are breathable and a perfect upgrade to your warmer wardrobe. Those start at just 34 dollars. Quints' teas are soft enough to live in all day and their lightweight cotton sweaters are just enough coverage for those cooler summer nights. Plus, it's not just clothing. Quints offers everything from home to travel to everyday essentials.

I love my Quints where I love the linen shirts. Everyone needs to have a linen shirt, especially in the summer and the best part in my view is all incredibly affordable. Make your summer wardrobe easier. Go to Quints.com/markets for free shipping on your order and 365 day returns. Now available in Canada too. That's QU-I-N-C-E.com/markets for free shipping and 365 day returns. Quints.com/markets. Support for the show comes from Vanta. Every new tool your team signs up for, every vendor that turns on AF features, every new integration has a chance or something to go wrong.

And most security programs weren't built for AS-based or growth. Enter Vanta.

Vanta is the number one authentic trust platform used by over 16,000 fast-moving companies including ramp, cursor, and Harvey to ensure they're always audit-ready.

“Now Vanta is helping companies like yours watch for the risks that show between all that's across your vendors, your AI tools, and your entire environment. How?”

The Vanta Agent Network works like a 24/7 GRC engineer in the background, finding issues, drafting fixes for you, and cutting vendor assessment time by up to 50%. Whether you're a fast growing startup or a global enterprise, Vanta is here to help you automate your security and compliance and earn and prove trust. Get started today at vant.com/markets. That's V-A-N-T-A.com/markets. Support for the show comes from V-C-AX, the public ticker for private tech. For generations American companies have moved the world forward through their ingenuity and determination.

And for generations, every day Americans could be a part of that journey through perhaps the greatest innovation of all, the US stock market. It didn't matter whether you were a factory worker and Detroit or a farmer in Omaha, anyone can own a piece of the great American companies, but now that's changed. Today our most innovative companies are saying private rather than going public. The result is that every day Americans are excluded from investing and getting left further behind while they select few all the benefits.

Until now, introducing V-C-AX, the public ticker for private tech. Now available wherever you buy stocks. V-C-AX by FunRise gives everyone the opportunity to invest in the next generation of innovation, including the companies leading the AI revolution, space exploration defense tech and more.

This and other information can be found in the FunSperspectus at getV-C-AX.com. This is a paid sponsorship.

We're back with refugee markets. Let me just sort of map out what are the threats to open AI right now. I think you've got this sort of lack of goodwill in the marketplace, and we saw there was this viral clip of Alex Karp on CNBC, basically saying that he's done with open AI and anthropic because the tokens are so expensive and the value is not there.

“It feels sort of like corporate America is turning on this company, which I think could be a problem in terms of these B2B contracts, which are pretty important, both for open AI and anthropic.”

You've got this Apple lawsuit, and all of the other lawsuits, by the way, that open AI is going to have to fend off, but the Apple being probably the most well-capitalized, which could legitimately shut down their hardware business. But the market chest statistics, a year ago, charged UBT was at 76%, today it's at 50%, and that's because there are two major insurgents, one is Claude, which has gone from 1.6% market share to 10%, Gemini has gone from 9 to 28, so Gemini is exploding as well. And then I think the most significant and the most important is the price war that appears to be breaking out right now, and that is the pricing of these AI models is clearly becoming front of mind for enterprises, and it is very quickly becoming a race to the bottom.

Because you have meta that is coming out with their model, which is dramatically cheaper, and they have literally stated that it is their mission to initiate a price war, because they know that they can play that game, they have the cash, open AI and anthropic can only play that game for so long, because where are they getting their money from, they're not getting it from profits, they're getting it from venture capital.

“And so at some point, if the investor, spig it, turns off, they can no longer play that game, Gemini is also pricing their models lower, but the elephant in the room, and I'm 100% in agreement with you on this, is clearly the Chinese models.”

It is clearly deep seek. Kimmy, all of these Chinese models, which are so dramatically cheaper than the US models that it's hard to actually fathom, just to go through the data here.

The price per million output tokens for open AI's model, GPT 5.6, is $45, for Claude Fable 5, it's $50. The equivalent price for deep seeks model is 87 cents, so it is 99% lower than the American alternatives, and obviously now we're seeing that China is stealing market share. I don't know, I mean, we see all these benchmarks are like which model is the best and there's all these debates, like, you know, people kind of generally assume that open AI and anthropic have the best, best in class world class models.

I'm not going to chime in on that, but what I do know is that people are using the Chinese models, because the Chinese models can get the job done, fast enough well enough, and they are so much cheaper that it would be ridiculous not to turn to them, which is why you're seeing the increase in market share. Also, while you're seeing a lot of these blue chip American companies that are making that switch, when we've gone through some of them before Coinbase, Shopify, Airbnb, Uber, they're all starting to switch over to use these Chinese models, and it seems to me that this is clearly the elephant in the room for not just opening AI, but for all of American AI at this point.

And how could Xi Jinping, how could the CCP, how could China not be trying to target this? Because if we are as dependent on AI as we are, it is clear that this is the fastest way to bring the industry to its needs.

“And initiate the price war, get everyone back on the side of China, take up that market share, and then the question for us becomes, what happens if this keeps happening? What happens if they continue to eat into that market share?”

And I wonder if, I mean, this is a question I'll post you, I wonder if that is going to be the tipping point for an open AI or an unthrobbing. The fact that they cannot compete with China. What do you think? I do think that there's a market for Emirates and Delta. There's a market for the LVMH in the high end. The frontier models with better IP will be great businesses. The problem here is that when I raised money for Red Ovelin, but 120 million, thinking that I was a genius getting that kind of evaluation, the problem was it was really difficult and stressful to try and raise money for the next two years after the market.

One of the real anchors around the next of open AI and anthropic right now is 8 or 900, and that is 8 or 900 billion dollars, which is what all their last round investors are anchoring off of. Because I believe open AI and anthropic will still be amazing companies. If they decline by 80 percent of value, that means there weren't as much as Starbucks. There weren't as much as Disney. There are amazing companies. But the expectations and the valuations have just gotten so far out over their skis that the narrative will naturally be really negative.

“You think there's a market for the premium frontier model. People want US companies in addition, and this was I thought the most puncturing statement from Alex Carpenter was brilliant. He's talking his own book, but it doesn't mean it's true.”

You said people turned to Palantir because what they want is a thick layer of innovation and protection on top of LLMs. Because if you're and he didn't say this, but I'll project if you're Apple, you don't want to upload your board decks and project plans and product road maps into any LLM and have them incorporated, again, strip mine it and incorporate it into future answers for Samsung and Microsoft who are posing the same queries. You've literally found evidence of them stealing your hardware products. I mean, if you're already anxious, and then you see the lawsuit, I mean, no way you're starting that enterprise contract.

I mean, this is the narrative that's emerging that is really powerful. These are companies that have ingested all intellectual property without consent or compensation.

“They strip mine it and then sell it back to the people who are losing their jobs because they've stripped mine their initial IP. That's not a good. That's a business model that should get people angry.”

And so there needs to be, I mean, this lawsuit's going to be interesting. I still go back to an original or an idea I've had for a long time and that was to what the record recording artists do and have. I have an organization that's on top of them at the record association, if it was called player, and basically they have means of assessing every time private Idaho has played by the B 52's awesome song on every radio station across America.

Okay, radio stations approximately 20 basis points or half a half a percent of total play time was B 52 songs. We license, we do a blanket license for X dollars. We charge you.

We charge caro queue 106.7 rock the 80s in Los Angeles, the greatest radio station ever. We charge you two or two and a half million dollars a year for a sight license and omnibus license to have access to all of our music to play and then you run ads against it. And then we take 2% of that and we send it to Warner Brothers or whoever represents the B 52's. None of that goes on. Again, bringing this back to me. If I type in in the voices guy, Galaway, I will see literal sentences from chapter seven of one of my books, but I'm not getting in a compensation.

So the strip mining, I think an adult will come in and say, Adobe did this and it didn't seem to pay off, but Adobe's visual LLM, Firefly, whatever it was called, they actually only had licensed imagery because they wanted to say, look, we are holding up to our standards of IP.

But that is yet an privacy IP theft, actual theft of intellectual property, not only IP theft from individual consumers been in IP theft from other organizations.

This is all going to lead in. I'm teasing my prediction here. We're going to have a new CEO at open AI within the next six months. Could you explain on that prediction while we're here? I'll do a Rachel Maddoz. I used to love watching Rachel Maddoz and I got so sick of her saying, what if I told you that I knew the name and the identity of the person who killed JFK stick around.

“And you have to watch four minutes of commercials convincing you that opioid induced constipation and restless legs and then you come back and she's like, there is a man, he has a name.”

Another man is showing up and has a solid thesis in white was this man, stay with us and then we cut to another commercial break. I have had it. Rachel Maddoz is the biggest biggest, I won't use a word, T's of some kind. I'm like, gave up. I'm not willing to endure more commercials showing me how much it sucks to get old to find out who killed JFK. Anyways, should I do it now or should I wait for predictions? I would like to hear it now because I myself am impatient. So I'm going to assume that the listener is too. We're about to see open AI acquire a company called Sierra.

It's worth about half a trillion dollars, five hundred billion. Sierra, which is essentially Sierra has one of the best enterprise AI products and they're going to. I believe they would check so many boxes acquiring Sierra and installing Brett Taylor as the CEO because open AI has one of the best frontier models in Sierra has one of the best enterprise AI products and Brett Taylor may be the best enterprise software operator of his generation.

“So as foundation models get cheaper, the intelligence will be commoditized and it will be the scarce asset will be IQ to be customer relationships work flow integration and enterprise trust.”

That's Sierra and at five billion dollars, which is what it's worth in the market say you pay ten. That's a two percent illusion and you not only get real progress in your application layer.

You get something that'll increase the value of open AI by a hundred billion dollars by calming the waters with someone who has seen is not only someone who understands the technology but has a very elegant smooth hand around retention of employees and smoothing over. This is the guy that shop lifted forty four billion dollars from Elon Musk and forced him to close and didn't get into a pissing match with Elon Musk. Elon Musk does not should post Brett Taylor think about it. He had to pay forty four billion dollars for a company that's now worth three billion.

He's not out calling Brett Taylor a crook. So this, this solves that the Altman problem, the insecurity in the market problem Brett Taylor, we've got cloud cover to make massive reductions in cat backs. They can pay Brett five or ten billion of that incremental hundred increase in valuation to get they get the day they announced this acquisition.

This is just makes so much industrial logic. Anyways, open AI acquire Sierra and installs Brett Taylor's their CEO and kicks all men up to chairman. Wow.

What was the time frame? I would say it's six months. You know, it might be it might be 12, but Sam Alman is on the green mile. He's an innovator, not an operator. They need an operator. They need an adult in the room right now. He just clearly doesn't know how to handle employees who want to leave. The full of himself with certain statements that are just immature quite frankly, he has not made the right moves in terms of relationships with other organizations. They need an adult and and Brett Taylor kind of is just a reeks of confidence. The entire every investor at Open AI would have about a seven day exhale if they announced that Brett Taylor was a new CEO. That's a very bold prediction, but the more you think about it, the more it actually isn't that unreasonable given how much of a shit show it seems to be at Open AI right now.

“I think it's just helpful to play out how these kind of situations might unfold for Open AI's business like, you know, and we think about this Apple lawsuit.”

I mean, what could go wrong here? What could go wrong is that the hardware business just shuts down. And that seems to be very much on the table for Open AI right now.

Another thing that we saw were those e-marketer estimates of chatbot ad revenue. So I mean, it's worth thinking like what what would chat GPT and Open AI's advertising revenue actually look like if they were as low as e-marketer is predicting for the chatbot ad revenue market at large. The thing to think about is these price will it's like what would happen if Open AI had to reduce their model pricing and you know, pick a number we picked a number we said what would happen if they had to reduce their prices by 80% kind of like worst case scenario.

If you put all those things together, if you eliminate the hardware business, if you dramatically reduce the add business, if you dramatically reduce the pricing power that Open AI currently has and seems to be seeding with every passing day and then you project all of this out. They have said that they're going to be profitable by 2030, but when we put all these estimates together, what we find is that actually no, they won't be cash flow positive, they will be losing about $165 billion a year. That's when you put this all together. And so in other words, if these things go wrong, this business just flat out won't work at all.

“At which point, you have to start asking questions as to what actually happens to Open AI, so it just goes bankrupt, it just implodes. I don't really think that's going to happen.”

I think the more likely scenario is that there will have to be some sort of massive restructuring, some sort of M&A event, probably it gets sold to a larger AI company, the point being all of these very very speculative investments and very speculative bets.

But it is really getting to that point, and I think the question for investors is, which thing do you decide to worry about?

I think if there's anything that I would be worried about, if I were an investor in Open AI, it would be the China problem. It would just be the pricing, just flat out. Because at this point, they're losing control of the narrative, the enterprises are turning against them with every passing day. They're telling them these tokens are too expensive. There is a lot of incentive to switch over to a Chinese model. Maybe the government builds them out, maybe they see some regulation that makes none of that even regulation wise even possible.

But that does seem to be where things are trending at this point. We'll be right back, and for even more markets content, sign up for on newsletter at propertymarkids.com.

Support for the show comes from DeleteMe. The internet makes it easy for scammers, stalkers and hackers to do their thing, that's just a fact.

“But it's important to remember that there are ways to protect yourself, that starts with protecting your data, and DeleteMe can help you do just that.”

DeleteMe does all the hard work to wipe your personal information from data broker websites. It was named the top pick for data removal services by Wirecutter, and our producer Jennifer Sanchez has tried DeleteMe. She was surprised to find out how much personal information was actually already out there, but DeleteMe made it very easy for her to clean it up. Take control of your data and keep your private life private by signing up for DeleteMe.

Now, at a special discount for our listeners, get 20% off to a DeleteMe plan when you go to joindeleteme.com/prophg and use promo code Profg@checkup.

The only way to get 20% off is to go to joindeleteme.com/prophg and enter code [email protected]/prophgcode Profg. [music] [music] [music] [music]

[music] [music] [music] [music]

“We're back with Profg Markets. People keep saying that the market is diversifying, but the deeper you look, the harder that argument is to make.”

It seems like every part of the market is becoming increasingly dependent on AI. Take small caps. Some of the best performance stocks in the Russell 2000 this year are AI beneficiaries. Max Linier, a semiconductor company, is up 424% year today. While cloud computing company Rackspace Technology has gained 567% in total roughly 24% of the Russell 2000 now has some exposure to the AI trade. The same pattern shows up in emerging markets. The MSCI emerging markets X China ETF is up 34% year today, but much of that performance is driven by its heavy exposure to Taiwan and South Korea.

Two markets whose largest companies are deeply tied to the semiconductor supply chain. So Scott, I just want to simplify this. One of our biggest concerns about this market has been over concentration. The fact that the top 10 stocks make up 40% of the whole S&P it's up from 20% just 30 years ago, there's this overreliance on AI that we've been worried about. But this year, I mean, just we're hearing a lot from investors that that is changing that big tech has been underperforming and that we've seen this diversification or this broadening of the markets.

And let's just play a clip of what some investors have been saying. Broadening of the market, we're seeing more participants to the upside.

“Look, I think the broadening of the market, we've argued for some time that it would be extraordinarily healthy if the market broadened.”

And that's really been going on since the end of October, it's been an incredibly broad broadening out. I think that broadening out theme, which was one of our themes as we entered the year. I think that broadening out theme is going to be quite relevant again.

And you look at the S&P big tech isn't carrying this market true, but AI still is the best performance stocks have been intel, C-gate, Western digital, micron, Dell, scientists, all of the sexy AI names that we keep on hearing about. On the same is true of every other sector, and we can go through them in a moment. Before I do that, I'll just start with your reactions.

“The CMBC Pundits who will always find a real estate agents will always find a reason why you need to buy now if you're a buyer and why you need to sell now if you're a seller.”

These folks own stocks and so they're always going to come up with a reason why you should buy more.

The market is not broadening. It's just finding new ways to buy in video. People put your analysis, these pundits are pointing to small caps and merging markets and industrial utilities even real estate. And if you scratch the surface, the same story emerges. Semiconductor is power demand, like even cooling systems or fiber data centers AI software.

That's not diversification. It's second order concentration. In 1999, everything eventually became an internet stock. Today everything's becoming an AI stock. And that's not necessarily bearish.

It just means investors are kidding themselves when they use words like broadening as some sort of code for diversifying away from AI.

That's just not happening.

“If the AI trade sneezes, we're not catching a call.”

We're getting pneumonia. And buying quote unquote AI adjacent stocks and calling it broadening is like ordering a diet coke with your double double from in and out. Be clear folks, you still bought a fucking cheeseburger. That's what you've done here. You bought a cheeseburger.

Just looking at some of these sectors, like you mentioned utilities. Which a lot of people, you would think of that as diversification away from technology, away from tech, away from big tech. But if you look at what, I mean, it's up, that sector is up 7% year today. If you look at the companies that have been driving that, it has been the companies that are quote unquote AI compute providers or AI power providers. It's companies like Dominion and Bloom Energy, which is up 143% this year.

The same as true you mentioned real estate, who are the winners in real estate right now. It's not reads that a building houses. It's reads that a building data centers. It's digital reality trust. Iron mountain.

It's these companies that are basically going out and being AI landlords similar to what we saw in our conversation with Mike Nova grads.

Same as true of industrials. Caterpillar is now an AI stock. Vertive is an AI stock. They are carrying that sector. Now, we can talk about the size of companies, large caps versus small caps.

A lot of people would say, oh, we're broadening because the Russell 2000, which are the small cap companies that they are performing this year. Well, actually, if you look at the returns more than half of them have come from AI related stocks. The same is true by region. A lot of people say, oh, we're broadly, we're getting into international markets. A emerging market saw outperforming, well, no, because South Korean Taiwan have accounted for 75% of those returns.

Because most of those gains are coming from three companies, TSMC, Samsung and SK. So we're starting to see this problem in the way that we talk about markets where there's this idea that we're diversifying that we're getting away from AI. But we should be very clear, like AI is literally touching everything in this market. It's even touching fixed income. And this is something that Torsten Slark over at Apollo is talked about.

AI now accounts for nearly half of all investment grade bond issuance. So you could think, like, oh, the equity markets are being kind of over levered to AI. But the same is now true of the bond markets. And I want to play you this clip. This was, again, this was Torsten Slark, who was one of the heads over at Apollo.

And he's talking about, like, the 6040 portfolio, which is sort of the classic balancing of your portfolio, where you're 60% equities, 40% bonds. He reframes it in a very interesting way. This is what he said. This AI thing better work out.

Better work out. Because if that doesn't work out when you're portfolio will be in trouble.

“That's why ironically, the invest investment recommendation today is the new 6040 is really to do 60, maybe AI and 40.”

None AI. So in the worst, the best recommendation for investors is to invest in none AI. Things that are not correlated with this one factor. Because if there's one thing we have learned in finance since the financial crisis is factor investing, you don't want to be exposed just to one factor.

And that is AI is literally everywhere.

“I think he kind of sums up exactly what's happening here.”

Well, of the big tech companies we talk about, who's the least concentrated or dependent on AI? Apple. That's exactly right. And what's Apple? What's Apple?

Apple stock? One year performance? It's up 60%. Year to date? It's up 23%.

All the other guys, my pick, Amazon, still related AI. But mostly diversifieds up 13% this year. And then look at the guys who are grounded zero for it. You know, Microsoft, right? You know, Microsoft's down.

So look out below. As a general theme, if I could go long the basket of stocks, it would be GLP1. And if I could go short a basket, it's AI. But be clear, folks.

I mean, the reality is I don't, I'm not suggesting you've invested in gold bars or assets or cash.

I think you're always in the market. I'm always in the market because you don't know when these, you know, you don't know how fast and how irrational the markets are going to run. I'm always in the market, but you absolutely need to be diversified.

“And you need to really understand what the term diversification is.”

Because if you're in the S&P or even in what you think are small cap stocks, I think at this point you really want to think about how do I try to mostly diversify away from AI. And that is not easier right now, because everything seems to be somewhat correlated to AI. And I still say that I think if the market goes into a pretty serious recession, I still think people are going to find the budget for their will govy.

I still think they're going to pay their rent. I think the builders in the, in the reeds are going to do okay here. Consumer products, defensive stocks, but this feels, wow, it feels frothy right now. And it feels like there are cracks, you know,

the size of the grant canyon beginning to emerge. We talk a lot about diversification, and it's what we're learning more about this market is it is increasingly difficult to diversify because of how much AI has kind of penetrated everything. Whether it's emerging markets, whether it's small caps, whether it's bonds versus equities. Like AI literally touches everything.

“What do you think the right move is for investors at this point?”

Like how do you handle that problem? Brief history of diversification. In the 80s, people, people, some finance professors, uncovered research or published research saying you get risk-free return when you diversify. And Ray Dahlio says that the entire objective of the most successful hedge-on-ever,

Bridgewater, arguably, was to find 15 uncorrelated distinct cash flows.

That if you could get to that point, you'd always beat the market with lower or higher sharp ratios or whatever it is.

And investors listened in the 80s, and these enormous hedge funds started buying Australian stocks and Japanese bonds. But because people listened and diversified, everything became more correlated. Which meant that the biggest hedge funds when US stocks went down began selling their Japanese bonds when they needed money. So now almost, it's almost impossible to be uncorrelated with AI and the S&P in American tech. You just don't want to be a ground zero, and just a personal learning here, and I've said this a lot.

I've been rich three times. Why? Because I've lost it all twice. Lost it all in more twice. In 2008, because I never understood the power and the importance of diversification once you have an asset base. What am I doing?

I'm selling down my big tech. And some of this also might be phomo of having missed out, because I have not made a lot. I have not made, I guess, in an adjacent way I've made money from AI.

But I was offered anthropic, and I think 20 billion, and I'm got to be honest.

I'm angry I didn't do it, and I haven't been big in AI. So some of this might be just sour grapes. But what I'm doing is, my big themes of the following, GLP-1, and that not first and foremost. But unfortunately, I think the biggest trend in society right now that is going to run unabated is income inequality. Because of court decisions that let people throw as much money as they want at an election.

So we're going to continue to see a leakage of capital and power and rents from workers and consumers to shareholders, which will disproportionately affect the top 1% who own a disproportionate amount of shares. So what am I doing? I have a disproportionate amount of my net worth in high-end real estate, because I think that, I mean, this is where my biggest investment is. I think anyone worth over $50 million is going to have at least one home in one of five places.

Dubai, London, Palm Beach, New York, or Aspen, and I have invested about half my net worth in buying really high end homes in four of those five.

I'm about psychic return, is AI enjoyed these houses and I'm hoping it'll force my sons to visit me more.

“Which based on my orientation weekend that strategy isn't working, did I tell you that he literally didn't text me for two days?”

I'm in fucking Charlottesville with nothing to do wearing orange sunglasses, and he didn't text me once had. He didn't text me once, literally. You told me that he physically blockaded the door with his body. I didn't hear about the texting problem. I walked in as soon as I put his bag down, so I said, "Okay, thanks dad, I love you."

And literally, "Bark fast." He just meant me out of the room. I mean, it was like, "God, am I that bad?" Anyway, but I don't know where I was going at that.

That took me off him getting emotional.

But look, what I'm doing, and then this is, I'm, to a certain extent, violating my own thing about diversification, but I think you're going to see inflation, and I think you're going to see massive increases unfortunately in income inequality.

“And the thing I love about real estate for my own mental health, talking about psychocraturns,”

I want a lower percentage of my assets and publicly traded stocks because I'm checking this fucking thing 10 times a day. And the thing I love about private markets and real estate is I don't get a scorecard every day. And so psych, it taps into this really unfortunate overwhelming trend of regulatory capture and income inequality, which is going to continue to run unfettered for a while, and believing that we're going to swing to the left and bring in a democratic socialist, or whatever they're calling, whatever they're trying to wall paper over, head up your ass economic policy,

and anti-Semitism masquerading is some sort of useful energy fine have at it. But it's not going to get in the way of the regulatory capture of the wealthiest. Those people are going to use representative Chivaly as an example of how fucked up this whole democratic socialist movement is. And the middle of America is going to continue to put up with a regressive tax structure that results in a ridiculous amount of accretion of wealth to people in the top 0.1% of play less and less taxes and hopefully they'll all buy my home.

I don't know how you, I'm also not even sure what about the democratic socialist is getting you so riled up. Because we're about to snatch defeat from the jaws of victory, socialism doesn't work. Capitalism works as long as you rest on a bed of empathy and you keep reinvesting in the middle class with redistribution of income. I agree, but I look at what Mamdoni's done so far, and it hasn't been socialism. Everything he's done so far has been surprisingly very reasonable.

The rent control is the only thing I disagree with and also what he's done with the way messed up. I want to be clear, I'm not talking about Mamdoni.

I've said, I mean, I didn't mean to get political, I always get political.

“I think you have to rally around people when they're elected and give them the benefit of the doubt.”

I think he is done. There's some things that upset me about him specifically. The new litmus test with the people he seems to elect seem to be in my opinion. There was not one woman who said she's too little crazy, but a little crazy. So banned the police, no borders, murderers should not be in prison,

showed up to an anti-Israel rally on October the 8th. She is about to become the poster child for the Republican Party to convince middle America that, "Okay, we keep making rich people too rich, but they're fucking crazy." Anyways, I worry we're about to snatch defeat from the jaws of victory by swinging way too far. Way too far to the left.

I think you're letting this one woman taint your views of everything. That is entirely true and accurate, and let me also acknowledge the other side. The boomers like myself don't get to pick their flavor of disruption, and what I will say about Mamdoni and these new candidates is their bringing. He's been surprisingly, he himself has been surprisingly measured.

He's got full politician. Great politician. He's great. More power to him, I want to be supportive of him, I want to be supportive of youth, and people my age don't get to pick their flavor of disruption. I've been calling for disruption.

Democracy needs a turnover and a shedding of skin. Yeah, I don't disagree with the direction of what you're saying, which is this is only going to get worse. I mean, what's going to happen? Believing that electing people who think we shouldn't have prisons,

or we should are demonized billionaires, one of the attributes that middle America loves. The people who decide elections is that where Europe fucks up is the following. They would rather be worse off as a whole if they're more equal. America says, we don't mind being unequal. As long as a whole we're all doing better.

Billionaires are fine. As long as the average wage growth goes up and prosperity goes up, it has gotten so out of control that it's now coming at the cost of the middle class, in the average person who can't afford to send their kid to school, or by groceries.

we celebrate it, and we're okay within equality to a certain point.

As long as it doesn't, as long as it's a whole, we're doing better. We've had a huge inequality since 1945. That's a key component of capitalism for incentives. And way too far, and rather than swing back to something reasonable, like a progressive tax structure, alternative minimum tax,

reduction in transfers of wealth from young to old, the Democrats are going to elect, I worry, a group of people that have economic policies, that feel like North Korea light, or East Germany like in the middle of America. It's going to go no fucking way. We're going to end up with JD Vance and continue to demonize transgender people,

continue to have corruption, continue to have stupid crypto scams,

continue to overturn and roll back the rights of women. Where am I going, Ed? Get me out of this. Save me here, bring me back. We were talking about diversification. This is all part of your real estate thesis.

“Diversify, I think this is part of the problem, is that traditionally the index fund,”

the whole point of it was diversification. Like that was what they have been for. The S&P, the idea like you just put it in, you cover your eyes, you're all good, you're set, you diversified, it's all of corporate America, no worries.

But increasingly what we're seeing is that you can't really depend on that

as much as you could in the past. The same would be true of like the NASDAQ 100, which to be clear, like I don't think that's actually like a has ever been a true diversification device. But if they're now just figuring out ways to figure out these loophole such that SpaceX can get stuffed into the index.

Like you're increasingly realizing that these index funds, these passive investment vehicles, they're not what they used to be marketed as, which is just pure safety in the market, everything's diversified. That is a problem because one of my views is like, I'm a big fan of index funds. Like I'm a big fan of passive investing, putting it in the market,

being brought in and diversify and letting the market do the work.

“But I think we're now starting to have to ask questions as to what true diversification is.”

By putting your money in the S&P, you're not really doing the job of diversification, which means that you now have to start doing some homework if you're super interested in getting yourself diversified. It means that you do need to go and explore different sectors and different markets that have less exposure to AI.

That's homework that you'd ideally not have to do if you're just investing in your 401k in your Roth IRA, in your retirement account. But now we're realizing maybe you do have to do that. And so I think the question for us and for listeners and for all investors now is, can you go out and find sectors and investments that are not levied to the health on AI?

Some people would say, oh, maybe like financials, maybe the banks, not really if we look at the bank earnings that we just saw this week, they're getting all of the returns juiced from AI because of the debt issuance to build the data centers, because of the equity trading, which is because of the AI stock explosion, those aren't really covered.

“I think you have to work really hard, dig really deep and find companies and investments”

that are not exposed. One, I'll give you one sector that I think isn't exposed, hasn't been getting love, it was one of my picks at the beginning of the year, and I'm going to stick to it, it's the healthcare sector. I think that is a sector that has not infused AI at all yet.

Perhaps maybe they will at which point you will talk to see some real returns, but I do think that's the question, and it's a very hard one for investors to tackle. Like when the dot com collapsed happened, I took a bullet to the chest, and then again in a way, another bullet to the chest and financially killed. Since then, as I've gotten fortunate enough with the benefit of a bull market wind in my sales

to the aggregate some wealth, Kevlar diversification is your Kevlar. And I'd like to think, and I might be wrong, I don't think there's any hiding. When this collapse, which is coming, it's trying not to collapse. A drawdown of AI happens, there's nowhere to hide, but you can at least be in a place with some food and water.

I'm trying to set myself up for a 20 to 30% decline, not a 120% decline, which is what I experienced in the dot com, no leverage, diversifying into other assets, and making sure I try to have no more than 5% or 10% and anyone else. And you say, well, Scott, you just said 50% is in real estate, but I do think there are submarkets in real estate where there's somewhat uncorrelated to each other.

And I can't, I believe in index funds index funds is a construct or great,

“but start looking at like Australian index funds, you know, diversify,”

because as John Snow said, winter is coming. All right, let's take a look at the weekend. There are no major economic data releases in store, but we will see earnings from Google, Tesla, IBM, Intel,

Comcast, and American Express.

Scott, any predictions? Why made it?

“I'm hoping I was going to acquire an installed retailer CEO.”

That's that prediction. It's very bold. I admittedly don't have one today because I didn't do my homework, but I'm just going to sort of re-up on a previous prediction that I made.

I predicted the SpaceX would get a 25% pop on the first day of trading.

That happened, and then I said it would get cut in half. We're down to 40% down from its highs.

“So I'm just going to hold to the prediction.”

It's going to get cut in half, and I could easily see it trading below a hundred dollars a share. We haven't seen any of the lockups expire. We're about to see a ton of supply. Come online more paying for SpaceX.

This episode was produced by Claire Miller and Alison Weiss, and engineered by Benjamin Spencer. Our video editor is Jorge Carsey. Research team is down to the lawn, Kristen and Donna Hugh, and Mia Silverio, Jake McPherson is a social producer.

Drew Barres is our technical director and Catherine Dylan is our executive producer. Thank you for listening to "Proftory Markets" from "Proftory Media." If you liked what you heard, give us a follow and tune into "Morrow" for a fresh take on "The Markets." ♪ In the time for you, yeah ♪

♪ As the long term ♪ ♪ In the process ♪ ♪ In love ♪