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Support for this show comes from Fundrise.
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Should only insiders be able to invest in venture capital?
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Historically, that s always how it s been.
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But the Fundrise Innovation Fund wants to change that.
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This is a paid sponsorship.
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This week s number, 13 million.
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That s the number of people in the U.S.
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who say social media content creation is their full-time job.
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I actually have no problem with influencers, although I miss the days when they were just called hookers.
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Welcome to Profgy Markets.
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Today, Ed, we re discussing NVIDIA s earnings and the UK s fallen empire.
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What s the difference between an influencer and a philosophy major?
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What?
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Well, an influencer didn t need a degree to be fucking useless.
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Here with the news, or what are we talking about?
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We re talking about NVIDIA s earnings, the UK s fallen empire, and we thought we d bring you in as a 19-year-old Brit.
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You re our expert on the United Kingdom.
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And Ed, most importantly, I don t know if you heard this, the dog was on the view.
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The dog was barking today.
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I heard.
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How d it go?
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You know what was really nice is I was nervous about it.
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I didn t, I don t know.
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Somehow I imagined
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my big moment on The View wouldn t be a good one.
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I just, I thought, this is so rife with trouble and danger for me, to sit down with four incredibly progressive women, except for Alyssa Farrah, and then Whoopi s obviously an icon and a legend.
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I was very nervous.
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And I walk into the green room, and there s George Hahn, MJ, and Neil Saverio.
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And my blood pressure came down.
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It actually felt really nice to have everyone there.
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So nice.
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I saw that picture you posted.
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I loved that.
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It actually went really well.
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What s the term?
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I killed it, Ed.
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I killed it.
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Anyways.
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Here with the news is Prophecy Media analyst Ed Elson.
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But first,
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Everyone, go subscribe to the Prof G Markets feed.
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If you haven t already, we have our own feed now, Prof G Markets.
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Please subscribe.
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We put a link in the show notes to make it easy for you, or you can just type it in on your search bar, Prof G Markets.
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You ll get two episodes a week on that channel, one on Monday, one on Thursday.
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Our most recent episode was an incredible interview with
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Josh Brown of Ritholtz Wealth Management, and we ve got lots more interviews, but they re only going to be available on the Prof G Markets podcast feed, not the Prof G Pod, so go subscribe now.
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There s still time.
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Get to the headlines.
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Let s start with our weekly review of market vicels.
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The S&P 500 hit a record high, the dollar rose, Bitcoin was volatile, and the yield on 10-year treasuries climbed.
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Shifting to the headlines.
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Amazon is launching a new version of its voice assistant, Alexa, with new generative AI features.
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The more conversational version of Alexa will be available later this year for an additional subscription fee separate from Amazon Prime.
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Walmart and Target reported first quarter earnings, and it was a tale of two retailers.
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Walmart sales rose 4%, Target s dropped 3%.
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Both companies, however, announced that they re slashing prices to entice inflation-weary customers.
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Hims and Hers Health will begin offering GLP-1 weight loss injections for $199 a month.
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That s roughly a seventh of Wegovy s price.
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Hims and Hers stock rose as much as 38% following that announcement.
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And finally, former presidential candidate Vivek Ramaswamy has acquired a 7.7% stake in BuzzFeed for about $7 million.
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In the SEC filing, Ramaswamy said he wants to speak with the board about a quote, shift in the company s strategy.
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BuzzFeed stock surged as much as 82% following that news.
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Scott, thoughts?
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So first, with respect to Amazon, if you think about the front end of an LLM, it should be voice, right?
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That s the logical next place.
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And every year I pick a technology that I think is going to be the technology of the year.
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And I think in 2018, maybe, I said that voice I thought was going to be the technology of the year.
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And what s interesting is in the last two years, voice assistants have actually lost share.
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And they got out of the gates really strong.
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I love voice.
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I use it for music.
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My kids love it.
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They constantly, whenever we get into an argument, they re like, Alexa, how many FA Cups has Man City won, right?
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They just can t stop hounding Alexa.
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And a weird thing, I don t know if this is true, it feels like Alexa has gotten stupider in the last 24 months or other things have caught up.
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But it s lost a lot of credibility, at least in the Galloway household.
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So I d be curious to know, what is the time with Anthropic?
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I like moving to subscription.
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This makes a lot of sense to me.
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To a certain extent, it ll be a proxy on how sophisticated and how agile their AI efforts are.
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Do you have any thoughts here?
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I just find it interesting that everyone s calling this like the AI-powered version of Alexa, when in reality, Alexa s always been an AI.
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And what they should really be calling it, I mean, you mentioned Alexa s getting stupider, they should just say it s the smarter Alexa.
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But when you say AI, obviously that generates more buzz.
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Labeling aside, it is interesting to see this resurgence of voice.
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I mean, this all started, as you mentioned, back with Siri in 2011, which was 13 years ago.
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I feel like people forget how old it actually is.
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But the story of voice has not been a very good one.
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I mean, Siri is considered to be basically one of the worst Apple products of all time.
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It was not successful.
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Alexa was
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kind of successful, but not even close to the way that Amazon wanted.
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They wanted it to be basically a tool to boost e-commerce sales on the actual Amazon platform, but it basically had no effect on the top line.
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It was more of a gimmick.
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And now here we are again, it s 2024 and we re having the same conversation.
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The difference is it s the gen AI generation.
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AI is supposed to be smarter, more versatile, more conversational.
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It ll be interesting to see if it works, but it is certainly possible that this is just 2011 all over again.
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I think it s more of a brand move, right?
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If the new Alexa is really sophisticated, everyone s going to go, oh, that must mean that Anthropic and Claude are really solid.
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The initial thought was that
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Amazon s vertical integration into devices would be essentially them going vertical to control an operating system, right?
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And Amazon has 500 million Alexa-enabled devices.
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Everyone wants to control the interface with the consumer.
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The reason you make such a huge investment in retail is that you get custody of the consumer.
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You control the interface between you and your company.
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And these guys are all in a war.
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This is what Meta has been trying to do for everyone.
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They launched the portal.
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That didn t work, right?
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I think Facebook even had a phone at one point.
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Is that right?
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Amazon had a phone.
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They ve all gone into the phones and realized it s really fucking hard and expensive, and they all get beaten back by Android and iOS.
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This is their attempt to go, again, vertical.
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I think it s more, it ll be more a brand signal, similar to the way that what a car sounds like when you close the door, or when you, quote unquote, kick the tires, or the pillows in a hotel.
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There s all these kind of quality cues for a brand.
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I think that s exactly right.
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Walmart and Target.
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I remember reading this story and I thought, there s just a few things I care less about.
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I think the trouble is that you probably haven t been to a Walmart in about,
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What three decades?
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The last time I went to a Walmart was when I was speaking to the board of Walmart.
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in Little Rock and I thought, I might as well go see what the nicest Walmart looks like.
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And I went and it was quite nice.
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I actually love Target.
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I go to the Super Target in Boca Raton.
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My kids love it, I love it.
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I love buying a super case of 700 vitamin waters.
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I like that stuff, I think they do.
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And I think Target does a good job.
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You are an inventory management nightmare.
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100%, 100%.
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What I m curious about, and I don t know the answer here, is that the difference between a company going up 4% and going down 4% is literally one will trade a double the multiple of the other.
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If you re going down 4%, that s a four-car or a five-car alarm among target management.
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And the thing that people don t realize is that Walmart is essentially a groceries company.
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It gets 60% of its US sales from groceries compared to just 20% at Target.
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So I wonder if this was more
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a miss on kind of the soft goods.
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Year-to-date Walmart is up 24%, which is pretty impressive.
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Any thoughts on what happened here?
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I think most notable to me were the price decreases.
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I mean, Walmart and Target both lowered their prices on thousands of items.
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And we re not just talking about like one-time purchases like a TV or an AC unit.
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We re talking about everyday
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grocery items, milk, bread, paper towels, butter, we re seeing price decreases as low as 14% on some of those items.
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So this is a big deal for consumers.
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I think the question is whether those price cuts will proliferate into the rest of the market and help bring
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down that 3.4% inflation number we keep talking about?
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I feel like the answer would probably be yes.
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I feel like, you know, Walmart and Target are leaders in consumer, but I don t know, perhaps you have a different view.
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So I think you just zeroed in on what probably was the most important thing of this earnings call, and that is the largest retailer in the world is going aggressively around price cutting.
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And that should have an impact.
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As Walmart goes, so goes a relatively significant part of the economy.
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It really is the ultimate kind of consumer thermometer for
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the lower middle class of America.
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Strategy all comes down to answering one question, and that question is, what can we do that is really hard, really hard, that no one else can do?
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We look at our assets, our competencies, our IP, then we look at the marketplace, and we try and cut a swath down the middle and say, all right, what could we do that no one could follow?
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Even if it s a good idea,
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You want to make sure it s sustainable and other people can follow because otherwise people just copy it.
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But these companies, whether it s Netflix, whether it s Amazon, they take their capital as a weapon and they offer a value proposition that others just don t have the scale to compete with.
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This is Walmart leaning back and
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following their core strategy, and that is every time they cut costs, every time they get scaled, they pass on those savings to the consumer.
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But this is a great report for Walmart and an ugly report for Target.
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Yeah.
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Thoughts on HEMS, GLP-1?
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The market loves this.
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The market says this is the biggest thing in healthcare and maybe one of the biggest things in the economy in the last decade.
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So embracing this is just a great, great strategy from an investor relations standpoint.
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Stocks up 77% in the last three months.
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I think you gotta hand it to these guys.
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Hims initially.
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It was like, oh, I want Viagra, but I don t want anyone to know I have Viagra.
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Just saying for a friend, saying for a friend.
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I don t know.
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I don t know anything about that.
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Just so you know, I do not suffer from erectile dysfunction, just so you know it.
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I absolutely do not.
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Although I will say this, my erections are dysfunctional.
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It s like, oh, now you show up?
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SPEAKER_00
Anyways.
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Okay, that was good.
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That was good.
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That was good.
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Anyways, so I m totally- It was an ED company, but- Oh, it was an ED company and then went into hair loss.
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And they ve really extended themselves and have kind of become this what I ll call new economy sort of innovation-ish kind of healthcare company.
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And I think that it could have easily been
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One of these dumb ideas that SPAC, I don t know if it was a SPAC.
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SPEAKER_00
It was actually, yeah.
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That just sort of floated away, right?
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That once the cheap capital party was over, but they spent it well.
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This strikes me as a company that s well managed and that they have actually crossed a Rubicon and they re a real company and that they re making good moves.
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I think this is a great move.
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What are your thoughts?
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Yeah, well, two things stand out to me about this.
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One is the price.
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So, you know, Ozempic is $1,000 a month, Wigovi is $1,400 a month.
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This is $200 a month.
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It s crazy cheap.
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So the question is, okay, how is it so cheap?
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Well, this second very interesting detail should explain it.
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Unlike Ozempic, unlike Wigovi, unlike ZepBound, this GLP-1 drug doesn t have FDA approval.
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and yet they can still sell it legally, which is incredible for the business because one, they don t have to deal with any of the FDA approval costs, which are a nightmare, and two, they get to participate in GLP-1s, one of the fastest growing industries in the world.
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It turns out that there s a provision in the FDA s regulations which says that if a drug is in shortage,
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then manufacturers can sell compounded versions of that drug, that is a sort of combined alternative mixture of that drug, and they don t need FDA approval.
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SPEAKER_01
As of today, Ozempic, Wigovi, ZepBound are all on the FDA s drug shortages list because, as we ve seen, there s been this huge demand that s outstripping supply, and HIMSS recognized that.
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So this, to me, again, great management.
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It s a masterclass in regulatory arbitrage.
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It s added
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almost a billion dollars in market value overnight, probably it s estimated it s going to generate a hundred million dollars in annual revenue.
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I think the question for them is going to be, what are they going to do when the drug shortages end?
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Because, I mean, I can t see a world where Ozempic is low on supply forever.
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And when that does happen, hymns won t be able to sell this anymore.
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So I think if I were an investor, that s what I d be wary of.
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I ve often thought if I was young and scrappy and didn t have quite the profile that I ve earned by going on programs including The View, I would, I m not exaggerating, I would probably be going to the gray market for GLP-1 drugs because you can get these things in Dubai for 160 bucks and there are a thousand here.
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And I like that type of gray market.
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I think there s such regulatory capture among pharmaceutical firms that it s just nothing but a tax on U.S.
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consumers who have the pretty average healthcare and pay double, pay $13,000 per capita, whereas Canada, Australia, and U.K.
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pay $6,500 despite the fact we have
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lower life expectancy.
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So I like the idea of people being very aggressive.
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One of my, I call it one of my favorite movies, but the movie that Matthew McConaughey won an Academy Award for was Dallas Buyers Club.
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SPEAKER_00
And he just, you know, he found that the FDA was sort of in the back pocket of the drug administrator, the pharmaceutical lobby, and just started going to other nations and finding drugs that, you know, these people didn t have a lot to lose, right?
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And so I like the idea of anything that fucks with Big Pharma, I just love.
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I don t know why this makes me so happy, but these commercials, whenever I watch TV with ads, it s basically
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This show is brought to you by how much it sucks to get old.
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SPEAKER_00
I mean, that s all it is.
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SPEAKER_00
It s just a giant It s like nine minutes of murder.
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SPEAKER_00
She wrote or whatever it is.
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SPEAKER_00
I don t watch murray show.
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SPEAKER_00
I m trying to think what I watch or msnbc I watch rachel maddow and then all of a sudden it s like oh, do you have opioid-induced constipation?
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SPEAKER_00
I m like, what the fuck is that?
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SPEAKER_00
So let me get this, I m in so much pain, I have to take an narcotic that addicts me, and I get constipated?
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SPEAKER_00
By the way, I have an oxy story.
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SPEAKER_00
I had minor surgery and they gave me OxyContin and I totally fucking freaked out.
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I m like, oh my God, I m gonna get addicted to this shit.
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SPEAKER_00
And about two, three days into my oxy, they suggest you kind of wean off after two or three days.
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SPEAKER_00
And I just felt like, shit,
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And I felt gross.
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SPEAKER_00
And I m like, oh, I felt just strange and really irritable.
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SPEAKER_00
And I called my doctor and I m like, oh my God, I m so fucking freaked out.
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SPEAKER_00
And he s like, what s up?
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SPEAKER_00
And I said, I think after 72 hours I ve become addicted to OxyContin and I m about to be a character in Dope Sick.
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SPEAKER_00
And he goes, describe your symptoms.
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SPEAKER_00
And I m like, I feel bloated, I feel gross, I feel sick, and I really just want oxygen.
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SPEAKER_00
He s like, Scott, you re not addicted, you re constipated.
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SPEAKER_00
And he s like, when s the last time you went to the bathroom?
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SPEAKER_00
I m like, let me think, 11 days ago.
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SPEAKER_00
And he s like, go get some prune juice.
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SPEAKER_00
He s like, you re not addicted to OxyContin, you re just backed up.
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SPEAKER_00
Anyways, I don t know where we are.
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Prop G, subscribe now to Prop G Markets.
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SPEAKER_01
We re at the end of that segment.
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We will pivot to Vivek buying a stake in BuzzFeed.
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SPEAKER_01
Do you have any insight on that?
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SPEAKER_00
Speaking of shit flying out of your ass, whatever, it s $7 million.
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SPEAKER_00
I mean, who cares?
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SPEAKER_00
And he wants to talk to them about strategy based on his success, getting his mother to rewrite FDA approval or whatever it is he did to make his money.
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SPEAKER_00
I don t know.
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SPEAKER_00
BuzzFeed has become irrelevant and it s probably going out of, I don t know if it s going out of business, I don t know if they ve cut their costs enough to survive.
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SPEAKER_00
It strikes me as a fairly inexpensive way to park capital and be in the news cycle.
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SPEAKER_00
That s all I see here.
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SPEAKER_00
I don t think he s going to have any, he has no background in media.
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SPEAKER_00
I don t think he s an original thinker.
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SPEAKER_00
I just think he wants to be
1
SPEAKER_00
Look at me, look at me, pick me as vice president, pick me as vice president, look at me.
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SPEAKER_00
For $7 million, I could either buy some ads, which don t help, and that money vanishes, or I buy $7 million in stock and people in the Prop G market spot will talk about me.
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SPEAKER_00
I think this is a big fucking nothing burger.
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SPEAKER_01
That s awesome.
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And on that, let s stop talking about it.
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We ll be right back after the break with a look at Nvidia s eggs.
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Support for this show comes from Fundrise.
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SPEAKER_00
Venture capital has been one of the unsung heroes of our economy for decades.
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SPEAKER_00
Go look at the S&P 500.
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SPEAKER_00
Nearly every major tech company on that list was once venture backed.
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SPEAKER_00
Venture funds saw their investments in those generational companies skyrocket in value at unimaginable multiples.
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SPEAKER_00
The technology boom since the late 90s made venture capital the highest performing asset class in the world over the past 25 plus years.
1
SPEAKER_00
The hard truth, however, is that the biggest venture funds were almost entirely funded by institutional investors like endowments and sovereign wealth funds.
1
SPEAKER_00
Unless you knew a guy who knew a guy, you and most other investors could not get in early.
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SPEAKER_00
That meant missing out on hundreds of millions, if not billions of dollars of each company s growth.
1
SPEAKER_00
The Fundrise Innovation Fund is changing that.
1
SPEAKER_00
It s designed specifically for
2
SPEAKER_01
individual investors aiming to bring its portfolio of technology leaders, disruptors, and pioneers to as many investors as possible.
2
SPEAKER_01
Now you can get in early.
2
SPEAKER_01
Relevant disclaimers can be found at the end of the show and at fundrise.com slash innovation.
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SPEAKER_00
We re back with Profgy Markets.
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NVIDIA reported first quarter earnings, and once again, it blew past expectations.
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The company generated $26 billion in revenue, up 262% from last year, and $15 billion in profit, up more than 600%.
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The company also announced a 10-for-1 stock split and lifted its dividend.
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SPEAKER_00
Shares rose more than 7% in after-hours trading and breached $1,000 per share for the first time.
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Scott, last week we discussed this possibility that the AI boom has become a bubble.
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SPEAKER_00
We discussed that just you and I and also with Josh Brown on Thursday.
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SPEAKER_00
I look at these numbers though, $15 billion in profit, $23 billion in data center revenue, which is basically the AI chip revenue.
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SPEAKER_00
That s up 427% year over year.
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SPEAKER_00
These numbers look very real, very serious.
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SPEAKER_00
Do these earnings change anything for you?
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SPEAKER_01
No, I think we predicted they were going to blow away everything.
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SPEAKER_01
When numbers get this big, it s hard to wrap your head around.
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SPEAKER_01
Just for relative comparison, this company has added the value in the last 12 months.
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SPEAKER_01
It s added the value of Amazon.
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It s now worth more than Tesla and Meta combined.
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SPEAKER_01
It s worth more than the entire German stock market.
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SPEAKER_01
And if you took all of the transactions that happened all year in Spain and all year in the kingdom of Saudi Arabia, their GDP from both nations, that s not as big as the market capitalization now of Nvidia, which is the third most valuable company in the world.
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SPEAKER_01
It trades at a price to earnings ratio of 56 compared to 24 for the broader S&P.
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SPEAKER_01
So you think, okay,
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SPEAKER_01
That s expensive, but it s not crazy given the growth that you referenced.
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SPEAKER_01
I think the problem here is not the price-earnings multiple.
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SPEAKER_01
It s the E. And that is, at some point, I do think people are going to decide, I m Chick-fil-A.
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SPEAKER_01
I don t need to pay.
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SPEAKER_01
I don t need to rent this type of compute powered by GPUs.
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SPEAKER_01
And the first sign of a slowdown here is going to freak everyone out.
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SPEAKER_01
You ll see multiple contraction.
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SPEAKER_01
In addition, you ll see earnings contraction.
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SPEAKER_01
And the thing that I think is going to take the stock, I mean, this is a bubble.
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SPEAKER_01
The question is, when does it pop?
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SPEAKER_01
And this isn t financial advice because the company could easily, just the momentum and the hysteria and the excitement around AI, this stock could easily double.
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SPEAKER_01
But I believe this is a bubble.
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SPEAKER_01
And what I ultimately think is going to be the air coming out of the bubble, if you will, is that there are,
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SPEAKER_01
What did Josh Brown call it?
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SPEAKER_01
A self-perpetual motion machine.
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SPEAKER_01
A perpetual motion machine.
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There are four companies, Amazon, Alphabet, Meta, and Microsoft, that account for 40% of total sales.
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SPEAKER_01
And all of those companies really hate going to Nvidia and basically being asked to put on a gag ball and grab their ankles.
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SPEAKER_01
I mean, because the pricing here, they have such incredible power.
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SPEAKER_01
It s just got to be the worst thing, the worst negotiation in the world for these guys.
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SPEAKER_01
They re not used to it.
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SPEAKER_01
They re the ones that are used to abusing people, right, in a third party, in a negotiation.
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SPEAKER_01
And they are the little guy when they go to NVIDIA.
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SPEAKER_01
So all of them
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are massively investing in developing their own AI chips.
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SPEAKER_01
And the first one that comes out with a reasonable chip, you re just going to see, I mean, it s sort of like when Apple said, we re sick of these negotiations and one-way conversations with Intel, we re going to develop our own chips.
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SPEAKER_01
And also, what s really interesting is Aswath made such an interesting comment about the valuation of NVIDIA.
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He said that built into the valuation is the assumption that NVIDIA will dominate another market the way it dominates AI that hasn t been invented yet, that nobody knows yet.
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in order to grow into its valuation.
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And you can see that Jensen either listens to Aswath, and now he s talking a lot about the sciences.
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SPEAKER_01
He s saying, oh, the biggest opportunity for our chips, he doesn t say AI, is the health sciences.
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SPEAKER_01
So he s saying, okay, at some point we ll run out of steam.
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SPEAKER_01
You know, AI does have limits, but don t worry.
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SPEAKER_01
All these healthcare companies are going to start buying our GPUs.
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SPEAKER_01
So this is nothing short of absolutely staggering.
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SPEAKER_01
Historically, the semiconductor industry is cyclical.
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SPEAKER_01
I don t see why this would be any different.
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SPEAKER_01
Kudos to them.
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A staggering earnings report.
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SPEAKER_01
I love that they re creating all of this wealth.
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for their employees and for their investors.
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SPEAKER_01
I don t know where the stock s going to be over the course of the next 24 months, but I would predict that in 20, you know, call it 18 to 36 months, it s well south of where it is right now.
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SPEAKER_01
I just don t see how with these types of margins
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SPEAKER_01
And this type of dominance in a market that s so important, so huge, has so many powerful players with their own capital, their own IP, that these types of numbers just aren t going to attract the biggest great whites in the world.
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SPEAKER_01
What are your thoughts?
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SPEAKER_00
You mentioned Jensen building in new expectations.
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SPEAKER_00
I think he said that this was going to be on this most recent earnings call.
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SPEAKER_00
He said that this is the next industrial revolution.
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SPEAKER_00
But I want to pivot to just this analyst note that I was reading.
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SPEAKER_00
I found this line that I found pretty funny.
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It said, quote, NVIDIA generated revenues that were around 5% higher than what the analyst community had expected.
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SPEAKER_00
While this was a positive result for sure, the beat was less pronounced compared to the previous two quarters when revenue estimates were beaten by more than 10% respectively.
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SPEAKER_00
In other words, Nvidia is so strong
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SPEAKER_00
we re not even happy with beats anymore.
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SPEAKER_00
We re measuring how much today s beat beat the last beat.
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SPEAKER_00
It feels like we re not only building high expectations, we re building totally new kinds of expectations for this company just because of how much it s outperformed.
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SPEAKER_00
And what I d ask you is, based on your experience as an investor, have you ever seen earnings growth
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SPEAKER_00
that is this strong and this enduring?
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SPEAKER_00
It s been several consecutive quarters of triple-digit revenue growth.
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SPEAKER_01
This is, yeah, I mean, you re exactly right.
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SPEAKER_01
You beat by 20%, you only beat by 18%, you only over-delivered by this much this time.
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SPEAKER_01
So the expectations here, this company s defying gravity.
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SPEAKER_01
You could argue just on a shareholder ability to create shareholder value.
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SPEAKER_01
Nvidia, at this point, is probably the most successful company in history.
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SPEAKER_01
Very few companies are able to add the GDP of Germany in 18 months.
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SPEAKER_01
That s just, there s something about, and to me it goes to a larger thing.
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SPEAKER_01
This is a Taiwanese, I think Jensen s from Taiwan.
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SPEAKER_01
He went to school in Oregon and then he went to Stanford and he decided to start the company in San Francisco.
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SPEAKER_01
There s just no getting around it.
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SPEAKER_01
There s something very unique about America and specifically the Bay Area when it comes to cold hard cash.
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SPEAKER_01
And it s important that we keep doing this because these companies, while they pay less than their fair share, less than your fair share on the GDP of Germany is a lot of money.
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SPEAKER_01
So these companies pay a lot.
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SPEAKER_01
I bet that Nvidia will be responsible for a loan, will be responsible for a budget surplus in California this year.
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SPEAKER_01
I bet anyone who s been there longer than three years, who s in a quote unquote professional track job has $10 million plus in options equity right now.
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SPEAKER_01
And then when they exercise those options, those they have to pay short-term capital gains on, plus the 13% that goes to the state, that s just a massive amount of tax revenue.
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SPEAKER_01
I mean, I ve always said there s very few problems money can t solve, and people hate hearing that.
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SPEAKER_01
But I ve always thought, you know, other than health, and even with a lot of health conditions, money can solve it, most things work out.
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SPEAKER_01
I have a friend who s going through a divorce, he s really upset, and I know his wife s soon to be ex, and I m like, look, this is the bottom line.
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SPEAKER_01
It s gonna be a lot less painful for you guys, because you have money.
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SPEAKER_01
This company, I don t know what it added at 110th, it probably added $150 billion in five minutes.
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SPEAKER_01
Okay, if you add $150 billion in market cap to the economy in five minutes after your earnings call, you should be able to figure out a way to expand the child tax credit, which costs $13 billion, I think.
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SPEAKER_01
So anyways, a long-winded way of saying, go America.
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SPEAKER_00
And just quickly, Investing 101, they also announced a 10-4-1 stock split.
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SPEAKER_00
Can you just remind our listeners what a stock split is and why a company would do that?
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SPEAKER_01
Well, they want to make it, quote-unquote, more affordable and seem less expensive.
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SPEAKER_01
So the stock, what is it out today?
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SPEAKER_01
1100 or something?
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SPEAKER_01
Yeah, I think 1050, I want to say.
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SPEAKER_01
Okay, so let s call it 1100 by tomorrow.
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SPEAKER_01
So it s 1,100.
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SPEAKER_01
All they do is just go 10 for one.
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SPEAKER_01
So now each share of stock costs $110.
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SPEAKER_01
And what I hate is I saw some headlines today saying the stock s about to become a lot cheaper.
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SPEAKER_01
No, it s not.
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SPEAKER_01
No, it s not.
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SPEAKER_01
You buy a stock based on valuation as it relates to its underlying fundamentals.
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SPEAKER_01
The valuation is not changing here, just the number of shares.
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SPEAKER_01
As a matter of fact, something I learned from one of the VCs I worked with is Iowa was issued at the very beginning of the company
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SPEAKER_01
you issue shares, you incorporate, you have a certain number of shares.
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SPEAKER_01
And as the founder, at least initially, you own all the shares.
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SPEAKER_01
And then you start giving options out on those shares to your employees.
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SPEAKER_01
Hopefully you get an investor, you give him or her new shares in the company, which dilutes your stake.
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SPEAKER_01
And what I initially always just formed the company with a million shares.
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SPEAKER_01
And one of my VCs said, no, form it with a hundred million.
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SPEAKER_01
I said, well, why?
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SPEAKER_01
He said, because if you give someone 1% of the company,
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SPEAKER_01
10,000 shares isn t nearly as exciting psychologically as a million shares.
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SPEAKER_01
Even though it s the exact same thing, even though you re just on 1% of the company, it s still, he said, just psychologically.
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SPEAKER_01
I m like, are people really that dumb?
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SPEAKER_01
He s like, yeah.
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SPEAKER_01
People really enjoy getting a million shares or options on a million shares.
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SPEAKER_01
And that s exactly what this is because now with fractional buying, there s really no reason to split.
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SPEAKER_01
other than to signal how strong the stock is, and also to psychologically make it easier for someone to say, well, I ll buy some shares.
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SPEAKER_01
It s only 110, I can buy two shares, as opposed to saying, oh my God, 1,100 bucks, I missed that, you know, I missed that boat.
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SPEAKER_01
So it s, I would argue it s mostly symbolic, and it s mostly just to give people the impression somehow that the stock is affordable.
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SPEAKER_01
It s all, it s really psychological.
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SPEAKER_01
It has nothing to do with the underlying fundamentals.
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SPEAKER_00
We ll be back with a look at the UK and a surprise general election.
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SPEAKER_00
Stay with us.
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SPEAKER_01
Support for this show comes from Fundrise.
3
SPEAKER_01
Artificial intelligence could be the biggest wealth creation event in history.
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SPEAKER_01
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3
SPEAKER_00
We re back with ProfG Markets.
3
SPEAKER_00
British Prime Minister Rishi Sunak shocked Parliament last week and called for a surprise general election on July 4th.
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SPEAKER_00
For our American listeners, here s what that actually means.
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SPEAKER_00
In Britain, parliamentary terms last five years and Sunak s is due to expire at the end of this year.
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SPEAKER_00
However, unlike in the US, the Prime Minister can decide when to hold a new election during those five years.
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SPEAKER_00
So why has the Prime Minister chosen now?
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SPEAKER_00
It isn t totally clear, but it likely has something to do with recent economic data.
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SPEAKER_00
Before his announcement, the UK reported 2.3% inflation, which is its lowest level in three years.
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SPEAKER_00
Meanwhile, GDP grew 0.6%, which technically brought the nation out of a recession.
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SPEAKER_00
However, these are small wins.
3
SPEAKER_00
The UK economy is still largely in decline, and the nation is still reeling from the disastrous 44-day tenure of the previous Prime Minister, Liz Truss.
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SPEAKER_00
And now, after 14 years of being in charge, the Conservative Party looks set to lose.
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SPEAKER_00
Its opposition, the left-wing Labour Party, is currently leading the polls by more than 20%.
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SPEAKER_00
Scott, you recently moved to London.
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SPEAKER_00
I think that gives you a right to talk about this.
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SPEAKER_00
What are your thoughts on the general election?
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SPEAKER_01
I have really enjoyed understanding almost nothing about UK politics.
3
SPEAKER_01
One of the reasons, one of the free gifts with purchase in moving to the UK is that discussions around assault weapons, bodily autonomy, they re not even discussions there because like they would look at you like, well, of course a woman can terminate a pregnancy or why on earth would we have AR-15?
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SPEAKER_01
I mean,
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They just are remarkably sane.
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SPEAKER_01
I like Prime Minister Sunak.
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SPEAKER_01
He strikes me as a really reasonable, thoughtful guy.
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SPEAKER_01
It s a parliamentary system, so people are sick of the party.
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SPEAKER_01
I don t blame them.
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SPEAKER_01
I think the UK is the only country in the EU that hasn t grown in five years.
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SPEAKER_01
Brexit will probably go down, is the biggest self-inflicted wound since probably George W. Bush invaded Iraq.
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SPEAKER_01
It s like, how do we make things more expensive and make our economy less productive at the same time elegantly?
3
SPEAKER_01
By the way, I remember being in Cannes when it went through, and every Brit was just dazed.
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SPEAKER_01
They just couldn t believe what had just happened.
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SPEAKER_01
Anyways, the GDP growth since 2016, this is eight years.
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SPEAKER_01
In the EU, it s been 24%.
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SPEAKER_01
In the UK, it s been 6%.
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SPEAKER_01
Since Brexit, UK goods trade has underperformed other advanced economies by around 15%.
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SPEAKER_01
UK consumer prices have risen more than get this at 30% since mid-2016, compared with 27% in the US and 24% in Europe.
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SPEAKER_01
So productivity down, expenses up.
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SPEAKER_01
In the pound,
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In the immediate minutes following the referendum vote, the British pound dropped 8% to a 31-year low against the dollar.
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The pound has never recovered to pre-Brexit levels.
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SPEAKER_01
And also, the brand as the financial capital of Europe has suffered.
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SPEAKER_01
Paris overtook London as Europe s largest stock market in 2022.
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SPEAKER_01
And the total capitalization of lended listed equities fell from a high of 4.3 trillion in 2007 to about 3 trillion in February 24.
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SPEAKER_01
Think about that.
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SPEAKER_01
The market capitalization of this market in the last 17 years has basically been cut by 30%.
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SPEAKER_01
And just on an inflation adjusted basis, it would be 6 or 7 trillion.
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SPEAKER_01
So it means they ve lost a ton of share.
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SPEAKER_01
Over the same period, the value of U.S.
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SPEAKER_01
stocks almost tripled to 53 trillion.
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SPEAKER_01
So UK from 4.3 to 3, the U.S.
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SPEAKER_01
from about 18 to 53.
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SPEAKER_01
And the total value of IPOs in London last year was less than a billion.
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SPEAKER_01
Total value of U.S.
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IPOs, and this was a slow year, 26 billion.
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SPEAKER_01
I want to flip this back to you because I don t feel, I ll give you some comments on, people constantly ask me now, what s the difference between the UK and the US?
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SPEAKER_01
And I have been struck by how underwhelming the business environment is given the pillars and the foundation that the UK sits on.
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SPEAKER_01
First off, it has incredible universities.
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SPEAKER_01
It has really fantastic raw talent.
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I ve met so many impressive people there that you just can t get around it.
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SPEAKER_01
This is some of the most educated, interesting group of people.
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SPEAKER_01
It has an amazing culture.
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SPEAKER_01
So a lot of very important people with a lot of influence saying, well, okay, I could move to Seoul, Korea, or I could move to London.
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SPEAKER_01
Seoul s an amazing city, but the majority of people I would assume would pick London.
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SPEAKER_01
But at the same time, what I ve also noticed
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SPEAKER_01
is that there s no actual organic value creation.
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Everyone I meet there is servicing, has made their money by servicing wealth created elsewhere.
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The most successful people I know are investment banking, are in wealth management, and they re servicing the wealth of people who have made their money in the Gulf or in the US.
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SPEAKER_01
and they re either in hospitality or hotels, but other than Premier League football, the hospitality and tourism industry, I m like, where s the actual mojo here?
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SPEAKER_01
Where are the companies?
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SPEAKER_01
Where s the tech, yeah.
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SPEAKER_01
Yeah, and they do have some FinTech, but given, it s just, it is really an interesting question.
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SPEAKER_01
I don t know how to answer it, and I ll turn it back to you, but given the fundamentals, given the foundation of all the things you need or supposedly need for success,
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SPEAKER_01
What is missing here?
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SPEAKER_01
Because there s nothing resembling NVIDIA.
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SPEAKER_01
There s not even, Christ, there aren t even that many BuzzFeeds there.
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SPEAKER_01
Seven of 10 IPOs in the last 10 years are below their offering price.
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SPEAKER_01
So I ll turn it back to you.
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You grew up in the UK.
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You came to school at Princeton.
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You re obviously, you are the secret sauce.
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Young, talented, educated people who want to work hard and make money.
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and are good people are the secret sauce to any economy.
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SPEAKER_01
And the fact that you stayed here as opposed to going back where you have family, where you speak the language, and you decided to stay here.
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SPEAKER_01
So what do you think is the issue in the UK?
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SPEAKER_01
And why did Alison, given the option, decide to stay in America?
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SPEAKER_00
Well, I ll start with the economics and I ll return to my read on the cultural differences, which I do believe are important.
3
SPEAKER_00
But let s just start with the economics.
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SPEAKER_00
The economics are dismal.
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SPEAKER_00
The UK went into recession in the second half of last year.
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SPEAKER_00
two straight quarters of negative GDP growth, and the quarter before that the growth was flat.
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SPEAKER_00
It s had one of the worst post-COVID recoveries in the G7.
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SPEAKER_00
Stock market s been sluggish.
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SPEAKER_00
You mentioned, you know, some companies, some tech companies, for example, Arm, which is the AI chip manufacturer, they are based in England, but they decided not to list on the London Stock Exchange, they went to New York.
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SPEAKER_00
Valuations are cheap, and the US
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SPEAKER_00
U.S.
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stocks are trading at around 20 times earnings in the UK, it s 12.
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SPEAKER_00
And then there s this national debt problem too.
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SPEAKER_00
It s not as bad as the U.S.
4
SPEAKER_00
The U.K.
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has around 2.7 trillion dollars in debt and that s around 97% of GDP.
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SPEAKER_00
Nothing like America, but we also have to remember that the U.S.
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SPEAKER_00
is in a privileged position to borrow because it s the U.S.
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SPEAKER_00
So everything s, generally speaking, everything is going wrong.
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SPEAKER_00
And the question is why?
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SPEAKER_00
I think there are two main reasons.
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SPEAKER_00
One, and this is what the Tories will argue, that is the Conservative Party, is that this is a Europe problem.
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SPEAKER_00
There s a wider problem in Europe.
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SPEAKER_00
Europe as a whole has been struggling with growth for decades.
4
SPEAKER_00
It s struggling to bring an investment, and that s true.
4
SPEAKER_00
The second reason is specific to the UK, plain and simple, it s Brexit.
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SPEAKER_00
And at a time when growth was sluggish,
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along with the rest of Europe.
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SPEAKER_00
The UK came up with basically the most English excuse in history, which is, it s not our fault, it s theirs.
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SPEAKER_00
And as you mentioned, it was a populist movement.
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It started with Nigel Farage.
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SPEAKER_00
It played into all these weird emotions of English pride and English heritage, and also dismissal of foreigners.
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MPs in Parliament lacked the spine, really, to speak up about why it was a bad idea.
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SPEAKER_00
And it will go down, I believe, as basically the most disastrous and damaging economic decisions in history.
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SPEAKER_00
It cost the UK 4% of GDP per year.
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SPEAKER_00
Remember, this was supposed to stimulate the growth.
4
SPEAKER_00
Tariffs increased, which increased the cost of goods, including food.
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SPEAKER_00
Brexit is estimated to have contributed to a third of food price inflation.
4
SPEAKER_00
Workers left.
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SPEAKER_00
Estimated 330,000 jobs lost due to Brexit.
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SPEAKER_00
What s interesting, especially the skilled workers.
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SPEAKER_00
England was struggling with this thing called Drexit, which is where all of these young doctors decided to pack up and leave.
4
SPEAKER_00
And now they need to figure out how to revamp the NHS and get doctors back into the UK.
4
SPEAKER_00
I ll pause there, I ll just say I think this entire election comes down to this, which is the UK went from a majority voting to leave the European Union, and it s now reckoning with only 30% of the population believing that this was ever a good idea.
4
SPEAKER_00
So the question voters are asking themselves is, who was responsible for the worst economic decision in history?
4
SPEAKER_00
And I mean, the answer is really the voters, but they will say it was the Conservatives.
4
SPEAKER_00
You ask why I left.
4
SPEAKER_00
I mean, the answer, I was born and raised in London, but both my parents were American and they encouraged me to apply to American schools.
4
SPEAKER_00
So I did and I went to school in the US.
4
SPEAKER_00
That s why I left.
4
SPEAKER_00
The other question you asked is why haven t I gone back?
4
SPEAKER_00
There s one crucial cultural difference between here and the UK, which really bugs me.
4
SPEAKER_00
And I think it s very well exemplified by the grading system that I grew up with.
4
SPEAKER_00
So in America, I got one grade, A, B, C, D, E, or F. In England, I got two grades.
4
SPEAKER_00
One was your attainment grade, which is ranked one through five, and the other was your effort grade, which was A through E. So the first measured how well you actually did, and the other measured how hard you tried.
4
SPEAKER_00
Two separate things.
4
SPEAKER_00
Now all the teachers told us that the best grade you could get was an A1, but all of us knew that wasn t actually true.
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The students knew that the best grade you could get was an E1, meaning you got 100%, you were top of your class, and you didn t even try.
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maybe you even misbehaved, you didn t care.
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So you didn t care at all, but you still achieved.
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And to me, this is the perfect encapsulation of English culture, where we have this obsession with not trying, not taking yourself seriously, and worse, not caring.
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And I believe that if I d stayed in London, I don t think I d be where I am today, because I never would have believed in myself or taken myself seriously enough to say,
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maybe I m good enough to sit in the same room as Scott Galloway.
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That would have been an embarrassing thing to try to do.
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And I think it s actually a real cultural problem in the UK.
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I think it s why we re seeing this lack of creativity, this lack of innovation, lack of inspiration, and crucially, a lack of leadership.
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I mean, you look at Boris, that is the most E1 guy you ve ever seen.
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His hair, his clothes, his demeanor, it all screams, I m the prime minister, I m talented, and I don t give a shit.
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I just sort of showed up here and it just so happens that I m the most powerful man in the country.
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And this is everywhere in England, and it s rewarded.
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So I think this is why you re seeing the same guys leading in government and leading in business.
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They all went to the same schools, they all basically went to Eton, and they all went to the same universities, which was Oxford or Cambridge, and they all learned the same thing, which is, it s good to succeed, but the best thing is to never try while you do it.
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To be accidentally successful, the impression of being accidentally successful.
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Yeah, there s also one thing I ve noticed in the limited business meetings I ve had is that meetings in New York, people are very much, okay, what are you doing?
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This is what we re doing.
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Okay, it was nice to meet you, but I don t see a fit here.
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Great, onward.
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Maybe I ll see you at Zero Bond or do you know so-and-so.
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People generally, capitalists, how can I help you?
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How can you help me?
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No, I don t like this, let s move on.
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Or, this is great.
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How do we make money together?
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Let s get on it.
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And on your way home, you ll start sending them emails.
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They ll start sending you emails.
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Whenever I ve done anything resembling a business meeting in the UK, it was just so lovely to meet you.
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I think every meeting went modestly well.
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And three or four days later, I ll get a meeting saying, we should definitely follow up.
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I ll send you some dates for fall.
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It s like an indefinite maybe.
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And the way I would describe Ed Elson and every other ambitious young person in the UK is I think you re gonna be successful in the UK.
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I do think there s opportunity there, but the way I would describe it is you ll reach that level of success at 40 versus 30 here in the US.
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I mean, the flip side is my father, despite his lack of education, always just had real insight.
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And he said to me, he said, Scott, America is a terrible place to be stupid.
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And what he was saying is this country believes in winners and losers.
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And if you re stupid here, you re gonna fall further faster than in Europe.
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But at the same time, if you re smart and you re hardworking, there s no mowing the lawn or trimming the daisies or kind of cutting people down, which I think is what happens.
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You re supposed to kind of wake up and be accidentally rich in the UK.
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That s why they re all, I mean, they re all rich, children of rich people.
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That s why they have that opinion.
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Dynastic wealth.
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Exactly.
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that to step out of your class is uncouth.
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It s like unappealing.
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And you can even feel some of it in the U.S.
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based on geography.
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There s a European kind of similar sensibility on the East Coast.
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I remember when I first moved back to New York and I was single and people would try and set me up, they would say, she comes from a good family.
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I m like, I could give a shit with like the family.
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I don t wanna meet the family.
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I don t care.
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I m gonna make my own.
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People on the West Coast brag about having poor parents.
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They re proud of the fact that they came from nothing, whereas on the East Coast, and I think it s much more European, your background, your roots, your dynasty are much more important.
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But there s a culture there that I think the route for the most successful people, you know, remember the kind of the Silk Road or whatever, all these trade routes, there is a trade route in human capital.
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The most talented people in the world
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get to the biggest city in their nation.
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Then they get to London, Shanghai, Singapore, and then the real ballers, the real ballers end up in New York.
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And then when they decide to, they want a quality of life, they end up in LA or somewhere else in America.
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But the most successful, most ambitious people in the world end up over U.S.
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airspace at some point.
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Let s take a look at the week ahead.
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We ll see data on the Personal Consumption Expenditures Index for April, and we ll also see earnings from Salesforce, Costco, and Dell.
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Do you have any predictions, Scott?
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So I was fascinated by, I don t know if you saw it, but there was a $250 million deal struck between News Corp and OpenAI.
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Yes, way bigger than all the previous ones.
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Yeah.
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And I think this is a big deal because basically it establishes a precedence that these companies who have crawlable data or that have the kind of content that would be good grist for the LLM mill, these prices are going up.
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And I think it s essentially establishing or normalizing the idea that a lot of these content companies are going to be able to find an additional
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incremental revenue stream that ll be very high margin.
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So my prediction is companies like, strangely enough, are coming like Gannett, which has been just gotten the shit kicked out of it.
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A bunch of local newspapers, USA Today, a company like Yahoo.
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I think these companies are going to, I think you re gonna see their stocks appreciate tangibly because out of nowhere, they re gonna find they can get 10, 20, 50, $100 million a year.
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I think you re gonna start to see a bidding war.
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I mean, obviously everyone s kind of, I think the New York Times is being savvy and kind of playing the reluctant bride.
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and is waiting for someone to come in and make him a big offer to be the exclusive provider and then sue everybody else who tries to crawl their content.
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Yeah, and they re suing them now, right?
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That s right.
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A Hearst, a Condé Nast, the folks that just produce a massive amount of crawlable high quality data.
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So what I m interested in is trying to find the beaten down stocks.
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I mean, you could argue the investment thesis around BuzzFeed is just that, although I don t know if they have the volume of high...
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The 10 things to do on a weekend with your dog in Brooklyn, I m not sure that s like amazing.
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That s a valuable piece.
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That s amazing content for the LLMs.
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But the bigger players that have struggled
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to find new revenue sources, this could be a bit of a lifeline.
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And I think you might see, just being very transparent, I was looking at Gannett s stock today.
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I used to own some of the debt, I sold it, but the stock s off substantially over the last five years.
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It s actually up this year.
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But I wouldn t be surprised if they announce we have a new deal with Anthropic or something.
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and we re gonna make 25, 50, and then it might go to 100 million, and it s gonna be 98 points of gross margin, which will quintuple their earnings.
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Anyways, prediction is that we re gonna see some strange and overdue life in the market of kind of mid-tier media companies that have a lot of content that these LLMs are going to all of a sudden find value in.
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This episode was produced by Claire Miller and engineered by Benjamin Spencer.
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Our associate producers are Jennifer Sanchez and Alison Weiss.
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Our executive producers are Jason Stavis and Catherine Dillon.
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Mia Silveira is our research lead and Drew Burrows is our technical director.
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Thank you for listening to Prof G Markets from the Vox Media Podcast Network.
5
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Join us on Thursday for our conversation with Lynn Alden, and it ll only be on the Prof G Markets feed.
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So reminder again, subscribe to Prof G Markets if you re still listening to the Prof G pod.
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