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The support for this show comes from Fundrise.
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The Fundrise Innovation Fund is democratizing an asset class that used to be available to a tiny subset of investors.
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This is a paid sponsorship.
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Today s number one.
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This is our first episode on our brand new Prop G Markets feed.
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Ed, I ve decided to class it up a little bit.
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No more profane, inappropriate jokes.
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This is where you talk, Ed.
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This is where you speak.
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I was waiting for a punchline.
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All right, all right, all right.
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You know me too well.
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Ask me why they call it Girls Gone Wild.
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Why do they call it Girls Gone Wild, Scott?
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Because when girls go wild and not women, they show their tits.
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When women go wild, they drown their kids in a tub and murder their husbands.
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We re back, ladies and gentlemen.
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That s what you can expect.
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That s good.
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Double the profanity.
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Okay.
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Double the likelihood of being canceled.
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We re just going to take a quick five second break and find out if our producer is okay with this.
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Hold on.
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We ll be back in a second.
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Everyone s traumatized.
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All right, Ed, here we are.
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Prof G Markets has gone to twice a week.
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What does that mean?
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I don t even know what that means other than we re doing it twice a week.
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How s it different?
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Well, this is our new Prof G Markets feed.
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If you re tuning in from the new feed already, thank you.
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If you re listening on the old Prof G Pod feed, be sure to subscribe to Prof G Markets to receive a new markets episode every Thursday.
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Thursday s episodes will run exclusively on the Prof G Markets feed, not on the Prof G Pod feed.
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And we have some pretty incredible guests lined up.
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I kind of want to disclose them
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now, but maybe we should save it.
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Oh, disclose it.
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Like, discretion is not our call sign here, Ed.
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Who do we have coming on?
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I m just going to give everyone a hint.
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OK.
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My hint is biggest hedge fund in the world.
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Do with that what you will.
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Wow.
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I don t even know who you re talking about.
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Great.
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I m excited to meet him or her.
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Is it Cathie Wood, the ultimate grifter?
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Is she coming on?
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Let me guess.
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She s now managing $10 trillion.
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Yeah.
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She s a huge fan of us now, after you railed against her for the past three years.
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Jesus.
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Like, all I gotta do is spew total nonsense about hash rates and wear chunky glasses and I can manage $3 billion?
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It s pretty much who you are, but yeah.
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Anyways, okay, so today, today we re discussing a meme stock comeback and ex-AIs deal with Oracle.
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Here with the news is Prop G media analyst Ed Elson.
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Let s start with our weekly review of Market Vitals.
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The S&P 500 hit a record high, the dollar fell, Bitcoin rose, and the yield on 10-year treasuries declined.
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Shifting to the headlines.
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The Consumer Price Index showed inflation cooled in April, increasing just 3.4% from a year earlier and easing slightly from March.
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Following that news, all three major indexes closed at record highs.
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At its annual IEO Developer Conference, Google rolled out a new feature that uses AI to summarize search results at the top of the page.
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The AI overviews feature will push links to other websites further down in the results, which could potentially hurt publishers that rely on the search engine for traffic.
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OpenAI unveiled an update to the AI model that powers ChatGBT.
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GBT 4.0 will be faster and cheaper than previous versions, and it ll give all users the ability to have a voice chat in real time with ChatGBT.
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Two days after that announcement, the company s co-founder and chief scientist, Ilya Sitskeva, announced he was leaving the company.
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And finally, Comcast is offering a new bundle, which will tie up Peacock, Apple TV+, and Netflix.
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The bundle called StreamSaver, which is expected to debut later this month, will provide the streaming services at a significant discount compared to subscribing to each service separately.
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Scott, your thoughts.
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So it feels like inflation, I don t know, it cooled in April for the first time in six months.
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Analysts now expect two rate cuts.
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God, I m so sick of talking about rate cuts.
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And the market doesn t seem to care.
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The S&P hit its 23rd all-time high this year and has surged over 20% since October of 2023, adding $10 trillion market cap.
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I was thinking about the Biden campaign, and I think they ve done such a terrible job of getting the message out there around just how incredibly strong
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the economy is.
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I think what they ve pulled off here is what we refer to as the Goldilocks economy.
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I think it s just incredible.
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Any thoughts from you on state of the economy or inflation?
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Yeah, I mean, I think the thing to remember with this report is, yes, it dropped, but it barely dropped.
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I mean, it went from 3.5% to 3.4%, which is basically a rounding error.
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And just one other point on the accuracy of this inflation data.
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If you look at the itemized CPI report,
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There s one category that stands out as especially bad, and that s shelter, i.e.
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rent.
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Rent is up 5.5%, gas is up 1%, food is up 2%, it s really high.
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So it appears that rent is kind of out of control, and it s actually what s driving these high inflation numbers every month.
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It makes up a third of the weighting of the CPI.
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Now, here s the thing.
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that data probably isn t totally accurate.
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And the reason I say that is that if you look at price increases on Zillow, as we know, Zillow has this massive rental database, and it even has its own rent price index.
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Prices on Zillow have risen only 3.7%, which is
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drastically lower than the official CPI number.
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So I think this brings up a pretty important point about CPI accuracy, which we should mention, which is that these numbers aren t actually exact measurements.
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They re actually just based on these surveys that are conducted by the government.
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And in the case of rent, the way that they do that is they go to existing homeowners and they ask them, how much do you think you d charge if you were to rent your house out today?
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Even if these homeowners had no history of renting.
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And that gives us a rough idea of price inflation, but I place emphasis on rough.
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It s not an exact reading.
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So I think two takeaways here.
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One, I think that 3.4% number is a little high.
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And two, we should just never take these numbers totally at face value.
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They should paint a picture of where things are headed for inflation, but they re not the exact truth.
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And it s always good to look for other data providers.
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In the case of rent, Zillow is a great place to start.
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But let s move on to these
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AI announcements, Google had its developer conference, and OpenAI announced Chow TPT 4.0.
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Thoughts on those two announcements?
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I was really just fascinated by this OpenAI basically becoming, I mean, it really is the movie Her.
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The first thing I thought is, this is absolutely a Siri and Alexa killer.
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And Siri, I would argue, is one of the worst tech brands of the last decade.
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It just consistently never lived up to the expectations you would have for a product from Apple.
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It s probably the most, I would argue, the most disappointing
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Apple product until the mixed reality headset, which will go down as one of its biggest failures.
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By the way, when do we get to actually call that thing DOA?
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Anyways, another talk show.
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But what s super interesting here, and it kind of sent chills down my spine thinking about it, is that essentially it s going to become more human-like.
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When you think about why you go to the media, you go for news, right?
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But almost everyone has access to the same news, unless you re spreading misinformation or disinformation, which is kind of their new go-to so they can pretend it s news and act like they ve discovered something new when they haven t.
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They just made up something.
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Oh, Dominion voting machines are linked to Hugo Chavez.
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No, that s not news.
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That s a lie.
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But real news is very hard to find, and it s very difficult to differentiate a media product on news, right?
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We don t differentiate on news.
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We take other people s news and try and provide some insight or perspective, which is really just Latin for voice.
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Most people go to a media outlet for voice, and that is a take on things, or insight, or humor, or no voice.
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I really like Reuters, because I find Reuters is kind of just the fax man, right?
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I also like The Economist because I find it very dry and looks at stuff through sort of a capitalist lens.
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Anyways, what it got me thinking about is the voice, if you will, of chat GPT-4 Omni or O. Every morning I could just say, hey, give me today s business news in the voice of Reuters.
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And I ll be able to say it just similar to what I used to do with Alexa.
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And what this does is it s gonna fulfill the dream of these big tech firms that are increasingly consolidated.
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And that is what Google hated was that you left Google.
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you type in lowest airfare from New York to St.
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Barts, right?
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And it would bring up a bunch of paid for sites, including United, including JetBlue, and then you would leave and go to JetBlue.
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And then they said, no, no, no, we don t want anyone leaving.
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So they started sending you to other components of Google, and Google has Google Flight or Google Travel, so they could further monetize it.
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Now,
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I think this could be really bad news for media organizations, because at some point it just might be easier for me to go, give me a view on campus protests in the voice of Anderson Cooper, and I won t need to go to the CNN site.
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It ll just keep me right there.
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So this kind of blows my mind that there s going to be an even greater consolidation and a concentration of power
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or a seeding of power from traditional media outlets to these compute or these AI-driven compute-powered LLMs, where you ll be able to instruct them almost effortlessly, hey, Omni, or whatever they re going to call this thing, or hey, Gemini, give me today s business news on the UK
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in the voice of the Wall Street Journal with a mix of humor from Monty.
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I mean, you re going to be able to create your own media company, and because they ve crawled every other media company,
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they ll be able to mimic that voice and you ll never need to leave OpenAI.
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And then you think, well, but wait, Scott, there s an opportunity for those media companies to charge a lot of money to license their content for that LLM to create that voice.
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But what I also read that sent shivers down my spine is that there are now LLMs that are creating content for other LLMs to crawl because they re running out of data to crawl.
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So this might be one giant internal walled garden.
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I think the real fear would be for the very, very small publishers.
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And it s possible that with this, you know, you mentioned that this sort of applies to the GPT 4.0 update.
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I think it s most applicable to Google s update with this
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AI overview feature.
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But I think the fear would be that the very, very small publishers who probably don t have the capacity to come up with these licensing contracts with these big AI companies, those are the ones who are going to go out of business.
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You think that s right?
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SIMON Yeah, it s going to be a few big players that have original content that can command something.
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And then very niche players, right?
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Like William Cohen has a great voice and real insight because he was an investment banker.
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So he can kind of look around the corner and say, this is how the Paramount deal might play out because I was an investment banker and this is probably what s going on.
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in the boardroom, you re gonna have to have a really unique, deep voice or just such massive content and reporters all over the world.
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There ll be a space for those guys, but there ll only be a few of them.
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And then everyone else will just slowly but surely train their LLM or the three or four players with the compute capacity will just train their LLMs to provide you with whatever kind of voice you want.
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You like CNN, no problem.
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We ll perfectly mimic it and you don t need to go anywhere.
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I have an idea and I want you to respond to it.
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We have an enormous deficit, we have huge externalities, or potential externalities from AI, we have a massive concentration in wealth and power.
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What if we put, similar to the way we ve put taxes on gasoline, if in fact, big tech are the new sort of compute energy companies providing energy to four or five, or there s basically Saudi Aramco, Chevron, Exxon, Shell, et cetera.
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What if we, just as we do with gas, we tax compute?
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I love that idea, but it reminds me of, I mean, the same idea was floated several years ago when we were all saying that data is the new oil.
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Now it seems like we re saying compute is the new oil.
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But, you know, there was this idea of the data dividend, and that was put forward in California by Gavin Newsom.
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It didn t gather steam.
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I think it s probably a result of the lobbying power that nothing was able to go through.
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But I think that makes total sense to me.
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I mean, as we re slowly learning on this podcast, it s basically a commodity in the same way that all these utility companies get taxed.
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I mean, a data dividend made sense.
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I think a compute dividend made sense as well.
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But just I want to shift over to GPT-4.0.
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it s pretty incredible and I don t think us describing it really does it justice.
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So what I would recommend to our listeners is if you want to get a real sense of this thing, just go on YouTube and watch the demo of the real-time translation.
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They basically have a conversation in English and Italian between the CTO and one of the researchers and the GPT just translates the whole thing.
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It basically just shows you this technology is
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gonna shatter language barriers.
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Every time you hear English, I want you to translate it to Italian, and if you hear Italian, I want you to translate it back to English.
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Is that good?
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Perfetto.
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Mike, io mi chiedo se le ballene potessero parlare, cosa ci direbbero?
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Mike, she wonders if whales could talk, what would they tell us?
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They might ask, how do we solve linear equations?
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Potrebbero chiederci come risolviamo le equazioni limiari.
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Now, the other news on OpenAI is that Ilya Tsitskeva, who s the chief scientist and the co-founder, he is leaving the company.
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And you might remember about six months ago, Ilya was one of those board members who moved to oust Sam Altman, who s the CEO.
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He later reversed course.
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He said, quote, I deeply regret my participation in the board s actions.
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Now he s leaving altogether.
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What are your thoughts on this?
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And do you think this has to do with the board drama from back in November?
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He had less chance of surviving than Purgosian.
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I mean, if you stab the prince, you better kill him.
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And he stabbed the prince.
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And then the true owner of OpenAI, Satya Nadella, said, no, I want Sam back.
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And you think Sam was gonna say to this guy, oh, Ilya, we all make mistakes.
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I m the next Steve Jobs and you fired me, but no, let s let bygones be, you know, spilled milk.
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No, that guy was gonna go down.
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So it s no surprise.
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I m sure he s going to make billions from his stake in open AI and has a very, I got to imagine he s getting a few calls saying, hey, would you like to come run, you know, whatever it is, llama.
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My guess is he s a fairly employable person.
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But yeah, he was on the green mile.
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the moment that Microsoft called and said, no, you guys fucked up and you need to hire Sam back.
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And once this guy realized Sam was coming back, he tried to say, oh, I m really sorry.
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Stand in front of the judge and say, don t sentence me to death.
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I m guilty.
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And I throw myself at the mercy of the court.
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But he was on the green mile the moment that happened.
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and this streaming bundle, Apple TV+, combined with Peacock, combined with Netflix.
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I think what s pretty interesting here is the timing.
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I mean, this is coming less than a week after the same announcement was made by two other media giants, which we reported last week.
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Disney and Warner Brothers Discovery are teaming up to create their own, call it, mega streaming bundle.
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And now this is happening less than a week after.
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So,
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I d love to get your thoughts on this.
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To me, it feels highly coordinated.
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I mean, I can picture a scenario where all these big media execs got together and they said, hey, you know, things aren t going great for us individually, so let s just split into two teams.
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We re going to put Bob and David on this side, Ted and Brian on this side.
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We ll combine forces and hopefully that ll solve our unit economics problem.
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You ve worked with some of these people, I think, or at the very least, you know them.
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Do you think that s how this all went down?
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I think that essentially they re kind of running out of new subscribers, so they need pricing power, and one means of pricing power is consolidation.
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Basically, it strikes me that what s old is new again.
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It just feels like cable all over, where they re bundling, and pretty soon you re not going to be able to... These companies have a problem, because they would sign up for Apple TV+, download the season of Ted Lasso, and then cancel.
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And when they bundle, they ve probably done the math and said, OK, when we bundle, it s almost impossible to cancel because you can t disarticulate.
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It s like that South Park episode where someone s saying, I don t want the Food Channel 8.
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SPEAKER_03
We want specific networks dropped from our cable.
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SPEAKER_03
Oh, you have to pay for the bundle.
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SPEAKER_03
You can t just pay for what you want to watch.
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SPEAKER_03
Darn it.
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They make these bundles that are impossible.
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It s like, you know, there is no perfect human, they re bundled, right?
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And you can t have certain attributes of an individual, except maybe with chat GPT for Omni, you re gonna be able to say, oh my God, I just thought about it.
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If your spouse is not home, but you re lonely, you re gonna be able to say,
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please have Scott here, but without the anger and the depression.
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Oh my God, this is gonna get very strange very fast.
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Okay, anyways.
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Yeah, this is, they re bundling, which will give them pricing power and lower their churn.
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And my guess is in exchange for bundling across the pipes, it s just cable all over.
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We re ending up with more channels than we need, and we won t be able to cancel because even if you don t want Paramount, or even if you don t want Apple TV+, which people can live without,
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SPEAKER_01
You re not going to be able to cancel.
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You know, the Food Network 6.
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We ll be right back after the break with a look at GameStop.
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Support for this show comes from Fundrise.
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Venture capital has been one of the unsung heroes of our economy for decades.
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Go look at the S&P 500.
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Nearly every major tech company on that list was once venture backed.
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Venture funds saw their investments in those generational companies skyrocket in value at unimaginable multiples.
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The technology boom since the late 90s made venture capital the highest performing asset class in the world over the past 25 plus years.
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The hard truth, however, is that the biggest venture funds were almost entirely funded by institutional investors like endowments and sovereign wealth funds.
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Unless you knew a guy who knew a guy, you and most other investors could not get in early.
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That meant missing out on hundreds of millions, if not billions of dollars of each company s growth.
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The Fundrise Innovation Fund is changing that.
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It s designed specifically for individual investors, aiming to bring its portfolio of technology leaders, disruptors, and pioneers to as many investors as possible.
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Now you can get in early.
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Relevant disclaimers can be found at the end of the show and at fundrise.com slash innovation.
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We re back with Profgy Markets.
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SPEAKER_00
Meme stock mania returned last week, if only for a few days.
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The rally began after Keith Gill, commonly known online as Roaring Kitty, posted a picture of a gamer on X, formerly known as Twitter.
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As you may recall, Gill played a key role in igniting the frenzy back in 2021 and driving GameStop stock up more than 1,700% in a matter of weeks.
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His post on Sunday night was his first since that year,
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and followers quickly took it as a sign to start buying GameStop again.
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After the opening bell on Monday, GameStop s price swung so violently that trading was halted nine times in just over an hour.
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SPEAKER_00
Shares ripped as much as 118% that day, and other meme stocks took off too, including AMC.
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By Tuesday, those two companies had added roughly $11 billion in value, but the rally was short-lived.
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On Wednesday, those stocks lost $4 billion.
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SPEAKER_00
So, Scott, we should note that things could change again by the time our listeners hear this, but it does appear that GameStop is coming back down to earth now.
2
SPEAKER_00
Do you think that is the end of the rally, or is this not over yet?
2
SPEAKER_01
Oh, who knows?
2
SPEAKER_01
It s just so insane.
2
SPEAKER_01
I mean, GameStop today is off 23%.
2
SPEAKER_01
It s at 30.
2
SPEAKER_01
and it peaked at 65 two days ago.
2
SPEAKER_01
So it s lost, it was up almost fourfold, and it s lost half its value.
2
SPEAKER_01
I mean, this really is, at this point, this is just pure speculation.
2
SPEAKER_01
So I would imagine, it feels like we re living through this but in faster cycle time, because
2
SPEAKER_01
The market said, oh, you know, Roaring Kitty is back.
2
SPEAKER_01
The stock s going to go way up.
2
SPEAKER_01
People piled in and they said, OK, but we also know how the movie ended the last time and it ll be the same here.
2
SPEAKER_01
Let s get out sooner.
2
SPEAKER_01
And you re already starting to see the return to earth of the gravity.
2
SPEAKER_01
It feels as if it feels as if it s just the same thing playing out much faster.
2
SPEAKER_01
What are your thoughts?
2
SPEAKER_00
I think this brings up really interesting questions about market manipulation and securities fraud, because what s happened here is pretty unprecedented.
2
SPEAKER_00
You have a guy who has no actual affiliation with GameStop, but who is
2
SPEAKER_00
through the internet and through live streaming, just sort of culturally affiliated with the company.
2
SPEAKER_00
And he posts an arbitrary benign photo.
2
SPEAKER_00
And then overnight, he adds $3 billion in market cap to the company.
2
SPEAKER_00
And there s no question that it s all because of him.
2
SPEAKER_00
Now again, the photo didn t say anything about GameStop, but I feel like he must have at least suspected it would do something to the stock.
2
SPEAKER_00
I mean, he hasn t posted anything in three years and he s famous as the GameStop guy.
2
SPEAKER_00
So here s just a thought experiment for you.
2
SPEAKER_00
Let s say he bought a bunch of GameStop call options before he posted that tweet.
2
SPEAKER_00
And then after the stock exploded, he sold it all for a profit.
2
SPEAKER_00
Do you think that should count as securities fraud?
2
SPEAKER_00
And to be clear, whether or not it actually is fraud, legally speaking, is currently being debated by legal analysts, people who have more expertise in this than we do.
2
SPEAKER_00
But my question for you isn t whether it is fraud, it s whether you think it should be fraud.
2
SPEAKER_01
It s an interesting question, but I think ultimately where I end up is no, because the easy one is you have material insider information.
2
SPEAKER_01
I m on the board of a company, I know the earnings are gonna be great, and the day before the earnings, I go out and buy stock.
2
SPEAKER_01
I have an edge over public investors, that s insider trading.
2
SPEAKER_01
That s an easy one.
2
SPEAKER_01
Market manipulation is if, Ed, you were to announce that you re buying, you re gonna put a bid in at 12 bucks a share for Warner Brothers tomorrow,
2
SPEAKER_01
and you are a Carl icon and you have some credibility doing that, and then you buy the shares, it runs up, you sell the shares, and it comes out that you actually had no intention of buying the stock.
2
SPEAKER_01
That s market manipulation.
2
SPEAKER_01
In this instance, I think it d be a pretty serious leap legally to say that a picture of a guy leaning forward is saying to the market, I m doing something.
2
SPEAKER_01
I mean, this is a tough one.
2
SPEAKER_01
I guess the argument they would make is that it s clear you re about to go in.
2
SPEAKER_01
and buy the stock?
2
SPEAKER_01
I don t know.
2
SPEAKER_01
I think this would be a really tough one.
2
SPEAKER_01
I think this is free expression.
2
SPEAKER_01
He doesn t have any material inside information.
2
SPEAKER_01
Is he trying to manipulate the market?
2
SPEAKER_01
We don t know when he bought, when he sold.
2
SPEAKER_01
He s basically just saying, I think he would say he s trying to draw attention to the stock again, or he s thinking about getting involved.
2
SPEAKER_01
And that s his right as a consumer to
2
SPEAKER_01
buy shares and sell shares when he wants, they d have to make the connection that he s trying to fool or mislead people such that he can profit off of false statements.
2
SPEAKER_01
I think this would be a really tough one.
2
SPEAKER_01
It gets into intention and state of mind, which would be really difficult to prove.
2
SPEAKER_01
And also, to a certain extent,
2
SPEAKER_01
It s sort of buyer beware.
2
SPEAKER_01
The people who buy a stock at 60 bucks in a company whose underlying fundamentals don t justify that price and then they lose money.
2
SPEAKER_01
Is a jury really going to feel sorry for them?
2
SPEAKER_00
I mean, it s tough.
2
SPEAKER_00
It sounds like a lot of what you re saying, I m trying to figure out why you believe that this is okay as opposed to other pump and dump schemes.
2
SPEAKER_00
And it sounds like a lot of it has to do with
2
SPEAKER_00
One, he didn t lie about anything, so he s not misinforming anyone.
2
SPEAKER_00
And two, it sounds like a lot of your belief has to do with the fact that he s not an insider, that he s not actually inside the company, so he kind of has a right, as an outsider on the company, to sort of say whatever he wants.
2
SPEAKER_00
Would that be the right characterization?
2
SPEAKER_01
Basically, almost every person who goes on CNBC is pumping.
2
SPEAKER_01
They re talking up or talking down a stock based on their own financial interests.
2
SPEAKER_01
Some are independent analysts, but a lot of them own stock.
2
SPEAKER_01
When Keith Rabois went on CNBC and started spreading misinformation about Opendoor,
2
SPEAKER_01
that wasn t true, and to her credit, Deirdre Bolson fact-checked him real-time and said, no, this company is not profitable, you can t say that.
2
SPEAKER_01
And he threw a fit.
2
SPEAKER_01
And he started saying she was stupid or crazy.
2
SPEAKER_01
In my view, that is closer to securities fraud, given he obviously has a financial interest in the company.
2
SPEAKER_01
And my guess is he s been selling like crazy since it peaked whenever two years ago.
2
SPEAKER_01
My guess is that s much closer to securities fraud than a guy putting out a sketch of someone leaning forward.
2
SPEAKER_01
I think this is, I think this is a tough one.
2
SPEAKER_00
Just to finish out this scenario, I mean, assuming he bought the options beforehand and then he posted the photo and then he sold, that would assume, or that would, I think a jury would say, okay, this wasn t just a
2
SPEAKER_00
you know, benign photo, there was clearly intent there.
2
SPEAKER_00
He knew that he was going to profit off of it.
2
SPEAKER_00
And I think the argument to criminalize this would be that it generally erodes our faith in markets.
2
SPEAKER_00
If a dude who has all of this internet power can become a center millionaire overnight just because he s associated with GameStop and he has a large megaphone on his Twitter platform,
2
SPEAKER_00
and he takes that stock up by $3 billion in 24 hours, it s sort of a signal to the rest of us investors that the market isn t totally serious and it can be manipulated and controlled by random guys in their basement.
2
SPEAKER_00
Do you think that that s enough of a case to argue for criminalizing?
2
SPEAKER_01
I don t, because if somebody claims they re about to put in a bid at $14 a share for a stock that s trading at $8 and it goes to $12, and it ends up they weren t sincere and didn t have, I think that Elon Musk stating that he was taking his company private at $420 and that funding was secured,
2
SPEAKER_01
I think that is securities fraud.
2
SPEAKER_01
He is claiming that he has the capital lined up to take a company
3
SPEAKER_01
private at $420 a share and the stock popped and he got wealthier.
3
SPEAKER_01
And then the people who believed him and tried to pile into the stock thinking they were going to make money, that he was telling the truth, later found out he did not have funding secured.
3
SPEAKER_01
I think that is securities fraud.
3
SPEAKER_01
If this guy says, so let s take the leap.
3
SPEAKER_01
He s saying, I am buying the stock.
3
SPEAKER_01
Okay.
3
SPEAKER_01
And he thinks that because I am buying the stock, that it s about to ignite a rally that s gonna go up.
3
SPEAKER_01
He s not lying.
3
SPEAKER_01
I mean, first off, we don t know if he s sold, right?
3
SPEAKER_01
As far as we know, he kept buying thinking that him, the roaring kitty being back would take this thing to a hundred bucks a share.
3
SPEAKER_01
So I think this is really a tough one.
3
SPEAKER_01
What you re trying to make is the leap that
3
SPEAKER_01
a drawing of him being interested again in a stock would naturally take it up, and he knew that.
3
SPEAKER_01
And then the other assumption is that when the greater fool theory kicked in, he got out.
3
SPEAKER_01
Well, again, I think you re gonna have to show harm to people who were fooled.
3
SPEAKER_01
And it s like, well, you saw what happened before.
3
SPEAKER_01
You saw the stock go up, you saw it go down again.
3
SPEAKER_01
there s no underlying dynamics here.
3
SPEAKER_01
There was no tangible offer to take this company private or anything that would indicate it was worth more, that the intrinsic value had gone up, but only that this person was interested again.
3
SPEAKER_01
And we don t know if he ever sold.
3
SPEAKER_01
As far as we know, we don t know if he bought, and we don t know if he sold.
3
SPEAKER_01
And even if he did,
3
SPEAKER_01
I ll use you as an example.
3
SPEAKER_01
You go on CNBC and you say, I m really interested in AT&T and the stock pops and you see the stock pop and it goes down and they go, well, you just said you were interested to see the stock pop.
3
SPEAKER_01
Is that market manipulation?
3
SPEAKER_00
I don t think it is.
3
SPEAKER_00
Yeah, it s a tough one.
3
SPEAKER_00
I don t have the answer.
3
SPEAKER_00
Just a larger question on meme stocks.
3
SPEAKER_00
I mean, this idea of meme stocks is new.
3
SPEAKER_00
It was kind of a pandemic era phenomenon.
3
SPEAKER_00
It began because of,
3
SPEAKER_00
the GameStop saga and this guy Roaring Kitty.
3
SPEAKER_00
In fact, that s when we invented the word meme stock back in 2021.
3
SPEAKER_00
At the time, it seemed sort of like a one-time event.
3
SPEAKER_00
It sort of came and went.
3
SPEAKER_00
But since then, we ve seen lots more of it.
3
SPEAKER_00
We ve seen AMC, BlackBerry, Bed Bath & Beyond, Truth Social, now GameStop again.
3
SPEAKER_00
This keeps on happening.
3
SPEAKER_00
Do you think meme stocks are just a permanent feature of capital markets today?
3
SPEAKER_00
Do you think they re sort of here to stay?
3
SPEAKER_01
I think the idea, the financialization of everything and the politicization of everything combined with access to phones and real-time trading 24 hours or, you know, they re talking about taking the markets to 24 hours, the lack of friction to buy and sell stocks, yeah, I do think it s here to stay because
3
SPEAKER_01
As long as there s markets, there s going to be people trying to create hysteria or create momentum around those markets such that they can profit.
3
SPEAKER_01
And the question is, do they have insider information or are they manipulating the market to their own benefit?
3
SPEAKER_01
And then the term market manipulation is going to take on sort of what you re saying is it needs to go further downstream and maybe have new inclusion of new activities potentially around what is market manipulation.
3
SPEAKER_01
But then the question, if you were to find this guy guilty of market manipulation, then anyone going on CNBC, what you re essentially saying is if they had more influence, they would be accused of market manipulation.
3
SPEAKER_01
But because no one really gives a shit what they think, and they can t move the markets, they re not guilty of market manipulation.
3
SPEAKER_01
So his guilt is a function.
3
SPEAKER_01
of his authority and his power.
3
SPEAKER_01
So I think that s a really tough case to make.
3
SPEAKER_01
I think meme stocks are here to stay.
3
SPEAKER_01
And I think what people are looking for here, I don t think we should infantilize the people buying these stocks.
3
SPEAKER_01
I think if they look at the stock chart here and they know anything or they ve seen the movie, Dumb Money,
3
SPEAKER_01
They know this is gambling.
3
SPEAKER_01
This is a pyramid scheme, right?
3
SPEAKER_01
It s fun.
3
SPEAKER_01
Someone s gonna get hurt.
3
SPEAKER_01
Someone s gonna get hurt.
3
SPEAKER_01
This is bungee jumping at night when the instructor isn t around and no one s tested the ropes and everyone s on X. It s probably a lot of fun and it could be amazing, but there s a really good chance someone s gonna get hurt.
3
SPEAKER_01
And they know this.
3
SPEAKER_01
These folks are skydiving without a backup parachute.
3
SPEAKER_01
I mean, this is...
3
SPEAKER_01
And the markets are, you are in the most volatile stock ever.
3
SPEAKER_01
You re in a stock that s going up 100% and getting cut by 50% the next day.
3
SPEAKER_01
It s just unlikely you re gonna have a lot of widows up there saying, I didn t know I invested my pension in this.
3
SPEAKER_01
It s like, well, really?
3
SPEAKER_01
You didn t know?
3
SPEAKER_01
So I don t, I think this is what it is.
3
SPEAKER_01
It s gambling.
3
SPEAKER_01
Some people will make money.
3
SPEAKER_01
Some people will lose money.
3
SPEAKER_01
I don t see how you stop it.
3
SPEAKER_01
When do you decide a stock is a meme cup?
3
SPEAKER_01
Is Nvidia a meme stock?
3
SPEAKER_01
He s throwing big events and people are excited about the future and they re talking up the future and they re talking about the future of AI and how it s going to be the next big thing.
3
SPEAKER_01
And he s talking about biology and how basically he s saying Nvidia, that his chips are going to start to cure disease.
3
SPEAKER_01
That s effectively what he s saying now, that the biggest opportunity for AI is in biology.
3
SPEAKER_01
Well, OK, that sends the stock up beyond an irrational level.
3
SPEAKER_01
And my guess is he s selling.
3
SPEAKER_01
Is he guilty of market manipulation?
3
SPEAKER_01
So I just don t see how you could go there.
3
SPEAKER_01
I think the SEC would rather say anyone who files a plaintiff s lawsuit is like, we can t wait to get those shareholders on the stand and have them tell the sob story.
3
SPEAKER_01
of how they thought they were going to make a bunch of easy money on a movie theater stock, but they feel like they were taken.
3
SPEAKER_01
I just don t think that makes... It s like these people would make for... These people would be worse witnesses or less credible witnesses than Stormy Daniels and Michael Cohen.
3
SPEAKER_01
They would be less sympathetic witnesses than Michael Cohen, who used to tell people, I m going to kill you.
3
SPEAKER_01
It s going to be sad what I m going to do to you when he was working for Donald Trump.
3
SPEAKER_00
Just a final question on meme stocks.
3
SPEAKER_00
I mean, you say this is here to stay.
3
SPEAKER_00
A lot of this feels pretty silly, like Roaring Kitty, GameStop, AMC.
3
SPEAKER_00
It feels like, you know, we re talking about dumb stuff.
3
SPEAKER_00
I mean, the movie was called Dumb Money.
3
SPEAKER_00
Do you think, though, that this is the kind of thing that all investors need to start educating themselves on, meme stocks?
3
SPEAKER_00
And just to draw this out into a hypothetical, say you are looking for a new wealth manager or a new investment advisor, would you consider it a basic requirement
3
SPEAKER_00
that he or she understands meme stocks.
3
SPEAKER_00
They understand the dynamics of meme stocks.
3
SPEAKER_00
They can more or less identify the relevant trends in meme stock world.
3
SPEAKER_01
If you ask your financial advisor, would you ever invest me or anyone else in a meme stock?
3
SPEAKER_01
And he says yes, then you ve got the wrong financial advisor.
3
SPEAKER_01
And also...
3
SPEAKER_01
Just keep in mind, if you want to invest in a meme stock, have at it.
3
SPEAKER_01
Just keep in mind you re gambling.
3
SPEAKER_01
So look at it as how much money would you take down to the casino?
3
SPEAKER_01
And assume you re going to lose most or all of it.
3
SPEAKER_01
And if it s fun, and I do think it s fun, then fine.
3
SPEAKER_01
But be clear, you re not investing.
3
SPEAKER_01
You re not investing.
3
SPEAKER_01
And any financial advisor that would ever invest in a meme stock outside of buying a huge basket
3
SPEAKER_01
of stocks that might include a meme stock because they re investing in mid or small cap companies should not be your financial advisor.
3
SPEAKER_00
We ll be right back after the break with a look at a new deal between Elon Musk s AI startup and Oracle.
3
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
AI may reshape the world economy as much as the Industrial Revolution, yet you probably won t be able to invest in it.
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That s because most of the AI revolution is being built and funded in private markets.
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OpenAI, Anthropic, and Databricks are all private companies.
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The vast majority of AI startups are going to be backed and owned by venture capitalists, not public investors.
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The Fundrise Innovation Fund is on a mission to level the playing field.
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Relevant disclaimers can be found at the end of the show and at Fundrise.com slash innovation.
3
SPEAKER_00
We re back with Profit Markets.
3
SPEAKER_00
Elon Musk s artificial intelligence startup, XAI, is negotiating a $10 billion deal to rent cloud servers from Oracle.
3
SPEAKER_00
Oracle shares rose more than 5% after the information reported that potential deal.
3
SPEAKER_00
While negotiations progress, XAI is also finalizing a $6 billion equity funding round.
3
SPEAKER_00
But the company will need even more capital than that if a deal is struck and if XAI becomes one of Oracle s largest customers.
3
SPEAKER_00
Scott, another AI startup partnering up with another big tech company on cloud.
3
SPEAKER_00
We ve discussed OpenAI with Microsoft, Anthropic with Amazon, now XAI with Oracle.
3
SPEAKER_00
What are your initial thoughts?
4
SPEAKER_00
thoughts on this story.
4
SPEAKER_01
You said this, that everything is becoming basically every big tech company is converging and becoming the same company offering compute.
4
SPEAKER_01
And what s interesting is that Oracle is trying to squeeze itself or it s desperately wants to be part of the cool kids club.
4
SPEAKER_01
It wants to be one of the Magnificent Seven.
4
SPEAKER_01
And Larry Ellison is, he s probably, he s one of the most, I don t want to call him underrated, but he s sort of the quiet billionaire in the background.
4
SPEAKER_01
I know that he is Elon Musk s mentor, but that doesn t in any way diminish a $10 billion deal.
4
SPEAKER_01
I think the big winner here is Oracle, because Oracle is getting a $10 billion deal from XAI, and we re still not entirely sure if XAI is going to be able to carve out
4
SPEAKER_01
a unique positioning.
4
SPEAKER_01
My understanding is that so far, Elon is playing catch-up and has basically come out with GPT-2.
4
SPEAKER_01
He hasn t been able to really do anything here that s of the ilk or the quality of his efforts in other categories that he s playing catch-up.
4
SPEAKER_01
But the big winner here, hands down, we don t know if XAI is going to work.
4
SPEAKER_01
What we do know
4
SPEAKER_01
Is it Oracle with a $10 billion contract?
4
SPEAKER_01
That s very good for Oracle shareholders because it doesn t matter if XAI works.
4
SPEAKER_00
The story sort of reminds me of this famous statistic from, I think it was around 2018, which I think you talked about a lot, which is that startups spend roughly 40 cents of every VC dollar on Google, Facebook, and Amazon.
4
SPEAKER_00
Specifically, those 40 cents are going towards ads.
4
SPEAKER_00
Now,
4
SPEAKER_00
I don t know if that stat is still true.
4
SPEAKER_00
It s from a long time ago.
4
SPEAKER_00
It probably isn t.
4
SPEAKER_00
But here we have a very similar dynamic, only this one s far more exaggerated because XAI is raising $6 billion.
4
SPEAKER_00
It plans to spend $10 billion on Oracle, which means in this case,
4
SPEAKER_00
100% of the venture funding is going directly to the big tech company, which is Oracle here.
4
SPEAKER_00
But it could be any cloud company.
4
SPEAKER_00
It could be Microsoft, it could be Amazon, it could be Google.
4
SPEAKER_00
And we know all these other AI startups that have very similar deals with those companies.
4
SPEAKER_00
So my question to you, do you think we re about to witness the same thing here with cloud and AI?
4
SPEAKER_00
And perhaps do you think it s going to be on an even larger scale than before?
4
SPEAKER_01
It s just staggering.
4
SPEAKER_01
I was reading that the amount of money that has been spent in R&D, mostly around cloud-based, AI-driven applications here across the Magnificent Seven is $200 billion, just across the Magnificent Seven, which is equivalent to half of all R&D across all industries in all of Europe.
4
SPEAKER_01
And that just struck me as, oh my God.
4
SPEAKER_01
So one of two things is happening.
4
SPEAKER_01
Either AI is about to be the biggest bubble in history, or a small number of companies are the only ones that are well-capitalized enough to pull this off and are gonna run away with it.
4
SPEAKER_01
It s funny, I do meet people, a lot of people here in London, I ve met several people from Cambridge who love to come up and say, you realize that AI was invented at Cambridge?
4
SPEAKER_01
And I m like, well, smell you boss, how come you didn t make any money off of it?
4
SPEAKER_01
It s just like, okay, yeah, the unwashed masses in San Francisco have made hundreds of billions, but you can tell people that you invented it?
4
SPEAKER_01
I mean, wow.
4
SPEAKER_01
I mean, it s just, it s just so, and I also had someone in Hamburg, I was being claimed that AI was invented in Germany.
4
SPEAKER_01
I m like, really?
4
SPEAKER_01
Well, Guten tag, well, Farfenhugen for you.
4
SPEAKER_01
I m kind of blown away by it.
4
SPEAKER_01
And I m starting to believe that an AI bubble is beginning to form because what happens
4
SPEAKER_01
If the expectations around what you can do with AI at your Fortune 5000 company that makes cardboard boxes or supply materials or textiles, if the AI dream doesn t live up to your hopes to revolutionize your business and you begin reducing your spend, the first quarter that comes out that shows that sort of medium and large size businesses are cutting back their spend on AI,
4
SPEAKER_01
Wow.
4
SPEAKER_01
That could be really ugly around these companies.
4
SPEAKER_00
Yeah.
4
SPEAKER_00
I mean, I wanted to ask you about that because.
4
SPEAKER_00
You know, one read of this news is, wow, AI demand is growing.
4
SPEAKER_00
But another read would be that things are getting super frothy.
4
SPEAKER_00
I mean, $10 billion is so much money.
4
SPEAKER_00
And it feels as though the only reason they re really doing it is to just follow the pack.
4
SPEAKER_00
Anthropic signed a deal with Amazon.
4
SPEAKER_00
OpenAI signed one with Microsoft.
4
SPEAKER_00
Oh, we should sign one with Oracle.
4
SPEAKER_00
Now, when we discussed this earlier this week, you said that this kind of reminded you of Cisco in the late 90s and the early 2000s.
4
SPEAKER_00
Tell us why Cisco comes to mind here.
4
SPEAKER_01
Well, we got very excited around the internet.
4
SPEAKER_01
There was a Netscape browser, then there was Internet Explorer, and it was clear that the internet was gonna be huge.
4
SPEAKER_01
But then somebody realized that Aardvark Pet, which was my e-commerce pet supply company that I started, thinking that there needed to be something, a Williams-Sonoma of pet stores online, my idea, true story, half a million dollars, built the website, sold it,
4
SPEAKER_01
nine months later for $3 million to Patopia, you were, I think, probably, my God, I don t think, were you even born then?
4
SPEAKER_01
Yeah, you were like maybe two or three years old.
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SPEAKER_01
Anyways, when we all realized that this wasn t happening as quickly as we were hoping, that there are a lot of companies that just weren t selling anything, or if they were selling things, they were basically buying consumers.
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They were buying a Furby for $300 for Cybershop and selling it for 99, or they were selling a 70-pound
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a bag of dog food that costs $100 to deliver for $19.99, pets.com.
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And everyone said, okay, the internet might work or e-commerce might work, but it s definitely not gonna work anytime soon.
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The unit economics here are shitty.
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And all the front end B2C stuff crashed.
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But people still thought, okay, but the internet is not going anywhere.
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So what do we do?
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Well, we can invest in B2C.
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Let s find B2B.
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And they started investing in these ridiculous
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b2b platforms icg was one of them that was gonna figure out a way for people who are purchasing supplies In the drinks or the chemicals industry to meet online and that was a total fucking jazz hands Ridiculousness and that thing crashed everyone s like well, okay b2c is not working
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B2B is not working or living up to our expectations.
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What do we do?
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Well, we still believe in the internet.
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Let s invest in infrastructure.
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And everyone piled into Cisco, which became the most valuable company in the world in the late 90s.
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What people forget is it s similar to Amazon.
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Between 1999 and 2001, Cisco and Amazon shed 90%
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of their market value.
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Now they came back, Amazon came ripping back, Cisco never really fully recovered, it came back, but never, never touched those same highs again.
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Amazon came back and more, was one of the winners that got through kind of the valley of death, if you will.
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So the question here is the same thing forming.
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Do we have the same level of excitement that we had in say, 97, 98?
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And then when it appears that
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Every company may not spend tens of millions of dollars to use AI to change the way they do business in any industry.
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And these companies report for the first time that their fairly scant mediocre revenues to date actually are flatlining or even declining.
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You could see the mother of all, you could hear a pop that is a sonic boom.
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AI infrastructure investments, 200 billion, up more than 35%.
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Valuations from the AI boom, right?
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120 times the estimated 20 billion in revenue that Gen AI will add in 2024.
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Now, what s that multiple?
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The combined market value of Alphabet, Amazon, and Microsoft has increased $2.5 trillion.
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So you have $2.5 trillion in increased value during the AI boom, but the increase in revenue has only been $20 billion.
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So the market has valued the $20 billion increase in AI revenues
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at $2.5 trillion, or 120 times revenues.
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The big three cloud providers traded an average P of 38, which is significantly higher than the broader S&P at 23.
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In October of 2022, public AI hardware companies were worth about $1.5 trillion.
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Today, they re worth about $5 trillion, and NVIDIA has accounted for 57% of this increase.
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So if I had
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bigger balls, I think I would probably create a basket of AI companies and think about shorting them because... Big claim.
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Well, this is beginning to feel like 1998.
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And the problem is when guys like me say something is overvalued, that means it usually runs up another 30 or 70%.
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And then I throw in the towel and then it crashes.
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It s very hard to time the markets.
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But I mean, just as we... I do learn a lot on this show.
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Just as we re talking about this and I m reading these numbers,
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I ve been here before.
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This is literally 26 years ago.
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This is 1998, where we know AI is gonna endure.
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We know AI is gonna have a big impact, but has it gotten so far out in front of its skis from a valuation standpoint?
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Just a vibe question, what were people saying about Cisco back then?
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Because, you know, what we re saying, oh, potentially AI is a bubble, that s not new.
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A lot of people have said that.
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I m pretty sure we ve kind of had that conversation several months ago.
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For some reason, no one s saying it that much today.
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It seems like I and everyone else in financial media have been like, oh no, AI is
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it s here to stay.
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But was anyone sort of...
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wondering about Cisco, oh, maybe this is a bubble, maybe this is getting out over at Skis, or was it just everyone just bought in unequivocally?
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It was the safe bet.
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I remember my roommate my junior year in college, Mike Vogt, smart guy, and I remember him talking to him when I was an entrepreneur, and he s like, I m not smart enough to figure out which internet company is gonna win or lose, so I just put all my money in Cisco, because that s infrastructure.
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So essentially everyone just thought it was their default safe bet.
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Invest in the steel in the ground, invest in the pipes.
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Sounds like NVIDIA, no?
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That sounds like that s NVIDIA.
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You re learning.
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You re learning.
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That s exactly right.
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That s the correct question.
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Is NVIDIA the Cisco of 2024?
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That s the correct question.
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And the thing that makes me believe that it might be is no one is saying that.
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It s the same universal chorus right now.
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Everyone s barking up the same tree, and that is the infrastructure plays, the few cloud providers are kind of a can t-lose proposition, which means they could get cut in half really easily.
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Now, the thing about the biggest players is they have very diversified businesses and incredible business lines that diversify them, or they give them other cash flows from other things.
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But that, I mean, the number, I just want to repeat it again because it s so staggering, the AI offerings from the big
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kind of the biggest players, Alphabet, Amazon, and Microsoft, their total revenue from those generative AI applications is $20 billion.
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And yet their market capitalizations have increased $2.5 trillion.
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To me, that just, it does feel like we re headed towards bubble land.
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All right, let s take a look at the week ahead.
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We ll see earnings from Target, Lowe s and NVIDIA.
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We ll also see the minutes from the Federal Reserve s May meeting.
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Do you have any predictions for us?
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Yeah, that NVIDIA is going to blow away its earnings just based on everything I just said.
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It s just when a quote-unquote, I m not calling myself an expert, but when a talking head like me says it s beginning to look bubbly, that s when the market s about to scream another 30 or 40 percent.
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So that s my prediction, that despite the fact I think a bubble is forming, Nvidia is absolutely going to blow away its numbers.
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You are advocating for the inverse Galloway as we speak.
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I think it s in the money though.
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I think the inverse Galloway index is actually, no one tracks it anymore because unfortunately all the companies I said were going to crash have crashed.
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But anyways, but here s the thing.
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It s not how many GPUs they sold.
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It s whether or not those GPUs are going to be able to justify the investment that these companies are making buying the GPUs.
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There s no doubt about it.
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that the promise has never been stronger.
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What we re going to see over the next 6, 12, 24 months is when Nestle gets talked into by their chief strategy officer buying $38 million in GPUs from NVIDIA, claiming that this will help us figure out a way to source the milk that we put in our chocolates and how to organize our personnel and our supply chain.
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and come up with better copy and figure out where we need people and where we don t and the quickest way for our trucks to deliver powdered concentrated milk.
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If that shit doesn t pay off, if all of a sudden someone raises their hand and goes, you know what?
5
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And I remember this.
5
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I remember this in 1998 when we launched, whenever it was, we launched williamsonoma.com and we said, this is gonna be big one day, but guess what?
5
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Our sales are ridiculously low on .com and our stocks doubled in the anticipation that williamsonoma.com would be bigger than William Sonoma and it s not panning out that way.
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I think we re in for that moment.
5
SPEAKER_00
It s like all the sales are B2B, but we haven t tested any of this shit out on the consumer.
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All those AI startups, who knows what their sales are going to look like.
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SPEAKER_00
But you know that right now, they are buying a shit ton of H100s and renting them out so that they can just bring it to us.
5
SPEAKER_00
But I am yet to use AI or pay for AI on a daily basis.
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I think it s a great point.
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Just to give you a sense.
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The revenue so far garnered from artificial intelligence applications is only slightly greater than the revenue of Subway.
5
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That s crazy.
5
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This episode was produced by Claire Miller and engineered by Benjamin Spencer.
5
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Our associate producers are Jennifer Sanchez and Alison Weiss.
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Our executive producers are Jason Stowers and Catherine Dillon.
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Mia Silverio is our research lead, and Drew Burrows is our technical director.
5
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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 Josh Brown, only on the Prof G Markets feed.
5
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Today s number, $396.
5
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That s the price for a Ruby Glow Pineapple, a luxury designer fruit for high-end consumers.
5
SPEAKER_01
Supposedly, and we just learned this, if you have a pineapple turned upside down on your front door, it means that you re a swinger.
5
SPEAKER_01
True story, I met my wife at a swingers club.
5
SPEAKER_01
And of course I said, shouldn t you be home watching the kids?
5
SPEAKER_00
Good.
5
SPEAKER_00
I like it.
5
SPEAKER_01
Is that good?
5
SPEAKER_01
Yeah.
5
SPEAKER_01
I like the other one more.
5
SPEAKER_00
I like the other one more.
5
SPEAKER_00
All right.
5
SPEAKER_01
We re going with the other one.
5
SPEAKER_00
Sorry.
5
SPEAKER_01
We re going with the other one.
5
SPEAKER_01
Sorry, everybody.
5
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Support for this show comes from Fundrise.
5
SPEAKER_01
Should only insiders be able to invest in venture capital?
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SPEAKER_01
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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With a $100 million portfolio already holding some of the biggest and baddest pre-IPO tech companies in the world, the Fundrise Innovation Fund is well positioned to truly democratize what used to be only available to a tiny subset of investors.
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Carefully consider the investment material before investing, including objectives, risks, charges, and expenses.
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This and other information can be found at the Innovations Fund Prospectus at fundrise.com slash innovation.
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This is a paid sponsorship.