Is Nvidia in Trouble? + Government Seeded Investment Accounts For Kids — ft. Brad Gerstner

Scott and Ed open the show by discussing the state of the US economy, how the markets reacted to Nvidia’s earnings, and OpenAI’s latest funding round. Then Brad Gerstner, founder, chair, and CEO of Altimeter Capital, joins the show to discuss why he’s not concerned about an AI bubble. He also shares the details behind his Invest America initiative and breaks down how he thinks setting up investment accounts from birth with government seeding can help address the wealth gap. Finally, he explains why he thinks people should be more optimistic about the future of America. Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 0:59Scott Galloway?

  Today's number, $87 billion. That's how much American college students spent on dorm room decor this year. Almost double what they spent a decade ago. And true story. I went to a Catholic college. And when I was there, one of the fathers slapped my ass. And the other came in and said, you should turn the other cheek.

• 1:27Scott Galloway?

  I'm really scraping the bottom of the barrel here. I don't. Did you miss me? Did you miss me in August? I missed you. I did. I missed you a lot. Did you miss me? Yeah, I did. That's the real question. I enjoy the show and I miss this. I'm convinced this is like my crossword puzzle. I can hear the excitement in your voice. It's gonna keep me. Well, I'm supposed to take August off, but I learned that everyone else does as well. I was putting together a deck on the podcast with Catherine Dillon. And I said, where are all the kids? And they're like, no one's responding to any emails. Words out. By the way, they call it Scott-free August. That does not mean you guys get any time off. Just so you know. What did you do in August, Ed?

• 2:05Ed Elson?

  Well, not that much. I was mostly in New York. Went to the Hamptons a little bit, which was fun. I have some sad personal news, which is, you may remember I was talking about my grandfather on a previous episode, and he sadly passed away. So I went to, down to Atlanta and went to the funeral service.

• 2:25Scott Galloway?

  I'm sorry to hear that.

• 2:27Ed Elson?

  I sort of took away from it a little bit of regret that I wasn't more kind of

• 2:35Ed Elson?

  proud of him, or I didn't express my pride in who he was more in my life. So I'm just gonna take a moment to express that now, because I really think this guy was an incredible role model, certainly for me, but I also think for all young men. He was an incredibly hard worker. He became a neurologist. And he eventually served as a captain in the US Army, where he practiced psychiatry and neurology at Valley Forge General Hospital. He later moved to Atlanta, where he was doing research on Parkinson's disease. He actually introduced the CAT scanner to the city of Atlanta, which is pretty amazing. And then after he retired, he ended up becoming this master woodworker. He ended up,

• 3:20Ed Elson?

  you know, that's what he wanted to do with his time. He was doing woodworking. And he was also incredibly attentive to detail. And I just want to read this one excerpt from a recipe that he wrote for how to make the perfect BLT, which I've collected here. Because I think it sort of captures who he was. And this is the bread section. This is how you want to prepare the bread in a BLT. He says, "Do not even think about not toasting the bread, but you've got to do it right. It should be toasted on one side only. Do it in the oven, or even better, fry it. Smear one side of two slices of bread with butter, olive oil, or mayonnaise with a little lemon juice in it, and saute them until that side is brown. Or use some of the bacon grease to fry the bread. Squeeze it down in the pan to thin it out a bit."

• 4:06Ed Elson?

  Set it aside to let it cool so it doesn't melt the mayonnaise. You want the bread to be crisp, but not too much. If it's too crisp, and if you toast both sides, it will scrape the roof of your mouth. And that is just the bread section and it goes on. So I just want to start with a tribute to my granddad, Dr. John Lee. He was adored by everyone who knew him, and I just want to express now I'm very proud to be related to him and to be his grandson.

• 4:34Scott Galloway?

  That's lovely, Ed, and I would imagine it gave him tremendous comfort to have such an impressive grandson. And I think there's a nice lesson there, and that is, I think the emotion you're feeling in registering is pretty common, and that is, after people are gone, you never regret having told them, you know, how much you cared about them. What you regret is not having told them. More importantly, did he go to Catholic school?

• 4:59Ed Elson?

  That's a good question. I don't think he did.

• 5:01Scott Galloway?

  That was a joke, Ed. My opening joke was about Catholic school. I was trying to segue out of this very deeply personal. As you open yourself to the podcast, I was mocking, I was making a mockery of it. Anyways.

• 5:15Ed Elson?

  Apologies for not picking up on a joke to outro out of my tribute to my granddad.

• 5:20Scott Galloway?

  Anyways, I don't know how to segue out of this, so just get to the headlines. Sorry about your granddad.

• 5:30Scott Galloway?

  Now is the time to cry. I hope you have plenty of the well.

• 5:37Ed Elson?

  Let's check in on the state of the US economy. So first, the job market may be weaker than previously reported, as the Labor Department said it overstated job growth by 818,000 jobs for the 12 months through March 2024. That downward revision of 28% is the largest adjustment issued since 2009. However, inflation data from July was much more promising, with the personal consumption expenditures index rising only 2.5% from a year earlier. That's in line with what economists had predicted. And additionally, Jerome Powell gave a more definitive answer on a potential rate cut in his speech in Jackson Hole, saying, quote, "The time has come for policy to adjust. The markets are currently pricing in a 1. Hundred percent chance of a rate cut in September.

• 6:19Ed Elson?

  Nvidia's second quarter earnings beat analyst expectations with revenue topping thirty billion dollars. That's a one hundred twenty-two percent increase from a year earlier. The company also projected revenue for the current quarter will jump to thirty-three billion dollars. Despite that strong performance, the stock dropped as much as seven percent. And finally, Apple, Nvidia and Microsoft are in talks to invest in OpenAI. Thrive Capital will lead the new funding round, which would value OpenAI above one hundred billion dollars. Scott, your thoughts, starting with the economy?

• 6:51Scott Galloway?

  So far, they have stuck the landing, which says to me that they're about to, you know, the crowd's about to erupt in applause and then they're about to have a massive brain aneurysm where the economy is. It all feels just a little too easy right now. Oursaying job growth by eight hundred and eighteen thousand jobs, okay. Employment is still really strong. Personal consumption expenditure is rising two and a half percent while we have GDP growth of three percent. Pricing in a hundred percent chance of the rate cut. When I heard that, the first thing I thought of was that the Bloomberg consensus of all economists in twenty twenty-two is in twenty twenty-three, we're going into recession. To me, that means there's a decent chance it's not going to happen because we're going to have some sort of exogenous event, but we'll see.

• 7:35Scott Galloway?

  In terms of the economy, I just don't think there's any. A lot of people would say that the headlines somewhat mask the real economy. The study I saw that sort of fascinated me was I, there was a study referenced about looking at France and it said if you take out the top one percent, so the US economy has been super strong. But if you remove the top one percent of income earners, the bottom ninety-nine percent in the US haven't done as well as the bottom ninety-nine percent in France. That basically the US economy. The US economy is a story of the winners.

• 8:11Ed Elson?

  I do think that we are reaching a point now, it's really interesting, that 99% stat that you mentioned, I do think we're reaching a point where things are getting slightly dicey. I mean, the, the, the job market is cooling, that's for sure. And the revised job data certainly highlighted that, we'll get some more jobs data at the end of this week. Hiring is slowing down, we are seeing some lower demand from lower income consumer companies. For example, Dollar General recently reported and the picture was not great. There's one kind of niche stat that I found pretty striking, which is that car loan delinquencies are currently near all time highs. The only time where delinquency rates were higher on auto loans was during the financial crisis.

• 8:55Ed Elson?

  And as you'd expect, those rates are especially bad for young people in the 18 to 29 year old cohort. So I don't think Americans are as comfortable as we have been in the past, especially if you're lower income. But at the same time, I think Jerome Powell knows all of this. And that's why he's been so assertive that we will cut rates come this month. And, you know, you, you expressed some doubt. I, I'm pretty certain rate cuts are coming. I think the only question is by how much? And for that, we'll have to wait and see.

• 9:28Scott Galloway?

  We had a guest post this month on No Mercy to Alice and Josh Brown had this great post, an excerpt from his book called optimism is a default setting. And there was a line in there that really struck me, or a few lines. He said that the, the pessimist always sounds smarter, right? They sound bolder and smarter and they'll use facts. They just naturally sound higher IQ, right? And I was thinking, that's really true. When someone is-

• 9:52Ed Elson?

  He wasn't supposed to say the quiet part out loud.

• 9:54Scott Galloway?

  Right. But, and maybe that's why I'm drawn to it, is I think it'll make me, actually, I'm naturally a pessimist, I just hate my life, but I hate it less and less every day. But you do, when I think about it, when you see these guys on TikTok, it's so provocative. This one guy's like, yeah, how's things gonna go down 40, 50% in the next two, three years? We're just in the biggest global housing bubble in history and you're kind of wrapped by them and it's like, wow, this guy's so smart. But the line that really struck me is that optimists in the market, or optimists about the market, inevitably, over the long term, inevitably, and always are right.

• 10:27Scott Galloway?

  And that's right, that if you look at the markets, at least as long as the S and P and the Dow have been around, if you look at productivity, if you look at GDP, I mean, if you look at all the really important stuff, and this is sort of Steven Pinker's TED Talk, but if you look at all the important stuff, yeah, there's some bad periods, but take any sort of decent frame or perspective, the photographic term, and widen the frame or the aperture and bring it back to 20, 30, 50 year periods, it's always up and to the right. The optimist always wins. But yeah, I don't, I don't, I don't, it strikes me that, that everything just seems to be, it's like, if someone asked me the other day, how's, how's everything going? I'm like, oh my gosh, kids are great, healthy, business

• 11:11Scott Galloway?

  is great. I'm feeling pretty good. I'm like, oh no, oh no. I mean, that's literally like the moment before you get taken out by a bus looking the wrong way. I think that's probably what's going to take me down here, by the way. My, my son, my fortunate son literally pulled me out of the road and he's like, look left. He's like, look down. It says look left. Anyways, Nvidia, I don't, I can't help it. I is, I think this thing is amazing. I'm using AI more and more. It just feels so, it feels so reminiscent to me and I can't help it. And everyone is saying that it's not Cisco. But when people have trouble discerning the winners on the front end, which I think they are, they just naturally go to the safe bet, which is the infrastructure play, which is Nvidia. If

• 11:56Scott Galloway?

  I were to try and guess whether it's going to be a pretty serious correction or drawdown, I think it's going to be very sector specific and I think it's going to be in all things AI in Q1. And I wouldn't be, I just, if three years ago, you knew Nvidia was at 60 bucks a share or 50 bucks a share, you'd go, wow, that's incredible. And it's at what? It's at 110 today? What are your thoughts on Nvidia?

• 12:21Ed Elson?

  Well, just on that point, I mean, revenue increased 120%.

• 12:27Ed Elson?

  They more than doubled revenue. They beat expectations. Analysts were expecting 115%. They beat on income and the stock dropped 6%.

• 12:40Scott Galloway?

  It's down 8%.

• 12:41Ed Elson?

  So this is just kind of an absurd level of of expectations from Wall Street. What I wonder is what's going to happen when Nvidia has not a blowout quarter, but a solid quarter? What you have to remember is that Nvidia makes up 7% of the S and P 500. It makes up 8% of the NASDAQ. So what's going to happen when they have a decent quarter? That's literally going to blow up the market. I mean, it's going to bring down the entire S and P 500. It's going to hit pension funds, it's going to hit retirement accounts, 401ks, IRAs. No American is going to go unaffected from a half decent quarter from Nvidia. Do you have any thoughts on related to AI on OpenAI and this $100 billion plus funding round?

• 13:26Scott Galloway?

  I think they're running away with it. And if you're going to have Apple, which controls access to the billion wealthiest consumers, Microsoft, which controls access to the largest corporations in the world, and Nvidia, which controls the brains, and they're in open dialogue with one of these AI companies and incentivized to see that one company do better than the rest. The analogy I would use is there's Polestar, Fisker, Rivian, and none of them could compete with Tesla, who had access to cheap capital and just ran away with the game, where they were able to invest at a scale that no one else was able to invest. And I see the same thing happening here. It feels as if OpenAI is literally running away with it. What are your thoughts?

• 14:08Ed Elson?

  I think it's also pretty interesting from an investor perspective, because you know, you think about how powerful these big tech companies have become. And if I'm an investor and I want to ride the AI boom, if I want to get in on AI. One, I better get in on OpenAI because as you said, they, I believe, are running away with it. We'll talk with Brad Gussner in a minute, who seems to disagree, but that is what I believe. They are the most important, most ascendant AI company. So I want to get involved in OpenAI. How do I do that? Well, I buy Microsoft. That's the only way to invest in OpenAI right now because you get an indirect stake in the company and because Microsoft owns half of OpenAI's profits.

• 14:51Ed Elson?

  Or if this funding round goes through and Apple participates, you buy Apple. Or if Nvidia participates, you buy Nvidia. This all spells out the following message, which is keep investing in big tech. And these companies are already bigger than than any company we've ever seen.

• 15:08Scott Galloway?

  Well, to your point, so Microsoft, the stock in the last five years has tripled, right? And it's got, it's got a market cap of $3 trillion. So basically, while we're all saying OpenAI has run away with it and has gone from the last five years from call it, you know, zero to 100 billion, that's chicken scratch compared to the $2 trillion increase in market capitalization that Microsoft has recognized. And I would argue a lot of that, a lot of that accretion is a function of people's excitement about their investment in OpenAI and their ability to position themselves as the leader in AI by virtue or de facto, the de facto leader by virtue of their investment and, you know, that they own, they not only own 50% of this thing, 50% of the

• 15:53Scott Galloway?

  profits, but I think more than that, they've been able to convince the marketplace that if any technology or any consumer offering or B2B offering is able to leverage the best AI, it's going to be us.

• 16:03Ed Elson?

  Yeah. I mean, the definition of a monopoly is basically a company that through its practices tells the consumer, you don't have a choice. I mean, I can rag against Microsoft and big tech all I want. You don't have a choice. You have to invest in those companies or you are going to get left behind. That to me is kind of the definition of too much power bordering on monopoly, duopoly, or at the very least oligopoly. We'll be right back after the break for our conversation with Brad Gussner. If you're enjoying the show so far and you haven't subscribed, be sure to give Prof G Market a follow wherever you get your podcasts.

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• 18:18Ed Elson?

  Welcome back. Here's our conversation with Brad Gersner, the founder, chair, and CEO of Altimeter Capital. Brad, thank you very much for joining us.

• 18:27Brad Gerstner?

  It's great to be here.

• 18:30Ed Elson?

  So we've got debates next week, and we'll talk about policy and this initiative you've been working on, which we love and find very interesting. But I first want to start out with what's happening in the markets. And I'd love to start with Nvidia specifically. The company reported earnings last week. Revenue more than doubled, and the stock fell. You are a significant shareholder in Nvidia. I'd love to just get your initial thoughts on those earnings and what the trajectory looks like for Nvidia in the next few months.

• 19:03Brad Gerstner?

  Yeah, well, you know, I mean, over the course of the last two years, Nvidia, you know, is up, what, 8 to 10x? Okay, so remember...

• 19:14Brad Gerstner?

  In January of 2023, the consensus earnings forecast for, you know, among the 25 analysts, their only job is to cover Nvidia, right, was, you know, off by about 90% for 2023. And, you know, the company ends up, you know, blowing those forecasts out of the water. And, and over the course of the last 18 months, the idea that Nvidia is at the heart of the supercomputing revolution, is at the heart of the AI revolution, has become pretty well understood. And so analysts came into this call, I think the stock was at about $125 a share, a market cap of, you know, $2.5 trillion.

• 19:57Brad Gerstner?

  And, you know, today it's trading between $110 and $120 a share. None of that surprises us, you know. In fact, Bill Gurley and I had talked on a podcast a couple of weeks earlier about the need to manage units of economic risk, right? And, and look for asymmetry in markets. And over the course of the last two years, there's been massive asymmetry in Nvidia because people really didn't understand it. Today, it's pretty well understood. The company's trading, I think, at 30 or 35 times consensus forecast earnings for next year. It's trading, I think, below 30 times our earnings forecast for next year. You know, which, when we talk about bubbles, that's not the stuff that bubbles are made of, right? Bubbles are made of companies that are trading at 100, 200 times fictional revenues, not

• 20:41Brad Gerstner?

  at 30 times earnings.

• 20:43Ed Elson?

  One thing you've mentioned recently, I listened to that podcast you did with, with Bill Gurley, and you were talking about the idea of an AI air pocket, which isn't a bubble, but it's something else, and it potentially could be a concern for investors. Could you explain what that is and why it's important?

• 21:01Brad Gerstner?

  Well, I think if you invest in technology, I'm sitting here looking at a chart on my desk, right? This is technology over the course of the last 10 years. Since 2014, technology earnings have compounded at about 16%. And technology stocks have compounded at 18%. Non-tech earnings have compounded about 4% and stocks at about 6%. So if you look at the long run of technology since 2005, it's gone from 5% of global GDP to 15% of global GDP. Now, I ask both of you guys, 10 years from now, are technology earnings going to out-earn non-tech earnings? And I think that trend will continue and it will be a larger percentage of global GDP. But along the way, there's not perfect linearity.

• 21:44Brad Gerstner?

  People get excited, you know, stocks run ahead of where the actual revenues or earnings growth are in these businesses. And it's up to analysts to the extent they're trying to manage that risk along the way to try to figure that out. I think for those playing at home, if all you do is lean back in your chair and you own tech over the course of the last 25 years, you out-earn non-tech by two to three times. And I think that trend will continue into the future. But, you know, listen, we got the term air pocket from Satya. We were at an event together and Satya took to the stage and said, listen, this is by far the most significant super cycle that he's lived through. More important than the internet, more important than search, more important than mobile, more important than cloud.

• 22:28Brad Gerstner?

  But he said, we will likely have to manage the business through an air pocket because we're going to invest aggressively in this future. And it's not certain that revenues will, you know, keep up in step function with those investments. You heard the same thing out of Sundar at Google. He said, you know, the risk of under-investing is greater than the risk of over-investing. You heard the same thing from Susan and Mark Zuckerberg when Meta reported. So there's a commitment on the largest companies in the world to redeploy their tens of billions of dollars of free cash flow into, you know, investing in these future technologies. And think about the opposite of that.

• 23:09Brad Gerstner?

  What if all these companies said, no, we're not going to invest in this thing that could be bigger than mobile and bigger than internet? Instead, we're going to buy back our stock and issue dividends to investors. I would go running from the tech company that wasn't investing in the AI future. So I think as a professional investor, we're just trying to determine what level of asymmetry, what level of enthusiasm or exuberance is baked into these stocks? And what are we seeing day to day in terms of usage and revenues out of the consumers? Whether it's a, you know, a consumer application like ChatGPT, or whether it's an enterprise application like Copilot.

• 23:48Scott Galloway?

  It's so good to have you here, Brad. So by the way, I have Nvidia at my screen's at 56 times earnings. That 35 number you're talking about, is that forward? Projection of forward P multiple?

• 23:59Brad Gerstner?

  Yeah, forward earnings.

• 23:59Scott Galloway?

  Got it.

• 24:00Brad Gerstner?

  Yeah, so I think, I think, and it's probably the consensus forward earnings of the analysts who we care to follow, Scott. And I would tell you on our numbers, it's lower than that.

• 24:09Scott Galloway?

  Got it. So I like the term air pocket. I think you're, you're reasoning that over the long term, optimists around technology have always proven to be right. But isn't it possible if there's a bit of a pullback from AI? That not only could you see volatility, but you could see companies like Nvidia? I mean, you could see a significant drawdown because it, what's reminiscent for me, and I'm curious if it's reminiscent for you, is there's so much unknown around what AI applications are going to get traction? And which ones are just, you know, interesting pioneers with, that are going to get mud on their face and arrows in their back? And so everyone goes to the infrastructure play, which is Nvidia right now. And if there's an air pocket here and people think maybe this is overhyped,

• 24:51Scott Galloway?

  couldn't you see a 50, 70, 80% drawdown in some of these stocks, including Nvidia?

• 24:55Brad Gerstner?

  Well, I think if you're in this business, humility is absolutely required. And just when you say it's not possible, it becomes possible. I mean, look at 2020, right? We saw over 50% drawdown in Meta, you know, from the top. The stock was trading at 90 bucks a share. In fact, I think it went to $87 a share in the fall of 2022. So of course, anything is possible. I can I can paint for you a picture where Nvidia does five or six dollars in earnings next year. I can also paint you a picture where Blackwell gets delayed. You know, something, you know, we hit, we hit the scaling limits of AI. And, you know, they do, uh, you know, two to three bucks in, in 2025 or 2026.

• 25:38Brad Gerstner?

  Right? We don't think that's likely, but you have to plot a future distribution of, of potential outcomes. And that's gotta be, you know, on the list. And so you need to apply a multiple to that and say, okay, what is that drawdown? So you solve for that in a couple of different ways, right? You can either solve for that through more diversification, you solve to it, you know, for it through, uh, you know, doing like firms like ours do, which is trying to hedge out risk. Right? We don't, uh, in that podcast, Ed, that you listened to, I tried to break it down with Bill. And if, you know, I talk about 10 units of risk, so 10 units out of 10 potential units, you know? So that's, it would be a hundred percent net long. I'm all in on the market. And in January of 23, right?

• 26:20Brad Gerstner?

  When, uh, we were talking about hard landings, we're certainly going to have a recession. You had all these stocks, you know, Nvidia was priced at $125 a share before it went to 1,400 a share. You know, and, and, and Meta at $90 a share before it went to $500 a share. I, you know, I did a variety of these shows and I said, we're all in. Right? We got nine and a half units out of 10 units of risk on the table. And I said on that podcast earlier this summer, we were down to three units of risk out of 10 on the table. Now you can do that by, you know, in our case, shorting stocks, by selling some of your long positions, by putting on hedges, but that's what we're in the business of doing. We're active managers and we're looking at that risk reward.

• 27:03Brad Gerstner?

  So Scott, I think you're, uh, absolutely right. Anything is possible in the future. I'm just telling you, when you look at the fat part of the distribution curve. I don't think the comparison to Cisco is at all accurate. There may be a left wing on the distribution curve where that comparison, you know, where these things could have a 60, 70% drawdown. But I think it's just as likely, like has been the case over the last 18 months. I mean, listen, we bought the stock at 125. When it went to 200, my good friend Bill Gurley said, sell the stock. 300, sell the stock. 400, sell the stock. You know what was happening? It was getting cheaper on a multiple of earnings basis at every one of those stops. The stock got cheaper.

• 27:46Brad Gerstner?

  So unless you're actually, you know, I have people who work for us. That's all they do. This is all they do is to cover and to understand the stock. So that's why I have the conviction to invest in them the way that we do. But we also have to be humble that things can change very quickly.

• 28:01Scott Galloway?

  I get the sense, or I'll put forward the thesis, that ChatGPT is running away with it. And the analogy is the EV market where Tesla got to a certain scale and all the other guys, the Pole Stars, the Fiskars, the Rivens of the world, just never got to the same scale. Is ChatGPT literally running away with it?

• 28:20Brad Gerstner?

  Well, their execution has really been extraordinary. The revenue growth is extraordinary. I think the pace of innovation going on within the organization is incredible. But no, I don't think they're running away with it. Right? In fact, I think we have more competition at the head end of the technology curve than perhaps we've ever had.

• 28:39Scott Galloway?

  From who?

• 28:40Brad Gerstner?

  Well, let me, let me, let me go through, let me go through the list.

• 28:43Scott Galloway?

  Yeah.

• 28:43Brad Gerstner?

  Right? The fastest downloaded model, you know, in the world over the course of the last six months is Metas Lama model, an open source model that is competing and is likely to catch up or pass OpenAI at the frontier when they release Lama 4 either later this year or early next year. Anthropic 3.5, if you talk to anybody in Silicon Valley, is now top of mind for every enterprise, right? It is clearly caught a zeitgeist, you know, in terms of enterprise closed models. Google, you can never count out, given their access to capital and data. And I think Larry Page said last week, or not Larry Page, but yeah, maybe it was Larry

• 29:27Brad Gerstner?

  or Sundar said last week that they would literally bankrupt the company before they would stop investing and lose the race around artificial intelligence. And so I think you have vibrant competition. I think OpenAI is, one might argue, too big to fail at this point in time. And you have all of these strategic investors in the business. I think that's a great thing. I think America's dominance in AI and leadership in AI from the chip stack all the way up through the application layer is hugely beneficial. So it's exciting to see, but I don't think one company's running away with it. What I will say this, and I said this a year ago on CNBC.

• 30:07Brad Gerstner?

  I think it was a mortal sin that Google allowed ChatGPT to own the verb. They allowed them to go first. They allowed them to do what Google did to Yahoo. Right? And given the distribution lead that Google had, it should have never happened. But, you know, I think due to, you know, just the political nature of, you know, the Google bureaucracy, of course, you got the, you know, you got the challenger out there to take a little bit more risk. And now that's part of the public lexicon. You have 200 million weekly active users of ChatGPT, even though there are competing

• 30:48Brad Gerstner?

  models that I think are really good, right? My kids use ChatGPT as a verb, right? They'll go, they'll go and ChatGPT something instead of Googling it. And in fact, I think if you talk to young kids today, the idea that we would go and search through 10 blue links, right? It's like, it's as foreign to them as us going to a card catalog today, right? They're like, why would you search through all those blue links and endless pages when you can just ask ChatGPT and it gives you the answer?

• 31:19Ed Elson?

  I just want to push back on the, on the competition argument you just made because, you know, I hear you on the one hand, there are a lot of names that are popular. I'd love to see some harder revenue numbers from a lot of these companies. From what I've seen, no one is coming close from a revenue perspective to ChatGPT. But the other side of this that I want to mention is, that I'd love to get your take on, is this idea of Big tech corporate incest in AI. And that is they're all sort of interconnected in a very weird way that I feel that we haven't really seen before. And when I look at what's happening in the AI space, it feels as if it's all kind of

• 32:02Ed Elson?

  morphing into this one sort of superfluous interconnected giant mega corporation where they all have a stake in each other's success. And the way that I read that is actually, you know, while I agree with you, the innovation for OpenAI has been extraordinary. If you look at the cap table and you look at the board, it doesn't seem that there's much competition going on at all.

• 32:25Brad Gerstner?

  Well, first, just starting with the premise that it's weird for companies to make strategic investments. I mean, I've been Silicon Valley for 20 years and strategic investing by, you know, large platforms, whether it was back in the day by folks like IBM or Time Warner, et cetera, like, you know, that's always been part of the game.

• 32:45Scott Galloway?

  But just to press pause there, Brad, this is different. Two thirds of investments in AI is coming from a small number of companies.

• 32:52Brad Gerstner?

  What I was going to say, Scott, is you're asking venture capitalists, of which we are, we simply do not have the firepower to invest at the scale of these required investments. I mean, this is nation state level investing, right? And so there are only a few companies on the planet, right, that can invest in those things. And I think it's a very efficient and prudent use of their capital. If I'm a shareholder in Apple, I want to see them investing in this. I'm a shareholder in Nvidia, I want to see them investing in this. I'm a shareholder in Microsoft. But yes, there is a level of corporate strategic investment going on here that is unique. I think there are regulatory reasons for that.

• 33:34Brad Gerstner?

  I think there's scale reasons for that, just the amount of capital. The other one that you haven't mentioned is there's more sovereign wealth investing going on here than you've ever seen before, right? Because a lot of these dollars that are coming by way of the private equity markets are coming from, you know, very large sovereigns and you're seeing direct investing by very large sovereigns because they too have a stake in the game, from Japan to Abu Dhabi.

• 34:02Ed Elson?

  Stay with us.

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• 35:46Ed Elson?

  We're back with Prof G Markets. I thought we could talk about AI for hours. I do want to shift us to economic policy, though. Specifically, this initiative you started called Invest America, which we love. Could you give us just a quick explainer on what Invest America is? And I'd love to hear a little bit about how you arrived at this idea and why you started it.

• 36:10Brad Gerstner?

  Well, let me first say thanks to you guys, Scott in particular, for drawing so much attention to, I think, the key problem the country faces, right, which is a growing gap between haves and have-nots. It's a crisis of hopelessness among kids because they don't see a way to have it as good as their parents had it. And when they feel that way, they start turning against the system. That's the greatest threat to this country. Capitalism and free markets and competition is what has created all of this prosperity, right? It is the path forward, but it's also the thing that's at greatest risk because there are too many people who feel left out and left behind. So Invest America is a very simple idea that's now being forged into legislation to start every child in America with an investment account from birth.

• 36:55Brad Gerstner?

  You get your social security number, you get an investment account, seeded with a thousand bucks in the S and P 500. You can't trade it, but you can open it up and look at it on your phone. So rather than waiting until you're 25 years old at best to start to save from your first job, after you've already missed a third of your life, a third of the compounding, we get you into this magic game of compounding and learning about finances from the very start. And as Warren Buffett has said, those first 25 years changes everything, right? Start with that really small snowball, but what does he say? You need a really long hill. And almost every American misses the first 25 years of that hill. And part of it is because we have a huge cold start problem.

• 37:39Brad Gerstner?

  It's super hard for a family to open up a custodial account, even for sophisticated families to open up a custodial account. So the government ought to do it for you. You get your social security number, you get an investment account, seed it with just a little bit, doesn't even really matter how much they seed it with, and then get out of the way and let the private markets work their magic. So every kid can open up their phone when they get in the seventh grade. They see their individual account that they own with a small slice of Apple, of Berkshire Hathaway, of Eli Lilly, of Microsoft.

• 38:11Brad Gerstner?

  And the amazing thing is if you start with a thousand bucks and 750 bucks gets added a year. Now, this is, maybe your folks give up their Starbucks every other day, right? Or the company they work for says, hey, we'll contribute to the account of your kids or philanthropically, or birthdays, or bar mitzvahs. But if they do that, by the time you're in seventh grade, you're going to have $14,000 in that account. Now you have my attention. Now you have my attention. You want to talk about, you know, financial literacy? Show me the incentives, right? That's the incentive. I'm in the game. At age 20, you're going to have, you know, close to 50,000 bucks. At age 30, 150,000 bucks, and at 50 or 55, a million bucks if you don't touch it.

• 38:55Brad Gerstner?

  Right? Because we capture those first 25 years.

• 38:58Ed Elson?

  This feels like a total no brainer to me. And I'm wondering if anyone disagrees. Have you gotten any pushback? What is the argument to not do this?

• 39:08Brad Gerstner?

  Well, you know, everything in Washington's a long putt. You know, you asked me a little bit like how I came up with this. You know, I know a little something about feeling left out. I mean, I'm here in Silicon Valley today, which very much feels like at the center of the action. But I grew up in rural Indiana in the late 70s, early 80s. My dad, who's first generation college, lost his struggling parts, you know, auto parts manufacturer due to skyrocketing inflation and interest rates. You know, the auto industry was under assault by the Japanese.

• 39:46Brad Gerstner?

  And, you know, I love this country and I look at what's happening today. I listened to Scott, your TED Talk. You're absolutely right. We have this emerging crisis, you know, that threatens all of this. And my young kids ask me all the time, what are you going to do about it? Right? So what concerned me here is that it seemed that people were moving away from the answer rather than to the answer, right? The answer here is more capitalism and free markets, not less. Right? That's the anecdote, the power of compounding. How do we harness the markets? But we have to get everybody into that game. In Silicon Valley, we talk all the time about product market fit. Right? You know, really early, are the dogs eating the dog food?

• 40:28Brad Gerstner?

  Right? And you know, if it's complicated to get people on board, then there's some probably wrong with the idea. This is the easiest idea I've ever talked to folks about from the far left to the far right. Right? But I would say, you know, to the extent there's pushback on the far left, they may argue, well, why should rich kids get it? Or why should you invest in all the companies in the S and P 500? Why not just some of them? But I would say that's very remote pushback. On the right, there's a lot of skepticism about government. Why should the government even be involved in seeding something like this? But again, I would say what's what's brought them to the table is the idea of 3.7 million new individual investment accounts a

• 41:10Brad Gerstner?

  year actually owned by the families, owned by the kids, not owned by the government. This isn't another big government entitlement program. There isn't a government account. The government simply acts as facilitator, right? To set up the accounts when you open your social security account. So I would say this, at a moment in time where there's not a lot of bipartisan agreement on anything, we're highly encouraged and excited by the momentum that it has.

• 41:37Scott Galloway?

  Do you see this as a program? Let's talk about some round numbers. Start with 6,000 or 7,000. Do you see adding to it every year with some sort of tax-free status or matching status or branding it such that companies have a obligation or incentive to put in? Do you see it that we're going to totally, I'll use the word infantilize people and say you can't touch it until you're 65? Or do you want to do it till they're 30 and they can buy a house? Or is this something we're trying to set up such that, and this is the idea I like, eventually it replaces social security? Then in 30 years, we're going to say, all right, in 35 years, there is, social security goes away. You get a million dollars at least on your 65th birthday, and then it's kind of up to you what you do with it from there. Tell me about how the complexion of your specific program, how it differs from some of the

• 42:22Scott Galloway?

  other programs, and what you see the end state goal. Who is, who gets this money, when and for what purpose?

• 42:29Brad Gerstner?

  Yeah, no, you have a lot of important questions embedded in there. So let me try to break them down one by one. First, I don't think you can start with $6,000, or $10,000, or $5,000. It costs too much money. There's not going to be political support for it, and you don't need to. Right. I think the difference between what we're proposing or Invest America is shaping up is you get 90% of the bang of your buck by just getting every kid in the game with an individual account from birth. So actually, I would lower the seed amount to the lowest cost possible to make it tolerable for the government to pass the legislation. And 1,000 bucks, 3.7 million kids a year, to put it in perspective, 3.7 billion. We're talking

• 43:13Brad Gerstner?

  about a lot of increases to the child tax credit, right? As you know, the child tax credit, both sides support the child tax credit. It's currently $2,000 to $3,600 per child, you know, that's refundable back to the parents. The parents can spend that money on whatever they want to spend that money on. There's talk about, I think, out of the Harris team, raising that to 6,000. I think out of the Trump team, raising it or a version of it to 5,000. Now, remember, that applies to 74 million kids. So the cost of that is on the order of $150 billion a year, very big expense. For 3.7 billion a year, we can

• 43:55Brad Gerstner?

  give $1,000 to every child born. And over a period of 20 years, you have almost every American household that is touched by this. So I think part of the magic here is we're lowering the bar to adoption, right? Because at $3.7 billion, you're talking about the cost of a single missile system that we're sending to Ukraine. Like, this is a tiny rounding error in our federal budget. So, number two, I think what we have demonstrated here is we brought together a group of companies that have all raised their hand, from Uber and Dara Khosrowshahi to Michael Dell, to Marc Benioff, who all say, "We love this.

• 44:38Brad Gerstner?

  We love this idea." And we would contribute to the accounts of the kids of our employees, right? So, understanding that we can harness the power of the private markets like a 401k from birth. So it's not only philanthropic contributions, it's corporate contributions, and it's family contributions to this account. We know in behavioral psychology, right, there's something called the wealth effect, savers save more. And it turns out that even folks who are part of poor cohorts or socially, economically disadvantaged cohorts save more once they have an account. So get them rolling, harness the power of all of these private sector participants,

• 45:20Brad Gerstner?

  you know, to contribute to those accounts. And then in terms of when they can take it out, Scott, again, the legislative process will ultimately determine where this comes out. But one version that I like is that at age 18, you can take up to 20% out for a qualified expense, go to college, start a business, buy a home. At age 30, 30%, at age 40, 40%, and 50, it's all yours. One key point that I want to make, this will die on the vine if people think that it's a social security replacement. It's not. We have to deal with social security as social security as a separate promise that we've made to investors. You and I both know that factually, right, there is probably

• 46:04Brad Gerstner?

  a day of reckoning at some point in the future, right, in terms of getting that fully funded. There are a lot of potential ways to solve that, but we've made an important distinction. That has to be independently solved, right? But getting kids in the game from birth dramatically increases financial literacy, increases the probability they'll graduate from high school and college, increases the likelihood they'll own a home, increases the likelihood they'll start a business. And so all of those things are social goods that make this NPV positive, net present value positive, in a huge way, and stands on its own merit as a program, and doesn't need to be the solution to everything, but certainly creates

• 46:49Brad Gerstner?

  a lot of optionality as we look forward.

• 46:51Scott Galloway?

  We're sold. What's the status of this? Like, where, where does it, is this to a bill yet? Are there sponsors? If somebody wants to be supportive of this, how could they be supportive? What's the state of play here?

• 47:05Brad Gerstner?

  So, check it out, investamerica24 on X, or investamerica24.org.

• 47:12Brad Gerstner?

  Where we where we provide a lot of updates. We started 501(c)(3). We've raised millions of dollars. We've started the CEO Council, as I've outlined to you. There's legislative text. I don't want to say the names of the sponsors just yet, but you will be learning about those over the course of the next 60 to 90 days. But I would say the most prominent Republicans and Democrat senators and House members who are working through legislative language as we speak. We've been in touch with senior people on both presidential campaigns. And we think that when we get to the spring, here's our objective. Here's our goal, Scott. We want to have this all hammered out, the legislative language by this fall.

• 47:56Brad Gerstner?

  We know whoever's elected, whether it's Trump or whether it's Harris, in the spring, they're going to have a package. You know, it's the honeymoon package that always comes out of the presidential, the winning presidential contender. And they're both talking about a lot of things for kids. Right? And the it seems to me that the key component of both of their campaigns is a version of the child tax credit. Earned income tax credit, you know, on on the Republican side. It's fantastic. Okay. But there's going to be a lot of wrestling, right? Because we're going to have an evenly divided Congress. There's going to be a lot of wrestling over what we can afford to do. And what I'm hopeful of, if we have this on the shelf, ready to go.

• 48:41Brad Gerstner?

  Right? If we're going to spend hundreds of billions of dollars to help kids, then shouldn't we have something that actually creates an account for the kid? The problem with the child tax credit, I love it. But the parents could spend it to buy a new iPhone, a new TV, a new car. They could spend it on whatever they want to spend it on. Okay? Can we take a tiny fraction of the child tax credit, one one hundredth of what we're going to spend on the CTC, and put it into an account for every child in America? You know, in 2026, it's the 250th anniversary of this country. Okay? What better gift to every future generation than a commitment that we start them all with seed capital in the upside of America?

• 49:27Brad Gerstner?

  Right? This is a bet on the future. The 500 best companies constantly rebalance the future of America. Sure, they can go up, sure they can go down, but you're betting on America. And we get everybody aligned, realigned around free markets and democratic capitalism in a way that they all win together. They should all be cheering, you know, in 2020, when the government comes in to support the markets. Instead of only having the 30% of people who are participating in the markets cheering, 100% of people need to be cheering. This is the way to do it.

• 50:02Scott Galloway?

  So first off, Brad, we're rooting for you. We, you know, there's different complexions and nuance and colors around this, but we think it's a, we think it's a fantastic idea. And we talk about this a lot and whatever we can do to be supportive, we'd like to be supportive. Before we let you go here, I want to kind of switch gears. It sounds like we're similar age. And I came of professional age in the valley and raised a lot of money for my own companies. And the thing that always struck me, or the zeitgeist, was while investors such as yourself were very competitive with one another, there was this kind of clubhouse rules that they were very polite to each other and they would never be critical of each other in the press. It just, I mean, these guys hated each other

• 50:46Scott Galloway?

  behind closed doors, but it was definitely behind closed doors. And now I can think of few industries where the icons of those industries are saying such vile, aggressive things about each other. I'm just curious, as someone who left San Francisco in 2000, I'd, I'd like to get your take on why do you think it's happening? I mean, we've had polarized politics for a while, but what's going on here? Because I got to be honest, I'm sort of enjoying it from the cheap seats. I think it's bad for society. But to see a venture, one venture capitalist calling another venture capitalist, saying he's got fentanyl blood on his hands because of the support of a newspaper that's writing an article about his fam, I have never seen anything like this in any other sector. What do you think is going on here?

• 51:30Brad Gerstner?

  First, like you said, I think these things have been going on behind closed doors for decades. This country has had vitriolic debate for its entire 250 year history. Right? I mean, called everybody, everything under the sun. In fact, we had duels, right? We went and shot each other on the other side of the river.

• 51:50Scott Galloway?

  That's pretty vitriolic, yeah.

• 51:52Brad Gerstner?

  You know, over, over these misgivings, you know, the all in pod last week where, you know, you, you well know, I was the fifth bestie for a long time and spent a lot of time with those guys. You know, last week, Reid Hoffman came on for two hours, I think, and talked with David Sacks. And if you looked at what they had just been tweeting about each other the week before, you would have said those guys could never sit down and have a conversation. I thought it was incredibly constructive conversation that they had.

• 52:18Scott Galloway?

  So for more downloads, we should have been shitposting you before you came on. Is that what you're saying, Brad?

• 52:23Brad Gerstner?

  I mean, I mean, listen, you watch, you watch the NBA. They talk shit about each other on the court and then they walk off the court. And then they're, you know, they're best of friends. So that doesn't cause me concern. I will say this. I, you know, and people accuse me all the time of being too optimistic. You know, I'm optimistic, we're going to pass, we're going to pass Invest America. I'm optimistic that we're going to improve our system of capitalism. I think there's the best system the world has ever known. And I think our national advantage has never been greater. And I think a key source of our national advantage is our innovative advantage. And this is the heart of it. I think people, you know, are really heated at this moment in time because the people at the top

• 53:06Brad Gerstner?

  of the tickets are really heated. Like it's a, it's a unique moment in our politics. We're going to come out on the other side of this. Whoever gets elected, the country's going to survive. And we're going to continue, you know, we're going to continue to thrive. I would say there's as much partnering going on, you know, Scott, behind the scenes. All of us are having incredible conversations about ways we can partner.

• 53:28Ed Elson?

  I've got, I've got a closing question for you, Brad. You mentioned you're the, the fifth bestie on the all in pod. You're a frequent guest. You're a good friend of them. I'm not sure if you know this, but one of Scott's biggest and loudest critics is the host of all in podcast, Jason Calacanis.

• 53:44Scott Galloway?

  Geez, you're going here.

• 53:44Ed Elson?

  As a friend of all in and now a great friend of the Prof G Markets podcast. Would you be willing to broker a peace deal between Jason Calacanis, AKA J Cal, and Prof G, Professor Scott Galloway?

• 53:56Scott Galloway?

  No interest, no interest. Let me just cut this off. As FDR said, judge me by my enemies. Please encourage them to keep shitposting me. I think it only helps me.

• 54:05Ed Elson?

  I want to see it happen. We need the connective tissue.

• 54:07Brad Gerstner?

  Well, I will say this, that I think what you guys are doing, what they're doing, what Gurley and I are doing with our own podcasts, you know, the federation, right, the demonopolization of all these conversations in media generally is again, part of the strength of the system. Lots of conversations, lots of ideas that are that are percolating up. And, you know, I'm sure he would welcome the debate. But I really appreciate you guys having me on. I'm going to take you up on your offer, you know, to help push, you know, continue to push on this.

• 54:42Scott Galloway?

  Yeah, please do. We do love this, Brad.

• 54:45Brad Gerstner?

  The work you do, Scott, is, you know, in highlighting the problem is amazing. Now it's time for a common sense, simple solution that both parties can get behind. I'm not interested in anything, right, that doesn't bring everybody to the table. I will tell you this, my son Lincoln just turned 16, went to Washington this summer to intern with Invest America. And I saw him after a couple of weeks. I said, what's your biggest takeaway? He said, you know, everybody tells me this place is broken. They hate each other. He said, everybody I talk to, Democrats and Republicans, they're smart, they're hardworking, their teams are trying to come up with solutions to the idea.

• 55:27Brad Gerstner?

  This idea that America is broken, right, is way too cynical, way too pessimistic. And I think we're going to be surprised when we look back over the next five years. Our national advantage will increase, not decrease. But we all have an obligation to do our part.

• 55:41Ed Elson?

  Thank you so much, Brad. Brad Gussner is the founder and CEO of Altimeter, a leading technology investment firm based in Silicon Valley that manages public and VC investment portfolios. Brad has worked in technology for 25 years as a securities lawyer, a founding principal of the VC firm General Catalyst, and a three-time founder before starting Altimeter. Brad, this has been great. I've really loved this. Thank you for coming on.

• 56:02Brad Gerstner?

  Thanks, Brad.

• 56:03Ed Elson?

  It's been fun, guys.

• 56:06Ed Elson?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss, our executive producer is Catherine Dillon, Mia Silverio is our research lead, and Drew Burrows is our technical director. Thank you for listening to Prof Two Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

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