Josh Brown: If This Is A Bubble, It’s Pathetic

Ed Elson and Scott Galloway are joined by Josh Brown to break down Anthropic’s S-1, including why its revenue growth stood out to him and why he doesn’t think the company has much of a moat. He also shares his prediction for the IPO and why he thinks the company has timed its public debut well. Plus, he weighs in on Netflix and what he believes is the company’s biggest problem. Subscribe to the Prof G Markets Youtube Channel Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 0:01Speaker 00

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• 1:57Speaker 00

  Today's number, $100. That's how much US consumers spend on restaurants per week on average. Ed, what fast food chain would I like to see in space?

• 2:06Speaker 03

  What's up?

• 2:06Speaker 00

  I'd like to see Five Guys on Uranus.

• 2:11Speaker 00

  I've been thinking about saying that all morning.

• 2:17Speaker 04

  Listen to me. Markets are bigger than us. What you have here is a structural change in the world's distribution. Cash is trash.

• 2:23Speaker 05

  Stocks look pretty attractive.

• 2:24Speaker 04

  Something's going to break. Forget about it.

• 2:27Speaker 00

  Welcome to Profitey Markets. How are you, Ed? How are you, Ed?

• 2:30Speaker 03

  I'm doing very well, doing very well.

• 2:32Speaker 00

  There's something about In-N-Out I could have thrown in there, but I just stayed away from it. I just stayed away from it.

• 2:40Speaker 00

  Too much, too far?

• 2:41Speaker 03

  Nope, on brand, on point.

• 2:43Speaker 00

  I missed you guys. You keep bringing on people smarter than me and it really bums me out. It makes me feel insecure.

• 2:52Speaker 03

  We're going to have a great time tonight.

• 2:54Speaker 00

  No comment. Oh, that's right, we're all going out. We're going to Casa Cipriani, very fancy. I might have to put on non-athleisure wear.

• 3:03Speaker 03

  You have to put on your coat and tie.

• 3:05Speaker 00

  I don't have to put on a coat and tie, but I will put on a coat. I'm excited to see everybody. I haven't seen everyone in a while.

• 3:09Speaker 03

  Me too.

• 3:09Speaker 00

  And business is rocking. I mean, markets is way down, but anyways, very excited to see everybody.

• 3:14Speaker 03

  Excited to see you. Should we get into our episode?

• 3:17Speaker 00

  Let's get into it with our favorite.

• 3:19Speaker 03

  This week brought one of the most anticipated S1 filings in recent memory, Anthropic's. The filing answered some big questions, including how quickly revenue is growing and how much the company is losing, but it also left some unanswered, including who its biggest customers actually are. And there was even more drama in the AI world to start the week. Elon Musk took aim at the NeoCloud industry, warning that many of these companies could be headed for a wave of failures and consolidation. In a post, he argued that debt markets are increasingly cutting off funding for companies without substantial revenue beyond AI data centers, leaving more than 200 NeoClouds vulnerable. His comments sent NeoCloud stocks tumbling.

• 4:00Speaker 03

  That selling pressure adds to an already difficult stretch for the AI sector. CoreWeave and Nebius have both fallen more than 30% over the past month as investors reassess the risks of the AI infrastructure boom. So there is a lot to unpack here. So to help us make sense of what could go wrong with the AI trade, but also what could still go right, we are joined by one of our favorite guests, the one and only Josh Brown, co-founder and CEO of Ritholtz Wealth Management. Josh, great to have you back. Always good to see you. I think we should probably just start with the thing that everyone's talking about right now, which is the Anthropic filing.

• 4:41Speaker 03

  We finally got to see what's going on underneath the hood. General question, your reactions to the filing, what stood out to you?

• 4:50Josh Brown?

  I think the revenue growth is probably the thing that stood out to me most. We all, we all understood that there was massive revenue growth and of course, there have been leaks and there have been comments from private investors. So I think directionally, we all understood that there was a lot happening there. But even, even I was surprised at, at what the actual growth is. So it's off a low base, but it's a 1,300% increase for the first six months of this year versus the first six months of last year, the comparable period. So they went from 1.2 billion to 16.3 billion. That's a lot of revenue for a three-year-old business that began life as a public benefit corporation.

• 5:33Josh Brown?

  I mean, it, no matter what you want to say about the other side, you know, the, the losses, which I'm sure we'll get into, which I just think like it deserves a moment's reflection. This company is on base, on pace to do something on the order north of $30 billion in its third year in existence. And I, I think even the bears would have to admit, that's impressive. We understand there's customer concentration. We understand that. We don't fully understand how the ARR calculation works. Is it a snapshot on one day that happens to be its best day? And then they just extrapolate, like, we all understand the different ways that that

• 6:17Josh Brown?

  can be nitpicked and criticized, but they put it in an SEC filing. So let's just go ahead and assume that they're not complete and total Bernie Madoff liars and that that is a reasonably accurate reflection of the sales that are happening to customers. I, I think it's worth reflecting on.

• 6:36Speaker 03

  I totally agree with you. I think that the increase in sales has been remarkable. The thing that people are saying has not been remarkable or has been a problem on the revenue side. I'm more worried about the profitability side, which we'll get into, but on the revenue side, some point out that in Q3, the growth significantly slowed. I think it slowed to something like 40 to 50%, which sounds ridiculous because that's already a huge number.

• 7:02Josh Brown?

  It has to slow. You, you can't write. So Ed, you're right.

• 7:05Speaker 03

  But investors are worried about this because the assumption, I think for a lot of them has been that 1,300% is going to continue, not forever, but at least for the next several quarters, perhaps the next year or so.

• 7:18Josh Brown?

  I'm going to disagree. I don't think investors are worried about it. I think it's almost guaranteed that you can't 16x revenue twice. Like, like we understand, because if you, this is the exercise where you place a grain of rice on a chessboard and then two on the next square and then four on the third square and then eight and 16. We all understand that this is not, this company is not going to, in its life as a public company, do 1,600% growth. So I think what investors are more worried about, and maybe this is the more reasonable bear take on Anthropic and AI in general, is the stickiness of the platform and the

• 8:03Josh Brown?

  durability of that revenue, more so than the growth rate. Like, let's, let's take what you just said, 40 to 50%. If they go public and they come out and say, we think we're going to grow 40 to 50% a year on, on like a CAGR of 40 to 50% for the next five years, I think everybody would be okay with that kind of guidance, not that they're giving it.

• 8:25Speaker 03

  Agreed.

• 8:25Josh Brown?

  The bigger issue is, how easy is it for the next model that's 10% more powerful or advanced to snatch away those customers and those workflows? To me, if you're going to worry about something, it's not the headline growth rate no longer being 1,300%, 1,600%. To me, that's the concern. Is there a moat? Is there a moat? And I, and I wish I could tell you definitively one way or the other, but that's the thing that might give me pause in saying, yeah, you're right, this company's worth $2 trillion right off the bat.

• 9:00Speaker 03

  What do you make of the profitability side?

• 9:03Josh Brown?

  Well, there isn't any.

• 9:07Speaker 00

  There's that side.

• 9:10Speaker 00

  It's the dark side of the moon, Ed.

• 9:12Speaker 03

  Well, it's a little less nothing than than perhaps some people thought. At least, you know, I was thinking that we would see on the income statement, you know, several billions of dollars in losses on a quarterly basis or in the in the first six months. And what we saw was a nearly $700 million net loss, or operating loss at least. We're going to set aside the $80 billion because that doesn't tell you anything that's associated with the value of the company going up. But nearly $700 million in operating losses, which I thought was narrower than than I had expected. However, there was the other problem, which I'd like to get a reaction to, which is that

• 9:53Speaker 03

  we also saw further down the document that they have signed up to spend $800 billion on compute purchasing agreements at some point. And we don't really know how long, over what timeframe, that's going to be spread out. But to me, I'm like, oh, this profitability thing, which seemed like it was trending in the right direction, might actually be a total red herring because we're not seeing the truth.

• 10:19Josh Brown?

  Respectfully, I have to interrupt because I think you have it wrong.

• 10:22Speaker 03

  Okay.

• 10:23Josh Brown?

  The headline number that hit Twitter immediately, of course, is 80.7 billion. And as has been extensively reported, I don't have to get into like all the details. That is due to the way that they have to, they have to report the financing of their expenses in a certain way.

• 10:42Speaker 03

  I think that's stupid.

• 10:44Josh Brown?

  So, and that includes that $9 billion in compute figure and just the way they account for that. The operating loss is the thing that people in New York or people that are managing money are more focused on. And that number, 693 million, down from 2.1 billion a year earlier. That is the more important number. And actually, ironically, Warren Buffett is instructive here. Huge anthropic fan. No, I'm just kidding.

• 11:13Josh Brown?

  Warren Buffett spent decades telling investors to focus on book value. He said, my job as the chairman of this company is to grow the nominal book value per share number. And then like eight or nine years ago, he said, throw it out. It's the stupidest thing because of new accounting rules. Like if, all right, so let's say Berkshire Hathaway invests in plant, plants and equipment, or they acquire something and the value drops, they have to, they have to write it down, like based on the accounting rules, which is a hit to book value. But then if the, if that thing that they had previously written down increases in value, you don't get to write it up. There's no such thing.

• 11:57Josh Brown?

  So it makes the exercise of focusing on book value almost nonsensical. And so he switched from that metric to other metrics that he then said, this is actually, so he focused more on things like cash flow. So with an anthropic, it's not that we should ignore any number that looks bad if we want to be constructive. That's not what I'm saying. I'm saying like, the most bombastically negative numbers are going to be the ones that they put on, on, on the cover of the newspaper or on the news. And of course, then the nuances discussed, but in today's day and age, nobody reads articles. We read headlines and we react to headlines.

• 12:40Josh Brown?

  So I think like, let's just be like a little bit fair and, and say, this company understands that a certain point profitability will be expected.

• 12:48Speaker 03

  The $80 billion, I agree, that is irrelevant. It's related, it's a good thing. It's associated with the value of the company going up. It's, it's basically the, the, the conversion on a lot of those notes. So I'm with you. I'm talking about, and anyone who's like, oh, my God, $80 billion in net losses, this company is screwed, has it wrong. 100% agreement. I'm talking about the, the future compute purchasing agreements that haven't been reflected in the income statement yet, which they are going to pay for in cash, and I've said so. And they've, they've said that they're going to invest in CapEx.

• 13:27Speaker 03

  And so what I'm saying is, it seems as though currently, the income statement isn't giving us a very accurate reflection of the trajectory of the company because they're about to spend significantly more amounts of money over the next, whatever the timeframe is, five or 10 years. And we don't, they haven't told us like over what timeframe that.

• 13:50Josh Brown?

  I think that's exactly right. I want to talk about the word loss, though, because it's loaded.

• 13:56Josh Brown?

  Not all losses are losses. And, and not all losses, even if they are losses, are bad. And sometimes, in certain periods of history, when companies have come to the realization that they're in a land grab, the more important thing than accounting profitability is grabbing as much land as possible so that you can eventually generate the profitability that everyone wants. And, you know, the corporate leaders of the 80s and 90s mostly went to University of Pennsylvania and Harvard and Yale, and they were taught the Ben Graham textbooks about

• 14:37Josh Brown?

  securities analysis, and they were taught management in a very textbook way. The leaders of today in Silicon Valley were schooled on John Malone and, and Jeff Bezos. And in those two examples, John Malone recognized that he was in a land grab. He had to buy every mom and pop independent cable system in every region of the country in order to actually build something that could eventually become profitable. And Bezos did a generation later with the internet. He had to own e-commerce and he had to become so scaled that profits would not only be possible, but inevitable. And in both cases, it worked.

• 15:21Josh Brown?

  It doesn't work all the time. It's not a guarantee that anthropic could pull it off, but I want you to understand the textbooks that this generation read, very different textbooks than classical finance. I would actually take it a step further. I'm not a venture capitalist, but if I were, and Dario gave a shareholder update and said, we are projecting 25% profit margins in Q4, I would say, what the fuck are you doing? You have OpenAI on your ass, you have Gemini, you have free models being developed out there every day. Now you have Meta and Muse. What do you mean 25% profitability? What, what are you thinking?

• 16:06Josh Brown?

  It's the worst possible thing you could say. And I know on the show Silicon Valley, it was, you know, there's a caricature, Russ Haneman, who gets, he has to hang up the phone when he hears people talking about revenue, no revenue. I understand it's a punchline, but think about this. If any of these platforms are going to be sticky, and I'm not predicting that they will, but let's say the goal is to amass, be the first to amass 3 billion users. Like that's, like, like, that's how you're going to pay for all these compute leases and, and all this equipment and so on. Let's say that's the goal. Don't you owe your shareholders right now, as you, the fiduciary duty that you have

• 16:48Josh Brown?

  to your shareholders, don't you owe them the best possible chance of getting to 3 billion users? And isn't the best possible chance of getting there, throwing everything you have at scale at land grab right now? I think that's the way Sam Altman's thinking. So if you're Dario, you have to be thinking the same way. And look, if you don't think that they're going to raise 100 to 140 billion later this month when they go public, then that's a huge problem. But if you think that they probably will, and I do, I think they're doing what the shareholders expect them to do. The people who are invested in this company are not, it's not the Widows and Orphans Fund. It's not an insurance company in Scotland.

• 17:34Josh Brown?

  You know what I'm saying? Like, it's, it's Masayoshi Son. What do you think he's telling them to do? Guys, a riverboat gambler. Go for it. It's, it's, it's Adrian coming out of the coma in Rocky II and telling him, win. Win! This is, I don't even know, like profitability, what are you, hi? This is like, this is year three, it could be a 30-year battle for supremacy. In year three, the goal is lose money, but make it count for something. I think they think they're making it count for something. They have enterprise users out the ass.

• 18:16Josh Brown?

  They have normal, regular people talking to Claude like it's their therapist slash boyfriend. Like, this is what they're supposed to spend the money on. Now, oh, 80 billion loss. Five years ago, Kid Rock took out a machine gun and just went to town on a pyramid of cases of, of Bud Light. For cultural reasons, it was a big cultural moment in America. We're all very proud.

• 18:44Josh Brown?

  Anheuser-Busch, or Ambev, ended up with millions and millions of cases of unsold Bud Light in inventories around the country. It was a huge problem. They had to eventually take that loss. That's a real loss. That's product that you can't sell. That's not what these quote unquote losses are. So when I say sometimes a loss, not a loss, I'm not saying it's good, like negative $80 billion, I'm not saying it's good. I'm just saying, this is not the same thing as, oh, we literally lost money.

• 19:19Speaker 03

  Yeah, yeah.

• 19:20Josh Brown?

  They have an accounting loss, for sure.

• 19:22Speaker 03

  The 80 billion is a red herring.

• 19:24Josh Brown?

  Okay.

• 19:24Speaker 03

  100%.

• 19:25Josh Brown?

  So we're on the same page.

• 19:26Speaker 03

  We're on the same page about that, for sure.

• 19:27Josh Brown?

  I'm just waiting for, I'm just waiting for Scott to shut up already.

• 19:34Speaker 03

  Scott, chime in and shut him up.

• 19:37Speaker 00

  Yeah, well, in the words of another great rocket quote, I must break you. So like Talia Shire, I wasn't expecting her to make an appearance here. I had dinner with Josh last night and just for shits and giggles, I'm going to put forward the thesis I put forward.

• 19:54Speaker 00

  And Ed and Citron are going to are going to literally turn in their graves. I think in the next 36 to 48 months, there's a non-zero probability that Anthropic is the most valuable company in the world.

• 20:08Speaker 00

  Revenue went from 1.2 billion to 16 billion in the first half. That's a 13x increase. No company has ever grown revenue this fast at that absolute dollar scale. Palantir's historic 85% year-on-year growth viewed next to Anthropic's 1,200% looks anemic. And Anthropic went from 9 billion to 65 and that's 7x and trades at what 60x revenues. So they're estimating, and I think it's a conservative estimate, that in 27 or 28, they'll be at a $200 billion run rate, which implies a multiple of 10, which looks cheap or even looks reasonable compared to Nvidia,

• 20:49Speaker 00

  which I would argue is trading at suppressed earnings because everyone's worried about where the E goes. But I brought up that thesis last night with Josh and he had pretty severe pushback. So I want to recreate it. Josh, I think Anthropic might be the most valuable company in the world in three to four years. Your thoughts?

• 21:09Josh Brown?

  I don't think they have the moat that SpaceX has. So SpaceX is sort of like the blueprint for how do you go public worth a trillion or two?

• 21:23Josh Brown?

  People understand that what Elon has built is not replicable by any other company. The rockets, the payloads, the cost of getting satellites into space, the setup of Starlink. Starlink now going for 200 million users, like in a way, it's not, there's not an obvious competitor to SpaceX. There's another publicly traded company called Rocket Labs that are, it's tiny in comparison. They have two launch sites. They're trying to put up a couple of rockets a year. I'm not saying it's not a good company, but like it's a dwarf. So when I think about like what could be trillion dollar companies, I try to think of companies that have moats that are like undeniable, like you cannot replicate these.

• 22:08Josh Brown?

  It's not that you can't compete with them. It's that it's like almost a one of a kind asset. Scott, I don't know that Anthropic has the type of moat that SpaceX or Nvidia or Apple. I just, I think those moats are unassailable. And Anthropic's, we're not sure. It might be. So you could, you could absolutely end up right. I just don't feel as sure of that. OpenAI will go public in Q1. It might even get, if Anthropic is as well received as I think it's going to be,

• 22:49Josh Brown?

  OpenAI could be a January IPO. And they could rip each other to shreds for the next three years and Gemini in the mix. Like it could be really, it could be ugly. It could be a price war. I'm like, I'm open to that possibility. I don't think you're definitely wrong. I just don't feel as good about agreeing with you as I would want to.

• 23:11Speaker 00

  Ed, you talked about profitability at these gross margin. I mean, it looks like it's going to have, Morningstar says it's at 150 billion, which it might be the end of next year. And a 30% free cash flow, which it looks like it's charting towards, or 30% free cash flow margin. That's 45 billion a year in potentially free cash flow in the next 24 months. Against a $2 trillion valuation, that's 44 times free cash flow. Palantir is at 150x and there is no free, I mean, there is, I mean, this is the kind of multiple markets have paid for durable, moat-protected infrastructure businesses, to be clear. And Josh, the way I would summarize what you're saying is it's hardware versus software, right? The ultimate moat is the Falcon 9 or whatever the new rocket is called, right?

• 23:56Speaker 00

  That is very hard. You could argue Nvidia, it's not in hardware, it's in design and IP. So that's technically is, yeah, that's a moat, I guess. But this, to me, I want to be clear. I wouldn't feel comfortable saying in eight or 10 years or even five years, this is the most valuable company in the world. But I'll say it here, I think at some point in the next 48 months, if this company can sustain anything like the numbers and the lines, even if it decelerates to like 5x growth, right? And also I have a bias here. I have found, and this is anecdotal evidence, but occasionally anecdotal evidence is evidentiary, is that the product here is unbelievable.

• 24:41Speaker 00

  So I would say, I think there's a real shot that this thing, when people get excited about it, bumps up to four or $5 trillion when Nvidia and Apple have a bad quarter. And then for, I think this thing's going to sit on the iron throne for, for a bit.

• 24:56Josh Brown?

  It's an unbelievable product and it is now undergoing this, this process of recursive learning. It's teaching itself to get better. It is learning the habits of hundreds of millions of individual daily users and conforming the way it works to those habits on an individualized basis. There has never been software development like that, like ever. So what we have, you look at the large enterprise software players, they build a product, they observe the market. If it's vertical software, they understand the ins and outs of whatever. We make software for dry cleaners or we make software for people that manage payroll at large enterprises.

• 25:41Josh Brown?

  It's a version and then they update the version every three to six months and it's great. This is like updating based on what you, a normal person say to it. You're not a developer. You don't, you don't have a dev budget. The thing is getting better based on its interactions with you. I feel like that aspect of it is being glossed over. I would also say, if you are primarily concerned with the financial aspects of Anthropic, bear in mind what its cash balance is relative to how much it's raised. It really has not used up a lot of the cash that it's, so I want to get into these numbers. Ed, I'll have you react to this.

• 26:21Speaker 00

  Okay.

• 26:22Josh Brown?

  They said in the S1, they have 112.4 billion in cash and cash equivalents as of June 30th. That's 80% of the 141 billion that they've raised over the course of six years since they founded the company. So they've raised 141, they're still holding on to 112. They have 19 billion in what they call securities and short-term investments. Some of that is money market funds. So, so just like consider that liquid, let's say. So they've been pretty good with the money they've been able to raise, plus the cash flow they've generated versus the costs of running this thing. Like I, I think it's fair to say that. What do you think?

• 27:05Speaker 03

  I think that's totally fair to say. And that's why, you know, I don't have big problems. I was thinking that we were going to get this filing and it was going to be like non-GAAP Palooza. And they were going to make all of these ridiculous adjustments, take out the training costs and do all of these gymnastics. They didn't do that. It was clear, it was honest and it's very clear, as you point out, that they are making real efforts to be sustainable in terms of the amount that they spend. And I give them total credit for that. And I think it's something that we have given them credit for in the past. The thing that I'm a little stuck on is the fundamental business model itself. Because, and this goes, Scott, you mentioned the cash flows. I think that that is a backward looking analysis that, and we're not paying enough attention to the fact

• 27:50Speaker 03

  that they have already signed up to spend $800 billion. And we're not seeing any of those dollars reflected in the income statement currently. They have a more than $160 billion compute agreement with Broadcom. They have a $120 billion agreement with SpaceX, $110 billion agreement with Amazon. And to Josh's point about these moats, they have recognized that it's kind of a problem that they have to spend all of this money buying compute from companies that are actually their competitors in a lot of ways, and that they have actually expressly named as their competitors. And they have said that that's, that's.

• 28:25Josh Brown?

  What would you suggest they do? Because if they get caught without enough compute, it's probably worse than over committing. Like, given, given where we are, like, because then you definitely lose. If you can't do my work, you can't do my, uh, my workloads. Okay, no problem. Alphabet can. So

• 28:46Speaker 00

  Hundred percent.

• 28:47Josh Brown?

  There's some, there's some element. So what would you say, if you, let's say you had the ear of the business planners at Anthropic. What would you tell them to do if not lock up as much compute as you can on a guaranteed contract basis?

• 29:00Speaker 03

  Well, this is where I think I agree with you, which is, I think they're probably get making the right decisions, given the situation they're in. And by the way, they've told us what they're gonna do. And that is they're gonna start building their own compute. And this is what I thought was most important about the filing where they said that they're gonna build out uh, compute infrastructure that will require, in their words, substantial capital expenditures that will, in their words, quote, change the cash flow profile of the business. So for me, I, I think their answer is like, we, we can't, we can't continue in a situation where Google might rope us into some onerous agreement because, you know, they're our competitor and we've named them as such. We have to be independent.

• 29:43Speaker 03

  But to me, that means spending tens of billions of dollars, which we're not seeing reflected.

• 29:48Josh Brown?

  I think they could buy a Neo cloud.

• 29:50Speaker 03

  Maybe that's the answer. Maybe once all of the wreckage of the Neo clouds has been sort of piled up, maybe they'll go in there and buy a Neo cloud on the cheap. That honestly, I think that might be the answer. I think that's a good idea. But my point isn't to say they're making bad decisions, they're stupid, that they've got it all wrong. I don't think that at all. I think that they, you know, for what they've done, it's incredibly impressive. I just think that the position that they're in is actually very difficult. And I think that it aligns with your points, Josh, that they don't have much of a moat here. They're competing with these other companies that already have their own cash cows and these businesses that are incredibly profitable. They're plowing their money into compute.

• 30:29Josh Brown?

  Who has more of a moat to you, OpenAI or Anthropic? So ChatGPT or Claude?

• 30:35Speaker 00

  No.

• 30:35Josh Brown?

  Which, which, which has a moat? Neither?

• 30:38Speaker 00

  Well, if momentum is a moat, no, in software, it is very hard. I mean, your moats are intellectual property, human capital, culture.

• 30:46Josh Brown?

  I'm more worried about ChatGPT.

• 30:48Speaker 00

  Well, the momentum right now is very much for Anthropic and slightly against ChatGPT.

• 30:53Josh Brown?

  I a hundred percent agree with that. And the enterprise business at, at Anthropic, the Claude enterprise is much further along.

• 31:02Speaker 00

  And they're less price sensitive. Like, there, a couple of things. Add your, add your number about the, the commitment. And that's used as the scary thing here is the infrastructure. The number is somewhere between five and eight hundred billion, based on the reporting I've seen. And some of these are firm, non-cancelable contracts. Others are options with looser commitment language.

• 31:22Speaker 03

  The SpaceX one, yeah.

• 31:24Speaker 00

  But the numbers I've seen and the gross margins I've seen show that if it, if it maintains anything resembling the scale it's growing at, that it's gonna begin to hemorrhage cash. And the question I would have is if they're showing, and granted, I hate some of this adjusted EBITDA bullshit, but it does look like they have positive gross margins. And at this, and at this scale, wouldn't you expect those compute costs? It already has the second greatest revenue per employee, just behind Nvidia. In a company that's five years old or six years old. If it just continues, even if it, its growth rate's cut in half, it strikes me

• 32:06Speaker 00

  that the cost for a computer are gonna go down. And at this scale, which is one-fifth, one-tenth, one-twentieth of the scale they're estimated in the next, estimating in the next twenty-four to thirty-six months. It feels like those gross margins should only go up. And they are able right now to show something resembling being an earshot of substantial free cash flow without a fraction of the scale that it looks like they're gonna be at in twelve or twenty-four months.

• 32:33Josh Brown?

  The per unit cost of compute is going down. It's actually crashing. The thing is, the usage is going up by so much that the, the overall dollar amount being spent on compute does not fall. It goes up. So the per token cost is plunging, like it should. This is the history of technology. That's good. The thing is, the services are so popular and in so much demand that while the per token cost falls, the sheer explosion in everyday usage is rapidly outpacing that so that the dollar cost of compute is not falling.

• 33:16Josh Brown?

  It's, it's, it's rising. But you'd, you'd make the argument, that's actually a good thing because it, it shows how sustainable the, this bull market in, in AI demand should be. What do you think about that?

• 33:32Speaker 03

  I think that the fact that the, the token spend, that the spend on the tokens on the, on the, the um, application layer end is going down is a problem for Anthropic and OpenAI. So I think compute costs per token, per token compute costs coming down is gonna be very important for them. And I think the more that they can manage figuring out how to, how to get as much compute as possible and paying the least amount for it, that's what they have to do. I think they're in a difficult position to do that. But if, if, if the, the per token compute costs are coming down for them, that's a great thing. The only thing that's the problem is if the startups who are buying the, the tokens or buying the LLMs

• 34:13Speaker 03

  usage from them, if that per token spend is also going down, which it is, then that is also gonna be a problem. Because it means that their revenues are gonna start to slow. And that's what I worry about. And I worry that, that considering the extent to which that, their business model is reliant on startups that are primarily funded with VC dollars. In fact, based on Ramp's data, they show that eighty percent of the spending on OpenAI and Anthropic is coming from one percent of the companies. And within that one percent, eighty percent of them are venture backed. It seems as though they're reliant on capital continuing to rush in, in Silicon Valley, in the VC industry.

• 34:54Josh Brown?

  They're reliant on the stock market to stay buoyant.

• 34:56Speaker 03

  I, I guess here's where I land. I think this is where probably you and I agree, Josh. And you point this, point this out about Master Son, which is like, I think you said he's a riverboat gambler, like he's making these very bold bets. And I think that's what this is. And I think as a, as a result, all I can say is it could be an incredibly valuable company, but I think they could also get caught in a very bad situation. And there is significant risk that they don't keep up with their costs. And eventually they could go bankrupt.

• 35:29Josh Brown?

  I know you guys have spoken to Steve Isman. We had him on our show recently. Maybe he said the same thing. But I do think that this is the, the crux of the matter. The Fortune 500 CEOs and CFOs two years ago said, do AI to their employees. What do you mean? I don't know. I'm on, I'm on a stage every week somewhere. And everyone's talking about these amazing things that they're doing with AI. Go do some AI. Okay.

• 35:59Speaker 00

  Do it.

• 36:01Josh Brown?

  And in the early days of this, it's crazy to be told that the early days, I'm told that like eighteen months ago. The way that enterprises were being billed was like, you know, SaaS, like, oh, here's how much per head per month. Go at it. And then the token call, the, the token use just started getting out of control, like guys pressing enter and just having the machine running for forty-eight hours over the weekend while they were in Cape Cod. Like, that's obviously not gonna, so the, the, the guy from Uber came out in March and said, we blew through the twenty-twenty-six token budget uh, already for the year in, in the first quarter. So now you have two things happening at once, and this is the real bear case.

• 36:44Josh Brown?

  Number one, there's gonna be some sort of budget on AI use company-wide. And they're gonna have to make decisions like, okay, this department gets X dollars in budget for AI. That department only gets Y dollars because what the hell are we doing here? We're not running experiments. We're running a business. Okay. So I wouldn't say rationing token use. I would say rationalizing token use. Okay. So that's one thing.

• 37:12Josh Brown?

  The second thing is the, the free weight, uh, the open weight models, the free models. And just this idea that there actually are no switching costs. And a Fortune 500 business with a sophisticated IT department and an army of consultants, they look at the quarterly numbers, they say, why are we, you know, seven cents per share behind expectations? Where do we trace it back to? Oh shit, look how much money we just paid Anthropic. Isn't there a way that we can swap in some of the, like, we can use a harness? And the harness will be a governor on cost and it'll decide, okay, for this leg of the trip, we need a Mercedes Benz. But that's only ten percent. For the rest of the ninety percent of this, of the trip,

• 37:57Josh Brown?

  we'd be fine with an OX cart. And all of a sudden, you start seeing companies get smarter about the efficiency with which they utilize these tools. That's obviously bearish if you're trying to sell the premium furthest out on the, on the frontier model at a premium price. So to me, that's a really reasonable bear case. And probably, you don't have to go so far as say it's a price war. Maybe it is. But like, it's the opening innings of people being a little bit more governed about how they're spending money and where the money goes.

• 38:38Speaker 03

  We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us on YouTube or on Spotify or wherever you get your podcasts.

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• 42:05Speaker 03

  We're back with Prof G Markets.

• 42:07Speaker 00

  I wanted to hate this S1, but after reading it, I just, I couldn't help but recognize some of the numbers here. And I've now, I want to say I've done a 180, but this is a company that, as far as I can tell, posted positive adjusted operating income. And I hate the word adjusted because it did take out, it excluded stock-based comp. But they posted essentially adjusted operating income for a company that's scaling at an unprecedented rate. What's so rare here is the combination at this growth rate. Most companies growing 13x are burning cash at an accelerating rate, not approaching profitability on an adjusted basis.

• 42:49Speaker 00

  And if you look at this thing in the pricing, it's pricing cheaper than Palantir and roughly in line with Nvidia while growing much faster than both. It just feels like on a risk-adjusted basis, and I want to be clear, there are existential threats everywhere. If all of a sudden, if a programmer at Anthropic accidentally tells, tells the bots or the agents to be creative and have a sense of humor, and it starts, it decides to disclose a billion people's porn usage, the next day it's shut down. There's all sorts of political, political existential risk here. If Nvidia figures out a way to put their chip on an iPhone and go straight to client,

• 43:33Speaker 00

  if, if, if Facebook takes advantage of the agentic layer and connects the 500 million businesses they already have a relationship with, that the three billion consumers they already have a relationship, there are existential threats everywhere. But based on what we're seeing now, if they can navigate this landmine and continue to show a fraction of the growth they're recognizing right now, this thing becomes a cash spigot trading at a multiple that makes, that makes Nvidia and especially Palantir look expensive.

• 44:05Speaker 03

  But I'm not worried about the political risk. I'm worried about the financial risk that they've already signed up for. I'm worried about the $800 billion that are about to show up.

• 44:15Speaker 00

  I worry more about the former.

• 44:16Josh Brown?

  I worry about both. You know, if, if, if the Europeans decide that they don't really want this in their country, or there's got to be.

• 44:29Speaker 00

  U.S. Frontier Labs, you're out.

• 44:30Josh Brown?

  Yeah, there has to be a different version that conforms to the EU and, you know, this could, this could happen in Asia too. Like, I think we're, we're so early in this, we don't even really know where the true political fault lines are. And I, like, to me, that's why, Scott, it's not pricing in line with, with its growth. It's, I think the market is being, I know it sounds crazy. I'm saying the market's being rational, and then it's going to be a $2 trillion company with losses. I just think like, we're not pricing this thing based on its, its growth rate and, and

• 45:14Josh Brown?

  not taking into account all the existential risks that you just cited and I did. I think we're, we're sort of doing both at the same time.

• 45:20Speaker 03

  Do you think it goes out, Josh, at $2 trillion? Because there's been debate, it might get cut down to one and a half.

• 45:26Josh Brown?

  If it gets cut down to one and a half, it'll get to two. I think the, the enthusiasm around this company will be peaking right as it, right as it goes public. Like, I don't think this is one of those things where, oh, they, they fucked up, they stayed, they stayed private too long, and the heat is off of this thing. I actually think they nailed the timing. And again, I, so Sam Altman did something interesting. He said, actually, we're not going to go public until we figure out all these safety issues because, this is the part he didn't say out loud, I don't want my S1 to read like Dario's S1.

• 46:06Speaker 00

  Yeah, because he's such a thoughtful guy, concerned about us.

• 46:09Josh Brown?

  Well, no, opportunistically, he's saying, let Dario write the S1 that talks about the extinction of humanity, and then I'll come public and say, I've solved safety. That might have been a tactical error. So I think this company is coming public just as the excitement around it is peaking. And that's, that's a good thing, that bodes well for the first few days of trading. I also think we now have some prototypes in the market for staggered liquidation periods for shareholders, like Cerebras didn't go as well as it could have, and then SpaceX came along afterwards and sort of did it better.

• 46:51Josh Brown?

  And then, you know, whatever they've learned from that, they'll apply now to the Anthropic IPO. Like, we, we are learning to do 100 billion to $1 trillion IPOs in real time. The bankers have this instant feedback loop that they're benefiting from, and it's just a different day and age. So do I think they could raise $100 billion? Yeah, like with their eyes closed, they could do it in the private market right now if they wanted to. What they actually, what they need to do is say, we're the safe one. We're publicly traded, we're conforming to SEC, we're answerable to like all of the regulators

• 47:31Josh Brown?

  around the markets, debt and equity, like, we're the, we're the consumer-friendly, safe, we're the ones that wring our hands in public about all the risks to humanity, like, we're the good guys. That's the, that's what they're doing here with the IPO. They don't have to go public right now. I know people said, they better go public right now or they're screwed. I don't think that's true. I think they could do a Series G and easily raise $100 billion. I think this is the smart move to, the ducks are quacking on Wall Street. If you, if you never learn anything from me, other than this, it's good enough. When the ducks are quacking, you feed the ducks. That's what they're doing.

• 48:14Speaker 00

  All right. So Josh, we're increasingly hearing, open quote, bubble claims. Ken Griffin and Ray Dalio both suggested last week that we're in a bubble. What's your response to the bubble question today?

• 48:25Josh Brown?

  If it is a bubble, it is the most pathetic bubble.

• 48:31Josh Brown?

  I have ever seen in my life. We are discounting. We are

• 48:35Speaker 00

  I agree.

• 48:36Josh Brown?

  factoring in growth skepticism. Every single day, the market has opened. It is an anti-bubble. The only thing that you can credibly say is that it's an earnings bubble. And that the profitability our tech giants are enjoying today is not sustainable. You could say that. You cannot say it's a valuation bubble. The semiconductor industry is the largest contributor to tech earnings growth. And there's a lot of tech earnings growth and the semis are by far the biggest contributors. The year-over-year estimate for tech earnings growth is sixty-five point six percent for the quarter that we're in now. Just think about that number for a second. Okay. Sector-wide, it's not one company.

• 49:22Josh Brown?

  Sixty-five percent for the tech sector.

• 49:26Josh Brown?

  If you exclude semis and semi-equipment, it falls to only twenty-four point nine percent. So the entire tech sector is growing twenty-five percent and within that the semis are almost triple that. We're getting tech reports now that are continuing to crush. We had Western Digital, print, four dollars sixty-four cents in earnings versus four eleven expected. Oracle, dollar ninety-two versus a dollar seventy-four. Big earnings per share surprises. And yet we are seeing a contraction in the number of fifty-two week highs within the SMH, the semiconductor ETF. There has not been an above-average reading, which I would say is like seventy percent or higher names making new highs.

• 50:10Josh Brown?

  Since July, there are zero percent fifty-two week highs for the semis. How? Explain to me how that's a bu- why is it a bubble? How is it a bubble? Here are the three cheapest stocks in the market right now. SanDisk has a price-to-earnings growth or PEG ratio of point zero eight. Point zero eight! In a bubble, it's like five. Micron, point one oh. Western Digital, point one three. Micron is selling at five times earnings. So if this is a bubble, it is the worst bubble ever. I want my money back.

• 50:47Speaker 00

  I pity the fool that thinks this is a bubble. Another Rocky quote.

• 50:52Josh Brown?

  Nvidia's forward PE is fifteen times earnings. This is the lowest valuation, I think, in history on a forward earnings basis you have ever had the opportunity to buy Nvidia. Now, I'm not saying it should be thirty times. Should it be fifteen? And if it is fifteen, the only bubble must be there for in this year's earnings. It's not in the valuation.

• 51:20Speaker 03

  Scott, I agree with Josh and keep talking about it. Do you have any follow-ups?

• 51:25Speaker 00

  I'm looking up Rocky quotes right now, so.

• 51:30Josh Brown?

  My rings outside is the great. This is the greatest Rocky quote. They say he's on the street. Or he's inside, the guy wants to fight him. He says, my rings outside.

• 51:43Josh Brown?

  I didn't hear no bell is another good one. Get up, you son of a bitch.

• 51:49Speaker 00

  Nobody owes nobody nothing. You owe yourself.

• 51:51Josh Brown?

  Yeah, yeah.

• 51:54Speaker 03

  Josh, I'll put forward a thesis.

• 51:58Speaker 03

  So I'm, I agree with you. Like, when we look at the multiples on like the hardest AI names, they have come down. Nvidia's multiple has fallen almost fifty percent since last year. Micron's has fallen. But it's gotten cut in half. Broadcom's, SK, you know, so I'm totally with you. Which is like, if this is a bubble, and I think you could make a claim that it is, you say, like there's, you know, I guess it depends on your definition of bubble. It's a very, very small one where it seems as though all of the risks of things going wrong are being priced in. And to me, I'm kind of like, oh, that's, that's good. It's almost like we've seen the big short so many times.

• 52:43Speaker 03

  All of the stories are so resonant and so real in our minds that Wall Street is going, yeah, we're not going to make that mistake again. We're going to predict and we're going to front-run the possibility that there are boom and bust cycles. We've gone through the boom and now the bust is probably going to happen. Which I honestly think that they're right about. And so my expectation is that we're going to see some sort of correction. We're going to see some sort of drawback. There'll be some problem. We're beginning to see it with the NeoClouds, which everyone was very excited about last year. And now people are pointing out that they have some precarious debt obligations and will the money run out? And I think for a lot of them, they will.

• 53:19Josh Brown?

  I think that's bullish.

• 53:20Speaker 03

  I was going to say, if we see a crash, it'll, it'll look like nothing compared to the real crashes that we've seen in the past. And it'll be fine.

• 53:28Josh Brown?

  We're taping Tuesday. Tomorrow night is Wednesday. We're going to get Microsoft and Alphabet. And then on Thursday, we're going to get Amazon. So, and then this episode will come out. So I won't say.

• 53:43Josh Brown?

  What I will say is if you think there's going to be a shakeout in the NeoClouds that are spinning up all this compute and are doing it with debt capital, and you think that that debt capital will be less available or unavailable, and that is a worst-case scenario for that part of the market, who is it good for? Well, if you're AWS, which Amazon Web Services hit twenty-eight percent growth in the April quarter, thirty-seven percent growth in the July quarter, they reported four hundred and ninety-six billion dollars in backlog

• 54:23Josh Brown?

  for AWS, the last time they reported. To put that into perspective, three-quarters prior, it was two hundred billion. So if you're AWS and four or five NeoClouds somewhere in the world fold, that's pretty cool. Because you are ready to serve that demand. Your backlog will only grow. If you are SpaceX, that's pretty cool. We are the best builders of compute on the planet. We got this. Don't fucking worry about Nebius. We got this. If you are Microsoft Azure, if you are the Google Cloud, how is it bad if the NeoClouds can't raise money at less than fifteen percent? It sounds great to me.

• 55:07Josh Brown?

  What does the stock market care more about? Nebius and CoreWeave? Or Microsoft and Alphabet? And then lastly, lastly, we really only have two examples in the publicly traded market of a company that has a premier model and its own source of compute to run that model. We have, obviously, Alphabet and Google Gemini. And now we have Meta and Muse. Something tells me that's going to become important. At some point, investors might actually care about a company that's got AI end-to-end.

• 55:51Josh Brown?

  We face the consumer with our own proprietary product and we supply the compute to that product. I don't know when, but when we talk about what could be the largest company in the world, unfortunately for Anthropic, they're going to spend nine hundred billion dollars on compute. They're not going to supply any of it unless they spend a lot of money to build it, as we talked about.

• 56:17Josh Brown?

  Microsoft had a partnership with OpenAI. That seems to have not gone well. Now they're bring-your-own model like everybody else. Okay, fine. But the Alphabet-Google Gemini thing could become really strategically important. And the Meta-Muse thing too. And I'm not saying that's actionable today, but tuck that idea in the back of your head because we only have two companies that can run their own compute and have the front end that touches the end user.

• 56:43Speaker 00

  You don't think AWS qualifies for that? First off, verticalization is inevitable in any company that wants to sustain.

• 56:49Josh Brown?

  What's AWS's AI product Rufus that helps you find the cheaper cheaper product on the? I mean, I guess they have chatbots.

• 56:58Speaker 03

  I didn't even know what that is, so that says something.

• 57:01Speaker 00

  Yeah, that says something, but.

• 57:02Josh Brown?

  No, it's not a large-scale LLM. In fact, in fact, Amazon had Bedrock, which was the original bring-your-own-model platform. And the big idea was that AWS does not discriminate. We don't care what kind of AI you want to use. You can use it here. And that made a lot of sense in the early days, and I'm not saying it won't in the future, but just think about that we only have two end-to-end AI players today. That might become important at some point in the future. And then people might come back and revisit this conversation.

• 57:40Speaker 03

  We'll be right back. And for even more markets content, sign up for our newsletter at profitemarkets.com.

• 57:54Speaker 07

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  We're back with Prof G Markets.

• 59:17Speaker 00

  I just want to put a footnote on your Amazon call. My big tech stock pick for 26 is Amazon. Ed likes Meta, but we pick Amazon for different reasons. While AWS, I agree with you. Yeah, it's going to be a serious unlock. I think it's return or the empire strikes back around the retail unit. Because what I see is a collision between industrialized robots and AI. And Jassy is saying that he thinks they can double the size of their retail business by 2032, which by dollar volume is their biggest business without one single incremental hire. So all of a sudden, this large, top line, low margin business is about to become a massive top line business with reasonable margins.

• 59:57Josh Brown?

  I like that idea. I think it's three years from now, but robots as a service. The same way that they AWS was initially conceived as being for internal use. Like, we need our own, we need our own cloud. And then the thing that got Sundar the top job is like, oh, we're going to turn this outward and everyone's going to utilize this. It's not, it's not impossible that what you just said, Scott, ends up being really important, which is, do you want to own your own robot, really? Or do you want to utilize Amazon's by then fleet of millions of capable robots and rent them? And it could be big.

• 1:00:39Speaker 00

  400,000 industrialized robots in America sounds Amazon. Amazon has a million. You said something before, Josh, that struck me that how, that what you think is bad for the markets actually is good for these guys. You said something that really struck me. You said recently that high interest rates and high oil prices turn out to be great for the market. What did you mean by that?

• 1:01:00Josh Brown?

  We make this mistake. We talk about business or corporate America monolithically, as though like it's all one thing. And what's good for business is good for business.

• 1:01:13Speaker 00

  Or good for people or the economy, right?

• 1:01:14Josh Brown?

  Yeah, so the reality is, is when you look at the S and P 500,

• 1:01:21Josh Brown?

  those are not just businesses. Those are literally the best one and two companies on the planet in their category. Almost, almost by definition, the way you get into the S and P 500 these days, I think the minimum market cap is around 25, 30 billion. So these are obviously companies that are, have proven they can do billions of revenue. You have to be profitable. These are, so this is not business. These are 500 Michael Jordans. People don't understand this. They think like there's some correlation between business, like all businesses, and there really isn't. When you have higher compliance costs, higher energy costs, difficult trading issues,

• 1:02:06Josh Brown?

  and international law and all of these things that are a huge headache for an average or a substandard business, those become moats for the biggest businesses because they are the only places that can appropriately staff with the experts that help them navigate, or they have the scale to almost circumvent. The MAG7, these are basically nation states with ticker symbols. So sometimes, quote unquote, struggles in the economy actually end up being tailwinds for the largest companies in each sector because they actually take, they take on a comparative advantage

• 1:02:51Josh Brown?

  and they take market share from everyone else. And the only proof of that idea that you need to see is a 15 year chart of the Russell 2000 versus the S and P 500, or the NASDAQ 100 versus the Russell 3000. And then you, then you begin to understand, oh, you mean all these challenges along the way were actually showing up in the stock market in the form of regulatory capture, economies of scale, you know, and all these things that benefited the S and P 500. So unlike Rocky, the investment class doesn't, is not busy rooting for underdogs. We are reveling in the fact that we have these international champions that trade publicly

• 1:03:36Josh Brown?

  here in the US. And the worst conditions get for most companies, the more of an advantage they find themselves squeezing out when you get to the other side.

• 1:03:47Speaker 03

  I think a lot of people hear that, Josh, and they're like, that's depressing. Or that's a shame. It's like.

• 1:03:54Josh Brown?

  This is why you guys have me on the show, though. Cause I'm, I say what it is, not what I would like it to be.

• 1:03:59Speaker 00

  Josh is the most uplifting person we speak to.

• 1:04:02Speaker 03

  But I guess my question for those.

• 1:04:04Speaker 00

  Your guys' zittrin makes me want to find guns and butter. I mean, anyways, let's go ahead.

• 1:04:10Speaker 03

  For those who hear that and are like, okay, so the biggest companies continue to get bigger. The rich get richer. The winners win more than the losers.

• 1:04:20Josh Brown?

  No, no. Anthropic is going to create, when all is said and done, thousands of multimillionaire households. I have spoken to people who work there. These are regular people. Not everybody working at Anthropic is on their third go round in Silicon Valley with like stock options coming out of their ears and, and, you know, 10 million dollar houses. They're regular people. They followed their dream. They wanted to work on something that had meaning some way or another. They met a recruiter from this company. They took the job. They believed in what the company was doing. They're still there. They've accumulated stock options.

• 1:05:03Josh Brown?

  We talk to people who have never had investments, who are now going to have $50 million overnight. This can still happen in America. It'll never happen in Europe. They're almost right laws against it. It's crazy, but it's true. So I, so I don't want, Ed, I don't want what I said about size advantage and national champions and that dominance to be construed as it only benefits the rich and the rich keep getting richer.

• 1:05:32Speaker 03

  Yeah, because the reality is these companies are in, are in everyone's 401Ks. I mean, we're talking about the S and P, but there is a dynamic of bet on the biggest companies. Bet on scale.

• 1:05:44Josh Brown?

  In the public markets, that actually is an investment thesis. It's been working for like a decade and a half since the financial crisis. There are a lot of reasons behind that that we don't have time to get into. Monetary policy, we don't police necessarily, we don't even pay attention to monopolistic behavior anymore, except briefly when there's a Democrat in the White House. Like, there's a lot of things that go into that stew, but you can still invent something that changes the world overnight. You could still come out of nowhere. Not, the best investments are not necessarily being birthed in Cupertino at Apple. Like, a lot of cool things are being invented elsewhere.

• 1:06:28Josh Brown?

  And you can change your life, change your coworkers and your employees' life. You can do that in America still. In the public stock market, basically, the S and P 500 is being driven by the earnings power of like 50 or 60 companies. The other companies, it's not that they're not all so profitable. They're not big enough to move the chains mathematically in the index. So what I'm trying to say is, don't think about is this is such and such good or bad for business. Ask the smarter question. Is this good or bad for the MAG7? Is good or bad for the S and P 100? Cause that's what will affect your investments.

• 1:07:11Speaker 00

  The only asterisk I just want to add here around, you're right, this could only happen in America. If Anthropic, which was founded six years ago, had been founded in Europe, it'd be one of the five most valuable companies in the world. But there is a pretty serious concentration of wealth here. It's 5,300 employees. You know, Eli Lilly has 60,000, P and G has 100,000, Apple has 150,000. And this is a trend. And granted, I do think that AI over time will create more jobs than it destroys. But we are in a bit of a weird spot right now where the best earnings calls in the world are where Meta says we grew 23% with 20% fewer employees.

• 1:07:51Speaker 00

  There is, there is a fear here that the wealth, the wealth concentration. I mean, rents are supposedly up 24% quarter on quarter in San Francisco. The SpaceX IPO created 12 new billionaires in Texas. Meanwhile, there's a lot of people who are just freaked out about gas prices or can't afford, you know, 40% of American households have dental or medical debt. I'm an AI optimist, but when you see a company like this worth this much money and spreading it across, at least I get the 401K, I get the valuations, stock market. But the reality is, as you pointed out to me last night, Josh, 10% of America owns all of the stocks. There is something that we have to keep a real eye on here, and it's potentially very dangerous,

• 1:08:36Speaker 00

  that it seems like a disproportionate amount of the spoils are going to a fewer and fewer number of very talented and also very, very lucky employees.

• 1:08:44Josh Brown?

  Can I asterisk your asterisk? Anthropic doesn't owe anybody employment or stock options.

• 1:08:50Speaker 00

  Agreed.

• 1:08:51Josh Brown?

  Yeah. When they commit to something like eight or 900 billion dollars in compute, that all has to get built. You're talking about millions and millions of jobs. One of the really interesting things that I didn't read a lot about, or you don't hear the politicians say, all this back, quote unquote backlash against the data centers. You know, it's not saying a peep. The construction unions, because they love it. Because it's guaranteed employment as far as the eye can see for as many members that they have. And probably they could double the size of their membership just to satiate the demand for construction of all these things. There's a ripple effect.

• 1:09:36Josh Brown?

  Anytime a company like Anthropic comes along and spends money the way that they're spending. And maybe it doesn't show up in the form of stock options for a million people, but it's employment for a million people. It's a lot of projects, a lot of work to be done. And I think it would be nice if everybody had a million dollar portfolio. But the next best thing is everybody working. The dignity that comes along with that, the pride, the opportunities. Being out in the sun on a construction site is better than sitting at home and saying, yeah, we showed them no data center in our backyard. So I think there's more to it than just how many people get stock options.

• 1:10:16Josh Brown?

  Although I do agree with the premise that we have to create more investors in this country. Desperately, desperately.

• 1:10:24Speaker 00

  Being outside in the sun on a construction site, the three of us.

• 1:10:28Josh Brown?

  Not that I know anything about that.

• 1:10:30Speaker 00

  I was gonna say, you look like a construction worker. I'll give you that, but to your point.

• 1:10:34Josh Brown?

  Yeah, we make, we build bagels where I'm from.

• 1:10:37Speaker 00

  The Economist.

• 1:10:40Speaker 00

  The Economist has said so far, it looks like AI thus far has created a million jobs and has destroyed 100,000. So I am with you. I do think it's going to create more jobs than it steals. I'm gonna get into taxation. Ed, do you? Oh, I have a question for you, Josh. I would love for you to talk a little bit. You've been like me, a long time Netflix bull. What are your thoughts on what's going on at Netflix?

• 1:11:01Josh Brown?

  This is the stock that I am the most wrong about this year. So I bought it at 100, down from 140. I thought it was a steal. Then I bought more in the 80s, then I bought more in the 60s. Then it got into the 70s and I sold half right before they reported. And I'm glad I did. Now it's 63. It's just a slow bleed. I think the big problem for Netflix, they're being compared to something that they can't do anything about. So Wall Street.

• 1:11:32Speaker 00

  What's that?

• 1:11:33Josh Brown?

  Wall Street has become obsessed with this metric, time spent. So it's measuring the amount of hours that people spend watching Netflix versus everything else. And they're being compared to YouTube, which has now lapped Netflix. It's 2X the amount of time spent. Now, I don't know, I don't know that that's meaningful. Do people just put YouTube on a screen and walk away into the other room? Probably. It just auto plays. It just, like if somebody's watching Prof G Markets and that ends, then maybe my show comes on and then maybe someone else, and it just plays. Is that like, is that meaningful really to anyone? Well, unfortunately for Netflix, it's the thing that's being scrutinized more than anything else.

• 1:12:17Josh Brown?

  Netflix is hugely profitable. They're earning like $3 billion a quarter. They're expanding internationally. They just shook up the programming people. They brought someone in who's pretty well respected. The quality of the movies is not great. The typical show that they've put out is not great. That could be fixed. It's not rocket science. Just, you know, the way that they're spending money has to, this $20 billion annual film and TV budget, just do it better. Like they've done it before. The thing is, it almost doesn't matter because Wall Street is fixating on, are they losing to YouTube? And they are. And I don't even know that they can do anything about that other than to lean in on the fact that it's premium content.

• 1:13:02Josh Brown?

  And because it's premium and the viewer actually chooses it rather than has it auto played, that there's some signal there about future subscription holding up and future cash flows as a result. I think they, they can do that. What's not gonna work is trying to be YouTube lite and just throwing podcasts on the platform and video games. And, you know, I think they should, they should do what Paramount's about to do, which is double down on the quality of the programming and make the case to the street that these viewers are, these users are really sticky. I think they put out East of Eden. I think it's the best thing they've made in five years.

• 1:13:42Speaker 00

  Fantastic.

• 1:13:43Josh Brown?

  They can do it when they put their minds to it. I think they've gotten distracted. Paramount's gonna double down on HBO. You'll see. Premium, quality, stuff that you can actually raise the prices for because people can't live without it. You're not gonna do that with podcasts that somebody could just watch on YouTube. So I think they've gotten the memo. They brought this guy in from Disney. He's got an extensive history in the studio system. He's done big sports deals too. You, you need to have must have programming that people get pissed off when everyone's talking about it and they didn't see it. That's the, that's the roots of what Netflix did with House of Cards in 2013. Completely reinvented what the platform was. They can do it again.

• 1:14:27Josh Brown?

  I think the good thing is that they've now identified that that is the solution. The solution is, hey, we can do YouTube too. That's not gonna work.

• 1:14:35Speaker 00

  Although I, I would push back. I do think Netflix should acquire independent podcasts at any price, Josh.

• 1:14:41Josh Brown?

  I'm sure you do.

• 1:14:42Speaker 00

  At any, at any price.

• 1:14:43Josh Brown?

  The best, the best ones.

• 1:14:44Speaker 00

  Ed, bring us home. Wrap this, wrap this dog's breakfast up. Quoting Talia Shire. You lost all credibility right out of the gates there.

• 1:14:53Josh Brown?

  When?

• 1:14:54Speaker 00

  The amazing Talia Shire. I've pitted a fool.

• 1:14:58Josh Brown?

  Hold on, did you even watch Rocky II ever in your life?

• 1:15:01Speaker 00

  I've seen all the Rocky films.

• 1:15:02Josh Brown?

  Not you. I knew, I know you did.

• 1:15:05Speaker 03

  I'm gonna get destroyed. No, I haven't. No, I haven't.

• 1:15:08Speaker 00

  You haven't seen the Rocky films?

• 1:15:11Speaker 03

  No.

• 1:15:12Josh Brown?

  Scott, are we gonna put up with this?

• 1:15:13Speaker 00

  Jesus Christ, man.

• 1:15:17Speaker 03

  I was, I was praying this question would not be asked of me. Cause I fancy myself a movie buff, but it's, it's a pretty, it's a weak spot.

• 1:15:26Josh Brown?

  Stop now. Movie buff.

• 1:15:28Speaker 00

  That hurts.

• 1:15:30Speaker 03

  But you still love me, right?

• 1:15:32Josh Brown?

  Oh, my God. You couldn't love me more. Just, you don't have to watch all 12 of them. You sort of get the gist, but the first four are canon.

• 1:15:42Speaker 03

  Yeah.

• 1:15:42Josh Brown?

  They're canon.

• 1:15:43Speaker 03

  I know.

• 1:15:43Josh Brown?

  You have to catch up.

• 1:15:45Speaker 03

  I'll do it this weekend. And then I'll give you a call and I can give you my thoughts. My final question, we had you on at the beginning of the year. There were a lot of concerns about the market, very similar to the concerns that we're talking about today.

• 1:16:00Josh Brown?

  How'd I do?

• 1:16:01Speaker 03

  And we're up 12% and you did very well. And you said that earnings growth would be extremely strong. You felt that there were, and believe there were a lot of tailwinds going into this market that outweighed the headwinds so far. Look at the numbers. That has been correct.

• 1:16:19Josh Brown?

  Here's a freebie. When the S and P is up double digits through the midpoint of the year, you have like an 89% chance that the high of the year will take place in December.

• 1:16:33Speaker 03

  Hmm.

• 1:16:34Josh Brown?

  Like the.

• 1:16:34Speaker 03

  That is a historical.

• 1:16:37Josh Brown?

  Well, we only have 100 years, we only have 100 years of data. So I won't call it science, but it's a lot of years of data. And it turns out almost all the time in bull markets, which we're in, the high of the year is either in December or January.

• 1:16:54Speaker 03

  Well, that was gonna be my question, which is where does the S and P end at the end of the year? It sounds like you think higher.

• 1:17:00Josh Brown?

  Look, I thought we would have a volatile October, which is also seasonally, like historically seasonal. And we did. And it was, you know, it was selected and kill everything, but we had real corrections. And we had semis down 29%. We had industrials down 30%, like some big name industrials down big. Like it, the financials got killed this, this past month. The thing is, we got through the Fed meeting. We knew they had to hike because they had to hike. Now you have bond yields backing off. Oil is not quite backing off, but it's not racing higher. Get another Fed meeting, fine, whatever. Get the stupid midterms out of the way. Come Thanksgiving, people are sitting around looking at their portfolios.

• 1:17:45Josh Brown?

  They're up 15% and Anthropic price as well. Like that's the setup. Like, oh shit, the midterms were over. They did the stupid token weight hike. They priced the biggest IPOs in history. And I don't know, I'll buy something. I just like, I just feel like it resolves that way. So where, where that won't happen is an exogenous shock that no one sees coming. I, yeah, sure.

• 1:18:11Speaker 00

  So yeah, this is why Josh is managing 11 billion and I'm managing 23 millennials that are bitching about pet bereavement leave. By the way, you don't, you really don't know who Clubber Lang is. You really don't. Clubber Lang, that means nothing to you. Apollo Creed, Apollo Creed, that means nothing to you?

• 1:18:30Speaker 03

  Uh, I've seen Creed. Is that, I assume that's what I did. Yeah, I've seen Creed.

• 1:18:35Josh Brown?

  That's his son. You see, the son had to get revenge.

• 1:18:39Speaker 03

  Well, next time we'll do a movie podcast.

• 1:18:41Speaker 00

  I'm here to pick up my daughter. That's how I feel right now. Anyways.

• 1:18:44Josh Brown?

  Love you guys. Thank you for having me back.

• 1:18:46Speaker 00

  Love you, Josh.

• 1:18:47Speaker 03

  Josh Brown is the co-founder and CEO of Ritholtz, a New York City based investment advisory firm managing 9.5 billion dollars in assets for individuals, corporate retirement plans and foundations. You can also check out his podcast, The Compound and Friends for more. Josh Brown, we always love having you. Thank you so much.

• 1:19:05Speaker 00

  Thanks, brother.

• 1:19:05Josh Brown?

  Thank you, guys.

• 1:19:08Speaker 03

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carti. Our research team is Dan Shalane, Kristen O'Donoghue and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and join us for a fresh take on the markets on Monday.

• 1:20:18Speaker 02

  Support for the show comes from TikTok. There is a scientifically documented correlation between listening to podcasts and curiosity. So since you're here, you probably enjoy discovering new things. One great place to indulge your curiosity is TikTok. Whether it's how to forecast volcanic eruptions, strange phenomena that the James Webb Space Telescope picked up near the beginning of time, or a literal deep dive on the ocean's deepest reefs. TikTok has a wealth of fascinating videos just waiting to be discovered. Your next discovery is waiting on TikTok. Learn more at tiktok.com/discovermore.

• 1:21:00Speaker 07

  UKG is the workforce operating platform with unified HR, payroll, and workforce management. Built to solve the unique challenges of frontline work. Powered by People First AI and decades of labor data, UKG turns workforce intelligence into real-time decisions around staffing, pay, compliance, and productivity, enabling every worker to confidently take action as work happens. Because when work works, everything works. Learn more at ukg.com/work. UKG, HR, Pay, and Workforce Management. Welcome to the 50th Hunger Games.

• 1:21:32Speaker 05

  Witness the beginning of the revolution. Hey Mitch, you've been trying to take down these games from the start. Film for IMAX. Make them remember you. The Hunger Games: Sunrise on the Reaping, November 20th, made in PG13.