Prof G Markets: Nvidia’s Superpower, Reddit’s Democratized IPO, & the Capital One-Discover Deal

Scott discusses what’s unique about Reddit’s upcoming IPO and shares his thoughts on its $60 million AI content licensing deal with Google. We also break down Capital One’s acquisition of Discover, and Scott makes a prediction around whether or not it will be approved. Finally, Scott and Ed take a look at Nvidia’s supreme impact on the global markets. 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.

• 0:00Speaker 00

  Flowing ad budget on metrics that look great till the CFO sees them? That's bull spend, and marketers are calling it out in Dashboard Confessions.

• 0:09Speaker 01

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• 0:17Speaker 00

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• 0:30Speaker 02

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• 0:59Scott Galloway?

  This week's number, 100,000. That's how many people are on the waiting list for Soho House membership. True story, right before I got a divorce, my wife bought me Viagra, so I bought her a gym membership. All right, hold on, I have another one. True story, this weekend I went on a hike and I found a dead prostitute. And then I realized I'd been walking in circles.

• 1:21Scott Galloway?

  That has nothing to do with anything at it. And I'm not even sure I understand it. It just made me laugh. So, true story, this week I decided to give my son a lesson in sex education. So I brought in a banana and a condom, and he said, "What's the banana for?" And I said, "Well, I can't get hard on an empty stomach."

• 1:37Scott Galloway?

  That's my favorite joke of 2023, Ed. You're welcome. You're welcome.

• 1:52Scott Galloway?

  How are you? That was both not that funny and misogynistic. That's not easy to do in such a short amount of time, Ed. That was good. I was excited about that. Are you a member of So House, Ed?

• 2:05Ed Elson?

  I am indeed, yeah.

• 2:06Scott Galloway?

  Oh, wait, their stock is crashing. That's funny. Real time. Look at that.

• 2:09Ed Elson?

  Yeah, yeah. No, I was surprised when it went public because I think the whole thing is that you want it to remain exclusive. So are you a member?

• 2:16Scott Galloway?

  Yeah, I applied like three years ago to the Miami house and for a year and a half I didn't get in. And then they called me and said, you're in, or they just charged your credit card. That's how you find out you're getting in. And I'm a member of a few membership, Tony membership clubs in London. I really like them. I like the, I'm very down with the whole exclusive snobby thing.

• 2:38Ed Elson?

  I'm quite aware of that, yeah.

• 2:40Scott Galloway?

  I like it. I like it. And I'm a member of Zero Bond in New York and I really like that. It's old men and hot women. Two of my favorite things. Two of my favorite things.

• 2:50Ed Elson?

  By the way, the Prof G community has been putting together a Prof G bingo card. I was just looking at that this morning. Here are some of the highlights. We got champagne and cocaine, mendacious fucks on a risk adjusted basis. When I was on the board of the New York Times.

• 3:10Scott Galloway?

  That's good. That's good.

• 3:12Ed Elson?

  Peanut butter and chocolate. I don't know if you know this, Ed. This is pretty good. Plus, but it needs to sound like you've just been punched in the back. And then finally, any dick joke.

• 3:23Scott Galloway?

  Any dick joke.

• 3:24Ed Elson?

  What are we missing?

• 3:26Scott Galloway?

  I don't know. That's pretty, that's pretty good. I say literally a lot.

• 3:28Ed Elson?

  Yeah, that was, that was one of them as well, yeah.

• 3:30Scott Galloway?

  Yeah, no, there's a lot. There's a lot there. At the end of the day, you know, something ass play. I'm a big fan of that word right now. We have some work to do here.

• 3:41Ed Elson?

  Yeah, no, we're gonna work on it. Well, if, if anyone else has any other suggestions, send it to me on Twitter at Ed Elson, or send us a note to [email protected]. And we're gonna build this card out.

• 3:53Scott Galloway?

  Is this how you finally get a date to take to the So House? Is you, you basically whore out your Twitter handle?

• 3:58Ed Elson?

  Exactly. Yeah, that's how I do it.

• 4:00Scott Galloway?

  Okay. Get to the news, Ed.

• 4:03Ed Elson?

  Let's start with our weekly review of market vitals.

• 4:11Ed Elson?

  The S and P 500 hit a new record high. The dollar slipped, Bitcoin dropped slightly, and the yield on 10-year Treasuries rose. Shifting to the headlines. Rivian stock fell 17% after the company announced it will make fewer electric vehicles than expected this year. Rivian also announced plans to lay off 10% of its workforce. Streaming platform Fubo TV has filed an antitrust lawsuit against Fox, Warner Brothers Discovery and Disney. As we discussed a few weeks ago, those companies plan to launch a joint streaming platform dedicated to sports. Fubo claims that that joint venture is anti-competitive. Walmart is acquiring smart TV maker Vizio for $2.3 billion.

• 4:52Ed Elson?

  That move should give Walmart more opportunities to sell ads through Vizio's TV operating system. JPMorgan Chase has signed a naming rights deal for Inter Miami Football Club's home stadium in Florida. That's JPMorgan's first naming rights deal in professional soccer. And finally, Reddit and Google have agreed to a content licensing deal worth $60 million per year. Reddit will grant Google access to its posts and data to train its AI models, and this comes ahead of Reddit's expected IPO in March. Scott, thoughts?

• 5:25Scott Galloway?

  I was shocked that Rivian's stock fell. I didn't invest or do anything about it, but I would have guessed that Rivian would have had a good quarter. It appears, what's interesting is the data around EVs is actually pretty ugly right now. You're seeing kind of a, I don't know, a normalization or a lot of these companies who, the big American companies who said they were totally pivoting to electric have said not so fast, and they've pushed back their targets for being all EV. Rivian lost more than $43,000 for every unit delivered to customers in the fourth quarter, worse than $31,000 per vehicle lost last quarter. So I guess essentially it's economically irresponsible not to buy a Rivian. It sounds like you're being subsidized to the tune of $43,000.

• 6:08Scott Galloway?

  Per vehicle. It took Tesla 17 years to be profitable and Rivian is 14 years old. And this is the stat that's scary. US EV sales have slowed to 47% year-on-year growth, down from 70% growth last year. So, growth is slowing down. I really like the Rivian. I've ordered one and I haven't, I like not owning a car, so I haven't put in, I have this nice lady calling me saying, "It's time to outfit your Rivian." And I don't do it because I don't want to own a car. I really enjoy not having, I enjoy being Carlos.

• 6:38Ed Elson?

  Wait, what? You've ordered a Rivian, but you don't want the Rivian?

• 6:42Scott Galloway?

  I ordered one a couple of years ago because these waiting lists do, it's like why I want to be in a, you know, in zero bond or so else, or actually my favorite in, in London, where I didn't take you, but I took Caroline and Mia because they, they take up my brand. You sort of take down my brand. You're sort of like the, I don't know. You're sort of the, whatever the term is, you're like the, the gremlin, the AMC gremlin. Like the gremlin did not help the AMC brand. Anyways, but Maison Estelle is, is my favorite. Anyways, I don't, I don't know why I brought that up. Back to Rivian. I ordered a Rivian. I like the idea of these waiting lists. They do the, oh, this is where I was headed. Okay. Thank you. The illusion of scarcity. The waiting list connotes that

• 7:25Scott Galloway?

  there's going to be some scarcity and you have to wait. And I think that's a fantastic marketing tool. And I thought these, these auto companies are just geniuses. And I don't know if it was Tesla that really broke new ground here, but basically Tesla would get their customers to finance their car.

• 7:38Ed Elson?

  I'm sorry, I just want to, I think the best part of this is that now that the Rivian is available and they're asking for you to buy the car, you don't want it anymore. You only wanted it when you couldn't have it.

• 7:49Scott Galloway?

  That's exactly right. That's exactly right. I don't want to sleep with anyone who'll sleep with me. I mean, come on. That's, that means there's something wrong with them. Where were we? No Fubo. Antitrust, okay. I don't think that's going to go anywhere. I, I, these guys are fighting for their lives between YouTube and Netflix and the, the other tech companies who will just throw $5 billion at original content just for shits and giggles. So, Tim Cook or Jeff Bezos. Can can roll into the Academy Awards. These companies are struggling. Disney and Warner Brothers, their stocks are at lows. So the fact that they're going to consolidate strikes me as it's more out of necessity than trying to find a way to raise prices.

• 8:33Scott Galloway?

  But maybe, maybe they will be successful. Do you have any thoughts here?

• 8:37Ed Elson?

  Yeah, I mean, we can go through the complaints that Fubo laid out, which are pretty compelling. I mean, the first one is this idea of bundling. And that's the complaint is that these companies have unfairly forced Fubo to carry all these expensive channels that Fubo actually doesn't want to carry. The second is unfair rates. Supposedly Fubo gets a licensing rate that's between 30 to 50% higher than what they charge to other distributors. Third was this strange thing called non-market penetration requirements. I've never heard of this, but these are apparently restrictions on the percentage of Fubo's customers that they can actually sell certain licensed content to. And then the fourth is just the joint venture in general, which Fubo says is like the final

• 9:21Ed Elson?

  step to eliminate competition in the, in the sports streaming market. The one thing I find not so compelling, here's a quote from the complaint. Each of these companies has consistently engaged in anti-competitive practices that aim to monopolize the market, stifle any form of competition and create higher pricing for subscribers. Now, the trouble here is the last part of that sentence, higher pricing, because according to analysts, the joint venture is going to cost around $40 to $50 a month. And you compare that to other offerings. YouTube TV, their cheapest plan is $70 a month. And you compare that to Fubo's cheapest plan, which is $80 a month. So if the analyst's predictions are true, it would appear that this joint venture is

• 10:06Ed Elson?

  actually going to benefit consumers with lower prices, in which case the complaint doesn't really hold.

• 10:12Scott Galloway?

  The analogy we use is Russians, British and Americans figured out a way to get along when the Nazis started rolling into Poland with a superior. Military infrastructure and the analogy holds here and that is this is going to make for strange bedfellows because everyone is getting the shit kicked out of them by Netflix and to a lesser extent, I would argue, but or maybe maybe a greater extent, I think we're talking about this, YouTube television. So these guys need to do something and they need they need to cut costs and one way to do that is through consolidation and with an offering like this one that is sort of so compelling, they still have very strong relationships with the leagues. They're still known for as kind of the place you go to watch the Super Bowl or the final, you know, March Madness, whatever it might be. But

• 10:54Scott Galloway?

  I don't, you know, FUBA, what also there is a, there is a way to kind of thread the needle here and that is the FTC and the DOJ. If I had to guess what will happen is that upon antitrust review, they will come back and say, we'll allow it, but you have to X, Y, and Z. And one of those things might be similar to the way they approved, I think, Microsoft's acquisition of whatever it was, Activision or Blizzard, or whatever they call it. They said, okay, but you have to continue to sell these games for the following platforms. You can't just limit it to Xbox. I wouldn't be surprised if they do that here. They said, okay, FUBA's complaint is legitimate and part of the remedy here is we're going to allow you to merge, but you have to sign an agreement saying that you will continue to offer this product to these people at a price as determined by whatever.

• 11:39Scott Galloway?

  Well, Mark? I like this a lot. If you think about what is sort of the unsung hero of Amazon, people talk about the cloud. It's got the biggest cloud business, great business growing fast. It's obviously known as a retailer. The unsung hero is Amazon Media Group and that is the one that sells ads. If you go put, you know, Pampers in your, in your basket and Amazon loves an ad for loves might pop up. The pinpoint accuracy, the behavioral targeting they can do. Amazon gets 9% of its total sales from ad revenue and I would bet that they get a much greater percentage of their profits from this because that 9% is much higher margin than their retail business, probably not as high as the cloud business.

• 12:23Scott Galloway?

  Whereas Walmart only gets 50 basis points or about half a percent of their total sales from ad and Vizio is the third largest TV retailer in the US by market share and its own operating system has over 18 million active accounts. So they're basically, they're not only buying, they're not interested in the hardware. They're not interested in being the TV business. They're interested in a direct to consumer platform that has 18 million active accounts. That they can start pulling data from and then sending them targeted ads, right? And then charging all of these brands who they have a relationship with to get in front of people.

• 12:55Ed Elson?

  One question I'd have is how meaningful it really is because you look at Vizio's ad revenue. It made around $600 million in ad revenue last year. Walmart's already selling around $3 billion in ads. And then, you know, as we've been mentioning, this is all a catch-up play for Amazon. Amazon's selling $47 billion in ads. So the question I'd have is, how do you, how does the acquisition have any real effect on the top line when it comes to ad sales? Because it feels like Walmart has to get a lot more creative in some way. And I wonder what that strategy will be. Maybe it's algorithmic recommendations.

• 13:34Ed Elson?

  I was thinking maybe it could even be product recommendations where you can actually buy items from Walmart on the TV, depending on your viewing habits. Perhaps you have some thoughts there on what Walmart might do with this.

• 13:47Scott Galloway?

  Well, a couple of things. One, as a CEO, you're thinking about marketing mix or you're thinking about revenue mix. So right now Walmart trades at a much lower multiple. And Doug's thinking, okay, how come I can't get an Amazon like multiple? And they say, well, your primary, your primary source of revenue is a difficult, low-margin business called retail. Whereas Amazon has tens of billions of dollars in this high-margin business called advertising. So while it's going to take them a while to catch up, if ever, as long as they're growing that business faster than their core business, slowly but surely, that multiple that the market provides them on earnings should begin to expand. Because the analysts will look at their underlying business and go, okay, retail, okay, business.

• 14:30Scott Galloway?

  They're huge, huge top line, 4% of a giant number is still a giant number. But they would like to see those high-margin businesses growing faster than the core business. Because what that implies is margin expansion. So I think this is a good move. And these guys play for the long term. Walmart's been around for whatever, 60 years. So if they can grow this business 20% a year and get it to be a $5, $7 billion, 70-point margin business and maintain those margins, you know, and they get a really good multiple on this, they get a 10 to 20 times EBITDA multiple on this core part of the business, or it takes the multiple on their entire stock up one or two turns. It's a great investment. JP Morgan, naming rights. It seems like naming rights have been a bit of a kiss of

• 15:14Scott Galloway?

  death recently, but, and I don't know what they paid for it, but you're gonna see just more and more attention come to the MLS and specifically to Inter Miami because of Messi and because Miami is a gross city. So, it ends up these naming rights tend to be really good deals. Most brand experts will say that just the impressions of having Troy Aikman on the AFC Finals, or whoever's gonna be announcing the MLS games says, and here we are at JP Morgan Stadium, that constant reminder of the name and the brand is really powerful. So, it all comes down to what the deal was. Do you know how much they paid for it?

• 15:53Ed Elson?

  It's not been disclosed. One thing I found pretty funny though is the length of the contract. It expires in two years, which is the same year that Messi's contract expires. So, this is all about Messi.

• 16:06Scott Galloway?

  That's funny.

• 16:07Ed Elson?

  Reddit?

• 16:07Scott Galloway?

  Reddit, I think it's gonna be really interesting. And what I think is most interesting about Reddit is not their deal they're doing for $60 million, but they're planning on giving a lot of their consumers an opportunity to buy into the IPO. So, this is how an IPO works. Reddit is gonna go out at a valuation, call it a $5 billion. So, they'll issue 10% of the company in stock. They'll go out with $500 million in shares, say they price it at 20 bucks a share, so they'll issue 25 million shares. And then Goldman markets the shit out of this thing and goes around with the CEO and says, this is why Reddit is an amazing company. And then, all the institutions, specifically Goldman's clients, put in their order book. And oftentimes, it coming like Airbnb that's oversubscribed will get 8, 10,

• 16:52Scott Galloway?

  15 times oversubscription. And people will put in their orders. And even if you're a client of Goldman, unless you're Blackstone, or Fidelity, or these guys, you just hardly get any. They save it for their big institutional clients that generate a lot of fees. And what Reddit is saying is, is we're gonna hive off a large portion of the book here, or of shares available to the IPO, for our most loyal users of Reddit. It's kind of trying to democratize the IPO process. It has some risk because these individuals, retail investors, are known as flippers. They're not known as institutional, long-term holders. Typically, when you're selling stock, what you want is someone who's not going to sell, someone who's not going to just do a quick trade because you want long-term holders,

• 17:35Scott Galloway?

  which reduces the available float and keeps the stock higher, if you will. So everyone wants a long-term investor. At least that's what, that's the excuse the investment banks use for giving most of the allocation to their biggest clients, which are supposedly long-term holders. So there's some risk here that these Redditors, if you will, might just go in for a quick flip. I like this. I think it'll bring a lot of attention to the brand, and that's the big challenge here because at $5 billion in market cap, companies that are $5 billion usually get very little analyst coverage and the media is usually not that concerned with them. But Reddit is an interesting company. I also like the fact, I don't know about you, but I find that I'm using Reddit more and the company grew.

• 18:19Scott Galloway?

  I think it's going to do about $800 million this year. One thing that's sort of interesting is pre-pandemic, through the pandemic, they grew from 400 to 2,000 employees. They've stayed flat this year. I wonder if they're going to trim some of that. If they do it, they would do it before the IPO. But this is a company that I'd like to invest in. So I think this is an interesting one. And also I like that it kind of plays a little bit in the AI space, that if you think about it, my thesis is that the underlying technology of AI is going to be commoditized. That you have the chips, you have the LLMs, and then you have the coal that goes into the furnace, the content. And I wonder if the LLMs, the Open AIs of the world, the Lamas, the Geminis, the Anthropics,

• 18:59Scott Galloway?

  if that stuff gets commoditized, it's very hard to differentiate on a technical level. And the real differentiation is on the chip level, see above Nvidia's earnings, or on the content side, whoever has access to the most interesting fire hoses of content. So I think Reddit, if they position themselves well, might get Couple billion dollars in market capitalization, just based on the expectation that they'll be able to garner a lot, either build their own L L Ms, or extract really, really big fees, much greater than 60 million.

• 19:32Ed Elson?

  That fee, 60 million, it reminds me of the Axel Springer deal. It's just not that much money for one of the most valuable data gold mines in the world. I mean, just to put this in context, Reddit has 800 million monthly active users. 70 million of those use the app daily. And it's the seventh most visited website in the world. It gets more traffic than Amazon and Netflix. And they've decided that unfettered access to that is worth 60 million dollars, which, by the way, would only increase their revenue by around 7%. I mean, you mentioned it's high margin and there's value to that, but they're already making 800 million dollars a year. So to me, this was just another example of a media company

• 20:15Ed Elson?

  kind of underselling itself when it comes to this pivotal moment of data access for A I companies.

• 20:21Scott Galloway?

  So I had, I had the same concern and I did a little bit of research here and it's not a long-term contract. I think the Reddit realizes they're sitting on something really valuable. But probably what this did was it probably, it shores up their profitability for the year going into an I P O. It's 60 million of revenue, probably 59 of it hits the bottom line. So it might be the difference between them breaking even or not breaking even and being profitable. It establishes them as, you know, this is the first fee that people are paying for this content. And then they'll put it up for bid again. And I would, I'm pretty sure, I'm not certain, but I'm pretty sure it's a fairly short-term contract, similar to that J P Morgan contract for the naming rights at Inter Miami. You also brought us something that's a really key point.

• 21:06Scott Galloway?

  And that is, it's the seventh most trafficked site globally. And if you look at the average market capitalization of the top 10, it's something like 1.1 trillion. It's Amazon, it's Meta, it's Alphabet. There's a strange one in there, but they're all companies that have several hundred billion dollar market caps, or even multi-trillion dollar market caps, because at the end of the day. You know, oil doesn't run the economy anymore. It's attention. We're in an attention-based economy. And if you can capture, if you can be one of the platforms that captures more attention than anyone but six companies in the world, your prospect for turning that into money is really, really strong. So the reason I like this, the reason why I'm going to try and get in on this IPO,

• 21:50Scott Galloway?

  or even buy some in the aftermarket, is it's unlikely that the seventh most traffic site in the world won't be able to figure out a way to be worth more than $5 billion.

• 21:59Ed Elson?

  But now is that moment. It's got to take advantage of that moment right now, I would argue.

• 22:03Scott Galloway?

  Well, as long as it keeps growing. In addition, a quarter of their user base is between the ages of 20 and 29, i.e. you. And people love people like you because you, you know, do stupid things. You go to the showhouse and you spend money on weird shit. You know, actually, I do all the shit you do.

• 22:17Ed Elson?

  You do all of it. You're so much worse, it's crazy.

• 22:21Scott Galloway?

  Okay, but it's too late to fix me. I am deeply, deeply broken.

• 22:27Ed Elson?

  Yeah, I have a terrible, terrible teacher.

• 22:29Scott Galloway?

  Yeah, no doubt about it. No doubt. Do as I say, not as I do here.

• 22:33Ed Elson?

  Exactly.

• 22:36Ed Elson?

  We'll be right back after the break with a look at Capital One's acquisition of Discover.

• 22:50Scott Galloway?

  Support for the show comes from Built. Most of us work hard to earn our keep, but usually there's no one around to hand you a cookie when you successfully pay your monthly housing bill. No one except Built, that is. Built has expanded from their original rental rewards program, and they have a lot more going on for members now. For example, members can earn points on mortgage payments, too. Every housing payment gets you points that get you a lot more than baked goods, such as flights with top travel partners, including United and Hyatt, Lyft rides, Amazon.com purchases, and much, much more. Here's another benefit of Built membership. You also get access to what they call a neighborhood concierge. You can make restaurant reservations, book fitness classes, and find new local spots, all while rewarding you at more than 45,000 merchant partners. It's simple.

• 23:32Scott Galloway?

  Being a renter and now owning a home feels a lot better with Built. You can download the Built app and join the membership for where you live at joinbuilt.com/prog. That's J-O-I-N-B-I-L-T.com/prog. Use our link so they know we sent you.

• 23:50Scott Galloway?

  Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits, and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls, and playing catch-up when audit season comes around again. Vanta works differently. The Regentic Trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400-plus integrations, Vanta collects evidence and monitors your controls year-round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude or Cursor. Want proof?

• 24:35Scott Galloway?

  Over 16,000 fast-growing companies like Ramp, Ryder, and Harvey save time and resources while scaling fast with Vanta. Learn more at vanta.com/profg and get $1,000 off. That's spelled V-A-N-T-A dot com slash prof G for $1,000 off.

• 24:57Scott Galloway?

  Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits, and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls, and playing catch-up when audit season comes around again. Vanta works differently. The Regentic Trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400-plus integrations, Vanta collects evidence and monitors your controls year-round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude or Cursor. Want proof?

• 25:42Scott Galloway?

  Over 16,000 fast-growing companies like Ramp, Ryder, and Harvey save time and resources while scaling fast with Vanta. Learn more at vanta.com/profg and get $1,000 off. That's spelled V-A-N-T-A dot com slash prof G for $1,000 off.

• 26:08Ed Elson?

  We're back with Prof G Markets. In one of the biggest deals for the banking sector since the financial crisis, Capital One is acquiring Discover for $35 billion. That is, if the deal gets approved. It could be a tough sell to bank regulators, the FTC and the Justice Department. Last year, Capital One was the fourth largest credit card issuer in the US, based on the value of its outstanding receivable loans. Discover was the sixth largest. Combined, they'd overtake JP Morgan Chase as America's biggest credit card company. To break down what this deal means for the credit card industry, let's speak with Prof G Media's editor in chief, Jason Stavers. Jason, the credit card industry is quite opaque. Could you give us an explainer on how it all works at a structural level?

• 26:54Speaker 05

  Sure. Let's start with the credit card itself and the name on the card. If we have a credit card, we tend to think of it as a Chase Sapphire card or an REI card, United card. So that company is marketing the card. That's the marketing partner. And sometimes it's a bank, but more often these days, it's a retailer or an airline or someone like that. So that piece of the business is they go out and they send out brochures and emails and they try to get you to sign up for the card. And then they run the rewards program or whatever bonuses come with that particular card. So that's kind of the top layer of the credit card stack. Now, that company might be a bank or it might be somebody else. There's always a bank involved and that's the issuing bank. Those are the folks that you deal with once you've signed up for the card.

• 27:39Speaker 05

  They're the people that send you the bill every month and they also play a critical role in the credit card transaction itself. They're the ones that provide the cash to pay the merchant when you buy something with the credit card and then they eventually collect it from you. Then there's the acquiring bank, which is the merchant's side of the equation. So when you go in to buy something with a credit card, your bank provides the cash to the merchant's bank and then the merchant provides you with the goods. Now, connecting all those pieces together is the credit card network itself. And that's what we know of as Visa, Mastercard, or relevant to today's news, Discover. And what they do is they operate a vast and

• 28:20Speaker 05

  super high-speed computer network, which facilitates the information transfer. So you go into the store and you say, I want to buy this item with this credit card. They take that transaction and all the critical details. They run it over to your bank, the issuing bank. Then the issuing bank runs a credit check and decides if you're within your credit limit and if this is not a fraudulent transaction. And then they tell the credit card network, yep, that's fine. And then Visa or Mastercard or Discover, whoever, they run that information back to the merchant. So when you put your card down on that box, a whole bunch of information is zipping around the world, mostly on the back of Visa, Mastercard or Discover. So those are the four pieces. The marketer, the issuing bank, the acquiring bank and the network.

• 29:01Ed Elson?

  So this joint company, as we mentioned, this has become the largest credit card issuer in the US by loan volume. The current number one is JP Morgan. This combined density would take on $250 billion worth of loans. And it feels like that number is going to be the big subject of the antitrust review. I'm wondering, from your perspective, how you think Capital One and Discover are going to get this deal past the regulators?

• 29:26Speaker 05

  Yeah, the trick for them is going to be to shift regulators' attention from the banking lending side of the business, which is what everybody is focused on, to the card network side of the business. So in general, larger credit card issuing banks charge higher interest rates and they are more likely to charge an annual fee. And so the concern is, this industry is not heavily consolidated now. Together, these two entities will get about 17% of the transaction volume. That'll make them third by transaction volume. And as you said, they'll be first by loans. But as these companies get larger, the concern is that they'll charge more in interest and fees and everything else. So Capital One can't really do much about that.

• 30:10Speaker 05

  That's kind of the statistics that they deal with. But what they can do is say, look, there's two businesses here. And the other business is the business of facilitating these transactions, the networks. And right now, they will argue there's a virtual duopoly in that space. Visa and Mastercard dominate the transaction business. And their rates move in time with one another. So they recently raised those interchange rates across the board and they did it at the same time. They have a lot of pricing power and they don't have a tremendous amount of incentive, Capital One will argue, to innovate in the way that they help merchants protect against fraud, provide other services, et cetera. So Capital One is going to say is, look, we are merging our credit card businesses. But most importantly, we're putting a ton more economic muscle and marketing power

• 30:55Speaker 05

  behind the Discover Card Network. And they will say, we're going to make it a lot bigger. And when we make it a lot bigger, and they've already said this, they said they're going to put 25 million customers onto the Discover network. They're going to put several hundred billion dollars in transactions onto the Discover network. When they do that, they're going to say, we're going to have a third real competitor that's broad-based, widely distributed to Visa and Mastercard. That will bring down interchange fees and that will create more competition in the space and improve the quality of the service, all of which, over time, they will argue, should flow towards lower consumer prices across the board.

• 31:29Scott Galloway?

  This feels to me like something that's, because it's consumer brands that people know that might attract a lot of populist senators from the left who think it's a terrible idea and block it. What are your thoughts?

• 31:41Speaker 05

  So we've seen some criticism. The Consumer Finance Board just recently put out a report showing that, in fact, when these companies get larger, they're more likely to have higher interest rates. I think, though, that the argument Capital One is going to make is pretty strong because what's changing is the way that we buy things and pay for things, right? So debit cards are on the rise. Neither Discover nor Capital One is a major player in debit cards. So this would allow them to compete more with the banks that traditionally offer them. We're also seeing all of these alternative ways of payment, right? So Venmo, PayPal, although they have credit cards, when you use the core services of PayPal or Venmo, you're not using Visa or Mastercard's networks. So there's a lot of activity in that space.

• 32:25Speaker 05

  And I think it probably makes sense to encourage the strengthening of the Discover network. And also, from Capital One's perspective, this gives them sort of some additional security against these much larger banks that they operate against. Because I think it's important to keep in mind that while Discover competes on a similar playing field or a similar level of business with JP Morgan and with Citi, they are a much smaller entity overall. They don't have all these other lines of business. So to me, the compression in the credit card space, the consolidation in the credit card space, is probably a reasonable trade-off to make for strengthening the Discover network

• 33:07Speaker 05

  and for sort of encouraging economic might and marketing muscle into this complicated payment transaction space.

• 33:13Ed Elson?

  Scott, it's been a pretty tough year for banks overall. I mean, we saw Goldman reporting its lowest profits in years. Morgan Stanley's profits were declining. Citigroup had a net loss. The only real winner this year has been JP Morgan. I'm wondering what you think this merger could mean for Capital One, but also what you think the rest of the banking industry is thinking about this.

• 33:37Scott Galloway?

  I think that, and what you brought up is interesting. JP Morgan's earnings are all the more interesting because its peers didn't do that well. I think this would be good for Capital One. I think it would be good for Discover. This is verticalization. I think it probably gets blocked, and I'm not saying it should be, but it strikes me that this is just something that's gonna, a lot of senators who are worried about antitrust and concentration of power will find this to be something that gets them on TikTok and on CNN a lot because everybody knows these brands. And people hate banks for whatever reason, or they're just easy people to beat up on for some reason. Their plan might be to drag this out long enough such that if there's a new administration, I think Trump

• 34:20Scott Galloway?

  would let this go through. There'd be, you know, Lena Khan is not going to be in the Trump administration, if there is a Trump administration. So I think they've decided to kind of lay down the gauntlet to see if they could get it done. But this just strikes me as something that is unlikely to get through. But I think it'd be great for shareholders. The credit card business is an amazing business. My understanding is they borrow money at 3% and they loan it out at, you know, 18 or 20. By the way, under the auspices of The Algebra of Wealth, a book coming out in April by yours truly. If you use credit cards a lot, it probably means you're, you're going to struggle economically. And that is, and I don't want to be a snob. I've used credit cards before. Some people have no choice,

• 35:02Scott Galloway?

  unfortunately, because they've got to buy groceries. But if you're, you know, entering into a cycle of using your credit cards at those interest rates, people don't really understand, or most people don't understand interest rates, it really is a downward spiral. And you become sort of captive to these onerous interest rates. And I want to be clear, there's good debt. Credit card debt is really bad debt. Even some student loan debt is good debt. If you get it federally backed and it's at a low interest rate, if you're smart, you're going into a profession and getting credentialing, that will substantially increase your earnings. There is good debt. Credit card debt is arguably the worst debt, and I would say never even go there. We'll be right back after the break with a look at Nvidia's earnings.

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• 38:08Ed Elson?

  We're back with Profy Markets. The entire market held its breath last week as it waited for Nvidia's latest earnings. With the stock up about 230% in the past year, investors questioned whether another earnings beat would be enough to drive shares even higher. Well, it turns out the company didn't just beat expectations, it crushed them. Nvidia reported its fourth quarter revenue increased 265% from a year earlier to $22.1 billion. Analysts were expecting $20.4 billion. Meanwhile, its profits rose 769% in the same period. Its forecast for the current quarter also surpassed expectations. On the earnings call, CEO Jensen Huang said for the next two years and beyond, quote,

• 38:52Ed Elson?

  "Fundamentally, the conditions are excellent for continued growth." Sure enough, the stock rose more than 14% to an all-time high. So Scott, earlier in the week, Goldman's trading desk called Nvidia, quote, "the most important stock on planet Earth." Would you agree with that statement?

• 39:12Scott Galloway?

  I'm not sure that Nvidia right now is in the most important brand in the world, the most important organization, because it is literally the tail wagging the entire world right now. And as of sitting here today, Nvidia is worth almost as much as the entire German stock market. We were gushing over Meta's historic earnings, where they added more market capitalization in a single day than any company in history. Guess what? They're now number two. In the few minutes after their earnings release last night, Nvidia added the value of Ford, Ferrari, and General Motors. I mean, it's just, it's striking, and there's a few things, a few observations, other than how this, you know, in addition to this company continues to just blow away expectations, and obviously AI is probably the most.

• 39:56Scott Galloway?

  Profound or dramatic technology and value creating entity of the last, probably since the iPhone, you'd argue. Anyways, a couple of things. One, we have been, and we're writing about this in No Mercy. We have, and I don't know if you know this, Ed, but I'm about to have my, what's his name? Tyson, the guy, the guy who's on all the fucking TikToks, the astronomer. What's his name? What's his name? Neil deGrasse Tyson. Andrew Dice Tyson. What's his name? Mike Tyson? Neil deGrasse Tyson. Neil deGrasse Tyson. Anyways. Andrew Dice Tyson. Andrew Dice Tyson. Yeah. By the way, did you see Mike Tyson working out the other day at the age of whatever he is? I did. That was incredible. He's my age. He's my age. It's, we gotta get you guys in the ring together. Oh, yeah. That, that, yeah, yeah. No, if you're looking, if you're looking to finally get a job as the front desk guy at Soho House as opposed to joining these places,

• 40:41Scott Galloway?

  that's what you need me to, me and to have Parkinson's within about 30 seconds. Did I tell you I used to box? I used to box. I know. I know. Yeah. That's, you broke your nose boxing, right? I was so handsome before I was box. I mean, can you imagine just how good looking I was before my nose, beard, right? Anyways, we are, we are, we have a little bit of every star of, of every planet of every sun in us. We are the material, the, we literally are everything. And the universe has basically one imperative, and that is it wants to prosper. And the way you prosper is you grow and you expand. So the most fundamental thing across our biology, across companies, is that one, we want to survive so we can procreate. And two, companies just want to grow. And even at our small property media, we don't necessarily

• 41:26Scott Galloway?

  need to grow. But here's the thing, growth is everything. It's everything. Because guess what? Guys like you want to move up from Soho House to Zero Bond to Maison Estelle. You want to make more money. Everybody wants to make more money. Growth creates opportunity. It's everything. Growth is everything. You know, almost every business problem in your personal life, I hate to say this, money solves most problems. Not all problems, but it solves a lot of them. And a lot of people have all these adages about money can't buy you happiness and everything. And they say that because people want to feel better about the fact that we have terrible income inequality and our economy is becoming increasingly unfair. But the bottom line is money solves a lot of problems. In the corporate world, growth

• 42:07Scott Galloway?

  literally solves every problem. Every problem. As long as you keep growing and you have big gross margins, you will figure it out. You will figure it out. And so the incentive to grow is just so hardwired into you that you not only think about growing your revenues, your thought is, well, I'll grow employees because I see employees in the hallway. And I say, well, now we're 100 people. Oh, wow. You must be doing really well. But here's the problem. AI is essentially corporate Ozempic. And if a huge population or a portion of America, especially in the wealthier parts of America, are willing to pay $1,000 a month, what do you think corporations are willing to pay to defy gravity and increase their revenue growth while maintaining or reducing their

• 42:52Scott Galloway?

  costs? And that is the Ozempic that is AI right now. And there's one company that kind of has a lock on it, and that is Nvidia. And their ability to just perform and execute this way, both across the supply chain, their marketing, the exceptional margins they have, we've just never, we have never seen anything like this. These are historic numbers, historic market capitalization. Here's another crazy stat. Since the beginning of the year, in six or seven weeks, they've added the value of Tesla. I'm so blown away by this company right now. I think it has so much potential, so many economic implications. Everyone thinks that Jerome Powell is watching the earnings release. People think that interest

• 43:35Scott Galloway?

  rates may not get cut now because of these earnings, because they're so incredible. Every tech stock is up. I mean, it's just, it's, it's un, I'm blown away, Ed. I'm totally blown away. Let's go to Soho House, order some cocktails, and let's toast, let's toast this, this Huang guy. Is that his name? Jensen Huang? Jensen Huang. But before we do that, how about we talk about the valuation? You want to hear my story about Jensen Huang? Did I tell you my story about Jensen Huang? Go ahead. I think you've, but Probably. I'm forgetting it. Yeah. I've probably told it before. Anyways, I'll tell it again. So I'm at Cannes, and I'm doing this talk for WPP at WPP Beach, I think it's called. And I roll up there and I do my talk, and everyone, you know, afterwards come over, all the fans come over, and I

• 44:18Scott Galloway?

  can I take a picture? And this guy comes up to me, he's like, I love your videos. I'm like, yeah, yeah, there's a line. Do you want a picture? And he's like, There's a pause and he's like, sure. And we do a picture. I'm like, nice to meet you, boss. Big line I got going. And someone just came to me and he's like, you know, that was Jensen Huang, right? I'm like, oh, Jensen.

• 44:35Scott Galloway?

  Hey, hey.

• 44:39Scott Galloway?

  I'm like, hurry along, hurry along. A lot of people in this line, sir. Yeah, he came up. He likes our videos. He likes our videos, Ed.

• 44:45Ed Elson?

  That's a flex for you. Yeah, that's good.

• 44:48Scott Galloway?

  Yeah, his flex was a little bit bigger today.

• 44:51Ed Elson?

  Yeah, a little, a little bit bigger. Let's talk about the valuation.

• 44:56Ed Elson?

  Trading 96 times earnings. Compare that to Google at 25. Compare that to Meta at 32, Microsoft 37. I mean, this is an extremely rich valuation. And we've discussed that with Asworth. I think the main question here that the market is asking itself is the macro question, which is how big do we think the AI chip market is actually going to be? That's what all of these valuations are sort of depending on. But it feels as though the numbers are just varying so much. I mean, currently, the AI chip market is 25 billion dollar market right now.

• 45:36Ed Elson?

  Aswath and his valuation projected that it would be worth around 325 billion by 2033, so in 10 years. AMD projected 400 billion, but by 2027, so in five years. And then the other thing I've been thinking about is this Sam Altman news, which is that he apparently wants to go out and raise $7 trillion to build out AI infrastructure, which basically just means AI chips and data centers. So the numbers are just totally all over the place. But it feels like whatever that number is, whatever that TAM is on AI chips, determines the valuation here. So I'm wondering if you have any thoughts on? How we can reach, I don't know, a sober

• 46:21Ed Elson?

  understanding of how big this market really is. Maybe that's not possible, but maybe there are even some learnings from when you were building Red Envelope in the in the dot com era. I'm sure there were crazy projections about what the internet is going to create in in market value.

• 46:37Scott Galloway?

  Well, like, the market is this, I'm intoxicated with this thing right now. And even just yesterday, I would have had a more sober conversation around valuation and bottoms up valuation and how big is the addressable market. And we even said last year that built into the stock price before it had this 14% uptick was this notion there'd be another market that would be just as big as AI. Having said that, I just think every company in the world right now, or every CEO in the world today is thinking, how do we better integrate and leverage AI? Which ultimately results in a bunch of money going to Nvidia, as long as they appear to have a near monopoly on this. I would not want to short this stock right now. I just think it's, you know, the animal spirits have taken over.

• 47:18Scott Galloway?

  I think it's probably going to potentially set the table for the IPO market. The other thing, as you were saying this, and this is, you know, the socialist in me coming out, I'm not a socialist, I'm a capitalist, but the bleeding heart liberal, is that, okay, this company is the value of the German stock market. And one in five households with children in America is food insecure? I mean, it's both inspiring that America creates this alchemy of innovation, capital, free markets, hard work, risk taking, that results in this type of value creation. But we can't figure out a way not to have veterans, homeless veterans?

• 47:57Scott Galloway?

  I mean, it's just sort of, how the fuck can we not figure out to guarantee every American basic childcare, healthcare, that you won't be homeless? That if your wife gets lung cancer, it doesn't mean you're going bankrupt. And if you're nine years old, we're going to make damn sure you have three meals a day. How can we create?

• 48:18Scott Galloway?

  $220 million in one company in one day, but we can't figure that shit out. It just strikes me as we are such a dichotomy of the best and worst of capitalism. And I don't, and that's unfair. I don't want to assign it to capitalism. I think we can figure this out, but I think this is another example of the bottom line is the tax rates on corporations are just too low. They're just too low with this kind of value creation that companies are registering. There's just absolutely no reason why we shouldn't be able to create the revenues that support the programs to give people some sense of dignity. And what is the wealthiest place, you know, the wealthiest country in the world?

• 48:57Ed Elson?

  You mentioned this idea of it's, it's sort of a runaway train. It's you wouldn't short the stock right now.

• 49:05Scott Galloway?

  God, no.

• 49:05Ed Elson?

  What about investors who haven't gotten in yet? Cause I could imagine that there are a lot of investors who might feel that they're showing up too late to the party, that the evaluation's too high at this point. But at the same time, it might be pretty naive to not show up at all. So if you aren't in Nvidia, how would you be thinking about this right now?

• 49:32Scott Galloway?

  Well, one, what we tell people invest in index funds. Cause if you're in an index fund, I, you know, you're kind of getting half, eight percent of your money, whatever it is, probably going to Nvidia because Nvidia is now such a big part of the market.

• 49:42Ed Elson?

  Yes. The third highest weighting in the S and P 500 now, by the way. So when this, the earnings went up, this pushed the S and P to a new record, pushed the NASDAQ up 2%, it even pushed the Nikkei, which is the Japanese stock market index to an all time high. So yeah, if you, if you're in, it's part of the haystack.

• 50:02Scott Galloway?

  But if I were trying to play this, I would be thinking, all right, what are the kind of dumb mundane companies that might really benefit? What are the picks and shovels? What are the, who's going to get the crumbs here? This is the, now the biggest cookie in the world. Where are the crumbs going to fall?

• 50:15Ed Elson?

  Well, it's funny that you mentioned the picks and shovels because Nvidia is the pick in the shovel here. It's that. So, yeah, it's a great question. How much more downstream can you get? I mean, there's TSMC, there's AMD, there's Intel, but also all of their valuations are going crazy. Maybe you could go look at the startup market, but I'm sure their valuations are going crazy too. So, yeah, it's an interesting question. Where has the market not found value in this space, which everyone is paying attention to? I don't have an answer for it yet.

• 50:49Scott Galloway?

  Next week.

• 50:53Ed Elson?

  Let's take a look at the week ahead. We'll see earnings from Lowe's, Salesforce, Baidu and Paramount, and we'll also see the personal consumption expenditures index for January. Do you have any predictions for us?

• 51:05Scott Galloway?

  My prediction is what we talked about. I think Capital One and Discover gets blocked unless Trump gets elected, and I don't even like to think that. But I think the Elizabeth Warren crowd sees red meat in this and is going to go after it. And people hate banks. Somebody or several politicians are going to scare them that their fees are about to go up. So I don't think this merger goes through.

• 51:33Ed Elson?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Jason Stavers and Catherine Dillon. Mia Silverio is our research lead, and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours, and we'll be back with a fresh take on markets every Monday.

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