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- [00:01]
Podcast Host
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Scott Galloway
Enough of that.
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Ed
Today's number 49 that's the percentage of billboards in the Bay Area that are advertising A.I. ed true story. I went into my doctor's office with a shoulder problem and he said, well, I need you to pee in a cup. And then we have our AI look at it. The AI looked at it and said, your labrum's damaged. You need to take this medicine. And then when you come back, you're going to pee in another cup and the AI is going to tell you how you're doing. So I came back and he said, you're not taking your meds. The AI is pissed off at you. Take your meds. I started to get pissed off, so I went home and I had my wife pee in a cup. And also and I'm not proud of this, I jerked off into the cup and I came back and they gave it to the AI. And the doctor came back and said, you, wife is pregnant and the father is your friend Brett, and if you don't stop masturbating. Your arm's never going to get. Welcome to Brought to you Markets Live.
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Scott Galloway
It never ever gets old. It is so good to be here in the global capital of technology, the capital of venture capital as well. And I'm really excited to get into this show. But before we start the show here, Scott, I just want to read you a couple of quotes that I've collected over the years that you have said about the venture capital community. Because I know there are probably a lot of venture capitalists in the room right now, so I just want to make sure that we're all on the same page and I just want to like, hear what you have to say about this. So I found this from a podcast we did a couple of years ago. You said, quote, I've worked with a ton of venture capitalists. They're not the sort of loving, caring
- [03:45]
Podcast Host
people that are depicted on the website.
- [03:48]
Scott Galloway
Okay. You later said that there are, quote, very few cohorts less pleasant, more self absorbed, and more convinced they're changing the world than venture capitalists. And then a few months later you said that venture capitalists are, quote, generally speaking, awful people. And then you later clarified in the same episode that actually they are, quote, the absolute worst fucking people in the world. So, Scott, just before we start, I just want to ask you, what do you mean by these statements? What do you mean? Venture capitalists are the worst people in the world.
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Ed
Yeah, but you left. Brightest people you've ever met that know absolutely fucking lutely nothing about your company would sleep with their sister for a net call. If you meet a guy in a blazer and he brightens up a room by leaving it, chances are he's a venture capitalist.
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Scott Galloway
They're already leaving out the doors. I see them now. Yeah, this is 70% VCs.
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Ed
So just another thing about the Bay Area, and I love so many things, but there's a few things I don't love about the Bay Area. One, venture capitalist. But two, and this isn't in the script. I am so done with this optimization bullshit of men my age trying to optimize for their health. This is how you optimize, bitches.
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Scott Galloway
What?
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Ed
And I'm being very serious here. So the fastest zero to a billion dollar companies in history. I think everything in life reverse engineers to essentially biology and astrology, which is manifested in business. So I think there's a lot of life lessons in business. Fastest zero to billion dollar retailer in history was Old Navy and it's got a very powerful axiom. It's 80% of the gap, but for 50% of the price. The fastest zero to billion dollar revenue airline, Southwest, 80% of the market leaders for 50% of the price. And I think, and I'm being serious now, that these guys who are trying, it's mostly guys trying to optimize to 97% with all these cold plunges and red light bullshit and measuring their sleep, which would just stress me out, so I couldn't sleep. This is, trust me, for all the
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Scott Galloway
people who do that in this audience, I think it's most of them.
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Ed
This is the axiom, optimize to 80%. And I'm serious. And that is all right. We all know you're supposed to be healthy, you're supposed to eat well, manage your sleep, be fit, but manage to 80. And the other 20%, fucking enjoy your life, have desserts, drink a little bit, approach strangers and make an ass of yourself. Hang up the condom you never used. Just like have the right, go to 80. Anything above that, Trust me on this, it's not about lifespan, it's not about Health span, It's about fun span, 80%, Old Navy or life. I'm sorry, back to the original program, Fun Span.
- [06:53]
Scott Galloway
Great way to start the show. I totally agree. So we're going to get into the show now. We're going to get into our stories, but before we do that, we have this QR code that was supposed to be there. It is. So if you want to ask a question at the end of the show, you can scan that QR code, write out your question, and we will try to get to as many as possible at the end of the show. But without further ado, let's start with our first story. So it has been a sleepy few years for the IPO market, but it is about to come roaring back. SpaceX, OpenAI and Anthropic are all set to go public this year at a combined valuation of roughly $4 trillion. For context, that is more than every.com IPO put together, inflation adjusted, and also equal to half of the combined value of every IPO in the 50 years before it. So the last time that we saw an IPO frenzy this dramatic was in 1999, which made a lot of Silicon Valley investors a lot richer right before it made them actually a lot poorer. IPO mania was in many ways the beginning of the end. The NASDAQ began its collapse in March of 2000 and it eventually lost 78% of its value in two years. So we sit here tonight in San Francisco, on the eve of the next IPO mania. And the question that I will pose to you, Scott, is will it look like 1999?
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Ed
There's some similarities, but there's also some pretty stark differences, right? So there was a confusion around how this is all going to manifest or play out. So there's a digression to investing in the technology and infrastructure layer. We did it with Global Crossing and Cisco, which lost 90% of its value. There was momentum, euphoria, a certain techno narcissism. Back then it was the Internet's going to change everything. Now it's AI is going to replace everyone. But there was a certain belief that, that this region and these companies are going to be the operating system for the world moving forward. There's some pretty stark differences though, and that is while you had about 60% of GDP growth was from infrastructure spending back then or growth or investment in Internet companies, it's now up about 90% of GDP growth is from the infrastructure build out. So it's even scarier. And typically whenever you get over 3% of GDP is being invested in any infrastructure. Railroads, electricity, electrification, the highways. Again, Telco in the 90s, within 24 months there's a crash. But where it's different is I don't think there'll be a crash this time. I think there'll be a pretty vicious recorrection of price recalibration. But where things are different is the following. The companies now are cash juggernauts. They're incredibly profitable. Whereas in 99 it was just, I don't know if any of you remember this, the Globe that went up Eightfold on its IPO, pets.com, i mean Lycos. There was just all of these ridiculous companies and red envelope.
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Scott Galloway
I had to.
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Ed
Dude, you were an intern here like 24 months ago.
- [10:21]
Scott Galloway
Anyways, you should find me today.
- [10:23]
Ed
Anyways, you got the clips, but these are really profitable. These are incredibly profitable companies. They're financed with their own cash flows, not with the debt. But if you look back and walk down memory lane, Google was still sort of this PhD project. It was run by two guys that look like Chechen Molly dealers. Amazon. Amazon was a book company that was losing a lot of money. And a ton of smart Internet analysts were convinced it was going to go bankrupt because it had too much debt. Ebay was considered a really powerful company. It was making money selling shit to people in Ohio. And probably the most important tech media company, maybe even the most important media company in the world at that time was A company called Yahoo, which bought a company called Broadcast.com from Mark Cuban for $5.4 billion. So I love Mark. I think he's very smart. He's also one of the luckiest people ever. And then you had just a ton of companies that got swept off the planet. So it feels as if this time it's similar but different. But what is the same is a group of young men who are socially awkward, who are self absorbed and think they're going to change the world and have a totally inflated sense of self. So I think that there's a certain kind of narcissism that infects this type of movement, whereas back then it was going to change everything. Now the kind of narrative is that AI is so impressive and powerful that it's going to replace all of us. And in 99, to their credit, they got it right around the Internet. They just got the ARC or the time span wrong. And I think the same thing is true here. I think AI will in fact replace a lot of costs and increase productivity. But again, I think we got the time or the arc. I don't think it's going to happen as quickly as everybody thinks. But more importantly, back to me, in 99, this guy named Frank Quattrone from Credit Suisse First Boston was going to take the company I'd started public, Red Envelope. I remember a bunch of Internet CEOs, we were flown to an airfield to look at Bombardier jets because they said they would take stock in a private company, exchange for jet. And it was a bunch of 30 something year olds. Speaking of self absorbed people who weren't, you know, couldn't get dates to the prom. We were all out looking at these jets and picking out our jets. And even then I had enough mindfulness to know this is not right. This, this doesn't feel right. And within three or four months we were no longer looking at jets. And I remember I was in a board meeting, my company, Red Envelope, and I accused the chairman of our company. And it's been a long time, so I don't hold any grudges. Mike Moritz. And I said to Mike, you're using Red Envelope as a dumping ground for the failed products of your portfolio company companies. And on the way to the airport, they called me and said, we're kicking you off the board. And so I got kicked out of the band I'd started. And I remember being at SFO and I had this flashback tonight and getting out of the car. We used to rent cars back then. And I remember just Being frozen. Like, I had never in my Life. I was 34 at the time. I'd never in my life, like, had that kind of professional punch in the face. And I remember getting out of the car and just being paralyzed for a good five or seven minutes. I literally. I just didn't know what to do. I just didn't. Do I call a lawyer? Like, what do I do? I remember just sitting outside of my car, and finally the lady who gives you checks in the cars came out and said, sir, are you all right? And then just to be serious for a second, for those of you who, I don't know how many of you are here living in the 90s, but it wasn't. It wasn't the Internet that was the most dramatic thing, at least for me, it wasn't. In terms of what I think of as being the thing I remember most about San FRANCISCO in the 90s, that really is, like, stuck with me. Does anyone want to guess what it is? This is not light at all. AIDS. It was. If you're under the age of 45, you probably think of COVID as being hopefully what will be the most dramatic health scare. You are literally walking around this neighborhood. And there were these beautiful young men everywhere dying. I mean, it was. It was just like. It was catastrophic. And fortunately, The warm hand of science pulled us out of that. But if you lived here in the 90s, I mean, it literally was a plague. And it was like the best and the worst of American science in terms of how we responded to it. But that's how I think of San Francisco. That's like what I remember most. Get me out of this, Ed.
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Scott Galloway
I have all my. All of these numbers and all of these notes, and now it's. Now I'm not sure what to talk about.
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Ed
I still hate Mike Moritz.
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Scott Galloway
Well, I am going to talk about numbers.
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Ed
Yeah, go ahead, go for it.
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Scott Galloway
Because that's what we're here to talk about. So when we think about what are some of the differences to today, I think that you make a lot of good points. One thing that we should point out, though, is that we have these three companies that are literally combined. They're going to be worth $4 trillion. I mentioned some of those stats. It's to going to be 6% of the global public equity markets is these three companies. And you talk about profitability, which for the longest time I wasn't so worried about myself either, because I looked at these companies, like Google, like Meta, like Amazon, which are these cash juggernauts. They're spending unbelievable amounts of money building these data centers, setting up AI. And everyone was saying the AI bubble's going to happen because they're spending so much money. We haven't seen the roi. And we'll get to that in a moment. But I think something that you and I were saying was, well, they have the cash to do it, and they've been saving up this cash for years. And now is their moment. And here they are, they're doing it. However, let's look at these three companies that are going public. Let's look at SpaceX, which is going to go public, supposedly at a $2 trillion valuation, which is going to be a more than 100 times price to sales. Multip. The most expensive stock in the S and P today is Palantir, which is way out over its skis, and it's trading at 64 times sales. This is trading at 107 times sales. If it goes public at $2 trillion, its losses grew 700% last quarter. It's on track to lose $20 billion this year. So I look at that, I say, okay, well, that's not really a great business. By the way, its revenue grew 15% last quarter. And some of you say, okay, that's fine. Actually, if you're an AI company, which they claim they are, that's not fine. That's six times lower than Nvidia's growth rate. And also it's half the growth rate of this podcast. So we're growing faster than SpaceX, just putting it out there. So the idea that you're going to have this company and then you're going to have OpenAI, which is expected to burn $25 billion this year. These are all. Again, we don't know these financials because they say this to reporters. And then we hear people who are familiar with the matter who tell us this is what the financials look like. All I can tell you is whatever's going on at OpenAI, it probably ain't that good. And we also know that because we saw this article from Ronan Farrow, who came on the podcast and told us that Sam Altman is, quote, unconstrained by the truth that that was according to a board member. So I'm a little worried about that, too. And then you've got Anthropic, which supposedly is about to hit operating profits this quarter. So maybe that's a little bit safer. But still, it's losing a lot of money and supposedly paying billions of dollars to SpaceX. Okay, those companies are now going to be A part of the market. And not only that, the NASDAQ is changing its rules. It used to be that you had to wait 12 months after you go public to join the Nasdaq to one of the most popular passive index funds in the world. They've changed the rules. They said you only have to be public 15 days if you are a mega cap company, if you are, ie, SpaceX, OpenAI or Anthropic, they have literally changed what it means to be part of the market for these three companies, none of which are profitable. That part makes me a little bit more worried. And I wonder if that feels more similar to 99 when you saw a lot of these companies that were losing billions of dollars. These ones are going to be worth 6% of the global stock market.
- [19:54]
Ed
Yeah, well, oftentimes the technology survives evaluations. And I would say, I mean, if you look at, for example, SpaceX, three companies, a rocket company, a satellite company and an AI company that's playing catch up. If you price each of those three companies similar at a similar ratio at the high end of the market leaders in those respective categories, you get to about a 7 to $800 billion market valuation. There's an Elon effect. Absolutely. So even double to 1.6 trillion.
- [20:25]
Scott Galloway
Why not? Right.
- [20:26]
Ed
Well, it's true, he does bring a certain vision that shareholders absolutely love. But the way I would Describe Right now, SpaceX is Snow White and the seven dwarfs. And that is Snow White is ridiculously hot. The SpaceX is an incredible company. It's got incredible moats, 16 billion in revenues, 8 billion in operating profits, an incredibly robust company, probably the biggest moats, I think, of any business in the world. 90% launch capacity, 2/3 floor at satellites. But what he's done is he said, okay, if you want to marry Snow White, you've got to take these seven dwarves that are just dysfunctional and awful people and expensive and add no value. Because he's basically attached. He said, if you want to hang out with Snow White, SpaceX, you have to also invest in this money furnace called xai. And if you look at. And what's really interesting is he clearly doesn't believe as much he's made it. And granted, he's a visionary, there's no getting around it. But he looks at AI as the future and that he needs to catch up fast. So he's going to take his hot property and use it as a means of trying to raise incredibly cheap capital to try and play catch up. The other two, I believe, are incredible companies. But my Prediction is that similar to if you look at these cycles, typically what you have when you have this type of spend, you have a dramatic repricing at some point because the public and the capital markets are impatient. And I think the way this is going to play out in the next 24 months is that we're already seeing, and this is our next story, that a lot of companies are starting to question the kind of return they're getting on these increasingly exorbitant bills they're getting from their different site licenses around AI. And then I think geopolitics is going to come into this in the next 24 months. And that is if I was Xi, I would engage in AI dumping and I would start flooding the US market and going to CFOs of companies sick of spending 5, 7, $10 million on AI and tokens and are not really understanding why and dumping the market with incredibly cheap LLMs out of China. And I think you're going to see a dramatic repricing of the AI trade. As a matter of fact, I would. Or my prediction is in the next 24 months AI is going to be dramatically repriced down because I haven't seen, nor does anyone see a lot of like AI moisturizer or you could argue autonomous is maybe a use of AI. But there's not a lot of new products that you would say are creating incremental revenue other than the LLMs themselves from AI. There is does appear to be a lot of smart people saying we're going to get dramatic efficiencies. And we've all probably seen hints of that, right? We're not sending stuff to our lawyer as often, customer service, et cetera. But if you think In America there's 155 million people who actually work, assume half of them are AI vulnerable, that's 75 million, say $100,000 per employee, $5 trillion. That that means you would need somewhere around 5 to 7 million layoffs across the 85 million that are in fact AI vulnerable. So you would have in those industries about a 10% labor destruction in the next two to three years. That would be chaos in labor markets. So one of two things is going to happen. Either the valuations of AI are going to come down by 50 or 70%, or we're going to have labor chaos in these industries. And I think it's going to be the former. I think that you're not going to see nearly the job apocalypse this way. I would describe it as apocalypse. No. And that is just as you Were trying to raise money back in the 90s on changing the world. Now they're basically catastrophizing and fear is the product and capital is the outcome. And unfortunately for them, I don't think the job apocalypse is going to come as quickly as they're predicting. And so if it's either going to be labor chaos or valuations coming down by 50, 60, 70%, I absolutely think it's the latter. In addition, if you just look at the biggest companies now that we're all so intoxicated with, whether it's Meta or Alphabet, just in the last five or seven years, all of them have gone peak to trough down 40, 50. Meta was down 72% in 2022. So it just wouldn't be unusual for these companies to have that kind of drawdown. In addition, I think this is effectively the end of the IPO markets as we know it. Because the way I look at it is the IPO market is now the last stop on the chump train. And that is what they're saying is there's no reason to go public, because if the VCs still thought there was juice to squeeze, you used to have to go public to raise the 10 or $15 billion you needed. Now these private VCs, if they still see upside, they can find the capital. So effectively, when these companies go public, it's effectively the smartest people in the room who know the company the best are saying, we've squeezed as much juice out of this as we can. We gotta find people stupider than us to invest at this valuation. I think retail investors are going to figure this out in a painful way over the next two years. Tokenization of private companies. I think this effectively might be the end of the traditional IPO market as
- [25:55]
Scott Galloway
we know it's going to be. The question is, are these companies or are these investors, are the employees of these companies, are they all just going to sell? And what we have seen is that SpaceX is looking at shifting the lockup periods so that they can sell earlier. And I think you have to ask yourself, if you are an investor in Anthropic, if you're an investor in OpenAI, if you're an investor in SpaceX, these companies go out at a trillion dollars, $1.5 trillion, $2 trillion. The question is, would you sell? If I'm an investor in SpaceX, for me the answer is an immediate sell right now, today. Easy. No questions whatsoever. And I think that will be the question for investors in this round too. Just before we move on to the second story here.
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Ed
Would you sell in any of these companies?
- [26:44]
Scott Galloway
Yes.
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Ed
Yeah.
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Scott Galloway
Yeah.
- [26:47]
Ed
Oh, my God. Sell it. If any of you hold shares in any of these companies, just trust me on this. As a guy who was looking at jets when he was 34, sell everything. And there's always going to be pressure from the VCs and your managers. Aren't you in it to win it? Yeah, fuck you. I need a house, bitch. Sell everything. So, and I hope I'm wrong, come back to me and tell me you only made $11 million on your shares as a junior product manager and now they're worth 15. But there's going to be some really interesting second order effects. 11,000 people of these three companies go public at their valuations. It's going to mint 11,000 new millionaires just in the Bay Area, 60% of whom are under the age of 40. Last month you saw rents on a one bedroom in San Francisco increase 24% pending sales of luxury homes in the US were up 4% last quarter. They're up 48% in the Bay Area. It's not all bad. You're also going to see philanthropy absolutely surge in the next three to six months with these people, especially the bigger shareholders who will start their own foundations and things like that. You're also going to see, I think, a baby boom lit in the Bay Area because what people generally do is they move houses and they think, okay, let's start having kids. But there's going to be, I mean, the second order effects of this type of wealth are going to be dramatic.
- [28:22]
Scott Galloway
We'll be right back.
- [28:31]
Podcast Host
Support for the show comes from Odoo. Running a business is hard enough, so
- [28:36]
Scott Galloway
why make it harder?
- [28:37]
Podcast Host
With a dozen different apps that don't talk to each other, One for sales, another for inventory, a separate one for accounting.
- [28:44]
Scott Galloway
Before you know it, you are drowning
- [28:46]
Podcast Host
in software instead of growing your business. This is where Odoo comes in. Odoo is the only business software you'll ever need. It's an all in one, fully integrated platform that handles everything. CRM, accounting, inventory, E commerce, HR and more. No more app overload, no more juggling logins. Just one seamless system that makes work easier. And the best part, Odoo replaces multiple expensive platforms for a fraction of the cost. It's built to grow with your business, whether you are just starting out or already scaling up. Plus, it is easy to use, customizable and designed to streamline every process so you can focus on what really matters running your business. Thousands of businesses have made the switch. So why not you try Odoo for free@odoo.com that's o d o o.com.
- [29:42]
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- [29:47]
Ed
Hey Meta, tell me what kind of dessert this is.
- [29:50]
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- [29:54]
Ed
Is it sweet?
- [29:55]
Palmolive Advertiser
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Ed
Mmm, delicious.
- [30:01]
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- [30:46]
Podcast Host
We're back with profgy markets.
- [30:48]
Scott Galloway
Nearly 50,000 workers have been laid off this year, supposedly because of AI. And that's almost as many as in all of 2025. For companies adopting AI, the thesis is simple. AI is going to do is supposed to do much of the work that humans. In recent weeks, however, that thesis has hit a roadblock. More and more companies are reporting that despite the enormous power of AI, the technology is actually more expensive than the humans that it is supposed to replace. Uber, for example, just blew through its entire 2026 AI budget in just four months, according to the COO. It is now getting harder to justify AI costs within the company. Microsoft is canceling its Claude code licenses across multiple divisions because it's simply gotten too exp. And over at Nvidia, one executive said that the cost of compute is now, quote, far beyond the cost of employees. Which all raises a crucial question for the AI industry, which we just hinted at earlier. And that is, at what point does AI actually stop being worth it? So this has blown up basically in the last 48 hours, where many companies are now coming out and saying, we're actually not as confident about this whole AI thing as we used to be. ServiceNow is another company which just blew through their entire anthropic budget. Technical staff at Stripe are reportedly spending nearly $100,000 on AI tokens every day, and Salesforce is on Track to spend $300 million on anthropic tokens this year. Shopify said that their earnings were, quote, partially offset by increased LLM costs. We heard similar things from Meta and Spotify and Pinterest. One anthropic ployee said that his Claude code bill came out to $150,000 in a single month. In sum, it's getting very, very expensive. And we have seen in the past that there has been an incentive, especially among tech companies, to use AI as much as possible. And there was this idea that employees will engage in what we call token maxing, where you use as many tokens as possible to use from your AI API. And they'll create even leaderboards at these companies like Meta, like Amazon, where they will track how many AI tokens you're using. And the people who are using the most tokens are the ones who are the most AI deployed, the most AI forward. Those are the ones who are going to get recognized, maybe they'll get a promotion. And this has resulted in unbelievable and extraordinary costs on the AI front. And now we're starting to see, Scott, the next phase of this, which is companies and their executives starting to realize this is a little expensive. And now the question becomes, at what point will. Will AI actually pay off? So I will pose that question to you. At what point is it too much?
- [33:41]
Ed
It comes down to incentives. You were talking about how you're trying to incentivize people. Kind of an interesting part of the ecosystem right now in the different layers is the adoption layer, trying to get people to use it. And companies have put in place the incentives to try and get people to use AI more. But there was a recent survey by a professor at MIT that he found that about 5% of the projects that people are using tokens for, they can actually connect. The CFOs can connect to some sort of return. So while I think that they're really intoxicated, it was like using AI as much as you can and talking about in your earnings call. It's like adding.com back in the 90s. But I think you're already starting to see some fatigue. And I think the AI companies are trying to get public as quickly as possible, raise that cheap capital before things start to, I don't want to say unwind, but you can see how the string that gets pulled here is a large company and a kind of a CEO who has a lot of credibility in the industry just comes out and says, we're dramatically scaling back our AI investment. Let's be honest, folks, we're just not seeing the return we'd initially hoped. And Nvidia just reports its first company for the first time. Nvidia's first miss. I think Nvidia has beat its estimates 15 quarters in a row. Nvidia's first miss probably takes, I would think, the entire market down 5 or 10%. But the string that gets pulled is a CEO comes out and says, yeah, this is great, we're still going to do it. We've found some efficiencies, some productivity. You are seeing some productivity gains in the economy from this. And quite frankly, they look as dramatic, if not more dramatic than the Internet. But look what happened in 2000. This definitely does feel like 99. And I'm waiting for the first CEO to come out and say we have to get procurement involved and we have to dramatically scale back our expenses here. I don't think it's that romantic. I think it's just going to be a traditional Fortune 500 company that starts the narrative of, okay, this has been fun, but we have to dramatically decrease our AI investment because we're not seeing the type of ROI we'd anticipated.
- [35:57]
Scott Galloway
Yeah, I mean, once we heard a quote this week from, I mean, not a huge company, the CEO of Match Group, but he said that AI is costing the company 5 to 10 million dollars a year. And he said, quote, I think we're benefiting from it, but it's hard to feel it is what he said. So that's not great if we're supposed to be riding on this multi trillion dollar technology that's going to transform our economy. I think there are a few possibilities that could play out here. One is that companies will decide, you know what, we are just going to pull back our AI usage because this is, we wanted to experiment it and it's good that we did, but ultimately we can't afford this and we're starting to see signs of that. Two, it's possible they just say we're going to not use AI and actually we've decided that humans are cheaper and they're more versatile and so we're going to use humans. I really doubt that that's going to happen personally. But third, I think most likely is that these companies are going to resort to the cheapest models possible. And this goes back to what you said in the previous segment, which is this relates to China and that is Chinese models today are around 10 and in some cases 20, in some cases 30 times cheaper than American models. You have models like Deepsea, which obviously got very popular Kimi K2, Jipu, GLM, all of these new Chinese models that you've never really heard of, but every developer in the world has heard of, because 80% of American AI startups are now using Chinese models. And the reason that they're doing this is because they are dramatically cheaper. Why are they cheaper? One, because they're getting unbelievable subsidies from the Chinese government, so the CCP is paying for it. And two, because they're engaging in this thing called distillation, which is essentially where a Chinese AI company will go and industrially harvest the outputs from the American frontier models and then use it for their own models. In it's this very sophisticated kind of technological term for theft. They're basically stealing people's stuff. And that turns out to be a great business model because it means you don't have to pay for things. And China's been very good at this for a long time. They've been doing it with intellectual property for many years. But I think that this is ultimately where it's all headed, where we don't have the money to pay for it. We're not going to use Claude, we're not going to use ChatGPT, we're going to use this cheap Chinese thing that can kind of deliver us very similar results. And you made an interesting point about geopolitics, because that there is going to be a problem for Trump, for the United States, for the administration, if China overtakes the US in AI, essentially because they were distilling our models, that is stealing them. How do you think that might play out?
- [38:57]
Ed
The only thing that's sort of propping up and giving any license to the 34% approval rating right now of Trump is the S and P and the nasdaq, which I would argue are the most damaging metrics ever invented, because they give this illusion of prosperity. And the reality is they're just wealth indices for the top 1%. And spoiler alert, the top 1% are doing incredibly well. That's right. But I do think so if you have 93% of GDP growth is from this giant bet on AI and you start to see a threat from abroad from AI, which would really, really damage the Trump administration, I think you're going to see, essentially they're going to BYD the whole thing, and that is they're going to decide that just as they decided that Chinese EVs can't come into the US market, I think they're going to ban Chinese LLMs, because I think it's only a short. I think in the next 90 days. Supposedly already 80% of startups, smaller companies, are starting to use Chinese LLMs for the same reason you were talking about, because of cost savings. I think you're going to see the Trump administration ban these models because right now, AI is the only thing quite that feels like it's propping up the economy right now. The incredible capex, the shareholder gains. So I think the Trump administration just has too much to lose if that Magnificent 10, which is about to go to the Magnificent 13, collapses. And when we start to see evidence of those, there is in fact, AI dumping. And to be fair, I think there's some legitimacy to that. Germany used to be the powerhouse of Europe and China is very strategic and creates economic capture. And what they've done is, I mean, not only do they, they'll steal the IP of Siemens and then sell them back a cell tower into Germany for 40 cents on the dollar, but they will invite Volkswagen and Daimler and Siemens into China, prop them up, have their R and D facilities there, the production facilities there, and make it incredibly profitable for them to do their production and their R and D in China, such that when Germany tries to implement some sort of national economic policy that stops China from dumping the IP theft and then dumping products back into China, the largest companies in Germany say, no, don't do that, because we are now dependent on the economic arbitrage between China and Germany. And so what China has done to Europe economically, we're failing to do militarily in the Gulf. And that is, they've said, rather than trying to enforce our will or impose our will on the world militarily, we're just going to create economic capture where other nations become so dependent upon us that we can have huge political influence internally and stop them from, you know, creating some sort of prohibition of our products. I think it's going to happen here. I think Trump's going to decide once he sees evidence that the AI trade is under real threat because of these Chinese LLMs, he'll ban Chinese LLMs. And to be clear, I think there'll be some legitimacy around that. I think the Chinese are going to try to do to the AI market what they try to do to the steel market here in the 80s and 90s.
- [42:15]
Podcast Host
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- [43:46]
Podcast Host
We're back with Prof. G Markets.
- [43:48]
Scott Galloway
How are we feeling? I asked that because I'm looking at the clock and we need to make sure that we have time for questions. The first question is from George Gilbert in seat F105.
- [44:06]
Audience Member George Gilbert
I wanted to know if maybe besides the three stocks that have excess valuation, besides them, there are a lot of large technology stocks whose fundamentals are doing very well, much better than the rest of the market. And if we see that continue, that seems to drive a concentration of wealth. I'm wondering what you see the political implications of that might be ultimately. And one last comment. I was working for Frank Quattrone in 99 when you were. I was an equity research analyst on software, but I didn't remember red velvet. I was telling folks to sell the ERP country. Red velvet or red envelope?
- [44:53]
Scott Galloway
Red envelope. Once you hear it a thousand times, you remember it.
- [45:03]
Ed
Yeah, thanks for that. Red velvet. That's a cake, boss. Not the premier Internet based gift company. Yeah, look, I think that. So every year I do a big tech stock pick and in 25, my pick was Alphabet because of the existential threat that supposedly OpenAI presented to search. It was trading at 17 times earnings. The S&P trades at 23. Alphabet was just a much better company than a Dupont or a P and G or a Caterpillar with Waymo. And by the way, search, I think is up 17% this year. My big tech stock pick for 26 is Amazon because I think one place, I think there's two places where AI is actually going to show three places. The incremental shareholder value live up to the hype. The first is just simply put in medical research. If I were to go long a sector it would be pharmaceuticals and anything related to GLP1. I think the advances we're finally going to see the great age of discovery in pharma that we've been waiting for for 30, 40 years. Autonomous. I think it's just incredible. I think it's going to change everything. I hate myself because the people I'm most root to in the service industry are drivers. Like why the fuck are you going this way? Just follow, I mean just follow the look at the phone. It's not that hard. It drives me crazy. And also in my big tech getting my big tech Stock Pick for 26 is Amazon. There's a million industrialized robots at Amazon facilities right now. The rest of the nation has I believe 400,000. So I think you're going to see a suppression. I think the stock prices might come down a little bit because I think so much institutional capital is going to be sucked out of the market into these new IPOs. So I do think the markets might come down for or the prices might come down for some of these other companies. But. But if you look at these companies and the valuations, I would argue that they're pretty good buys right now. I think that if you see a ton of capital go into these IPOs that they're so thirsty for and you see a drawdown in the S and P and some of these companies, I think they'll be really good valuations if you look at and I just think they're more resilient and in some ways less vulnerable because their businesses are much more diversified. So in sum and sounds like you're in this business. Personally I would stay the hell away from AI right now because I think it's really vulnerable. But I think the traditional guys have built such incredibly robust diversified companies that you're just on a risk adjusted basis going to do really well than them. And I'm talking my own book here. I own Apple and Amazon. Those are companies I'll just own probably for the rest of my life. But I think there'll be personally, when I think you look at valuation, I think actually one of the best Internet analysts in the world is here, Mark Mahaney. If he's around, he might tell me where he agrees or disagrees. It's a long winded way of saying I agree with you. I think some of those companies will be good buys.
- [48:14]
Scott Galloway
The concentration is incredible though. When you look at what's happening the Fact that the top 10 stocks now make up 40% of the entire market. 30 years ago, they made up 20%. The fact that AI is expected to drive 40% of S& P earnings growth this year, that's the expectation. So it is just unbelievable. We all just have to kind of hope and pray. Like, let's just hope that this keeps going. Let's just hope that this all works out. Because the level of dependency that we are seeing in this very small handful of companies, it is unprecedented. And if you were to see, call it like a 20% drawdown in just those stocks, I'm not saying that's going to happen, but it's happened before and it could happen. That's an immediate impact on the entire S and P of 8%. And the question becomes, what kind of fear would that inspire as you go down the chain? What would that do to the Capex guidance going forward? What would that do to earnings expectations? What would that do to multiples? The more you do this, the more you play it out. If those companies so much as falter or stumble, the amount of destruction that you would see is going to be quite staggering. I wasn't very much conscious, I would say, when this last happened in 99, but what I do know is that it took the s and P7 years to recover from when you saw that crash. And so that's what we all just kind of have to pray it just doesn't happen, is that none of these companies even so much as slightly miss on their earnings. Because if they do, then it's all mama gutted.
- [49:50]
Ed
But you also asked just about political ramifications. I think it's going to be enormous when, if you look at The Gini coefficient 0 is everybody has the same thing. That's communism, right? Or the dream of communism. One is one person owns everything. When the French started separating people from their heads, it was a 0.83. It's a 0.85 now in America. And income inequality always gets solved, but it gets solved through either war, famine or revolution. I think we are in the midst of the second or third inning of revolution, but I think it's a series of tiny revolutions. Jeff Bezos or Sam Altman. Anything rich white guy says right now, he's wrong before he opens his mouth because people are just fed up. And if you look at the protests around data centers, everyone's looking for a vessel to express their dissatisfaction. So they show up at a data center and they just go crazy because it represents sort of income inequality. My fear is that politically we go as crazy as we went to the far right. I'm personally concerned we go as crazy to the far left. And I believe that fascism can come from the far left as easily as it can come from the far right. And I find that the stupidest, most dangerous ideas, generally speaking, when the far left and the far right agree on something, whether it's anti Semitism or anti vaccines, you know, it's fucking crazy. And I worry that. I worry that because of the economic incentive of pushing people to the polls, extremism, distillation of reductive thinking to go to A or B, and the inability for America to have the nuance to really think about something in the middle, that we risk going way too far. And this is a weird thing to say in San Francisco. I worry we're going to swing way too far to the left politically.
- [51:47]
Scott Galloway
We have a question from Robert Tang in seat L113. I'm being told to read the question from here. Robert asks, how should ambitious professionals navigate the tension between using AI tools and the fear of being replaced over the next five years? And he did add, go New York Knicks. I love it. What do you think, Scott?
- [52:11]
Ed
Well, we have this passive statement that AI is not going to take your job. Someone who understands AI is going to take your job. I'm now even beginning to think that's a bit overblown. I would argue that the only competence that's really important is storytelling and relationships, and that is your ability to articulate your ideas and also your. I mean, I would argue the best thing you can do for your career if you're under the age of 40, is to be as social as possible. And because so much of it now is based on relationships, where, if you think about. And there's some really good things about AI, where social media took us to the polls and made the world more divisive. One of the potentially positive things about AI is the LLMs try to guess the seventh word by taking the average of all the six words in a similar string. And so it's actually a little bit AI's moderating. It's pushing everyone or thoughts to the medium, to the median, which is good in the sense that it's not creating more extremists. It's bad in the sense that AI is all chip, no salsa. And the worst thing I can say to Ed or any of my analysts who come back with something is I say, this sounds like it was written by AI. That is literally the worst insult I can give in the company. And so your ability to form relationships, your ability to create, to be creative, your ability to understand people, your ability to be super social. Because if it's just AI recruiters and people punching out job applications and emails via AI, then the only thing that's going to differentiate us in terms of our own ability to get promoted or even get in the door is going to be relationships. And so I'm thinking about that with my kids. I want to get them super into storytelling. I'm trying to ensure they know how to write well, stand up in front of people, communicate well. And more than anything, I tell them they need to be out of the house. I'm like, you have my credit card when you're out of the house. And I'm like, I seriously tell them, I'm like, go steal. Go shoplift whatever it is you need, but I need you to join a gang. And what I mean by gang is. And this is the brilliant Jimmy Carr. Gangs get a bad rap because occasionally they sell drugs and kill people. But for the most part, men hold each other accountable and your ability to figure out the pecking order and establish strong relationships. If everyone's driven to the median in terms of their jobs and their capabilities, it's going to be like that study done at Google. When they put out a job opening, they get 200 resumes within 60 minutes, they shut it down, and then 70% of the time, and then they bring in the top 10 people. And 70% of the time, the person that ultimately gets hired had an advocate within the company, had a friend. So if you're thinking about how to advance your career, especially if you're under the age of 40, you just want to get out and meet as many people as possible. And if you're a manager, really trying to invest in young people's relationships such that when one of them gets promoted, they think of you as being a good person. But I think relationships, creativity, kind of that salsa is going to be the point of differentiation, because the other stuff I think is going to be driven to the median.
- [55:44]
Scott Galloway
Our next question is from Jeff Surface.
- [55:48]
Ed
Oh, and by the way, when I tell my kids, I tell them I love this. I tell my kids whenever they go out at night, I'm like, don't add to the population. Don't subtract from it. And if you get arrested, incarcerated, establish dominance early.
- [56:06]
Scott Galloway
Where's Jeff Surface?
- [56:09]
Ed
So my question was, Scott, you talk about your troubles with the affirmation of others frequently on various podcasts. So I wanted to get kind of ed Your take and how you're early on in your career and you have the spotlight now of how you deal with the noise and the stress that that comes with this. That's what the money's for.
- [56:31]
Scott Galloway
Exactly. It's all worth it. That's a very kind question. I mean, I'm obviously new to this, but doing this with this whole group here and getting to see everyone in person. I mean, I saw everyone at south by Southwest when we did the live show. I feel very supported and very excited to be in this kind of community of kind of slightly nerdy, slightly obsessive people who want to be doing something with their careers, who feel ambitious. I feel like we're all kind of a similar type of person. So in a lot of ways, I feel really supported. Honestly, a big piece of it is the team. I mean, we have just incredible support. And I just would shout them out right now. Claire Miller. Mia Silverio. Dan Shalon, Isabella Kinsel. Kristen o'. Donoghue. Like, I kind of want to just shout them out right now. And there are plenty of other names, but, you know, we were a bunch of kids who Scott hired, and Scott said to us one day, I want to make a podcast about markets. And we said, okay. And we didn't really know what we were doing, but then we eventually did know what we were doing, and now here we are at the Castro. So look, it's been wild, but ultimately, this is so much fun doing this and meeting all of you guys and doing this with Scott. And Scott's been such a support for me the whole way through. So that's a really nice question. I feel good. I'm handling it. Okay. Okay.
- [58:15]
Ed
He's seriously the son we all dream of, right? I don't think I've ever seen you stressed. I don't. I've never registered you. Or maybe I just don't. I just don't really care.
- [58:27]
Scott Galloway
You gotta hide it. You gotta hide it really well. Never show your boss.
- [58:31]
Ed
No, I've never seen you stressed.
- [58:33]
Scott Galloway
Avery Sarkar. I hope I'm pronouncing that right. Avery has a question. He says, what's your best advice for 17 year old in today's day and age? Avery's 17, I assume.
- [58:49]
Ed
Well, there's a lot there. 17, are you 17? Yes, sir.
- [58:57]
Scott Galloway
That's awesome.
- [58:58]
Ed
Yay, 17. Be good to your parents or your allies. You're at a point in your life where you're under the impression you have this natural hormone coming over you that makes it easier for you to leave the pack so you become an asshole to your parents. Try and skip that stage and go right on to realizing your parents are your allies. Start investing in relationships. You're going to hear a lot of TikToks about how if you save 10 bucks a day and pass up a latte, that by the time you're 50, it's a million bucks. Approach relationships that way. Try and have the confidence I didn't have as a young man to express affection. Tell other people you're impressed by them. Start quick texts, you were great today. Or I'm so impressed by you. So many young men, as they're developing sort of their sense of masculinity, they feel like it's a zero sum game. And if they acknowledge that someone else is impressive, that somehow takes from how impressive they are. Also, really, the key attribute you need to develop at the age of 17 is no. And what do I mean by that? You need to put yourself in as many uncomfortable positions as possible and get as many nos as possible. And what I worry about with young men and the temptation. If I'd had the ability to be entertained on TikTok all day, I'm not sure I would have ever gone into Westwood and seen movies. If I'd had lifelike synthetic porn on my computer 24 by 7, I'm not sure I would have ever taken the risk to approach strange women on the campus of ucla. I don't think I would have. If I thought I could trade crypto or stocks on Robinhood or Coinbase, I'm not sure I would have ever. And I did this show up in the office of Morgan Stanley in the lobby with donuts, which was a cheesy thing, and say, I want to meet with somebody. So if you're not getting a lot of no's in your life, if you're not applying to jobs you don't deserve to get, if you're not applying to schools you shouldn't get into, if you're not approaching and expressing romantic interest while making someone feel safe with people that most people would perceive as higher character and hotter than you, if you're not getting to know a lot, you're not going to ever punch above your weight class economically or romantically. So be good to your parents, start investing in relationships and try to get to know as quickly as possible and develop the sense of resilience around rejection. And my fear of kids your age, especially men, is they believe they can have a reasonable facsimile of life with a screen and an algorithm, and they don't develop the resilience and don't ever get to engage in the really hard things. That's the most rewarding thing, and that is relationships. And if they're not careful by the time they're 25, one in three men under the age of 25 is living at home. And they never developed a skill set around rejection. And if anyone in your life that you really admire, the only thing I can guarantee is they've had a lot of no in their life. So get really good at no. And also just recognize. And I wish I'd learned this earlier. Nothing's ever as good as bad as it seems. So if you're applying, you're 17. You might be applying to college. If you don't get into the college of your dreams, if you get your heart broken, if you don't get the job you want when you're older, you're not going to regret not getting into that great school. You're not going to regret having your heart broken. You're not going to regret not getting the job you wanted. What you're going to regret is how upset you are and how much you beat yourself up. So just learn. Try and just remember that and forgive yourself and recognize that young people are just so hard on themselves anyways. But more than anything, get out and just get to as many no's as possible. That means you're about to get to good yeses. By the way, where are you? So, I don't know. What's his name again? What's the kid's name?
- [63:10]
Scott Galloway
Avery.
- [63:11]
Ed
Avery. So, Avery, do you know what love language is? Love language is like either. Everyone has a love language. So it's like it's either acts of service, affection, gifts. My love language is money. So here, brother, here's a thousand bucks. Take your mom out to dinner.
- [63:36]
Scott Galloway
I think he's upstairs. That's not Avery. That's Eric. But he's taking it to Avery, I hope.
- [63:55]
Mark Mahaney
Hey, Scott.
- [63:56]
Ed
Yes.
- [63:56]
Mark Mahaney
It's Mark Mahaney.
- [63:58]
Scott Galloway
Mark.
- [64:00]
Ed
So, Mark, I'm gonna. I want to ask you a question. Where did I get it? Right and wrong on valuations.
- [64:06]
Mark Mahaney
I'll tell you. Not on valuations. But thank you for coming out, both of you. Thank you for coming out to San Francisco. I've read all of your books. I've given copies of your books to all of my sons. The notes on being a man was phenomenal. So thank you. I think you're a true gift.
- [64:22]
Ed
Thank you.
- [64:23]
Mark Mahaney
In what you do.
- [64:23]
Scott Galloway
Thank you.
- [64:24]
Ed
Thank you for saying that. Thank you.
- [64:29]
Scott Galloway
Just so everyone Knows Mark Mahaney is one of the best analysts on Wall Street. The tech analyst ever. Cool. Like, it's awesome. He's here right now.
- [64:37]
Ed
Sorry.
- [64:37]
Mark Mahaney
All right, so I'm sure you're right about your comments about these IPOs, but I think you're wrong and so not on the valuations. And look at all the hugely hyped IPOs that you've watched over the years. Google, Meta, Amazon, Netflix, Uber, Spotify. I mean, you didn't usually make a lot of money if you bought them right at the IPO price, but they did become great assets over time, so you had to be really careful. But I just push you to think about the fundamentals and I'll just throw one or two things by you. When you think about OpenAI and Anthropic, you've never seen companies scale revenue. This is not a recommendation of these things, but you've never seen companies scale revenue as quickly as they have faster than anybody. And you've seen with Anthropic, what's been reported recently is that they're just about to turn operating profit profitable on an operating income basis. Not funny ebitda, but like real profits. So there's a there there. And the fact that Google and Amazon and Microsoft and Meta are spending so much money going after this, you've got some of the sharpest minds in the world spending that much money. There's a there there. Now, whether it gets valued right or not, I just push you just to think about what's just, you know, follow the fundamentals first and then fig a price later. But these are unprecedented fundamentals.
- [66:00]
Scott Galloway
Appreciate that from Mark Mahaney. It's awesome he's here. That's all the time we have.
- [66:08]
Ed
Thank you, San Francisco.
- [66:12]
Scott Galloway
This episode was produced by Prof. G Media. Thank you for joining us live in San Francisco. If you like what you heard, make sure you're following us on YouTube, Spotify, you know the drill. Good night, everyone.
- [67:06]
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Scott Galloway
Seriously, everything.
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- [67:38]
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