Aswath Damodaran Says There’s No Place to Hide in Stocks

Summary

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Prof G Markets — "Aswath Damodaran Says There’s No Place to Hide in Stocks"

Podcast Date: November 14, 2025
Host: Scott Galloway (with Ed Elson) | Guest: Prof. Aswath Damodaran

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Episode Overview

In this in-depth episode of Prof G Markets, hosts Scott Galloway and Ed Elson interview Professor Aswath Damodaran, renowned NYU finance scholar, to dissect what he calls a "structural change" in the stock market. The team zeroes in on the highly-concentrated AI-driven stock boom—marked by the rise of the “Magnificent 10”—and the resulting risks, bubbles, and lack of “safe” havens for investors.

• Main Questions Explored:
  • Is there an AI bubble, and if so, what could trigger its bursting?
  • How worried should ordinary investors be, given how concentrated the market has become?
  • Are there any effective hedges or alternatives to stocks in today's climate?
  • What should individuals do to protect themselves—both financially and professionally—amid rapid AI and market shifts?

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Key Discussion Points and Insights

1. Are We in an AI Bubble? The "Big Market Delusion"

[11:34–16:58]

• Damodaran: The talk about an AI-driven bubble is widespread, but most is “just talk.” Even if we stipulate there is a bubble, so what? Bubbles and corrections are part of market cycles and can drive opportunity and change.

• Impact: Those most at risk are recent market entrants and investors chasing recent AI winners.

• Quote:

  "We overreach, we correct, and we overreach again... this is part and parcel of change."
  (Aswath Damodaran, 15:18)

• AI vs. Previous Bubbles:
  The scale of AI infrastructure spending dwarfs dot-com days. If AI CapEx dries up, the economic hit will be real, though not necessarily in terms of mass layoffs—because most spending has been on equipment/data centers, not people.

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2. The Elusive "Catalyst" for a Correction

[16:58–21:10]

• Catalyst Needed: Damodaran warns that you can believe in overvaluation, but making money betting against it is tough without a clear, imminent trigger.

• Potential Triggers:

  • Ed Elson suggests OpenAI’s unsustainable economics could break confidence.
  • Damodaran notes the danger: OpenAI’s “business arguments” are missing, and its governance issues don’t inspire confidence. But deep-pocketed investors may keep the dream alive longer than skeptics expect.

• Quote:

  "Sam should probably stay away from microphones because this might speed up the process..."
  (Damodaran, 20:34)

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3. Investment Returns & The Illusion of Efficiency

[24:20–29:32]

• The Weakest Link: Damodaran states that so far, the main ROI on AI investments comes from "efficiencies" (read: cost cuts, layoffs) — not new AI-driven products.
• Skepticism on Revenues: The consumer market is unlikely to fund the required multi-trillion-dollar revenues; the real promise is unproven.
• Scale of Hype:

  “Given what's been spent, the AI products and services market has to generate about $4 trillion in revenues ... and right now it's in the tens of billions.”
  (Damodaran, 28:09)

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4. The "Magnificent 10" and Dangerous Market Concentration

[29:32–33:54]

• Key Insight: The S&P’s top 10 companies now comprise 40% of its total market cap; there’s “no place to hide” in stocks if they fall.
• Most Overvalued:
  • Nvidia and Tesla singled out for extreme overvaluation.
  • Alphabet and Amazon seen as less stretched.
  • Palantir also flagged for wild valuation (120x sales).
• Quote:

  “If the Mag 10 go down by 40%, it's not like the industrials are going to hold their value ... the panic is going to ripple through stocks."
  (Damodaran, 32:55)

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5. Looking for Hedges: Gold, Collectibles, and Rental Real Estate

[33:54–36:32]

• Gold’s unusual rally suggests that even traditional asset investors are rotating into “fear trades.”
• For the first time, Damodaran admits he’s reconsidering asset classes: cash, collectibles, “physical assets which pay income”—even though this is “not my first instinct.”
• On real estate, he favors rental properties in less-hot regions, not necessarily one’s own city.

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6. Why Diversification Fails: Correlations and Passive Investing

[36:32–38:36]

• Regional/sector diversification no longer offers much protection due to globalization and money flows into index funds. Everything is increasingly correlated.

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7. What Kind of Correction Is Coming?

[38:36–40:10]

• Uncertainty whether it will be sudden and “climactic,” or a prolonged “drip, drip, drip”—either way, investors will feel pain.

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8. How Should Investors React?

[40:10–44:00]

• Damodaran preaches caution over abrupt action. He is “not selling all” his stocks, but gradually trimming winners to raise cash and create flexibility.
• Avoid the temptation for extreme moves (selling all stocks, piling into puts/shorts).
• Think ahead about cash needs to avoid forced selling at bad prices.
• Quote:

  "Don't do anything rash ... gradually start thinking about how much—at least for in terms of cash needs for the next two or three years—see if you can get a portion of your portfolio where you don't have to sell things because you need to pay for your kid's tuition..." (Damodaran, 43:20)

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9. On Collectibles, Cash, and Value Investing

[44:00–47:27]

• Collectibles (gold, art, classic objects) can be a store of value but should suit your temperament and interests. Gold preferred over Bitcoin for its proven history.
• If you need dividends and cash return, stick to cash/T-bills.
• If inflation is your main fear, even cash may not be safe (as currency devalues).

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10. Amazon and Apple as “Least Risky” Big Tech Bets

[49:24–52:21]

• Galloway and Damodaran both pick Amazon (and Apple) as least risky Big Tech stocks. They haven't “gone crazy” on the AI hype and might actually benefit from a market downturn.
• Amazon’s diversified business is seen as offering some insulation even if AI valuations come down.

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11. Advice Based on Age & Objectives

[52:21–56:51]

• If you're young with time and regular additions to your portfolio: Don't sell everything, but maybe slow new investments, hold some cash (e.g. as short-term T-bills), and space out new index purchases.
• If you're nearing a big cash need: Get more conservative; don’t risk being forced to sell stocks after a big drop.

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12. More Bearish than Ever

[58:04–60:10]

• Damodaran’s view is now more negative than it was only months earlier, due to incestuous cross-investments among AI leaders, suggesting either efforts to build barriers to entry or a “Ponzi”-like mutual support scheme.

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13. Why the Bubble Keeps Floating: Incentives and Herd Behavior

[60:10–62:52]

• Portfolio managers are structurally incentivized to stay with the crowd—even at silly prices—because they’re graded relative to each other.
• That’s why near-universal agreement on “it’s a bubble” doesn’t result in mass selling.

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14. Preparing Yourself for the AI Age

[62:52–69:25]

• Damodaran urges listeners facing job insecurity to actively reshape their careers: “If 98% of your job is mechanical, whether AI is here or not, you’re asking to be replaced by a machine. Try to create a component ... that AI can’t do.”
• For him personally, what draws the line is imagination and creativity—"connecting disconnected things"—which he believes AI will struggle with.
• Quote:

  “Keep an idle mind. Read less, think more, daydream more ... that’s an advantage I have over a machine.”
  (Damodaran, 68:24)

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Notable Quotes & Memorable Moments

• "There is no place to hide in stocks." (Damodaran, 36:03)
• "I'm not selling all the stocks in my portfolio ... but I'm mopping and lopping portfolio positions." (Damodaran, 41:01)
• *"I can't see a way ... because if the Mag 10 go down by 40%, it's not like the industrials are going to hold their value ..." (32:55)
• *"The top 10, 20% in terms of wealth ... are feeling rich because their portfolios look bad. Right?" (35:24)

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Timestamps for Key Segments

| Topic | Timestamp (MM:SS–MM:SS) | |-------------------------------------------------|-----------------------------| | Introduction, market context | 10:09–11:34 | | Damodaran on the AI bubble | 11:34–16:58 | | The “catalyst” dilemma, OpenAI | 16:58–21:10 | | Product vs. efficiency ROI in AI | 24:20–29:32 | | Ranking the Magnificent 10 | 29:32–33:54 | | Gold, collectibles & real estate as hedges | 33:54–36:32 | | Globalization, passive flows, correlations | 36:32–38:36 | | Correction scenarios: Sudden or slow burn? | 38:36–40:10 | | Practical advice for investors | 40:10–44:00 | | Amazon, Apple as best picks among big tech | 49:24–52:21 | | Tailoring advice by age and cash needs | 52:21–56:51 | | More bearish now: AI cross-investment concerns | 58:04–60:10 | | Why portfolio managers stay “in the bubble” | 60:10–62:52 | | Advice for anxious/at-risk workers in AI age | 62:52–69:25 |

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Tone & Style

• Straight-talking, candid, and unsentimental.
• Damodaran’s legendary clarity combines data with humility and skepticism.
• Scott and Ed add levity and occasional self-deprecation; philosophical asides on human nature and risk.
• The episode conveys urgency but not panic—a call for realism and deliberate action, not market-timing heroics.

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Key Takeaways

• There’s “no place to hide in stocks” given today’s structural risks and market concentration.
• The AI gold rush is fueling extreme valuations with little product-linked revenue to back it up.
• Diversification is harder than ever; even global/sector spreads may not insulate you.
• Gradually take profits, raise cash, have flexibility, but don’t try to time the market or go all-in or all-out of stocks.
• Collectibles and physical assets (especially those providing income) are newly worth considering—but only if they fit you.
• Younger, long-horizon investors should slow new purchases, maybe add cash, but don’t sell out.
• Professionally, cultivate creativity and judgment—what AI can’t easily replicate.
• Ultimately: The “real world” is more human and resilient than online narratives suggest; but, as investors, humility and caution are the imperative traits for 2025.

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Transcript

[Scott Galloway]

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[Aswath Damodaran]

Comes from Strawberry Me. Be honest. Are you happy with your job or are you stuck in one you've outgrown or never wanted in the first place? Sure, you can probably list the reasons.

[Scott Galloway]

For staying, but are they actually just.

[Ed]

Excuses for not leaving?

[Aswath Damodaran]

Let a career coach from Strawberry Me help you get unstuck. Discover the benefits of having a dedicated career coach in your corner.

[Ed]

Go to Strawberry Me Unstuck to claim a special offer.

[Aswath Damodaran]

Support for the show comes from Crucible Moments, a podcast from Sequoia Capital. Every exceptional company story is defined by those high stakes moments that risk the business but can lead to greatness. That's what Crucible Moments is all about. Hosted by Sequoia Capital's managing partner, Roelof Bothe, Crucible Moments is returning for a brand new season and they're kicking things off with episodes on Zipline and Bolt, two companies with surprising paths to success. Crucible Moments is out now and available everywhere. You get your podcasts [e-mail] Listen to Crucible Moments today.

[Scott Galloway]

Today's number 60. That's the percentage of Americans who say they've had a paranormal experience. I was invited to go a porn horror film, but Ed, I was too scared to come.

[Aswath Damodaran]

Listen to me.

[Scott Galloway]

Markets are bigger than us.

[Aswath Damodaran]

What you have here is a structural change in the world. Distribution cash is trash. Stocks look pretty attractive. Something's going to break. Forget about it.

[Scott Galloway]

Oh, Ed.

[Ed]

Ed.

[Scott Galloway]

You don't use Ed drugs yet, do you?

[Ed]

Not yet.

[Scott Galloway]

Oh my gosh. Got a lot of that in your future. Just a heads up. Just a heads up. It's coming, my friend.

[Ed]

I can't wait. You were about to hit me with a by the way. Was that your by the way?

[Scott Galloway]

Speaking of erectile dysfunction drugs.

[Ed]

Here it is.

[Scott Galloway]

Did you hear that? Governor Newsom gave me a name, checked me and said that I was a rock star when speaking to Jake Tapper.

[Ed]

Did he? Wow. I know he's name checked you before that has happened. But I didn't know he called you a rock star. What was the context?

[Scott Galloway]

He said that I'm. I'm his fashion and aesthetics and fitness role model.

[Ed]

Did he actually say that?

[Scott Galloway]

Dude, have you met me? Have you met me? No. You know, the whole young man thing. I am squeezing that lemon like there's no tomorrow.

[Ed]

Well, that's pretty good, because I think he's going to be president.

[Scott Galloway]

Why do you say that?

[Ed]

He's the rock star. As we discussed with, with Bradley Tusk, there are three rock stars. Actually, four rock stars. There's Mandani, there's aoc, there's Bernie Sanders, and there's Gavin Newsom. Gavin Newsom's the only one who could be president.

[Scott Galloway]

You mean he's the only one that's not fucking crazy? Actually, I don't think Bernie's crazy. I love AOC too. I got so angry at this shutdown I committed on stage last night to giving $100,000 to the to the AOC for Senate campaign. If she announced she was primaring Schumer in the next seven days. I am. So anyway, we're not supposed to talk about politics. Advertisers hate politics.

[Ed]

Tell us about the live tour. You're on tour for the show? For the other show, the show that shall not be named Pivot Live started.

[Scott Galloway]

In Toronto on Saturday. Then we did Boston on Sunday and we did New York last night. And after this, I'm about to bomb on the train to D.C. d.C. Tonight. Then after the show, head to Chicago where we do a show tomorrow.

[Ed]

It's a lot of shows. Are you switching up the content for each show? I mean, every day. That's pretty intense.

[Scott Galloway]

Trying. Trying different lesbian marriage jokes. So straight people get married for kids, gays for aesthetics, and lesbians for that mid century couch on Pinterest. And then when they get divorced, there's an argument over who gets the couch in the Subaru. And the way they decide is whoever's name is on the REI loyalty card. I told that last night. I told that last night.

[Ed]

Yeah, it got a good response.

[Aswath Damodaran]

Yeah.

[Scott Galloway]

You know, people look at each other like, is it okay to laugh? And then Kara laughs. One of the things I love about doing a podcast with Kara is that she gives everyone permission to laugh.

[Ed]

I also saw that a 10 year old was there and asked you a question about dating. I thought that was kind of sweet. I didn't realize that there were 10 year old fans of Pivot.

[Scott Galloway]

Okay, hold on. Boston so far has taken the crown in Q and A. And we don't prepare for this. We don't plant the questions. People just line up with a mic. This one dude comes up and goes, I have a question for Kara. And he goes, actually, I mean, Sarah. And he turns around and gets on his. His knee and he proposed marriage.

[Aswath Damodaran]

Wow.

[Scott Galloway]

Yeah. So my love language is money. So I just reached into my pocket and took out all my money and gave it to them. And then the most adorable 10 year old kid, I mean, this kid's out of central casting, right? It's just such a. So anyways, very just this lovely young man asked, he said, so cute. He said, I really like this girl and she's taller than me and I don't know how to approach her. And Kara busted into the, you know, the whole like, be kind, da da da. And I'm like, have your parents throw a kick ass party. That's how you increase social capital. When you're in school, if you have the coolest party, you become actually good advice. You become the cool kid in school. Everyone wants to come to your party. And I said, also learn how to dance. Or more importantly, just always dance like no one's watching. I mean, the ladies love a man who can move, but even more, they love a man who can move and isn't self conscious about it. I think that's true.

[Ed]

Yeah, I think that's good advice. I like that.

[Scott Galloway]

Are you a good dancer, Ed?

[Ed]

I think I get by. I think I don't look super awkward if I'm doing it, which I think is a win. I think that means I'm good enough.

[Scott Galloway]

I love what Richard Reeves says. He says that you want a man who is invaluable in a shipwreck and acceptable at a dance. I am not a good dancer. I'm not a good dancer. My dancing ability is entirely correlated to how much I've drank.

[Ed]

Oh, yes, for sure.

[Scott Galloway]

But what I try to do is I try to dance as if I'm the people you think are good dancers. With women, they have to be good dancers. With men, they just have to look like they're enjoying it.

[Ed]

Yes, that's right.

[Scott Galloway]

And then people admire them. And I think a decent metaphor for how to live your life is occasionally if you're at some point one of those douchey, overpriced vacation spots that you go to, you'll see someone really hot get up on the table in the middle of lunch and start dancing. And we're all just captivated by this. Person, and not only because they typically are a woman brought by some Russian oligarch who tends to be quite attractive, but because they look as if they don't care that anyone's watching them. And we're so drawn to people who have the confidence to sort of just dance out loud that I think that it's a decent metaphor that the real winners in our society, society that we're just really drawn to kind of live out loud. And they don't really care. They risk embarrassment. They don't care. They're just kind of willing to dance on tables and live their lives out loud. This has nothing to do with today's episode, Ed.

[Ed]

It's good. It's valuable philosophical advice. That's what people are here for. So my final question before we get into this conversation that I'm super excited about with AsWest Modern, what have been your takeaways from Pivot Live? Like, are you surprised? Or any takeaways from, like, who's coming to these events, what the energy is, what they're looking for, how it differs from, say, this show? Like, what are your. What are your halftime takeaways? With this live tour, I have a.

[Scott Galloway]

Tendency to just be down and see everything through, you know, kind of gray colored glasses. And it just. For me, the events have been so nice and the crowds have been. It just reinforces the notion I need to get out more. Because people in the real world are just so lovely and so much fun. And I am extremely online. And online is extremely fucking depressing and angry. And then you go to a theater in Brooklyn with people who've decided to take their, you know, their Tuesday night or their Monday night, I don't even know where we are, and come out to Brooklyn and be with other people and laugh and clap and meet other people, and everyone stayed after. It's just, again, it goes back to this basic notion. I wish there was a way to input into the code of AI that we need to extrapolate the data. It's crawling to the real world because the real world is actually really lovely, or at least I find it is in America. And I realize people face a lot of challenges, but I find that human to human, mammal to mammal interactions are, generally speaking, just so much tangibly more kind, gentle, funny, interesting than the digit to digit interactions we have online. So it's been lovely. I'm excited. We're going to do a tour. And I think my understanding is people are. We've decided that whatever cities get the most suggestions, we're going to.

[Ed]

We Also need to go to London because I need to go home.

[Scott Galloway]

You need to go home. Do you consider that your home?

[Ed]

Yeah, where I grew up, where my family is. So we need to do that.

[Scott Galloway]

Okay. Other than that.

[Ed]

And it's all about me, really. It's about me getting home and having a nice time with my family. That's what this is. This live tour is going to be about.

[Scott Galloway]

Nice to have your parents there.

[Ed]

True.

[Aswath Damodaran]

Yeah.

[Scott Galloway]

We'll do London. So I think we start. I think we figured out our first city. Our first or our last city is going to be London.

[Ed]

All right. Should we get into our conversation with Aswath?

[Scott Galloway]

Let's do it.

[Ed]

Here is our conversation with Professor Aswath Demodoran, the Kirchner family Chair in Finance Education and Professor of Finance at NYU's Stern School of Business. Professor Demoderan, thank you very much for joining us again on property markets.

[Aswath Damodaran]

Thank you for having me.

[Ed]

I've been very excited to talk with you, especially right now. And I want to start with AI and this AI bubble that everyone's talking about. It is kind of conventional wisdom at this point, or it appears to be conventional wisdom, that we are in some form of a bubble. I'm just going to read you some of the headlines that I read today. Quote, Bill Gates says we're in an AI bubble similar to the dot com bubble. Quote Michael Burry doubles down on AI bubble, claims this was a great one in vogue. Quote, Is fashion ready for the AI bubble to burst? So what is fascinating to me, we've been talking a lot about, are we in a bubble? Are we not in a bubble? What is fascinating to me is that everyone seems to believe we are in a bubble. People in tech, people in media, even people in the fashion world know what's happening here. I'll put the question to you. Are we in a bubble?

[Aswath Damodaran]

Other than Michael Burry, the rest of the talk is just talk, right? I mean, it's easy to talk about bubbles when there's no money behind it. At least Michael's putting his money behind what he's saying now. But let's play the lawyerly game, which is, you know, how you can stipulate something and then let's stipulate this above. So what? Why are we so, I mean, why all this hand wringing? Why? I mean, what exactly are we accomplishing by spending so much time talking about this bubble? So what if there's a bubble?

[Scott Galloway]

Markets are cyclical, right? And they get oversold and overbought. That's just a natural part of the cycle and it creates opportunities and we learn lessons from it. So yeah, it's not a Greek tragedy. The fear I think with this is that now that you have 40% resting in 10 companies and then when the S&P represents 20% of total global market cap, that our market has become unhealthy and fragile and that if this bubble bursts it's going to be a pop heard around the world that it could take down the entire global economy. I think the straw man argument for why are we perhaps why is it more justified to be a little bit more worried about this pop?

[Ed]

Even if this is whether or not this is worse or the same as previous bubbles, the reality is I've got my money in my retirement account. I don't want the number to go down. That's another reason.

[Aswath Damodaran]

I'll tell you who's going to be hurt. Two groups of people. One are the people who've joined the market in the last year, the last couple of years basically are getting in to the bubble as it's peaking. The others, people who chase bubbles after they've happened. Right. People who move their money out of industrials into Nvidia and Palantir in the last year or two, there are two groups of people are going to burn. And I think it's worth focusing on that because investors have been in the market for the long term, have benefited from the upside and even if there's a correction, I think many of them will look at what they have and relative to what they had in 2015 and said look, I'm still better off, I'm still still earned a 7% return. I think the economic effects that Scott is talking about are much more, are much more of an issue. Much of the growth in the real economy this year has come from the CapEx. Going into these data centers in AI and taking it out will effectively mean that we've actually been in a recession, that without it we would have been in a recession. And that might be much more of an issue with this bubble than it even was with the dot com bubble because so much more, more of the real economy. The dot com bubble if you think about the infrastructure spending for the dot com bubble was a fraction of the infrastructure spending that has gone into the AI phenomenon. Let's not call it a bubble yet because we don't know it. So there is that question of what happens if those hundreds of billions of dollars and that I think is there will be clearly an economic effect. I don't think it'll show up in terms of jobs lost, because it's not as if these investments have created a lot of new jobs. That's the other thing about this AI infrastruct investment is it's a money that's been spent in physical stuff and chips rather than hiring tens of thousands of people. So that's worth thinking about a real economic damage, but not with hundreds, tens of thousands of jobs lost, but in terms of people looking at their portfolio saying, I feel worse off than I did a year ago, I might be better off than seven years ago, but I've lost a lot of what I thought I did. So I'm not underestimating the effect of this happening, but I would argue that this is a feature, not a bug, of any big change in economy. I've talked before about what I call the big market delusion. If I have it, here's how it plays out. You have a big change coming to markets. It creates essentially pods of people who think that they can essentially benefit from it. So think about 1000 AI pods where I say, this is going to be big, I'm going to take advantage of it. And because these pods are created by overconfident people who are fed by overconfident venture capitalists, it's almost by definition there's going to be a bubble every time you have a big structural change in markets. It happened with PCs, it happened with dot com. Obviously it happened to a lesser extent, but it did happen with social media and it's now happening with AI, perhaps on steroids, because the magnitude of what change that's coming. But I think that this is part and parcel of change. There will be a correction, there will be people who hurt, the economy will be hurt, but there will be change that comes out of almost is a cycle that repeats itself. And this won't be the last time this happens. Once you do this, people say, I've learned my lesson, I will never do this again. And guess what? 20 years later, there will be a different bubble with a different acronym or a different buzzword, a different change driving it. It's the way human change in human beings occurs. We overreach, we correct and we overreach again and correct again. So to me, it doesn't surprise me that there's an AI bubble. And the reason I would be wary about trying to make money off the bubble because there are people saying, if it's a bubble and it's going to burst, why can't I do the Michael Burry thing and sell short? Is you need a Catalyst?

[Ed]

Yes.

[Aswath Damodaran]

And with AI, it's tough to see what that catalyst will be. Right. It's not like you have a day of reckoning and say there aren't enough AI products and services. I'm going to correct that. Catalyst is going to be fuzzy. It's going to be difficult to kind of put together. And that's why I agree with Michael Burry that AI stocks are collectively overvalued, whether you call it a bubble or not. But I'm not ready to come to the conclusion that they're overpriced, because overpricing means that there's a catalyst, a demand supply change that's going to cause the pricing to move back down. So you can believe that AI is overvalued, but the market is pricing AI and it doesn't seem to be as concerned. And until there's a catalyst that causes the two to converge, you can believe there's a bubble, but not much you can do about it.

[Ed]

I want to dig into this catalyst concept because we discussed this on our Monday episode. I totally agree. You need a moment, you need a shock. You need some sort of event catalyst to catalyze the correction. If I had to make any bets on what the catalyst would be, I made the bet in our previous episode. It would be the implosion of OpenAI because of the amount of spending that we've seen or the amount of promised spending that they've talked about, that Sam Altman has talked about $1.5 trillion in spending and the fact that they are only generating $13 billion in ARR. So how are they going to pay for it? And the big tell, for me at least, and I think for many, was this moment last week where Sam Altman was asked the question on a podcast, how are you going to pay for it? And he had this incredible defensive reaction. And we actually have that clip and I'd like to get your reaction to it. So let's just play that clip.

[Aswath Damodaran]

You know, how can a company with 13 billion in revenues make 1.4 trillion of spend commitments? And you've heard the criticism, Sam.

[Scott Galloway]

First of all, we're doing well, more revenue than that.

[Aswath Damodaran]

Second of all, Brad, if you want to sell your shares, I'll find you a buyer. I just enough like, you know, people are. I think there's a lot of people who would love to buy OpenAI shares.

[Scott Galloway]

I don't.

[Aswath Damodaran]

I don't think you would.

[Scott Galloway]

Including myself.

[Aswath Damodaran]

Including myself, who talk with a lot of, like, breathless concern about our compute stuff or whatever that would be Thrilled to buy shares.

[Scott Galloway]

So I think we could sell, you know, your shares or anybody else's to some of the people who are making.

[Aswath Damodaran]

The most noise on Twitter, whatever about.

[Ed]

This very quickly, incredibly defensive reaction which leads us to believe perhaps that's going to be the catalyst. What is your reaction?

[Aswath Damodaran]

It's not just defensive. There's no business argument in there, right? I mean, you run a business. I want to hear your business rationale for why small revenues will become big revenues and you're going to be able to make profits on those revenues. He doesn't even try that. You may very well be right. OpenAI might be the trigger. The only problem is that the money flowing into OpenAI, I mean, today I heard that, you know, that SoftBank is pulling its money out of Nvidia, but it's putting into OpenAI, it's buying in. I think, unfortunately there are a lot of people with deep pockets will keep OpenAI going. So even when you get those disappointments, the revenue is not going up. They'll find rationale excuses. I think it's going to be a corporate governance issue at OpenAI, in addition to not having business sense, they have a person at the top that at this point in time has complete power over where this enterprise is going. If you don't know how to build a business, it's not going to build itself. So that might be the catalyst. But that catalyst could take three or four years to play out because there are enough delusional people supplying capital. Keep supplying capital because you know it'll take a lot of reckoning before they say, okay, this isn't working. So, but I think, you know, Sam should probably stay away from microphones because this might speed up the process if you realize the person you've added tens of billions to doesn't know how to build a basic business.

[Ed]

We'll be right back after the break. And if you're enjoying the show, send it to a friend. And please follow us if you haven't already.

[Scott Galloway]

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[Scott Galloway]

So aswath, I just want to put forward a thesis and something we've been talking about and have you nullifier validate it. But when I look at these valuations, kind of baked into these valuations are either massive incremental revenues from new products as as a function of these chips and LLMs or efficiencies. And all I see in terms of an ROI in this unprecedented investment so far is the latter. And that is I don't see a lot of moisturizers from l' Oreal or cars from GM that were sort of AI inspired. What I do see, and it's real, is companies saying we're going to cut our legal fees by 30 or 50 million using AI. But in order to justify these valuations, it strikes me that the level of quote unquote efficiencies, which is Latin for layoffs, is going to be pretty extraordinary. And if you look at, if you assume that 150 million jobs in the US fewer people work than people think. And if you assume half those jobs are somewhat immune to AI, you know, you're a masseuse or a pipe fitter. So assume 75 million jobs are somewhat vulnerable. I see one of two things in the next 12 months. Either there is pretty serious chaos in the labor markets across some industries that are vulnerable, or the magnificent seven, these companies get cut in half. It just feels like one of those two things has to happen. Your thoughts?

[Aswath Damodaran]

The weakest link in the AI argument is the product and service market. The architecture people have spent immense amounts on even the OpenAI, the other players in the middle of the game, you know, who are going to provide the software that's been built up. There is very little evidence right now that you're able to. Even the companies that are talking about cost cutting, you look at the actual amount of costs that have been cut, you look at their expenses across periods, you don't see a massive drop off in expenses. So right now the product and service market is all talk. And my belief is the consumer side of that market is not going to be particularly lucrative. I look at the kinds of things I get as a consumer from AI and I say that's neat, but I'm not paying $10 a month for that. The business to business AI there are segments, but only in the high powered segments where the coming together of large data and computing power is going to make a difference. I don't think OpenAI is going to make equity research better. Portfolio managers perform better. So in areas I don't see the net plus that comes out of it, I can see the minus of people being laid off. But right now it's still more talk than actual action. So I believe it when I see Fidelity layoff half their analysts saying we replaced them with AI. Either way it's not good news because they replace them with AI. Those are people who will not have jobs. They don't replace them with AI. All this investment in AI has no real easy way to pay off. So I agree with your broader thesis. I'm not sure though it'll happen in the next 12 months. This is the problem with these open ended it's still developing is we cut so much slack to companies and they find a way to explain away why it didn't happen in 12 months. And there will be enough people who buy into that explanation. So I think something else has to come in in addition to the numbers not coming in for that recognition to say hey guys, we've overshot but I think you're right. I'll give you a rough estimate. Given even what's already been spent on the AI architecture, the AI products and services market has to generate about $4 trillion in revenues either in save costs or additional revenues.

[Scott Galloway]

4 trillion.

[Aswath Damodaran]

4 trillion. So basically take the architecture investment and multiply by even with the high margins you need to get 4 trillion. And from that because remember you got to pay for that investment, earn a reason return so you back into it and right now it's in the tens of billions and you're looking at a $4 trillion target. And I'm looking at how do we make up that difference. And I don't see a way we get there. I didn't see how you increase revenues by that much which is AI products and service or cut cost by that much. You're right, something has to give. I'm just not sure when that moment of recognition will be when you start to adjust numbers down. And it's not all of the mag. I mean let's face it, it's Meta, Microsoft, those are big players. Perhaps Alphabet. Amazon is still much less of its values coming from AI. Apple I think much less. So I think it's going to be a kind of a disjointed effect even across the max seven. But I do think that there will be an adjustment. I'm just not sure when. And that's why I can't be on Michael Burry's bandwagon saying let's sell short because there your time H is set by somebody else and that's not a place I want to be. So I agree it's overvalued, but I'm not comfortable enough to make the judgment that it's overpriced enough to go out and make a bet on the price correcting in the next six months or the next 12 months.

[Scott Galloway]

So across the magnificent 10 and it's grown to 10 now because the numbers get more dramatic when you bake in three more not overvalued but fully valued companies. But let's list them out. Nvidia, Apple, Amazon, Alphabet, Microsoft, Meta, Tesla, Advanced Micro Devices, Broadcom and Palantir, which now make up 40% of the S and P by total market cap. So you got the s and P 490 or 60% of the value. And the S and P 10 if you will, or the magnificent 10 or 40% amongst those 10. Have you done any analysis and are you comfortable saying what you think are most overvalued or most fairly valued? I'm going to go out on a limb here and say there aren't that it'd be difficult to find one that's undervalued.

[Aswath Damodaran]

There's nothing cheap.

[Scott Galloway]

Yeah, nothing cheap. What looks most irrational, if you will.

[Aswath Damodaran]

I think Nvidia, I mean 5 trillion. As I said, it's an amazing company. But at 5 trillion you're looking at the greatest company ever, delivering 80% gross margins in perpetuity on revenues that are going to be a trillion dollars or more. And none of those things hold up to any kind of scrutiny. So from a pure over Tesla, I would put into that same grouping for a different reason. I'm not even sure what Tesla is as a company anymore. I've reached a point of I can't tell you what the story is because I'm not sure. So Tesla knows what the story is going forward. So I think if I were to build a portfolio around it, those would be the two companies that take out the first and I'd probably leave Alphabet and Amazon in there as my two mag seven companies that are least overvalued because Alphabet has had to struggle more during this year, doesn't have that AI boom to it that the other stocks have. And Amazon I think will find ways to make money which don't require AI at all. So I think they might be one of those companies which actually is able to convert the promise of AI into lower costs. It'll be brutal in terms of the people hired at Amazon. But there will be ways. I think they can convert to pro. But I think that to the extent that there's going to be a correction, there's no place to hide in stocks. I can't see a way because if the Mag 10 go down by 40%, it's not like the industrials are going to hold their value while this happens. The panic that that's going to create is going to ripple through stocks. And I think there's a good reason why gold is hitting all time highs at the same time. That's unusual because usually when gold goes up it's in the context of a crisis where markets are collapsing or with hyperinflation. I think I describe gold as a niche market, which in good times, when times are solid, that niche market is composed of paranoid people and doomsday fanatics. But in other times it expands to bring in people who normally invest in stocks and bonds. I think the gold market is attracting people who historically would have been financial asset investors, but are scared enough now of a bubble, not just in AI, but across stocks and across financial assets that they're willing to leave their money in something that doesn't pay a coupon or cash flows. That's the only way I can explain a gold price rising in a year when stocks are up 15, 20% and financial assets seem to be doing well, interest rates are not going up. Inflation, at least in posted numbers, doesn't look like it's taking off. There's enough of a subset of the market that's saying I don't believe these numbers, something bad is coming and that's pushing up the price of gold. So there's a message there for investors. And if you're an investor, primarily invest in stocks and bonds. My advice is, even though historically you might never have invested in non financial asset categories, this might be a time where you think about kind of at least moving a portion of your portfolio bigger chunk than ever into cash or something close to cash or maybe even collectibles, things that I've never owned collectibles. But for the first time in my investing history I'm saying maybe I should hold something that is not going to be effective. Inflation goes to 10%. There's a market and economic crisis that is potentially catastrophic profit because that's not being priced in by markets right now and the chance of it happening is perhaps greater than it's been in any time in the last 20 years.

[Scott Galloway]

I was shocked that at the top of your list of companies, most overvalued in those 10 wasn't Palantir at 120 times sales.

[Aswath Damodaran]

I was counting them on the Mag 7. Obviously when you add Palantir to the mix, you add. Now, I haven't done a recent. My last valuation of Palantir was almost a year ago when the market cap is much smaller. Obviously the story's changed, Company's market cap has changed. I haven't valued my Palantir recently, so it might very well be competing with Nvidia at the top. And maybe that's the reason Michael Burry's picked Palantir as his other choice is, you know, where's the number coming from? So, but I apologize, I was focusing on the Mag 7, but you were talking about the Mag 10 there, so.

[Scott Galloway]

So just asking for a friend. If someone is thinking that not collectibles, but something that might be more inflation resistant. How do you feel about real estate right now as an investment?

[Aswath Damodaran]

Rental properties more than traditional real estate? I think that that's income stream. So, you know, to the. Again, it depends on where you buy the real estate. I live in San Diego. That bubble you see in stocks and bonds is playing out in housing, right? Because people are feeling wealthy because their portfolios are up 30%. They're going out and buying a house, reflecting that. This bubble, you know, or let's put quotes around the bubble in AI or stocks is spilling over into the consumption and buying habits of the people who have a lot of money in the market. Which is one reason if you look at the economy, it's the, the top 10, 20% in terms of wealth that's driving a lot of the energy. The economy is. They're feeling rich because their portfolios look bad. Right? And that's, that's determining what house they buy. But if you're in real estate, I think you gotta be selective. It might not be buying a house in the city you live in. It might be buying a rental property in some other part of the country that's not hot, where you get enough rental income that it covers what you'd have made investing in a tmod, but you have something physical, real you've invested in. So again, something I've never invested in the past, but something I'm more likely to look at now than I would have five years ago, 10 years ago, 20 years ago ago.

[Ed]

I'm kind of amazed by almost how bearish you sound. Let's just go over what you said here. So, one, there is a bubble, an AI bubble. Two, there is no place to Hide in the stock market. And three, for the first time you said ever, you are looking at parking your money into one, cash and two.

[Aswath Damodaran]

Collectibles or physical assets which pay income.

[Ed]

That, to me is a very striking statement. I actually didn't expect that from you. What is different right now than say, 20 years ago, 10 years ago, five years ago? The fact that this is the first time you're considering it in your time as an investor and as a legendary investor and educator. What's different right now?

[Aswath Damodaran]

We live in a world where everything seems to be correlated, right? I mean, it used to be even 10, 20 years ago, I said, I'm going to put my money in European stocks or Asian stocks or Latin American stocks if I thought US Stocks were overvalued. Or I'm going to move my money out of this sector into this one. Because utilities tend not to go down as much during the crisis than technology companies. One of the problems, and maybe you can lay passive investing for this, and the flow of money, is the correlations across asset class, across sectors, across geographies has risen to the point where that classic rule, if you spread your money across multiple geographies, multiple sectors, you're going to be more protected. That advice is not holding up anymore because of the core, because the markets seem to be moving so much more. So you almost have to struggle to find something that that doesn't move with markets where you didn't have to do that 10 or 20 years ago. Now, part of this might be globalization. Part of it might be the way in which people invest through funds and through large index funds that move their money to wherever the largest market cap is. But it does make investing a lot more dangerous because I can't tell you, as I said, people call me all the time. I feel worried. Where should I put my money 20 years ago, the kind of advice I'd have given them, you can stay in the stock market, but try to shift your money out of this sector into this one. You're going to be more protected. I don't feel as inclined to give that advice anymore because I don't see that protection playing out as much.

[Ed]

So you're assuming that there's going to be some very, very large, I assume, correction in the stock market.

[Aswath Damodaran]

It could be a large correction or a long and painful correction, right? You could have a 35% drop in the market over a couple of weeks. Or you could have a market that stretches out doing nothing, down 6 or 7% a year for three or four or five years, right? This is 1970s. So either way, you're hurt. The second is an easier way for you to kind of at least manage the decline. The first is a shock. I'm not sure which one's better as an investor, to be quite honest with you. Get it out of the way and say, okay, now my portfolio is now down. Let me start building up again in. Because long stretches of flat or down markets are incredibly difficult to deal with as an investor. They suck all the energy out of you. Which is one reason by the time you got to the late 70s, people had stopped investing in stocks. There were some people who said, I will never invest in stocks again because that's what long stretches do. And that's what we don't know yet how this will play out. Will it be this climactic moment where everybody wakes up and says, this is terrible. What have we done?

[Scott Galloway]

And.

[Aswath Damodaran]

And have this massive correction? Or is it going to be something that's going to be a drip, drip, drip correction that occurs over time? And we're going to find out. At least we won't know until hindsight. But that's what I'm watching for, is how will that play out?

[Ed]

For those who would say to you, I've heard investors get concerned before. The people who say economists have predicted eight out of the last three recessions or whatever the phrase is. And I'm sure some people would listen to this. And that's running through their head right now. This guy's saying he's very worried there could be a very large correction or a very long correction. Either way, it's going to be very painful. And so you kind of want to trim your position out of the markets and into something else, something that isn't correlated. What would you say to those people who have that skepticism of like, you know, I've heard doomsday predictions before. I'm not saying it's a doomsday prediction, but it's a negative prediction. And, you know, some people get burned when they're negative or if they're bearish.

[Aswath Damodaran]

I tell them exactly what I'm doing. I'm not selling all the stocks in my portfolio. I'm not running for the hills. I'm not buying putting all my money in gold or bitcoin, because I think that's the kind of action where even if you're right, you end up losing in the long term because once you get out of stocks entirely, it becomes very difficult to get back in. You stay out of markets too long. I know people who sold in 2008. They got the timing right but they stayed out for the next decade. And in hindsight I think I wish I hadn't done that. I'm not selling everything, but I'm mopping and lopping portfolio positions. And it's nice to be in a position where you're taking a Stock that's up 200% or 2000% in your portfolio, you're selling 25% of it. I'm not even selling all. Even my Nvidia has staggered out over, over four different and I still hold onto a quarter of the inventory that I tended to hold. So I'm not suggesting drastic selling everything, but I'm suggesting taking your profits, don't get greedy and taking those profits and rather than putting in the next hot stock holding it in cash. So my portfolio allocation has adjusted only gradually over the last 10 years. And Michael Burry would look at my portfolio and say your over investment stock stocks. And he's probably right. I will probably feel more pain in a correction than somebody who steps out of stocks entirely now. But I also feel more comfortable in the long term doing this gradually and kind of doing this adjustment because I will never completely be out of stocks and bonds. It's not my nature. It doesn't work with my risk aversion. But I have less of my portfolio invested in long term bonds and stocks. I don't own much bonds to begin with stocks than probably any time in the lot. But, but that's not come from just selling off everything, but for selling off my most profitable, my biggest winners and bringing them back in line. Now I have this upper limit of no, no stock should be more than 15% of my portfolio. And that served me well to get a lot of cash on the side because I've had lot positions on my biggest winners to get there. So I would say don't do anything right. I'm not suggesting you sell everything. I don't. I know I don't. I'm not suggesting buying puts on the index. I mean those are the kinds of things get people into trouble. But at least gradually start thinking about how much at least for in terms of cash needs for the next two or three years. See if you can get a portion of your portfolio where you don't have to sell things because you need to pay for your kids tuition, college tuition, because who knows what price you might be selling at. So think ahead, think ahead of what your cash needs are going to be and start thinking about, about what in your portfolio you might want to take.

[Ed]

Your profits on you mentioned maybe you want to put it in cash, maybe you want to put it in physical assets, real estate, maybe rental properties, collectibles. Could you just describe what collectibles are? What fits into that category?

[Aswath Damodaran]

Gold is the classic one right now. Basically, collectibles is entirely driven by scarcity and enduring demand. Now, would I put my money in Pokemon cards? No, not ne. That's not my. That's the collectible I would go with. I would look for collectibles that have survived the test of time. It's one reason I would pick gold over Bitcoin. Because much as bitcoin has been a better money maker for you in the last 15 years, I'm not sure it survives that shakeout that comes when people say, oh, my God. So you want to steer your money to collectibles. And if it's a collectible which you truly enjoy, you get emotional dividends. So you love paintings, and this is what you work with. If that's where you want to put some of your money into, is baseball cards, because you've truly done your work on baseball cards, where am I to step in and say, that's not a great place to put your money now? So I think collectibles, it has to depend on where you get your emotional dividends, what makes you happy. Because a collectible is not going to give you any dividends while it's sitting in your portfolio. You might as well look at it and enjoy it while you have it. So maybe enjoy looking at gold. Maybe you like wearing jewelry, maybe you like art on the wall. But in the know collectibles, I think there is no one. No one. One size fits all. It really depends on your makeup as a person and what you think your collectible class is.

[Ed]

And yet it does seem to fly in the face of the principles of value investing a little bit, where you're investing in cash flows.

[Aswath Damodaran]

Oh, absolutely.

[Ed]

For the value investors who, who would say, you know, if you're trying to. To invest in downturns, you want assets that produce cash flows that can pay.

[Aswath Damodaran]

Dividends, then put your money in cash, right? Put your money in tables. It's as simple as that. So if you don't feel comfortable with collectibles, I completely understand. I'm not comfortable with collectibles, so it's not my first instinct. But I think one of the problems is if your worry is not about market and economic crisis, but hyperinflation, all those temporary things we started after Covid have become permanent things, and we're not willing to raise the revenues to cover those expenses. We're setting ourselves up for double digit inflation. Then even cash is not going to protect you because your currency is going to devalue. So it depends on what scares you if it's economic or market crisis and holding your money in cash works. If it's inflation, then I think you got to almost leave the financial asset domain and that includes cash, even in short term investments. And think about what do I put my money in. And it's not easy to find something. It's not a healthy place to be as a marketer in economy where that's what we're looking for. But I'd wait that there's a subset of the investing community which has reached that place. I'm not sure whether Ray Dalio or Jamie Dimon own gold, but they, they talk a lot like they should be owning gold. Right? You listen to them and say what exactly are you holding?

[Ed]

I know Ray has, Ray's big on gold right now.

[Aswath Damodaran]

Yeah, that's uncommon. Right? Because if you'd asked Ray Dalio 40 years ago would he buy gold? My guess is he'd have looked at you like you're two heads. Are you crazy? Why would I buy gold? I'd go buy Chinese companies or buy undervalued companies. In this economy, the very fact that Ray Dalio is holding gold tells you something about safe places and how difficult it's become to find them within the financial asset markets.

[Ed]

We'll be right back. And for even more markets content, Sign up for our [e-mail] subscribe.

[Aswath Damodaran]

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[Aswath Damodaran]

The founders scrappy, traction oriented grinders and hustlers who we'll blow through every brick wall in this building. To get to where they need to be. Welcome to the pitch season 14 where startup founders raise millions and listeners can invest on this season of the show. 10 VCs, 7 startups with one shot.

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[Ed]

We're back with Prof. G Markets.

[Scott Galloway]

Well, each year at Swath we do a prediction stack and one of the things we do is we try and pick one of the big tech stocks or one of the magnificent 10 that we think is going to outperform the others. And it's key that we say outperform the others because I don't think anything looks cheap right now. I'm not comfortable saying this is a good buy, but I think it will outperform, meaning it might get, it might go down less than the others. And this year we're thinking that it's going to be, our pick is going to be Amazon. Last year was Google. It just looked cheap relative to the rest of the S and P because of this existential overhang that we thought was over overblown about the existential threat of AI relative to its search business. By the way, search business was up 14% and the stock's up 63% in the last 12 months. But the pick this year we're thinking and I'd love to get your thoughts is Amet and that is it's not cheap but it doesn't look historically expensive. It's trading at a p of about 34. They've announced that their retail unit they may achieve double the revenues with the same number of people. It feels like the collision of AI and robotics and the early investments they made in robotics is really starting to pay off and then some free gifts with purchase an AI business or a cloud business that's the leader that that hasn't gotten the valuation that some of the other cloud or attention players have gotten because it's seen as not the AI capable cloud. We think they will fix that Kuiper, you know, putting satellites, we think that it'd be interesting if they get any traction there. In sum, how do you feel about our pick of Amazon being on a risk adjusted basis outperforming the rest of the magnificent 10 over the next 12 months?

[Aswath Damodaran]

I think I, you know, I would pick Amazon and Apple as my picks. And the reason is they haven't gone crazy on their AI space. I mean, to me the caution, the natural caution that Tim Cook has in terms of throwing money at new businesses is going to be a plus, not a minus, right? So I know equity research analysts pick on Apple for not being aggressive in their AI, and I think that's going to be a good thing because when the correction comes, the people who've been most aggressive are the ones who are going to be most exposed. And Apple's lack of aggression I think might work in their favor because they haven't been throwing the 50, 60, 80 billion that you see some of the other big tech companies throwing at it. So I, and Amazon's been in my portfolio now for a few years and as I said, it's one of those companies that I would hold on to even through a correction and continuance because let's face it, it's become such a central part of so many people's lives. I don't see it kind of having a collapse of business, you know, even if with an economic contraction correction, in fact, it might benefit from that. Who knows? Target might get so cheap that Amazon could pick it up for pennies on the dollar. So who knows where it's going to go next? So I, you know, I, I, I like your pick. I mean, Amazon would be my pick as well.

[Ed]

Going back to what you're thinking about in terms of trimming your positions, I'm wondering if you have any, if your thoughts differ depending on someone's risk, risk profile, risk appetite, and perhaps their age as well. So me as an example, I'm a young person. AI is the big hot new thing. You know, I want to get involved, I want to be on the train somehow. Does your advice change depending on your age and what you're looking for? For someone like me, for example, I agree there's going to be a correction. But I've also got to tell you, I don't want to dump AI and get in cash. I don't want to do that.

[Aswath Damodaran]

I think if I were advising you, I'd say do what you're doing, but do it with caution. So you not only have a portfolio, you're adding to that portfolio, presumably each year with savings and additional money. My advice is that additional money you're putting into your portfolio if your traditional practice. I'm going to buy the index fund every year, which is what I advise my kids to do. Take your savings money, buy index funds, go back to doing your regular jobs. Because I don't want you spending evenings trying to pick stocks. It's not worth the effort. Now this year, my advice to them is that additional the savings you got from your income this year, instead of putting it all into stocks, why don't you hold it as cash? So it's not advice about changing your existing portfolio, it's about additions to your portfolio, being more cautious in those additions, at least for the near term now, or if you're, you know, I'm not a great fan of doing things on a staggered basis, but maybe rather than putting it all at one go, rather put it in four installments over the next four quarters. If nothing else, if there's a correction there, then you don't get it all up front. So it's just a little more caution about increments to your portfolio. But you have two things going for you. One is the fact that you have a longer time horizon. The other is you don't need your portfolio to supply you cash, to meet needs for people who don't need their portfolio to provide cash. You get an advantage. You get an advantage because you have a downturn. You don't need the portfolio, you need to sell it to get the cash. So people who are closer, so it's not as much age as how close are you to having to cash out your portfolio to do something, to buy a house, to go to college, the closer you are to that, the more cautious I would suggest you become or maybe convert more of your portfolio into cash because those are the people, people who will be most damaged by a correction that happens just before they were planning to take the cash out. Because then your lifestyle will have to change, your choice of college might have to change. And that's not something you want coming out of your portfolio. So my advice would be, would depend on your age, how much cash needs you have, what are you looking to do? Because those will all play out in what you should be doing. But I'm not a great fan of these drastic actions where you sell everything in your portfolio and you try to move it all into something else. Because often the long term consequences of that, you end up worse off than somebody who rode through the correction and was able to kind of come back from it.

[Ed]

I'm glad you bring that up because I think it gets to the heart of what the problem is with corrections, which is it is a timing problem. And you mentioned that with Michael Burry, it's like, yes, you can go short, but that's not the question. The question is the timing. It's like are you going to time it right? And then the same thing is true of what does the timeline look like on your life, when will you need the cash and what position will you need to be in on that timeframe? Which I think is helpful. But I am struck by even for those who are not so worried about timing, for those who have a somewhat steady income come and who are young and who are trying to build the portfolio, your view is still maybe, maybe don't keep dollar cost averaging into the market, maybe get into cash, which is striking to me, especially given inflation, which is high, appears to be going even higher. It doesn't look like we're going to be in a 2% inflation world. What would you say to Those people?

[Aswath Damodaran]

Buy 3 month tables, roll them over. If inflation actually turns out to be higher than expected, that table rate will rise. I mean the best measure of protection against expected inflation has been buying short term Treasuries. So I think that my advice is, if that is your concern, is that inflation should up, keep it short term. I mean, I buy my Treasuries directly from the US Treasury. So you're not going through intermediaries, you're basically, basically pick the expiration date, when the T bill is going to expire, three months, six months, whatever works for you, have a preset rule as to when you plan to get that into stocks. So you might say, look, I'm going to put this into Treasuries, but I won't be the one who pulls the trigger when it goes into stocks. This is what'll happen once the cash sits there for six months and nine months, almost on autopilot, moves into my index fund. So you're not changing your historical pattern of being invested in risky assets and looking for the higher return. You're just slowing the process down so you're not jumping in at a time just before a correction hits and then facing. So I think that's all you're doing is kind of giving yourself a little slack in this process.

[Ed]

When we last chatted, it was in August and we were talking about big tech valuations. We were talking about not that there was an AI bubble, but that there were, there was a lot of momentum and perhaps a lot of hype and you were somewhat bearish on AI or somewhat bearish on tech at the time. Now you are more bearish, it appears to me, at least I'm wondering if there was a moment or maybe a specific company or a specific valuation that sort of changed your tune on this. I know that it wasn't a 180, but there's certainly been an acceleration in your views.

[Aswath Damodaran]

I think it's more incremental. And part of it is watching these companies invest in each other. There's this almost incestuous relationship between the big AI players. And one or two things can be driving. One is that they want to dominate the AI space that's going to emerge five years from now and they want to create these barriers to entry entry. The other is this is almost like a Ponzi scheme where they have to keep investing in each other, making each other look more valuable, because that's the only way they can get the rest of the market to go in. I'm not ready to make a decision that it's the latter, but watching that happen has made me more negative about AI. If you really feel as Nvidia or OpenAI, that you're going to carry the game, why would you need these cross investing investors, other players in the game? Because that seems like you're hedging your bets and protecting yourself and making sure that nobody knew is going to break in. So that suggests to me that much as they, they convey confidence in the market, that they think they're going to rule the world of AI, that within these companies there's still uncertainty about whether they will in fact rule the world of AI. And what they're creating is this preemptive barrier to other people and entering. So that's the one thing that I think has changed for me is watching that cross company investment and what it tells me about what's in their mindsets about the future of AI.

[Ed]

Going back to the beginning of this episode where I asked about this conventional wisdom, the idea that a lot of people are saying that there is a bubble and a lot of people are also pointing out what you just said, which is the circular investments, the incestuous relationships and all the negative connotations that come about. And yet we're looking at all time highs and yet we are looking at 56 times earnings on Nvidia. We are looking at very, very rich valuations. While everyone says, yeah, it's a bubble, even the people who run these companies in some cases are saying, maybe not it is a bubble, but it certainly could be a bubble. Is there that unusual? Does that surprise you?

[Aswath Damodaran]

Not at all. Right. Because think of how portfolio managers get evaluated, right? They get evaluated against other portfolio managers. So if you did not own the Mag 7 over the last five years, all the money's left here, but people your clients have left. If you do buy into Nvidia now, even if it's a high and there's a correction, guess who you get measured against? Other portfolio managers who also own Nvidia, who also see the same correction. You're down 37% percent. But if everybody else is down 43%, you still say, look, I came out of this much better off. And because we let people create their own, their own pathways, I'm a tech investor, they essentially have this argument, look, I had no choice. I had to invest in this because this is what tech looked like. I think the way we reward and punish success in active money management doesn't reward people who leave the hood. Right? It's so if I were, if I had a son or a daughter as a portfolio manager, I'd say, look, pile into with the momentum because even if you're wrong, you'll have lots of company when you're wrong. And nobody gets fired when 90% are wrong. But if you have a contrarian path and you decide to sell short on the max seven and you turn out to be wrong, you lose your job. So I think the way we. And that's why it's only people like Michael Burry who can do this, I'm going to sell short because they're not managing conventional money. They've got a subset of clients who bought into their, into what they do. But you can't do this if you're a big portfolio manager, big endowment fund, because the way you get judged, where you get rewarded and punished, essentially keeps you on that. Stay with the crowd. Even if that crowd is wrong, it's better to be with the crowd and be wrong than to break away from it.

[Ed]

For those who are listening to this and feeling perhaps anxious, I mean, there are a lot of concerns. There's the valuations that you're describing, the possibility of a correction. There's the fact that AI could have massive effects on the job market. Perhaps some people, I know, many listeners feel that they are concerned about the security of their jobs. What would you say to those people? What would be your advice?

[Aswath Damodaran]

You can control only what you can control. So my advice is take your job, take a look at what you do. If 99, 98, 97% of what you do is mechanical, whether AI is here or not, you're asking to be replaced by a machine. So try to create a component of what you do that is going to be difficult for a machine to do. I gave a talk right after about AI bots because I had an AI bot that was trying to replicate me. And I said, look, I'll make your job easier. Here are the things that I do that you could replicate. There's data sets that I upgrade every year. Hey, you can do that very simply yourself. I actually took out the 80% of what I did. Say you can do this. Here's the part that I think I can do that. You're going to have a much tougher time, I would say, in practice, possible, because who knows how sophisticated. I think we all need to do a personal inventory of what we do at our jobs and whether it's something that a machine could do better. Now, I'll give you a very simple example. I know people keep sending me ways in which they think they can beat the market if I do this. And. And I have a very simple response. Can ChatGPT do what you've just described as doing? So is I buy low PE stocks with high growth rates. Will I make money? And I said, how difficult do you think it is going to be to find low PE stocks with high growth, especially when you look at past growth? ChatGPT can do that. Why do you think you're going to be able to make money on something that a machine can do effortlessly? So my advice to people is act like AI is going to take your job, because it's better to do that and not have AI measure up to its promise than the alternative, which is think AI is never going to take off. You keep doing what you're doing, and one day you walk into your office and you've been fired and replaced by a bot that essentially does what you do.

[Ed]

Can I just ask for you personally, when you eliminated all the 80% of the things that you believe that AI could replicate in your work, what were you left over with? What can AI not do that you do?

[Aswath Damodaran]

Imagination and creative. The kinds of things where my family takes issue with me. I'm a daydreamer. Connect these unconnected things in my mind and most of the time it's useless. You know, people say I'm wasting time because I'm doing this, but some of my most productive thoughts have come from connecting. And I wrote a piece on this about catastrophic risk. And I don't know whether I ever mentioned this was about start of this year, I got an email from somebody in Iceland, read my blog and he said, look, I've been reading a blog, but I have a valuation challenge. I'm valuing this Icelandic spa called Blue Lagoon. It's a legendary spa and I'm facing a problem. I've Never faced before. There's this volcano that's erupted and the lava is flowing in the general direction of the Blue Lagoon. And I don't know how to bring that into evaluation. I've looked at all the books. There's no lava risk in any of the books. So I read the email. I didn't have an answer to him, but I took my dog for a walk. And while I was on the walk, I was thinking about this and I started thinking about, about the fact that fossil fuel companies, you have cop 30 and you talk about how come fossil fuel companies are trading at much higher multiples of earnings than this. Catastrophic risk looming. And while I'm thinking about fossil fuel companies, I remember the house I own. Two blocks from the Pacific Ocean, one of the worst earthquake falls. And I said, what was I thinking when I paid the money that I paid for that house? Again, catastrophic risk. And, and I'm acting like it's not there. And while I'm still there, I'm thinking about the Mad Max movies. I'm thinking about how often in the Mad Max movies do people check their portfolios. Almost never. And the conclusion I came to was we as human beings take catastrophic risk. And we don't build, build it into our expectations. We set it to the sac because our view is if that happens, who cares what your portfolio looks like? We don't build a nuclear war into our expectations. We don't build in the fact that the Oceans could rise 3ft because if that happens, none of the other stuff matters. And that all came from a 30 minute walk where I let my mind wander. So I don't think a computer is going to do it because it's going to be too. I mean, that's what makes us human beings. The capacity to connect disconnected things, thoughts, an apple falling on your head. And the law of gravity. How the heck do you go from one to the other? But Newton did this right? Some of the greatest insights of mankind have come from people connecting disconnected things. So keep an idle mind. Read less, think more, daydream more. I mean, and I think, unfortunately, if you were a conspiracy theorist, you would argue that technology companies are setting us up to be replaced. Because they're taking every space of idle time we have and filling it up with something. I mean, you go to catch a flight, take a look around here, every person is checking their iPhone, right? You're filling your space reading Facebook posts, reading and looking at it. We are not giving ourselves that idle time to let our mind connect. And I know it's a strange thing to say, but that's an advantage I have have over a machine that's going to be very difficult for the machine to replicate. So you know what I'm going to do? Read less, daydream more. And I've been doing that a lot because for the last three months I've been looking after my granddaughter who just done six months. And when you're with and I'm the caregiver so you don't have the luxury of reading or so basically I'm spending all my time holding a baby, feeding it, putting it to sleep, and it's an amazing time to let your mind wander. And to me, I don't know what will come out of this. Maybe nothing will, but I'm glad I have that time. So if you have idle time, cherish it, because that's when I think you can find your AI beater within you.

[Ed]

Aswath Demodoran is the Kirchner Family Chair in Finance Education and Professor of Finance at NYU Stern School of Business, where he teaches Corporate Finance and valuation. You can also read his research on his blog, Musings on Markets. Professor Demoderin, always a pleasure. Thank you so much.

[Aswath Damodaran]

Thank you for having me. Ed.

[Scott Galloway]

Very much appreciate your time.

[Aswath Damodaran]

Aswan Take care, Scott.

[Ed]

This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. Drew Burrows is our Technical Director and Catherine Dillon is our Executive producer. Thank you for listening to Prof. G Markets from Profg Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

[Scott Galloway]

Reunion at the Water and the.