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- [00:01]
Scott Galloway
From the Goldman Sachs trading floor in 10 minutes or less. Investors and analysts share timely analysis on the week's market activity. The markets podcast from Goldman Sachs. Listen now. Support for the show comes from kpmg.
- [00:19]
Ed Zitron
In any organization, disruption is inevitable.
- [00:22]
Scott Galloway
But struggling through it doesn't have to be. The KPMG Adaptability Index is your blueprint for building capabilities to handle what comes next. It uses real data to look at how your culture, strategy and partnerships all
- [00:37]
Ed Zitron
work together to help your business thrive. Stop reacting and start adapting.
- [00:42]
Scott Galloway
Visit kpmg.com US Adaptability to explore the
- [00:48]
Ed Zitron
Adaptability Index and Pulse surveys today.
- [00:54]
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- [01:38]
Scott Galloway
today's number, $250 million. That's how much bank of America spends on GLP1s for its employees per year. Ed, it's really strange. Why do you think I only get sick on weekdays?
- [01:51]
Ed Zitron
Why is that?
- [01:51]
Scott Galloway
Well, that was enthusiastic. Try again, bitch. Why?
- [01:53]
Ed Zitron
Scott, I was thinking. I was pondering the question.
- [01:58]
Scott Galloway
You're a terrible straight man. This is why my comedy is not resonating. Let's start this again.
- [02:03]
Ed Zitron
We're.
- [02:03]
Scott Galloway
Why do I only get sick during weekdays?
- [02:05]
Ed Zitron
This is unbelievable. How can I play this game? Why?
- [02:09]
Scott Galloway
Because I have a weekend immune system. How are you, Ed? You're at home.
- [02:24]
Ed Zitron
I'm at home. The studio is. Is broken. There's no WI fi working at the Vox Media studio, which is kind of insane to me. So I'm recording from home. I kind of feel like it's Covid again, zooming into this. But that's okay.
- [02:39]
Scott Galloway
So, Ed, I know you well enough, and also I have a very strong intuitive sense for young men. Something's on your mind. You're distracted this morning. Were you. Are you upset about something? Is something on your mind? Are you overwhelmed with gratitude for this exceptional professional opportunity you have? Like what? What is running through your head right now? What's up with that, Elson? You seem down or distracted.
- [03:00]
Ed Zitron
I'm distracted by a work related event, but I shouldn't disclose it on this podcast right now so I can talk to you about it.
- [03:08]
Scott Galloway
Otherwise, is it a bad thing or a good thing?
- [03:10]
Ed Zitron
No, it's kind of a bad thing. I mean, it's not a big deal. It's just one of the guys that we had on the show, we did a clip that used some of his data that didn't give him the attribution.
- [03:20]
Scott Galloway
When that's happened, and I've been on the other side of that, I'll hear someone literally parrot something I've said and I think, wow, wouldn't it be nice to just occasionally reference my work? When you're literally parroting what I've said and the best response is, and I've gotten this response and sometimes I haven't. And also I've been on the other side of that where people said, you cited my data, please reference it. It's that I think the best response is, you're right. We have a lot of respect for your work. We do boost signal, boost your work a lot, including having you on the show, which it sounds like we did. And I don't know who we're referring to, but we'll correct the record and be more careful moving forward. I hope you accept our apology and. And our commitment to doing better.
- [04:02]
Ed Zitron
That's exactly what I did. That's. I mean, yeah, exactly. See, I only get nervous if I actually think that I'm in the wrong. And in this case, I do think I'm in the wrong.
- [04:12]
Scott Galloway
So that's great self realization. And just to go, I just interviewed a psychotherapist, so I think I know everything about psychotherapy right now. But the shit that hurts, where you get really upset or something online fucks with your mental health, it's when there's a kernel of truth in it. When it's like, oh, I did fuck up. And this happens to me a lot because I say a lot of stupid shit. I go back and I get attacked and I think, okay, the stupid shit and jealousy or bots or weirdos, fine. It's when there's a kernel of truth and you're like, yeah, I did get that wrong.
- [04:48]
Ed Zitron
Exactly. So what do you do about that?
- [04:50]
Scott Galloway
I think with actual people who take the time to reach out to you and I did not have this self awareness when I was your age, I used to rear up and get back in their face and think it was about winning the argument. And then what you realize as you get older is that it's not winning the argument, it's maintaining the relationship and saying, I understand why you're upset, I fucked up here. And to be fair, we love your data and we do signal boost it a lot, which it sounds like we do here, but something fell through the cracks here. I apologize. I'm happy to correct the record. It's like relationships when someone's upset. When I was your age in a relationship and someone would get upset with me, I had a tendency to try and get back in their face and prove them wrong. And then what you realize as you get older is if someone's upset and you value the relationship, just acknowledging that they're upset and that likely because you trust them and they're smart, there's a real reason why they're upset and a valid reason and move to a sincere apology and then move to what you're going to do to try and fix it in the future. I did not have that self awareness when I was your age. But anyways, I'm going to charge you $300 and tell you that we have five minutes left and kick you out of my office now. I think that was a great session, Ed.
- [06:08]
Ed Zitron
I thought it was good. I think I learned a lot. Yeah, it's true. I mean there's something about just the acknowledgment that is weirdly important that you don't really realize until later on. It's like it's not so much saying sorry, but that is important to people, but voicing exactly what is bothering them and saying it out loud. Like I acknowledge that this is exactly what happened. It's surprising how important that is in relationships and in conflicts. Like you can't just be like I'm sorry, like it's kind of not now. You need to acknowledge fully.
- [06:50]
Scott Galloway
Well, in trying to avoid the non apology apology. I'm sorry if you're upset. No, no, no.
- [06:54]
Ed Zitron
Yeah, exactly.
- [06:55]
Scott Galloway
We were wrong. We fucked up. I apologize. And this is what we're going to do to make sure it doesn't happen again and try and correct the situation. And then if they don't accept that, call them a snowflake and a bitch and move on. Should we get to today'? Ed, should we get to today's business news?
- [07:18]
Ed Zitron
Let's get into it.
- [07:22]
Scott Galloway
Now is the time to buy. I hope you have plenty of the wherewithal.
- [07:29]
Ed Zitron
Last week The S&P 500 hit fresh record highs twice. On Tuesday the index climbed nearly 2% to its first record close since June. And the following day it notched another intraday all time high. The rally has led some investors to believe the worst of the AI driven selloff is behind us. But not everyone is convinced. Michael Bur recently warned that it is possible we are near a major top, adding that the market could be setting up for a quote, 1987 type fall. So, Scott, what we wanted to do in this segment is sort of lay out the bull cases and the be cases because it seems that these two factions are extremely at odds with one another right now. We are hitting record highs. And yet at the same time there is a huge amount of anxiety about AI and about the sustainability of this business, about all of the debt which we'll, we'll get into. And of course we cover a lot of it on our show. But I wanted to start with the bull case and we've gathered a few clips here from some famous investing bulls that kind of lay out why the S and P hit a record last week and why investors feel optimistic about AI. So I'm going to start with a clip from Gavin Baker. He is the CIO of Atreides Management. This is Gavin Baker on why he's still optimistic about AI.
- [08:53]
Scott Galloway
I look at what's happening in the stock market and I feel like a foolish optimist. And then when I talk to people, whether it's people at the labs, whether anyone in this ecosystem, like I'm like bearish relative to essentially everyone.
- [09:11]
Ed Zitron
This is Alex Sassadot, who's the head of Whale Rock Capital Management. This is on the same podcast invests like the best. And here he explains how adoption of AI is only at the beginning and therefore it's probably going to grow significantly
- [09:24]
Scott Galloway
more, you know, 200 or I don't know how many 800 million people are using AI. They're just using AI 1.0, which is like a search engine on steroids. But now with these new primitives where you have Claude on your computer linking it in and then they're going to build true AI bots and then big corporations are going to build much larger. But where are we in terms of the amount of people doing that? I mean, Sunder said it's 10bps of the knowledge workers the world. So Anthropic has something like 14 or 15 million DAUs. Probably a small portion of those are truly doing AI the way you can do it. So that 10bps, it's classic S curve where these are the tinkerers. And then it's going to go to the early adopters, then it's going to go to the early mainstream. But you're going to go from 10bps to 1 to 2 or 3% to 5% to 15% in the next four years. And kind of a light switch this year went off in the enterprise where everybody realizes they need to do this now and then.
- [10:29]
Ed Zitron
Finally, this is our friend Josh Brown on his podcast explaining why he is still very bullish in this market and why he believes this is a healthy bull market.
- [10:39]
Scott Galloway
If you gave me a legal pad and say fill the first page, yellow, yellow pad. Fill the first page with every characteristic you would want for a market rally in order to feel confident, to stay long, like write down all the things. Here's what I would write down. Okay. Earnings beats in every sector. I think we have 10 out of 11 companies are on average beating or something like that. So check rotations. Leadership stocks getting killed and other stocks becoming new. Leadership Defensive rallying with cyclical growth rallying with value. Large cap rallying with small cap. Revenue growth ahead of expectation. Not just games with earnings or buybacks, but like actual sales growth ahead of what's being expected. Analysts raising their expectations for next quarter during this quarter across the entire s and P500, which is what's going on. International stock Support. Lots of IPOs, but not too many IPOs. Like every single thing that I would write down on the pad to say healthy market, we have all of it.
- [11:57]
Ed Zitron
That's the bull case right there. We'll get into it. But your first reactions.
- [12:03]
Scott Galloway
I think the economic incentives of someone in the job I do is to catastrophize more than is actually warranted. So you just play Josh's comments. I love what Josh says and that is you always have to ask yourself what could go right. The problem isn't the problem I think we're facing and I think what people have to be cognizant of is the market is now six stocks and Alphabet and Amazon alone drove nearly half of S and P earnings growth. It feels like the metrics are overstating the positive case, if you will. And to me, I think the data around the fact that things are overvalued or the bear case, if you will. The one piece of data that I just think is very hard to argue with is that if so much of the market is concentrated on the well being of the prospects of AI and the investments in these hyperscalers, we need, if you look at the capex, to get a reasonable rate of return on the current capex by the hyperscalers, we're going to need to recognize or create $2.5 trillion in incremental revenue from AI. Right now the cumulative revenue being produced by AI is 150 billion. So we need it to 15x just to get to a sustainable or justifiable ROI on the current CapEx. I think that is unlikely. And by the way, that $2.5 trillion number, just to put it in context, is greater than all of the revenue of Big Tech right now. So to get a market level ROI on the current CapEx, we need to double the current revenues being registered from Big Tech. That's not to say the market will. I think the market will be up from where it is in 10 years. I think AI is going to prove to be a fundamental technology. I think there's going to be a lot of winners. But similar to the Internet in 99 or the railroads or whatever you want to call it, you know, the railroads prove to be tremendous, create tons of shareholder and stakeholder value over the next century, but that didn't mean it didn't bankrupt a bunch of railroad shareholders along the way. So when I look at all the traditional metrics, I just think there's more asymmetry to the downside than to the upside. But let me do my land acknowledgement here in terms of. Okay, what does that mean? Scott, what do we do? I'm not suggesting you sell right now. My attitude is always be in the market. What I do think people need to be mindful of though, is based on historical norms and trends and ratios that do have value, whether it's the Buffett Index, looking at the total valuation of the market relative to gdp, whether it's Case, Shiller, whatever it is, whether it's pe, whatever you want to call it, things look very frothy right now. So what do you do? I believe it's never been more important to think about diversification and also perhaps contemplating lowering your leverage. Because if there is, if we are, if you believe as I do, that we are susceptible to a pretty dramatic correction in the next 24 months. You don't want to be out over your skis and put yourself in a position where you might be a forced seller because of leverage.
- [15:18]
Ed Zitron
I think that's exactly right. I mean, just to go to the bull case again, I think a lot of people are trying to understand why exactly did the markets rally? Why did we hit this, this all time high in the S and P? And there are a few there, one that we should just acknowledge is just optimism related to Iran, because Scott Bessant said on Tuesday that the U.S. and Iran would reach a deal. He said they would reach one quote today or tomorrow, I. E. Tuesday or Wednesday. Didn't happen. As this continues to go on, they keep on saying things and then the thing doesn't materialize. But we're just going to sweep Iran to the side for a moment and focus on the thing that really matters in terms of growth prospects, and that is AI. What the bulls would say is that earnings growth is really strong right now. Even if you remove the markups in Amazon and Google's stakes in those AI companies which exploded their earnings, as we discussed in the previous quarter, if you take that out, the S and P is growing really strong on an earnings basis, 27% earnings growth. The other thing that Josh talks about, his view is that he says the trash has been taken out, I. E. There was the collapse of the Cosby, there was the situational awareness collapse. That's all kind of happened. And so maybe we've sort of flushed out some of these crazy speculative bets out of the system. Maybe. And then of course, just that, AI demand is still growing. The GPU prices keep going up, the compute deals keep getting signed. The revenues of every AI company continue to grow practically exponentially. And that's all true. But to your point, it doesn't answer the fundamental question that I'm still thinking about, which is where is the ROI on the end product of AI? Where is the ROI on that? That should be reflected in OpenAI's business or Anthropic's business. Because you look at the earnings growth today, it is entirely dependent on this data center build out. I mean, Goldman Sachs has data. AI investment is expected to drive nearly half of S and P earnings growth this year. We do the analysis and try to figure out what exactly the number is right now. But I think that sounds about right, especially when you consider how much money these big tech companies are plowing into the data centers. It's coming out to like $750 billion this year. And then you have to ask yourself, okay, how long is that going to last and why is that happening? Why are they spending all of this money? And I think the most important number that we learned last week came from Bloomberg, which showed that OpenAI made up 70% of Microsoft's AI sales last year. So the whole system relies on OpenAI and Anthropic, two companies which have been proven based on the leaked financials. We've gotten to be incredibly unprofitable companies that are burning tens of billions of dollars a year. So I don't see how this is sustainable at this point. And I want investors and the bulls to be answering that question. Frankly, I don't care how much the semiconductor stock's earnings have gone up. I know they're going up. I know that they're selling chips to big tech, obviously, because the big tech companies are building the data centers. My question is how long is this data center build that going to last and is it actually going to be sustainable? Because if you're relying on all of your AI business on one company, then what are we doing here? What happens if OpenAI implodes tomorrow? What happens if they can't get enough money from the raise enough money from investors? What if they can't raise enough money from the debt markets? I mean, at some point they need to get profitable, otherwise the whole thing does collapse. And so that's what I would say to the bulls right now. Why don't you answer that question? Because that's the most important one right now.
- [19:23]
Scott Galloway
The thing you've been talking about a lot on, on property markets, which really resonates with me and I, and I also appreciate that you're. One of the, one of the many things I like and respect about you is you're not afraid to go, you know, you're not afraid to be a contrarian and you go where you think the truth in your own gut is taking you, regardless of what the kind of narrative is. And the narrative is, is that these AI valuations are everything. And if you don't, and these 5x revenue compounders will continue to compound and, and then if you don't say that and support the septic tank that is the majority of VC's portfolio right now, you're, you know, it's a crime against humanity and you're morally deficient. And there is literally a fairly thin string, a piece of yarn. I would argue that if pulled on will bring down the S and P, which will push us into a recession and push the west into a recession. And it's the following. The American economy right now has become a giant bet on AI. What is it, 70% earnings growth, 92% of GDP growth coming from the capex, from these hyperscalers. And the most significant thing to happen, or the two most significant things to happen are one, in the US there used to be all of these sources of new incremental demand on the consumer side, you know, whether it was X getting into AI because XAI was going to have a much arm, whether it was meta that was going to offer llama and different consumer AI applications. And then all of a sudden they've all said, wait, we're not, we don't seem to be capable of building the front end demand through our platforms. So we're going to lease out our back end to one of two companies, OpenAI or Anthropic. So there's basically two sources of demand creation right now and everyone else is pivoting to supply creation. So you have an economy which is seems to be very dependent upon one sector, a small group of companies within that sector, and only two sources of demand creation. And both of those companies are hemorrhaging money right now. So it just feels as if the market is incredibly fragile right now. And then the chaser effect or the other fear factor is again, what I think is one of the more dramatic numbers that approximately 10% of token usage in January 2025 was from Chinese LLMs. And now it's approaching 2/3. So the market is bifurcating. I'd still think the frontier models are German automobile companies. Higher margin. There's going to be a big market for them. People want debugging, safety, security. You look at Microsoft Copilot, which has doubled its number of seats. Most AI analysts say it's one of the shittiest applications. But there's something to having a big company debugging compliance, security, you know, all the good stuff that comes with Microsoft.
- [22:24]
Ed Zitron
Yeah, it's another little asset in the giant bundle that is Microsoft Office.
- [22:28]
Scott Galloway
Just plug and play. And you know us and you can trust us. Even if it's not a great product, it has a great warranty. Right. But the fact that the LLMs are coming in and doing to Silicon Valley what Tokyo did to Detroit over 20 years, but in this instance over 20 weeks. I don't think anyone's being very honest about what's going to happen or the impact that will have. All of these numbers assume we're going to dominate every aspect of the AI market globally. I just don't think that's the case. So this is a concentration upon concentration upon concentration built on massive expectations. But also we have such a tendency to focus on the S and P. I think we're going to be winners from AI. I think you and I are going to be better off from AI in terms of productivity and new job opportunities, just as we're better off from vaccinations, jet transportation, the railroads, the electric grid. But along the way through different cycles, all of those industries lost a shit ton of shareholder value. I think we're at that point. Amazon went on to be an amazing company. It lost 93% of its value from 99 to 2001 because we were in a cycle where things the froth translated to ridiculous valuations that could not be sustained by anyone, including Amazon. And I think we're sort of the numbers would say we're at a similar point.
- [23:48]
Ed Zitron
We'll be right back after the break and if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify or wherever you get your podcasts. Support for the show comes from ZBiotics. After a night out on the town, your body just can't bounce back like it used to. It seems like you're forced to choose between a great night or a great next day. Well, that can change with Pre Alcohol Zebiotic's Pre Alcohol Probiotic drink is the world's first genetically engineered probiotic. It was invented by PhD scientists to tackle rough mornings after drinking. Here's how it works. When you drink, alcohol gets converted into a toxic byproduct in the gut. It's a buildup of this byproduct, not dehydration, that's to blame for rough days after drinking. Pre alcohol produces an enzyme to break this byproduct down. Just remember to make Pre alcohol your first drink of the night. Drink responsibly and you'll feel your best tomorrow. With Pre Alcohol, you don't need to choose between a fun evening and a great next day, especially when July is packed with barbecues, fireworks, lake weekends and late nights with friends. Keep the good times rolling into the next day. Drink Pre Alcohol before you go out and wake up ready for whatever Sunday brings. Remember to head to zbiotics.com profg and use the code Prof. G at checkout for 15% off.
- [25:27]
Scott Galloway
Support for the show comes from Vanta. If you're running a company today, you know the trust is what closes deals. Your buyers want proof you're secure and increasingly they won't sign until they see it. Here's what usually happens. A prospect asks for your SoC2 report and the deal stalls while you scramble. An engineer gets pulled off the roadmap to prep for an audit that's months away. Every enterprise conversation turns into a fire drill. That's where Vanta comes in. Vanta is the market leading agentic trust platform that gets you compliant fast with in demand frameworks including SoC2, ISO 27001 and HIPAA and keeps you there. And now you can access the Vanta agent everywhere you work. Whether your team is operating out of Vanta every day or working in other AI or SaaS tools including including Claude and Cursor. That's why Vanta is trusted by more than 16,000 companies including Ramp, Harvey and Ryder. Prove you're ready for business. Learn more@vanta.com Markets.
- [26:23]
Ed Zitron
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- [28:46]
Scott Galloway
OpenAI has accelerated.
- [28:49]
Ed Zitron
Anthropic continues to grow really strongly and is almost certainly pumping out significant amounts of free cash flow. There is zero evidence that Anthropic has generated any free cash flows whatsoever. And they have even said by their own estimates that they don't expect to generate any free cash flows until 2028. And by the way, if they had generated any free cash flows, I can guarantee you we would be hearing about it because it would take the stock market. Why are they raising $36 billion from the debt markets on top of the other $35 billion they raised a couple of months ago from Blackstone? So, and he just, he can't you notice his language that. Almost certainly generating significant amounts of free cash flow. Like, I don't know what he's thinking when he says that, but that's, that's, you can't just, you can't just say that, because the reality is that jump that he makes there just deciding that almost certainly it's happening. That is what the entire AI ecosystem is depending on right now. And to me, the fact that he says that tells me that there is some serious misunderstanding in the equity markets right now as to what is actually going on in AI. Because if there are a lot of other investors who, like him, are just randomly assuming that the Anthropic business model actually works despite there being zero evidence to support that argument, then we have a serious mismatch in terms of investor expectations and the actual reality on the ground. And granted, we don't know because Anthropic won't tell us, but we did our own analysis of Anthropic's numbers. We did it based on what we saw with OpenAI's financials. And based on our estimates, Anthropic lost around $11 billion last year. And we would expect that number to continue to go up because of the massive amounts that they're spending on training and inference. So that, to me, is the problem. Why are we pretending like OpenAI and Anthropic, like those businesses are working? I mean, how are we making that jump? Because that's the real problem.
- [30:59]
Scott Galloway
Yeah, I think if he'd said if these companies dramatically reduce their capex, they would get to cash flow positive pretty soon. Because if you look at the top line and the sector's growth, I think that's a defensible argument. Usually, though, you have to have positive gross margins. And what I've been seeing is that I just signed up for, I figured it was Cloud Pro, whatever, and it's 200 bucks a month or something. And I read somewhere that it's costing them $1,000 a month to service my $200 a month product. But yeah, look, I think, I think if he'd said these companies could be cash flow positive if they decided to dramatically scale back their capex because they're growing so fast, I think that's maybe a defensible argument. But I don't see any evidence that these companies are producing anything resembling free cash flow right now.
- [31:46]
Ed Zitron
And that's the whole point, and that is the whole question in this bull market is can OpenAI's business make money and can Anthropic's business make money? And you have the number one AI bull going on podcasts saying that they're already making money almost certainly, quote, unquote, and it's not true. And so I'm just like, what are we doing here?
- [32:12]
Scott Galloway
I have this deck or this talk I do, called the AI optimist. We have such a tendency to look at everything through the lens of the success of America is the success of the S and P. It's such a damaging metric because it doesn't measure psa, it doesn't measure obesity, it doesn't measure anxiety, it doesn't measure general sense of purpose among young people. And I believe AI is going to be a net positive for society. We're going to be, I think it's going to increase productivity, we're going to come up with new ideas, new medical treatments, faster cycle time for pharmaceuticals. I think it's going to be a net positive as long as we figure out the risks and the regulation to try and start the externalities. We've been able to control nuclear detonation for almost 80 years with regulation and leverage and harness, I believe, nuclear fission to the benefit of all mankind. And there's a real issue around whether regulation is keeping up with this technology. But the notion that everything comes down to whether these stocks are going to continue to go up. Okay, just because you don't think these stocks are going to continue to go up doesn't mean that technology is a failure. Doesn't mean you're wrong. It turns into. I have never received the type of pushback and hate as when I question the valuations of companies in a VC's portfolio. And that is, they attack your character. They don't want to make a good faith argument back and forth. It's no. The whole world depends on whether or not OpenAI has a successful IPO. No, it doesn't. And also there is a positive to all this capex, thank God, or it's a feature, not a bug that America is willing to get out well ahead of its skis on a regular basis and that shareholders are willing to incur these types of drawdowns because we like risk and we're willing to take these risks and most nations aren't willing to take these risks. And we benefit, we will benefit from this capex. It may, I believe, cause some volatility. The market might be a drawdown. I think a lot of investors, in my view are likely to lose a lot of at least paper gains in the next 12 to 24 months. The capex that went into railroads was well ahead of where it should have been and cost shareholders a lot of money. We have all benefited from that capex. The capex in the Internet, which got hysterical and irrational from an investor standpoint we have benefited from. So even if the S and P has the kind of drawdown I think it's going to have, I would still argue there's real societal benefits from the fact that America is a risk aggressive culture and we make these types of extraordinary capex. You know, it's not the steel in the ground from Global Crossing or whatever. You know, these companies that imploded from these telco infrastructure in the late 90s, we're still registering, I think benefit from those irrational investments. There's a lot to like here. But the notion that everything about the benefit or the progress or prosperity of humanity is all linked to whether the S and P goes up or down. I don't know. I've said to you for a long time, I think your generation would benefit from what I call, I don't know, a sane correction such that you have the same entry point into great companies that I had as a younger man. Because all the narrative and all the pumping and all the shaming online, if you don't say, oh, a $44 billion acquis of X made sense. All of the shaming is one thing and that is the current equity holders want this thing to go higher. And the narrative is okay, we need rational people to say, is it kind of the Michael Burry implosion? Probably not. Is it the perma bull things go up forever? No, it's probably somewhere in between. And what I can't stand is the narrative is you're a good guy and a good citizen if you're continuing to pump. But if you want to have a rational conversation about maybe shit's overvalued right now, there's something Wrong with you. You're anti American.
- [36:09]
Ed Zitron
Exactly. All we're trying to do is to get to the truth. That's literally all I'm trying to do here. What is the actual value of these companies? What is the actual fair value estimate for these big tech companies? Have we considered the fact that they're relying on two companies alone for their AI? That's where they're getting all of their growth right now. And have we considered the fact that those companies that they're relying on aren't making money and could easily go out of business if they can't keep raising billions of dollars ad infinitum from the equity markets, which we're already starting to see. Look at Anthropic going and borrowing $36 billion from Blackstone this week. I mean, that's all we're trying to do. And as soon as you say that, I mean, you shouldn't be so offended by that, by us doing that. It shouldn't be an offensive thing that we're trying to get an understanding of the truth. It's fine if we're wrong, then we'll be proven wrong. But that's all we're trying to do here. We're trying to get an understanding of what actually is the value here. And it seems that everyone's so sensitive because they have these stories in their heads and they get very upset if you decide to start poking any hole in that story, because I guess they believe that this is their ticket out. But it's like gravity is going to come at some point. So I think we should be having a rational conversation about all of these on this point. I think it's worth asking the question like we're bringing up some of the AI anxiety right now. And the question that I keep asking myself is to what extent is that anxiety priced into the markets right now? And I think that the answer is that as of basically this week, when the markets went way up, the anxiety is increasingly being ignored. So if we just look at some of the multiples, Microsoft is up to 27 times earnings, which I think at this point it's pretty fully valued. I mean, you know that I bought the stock at 380. It's up 30% since then, so that's great. But I mean, the benchmark that I keep trying to look at is how did these companies trade before the AI boom? And the answer is, last week, Microsoft traded lower than its multiple pre AI. This week it trades higher. We look at Meta as an example. Meta is a company that I think the Anxiety is priced in. It's trading at 22 times earnings. Pre AI, it was trading at 31. So that's a company where I think investors are looking at the situation, saying we're not sure where the ROI is going to come from, which I think is great. I think there's some rationality built into that stock right now. But you know, Google, Amazon, they're getting very expensive at this point, especially Google. And it does seem that investors are looking for any reason whatsoever to just kind of shirk away the possibility that this whole AI thing won't work out. And so that's really what we have to keep an eye on. I don't think that we're in totally crazy town, but I do think that, as you say, it's quite frothy. And that's something that we have to acknowledge.
- [39:19]
Scott Galloway
I don't know. I think we're firmly in crazy town. Fair enough. I know friends of yours who are talented kids raising money for their companies at billion dollar valuations. And I get it. I was there in 1997 or 98. I raised money for a red envelope at $120 million valuation on revenues. I forget what it was, but. And at the time, I was happy to defend it and talk about why we were going to be worth a billion dollars. And Credit Suisse First Boston was talking about taking us public. You don't feel you're in crazy town when you're in the asylum and benefiting from it. I mean, so. But yeah, on any reasonable metric, any reasonable metrics, this does, you know, whatever you want to call it. This, to me feels like, yeah, we've officially moved in and taken up residence in crazy town.
- [40:15]
Ed Zitron
It almost changes week to week. I think you're probably right. It's like this week we're in crazy town. Last week it was a very different market. And this is part of the problem. The volatile is so insane week to week. The fact that Amazon reports its earnings and then it goes up 15% in a single day, like, I mean, it's almost hard to gauge where actually we are at this point in time. But I think I will agree with you that in this week, on August 6th, Thursday, Thursday, August 6th of 2026, which is when we're recording this, we are in crazy town. But I could see it swinging back tomorrow or the next week. It's very, very hard to gauge at this point. We'll be right back. And for even more markets content, sign up for our newsletter@profgmarkets.com foreign.
- [41:12]
Scott Galloway
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- [43:34]
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- [44:22]
Ed Zitron
We're back with Prof. G Markets Last week marked SpaceX's first post IPO lockup expiration, giving employees and early investors their first opportunity to sell shares since the company went public. In total, more than 911 million insider shares became eligible to trade, more than doubling the free float. The stock was relatively stable following the expiration. That came just days after SpaceX reported its first earnings as a public company. On the surface, the results looked impressive. Revenue surged 92% year over year. But investors weren't satisfied and the stock fell 8% after the report. At the time of this recording, the stock is trading around $109. It's down 52% from its all time high. So I'm going to take my victory lap right now. This was my prediction before the IPO. As soon as it hits the market, SpaceX stock will immediately explode 25%. However, my other prediction is that within six months, probably sooner, SpaceX stock will be cut in half. Why? Because the valuation makes no sense whatsoever. It has indeed been cut in half, 52% down since its high of $225 per share. We'll get into the earnings as well, but maybe Scott, your initial reactions to this stock price movement.
- [45:46]
Scott Galloway
It's a good business. The rocket business, Starlink or the product on top of the rocket business, starLink revenue was up 66% to 4.3 billion. That's double what Palantir's quarterly revenue is. Subscriber growth doubled to $12 million. But the problem is great businesses that are overvalued with this thick layer of this enormous bet that may or may not be paying off. AI capex was up 550% to $18 billion in one quarter. So SpaceX is now spending more on Capex and Oracle and more than Exxon for a unit that is unproven right now, diluting a genuinely strong satellite business. And then there's just the bottom line is the valuation is just still insane. If you didn't know this company had been cut in Half, you wouldn't think it's undervalued or you wouldn't think it's, you would think it's overvalued. It's just, it's still ridiculous right now. In addition, the, I think the most, the most negative forward looking indicators is, is in addition to just the valuation is, is kind of a point around the fiduciary here and that is you have the nominal CEO of three public companies and he's tweeting 20 times a day. So attention is a key resource here for a CEO running three companies and he's not allocating it correctly. So I thought my prediction was there'd be a tiny bit of a short squeeze because I thought the revenues, typically when you take a company public, when I've been on the board of companies, we go public, we know what the first quarter earnings are going to be and we don't take the company public unless we know the first quarter earnings report is going to, is going to be really strong. This was a strong earnings report, but a strong earnings report for a company that's trading at a regular value. The market is looking for any reason to take this company down. And also I think existing shareholders that have been in this thing for any distance of time are looking for any opportunity to sell because they've probably, to Elon Musk's credit, registered enormous gains. And they're like, okay, even though the stock's been cut in half, I might be up 10 or 20x. Boy, am I going to hate it if this company is at 12 bucks in six months, which it could be if this company was trading, if this stock was trading at $20 and you didn't know it had been at one point, at 210 and you did any sort of reasonable analysis looking at the sectors it competes in, what the most successful companies in that sector trade at, it wouldn't be cheap at 20 bucks a share. So any opportunity to sell, I would argue people are doing the math here and going, yeah. And what you will see, I think the only thing on the demand side will people who anchored off that 230 and go, oh, it's a good entry point where a stock traded below. And this is one of my flaws as an investor, I always think of, okay, I'm thinking about buying shares in Snap. I think Snap is dramatically overvalued. And I think at some point Evan has to wake up from this decade long hallucination where he's wasted three and a half billion dollars to try and prove he's Steve Jobs. He's not, he's Mark Zuckerberg. And it's a great core business. It's the easiest 5 or 10x I see in the marketplace. If we can just convince this one guy to either spin the hardware unit or reduce the amount of money is taken into the street and burning it. But you have to look at, I think at underlying fundamentals and valuations and say what is the asymmetric risk to the upside or the asymmetric risk to the downside? I don't see. And again, this is a meme stock. I don't see any reasonable justification for how this company again goes back back to being worth 120 times revenues. I just don't see how you thoughtfully find demand from different shareholders to do that. Unless Elon again pulls a rabbit out of the hat and starts talking about, I don't know, space data centers in space and why it works.
- [49:59]
Ed Zitron
He tried in that earnings. He tried to pull many rabbits out of the hat. And I think what we learned is that people are now calling bullshit on him. Let me just tell you some of the things he said. He said that they're going to build data centers on the moon. So it's not just orbital data centers now, it's lunar data centers. He said that those moon based data centers are going to be serviced by humanoid robots. And he also said that their factories will allow humanity to quote scale to 1000 times the economy of Earth in terms of intelligence launched to space, but probably maybe even a million times. So he's trying to do what you're saying and it is the only way that they can get that stock back up to where it was in the few days after it went public is they basically just need to pull the wool over people's eyes and wave a magic wand and start talking about data centers and space and interstellar travel. All of the bullshit that we've gotten so used to coming out of him, but I think people are now getting sick of it because it's not compelling anymore. And as you say, he's spending half his time on Twitter. He's spending half his time tweeting about wokeness or about things happening in Minnesota or God knows what he's talking about. He's the CEO of two companies at the same time, Tesla and SpaceX. I guess he's also the CEO of Xai now. I guess he's also the CEO of, of of X, formerly known as Twitter, because remember Linda Yakarino left, they haven't even found a replacement. And, and that's in addition to all of the bullshit that he was getting up to in Washington, which he now admits was a mistake. He says he got carried away with the politics. I mean, this guy has genuinely rotted. He's totally lost his marbles. And we see it in the interviews. And I think we're finally reaching a point where investors are at least beginning to recognize that they're hearing the things that come out of his mouth. And they don't sound like some crazy genius who understands things about the future. They sound just like a crazy person who's lost his grip on reality and honestly lost his grip on his sense of self. I think we're seeing that in the prices, seeing it in Tesla too. It's down 30% year to date. That's the Elon premium dying. I think that's what's happening.
- [52:14]
Scott Galloway
I wish I'd acted on this like anyone. And I still think a basket of shorts around AI and AI adjacent companies is probably a decent way to hedge right now. But the Musk meme, every meme stock eventually just becomes a stock. And it's like my son gave me this stat that I thought was so interesting. He said that no one is ever able to stay airborne for longer than a second, even Michael Jordan. It's weird. They can get to 0.95, 0.97, maybe even 0.98, but it seems like the 1 second barrier. Ironically, everyone, eventually, gravity wins. Gravity is undefeated, and I still believe in the stock market over the medium and the long term. Gravity is undefeated, and eventually companies trade at the high or the low end of their sector and the high or the low end of market, you know, market valuations. That will eventually happen to this company. It's happening now. Tesla's an automobile company that wraps steel around, you know, around an axle. It's a great company. It should trade at the top of the automobile range, which means its Stock has another 70 or 80% to fall. SpaceX is an amazing business. It's a launch business that has a near monopoly. Great, it'll grow. But it's growing 24% or was growing 24%. Assume it doubles. There's no way to justify the valuation. It's basically Comcast in space with incredible launch capabilities. But gravity always wins.
- [53:45]
Ed Zitron
Well, they're not even a space company anymore. They don't even want to be a space company. They're an AI company. Even if the space business is doing well, even if the connectivity business, which, by the way, is crushing, and you and I were bullish on Ages ago on Starlink, which we were excited about. I mean, I don't know if you remember when we started hearing about SpaceX going public. We were excited about this company and it was a moment, it was a refreshing moment where we were like, we actually like this thing. This thing actually makes sense. And then they had to just stuff all the bullshit around it, specifically the AI. And now we're seeing that in the earnings, which I also want to get into.
- [54:19]
Scott Galloway
He's using the excitement and his ability to engineer what is one of the most overvalued IPOs in history at this size, if not the most overvalued given its size fund his vision for AI. And he might be right. The guy's a visionary. But even if he is right, you're buying essentially an AI company out of multiple to the AI companies that seem to be more successful than his company right now. I mean, if you look at what are the multiples on revenues of OpenAI and anthropic based on their most recent rounds of valuation, what are they? Somewhere between 10 and 20 times revenues. But he's saying invest in my, my Comcast and Space company. That's really a bad AI. That's really a laggard in the AI business. That's where I'm spending all the money. That's what this valuation is dependent upon. And it's a horrible investment compared to the other players in the AI space with respect to valuation. So at some point almost every stock is a good buy, regardless of the business it's in. And at some point every stock is a bad buy, regardless of how strong the underlying business is at the valuation. This is a business, this is a failed, in my view. I won't say failed. A mediocre or meddling AI company cosplaying a space exploration. All these big words, Rocket meme stock. And I think people are, like you said, are calling bullshit. And most of the shareholders are thinking, I'm going to clock my 10x gain versus a 3x gain in 12 months and are getting out and selling. I can't even imagine the amount of selling pressure that's going to happen here as these unlock. And also all of the additional incremental lockups he put in place indicate that he doesn't believe the market can support that the current price can support the natural selling pressure if shareholders were able to sell these shares and make their own decisions. So he's made it easy to buy, but he's put in place friction around selling. What does that tell you about his confidence in the current valuation.
- [56:35]
Ed Zitron
I just want to go back to some of the numbers you brought up in the earnings because I think at first this seemed like a pretty good quarter. Like their revenue growth grew 92%, which was better than expected. Their operating losses narrowed to around $143 million in losses versus last quarter where it was like 2 billion. So, you know, it looked good at first, but the key number that people forgot about or didn't acknowledge and then suddenly acknowledged when they saw it was the CapEx, which was $10 billion last quarter, and this quarter it was 8, $18.5 billion. And almost all of that was AI. So essentially what we're seeing here is for every dollar that SpaceX is generating in revenue, they're spending $2.35 on capital expenditures. And so if they were to continue spending money at the pace that we're seeing in terms of their capital expenditures, they will burn through the entire 86 billion dol billion that they raised from their IPO in about 16 months. So they're running out of money very, very quickly here. And so whenever we look at the operating expenditures for a hyperscaler, and I think that's what we got to start calling SpaceX at this point, Anyone who's building a data center and whose story about their AI growth comes from building data centers and selling compute operating income or operating losses don't matter. All you need to look at is the capital expenditures, because that is where all of the money is going. They are buying chips, they're buy big long term capital intensive assets in order to build out these businesses. And when you look at that number, suddenly you realize, hold on, this thing doesn't work. Or at least it doesn't work right now. And it's kind of a pipe dream as to whether it'll work out in the future. By the way, the fact that they're going to burn through all of their IPO proceeds in less than a year and a half, it tells you something about what they're going to have to do next, which is they're going to have to raise a shit ton more equity and, and more debt issuance too. They're going to have to sell tons more debt. Which tells you why the banks are being still so sycophantic about this company. Because the banks know there's still huge deal making fees that are in this company. They want to be first up to sell SpaceX's next follow on offering or SpaceX's next debt round. I mean, they're going to have to raise so much more money. And I think that's why you saw some of these big banks actually raising their price targets despite a quarter that was quite frankly pretty miserable from a capex perspective.
- [59:18]
Scott Galloway
It was like how surprised I was when I found out I was colorblind. Literally. The news came out of the purple. Just thought we needed a little dad humor there. Just we needed to break up your woe with me. No one appreciates my, my thoughtful, bearish remarks. A little dad humor there, Ed. You got SpaceX right? You're going to even be proved more right. And like I said, I was thinking about education or I've been thinking a lot about higher ed recently and Bill Maher was saying that the problem with higher ed is you guys are promoting an orthodoxy. And I'm like, that's not the problem. The problem is the homogenization of higher ed. And that is four out of five faculty members have said they don't think a conservative would fit into their faculty. And I've seen this firsthand. My department at NYU is just like so woke it's frightening. And I'm like, this does the kids a disservice because even if they decide to adopt progressive values and there's evidence showing that as people learn more about history and science, they do tend to skew more progressive as they go. More higher education, we're doing them a disservice if one, we don't give them the ability to have a thoughtful conversation around opposing viewpoints and we start teaching them that having a different political viewpoint makes other people morally deficient. And the same thing's happening here in the markets. And that is people are trying to say that if you're not a bull on these AI and not pumping the portfolio of the VCs who are constantly on CNBC and the entire ecosystem that benefits from an inflated market and more trading and more volatility and up and away that somehow you're morally deficient. No, we need to have a thoughtful conversation on both sides such that people learn, are smarter and quite frankly protect themselves a little bit. And I wish I'd had more thoughtful conversations with people around. Scott, you are a talented, hard working person. It makes no sense that you're raising this kind of money for these companies which have little revenue. You should sell more and you should diversify and realize a lot of this success right now is not your fault and that things can change fast. And I mean I was thinking about, I got invited. Let's bring this back to me, ed. In 99, I got invited to Davos. I was like a rock star. I was invited to speak to the 40 largest, the CEOs of the 40 largest energy companies in the world. I was Speaking to the CEOs of Saudi Aramco and Exxon and Shell and they were asking me how to run a business. And I was all of 33. By 2001, the third year I was invited back, I couldn't get a meeting because people literally thought I was a criminal. Oh, you're one of those fraudsters from Silicon Valley that raised money and lost it all. And the reality is it's just helpful to have a thoughtful conversation on both sides, both for the entrepreneur, for investors, for everyone, just to have a rational conversation. You're not a bad person if you're a bull talking up your own stocks. Fine. You're not a bad person if you think things have gotten way too frothy. But the thing I really didn't appreciate when I was your age and advice to entrepreneurs listening is market dynamics will always trump individual performance. And the mistake I made was thinking that if I just threw myself at something, be highly concentrated, it will work out. No, Sometimes, sometimes your success isn't your fault and neither is your failure. And in 91, I wasn't as smart as I thought. And by 2001 I wasn't as dumb as everyone else thought I was. But I think these conversations that are two sided, if you will, or both sides get accurate representation are really important. And having said that, folks, there's only one side here. This shit's coming down. I'm sorry, this shit is coming down. Enjoy it while it lasts. And if you have shares in any of these companies and you're sitting on a gain, I would do everything I could to lock in some of those gains and put it in really boring shit right now that at least an arm's distance away from the AI trade. But anyways, I'm doing what you're. I'm contradicting myself.
- [63:36]
Ed Zitron
Well, just to your point though, I feel like Leopold Aschenbrenner and what happened with situational awareness is the perfect example. And this is what Michael Green was telling us when he was on the show last week, where it's like, you shouldn't be giving $20 billion to a 24 year old. That's not going to lead to a great place. And as you often said, if you tell a 24 year old enough times that they are Jesus, they are inclined to believe you. And I wonder what it's done to his life that his fund collapsed in the matter of a week because he did convince himself he bought the hype that a lot of the investors were trying to tell him. And he went forex leverage on the hottest stocks in the market. And then what do you know, the whole thing comes crashing down. I think it's a perfect example of the thing that you're describing where the pumpery actually turns out to be a negative for a lot of people. It actually does a lot of both financial damage and then also psychological damage long term. Because I mean, yeah, people now say, oh, Leopold Aschenbrun is a fraud. He's Sam Bankman fried, he's Elizabeth Holmes. And it's like he was just a kid who was managing money and people kept giving him money and so he kept doing what he wanted to do.
- [64:52]
Scott Galloway
Leopold didn't do anything wrong. He might have been reckless, he might have been out over his skis. But if a 24 year old can raise $20 billion hoping that the AI trade keeps going and he puts on massive leverage. No, the idiots here are the people who decided to invest in a fund that was 5x based on a 24 year old. Supposedly insight into the I've met geniuses, they put their pants on one leg at the same time and they're subject to the same market volatility as the rest of us. I don't care how fucking smart you are, if the S and p is off 40% over the next month, I don't care how many Rhodes scholars, whatever prizes you've earned, you're going to lose your shareholders, a lot of your shareholders money. And let me tell you exactly how it feels. In 99, mid late 99, about 24 of us were invited by a private jet manufacturer to an airfield to look at jets because they said they were willing to take stock in private companies in exchange for planes. And we all went to this massive airfield and we looked at different jets and all of us in our kind of 30s were going like, well I want that one, I want that one. And I did have enough quote unquote awareness at that point to go, this shit won't last. I was self aware enough to go that a bunch of 30 year old douchebags from Silicon Valley pointing at jets, they want that. That wasn't going to last by within 12 months. My accountant told me I had negative net worth and I should consider selling my house. And that moment when I had that conversation, I remember exactly where I was. I was in the office as a prophet. I remember thinking, I need to Go home and have a conversation with my wife around the possibility of having to sell our house. And 12 months before that, I was telling her about the plane we were going to buy. And I remember thinking, so let me tell you. Let me tell you. I mean, new wife, building a future. She's working her ass off. She's working her ass off. You're starting to think about kids. Oh, we're. Honey, we're buying a Challenger 300. Oh, wait. We may need to sell our house. So let me tell you, it sucks. I think his situation is a little bit different because my guess is he's made so much money that he's not going to have to sell his house that he's been able to clock enough fees unless he did something stupid like leveraged his own portfolio. It's a lot of reputational risk and damage. But he'll be fine because he's clearly a very intelligent person. And in our society, one of the wonderful things about America is we love to forgive. He'll have a scarlet letter on his chest for a while, but he'll be able to raise money. If Adam Newman can raise hundreds of millions of dollars to go buy apartments and call them flo and pretend it's something new or different than just buying apartments, which is a good business, you know, that's one of the wonderful things about America is we love to give people a second chance. And I hope he's not in the same financial position I was, but there's no doubt about it. It absolutely fucks with your especially, I think I'm trying to think as a young man. In some ways it's easier for a young man because you have more time to recover. And I was a bit. I don't want to. I was a bit sociopath. And that is. I just wasn't that cognizant. I didn't care about risk. I almost got kicked out of UCLA three times and didn't bother me. If I'd been kicked out, it would have been really bad. It would have been, but I just kind of didn't care. It's like from 0 to 30, I did not have enough anxiety. I was sleepwalking through life. I wasn't worried about the ramifications of my actions or risk. I was just like, oh, I'm fine. I'm telling you, everything will be fine. It'll work out. From 30 to 40, I had just the right amount of anxiety to be aware, take some precautions, start to think about diversifying. From 40 on, I have way too much fucking Anxiety. All I can think about. My son is super responsible. He doesn't drink and drive, he's super responsible. But I still find, I still create scenarios about the dangerous mean streets of aspen for an 18 year old. And then I worry about ridiculous scenarios that probably won't come to bear in our society and I worry that, that we're going to have a civil war between the red and the blue. I mean my mind just goes fucking crazy places now. I don't know where I'm going with this other than a need for antidepressants. Ed, wrap us up here.
- [69:31]
Ed Zitron
It's helpful, it's helpful to know all of this. Yeah, let's get into our week ahead. I think we've uncovered all we need to uncover in the financial markets. So we'll see inflation data from the consumer price and producer price indices for July. We'll also see earnings from Rocket Lab, AST, Space Mobile, CoreWeave and Super Microcomputer. All of the very hot AI or space adjacent stocks. Scott, any predictions?
- [69:59]
Scott Galloway
I think the downdraft in SpaceX is basically forcing everyone to come to from this. I think it's Narcan or I don't know what the term is. Whatever they do to bring you back to consciousness, I think that SpaceX is having over the last 30 days is forcing a lot of people. This isn't the canary in the coal mine, this is the blue whale in the coal mine screaming. And there's just no ignoring what is happening to SpaceX and forcing people to get out pencils, not fairy dust and magic wands and actually look at these companies through a valuation lens and something regarding what would be a reasonable valuation for these long winded way of saying I think SpaceX's march down is just beginning. The declining tide is going to suppress
- [71:01]
Ed Zitron
all boats Here I have a very similar prediction. First I'm going to take a quick victory lap because last week my prediction was that we had hit the bottom for Meta. It immediately rebounded about 10% so we'll see if it holds. But I actually, I think that Met is one of the only big tech stocks right now that is actually still relatively undervalued because I think so much fear and anxiety is priced into that with good reason. But I think that we hit the bottom. Seems like we did. My predictor for this week, same as you, I think there is so much selling pressure coming down the pipeline for SpaceX. I think this thing falls another 20 to 30% by the end of the year. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty, our research team is dan Shalon, Kristin O' Donoghue and Mia Silverio. Jake McPherson is our social producer, Drew Burrows is our Technical Director and Catherine Dillon is our Executive producer. Thank you for listening to Prof. G Markets from Profg Media. If you liked what you heard, give us a follow and tune in tomorrow for a fresh take on the markets.
- [72:21]
Scott Galloway
In kind reunion as the world.
- [72:47]
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- [73:31]
Scott Galloway
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Ed Zitron
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Scott Galloway
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Scott Galloway
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Scott Galloway
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- [74:37]
Scott Galloway
Terms apply.