Prof G Markets Podcast Summary Episode: OpenAI & Microsoft Feud, Homebuilder Vibes Slump, and WBD Cuts Zaslav’s Pay
Release Date: June 18, 2025

1. Market Overview

Ed Elson begins the episode by providing a snapshot of the current market conditions:

• Stock Indices: Major indices declined as geopolitical tensions escalated between Iran and Israel, leading to increased missile strikes.
• Oil Prices: Spiked in response to these geopolitical developments, exacerbated by former President Trump's demand for Iran's unconditional surrender.
• Treasury Yields: The yield on 10-year Treasuries dropped following weaker-than-expected US retail sales data.
• Solar Stocks: Experienced a significant downturn after Senate Republicans proposed the elimination of clean energy tax credits. Specifically, Enphase Energy saw a dramatic decline, shedding 24% of its value.

"The major indices fell as Iran and Israel continued their missile strikes. Oil prices spiked as Trump demanded Iran's unconditional surrender."
— Ed Elson [02:18]

2. Housing Market Analysis

A concerning outlook is presented for the US housing market, highlighting several key points:

• Homebuilder Confidence: A recent survey from Wells Fargo and the National Association of Homebuilders indicates that US homebuilder confidence has plummeted to its lowest level since 2022. All three components of the survey—prospective buyers, expected sales, and present sales—have declined, with present sales reaching their lowest since 2012. Additionally, there is a forecasted decline in single-family housing starts for the year.

• Impact of Tariffs: The primary reason for this pessimism is the imposition of tariffs, which are projected to increase construction costs by approximately $11,000 per home. Key materials such as lumber, steel, and aluminum are largely imported, with Canada supplying 30% of softwood lumber and 25% of all steel in the US.

• Broader Data Insights:

  • Total housing construction in the US has decreased by 13% year-over-year.
  • Housing permits have declined for four consecutive months.
  • Housing starts have fallen 10% year-over-year.
  • The median home price has surged to nearly $420,000, making it unaffordable for 75% of Americans, as per the National Association of Homebuilders.

Rick Palacios Jr., Director of Research at John Burns Research and Consulting, offers deeper insights:

"If you're staring at mortgage rates close to seven, it's going to be a grind higher on resale supply, and that's going to start to eat into your market share."
— Rick Palacios Jr. [05:35]

Discussion Highlights:

• The housing market is in a state of stasis, with no significant improvement expected in 2025.
• The first half of the year did not exhibit the typical seasonal strength for housing, leading into an anticipated slower second half.

Ed Elson summarizes the dire situation:

"US Housing is still very much unaffordable. And we've yet to see any indication either in the data, in this data, or even on a policy level that any of that is going to change."
— Ed Elson [07:21]

3. OpenAI & Microsoft Feud

A significant focus of the episode is the escalating conflict between OpenAI and Microsoft, which has tarnished their partnership established in 2019. Key developments include:

• Nature of the Dispute: OpenAI executives are reportedly considering legal action against Microsoft, accusing the tech giant of anti-competitive behavior. The tensions reportedly reached a "boiling point" due to disagreements over contractual terms and control issues.

• Contractual Abnormalities:

  1. IP Ownership: Microsoft holds rights to all of OpenAI's intellectual property, effectively granting them ownership despite OpenAI's status as a separate entity.
  2. Exclusive Compute Partnership: OpenAI must rely solely on Microsoft for additional computing resources, limiting their operational flexibility.
  3. Revenue Sharing: OpenAI is obligated to pay 20% of its top-line revenue to Microsoft, a figure they have unsuccessfully attempted to renegotiate.

• Acquisition of Windsurf: The immediate trigger for the feud was OpenAI's acquisition of Windsurf, an AI code generation company. Under the existing contract, Microsoft gained unfettered access to Windsurf's IP, creating a direct conflict as Microsoft’s Copilot directly competes with Windsurf’s offerings.

Windsurf Founder provides perspective on competitive strategies:

"There are reasons why we are able to compete directly with copilot. The results are highly personalized and we're seeing like a 30 to 40% boost in accuracy."
— Windsurf Founder [10:25]

Ed Elson criticizes the partnership dynamics:

"In 2025, in AI, quality doesn't win, size wins. Windsurf was acquired by another company that was fundamentally controlled by Big Tech, and now Big Tech has access to all of Windsurf's IP."
— Ed Elson [11:05]

Scott Galloway adds his analysis:

"OpenAI's original sin was taking that $1 billion from Microsoft way back in 2019. They should never have taken the money."
— Scott Galloway [11:05 - 14:52]

Key Takeaways:

• The contractual constraints have hindered OpenAI's autonomy and competitive edge.
• The feud underscores the broader issue of Big Tech's dominance overshadowing smaller, innovative companies in the AI sector.
• There is a growing sentiment that financial dependencies created during early funding rounds can have long-term negative repercussions.

4. Warner Bros. Discovery CEO Compensation Update

The episode addresses the controversial compensation package of David Zaslav, CEO of Warner Bros. Discovery (WBD):

• Background: Despite WBD's stock plummeting by approximately 60% since Zaslav took over, the board awarded him a $52 million pay package in 2024, ranking him as the 8th highest-paid CEO in the S&P.

• Shareholder Response: Shareholders voted against this compensation, leading the board to adjust future pay structures.

• New Compensation Terms:

  • Reduction: Zaslav's annual pay will decrease by 50%, targeting $16.5 million from the previous $37 million in his current contract.
  • Performance-Based Incentives: If Zaslav meets 100% of his operational and financial goals by 2026, his compensation could increase to between $150 million and $250 million through stock options.

Scott Galloway provides a scathing critique of the situation:

"David Zaslav has gotten 400 million dollars for incinerating 25 billion in shareholder value... The compensation committee here are terrible fiduciaries for shareholder value."
— Scott Galloway [20:59 - 22:45]

Discussion Highlights:

• The current arrangement appears to offer minimal immediate relief to shareholders while setting the stage for potentially exorbitant future payouts.
• Galloway argues that the board is failing in its fiduciary duty by not adequately penalizing leadership for the substantial loss in shareholder value.
• There is a call for more stringent oversight and possibly activist interventions to hold executive compensation in check.

Ed Elson summarizes the issue:

"This isn't a material change and I don't think this is much of a response to the shareholders."
— Ed Elson [26:18]

5. Conclusion

The episode of Prof G Markets delves deep into the turbulent landscapes of the capital markets, housing sector, AI industry, and executive compensation. Key themes include the detrimental impact of geopolitical tensions on markets, the growing affordability crisis in housing, the fraught dynamics between AI innovators and Big Tech, and the ongoing challenges of ensuring executive compensation aligns with shareholder interests.

Notable Quotes Recap:

• "US Housing is still very much unaffordable." — Ed Elson [07:21]
• "The compensation committee here are terrible fiduciaries for shareholder value." — Scott Galloway [22:45]
• "OpenAI's original sin was taking that $1 billion from Microsoft way back in 2019." — Scott Galloway [11:05]

This comprehensive analysis provides listeners with a nuanced understanding of the current economic and corporate climates, equipping them with insights to navigate the complexities of a capitalist society.

Disclaimer: This summary is based on the transcript provided and aims to capture the essence of the podcast episode without including commercial breaks or non-content segments.