Trump Unveils Steep New Tariffs, TikTok Develops App for U.S. & CoreWeave’s $9B Acquisition

Summary

Prof G Markets: Episode Summary

Title: Trump Unveils Steep New Tariffs, TikTok Develops App for U.S. & CoreWeave’s $9B Acquisition
Release Date: July 8, 2025
Host/Author: Vox Media Podcast Network

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1. Market Overview

Ed Elson opens the episode by discussing the recent downturn in major stock indices following President Trump's announcement of new tariffs. Specifically:

• Dow Jones and NASDAQ each declined by approximately 1%.
• S&P 500 fell by 0.8%.
• The U.S. dollar strengthened, and the 10-year Treasury yield increased.
• Tesla's stock plummeted nearly 7%, resulting in a $68 billion loss in market value after Elon Musk announced the formation of a new political party.

2. Trump’s New Tariffs

President Trump revealed a new array of tariffs affecting multiple countries as the 90-day tariff pause nears its end. Key points include:

• Tariff Rates:
  • 25% on South Korea and Japan
  • 30% on South Africa
  • Additional tariffs on Malaysia, Kazakhstan, Indonesia, and Myanmar
• These tariffs mark the end of the Liberation Day tariffs, initially enacted on April 2 and later paused by Trump.
• Trump stated, "I am pleased to announce that the United States tariff letters and ordeals with various countries from around the world will be delivered starting Monday, July 7th." (Timestamp: 04:30)
• The tariffs significantly impact major U.S. trading partners, with Japan and South Korea alone accounting for over $380 billion in annual trade.

3. Expert Analysis: Barry Appleton

Barry Appleton, co-director of the Center for International Law at New York Law School, provides insight into the implications of Trump’s tariff strategy:

• He likens Trump’s approach to a real estate mogul charging for access: "If they want to come to my club, they have to pay." (Timestamp: 05:46)
• Appleton suggests that the tariffs are a strategic move to extract payment rather than seek free market access, disrupting previous trade agreements.
• He emphasizes that market uncertainty stems from the unpredictable and staggered implementation of these tariffs, leading to negative market reactions.
• Appleton predicts that tariff revenue is a primary goal, stating, "No one's getting in for free. Everyone pays something." (Timestamp: 08:15)

4. TikTok’s New U.S. App and Potential Sale

The podcast transitions to the developments surrounding TikTok and its efforts to align more closely with U.S. regulations:

• New App Launch: TikTok is developing a new app for American users, scheduled for release on September 5. The existing app will remain operational until March 2026.
• This move is part of TikTok’s strategy to make the platform more attractive and transferable to a U.S. buyer, following previous threats of a ban unless sold by its Chinese parent, ByteDance.
• Alice Hahn, China economist and director at Greenmantle, suggests that this app development could serve as a bargaining chip in ongoing trade negotiations with China. She notes, "The biggest question mark is Beijing's reaction function on that topic alone." (Timestamp: 11:07)

5. Scott Galloway’s Take on TikTok and Tariffs

After a brief interlude, Scott Galloway shares his perspectives:

• On TikTok: Galloway views TikTok’s new app as "the mother of all jazz hands," suggesting it’s a mere rebranding effort without genuine ownership changes. He believes the Chinese Communist Party (CCP) will retain control over TikTok's algorithms, undermining American bans. Galloway states, "The CCP will continue to control the algorithm." (Timestamp: 14:45)
• On Tariffs: He critiques Trump’s tariff strategy, asserting that it has stimulated more trade agreements among third parties, such as the EU and Mercosur, rather than benefiting the U.S. economy. Galloway remarks, "His hand is just getting weaker and weaker." (Timestamp: 16:03)

6. CoreWeave’s $9 Billion Acquisition of Core Scientific

Ed Elson introduces the significant acquisition news:

• CoreWeave, an AI-focused data center company that went public in March 2025, is acquiring Core Scientific, a Bitcoin mining firm, for $9 billion in an all-stock deal.
• This acquisition values Core Scientific at roughly $20 per share, representing a 66% premium over its previous closing price.
• CoreWeave had seen its stock soar by nearly 300% since its IPO, making it one of the year's hottest IPOs.

7. Detailed Analysis of the Acquisition

Gil Luria, head of technology research at D.A. Davidson, provides a nuanced perspective on the acquisition:

• The stock reactions indicate that Core Scientific investors believe CoreWeave’s shares will decline by the time the deal closes in Q4, making the acquisition less favorable. He explains, "The holders of Core Scientific believe that by the time this deal closes in Q4 of this year, Core Weave will be worth significantly less." (Timestamp: 27:14)
• Luria points out that the deal is primarily a form of financial engineering, with CoreWeave issuing new shares to finance the purchase, thereby diluting existing shareholders’ value.
• He highlights CoreWeave’s over-reliance on Nvidia’s GPUs and its heavy customer concentration in companies like Microsoft, coupled with substantial debt, questioning the sustainability of its business model.

8. Market Reactions and Future Implications

Ed Elson elaborates on the broader implications:

• The simultaneous decline in both CoreWeave and Core Scientific’s stocks post-announcement suggests skepticism about the deal’s value.
• Elson underscores concerns about CoreWeave’s fundamentals, including its dependency on Nvidia and a high debt load, which are not mitigated by the premium offered in the acquisition.
• He concurs with Luria’s assessment, noting, "Core Weave was the hottest IPO of the year... but when you look beneath the hood, what you discover is a business that is fundamentally quite weak." (Timestamp: 29:00)

9. Closing Thoughts

Ed Elson concludes the episode by reiterating the concerns surrounding CoreWeave’s overvaluation and the shaky foundations beneath its rapid growth. He emphasizes the importance of scrutinizing beyond surface-level market excitement to understand the true health and sustainability of such companies.

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Notable Quotes

• Barry Appleton: "If money is evil, then that building is hell." (Timestamp: 02:03)
• Scott Galloway: "The CCP will continue to control the algorithm." (Timestamp: 14:45)
• Gil Luria: "Core Weave is not using cash. They're just issuing new shares, diluting their own shareholders." (Timestamp: 28:10)

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Conclusion

This episode of Prof G Markets delves into significant economic and corporate developments, including President Trump’s implementation of new tariffs affecting major U.S. trading partners, TikTok’s strategic moves to align with U.S. regulatory demands, and CoreWeave’s controversial $9 billion acquisition of Core Scientific. Through expert analyses and insightful discussions, hosts Ed Elson and Scott Galloway provide listeners with a comprehensive understanding of how these events could shape financial markets and the broader economic landscape.

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For more insights and detailed analyses, subscribe to Prof G Markets on your preferred podcast platform or visit [e-mail] with your questions and comments.

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Timestamp References:

• 02:03
• 04:30
• 05:46
• 08:15
• 11:07
• 14:45
• 16:03
• 27:14
• 28:10
• 29:00

Transcript

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[Jen]

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[Ed Elson]

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[Scott]

Money market matter.

[Barry Appleton]

If money is evil, then that building is hell.

[Ed Elson]

The show goes on. Sell Sell. Welcome to Property Markets. I'm Ed elson. It is July 8th. Let's check in on yesterday's market vitals. The major indices all fell after Trump renewed trade tensions. We'll talk more about that in just a second. The Dow in The Nasdaq dropped roughly 1%, the S&P fell 0.8%. The the dollar gained and the yield on 10 year treasuries rose. Meanwhile, Tesla shares fell nearly 7%, shedding $68 billion in value after Elon Musk said he was forming a new political party. Okay, what else is happening? Trump announced a New slate of tariffs yesterday. Those tariffs include a 25% tariff on South Korea, a 25% tariff on Japan, a 30% tariff on South Africa, and several more tariffs on countries including Malaysia, Kazakhstan, Indonesia and Myanmar. This comes as the 90 day tariff pause approaches its end. As a reminder, the Liberation Day tariffs, which were enacted on April 2, were later paused by Trump. And that pause is set to expire tomorrow on Wednesday. The administration has discussed extending that deadline, but as of this morning, unless new trade deals are reached, the original Liberation Day tariffs will go back into effect. Okay, so we have our first confirmed tariffs of the week, 25 to 40% tariffs on what looks like 14 countries right now. And these will likely be the first of many. Trump said over the weekend, quote, I am pleased to announce that the United States tariff letters and ordeals with various countries from around the world will be delivered starting Monday, July 7th. So as of Monday, we are 14 for 14 on tariffs. There was some possibility, based on what he'd said, that we'd get some deals, too. But as of right now, no, we're not getting any deals. All we're getting is tariffs or tariff letters, as he put it. And in this case, the tariffs will be applied to two of our largest trading partners. We have Japan, which accounted for more than $200 billion worth of trade last year, our fifth largest trading partner, and also South Korea, which accounted for $180 billion worth of trade, our sixth largest trading partner. So these are two very important players in our economy. In addition, they are also two of our closest allies. When you just look at our military relationship. For example, America has 50,000 troops stationed in Japan, and we also have nearly 30,000 troops in South Korea. So aside from Germany, there is no other nation that hosts more American soldiers than Japan and South Korea. Meanwhile, these two countries are very important partners in space exploration, in semiconductors, in AI, in clean energy. The list goes on. And now we have decided, actually, no, they're not a partner. They are, in fact, a threat, as he said it, a threat to our economy and a threat to our national security. I'm not going to act surprised here. I don't think anyone's really that surprised. I think we've seen this all before. This is essentially Liberation Day Part 2. But we did see some market impact. As I mentioned, the S and p fell around 1%. So did the NASDAQ. And there are questions now as to what this will do to America and to our economy. So for more on that, our producer, Claire, spoke with Barry Appleton. He is the co director of the center for International Law at New York Law School.

[Barry Appleton]

I think the markets have misunderstood what this week's about and what's going on. And I think it's better to get a sense of the context because the markets keep moving, they keep going ahead and keep pulling back, retrenching, and it's because they don't understand the game. What you need to understand is that President Trump is a real estate guy and he also runs golf club and Mar a Lago. So he understands about people wanting to pay for access. So what he's decided to do, disrupt the games. We had all these trade agreements, all these things that said everyone would get market access for free and in exchange, the US Would get access for services or access for certain market and other things. But we didn't ask for money. Now he says, no, you want to come to our game? You want to come to my club? You want to come to Mar a Lago and eat the chocolate cake? You got to pay. The payment's going to be the tariff. And so the question was everybody had to put in an application. Those applications were due today. And so what he did is he had the first set of letters to people that he wasn't going to give preferential pricing. So he would look at his application, decide, am I going to give you the friends and family rate? Am I going to charge you like the super market rate? Am I going to give you any discount or no discount at all? Right. If you give him an invite to go meet at the palace with the king, then he makes it really cheap. If you're going to say bad things like South Africa, he just made it 30%, right? So that's what's going on. So the applications, they're in. He then has a series of letters. So he's decided that he's got at least seven countries out of 70, let's say they wanted to deal with things at least seven. He wanted to teach them a lesson. They're the ones that got the truth Social tweet today. Okay, so Audi goes to them. He says, I'm going to charge you what the market will pay and you're going to pay for market access. In fact, you're going to pay search pricing. It's like going to a Taylor Swift concert. You are paying extra to be able to get those seats. So that's going on. And that is supposed to come out on the 9th. So on Wednesday, he's supposed to give all these countries their letters. So you're going to see what I call a policy striptease. He's going to take one veil off at a time. Letter after letter coming out on through Social, and each country is going to find out what's going to happen. But markets don't like uncertainty, and they actually don't like policy coming in dribs and drabs.

[Gil Luria]

Right.

[Barry Appleton]

So the market doesn't know how to react. But if you understand that's part of a show, it's part of an act, and it's just the first part of it, then you might react in a different way than if you think it's the end of the game. So the markets didn't like this on the weekend. They started to hear what was going on. Then they saw more today and they started selling off again. But there's no difference in the market today than there was yesterday or on Friday. Okay, what you want to know about is what's going to happen at the end of the week and the end of this month. So the first thing is, do you believe that Trump wants tariff revenue? It's pretty clear now after the one big beautiful bill and listening to the Treasury Secretary, he wants some tariffs. So no one's getting in for free. Anybody that thinks they're getting into Mar A Lago for free is gonna be very mistaken. Everyone pays something.

[Ed Elson]

Now, that was Professor Barry Appleton, co director of the center for International Law at New York Law School. Very chaotic. Once again. I mean, this whole tariff policy is being played out online on Truth Social. As he said, these tariff letters aren't really being to these countries. These tariff letters are being posted online on Truth Social. They're essentially screenshots, and we are watching the show play out in real time. And so I think he's certainly correct on that point. One thing is for certain, though, and that is that this story is not over yet. July 9th has yet to come. We've still got lots of tariffs in the pipeline, potentially lots of deals in the pipeline. I don't know. We'll see. We haven't seen that many so far, but we'll be keeping very close tabs on this throughout the week, so stay tuned. TikTok is reportedly building a new app for American users ahead of a potential sale to American investors. The company plans to launch the new app on September 5, although the existing app will work until March 2026. And this new app is part of a broader effort to make the platform more appealing and ultimately more transferable to a US buyer. As a reminder, TikTok was going to be banned in America Unless it was sold by its Chinese owner, ByteDance. That was until Trump decided to delay that ban and he allowed TikTok to continue operating. However, he is now reportedly working on a deal to get TikTok into the hands of a US investor. And the fact that TikTok is now building this US version of the app, well, that is probably more evidence that a TikTok sale may indeed be on the horizon. Meanwhile, the timing of all of this is quite convenient for Trump. As we just discussed, he's working through these trade negotiations with many countries, including China. And according to Alice Hahn, China economist and director at Greenmantle, this deal could be another bargaining chip in those negotiations.

[Gil Luria]

The biggest question mark, which is Beijing's reaction function on that topic alone, I sense that there could be more concessions from China, meaning that they could decide to allow this subsidiary of a US TikTok to be spun out of by Dance itself and that that unit of the business, the US operations that is, could be sold to US parties. I sense that the Chinese at a macro fundamental level want to try to reduce tensions on trade with Trump because they are worried by their erratic nature. Again, we just saw in the last day or so that he's Talking about another 10% BRICS tax and certainly he's applied pressure on transit plans for a couple of these Southeast Asia. So I could see the Chinese potentially offering this as a concession very quietly.

[Ed Elson]

That was Alice Hahn, China economist and director at Greenmantle. Bargaining chip or not, there is a growing sense that TikTok will at some point be sold to an American investor. And the question then becomes one, when, two, how? And three, to whom? Those are all the questions that we're all asking and we can't really answer right now. There have been some rumors. Oracle has been floated as a buyer, for example. So has Amazon. And there have also been some more outlandish rumors. Kevin O', Leary, for example, Mr. Wonderful, he's been floated as a buyer. And Alexis Ohanian, the co founder of Reddit. Now I don't doubt that those guys have made bids. Kevin o', Leary, for example, has spoken about his bid on tv. But I think the question you have to ask is, do you have the money? And the answer for those guys, and for many people is probably no. This deal is going to be a lot. This deal is expected to be north of $50 billion. And there are very few entities out there, let alone people that can actually afford that. So in terms of buyers, no, I don't think Kevin O' Leary is going to own TikTok, but there is definitely a world in which a company like Oracle could own it. And that would be a huge shake up to the social media economy, which is, of course, as of today, totally dominated by Meta. So let's check in with Scott on this. As you probably know, he has been calling for TikTok to be banned for several years now. I'm sure he has some opinions on this. Plus, it's been a while since we've heard from him. He's been off on vacation with his family. But I am happy to report that he is, as of today, back to work. So let's give Scott a call. Hey, Scott.

[Scott]

How are you, Ed?

[Ed Elson]

I'm doing well. How are you? It's been a while.

[Scott]

Yeah, it has been a while. I had a nice weekend and I'm wrapping up our trip.

[Ed Elson]

Oh, you're still in Ibiza?

[Scott]

Yeah, still here. Okay, still here. Head to Los Angeles on Wednesday, but, yeah, still here.

[Ed Elson]

Good stuff. What's the plan for la?

[Scott]

Well, I don't know if you've heard this, Ed, but I'm working on an original scripted program from a little company called Netflix.

[Ed Elson]

Oh, there we go.

[Scott]

Little company called Netflix. Netflix that I bought at $12 a share and then sold at 10, and now it's trading at 1400. So I want to find a time machine so I can go in that time machine, go back, kill me, and then come back and kill myself.

[Ed Elson]

When is that coming out?

[Scott]

It's coming out in fall of next year. Fall 2026.

[Ed Elson]

Oh, that's pretty soon. That is quite exciting. Okay, well, we'd like to get your take on this TikTok news. TikTok is building this new app. Probably the best evidence we've gotten so far that they will sell to an American investor. What's your take, Scott?

[Scott]

My gut is that it's the mother of all jazz hands, that it's a giant's head fake, that it's essentially bullshit, but they're going to try and rebrand it, say it's a different app, come up with a bunch of reasons for why it's unique, maybe allow some additional investors, create a new entity. But as long as the algorithm is controlled out of Beijing, or there's backdoors into the algorithm, and they can continue to raise a generation of military, nonprofit and business and teach them to basically hate each other and hate America, which is, I think, too valuable a propaganda machine for them to give up. I don't think they're going to want to unplug a neural Jack from the wet matter of all of America's youth. And I think the President has proven himself to that he is not a serious person with regards to threats to ban things. So I think it's going to be performative and branding. But at the end of the day, I think the CCP will continue to control the algorithm. So for me, it all comes down to ownership. So we'll see.

[Ed Elson]

So what would your prediction be? How do you think this plays out? Are you saying that we'll see a sale of the app, but the CCP will still have control of the algorithm, but the sale will happen or we won't see a sale at all? How do you see this playing out?

[Scott]

I don't know if they'll come up with some jazz hands around a new app, new branding, some additional security measures, but I just get the sense that the CCP would rather have call President Trump's fluff and say, okay, ban the app and perhaps lose 20% of revenue, of which they don't really care, then give up what has become the most, the propaganda dream of MI6 and Mossad and the CIA. I just don't think. I don't think the CCP is going to give it up. So that's my prediction that at the end of the day, this thing is either banned because they refuse to give up control of the algorithm, or effectively it's performative. I think that basically that Trump's hand, he's overplayed his hand. It's getting weaker and weaker. I mean, just thinking about the tariffs, Ed. I believe. And there's evidence that there's been more dollar volume of trade deals done outside of the US between third parties that have been inspired by Trump's threats. So the EU and Mercosur, the EU and southeastern nations, African nations, are talking and doing regional trade deals. I believe the dollar volume of deals inspired by Trump's hostile rhetoric and threats of a trade war is much greater than the actual deals that have been consummated so far between the US and nations. I mean, I think his hand is just getting weaker and weaker.

[Ed Elson]

Yeah, I think that makes sense. Before you, before you go, Scott, can we just get a vibe check on Ibiza and Europe and the Mediterranean? How are things over there?

[Scott]

Well, I mean, incremental quality rages on. I'm on an island. There's sort of this.

[Ed Elson]

It's fine to say it's nice.

[Scott]

Well, yeah, okay. It's really nice. But the douche circuit lives on, whether you're in Saint Barts or Ibiza or Mykonos. You know, this isn't the real world. This is. This is the 1% and the children are the 1%. So I don't know if this is a decent indication. What I will say is that inflation, and nobody talks about this, inflation at the high end has been greater than any other segment.

[Ed Elson]

Rich people, inflation.

[Scott]

Yeah. Because these people are pretty much price insensitive. And it's not easy to spin up one of these global hotspots. But this is definitely. It reminds me of the last 20 years. Whenever I go skiing, I ask myself how does a middle class family afford this? And the answer is they can't. But there appears to be no slowdown amongst kind of these very, I don't know, high prestige elite places. What Ibiza has done, Ed, and I'm glad you asked, and I'm sure you're regretting asking, what Ibiza has done that's really interesting, is a lesson in branding, and that is they have done a great job of creating a kind of a global hotspot or a party island that has the best DJs in residence. So they've kind of become known for having the best DJs in the world. And it's a really interesting brand positioning, which results in great margin. But it's just a super interesting strategy that they've figured out that, all right, we're going to be the party place that has the best DJs and residents.

[Ed Elson]

And how does it compare to Mykonos?

[Scott]

Well, I'm older, so I enjoy Mykonos more because I think it has more character in the individual islands with no cars and more interesting. But if you're your age and you're being overpaid by a boss who has affection for you for no real reason or no real tangible reason, you're going to want to come. Like you and the team would come to Ibiza. Like Greece is a little bit more interesting, a little bit more classy, which is, you know, you're none of those things. So I would say Ibiza.

[Ed Elson]

Okay, noted. Thank you, Scott. Enjoy your night.

[Scott]

Thanks, dad.

[Ed Elson]

After the break, a 9 billion acquisition from Coreweave. Stay with us.

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[Scott]

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[Jen]

This episode is brought to you by On Investing An Original Podcast from Charles Schwab. I'm Kathy Jones, Schwab's Chief Fixed Income Strategist. And I'm Liz Ann Saunders, Schwab's Chief Investment Strategist. Between us, we have decades of experience studying the indicators that drive the economy and how they can have a direct impact on your investments. We know that investors have a lot of questions about the markets and the economy, and we're here to help. Join us each week as we explore questions like how do you evaluate corporate bonds? And what sectors of the stock market are outperforming? So Kathy will analyze what's happening in the bond market and at the Fed and I'll give you our latest analysis of the equities market and the the U.S. economy. And we often interview prominent guests from across the world of investing and business. So download the latest episode and [e-mail] on investing or wherever you get your podcasts. Fox Creative this is Advertiser content from Adobe. As the Head of Marketing for Big Box Box Retailer, I track a lot of moving parts. In addition to our online presence, we have hundreds of locations in dozens of countries. We're about to launch a full refresh of our brand. The new look and feel is a lot bolder and brighter. With all of the changes, our team still needs to create content fast and follow the new brand guidelines. That's why I chose Adobe Express. For members of the marketing team like me, this brand refresh means we have to work together to create a new a ton of content for different channels. We need to be consistent, but also fast and flexible. Adobe Express has us covered. Generative AI that's safe for business lets us create new content in seconds. Brand Kits let us centralize our design assets so we can always access or share the latest and greatest. Collaborating with my team members has never been easier.

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[Ed Elson]

We're back with Profgy Markets. AI company CoreWeave is acquiring Bitcoin mining company Core Scientific for $9 billion. The All Stock deal will value Core scientific at roughly $20 per share. That represents a 66% premium to its closing price before the transaction. The deal is expected to close in the fourth quarter of this year. Just a reminder on coreweave, what is Core Weave? This is the company that went public in March of this year. It was the biggest American IPO of the year. They raised one and a half billion dollars. And as we've discussed since going public, the stock is up nearly 300%. So it is absolutely. Now what does CoreWeave actually do? Well, put simply, they sell compute. CoreWeave operates 33 data centers around the world, and they have roughly 250,000 Nvidia chips. And they sell access to those chips to tech companies, companies like OpenAI and Meta and Google and Microsoft. People call it an AI company. It probably makes more sense to call it a data center company. They're not building AI, but they are selling the compute that is needed to build AI. So why would CoreWeave, this data center company or this AI company, why would they want to buy Core Scientific, which is a bitcoin mining company? Well, the answer actually makes more sense than you might think because it turns out that bitcoin mining and AI actually have quite a lot in common. And that is, they both require tons of compute. As we've discussed, the bitcoin network consumes more than 200 terawatt hours per year, and that is more than the annual electricity consumption of Argentina. So if you want to mine Bitcoin, well, basically you need chips and ideally lots of them. And that is exactly what Core Scientific offers. They have nine data centers across the US and those data centers were originally supposed to be used for Bitcoin. But suddenly the AI revolution happened. And then the company realized, well, those same data centers are actually just as useful for AI as they are for Bitcoin. So the company pivoted and they started renting out their compute to AI companies. And now Core Scientific will become part of this AI company that is coreweave. Interesting side note, by the way, coreweave has a very similar history to Core Scientific. It also started out as a bitcoin company, but then as AI took over, they suddenly realized, oh, these data centers, they can actually be used for AI. So they pivoted to AI as well. So there's a lot of overlap between these two companies. They also both have the word core in their names. But to be clear, that is just a coincidence. These are two totally separate, totally distinct companies. Okay, back to the deal. $9 billion all stock deal. As I mentioned, Coreweave is paying a 66% premium for this company and that is pretty enormous. The average premium for a public company acquisition is between 20 and 40%. This acquisition is pushing 70%. So in other words, Core Weave appears to be overpaying. And that would explain what happened to the stock. Corweave's Stock fell nearly 5% on the news. Somewhat significant, but also somewhat expected. What was less expected though, was what happened to Core Scientific stock. You would think that if a company was being bought at this significant premium, then the stock would go up. That is at least usually what happens in M and A. But no, Core Scientific stock went down by about 15%. In other words, investors seem to think this premium wasn't enough. They wanted more. And the net net of this transaction is that both companies lost value. And that is quite strange. So to better understand what is really happening here, we spoke with Gil Luria. He is the head of technology research at D.A. davidson.

[G]

Since the deal is only going to close in the fourth quarter and it's a stock only deal, what this reaction tells us is that the holders of Core Scientific believe that Core Weaves stock will be lower by the time the acquisition closes. Which is why the value of shares they get at that time will be lower than the implied stock price at the closing today. So that's the reaction to Core Scientific on the Core Weave side. This is a little bit more financial engineering from their side. This is a company that really is mostly built around financial engineering. And this is just a little bit more of that.

[Gil Luria]

Core Weave is not using cash. Right. They're just issuing new shares, diluting their own shareholders. Is that why Core Weave shareholders are potentially upset about this acquisition?

[G]

Yes, that's exactly right. So they're, they're using almost 10% of their shares to buy a business that is also losing money and also has negative cash flow. So that's a dilutive acquisition, which is why Core Weave shares down today as well.

[Gil Luria]

Okay. And then basically, Core Scientific shareholders are thinking Core Weave is currently overvalued.

[G]

That's right. Since the Transactional close in the fourth quarter. A lot's going to happen between now and then Core Weave, the share lockup from the IPO will happen and so a lot more shares will become available, which will likely reduce the share price for Core Weave. So by the time Core Scientific shareholders get Core Weave share, the share price will be lower. And that's what's reflected today.

[Gil Luria]

Before I let you go, I'd love to just get your sense of Core Weave as a business. Our co host, Ed, he sort of thinks that Core Weave exists because Nvidia wants it to exist and that they have this over reliance on Nvidia's GPUs. What do you think of that?

[G]

Yeah, Nvidia created Core Weave and other companies, neo clouds such as Core Weave to put pressure on its largest customers, Microsoft, Google Meta and Amazon. And it's continued to prop coreweave up all the way through the IPO in order to do that. Coreweave is really a deal between Nvidia, Microsoft and debt holders to build data centers. So this is a much more of an unusual situation where the whole entity was created because Nvidia didn't want to just have four or five customers, it wanted to diversify its customer base. So instead of selling the chips directly to Microsoft, it sold them to coreweave. Coreweave doesn't have any customers, Microsoft does. So then Microsoft turns around and rents that capacity from coreweave. If all that sounded convoluted, it's because it is. This is financial engineering to serve the purposes of Nvidia, really. Core Weave in its essence is if you would take a 12.5% margin loan to buy Treasuries yielding 5%, it's not a good idea and eventually the market will figure that out.

[Ed Elson]

Well, I have to say I loved that response from Gil Luria. He's the head of technology research at DA Davidson. Totally agree with his analysis on Core Weave as a company. But he also mention something there that is really important about this acquisition and how the stock reacted to this acquisition. Because this is an example, and it's a great example of the market whispering a secret to us that many perhaps didn't want us to hear. And in this case, the secret is being revealed by the shareholders of Core Scientific, who, by selling their stock after they had received this pile of Core Weave shares that, as I said, were worth 66% more than the current value of their company. By selling, they essentially told us that they do not believe in the current valuation of Core Weave. They believe that by the time this deal closes in Q4 of this year, Core Weave will be worth significantly less than it is now. And they will be left with a pile of shares and that they basically just don't want. So, put another way, this is about as good of a sign as you could get that Core Weave is indeed overvalued. And this is something that I have pointed out before, and that is partly why I like this story. Because yes, Core Weave was the hottest IPO of the year. Yes, it is part of the AI story. Yes, it's quadrupled since the ipo. It looks great. But when you look beneath the hood, what you discover is a business that is fundamentally quite weak. It's way over dependent on Nvidia, it's got way too much customer concentration in Microsoft, and It's also got $8 billion worth of debt. As Gil said, it's essentially a practice in financial engineering. And as I've said before, the only reason this company exists is because Nvidia wants it to exist. But if that changes for whatever reason, well, then you don't really have much of a company left. So that's the concern that I have flagged. But what we are learning with this transaction and specifically with what happened to Core Scientific stock, is that other investors, the shareholders in that company, they are concerned about this too. And that is why you saw this enormous drop in this company you've probably never heard of. Because the investors in Core Scientific believe that despite that 66% premium, which seems great, despite that the current valuation of Core Weave is too high, the company is over sensationalized. It is overhyped. And they believe that come Q4 when the deal closes, the hype will have run out. It sounds like Gil Luria agrees with that thesis. And in this case, I agree with that thesis too. Okay, that's it for today. Thanks for listening to Profit Markets from the Vox Media Podcast Network. I'm Ed Elson. I'll see you tomorrow.

[Jen]

Happy and kind reunion.

[Ed Elson]

At the Water.