Prof G Markets Podcast Summary
Episode: What to Buy When the Tech Sector is On Sale — ft. Mark Mahaney
Release Date: May 1, 2025
Hosts: Scott Galloway & Ed Mylett
Guest: Mark Mahaney, Senior Managing Director and Head of Internet Research at Evercore

1. Introduction and Episode Overview

In this episode of Prof G Markets, hosts Scott Galloway and Ed Mylett delve into the current dynamics of the tech sector, exploring opportunities for investors when technology stocks are experiencing downturns. They are joined by Mark Mahaney, a seasoned internet stock analyst from Evercore, to provide expert insights on the evolving landscape of capital markets influenced by geopolitical tensions, shifting manufacturing hubs, and the resilience of major tech companies.

2. The AI Race: US vs. China

Huawei’s Ambitious AI Chip Development

The conversation kicks off with a focus on Huawei's announcement to develop a new AI processor aimed at competing with Nvidia’s H100 chip. Mark Mahaney expresses skepticism, noting Huawei's previous overpromises, such as the unsuccessful 910C chip. He emphasizes the importance of China's President Xi Jinping's recent declaration, making self-sufficiency in AI a national priority, marking an official acknowledgment of the US-China competition in AI:

Mark Mahaney [04:00]: "This is a defining moment in the AI race where it's been sort of like a cold war between the US and China."

China’s Strategic Investments and Capabilities

Mark presents compelling statistics highlighting China's dominance in STEM education and AI patents:

• 3.6 million STEM graduates annually, over four times that of the US.
• 13,000 AI patents filed compared to the US’s 9,000.
• $142 billion allocated to semiconductor manufacturing in the previous year, double the US investment.

Scott Galloway’s Perspective on Geopolitical Shifts

Scott draws parallels between the current AI race and past geopolitical competitions like the Cold War and the space race. He underscores the unintended consequences of the US’s trade restrictions, which may inadvertently bolster China's self-reliance in AI:

Scott Galloway [06:29]: "The technology is obviously very important and I believe Nvidia is going to have the edge from a technology standpoint for a long time."

He also warns about the implications of intellectual property theft, likening it to historical instances where rapid economic growth was accompanied by strong IP theft practices.

Mark Mahaney’s Counterpoints and US Resilience

Mark acknowledges China's strengths but counters by highlighting the US's superior private investment in AI, which is twelve times higher than China's. He remains optimistic about the US maintaining a lead in AI development despite China's aggressive strategies:

Mark Mahaney [09:42]: "I think we're ahead. But this will be really interesting to keep track of because you just look at what they're doing in terms of investing in their research institutions."

3. Apple’s Shift to India: Economic and Geopolitical Impacts

Apple’s Strategic Repositioning

The discussion transitions to Apple’s plan to relocate all US iPhone manufacturing to India by the end of 2026, a move driven by tariffs that have made manufacturing in China less economically viable. This shift is poised to double Apple’s production output in India, creating approximately 150,000 jobs and significantly contributing to India's GDP.

Mark Mahaney [15:28]: "It's going to inherit a huge business making these products, making these iPhones."

Implications for China, India, and the US

Scott reflects on the broader geopolitical repercussions, suggesting that this move exemplifies how US policies may inadvertently strengthen emerging manufacturing hubs like India and Indonesia:

Scott Galloway [16:28]: "Geopolitically, I think India and the Kingdom are going to thrive over the next 10 years because they're now the swing votes."

Potential Manufacturing Shifts to Other Nations

Mark expands the conversation by contemplating whether countries like Vietnam and Indonesia could become the next major manufacturing hubs, highlighting their growing capabilities and strategic advantages:

Mark Mahaney [16:58]: "Maybe it could be Vietnam. Maybe it could be Mexico."

Scott adds that Indonesia is emerging as a significant player in EV battery materials, citing its substantial nickel reserves and partnerships with major automotive companies:

Scott Galloway [17:13]: "They’re gaining share in EV battery materials, especially nickel and cobalt in India."

4. Spotify’s Earnings and Market Performance

Spotify’s Recent Financials

Mark outlines Spotify's Q1 performance, noting a 10% increase in monthly active users to 678 million. Despite user growth, Spotify's stock fell 7% after missing earnings expectations, with operating income at €509 million against the anticipated €548 million. CEO Daniel Ek cited economic uncertainties as a factor affecting short-term performance.

Hosts’ Analysis on Spotify’s Fundamentals

Scott and Mark discuss Spotify’s robust fundamentals despite the earnings miss. They agree that the company's user base and revenue growth remain strong indicators of its long-term potential:

Scott Galloway [18:51]: "It’s trading at a price earnings multiple of 93. So this company’s crushing it."

Mark emphasizes Spotify’s strategic moves into podcasting, which have positioned it as a leader in the audio space, contributing to its impressive year-to-date performance:

Mark Mahaney [20:30]: "It's basically the best managed company in tech in my view."

5. In-depth Conversation with Mark Mahaney: Top Internet Stocks

Top Picks: Amazon and Meta

Mark identifies Amazon and Meta as his top internet stock picks. He categorizes them under "DHQ Camp" (Dislocated, High-Quality Opportunities), highlighting their strong execution track records and attractive valuation multiples. Amazon, trading at 23-24x earnings, presents a value opportunity amidst market sell-offs triggered by tariff-induced dislocations.

Mark Mahaney [30:09]: "Amazon is trading at one of its lowest PE multiples ever, 23, 24 times earnings."

Amazon’s Tariff Challenges and Strategic Execution

Mark discusses the impact of tariffs on Amazon, particularly how unexpected tariff costs could dent consumer demand and challenge the company’s margins. He also touches upon Amazon’s apolitical stance and profit-focused management, which could mitigate some geopolitical risks.

Mark Mahaney [34:59]: "Amazon's management team has been pretty darn apolitical."

Meta’s Resilience and AI Integration

Turning to Meta, Mark argues that the company is well-positioned to withstand downturns in advertising spend due to its focus on performance marketing and highly fungible ad inventory. He also highlights Meta's advancements in AI applications, which enhance user experience and operational efficiency:

Mark Mahaney [35:06]: "Meta will be impacted, but it's one of the last places to get cut."

Google and Waymo’s Growth Potential

The conversation shifts to Google, where Mark expresses caution due to regulatory overhangs and potential competition from AI-driven query platforms. However, he acknowledges Google's investment in Waymo as a significant growth vehicle, projecting its dominance in the autonomous vehicle (AV) sector:

Mark Mahaney [42:26]: "Waymo is doing a quarter of a million rides a week, up 5x from a year ago."

Uber’s Future and Robo-Taxi Integration

Mark elaborates on Uber's prospects, particularly its potential integration with robo-taxi services. He foresees Uber partnering with multiple AV vendors, positioning itself as a central player in the future of autonomous transportation:

Mark Mahaney [44:54]: "I think Uber is going to be a long term winner."

Netflix’s Resilience and Growth Strategy

Discussing Netflix, Mark attributes its strong performance to recession-resistant business models, industry consolidation, and pricing power. He predicts Netflix's continued dominance through strategic content bundling and expansion into live events and sports:

Mark Mahaney [52:03]: "Netflix is gonna recreate the bundle."

Other Internet Stocks: Reddit and Lyft

Mark provides a critical view on Reddit, citing challenges in monetization and competition from established ad platforms. Similarly, he advises caution with Lyft, highlighting its position as a distant second in the US market and the inherent risks of being a runner-up in a competitive landscape:

Mark Mahaney [57:22]: "I haven't seen anybody really break through and generate $10 billion of ad revenue."

Wildcards Impacting Tech and Internet Stocks

When asked about key wildcards affecting the tech sector, Mark identifies:

1. Regulation: Ongoing concerns but no significant deregulation impacts yet.
2. Tariffs: Continues to be a significant factor affecting supply chains and corporate strategies.
3. Mergers and Acquisitions (M&A): Increasing activity with major players like Google making strategic acquisitions.

He adds an unexpected wildcard:

4. Recession: Emerging as a crucial factor that could influence market dynamics and stock performances.

Mark Mahaney [60:37]: "There'd be a fourth one, which is recession."

6. Conclusion

The episode wraps up with acknowledgments of Mark Mahaney’s valuable insights into the tech sector's current state and future prospects. The hosts emphasize the importance of understanding geopolitical influences, technological advancements, and strategic corporate maneuvers to navigate investment opportunities in the ever-evolving capital markets.

Notable Quotes with Timestamps

• Mark Mahaney on China’s AI Prioritization:
  [04:00] "This is a defining moment in the AI race where it's been sort of like a cold war between the US and China."

• Scott Galloway on Trade Restrictions and Espionage:
  [06:29] "The thing that will, I think, make Huawei potentially an outperformer here relative to Nvidia is one... I'm telling you, get to my age and it's like a baby bottle dribbling."

• Mark Mahaney on China's STEM and AI Investments:
  [09:42] "China produces 3.6 million STEM graduates every year, and that is more than four times the number that we produce in America."

• Scott Galloway on Apple’s Move to India:
  [15:28] "We've gone from kind of one, not Even low cost, but an incredible supply chain, innovative culture, which is China to India."

• Mark Mahaney on Spotify’s Management:
  [20:30] "It's basically the best managed company in tech in my view."

• Mark Mahaney on Uber’s Long-term Potential:
  [44:54] "I think Uber is going to be a long term winner."

• Mark Mahaney on Netflix’s Strategy:
  [52:03] "Netflix is gonna recreate the bundle."

• Mark Mahaney on Tech Wildcards:
  [60:37] "There'd be a fourth one, which is recession."

Key Takeaways for Investors

1. AI Competition Intensifies: The US and China are entrenched in a high-stakes AI race, with significant implications for global technology leadership and economic competitiveness.

2. Shift in Manufacturing Hubs: Apple's strategic move to India underscores broader geopolitical shifts, with potential ripple effects on global supply chains and regional economies.

3. Resilient Tech Giants: Companies like Amazon, Meta, Spotify, and Netflix exhibit strong fundamentals and strategic positioning, making them attractive despite short-term market fluctuations.

4. Emerging Opportunities and Risks: While opportunities abound in leading internet stocks, investors should remain cautious of regulatory changes, tariff impacts, and potential economic downturns that could influence market performance.

5. Strategic Stock Selection: Focusing on high-quality, dislocated assets with strong growth potential, as advocated by Mark Mahaney, can yield substantial returns through both earnings growth and multiple expansions.

For listeners looking to navigate the tech sector's ebbs and flows, this episode provides a comprehensive analysis of current trends, strategic corporate moves, and expert stock recommendations to inform investment decisions amidst a dynamic capital market landscape.