← The Compound and Friends
The Compound and Friends
Nick and Jessica on Tech Earnings, Mary Meeker’s AI Tour de Force, ARR Models
02:00:06
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- [00:00]
Downtown Josh Brown
Ladies and gentlemen, welcome to the compound and friends. My name is Downtown Josh Brown and boy are you in for a treat. This podcast is sponsored by our friends at Betterment Advisor Solutions. We are also sponsored by Rocket Money. Rocket Money is a personal finance app that helps find and cancel unwanted subscriptions. It monitors your spending, helps you lower your bills so you can grow your savings. They may even try to negotiate lower bills for you if you can imagine that they will deal with customer service for some of these things that you're just not paying for and you want to get out. Rocket Money has over 5 million users, has saved a total of 500 million in canceled subscriptions. For people. Cancel your unwanted subscriptions right now. Reach your financial goals faster with Rocket Money. Go to rocket money.com/compound today. Okay, it's the return of Nick and Jessica. Nicolas and Jessica Rabe. My friends at Data Trek Research are back on the pod. We went deep on earnings and we took a look at technology in particular and what's been happening in the markets and I think it's a really interesting conversation. So great catching up with Nick and Jessica. And then it's an all new edition of what are your thoughts? And you could call this one the AI edition. We we went nuts on on on AI. Mary Meeker's new 340 slide deck came out and we'll distill some of the more important insights from the research that she released. We're also going to talk about mystery chart and we'll do a make the case stock and there's so much more. What else could I tell you? We're going to send you into the show right now. Thank you guys so much for listening. Hope you love it. Duncan. John, do you think. Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. This episode is sponsored by FM Investments. Investors concerned about inflation should take a look at an ETF called rbil. R Bill is an ETF that harnesses the inflation protecting power of tips. Those are treasury inflation protected securities. They're issued by the U S Treasury. The full faith and credit of the US Government and the the principal and coupon of TIPS adjust daily based on changes in the cpi. Our bill makes investing in TIPS as easy as buying an etf. Check it out today for potential yield and as a hedge against inflation. You can find the link in the show notes or go to us treasuryetf.com ETF rbill All right, welcome back, everybody. My name is Downtown Josh Brown and this is an all new edition of what did we Learn? As usual, I'm here with my friends Nick Kolis and Jessica Rabe. They are the co founders of Data Trek Research and the authors of Datatrek's Morning Briefing newsletter, which goes out daily to over 1,000 institutional and retail clients. They're also two of the smartest people I know, and in Jessica's case, one of the most daring people I know, which we'll, we'll talk about toward the end. Nick and Jessica also have their own YouTube channel, which you can find a link to in the description below. It's been a few months, mostly my fault, but we're all together. The three musketeers ride again. I'm super excited to see you guys. Everything's going well.
- [03:52]
Nick Kolis
Very well, Very well. Thank you.
- [03:54]
Downtown Josh Brown
Okay, all right. I want to start where you guys want to start, which is s and P500 valuations. And it's actually been a minute since I've kind of looked at this because we kind of came into the year at a somewhat elevated multiple. It felt justified because we had the deregulation president and the extended tax cuts president. Then it became, oh, wait a minute, it's the tariff president again. The multiple got derated. There really wasn't an earnings hit, which I think is the thing that puts people were expecting would happen next and maybe it will. And that de weighting went away and we got the old S and P multiple right back. At least that's the way I remember the last few months going. I'd love to just hear your take on what we've seen so far and how you're thinking about valuation of the stock market overall today.
- [04:48]
Nick Kolis
Sure. Let's pop up the first table because that's a good launching off point. This is a chart that we show our clients pretty frequently now. And they really, they like it. They don't maybe like the message, but they like the process. And let me describe what it shows. So in the columns it has pe multiples forward, PE multiples anywhere from 14 to 24. 14 is the trough over the last 10 years, 22 is the peak over the last 10 years, 18 is the average. And then we've stuck a super peak confidence number on the far right hand side because what PE multiples ultimately show, which Joshua alluded to, is confidence confidence in future earnings. And so we run from low confidence of 14 times to peak confidence at 22, and then super peak confidence, which we've never seen outside of the 1990s.com bubble at 24. The rows show earnings expectations over the next two years. So this year the Street's expecting the S and p to earn 264. We haircut that by 10, 20, and 30%. And then we look at 2026 earnings of $300 a share and haircut that by 10 and 20%. The reason for the haircuts is because estimates always come down over the course of a year. Unless you're coming out of a recession, numbers are always too high. They come down. So we've got to haircut those numbers a little bit. And what we do now is then code the numbers. Basically the implied S and P, fair values for red meaning lower than today, black meaning roughly equal to today, and green being higher than today. And as you can see, every upside scenario requires you to have maxed out confidence in corporate earnings, even just staying where we are. And if you expect upside, you basically have to argue for PE multiples that we have not seen in a very long time. Super peak, super confident numbers. So it's a. A chart basically shows that we're priced for pretty close to perfection. And if you want to believe the S and P really has a rip from here, 10, 20%, you've got to believe not only in very strong earnings next year, you've also got to believe the market's going to pay almost superhuman kind of multiples for that earnings power.
- [06:54]
Downtown Josh Brown
So this is, this is such a great chart. We'll leave this up for one moment while I talk over it, just so the people watching can understand what we're saying. So the current estimate for full year 2025 is $264 per share. The only scenario in which the market doesn't fall 10% is if we have a peak confidence multiple to end the year at 22 or higher. Is that the most salient way to think about this year, based on this chart? So in other words, at a 22 multiple on $264 a share, that puts the S&P at 5,000, 819, which is just shy of where it trades today at about 6,000. Am I saying that right?
- [07:42]
Nick Kolis
Bingo. Perfect.
- [07:43]
Downtown Josh Brown
Okay. For there to be upside this year, you either need huge earnings surprises throughout the course of the year to the upside, or you need a super peak confidence multiple. Of 24. And even at 24 times that current estimate of $264, that's only 6% upside in the stock market from today's level.
- [08:06]
Nick Kolis
Right. Now, keep in mind a surprise. You know, companies start off.
- [08:09]
Downtown Josh Brown
John, thank you.
- [08:10]
Nick Kolis
Companies surprise to the upside every quarter. But it's because analysts have cut their estimates by 4 to 5% during the quarter. So you end up basically right where you started from. It's the game that Wall street plays with the companies they cover, they want them to beat. So they cut during the quarter. The companies beat by the amount that was cut. And we're all sort of seemingly happy. Those numbers are pretty solid numbers. At 264 for the year, we're going to be lucky to hit that number. It's probably going to be more like 260. So we can't expect big earnings beats on an absolute basis relative by quarter. Absolutely. Absolute for the year. Absolutely not.
- [08:43]
Downtown Josh Brown
Okay. And Jessica, you wanted to show why valuations are so high and I, and I think you have a chart illustrating 12 month PE forward PE ratios. We want to pop that up. Tell us what's going on here.
- [08:55]
Jessica Rabe
Yeah, the point here is basically that the S&P 500's valuation premium versus its longer run average isn't just because of Tech. So this chart from FactSet is a comparison of sector level price earnings ratios now versus their 10 year average. And you can see the increase or decrease in forward earnings multiples. In green, which are the current multiples, higher than the 10 year average and in red which are lower than the ten year. And then obviously for real estate we use the five year average since it's a newer sector. But just three points on this chart quickly. The first is that The S&P 500 currently trades at a 2.9 PE point premium to its 10 year average at 21.3 times versus 18.4 times which is a 16% difference. And it's also important to note that that multiple expansion isn't because of interest rates. The 10 year treasury note currently yields 4.5% and its 10 year average yield is only 2.6%. And second, as you would expect, technology of course has seen the largest increase in multiples. These stand 27.2 times today, up five and a half points or 25% from their 10 year average of 21.7 times. And they're even 1.6 points above their five year average of 25.6 times. So despite higher rates, Tech has still seen the greatest multiple expansion of any S P group relative to its longer on average and then third. And lastly most S Ps 500 sectors are training 2 to nearly 6 points rich to their 10 year average PE ratio. The only exceptions are Real Estate down 1 PE point from its 5 year average. Energy down 0.5 points from its 10 year average and Healthcare down 0.3 points. And those are understandable given the ongoing trouble in real estate and healthcare and the reliance of course on commodity prices for energy. But most importantly, all the other sectors abilities to overcome higher interest rates suggests that investors do believe their structural returns on capital are higher than the average of the last decade. So the upshot is that while tech has led the pack higher to higher US large cap tech stock valuations over the last decade, seven of the other S and P sectors have also helped. So this isn't just a tech phenomenon.
- [11:11]
Downtown Josh Brown
Right. So when people say the market is expensive relative to its 10 year average or its long run average, the answer to that is not just well of course they're overpaying for mag7 because you guys are illustrating financials are 3.2 percentage points above their typical multiple. I, I guess here, here would be my first question. Doesn't it make sense for consumer discretionary which has a lot of tech in IT, information technology itself and industrials to be at a 16 to 18% premium to historic multiple? If we all agree we're in the midst of a technological revolution right now and I know there are people that always, it's always a technology revolution very, very acutely we're having this AI related build out and maybe those elevated multiples make sense and we could just quibble about we should be you know, 10% overvalued, not 20. Like we could have that debate. But I think most people would agree historically when we're going through a revolution, which is not all the time, like stocks do become more overvalued and can stay that way for years.
- [12:26]
Nick Kolis
Yeah, I mean that's, that's absolutely sound thinking. I think if, if the market's learned one thing over the last 30 years and that is that the market itself undervalues human ingen ingenuity, human innovation consistently and that's been the only real arbitrage, it's been the only real place to make long term money. So if you think about the top stocks over the last 30 years, the apples, Microsoft, 10 cents of the world, technology led innovation. And then if you think about non tech companies, you know, Walmart's on that list, Costco's on that list. And it's human ingenuity in the form of excellent management that drives those returns. So the markets learned, yes, technology is the only thing that reliably improves returns, reliably creates long term winners, aside from the handful of companies that can grow consistently because their managements are just awesome. So again, now that we've got Gen AI in the mix, that's what you have to believe. What you outlined is the bull case and you have to embrace it 110 if you want to belong here. Because as that first table showed us, if you don't believe in 100%, if you don't believe multiples go to 24 or 25 or 26. It is super hard to create a strong upside case for the S P here. So you put your finger on it. But the reverse side of that coin is you have to believe it 110% or the markets overvalued.
- [13:43]
Downtown Josh Brown
Okay, so we're 21 times forward earnings now market wide. What did we get to on April 9th at the bottom?
- [13:51]
Nick Kolis
April 9th at the bottom was like roughly 5,000. Right. So looking at that table, just, just giving a quick scan, you're talking about it being, you know, between, call it 20 and 22 times, a haircut to S and P numbers for the year or between 18 and 20 times if you believe the current estimate of 264. So call it 19 times.
- [14:14]
Downtown Josh Brown
Okay, so we had a, so this is, I guess my next question. We had a 19.6% peak to trough sell off for the overall s and P500 and we still didn't become a quote unquote historically cheap stock market.
- [14:30]
Nick Kolis
No.
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Downtown Josh Brown
And we didn't need to in order to bottom. And from my perspective that's like a really telling, that's a really telling thing as well.
- [14:38]
Nick Kolis
That's true on a valuation basis. Let's not forget that the Vix got to 52 on that day and that's a four standard deviation move the likes of which we had not had since the pandemic. So it's not just, you know, the size of the move, the speed of the move was just intense.
- [14:53]
Downtown Josh Brown
Do you agree, do you guys agree with me that what saved the day was not necessarily one specific tariff announcement or tweet, but it was really like the doubling down on AI spend from the five largest companies. Every one of them reported in April and said full speed ahead, capex unchanged. Because looking back on it now, those were the moments where I personally got less bearish. And in early April I was like, all right, I Guess they want to have a recession. So like, but when you heard companies say, no, we're still going to spend $80 billion, no, we're still going to spend $100 billion, I felt like those were the moments where the stock market second thought tariffs are going to drag us into recession. But what do you guys think?
- [15:44]
Nick Kolis
I'll take a stab at me, Jessica, as a thought as well. I think the reason we're at 6,000 on the S and P is because more the latter, more the fact that capex spend seems to be still on track. The reason we turned in early April was because there was a massive change in policy and that's the way it always works. That turn is so visibly connected to the 90 day truce on the trade war that I think it's undeniable that caused the turn.
- [16:11]
Downtown Josh Brown
No, I think it was the catalyst. But like to your point, like, I think the reason we're hovering here at 6,000 is not because there was a change in policy, because again, we're still in these tariff wars with everybody that matters other than the uk we don't have a deal with Europe, we don't have a deal with China.
- [16:29]
Nick Kolis
No.
- [16:30]
Downtown Josh Brown
Yeah, but I think we're closer to it maybe.
- [16:32]
Jessica Rabe
But I think though the market learned that as much as Trump can be aggressive, when he gets too aggressive, the market expects him to fold like he did earlier in April and that's what allowed stocks to turn and start rallying.
- [16:48]
Downtown Josh Brown
Okay. Yeah, it's a combination of, just kidding, about 145% tariffs. We're not really going to do that, of course. But then also like companies didn't respond by getting extremely risk off and defensive. They just, they kind of like they call. I feel like corporate management sort of called the bluff and didn't overreact and didn't start laying people off. And we had an upside surprise on NFP in early May for the April number and then another one in June. And I feel like companies just kind of said, we'll get through this, we're not going to do anything crazy in response to these announcements. And that's real estate on the track.
- [17:32]
Nick Kolis
That's true. But you know, companies don't move that fast. You know, this whole thing, you know, unwound so quickly. There wasn't time to call a board meeting and you know, have finance gin up a 50 page presentation of different scenarios for layoffs. There just wasn't time. By the time people started thinking about it, you know, Trump pulled back and everything was over.
- [17:50]
Downtown Josh Brown
Okay, so, so this is a pretty notable moment like in the history of markets. But I know we're going to talk about 1994, which is a year where there were some similarities to this year just in terms of when the peak of the market took place. And it was a market shock that came, you know, kind of exogenous. So we'll talk about that. But as kind of a segue, you know, I wanted to ask you guys like, and maybe you don't have like an academic answer, but like we're at an elevated market multiple. But I guess are these multiples crazy or should, are they, do they kind of belong where they are? Just given the success that we've seen in the last earnings the last quarter, Just as an example, these companies are so good at continuing to grow profits and preserve margins. And, and they proved it yet again. And my, my colleague Kelly Cox says 2022, 2021 and 2022, supply shock and inflation shock was sort of a dress rehearsal for the tariff moment. And even in the last three years, companies have gotten better at being companies would be the way I would phrase it. And I wanted to show you just for the hell of it and get your reaction before you guys talk about 1994. These are the top 10 market cap companies 30 years ago and year end 2024. Right. And the thing that should be jumping out at people is the profit margin. So 30 years ago, the top 10 companies that made up market cap was like Exxon, Coke, Walmart, Merck, Procter & Gamble, IBM, Raytheon, Microsoft J and J, Chevron. Just eyeballing the profit margins here, 5%. Coca Cola was 18%, but there's an asterisk and I didn't bother reading why? Walmart 3%, Merck 10, Procter and Gamble 12%. IBM 10%, Raytheon 8%. You get the idea. Here are the 10 largest market cap companies today. Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta, Tesla, Broadcom, Berkshire Hathaway, Eli Lilly, with the exception of Amazon, every one of these companies is mid teens to mid-30s percent profit margin. And so if we were to have an elevated multiple relative to history, maybe this is the right multiple, like the right level of elevation. I'd love to get your thoughts on what I've laid out here, guys.
- [20:32]
Nick Kolis
I'll take a stab since I'm probably the only person on the screen that was sitting at a Wall street morning call in 1990, 1994.
- [20:40]
Downtown Josh Brown
I was in 11th grade.
- [20:42]
Nick Kolis
Okay? Yeah, I was started at First Boston. 91. So 94 is a very vivid memory to me for reasons Jessica will actually outline. That table is an excellent table and it does highlight the profit margins are much better. But it misses a really important factor and that is that capital efficiency is so much better than it was. So if you look at Apple, Apple doesn't own factories, it outsources everything. Same with Nvidia. So not only do you have very high margins, but you have ridiculously high asset turns, meaning how many dollars of capital does it take to create a doll revenue? And the combination of that means, you know, if you. Exxon Mobil might have had a 15, 18% return on equity. From what I recall from hearing the oil analyst in 94 apples is 100, 100% return on capital. Not only does it have high margins, but it has no assets. It's, you know, it, it outsources everything. So the combination of those two things creates very high multiples. I don't think anybody argues the idea that Apple should have a higher multiple than Exxon in 1994, but the question is how much higher? And that's the, that's the hard thing. And that's the hard thing that every investor around the world is struggling with right now. What do I pay for US tech stocks? Because there's so few cops. I just don't know. Tencent's not a comp. SAP is not a comp. So what do I pay? And the answer right now is if the news is good, I pay more. If the news is bad, I pay less. But it's still always going to be high.
- [21:58]
Downtown Josh Brown
And we, we can't, we don't know a number, we just know higher or lower.
- [22:02]
Jessica Rabe
Yeah, well, I think it just speaks to how, how much our companies are scarce assets. So we visit clients, money managers, business leaders in Europe often and the universal feedback is that global equity investors have increasingly recognized the superior ability of US large caps to create shareholder value over time. And so they want to own them. As a result, they just don't have the kind of tech or high quality growth companies we have to invest in in their home countries. And again, that makes, that makes our scarce assets.
- [22:37]
Downtown Josh Brown
So one of the things that I've been talking with people about this spring is that that's the part of the equation that could be changing. And just like corporations, institutional investors, global portfolio managers, they tend not to do things quickly either. But there's a growing sense, especially if you talk with people from the hedge fund world, that where the puck is going is just global investors wanting less us than they did even a year ago. Just Given some of the policy uncertainty and some of the, let's call it, spontaneity in the way the president announces things. I mean, it'll be years before we could look back and say that there was any truth to that. I'm just curious if you guys are getting that sense when you talk to some of your clients from elsewhere outside the United States.
- [23:32]
Nick Kolis
Not even close.
- [23:34]
Downtown Josh Brown
No, I understand that overstated that risk.
- [23:36]
Nick Kolis
I understand that's the New York hedge fund vibe. I get it. We know we all live in it. But when you actually talk to these investors and talk to the people who are managing their money, they are still full bore believers in the US Story.
- [23:50]
Downtown Josh Brown
Jessica, you asked a question and it seems rhetorical. What year is it? So I think it's 2025. But what, what's on your mind right now?
- [24:00]
Jessica Rabe
Yeah, I've, I have two historical comparisons for the S&P 500 and NASDAQ that we think provide useful roadmaps for the rest of this year. So I thought we'd start on somewhat of a cautious note for the S and p because since 1980 there's only been two years when it peaked in February and that's 1994 and this year to date. And we have a table we've actually shown you before with of times the S P has reached its high for the year and each month back to 1980, along with the average annual returns for each scenario. And as you can see in the chart, it's very rare for the S and P to peak early in the year. But when it does, calendar year returns are disappointing. And that's because stocks usually rally through the entire year during bull markets and we've had five of those since 1980. In 1994, the S&P posted a 1.3% total return, which while not terr, is still well below the the usual average of 10 to 11%. And aside from 1994's February high, that year was also similar to now because there was a large negative macro surprise back then that's pretty comparable to to now. So In Feb, in February 94, the Fed started an aggressive tightening cycle that no one expected. And things were really different back then because Fed community with Fed Communications, they only came really twice a year when the chair briefed Congress. And on top of that, Fed Chair Alan Greenspan was famously and purposely vague about his, about his views. So the bottom line here is that our night, the 1994 rate cycle was a huge source of investor uncertainty all year. And this year, of course, there's been an economic shock with markets caught off guard by Trump's aggressive trade policy, which was also a genuine surprise to markets. So we have a chart that compares index daily returns for the S and P in 1994, and you can see in the blue line and 2025 year to date in orange. And I have three quick points here. The first is that, as you can see in the chart, this year's trade and tariff policy shock caused a much deeper pullback than 1994's policy Fed policy shock. But stocks have also rebound much quicker, and that's because the administration quickly changed policy by laying tariffs by 90 days because of all the market volatility its initial moves caused. And second, 1994 is a cautionary tale about how ongoing policy shocks throughout the year can kill rebounds and keep stocks under pressure. And you could see that the S and P had a lot of fits and starts as the market dealt with a whole series of rate hikes throughout 1994, and with little guidance from the Fed about when they end. All in all, the FOMC raised rates by a total of 250 basis points that year, including a rare and large 75 basis points that November. And then third. So far, the US equity market is saying that this year isn't necessarily like 1994 with its long series of unpredictable policy disruptions. Fortunately, the S P has bounced back and it's now up on the year, thanks almost entirely to hopes for more reasonable U. S. Trade policy. So, just summing up this first comparison, the lesson from our 1994 playbook is that trade negotiations need to go smoothly in order for US equities to rally from here. And so good, so, so far, so good on that front. But the year, of course, isn't even halfway over.
- [27:44]
Downtown Josh Brown
The initial rate hikes that Greenspan did in 1994 were such a surprise, not just because they were aggressive, but they happened off schedule, I think, or some of them did. Nick, do you remember any of that firsthand?
- [28:01]
Nick Kolis
Sure, I was there. I remember vividly. They were all at regularly scheduled meetings, but February was the first time ever the Fed put out a press release the day of a meeting, first time ever, saying, oh, we're raising rates. I remember that day vividly. And it was like, what the hell is going on? Why is the Fed telling us about this rate hike? And so it was a series of shocks, but on a regularly scheduled basis, if you will, but still quite alarming because we just didn't know how high they were going to go.
- [28:30]
Downtown Josh Brown
Why did they do that they were worried about inflation starting to appear, or had it already appeared?
- [28:37]
Nick Kolis
It had started to appear and the economy was really chugging along. And the Fed's actually done a lot of forensic analysis on what went wrong in 94. They've written whole papers about it, and they recognized that they just didn't warn the market enough because of this very intermittent communication policy that Jessica outlined twice a year, basically. But they did it because they were worried about inflation and worried the economy was really beginning to overheat after the recession in 1990 due to Gulf War One and the very slow recovery from the 90 recession. 91 recession that finally really gained steam in 93.
- [29:10]
Downtown Josh Brown
It doesn't appear that that pullback for the S and P was terribly significant, at least given what we've all lived through in the last five years. But at the time, it was unnerving because there probably aren't a ton of examples, post Volcker, of a Fed chair knocking the market around to that extent. I think the people who had been trading in the. In 1994, who lived through the early 80s, they probably said you ain't seen nothing compared to what the Fed chair used to do to the stock market. But I think it almost seems quaint at this point to look at 1994 as though it were some watershed moment for the market, because it just doesn't appear to be that big of a market disruption, at least compared to the tariff thing this spring.
- [30:01]
Nick Kolis
It was, if you lived through it, because rotation cyclicals had been the winners. From 91 to 94. I was an auto analyst, and I was like the rock star, literally the rock star analyst of First Boston. I was covering all the hot stocks. I was the tech analyst of the day. And then when the Fed started to raise rates, the lights went out, cyclicals stopped working. And if you want to pinpoint the beginning of the 95 tech bubble, which Jessica will discuss in a second, it was because of this rotation in 94, because investors started saying, oh, if the Fed's raising rates, I need to go to growth stories. And that laid the groundwork for the entire 95 to 2000 tech boom, which Jessica can discuss now.
- [30:37]
Downtown Josh Brown
So you think that set us up for. It was the second half of the decade?
- [30:42]
Nick Kolis
Absolutely. The setup. Until 94, cyclicals were the only place to be. There was an old joke about tech analysts. How do you get a tech analyst out of a tree? Cut the rope. That was how bad the tech sector was in the early 90s.
- [30:54]
Downtown Josh Brown
Oh, my God, Jessica, can you top that?
- [30:59]
Jessica Rabe
No.
- [31:04]
Downtown Josh Brown
All Right. What was the other point that we wanted to make before? I attempt to make a point, but the similarity to 94 was this disruptive moment in the spring and the market pullback that we eventually recover from that year ended plus 1%. Where are we now year to date on the S and P? Is that about where we stand today?
- [31:30]
Jessica Rabe
We're up 2%.
- [31:31]
Downtown Josh Brown
Up 2. Okay. All right. Any other lessons from that time that are, that are worth getting into?
- [31:40]
Jessica Rabe
I think, I think it's just how important policy is and that trumps. That can trump fundamentals. Because when you, when you have a policy shift like in 1994 and this year, you get worried about recession, you worry that corporate earnings can fall as much as 25%. So that's why you have such a strong reaction in the markets when there is a positive, when there's a negative policy shift, but then also when there's a positive policy shift.
- [32:09]
Downtown Josh Brown
So I want to throw something at you guys. One of the conversations that I think has been going on for years now, but has sort of intensified in the wake of the market recovery is that companies are just better at being companies. They seem to be more resilient. People who manage them seem to be way better at their jobs on average than perhaps the people who manage corporations for example, 1994. And the analogy that I try to draw for people, I guess because it's NBA Finals time right now, but I think like most people would say there were amazing basketball players in the 90s, of course, but I also think most people would say on average the NBA player, not star, but player today, is a better player than the average NBA player back then. And that doesn't diminish the accomplishments of the NBA players. It's just like similar to corporations, these companies are just better at dealing with policy shocks, inflation, supply chain problems. So one of the things I took a look at, even the way that NBA players were paid back then, even if you inflation adjust their salaries from let's say the early 90s, they still make way more. Today the mid range player is making two and a half times more than the mid range player did in the early 90s. And then when you look at the superstars, it's almost laughable. So I have a table. It's not particularly gorgeous, but for argument's sake, Patrick ewing in the 1990-1991 season made $4.25 million. If you put that in $2024, that's still $10 million a year. I think he would probably be significantly more Highly paid hot Rod Williams made 3 million and change. That would be about 9 million today. Isaiah Thomas would be, would have been making $6 million in $2024. Michael Jordan is a really great example. He was two and a half million dollars in the 1990, 91 season. That would be about 6 million bucks today. So it's, it's the same sport. The sport has gotten bigger, more profitable. They make more money on luxury boxes, merchandising, streaming, a lot of things that didn't really exist to the extent they do today. I look at the stock market the same way. All of these S&P 500 companies are significantly more global than they were 30 years ago. So I think that similarity is important that you point out, like, hey, what if we were to top in February and it was because this exogenous shock that screwed up the market? But my counterpoint would just be like, I bet you the companies of 2025 are going to weather that better than the companies of 2024. And so far that seems to be what's playing out, at least when you look at the results they reported in Q2 and the guidance they laid out. You guys have a take on that? What do you think?
- [35:16]
Nick Kolis
I'll take a shot. I'm sure Jessica does as well. I mean, remember, like, corporate earnings aren't guaranteed the way like salaries in sports are. So earnings are going to be variable. And the thing I'd also say is that investor sentiment is always going to be the same. People will always fear a recession the minute they see a reason to do so. So the effect on the market is going to be a lot more similar to 94 to today, simply because the investors say, oh crap, this could be a recession coming really fast. The Fed's going too fast, the President's going too fast with tariffs, and that net psychological effect's always going to be about the same. Whenever we see fear of recession, we see the VIX go up, we see stocks go down. And that's rational because in a recession, corporate earnings go down. They might be down less than the average recession, but they're still going to be down. And markets don't know where the bottom is. So from a psychological impact, these shocks I think will always have about the same impact. And also as Jessica I think alluded to, you have to fix the reason for the shock in order to get stocks to reverse.
- [36:18]
Downtown Josh Brown
Right? So we sort of fixed it. Not all the way, but it was enough. And I guess that's a testament to people just believing, hey, this will get all the way fixed eventually. Let's place our bets today.
- [36:31]
Jessica Rabe
Yeah. As much as Trump gets aggressive, he's shown that when the Vix hits a 52 or 4 standard deviation level, he will soften his policy stance. And that was enough to, like you said, create an inflection point where stocks could start rallying again.
- [36:52]
Downtown Josh Brown
Okay, I want to move on to technology stocks because obviously the most important area of the market, and we talk about it a lot, but you guys have an interesting way of thinking about breaking down the current valuation of technology stocks as an example. But how people are currently valuing these companies and what goes into that calculation. Who wants to take this one?
- [37:19]
Nick Kolis
Yeah, that one's mine. So there's a table we've got which shows a calculation which I'll walk through right now. And it's something that any investor can do at home. It's very simple to do and I think very telling and a very nice way to understand how much of a stock's value is based on their current earnings power versus the future. So the way you do it is you go find the 2025 earnings estimate for a company. So, for example, for Nvidia, it's $4.28. That's. That's the current estimate. Then you assume that that's what the company can earn forever, and so you discount it by 10%. That's the way you calculate a perpetuity value or how much this thing is worth. If you get paid that number forever. And that works out to be $42.80, it's just 428 divided by 0.1. That is the value of what Nvidia is worth today. If Nvidia does nothing more than make its current number today forever, it's worth $42.80 a share. However, the stock is trading for 141, 142. So the vast majority, close to $100 of its value is coming from the market, expecting more earnings growth in the future, and in this case, quite a bit. Because what you get when you do that Math is that 70%, 70% of Nvidia's value is based on earnings growth that it doesn't have yet. Earnings it doesn't have yet that we're.
- [38:34]
Downtown Josh Brown
Counting on from the future.
- [38:36]
Nick Kolis
Yes. So if you do the same math for every other big tech company, Microsoft, Apple, and so forth, what you find is the average of all of them is 68%. 68% of the value of that company is based on the future. That's very different from the S&P, because the S&P trades for 56% future value. And if you X out big tech, it's only 35%. So the market is saying, hey, if you're AN S&P493 company, we'll give you a 30% premium to your current earnings. As far as imputing future value, that seems fair. Very good companies, Josh, as you alluded to, very strong companies, good management, probably the best they've ever been, but 35% is the most we're going to pay. However, if you're one of the big, big seven, we're going to pay you an average of 68% premium. And if you look at Tesla, which is really the standout, 94% of its value is driven by earnings it hasn't made yet and earnings power it has not shown that it can make yet. So basically the entire thing balance here, by the way, is the same way. Palantir trades for 95% future value. Not to say if it's right or wrong, but really the bottom line here is the market is saying Genai, all these new technologies that we've talked about, all the things that are really exciting in the market, the companies that will enjoy those gains are the big seven. Because the rest of the S and P trades for a very modest multiple improvement versus what it can earn today where these tech companies, the majority 68% of their value is driven by things that haven't happened yet.
- [40:05]
Downtown Josh Brown
Yet nobody who's invested in Palantir or Tesla owns those stocks as a function of what those companies core businesses are circa the last three years. It almost doesn't matter. If you talk to shareholders of Tesla, they're not interested in monthly auto deliveries because they think they own a robotics play, arguably the most dominant. And when you talk to people who are long Palantir, it's not relevant to them how much the company earned or didn't earn last year because they're thinking about AI contracts going forward as far as the eye can see and Palantir's technological advantages in those, in, in those areas where they're headed, not where they're already entrenched, which is arguably already pretty impressive. So when you. So that makes sense that. But when you dissect these companies and you think about how much of this valuation is based on earnings the company hasn't even proven it can earn yet, well, that's the bet that these people are making and they'll, they'll either win or lose that bet. But that makes a lot of sense to me. Intuitively versus a Microsoft. You talk to that shareholder base, of course they're excited about future technology, but they're also equally enamored of the company as it currently exists and its current cash flows. And that's, that's a big psychological shift you guys are saying, versus the rest of the S&P 500 ex big tech where we're not really giving these companies that much credit for earnings they haven't earned yet. Does that make sense to you guys though? Just if you think about this through the lens of disruptibility and the disruptors versus the potentially disrupted or are we overestimating the future potential of the disruptors and underestimating the indisputability of the incumbents? What do you guys think about that paradigm?
- [42:05]
Nick Kolis
Yeah, I mean the market's saying very strongly that only these companies or companies like them because by the way, the next seven big tech names are slightly smaller. Tech names have exactly the same numbers as what I'm showing you on the screen. They all look like this as well. So the next seven, the Netflix of the world, the Palantirs of the world, Salesforce, they all have the same kind of. They look exactly like this. So the market's very clearly saying hey look, we've learned our lesson. Over the last 30 years the biggest winners have been technology enabled disruptors. That's what these companies are, that's why we have to bet on them. The only other kind of big winner has been the very handful of companies with super strong management teams that have been able to grow consistently over a long period time of Walmart, Costco, P and G. Even ExxonMobil is on the list of big 30 year winners because they have great management. So it's really hard to find great management and it's hard to know that they're going to stay great. But technology is a little bit easier because you have Moore's law as a tailwind behind all of this. So it's easier to bet on tech, which is why the multiples are the way they are.
- [43:10]
Downtown Josh Brown
So I wanted to share some stuff with you guys from this past earnings season because I think it's so illustrative of why people are willing to make that bet and pay up for future tech earnings to the extent that they are. So in, in the Q1 reports that we've just gotten, this is via FactSet, earnings from the MAG7 companies exceeded estimates by 14.9%. For all S&P 500 companies, earnings exceeded by but only by 8%. So in a season where the upside surprise was pretty good. Among the seven largest companies, it was even better. And this is obviously a recurring theme and why these stocks got to the size that they've gotten to. The Mag 7's actual earnings grew 27.7% year over year. Big surprise. Google, Nvidia, Amazon were among the top five contributors to earnings growth for the whole market. Sean put together for me the top two performers year to date, stock price Meta and Microsoft one is up 19%, one is up 12%. The bottom two are Tesla negative 27 and Apple down 19. So you have dispersion in share price even among the top seven. Even though as a group they're still shocking us to the upside and as a group they're still far out. I know it's only seven stocks, so we're not averaging from, but just thematically for the investor class, they keep making this bet, the bet keeps paying out. Last thing, six out of seven of the Mag 7 companies had a positive earnings per share surprise, 78% of the S&P 500 components. So the whole market had a good earnings season. Better than most of us thought would be possible. And even in that climate, these seven names as a group, with one exception, were able to continue to surprise the upside. And that, I think that really explains beyond the imagination of like the robots driving us to work, et cetera, et cetera. Just like from an earnings standpoint, it explains why people keep making that bet and why that bet keeps paying out. What do you think about that concept?
- [45:23]
Nick Kolis
Yeah, it's true. I mean the long term for investors is ultimately a bunch of quarters, right? The long term is 10 quarters, 20 quarters, 30 quarters. But we measure them by quarters. And if you get a good quarter, your confidence in the long term begins to go up a little bit. And let's just remember like, even though these are just seven companies, they're 32% of the S and P. You know, they're a, they're a dominant part. They're dominant for a reason and you know they're going to continue to be. Or something new comes along, maybe OpenAI goes public in a couple years and becomes, you know, a multi trillion dollar company. So whatever technology disruptor exists in the US market and is US listed is going to end up at the top of the S and P league table. It's just going to be that wave for the rest of our lives.
- [46:06]
Downtown Josh Brown
That's going to be last thing I want. Oh, Jessica, please go ahead.
- [46:08]
Jessica Rabe
I was just going to say markets have a, over the long run, have a difficult time Discounting, innovative disruption. And that's why these types of companies outperform over time.
- [46:20]
Downtown Josh Brown
I wanted to ask you, is there an upside potential upside catalyst for the Overall S&P 500 as we see more companies in the index adopt the strategies and tactics of the Big seven and attempt to look more like them in their revenue models, in their client acquisition strategies. In other words, do the Mag 7 serve as some sort of a beacon that the 493 could ultimately pattern their businesses after and ultimately drag up the earnings growth of the overall? Or is that asking too much of companies that are just not in the tech sector themselves?
- [47:07]
Nick Kolis
I'll take a stab at it. I did this math that I just showed you but for Ford and GM. So Ford's post GM is supposed to earn $9 a share this year. So its present value is $90. Stock trades 45. So it trades at 50% discount to what it currently earns. And the reason these companies are as strong as they are is primarily because their business models are very asset light. They don't own a lot of assets, they own intellectual capital and they have somebody else produce the assets. And it's very hard for a company, particularly in the current environment now to shape its capital structure or its capital intensity dramatically. To lighten it up. You just can't be an outsourcer the way these companies ended up being massive outsourcers. Nvidia doesn't make anything, right? Apple doesn't make anything. It's very hard to get to that business model. It's probably harder now than it was 10 years ago. So it's going to be hard to.
- [47:57]
Downtown Josh Brown
Do it in the reverse order where you say we make all this stuff and we're going to give it to someone else to make. You can, it can be done, but it's really hard to do.
- [48:06]
Nick Kolis
Hey, Apple did it. Like there's a great book now I'm reading called Apple in China that gives the whole history of how Apple ended up being a Chinese made set of products. And it started with Apple actually owning all its own facilities. And Steve Jobs loved to manufacture and it took him a long time to appreciate that outsourcing was a better approach. But he eventually got there and that's how the company got here to where it is today.
- [48:26]
Downtown Josh Brown
Right. Nobody wants to be, nobody wants to publicly announce that their strategy in the Trump era is to outsource more. It's not going to be particularly popular. All right, guys, I want to thank you so much for your time today and I want to make sure that the viewers know they can. Check the link below to find your YouTube channel. Nick and Jessica are publishing their insights on YouTube twice a week. How often are you guys going live?
- [48:54]
Nick Kolis
At least once a week. We got one a week this week. Yeah.
- [48:58]
Downtown Josh Brown
All right, very cool. Make sure you follow the Data Trek channel if you love hearing from Nick and Jessica as much as I do. It's a really easy way. Also, go to datatrekresearch.com and find out how you can become a client. Thanks so much for watching. Thank you guys for listening. We'll talk to you soon.
- [49:14]
Nick Kolis
Thank you.
- [49:15]
Jessica Rabe
Thank you.
- [49:36]
Downtown Josh Brown
All right, Wait, what happened in Wayne's World too, though? I'm sorry, I just, I. I got to close the loop on this.
- [49:41]
Michael Batnik
That was the weird one with Jim Morrison and Christopher Walken.
- [49:44]
Downtown Josh Brown
Oh, that's Wayne Stock.
- [49:46]
Michael Batnik
Not good. I don't. Yeah, I have no memory.
- [49:48]
Downtown Josh Brown
Yeah, they tried to put on a. They tried to put on a concert. Wayne.
- [49:51]
Michael Batnik
Was that what the ACD say? Yeah. Terrible.
- [49:56]
Downtown Josh Brown
Dc. So Wayne's World one was Alice Cooper and then Tia. Rob Lowe was trying to steal his girlfriend who was in the band and.
- [50:06]
Michael Batnik
This, what was her name?
- [50:08]
Downtown Josh Brown
Tia Carrera.
- [50:09]
Michael Batnik
No, I know her.
- [50:10]
Downtown Josh Brown
She's Babe. Let's do the show. All right. Hello, everybody. Welcome to an all new edition of what are your thoughts? It's Tuesday night at 5:00, so this is what we're doing.
- [50:23]
Michael Batnik
Her name is Cassandra.
- [50:24]
Downtown Josh Brown
Cassandra. Cassandra. Well done. Welcome to the show. We are pre taping this about an hour or a couple hours before it's going live, but believe me, we're up to date. We know what's happening. My name is downtown Josh Brown. For first time viewers and listeners, I'm here with my co host, Michael Batnik. Michael, say hi.
- [50:45]
Michael Batnik
Hi.
- [50:46]
Downtown Josh Brown
All right, we're going to tackle all the biggest market topics, everything that's going on right now and there's a ton and we have some amazing charts in this episode as well. Before we go there, we do have a sponsor. Michael Read script verbatim.
- [50:59]
Michael Batnik
That's right, Josh. Today's show is brought to you by our sponsors at Betterment Advisor Solutions. Imagining a better future. That's the first step.
- [51:06]
Downtown Josh Brown
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- [51:19]
Michael Batnik
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- [51:25]
Downtown Josh Brown
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- [51:35]
Michael Batnik
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- [51:41]
Downtown Josh Brown
All right, thank you, batterman. So is this a market story? Trump and Elon, I don't think they hate each other, but they're definitely not hanging out anymore. Elon resigned. It almost. It only took like a week. Not. Not resigned, like a planned exit from Doge to go back to real life. And I don't even fully understand what the trigger was for the blow up on Twitter. Maybe, maybe you could like, clear this up for me.
- [52:08]
Michael Batnik
Nope.
- [52:09]
Downtown Josh Brown
But they traded some of the most insane tweets I've ever seen. Two public figures, trademark. And now it appears to sort of be cooling off. Trump said something like, I'm not worried about Elon, blah, blah, blah. And then Elon harded it like, all right, I'll chill. This is like rapper stuff. This. I follow all the rappers. Like, this is like, this is how they kind of like tiptoe around each other to avoid like a full scale blow up. But this one got pretty aggressive.
- [52:36]
Michael Batnik
So I have not been paying close attention to the story. But you can't avoid it. So I did see that Elon said something like, Trump doesn't want the Epstein files released because, you know, he, he might be in them, but we all know he's.
- [52:49]
Downtown Josh Brown
There's a thousand pictures and video clips of them hanging out together. Like, nobody would be surprised that he's all over the Epstein files. I don't even think that's a reveal.
- [52:59]
Michael Batnik
Yeah, the tweets got wild. Tesla was down, what, 17 on the day.
- [53:02]
Downtown Josh Brown
I'll.
- [53:02]
Michael Batnik
And I'll, I'll let you know three days later. Took all the, all the losses back. It's back to exactly where it was when the losses declined. But it is a wild story if you're a share.
- [53:12]
Downtown Josh Brown
If you're a shareholder in Tesla, that's like, that's like a Tuesday. Like, right? Like if you. Let's say you've been in Tesla, who sold that 2015, right? Who's the person that's like, there's no.
- [53:25]
Michael Batnik
Oh, no person. It's. It's algos.
- [53:29]
Downtown Josh Brown
No way. No way. It's the biggest market cap loss for any stock in one day ever. I think, think there have been. I don't think a stock has ever lost $300 billion in a day.
- [53:38]
Michael Batnik
All right, well, I say it's only algos. I mean, I'm exaggerating. But there's, there's been so many headlines and crazy Elon stories over the years. If you stuck with him through all of it, you're selling because of that. Give me a break.
- [53:49]
Downtown Josh Brown
And in fact, that's my, that's my point. Who, who. The who is like, oh, wait a minute, this is too far. He's calling the President of the United States a pedophile. That's where I get off.
- [53:58]
Michael Batnik
Right?
- [54:00]
Downtown Josh Brown
Come on.
- [54:01]
Michael Batnik
It is.
- [54:01]
Downtown Josh Brown
How long did it take? How long did it take?
- [54:03]
Michael Batnik
Three days. Three days. So I don't think any real shareholders are selling. I mean, to your point though, is it a market story? It depends. It depends. So Morgan, there was an article in Bloomberg. Morgan Stanley hunts for ex AI debt buyers after Musk Trump feud. So they're trying to raise a couple billion dollars. They're having a harder time. They're looking for smaller checks.
- [54:28]
Downtown Josh Brown
All right, so Morgan Stanley owns the debt of formerly Twitter, now Xai as part of their banking relationship with Tesla and SpaceX. That was a no brainer for them to take that down. Great. So they're looking for people to offload it to. That's the story.
- [54:46]
Michael Batnik
They're still raising money, so.
- [54:49]
Downtown Josh Brown
Oh, they should sell, they should sell it to their wealth management clients like usual. Why is it so. All right, put this chart up. This is Tesla versus the triple Q's. To your point. Like this is way wilder than riding the nasdaq, but you know, it sort of like always comes back to whatever the large cap tech world is, is doing. Why, why anybody thought that this would be like the end is. And I'm not even, I'm not a long, I'm not a bull. I just, I have no involvement whatsoever for my own sanity. But it just strikes me that this company has been through way worse controversies.
- [55:29]
Michael Batnik
It is wild that the, the fundamentals for Tesla as far as, as far as the stock price is concerned is Elon's behavior. It doesn't really, the quarterly reports don't really matter.
- [55:39]
Downtown Josh Brown
You know what's interesting about what you just said, the fundamentals actually are terrible. What's really exciting about Tesla is what they're working on in terms of AI and robotics. It's not even clear.
- [55:50]
Michael Batnik
And the taxes, it's not even clear.
- [55:52]
Downtown Josh Brown
That the AI stuff is part of Tesla. They're probably gonna have to acquire xai, which will, which will happen, you know, the next time the stock rallies, they'll do it. But no, the taxis are not it. There are no earnings estimates for the taxis for this year.
- [56:08]
Michael Batnik
No, no, I'm saying it's definitely part of the story for sure.
- [56:11]
Downtown Josh Brown
Oh, big time. Right. So he thinks the, he thinks the robo taxi business is a trillion dollar business. And Cathie Wood thinks it's a 5 trillion dollar.
- [56:20]
Michael Batnik
20. Trillion 20.
- [56:22]
Downtown Josh Brown
My bad. The robots. If you own Tesla right now, you don't own it because whatever their car delivery is going to be next month, spoiler alert. It'll. It'll be worse than you think. You own it because you think this guy's gonna invent the, the, the de facto. A physical AI thing that becomes the best thing. Like that's the, that's the bull case. And you know, he's done it already with electric vehicles, so it's not. Wouldn't be that shocking if he did it with robotics.
- [56:52]
Michael Batnik
No, it's kind of wild. So the shorts have been mostly cleared out. It was up to 25% of all shares outstanding were. Were sold short. But it's still, it's still 2.7% which is kind of high. Nvidia is only 1% for example.
- [57:11]
Downtown Josh Brown
Like who the hell is. There's a 2x short Tesla ETF. Does it, does it do volume? Is there, Is there aum in that thing?
- [57:18]
Michael Batnik
Who is. Why would you be short Tesla? It's just like.
- [57:20]
Downtown Josh Brown
Well, Mike, the stock got cut in half this year.
- [57:23]
Michael Batnik
I know, but.
- [57:24]
Downtown Josh Brown
I know it's rebounded.
- [57:25]
Michael Batnik
But there's no, it's. Dude, there's no extra points for difficulty.
- [57:28]
Downtown Josh Brown
Oh, I, I don't want to.
- [57:30]
Michael Batnik
Like there's way easier ways to definitely lose money.
- [57:35]
Downtown Josh Brown
I spoke to one of the more well known shorts of Tesla and. Still there. No, but it's. He. The. Most of these guys converted their short positions to options and they're talking publicly less. Yeah, but they're still hanging. They're still hanging around because nothing has changed in terms of how they feel about the way the company is, is run.
- [57:58]
Michael Batnik
So the 2x. The 2x, this is a T. Rex product. The 2x inverse ETF only has $100 million in it.
- [58:07]
Downtown Josh Brown
I can't account for that many short.
- [58:09]
Michael Batnik
And the long. The Long has $375 million in it.
- [58:14]
Downtown Josh Brown
The 2X Long Tesla. Yeah, right. Did, did Scott Besson punch Elon Musk in the face?
- [58:20]
Michael Batnik
It appears that way. I mean they don't read the tea leaves. Those are basically the reports. No, it said that Elon ran.
- [58:27]
Downtown Josh Brown
Reporter quoted.
- [58:29]
Michael Batnik
Elon ran with his shoulder.
- [58:31]
Downtown Josh Brown
Okay. They got into a tiff about. I think Elon likes the idea of tariffs, but he doesn't like them in practice, because they hurt his relationship with China, and China is. And arguably Europe. And these are really important markets for Tesla. So I think he. He kind of saw the rubber hitting the road and didn't love that. He's also done things like pushed a IRS commissioner appointment where that was supposed to be Besson's purview. Like, he's the. The treasury secretary. Like, why is Elon Musk pushing an IRS candidate? So there's a lot of stuff like that happening, really, since day one. And then I think if you believe Steve Bannon, which is the source of this information, if you believe Steve Bannon, there was some sort of an exchange toward the very end in the Oval where Besson said to Elon, you're a fraud. You're a gigantic fraud or something. And Elon walked out of the room and shouldered him, and Besson swung on him, hit him in the face.
- [59:36]
Michael Batnik
Unbelievable.
- [59:37]
Downtown Josh Brown
I don't know if it's true. Well, that's what we didn't say.
- [59:40]
Michael Batnik
Like, the genesis. I don't know. Genesis. One of the things that. The straw that broke the camel's back with this relationship was the big beautiful bill. Elon was not a fan of what was inside it, I'm guessing, particularly on the EV side.
- [59:50]
Downtown Josh Brown
Well, so Tesla lost money last quarter, just so you understand, absent the selling of tax credits to other industrials and automobile manufacturers. So. So basically because of, because of the way the tax code is, you, as you sell these environmentally friendly cars, you rack up these credits and you, if you don't have profits to apply the credits to, you can sell them. And it's a good part of a.
- [60:21]
Michael Batnik
Big part of the short story that nobody cared about.
- [60:24]
Downtown Josh Brown
Nobody cared. This is how they make all their money. And it's enshrined in tax law. And God bless, good for them. But part of, part of the big, beautiful bill is removing that tax credit. Now. Now, we talked about this when the idea was first floated early in the Trump administration, or maybe right around the election, and the analysts on Wall street were like, oh, no, you don't understand. Actually, this is great for Tesla because a lot of the other auto manufacturers are counting on these tax credits, and Tesla doesn't really need them. Tesla is the most popular EV in the world. The tax credits, whatever, throw them out. This is really going to hurt Ford and GM and Nissan and everybody else who's trying to do hybrids and EVs. And, you know, like, that was like, the part of the bull case for Tesla is like, oh, if Elon is saying he's for eliminating his tax credits. He knows what he's doing. But it turned out again, when the rubber met the road, he actually didn't want to lose those tax credits in the bill. And so supposedly that was like, the proximate cause of the dust up.
- [61:35]
Michael Batnik
Well, he deleted the tweet, so is it all good now?
- [61:38]
Downtown Josh Brown
Scott Bess. I. So I was googling pictures of Scott Besson, and he sort of looks like he can handle himself in a fight. Like, he's, He's. He's not frail. He's not. And he's not that old, like in human years. Like, he's like a. He's still fighting age. Human. Mike Tyson just got in the ring, so it's like, it's not inconceivable that that's true, I guess, is what I'm trying to say. I don't. I don't know how you trade. That, I guess, would be my. My takeaway. If you're a Tesla shareholder, do you now have to watch whether or not Elon Musk continues to put hearts on Donald's tweets? So you're like, all right, fine, fine, fine. It's cooling off. They're good.
- [62:18]
Michael Batnik
I don't know, man. I. I don't. I don't think I've ever owned Tesla. I might have in, like 2012. I can't remember.
- [62:22]
Downtown Josh Brown
But okay, okay. Still first topic, but pivoting drastically. Circle. So I wanted to just. I wanted to bring this back because we talked about it right before the ipo. This thing kicked the door down and absolutely set the markets on fire. And I think the success of Circle, combined with the earlier success of Core Weaver over the winter, I think it's like breathing life into this whole IPO thing. I'm hearing FOMO now for the first time in maybe years. People like, how do I get in on the next Circle? When's the last time you heard people. It's been a minute talking that way.
- [63:06]
Michael Batnik
20, 20, 20 21. I guess. I mean, chime that. They say chime is ten times oversubscribed.
- [63:12]
Downtown Josh Brown
Yeah. And chime is like, not great. Like, it's not like a top tier fintech app. So Circle hit. Circle Internet Group is the creator and I guess, lead sponsor of the. The stablecoin. The circle stablecoin. You are very important in the, in the ecosystem. USDC circle hit $88 a share at the end of its first day of trading, which was up 180% from the initial public offering price. So if you were lucky enough to have been in on the deal. You had effectively a triple on the first day. It's the seventh largest IPO to come public since 1980.
- [63:55]
Michael Batnik
Wow.
- [63:55]
Downtown Josh Brown
They sold. Yeah. I didn't know that. They sold 39 million shares. They raised 1.145 billion. Sounds like they left some money on the table. Wall street made 67 million in underwriting fees and at a $22 billion market cap circle is now selling at, at 140 times earnings which is not to.
- [64:15]
Michael Batnik
Minimize it but their business is net interest income. It's kind of incredible. And not, I mean like that's not their business.
- [64:21]
Downtown Josh Brown
Isn't this it? Isn't this a 4% business? So what am I missing?
- [64:25]
Michael Batnik
Somebody emailed us and it was a good point that we didn't hit on the first time Demand for dollars, digital dollars outside the United States for people that don't want to own their hold their local currencies is massive.
- [64:35]
Downtown Josh Brown
So it's like an AML workaround. Like that's the.
- [64:39]
Michael Batnik
I think so the bull case is.
- [64:41]
Downtown Josh Brown
You can have stable in dollar terms FX reserves and or currency if you use this and you don't have to come into the traditional financial.
- [64:52]
Michael Batnik
Yeah. And fees are basically zero. I mean yeah, you're not earning yield but who gives a shit if you're worried about your, your home currency.
- [64:58]
Downtown Josh Brown
I put the chart up. I don't know why I asked for this chart. That, that, that like last gasp I guess on day two where it hit 137. Who bought it?
- [65:11]
Michael Batnik
That was me. That was me. Whoops.
- [65:17]
Downtown Josh Brown
Chart off besides you like that. Is that a. Is that an ETF front running itself? Because this thing is about to be added to an index.
- [65:24]
Michael Batnik
I, I don't know.
- [65:25]
Downtown Josh Brown
Or like somebody running an ETF I meant. Or what is the thought process happening there?
- [65:31]
Michael Batnik
No.
- [65:31]
Downtown Josh Brown
Okay. One more Apple Worldwide Developers Conference. It's, I mean not bad but not great. Seems like it landed with a thud. They have not made material commercial progress on AI and that seems to have been the big takeaway from all the stuff that I read. What do you think?
- [65:50]
Michael Batnik
I actually, I didn't read anything about it.
- [65:52]
Downtown Josh Brown
Oh wait, we're gonna play a video. This is the one thing they showed off that seemed cool.
- [66:28]
Michael Batnik
What are we looking at?
- [66:31]
Downtown Josh Brown
It's, it's. I don't know if we could be heard over this.
- [66:38]
Michael Batnik
What, what was that?
- [66:39]
Downtown Josh Brown
That is liquid glass. All of the icons on the screen and menus and buttons are going to look like they're clear and that they're part of the surface of the screen. Also, that is the music they play in the men's room of the W Hotel when it's like 1am and half your friends are crowded into a stall together. That cocaine music.
- [67:03]
Michael Batnik
That's what you thought.
- [67:04]
Downtown Josh Brown
I'm telling you that.
- [67:05]
Michael Batnik
Okay. That's what you thought was cool.
- [67:07]
Downtown Josh Brown
I'm saying it was the one cool thing to have come out of, man. I know. I'm not saying it was a. It was not a great wwdc, but. But look, the only thing anyone wants to know and hear about is where are you on AI? And like, they talked about it, but there's nothing. There's like nobody home.
- [67:29]
Michael Batnik
Two charts go.
- [67:31]
Downtown Josh Brown
Well, let me do the comment real quick. UBS analyst David Vogt wrote in a note on Monday. Many of the AI features were announced were more incremental in our view and already available through competitor applications.
- [67:44]
Michael Batnik
Incremental is a very polite word.
- [67:46]
Downtown Josh Brown
Incremental is like boring. One other thing, though, that I thought was interesting.
- [67:53]
Michael Batnik
Incremental is analyst talk for you. Are you kidding me?
- [67:56]
Downtown Josh Brown
Yeah. Apple also expanded its integration with OpenAI's Chat GPT, integrating its image generation capabilities into an app that previously owned only used Apple's technology. So they're going to use the Dolly image generator, and I think that's what that means. When a user takes a screenshot of an iPhone, a new button will send the image to Chat GPT, which can summarize blocks of text in the image or even decipher what's happening. All right, that's not terrible. Language translation is sort of cool. A phone call with two people speaking a different language, the, the AI generated voice will tell you what they're saying and vice versa. All right. I mean, fine, great. It's some stuff in there. Oh, this was, this was the most notable thing. You know how they're on iOS 18 right now, inexplicably, because, like, they just, they release a new iOS and a new phone roughly every year to 18 months. So what they're going to do now instead is like cars, every, every new release is going to be based on the year. So the new upgrade this, this September is going to be iOS 26. And then when they redo it next year, it'll be iOS 27. So they're going by, they're going by the year, like three months ahead of time, like the auto companies.
- [69:19]
Michael Batnik
All right, what's worse than incremental? Because that's what, that's whatever you just said. All right, two charts.
- [69:23]
Downtown Josh Brown
Incremental Is damning it with face. Feigned praise.
- [69:26]
Michael Batnik
John, chart on, please. This is Apple compared to the max 7 since the inception of the Mag 7 ETF in early 2023.
- [69:34]
Downtown Josh Brown
Wow.
- [69:35]
Michael Batnik
Being outperformed by a country mile. 121 for the Mag 7. 27 for Apple. Next chart please. This is Apple divided by the Q's. And this looks tenuous.
- [69:48]
Downtown Josh Brown
So this stock is breaking down as a ratio with the Q's meaning like right there. The world is. The world is passing this stock by. Is that the way you would phrase it?
- [69:59]
Michael Batnik
That's exactly right.
- [69:59]
Downtown Josh Brown
Josh, can you put back the Mag 7 outperformance? So they launched the Mag 7 ETF in February of 23. Apple is up 27% since then. The Mag 7 itself is up 121. Do I see that right? 121%.
- [70:17]
Michael Batnik
Yeah, that's right. Which makes. Makes sense.
- [70:19]
Downtown Josh Brown
How does that. Is that ETF equal weighted between the seven?
- [70:22]
Michael Batnik
I believe so.
- [70:23]
Downtown Josh Brown
It's not market cap weighted. It's bad. It's not great. Liquid gas. A liquid glass. Liquid glass is the first big overhaul to the visual design of iOS since. Since a really long time. Like your iPhone has kind of looked the same for 10 or 12 years. So this is. I guess it'll. It'll be more notable once you have the upgrade than it sounds with me just describing it. All right, one more quick one for. We're still on topic. 1. One more quick one. S REIT. So Tata shared this internally. We kind of knew this would happen. Starwood Property Fund. They have this thing called the Starwood Capital Group has a fund that's colloquially known as S reit. It's the Starwood Real Estate Income Trust. This is similar to Blackstone's product B reit. They. Here, let me read this from the Journal. I want to hear what you think. One of star. One of Starwood's largest real estate funds was overwhelmed with redemption requests last spring. We talked about this at the time. Everybody's trying to pull their money out. Rather than sell some of the funds, commercial property into a poor market to meet those requests, they decided to impose limits on the amount of money investors couldn't can withdraw. And again, B REIT did the same thing a couple of years earlier. There's a line of investors trying to pull $850 million out of SVID. According to an investment banking firm that follows this situation, the net asset value of s REIT is 8.8 billion. It's down 40% from its peak in 2022. Here's the chart from the Journal. This is redemption.
- [72:15]
Michael Batnik
Whoa, whoa, hold on. When you say it's down 40%, investor, this is important. Investors are not down 40%. The net.
- [72:20]
Downtown Josh Brown
No, the net asset value. Okay.
- [72:22]
Michael Batnik
It's a big difference.
- [72:23]
Downtown Josh Brown
All right? This is fundraising. So obviously money coming in is completely dried up, which makes sense. You could understand why that would be the case. People don't. Even if it's in. All right, here's what I want to ask you. I believe that this issuer and many of the issuers in this space trying to package illiquid assets in something that sort of has liquidity. I think they probably went as far as they could conceivably go in giving people all the disclaimers like, we might gate you.
- [72:57]
Michael Batnik
Yeah, yeah.
- [72:58]
Downtown Josh Brown
We might tell you the timing is not opportune and you can't like, blah, blah, blah, blah. I'm sure they had an army of lawyers write a Bible verse about all the risks, each risk individually. That being said, people really don't like this. Who do you. Who do you think is the most frustrated by this situation? Because my guess would be the financial advisors who put their clients into something like this.
- [73:24]
Michael Batnik
What do you think the minimum investment size is? 2,500 bucks.
- [73:30]
Downtown Josh Brown
Yeah. So what does that tell you?
- [73:32]
Michael Batnik
You could have just a. Mitch mismatch with capital versus liabilities in terms of their time horizon. Now, I understand why this is a story. It is a story. It's a big story. But I want.
- [73:43]
Downtown Josh Brown
It's a lot of money trying to get something that they can't.
- [73:45]
Michael Batnik
It's a lot of money. It's. It's 10% of the fund. And this is exactly what you want them to do. If you are a shareholder who's not trying to get out, it's like, wait, don't fire sale my hotel because somebody wants their 2,500 bucks back or whatever it is. And so they were able to sell what. I forget what it reported. $160 million or whatever it was. So they are able to sell the most recent one that they cite in.
- [74:11]
Downtown Josh Brown
The headline says, at a premium sold 1.6 billion worth property. So there's buyers from December to May.
- [74:18]
Michael Batnik
So this buys out there. And I listen, I get that there's frustrated people that want to get it. I just want to make the point that it's not like. And listen, commercial real estate, it's been hit hard, right? Interest rates really clobbered the commercial real estate market. We know that. Obviously, everybody knows that. And so you just have to know that These things are semi liquid. They. I think the stated redemption was 5% of nav. And Barry star said, listen, we can't do it. We're going to, we're going to F over everybody else.
- [74:45]
Downtown Josh Brown
Why would you want checks for $2,500? Well, so that's if you're running a real estate portfolio. Like how much is enough?
- [74:53]
Michael Batnik
Yeah.
- [74:53]
Downtown Josh Brown
What is that meeting like? Like, oh, here's how we'll raise the next billion dollars.
- [74:58]
Michael Batnik
No, it's not even. Come on, 2500 bucks at a time. What are you getting in incremental rental? 74 million.
- [75:03]
Downtown Josh Brown
I don't know. I don't understand it. And if, and if you're a whale, if you're somebody that regularly writes eight, nine figure checks to funds, that's your exit. Why would. But why would you want to be invested alongside pikers?
- [75:18]
Michael Batnik
Right?
- [75:18]
Downtown Josh Brown
It makes no sense to me. If you're like, if you're a real, real estate investor, you tell Starwood, hey, Barry, do me a favor, give me, give me a different vehicle. I don't, I don't want to be in this. In the Katie pool with, with people who are going to force you to panic, sell.
- [75:33]
Michael Batnik
Yeah.
- [75:34]
Downtown Josh Brown
Assets. That's. It's absurd. It's not a good situation. So this is why it's. This is why it's a story. Michael, let me just share this with you. The plight. This is the Journal. The plight of Starwood investors has taken on a bigger relevance as momentum builds in Washington to ease restrictions on small investors putting money in private equity, venture capital and hedge funds. The answer to these. This is not always. Oh, just more disclosure. That's not always the right answer. Yes, disclosure is great. But also, hey, maybe this isn't the best idea ever. Is another is another conversation. Last thing. Starwood. All. But closing the withdrawal window is also rippling through the industry and causing investors in similar funds to hesitate about putting up new money. It's a question that everybody gets. Are you going to gate like Starwood? To your earlier point, in this environment, real estate, commercial real estate, the right answer is probably to gate. If it's gate. If it's gate, or blow the whole portfolio out to Saudi Arabia at, at generational lows. Gate, but then maybe come up with like a credit facility where you can give the smaller people their money back and just take, take on the debt yourself.
- [76:52]
Michael Batnik
They tapped it.
- [76:52]
Nick Kolis
It.
- [76:54]
Downtown Josh Brown
Oh, they, they tried that already. Oh yeah. They had a $1.5 billion credit line and. All right, listen, I'm not opposed to smaller household Investors having access to real estate. I just don't know that that's. It should be a mainstream thing. I think it's a niche market of people who should really want to do this. And it should be an even smaller list of firms that actually want to package and sell this this way. I think, look, and I know we're talking about this at the worst possible time, not the best possible time when people have huge gains. I understand that too, but it's not going great. I thought it was worth mentioning.
- [77:38]
Michael Batnik
Yeah, yeah. I brought. I pulled seven or eight of what I thought were the highest impact charts from Mary Meeker, legendary investor in Silicon Valley. She had a 340 slide deck on trends in artificial intelligence and boy, is it something. So let's start here.
- [78:01]
Downtown Josh Brown
Yeah. Did you look at all 340 slides?
- [78:04]
Michael Batnik
I did. It took me quite a long time.
- [78:06]
Downtown Josh Brown
I definitely did not.
- [78:07]
Michael Batnik
In 2019, AI was a research feature. By 2023 it was a capital expenditure line item. Microsoft Vice chair and president Brad Smith put it well in a 425 blog post. Like electricity and other general purpose technologies in the past, AI and cloud data centers represent the next stage of industrialization. And this was her line that really made me stop and think like, oh, okay. She says the broader dynamic is clear. Lower per unit costs are fueling higher overall spend. As inference becomes cheaper, AI gets used more. And as AI gets used more, total infrastructure and compute demand rises, dragging costs up again. The result is a flywheel of growth that puts pressure on cloud providers, chip makers and enterprise IT budgets alike. So this is. I spoke about this with Ben today. To me it's easy to get distracted by the news of the day, the tariffs, the labor market, not to discount any of that, but really the biggest trend by a country mile in the market is and has been and will be for the foreseeable future AI spend. That's it. So let's go through some charts and jump in where you to want. So chat GPT user growth from. They show it from 1022 when it launched to 425 and it's up 8x in. I don't know.
- [79:41]
Downtown Josh Brown
This is outrageous. So this is user growth. They have 800 million users after 17 months. I'm sorry, there's. We have never seen adoption of anything technological. Anything. Name whatever you want. We've never seen a billion people start using something inside of a year and a half. That is just great segue.
- [80:06]
Michael Batnik
If you next chart.
- [80:08]
Downtown Josh Brown
If you really. If you really stop and just think that is breathtaking.
- [80:14]
Michael Batnik
They have a chart showing years to reach 100 million users. And we've got, of course, Netflix and Uber and Twitter and Spotify. And number one again, nothing. There's not even a close. Like, I guess TikTok is fairly close. ChatGPT took 0.2 years to reach 100 million users.
- [80:30]
Downtown Josh Brown
What's so just for scale, TikTok is. That looks like five months fortnight, six months. Disney, Disney plus got there in about a year, one year. Instagram took a little over two years. WhatsApp took closer to three or closer to four years. Even YouTube took four years to get to 100 million. People might be surprised by that. Netflix took 10 years. Yeah, I mean, go down the list. Twitter, Uber, Pinterest, LinkedIn. This is not even in the same league, this rate of adoption. It's like everybody just woke up and had the same thought pop into their head. Let me get on this thing. It really is, it really is extraordinary. And I think that adoption rate goes a long way toward explaining the commitments of capital that we've seen. The largest technology companies of our era just endlessly shoveling money at this. When you think about it from a user adoption standpoint, what else is there? Why wouldn't they be doing that?
- [81:39]
Michael Batnik
She shows CapEx spend at the big six tech companies. So this is the MAG7 minus Tesla. And in 2022, like, holy shit, they're spending how much? We're going to hammer Meta for this now. It was a different story back then, but nevertheless they were spending $125 billion. And this year it's going to be up to almost. Oh, this is just CapEx. All right, so CapEx and RD, it's half a billion, just CapEx. It's over $200 billion and it's not slowing down, it's accelerating. Next chart. This shows CapEx spend and Big Six tech companies. So it's 15% of revenue, which is the red line.
- [82:15]
Downtown Josh Brown
The Big Six is like Alphabet, Microsoft.
- [82:18]
Michael Batnik
It's like I said, it's, it's MAG7 minus Tesla.
- [82:21]
Downtown Josh Brown
Okay, all right, it's 50% of their revenue, percent of their revenue on CapEx.
- [82:27]
Michael Batnik
15% of their revenue.
- [82:31]
Downtown Josh Brown
And that's, it was 10 years ago, was 8%. So these companies have always been big spenders on CapEx, of course, as they built out the cloud and you know, all the, all of the, all of the services, but like they're accelerating as they built, as they spend to build this particular service out.
- [82:51]
Michael Batnik
The next chart breaks it down by company and there's one company in here. That really caught my attention. So it's aws, Microsoft Intelligent Cloud, Google Cloud, Oracle Cloud, IBM Cloud, and I'll stop there. There's also Alibaba Intensive. But IBM, look at IBM and then look at the next chart. This is definitely on nobody's radar. IBM had been a dog.
- [83:16]
Downtown Josh Brown
Nobody cares. Yeah, A dog.
- [83:18]
Michael Batnik
For a decade plus. And it is at an all time high in terms of market cap. And its shares, forget about it. Screaming higher.
- [83:25]
Downtown Josh Brown
This is a massive breakout. Like massive, massive, massive, massive. Wow.
- [83:31]
Michael Batnik
You know Josh, you mentioned what market.
- [83:33]
Downtown Josh Brown
Cap is just back to where it was in 2012.
- [83:36]
Michael Batnik
Well, they've been buying back a lot.
- [83:37]
Downtown Josh Brown
Of stock because they have shrunk the float which boosts earnings. And so you. The stock price is at an all time high, but its valuation is just about to make an all time high.
- [83:48]
Michael Batnik
But it's.
- [83:48]
Downtown Josh Brown
Oh, that's really, that's really interesting. This has definitely been a big buyback name over the last 25 years as the share price has been asleep for a lot of that time.
- [83:58]
Michael Batnik
All right, this should get your attention in terms of how expensive it is to build this stuff out and how all in these companies are. So she's showing the CapEx as a percentage of revenue at AWS, looking at the initial cloud infrastructure buildout versus the AI ML infrastructure buildout in terms of a percentage of revenue. And it started at 27% in 2013 and got all the way down to 4% towards the tail end of this build out in 2018. And look at that ramp. They're now spending 49% of AWS revenue on CapEx. Holy moly.
- [84:34]
Downtown Josh Brown
So the physical part of CapEx, like the data centers, the optical connections, the, the energy, that's one part of the expense chart off. But then there's another part of the expense that's actually falling. And I thought, and, and I, I think this is part of this. By the way, Mary Meeker was a technology analyst at Morgan Stanley. Just for people who aren't, who don't understand why everyone's paying attention to her 340 slide deck. In 1995, Morgan Stanley was the lead underwriter of Netscape. And I wasn't yet in the business, but that was like one of the most important financial events of the 20th century. So it kicked. Arguably it was the starting gun for everything we've lived through over the last 30 years. Mary Meeker was an analyst at Morgan Stanley who they assigned to write up the first ever Internet report ever published on Wall Street. And she was covering personal computers. So it kind of forced her to, like, really dive into the Internet before there was a such thing as the Internet. That's why her talking about AI is so important. Just her perspective is probably one of the most important perspectives on this stuff from anybody, anywhere. So that's why we talk about Mary Meeker and everyone else talking about Mary Meeker. But I wanted to talk about the. I want to talk about the cost. So people use the term inference. Inference is like. So there's training. We're training the model in order to be able to answer questions and perform all these tasks. Inferences, the ongoing usage of the model, like every day you wake up, you ask ChatGPT, you know, how do I make chicken Marsala? That's inferencing. The inferencing costs, according to Mary Meeker's work, have dropped by 99.7%. It was $10 per million tokens. Tokens are the building blocks of an AI workload. It's now a dollar per million tokens. So that's a cost decline that I think is part of what you just said about. As the costs fall, the usage explodes. That phenomenon is exactly what we saw happen with the original Internet. Originally. It was like, too expensive for companies to have servers and all this shit. Same thing with web video. The original cost of laying all that fiber to. To lay the groundwork for ultimately YouTube and everything we do on social media, it fell and fell and fell and fell, and the usage exploded along with it. So that's a big takeaway from her stuff for me.
- [87:27]
Michael Batnik
So what's. What's helping propel this is that it's not being funded by consumers. It's being funded by the hyperscalers who have essentially an infinite pocketbook and are getting the benefit of the doubt, at least today, from investors. So she has a chart that shows the free cash flow margins of Microsoft, Amazon, Alphabet and Meta, and they're down substantially year over year from 23 to 24. Microsoft's free cash flow margins down 10%. Amazon down 8%. Google down 8%. Their revenue is up, of course, but the point is normally absent, like a huge investment cycle. If this is just free cash on the margin going down because business was slowing, these stocks would be down 70%. Obviously, they're not. Investors are still behind them and still supporting the spend. And the question is, of course, how long does it last? Nobody knows. But for now, investors are giving these companies the benefit of the debt. And this is good timing. We got a story today. So in the. In the deck, she goes through all of these examples of companies that many people haven't heard of that have gone from zero to a billion to 2 billion to 5 billion in revenue, like overnight. One of them that you mentioned was a company called Scale AI, a company that I had never heard of data labeling and evaluation. Okay, so this company did $335 million in revenue in 2023. It more than doubled that in 2024 at $870 million. And then today we got a headline from the Information Meta to pay nearly $15 billion for scale AI stake. So Meta has agreed to take a 49 stake in data labeling from scale AI for $14.8 billion. Unbelievable.
- [89:08]
Downtown Josh Brown
This is like a three year old company built by a 28 year old kid. He's 28 now, so he started this thing, I don't know, when he was in college, being sold for 15 billion. Some other stuff that jumped.
- [89:21]
Michael Batnik
No, a $14.8 billion for 49% of the company.
- [89:26]
Downtown Josh Brown
Oh, so for half. So it's worth 30. Great. A couple of things that jumped out at me. She's got a section about AI startups. The average AI startup that she looked at hit $5 million in annually recurring revenue, which we're going to talk about later ARR in two years she compared it to software as a service companies, which is a generation ago. And Those companies took 37 months. So there's like real revenue here in the startup environment. It's not just like people saying look at me, I have a product like you can't hit 5 million in ARR if there's nothing there. The other thing, the closed source versus the open source models. So the most prominent open source LLM that everybody knows of is what Meta did with its Llama model. Open source meaning like here's the code, build whatever you want on top of it. That was kind of their seemed to be initially their strategy. The closed models are the ones that you're actually paying for that are proprietary. That's Google's Gemini, that's Claude from Amazon and Anthropic, and that's obviously chatgpt. So Mary Meeker said closed models are 17 months ahead of open source models in compute intensity, which I guess is measuring the amount of usage. And she says they're growing over 5.5x a year. Open source models usage is only growing 3.6x per year. Meaning there's a huge head start. So you ask like, why are they spending all this money in capex? Well, it's working. The closed models that they actually own and control are doing way better than the free stuff that's also being built. She says that AI adjacent job postings have increased by 448% since 2018 versus regular IT.
- [91:26]
Michael Batnik
Flat.
- [91:28]
Downtown Josh Brown
Flat. All right, last one. Data center energy usage. I thought that chart was crazy. Data center energy. So data centers Pre existed before AI, but their energy usage has tripled since 2005, which is why you see hyperscalers throwing money at nuclear and mini reactors and renewable energy. This stuff is really an insatiable user of energy, and I know everyone knows that, but I thought that point should be underscored.
- [92:00]
Michael Batnik
All right, two more, and then we'll move on to the next topic. So she spoke about physical world AI. This is a crazy chart. AI rideshare versus autonomous taxi provider. Now, this is San Francisco. Autonomous taxis were 0% of the market in August of 2023. It's now 27%. Rideshare has declined from 34% down to 19%. And she breaks it down in a separate chart showing Waymo, which has gone from. Again, that's. That's it. That's 0 to 25%, mostly at the expense of Lyft, but also Uber. And interestingly, next chart. And I know, Josh, you and I both own Uber. It's hanging in there.
- [92:39]
Downtown Josh Brown
Well, physical AI is the most exciting thing from my perspective. Like, I'm bullish on all the. I use ChatGPT, I think AI is great, blah, blah, blah, blah. I say all the things that you're supposed to say, but the physical thing is way more exciting to me. And robot delivery, I think everything should be a vending machine. I'm honestly, I'm good with, like, just not interacting with anyone for any reason ever again. Because I am 48 years old, so I've already had every conversation I ever want to have. So that's, to me, is where the puck is going from. From the investor standpoint in public markets, I'm surprised that we're not seeing more sex in the robotics stocks and ETFs. I know the robotics ETFs have a couple of billion dollars in them. I think, like, those stocks are going to be way more exciting in the second half of this year than the LLM providers that you know, the. The Mag seven names, okay? And I'm looking at these companies all the time.
- [93:41]
Michael Batnik
So to that point, now you might say, dumbass, we're there already. We are getting a bubble. I'm convinced.
- [93:50]
Downtown Josh Brown
Of a robotics bubble.
- [93:51]
Michael Batnik
Just. No, just an AI bubble.
- [93:54]
Downtown Josh Brown
One of the things that I think is important that I want to say so that years from now I can look back and point to this and say that I was sober. I don't think the money's going to be made in like selling the robots. I, we talked about Serve, which is publicly traded company. I traded the stock. Thank God I got out of it with my skin intact. But Serves robots are being made by an auto manufacturer, a company called Magnet International in Canada. It's a metal bender, like they make wheelbarrows. It's like it's not, I don't think that. So this whole idea like, oh, Elon with the Teslas, he's gonna own the, the robot car, the robo taxi. I honestly don't think that's where the money gets made making robo taxis. I just don't. I think the money will be made in the software layer because it always is, the services layer, because it always is. So investing in robotics, I don't think it's as simple as what are the 20 public companies that make robots? I'll just buy those. I think the approach to making money in physical AI is going to require a little bit more nuance and I, I will. I am not the authority on this, so I don't want people to think that I know what to do. But I think that's the right question, like who's really going to benefit from this? And it's probably not going to be the companies that a generation ago were making SUVs. I just, I, I just don't see it that way. So. All right, we can. Are we done?
- [95:20]
Michael Batnik
Last thing, last thing, last thing.
- [95:22]
Downtown Josh Brown
One more.
- [95:23]
Michael Batnik
Check out this chart that, that Kelly and Sharkin made. Percentage of total licenses issued to 16 to 18 years old. This is. I don't see a bottom here, do you?
- [95:32]
Downtown Josh Brown
That's weird. That's weird. I mean, I mean it's not weird, I guess because I don't know, my children's children are probably not going to drive anything.
- [95:42]
Michael Batnik
Doubt it.
- [95:43]
Downtown Josh Brown
So I guess it's not that weird. My kid got his learner's permit Yesterday. He turned 16. He can't wait. He can't wait to drive. He has an iPhone, he has chat, GPT. He still wants to drive. Believe it or not. It's amazing. All his friends want to drive. Some of them are getting workers permits so they can drive six months before their 17th birthday. I don't know. That's hardcore. Gen z. These are 16 year olds. They, they didn't get the memo that ride apps are cooler than picking up a girl in Your in your car and taking her on a date. They didn't get that memo, so. And thank God for that. All right, we could do this quickly. 500,000 new millionaires created over the last year. According to Capgemini. It's pretty gangster. Yeah.
- [96:30]
Michael Batnik
Love it.
- [96:32]
Downtown Josh Brown
The US led the world in the growth of its millionaire population, adding 562,000. There are now 7.9 million millionaire households in the United States.
- [96:46]
Michael Batnik
How many?
- [96:47]
Downtown Josh Brown
So 7.9 million millionaires.
- [96:51]
Michael Batnik
Wow.
- [96:52]
Downtown Josh Brown
The ultra high net worth individual population also rose by 6.2% globally. This is all a function of the stock market. By the way.
- [97:02]
Michael Batnik
What does ultra high net worth mean?
- [97:05]
Downtown Josh Brown
Their classification of it. Yeah, I'm sure I'm about to come across it. Give me, give me a second. It's either 25 million or 50 million. They say high net worth individuals now allocate 15% of their portfolios to alternatives, including cryptocurrencies. It might have. It might have the cause and effect backwards to people that became high net worth. Many of them probably because bitcoin just went from 30,000 to 110,000. But I digress. What else did I want to tell you about this? Put this global wealth chart up. So this is a visual of the growth. The CAGR is 4. Millionaire households are growing by 4 and a half percent a year from 2016 through the end of last year. So we, we grew 4.2% globally. Is that global? I'm not sure if that's. Yeah, global. So there are. It looks like we added. Or we're at 90 million millionaires in the world. Does that sound right to you?
- [98:09]
Michael Batnik
No, no, no. That, that's, that's total wealth. It's 90.
- [98:14]
Downtown Josh Brown
Oh, this is that 90 trillion in total wealth.
- [98:16]
Michael Batnik
That's a lot of money.
- [98:17]
Downtown Josh Brown
Totally different chart. Okay. Totally different chart. Put up United States.
- [98:24]
Michael Batnik
We'Re rich.
- [98:25]
Downtown Josh Brown
And then Europe. Way slower. You notice. Not as much stock. Not as much stock market in Europe. Wake up. Here's the asset allocation. The changes in asset allocation amongst millionaire households. The stock market is in. Sorry. Equity markets is in that dark teal. It feels fairly constant.
- [98:52]
Michael Batnik
Although it's down with the cash. Are you kidding me?
- [98:56]
Downtown Josh Brown
Well, you never know when you're going to have a family member get kidnapped, right? Well, how much, how much cash? And cash equivalents is 26%.
- [99:05]
Michael Batnik
Dude, if you have $50 million, I mean, do you need 12 million bucks in cash?
- [99:11]
Downtown Josh Brown
12 million bucks in cash? I think the cash is opportunistic. It's not. Oh my God. I'm afraid to Invest, I guess I think it's. I think it's cash. Like I'm. I might do something with this. I don't think at $50 million, it's like a rainy day fund. So I could be wrong. But I mean, we, we talk to people in this category all the time. They are not afraid. So I don't think that's what it is. High net worth, investor expectation by generation. I don't know. So I guess the millennials stand out because they're into attractive product portfolio.
- [99:50]
Michael Batnik
Some of these questions are so weird. Who wouldn't? So one of the things that, for those that listen, it says and what they expect. Percentage of high net worth by age band and what they expect from wealth management firms. And one of them is attractive product portfolios or niche offerings. Like, what type of question is that? Who would not want attractive products?
- [100:06]
Downtown Josh Brown
Now, the takeaway is that the middle band, the mid, the middle blue color is millennials. And they're more demanding in all four categories.
- [100:16]
Michael Batnik
I guess that is the takeaway.
- [100:18]
Downtown Josh Brown
Other than geography, for some reason, Gen Z is really into.
- [100:23]
Michael Batnik
Is this about, you know what this is showing?
- [100:25]
Downtown Josh Brown
Offshore investments.
- [100:27]
Michael Batnik
Millennials are just more bitchy. They have higher expectations than the rest.
- [100:30]
Nick Kolis
The.
- [100:30]
Downtown Josh Brown
Of. Yeah. The literal worst.
- [100:32]
Michael Batnik
Yeah.
- [100:32]
Downtown Josh Brown
Like, no. No offense.
- [100:33]
Michael Batnik
That's okay.
- [100:35]
Downtown Josh Brown
All right. Dissatisfaction. Put this up. No, next one. Here we go. Percentage of. What is that? What is millionaires, Lowell. All right. I don't know. Get the shit off. Anyway. 560,000 new American millionaires last year.
- [100:58]
Michael Batnik
Thank you.
- [100:59]
Downtown Josh Brown
Almost. Almost all stock market. Unless there's some other like life changing thing going on that I'm not aware of in real estate or it's bitcoin and stock market and it's a lot. It's a big number. It's a big number.
- [101:14]
Michael Batnik
It is.
- [101:14]
Downtown Josh Brown
All right, you're up.
- [101:15]
Michael Batnik
All right. I love this, Josh. I think you're gonna like it too. You know how people like to quote Warren Buffett saying, my favorite holding period is forever?
- [101:23]
Downtown Josh Brown
Yeah. Horrible, horrible, horrible investing strategy.
- [101:28]
Michael Batnik
Horrible investing strategy.
- [101:29]
Downtown Josh Brown
Unless you're talking. Unless you're talking about the spy. I agree.
- [101:32]
Michael Batnik
Yeah, right. Because we're talking. I'm talking about single stock risk. Most stocks, there's a topic well trotted on this show and other shows that we do. Most stocks are garbage. Most stocks are not worth marrying. Most stocks worth dating casually. And even then I, I emphasize casual. So somebody tweeted this chart. This is from Tax Alpha Insider and I love it. So what they are showing. What's that?
- [102:02]
Downtown Josh Brown
Wait, I'm just Trying to picture it.
- [102:04]
Michael Batnik
All right, well listen.
- [102:04]
Downtown Josh Brown
Single stock risk grows with holding, period. Okay, go ahead, explain this, open your.
- [102:07]
Michael Batnik
Ears, listen to me. It's showing a distribution of returns over a one month period in which you get a relatively normal bell curve distribution. And then the longer out in time you go, you will see very clearly. It shifts, it skews to the negative side in which most stocks suck. Of course you have the outliers of the world, the Nvidias and the Netflixes, but most stocks are not that. And so the takeaway for me is be very careful buying and holding individual stocks forever.
- [102:52]
Downtown Josh Brown
I wanna. All right, so obviously the data is the data and I'm not gonna refute it because I don't have my own data. But I think if there were one qualifier in this data, it would make a really big difference.
- [103:07]
Michael Batnik
Stocks that start with the letter D.
- [103:11]
Downtown Josh Brown
No, what I would say, companies that have been around for 50 years, they of course don't all survive. Those go away too. But in my opinion that's like a proving ground that a company has survived like many different things. Wars, inflation feast, famine, bubbles, and then this. What do you mean?
- [103:35]
Michael Batnik
No, dude, Kodak and Nike and Target and Disney and IBM and all these companies that go through long periods of time where they just suck ass, especially relative to the index.
- [103:44]
Downtown Josh Brown
The data is the data saying they don't have ups and downs.
- [103:47]
Michael Batnik
Sure, listen, all else equal, probably I'd rather, I mean, I don't know if I'd rather buy a 40 year old company or a 10 year old company. I have no idea. You're making that up. The point is, irrefutably most stocks, there's data on this stink.
- [104:02]
Downtown Josh Brown
I know, I'm not refuting it, okay. I'm saying if I could add a qualifier. I think that it would look different if you just showed me that chart but showed me companies starting in year 51. Perhaps it would be a very small list of companies and JP Morgan Chase and Berkshire and like a lot of companies that it made now it's hindsight.
- [104:26]
Michael Batnik
Bias, but it's worse than that because if you do that, then you're cutting off the right tail. If you buy and hold the stock that's been about 51 years, you're not getting a big return, you're getting a market return.
- [104:37]
Downtown Josh Brown
So I just look at my portfolio and I'm in these stocks forever. Like, Like.
- [104:42]
Michael Batnik
Yeah, but you're in the good ones.
- [104:44]
Downtown Josh Brown
But that's my point. The ones that weren't good, I lost them along the way. Because and, and like what I'm left with is the distillation of like oh, these are the best companies in the world. They won't always be. But right at this moment, so long.
- [104:56]
Michael Batnik
As you get the big ones. Right? Yeah. If you had Nvidia and Uber you can buy and hold a bunch of that doesn't pan out that. But it's hard.
- [105:02]
Downtown Josh Brown
Yeah. Our favorite holding period is forever. But Berkshire's portfolio stock portfolio has tons of turnover and also just.
- [105:10]
Michael Batnik
You're not, you're not Warren Buffett. Relax.
- [105:13]
Downtown Josh Brown
Who me? No, no, no, no, no. Most nobody should be aspiring to. You could adopt a lot of his ways of thinking about investing without attempting to actually become him.
- [105:24]
Michael Batnik
All right, next topic.
- [105:25]
Downtown Josh Brown
All right. I have come to the conclusion that, that there is no reason to invest in any business that is not currently or in the process of becoming an annualized annual recurring revenue business. ARR or I'm not interested. I think if you. One of the things. And no one's really done this yet. Maybe Malbasan has scratched the surface trying to make other points. But I think if you actually wanted to understand the. The elevated multiple of the stock market over the last 20 years and that upward drift. I've explained it using fund flows and ETF and the business model of Wall street going from asset based fees from commissions. I've explained it talking about 401k money pouring in month after month and accumulated. I have used a lot of different ways to explain why we shouldn't expect the market to bottom at a 10 times earnings multiple ever again. But this is something that I'm really thinking more and more about in recent months. Every great business in the stock market that's gaining in market cap relative to the rest of the market is an ARR business or in the process of becoming one. So I want to read something that this is behind the paywall at CNBC Pro. They consume me. But Sean and I wrote about deer. If I say ARR, this is probably the last stock you would ever think of.
- [106:57]
Michael Batnik
Yes, I was.
- [106:58]
Downtown Josh Brown
Because you. You'd say green and yellow tractors. What's wrong with you? Okay, this is what I wrote. There will always be an agriculture cycle. Companies in the agriculture space will always be beholden to it. Companies in most sectors of the economy must contend with one cycle or another. Commodities, interest rates, housing, capex. But in the digital age, companies have found ways to annuitize their business and transcend the cycle.
- [107:28]
Michael Batnik
Even track.
- [107:30]
Downtown Josh Brown
Yes. So converting traditional transaction based businesses business models into subscriptions or ARR revenue Models has been one of the keys to why the stock market has risen so relentlessly in the last 10 years. It just makes companies better at weathering everything, predicting their own cash flows and not falling victim to cycles. So when companies begin to generate earnings reliably, the multiple that you and I are willing to pay for those businesses re rates higher.
- [108:05]
Michael Batnik
No doubt.
- [108:06]
Downtown Josh Brown
So this is now my leading theory as to the upward drift in market multiple. Not the only reason, but a very big reason. We pay more for stocks when we know the earnings growth is going to be predictable and the cash flow is going to be reliable. So Sean and I do this best stocks in the market column and we've been talking about the best stocks. Spotify, Netflix, these are great examples. You used to buy a CD from a store. Spotify makes it so you just pay them $15 a month, you never go to a store again. It's less economically sensitive. People don't cancel as easily as they don't as they stop going to the store. Netflix, same thing. Used to be a DVD business, transactional. Now it's just monthly. Look at Deere put the chart up. Deer is 188 year old company. They have set a goal for themselves of converting 10% of their revenue to air. It's not enough to buy the tractor now you have to pay them every month a subscription to maintain the vehicle, to give you data about its usage, etc. Etc. So by the year 2030 they're telling the street they want to be a 10% ARR revenue. So they did $51 billion in sales in 2024. If they can hit their own target, that's 5 billion of ARR consistent top line revenue. Michael, don't you agree with me? The street will be willing to pay an increasing multiple on that revenue that the company has coming in relative to when it was just what's the AG cycle, how many tractors they're going to sell.
- [109:46]
Michael Batnik
Sure.
- [109:47]
Downtown Josh Brown
This is the key to the market right now. Finding companies that are converting from transactional businesses that require the consumer to spend money now to a business that just reliably gets paid all the time. No matter what those are going to be, I think continue to be the big winners in the market. And that's where people should be focused when they're looking for investment opportunities. Like even Disney figured this out With Disney plus it's not as good a business. It's not as good a business as the theme parks in terms of margins. But Wall street likes it better than anything else they do because of that reliability. So that's all I want to say on that. Any, anything that you want to throw into the mix or I would agree with you.
- [110:39]
Michael Batnik
The, however, is that there are plenty of monster businesses like Uber, for example. It's not really an ARR story.
- [110:47]
Downtown Josh Brown
I'm so glad that you said that. They have 30 million users paying them monthly, my household included, for Uber 1. They read the writing on the wall. If we get people paying a subscription for Uber 1, a, we're going to be the default app that they open for groceries, convenience store deliveries, Uber eats for rides, for everything under the sun, and B, it don't cost us much. What is Uber giving me for my Uber one membership? They're, they're throwing back a dollar at me every time I order a burrito. Who cares?
- [111:20]
Michael Batnik
What about Google?
- [111:23]
Downtown Josh Brown
Well, this is one of the mothers of all ARR businesses. The Google cloud is an ARR business. Yeah.
- [111:29]
Michael Batnik
It's tiny compared to search. You're right. I'm just saying there are. It's not, it's not the only thing. It's a very important thing. It's a very important part of the story.
- [111:36]
Downtown Josh Brown
I think it's the part of the story that leads a company like CrowdStrike to be able to triple. As corporations don't lapse on their CyberSecurity ongoing payments. CrowdStrike doesn't need to sell them a new license every year the way cybersecurity companies like Checkpoint did in the 1990s.
- [111:57]
Michael Batnik
How about this? If you were to look at the best performing, the 100 best performing stocks over the last three years, to your point, I would bet that a healthy portion of them, maybe half, I have no idea, are ARR stories.
- [112:09]
Downtown Josh Brown
Yes. And not only that, the ones that aren't are biotech and health care. And so I consider utilities to be ARR companies at this point. Okay, sure. Eli Lilly is converting itself to a platform from a drug maker. The people who are getting on their anti obesity drugs are creating Lilly accounts and they're interacting with Lilly direct if their insurance company is not the supplier. And Lilly is using that opportunity, I think to create the first ARR business within medicine, you know, like a, like a pharma company. So every great company has an ARR strategy. They've all figured out the promised land is subscriptions that people don't cancel just on your pipe and chew on it.
- [112:58]
Michael Batnik
Okay, chewing. All right, so I'm going to make the case for a stock that I've owned for a little bit. It's been, it's Been a serial disappointer forever. Not just in recent memory, but for 25 years or so. The stock is Disney. It is on the verge of an outbreak. Chart on, please. I would say for people that are looking at this, this is not investment advice but I would be careful here it is banging up against resistance. I would much rather buy it at, I don't know, 125. I'd rather pay up for it to make sure that the dust is settled.
- [113:31]
Downtown Josh Brown
I would expect some confirmation. Let, let it, let it punch through on good volume.
- [113:36]
Michael Batnik
So the stock is getting another pop higher, although off the highs today, but whatever. On the news that it is now acquiring the rest of Hulu. It's swallowing the rest of Hulu for whatever the number it doesn't make. Doesn't matter. Oh there it's $439 million. Comcast wanted $5 billion. They brought on third party to settle it. I think Disney paid was it. It doesn't matter. They swallowed it. It's theirs. They owned it. Better integration into the apps. Comcast is now off to focus on Peacock and the stock has been performing significantly better than it had been previously.
- [114:08]
Downtown Josh Brown
So yeah, this was always, this was always going to end this way. The original Hulu concept was like Fox and, and NBC and all of these companies taking control of their IP rights and having a centralized platform that would sell that they could generate, you know, streaming revenue. But like it's, you know, it reminds me of in the financial crisis, Smith Barney and Morgan Stanley formed a joint venture. Citigroup and Morgan Stanley, they threw Smith Barney into this JV and then Morgan Stanley had to buy it in pieces until finally they swallowed the rest of it up. That was. This was always going to go this way. The only question was pricing and timing. So I like it for, I like it for Disney. I like. I, I like to make the case. I think, I think you could buy it here. I think it's gonna go. I think it's gonna go to 100, you know, like 150.
- [115:04]
Michael Batnik
Yep, 150.
- [115:05]
Downtown Josh Brown
Yeah. And I think that. Look where the risk is. Put the chart back up. Look how well defined this is. You know exactly where to sell the stock. Stock.
- [115:12]
Michael Batnik
Where would you sell it?
- [115:14]
Downtown Josh Brown
Well, you used a line chart, not candlesticks. I'm guessing that's 80 or 85.
- [115:19]
Michael Batnik
Well, it depends. All depends on your risk tolerance. That's. That's a fair bit.
- [115:23]
Downtown Josh Brown
But I think if it break, if it breaks below there, something has changed. And if it, and if it stays above There. I think the buyers are, are, are supporting you.
- [115:31]
Michael Batnik
Yeah.
- [115:32]
Downtown Josh Brown
So. All right, mystery chart. Dow component is hint number one. Hint number two is Disney iconic American brands.
- [115:41]
Michael Batnik
I think I know it.
- [115:43]
Downtown Josh Brown
Would you like to solve the puzzle?
- [115:45]
Michael Batnik
I'll take one more clue. I don't want to be arrogant.
- [115:49]
Downtown Josh Brown
Okay. Is it in the. Based in Illinois.
- [115:54]
Michael Batnik
Oh. Ooh. Oh, okay. Is it McDonald's?
- [116:06]
Downtown Josh Brown
Very good. Look at you. Look at you. Round of applause. Well done, sir.
- [116:11]
Michael Batnik
How did you know I've been looking.
- [116:13]
Downtown Josh Brown
Did Illinois tip it or no? No, no.
- [116:14]
Michael Batnik
I was going to guess. I've been looking at the stock.
- [116:17]
Downtown Josh Brown
Okay. Don't buy it.
- [116:20]
Michael Batnik
I'm not actually. There was a, there were some negative headlines today that I saw. Carl Kitten.
- [116:25]
Downtown Josh Brown
That's why it's Today's mystery chart. McDonald's was hit with a double downgrade. That's when they go from buy to sell. And don't stop at neutral in the middle. Redburn Atlantic cited softening traffic trends tied to weight loss drugs which may become a stiffer headwind over time. This is a stock that's. I don't know if it's in a full blown correction from its recent high.
- [116:47]
Michael Batnik
No.
- [116:47]
Downtown Josh Brown
But it does not look like a lot of other big stocks right now.
- [116:50]
Michael Batnik
So it's, There's a great, a great chart that I'm looking at from. Yeah, you mentioned Redbird Atlantic. It shows the burger category. US same store sales growth. And it shows McDonald's, Jack in the Box, Burger King and Wendy's. And they're all negative. So they said McDonald's has benefited during periods of heightened value sensitivity. But this time may be different. Core value perception appears to be increasingly challenged. Its historical defensive status may no longer hold.
- [117:18]
Downtown Josh Brown
It's not defensive. It's very expensive to eat at a McDonald's.
- [117:21]
Michael Batnik
Yeah.
- [117:21]
Downtown Josh Brown
And they're battling for these snack, these snack hours with Starbucks and, and they're battling over breakfast and it's. I don't, I don't know that it's as defensive as it used to be.
- [117:34]
Michael Batnik
Yeah.
- [117:35]
Downtown Josh Brown
I have a longer term chart though. I'll just show you.
- [117:38]
Nick Kolis
Put.
- [117:39]
Downtown Josh Brown
Do we have that second? I mean, so like, you know, relax.
- [117:42]
Michael Batnik
Yeah. Yeah.
- [117:43]
Downtown Josh Brown
This is, this has just been an extraordinary stock for the last 10 years or, or counterpoint to put this sell off in, in context or don't relax.
- [117:51]
Michael Batnik
Because y has performed historically well and could very easily go a lot lower.
- [117:58]
Downtown Josh Brown
If you throw a, throw a 50 week moving average on that chart, which I didn't do. I think you're staying long. I think stay long if You're a longer term investor.
- [118:07]
Michael Batnik
Credit to this to Redburn. I love upgrade. I love downgrades when the stock is near an all time high and you think the story is fundamentally changed, like don't give me a downgrade when it's down 60%.
- [118:16]
Downtown Josh Brown
Well, same store sale, same store sales were not great. Loop Capital downgraded it on Friday. Morgan Stanley downgraded it last week also to equal weight. Morgan Stanley said eroding pricing power suggests it's not a great defensive play. Low income consumer customers face a financial squeeze. So they're all sort of saying the same thing. And you know, it's, it's got that headline risk like one that, you know, I don't know what percentage of the population is going to be on Ozempic next month. I assume it'll be higher than the percent of the population this month.
- [118:52]
Michael Batnik
Yep.
- [118:52]
Downtown Josh Brown
So that's that. That story's not dying. All right, that's it from us. I want to thank everybody for tuning in. Thank you guys so much in podcast land for listening. Let me just remind you guys, go check out Betterment Advisor Solutions if you work in the business. Tomorrow is Wednesday. You guys have a new Animal Spirits coming out?
- [119:10]
Michael Batnik
I guess we do.
- [119:11]
Downtown Josh Brown
Heck yes. Make sure you check that out and we'll be back at the end of the week with an all new Compounded Friends with a very special guest. Thanks again guys. Have a great night. Great day. We'll talk to you soon. Whether you're just getting started as an investor or you're managing a multi million dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ritholswealth.com don't forget to check us out@YouTube.com the compoundrwm. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.