This Is Your Last Chance to Get Rich, Mag 7 Earnings Week

Summary

Podcast Summary: The Compound and Friends

Episode: "This Is Your Last Chance to Get Rich, Mag 7 Earnings Week"
Date: January 28, 2026
Hosts: Josh Brown & Michael Batnick

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Overview

This episode dives deep into the most anticipated week of Q1 2026 earnings season—the “Mag 7” technology titans (Apple, Microsoft, Meta, Tesla) and their outsized impact on markets. The hosts mix timely analysis with humor and honest market skepticism, taking listeners through sector performance, AI-induced labor fears, “Mag 7” stock malaise, shifting investor behavior, and the global equities resurgence.

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Key Discussion Points & Insights

1. Earnings Week Setup: The “Mag 7” in Focus

• Scope: 32.9% of S&P 500 market cap reports this week (102 companies).
• The four “Mag 7” reporting: Apple, Microsoft, Meta, and Tesla.
• Earnings Contribution: S&P companies expected +8.6% yoy growth, with a disproportionate amount from tech. Ex-tech, S&P growth is only +2.9%.
  • Quote: "For the people that are like, why is the financial media so focused on Mag7 on tech? Well, this is why." —Josh Brown [05:17]
• Beat Rate: 78.1% of reporting S&P companies have beaten expectations, about average.
• Actual reported tech earnings growth: +24.7% (significantly outpacing estimates).

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2. Mag 7 Deep Dive: Expectations, Pressure, and Investor Sentiment

• Sentiment: "The Mag 7 is not cool right now...the bar is low for the first time in a while." —Michael Batnick [05:21]
• Meta:
  • Uncertainty persists about monetizing AI investment:
    "The number one thing you’re missing [as a bull] is just clarity about the strategy...it’s not the LLM...It's not getting anyone excited at this point." —Josh Brown [12:15]
  • Last earnings report focused on Reels/algorithm; Capex and AI business strategy are the new focal points.
• Tesla:
  • "It's not a car company anymore...literally not, not a single investor cares about the cars. So it's gonna be all about Optimus or whatever." —Michael Batnick [13:46]
  • Elon Musk’s promises (robo-taxis, humanoid robots) drive stock, not delivery numbers.
  • Guidance and narrative more important than fundamentals.
  • Quote: "If he comes out and says by 2030 half of all American households will have a robot. ...this stock is going to go up 20%. It doesn't even matter." —Josh Brown [14:49]
• Microsoft:
  • Most pivotal for the market: “For the stock market that is the most important call that we’re going to hear this week.” —Michael Batnick [16:24]
  • "The next six weeks, I think the AI trade is going to be queued off Microsoft’s reaction, not necessarily what they say." —Michael [15:29]
• Apple:
  • Bar set low after eight weeks down in a row; potential for "sideways to lower" is built in.
  • Watch for consumer strength and AI developments, especially in partnerships (Google, Siri).

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3. Market Breadth, Sector Rotation, and The Great “Broadening”

• The rest of the market is finally participating:
  • "The best thing that could have happened to the rest of the stock market is that those [Mag 7] names do nothing...The money is finding other places to go." —Josh Brown [20:39]
• Retail Flows: Money is rotating out of US large-cap growth (Mag 7) into international equities, industrials, and utilities.
  • "Retail cumulative purchases of the Mag 7 and Palantir…really the only game in town was Nvidia. And then a massive gap—and then Tesla." —Michael Batnick [31:43]
  • Retail’s new love affair: materials, gold, utilities.
  • "The Mag 7 are just not as sexy as they used to be...they're just different stocks than they used to be." —Josh Brown [33:10]

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4. "Chasing Winners” vs. “Contrarian Value"—Updated Investor Mindset

• Modern retail and “trader” behavior: sell what’s not working, jump on what is.
  • "The way that you make money by trading is by buying stocks that you think are going to go up. And the stocks that are going to go up are the stocks that are already going up...I reject that [this is just chasing]." —Michael Batnick [34:08]
• Adam Parker’s research: cheap stocks that keep getting cheaper usually underperform; it’s the expensive stocks with expanding multiples that deliver upward earnings surprises.
  • "Companies that are cheap are much less likely to beat earnings estimates..." —Josh Brown [58:47]

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5. AI Disruption, Labor, and Existential Dread

• Lively debate on AI’s impact, referencing Silicon Valley’s growing paranoia around unemployment, UBI, and “money becoming worthless.”
  • Quote: "Humanity is about to be handed almost unimaginable power. And it is deeply unclear whether our social, political and technological systems possess the maturity to wield it." —Josh Brown (quoting Dario Amadei, Anthropic CEO) [37:45]
  • Hosts are worried but not apocalyptic, split between pragmatic optimism and concern for youth, open jobs, and how quickly disruption accelerates.
  • "If you just say, okay, AI is going to do everything and then everybody gets a dividend from that, it’s not going to feel good. And I don’t think it actually would be good for people." —Sam Altman, quoted by Josh Brown [41:54]
• Key tension: is this just another wave of creative destruction, or something fundamentally unprecedented?

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6. SaaS, AI, and Software Stocks: Defensive Castles or Melting Ice Cubes?

• AI is depicted as an existential threat to horizontal SaaS (e.g., Salesforce, Adobe), especially versus vertical/niche software (e.g., Toast for restaurants).
  • "Things could change really fast...the disruptors are infinitely disruptible too." —Josh Brown [47:25]
• Valuation reality check: median SaaS company now close to breakeven on EBIT—“not good.”
  • "Even though the rule of 40 is intact, if you look at the median SaaS company, the Gap EBIT margin is freaking break even. Like not good." —Michael Batnick [51:17]
• Hedge fund positioning is heavily short software, long semis—trend is extreme and may be due for a reversal, but the hosts are skeptical of “catching falling knives.”

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7. The Global Rotation: U.S. vs. International Equities

• The U.S. underperformance vs. global markets is material for the first time since pre-GFC.
  • "It's happening. Global breadth measured by % of ACWI markets within 5% of a one year high hit a new cycle high of 92%...highest since 2007." —Michael Batnick [65:43]
• India and EM equities: strong flows, positive technicals, and favorable fundamentals—narrative is back, and "the chase is on."
  • "The fundamentals and the technicals are lining up. The chase is on, and people are under allocated. That is a nice setup." —Michael Batnick [69:02]

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8. Hedge Funds: A Resurgence

• After years of lackluster performance and outflows, hedge funds saw strong returns in 2025, substantial inflows, and new media interest.
  • "Hedge funds secured net inflows of $71 billion during the first three quarters...A major reversal after a decade of outflows." —Josh Brown [60:09]
  • "You know why I love it? ...A lot of money in these hedge funds are pension funds and foundations...I want these pools of capital to go up. This is a benefit for society." —Michael Batnick [62:24]

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Notable Quotes & Memorable Moments (w/ Timestamps)

• On Earnings Focus:
  "For the people that are like, why is the financial media so focused on Mag7 on tech? Well, this is why. It's, it's basically the most important fulcrum that moves the entire market." —Josh Brown [05:17]

• On the Mood Toward Mag 7:
  "The Mag 7 is not cool right now...the bar is low for the first time in a while." —Michael Batnick [05:21]

• On Tesla’s Narrative:
  “It's not a car company anymore...literally not, not a single investor cares about the cars. So it's going to be all about Optimus or whatever.” —Michael Batnick [13:46]
  “If [Elon Musk] comes out and says by 2030 half of all American households will have a robot...this stock is going to go up 20%. It doesn't even matter.” —Josh Brown [14:49]

• On Market Broadening:
  "The best thing that could have happened to the rest of the stock market is that those names [Mag 7] do nothing...The money is finding other places to go." —Josh Brown [20:39]

• On AI Labor Risk:
  “Humanity is about to be handed almost unimaginable power. And it is deeply unclear whether our social, political and technological systems possess the maturity to wield it.” — Josh Brown, quoting Dario Amadei [37:45]

• On Changing Trader Behavior:
  "I think traders are getting better because ...the way that you make money by trading is by buying stocks that you think are going to go up. And the stocks that are going to go up are the stocks that are already going up." —Michael Batnick [34:08]

• On Cheap Stocks as a Trap:
  "Buying a cheap stock that just got cheaper is a bad idea...companies that are cheap are much less likely to beat earnings estimates..." —Josh Brown (Adam Parker research) [58:47]

• On International Stocks:
  "It's not just a bull market United States, it's a global bull market." —Michael Batnick [66:24]
  "The fundamentals and the technicals are lining up. The chase is on, and people are under allocated. That is a nice setup." —Michael Batnick [69:02]

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Timestamps for Key Segments

• [04:26–11:04] Earnings season preview, Mag 7 setup
• [11:04–17:55] Meta, Tesla, Microsoft, Apple—earnings narratives and expectations
• [20:15–21:49] Market broadening, sector flows, and investor rotation
• [34:08–34:41] Chasing winners vs. contrarian trading
• [37:45–43:49] AI: labor risk, UBI, Silicon Valley paranoia
• [44:03–51:17] SaaS performance, software vs. semis, AI risk to software companies
• [60:09–63:10] Hedge Funds’ comeback story
• [63:42–69:02] International and emerging markets equity case

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Final Thoughts

The episode captures a complex market moment: Mag 7's dominance is under scrutiny, market breadth and global equities are reviving, AI is both exhilarating and deeply unnerving, and investors are adapting faster than ever—whether in sector rotation or attitude toward value vs. momentum.

Listeners are left with the sense that while some old narratives are waning (“Mag 7 only, US only”), new stories and risks are coming into focus—and adaptability and a wide view remain essential.

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Transcript

[Michael Batnick]

Foreign.

[Josh Brown]

Hello, gangsters. Gangster rats. Welcome back. It's an old, new edition of what are your thoughts? It is Tuesday, 5pm on the east coast, but Michael and I are actually in Mountain time. We're both in Scottsdale, Arizona, and it's. But we're not pre taping. We are live. It's just a little bit earlier here than it normally would be when we. When we create the show. But we're ready. You ready?

[Michael Batnick]

It's very live. Hold on. Let's just. Let's just test and make sure we're actually live. When you hear three, say, 1, 2.

[Josh Brown]

3, 3, be on live. I beat you to it. All right, guys. On what are your thoughts? Each week, Michael and I dissect the biggest stories that are making an impact on markets. That's what we focus on. I see the chat's a little distracted with Patriots vs Seahawks talk. You have it. Do you have, like, a strong opinion on what this game's going to be like? I think Seattle rolls. Rolls on them, but I'm not sure.

[Michael Batnick]

Josh, I don't have a dog in that fight. Yes, I do. I bet way too much money on the Seahawks not winning the super bowl, and looks like I'm about to eat my words. Or my bets, in this case, where.

[Josh Brown]

You'Re betting on New England.

[Michael Batnick]

So in. Now stop. In week 16 of the NFL season. All right, I. I saw that the. The Seahawks. Yes. To win the Super bowl was 87 cents on the dollar. I said 87. What. Why are they the favorites? All that. There's no way Sam Donald's winning the Super Bowl. And then they steamrolled the Niners that Thursday night. I was like, oh, and never bet against Sam.

[Josh Brown]

I never bet against Sam Donald.

[Michael Batnick]

How could you? It's been downhill ever since. So, yeah, no, I'm. I've got an interest. You bet. You better believe it. But no, they're going to. This Seahawks are the better team, clearly, so.

[Josh Brown]

But you know what I'm rooting for. I just want everyone to have fun.

[Michael Batnick]

Yeah.

[Josh Brown]

Hey, guys, we have. We have. We have all the peeps in the live chat. Let me say a couple of quick hellos and. And. And we'll. We'll get down to business. Magnus is here. So is Chris Hayes, McKenna Baird. Any other wholesalers here? I would imagine probably tons of them. Right? I would just. I guess. I would just have to guess. Cliff is here. Rachel is back. Jerry Jinma is here. Evan Ferrara. Is Mike wearing his Seahawks bet. Right? Sweating his Seahawks bet. Yep. Yeah, yeah.

[Michael Batnick]

No, I've already come to peace. I'm not sweating and it's over. So in my mind already all the gangsters here.

[Josh Brown]

Tonight's show is sponsored by our friends at Public and the Public Trading app as well as public.com and I personally use Public. They call themselves the investing platform for those who take it seriously.

[Michael Batnick]

So do I.

[Josh Brown]

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[Michael Batnick]

Set the stage if you will. Josh.

[Josh Brown]

14% of the S&P 500 market cap had reported so far as of this afternoon. So post the close, probably some more names. There's 102 companies this week. That is 32.9% of total market cap in the S and P. So about a third of what really matters is about to happen. 4 of the mag 7 Apple, Microsoft, Meta, Tesla. This week analysts are looking for S and P companies to post 8.6% year over year earnings growth this quarter. And a lot of that's coming from tech. If you pull tech out and just look at the other 10 sectors in aggregate, it's really more like 2.9% earnings growth. So for the people that are like, why is the financial media so focused on mag7 on tech? Well, this is why. It's, it's basically the most important fulcrum that moves the entire market. Mike, am I saying that right?

[Michael Batnick]

That's exactly right. I love the setup. We'll talk about this later. But the Mag 7 is not cool right now. Like investors are not really digging it and so yeah, the bar is low. For the first time in a while.

[Josh Brown]

We have a good beat rate going. 78% of the S&P companies that have reported 78.1% have beaten earnings expectations. The five year average is 77. So right on target. It's always 77. By the way, spoiler alert. Every quarter analysts are looking for sales to grow seven and a half percent. So it's not just, you know, earnings tricks and buybacks. It's. It's actual revenue growth. And again, highest growth rates, tech, materials, financials lowest during the defense sectors and health care, energy and discretionary. Five of the 11 sectors have beaten beginning of season growth estimates. So where are the, where are the beats? In other words? They're fairly concentrated in about half of the. Half of the segments. Let's put this chart up just to give people an idea of what the week looks like. So you can see a lot of logos here. MasterCard and Visa will be exciting. Those will be on Thursday. I don't know. Do we care about Starbucks anymore? I know. Are you long?

[Michael Batnick]

Nope.

[Josh Brown]

Flat out I feel like nothing ever happens at that stock. So Exxon and Chevron are Friday, not tech. But I will be paying close attention long. Exxon. Who else is big in here? IBM sort of matters.

[Michael Batnick]

Again, did you say Meta and Microsoft or did you just go over that?

[Josh Brown]

No, Meta, Microsoft, IBM all Wednesday and Tesla, Apple's Thursday.

[Michael Batnick]

4:30. I think it's when it comes out.

[Josh Brown]

Yeah, and I saw Texas Instruments reported it looked like a slight miss, but then they reiterated guidance. They reaffirmed guidance for the year sort of seem non eventy.

[Michael Batnick]

Texas Instruments, as far as I'm concerned, they make calculators in elementary schools. That's all they.

[Josh Brown]

Yeah, they, they make, they make the chips that go into your TV remote. It's not it.

[Michael Batnick]

They.

[Josh Brown]

So they're on the call saying they want to refocus their end market customers around the data center. Yeah, no shit.

[Michael Batnick]

You know what? So.

[Josh Brown]

Oh you do?

[Michael Batnick]

I was thinking about this today. So I had CNBC on, on the, on the, on the airplane and I saw something Coming along the screen about, like, Dan Loeb getting involved in a company that I'm not really familiar with. And the shareholders are upset. It's down 24 over the last three years.

[Josh Brown]

I know that's co star.

[Michael Batnick]

And I was thinking, like, it is amazing that every large company, I mean, obviously this is not profound. Like, has large shareholders. Like, Texas Instruments is a great example. Like, no offense, all respect, whatever. Why would you own. Why would you. Why would you own Texas Instruments?

[Josh Brown]

Well, it's a, it's, it's a cash flow story.

[Michael Batnick]

Yeah, fine. Yeah, cool. You could say about a million companies, though. Like, you know what I mean? Like, why would there be like a large shareholder base of, I don't know, SAP.

[Josh Brown]

Like, I gotta call, I gotta call on this, dude. Dell and IBM are two of the most boring companies in tech. And I think.

[Michael Batnick]

I didn't say.

[Josh Brown]

I think they both tripled.

[Michael Batnick]

I didn't say that.

[Josh Brown]

But who is to say intel tripled? Who is to say. Who is to say that? Who is to say that Texas Instruments, all of a sudden, the stock just gets completely ignored. They find a new path to growth. They get rerated, and the stock doubles. Who's to say that can't happen?

[Michael Batnick]

Who's to say. All right, buy the stock. Buy it.

[Josh Brown]

No, I don't want it. I'm good.

[Michael Batnick]

Dude. TV remotes.

[Josh Brown]

No, I know remote controls.

[Michael Batnick]

That's the growth story.

[Josh Brown]

Well, everybody's changing tv.

[Michael Batnick]

Every single change.

[Josh Brown]

And when I show you and when I unveil my mystery chart for you, it'll be. It'll be a great reminder and how quickly or not how quickly, but how drastically things can change. Let's do some of these charts. This is the blended earnings growth estimate. Is. This is the estimate? Yes. The overall S and P here. Yeah, the overall s and P500 is in red. So what we're basically showing you is each sector, what we're. What we're looking at. It includes some of the actual reports and then blends it with the companies that still haven't reported. And you can really see materials is really interesting, which we'll talk about in a second, but you can really see it's tech and then it's everything else. Next chart. This is revenue. It's sort of the same story, except then you could throw communication services in there and interestingly, health care. So you're going to get 9% growth out of both of those sectors based on the estimates, but tech is still 18%. And once again, energy expected to have negative revenue growth. But Just keep in mind that's based on commodity price and that can change really quickly. Probably not this quarter, but next quarter. Blended revenue growth. So this is like, oh, actual reported earnings growth. So these are just the companies that we have in so far. So as high as the estimates for tech are, like, we have 24.7% earnings growth amongst the reported tech companies. They are literally delivering. I don't know, what are your thoughts?

[Michael Batnick]

And the prices aren't moving that much. The four P's got to be coming down in a big way. Love it. Love to see it.

[Josh Brown]

Yeah, well, they're Definitely not up 24, I'll tell you. No, I'll tell you that. Not the ones. Not I. Not the ones I look at. All right, Mag 7. Take us. Take it away.

[Michael Batnick]

Well, I was gonna ask you, like, which one are you most looking forward to? I don't think that. Oh, okay. You know, go on.

[Josh Brown]

Everyone's too negative. Everyone's too negative. We know what they have to say and I think they'll just say it. Everybody want, everybody wants to know return on investment because. So they're not. All right, it's important. They're not a cloud data center business. Like, they're in a lot of the businesses that the other Mag sevens are in, but unfortunately they're not. They're not in the same business as aws, Google Cloud or Microsoft Azure. So they are a spender on, on AI. And all the street wants to hear is like, there's a revenue stream attached to all this money that you're spending. Like, it's not good. Now we know Meta is one of the best users of AI just in terms of continuing to make the algorithm more addictive for Instagram and continuing to help advertisers monetize it better than any other platform. Like, there's no one better in the world, really. So everyone gets that. But the thing is, they're on seven or eight different side quests with all sorts of AI things that they're rolling out, developing, announcing, getting rid of, changing the name, losing employees, adding more employees. If you want to be bullish on Meta, the number one thing you're missing is just clarity about the strategy. And it's not the LLM. It's not like Llama is not. It's an open source thing. It's not getting anyone excited at this point, given what Gemini and, and, and Chachi Beat are doing. So it's just like, well, what are you spending all this money on and how does it turn into revenue? So I'm not long the stock at the moment personally, and I don't know what the answer is going to be but I think they know that they have to like explain it. You can't just do like 45 minutes on the call about AI without talking about revenue. And if they do, I think that could, that could be the end of this stock underperforming. What do you think?

[Michael Batnick]

Last time they reported they spoke about the reels and the algorithm and record revenue in all those segments. So I think it's going to be less about how are they monetizing all the spend and more on what exactly are they going to be spending because that number keeps going up and last quarter, I can't remember what it was. Was it 110 billion for 26, 180. Whatever it was, the street was like, no. And just bushwhacked him after the close or after hours.

[Josh Brown]

Yeah, those are the twin storylines. It's the Capex. And what is the, what's the, what's the AI business? Not how well are you monetizing wheels. We get it. What's the business? What is all the spending doing?

[Michael Batnick]

I think Tesla is going to be the Elon show as it always is. It's not a car company anymore. Literally not, not a single investor cares about the cars. So it's going to be all about Optimus or whatever.

[Josh Brown]

What's that fsd? Robo taxi timeline. Timeline for Optimus.

[Michael Batnick]

So I don't think they say, are.

[Josh Brown]

They getting into trucking?

[Michael Batnick]

I don't think they're going to say anything because it's not ready yet. So I don't think that there's going to be anything massively revelatory. They're sort of similar with Apple. Like I'm, I'm excited.

[Josh Brown]

Michael. In early 2025 he said full self driving Robo taxis with no safety drivers would be rolled out in every city across America. They're in two cities, it doesn't make a difference. He just makes up something for it. Does like he doesn't get, he doesn't get dinged for missing timelines. In fact, he only gets rewarded for that. So if he comes out and says by 2030 half of all American households will have a robot.

[Michael Batnick]

Good.

[Josh Brown]

You think anyone's going to be like, no, right now this stock is going to go up 20%. It doesn't even matter. So he could say whatever he wants. The timelines are squishy. Like people don't hold him accountable. That's not what this stock is about. This stock is about what is the next thing that he can dangle? And right now it's robo taxi without human drivers in more cities. And if he can say it like if he could, if he could say, yeah, we're in two cities, we'll be in five cities by the end of this quarter. Stocks going up regardless doesn't even that means need to be profitable.

[Michael Batnick]

I All right, so.

[Josh Brown]

And it won't be. I guarantee it.

[Michael Batnick]

The one that I am most looking forward to is Microsoft because we don't hear from Nvidia until maybe the end of February. I can't remember what they report like seriously late. So the next six weeks I think the AI trade is going to be queued off. Microsoft's reaction, not necessarily what they say because every quarter it's the same thing. It's 15% growth, it's 18% growth. Every segment is on fire. Like the business is humming, they're killing it. But that's not important. What's important is how investors react to it. It's been sideways to down. Investors are not, not excited about it. And can they can satya say something that reignites investor enthusiasm or is this just going to be like, no, we're moving on from max seven. Like we're broadening out. It's the 493's turn. So that's what I'm most excited to see.

[Josh Brown]

Do you think Microsoft is going to be a more excited call for Tesla or you're saying that's the one that you have more interest in?

[Michael Batnick]

No, no, no. That's one that I am personally most interested to see because I think for the stock market that is the most important call that we're going to hear this week.

[Josh Brown]

Okay. Apple reports Thursday, 5 o'. Clock. So in other words, Meta. Microsoft will be after the close tomorrow. Right. And then, excuse me, Tesla, Microsoft and Meta all in one shot. And then Apple is the next night Thursday. So two storylines. How is the consumer holding up? And are 17 sales still rolling? And I think the answer will be yes. And then like any kind of AI surprise. So we know that they're working with Google. We know that the whole name of the game for them is to turn Syria into something more useful than it is today. We also know that they wanted to do this last year and they're in like a year and a half delay. So if they surprise everybody and say anything on that front, my personal opinion is probably good enough. And then Morgan Stanley comment, they actually are expecting shares to trade sideways to lower due to seasonal headwinds. I guess coming out of Q4 phone sales slowdown, I think Apple is down.

[Michael Batnick]

I think the stock was down eight weeks in a row. So. I love this setup. Yeah, I'd much rather see this. If you're bullish, you know, if you want to see a positive reaction, the bar is pretty low.

[Josh Brown]

I want to share Kanter's analyst, Andres shepherd, who we've had on the compound before. He actually covers all my flying car stocks. This. This is his outlook for the Tesla call. On tomorrow's call, we expect Tesla to likely disclose its 2026 vehicle delivery outlook. LOL. It'll be interesting to see whether Tesla guides to growth in its auto business or another year of fewer sales. Okay, you and I are both on record. They can say we sold zero cars.

[Michael Batnick]

Yeah, it doesn't matter.

[Josh Brown]

It won't even matter. Energy generation and storage segment experienced its highest year on record in fiscal year 25 after the company announced it deployed 46.7 gigawatt hertz, whatever that means in real life. And tomorrow, expect the company. I don't know, it's like it's. You wouldn't understand. It's above your head. Anyway, that's a. That's an exciting part of the business. And then Cyber Cab, like, this is, you know, once again, just to reiterate, like, do you have more cities that you're announcing or you don't? And I think that's all they really need to do is they need to say yes. And then on the Optimus front, this is not a product that exists. We've seen the memes. But Canner is bullish. So they said. Musk stated that Tesla's upcoming humanoid robot Optimus will be available for purchase by consumers starting in second half. 27. In addition, they recently provided an update on humanoid robotics market estimating the global market will grow from 2.9 billion this year to 15.3 billion by 2030, which is a 40% CAGR. We believe this is a material opportunity for Tesla over the long term. And on the call, we hope for further details on Optimus mass production timeline. I bet you Dan Ives is going to have the first question and he's going to ask about the robot. What do you think about that? Can we make a prediction market in. In that bet?

[Michael Batnick]

Is Dan usually on the Tesla call asking questions I don't know all the time? Sure. Okay. All right. Before we move on, I have a chart. So this is from Yuri and Timber, a friend of Fidelity. Does great chart work.

[Josh Brown]

The.

[Michael Batnick]

The black line is the Mag 7 and the Mag 7 is going sideways, like for a long time. Yeah, since the end of the summer. Yeah, it's gone sideways.

[Josh Brown]

Yeah.

[Michael Batnick]

But interestingly, what's happened alongside of that is the rest of the market broading out percentage of members with, with the stock above a 50 day moving average, it's at the highest it's been in a while. It's awesome. It's fantastic.

[Josh Brown]

Who doesn't like, right. It's such a. And it's such a cold glass of water thrown in the face of people who had this take where it's like, well, you better hope the Mag 7 holds up. It's like the opposite. It's the best thing that could have happened to the rest of the stock market is that those names do nothing. Some of them fall. Nothing falls apart though. Like, we're not, you know, we're not like Vix25 because Meta and Microsoft are struggling. It almost doesn't matter. The money is finding other places to go. I know this is a point that you and I harp on repeatedly, but I think it's, it's necessary to combat all the people that tell our audience that the market works differently. No, it works. It literally works like this. People are investing. It's not Apple or nothing. If Apple stops working, they find a new game we don't like. We know this.

[Michael Batnick]

The people that are worried, there's always something to worry about. You are in a bear market, you worry. In a bull market, this is as good as it's going to get. Oh, look at nothing with no problems in credit. Land spreads are at record high. I guess there's nothing. There's no risk. No, it's a bull market. This is how it works. So. Which brings me to a great chart from Duality Research.

[Josh Brown]

Wait, wait, wait. Before we go there, last thing on earnings season, just in general. And I know when we get closer to Nvidia, we'll go there. I think the number one thing that is not priced into Tesla is Jensen's desire to own the robot opportunity. And I'm sure they work together on a lot of things. And I'm sure there's a ton of GPUs in all sorts of Elon Musk projects. But like, they're doing their own deals. They're doing their own deals with automakers, they're doing their own deals with Uber. I would imagine there's nobody that Jensen wouldn't work with just to make sure that the Nvidia platform remains at the center of autonomous vehicles and then eventually robotics like and and there's going to come a collision point between these two companies. I don't know when it is. I don't know when it is. But I, I think that is an underrated storyline for 2026 is Tesla is both a big user of Nvidia Silicon and is also going to see Nvidia become a fierce competitor in two of the markets that they're telling their investors they're the most excited about. So I just, I wanted to end that, that with, with that comment. So it'll be interesting to hear when the Nvidia call rolls around, how much time Jensen spends on AV and, and robots. I think it's gonna be a lot.

[Michael Batnick]

Yeah. All right, Good seed noted. All right, look at, look at this freaking charts. You know, I have a high appreciation for chart art and this guy at Duality Research is, is one of the best. So here's what we're, I do look at, look how good this is. So here's what we're looking at. On the top is the S P500 and underneath it it's the AAII bull bear spread. Now it's only one indicator and it's mostly an older cohort, but whatever, it's something. And I think this is important. So Alex says this chart makes it clear that once sentiment turns bullish, it usually stays there for a while. Okay, so you see how like the, the red and the green, they don't oscillate every other day, right? They, they move in trends and waves. So he said it usually stays there for a while, especially if that 26 week average spent more than six months in red. And this is the, this is the key, key point, the biggest mistake. Actually, you know what, put a pin in that quote. I just want to show one more chart. So this next chart please. So this is the forward returns. Now it's only n equals what, 7, 6 or 7.

[Josh Brown]

Michael, can you explain what the AAII bull bear spread is?

[Michael Batnick]

Yes.

[Josh Brown]

Okay.

[Michael Batnick]

Yes. So when their previous chart, please. So they, they, they pull these people and they say, are you bearish? Are you bullish? And they do this every single week. And the difference between bulls and bears is represented by the green lines where there's more, more bulls and bears. And the red lines when they're, when there are more bears than bulls. And the point is that only now, even after the run up, only now are people just starting to turn bullish, at least according to this indicator. So he shows the next chart which shows the long run average, which is 26 weeks when it flips from bearish to bullish after 26 months. Is that what says 26 months in bearish territory? And it's higher every time. Again, not a huge sample size, but I think the key point, the key point is this. He says the biggest mistake you can make right now in a market like this is being a serial top caller right now. Right now the crowd is just starting to get on board with the bull and we're still far from the kind of euphoria that screams market top. I just mentioned like the most popular, widely held names in the market. Nvidia, Apple, Microsoft, they've been range bound for five months. This is not a euphoric market, obviously. It's just not.

[Josh Brown]

What do you say though to people that point out rightly that those stocks don't typically correct or crash from an all time high? Usually it's when they've been range bound for a while and people are losing faith. That sets up the next correction. Like it's very rare that you get a record high and then bang, you're in a 10% drawdown. It's more likely that a stock is 10 to 15% below its high and then breaks down 100%. That's like a, that's a legitimate concern.

[Michael Batnick]

100%. I also think it has nothing to do with what I just said.

[Josh Brown]

Okay. All right. But yeah, I, I think like, I think like you see that sentiment flip bullish. And based on the chart, like it could be, I don't know, is that like weeks, months for, for how long that bull wave lasts historically.

[Michael Batnick]

No, back it up, back it up, John. It, it, it, it's.

[Josh Brown]

Yeah, it would be unusual time frames down there. Those are this, these are long.

[Michael Batnick]

It's 26 weeks, dude. Yeah, like it moves in long waves. All right, More investor behavior stuff. Check this out. You're to love this. People are selling us large cap stocks. It's like unbelievable. It's. This has been a minute. Not only are they selling us large cap, but look at the flows into global. Who. That is something.

[Josh Brown]

It's the classic rebalance, chase, whatever. I don't know. I think, I think, I think two things can be true. I think a lot of people are looking at the outperformance of international stocks and they're just saying, you know what, it's been a while, I'll buy some shit. So I think that's one story. The story on large caps being up for distribution early this year. I don't know if it's related to the. I don't know if there's people selling us, buying international, I think it's more like people maybe like, they held on to taxable gains through the new year, and now they don't have to worry about it till April 27th.

[Michael Batnick]

You are Mr. The money goes somewhere. 15 billion came out.

[Josh Brown]

It's not going cash. Okay, so you think that's all one story? It's like, I do. You know what? Our. Our new target allocation goes from 10% international to 20, and the money has to come from somewhere. So, I mean, who's doing that? Is that like TAMPS and big wealth management CIOs model portfolios. All right, you know what? You're probably right. I would buy more.

[Michael Batnick]

More stuff on this. All right, Equity sector flows since. Cumulatively, since. Since the beginning of 2025. Dude, look. Look at technology. It's the light blue line and it's flat. Flows are flat. It's like, unbelievable. And number one and two, it's industrials and utilities. What?

[Josh Brown]

Well, I think because it's off of a base. So the baseline is that zero line in January of last year.

[Michael Batnick]

These are cumulative flows to January of last year. That's correct.

[Josh Brown]

Right. So I just feel like the base is so low that, like, any additional sector flows look like really aggressive. Whereas with tech, flows have never been a shortage. I think it's just a low base. Like, how many people were. How many people at the start of 25 were, like, allocating to utilities and industrials? Now, obviously, things have changed and people have recognized that these are part of the AI trade.

[Michael Batnick]

But what's interesting is these are. These are absolute billions. There's no percentage here, like, it's billions.

[Josh Brown]

Okay, so it's just in dollars.

[Michael Batnick]

It's just straight dollars, homie.

[Josh Brown]

So then the. Okay, so then the baseline doesn't actually matter.

[Michael Batnick]

It's like, it's wild. All right, one more. Actually two more on this. So this is from Daily Chart Book.

[Josh Brown]

And can I say one thing?

[Michael Batnick]

What a good utility blog is? Yeah, go ahead.

[Josh Brown]

People. People think that this utility thing is like, oh, well, it's just about the data centers. And then whenever that runs its course, those stocks will normalize back to 10 times earnings. I don't think so. I think it's a secular bull market in electricity. It's not about the utility companies. The demand for electricity is in hyperdrive. And I don't care if they stop building data centers tomorrow, the ones that they did build will be in heavy use forever. Fully. And just the elect. The. We've had a Wake up call about electricity generation and distribution in this country. And those assets, the equity shares of those businesses have gone through a once in a century re rate. And that's not coming back off. Those are more valuable than we have systematically given them credit for. Those assets, the electricity generation, the pipelines, the transmission mechanism, where they can get it from the, the plant to the grid to your home, all of those assets have been systematically undervalued. And that is now what's at an end. And I would not be fading this, this utility thing as like, oh, that was a 25 story. I think it's like a forever story. And we're going to stop systematically undervaluing those, those companies.

[Michael Batnick]

I think you're right.

[Josh Brown]

I think you got to be paying attention to these names. I know they went up, get over it.

[Michael Batnick]

The. So the last chart that we looked at, those were sector flows. So I believe that was like flows, not like, not. All right, let's add up all of the industrial stock buying like I think those flows inter sector ETFs. Okay. That's my understanding. This next chart is showing retail cumulative purchases of the Max 7 and Palantir. Okay. And it's this, this goes back to July 2025. And it's hilarious that really the only game in town, relatively speaking, or the king, you know, just dominated, was Nvidia. It was really Nvidia. And then a massive, massive, massive gap. And then Tesla and then everything is sort of bunched together. Meta, Amazon, Google.

[Josh Brown]

Purple line is in. The purple line is Nvidia.

[Michael Batnick]

Yeah. So that's billions of dollars. And then interestingly, just as interesting on the other side of the table, persistent outflows from retail investors out of Apple, like big league.

[Josh Brown]

Does. Does Warren Buffett count as a retail investor? I mean they sold like two thirds. They sold 2/3 of their stock over this time horizon that we looked at.

[Michael Batnick]

That's very funny. Okay, one more on the retail stuff. This is awesome. So this chart from Goldman shows the 15 day rolling flow in billions, okay, in billions of dollars of the Mag 7. And this is retail. And only now for the first time since the beginning of 2024. So two full years. We've never seen what we just saw over the last 15 days, which is more retail buying out of the Mag 7 than inside the Mag 7. First time on like that it's been this meaningful in a long time.

[Josh Brown]

I think that's so cool. And you know, one of the things is like they, I mean we saw on the chart they're obviously buying Industrials, they're obviously buying material stocks. They're buying gold. We know that. We know that they're interested in the utility trade because those stocks look great. And Sean and I have been writing them up, like, every month. We do at least one column that touches on that trade. So we know they're buying those stocks. But, like, the general thing is that the Mag 7 are just not as sexy as they used to be. We used to talk about how cool it was that they were like, asset light, they're asset heavy, and it's okay. That's where they see the world going. They have to chase their future cash flows that they think they can earn, but, like, they're just different stocks than they used to be. And the apathy on the part of investors and the desire to look for new trades, new ideas is perfectly normal. I think it's great.

[Michael Batnick]

I love it, too. And I. There's a voice in the back of my head where, like, the listener might be like, dude, this isn't investing. What are you talking about? To what I'm about to say. And what I'm about to say is that. And fine, let's call them traders. Let's just. Let's call what it is. I think traders are getting better because when you're trading, the goal is to make money. And the way that you make money by trading is by buying stocks that you think are going to go up. And the stocks that are going to go up are the stocks that are already going up. An object in motion stays in motion. Like, this is how the stock market works. And when you're trading, you want to be on the right side of stocks. Not, you don't want to be in losers, you want to be in winners. And so they are jumping from things that aren't working into things that are working. Now. The voice in the back of my head that I was just referencing is, well, they're just chasing. They're just donkeys. Like, I reject that. I'm sorry. If you're trading, you should be in the winners, and that's what they're doing.

[Josh Brown]

Well, you know how I feel on that topic. I. I don't encourage everybody to go out and start trading their account, but.

[Michael Batnick]

If you're going to.

[Josh Brown]

Right. The point that I make is, if you're gonna trade, it's like, I'm gonna go fishing. Great. Which pond are you gonna fish in? The. The pond with the fish or the pond with the floating boot on the surface? Which. You know what I'm saying? Like. Like what do we.

[Michael Batnick]

What do we.

[Josh Brown]

What you do are we trying to accomplish? We're looking for trading gains on the long side of stocks. Well, let's buy some stocks that are going up, for God's sake.

[Michael Batnick]

Right? I can't that lesson.

[Josh Brown]

I can't believe I still have to explain that. Although maybe I don't, maybe I don't cuz people seem to be doing it.

[Michael Batnick]

Let's skip this last chart because we're two topics in with 35 minutes and we've got like 90 more things to go, so. So let's skip this one. Keep going.

[Josh Brown]

Well, look, this is you SPX versus R2K.

[Michael Batnick]

No, see, what I said was we're skipping it. We're skipping it.

[Josh Brown]

Oh, I. All right, got it.

[Michael Batnick]

Out of respect to the.

[Josh Brown]

Michael, will AI make money worthless? No, no. Okay, did you see this piece of the Journal? This Freaking out.

[Michael Batnick]

See it? I read it. How about that?

[Josh Brown]

I hate skimmed it. So no, I read it. Let me just pull out this. This is. We're now at the point, and maybe it was we were always headed here. We're now at the point of extreme paranoia about job loss. And not like a few people getting laid off, but tens of millions of people because their entire role in society is just replaced by some combination of AI and robotics. And now we're talking about social safety nets. UBI is back. Universal basic income, civil unrest, and the parrot. The heart of this paranoia, you'd think it'd be in Washington D.C. or New York with Wall street, but it's not. It's in San Francisco. And I find that troubling because these are the actual people that are building the things. And as they're building them, they're sort of saying like, this is so fucked up what we're doing. Like over and over and over again. And there was, before we get to the Journal piece yesterday, the CEO of Anthropic, Dario Amadei, basically wrote a 38 page essay which we're not going to dive into today. But he said, quote, I believe we are entering a rite of passage both turbulent and inevitable, which will test who we are as a species. As a species, like humanity is under threat because of Anthropic, quote. Humanity is about to be handed almost unimaginable power. And it is deeply unclear whether our social, political and technological systems possess the maturity to wield it. Oh, no, no, no, it's not unclear. We don't. I'll tell you right, I'll tell you right now, we're not ready for this. So I don't know, do I want to read 38 pages of AI related doom porn with my free time? I probably not going to read it. But that's like one of the most important figures in all of AI and he has a lot to gain by not saying this. So the fact that he felt compelled to write 40 pages in that vein, I don't know. Does it bother you?

[Michael Batnick]

Yes, there's, there's two schools of thought here. One, the techno people, this guy aside, look at the history of technology. It is nothing but up into the right advancing civilization. Yes, there have been periods of time where there is job displacement, of course, but thinking not, not at the human level, just thinking about society as a whole. Those jobs are ultimately replaced with better jobs. And yes, it is lumpy in real time, but ultimately progress. That's one school of thought. The other school is, that's the Pollyanna school of thought. The other school is like, okay, fine, I understand history too. This is different. This is not the computer, this is not the railroad. This is society altering type stuff. And I'm not in the middle. I'm not on, on either extreme. Like I don't think the world's going to end, but I'm definitely closer to the, this is like seriously scary stuff.

[Josh Brown]

I'm center, I'm center slash that one end of humanity.

[Michael Batnick]

So I'm center slash end of humanity too, because. All right, so, so today for example, and today doesn't really matter, but you talk about the paranoia and I can only speak to, to the world that I live in. I see the train is fully full. The train station is full. You get there past eight or three, I can't park there. But I'm also seeing so layout job market. The labor market is okay. Employment is good. Unemployment is, is relatively low. There's not a lot of layoffs. However, there's definitely not a lot of hiring and there's definitely not a lot of open jobs. So if you have a job right now, you're okay right now. But the labor market, especially for younger people, I don't know how this, like, why would it, why would it open up? Why would, why would companies start hiring young people all of a sudden when they might not need to? And that is some really terrifying shit.

[Josh Brown]

Here's Tim Higgins at the Journal. Silicon Valley is filled with all sorts of dreams. But one of those wild eyed ideas long debated on subreddits and in hacker houses is becoming a real life nightmare. Will the AI boom be the last chance to get rich before artificial intelligence Makes money essentially worthless. Okay. The argument is that tech companies and their leaders will become a class onto their own with infinite wealth. No one else will have the means to generate money for themselves because AI will have taken their jobs and opportunities. In other words, the bridge is about to be raised for those chasing the American dream and everyone is worried about being left on the wrong side. Yeah, I wrote Just Home the Damn Robots in 2017.

[Michael Batnick]

That was a great call.

[Josh Brown]

And I, way before we were to bed. AI, I just have always thought that way and I know history says I'm wrong. I can't help but feel that this is something entirely different and we're relying a little bit too heavily on, oh, this, the. What's it called? The automobile made all the people that were dealing with horses. Go find another job.

[Michael Batnick]

Sequitur. The Internet was never built to replace your job. Literally these solutions, these machines are being built to make us more efficient than the people that use it and everybody else who's replaced. Yeah, go yourself. Like that's what it's doing. And so is this article made or hyperbolic? Whatever, who cares? There's more than a kernel of truth in here.

[Josh Brown]

Well, right. The article is not being hyperbolic for the sake. They're just quoting people. Here's an Elon Musk quote. The transition will be. He said this on Joe Rogan. I think the transition will be bumpy. We'll have radical change, social unrest and immense prosperity. Like in what order? And how do we survive the first two. Okay, one more. Sam Altman. I used to be really excited about ubi, but I think people really need agency. They need to feel like they have a voice in governing the future and deciding where things go.

[Michael Batnick]

How about a reason to get up in the morning?

[Josh Brown]

Yeah. If you just say, okay, AI is going to do everything and then everybody gets a dividend from that, it's not going to feel good. And I don't think it actually would be good for people. So Sam and I, we completely agree. You need.

[Michael Batnick]

We need purpose. You need to grow as a human being. And if you have nothing to do but get government money and sit on your ass, that's not healthy. Here's. Here's another quote that I pulled up from Elon. I mean, this is wild. If you don't have. This is Elon. If you don't have a scarcity of resources, it's not clear what purpose money has more recently must suggest that people shouldn't even worry about saving for retirement. Predicting AI will provide health care and retirement. Quote, it Won't matter, he said of retirement savings. Okay, sure. It won't matter because you so much because we have health care and entertainment and.

[Josh Brown]

Sorry. It will matter because other people will have more money than you do. And that will. And, and their spending will affect the standard of living that you yourself are able to afford. Like wealthy people set the. Set the tone and the prices in any society and there will always be wealthy people. Unless you tell me, Elon is going to say, I am actually going to give away all the shares of AI to the government or to some philanthropic cause and like everyone will own it. Bullshit. There's going to be winners and losers and you have to be a winner. I don't believe that.

[Michael Batnick]

Obviously none of us knows how this plays out, including the CEOs, founders of.

[Josh Brown]

All, for starters, stop selling stocks every time the market drops 10. How about that? Because that's your only way out of this investor.

[Michael Batnick]

Wait, I sold on Greenland Fears.

[Josh Brown]

You know what I'm saying?

[Michael Batnick]

Yeah.

[Josh Brown]

You want to be on the. You want to be on the right side of history. You want to be on the right side of history. Step one, stop selling. Every time you get nervous because some man on TV says something, stop doing that immediately.

[Michael Batnick]

On the one hand, I'm terrified, but on the other hand, I'm, I'm optimistic that we're not just going to let this burn down civilization.

[Josh Brown]

Anyway. On that note, yeah, I don't know where to end this, but.

[Michael Batnick]

So let's talk about the other side of the coin. Let's talk about the other side of the coin. Let's talk about SAS companies. All right. Our boy Todd son, look at this. Tech sector ETF flows by exposure. And the only place you need to, to, to point your eyes is, is software. This is cumulative since chat GPT release and software flows since November 2022 are negative. And man, look at semis who. That's the green line.

[Josh Brown]

You know, it's unbelievable. It's unbelievable. But there were probably people that very correctly said, okay, I get it. The LLMs and chat bots are going to enable people to code their own software, which will introduce a new risk for software stocks. I want out of those and I want to reallocate that money into the semis, which there's just not enough of in the world and we can't make them fast enough for, for all of these LLMs to function like that was the trade. And, and I assume some people got that really, really right. Three years ago, when, when the LLMs first came out, did you listen To.

[Michael Batnick]

Joe and Tracy did a podcast recently about like, all the Claude stuff. People going nuts for that.

[Josh Brown]

What? Claude bot?

[Michael Batnick]

Yeah. No, not, not Claude bot. Claude code.

[Josh Brown]

Oh, regular cl. Oh, how Claude is helping people code. Yeah, yeah. Well, the tech people are looking at that. Like, normally in order to do what I just did, I would need like six people around me. But like having, having this co pilot that's AI, I just eliminate all that teamwork and I could just do it myself.

[Michael Batnick]

So one of the things that, like I said was they were talking about Salesforce and he's like, salesforce turns unstructured data into clean data that's usable, but like 95, I'm making this up 95% of the functionality of Salesforce. People don't even use. People aren't even entering this, the. The thing into the software. We know this to even get productivity out of there. And if I could just like, literally make my own. Anyway, not like, not. Not a hot take. This is obviously in, in the performance of these stocks. So there was a report last week by a company called Avenir, and I just wanted to pull some charts and go through it. First one. This is awesome. Just a pretty visual to set the stage. It's. It's like the medieval times. On the one hand, you've got all of the software companies, Workday and Slack and Zoom and whatever. Salesforce against OpenAI and Perplexity and Anthropic.

[Josh Brown]

And well, very well, very pointedly, they, they have the work days and the hub spots and like the publicly traded software giants as knights in armor. And they are in a defensive posture, basically like defending the castle. And then they have all of the startup people, like, dressed like basically peasants that have shields. I don't know, like, like, it's, it's a great visual representation of what everyone's worried about. And, and that chart you showed before of what the software, what the software stocks have done since the advent of like, at a certain point, you'll see though, one of these companies, one of these peasant folk that are storming the castle, they're going to switch sides. They're going to be on that enterprise side and they're going to be selling an enterprise product. They already are. And like, you know, at a certain point, like, that's the thing about AI is that the disruptors are infinitely disruptible too. So I just, I just think it's important, like, to. It's a great, it's a great illustration, but like, things could change really fast. Like, what are we saying that OpenAI's most important thing is not selling subscriptions like an enterprise software business, because it is. They're just not public yet and they're not losing share, but they will one day join the banners amongst the knights in shining armor as soon as they go public, I, I, I would estimate.

[Michael Batnick]

All right, so we've got like seven charts here, so let's just run through them quickly. Public SaaS revenue growth has stabilized over the past two years. So this goes back for, I don't know, since pre covered times. And of course the growth rate has come down because it was totally off the charts, but still the median revenue growth in their basket. And I can't even see what's in here, so my bad. But point is, it's down but stabilized. Okay. And the next chart, their net retention shows the same thing. Median net dollar retention. And their software basket, down but stabilized.

[Josh Brown]

That's, that's like churn the measuring. Yeah.

[Michael Batnick]

So they show, all right, revenue growth flattish, but rule of 40 still there. All right, so their growth and their profitability is still there. But put a pin in that because we'll come back to that in a second. They break it up by a horizontal index versus a vertical index. And I could imagine what's in the horizontal. So I should have, I don't have to guess. What does that say? I can't even read this my freaking eyes. One segment of the market has performed a hell of a lot worse than the other.

[Josh Brown]

Yeah.

[Michael Batnick]

All right, next chart. 2021, 2022 was a total anomaly. What we're looking at here is the.

[Josh Brown]

Horizontal SaaS is like Salesforce. It's like they serve every vertical under the sun. Whether, whether, Right. Whether you're like a, whether you're a company that makes food or makes medical supplies or a company that, you know.

[Michael Batnick]

Whatever it is, it's all the names that we know. It's Workday, it's Adobe, it's. It's Salesforce. It's.

[Josh Brown]

So I'm like bets in the vertical in, in vertical sas, because I think it's just less disruptible. There's too much knowledge. There's too much vertical specific knowledge for like something really broad to just step in and disrupt.

[Michael Batnick]

And so Shopify is vertical Toast is.

[Josh Brown]

An example of vertical software Toast Service titan, which, which I pitched you the other day.

[Michael Batnick]

Crowd.

[Josh Brown]

I think that those stock, those stocks are really interesting to me. Crowdstrike is horizontal. It's cyber security.

[Michael Batnick]

Well, well, no, they're, they're labeled in vertical. So these are companies that serve one thing versus A right. Like Toast does what it does for the restaurant industry. The restaurant industry versus Salesforce, who serves everybody, so the company everybody versus Block.

[Josh Brown]

Which does payments, but not just for restaurants, but for every industry.

[Michael Batnick]

So those companies that are not specialized, that service everybody, those are the ones that are like, dude, sorry, it's over. Game over. All right, the median top quartile and bottom quartile multiples have, have normalized in a big way. Last chart please. Nope, I'm sorry, my bad. Two. There we go. There we go. All right, so listen, we're coming out of silly season, so starting multiples are an important part of the story. Totally out of control and at a more healthy, normal level here.

[Josh Brown]

Well, right. Expectations have come down.

[Michael Batnick]

All the way down. All right.

[Josh Brown]

It's not, it's not 2020 anymore.

[Michael Batnick]

So even though the rule of 40 is intact, if you look at, if you look at the median SaaS company, the Gap EBIT margin is freaking break even. Like not good. Not good. So I guess a large portion of this is stock based comp. Like it's, it's, yeah, it's, it's gnarly.

[Josh Brown]

Yeah. And they, you know, they're big spenders, these companies. Like, they're, you know, they. Because from their perspective, some of my businesses, like with 40, 50 profit margins and 20 growth year in, year out, they're not, they're not like grinding down their, their, their cost structure until the Wall street forces them by losing interest in the stock like that. That's, that's the situation that they've been in for a long time.

[Michael Batnick]

So. Almost done. It's important though that these are not, even though these are in the same basket, a lot of these names, Adobe and Salesforce and Snowflake and Servicenow, they're not all the same businesses obviously, even though we grew them together. So they did a survey and they asked people, is AI going to help these companies or is it going to destroy them? And the spread is all over the place. So like look at Salesforce, 40% of respondents, net respondents. So that AI is actually going to help them. And I would say that's probably more true than not. If I had to guess, I think that Salesforce, these are, these are deeply embedded companies. They're really hard to unwind. If you don't own your data, you can't just pick up and leave. Like.

[Josh Brown]

Yeah, I, I'm trying to understand confluent why, why do the net percentage of respondents saying AI helps is negative 30%.

[Michael Batnick]

So this means that people are 30% of people are on a net.

[Josh Brown]

No, I know. What the hell it's going to hurt. What the hell is that business?

[Michael Batnick]

I don't know who.

[Josh Brown]

It's a, it's an IT like an it. Like an IT outsourced it. So chat bots should be able to write. Done. I agree.

[Michael Batnick]

All right, so. All right, so where does this leave us?

[Josh Brown]

Data streaming platform for real time data integration and processing. Oh, is that like data entry? Get the out of here. No way.

[Michael Batnick]

John, let's do the last chart and then the second to last chart. Let's go to the prime book. All right. Hedge fund flows selling and tech was driven mostly by short sales and led again again by software stocks. So this goes back to January 2025 and look at this gigantic spread of software versus semis and semi equipment. It's unbelievable.

[Josh Brown]

I mean it really is. At some point this has to reverse. Right.

[Michael Batnick]

Okay, so last chart. So this is again duality research. We're looking at a ratio of software versus the S and P at key Kiki Kiki key critical potential support levels. And on the one hand, on the one hand I think that it's very easy to hear us and see the, see the trends and say that yeah, software's in trouble. Everybody knows is in trouble. It's not as bad as everybody else thinks by. And maybe, maybe that works this time. I just feel like in recent history that sort of thinking has just been a money loser.

[Josh Brown]

Dude. I hope that we're contrary indicators and these stocks are all screaming guys, how.

[Michael Batnick]

Wait, I'm not, I have no opinion.

[Josh Brown]

Oh, I have an opinion.

[Michael Batnick]

Like I, I'm not. Well, I don't own the stock, so I guess by de facto I'm not buying them.

[Josh Brown]

I'm sure these stocks bounce, but they're just, they're not. It's gonna be a while. It's gonna be a while before they can convince anyone of what the previous chart was showing. Like whether or not people believe that they're going to use AI to actually make more money. I think it's going to be like years and some of them never will. But they're going to have, they're going to have to like, they're going to have to demonstrate not just say it. Like Benioff can run around saying, oh, we're, we're, we're agent Force now and we're like all about agents and AI. But the market doesn't believe it and he might end up being right and being able to demonstrate that. I would rather wait. So I don't I just don't trust, I just don't trust that these companies are going to figure it out that fast. Really hard.

[Michael Batnick]

There will be bounces because these are still giant businesses. Adobe is still reporting record numbers. So there will be 20% bounces along the way. Of course there will be, but like to what end these are these businesses just, are they in secular decline? Like is it a melting ice cube? And right now that's how investors believe that maybe they're wrong. But I'm not getting in front of this train. Not again. Been there, done that.

[Josh Brown]

It's not my, it's not my time. I don't love ratio trades any like ratio chart based trades anyway. Because I think like, I think in a lot of cases when things get this extreme, it really could go, it really could get so much worse. It doesn't get this extreme because the bears are totally wrong.

[Michael Batnick]

Correct.

[Josh Brown]

Like, all right, so that's, I don't like that kind of ratio rationale for. I can't believe how oversold such and such industry group is relative to the S and P. Right. That's not my, That's.

[Michael Batnick]

Yeah. If you want to, if you want to buy it for a trade. 11% upside, 3% downside. All right, I'm not doing that.

[Josh Brown]

We're going to blaze through the, the last two. I want to get this Adam Parker thing and we don't have a ton of time to spend on it. But he put out a great note about why buying stocks that just got cheap is actually a trap. He looked at the top 900 stocks by market cap, divided them into deciles based on forward PEs and excluded all companies with no profits. And what he found was that there's a relationship between trail and growth and valuation. I think we all intuitively understand that only stocks in the cheapest decile that just saw a quarterly decline in their forward PE have less than 50% of the companies growing year over year earnings per share growth. So in other words, a higher percentage of more expensive stocks actually grow their earnings year over year versus cheap stocks. Right. That's how they get cheap. That's how they get expensive. So for the knee jerk contrarians sort of think twice because there's a, there's an inner logic to why stocks do what they do. He says buying a cheap stock that just got cheaper is a bad idea. We assess the percentage of stocks that have positive three month forward earnings revisions by how much their price to forward earnings changes over the three months prior to the report. And this is A losing battle. You're up against. You're up against like the odds. They're not great. Companies that are cheap are much less likely to beat earnings estimates than companies that are expensive. If you didn't know that, you should know that now you do. Companies that get more expensive, no matter what their starting valuation level, are far more likely to get upward revisions than companies that just saw lower multiples over the last quarter. So last thing, 74% of stocks in the second most expensive decile on a forward PE basis with. With price to earnings multiple expansion over the prior quarter then had upward revisions. So the companies with the upward earnings revisions are the ones that are growing more expensive in advance.

[Michael Batnick]

Yeah, the market gets it right usually.

[Josh Brown]

I think this is such a key concept, we don't have more time for it. But shout to Adam and trivariate. I think they're. I think he just answers such interesting questions every time he publishes. Okay. Our hedge funds back, Michael.

[Michael Batnick]

So says the Wall Street Journal.

[Josh Brown]

Everybody's saying it. Bloomberg, the Wall Street Journal. It must be true. I think they sort of are back. Good.

[Michael Batnick]

This is the same thing. It's the same. It's a Max 7 story. That has been. That was the only thing working and it's boring. It's enough already. All right.

[Josh Brown]

Hedge fund investors posted gains of 12.6% last year. Okay. We know the S And P did 17, but fine, that is the best year of returns for the sector since 2009, according to HFRI. Hedge funds run by industry giants like D.E. shaw and Millennium posted double digit returns. Bridgewater's Pure Alpha 2 did a 34% gain.

[Michael Batnick]

I'm sorry, not to be super duper annoying, but th. This is not a sector. I mean, this is. That's all these hedges are doing. A lot of them are doing very different things.

[Josh Brown]

Correct. But those pod shops are doing everything fine. I think Barry and Millennium have every strategy under one roof.

[Michael Batnick]

Hedge funds are not an asset class. It's a legal structure.

[Josh Brown]

I agree with that. But many of them are doing better. And there's a new story in town. Hedge funds secured net inflows of $71 billion during the first three quarters of last year. A major reversal after a decade of outflows. So people are looking back. We have a chart of the best performing strategies, the best performing hedge funds last year, along with the category that they're in. I know, like maybe half of these Melcart opportunities event driven up 45%. Okay. Bridgewater Asia. Congratulations. Bridgewater. Bridgewater's got a Few funds in here. They have a China Fund, D.E. shaw, Oculus. AQR has a fund in here. AQR Adaptive Bridgewater, all weather up 20. That's risk parity. Old school. Wow.

[Michael Batnick]

All right.

[Josh Brown]

And then the Wall Street Journal wrote an article today. Hedge funds are back on top after a long alpha winter. And here are just some of the data points that I'll share with you and then I want to get your feedback. Equity long short strategy was the best of all the categories, up 17% last year. Event driven up 11%. So that's activist merger arbitrage. Special Search global macro only 7%, mostly benefiting from commodities, FX and rates. Okay, there was a lot of volatility in commodities, FX and rates last year. Relative value gained 7 to 8% driven by fixed income and arbitrage. That's like a lower risk type of hedge fund discretionary global macro Managers outperformed systematic convertible arb was one of the top art.

[Michael Batnick]

Great.

[Josh Brown]

I, I think it's, I think this is going to have momentum and the media is going to start writing about hedge funds again. And like famous hedge fund managers, the only stories we get these days are about the pod shops or if there's an activist 13D filing we really don't like. Nobody cares anymore.

[Michael Batnick]

You know why I love.

[Josh Brown]

I think that'll change this year.

[Michael Batnick]

I think because the poor hedge fund managers that have just not been making enough money. Now here's why I love it for real. Most, I think, I think people think like, oh, this is only for the rich. Guess what? Most. I'm making this up. A lot of money in these hedge funds are pension funds and foundations and like literally like, like policemen and firefighters. Like, it's public money in here. So I want these pools of capital to go up. This is a benefit for society.

[Josh Brown]

Right. The end investor is not, is not Montgomery Burns in his mansion with his fingers tented.

[Michael Batnick]

Now Montgomery's in there. Montgomery's in there too. But so are.

[Josh Brown]

Depends on, depends on the fund. But like Bridgewater is a great example. It's in Connecticut. You think they don't have the police, the nature, the firefighters, the teachers? I. I'm with you on that. I'm with you on that. All right.

[Michael Batnick]

It's great. Okay. Anything else, Rush?

[Josh Brown]

Just shout out hedge funds.

[Michael Batnick]

Shout out to the hedge funds. It's awesome.

[Josh Brown]

All our, all our friends in the hedge fund community salute.

[Michael Batnick]

It's good. Better than good. All right. I'm going to make the case for the rest of the world. And maybe this is a Flash in the pan of 15 years of.

[Josh Brown]

Are you really going out on a limb here? Which really going out on a limb here, you're making a case for global stocks.

[Michael Batnick]

Yeah.

[Josh Brown]

Okay. I think you're, I think you're in the majority. Everybody's, Everybody agrees. Go ahead, tell us.

[Michael Batnick]

Really? Everybody agrees.

[Josh Brown]

You just showed me a chart that showed money coming out of US large caps going into one week.

[Michael Batnick]

That was, that was one week.

[Josh Brown]

All right, all right, get me bullish on this.

[Michael Batnick]

It's not, it's not just price change. Like there is a reason for the price change and a lot of that has to do with what's going on here and as a result what's going on, going on overseas. So for example, this yesterday we heard. This is from the Wall Street Journal. India and the European Union have reached a free trade agreement that will open a new market for European cars and other products. Showing how the world's middle powers are expanding alliances in response to President Trump's tariffs. The deal announced Tuesday is set to link almost 2 billion consumers across the two economies, making it the biggest free trade agreement by population that the EU has concluded it is the mother of all deals, said President Ursula von der Leyen. So, all right, it's all happening. I want to take you through some charts. This is from our friends at All Star charts. And what we're looking at on top is all world ex us versus us and this is bumping up against the declining 200 week moving average. And listen, there have been plenty of false starts along the way. It hasn't been just a straight up US outperforms in one direction. There have been moments of time where it looked like this was happening only for it to roll over again. But what we're looking at on the bottom is the rolling 50 week rate of change and it's happening in this, in a material way of US Stocks underperforming international stocks. We haven't seen this level of underperformance since basically pre GFC or gfc.

[Josh Brown]

Right.

[Michael Batnick]

It's happening. All right, global breadth. This is Rob Anderson at Ned Davis Research. So the global breadth measured by the percentage of ACME Markets within 5% of a one year high hit a new cycle high of 92%. That's the highest reading for the indicator since 2007. Chart off for a sec. By the way, my make the case. I'm not, I'm not suggesting that you abandon our incredible capitalist society, obviously, but it also goes to the point that we're making earlier about like the knee jerk Reaction to call everything at the top. It's not just a bull market United States, it's a global bull market.

[Josh Brown]

It's a great point.

[Michael Batnick]

It is happening everywhere including here obviously. All right, so investors are starting to notice. Look at this record flows into emerging markets. This is a monthly, like not even close. And if you think that you missed the trade because. John, Skip, skip to the exhibit A1 please. The cycles of international versus US so you're looking at like. All right, come on dude, like international hasn't outperformed by this much. By the way, shout out to exhibit A for the advisors.

[Josh Brown]

You can have this in your. This is a great chart.

[Michael Batnick]

So what we're looking at is the cycles of international versus US only on a one year basis. And international stocks haven't outperformed by this much since right after the gfc.

[Josh Brown]

Could be this year, this could be a five year run, no problem.

[Michael Batnick]

So you're like, like oh, I missed this. Oh really? All right, next chart. Emerging markets versus S and P 500. So if you look back. So it outperformed in 2025 by, by a lot. But underperformed in, in 24. Underperformed in 23, in 22, in 21. Oh my God, don't even look at that. In 20, in 19, in 18. And if you look at the three year, the five year, the 10 year monster, monster, monster, monster underperformance. And this brings me to my last chart of my make the case. Look at this ratio, Josh. This is emerging markets versus the US And I don't know man, this looks like a long bottoming base and it looks like we're breaking out. So I do think that this, that this is early.

[Josh Brown]

So you really just need China and India to go.

[Michael Batnick]

I really think.

[Josh Brown]

Continue. Cuz that's where all the, that's where all the market cap is in emerging markets.

[Michael Batnick]

So maybe this is another fake app, but maybe it's not.

[Josh Brown]

All right, I like India, I like it right here. It's down from its high. Doesn't look as good technically as China. I just, I love the story. I think Indy is the Nifty50 index. So it's like the Dow Jones of India. It's very concentrated and it's got big industrial and, and financial weighting. Right? Like, like the, the, like the big, the big like metal and car companies and it's got the big, there's like five giant Indian banks. They're, they're all in it. The other one is Inda which gives you hundreds I think of.

[Michael Batnick]

And EPI is the other one. I don't know. I don't know.

[Josh Brown]

Well, that is the Wisdom Tree India earnings product where they sort of are weighting it by earnings. I think Inda is. Inda and indy are both iShares.

[Michael Batnick]

All right.

[Josh Brown]

They're both very cheap, and I like that trade.

[Michael Batnick]

Here's what I know. The fundamentals and the technicals are lining up. The chase is on, and people are under allocated. That is. That is a nice setup.

[Josh Brown]

Yeah, I agree. That's a great. Make the case. I'm with you. With you 100%. I love it. Here's my mystery chart, and we'll get out of here. Put it up. We were talking earlier about.

[Michael Batnick]

I know. This is Zoom.

[Josh Brown]

Look at you. You're so good. I didn't even give you a hint. Guys, round of applause in the chat. Make some noise for Michael. That was. You might have just broken a record. Why? So Zoom on Sean and I's list, the best stocks in the market. We pitched it on this show to you guys probably multiple times. I've traded it. Here it is. Making a huge move today. Shares of Zoom popped. Shares of Zoom popped on Monday after analysts at Baird estimated that the company's investment in the AI startup Anthropic could be worth billions. Anthropic announced the partnership with Zoom and revealed that Zoom Ventures invested in the company way back in May of 2023.

[Michael Batnick]

Whoa.

[Josh Brown]

Baird's analysts estimate all, or at least the vast majority of Zoom's 51 million in strategic investments went to Anthropic in that quarter. That's where they get the two to $4 billion assumption, which is meaningful. At Zoom's market cap, you know, Anthropic is being more valued at 350 billion, so Zoom could be up 78x on that investment. Think about that. Imagine that. Anyway, shout out to. Shout out to Zoom. And for all of you Zoom shareholders in the chat who've been watching our show, salute. Good job, guys. All right, that's it for us today.

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Ritholtz Wealth Management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Ritholtz Wealth Management and its representatives are properly licensed or exempt from licensure. Nothing on this podcast should be construed as and may not be used in connection with an offer to sell or solicitation of an offer to buy or hold an interest in any security or investment product. Past performance is no guarantee of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place.