← The Compound and Friends
The Compound and Friends
Time to Sell Nvidia? Plus A16Z on Stablecoins and a Netflix Earnings Preview
01:47:42
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- [00:00]
Downtown Josh Brown
Ladies and gentlemen, welcome to the Compounded Friends. Tonight's show is sponsored by public. That's public.com wait. As in what are your thoughts? Public.com is where you can trade stocks, options, crypto bonds. You can do yield products with your cash. It's super easy to move money in and out. I use it all the time. Plus for a limited time you can earn a 1% match on all IRA deposits, IRA transfers and 401k rollovers. Go to public.comwat to learn more Paid for by Public Investing Full Disclosures and Podcast Description okay, we talked to Sam Broner. Michael and I had Sam on Live from the Compound this week and talked about the explosion of popularity for stablecoins and not just the coins themselves because of course those are just buying digital dollars. But the crypto infrastructure plays like Circle, which is I think the IPO of the year or certainly in the conversation. Why are people all of a sudden so excited about stablecoins? Why are all the big banks and credit card companies racing to make stablecoin announcements? What will this mean for your investing, your portfolio, your holdings? We'll do it all. Sam is super smart. A16Z crypto has spent tons of time and energy educating the public on this topic and we got to ask him a ton of questions immediately following that. It's an all new edition of what are your thoughts, Michael and I. Answer the question. Should I sell some Nvidia? You might be surprised at what I have to say. We also take a look at semiconductor stocks in general, what we've seen so far in earnings season, how technology stocks are acting generally. We take a look at some aspects of the rally that may be surprising to people and some of the laggard sectors that maybe should be on your radar screen. So it's an action packed show. Super excited to have you here with us. I will send you into the show right now. Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael.
- [02:13]
Michael Batnick
Batnik and their castmates are solely their.
- [02:15]
Downtown Josh Brown
Own opinions and do not reflect the.
- [02:16]
Michael Batnick
Opinion of Redholtz 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.
- [02:26]
Downtown Josh Brown
Positions in the securities discussed in this podcast.
- [02:31]
Sam Broner
Feel the energy, feel the rhythm.
- [02:35]
Downtown Josh Brown
Yes. All right, stablecoins, what is it? Is crypto in it? My name is Downtown Josh Brown. I'm here with my co host Michael Badnik. Welcome to an all new edition of Live from the Compound. You got that right. We're going to Talk about stablecoins. And we have one of the foremost authorities on the topic. Sam Broner is a partner on the investing team at a16z crypto. Prior to joining a16z, Sam was a software engineer at Microsoft on the founding team of the Fluid Framework and Microsoft Copilot pages. Sam also attended MIT's Sloan School of Management, where he worked on Project Hamilton, also starred in the school's play Hamilton. And you were at the Federal Reserve bank for a minute. You were consulting on some stuff for them, right?
- [03:23]
Michael Batnick
That is true. I worked at Project Hamilton.
- [03:25]
Downtown Josh Brown
All right, very cool. Hey, we're thrilled to have you. Stablecoins historically had been a boring topic until Circle came public. And now I'm watching video of you all morning. I see you making the rounds. Everybody wants to know, why is Wall street so excited about investing in companies that provide either stablecoins themselves or the. I guess, the payments infrastructure that's going to be incorporating stablecoins. Like what, What. What is this, like, meteoric rise of the stablecoin as a hot investment theme? Tell us what's happening.
- [03:59]
Michael Batnick
I think if you're on Wall street, then you've done payments stuff before. You send money to someone to make an investment, and, you know, it kind of sucks. And so when someone says, hey, look, I've got a substantially better product, I've got better money here, people get excited. And that makes sense. Like, we just. We've sort of unlocked that with stablecoins. But I've been doing stablecoin stuff for 18 months, three years. Like, it's been hot for a while. We're just getting regulatory clarity right now, and the technology keeps improving, and so Wall Street's waking up to it.
- [04:29]
Downtown Josh Brown
All right, I want to just start with a definition for people who. For people who watch the show and they invest in stocks and bonds, traditional assets, maybe they've traded Bitcoin. They might have some, like, awareness. Like, all right, I get it. It's a dollar. It's a crypto thing, and it's a way to hold on to value without being currently exposed to risk. I think people understand that stablecoins as a segment of payments is now gigantic. And there's a lot of money just parked in stablecoins or actively using stable coins. Give people, like, an idea of when we say stable coins, just generally, what, like, what is it about? And what do they need to know?
- [05:12]
Michael Batnick
Yeah, yeah. Stable coins is. Is money stored on the blockchain, but it's backed by things that we all understand. It's backed by the Most liquid asset in the world, it's backed by a Treasury, a 90 day or less treasury or other cash or cash equivalents. And so when I say I've got a Treasury, what I'm saying is I've got a thing, it's worth a dollar. It's sort of like the money that's in your Venmo account or in your deposit account or in a money market fund. But, but I can use it all these fun new ways. I can send it to you almost instantly and almost for free. I can set almost any denomination for, for less than a cent. That's unbelievable. And, and it's backed by treasury, it's backed by things that you know and trust that are easy to verify. And so we've got sort of the safest, best version of stablecoins now. It's these fiat reserve stablecoins that are backed by Treasuries. That's what's really popping off. That's what's 90% of the market. That's what Circle does. That's what you're hearing about in the news.
- [06:05]
Downtown Josh Brown
Usdc.
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Michael Batnick
That's yeah, USDC USDT Tether. These are fiat reserve stablecoins. Money where you've got a claim. Get a little bit wonkish here and I'll do this throughout the day if you, if you permit me. Yeah, you've got a claim on a dollar worth of Treasuries or other cash equivalents. That's what a stable coin is.
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Downtown Josh Brown
Tell people that are not in the crypto environment in any way why they, why, why would somebody need this?
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Michael Batnick
Yeah, I mean, well let me just give instead of why they need it, let's talk about like what is how excited everyone is last, last this past spring. So the last three months, Visa, MasterCard, Stripe, MoneyGram, JP Morgan and many other big names that all your listeners are gonna know. They all announced that they're gonna have stablecoin initiatives and that's because stablecoins are an easier, better way to send money. I can send any amount so from $0.1 to $10 million over stablecoin rails nearly instantly and nearly for free. If you try to do that today you might think oh that should be easy. You know, I do it with my bank. For a lot of people in a lot of circumstances, it's a very annoying very process.
- [07:19]
Downtown Josh Brown
So why isn't 100% of all the whole payment system already onboarded? Like what's the negative or what's the potential negative or drawback that's stopping people? Was it just the regulatory clarity all along.
- [07:31]
Michael Batnick
No, I think that would be like on track, but I could say that, but it's really like 18 months ago we had a technology improvement that took stablecoin payments from being, you know, a dollar or two to send money and maybe 12 seconds about 18 months ago it became less than a penny in less than a second. And so it got a lot faster. 18 months ago people started building some of the integrative technology to make it easier to use, bring it into fintech applications and so forth. And then over the last six months we've had this really exciting regulatory improvement. So these three waves, it's the technology, then it's the integration, then it's the regs, and that's what makes it light up right now.
- [08:08]
Downtown Josh Brown
Got it.
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Sam Broner
Sam, I was reading some of your work and there was a crazy stat that you shared. Like you'll tell me the number. Some million is a 30 million people are exposed to currencies with, with a lot of inflation. What was the number for?
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Michael Batnick
For currencies? A lot of inflation, it's way higher.
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Sam Broner
It's like 300 million.
- [08:24]
Michael Batnick
Hundreds of millions, whatever it is.
- [08:26]
Sam Broner
Yeah, so. So that part is lost on people in this country. Like I have Venmo. What's wrong with who cares? And the argument. So that resonates, listen, if I'm in Argentina, I don't want that shit. I want the good shit. I want the. I want the USD right now. It's hard to believe this week the House announces it's crypto week. And there's obviously a lot of talk, a lot of legislation. So if the biggest beneficiaries of this stable coin are people that can access our dollars, why is it so critically important that we lead the charge? Because that's what the crypto people say. We need to innovate in America. Why?
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Michael Batnick
Yeah, I mean though we get stablecoin adoption, that means way more dollar penetration. Dollar is already, by the way, the best form factor for money in the world. It's what everyone wants to hold. There's a reason why if you're in a high inflation country, you want dollars. There's this huge structural demand for dollars in Argentina and Egypt and Turkey and so forth. I think the number was like 750 million. People live in high inflation economies. They all want dollars and we want to be able to provide those and make them accessible. It's another way for it sucks up us short dated debt, you know, one of the most liquid assets in the world. That's what's backing these Things and it, and it's sort of a way of protecting.
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Downtown Josh Brown
So can we pause, can we pause on that? Sucks up US debt. So if a trillion dollars comes into US denominated stablecoin market, that's a trillion dollars potentially of buying power for T bills. Yeah.
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Michael Batnick
Right now stable coins are the 14th, 18th biggest country by treasury purchasing. They hold that much in treasuries. And if we 10x stablecoins, which I think is a real possibility that we'll see 10x the amount of stablecoins out there, it's going to be a major player, especially in short, dated treasury ownership.
- [10:19]
Downtown Josh Brown
Based on your conversations, do you think Scott Bessen understands that dynamic or, or thinks it's meaningful?
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Michael Batnick
You know, we've got a whole policy team that's, that's more in touch with him. But I think people do understand that, that this does change a little bit how the treasury markets are going to work. Like stablecoins or stablecoin issuers are becoming major buyers there.
- [10:37]
Sam Broner
So this, this drives, but let's just say so these, these citizens that live in high inflation countries, these are behind economically, technically, technologically. This idea that they're going to have access to some tech to get stablecoins sounds great in theory, but like why don't we just fix global hunger? Like there's plenty of resources to do that. And I mean maybe it's a dumb analogy, but other countries are just going to let this happen. Like what happens if there's all this selling of their currencies, their Treasuries or their whatever federal instruments to back ours? Does the peso just go away? Like what happens to their currency in this environment?
- [11:15]
Michael Batnick
You guys are well read by the way. Like I appreciate that we're getting right into the meat of it. I love talking about this stuff. Like, you know, so I wrote this paper.
- [11:21]
Downtown Josh Brown
Well, do you think we skipped, do you think we skipped over something important before we get to that or.
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Michael Batnick
Oh, well, we've got time on this podcast.
- [11:28]
Downtown Josh Brown
Okay. Yeah.
- [11:30]
Michael Batnick
I mean, so I wrote this piece last month how stablecoins become money. And part of the question posed there is what happens to non US currencies? Are countries just going to say, all right fine, we're getting dollarized? I think that there's a lot of ways this could go. It's part of why I like investing in stablecoin infrastructure and stablecoin projects because it's not obvious. It's not like I'm investing in SaaS where we sort of know what's going to hit and what is it? There's a lot of directions that's this field going. My guess is that we're going to see countries begin to build local currency stablecoins. They're going to continue to demand their tax payments are in their local currency. They don't want to give up control of the ability to change their own interest rate to respond to supply and demand shocks in their local economy. But they actually do want the efficiencies for their small and medium businesses that are doing import, export, like let them denominate transactions in dollars and integrate with the global economy more effectively. And so if you're like a textile manufacturer in Nigeria, well, wouldn't it be great if you could just accept dollars natively instead of having to go through this kind of convoluted banking infrastructure that's slowing down your ability to focus on your core competencies.
- [12:46]
Downtown Josh Brown
I think I saw this.
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Michael Batnick
That could work.
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Downtown Josh Brown
Yeah, I think I saw this in your materials. And maybe we have this chart. But the example that you use is a garment manufacturer where they're doing the final assembly of the garment in Mexico, but they are buying textiles from Vietnam. So this, so this is a B2B payment, very typical in the modern economy. Walk us through how this works and, and why this needs to be replaced or should be replaced.
- [13:16]
Michael Batnick
Yeah. So right now this process is a Mexican garment manufacturer wants to talk to a Vietnamese textile manufacturer and they have an ongoing relationship but it's mediated through the Mexican local bank, a larger Mexico based correspondent bank, maybe an HSBC or some other large bank, another correspondent bank, and then a local bank in Vietnam that can take three to seven days. And we talk to a lot of people who are running through this like financial rail. Often they have no idea where their money is and they can't even get an estimate of how much it's going to cost in advance before they send a payment to their collaborator.
- [13:56]
Downtown Josh Brown
Now we talk about the cost of moving the money or the cost of currency fluctuation.
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Michael Batnick
It's both. Although FX is the one that's more frequently not estimated because it's like a seven day window. But also if you have an extra correspondent bank in the mix, they won't say what the fee is in advance. Imagine that I'm trying to send $1,000. It's like what's it going to cost? Oh, you just got to deal with it. You're beholden. And so we talked to some of these guys who are doing not exactly this business but similar and they can get on the phone with their basically Their friend, their business partner who lives in Vietnam and say did you get the transaction? And it'll be over in one second. They get USDC one second later and it costs $0.01. So the person aside can deal with oh, I actually want to store the money in dollars. I want to turn it into bot. I want to turn it to dong whatever they're going to do. And it's sort of. But the transaction happens instantly and it's way less confusing, way less bureaucratic.
- [14:47]
Sam Broner
You never go full stop.
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Downtown Josh Brown
But I want to give people the context of how big what we're talking about potentially could be because we're not talking about $1,000. You note that in 2023 the global payments industry handled 3.4 trillion transactions accounting for a mind boggling $1.8 quadrillion in value, generating 2.4 trillion in revenue. And let's put this table up just to give people an idea of the transaction fees involved in the various ways that we move money today. So the example Sam has is a credit card payment is 2 to 3% plus 30 cents. So that's like, that's like just like a standard fee that let's say Visa or MasterCard is, is imposing.
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Sam Broner
Gosh, go to remittance. Look at that fee.
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Downtown Josh Brown
Yeah, remittance. Six point. And these are people getting remittances often are the people who can, who can least afford to give up 6. 6.65% to move $200 is out of control. That's Western Union effectively.
- [15:54]
Michael Batnick
Yeah. I'm a bit of a bleeding heart here. Like this is offensive. I mean this is, this is someone who's like sending $200 home to mom and they're, they're spending sometimes $1320 on that.
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Downtown Josh Brown
Okay.
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Michael Batnick
That's a meaningful amount of money. It's crazy.
- [16:07]
Downtown Josh Brown
All right. Ach transfer could be from 20 cents to A$50.
- [16:11]
Sam Broner
But it's a time, it's the time.
- [16:13]
Downtown Josh Brown
It's the time. Let me do one more peer to peer payment app. So Venmo ing somebody the business or it's free if you're peer to peer. But businesses that accept Venmo are going to take 1 to 3%. Do I have that right?
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Michael Batnick
Yeah, you do.
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Downtown Josh Brown
Okay. Or square or whatever. Okay. So it's a, it's a ton of money. A lot of transactions, a lot of delay, a lot of people in the intermed mediaries sitting in the middle. What so what they the reason. So why is it this way to begin with? Because you need a trusted third party in the Middle with the technology that we had, because some Visa has to say, yes, Michael is paying Sam Broner's bakery for a dozen donuts. And Michael is a credit that Sam should be, that Sam doesn't have to be comfortable with. Visa will take that risk for all.
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Sam Broner
Chargebacks, all that shit.
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Downtown Josh Brown
Okay, so now, so now in this, in this scenario, stablecoins as a payment mechanism, there's no need for trust because it's a blockchain and everyone sees the transaction and validates it.
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Michael Batnick
And it's instant, by the way. So like when you go to a coffee shop and buy. You go to a bodega, that's a New York City coffee shop in every corner, and you give them two bucks for a coffee, they take the money and give you the coffee. There's no like, fraud risk there. You gave them the money, you got the coffee with stablecoins, because you can actually do the transaction in, in less than a second. You can have that same feel where actually there's a lot of situations where you don't need the fraud risk prevention because the transaction is a problem.
- [17:45]
Downtown Josh Brown
Devil's advocate. All right, so devil's advocate. The garment. The garment manufacturer in Mexico does a stablecoin transaction with the company making the fabric in Vietnam. The fabric arrives damaged, the wrong color, lesser quality than what was expected. Well, tough shit. It's on the blockchain. The transaction happened. Live with it. Is that the answer from the crypto native people to that, or is there some other mechanism? I want you to answer. I will.
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Michael Batnick
Yeah, yeah, yeah.
- [18:20]
Downtown Josh Brown
The.
- [18:21]
Michael Batnick
Well, two things. One is, in that transaction described the Mexican garment manufacturer. They don't have a credit card. They're not, that's not, it's not a credit situation where they're going to go to mom and say, can you handle this fraudulent situation for me? They've got to duke it out. And maybe they have an insurance product. But let's talk about the credit card situation for a US Consumer where really the fraud prevention is a useful feature that we all, we all like. First of all, I don't think that's the first place crypto gets adopted.
- [18:53]
Downtown Josh Brown
I don't know, a card in credit.
- [18:55]
Michael Batnick
Cards to replace credit for us. I mean, do you got, you have an Amex? You have a Chase Sapphire Reserve?
- [19:00]
Downtown Josh Brown
Platinum.
- [19:01]
Michael Batnick
Yeah. Okay, Platinum, good. The fancy card. You get a, basically a two and a half percent discount everything you buy. And that's a good deal for you. I'm not like, that's not a deal that stablecoins are going to. Are going to beat tomorrow. But for the users that don't get the benefits of your, the credit card, you're using this like very powerful credit card because everyone wants your business and they're willing to subsidize it. Stablecoins do offer better, a better product. The merchants prefer it because they don't pay the fees. The users like it because there's better applications that support it. It's easier to program against stablecoins and you can layer in fraud prevention, fraud protection and insurance products that begin to imitate some of the features that you get from your amex, but unbundled and more appropriate for every interaction.
- [19:52]
Sam Broner
Sam, you mentioned it's good for the merchants, obviously it's great for the users. I don't know if the financial services industry extracts 1 to 2% of GDP a year. Whatever it is, it's some ungodly number, unblue. But this is big business. It's big business for the banks, it's big business for Visa and MasterCard. And I understand that they are getting in the game. But the market caps of these companies are at all time highs. And Wall street does not seem to be worried that their margins are going to be under assault. Should they be?
- [20:23]
Michael Batnick
I think that stablecoins induce competition and we all want take rates to go down on payments. Like we don't want a global tax on every transaction. We want to be able to do business together. We want to be able to make payments, buy stuff more cheaply. When fees go down, the total payment volume goes up. There's more things that you can buy that cost less. I think we're going to see more transacting and so the TAM is going to go up. Oh, it's like take rates go down. Free trade. Yeah, free trade and globalism. We see take rates go down, total volume go up and I think ultimately the high tide raises all ships even if on every transaction make a little less.
- [21:04]
Downtown Josh Brown
Let's put this chart up. Visa, mastercard. These are not the charts of two stocks that anyone expects to be disrupted anytime soon. These guys have made 700 billion in market cap. MasterCard, 500 billion. And what I want to ask you about here, they seem to want to put out a lot of press releases about what they're going to do with stable coins. So maybe they find a way to like add on value. Added stuff that like they say, they say to themselves, okay, we're hip to it, the new Rails, blah blah blah and we have an idea about how we stay relevant in a world that's moving towards stablecoins. So I guess from an investing perspective, because we're like a Wall street show.
- [21:46]
Michael Batnick
Yeah.
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Downtown Josh Brown
Do you think, you think the risks to them cannibalizing their own business just to be involved in stablecoin is like worth discussing or like how do you think about that?
- [22:00]
Michael Batnick
They're savvy. I mean they have people working on this. This is the class. I'm an investor. I do mostly startup investing. Yeah, I think the startups are going to win. I mean that's sort of who I root for by nature. I like seeing the little guys.
- [22:13]
Downtown Josh Brown
This is the innovator's dilemma.
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Michael Batnick
Like this is the, this is the S curve and this is, you know, we'll see what ends up happening. But they're going to have to work really hard to make sure they don't get beat by more crypto native stablecoin native early startups that are moving fast and trying to make better products.
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Sam Broner
So Sam, you mentioned you're an investor. We saw one stablecoin issue go public circle the, the biggest legitimate one in the United States anyway. Is that. And the stock is on fire. Is that a reflection of the future of stable coins? Is that a reflection of the current environment where there is just not enough supply of investable assets and investors want access to this. Like, and are, is there another. Are there more stablecoin companies that are going to be publicly traded at some point in time?
- [22:55]
Michael Batnick
Well, I think that every fintech is going to become a stablecoin company because it's an easier, better way to build fintech products.
- [23:04]
Downtown Josh Brown
PayPal Square. Like you're like if you're.
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Michael Batnick
I mean, look, those guys already made substantial investments in capital expenditure and making sure their product works today. But if you're a new fintech getting started on legacy banking Rails, you got to go one by one to 190 countries to get your product out there. It's a convoluted regulatory and engineering process where you're working against software from the 1970s. It's nonsense. If you use a stablecoin back end. If you use stablecoins to build your fintech app, you can be global on day one. You can have a product out in a week. You can do stuff that you can really hardly imagine using traditional banking rails because it's just too complicated and not worth it. And so I mean the question is like, what is there to invest in in the public markets? But the answer is that like I think a lot of the fintech opportunities are going to be stablecoin opportunities.
- [23:59]
Downtown Josh Brown
So let's take, let's take like an example, let's say, and I'm sure this has been pitched to you 5,000 times already, somebody comes along and says, I'm willing to bet that there are enough people comfortable moving money in crypto that I want, I can build the Venmo for crypto that, like, goes mainstream and we could get a few million people with a dedicated app. And all we do is enable people to send whatever it is, if it's Bitcoin, if it's eth, but send value peer to peer and not try to build Coinbase, but just like, try to build this, like, very specific. How many times have you heard that pitch? And like, how far away do you think we are from something like that, crossing over and becoming a thing that regular people use?
- [24:43]
Michael Batnick
Well, we see it. I've seen it a ton of times. I mean, maybe the answer, the real answer might be like 40, but that's because it's a great idea.
- [24:50]
Downtown Josh Brown
It is a great idea.
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Michael Batnick
The place we see it work the most is in a pretty narrow remittance scenario. So someone will say, I've got a great edge going to market in Colombia. I'm going to own the US To Columbia Corridor. And I think I might have met with 20 companies that were growing 10 to 30% a month doing this kind of remittance app. And that's crazy for me to see 20, 30. I mean, just a lot of companies growing at 10% a month. Unbelievable. This never happens. But there is this question about the Venmo product. The Venmo in country has actually been solved. How much better are you going to get than free instant payments?
- [25:29]
Downtown Josh Brown
But the international scenario, I have no problem with it. Unless a lot of my money is sitting in stablecoin already and I just want to not change it to dollars. I just want to do that. But you're saying that's not that big of a problem.
- [25:43]
Michael Batnick
Well, look, I think the pure payments thing is basically solved in country, but out of country for minutes it hasn't been solved. But then when you want to do like a super app, finance, super app, I would prefer to be able to get a yield on my money. I'd prefer to be able to invest it, send it, save it, do a bunch of other verbs besides just send and crypto. Stablecoins in particular make that a lot easier as well. So suddenly it's not just a payments app, it's an app where I'm tracking more of my. Of my financial life.
- [26:18]
Downtown Josh Brown
I'm sorry. So just let's follow up on that before we move on. So at the current moment, my understanding of the genius act is that they wanted to separate stablecoin activity from banking in such a way that stablecoins cannot, in and of themselves have a yield attached the way that a checking account or a savings account or a CD can do. You see that evolving then, and. And we get into a situation where people hold stablecoins, earn a yield while they're waiting to transfer value.
- [26:54]
Michael Batnick
Yeah, this is one of my hot takes. And so if we ever go out for a beer, I'll give you my. My full list of hot takes. But the. I actually don't think earning a yield with stablecoins is such a huge deal the way it's typically described. And that's because most consumers have. They're doing two different things. You spend or send money and then you save money separately. And so it's actually totally okay if I don't earn a yield on my payment. Stable coins. And then once I'm done doing payments, I can either stake that money to earn a yield using defi, or I can turn it into a different asset that does actually earn a yield. But you want to be able to do that really quickly. Today, I store my money in some deposit account at a mainstream bank, at bank of America, Wells Fargo or something, and I'm earning like half a percent. I mean, it's crazy given what treasury rates are, and it's kind of annoying to sweep that money into a money market fund where I could be earning 4 and a half, 5%. But stablecoins are going to increase the amount of competition in fintech apps and they're going to make it much easier to build interesting products. And so I can be spending money and not earning interest, but then 10 seconds later, I'm staking it. I'm earning interest. I played. You mind if I tell like a brief story about this? Yeah. So I was playing basketball today. I rent this gym in Chelsea, and at the end of the game, people send me 20 bucks because I paid for the gym. And this guy had heard that I like stablecoins. He sends me $20 in USDC. I get it. It cost a fraction of a cent. I immediately stake it on this service called aave. And by it's a Saturday game. By Tuesday, I'd made back in interest the money that had been spent to send the money in the first place. And now I'm earning interest on this. You can't really do that. Action in traditional financial apps where I'm sent money and immediately earning yield on it. And it's because the composability of stablecoins makes it much easier to do.
- [28:57]
Sam Broner
So now we've got. All right, we have the political wherewithal to allow this to happen. You have better technology and you have lower take rates. It seems like a very ripe potion. What sort of timeframe we were looking at realistically before this is a thing and are we even going to know it's a thing or is it going to be sort of part of JP Morgan's offering and Visa's offering and it's not going to be like this whole new stablecoin world?
- [29:22]
Michael Batnick
Yeah, I think of the. In different countries it'll happen differently and we're going to see this adoption develop depending on the application and the use case. So in countries with high inflation, they're holding stable coins directly and they're, they know that they're doing this. They want that dollar product for international money, sending remittances, B2B so forth. They know stablecoins are sort of involved, but they're using a new application that gives them a better price and a faster, better experience. And so it's kind of on their mind. In the US I think it's going to be more silent where we all have the.
- [30:01]
Downtown Josh Brown
It doesn't matter, right? It doesn't matter. It's a stablecoin. It just matters that they're moving the.
- [30:05]
Michael Batnick
Money and the next great fintech you, you hear about is going to be powered by stablecoins and it's going to allow them to offer you a really great product that just like, wasn't possible and you didn't know why it wasn't possible. But now you've got a fintech app that's, it's three times better at sending money internationally. It's two times better in terms of the ui. It's, you know, a little bit better at giving you a better interest rate and the, you know, and so forth. So you'll just use a fintech app and you're like, this is. This thing rocks. I wonder how well it'll be.
- [30:36]
Downtown Josh Brown
So do you have a sense of how many people are sending international remittances either from the United States or just globally? Like, like what's the, the TAM of something like a really cheap stablecoin remittance?
- [30:49]
Michael Batnick
Well, as I mentioned, we met with a bunch of companies this winter and spring and all of them are growing 10% a month. So whatever the number I'm going to give you, I think it's going to be 10 to 20% higher next month just based on the early stage startups that we're talking about.
- [31:04]
Downtown Josh Brown
So this is like, this is like an Uber driver in Miami whose family is in Venezuela. And every week whatever he takes home from Uber, he wants to move a portion of that from like however they pay him. He wants a way to send that value back to his family in Venezuela and not get raked over the coals for 7% by a traditional remittance. That savings, that's 7% of I don't know how much he's sending home. $1500, $2000.
- [31:34]
Michael Batnick
That's a, it's a big deal. Often it's $100 or $200.
- [31:38]
Downtown Josh Brown
Wow.
- [31:38]
Michael Batnick
And the, the less money you send, the worse rate you get. But actually with stablecoins it's often a flat fee and it's a very low flat fee. And so that also makes a big difference because now you can do more smaller transactions rather than trying to scrape together to 300 to save five bucks, which actually matters to your mom in Venezuela. Like people are distorting the market right now because of the expense of these remittances.
- [32:04]
Sam Broner
So earlier we showed charts of Visa, MasterCard and said, do these look like companies that are worried about being disrupted by stablecoins? What we should have shown was Western Union. The stock is down 50% in the last three years and it's at a 52 week low. And this is certainly evidence of. Yeah, there's something there.
- [32:19]
Downtown Josh Brown
They might have no business.
- [32:21]
Michael Batnick
Well, Visa, MasterCard, Visa, MasterCard actually do have something really impressive which is their merchant network. They work with millions of businesses all over the world. They help build that terminal, you know that you, everyone knows you swipe, tap, whatever, scan to pay. And they've helped bootstrap this, this trust network where you can go. I was just in Italy over the last two weeks and I have to.
- [32:49]
Downtown Josh Brown
Pay not to brag the same. Oh wait, where, where were you?
- [32:52]
Michael Batnick
I was in Positano on the malfunction.
- [32:55]
Downtown Josh Brown
I did that two years ago. I loved it.
- [32:56]
Michael Batnick
It was amazing.
- [32:57]
Downtown Josh Brown
Awesome.
- [32:58]
Michael Batnick
Well, they accept my credit card there and that's because Visa helped bootstrap this, this trust network.
- [33:05]
Downtown Josh Brown
And did you stay at El San Pietro?
- [33:08]
Michael Batnick
No, I did not, but I saw it looks.
- [33:10]
Downtown Josh Brown
Did you have a drink there? That's pretty impressive.
- [33:12]
Michael Batnick
Okay, go on. Yeah, well, anyway, I mean look, I could spend my money there partially because of, yeah, Visa's work and, but that same trust network could probably be re leveraged to actually support stablecoins.
- [33:28]
Downtown Josh Brown
So actually, this is actually no amex in Europe. You can use it, but you shouldn't because they're charging you an international fee. I've never used my Visa so much. I only use amex here, and I only use Visa when I'm overseas. Now, if there's this third thing, I could tap my phone, and it's connected to an app that allows me to pay a stablecoin to. But like MasterCard and Visa, I guess have to agree that they want to introduce that into the merchant network that you're talking about.
- [33:58]
Michael Batnick
Yeah, that. Well, that part is really interesting. And again, I am an engine. I'm an engineer, so I kind of geek out on this stuff. You could repurpose that payment terminal to just accept stablecoins natively. And there's some fraud steps that go away with a stablecoin transaction because the money is sent instantly. There's no way to undo it. So if I'm buying a drink and I see the bartenders making it, I'm happy to send them a dollar, and the bartender is happy to accept the dollar. And we don't actually need to have quite the same trust network that we have with Visa and MasterCard, which are operating on credit and therefore need to have the guarantees they can actually trust me, and that'll be good for my money.
- [34:35]
Downtown Josh Brown
Are you surprised at the valuation that Wall street has given Circle? I think it effectively 10x from its IPO price, not the opening price, but, like, the price was offered at Mike. Did it. Did it do it. Did it do a 10? A full 10x?
- [34:49]
Sam Broner
I mean, I don't know if a 10x, but let's see. It certainly went. Went bonkers. That's the technical term. So it came out like. I think they priced it at 40, came out at 70. Is that. Is that something about.
- [34:58]
Downtown Josh Brown
I thought it was 31. For some reason.
- [35:00]
Sam Broner
I have my head it ran to 300. You might be right.
- [35:03]
Downtown Josh Brown
Are you surprised, Sam? What do you think? I buy, seller, buy, sell, or hold.
- [35:11]
Michael Batnick
These guys know I'm an ria, so I'm like, there's not so much I can say on the.
- [35:15]
Downtown Josh Brown
When you. All right, fine. But let's put it this way. The underwriters had. They had any idea about the true demand for this stock, would not have priced it where they priced it, because by accident, I assume they left a ton of money on the table. So Wall street was definitely surprised by the, like, the fervor to get in on a crypto infrastructure play. It's effectively what it is they're not bullish on stablecoins, they're bullish on the usage of stablecoins, I guess would be, would be the way to phrase it. So like, what do you say from Silicon Valley? Like, what were you like, Holy shit. They really want, they really want this Circle stock? What's going on?
- [35:58]
Michael Batnick
Well, for me it's obvious. I spent all day talking to early stage companies and they're all.
- [36:02]
Downtown Josh Brown
You're not surprised?
- [36:03]
Michael Batnick
Well, what I'm not surprised about is that Wall Street's a little bit late to pick up on a new, better way to move money and that people who are really using the stuff get it and know that this is the future and they, they want access, you know, a way to invest in that. But the key thing is that people just have recognized that stablecoins are likely going to be a big part of how payments work going forward. And Circle is one of the biggest.
- [36:29]
Downtown Josh Brown
Of course, you guys know more about it than we do, so you guys are funding it. The best analogy that I give people for Silicon Valley and I know you're in New York versus Wall street, like you guys are the elves, we're the orcs. But the orcs really wanted in on this particular stock. And now this morning I saw Grayscale just filed for, just filed for a confidential ipo. A confidential filing for an ipo. And it looks like we're going to get a whole host of crypto infrastructure plays to come to the New York Stock Exchange in the nasdaq. So like, this is a really hot theme now. Even for the non crypto native.
- [37:10]
Michael Batnick
Even for the non crypto native. But again, I'll just go back to the fintechs. I think a lot of regular fintechs and regular payment companies, they're going to be using stablecoin, Rails and stablecoins as the basis for their new products because it just is a better way to build what they're already building, what they want to build what consumers want. And so I don't want to spend too much time building a delineation between a stablecoin company and not a stablecoin company. When I think a lot of the financial companies out there are going to be using better infrastructure. Not because of any speculative, I don't care about that. What I want to see is better products that make payments cheaper and faster. And that's happening.
- [37:53]
Downtown Josh Brown
Star wars guy?
- [37:54]
Michael Batnick
Oh, yeah, a little bit.
- [37:56]
Downtown Josh Brown
Okay, so it occurred to me this sounds like it could turn into a galactic credit standard. So whenever there's an exchange of Value in the Star wars universe. The. They talk about credits and they don't talk about like what country the currency is from. They're not like, they're not talking specifically about any one planet's monetary system. These are just the galactic credits. And how many credits is it? How will you pay me to take the Millennium Falcon on your, on your suicide mission? Like that's. If, if, if we do increase the penetration of the dollar by means of getting everybody comfortable with stablecoins, we could end up in a one, two or three currency. Not one, a three or four currency world versus a ten currency world.
- [38:43]
Michael Batnick
My. I don't think we're going to end up in a three currency world. I do think as a consumer we don't always realize just how much of the world is already priced in dollars. I mean when that, that's what B2B payments are priced in. It's the, it's the global unit of account to some extent. And maybe that'll grow. I think that dollar penetration will grow and I think there's this huge structural demand for dollars. Consumers everywhere, especially in high inflation countries, want to be saving in dollars. Businesses want to hold money in dollars because they're buying good in dollars because that's the unit of account it'll get. Dollar penetration will continue to grow, but I don't think we'll have a hegemonic currency just because the value of controlling your own currency is pretty high. Like if, let's say there's some sort of supply shock in a local industry, maybe you export a lot of wood and there's a big forest fire. Well, you might need to induce more credit to help businesses bridge that production gap. And if you're all on the dollar, it can be harder for countries to be responsive to their own local needs. And so there's a lot of reasons to have a local currency, but also there's a lot of reasons to have people have access to the dollar so they can participate on the global stage more readily as well.
- [40:01]
Downtown Josh Brown
Does the stablecoin ecosystem rely on people's enthusiasm for Bitcoin continuing? I know it's, I know these are not speculative per se.
- [40:12]
Michael Batnick
Yeah.
- [40:12]
Downtown Josh Brown
But like the, the continued use of this does rely on people remaining interested in the whole crypto ecosystem or is that not anything worth worrying about at this point?
- [40:24]
Michael Batnick
Speculation has of course been a big part of crypto's history. That's not why I'm. And that's actually not why a16Z is excited about crypto. We think it's a Better way for.
- [40:35]
Downtown Josh Brown
That's why Michael excited about crypto.
- [40:37]
Michael Batnick
That's why Michael. Michael's nodding. No, it's the reason why we like it is because crypto offers a better way for people to trustlessly collaborate, and it's a better technology stack for building financial products. And so that reason is why we see all these fintechs getting into stable coins. And so I think the two issues are fairly unrelated.
- [41:01]
Downtown Josh Brown
Michael, do you have anything else? I have one more for Sam.
- [41:03]
Sam Broner
Finished with this guy? No, I'm good.
- [41:05]
Downtown Josh Brown
Uh, so for the crypto skeptics who watch our show and we have, you know, we have both. But for the people that are just uneasy about, you know, spinning up an entire new financial architecture for the world with, up until three weeks ago, no regulations, what do you think is the biggest risk? Systemic risk, not risk to any one player or coin, but what is the biggest systemic risk that could arise from the mass adoption of stablecoins as kind of like a foundational financial services system? What, like, what do you, what do you worry about or what do people worry about?
- [41:46]
Michael Batnick
What. What I want to see is, I want to see tight integration with existing financial institutions because there's a lot of implicit knowledge. There is a lot of knowledge that's been built up over years of how to manage risk, how to do, like, distribution, how to educate customers, how to get merchants and suppliers to coordinate effectively. And I'd like to see stablecoins have access to the people who know those systems really well so that stablecoins aren't just sort of a new rail. They're a rail that can really move forward the existing important industries that are out there. And so a risk would be that traditional payments companies don't adopt stablecoins fast enough, and we end up with people reinventing the wheel in a way that's slow and just doesn't benefit the consumer as much as I, I think stablecoins should and will.
- [42:40]
Downtown Josh Brown
So you don't think there's a risk to the banking system, let's say, or, or to the. A risk to the credit card system that could potentially be introduced if something goes awry? You think the bigger risk is just that we move too slowly?
- [42:57]
Michael Batnick
I think there's going to be a lot of competition. I think if I was a combat in, in payments or in banking, I'd be certainly. Then I'd be worried I'm not moving fast enough and I might get my, my lunch eaten by a savvier startup.
- [43:09]
Sam Broner
But.
- [43:10]
Michael Batnick
But no, I, I don't. I'm. I'M I'm not very worried about, I think the existential risk that you're getting at. I'm worried that we're not going to that stablecoins and traditional finance aren't going to collaborate enough to get best of both worlds.
- [43:22]
Downtown Josh Brown
Sam Broner this has been super helpful for Michael and I and I know for the audience as well. I want to thank you so much for joining us. Let's tell people where they could learn more about the A16Z house view on stablecoins and other crypto topics. Where would they go?
- [43:36]
Michael Batnick
You can follow me on Twitter ambroner or and more Importantly, go to a16zCrypto.com or follow us on Twitter.
- [43:43]
Downtown Josh Brown
You're the man. We'll come back. We'll come back to you someday in the future. Let's revisit. I'd love to thank you guys.
- [43:50]
Michael Batnick
Really nice to meet you both.
- [43:51]
Downtown Josh Brown
Awesome. Hey guys, thanks so much for watching. Thanks for listening. Smash that like button, subscribe, tell your friends, etc. And we'll talk to you soon. Oh my. George Takei voice. Oh my. It's hey guys, what are your thoughts? It's, it's, it's Tuesday night, 5:00pm we are back with an all new edition of what are your thoughts? My name is Downtown Josh Brown. My co host Michael Batnick is with me as always, Michael, please say hello.
- [44:41]
Sam Broner
Hello, Hello.
- [44:42]
Downtown Josh Brown
All right, we have action packed show. We are just getting into the heart of earnings season. We're about one week in today. We had all the banks report and you know tech is on the way and we're going to get into a whole lot of stuff related to earnings and so many other topics. We're super excited to have you guys here and thanks to everyone who is joining on the live stream. You know we appreciate that so much. Tonight's show is brought to you by Public. Public is the investing platform for those who take it seriously. You can build multi asset portfolio of stocks, bonds, options, crypto and more on public.com.
- [45:24]
Sam Broner
So you know Ben and I, you mentioned for those who take it seriously, that's not just our tagline. That's like real shit. Ben and I had life on the other day on the podcast to talk about what differentiates them from their competitors. And it's not like this swipey app. It is really the modern 21st century, maybe even 22nd century. Dare I say custodian.
- [45:42]
Downtown Josh Brown
Yeah, I use Public every day. I think it's on the front page of my phone and it's a really easy way to transact. And I also do some DCA stuff there and we're going to talk about that later on in the show. Find out more public.com wat paid for by Public Investing Full disclosures and in podcast description all right, here's I want to start the number one. So I'm walking, I'm walking on Halyard with Sprinkles the other night and this happens. So she pointed this out to me and I didn't even realize it. She's like, josh, every other person that comes up to you asks you the same exact question lately. Have you noticed? And I said, you know what? I think you're right. What do you think the number one question people ask me is, besides what's Michael Batnik like in real life? What else do you think?
- [46:38]
Sam Broner
I get asked, is it too late to buy Nvidia or should I sell Nvidia?
- [46:42]
Downtown Josh Brown
Should I sell Nvidia? Everyone owns it already. Maybe like 3 years ago it was, hey, would you still buy Nvidia here? The number one question that I get asked over the last couple of years and really increasingly in the last couple of months, hey, love you on the show. Love you on cbc. Listen to your podcast, Whatever, like, whatever it is, hey, what do I do with this Nvidia? Should I sell it? It's unbelievable. And she picked, she picked up on it because, you know, I'm oblivious. I'm in my own world. People are asking me this shit in the airport, on the street, we're in stores. It's what do I do with Nvidia? Should I sell some? And I want to start. We have a one year price. Let's put price chart. Let's. I mean, look, obviously the stock pulled back during the tariff tantrum from March and April had a pretty good pullback. Got down just below $100 a share. Here we are, two months later, it's 170. So just when you thought everyone that wants to buy Nvidia already bought it. It's just not how markets work. Apparently there were plenty of people that still didn't own enough of it that wanted to own it. Because when you're Talking about a $3 trillion stock going to a $4 trillion market cap in two months, like, that's an insane amount of buying power on the sidelines. I assume you agree with that.
- [48:05]
Sam Broner
So far, nothing that you said is controversial. I am very excited to offer an alternative view, but you're cooking, so keep going.
- [48:12]
Downtown Josh Brown
All right, well, I want to get into the news today. One of the biggest overhangs on Nvidia. Not that it really hurt the stock, but it's definitely like the thing that one of the most bearish things about Nvidia was the problems they were having with selling their chips in China. It's not that there wasn't demand, it's that the United States imposed rules that kept them from selling their highest end chips. Then they were having problems selling all chips. Then there was concern that Chinese competitors would come along and fill that vacuum and we'd be in this bipolar world of two different versions of the GPU and Nvidia would lose dominance, blah, blah, blah, blah, blah. So there's a whole, like, line of thinking where China was going to be this massive headache for Nvidia. The news today is that the Trump administration said, do what you need to do. Howard Lutnick was on CNBC with us a little while ago talking about the need to get the Chinese addicted to building their tech stack on American AI chips and that that supersedes any of the issues around trade or tariffs. Strategically, we want Nvidia to be dominant around the world and we want every technology company to be building around American AI. So that obviously sent the stock significantly higher. This is. Take him at Barron's. Nvidia is back in China. In a stunning turn of events, the chip maker says it expects to soon be able to sell its H20AI chip in the country, sending shares sharply higher. It's up like 4% today as we're talking. And that is a big about face from the administration. And that removes this bearish overhang about whether or not Nvidia is going to be able to operate as successfully in Asia as people had hoped they'd be able to. So it's a big development. Just to give you an idea of the scale of what we're talking about, bank of America says that Chinese AI sector spending in this year 2025 will be $98 billion, which is a 48% increase over what they spent on AI last year. And you could just mentally extrapolate that number in your mind and picture how much of that is going to in video and get an idea of why this is so important.
- [50:41]
Sam Broner
That's just China. Wow.
- [50:43]
Downtown Josh Brown
So, right. So here's the bottom line and then I want to get your take on this. This is the number one question I get, and I understand why everyone has made so much money in the stock. It's $4 trillion. I've become very much associated with Nvidia in the minds of people who watch cnbc.
- [51:03]
Sam Broner
Could be Worse.
- [51:04]
Downtown Josh Brown
Could be worse. And I want to tell you, I've spent the last 10 years saying no as my answer to that question, or not yet, or I don't know. A lot of times I just say, I don't know which is the truth. Or I'll say to people, it depends on your time horizon, or it depends on your risk tolerance, whatever the that means.
- [51:26]
Sam Broner
And now you're saying short it.
- [51:28]
Downtown Josh Brown
Now's it. My new answer is, yeah, sell some. And I still think that I'm not selling. Let me preface this by saying I think the stock gets into the 200s. It could take five years. It could happen three weeks from now. I have no way of knowing, obviously. But when you look at the new spate of analyst price targets and you think about some of the news flow, Metta talking about building Titan clusters, and you think that, you think about last earnings quarter, how powerful all of the AI spending reaffirmations were coming from Alphabet, Meta, Amazon, Microsoft. I don't think any of those companies are about to get on a conference call in the next three weeks and say, we were just kidding. One of the things about AI spending is it doesn't work the way people think it should. It's not like you could spend like $1 trillion amongst 20 companies and be like, all right, we're all set. The spending is required now to maintain the spending that you had already done. So I think when you get that wave of announcements on the earnings calls of the hyperscalers, like, it's probably very supportive of Nvidia's recent rally, at least maintaining these levels. So I'm not saying, yes, you should sell it, because I think it's gonna be a bad quarter or I know something that anyone else knows. I'm just saying if you're in the stock for a really long time, it's likely it has far outgrown most or all of your other investments. Um, even if you also own, like, a 401k with a balanced portfolio, you have a ton of Nvidia there, too. And so if you are coming up to me, a stranger on the street, and asking if you should sell it, then the answer is probably yes, because you probably own enough of it that you're nervous. It's probably become a huge part of your portfolio. And, yeah, what's the cause? What is this business, Michael, the business of owning stocks? It's about regret, minimization.
- [53:39]
Sam Broner
I knew you said that.
- [53:40]
Downtown Josh Brown
But because. So what will piss you off more? You sell none and the stock has a 30% drawdown. Or you sell 20% and the stock doubles.
- [53:51]
Sam Broner
Yeah, it's obviously a. It's not even close.
- [53:53]
Downtown Josh Brown
Obviously a We. Like, we. This is, like. This is Daniel Kahneman stuff.
- [53:57]
Sam Broner
We know. It's basic.
- [53:58]
Downtown Josh Brown
It's basic stuff. We know that the anger over not having sold is going to be way worse for most people than the. Oh, man. I shouldn't have sold.
- [54:09]
Sam Broner
Any questions? I'm such an idiot. I was a greedy pig.
- [54:12]
Downtown Josh Brown
Yeah. So. So my new answer, when. When people walk up to me on the street, it's like, dude, if you're asking me, then, yeah, you probably should sell some.
- [54:22]
Sam Broner
Yeah.
- [54:22]
Downtown Josh Brown
And that's. That's. That's where I'm at with this thing at this point.
- [54:25]
Sam Broner
All right, so Nvidia is large. Chart on, please, John. It is. We made this chart last week, but the story remains. It's bigger than the entire Staples sector. Those are not small companies. Okay. It's bigger than the entire energy sector and utilities and REITs and materials. Not all of them combined, but each of them individually.
- [54:43]
Downtown Josh Brown
This is crazy. Pause on this, please.
- [54:45]
Sam Broner
Pause.
- [54:46]
Downtown Josh Brown
Not only is it bigger than all of these sectors, if you add up all the utilities, all the REITs and all the materials companies, they're at 75% of the market cap of Nvidia. It's. It's completely insane.
- [55:05]
Sam Broner
Yeah.
- [55:06]
Downtown Josh Brown
And I'm not saying it's not justified by the profits at Nvidia and the expectations of profit. I'm just saying any good thing you could possibly say about how great this company is.
- [55:21]
Sam Broner
We know.
- [55:22]
Downtown Josh Brown
We know. Look, every. Everybody knows that. So is there an. Is there like another level to unlock?
- [55:31]
Sam Broner
What if they. What if they discover a. AI?
- [55:36]
Downtown Josh Brown
Dude, if. If. If people start curing various cancers because of AI being inserted into, like, the clinical trial process and being able to speed up the time to market for a promising drug by 50% or something like, these are all within the realm of possibility. And if it's. If Nvidia is the indispensable company sitting at the center of that. Yeah. I could see the stock tripling.
- [56:05]
Sam Broner
Yeah.
- [56:05]
Downtown Josh Brown
But, like, what is the likelihood that 4 trillion goes to 12.
- [56:08]
Sam Broner
Okay, so you know what is not only in the realm of possibility but in the realm of guarantee ability is that there will be a large to quite large drawdown at some point in the near future. Because that's what always happens with Nvidia. And there's no reason to think at $4 trillion at this time, it's different. So. Chart on, please, John. Josh, what are we looking at here?
- [56:36]
Downtown Josh Brown
This is so important. Great. Tee up. So I asked Sean to. All right, so I buy the stock in the summer of 2015. I go on CNBC. Netflix is struggling at that time. And I make the argument that the end in fang, before we were saying Mag seven, we were saying Fang, the N in fang should maybe be in video. And I'm talking about at that time, machine learning, AI things that nobody. Things that like, didn't they existed, but they weren't a stock market story. They were more a computer science story. And look, I'm not somebody that was like predicting what's gonna happen or someone's gonna launch ChatGPT. I have no idea. The one thing that I know about Nvidia is that all the people in Silicon Valley on the tech podcast that I listen to are talking about it. Wall street has video game analysts covering the stock. Wall street has no. Wall street is not even thinking about parallel processing as a means toward augmented reality, virtual reality, AI, machine learning. Because there's no earnings coming from that yet. It's not commercialized yet. So they're thinking, so Wall Street's looking at this company. The same people who are covering like Take Two Interactive and EA and EA and Activision are the people commenting on Nvidia. And then I'm listening to guys like Andreessen saying we can't get our hands on enough of these GPUs because we have to fight with Xbox to get them. But this is the way that we're going to do. So that's the only insight I'm armed with. I don't know anything else. I'm long the stock, but the more I'm reading the news, because you're an investor, so you keep, you say, oh, people are starting to wake up. And then there was this whole crypto debacle. And so put that drawdown chart back up.
- [58:26]
Sam Broner
That's 22.
- [58:27]
Downtown Josh Brown
Can you, can you, can you fathom? Look at this. 2017. So in 2017 is, is I think the first crypto crash. So that's the, that's the year where Thanksgiving dinner, everyone's talking about Bitcoin. Like the nephew is telling the uncle about Bitcoin. A week later it makes an all time high and then it completely crashes. And they sold off in video because Nvidia is the main chip being used in mining operations for Bitcoin. So like some of these drawdowns were based on like absolutely absolute nonsense. But I guess at that time it was meaningful. The mining companies were heavy buyers of GPUs at a time before ChatGPT. So being a shareholder all this time in Nvidia, even though it's up 10,000% plus there have been some massive L's along the way. And if I were to have this chart handy when somebody says should I sell some in video, I feel like it would be very illustrative. Like how many people could, like how many people could reasonably, if they have a ton of money on the line, live through drawdowns like these, even given all those gains, it gets harder and harder. Dude, it's worse. Dollar amounts go up.
- [59:46]
Sam Broner
That's, that's your great point. But it's worse because they don't have the conviction that you do. You can't export your conviction because they don't know the name as well as you do. So they know that the price goes up and they're much more likely to get scared because they don't know that 25 is gonna, isn't going to go down to 40% and they don't know how they're gonna behave when it goes down, if and when it goes down to 40%. So I, I love this for you. I love that you are giving people who have been with you for a long time and all credit to you for, for riding this buck and bronco because Lord knows I couldn't have done it. So I love that you are giving people their permission to sell because your answer has been not yet. I want to talk about some alternative views, not disputing nothing that you so eloquently said, but this is just some more information that I think is important. So Mark Zuckerberg today said we are, we are also going to invest hundreds of billions of dollars this in transcript into compute to build superintelligence. We have the capital from our business, from our business to do this. Beth Kindig this morning said via the daily chart book, Goldman Sachs sees hyperscaler Capex increasing sharply through 2027. Capex is projected to be 1.15 trillion from 05 through 27. More than double. More than double the 477 billion spent from 22 to 24. So chart off please, for a second. These numbers are so insane. The market is not dumb. It's the opposite. It's very smart. Let's just not say that it's all knowing, but it's, it's close. It's pretty damn good. The returns that we've seen in Nvidia are justified and then some. Who knows where it's going to go from here. But also if you zoom out and you, you take out the last 30 days or less, 60 days off the bottom, whatever it was. Do you know that From July of 2024 through, let's say whether I pulled this up through mid May of 2025, the stock was up 4% Nvidia. So it, it went a whole year with doing nothing but getting sideways chop. You could say consolidating gains, but it went a whole year. So all of these questions that you're getting are A, from people around this neighborhood that follow you. Okay. And B, it's happening because the, the move over off the lows are astounding. But prior to that it had done a whole lot of nothing. So let me give you some less anecdotes from our hometown from people that follow you and some more data that I, that, that, that shocked me and also supports this rally. Okay. This is from Schwab, the largest or second largest pool of investor data in the entire planet. They said that Nvidia, this is from their s. Tax report. Nvidia set new highs in June, but Schwab clients net sold shares of the AI giant by a large margin for the second month in a row. Nvidia, which enjoyed net buying from clients in late May, leading it to its earnings report, was the biggest net sold stock every week of June.
- [62:42]
Downtown Josh Brown
Oh my God, that's every week of June. This is what people are doing.
- [62:46]
Sam Broner
So dude, think about the, think about the rally from June to today. Every single week of June, it was the largest net sold stock. And so the market, the Nvidia is climbing a wall of worry.
- [62:59]
Downtown Josh Brown
It is, you know, proving that buying.
- [63:01]
Sam Broner
It, it's got to be institutional. I don't know because Schwab is. Dude, Schwab's everyone. I mean that that's, it's the biggest pool of investors in the world. And so I have no idea whether or not this quarter is going to disappoint these lofty expectations in the short term. I also don't know if it's outrun the potentials and the fundamentals in the long term. But everything that it's done to date is justified and then some. But nevertheless, you're not going to feel like an idiot taking profits at 4 trillion, even if it goes to 5 or 6.
- [63:28]
Downtown Josh Brown
The whole thing to me here is just to remind people, even if you're right on the fundamentals, you still don't know how the market's going to react. So look, the earnings estimates continue to go higher for this name and then they keep coming out and destroying Those numbers, what happens if, if, if, if the analysts finally catch up and they put out a lofty estimate and Nvidia comes out and does the estimate.
- [63:58]
Sam Broner
Yeah.
- [63:59]
Downtown Josh Brown
And then people like, wait a minute, this company used to beat their expectations by 80% and now they just did a penny better.
- [64:06]
Sam Broner
Mm.
- [64:07]
Downtown Josh Brown
So you could nail the fundamentals, but the sentiment, you could lose 20% after an earnings report, easy. It takes nothing. And so people need to be reminded that's this is the difference between investing in individual stocks versus the market. You're not going to lose 20% in a market wide portfolio overnight. It's the difference between investing in bonds versus stocks. Like the individual volatility of one name. You could have the fundamentals perfectly nailed and still experience a bigger drawdown in a single stock than in almost any other investing endeavor. Maybe outside of crypto. Yeah, like this ain't going to happen to a house that you own.
- [64:48]
Sam Broner
Guess what? At some point, at some point, bitcoin will. I'm sorry, Nvidia will report record quarter, meaning the best individual quarter that has ever been reported in the history of Wall street. And it could fall 15%.
- [65:04]
Downtown Josh Brown
Yeah, it won't be enough. Yeah, it won't be enough. Last thing on this, I was talking to, I was talking to ChatGPT this morning, just, just trying to share my feelings and I have a, I have a partial list, but worth, worth running through of all the competition. Even if you think Nvidia will maintain 85% of the market for graphics chips. Right. Even if you understand how much more advanced Blackwell is than everything that, than everything else on the market. And even if you believe that they will remain at the forefront of innovation and that the massive investments that everyone has already made in Nvidia will keep them in their market position. There is a world in which people find that cheaper chips can be used to supplement their Nvidia spend and help them with efficiency. And I don't mean efficiency like a better chip, I mean like a dollar spend efficiency. And that's no matter how great Jensen Huang is or Nvidia, I almost feel like that's inevitable. So here are a couple of companies that are working on their own chips or already have their own chips out there in the market and understand that they're not slowing down the pace of their innovation. Obviously. AMD the Mi355X launched this month. It's said to rival Nvidia's Blackwell. I doubt that it's the first choice of a lot of buyers, but again, it's a competing chip and it exists and it will ultimately build its own ecosystem. Intel has the Gaudi 3. They've positioned this as an AI training chip or application specific integrated circuit slash, GPU like chip. So it's got a lot of niche uses. They claim that this thing is competitive with the H100 in terms of performance and power. And then you've got Broadcom, they launched, they launched something in July, this, this month called the Tomahawk Ultra. Then you've got Trainium 2 chips coming from Amazon, Google's TPU architecture. And these are all Nvidia customers, mostly Nvidia customers. By the way, when we talk about the Amazons, the Googles, they're coming up with some of their own in house chips. Grok has the LPU or language processing unit. There's a company called Cerebras, they've got a wafer scale engine. Huawei is out there in China. Meta is building chips. The MXC is their training chip. The mxn and the MXG, those are their inference chips. These are all GPUs. It's not Blackwell, but again, at the, at the edges of the architecture there's a place for this stuff. And then of course Marvell, which is the application specific integrated circuit champ, they're out there building stuff for data centers. So, and that's just a sampling. So I think there's a world in which Nvidia remains every bit as dominant as it is. But Wall street starts to ask more questions about the infringement of other competitors and, and what does that do to the multiple? You could still have a company reporting record earnings, but the street starts to value it less. It gets derated by some degree. So these are the risks if you're going to stay long. I've chosen to stay long. I've already sold a bunch along the way. My average cost. It doesn't matter what I do at this point, but I'm telling people, if you are concerned, you should be concerned. You've made a ton of money and it ain't always going to be as easy as it's been. And maybe you should take some off. Yeah, that's my new, it's my new stock. Answer for. And don't walk up to me on the street and ask me because I don't want to. I don't want to do this ten times a day.
- [68:47]
Sam Broner
All right. I love it. Okay, all right, let's talk, let's talk about the bull market. I love this chart. I love Grant Hawk ridges work. Throw this on, please. So he has a Risk on, risk off ratio and inside the. So it's one divided by the other. And in the numerator, the risk on. We're looking at copper, high yield bonds, the Aussie dollar, semiconductors and high beta stocks. These are all things that go up when risk is on and down when risk is off. Okay. In the risk off bucket we have gold, U.S. treasury bonds, the Japanese yen, utilities and staples. And this looks about as clean as you would want this to look in a bull market. It is at the highest level that it's been since early 2024.
- [69:38]
Downtown Josh Brown
What are the arrows, Michael? What are the red arrows?
- [69:40]
Sam Broner
Tops.
- [69:41]
Downtown Josh Brown
So there's just market tops.
- [69:43]
Sam Broner
Yeah.
- [69:44]
Downtown Josh Brown
All right, so this is not an index of stocks. This is, this is a ratio of risk on versus risk off. That's right. And it looks like, it looks like it wants to break out above the congestion dating back to what is, is that early 20, mid 24?
- [70:00]
Sam Broner
Yep.
- [70:01]
Downtown Josh Brown
Okay. Well, it certainly feels like it already has. It's doing it. So I would agree. That's, that's pretty clean. This is a great chart. I like it, love it. With any of the things that are in that basket.
- [70:11]
Sam Broner
No, no.
- [70:13]
Downtown Josh Brown
The Aussie dollar, I would like explained to me.
- [70:15]
Sam Broner
That's interesting that. Yeah, that's probably the one that stuck out that, that. But yeah.
- [70:19]
Downtown Josh Brown
Something to do with mining.
- [70:21]
Sam Broner
Yeah, maybe. All right. Todd Son keeps a chart of levered long ETFs versus inverse and we're looking at the AUM and then he's got a ratio and we're not quite at all time highs, but we're getting there. $128 billion in levered long ETFs. Just wow.
- [70:44]
Downtown Josh Brown
How fast could. I mean this could unwind really fast because the people that are in this, this is not set it and forget.
- [70:50]
Sam Broner
It's fast money.
- [70:52]
Downtown Josh Brown
It's really fast money. I wonder if it's grown big enough where it will start to enact itself on the actual market. Or maybe it's already doing that on the way out.
- [71:03]
Sam Broner
This is like beyond my pay grade. I'm market structure expert, but how could it not be?
- [71:08]
Downtown Josh Brown
So do you think at an individual stock level there's a large portion of the recent gain in stocks like Palantir that's coming directly as a result of all the buying coming from the. The leveraged etf.
- [71:21]
Sam Broner
I wouldn't be surprised. I'm looking at NVDL right now. Oh, interesting. This is not even close.
- [71:28]
Downtown Josh Brown
Not even close to real NVDL is the 2X Nvidia.
- [71:31]
Sam Broner
Yeah. So this peaked in November 2024 at $6.4 billion in assets. Not even close. It's 4.1.
- [71:39]
Downtown Josh Brown
How does it get its leveraged exposure through options? I don't know if it's options or swaps or margin.
- [71:45]
Sam Broner
I don't know, honestly. Okay, but it's not even close. It's not even close. So again, people are. I know not forget the market cap. The price, the sentiment at least from my perch, is not nearly as bullish in Nvidia as it was in the run up in 2024 when there was watch parties.
- [72:05]
Downtown Josh Brown
But the price action is telling you somebody's buying. Well the price action obviously.
- [72:10]
Sam Broner
Well yeah, but also it was the largest net sold stock every week in June at Schwab. So maybe these are people that sold and are like, oh I. Because take me back, take me back. All right. This surprised the dickens out of me. This is from. Sean made this chart for us. He looked at the rolling 64 day semiconductor performance. Why that? Because that's when it bottomed in Liberation Day. And the thing that surprised me is that the rally off the lows, off the Liberation Day lows was more powerful than the rally from the COVID bottom. How about that?
- [72:44]
Downtown Josh Brown
Holy shit. I mean this is pure, this is pure Broadcom Nvidia. I don't know. Like, I know there's other important chip names but like what's driving this bus? It's GPUs. Yeah, it's like obviously there's not, there's nothing, it's nothing to do with cell phones. Like there was a time where the semiconductor index was dominated by what was going on with PC shipments, PC sales. And they used to report that number on CNBC on a monthly basis as breathlessly as anything that they report ever. Like that was such a hugely important number for the whole tech sector and especially for the chip stocks. And if you looked at the composition of the SMH at that time, it was a lot of CPU and DRAM companies and well of course definitely the biggest. Yeah, Intel AMD was still, is still knocking around but then you had companies like sandisk, which was memory and you had. So there were NAND Flash.
- [73:52]
Sam Broner
Remember Cirrus Logic?
- [73:54]
Downtown Josh Brown
Yeah, of course I remember all of it. I'll never forget. LSI Logic was big. So that PC shipment number drove the semi index for the first third of my career. And then like obviously they stopped reporting it because it stopped having an impact on, on the market. It became less important and what took its place was cell phones and then it was qualcomm became the dominant Qualcomm alongside Intel. And it was about handset shipments. And these are the early. This is BlackBerry, early days. IPhone. This was really, really important to the semiconductor sector because it would. The shipment numbers would be why you would get bullish or bearish on the cap. Equipment names in the space, the KLA 10 cores, the applied materials. So you had this whole cascading effect where the handset shipment numbers from AT&T would come out and you would see these chip stocks rise and fall on something like. It sounds ridiculous to us now. Wait, people used to care about how many phones AT and T sold in a month? Yeah. So really back then, in my day, it wasn't AT and T, it was singular. People don't even understand how long I'm doing. This was Bell Atlantic, it was Bell Atlantic, pre Verizon, and it was singular wireless. But like now, so you look at this, the biggest. What is this? The biggest 64 day rolling semiconductor performance. Put that back up. Nothing in here has anything to do with intel or Qualcomm or PC shipments or handset sales. None of it. IPhones. Not, none of that's in here. What's driving the bus here very clearly is GPUs and the CPUs that are related to the cloud build out. And that'll go on for a while and someday it'll be some other category that drives the performance of semiconductors. But man, this is a really remarkable time to be in the game.
- [75:58]
Sam Broner
No doubt. All right, on the flip side of the coin, things that nobody wants again, bull market behavior. Those chart up from Todd. Health care. Holy mackerel, this is wild. So health Care had a 15.9% weight in the S&P 500 in 2022. Towards the tail end of 2022. So it's called beginning of 2023. And it's not down to 9.3%. I mean, for crying out loud, Nvidia is 8% of the market. Nvidia is going to pass. Health care.
- [76:29]
Downtown Josh Brown
If I'm a value investor.
- [76:31]
Sam Broner
You're looking at your chops. Right?
- [76:33]
Downtown Josh Brown
This is the only sector on my screen. If I'm a value investor, I am combing through the rubble.
- [76:40]
Sam Broner
You're combing the desert.
- [76:42]
Downtown Josh Brown
You're looking at, you're looking at the worst performing large caps in the whole market. And low valuations. Justifiably low. There's very little in the way of organic earnings growth. The only companies that have any kind of growth are the ones selling weight loss. Shit, that's Become increasingly crowded. Outside of that, you got basically old line farmers that have to acquire very expensive biotech assets just to rebuild their pipelines. You've got regulatory issues with conspiracy theorists running the, the Health and Human Services department. You've got like, God knows what's going on at the FDA these days. I think it's. Dr. Oz is. I mean, literally, like you could not get worse sentiment. And it's. If you're a value investor, the bet that you have to make. I alluded to this earlier. Something with AI is going to transform the economics of this industry and make these companies significantly more profitable. They spend tons of money on marketing, but the real spend is in drug development, drug discovery, clinical trials. And so if you believe in the AI theme, you have to believe these companies are going to spend tens of billions of dollars in order to become more profitable faster on new drugs, and that that's going to ultimately benefit the share prices.
- [78:10]
Sam Broner
You're not, you're not doing anything, are you?
- [78:12]
Downtown Josh Brown
No, I don't do this stuff. I, I want the best stocks in the market and I'm happy to be late.
- [78:18]
Sam Broner
All right, let's talk about your old ass.
- [78:20]
Downtown Josh Brown
Had my dalliance with Pfizer. Complete waste of, waste of time, misallocated capital. When this sector wakes up, I'll pay attention. All right, Gen X. Michael, do you know the eight. Do you know the years during which Gen X was born?
- [78:37]
Sam Broner
I'm going to say it ended with my sister. She's 1979. And it started, I don't know, 1971, 1972.
- [78:47]
Downtown Josh Brown
Okay, close. The official is the boomers go until 1964. Not so. Yes. The boomers are 45 to 64. And I don't know why, but this is the official. I think it may be the Beatles came to America and that was like the, that was like the end of the baby boom and the start of something new. I don't really.
- [79:13]
Sam Broner
So when's. What's the. What's. What's the generation years?
- [79:16]
Downtown Josh Brown
Starts in 65, ends at 80, so I'm born in 77. I'm.
- [79:22]
Sam Broner
You're pure uncomfortable.
- [79:24]
Downtown Josh Brown
I'm among the last of the. But I actually have always thought my thought of myself as an xennial.
- [79:29]
Sam Broner
Yeah.
- [79:29]
Downtown Josh Brown
Because I have a lot more in common with the millennials. Yeah, yeah. Like the early, the, the early extras who were born in the mid-60s. That's like Barry, Barry's generation. They. They're really into Caddyshack, Steely Dan. Yeah. They think like stripes is the height of Comedy terrible. There's not one laugh out loud in that movie.
- [79:51]
Sam Broner
No.
- [79:52]
Downtown Josh Brown
So that's not. I don't associate. I don't associate myself with that generation that kind of grew up watching, like, Good Times and Sanford and Son. Like that. Even their shows are alien to me. So, like, I just. I don't. I see myself as more of a next annual. Be that as it may, and who cares? So Ruli put out a huge report this week that everyone's writing articles about, and I thought we would just take a look at it because it's about the forgotten generation who are now my age, between the ages of 45 and 60. And Cerule says they stand to receive 1.4 trillion annually over the next decade as their boomer parents get older and pass away. Millennials are still gonna inherit way more over the next 25 years, but Gen X members will receive more money than any other generation in the near term. So, obviously, this is just like, chronology. The number that I thought was interesting is 39 trillion for gen X, and they pegged the millennial inheritance at 45.6 trillion. Do you believe any of these numbers or not? Really? How do they know?
- [81:08]
Sam Broner
I mean, 39, 30, 26, who cares? It's a lot of money.
- [81:12]
Downtown Josh Brown
It's a ton of money Gen X made. Do you know this? As of the end of 2023, Cerule says Gen X made up a quarter of US advisors clients, up from 20% in 2021. In comparison, only 9% of advisors clients in 2023 were millennials or Gen Z. Don't you feel like you and I and everyone in the wealth management industry is constantly hearing about preparing for millennial clients, and nobody's talking about preparing for Gen X clients. I mean, Gen X clients are only 25%. Like, for me, that's the fat pitch that's right in front of us.
- [81:57]
Sam Broner
I think that we are swimming every day in Xers.
- [82:00]
Downtown Josh Brown
No, but, like, there's no media, there are no articles. Like, it's always about how to cater to millennials, which is so weird because you still have 75% to go of Gen Xers that haven't yet hired a.
- [82:16]
Sam Broner
Financial advisor, and they're in their peak earning years right now, and this is it. Yeah.
- [82:21]
Downtown Josh Brown
So, like, they're. They're in their peak years. Career years. From. From many perspectives. Like, why isn't anyone talking about serving Gen X clients? I found that interesting. I want to share a couple of other stats with you. The percentage of people who are viewed as advisor reliant goes up substantially as Gen X has moved from their 40s to 50s. Like, this is the key thing that I'm talking about. Cerule completed a survey last year that said a third of people in their 40s are advisor reliant. So 2/3 of people in their 40s don't have a financial advisor. One third does. By the time people reach their 50s, that 1/3 goes to one half. That's like tens of millions of households. The last thing I wanted to share. Gen X is a battered generation.
- [83:16]
Sam Broner
To some extent, we all are stopping.
- [83:19]
Downtown Josh Brown
Between 07 and 2010, it's estimated that Gen X lost 38% of their collective of their median net worth, or $24,000 per person, more than any other age cohort.
- [83:32]
Sam Broner
How old were you in 07? You were fine.
- [83:35]
Downtown Josh Brown
I was 20. Again, I'm a young. I'm a young Xer, but I could have been 30 and still been an Xer. And those are. Those are the. Those are the people. Anyway, interesting that not a lot of content is being made deliberately geared specifically toward, like, Gen X. Meanwhile, that's the fat pitch over the next five to 10 years. I don't know why people are skipping ahead and talking about, how do I serve Gen Z. You can't. You don't even know how to serve me.
- [84:02]
Sam Broner
Let's talk about. Let's talk about a Gen Xer that I know you closely identify with. I'm talking about Elon Musk. So he had a very busy week. This was. This may be a lull. Our boy Dan Ives tweeted, Tesla board of directions take the following three steps in our view. Number one, new pay package. Getting Musk the 25% voting control clears a path for the XAI merger. Number two, guardrails established for an amount of time Musk spends at Tesla as part of PayPal. Number three, oversight on political endeavors. And Elon replied, shut up, Dan.
- [84:38]
Downtown Josh Brown
All right. So knowing Dan the way that you and I do, I know that was his favorite tweet he's ever seen.
- [84:44]
Sam Broner
He's probably framed that.
- [84:45]
Downtown Josh Brown
It's amazing.
- [84:47]
Sam Broner
Shut up, Dan.
- [84:48]
Downtown Josh Brown
That's even better than Elon Musk. Like, quote, tweeting it and putting a check mark or something Scottish. Shut up, Dan. It's not even like, dan, you're wrong. It's just like, shut up. Stop talking about my shit. You know Dan. I know. I. I mean, I haven't spoken to him, but I know deep down Dan loved it. So it's influence. Dan's an influential guy.
- [85:11]
Sam Broner
I think we're seeing Dan next week. We'll ask him. All right. Space X. $400 billion. This was an insider round. This would mark the largest ever valuation for a privately held company passing only their last round. 400. Bill, that ain't nothing.
- [85:29]
Downtown Josh Brown
If, if you're an Elon hater. The way that you're referring to what's going on is three card Monty. The cups are being moved around. You don't know which cup the ball is under. But basically he saved himself in the invest.
- [85:46]
Sam Broner
Wait, hold on. Just. This is not even. We haven't even gotten to the Monty. Put a pin. I will unpin in one second. So here's the Monty. The Monty. Because everything that we just read is kosher, right? That's. That's above board. The Monty is this. There was chatter earlier in the week, speculation that Tesla is going to invest $2 billion into XAI. Now, I kind of forgot about this. First of all, two billion dollar investment into these hyperscalers is nothing like you might as well piss into the ocean. But I forgot. Dude, you probably did it that Xai and Twitter and X merged. Do you.
- [86:16]
Downtown Josh Brown
I mean, just happened.
- [86:17]
Sam Broner
Okay, so that I forgot about that. So here's, here's the part that's like. Wait, what? So in March, Musk merged XAI and X together in a deal that valed the artificial intelligence company at 80 billion and the social media company at 33 billion. The tech billionaire also said this from CNBC. Also said last week that Tesla vehicles will host Xai's chatbot Grox, which has gone amazingly well. All right, back to you with the three car Monty. What the is going on?
- [86:40]
Downtown Josh Brown
Okay, I predicted this and everyone said no, that's not. I told you Tesla would bail out Twitter. I didn't know that SpaceX would. Would be part of it. And I didn't know that X. That the AI business was gonna be part of the rescue. But like people that were like, oh, Twitter's really gonna sink him. Nope, because we already saw him do this with SolarCity. What happens is.
- [87:09]
Sam Broner
Which was way more egregious, by the way.
- [87:11]
Downtown Josh Brown
Yeah, right. Well, it was a public company and X isn't. So X has like private shareholders, but mostly private creditors. Right. And there are all the big investment banks that were happy to. They would have taken 100 cents on the dollar loss if they had to. Because what they're really at the table for is underwriting fees related to StarLink and then SpaceX. Okay, so that I don't. Nobody cares if Morgan Stanley loses money on their Twitter bonds. Doesn't matter, which I didn't. But what, what the genius of Musk. And if you, if you're short one of his endeavors, you would say the larceny. But I'll, I'll just say the genius of Musk is at any given time some of his businesses are doing really well and some of them aren't. And he's able to fix or mask or address problems in one business utilizing the strength of another. And that's clearly like the case with X itself. A lot of the data that the AI thing was utilizing was coming from the Twitter platform anyway. And again, it's not even a public company. It's not like there's any conflicts of interest. He's the shareholder, he owns it. So he decided this is what's best for both. Smash them together. And I think like that's a win if you're part of the AI part, you're like, hey, great, we now have the former Twitter platform, now X that's now part of this thing that I invested in. They love it. So this is why I think Elon's shareholders love him, is because he comes up with really creative solutions and the cult like following that he has in the markets enables him to do this. And his ability to outrun FTC concerns, regulator, he basically could just do whatever he wants at this point. As long as Trump doesn't step in and intervene, he could do whatever he wants. So that's that. I don't want to do the anti Semitism Grok stuff cuz I think it's, I think it's not, it's not really part of what we do here on the show. We don't like do political stuff. People that think that that's somehow going to negatively impact the valuation of Xai are smoking crack. Nobody, everyone already understands that the AI, the Grok and the Grok product is going to be a little bit more unhinged than whatever Gemini does. Everyone gets this, like if that's too shocking for you and you can't handle it, I don't know what to tell you. Xi will be absolutely fine. So it's not Three Card Monty in the sense that like it's somebody on the street is being scammed. I'm just saying the ball is under one of the cups. You keep moving around the cops, ultimately you get to the point where like SpaceX bails out, you know, this one and this company gets a contract with another related company and he controls both companies and it's just like this Spinning plate routine. And so far most people are benefiting from it. So I don't really know how else to describe it, but that's, that's how I see it.
- [90:19]
Sam Broner
All right, you described it. Well, real quick, let's talk about cash flow. Finally. Oh, I forgot to put this in the dock. Ah. Oh well, cash is finally coming off the sidelines. So the, the thing that I forgot to put in here is we have $7 trillion in money market funds. Money never came out, kept going in. Not just the reinvesting of it and then the compounding, but actual flows into it. Just why not? It's free, it's good money. So. All right. Kevin Gordon tweeted. The AAI cash allocations fell by 3 percentage points in June. That was the largest decline since December 2020. So let's assume that it's probably going into stocks and not long dated bonds. Although I guess, who knows, but it's moving. Interesting.
- [91:01]
Downtown Josh Brown
But this isn't, what you're showing me here with the bars is not cumulative. This is just each, each report.
- [91:05]
Sam Broner
It's monthly change. It's monthly change.
- [91:07]
Downtown Josh Brown
Monthly change.
- [91:07]
Sam Broner
But it's the biggest cash decline since December 2020. It's interesting.
- [91:10]
Downtown Josh Brown
I suppose it's interesting. I suppose it's notable just given how, how, how long it's been, how many months it's been since the last time we saw one, and how big the drawdown is. Yeah, drawdown is the wrong word. The withdrawal, how big it is. But when I stare at this chart, it looks like whatever happened last month bears absolutely no relation to what might happen next month. So you could just have people pulling money out of money markets because they're chasing tech stocks and then next month they decide not to do that and you know, we'll, we'll, we'll find out would be the way I would phrase it. What jumps out, what jumps out to you in this chart other than, other than the big red, the big red withdrawal last month.
- [91:54]
Sam Broner
I'm not going to over index on one thing. This is a very specific set of investors. I don't know where the money is going, but it's just, it's interesting. Like as much as I describe this rally as a nervous rally because there's still a lot of people that are doubting it and there's obviously euphoria in a lot of different places. I thought it was just, just notable, that's all. Interesting.
- [92:13]
Downtown Josh Brown
I've noticed that the rally has gotten narrower other than tech stocks and companies that are in tech and industrials and Maybe a subset of the consumer discretionary names that we actually consider to be tech.
- [92:28]
Sam Broner
Yeah.
- [92:29]
Downtown Josh Brown
Like Amazon. There are less stocks going up right now.
- [92:32]
Sam Broner
So if I had to poke one hole in the rally, it would be that even though the SPY or the, the cap weighted index made a new all time high, the equal weight is rolling mildly. I don't want to be dramatic, but the equal weight did not take out its previous highs. And so if that is a lower high, and again it is very early, but that would. But you're right, you're right to point out that the RSP SPY has made a new cycle low. But that's been happening this entire time. Right. Like so.
- [93:00]
Downtown Josh Brown
Well, the problem is there's only one investing theme right now and it's AI.
- [93:05]
Sam Broner
Yeah.
- [93:06]
Downtown Josh Brown
So like you, I looked at the results from J.P. morgan and, and Citi and Wells Fargo and like they're, they're good, they're great. Like these companies, like by and large had a lot of good things to say. But when you look at the business unit performance, all of this is about booming markets. This is not a bit like, it's not about housing, is not about, it's not like above trend growth for business lending. Like none of that. This is all about booming asset values. And those booming asset values are booming as a consequence of the AI buildout. And it's not just tech stocks. Industrials are playing a really big role in this build out, whatever. We have 11,000 data centers and we need 30,000 in the next five years, whatever the number is. That's a lot of earth moving. That's a lot of metal and material usage, it's a lot of transportation. Then you've got the tailwind of defense and that's also an industrial subsector. But like by and large, everything that's going on that's good right now in the economy is either directly or indirectly benefiting from the AI boom. And there is no other, there's no other story, there's no second story right now. We should admit that to ourselves.
- [94:20]
Sam Broner
Not to, not to belabor the point, but all of the earnings, all the expected earnings growth for you, S and P, it's coming from AI. So it better.
- [94:27]
Downtown Josh Brown
Yeah, no shit. All right. It better, Better edit better. All right, real quick, Netflix is reporting earnings on Thursday after the bell and we talk about the stock a lot on the show. So I just wanted to do a little bit of a preview. Let's throw that chart up while I'm talking. Netflix is in like a 7 or 8% drawdown. Right now and phrase it like that. Well from the, from the record high that it said in June, I'm not saying like it's a cat. I'm long the stock, I'm bullish. The Expectation is a 15.7% year over year jump in revenue. 11.1 billion for the quarter. Earnings per share of $7.09 which would be a 45.3% jump versus the same quarter last year. Obviously. Let's just do the stock price reactions. Put this table up. So I asked Sean to put together what's happened over the last four quarters and what was the stock price reaction more importantly. And as you can see they beat all four of the last four quarters. Revenue growth has been high to low teens percentage but nonetheless still growing even at its increased size. And the two day stock price reaction last four quarters. Last quarter plus 6.9% quarter before that plus 13.2% quarter before that 12.3%. I remember that well that was last October and then this quarter last year which they reported on July 18th plus 0.7%. So shareholders have been rewarded over the last four quarters. Staying long into the print. I can't promise that that'll be the same outcome obviously this time. So. So I think the thing to say is they have utilized those twin tailwinds of the password sharing, turning that into revenue. They've done a really good job with that and the advertising supported tier. Those aren't news stories. So now the story has to be becoming more profitable if you're going to continue to get 40 something percent earnings growth. There's not a new gimmick coming along. You just have to show that you're increasing profitability as revenue grows.
- [96:51]
Sam Broner
And Netflix is up 620% over the last three years. It's up 94% over the last 12 months. I don't own the stock. I wish I did. I sold it too early. It's had an incredible run and I think you're 100% right. I would not at all at all be surprised to see this go back to a thousand bucks on no news. Like it's this, this.
- [97:09]
Downtown Josh Brown
Yeah, this has been on our best stocks in the market list for a while. And what we said, what I said today, it talks about it on TV is just like if you don't own it, I would not buy it ahead of the print.
- [97:20]
Sam Broner
Yeah.
- [97:20]
Downtown Josh Brown
Like be willing, be willing to miss out on a 5% jump.
- [97:23]
Sam Broner
Yeah. If it gets, if it gets annihilated, I'm gonna, I'm gonna get back in.
- [97:27]
Downtown Josh Brown
That'S, that's my point. I like this as a better react to the print than anticipate the print.
- [97:32]
Sam Broner
Totally agree.
- [97:33]
Downtown Josh Brown
Just given like the way it's been acting over the last two weeks and the fact that the stock is up 40% year to date. Like I would. I would. I would. I would let. I would let the print happen and then decide what you want to do. So if you're not in the name.
- [97:48]
Sam Broner
Amen, sister. All right. I'm going to make the case for cme. A stock that we had spoken about a lot over the last couple of years and it just never gave you a chance to buy it. I did buy it. Before we get to see me, actually. Let's just talk about Robinhood real quick. So Robinhood is obviously on an epic, epic run. Chart on, please. John. The price is $101 a share. It is a 90 billion dollar market cap. Holy. They are executing. They deserve it. Let's Compare that to CME Group, please. CME has a $98 billion market cap, which is wild when you consider that it is an incumbent, a storied franchise. And it is about a bad week from being passed by Ramad. Now, I did some fundamentals. Let's show the next chart, please.
- [98:43]
Downtown Josh Brown
Did some fundamentals.
- [98:45]
Sam Broner
We are looking at the revenue of the two companies.
- [98:48]
Downtown Josh Brown
Did you make. Did you make some fundamentals?
- [98:50]
Sam Broner
Yes, I did. I made the fundamentals. Robinhood has $3.26 billion worth of revenue. About half of the CME group. And if you look at free cash flow, it is about one third of the free cash flow. And I'm not saying that the market is wrong or dumb. This is what happens. Robin is obviously growing at a much more rapid clip than CME is. However, if you want exposure. Chart off, please. If you want exposure to the degen economy, the gambleification of the stock market. But you. You missed Robin. And I would not recommend buying Robinhood here. I think you get it through CME Group. It pulled back and it's giving you an opportunity to get along the de genification of this economy.
- [99:27]
Downtown Josh Brown
Okay. I like it. I don't love it. And I'll tell you why. The reason why Robinhood has I think earned this premium to its own fundamentals versus cme. CME is already as dominant as it gets. Robinhood is still a minnow relative to its competitors, which are Fidelity, Merrill lynch, bank of America, Merrill Lynch, JP Morgan, Schwab Vanguard like Robinhood is tiny. And that's what the market is giving them credit for. The Opportunity to grow into that TAM that CME doesn't have.
- [100:06]
Sam Broner
So here's. But here's. Here's the thing. Maybe I failed to mention. You're right. You're totally right. These are apples and oranges. But my point is that CMA benefits from futures and options and trading, and they are a big beneficiary of what Robin Hood is doing. So I'm not comparing the two in that sense. I'm just saying if you want to get exposure to the Robin Hood stock when you feel like you missed it, you could do it more sustainably. Less risk in a name like cme.
- [100:32]
Downtown Josh Brown
Yeah, I agree with that. And CME is obviously more facing, you know, commercial hedgers and facing institutional investors. And Robinhood is, is pure, pretty pure retail. Two sides of the same. Of the same coin. The name I actually like better than both right now is ibkr. Pull up this chart. I know we don't have it for the show. Interactive Brokers is on the best stocks in the market list. This is going.
- [101:00]
Sam Broner
Yeah.
- [101:01]
Downtown Josh Brown
So today it broke out, but it, it had this resistance level at 59. It's been consolidating beneath for a long time. Today it went. They report this week, if you look at the account growth that they put up, their last two earnings reports, they're, they're growing their account base at a 30% clip each quarter. They.
- [101:21]
Sam Broner
What type of investors are they getting? Like professional, quasi professionals.
- [101:25]
Downtown Josh Brown
Glad you asked. 55% of their commissions come from retail, 45% come from institutional. So they have a lot of RIAs on their platform. They have a lot of hedge funds, not the biggest ones, but where the growth is. They are catering to a very high growth segment of the investing public and they're kicking ass. They added 750,000 accounts last year and it looks like this year they're on pace to add even more. And the better the markets act, the more pro cyclical this IBKR story is. And this is a breakout in progress. So this is on my best stocks in the market list. Robin Hood is too. It's just that Robinhood just doubled.
- [102:05]
Sam Broner
Yeah.
- [102:06]
Downtown Josh Brown
And this thing is breaking out for the first time today. But I like, I think you're fishing in the right pond.
- [102:10]
Sam Broner
Okay, thank you. All right, we got, we got a mystery chart.
- [102:14]
Downtown Josh Brown
Yeah, you're not gonna, you are gonna get this one because I, I'm forced to give you a clue that it's just, it makes it too easy. But I don't know how else to clue you.
- [102:22]
Sam Broner
Okay, hold on, hold on. Oh, I Know what the sweet is this? Ethereum?
- [102:26]
Downtown Josh Brown
No.
- [102:27]
Sam Broner
Okay, go ahead.
- [102:29]
Downtown Josh Brown
Well, I'm going to tell you it's crypto, so you're probably going to get.
- [102:32]
Sam Broner
It's Solana.
- [102:34]
Downtown Josh Brown
Look at you, smartest guy I know.
- [102:39]
Sam Broner
I do look at charts, many charts all day.
- [102:41]
Downtown Josh Brown
So I might, I might be losing my mind. The more I. The more information I consume about Solana and the more I think about the tokenization of traditional finance, the more bullish I get. This is basically, this is the layer one, the base layer that was built for the tokenization economy. It has the highest potential throughput. I think it could accommodate 600,000 transactions a second or something like that. It's far and away the best version of what you'd want in a layer one. Obviously there's a lot of layer twos out there that enable tokenization. But like as a pure play on tokenization, we already saw the efficiency of Solana in the NFT mania. And those are obviously nonsensical assets. But imagine real assets and Solana as the blockchain that most is most effective at having there be a huge marketplace of these assets changing hands. Put up my chart, guys. So I'm going to school you a little bit on my flavor of technical analysis. I see three things going on here that are bullish. First things first, pay attention to the yellow lines. This is a clear trend breakout. We are leaving the priority short term downtrend channel and breaking away into something new. Pay attention now to the stars. This is an inverse head and shoulders setting up. You see the left star is the left shoulder, the lower star is the head. We're in the process of forming this right shoulder now and I don't have to tell you what happens next. And then just if you were to pull back a little bit with your eyes and just look at the entirety of the chart. It's cup and handle forming. It's not quite there. 180 would be my trigger, I think. 180, 185, a convincing breakthrough there. That is the completion of the cup and handle formation. Technically I'm showing you technicals because there are no fundamentals. I could tell you that, that as use continues of Solana and grows, obviously there, there is more, there's more fees and more burning, but you know that. So what this is really bad for me is just supply demand. I could envision a scenario where this thing breaks 185 and you see a lot of investment accumulation. The last thing I want to tell you is of the big three, this is the Only one without an etf. There are several ETF filings. Everybody wants to do this. Obviously it makes sense for this to be the next one to happen. It was a good catalyst for Ethereum. It was an amazing catalyst for Bitcoin. If we get approval from the SEC for ETFs surrounding Solana, you're going to see investors come in from traditional finance, just as we've seen in the past. So that's my, that's my catalyst. I don't know when it happens, but I'm accumulating Solana on public.
- [105:53]
Sam Broner
Hey, so I bought more. I bought more Solana last week.
- [105:57]
Downtown Josh Brown
Dca. I have no company. Yeah, I'm not really trading it based on technicals. I'm dca. But getting, getting more and more interested in seeing if we really are going to start tokenizing traditional assets, which is something that I believe in. So we'll see what happens. How was the show for you? Good.
- [106:15]
Sam Broner
I thought it was a great show. I love thoughts. I love that you're giving people permission to part with some of their Nvidia. All credit to you. One of the greatest investments of all time. So you nailed it. Good stuff.
- [106:28]
Downtown Josh Brown
All right, guys, we.
- [106:30]
Sam Broner
That's right. That's why you say. That's where you say thank you.
- [106:32]
Downtown Josh Brown
Thank you, buddy. Guys, we thank you so much for joining us on on the Live. Thank you, everyone. In YouTube land, if you're listening on a podcast, please make sure use that podcast app to give us a like and God forbid, leave a review, tell other people how you feel about what are your thoughts on the Compound and friends? Tomorrow's Animal Spirits all new edition with Michael and Ben. We'll have an Ask the Compound, so if you want to submit questions, you can. And Ben and Duncan will tackle those on Thursday, Wednesday, Thursday, Wednesday. And then at the end of the week, it's an all new Compound and friends. And it's a very, very special edition and we can't wait for you to join us there. So thank you guys. Have a great night.